<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X )QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
( )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 Robinson
P.O. Box 364
Springdale, Arkansas 72765
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 751-9209
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
Number of shares of $.01 par value common stock outstanding at October
31, 1996: 3,147,652
<PAGE>
INDEX
CANNON EXPRESS, INC. and SUBSIDIARIES
PART 1--FINANCIAL INFORMATION
ITEM 1--Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 1996 and June 30, 1996 ....... 1
Consolidated Statements of Income and Retained Earnings
for the Three Months Ended September 30, 1996 and 1995 . 3
Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 1996 and 1995 . 4
Notes to Consolidated Financial Statements ........ 5
ITEM 2--Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 6
PART II -- OTHER INFORMATION
ITEM 1--Legal Proceedings ................ *
ITEM 2--Changes in Securities ............... *
ITEM 3--Defaults Upon Senior Securities .......... *
ITEM 4--Submission of Matters to a Vote of Security-Holders *
ITEM 5--Other Information ................. *
ITEM 6--Exhibits and Reports on Form 8-K ......... *
*No information submitted under this caption.<PAGE>
PART 1.
ITEM 1. Financial Statements (Unaudited)
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30 June 30
1996 1996
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 6,015,268 $4,169,919
Marketable securities 2,716,751 3,188,628
Receivables, net of allowance for
doubtful accounts
(September 30, 1996-$160,684;
June 30, 1996-$171,175):
Trade 12,516,527 14,103,923
Other 118,260 227,289
Prepaid expenses and supplies 1,650,827 1,470,940
Deferred income taxes 1,008,000 672,000
Total current assets 24,025,633 23,832,699
Property and equipment:
Land, buildings and improvements 1,176,276 1,148,563
Revenue equipment 74,159,541 74,450,678
Service, office and other equipment 2,300,338 2,290,494
77,636,155 77,889,735
Less allowances for depreciation 22,324,940 19,662,206
55,311,215 58,227,529
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 770,026 770,026
Other 942,264 939,764
Total other assets 1,735,696 1,733,196
$81,072,544 $83,793,424
Note: The balance sheet at June 30, 1996 has been derived from the
audited consolidated balance sheet at that date but it does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to consolidated financial statements.<PAGE>
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
September 30 June 30
1996 1996
(Unaudited) (Note)
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 959,075 $ 1,120,828
Accrued expenses:
Insurance reserves 2,793,072 2,553,205
Other 2,155,852 2,141,206
Federal and state income taxes payable 2,331,109 1,596,621
Current portion of long-term debt 11,293,404 12,282,068
Total current liabilities 19,532,512 19,693,928
Long-term debt, less current portion 41,457,789 43,963,848
Deferred income taxes 3,352,000 3,606,000
Other liabilities 249,753 283,719
Stockholders' equity:
Common stock: $.01 par value;
authorized 10,000,000 shares;
issued 3,205,777 shares 32,058 32,058
Additional paid-in capital 3,542,356 3,542,356
Retained earnings 12,465,097 11,950,566
Unrealized appreciation on marketable
securities, net of income taxes 626,866 906,836
16,666,377 16,431,816
Less treasury stock, at cost
(58,125 shares) 185,887 185,887
16,480,490 16,245,929
$81,072,544 $83,793,424
Note: The balance sheet at June 30, 1996 has been derived from the
audited consolidated balance sheet at that date but it does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to consolidated financial statements.<PAGE>
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Income and Retained Earnings
Three Months Ended
September 30
1996 1995
(Unaudited)
Operating revenue $27,562,855 $21,627,585
Operating expenses and costs:
Salaries, wages and fringe benefits 9,079,903 7,405,188
Operating supplies and expense 8,498,833 6,047,284
Operating taxes and licenses 1,553,662 1,278,864
Insurance and claims 1,239,659 1,029,426
Depreciation and amortization 2,835,377 2,410,296
Rents and purchased transportation 2,257,700 942,850
Other 401,244 297,726
25,866,378 19,411,634
Operating income 1,696,477 2,215,951
Other income (expense):
Interest expense (936,315) (849,335)
Other income 76,369 79,581
(859,946) (769,754)
Income before income taxes 836,531 1,446,197
Federal and state income taxes:
Current 737,000 521,000
Deferred (415,000) 36,000
322,000 557,000
Net income 514,531 889,197
Retained earnings at beginning of period 11,950,566 21,181,034
Retained earnings at end of period $12,465,097 $22,070,231
Earnings per share:
Net income per share $0.16 $0.27
Average shares and share
equivalents outstanding 3,249,993 3,260,274
Note: Average shares outstanding and earnings per share for current and
prior period balances reflect the effects of the Recapitalization Plan
which was approved by shareholders at a special meeting held April 10,
1996.
