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, 2001 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
CD&L, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-3350958
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
80 Wesley Street 07606
South Hackensack, New Jersey (Zip Code)
(Address of principal executive offices)
(201) 487-7740
(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 X No
--- ---
The number of shares of common stock of the Registrant, par value $.001 per
share, outstanding as of August 7, 2001 was 7,658,660.
1
CD&L, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001
INDEX
Page
----
Part I - Financial Information (unaudited)
Item 1 - Financial Statements
CD&L, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of June 30,
2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K 12
Signature 13
2
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
June 30, December 31,
2001 2000
------------- ------------
(Unaudited) (Note 1)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 292 $ 319
Accounts receivable, net 14,601 17,596
Prepaid expenses and other current assets 3,408 2,917
Net assets of discontinued operations - 4,591
------------- ------------
Total current assets 18,301 25,423
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 2,499 2,841
INTANGIBLE ASSETS, net 16,021 20,666
NOTE RECEIVABLE FROM STOCKHOLDER, net 409 408
OTHER ASSETS 4,465 402
NET ASSETS OF DISCONTINUED OPERATIONS - 8,045
------------- ------------
Total assets $ 41,695 $ 57,785
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ - $ 11,169
Current maturities of long-term debt 3,952 5,752
Accounts payable and accrued liabilities 10,806 11,932
Net liabilities of discontinued operations 52 -
------------- ------------
Total current liabilities 14,810 28,853
LONG-TERM DEBT 17,792 17,765
OTHER LONG-TERM LIABILITIES 1,279 1,283
------------- ------------
Total liabilities 33,881 47,901
------------- ------------
COMMITMENTS AND CONTINGENCIES - -
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; 7,688,027 issued at June 30, 2001 and
December 31, 2000 8 8
Additional paid-in capital 12,883 12,883
Treasury stock, 29,367 shares at cost (162) (162)
Accumulated deficit (4,915) (2,845)
------------- ------------
Total stockholders' equity 7,814 9,884
------------- ------------
Total liabilities and stockholders' equity $ 41,695 $ 57,785
============= ============
See accompanying notes to condensed consolidated financial statements.
3
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
2001 2000 2001 2000
----------- ---------- ---------- -----------
Revenue $39,797 $41,878 $79,834 $84,781
Cost of revenue 31,236 32,711 62,689 66,892
----------- ---------- ---------- -----------
Gross profit 8,561 9,167 17,145 17,889
Selling, general, and
administrative expenses 6,771 7,852 13,974 17,201
Depreciation and amortization 671 937 1,388 1,872
----------- ---------- ---------- -----------
Operating income (loss) 1,119 378 1,783 (1,184)
Other expense (income):
Interest expense 741 772 1,470 1,463
Other expense (income), net 2,285 (72) 2,240 (91)
----------- ---------- ---------- -----------
Loss before provision
(benefit) for income taxes (1,907) (322) (1,927) (2,556)
Provision (benefit) for income taxes 151 (110) 143 (990)
----------- ---------- ---------- -----------
Loss from continuing operations $(2,058) $(212) $(2,070) $(1,566)
Income from discontinued operations - $340 - $584
----------- ---------- ---------- -----------
Net (loss) income $(2,058) $128 $(2,070) $(982)
=========== ========== ========== ===========
Net (loss) income per share:
Basic $(0.27) $0.02 $(0.27) $(0.13)
=========== ========== ========== ===========
Diluted $(0.27) $0.02 $(0.27) $(0.13)
=========== ========== ========== ===========
Basic weighted average common
Shares outstanding 7,659 7,353 7,659 7,353
=========== ========== ========== ===========
Diluted weighted average common
Shares outstanding 7,659 7,915 7,659 7,353
=========== ========== ========== ===========
See accompanying notes to condensed consolidated financial statements.
