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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, 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 August 9, 2002 was 7,658,660.
CD&L, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002
INDEX
Page
Part I - Financial Information
Item 1 - Financial Statements
CD&L, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited)
and December 31, 2001 3
Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2002 and 2001 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2002 and 2001 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K 15
Signature 16
2
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
June 30, December 31,
2002 2001
--------------- --------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,560 $1,165
Accounts receivable, net 14,334 15,077
Prepaid expenses and other current assets 2,339 2,183
--------------- --------------
Total current assets 19,233 18,425
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 1,655 1,961
INTANGIBLE ASSETS, net 12,306 12,252
NOTE RECEIVABLE FROM STOCKHOLDER, net 300 300
OTHER ASSETS 2,484 2,543
--------------- --------------
Total assets $35,978 $35,481
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $- $-
Current maturities of long-term debt 3,124 2,362
Accounts payable, accrued liabilities and bank overdrafts
12,436 11,140
--------------- --------------
Total current liabilities 15,560 13,502
LONG-TERM DEBT 16,080 18,233
OTHER LONG-TERM LIABILITIES 277 131
--------------- ---------------
Total liabilities 31,917 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 shares issued at June 30, 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 (8,668) (9,114)
--------------- --------------
Total stockholders' equity 4,061 3,615
--------------- --------------
Total liabilities and stockholders' equity $35,978 $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 For the Six Months
June 30, Ended
June 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
--------------- ------------- ------------ ---------------
Revenue $38,885 $39,797 $77,434 $79,834
Cost of revenue 30,653 31,236 61,274 62,689
--------------- ------------- ------------ ---------------
Gross profit 8,232 8,561 16,160 17,145
Selling, general and
administrative expenses 6,395 6,771 13,349 13,974
Depreciation and amortization 345 671 688 1,388
--------------- ------------- ------------ ---------------
Operating income 1,492 1,119 2,123 1,783
Other expense (income):
Interest expense 660 741 1,331 1,470
Other expense, net 99 2,285 49 2,240
--------------- ------------- ------------ ---------------
Income (loss) before provision for income
taxes 733 (1,907) 743 (1,927)
Provision for income taxes 293 151 297 143
--------------- ------------- ------------ ---------------
Net income (loss) $440 $(2,058) $446 $(2,070)
=============== ============= ============ ===============
Net income (loss) per share:
Basic $.06 $(.27) $.06 $(.27)
Diluted .05 (.27) .05 (.27)
Basic weighted average common
shares outstanding 7,659 7,659 7,659 7,659
=============== ============= ============ ===============
Diluted weighted average common
shares outstanding 8,169 7,659 8,168 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 Six Months
Ended June 30,
---------------------------------
2002 2001
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $446 $(2,070)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities -
Gain on disposal of equipment and leasehold improvements (35) (33)
Loss on sale of subsidiary - 2,283
Depreciation and amortization 688 1,388
Changes in operating assets and liabilities:
(Increase) decrease in -
Accounts receivable, net 743 1,788
Prepaid expenses and other current assets (156) (264)
Other assets 66 3
Increase (decrease) in -
Accounts payable, accrued liabilities and bank overdrafts 1,296 (1,007)
Other long-term liabilities 146 (4)
-------------- -------------
Net cash provided by operating activities 3,194 2,084
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements 82 187
Proceeds from sale of businesses, net - 12,306
Additions to equipment and leasehold improvements (340) (151)
-------------- -------------
Net cash (used in) provided by investing activities (258) 12,342
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term (repayments) borrowings, net - (11,169)
Repayments of long-term debt (1,391) (1,859)
Deferred financing costs (150) -
-------------- -------------
Net cash used in financing activities (1,541) (13,028)
-------------- -------------
CASH USED IN DISCONTINUED OPERATIONS - (1,425)
-------------- -------------
Net increase (decrease) in cash and cash equivalents 1,395 (27)
CASH AND CASH EQUIVALENTS, beginning of period 1,165 319
-------------- -------------
CASH AND CASH EQUIVALENTS, end of period $2,560 $292
============== ==============
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 and six months ended June 30,
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.
