-----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, WY1zAIQfEUFWcc6ZdA8mEE+X78PSpZcqMBRLnUL6xUgNFGSgHQxLwuxMHAo+oyQo 4L0ubAATq5ScChseff2byA== 0000801558-98-000009.txt : 19981116 0000801558-98-000009.hdr.sgml : 19981116 ACCESSION NUMBER: 0000801558-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: 001-13917 FILM NUMBER: 98745907 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 SEPTEMBER 30, 1998 ( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File No. 0-16386 CANNON EXPRESS, INC. (Exact name of registrant as specified in its charter) Delaware 71-0650141 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1457 Robinson P.O. Box 364 Springdale, Arkansas 72765 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (501) 751-9209 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of $.01 par value common stock outstanding at October 30, 1998: 3,192,861 INDEX CANNON EXPRESS, INC. and SUBSIDIARIES PART 1 -- FINANCIAL INFORMATION ITEM 1 -- Financial Statements (Unaudited) Consolidated Balance Sheets as of September 30, 1998 and June 30, 1998.......................1 Consolidated Statements of Income and Retained Earnings for the Three Months Ended September 30, 1998 and 1997...........3 Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1998 and 1997...........4 Notes to Consolidated Financial Statements.........................5 ITEM 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations..............................6 PART II -- OTHER INFORMATION ITEM 1 -- Legal Proceedings .......................................* ITEM 2 -- Changes in Securities....................................* ITEM 3 -- Defaults Upon Senior Securities..........................* ITEM 4 -- Submission of Matters to a Vote of Security-Holders......* ITEM 5 -- Other Information........................................* ITEM 6 -- Exhibits and Reports on Form 8-K.........................9 *No information submitted under this caption. PART 1. ITEM 1. Financial Statements (Unaudited) Cannon Express, Inc. and Subsidiaries Consolidated Balance Sheets September 30 June 30 1998 1998 (Unaudited) (Note) Assets Current assets: Cash and cash equivalents $4,625,734 $3,817,505 Receivables, net of allowance for doubtful accounts (September 30, 1998-$152,398; June 30, 1998-$158,656): Trade 10,403,468 9,582,372 Other 175,825 1,473,937 Prepaid expenses and supplies 1,046,908 1,325,024 Deferred income taxes 1,821,000 1,875,000 Total current assets 18,072,935 18,073,838 Property and equipment: Land, buildings and improvements 1,210,138 1,210,138 Revenue equipment 92,366,235 92,546,207 Service, office and other equipment 2,842,271 2,743,709 96,418,644 96,500,054 Less allowances for depreciation 40,539,912 37,193,306 55,878,732 59,306,748 Other assets: Receivable from stockholders 23,406 23,406 Restricted cash 2,387,236 2,386,832 Marketable securities 489,363 584,322 Other 452,384 511,332 Total other assets 3,352,389 3,505,892 $77,304,056 $80,886,478 Note: The balance sheet at June 30, 1998 has been derived from the audited consolidated balance sheet at that date but it does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to consolidated financial statements. Cannon Express, Inc. and Subsidiaries Consolidated Balance Sheets (Continued) September 30 June 30 1998 1998 (Unaudited) (Note) Liabilities and Stockholders' Equity Current liabilities: Trade accounts payable $1,650,099 $1,609,825 Accrued expenses: Insurance reserves 2,789,440 3,144,259 Other 1,969,804 1,758,047 Federal and state income taxes payable 2,706,597 2,208,632 Current portion of long-term debt 23,008,693 18,794,463 Total current liabilities 32,124,633 27,515,226 Long-term debt, less current portion 22,166,161 29,768,122 Deferred income taxes 4,179,000 4,752,000 Other liabilities 80,200 100,862 Stockholders' equity: Common stock: $.01 par value; authorized 10,000,000 shares; issued 3,252,986 shares 32,530 32,530 Additional paid-in capital 3,720,988 3,720,988 Retained earnings 15,259,206 15,197,014 Unrealized depreciation on marketable securities, net of income taxes (58,398) - 18,954,326 18,950,532 Less treasury stock, at cost (60,125 shares) 200,264 200,264 18,754,062 18,750,268 $77,304,056 $80,886,478 Note: The balance sheet at June 30, 1998 has been derived from the audited consolidated balance sheet at that date but it does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to consolidated financial statements. Cannon Express, Inc. and Subsidiaries Consolidated Statements of Income and Retained Earnings Three Months Ended September 30 1998 1997 (Unaudited) Operating revenue $24,662,417 $28,057,837 Operating expenses and costs: Salaries, wages and fringe benefits 8,656,097 9,349,914 Operating supplies and expense 7,872,648 8,537,989 Operating taxes and licenses 1,315,407 1,397,485 Insurance and claims 848,041 1,697,163 Depreciation and amortization 3,450,919 3,246,335 Rents and purchased transportation 1,098,621 2,002,322 Other 574,640 359,402 23,816,373 26,590,610 Operating income 846,044 1,467,227 Other income (expense): Interest expense (812,368) (901,770) Other income 67,516 98,808 (744,852) (802,962) Income before income taxes 101,192 664,265 Federal and state income taxes: Current 522,000 321,000 Deferred (483,000) (278,000) 39,000 43,000 Net income 62,192 621,265 Retained earnings at beginning of period 15,197,014 13,382,427 Retained earnings at end of period $15,259,206 $14,003,692 Basic earnings per share $0.02 $0.20 Average shares and share equivalents outstanding 3,192,861 3,146,522 Diluted earnings per share $0.02 $0.19 Diluted shares and share equivalents outstanding 3,244,877 3,225,826 See notes to consolidated financial