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, 1996
( )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)
incorporation or organization Identification No.)
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 September 21, 1996: $9,149,770.
Number of shares of common stock outstanding at September 21, 1996:
Common Stock - 3,147,652
Documents incorporated by reference: Company's Notice and Proxy Statement for
its annual meeting of stockholders to be held on Tuesday, November 19, 1996.
Part I
Item 1. Business
Cannon Express, Inc. (the "Company" or "Registrant") is an irregular route,
truckload carrier with headquarters in Northwest Arkansas, transporting a wide
range of general commodities in the United States pursuant to nationwide
operating authorities granted by the Interstate Commerce Commission ("ICC"), and
in Canada through operating authorities granted by the Canadian provinces. At
June 30, 1996, the Company operated a fleet of 909 tractors and 1,939 trailers,
and employed 1,160 people, none of whom is represented by a collective
bargaining agreement.
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
primarily 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. In conjunction with the Company's ICC published
rates, most arrangements for transportation are made in the form of contracts
with customers, which are not published.
During the fiscal year ended June 30, 1996, Wal-Mart Stores, Inc. ("Wal-Mart")
accounted for 49.5% and International Paper, Inc. accounted for 10.2% of the
Company's operating revenue. During the fiscal years ended June 30, 1995 and
1994, Wal-Mart accounted for 41.3% and 38.5%, respectively, and International
Paper accounted for 17.5% and 20.1%, respectively, of operating revenue. 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, automotive supplies and
parts, non-perishable food products, and paper goods.
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 the use of a
special credit card, by means of an inter-computer linkage between the Company
and a fuel billing network. This linkage 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, 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
complimentary software used with the computer system for the above purpose was
designed and implemented by Company management.
Drivers and Other Employees
As of June 30, 1996, the Company employed 941 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. In addition,
drivers who meet Company performance and safety standards receive an additional
five cents per mile in compensation paid quarterly in the form of a bonus.
Driver bonuses earned during the fiscal year ended June 30, 1996,approximated
$2,070,000.
Like other truckload carriers, the Company experiences significant driver
turnover. The Company has experienced shortages of qualified drivers from time
to time. 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.
As of June 30, 1996, the Company employed:
1996 1995
Drivers and Driver Trainees 941 722
Management 15 14
Operations, Marketing, and Administration 125 111
Maintenance and Repair 79 49
Total 1,160 896
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. In July 1994, the Company
implemented 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, 1996, the fleet consisted of 909 tractors and 1,939 trailers,
compared to 712 tractors and 1,598 trailers at June 30, 1995. As of June 30,
1996, total new tractors purchased or leased for the fiscal year were 305 with
108 older model tractors being traded in or sold. In addition, the Company
added 341 new trailers to its fleet during the fiscal year ended June 30, 1996.
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, 1996, substantially all of
the Company's tractors were manufactured by International, while trailers were
manufactured by various trailer manufacturers. The Company has negotiated
extended warranties on many of its tractors and intends to trade-in such
tractors on approximately a four-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 feet in length by 102 inches in
width. Management anticipates that 53 foot trailers may be added to the fleet in
the future.
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, 1996:
MODEL OVER-the-ROAD 48-FOOT
YEAR TRACTORS TRAILERS
1997 25 -
1996 329 300
1995 348 693
1994 - 200
1993 194 254
1992 - 195
1991 1 50
1990 1 93
1989 thru 1983 11 154
909 1,939
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. Although fuel costs remained relatively stable during
the first two quarters of fiscal 1996, the price of fuel rose significantly
during the latter part of the third quarter. Historically, most increases 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,
in the current rate environment, fuel surcharges initially met customer
resistance. At June 30, 1996, the Company had negotiated contracts for fuel
surcharges with most of its customers if fuel prices increase significantly from
historical levels.
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. 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.
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 committed to safe operation of its revenue equipment. To promote
safety consciousness, the Company provides bonus incentives for safe driving,
carefully selects and trains its drivers, and regularly engages in preventive
maintenance of its equipment.
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.
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. The Company has been informed by its insurance
carrier that potential damages for a traffic accident which occurred in May
1996 may exceed the Company's policy limit. The Company has also been informed
that the range of settlement is indeterminate at the present time. Management
believes that adverse results in one or more of these cases would not have a
materially adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
On April 10, 1996, a Special Meeting of Stockholders was held in Springdale,
Arkansas. The only matter submitted to a vote of the stockholders was a proposal
to amend Article Fourth of the Company's Certificate of Incorporation to effect
(A)a 1-for-500,000 reverse split (the "Reverse Stock Split") of the Company's
non-voting class B common stock, par value $0.01 per share (the "Class B Common
Stock") and contemporaneous purchase, for cash, of all fractional shares of
Class B Common Stock at a price of $9.00 per share (Prior to giving effect to
the Reverse Stock Split), (B) the conversion (the "Conversion") of each whole
share of Class B Common Stock outstanding after the Reverse Stock Split into
493,150 shares of voting class A common stock, par value $0.01 per share (the
"Class A Common Stock") and (C) the amendment of the Certificate of
Incorporation to reclassify (the "Reclassification") the Class A Common Stock
and Class B Common Stock into a new, single class of common stock (the "Common
Stock") (the Reverse Stock Split, Conversion and Reclassification are
collectively referred to as the "Recapitalization Plan"). The above proposal
was approved by over 95% of those votes cast.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Prior to March 31, 1996 the Company's common stock was traded on the NASDAQ
National Market System under the symbols CANXA and CANXB. Subsequent to a
third quarter stock recapitalization plan, the Company's two classes of
common stock were reclassified into a new, single class of common stock
traded on the NASDAQ National Market System under the symbol CANX.
