SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X )ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2000
( )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 E. Robinson 72764
P. O. Box 364 (Zip Code)
Springdale, Arkansas
(Address of principal executive offices)
Registrant's telephone number, including Area Code: (501) 751-9209
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K
Yes X No
Aggregate market value of voting stock held by non-affiliates of the
registrant at August 31, 2000: $2,987,596.
Number of shares of common stock outstanding at August 31, 2000:
Common Stock - 3,205,276
Documents incorporated by reference: Company's Notice and Proxy Statement
for its annual meeting of stockholders to be held on Tuesday, November 21,
2000.
Part I
Item 1. Business
Cannon Express, Inc. (the "Company" or "Registrant") is an irregular route,
truckload carrier with headquarters in Springdale, Arkansas, transporting a
wide range of general commodities in the United States pursuant to nationwide
operating authorities granted by the Department of Transportation ("DOT"),
and in Canada through operating authorities granted by the Canadian
provinces. At June 30, 2000, the Company operated a fleet of 775 tractors
and 2,280 trailers, and employed 935 people, none of whom is represented by
a collective bargaining agreement. Revenues from truckload operations accounted
for approximately 95% of total revenues for the year ended June 30, 2000.
The Company also provides logistics services utilizing equipment and services
provided by unrelated third parties in the transportation industry. Revenues
from logistics services represented approximately 5% of total revenues realized
for the year ended June 30, 2000.
Marketing and Customers
The Company's marketing strategy is to be one of a select group of carriers
serving financially sound customers who provide shipments to and from
locations within the Company's operating area. The Company's sales effort is
carried out by salespersons domiciled in strategic locations and by its
telemarketing staff consisting of salespersons who solicit new customers and
customer coordinators who arrange shipments for existing customers.
The Company publishes its own freight rates instead of using rates published
for a group of carriers by freight rate publishing bureaus. This practice
permits pricing that is responsive to changing market conditions as well as
to a particular customer's needs. Most arrangements for transportation are
made in the form of contracts with customers.
During the fiscal year ended June 30, 2000, Wal-Mart Stores, Inc. ("Wal-Mart")
accounted for 17.9% and International Paper, Inc. accounted for 9.4% of the
Company's operating revenue. During the fiscal years ended June 30, 1999 and
1998, Wal-Mart accounted for 28.9% and 47.0%, respectively, and International
Paper accounted for 13.1% and 14.4%, respectively, of operating revenue. In
March of 1998 the Company made a decision not to continue some of the freight
movements at the rates then being offered by Wal-Mart. Management of the
Company believes that its longer-term interests will be best served by
diversifying its customer base. The Company does not have long-term contracts
with its customers, and, accordingly, there is no assurance that the current
volume of business from these major customers will continue. Management
believes that the sudden loss of a significant customer could have a material
adverse effect on revenue, equipment utilization and operating efficiencies.
The principal types of freight transported by the Company include: retail and
wholesale goods primarily for discount merchandisers, paper goods, automotive
supplies and parts, and non-perishable food products.
Operations
A customer's initial contact with the Company is through one of the Company's
salespersons. This initial contact will involve computerized collection of
information regarding the customer's financial condition and its payment
history together with information on its loads, including the volume of
freight to be delivered, the origins and destinations of shipments, the
schedule in which such shipments are to be made and any special needs. Once
this information has been collected, the Company and the shipper will
negotiate and agree upon the shipment rates.
One or more of the Company's customer coordinators is then assigned to the
shipper's account. Customer coordinators are assigned to a specific region
of the United States and are responsible for matching a shipper's load with a
truck located within the customer coordinator's assigned region. The
customer coordinator then assigns a shipment to a dispatcher.
Dispatchers are responsible for conveying shipment information to assigned
drivers. Dispatchers and drivers communicate with one another either by
telephone as the driver makes routine stops in transit, or through on-board
computers and a satellite link. This link also enables the dispatcher to
monitor the progress of a particular shipment. At the shipment's origin, the
driver notifies the dispatcher when the shipment has been loaded and then
proceeds to the shipment's destination. When the shipment has reached its
destination, the driver is assigned another shipment by the dispatcher.
Once documents (such as driver's log, bill of lading and fuel tickets) have been
received by the Company, they are examined by the fuel and safety departments
and then by the billing department, which verifies shipment and billing
information previously entered into the computer by operations personnel.
Computer-generated bills are typically sent to the customer on the same day
shipment documents are received. The Company transmits freight bills and
shipment status information electronically through "EDI" ("Electronic Data
Interchange") for certain customers.
Through the use of its computer system, complimentary software and inter-
computer linkage with a fuel billing network, the Company monitors and
coordinates routes and shipments. This system also enables dispatchers and
customer coordinators to instantaneously send and receive shipment
information. The computer system is also used for payroll, billing and
bookkeeping.
The Company has purchased new computer software for its business. This
decision was made primarily due to the increased cost and inefficiency of
maintaining the Company's own software. The new software required that the
Company also purchase new computer hardware. Management believes that the new
system will enable the Company to better manage its business and to utilize
new technologies as they are developed. The Company converted its systems
during the second half of calendar year 1999.
Drivers and Other Employees
As of June 30, 2000, the Company employed 714 drivers and driver trainees.
All drivers are selected in accordance with Company guidelines relating
primarily to safety record, driving experience and personal evaluation. The
Company requires all drivers to meet experience requirements or to
satisfactorily complete a training program, which pairs a trainee with one of
the Company's proven driver trainers. Trainees sharpen the skills necessary
for success and are evaluated daily by their trainer. Once selected, a driver
or driver trainee is instructed in all phases of Company policies and
operations as well as safety techniques and fuel efficient operation of the
equipment.
The Company's drivers are compensated on the basis of miles driven, loading,
unloading and delivery stops, plus bonuses. Base pay per mile increases with
a driver's completion of a specified number of miles safely driven. Effective
January 1, 2000, the Company implemented an increase in drivers' starting
base pay ranging from 2 to 4 cents per mile and discontinued paying its
drivers a quarterly performance bonus. The Company has targeted its pay
increase and its recruiting efforts toward drivers with 3 or more years
driving experience. Company drivers who qualify are also paid an annual
safety bonus. Company drivers were awarded approximately $238,000 in safety
bonuses during fiscal 2000 as compared with approximately $1,300,000 awarded
during fiscal 1999. Prior to December 1999, the Company's drivers were
awarded quarterly performance bonuses, which were added into their base pay
after December 1999.
Like other truckload carriers, the Company experiences significant driver
turnover. The Company experienced a shortage of qualified drivers during
fiscal 2000. 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 experience a shortage of drivers in the future. In an effort to improve
its operating results, the Company implemented a new program during fiscal
2000 in which owner-operators may qualify to lease/purchase a truck and be
paid a percentage of the Company's revenue to operate the truck under a contract
with the Company to haul freight for its customers. Management believes that
an owner-operator fleet will improve results in the Company's driver
retention efforts. Additionally, certain costs associated with truck
ownership will pass from the Company to the owner-operator.
As of June 30, 2000, the Company employed: 2000 1999
Drivers and Driver Trainees (incl. Owner-Operators) 714 700
Management 16 16
Operations, Marketing, and Administration 144 142
Maintenance and Repair 61 89
Total 935 947
Management considers relations with its employees to be satisfactory and has
not experienced collective bargaining efforts in the past, nor does it
anticipate any collective bargaining by employees in the future. The Company
has a 401(k) plan for its drivers and other employees. Company contributions,
if any, are determined annually by its Board of Directors.
