FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-10894
ARNOLD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2200465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
625 South Fifth Avenue, Lebanon, Pennsylvania
(Address of principal executive offices)
17042
(Zip Code)
(717) 274-2521
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Common Stock, par value $1.00 per share: 24,647,976 shares outstanding
(which excludes 5,294,652 treasury shares) as of November 10, 2000.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets - September 30, 2000
(Unaudited) and December 31, 1999
Condensed Consolidated Statements of
Income (Three and Nine Month - September 30, 2000 and
Periods - Unaudited) 1999
Condensed Consolidated Statements of
Cash Flows (Nine Month - September 30, 2000 and
Periods - Unaudited) 1999
Notes to Condensed Consolidated Financial Statements
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2000 1999
ASSETS
Current Assets
Cash and Cash Equivalents 40,005,321 16,231,274
Marketable Securities 2,406,241 2,104,634
Accounts Receivable, Net 52,969,343 49,811,512
Notes Receivable, Current 1,357,600 1,357,565
Deferred Income Taxes 1,921,504 4,258,455
Prepaid Expenses and Supplies 10,073,580 7,463,640
Refundable Income Taxes 1,938,269 0
Total Current Assets 110,671,858 81,227,080
Property and Equipment, at Cost 399,833,558 401,801,207
Less: Accumulated Depreciation 166,217,473 157,027,805
Total Property and Equipment 233,616,085 244,773,402
Other Assets
Goodwill, Net 7,803,679 8,017,724
Investments in Limited Partnerships 8,202,747 8,594,525
Notes Receivable, Long-term 902,871 1,754,510
Other 1,291,848 1,375,752
Total Other Assets 18,201,145 19,742,511
TOTAL ASSETS 362,489,088 345,742,993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable 18,433,586 24,829,682
Accounts Payable 11,856,001 10,789,594
Income Taxes 0 1,297,162
Estimated Liability for Claims 4,453,399 4,302,316
Accrued Expenses - Other 16,508,137 13,906,538
Total Current Liabilities 51,251,123 55,125,292
Long-term Liabilities
Estimated Liability for Claims 2,646,000 2,646,000
Deferred Income Taxes 37,866,064 37,710,984
Notes Payable - 191,557
Other 1,950,122 1,887,522
Total Long-term Liabilities 42,462,186 42,436,063
Stockholders' Equity
Common Stock 29,942,628 29,942,628
Paid-In Capital 1,831,985 1,584,422
Retained Earnings 277,759,476 256,160,707
Treasury Stock, at Cost (40,758,310) (39,506,119)
Total Stockholders' Equity 268,775,779 248,181,638
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY 362,489,088 345,742,993
The accompanying notes, herein following, are an integral part of these
consolidated financial statements.
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
Operating Revenues 347,481,799 315,274,859 115,309,193 109,776,176
Operating Expenses 299,390,499 275,563,721 99,483,878 97,708,528
Operating Income 48,091,300 39,711,138 15,825,315 12,067,648
Interest Expense (1,367,644) (958,797) (475,280) (293,251)
Other Income 713,985 498,015 364,076 211,640
Income Before
Income Taxes 47,437,641 39,250,356 15,714,111 11,986,037
Income Taxes 17,714,785 14,424,972 5,862,924 4,364,490
Net Income 29,722,856 24,825,384 9,851,187 7,621,547
Net Income
per Common Share:
Basic 1.21 1.00 0.40 0.31
Diluted 1.20 0.99 0.39 0.30
Average Common
Shares Outstanding
Basic 24,604,035 24,852,767 24,591,581 24,865,309
Effect of dilutive
securities -
Stock options 136,858 249,329 261,696 215,573
Diluted 24,740,893 25,102,096 24,853,277 25,080,882
Dividends per
Common Share 0.33 0.33 0.11 0.11
The accompanying notes, herein following, are an integral part of these
consolidated financial statements.
