(Front Cover)
1995 ANNUAL REPORT - ARNOLD INDUSTRIES, INC.
(Inside Front Cover)
CONTENTS
President's Letter
New Penn Motor Express
Arnold Transportation Services
SilverEagle
Dalworth
LebArnold
Arnold Logistics
Consolidated Five-Year Statistical Summary
Financial Statements
Consolidated Balance Sheets
Consolidated Statements Of Income
Consolidated Statements Of Stockholders' Equity
Consolidated Statements Of Cash Flows
Notes To Consolidated Financial Statements
Report of Independent Accountants
Quarterly Performance
Price Range Common Stock
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
Ten-Year Financial Summary
Board Of Directors And Stockholder Information
Company Executives
ARNOLD INDUSTRIES, INC.
Arnold Industries, Inc. is a diversified transportation and
logistics-based holding company. Although all of the operating
companies share a high-service, short-haul focus, each has a
distinct regional market presence and an independent customer
base. The combined revenue of Arnold Industries exceeded $330
million in 1995.
NEW PENN MOTOR EXPRESS, INC.
New Penn is a regional less-than-truckload (LTL) carrier. Over
90% of New Penn shipments in the Northeast are delivered next-
day. New Penn consistently leads the industry in operating
efficiency and generates approximately 50% of the revenues of
Arnold Industries.
ARNOLD TRANSPORTATION SERVICES
During 1995 our regional truckload group changed its name from
Arnold Logistics to Arnold Transportation Services. At the same
time, all of the companies in this group adopted a common
marketing identity to present a consistent image and to emphasize
our ability to meet customer shipping needs in most major
segments of the country.
Arnold Transportation Services includes regional truckload
carriers SilverEagle in the Southeast, Dalworth in the
Southwest/Midwest, and LebArnold in the Northeast. Arnold
Logistics (formerly ADW) manages approximately 2.3 million square
feet of sophisticated distribution, packaging and storage
warehouse facilities in Pennsylvania, North Carolina and Texas.
PRESIDENT'S LETTER TO STOCKHOLDERS
As shown in the following pages, Arnold Industries is a unique
combination of operating companies that function independently
yet benefit from being part of a larger entity. Few
corporations, if any, can match our demonstrated ability to
successfully combine a diverse portfolio of less-than-truckload
(LTL), truckload, warehousing and logistic services. While the
combination of companies makes us difficult to compare to "pure-
play" LTL or truckload companies, we believe the diversification
has brought us strength.
A slowing economy and increasing competition resulted in industry
over-capacity and declining rate levels in both the less-than-
truckload and truckload segments of our business during 1995.
However, I am pleased to report to you another year of record
revenues and net income at Arnold Industries. Revenues increased
9% to $330 million in 1995 and net income rose slightly to $30.5
million. Our 1995 net income far surpassed that reported by some
of the largest companies in the industry, reinforcing our desire
to be the best, not the biggest.
Over the years, what has separated Arnold Industries from others
in the industry is the ability to operate profitably in the best
of times and the worst of times. Given the difficult industry
environment of 1995, I am very proud of the employees at New Penn
and Arnold Transportation Services for their performance, and I
thank them all for their commitment and hard work. We appreciate
the on-going support of our employees as well as that of our
customers and stockholders.
During 1995, Forbes magazine recognized our company as one of the
200 best small companies in America for the tenth time in the
past twelve years. With 1996 revenues expected to exceed
$350 million, we may not be considered a "small company" much
longer. While becoming a big company is not a specific objective,
we recognize the importance of growth to our future well-being and
are continually evaluating acquisition and market development
opportunities that complement existing operations and areas of
expertise. As we have grown, it has been necessary to adopt new
ways of doing business. For instance, my role and responsibilities
have evolved and the content of my letter to you is more strategic
rather than a review of specific developments at each company as
was done in the past.
Our consistent profitability and stability allow us to adapt to
the rapidly changing environment in an orderly fashion. Over the
past few years, we have added depth to our management team
without adding layers, and have added or upgraded resources in
most areas including engineering, finance, management information
systems, operations, sales and marketing. The people we now have
in place are uniquely capable of guiding our company into the
next millennium.
There are several marketplace trends that continue to influence
our vision of the future. The regionalization of markets is a
trend we are well positioned to meet. Regional markets are
growing faster than long-haul markets because our customers are
able to reduce order-cycle time and respond faster to their
customers' demands by locating within one or two-day truck
service of their markets. Reductions in inventory have also
increased the need for faster, more reliable regional service.
While competitors adjust to improve transit times regionally, our
focus has always been on meeting customer needs in service-
intensive regional markets.
Our regional orientation also allows us to capitalize on growing
international trade as most international shipments move within a
400 mile radius of port facilities. Falling trade barriers with
Canada facilitate growth in commerce between the Northeast and
major markets in Ontario and Quebec, Canada.
The outsourcing of transportation and logistics activities, as
businesses look for opportunities to reduce costs and focus on
core business functions, is another trend influencing our
business. Our dedicated fleet operations and customized logistic
services are meeting customer needs in this area. Many companies
are reducing the number of carriers with which they do business.
The strength of New Penn in the Northeast and the organization of
our truckload and asset-based logistics operations under the
Arnold Transportation Services umbrella position us to meet the
needs of these companies.
Information technology continues to have a profound impact on our
company. We closely monitor new technologies to determine when
to implement them and we internally design customized programs.
By this approach we have been able to develop systems relatively
economically that are well accepted by users and that maximize
employee productivity and service improvements for customers.
Wide-spread financial weakness in the trucking industry increases
the importance of our financial stability for customers seeking
long-term relationships. This situation may present attractive
acquisition opportunities as we experience industry consolidation
in 1996. We have successfully demonstrated our ability to
acquire companies and merge them into our corporate culture in an
evolutionary manner.
As I look to the future, I do not see easy years and tough years.
Rather, every year will present unique opportunities and
challenges. Fortunately, we have the people, systems and
financial strength to capitalize on the opportunities, meet the
challenges and continually invest for the future. In the
process, we will endeavor to provide a rewarding work place for
our employees and superior value for our customers and our
stockholders.
/s/ E. H. Arnold
E. H. Arnold
Chairman and President
March 1, 1996
NEW PENN
New Penn Motor Express provides next-day service throughout the
New England and Mid-Atlantic states and is the largest subsidiary
of Arnold Industries. The company also has facilities in
Montreal, Quebec, Canada and in Puerto Rico. In conjunction with
other high-service regional carriers, New Penn provides service
to all points in the southeastern United States, Indiana, Ohio
and Quebec and Ontario, Canada. New Penn is a Less-Than-
Truckload (LTL) carrier primarily transporting general
commodities in shipments of less than 10,000 lbs. The New Penn
fleet is comprised of approximately 655 tractors and 1,300
trailers which are primarily 45' vans. Widely recognized for its
superior efficiency, New Penn typically leads the industry in
achieving the lowest ratio of costs to revenues.
During 1995, New Penn achieved record revenues of $167 million
and produced operating income of nearly $34 million.
Improvements in service, international markets and expanded
inter-regional partnerships contributed to New Penn's growth.
Recognizing increased customer requirements for faster transit
times, we improved service standards to provide additional next-
day service. Currently, over 92% of all on-line New Penn
shipments are delivered next-day. We also established new
company performance records for on-time reliability at over 97%
and for error-free freight handling reliability resulting in a
claims ratio of only .4%.
Speed and reliability are only two of five factors we have
identified that create value for our customers. The others
include responsiveness, flexibility and efficiency. We call them
the New Penn Performance 5, and we use them to focus our efforts
and to communicate customer benefits.
High growth in the markets of Puerto Rico and Canada evidence New
Penn's improved flexibility in meeting its customers' needs. Our
business in Puerto Rico grew by over 30% in 1995. By combining
our overnight inland capability with the best ocean service
available, we offer customers the fastest available service
between the Northeast and Puerto Rico. New Penn is now
recognized as a superior service provider and a major player in
the Puerto Rican market.