4
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Six Months
Ended June 30,
-----------------------
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,070) ($982)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities of continuing operations -
Gain on disposal of equipment and leasehold improvements (33) (41)
Income from discontinued operations - (584)
Loss on sale of subsidiary 2,283 -
Depreciation and amortization 1,388 1,872
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net 1,788 (992)
Prepaid expenses and other current assets (264) 931
Other assets 3 (203)
Increase (decrease) in -
Accounts payable and accrued liabilities (1,007) (280)
Other long-term liabilities (4) (341)
Cash used in discontinued operations (1,425) (620)
---------- ----------
Net cash provided by (used in) operating activities
of continuing operations 659 (1,240)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements 187 74
Proceeds from sale of businesses, net 12,306 -
Additions to equipment and leasehold improvements (151) (502)
---------- ----------
Net cash provided by (used in) investing activities
of continuing operations 12,342 (428)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term (repayments) borrowings, net (11,169) 2,567
Repayments of long-term debt (1,859) (780)
---------- ----------
Net cash (used in) provided by financing activities
of continuing operations (13,028) 1,787
---------- ----------
Net (decrease) increase in cash and cash equivalents (27) 119
CASH AND CASH EQUIVALENTS, beginning of period 319 326
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $292 $445
========== ==========
See accompanying notes to condensed consolidated financial statements.
5
CD&L, 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, 2000 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 six months ended June 30, 2001 are
not necessarily indicative of the results that may be expected for any
other interim period or for the year ending December 31, 2001. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the CD&L, Inc. (the "Company" or "CD&L")
Form 10-K for the year ended December 31, 2000.
The Company suffered a loss from operations of ($6,229,000) for the
year ended December 31, 2000 and at December 31, 2000 had a working
capital deficit of ($3,430,000). In March and June 2001, the Company
sold its air delivery business and Mid-West Region operations,
respectively, and used the proceeds from the sales to pay down a
portion of the Company's existing debt. Additionally, management has
taken steps to mitigate the factors that led to the net loss in 2000,
which arose as a result of increased labor, insurance and vehicle
operating costs and increased selling, general and administrative
expenses. As a result of such actions, working capital as of June 30,
2001 has improved to $3,491,000. Subject to reaching agreement with
holders of subordinated seller notes and the Company's principal
lenders as further described under Short-Term Debt below, management
believes that based upon the results to date and the projected
results for the remainder of 2001 that cash flow from operations and
availability under the Company's credit facility with First Union
will be sufficient to meet its cash requirements in the next twelve
months.
Certain prior year amounts have been reclassified in order to conform
to the current year presentation.
(2) SHORT-TERM DEBT:
Effective as of March 30, 2001, CD&L and First Union Commercial
Corporation ("First Union") modified the Loan and Security Agreement
(the "First Union Agreement") entered into on July 14, 1997. The
revolving credit facility was decreased from $22,500,000 to $15,000,000
as a result of the March 30, 2001 consummation of a transaction
providing for the sale of certain assets and liabilities of Sureway Air
Traffic Corporation, Inc. ("Sureway"), the air delivery business (See
Note 4). In addition, the First Union Agreement was changed to amend
the covenants and financial ratios that the Company must maintain.
Under the terms of the First Union Agreement, as amended, the Company
is in compliance with all such covenants and financial ratios as of and
for the period ended June 30, 2001, except with respect to the
stockholders' equity covenant. First Union has waived non-compliance
with this covenant at June 30, 2001 and projected non-compliance as of
September 30, 2001.
A subordinated note in the principal amount of $1.75 million issued to
Metro- Courier Network, Inc. ("Metro") in connection with the
Company's purchase of that business in 1998 came due on July 1,
2001. Metro has demanded payment; however, the Company does not have
sufficient availability under its credit facilities to pay the note.
The note is subordinated to the Company's obligations to First Union
and to the holders of its subordinated Senior Notes.
