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, 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 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 May 1, 2000:
3,205,276
INDEX
CANNON EXPRESS, INC. and SUBSIDIARIES
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements (Unaudited)
Consolidated Balance Sheets
as of March 31, 2000 and June 30, 1999....................................1
Consolidated Statements of Income and Retained Earnings
for the Three Months and Nine Months Ended March 31, 2000 and 1999........3
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 2000 and 1999.........................4
Notes to Consolidated Financial Statements..................................5
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................6
ITEM 3 - Quantitative and Qualitative Disclosure about Market Risk.........10
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings ...............................................10
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.................................10
*No information submitted under this caption.
PART 1.
ITEM 1. Financial Statements (Unaudited)
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 June 30
2000 1999
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $9,540,837 $9,683,794
Receivables, net of allowance for doubtful accounts
(March 31, 2000-$237,405; June 30, 1999-$199,579):
Trade 11,685,990 8,896,331
Other 318,941 1,963,418
Curr.portion of net investment in sales-type leases 4,461,543 -
Prepaid expenses and supplies 1,862,942 1,627,778
Deferred income taxes 2,973,000 1,907,000
Total current assets 30,843,253 24,078,321
Property and equipment:
Land, buildings and improvements 1,236,344 1,230,945
Revenue equipment 72,748,701 80,264,223
Service, office and other equipment 2,962,192 2,885,076
76,947,237 84,380,244
Less allowances for depreciation 23,283,921 35,918,227
53,663,316 48,462,017
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 2,381,084 2,381,084
Marketable securities 569,609 593,110
Net investment in sales-type leases,
less current portion 11,154,906 -
Other 152,254 429,815
Total other assets 14,281,259 3,427,415
$98,787,828 $75,967,753
Note: The balance sheet at June 30, 1999 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.
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
March 31 June 30
2000 1999
(Unaudited) (Note)
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $1,649,534 $1,849,931
Accrued expenses:
Insurance reserves 3,828,321 3,295,528
Other 3,847,871 2,246,756
Federal and state income taxes payable 1,681,531 2,707,890
Current portion of long-term debt 12,441,149 16,861,875
Total current liabilities 23,448,406 26,961,980
Long-term debt, less current portion 51,127,471 25,999,343
Deferred income taxes 5,292,000 4,809,000
Other liabilities 16,291 27,569
Stockholders' equity:
Common stock: $.01 par value; authorized
10,000,000 shares; issued 3,265,401 shares 32,654 32,654
Additional paid-in capital 3,747,575 3,747,575
Retained earnings 15,375,314 14,709,630
Unrealized depreciation on marketable
securities, net of income taxes (51,619) (119,734)
19,103,924 18,370,125
Less treasury stock, at cost (60,125 shares) 200,264 200,264
18,903,660 18,169,861
$98,787,828 $75,967,753
Note: The balance sheet at June 30, 1999 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.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Income and Retained Earnings
Three Months Ended Nine Months Ended
March 31 March 31
2000 1999 2000 1999
(Unaudited) (Unaudited)
Operating revenue $22,522,951 $22,700,681 $66,729,176 $71,454,700
Operating expenses and costs:
Salaries, wages
and fringe benefits 6,083,764 9,187,979 19,626,750 27,333,871
Operating supplies
and expense 4,658,643 7,419,101 15,571,967 22,651,372
Taxes and licenses 1,137,993 1,378,592 3,278,400 4,145,408
Insurance & claims 1,158,372 1,002,206 3,918,233 3,269,265
Depreciation and amortization 511,475 1,958,973 2,033,461 7,893,806
Rents and purchased
transportation 7,269,852 1,472,285 18,848,589 3,451,381
Other 630,758 653,779 2,131,889 1,775,336
21,450,857 23,072,915 65,409,289 70,520,439
Operating income (loss) 1,072,094 (372,234) 1,319,887 934,261
Other income (expense)
Interest expense (1,158,421) (743,133) (2,653,793) (2,304,409)
Other income 208,909 101,434 391,590 229,267
(949,512) (641,699) (2,262,203) (2,075,142)
Income (loss)
before income taxes 122,582 (1,013,933) (942,316) (1,140,881)
Federal and state income taxes
Current 116,000 (1,059,000) 279,000 283,000
Deferred (484,000) 669,000 (1,887,000) (722,000)
