UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from __________ to _________
Commission File Number: 0-26954
CONSOLIDATED DELIVERY & LOGISTICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-3350958
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
380 Allwood Road 07012
Clifton, New Jersey (Zip Code)
(Address of principal executive offices)
(973) 471-1005
(Registrant's telephone number, including area code)
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 for 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 __ No___
The number of shares of common stock of the Registrant, par value
$.001 per share, outstanding as of July 31, 1999 was 7,311,026.
CONSOLIDATED DELIVERY & LOGISTICS, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
Page
Part I - Financial Information (unaudited)
Item 1 - Financial Statements
Consolidated Delivery & Logistics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 3
Condensed Consolidated Statements of Income for the Three
and Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II - Other Information
Item 1 - Legal Proceedings 16
Item 4 - Submission of Matters to a Vote of Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 18
Signature 19
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31, 1998
1999
----------------- ------------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $690 $295
Accounts receivable, net 26,313 24,491
Prepaid expenses and other current assets 3,015 2,560
----------------- ------------------
Total current assets 30,018 27,346
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 7,013 6,630
INTANGIBLE ASSETS, net 28,673 16,491
OTHER ASSETS 2,230 1,621
---------------- -------------------
Total assets $67,934 $52,088
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $5,765 $13,577
Current maturities of long-term debt 3,242 3,181
Accounts payable and accrued liabilities 16,982 14,784
----------------- ------------------
Total current liabilities 25,989 31,542
LONG-TERM DEBT 23,588 6,383
OTHER LONG-TERM LIABILITIES 3,336 2,756
----------------- ------------------
Total liabilities 52,913 40,681
----------------- ------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 2,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.001 par value; 30,000,000 shares
authorized; 7,311,026 and 6,843,702 shares issued and
outstanding at June 30, 1999 and December 31, 1998,
respectively 7 7
Additional paid-in capital 12,207 9,670
Treasury stock, 29,367 shares at cost (162) (162)
Retained earnings 2,969 1,892
----------------- ------------------
Total stockholders' equity 15,021 11,407
----------------- ------------------
Total liabilities and stockholders' equity $67,934 $52,088
================= ==================
See accompanying notes to condensed consolidated financial statements.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the Three Months Ended For the Six Months
June 30, Ended
June 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
--------------- ------------- ------------ ---------------
Revenue $55,848 $44,592 $107,155 $87,278
Cost of revenue 42,644 34,116 82,198 67,176
--------------- ------------- ------------ ---------------
Gross profit 13,204 10,476 24,957 20,102
Selling, general, and
administrative expenses 10,158 8,966 19,913 17,399
Depreciation and amortization 1,063 623 2,082 1,231
--------------- ------------- ------------ ---------------
Operating income 1,983 887 2,962 1,472
Other (income) expense:
Interest expense 878 234 1,525 498
Other income, net (81) (91) (315) (171)
--------------- ------------- ------------ ---------------
Income before provision
for income taxes 1,186 744 1,752 1,145
Provision for income taxes 451 275 675 435
--------------- ------------- ------------ ---------------
Net income $735 $469 $1,077 $710
=============== ============= ============ ===============
Net income per share:
Basic $.10 $.07 $.15 $.11
--------------- ------------- ------------ ---------------
Diluted $.09 $.07 $.14 $.10
--------------- ------------- ------------ ---------------
Basic weighted average common
shares outstanding 7,246 6,653 7,095 6,660
=============== ============= ============ ===============
Diluted weighted average common
shares outstanding 7,962 6,848 7,710 6,824
=============== ============= ============ ===============
See accompanying notes to condensed consolidated financial statements.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Six Months
------------------------------------
Ended June 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,077 $710
Adjustments to reconcile net income to net cash provided by
Operating activities -
Gain on disposal of equipment and leasehold improvements (31) (11)
Depreciation and amortization 2,082 1,231
Amortization of debt discount 53 -
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net (479) 1,798
Prepaid expenses and other current assets (344) 339
Other assets (609) (139)
Increase (decrease) in -
Accounts payable and accrued liabilities 1,140 227
Other long-term liabilities 133 (216)
--------- -------
Net cash provided by operating activities 3,022 3,939
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements 166 11
Purchase of businesses, net of cash acquired (6,438) -
Additions to equipment and leasehold improvements (1,065) (1,182)
--------- --------
Net cash used in investing activities (7,337) (1,171)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net (7,812) (2,860)
Borrowing of long-term debt 15,000 150
Repayments of long-term debt (2,267) (658)
Issuance of stock warrants in connection with long-term financing 885 -
Issuance of stock 267 -
Deferred financing costs (1,363) -
-------- --------
Net cash provided by (used in) financing activities 4,710 (3,368)
CASH PROVIDED BY DISCONTINUED OPERATIONS - 69
-------- ---------
Net increase (decrease) in cash and cash equivalents 395 (531)
CASH AND CASH EQUIVALENTS, beginning of period 295 1,812
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $690 $1,281
======== =========
See accompanying notes to condensed consolidated financial statements.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed 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. The
condensed consolidated balance sheet at December 31, 1998, has been
derived from the audited financial statements at that date. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended June 30,
1999, are not necessarily indicative of the results that may be
expected for any other interim period or for the year ending December
31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K
for the year ended December 31, 1998.