(2) SHORT-TERM BORROWINGS:
As of June 27, 2002 CD&L and Summit Business Capital Corporation, doing
business as Fleet Capital - Business Finance Division, entered into an
agreement establishing a revolving credit facility (the "Fleet
Facility") of $15,000,000. The Fleet Facility replaced a revolving
credit facility with First Union Commercial Corporation established in
July 1997. The Fleet Facility expires on June 27, 2005 and provides
CD&L with standby letters of credit, prime rate based loans at the
bank's prime rate, as defined, plus 25 basis points and LIBOR based
loans at the bank's LIBOR, as defined, plus 225 basis points. 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 June 30, 2002, there were no borrowings under the First
Union Commercial Corporation revolving credit facility and the
outstanding borrowings as of June 30, 2002 were $0. As of June 30,
2002, the Company had borrowing availability of $2,239,000 under the
Fleet Facility, after adjusting for restrictions related to outstanding
Standby Letters of Credit of $7,000,000 and minimum availability
requirements. Under the terms of the Fleet Facility, the Company is
required to maintain certain financial ratios and comply with other
financial conditions. At June 30, 2002 the Company was in compliance
with all loan covenants of the Fleet Facility.
(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 Fleet Facility. 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 June 30, 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 of $1,265,000 as a credit to
additional paid-in-capital and a debt discount on the Senior Notes.
6
Effective as of June 28, 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, provides for interest on the notes to be incurred
prospectively at 12% and an immediate repayment of $1,250,000 in
principal. The June 28, 2002 amendment also requires scheduled
repayments of $250,000 at the end of each calendar quarter beginning in
the first quarter of 2003 and ending in the fourth quarter of 2005.
Such payments increase to $312,500 if CD&L meets certain availability
benchmarks under the Fleet Facility, as defined. The interest rate on
the $3,000,000 of the notes scheduled to be repaid would be reduced to
10% on a prospective basis if CD&L makes a voluntary principal
repayment of $750,000 at any time prior to maturity. The accompanying
financial statements include the $1,250,000 payment in current
maturities of long-term debt as this payment was made on July 2, 2002.
(4) INTANGIBLE ASSETS:
On June 30, 2001, Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142") was issued. SFAS
142 eliminates goodwill amortization over its estimated useful life.
However, goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value based test. Additionally, acquired
intangible assets should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights,
or if the intangible asset can be sold, transferred, licensed, rented
or exchanged, regardless of the acquirer's intent to do so. Intangible
assets with definitive lives will need to be amortized over their
useful lives. The statement requires that by June 30, 2002, a company
must establish its fair value benchmarks in order to test for
impairment. The Company adopted SFAS 142 effective January 1, 2002.
Such adoption did not result in an impairment of goodwill, based on a
fair value based test; however, changes in the facts and circumstances
relating to the Company's goodwill and other intangible assets could
result in an impairment of intangible assets in the future. Adoption of
SFAS 142 increased pretax earnings by approximately $353,000 for the
six months ended June 30, 2002 due to the cessation of goodwill
amortization.
(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. 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. All such amounts were paid
when due.
At June 30, 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. Mr. Brana has disputed his obligation to
satisfy the amounts when they are due.
7
(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 June 30, 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
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 calculations for the
three and six months ended June 30, 2001.
A reconciliation of weighted average common shares outstanding to
weighted average common shares outstanding assuming dilution follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
(000s) 2002 2001 2002 2001
--------------- ------------- ------------- --------------
Basic weighted average
common shares outstanding 7,659 7,659 7,659 7,659
Effect of dilutive securities:
Stock options 5 - 4 -
Warrants 505 - 505 -
--------------- ------------- ------------- --------------
Diluted weighted average
common shares
outstanding 8,169 7,659 8,168 7,659
=============== ============= ============= ==============
The following common stock equivalents were excluded from the
computation of diluted earnings per share because the exercise or
conversion price was greater than the average market price of common
shares:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
(000s) 2002 2001 2002 2001
--------------- ------------- ------------- --------------
Stock options 1,908 1,616 1,907 1,583
Subordinated
convertible debentures - 16 - 16
Seller financed
convertible notes 491 593 491 593
8
(8) NEW ACCOUNTING PRONOUNCEMENTS:
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 replaces
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS 121") and establishes accounting and reporting
standards for long-lived assets to be disposed of by sale. SFAS 144
requires that those assets be measured at the lower of carrying amount
or fair value less cost to sell. SFAS 144 also broadens the reporting
of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity that
will be eliminated from the ongoing operations of the entity in a
disposal transaction. The adoption of this new principle did not have a
material impact on the Company's financial condition or results of
operations.
In April 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS 145") was issued.
SFAS 145 eliminates extraordinary accounting treatment for reporting
gain or loss on debt extinguishments, and amends other existing
authoritative pronouncements to make various technical corrections,
clarifies meanings, or describes their applicability under changed
conditions. The Company has chosen to adopt the provisions of SFAS 145
beginning with the current quarter ended June 30, 2002.