The range of the high and low sales prices for the last eight fiscal
quarters is as follows:
CLASS A COMMON STOCK CLASS B COMMON STOCK
HIGH LOW HIGH LOW
YEAR ENDED JUNE 30, 1995:
First Quarter $15 $10 3/4 $12 1/4 $ 8 1/2
Second Quarter 14 11 1/2 14 1/4 11
Third Quarter 16 11 3/4 15 1/4 12
Fourth Quarter 15 1/4 12 3/4 15 3/8 11 5/8
YEAR ENDED JUNE 30, 1996:
First Quarter $14 $11 1/2 $13 3/4 $ 7 3/8
Second Quarter 12 1/4 8 3/4 9 3/4 6 45/64
Third Quarter 10 1/4 8 3/4 7 7/8 6 1/4
COMMON STOCK
HIGH LOW
Fourth Quarter $11 1/2 $ 8 3/4 - -
(b) The approximate number of holders of common stock as of September 21, 1996
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,
1996 1995 1994 1993 1992
(in thousands except per share data)
Operating Revenue $89,991 $79,030 $59,177 $43,256 $33,311
Income before cumulative
effect of change
in accounting
principle(1)&(2) 2,159 6,016 3,808 2,028 2,172
Pro forma income
before cumulative
effect of change
in accounting
principle(1)&(2 ) 2,159 6,016 3,808 2,028 2,172
Earnings per share(3):
Income before cumulative
effect of change
in accounting
principle(1)&(2) .67 1.84 1.17 .64 .69
Pro forma income before
cumulative effect of
change in accounting
principle(1)&(2) .67 1.84 1.17 .64 .69
Total assets $83,793 $77,263 $44,931 $40,743 $33,027
Long term debt,less
current portion $43,964 $35,353 $12,954 $17,759 $12,457
(1) Effective June 30, 1994, the Company adopted FAS Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and
classified certain marketable equity securities as "available-for-sale"
securities. This change resulted in increased earnings of $426,244, ($.10
per share), included in fiscal 1994 net income as the cumulative effect of
a change in accounting principle. As specified by FAS Statement No. 115,
no pro forma effect is presented for this change.
(2) Effective July 1, 1991, the Company changed its accounting method of
revenue recognition to recognize revenue and related direct expenses when
freight is delivered. This change resulted in a charge to earnings of
$99,186 ($.02 per share) included in 1992 net income as the cumulative
effect on prior years of the change in accounting method.
(3) Earnings per share have been restated to give effect to a five-for-four
stock split effective November 22, 1991 and the stock recapitalizations
effected on January 26, 1993 and April 10, 1996.
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,
1996 1995 1994
Operating revenue 100.0% 100.0% 100.0%
Operating expenses and costs:
Salaries, wages and fringe
benefits 34.4% 31.5% 30.1%
Operating supplies and expenses 29.5 28.1 30.5
Operating taxes and licenses 6.3 5.7 4.5
Insurance and claims 5.6 3.9 5.1
Depreciation and amortization 11.8 9.4 9.0
Rents and purchased transportation 4.2 5.0 4.5
Other 1.7 1.6 2.1
Total operating expenses 93.5 85.2 85.8
Operating income 6.5 14.8 14.2
Other income (expense):
Gain on disposal of assets 0.0 0.1 0.1
Interest and dividend income 0.1 0.2 0.1
Gain (loss) on marketable
securities 0.1 0.1 (1.0)
Interest expense (4.1) (2.8) (2.4)
Income before income taxes and
cumulative effect of change in
accounting principle 3.9 12.4 11.0
Income taxes 1.5 4.8 4.6
Income before cumulative effect of
change in accounting principle 2.4 7.6 6.4
Cumulative effect of change in
accounting principle - - 0.7
Net income 2.4% 7.6% 7.2%
RESULTS OF OPERATIONS:
Fiscal year ended June 30, 1996 compared to Fiscal year ended June 30, 1995
Operating revenue for fiscal 1996 increased 13.9% or $10,960,857 to $89,991,074.
The increase was primarily attributable to the increased number of shipments
transported by the Company's larger fleet of tractors and trailers. The Company
operated an average of 815 tractors during fiscal 1996, compared to an average
of 630 tractors in fiscal 1995.Average revenue per mile decreased to $1.08 in
fiscal 1996 from $1.18 in the comparable period of fiscal 1995. The decline in
revenue per mile can be attributed to excess capacity in the truckload industry,
which led to downward pressure on rates per mile. The Company also experienced a
shortage of drivers during the period. As a result, the increase in operating
costs related to the fleet expansion was not entirely offset by increased
revenue. Continuing excess capacity in the market could have an adverse
effect on the Company's profitability.
Salaries, wages and fringe benefits increased 24.2% or $6,020,148 to $30,925,434
in fiscal 1996. This increase is attributable to additional wages paid to
drivers and support personnel due to the Company's expanded fleet.
Operating supplies and expenses increased 19.4% or $4,318,231 to $26,536,129 in
fiscal 1996, also a result of the Company's expanded fleet. The price paid for
fuel was relatively stable during fiscal 1995 and for the first two quarters of
fiscal 1996. The national average cost for diesel fuel rose from $1.13 on
January 1, 1996, to a peak of $1.31 on April 16, 1996. Maintenance costs
decreased as a percentage of revenue due to decreased maintenance costs of
new equipment.
