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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission File No.: 0-26954
CONSOLIDATED DELIVERY & LOGISTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3350958
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
380 Allwood Road
Clifton, New Jersey 07012
(973) 471-1005
(Address, including Zip Code, and telephone number, including area code, of
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $22,516,456 as of March 13, 1998.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Outstanding as of March 13, 1998
Common Stock, $.001 par value 6,666,884
Documents Incorporated by Reference: The information required by Part III
(other than the required information regarding executive officers) is
incorporated by reference from the registrant's definitive proxy statement,
which will be filed with the Commission not later than 120 days following
December 31, 1997.
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<PAGE>
PART I
Item 1. Business
Consolidated Delivery & Logistics, Inc. (the "Company") was founded in
June 1994 to create a national, full service, same-day ground and air delivery
and logistics company. The Company provides an extensive network of same-day
delivery services to a wide range of commercial, industrial and retail
customers. The Company's ground delivery operations are concentrated on the East
Coast, with a strategic presence in the Midwest and on the West Coast. The
Company's air delivery services are provided throughout the United States and to
major cities around the world.
The Company's same-day delivery services are generally divided between
rush and scheduled delivery. Rush delivery typically consists of delivering
time-sensitive packages, such as critical machine parts or emergency medical
devices. Scheduled delivery services, provided on a recurring and often daily
basis, include deliveries from pharmaceutical suppliers to pharmacies, from
manufacturers to retailers, and the interbranch distribution of financial
documents.
The Company offers its customers a single source for their same-day
delivery needs. The Company's strategy is to achieve increased operating
efficiencies by consolidating operations, increasing the density of its delivery
routes and improving the productivity of existing personnel, equipment and
facilities. During 1997, the Company curtailed its acquisition activities to
focus on internal growth, strengthen its management structure and to improve
financial and operational systems. In connection therewith, and in accordance
with the Company's previously announced plans, the Company disposed of its
contract logistics subsidiary and its fulfillment and direct mail operation. In
1998, the Company intends to seek suitable acquisition candidates where the
Company can improve its existing market position or can establish a stronger
market presence.
In connection with the disposal of the Company's fulfillment and direct
mail business, the revenue, cost and expenses, assets and liabilities and cash
flows have been reclassified as discontinued operations in the accompanying
consolidated financial statements.
Industry Overview
The ground and air delivery industry in the United States is composed
largely of companies providing same-day, next-day and two-day services. The
Company primarily services the same-day delivery market. In contrast, the
next-day and two-day delivery markets are dominated by large national entities,
such as United Parcel Service, Inc. ("UPS") and FedEx Corp. ("FedEx").
The Company believes that the same-day delivery industry, which is
currently serviced by a fragmented system of approximately 10,000 companies, is
undergoing substantial growth and consolidation. The Company believes that
several factors, including the following, are driving the growth and
consolidation of the industry:
Outsourcing and Vendor Consolidation. Commercial and industrial
concerns, which are major consumers of same-day delivery services, have
continued to follow the trend of concentrating on their core business by
outsourcing non-core activities. Businesses also are increasingly seeking
single-source solutions for their regional same-day delivery needs rather than
utilizing a number of smaller local delivery companies. At the same time, larger
national and international companies are looking toward decentralized
distribution systems. The recent strike by UPS has led many businesses to
reconsider their choice of single-source international delivery companies and
such businesses are adding flexibility by including regional delivery vendors.
As a result, the Company believes that significant opportunities exist for
regional carriers that are able to provide a full range of services to such
businesses.
Heightened Customer Expectations. Increased customer demand for
customized billing, enhanced tracking, storage, inventory management and
just-in-time delivery capabilities favor companies with greater resources to
devote to providing such services.
New Market Opportunities. The significant growth in catalog and at-home
shopping and in-home medical care present substantial growth opportunities for
companies capable of economically providing more customized reliable services.
Services
The Company provides a full range of same-day ground and air delivery
service options.
Ground Delivery
The Company offers comprehensive same-day ground delivery products
including:
Rush. In providing rush or service on-demand, Company foot messengers
and drivers respond to customer requests for immediate pick-up and delivery of
time-sensitive packages. The Company generally offers one-, two-and four-hour
service, seven days a week, twenty-four hours a day. Typical customers include
commercial and industrial companies, hospitals and service providers such as
accountants, lawyers, advertising and travel agencies and public relations
firms.
Scheduled. The Company's scheduled delivery services are provided on a
recurring and often daily basis. The Company typically picks up or receives
large shipments of products, which are then sorted, routed and delivered. These
deliveries are made in accordance with a customer's specific schedule which
generally provides for deliveries to be made at particular times. Typical routes
may include deliveries from pharmaceutical suppliers to pharmacies, from
manufactures to retailers, the interbranch distribution of financial documents,
payroll data and other documents, and the delivery of other time-sensitive
materials for banks, financial institutions and insurance companies. The Company
also provides these services to large retailers for home-delivery, including
large cosmetic companies, door-to-door retailers, catalog marketers, home health
care distributors and other direct sales companies.
Facilities Management. The Company provides mailroom management
services, including the provision and supervision of mailroom personnel, mail
and package sorting, internal delivery and outside local messenger services.
Typical customers include commercial enterprises and professional firms.
Air Services
The Company provides next-flight-out (rush) and scheduled air courier
and airfreight services to its customers, both domestically and internationally.
The services provided include arranging for (i) the transportation of a shipment
from the customer's location to the airport, (ii) air transportation, and (iii)
the delivery of the shipment to its ultimate destination. In order to meet the
needs of its customers, the Company has established relationships with many
major airlines and large airfreight companies from which the Company purchases
cargo space on an as-needed basis.
