FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1996. OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File No. 0-10894 ARNOLD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 23-2200465 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 625 South Fifth Avenue, Lebanon, Pennsylvania (Address of principal executive offices) 17042 (Zip Code) (717) 274-2521 (Registrant's telephone number, including area code) No Change (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common Stock, par value $1.00 per share: 29,942,628 shares outstanding as of August 8, 1996. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Condensed Consolidated Balance Sheets - June 30, 1996 and (Unaudited) December 31, 1995 Condensed Consolidated Statements of - June 30, 1996 Income (Three and Six Month and 1995 Periods - Unaudited) Condensed Consolidated Statements of - June 30, 1996 Cash Flows (Six Month and 1995 Periods - Unaudited) Notes to Condensed Consolidated Financial Statements ARNOLD INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 1996 1995 ASSETS Current Assets Cash and Cash Equivalents 10,997,872 5,769,772 Marketable Securities 15,195,758 8,503,995 Accounts Receivable, Net 34,323,873 31,344,382 Deferred Income Taxes 4,892,762 4,408,898 Prepaid Expenses and Supplies 4,495,604 4,666,710 Refundable Income Taxes -0- 1,418,300 Total Current Assets 69,905,869 56,112,057 Property and Equipment 311,935,408 304,961,299 Less: Accumulated Depreciation 113,584,716 105,138,829 Total Property and Equipment 198,350,692 199,822,470 Other Assets Goodwill 9,047,042 9,231,529 Investments in Limited Partnerships 10,402,615 10,677,567 Other 877,076 1,032,940 Total Other Assets 20,326,733 20,942,036 TOTAL ASSETS 288,583,294 276,876,563 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes Payable 16,692,749 16,692,749 Accounts Payable 8,760,523 7,316,348 Income Taxes 36,670 -0- Estimated Liability for Claims 10,739,501 6,280,942 Accrued Expenses - Other 11,580,217 9,602,991 Total Current Liabilities 47,809,660 39,893,030 Long-Term Liabilities Estimated Liability for Claims 6,068,579 9,169,106 Deferred Income Taxes 27,174,855 25,995,320 Notes Payable 4,307,334 5,048,581 Other 1,469,362 1,401,762 Total Long-Term Liabilities 39,020,130 41,614,769 Stockholders' Equity Common Stock 29,942,628 29,942,628 Paid-In Capital 164,470 135,260 Retained Earnings 180,594,055 174,260,390 Treasury Stock - At Cost (8,947,649) (8,969,514) Total Stockholders' Equity 201,753,504 195,368,764 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 288,583,294 276,876,563 THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARNOLD INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Six Months Ended Three Months Ended June 30, June 30, 1996 1995 1996 1995 Operating Revenues 172,502,670 166,799,780 90,110,880 83,382,915 Operating Expenses 152,801,974 139,729,355 78,643,743 69,730,377 Operating Income 19,700,696 27,070,425 11,467,137 13,652,538 Interest Expense (630,644) (905,369) (308,120) (466,622) Other Income (Deductions) (220,971) 769,354 (6,988) 321,358 Income Before Income Taxes 18,849,081 26,934,410 11,152,029 13,507,274 Income Taxes 6,652,003 9,902,021 3,997,756 4,983,816 Net Income 12,197,078 17,032,389 7,154,273 8,523,458 Weighted Average Shares Outstanding (Note) 26,652,266 26,631,946 26,654,348 26,633,801 Net Income per Common Share (Note) .46 .64 .27 .32 Dividends per Common Share .22 .22 .11 .11 NOTE: Common share equivalents are not included since the effect of their inclusion is not material. THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARNOLD INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1996 1995 Operating Activities Net Income 12,197,078 17,032,389 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 13,953,156 12,233,898 Provision for Deferred Taxes 695,671 3,315,068 Other (223,601) (1,637,572) Changes in Operating Assets and Liabilities: (Increase) in Accounts Receivable (2,979,491) (2,469,239) (Increase) Decrease in Prepaid Expenses and Supplies 171,106 (2,003,400) Increase (Decrease) in Accounts Payable and Accrued Expenses 6,234,403 (1,285,349) Other 67,600 70,200 Net Cash Provided by Operating Activities 30,115,922 25,255,995 Investing Activities Proceeds from Sale of Investment Securities 1,338,914 8,512,738 Purchase of Investment Securities (8,048,724) (615,610) Proceeds from Disposition of Property and Equipment 2,140,775 5,827,232 Purchase of Property and Equipment (13,789,409) (36,331,494) Capital Contributions to Limited Partnerships -0- (1,866,245) Acquisition of Primary Assets of T.W.Owens & Sons, Inc. -0- (11,120,700) Other 24,206 (58,413) Net Cash Used In Investing Activities (18,334,238) (35,652,492) Financing Activities Cash Dividends Paid (5,863,412) (5,859,073) Principal Payments on Long-term Debt (741,247) -0- Other 51,075 34,886 Net Cash Used In Financing Activities (6,553,584) (5,824,187) Increase (Decrease) in Cash and Cash Equivalents 5,228,100 (16,220,684) Cash and Cash Equivalents at Beginning of Year 5,769,772 23,554,745 Cash and Cash Equivalents at End of Period 10,997,872 7,334,061 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest 652,922 913,533 Income Taxes 4,503,015 9,305,488 THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARNOLD INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note I: Basis of Presentation The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim period. This financial information should be read in conjunction with the Financial Statements and Notes thereto included in the Company's latest annual report on Form 10-K and any intervening reports. The results of operations for the three and six-month periods ending June 30, 1996, and 1995 are not necessarily indicative of the results to be expected for the full year. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Operating Revenues for the second quarter of 1996 were $90,110,880, an increase of $6,727,965 or 8.1% from Operating Revenues for 1995's second quarter. For the same period, Operat- ing Expenses increased $8,913,366 or 12.8%; Income Before Income Taxes decreased $2,355,245, a decrease of 17.4%; and Net Income decreased $1,369,185 or 16.1%. Earnings Per Share decreased from $.32 to $.27 for the respective quarters. Operating Revenues for the six months ended June 30, 1996 were $172,502,670, an increase of $5,702,890 or 3.4% over the comparable period in 1995. For the same period, Operating Expenses increased $13,072,619 or 9.4%; Income Before Taxes decreased $8,085,329, a decrease of 30%; and Net Income decreased $4,835,311 or 28.4%. Earnings Per Share decreased from $.64 to $.46 for the respective six-month periods. The second quarter of 1996 produced greater revenues for the Company than the second quarter of 1995, but those revenues were less profitable to the Company than in prior quarters due to increased costs and greater competitive pressures. Overcapacity continues to exist in the trucking industry, and overcapacity leads to strong competition and price-cutting. In late May and in June of 1996, the traffic of New Penn Motor Express, Inc. ("New Penn"), the Company's less-than-truck- load carrier, increased, and its operating revenues for the second quarter were greater than those of the second quarter of 1995. Operating income for the second quarter came reasonably close to 1995's operating income for the same quarter. Revenues among the Arnold Transportation Services group, which consists of three regional truckload carriers, also con- tinued to grow. Lebarnold, Inc. ("Lebarnold"), SilverEagle Transport, Inc. ("SilverEagle") and D.W. Freight, Inc. ("DW") together produced a revenue increase of approximately $4 Million when compared to their 1995 second quarter performance. This revenue increase resulted primarily from increased volume at each of these subsidiaries. Nevertheless, the operating ratios of the truckload divisions deteriorated during the quarter. A substan- tial portion of the increased operating expenses incurred by the truckload carriers involved higher costs for fuel and insurance. Although all of the Company's operating subsidiaries con- tinue to experience fierce price competition from other carriers in the trucking industry, Company management remains focused on improving operating efficiencies. At the same time, management continues to seek growth opportunities by offering expanded trucking and warehousing related services to meet the needs of existing and prospective customers. Company management will continue to seek opportunities for profitable expansion of the Company through acquisitions and value-added services. Set forth below is a schedule of the Unaudited Operating Revenues, Expenses and Operating Income of the LTL and TL companies for the second quarters of 1996 and 1995 and for the six (6) month periods ended June 30, 1996, and June 30, 1995: (Dollars in Thousands) Second Quarter Ended June 30, 1996 1995 Amount % Amount % NEW PENN MOTOR EXPRESS AND RELATED COMPANIES (LTL) Operating Revenues 45,484 100.0 42,562 100.0 Operating Expenses 36,785 80.9 33,608 79.0 Operating Income 8,699 19.1 8,954 21.0 (Dollars in Thousands) Second Quarter Ended June 30, 1996 1995 Amount % Amount % ARNOLD TRANSPORTATION SERVICES (TL) Operating Revenues 44,627 100.0 40,821 100.0 Operating Expenses 41,859 93.8 36,122 88.5 Operating Income 2,768 6.2 4,699 11.5 (Dollars in Thousands) Six Months Ended June 30, 1996 1995 Amount % Amount % NEW PENN MOTOR EXPRESS AND RELATED COMPANIES (LTL) Operating Revenues 86,987 100.0 85,343 100.0 Operating Expenses 71,371 82.0 67,321 78.9 Operating Income 15,616 18.0 18,022 21.1 (Dollars in Thousands) Six Months Ended June 30, 1996 1995 Amount % Amount % ARNOLD TRANSPORTATION SERVICES (TL) Operating Revenues 85,516 100.0 81,457 100.0 Operating Expenses 81,431 95.2 72,409 88.9 Operating Income 4,085 4.8 9,048 11.1 The Company's working capital at the end of the second quar- ter of 1996 was $22,096,209, which is an increase of $2,284,221 or 11.5% from the end of the first quarter of 1996. The Company's investment in Property and Equipment (Less Accumulated Depreciation) as of the end of the second quarter of 1996 stood at $198,350,692. This figure represents an increase from March 31, 1996, of $812,296 or 0.4%. The increase reflects the Company's ongoing capital expansion program. Funding for the Company's continuing capital expansion program will be accom- plished through the use of cash generated from current operating and investment activities, supplemented, when necessary, by short or long-term debt financing. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. On May 1, 1996, the Company held its Annual Meeting of Stockholders. The following individuals were elected to serve as Directors for a new two-year term: Name For Withheld Edward H. Arnold 24,656,975 32,757 Ronald E. Walborn 24,672,790 32,422 Arthur L. Peterson 24,672,687 32,525 Kenneth F. Leedy, Heath L. Allen and Carlton E. Hughes continue in their present two-year terms as Directors. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 27 - Financial Data Schedule (b) NONE SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARNOLD INDUSTRIES, INC. (Registrant) Date: August 13, 1996 By /s/ Heath L. Allen Heath L. Allen, Secretary Date: August 13, 1996 /s/ Ronald E. Walborn Ronald E. Walborn, Treasurer