Operating taxes and licenses increased 25.8% or $1,163,031 to $5,678,134 in
fiscal 1996 due to the timing of new equipment additions during the fiscal
period.
Insurance and claims increased 65.6% or $2,007,889 to $5,067,919 in fiscal 1996
due to increased costs associated with the Company's larger fleet of revenue
equipment.
Depreciation and amortization increased 42.4% or $3,149,995 to $10,574,311 in
fiscal 1996. This increase is due to new equipment additions.
Rents and purchased transportation decreased 3.8% or $150,616 to $3,778,768 in
fiscal 1996 due primarily to a proportionate decrease in revenue from intermodal
activities.
The Company's operating ratio increased to 93.4% for fiscal 1996 from 85.2% for
the prior year, reflecting a decline of 8.2% during the period. The increase
was primarily attributable to: 1 - additional fixed costs associated with
adding new equipment, 2 - competition for freight resulted in decreased
margins and; 3 - a shortage of qualified drivers led to idle equipment.
Interest expense increased 68.4% or $1,497,128 in fiscal 1996 due to the
financing of new revenue equipment associated with the expansion of the
Company's fleet in 1996 and 1995.
The Company's effective income tax rate was 38.5% in fiscal 1996 and in fiscal
1995.
Net income decreased 64.1% or $3,857,204 in fiscal 1996 to $2,158,938 or $.67
per share from $6,016,142 or $1.84 per share in fiscal 1995.
Fiscal year ended June 30, 1995 compared to Fiscal year ended June 30, 1994
Operating revenue for fiscal 1995 increased 33.6% or $19,852,963 to $79,030,217.
The increase was primarily attributable to the increased number of shipments
transported by the Company's larger fleet of tractors and trailers. The
Company operated an average of 630 tractors during fiscal 1995, compared to
an average of 519 tractors in fiscal 1994.Average revenue per mile increased to
$1.18 in fiscal 1995 from $1.09 in fiscal 1994. Strong demand for its services
during the first fiscal quarter allowed the Company to negotiate rate increases
with some of its customers.
Salaries, wages and fringe benefits increased 39.7% or $7,079,622 to $24,905,286
in fiscal 1995. This increase is attributable to additional wages paid to
drivers and support personnel due to the Company's expanded fleet. In addition,
beginning in July of 1994, the Company implemented a five-cent per-mile bonus
program to drivers who met certain performance and safety standards.
Operating supplies and expenses increased 23.2% or $4,182,402 to $22,217,898 in
fiscal 1995, also a result of the Company's expanded fleet. The price paid for
fuel was relatively stable during both periods. Maintenance and tire costs
decreased as a percentage of revenue due to decreased maintenance costs of
new equipment.
Operating taxes and licenses increased 71.2% or $1,878,152 to $4,515,103 in
fiscal 1995 due to the increased costs associated with the addition of new
equipment during the fiscal period.
Insurance and claims increased $6,447 to $3,060,030 in fiscal 1995
from $3,053,583 in fiscal 1994.
Depreciation and amortization increased 39.5% or $2,101,832 to $7,424,316 in
fiscal 1995. This increase is due to new equipment additions.
Rents and purchased transportation increased 48.3% or $1,279,711 to $3,929,384
in fiscal 1995. The Company expanded its contracted transportation services and
railroad shipments in fiscal 1995 resulting in increased payments to those
contractors. Additionally, the Company rented, on a short-term basis, trailers
to accommodate its customers needs while waiting for delivery of new trailers.
These trailers were needed to increase the size of trailer pools in certain
areas in order to accommodate customer schedules, while minimizing non-
productive time spent waiting to load or unload.
The Company's operating ratio decreased to 85.2% for fiscal 1995 from 85.8% for
the prior year, reflecting an improvement of .6% during the period. The
decrease was primarily attributable to increased fuel efficiencies, decreased
maintenance costs and slightly-higher per-mile revenues during fiscal 1995.
Interest expense increased 54.9% or $775,498 in fiscal 1995 due to the financing
of new revenue equipment in fiscal 1994 and 1995 with lower interest rates
helping to moderate the increase.
The Company's effective income tax rate decreased to 38.5% in fiscal 1995 from
41.4% in fiscal 1994. This decrease was due to a change in income tax law
effective for tax years beginning in 1994 which reduced the tax deductibility of
meals allowances. That non-deductible portion of driver compensation which had
previously been reported as a per-diem driver allowance was included in taxable
income to the driver. However, drivers pay was increased to offset their
increased tax liability.
Net income increased 42.1% or $1,781,975 in fiscal 1995 to $6,016,142 or $1.84
per share from $4,234,167 or $1.30 per share in fiscal 1994.
Liquidity and Capital Resources
Cash flows from Operations - Operating activities provided cash of $10.7 million
and $10.4 million in fiscal 1996 and 1995, respectively. Net cash flows from
operations in fiscal 1996 were primarily the result of $2.2 million provided
from results of operations, a net $13.9 million in depreciation and increases in
other liabilities offset by an approximate $5.4 million increase in accounts
receivable and other assets.
Cash flows from Investing Activities - Investing activities used net cash of
$8.1 million in fiscal 1996. Purchases of new equipment and marketable
securities totaling $15.9 million was offset by $7.8 million in equipment
and marketable security sales for 1996.
Cash flows from Financing Activities - Financing activities used net cash of
$10.7 and $7.2 million in fiscal 1996 and 1995, respectively. In fiscal 1996,
the stock recapitalization plan required $11.2 million.
