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, 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 November 9, 2001 was 7,658,660.
CD&L, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2001
INDEX
Page
Part I - Financial Information (unaudited)
Item 1 - Financial Statements
CD&L, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000 3
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 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 11
Part II - Other Information
Item 1 - Legal Proceedings 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signature 17
2
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
September 30, December 31,
2001 2000
--------------- ---------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 194 $ 319
Accounts receivable, net 16,501 17,596
Prepaid expenses and other current assets 2,074 2,917
Net assets of discontinued operations -- 4,591
--------------- ---------------
Total current assets 18,769 25,423
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 2,170 2,841
INTANGIBLE ASSETS, net 15,800 20,666
NOTE RECEIVABLE FROM STOCKHOLDER, net 428 408
OTHER ASSETS 4,519 402
NET ASSETS OF DISCONTINUED OPERATIONS -- 8,045
--------------- ---------------
Total assets $ 41,686 $ 57,785
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 301 $ 11,169
Current maturities of long-term debt 3,294 5,752
Accounts payable and accrued liabilities 10,881 11,932
Net liabilities of discontinued operations 52 --
--------------- ---------------
Total current liabilities 14,528 28,853
LONG-TERM DEBT 17,950 17,765
OTHER LONG-TERM LIABILITIES 1,280 1,283
--------------- ---------------
Total liabilities 33,758 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 shares issued at September 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 (4,801) (2,845)
--------------- ---------------
Total stockholders' equity 7,928 9,884
--------------- ---------------
Total liabilities and stockholders' equity $ 41,686 $ 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 Ended For the Nine Months Ended
September 30, September 30,
----------------------------------- -----------------------------------
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Revenue $ 40,566 $ 43,040 $ 120,400 $ 127,821
Cost of revenue 32,279 33,865 94,968 100,757
--------------- --------------- --------------- ---------------
Gross profit 8,287 9,175 25,432 27,064
Selling, general and
administrative expenses 6,860 8,333 20,834 25,534
Depreciation and amortization 565 741 1,953 2,613
--------------- --------------- --------------- ---------------
Operating income (loss) 862 101 2,645 (1,083)
Other expense (income):
Interest expense 709 778 2,179 2,241
Other (income) expense, net (36) (59) 2,204 (150)
--------------- --------------- --------------- ---------------
Income (loss) from continuing
operations before provision
(benefit) for income taxes 189 (618) (1,738) (3,174)
Provision (benefit) for income taxes 75 (218) 218 (1,208)
--------------- --------------- --------------- ---------------
Income (loss) from continuing
operations 114 (400) (1,956) (1,966)
Income from discontinued operations -- 516 -- 1,100
--------------- --------------- --------------- ---------------
Net income (loss) $ 114 $ 116 $ (1,956) $ (866)
=============== =============== =============== ===============
Basic income (loss) per share:
Continuing operations $ .01 $ (.05) $ (.26) $ (.27)
Discontinued operations .00 .07 (.00) .15
--------------- --------------- --------------- ---------------
Net income (loss) per share $ .01 $ .02 $ (.26) $ (.12)
=============== =============== =============== ===============
Diluted income (loss) per share:
Continuing operations $ .01 $ (.05) $ (.26) $ (.27)
Discontinued operations .00 .06 (.00) .15
--------------- --------------- --------------- ---------------
Net income (loss) per share $ .01 $ .01 $ (.26) $ (.12)
=============== =============== =============== ===============
Basic weighted average common
shares outstanding 7,659 7,353 7,659 7,353
=============== =============== =============== ===============
Diluted weighted average common
shares outstanding 8,164 8,034 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 Nine Months
Ended September 30,
-----------------------------------
2001 2000
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,956) $ (866)
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 (37) (85)
Income from discontinued operations -- (1,100)
Loss on sale of subsidiary 2,283 --
Depreciation and amortization 1,953 2,613
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net (112) (926)
Prepaid expenses and other current assets 1,070 1,175
Other assets (65) (176)
Increase (decrease) in -
Accounts payable and accrued liabilities (932) (786)
Other long-term liabilities (3) (418)
--------------- ---------------
Net cash provided by (used in) operating activities of continuing
operations 2,201 (569)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements 205 132
Proceeds from sale of businesses, net 12,306 --
Additions to equipment and leasehold improvements (185) (758)
--------------- ---------------
Net cash provided by (used in) investing activities of continuing
operations 12,326 (626)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term (repayments) borrowings, net (10,868) 3,478
Repayments of long-term debt (2,359) (1,775)
--------------- ---------------
Net cash (used in) provided by financing activities of continuing
operations (13,227) 1,703
--------------- ---------------
CASH USED IN DISCONTINUED OPERATIONS (1,425) (412)
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (125) 96
CASH AND CASH EQUIVALENTS, beginning of period 319 326
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 194 $ 422
=============== ===============
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 three and nine months ended
September 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 September
30, 2001 has improved to $4,241,000. Management believes that based
upon the results to date and the projected results for the remainder of
2001 and 2002 that cash flow from operations and availability under the
Company's credit facility with First Union Commercial Corporation will
be sufficient to meet its cash requirements in the next twelve months.