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2000 1999
Operating Activities
Net Income 29,722,856 24,825,384
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 25,603,676 23,805,777
Provision for Deferred Taxes 2,492,031 4,351,580
Other (1,601,154) (1,312,805)
Changes in Operating Assets & Liabilities:
(Increase) in Accounts Receivable (3,157,831) (7,056,042)
(Increase) Decrease in Prepaid Expenses
and Supplies 2,245,060 (1,372,205)
Increase (Decrease) in Accounts Payable 1,066,407 2,170,089
Increase (Decrease) in Estimated
Liability for Claims 1,030,866 (8,733,413)
Increase in Other Accrued Expenses (633,832) 1,508,665
Other 62,600 72,200
Net Cash Provided by
Operating Activities 56,830,679 38,259,230
Investing Activities
Proceeds from Sale of Investment Securities 506,610 2,135,348
Purchase of Investment Securities (808,217) (1,531,446)
Proceeds from Disposition of
Property and Equipment 9,197,506 8,667,216
Purchase of Property and Equipment (21,447,683) (50,591,702)
Capital Contributions to
Limited Partnerships (1,136,102) (1,175,351)
Other 946,308 1,108,674
Net Cash Used In Investing Activities (12,741,578) (41,387,261)
Financing Activities
Cash Dividends Paid (8,124,092) (8,201,920)
Purchase of Treasury Stock (1,391,250) (314,550)
Proceeds from Employee Stock
Options Exercised 386,622 948,566
Proceeds from Short-term Debt - 5,000,000
Principal Payments on Short-term Debt (11,186,334) -
Other - 2,336
Net Cash Provided by (Used In)
Financing Activities (20,315,054) (2,565,568)
Increase(Decrease)in Cash and Cash Equivalents 23,774,047 (5,693,599)
Cash and Cash Equivalents - Beginning of Year 16,231,274 19,432,802
Cash and Cash Equivalents - End of Period 40,005,321 13,739,203
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest 1,414,944 936,297
Income Taxes 18,512,149 11,426,819
The Company had non-cash investing and financing transactions in the nine
months ended September 30, 2000 and 1999 relating to the following:
Purchase of equipment on account - 2,139,627
Purchase of treasury stock on account - 2,500,000
Financing of insurance premiums on
Installment note 5,734,783 -
The accompanying notes, herein following, are an integral part of these
consolidated financial statements.
ARNOLD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note I: Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal adjustments)
which are, in the opinion of management, necessary for a fair statement of
results for the interim period. This financial information should be read in
conjunction with the Financial Statements, Notes and information included in
the Company's latest annual report on Form 10-K and any intervening reports.
The results of operations for the three and nine-month periods ending
September 30, 2000 and 1999 are not necessarily indicative of the results to
be expected for the full year.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating Revenues on a consolidated basis for the third quarter of 2000
were $115,309,193, an increase of $5,533,017 or 5% over Operating Revenues for
1999's third quarter. For the same period, Operating Expenses increased
$1,775,350, or 2%; Income before Income Taxes increased $3,728,074, an
increase of 31%; and Net Income increased $2,229,640, or 29%. Earnings Per
Share-Basic for the third quarter of 2000 increased as compared to the third
quarter of 1999 from $.31 per share to $.40 per share, an increase of 29%.
Operating Income on a consolidated basis increased during the third quarter of
2000 relative to the comparable period of 1999. Consolidated Operating Income
increased by $3,757,667 from $12,067,648 to $15,825,315, an increase of 31%.
The Company's combined Operating Revenues for the nine months ended
September 30, 2000, were $347,481,799, an increase of $32,206,940, or 10% over
the comparable nine-month period in 1999. For the same period, Operating
Expenses increased $23,826,778, or 9%. Operating Income increased during the
nine-month period, from $39,711,138 in 1999 to $48,091,300 in 2000, or a 21%
increase. Income Before Income Taxes increased by $8,187,285, an increase of
21%; and Net Income also increased by $4,897,472, an increase of 20%.
Earnings Per Share-Basic increased by $.21 a share from $1.00 for the first
nine months of 1999 to $1.21 for the first nine months of 2000. The Company
was able to increase revenues during the nine-month period, despite the
competitive pressures to which all motor carriers are subject.