(2) BUSINESS COMBINATIONS:
On February 16, 1999, Consolidated Delivery & Logistics, Inc. ("CDL" or
the "Company") entered into and consummated an asset and stock purchase
agreement with its subsidiary, Sureway Air Traffic Corporation
("Sureway") and Victory Messenger Service, Inc., Richard Gold, Darobin
Freight Forwarding Co., Inc.,("Darobin") and The Trust Created Under
Paragraph Third of the Last Will and Testament of Charles Gold (the
"Trust"), (collectively "Gold Wings"), whereby Sureway purchased all of
the outstanding shares of the capital stock of Darobin and certain of
the assets and liabilities of the other sellers. The purchase price was
comprised of approximately $3.0 million in cash including estimated
direct acquisition costs, $1,650,000 in a 7% subordinated note (the
"Note") and 200,000 shares of CDL common stock at $3.875 per share. The
Note is due April 16, 2001 with interest payable quarterly commencing
April 1, 1999. The Note is subordinate to all existing or future senior
debt of CDL. In addition, a contingent earn out in the aggregate amount
of up to $520,000 is payable based on the achievement of certain
financial goals during the two year period following the closing. The
earn out is payable 55% in cash and 45% in CDL common stock.
On April 30, 1999, Consolidated Delivery & Logistics, Inc. ("CDL")
entered into and consummated an asset purchase agreement with its
subsidiary, Silver Star Express, Inc. ("Silver Star") and Metro Parcel
Service, Inc., Nathan Spaulding and Kelly M. Spaulding, (collectively,
"Metro Parcel"), whereby Silver Star purchased certain of the assets
and liabilities of Metro Parcel. The purchase price was comprised of
approximately $710,000 in cash, $202,734 in a 7% subordinated note (the
"Metro Parcel Note") and 40,000 shares of CDL's common stock at $3.25
per share. The Metro Parcel Note is due April 30, 2001 with interest
payable quarterly commencing August 1, 1999. The Metro Parcel Note is
subordinate to all existing or future senior debt of CDL.
On April 30, 1999, Consolidated Delivery & Logistics, Inc. ("CDL")
entered into and consummated an asset purchase agreement with its
subsidiary, Clayton/National Courier Systems, Inc. ("Clayton/National")
and Westwind Express, Inc., Logistics Delivery Systems, Inc., Fastrak
Delivery Systems, Inc., Sierra Delivery Services, Inc., and Steven S.