Tractors and Trailers
At June 30, 2000, the fleet consisted of 775 tractors and 2,280 trailers,
compared to 728 tractors and 2,314 trailers at June 30, 1999. During the
fiscal year ended June 30, 2000, 620 tractors were sold and 667 new tractors
were added to the fleet. In an effort to improve its operating results, the
Company during the fiscal year ending June 30, 2000, implemented a new
program in which owner-operators may qualify to lease/purchase a truck and be
paid a percentage of the Company's revenue to operate it under a contract
with the Company to haul freight for its customers. Management believes that
an owner-operator fleet will improve results in the Company's driver
retention efforts. Additionally, certain costs associated with truck
ownership will pass from the Company to the owner-operator. In addition, the
Company added 200 new trailers and sold 234 trailers during the fiscal year
ended June 30, 2000.
Tractors are acquired primarily with driver comfort, fuel efficiency and
overall economy in mind. All tractors operated by the Company are
conventionals, rather than cab-overs. Management believes that this type of
tractor will provide the driver greater comfort and will require less overall
maintenance because of the tractor's easier ride on the road. As of June 30,
2000, substantially all of the Company's tractors were manufactured by
International, while trailers were manufactured by Pines and Great Dane. The
Company has negotiated extended warranties on many of its tractors and
intends to trade-in such tractors on approximately a three-year cycle.
Manufacturers of tractors are required to certify to the Company that new
tractors meet federal emissions standards. All trailers in the fleet measure
48 or 53 feet in length by 102 inches in width.
The Company has a comprehensive preventive maintenance program for its
tractors and trailers. Inspections and different levels of repair or
maintenance are performed at regular intervals. At each inspection,
diagnostic tests are performed to ensure proper operation of equipment.
The following table shows the type and age of equipment operated by the
Company at June 30, 2000:
MODEL OVER-the-ROAD 48-FOOT 53-FOOT
YEAR TRACTORS TRAILERS TRAILERS
2001 55 - 100
2000 612 - 100
1999 100 - -
1998 - - 596
1997 - - 297
1996 2 297 -
1995 3 667 -
1994 - 141 -
1993 thru 1983 3 82 -
775 1,187 1,093
Fuel
The Company, and the motor carrier industry as a whole, is dependent upon the
availability and cost of diesel fuel. Both the availability and the cost of
diesel fuel are influenced by economic and political events not within the
Company's control. The Company does not presently participate in any program
to insure price stability. During fiscal 2000, the Company's average cost
per gallon was approximately 30 cents higher than in fiscal 1999. During the
4th quarter of fiscal 2000, the Company's average price per gallon was 32 cents
higher than in the same period of the previous year. Although the average price
per gallon was higher, the Company's total cost of fuel decreased due to its
smaller fleet and because owner operators are responsible for purchasing their
own fuel. However, owner operators receive a fuel surcharge for their higher
fuel costs, whether or not the Company is able to pass the surcharge on to its
customers. As of September 25, 2000, the average cost of a gallon of diesel
fuel was approximately 47 cents higher than in the previous year. 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. Although the Company has implemented fuel surcharges
for its customers, there is no assurance that any future increases in fuel
costs can be passed through to the Company's customers. The current cost or
future cost increases or shortages of fuel could affect the Company's future
profitability.
Governmental Regulation
The Company is a motor common and contract carrier previously regulated by
both the Interstate Commerce Commission ("ICC") and various state agencies.
Although the "ICC Termination Act of 1995" effectively eliminated the ICC as
of January 1, 1996, most functions of the ICC were transferred to the
Department of Transportation ("DOT"). These regulatory authorities have broad
powers generally governing matters such as authority to engage in motor
carrier operations, rates and charges, accounting systems, certain mergers,
consolidations and acquisitions and periodic financial reporting. In
addition, the Company's Canadian business activities are subject to similar
requirements imposed by provincial and Canadian regulations. Canadian business
activities represent less than 1% of total company operations.
The Company, like other motor carriers, is subject to certain safety
requirements governing interstate operations prescribed by the United States
Department of Transportation ("DOT") and by Canadian provincial authorities.
In addition, vehicle weight and dimensions are subject to federal, state,
and provincial regulations. Management believes that the Company is in
compliance in all material respects with applicable regulatory requirements
relating to its operations. The failure of the Company to comply with
regulations of the DOT, state or provincial agencies could result in
substantial fines or revocation of operating authorities. Federal, state and
local environmental laws and regulations impose requirements relating to,
among other things, contingency planning for spills of petroleum products,
disposal of waste oil and maintenance and testing of underground storage
tanks. Management believes that future compliance with such laws and
regulations will not have a material effect upon the Company's capital
expenditures, earnings, or competitive position.
Competition
The trucking industry as a whole is highly competitive. The Company competes
primarily with other irregular route, truckload carriers. To a lesser degree,
railroads, less-than-truckload carriers and contract carriers also provide
competition. Competition from any one of these sources, however, may be
significant in one geographic area or at any one time. Competition for
freight is based primarily on service and efficiency and, to a lesser degree,
upon freight rates. A number of other irregular route, truckload carriers have
substantially greater financial resources, own more equipment or carry a
larger volume of freight than the Company.
Safety and Insurance
The Company is self insured up to certain limits for workers' compensation,
cargo loss and damage, and certain property damage and liability claims.
Provision has been made for the estimated liabilities for such claims as
incurred, including liabilities for claims incurred but not reported. The
amount of actual losses incurred could differ materially from the estimates
reflected in these financial statements.
The Company maintains cargo loss and damage insurance and collision coverage
on owned and leased equipment. In addition, with the assistance of its
third-party administrator, workers' compensation claims are self-insured up to
$300,000. The Company also has excess general liability coverage in amounts
substantially exceeding minimum legal requirements and believed to be
sufficient to protect the Company against material loss. Management believes
that current insurance coverage adequately protects the Company from
liability arising from normal operations. Although coverage is currently
available from multiple sources, a material decrease in availability, or a
substantial increase in costs, could have a material adverse effect on the
Company's profitability.
Item 2. Properties
The Company's executive offices and its maintenance facility are located at
1457 & 1457A E. Robinson, respectively, in Springdale, Arkansas.
The office facility is located on a 3.6 acre tract of land. It is leased
from Dean G. Cannon and Rose Marie Cannon, President and Secretary/Treasurer
of the Company, respectively.
The Company's maintenance facility, purchased in 1987, is located on a 17-
acre tract of land adjacent to the office facility. The 13,000 square foot
facility contains 7 drive through bays and other improvements, and is used by
the Company for equipment maintenance, repairs, and refueling.
The Company owns approximately 31 acres of land adjacent to the above
locations to be used for future expansion.
Item 3. Legal Proceedings
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injuries and property damage incurred
in the transportation of freight. Management believes that adverse results in
one or more of these cases would not have a material adverse effect on
profitability or financial position. Additionally, a decision has been rendered
against the Company by the Equal Employment Opportunity Commission ("EEOC") for
unlawful hiring practices regarding pre-employment questions about medical
issues. The Company believed it was required by Department of Transportation
regulations to ask these questions. The Company is unable to predict the
range of any possible penalties imposed, but does believe that the resulting
penalties will not have a material adverse effect on profitability or financial
position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
(a) Prior to March 3, 1998, the Company's common stock was traded on the
NASDAQ National Market System under the symbol CANX.
