UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For Quarter Ended March 31, 1995
Commission File #33-8618-FW
CANNON EXPRESS, INC.
(Exact name of registrant as specified in its charter.)
Delaware 71-0650141
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1457 Robinson, P.O. Box 364, Springdale, Arkansas 72765
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(501) 751-9209
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] NO
Number of shares of $.01 par value common stock outstanding at April 30, 1995:
Class A - 2,156,352
Class B - 2,156,352
PART 1.
ITEM 1. Financial Statements (Unaudited)
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 June 30
1995 1994
------------------------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 9,164,725 $ 8,398,287
Marketable securities, net of allowance 1,900,244 1,574,473
Receivables, less allowance for doubtful accounts
(March 31, 1995-$134,610; June 30, 1994-$117,447):
Trade 8,255,404 6,203,059
Other 218,201 550,869
Prepaid expenses and supplies 2,116,556 1,208,270
Deferred income taxes 413,032 614,878
---------- -----------
Total current assets 22,068,162 8,549,836
---------- -----------
Property and equipment:
Land, buildings and improvements 1,140,858 1,139,509
Revenue equipment 53,983,376 35,911,766
Service, office and other equipment 2,168,951 2,034,616
---------- -----------
57,293,185 39,085,891
Less allowances for depreciation (13,955,293) (14,625,301)
---------- -----------
43,337,892 24,460,590
Other assets: ---------- -----------
Receivable from stockholders 23,406 23,406
Restricted cash 812,423 901,575
Other 434,408 995,711
---------- -----------
Total other assets 1,270,237 1,920,692
$66,676,291 $44,931,118
Note: The balance sheet at June 30, 1994 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
March 31 June 30
1995 1994
----------- -----------
(Unaudited) (Note)
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 596,629 $ 529,468
Accrued expenses:
Insurance reserves 1,133,487 891,947
Other 1,669,379 809,036
Federal and state income taxes 1,972,979 316,368
Current portion of long-term debt 8,375,052 7,395,054
----------- -----------
Total current liabilities 13,608,037 9,941,873
Long-term debt, less current portion 25,524,928 12,953,675
Deferred income taxes 4,369,673 4,113,031
Stockholders' equity:
Class A common stock: $.01 par value; authorized
10,000,000 shares; issued 2,214,477 shares 22,145 22,145
Class B common stock: $.01 par value; authorized
10,000,000 shares; issued 2,214,477 shares 22,145 22,145
Additional paid-in capital 3,511,376 3,511,376
Retained earnings 20,094,228 15,164,892
Unrealized holding losses on marketable
securities, net of income tax benefits (243,955) (426,244)
---------- ----------
23,405,939 18,294,314
Less treasury stock, at cost (116,250 shares) 371,775 371,775
---------- ----------
23,034,164 17,922,539
---------- ----------
$66,676,291 $44,931,118
Note: The balance sheet at June 30, 1994 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
1995 1994 1995 1994
(Unaudited) (Unaudited)
Operating revenue $20,401,630 $14,295,889 $58,498,399 $43,410,409
Operating expenses and costs:
Salaries, wages and
fringe benefits 6,388,170 4,337,222 17,887,514 13,145,930
Operating supplies and expenses 5,760,578 4,295,346 6,151,310 13,141,118
Insurance, taxes and licenses 1,940,414 1,500,571 5,383,174 4,015,429
Depreciation and amortization 2,063,273 1,318,592 5,469,577 3,947,452
Rents and purchased
transportation 1,165,770 806,307 3,213,745 1,784,544
Other 335,775 280,266 943,830 954,187
---------- ---------- ---------- ----------
17,653,980 12,538,304 49,049,150 36,988,660
---------- ---------- ---------- ----------
Operating income 2,747,650 1,757,585 9,449,249 6,421,749
Other income
Loss on securities sales - (253,820) - (106,938)
Other 109,880 34,641 131,038 112,492
---------- ---------- ---------- ----------
109,880 (219,179) 131,038 5,554
Interest expense 624,982 313,859 1,565,951 1,050,001
---------- ---------- ---------- ----------
Income before income taxes 2,232,548 1,224,547 8,014,336 5,377,302
Federal and state income taxes
Current 705,000 301,443 2,770,000 1,520,669
Deferred 183,000 220,153 315,000 764,685
---------- ---------- ---------- ----------
888,000 521,596 3,085,000 2,285,354
---------- ---------- ---------- ----------
Net income 1,344,548 702,951 4,929,336 3,091,948
Retained earnings at
beginning of period 18,749,680 13,319,722 15,164,892 10,930,725
Retained earnings at ---------- ---------- ---------- ----------
end of period $20,094,228 $14,022,673 $20,094,228 $14,022,673
---------- ---------- ---------- ----------
Earnings per share:
Net income per share (Note B) $0.30 $0.16 $1.11 $0.70
----- ----- ----- -----
Average shares outstanding 4,445,810 4,425,554 4,440,725 4,393,783
See notes to consolidated financial statements.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
March 31
1995 1994
--------------------------
(Unaudited)
Operating activities
Net income $ 4,929,336 $ 3,091,948
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,469,577 3,947,452
Provision for losses on accounts receivable 17,163 25,900
