ARNOLD INDUSTRIES, INC.
ANNUAL REPORT 2000
FINANCIAL SUMMARY
(dollars in thousands except per share data)
2000 1999 change
Revenues $462,365 $428,231 8.0%
Net Income $39,537 $34,654 14.1%
Net Income Per Share
(Basic) $1.61 $1.40 15.0%
Shareholders' Equity $276,158 $248,182 11.3%
Total Assets $356,847 $345,743 3.2%
Return on Average
Shareholders' Equity 15.1% 14.6% 0.5%
Bar Graphs here (described at end of document)
Contents
1 Corporate Profile
2 Letter to Shareholders
6 Graphical Summaries
8 Financial Statements
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
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 and fulfillment and logistic services.
Operating revenues totaled $462.4 million in 2000.
New Penn Motor Express is a next-day regional less-than-truckload (LTL)
motor carrier of general commodities. The Company operates 23 terminal
facilities in the 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 next-day regional carriers. New Penn employs over
2,000 people and operates a fleet of over 800 tractors and 1,600 trailers.
New Penn is recognized for its award-winning service, and typically leads
the LTL industry in operating efficiency. Operating revenues totaled $236.0
million in 2000.
Arnold Transportation Services provides regional and interregional,
multi-stop and dedicated truckload (TL) services in the Northeast,
Southeast, Midwest and Southwest regions of the United States. The company,
formed in 1998 through the merger of several regional truckload subsidiaries
of Arnold Industries, is headquartered in Jacksonville, FL and operates
eleven service centers. The company operates a fleet of over 800 tractors,
4,000 trailers and utilizes the services of over 500 owner-operators. The
average length of haul at Arnold Transportation Services is 351 miles
reflecting its roots in the dedicated regional truckload market. The company
has a significant presence in the beverage, consumer products and retail
industries. Operating revenues totaled $178.6 million in 2000.
Arnold Logistics provides value-added warehousing services including
fulfillment, distribution center management, contract-packaging, reverse
logistics, call center management, direct mail and integrated print
services. Arnold Logistics has over 4.3 million square feet of warehousing
space located in Pennsylvania, Texas, Ohio and North Carolina. Arnold
Logistics traces its roots to 1976 when, at the request of a large customer,
the corporation began providing warehousing and distribution services.
Today, Arnold Logistics employs over 900 people and has established a
reputation for, and a culture of, superior service. Operating revenues
totaled $47.8 million in 2000.
TO OUR SHAREHOLDERS
Thanks to the contributions of thousands of employees and the support of our
valued customers, we are able to report record revenues and earnings for the
year 2000. Revenues totaled $462 million, an increase of 8%. Basic
earnings per share rose 15% to $1.61. New Penn had an outstanding year
producing solid growth in revenue and earnings. Arnold Transportation
substantially improved earnings by making progress on several fronts in what
was a tough year for most truckload operators. Exciting developments at
Arnold Logistics propelled revenue and earnings growth at our fastest
growing operating unit.
Growth and Operating Results
The combined effects of a robust economy early in the year, reductions in
industry capacity that occurred in 1999 and a relatively stable pricing
environment made it a good year to be in the less-than-truckload (LTL)
business. New Penn ended the year with record revenues of $236 million, a
9% increase, and operating income of over $49 million, an increase of 10%.
The operating ratio of 79.1 is once again expected to lead the industry. As
New Penn's quarterly results indicated, the first half of the year was much
stronger than the second half. The well-documented downturn in the economy
and a particularly strong fourth quarter of 1999 made comparisons
increasingly difficult during the second half.
Arnold Transportation successfully dealt with high fuel prices and the
continuing shortage of qualified drivers to increase earnings by 23% in a
year when most carriers in the truckload industry experienced a decline in
earnings. Revenues increased 2% to a record $178.6 million. The modest
growth reflects the continuing shortage of qualified drivers, a reduction in
the availability of owner-operators and a focus on regional business.
The rapid growth continued at Arnold Logistics as annual revenues increased
29% to $47.8 million. Operating income increased 27% to $6.9 million for
the year. During the fourth quarter, revenues increased 33% while operating
income increased 37%. Our acquisition of National Corporate Marketing, Inc.
(NCM) in October had a positive effect on fourth quarter results. Arnold
Logistics has now grown to the point where it has a meaningful impact on our
corporate results and we anticipate the growth to continue.
Service Initiatives and Awards
New Penn introduced an additional level of service that guarantees on-time
delivery, or there is no charge. The service also takes advantage of our
technology investments by featuring an automatic e-mail or fax confirmation
message sent to the customer within moments of shipment delivery. New Penn
improved the quality of its standard service producing a new record for
on-time service of 98%. The focus on providing faster service continued in
2000 as nearly 70% of shipments were delivered before noon.
New Penn was recognized for its outstanding quality of service in 2000 by
major customers including The Home Depot, SmithKline Beecham and The
Wisconsin Paper Group, an association of leading paper industry companies.
Arnold Transportation successfully expanded its presence in the regional
dedicated truckload transportation market in 2000. Several new contracts
were secured while others were renewed. The overall length of haul at
Arnold Transportation declined slightly in 2000 reflecting a focus on higher
margin regional business. The company also grew in the targeted Midwest
region, and while the interregional business declined as a percentage of
total business, the length of the haul on interregional business increased.
Like our other subsidiaries, Arnold Transportation is recognized for
high-quality service, and in 2000 several customers presented the company
with awards including Appleton Paper and Best Buy. Arnold Transportation
became ISO-9000 certified at the Dayton, OH facility in 1999 and
successfully passed a post-certification audit in 2000.
At Arnold Logistics, the acquisition of NCM brought new service
capabilities, particularly in the areas of direct mail printing and
processing. These new services allow the company to offer clients a
comprehensive and integrated package of marketing support services from
direct mail printing and processing to order fulfillment, contract packaging
and inventory management. Companies whose expertise is in marketing can rely
on Arnold Logistics to execute their strategy and provide high-quality order
fulfillment and logistics management. As an asset-based provider, Arnold
Logistics has the infrastructure and experience to meet the needs of
"old-economy" and "new-economy" clients. Its roots in traditional
value-added warehousing services provide a stable foundation for future
growth with those companies who excel in e-commerce.
In addition to an expanded presence in Texas, Arnold Logistics entered the
Midwest market in 2000 with a facility in Columbus, OH providing dedicated
distribution services. The company also expanded its services in the food
distribution market. The Quaker Oats Club Division awarded the "The Gold
Standard" to Arnold Logistics for consistently outstanding customer service
and overall performance in 2000.
Equipment, Facilities and Information Technology
Our capital expenditures, net of dispositions, decreased by $38 million in
2000, permitting the company to eliminate nearly all debt and increase our
cash reserves. Dispositions included several facilities not being used in
operations. We continued to make investments in the equipment, facilities
and information technology required to efficiently meet the needs of our
customers.
