<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
DECEMBER 31, 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 January 31,
1997: 3,147,652
<PAGE>
INDEX
CANNON EXPRESS, INC. and SUBSIDIARIES
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements (Unaudited)
Consolidated Balance Sheets
as of December 31, 1996 and June 30, 1996. . . . . . . . . . . . . . .1
Consolidated Statements of Income and Retained Earnings
for the Three Months and Six Months Ended December 31, 1996 and 1995 . 3
Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 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 . . . . . 9
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
1996 1996
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $1,914,120 $4,169,919
Marketable securities 995,596 3,188,628
Receivables, net of allowance for doubtful accounts
(December 31, 1996-$168,184; June 30, 1996-$171,175):
Trade 8,782,546 14,103,923
Other 355,339 227,289
Prepaid expenses and supplies 900,234 1,470,940
Deferred income taxes 2,053,000 672,000
Total current assets 15,000,835 23,832,699
Property and equipment:
Land, buildings and improvements 1,172,563 1,148,563
Revenue equipment 80,868,148 74,450,678
Service, office and other equipment 2,313,861 2,290,494
84,354,572 77,889,735
Less allowances for depreciation 21,278,521 19,662,206
63,076,051 58,227,529
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 1,270,026 770,026
Other 944,645 939,764
Total other assets 2,238,077 1,733,196
$80,314,963 $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)
December 31 June 30
1996 1996
(Unaudited) (Note)
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 466,242 $ 1,120,828
Accrued expenses:
Insurance reserves 2,977,233 2,553,205
Other 1,853,927 2,141,206
Federal and state income taxes payable 3,317,051 1,596,621
Current portion of long-term debt 12,128,417 12,282,068
Total current liabilities 20,742,870 19,693,928
Long-term debt, less current portion 40,386,750 43,963,848
Deferred income taxes 3,166,000 3,606,000
Other liabilities 229,092 283,719
Stockholders' equity:
Common stock: $.01 par value; authorized
10,000,000 shares; issued 3,205,777shares 32,058 32,058
Additional paid-in capital 3,542,356 3,542,356
Retained earnings 12,790,257 11,950,566
Unrealized appreciation(depreciation) on marketable
securities, net of income taxes (388,533) 906,836
15,976,138 16,431,816
Less treasury stock, at cost (116,250 shares) 185,887 185,887
15,790,251 16,245,929
$80,314,963 $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
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended December 31
1996 1995 1996 1995
(Unaudited) (Unaudited)
Operating revenue $26,356,862 $22,205,240 $53,919,717 $43,832,825
Operating expenses and costs:
Salaries, wages and fringe benefits 8,821,531 7,706,350 17,901,434 15,111,538
Operating supplies and expense 8,058,311 6,217,455 16,557,144 12,264,739
Taxes and licenses 1,657,190 1,183,170 3,210,852 2,137,175
Insurance & claims 1,023,303 1,421,549 2,262,962 2,775,834
Depreciation and amortization 2,925,951 2,496,246 5,761,328 4,906,542
Rents and purchased transportation 1,952,720 1,107,700 4,210,420 2,050,550
Other 509,943 427,901 911,187 725,626
24,948,949 20,560,371 50,815,327 39,972,004
Operating income 1,407,913 1,644,869 3,104,390 3,860,821
Other income(expense)
Interest expense (937,439) (963,424) (1,873,754) (1,812,759)
Other income 57,686 235,183 134,055 314,763
(879,753) (728,241) (1,739,699) (1,497,996)
Income before income taxes 528,160 916,628 1,364,691 2,362,825
Federal and state income taxes
Current 798,000 580,000 1,535,000 1,101,000
Deferred (595,000) (227,000) (1,010,000) (191,000)
203,000 353,000 525,000 910,000
Net income 325,160 563,628 839,691 1,452,825
Retained earnings at beginning
of period 12,465,097 22,070,231 11,950,566 21,181,034
Retained earnings at end of period $12,790,257 $22,633,859 $12,790,257 $22,633,859
