-----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, M2NvcA3PTJPmjXj5+y6oemv3rELohohtlluN25LuVBjn43B8DOYiMfYonOvl1KJg F1fyZG+GMTjg3ZG5MqSNJQ== 0000801558-99-000002.txt : 19990514 0000801558-99-000002.hdr.sgml : 19990514 ACCESSION NUMBER: 0000801558-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: 99620638 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 MARCH 31, 1999 ( )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 April 30, 1999: 3,205,276 INDEX CANNON EXPRESS, INC. and SUBSIDIARIES PART 1 -- FINANCIAL INFORMATION ITEM 1 -- Financial Statements (Unaudited) Consolidated Balance Sheets as of March 31, 1999 and June 30, 1998..................................1 Consolidated Statements of Income and Retained Earnings for the Three Months and Nine Months Ended March 31, 1999 and 1998......3 Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1999 and 1998.......................4 Notes to Consolidated Financial Statements................................5 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.....................................6 ITEM 3 - Quantitative and Qualitative Disclosure about Market Risk........11 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................................11 *No information submitted under this caption. PART 1. ITEM 1. Financial Statements (Unaudited) Cannon Express, Inc. and Subsidiaries Consolidated Balance Sheets March 31 June 30 1999 1998 (Unaudited) (Note) Assets Current assets: Cash and cash equivalents $6,695,388 $3,817,505 Receivables, net of allowance for doubtful accounts (March 31, 1999-$182,901; June 30, 1998-$158,656): Trade 8,928,171 9,582,372 Other 1,978,794 1,473,937 Prepaid expenses and supplies 2,002,816 1,325,024 Deferred income taxes 1,439,000 1,875,000 Total current assets 21,044,169 18,073,838 Property and equipment: Land, buildings and improvements 1,210,138 1,210,138 Revenue equipment 86,624,015 92,546,207 Service, office and other equipment 2,884,476 2,743,709 90,718,629 96,500,054 Less allowances for depreciation 37,920,830 37,193,306 52,797,799 59,306,748 Other assets: Receivable from stockholders 23,406 23,406 Restricted cash 2,380,924 2,386,832 Marketable securities 653,137 584,322 Other 513,121 511,332 Total other assets 3,570,588 3,505,892 $77,412,556 $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) March 31 June 30 1999 1998 (Unaudited) (Note) Liabilities and Stockholders' Equity Current liabilities: Trade accounts payable $1,557,998 $1,609,825 Accrued expenses: Insurance reserves 3,075,643 3,144,259 Other 2,228,112 1,758,047 Federal and state income taxes payable 2,354,051 2,208,632 Current portion of long-term debt 17,734,733 18,794,463 Total current liabilities 26,950,537 27,515,226 Long-term debt, less current portion 28,883,968 29,768,122 Deferred income taxes 3,594,000 4,752,000 Other liabilities 38,878 100,862 Stockholders' equity: Common stock: $.01 par value; authorized 10,000,000 shares; issued 3,265,401 shares at March 31, 1999 and 3,252,986 shares at June 30, 1998 32,654 32,530 Additional paid-in capital 3,747,575 3,720,988 Retained earnings 14,495,133 15,197,014 Unrealized depreciation on marketable securities, net of income taxes (129,925) - 18,145,437 18,950,532 Less treasury stock, at cost (60,125 shares) 200,264 200,264 17,945,173 18,750,268 $77,412,556 $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 Nine Months Ended March 31 March 31 1999 1998 1999 1998 (Unaudited) (Unaudited) Operating revenue $22,700,681 $26,023,161 $71,454,700 $84,965,076 Operating expenses and costs: Salaries, wages and fringe benefits 9,187,979 8,511,473 27,333,871 27,475,206 Operating supplies and expense 7,419,101 7,358,440 22,651,372 24,244,443 Taxes and licenses 1,378,592 1,522,670 4,145,408 4,424,910 Insurance & claims 1,002,206 991,838 3,269,265 4,003,733 Depreciation and amortization 1,958,973 3,235,306 7,893,806 9,772,308 Rents and purchased transportation 1,472,285 2,550,637 3,451,381 8,091,047 Other 653,779 546,396 1,775,336 1,510,513 23,072,915 24,716,760 70,520,439 79,522,160 Operating income (loss) (372,234) 1,306,401 934,261 5,442,916 Other income (expense) Interest expense (743,133) (766,899) (2,304,409) (2,531,678) Other income 101,434 104,865 229,267 281,602 (641,699) (662,034) (2,075,142) (2,250,076) Income(loss) before income taxes (1,013,933) 644,367 (1,140,881) 3,192,840 Federal and state income taxes Current (1,059,000) (180,000) 283,000 469,000 Deferred 669,000 428,000 (722,000) 476,000 (390,000) 248,000 (439,000) 945,000 Net income (loss) (623,933) 396,367 (701,881) 2,247,840 Retained earnings at beginning of period 15,119,066 15,233,900 15,197,014 13,382,427 Retained earnings at end of period $14,495,133 $15,630,267 $14,495,133 $15,630,267 Basic earnings (loss) per share ($0.19) $0.13 ($0.22) $0.71 Average shares outstanding 3,200,586 3,176,097 3,195,436 3,163,413 Diluted earnings (loss) per share ($0.19) $0.12 ($0.22) $0.69 Diluted shares outstanding 3,211,923 3,257,935 3,225,345 3,250,023 See notes to consolidated financial statements. Cannon Express, Inc. and Subsidiaries Consolidated Statements of Cash Flows Nine Months Ended March 31 1999 1998 (Unaudited) Operating activities Net income (loss) $(701,881) $2,247,840 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,280,521 9,688,790 Provision for losses on accounts receivable 45,000 30,000 Provision (credit) for deferred income taxes (722,000) 476,000 Loss (gain) on disposals of assets (2,386,713) 83,517 Changes in operating assets and liabilities: Accounts receivable 104,344 (619,424) Prepaid expenses and supplies (580,433) (466,063) Accounts payable, accrued expenses, taxes payable, and other liabilities 576,377 408,785 Other assets - (11,400) Net cash provided by operating activities 6,615,215 11,838,045 Investing activities Purchases of property and equipment (7,152,787) (1,781,832) Investment in outside driver training facility (280,000) - Net decrease (increase) in restricted cash 5,908 (26,759) Proceeds from sales of marketable securities - 50,000 Proceeds from equipment sales 5,606,720 8,650 Net cash used in investing activities (1,820,159) (1,749,941) Financing activities Proceeds from long-term borrowing 12,506,871 - Principal payments on long-term debt and capital lease obligations (14,450,755) (10,420,604) Proceeds from exercise of stock options 26,711 102,684 Net cash used in financing activities (1,917,173) (10,317,920) Increase (decrease) in cash and cash equivalents 2,877,883 (229,816) Cash and cash equivalents at beginning of period 3,817,505 3,995,626 Cash and cash equivalents at end of period $ 6,695,388 $ 3,765,810 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 nine month periods ended March 31, 1999 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 (Loss) Per Share Three Months Ended Nine Months Ended March 31 March 31 1999 1998 1999 1998 (Unaudited) (Unaudited) Average shares outstanding 3,200,586 3,176,097 3,195,436 3,163,413 Net effect of dilutive stock options 11,337 81,838 29,909 86,610 Diluted shares outstanding 3,211,923 3,257,935 3,225,345 3,250,023 Net income(loss) for the period ($623,933) $396,367 ($701,881) $2,247,840 Earnings (loss) per share ($0.19) $0.13 ($0.22) $0.71 Diluted earnings (loss) per share ($0.19) $0.12 ($0.22) $0.69 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations -- Third Quarter Operating revenue for the third quarter of fiscal 1999 (ended March 31, 1999) was $22,700,681 compared to $26,023,161 for the third quarter of fiscal 1998, a decrease of $3,322,480 or 12.8% for the period. This decrease was primarily due to a reduction in the amount of business the Company received from its major customer (Wal-Mart). In March of 1998 the Company made a decision not to continue some of the freight movements at the rates then being offered. Management of the Company believes that its longer-term interests will be best served by diversifying its customer base. During the third quarter of fiscal 1999, Wal-Mart revenue was $6,743,148 or 29.7% of total revenue compared to $10,776,167, or 41.4% of total revenue during the same period of fiscal 1998, representing a decrease of $4,033,019 for the period. The Company's average rate per mile decreased from $1.26 in the third quarter of fiscal 1998 to $1.22 in the comparable period of 1999. The Company has hired 3 salespersons to replace the lost business, however, to date the shortfall in revenue has not been totally replaced. The Company also saw a decrease in its logistics and intermodal revenue from $2,611,959 for the third quarter of fiscal 1998 to $1,375,792 for the same period of fiscal 1999. This decrease was due to the Company's need to retain freight for its own trucks and not offering the same amount of excess freight to other companies' trucks as in the prior year. The Company believes that its sales efforts will be rewarded in the future through higher rates and with equipment utilization returning to historical levels. At March 31, 1999, the Company's fleet consisted of 828 trucks and 2,342 trailers, while on March 31, 1998, the Company's fleet consisted of 904 