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 September 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 October 31, 1999 was 7,311,026.
CONSOLIDATED DELIVERY & LOGISTICS, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 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 September 30,
1999 and December 31, 1998 3
Condensed Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 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
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 17
Part II - Other Information
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 19
Signature 20
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31, 1998
1999
----------------- ------------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,442 $295
Accounts receivable, net 27,137 24,491
Prepaid expenses and other current assets 3,623 2,560
----------------- ---------------
Total current assets 32,202 27,346
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 6,156 6,630
INTANGIBLE ASSETS, net 28,282 16,491
OTHER ASSETS 2,402 1,621
================= ===============
Total assets $69,042 $52,088
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $4,995 $13,577
Current maturities of long-term debt 3,329 3,181
Accounts payable and accrued liabilities 18,936 14,784
----------------- ------------------
Total current liabilities 27,260 31,542
LONG-TERM DEBT 22,875 6,383
OTHER LONG-TERM LIABILITIES 2,983 2,756
-----------------
------------------
Total liabilities 53,118 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 September 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 3,872 1,892
----------------- ------------------
Total stockholders' equity 15,924 11,407
================= ==================
Total liabilities and stockholders' equity $69,042 $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 Nine Months
September 30, Ended
September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
--------------- ------------- ------------ ---------------
Revenue $57,952 $48,229 $165,107 $135,507
Cost of revenue 43,636 36,887 125,834 104,067
--------------- ------------- ------------ ---------------
Gross profit 14,316 11,342 39,273 31,440
Selling, general, and
administrative expenses 10,479 9,155 30,392 26,550
Depreciation and amortization 1,205 915 3,287 2,146
--------------- ------------- ------------ ---------------
Operating income 2,632 1,272 5,594 2,744
Other (income) expense:
Interest expense 840 341 2,365 839
Other (income) expense, net 290 (44) (25) (215)
--------------- ------------- ------------ ---------------
Income before provision
for income taxes 1,502 975 3,254 2,120
Provision for income taxes 599 372 1,274 807
--------------- ------------- ------------ ---------------
Net income $903 $603 $1,980 $1,313
=============== ============= ============ ===============
Net income per share:
Basic $.12 $.09 $.28 $.20
=============== ============= ============ ===============
Diluted $.11 $.09 $.26 $.19
=============== ============= ============ ===============
Basic weighted average common
shares outstanding 7,311 6,638 7,168 6,652
=============== ============= ============ ===============
Diluted weighted average common
shares outstanding 8,023 6,809 7,647 6,820
=============== ============= ============ ===============
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 Nine Months
------------------------------------
Ended September 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,980 $1,313
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 3,287 2,146
Amortization of debt discount 84 -
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net (1,303) 287
Prepaid expenses and other current assets (952) (407)
Other assets (781) (188)
Increase (decrease) in -
Accounts payable and accrued liabilities 3,094 2,979
Other long-term liabilities (220) (189)
Net cash provided by operating activities 5,158 5,930
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements 166 16
Purchase of businesses, net of cash acquired (6,438) (4,786)
Additions to equipment and leasehold improvements (1,056) (1,882)
Net cash used in investing activities (7,328) (6,652)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net (8,582) 2,462
Borrowing of long-term debt 15,000 150
Repayments of long-term debt (2,924) (2,937)
Issuance of stock warrants in connection with long-term financing 885 -
Issuance of stock 267 -
Deferred financing costs (1,329) -
Net cash provided by (used in) financing activities 3,317 (325)
CASH PROVIDED BY DISCONTINUED OPERATIONS - 58
Net increase (decrease) in cash and cash equivalents 1,147 (989)
CASH AND CASH EQUIVALENTS, beginning of period 295 1,812
CASH AND CASH EQUIVALENTS, end of period $1,442 $823
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 nine months ended
September 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, 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, 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 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. All
of 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).
