<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 MARCH 31, 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 April 30, 1997:
3,145,652<PAGE>
INDEX
CANNON EXPRESS, INC. and SUBSIDIARIES
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements (Unaudited)
Consolidated Balance Sheets
as of March 31, 1997 and June 30, 1996 ......... 1
Consolidated Statements of Income and Retained Earnings
for the Three Months and Nine Months Ended March 31, 1997
and 1996 ............................................. 3
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 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 ............... *
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
March 31 June 30
1997 1996
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 2,855,925 $ 4,169,919
Marketable securities 802,822 3,188,628
Receivables, net of allowance
for doubtful accounts (March 31, 1997-
$175,684; June 30, 1996-$171,175):
Trade 9,551,928 14,103,923
Other 688,869 227,289
Prepaid expenses and supplies 1,613,291 1,470,940
Deferred income taxes 1,715,000 672,000
Total current assets 17,227,835 23,832,699
Property and equipment:
Land, buildings and improvements 1,176,563 1,148,563
Revenue equipment 80,788,770 74,450,678
Service, office and other equipment 2,321,036 2,290,494
84,286,369 77,889,735
Less allowances for depreciation 22,897,146 19,662,206
61,389,223 58,227,529
Other assets:
Receivable from stockholders 23,406 23,406
Restricted investments 1,460,026 770,026
Other 937,145 939,764
Total other assets 2,420,577 1,733,196
$81,037,635 $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)
March 31 June 30
1997 1996
(Unaudited) (Note)
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 738,268 $ 1,120,828
Accrued expenses:
Insurance reserves 2,833,711 2,553,205
Other 2,203,556 2,141,206
Federal and state income taxes payable 3,048,876 1,596,621
Current portion of long-term debt 15,362,056 12,282,068
Total current liabilities 24,186,467 19,693,928
Long-term debt, less current portion 37,851,630 43,963,848
Deferred income taxes 3,131,000 3,606,000
Other liabilities 208,430 283,719
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 12,813,033 11,950,566
Unrealized appreciation(depreciation) on
marketable securities, net of income taxes (527,075) 906,836
15,860,372 16,431,816
Less treasury stock, at cost (60,125 shares
in March 1997 and 58,125 shares in June 1996) 200,264 185,887
15,660,108 16,245,929
$81,037,635 $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 Nine Months Ended
March 31 March 31
1997 1996 1997 1996
(Unaudited) (Unaudited)
Operating revenue $25,426,960 $21,946,007 $79,346,677 $65,778,832
Operating expenses and costs:
Salaries, wages and fringe
benefits 8,859,940 7,771,191 26,761,374 22,882,729
Operating supplies and
expense 7,890,326 6,743,710 24,447,470 19,008,449
Taxes and licenses 1,636,551 1,443,397 4,847,403 4,253,501
Insurance & claims 1,588,775 1,193,152 3,851,737 3,296,057
Depreciation and
amortization 2,885,395 2,796,480 8,646,723 7,703,022
Rents and purchased
transportation 1,165,715 943,541 5,376,135 2,994,091
Other 471,882 441,365 1,383,069 1,166,991
24,498,584 21,332,836 75,313,911 61,304,840
Operating income 928,376 613,171 4,032,766 4,473,992
Other income(expense)
Interest expense (943,973) (943,004) (2,817,727) (2,755,763)
Other income 53,373 332,953 187,428 647,716
(890,600) (610,051) (2,630,299) (2,108,047)
Income before income taxes 37,776 3,120 1,402,467 2,365,945
Federal and state income taxes
Current (375,000) (230,000) 1,160,000 871,000
Deferred 390,000 231,000 (620,000) 40,000
15,000 1,000 540,000 911,000
Net income 22,776 2,120 862,467 1,454,945
Retained earnings at beginning
of period 12,790,257 22,633,859 11,950,566 21,181,034
Retained earnings at end of
period $12,813,033 $22,635,979 $12,813,033 $22,635,979
Earnings per share:
Net income per share $0.01 $0.00 $0.27 $0.45
Average shares and share
equivalents outstanding 3,231,692 3,234,519 3,240,427 3,244,752
See notes to consolidated financial statements.<PAGE>
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
March 31
1997 1996
(Unaudited)
Operating activities
Net income $ 862,467 $ 1,454,945
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,791,052 7,687,586
Provision for losses on accounts receivable 4,509 22,500
Provision (credit) for deferred income taxes (620,000) 40,000
Loss (gain) on disposals of assets (144,429) 15,436
Loss (gain) on sale of marketable securities 40,438 (226,213)
Changes in operating assets and liabilities:
Accounts receivable 4,085,906 (2,688,831)
Prepaid expenses and supplies (142,351) (1,214,178)
Accounts payable, accrued expenses,
taxes payable, and other liabilities 1,336,914 2,173,779
Other assets (19,881) (14,160)
Net cash provided by operating activities 14,194,625 7,250,864
Investing activities
Purchases of property and equipment (17,189,617) (15,542,770)
Purchases of marketable securities (89,509) (307,635)
Purchases of restricted investments (690,000) (2,726)
Sales of marketable securities 103,313 375,520
Proceeds from the sale of equipment 5,403,800 6,556,908
Net cash used in investing activities (12,462,013) (8,920,703)