(3) LONG-TERM DEBT:
On January 29, 1999, the Company completed a $15,000,000 private
placement of senior subordinated notes and warrants (the "Senior
Notes") with three financial institutions. The Senior Notes bear
interest at 12% per annum and are subordinate to all senior debt
including the Company's credit facility with First Union. The Senior
Notes mature on January 29, 2006 and may
6
be prepaid by the Company under certain circumstances. The warrants
expire 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 as a credit to additional paid-in-capital and a debt discount
on the Senior Notes. Under the terms of the Senior Notes, the Company
is required to maintain certain financial ratios and comply with other
financial conditions. Effective as of March 30, 2001, CD&L and the note
holders modified the Senior Subordinated Loan Agreement (the "Senior
Note Agreement") entered into on January 29, 1999. The Senior Note
Agreement, as amended, provides for repayment of $1,000,000 of the
Senior Notes on April 2, 2001 and four repayments of $250,000 each on
August 15, 2001, November 15, 2001, May 15, 2002 and August 15, 2002
provided that the Company is in compliance with the terms of the First
Union Agreement. The Senior Note Holders have agreed to defer fifty per
cent (50%) of the August 15, 2001 payment to October 31, 2001. In
addition, the Senior Note Agreement was amended to change the financial
ratios and conditions that the Company must comply with and the
interest rate on the Senior Notes was revised to between 12% and 15%
per annum. The interest rate charged each calendar quarter is dependant
on the Company's compliance with the financial ratios and conditions in
the Senior Note Agreement, as amended. As of June 30, 2001, the
interest rate being charged on the Senior Notes is 12%. Under the terms
of the Senior Note Agreement, as amended, the Company is in compliance
with all such financial ratios and conditions as of and for the period
ended June 30, 2001, except with respect to the stockholders' equity
covenant. The Senior Note holders have waived non-compliance with the
equity covenant at June 30, 2001 and projected non-compliance as of
September 30, 2001.
(4) DISCONTINUED OPERATIONS:
On December 1, 2000, CD&L made a strategic decision to dispose of its
air delivery business. On March 30, 2001, CD&L consummated a
transaction providing for the sale of certain assets and liabilities of
Sureway, the air delivery business. The selling price for the net
assets was approximately $14,150,000 and is comprised of $11,650,000 in
cash, a subordinated promissory note (the "Note Receivable") for
$2,500,000 ($500,000 of which is based upon the ultimate development of
certain liabilities retained by CD&L) and contingent cash payments
based upon the ultimate development of certain liabilities retained by
CD&L. The Note Receivable bears interest at a rate of 10.0% per annum,
with interest only in monthly installments. The entire balance of
principal, plus all accrued interest, is due and payable on March 30,
2006. The $2,500,000 Note Receivable ultimately recorded upon the
consummation of the sale is included in Other Assets in the
accompanying financial statements. Accordingly, the financial position
and operating results have been segregated from continuing operations
and reclassified as a discontinued operation in the accompanying
financial statements.
As a result of the sale of its air delivery business, the Company now
operates in only one reportable business segment; the time-critical,
ground delivery business.
(5) NOTE RECEIVABLE FROM STOCKHOLDER:
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. Under
the terms of its acquisition of Securities, 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 in such amount as may be due for any defense
costs or award arising out of this suit. Mr. Brana has agreed to repay
the Company on December 1, 2002, together with interest calculated at a
rate per annum equal to the rate charged the Company by its senior
lender. Mr. Brana has delivered 357,301 shares of CD&L common stock
7
to the Company as collateral for the note. On September 8, 2000 the
parties entered into a settlement agreement in which Securities and Mr.
Brana agreed to pay Liberty Mutual $1,300,000. An initial payment of
$650,000 was made by Securities on October 16, 2000, $325,000 plus
interest at a rate of 10.5 % per annum, was paid in monthly
installments ending July 1, 2001 and $325,000 plus interest was due on
August 1, 2001. Subsequently, on July 30, 2001, the settlement
agreement was amended and now provides for the payment of the $325,000
balance due, plus interest at a rate of 12.0% per annum, in monthly
installments ending July 1, 2002.