At New Penn, tractor and trailer purchases were made to balance capacity
with demand and ensure we operate most efficiently. Overall, the size of
the tractor fleet did not change appreciably and the trailer fleet grew
commensurate with the increase in business levels.
We continue to invest in the necessary terminal capacity at New Penn. A new
facility was recently opened in Buffalo, NY and construction is underway to
expand in Albany, NY and Reading, PA. Expansion of several other existing
locations is actively being pursued.
In the LTL industry, timely shipment information has become nearly as
important to the customer as fast, reliable transit. Thousands of customers
have registered to use the New Penn web site and we continue to invest in
popular new features such as pickup order entry and customer-specific rate
quotes. Investments were also made in document imaging
at New Penn in 2000, which allows web site users and customer service
representatives to retrieve instantly proof of delivery and bill of lading
documents. New Penn continued the implementation of onboard computers and
expects to have them installed everywhere applicable in 2001. New Penn also
expanded its use of Citrix devices in the terminals, which provide the
functionality of a personal computer at a lower cost.
The decrease in capital expenditures was primarily due to reductions at
Arnold Transportation where a favorable tractor trade-in cycle reduced the
need to purchase replacement tractors and we did not need to purchase
additional trailers. The company also sold several pieces of property that
were not being used in operations including facilities in Charlotte, NC and
Henryetta, OK and excess land in Grand Prairie and Houston, TX. The company
closed or relocated facilities in Augusta, GA, East St. Louis, IL, Jasper,
FL and Selkirk, NY to improve efficiencies.
During 2000, Arnold Logistics expanded the amount of warehouse space under
management to a total of 4.3 million square feet, an increase of 26%.
Expansion of the space operated by the company increased significantly while
the amount of warehouse space owned by the company decreased. A
company-owned facility in South Fort Worth that was no longer in use was
sold.
The major information system initiative at Arnold Logistics is a Warehouse
Management System we call "Order Processing at Arnold Logistics", or OPAL.
With this new "modular" system, Arnold Logistics will be able to offer
accurate and real-time information on demand to clients, utilize internal
technologies that increase productivity and minimize the cost of
implementing new system features.
Our dependency on information technology in daily operations and on meeting
the instant information needs of our customers continues to grow. To ensure
our systems capabilities are uninterrupted under virtually any circumstance,
a project is underway to build redundancy into our systems that support all
of our subsidiaries.
People
Having the right people in the right place is the key to our success, as it
is for any people-intensive service business. We need leadership and
management to provide the vision and direction, and we need the frontline
employees with the attitude and skills to deliver top-quality service.
A hallmark of our success at New Penn has been a very lean organization.
Although this positive characteristic contributes to New Penn's
industry-leading margins, it creates challenges in terms of management depth
and succession planning. New Penn made significant progress in addressing
these issues during the past year as several key people were added to or
promoted from within our operations and sales management team. These changes
help prepare the company to meet the challenges ahead.
The primary people issue at Arnold Transportation has been the recruitment
and retention of qualified drivers and owner-operators. The high price of
diesel fuel pushed some owner-operators out of business in 2000. Innovative
programs including a new compensation package, a four-day workweek in
regional operations, retention seminars and improved dispatcher
communications were implemented this year. The company recently reduced the
number of salaried employees by approximately 10% to better reflect the size
of the available driver workforce.
Each year hundreds of professional drivers from all over the country are
nominated in the Truckload Carrier Association's annual Driver of the Year
contest. We are very proud to have two Arnold Transportation drivers,
Mitchell Favors and Eldridge Graham, among the finalists this year.
The growth of Arnold Logistics required that we add depth to the management
team. A new position, vice president of business development, was created to
support the continued growth of the company in the Southwest, Midwest and
Central Pennsylvania regions. A key executive at NCM joined Arnold Logistics
to manage the Southwest region and ensure a smooth integration of operations
following the acquisition. The professional staff was increased to support
future growth of the customer base.
An issue of great importance to all of our companies is employee safety at
our facilities and on the highway. At New Penn, 16 drivers achieved one
million accident-free miles during 2000 bringing the total number of active
employees who have driven over one million accident-free miles to 63. At
Arnold Transportation we had our fifth consecutive year of reduced workers'
compensation claims as total work injuries were down 12% and lost time
injuries were down 21% from the previous year. Five drivers achieved one
million accident-free miles bringing to 24 the total number of active
employees to achieve this milestone.
One of the investments we continue to make in people is through the Arnold
Industries scholarship program. This year we awarded 38 exceptional
students, who are children of our employees, a total of $69,000 in new and
continuing scholarships in support of their college educations.
Strategic Diversification
Diversification in the less-than-truckload, truckload and logistics
industries makes our company unique in the trucking sector. Although New
Penn represented 78% of total operating income in 2000, we expect greater
contributions from the other subsidiaries in the future. As we have seen
recently, the economic cycle still does exist and as Arnold Logistics grows,
the dedicated contract services it provides will lend a degree of stability
to our company in times of economic uncertainty.
Future challenges include maintaining New Penn's industry leading margins,
improving Arnold Transportation's position and efficiency as a regional
dedicated carrier and increasing the geographic scope of operations at
Arnold Logistics. We made progress on a number of fronts in 2000 and we are
a stronger company today than we were a year ago. The ability to take what
is good and make it even better has always been a strength of your company
and it will continue to serve us well in the years ahead.
Sincerely,
E.H. Arnold
Chairman, President and CEO
February 27, 2001
Graphical Summaries
Arnold Industries
Capital expenditures, net of dispositions, declined in 2000
permitting the company to eliminate nearly all debt and
increase its cash reserves.
New Penn
New Penn had solid gains in operating revenue and income in 2000. The
tractor and trailer fleet grew to support higher tonnage levels.
Arnold Transportation
Improved asset utilization contributed to an increase in operating income at
Arnold Transportation in what was a tough year for most truckload carriers.
Arnold Logistics
Expansion in the Southwest and Midwest helped fuel 25% - 30% growth in both
operating revenues and income at Arnold Logistics.