On March 3, 1998, the Company transferred its listing from the NASDAQ
National Market System to the American Stock Exchange under the symbol
AB.
The range of high and low sales prices for the last eight fiscal
quarters is as follows:
COMMON STOCK
HIGH LOW
YEAR ENDED JUNE 30, 2000:
First Quarter $ 3 7/16 $ 2 3/4
Second Quarter 3 5/8 2
Third Quarter 2 3/4 1 5/8
Fourth Quarter 2 5/8 1 3/8
YEAR ENDED JUNE 30, 1999:
First Quarter $ 8 9/16 $ 6 5/8
Second Quarter 6 1/2 4 7/8
Third Quarter 6 3/8 2
Fourth Quarter 4 1/2 2 1/4
(b) The approximate number of holders of common stock as of August 31, 2000
was 1600.
(c) The Company has not paid any dividends on its Common Stock. The present
policy of the Company is to retain cash earnings to provide funds for
operations and expansion of the Company's business.
Item 6. Selected Financial Data
The following table provides a summary of selected financial data for Cannon
Express, Inc.
FISCAL YEAR ENDED JUNE 30,
2000 1999 1998 1997 1996
(in thousands except per share data)
Operating Revenue $91,779 $95,213 $109,245 $106,136 $89,991
Income (loss) before
cumulative
effect of change
in accounting
principle 520 (487) 1,815 1,432 2,159
Basic and diluted earnings
(loss) per share(1, 2 & 3): .16 (.15) .57 .45 .69
Total assets $103,889 $75,968 $80,886 $81,188 $84,358
Long term debt,
less current portion $56,648 $25,999 $29,768 $35,393 $43,964
(1) Earnings per share have been restated to give effect to the stock
recapitalization effected on April 10, 1996.
(2) Basic earnings per share is computed based on the weighted average
number of shares outstanding during the year.
(3) Calculation for 2000 does not include effect of certain out of market
options as they are antidilutive. (See Note 1 of the Notes to
Consolidated Financial Statements).
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The following table sets forth the percentage relationship of certain revenue
and expense items for the fiscal years indicated.
Percentages of
Operating Revenue
Year Ended June 30,
2000 1999 1998
Operating revenue 100.0% 100.0% 100.0%
Operating expenses and costs:
Salaries, wages and fringe benefits 28.1% 37.9% 33.1%
Operating supplies and expenses 24.1 31.5 28.7
Operating taxes and licenses 4.5 5.8 5.4
Insurance and claims 5.2 4.5 4.7
Depreciation and amortization 4.4 10.4 11.5
Rents and purchased transportation 28.8 5.5 8.7
Other 3.0 2.4 2.0
Total operating expenses 98.1 98.0 94.1
Operating income 1.9 2.0 5.9
Other income (expense):
Interest and dividend income 0.5 0.4 0.3
Gain (loss) on marketable securities (0.1) (0.0) (0.9)
Interest expense (4.2) (3.2) (3.0)
Income (loss) before income taxes (1.9) (0.8) 2.3
Income taxes (2.5) (0.3) 0.6
Net income (loss) 0.6% (0.5)% 1.7%
RESULTS OF OPERATIONS:
Fiscal year ended June 30, 2000 compared to Fiscal year ended June 30, 1999
Operating revenue for fiscal 2000 decreased 3.6% or $3,434,142 to
$91,778,766. The Company's revenue continued to be negatively impacted by a
shortage of qualified drivers to operate its trucks in fiscal 2000.
Logistics and intermodal revenue during fiscal 2000 increased by $1,875,820,
or 35.7%, over the comparable period in fiscal 1999. Management intends to
continue to increase its activities in the logistics area as additional
opportunities arise.
Salaries, wages and fringe benefits decreased 28.4% or $10,262,802 to
$25,820,469 in fiscal 2000. This decrease was largely due to the Company's
smaller fleet and to the Company's implementation of its lease program for
owner operators.
Operating supplies and expenses decreased 26.2% or $7,858,124 to $22,088,998
in fiscal 2000. Fuel costs for the fiscal year ended June 30, 2000 averaged
30 cents per gallon higher than in the comparable period of fiscal 1999,
which together with a decrease in total miles driven of 8,225,126 and the
purchase of fuel by owner operators, decreased operating expense by
approximately $2,560,000 during the 12 month period. Maintenance and tire
costs also decreased by approximately $4,580,000 due to the increase in owner
operators, who are responsible for these costs.
Operating taxes and licenses decreased 26.1% or $1,446,785 to $4,091,827 in
fiscal 2000 primarily due to lower fuel taxes as the result of fewer miles
driven and to the increase in owner operators.
Insurance and claims increased 12.4% or $527,042 to $4,790,074 in fiscal
2000. The major portion of this increase was due to workers' compensation
reserves which the Company anticipates will be paid out to an ex-driver who
was seriously injured in a one-vehicle accident. The Company's claims costs
also increased slightly due to accident settlements which were in excess of
reserve amounts.
Depreciation and amortization decreased 59.4% or $5,859,622 to $4,006,992 in
fiscal 2000. This decrease is primarily due to a gain on sale of equipment of
$5,163,933 which was realized in fiscal 2000 as compared to a gain of
$3,211,610 in fiscal 1999 as gains are netted against depreciation and
amortization.
Rents and purchased transportation increased 409.6% or $21,308,726 to
$26,511,107 in fiscal 2000 primarily due to payments made to the Company's
owner operators and to increased logistics activities.
The Company's operating ratio increased to 98.1% for fiscal 2000 from 98.0%
for the prior year, reflecting a decline of 0.1% for the period.
Interest expense increased 27.8% or $833,937 in fiscal 2000 due to the
increase in debt associated with the purchase of new equipment.
The Company recognized a previously unrealized tax benefit, the result of a
revenue equipment leasing transaction entered into during fiscal year 1995.
Consequently, the Company recognized a current income tax credit of
$1,660,000 during fiscal year 2000.
Net income for fiscal year ended June 30, 2000 was $520,501 ($.16 earnings
per diluted share) compared to net loss of $(487,384) ($.15 loss per diluted
share) during fiscal 1999, an increase of $1,007,885 or 206.8%.
Fiscal year ended June 30, 1999 compared to Fiscal year ended June 30, 1998
Operating revenue for fiscal 1999 decreased 12.8% or $14,032,090 to
$95,212,908. This decrease was primarily due to a reduction in the amount of
business the Company received from its major customer (Wal-Mart). In March
of 1998, the Company made a decision not to continue some of the freight
movements at the rates then being offered. Management of the Company
believes that its longer-term interests will be best served by diversifying
its customer base. During fiscal 1999, Wal-Mart revenue was $27,528,084 or
28.9% of total revenue compared to $51,479,789, or 47.0% of total revenue
during the same period of fiscal 1998, representing a decrease of $23,951,705
for the period. The Company has hired 3 salespersons to replace the lost
business, however, to date the shortfall in revenue has not been totally
replaced. The Company also saw a decrease in its logistics and intermodal
revenue from $11,038,945 in fiscal 1998 to $5,248,368 in fiscal 1999. This
decrease was due to the Company's need to retain freight for its own trucks
and not offering the same amount of excess freight to other companies' trucks
as in the prior year. The Company believes that its sales efforts will be
rewarded in the future through higher rates and with equipment utilization
returning to historical levels.