(368,000) (390,000) (1,608,000) (439,000)
Net income (loss) 490,582 (623,933) 665,684 (701,881)
Retained earnings at beginning
of period 14,884,732 15,119,066 14,709,630 15,197,014
Retained earnings at
end of period $15,375,314 $14,495,133 $15,375,314 $14,495,133
Basic earnings (loss) per share $0.15 ($0.19) $0.21 ($0.22)
Average shares outstanding 3,205,276 3,200,586 3,205,276 3,195,436
Diluted earnings (loss) per share $0.15 ($0.19) $0.21 ($0.22)
Diluted shares outstanding 3,205,276 3,200,586 3,205,276 3,195,436
See notes to consolidated financial statements.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
March 31
2000 1999
(Unaudited)
Operating activities
Net income (loss) $ 665,684 $(701,881)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,700,419 10,280,521
Provision for losses on accounts receivable 45,000 45,000
Benefit for deferred income taxes (1,828,000) (722,000)
Gain on disposal of equipment (4,664,757) (2,386,713)
Gain on sale of marketable securities (62,985) -
Changes in operating assets and liabilities:
Accounts receivable (1,190,182) 104,344
Prepaid expenses and supplies (332,599) (580,433)
Accounts payable, accrued expenses,
taxes payable, and other liabilities (696,729) 576,377
Other assets 3,078,788 -
Net cash provided by operating activities 1,714,639 6,615,215
Investing activities
Purchases of property and equipment (26,676,453) (7,152,787)
Investment in outside driver training facility (37,550) (280,000)
Net decrease in restricted cash - 5,908
Proceeds from sales of marketable securities 234,791 -
Proceeds from equipment sales 19,853,230 5,606,720
Net cash used in investing activities (6,625,982) (1,820,159)
Financing activities
Proceeds from long-term borrowing 26,593,937 12,506,871
Principal payments on long-term debt and
capital lease obligations (21,825,551)(14,450,755)
Proceeds from exercise of stock options - 26,711
Net cash provided by (used in) financing activities 4,768,386 (1,917,173)
Increase (decrease) in cash and cash equivalents (142,957) 2,877,883
Cash and cash equivalents at beginning of period 9,683,794 3,817,505
Cash and cash equivalents at end of period $9,540,837 $6,695,388
See notes to consolidated financial statements.
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, 2000 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 2000. 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, 1999.
Note B - Net Income (Loss) Per Share
Three Months Ended Nine Months Ended
March 31 March 31
2000 1999 2000 1999
(Unaudited) (Unaudited)
Average shares outstanding 3,205,276 3,200,586 3,205,276 3,195,436
Net effect of dilutive stock options - - - -
Diluted shares outstanding 3,205,276 3,200,586 3,205,276 3,195,436
Net income (loss) for the period $490,582 ($623,933) $665,684 ($701,881)
Earnings (loss) per share $0.15 ($0.19) $0.21 ($0.22)
Diluted earnings (loss) per share $0.15 ($0.19) $0.21 ($0.22)
Note C - 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, the Company has been
charged by the Equal Employment Opportunity Commission ("EEOC") with
discriminatory hiring practices. The Company is unable to predict the final
outcome of this charge or the range of any possible penalties imposed.
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 2000 (ended March 31,2000)
was $22,522,951 compared to $22,700,681 for the third quarter of fiscal 1999,
a decrease of $177,730 or 0.8% for the period. At March 31, 2000, the Company's
fleet consisted of 712 trucks and 2,212 trailers, while on March 31, 1999,
the Company's fleet consisted of 828 trucks and 2,342 trailers. Logistics and
intermodal revenue for the third quarter of fiscal 2000 increased by $231,524
from $1,375,792 for the third quarter of fiscal 1999 to $1,607,316 for the same
period of fiscal 2000. The Company's revenue continued to be negatively
impacted by a shortage of qualified drivers to operate its trucks during the
third quarter of fiscal 2000. The Company traded in some of its trucks early
due to the driver shortage and is replacing its older trucks with new trucks
emphasizing driver comfort and convenience.
Salaries, wages, and fringe benefits, made up primarily of drivers' wages,
decreased as a percentage of revenue to 27.0% in the third quarter of fiscal
2000 from 40.5% in the third quarter of fiscal 1999. This decrease was
largely due to the Company's smaller fleet and to the Company's
implementation of its lease program for owner operators. In January of 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.
The Company's driving force increased by 79 drivers in the quarter ended
March 31, 2000.