As a result of the effects of the events of September 11, 2001 and the
other factors discussed herein, CD&L was unable to meet its financial
covenants to First Union and the holders of the Senior Notes for the
third quarter of 2001, and CD&L will not meet those covenants for the
fourth quarter. First Union has waived compliance with those covenants
for the third quarter and has modified its covenants for the fourth
quarter consistent with CD&L's fourth quarter financial forecast. CD&L
is in the process of negotiating revised financial covenants with First
Union for 2002 consistent with CD&L's financial projections. First
Union also agreed to extend the maturity of the First Union Loan and
Security Agreement to September 30, 2002.
The holders of the Senior Notes have waived compliance with the
financial covenants for the third and fourth quarters and have agreed
to reschedule their $250,000 principal repayment that was due November
15, 2001 to January 2002. CD&L is in the process of negotiating revised
financial covenants with the holders of the Senior Notes for 2002
consistent with CD&L's financial projections. If CD&L and the holders
of the Senior Notes are unable to agree on revised covenants and the
covenants are not met as of March 31, 2002 or thereafter, the Senior
Notes would become callable and CD&L would be required to classify the
Senior Notes as current and would need to seek replacement financing to
satisfy its obligations to the holders of the Senior Notes. No
assurances can be given that CD&L would be able to secure replacement
financing for the Senior Notes on terms and conditions satisfactory to
CD&L and its senior lender. If the covenants are not renegotiated or
replacement financing obtained, this would have a material adverse
effect on the Company's liquidity and financial position.
Certain prior year amounts have been reclassified in order to conform
to the current year presentation.
(2) SHORT-TERM BORROWINGS:
Effective as of September 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. As a
result of the effects of the events of September 11, 2001 and the other
factors discussed herein, CD&L was unable to meet its financial
covenants to First Union and the holders of the Senior Notes for the
third quarter of 2001, and CD&L will not meet those covenants for the
fourth quarter. First Union has waived compliance with those covenants
for the third quarter and has modified its covenants for the fourth
quarter consistent with CD&L's fourth quarter financial forecast. CD&L
is in the process of negotiating revised financial covenants with First
Union for 2002 consistent with CD&L's financial projections. First
Union also agreed to extend the maturity of the First Union Loan and
Security Agreement to September 30, 2002.
6
(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 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 September 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, provided
for repayment of $1,000,000 of the Senior Notes on April 2, 2001 and an
additional $1,000,000 repayment in installments through August 15, 2002
provided that the Company is in compliance with the terms of the First
Union Agreement. The holders of the Senior Notes have waived compliance
with the financial covenants for the third and fourth quarters and have
agreed to reschedule their $250,000 principal payment that was due
November 15, 2001 to January 2002. CD&L is in the process of
negotiating revised financial covenants with the holders of the Senior
Notes for 2002 consistent with CD&L's financial projections. If CD&L
and the holders of the Senior Notes are unable to agree on revised
covenants and the covenants are not met as of March 31, 2002 or
thereafter, the Senior Notes would become callable and CD&L would be
required to classify the Senior Notes as current and would need to seek
replacement financing to satisfy its obligations to the holders of the
Senior Notes. No assurances can be given that CD&L would be able to
secure replacement financing for the Senior Notes on terms and
conditions satisfactory to CD&L and its senior lender. If the covenants
are not renegotiated or replacement financing obtained, this would have
a material adverse effect on the Company's liquidity and financial
position.
