FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998. 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: 25,993,682 shares outstanding as of May 8, 1998. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Condensed Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December 31, 1997 Condensed Consolidated Statements of Income (Three Month Period - Unaudited) - March 31, 1998 and 1997 Condensed Consolidated Statements of Cash Flows (Three Month Period - Unaudited) - March 31, 1998 and 1997 Notes to Condensed Consolidated Financial Statements ARNOLD INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, December 31, 1998 1997 ASSETS Current Assets Cash and Cash Equivalents 29,613,268 26,504,782 Marketable Securities 8,227,492 9,786,175 Accounts Receivable, Net 44,634,373 40 426,025 Deferred Income Taxes 9,866,714 10,498,070 Prepaid Expenses and Supplies 5,934,545 4,462,413 Refundable Income Taxes 0 577,498 Total Current Assets 98,276,392 92,254,963 Property and Equipment, at Cost 349,746,678 346,003,319 Less: Accumulated Depreciation 144,620,362 140,441,244 Total Property and Equipment 205,126,316 205,562,075 Other Assets Goodwill, Net 8,410,865 8,493,581 Investments in Limited Partnerships 9,502,245 9,616,237 Other 1,138,856 1,113,560 Total Other Assets 19,051,966 19,223,378 TOTAL ASSETS 322,454,674 317,040,416 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes Payable 16,280,126 16,280,126 Accounts Payable 9,277,187 10,155,475 Income Taxes 2,457,243 0 Estimated Liability for Claims 5,334,406 6,452,754 Accrued Expenses - Other 15,454,732 13,445,250 Total Current Liabilities 48,803,694 46,333,605 Long-Term Liabilities Estimated Liability for Claims 13,733,000 13,733,000 Deferred Income Taxes 35,420,695 35,683,538 Notes Payable 856,929 2,383,449 Other 1,691,468 1,653,868 Total Long-Term Liabilities 51,702,092 53,453,855 Stockholders' Equity Common Stock 29,942,628 29,942,628 Paid-In Capital 619,216 481,849 Retained Earnings 212,984,213 208,617,019 Treasury Stock, at Cost (21,597,169) (21,788,540) Total Stockholders' Equity 221,948,888 217,252,956 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 322,454,674 317,040,416 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) Three Months Ended March 31, 1998 1997 Operating Revenues 96,001,963 90,539,222 Operating Expenses 84,469,936 78,991,269 Operating Income 11,532,027 11,547,953 Interest Expense (283,539) (331,258) Other Income (Deductions) 113,296 215,321 Income Before Income Taxes 11,361,784 11,432,016 Income Taxes 4,135,387 4,110,860 Net Income 7,226,397 7,321,156 Other Comprehensive Income, Net of Tax 0 0 Net Income 7,226,397 7,321,156 Net Income per Common Share: Basic .28 .27 Diluted .28 .27 Average Common Shares Outstanding: Basic 25,957,797 26,668,089 Diluted 26,182,014 26,848,273 Dividends per Common Share .11 .11 THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. ARNOLD INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 1998 1997 Operating Activities Net Income 7,226,397 7,321,156 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 7,677,922 7,167,020 Provision for Deferred Taxes 368,513 (371,846) Other (191,138) (196,773) Changes in Operating Assets and Liabilities: (Increase) in Accounts Receivable (4,208,348) (3,701,512) (Increase) in Prepaid Expenses and Supplies (1,472,132) (127,994) Increase in Accounts Payable and Accrued Expenses 3,047,587 9,356,270 Other 37,600 43,800 Net Cash Provided by Operating Activities 12,486,401 19,490,121 Investing Activities Proceeds from Sale of Investment Securities 2,064,472 1,340,827 Purchase of Investment Securities (507,941) (6,070,094) Proceeds from Disposition of Property and Equipment 1,205,192 1,748,386 Purchase of Property and Equipment (8,059,157) (9,949,016) Capital Contributions to Limited Partnerships (1,526,520) (1,664,200) Other (23,496) 142,045 Net Cash Used In Investing Activities (6,847,450) (14,452,052) Financing Activities Cash Dividends Paid (2,859,203) (2,933,159) Purchase of Treasury Stock 0 (140,250) Other 328,738 68,955 Net Cash Used In Financing Activities (2,530,465) (3,004,454) Increase in Cash and Cash Equivalents 3,108,486 2,033,615 Cash and Cash Equivalents at Beginning of Year 26,504,782 19,704,303 Cash and Cash Equivalents at End of Period 29,613,268 21,737,918 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest 283,538 331,257 Income Taxes 766,856 1,514,966 THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. ARNOLD INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: Basis of Presentation The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim period. This financial information should be read in conjunction with the Financial Statements and Notes thereto