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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterlyreport pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the quarterly
period ended March 31, 2005 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
--- ---
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes No X
--- ---
The number of shares of common stock of the Registrant, par value $.001
per share, outstanding as of May 6, 2005 was 9,356,311.
CD&L, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2005
INDEX
PAGE
PART I - Financial Information
ITEM 1 - Financial Statements
CD&L, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of March 31, 2005 (unaudited)
and December 31, 2004 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2005 and 2004 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2005 and 2004 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk 14
ITEM 4 - Controls and Procedures 14
PART II - Other Information
ITEM 6 - Exhibits 15
SIGNATURE 16
CERTIFICATIONS 17
2
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
March 31, December 31,
2005 2004
----------------- ------------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,548 $617
Accounts receivable, net 21,054 21,548
Prepaid expenses and other current assets 4,606 4,854
----------------- ------------------
Total current assets 27,208 27,019
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 1,523 1,627
GOODWILL, net 11,531 11,531
OTHER INTANGIBLE ASSETS AND DEFERRED FINANCING COSTS, net
1,629 1,737
OTHER ASSETS 1,072 828
----------------- ------------------
Total assets $42,963 $42,742
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $2,497 $4,809
Current maturities of long-term debt 496 487
Accounts payable, accrued liabilities and bank overdrafts
15,796 13,660
----------------- ------------------
Total current liabilities 18,789 18,956
LONG-TERM DEBT, net of current maturities 9,685 9,812
OTHER LONG-TERM LIABILITIES 1,457 1,370
----------------- ------------------
Total liabilities 29,931 30,138
----------------- ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 2,000,000 shares
authorized; no shares issued and outstanding 4,000 4,000
Common stock, $.001 par value; 30,000,000 shares
authorized; 9,385,678 shares issued at March 31, 2005 and
December 31, 2004 9 9
Additional paid-in capital 14,320 14,320
Treasury stock, 29,367 shares at cost (162) (162)
Accumulated deficit (5,135) (5,563)
----------------- ------------------
Total stockholders' equity 13,032 12,604
----------------- ------------------
Total liabilities and stockholders' equity $42,963 $42,742
================= ==================
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,
-----------------------------------
2005 2004
---------------- ---------------
Revenue $52,355 $46,482
Cost of revenue 42,046 37,884
---------------- ---------------
Gross profit 10,309 8,598
---------------- ---------------
Costs and Expenses:
Selling, general, and administrative expenses 8,880 7,535
Depreciation and amortization 274 221
Other income, net (1) (11)
Interest expense 391 571
---------------- ---------------
Total Costs and Expenses 9,544 8,316
---------------- ---------------
Income before provision for income taxes 765 282
Provision for income taxes 337 113
---------------- ---------------
Net income $428 $169
================ ===============
Net income per share:
Basic $.05 $.02
================ ===============
Diluted $.03 $.02
================ ===============
Basic weighted average common shares outstanding 9,356 7,659
================ ===============
Diluted weighted average common shares outstanding 20,253 8,238
================ ===============
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,
--------------------------------
2005 2004
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $428 $169
Adjustments to reconcile net income to net cash provided by operating
activities -
Gain on disposal of equipment and leasehold improvements - (2)
Depreciation, amortization and deferred financing amortization 301 274
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net 494 48
Prepaid expenses and other current assets 248 1,128
Other assets (244) (277)
Increase (decrease) in -
Accounts payable and accrued liabilities 2,136 589
Other long-term liabilities 87 (7)
-------------- --------------
Net cash provided by operating activities 3,450 1,922
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements 17 3
Additions to equipment and leasehold improvements (106) (25)
-------------- --------------
Net cash used in investing activities (89) (22)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of short-term borrowings (2,312) (1,968)
Repayments of long-term debt (118) (932)
-------------- --------------
Net cash used in financing activities (2,430) (2,900)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 931 (1,000)
CASH AND CASH EQUIVALENTS, beginning of period 617 1,697
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $1,548 $697
============== ==============
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, 2004 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, 2005
are not necessarily indicative of the results that may be expected for
any other interim period or for the year ending December 31, 2005. 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, 2004.