Operations
Ground Delivery
The Company's delivery operations are currently managed on a regional
basis. The regions have operations centers staffed by dispatchers, as well as
order entry and other operations personnel. Coordination and deployment of
delivery personnel is accomplished either through communications systems linked
to the Company's computers, through pagers, by radio or telephone. A dispatcher
coordinates shipments for delivery within a specific time frame. Shipments are
routed according to the type and weight of the shipment, the geographic distance
between the origin and destination and the time allotted for the delivery. In
the case of scheduled deliveries, routes are designed to minimize the unit costs
of the deliveries and to enhance route density. The Company is currently
installing new hardware and software systems designed to enhance and centralize
the reporting and tracking of shipments through the ground system as well as to
simplify the process of designing and scheduling delivery routes. See Year 2000
Compliance in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Air Services
The Company's air courier and airfreight service begins with a customer
placing an order, which is then dispatched for pickup by a local driver. A
tracking number is assigned to the shipment and entered into the Company's
computer system. The computer system than selects the optimal route for the
shipment based on delivery, destination and timing considerations, tracks the
shipment as it flows through the delivery stream until it is ultimately
delivered to the recipient and prepares the appropriate billing charges. At the
final destination, a "proof of delivery" is obtained to conclude and confirm the
delivery. At any point in the process, the Company is able to inform the
customer as to the exact location of its shipment within the distribution
network.
Sales and Marketing
The Company believes that a direct sales force most effectively reaches
its customers for same-day delivery services and, accordingly, the Company does
not currently engage in mass media advertising. The Company markets directly to
individual customers by designing and offering customized service packages after
determining a customer's specific delivery and distribution requirements. The
Company is implementing a coordinated "major account" strategy by building on
established relationships with regional and national customers. The Company also
employs certain direct response marketing techniques.
Many of the services provided by the Company, such as facilities
management, distribution and scheduled services, are determined on the basis of
competitive bids. However, the Company believes that quality and service
capabilities are also important competitive factors. In certain instances, the
Company has obtained business by offering a superior level of service, even
though it was not the low bidder for a particular contract. The Company derives
a substantial portion of its revenues from customers with whom it has entered
into contracts. Virtually all scheduled dedicated vehicle and facilities
management services are provided pursuant to contracts. Most of these contracts
are terminable by the customer on relatively short notice without penalty.
Competition
The market for the Company's delivery service is highly competitive.
The Company believes that the principal competitive factors in the markets in
which it competes are reliability, quality, breadth of service and price. The
Company competes on all such factors. Most of the Company's competitors in the
same-day ground and air delivery market are privately held companies that
operate in only one location or in a limited service area. However, there is a
growing trend toward consolidation in the industry. Certain of the Company's
competitors have recently consolidated, such as Corporate Express, Inc., Dynamex
Inc. and Dispatch Management Services, Inc. In addition, UPS and FedEx have
begun to provide same-day air delivery services.
In addition to the same-day delivery services provided by the Company,
customers also utilize next-day and second-day services. The market for next-day
and second-day services is dominated by nationwide network providers, such as
FedEx and UPS, which have built large, capital-intensive distribution channels
that allow them to process a high volume of materials. In order to effectively
operate their networks, these companies typically have fixed deadlines for
next-day or second-day delivery services. In contrast, the Company specializes
in on-demand, next-flight-out deliveries or services which, by their nature, are
not governed by rigid time schedules. If a customer is unable to meet a network
provider's established deadline, the Company can pick up the shipment, put it on
the next available flight and deliver it, in some cases, before the network
provider's scheduled delivery time. The Company's services are available
twenty-four hours a day, seven days a week.
The Company obtains space on scheduled airline flights to provide its
air services and accordingly does not have to acquire or maintain an expensive
fleet of airplanes. As a result, the Company can provide a more flexible,
specialized service to its customers without incurring the high fixed overhead
that the larger network providers must incur.
Acquisitions and Divestitures
In November 1995 the Company commenced operations simultaneously with
the acquisition of eleven companies providing same-day delivery and logistics
services. The aggregate consideration paid by the Company was approximately
$29.6 million in cash and 2,935,702 shares of Common Stock, par value $.001 per
share (the "Common Stock"), for an aggregate value of approximately $67.8
million.
In 1996, the Company acquired several additional businesses aggregating
approximately $15.6 million in annual revenues. The aggregate purchase price
paid by the Company for these businesses was approximately $3.3 million,
consisting of a combination of cash, seller financed debt and shares of Common
Stock. The purchase price was subsequently reduced by approximately $357,000 due
to actual revenue not reaching projected revenue as stipulated in the purchase
agreements. Each of the transactions has been accounted for as a purchase. See
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
In 1997, the Company curtailed its acquisition activity and focused on
internal growth. Consistent with the change in strategic focus, in January 1997,
the Company sold its contract logistics subsidiary to David Mathia, its founder
and president, in exchange for 137,239 shares of the Company's common stock. In
connection with the sale, the Company recorded a gain of approximately $816,000
before the effect of Federal and state income taxes. During October 1997, the
Company announced its intention to exit the fulfillment and direct mail business
and in December 1997 sold its fulfillment and direct mail business for $850,000
in cash and notes. In connection with the sale, the Company recorded a gain of
approximately $23,000 net of Federal and state income taxes of approximately
$15,000. Accordingly, these operations have been reclassified as discontinued
operations in the accompanying consolidated financial statements.
The Company intends to pursue additional acquisitions in 1998, where
the Company can improve its existing market position or establish a strategic
market presence. The Company's ability to make additional acquisitions is
limited under the terms of its Revolving Credit Facility - See Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Regulation
The Company's delivery operations are subject to various state and
local regulations and, in many instances, require permits and licenses from
state authorities. To a limited degree, state and local authorities have the
power to regulate the delivery of certain types of shipments and operations
within certain geographic areas. Interstate and intrastate motor carrier
operations are also subject to safety requirements prescribed by the United
States Department of Transportation (the "DOT") and by State Departments of
Transportation. The Company's failure to comply with the applicable regulations
could result in substantial fines or possible revocation of one or more of the
Company's operating permits.
Safety
The Company seeks to ensure that all employee drivers meet safety
standards established by the Company and its insurance carriers as well as the
DOT. In addition, where required by the DOT or state or local authorities, the
Company requires independent owner/operators utilized by the Company to meet
certain specified safety standards. The Company reviews prospective drivers in
an effort to ensure that they meet applicable requirements.