Working capital needs have been met primarily from cash generated from
operations. During the fiscal year ended June 30, 1996, cash provided by
operating activities was $10,650,390, up from $10,422,235 for the prior fiscal
year ended June 30, 1995. The current ratio declined from 2.18 at June 30, 1995
to 1.21 at June 30, 1996. Working capital, as a result of the stock
recapitalization plan, decreased by $10.7 million to $4.1 million at June 30,
1996 from $14.8 million at June 30, 1995. Management believes that cash flows
from the Company's operations will continue to be sufficient to meet short-term
working capital needs.
Management of the Company intends, in the long-term, to continue to expand its
fleet. At June 30, 1996, negotiations for the purchase of 200 new tractors and
300 new trailers were in process. Fiscal year 1997 tractor purchases will be
offset by the trade-in of 194 older models resulting in a net addition of 6
tractors to the Company's fleet. Expected acquisition costs for both tractors
and trailers, net of tractor and trailer trade-in allowances, will approximate
$11.9 million. The Company plans to finance these acquisitions through long-term
debt or lease agreements. The decision to lease or buy depends on general
economic factors, including interest rates and liquidity considerations.
Although the terms for these acquisitions have not been finalized, management
believes that long-term financing, or lease agreements on favorable terms will
be available. Management further believes that revenue generated from the
operation of an expanded fleet will be sufficient to amortize obligations
related to such expansion. However, to the extent that such revenue is
insufficient for this purpose, the Company may be required to rely on additional
borrowings or equity offerings to meet its working capital needs.
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. The Company's
operating efficiency historically decreases during the winter months due to
increased maintenance costs, reduced fuel efficiency, detours and delays for
weather.
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 55 President and Chairman of the Board
Rose Marie Cannon 55 Secretary, Treasurer and Director
Larry L. Patrick 51 Vice President
Ted W. Easley 56 Director of Operations
Roy E. Stanley 52 Director
Uvalde R. Lindsey 56 Director
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.
Ted W. Easley has been the Director of Operations of Cannon Express Corp. since
1982. Prior to his employment with Cannon Express Corp., Mr. Easley was a co-
owner of Scheduled Truckways in Rogers, Arkansas.
Roy E. Stanley holds Bachelor of Science and Master of Arts degrees from Memphis
State University and received the degree of Juris Doctor, with honors, in 1978
from the University of Arkansas School of Law at Fayetteville. After engaging
in the private practice of law in Springdale, Arkansas for sixteen years, in
1994 Mr. Stanley became president of Lindsey Management Company, Inc., a real
estate management company with its main offices in Fayetteville, Arkansas.
Uvalde R. Lindsey is an economic development consultant and Director of the
Northwest Arkansas Council, a regional organization dedicated to the economic
enhancement of Northwest Arkansas. After graduating from the University of
Arkansas, Mr. Lindsey owned and operated a chain of automotive parts stores in
Arkansas, Missouri and Oklahoma. After selling his businesses in 1983, Mr.
Lindsey served as Budget Officer to the Governor of the State of Arkansas and
as Executive Director of the Northwest Arkansas Economic Development District.
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
19, 1996.
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
19, 1996.
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
19, 1996.
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) No reports on Form 8-K were filed during the year ended June 30, 1996.
(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 26th day of
September, 1996.
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 By: /s/ Roy E. Stanley
Rose Marie Cannon Roy E. Stanley
Director, Secretary and Treasurer 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:
Independent Accountants' Report
Consolidated Balance Sheets as of June 30, 1996 and 1995.
Consolidated Statements of Income for the years ended June 30, 1996, 1995
and 1994.
Consolidated Statements of Changes in Stockholders' Equity for the years
ended June 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended June 30, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements-June 30, 1996.
The following consolidated financial statement schedule of Cannon Express, Inc.,
and Subsidiaries is included in Item 14(d):
Independent Accountants' Report
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.
Independent Accountants' Report
Board of Directors and Stockholders
Cannon Express, Inc. and Subsidiaries
Springdale, Arkansas
We have audited the accompanying consolidated balance sheets of CANNON EXPRESS,
INC. AND SUBSIDIARIES as of June 30, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1996. 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 generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CANNON EXPRESS,
INC. AND SUBSIDIARIES as of June 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company changed its method of accounting for
investments in marketable securities in 1994.
BAIRD, KURTZ & DOBSON
Fayetteville, Arkansas
August 15, 1996
Cannon Express, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30 June 30
1996 1995
Assets
Current assets:
Cash and cash equivalents $4,169,919 $12,324,394
Marketable securities 3,188,628 3,493,187
Receivables, less allowance for doubtful accounts
(1996--$171,175; 1995--$141,175):
Trade 14,103,923 9,084,562
Other 227,289 661,917
Prepaid expenses and supplies 1,470,940 1,680,448
Deferred income taxes 672,000 -
Total current assets 23,832,699 27,244,508
Property and equipment:
Land, buildings and improvements 1,148,563 1,143,453
Revenue equipment 74,450,678 59,093,534
Service, office and other equipment 2,290,494 2,129,664
77,889,735 62,366,651
Less allowance for depreciation 19,662,206 14,478,734
58,227,529 47,887,917
Other assets:
Receivable from stockholders 23,406 23,406
Restricted cash 770,026 813,671
Other 939,764 1,293,757
1,733,196 2,130,834
$83,793,424 $77,263,259
See accompanying notes.
