-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PWayk+AOJfIp3ZiCUy8ar/swUsvqsuoClXneBuydpiFdvGlp6K7HOZptVvrecLBW Osd1tWsoAr87q6sPClyl7w== 0000801558-98-000001.txt : 19980218 0000801558-98-000001.hdr.sgml : 19980218 ACCESSION NUMBER: 0000801558-98-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANNON EXPRESS INC CENTRAL INDEX KEY: 0000801558 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710650141 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16386 FILM NUMBER: 98538663 BUSINESS ADDRESS: STREET 1: 1457 ROBINSON STREET 2: P O BOX 364 CITY: SPRINGDALE STATE: AR ZIP: 72765 BUSINESS PHONE: 5017519209 MAIL ADDRESS: STREET 1: PO BOX 364 STREET 2: PO BOX 364 CITY: SPRINGDALE STATE: AR ZIP: 72765 10-Q 1 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 DECEMBER 31, 1997 ( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File No. 0-16386 CANNON EXPRESS, INC. (Exact name of registrant as specified in its charter) Delaware 71-0650141 (State or other jurisdiction of (I.R.S Employer Identification No.) incorporation or organization) 1457 Robinson P.O. Box 364 Springdale, Arkansas 72765 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (501) 751-9209 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of $.01 par value common stock outstanding at January 30, 1998: 3,171,611 INDEX CANNON EXPRESS, INC. and SUBSIDIARIES PART 1 -- FINANCIAL INFORMATION ITEM 1 -- Financial Statements (Unaudited) Consolidated Balance Sheets as of December 31, 1997 and June 30, 1997...............................1 Consolidated Statements of Income and Retained Earnings for the Three Months and Six Months Ended December 31, 1997 and 1996.....3 Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1997 and 1996......................4 Notes to Consolidated Financial Statements.................................5 ITEM 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations......................................6 PART II -- OTHER INFORMATION ITEM 1 -- Legal Proceedings ...............................................9 ITEM 2 -- Changes in Securities............................................* ITEM 3 -- Defaults Upon Senior Securities..................................* ITEM 4 -- Submission of Matters to a Vote of Security-Holders..............9 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 December 31 June 30 1997 1997 (Unaudited) (Note) Assets Current assets: Cash and cash equivalents $5,953,799 $3,995,626 Receivables, net of allowance for doubtful accounts(December 31, 1997- $115,917; June 30, 1997-$183,411): Trade 9,590,253 9,845,402 Other 136,560 158,839 Prepaid expenses and supplies 691,907 1,217,155 Deferred income taxes 2,388,000 1,793,000 Total current assets 18,760,519 17,010,022 Property and equipment: Land, buildings and improvements 1,176,563 1,176,563 Revenue equipment 83,464,665 82,802,562 Service, office and other equipment 2,561,808 2,483,375 87,203,036 86,462,500 Less allowances for depreciation 32,273,833 26,085,500 54,929,203 60,377,000 Other assets: Receivable from stockholders 23,406 23,406 Restricted cash 2,210,777 2,210,026 Marketable securities 527,744 831,797 Other 629,226 735,721 Total other assets 3,391,153 3,800,950 $77,080,875 $81,187,972 Note: The balance sheet at June 30, 1997 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) December 31 June 30 1997 1997 (Unaudited) (Note) Liabilities and stockholders' equity Current liabilities: Trade accounts payable $1,773,091 $1,043,333 Accrued expenses: Insurance reserves 3,454,924 3,489,814 Other 1,945,259 2,167,473 Federal and state income taxes payable 2,791,278 2,167,879 Current portion of long-term debt 14,370,602 16,696,510 Total current liabilities 24,335,154 25,565,009 Long-term debt, less current portion 30,264,747 35,393,134 Deferred income taxes 4,344,000 3,799,000 Other liabilities 142,185 183,508 Stockholders' equity: Common stock: $.01 par value; authorized 10,000,000 shares; issued 3,231,736 shares at December 31, 1997 and 3,205,777 shares at June 30, 1997 32,318 32,058 Additional paid-in capital 3,594,333 3,542,356 Retained earnings 15,233,900 13,382,427 Unrealized depreciation on marketable securities, net of income taxes (665,498) (509,256) 18,195,053 16,447,585 Less treasury stock, at cost (60,125 shares) 200,264 200,264 17,994,789 16,247,321 $77,080,875 $81,187,972 Note: The balance sheet at June 