Bar graphs (described at end of document)
Financial Statements
Contents
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
Inside Back Cover
Company Executives
Consolidated Balance Sheets
As of December 31, 2000 and 1999 (dollars in thousands)
Assets 2000 1999
Current assets:
Cash and cash equivalents $ 31,213 $ 16,231
Marketable securities 6,121 2,105
Accounts receivable:
Trade (less allowance for doubtful
accounts of $1,019 and $1,471) 53,978 49,607
Officers and employees 260 204
Notes receivable, current 928 1,358
Deferred income taxes 3,315 4,258
Prepaid expenses and supplies 7,468 7,464
Total current assets 103,283 81,227
Property and equipment, at cost:
Land 19,347 20,443
Buildings 109,666 108,465
Revenue and service equipment 226,219 224,500
Other equipment and fixtures 41,482 45,287
Construction in progress 6,189 3,106
402,903 401,801
Accumulated depreciation 170,987 157,028
Total property and equipment 231,916 244,773
Other assets:
Goodwill, net of accumulated amortization
of $3,222 and $2,876 11,272 8,018
Investments in limited partnerships 8,073 8,595
Notes receivable, long-term 869 1,755
Cash value of life insurance, net 839 928
Other 595 447
Total other assets 21,648 19,743
$356,847 $345,743
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 3,188 $ 24,830
Accounts payable, trade 11,163 10,789
Estimated liability for claims 5,232 4,302
Salaries and wages 4,153 3,809
Accrued vacation 6,830 6,039
Accrued expenses - other 3,705 4,059
Income taxes payable 2,183 1,297
Total current liabilities 36,454 55,125
Other long-term liabilities:
Estimated liability for claims 2,001 2,646
Deferred income taxes 39,072 37,710
Notes payable 1,176 192
Other 1,986 1,888
Total other long-term liabilities 44,235 42,436
Commitments and contingencies (Note 11)
Shareholders' equity:
Common stock, par value $1.00; authorized
100,000,000 shares; 29,942,628 issued
in 2000 and 1999 29,942 29,942
Paid-in capital 2,017 1,585
Retained earnings 284,862 256,161
316,821 287,688
Less treasury stock, at cost - 5,294,652
and 5,277,302 shares in 2000 and 1999,
respectively (40,663) (39,506)
Total shareholders' equity 276,158 248,182
$356,847 $345,743
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Income
for the years ended December 31, 2000, 1999 and 1998
(dollars in thousands, except per share data)
2000 1999 1998
Operating revenues $462,365 $428,231 $403,721
Operating expenses:
Salaries, wages and related expenses 212,403 198,079 190,629
Supplies and expenses 63,237 53,428 52,229
Operating taxes and licenses 11,173 10,683 9,793
Insurance 10,081 11,328 9,101
Communication and utilities 6,453 6,263 5,615
Purchased transportation 58,633 57,856 46,406
Rental of buildings, revenue equipment,
etc., net 2,378 2,032 1,145
Depreciation and amortization 33,705 31,892 30,585
Miscellaneous 882 827 2,021
Total operating expenses 398,945 372,388 347,524
Operating income 63,420 55,843 56,197
Other expense - net, including interest
income of $2,134, $1,250 and $1,674 (342) (1,000) (355)
Income before income taxes 63,078 54,843 55,842
Income taxes 23,541 20,189 20,726
Net income $ 39,537 $ 34,654 $ 35,116
Per share amounts
Basic $ 1.61 $ 1.40 $ 1.37
Diluted $ 1.59 $ 1.39 $ 1.36
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2000, 1999 and 1998
(dollars in thousands, except per share data)
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
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)
Net income - - 39,537 -
Distribution of treasury stock due
to exercise of stock options - 432 - 234
Purchase of treasury stock - - - (1,391)
Cash dividends paid ($.44 per share) - - (10,836) -
Balance - December 31, 2000 $ 29,942 $ 2,017 $284,862 $(40,663)
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Cash Flows
for the years ended December 31, 2000, 1999 and 1998 (dollars in thousands)
2000 1999 1998
Cash flows from operating activities:
Net income $ 39,537 $ 34,654 $ 35,116
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 34,218 32,406 31,099
Gain on disposal of property and equipment (1,977) (1,723) (2,096)
Equity in earnings of limited partnerships (7) (7) (33)
Provision for deferred taxes 2,305 4,408 3,858
Net loss on investments - 1 5
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,223) (9,652) 267
(Increase) decrease in prepaid expenses
and supplies 1,476 (6) (2,996)
Increase in accounts payable, trade 373 437 197
Increase (decrease) in income taxes
payable/refundable 886 2,004 (130)
Increase (decrease) in estimated liability
for claims 1,740 (8,845) (4,393)
Increase (decrease) in accrued expenses 663 590 (128)
Other, net 157 120 114
Net cash provided by operating activities 76,148 54,387 60,880
Cash flows from investing activities:
Proceeds from sale of investment securities 609 4,376 5,604
Purchase of investment securities (4,625) (1,633) (672)
Proceeds from disposition of property and
equipment 10,197 12,148 8,655
Purchase of property and equipment (28,739) (68,412) (54,240)
Capital contributions in limited partnerships (1,118) (1,073) (1,489)
Distributions from limited partnerships 14 18 16
Decrease (increase) in cash value of life
insurance 89 (53) (71)
Repayment on notes receivable from owner-
operators and others 1,508 1,158 185
Acquisition of business, net of cash acquired (3,683) - -
Other, net (147) (167) 29
Net cash used in investing activities (25,895) (53,638) (41,983)
Cash flows from financing activities:
Proceeds from employee stock options exercised 666 1,219 388
Cash dividends paid (10,836) (10,911) (11,315)
Proceeds from short-term debt - 8,934 -
Principal payments on short-term debt (23,710) (13) -
Purchase of treasury stock (1,391) (3,180) (15,042)
Net cash used in financing activities (35,271) (3,951) (25,969)
Increase (decrease) in cash and
cash equivalents 14,982 (3,202) (7,072)
Cash and cash equivalents at beginning of year 16,231 19,433 26,505
Cash and cash equivalents at end of year $ 31,213 $ 16,231 $ 19,433
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,661 $ 1,315 $ 1,173
Income taxes $ 20,424 $ 14,162 $ 17,029
The accompanying notes are an integral part of the consolidated financial
statements.
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
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.
Consolidated Statement of Cash Flows
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. During 2000, the Company
entered into a financing arrangement with a third party for payment of
various insurance premiums. At December 31, 2000, the amount outstanding
under this arrangement was $2,910. This amount has been recorded in prepaid
expenses and supplies and notes payable in the accompanying 2000
consolidated balance sheet and as a noncash transaction in the 2000
consolidated statement of cash flows.
Marketable Securities
At December 31, 2000 and 1999, 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.
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 2000 and 1999, certain revenue equipment was sold to owner-operators for
$936 and $2,164 in interest bearing notes with established repayment terms.
Land was also sold in 1999 in return for a $142 mortgage loan. These amounts
have been treated as a noncash transactions on the 2000 and 1999
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.
Impairments
The Company's policy is to record an impairment loss against the net
unamortized cost of long lived assets 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.
