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 DECEMBER 31, 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 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 January 31,
1996:
Class A - 2,161,352
Class B - 2,166,352
<PAGE>
INDEX
CANNON EXPRESS, INC. and SUBSIDIARIES
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements (Unaudited)
Consolidated Balance Sheets
as of December 31, 1995 and June 30, 1995 ........ 1
Consolidated Statements of Income and Retained Earnings
for the Three Months and Six Months
Ended December 31, 1995 and 1994 ............ 3
Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 1995 and 1994 ... 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 10
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
December 31 June 30
1995 1995
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $18,384,944 $12,324,394
Marketable securities 4,642,015 3,493,187
Receivables, net of allowance for
doubtful accounts
(December 31, 1995-$156,175;
June 30, 1995-$141,175):
Trade 8,578,326 9,084,562
Other 58,358 661,917
Prepaid expenses and supplies 1,283,082 1,680,448
Total current assets 32,946,725 27,244,508
Property and equipment:
Land, buildings and improvements 1,143,453 1,143,453
Revenue equipment 69,076,700 59,093,534
Service, office and other equipment 2,158,288 2,129,664
72,378,441 62,366,651
Less allowances for depreciation 14,221,293 14,478,734
58,157,148 47,887,917
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 814,974 813,671
Other 1,116,636 1,293,757
Total other assets 1,955,016 2,130,834
$93,058,889 $77,263,259
Note: The balance sheet at June 30, 1995 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)
December 31 June 30
1995 1995
(Unaudited) (Note)
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 661,504 $ 459,319
Accrued expenses:
Insurance reserves 1,472,945 1,337,331
Other 1,822,340 1,485,615
Federal and state income taxes payable 1,384,639 435,930
Deferred income taxes 75,000 29,000
Current portion of long-term debt 12,822,744 8,727,272
Total current liabilities 18,239,172 12,474,467
Long-term debt, less current portion 43,640,227 35,353,262
Deferred income taxes 3,292,000 3,833,000
Other liabilities 569,632 279,255
Stockholders' equity:
Class A common stock: $.01 par value;
authorized 10,000,000 shares;
issued 2,219,477 shares 22,195 22,195
Class B common stock: $.01 par value;
authorized 10,000,000 shares;
issued 2,224,477 shares 22,245 22,245
Additional paid-in capital 3,542,356 3,542,356
Retained earnings 22,633,859 21,181,034
Unrealized appreciation on marketable
securities, net of income taxes 1,468,978 927,220
27,689,633 25,695,050
Less treasury stock,
at cost (116,250 shares) 371,775 371,775
27,317,858 25,323,275
$93,058,889 $77,263,259
Note: The balance sheet at June 30, 1995 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 Six Months Ended
December 31 December 31
1995 1994 1995 1994
(Unaudited) (Unaudited)
Operating revenue $22,205,240 $19,749,204 $43,832,825 $38,096,769
Operating expenses and costs:
Salaries, wages and
fringe benefits 7,706,350 5,963,326 15,111,538 11,499,344
Operating supplies and
expense 6,217,455 5,206,973 12,264,739 10,390,732
Insurance, taxes and
licenses 2,604,719 1,818,486 4,913,009 3,442,760
Depreciation and
amortization 2,511,208 1,805,407 4,899,283 3,406,304
Rents and purchased
transportation 1,107,700 1,077,443 2,050,550 2,047,975
Other 427,901 297,722 725,626 608,055
20,575,333 16,169,357 39,964,745 31,395,170
Operating income 1,629,907 3,579,847 3,868,080 6,701,599
Gain on securities
sales 74,643 - 74,643 -
Other income 175,502 (6,928) 232,861 21,158
250,145 (6,928) 307,504 21,158
Interest expense 963,424 469,944 1,812,759 940,969
Income before income
taxes 916,628 3,102,975 2,362,825 5,781,788
Federal and state income taxes
Current 580,000 1,170,077 1,101,000 2,065,000
Deferred (227,000) 8,923 (191,000) 132,000
353,000 1,179,000 910,000 2,197,000
Net income 563,628 1,923,975 1,452,825 3,584,788
Retained earnings at
beginning of period 22,070,231 16,825,705 21,181,034 15,164,892
Retained earnings at
end of period $22,633,859 $18,749,680 $22,633,859 $18,749,680
Earnings per share:
Net income per
share (Note B) $0.13 $0.43 $0.33 $0.81
Average shares and share
equivalents
outstanding 4,420,122 4,442,542 4,430,637 4,438,182
See notes to consolidated financial statements.<PAGE>
