10-Q 1 a10q6-30.txt FORM 10-Q 6-30 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, 2001. 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) 273-9058 (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: 24,800,816 shares outstanding (which excludes 5,141,812 treasury shares) as of August 10, 2001. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Condensed Consolidated Balance Sheets - June 30, 2001 and (Unaudited) December 31, 2000 Condensed Consolidated Statements of - June 30, 2001 Income (Three and Six Month and 2000 Periods - Unaudited) Condensed Consolidated Statements of - June 30, 2001 Cash Flows (Six Month and 2000 Periods - Unaudited) Notes to Condensed Consolidated Financial Statements
ARNOLD INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 2001 2000 ASSETS Current Assets Cash and Cash Equivalents 37,643,115 31,213,063 Marketable Securities 7,110,166 6,121,077 Accounts Receivable, Net 50,757,789 54,238,224 Notes Receivable, Current 928,439 928,439 Deferred Income Taxes 2,925,615 3,315,097 Prepaid Expenses and Supplies 5,981,560 7,467,198 Total Current Assets 105,346,684 103,283,098 Property and Equipment, at Cost 417,602,970 402,903,394 Less: Accumulated Depreciation 180,322,625 170,986,786 Total Property and Equipment 237,280,345 231,916,608 Other Assets Goodwill, Net 11,009,069 11,271,750 Investments in Limited Partnerships 7,817,839 8,073,315 Notes Receivable, Long-term 407,613 868,865 Other 1,282,467 1,433,761 Total Other Assets 20,516,988 21,647,691 TOTAL ASSETS 363,144,017 356,847,397 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes Payable 236,620 3,188,431 Accounts Payable 11,980,082 11,163,008 Income Taxes 483,383 2,183,075 Estimated Liability for Claims 3,898,887 5,232,026 Accrued Expenses - Other 16,723,884 14,687,836 Total Current Liabilities 33,322,856 36,454,376 Long-term Liabilities Estimated Liability for Claims 2,001,000 2,001,000 Deferred Income Taxes 36,498,837 39,072,260 Notes Payable 939,304 1,175,923 Other 2,016,464 1,986,214 Total Long-term Liabilities 41,455,605 44,235,397 Stockholders' Equity Common Stock 29,942,628 29,942,628 Paid-In Capital 3,553,100 2,016,737 Retained Earnings 295,142,457 284,861,907 Treasury Stock, at Cost (40,272,629) (40,663,648) Total Stockholders' Equity 288,365,556 276,157,624 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 363,144,017 356,847,397 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, 2001 2000 2001 2000 Operating Revenues 225,107,987 232,172,606 114,101,121 117,340,214 Operating Expenses 200,562,031 199,906,621 100,898,110 99,593,745 Operating Income 24,545,956 32,265,985 13,203,011 17,746,469 Interest Expense (113,275) (892,364) (58,399) (442,356) Other Income 431,332 349,909 86,874 252,400 Income Before Income Taxes 24,864,013 31,723,530 13,231,486 17,556,513 Income Taxes 9,138,737 11,851,861 4,892,990 6,663,301 Net Income 15,725,276 19,871,669 8,338,496 10,893,212 Net Income per Common Share: Basic 0.64 0.81 0.34 0.45 Diluted 0.62 0.81 0.33 0.45 Average Common Shares Outstanding Basic 24,745,648 24,610,330 24,761,470 24,581,626 Effect of dilutive securities - Stock options 451,717 74,442 433,468 52,420 Diluted 25,197,365 24,684,772 25,194,938 24,634,046 Dividends per Common Share 0.22 0.22 0.11 0.11 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, 2001 2000 Operating Activities Net Income 15,725,276 19,871,669 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 16,524,921 16,993,191 Provision for Deferred Taxes (2,183,941) (391,711) Other (335,634) (828,705) Changes in Operating Assets & Liabilities: (Increase) in Accounts Receivable 3,480,435 (2,147,385) (Increase)Decrease in Prepaid Expenses and Supplies 1,485,638 2,215,046 Increase (Decrease) in Accounts Payable 817,074 (29,859) Increase (Decrease) in Estimated Liability for Claims (1,333,139) 807,550 Increase in Other Accrued Expenses 336,356 1,964,820 Other 30,250 29,650 Net Cash Provided By Operating Activities 34,547,236 38,484,266 Proceeds from Sale of Investment Securities 179,995 4,555 Purchase of Investment Securities (1,018,859) (5,473) Proceeds from Disposition of Property and Equipment 2,894,072 4,185,448 Purchase of Property and Equipment (24,088,767) (13,613,100) Capital Contributions to Limited Partnerships (191,557) (1,153,833) Other 622,146 465,137 Net Cash Used In