Intellectual Property
The Company filed an application to register the service mark
"Consolidated Delivery & Logistics, Inc. The Total Package in Delivery" which is
currently pending in the U.S. Patent and Trademark Office. No assurance can be
given that any such registration will be granted or that if granted, such
registration will be effective to prevent others from (i) using this or similar
service mark concurrently or (ii) preventing the Company from using the service
mark in certain locations. The Company is not aware of any other entity using
the name "Consolidated Delivery & Logistics, Inc." or the service mark "The
Total Package in Delivery."
Employees and Independent Contractors
At December 31, 1997, the Company employed approximately 2,900 people,
2,000 as drivers or messengers, 400 in operations, 300 in clerical and
administrative positions, 50 in sales and 150 in management. The Company is not
a party to any collective bargaining agreements, although the Company is subject
to union organizing activity from time to time. The Company has not experienced
any work stoppages and believes that its relationship with its employees is
good.
The Company also had contracts with approximately 1,000 independent
contractors as of December 31, 1997. From time to time, federal and state
authorities have sought to assert that independent contractors in the
transportation industry, including those utilized by the Company, are employees,
rather than independent contractors. In 1997, a subsidiary of the Company
satisfactorily concluded an employment status examination. The Company has been
informed that two additional examinations will be conducted in 1998 regarding
employment status at certain other Company subsidiaries. The Company continues
to believe that the independent contractors utilized by the Company are not
employees under existing interpretations of federal and state laws. However,
there can be no assurance that federal and state authorities will not challenge
this position, or that other laws or regulations, including tax laws, or
interpretations thereof, will not change. If, as a result of any of the
foregoing, the Company were required to pay for and administer added benefits to
independent contractors, the Company's operating costs would substantially
increase. See "Risk Factors - Independent Contractors and Employee
Owner/Operators."
Risk Factors
Limited Combined Operating History
The Company was founded in June 1994 and conducted no operations prior to
consummating the acquisition of 11 same-day courier companies in November 1995.
Since that time, the Company has acquired several additional businesses. The
businesses acquired by the Company since its formation have all operated as
separate independent entities prior to their acquisition by the Company. The
process of integrating acquired businesses often involves unforeseen
difficulties and may require a significant amount of the Company's financial and
other resources, including management time. The Company may experience delays,
complications and unanticipated expenses in implementing, integrating and
operating the acquired businesses, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See Item 1. Business.
Management of Growth
The Company expects to expend significant time and effort in expanding its
existing businesses and identifying, acquiring and integrating acquisitions.
There can be no assurance that the Company's management and financial reporting
systems, procedures and controls will be adequate to support the Company's
operations as they expand. Any future growth also will impose significant added
responsibilities on members of senior management, including the need to
identify, recruit and integrate additional management and employees. There can
be no assurance that such additional management and employees will be identified
and retained by the Company. To the extent that the Company is unable to manage
its growth efficiently and effectively, or is unable to attract and retain
additional qualified personnel, the Company's business, financial condition and
results of operations could be materially adversely effected. See Item 1.
Business--Acquisitions and Divestitures.
Risks Relating to the Company's Acquisition Strategy
In 1997 the Company curtailed its acquisition activity, however, one of the
Company's growth strategies for 1998 is to increase its revenues and
profitability and expand the markets it serves through the acquisition of
additional same-day air and ground delivery businesses. Several large, national
publicly traded companies have begun to consolidate the delivery industry. There
can be no assurance that the Company will be able to compete effectively for
acquisition candidates on terms deemed acceptable to the Company. There also can
be no assurance that the Company will be able to successfully convert the
systems of these businesses to the Company's existing systems and integrate such
businesses into the Company without substantial costs, delays or other
operational or financial problems. Acquisitions involve a number of special
risks, including possible adverse effects on the Company's operating results and
the timing of those results, diversion of management's attention, dependence on
retention, hiring and training of key personnel, risks associated with
unanticipated problems or legal liabilities, and the realization of intangible
assets, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations, particularly
in the fiscal quarters immediately following the consummation of such
transactions. To the extent that the Company is unable to acquire additional
same-day delivery companies or integrate such businesses successfully, the
Company's ability to expand its operations and increase its revenues and
earnings to the degree desired could be reduced significantly.
The Company currently intends to finance future acquisitions by using a
combination of shares of its Common Stock, notes and cash. In the event that the
Common Stock of the Company does not maintain a sufficient market value, or
potential acquisition candidates are unwilling to accept the Company's Common
Stock as part of or all of the consideration to be paid for their business, the
Company may be required to utilize its cash resources, if available, to maintain
its acquisition program. If the Company has insufficient cash resources to
pursue acquisitions, its growth could be limited unless it is able to obtain
additional capital through debt or equity financing. There can be no assurance
that the Company will be able to obtain such financing if and when it is needed
or that, if available, such financing can be obtained on terms the Company deems
acceptable. The inability to obtain such financing could negatively impact the
Company's acquisition program and could have a resulting material adverse effect
on the Company's business, financial condition and results of operations. The
terms of the Company's existing Revolving Credit Facility restricts the
Company's ability to make acquisitions.
See Item 1. Business--Acquisitions and Divestitures.
Risks Associated With the Same-Day Delivery Industry; General Economic
Conditions
The Company's revenues and earnings are especially sensitive to events that
affect the delivery services industry, including extreme weather conditions,
economic factors affecting the Company's significant customers, increases in
fuel prices and shortages of or disputes with labor, any of which could result
in the Company's inability to service its clients effectively. In addition,
demand for the Company's services may be negatively impacted by downturns in the
level of general economic activity and employment. The development and increased
popularity of facsimile machines and electronic mail via the Internet has
reduced the demand for certain types of delivery services, including those
offered by the Company. As a result, same-day delivery companies, including the
Company, have changed focus to those delivery services involving items that are
unable to be delivered via alternative methods. There can be no assurance that
similar industry-wide developments will not have a material adverse effect on
the Company's business, financial condition or results of operations.
