FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 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) 273-9058
(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: 24,800,816 shares
outstanding (which excludes 5,141,812 treasury shares) as of
August 10, 2001.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets - June 30, 2001 and
(Unaudited) December 31, 2000
Condensed Consolidated Statements of - June 30, 2001
Income (Three and Six Month and 2000
Periods - Unaudited)
Condensed Consolidated Statements of - June 30, 2001
Cash Flows (Six Month and 2000
Periods - Unaudited)
Notes to Condensed Consolidated Financial Statements
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2001 2000
ASSETS
Current Assets
Cash and Cash Equivalents 37,643,115 31,213,063
Marketable Securities 7,110,166 6,121,077
Accounts Receivable, Net 50,757,789 54,238,224
Notes Receivable, Current 928,439 928,439
Deferred Income Taxes 2,925,615 3,315,097
Prepaid Expenses and Supplies 5,981,560 7,467,198
Total Current Assets 105,346,684 103,283,098
Property and Equipment, at Cost 417,602,970 402,903,394
Less: Accumulated Depreciation 180,322,625 170,986,786
Total Property and Equipment 237,280,345 231,916,608
Other Assets
Goodwill, Net 11,009,069 11,271,750
Investments in Limited Partnerships 7,817,839 8,073,315
Notes Receivable, Long-term 407,613 868,865
Other 1,282,467 1,433,761
Total Other Assets 20,516,988 21,647,691
TOTAL ASSETS 363,144,017 356,847,397
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable 236,620 3,188,431
Accounts Payable 11,980,082 11,163,008
Income Taxes 483,383 2,183,075
Estimated Liability for Claims 3,898,887 5,232,026
Accrued Expenses - Other 16,723,884 14,687,836
Total Current Liabilities 33,322,856 36,454,376
Long-term Liabilities
Estimated Liability for Claims 2,001,000 2,001,000
Deferred Income Taxes 36,498,837 39,072,260
Notes Payable 939,304 1,175,923
Other 2,016,464 1,986,214
Total Long-term Liabilities 41,455,605 44,235,397
Stockholders' Equity
Common Stock 29,942,628 29,942,628
Paid-In Capital 3,553,100 2,016,737
Retained Earnings 295,142,457 284,861,907
Treasury Stock, at Cost (40,272,629) (40,663,648)
Total Stockholders' Equity 288,365,556 276,157,624
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY 363,144,017 356,847,397
THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
2001 2000 2001 2000
Operating Revenues 225,107,987 232,172,606 114,101,121 117,340,214
Operating Expenses 200,562,031 199,906,621 100,898,110 99,593,745
Operating Income 24,545,956 32,265,985 13,203,011 17,746,469
Interest Expense (113,275) (892,364) (58,399) (442,356)
Other Income 431,332 349,909 86,874 252,400
Income Before
Income Taxes 24,864,013 31,723,530 13,231,486 17,556,513
Income Taxes 9,138,737 11,851,861 4,892,990 6,663,301
Net Income 15,725,276 19,871,669 8,338,496 10,893,212
Net Income
per Common Share:
Basic 0.64 0.81 0.34 0.45
Diluted 0.62 0.81 0.33 0.45
Average Common
Shares Outstanding
Basic 24,745,648 24,610,330 24,761,470 24,581,626
Effect of dilutive
securities -
Stock options 451,717 74,442 433,468 52,420
Diluted 25,197,365 24,684,772 25,194,938 24,634,046
Dividends per
Common Share 0.22 0.22 0.11 0.11
THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2001 2000
Operating Activities
Net Income 15,725,276 19,871,669
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 16,524,921 16,993,191
Provision for Deferred Taxes (2,183,941) (391,711)
Other (335,634) (828,705)
Changes in Operating Assets & Liabilities:
(Increase) in Accounts Receivable 3,480,435 (2,147,385)
(Increase)Decrease in Prepaid Expenses
and Supplies 1,485,638 2,215,046
Increase (Decrease) in Accounts Payable 817,074 (29,859)
Increase (Decrease) in Estimated
Liability for Claims (1,333,139) 807,550
Increase in Other Accrued Expenses 336,356 1,964,820
Other 30,250 29,650
Net Cash Provided By
Operating Activities 34,547,236 38,484,266
Proceeds from Sale of Investment Securities 179,995 4,555
Purchase of Investment Securities (1,018,859) (5,473)
Proceeds from Disposition of
Property and Equipment 2,894,072 4,185,448
Purchase of Property and Equipment (24,088,767) (13,613,100)
Capital Contributions to
Limited Partnerships (191,557) (1,153,833)
Other 622,146 465,137
Net Cash Used In Investing Activities (21,602,970) (10,117,266)
Cash Dividends Paid (5,444,723) (5,419,431)
Purchase of Treasury Stock - (1,391,250)
Proceeds from Employee Stock
Options Exercised 1,927,382 154,425
Proceeds from Short-term Debt
Principal Payments on Debt (2,996,873) (66,829)
Net Cash Provided by
(Used In) Financing Activities (6,514,214) (6,723,085)
Increase (Decrease) in Cash and Cash Equivalents 6,430,052 21,643,915
Cash and Cash Equivalents - Beginning of Year 31,213,063 16,231,274
Cash and Cash Equivalents - End of Period 37,643,115 37,875,189
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest 107,807 892,364
Income Taxes 13,022,370 12,125,625
THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE CONDENSED 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 and
any intervening reports.