(2) STOCK-BASED COMPENSATION
In December 2002, Statement of Financial Accounting Standards ("SFAS")
No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" ("SFAS 148") was issued and became effective in 2002. This
Statement amends SFAS No. 123 "Accounting for Stock-Based
Compensation," ("SFAS 123") to provide alternative methods of
transition for an entity that voluntarily changes to the fair value
method of accounting for stock-based compensation. The Company has
elected to continue to recognize stock-based compensation using the
intrinsic value method and has incorporated the additional disclosure
requirements of SFAS 148.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations
in accounting for its stock option plans. The Company's stock options
have all been issued with their exercise price at market value at the
date of grant. Accordingly, no compensation expense has been recognized
for its stock-based compensation plans. Pro forma information regarding
net income and net income per share is required under the provisions of
SFAS No. 123, and has been determined as if the Company had accounted
for its stock options under the fair value method. The Company will be
adopting SFAS No. 123(R), "Share-Based Payment" ("SFAS 123(R)") during
the first quarter of 2006. At that time, compensation expense related
to the Company's stock-based employee compensation plans will be
recorded over the service period in the financial statements, as
required by SFAS 123(R).
The fair value for these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following
assumptions for the three months ended March 31, 2005 and 2004.
For the Three Months Ended
March 31,
-----------------------------
2005 2004
------------ ------------
Risk-free interest rate 3.10% 4.00%
Volatility factor 56% 82%
Expected life 7 years 7 years
Dividend yield None None
6
The pro forma information regarding net income and net income per share
is as follows (in thousands, except per share data)-
For the Three Months Ended
March 31,
-------------------------------
2005 2004
--------------- ------------
Net income, as reported $428 $169
Stock-based employee compensation
expense determined under fair value
based method for all awards, net of
related tax effects
(119) (4)
--------------- ------------
Pro forma net income $309 $165
=============== ============
Net income per share:
Basic, as reported $.05 $.02
Diluted, as reported $.03 $.02
Basic, pro forma $.03 $.02
Diluted, pro forma $.02 $.02
(3) SHORT-TERM BORROWINGS:
At March 31, 2005, short-term borrowings totaled $2,497,000 consisting
of a line of credit balance of $2,342,000 and $155,000 of outstanding
borrowings related to the insurance financing arrangements discussed
below. At March 31, 2004, short-term borrowings totaled $3,799,000
consisting of a line of credit balance of $3,543,000 and $256,000 of
outstanding borrowings related to the insurance financing arrangements
entered into in 2003.
As of June 27, 2002, CD&L and Summit Business Capital Corporation,
doing business as Fleet Capital - Business Finance Division ("Summit"),
entered into an agreement establishing a revolving credit facility (the
"Fleet Facility") of $15,000,000. 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
(6.00% at March 31, 2005) and LIBOR based loans at the bank's LIBOR, as
defined, plus 225 basis points (4.85% at March 31, 2005). The Company
expects that it will negotiate an extension or replacement of the Fleet
Facility on terms at least as favorable as the current terms, before
the June 2005 expiration date. Credit availability is based on eligible
amounts of accounts receivable, as defined, up to a maximum amount of
$15,000,000 and is collateralized by substantially all of the assets,
including certain cash balances, accounts receivable, equipment,
leasehold improvements and general intangibles of the Company and its
subsidiaries. As of March 31, 2005, outstanding borrowings were
$2,342,000 and the maximum borrowings outstanding under the Fleet
Facility during the year were $4,786,000. As of March 31, 2005, the
Company had total cash on hand and borrowing availability of $7,416,000
under the Fleet Facility, after adjusting for restrictions related to
outstanding standby letters of credit of $5,748,000 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. The Fleet Facility also prohibits the Company from
incurring certain additional indebtedness, limits certain investments,
advances or loans and restricts substantial asset sales, capital
expenditures and cash dividends. The Company was in compliance with its
debt covenants, as amended, as of March 31, 2005.
7
Insurance Financing Agreements -
In connection with the renewal of certain of the Company's insurance
policies, CD&L entered into an agreement to finance annual insurance
premiums. A total of $1,382,000 was financed through this arrangement
as of March 31, 2005. Monthly payments, including interest, amount to
$156,000. The interest rate is 3.2% and the note matures in April 2005.
The related annual insurance premiums were paid to the various
insurance companies at the beginning of each policy year. The
outstanding debt of $155,000 at March 31, 2005 is included in
short-term borrowings. The corresponding prepaid insurance has been
recorded in prepaid expenses and other current assets.