June 30 June 30
1996 1995
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 1,120,828 $ 459,319
Accrued expenses:
Insurance reserves 2,553,205 1,337,331
Other 2,141,206 1,485,615
Federal and state income taxes payable 1,596,621 435,930
Deferred income taxes - 29,000
Current portion of long-term debt 12,282,068 8,727,272
Total current liabilities 19,693,928 12,474,467
Long-term debt, less current portion 43,963,848 35,353,262
Deferred income taxes 3,606,000 3,833,000
Other liabilities 283,719 279,255
Stockholders' equity:
Common stock: $.01 par value; authorized
10,000,000 shares; issued 3,205,777
shares in 1996 and 4,443,954 shares
in 1995 32,058 44,440
Additional paid-in capital 3,542,356 3,542,356
Retained earnings 11,950,566 21,181,034
Unrealized appreciation on marketable
securities, net of income taxes of
$567,694 and $580,455 in 1996
and 1995, respectively 906,836 927,220
16,431,816 25,695,050
Less treasury stock, at cost (58,125
shares in 1996 and 116,250 shares
in 1995 185,887 371,775
16,245,929 25,323,275
$83,793,424 $77,263,259
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Income
Years ended June 30
1996 1995 1994
Operating revenue $89,991,074 $79,030,217 $59,177,254
Operating expenses and costs:
Salaries, wages and fringe
benefits 30,925,434 24,905,286 17,825,664
Operating supplies and
expenses 26,536,129 22,217,898 18,035,496
Operating taxes and licenses 5,678,134 4,515,103 2,636,951
Insurance and claims 5,067,919 3,060,030 3,053,583
Depreciation and amortization 10,574,311 7,424,316 5,322,484
Rents and purchased
transportation 3,778,768 3,929,384 2,649,673
Other 1,522,439 1,308,294 1,271,140
84,083,134 67,360,311 50,794,991
Operating income 5,907,940 11,669,906 8,382,263
Other income (expense):
Interest expense (3,684,603) (2,187,475) (1,411,977)
Gain on disposal of assets 161,193 39,298 37,010
Interest and dividend income 500,439 166,028 78,846
Gain(loss)on marketable equity
securities 625,969 94,385 (586,982)
(2,397,002) (1,887,764) (1,883,103)
Income before income taxes and
cumulative effect of change in
accounting principle 3,510,938 9,782,142 6,499,160
Federal and state income taxes:
Current 2,268,000 4,278,816 1,796,314
Deferred (Credit) (916,000) (512,816) 894,923
1,352,000 3,766,000 2,691,237
Income before cumulative effect
of change in accounting
principle 2,158,938 6,016,142 3,807,923
Cumulative effect of change in
accounting principle, net of income
taxes of $296,203 - - 426,244
Net income $2,158,938 $6,016,142 $4,234,167
Earnings per share:
Income before cumulative effect of change
in accounting principle $ 0.67 $ 1.84 $ 1.17
Cumulative effect of change in
accounting principle - - 0.13
Net income per share $ 0.67 $ 1.84 $ 1.30
Average shares and share equivalents
outstanding 3,246,397 3,269,183 3,260,457
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Unrealized Appreciation
Additional (Depreciation)
Common Stock Paid-In Retained On Marketable Treasury
Class A Class B Capital Earnings Securities Stock
Balances at
July 1, 1993 $21,995 $21,995$3,352,183 $10,930,725 $ - $(371,775)
Net income - - - 4,234,167 - -
Unrealized depreciation on
marketable securities - - - - (426,244) -
Stock issued:
Exercise of options 150 150 159,193 - - -
Balances at
June 30,1994 22,145 22,145 3,511,376 15,164,892 (426,244) (371,775)
Net income - - - 6,016,142 - -
Unrealized appreciation on
marketable securities - - - - 1,447,849 -
Realized gain on marketable
securities - - - - (94,385) -
Stock issued:
Exercise of options 50 100 30,980 - - -
Balances at
June 30, 1995 22,195 22,245 3,542,356 21,181,034 927,220 (371,775)
Net income - - - 2,158,938 - -
Unrealized appreciation on
marketable securities - - - - 605,585 -
Realized gain on marketable
securities - - - - (625,969) -
Stock Recapitalization
Plan 9,863(22,245) -(11,389,406) - 185,888
Balances at
June 30, 1996 $32,058 $ 0 $3,542,356 $11,950,566 $906,836 $(185,887)
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended June 30
1996 1995 1994
Operating activities
Net income $ 2,158,938 $6,016,142 $4,234,167
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,574,311 7,424,316 5,322,484
Provision(credit)for deferred
income taxes (916,000) (512,816) 894,923
Provision for losses on marketable
securities - - 615,432
Cumulative effect of change in
accounting principle - - (426,244)
Gain on disposal of equipment (161,193) (39,298) (37,010)
Gain on sale of marketable
securities (625,969) (94,385) (28,450)
Changes in operating assets and liabilities:
Receivables (4,584,733) (2,992,551) (2,380,547)
Prepaid expenses and supplies 209,508 (472,178) (194,320)
Accounts payable, accrued expenses,
income taxes payable, and other
liabilities 4,014,724 1,450,634 630,416
Other assets (19,196) (357,629) (256,694)
Net cash provided by operating
activities 10,650,390 10,422,235 8,374,157
Investing activities
Purchases of property and
equipment (15,618,199) (19,803,149) (3,490,826)
Purchase of restricted investments 43,645 (12,906) -
Proceeds from maturities of
restricted investments - 100,000 5,733
Purchases of marketable securities (307,635) - (2,044,445)
Proceeds from sales of marketable
securities 1,205,020 405,792 1,129,503
Proceeds from equipment sales 6,551,567 20,040,432 573,888
Net cash provided by (used in)
investing activities (8,125,602) 730,979 (3,826,147)
Financing activities
Proceeds from long-term borrowings 15,907,421 3,047,611 3,004,800
Principal payments on long-term debt and
capital lease obligations (15,370,784) (10,305,848) (4,688,883)
Proceeds from exercise of
stock options - 31,130 159,493
Net effect stock recapitalization
plan (11,215,900) - -
Net cash used in financing
activities (10,679,263) (7,227,107) (1,524,590)
Increase (decrease) in cash and
cash equivalents (8,154,475) 3,926,107 3,023,420
Cash and cash equivalents at
beginning of year 12,324,394 8,398,287 5,374,867
Cash and cash equivalents at
end of year $4,169,919 $12,324,394 $8,398,287
See accompanying notes.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1996
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 exchanges of revenue equipment are used to reduce
the basis of the replacement equipment. 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.