Investing Activities (21,602,970) (10,117,266) Cash Dividends Paid (5,444,723) (5,419,431) Purchase of Treasury Stock - (1,391,250) Proceeds from Employee Stock Options Exercised 1,927,382 154,425 Proceeds from Short-term Debt Principal Payments on Debt (2,996,873) (66,829) Net Cash Provided by (Used In) Financing Activities (6,514,214) (6,723,085) Increase (Decrease) in Cash and Cash Equivalents 6,430,052 21,643,915 Cash and Cash Equivalents - Beginning of Year 31,213,063 16,231,274 Cash and Cash Equivalents - End of Period 37,643,115 37,875,189 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest 107,807 892,364 Income Taxes 13,022,370 12,125,625 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 and any intervening reports. The results of operations for the three and six-month periods ending June 30, 2001, and June 30, 2000, are not necessarily indicative of the results to be expected for the full year. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on its balance sheet and measure those instruments at fair value. These requirements were effective for the Company with the fiscal quarter ended March 31, 2001. Because the Company does not currently utilize derivative instruments or hedging activities, SFAS No. 133, as amended, has no effect on the Company's consolidated financial statements as presented. In July 2001, the Financial Accounting Standards Board issued SFAS No. 141 "Business Combinations" (SFAS 141) and SFAS No.142 "Goodwill and Other Intangible Assets" (SFAS 142), which are effective July 1, 2001 and January 1, 2002, respectively. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Under SFAS 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. In addition, goodwill recorded as a result of business combinations completed during the six-month period ending December 31, 2001 will not be amortized. All goodwill and intangible assets will be tested for impairment in accordance with the provisions of the Statement. The Company is currently reviewing the provisions of SFAS 141 and SFAS 142 and assessing the impact of adoption. Note 2: Segment Information Set forth below is a schedule of the Unaudited Operating Revenues, Expenses and Operating Income of the LTL, TL and Fulfillment/Logistics segments:
(Dollars in Thousands) Second Quarter Ended June 30, 2001 2000 Amount % Amount % LESS-THAN-TRUCKLOAD Operating Revenues 55,705 100.0 60,601 100.0 Operating Expenses 46,876 84.2 47,345 78.1 Operating Income 8,829 15.8 13,256 21.9 TRUCKLOAD Operating Revenues 43,894 100.0 45,675 100.0 Operating Expenses 41,729 95.1 42,726 93.5 Operating Income 2,165 4.9 2,949 6.5 FULFILLMENT/LOGISTICS Operating Revenues 14,502 100.0 11,064 100.0 Operating Expenses 12,289 84.7 9,502 85.9 Operating Income 2,213 15.3 1,562 14.1 Unallocated corporate operating income (loss) (4) (21) Consolidated operating income 13,203 17,746
(Dollars in Thousands) Six-Month Period Ended June 30, 2001 2000 Amount % Amount % LESS-THAN-TRUCKLOAD Operating Revenues 110,362 100.0 118,145 100.0 Operating Expenses 92,430 83.8 93,070 78.8 Operating Income 17,932 16.2 25,075 21.2 TRUCKLOAD Operating Revenues 86,032 100.0 91,073 100.0 Operating Expenses 83,308 96.8 87,314 95.9 Operating Income 2,724 3.2 3,759 4.1 FULFILLMENT/LOGISTICS Operating Revenues 28,714 100.0 22,955 100.0 Operating Expenses 24,817 86.4 19,499 84.9 Operating Income 3,897 13.6 3,456 15.1 Unallocated corporate operating income (loss) (7) (24) Consolidated operating income 24,546 32,266
Note 3: Commitments and Contingencies By agreement with its insurance carriers, the Company has assumed liability for certain worker's compensation, property damage and public liability claims. As reported in Note No. 11 to the Consolidated Financial Statements contained in the Company's Annual Report for the calendar year ended December 31, 2000 (incorporated by reference into the Company's 10-K filed with the SEC on March 28, 2001), the outstanding balance on letters of credit posted to secure the Company's contingent liability under such claims was $4,000,000 on December 31, 2000. During the second quarter of 2001, there was no material adverse change in the Company's contingent liability for these claims from the information reported in the Company's 2000 Annual Report. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General: Consolidated Operating Revenues for the second quarter of 2001 were $114,101,121, a decrease of $3,239,093 or 3% from Operating Revenues for 2000's second quarter. For the same period, Operating Expenses increased $1,304,365 or 1%; Income Before Income Taxes decreased $4,325,027, a decrease of 25%; and Net Income decreased $2,554,716 or 23%. Earnings Per Share-Basic decreased from $.45 to $.34, or a 24% decrease, for the respective quarters. Consolidated Operating Revenues for the six months ended June 30, 2001, were $225,107,987, a decrease of $7,064,619 or 3% over the comparable period in 2000. For the same period, Operating Expenses increased $655,410, or less than 1%; Income Before Taxes decreased $6,859,517, a decrease of 22%; and Net Income decreased $4,146,393 or 21%. Earnings Per Share-Basic decreased from $.81 to $.64, a net decrease of 21%, for the respective six-month periods. New Penn Motor Express, Inc.: New Penn Motor Express, Inc. ("New Penn"), the Company's less-than-truckload carrier, experienced an 8% decline in revenues over the revenues generated during the second quarter of 2000. Operating Income decreased 33% over the comparable period of 2000, as the operating ratio deteriorated from 78.1 to 84.2. A comparison of results for the first six months of 2001 against the first six months of 2000 reflects that New Penn experienced a 7% decline in Operating Revenues; Expenses declined by less than 1% over the comparable period of 2000; and Operating Income declined by 28% over the prior period. New Penn performed in accordance with management's expectations during the second quarter of 2001. The company's decline in revenue was anticipated by management and reflects slowed U.S. economic activity in general. Manufacturers are producing fewer goods for shipment and, therefore, tonnage shipped by New Penn is down 12%. At the same time, costs remain fixed at levels geared to generate higher revenues and growth. Although management is making every effort to control costs, it nevertheless intends to maintain sufficient capacity in people, equipment, facilities and technology to meet customer needs as the U.S. economy recovers. A new terminal in Albany, New York, was opened during the second quarter and several other new or expanded terminals are in the planning or pre-construction phase. Management anticipates that revenues and margins will return to more traditional levels once the U.S. economy resumes a normal growth pattern. Total shipments, tonnage and miles logged on all shipments completed by New Penn during the second quarter of 2001 in comparison to the second quarter of 2000 are as follows:
Second Quarter Ended June 30, 2001 2000 Total Shipments 487,546 537,615 Total Tonnage 255,324 291,540 Total Miles 12,640,857 13,578,600
Arnold Transportation Services, Inc.: Arnold Transportation Services, Inc. ("ATS"), the Company's truckload carrier, experienced a 4% decline in revenues and Operating Income decreased 27% during the second quarter of 2001 over the second quarter of 2000. ATS experienced a 6% decline in Operating Revenues during the first six months of 2001 over the revenues generated during the first six months of 2000; Expenses declined by 5% over the comparable period of 2000; and Operating Income declined 28% over the prior period. Excluding approximately $500,000 of net gains on sale of property from the second quarter of 2000, operating income (net losses on sale of property) at ATS was down by 10% during the second quarter of 2001. A more stable shipping volume and price structure tend to be hallmarks of the truckload industry, which is more likely to be governed by fixed contracts between shippers and carriers than the LTL industry. The company continues to manage growth in the direction of dedicated and regional markets as opposed to less profitable interregional markets. Current economic conditions have helped to reduce driver turnover and have made high-quality owner- operators more readily available. This has helped the company balance capacity with demand more readily. As a result of these factors, the company is positioned to take advantage of any upturn in the U.S. economy that may be experienced in the third and fourth quarters of 2001. Total shipments and miles logged on shipments completed by Arnold Transportation during the second quarter of 2001 in comparison to the second quarter of 2000 are as follows:
Second Quarter Ended June 30, 2001 2000 Total Shipments 83,803 83,589 Total Miles 38,288,416 34,010,000
Arnold Logistics: Arnold Logistics ("ARLO"), a division of ATS which conducts a fulfillment and logistics business, experienced a 31% increase in revenues during the second quarter of 2001 over the second quarter of 2000 while Operating Income increased 42%, reflecting an improvement in the operating ratio to 84.7. ARLO experienced a 25% increase in Operating Revenues during the first six months of 2001 over the revenues generated during the first six months of 2000; Expenses increased by 27% over the comparable period of 2000; and Operating Income increased 13% over the prior period. Revenues and margins improved at Arnold Logistics despite lower sales volume from several large fulfillment customers, primarily at the division's Lancaster, Pennsylvania, facility. The acquisition of new customers offset revenue declines from such existing customers. Additionally, on the cost side of the equation, the division demonstrated an improved ability to match labor supply to production volumes through use of temporary and part-time workers, thereby minimizing non-productive labor costs. Management anticipates a continuation of strong sales for the remainder of this year. Working Capital; Property and Equipment: The Company's working capital at the end of the second quarter of 2001 was $72,023,828, which is an increase of $2,182,612 or 3% from the end of the first quarter of 2001. For the first six months of 2001, working capital increased by a total of $5,195,106, or 8%, from working capital at the end of 2000. Also during the six months of 2001, net cash used in investing activities was $21,602,970, which primarily involved purchase of property and equipment. The Company's investment in Property and Equipment (Less Accumulated Depreciation) as of the end of the second quarter of 2001 stood at $237,280,345. This figure represents an increase from March 31, 2001, of $3,592,260. Funding for the Company's ongoing capital expansion program is being accomplished through the use of cash generated from current operating and investment activities. Net cash used in financing activities during the first six months of 2001 was $6,514,214, primarily related to the payment of $5,444,723 in dividends during the period. On July 25, 2001, the Company announced its quarterly cash dividend of $.11 per share, payable September 5, 2001, to stockholders of record on August 20, 2001. 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 uncertainties. 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; expecta- tions 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, inflation 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 (4) other risk factors specifically identified from time to time in Company releases and disclosure documents, including SEC reports and the annual proxy solicitation and report to stockholders. The Company will update forward-looking statements as may be required by law. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Neither the Company nor any of its subsidiaries, including Maris, Inc., own derivative financial instruments. Accordingly, the Company has no exposure to sudden changes in the financial and commodities markets and the impact that those changes may have on the value of market risk sensitive derivative securities. Maris, Inc., however, does own certain market risk sensitive instruments, including money market funds, time deposits, tax-free bonds and other like instruments. The Company believes that the risk inherent in owning these types of investments is no greater than the market risk of owning any security traded on various exchanges in the United States and elsewhere. Item 4. Matters Brought to a Vote of Shareholders. At the Annual Meeting, held May 2, 2001, stockholders re-elected Kenneth F. Leedy, Heath L. Allen and John B. Warden III, to serve as members of the Board of Directors, each for a two-year term. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) 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: August 14, 2001 By /s/ Heath L. Allen Heath L. Allen, Secretary Date: August 14, 2001 By /s/ Ronald E. Walborn Ronald E. Walborn, Treasurer