Salaries, wages and fringe benefits decreased .1% or $42,645 to $36,083,271
in fiscal 1999.
Operating supplies and expenses decreased 4.6% or $1,429,508 to $29,947,122
in fiscal 1999. Fuel costs for the fiscal year ended June 30, 1999 averaged
10 cents per gallon lower than in the comparable period of fiscal 1998, which
together with a decrease in total miles driven of 9,570,602, decreased
operating expense by approximately $2,660,000 during the 12 month period.
Maintenance costs increased 10.61% due to the average age of the Company's
equipment.
Operating taxes and licenses decreased 5.4% or $317,444 to $5,538,612 in
fiscal 1999 primarily due to lower fuel taxes as the result of fewer miles
driven.
Insurance and claims decreased 17.4% or $899,220 to $4,263,032 in fiscal 1999
due to lower insurance premiums and favorable claims experience.
Depreciation and amortization decreased 21.8% or $2,744,384 to $9,866,614 in
fiscal 1999. This decrease is due to a gain on sale of equipment of
$3,211,610 which was realized in fiscal 1999 compared to a gain of $464,552
in fiscal 1998 as the gain on sale of equipment is netted against depreciation
and amortization.
Rents and purchased transportation decreased 45.1% or $4,274,757 to
$5,202,381 in fiscal 1999 due primarily to decreased logistics activities.
The Company's operating ratio increased to 98.0% for fiscal 1999 from 94.1%
for the prior year, reflecting a decline of 3.9% for the period. This
decline was primarily attributable to higher maintenance costs during fiscal
1999.
Interest expense decreased 7.8% or $253,020 in fiscal 1999 due to lower
average debt balances.
The Company's effective income tax rate increased to 35.4% of income before
income taxes in fiscal 1999 from 27.1% in fiscal 1998. During fiscal 1998,
income tax consequences of certain equipment leasing transactions were
recorded in the financial statements in reliance on opinion of tax counsel.
Net loss for fiscal year ended June 30, 1999 was $(487,384) ($.15 loss per
diluted share) compared to net income of $1,814,587 ($.56 earnings per
diluted share) during fiscal 1998, a decrease of $2,301,971 or 126.9%.
Liquidity and Capital Resources
Cash flows from Operations - Operating activities provided cash of $2.5
million and $10.9 million in fiscal 2000 and 1999, respectively. Net cash
flows from operations in fiscal 2000 were primarily the result of $0.5
million net income, $9.2 million in depreciation offset by $5.2 million from
gain on disposal of assets, and a $2.0 million increase in accounts
receivable and other assets.
Cash flows from Investing Activities - Investing activities used net cash of
$9.9 million in fiscal 2000 and provided net cash of $0.7 million in fiscal
1999. Purchases of new equipment totaling $32.1 million was offset by $22.2
million in equipment sales and other investing activities for 2000.
Purchases of new equipment totaling $7.1 million was offset by $7.8 million
in equipment sales and other investing activities for 1999.
Cash flows from Financing Activities - Financing activities provided net cash
of $6.0 million in fiscal 2000 and used net cash of $5.7 million in fiscal
1999.
Working capital needs have been met primarily from cash generated from
operations. During the fiscal year ended June 30, 2000, cash provided by
operating activities was $2,528,822, down from $10,877,203 for the prior
fiscal year ended June 30, 1999. The current ratio increased from 0.89 at
June 30, 1999 to 1.64 at June 30, 2000. Working capital increased by $16.6
million to $13.7 million at June 30, 2000 from a deficit of $2.9 million at
June 30, 1999. Approximately $6.6 million of this increase is due to the net
investment in sales-type leases resulting from the owner-operator program.
Under this program, an owner-operator may qualify to lease/purchase a truck.
The current portion of lease payments due from owner-operators generates an
increase in working capital. 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.
During the fiscal year ended June 30, 2000, 620 tractors were sold and 667
new tractors were added to the fleet. The Company
added 200 new trailers and sold 234 trailers during the fiscal year ended
June 30, 2000.
The Company, on April 1, 2000, launched an enterprise for trucking companies
to share excess loads with each other for their mutual benefit. Carriersco-
op.com is an innovative business-to-business internet-based method for
carriers to increase their business, decrease expenses related to empty
miles, provide more service to their customers, and decrease or eliminate the
need for non-asset based third-party freight brokerage firms. Carriers will
pay an annual fee for membership and the Company will receive a fee for each
load accepted by a member carrier from the member carrier who posted the load.
Member carriers receive discounts on their supplies from select advertisers
who pay an annual fee to the Company for their representation on the Carriers
Co-op website. Approximately 89,000 member trucks were represented on the
co-op at June 30, 2000. The business is a wholly-owned subsidiary of the
Company. The web address for Carriers Co-op is http://www.carriersco-op.com.
Inflation
Inflation continues to have a minimal impact on operations.
Seasonality
In the trucking industry generally, results of operations show a seasonal
pattern because customers reduce shipments during the winter. Historically,
the Company's operating efficiency has decreased during the winter months due
to increased maintenance costs, reduced fuel efficiency, detours and delays for
weather.
Forward-Looking Statements
This report contains forward-looking statements that are based on assumptions
made by management from information currently available to management. These
statements address future plans, expectations and events or conditions
concerning various matters such as the results of the Company's sales efforts
as set forth in the discussion of results of operations, capital
expenditures, litigation and capital resources, and accounting matters.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, actual results could differ
materially from those currently reported.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to cash flow and interest rate risk due to changes in
interest rates with respect to its long-term debt. See Note 2 of the Notes to
Consolidated Financial Statements for details on the Company's long-term
debt.
Item 8. Financial Statements and Supplementary Data
The response to this Item is presented in a separate section of this report.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of Registrant
Certain information about directors and executive officers of the Company is
set forth below:
Name Age Position
Dean G. Cannon 59 President and Chairman of the Board
Rose Marie Cannon 59 Secretary, Treasurer and Director
Larry L. Patrick 55 Vice President
Duane Wormington 43 Vice President of Finance
Dean G. Cannon has been the President and a Director of Cannon Express Corp.,
the wholly-owned operating subsidiary of the Company, from 1981 to the
present and has served as President and as Director of the Company since its
inception. Dean G. Cannon is the husband of Rose Marie Cannon.
Rose Marie Cannon has been the Secretary, Treasurer and a Director of Cannon
Express Corp., from 1981 to the present and has served as Secretary,
Treasurer and Director of the Company since its inception. Rose Marie Cannon
is the wife of Dean G. Cannon.
Larry L. Patrick has been Vice-President of Cannon Express Corp. from 1991 to
the present. Prior to his employment with Cannon Express Corp., Mr. Patrick
was employed by Wal-Mart Stores, Inc. in Bentonville, Arkansas.
Duane Wormington has been Vice-President of Finance of Cannon Express Corp.
from 1987 to the present. Mr. Wormington is a graduate of Southwest Baptist
University in Bolivar, Missouri and is a Certified Public Accountant.