Keihner (collectively, "Westwind"), whereby Clayton/National purchased
certain of the assets and liabilities of Westwind. The purchase price
was comprised of approximately $2,650,000 in cash, $1,680,000 in
various 7% subordinated notes (the "Westwind Notes") and 149,533 shares
of CDL's common stock at $3.21 per share. The Westwind Notes are
comprised of two-year notes due April 30, 2001 with a total principal
amount of $1,200,000 and three-year notes due April 30, 2002 with a
total principal amount of $480,000. Interest on the Westwind Notes is
payable quarterly commencing July 31, 1999. The Westwind Notes are
subordinate to all existing or future senior debt of CDL. In addition,
a contingent earn out in the aggregate amount of up to $700,000 is
payable based on the achievement of certain financial goals during the
two year period following the closing. The earn out is payable 60% in
cash and 40% in one year promissory notes bearing interest at a rate of
7% per annum having similar terms as the Westwind Notes referred to
above.
On May 10, 1999, CDL entered into and consummated an asset purchase
agreement (the "Skycab Purchase Agreement") with its subsidiary,
Sureway Air Traffic Corporation ("Sureway") and Skycab, Inc. and Martin
Shulman (collectively, "Skycab"), whereby Sureway purchased certain
assets of Skycab. The purchase price was comprised of approximately
$78,100 in cash. In addition, a contingent earn out is payable for
sixteen quarters following the closing date. The amount of the earn-out
per quarter is the greater of either $6,250 or 15% of collected
revenues for the three-month period then ended, as defined in the
Skycab Purchase Agreement.
CDL financed each of the above acquisitions using proceeds from its
revolving credit facility with First Union Commercial Corporation. The
above transactions have been accounted for under the purchase method of
accounting. Accordingly, the allocation of the cost of the acquired
assets and liabilities have been made on the basis of the estimated
fair value. The aggregate amount of goodwill recorded for the Gold
Wings, Metro Parcel and Skycab acquisitions is $6.4 million to be
amortized over 25 years. The goodwill for the Westwind acquisition is
$5.1 million to be amortized over 40 years. The consolidated financial
statements include the operating results of Gold Wings, Metro Parcel,
Westwind, and Skycab from their respective acquisition dates.
The following summarized unaudited pro forma financial information was
prepared assuming that the Gold Wings, Metro Parcel, Westwind and
Skycab acquisitions occurred on the first day of such periods and
include certain pro forma adjustments. This information is not
necessarily indicative of the results the Company would have obtained
had these events actually occurred on such dates or of the Company's
actual or future results (in thousands, except per share amounts).
-------------------------------- -- --------------------------------
Three Months Ended Six Months Ended
-------------------------------- -- --------------------------------
June 30, 1999 June 30, June 30, 1999 June 30,
Pro Forma 1998 Pro Forma 1998
Combined Pro Forma Combined Pro Forma
Combined Combined
-------------- ----------------- -- --------------- ----------------
-------------- ----------------- -- --------------- ----------------
Revenue $56,659 $46,959 $112,189 $99,437
Income from Operations 2,041 1,067 3,233 1,967
Net Income $744 $503 $1,111 $742
Net Income per
share - basic $.10 $.07 $.15 $.11
Net Income per
share - diluted $.09 $.07 $.14 $.10
(3) SHORT-TERM BORROWINGS:
In November 1998, CDL and First Union Commercial Corporation ("First
Union") modified an agreement entered into in July 1997, establishing a
revolving credit facility (the "First Union Agreement"). The First
Union Agreement provides for an increase in the original credit
facility from $15 million to $22.5 million, provides CDL with an
equipment acquisition term loan facility of up to $2.5 million and
modifies other terms and conditions. Under the terms of the First Union
Agreement, the Company is required to maintain certain financial ratios
and comply with other financial conditions. The First Union Agreement
contains certain covenants for which the Company is in compliance as of
June 30, 1999.
(4) LONG-TERM DEBT:
On January 29, 1999, the Company completed a $15 million private
placement of senior subordinated notes and warrants with three
financial institutions. The notes bear interest at 12% per annum and
are subordinate to all senior debt including the Company's credit
facility with First Union. Under the terms of the notes, the Company is
required to maintain certain financial ratios and comply with other
financial conditions for which the Company is in compliance as of June
30, 1999. The notes mature on January 29, 2006 and may be prepaid by
the Company under certain circumstances. The warrants expire on January
19, 2009 and are exercisable at any time prior to expiration at a price
of $.001 per equivalent share of common stock for an aggregate of
506,250 shares of the Company's stock, subject to additional
adjustments. The Company has recorded the fair value of the warrants of
$885,000 as a credit to additional paid-in-capital and a debt discount
on the senior subordinated notes. The Company used the proceeds to
finance acquisitions and to reduce outstanding short-term borrowings.