At June 30, 2001 and December 31, 2000 the Company had a receivable due
from Mr. Brana totaling $2,909,000 and $2,908,000, respectively. As of
December 31, 2000, considering the market value of the collateral and
Mr. Brana's failure to update and provide satisfactory evidence to
support his ability to pay the promissory note, the Company recorded a
$2,500,000 reserve against the receivable. Based upon the facts and
circumstances as of the current time, the reserve remained the same as
of June 30, 2001.
(6) LITIGATION:
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 delivery operations. In connection therewith, the
Company has recorded reserves of $225,000 and $455,000 as of June 30,
2001 and December 31, 2000, respectively. 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.
(7) INCOME (LOSS) PER SHARE:
Basic income (loss) per share includes no dilution and is computed by
dividing loss available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted (income)
loss per share reflects the potential dilution if certain securities are
converted and also includes certain shares that are contingently
issuable. Because of the Company's net loss for the three and six months
ended June 30, 2001, equivalent shares represented by 12,429 Stock
Options and 505,668 Warrants would be anti-dilutive and therefore are
not included in the loss per share calculation for the three and six
month periods ended June 30, 2001. Because of the Company's net loss for
the six months ended June 30, 2000, equivalent shares represented by
118,463 Stock Options, 506,094 Warrants and 5,744 Employee Stock
Purchase Plan shares would be anti-dilutive and therefore are not
included in the loss per share calculation for the six months ended June
30, 2000. A reconciliation of weighted average common shares outstanding
to weighted average common shares outstanding assuming dilution follows:
(8) SALE OF MID-WEST OPERATIONS:
On June 14, 2001, the company consummated a transaction providing for
the sale of all the outstanding stock in National Express, Inc. The
selling price was approximately $2.5 million and is comprised of $.9
million in cash and a subordinated promissory note (the "Note
Receivable") for $1.6 million. The Note Receivable bears interest at the
rate of 7.0% per annum. The note is payable in seventeen equal quarterly
installments through March 14, 2006 and a final balloon payment of
approximately $1.1 million on June 14, 2006. As a result of the
transaction, the company recorded a $2.3 million loss on the sale with
no related tax benefit pending review and analysis by our tax advisors.
(9) NEW ACCOUNTING PRONOUNCEMENT:
In June 2001, the FASB issued Statements of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS No. 141"), and No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS
No. 141 changes the accounting for business combinations, requiring
that all business combinations be accounted for using the purchase
method and that intangible assets be recognized as assets apart
from, goodwill if they arise from contractual or other legal rights,
or if they are seperate or capable of being separated from the
acquired entity and sold, transferred, licensed, rented or exchanged.
SFAS No. 141 is effective for all business combinations initiated
after June 30, 2001. SFAS No. 142 specifies the financial accounting
and reporting for acquired goodwill and other intangible assets.
Goodwill and intangible assets that have indefinite useful lives
will not be amortized but rather will be tested at least annually
for impairment. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001.
SFAS No. 142 requires that the useful lives of intangible assets
acquired on or before June 30, 2001 be reassessed and the remaining
amortization periods adjusted accordingly. Previously recognized
intangible assets deemed to have indefinite lives shall be tested
for impairment. Goodwill recognized on or before June 30, 2001, will
be tested for impairment as of the beginning of the fiscal year in
which SFAS No. 142 is initially applied in its entirety.
The Company is currently assessing the impact of the adoption of
these statements. Amortization of goodwill and other intangibles was
$1,094,000 for the year ended December 31, 2000, and $417,000 for
the six months ended June 30, 2001.
