<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, 1997
( )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,
1997: 3,155,652 <PAGE>
INDEX
CANNON EXPRESS, INC. and SUBSIDIARIES
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 1997 and June 30, 1997.................1
Consolidated Statements of Income and Retained Earnings
for the Three Months Ended September 30, 1997 and 1996.....3
Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 1997 and 1996.....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 .................................8
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
1997 1997
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 6,050,036 $ 3,995,626
Receivables, net of allowance for
doubtful accounts (September 30, 1997-
$190,911; June 30, 1997-$183,411):
Trade 10,094,668 9,845,402
Other 85,950 158,839
Prepaid expenses and supplies 1,011,495 1,217,155
Deferred income taxes 2,520,000 1,793,000
Total current assets 19,762,149 17,010,022
Property and equipment:
Land, buildings and improvements 1,176,563 1,176,563
Revenue equipment 82,711,149 82,802,562
Service, office and other equipment 2,531,965 2,483,375
86,419,677 86,462,500
Less allowances for depreciation 29,203,936 26,085,500
57,215,741 60,377,000
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 2,210,731 2,210,026
Marketable securities 759,583 831,797
Other 676,774 735,721
Total other assets 3,670,494 3,800,950
$80,648,384 $81,187,972
Note: The balance sheet at June 30, 1997 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
1997 1997
(Unaudited) (Note)
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 1,478,236 $ 1,043,333
Accrued expenses:
Insurance reserves 4,179,003 3,489,814
Other 2,004,238 2,167,473
Federal and state income taxes payable 2,480,314 2,167,879
Current portion of long-term debt 16,292,931 16,696,510
Total current liabilities 26,434,722 25,565,009
Long-term debt, less current portion 32,956,891 35,393,134
Deferred income taxes 4,239,000 3,799,000
Other liabilities 162,846 183,508
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 14,003,692 13,382,427
Unrealized depreciation on marketable
securities, net of income taxes (522,917) (509,256)
17,055,189 16,447,585
Less treasury stock, at cost (60,125 shares) 200,264 200,264
16,854,925 16,247,321
$80,648,384 $81,187,972
Note: The balance sheet at June 30, 1997 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
1997 1996
(Unaudited)
Operating revenue $ 28,057,837 $ 27,562,855
Operating expenses and costs:
Salaries, wages and fringe benefits 9,349,914 9,079,903
Operating supplies and expense 8,537,989 8,498,833
Operating taxes and licenses 1,397,485 1,553,662
Insurance and claims 1,697,163 1,239,659
Depreciation and amortization 3,246,335 2,835,377
Rents and purchased transportation 2,002,322 2,257,700
Other 359,402 401,244
26,590,610 25,866,378
Operating income 1,467,227 1,696,477
Other income (expense):
Interest expense (901,770) (936,315)
Other income 98,808 76,369
(802,962) (859,946)
Income before income taxes 664,265 836,531
Federal and state income taxes:
Current 321,000 737,000
Deferred (278,000) (415,000)
43,000 322,000
Net income 621,265 514,531
Retained earnings at beginning of period 13,382,427 11,950,566
Retained earnings at end of period $14,003,692 $12,465,097
Earnings per share:
Net income per share $0.19 $0.16
Average shares and share equivalents outstanding 3,225,826 3,249,993
See notes to consolidated financial statements. <PAGE>
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended
September 30
1997 1996
(Unaudited)
Operating activities
Net income $ 621,265 $ 514,531
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,219,628 2,762,463
Provision for losses on accounts receivable 7,500 -
Credit for deferred income taxes (278,000) (415,000)
Loss on disposal of equipment 26,706 72,914
Loss on sale of marketable securities - 15,241
Changes in operating assets and liabilities:
Accounts receivable (183,877) 1,696,425
Prepaid expenses and supplies 205,660 (179,887)
Accounts payable, accrued expenses,
taxes payable, and other liabilities 1,272,845 828,903
Other assets - (10,000)
Net cash provided by operating activities 4,891,727 5,285,590
Investing activities
Purchases of property and equipment (48,590) (37,557)
Purchases of marketable securities - (29,480)
Net increase in restricted cash (705) -
Proceeds from sales of marketable securities 50,000 30,880
Proceeds from equipment sales 1,800 90,638
Net cash provided by investing activities 2,505 54,481
Financing activities
Principal payments on long-term debt and
capital lease obligations (2,839,822) (3,494,722)
Net cash used in financing activities (2,839,822) (3,494,722)
Increase in cash and cash equivalents 2,054,410 1,845,349
Cash and cash equivalents at beginning of period 3,995,626 4,169,919
Cash and cash equivalents at end of period $ 6,050,036 $ 6,015,268
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, 1997 are not
necessarily indicative of the results that may be expected for the year
ended June 30, 1998. 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, 1997.