Dependence on Technology
The Company's business is dependent upon a number of different information and
telecommunication technologies. Any impairment of the Company's ability to
process transactions on an accurate and timely basis could result in the loss of
customers and diminish the reputation of the Company. The Company intends to
integrate its subsidiaries' separate operating systems to an integrated
Company-wide system. There can be no assurance that the contemplated integration
and conversion of these systems will be successful or completed on a timely
basis or without unexpected costs. Any of the foregoing could have a material
adverse effect on the Company's business, financial condition and results of
operations. See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Independent Contractors and Employee Owner/Operators
From time to time, federal and state authorities have sought to assert
that independent contractors in the transportation industry, including those
utilized by the Company, are employees, rather than independent contractors.
Similar assertions have been made against a subsidiary of the Company. The
Company believes that the independent contractors utilized by the Company are
not employees under existing interpretations of federal and state laws. However,
there can be no assurance that federal and state authorities will not challenge
this position, or that other laws or regulations, including tax laws, or
interpretations thereof, will not change. If, as a result of any of the
foregoing, the Company were required to pay for and administer added benefits to
independent contractors the Company's operating costs could substantially
increase. See Item 1. Business Employees and Independent Contractors.
In addition, certain of the Company's employees own and operate their
own vehicles in the course of their employment. In certain cases, the Company
pays those employees for all or a portion of the costs of operating those
vehicles. The Company believes that these arrangements do not represent
additional compensation to those employees. However, there can be no assurance
that federal and state taxing authorities will not seek to recharacterize some
or all of such payments as additional compensation. If such amounts were
recharacterized, the Company could have to pay additional employment-related
taxes on such amounts.
Claims Exposure
The Company utilizes the services of approximately 2,000 drivers. From
time to time such drivers are involved in accidents. The Company currently
carries liability insurance of $1 million for each such accident (subject to
applicable deductibles), carries umbrella coverage up to $25 million in the
aggregate and requires its independent contractors to maintain liability
insurance of at least the minimum amounts required by state and federal law.
However, there can be no assurance that claims against the Company will not
exceed the amount of coverage. If the Company were to experience a material
increase in the frequency or severity of accidents, liability claims or workers'
compensation claims, or unfavorable resolutions of claims, the Company's
operating results could be materially affected. In addition, significant
increases in insurance costs could reduce the Company's profitability.
Shares Eligible for Future Sale
The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market. As of March
13, 1998, 6,666,884 shares of Common Stock were issued and outstanding,
3,250,312 of which were registered for resale by the holders thereof. The
remaining shares may only be sold in transactions registered under the
Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an
exemption from registration, including the exemption contained in Rule 144 under
the Securities Act.
In September 1995, the Company issued $2 million in aggregate principal
amount of its 8% Subordinated Convertible Debentures due August 2000 (the
"Debentures") to certain individuals. The Debentures are convertible into
180,995 shares of Common Stock. Pursuant to the terms of the Debentures, the
Company has agreed to register the shares of Common Stock into which the
Debentures are convertible. See Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
As of March 13, 1998, the Company had outstanding under its stock
option plans options to purchase an aggregate of 914,361 shares of Common Stock,
575,830 of which were exercisable as of that date. The shares of Common Stock
issuable upon the exercise of such options have been registered under the
Securities Act and, as a result, will be eligible for resale in the public
market, unless held by affiliates of the Company.
Reliance on Key Personnel
The Company's operations are dependent on the continued efforts of its
senior management. Furthermore, the Company will likely be dependent on the
senior management of companies that may be acquired in the future. If any of
these people elect not to continue in their present roles, or if the Company is
unable to attract and retain other skilled employees, the Company's business
could be adversely affected. See Item 10. Directors and Executive Officers of
the Registrant and Item 1. Business - Strategy.
Permits and Licensing
The Company's delivery operations are subject to various state, local
and federal regulations that in many instances require permits and licenses.
Failure by the Company to maintain required permits or licenses, or to comply
with applicable regulations, could result in substantial fines or possible
revocation of the Company's authority to conduct certain of its operations.
No Future Dividends
The Company does not anticipate paying any cash dividends on shares of
the Common Stock in the foreseeable future and intends to retain future
earnings, if any, for use in its business. In addition, the Company's ability to
pay cash dividends on the Common Stock is limited by the terms of its Revolving
Credit Facility. See Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters - Dividends and Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources.
Effect of Certain Charter Provisions
The Board of Directors of the Company is empowered to issue preferred
stock without stockholder action. The existence of this "blank-check" preferred
stock could render more difficult or discourage an attempt to obtain control of
the Company by means of a tender offer, merger, proxy contest or otherwise and
may adversely affect the prevailing market price of the Common Stock. The
Company currently has no plans to issue shares of preferred stock. In addition,
Section 203 of the Delaware General Corporation Law restricts certain persons
from engaging in business combinations with the Company.
<PAGE>
Item 2. Properties -
As of December 31, 1997, the Company operated from 53 leased facilities
(excluding eight authorized sales agent locations). These facilities are
principally used for operations, general and administrative functions and
training. In addition, several facilities also contain storage and warehouse
space. The table below summarizes the location of the Company's current
facilities (excluding the sales agent locations).
State Number of Facilities
- ----- --------------------
New York.......................................... 16
Florida........................................... 9
New Jersey........................................ 6
California........................................ 3
Massachusetts..................................... 3
Illinois.......................................... 2
Louisiana......................................... 2
Ohio.............................................. 2
Connecticut....................................... 1
Georgia........................................... 1
Indiana........................................... 1
Maine............................................. 1
Maryland.......................................... 1
Missouri.......................................... 1
North Carolina.................................... 1
Tennessee......................................... 1
Virginia.......................................... 1
Washington........................................ 1
The Company's corporate headquarters are located in Clifton, New
Jersey. The Company believes that its properties are generally well maintained,
in good condition and adequate for its present needs. Furthermore, the Company
believes that suitable additional or replacement space will be available when
required.
As of December 31, 1997, the Company owned or leased approximately 270
cars and 480 trucks of various types, which are primarily operated by drivers
employed by the Company. In addition, certain of the Company's employee drivers
own or lease their own vehicles. The Company also hires independent contractors
who typically provide their own vehicles and are required to carry at least the
minimum amount of insurance required by state law.
The Company's aggregate rental expense for the year ended
December 31, 1997 was approximately $3.5 million. See Note 12 to the
Company's Consolidated Financial Statements.