(5) COMMON STOCK:
Effective April 1, 1998, CDL adopted an Employee Stock Purchase Plan
(the "Employee Purchase Plan"). The Employee Purchase Plan permits
eligible employees to purchase CDL common stock at 85% of the closing
market price on the last day prior to the commencement of the purchase
period. On April 2, 1999, CDL issued 30,740 total shares of common
stock to certain employees at a purchase price of $3.774 per share,
which represents 85% of the closing price of $4.44 per share on March
31, 1998.
In September 1995, the Board of Directors adopted, and the stockholders
of the Company approved the Company's Employee Stock Compensation
Program (the "Employee Stock Compensation Program"). The Employee Stock
Compensation Program authorizes the granting of incentive stock
options, non-qualified supplementary options, stock appreciation
rights, performance shares and stock bonus awards to key employees of
the Company, including those employees serving as officers or directors
of the Company. On April 9, 1999, the Company awarded the Chief
Executive Officer of the Company a stock bonus award under the Employee
Stock Compensation Program of 47,051 shares of common stock at $3.19
per share.
(6) REPORTABLE SEGMENTS:
Effective December 31, 1998, CDL implemented Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS 131"). SFAS 131 requires a
company to disclose reportable segments based on the way management
organizes its segments for making operating decisions and assessing
performance. CDL has two reportable segments: Air and Ground. Separate
management of each segment is required because each business unit is
subject to different cost and delivery parameters. Segment information
for the three and six month periods ended June 30, 1999 and 1998 is as
follows (in thousands).
Three Months Ended Six Months Ended
--------------------------------------- ------------------------------------
Air Ground Total Air Ground Total
------------- ------------ ------------ ----------- ----------- ------------
Revenue from external customers
1999 $16,918 $38,930 $55,848 $31,941 $75,214 $107,155
1998 14,144 30,448 44,592 27,444 59,834 87,278
Intersegment revenue
1999 25 417 442 38 765 803
1998 19 411 430 37 828 865
Interest expense
1999 266 612 878 455 1,070 1,525
1998 74 160 234 157 341 498
Depreciation and
amortization
1999 182 881 1,063 385 1,697 2,082
1998 126 497 623 218 1,013 1,231
Segment profit
1999 125 610 735 181 896 1,077
1998 99 370 469 137 573 710
Segment assets
June 30, 1999 18,863 49,071 67,934 18,863 49,071 67,934
Dec. 31, 1998 11,489 40,599 52,088 11,489 40,599 52,088
Expenditures for
segment assets
1999 (258) 616 358 166 899 1,065
1998 (211) 360 149 433 749 1,182
(7) LITIGATION:
In February 1996, Liberty Mutual Insurance Company ("Liberty Mutual")
filed an action against Securities Courier Corporation ("Securities"),
a subsidiary of the Company, Mr. Vincent Brana and certain other
parties in the United States District Court for the Southern District
of New York alleging, among other things, that Securities Courier had
fraudulently obtained automobile liability insurance from Liberty
Mutual in the late 1980s and early 1990s at below market rates. This
suit, which claims common law fraud, fraudulent inducement, unjust
enrichment and violations of the civil provisions of the Federal RICO
statute, among other things, seeks an unspecified amount of
compensatory and punitive damages from the defendants, as well as
attorneys' fees and other expenses. Three additional defendants were
added by way of a second amended complaint on April 9, 1998. Securities
and Mr. Brana have filed cross claims against each of these additional
defendants and certain original defendants who had acted as insurance
brokers for certain of the policies at issue. Under the terms of its
acquisition of Securities Courier, the Company has certain rights to
indemnification from Mr. Brana. In connection with the indemnification,
Mr. Brana has entered into a settlement agreement and executed a
promissory note and security agreement securing up to $500,000 or such
greater amount as may be due for any defense costs or award arising out
of this suit. Mr. Brana has delivered 150,000 shares of CDL common
stock to the Company as collateral security for the promissory note,
which is due for repayment on December 1, 2002.