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.
Earnings per Share - Net income per share is computed based on the weighted
average number of shares outstanding during the year, adjusted to include common
stock equivalents attributable to dilutive warrants and stock options. Earnings
per share amounts for prior periods, as well as average shares outstanding, have
been restated to give effect to a 1996 stock recapitalization plan, as more
fully described in Note 4.
Claims Liabilities - 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.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Restricted cash of $770,026 and $813,671 at June 30, 1996 and 1995,
respectively, represents certificates of deposit held as collateral for the
Company's insurance activities.
A Company tractor and trailer were involved in a serious traffic accident in May
of 1996. The Company has been informed by its insurance carrier that potential
damages may exceed the Company's policy limit. The Company has also been
informed that the range of settlement is indeterminate at the present time.
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 - Prior to June 30, 1994, marketable equity
securities were carried at the lower of aggregate cost or fair value. The
Company maintained a valuation allowance for unrealized losses on these
securities which totaled $107,015 as of June 30, 1993. Effective June 30, 1994,
the Company adopted FAS Statement No.115, "Accounting for Certain Investments in
Debt and Equity Securities", and classified equity securities with an aggregate
fair value of $1,574,473 as "available-for-sale" securities. Under Statement No.
115, these securities are carried at fair value with the unrealized gain or
loss, net of related income tax effects, shown in stockholders' equity. The
cumulative effect of this change in accounting principle increased earnings by
$426,244, (gross unrealized holding losses of $722,447 less income tax effects
of $296,203), the amount of unrealized net losses previously charged to 1994
earnings.
At June 30, 1994, net unrealized losses of $615,432 are included with realized
gains and losses in the determination of the net gain or loss on marketable
equity securities transactions. The cost of marketable equity securities sold is
determined using the specific identification method.
The amortized cost and approximate fair values of current marketable equity
securities classified as available-for-sale are as follows:
June 30
1996 1995
Cost $1,714,098 $1,985,512
Unrealized gains 1,474,530 1,507,675
Unrealized losses - -
Fair Value $3,188,628 $3,493,187
A single equity security accounted for approximately 95% and 97% of fair value
of marketable equity securities at June 30, 1996, and June 30, 1995,
respectively.
Cannon Express, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Marketable Equity Securities - (continued)
Proceeds from sales of available-for-sale equity securities were $1,205,020 and
$405,792 for 1996 and 1995, respectively. Resultant gross gains of $625,969 and
$94,385 were realized and included in net income for 1996 and 1995,
respectively.
Deferred income taxes (Note 3) related to the net change in unrealized
appreciation on available-for-sale securities, shown in stockholders' equity,
were approximately ($12,000) and $577,000 for 1996 and 1995, 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.
Recent Accounting Pronouncements - The Company plans to adopt Statement of
Financial Accounting Standards (FAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective July
1, 1996. Under FAS No. 121, impairment losses are recognized when information
indicates the carrying amount of long-lived assets, identifiable intangibles and
goodwill related to those assets will not be recovered through future operations
or sale. Impairment losses for assets to be held or used in operations will be
based on the excess of the carrying amount of the asset over the asset's fair
value. Assets held for disposal will be carried at the lower of carrying amount
or fair value less cost to sell. FAS No. 121 will be applied prospectively from
the date of adoption and, based on current circumstances, management does not
believe the effect of adoption will be material.
FAS No.123 "Accounting for Stock Based Compensation," establishes a fair value
method of accounting for stock-based employee compensation plans and is
effective for years beginning after December 15, 1995. The Company grants stock
options for a fixed number of shares to employees with an exercise price equal
to the fair value of the shares at the date of grant. The Company accounts for
stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and intends to continue this method in the future, as
allowed by FAS No. 123. Accordingly, the Company recognizes no compensation
expense for the stock option grants. Beginning with fiscal year 1997, the
Company will provide footnote disclosure of the pro-forma net income and net
income per share assuming the fair value method had been adopted.
Reclassification - Certain reclassifications have been made to the 1995 and 1994
financial statements to conform to the 1996 financial statement presentation.
These reclassifications had no effect on net earnings.
2. Long-term Debt
June 30
1996 1995
Equipment notes (1) $18,529,638 $10,298,124
Capitalized lease obligations (2) 37,716,278 33,782,410
56,245,916 44,080,534
Less current portion 12,282,068 8,727,272
$ 43,963,848 $35,353,262
(1)Represents loans on revenue equipment, payable in various installments
through 2001 with a weighted average interest rate of 6.75%. Revenue equipment
having a book value of approximately $17,589,000 at June 30, 1996 is pledged as
collateral. The carrying amount of equipment notes payable approximates fair
value at June 30, 1996.