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended
December 31
1995 1994
(Unaudited)
Operating activities
Net income $ 1,452,825 $ 3,584,788
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,899,283 3,406,304
Provision for losses on accounts
receivable 15,000 10,749
Provision (credit) for deferred
income taxes (191,000) 132,000
Loss on disposals of assets 7,259 43,869
Gain on sale of marketable securities (74,643) _
Changes in operating assets and liabilities:
Accounts receivable 1,094,795 (1,649,978)
Prepaid expenses and supplies 397,366 (21,117)
Accounts payable, accrued expenses,
taxes payable, and other liabilities 1,300,384 1,811,836
Other assets (9,377) 473,783
Net cash provided by operating activities 8,891,892 7,792,234
Investing activities
Purchases of property and equipment (12,433,273) (10,245,204)
Purchases of marketable securities (307,635) -
Proceeds from maturities of restricted
investments - 100,000
Purchases of restricted investments (1,303) (848)
Sales of marketable securities 114,355 -
Proceeds from the sale of equipment 6,556,907 1,711,226
Net cash used in investing activities (6,070,949) (8,434,826)
Financing activities
Proceeds from long-term borrowing 12,859,814 9,920,035
Principal payments on long-term debt and
capital lease obligations (9,620,207) (4,130,744)
Net cash provided by financing activities 3,239,607 5,789,291
Increase in cash and cash equivalents 6,060,550 5,146,699
Cash and cash equivalents at beginning
of period 12,324,394 8,398,287
Cash and cash equivalents at
end of period $18,384,944 $13,544,986
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 and six month periods ended December
31, 1995 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1996. 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, 1995.
Note B - Net Income Per Share
Three Months Ended Six Months Ended
December 31 December 31
1995 1994 1995 1994
(Unaudited) (Unaudited)
Average number of common
shares outstanding 4,327,704 4,312,704 4,327,704 4,312,704
Net effect of dilutive stock
warrants and options 92,418 129,838 102,933 125,478
Average shares and share
equivalents outstanding 4,420,122 4,442,542 4,430,637 4,438,182
Net income for the period $ 563,628 $1,923,975 $1,452,825 $3,584,788
Per share $.13 $.43 $.33 $.81
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations -- Second Quarter
Operating revenue for the second quarter of fiscal 1996 (ended December
31, 1995) increased to $22,205,240 from $19,749,204 representing an
increase of $2,456,036 or 12.4% over the comparable period in fiscal 1995.
The Company's fleet expanded from 649 trucks at December 31, 1994 to 820
trucks at December 31, 1995. The increase in operating revenue over the
same period of fiscal 1995 is primarily attributable to the increased
number of shipments to existing customers transported by the Company's
larger fleet of trucks and trailers. Operations of the Company
continued to be affected in the second quarter of fiscal 1996 by excess
capacity in the truckload industry, which led to increased competition
for freight. This competition resulted in, among other things, discounted
pricing which reduced per-mile operating revenues for the Company. In
response to changing competition within the industry, the Company has
increased its sales efforts, focusing its attention on adding new
customers and shipments to augment shipments of its existing customers.
Salaries, wages, and fringe benefits, made up primarily of drivers' wages,
increased as a percentage of revenue to 34.7% in the second quarter of
fiscal 1996 from 30.2% in the second quarter of fiscal 1995. Company
drivers were awarded approximately $515,000 in bonuses for the three-month
period ended December 31, 1995 as compared with $450,000 awarded during
the three-month period ended December 31, 1994. These higher per-mile
costs were substantially passed through to the Company's customers in the
form of rate increases in the fiscal 1995 period. During fiscal 1996
however, the before mentioned increased competition for available freight
within the industry precluded the passing of rate increases on to the
customer. The Company expects that competition for drivers will continue
and that future pay increases may be necessary to attract and retain
qualified drivers to operate its trucks.