Income Taxes
In accordance with Financial Accounting Standards Board (FASB) 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 February 27, 1998 and December 28, 1998,
respectively. As of December 31, 2000, the Company has purchased a total of
2,368,300 shares of its stock under the Board of Directors authorization
with 105,000, 263,300 and 1,182,400 shares purchased during 2000, 1999 and
1998, at an aggregate cost of $1,391, $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:
2000 1999 1998
Net Income $ 39,537 $ 34,654 $ 35,116
Basic weighted average
shares outstanding 24,614,159 24,801,592 25,668,457
Dilutive effect of stock
options 202,368 200,694 133,352
Diluted weighted
average shares
outstanding 24,816,527 25,002,286 25,801,809
Basic earnings per
share $ 1.61 $ 1.40 $ 1.37
Diluted earnings per
share $ 1.59 $ 1.39 $ 1.36
During 2000, 1999 and 1998, stock options to purchase 175,000 shares,
175,000 shares and 200,000 shares respectively 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.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities on its balance sheet and measure those instruments at fair
value. SFAS No. 137, issued by the FASB in July 1999, establishes a new
effective date for SFAS No. 133. This statement, as amended by SFAS No. 137,
is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000 and is therefore effective for the Company beginning with its
fiscal quarter ending March 31, 2001. In June 2000, FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Hedging
Activities - an amendment of FASB Statement No. 133." SFAS No. 138 addresses
a limited number of issues causing implementation difficulties for SFAS No.
133. SFAS No. 138 is required to be adopted concurrently with SFAS No. 133
and is therefore effective for the Company beginning with its fiscal quarter
ending March 31, 2001. As the Company does not utilize derivative
instruments, these pronouncements will have no effect on the Company's
consolidated financial statements.
In March 2000, the FASB issued interpretation No. 44 or FIN 44 "Accounting
for Certain Transactions Involving Stock Compensation," which is an
interpretation of Accounting Principles Board Opinion No. 25, or APB Opinion
25. This interpretation clarifies the definition of an employee
noncompensatory plan, accounting consequences of various modifications to
previously fixed stock options or awards and the exchange of stock
compensation awards in a business combination. The adoption of FIN 44 did
not have an impact on the Company's consolidated financial statements.
2. Marketable Securities
The cost and market value of investment securities at December 31, 2000 and
1999 follows:
2000 1999
Market Market
Cost Value Cost Value
U.S. treasury securities $ 103 $ 103 $ 103 $ 103
Municipal bonds 5,000 5,000 1,000 1,000
Equity securities 1,000 1,000 1,000 1,000
Accrued interest receivable 18 18 2 2
Total $6,121 $6,121 $2,105 $2,105
The net gain (loss) on marketable securities recorded during the years ended
2000, 1999 and 1998 amounted to $0, $(1) and $(5), respectively.
The debt securities available for sale at December 31, 2000 all mature
within one year of the consolidated balance sheet date.
3. Notes Payable
In October 2000, the Company acquired virtually all assets of National
Corporate Marketing, Inc. (NCM) (Note 12). Under the purchase agreement,
the Company is required to make additional payments to the former owners of
NCM if specific targets are met with a minimum of $1,262, due in annual
installments plus interest at 7.5%, beginning in 2001 through 2005. The
maximum amount of contingent additional payments over the minimum accrued at
December 31, 2000 should not exceed $1,500.
At December 31, 2000, the Company owed $2,910 for amounts outstanding under
its insurance premium financing arrangement with a third party (Note 1). The
amount is due in equal monthly installments through June 2001 including
interest at 7.25%.
The Company had unsecured working capital lines of credit with maximum
borrowings of $65,000 for 2000 and 1999 of which $0 and $23,711 was
outstanding at December 31, 2000 and 1999, respectively. Borrowings under
these agreements bear interest at a floating rate of LIBOR plus 50 basis
points.
In connection with its investments in low income housing limited
partnerships, the Company is required as of December 31, 2000 to make
additional contributions over the next year of $200. The additional
contributions of $200 were discounted to $192 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 2000, the Company leased certain property under noncancelable
operating leases. Rental expense under such operating leases was $1,651 and
$2,629 in 2000 and 1999, respectively.
Future minimum lease payments under operating leases with noncancelable terms
are:
2001 $1,959
2002 $1,933
2003 $1,990
2004 $2,015
2005 $1,131
After 2005 $3,751
5. Stock Option and Stock Purchase Plans
Stock Option Plan
The Company has a 1987 and 1997 stock option plan which provide for the
granting of options to purchase shares of the Company's stock to certain
executives, employees, consultants 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 the 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, 2000 are summarized below:
Stock Option Plans
Weighted
Average
Fair Value
Weighted of Options
Average Granted
Exercise During
Shares Price the Year
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 granted 16,000 $12.35 $4.69
Options exercised (87,650) $ 7.60
Options expired (46,750) $12.57
Balance, outstanding -
December 31, 2000 1,678,100 $13.25
Options exercisable -
December 31, 2000 978,962 $14.25
Options exercisable at December 31, 1999 and 1998 were 1,006,821 and
864,300.
The following table summarizes information concerning outstanding and
exercisable options at December 31, 2000.
Options Options
Outstanding Exercisable
Weighted Weighted
Average Average
Number Exercise Number Exercise
Outstanding Price Exercisable Price
$10.00 6,000 $10.00 - $ -
$11.19-$15.03 1,497,100 $12.65 803,962 $13.31
$18.56 175,000 $18.56 175,000 $18.56
1,678,100 978,962
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.
2000 1999 1998
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
Net
Income $39,537 $38,955 $34,654 $34,130 $35,116 $34,796
Basic
earnings
per share $ 1.61 $ 1.58 $ 1.40 $ 1.38 $ 1.37 $ 1.36
Diluted
earnings
per share $ 1.59 $ 1.57 $ 1.39 $ 1.37 $ 1.35 $ 1.35
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 2000, 1999 and 1998;
dividend yield of 2.93%, 3.00% and 3.00%, respectively; expected volatility
of 32.6%, 34.3% and 29.10%, respectively; risk-free interest rate of 5.93%,
6.23% and 4.55%, 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.
6. Income Taxes
Consolidated income tax expense consists of the following:
2000 1999 1998
Currently payable:
Federal $17,447 $12,860 $13,670
State 3,789 2,921 3,198
21,236 15,781 16,868
Deferred:
Federal 1,983 3,707 3,096
State 322 701 762
2,305 4,408 3,858
Total income tax expense $23,541 $20,189 $20,726
The effective income tax rates of 37.3% in 2000, 36.8% in 1999 and 37.1% in
1998 differ from the federal statutory rates for the following reasons:
2000 1999 1998
Statutory federal income
tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 4.2 4.3 4.6
Tax-free investment income
and other (1.9) (2.5) (2.5)
37.3% 36.8% 37.1%
Deferred tax liabilities (assets) are comprised of the following at
December 31:
2000 1999
Property and equipment, principally
due to differences in depreciation $ 40,076 $ 37,830
Limited partnership investments,
principally due to differences
in tax basis 1,747 1,672
Other 697 704
Gross deferred tax liabilities 42,520 40,206
Estimated liability for claims, prin-
cipally due to differences in
timing of recognition of expense (1,660) (1,555)
Vacation liability, principally due to
differences in timing of recognition
of expense (2,424) (2,145)
Allowance for bad debts, principally
due to differences in timing of
recognition of expense (405) (587)
Deferred compensation, principally
due to differences in timing of
recognition of expense (802) (762)
Other (1,472) (1,705)
Gross deferred tax assets (6,763) (6,754)
$ 35,757 $ 33,452
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:
2000 1999
Change in benefit obligation
Benefit obligation at beginning of year $1,888 $1,768
Service cost 50 62
Interest cost 117 111
Amortization of unrecognized
transition asset (6) (6)
Benefits paid (63) (47)
Benefit obligation at end of year $1,986 $1,888
The supplemental defined benefit pension plan is unfunded. The Company has
recorded a liability for all benefit obligations.
