SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X )QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 October 31,
2000: 3,205,276
INDEX
CANNON EXPRESS, INC. and SUBSIDIARIES
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 2000 and June 30, 2000........................1
Consolidated Statements of Income and Retained Earnings
for the Three Months Ended September 30, 2000 and 1999............3
Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 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
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings ........................................9
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..........................9
*No information submitted under this caption.
PART 1.
ITEM 1. Financial Statements (Unaudited)
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30 June 30
2000 2000
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 9,723,901 $ 8,351,582
Receivables, net of allowance for
doubtful accounts (September 30,
2000-$282,754; June 30, 2000-$267,405):
Trade 10,708,070 11,987,372
Other 7,577 1,837,256
Current portion of net investment
in direct financing leases 5,564,000 6,575,400
Prepaid expenses and supplies 845,373 1,623,267
Deferred income taxes 505,000 4,919,000
Total current assets 27,353,921 35,293,877
Property and equipment:
Land, buildings and improvements 1,273,095 1,257,335
Revenue equipment 77,663,528 75,340,802
Service, office and other equipment 2,936,402 2,932,135
81,873,025 79,530,272
Less allowances for depreciation 26,619,176 24,460,235
55,253,849 55,070,037
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 2,406,916 2,406,916
Marketable securities 342,550 346,970
Net investment in direct financing leases,
less current portion 8,260,265 10,636,780
Other 111,182 111,182
Total other assets 11,144,319 13,525,254
$93,752,089 $103,889,168
Note: The balance sheet at June 30, 2000 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)
September 30 June 30
2000 2000
(Unaudited) (Note)
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 1,646,266 $ 1,529,639
Accrued expenses:
Insurance reserves 3,883,256 3,666,103
Other 2,337,167 1,865,089
Federal and state income taxes payable 114,439 1,414,652
Current portion of long-term debt 11,620,741 13,098,351
Total current liabilities 19,601,869 21,573,834
Long-term debt, less current portion 53,815,144 56,648,009
Deferred income taxes 2,584,000 6,849,000
Other liabilities 8,771 12,531
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 14,163,293 15,230,131
Unrealized depreciation on marketable
securities, net of income taxes (953) (4,302)
17,942,569 19,006,058
Less treasury stock, at cost (60,125 shares) 200,264 200,264
17,742,305 18,805,794
$93,752,089 $103,889,168
Note: The balance sheet at June 30, 2000 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
September 30
2000 1999
(Unaudited)
Operating revenue $22,615,464 $22,915,433
Operating expenses and costs:
Salaries, wages and fringe benefits 5,901,360 7,297,950
Operating supplies and expense 4,826,038 6,035,251
Operating taxes and licenses 832,455 1,125,569
Insurance and claims 877,868 1,489,954
Depreciation and amortization 2,327,845 747,486
Rents and purchased transportation 8,046,073 4,801,812
Other 834,250 732,994
23,645,889 22,231,016
Operating income (loss) (1,030,425) 684,417
Other income (expense):
Interest expense (1,275,992) (651,469)
Other income 105,079 106,155
(1,170,913) (545,314)
Income (loss) before income taxes (2,201,338) 139,103
Federal and state income taxes:
Current (1,283,500) (114,000)
Deferred 149,000 (248,000)
(1,134,500) (362,000)
Net income (loss) (1,066,838) 501,103
Retained earnings at beginning of period 15,230,131 14,709,630
Retained earnings at end of period $14,163,293 $15,210,733
Basic earnings (loss) per share ($0.33) $0.16
Average shares and share equivalents outstanding 3,205,276 3,205,276
Diluted earnings (loss) per share ($0.33) $0.16
Diluted shares and share equivalents outstanding 3,205,276 3,210,614
See notes to consolidated financial statements.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended
September 30
2000 1999
(Unaudited)
Operating activities
Net income (loss) $(1,066,838) $ 501,103
