<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, 1998
( )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,
1998: 3,192,861<PAGE>
INDEX
CANNON EXPRESS, INC. and SUBSIDIARIES
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements (Unaudited)
Consolidated Balance Sheets
as of March 31, 1998 and June 30, 1997.................................1
Consolidated Statements of Income and Retained Earnings
for the Three Months and Nine Months Ended March 31, 1998 and 1997.....3
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 1998 and 1997......................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
1998 1997
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $3,765,810 $3,995,626
Receivables, net of allowance for doubtful
accounts (March 31, 1998-$143,141;
June 30, 1997-$183,411):
Trade 10,152,740 9,845,402
Other 440,925 158,839
Prepaid expenses and supplies 1,683,218 1,217,155
Deferred income taxes 2,093,000 1,793,000
Total current assets 18,135,693 17,010,022
Property and equipment:
Land, buildings and improvements 1,176,563 1,176,563
Revenue equipment 84,077,555 82,802,562
Service, office and other equipment 2,678,585 2,483,375
87,932,703 86,462,500
Less allowances for depreciation 35,439,971 26,085,500
52,492,732 60,377,000
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 2,236,785 2,210,026
Marketable securities 542,536 831,797
Other 570,279 735,721
Total other assets 3,373,006 3,800,950
$74,001,431 $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)
March 31 June 30
1998 1997
(Unaudited) (Note)
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $1,481,449 $1,043,333
Accrued expenses:
Insurance reserves 3,289,214 3,489,814
Other 1,903,488 2,167,473
Federal and state income taxes payable 2,603,018 2,167,879
Current portion of long-term debt 15,733,496 16,696,510
Total current liabilities 25,010,665 25,565,009
Long-term debt, less current portion 25,935,544 35,393,134
Deferred income taxes 4,483,000 3,799,000
Other liabilities 121,523 183,508
Stockholders' equity:
Common stock: $.01 par value; authorized
10,000,000 shares; issued 3,252,986 shares at
March 31, 1998 and 3,205,777 shares at
June 30, 1997 32,530 32,058
Additional paid-in capital 3,644,567 3,542,356
Retained earnings 15,630,267 13,382,427
Unrealized depreciation on marketable
securities, net of income taxes (656,401) (509,256)
18,650,963 16,447,585
Less treasury stock, at cost (60,125 shares) 200,264 200,264
18,450,699 16,247,321
$74,001,431 $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 Nine Months Ended
March 31 March 31
1998 1997 1998 1997
(Unaudited) (Unaudited)
Operating revenue $26,023,161 $25,426,960 $84,965,076 $79,346,677
Operating expenses and costs:
Salaries, wages and
fringe benefits 8,511,473 8,859,940 27,475,206 26,761,374
Operating supplies and
expense 7,358,440 7,890,326 24,244,443 24,447,470
Taxes and licenses 1,522,670 1,636,551 4,424,910 4,847,403
Insurance & claims 991,838 1,588,775 4,003,733 3,851,737
Depreciation and
amortization 3,235,306 2,885,395 9,772,308 8,646,723
Rents and purchased
transportation 2,550,637 1,165,715 8,091,047 5,376,135
Other 546,396 471,882 1,510,513 1,383,069
24,716,760 24,498,584 79,522,160 75,313,911
Operating income 1,306,401 928,376 5,442,916 4,032,766
Other income(expense)
Interest expense (766,899) (943,973) (2,531,678) (2,817,727)
Other income 104,865 53,373 281,602 187,428
(662,034) (890,600) (2,250,076) (2,630,299)
Income before income taxes 644,367 37,776 3,192,840 1,402,467
Federal and state income taxes
Current (180,000) (375,000) 469,000 1,160,000
Deferred 428,000 390,000 476,000 (620,000)
248,000 15,000 945,000 540,000
Net income 396,367 22,776 2,247,840 862,467
Retained earnings at beginning
of period 15,233,900 12,790,257 13,382,427 11,950,566
Retained earnings at end
of period $15,630,267 $12,813,033 $15,630,267 $12,813,033
Earnings per share $0.13 $0.01 $0.71 $0.27
Average shares outstanding 3,176,097 3,147,430 3,163,413 3,147,579
Diluted earnings per share $0.12 $0.01 $0.69 $0.27
Diluted shares outstanding 3,257,935 3,231,692 3,250,023 3,240,427
See notes to consolidated financial statements.<PAGE>
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
March 31
1998 1997
(Unaudited)
Operating activities
Net income $ 2,247,840 $ 862,467
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,688,790 8,791,052
Provision (credit) for losses on accounts
receivable (40,270) 4,509
Provision (credit) for deferred income taxes 476,000 (620,000)
Loss (gain) on disposals of assets 83,517 (144,429)
Loss on sale of marketable securities - 40,438
Changes in operating assets and liabilities:
Accounts receivable (549,154) 4,085,906
Prepaid expenses and supplies (466,063) (142,351)
Accounts payable, accrued expenses,
taxes payable, and other liabilities 408,785 1,336,914
Other assets (11,400) (19,881)
Net cash provided by operating activities 11,838,045 14,194,625
Investing activities
Purchases of property and equipment (1,781,832) (17,189,617)
Purchases of marketable securities - (89,509)