(4) LONG-TERM DEBT:
On January 29, 1999, the Company completed a $15,000,000 private
placement of senior subordinated notes (the "Senior Notes") and
warrants with three financial institutions. The Senior Notes originally
bore interest at 12.0% per annum and are subordinate to all senior debt
including the Company's Fleet Facility. For a description of the Fleet
Facility, see "Liquidity and Capital Resources". Under the terms of the
Senior Notes, as amended, the Company was required to maintain certain
financial ratios and comply with other financial conditions contained
in the Senior Notes agreement.
At March 31, 2004, the Company owed $11,000,000 on the Senior Notes. On
April 14, 2004, an agreement was reached among the Company, BNP Paribas
("Paribas"), Exeter Venture Lenders, L.P. ("Exeter Venture"), and
Exeter Capital Partners IV, L.P. ("Exeter Capital") and together with
Exeter Venture and Paribas (the "Original Note holders") and certain
members of CD&L management and others (the "Investors") as to the
financial restructuring of the Senior Notes. The Original Note holders
agreed to convert a portion of the existing debt due from CD&L into
equity and to modify the terms of the Senior Notes if the Investors
purchased a portion of the note and accepted similar modifications. The
nature of the restructuring is as follows:
(a) The Original Note holders exchanged Senior Notes in the aggregate
principal amount of $4,000,000 for shares of the Series A
Convertible Redeemable Preferred Stock of the Company, par value
$.001 per share ("Preferred Stock"), with a liquidation preference
of $4,000,000. The Preferred Stock is convertible into 3,937,008
shares of Common Stock, does not pay dividends (unless dividends
are declared and paid on the Common Stock) and is redeemable by the
Company for the liquidation value. The conversion price is $1.016
per share which was equal to the average closing price for the
Company's common stock for the 5 days prior to the closing. Holders
of the Preferred Stock have the right to elect two directors.
(b) The Original Note holders and the Company amended the terms of the
$7,000,000 balance of the Senior Notes, and then exchanged the
amended notes for the new notes, which consist of two series of
convertible notes, the Series A Convertible Subordinated Notes (the
"Series A Convertible Notes") in the principal amount of $3,000,000
and the Series B Convertible Subordinated Notes ("Series B
Convertible Notes") in the principal amount of $4,000,000
(collectively, the "Convertible Notes"). The loan agreement that
governed the Senior Notes was amended and restated to reflect the
terms of the substituted Series A Convertible Notes and the Series
B Convertible Notes, including the elimination of most financial
covenants. The principal amount of the Convertible Notes is due in
a balloon payment at the maturity date of April 14, 2011. The
Convertible Notes bear interest at a rate of 9% for the first two
years of the term, 10.5% for the next two years and 12% for the
final three years of the term and will be paid quarterly. The terms
of the two series of Convertible Notes are identical except for the
conversion price ($1.016 for the Series A Convertible Notes, the
average closing price for the Company's common stock for the 5 days
prior to the closing and $2.032 for the Series B Convertible
Notes).
(c) The Investors purchased the Series A Convertible Notes from the
Original Note holders for a price of $3,000,000.
8
(d) The Company issued an additional $1,000,000 of Series A Convertible
Notes to the Investors for an additional payment of $1,000,000, the
proceeds of which were used to reduce short-term debt.
(e) The Investors, the Original Note holders and the Company entered
into a Registration Rights Agreement pursuant to which the shares
of the Company's common stock issuable upon conversion of the
Preferred Stock and the Convertible Notes may be registered for
resale with the Securities and Exchange Commission (the "SEC").
The Company cannot be compelled to redeem the Preferred Stock for cash
at any time. As the interest on the Convertible Notes increases over
the term of the Convertible Notes, the Company records the associated
interest expense on a straight-line basis, giving rise to accrued
interest over the early term of the Convertible Notes.
As a result of the debt restructuring described above, the Company has
taken a charge of $628,000 recorded in other expense in the second
quarter of 2004, representing the unamortized balance of the original
issue discount and deferred financing costs related to the original
private placement of the Senior Notes.
Costs incurred relative to the aforementioned transactions
amounted to approximately $592,000. Of this amount, $420,000 has been
accounted for as deferred financing costs and is being amortized over
the term of the new financing agreements. The remaining $172,000 has
been accounted for as a reduction in paid-in capital. These amounts
have been allocated based on the proportion of debt to equity raised in
the aforementioned transactions.