8
Three Months Ended Six Months Ended
June 30, June 30,
---------- ---------- --------- ---------
( 000's ) 2001 2000 2001 2000
---------- ---------- --------- ---------
Basic weighted average
common shares outstanding 7,659 7,353 7,659 7,353
Effect of dilutive
securities:
Stock options - 12 - -
Warrants - 506 - -
ESPP - 44 - -
---------- --------- --------- ----------
Diluted weighted average
Common shares outstanding 7,659 7,915 7,659 7,353
========== ========= ========= ==========
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:
June 30, June 30,
---------- ----------- ---------- ----------
( 000's ) 2001 2000 2001 2000
---------- ----------- ---------- ----------
Stock options 1,616 1,628 1,583 1,038
Subordinated
Convertible debentures 16 146 16 146
Seller financed
Convertible notes 593 593 593 593
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 business development,
cost reduction programs, revenue growth and fuel, insurance and labor
cost controls, as well as its liquidity and capital needs and its
future prospects. These forward-looking statements involve certain
risks and uncertainties that may cause the actual events or results to
differ materially from those indicated by such forward-looking
statements. Potential risks and uncertainties include without
limitation the risk that the Company will be unable to grow revenue
internally, or that the Company will be unable to price its services so
as to increase its profit margins, or that the Company's cost reduction
programs will fail to prevent further erosion of its profit margins, or
that the Company will be unable to reduce its fuel, insurance and labor
costs, or that the Company will be unable to achieve the other cost
savings or additional profits for forward quarters contemplated by the
Company's business management strategy, or that the Company will be
unable to continue to meet its financial covenants under existing
credit lines or otherwise have adequate cash flow
9
from operations or credit facilities to support its operations and
revenue growth, or that the slowing economy will reduce demand for the
Company's services or other risks specified in the Company's 2000
Report on Form 10-K and other SEC filings.
10
RESULTS OF OPERATIONS
Income and Expense as a Percentage of Revenue
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- ------------------------
2001 2000 2001 2000
------------- ---------- ---------- -----------
Revenue 100.0% 100.0% 100.0% 100.0%
Gross profit 21.5% 21.9% 21.5% 21.1%
Selling, general, and
administrative expenses 17.0% 18.8% 17.6% 20.3%
Depreciation and amortization 1.7% 2.2% 1.7% 2.2%
Operating income (loss) 2.8% .9% 2.2% (1.4)%
Interest expense 1.9% 1.8% 1.8% 1.7%
Other expense (income) 5.7% .2% 2.8% (.1%)
Loss from continuing
operations (5.2)% (.5)% (2.6)% (1.8%)
Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30,
2000
Revenue for the first half of 2001 decreased by $4.9 million, or 5.8%,
to $79.8 million from $84.8 million. The decrease in revenue is
primarily due to the Company's ongoing efforts to increase its profit
margins and eliminate less profitable business. As a result of a
portfolio review, contracts with certain customers that had unacceptable
profit margins were given notice of rate increases. If the rate
increases were not accepted, the contracts were terminated. This revenue
loss was partially offset by the effect of fuel surcharges and price
increases implemented throughout 2000 that remained in effect for the
first half of 2001.
Cost of revenue decreased by $4.2 million, or 6.3%, to $62.7 million for
the six months ended June 30, 2001 from $66.9 million for the six months
ended June 30, 2000. Cost of revenue for the six months ended June 30,
2001 represents 78.5% of revenues as compared to 78.9% for the same
period in 2000. The decrease in cost of revenue is due primarily to a
decrease in labor and vehicle operating costs as compared to the same
period in 2000. Both the elimination of less profitable business and
better utilization of direct labor have contributed to the increase in
gross profit margin. Additionally, the slowing economy has helped in
recruiting and retaining reliable couriers and subcontractors at
reasonable costs.
Selling, general and administrative expenses ("SG&A") decreased by $3.2
million, or 18.8%, to $14.0 million for the six months ended June 30,
2001 from $17.2 million for the same period in 2000. Stated as a
percentage of revenue, SG&A decreased to 17.5% for the six months ended
June 30, 2001 as compared to 20.3% for the same period in 2000. The
decrease in SG&A is due primarily to both the Company's ongoing efforts
to reduce and better control such costs and certain non-recurring items
recorded during the same period in 2000. The non-recurring items
recorded during the first quarter of 2000 were the bad debt expense
recorded as a result of a previous customer filing for bankruptcy
protection and certain consulting expenses.