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class
of the Company's equity securities, to file with the Securities and Exchange
Commission reports of ownership and changes in ownership of common stock and
other equity securities of the Company. Officers, directors and greater than
10% shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such reports furnished to the
Company, or written representations from certain reporting persons, the
Company believes that, during the 2000 fiscal year, all filing requirements
were complied with as they apply to its officers, directors and greater than
10% beneficial owners. The remainder of this item is incorporated by
reference from the Company's Notice and Proxy Statement for its annual
meeting of stockholders to be held on Tuesday, November 21, 2000.
Item 11. Executive Compensation
This item is incorporated by reference from the Company's Notice and Proxy
Statement for its annual meeting of stockholders to be held on Tuesday,
November 21, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This item is incorporated by reference from the Company's Notice and Proxy
Statement for its annual meeting of stockholders to be held on Tuesday,
November 21, 2000.
Item 13. Certain Relationships and Related Transactions
This item is incorporated by reference from the Company's Notice and Proxy
Statement for its annual meeting of stockholders to be held on Tuesday,
November 21, 2000.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and
(2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) The exhibits as listed in the Exhibit Index are submitted as a
separate section of this report. In accordance with SEC Rules,
the following is a list of all Compensatory Plans or Arrangements
of the Company:
Cannon Express 401(k)
Cannon Express, Inc. Incentive Stock Option Plan
(b) On June 11, 1998, the Company filed a Form 8-K reporting Item 4 - Change
in Registrant's Certifying Accountant.
(c) See Item 14(a)(3) above.
(d) The response to this portion of Item 14 is submitted as a separate
section of this report.
INDEX TO EXHIBITS
3.(a) Certificate of Incorporation(1)
3.(b) Certificate of Amendment of Certificate of Incorporation(1)
3.(c) Bylaws of the Company(1)
3.(d) Amended Bylaws(1)
10.(a) Lease between the Company and Dean G. Cannon and Rose Marie Cannon(2)
10.(b) Incentive Stock Option Plan(2)
(1) Incorporated by reference from the Registrant's Registration Statement
on Form S-18, dated February 26, 1987.
(2) Incorporated by reference from Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1988.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. Dated this 28th
day of September, 2000.
Cannon Express, Inc.
By: /s/ Dean G. Cannon
Dean G. Cannon,
Chairman, Chief Executive Officer
(Principal Executive Officer and
Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Rose Marie Cannon
Rose Marie Cannon
Director, Secretary and Treasurer
By: /s/ Roy E. Stanley
Roy E. Stanley
Director
By: /s/ Uvalde R. Lindsey
Uvalde R. Lindsey
Director
FORM 10-K-ITEM 8, ITEM 14(a)(1) AND (2)
CANNON EXPRESS, INC., AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Cannon Express, Inc., and
Subsidiaries are included in Item 8:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of June 30, 2000 and 1999.
Consolidated Statements of Operations for the years ended June 30, 2000,
1999 and 1998.
Consolidated Statements of Changes in Stockholders' Equity for the years
ended June 30, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the years ended June 30, 2000,
1999 and 1998.
Notes to Consolidated Financial Statements as of June 30, 2000 and 1999.
The following consolidated financial statement schedule of Cannon Express,
Inc., and Subsidiaries is included in Item 14(d):
Schedule II Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
Report of Independent Public Accountants
To the Board of Directors and Stockholders
of Cannon Express, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Cannon
Express, Inc. and subsidiaries (a Delaware corporation) as of June 30, 2000
and 1999, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the
period ended June 30, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cannon Express, Inc. and
subsidiaries as of June 30, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended June 30,
2000, in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index as
item 14(d) is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Fayetteville, Arkansas
August 9, 2000
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, June 30,
2000 1999
Assets
Current assets:
Cash and cash equivalents $8,351,582 $9,683,794
Receivables, less allowance for
doubtful accounts (2000--$267,405;
1999--$199,579):
Trade 11,987,372 8,896,331
Other 1,837,256 1,963,418
Current portion of net investment
in direct financing leases 6,575,400 -
Prepaid expenses and supplies 1,623,267 1,627,778
Deferred income taxes 4,919,000 1,907,000
Total current assets 35,293,877 24,078,321
Property and equipment:
Land, buildings and improvements 1,257,335 1,230,945
Revenue equipment 75,340,802 80,264,223
Service, office and other equipment 2,932,135 2,885,076
79,530,272 84,380,244
Less allowance for depreciation 24,460,235 35,918,227
55,070,037 48,462,017
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 2,406,916 2,381,084
Marketable securities 346,970 593,110
Net investment in direct financing
leases, less current portion 10,636,780 -
Other 111,182 429,815
13,525,254 3,427,415
$103,889,168 $75,967,753
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
June 30, June 30,
2000 1999
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $1,529,639 $1,849,931
Accrued expenses:
Insurance reserves 3,666,103 3,295,528
Other 1,865,089 2,246,756
Federal and state income taxes payable 1,414,652 2,707,890
Current portion of long-term debt 13,098,351 16,861,875
Total current liabilities 21,573,834 26,961,980
Long-term debt, less current portion 56,648,009 25,999,343
Deferred income taxes 6,849,000 4,809,000
Other liabilities 12,531 27,569
Stockholders' equity:
Common stock: $.01 par value; authorized
10,000,000 shares; issued 3,265,401
shares in 2000 and 1999 32,654 32,654
Additional paid-in capital 3,747,575 3,747,575
Retained earnings 15,230,131 14,709,630
Accumulated other comprehensive income,
net of income taxes (credit) of
$72,262 and $(74,955)in 2000 and
1999, respectively (4,302) (119,734)
19,006,058 18,370,125
Less treasury stock, at cost
(60,125 shares in 2000 and 1999) 200,264 200,264
18,805,794 18,169,861
$103,889,168 $75,967,753
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Operations
Years ended June 30,
2000 1999 1998
Operating revenue $91,778,766 $95,212,908 $109,244,998
Operating expenses and costs:
Salaries, wages and fringe benefits 25,820,469 36,083,271 36,125,916
Operating supplies and expenses 22,088,998 29,947,122 31,376,630
Operating taxes and licenses 4,091,827 5,538,612 5,856,056
Insurance and claims 4,790,074 4,263,032 5,162,252
Depreciation and amortization 4,006,992 9,866,614 12,610,998
Rents and purchased transportation 26,511,107 5,202,381 9,477,138
Other 2,755,118 2,394,860 2,210,183
90,064,585 93,295,892 102,819,173
Operating income 1,714,181 1,917,016 6,425,825
Other income (expense):
Interest expense (3,838,907) (3,004,970) (3,257,990)
Interest and dividend income 469,942 361,460 346,288
Loss on marketable equity securities (99,715) (27,890) (1,025,536)
(3,468,680) (2,671,400) (3,937,238)
Income (loss) before income taxes (1,754,499) (754,384) 2,488,587
Federal and state income taxes:
Current (Credit) (1,303,000) (292,000) 122,000
Deferred (Credit) (972,000) 25,000 552,000
(2,275,000) (267,000) 674,000
Net income (loss) $ 520,501 $ (487,384) $ 1,814,587
Basic earnings (loss) per share $ .16 $ (0.15) $ 0.57
Average shares and share
equivalents outstanding 3,207,172 3,197,896 3,170,775
Diluted earnings (loss) per share $ .16 $ (0.15) $ 0.56
Diluted shares and share
equivalents outstanding 3,207,172 3,197,896 3,252,931
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Accumulated
Additional Other
Common Paid-In Retained Comprehensive Treasury
Stock Capital Earnings Income Stock Total
Balances at
July 1, 1997 $32,058 $3,542,356 $13,382,427 $(509,256) $(200,264) $16,247,321
