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 March 31, 2002 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 May 10, 2002 was 7,658,660.
1
CD&L, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2002
INDEX
Page
----
Part I - Financial Information (unaudited)
Item 1 - Financial Statements
CD&L, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2002 and 2001 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 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)
March 31, December 31,
2002 2001
--------- --------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 1,344 $ 1,165
Accounts receivable, net ............................................. 13,704 15,077
Prepaid expenses and other current assets ............................ 2,369 2,183
-------- --------
Total current assets ............................................... 17,417 18,425
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net .............................. 1,662 1,961
INTANGIBLE ASSETS, net ................................................. 12,204 12,252
NOTE RECEIVABLE FROM STOCKHOLDER, net .................................. 300 300
OTHER ASSETS ........................................................... 2,588 2,543
-------- --------
Total assets ....................................................... $ 34,171 $ 35,481
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings ................................................ $- $-
Current maturities of long-term debt ................................. 1,977 2,362
Accounts payable and accrued liabilities ............................. 10,385 11,140
-------- --------
Total current liabilities .......................................... 12,362 13,502
LONG-TERM DEBT ......................................................... 17,910 18,233
OTHER LONG-TERM LIABILITIES ............................................ 278 131
-------- --------
Total liabilities .................................................. 30,550 31,866
-------- --------
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 March 31, 2002 and December
31, 2001 ........................................................... 8 8
Additional paid-in capital ............................................ 12,883 12,883
Treasury stock, 29,367 shares at cost ................................. (162) (162)
Accumulated deficit ................................................... (9,108) (9,114)
-------- --------
Total stockholders' equity ......................................... 3,621 3,615
-------- --------
Total liabilities and stockholders' equity ......................... $ 34,171 $ 35,481
======== ========
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
March 31,
--------------------------
2002 2001
-------- ---------
Revenue ............................................................ $ 38,549 $ 40,037
Cost of revenue .................................................... 30,621 31,453
-------- --------
Gross profit ..................................................... 7,928 8,584
Selling, general, and administrative expenses ...................... 6,954 7,203
Depreciation and amortization ...................................... 343 717
-------- --------
Operating income ................................................. 631 664
Other expense (income):
Interest expense ................................................. 671 729
Other income, net ................................................ (50) (45)
-------- --------
Income (loss) before provision (benefit) for income taxes .......... 10 (20)
Provision (benefit) for income taxes ............................... 4 (8)
-------- --------
Net income (loss) ................................................ $ 6 ($ 12)
======== ========
Net income (loss) per share:
Basic ............................................................ $ .00 ($ .00)
======== ========
Diluted .......................................................... $ .00 ($ .00)
======== ========
Basic weighted average common shares outstanding ................... 7,659 7,659
======== ========
Diluted weighted average common shares outstanding ................. 8,167 7,659
======== ========
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 Three Months Ended
March 31,
-----------------------
2002 2001
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................................... $ 6 ($ 12)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities -
Gain on disposal of equipment and leasehold improvements ........... (21) (35)
Depreciation and amortization ...................................... 343 717
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net ....................................... 1,373 3,185
Prepaid expenses and other current assets ...................... (186) (222)
Other assets ................................................... (41) 17
Increase (decrease) in -
Accounts payable and accrued liabilities ....................... (755) (1,039)
Other long-term liabilities .................................... 147 (9)
-------- --------
Net cash provided by operating activities .................... 866 2,602
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements ........... 46 159
Proceeds from sale of business ....................................... - 11,425
Additions to equipment and leasehold improvements .................... (25) (107)
-------- --------
Net cash provided by investing activities .................... 21 11,477
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term repayments, net ........................................... - (11,169)
Repayments of long-term debt ......................................... (708) (315)
-------- --------
Net cash used in financing activities ........................ (708) (11,484)
-------- --------
CASH USED IN DISCONTINUED OPERATIONS ................................... - (309)
-------- --------
Net increase in cash and cash equivalents .................... 179 2,286
CASH AND CASH EQUIVALENTS, beginning of period ......................... 1,165 319
-------- --------
CASH AND CASH EQUIVALENTS, end of period ............................... $ 1,344 $ 2,605
======== ========
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, 2001 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 months ended March 31, 2002 are not necessarily indicative of the
results that may be expected for any other interim period or for the year
ending December 31, 2002. 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, 2001.
