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 March 31, 2001.
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: 24,755,366 shares
outstanding (excluding treasury shares) as of May 11, 2001.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets - March 31, 2001
(Unaudited) and
December 31, 2000
Condensed Consolidated Statements of
Income (Three Month Period -
Unaudited) - March 31, 2001 and 2000
Condensed Consolidated Statements of
Cash Flows (Three Month
Period - Unaudited) - March 31, 2001 and 2000
Notes to Condensed Consolidated Financial Statements
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
ASSETS
Current Assets
Cash and Cash Equivalents 37,887,322 31,213,063
Marketable Securities 7,112,188 6,121,077
Accounts Receivable, Net 50,726,842 54,238,224
Notes Receivable, Current 928,439 928,439
Deferred Income Taxes 2,990,368 3,315,097
Prepaid Expenses and Supplies 7,381,243 7,467,198
Total Current Assets 107,026,402 103,283,098
Property and Equipment, at Cost 410,661,205 402,903,394
Less: Accumulated Depreciation 176,973,120 170,986,786
Total Property and Equipment 233,688,085 231,916,608
Other Assets
Goodwill, Net 11,140,410 11,271,750
Investments in Limited Partnerships 7,969,915 8,073,315
Notes Receivable, Long-term 614,003 868,865
Other 1,438,166 1,433,761
Total Other Assets 21,162,494 21,647,691
TOTAL ASSETS 361,876,981 356,847,397
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable 1,499,723 3,188,431
Accounts Payable 10,492,319 11,163,008
Income Taxes 5,433,637 2,183,075
Estimated Liability for Claims 3,901,719 5,232,026
Accrued Expenses - Other 15,857,788 14,687,836
Total Current Liabilities 37,185,186 36,454,376
Long-term Liabilities
Estimated Liability for Claims 2,001,000 2,001,000
Deferred Income Taxes 37,709,066 39,072,260
Notes Payable 816,221 1,175,923
Other 2,015,714 1,986,214
Total Long-term Liabilities 42,542,001 44,235,397
Stockholders' Equity
Common Stock 29,942,628 29,942,628
Paid-In Capital 3,076,068 2,016,737
Retained Earnings 289,527,054 284,861,907
Treasury Stock, at Cost (40,395,956) (40,663,648)
Total Stockholders' Equity 282,149,794 276,157,624
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY 361,876,981 356,847,397
The accompanying notes, herein following, are an integral part of
these consolidated financial statements.
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
2001 2000
Operating Revenues 111,006,866 114,832,392
Operating Expenses 99,663,921 100,312,876
Operating Income 11,342,945 14,519,516
Interest Expense (54,876) (450,008)
Other Income 344,458 97,509
Income Before Income Taxes 11,632,527 14,167,017
Income Taxes 4,245,747 5,188,560
Net Income 7,386,780 8,978,457
Net Income per Common Share:
Basic 0.30 0.36
Diluted 0.29 0.36
Average Common Shares Outstanding
Basic 24,729,650 24,639,034
Effect of dilutive securities -
Stock options 1,073,179 96,463
Diluted 25,802,829 24,735,497
Dividends per Common Share 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)
Three Months Ended
March 31,
2001 2000
Operating Activities
Net Income 7,386,780 8,978,457
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 8,480,632 8,553,553
Provision for Deferred Taxes (1,038,465) (393,057)
Other (149,281) (160,490)
Changes in Operating Assets & Liabilities:
(Increase) Decrease in Accounts
Receivable 3,511,382 (1,806,550)
(Increase) Decrease in Prepaid
Expenses and Supplies 85,955 (27,823)
Decrease in Accounts Payable (670,689) (147,249)
Increase (Decrease) in Estimated
Liability for Claims (1,330,307) 1,243,120
Increase in Other Accrued Expenses 4,420,514 4,805,525
Other 29,500 29,200
Net Cash Provided By
Operating Activities 20,726,021 21,074,686
Investing Activities
Proceeds from Sale of Investment Securities 17,900 1,137
Purchase of Investment Securities (1,008,232) (3,418)
Proceeds from Disposition of
Property and Equipment 722,488 2,363,799
Purchase of Property and Equipment (10,594,955) (7,393,371)
Capital Contributions in
Limited Partnerships (191,557) (1,171,564)
Other 254,057 8,731
Net Cash Used In Investing Activities (10,800,299) (6,194,686)
Financing Activities
Cash Dividends Paid (2,721,633) (2,715,452)
Purchase of Treasury Stock 0 (1,391,250)
Proceeds from Employee Stock Options
Exercised 1,327,023 154,425
Principal Payments on Debt (1,856,853) (66,829)
Net Cash Provided by
(Used In) Financing Activities (3,251,463) (4,019,106)
Increase in Cash and Cash Equivalents 6,674,259 10,860,894
Cash and Cash Equivalents - Beginning of Year 31,213,063 16,231,274
Cash and Cash Equivalents - End of Period 37,887,322 27,092,168
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest 54,876 449,608
Income Taxes 2,033,650 2,013,350
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 1: Basis of Presentation
The financial information included herein is unaudited;
however, such information reflects all adjustments (consisting
solely of normal adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the
interim period. This financial information should be read in
conjunction with the Financial Statements and Notes thereto included
in the Company's latest annual report on Form 10-K.