Comprehensive income
Net income - - 1,814,587 - - 1,814,587
Accumulated other comprehensive income
Write-down of marketable
securities - - - 509,256 - 509,256
Total comprehensive income 2,323,843
Stock issued:
Exer. of options 472 102,212 - - - 102,684
Tax benefit of
stock options - 76,420 - - - 76,420
Balances at
June 30, 1998 32,530 3,720,988 15,197,014 - (200,264) 18,750,268
Comprehensive income
Net loss - - (487,384) - - (487,384)
Accumulated other comprehensive income
Unrealized depreciation on marketable
securities - - - (147,624) - (147,624)
Realized loss on marketable
securities - - - 27,890 - 27,890
Total comprehensive income (607,118)
Stock issued:
Exer. of options 124 26,587 - - - 26,711
Balances at
June 30, 1999 32,654 3,747,575 14,709,630 (119,734) (200,264) 18,169,861
Comprehensive income
Net income - - 520,501 - - 520,501
Accumulated other comprehensive income
Unrealized appreciation on marketable
securities - - - 54,107 - 54,107
Realized loss on marketable
securities - - - 61,325 - 61,325
Total comprehensive income 635,933
Balances at
June 30, 2000 $32,654 $3,747,575 $15,230,131 $ (4,302) $(200,264) $18,805,794
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended June 30
2000 1999 1998
Operating activities
Net income (loss) $ 520,501 $ (487,384) $1,814,587
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,173,125 13,077,769 13,075,545
Provision for losses on
accounts receivable 75,000 60,000 45,000
Provision (credit) for deferred
income taxes (2,632,000) 25,000 552,000
Gain on disposal of equipment (5,163,933) (3,211,610) (464,552)
Loss on sale of marketable securities 99,715 27,890 -
Write-down of marketable securities - - 1,025,536
Changes in operating assets and liabilities:
Receivables (3,039,879) 136,560 (1,097,068)
Prepaid expenses and supplies (92,924) (205,319) (107,869)
Accounts payable, accrued expenses,
income taxes payable,
and other liabilities (36,884) 1,454,297 (71,118)
Net investment in direct financing
leases 3,651,121 - -
Other assets (25,020) - (11,400)
Net cash provided by
operating activities 2,528,822 10,877,203 14,760,661
Investing activities
Purchases of property and equipment (32,112,256) (7,174,194) (12,926,251)
Net decrease (increase)
in restricted cash (25,832) 5,748 (176,806)
Investment in outside driver
training facility (37,550) (280,000) -
Proceeds from sales of
marketable securities 371,669 48,633 50,000
Proceeds from equipment sales 21,921,095 8,063,555 1,538,650
Net cash provided by
(used in) investing activities (9,882,874) 663,742 (11,514,407)
Financing activities
Proceeds from long-term borrowings 31,227,405 12,506,871 11,045,720
Principal payments on long-term debt and
capital lease obligations (25,205,565) (18,208,238) (14,572,779)
Proceeds from exer. of stock options - 26,711 102,684
Net cash provided by
(used in) financing activities 6,021,840 (5,674,656) (3,424,375)
Increase (decrease) in cash
and cash equivalents (1,332,212) 5,866,289 (178,121)
Cash and cash equivalents
at beginning of year 9,683,794 3,817,505 3,995,626
Cash and cash equivalents
at end of year $ 8,351,582 $ 9,683,794 $3,817,505
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
1. Nature of Operations and Summary of Significant Accounting Policies
Consolidation and Business - The consolidated financial statements include
the accounts of Cannon Express, Inc. (the "Company" ) and its subsidiaries.
All intercompany accounts and transactions have been eliminated.
The Company operates as an irregular route, truckload carrier.
Property and Equipment - Property and equipment are recorded at cost. For
financial reporting purposes, the cost of such property is depreciated by the
straight-line method. For tax reporting purposes, accelerated cost recovery
methods are used. Gains on sales of revenue equipment are recognized in the
period realized. Tires purchased with revenue equipment have been
capitalized as a part of the cost of such equipment; however, replacement
tires are expensed when placed in service. The estimated useful life of
revenue equipment is 3 to 7 years, and the estimated useful life of service,
office and other equipment is 5 to 7 years.
Income Taxes - Deferred tax liabilities and assets are recognized for the tax
effects of differences between the financial statement and tax bases of
assets and liabilities. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not that a deferred tax asset
will not be realized.
Revenue Recognition - The Company recognizes revenue and related direct
expenses when freight is delivered.
Comprehensive Income - The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income, during fiscal year
ending June 30, 1999. This statement establishes standards for reporting and
display of comprehensive income and its components. The Company has
reclassified all years presented to reflect comprehensive income and its
components in the Consolidated Statements of Changes in Stockholders' Equity.
Earnings per Share - The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share, effective June 30, 1998, and
all earnings per share amounts disclosed herein have been calculated under
the provisions of the SFAS No. 128. Basic earnings per share is computed
based on the weighted average number of shares outstanding during the year,
while diluted earnings per share is based on the weighted average number of
shares adjusted to include common stock equivalents attributable to dilutive
warrants and stock options.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
The Company accounts for earnings (loss) per share in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. In computing Diluted earnings per share, only potential
common shares that are dilutive - those that reduce earnings per share or
increase loss per share - are included. Exercise of options and warrants or
conversion of convertible securities is not assumed if the result would be
antidilutive, such as when a loss from continuing operations is reported or the
exercise price of the convertible securities exceeds the market price. As the
exercise price of all potentially dilutive financial instruments was less than
the market price at June 30, 2000, and the Company incurred a loss from
continuing operations for the year ended June 30, 1999, Basic earnings per
share and Diluted earnings per share computed in the same manner. Although such
financial instruments were not included due to being antidilutive, the Company
does have 84,647 shares of potentially dilutive financial instruments in the
form of warrants and options at June 30, 2000.
Insurance -The Company is self-insured up to certain limits for workers'
compensation, cargo loss and damage, and certain property damage and
liability claims. Provision has been made for the estimated liabilities for
claims incurred, including liabilities for claims incurred but not reported.
The amount of actual losses incurred could differ materially from the estimates
reflected in these financial statements.
The Company's insurance activities are secured by $3,231,000 in letters of
credit. Restricted cash of $2,406,916 and $2,381,084 at June 30, 2000 and
1999, respectively, represents certificates of deposit held as collateral for
these letters of credit.
Cash Equivalents - The Company considers all highly liquid investments, with
a maturity of three months or less when purchased, to be cash equivalents.
Marketable Equity Securities - Noncurrent marketable equity securities for
which the Company has no immediate plan to sell are classified as available-
for-sale and carried at fair value. Unrealized gains and losses are
recorded, net of related income tax effects, in stockholders' equity.
Realized gains and losses, based on the specifically identified cost of the
security, are included in net income.
The amortized cost and approximate fair values of noncurrent marketable
equity securities classified as available-for-sale are as follows:
June 30
2000 1999
Cost $353,965 $787,799
Unrealized losses (6,995) (194,689)
Fair value $346,970 $593,110
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
A single equity security accounted for approximately 48% of the fair value of
marketable equity securities at June 30, 1999.