Operating supplies and expenses, as a percentage of revenue, decreased to
20.7% in the third quarter of fiscal 2000 from 32.7% in the comparable
period of fiscal 1999. Operating taxes and licenses also decreased to 5.1%
of revenue in fiscal 2000 from 6.1% in fiscal 1999. Insurance and claims
were 5.1% of revenue in fiscal 2000, increasing from 4.4% in fiscal 1999.
Depreciation and amortization decreased to 2.3% of revenue in fiscal 2000
from 8.6% in fiscal 1999 due to a gain on sale of equipment of $2,214,744
which was realized in the third quarter of fiscal 2000 as compared to a gain
of $1,345,706 in the third quarter of fiscal 1999. Rents and purchased
transportation increased to 32.3% of revenue in fiscal 2000 from 6.5% in
fiscal 1999 primarily due to payments made to the Company's owner operators
and to increased logistics activities. Other expenses were 2.8% of revenue
in the third quarter of fiscal 2000 and 2.9% in the comparable period of
1999.
Operating revenue for the third quarter of 2000 decreased by 0.8% over the
comparable period of 1999, while operating expenses decreased by $1,622,058
or 7.0%. Accordingly, the Company's operating ratio improved from 101.6% in
the third fiscal quarter of 1999 to 95.2% in the same period of fiscal 2000.
Interest expense increased to 5.1% of revenue in the third quarter of
fiscal 2000 from 3.3% recorded in the third quarter of fiscal 1999 due
to the increase in debt associated with the purchase of new equipment.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Cont'd
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 deferred income tax credit of
$415,000 during the quarter ended March 31, 2000.
Net income for the third quarter of fiscal 2000 ended March 31, 2000 was
$490,582 ($.15 earnings per diluted share) compared to a net loss of
($623,933) ($.19 loss per diluted share) during the comparable period of
fiscal 1999, an increase of $1,114,515 for the period.
Results of Operations - Nine Month Period
Operating revenue for the first nine months of fiscal 2000 ended March 31,
2000 was $66,729,176 compared to $71,454,700 for the comparable period of
fiscal 1999, representing a decrease of $4,725,524 or 6.6%. Logistics and
intermodal revenue increased by $1,519,111 for the nine-month period of
fiscal 2000 over the comparable period of fiscal 1999. As in the three-
month period, a continued shortage of qualified drivers impaired the
Company's ability to produce revenue.
Salaries, wages, and fringe benefits decreased to 29.4% of revenues in the
nine-month period of fiscal 2000 from the 38.3% reported in the nine-month
period of fiscal 1999. As in the three-month period, this decrease is
primarily due to the Company's implementation of its lease program for owner
operators. Operating supplies and expenses decreased to 23.3% of revenue
in fiscal 2000 from 31.7% in fiscal 1999. Taxes and licenses decreased to
4.9% of revenue during fiscal 2000 from 5.8% in fiscal 1999. Insurance and
claims were 5.9% of revenue in fiscal 2000, increasing from 4.6% in fiscal
1999. Depreciation and amortization, as a percentage of revenue, decreased
to 3.0% of revenue in fiscal 2000 from 11.0% in the same period of fiscal
1999. A gain on sale of equipment of $4,664,757 was included in the nine-
month period of fiscal 2000 as compared to a gain of $2,386,713 in the same
period of fiscal 1999. Rents and purchased transportation increased to
28.2% of revenue in the first nine months of fiscal 2000 from 4.8% during
the comparable period of fiscal 1999. As was the case in the three-month
period, this increase was caused primarily by payments made to the Company's
owner operators and by increased logistics activities. Other expenses
increased to 3.2% in the nine-month period of fiscal 2000 from 2.5% in the
nine-month period of fiscal 1999.
Operating revenue for the nine-month period of 2000 decreased by 6.6% over
the comparable period of 1999, while operating expenses decreased by
$5,111,150 or 7.2%. Accordingly, the Company's operating ratio improved to
98.0% for the nine-month period in 2000 from 98.7% during the same period in
1999.
Interest expense increased to 4.0% of revenue in the first nine months of
fiscal 2000 from 3.2% recorded in the first nine months of fiscal 1999.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Cont'd
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 deferred income tax credit of
$1,245,000 during the nine-month period ended March 31, 2000.