<PAGE>
Item 3. Legal Proceedings
On March 19, 1997, a purported class action complaint, captioned
Gapszewicz v. Consolidated Delivery & Logistics, Inc., et al. (97 Civ. 1939),
was filed in the United States District Court for the Southern District of New
York (the "Court") against the Company, certain of the Company's present and
former executive officers, and the co-managing underwriters of the Company's
initial public offering (the "Offering"). The gravamen of the complaint is that
the Company's registration statement for the Offering contained misstatements
and omissions of material fact in violation of the federal securities laws and
that the Company's financial statements included in the registration statement
were false and misleading and did not fairly reflect the Company's true
financial condition. The complaint seeks the certification of a class consisting
of purchasers of the Company's Common Stock from November 21, 1995 through
February 27, 1997, rescission of the Offering, attorneys' fees and other
damages. In April 1997, five other complaints containing allegations identical
to the Gapszewicz complaint were filed in the same federal court against the
Company. On May 27, 1997, these six complaints were consolidated into a single
action entitled "In re Consolidated Delivery & Logistics, Inc. Securities
Litigation". On July 16, 1997, the Company and the underwriter defendants filed
a motion to dismiss the complaint. In response, the plaintiffs filed an amended
complaint on October 20, 1997. A motion to dismiss the amended complaint was
filed by the Company and the underwriter defendants on December 15, 1997. No
ruling on the Company's motion has been rendered by the Court. The Company
believes the allegations contained in the amended complaint are without merit
and intends to continue to vigorously defend the action.
In February 1996, Liberty Mutual Insurance Company ("Liberty Mutual")
filed an action against Securities Courier Corporation, a subsidiary of the
Company, Mr. Vincent Brana and certain other parties in the United States
District Court for the Southern District of New York alleging, among other
things, that Securities Courier had fraudulently obtained automobile liability
insurance from Liberty Mutual in the late 1980s and early 1990s at below market
rates. This suit, which claims common law fraud, fraudulent inducement, unjust
enrichment and violations of the civil provisions of the Federal RICO statute,
among other things, seeks an unspecified amount of compensatory and punitive
damages from the defendants, as well as attorneys' fees and other expenses.
Under the terms of the acquisition of Securities Courier, the Company has
certain rights to indemnification from Mr. Brana. Discovery is currently
pending and as a result the Company is unable to make a determination as to
the merits of the claim. The Company does not believe that an adverse
determination in this matter would result in a material adverse affect on
the consolidated financial position or results of operations of the
Company.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its same-day ground and air
delivery operations. 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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters -
The Company's Common Stock is included for quotation on the Nasdaq
National Market under the symbol "CDLI." The following table sets forth the high
and low sales prices for the Common Stock for 1996 and 1997.
<TABLE>
<CAPTION>
1996 Low High
<S> <C> <C>
First Quarter $5.75 $12.25
Second Quarter $4.75 $9.25
Third Quarter $4.25 $6.63
Fourth Quarter $4.00 $5.88
1997 Low High
First Quarter $1.88 $5.00
Second Quarter $1.63 $4.00
Third Quarter $2.13 $3.63
Fourth Quarter $2.19 $4.00
</TABLE>
On March 13, 1998, the last reported sale price of the Common Stock was
$4.63 per share. As of March 13, 1998, there were approximately 157 shareholders
of record of Common Stock and, based on security position listings, the Company
believes there were approximately 1,747 beneficial holders of the Common Stock.
On October 2, 1997 the Company issued 8,333 shares of stock in
connection with the acquisition of certain assets of Sureway Air Express of
Miami, Inc. The issuance was exempt from registration under Section 4(2) of the
Securities Act.
Dividends
The Company has not declared or paid any dividends on its Common Stock.
The Company currently intends to retain earnings to support its growth strategy
and does not anticipate paying dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, results of operations, current and anticipated cash needs
and plans for expansion. The Company's ability to pay cash dividends on the
Common Stock is also limited by the terms of its Revolving Credit Facility. See
Item 1. Business - Risk Factors - No Future Dividends and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.
<PAGE>
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Consolidated Delivery & Logistics, Inc. ("CD&L") was founded in June
1994. In November 1995, simultaneously with the closing of CD&L's initial public
offering (the "Offering") separate wholly-owned subsidiaries of CD&L merged (the
"Merger") with each of the eleven acquired businesses (the "Founding
Companies"). Consideration for the acquisition of these businesses consisted of
a combination of cash and common stock of CD&L, par value $0.001 per share. The
assets and liabilities of the acquired businesses at September 30, 1995, were
recorded by CD&L at their historical amounts.
The statement of operations data shown below for the years ended
December 31, 1993, 1994 and for the nine month period ended September 30, 1995
and the balance sheet data as of December 31, 1993 and 1994 are that of the
Combined Founding Companies prior to the Merger (the "Combined Founding
Companies") on a historical basis. During the periods presented, the Combined
Founding Companies were not under common control or management and some were not
taxable entities. Therefore the data presented may not be comparable to or
indicative of post-Merger results to be achieved by the Company after the
Mergers.