trucks and 2,113 trailers. Salaries, wages, and fringe benefits, made up primarily of drivers' wages, increased as a percentage of revenue to 40.5% in the third quarter of fiscal 1999 from 32.7% in the third quarter of fiscal 1998. This increase was due to the lower per mile revenue and decreased revenue from intermodal and logistics operations. Company drivers were awarded approximately $208,000 in bonuses for the three-month period ended March 31, 1999 as compared with $212,000 awarded during the three-month period ended March 31, 1998. Operating supplies and expenses, as a percentage of revenue, increased to 32.7% in the third quarter of fiscal 1999 from 28.3% in the comparable period of fiscal 1998. This increase was mainly attributable to increased frequency and cost of repairs to older trucks which compounded the revenue lost from hauling loads while those trucks were being repaired. Taxes and licenses increased to 6.1% of revenue in fiscal 1999 from 5.9% in fiscal 1998. Insurance and claims were 4.4% of revenue in fiscal 1999, increasing from 3.8% in fiscal 1998, primarily due to an increased incidence of weather- related accidents in the third quarter of fiscal 1999. Depreciation and amortization decreased to 8.6% of revenue in fiscal 1999 from 12.4% in fiscal 1998 due to a gain on sale of equipment of $1,345,706 which was realized in the third quarter of fiscal 1999 as compared to a gain of $17,377 in the third quarter of fiscal 1998. Rents and purchased transportation decreased to 6.5% of revenue in fiscal 1999 from 9.8% in fiscal 1998 due to decreased logistics operations. Other expenses were 2.9% of revenue in the third quarter of fiscal 1999 and 2.1% in the comparable period of 1998. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Cont'd Operating revenue for the third quarter of 1999 decreased by 12.8% over the comparable period of 1998, while operating expenses decreased by $1,643,845 or 6.7%. Accordingly, the Company's operating ratio increased to 101.6% in the third fiscal quarter of 1999 from 95.0% in the same period of fiscal 1998. Interest expense increased to 3.3% of revenue in the third quarter of fiscal 1999 from 2.9% recorded in the third quarter of fiscal 1998. The Company's effective income tax rate was 38.5% of pre-tax net income in the third quarter of fiscal 1999 and in the third quarter of fiscal 1998. Net loss for the third quarter of fiscal 1999 ended March 31, 1999 was ($623,933) ($.19 loss per diluted share) compared to net income of $396,367 ($.12 earnings per diluted share) during the comparable period of fiscal 1998, a decrease of $1,020,300 or 257.4% for the period. Results of Operations - Nine Month Period Operating revenue for the first nine months of fiscal 1999 ended March 31, 1999 was $71,454,700 compared to $84,965,076 for the comparable period of fiscal 1998, representing a decrease of $13,510,376 or 15.9%. As in the three-month period, the decrease in operating revenue over the same period of fiscal 1998 is primarily attributable to fewer shipments from the Company's major customer (Wal-Mart). For the nine months period ended March 31, 1999, Wal-Mart revenue totaled $21,878,362, or 30.6% of the Company's revenue, compared to $41,581,693, or 48.9% in the nine months period ended March 31, 1998. The Company, for the nine month period has been able to replace approximately 31% of its previous Wal-Mart business with freight from other customers. The Company's average rate per mile increased from $1.20 in the third quarter of fiscal 1998 to $1.24 in the comparable period of 1999. Logistics and intermodal revenue decreased by $5,860,354 for the nine-month period of fiscal 1999 over the comparable period of fiscal 1998. As in the three-month period, this decrease was due to the Company's need to retain freight for its own trucks and not offering the same amount of excess freight to other companies' trucks as in the prior year. Operating income decreased to 934,261 in the nine months ended March 31, 1999 from $5,442,916 during the comparable period of fiscal 1998. Salaries, wages, and fringe benefits increased to 38.3% of revenues in the nine-month period of fiscal 1999 from the 32.3% reported in the nine-month period of fiscal 1998. This increase is primarily due to decreased revenue from intermodal and logistics operations. Operating supplies and expenses increased to 31.7% of revenue in fiscal 1999 from 28.5% in fiscal 1998. The Company experienced an increase in the cost of operating its trucks as maintenance costs were incurred outside of warranty on its older fleet. The higher maintenance cost was partially offset by lower average fuel cost of approximately 14 cents per gallon. Taxes and licenses increased to 5.8% of revenue during fiscal 1999 from 5.2% in fiscal 1998. Insurance and claims were 4.6% of revenue in fiscal 1999, decreasing from 4.7% in fiscal 1998. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Cont'd Depreciation and amortization, as a percentage of revenue, decreased to 11.0% of revenue in fiscal 1999 from 11.5% in the same period of fiscal 1998. A gain on sale of equipment of $2,386,713 was included in the nine- month period of fiscal 1999 as compared to a loss of $83,518 in the same period of fiscal 1998. Rents and purchased transportation decreased to 4.8% of revenue in the first nine months of fiscal 1999 from 9.5% during the comparable period of fiscal 1998. As was the case in the three-month period, this decrease was caused primarily by the decreased logistics activities. Other expenses increased to 2.5% in the nine-month period of fiscal 1999 from 1.8% in the nine-month period of fiscal 1998. Operating revenue for the nine-month period of 1999 decreased by 15.9% over the comparable period of 1998, while operating expenses decreased by $9,001,721 or 11.3%. Accordingly, the Company's operating ratio increased to 98.7% for the nine-month period in 1999 from 93.6% during the same period in 1998. Interest expense increased to 3.2% of revenue in the first nine months of fiscal 1999 from 3.0% recorded in the first nine months of fiscal 1998. The Company's effective income tax rate increased to 38.5% of income before income taxes for the first nine months of fiscal 1999 from 29.6% for the first nine months of 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 loss for the first nine months of fiscal 1999 ended March 31, 1999 was ($701,881) ($.22 loss per diluted share) compared to net income of $2,247,840 ($.69 earnings per diluted share) during the comparable period of fiscal 1998, a decrease of $2,949,721 or 131.2% for the nine-month period. Fuel Cost and Availability The Company, and the motor carrier industry as a whole, is dependent upon the availability and cost of diesel fuel. Diesel fuel costs, as mentioned above, have declined during the first three quarters of fiscal 1999 over the same period of fiscal 1998. Fuel costs in the quarter ended March 31, 1999 were approximately 10 cents per gallon lower than in the same period of the prior year. For the nine-month period of fiscal 1999, fuel costs were approximately 14 cents per gallon lower than in the nine-month period of fiscal 1998. However, fuel costs, recently, have returned to approximately the same level as a year ago. 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. There is no assurance that any future increases in fuel costs may be passed through to the Company's customers. Future cost increases or shortages of fuel could affect the Company's future profitability. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Cont'd 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 $6.6 million for the first nine months of fiscal 1999 compared to $11.8 million for the same period of fiscal 1998. Cash flows from operations in the first three quarters of fiscal 1999 were the result of $.7 million net loss, $10.3 million in depreciation offset by $2.4 million from gain on disposal of assets and $.6 million used in other working capital assets and liabilities. Investing activities used net cash of $1.8 million during the first nine months of fiscal 1998 compared to $1.7 million net cash used in the same period of fiscal 1998. Financing activities used net cash of $1.9 million during the first three quarters of fiscal 1999 compared to $10.3 million in fiscal 1998. The Company's working capital at March 31, 1999 was a deficit of $5.9 million compared to a deficit of $9.4 million at June 30, 1998. This deficit is primarily due to final note or lease payments on equipment. This equipment will be sold or refinanced when these payments become due. 