11
Depreciation and amortization decreased by $0.5 million, or 25.9%, to
$1.4 million for the six months ended June 30, 2001 from $1.9 million
for the same period in 2000. The decrease in depreciation and
amortization is due primarily to certain equipment and leasehold
improvements reaching the end of their depreciable lives during 2000
that have not yet been replaced as of June 30, 2001.
As a result of the factors discussed above, operating income increased
by $3.0 million for the six months ended June 30, 2001 as compared to
the same period in 2000.
Other expense increased by $2.3 million, to $2.2 million, primarily as a
result of recording a loss on the sale of the Company's Mid-West Region
businesses. On June 14, 2001, the company consummated a transaction
providing for the sale of all the outstanding stock in National Express,
Inc. The selling price was approximately $2.5 million and is comprised
of $.9 million in cash and a subordinated promissory note (the "Note
Receivable") for $1.6 million. The Note Receivable bears interest at the
rate of 7.0% per annum. The note is payable in seventeen equal quarterly
installments through March 14, 2006 and a final balloon payment of
approximately $1.1 million on June 14, 2006. As a result of the
transaction, the company recorded a $2.3 million loss on the sale with
no related tax benefit pending review and analysis by our tax advisors.
Loss from continuing operations increased by $.5 million for the six
months ended June 30, 2001 as compared to the same period in 2000. This
was primarily due to the factors discussed above and similar interest
expense for the six months ended June 30, 2001 as compared to the same
period in 2000.
During the six months ended June 30, 2000 the Company also recorded $0.6
income from discontinued operations net of tax as a result of the
activities of the air delivery business.
Net loss increased by $1.1 million to a loss of ($2.1) million for the
six months ended June 30, 2001 as compared to a loss of ($1.0) million
for the same period in 2000 for the reasons discussed above.
Three Months Ended June 30, 2001 Compared to the Three Months Ended
June 30, 2000
Revenue for the three months ended June 30, 2001 decreased by $2.1
million, or 5.0%, to $39.8 million from $41.9 million for the three
months ended June 30, 2000. The decrease in revenue is primarily due to
the Company's ongoing efforts to increase its profit margins and
eliminate less profitable business. As a result of a portfolio review,
contracts with certain customers that had unacceptable profit margins
were given notice of rate increases. If the rate increases were not
accepted, the contracts were terminated. This revenue loss was partially
offset by the effect of fuel surcharges and price increases implemented
throughout 2000 that remained in effect for the second quarter of 2001.
Cost of revenue decreased by $1.5 million, or 4.5%, to $31.2 million for
the three months ended June 30, 2001 from $32.7 million for the three
months ended June 30, 2000. Cost of revenue for the three months ended
June 30, 2001 represents 78.5% of revenues as compared to 78.1% for the
same period in 2000. The decrease in cost of revenue is due primarily to
a decrease in labor and vehicle operating costs as compared to the same
period in 2000, partially offset by non-recurring expense credits in the
prior period.
Selling, general and administrative expenses ("SG&A") decreased by $1.1
million, or 13.8%, to $6.8 million for the three months ended June 30,
2001 from $7.9 million for the same period in 2000. Stated as a
percentage of revenue, SG&A decreased to 17.0% for the three months
ended June 30, 2001 as compared to 18.7% for the same period in 2000.
The decrease in SG&A is due primarily to the Company's ongoing efforts
to reduce and better control such costs.
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Depreciation and amortization decreased by $0.2 million, or 28.4%, to
$0.7 million for the three months ended June 30, 2001 from $0.9 million
for the same period in 2000. The decrease in depreciation and
amortization is due primarily to certain equipment and leasehold
improvements reaching the end of their depreciable lives during 2001
that have not yet been replaced as of June 30, 2001.