Our Canadian service was significantly enhanced by our
partnership with Manitoulin Transport - one of Canada's largest
and most stable carriers. Through our direct service into Quebec
and our partnership with Manitoulin, New Penn is providing two-
day international service on hauls of up to 1,300 miles, creating
a competitive advantage in the marketplace and fueling our high
growth. Domestic partnerships were also enhanced in 1995,
expanding our coverage throughout the Southeast and Midwest.
The market for LTL services in 1995 was characterized by intense
price competition brought on by over-capacity as competitors
expanded into new geographic markets and responded to intrastate
deregulation and by softness in the manufacturing sector.
Fortunately, the superior efficiency of New Penn allows us to
weather the periodic storms brought on by industry over-capacity
and to invest for the future while others struggle for survival.
STRATEGIES FOR THE FUTURE
Market Development
o High growth international markets will be an important
source of New Penn's future growth. Canada and Puerto Rico
should continue to produce above average growth in revenue
and earnings. Other international opportunities will be
addressed as they are identified and evaluated.
o In 1996 New Penn will establish a new division to enter the
market for transportation of trade show and convention
exhibits. The unique customer contacts and operational
requirements necessitate the commitment of specialized
resources to this market.
o We will continue to pursue new market opportunities where a
good strategic fit exists and where our expertise and assets
can create value for the customer.
Market Penetration
o We will continue our on-going efforts to improve sales and
marketing activities and the tools used to communicate New
Penn's superior performance features and customer value.
o Market segments where New Penn has been successful will be
targeted using new sources of sales lead information.
o Service improvements will be made to exceed increasing
customer expectations in the basics of the business. Our
Performance 5 approach (Speed, Reliability, Responsiveness,
Flexibility and Efficiency) provides a customer-focused
foundation for our service improvement efforts.
Information Technology
o On-board computers are being piloted in our Trenton
terminal. New Penn has a unique advantage in utilizing this
technology because we are the only LTL carrier known to have
a completely automated pick-up and delivery dispatch system
in all facilities. By interfacing the on-board computers
with the dispatch system we will improve our outbound
forecasting to reduce linehaul expenses and improve our
freight costing system. Service improvements will include
on-line delivery information for customers and more
responsive pick-up service.
o The development of a computerized linehaul dispatch system
will be completed in early 1996, improving efficiency by
eliminating empty miles and by more effectively combining
partial loads.
State-of-the-Art Facilities and Equipment
o By continually upgrading existing facilities, we improve
dock productivity and provide the capacity to better meet
customer needs. After opening a new facility in January
1995, we saw significant improvements in productivity at
Maspeth, NY in the fourth quarter. We anticipate the same
at Camp Hill, PA where a new facility was opened in July
1995.
o During the past five years, the average age of the New Penn
tractor fleet has declined by nearly 50% as we take
advantage of greater fuel efficiency, reduced maintenance
costs and new technology such as anti-lock braking systems
to improve safety and reliability.
New Penn will continue to seek new opportunities for profitable
growth and increased productivity in every job in order to
sustain our unsurpassed earnings performance and superior service
levels.
ARNOLD TRANSPORTATION SERVICES
Arnold Transportation Services participates in the high growth
regional truckload and logistic services markets through four
operating divisions. The three truckload divisions include
SilverEagle in the Southeast, Dalworth in the Southwest/Midwest
and LebArnold in the Northeast. The Arnold Logistics division
(formerly ADW) provides value-added warehousing and logistic
services through facilities in Pennsylvania, North Carolina and
Texas. Arnold Transportation Services completed the year with
record revenues of $163 million, up 14% compared to 1994, and
operating income of nearly $15 million.
All divisions of Arnold Transportation Services benefit from
economies-of-scale in areas such as low cost insurance, common
state-of-the-art information systems, administrative support,
equipment purchasing and access to capital. Business solutions,
such as those addressing driver turnover, can be adopted in other
divisions.
While the economic slowdown and industry over-capacity had a
negative impact on market rate levels in 1995, the group is
strategically well positioned to outperform the market in 1996
and beyond. As a result of equipment deliveries in 1995 and an
emphasis on attracting owner/operators (drivers who supply their
own tractors), Arnold Transportation Services can accomplish its
growth objectives in 1996 without substantial expenditures for
additional capital equipment in the upcoming year.
STRATEGIES FOR THE FUTURE
Common Market Identity
o Arnold Transportation Services (formerly Arnold Logistics)
adopted its new name and marketing identity in 1995. The
change emphasizes its primary mission as a truckload
transportation provider and eliminates confusion regarding
the term logistics, which better reflects the services
provided by the value-added warehousing division.
o Since each division currently maintains its own customer
base of Fortune 500 companies, the common identity will
facilitate cross-selling the services of all divisions to
current customers. Opportunities to combine truckload and
value-added warehousing services will also be enhanced.
Regional Geographic Expansion
o Each division is seeking opportunities to grow through the
internal development of new regional markets.
o Arnold Transportation Services has been successful in
growing through acquisitions. The financial strength of
Arnold Industries allows the company to continually evaluate
acquisition opportunities.
Dedicated Fleet Operations
o The company will continue to pursue opportunities to operate
dedicated services for specific customers. Past success has
proven the company's capability in this area.
Information Technology
o Sales Automation - An innovative laptop computer based sales
management system will allow the company to build common
customer relationships across all divisions.
o On-Board Computers - Implementation of on-board computers
now being piloted at SilverEagle will improve efficiencies
and service throughout the company.
o Automated Dispatch - By developing the computerized dispatch
system in one division, Dalworth, and then implementing the
system in other divisions, all will benefit from our
internally developed customized business solutions.
SILVEREAGLE
SilverEagle operates a fleet of approximately 500 tractors and
1,500 trailers, most of which are 53' plate trailers.
SilverEagle's corporate office and primary maintenance facility
is in Jacksonville, Florida. Additional terminals and
maintenance facilities are located in Atlanta and Albany, Georgia
and Greensboro, North Carolina.
SilverEagle's revenue grew by 28% to approximately $62 million in
1995. This growth resulted from opportunities with existing core
customers and the completion of the acquisition of T.W. Owens,
Inc., a Southeast based regional truckload carrier with
approximately $18 million in annual revenue.
Existing regional operations in Atlanta and Albany, Georgia
performed well in 1995 despite the unfavorable economic
conditions. Both of these operations should benefit from the
increase in beverage sales and general business levels attendant
to the Summer Olympic Games which will be held in Atlanta in
1996. SilverEagle opened a new Florida regional operation in
late 1995. This operation, along with the planned expansion of
the North Carolina regional operation, should contribute to
additional growth in 1996.
SilverEagle will install on-board communications in its fleet
early in 1996 and expects to achieve improved productivity
through more timely communication and earlier identification of
load matching opportunities. The commitment to on-board
communications follows extensive review of industry experience
and analysis of alternative technologies. We believe that as a
result of the extra study and the increased competition in
communication service providers over the last two years we will
be able to achieve the benefits of on-board communication
technology at lower costs than SilverEagle's competitors.
SilverEagle demonstrated that it is one of the best carriers to
work for in the industry, as its driver turnover ratio dropped to
an all-time low of 62% in 1995. This is a significant
improvement from several years ago and results from the
maturation of numerous programs designed to attract and retain
qualified professional drivers. Programs were also initiated to
develop a substantial owner/operator driver base in 1996. This
program was very successful in attracting drivers in late 1995.
We expect that this will facilitate continued profitable growth
and maintenance of high service levels with lower capital outlay
in the year ahead.
DALWORTH
Dalworth operates a fleet of approximately 550 tractors which
includes 225 company-owned units and 325 owner/operator units.