30, 1997 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 Six Months Ended December 31 December 31 1997 1996 1997 1996 (Unaudited) (Unaudited) Operating revenue $30,884,078 $26,356,862 $58,941,915 $53,919,717 Operating expenses and costs: Salaries, wages and fringe benefits 9,613,819 8,821,531 18,963,733 17,901,434 Operating supplies and expense 8,348,014 8,058,311 16,886,003 16,557,144 Taxes and licenses 1,504,755 1,657,190 2,902,240 3,210,852 Insurance & claims 1,314,732 1,023,303 3,011,895 2,262,962 Depreciation and amortization 3,290,667 2,925,951 6,537,002 5,761,328 Rents and purchased transportation 3,538,088 1,952,720 5,540,410 4,210,420 Other 604,715 509,943 964,117 911,187 28,214,790 24,948,949 54,805,400 50,815,327 Operating income 2,669,288 1,407,913 4,136,515 3,104,390 Other income(expense) Interest expense (863,009) (937,439) (1,764,779) (1,873,754) Other income 77,929 57,686 176,737 134,055 (785,080) (879,753) (1,588,042) (1,739,699) Income before income taxes 1,884,208 528,160 2,548,473 1,364,691 Federal and state income taxes Current 328,000 798,000 649,000 1,535,000 Deferred 326,000 (595,000) 48,000 (1,010,000) 654,000 203,000 697,000 525,000 Net income 1,230,208 325,160 1,851,473 839,691 Retained earnings at beginning of period 14,003,692 12,465,097 13,382,427 11,950,566 Retained earnings at end of period $15,233,900 $12,790,257 $15,233,900 $12,790,257 Earnings per share $0.39 $0.10 $0.59 $0.27 Average shares outstanding 3,167,621 3,147,652 3,157,072 3,147,652 Diluted earnings per share $0.38 $0.10 $0.57 $0.26 Diluted shares outstanding 3,266,308 3,239,597 3,246,067 3,244,795 See notes to consolidated financial statements. Cannon Express, Inc. and Subsidiaries Consolidated Statements of Cash Flows Six Months Ended December 31 1997 1996 (Unaudited) Operating activities Net income $ 1,851,473 $ 839,691 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,436,107 5,742,149 Provision for losses on accounts receivable (67,494) (2,991) Provision for deferred income taxes 48,000 1,010,000 Loss on disposal of equipment 100,895 19,179 Gain on sale of marketable securities - 40,438 Changes in operating assets and liabilities: Accounts receivable 344,922 5,196,318 Prepaid expenses and supplies 525,248 570,706 Accounts payable, accrued expenses, taxes payable, and other liabilities 1,095,864 (872,110) Other assets (11,400) (19,881) Net cash provided by operating activities 10,323,615 12,523,499 Investing activities Purchases of property and equipment (1,019,783) (25,122,914) Purchases of marketable securities (751) (62,743) Net increase in restricted cash - (500,000) Proceeds from sales of marketable securities 50,000 109,044 Proceeds from equipment sales 7,150 14,528,064 Net cash used in investing activities (963,384) (11,048,549) Financing activities Proceeds from long-term borrowing - 22,820,747 Principal payments on long-term debt and capital lease obligations (7,454,295) (26,551,496) Proceeds from exercise of stock options 52,237 - Net cash used in financing activities (7,402,058) (3,730,749) Increase (decrease) in cash and cash equivalents 1,958,173 (2,255,799) Cash and cash equivalents at beginning of period 3,995,626 4,169,919 Cash and cash equivalents at end of period $ 5,953,799 $ 1,914,120 See notes to consolidated financial statements. Notes to Consolidated Financial Statements (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10 - Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and six month periods ended December 31, 1997 are not necessarily indicative of the results that may be expected for the year ended June 30, 1998. 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, 1997. Note B - Net Income Per Share Three Months Ended Six Months Ended December 31 December 31 1997 1996 1997 1996 (Unaudited) (Unaudited) Average shares outstanding 3,167,621 3,147,652 3,157,072 3,147,652 Net effect of dilutive stock options 98,687 91,945 88,995 97,143 Diluted shares outstanding 3,266,308 3,239,597 3,246,067 3,244,795 Net income for the period $1,230,208 $325,160 $1,851,473 $839,691 Earnings per share $.39 $.10 $.59 $.27 Diluted earnings per share $.38 $.10 $.57 $.26 Note C - Legal Proceedings The Company has settled claims resulting from an accident which occurred in May of 1996. The associated costs and settlement amounts have been recognized in prior periods. The Company believes that its reserve for accidents would be sufficient to cover any liability for other claims, although the amount of actual losses incurred could differ materially from the estimates reflected in these financial statements. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations -- Second Quarter Operating revenue for the second quarter of fiscal 1998 (ended December 31, 1997) increased to $30,884,078 from $26,356,862 representing an increase of $4,527,216 or 17.2% over the comparable period in fiscal 1997. At December 31, 1997, the Company's fleet consisted of 904 trucks and 2,114 trailers, while on December 31, 1996, the Company's fleet consisted of 909 trucks and 2,033 trailers. The increase in operating revenue over the same period of fiscal 1997 is primarily attributable to increased revenue from logistics operations. Management intends to continue to increase its activities in the logistics area as additional opportunities arise. Although demand for the Company's services was strong, a continued shortage of qualified drivers impaired its ability to produce revenue. Salaries, wages, and fringe benefits, made up primarily of drivers' wages, decreased as a percentage of revenue to 31.1% in the second quarter of fiscal 1998 from 33.5% in the second quarter of fiscal 1997. This decrease was due to the increased revenue from logistics operations. Effective July 1, 1997, the Company increased its mileage pay scale by a minimum of 3 cents per mile and implemented a graduated scale for newly hired drivers based on their past experience. Additionally, those drivers who qualify will receive a 2 cents per mile performance bonus paid quarterly in fiscal 1998, as compared to a 5 cents per mile performance bonus paid quarterly in fiscal 1997. Company drivers were awarded approximately $234,000 in bonuses for the three-month period ended December 31, 1997 as compared with $657,000 awarded during the three-month period ended December 31, 1996. Operating supplies and expenses, as a percentage of revenue, decreased to 27.0% in the second quarter of fiscal 1998 from 30.6% in the comparable period of fiscal 1997. This decrease was primarily due to the Company's average fuel costs which were 14 cents per gallon lower in the second quarter of fiscal 1998 than in the second quarter of fiscal 1997. Taxes and licenses decreased to 4.9% of revenue in fiscal 1998 from 6.3% in fiscal 1997. Insurance and claims were 4.3% of revenue in fiscal 1998, increasing from 3.9% of revenue in fiscal 1997. Depreciation and amortization decreased to 10.7% of revenue in fiscal 1998 from 11.1% in the same period of fiscal 1997. A loss on disposal of equipment of $74,189 was included in the second quarter of fiscal 1998 as compared to a gain of $53,784 in the second quarter of 1997. Rents and purchased transportation increased to 11.5% of revenue in fiscal 1998 from 7.4% in fiscal 1997 due to increased logistics operations. Other expenses were 2.0% of revenue in the second quarter of fiscal 1998 and 1.9% in the comparable period of fiscal 1997. Operating revenue for the second quarter of 1998 grew by 17.2% over the comparable period of 1997, while operating expenses increased by $3,265,841 or 13.1%. Accordingly, the Company's operating ratio decreased to 91.4% in the second fiscal quarter of 1998 from 94.7% in the same period of fiscal 1997. Interest expense declined to 2.8% of revenue in the second quarter of fiscal 1998 from 3.6% recorded in the second quarter of fiscal 1997. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations--Cont'd The Company's effective income tax rate decreased to 34.7% of income before income taxes during the second quarter of fiscal 1998 from 38.5% in the second quarter of fiscal 1997 as a result of certain equipment leasing transactions consummated during the prior fiscal year. Net income for the second quarter of fiscal 1998 ended December 31, 1997 was $1,230,208 ($.38 per share) compared to $325,160 ($.10 per share) during the comparable period of fiscal 1997, an increase of $905,048 or 278.3% for the period. Management believes that the Company's systems will be ready for the Year 2000 in the very near future. Expenses associated with the changes to the Company's computer hardware and software have been included in results of operations as incurred and future costs are not