The selected financial data with respect to Consolidated Delivery &
Logistics, Inc.'s consolidated statement of operations for the years ended
December 31, 1995, 1996 and 1997 and with respect to Consolidated Delivery &
Logistics, Inc.'s consolidated balance sheet as of December 31, 1996 and 1997
have been derived from Consolidated Delivery & Logistics, Inc.'s consolidated
financial statements that appear elsewhere herein. The financial data provided
below should be read in conjunction with these accompanying financial statements
and notes thereto as well as "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (Continued)
(In thousands, except per share amounts)
Statement of Operations Data:
Combined Founding Companies (4)
-----------------------------------------
Consolidated
Delivery &
Logistics,
Inc. and
Subsidiaries For the Pro Consolidated Delivery &
For The Years Ended For The Nine For The Year Forma Period Logistics, Inc. and
December 31, Months Ended Ended Ended Subsidiaries
For The Years Ended
------------------------
September 30, December 31, December 31, December 31, December 31,
1993 1994 1995 1995 (3) 1995 (1)(2) 1996 1997
----------- ----------- ------------- ------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $121,752 $136,555 $109,168 $37,322 $146,490 $163,090 $171,502
Gross profit 37,715 41,925 32,827 11,286 44,113 40,559 40,925
Operating income (loss) 1,300 2,107 3,971 578 4,549 (1,468) 2,702
Income (loss) from
continuing
operations (5) 722 867 2,112 (26) 2,086 (854) 1,657
Net income (loss) $722 $721 $2,182 ($195) $1,987 ($683) $459
Basic: (6)
Income (loss) per
share from continuing
operations ($.02) $.32 ($.13) $.25
Net income (loss) per
share ($.10) $.30 ($.10) $.07
============= ============ ============= ==============
Diluted: (6)
Income (loss) per
share from
continuing
operations ($.02) $.31 ($.13) $.25
Net income (loss) per
share ($.10) $.29 ($.10) $.07
============= ============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
Combined Founding Companies Consolidated Delivery & Logistics, Inc. and
Subsidiaries
December 31, December 31,
-----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------------ --------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Working capital $3,211 $3,668 $7,948 $5,472 $2,519
Equipment and leasehold
improvements, net 3,651 3,023 3,582 3,857 5,667
Total assets 23,045 23,642 31,856 35,001 36,159
Long-term debt, net of
current maturities 3,680 1,164 3,027 3,415 2,240
Stockholders' equity 5,212 5,568 8,311 8,730 8,614
</TABLE>
(1) Reflects the results of operations of the Combined Founding Companies for
the period from January 1 to September 30, 1995 and the results of
operations of Consolidated Delivery & Logistics, Inc. and Subsidiaries for
the year ended December 31, 1995.
(2) The computation of pro forma basic earnings per share for the year ended
December 31, 1995 is based upon (i) 493,869 shares of Common Stock issued
prior to the Mergers, (ii) 2,935,700 shares issued to the stockholders of
the Founding Companies in connection with the Mergers and (iii) 3,200,000
shares sold in the Offering. The computation of pro forma diluted earnings
per share for the year ended December 31, 1995 is based upon the preceding
shares and the dilution attributable to the debentures which are
convertible into 180,995 shares of Common Stock. The conversion of the
stock options outstanding at December 31, 1995 is not included in the
computation as the effect would be antidilutive.
(3) The Company selected October 1, 1995 as the effective date of the Merger.
The assets and liabilities of the Founding Companies at September 30, 1995
were recorded by CD&L at their historical amounts. The statement of
operations includes the results of operations of the Founding Companies
from October 1, 1995 through December 31, 1995. The results of operations
for Consolidated Delivery & Logistics, Inc. prior to the Mergers are not
significant.
(4) Pro Forma income tax provisions have been provided for certain
Founding Companies.
(5) During 1997, the Company disposed of its fulfillment and direct mail
operation. Accordingly, the operating results and gain on disposition of
the fulfillment and direct mail business have been reclassified as
discontinued operations for the periods presented.
(6) In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standard No. 128 ("SFAS 128") which requires the presentation of
both basic and diluted earnings per share. For the periods presented, basic
and diluted earnings per share have been restated in accorandance with the
provisions of SFAS 128.
<PAGE>
Item 7. 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: timing of certain transactions, unexpected expenses
encountered, inability to conclude acquisitions on satisfactory terms, the
effect of economic and market conditions, the impact of competition and the
Company's actual results varying materially from management's current
expectations.
Overview
The 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. On December 31, 1997, the Company entered into
an agreement to sell certain assets of its fulfillment and direct mail business
and thereby executed its previously announced plan to discontinue providing such
services. Accordingly, the financial position, results of operations and cash
flows of the Company's fulfillment and direct mail business have been
reclassified as discontinued operations in the accompanying consolidated
financial statements. The Company's results in 1997 were impacted by the sale of
its contract logistics subsidiary which accounted for $4.6 million in revenue
for 1996 and $400,000 to the date of its sale in January 1997.
Results of Operations 1997 compared with 1996
Revenue increased $8.4 million, or 5.2%, from $163.1 million in 1996 to
$171.5 million for the year ended December 31, 1997. Were it not for the
decrease in revenue attributable to the sale of the contract logistics
subsidiary, revenue would have reflected an increase of $12.6 million, or 7.9%,
from $158.5 million in 1996 to $171.1 million for the year ended December 31,
1997.
Air courier revenue increased $4.7 million, or 9.1% and ground delivery
revenue increased $7.9 million, or 7.4% for the year 1997 over the year 1996.
Air courier revenue benefited from the expansion and internal growth of existing
accounts as well as the full year contribution of acquisitions made by the
Company during 1996. Ground delivery revenue increased by $3.9 million from the
addition of time service and facilities management revenue as a result of
previously disclosed acquisitions and the addition of several new contract
distribution routes in the pharmaceutical, electronic repair and office products
industries. The increases in ground delivery revenue discussed above were offset
by a decrease of $1.7 million in the Company's banking division due to continued
industry consolidation. Two of the Company's largest banking customers merged,
decreasing their branch network and the number of stops required.
The Company believes this upward trend in ground and air delivery
revenue will continue in the future as a result of internal growth and its focus
on selective and strategic acquisitions in 1998. While Company management
restricted its acquisition activity in 1997, the goal for 1998 is to focus on
selective and strategic acquisitions where the Company can enhance current
operations or expand into certain new market areas.
Cost of revenue includes, among other things, payment to employee
drivers, owner operators and independent contractors as well as agents,
airfreight carriers, commercial airlines, and pick-up and delivery fees. These
costs increased by $8.1 million, or 6.6% from $122.5 million for the year 1996
to $130.6 million for the year ended December 31, 1997. The increase in cost of
revenue is due to several factors which include significant start-up costs in
connection with new contracts added in the pharmaceutical and office products
distribution industries as well as an increase in costs necessary to support a
growing revenue base in ground delivery. The Company was impacted early in 1997
by airline fuel surcharges as well as a change in the general business mix which
reduced certain consolidation opportunities in selected air freight shipments in
the Company's major markets.