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,364,834 2,059,798
Provision for losses on accounts receivable 15,000 15,000
Provision (credit) for deferred income taxes 149,000 (305,000)
Gain on disposal of equipment (36,989) (1,310,112)
Loss on sale of marketable securities 5,104 -
Changes in operating assets and liabilities:
Accounts receivable 3,093,980 (1,294,370)
Prepaid expenses and supplies 777,894 322,323
Accounts payable, accrued expenses,
taxes payable, and other liabilities (496,452) 299,727
Net investment in direct financing leases 1,065,175 599,500
Other assets - (25,020)
Net cash provided by operating activities 5,870,708 862,949
Investing activities
Purchases of property and equipment (269,309) (70,933)
Proceeds from sale of marketable securities 4,762 -
Proceeds from equipment sales 76,632 5,283,540
Net cash provided by (used in) investing activities (187,915) 5,212,607
Financing activities
Proceeds from long-term borrowings 246,437 -
Principal payments on long-term debt and
capital lease obligations (4,556,911) (9,826,084)
Net cash used in financing activities (4,310,474) (9,826,084)
Increase (decrease) in cash and cash equivalents 1,372,319 (3,750,528)
Cash and cash equivalents at beginning of period 8,351,582 9,683,794
Cash and cash equivalents at end of period $ 9,723,901 $ 5,933,266
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 period ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended June 30,
2001. 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, 2000.
Note B - Net Income Per Share
Three Months Ended
September 30
2000 1999
(Unaudited)
Average shares outstanding 3,205,276 3,205,276
Net effect of dilutive stock options - 5,338
Diluted shares outstanding 3,205,276 3,210,614
Net income (loss) for the period ($1,066,838) $ 501,103
Basic earnings (loss) per share ($.33) $.16
Diluted earnings (loss) per share ($.33) $.16
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, 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 penalties which may be imposed, but has accrued
$250,000 in the quarter ended September 30, 2000 for potential penalties and
associated legal fees. The Company believes that settlement of this charge
will not have a material adverse effect on profitability or financial position
of the Company.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations --First Quarter
Operating revenue for the first quarter of fiscal 2001 (ended September 30,
2000) was $22,615,464 compared to $22,915,433 for the first quarter of fiscal
2000, a decrease of $299,969 or 1.3% for the period. At September 30, 2000,
the Company's fleet consisted of 779 trucks and 2,268 trailers, while on
September 30, 1999, the Company's fleet consisted of 716 trucks and 2,241
trailers. Logistics and intermodal revenue for the first quarter of fiscal
2001 decreased by $512,986, or 23.0%, over the comparable period in fiscal
2000. Although demand for the Company's services was strong, a continued
shortage of qualified drivers impaired its ability to produce revenue.
Salaries, wages, and fringe benefits, made up primarily of drivers. wages,
decreased as a percentage of revenue to 26.1% in the first quarter of fiscal
2001 from 31.8% in the comparable period of fiscal 2000. The Company
implemented a new owner-operator program which resulted in a decrease in
wages paid to Company drivers. Prior to December 1999, Company drivers were
awarded quarterly performance bonuses, which were added into their base pay
after December 1999. Company drivers were awarded approximately $167,000 in
bonuses for the three-month period ended September 30, 1999.
Operating supplies and expenses, as a percentage of revenue, decreased to
21.3% in the first quarter of fiscal 2001 from 26.3% in the comparable
period of fiscal 2000. Maintenance and tire costs decreased by approximately
$1,100,000 due to the increase in owner operators, who are responsible for
these costs. Fuel costs for the first quarter of 2001 averaged 34 cents per
gallon higher than in the comparable period of fiscal 2000, which together
with a decrease in total miles driven and the purchase of fuel by owner
operators, also decreased operating expense by approximately $325,000.