In June 2002, Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146") was issued. SFAS 146 requires recording costs associated
with exit or disposal activities at their fair values when a liability
has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan. Adoption of SFAS
146 is required with the beginning of fiscal year 2003. The Company has
not yet completed the evaluation of the impact of adopting SFAS 146.
9
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 2001
Report on Form 10-K and other SEC filings.
Critical Accounting Policies
The Company's discussion and analysis of financial condition and
results of operations are based upon the Company's consolidated
financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The
preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company
evaluates its estimates, including those related to accounts and notes
receivable, intangible assets, income taxes and contingencies. The
Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of
its consolidated financial statements.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts and
notes receivable for estimated losses resulting from the inability of
its customers to make payments when due or within a reasonable period
of time thereafter. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their
ability to make required payments, additional allowances may be
required.
10
Insurance Reserves
The Company maintains certain insurance risk through insurance
policies with a $250,000 deductible for workmens' compensation and
automobile liability ($350,000 beginning July 1, 2002) and a $150,000
deductible for employee health medical costs ($125,000 prior to
March 1, 2002). The Company reserves the estimated amounts of uninsured
claims and deductibles related to such insurance retentions for claims
that have occured in the normal course of business. These reserves are
established by management based upon the recommendations of third-party
administrators who perform a specific review of open claims, with
consideration of incurred but not reported claims, as of the balance
sheet date. Actual claim settlements may differ materially from these
estimated reserve amounts.
Income Taxes
The Company files income tax returns in every jurisdiction in
which it has reason to believe it is subject to tax. Historically, the
Company has been subject to examination by various taxing
jurisdictions. To date, none of these examinations has resulted in any
material additional tax. Nonetheless, any tax jurisdiction may contend
that a filing position claimed by the Company regarding one or more of
its transactions is contrary to that jurisdiction's laws or
regulations.
Results of Operations
Income and Expense as a Percentage of Revenue
For the Three Months For the Six Months
Ended Ended
June 30, June 30,
-------------------------------- -----------------------------
2002 2001 2002 2001
--------------- ------------- ------------ -------------
Revenue 100.0% 100.0% 100.0% 100.0%
Gross profit 21.2% 21.5% 20.8% 21.5%
Selling, general and
administrative expenses 16.5% 17.0% 17.2% 17.6%
Depreciation and amortization 0.9% 1.7% 0.9% 1.7%
Operating income 3.8% 2.8% 2.7% 2.2%
Interest expense 1.7% 1.9% 1.7% 1.8%
Other expense, net 0.3% 5.7% 0.1% 2.8%
Net income (loss) 1.1% (5.2)% 0.6% (2.6)%
Six Months Ended June 30, 2002 Compared to the Six Months Ended June
30, 2001
Revenue for the six months ended June 30, 2002 decreased by $2.4
million, or 3.0%, to $77.4 million from $79.8 million for the six
months ended June 30, 2001. The decrease included approximately $4.6
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 $2.2 million due to the start-up of
several new distribution contracts.
Cost of revenue decreased by $1.4 million, or 2.2%, to $61.3 million
for the six months ended June 30, 2002 from $62.7 million for the six
months ended June 30, 2001. Cost of revenue for the six months ended
June 30, 2002 represents 79.2% of revenues as compared to 78.5% for the
same period in 2001. The decrease in cost of revenue included
approximately $3.6 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 $2.2 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.
11
Selling, general and administrative expenses ("SG&A") decreased by $0.7
million, or 5.0%, to $13.3 million for the six months ended June 30,
2002 from $14.0 million for the same period in 2001. Stated as a
percentage of revenue, SG&A decreased to 17.2% for the six months ended
June 30, 2002 as compared to 17.6% for the same period in 2001. SG&A in
2001 included approximately $0.6 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 decreased by approximately $0.1
million due primarily to insurance recoveries and reductions in
professional and consulting fees, partially offset by increased
insurance costs.
Depreciation and amortization decreased by $0.7 million, or 50.0%, to
$0.7 million for the six months ended June 30, 2002 from $1.4 million
for the same period in 2001. On June 30, 2001, Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142") was issued. SFAS 142 eliminates goodwill amortization over
its estimated useful life. However, goodwill will be subject to at
least an annual assessment for impairment by applying a fair-value
based test. Additionally, acquired intangible assets should be
separately recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the
intangible asset can be sold, transferred, licensed, rented or
exchanged, regardless of the acquirer's intent to do so. Intangible
assets with definitive lives will need to be amortized over their
useful lives. The statement requires that by June 30, 2002, a company
must establish its fair value benchmarks in order to test for
impairment. The Company adopted SFAS 142 effective January 1, 2002.