Dalworth's 1,200 trailer fleet includes nearly 1,000 wide-body
57' plate trailers, perhaps the largest fleet of its kind in the
nation, plus 200 new 53' plate trailers. Dalworth's company-
owned facilities include terminal and maintenance facilities in
Houston, Grand Prairie and Paris, Texas and Muskogee, Oklahoma.
Dalworth's corporate office is located in Grand Prairie, Texas.
Dalworth's revenue grew by 6% to $51 million in 1995. Its
primary market, Texas intrastate, was deregulated early in the
year. Deregulation, coincident with an increase in surplus
hauling capacity at many of the national carriers, had an
unfavorable impact on pricing and yields in Texas in 1995.
Dalworth invested resources in 1995 to provide a strong base for
future growth and profitability. Substantial effort has gone
into the development of a state-of-the-art proprietary dispatch
system which will be installed during 1996. This system, which
was designed to accommodate the short-haul nature of Dalworth's
business, will make it easier to manage its driver assignments,
pre-plan loads, track its equipment, and efficiently process
billing, payroll and owner/operator settlements. Enhancements in
driver, equipment and staff productivity should contribute to
improved margins. The company also invested in additional sales
resources in the Midwest during 1995. These resources have
produced a steady stream of new account opportunities which
support the growth plan for 1996.
Driver turnover at Dalworth improved in 1995, although further
improvement in driver retention represents a significant cost
saving opportunity that will be aggressively addressed in 1996.
The factors that influence driver retention: driver pay, quality
equipment, day-to-day communication and problem resolution,
freight quality and a host of other items have been successfully
addressed within other Arnold Transportation Services divisions,
and we expect that Dalworth will also achieve substantial
improvements in this area in 1996.
LEBARNOLD
LebArnold operates a fleet of approximately 240 company-owned
tractors and 950 - 48' and 28' trailers. LebArnold has office,
terminal and maintenance facilities in Camp Hill, Pennsylvania;
Charlotte, North Carolina; Dayton, Ohio and Albany, New York.
LebArnold achieved 6% revenue growth and a 17% improvement in
operating income in 1995. Improved operating performance was
achieved through a strong focus on cost control and emphasis on
dedicated services which increased the predictability of
operational costs and business levels. LebArnold's flexibility
in the dedicated fleet arena makes continued penetration of this
market segment feasible. Conversion of private fleets and
dedicated operations continues to be a high growth segment of the
market.
LebArnold opened a new regional operation in Albany, New York and
closed its Buffalo operation during 1995. The Albany business is
an extension of existing customer relationships to a new location
as well as the addition of a T. W. Owens account that was
acquired by SilverEagle. LebArnold's growth has also been
facilitated by a closer relationship with the Logistics division
(formerly ADW). Through a more concentrated effort to control
the flow of freight to and from the warehouse, Logistics has been
able to identify new customers for LebArnold.
LebArnold reduced driver turnover in 1995, a tribute to improved
training and driver support programs. LebArnold plans
substantial expansion in its owner/operator fleet in 1996, which
should have a favorable impact on business growth.
ARNOLD LOGISTICS
The Logistics division changed its name in 1995 to communicate
more effectively its business purpose and identity to existing
and potential customers. Arnold Logistics was formerly known as
ADW, a division of LebArnold.
Arnold Logistics focuses on the development of innovative, value-
added warehousing, distribution, packaging, kitting and
information management solutions for Fortune 500 customers.
Arnold Logistics manages approximately 1.8 million square feet of
first class warehouse space in central Pennsylvania, 300,000
square feet in North Carolina and 150,000 square feet in Texas.
Revenue at Arnold Logistics grew by 16% in 1995 to $19 million.
The division added 300,000 square feet of warehouse space in
Pennsylvania during the year to meet customer growth needs, and
assumed management responsibilities for warehouses in Texas. The
Texas expansion provides Arnold Logistics with the opportunity to
introduce its packaging, kitting and high value services to the
existing customer base of other Arnold divisions. Demand has
been strong for logistics services with these customers and it is
likely that additional square footage will be required to meet
growth needs in Texas in 1996.
The packaging business of Logistics, which was started in 1993,
surged to 100% growth in 1995 over prior year levels, reinforcing
our view that Arnold Logistics is filling an important gap in
existing distribution channels. Arnold Logistics has been
awarded another major Northeast distribution center and packaging
contract for 1996.
The Arnold Logistics order fulfillment center continues to grow
as its reputation for telemarketing services becomes known in the
industry. Under this concept, the staff provides on-line order
entry, credit card approval and demographic information
gathering. Orders are available for pick/pack and immediate
shipment, providing minimum order cycle time for Logistic's
customers. Arnold Logistics has also expanded its role in the
software reproduction and kitting business through a major
commitment from another software manufacturer to assemble,
warehouse and distribute new software products. Growth in this
business segment could be substantial in 1996 as we focus on the
software reproduction area.
CONSOLIDATED FIVE-YEAR STATISTICAL SUMMARY
($ thousands except per share data)
1991 1992 1993 1994 1995
Operating Revenues 196,202 233,620 272,697 302,390 330,136
Net Income 23,428 25,829 29,902 30,355 30,501
Net Income Per Share .88 .97 1.13 1.14 1.15
Operating Revenues by Service
Warehousing/Logistics 15,483 17,635 15,481 16,457 18,545
Truckload 51,101 77,958 100,694 126,300 144,534
Less-than-Truckload 129,618 138,027 156,522 159,633 167,057
FINANCIAL STATEMENTS
CONTENTS
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Accountants
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(dollars in thousands)
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 5,770 $ 23,555
Marketable securities 8,503 18,088
Accounts receivable:
Trade (less allowance for doubtful
accounts of $1,108 and $896) 31,110 28,426
Officers and employees 234 132
Deferred income taxes 4,409 4,111
Prepaid expenses and supplies 4,668 4,357
Refundable income taxes 1,418 -
Total current assets 56,112 78,669
Property and equipment, at cost:
Land 16,344 15,162
Buildings 74,775 70,481
Revenue and service equipment 187,805 154,558
Other equipment and fixtures 22,319 19,380
Construction in progress 3,718 1,986
304,961 261,567
Accumulated depreciation 105,139 91,964
Total property and equipment 199,822 169,603
Other assets:
Goodwill, net of accumulated amortization
of $1,680 and $1,293 9,232 8,788
Investments in limited partnerships 10,679 2,237
Cash value of life insurance, net 530 530
Other 502 452
Total other assets 20,943 12,007
$276,877 $260,279
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable 16,693 27,989
Accounts payable, trade 7,316 9,756
Federal and state income taxes - 1,541
Estimated liability for claims 6,280 5,359
Salaries and wages 2,754 2,667
Accrued vacation 4,315 4,056
Accrued expenses - other 2,535 2,462
Total current liabilities 39,893 53,830
Other long-term liabilities:
Estimated liability for claims 9,169 9,769
Deferred income taxes 25,995 18,947
Notes Payable 5,049 -
Other 1,404 1,275
Total other long-term liabilities 41,617 29,991
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, par value $1.00; authorized
100,000,000 shares; 29,942,628 issued in
1995 and 1994 29,942 29,942
Paid-in capital 153 75
Retained earnings 174,242 155,460
204,337 185,477
Less treasury stock, at cost - 3,294,854 and
3,313,584 shares in 1995 and 1994,
respectively 8,970 9,019
Total stockholders' equity 195,367 176,458
$276,877 $260,279
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(dollars in thousands, except per share data)
1995 1994 1993
Operating revenues $330,136 $302,390 $272,697
Operating expenses:
Salaries, wages and related expenses 160,130 143,409 128,846
Supplies and expenses 50,542 45,179 41,489
Operating taxes and licenses 9,297 8,924 7,908