2000 1999
Discount rate 7.00% 6.50%
rate of compensation increase 0.00% 0.00%
2000 1999 1998
Components of net periodic
benefit cost
Service cost $ 50 $ 62 $ 57
Interest cost $117 $111 $104
Amortization of unrecognized
net transition asset $ (6) $ (6) $ (6)
Net periodic benefit cost $161 $167 $155
In addition to the above defined benefit plan, the Company also has a
trusteed profit sharing plan, two 401(k) plans for employees meeting certain
eligibility requirements and participates in several multi-employer pension
plans. The Company contributed $1,627, $1,569 and $1,443 to the profit
sharing plan, $448, $329 and $568 to the 401(k) plans and $12,072, $10,781
and $9,841 to the multi-employer pension plans for 2000, 1999 and 1998,
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 2000,
1999 and 1998.
The following tables present information about reported segments for the
years ending December 31:
Ware-
Less-than- housing/ Segment
truckload Truckload Logistics Total
2000
Operating
revenues $235,997 $178,546 $ 47,822 $462,365
Operating income $ 49,305 $ 7,202 $ 6,928 $ 63,435
Total assets $184,178 $133,116 $ 57,129 $374,423
Depreciation and
amortization $ 11,789 $ 17,393 $ 3,913 $ 33,095
Purchase of pro-
perty and
equipment $ 19,694 $ 5,735 $ 2,809 $ 28,238
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 pro-
perty 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 pro-
perty and
equipment $ 14,590 $ 28,295 $ 11,355 $ 54,240
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, 2000, 1999 and 1998 and
total segment assets to total consolidated assets for the years ended
December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
Total segment operating
revenues $462,365 $428,231 $403,721
Consolidated operating
revenues $462,365 $428,231 $403,721
Total segment operating
income $ 63,435 $ 56,086 $ 55,743
Unallocated corporate
operating income (loss) (15) (242) 454
Interest income 2,134 1,250 1,673
Interest expense (1,646) (1,353) (1,173)
Other (830) (898) (855)
Consolidated net income
before taxes $ 63,078 $ 54,843 $ 55,842
Total segment assets $374,423 $371,057 $333,833
Unallocated corporate assets 14,279 7,206 11,380
Elimination of intercompany
balances (31,855) (32,520) (25,102)
Consolidated assets $356,847 $345,743 $320,111
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, 2000 and 1999, 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 $909, $877 and $778 in
2000, 1999 and 1998, 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
only which was $250 per occurrence. The liability for claim years ending
June 30, 1998, 1997, and 1996 was transferred to an outside insurance
carrier for approximately $11,000 in 1999. 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, 2000 and 1999, the outstanding balance of the letters of credit
was $4,000.
12. Acquisition
In October 2000, the Company acquired virtually all assets of National
Corporate Marketing, Inc. (NCM), consisting primarily of accounts receivable
and property, plant and equipment for cash paid of $3,683. Liabilities
assumed with the acquisition consisted primarily of accrued vacation of
$100. In addition, under the purchase agreement the Company is required to
make additional payments to the former owners (Note 3) which has been
recorded as a noncash transaction in the accompanying 2000 statement of cash
flows. The overall acquisition has been accounted for under the purchase
method and has been included in the logistics segment of the Company in the
accompanying consolidated financial statements.
Report of Independent Accountants
To the Board of Directors and Shareholders
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, 2000 and
1999 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
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 of America, 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 our opinion.
PRICEWATERHOUSECOOPERS LLP
One South Market Square
Harrisburg, Pennsylvania
March 2, 2001
Quarterly Performance
Unaudited, dollars in thousands, except per share data
Operating Operating Net
Revenues Income Income
QUARTER 2000 1999 2000 1999 2000 1999
First $114,833 $100,306 $ 14,520 $ 13,099 $ 8,979 $ 8,193
Second 117,340 105,193 17,746 14,544 10,893 9,011
Third 115,309 109,776 15,825 12,067 9,851 7,621
Fourth 114,883 112,956 15,329 16,133 9,814 9,829
$462,365 $428,231 $ 63,420 $ 55,843 $ 39,537 $ 34,654
Net Income Net Income Dividends
Per Share-Basic Per Share-Diluted Per Share
QUARTER 2000 1999 2000 1999 2000 1999
First $ .36 $ .33 $ .36 $ .33 $ .11 $ .11
Second .45 .36 .45 .36 .11 .11
Third .40 .31 .39 .30 .11 .11
Fourth .40 .40 .39 .40 .11 .11
$1.61 $1.40 $1.59 $1.39 $ .44 $ .44
Price Range Common Stock
HIGH LOW HIGH LOW
QUARTER 2000 1999
First 15 3/4 10 5/8 16 3/4 13
Second 14 1/4 11 1/16 16 15/16 13 3/4
Third 17 12 16 7/16 12 3/8
Fourth 20 7/8 14 1/2 14 7/16 8
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Arnold Industries' 2000 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 order fulfillment and logistic services and
related transportation services under the name of "Arnold Logistics," a
division of ATS.
Prior to 1998, ATS's truckload operation was operated as 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.
Operating Revenues
(dollars in millions) Total LTL
Amount % Increase Amount % Increase
2000 462.4 8 236.0 9
1999 428.2 6 215.6 6
1998 403.7 5 202.9 -
Fulfillment/
Truckload Logisitics
Amount % Increase Amount % Increase
2000 178.6 2 47.8 29
1999 175.6 2 37.0 26
1998 171.4 12 29.4 12
Operating
Income 2000 1999 1998
Amount % Amount % Amount %
New Penn 49.3 78 44.8 80 43.1 77
ATS 7.2 11 5.9 10 7.1 13
Arnold Logistics 6.9 11 5.5 10 5.5 10
Unallocated Income
(Loss) - (.4) .5
TOTAL 63.4 100% 55.8 100% 56.2 100%
The percentage of revenue for the last three years is set forth below:
2000 1999 1998
Amount % Amount % Amount %
New Penn $236.0 51 $215.6 50 $202.9 50
ATS 178.6 39 175.6 41 171.4 43
Arnold Logistics 47.8 10 37.0 9 29.4 7
TOTAL $462.4 100% $428.2 100% $403.7 100%
The revenue at New Penn increased 9% for the year 2000 compared to 1999.