Long-term debt consists of the following (in thousands) -
MARCH 31, DECEMBER 31,
2005 2004
------------------ -----------------
Series A Convertible Subordinated Notes 4,000 4,000
Series B Convertible Subordinated Notes 4,000 4,000
Capital lease obligations due through July 2007 with
interest at rates ranging from 8.0% to 11.5% and
collateralized by the related property. 4 5
Seller-financed debt on acquisitions, payable in monthly
installments through May 2009. Interest is payable at
rates ranging between 7.0% and 9.0%.
2,177 2,294
------------------ -----------------
10,181 10,299
Less - Current maturities (496) (487)
------------------ -----------------
$9,685 $9,812
================== =================
(5) LITIGATION:
The Company is, from time to time, a party to litigation arising in the
normal course of its business, including claims for uninsured personal
injury and property damage incurred in connection with its same-day
delivery operations. In connection therewith, the Company has recorded
reserves of $774,000 as of March 31, 2005 and December 31, 2004.
Also from time to time, federal and state authorities have sought to
assert that independent contractors in the transportation industry,
including those utilized by CD&L, are employees rather than independent
contractors. The Company believes that the independent contractors that
it utilizes are not employees under existing interpretations of federal
and state laws. However, federal and state authorities have and may
continue to challenge this position. Further, laws and regulations,
including tax laws, and the interpretations of those laws and
regulations, may change.
9
Management believes that none of these actions, including the actions
described above, will have a material adverse effect on the
consolidated financial position or results of operations of the
Company.
(6) NET INCOME PER SHARE:
Basic net income per share represents net income divided by the
weighted average shares outstanding. Diluted net income per share
represents net income divided by the weighted average shares
outstanding adjusted for the incremental dilution of potentially
dilutive common shares.
A reconciliation of weighted average common shares outstanding to
weighted average common shares outstanding assuming dilution follows
(in thousands)-
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2005 2004
------------- -------------
Basic weighted average common
shares outstanding 9,356 7,659
Effect of dilutive securities:
Stock options and warrants 1,054 579
Convertible preferred stock 3,937 -
Subordinated convertible debentures 5,906 -
------------- -------------
Diluted weighted average common
Shares outstanding 20,253 8,238
============= =============
The following potentially dilutive common shares were excluded from the
computation of diluted net income per share because the exercise or
conversion price was greater than the average market price of common
shares (in thousands):
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2005 2004
--------------- --------------
Stock options and warrants 1,135 1,763
Seller-financed convertible notes 185 227
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The Company is provided a "safe harbor" for forward-looking statements
contained in this report by the Private Securities Litigation Reform
Act of 1995. The Company may discuss forward-looking information in
this report such as its expectations for future performance, growth and
acquisition strategies, liquidity and capital needs and its future
prospects. Actual results may not necessarily develop as the Company
anticipates due to many factors including, but not limited to the
timing of certain transactions, unexpected expenses encountered, the
effect of economic and market conditions, the impact of competition and
the factors listed in the Company's 2004 Report on Form 10-K and other
SEC filings. Because of these and other reasons, the Company's actual
results may vary materially from management's current expectations.
10
OVERVIEW
The condensed consolidated financial statements of the Company
including all related notes, which appear elsewhere in this report,
should be read in conjunction with this discussion of the Company's
results of operations and its liquidity and capital resources.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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 of
America. 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 ongoing basis,
the Company evaluates its estimates, including those related to
accounts receivable, intangible assets, insurance reserves, 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. For a discussion of the Company's critical accounting
policies, see the Company's Annual Report on Form 10-K for 2004.
RESULTS OF OPERATIONS
INCOME AND EXPENSE AS A PERCENTAGE OF REVENUE
For the Three Months Ended
March 31,
---------------------------------
2005 2004
-------------- ---------------
Revenue 100.0% 100.0%
Gross profit 19.7% 18.5%
Selling, general and
administrative expenses 17.0% 16.2%
Depreciation and amortization 0.5% 0.5%
Interest expense 0.7% 1.2%
Income before provision for income taxes 1.5% 0.6%
Net income 0.8% 0.4%
THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2004
Revenue for the three months ended March 31, 2005 increased by
$5,873,000, or 12.6%, to $52,355,000 from $46,482,000 for the three
months ended March 31, 2004. The increase was due to new customers and
a higher volume of business from existing customers. The revenue growth
reflected the Company's ability to focus on its nationwide business
development program while expanding into new markets with its existing
customer base.