(2)Capitalized lease obligations are for revenue equipment with an aggregate net
book value of approximately $37,235,000 at June 30, 1996. The leases have a
weighted average interest rate of 6.5%. 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.
Annual maturities of long-term debt, excluding capitalized lease obligations
(Note 5) at June 30, 1996, are:
1997 $ 3,775,838
1998 4,041,861
1999 6,250,355
2000 2,597,819
2001 1,863,765
$18,529,638
Interest paid was approximately $3,643,000, $2,188,000 and $1,379,000 during
1996, 1995 and 1994, respectively.
3. Federal and State Income Taxes
A reconciliation between the effective income tax rate, as computed before the
cumulative effect adjustment, and the statutory federal income tax rate is
presented in the following table:
Years ended June 30
1996 1995 1994
Income tax at the statutory
federal rate of 34% $1,194,000 $3,325,929 $2,209,714
Federal income tax effects of:
Nondeductible expenses--
Drivers' meals - - 227,860
Nondeductible expenses--Other (10,000) 4,491 17,988
State income taxes (149,000) (216,000) (121,000)
Other (18,000) 15,580 (325)
Federal income taxes 1,017,000 3,130,000 2,334,237
State income taxes 335,000 636,000 357,000
$1,352,000 $3,766,000 $2,691,237
June 30
1996 1995
Total deferred tax assets $ 1,664,000 $1,045,000
Total deferred tax liabilities (4,598,000) (4,907,000)
The tax effects of temporary differences related to deferred taxes shown on the
balance sheets were:
Tax Benefit (Payable)
June 30
1996 1995
Temporary Differences
Self-insurance accruals $ 978,000 $ 507,000
Allowance/Valuation reserves 345,000 115,000
Valuation of available-for-sale
securities (565,000) (577,000)
Revenue recognition 169,000 197,000
Prepaids and other (255,000) (271,000)
Net current deferred income tax
benefit (liability) $ 672,000 $ (29,000)
Depreciation $ (1,463,000) $(3,952,000)
Treatment of revenue equipment leases (2,143,000) 119,000
Net non-current deferred income
tax lability $(3,606,000) $(3,833,000)
The Company made income tax payments of approximately $1,087,000, $4,196,000 and
$1,712,000 during 1996, 1995 and 1994, respectively.
4. Common Stock
Recapitalization - In November, 1992, the shareholders approved an amendment of
the Certificate of Incorporation to (i) reclassify the existing common stock as
Class A Common Stock; (ii) authorize a new non-voting Class B Common Stock,
(iii) increase the authorized shares of common stock from 10 million to 20
million, consisting of 10 million shares of Class A Common Stock and 10 million
shares of Class B Common Stock; and (iv) establish the rights, powers and
limitations of the Class A Common Stock and the Class B Common Stock.
Over the past year, the Company's Board of Directors explored alternatives to
increase shareholder value, and ultimately determined to eliminate the dual
class common stock structure and to return to a single, publicly-traded class of
common stock. On January 29, 1996, the Company announced that its Board of
Directors had approved a recapitalization plan which would take private its
Class B Common Stock and reclassify its two existing classes of common stock
into a new, single class of publicly traded common stock. The Company's Class A
Common Stock and Class B Common Stock were traded on the NASDAQ National Market
System under the symbols CANXA and CANXB. The Company's common stock is
currently traded on the NASDAQ under the symbol CANX.
The recapitalization plan effected a 1-for-500,000 reverse split of the
Company's non-voting Class B Common Stock and converted each whole share of
Class B Common Stock outstanding after the reverse stock split into 493,150
shares of voting Class A Common Stock. All shareholders who owned fewer than
500,000 shares of Class B Common Stock on January 26, 1996, were paid a cash
price of $9.00 per share. The Company funded these payments with working
capital.
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, 1996, 58,125 shares at an average price of $3.20 per
share are included as treasury stock on the balance sheet. No purchases were
made in fiscal 1996 and 1995. Class B Common Shares previously held as treasury
shares were canceled as a result of the recapitalization plan described above.
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, 1996, there were 22,347 Common
Stock Options outstanding for non-employee directors. These options have been
included in the following summary information.
Option transactions are summarized as follows (adjusted for all stock
distributions, redemptions and splits):
1996 1995 1994
Class A Class B Class A Class B Class A Class B
Outstanding at July 1 81,250 98,250 86,250 96,250 101,250 121,250
Granted - - - 12,000 - -
Exercised - - (5,000)(10,000) (15,000) (15,000)
Canceled - - - - - (10,000)
Converted to A Shares 96,907 (98,250) - - - -
Outstanding at June 30 178,157 0 81,250 98,250 86,250 96,250
1996 1995 1994
Price range at June 30 $1.93 to $8.50 $1.93 to $8.50 $1.93 to $7.59
Exercisable at June 30 139,248 0 60,750 57,750 56,250 57,250
5. Leases and Commitments
The future minimum payments under capitalized leases at June 30, 1996, consisted
of the following:
1997 $ 10,688,052
1998 11,995,031
1999 9,325,892
2000 7,808,297
2001 1,129,077
Future years 2,318,190
Total minimum lease payments 43,264,539
Amounts representing interest 5,548,261
Present value of net minimum lease
payments included in long-term
debt ($8,506,236 due in 1997) (Note 2) $37,716,278
Assets held under capital leases are included in property, plant and equipment
as follows:
1996 1995
Revenue equipment $47,989,546 $38,958,100
Accumulated depreciation 10,754,290 5,744,824
$37,235,256 $33,213,276
During 1996 and 1995, the Company incurred capital lease obligations totaling
approximately $11,629,000 and $31,004,000, respectively. No capital lease
obligations were incurred in 1994.