Net increase in restricted cash (26,759) (690,000)
Proceeds from sales of marketable securities 50,000 103,313
Proceeds from equipment sales 8,650 5,403,800
Net cash used in investing activities (1,749,941) (12,462,013)
Financing activities
Proceeds from long-term borrowing - 14,715,790
Principal payments on long-term debt and
capital lease obligations (10,420,604) (17,748,019)
Proceeds from exercise of stock options 102,684 -
Purchase of treasury stock - (14,377)
Net cash used in financing activities (10,317,920) (3,046,606)
Decrease in cash and cash equivalents (229,816) (1,313,994)
Cash and cash equivalents at beginning of period 3,995,626 4,169,919
Cash and cash equivalents at end of period $ 3,765,810 $ 2,855,925
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, 1998 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 Nine Months Ended
March 31 March 31
1998 1997 1998 1997
(Unaudited) (Unaudited)
Average shares outstanding 3,176,097 3,147,430 3,163,413 3,147,579
Net effect of dilutive stock
options 81,838 84,262 86,610 92,848
Diluted shares outstanding 3,257,935 3,231,692 3,250,023 3,240,427
Net income for the period $396,367 $22,776 $2,247,840 $862,467
Earnings per share $0.13 $0.01 $0.71 $0.27
Diluted earnings per share $0.12 $0.01 $0.69 $0.27
<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 1998 (ended March 31, 1998)
increased to $26,023,161 from $25,426,960 representing an increase of
$596,201 or 2.3% over the comparable period in fiscal 1997. At March 31, 1998,
the Company's fleet consisted of 904 trucks and 2,113 trailers, while on
March 31, 1997, the Company's fleet consisted of 909 trucks and 2,022 trailers.
Logistics and intermodal revenue for the third quarter of fiscal 1998 increased
by $1,709,221, or 189%, over the comparable period in fiscal 1997. Management
intends to continue to increase its activities in the logistics area as
additional opportunities arise. The Company's ability to produce revenue
continued to be impaired by a shortage of qualified drivers.
Salaries, wages, and fringe benefits, made up primarily of drivers' wages,
decreased as a percentage of revenue to 32.7% in the third quarter of fiscal
1998 from 34.8% in the third quarter of fiscal 1997. This decrease was due to
the increased revenue from logistics operations. Effective July 1, 1997, the
Company increased its mileage 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 $212,000 in bonuses for the three-month period ended
March 31, 1998 as compared with $653,000 awarded during the three-month period
ended March 31, 1997.
Operating supplies and expenses, as a percentage of revenue, decreased to
28.3% in the third quarter of fiscal 1998 from 31.0% in the comparable
period of fiscal 1997. This decrease was primarily due to the Company's
average fuel costs which were 18 cents per gallon, or approximately 2 cents
per mile, net of fuel surcharges, lower in the third quarter of fiscal 1998
than in the third quarter of fiscal 1997. Taxes and licenses decreased to
5.9% of revenue in fiscal 1998 from 6.4% in fiscal 1997. Insurance and
claims were 3.8% of revenue in fiscal 1998, decreasing from 6.2% in fiscal
1997 due to lower insurance premiums and favorable claims experience.
Depreciation and amortization increased to 12.4% of revenue in fiscal 1998
from 11.3% in fiscal 1997. A gain on sale of equipment of $17,377 was
included in the third quarter of fiscal 1998 as compared to a gain of
$163,608 in the third quarter of fiscal 1997. Rents and purchased
transportation increased to 9.8% of revenue in fiscal 1998 from 4.6% in
fiscal 1997 due to increased logistics operations. Other expenses were
2.1% of revenue in the third quarter of fiscal 1998 and 1.9% in the
comparable period of 1997.
Operating revenue for the third quarter of 1998 grew by 2.3% over the
comparable period of 1997, while operating expenses increased by $218,176
or .9%. Accordingly, the Company's operating ratio improved to 95.0% in
the third fiscal quarter of 1998 from 96.3% in the same period of fiscal
1997.<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Cont'd
Interest expense declined to 2.9% of revenue in the third quarter of fiscal
1998 from 3.7% recorded in the third quarter of fiscal 1997.
The Company's effective income tax rate was 38.5% of pre-tax net income in
the third quarter of fiscal 1998 and in the third quarter of fiscal 1997.
Net income for the third quarter of fiscal 1998 ended March 31, 1998 was
$396,367 ($.12 per diluted share) compared to $22,776 ($.01 per diluted
share) during the comparable period of fiscal 1997, an increase of $373,591
or 164.0% for the period.
Management believes that the Company's systems will be ready for the Year
2000 in the very near future. Expenses associated with the changes to the
Company's computer hardware and software have been included in results of
operations as incurred and future costs are not expected to have a material
effect on the Company's financial performance. The Company will request
assurance from its trading partners of their Year 2000 compliance.
