SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 30, 1995
( ) 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. 0-16386
CANNON EXPRESS, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0650141
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1457 E. Robinson 72764
P. O. Box 364 (Zip Code)
Springdale, Arkansas
(Address of principal executive offices)
Registrant's telephone number, including Area Code: (501) 751-9209
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
Class B Common Stock, $.01 par value
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 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K Yes X No
Aggregate market value of voting stock held by non-affiliates of the registrant
at September 21, 1995: $10,579,736.
Number of shares of common stock outstanding at September 21, 1995:
Class A - 2,161,352
Class B - 2,166,352
Documents incorporated by reference: Company's Notice and Proxy Statement for
its annual meeting of stockholders to be held on Tuesday, November 21, 1995.
Part I
Item 1. Business
Cannon Express, Inc. (the "Company" or "Registrant") is an irregular route,
truckload carrier with headquarters in North-west Arkansas, transporting a wide
range of general commodities in the United States pursuant to nationwide
operating authorities granted by the Interstate Commerce Commission, ("ICC")
and in Canada through operating authorities granted by the Canadian provinces.
At June 30, 1995, the Company operated a fleet of 712 tractors and 1,598
trailers, and employed 896 people, none of whom is represented by a collective
bargaining agreement.
Marketing and Customers
The Company's marketing strategy is to be one of a select group of carriers
serving financially sound customers who provide shipments to and from locations
within the Company's operating area. The Company's sales effort is carried out
primarily by its telemarketing staff consisting of salespersons who solicit
new customers and customer coordinators who arrange shipments for existing
customers.
The Company publishes its own freight rates instead of using rates published
for a group of carriers by freight rate publishing bureaus. This practice
permits pricing that is responsive to changing market conditions as well as to
a particular customer's needs. In conjunction with the Company's ICC
published rates, most arrangements for transportation are made in the form
of contracts with customers, which are not published.
During the fiscal year ended June 30, 1995, Wal-Mart Stores, Inc. ("Wal-Mart")
accounted for 41.3% and International Paper, Inc. accounted for 17.5% of the
Company's operating revenue. During the fiscal years ended June 30, 1994 and
1993, Wal-Mart accounted for 38.5% and 25.7%, respectively, and International
Paper accounted for 20.1% and 22.5%, respectively, of operating revenue. The
Company does not have long-term contracts with its customers, and, accordingly,
there is no assurance that the current volume of business from these major
customers will continue. Management believes that the sudden loss of a
significant customer could have a material adverse affect on revenue, equipment
utilization and operating efficiencies.
The principal types of freight transported by the Company include: retail and
wholesale goods primarily for discount merchandisers, automotive supplies and
parts, non-perishable food products, and paper goods.
Operations
A customer's initial contact with the Company is through one of the Company's
salespersons. This initial contact will involve computerized collection of
information regarding the customer's financial condition and its payment
history together with information on its loads, including the volume of freight
to be delivered, the origins and destinations of shipments, the schedule
in which such shipments are to be made and any special needs. Once this
information has been collected, the Company and the shipper will negotiate and
agree upon the shipment rates.
One of the Company's customer coordinators is then assigned to the shipper's
account. Customer coordinators are assigned to a specific region of the United
States and are responsible for matching a shipper's load with a truck located
within the customer coordinator's assigned region. The customer coordinator
then assigns a shipment to a dispatcher.
Dispatchers are responsible for conveying shipment information to assigned
drivers. Dispatchers and drivers communicate with one another either by
telephone as the driver makes routine stops in transit, or, through the use of
a special credit card, by means of an inter-computer linkage between the
Company and a fuel billing network. This linkage also enables the dispatcher
to monitor the progress of a particular shipment. At the shipment's origin, the
driver notifies the dispatcher when the shipment has been loaded and then
proceeds to the shipment's destination. When the shipment has reached its
destination, the driver is assigned another shipment by the dispatcher.
Once documents (such as driver's log, bill of lading, fuel tickets) have been
received by the Company, they are examined by the fuel and safety departments
and then by the billing department, which verifies shipment and billing
information previously entered into the computer by operations personnel.
Computer-generated bills are typically sent to the customer on the same
day shipment documents are received.
Through the use of its computer system, complimentary software and inter-
computer linkage with a fuel billing network, the Company monitors and
coordinates routes and shipments. This system also enables dispatchers and
customer coordinators to instantaneously send and receive shipment
information. The computer system is also used for payroll, billing and
bookkeeping. The complimentary software used with the computer system for the
above purpose was designed and implemented by Company management.
Drivers and Other Employees
As of June 30, 1995, the Company employed 722 drivers and driver trainees.
All drivers are selected in accordance with Company guidelines relating
primarily to safety record, driving experience and personal evaluation. The
Company requires all drivers to meet experience requirements or to
satisfactorily complete a training program, which pairs a trainee with one
of the Company's proven driver trainers. Trainees sharpen the skills necessary
for success and are evaluated daily by their trainer. Once selected, a driver
or driver trainee is instructed in all phases of Company policies and
operations as well as safety techniques and fuel efficient operation of the
equipment.
The Company's drivers are compensated on the basis of miles driven, loading,
unloading and delivery stops, plus bonuses. Base pay per mile increases with
a driver's completion of a specified number of miles safely driven. To promote
safe vehicle operation, the Company pays an incentive bonus to drivers for safe
operation and service performance. Drivers were awarded a two cent per mile
(approximately 9%) increase in their base pay rate in April of 1994. In
addition, beginning in July of 1994, drivers who met Company performance and
safety standards received an additional five cents per mile in compensation
paid quarterly in the form of a bonus. Driver bonuses earned during the fiscal
year ended June 30, 1995, approximated $1,703,000.
Like other truckload carriers, the Company experiences significant driver
turnover. The Company, like the truckload industry in general, has experienced
shortages of qualified drivers from time to time. Management anticipates that
competition for qualified drivers will intensify. The Company seeks to attract
drivers by advertising job openings, encouraging referrals from existing
employees and providing a training program for applicants whose experience does
not meet the Company's minimum requirements.
As of June 30, the Company employed:
1995 1994
Drivers and Driver Trainees 722 513
Management 14 12
Operations, Marketing, and Administration 111 84
Maintenance and Repair 49 43
Total 896 652
Since June 30, 1994, the Company has added approximately 209 drivers, 2
management personnel, 27 operations, marketing, and administration personnel,
and 6 mechanics. Such additions were made to maintain the expanded fleet and
in anticipation of fiscal 1996 growth to accommodate expanded shipment volume.
Management considers relations with its employees to be satisfactory and has
not experienced collective bargaining efforts in the past, nor does it
anticipate any collective bargaining by employees in the future. In July 1994,
the Company implemented a 401(K) plan for its drivers and other employees.
Company contributions, if any, are determined annually by its Board of
Directors.