On April 13, 1999 a motion for summary judgement dismissing the
complaint, based upon statute of limitation defenses, was filed on
behalf of Securities and Mr. Brana. The current briefing schedule for
preparing and serving motion papers has been extended to mid-September
1999. Discovery is currently pending and as a result, the Company is
unable to make a determination as to the merits of the claim. The
Company does not believe that an adverse determination in this matter
would result in a material adverse effect on the consolidated financial
position or results of operations of the Company.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for
personal injury and property damage incurred in connection with its
same-day ground and air delivery operations. Management believes that
none of these actions, including the action described above, will have
a material adverse effect on the consolidated financial position or
results of operations of the Company.
(8) INCOME (LOSS) PER SHARE:
Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution if certain
securities are converted.
A reconciliation of weighted average common shares outstanding to
weighted average common shares outstanding assuming dilution follows
(in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------
--------------- -- ------------- ------------- --- ------------
1999 1998 1999 1998
--------------- ------------- ------------- ------------
Basic weighted average
common shares outstanding 7,246 6,653 7,095 6,660
Effect of dilutive securities:
Stock Options 209 195 184 164
Warrants 505 - 427 -
ESPP 2 - 4 -
--------------- ------------- ------------- ------------
Diluted weighted average
Common shares
Outstanding 7,962 6,848 7,710 6,824
=============== ============= ============= ============
The following common stock equivalents were excluded from the
computation of diluted earnings per share because the exercise or
conversion price was greater than the average market price of common
shares:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
--------------- ------------- ------------- ------------
Stock options 555,442 576,764 555,442 583,014
Subordinated convertible debentures 161,818 275,845 161,818 275,845
Seller financed convertible notes 676,666 - 676,666 -
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the condensed
consolidated financial statements of the Company and the related notes thereto
which appear elsewhere in this report.
Disclosure Regarding Forward-Looking Statements
The Company is provided a "safe harbor" for forward-looking statements
contained in this report by the Private Securities Litigation Reform Act of
1995. The Company may discuss forward-looking information in this report such as
its expectations for future performance, growth and acquisition strategies,
liquidity and capital needs and its future prospects. Actual results may not
necessarily develop as the Company anticipates due to many factors including,
but not limited to the timing of certain transactions, unexpected expenses
encountered, inability to conclude acquisitions on satisfactory terms, the
effect of economic and market conditions, the impact of competition and the
Company's actual results varying materially from management's current
expectations.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenue for the first half of 1999 increased by $19.9 million, or 22.8% to
$107.2 million from $87.3 million for the first half of 1998. Revenue from the
Company's recently completed acquisitions contributed $18.9 million to the
increase, or 21.6%. Revenue from internal growth contributed $1 million to the
increase, or 1.2% for the first half of 1999.
Ground delivery revenue, net of acquisition related revenue, increased by $2.2
million or 3.7% from $59.8 million for the first half of 1998 to $62 million for
the similar period for 1999 primarily due to newly added customers combined with
an expansion of routes with existing customers in the contract distribution
business in the Northeast and Southeast regions.
Overall, Air courier revenue increased to $31.9 million for the six months ended
June 30, 1999 from $27.4 million for the same period in 1998. The growth was
achieved due to the Gold Wings acquisition which occurred in February 1999. The
Company continues in its ongoing effort to evaluate its customer base so as
to eliminate unprofitable business within the Air division.
Cost of revenue increased by $15 million, or 22.3%, to $82.2 million for the
first six months of 1999 from $67.2 million for the first six months of 1998.
Cost of revenue for the six months ended June 30, 1999 represents 76.7% of
revenues as compared to 77.0% for the same period in 1998. The increase in
revenue from the contract distribution business described above typically
produces higher initial costs, which caused a greater increase in cost of
revenue.