Results of Operations - Nine Month Period
Operating revenue for the first nine months of fiscal 1998 ended March 31,
1998 increased to $84,965,076 from $79,346,677 in the comparable period of
fiscal 1997 representing an increase of $5,618,399 or 7.1%. As in the three-
month period, the increase in operating revenue over the same period of
fiscal 1997 is primarily attributable to the increased revenue resulting
from logistics operations. Logistics and intermodal revenue increased by
$4,851,097, or 113%, for the nine-month period of fiscal 1998 over the
comparable period of fiscal 1997. Operating income increased to $5,442,916
in the nine months ended March 31, 1998 from $4,032,766 during the
comparable period of fiscal 1997, an increase of 35.0%.
Salaries, wages, and fringe benefits decreased to 32.3% of revenues in the
nine-month period of fiscal 1998 from the 33.7% reported in the nine-month
period of fiscal 1997. This decrease, as in the three-month period, is due
to the additional revenue from logistics operations. Operating supplies and
expenses decreased to 28.5% of revenue in fiscal 1998 from 30.8% in fiscal
1997. During the nine months period of 1998, the Company's average cost of
fuel was approximately 13 cents per gallon lower than in the same period of
fiscal 1997. Taxes and licenses decreased to 5.2% of revenue during fiscal
1998 from 6.1% in fiscal 1997. Insurance and claims were 4.7% of revenue in
fiscal 1998, decreasing from 4.9% in fiscal 1997. Depreciation and
amortization, as a percentage of revenue, increased to 11.5% of revenue in
fiscal 1998 from 10.9% in the same period of fiscal 1997. A loss on sale of
equipment of $83,518 was included in the nine-month period of fiscal 1998 as
compared to a gain of $144,429 in the same period of fiscal 1997. Rents
and purchased transportation increased to 9.5% of revenue in the first nine
months of fiscal 1998 from 6.8% during the comparable period of fiscal 1997.
As was the case in the three-months period, this increase was caused
primarily by the increased logistics activities. Other expenses were steady
at 1.8% and 1.7% of revenue in the nine-month period of fiscal 1998 and
fiscal 1997, respectively.<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Cont'd
Operating revenue for the nine-month period of 1998 grew by 7.1% over the
comparable period of 1997, while operating expenses increased by $4,208,249
or 5.6%. Accordingly, the Company's operating ratio improved to 93.6% for
the nine-month period in 1998 from 94.9% during the same period in 1997.
Interest expense declined to 3.0% of revenue in the first nine months of
fiscal 1998 from 3.6% recorded in the first nine months of fiscal 1997.
The Company's effective income tax rate decreased to 29.6% of income before
income taxes for the first nine months of fiscal 1998 from 38.5% for the
first nine months of fiscal 1997. This benefit is a result of certain
equipment leasing transactions consummated during the prior fiscal year.
Net income for the first nine months of fiscal 1998 ended March 31, 1998 was
$2,247,840 ($.69 per diluted share) compared to $862,467 ($.27 per diluted
share) during the comparable period of fiscal 1997, an increase of
$1,385,373 or 160.6% 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, have declined during the first three quarters of fiscal 1998 over the
same period of fiscal 1997. Fuel costs in the quarter ended March 31, 1998
were approximately 22% lower than in the same period of the prior year. For
the nine-month period of fiscal 1998, fuel costs were approximately 14%
lower than in the nine-month period of fiscal 1997. Historically, increases
in 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. 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.<PAGE>
Operating activities provided cash flows of $11.8 million for the first nine
months of fiscal 1998 compared to $14.2 million for the same period of
fiscal 1997. Cash flows from operations in the first three quarters of
fiscal 1998 were the result of $2.2 million in net income, $9.7 million in
depreciation and $.1 million used in other working capital assets and
liabilities. Investing activities used net cash of $1.7 million during the
first nine months of fiscal 1998 compared to $12.5 million net cash used in
the same period of fiscal 1997. The Company has completed the installation
of on-board computers and satellite-based communications equipment on all of
its trucks. Management believes that improved communications between the
Company and its drivers will contribute to driver satisfaction, customer
service, and operating efficiencies. Financing activities used net cash of
$10.3 million during the first three quarters of fiscal 1998 compared to
$3.0 million in fiscal 1997.<PAGE>
The Company's working capital at March 31, 1998 was a deficit of $6.9
million compared to 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 non-binding
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.
The Company will take delivery of 600 new 53 foot trailers during the
quarter ended June 30, 1998. These trailers will replace approximately 175
Company-owned 48 foot trailers and 425 48 foot trailers which were rented
from various trailer leasing companies. The Company expects to finance this
acquisition through lease or loan agreements during the Company's fourth
fiscal quarter.
Other Matters - The Company transferred its listing from the NASDAQ Stock
Exchange to the American Stock Exchange effective March 3, 1998 under the
symbol AB.
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 1998.<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: May 14, 1998 /s/ Dean G. Cannon
President, Chairman of the Board,
Chief Executive Officer and Chief
Accounting Officer
Date: May 14, 1998 /s/ Rose Marie Cannon
Secretary, Treasurer and Director
<PAGE>
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