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, 1995
( )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 (I.R.S. Employer Identification No.)
of 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,
1995:
Class A - 2,161,352
Class B - 2,166,352
INDEX
CANNON EXPRESS, INC. and SUBSIDIARIES
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 1995 and June 30, 1995. . . . . . . . . . . . .1
Consolidated Statements of Income and Retained Earnings
for the Three Months Ended September 30, 1995 and 1994. . . . . . .3
Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 1995 and 1994. . . . . . .4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5
ITEM 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . .6
PART II -- OTHER INFORMATION
ITEM 1-Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .*
ITEM 2-Changes in Securities. . . . . . . . . . . . . . . . . . . . .*
ITEM 3-Defaults Upon Senior Securities. . . . . . . . . . . . . . . .*
ITEM 4-Submission of Matters to a Vote of Security-Holders. . . . . .*
ITEM 5-Other Information. . . . . . . . . . . . . . . . . . . . . . .*
ITEM 6-Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .*
*No information submitted under this caption.
PART 1.
ITEM 1. Financial Statements (Unaudited)
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30 June 30
1995 1995
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $15,313,511 $12,324,394
Marketable securities,net of allowance 5,294,273 3,493,187
Receivables,net of allowance for
doubtful accounts
(September 30,1995-$148,675;
June 30,1995-$141,175):
Trade 9,263,119 9,084,562
Other 59,253 661,917
Prepaid expenses and supplies 1,449,552 1,680,448
Total current assets 31,379,708 27,244,508
Property and equipment:
Land, buildings and improvements 1,143,453 1,143,453
Revenue equipment 62,986,525 59,093,534
Service, office and other equipment 2,129,664 2,129,664
66,259,642 62,366,651
Less allowances for depreciation 13,640,283 14,478,734
52,619,359 47,887,917
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 814,948 813,671
Other 1,200,508 1,293,757
Total other assets 2,038,862 2,130,834
$86,037,929 $77,263,259
Note: The balance sheet at June 30, 1995 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
1995 1995
(Unaudited) (Note)
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 673,744 $ 459,319
Accrued expenses:
Insurance reserves 1,196,113 1,337,331
Other 1,778,051 1,485,615
Federal and state income taxes payable 758,181 435,930
Deferred income taxes 914,000 29,000
Current portion of long-term debt 10,165,209 8,727,272
Total current liabilities 15,485,298 12,474,467
Long-term debt, less current portion 39,447,724 35,353,262
Deferred income taxes 3,679,000 3,833,000
Other liabilities 264,301 279,255
Stockholders' equity:
Class A common stock: $.01 par value;
authorized 10,000,000 shares; issued
2,219,477 shares 22,195 22,195
Class B common stock: $.01 par value;
authorized 10,000,000 shares; issued
2,224,477 shares 22,245 22,245
Additional paid-in capital 3,542,356 3,542,356
Retained earnings 22,070,231 21,181,034
Unrealized appreciation on marketable
securities, net of income taxes 1,876,354 927,220
27,533,381 25,695,050
Less treasury stock, at cost
(116,250 shares) 371,775 371,775
27,161,606 25,323,275
$86,037,929 $77,263,259
Note: The balance sheet at June 30, 1995 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
1995 1994
(Unaudited)
Operating revenue $21,627,585 $18,347,565
Operating expenses and costs:
Salaries, wages and fringe benefits 7,405,188 5,536,018
Operating supplies and expense 6,047,284 5,183,759
Insurance, taxes and licenses 2,308,290 1,624,274
Depreciation and amortization 2,388,075 1,600,897
Rents and purchased transportation 942,850 970,532
Other 297,725 310,333
19,389,412 15,225,813
Operating income 2,238,173 3,121,752
Other income 57,359 28,086
Interest expense 849,335 471,025
Income before income taxes 1,446,197 2,678,813
Federal and state income taxes
Current 521,000 894,923
Deferred 36,000 123,077
557,000 1,018,000
Net income 889,197 1,660,813
Retained earnings at beginning of period 21,181,034 15,164,892
Retained earnings at end of period $22,070,231 $16,825,705
Earnings per share:
Net income per share (Note B) $0.20 $0.37
Average shares and share equivalents
outstanding 4,441,151 4,433,822
See notes to consolidated financial statements.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended
September 30
1995 1994
(Unaudited)
Operating activities
Net income $ 889,197 $1,660,813
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,388,075 1,600,806
Provision for losses on accounts
receivable 7,500 7,500
Provision for deferred income taxes 36,000 104,772
Loss on disposal of equipment 22,221 -
Changes in operating assets and liabilities:
Accounts receivable 416,607 (1,481,006)
Prepaid expenses and supplies 230,896 (227,161)
Accounts payable, accrued expenses,
taxes payable, and other liabilities 333,815 1,558,541
Other assets - 451,188
Net cash provided by operating activities 4,324,311 3,675,453
Investing activities
Purchases of property and equipment (9,357,039) (167,889)
Purchases of marketable securities (257,778) -
Proceeds from maturities of restricted
investments - 100,000
Purchases of restricted investments (1,277) (848)
Proceeds from the sale of equipment 2,748,500 1,656,000
Net cash provided by (used in)
investing activities (6,867,594) 1,587,263
Financing activities
Proceeds from long-term borrowing 9,812,203 -
Principal payments on long-term debt and
capital lease obligations (4,279,803) (2,527,513)
Net cash provided by (used in)
financing activities 5,532,400 (2,527,513)
Increase in cash and cash equivalents 2,989,117 2,735,203
Cash and cash equivalents at beginning
of period 12,324,394 8,398,287
Cash and cash equivalents at end
of period $15,313,511 $11,133,490
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, 1995 are not necessarily indicative of the results
that may be expected for the year ended June 30, 1996. 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,
1995.