Tractors and Trailers
At June 30, 1995, the fleet consisted of 712 tractors and 1,598 trailers,
compared to 517 tractors and 962 trailers at June 30, 1994. As of June 30,
1995, total new tractors purchased or leased for the fiscal year were 400 with
205 older model tractors being traded in or sold. In addition, during the same
fiscal period total new trailer acquisitions were 633 net units.
Tractors are acquired primarily with driver comfort, fuel efficiency and
overall economy in mind. All tractors operated by the Company are
conventionals, rather than cab-overs. Management believes that this type of
tractor will provide the driver greater comfort and will require less overall
maintenance because of the tractor's easier ride on the road. As of June 30,
1995, substantially all of the Company's tractors were manufactured by
International, while trailers were manufactured by various trailer
manufacturers. The Company has negotiated extended warranties on many of its
tractors and intends to trade-in such tractors on approximately a four-year
cycle. Manufacturers of tractors are required to certify to the Company that
new tractors meet federal emissions standards. All trailers in the fleet
measure 48 feet in length by 102 inches in width.
The Company has a comprehensive preventive maintenance program for its tractors
and trailers. Inspections and different levels of repair or maintenance are
performed at the Company's maintenance facility at least once each month. At
each inspection, diagnostic tests are performed to ensure proper operation of
equipment.
The following table shows the type and age of equipment operated by the Company
at June 30, 1995:
MODEL OVER-the-ROAD 48-FOOT
YEAR TRACTORS TRAILERS
1996 50 -
1995 349 649
1994 - 200
1993 195 255
1992 105 195
1991 1 50
1990 1 94
1989 thru 1983 11 155
712 1,598
Fuel
The Company, and the motor carrier industry as a whole, is dependent upon the
availability and cost of diesel fuel. On August 10, 1993, the Omnibus Budget
Reconciliation Act of 1993 became law and increased the federal diesel fuel tax
by 4.3 cents per gallon effective October 1, 1993. Also on October 1, 1993, a
new federal regulation requiring the use of low-sulfur diesel fuel by motor
carriers took effect. The change to low-sulfur fuel created temporary
shortages in many truck stops around the country, which resulted in increased
fuel costs. These additional costs were passed through to the Company's
customers in the form of higher rates for their shipments. Fuel cost and
availability did not change significantly during fiscal 1995 and the Company
does not expect significant shortages or cost increases in the foreseeable
future. As in the past, the Company would expect to pass significant increases
in fuel cost to its customers through fuel surcharges if the increased costs
are believed temporary in nature, or through increased rates if deemed to be
permanent. Shortages or significant increased costs which could not be passed
through to its customers could have a material adverse impact on the Company's
profitability.
Governmental Regulation
The Company is a motor common and contract carrier regulated by both the ICC
and various state agencies. These regulatory authorities have broad powers
generally governing matters such as authority to engage in motor carrier
operations, rates and charges, accounting systems, certain mergers,
consolidations and acquisitions and periodic financial reporting. In addition,
the Company's Canadian business activities are subject to similar requirements
imposed by provincial and Canadian regulations.
The Company, like other motor carriers, is subject to certain safety
requirements governing interstate operations prescribed by the United States
Department of Transportation ("DOT") and by Canadian provincial authorities.
In addition, vehicle weight and dimensions are subject to federal, state, and
provincial regulations. Management believes that the Company is in compliance
in all material respects with applicable regulatory requirements relating to
its operations. The failure of the Company to comply with regulations of the
ICC, DOT, state or provincial agencies could result in substantial fines or
revocation of operating authorities. Federal, state and local environmental
laws and regulations impose requirements relating to, among other things,
contingency planning for spills of petroleum products, disposal of waste oil
and maintenance and testing of underground storage tanks.
Management believes that future compliance with such laws and regulations will
not have a material effect upon the Company's capital expenditures, earnings,
or competitive position. In August 1994, the President signed a bill de-
regulating transportation of intra-state shipments. This legislation expands
the Company's market to include those customers who have shipments with
origination and destination in the same state. Previously, the Company was
unable to compete for these shipments due to operating restrictions imposed by
some individual states.
Competition
The trucking industry as a whole is highly competitive. The Company competes
primarily with other irregular route, truckload carriers. To a lesser degree,
railroads, less-than-truckload carriers and contract carriers also provide
competition. Competition from any one of these sources, however, may be
significant in one geographic area or at any one time. Competition for freight
is based primarily on service and efficiency and, to a lesser degree, upon
freight rates. A number of other irregular route, truckload carriers have
substantially greater financial resources, own more equipment or carry a larger
volume of freight than the Company.
Safety and Insurance
The Company is committed to safe operation of its revenue equipment. To
promote safety consciousness, the Company provides bonus incentives for safe
driving, carefully selects and trains its drivers and regularly engages in
preventive maintenance of its equipment.
The Company maintains comprehensive liability insurance coverage up to $1
million per claim. The Company also maintains $250,000 of cargo loss and
damage insurance per claim and collision coverage on owned or leased equipment.
In addition, with the assistance of its third-party administrator, workers'
compensation claims are self-insured up to $300,000. Management believes that
current insurance coverage adequately protects the Company from liability
arising from normal operations. Although coverage is currently available from
multiple sources, a material decrease in availability, or a substantial
increase in costs, could have a material adverse effect on the Company's
profitability.
Item 2. Properties
The Company's executive offices and its maintenance facility are located at
1457 & 1457A E. Robinson, respectively, in Springdale, Arkansas.
The office facility is located on a 3.6 acre tract of land. It is leased from
Dean G. Cannon and Rose Marie Cannon, President and Secretary/Treasurer of the
Company, respectively.
The Company's maintenance facility, purchased in 1987, is located on a 17 acre
tract of land adjacent to the office facility. The 13,000 square foot facility
contains 7 drive through bays and other improvements, and is used by the
Company for equipment maintenance, repairs, and refueling.
During fiscal 1991, approximately 25 acres of land adjacent to the above
locations were purchased from an unaffiliated party for cash at fair market
value. The purpose of this acquisition was to provide for future expansion.
During fiscal 1994, approximately 6 acres of land adjoining the office
facility were purchased from an unaffiliated party for cash at fair market
value to be used in the future for the construction of new office facilities.
Item 3. Legal Proceedings
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injuries and property damage incurred
in the transportation of freight. Management believes that adverse results
in one or more of these cases would not have a material adverse effect on
profitability or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) The Company's common stock is traded on the NASDAQ National Market
System under the symbols CANXA and CANXB.
The range of high and low bid information for the last eight fiscal
quarters is as follows:
CLASS A COMMON STOCK CLASS B COMMON
STOCK
HIGH LOW HIGH LOW
YEAR ENDED JUNE 30, 1994:
First Quarter $ 8 $ 3 1/2 $ 5 3/4 $ 3 1/2
Second Quarter 14 6 3/4 11 3/4 5 3/4
Third Quarter 16 12 14 10 1/2
Fourth Quarter 14 1/2 10 3/4 12 9 1/4
YEAR ENDED JUNE 30, 1995:
First Quarter $15 $10 3/4 $12 1/4 $ 8 1/2
Second Quarter 14 11 1/2 14 1/4 11
Third Quarter 16 11 3/4 15 1/4 12
Fourth Quarter 15 1/4 12 3/4 15 3/8 11 5/8
The above over-the-counter market prices reflect inter dealer quotations,
without retail mark-ups, mark-downs, or commissions, and may not
necessarily represent actual transactions.