Financing activities
Proceeds from long-term borrowing 14,715,790 15,907,421
Principal payments on long-term debt and
capital lease obligations (17,748,019) (12,127,386)
Purchase of treasury stock (14,377) -
Net cash provided by (used in) financing
activities (3,046,606) 3,780,035
Increase (decrease) in cash and cash equivalents (1,313,994) 2,110,196
Cash and cash equivalents at beginning of period 4,169,919 12,324,394
Cash and cash equivalents at end of period $ 2,855,925 $14,434,590
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
nine month periods ended March 31, 1997 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 Nine Months Ended
March 31 March 31
1997 1996 1997 1996
(Unaudited) (Unaudited)
Average number of common shares
outstanding 3,147,430 3,147,652 3,147,579 3,147,652
Net effect of dilutive stock
warrants and options 84,262 86,867 92,848 97,100
Average shares and share
equivalents outstanding 3,231,692 3,234,519 3,240,427 3,244,752
Net income for the period $ 22,776 $ 2,120 $ 862,467 $1,454,945
Per share $.01 $.00 $.27 $.45
Note C - Contingencies
A lawsuit filed in Phoenix, Arizona against the Company involving a company
tractor has been disposed of. The Company's expenses related to this matter
were approximately $150,000. 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 a lawsuit (originally three lawsuits, but now a
combined action) in which plaintiffs seek an aggregate of $20,000,000 related
to this accident. A tentative trial date has been set for September 1997.
The Company is also aware of other parties who may have claims related to this
accident.
The Company believes it has a meritorious defense in this remaining action and
expects to vigorously defend its interests, however, an adverse outcome in this
action 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>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations -- Third Quarter
Operating revenue for the third quarter of fiscal 1997 (ended March 31, 1997)
increased to $25,426,960 from $21,946,007 representing an increase of
$3,480,953 or 15.9% over the comparable period in fiscal 1996.The Company's
fleet expanded from 870 trucks at March 31, 1996 to 909 trucks at March 31,
1997. 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, the Company's revenue from intermodal activities increased to
$892,381 from $599,011, or 49.0%, in the third quarter of fiscal 1997 when
compared to the third quarter of fiscal 1996. The Company's intermodal
activities generally involve interline agreements between Company trucks
and railroads. The Company plans to continue to expand its intermodal
operations in certain areas where pickup and delivery times are not critical.
Although demand for services was strong, a shortage of qualified drivers for
its trucks adversely affected the Company's quarterly results. The Company is
continuing to improve its recruiting and retention programs and as of May 14,
1997, the Company's trucks are fully staffed.
Salaries, wages, and fringe benefits, made up primarily of drivers' wages,
decreased as a percentage of revenue to 34.8% in the third quarter of fiscal
1997 from 35.4% in the third quarter of fiscal 1996. This decrease was due to
the increased revenue from intermodal activities. The Company's drivers were
awarded approximately $653,000 in bonuses for the three-month period ended
March 31, 1997 as compared with $466,000 awarded during the three-month period
ended March 31, 1996. 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 31.0%
in the third quarter of fiscal 1997 from 30.7% in the comparable period of
fiscal 1996. This increase was primarily due to the Company's average fuel
costs which were 8 cents per gallon higher in the third quarter of fiscal 1997
than in the third quarter of fiscal 1996. Taxes and licenses decreased to
6.4% ofrevenue in fiscal 1997 from 6.6% in fiscal 1996. Depreciation and
amortization decreased to 11.3% of revenue in fiscal 1997 from 12.7% in
fiscal 1996. A gain on sale of equipment of $163,608 was included in the
third quarter of fiscal 1997 as compared to a loss of $8,177 in the third
quarter of fiscal 1996. Rents and purchased transportation increased to 4.6%
of revenue in fiscal 1997 from 4.3% in fiscal 1996 due to the need for
additional trailers used in intermodal activities.
While operating revenue for the third quarter of 1997 grew by 15.9% over the
comparable period of 1996, operating expenses increased by $3,165,748 or 14.8%.
Accordingly, the Company's operating ratio improved to 96.3% in the third fiscal
quarter of 1997 from 97.2% in the same period of fiscal 1996.
Other income and expense was 3.5% of revenue in the second quarter of fiscal
1997 and 2.8% in the comparable period of fiscal 1996.<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations--Cont'd
The Company's effective income tax rate was 38.5% of pre-tax net income for the
third quarter of fiscal 1997 and in the third quarter of fiscal 1996.
Net income for the third quarter of fiscal 1997 ended March 31, 1997 was
$22,776 ($.01 per share) compared to $2,120($.00 per share) during the
comparable period of fiscal 1996.