Cost of revenue increased by $4,162,000, or 11.0%, to $42,046,000 for
the three months ended March 31, 2005 from $37,884,000 for the three
months ended March 31, 2004. Cost of revenue for the three months ended
March 31, 2005 represented 80.3% of revenues as compared to 81.5% for
the same period in 2004. The improved margin was due primarily to lower
new business startup and weather related inefficiencies in the current
quarter compared to the same period last year. This improvement was
partially offset by a $178,000 increase in cargo claims expense in the
current quarter.
11
Selling, general and administrative expenses ("SG&A") increased by
$1,345,000, or 17.9%, to $8,880,000 for the three months ended March
31, 2005 from $7,535,000 for the same period in 2004. Stated as a
percentage of revenue, SG&A was 17.0% as of March 31, 2005 and 16.2% as
of March 31, 2004. The increase in SG&A was due primarily to a $711,000
increase in business development staffing and incentive compensation
and a $272,000 increase in rent as a result of 8 additional property
leases in the first quarter of 2005 as compared to the first quarter of
2004. The increase in SG&A was partially offset by a decrease in
allowance for doubtful accounts of $106,000.
Depreciation and amortization was $274,000 as of March 31, 2005 as
compared to $221,000 for the same period in 2004. This increase
resulted from the amortization of the First Choice customer list and
fixed assets that were acquired in March 2004.
Interest expense decreased by $180,000 to $391,000 for the three months
ended March 31, 2005 as compared to $571,000 for the same period last
year. The reduction in interest was due to the debt restructuring on
April 14, 2004. See Note 4 in Notes to Condensed Consolidated Financial
Statements.
As a result of the factors discussed above, income before provision for
income taxes increased by $483,000 to $765,000 for the three months
ended March 31, 2005 from $282,000 for the same period last year.
Provision for income taxes increased by $224,000 to $337,000 for the
three months ended March 31, 2005 as compared to $113,000 for the same
period in 2004. This was due to the increase in income before provision
for income taxes discussed above as well as an increased effective tax
rate of 44% for the first quarter of 2005 as compared to 40% for the
first quarter of 2004 as a result of an increase in state income taxes.
Net income increased by $259,000 to $428,000 for the three months ended
March 31, 2005 as compared to $169,000 for the same period last year.
This was due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, the Company was indebted to Paribas in the sum of
$11.0 million pursuant to a subordinated note bearing interest at 12%
per annum (see Senior Notes in Note 4). On April 14, 2004, an agreement
was reached between Paribas and the Investors as to the financial
restructuring of the Senior Notes. Paribas agreed to convert a portion
of its existing debt due from CD&L into equity and to modify the terms
of its subordinated note if the investors purchased a portion of the
note and accepted similar modifications. The loan agreement that
governed the Senior Notes was amended and restated to reflect the terms
of the substituted Series A Convertible Notes and the Series B
Convertible Notes, including the elimination of most financial
covenants. At March 31, 2005, long-term debt included $4,000,000 of
Series A Convertible Notes and $4,000,000 of Series B Convertible
Notes. The principal amount of the Convertible Notes is due in a
balloon payment at the maturity date of April 14, 2011. The Convertible
Notes bear interest at a rate of 9% for the first two years of the
term, 10.5% for the next two years and 12% for the final three years of
the term.
The Company's working capital increased by $356,000 from $8,063,000 as
of December 31, 2004 to $8,419,000 as of March 31, 2005. Cash and cash
equivalents increased by $931,000 to $1,548,000 as of March 31, 2005.
Cash of $3,450,000 was provided by operations, while $89,000 was used
in net investing activities and $2,430,000 was used in net financing
activities. Capital expenditures amounted to $106,000 and $25,000 for
the three months ended March 31, 2005 and 2004, respectively.