(b) The approximate number of holders of common stock as of September 21,
1995 was 1,350.
(c) The Company has not paid any dividends on its Common Stock. The
present policy of the Company is to retain cash earnings to provide funds
for operations and expansion of the Company's business.
Item 6. Selected Financial Data
The following table provides a summary of selected financial data for
Cannon Express, Inc.
FISCAL YEAR ENDED JUNE 30,
1995 1994 1993 1992 1991
(in thousands except per share data)
Operating Revenue $79,030 $59,177 $43,256 $33,311 $27,017
Income before
cumulative
effect of change
in accounting
principle(1)&(2) 6,016 3,808 2,028 2,172 2,016
Pro forma income
before cumulative
effect of change
in accounting
principle(1)&(2 ) 6,016 3,808 2,028 2,172 1,996
Earnings per share(3):
Income before
cumulative effect
of change in
accounting
principle(1)&(2) 1.35 .86 .47 .49 .48
Pro forma income
before cumulative
effect of change in
accounting
principle(1)&(2) 1.35 .86 .47 .49 .47
Total assets $77,263 $44,931 $40,743 $33,027 $24,056
Long term debt,
less current portion $35,353 $12,954 $17,759 $12,457 $$8,209
(1) Effective June 30, 1994, the Company adopted FAS Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and
classified certain marketable equity securities as "available-for-sale"
securities. This change resulted in increased earnings of $426,244, ($.10
per share), included in fiscal 1994 net income as the cumulative effect of
a change in accounting principle. As specified by FAS Statement No. 115,
no pro forma effect is presented for this change.
(2) Effective July 1, 1991, the Company changed its accounting method of
revenue recognition to recognize revenue and related direct expenses when
freight is delivered. This change resulted in a charge to earnings of
$99,186 ($.02 per share) included in 1992 net income as the cumulative
effect on prior years of the change in accounting method.
(3) Earnings per share have been retroactively restated to give effect to
a five-for-four stock split effective November 22, 1991 and the
recapitalization effected on January 26, 1993.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The following table sets forth the percentage relationship of certain revenue
and expense items for the fiscal years indicated. Note: Percentages may not
total 100 due to rounding.
Percentages of
Operating Revenue
Year Ended June 30,
1995 1994 1993
Operating revenue 100.0% 100.0% 100.0%
Operating expenses and costs:
Salaries, wages and fringe benefits 31.5% 30.1% 31.5%
Operating supplies and expenses 28.1 30.5 31.2
Insurance, taxes and licenses 9.6 9.6 11.6
Depreciation and amortization 9.4 9.0 9.6
Rents and purchased transportation 5.0 4.5 3.6
Other 1.6 2.1 2.3
Total operating expenses 85.2 85.8 89.6
Operating income 14.8 14.2 10.4
Other income (expense):
Gain on disposal of assets 0.1 0.1 0.1
Interest and dividend income 0.2 0.1 0.4
Gain (loss) on marketable securities 0.1 (1.0) 0.4
Interest expense (2.8) (2.4) (2.9)
Income before income taxes and
cumulative effect of change
in accounting principle 12.4 11.0 8.4
Income taxes 4.8 4.6 3.7
Income before cumulative effect
of change in accounting principle 7.6 6.4 4.7
Cumulative effect of change
in accounting principle - 0.7 -
Net income 7.6% 7.2% 4.7%
RESULTS OF OPERATIONS:
Fiscal year ended June 30, 1995 compared to Fiscal year ended June 30, 1994
Operating revenue for fiscal 1995 increased 33.6% or $19,852,963 to
$79,030,217. The increase was primarily attributable to the increased number
of shipments transported by the Company's larger fleet of tractors and
trailers. The Company operated an average of 630 tractors during fiscal 1995,
compared to an average of 519 tractors in fiscal 1994.
Salaries, wages and fringe benefits increased 39.7% or $7,079,622 to
$24,905,286 in fiscal 1995. This increase is attributable to additional wages
paid to drivers and support personnel due to the Company's expanded fleet. In
addition, beginning in July of 1994, the Company implemented a five-cent per-
mile bonus program to drivers who met certain performance and safety standards.
Operating supplies and expenses increased 23.2% or $4,182,402 to $22,217,898 in
fiscal 1995, also a result of the Company's expanded fleet. The price paid
for fuel was relatively stable during both periods. See "Business - Fuel."
Maintenance and tire costs decreased as a percentage of revenue due to
decreased maintenance costs of new equipment.
Insurance, taxes and licenses increased 33.1% or $1,884,599 to $7,575,133 in
fiscal 1995 due to the Company's larger fleet.
Depreciation and amortization increased 39.5% or $2,101,832 to $7,424,316 in
fiscal 1995. This increase is due to new equipment additions.
Rents and purchased transportation increased 48.3% or $1,279,711 to $3,929,384
in fiscal 1995. The Company expanded its contracted transportation services
and railroad shipments in fiscal 1995 resulting in increased payments to those
contractors. Additionally, the Company rented, on a short-term basis,
trailers to accommodate its customers needs while waiting for delivery
of new trailers. These trailers were needed to increase the size of trailer
pools in certain areas in order to accommodate customer schedules, while
minimizing non-productive time spent waiting to load or unload.
The Company's operating ratio decreased to 85.2% for fiscal 1995 from 85.8% for
the prior year, reflecting an improvement of .6% during the period. The
decrease was primarily attributable to increased fuel efficiencies, decreased
maintenance costs and slightly-higher per-mile revenues during fiscal 1995.
Interest expense increased 54.9% or $775,498 in fiscal 1995 due to the
financing of new revenue equipment in fiscal 1994 and 1995 with lower interest
rates helping to moderate the increase.
The Company's effective income tax rate decreased to 38.5% in fiscal 1995 from
41.4% in fiscal 1994. This decrease was due to a change in income tax law
effective for tax years beginning in 1994 which reduced the tax deductibility
of meals allowances. That non-deductible portion of driver compensation which
had previously been reported as a per-diem driver allowance is now included in
taxable income to the driver. However, drivers pay was increased to offset
increased tax liability.
Net income increased 42.1% or $1,781,975 in fiscal 1995 to $6,016,142 or $1.35
per share from $4,234,167 or $.96 per share in fiscal 1994.
Fiscal year ended June 30, 1994 compared to Fiscal year ended June 30, 1993
Operating revenue for fiscal 1994 increased 36.8% or $15,920,760 to
$59,177,254. The increase was primarily attributable to increased shipments
for existing customers and the addition of new customers. The Company operated
an average of 519 tractors during fiscal 1994, compared to an average of 423
tractors in fiscal 1993.