Set forth below is a schedule of the Unaudited Operating Revenues,
Expenses and Operating Income of the LTL, TL and Fulfillment/Logistics
segments for the third quarters of 2000 and 1999 and for the nine (9) month
periods ended September 30, 2000, and September 30, 1999:
(Dollars in Thousands)
Third Quarter Ended September 30,
2000 1999
Amount % Amount %
LESS-THAN-TRUCKLOAD
Operating Revenues 60,318 100.0 55,984 100.0
Operating Expenses 47,918 79.4 45,470 81.4
Operating Income 12,400 20.6 10,414 18.6
TRUCKLOAD
Operating Revenues 44,204 100.0 44,161 100.0
Operating Expenses 42,279 95.6 43,413 98.3
Operating Income 1,925 4.4 748 1.7
FULFILLMENT/LOGISTICS
Operating Revenues 10,788 100.0 9,631 100.0
Operating Expenses 9,286 86.1 8,681 90.1
Operating Income 1,502 13.9 950 9.9
Unallocated corporate
operating income (loss) (2) (44)
Consolidated operating income 15,825 12,068
(Dollars in Thousands)
Nine-Month Period Ended September 30,
2000 1999
Amount % Amount %
LESS-THAN-TRUCKLOAD
Operating Revenues 178,462 100.0 158,704 100.0
Operating Expenses 140,987 79.0 126,392 79.6
Operating Income 37,475 21.0 32,312 20.4
TRUCKLOAD
Operating Revenues 135,276 100.0 130,111 100.0
Operating Expenses 129,593 95.8 126,414 97.2
Operating Income 5,683 4.2 3,697 2.8
FULFILLMENT/LOGISTICS
Operating Revenues 33,743 100.0 26,459 100.0
Operating Expenses 28,785 85.3 22,432 84.8
Operating Income 4,958 14.7 4,027 15.2
Unallocated corporate
operating income (loss) (25) (325)
Consolidated operating income 48,091 39,711
New Penn Motor Express, Inc. ("New Penn"), the Company's
less-than-truckload carrier, enjoyed a strong third quarter of 2000, with
business levels growing throughout the period. New Penn's Operating Revenues
rose by 8% compared to the third quarter of 1999, and its Operating Income
increased 19%, as the operating ratio was reduced from 81.4 to 79.4. During
the third quarter, New Penn was recognized for superior service quality by The
Home Depot as well as in an independent survey conducted by Logistics
Management and Distribution Report magazine. The company introduced a new
premium level of service that guarantees on-time delivery. In September, New
Penn implemented a general rate increase that impacted the portion of business
not subject to contractual and other pricing agreements. New terminal
facilities are under construction near Albany and Buffalo, New York, and
Reading, Pennsylvania, to ensure capacity for growth in those areas.
During the first nine months of 2000, New Penn's operating revenues
increased by 12.4% in comparison to the same period in 1999. Over the same
period, operating expenses increased by only 11.5%, demonstrating the
company's ability to absorb additional business into existing capacity without
substantial increases in overhead. New Penn retains tight control over each
dollar of operating expense, and believes that improvements in the operating
ratio can be achieved as newer, more efficient terminals are placed into
service.
Revenue growth resulting from the closure of Preston Trucking in July of
1999 was fully reflected in the results for the Fourth Quarter of 1999 and
thereafter. Accordingly, New Penn's future growth pattern will be dependent
upon such other factors as the strength of the U.S. economy, competition from
union and non-union carriers, and new service offerings intended to add value
and attract new customer interest. New service offerings include the
guaranteed on-time delivery service intended to gain market share from other
premium delivery carriers, as well as improved online tracking of shipments.
Movement into new market areas and strategic acquisitions are also under
consideration by management as strategies for continued growth. Nevertheless,
due to a general slowing of the U.S. economy and the end of Preston-related
increases, the rate of revenue growth experienced in each of the first three
quarters of 2000 is not expected to continue through the Fourth Quarter.
Revenues at Arnold Transportation Services, Inc. ("ATS"), the Company's
truckload carrier, were flat compared to those of the third-quarter of 1999,
while operating income surged 157%. Despite rising fuel prices, the operating
ratio at ATS improved from 98.3 in the prior year period to 95.6. Although
demand remained strong throughout the quarter, revenue growth was hindered by
the shortage of qualified drivers and owner-operators.
ATS has shown steady improvement throughout the first nine months of
2000. Over comparable periods in 1999, operating income decreased 37% in the
First Quarter of 2000, increased 77% in the Second Quarter and increased 157%
in the Third Quarter. Revenues have remained relatively stable throughout the
nine-month period.
ATS is continuing to manage the mix of regional and interregional
business to improve profitability. The company is focusing on improving asset
utilization and using available drivers to handle more profitable business.
Management believes that margins will further improve by allocating more
assets to regional business and reducing interregional business. Drivers are
more content with work schedules that return them home several times during
the week and on weekends, and the company is able to man more fully its
regional and dedicated operations even in the current tight labor market.
Conversely, interregional operations suffer from a shortage of drivers due to
the long-haul nature of the business. Equipment is underutilized as a result,
increasing the cost of operations. Additionally, the company's mid-west
business remains limited, thus hindering the ability to obtain profitable
back-haul from that area on interregional trips. Future revenue growth,
therefore, will tend to be concentrated in the southeast, southwest and
northeast regions of the United States and will tend to result from increased
sales efforts and strategic acquisitions in those areas.