Capitalized lease amortization is included in depreciation expense.
As of June 30, 1996, future minimum rental commitments for all noncancelable
operating leases were approximately $638,000 for 1997 and $133,000 for 1998.
6. Related Party Transactions
The Company leases a facility from the majority stockholders of the Company.
The lease extends to September 1, 1996, and provides for monthly rental payments
of $2,000. Rent totaled $24,000 for each of the three years ended June 30,
1996, 1995, and 1994. 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. The Company may purchase the facility at any time prior to the
expiration of the lease for $235,000, which was the appraised value of the
property at the inception of the lease.
The Company paid financial advisory fees totaling $600,000 to Llama Company in
return for services rendered to the Company and to a special committee of its
Board of Directors (See Note 4 Recapitalization). Alice Walton, Chairman and
General Partner of Llama, is an approximate 9% shareholder of the Company.
7. 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 49.5%, 41.3%
and 38.5% of revenue for fiscal 1996, 1995 and 1994, respectively. Accounts
receivable as of June 30 for this customer totaled approximately $7,765,000 and
$4,415,000 for 1996 and 1995, respectively. A second unaffiliated major
customer accounted for 10.2%, 17.5% and 20.1% of revenue in 1996, 1995 and 1994,
respectively. Accounts receivable as of June 30 for this customer totaled
approximately $1,311,000 and $1,069,000 for 1996 and 1995, respectively.
8. Profit-sharing Plan
Effective July 1, 1994, the Company implemented a profit-sharing plan covering
all employees who have been employed a minimum of three months 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 participants during the plan year. Participant interests are
100% vested after completion of three years of service. No contributions to the
Plan were made in 1996 or 1995.
9. Quarterly Results of Operations (Unaudited)
Fiscal 1996
September 30 December 31 March 31 June 30
Operating revenue $21,627,585 $22,205,240 $21,946,007 $24,212,242
Operating expenses
and costs 19,389,412 20,575,333 21,324,659 22,793,730
Operating income 2,238,173 1,629,907 621,348 1,418,512
Other income, net 57,359 250,145 324,776 655,321
Interest expense 849,335 963,424 943,004 928,840
Income before income
taxes 1,446,197 916,628 3,120 1,144,993
Income taxes 557,000 353,000 1,000 441,000
Net income $ 889,197 $ 563,628 $ 2,120 $ 703,993
Net income per share $0.27 $0.17 $0.00 $0.22
Average shares and share
equivalents outstanding 3,260,274 3,239,463 3,234,519 3,251,332
Fiscal 1995
September 30 December 31 March 31 June 30
Operating revenue $18,347,565 $19,749,204 $20,401,630 $20,531,818
Operating expenses and
costs 15,225,813 16,169,357 17,653,980 18,311,161
Operating income 3,121,752 3,579,847 2,747,650 2,220,657
Other income (expense),
net 28,086 (6,928) 109,880 168,673
Interest expense 471,025 469,944 624,982 621,524
Income before income
taxes 2,678,813 3,102,975 2,232,548 1,767,806
Income taxes 1,018,000 1,179,000 888,000 681,000
Net income $1,660,813 $1,923,975 $1,344,548 $1,086,806
Net income per share $0.51 $0.59 $0.41 $0.33
Average shares and share equivalents
outstanding 3,262,876 3,271,495 3,274,743 3,267,620
Report of Independent Accountants on
Financial Statement Schedule
Board of Directors and Stockholders
Cannon Express, Inc. and Subsidiaries
Springdale, Arkansas
In connection with our audit of the consolidated financial statements of CANNON
EXPRESS, INC. AND SUBSIDIARIES for each of the three years in the period ended
June 30, 1996, we have also audited the following financial statement schedule.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits of the basic financial statements. The
schedule is presented for purposes of complying with the Securities and Exchange
Commission's rules and regulations and is not a required part of the
consolidated financial statements.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
BAIRD, KURTZ & DOBSON
Fayetteville, Arkansas
August 15, 1996
Cannon Express, Inc. and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
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 Accounts Deductions end of
Period Expenses Describe Describe Period
Year ended June 30,1996:
Deducted from assets
accounts:
Reserve for doubtful
trade receivables $141,175 $30,000 - $ (A) $171,175
Year ended June 30, 1995:
Deducted from assets
accounts:
Reserve for doubtful
trade receivables $117,447 $ 30,000 - $6,272(A) $141,175
Year ended June 30, 1994:
Deducted from assets
accounts:
Reserve for doubtful
trade receivables $ 84,047 $120,000 - $86,600(A) $117,447
Allowance for net unrealized
losses on marketable equity
securities $194,517 $615,432 - $87,502(B) $722,447(C)
(A)Uncollectible accounts written off, net of recoveries.
(B)Allowance account amount used to write down to fair value and establish a new
cost basis for an investment that was considered other-than-temporarily impaired
as of July 1, 1993.
(C)Allowance reversed with adoption of FAS 115. See Note 1 to the 1994
Consolidated Financial Statements.
Shareholder Information
Form 10-K Availability
A copy of the 1996 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
NASDAQ National Market System
Symbol: CANX
Independent Auditors
Baird, Kurtz & Dobson
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.