The results of operations for the three-month periods ending
March 31, 2001 and 2000 are not necessarily indicative of the
results to be expected for the full year.
In June 1998, the Financial Accounting Standards Board (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. These requirements are effective for the
Company with the fiscal quarter ended March 31, 2001. Because the
Company does not currently utilize derivative instruments or hedging
activities, SFAS No. 133, as amended, has no effect on the Company's
consolidated financial statements as presented.
Note 2: Segment Information
Set forth below is a schedule of the Unaudited Operating
Revenues, Expenses and Operating Income of the LTL, TL and
Fulfillment/Logistics companies:
(Dollars in Thousands)
First Quarter Ended March 31,
2001 2000
Amount % Amount %
LESS-THAN-TRUCKLOAD
Operating Revenues 54,657 100.0 57,544 100.0
Operating Expenses 45,554 83.3 45,725 79.5
Operating Income 9,103 16.7 11,819 20.5
TRUCKLOAD
Operating Revenues 42,138 100.0 45,397 100.0
Operating Expenses 41,579 98.7 44,588 98.2
Operating Income 559 1.3 809 1.8
FULFILLMENT/LOGISTICS
Operating Revenues 14,212 100.0 11,891 100.0
Operating Expenses 12,528 88.2 9,997 84.1
Operating Income 1,684 11.8 1,894 15.9
Unallocated corporate
operating income (loss) (3) (2)
Consolidated operating
income 11,343 14,520
Note 3: Commitments and Contingencies
By agreement with its insurance carriers, the Company has
assumed liability for certain worker's compensation, property damage
and public liability claims. As reported in Note No. 11 to the
Consolidated Financial Statements contained in the Company's Annual
Report for the calendar year ended December 31, 2000 (incorporated
by reference into the Company's 10-K filed with the SEC on March 28,
2001), the outstanding balance on letters of credit posted to secure
the Company's contingent liability under such claims was $4,000,000
on December 31, 2000. During the first quarter of 2001, there was
no material adverse change in the Company's contingent liability for
these claims from the information reported in the Company's 2000
Annual Report.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General:
Operating Revenues for the first quarter of 2001 were
$111,006,866, a decrease of $3,825,526 or 3% over Operating Revenues
for 2000's first quarter. For the same periods, Operating Expenses
decreased $648,955 or less than 1%; Income before Income Taxes
decreased $2,534,490, a decrease of 18%, and Net Income decreased
$1,591,677, or 18% to $7,386,780. Earnings Per Share decreased to
$.30 for the first quarter of 2001 from $.36 for the first quarter
of 2000, a 17% decrease.
The Company's revenue figures for the first quarter of 2001 as
compared to the first quarter of 2000 are lower due to several
factors including the slowdown in economic activity nationally,
severe winter weather, and one less work day in the quarter. New
Penn Motor Express, Inc. ("New Penn"), the Company's
less-than-truckload carrier, experienced a 5% decrease in revenue.
Revenue figures for Arnold Transportation Services, Inc. ("Arnold
Transportation"), the Company's truckload carrier, showed a decrease
in revenues of approximately 7%. Arnold Logistics, the Company's
fulfillment and logistics division, experienced a 20% increase in
revenues. Detailed information on operating income earned by each
of the Company's three business segments is set forth under Note 2
to the Consolidated Financial Statements above.