Insurance 6,816 6,067 6,308
Communication and utilities 4,297 3,707 3,360
Purchased transportation 22,755 20,988 16,275
Rental of buildings, revenue
equipment, etc., net 1,296 1,670 2,094
Depreciation and amortization 25,348 21,120 17,811
Miscellaneous 1,018 1,804 1,734
Total operating expenses 281,499 252,868 225,825
Operating income 48,637 49,522 46,872
Other income (expenses) - net, including
interest income of $996, $1,375 and $1,525 (736) (394) 1,681
Income before income taxes
and extraordinary loss 47,901 49,128 48,553
Income taxes 17,400 18,384 18,651
Income before extraordinary loss 30,501 30,744 29,902
Extraordinary loss, net of tax benefit - 389 -
Net income $ 30,501 $ 30,355 $ 29,902
Per share amounts
Income before extraordinary loss $ 1.15 $ 1.16 $ 1.13
Net income $ 1.15 $ 1.14 $ 1.13
Weighted average common shares
outstanding 26,635,327 26,614,173 26,573,238
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(dollars in thousands, except per share data)
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
Balance - December 31, 1992 $14,971 $ 1,618 $128,449 $ (9,023)
Net income - - 29,902 -
Distribution of treasury stock
due to exercise of stock options - 105 - 145
Cash dividends paid ($.35 per share) - - (9,300) -
Reduction in SilverEagle acquisition
price - - 220 (220)
Two-for-one stock split 14,971 (1,717) (13,254) -
Balance - December 31, 1993 29,942 6 136,017 (9,098)
Net income - - 30,355 -
Distribution of treasury stock due to
exercise of stock options - 69 - 79
Cash dividends paid ($.41 per
share) - - (10,912) -
Balance - December 31, 1994 29,942 75 155,460 (9,019)
Net income - - 30,501 -
Distribution of treasury stock due to
exercise of stock options - 78 - 49
Cash dividends paid ($.44 per
share) - - (11,719) -
Balance - December 31, 1995 $29,942 $ 153 $174,242 $ (8,970)
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(dollars in thousands)
1995 1994 1993
Cash flows from operating activities:
Net income $ 30,501 $ 30,355 $ 29,902
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary loss - 389 -
Depreciation and amortization 25,546 21,101 17,830
Gain on disposal of property and
equipment (1,452) (1,185) (2,448)
Equity in (earnings) losses of limited
partnerships 30 48 (59)
Provision for deferred taxes 6,750 5,716 5,030
Net (gain) loss on investments (374) 355 452
Changes in operating assets and liabilities:
Increase in accounts receivable (1,199) (1,492) (6,387)
(Increase) decrease in prepaid
expenses and supplies (196) (568) 648
Increase (decrease) in accounts
payable, trade (2,440) 4,033 356
Increase (decrease) in income taxes
payable (2,959) 81 2,495
Increase in estimated liability
for claims 322 1,677 1,332
Increase (decrease) in accrued expenses 418 (73) 2,245
Other, net 128 87 (97)
Net cash provided by operating
activities 55,075 60,524 51,299
Cash flows from investing activities:
Proceeds from sale of investment
securities 11,546 30,136 17,583
Purchase of investment securities (1,587) (19,606) (13,996)
Proceeds from disposition of property
and equipment 7,602 4,976 4,492
Purchase of property and equipment (52,606) (49,940) (52,844)
Capital contributions in limited
partnerships (1,866) (997) (577)
Distributions from limited partnerships 32 12 303
Increase in cash value of life insurance - - (85)
Acquisition of DW Freight, Inc. - - 170
Acquisition of primary assets of
T.W. Owens & Sons, Inc. (11,121) - -
Other, net (69) (46) 243
Net cash used in investing activities (48,069) (35,465) (44,711)
Cash flows from financing activities:
Proceeds from employee stock options
exercised 127 148 250
Cash dividends paid (11,719) (10,912) (9,300)
Principal payments on long-term debt (13,199) (52) (750)
Net cash used in financing activities (24,791) (10,816) (9,800)
Increase (decrease) in cash and cash
equivalents (17,785) 14,243 (3,212)
Cash and cash equivalents at beginning of
year 23,555 9,312 12,524
Cash and cash equivalents at end of year $ 5,770 $ 23,555 $ 9,312
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 1,741 $ 1,311 $ 1,334
Income taxes $ 13,618 $ 12,668 $ 11,322
Noncash investing activities in 1995 related to the recognition of the
fair value of future capital contributions in limited partnerships
of $6,951,000.
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
proportionately from less-than-truckload and truckload hauling.
Principles of Consolidation:
The accompanying consolidated financial statements include the
accounts of Arnold Industries, Inc. and all of its subsidiaries.
All material intercompany transactions and balances have been
eliminated.
Revenue Recognition:
In accordance with industry practice, 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.
Cash and Cash Equivalents:
For purposes of the 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.
Marketable Securities:
At December 31, 1995 and 1994, 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
concentration 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 with any one financial institution. The
Company's marketable securities consist principally of U.S.
Government securities and municipal bonds. These securities are
subject to minimal risk. 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 - 7 years
Service equipment 3 - 6 years
Other equipment and fixtures 4 - 7 years
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. The Company's policy is to record an
impairment loss against the net unamortized cost in excess of net
assets of businesses acquired in the period when it is determined
that the carrying amount of the asset may not be recoverable. An
evaluation is made at each balance sheet date (quarterly) and it
is based on such factors as the occurrence of a significant
event, a significant change in the environment in which the
business operates or if the 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. The consolidated financial
statements include estimates for claims outstanding, the future
recoverability of deferred tax assets, the allowance for
uncollectible accounts receivable and residual value of several
limited partnerships accounted for on a cost basis. Actual
results could differ from those estimates.
Income Taxes:
In accordance with Financial Accounting Standards Board 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.
Per Share Amounts:
Per share amounts are computed based on the weighted average
number of common shares outstanding during the year. No
consideration has been given to common share equivalents (stock
options) since the effect of their inclusion is not material.
2. Marketable Securities:
The amortized cost and market value of investment securities at
December 31, 1995 and 1994 follows:
1995 1994
Amortized Market Amortized Market
(in thousands) Cost Value Cost Value
U.S. treasury securities - - $ 5,596 $ 5,367
Municipal bonds $7,426 $7,429 11,431 11,270
Equity securities 1,000 1,000 1,143 1,248
Accrued interest
receivable 74 74 203 203
Total $8,500 $8,503 $18,373 $18,088
The net gain (loss) on marketable securities recorded during the
years ended 1995, 1994 and 1993 amounted to $374,000, $(355,000),
and $(102,000), respectively.
The contractual maturities of debt securities available for sale
at December 31, 1995 are as follows:
(in thousands) Market Value
Due within one year $4,390
Due after one year through five years 3,039
$7,429
3. Notes Payable:
The Company has unsecured working capital lines of credit with
maximum borrowings of $31,500,000 of which $14,790,000 and
$27,989,000 were outstanding at December 31, 1995 and 1994.
Borrowings under these agreements bear interest at fixed rates
quoted by the bank at the time of borrowing. The current inter-
est rate on the outstanding balance was 6.0%. For the years
ended December 31, 1995, 1994 and 1993, the weighted average
inter-est rate on short-term borrowings outstanding was 5.65%,
4.49% and 3.76%, respectively.
In connection with its investments in low income housing limited
partnerships, the Company is required as of December 31, 1995 to
make additional contributions over the next six years as follows:
1996, $1,981,000; 1997, $1,742,000; 1998, $1,712,000; 1999,
$1,209,000; 2000, $1,189,000; and 2001, $200,000. The additional
contributions of $8,033,000 were discounted to $6,951,000 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. Stock Option and Stock Purchase Plans:
Stock Option Plans:
The Company has a stock option plan which provides for the
granting of options to purchase shares of the Company's stock to
certain executives, employees, consultants and directors.