statements. Cannon Express, Inc. and Subsidiaries Consolidated Statements of Cash Flows Three Months Ended September 30 1998 1997 (Unaudited) Operating activities Net income $ 62,192 $ 621,265 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,516,751 3,219,628 Provision for losses on accounts receivable 15,000 7,500 Credit for deferred income taxes (483,000) (278,000) Loss (gain) on disposal of equipment (65,338) 26,706 Changes in operating assets and liabilities: Accounts receivable 462,016 (183,877) Prepaid expenses and supplies 278,119 205,660 Accounts payable, accrued expenses, taxes payable, and other liabilities 395,735 1,272,845 Net cash provided by operating activities 4,181,475 4,891,727 Investing activities Purchases of property and equipment (101,211) (48,590) Net increase in restricted cash (404) (705) Proceeds from sales of marketable securities - 50,000 Proceeds from equipment sales 116,100 1,800 Net cash provided by investing activities 14,485 2,505 Financing activities Principal payments on long-term debt and capital lease obligations (3,387,731) (2,839,822) Net cash used in financing activities (3,387,731) (2,839,822) Increase in cash and cash equivalents 808,229 2,054,410 Cash and cash equivalents at beginning of period 3,817,505 3,995,626 Cash and cash equivalents at end of period $4,625,734 $6,050,036 See notes to consolidated financial statements. Notes to Consolidated Financial Statements (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10 - Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ended June 30, 1999. 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, 1998. Note B - Net Income Per Share Three Months Ended September 30 1998 1997 (Unaudited) Average shares outstanding 3,192,861 3,146,522 Net effect of dilutive stock options 52,016 79,304 Diluted shares outstanding 3,244,877 3,225,826 Net income for the period $ 62,192 $ 621,265 Basic earnings per share $.02 $.20 Diluted earnings per share $.02 $.19 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations --First Quarter Operating revenue for the first quarter of fiscal 1999 (ended September 30, 1998 was $24,662,417 compared to $28,057,837 for the first quarter of fiscal 1998, representing a decrease of $3,395,420 or 12.1% for the period. At September 30, 1998, the Company's fleet consisted of 879 trucks and 2,538 trailers, while on September 30, 1997, the Company's fleet consisted of 906 trucks and 2,119 trailers. Logistics and intermodal revenue for the first quarter of fiscal 1999 decreased by $1,550,605, or 59.5%, over the comparable period in fiscal 1998. 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, increased as a percentage of revenue to 35.1% in the first quarter of fiscal 1999 from 33.3% in the comparable period of fiscal 1998. Company drivers were awarded approximately $243,000 in bonuses for the three-month period ended September 30, 1998 as compared with $225,000 awarded during the three- month period ended September 30, 1997. Operating supplies and expenses, as a percentage of revenue, increased to 31.9% in the first quarter of fiscal 1999 from 30.4% in the comparable period of fiscal 1998. Operating taxes and licenses also increased to 5.3% of revenue in fiscal 1999 from 5.0% in fiscal 1998. Insurance and claims were 3.4% of revenue in fiscal 1999, decreasing from 6.0% in fiscal 1998, substantially due to lower insurance premiums and favorable claims experience. Depreciation and amortization increased to 14.0% of revenue in fiscal 1999 from 11.6% in the same period of fiscal 1998 due to new equipment additions. A gain on disposal of equipment of $65,338 was included in the first quarter of fiscal 1999 as compared to a loss of $26,706 in the first quarter of fiscal 1998. Rents and purchased transportation decreased to 4.5% of revenue in fiscal 1999 from 7.1% in fiscal 1998 due to a decrease in short-term trailer rentals. Operating revenue for the first quarter of 1999 decreased by 12.1% over the comparable period of 1998, while operating expenses decreased by $2,774,237 or 10.4%. Accordingly, the Company's operating ratio increased to 96.6% in the first fiscal quarter of 1999 from 94.8% in the same period of fiscal 1998. Interest expense increased slightly to 3.3% of revenue in the first quarter of fiscal 1999 from 3.2% recorded in the first quarter of fiscal 1998. The Company's effective income tax rate increased to 38.5% of income before income taxes in fiscal 1999 from 6.5% in fiscal 1998. During fiscal 1998, income tax consequences of certain equipment leasing transactions were recorded in the financial statements in reliance on opinion of tax counsel. Net income for the first quarter of fiscal 1999 ended September 30, 1998 was $62,192 ($.02 per share) compared to $621,265 ($.19 per share) during the comparable period of fiscal 1998, a decrease of $559,073 or 90.0% for the period. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Cont'd Fuel Cost and Availability The Company, and the motor carrier industry as a whole, is dependent upon the availability and cost of diesel fuel. Average fuel costs were 14 cents per gallon lower in the quarter ended September 30, 1998 than in the same period of the prior year. 