Such adoption did not result in an impairment of goodwill, based on a
fair value based test; however, changes in the facts and circumstances
relating to the Company's goodwill and other intangible assets could
result in an impairment of intangible assets in the future. Adoption of
SFAS 142 increased pretax earnings by approximately $353,000 for the
six months ended June 30, 2002 due to the cessation of goodwill
amortization.
As a result of the factors discussed above, operating income increased
by $0.3 million for the six months ended June 30, 2002 as compared to
the same period in 2001.
Other expense, net decreased by $2.2 million, to $0.05 million,
primarily as a result of the loss recorded on the sale of the Company's
Mid-West Region business in 2001. On June 14, 2001, the Company
consummated a transaction providing for the sale of all the outstanding
stock in National Express, Inc. As a result of the transaction, the
Company recorded a $2.3 million loss on the sale. During the same
period in 2002, the Company recorded approximately $0.1 million of
costs associated with early extinguishment of its borrowing facility
with First Union Commercial Corporation. This was offset by gains
recorded on the disposition of certain equipment.
Net income (loss) improved by $2.5 million to net income of $0.4
million for the six months ended June 30, 2002 as compared to a loss of
($2.1) million for the same period in 2001. This was primarily due to
the factors discussed above.
Three Months Ended June 30, 2002 Compared to the Three Months Ended
June 30, 2001
Revenue for the three months ended June 30, 2002 decreased by $0.9
million, or 2.3%, to $38.9 million from $39.8 million for the three
months ended June 30, 2001. The decrease included approximately $2.1
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 $1.2 million due to the start-up of
several new distribution contracts.
Cost of revenue decreased by $0.5 million, or 1.6%, to $30.7 million
for the three months ended June 30, 2002 from $31.2 million for the
three months ended June 30, 2001. Cost of revenue for the three months
ended June 30, 2002 represents 78.8% of revenues as compared to 78.5%
for the same period in 2001. The decrease in cost of revenue included
approximately $1.6 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.
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SG&A decreased by $0.4 million, or 5.9%, to $6.4 million for the three
months ended June 30, 2002 from $6.8 million for the same period in
2001. Stated as a percentage of revenue, SG&A decreased to 16.5% for
the three months ended June 30, 2002 as compared to 17.0% for the same
period in 2001. SG&A in 2001 included approximately $0.2 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
decreased by approximately $0.2 million due primarily to insurance
recoveries, partially offset by increased insurance costs.
Depreciation and amortization decreased by $0.4 million, or 57.1%, to
$0.3 million for the three months ended June 30, 2002 from $0.7 million
for the same period in 2001. On June 30, 2001, Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142") was issued. SFAS 142 eliminates goodwill amortization over
its estimated useful life. However, goodwill will be subject to at
least an annual assessment for impairment by applying a fair-value
based test. Additionally, acquired intangible assets should be
separately recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the
intangible asset can be sold, transferred, licensed, rented or
exchanged, regardless of the acquirer's intent to do so. Intangible
assets with definitive lives will need to be amortized over their
useful lives. The statement requires that by June 30, 2002, a company
must establish its fair value benchmarks in order to test for
impairment. The Company adopted SFAS 142 effective January 1, 2002.
Such adoption did not result in an impairment of goodwill, based on a
fair value based test; however, changes in the facts and circumstances
relating to the Company's goodwill and other intangible assets could
result in an impairment of intangible assets in the future. Adoption of
SFAS 142 increased pretax earnings by approximately $176,000 for the
three months ended June 30, 2002 due to the cessation of goodwill
amortization.
As a result of the factors discussed above, operating income increased
by $0.4 million for the three months ended June 30, 2002 as compared to
the same period in 2001.
Other expense, net decreased by $2.2 million, to $0.1 million,
primarily as a result of the loss recorded on the sale of the Company's
Mid-West Region business in 2001. On June 14, 2001, the Company
consummated a transaction providing for the sale of all the outstanding
stock in National Express, Inc. As a result of the transaction, the
Company recorded a $2.3 million loss on the sale. During the same
period in 2002, the Company recorded approximately $0.1 million of
costs associated with early extinguishment of its borrowing facility
with First Union Commercial Corporation. This was offset by gains
recorded on the disposition of certain equipment.
