This filing is made solely to amend footnote 4 to the consolidated financial
statements to include additional operating lease disclosures, which were
inadvertently omitted. This matter has no effect on the Company's balance
sheets, income statements, statements of cash flows or any other disclosures.
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 43 197
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 non-cancelable
operating leases. Rental expense under such operating leases was $3,100 and
$2,629 in 2000 and 1999, respectively. Future minimum lease payments under
operating leases with non-cancelable terms are:
2001 $4,060
2002 $4,083
2003 $4,134
2004 $4,201
2005 $2,921
After 2005 $4,070
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