Earnings per share:
Net income per share $0.10 $0.17 $0.26 $0.45
Average shares and share
equivalents outstanding 3,239,597 3,239,463 3,244,795 3,244,728
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended
December 31
1996 1995
(Unaudited)
Operating activities
Net income $ 839,691 $ 1,452,825
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,742,149 4,899,283
Provision for losses on accounts receivable (2,991) 15,000
Provision (credit) for deferred income taxes 1,010,000 (191,000)
Loss on disposals of assets 19,179 7,259
Gain on sale of marketable securities 40,438 (74,643)
Changes in operating assets and liabilities:
Accounts receivable 5,196,318 1,094,795
Prepaid expenses and supplies 570,706 397,366
Accounts payable, accrued expenses,
taxes payable, and other liabilities (872,110) 1,300,384
Other assets (19,881) (9,377)
Net cash provided by operating activities 12,523,499 8,891,892
Investing activities
Purchases of property and equipment (25,122,914) (12,433,273)
Purchases of marketable securities (62,743) (307,635)
Purchases of restricted investments (500,000) (1,303)
Sales of marketable securities 109,044 114,355
Proceeds from the sale of equipment 14,528,064 6,556,907
Net cash used in investing activities (11,048,549) (6,070,949)
Financing activities
Proceeds from long-term borrowing 22,820,747 12,859,814
Principal payments on long-term debt and
capital lease obligations (26,551,496) (9,620,207)
Net cash provided by financing activities (3,730,749) 3,239,607
Increase(decrease) in cash and cash equivalen (2,255,799) 6,060,550
Cash and cash equivalents at beginning of period 4,169,919 12,324,394
Cash and cash equivalents at end of period $1,914,120 $18,384,944
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, 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 Six Months Ended
December 31 December 31
1996 1995 1996 1995
(Unaudited) (Unaudited)
Average number of common shares
outstanding 3,147,652 3,147,652 3,147,652 3,147,652
Net effect of dilutive stock warrants
and options 91,945 91,811 98,143 97,076
Average shares and share
equivalents outstanding 3,239,597 3,239,463 3,244,795 3,244,728
Net income for the period $ 325,160 $ 563,628 $ 839,691 $1,452,825
Per share $.10 $.17 $.26 $.45
Note C - Contingencies
A lawsuit has been filed in Phoenix, Arizona against the Company involving a
company tractor which allegedly struck the plaintiff. The alleged accident
occurred in July of 1995. Although the Company believes it should not be
liable for any damages, the plaintiff's attorney has made a demand for
approximately $700,000 in damages and has indicated it may pursue punitive
damages.
In May of 1996, a Company tractor and trailer were involved in an unavoidable
fatal traffic accident which was the result of a heart attack suffered by the
Company's driver who also died in the accident. The Company is a defendant
in three lawsuits in which plaintiffs seek an aggregate of $20,000,000 related
to this accident and is also aware of other parties who may have claims
related to this accident.
The Company believes it has a meritorious defense in these actions and expects
to vigorously defend its interests, however, an adverse outcome in one or more
of these actions could be expected to have a significant negative impact on the
Company's profitability and liquidity. The Company maintained liability
insurance with a limit of $1 million per occurrence at the time of these
occurrences. <PAGE>
Note D - Related Party Transactions
In September, the Company entered into a receivables purchase agreement for up
to $6 million of its accounts receivable with CUSA, Inc., a limited partnership
which includes Alice L. Walton as one of its partners. Ms. Walton, who owns
approximately 9% of the outstanding shares of the Company and is on the
Company's Board of Directors, is a 9.9% limited partner in CUSA, Inc.