Provision for deferred income taxes 315,000 764,685
Provision for losses on marketable securities - 135,388
(Gain) loss on disposal of assets 30,170 (25,692)
Gain on sale of marketable securities - (28,450)
Changes in operating assets and liabilities:
Accounts receivable (1,736,840) (2,278,702)
Prepaid expenses and supplies (908,286) (674,202)
Accounts payable, accrued expenses,
taxes payable, and other liabilities 2,825,661 350,102
Other assets 538,053 107,325
---------- ----------
Net cash provided by operating activities 11,479,834 5,415,754
---------- ----------
Investing activities
Purchases of property and equipment (16,989,379) (2,367,016)
Proceeds from sale of restricted investments - 7,308
Purchases of marketable securities - (1,864,256)
Proceeds from sales of marketable securities - 1,129,503
Proceeds from maturities of restricted investments 100,000 -
Purchases of restricted investments (10,848) -
Proceeds from the sale of equipment 3,927,112 150,010
---------- ----------
Net cash used in investing activities (12,973,115) (2,944,451)
---------- ----------
Financing activities
Proceeds from long-term borrowing 9,920,035 1,949,800
Proceeds from exercise of stock options - 159,493
Principal payments on long-term debt and
capital lease obligations (7,660,316) (3,299,085)
---------- ----------
Net cash provided by (used in) financing activities 2,259,719 (1,189,792)
---------- ----------
Increase in cash and cash equivalents 766,438 1,281,511
Cash and cash equivalents at beginning of period 8,398,287 5,374,867
---------- ----------
Cash and cash equivalents at end of period $ 9,164,725 $ 6,656,378
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 and nine month periods ended
March 31, 1995 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1995. For further information, refer to
the Company's consolidated financial statements and footnotes thereto included
in Form 10 - K for the year ended June 30, 1994.
Note B - Net Income Per Share
Three Months Ended Nine Months Ended
March 31 March 31
1995 1994 1995 1994
----------------- --------------------
(Unaudited) (Unaudited)
Average number of common
shares outstanding 4,312,704 4,290,372 4,312,704 4,284,593
Net effect of dilutive
stock warrants and options 133,106 135,182 128,021 109,190
--------- --------- --------- ---------
Average shares outstanding 4,445,810 4,425,554 4,440,725 4,393,783
--------- --------- --------- ---------
Net income for the period $1,344,548 $ 702,951 $4,929,336 $3,091,948
Per share $.30 $.16 $1.11 $.70
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 1995 ended March 31, 1995
increased to $20,401,630 from $14,295,889 representing an increase of $6,105,741
or 42.7% over the comparable period in fiscal 1994. The Company's fleet
expanded from 519 trucks at March 31, 1994 to 678 trucks at March 31, 1995.
The increase in operating revenue over the same period of fiscal 1994 is
primarily attributable to the increased number of shipments transported by the
Company's larger fleet of trucks and trailers.
Salaries, wages, and fringe benefits, made up primarily of drivers' wages,
increased as a percentage of revenue to 31.3% in fiscal 1995 from 30.3% in
fiscal 1994. The Company afforded its drivers a two-cent per-mile increase in
pay in April of 1994, and implemented a five-cent per-mile performance bonus
program in July of 1994. Company drivers were awarded approximately $470,000 in
bonuses for the three-month period ended March 31, 1995. These higher per-mile
costs were substantially passed through to the Company's customers in the form
of rate increases. The Company expects that competition for drivers will
continue and that future pay increases may be necessary to attract and retain
qualified drivers to operate its trucks.
Operating supplies and expenses, as a percentage of revenue, decreased to 28.2%
in fiscal 1995 from 30.0% in fiscal 1994, due chiefly to increased fuel
efficiency and decreased maintenance costs of the new trucks. Insurance, taxes,
and licenses decreased to 9.5% of revenue in fiscal 1995 from 10.5% in fiscal
1994 due to the occurrence of slightly-higher per-mile revenues during fiscal
1995. Depreciation and amortization increased to 10.1% of revenue in fiscal
1995 from 9.2% in the same period of fiscal 1994 due to new equipment additions.
Rents and purchased transportation increased slightly to 5.7% of revenue in
fiscal 1995 from 5.6% in fiscal 1994 due to increased payments to outside
carriers for local pickup and delivery.
The Company's operating ratio, due to the changes discussed above, improved
slightly to 86.5% in the third quarter of fiscal 1995 from 87.7% for the
comparable quarter of fiscal 1994.
Interest expense increased to 3.1% of revenue in the third quarter of fiscal
1995 from 2.2% recorded in the third quarter of fiscal 1994, due to higher
interest rates on new loans and capital leases incurred as a result of the
expansion of the Company's fleet.
The Company's effective tax rate decreased to 39.8% of pre-tax net income for
the third quarter of fiscal 1995 from 42.6% in the third quarter of fiscal 1994.
