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, 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: 26,000,154 shares outstanding
(which excludes 3,942,474 treasury shares) as of August 7, 1998.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets - June 30, 1998 and
(Unaudited) December 31, 1997
Condensed Consolidated Statements of - June 30, 1998
Income (Three and Six Month and 1997
Periods - Unaudited)
Condensed Consolidated Statements of - June 30, 1998
Cash Flows (Six Month and 1997
Periods - Unaudited)
Notes to Condensed Consolidated Financial Statements
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1998 1997
ASSETS
Current Assets
Cash and Cash Equivalents 38,047,711 26,504,782
Marketable Securities 8,043,299 9,786,175
Accounts Receivable, Net 45,160,416 40,426,025
Deferred Income Taxes 9,809,860 10,498,070
Prepaid Expenses and Supplies 4,907,916 4,462,413
Refundable Income Taxes -0- 577,498
Total Current Assets 105,969,202 92,254,963
Property and Equipment 354,038,407 346,003,319
Less: Accumulated Depreciation 146,497,241 140,441,244
Total Property and Equipment 207,541,166 205,562,075
Other Assets
Goodwill, Net 8,445,818 8,493,581
Investments in Limited Partnerships 9,375,888 9,616,237
Other 1,138,356 1,113,560
Total Other Assets 18,960,062 19,223,378
TOTAL ASSETS 332,470,430 317,040,416
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable 15,863,399 16,280,126
Accounts Payable 12,180,555 10,155,475
Income Taxes 2,352,974 -0-
Estimated Liability for Claims 6,150,314 6,452,754
Accrued Expenses - Other 17,093,310 13,445,250
Total Current Liabilities 53,640,552 46,333,605
Long-Term Liabilities
Estimated Liability for Claims 13,733,000 13,733,000
Deferred Income Taxes 34,163,448 35,683,538
Notes Payable 1,199,080 2,383,449
Other 1,721,568 1,653,868
Total Long-Term Liabilities 50,817,096 53,453,855
Stockholders' Equity
Common Stock 29,942,628 29,942,628
Paid-In Capital 641,217 481,849
Retained Earnings 219,013,307 208,617,019
Treasury Stock - At Cost (21,584,370) (21,788,540)
Total Stockholders' Equity 228,012,782 217,252,956
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 332,470,430 317,040,416
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)
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
Operating Revenues 198,266,340 187,879,966 102,264,377 97,340,744
Operating Expenses 172,579,280 161,281,032 88,109,344 82,289,763
Operating Income 25,687,060 26,598,934 14,155,033 15,050,981
Interest Expense (546,659) (651,199) (263,120) (319,941)
Other Income
(Deductions) 219,223 544,328 105,927 329,007
Income Before
Income Taxes 25,359,624 26,492,063 13,997,840 15,060,047
Income Taxes 9,244,798 9,660,658 5,109,411 5,549,798
Net Income 16,114,826 16,831,405 8,888,429 9,510,249
Other Comprehensive
Income, Net of Tax ___________ ___________ ___________ __________
Comprehensive Income 16,114,826 16,831,405 8,888,429 9,510,249
Net Income per Common
Share:
Basic .62 .64 .34 .37
Diluted .62 .63 .34 .36
Average Common Shares
Outstanding:
Basic 25,976,888 26,471,650 25,995,769 26,277,369
Diluted 26,168,354 26,695,407 26,153,901 26,848,273
Dividends per
Common Share .22 .22 .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)
Six Months Ended
June 30,
1998 1997
Operating Activities
Net Income 16,114,826 16,831,405
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 15,385,910 15,030,499
Provision for Deferred Taxes (831,830) (401,240)
Other (863,234) (511,188)
Changes in Operating Assets and Liabilities:
(Increase) in Accounts Receivable (4,734,391) (5,818,682)
(Increase) Decrease in Prepaid Expenses
and Supplies (445,503) (755,243)
Increase in Accounts Payable and
Accrued Expenses 8,301,172 9,841,534
Other 67,700 72,600
Net Cash Provided by
Operating Activities 32,994,650 34,289,685
Investing Activities
Proceeds from Sale of Investment Securities 2,267,413 15,688,938
Purchase of Investment Securities (527,919) (6,484,011)
Proceeds from Disposition of
Property and Equipment 4,062,922 2,348,872
Purchase of Property and Equipment (20,278,595) (17,006,510)
Capital Contributions to Limited Partnerships (1,601,096) (1,586,963)
Other (19,446) 16,036
Net Cash Used In Investing Activities (16,096,721) (7,023,638)
Financing Activities
Cash Dividends Paid (5,718,538) (5,822,839)
Purchase of Treasury Stock (12,199,922)
Other 363,538 84,615
Net Cash Used In Financing Activities (5,355,000) (17,938,146)
Increase in Cash and Cash Equivalents 11,542,929 9,327,901
Cash and Cash Equivalents at Beginning of Year 26,504,782 19,704,303
Cash and Cash Equivalents at End of Period 38,047,711 29,032,204
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest 546,660 647,933
Income Taxes 7,136,156 9,411,125
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, 1998, and June 30, 1997, are not necessarily indicative of the results
to be expected for the full year.