In a significant development from the first quarter of 2000,
the Company's interest expense declined by $395,132, or 88%, due to
lower debt outstanding. Over the same period, other income
increased by $246,949, or 253%, due principally to increased
investment income. The lower interest expense and increased
investment income reflect the Company's strengthening cash position
achieved during the four quarters through the first quarter of 2001.
New Penn Motor Express, Inc.:
New Penn's operating ratio for the first quarter of 2001 was
adversely affected by a decline in operating revenues, reflecting a
decline in shipper activity, in the face of fixed or increasing
costs. Although the operating ratio for the first quarter was a
respectable 83.3, that result compares unfavorably to the superior
operating ratio of 79.5 achieved during the first
quarter of 2000. Management believes that New Penn's operating
ratio will improve as weather conditions have a reduced influence on
operations and as the national economy regains strength.
New Penn continually adjusts its operations to make them more
efficient, adding and replacing equipment and facilities as
necessary to maintain their operational efficiency. As in 2000,
capital expenditures in 2001 will be approximately $20 million, with
$5 million being spent for rolling stock and roughly $15 million for
land and buildings. During the first quarter of 2001, New Penn
reached agreement to acquire an existing terminal and surrounding
real estate located in Hamilton Township, New Jersey (near Trenton).
Over the next year, the terminal will be expanded and renovated in
order to double its current size to a total of eighty (80) doors.
This facility will replace the existing New Penn terminal located
nearby in the Trenton area, which terminal is likely to be sold or
leased once vacated. Additionally, during the first quarter, New
Penn agreed to sell and temporarily lease back its existing terminal
in the Albany, New York area, in anticipation of moving to a new
terminal being completed in Troy, New York. Completion of the
terminal expansion in Reading, Pennsylvania, is anticipated in the
next several weeks. All of the new and renovated facilities are
designed to accommodate additional growth, while at the same time
permitting more efficient operations.
During 2000, New Penn expanded its tractor fleet by fewer than
ten (10) tractors. One hundred twenty-five (125) trailers were
added to the fleet. During 2001, management anticipates adding
sixty-five (65) tractors and fifty (50) trailers in order to keep
the fleet modernized.
New Penn has implemented several strategies to increase market
share in its northeast regional base. For premium pricing,
deliveries before noon are now guaranteed. During 2000, New Penn
introduced a guaranteed day of delivery service, with only one (1)
guaranteed shipment having been late. These enhanced services add
to market share by drawing shippers away from other carriers that do
not offer premium service or from other premium service providers,
such as Federal Express or UPS, who may charge higher prices for
their services.
Improvements are also being implemented within New Penn's sales
department. National account sales representatives will be
domiciled more closely to their areas of responsibility, rather than
at the company's general offices in Lebanon, Pennsylvania. All
account representatives are receiving intensive training in new
sales techniques.
Labor relations at New Penn remain stable. Two years remain on
the current National Master Freight Agreement with the Teamsters
Union. New Penn elected not to participate in the collective
bargaining process during the negotiations three years ago, and will
consider all of its options as the expiration of the current
contract nears.
Total shipments, tonnage and miles logged on all shipments
completed by New Penn during the first quarter of 2001 in comparison
to the first quarter of 2000 are as follows:
First Quarter Ended March 31
2001 2000
Total Shipments 472,406 510,760
Total Tonnage 250,458 277,119
Total Miles 12,064,645 12,764,568
Arnold Transportation Services, Inc.:
Arnold Transportation continues to focus its efforts on
improving regional and dedicated operations, which tend to be more
profitable for the company, and on shrinking interregional linehaul
operations, which tend to be less profitable. Regional and
dedicated operations are more profitable because they involve less
deadhead backhaul than interregional trips, where the company's
tractors travel long distances to deliver goods but have no return
freight to deliver to the base region. Arnold Transportation
anticipates growing the regional and dedicated operations to roughly
60% of the company's total revenues (from the current 40%) and
shrinking the linehaul operations to roughly 40% of total revenues
(from the current 60%).
Management is also focusing on cost-cutting measures to
increase profitability. In the first quarter of 2001, Arnold
Transportation's corporate staff was downsized by 10%, for an annual
savings of approximately $1 million. The severance costs have been
charged against the first quarter's operating revenues.
Additionally, excess real estate in Texas and Oklahoma has been
placed on the market for sale. Arnold Transportation anticipates
selling all remaining excess real estate during the remainder of
2001. At the same time, no new facilities are being constructed and
there are no plans to acquire real estate. For the foreseeable
future, equipment purchases will be made only as necessary to
replace existing equipment in the ordinary course.