The Company continued to struggle during the quarter to staff its trucks with
qualified drivers as did most of the truckload industry. Approximately 10% of
the fleet was idle during the quarter due to the shortage of drivers. Fuel
costs during the quarter averaged approximately 1.3 cents per mile higher than
in the same quarter last year. The Company also continued to see downward
pressure on the rates it charges to its customers, however, it improved empty
miles by approximately 2.8%.
Results of Operations - Nine Month Period
Operating revenue for the first nine months of fiscal 1997 ended March 31, 1997
increased to $79,346,677 from $65,778,832 in the comparable period of fiscal
1996 representing an increase of $13,567,845 or 20.6%. 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 to existing
customers transported by the Company's larger fleet of trucks and trailers and
to increased revenue from intermodal operations which increased to $4,067,473
from $2,079,637, or 95.6%, when compared to the nine-months period of fiscal
1996. Operating income declined to $4,032,766 in the nine months ended March
31, 1997 from $4,473,992 during the comparable period of fiscal 1996, a
decrease of 9.9%.
Salaries, wages, and fringe benefits decreased to 33.7% of revenues in the nine-
month period of fiscal 1997 from the 34.8% reported in the nine-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 30.8% of revenue in fiscal 1997 from 28.9% in fiscal 1996. During
the nine months period of 1997, the Company's average cost of fuel was approx-
imately 12 cents per gallon higher than in the same period of fiscal 1996.
Taxes and licenses decreased to 6.1% of revenue during fiscal 1997 from 6.5% in
fiscal 1996. Depreciation and amortization, as a percentage of revenue,
declined to 10.9% of revenue in fiscal 1997 from 11.7% in the same period of
fiscal 1996. A gain on sale of equipment of $144,429 was included in the
nine-month period of fiscal 1997 as compared to a loss of $15,436 in the same
period of fiscal 1996.
Rents and purchased transportation increased to 6.8% of revenue in the first
nine months of fiscal 1997 from 4.6% 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 inter-
modal activities. Other expenses were steady at 1.7% and 1.8% of revenue in
the third quarter of fiscal 1997 and fiscal 1996, respectively.
While operating revenue for the nine-month period of 1997 grew by 20.6% over
the comparable period of 1996, operating expenses increased by $14,009,071
or 22.9%. Accordingly, the Company's operating ratio increased to 94.9% for
the nine-month period in 1997 from 93.2% during the same period in 1996.<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations--Cont'd
Net income for the first nine months of fiscal 1997 ended March 31, 1997 was
$862,467 ($.27 per share) compared to $1,454,945 ($.45 per share) during the
comparable period of fiscal 1996, a decline of $592,478 or 40.7% for the nine-
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. Diesel fuel costs, as mentioned above,
increased dramatically in the first two quarters of fiscal 1997 over the same
period of fiscal 1996 and remained above historical levels in the third quarter.
The Company's operating costs in the three months period ended March 31, 1997
were $420,000 higher due to increased fuel costs when compared to the same
period of 1996. Results for the nine month period ended March 31, 1997 were
negatively impacted in the approximate amount of $1,680,000 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 nine different lenders.
The Company took delivery of 200 new air-ride 53 foot trailers and traded in
109 trailers during the quarter ended March 31, 1997. The Company financed 100
of these trailers through a debt agreement entered into during the quarter, and
the remainder were financed through a debt agreement entered into in April 1997.
The Company's working capital at March 31, 1997 was a deficit of $7.0 million
compared to a surplus of $4.1 million at June 30, 1996. The deficit at March
31 was due to the Company's decision to purchase equipment for cash in the
quarter ended December 31, 1996. The Company has commitments for $3.5 to $5.0
million from lenders to finance these acquisitions in the future if it is
determined that the Company has a 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>
PART II OTHER INFORMATION
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: May 14, 1997 /s/ Dean G. Cannon
President, Chairman of the Board,
Chief Executive Officer and Chief Accounting Officer
Date: May 14, 1997 /s/ Rose Marie Cannon
Secretary, Treasurer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,855,925
<SECURITIES> 802,822
<RECEIVABLES> 10,416,481
<ALLOWANCES> 175,684
<INVENTORY> 0
<CURRENT-ASSETS> 17,227,835
<PP&E> 84,286,369
<DEPRECIATION> 22,897,146
<TOTAL-ASSETS> 81,037,635
<CURRENT-LIABILITIES> 24,186,467
<BONDS> 0
0
0
<COMMON> 32,058
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 81,037,635
<SALES> 79,346,677
<TOTAL-REVENUES> 79,346,677
<CGS> 0
<TOTAL-COSTS> 75,313,911
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,817,727
<INCOME-PRETAX> 1,402,467
<INCOME-TAX> 540,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 862,467
<EPS-PRIMARY> 0
<EPS-DILUTED> .27
</TABLE>