Note B - Net Income Per Share
Three Months Ended
September 30
1997 1996
(Unaudited)
Average number of common shares outstanding 3,146,522 3,147,652
Net effect of dilutive stock warrants and options 79,304 102,341
Average shares and share equivalents outstanding 3,225,826 3,249,993
Net income for the period $ 621,265 $ 514,531
Net income per share $.19 $.16
Note C - Legal Proceedings
On October 22, 1997, the Company reached an agreement to settle a major
portion of the action against it for an accident which occurred in May of
1996. This agreement requires a cash payment by the Company of $1,100,000.
The Company's results for the September 30, 1997 quarter reflect $500,000
of this amount while $600,000 had been reserved in prior periods.
The Company believes it has a meritorious defense for the remaining action
against it and will continue to vigorously defend its interests. The
Company anticipates that a resolution of the remaining action will not
require an increase in its reserve for claims. <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 1998 (ended September 30,
1997) increased to $28,057,837 from $27,562,855 representing an increase of
$494,982 or 1.8% over the comparable period in fiscal 1997. At September
30, 1997, the Company's fleet consisted of 906 trucks and 2,119 trailers,
while on September 30, 1996, the Company's fleet consisted of 902 trucks
and 1,939 trailers. The increase in operating revenue over the same period
of fiscal 1996 is primarily attributable to increased revenue from
logistics operations. Management intends to continue to increase its
activities in the logistics area as additional opportunities arise.
Although demand for the Company's services was strong, a continued shortage
of qualified drivers impaired its ability to produce revenue.
Salaries, wages, and fringe benefits, made up primarily of drivers' wages,
increased as a percentage of revenue to 33.3% in the first quarter of
fiscal 1998 from 32.9% in the comparable period of fiscal 1997. Effective
July 1, 1997, the Company increased its mileage pay scale by a minimum of 3
cents per mile and implemented a graduated scale for newly hired drivers
based on their past experience. Additionally, those drivers who qualify
will receive a 2 cents per mile performance bonus paid quarterly in fiscal
1998, as compared to a 5 cents per mile performance bonus paid quarterly in
fiscal 1997. Company drivers were awarded approximately $225,000 in
bonuses for the three-month period ended September 30, 1997 as compared
with $640,000 awarded during the three-month period ended September 30,
1996.
Operating supplies and expenses, as a percentage of revenue, declined
slightly to 30.4% in the first quarter of fiscal 1998 from 30.8% in the
comparable period of fiscal 1997. Operating taxes and licenses also
declined to 5.0% of revenue in fiscal 1998 from 5.6% in fiscal 1997.
Insurance and claims were 6.0% of revenue in fiscal 1998, increasing from
4.5% in fiscal 1997, substantially due to the settlement detailed in Note D
to the financial statements. Depreciation and amortization increased to
11.6% of revenue in fiscal 1998 from 10.3% in the same period of fiscal
1997. A loss on disposal of equipment of $26,706 was included in the
first quarter of fiscal 1998 as compared to a loss of $72,914 in the first
quarter of fiscal 1997. Rents and purchased transportation decreased to
7.1% of revenue in fiscal 1998 from 8.2% in fiscal 1997 due to a decrease
in short-term trailer rentals.
Although operating revenue for the first quarter of 1998 grew by 1.8% over
the comparable period of 1997, operating expenses increased by $724,232 or
2.8%. Accordingly, the Company's operating ratio increased to 94.8% in the
first fiscal quarter of 1998 from 93.8% in the same period
of fiscal 1997.