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. Further 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 $4.2 million for the first three months of fiscal 1999 compared to $4.9 million for the same period of fiscal 1998. Cash flows from operations in the first quarter of fiscal 1999 were the result of $0.06 million in net income, $3.5 million in depreciation and $0.64 million provided by other working capital assets and liabilities. Investing activities provided net cash of $.014 million during the first three months of fiscal 1999 compared to $0.002 million for the same period of fiscal 1998. Financing activities used net cash of $3.4 million during the first quarter of fiscal 1999 compared to $2.8 million cash used in the first quarter of 1998. The Company's working capital decreased by $4.7 million to a deficit of $14.1 million at September 30, 1998 from a deficit of $9.4 million at June 30, 1998. These deficits were due to the Company's decision to purchase equipment for cash in the quarter ended December 31, 1996. The Company has 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. The Company's current maturities of long-term debt includes approximately $14.4 million which will be due on final note or lease payments for revenue equipment. Approximately $12.9 million will be due for trucks which are planned to be traded in or sold during fiscal 1999. Historically, the Company has received slightly more in cash when equipment is sold than the amount paid on final note or lease payments. The Company expects that its obligation for these final equipment payments will be approximately offset by cash received when the equipment is sold. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Cont'd 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. Management of the Company intends, in the long-term, to continue to grow, however, the current shortage of qualified drivers for its trucks may limit the opportunity for expansion of its fleet. The Company may increase its logistics and intermodal activities, although Management of the Company believes that its best opportunities for growth may be the acquisition of one or more other trucking companies which compliment the Company's current business activities. At September 30, 1998, the Company did not have any non-cancelable commitments to purchase trucks or trailers, although it anticipates that its 1995 model trucks will be traded in for new models and its 1992 model trailers will be sold during fiscal 1999. Management believes that revenue generated from operations will continue to be sufficient to amortize obligations related to such replacement equipment. 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. Year 2000 Issues The Company has completed an assessment of its internal systems with regard to Year 2000 compliance. All of its computer hardware and internal software is compliant. The Company will convert its EDI format to ASC X12, version 4010 which is year 2000 compliant during the fourth quarter of 1998. The Company's communication systems which include telephones, on-board computers for trucks, voice mail, and electronic mail (E-mail) are certified compliant, with the exception of the on-board computers installed on its trucks which are scheduled by the vendor to be compliant by early 1999. The Company has assurances from its utilities providers of an implementation plan in place. Backup power generators are certified compliant. However, the Company's business requires that it operate in all regions of the United States, and the Company may rely indirectly on utility providers over which it has no control. Infrastructure failures could significantly reduce the Company's ability to serve its customers. The Company's trucks are certified compliant for the year 2000 by the manufacturer. The Company has conducted a survey of other internal electronic devices which may have embedded technology likely to be affected by the Year 2000 and believes that no critical devices will fail. The Company will seek written assurance from its customers and vendors of their Year 2000 compliance during the early part of 1999 to determine the extent of any effect on the Company's operations. The Company has not received written assurances from its significant customers and vendors that their systems will be timely converted and would not have an adverse effect on the Company. It is not possible at this time to quantify the amount of business that might be ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Cont'd lost or other costs that could be incurred by the Company as a result of the Company's customers' and vendors' failure to remediate their Year 2000 issues. The Company has not developed a contingency plan based on a possible worst- case scenario, and such scenario has not yet been clearly identified. The company currently plans to complete such analysis and contingency planning by September 30, 1999. The Company does not plan to engage an independent expert to evaluate its Year 2000 efforts. The Company estimates that its cost of becoming Year 2000 compliant will be less than $50,000, with the majority of the expense accounted for in the cost of operations through June 30, 1998. There can be no assurance that the Company's assessment of the Year 2000 risk will be accurate, and actual results could differ materially from those anticipated. PART II OTHER INFORMATION ITEM 6. Exhibits and Reports on Form-K No reports on Form 8-K were filed during the three months ended September 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CANNON EXPRESS, INC. (Registrant) Date: November 12, 1998 /s/ Dean G. Cannon President, Chairman of the Board, Chief Executive Officer and Chief Accounting Officer Date: November 12, 1998 /s/ Rose Marie Cannon Secretary, Treasurer and Director EX-27 2
5 3-MOS JUN-30-1999 SEP-30-1998 4,625,734 489,363 10,731,691 152,398 0 18,072,935 96,418,644 40,539,912 77,304,056 32,124,633 0 0 0 32,530 0 77,304,056 24,662,417 24,662,417 0 23,816,373 0 0 812,368 101,192 39,000 0 0 0 0 62,192 .02 .02
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