Options to acquire up to 1,625,000 shares of the stock may be
granted to employees and consultants of the Company. Such
options carry various restrictions. Under the plan, certain
options granted to employees will be qualified incentive stock
options within the meaning of Section 422A of the Internal
Revenue Code and other options will be considered nonqualified
stock options. The incentive stock options may be granted for no
less than market value at the date of grant and nonqualified
stock options may be granted for no less than half of market
value at the date of grant. Also, no employee may participate in
the incentive stock option plan if immediately after the grant he
or she would own directly or indirectly more than 10% of the
stock of the Company.
Transactions and other information relating to the stock option
plan for the three years ended December 31, 1995 are summarized
below:
Stock Option Plan
Shares Price Per Share
Balance, outstanding -
December 31, 1992 703,300 $ 4.46 to $15.62
Options granted 362,000 $11.44 to $13.94
Options exercised (54,200) $ 4.46 to $13.94
Options expired (2,000) $ 7.25
Balance, outstanding -
December 31, 1993 1,009,100 $ 4.46 to $15.62
Options granted 135,600 $18.25 to $18.50
Options exercised (29,490) $ 4.46 to $13.94
Options expired (11,100) $ 7.25 to $18.50
Balance, outstanding -
December 31, 1994 1,104,110 $ 4.46 to $18.50
Options granted - -
Options exercised (18,730) $ 4.46 to $ 7.25
Options expired (28,700) $ 7.25 to $18.50
Balance, outstanding -
December 31, 1995 1,056,680 $ 4.46 to $18.50
Options exercisable -
December 31, 1995 423,222 $ 4.46 to $18.50
Stock Purchase Plan:
Effective November 15, 1992, the Company adopted a stock purchase
plan which replaced a similar plan adopted in 1975. The 1992
stock purchase plan 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 1992 plan are $520
and $8,200 for each employee in any one year. The minimum and
maximum contributions under the 1975 plan were $300 and $3,000
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 1992 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. The 1975 plan required that employees
pay all of the custodian and brokerage fees.
During October 1995, the FASB issued Statement No. 123,
"Accounting for Stock-Based Compensation." SFAS 123 encourages
employers to adopt its prescribed fair value-based method of
accounting to recognize compensation expense for employee stock
compensation plans; however, it does allow the Company to
continue to account for its plan using its current method. The
Company intends to adopt the provisions of SFAS 123 effective
January 1, 1996 under its disclosure-only alternative.
5. Income Taxes:
Consolidated income tax expense consists of the following:
(dollars in thousands) 1995 1994 1993
Currently payable:
Federal $ 8,960 $10,198 $10,889
State 1,690 2,470 2,732
10,650 12,668 13,621
Deferred:
Federal 5,626 4,867 4,254
State 1,124 849 776
6,750 5,716 5,030
Total income tax expense $17,400 $18,384 $18,651
The effective income tax rates of 36.3% in 1995, 37.4% in 1994
and 38.4% in 1993 differ from the federal statutory rates for the
following reasons:
1995 1994 1993
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 3.8 4.4 4.7
Tax-free investment income
and other (2.5) (2.0) (1.3)
36.3% 37.4% 38.4%
Deferred tax liabilities (assets) are comprised of the following
at December 31:
(dollars in thousands) 1995 1994
Property and equipment, principally due
to differences in depreciation $29,052 $23,482
Limited partnership investments,
principally due to differences in tax
basis 1,313 899
Other 346 304
Gross deferred tax liabilities 30,711 24,685
Estimated liability for claims, principally
due to differences in timing of recognition
of expense (6,068) (6,135)
Net operating loss carryforwards of
pooled subsidiary (26) (842)
Vacation liability, principally due to
differences in timing of recognition
of expense (1,466) (1,312)
Other (1,565) (1,560)
Gross deferred tax assets (9,125) (9,849)
$21,586 $14,836
6. Common Stock:
On November 5, 1993, the Company's Board of Directors declared a
two-for-one stock distribution payable on December 17, 1993 to
stockholders of record on November 22, 1993. The distribution
increased the Company's issued stock by 14,971,314 shares. All
references in the financial statements to numbers of shares
outstanding and related dividends, per share amounts and stock
plan data have been restated to reflect the stock split.
7. Profit Sharing Plans:
The Company has trusteed profit sharing plans for all employees
meeting certain eligibility tests. The plans may be amended at
any time at the discretion of the Board of Directors.
Approximate charges to income for contributions to the plans
amounted to $1,662,000, $1,518,000 and $1,477,000 for 1995, 1994
and 1993, respectively.
8. Pension Plans:
Charges to income for pension expense for 1995, 1994, and 1993
approximates $6,599,000, $6,352,000 and $5,586,000, respectively,
representing payments to multiemployer pension plans under the
provisions of various labor contracts. Under the Multiemployer
Pension Plan Amendments Act of 1980 (the Act), an employer
withdrawing from a multiemployer pension plan is liable for a
portion of the unfunded vested benefit obligations of such plan.
The Act treats an employer as having withdrawn when the employer
either permanently ceases to have an obligation to contribute to
the plan or permanently ceases all covered operations under the
plan. The Company presently has no plans to withdraw from a
multiemployer pension plan.
The Company also offers a supplemental defined benefit pension
plan for certain key officers and employees with payments to
begin five years following retirement. Death and disability
benefits are also provided. The amount of annual pension benefit
is determined by the Board of Directors. The charge to income
for this plan was $140,000, $141,000 and $131,000 for 1995, 1994,
and 1993, respectively. The following table sets forth the
supplemental plan's funded status and amounts recognized in the
Company's consolidated balance sheets at December 31, 1995 and
1994:
(dollars in thousands) 1995 1994
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 479 $ 343
Accumulated benefit obligation $1,343 $1,138
Projected benefit obligation for
service rendered to date $1,343 $1,138
Plan assets at fair value - -
Plan liability under projected benefit
obligation 1,343 1,138
Unrecognized net gain 1 74
Unrecognized net asset at transition 58 63
Accrued pension cost $1,402 $1,275
The following table sets forth components of net pension cost for
the supplemental plan recognized in the Company's consolidated
income statements for the years ended December 31, 1995, 1994 and
1993:
(dollars in thousands) 1995 1994 1993
Service cost - benefits earned
during the period $ 61 $ 72 $ 70
Interest cost on projected benefit
obligation 85 75 67
Net amortization and deferral (6) (6) (6)
Net pension cost $140 $141 $131
The discount rates used in accounting for the pension plan as of
December 31, 1995 and 1994 were 7.0% and 7.5%, respectively.
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, 1995 the carrying amount of cash
equivalents approximates fair value because of the short-term
maturity of those instruments, and the market value of marketable
securities approximates amortized cost. With respect to
investments in limited partnerships, management has determined
that the resulting carrying value approximates estimated fair
market values. 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 $733,000,
$762,000 and $669,000 in 1995, 1994 and 1993, 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 has assumed
liability in any single occurrence for Workmen's Compensation and
Property Damage up to $1,000,000 and for Public Liability up to
$1,000,000 for the first occurrence and up to $500,000 for each
subsequent occurrence with excess liability assumed by the
insurance carriers up to $52,000,000. 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, 1995, the outstanding balance of the letters of
credit was $11,695,000 on a total commitment of $12,000,000.
12. Extraordinary Loss:
The Trucking Industry Regulatory Reform Act of 1994 deregulated
intrastate trucking. As a result, the Company recorded an
extraordinary loss, net of income taxes, of approximately
$389,000 relating to the write-off of the unamortized balance of
intrastate operating rights.
13. Acquisition:
On January 3, 1995, the Company purchased for approximately
$11,121,000 in cash substantially all of the accounts receivable,
property, revenue and other equipment and resulting goodwill of a
Georgia-based truckload transportation company. Arnold
Industries did not assume any of the liabilities of the Georgia
company.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Arnold Industries, Inc.