Salaries, wages and fringe benefits increased 31.0% or $4,217,598 to
$17,825,664 in fiscal 1994. This increase is attributable to additional wages
paid to drivers and support personnel due to the Company's expanded fleet.
Drivers were awarded a 9% increase in their per-mile driving wages in April of
fiscal 1994, also contributing to the increase.
Operating supplies and expenses increased 33.7% or $4,550,342 to $18,035,496 in
fiscal 1994. The price paid for fuel was relatively stable during both
periods. See "Business - Fuel." Maintenance and tire costs increased as a
percentage of revenue due to higher maintenance costs associated with aging
equipment. The Company will replace at least 90 of its older tractors with new
equipment during fiscal 1995.
Insurance, taxes and licenses increased 13.8% or $690,515 to $5,690,534 in
fiscal 1994. Better rates on insurance policies for fiscal 1994 were a
reflection of the Company's good safety record and to more retention of risk by
the Company through slightly higher deductibles on some policies.
Depreciation and amortization increased 28% or $1,162,871 to $5,322,484 in
fiscal 1994. This increase is due to equipment added during fiscal 1993 which
was utilized for the entire period of fiscal 1994.
Rents and purchased transportation increased 72.0% or $1,109,244 to $2,649,673
in fiscal 1994. The Company rented, on a short-term basis, additional trailers
to accommodate its customers needs while waiting for delivery of new trailers.
These trailers were needed to increase the size of trailer pools in certain
areas in order to accommodate customer unloading schedules, while allowing the
driver to pick up another load and continue on his way. The Company also
expanded its contracted transportation services to include Mexican carriers and
railroad shipments in fiscal 1994 resulting in increased payments to those
contractors.
The Company's operating ratio decreased to 85.8% for fiscal 1994 from 89.6% for
the prior year, an improvement of 4.2% during the period.
Interest expense increased 13.2% or $164,139 in fiscal 1994 due to purchases of
revenue equipment in fiscal 1993 and 1994 with lower interest rates helping to
moderate the increase.
The Company's effective income tax rate decreased to 41.4% in fiscal 1994 from
44.0% in fiscal 1993 due to fewer non-deductible expenses.
Net income increased 108.8% or $2,206,406 in fiscal 1994 to $4,234,167 or $.96
per share from $2,027,761 or $.45 per share in fiscal 1993.
Liquidity and Capital Resources
Cash flows from Operations - Operating activities provided cash of $10.4
million and $8.4 million in fiscal 1995 and 1994, respectively. Net cash flows
from operations in fiscal 1995 were primarily the result of $6 million provided
from results of operations, a net $8.9 million in depreciation and increases in
other liabilities offset by an approximate $4.5 million increase in accounts
receivalbe and other assets. Fiscal 1994 experienced positive cash flows from
operations due primarily to $4.2 million from net income and $5.3 million in
depreciation offset by changes in accounts receivable, deferred taxes, accounts
payable and other assets totaling a net $1.1 million.
Cash flows from Investing Activities - Investing activities provided net cash
of $.7 million in fiscal 1995 and used net cash of $3.8 million in fiscal 1994.
Purchases of new equipment totaling $19.8 million was offset by $20.5 million
in equipment and marketable security sales for 1995. Net purchases of $.9
million in marketable securities combined with net purchases of $2.9 million in
new equipment accounted for the use of cash in 1994.
Cash flows from Financing Activities - Financing activities used net cash of
$7.2 million and $1.5 million in fiscal 1995 and 1994, respectively. In fiscal
1995, proceeds from long-term borrowings of $3.1 million were offset by
repayment on debt of $10.3 million.
Woriing capital needs have been met primarily from cash generated from
operations. During the fiscal year ended June 30, 1995, cash provided by
operating activities was $10,422,235, up from $8,374,157 for the prior fiscal
year ended June 30, 1994. The current ratio improved from 1.87 at June 30,
1994 to 2.18 at June 30, 1995. Working capital, as a result of improved
operating results, increased by $6,162,078 to $14,770,041 at June 30, 1995 from
$8,607,963 at June 30, 1994. Management believes that cash flows from the
Company's operations will continue to be sufficient to meet short-term working
capital needs.
Management of the Company intends, in the long-term, to continue to expand its
fleet. At June 30, 1995, negotiations for the purchase of 513 new tractors and
345 new trailers had been finalized, with acquisition costs totaling $37.5
million. The Company plans to finance these acquisitions through long-term
debt or lease agreements. The decision to lease or buy depends on general
economic factors, including interest rates and liquidity considerations.
Although the terms for these acquisitions have not been finalized, management
believes that long-term financing, or lease agreements on favorable terms will
be available. Management further believes that revenue generated from the
operation of an expanded fleet will be sufficient to amortize obligations
related to such expansion. However, to the extent that such revenue is
insufficient for this purpose, the Company may be required to rely on
additional borrowings or equity offerings to meet its working capital needs.
Inflation
Inflation continues to have a minimal impact on operations.
Seasonality
In the trucking industry generally, results of operations show a seasonal
pattern because customers reduce shipments during the winter. The Company's
operating efficiency historically decreases during the winter months due to
increased maintenance costs, reduced fuel efficiency, detours and delays for
weather.
Item 8. Financial Statements and Supplementary Data
The response to this Item is presented in a separate section of this report.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of Registrant
Certain information about directors and executive officers of the Company is
set forth below:
Name Age
Position
Dean G. Cannon 54 President and Chairman of the Board
Rose Marie Cannon 54 Secretary, Treasurer and Director
Larry L. Patrick 50 Vice President
Ted W. Easley 55 Director of Operations
Roy E. Stanley 51 Director
Uvalde R. Lindsey 55 Director
Dean G. Cannon has been the President and a Director of Cannon Express Corp.,
the wholly-owned operating subsidiary of the Company, from 1981 to the present
and has served as President and as Director of the Company since its inception.
Dean G. Cannon is the husband of Rose Marie Cannon.
Rose Marie Cannon has been the Secretary, Treasurer and a Director of Cannon
Express Corp., from 1981 to the present and has served as Secretary, Treasurer
and Director of the Company since its inception. Rose Marie Cannon is the wife
of Dean G. Cannon.
Larry L. Patrick has been Vice-President of Cannon Express Corp. from 1991 to
the present. Prior to his employment with Cannon Express Corp., Mr. Patrick
was employed by Wal-Mart Stores, Inc. in Bentonville, Arkansas.
Ted W. Easley has been the Director of Operations of Cannon Express Corp.
since 1982. Prior to his employment with Cannon Express Corp., Mr. Easley was
a co-owner of Scheduled Truckways in Rogers, Arkansas.
Roy E. Stanley holds Bachelor of Science and Master of Arts degrees from
Memphis State University and received the degree of Juris Doctor, with honors,
in 1978 from the University of Arkansas School of Law at Fayetteville. After
engaging in the private practice of law in Springdale, Arkansas for sixteen
years, in 1994 Mr. Stanley became president of Lindsey Management Company,
Inc., a real estate management company with its main offices in Fayetteville,
Arkansas.