Selling, general and administrative expenses increased by $2.5 million, or
14.4%, to $19.9 million from $17.4 million for the first six months of 1999 as
compared to the same period in 1998. The increase is primarily attributed to the
administrative expenses associated with the Company's recent acquisitions.
Depreciation and amortization increased $851,000 to $2.1 million for the first
six months of 1999 compared to $1.2 million for the first six months of 1998
reflecting an increase attributable to the goodwill amortization expense
recorded as a result of the Company's acquisitions.
As a result of the matters discussed above, operating income increased by $1.5
million or 100% to $3 million from $1.5 million for the first six months of 1999
as compared to the same period in 1998. Interest expense increased by $1 million
for the first half of 1999 due to increased borrowings to fund the Company's
recent acquisitions.
Three Months ended June 30, 1999 Compared to the Three Months Ended
June 30, 1998.
Revenue for the second quarter of 1999 increased by $11.2 million, or 25.1% to
$55.8 million from $44.6 million for the second quarter of 1998. Revenue from
the Company's recently completed acquisitions contributed substantially all of
the increase in revenue achieved during the second quarter of 1999.
The Company's ground delivery divisions contributed a slight increase in revenue
of $750,000, excluding revenue from acquisitions, primarily due to the expansion
of routes with existing customers in the contract distribution business in the
Northeast and Southeast regions. Excluding revenues from acquisitions, air
courier revenue declined by $1.1 million for the quarter ended June 30, 1999 as
a result of the Company's ongoing efforts to eliminate unprofitable business.
Cost of revenue increased by $8.5 million, or 25%, to $42.6 million for the
three months ended June 30, 1999 from $34.1 million for the three months ended
June 30, 1998 resulting from the increases in revenue from acquisitions and from
the contract distribution business described above. Cost of revenue for the
three months ended June 30, 1999 represents 76.4% of revenues as compared to
76.5% for the same period in 1998.
Selling, general and administrative expenses increased by $1.2 million, or
13.3%, to $10.2 million from $9 million for the three months ended June 30, 1999
as compared to the same period in 1998. The primary contributor to the increase
in selling, general and administrative expense was administrative expenses
related to the Company's recent acquisitions.
As a result of the factors discussed above, operating income increased by $1.1
million to $2.0 million from $887,000 for the three months ended June 30,1999 as
compared to the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $8.2 million from a deficit of $4.2 million as of
December 31, 1998 to working capital of $4.0 million at June 30, 1999. The
increase results from a repayment of the Company's short-term borrowings under
the Revolving Credit Facility with proceeds from the senior subordinated notes.
Cash and cash equivalents increased to $690,000 as of June 30, 1999 from
$295,000 at December 31, 1998. Cash of $3 million was provided by operations for
the six months ended June 30, 1999 as compared to cash provided by operations of
$3.9 million for the same period in 1998. For the first half of 1999, cash used
in investing activities totaled $7.3 million as compared to $1.2 million for the
same period in 1998. The increase primarily results from the use of cash during
1999 to purchase businesses. For the first half of 1999, financing activities
provided cash of $4.7 million and for the same period in 1998 financing
activities used cash of $3.4 million. The net increase between periods in cash
provided by financing activities was $8.1 million. This increase primarily
results from $15 million of proceeds from the senior subordinated notes and
warrants, offset by repayments of $7.3 million of short-term borrowings.
Capital expenditures amounted to $1.1 million and $1.2 million for the six-month
periods ended June 30, 1999 and 1998, respectively. These expenditures upgraded
computer systems capabilities and maintained Company facilities in the ordinary
course of business. As of June 30, 1999, the Company had available under its
revolving credit facility $15.6 million.
The Company completed a $15 million private placement of senior subordinated
notes and warrants on January 29, 1999. Proceeds were used primarily to finance
acquisitions and to reduce outstanding short-term borrowings. The senior
subordinated notes mature in 2006 and bear interest at the rate of 12% per
annum. The senior subordinated notes were issued with detachable warrants
subject to a warrant agreement dated January 29, 1999.
Management believes that cash flows from operations, together with its existing
and anticipated borrowing capacity, as discussed above, are sufficient to
support the Company's operations and general business and liquidity requirements
for the foreseeable future, including anticipated acquisitions.