The results of operations for the three and six-month periods
ending June 30, 2001, and June 30, 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 were
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.
In July 2001, the Financial Accounting Standards Board
issued SFAS No. 141 "Business Combinations" (SFAS 141) and SFAS
No.142 "Goodwill and Other Intangible Assets" (SFAS 142), which
are effective July 1, 2001 and January 1, 2002, respectively.
SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001.
Under SFAS 142, amortization of goodwill, including goodwill
recorded in past business combinations, will discontinue upon
adoption of this standard. In addition, goodwill recorded as a
result of business combinations completed during the six-month
period ending December 31, 2001 will not be amortized. All
goodwill and intangible assets will be tested for impairment in
accordance with the provisions of the Statement. The Company is
currently reviewing the provisions of SFAS 141 and SFAS 142 and
assessing the impact of adoption.
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 segments:
(Dollars in Thousands)
Second Quarter Ended June 30,
2001 2000
Amount % Amount %
LESS-THAN-TRUCKLOAD
Operating Revenues 55,705 100.0 60,601 100.0
Operating Expenses 46,876 84.2 47,345 78.1
Operating Income 8,829 15.8 13,256 21.9
TRUCKLOAD
Operating Revenues 43,894 100.0 45,675 100.0
Operating Expenses 41,729 95.1 42,726 93.5
Operating Income 2,165 4.9 2,949 6.5
FULFILLMENT/LOGISTICS
Operating Revenues 14,502 100.0 11,064 100.0
Operating Expenses 12,289 84.7 9,502 85.9
Operating Income 2,213 15.3 1,562 14.1
Unallocated corporate
operating income (loss) (4) (21)
Consolidated operating income 13,203 17,746
(Dollars in Thousands)
Six-Month Period Ended June 30,
2001 2000
Amount % Amount %
LESS-THAN-TRUCKLOAD
Operating Revenues 110,362 100.0 118,145 100.0
Operating Expenses 92,430 83.8 93,070 78.8
Operating Income 17,932 16.2 25,075 21.2
TRUCKLOAD
Operating Revenues 86,032 100.0 91,073 100.0
Operating Expenses 83,308 96.8 87,314 95.9
Operating Income 2,724 3.2 3,759 4.1
FULFILLMENT/LOGISTICS
Operating Revenues 28,714 100.0 22,955 100.0
Operating Expenses 24,817 86.4 19,499 84.9
Operating Income 3,897 13.6 3,456 15.1
Unallocated corporate
operating income (loss) (7) (24)
Consolidated operating income 24,546 32,266
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 second 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:
Consolidated Operating Revenues for the second quarter of
2001 were $114,101,121, a decrease of $3,239,093 or 3% from
Operating Revenues for 2000's second quarter. For the same
period, Operating Expenses increased $1,304,365 or 1%; Income
Before Income Taxes decreased $4,325,027, a decrease of 25%; and
Net Income decreased $2,554,716 or 23%. Earnings Per Share-Basic
decreased from $.45 to $.34, or a 24% decrease, for the
respective quarters.
Consolidated Operating Revenues for the six months ended
June 30, 2001, were $225,107,987, a decrease of $7,064,619 or 3%
over the comparable period in 2000. For the same period,
Operating Expenses increased $655,410, or less than 1%; Income
Before Taxes decreased $6,859,517, a decrease of 22%; and Net
Income decreased $4,146,393 or 21%. Earnings Per Share-Basic
decreased from $.81 to $.64, a net decrease of 21%, for the
respective six-month periods.
New Penn Motor Express, Inc.:
New Penn Motor Express, Inc. ("New Penn"), the Company's
less-than-truckload carrier, experienced an 8% decline in
revenues over the revenues generated during the second quarter of
2000. Operating Income decreased 33% over the comparable period
of 2000, as the operating ratio deteriorated from 78.1 to 84.2.
A comparison of results for the first six months of 2001
against the first six months of 2000 reflects that New Penn
experienced a 7% decline in Operating Revenues; Expenses declined
by less than 1% over the comparable period of 2000; and Operating
Income declined by 28% over the prior period.
New Penn performed in accordance with management's
expectations during the second quarter of 2001. The company's
decline in revenue was anticipated by management and reflects
slowed U.S. economic activity in general. Manufacturers are
producing fewer goods for shipment and, therefore, tonnage
shipped by New Penn is down 12%. At the same time, costs remain
fixed at levels geared to generate higher revenues and growth.