(Unaudited)
-------------------------------- -- --------------------------------
Three Months Ended Nine Months Ended
--------------------------------------------------------------------
(In thousands, except per share data)
-------------- ----------------- -- --------------- ----------------
September 30, September 30, September 30,
September 1998 1999 1998
30, 1999 Pro Forma Pro Forma Pro Forma
Actual Combined Combined Combined
-------------- ----------------- -- --------------- ----------------
Revenue $57,952 $48,229 $170,141 $153,747
Income from Operations 2,632 1,272 5,865 3,486
Net Income $903 $603 $2,014 $1,361
Net Income per
Share - basic $.12 $.09 $.28 $.19
Net Income per
Share - diluted $.11 $.09 $.26 $.19
(3) 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
September 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.
In September 1995, the Company issued $2 million in the aggregate
principal amount of its 8% Subordinated Convertible Debentures (the "8%
Debentures"). On April 1, 1998 the Company converted $740,000 of the $2
million of the 8% Debentures to 10% Subordinated Convertible Debentures
(the "10% Debentures") and issued $150,000 of additional 10%
Debentures. The remaining 8% Debentures, totaling $1.3 million were
repaid in August 1998. On August 21, 1999, the Company redeemed
$311,250 of the 10% Debentures and issued another $150,000 of the 10%
Debentures. The 10% Debentures are convertible into Common Stock of the
Company at a conversion price of $5.00 per share, accrue interest at
10% per annum, which is payable quarterly and extend the repayment date
by one year from August 2000 to August 2001. The 10% Debentures are
redeemable by the Company, in whole or in part, without premium or
penalty at any time on or after August 18, 2000, at their face amount
plus accrued and unpaid interest, if any, to the date of redemption.
The 10% Debentures are redeemable at the option of the holder, in whole
but not in part, without premium or penalty, at any time after August
21, 2000. As a result, the 10% Debentures, totaling $728,750, have been
classified as current maturities of long-term debt.
(4) 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 nine month periods ended September 30, 1999 and 1998
is as follows (in thousands).
Three Months Ended Nine Months Ended
--------------------------------------- -------------------------------------
Air Ground Total Air Ground Total
------------- ------------ ------------ ----------- ------------ ------------
Revenue from
external customers
1999 $16,773 $41,179 $57,952 $48,714 $116,393 $165,107
1998 13,947 34,282 48,229 41,391 94,116 135,507
Intersegment revenue
1999 43 444 487 81 1,209 1,290
1998 14 391 405 51 1,220 1,271
Interest expense
1999 243 597 840 698 1,667 2,365
1998 99 242 341 256 583 839
Depreciation and
amortization
1999 215 990 1,205 600 2,687 3,287
1998 191 724 915 409 1,737 2,146
Segment profit
1999 543 360 903 724 1,256 1,980
1998 126 477 603 262 1,051 1,313
Segment assets
Sept. 30, 1999 18,527 50,515 69,042 18,527 50,515 69,042
Dec. 31, 1998 11,489 40,599 52,088 11,489 40,599 52,088
Expenditures for
Segment assets
1999 (53) 218 165 69 987 1,056
1998 147 750 897 531 1,351 1,882
(5) 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. On November 8, 1999 the Court
denied the Motion for Summary Judgment that was filed on behalf of
Securities and Mr. Brana. This matter will now proceed to a jury trial
for determination, however a trial date has not yet been set by the
Court. The Court scheduled a further hearing for November 23, 1999 to
hear oral arguments of any motions that remain outstanding. 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.
(6) 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 Nine Months Ended
September 30, September 30,
-------------------------------- ------------------------------
--------------- -- ------------- ------------- ------------
1999 1998 1999 1998
--------------- ------------- ------------- ------------
--------------- ------------- ------------- ------------
Basic weighted average
common shares outstanding 7,311 6,638 7,168 6,652
Effect of dilutive securities:
Stock Options 206 171 192 168
Warrants 505 - 283 -
ESPP 1 - 4 -
--------------- ------------- ------------- ------------
Diluted weighted average
Common shares
Outstanding 8,023 6,809 7,647 6,820
=============== ============= ============= ============
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 Nine Months Ended
September 30, September 30,
--------------------------------
--------------- -- ------------- ------------- --- ------------
1999 1998 1999 1998
--------------- ------------- ------------- ------------
--------------- ------------- ------------- ------------
Stock options 555,442 578,129 555,442 578,129
Subordinated
convertible debentures 145,750 161,818 145,750 161,818
Seller financed
convertible notes 676,666 576,666 676,666 576,666
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
Income and Expense as a Percentage of Revenue:
--------------------------------------------------------------------
For the Three Months Ended For the Nine Months
September 30, Ended
September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
--------------- ------------- ------------ ---------------
Revenue 100.0% 100.0% 100.0% 100.0%
Gross profit 24.7% 23.5% 23.8% 23.2%
Selling, general, and
administrative expenses 18.1% 19.0% 18.4% 19.6%
Depreciation and amortization 2.1% 1.9% 2.0% 1.6%
Operating income 4.5% 2.6% 3.4% 2.0%
Net income 1.6% 1.3% 1.2% 1.0%
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998.