Proceeds from sales of available-for-sale equity securities were $371,669,
$48,633 and $50,000 for 2000, 1999 and 1998, respectively. Resultant gross
losses of $(99,715), $(27,890) and $(1,025,536) were recognized and included
in net income for 2000, 1999 and 1998, respectively. At June 30, 1998, the
Company recognized a loss on available-for-sale equity securities of
approximately $1,026,000. The Company's available-for-sale equity securities
were recorded at their market value as of June 30, 2000 and 1999.
Deferred income taxes (Note 3) related to the net change in unrealized
appreciation (depreciation) on available-for-sale securities, shown in
stockholders' equity, were approximately $72,262, $(74,955), and $0 for 2000,
1999 and 1998, respectively.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassification - Certain reclassifications have been made to the 1999 and
1998 financial statements to conform to the 2000 financial statement
presentation. These reclassifications had no effect on net income.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Long-term Debt
June 30
2000 1999
Equipment notes (1) $ 27,477,650 $ 17,553,870
Capitalized lease obligations (2) 42,268,710 25,307,348
69,746,360 42,861,218
Less current portion 13,098,351 16,861,875
$ 56,648,009 $ 25,999,343
(1)Represents loans on revenue equipment, payable in various installments
through 2004 with a weighted average interest rate of 7.1%. Revenue
equipment having a book value of approximately $19,705,240 at June 30, 2000
is pledged as collateral. The carrying amount of equipment notes payable
approximates fair value at June 30, 2000.
(2)Capitalized lease obligations are for revenue equipment with an aggregate
net book value of approximately $31,240,156 at June 30, 2000. The leases
have a weighted average interest rate of 6.8%. The leases extend from three
to seven years and contain renewal or fixed price purchase options. The
lease agreements require the Company to pay property taxes, maintenance and
operating expenses.
Revenue equipment having an original cost of approximately $19 million and
leased to owner operators per direct financing leases described in Note 5 are
pledged as collateral in part against both the equipment notes and capital
lease obligations.
Annual maturities of long-term debt, excluding capitalized lease obligations
(Note 6) at June 30, 2000, are:
2001 $ 6,730,130
2002 9,525,314
2003 8,852,717
2004 2,369,489
2005 -
$27,477,650
Interest paid was approximately $1,682,636, $2,916,000 and $3,203,000 during
2000, 1999 and 1998, respectively.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
3. Federal and State Income Taxes
A reconciliation between the effective income tax rate and the statutory
federal income tax rate is presented in the following table:
Years ended June 30
2000 1999 1998
Income taxes at the statutory
federal rate of 34% $ (596,000) $ (256,000) $ 846,000
Federal income tax effects of:
Equipment leasing transactions (1,660,000) - (266,000)
Other 50,000 19,000 17,000
Federal income taxes (2,206,000) (237,000) 597,000
State income taxes (69,000) (30,000) 77,000
$(2,275,000) $ (267,000) $ 674,000
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets were:
June 30
2000 1999
Temporary Differences
Self-insurance accruals $ 1,404,000 $ 1,264,000
Current net investment in direct financing leases 2,518,000 -
Allowance/valuation reserves 254,000 498,000
Revenue recognition 56,000 84,000
Prepaids and other 687,000 61,000
Net current deferred income tax asset $ 4,919,000 $ 1,907,000
Depreciation $(13,973,000) $(14,888,000)
Revenue equipment leases 16,185,000 9,690,000
Net investment in direct financing leases (9,108,000) -
Valuation of available-for-sale securities 47,000 389,000
Net non-current deferred income tax liability $ (6,849,000) $ (4,809,000)
The Company made income tax payments of approximately $63,000, $94,000 and
$50,000 during 2000, 1999 and 1998, respectively.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Common Stock
Treasury Stock - In March 1990, the Board of Directors approved the purchase
from time to time in open market transactions of up to 150,000 shares of
common stock. As of June 30, 2000, 60,125 shares at an average price of
$3.33 per share are included as treasury stock on the balance sheets. No
purchases were made in fiscal years 2000, 1999 and 1998.
Stock Options - The Company has reserved 1,000,000 shares of common stock for
issuance under the Company's Incentive Stock Option Plan. Options are granted
for five to ten year terms and are exercisable in cumulative increments of 10
to 20% annually, commencing one year after the date of grant, except for
certain options which vest 100% after five years from the date of grant.
Additionally, from time to time, the Company issues stock options to non-
employee directors and a consultant. At June 30, 2000, there were 16,932
common stock options outstanding for non-employee directors. These options
have been included in the following summary information.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). Accordingly, no compensation cost has been
recognized for the stock option plan. There were no options granted during
fiscal year 2000, 1999 and 1998. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant date for
awards in 1997 consistent with the provisions of SFAS No. 123, the effect on
the Company's net income and earnings per share would not be materially
different from amounts reported.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997: dividend yield of 0%; expected
volatility of 50.6%; risk-free interest rate of 6.25%; and expected lives
range from 7 to 10 years.
Option transactions are summarized as follows (adjusted for all stock
distributions, redemptions and splits):
2000 1999 1998
Wt Avg Wt Avg Wt Avg
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at July 1 139,197 $5.47 175,612 $5.33 222,821 $4.66
Granted - - - - - -
Exercised - - (12,415) 2.15 (47,209) 2.17
Canceled (34,693) 3.04 (24,000) 6.17 - -
Outstanding at June 30 104,504 $6.27 139,197 $5.47 175,612 $5.33
Weighted average
remaining life 2.97 years
Exercisable at June 30 84,647 111,180 120,967
Weighted average price $6.18 $5.23 $4.89
Price range at June 30 $5.33 to $7.59 $2.12 to $7.59 $1.93 to $7.59
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Common Stock (Continued)
Earnings Per Share
June 30
2000 1999 1998
Average shares outstanding 3,207,172 3,197,896 3,170,775
Net effect of dilutive stock options - - 82,156
Diluted shares outstanding 3,207,172 3,197,896 3,252,931
Net income (loss) for the period $ 520,501 $ (487,384) $1,814,587
Basic earnings (loss) per share $ 0.16 $ (0.15) $ 0.57
Diluted earnings (loss) per share $ 0.16 $ (0.15) $ 0.56
5. Net Investment in Direct Financing Leases
The Company's net investment in direct financing leases consists of the leasing
of transportation equipment acquired by a subsidiary of the Company to
drivers. Terms of the direct financing leases range from 156 to 182 weeks
with weekly lease payments of $450 to $550. The following lists the
components of the net investment in direct financing leases as of June 30,
2000:
2000
Total minimum lease payments to be received $ 19,689,301
Less unearned revenue 2,477,121
Net investment in direct financing leases $ 17,212,180
Less current portion 6,575,400
Net investment in direct financing leases,
less current portion $ 10,636,780
The future minimum lease payments under direct financing leases at June 30,
2000, consisted of the following:
2001 $ 6,575,400
2002 6,575,400
2003 5,614,026
2004 924,475
Total minimum lease payments $ 19,689,301
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Leases and Commitments
The future minimum payments under capitalized leases at June 30, 2000,
consisted of the following:
2001 $ 8,888,022
2002 10,624,870
2003 10,993,129
2004 11,902,283
2005 4,345,978
Thereafter 2,779,645
Total minimum lease payments 49,533,927
Amounts representing interest 7,265,217
Present value of net minimum lease payments included
in long-term debt ($6,368,221 due in 2001) (Note 2) $42,268,710
Assets held under capital leases are included in property, plant and equipment
as follows:
2000 1999
Revenue equipment $38,942,567 $37,936,720
Accumulated depreciation 7,702,411 13,361,624
$31,240,156 $24,575,096
During 2000, 1999 and 1998, the Company incurred capital lease obligations
totaling approximately $32,611,000, $5,500,000 and $11,046,000, respectively.