Note II: Pending Adoption of SFAS Amendments
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enteprise and Related Information"
(SFAS 131), which is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for the disclosure of segment
results. It requires that segments be determined using the "management
approach," which means the way management organizes the segments within the
enterprise for making operating decisions and assessing performance. The
Company will adopt SFAS 131 in the fourth quarter of 1998, and is still
evaluating its impact on the Company's financial statement disclosures.
In January 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (SFAS 132), which is effective for fiscal years beginning after
December 15, 1997. This statement revises current footnote disclosure
requirements for employers' pensions and other retiree benefits. It does not
address recognition or measurement issues. The adoption of SFAS 132 will not
have a material effect on the Company's financial condition or results of
operations.
In June 1998, the Financial Accounting Standards Board also issued
SFAS No. 133, "Accounting for Drivative Instruments and Hedging Activities"
(SFAS No. 133), which is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. This statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge transaction.
It is not anticipated that the adoption of SFAS 133 will have a significant
effect on the Company's results of operations or its financial position.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Operating Revenues for the second quarter of 1998 were $102,264,377, an
increase of $4,923,633 or 5% from Operating Revenues for 1997's second
quarter. For the same period, Operating Expenses increased $5,819,581 or 7%;
Income Before Income Taxes decreased $1,062,207, a decrease of 7%; and Net
Income decreased $621,820 or 6.5%. Earnings Per Share-Basic decreased from
$.37 to $.34 for the respective quarters.
Operating Revenues for the six months ended June 30, 1998, were
$198,266,340, an increase of $10,386,374 or 5.5% over the comparable period
in 1997. For the same period, Operating Expenses increased $11,298,248 or 7%;
Income Before Taxes decreased $1,132,439, a decrease of 4.3%; and Net Income
decreased $716,579 or 4.3%. Earnings Per Share-Basic decreased from $.64 to
$.62 for the respective six-month periods.
The traffic of New Penn Motor Express, Inc. ("New Penn"), the Company's
less-than-truckload carrier, decreased marginally during the second quarter of
1998, and its operating revenues for the quarter were down by less than 1% in
comparison to those of the second quarter of 1997. Operating income for the
second quarter was also down from 1997's operating income for the same
period. The 1998 second quarter had one less operating day than did the
second quarter of 1997. An additional operating day in the 1998 second
quarter would have resulted in operating revenues for New Penn that exceeded
operating revenue generated during the 1997 second quarter.
Revenues of Arnold Transportation Services, Inc. ("ATS") continued to
grow during the second quarter of 1998. ATS is the Company's truckload carrier
and its assembly, distribution and warehousing arm. Operating Revenues
generated by ATS during the quarter increased by roughly $5,430,000 over
the comparable quarter of 1997. The revenue increase resulted primarily
from additional truckload freight as opposed to higher rates. Michael S.
Walters assumed the position of president of ATS on August 3, 1998, and
will be located in Jacksonville, Florida.