This decrease was due to a change in the method by which the Company deals with
the deductibility of meals allowances for its drivers. That non-deductible
portion of driver compensation which had previously been reported as a per-diem
allowance is now included in taxable income to the driver. However, the pay
increase mentioned above was intended to offset the drivers' increased tax
liability.
Net income for the third quarter of fiscal 1995 ended March 31, 1995 was
$1,344,548 ($.30 per share) compared to $702,951 ($.16 per share) during the
comparable period of fiscal 1994, an increase of $641,597 or 91% for the period.
Results of Operations -- Nine Month Period
Operating revenue for the first nine months of fiscal 1995 ended March 31, 1995
increased to $58,498,399 from $43,410,409 representing an increase of
$15,087,990 or 34.8% over the comparable period of fiscal 1994. As in the
three-month period, the increase in operating revenue over the same period of
fiscal 1994 is primarily attributable to the increased number of shipments
transported by the Company's larger fleet of trucks and trailers. Operating
income increased to $9,449,249 in the nine months ended March 31, 1995 from
$6,421,749 during the comparable period of fiscal 1994, an increase of 47.1%.
Salaries, wages, and fringe benefits increased slightly to 30.6% of revenues in
the nine-month period of fiscal 1995 from 30.3% in the nine-month period of
fiscal 1994. As in the three-month period, higher driver wages were
substantially offset by rate increases to the Company's customers. Operating
supplies and expenses decreased to 27.6% of revenue in fiscal 1995 from 30.3% in
fiscal 1994. Fuel and maintenance costs both decreased as a percentage of
revenue due to operating efficiencies associated with new trucks. Insurance,
taxes, and licenses remained static at 9.2% of revenue in fiscal 1995 and 1994.
Depreciation and amortization increased slightly to 9.3% of revenue in fiscal
1995 from 9.1% in the same quarter of fiscal 1994.
Rents and purchased transporation increased to 5.5% in the first nine months of
fiscal 1995 from 4.1% during the comparable period of fiscal 1994 due to short-
term trailer rentals and increased payments to outside carriers for local pickup
and delivery. Other expenses decreased to 1.6% of revenue in the first nine
months of fiscal 1995 from 2.2% during the same period of fiscal 1994. As
in the three-month period ended March 31, 1995 interest expense increased to
2.7% of revenue as compared to 2.4% experienced during the same nine-month
period of fiscal 1994.
The Company's effective tax rate decreased to 38.5% of pre-tax net income in the
nine-month period of fiscal 1995 from 42.5% in the comparable period of fiscal
1994 due to the changes in drivers' per-diem allowances.
Net income for the first nine months of fiscal 1995 ended March 31, 1995 was
$4,929,336 ($1.11 per share) compared to $3,091,948 ($.70 per share) during the
comparable period of fiscal 1994, an increase of $1,837,388 or 59.4% 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. Although diesel fuel costs have remained
relatively stable for fiscal year 1995, the price of fuel fluctuates due to
market influences around the globe. Historically, increased 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. However,
it is unknown if market conditions would allow future rate increases or fuel
surcharges to cover additional costs. Future cost increases or shortages of
fuel could effect the Company's future profitability.
Liquidity and Capital Resources
Net cash provided by operating activities was $11,479,834 for the first nine
months of fiscal 1995. The Company's working capital at March 31, 1995 was $8.3
million compared to $8.6 million at June 30, 1994. 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. However, to
the extent that revenues are insufficient for such needs, the Company may be
required to rely on additional borrowings or equity offerings to meet its
working capital needs.
During the third quarter of fiscal 1995, the Company purchased 101 trailers and
79 trucks for cash. The Company intends to negotiate long-term finance
arrangements for this new equipment during the fourth quarter of 1995. At March
31, 1995 the Company had entered into agreements to purchase approximately 320
trucks and 1,100 trailers with deliveries scheduled through November of 1995.
The Company will trade in or sell approximately 140 older trucks, making a net
addition to the Company's fleet of approximately 180 trucks. These
acquisitions, approximating $36 million, are to be financed through long-term
debt or lease agreements, the terms of which have yet to be determined.
Management believes that net revenues derived from the operation of this
new equipment will be sufficient to meet the debt or lease payment
obligations related thereto.
Management of the Company believes that it will be able to continue to expand
its
fleet. Management anticipates that revenues generated from the operation of such
an expanded fleet will be sufficient to amortize obligations related to such
expansion. However, to the extent that such revenues are insufficient for such
purposes, the Company may be required to rely on additional borrowings or equity
offerings to meet its capital asset needs.
PART II OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8-K
No reports on form 8-K were filed during the three months ended March 31, 1995.
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)
May 12, 1995 Dean G. Cannon
Date Dean G. Cannon
President, Chairman of the Board,
Chief Executive officer and Chief
Accounting Officer
May 12, 1995 Rose Marie Cannon
Date Rose Marie Cannon
Secretary, Treasurer and Director