See notes to consolidated financial statements.<PAGE>
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended
September 30
1996 1996
(Unaudited)
Operating activities
Net income $ 514,531 $ 889,197
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,835,377 2,410,296
Provision for deferred income taxes (415,000) 36,000
Loss on sale of marketable securities 15,241 _
Changes in operating assets and liabilities:
Accounts receivable 1,696,425 424,107
Prepaid expenses and supplies (179,887) 230,896
Accounts payable, accrued expenses,
taxes payable, and other liabilities 828,903 333,815
Other assets (10,000) -
Net cash provided by operating activities 5,285,590 4,324,311
Investing activities
Purchases of property and equipment (37,557) (9,357,039)
Purchases of marketable securities (29,480) (257,778)
Purchases of restricted investments - (1,277)
Proceeds from sales of marketable securities 30,880 -
Proceeds from equipment sales 90,638 2,748,500
Net cash provided by (used in)
Investing activities 54,481 (6,867,594)
Financing activities
Proceeds from long-term borrowing - 9,812,203
Principal payments on long-term debt and
capital lease obligations (3,494,722) (4,279,803)
Net cash provided by (used in)
financing activities (3,494,722) 5,532,400
Increase in cash and cash equivalents 1,845,349 2,989,117
Cash and cash equivalents at beginning
of period 4,169,919 12,324,394
Cash and cash equivalents at end
of period $ 6,015,268 $15,313,511
See notes to consolidated financial statements.<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10 - Q
and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month period ended September 30, 1996
are not necessarily indicative of the results that may be expected for
the year ended June 30, 1997. For further information, refer to the
Company's consolidated financial statements and notes thereto included
in its Form 10 - K for the fiscal year ended June 30, 1996.
Note B - Net Income Per Share
Three Months Ended
1996 1995
(Unaudited)
Average number of common shares outstanding 3,147,652 3,147,652
Net effect of dilutive stock warrants
and options 102,341 112,622
Average shares and share equivalents outstanding 3,249,993 3,260,274
Net income for the period $ 514,531 $ 889,197
Per share $.16 $.27
Average shares outstanding and earnings per share for current and prior
period balances reflect the effects of the Recapitalization Plan approved
by shareholders at a special meeting held April 10, 1996.
Note C - Subsequent Events
The fair value of the Company's investment in a single equity security
(Carrington Labs) has declined to $1,041,000 at November 7, 1996 from
$2,550,000 at September 30, 1996. Unrealized gains or losses on equity
securities are listed in the equity section of the balance sheet, net of
income taxes.<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations --First Quarter
Operating revenue for the first quarter of fiscal 1997 (ended September
30, 1996) increased to $27,562,855 from $21,627,585 representing an
increase of $5,935,270 or 27.4% over the comparable period in fiscal
1996. The Company's fleet expanded by 21.1% from 745 trucks at September
30, 1995 to 902 trucks at September 30, 1996. The increase in operating
revenue over the same period of fiscal 1996 is primarily attributable to
the increased number of shipments to existing customers transported by
the Company's larger fleet of trucks and trailers. Additionally, revenue
from intermodal services increased by $1,303,542 or 215.46% during the
period. Operations of the Company continued to be affected in the first
quarter of fiscal 1997 by excess capacity in the truckload industry,
which led to downward pressure on rate per-mile charged to customers. In
addition, the Company experienced a shortage of qualified drivers which
impaired its ability to produce revenue. Therefore, the increase in
operating costs related to the fleet expansion was not offset by
increased revenue. Although the number of shipments increased by 39.6 %
the Company's capacity continued to exceed the demand for services
forcing per-mile revenue lower as the Company focused on moving
available freight, in many cases servicing less profitable lanes, and in
other cases, reducing its rates to customers to meet competition. The
Company is increasing its sales efforts and is undertaking steps which
it believes will increase the demand for its services.
Salaries, wages, and fringe benefits, made up primarily of drivers'
wages, decreased as a percentage of revenue to 32.9% in the first
quarter of fiscal 1997 from 34.2% in the comparable period of fiscal
1996, although the percentage would have increased to 35.4% from 35.2%
if the effects of the increased intermodal revenue were factored out.
Transportation expenses associated with intermodal revenue are reported
separately under rents and purchased transportation. Company drivers
were awarded approximately $640,000 in bonuses for the three-month
period ended September 30, 1996 as compared with $480,000 awarded during
the three-month period ended September 30, 1995.
Operating supplies and expenses, as a percentage of revenue, increased
to 30.8% in the first quarter of fiscal 1997 from 28.0% in the
comparable period of fiscal 1996, due primarily to higher fuel and
maintenance costs. Operating taxes and licenses declined slightly to
5.6% of revenue in fiscal 1997 from 5.9% in fiscal 1996. Insurance and
claims were 4.5% of revenue in fiscal 1997, decreasing from 4.8% in
fiscal 1996. Depreciation and amortization decreased to 10.3% of
revenue in fiscal 1997 from 11.1% in the same period of fiscal 1996.
Excluding the effects of intermodal revenue, depreciation and
amortization declined to 11.1% from 11.4% in the prior fiscal period.
Rents and purchased transportation increased to 8.2% of revenue in
fiscal 1997 from 4.4% in fiscal 1996 as a result of increased intermodal
activities.