Although both of the Company's operating subsidiaries continue 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 1998 and 1997 and for the six (6) month periods ended June 30,
1998, and June 30, 1997:
(Dollars in Thousands)
Second Quarter Ended June 30,
1998 1997
Amount % Amount %
NEW PENN MOTOR EXPRESS
AND RELATED COMPANIES (LTL)
Operating Revenues 51,328 100.0 51,834 100.0
Operating Expenses 40,818 79.5 40,248 77.6
Operating Income 10,510 20.5 11,586 22.4
(Dollars in Thousands)
Second Quarter Ended June 30,
1998 1997
Amount % Amount %
ARNOLD TRANSPORTATION
SERVICES (TL)
Operating Revenues 50,937 100.0 45,507 100.0
Operating Expenses 47,292 92.8 42,042 92.4
Operating Income 3,645 7.2 3,465 7.6
(Dollars in Thousands)
Six Month Period Ended June 30,
1998 1997
Amount % Amount %
NEW PENN MOTOR EXPRESS
AND RELATED COMPANIES (LTL)
Operating Revenues 100,590 100.0 100,309 100.0
Operating Expenses 79,924 79.5 79,222 79.0
Operating Income 20,666 20.5 21,087 21.0
(Dollars in Thousands)
Six Month Period Ended June 30,
1998 1997
Amount % Amount %
ARNOLD TRANSPORTATION
SERVICES (TL)
Operating Revenues 97,676 100.0 87,571 100.0
Operating Expenses 92,655 94.9 82,059 93.7
Operating Income 5,021 5.1 5,512 6.3
The Company's working capital at the end of the second quarter of 1998
was $52,328,650, which is an increase of $2,855,952 or 5.8% from the end of
the first quarter of 1998.
The Company's investment in Property and Equipment (Less Accumulated
Depreciation) as of the end of the second quarter of 1998 stood at
$207,541,166. This figure represents an increase from March 31, 1998, of
$2,414,850 or 1.2%. The increase reflects the Company's ongoing capital
expansion program. Funding for the Company's continuing capital expansion
program will be accomplished through the use of cash generated from current
operating and investment activities, supplemented, when necessary, by short
or long-term debt financing.
The Company maintains an on-going program to monitor and assess the
Company's readiness with respect to Year 2000 issues. Year 2000 issues
involve not only assuring proper date recognition by the Company's internal
computer software systems, but also assessing Year 2000 readiness of
significant vendors, suppliers and customers. The Company has completed its
assessment of internal Year 2000 compliance issues. The Company continues to
monitor and assess the progress of outside vendors upon whom the Company
relies for such items as fuel, parts, etc. and the progress of significant
customers upon whose continued business the Company relies for revenues.
Pursuant to its internal Year 2000 assessment, the Company embarked upon
a program to correct and/or replace software used by the Company that does not
recognize the year 2000. This internal program is approximately 90% completed
as of August 13, 1998, and is likely to be 100% complete by December 1998.
The Company has incurred approximately $1,390,000 in Year 2000 remediation
costs to date. The cost to complete the internal program is currently
estimated to be $250,000. The cost of completion could be higher or lower
depending upon availability of programming personnel, as well as such other
factors as the ability to complete the work within the targeted time frame.
The cost of monitoring and assessing the compliance programs of third parties
is expected to be minimal, in that it will be accomplished by the Company's
internal MIS personnel.
The Company faces the risk of disruptions to service if either it or its
significant suppliers do not become Year 2000 compliant in a timely manner.
Although the Company fully anticipates becoming Year 2000 compliant in a
timely manner, failure to become compliant would result in the loss of systems
controlling dispatch, billing and payroll, among other essential functions of
the Company. The Company does not believe that these risks will come to
fruition because of the efforts to date to become Year 2000 compliant.
The Company is developing contingency plans to purchase electricity, fuel
and essential parts from other vendors in the event of a Year 2000 malfunction
by a prime supplier. The Company has no contingency plans for loss of revenue
from shippers who are not Year 2000 compliant.
Cautionary Remarks as to Forward-Looking Statements:
The nature of the Company's operations subject it to changing economic,
competitive, regulatory and technological conditions, risks and uncertain-
ties. In accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company cautions that there are
important factors which, among others, could cause future results to differ
materially from the forward-looking statements about our management confidence
and strategies for performance; expectations for new and existing technologies
and opportunities; and expectations for market segment and industry growth.
These factors include, but are not limited to: (1) changes in the business
environment in which the Company operates, including licensing restrictions,
interest rates and capital costs; (2) changes in governmental law and
regulations, including taxes; (3) market and competitive changes, including
market demand and acceptance for new services and technologies; and (5) other
risk factors specifically identified from time to time in Company releases
and disclosure documents, including SEC reports and the annual proxy solici-
tation and report to stockholders. The Company will update forward-looking
statements as required by law, such as the obligation to provide quarterly
up-dates as to progress toward Year 2000 readiness.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On May 6, 1998, 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 21,799,881 605,311
Ronald E. Walborn 21,800,350 604,842
Arthur L. Peterson 21,918,997 486,195
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, 1998 By /s/ Heath L. Allen
Heath L. Allen, Secretary
Date: August 13, 1998 By /s/ Ronald E. Walborn
Ronald E. Walborn, Treasurer