Operating supplies and expenses, as a percentage of revenue, increased to
28.0% in the second quarter of fiscal 1996 from 26.4% in the comparable
period of fiscal 1995, due primarily to the increased number of trucks
and trailers. Insurance, taxes, and licenses increased to 11.7% of
revenue in fiscal 1996 from 9.2% in fiscal 1995 due to the timing of new
equipment additions during fiscal 1996. Depreciation and amortization
increased to 11.3% of revenue in fiscal 1996 from 9.1% in the same period
of fiscal 1995. This increase is attributable to the expansion of the
Company's fleet during fiscal 1996. Rents and purchased transportation
decreased slightly to 5.0% of revenue in fiscal 1996 from 5.5% in fiscal
1995 due to a proportionate decrease in revenue from intermodal
activities.
Although operating revenue for the second quarter of 1996 grew by 12.4%
over the comparable period of 1995, operating expenses increased by
$4,405,976 or 27.3%. Accordingly, the Company's operating ratio increased
to 92.7% in the second fiscal quarter of 1996 from 81.9% in the same
period of fiscal 1995.
Interest expense increased to 4.3% of revenue in the second quarter of <PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd
fiscal 1996 from 2.4% recorded in the second quarter of fiscal 1995, due
to new loans and capital leases incurred as a result of the expansion of
the Company's fleet.
The Company's effective income tax rate increased slightly to 38.5% of
pre-tax net income for the second quarter of fiscal 1996 from 38% in the
second quarter of fiscal 1995.
Net income for the second quarter of fiscal 1996 ended December 31, 1995
was $563,628 ($.13 per share) compared to $1,923,975 ($.43 per share)
during the comparable period of fiscal 1995, a decrease of $1,360,347 or
70.7% for the period.
Results of Operations - Six Month Period
Operating revenue for the first six months of fiscal 1996 ended December
31, 1995 increased to $43,832,825 from $38,096,769 in the comparable
period of fiscal 1995 representing an increase of 15.1%. As in the three-
month period, the increase in operating revenue over the same period of
fiscal 1995 is primarily attributable to the increased number of shipments
transported by the Company's larger fleet of trucks and trailers.
Operating income declined to $3,868,080 in the six months ended December
31, 1995 from $6,701,599 during the comparable period of fiscal 1995, a
decrease of 42.3%.
Salaries, wages, and fringe benefits increased to 34.5% of revenues in the
six-month period of fiscal 1996 up from the 30.2% reported in the six-
month period of fiscal 1995. Higher driver wages were only partially
offset by rate increases to the Company's customers, as such, increased
competition for freight within the industry resulted in a continuing
decrease in per-mile operating revenue for the first six months of fiscal
1996. Operating supplies and expenses increased to 28.0% of revenue in
fiscal 1996 from 27.3% in fiscal 1995. Insurance, taxes and licenses
increased to 11.2% of revenue during fiscal 1996 from 9.0% in fiscal 1995
due to increased costs associated with the Company's larger fleet of
revenue equipment. Depreciation and amortization, as a percentage of
revenue, increased to 11.2% of revenue in fiscal 1996 from 8.9% in the
same period of fiscal 1995 due principally to the addition of new
equipment.
Rents and purchased transportation decreased to 4.7% in the first six
months of fiscal 1996 from 5.4% during the comparable period of fiscal
1995 due primarily to a proportionate decrease in revenue from intermodal
activities. Other expenses remained steady at 1.7% of revenue in fiscal
1996 and 1.6% during the same fiscal period in 1995.
The Company's effective tax rate increased to 38.5% of pre-tax net income
in the six-month period of fiscal 1996 from 38% in the comparable period
of fiscal 1995.<PAGE>
Net income for the first six months of fiscal 1996 ended December 31, 1995
was $1,452,825 ($.33 per share) compared to $3,584,788 ($.81 per share)
during the comparable period of fiscal 1995, a decline of $2,131,963 or
59.5% for the six-month 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. Although diesel fuel costs have
remained relatively stable during the first two quarters of fiscal 1996,
the price of fuel fluctuates due to market influences around the globe.
Historically, increased fuel costs 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. However, it is unknown if
market conditions would allow future rate increases or fuel surcharges to
cover additional costs. Future 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 $8.9 million for the first six months of
fiscal 1996 compared to $7.8 million for the same period of fiscal 1995.