Note B - Net Income Per Share
Three Months Ended
September 30
1995 1994
(Unaudited)
Average number of common shares
outstanding 4,327,704 4,312,704
Net effect of dilutive stock warrants
and options 113,447 121,118
Average shares and share equivalents
outstanding 4,441,151 4,433,822
Net income for the period $ 889,197 $1,660,813
Per share $.20 $.37
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 1996 (ended September 30,
1995) increased to $21,627,585 from $18,347,565 representing an increase of
$3,280,020 or 17.9% over the comparable period in fiscal 1995. The Company's
fleet expanded from 577 trucks at September 30, 1994 to 745 trucks at
September 30, 1995. The increase in operating revenue over the same period
of fiscal 1995 is primarily attributable to the increased number of shipments
transported by the Company's larger fleet of trucks and trailers. Operations
of the Company were affected in the first quarter of fiscal 1996 by excess
capacity in the truckload industry, which led to increased competition for
freight. This competition resulted in, among other things, discounted pricing
which reduced per-mile operating revenues for the Company.
Salaries, wages, and fringe benefits, made up primarily of drivers' wages,
increased as a percentage of revenue to 34.2% in the first quarter of fiscal
1996 from 30.2% in the first quarter of fiscal 1995. 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 $480,000 in bonuses for the three-month
period ended September 30, 1995 as compared with $370,000 awarded during the
three-month period ended September 30, 1994. These higher per-mile costs were
substantially passed through to the Company's customers in the form of rate
increases in the fiscal 1995 period. In fiscal 1996 however, increased
competition for available freight resulted in a decrease in per-mile operating
revenue. 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
slightly to 28% in the first quarter of fiscal 1996 from 28.3% in the
comparable period of fiscal 1995, due primarily to increased fuel efficiency
and decreased maintenance costs of the new trucks. Insurance, taxes, and
licenses increased to 10.7% of revenue in fiscal 1996 from 8.9% in fiscal 1995
due to the timing of new equipment additions during fiscal 1996. Depreciation
and amortization increased to 11% of revenue in fiscal 1996 from 8.7% in the
same period of fiscal 1995 due to the Company's larger fleet. Rents and
purchased transportation decreased to 4.4% of revenue in fiscal 1996 from 5.3%
in fiscal 1995 due to a proportionate decrease in revenue from intermodal
activities.
Although operating revenue grew by 17.9%, operating expenses increased by
$4,163,599 or 27.3%. Accordingly, the Company's operating ratio proficiency
declined to 89.7% in the first fiscal quarter of 1996 from 83% in the same
period of fiscal 1995.
Interest expense increased to 3.9% of revenue in the first quarter of fiscal
1996 from 2.6% recorded in the first quarter of fiscal 1995, due to new loans
and capital leases incurred as a result of the expansion of the Company's
fleet.
The Company's effective income tax rate increased slightly to 38.5% of pre-tax
net income for the first quarter of fiscal 1996 from 38% in the first quarter
of fiscal 1995.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd
Net income for the first quarter of fiscal 1996 ended September 30, 1995 was
$889,197 ($.20 per share) compared to $1,660,813 ($.37 per share) during the
comparable period of fiscal 1995, a decrease of $771,616 or 46.5% 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 diesel fuel costs have
remained relatively stable during the first quarter of fiscal 1996, 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
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 $4.3 million for the first three months of
fiscal 1996 compared to $3.7 million for the same period of fiscal 1995. Cash
flows from operations in the first quarter of fiscal 1996 were the result of
$.9 million provided from results of operations, $2.4 million in depreciation
and $1 million net increase in operating assets and liabilities. Investing
activities used net cash of $6.9 million during the first quarter of fiscal
1996 compared to $1.6 million net cash provided in the same period of fiscal
1995. Purchases of new equipment and marketable securities totaling $9.6
million were offset by $2.7 million in proceeds from equipment sales for 1996.
Financing activities provided net cash of $5.5 million during the first
quarter of fiscal 1996 compared to $2.5 million cash used in the first quarter
of 1995. In 1996, proceeds from long-term borrowings of $9.8 million were
offset by repayment on long-term debt and capital leases of $4.3 million.
The Company's working capital at September 30, 1995 was $15.1 million compared
to $14.8 million at June 30, 1995. 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.
Management of the Company intends, in the long-term, to continue to expand its
fleet. At September 30, 1995, negotiations for the purchase of 270 new
tractors had been finalized, with acquisition costs totaling $16.6 million.
The Company plans to finance these equipment acquisitions through long-term
debt or lease agreements. During the first quarter of fiscal 1996, the Company
took delivery of 345 trailers and 143 trucks and traded in 110 older trucks,
making a net addition to the Company's fleet of approximately 33 trucks and
345 trailers. Management believes that net revenues derived from the
operation of this new equipment will be sufficient to meet the debt or lease
payment obligations and working capital needs related thereto. 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
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, 1995 Dean G. Cannon
President, Chairman of the Board,
Chief Executive officer and Chief
Accounting Officer
Date: November 14, 1995 Rose Marie Cannon
Secretary, Treasurer and Director