Interest expense declined to 3.2% of revenue in the first quarter of
fiscal 1998 from 3.4% recorded in the first quarter of fiscal 1997. <PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd
The Company's effective income tax rate decreased to 6.5% of income before
income taxes in fiscal 1998 as a result of certain equipment leasing
transactions consummated during the prior fiscal year. Substantially all of
the income tax benefits of these transactions have been recognized in the
financial statements as of September 30, 1997. Such benefits have been
recognized in reliance on opinion of tax counsel.
Net income for the first quarter of fiscal 1998 ended September 30, 1997
was $621,265 ($.19 per share) compared to $514,531 ($.16 per share) during
the comparable period of fiscal 1997, an increase of $106,734 or 20.7% 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 increased in
the first fiscal quarter ended September 30, 1996. Fuel costs in the quarter
ended September 30, 1997 were approximately 5.2% lower than in the same period
of the prior year. 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. 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 $4.9 million for the first
three months of fiscal 1998 compared to $5.3 million for the same period of
fiscal 1997. Cash flows from operations in the first quarter of fiscal
1998 were the result of $0.6 million in net income, $3.2 million in
depreciation and $1.1 million net use of other working capital assets and
liabilities. Investing activities provided net cash of $.002 million
during the first three months of fiscal 1998 compared to $0.05 million for
the same period of fiscal 1997. Financing activities used net cash of $2.8
million during the first quarter of fiscal 1998 compared to $3.5 million
cash used in the first quarter of 1997.
The Company's working capital increased by $1.9 million to a deficit of
$6.7 million at September 30, 1997 from a deficit of $8.6 million at June
30, 1997. These deficits were due to the Company's decision to purchase
equipment for cash in the quarter ended December 31, 1996. The Company has
commitments from various lenders to finance these acquisitions in the
future if it is determined that the Company has the need for additional
working capital. Management has deviated from its past policy of
maintaining large cash balances in an effort to reduce interest expense.
Management believes that it is unlikely that the cost and availability of
financing will be adversely affected by this working capital deficit in the
near future.<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd
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.
The Company has entered into an agreement to equip its trucks with on-board
computers and mobile communication devices. These devices will enable the
Company to stay in touch with its drivers and to update its customers on
shipment status. Management expects that it will fund the approximately
$1,845,000 cost with existing cash although funds are available from lenders
to fund this purchase if necessary.
Management of the Company intends, in the long-term, to continue to expand
its fleet, although the Company did not make any additions to its fleet
during the quarter ended September 30, 1997. The Company is presently
negotiating for the purchase of approximately 600 new trailers with an
expected cost of approximately $10,800,000 and will sell or trade in
approximately 110 of its older model trailers. The Company expects to
finance these equipment acquisitions through long-term debt or lease
agreements, the terms of which are not presently known, although management
anticipates that financing with favorable terms will be available .
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.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
On October 22, 1997, the Company reached an agreement to settle a major
portion of the action against it for an accident which occurred in May of
1996. This agreement requires a cash payment by the Company of $1,100,000.
The Company's results for the September 30, 1997 quarter reflect $500,000
of this amount while $600,000 had been reserved in prior periods.
The Company believes it has a meritorious defense for the remaining action
against it and will continue to vigorously defend its interests. The
Company anticipates that a resolution of the remaining action will not
require an increase in its reserve for claims.
ITEM 6. Exhibits and Reports on Form-K
No reports on Form 8-K were filed during the three months ended September
30, 1997.<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 4, 1997
/s/ Dean G. Cannon
President, Chairman of the Board,
Chief Executive Officer and Chief
Accounting Officer
Date: November 4, 1997
/s/ Rose Marie Cannon
Secretary, Treasurer and Director<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 6,050,036
<SECURITIES> 759,583
<RECEIVABLES> 10,371,529
<ALLOWANCES> 190,911
<INVENTORY> 0
<CURRENT-ASSETS> 19,762,149
<PP&E> 86,419,677
<DEPRECIATION> 29,203,936
<TOTAL-ASSETS> 80,648,384
<CURRENT-LIABILITIES> 26,434,722
<BONDS> 0
0
0
<COMMON> 32,058
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 80,648,384
<SALES> 28,057,837
<TOTAL-REVENUES> 28,057,837
<CGS> 0
<TOTAL-COSTS> 26,590,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 901,770
<INCOME-PRETAX> 664,265
<INCOME-TAX> 43,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 621,265
<EPS-PRIMARY> 0
<EPS-DILUTED> .19
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