Operating taxes and licenses also decreased to 3.7% of revenue in fiscal 2001
from 4.9% 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 were 3.9% of revenue in fiscal 2001, decreasing from 6.5% in fiscal
2000, substantially due to favorable claims experience. Depreciation and
amortization increased to 10.3% of revenue in fiscal 2001 from 3.3% in the
same period of fiscal 2000. This increase was due to a smaller gain on sale
of equipment of $36,989 which was realized in the first quarter of fiscal
2001 as compared to a gain of $1,310,112 in the first quarter of fiscal 2000
as gains are netted against depreciation and amortization. Rents and
purchased transportation increased to 35.6% of revenue in fiscal 2001 from
21.0% in fiscal 2000 due primarily to payments made to the Company's owner
operators.
Operating revenue for the first quarter of 2001 decreased by 1.3% over the
comparable period of 2000, while operating expenses increased by $1,414,873
or 6.4%. Accordingly, the Company.s operating ratio increased to 104.6% in
the first fiscal quarter of 2001 from 97.0% in the same period
of fiscal 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Cont'd
Interest expense increased to 5.6% of revenue in the first quarter of
fiscal 2001 from 2.8% recorded in the first quarter of 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 $383,500
during the quarter ended September 30, 2000.
Net loss for the first quarter of fiscal 2001 ended September 30, 2000 was
($1,066,838) ($.33 loss per diluted share) compared to net income of $501,103
($.16 earnings per diluted share) during the comparable period of fiscal
2000, a decrease of $1,567,941 or 312.9% for the period.
Fuel Cost and Availability
The Company, and the motor carrier industry as a whole, is dependent upon the
availability and cost of diesel fuel. Although average price per gallon was
34 cents higher in the quarter ended September 30, 2000 than in the same
period of the prior year, the Company's total cost of fuel decreased due to
the 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. 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 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. The current cost or future cost increases or
shortages of fuel could affect the Company.s future profitability.
Liquidity and Capital Resources
The Company.s primary sources of liquidity have been cash flows generated
from operations and proceeds from borrowings. The Company typically extends
credit to its customers, billing freight charges after delivery.
Accordingly, the ability of the Company to generate cash to satisfactorily
meet its ongoing cash needs is substantially dependent upon timely payment by
its customers. The Company has not experienced significant uncollectible
accounts receivable.
Operating activities provided cash flows of $5.9 million for the first three
months of fiscal 2001 compared to $0.9 million for the same period of fiscal
2000. Cash flows from operations in the first quarter of fiscal 2001 were
the result of $0.8 million in net loss, $2.4 million in depreciation offset
by $0.04 million from gain on sale of equipment, and $4.3 million provided by
accounts receivable and other assets. Investing activities used net cash of
$0.2 million during the first three months of fiscal 2001 compared to $5.2
million net cash provided for the same period of fiscal 2000. Financing
activities used net cash of $4.3 million during the first quarter of fiscal
2001 compared to $9.8 million cash used in the first quarter of 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Cont'd
The Company's working capital decreased by $5.9 million to $7.8 million at
September 30, 2000 from $13.7 million at June 30, 2000. Historically, working
capital needs have been met from cash generated from operations. Management
believes that the Company's working capital is sufficient for its short-term
needs.
Like other truckload carriers, the Company experiences significant driver
turnover. The Company experienced a shortage of qualified drivers during the
quarter ended September 30, 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.
During the first quarter of fiscal 2001, the Company has taken delivery of 4
new trucks, increasing its fleet to 779 at September 30, 2000. Additionally,
the Company has sold 12 of its trailers resulting in a gain of $36,989. 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 currently owns and operates 1,093 of the 53
foot trailers and 1,175 of the 48 foot trailers.
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 160,000 member trucks were
represented on the co-op at September 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.
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, 2000 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, 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 penalties which may be imposed, but has accrued
$250,000 in the quarter ended September 30, 2000 for potential penalties and
associated legal fees. The Company believes that settlement of this charge
will not have a material adverse effect on profitability or financial position
of the Company.
ITEM 6. Exhibits and Reports on Form-K
No reports on Form 8-K were filed during the three months ended September 30,
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: November 14, 2000 /s/ Dean G. Cannon
President, Chairman of the Board,
Chief Executive Officer and Chief
Accounting Officer
Date: November 14, 2000 /s/ Rose Marie Cannon
Secretary, Treasurer and Director