Recently, the Company renegotiated certain covenants and terms of its
revolving credit facility, senior subordinated notes and seller notes. This
is further discussed in Notes 2 and 3. The Company's amended revolving
credit facility with First Union Commercial Corporation ("First Union")
expires on January 31, 2003. The Company has received a commitment letter
from a financial institution for a senior secured credit facility that would
replace the First Union facility. The Company is in the process of
negotiating a definitive agreement for same. There can be no assurances that
the Company will reach a definitive agreement with the new lender, nor that
the Company will be able to meet its financial plan and projections, upon
which the debt covenants of any new facility will be based.
(2) SHORT-TERM BORROWINGS:
On March 31, 2002 CD&L and First Union modified an agreement entered into in
July 1997, establishing a revolving credit facility (the "First Union
Agreement"). The amendment extended the agreement until January 31, 2003,
increased the standby letter of credit fee and reset the financial ratios
and covenants that the Company must achieve throughout the term of the First
Union Agreement. Credit availability is based on eligible amounts of
accounts receivable, as defined, up to a maximum amount of $15,000,000 and
is secured by substantially all of the assets, including certain cash
balances, accounts receivable, equipment and leasehold improvements and
general intangibles of the Company and its subsidiaries. During the three
months ended March 31, 2002, the maximum borrowings outstanding under the
First Union Agreement were approximately $168,000 and the outstanding
borrowings as of March 31, 2002 were $0. As of March 31, 2002, the Company
had borrowing ability of $980,000 under the First Union Agreement, after
adjusting for restrictions related to outstanding Standby Letters of Credit
of $6,470,230 and minimum availability requirements. Under the terms of the
First Union Agreement, the Company is required to maintain certain financial
ratios and comply with other financial conditions. At March 31, 2002 the
Company was in compliance with all loan covenants of the First Union
Agreement, as amended.
The Company has received a commitment letter from a financial institution
for a senior secured credit facility that would replace the First Union
facility. The Company is in the process of negotiating a definitive
agreement for same. There can be no assurances that the Company will reach a
definitive agreement with the new lender, nor that the Company will be able
to meet its financial plan and projections, upon which the debt covenants of
any new facility will be based.
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 originally bore 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 Senior Notes, as amended,
the Company is required to maintain certain financial ratios and comply with
other financial conditions for which the Company was in compliance as of
March 31, 2002. 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.
Effective as of April 12, 2002, 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, increases
the interest rate on the notes to 15% beginning April 1, 2002. The interest
rate is reduced to 12% retroactively to April 1, 2002 contingent upon the
Company meeting certain debt restructuring goals. Payments totaling $750,000
are required to be repaid in 2002. Furthermore, as noted above, in order for
the Company to achieve a retroactive interest rate reduction, it will be
required to restructure its senior secured debt. This would require the
Company to pay an additional $1,750,000 in 2002 to the Senior Note holders
and an additional $750,000 in each of 2003, 2004 and 2005 in order to meet
the restructuring goals. As the Company has not yet achieved the debt
restructuring discussed in Note 2, the accompanying financial statements
reflect the principal payment requirements under the current agreement.
(4) INTANGIBLE ASSETS:
Pursuant to Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"), substantially all of the
Company's intangible assets will no longer be amortized and the Company is
required to perform an annual impairment test for goodwill and intangible
assets. SFAS 142 requires the Company to compare the fair value of the
business unit to its carrying amount on an annual basis to determine if
there is potential impairment. If the fair value of the business unit is
less than its carrying value, an impairment loss would be recorded to the
extent that the fair value of the goodwill within the business unit is less
than the carrying value. The impairment test for intangible assets consists
of comparing the fair value of the intangible asset to its carrying amount.