Net income for the first nine months of fiscal 2000 ended March 31, 2000 was
$665,684 ($.21 earnings per diluted share) compared to a net loss of
($701,881) ($.22 loss per diluted share) during the comparable period of
fiscal 1999, an increase of $1,367,565 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. Fuel costs continued to increase
in the third quarter of fiscal 2000, averaging 45 cents per gallon higher
than in the same quarter of fiscal 1999. For the nine-month period ended
March 31, 2000, the average cost per gallon was 35 cents higher than in the
same period of fiscal 1999. Although average price per gallon was higher,
the Company's total cost of fuel decreased due to the smaller fleet and
because owner operators are responsible for purchasing their own fuel.
Although the Company has currently 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. 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. Further cost increases or shortages of fuel could affect
the Company's future profitability.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash flows generated
from operations and proceeds from borrowings. The Company typically extends
credit to its customers, billing freight charges after delivery.
Accordingly, the ability of the Company to generate cash to satisfactorily
meet its ongoing cash needs is substantially dependent upon timely payment
by its customers. The Company has not experienced significant uncollectible
accounts receivable.
Operating activities provided cash flows of $1.7 million for the first nine
months of fiscal 2000 compared to $6.6 million for the same period of fiscal
1999. Cash flows from operations in the first three quarters of fiscal 2000
were the result of $.7 million net income, $6.7 million in depreciation
offset by $4.7 million from gain on disposal of assets and $1.0 million used
in other working capital assets and liabilities. Investing activities used
net cash of $6.6 million during the first nine months of fiscal 2000
compared to $1.8 million net cash used in the same period of fiscal 1999.
Financing activities provided net cash of $4.8 million during the first
three quarters of fiscal 2000 compared to $1.9 million net cash used in
fiscal 1999.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Cont'd
The Company's working capital increased by $10.3 million to $7.4 million at
March 31, 2000 from a deficit of $2.9 million at June 30, 1999.
Approximately $4.5 million of this increase is due to the net investment in
sales-type leases resulting from the owner-operator program. Under this
program, owner-operators may qualify to lease/purchase a truck. The current
portion of lease payments due from owner-operators generate 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.
Like other truckload carriers, the Company experiences significant driver
turnover. Management anticipates that competition for qualified drivers will
intensify. The Company seeks to attract drivers by advertising job openings,
encouraging referrals from existing employees and providing a training
program for applicants whose experience does not meet the Company's minimum
requirements, however, no assurance can be made that the Company will not
continue to experience a shortage of drivers in the future.
During the first nine months of fiscal 2000, the Company has taken delivery
of 551 new trucks and has sold 567 trucks, decreasing its fleet to 712 at
March 31, 2000. The sale of these trucks resulted in a gain of
approximately $3.6 million. The Company has entered into an agreement to
purchase 244 new trucks for its fleet with deliveries beginning in April of
2000 and continuing through October of 2000. The Company will sell
approximately 50 of its older trucks, which will return the Company's fleet
to its former size of 900 trucks. The cost of the new trucks, net of trade-
ins, will be approximately $16,200,000. The new truck specifications
include features that afford the driver a higher level of comfort and appeal
than the older models being traded in. Management believes that these new
trucks, when placed in service, will reduce maintenance costs and time lost
for repairs. In order to improve its operating results, the Company has
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.
During the first nine months of fiscal 2000, the Company has taken delivery
of 100 new 53 foot trailers and has sold 202 of its 48 foot trailers. This
sale resulted in a gain of approximately $1.1 million. The Company plans to
convert the majority of its trailer fleet to 53 foot trailers in the future
in order to allow it to compete for freight from the increasing number of
customers who require 53 foot trailers for some or all of their shipments.
The Company has entered into an agreement to purchase 100 new 53 foot
trailers beginning in May of 2000. The cost of the new trailers will be
approximately $1.8 million. The Company currently owns and operates 996 of
the 53 foot trailers and 1,216 of the 48 foot trailers.
The Company, on April 1, 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. The
business is a wholly-owned subsidiary of the Company. The web address for
Carriers Co-op is http://www.carriersco-op.com.
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 3. 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 to the
Consolidated Financial Statements in the Company's Annual Report for fiscal
year ended June 30, 1999 for details on the Company's long-term debt.
PART II OTHER INFORMATION
ITEM 1. 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, the Company
has been charged by the Equal Employment Opportunity Commission ("EEOC")
with discriminatory hiring practices. The Company is unable to predict the
final outcome of this charge or the range of any possible penalties imposed.
ITEM 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March 31, 2000.
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 15, 2000 /s/ Dean G. Cannon
President, Chairman of the Board,
Chief Executive Officer and Chief
Accounting Officer
Date: May 15, 2000 /s/ Rose Marie Cannon
Secretary, Treasurer and Director