This compares to an increase of 6% for the year 1999 compared to 1998.
Tonnage increased 4% for 2000 to 1,117,026 compared to 1,075,455 for 1999
and 1,050,685 for 1998. ATS revenues increased for 2000 and 1999 by 2% each
year compared to an increase of 12% in 1998. In August 1999, New Penn
instituted a fuel surcharge to offset rising fuel costs. This fuel
surcharge continued through the year 2000. ATS also instituted a fuel
surcharge in 1999 to partially offset higher fuel costs. This fuel surcharge
was in effect through the year 2000.
The Arnold Logistics' revenue increased by 29% for 2000 compared to an
increase of 26% for 1999 and 12% for the year 1998 due to growth with new
and existing customers and the acquisition of National Corporate Marketing
(NCM).
The following tables set forth the percentage of operating expenses to
operating revenue for New Penn, ATS and Arnold Logistics.
NEW PENN ATS
2000 1999 1998 2000 1999 1998
Operating Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating Expenses
Salaries, wages and
related expenses 58.3 58.6 58.2 28.8 31.1 33.3
Supplies and expenses 9.8 8.6 8.7 17.9 16.0 18.9
Operating taxes and
licenses 2.8 2.8 2.8 2.2 2.2 2.0
Insurance 1.3 1.8 1.5 3.7 4.1 3.5
Communication and
utilities .9 1.0 1.1 1.5 1.6 1.5
Purchased
transportation 1.1 1.2 1.2 31.4 31.5 25.7
Rental of buildings,
revenue equipment
Etc., net (0.2) (0.2) (0.4) 0.2 0.3 0.3
Depreciation and
amortization 5.1 5.2 4.9 9.8 10.2 10.8
(Gain) on sale of
equipment (0.4) (0.2) (0.3) (0.5) (0.7) (0.9)
Miscellaneous 0.4 0.4 1.1 1.0 0.4 0.7
Total Operating
Expenses 79.1 79.2 78.8 96.0 96.7 95.8
Operating Income 20.9% 20.8% 21.2% 4.0% 3.3% 4.2%
ARNOLD LOGISTICS
2000 1999 1998
Operating Revenues 100.0% 100.0% 100.0%
Operating Expenses -
Salaries, wages and related
expenses 56.4 54.6 52.3
Other operating expenses 20.3 21.3 17.2
Depreciation and amortization 8.3 7.4 7.5
Miscellaneous .5 1.9 4.3
Total Operating Expenses 85.5 85.2 81.3
Operating Income 14.5% 14.8% 18.7%
New Penn's operating expenses were 79.1% of revenue in 2000 compared to
79.2% for 1999 and 78.8% for 1998. Salaries, wages and related expenses
decreased to 58.3% for 2000 from 58.6% for 1999 and 58.2% for 1998. Supplies
and expenses increased to 9.8% for 2000 compared to 8.6% and 8.7% for 1999
and 1998, respectively. The increase for the year 2000 was due to
substantially increased fuel costs. Insurance costs decreased to 1.3% for
2000 compared to 1.8% for 1999 and 1.5% for 1998. In July 1999, the Company
changed the majority of its deductibles to $25,000 per claim from $1
million. This change together with constant evaluation of safety and an
in-house insurance department has improved insurance costs. Miscellaneous
expenses remained constant at .4% for 2000 and 1999 compared to 1.1% for 1998.
Total operating expenses of ATS decreased slightly to 96.0% for 2000
compared to 96.7% for 1999. This compared to 95.8% for the year 1998.
The salaries, wages and related expenses of ATS decreased to 28.8% in 2000
compared to 31.1% in 1999 and 33.3% in 1998. The reduction in 2000 was due
to better utilization of equipment and the increased use of owner-operators.
Supplies and expenses increased to 17.9% for 2000 compared to 16.0% in 1999
and 18.9% in 1998. Higher fuel prices beginning in the latter part of 1999
and 2000 substantially affected the operating results and offset better
utilization of equipment. The expense for 1999 was lower compared to 1998
due to increased use of owner-operators. Purchased transportation for 2000
of 31.4% compared favorably with 31.5% for 1999. The increase from 1998 of
25.7% was the result of increased use of owner-operators.
Arnold Logistics operating expenses were 85.5% of revenue for 2000 compared
to 85.2% for 1999. Operating expenses in 1998 were 81.3%, which were lower
than 2000 and 1999 due to revenue growth in the areas of order fulfillment
and contract packaging which are more labor intensive. As a result,
salaries, wages and related expenses have been increasing each year to 56.4%
for 2000 compared to 54.6% and 52.3% for 1999 and 1998, respectively. Other
operating expenses decreased in 2000 to 20.3% compared to 21.3% in 1999.
These two years compare to 17.2% in 1998. The increase in 1999 was the
result of an increased use of operating supplies. Depreciation and
amortization increased from 7.4% in 1999 to 8.3% in 2000 due to the new
warehouse in Lancaster, PA and the depreciable assets associated with the
acquisition of NCM. Miscellaneous expenses have declined from 4.3% in 1998
to 1.9% in 1999 and .5% in 2000 due to a reduction in the expenses being
classified as miscellaneous.
Arnold Industries' operating income for 2000 increased $7.6 million or 14%
from 1999 compared to a decrease of $.4 million or .6% in 1999 compared to
1998. New Penn's operating income increased $4.5 million compared to 1999.
The operating income for 1999 increased $1.7 million compared to 1998. In
July 1999, a major competitor of New Penn went out of business which had a
positive effect on New Penn's revenues for 1999 and for the year 2000.
Operating income of ATS for 2000 increased to $7.2 million, or 22% compared
to $5.9 million in 1999. This compares to a decrease of 17% for 1999 from
1998. Changes in the relationship with a key agent, poor equipment
utilization and the continuing shortage of qualified drivers had a negative
impact on operating income in 1999.
Arnold Logistics' operating income for 2000 increased 25% to $6.9 million
compared to $5.5 million for both 1999 and 1998. Startup costs for both
2000 and 1999 with new e-commerce and fulfillment services customers
negatively impacted operating income.
Other net non-operating expenses consist primarily of interest income, other
investment income and interest expense. Interest income increased $.9
million for 2000 over 1999 due to increased cash and investment securities
compared to a decrease of $.4 million for 1999 over 1998 primarily due to a
reduction in cash and investment securities. Interest expense for 2000 was
$1.6 million compared to $1.4 million and $1.2 million for 1999 and 1998,
respectively. The increase for 2000 and 1999 was due to increasing
borrowing rates during the two years.