Lebanon, Pennsylvania:
We have audited the accompanying consolidated balance sheets of
Arnold Industries, Inc. and subsidiaries as of December 31, 1995
and 1994 and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Arnold Industries, Inc. and subsidiaries as
of December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
One South Market Square
Harrisburg, Pennsylvania
February 24, 1996
QUARTERLY PERFORMANCE
($ thousands except per share data)
Operating Operating Net
Revenues Income Income
Quarter 1995 1994 1995 1994 1995 1994
First 83,417 75,029 13,418 11,912 8,509 7,421
Second 83,383 65,982 13,652 8,388 8,523 5,311
Third 81,898 80,868 11,236 14,717 7,073 8,570
Fourth 81,438 80,511 10,331 14,505 6,396 9,053
330,136 302,390 48,637 49,522 30,501 30,355
Net Income Dividends
Per Share Per Share
Quarter 1995 1994 1995 1994
First .32 .28 .11 .10
Second .32 .20 .11 .10
Third .27 .32 .11 .10
Fourth .24 .34 .11 .11
1.15 1.14 .44 .41
PRICE RANGE COMMON STOCK*
1995 1994
HIGH LOW HIGH LOW
First Quarter 20 3/4 17 3/8 22 3/4 18 3/4
Second Quarter 18 1/2 16 1/4 21 18
Third Quarter 19 1/4 16 3/4 20 1/4 18
Fourth Quarter 18 3/4 15 7/8 23 1/2 18
*Prices shown are the actual high and low closing prices for the
periods indicated.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Arnold Industries' operating revenues, as set forth below, are
from four separate operating subsidiaries:
New Penn Motor Express, Inc. ("New Penn")
Arnold Transportation Services:
Lebarnold, Inc. ("Lebarnold")
SilverEagle Transport, Inc. ("SilverEagle")
D.W. Freight, Inc. ("D.W.")
New Penn is a less-than-truckload (LTL) transportation
company. Lebarnold, SilverEagle and D.W. provide truckload (TL)
transportation services. In addition, Lebarnold, under the name
Arnold Logistics, provides specialty warehousing operations and
related transportation services.
Operating Revenues
(dollars in millions) Total LTL
Amount % Increase Amount % Increase
1995 $330.1 9 $167.1 5
1994 302.4 11 159.6 2
1993 272.7 17 156.5 13
Warehousing/
Truckload Related Trucking
Amount % Increase Amount % Increase
1995 $144.4 14 $18.6 13
1994 126.3 25 16.5 6
1993 100.7 2 15.5 (12)
The revenue growth at New Penn for 1995 over 1994 was
primarily due to the tonnage increase in 1995 to 920,581 tons
from 887,835 tons in 1994, a 4% increase. The revenue growth for
both New Penn and the Arnold Transportation Companies in 1995 was
affected substantially by discounted pricing as a result of
excess capacity in the transportation industry. This excess
capacity was a result of many trucking companies expanding their
equipment fleets in a slowing economic environment during 1995.
New Penn's tonnage for 1994 increased to 887,835 tons from
880,040 tons in 1993, a 1% increase. The year 1994 was adversely
affected by the national work stoppage which closed New Penn for
twenty-four days in April 1994.
The Arnold Transportation Companies increased their revenue
14% for 1995 over 1994. Most of this increase was due to the
acquisition of T.W. Owens & Sons, Inc., a Georgia based $18
million annual revenue regional truckload carrier. Approximately
$9 million of revenue was retained from T.W. Owens customers.
The additional capacity acquired in the Owens transaction was
used to increase business with SilverEagle's existing customer
base. Truckload revenues for 1994 increased 25% over 1993. In
March, 1994, D.W. acquired substantially all of the assets of
H.R. Hill, Inc., a $10 million annual revenue truckload and
warehousing company, which accounted for two-fifths of the
revenue increase for 1994. The balance of 1994's revenue growth
was primarily due to increased tonnage from new and existing
customers at each of the truckload companies.
Set forth is a schedule showing the operating revenues of the
four operating subsidiaries.
1995 1994 1993
Amount % Amount % Amount %
New Penn $167.1 50 $159.6 53 $156.5 57
SilverEagle 62.3 19 48.8 16 41.3 15
D.W. 51.7 16 48.7 16 34.3 13
Lebarnold
Trucking 30.4 9 28.8 10 25.1 9
Warehousing &
Related
Trucking 18.6 6 16.5 5 15.5 6
TOTAL $330.1 100% $302.4 100% $272.7 100%
NOTE: The assets of T.W. Owens & Sons, Inc. were
acquired by SilverEagle in January 1995 and H.R. Hill,
Inc. by D.W. in March 1994. Both companies were
acquired as purchases and no revenues are shown for
these acquisitions prior to these respective dates.
The following tables set forth, for the years indicated, the
percentages of operating expenses and operating income to
operating revenues.
New Penn Motor Arnold Transportation
Express & Related Companies Services
1995 1994 1993 1995 1994 1993
Operating Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating Expenses
Salaries, wages and
related expenses 58.4 57.5 56.8 38.3 36.1 34.5
Supplies and
expenses 9.8 9.7 9.7 20.9 20.8 22.6
Operating taxes and
licenses 3.5 3.7 3.5 2.2 2.2 2.1
Insurance 1.5 1.5 1.5 2.7 2.6 3.5
Communication and
utilities 1.1 1.1 1.1 1.5 1.3 1.4
Purchased
transportation 1.0 1.0 1.0 12.9 13.6 12.7
Rental of buildings,
revenue equipment,
etc., net (.4) (.4) (.2) 1.2 1.6 2.0
Depreciation and
amortization 4.9 4.5 4.0 10.5 9.7 10.0
(Gain) on sale of
equipment (.4) (.2) (.1) (.4) (.5) (.4)
Miscellaneous .4 .9 .6 1.1 1.1 1.1
Total Operating
Expenses 79.8 79.3 77.9 90.9 88.5 89.5
Operating Income 20.2% 20.7% 22.% 19.1% 11.5% 10.5%
The operating expenses of New Penn and its related companies'
increased to 79.8% of operating revenues in 1995 from 79.3% in
1994. Salaries, wages and related expenses increased to 58.4% in
1995 from 57.5% in 1994, primarily as a result of increased
drivers' wages and benefits. Depreciation expense increased to
4.9% of operating revenues in 1995 from 4.5% in 1994 and 4.0% in
1993, as a result of additional upgrading of revenue equipment
and terminals. Operating expenses increased to 79.3% in 1994
from 77.9% in 1993, primarily as a result of the twenty-four day
work stoppage, which reduced revenues substantially for April
1994.
The Arnold Transportation companies' salaries, wages and
related expenses increased to 38.3% in 1995 from 36.1%, primarily
as a result of decreased revenue per mile. Purchased
transportation costs decreased as a percentage of revenue in 1995
over 1994 because of higher revenue without a proportionate
increase in owner/operators. In 1994 salaries, wages and related
expenses increased and supplies and expenses decreased from 1993,
due to an increase in drivers' wages in conjunction with the
elimination of drivers' per diem allowances. In addition, there
was a 10% wage increase in drivers' wages during 1994. Increases
in purchased transportation costs in 1994 over 1993 were the
result of using additional owner/operators.
Arnold Industries' operating income for 1995 decreased $.9
million or 2% over 1994, and 1994 increased $2.7 million or 6%
over 1993. The excessive discounting and excess capacity within
the industry had a substantial negative effect in 1995. The work
stoppage at New Penn in April 1994 had a substantial negative
impact on the Company's 1994 operating income. New Penn's I.C.C.
operating ratio was 81.5% for 1995, compared to 80.7% for 1994
and 79.2% for 1993.