A subordinated note in the principal amount of $1,750,000 issued to
Metro Courier Network, Inc. ("Metro") in connection with the Company's
purchase of the assets of that business in 1998 was due on July 1,
2001. As of September 30, 2001 the Company was in default with regard
to this note. Subsequently, on November 1, 2001 the note was amended to
amortize the principal amount over forty-eight months with a balloon
payment for the balance due March 2, 2004. As a result of this
amendment, the Company has reclassified amounts due after September 30,
2002 to long-term debt in the accompanying financial statements.
(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 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
of the Note Receivable 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.
7
(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. Under the terms of its acquisition of Securities, the
Company had 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 delivered 357,301 shares of
CD&L common stock 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 at
a rate of 12.0% per annum is due in monthly installments ending July 1,
2002.
At September 30, 2001 and December 31, 2000 the Company had a
receivable due from Mr. Brana totaling $2,928,000 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 September 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 September
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 income (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 nine
months ended September 30, 2001, equivalent shares represented by 3,942
Stock Options and 505,449 Warrants would be anti-dilutive and therefore
are not included in the loss per share calculation for the nine months
ended September 30, 2001. Because of the Company's net loss for the
nine months ended September 30, 2000, equivalent shares represented by
48,010 Stock Options, 506,010 Warrants and 202,850 Employee Stock
Purchase Plan shares would be anti-dilutive and therefore are not
included in the loss per share calculation for the nine months ended
September 30, 2000.
8
A reconciliation of weighted average common shares outstanding to
weighted average common shares outstanding assuming dilution follows:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- -----------------------------------
(000s) 2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Basic weighted average
common shares outstanding 7,659 7,353 7,659 7,353
Effect of dilutive securities:
Stock options -- -- -- --
Warrants 505 506 -- --
ESPP -- 175 -- --
--------------- --------------- --------------- ---------------
Diluted weighted average
common shares
outstanding 8,164 8,034 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:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- -----------------------------------
(000s) 2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Stock options 1,877 2,459 1,822 1,469
Subordinated
convertible debentures 7 113 12 135
Seller financed
convertible notes 553 593 553 593
(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 $2,500,000 and is comprised of $900,000
in cash and a subordinated promissory note (the "Note Receivable") for
$1,600,000. 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
$1,100,000 on June 14, 2006. As a result of the transaction, the
Company recorded a $2,300,000 loss on the sale with no related tax
benefit pending review and analysis by our tax advisors.
(9) NEW ACCOUNTING PRONOUNCEMENTS:
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
separate 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.
9
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
$1,113,000 for the year ended December 31, 2000, and $745,000 for the
nine months ended September 30, 2001.
10
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.
Percentages and dollar amounts have been rounded to aid presentation.
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 continue growing
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 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.
RESULTS OF OPERATIONS
Income and Expense as a Percentage of Revenue
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------------- -----------------------------------
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Revenue 100.0% 100.0% 100.0% 100.0%
Gross profit 20.4% 21.3% 21.1% 21.2%
Selling, general and
administrative expenses 16.9% 19.4% 17.3% 20.0%
Depreciation and amortization 1.4% 1.7% 1.6% 2.0%
Operating income (loss) 2.1% 0.2% 2.2% (0.8)%
Interest expense 1.7% 1.8% 1.8% 1.8%
Other (income) expense, net (0.1)% (0.1)% 1.8% (0.1)%
Income (loss) from continuing operations 0.3% (0.9)% (1.6)% (1.5)%
11
Nine Months Ended September 30, 2001 Compared to the Nine Months Ended
September 30, 2000
Revenue for the nine months ended September 30, 2001 decreased by $7.4
million, or 5.8%, to $120.4 million from $127.8 million for the nine
months ended September 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 2001.