The effective income tax rates for 2000, 1999 and 1998 were 37.3%, 36.8% and
37.1%, respectively.
Net income for 2000 increased to $39.5 million compared to $34.7 million for
1999, an increase of 14%. This compared to a decrease of 1% for 1999 over
1998. Basic net income per share in 2000 was $1.61 per share compared to
$1.40 per share in 1999, an increase of 15%. This compared to $1.37 per
share or a 2% increase in 1999 over 1998. Diluted net income per share was
$1.59 in 2000 compared to $1.39 in 1999 and $1.36 in 1998.
Capital Expenditures
In 1998, the Company purchased 182,400 shares of its outstanding common
stock, the remaining balance of a million-share buy-back authorized in 1997,
together with an additional 1,000,000 shares for a total cost of $15.0
million. On December 28, 1998, the Company authorized an additional share
buy-back of one million shares. During 1999, the Company acquired 263,300
shares at a total cost of $3.2 million and 105,000 shares in 2000 at a total
cost of $1.4 million.
The total capital expenditures for real estate and equipment (net of
dispositions) amounted to $18.5 million for 2000, compared to $56.3 million
for 1999 and $45.6 million for 1998. The Company is projecting the purchase
of real estate and equipment in 2001 at approximately $32 million.
Liquidity and Capital Resources
Cash, cash equivalents, and marketable securities totaled $37 million at the
end of 2000, compared to $18 million and $24 million at December 31, 1999
and 1998, respectively. The increase was due to the substantial reduction in
capital expenditures for the year 2000. Working capital increased to $67
million at December 31, 2000, compared to $26 million and $35 million at
December 31, 1999 and 1998, respectively. Net cash provided by operating
activities increased to $76 million for the year 2000 compared to $54
million and $61 million for 1999 and 1998 respectively. The substantial
increase in cash during the year enabled the company to completely eliminate
all bank debt as of December 31, 2000.
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 2000 and 1999, the Company believes, with the exception of higher
fuel prices, 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.
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 2000, New Penn announced a general rate increase of 5.9%.
However, most customer rates are subject to negotiated contracts and
agreements.
Beginning in the fourth quarter of 2000, New Penn began to see the effects
of a slowing economy, which has continued into the first quarter of 2001.
The revenues at ATS were down in the fourth quarter of 2000 as a result of
reducing the interregional operation and a slowing economy. ATS is focusing
on increasing its more profitable regional operations and reducing expenses.
Arnold Logistics acquired a company in the Dallas, Texas area in October
2000 as a base to grow substantially in the Southwestern USA market.
The three operating companies continue to invest in information technology
to reduce operating costs and provide better service to their customers.
Market Risk
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.
Eleven Year Summary<FN1>
Dollars in thousands, except per share data
Fiscal Year 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Income
Operating revenues 462,365 428,231 403,721 383,165 356,355 330,136 302,390 272,697 233,620 196,202 188,830
Operating expenses
Depreciation and
amortization 33,705 31,892 30,585 29,133 27,756 25,348 21,120 17,811 14,222 11,500 10,527
Operating taxes and
licenses 11,173 10,683 9,793 9,342 9,381 9,297 8,924 7,908 6,780 5,887 4,836
Other 354,067 329,813 307,146 293,774 278,856 246,854 222,824 200,106 172,304 142,080 137,027
Operating income 63,420 55,843 56,1976 50,916 40,342 48,637 49,522 46,872 40,314 36,735 36,440
Non-operating income
(expense)
Interest income
(expense), net 488 (103) 500 225 (200) (711) 35 355 246 195 (1,123)
Other (830) (897) (855) (252) (690) (25) (429) 1,326 (71) 10 (449)
Income before income
taxes and extraordinary
loss 63,078 54,843 55,842 50,889 39,452 47,901 49,128 48,553 40,489 36,940 34,868
Income taxes 23,541 20,189 20,726 18,679 14,043 17,400 18,384 18,651 14,660 13,512 12,452
Income before
extraordinary loss 39,537 34,654 35,116 32,210 25,409 30,501 30,744 29,902 25,829 23,428 22,416
Extraordinary loss, net
of tax benefit<FN5> - - - - - - 389 - - - -
Net income 39,537 34,654 35,116 32,210 25,409 30,501 30,355 29,902 25,829 23,428 22,416
Per Share Data<FN2>
Income before extraordinary
loss and cumulative effect of
change in accounting
principle - Basic 1.61 1.40 1.37 1.23 .95 1.15 1.16 1.13 .97 .88 .84
- Diluted 1.59 1.39 1.36 1.22 .94 1.13 1.14 1.11 .96 .88 .84
Net income - Basic 1.61 1.40 1.37 1.23 .95 1.15 1.14 1.13 .97 .88 .84
- Diluted 1.59 1.39 1.36 1.22 .94 1.13 1.12 1.11 .96 .88 .84
Cash dividends declared 0.44 .44 .44 .44 .44 .44 .41 .35 .32 .29 .25
Book value 11.20 10.06 9.12 8.38 7.84 7.33 6.63 5.90 5.12 4.46 3.86
Financial Position - Year End
Cash, temporary investments
and marketable
securities<FN3> 37,334 18,336 24,282 36,291 41,621 14,273 41,643 38,285 45,186 57,558 37,184
Working capital<FN4> 66,829 26,102 35,131 45,921 39,909 16,219 24,839 24,093 29,856 55,664 30,877
Property and
equipment-net 231,917 244,773 220,699 205,562 199,614 199,822 169,603 144,148 110,674 88,250 91,393
Total assets 356,847 345,743 320,111 317,040 303,112 276,877 260,279 228,361 197,203 170,668 159,973
Long-term debt 1,176 192 1,310 2,383 3,874 5,049 - - 476 17,603 19,479
Shareholders' equity 276,158 248,182 226,400 217,253 209,147 195,367 176,458 156,867 136,015 118,502 102,362
Other Data
Percentage return on
average shareholders'
equity 15.1 14.6 15.8 15.1 12.6 16.4 18.2 20.4 20.3 21.2 23.6
Net cash provided by
operating activities 76,148 54,387 60,880 54,602 67,000 55,075 60,524 51,299 34,518 35,898 36,639
<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
Board of Directors
E. H. Arnold Heath L. Allen, Esq. Arthur L. Peterson
Chairman, President, Secretary and Director Director
CEO and Director Partner - Keefer, Wood, Scott Professor of
Allen and 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 President - Warden
New Penn Motor Shambach Associates Asphalt Company
Express, 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 1,328
record-holders of the Company's common stock as of March 6, 2001. The number
of beneficial owners is considerably greater.