If the carrying amount of the intangible asset exceeds its fair value, an
impairment loss is recognized. Fair value for goodwill and intangible assets
are determined based on discounted cash flows and appraised values. Pursuant
to SFAS 142, intangible assets must be periodically tested for impairment
and the new standard provides six months to complete the impairment review.
The Company will complete such review during the quarter ended June 30,
2002. Adoption of SFAS 142 increased earnings by approximately $177,000 for
the three months ended March 31, 2002.
(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, an employee of the Company,
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.
7
At March 31, 2002 and December 31, 2001 the Company had a receivable due
from Mr. Brana totaling $2,800,000. 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. Recently, Mr.
Brana has disputed his obligation to satisfy the amounts when they are due.
(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 delivery
operations. In connection therewith, the Company has recorded reserves of
$575,000 as of March 31, 2002 and December 31, 2001. Management believes
that none of these actions 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 three months ended March 31, 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 months ended March 31, 2001.
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
March 31,
-----------------------------
(000s) 2002 2001
---------- ----------
Stock options 1,940 2,218
Subordinated
convertible debentures - 16
Seller financed
convertible notes 508 593
8
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
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 2001 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
March 31,
--------------------------------
2002 2001
--------------- -------------
Revenue 100.0% 100.0%
Gross profit 20.5% 21.5%
Selling, general, and
administrative expenses 18.0% 18.0%
Depreciation and amortization 0.9% 1.8%
Operating income 1.6% 1.7%
Interest expense 1.7% 1.8%
Net income (loss) 0.0% (0.0%)
9
Three Months Ended March 31, 2002 Compared to the Three Months Ended March
31, 2001
Revenue for the three months ended March 31, 2002 decreased by $1.5 million,
or 3.7%, to $38.5 million from $40.0 million for the three months ended
March 31, 2001. The decrease included approximately $2.5 million in revenue
lost due to the sale of the Company's Mid-West Region operations on June 14,
2001. After adjusting for the sale, revenue increased by approximately $1.0
million due to the start-up of several distribution contracts during 2001.
Cost of revenue decreased by $0.9 million, or 2.6%, to $30.6 million for the
three months ended March 31, 2002 from $31.5 million for the three months
ended March 31, 2001. Cost of revenue for the three months ended March 31,
2002 represents 79.5% of revenues as compared to 78.5% for the same period
in 2001. The decrease in cost of revenue included approximately $2.0 million
in cost of revenue eliminated due to the sale of the Company's Mid-West
Region operations on June 14, 2001. After adjusting for the sale, cost of
revenue increased by approximately $1.1 million due primarily to an increase
in labor costs as compared to the same period in 2001. The increased labor
costs in the Company's New York City operations, as a percentage of revenue,
were partially attributable to the economic decline that occurred in New
York City as a result of the September 11, 2001 events.
Selling, general and administrative expenses ("SG&A") decreased by $0.2
million, or 3.5%, to $7.0 million for the three months ended March 31, 2002
from $7.2 million for the same period in 2001. Stated as a percentage of
revenue, SG&A was flat at 18.0% for the three months ended March 31, 2002
and 2001. SG&A in 2001 included approximately $0.4 million in SG&A
eliminated due to the sale of the Company's Mid-West Region operations on
June 14, 2001. After adjusting for the sale, SG&A increased by approximately
$0.2 million due primarily to increased insurance costs, partially offset by
reductions in professional and consulting fees.