Although management is making every effort to control costs, it
nevertheless intends to maintain sufficient capacity in people,
equipment, facilities and technology to meet customer needs as
the U.S. economy recovers. A new terminal in Albany, New York,
was opened during the second quarter and several other new or
expanded terminals are in the planning or pre-construction phase.
Management anticipates that revenues and margins will return to
more traditional levels once the U.S. economy resumes a normal
growth pattern.
Total shipments, tonnage and miles logged on all shipments
completed by New Penn during the second quarter of 2001 in
comparison to the second quarter of 2000 are as follows:
Second Quarter Ended June 30,
2001 2000
Total Shipments 487,546 537,615
Total Tonnage 255,324 291,540
Total Miles 12,640,857 13,578,600
Arnold Transportation Services, Inc.:
Arnold Transportation Services, Inc. ("ATS"), the Company's
truckload carrier, experienced a 4% decline in revenues and
Operating Income decreased 27% during the second quarter of 2001
over the second quarter of 2000.
ATS experienced a 6% decline in Operating Revenues during
the first six months of 2001 over the revenues generated during
the first six months of 2000; Expenses declined by 5% over the
comparable period of 2000; and Operating Income declined 28% over
the prior period.
Excluding approximately $500,000 of net gains on sale of
property from the second quarter of 2000, operating income (net
losses on sale of property) at ATS was down by 10% during the
second quarter of 2001. A more stable shipping volume and price
structure tend to be hallmarks of the truckload industry, which
is more likely to be governed by fixed contracts between shippers
and carriers than the LTL industry.
The company continues to manage growth in the direction of
dedicated and regional markets as opposed to less profitable
interregional markets. Current economic conditions have helped
to reduce driver turnover and have made high-quality owner-
operators more readily available. This has helped the company
balance capacity with demand more readily. As a result of these
factors, the company is positioned to take advantage of any
upturn in the U.S. economy that may be experienced in the third
and fourth quarters of 2001.
Total shipments and miles logged on shipments completed by
Arnold Transportation during the second quarter of 2001 in
comparison to the second quarter of 2000 are as follows:
Second Quarter Ended June 30,
2001 2000
Total Shipments 83,803 83,589
Total Miles 38,288,416 34,010,000
Arnold Logistics:
Arnold Logistics ("ARLO"), a division of ATS which conducts
a fulfillment and logistics business, experienced a 31% increase
in revenues during the second quarter of 2001 over the second
quarter of 2000 while Operating Income increased 42%, reflecting
an improvement in the operating ratio to 84.7.
ARLO experienced a 25% increase in Operating Revenues during
the first six months of 2001 over the revenues generated during
the first six months of 2000; Expenses increased by 27% over the
comparable period of 2000; and Operating Income increased 13%
over the prior period.
Revenues and margins improved at Arnold Logistics despite
lower sales volume from several large fulfillment customers,
primarily at the division's Lancaster, Pennsylvania, facility.
The acquisition of new customers offset revenue declines from
such existing customers. Additionally, on the cost side of the
equation, the division demonstrated an improved ability to match
labor supply to production volumes through use of temporary and
part-time workers, thereby minimizing non-productive labor costs.
Management anticipates a continuation of strong sales for the
remainder of this year.
Working Capital; Property and Equipment:
The Company's working capital at the end of the second
quarter of 2001 was $72,023,828, which is an increase of
$2,182,612 or 3% from the end of the first quarter of 2001. For
the first six months of 2001, working capital increased by a
total of $5,195,106, or 8%, from working capital at the end of
2000.
Also during the six months of 2001, net cash used in
investing activities was $21,602,970, which primarily involved
purchase of property and equipment. The Company's investment in
Property and Equipment (Less Accumulated Depreciation) as of the
end of the second quarter of 2001 stood at $237,280,345. This
figure represents an increase from March 31, 2001, of $3,592,260.
Funding for the Company's ongoing capital expansion program is
being accomplished through the use of cash generated from current
operating and investment activities.
Net cash used in financing activities during the first six
months of 2001 was $6,514,214, primarily related to the payment
of $5,444,723 in dividends during the period.
On July 25, 2001, the Company announced its quarterly cash
dividend of $.11 per share, payable September 5, 2001, to
stockholders of record on August 20, 2001.
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; expecta-
tions 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, inflation 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 may be required by law.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
Neither the Company nor any of its subsidiaries, including
Maris, Inc., own derivative financial instruments. Accordingly,
the Company has no exposure to sudden changes in the financial
and commodities markets and the impact that those changes may
have on the value of market risk sensitive derivative securities.
Maris, Inc., however, does own certain market risk sensitive
instruments, including money market funds, time deposits,
tax-free bonds and other like instruments. The Company believes
that the risk inherent in owning these types of investments is no
greater than the market risk of owning any security traded on
various exchanges in the United States and elsewhere.
Item 4. Matters Brought to a Vote of Shareholders.
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.
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: August 14, 2001 By /s/ Heath L. Allen
Heath L. Allen, Secretary
Date: August 14, 2001 By /s/ Ronald E. Walborn
Ronald E. Walborn, Treasurer