Net income (loss) improved by $2.5 million to net income of $0.4
million for the three months ended June 30, 2002 as compared to a loss
of ($2.1) million for the same period in 2001. This was primarily due
to the factors discussed above.
Liquidity and Capital Resources
The Company's working capital decreased by $1,250,000 from $4,923,000
as of December 31, 2001 to $3,673,000 as of June 30, 2002. The decrease
is a result of increased current maturities of long-term debt under
amended credit agreements, partially offset by cash generated by
operations. Cash and cash equivalents increased $1,395,000 to
$2,560,000 as of June 30, 2002. Cash of $3,194,000 was provided from
operations, while $258,000 was used by net investing activities and
$1,541,000 was used by net financing activities to pay down debt.
Capital expenditures amounted to $340,000 and $151,000 for the six
months ended June 30, 2002 and 2001, respectively.
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As of June 27, 2002 CD&L and Summit Business Capital Corporation, doing
business as Fleet Capital - Business Finance Division, entered into an
agreement establishing a revolving credit facility (the "Fleet
Facility") of $15,000,000. The Fleet Facility replaced a revolving
credit facility with First Union Commercial Corporation established in
July 1997. The Fleet Facility expires on June 27, 2005 and provides
CD&L with standby letters of credit, prime rate based loans at the
bank's prime rate, as defined, plus 25 basis points and LIBOR based
loans at the bank's LIBOR, as defined, plus 225 basis points. 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 June 30, 2002, there were no borrowings under the First
Union Commercial Corporation revolving credit facility and the
outstanding borrowings as of June 30, 2002 were $0. As of June 30,
2002, the Company had borrowing availability of $2,239,000 under the
Fleet Facility, after adjusting for restrictions related to outstanding
Standby Letters of Credit of $7,000,000 and minimum availability
requirements. Under the terms of the Fleet Facility, the Company is
required to maintain certain financial ratios and comply with other
financial conditions. At June 30, 2002 the Company was in compliance
with all loan covenants of the Fleet Facility.
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 Fleet Facility. 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 June 30, 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 of $1,265,000 as a credit to
additional paid-in-capital and a debt discount on the Senior Notes.
Effective as of June 28, 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, provides for interest on the notes to be incurred
prospectively at 12% and an immediate repayment of $1,250,000 in
principal. The June 28, 2002 amendment also requires scheduled
repayments of $250,000 at the end of each calendar quarter beginning in
the first quarter of 2003 and ending in the fourth quarter of 2005.
Such payments increase to $312,500 if CD&L meets certain availability
benchmarks under the Fleet Facility, as defined. The interest rate on
the $3,000,000 of the notes scheduled to be repaid would be reduced to
10% on a prospective basis if CD&L makes a voluntary principal
repayment of $750,000 at any time prior to maturity. The accompanying
financial statements include the $1,250,000 payment in current
maturities of long-term debt as this payment was made on July 2, 2002.
During the three months ended June 30, 2002, the maximum borrowings
outstanding under the Company's revolving credit facility were $0 and
the outstanding borrowings as of June 30, 2002 were $0. The Company
also had $13,250,000 in principal outstanding under its Senior Notes
($12,602,000 net of unamortized discount). The Company also had
$428,000 of capital lease obligations and various equipment notes,
$12,000 of debt related to litigation settlements and $6,162,000 of
seller financed debt. As of June 30, 2002, the Company had borrowing
ability of $2,239,000 under the revolving credit facility, after
adjusting for restrictions related to outstanding Standby Letters of
Credit of $7,000,000 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 June 30,
2002, the Company's debt consisted of approximately $19,204,000 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 June 30,
2002), the Company's results of operations and cash flows for the six
month period ended June 30, 2002 would not be impacted as there were
minimal amounts of variable rate debt outstanding during the period.
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Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Loan and Security Agreement dated June 27, 2002 by
and among CD&L, Inc. (and subsidiaries) and Summit
Business Capital Corp., doing business as Fleet
Capital - Business Finance Division (for electronic
submission only)
10.2 Eighth Amendment and Consent dated June 28, 2002 to
the Senior Subordinated Loan Agreement dated January
29, 1999 (for electronic submission only)
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the second quarter of 2002. The following current reports on
Form 8-K were filed during the third quarter of 2002.
(i) Report on Form 8-K filed on August 9, 2002 concerning
the Company's dismissal of Arthur Andersen LLP and
engagement of Deloitte & Touche LLP as the Company's
independent public accountants.
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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 14, 2002 CD&L, INC.
By: \s\ Russell J. Reardon
-----------------------
Russell J. Reardon
Vice President and
Chief Financial Officer
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