Year 2000 Compliance
The Company is continuing its process of evaluating its information
technology infrastructure for Year 2000 compliance. The Company does not expect
that the cost to modify its information technology infrastructure to be Year
2000 compliant will be material to its financial position or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance. The
Company is in the process of obtaining information concerning the Year 2000
compliance status of its suppliers and customers. In the event that any of the
Company's significant suppliers or customers does not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
The Company continues to implement its Year 2000 compliance program.
The following table provides a summary of the Company's progress in each of the
phases, estimated percentage complete and the anticipated completion date of
each phase:
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Estimated % Estimated
Phase Definition Complete Complete Date
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Awareness Generate awareness of the Y2K issue throughout the 100%
organization and establish compliance program.
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Inventory Analyze all relevant hardware/application software/operating 100%
systems and networks for compliance
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Assessment, Prioritize hardware and software issues, initiate changes 90% 9/30/99
Conversion necessary to achieve compliance and test changes made for
Testing and actual compliance.
Implementation
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Imbedded Technology Determine whether equipment with imbedded technology, such as 90% 9/30/99
PBX switches, elevators, alarm systems, etc. are Y2K
compliant. Analysis to date has identified limited exposure in
this area. Analysis of recent acquisitions continues.
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Third-Party Interfaces Determine whether electronic interfaces with third parties are 90% 9/30/99
compliant. There are only a few such interfaces that will be
fully tested later in the year. If necessary, contingency
arrangements will be readily available, as the interfaces are
not "real-time".
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Third-Party Determine whether third parties that provide material 80% 8/31/99
Relationships services/supplies are compliant. Feedback to date indicates
that companies with whom we have a material relationship are
well advanced in bringing their internal systems into
compliance. Less well defined is whether their third parties
are in compliance.
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
We will continue to cooperate in the exchange of information 70% 10/31/99
with material third parties in an effort to ensure their
compliance and/or assess the impact of their non-compliance.
Where the risk of non-compliance is serious, we will
select alternate vendors.
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
The Company estimates that the cost of compliance will not exceed the
initial amount budgeted of $250,000.
Where practical the Company will develop contingency plans during the
coming months in an effort to ensure minimal disruption to our clients.
Inflation
Inflation has not had a material impact on the Company's results of
operations for the past three years.
Quantitative and Qualitative Disclosures About Market Risk.
CDL's major "market risk" exposure is the effect of changing interest
rates. CDL manages its interest expense by using a combination of fixed and
variable rate debt. At June 30, 1999, the Company's debt consisted of
approximately $28 million of fixed rate debt with a weighted average interest
rate of 9.9% and $5.8 million of variable rate debt with a weighted average
interest rate of 7.5% The amount of variable rate debt fluctuates during the
year based on CDL's cash requirements. If interest rates on such variable rate
debt were to increase by 75 basis points (one-tenth of the rate at June 30,
1999), the net impact to the Company's results of operations and cash flows for
the six months ended June 30, 1999 would be a decrease of approximately
$122,000.
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings.
In February 1996, Liberty Mutual Insurance Company ("Liberty Mutual")
filed an action against Securities Courier Corporation ("Securities"), a
subsidiary of the Company, Mr. Vincent Brana and certain other parties in the
United States District Court for the Southern District of New York alleging,
among other things, that Securities Courier had fraudulently obtained automobile
liability insurance from Liberty Mutual in the late 1980s and early 1990s at
below market rates. This suit, which claims common law fraud, fraudulent
inducement, unjust enrichment and violations of the civil provisions of the
Federal RICO statute, among other things, seeks an unspecified amount of
compensatory and punitive damages from the defendants, as well as attorneys'
fees and other expenses. Three additional defendants were added by way of a
second amended complaint on April 9, 1998. Securities and Mr. Brana have filed
cross claims against each of these additional defendants and certain original
defendants who had acted as insurance brokers for certain of the policies at
issue. Under the terms of its acquisition of Securities Courier, the Company has
certain rights to indemnification from Mr. Brana. In connection with the
indemnification, Mr. Brana has entered into a settlement agreement and executed
a promissory note and security agreement securing up to $500,000 or such greater
amount as may be due for any defense costs or award arising out of this suit.