Uvalde R. Lindsey is an economic development consultant and Director of the
Northwest Arkansas Council, a regional organization dedicated to the economic
enhancement of Northwest Arkansas. After graduating from the University of
Arkansas, Mr. Lindsey owned and operated a chain of automotive parts stores in
Arkansas, Missouri and Oklahoma. After selling his businesses in 1983, Mr.
Lindsey served as Budget Officer to the Governor of the State of Arkansas and
as Executive Director of the Northwest Arkansas Economic Development District.
Item 11. Executive Compensation
This item is incorporated by reference from the Company's Notice and Proxy
Statement for its annual meeting of stockholders to be held on Tuesday,
November 21, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This item is incorporated by reference from the Company's Notice and Proxy
Statement for its annual meeting of stockholders to be held on Tuesday,
November 21, 1995.
Item 13. Certain Relationships and Related Transactions
This item is incorporated by reference from the Company's Notice and Proxy
Statement for its annual meeting of stockholders to be held on Tuesday,
November 21, 1995.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and
(2) The response to this portion of Item 14 is submitted as a separate
section of this report.
(3) The exhibits as listed in the Exhibit Index, are submitted as a
separate section of this report. In accordance with SEC rules, the
following is a list of all Compensatory Plans or Arrangements of
the Company: Cannon Express Corp. 401(k) Plan
Cannon Express, Inc. Incentive Stock Option Plan
(b) No reports on Form 8-K were filed during the year ended June 30, 1995.
(c) See Item 14(a)(3) above.
(d) The response to this portion of Item 14 is submitted as a separate
section of this report.
INDEX TO EXHIBITS
3.(a) Certificate of Incorporation(1)
3.(b) Certificate of Amendment of Certificate of Incorporation(1)
3.(c) Bylaws of the Company(1)
3.(d) Amended Bylaws(1)
10.(a) Lease between the Company and Dean G. Cannon and Rose Marie
Cannon(2)
10.(b) Incentive Stock Option Plan(2)
(1) Incorporated by reference from the Registrant's Registration
Statement on Form S-18, dated February 26, 1987.
(2) Incorporated by reference from Registrant's Annual Report on Form 10-
K for the fiscal year ended June 30, 1988.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. Dated this 26th day of
September, 1995.
Cannon Express, Inc.
By: /s/ Dean G. Cannon
Dean G. Cannon,
Chairman, Chief Executive Officer
(Principal Executive Officer and Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Rose Marie Cannon By: /s/ Roy E. Stanley .
Rose Marie Cannon Roy E. Stanley
Director, Secretary and Treasurer Director
September 26, 1995 September 26, 1995
By: /s/ Uvalde R. Lindsey
Uvalde R. Lindsey
Director
September 26, 1995
FORM 10-K ITEM 8, ITEM 14(a)(1) AND (2)
CANNON EXPRESS, INC., AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Cannon Express, Inc., and
Subsidiaries are included in Item 8:
Independent Accountants' Report
Consolidated Balance Sheets as of June 30, 1995 and 1994.
Consolidated Statements of Income for the years ended June 30, 1995, 1994,
and 1993.
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1995, 1994, and 1993.
Consolidated Statements of Cash Flows for the years ended June 30, 1995,
1994, and 1993.
Notes to Consolidated Financial Statements June 30, 1995.
The following consolidated financial statement schedule of Cannon Express,
Inc., and Subsidiaries is included in Item 14(d):
Independent Accountants' Report
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
Independent Accountants' Report
Board of Directors and Stockholders
Cannon Express, Inc. and Subsidiaries
Springdale, Arkansas
We have audited the accompanying consolidated balance sheets of CANNON
EXPRESS, INC. AND SUBSIDIARIES as of June 30, 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 June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 audit 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 financial position of CANNON EXPRESS,
INC. AND SUBSIDIARIES as of June 30, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company changed its method of accounting for
investments in marketable securities in 1994.
BAIRD, KURTZ & DOBSON
Fayetteville, Arkansas
August 6, 1995
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30 June 30
1995 1994
Assets
Current assets:
Cash and cash equivalents $12,324,394 $ 8,398,287
Marketable securities, net (Note 1) 3,493,187 1,574,473
Receivables, less allowance for doubtful accounts
(1995--$141,175; 1994--$117,447):
Trade (Note 7) 9,084,562 6,203,059
Other 661,917 550,869
Prepaid expenses and supplies 1,680,448 1,208,270
Deferred income taxes (Note 3) - 614,878
Total current assets 27,244,508 18,549,836
Property and equipment (Notes 2 and 5):
Land, buildings and improvements 1,143,453 1,139,509
Revenue equipment 59,093,534 35,911,766
Service, office and other equipment 2,129,664 2,034,616
62,366,651 39,085,891
Less allowances for depreciation 14,478,734 14,625,301
47,887,917 24,460,590
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash (Note 1) 813,671 901,575
Other 1,293,757 995,711
Total other assets 2,130,834 1,920,692
$77,263,259 $44,931,118
See accompanying notes.