12
As of June 27, 2002, CD&L and Summit entered into an agreement
establishing the Fleet Facility. 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 (6.00%
at March 31, 2005) and LIBOR based loans at the bank's LIBOR, as
defined, plus 225 basis points (4.84% at March 31, 2005). Credit
availability is based on eligible amounts of accounts receivable, as
defined, up to a maximum amount of $15,000,000 and is collateralized by
substantially all of the assets, including certain cash balances,
accounts receivable, equipment, leasehold improvements and general
intangibles of the Company and its subsidiaries. During the three
months ended March 31, 2005, the maximum borrowings outstanding under
the Fleet Facility were approximately $4,786,000 and the outstanding
borrowings as of March 31, 2005 were approximately $2,342,000. As of
March 31, 2005, the Company had total cash on hand and borrowing
availability of $7,416,000 under the Fleet Facility, after adjusting
for restrictions related to outstanding standby letters of credit of
$5,748,000 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. The Fleet Facility also prohibits the Company from
incurring certain additional indebtedness, limits certain investments,
advances or loans and restricts substantial asset sales, capital
expenditures and cash dividends. The Company was in compliance with its
debt covenants as of March 31, 2005.
The Company's risk of incurring uninsured losses increased in 2004 as a
result of increased deductibles retained by the Company in order to
reduce premiums in conjunction with the renewal of certain insurance
policies in 2004. There can be no assurances that the Company's risk
management policies and procedures will minimize future uninsured
losses or that a material increase in frequency or severity of
uninsured losses will not occur and adversely impact the Company's
future consolidated financial results.
The Company had an accumulated deficit of ($5,135,000) as of March 31,
2005. On numerous occasions, the Company has had to amend and obtain
waivers of the terms of its credit facilities and senior debt as a
result of covenant violations or for other reasons. On April 14, 2004,
the Company restructured its senior debt and related covenants. The
restructuring included an agreement among the Company, its lenders and
certain members of CD&L management and others which improved the
Company's short-term liquidity and reduced interest expense. The
restructuring eased the financial covenants to which the Company was
subject. However, if the Company were to fail to meet such covenants in
the future, there can be no assurances that the Company's lenders would
agree to waive any future covenant violations, renegotiate and modify
the terms of their loans, or further extend the maturity date, should
it become necessary to do so. Further, there can be no assurances that
the Company will be able to meet its revenue, cost or income
projections, upon which the debt covenants are based.
Management believes that cash flows from operations and its borrowing
capacity are sufficient to support the Company's operations and general
business and capital requirements through at least March 31, 2006. Such
conclusions are predicated upon sufficient cash flows from operations
and the continued availability of a revolving credit facility. The
risks associated with cash flows from operations are mitigated by the
Company's low gross profit margin. Unless extraordinary, decreases in
revenue should be accompanied by corresponding decreases in costs,
resulting in minimal impact to liquidity. The risks associated with the
revolving credit facility are as discussed above.
INFLATION
While inflation has not had a material impact on the Company's results
of operations for the periods presented herein, recent fluctuations in
fuel prices can and do affect the Company's operating costs.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the effect of changing interest rates. At
March 31, 2005, the Company's debt consisted of approximately
$10,336,000 of fixed rate debt with a weighted average interest rate of
8.49% and $2,342,000 of variable rate debt with a weighted average
interest rate of 5.69%. The variable rate debt consists of borrowings
of revolving line of credit debt at the bank's prime rate plus 25 basis
points (6.00% at March 31, 2005). If interest rates on variable rate
debt were to increase by 57 basis points (one-tenth of the weighted
average interest rate at March 31, 2005), the net impact to the
Company's results of operations and cash flows for the three months
ended March 31, 2005 would be a decrease of income before provision for
income taxes and cash flows from operating activities of approximately
$3,000. Maximum borrowings of revolving line of credit debt during the
three months ended March 31, 2005 were $4,786,000.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. As of the end of the Company's
most recently completed fiscal quarter (the Company's fourth fiscal
quarter in the case of an annual report) covered by this report,
the Company carried out an evaluation, with the participation of
the Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures pursuant to Securities
Exchange Act Rule 13a-15. Based upon that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures are effective in
ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the Securities
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC rules and forms.
(b) Changes in internal controls over financial reporting. There have
been no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter to
which this report relates that have materially affected, or are
reasonably likely to materially affect, the Company's internal
control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 6 - Exhibits
(a) Exhibits
31.1 Certification of Albert W. Van Ness, Jr. Pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Russell J. Reardon Pursuant to Exchange Act
Rules 13a- 14(a) and 15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Albert W. Van Ness, Jr. Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Russell J. Reardon Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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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: May 16, 2005 CD&L, INC.
By: \s\ Russell J. Reardon
------------------------
Russell J. Reardon
Vice President and
Chief Financial Officer
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