Mr. Brana has delivered 150,000 shares of CDL common stock to the Company as
collateral security for the promissory note, which is due for repayment on
December 1, 2002.
On April 13, 1999 a motion for summary judgement dismissing the
complaint, based upon statute of limitation defenses, was filed on behalf of
Securities and Mr. Brana. The current briefing schedule for preparing and
serving motion papers has been extended to mid-September 1999. Discovery is
currently pending and as a result, the Company is unable to make a determination
as to the merits of the claim. The Company does not believe that an adverse
determination in this matter would result in a material adverse effect on the
consolidated financial position or results of operations of the Company.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its same-day ground and air
delivery operations. Management believes that none of these actions, including
the action described above, will have a material adverse effect on the
consolidated financial position or results of operations of the Company.
Item 4 - Submission of Matters to a Vote of Security Holders.
On June 16, 1999, the Company held its annual meeting of stockholders.
The following sets forth a brief description of each matter which was
acted upon, as well as the votes cast for, against or withheld for each
such matter, and, where applicable, the number of abstentions and
broker non-votes for each matter:
1. Election of Directors.
Name of Director Votes For Votes Against
-------------------------------------------------------------
Class I
Albert W. Van Ness, Jr. 5,841,855 36,398
Thomas E. Durkin III 5,841,855 36,398
John A. Simourian 5,841,855 36,398
Class II
Randall Catlin 5,668,456 209,797
2. Approval of the Amendment to 1995 Stock Option Plan for Independent
Directors.
Votes For: 5,557,250
Votes Against: 172,790
Abstentions: 148,213
3. Ratification of the selection by the Board of Directors of Arthur
Andersen LLP as the Company's independent auditors for 1999.
Votes For: 5,202,642
Votes Against: 664,977
Abstentions: 10,634
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (for electronic submission only)
(b) Report on Form 8-K/A filed on May 3, 1999 concerning the Company's
asset and stock purchase agreement between Gold Wings and Sureway
Air Traffic Corporation.
(c) Report on Form 8-K filed on May 12, 1999 concerning the Company's
asset purchase agreement with its subsidiary, Silver Star Express,
Inc. and Metro Parcel Service, Inc., Nathan Spaulding and Kelly M.
Spaulding.
(d) Report on Form 8-K filed on May 12, 1999 concerning the Company's
asset purchase agreement with its subsidiary, Clayton/National
Courier Systems, Inc. and Westwind Express, Inc., Logistics
Delivery Systems, Inc., Fastrak Delivery Systems, Inc., Sierra
Delivery Services, Inc., and Steven S.
Keihner.
(e) Report on Form 8-K/A filed on July 14, 1999 concerning the
Company's asset purchase agreement with its subsidiary, Silver
Star Express, Inc. and Metro Parcel Service, Inc., Nathan
Spaulding and Kelly M. Spaulding.
(f) Report on Form 8-K/A filed on July 14, 1999 concerning the
Company's asset purchase agreement with its subsidiary,
Clayton/National Courier Systems, Inc. and Westwind Express, Inc.,
Logistics Delivery Systems, Inc., Fastrak Delivery Systems, Inc.,
Sierra Delivery Services, Inc., and Steven S. Keihner.
(g) Report on Form 8-K/A filed on July 23, 1999 concerning the
Company's $15 million private placement of senior subordinated
notes and warrants with three financial institutions.
SIGNATURE
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.
Dated: August 16, 1999 CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: /s/ Albert W. Van Ness, Jr.
_______________________________________
Albert W. Van Ness, Jr.
Chairman of the Board, Chief Executive
Officer and Chief Financial Officer
SIGNATURE
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.
Dated: August 16, 1999 CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: /s/ Albert W. Van Ness, Jr.
______________________________________
Albert W. Van Ness, Jr.
Chairman of the Board, Chief Executive
Officer and Chief Financial Officer
EXHIBIT INDEX
27.1 Financial Data Schedule (for electronic submission only)