Cost of revenue decreased by $5.8 million, or 5.8%, to $95.0 million
for the nine months ended September 30, 2001 from $100.8 million for
the nine months ended September 30, 2000. Cost of revenue for the nine
months ended September 30, 2001 represents 78.9% of revenues as
compared to 78.8% for the same period in 2000. The increase in cost of
revenue is due primarily to the effect of the September 11, 2001 events
on the Company's New York City operations, offset by a decrease in
labor and vehicle operating costs as compared to the same period in
2000. While the September 11, 2001 events caused an increase in overall
cost of revenue, both the elimination of less profitable business and
better utilization of direct labor have contributed to increased gross
profit margins in other areas of the Company. Additionally, a slowing
economy has helped in recruiting and retaining reliable couriers and
subcontractors at reasonable costs.
Selling, general and administrative expenses ("SG&A") decreased by $4.7
million, or 18.4%, to $20.8 million for the nine months ended September
30, 2001 from $25.5 million for the same period in 2000. Stated as a
percentage of revenue, SG&A decreased to 17.3% for the nine months
ended September 30, 2001 as compared to 20.0% 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 first quarter of 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.
Depreciation and amortization decreased by $0.6 million, or 23.1%, to
$2.0 million for the nine months ended September 30, 2001 from $2.6
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 September 30, 2001.
As a result of the factors discussed above, operating income (loss)
increased by $3.7 million for the nine months ended September 30, 2001
as compared to the same period in 2000.
Other (income) expense, net increased by $2.4 million, to $2.2 million,
primarily as a result of the loss recorded on the sale of the Company's
Mid-West Region business. 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 $0.9 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.
12
Loss from continuing operations was ($2.0) million for the nine months
ended September 30, 2001, the same amount as compared to the same
period in 2000. This was primarily due to the improved results of
operations, offset by the loss recorded on the sale of the Company's
Mid-West Region business.
During the nine months ended September 30, 2000 the Company also
recorded $1.1 million of 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 ($2.0) million for the
nine months ended September 30, 2001 as compared to a loss of ($0.9)
million for the same period in 2000 for the reasons discussed above.
Three Months Ended September 30, 2001 Compared to the Three Months
Ended September 30, 2000
Revenue for the three months ended September 30, 2001 decreased by $2.4
million, or 5.6%, to $40.6 million from $43.0 million for the three
months ended September 30, 2000. The decrease in revenue is primarily
due to the sale of the Company's Mid-West Region operations on June 14,
2001. For the three months ended September 30, 2000 revenue of $2.7
million was recorded by the Mid-West Region. This was partially offset
by the effect of fuel surcharges and price increases implemented
throughout 2000 that remained in effect for 2001.
Cost of revenue decreased by $1.6 million, or 4.7%, to $32.3 million
for the three months ended September 30, 2001 from $33.9 million for
the three months ended September 30, 2000. Cost of revenue for the
three months ended September 30, 2001 represents 79.6% of revenues as
compared to 78.7% for the same period in 2000. The increase in cost of
revenue is due primarily to the effect of the September 11, 2001 events
on the Company's New York City operations, partially offset by a
decrease in labor and vehicle operating costs in other business units
as compared to the same period in 2000. While the September 11, 2001
events caused an increase in overall cost of revenue, both the
elimination of less profitable business and better utilization of
direct labor have contributed to increased in gross profit margins in
other areas of the Company. Additionally, a slowing economy has helped
in recruiting and retaining reliable couriers and subcontractors at
reasonable costs.
SG&A decreased by $1.4 million, or 16.9%, to $6.9 million for the three
months ended September 30, 2001 from $8.3 million for the same period
in 2000. Stated as a percentage of revenue, SG&A decreased to 16.9% for
the three months ended September 30, 2001 as compared to 19.4% 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.
Depreciation and amortization decreased by $0.1 million, or 14.3%, to
$0.6 million for the three months ended September 30, 2001 from $0.7
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 September 30, 2001.