June 30 June 30
1995 1994
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 459,319 $ 529,468
Accrued expenses:
Insurance reserves 1,337,331 891,947
Other 1,485,615 809,036
Federal and state income taxes payable 435,930 316,368
Deferred income taxes (Note 3) 29,000 -
Current portion of long-term debt (Note 2) 8,727,272 7,395,054
Total current liabilities 12,474,467 9,941,873
Long-term debt, less current portion (Note 2) 35,353,262 12,953,675
Deferred income taxes (Note 3) 3,833,000 4,113,031
Other liabilities 279,255 -
Stockholders' equity (Note 4):
Class A common stock: $.01 par value; authorized
10,000,000 shares; issued 2,219,477 shares
in 1995 and 2,214,477 shares in 1994 22,195 22,145
Class B non-voting common stock: $.01 par value;
authorized 10,000,000 shares; issued 2,224,477
shares in 1995 and 2,214,477 shares in 1994 22,245 22,145
Additional paid-in capital 3,542,356 3,511,376
Retained earnings 21,181,034 15,164,892
Unrealized appreciation (depreciation) on
marketable securities, net of income taxes
(Note 1) 927,220 (426,244)
25,695,050 18,294,314
Less treasury stock, at cost (116,250 shares) 371,775 371,775
25,323,275 17,922,539
$77,263,259 $44,931,118
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Income
Year ended June 30
1995 1994 1993
Operating revenue (Note 7) $79,030,217 $59,177,254 $43,256,494
Operating expenses and costs:
Salaries, wages and fringe benefits 24,905,286 17,825,664 13,608,066
Operating supplies and expenses 22,217,898 18,035,496 13,485,154
Insurance, taxes and licenses 7,575,133 5,690,534 5,000,019
Depreciation and amortization 7,424,316 5,322,484 4,159,613
Rents and purchased transportation 3,929,384 2,649,673 1,540,429
Other 1,308,294 1,271,140 974,430
67,360,311 50,794,991 38,767,711
Operating income 11,669,906 8,382,263 4,488,783
Other income (expense):
Gain on disposal of assets 39,298 37,010 50,460
Interest and dividend income 166,028 78,846 163,363
Gain (loss) on marketable equity
securities, net (Note 1) 94,385 (586,982) 162,993
299,711 (471,126) 376,816
Interest expense 2,187,475 1,411,977 1,247,838
Income before income taxes and
cumulative effect of change in
accounting principle 9,782,142 6,499,160 3,617,761
Federal and state income taxes (Note 3):
Current 4,278,816 1,796,314 612,750
Deferred (Credit) (512,816) 894,923 977,250
3,766,000 2,691,237 1,590,000
Income before cumulative effect of
change in accounting principle 6,016,142 3,807,923 2,027,761
Cumulative effect of change in
accounting principle, net of income
taxes of $296,203 (Note 1) - 426,244 -
Net income $ 6,016,142 $ 4,234,167 $ 2,027,761
Earnings per share:
Income before cumulative effect of
change in accounting principle $ 1.35 $ 0.86 $ 0.47
Cumulative effect of change in
accounting principle - 0.10 -
Net income per share (Notes 1 and 4) $ 1.35 $ 0.96 $ 0.47
Average shares and share
equivalents outstanding 4,440,089 4,403,456 4,353,720
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Unrealized Appreciation
Additional (Depreciation)
Common Stock Paid-In Retained On Marketable Treasury
Class A Class B Capital Earnings Securities Stock
Balances at
July 1, 1992
(Note 4) $21,912 $21,912 $3,335,164 $8,902,964 $ - $(284,076)
Net income - - - 2,027,761 - -
Purchase of 14,000
treasury shares - - - - - (87,699)
Stock issued:
Exercise of options 83 83 17,019 - - -
Balances at
June 30, 1993 21,995 21,995 3,352,183 10,930,725 - (371,775)
Net income - - - 4,234,167 - -
Unrealized depreciation
on marketable
securities, net - - - - (426,244) -
Stock issued:
Exercise of options 150 150 159,193 - - -
Balances at
June 30,1994 22,145 22,145 3,511,376 15,164,892 (426,244) (371,775)
Net income - - - 6,016,142 - -
Unrealized appreciation
on marketable
securities, net - - - - 1,353,464 -
Stock issued:
Exercise of options 50 100 30,980 - - -
Balances at
June 30, 1995 $22,195 $22,245 $3,542,356 $21,181,034 $ 927,220 $(371,775)
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended June 30
1995 1994 1993
Operating activities
Net income $ 6,016,142 $4,234,167 $2,027,761
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,424,316 5,322,484 4,159,613
Provision (credit) for deferred
income taxes (512,816) 894,923 977,250
Provision (credit) for losses
on marketable securities - 615,432 (5,483)
Cumulative effect of change
in accounting principles - (426,244) -
Gain on disposal of assets (39,298) (37,010) (50,460)
Gain on sale of marketable securitis (94,385) (28,450) (157,510)
Changes in operating assets
and liabilities:
Receivables (2,992,551) (2,380,547) (604,667)
Prepaid expenses and supplies (472,178) (194,320) (379,397)
Accounts payable, accrued expenses,
income taxes payable,
and other liabilities 1,450,634 630,416 (203,470)
Other assets (357,629) (256,694) (48,252)
Net cash provided by
operating activities 10,422,235 8,374,157 5,715,385
Investing activities
Purchases of property and equipment (19,803,149) (3,490,826) (5,815,258)
Purchase of restricted investments (12,096) - (307,308)
Proceeds from maturities of
restricted investments 100,000 5,733 -
Purchases of marketable securities - (2,044,445) (2,511,853)
Sales of marketable securities 405,792 1,129,503 2,658,028
Purchases of other assets - - (372,853)
Proceeds from equipment sales 20,040,432 573,888 991,668
Net cash provided by (used in)
investing activities 730,979 (3,826,147) (5,357,576)
Financing activities
Proceeds from long-term borrowings 3,047,611 3,004,800 4,370,934
Principal payments on long-term debt and
capital lease obligations (10,305,848) (4,688,883) (5,270,493)
Purchase of treasury stock - - (87,699)
Proceeds from exercise of stock options 31,130 159,493 17,185
Net cash used in financing activities (7,227,107) (1,524,590) (970,073)
Increase (decrease) in cash
and cash equivalents 3,926,107 3,023,420 (612,264)
Cash and cash equivalents
at beginning of year 8,398,287 5,374,867 5,987,131
Cash and cash equivalents
at end of year $12,324,394 $8,398,287 $5,374,867
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1995
1. Organization and Summary of Significant Accounting Policies
Consolidation and Business - The consolidated financial statements include the
accounts of Cannon Express, Inc. (The "Company"), and its subsidiaries. All
intercompany accounts and transactions have been eliminated.
The Company operates as an irregular route, truckload carrier.
Property and Equipment - Property and equipment are recorded at cost. For
financial reporting purposes, the cost of such property is depreciated by the
straight-line method. For tax reporting purposes, accelerated cost recovery
methods are used. Gains on exchanges of revenue equipment are used to reduce
the basis of the replacement equipment. Tires purchased with revenue equipment
have been capitalized as a part of the cost of such equipment, however,
replacement tires are expensed when placed in service.
Income Taxes - Deferred tax liabilities and assets are recognized for the tax
effects of differences between the financial statement and tax bases of assets
and liabilities. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be
realized.
Revenue Recognition - The Company recognizes revenue and related direct
expenses when freight is delivered as permitted by the Emerging Issues Task
Force of the Financial Accounting Standards Board.
Net Income per Share - Net income per share is computed based on the weighted
average number of shares outstanding during the year, adjusted to include
common stock equivalents attributable to dilutive warrants and stock options.
Earnings per share amounts for prior periods have been restated to give effect
to a stock split, as more fully described in Note 4.
Insurance - As of June 30, 1995, the Company is insured up to specified limits
for the following types of claims:
Cargo loss and damage $ 250,000 per claim
Bodily injury and property damage liability $1,000,000 per claim
Company owned vehicle property damage Negotiated current value
Bodily injury and property damage liability claims have been self-insured for
the first $150,000 since March 1994. Prior to that date, the self-insured
amount was $100,000. The Company is also self-insured up to $300,000 for
workers' compensation claims. Provision has been made for the estimated
liabilities for such claims as incurred.
Restricted cash of $813,671 and $901,575 at June 30, 1995 and 1994,
respectively, represents certificates of deposit held as collateral for the
Company's insurance activities.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Cash Equivalents - The Company considers all highly liquid investments, with a
maturity of three months or less when purchased, to be cash equivalents.