As a result of the above, gross profit increased by $366,000, or 0.9%,
from $40.6 million for 1996 to $40.9 million for the year ended December 31,
1997. Excluding the effect on gross profit of the contract logistics subsidiary,
gross profit would have increased by $1.0 million or 2.5% from $39.8 million for
1996 to $40.8 million for 1997.
Selling, general and administrative expenses ("S,G&A") includes
salaries, sales commissions and travel to support the Company's marketing and
sales effort. Also included are the expenses of maintaining the Company's
information systems, human resources, financial, legal, procurement and other
administrative functions. S,G&A decreased by $3.8 million, or 9.0% from $42.0
million in 1996 to $38.2 million in 1997. The sale of the Company's contract
logistics subsidiary accounts for $1.4 million of that decrease. In the fourth
quarter of 1996, the Company recorded a special charge of $1.4 million which
included contract and salary settlements, abandonment of operating leases and
other costs associated with management headcount reduction and other
consolidation issues. The 1996 restructuring charge included in S,G&A resulted
in a net reduction of SG&A costs of approximately $700,000 in 1997. The balance
of the reduction is principally the result of reduced salaries at the operating
regions due to continued internal consolidation.
As a result of the above, operating income increased for the year ended
December 31, 1997 by $4.2 million from a loss of $1.5 million in 1996 to an
operating profit of $2.7 million in 1997. When excluding the results of the
Company's contract logistics subsidiary which was sold in early 1997, operating
income would have increased $3.5 million. The gain recognized by the Company on
the aforementioned sale of its contract logistics subsidiary in January 1997
amounted to $816,000 before applicable taxes.
Interest expense increased by $339,000 from $805,000 in 1996 to $1.1
million for the year ended December 31, 1997. The increase is primarily due to
an overall increase in the level of borrowing by the Company during 1997 as
compared to 1996. To a lesser extent, the Company was also subject to interest
rate increases during the first quarter of 1997 with its previous lenders prior
to the establishment of its current Revolving Credit Facility (See Note 9 to the
accompanying consolidated financial statements).
Non-comparability of results of operations 1996 compared to 1995
Because the acquired companies operated as separate independent entities
prior to their acquisition, comparisons between the consolidated results of the
Company for the year ended December 31, 1996 and the pro forma combined
historical results of the acquired companies for the year ended December 31,
1995, are difficult to make for numerous reasons, including the following:
1. In 1996, the acquired companies were all subsumed within the common
management of the Company. This resulted among other things in a) each
subsidiary being subjected to an administrative charge, b) reallocation of
costs, such as, for instance, common insurance being acquired for the
Company and its subsidiaries as a whole, and c) the subsidiaries being
relieved of the necessity of performing various administrative functions
for themselves.
2. In 1996, the Company began the process of merging and rationalizing
operations of the previously unrelated acquired Companies.
3. The Company incurred approximately $4.5 million in expenses during 1996
related to corporate overhead and the costs of operating as a public
company, compared to approximately $300,000 in 1995.
4. Most of the acquired Companies were operated as Subchapter S corporations
prior to their acquisition.
The selected financial data presented in this report includes the actual
financial results of the Company for the years ended December 31, 1997, 1996 and
1995. The pro forma combined historical results reflect the combined operations
of the acquired Companies for the period from January 1 to September 30, 1995
and the results of operations of Consolidated Delivery & Logistics, Inc. and
Subsidiaries for the year ended December 31, 1995. For all the reasons set forth
above and others, combined results are not indicative of results that would have
been achieved if the acquired Companies had actually been combined during those
periods, and may not be comparable to or indicative of future performance.
Nonetheless, the following section discusses consolidated 1996 results compared
to pro forma combined historical 1995 results to indicate general trends
affecting operations. The following section should be read with the foregoing
caveats as to non-comparability in mind.
Results of Operations 1996 compared to 1995
Consolidated Delivery's revenue increased 11.3 % to $163.1 million in
1996 from $146.5 million in 1995. In spite of the loss of significant revenue in
the Company's contract logistics subsidiary, the Company achieved revenue growth
in all other areas of its business. Revenue in ground delivery, including rush,
scheduled and distribution increased 11.4 % from $91.4 million in 1995 to $101.8
million in 1996. Air courier produced a 22.1 % increase to $52.0 million in 1996
from $42.6 million in 1995. Revenue in the Company's logistics business declined
by 25.6% from $12.5 million in 1995 to $9.3 million in 1996. Contract logistics
revenue contributed to the overall decline in logistics revenues by $3.5 million
due to the cancellation and/or non-renewal of several long-term contractual
relationships. The significant decline in contract logistics revenues during
1996 contributed to the Company's decision to sell its contract logistics
subsidiary early in 1997.
Ground delivery revenue benefited from the acquisition of three
companies in the Northeast during 1996. In 1996, internal growth of the air
courier business was augmented by the acquisition of two companies, which
solidified and expanded the New York to Los Angeles air route.
The increase in cost of revenue during 1996 caused the Company's gross
profit percentage to decline from 30.1% in 1995 to 24.9% in 1996. Among other
factors contributing to the increase in 1996 cost of revenue is a change in the
Company's general business mix to lower margin business, mobilization and
start-up costs for several large distribution contracts and the effect of fuel
surcharges from several air carriers.
S,G&A increased by $2.4 million, or 6.1%, from $39.6 million for 1995
to $42.0 million for the year ended December 31, 1996. The increase for 1996
included the addition of $4.2 million in expenses necessary to the establishment
and maintenance of the Company's corporate and administrative infrastructure as
a public company. During the fourth quarter of 1996, the Company recognized the
impact of several non-recurring charges totaling approximately $1.4 million
which included salary and contract settlements, abandonment of operating leases
and other costs associated with management headcount reduction and other
consolidation issues.
For the reasons described above, including the decline in gross profit
and the increase in selling, general and administrative expenses including the
impact of non-recurring charges, operating income decreased from operating
income of $4.5 million in 1995 to an operating loss of $1.5 million in 1996.