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 1997 (ended December 31,
1996) increased to $26,356,862 from $22,205,240 representing an increase of
$4,151,622 or 18.7% over the comparable period in fiscal 1995. The Company's
fleet expanded from 820 trucks at December 31, 1995 to 909 trucks at December
31, 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. The Company's revenue from intermodal activities increased by 51.1%
in the second quarter of fiscal 1997 when compared to the
second quarter of fiscal 1996. Operations of the Company continued to be
affected in the second quarter of fiscal 1997 by excess capacity in the
truckload industry,and additionally, increased fuel costs and a shortage of
qualified drivers for its trucks adversely affected the quarter's results.
The Company has increased its sales efforts focusing its attention on adding
new customers and increasing shipments for existing customers.
Salaries, wages, and fringe benefits, made up primarily of drivers' wages,
decreased as a percentage of revenue to 33.5% in the second quarter of fiscal
1997 from 34.7% in the second quarter of fiscal 1996. This decrease was due to
the increased revenue from intermodal activities. The Company's drivers were
awarded approximately $657,000 in bonuses for the three-month period ended
December 31, 1996 as compared with $515,000 awarded during the three-month
period ended December 31, 1995. The Company expects that competition for
drivers will continue to increase 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
30.6% in the second quarter of fiscal 1997 from 28.0% in the comparable period
of fiscal 1996. This increase was primarily due to the Company's average fuel
costs which were 19 cents per gallon higher in the second quarter fiscal 1997
than in the second quarter of fiscal 1996. Taxes and licenses increased to
6.3% of revenue in fiscal 1997 from 5.3% in fiscal 1996 due to the timing of
new equipment purchases during fiscal 1997. Depreciation and amortization was
steady at 11.1% and 11.2% of revenue in the second quarter of fiscal 1997 and
fiscal 1996, respectively. Rents and purchased transportation increased to
7.4% of revenue in fiscal 1997 from 5.0% in fiscal 1996 due to the need for
additional trailers used in intermodal activities. <PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd
Although operating revenue for the second quarter of 1997 grew by 18.7% over
the comparable period of 1996, operating expenses increased by $4,388,578 or
21.3%. Accordingly, the Company's operating ratio increased to 94.7% in the
second fiscal quarter of 1997 from 92.6% in the same period of fiscal 1996.
Other income and expense was 3.3% of revenue in both the second quarter of
fiscal 1997and in the comparable period of fiscal 1996.
The Company's effective income tax rate was 38.5% of pre-tax net income for
the second quarter of fiscal 1997 and in the second quarter of fiscal 1996.
Net income for the second quarter of fiscal 1997 ended December 31, 1996 was
$325,160 ($.10 per share) compared to $563,628 ($.17 per share) during the
comparable period of fiscal 1996, a decrease of $238,468 or 42.3% for
the period.
Results of Operations - Six Month Period
Operating revenue for the first six months of fiscal 1997 ended December 31,
1996 increased to $53,919,717 from $43,832,825 in the comparable period of
fiscal 1996 representing an increase of $10,086,892 or 23.0%. As in the three-
month period, the increase in operating revenue over the same period of fiscal
1996 is primarily attributable to the increased number of shipments
transported by the Company's larger fleet of trucks and trailers and to
increased revenue from intermodal operations which increased by 114.4% when
compared to the six-months period of fiscal 1996. Operating income declined
to $3,104,390 in the six months ended December 31, 1996 from $3,860,821 during
the comparable period of fiscal 1996, a decrease of 19.6%.
Salaries, wages, and fringe benefits decreased to 33.2% of revenues in the
six-month period of fiscal 1997 from the 34.5% reported in the six-month
period of fiscal 1996. This decrease, as in the three-month period, is due to
the additional revenue from intermodal activities. Operating supplies and
expenses increased to 30.7% of revenue in fiscal 1997 from 28.0% in fiscal
1996. During the six months period, the Company's average cost of fuel was
approximately 14 cents per gallon higher than in the same period of fiscal
1996. Taxes and licenses increased to 6.0% of revenue during fiscal 1997 from
4.9% in fiscal 1996 due to increased costs associated with the Company's
larger fleet of revenue equipment. Depreciation and amortization, as a
percentage of revenue, declined to 10.7% of revenue in fiscal 1997 from 11.2%
in the same period of fiscal 1996.