As a result of the factors discussed above, operating income increased
by $0.7 million for the three months ended June 30, 2001 as compared to
the same period in 2000.
Other expense increased by $2.4 million, to $2.3 million, primarily as a
result of recording a loss on the sale of the Company's Mid-West Region
businesses. On June 14, 2001, the Company consummated a transaction
providing for the sale of all the outstanding stock in National Express,
Inc. The selling price was approximately $2.5 million and is comprised
of $.9 million in cash and a subordinated promissory note (the "Note
Receivable") for $1.6 million. The Note Receivable bears interest at the
rate of 7.0% per annum. The note is payable in seventeen equal quarterly
installments through March 14, 2006 and a final balloon payment of
approximately $1.1 million on June 14, 2006. As a result of the
transaction, the Company recorded a $2.3 million loss on the sale with
no related tax benefit pending review and analysis by our tax advisors.
Loss from continuing operations increased by $1.8 million for the three
months ended June 30, 2001 as compared to the same period in 2000. This
was primarily due to the factors discussed above.
Net loss increased by $2.2 million to a loss of ($2.1) million for the
three months ended June 30, 2001 as compared to income of ($.1) million
for the same period in 2000 for the reasons discussed above.
New Accounting Pronouncement
In June 2001, the FASB issued Statements of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS No. 141"), and No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS
No. 141 changes the accounting for business combinations, requiring
that all business combinations be accounted for using the purchase
method and that intangible assets be recognized as assets apart
from, goodwill if they arise from contractual or other legal rights,
or if they are seperate or capable of being separated from the
acquired entity and sold, transferred, licensed, rented or exchanged.
SFAS No. 141 is effective for all business combinations initiated
after June 30, 2001. SFAS No. 142 specifies the financial accounting
and reporting for acquired goodwill and other intangible assets.
Goodwill and intangible assets that have indefinite useful lives
will not be amortized but rather will be tested at least annually
for impairment. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001.
SFAS No. 142 requires that the useful lives of intangible assets
acquired on or before June 30, 2001 be reassessed and the remaining
amortization periods adjusted accordingly. Previously recognized
intangible assets deemed to have indefinite lives shall be tested
for impairment. Goodwill recognized on or before June 30, 2001, will
be tested for impairment as of the beginning of the fiscal year in
which SFAS No. 142 is initially applied in its entirety.
The Company is currently assessing the impact of the adoption of
these statements. Amortization of goodwill and other intangibles was
$1,094,000 for the year ended December 31, 2000, and $417,000 for
the six months ended June 30, 2001.
Liquidity and Capital Resources
Working capital increased from a deficit of ($3.4) million as of
December 31, 2000 to $3.5 million as of June 30, 2001. This increase
of $6.9 million reflects the cash received from the sales of the
Company's air delivery business and the Mid-West Region operations,
as well as better management of accounts receivable and reduced
capital expenditures.
Cash and cash equivalents of $0.3 million were approximately the
same as of December 31, 2000. Cash was provided by operating
activities (a decrease in accounts receivable offset partially by a
decrease in accounts payable and accrued liabilities during the six
months ended June 30, 2001), provided by investing activities
(proceeds received from the sale of the businesses), used by
financing activities (a decrease in the Company's borrowings on its
line of credit and repayments of long-term debt) and used by
discontinued operations. Capital expenditures amounted to $0.2
million for the six months ended June 30, 2001.
As of June 30, 2001 the Company had total cash on hand and borrowing
ability of $0.7 million under its revolving credit facility; after
adjusting for the restrictions for outstanding letters of credit and the
subordinated debentures.
A subordinated note in the principal amount of $1.75 million issued to
Metro-Courier Network, Inc. ("Metro") in connection with the Company's
purchase of that business in 1998 came due on July 1, 2001. Metro has
demanded payment; however, the Company does not have sufficient
availability under its credit facilities to pay the note. The note is
subordinated to the Company's obligations to First Union and to the
holders of its subordinated Senior Notes.