Marketable Securities - Prior to June 30, 1994, marketable securities were
carried at the lower of aggregate cost or fair value. The Company maintained a
valuation allowance for unrealized losses on these securities which totaled
$107,015 as of June 30, 1993. Effective June 30, 1994, the Company adopted
FASB Statement No.115, "Accounting for Certain Investments in Debt and Equity
Securities", and classified equity securities with an aggregate fair value of
$1,574,473 as "available-for-sale" securities. These securities will be carried
at fair value with the unrealized gain or loss, net of related income tax
effects, shown in stockholders' equity. The cumulative effect of this change
in accounting principle increased earnings by $426,244, (gross unrealized
holding losses of $722,447 less income tax effects of $296,203), the amount of
unrealized net losses previously charged to 1994 earnings.
At June 30, 1994, net unrealized losses of $615,432 and at June 30, 1993, net
unrealized gains of $5,483 are included with realized gains and losses in the
determination of the net gain or loss on marketable equity securities
transactions. The cost of marketable securities sold is determined using the
specific identification method.
At June 30, 1995, net unrealized gains of $927,220 (gross unrealized gains of
$1,507,675 less income tax effects of $580,455) have been included in
stockholders' equity.
2. Long-term Debt
June 30
1995 1994
Equipment notes (1) $10,298,124 $ 8,882,558
Capitalized lease obligations (2) 33,782,410 11,466,171
44,080,534 20,348,729
Less current portion 8,727,272 7,395,054
$35,353,262 $12,953,675
(1)Represents loans on revenue equipment, payable in various installments
through 2000 with a weighted average interest rate of 6.5%. Revenue equipment
having a book value of approximately $9,927,000 at June 30, 1995 is pledged
as collateral.
(2)Capitalized lease obligations are for revenue equipment with an aggregate
net book value of approximately $33,213,000 at June 30, 1995. The leases have
a weighted average interest rate of 7.0%. The leases extend from three to
seven years and contain renewal or fixed price purchase options. The lease
agreements require the Company to pay property taxes, maintenance and operating
expenses.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Annual maturities of long-term debt, excluding capitalized lease obligations
(Note 5), are:
1996 $ 2,558,119
1997 2,617,946
1998 2,108,542
1999 2,696,917
2000 316,600
$10,298,124
Interest paid was approximately $2,188,000, $1,379,000 and $1,248,000 during
1995, 1994 and 1993, respectively.
3. Federal and State Income Taxes
A reconciliation between the effective income tax rate, as computed before the
cumulative effect adjustment, and the statutory federal income tax rate is
presented in the following table:
Year ended June 30
1995 1994 1993
Income tax at the statutory
federal rate of 34% $3,325,929 $2,209,714 $1,230,039
Federal income tax effects of:
Nondeductible expenses
--Drivers' meals - 227,860 240,835
Nondeductible expenses--Other 4,491 17,988 14,459
State income taxes (216,000) (121,000) (77,320)
Other 15,580 (325) (45,422)
Federal income taxes 3,130,000 2,334,237 1,362,591
State income taxes 636,000 357,000 227,409
$3,766,000 $2,691,237 $1,590,000
June 30
1995 1994
Total deferred tax assets $ 1,045,000 $3,177,641
Total deferred tax liabilities (4,907,000) (6,675,794)
The tax effects of temporary differences related to deferred taxes shown on the
balance sheets were:
Tax Benefit (Payable)
June 30
1995 1994
Temporary Differences
Self-insurance accruals $ 507,000 $ 341,527
Allowance/Valuation reserves 115,000 73,730
Valuation of available-for-sale securities (577,000) 296,203
Revenue recognition 197,000 167,901
Prepaids and other (271,000) (264,483)
Net current deferred income
tax benefit (liability) $ (29,000) $614,878
Depreciation $(3,952,000) $(6,396,109)
Treatment of revenue equipment leases 119,000 2,283,078
Net non-current deferred income tax liability $(3,833,000) $(4,113,031)
The Company made income tax payments of approximately $4,196,000, $1,712,000
and $675,000 during 1995, 1994 and 1993, respectively.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Common Stock
Recapitalization - In November, 1992, the shareholders approved an amendment of
the Certificate of Incorporation to (I) reclassify the existing common stock as
Class A Common Stock; (ii) authorize a new non-voting Class B Common Stock,
(iii) increase the authorized shares of common stock from 10 million to 20
million, consisting of 10 million shares of Class A Common Stock and 10 million
shares of Class B Common Stock; and (iv) establish the rights, powers and
limitations of the Class A Common Stock and the Class B Common Stock.
Distributions - The Board of Directors authorized a distribution effective
January 26, 1993, of one share of Class B Common Stock for each share of Class
A Common Stock outstanding to shareholders of record on January 11, 1993. The
distribution of the Class B Common Stock was the equivalent of a two-for-one
stock split. All references to share and per share data in the accompanying
consolidated financial statements and notes to consolidated financial
statements have been retroactively restated to give effect to the stock
distribution.
Treasury Stock - In March, 1990, the Board of Directors approved the purchase
from time to time in open market transactions of up to 150,000 shares of common
stock. As of June 30, 1995, 116,250 shares at an average price of $3.20
per share are included as treasury stock on the balance sheet. No purchases
were made in fiscal 1995.
Stock Options - In November, 1992, the shareholders approved an amendment of
the Incentive Stock Option Plan to increase and restate the number of shares
issuable thereunder and to permit grants of options under such plan with
respect to either Class A Common Stock or Class B Common Stock. The Company
has reserved 1,000,000 shares of Class A Common Stock and 1,000,000 shares of
Class B Common Stock for issuance under the plan. Options are granted for five
to ten year terms and are exercisable in cumulative increments of 10 to 20%
annually, commencing one year after the date of grant, except for certain
options which vest 100% after five years from the date of grant.
Additionally, from time to time, the Company issues stock options to non-
employee directors and a consultant. At June 30, 1995, there were 11,250 Class
A Common Stock Options and 11,250 Class B Common Stock Options outstanding for
non-employee directors.These options have been included in the following
summary information.
Option transactions are summarized as follows (adjusted for all stock
distributions and splits):
1995 1994 1993
Class A Class B Class A Class B Class A Class B
Outstanding at July 1 86,250 96,250 101,250 121,250 106,250 106,250
Granted - 12,000 - - 5,000 25,000
Exercised (5,000) (10,000) (15,000) (15,000) (10,000) (10,000)
Canceled - - - (10,000) - -
Outstanding at June 30 81,250 98,250 86,250 96,250 101,250 121,250
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1995 1994 1993
Price range at June 30 $1.93 to $8.50 $1.93 to $7.59 $1.93 to $7.59
Exercisable at June 30 60,750 57,750 56,250 57,250 20,000 20,000
5. Leases and Commitments
The future minimum payments under capitalized leases at June 30, 1995,
consisted of the following:
1996 $ 8,287,924
1997 9,244,907
1998 9,702,735
1999 7,036,258
2000 2,332,045
Future years 3,447,267
Total minimum lease payments 40,051,136
Amounts representing interest 6,268,726
Present value of net minimum lease payments included in long-term
debt ($6,169,153 due in 1996) (Note 2) $33,782,410
Assets held under capital leases are included in property, plant and equipment
as follows:
1995 1994
Revenue equipment $38,958,100 $21,147,307
Accumulated amortization 5,744,824 9,088,925
$33,213,276 $12,058,382
During 1995 and 1993, the Company incurred capital lease obligations totaling
approximately $31,004,000 and $5,914,000, respectively. No capital lease
obligations were incurred in 1994.