ATS consummated three (3) real estate sales transactions during the Third
Quarter of 2000, adding $555,524 in operating income. No significant real
estate sales transactions are anticipated during the Fourth Quarter of 2000.
Arnold Logistics ("ARLO"), a division of ATS that conducts a fulfillment
and logistics business, increased revenues 12% beyond the strong revenue gains
of the prior year. Operating income increased 58% compared to the third
quarter 1999. Margins improved, as the prior year included substantial
start-up costs for new fulfillment projects. The acquisition of National
Corporate Marketing ("NCM") of Irving, TX, announced September 20, 2000, and
completed on October 2, 2000, will impact Fourth Quarter comparisons. NCM
provides fulfillment, distribution, direct mail and printing services. It
operates 270,000 square feet of quality distribution space and employs over
125 people. NCM projects operating revenues of more than $9 million in 2000.
During the first nine months of 2000, a major ARLO customer at the
Lancaster warehouse stabilized its level of need for warehousing services and
its ability to compensate ARLO for services rendered. This aided ARLO's
utilization of the Lancaster facility by freeing up some warehouse space for
other valued customers, by allowing ARLO to renegotiate a higher rate for the
smaller space retained by the major customer, and by adding predictability to
the cash flow generated from that facility. Operating revenues and expenses
firmed over the nine-month period, due at least in part to stabilization of
the relationship with the Lancaster customer.
ARLO's management continues to focus on consolidating new fulfillment
business generated over the last year and on integrating NCM into the
division's operations. Additional strategic acquisitions are under
consideration by ARLO management.
Arnold Industries' working capital at the end of the Third Quarter of
2000 was $59,420,735. This represents an increase of $13,914,614 or 30.5%
from the working capital at the end of the previous quarter in 2000. The
increase in working capital reflects the Company's increasing revenue and
income levels while at the same time winding down and/or completing capital
expansion and acquisition projects initiated in prior years, particularly at
ATS and ARLO. ATS significantly updated its fleet in recent years and has
sufficient capacity with its current fleet to meet anticipated demand. ARLO
completed its Lancaster, PA, warehouse project in the second and third
quarters of 1999, and currently is not building additional warehouse space.
The Company's investment in Property and Equipment (Less Accumulated
Depreciation) as of the end of the third quarter of 2000 stood at
$233,616,085. This figure represents a decrease from June 30, 2000, of
$4,818,330, or 2%, reflecting depreciation and asset sales. Funding for
future acquisitions of Property and Equipment will likely be accomplished
through the use of cash generated from current operating and investment
activities, supplemented, when necessary, by short or long-term financing.
Management continues to seek opportunities for profitable expansion of the
Company.
On October 25, 2000, the Company announced its quarterly cash dividend of
$.11 per share, payable December 1, 2000, to stockholders of record on
November 17, 2000.
Cautionary Remarks as to Forward-Looking Statements:
The nature of the Company's operations subject it to changing economic,
competitive, regulatory and technological conditions, risks and
uncertainties. In accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company cautions that there are
important factors which, among others, could cause future results to differ
materially from the forward-looking statements about our management confidence
and strategies for performance; expectations for new and existing technologies
and opportunities; and expectations for market segment and industry growth.
These factors include, but are not limited to: (1) changes in the business
environment in which the Company operates, including licensing restrictions,
interest rates and capital costs; (2) changes in governmental law and
regulations, including taxes; (3) market and competitive changes, including
market demand and acceptance for new services and technologies; and (4) other
risk factors specifically identified from time to time in Company releases and
disclosure documents, including SEC reports and the annual proxy solicitation
and report to stockholders. The Company will update forward-looking
statements as required by law.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
Neither the Company nor any of its subsidiaries, including Maris, Inc.,
own derivative financial instruments. Accordingly, the Company has no
exposure to sudden changes in the financial and commodities markets and the
impact that those changes may have on the value of market risk sensitive
derivative securities. Maris, Inc., however, does own certain market risk
sensitive instruments, including money market funds, time deposits, tax-free
bonds and other like instruments. The Company believes that the risk inherent
in owning these types of investments is no greater than the market risk of
owning any security traded on various exchanges in the United States and
elsewhere.
Item 4.Matters Brought to a Vote of Shareholders.
No matters were brought to a vote of the shareholders during the third
quarter of 2000.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(b) None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARNOLD INDUSTRIES, INC.
(Registrant)
Date: November 14, 2000 By /s/ Heath L. Allen
Heath L. Allen, Secretary
Date: November 14, 2000 /s/ Ronald E. Walborn
Ronald E. Walborn, Treasurer