The Company is not in compliance with the stockholders' equity covenant
in its credit facilities with First Union and the Senior Noteholders.
First Union has agreed to waive such default and the
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cross-default arising from the non-payment of the Metro note subject to
revision of the payment schedule thereunder consistent with agreements
previously reached with other subordinated selling noteholders. The
Senior Noteholders have agreed to waive the covenant default and to
defer fifty percent (50%) of the $250,000 principal payment due on
August 15, 2001 to October 31, 2001. In light of Metro's subordinated
position, the Company is attempting to negotiate a payment schedule with
Metro that will be acceptable to First Union and the Senior Noteholders.
There is another subordinated seller note in the principal sum of
$780,000 that will become due at the end of the year for which the
Company is attempting to negotiate an extended payment schedule. No
assurances can be given that the Company will be able to successfully
negotiate such extended payment schedules with its subordinated seller
noteholders and its senior creditors.
Assuming acceptable payment schedules can be negotiated with holders of
subordinated Seller Notes, management believes that anticipated cash
flows generated from operations, together with its borrowing capacity,
are sufficient to support the Company's operations and general business
and liquidity requirements for the foreseeable future. However, if there
is no resolution of the payment schedules for the subordinated note
holders, or if losses continue or cash flows from operations materially
fall short of our projections, no assurances can be given with respect
to the adequacy of existing credit lines, the availability of
alternative borrowing sources or the ability to sell non-strategic
assets.
Inflation
Other than the described effects of recent fuel increases and labor cost
increases experienced in 2000, 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
CD&L's major "market risk" exposure is the effect of changing interest
rates. CD&L manages its interest expense by using a combination of fixed
and variable rate debt. At June 30, 2001, the Company's debt consisted
of approximately $21.7 million of fixed rate debt with a weighted
average interest rate of 11.0%. The amount of variable rate debt
fluctuates during the year based on CD&L's cash requirements and was nil
at June 30, 2001. If interest rates on variable rate debt were to
increase by 82 basis points (one-tenth of the rate at June 30, 2001),
the net impact to the Company's results of operations and cash flows for
the six month period ended June 30, 2001 would be a decrease of
approximately $30,000.
Part II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders.
On June 6, 2001, 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 Withheld
---------------- --------- --------
Class III
William T. Brannan 4,964,720 661,682
Marilu Marshall 5,072,720 553,682
John S. Wehrle 5,084,720 591,682
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2. Amendment to the Year 2000 Stock Incentive Plan.
Votes For: 4,334,928
Votes Against: 1,283,938
Abstentions: 7,536
3. Ratification of the selection by the Board of Directors of
Arthur Andersen LLP as the Company's independent public
accountants for 2000.
Votes For: 5,485,159
Votes Against: 136,407
Abstentions: 4,836
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Stock Purchase Agreement dated June 14, 2001 by and among
Executive Express, Inc., Charles Walch, National Express
Company, Inc., and CD&L, Inc.
10.2 Promissory Note in the sum of $1,650,000 of Executive Express,
Inc. due June 14, 2006
10.3 Amendment dated August 2, 2001 to First Union Credit Agreement
dated June 14, 1997, as modified.
10.4 Fourth Amendment and Consent dated May 31, 2001 to the Senior
Subordinated Loan Agreement dated July 29, 1999.
10.5 Fifth Amendment and Consent dated July 27, 2001 to the Senior
Subordinated Loan Agreement dated July 29, 1999.
10.6 Amendment Number 2 dated June 6, 2001 to the Employment
Agreement dated June 5, 2000 by and between the Company and
Albert W. Van Ness, Jr.
(b) Reports on Form 8-K
A report on Form 8-K was filed on May 1, 2001 to report
the sale of certain assets and liabilities of Sureway Air Traffic
Corporation.
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 20, 2001 CD&L, INC.
By: \s\ Russell J. Reardon
------------------------
Russell J. Reardon
Vice President and
Chief Financial Officer
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