The capital lease obligation incurred during fiscal 1999 was the result of a
sale/leaseback transaction for certain trucks which had been purchased
for cash during the quarter ended December 31, 1996. The lease contained an
early purchase option which was exercised during the fiscal year ended June
30, 2000.
Capitalized lease amortization is included in depreciation expense.
7. Legal Proceedings
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injuries and property damage incurred
in the transportation of freight. Management believes that adverse results in
one or more of these cases would not have a material adverse effect on
profitability or financial position. Additionally, a decision has been rendered
against the Company by the Equal Employment Opportunity Commission ("EEOC") for
unlawful hiring practices regarding pre-employment questions about medical
issues. The Company believed it was required by Department of Transportation
regulations to ask these questions. The Company is unable to predict the
range of any possible penalties imposed, but does believe that the resulting
penalties will not have a material adverse effect on profitability or financial
position of the Company.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Related Party Transactions
The Company leases a facility from the majority stockholders of the Company.
The lease provides for monthly rental payments of $3,000. Rent totaled
$36,000 for each of the three years in the period ended June 30, 2000. The
Company pays all insurance, taxes and maintenance costs with respect to the
facility. The lease is cancelable by the Company on 30 days notice.
In September 1996, the Company entered into a receivables purchase agreement
for up to $6 million of certain 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, is a 9.9% limited partner in CUSA, Inc. During fiscal 2000, this
receivables purchase agreement was terminated. There was no outstanding
balance on June 30, 2000.
In 1999, the Company paid financial advisory fees totaling $75,000 to Llama
Company in return for services rendered to the Company. Alice L. Walton is
the Chairman and General Partner of Llama.
9. Concentration of Business and Credit Risk
The Company provides services to customers throughout the United States and
Canada. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Historically, credit losses have not
been significant.
One unaffiliated customer (Wal-Mart Stores, Inc.) accounted for approximately
18%, 29%, and 47% of revenue for fiscal 2000, 1999 and 1998, respectively.
Accounts receivable as of June 30 for this customer totaled approximately
$1,522,000 and $1,234,000 for 2000 and 1999, respectively. A second
unaffiliated major customer accounted for approximately 9%, 13%, and 14% of
revenue in 2000, 1999 and 1998, respectively. Accounts receivable as of June
30 for this customer totaled approximately $1,665,000 and $1,654,000 for 2000
and 1999, respectively.
10. Profit-Sharing Plan
The Company has a profit-sharing plan covering all employees who have been
employed a minimum of one year and attained the age of twenty-one. The
Company's contributions to the plan are determined annually by the Board of
Directors. Contributions are limited to 10% of total compensation paid to
participants during the plan year. Participant interests are 100% vested
after completion of three years of service. No contributions were made to
the plan in 2000, 1999 or 1998.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Cash Flow Statement
During fiscal 2000 the Company purchased with debt approximately $24.7
million in revenue equipment that was subsequently leased to owner operators
under direct financing leases. This transaction is considered a noncash
investing transaction for statement of cash flow purposes.
12. Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, ("SFAS No. 133"), as amended by Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133. SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement. Companies must formally
document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000.
SFAS No. 133 cannot be applied retroactively and must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998).
Effective July 1, 2000, the Company adopted SFAS No. 133. Based on analysis
performed by the Company it was determined that the Company had no
outstanding derivative instruments or embedded derivatives at the adoption
date. As such, the Company concluded that the adoption of SFAS 133 had no
impact on its financial statements.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
13. Quarterly Results of Operations (Unaudited)
Fiscal 2000
September 30 December 31 March 31 June 30
Operating revenue $22,915,433 $21,290,792 $22,522,951 $25,049,590
Operating expenses and costs 22,231,016 21,727,416 21,450,857 24,655,296
Operating income (loss) 684,417 (436,624) 1,072,094 394,294
Other income (expense), net 106,155 76,526 208,909 (21,363)
Interest expense 651,469 843,903 1,158,421 1,185,114
Income (loss) before
income taxes 139,103 (1,204,001) 122,582 (812,183)
Income taxes (362,000) (878,000) (368,000) (667,000)
Net income (loss) $ 501,103 $ (326,001) $ 490,582 $ (145,183)
Basic earnings(loss) per share $0.16 $(0.10) $0.15 $(0.05)
Average shares and share
equivalents outstanding 3,205,276 3,205,276 3,205,276 3,205,276
Diluted earnings (loss)
per share $0.16 $(0.10) $0.15 $(0.05)
Diluted shares and share
equivalents outstanding 3,210,614 3,205,276 3,205,276 3,205,276
Fiscal 1999
September 30 December 31 March 31 June 30
Operating revenue $24,662,417 $24,091,602 $22,700,681 $23,758,208
Operating expenses and costs 23,816,373 23,631,151 23,072,915 22,775,453
Operating income 846,044 460,451 (372,234) 982,755
Other income (expense), net 67,516 60,317 101,434 104,303
Interest expense 812,368 748,908 743,133 700,561
Income (loss) before
income taxes 101,192 (228,140) (1,013,933) 386,497
Income taxes 39,000 (88,000) (390,000) 172,000
Net income (loss) $ 62,192 $ (140,140) $ (623,933) $ 214,497
Basic earnings (loss) per share $0.02 $(0.04) $(0.19) $0.07
Average shares and share
equivalents outstanding 3,192,861 3,192,861 3,200,586 3,205,276
Diluted earnings (loss)
per share $0.02 $(0.04) $(0.19) $0.07
Diluted shares and share
equivalents outstanding 3,244,877 3,192,861 3,200,586 3,212,161
Cannon Express, Inc. and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E Column F
Additions
(1) (2)
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Accts Deductions- End of
Description Period Expenses Describe Describe Period
Year ended June 30, 2000:
Deducted from asset accounts:
Reserve for doubtful trade
receivables $199,579 $75,000 $7,175(A) $267,404
Year ended June 30, 1999:
Deducted from asset accounts:
Reserve for doubtful trade
receivables $158,656 $60,000 $19,077(A) $199,579
Year ended June 30, 1998:
Deducted from asset accounts:
Reserve for doubtful trade
receivables $183,411 $45,000 $69,755(A) $158,656
(A)Uncollectible accounts written off, net of recoveries.
Shareholder Information
Form 10-K Availability
A copy of the 2000 Form 10-K filed with the Securities and Exchange
Commission will be forwarded, upon request, to any shareholder. Requests
should be directed to:
Dean G. Cannon
Cannon Express, Inc.
P.O. Box 364
Springdale, Arkansas 72765
Transfer Agent and Registrar
Continental Stock Transfer
and Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Stock Listing
American Stock Exchange
Symbol:
AB
Independent Auditors
Arthur Andersen LLP
Fayetteville, Arkansas
Communications Directory
Corporate Offices: Cannon Express, Inc., 1457 E. Robinson, Springdale,
Arkansas 72764.
Mailing Address: Post Office Box 364, Springdale, Arkansas 72765.
Telephone: (501) 751-9209.