included in the Company's latest annual report on Form 10-K. The results of operations for the three-month period ending March 31, 1998 and 1997 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 first quarter of 1998 were $96,001,963, an increase of $5,462,741 or 6% over Operating Revenues for 1997's first quarter. For the same periods, Operating Expenses increased $5,478,667 or 6.9%; Income before Income Taxes decreased $70,232, a decrease of .6%, and Net Income decreased $94,759, or 1.3% to $7,226,397. Earnings Per Share increased to $.28 for the first quarter of 1998 from $.27 for the first quarter of 1997, a 3.7% increase. The Company's revenue figures for the first quarter of 1998 as compared to the first quarter of 1997 are higher due primarily to increased business volume at Arnold Transportation Services, Inc. ("Arnold Transportation"), which experienced an 11% increase in revenue. Revenue figures for New Penn Motor Express, Inc. ("New Penn") increased less significantly, by some 1.6%. Set forth below is a schedule of the Unaudited Operating Revenues, Expenses and Operating Income of the LTL and TL companies: (Dollars in Thousands) First Quarter Ended March 31, 1998 1997 Amount % Amount % NEW PENN MOTOR EXPRESS AND RELATED COMPANIES (LTL) Operating Revenues 49,263 100.0 48,475 100.0 Operating Expenses 39,107 79.4 38,974 80.4 Operating Income 10,156 20.6 9,501 19.6 (Dollars in Thousands) First Quarter Ended March 31, 1998 1997 Amount % Amount % ARNOLD TRANSPORTATION SERVICES (TL) Operating Revenues 46,739 100.0 42,064 100.0 Operating Expenses 45,363 97.1 40,017 95.1 Operating Income 1,376 2.9 2,047 4.9 The Company's working capital at the end of the first quarter of 1998 was $49,472,698, which is an increase of $3,551,340 or 7.7% from the end of the 1997 fiscal year. Factors contributing to the increase in working capital were the Company's profitable first quarter. The Company's investment in Property and Equipment (Less Accumulated Depreciation) as of the end of the first quarter of 1998 stood at $205,126,316. This figure represents a slight decrease from December 31, 1997, of $435,759. Funding for the Company's ongoing capital expansion program is being accomplished through the use of cash generated from current operating and investment activities, supplemented when necessary by short or long-term financing. Results for the first quarter of 1998 were positively impacted by factors that included mild winter weather in the northeastern United States and a robust national economy. In 1998, the winter weather in New England and the Middle Atlantic states was remarkably mild. New Penn was able to improve its operating ratio from the 80.4 for the first quarter of 1997 to 79.4 for the first quarter of 1998, while also enjoying higher revenue. During 1998, New Penn anticipates acquiring $8 million of new equipment and expending $14 million for new real estate and improvements to existing properties. Terminal expansion is continuing in Cranbury and Cinnaminson, New Jersey, in Rochester, Albany, Syracuse and Buffalo, New York, and in Billerica, Massachusetts. Arnold Transportation is making substantial progress in combining the previous truckload divisions into a core carrier. The truckload operations are expected to improve in efficiency and marketing as a result of the combined operations. During 1998, Arnold Transportation's capital expenditures will approximate $16 million for new equipment and $8 million for real estate. The Arnold Logistics Division of Arnold Transportation enjoyed an improved first quarter of 1998. The warehouse in Fort Worth, Texas, continues to operate profitably. Company management remains focused on improving operating efficiencies while at the same time seeking growth opportunities by, among other things, offering expanded trucking and warehousing related services to meet the needs of existing and prospective customers. Management will continue to seek opportunities for profitable expansion of the Company. At the Annual Meeting, held May 6, 1998, stockholders re-elected Edward H. Arnold, Ronald E. Walborn and Arthur L. Peterson to serve as members of the Board of Directors, each for a two-year term. The Company also announced that the Board of Directors declared the regular quarterly dividend of eleven cents per share, payable June 4, 1998, to stockholders of record on May 21, 1998. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 - Financial Data Schedule (b) NONE APPLICABLE SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARNOLD INDUSTRIES, INC. (Registrant) Date: May 15, 1998 By /s/ Heath L. Allen Heath L. Allen, Secretary Date: May 15, 1998 By /s/ Ronald E. Walborn Ronald E. Walborn, Treasurer