Driver relations at Arnold Transportation remain stable. As
the company moves toward more regional and dedicated operations,
drivers have become easier to recruit due to the shorter lengths
of runs. In some instances, drivers can be home each evening rather
than remaining out on the road for one and two weeks at a time.
Additionally, with the slowing national economy and increased fuel
prices, fewer drivers are opting for the ranks of owner/operators,
thereby increasing the pool of prospective employee drivers. Arnold
Transportation is strengthening its driver recruitment and training
programs and anticipates having all utilized tractors seated for
operation during the remainder of the year.
Total shipments and miles logged on shipments completed by
Arnold Transportation during the first quarter of 2001 in comparison
to the first quarter of 2000 are as follows:
First Quarter Ended March 31
2001 2000
Total Shipments 76,186 83,729
Total Miles 31,362,000 34,552,000
Arnold Logistics:
Arnold Logistics continues to expand in revenues, profits and
the ability to absorb future growth. A new Marketing/Sales
Department was created during the first quarter and employs three
(3) full-time persons and the part-time services of Douglas Enck,
the division president. Arnold Logistics' MIS personnel has
increased from four (4) to eight (8) individuals. The Project
Management Department has increased from one (1) individual to three
(3) individuals, and the System Network Staff has increased from one
(1) to three (3) individuals.
Arnold Logistics fulfillment line of business suffered during
2000 from lower than anticipated volume from users. The company
anticipates changing its service mix to more business to business
(B2B) and less business to consumer (B2C) services than in the past.
With the fallout of the dot-com market over the last year, a
recovery period is expected before substantial growth in business to
consumer fulfillment service resumes.
Arnold Logistics continues to implement the strategic policy of
leasing and managing warehouse space rather than owning and managing
such space. Although there are no present plans to sell existing
warehousing owned by the company, future growth is likely to be
accomplished through leased real estate rather than owned real estate.
Arnold Logistics is also implementing new Management
Information Systems (MIS) to improve operational efficiencies.
The OPAL System (Order Processing Arnold Logistics) is a flexible
MIS system that maximizes the efficiency of order fulfillment from
stored inventory and provides up-to-the-minute information on
inventory quantities. The OPAL System is expected to be operational
at Arnold Logistics in the next several months and will provide
customers with technical support equal to the finest in the
warehousing industry.
The company's acquisition of NCM located in Dallas, Texas,
added several new customers to Arnold Logistics' customer base. NCM
also provides services in the printing and mailing businesses, areas
not previously engaged in by Arnold Logistics.
Arnold Logistics' labor force remains steady and is growing.
Although turnover is generally high in the fulfillment and packaging
areas due to employee skill and pay levels, Arnold Logistics' use of
a new labor control system has lowered turnover from 66% to 57% on
an annualized basis.
Working Capital; Property and Equipment:
Arnold Industries' working capital at the end of the first
quarter of 2001 was $69,841,216, which is an increase of $3,012,494
or 4.5% from the end of the 2000 fiscal year. The principal factors
contributing to the increase in working capital were the cash flows
generated from the operating Company's divisions, all three of which
produced positive operating income, and a slowdown in the capital
expansion program at each division.
The Company's investment in Property and Equipment (Less
Accumulated Depreciation) as of the end of the first quarter of 2001
stood at $233,688,085. This figure represents an increase from
December 31, 2000, of $1,771,477. Funding for the Company's ongoing
capital expansion program is being accomplished through the use of
cash generated from operating and investment activities. The
Company's 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.
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 similar securities traded on various exchanges in the
United States and elsewhere.
Item 4. Matters Brought to a Vote of Shareholders.
At the Annual Meeting, held May 2, 2001, stockholders
re-elected Kenneth F. Leedy, Heath L. Allen and John B. Warden III
to serve as members of the Board of Directors, each for a two-year
term. The Company also announced that the Board of Directors
declared the regular quarterly dividend of eleven cents per share,
payable June 5, 2001, to stockholders of record on May 22, 2001.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) NONE APPLICABLE
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: May 15, 2001 By /s/ Heath L. Allen
Heath L. Allen, Secretary
Date: May 15, 2001 By /s/ Ronald E. Walborn
Ronald E. Walborn, Treasurer