Rents and purchased transportation increased to 7.8%of revenue in the first
six months of fiscal 1997 from 4.7% during the comparable period of fiscal
1996. As was the case in the three-months period, this increase was caused
primarily by the need for additional trailers to support the increased
intermodal activities. Other expenses were steady at 1.7% of revenue in both
periods.
Net income for the first six months of fiscal 1997 ended December 31, 1996 was
$839,691 ($.26 per share) compared to $1,452,825 ($.45 per share) during the
comparable period of fiscal 1996, a decline of $613,134 or 42.2% for the
six-month period. <PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd
Fuel Cost and Availability
The Company, and the motor carrier industry as a whole, is dependent upon the
availability and cost of diesel fuel. Diesel fuel costs, as mentioned above,
increased dramatically in the first two quarters of fiscal 1997 over the same
period of fiscal 1996. The Company's operating costs in the three months
period ended December 31, 1996 were $825,000 higher due to increased fuel
costs when compared to the same period of 1995. Results for the six month
period ended December 31, 1996 were negatively impacted in the amount of
$1,260,000 due to higher fuel costs. Although the Company implemented fuel
surcharges for its customers, these surcharges did not cover the additional
fuel costs the Company incurred. Fuel cost increases have historically been
passed through to the Company's customers in the form of a rate increase or a
fuel surcharge, however, it is unknown if market conditions will 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.
The Company primarily finances revenue equipment purchases with debt or lease
agreements which are secured by the asset being acquired. The Company is not
dependent on one source or lender for its credit needs; at the present time
the Company has finance agreements in place with eight different lenders.
The Company took delivery of 200 new trucks and traded in 193 trucks in the
quarter ended December 31, 1996. The Company also took delivery of 100 new
air-ride 53 foot trailers in the quarter ended December 31, 1996.
The Company has on order an additional 200 trailers with a total cost of
approximately $3.3 million which are scheduled to be delivered in the third
quarter of fiscal 1997 ending March 31, 1997. The Company expects to finance
these trailers through debt or lease agreements.
The Company's working capital at December 31, 1996 was a deficit of $5.7
million compared to a surplus of $4.1 million at June 30, 1996. The deficit
at December 31 was due to the Company's decision to purchase equipment for
cash in the quarter ended December 31, 1996. The Company expects that it will
finance these acquisitions in the quarter ending March 31, 1997, which will
increase it's working capital by approximately $7.5 million. Historically,
working capital needs have been met from cash generated from operations.
Management believes that the Company's working capital will be sufficient for
its short-term needs. 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. <PAGE>
PART II OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
On November 19, 1996, 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 1996 and the addition of Alice L. Walton to the Board of Directors.
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 14, 1997 /s/ Dean G. Cannon
President, Chairman of the Board,
Chief Executive Officer and Chief
Accounting Officer
Date: February 14, 1997 /s/ Rose Marie Cannon
Secretary, Treasurer and Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,914,120
<SECURITIES> 995,596
<RECEIVABLES> 8,950,730
<ALLOWANCES> 168,184
<INVENTORY> 0
<CURRENT-ASSETS> 15,000,835
<PP&E> 84,354,572
<DEPRECIATION> 21,278,521
<TOTAL-ASSETS> 80,314,963
<CURRENT-LIABILITIES> 20,742,870
<BONDS> 0
0
0
<COMMON> 32,058
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 80,314,963
<SALES> 53,919,717
<TOTAL-REVENUES> 53,919,717
<CGS> 0
<TOTAL-COSTS> 50,815,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,873,754
<INCOME-PRETAX> 1,364,691
<INCOME-TAX> 525,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 839,691
<EPS-PRIMARY> 0
<EPS-DILUTED> .26
</TABLE>