Annual Meeting of Shareholders
The Arnold Industries 2001 Annual Meeting of Shareholders will be held at
10:00 a.m., May 2, 2001 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.
Inside Back Cover
Company Executives
ARNOLD INDUSTRIES, INC.
Heath L. Allen, Esq., Secretary
E. H. Arnold, Chairman, President & CEO
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.
David J. Bryk, VP, Sales, Western Division
James E. Devlin, VP, Sales
Morris C. Galante, VP, Loss Prevention
Steven D. Gast, VP, Corporate Planning
Steven J. Ginter, VP, Marketing
Timothy D. Hoffman, VP, Properties
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 TRANSPORTATION SERVICES, INC.
Kurt E. Antkiewicz, VP, Sales and 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
Glenn A. Guest, Director, Corporate Human Resources
Robert M. Klein, VP, Sales, Western Division
Michael S. Walters, President and CEO
ARNOLD LOGISTICS
Robert J. Buffington, Director, Transportation
Edmund J. Dudginski, VP, Operations and Packaging
Thomas P. Ebur, Director, General Warehousing
Douglas B. Enck, President
R. Wayne Norton, VP, Southwest Operations
Stanley P. Schrader, VP, Business Development
David A. Sempeles, VP, Finance
Donald L. Sunderland, Jr., VP, Operations
Back Cover
Arnold Industries, Inc.
P.O. Box 210
Lebanon, PA 17042
(717) 273-9058
www.aind.com - (C)2001 Arnold Industries, Inc.
APPENDIX TO ARNOLD INDUSTRIES, INC.
2000 ANNUAL REPORT
DESCRIBING GRAPHIC AND IMAGE MATERIAL
Front cover -
Picture of New Penn tractor and trailer on highway.
Picture of Arnold Transportation Services tractor and trailer on highway.
Picture of warehouse employees standing at an assembly line.
Inside front cover
Bar graph representing Revenue (dollars in millions) for 1991 ($196); 1992
($234); 1993 ($273); 1994 ($302); 1995 ($330); 1996 ($356); 1997 ($383);
1998 ($404); 1999 ($428) and 2000 ($462).
Page 1
New Penn logo.
Corporate profile for New Penn includes a picture
of a New Penn tractor and trailer and a map of
Eastern and Southeastern 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.
Arnold Transportation Services, Inc. logo.
Corporate profile for Arnold Transportation includes a picture of an
ATS tractor and trailer and a map of Eastern and Central United States
with dots to indicate Arnold Transportation's facility locations.
Arnold Logistics logo.
Corporate profile for Arnold Logistics includes a picture of a box with
bar graph reader and a map of Eastern, Southeastern and South Central
United States with dots to indicate Arnold Logistics' facility locations.
Page 2
President's Letter to Stockholders includes a picture of E.H. Arnold,
Company President and a picture of an Arnold Transportation tractor and
trailer on an interstate highway.
Page 3
Picture of New Penn tractor and trailer.
Picture of warehouse workers assembling products for distribution.
Picture of packaged products coming off the assembly line.
Page 4
Picture of on-board computer used in pick-up and delivery trucks by New
Penn.
Picture of employees of Arnold Logistics sitting in front of computer
terminals.
Picture of New Penn driver and supervisor standing in front of a New
Penn tractor and trailer.
Page 5
Picture of Arnold Transportation tractor and trailer crossing a bridge
with skyline of city in the background.
Picture of Arnold Logistics employees standing in front of assembly line.
Picture of New Penn tractor and trailer.
Pages 6 and 7 -
Graphical summaries (dollars in millions, except per share):
Arnold Industries:
Bar graph representing operating revenue in 1996 ($356.3); 1997 ($383.2);
1998 ($403.7); 1999 ($428.2); and 2000 ($462.4).
Bar graph representing net income in 1996 ($25.4); 1997 ($32.2); 1998
($35.1); 1999 ($34.7); and 2000 ($39.5).
Bar graph representing earnings per share-basic in 1996 ($.95); 1997
($1.23); 1998 ($1.37); 1999 ($1.40); and 2000 ($1.61).
Bar graph representing capital expenditures, net of dispositions in 1996
($26.4); 1997 ($34.1); 1998 ($45.6); 1999 ($56.3); and 2000 ($18.5).
Bar graph representing return on average shareholders' equity in 1996
(12.6%); 1997 (15.1%); 1998 (15.8%); 1999 (14.6%); and 2000 (15.1%).
New Penn:
Bar graph representing operating revenue in 1996 ($181.9); 1997 ($203.3);
1998 ($202.9); 1999 ($215.6); and 2000 ($236.0).
Bar graph representing operating income in 1996 ($32.7); 1997 ($44.2) 1998
($43.1); 1999 ($44.8); and 2000 ($49.3).
Bar graph representing the weight of freight (in millions of pounds)
transported by New Penn in 1996 (2,017); 1997 (2,163); 1998 (2,101); 1999
(2,151); and 2000 (2,234).
Bar graph representing the number of tractors and trucks owned by New Penn
in 1996 (660); 1997 (727); 1998 (728); 1999 (795); and 2000 (803).
Bar graph representing the number of trailers owned by New Penn in 1996
(1,365); 1997 (1,447); 1998 (1,469); 1999 (1,525); and 2000 (1,650).
Arnold Transportation:
Bar graph representing operating revenue for 1996 ($151.9); 1997 ($153.7);
1998 ($171.4); 1999 ($175.6); and 2000 ($178.6).
Bar graph representing operating income for years 1996 ($3.6); 1997 ($2.1);
1998 ($7.1); 1999 ($5.9); and 2000 ($7.2).
Bar graph representing the number of owner-operators for 1996 (298); 1997
(371); 1998 (599); 1999 (630); and 2000 (504).
Bar graph representing the number of tractors owned by Arnold Transportation
in 1996 (1,075); 1997 (1,012); 1998 (894); 1999 (874); and 2000 (807).
Bar graph representing the number of trailers owned by Arnold Transportation
in 1996 (4,188); 1997 (4,355); 1998 (4,172); 1999 (4,381); and 2000 (4,247).
Arnold Logistics:
Bar graph representing operating revenue for 1996 ($22.5); 1997 ($26.2);
1998 ($29.4); 1999 ($37.0); and 2000 ($47.8).
Bar graph representing operating income for 1996 ($3.9); 1997 ($4.9); 1998
($5.5); 1999 ($5.5); and 2000 ($6.9).
Bar graph representing number of employees of Arnold Logistics in 1996
(400); 1997 (433); 1998 (536); 1999 (767); and 2000 (905).
Bar graph representing warehouse space (in millions of square feet) in 1996
(2.5); 1997 (2.5); 1998 (2.5); 1999 (3.4); and 2000 (4.3).
Back cover - Logo of Arnold Industries, Inc. and Company address, telephone
number and web site.