expected to have a material effect on the Company's financial performance. The Company will request assurance from its trading partners of their Year 2000 compliance. Results of Operations - Six Month Period Operating revenue for the first six months of fiscal 1998 ended December 31, 1997 increased to $58,941,915 from $53,919,717 in the comparable period of fiscal 1997 representing an increase of $5,022,198 or 9.3%. As in the three-month period, the increase in operating revenue over the same period of fiscal 1997 is primarily attributable to the increased revenue resulting from logistics operations. Operating income increased to $4,136,515 in the six months ended December 31, 1997 from $3,104,390 during the comparable period of fiscal 1997, an increase of 33.2%. Salaries, wages, and fringe benefits decreased to 32.2% of revenues in the six-month period of fiscal 1998 from the 33.2% reported in the six-month period of fiscal 1997. This decrease, as in the three-month period, is due to the additional revenue from logistics operations. Operating supplies and expenses decreased to 28.6% of revenue in fiscal 1998 from 30.7% in fiscal 1997. During the six- month period, the Company's average cost of fuel was approximately 11 cents per gallon lower than in the same period of fiscal 1997. Taxes and licenses decreased to 4.9% of revenue during fiscal 1998 from 6.0% in fiscal 1997. Insurance and claims were 5.1% of revenue in fiscal 1998, increasing from 4.2% of revenue in fiscal 1997. Depreciation and amortization, as a percentage of revenue, increased to 11.1% of revenue in fiscal 1998 from 10.7% in the same period of fiscal 1997. A loss on disposal of equipment of $100,895 was included in the six- month period of fiscal 1998 as compared to a loss of $19,179 in the same period of 1997. Rents and purchased transportation increased to 9.4% of revenue in the first six months of fiscal 1998 from 7.8% during the comparable period of fiscal 1997. As was the case in the three-month period, this increase was caused primarily to the increased logistics activities. Other expenses were 1.6% of revenue in the six-month period of fiscal 1998 and 1.7% in the comparable period of 1997. Interest expense declined to 3.0% of revenue in the first six months of fiscal 1998 from 3.5% recorded in the first six months of fiscal 1997. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Cont'd The Company's effective income tax rate decreased to 27.3% of income before income taxes for the first six months of fiscal 1998 from 38.5% for the first six months of fiscal 1997. As in the three-month period, this benefit is a result of certain equipment leasing transactions consummated during the prior fiscal year. Net income for the first six months of fiscal 1998 ended December 31, 1997 was $1,851,473 ($.57 per share) compared to $839,691 ($.26 per share) during the comparable period of fiscal 1997, an increase of $1,011,782 or 120.5% for the six-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. Diesel fuel costs, as mentioned above, have declined during the first two quarters of fiscal 1998 over the same period of fiscal 1997. Fuel costs in the quarter ended December 31, 1997 were approximately 11.0% lower than in the same period of the prior year. For the six-month period of fiscal 1998, fuel costs were approximately 9.1% lower than in the six-month period of fiscal 1997. Historically, increases in fuel costs have been passed through to the Company's customers, either in the form of fuel surcharges, or if deemed permanent in nature, through increased rates. Future cost increases or shortages of fuel could affect the Company's future profitability. Liquidity and Capital Resources The Company's primary sources of liquidity have been cash flows generated from operations and proceeds from borrowings. The Company typically extends credit to its customers, billing freight charges after delivery. Accordingly, the ability of the Company to generate cash to satisfactorily meet its ongoing cash needs is substantially dependent upon timely payment by its customers. The Company has not experienced significant uncollectible accounts receivable. Operating activities provided cash flows of $10.3 million for the first six months of fiscal 1998 compared to $12.5 million for the same period of fiscal 1997. Cash flows from operations in the first two quarters of fiscal 1998 were the result of $1.9 million in net income, $6.4 million in depreciation and $2.0 million provided by other working capital assets and liabilities. Investing activities used net cash of $1.0 million during the first six months of fiscal 1998 compared to $11.1 million net cash used in the same period of fiscal 1997. Financing activities used net cash of $7.4 million during the first two quarters of fiscal 1998 compared to $3.7 million in fiscal 1997. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Cont'd The Company's working capital at December 31, 1997 was a deficit of $5.6 million compared to a deficit of $8.6 million at June 30, 1997. These deficits were due to the Company's decision to purchase equipment for cash in the quarter ended December 31, 1996. The Company has non-binding commitments from various lenders to finance these acquisitions in the future if it is determined that the Company has the need for additional working capital. Management has deviated from its past policy of maintaining large cash balances in an effort to reduce interest expense. Management believes that it is unlikely that the cost and availability of financing will be adversely affected by this working capital deficit in the near future. Like other truckload carriers, the Company experiences significant driver turnover. Management anticipates that competition for qualified drivers will intensify. The Company seeks to attract drivers by advertising job openings, encouraging referrals from existing employees and providing a training program for applicants whose experience does not meet the Company's minimum requirements, however, no assurance can be made that the Company will not continue to experience a shortage of drivers in the future. During the quarter ended December 31, 1997, the Company began installing on-board computers and mobile communication devices on its trucks. These devices will enable the Company to stay in touch with its drivers and to update its customers on shipment status. Management expects that it will fund the acquisition with existing cash although funds are available from lenders to fund this purchase if necessary. Management of the Company intends, in the long-term, to continue to expand its fleet, although the Company did not make any additions to its fleet during the quarter ended December 31, 1997. The Company is presently negotiating for the purchase of approximately 600 new trailers with an expected cost of approximately $10,800,000 and will sell or trade in approximately 110 of its older model trailers. The Company expects to finance these equipment acquisitions through long-term debt or lease agreements, the terms of which are not presently known, although management anticipates that financing with favorable terms will be available. 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 ITEM 1. Legal Proceedings The Company has settled claims resulting from an accident which occurred in May of 1996. The associated costs and settlement amounts have been recognized in prior periods. The Company believes that its reserve for accidents would be sufficient to cover any liability for other claims, although the amount of actual losses incurred could differ materially from the estimates reflected in these financial statements. ITEM 4. Submission of Matters to a Vote of Security Holders On November 18, 1997, the Annual Meeting of Stockholders was held in Springdale, Arkansas. The only matter submitted to a vote of the stockholders was the reelection of Dean G. Cannon, Rose Marie Cannon, Uvalde R. Lindsey, and Roy E. Stanley to the Company's current Board of Directors whose terms expire in 1997. Over 99% of the shares present or represented by proxy were voted in favor of management's nominees. 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: February 13, 1998 /s/ Dean G. Cannon President, Chairman of the Board, Chief Executive Officer and Chief Accounting Officer Date: February 13, 1998 /s/ Rose Marie Cannon Secretary, Treasurer and Director EX-27 2
5 6-MOS JUN-30-1998 DEC-31-1997 5,953,799 527,744 9,706,170 115,917 0 18,760,519 87,203,036 32,273,833 77,080,875 24,335,154 0 0 0 32,318 0 77,080,875 58,941,915 58,941,915 0 54,805,400 0 0 1,764,779 2,548,473 697,000 0 0 0 0 1,851,473 .59 .57
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