As a result of the factors discussed above, operating income increased
by $0.8 million for the three months ended September 30, 2001 as
compared to the same period in 2000.
13
Income (loss) from continuing operations increased by $0.5 million, to
$0.1 million for the three months ended September 30, 2001 as compared
to the same period in 2000. This was primarily due to the factors
discussed above.
During the three months ended September 30, 2000 the Company also
recorded $0.5 million of income from discontinued operations, net of
tax, as a result of the activities of the air delivery business.
Net income was $0.1 million for the three months ended September 30,
2001, the same amount as compared to the same period in 2000 for the
reasons discussed above.
New Accounting Pronouncements
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
separate 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
$1,113,000 for the year ended December 31, 2000, and $745,000 for the
nine months ended September 30, 2001.
Liquidity and Capital Resources
As a result of the effects of the events of September 11, 2001 and the
other factors discussed herein, CD&L was unable to meet its financial
covenants to First Union and the holders of the Senior Notes for the
third quarter of 2001, and CD&L will not meet those covenants for the
fourth quarter. First Union has waived compliance with those covenants
for the third quarter and has modified its covenants for the fourth
quarter consistent with CD&L's fourth quarter financial forecast. CD&L
is in the process of negotiating revised financial covenants with First
Union for 2002 consistent with CD&L's financial projections. First
Union also agreed to extend the maturity of the First Union Loan and
Security Agreement to September 30, 2002.
The holders of the Senior Notes have waived compliance with the
financial covenants for the third and fourth quarters and have agreed
to reschedule their $250,000 principal repayment that was due November
15, 2001 to January 2002. CD&L is in the process of negotiating revised
financial covenants with the holders of the Senior Notes for 2002
consistent with CD&L's financial projections. If CD&L and the holders
of the Senior Notes are unable to agree on revised covenants and the
covenants are not met as of March 31, 2002 or thereafter, the Senior
Notes would become callable and CD&L would be required to classify the
Senior Notes as current and would need to seek replacement financing to
satisfy its obligations to the holders of the Senior Notes. No
assurances can be given that CD&L would be able to secure replacement
financing for the Senior Notes on terms and conditions satisfactory to
CD&L and its senior lender. If the covenants are not renegotiated or
replacement financing obtained, this would have a material adverse
effect on the Company's liquidity and financial position.
Working capital increased from a deficit of ($3.4) million as of
December 31, 2000 to $4.2 million as of September 30, 2001. This
increase of $7.6 million reflects the cash received from the sales of
the Company's air delivery business and the Mid-West Region business,
as well as better management of accounts receivable, reduced capital
expenditures and agreements to extend the due dates of certain debt.
Cash and cash equivalents decreased from $0.3 million to $0.2 million.
Cash was provided by operating activities (a decrease in prepaid
expenses and other current assets offset partially by a decrease in
accounts payable and accrued liabilities during the nine months ended
September 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 nine months ended
September 30, 2001.
As of September 30, 2001 the Company had total cash on hand and
borrowing ability of $1.6 million under its revolving credit facility;
after adjusting for the restrictions for outstanding letters of credit
and the subordinated debentures.
14
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 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 fuel increases and labor cost
increases during 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 September 30, 2001, the Company's debt
consisted of approximately $21.2 million of fixed rate debt with a
weighted average interest rate of 11.65% and $0.3 million of variable
rate debt with a weighted average interest rate of 6.25%. The amount of
variable rate debt fluctuates during the year based on CD&L's cash
requirements. If interest rates on such variable rate debt were to
increase by 63 basis points (one-tenth of the rate at September 30,
2001), the net impact to the Company's results of operations and cash
flows for the nine month period ended September 30, 2001 would be a
decrease of approximately $17,000.
15
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. Under the terms of its acquisition of Securities, the
Company had 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 delivered 357,301 shares of
CD&L common stock 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 at
a rate of 12.0% per annum is due in monthly installments ending July 1,
2002.
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. 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
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the third quarter of 2001.
16
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 20, 2001 CD&L, INC.
By: \s\ Russell J. Reardon
---------------------------
Russell J. Reardon
Vice President and
Chief Financial Officer
17