Capitalized lease amortization is included in depreciation expense.
As of June 30, 1995, future minimum rental commitments for all noncancelable
operating leases were approximately $1,178,000 for 1996, $505,000 for 1997 and
$133,000 for 1998.
6. Related party Transactions
The Company leases a facility from the majority stockholders of the Company.
The lease extends to September 1, 1996, and provides for monthly rental
payments of $2,000. Rent totaled $24,000 for each of the three years ended
June 30,
1995, 1994, and 1993. The Company pays all insurance, taxes and maintenance
costs with respect to the facility. The lease is cancelable by the Company on
30 days notice. The Company may purchase the facility at any time prior to the
expiration of the lease for $235,000, which was the appraised value of the
property at the inception of the lease.
7. Concentration of Business and Credit Risk
The Company provides services to customers throughout the United States and
Canada. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Historically, credit losses have not
been significant.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
One unaffiliated customer (Wal-Mart Stores, Inc.) accounted for 41.3%, 38.5%
and 25.7% of revenue for fiscal 1995, 1994 and 1993, respectively. Accounts
receivable as of June 30 for this customer totaled approximately $4,415,000 and
$3,116,000 for 1995 and 1994, respectively. A second unaffiliated major
customer accounted for 17.5%, 20.1% and 22.5% of revenue in 1995, 1994 and
1993, respectively. Accounts receivable as of June 30 for this customer totaled
approximately $1,069,000 and $888,000 for 1995 and 1994, respectively.
8. Profit-sharing Plan
Effective July 1, 1994, the Company implemented a profit-sharing plan covering
all employees who have been employed a minimum of three months and attained the
age of twenty-one. The Company's contributions to the plan are determined
annually by the Board of Directors. Contributions are limited to 10% of total
compensation paid participants during the plan year. Participant interests are
100% vested after completion of three years of service. No contributions to
the Plan were made in 1995.
9. Quarterly Results of Operations (Unaudited)
Fiscal 1995
September 30 December 31 March 31 June 30
Operating revenue $18,347,565 $19,749,204 $20,401,630 $20,531,818
Operating expenses
and costs 15,225,813 16,169,357 17,653,980 18,311,161
Operating income 3,121,752 3,579,847 2,747,650 2,220,657
Other income (expense), net 28,086 (6,928) 109,880 168,673
Interest expense 471,025 469,944 624,982 621,524
Income before income taxes 2,678,813 3,102,975 2,232,548 1,767,806
Income taxes 1,018,000 1,179,000 888,000 681,000
Net income $ 1,660,813 $ 1,923,975 $ 1,344,548 $ 1,086,806
Net income per share $0.37 $0.43 $0.30 $0.25
Average shares and share
equivalents outstanding 4,433,822 4,442,542 4,445,810 4,438,182
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Quarterly Results of Operations (Unaudited) (continued)
Fiscal 1994
September 30 December 31 March 31 June 30
Operating revenue $14,485,104 $14,629,416 $14,295,889 $15,766,845
Operating expenses
and costs 12,038,154 12,412,202 12,538,304 13,806,331
Operating income 2,446,950 2,217,214 1,757,585 1,960,514
Other income
(expense), net (379,726) (131,683) (533,038) (838,656)
Income before income taxes
and cumulative effect of
change in accounting
principle 2,067,224 2,085,531 1,224,547 1,121,858
Income taxes 909,579 854,179 521,596 405,883
Income before cumulative
effect of change in
accounting principle 1,157,645 1,231,352 702,951 715,975
Cumulative effect of change
in method of accounting
for marketable securities,
net of income tax
effects of $296,203 - - - 426,244
Net income $ 1,157,645 $ 1,231,352 $ 702,951 $ 1,142,219
Earnings per share:
Income before
cumulative effect
of change in
accounting principle $0.27 $0.28 $0.16 $0.16
Cumulative effect of change
in method of accounting for
marketable securities - - - 0.10
Net income per share $0.27 $0.28 $0.16 $0.26
Average shares and share
equivalents outstanding 4,341,697 4,414,099 4,425,554 4,432,476
Report of Independent Accountants on
Financial Statement Schedule
Board of Directors and Stockholders
Cannon Express, Inc. and Subsidiaries
Springdale, Arkansas
In connection with our audit of the consolidated financial statements of
CANNON EXPRESS, INC. AND SUBSIDIARIES for each of the three years in the
period ended June 30, 1995, we have also audited the following financial
statement schedule. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits of the basic financial
statements. The schedule is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not a
required part of the consolidated financial statements.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
BAIRD, KURTZ & DOBSON
Fayetteville, Arkansas
August 6, 1995
Cannon Express, Inc. and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E Column F
Additions
(1) (2)
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Accounts Deductions- end of
Description Period Expenses Describe Describe Period
Year ended June 30, 1995:
Deducted from
assets accounts:
Reserve for doubtful
trade receivables $117,447 $ 30,000 $ 6,272(A) $141,175
Year ended June 30, 1994:
Deducted from
assets accounts:
Reserve for doubtful
trade receivables $ 84,047 $120,000 $ 86,600(A) $117,447
Allowance for net
unrealized losses
on marketable equity
securities $194,517 $615,432 $ 87,502(C) $722,447(D)
Year ended June 30, 1993:
Deducted from
assets accounts:
Reserve for doubtful
trade receivables $ 71,574 $125,000 $112,527(A) $ 84,047
Allowance for net
unrealized losses
on marketable equity
securities $200,000 $ 5,483(B) $194,517
(A)Uncollectible accounts written off, net of recoveries.
(B)Net realized gains.
(C)Allowance account amount used to write down to fair value and establish a
new cost basis for an investment was
considered other-than-temporarily impaired as of June 30, 1993.
(D)Allowance reversed with adoption of FAS 115. See Note 1 to the 1994
Consolidated Financial Statements.
(E)Unrealized appreciation.
Shareholder Information
Form 10-K Availability
A copy of the 1995 Form 10-K filed with the Securities and Exchange Commission
will be forwarded, upon request, to any shareholder. Requests should be
directed to:
Dean G. Cannon
Cannon Express, Inc.
P.O. Box 364 Springdale, Arkansas 72765
Transfer Agent and Registrar
Continental Stock Transfer
and Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Stock Listing
NASDAQ National Market System
Symbols:
Class A - CANXA
Class B - CANXB
Independent Auditors
Baird, Kurtz & Dobson
Communications Directory
Corporate Offices: Cannon Express, Inc., 1457 E. Robinson, Springdale, Arkansas
72764.
Mailing Address: Post Office Box 364, Springdale, Arkansas 72765.
Telephone: (501) 751-9209.
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