Although operating revenue for the first quarter of 1997 grew by 27.4%
over the comparable period of 1996, operating expenses increased by<PAGE>
$6,454,744 or 33.3%. Accordingly, the Company's operating ratio
increased to 93.8% in the first fiscal quarter of 1997 from 89.7% in the
same period of fiscal 1996.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd
Interest expense declined to 3.4% of revenue in the first quarter of
fiscal 1997 from 3.9% recorded in the first quarter of fiscal 1996.
Net income for the first quarter of fiscal 1997 ended September 30,
1996 was $514,531 ($.16 per share) compared to $889,197 ($.27 per share)
during the comparable period of fiscal 1996, a decrease of $374,666 or
42.1% for the period.
Fuel Cost and Availability
The Company, and the motor carrier industry as a whole, is dependent
upon the availability and cost of diesel fuel. The price of fuel rose
significantly during the first fiscal quarter ended September 30, 1996.
Nationwide, the average price per gallon increased 8.9% during this
period. Historically, most increases have been passed through to the
Company's customers, either in the form of fuel surcharges, or if deemed
permanent in nature, through increased rates. At September 30, 1996,
the Company had implemented a fuel surcharge, although fuel surcharges
in the quarter did not totally offset increased fuel costs. Further cost
increases or shortages of fuel could affect the Company's future
profitability.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash flows
generated from operations and proceeds from borrowings. The Company
typically extends credit to its customers, billing freight charges
after delivery. Accordingly, the ability of the Company to generate
cash to satisfactorily meet its ongoing cash needs is substantially
dependent upon timely payment by its customers. The Company has not
experienced significant uncollectible accounts receivable.
Operating activities provided cash flows of $5.3 million for the first
three months of fiscal 1997 compared to $4.3 million for the same period
of fiscal 1996. Cash flows from operations in the first quarter of
fiscal 1997 were the result of $.5 million in net income, $2.8 million
in depreciation and $2.0 million net use of other working capital assets
and liabilities. Investing activities provided net cash of $.05 million
during the first three months of fiscal 1997 compared to $6.9 million
net cash used in the same period of fiscal 1996. Financing activities
used net cash of $3.5 million during the first quarter of fiscal 1997
compared to $5.5 million cash provided in the first quarter of 1996.
During fiscal 1997, repayment on long-term debt and capital leases
totaled $3.5 million.
The Company's working capital at September 30, 1996 was $4.5 million
compared to $4.1 million at June 30, 1996. The effect of the subsequent
event mentioned in Note C would be to reduce working capital by<PAGE>
$928,000. The Company used approximately $11.3 million in working
capital during fiscal year 1996 to fund the recapitalization detailed
below. Historically, working capital needs have been met from cash
generated from operations. Management believes that the Company's
working capital is sufficient for its short-term needs. However, to the
extent additional capital is necessary for the Company's operations,
management believes it would be available through additional borrowings
or equity offerings.
Although the Company exercised a purchase option under an existing
lease, no new trucks were added to its fleet in the quarter ended
September 30, 1996. During the second fiscal quarter of 1997 the Company
will take delivery of 200 new tractors and sell 193 older models for a
net addition of 7 tractors to its fleet. During the second and third
fiscal quarters of 1997 the Company will also take delivery of 300 new
trailers and sell 118 older trailers for a net addition of 182 new
trailers. Like other truckload carriers, the Company experiences
significant driver turnover. 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, however, no
assurance can be made that the Company will not continue to experience a
shortage of drivers in the future.
Stock Recapitalization
On April 10, 1996, at a special meeting, the Company's shareholders
approved a recapitalization plan. The Company's Common Stock is traded
on the NASDAQ National Market System under the symbol CANX.
The recapitalization plan effected a 1-for-500,000 reverse split of the
Company's non-voting Class B Common Stock and converted each whole share
of Class B Common Stock outstanding after the reverse stock split into
493,150 shares of voting Class A Common Stock. All shareholders who
owned fewer than 500,000 shares of Class B Common Stock on January 26,
1996 were paid a cash price of $9.00 per share. The Company funded
these payments with working capital.
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form-K
No reports on Form 8-K were filed during the three months ended
September 30, 1996.<PAGE>
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.
CANNON EXPRESS, INC.
(Registrant)
Date: November 14, 1996 Dean G. Cannon
President, Chairman of the Board,
Chief Executive Officer and Chief
Accounting Officer
Date: November 14, 1996 Rose Marie Cannon
Secretary, Treasurer and Director<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 6,015,268
<SECURITIES> 2,716,751
<RECEIVABLES> 12,795,471
<ALLOWANCES> 160,684
<INVENTORY> 0
<CURRENT-ASSETS> 24,025,633
<PP&E> 77,636,155
<DEPRECIATION> 22,324,940
<TOTAL-ASSETS> 81,072,544
<CURRENT-LIABILITIES> 19,532,512
<BONDS> 0
0
0
<COMMON> 32,058
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 81,072,544
<SALES> 27,562,855
<TOTAL-REVENUES> 27,562,855
<CGS> 0
<TOTAL-COSTS> 25,866,378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 936,315
<INCOME-PRETAX> 836,531
<INCOME-TAX> 322,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 514,531
<EPS-PRIMARY> 0
<EPS-DILUTED> .16
</TABLE>