Other income, net of interest expense for 1995, was lower due
to higher interest rates on short-term borrowings and a reduction
in marketable securities invested during the year. In addition,
1995 was affected by amortization of investments in low-income
housing limited partnerships in the amount of $.3 million. This
was offset by a gain on marketable securities of $.4 million in
1995. Interest income was reduced by $.4 million for 1995 from
1994. Interest expense increased by $.4 million in 1995. Other
income in 1994 was lower as a result of a gain on the sale of a
terminal in the amount of $1.8 million in 1993. In addition,
interest income was lower by $.2 million in 1994 over 1993 due to
reduced interest rates and reduced investments. The reductions
in investment securities held in 1995 and 1994 were primarily due
to the asset acquisitions from T.W. Owens in 1995 and H.R. Hill
in 1994.
The effective income tax rates for 1995, 1994 and 1993, were
36.3%, 37.4% and 38.4%, respectively. The reductions in the
effective tax rates are due primarily to tax credits generated by
investments in low-income housing limited partnerships.
Net income for 1995 was $30.5 million compared to $30.3
million for 1994. Net income per share in 1995 was $1.15
compared to $1.14 for 1994. This compares to $29.9 million or
$1.13 per share in 1993. 1994 results were reduced by an
extraordinary loss of $.4 million net of tax benefit due to a
write-off of the unamortized balance of intrastate operating
rights following enactment of the Trucking Industry Regulatory
Reform Act of 1994, which deregulated intrastate trucking
effective January 1, 1995. Net income per share in 1993
reflected an approximate $.04 per share gain after tax on the
sale of a truck terminal. This was offset by approximately $.04
per share higher taxes as a result of the increase in the
effective income tax rate for 1993.
Capital Expenditures
The total property and equipment purchases (net of
dispositions) amounted to $53.6 million for 1995, compared to
$45.0 million for 1994 and $48.4 million for 1993. This included
equipment purchases of $8.6 million in the T.W. Owens acquisition
in 1995 and approximately $10 million as a result of the H.R.
Hill acquisition in 1994. As a result of the slow-down in the
economy and over-capacity in the industry, capital expenditures
are projected at $17 million for 1996, excluding any
acquisitions.
Liquidity and Capital Resources
Cash, cash equivalents, and marketable securities totaled $14
million at the end of 1995 compared to $42 million at the end of
1994 and $38 million at the end of 1993. The decrease for 1995
was partially a result of payment of a line of credit in the
amount of $13 million in the fourth quarter of 1995. The balance
of the decrease was due to the substantial amount of investment
in equipment and terminals. Working capital amounted to $16
million at the end of 1995 compared to $25 million at the end of
1994 and $24 million at the end of 1993. Net cash provided by
operating activities for 1995 was $55.1 million compared to $60.5
million for 1994 and $51.3 million for 1993.
The Company's current cash position, 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 1995, the Company believes that inflation had a minimal
effect on operating results. However, most of the Company's
expenses are subject to inflation which results in increased
costs.
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
On January 2, 1996, New Penn effected a general rate increase
of 4.9%. This rate increase affected approximately 33% of its
customers. Other customer rates are subject to negotiated
contracts and agreements. Discounting of rates and over-
capacity in both the LTL and TL segments of the industry in 1995
has continued into 1996. The Company is continuing to emphasize
the use of information technology to improve efficiencies and
reduce costs.
In 1995, New Penn expanded services into the State of Indiana
through an established partner and formed a new partnership in
Canada offering two-day service to the entire Province of
Ontario.
In January 1995, SilverEagle acquired substantially all of the
assets of T.W. Owens & Sons, Inc., a Georgia based regional
truckload carrier. The majority of this operation was integrated
into SilverEagle.
The Company continues to seek niche markets requiring high
levels of customized service which offer above average returns
for the expertise required to serve them. Management believes
that growth opportunities remain for both the LTL and TL
companies through improved marketing efforts, expansion of
regional markets and continued refinement of information
technology. In December 1995, the Company registered up to $75
million worth of common stock and warrants for possible use in
connection with future business acquisitions. Management will
continue to evaluate opportunities to expand in both the LTL and
TL segments of the industry.
TEN-YEAR FINANCIAL SUMMARY<F1>
(dollars in thousands, except per share data)
Fiscal Year 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Income
Operating revenues 330,136 302,390 272,697 233,620 196,202 188,830 167,589 148,196 124,176 99,062
Operating expenses
Depreciation and amortization 25,348 21,120 17,811 14,222 11,500 10,527 11,021 9,906 8,973 6,098
Operating taxes and licenses 9,297 8,924 7,908 6,780 5,887 4,836 4,537 4,147 3,593 2,968
Other 246,854 222,824 200,106 172,304 142,080 137,027 123,121 109,397 92,886 73,625
Operating income 48,637 49,522 46,872 40,314 36,735 36,440 28,910 24,746 18,724 16,371
Non-operating income (expense)
Interest income (expense), net (711) 35 355 246 195 (1,123) (1,180) (923) (691) (221)
Other (25) (429) 1,326 (71) 10 (449) 884 4,142 (287) 2,773
Income before income taxes,
extraordinary loss, and
cumulative effect of change
in accounting principle 47,901 49,128 48,553 40,489 36,940 34,868 28,614 27,965 17,746 18,923
Income taxes 17,400 18,384 18,651 14,660 13,512 12,452 10,939 10,543 8,171 9,358
Income before extraordinary
loss and cumulative effect of
change in accounting principle 30,501 30,744 29,902 25,829 23,428 22,416 17,675 17,422 9,575 9,565
Extraordinary loss, net
of tax benefit<F5> - 389 - - - - - - - -
Cumulative effect of change in
accounting for income taxes<F6> - - - - - - 1,322 - - -
Net income 30,501 30,355 29,902 25,829 23,428 22,416 18,997 17,422 9,575 9,565
Per Share Data<F2>
Income before extraordinary
loss and cumulative effect
of change in accounting
principle 1.15 1.16 1.13 .97 .88 .84 .67 .67 .37 .38
Net income 1.15 1.14 1.13 .97 .88 .84 .71 .67 .37 .38
Cash dividends declared .44 .41 .35 .32 .29 .25 .22 .11 .06 .05
Book value 7.33 6.63 5.90 5.12 4.46 3.86 3.31 2.76 2.16 1.76
Financial Position - Year End
Cash, temporary investments and
marketable securities<F3> 14,273 41,643 38,285 45,186 57,558 37,184 26,826 25,318 15,029 11,407
Working capital<F4> 16,219 24,839 24,093 29,856 55,664 30,877 24,049 23,575 11,558 10,360
Property and equipment-net 199,822 169,603 144,148 110,674 88,250 91,393 83,540 67,346 58,291 44,097
Total assets 276,877 260,279 228,361 197,203 170,668 159,973 136,313 116,197 94,081 72,936
Long-term debt 5,049 - - 476 17,603 19,479 19,749 14,812 12,840 6,685
Stockholders' equity 195,367 176,458 156,867 136,015 118,502 102,362 87,681 72,589 55,520 45,210
Other Data
Percentage return on average
stockholders' equity 16.4 18.2 20.4 20.3 21.2 23.6 23.7 27.2 19.0 23.4
Net cash provided by
operating activities 55,075 60,524 51,299 34,518 35,898 36,639 29,471 25,195 23,136 14,752
<FN>
<F1>
1. D.W. Freight, Inc. was acquired in April 1992 and is accounted for under
the purchase method - asset exchange acquisitions from H.R. Hill and
T.W. Owens occurred in March 1994 and January 1995, respectively.
<F2>
2. Adjusted to give retroactive effect to the two-for-one stock split in
1993, the two-for-one stock split in 1991, the three-for-two stock split
in 1988, the five-for-four stock split in 1987, and the two-for-one
stock split in 1986.
<F3>
3. Excludes restricted cash.
<F4>
4. Certain liabilities with respect to claims were reclassified as
long-term beginning in 1991.