Depreciation and amortization decreased by $0.4 million, or 52.2%, to $0.3
million for the three months ended March 31, 2002 from $0.7 million for the
same period in 2001. Pursuant to Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), substantially
all of the Company's intangible assets will no longer be amortized and the
Company is required to perform an annual impairment test for goodwill and
intangible assets. SFAS 142 requires the Company to compare the fair value
of the business unit to its carrying amount on an annual basis to determine
if there is potential impairment. If the fair value of the business unit is
less than its carrying value, an impairment loss would be recorded to the
extent that the fair value of the goodwill within the business unit is less
than the carrying value. The impairment test for intangible assets consists
of comparing the fair value of the intangible asset to its carrying amount.
If the carrying amount of the intangible asset exceeds its fair value, an
impairment loss is recognized. Fair value for goodwill and intangible assets
are determined based on discounted cash flows and appraised values. Pursuant
to SFAS 142, intangible assets must be periodically tested for impairment
and the new standard provides six months to complete the impairment review.
The Company will complete such review during the quarter ended June 30,
2002. Adoption of SFAS 142 increased earnings by approximately $177,000 for
the three months ended March 31, 2002.
As a result of the factors discussed above, operating income decreased
slightly for the three months ended March 31, 2002 as compared to the same
period in 2001.
Net income (loss) improved slightly for the three months ended March 31,
2002 as compared to the same period in 2001. This was primarily due to the
factors discussed above and similar interest expense and other income for
the three months ended March 31, 2002 as compared to the same period in
2001.
10
Liquidity and Capital Resources
The Company's working capital increased by $132,000 from $4,923,000 as of
December 31, 2001 to $5,055,000 as of March 31, 2002. The increase is a
result of cash generated from operations partially offset by payments of
long-term debt. Cash and cash equivalents increased $179,000 to $1,344,000
as of March 31, 2002. Cash of $866,000 was provided from operations and
$21,000 was provided by investing activities, while $708,000 was used by net
financing activities to pay down debt. Capital expenditures amounted to
$25,000 and $107,000 for the three months ended March 31, 2002 and 2001,
respectively. These expenditures primarily upgraded and expanded computer
system capability and expanded and improved Company facilities in the
ordinary course of business.
During the three months ended March 31, 2002, the maximum borrowings
outstanding under the Company's revolving credit facility were approximately
$168,000 and the outstanding borrowings as of March 31, 2002 were $0. The
Company also had $13,500,000 in principal outstanding under its Senior Notes
($12,807,000 net of unamortized discount). The Company also had $498,000 of
capital lease obligations and various equipment notes, $102,000 of debt
related to litigation settlements and $6,480,000 of seller financed debt. As
of March 31, 2002, the Company had borrowing ability of $980,000 under the
revolving credit facility, after adjusting for restrictions related to
outstanding Standby Letters of Credit of $6,470,230 and minimum availability
requirements.
Management believes that cash flows from operations and its borrowing
capacity (see Notes 2 and 3 of the accompanying financial statements) are
sufficient to support the Company's operations and general business and
capital liquidity requirements for the foreseeable future.
Inflation
While inflation has not had a material impact on the Company's results of
operations for the periods presented herein, fluctuations in fuel prices and
labor costs can and do affect the Company's operating costs.
Quantitative and Qualitative Disclosures About Market Risk
CD&L is exposed to the effect of changing interest rates. At March 31, 2002,
the Company's debt consisted of approximately $19,887,000 of fixed rate debt
with a weighted average interest rate of 11.5% and $0 of variable rate debt
with a weighted average interest rate of 5.0%. The amount of variable rate
debt fluctuates during the year based upon CD&L's cash requirements. If
interest rates on variable rate debt were to increase by 50 basis points
(one-tenth of the rate at March 31, 2002), the Company's results of
operations and cash flows for the three month period ended March 31, 2002
would not be impacted as there were minimal amounts of variable rate debt
outstanding during the period.
11
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit
No exhibits will be filed with this Form 10-Q.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the first quarter of
2002.
12
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: May 15, 2002 CD&L, INC.
By: \s\ Russell J. Reardon
------------------------------
Russell J. Reardon
Vice President and
Chief Financial Officer
13