Revenue increased 21.8% from $135.5 million for the first nine months of 1998 to
$165.1 million for the first nine months of 1999. Ground delivery revenue grew
by 23.9% to $116.4 million and air courier revenue grew 17.4% to $48.7 million
for the first nine months of 1999 compared to the same period in 1998. Revenue
from the Company's recently completed acquisitions contributed $18.3 million and
$9.3 million to the ground revenue and air courier revenue increases,
respectively.
Cost of revenue increased by $21.7 million, or 20.9%, to $125.8 million for the
first nine months of 1999 as compared to the same 1998 period. Stated as a
percentage of revenue, cost of revenue decreased by 0.6% for the nine months
ended September 30, 1999 to 76.2% as compared to 76.8% for the same period in
1998. The improvement is due to efficiencies gained with the acquisitions, as
well as, the continued repricing or elimination of unprofitable accounts;
partially offset by increased fuel costs and the impact of hurricanes in the
third quarter of 1999.
Selling, general and administrative ("SG&A") expenses increased by $3.8 million,
or 14.3%, to $30.4 million for the first nine months of 1999 as compared to the
same period in 1998. Stated as a percentage of revenue, SG&A decreased to 18.4%
for the nine months ended September 30, 1999 as compared to 19.6% for the same
period in 1998. The dollar increase is primarily attributable to the SG&A
expenses of the acquired companies. Depreciation and amortization increased $1.2
million to $3.3 million for the first nine months of 1999 compared to $2.1
million for the first nine months of 1998 reflecting an increase to the goodwill
amortization expense recorded as a result of the Company's acquisitions.
As a result of the factors discussed above, operating income increased by $2.8
million, or 104%, to $5.6 million for the nine months ended September 30, 1999
as compared to the same period in 1998.
Net other income decreased by $190,000 or 88% to $25,000 for the first nine
months of 1999 resulting primarily from a net loss of $450,000 in connection
with the re-valuation of notes receivable related to two previous subsidiary
sales. This loss was partially offset by a $250,000 gain on the termination of a
Franchise Agreement and the related covenants against competition. Interest
expense increased by $1.5 million for the first nine months of 1999 due to
increased borrowings to fund the Company's recent acquisitions.
Net income after tax increased by $667,000 or 50.8%, to $1,980,000 for the nine
months ended September 30, 1999 as compared to $1,313,000 for the same period in
1998.
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998.
Revenue increased 20.2% from $48.2 million for the third quarter of 1998 to $58
million for the third quarter of 1999. Ground delivery revenue grew by 20.6% to
$41.2 million and air courier revenue grew 19% to $16.8 million for the third
quarter of 1999 compared to the same period in 1998. Revenue from the Company's
recently completed acquisitions contributed $5.2 million and $3.6 million to the
ground revenue and air courier revenue increases, respectively.
Cost of revenue increased by $6.7 million, or 18.3%, to $43.6 million for the
third quarter of 1999 as compared to the same 1998 period. Stated as a
percentage of revenue, cost of revenue decreased by 1.2% for the third quarter
ended September 30, 1999 to 75.3% as compared to 76.5% for the same period in
1998. The improvement is due to efficiencies gained with the acquisitions, as
well as, the continued repricing or elimination of unprofitable accounts;
partially offset by increased fuel costs and the impact of hurricanes in the
third quarter of 1999.