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. The Company was caught in a cycle of large demand for new trucks and long lead times for new truck orders. Due to the manufacturer's lead time for new trucks, the Company was unable to secure any replacement trucks on schedule and was forced to make expensive non-warranty repairs to its older equipment. Through March 31, 1999 the Company has taken delivery of 100 new trucks and has sold 120 trucks, reducing its fleet to 828 at March 31, 1999. The Company has entered into an agreement to purchase 800 new trucks for its fleet with deliveries beginning in May of 1999 and continuing through June of 2000. The Company will sell approximately 725 of its older trucks, which will return the Company's fleet to its former size of 900 trucks. The cost of the new trucks, net of trade-ins, will be approximately $37,691,000. The new truck specifications include features that afford the driver a higher level of comfort and appeal than the older models being traded in. Management believes that these new trucks, when placed in service, will reduce maintenance costs and time lost for repairs. Additionally, the Company is planning a new program for owner-operators to help high-quality drivers to lease/purchase a truck and be paid a percentage of the Company's revenue to operate it under a contract with the Company to haul freight for its customers. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Cont'd In December 1998, the Company sold 192 of its 48 foot trailers resulting in a gain of $677,270. The Company plans to convert the majority of its trailer fleet to 53 foot trailers in the future in order to allow it to compete for freight from the increasing number of customers who require 53 foot trailers for some or all of their shipments. The Company currently owns and operates 898 of the 53 foot trailers and 1444 of the 48 foot trailers. 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. 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 which are scheduled by the vendor to be compliant by early 1999. Although the Company believes that its systems would be Year 2000 compliant, in April of 1999, the Company determined that it would purchase new computer software for its business. This decision was made primarily due to the increased cost and inefficiency of maintaining the Company's own software. The new software requires that the Company also purchase new computer hardware. The new system will be certified Year 2000 compliant by the manufacturer of the computer and the developer of the software. Management believes that the new system will enable the Company to better manage its business and to utilize new technologies as they are developed. 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 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 believes that the most likely worst-case scenario which it may face would be the inability of one or more of its major customers to communicate electronically through EDI (Electronic Data Interchange). In that event, the Company believes that it would be able to continue its business as it did prior to EDI until those customers' systems return to normal. 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. The Company subscribes to a service called Year 2000 Stocks via the internet at www.year2000stocks.com as one of the ways to stay abreast of the Year 2000 issues. Forward-Looking Statements This report contains forward-looking statements that are based on assumptions made by management from information currently available to management. These statements address future plans, expectations and events or conditions concerning various matters such as the results of the Company's sales efforts as set forth in the discussion of results of operations, capital expenditures, litigation and capital resources, accounting matters, and Year 2000 readiness. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, actual results could differ materially from those currently reported. ITEM 3. Quantitative and Qualitative Disclosure about Market Risk The Company is exposed to cash flow and interest rate risk due to changes in interest rates with respect to its long-term debt. See Note 2 to the Consolidated Financial Statements in the Company's Annual Report for fiscal year ended June 30, 1998 for details on the Company's long-term debt. PART II OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K No reports on Form 8-K were filed during the three months ended March 31, 1999. 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: May 13, 1999 /s/ Dean G. Cannon President, Chairman of the Board, Chief Executive Officer and Chief Accounting Officer Date: May 13, 1999 /s/ Rose Marie Cannon Secretary, Treasurer and Director EX-27 2
5 9-MOS JUN-30-1999 MAR-31-1999 6695388 653137 9111072 182901 0 21044169 90718629 37920830 77412556 26950537 0 0 0 32654 0 77412556 71454700 71454700 0 70520439 0 0 2304409 (1140881) (439000) 0 0 0 0 (701881) (.22) (.22)
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