Cash flows from operations in the first two quarters of fiscal 1996 were
the result of $1.5 million provided from results of operations, $4.9
million in depreciation and $2.5 million decrease in investment in net
working capital assets and liabilities. Investing activities used net
cash of $6.1 million during the first six months of fiscal 1996 compared
to $8.4 million net cash used in the same period of fiscal 1995.
Purchases of new equipment and marketable securities totaling $12.7
million were offset by $6.6 million in proceeds from equipment sales for
1996. Financing activities provided net cash of $3.2 million during the
first quarter of fiscal 1996 compared to $5.8 million cash provided in the
first quarter of 1995. During fiscal 1996, proceeds from long-term
borrowings of $12.8 million were offset by repayment on long-term debt and
capital leases of $9.6 million.
The Company's working capital at December 31, 1995 was $14.7 million
compared to $14.8 million at June 30, 1995. 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. <PAGE>
Management of the Company intends, in the long-term, to continue to expand
its fleet. At December 31, 1995, negotiations for the purchase of 90
new tractors had been finalized, with acquisition costs totaling $5.5
million. The Company plans to finance these equipment acquisitions through
long-term debt or lease agreements. During the second quarter of fiscal
1996, the Company took delivery of 100 trucks and disposed of 25 older
trucks, making a net addition to the Company's fleet of approximately 75
trucks. Management believes that net revenues derived from the operation
of this new equipment will be sufficient to meet the debt or lease payment
obligations and working capital needs related thereto. However, to the
extent that such revenues are insufficient for such purposes, the Company
may be required to rely on additional borrowings or equity offerings to
meet its capital asset needs.
Stock Recapitalization
On January 29, 1996 the Company announced that its Board of Directors had
approved a recapitalization plan which would take private its Class B
Common Stock and reclassify its two existing classes of common stock into
a new, single class of publicly traded common stock. The Company's
existing Class A Common Stock and Class B Common Stock are currently
traded on the NASDAQ National Market System under the symbols CANXA and
CANXB.
The recapitalization plan would effect a 1-for-500,000 reverse split of
the Company's non-voting Class B Common Stock and convert 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 own
fewer than 500,000 shares of Class B Common Stock on January 26, 1996 will
be paid a cash price of $9.00 per share. The Company intends to fund
these payments with existing working capital.
Over the past year the Board of Directors has been exploring alternatives
to increase shareholder value, and has determined to eliminate the dual
class structure and to return to a single, publicly-traded class of common
stock. On January 26, 1996 a special committee of the Board of Directors
concluded that the recapitalization plan was in the best interests of both
the Company and the shareholders. The special committee considered
various factors before recommending that the Board approve the
recapitalization plan, including the opinion of its financial advisor,
Llama Company, that the $9.00 per share of Class B Common Stock price is
fair to the shareholders of Class B Common Stock.
The Board will submit the recapitalization plan for approval at a special
meeting of shareholders to be held in March, 1996. If the
recapitalization plan is consummated, the Company will de-register the
Class B Common Stock with the Securities and Exchange Commission. The
Class A Common Stock, to be reclassified into a new, single class of
common stock, will remain outstanding and continue to be traded on the<PAGE>
NASDAQ National Market System. The Company will remain a public company
and continue to file reports with the SEC, including Annual Reports on
Form 10-K and Quarterly Reports on Form 10-Q.
The Company anticipates that it will mail a proxy statement to its
stockholders in late February, 1996 with respect to a stockholders'
meeting to be held in March, 1996 to consider the recapitalization
proposal. This proxy statement will contain a complete description of the
recapitalization proposal. Stockholders and investors are urged to
carefully review this proxy statement.<PAGE>
PART II OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
On November 21, 1995, the Annual Meeting of Stockholders was held in
Springdale, Arkansas. The only matter submitted to a vote of the
stockholders was the reelection of the Company's current Board of
Directors whose terms expire in 1995. Over 99% of the shares present or
represented by proxy were voted in favor of management's nominees.
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: February 13, 1996 Dean G. Cannon
President, Chairman of the Board,
Chief Executive Officer and Chief
Accounting Officer
Date: February 13, 1996 Rose Marie Cannon
Secretary, Treasurer and Director<PAGE>
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