Selling, general and administrative ("SG&A") expenses increased by $1.3 million,
or 13.9%, to $10.5 million for the thee months ended September 30, 1999 as
compared to the same period in 1998. Stated as a percentage of revenue, SG&A
decreased to 18.1% for the three months ended September 30, 1999 as compared to
19.0% for the same period in 1998. The dollar increase is primarily attributable
to the administrative expenses of the acquired companies. Depreciation and
amortization increased $290,000 to $1.2 million for the third quarter of 1999
compared to $915,000 for the third quarter of 1998 reflecting an increase to the
goodwill amortization expense recorded as a result of the Company's
acquisitions.
As a result of the factors discussed above, operating income increased by $1.4
million, or 107.4%, to $2.6 million for the three months ended September 30,
1999 as compared to the same period in 1998.
Net other expense increased by $334,000 to $290,000 for the third quarter of
1999 resulting primarily from a net loss of $600,000 in connection with the
re-valuation of notes receivable related to two previous subsidiary sales. This
loss was partially offset by a $250,000 gain on the termination of a Franchise
Agreement and the related covenants against competition. Interest expense
increased by $499,000 for the third quarter of 1999 due to increased borrowings
to fund the Company's recent acquisitions.
Net income after tax increased by $300,000 or 49.8%, to $903,000 for the three
months ended September 30, 1999 as compared to $603,000 for the same period in
1998.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $9.1 million from a deficit of $4.2 million as of
December 31, 1998 to working capital of $4.9 million at September 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 $1.4 million as of September 30, 1999
from $295,000 at December 31, 1998. Cash of $5.2 million was provided by
operations for the nine months ended September 30, 1999 as compared to cash
provided by operations of $5.9 million for the same period in 1998. For the
first nine months of 1999, cash used in investing activities totaled $7.3
million as compared to $6.7 million for the same period in 1998. The increase
primarily results from the use of cash during 1999 to purchase businesses. For
the first nine months of 1999, financing activities provided cash of $3.3
million and for the same period in 1998 financing activities used cash of
$325,000. The net increase between periods in cash provided by financing
activities was $3.6 million. This increase primarily results from $15 million of
proceeds from the senior subordinated notes and warrants, offset by repayments
of $8.6 million of short-term borrowings.
Capital expenditures amounted to $1.1 million and $1.9 million for the
nine-month periods ended September 30, 1999 and 1998, respectively. These
expenditures upgraded computer systems capabilities and maintained Company
facilities in the ordinary course of business. As of September 30, 1999, the
Company had borrowing available under its revolving credit facility of $14.6
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 latest Year
2000 compliance status of its major 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
Definition Complete Complete Date
Phase
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
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 95% 11/30/99
Conversion necessary to achieve compliance and test changes made for
Testing and actual compliance.
Implementation
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Imbedded Technology Determine whether equipment with imbedded technology, 100%
such as 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 95% 11/30/99
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 98% 11/30/99
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 95% 11/30/99
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 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.
Item 3 - 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 September 30, 1999, the Company's debt consisted of
approximately $26 million of fixed rate debt with a weighted average interest
rate of 10.0% and $5 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 September 30,
1999), the net impact to the Company's results of operations and cash flows for
the nine months ended September 30, 1999 would be a decrease of approximately
$271,000.
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. On November 8, 1999 the Court denied the Motion for
Summary Judgment that was filed on behalf of Securities and Mr. Brana. This
matter will now proceed to a jury trial for determination however, a trial date
has not yet been set by the Court. The Court scheduled a further hearing for
November 23, 1999 to hear oral arguments of any motions that remain outstanding.
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 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (for electronic submission only)
(b) Reports of Form 8-K. The following current reports on Form 8-K
were filed during the third quarter of 1999.
(i) 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.
(ii) 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.
(iii)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: November 15, 1999 CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: /s/ Russell J. Reardon
Russell J. Reardon
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: November 15, 1999 CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: /s/ Russell J. Reardon
Russell J. Reardon
Chief Financial Officer
EXHIBIT INDEX
27.1 Financial Data Schedule (for electronic submission only)