<F5>
5. Write-off of the unamortized balance of intrastate operating rights.
<F6>
6. The Company adopted SFAS No. 96, "Accounting for Income Taxes," in 1989.
</FN>
BOARD OF DIRECTORS
E. H. Arnold
Chairman, President and Director
Arnold Industries, Inc.
Kenneth F. Leedy
Executive Vice President and Director
Arnold Industries, Inc.
Heath L. Allen, Esq.
Secretary and Director
Partner - Keefer, Wood, Allen and Rahal
Harrisburg, PA
Ronald E. Walborn, CPA
Treasurer and Director
President - Walborn Shambach Associates
Harrisburg, PA
Arthur L. Peterson
Director
Executive Director - Florida Association of
Colleges and Universities, Madeira Beach, FL
Carlton E. Hughes
Director
Chairman - Stewart-Amos Steel, Inc.
Harrisburg, PA
STOCKHOLDER INFORMATION
Counsel
Messrs. Keefer, Wood, Allen and Rahal
210 Walnut Street
Harrisburg, PA 17101
Auditors
Coopers & Lybrand L.L.P.
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 approximately 1200 record- holders of the
Company's common stock as of March 18, 1996. The number of
beneficial owners is considerably greater.
Annual Meeting of Stockholders
The Arnold Industries 1996 Annual Meeting of Stockholders will be
held 4:00 PM, May 1, 1996 at the Lebanon Country Club, 3375 West
Oak Street, Lebanon, Pennsylvania
Investor Information
Stockholders, 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.
625 South Fifth Avenue
Lebanon, PA 17042
(717) 274-2521
Copies of the Company's Form 10-K will be supplied to
stockholders upon request without charge.
Dividend Reinvestment/Cash Purchase Plan
This plan enables you, as a stockholder, 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 stockholders 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 stockholder 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.
COMPANY EXECUTIVES
NEW PENN MOTOR EXPRESS, INC.
E. H. Arnold, President
Kenneth F. Leedy, Executive Vice President
Stephen M. O'Kane, Senior Vice President
Donald G. Johnson, VP, Management Systems
Terrence P. Ryan, VP, Sales
Steven J. Ginter, VP, Marketing
Andrew J. Kerlik, VP, Personnel & Safety
Thomas E. Manbeck, VP, Administration
Timothy D. Hoffman, VP, Properties
Charles J. Kachel, VP, National Accounts
Frank Santanella, VP, Eastern Division
Anthony S. Nicosia, Division VP Sales
Charles A. Zaccaria, VP, Northern Division
John F. Mahon, Jr., VP, Central Division
Thomas P. McDonald, Division VP, Sales
Shawn P. Nolan, VP, Western Division
Gary L. Pardoe, Division VP, Sales
ARNOLD TRANSPORTATION SERVICES
Robert J. Petruzzi, COO
Paul L. Shiffler, CFO
SILVEREAGLE
Stephen J. Silverman, President
DALWORTH
James E. Rushing, President
LEBARNOLD
Kurt E. Morgan, Vice-President/General Manager
ARNOLD LOGISTICS
Douglas B. Enck, Vice President/General Manager
(Back Cover)
Arnold Industries, Inc. Logo
Corporate Headquarters
625 South Fifth Avenuye
Lebanon, Pennsylvania 17042
(717) 274-2521
APPENDIX TO ARNOLD INDUSTRIES, INC.
1995 ANNUAL REPORT
DESCRIBING GRAPHIC AND IMAGE MATERIAL
Page 1 - President's Letter to Stockholders includes a picture
of E.H. Arnold, Company President.
Pages 2 and 3 - Description of New Penn includes the
following material:
Map of Eastern and Middle United States with portions of
Quebec and Ontario Provinces and Puerto Rico shaded to
indicate New Penn's Northeast regional service, Inter-
regional service and International service areas;
Bar graph representing New Penn revenue (in millions)
for years 1991 ($130); 1992 ($138); 1993 ($157); 1994
($159) and 1995 ($167);
Bar graph representing New Penn operating income (in
millions) for years 1991 ($30); 1992 ($31); 1993 ($35);
1994 ($33) and 1995 ($34);
Picture of New Penn tractor and trailer with caption,
"New Penn provides overnight Northeast regional LTL
service, two-day service to Ontario and Quebec, Canada
and international service.";
Picture of New Penn tractor and trailer with caption,
"New Penn's Puerto Rico business grew by over 30% in
1995.";
Picture of New Penn driver in cab with caption, "On-
board computers are being piloted in our Trenton
terminal.";
Picture of New Penn dispatch room with caption, "Our
computerized dispatch system has been implemented at
all terminal facilities to improve service reliability
and operating efficiency."
Page 4 - Description of Arnold Transportation Services includes
the following material:
Picture of tractor-trailers with caption, "Arnold
Transportation Services operates three regional
truckload divisions and an asset-based logistics
company.";
The following chart:
Arnold Transportation Services
Region 1995
SilverEagle Southeast $ 62 Million
Dalworth Southwest/Midwest 51 Million
LebArnold Northeast 31 Million
Logistics Northeast/Southwest 19 Million
Bar graph representing revenue of Arnold Transportation
Services (in millions) for years 1991 ($66); 1992
($96); 1993 ($116); 1994 ($143) and 1995 ($163);
Bar graph representing operating income of Arnold
Transportation Services (in millions) for years 1991
($7); 1992 ($9); 1993 ($12); 1994 ($16) and 1995 ($15);
Page 5 - Description of SilverEagle/Arnold includes the following
material:
Map of Eastern and Middle United States with portions of
Quebec and Ontario provinces and Puerto Rico shaded to
indicate SilverEagle's primary and secondary service areas;
Picture of SilverEagle tractor-trailer with caption,
"SilverEagle is our regional truckload operation
primarily serving the Southeast.";
Picture of SilverEagle driver in cab with caption, "On-
board communications are being installed during 1996.";
Picture of SilverEagle headquarters with caption,
"SilverEagle is headquartered in Jacksonville,
Florida.";
Page 6 - Description of Dalworth/Arnold includes the following
material:
Map of Eastern and Middle United States with portions of
Quebec and Ontario Provinces and Puerto Rico shaded to
indicate Dalworth's primary and secondary service
areas;
Picture of Dalworth tractor-trailer with caption,
"Dalworth specializes in high-volume, high-cube
truckload transportation.";
Picture of Dalworth driver in cab with caption, "All
Arnold Transportation Services divisions are focused on
improving driver retention.";
Picture of Dalworth corporate office with caption, "The
new Dalworth corporate office and maintenance facility
is located in Grand Prairie, Texas.";
Page 7 - Description of LebArnold includes the following material:
Map of Eastern and Middle United States with portions of
Quebec and Ontario Provinces and Puerto Rico shaded to
indicate Dalworth's primary and secondary service areas;
Picture of LebArnold tractor-trailer with caption,
"LebArnold provides truckload, multi-stop delivery, and
dedicated fleet services.";
Picture of LebArnold billboard with caption, "Innovative
methods, like the use of billboards, are used to recruit
new drivers.";
Picture of LebArnold driver in cab with caption, "An
increasing number of women are becoming professional
truck drivers."
Page 8 - Description of Arnold Logistics includes the following
material:
Picture of Arnold Logistics tractor-trailer with
caption, "Arnold Logistics is an asset-based company,
providing customized logistics solutions.";
Picture of inside of an Arnold Logistics warehouse with
caption, "Arnold Logistics manages 2.3 million square
feet of warehouse space.";
Picture of Arnold Logistics worker on phone with
caption, "Comprehensive order fulfillment services are
rapidly expanding at Arnold Logistics.";
Picture of Arnold Logistics workers engaged in assembly
with caption, "Contract packaging is one of the value-
added services provided by Arnold Logistics.";
Page 9 - Consolidated Five-Year Statistical Summary: the information
on this page of the Annual Report is presented in bar-graph format.