Interest expense decreased by 8.7 % from $882,000 for the year ended
December 31, 1995 to $805,000 for the year ended December 31, 1996. This
decrease results from refinancing of the pre-combination debt of the
acquired companies which carried higher interest rates than the
Company's Credit Agreement (See Liquidity and Capital Resources).
As a result of the foregoing the Company recorded a net loss of
$683,000 in 1996, compared to net income of $2.0 million in 1995.
As a result of the losses in 1996, the Company instituted certain
actions including the sale of its contract logistics subsidiary, elimination of
redundant overhead and the design of more effective financial and operating
management information systems. The Company also implemented a management
compensation system based on business unit results for 1997.
Liquidity and Capital Resources
Working capital decreased by $3.0 million from $5.5 million at December
31, 1996 to $2.5 million at December 31, 1997. The decrease results primarily
from the reclassification of the Company's $2 million of Convertible
Subordinated Debt to current rather than long-term because the debenture
contains an option for the holders to redeem their debentures in August 1998.
Cash and cash equivalents increased modestly by $55,000 and remained relatively
stable at approximately $1.8 million as of December 31, 1996 and December 31,
1997. Cash transactions consisted primarily of the use of cash for additions to
equipment and leasehold improvements of $1.2 million and the repayment of
Company debt of $1.4 million, offset by net cash provided by continuing
operations of $2.6 million.
The Company announced on March 16, 1998 that approximately 50% of its
current debenture holders have agreed to extend the term of their convertible
subordinated debt from August 1998 to August 1999 based on revised terms and
conditions. Accordingly, the $2 million of convertible subordinated debentures
are included in current maturities of long-term debt in the accompanying
consolidated financial statements, as the effective date of the extension is
expected to be April 1, 1998. The effect of this extension, should it conclude
as expected, will be to increase availability under the Company's current credit
facility by $2 million and utilize $1 million of cash to liquidiate 50% of the
current debentures not extended.
The Company incurred a capital lease obligation of $2.5 million during
1997 in connection with an agreement to acquire 175 delivery vehicles. This
transaction is excluded from the consolidated statement of cash flows in 1997 as
a noncash transaction.
Capital expenditures amounted to $1.2 million, $1.3 million and
$353,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
These expenditures were made primarily to upgrade and expand the capabilities of
computer equipment, and to expand and maintain Company facilities in the
ordinary course of business and in its ongoing consolidation efforts.
The Company used $1.4 million in financing activities during 1997
primarily to repay long-term debt. The Company was provided $1.3 million from
financing activities in 1996 resulting from an increase in borrowings
of approximately $4.5 million reduced by amounts used to repay other long-term
debt of approximately $3.1 million. At December 31, 1997, the Company
had $3.9 million available under the Revolving Credit Facility for future
borrowings.
Management believes that cash flows from operations, together with its
borrowing capacity (see Note 9 of the accompanying consolidated financial
statements) are sufficient to support the Company's operations and general
business and capital liquidity requirements for the foreseeable future.
<PAGE>
Recently Issued Accounting Pronouncements
In the fourth quarter of 1997, the Company adopted Financial Accounting
Standard No. 128 ("SFAS 128") which requires the presentation of both basic and
diluted earnings per share. Basic and diluted earnings per share as calculated
in accordance with SFAS 128 does not differ from earnings per share amounts
reported in prior periods.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 introduces a new
model for segment reporting, called the "management approach." The management
approach is based on the way that management organizes segments within a company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure - any manner in which management disaggregates a company. The
management approach replaces the notion of industry and geographic segments in
current accounting standards. SFAS 131 is effective for fiscal years beginning
after December 15, 1997 and early adoption is encouraged. However, SFAS 131 need
not be applied to interim statements in the initial year of application. SFAS
131 requires restatement of all prior period information reported. The Company
intends to adopt this standard when required and is in the process of
determining the effect of SFAS 131 on the Company's consolidated financial
statements.
Year 2000 Compliance
The Company is currently in the process of evaluating its information
technology infrastructure for the Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to be
Year 2000 compliant will be material to its financial position or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance. The
Company is in the process of obtaining information concerning the Year 2000
compliance status of its suppliers and customers. In the event that any of the
Company's significant suppliers or customers does not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
Inflation
Inflation has not had a material impact on the Company's results of
operations for the last three years.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants........................................................................ 21
Consolidated Balance Sheets as of December 31, 1997 and 1996.................................................... 22
Consolidated Statements of Operations For The Years Ended December 31, 1997, 1996 and 1995...................... 23
Consolidated Statements of Changes in Stockholders' Equity For The Years Ended December 31, 1997, 1996 and 1995. 24
Consolidated Statements of Cash Flows For The Years Ended December 31, 1997, 1996 and 1995...................... 25
Notes to Consolidated Financial Statements...................................................................... 26
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Consolidated Delivery & Logistics, Inc.:
We have audited the accompanying consolidated balance sheets of Consolidated
Delivery & Logistics, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Consolidated
Delivery & Logistics, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statement schedules is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 25, 1998
<PAGE>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
ASSETS
December 31,
--------------------------------------
1997 1996
------------------ ------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents, including $64 and $50 of restricted cash
in 1997 and 1996, respectively (Note 2) $1,812 $1,757
Accounts receivable, less allowance for doubtful accounts of $1,433
and $1,598 in 1997 and 1996, respectively (Note 9) 21,275 21,018
Deferred income taxes (Notes 2 and 11) 1,207 1,046
Prepaid expenses and other current assets (Note 5) 1,785 1,284
Net assets of discontinued operations (Note 4) - 1,265
------------------ ------------------
Total current assets 26,079 26,370
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net (Notes 2 and 6)
5,667 3,857
INTANGIBLE ASSETS, net (Notes 2, 3 and 7) 3,098 3,844
SECURITY DEPOSITS AND OTHER ASSETS (Note 4) 1,305 394
NONCURRENT ASSETS OF DISCONTINUED OPERATIONS (Note 4) 10 536
------------------ ------------------
Total assets $36,159 $35,001
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 9) $7,360 $7,200
Current maturities of long-term debt (Note 9) 3,280 1,152
Accounts payable 6,364 6,295
Accrued expenses and other current liabilities (Notes 8, 15 and 17) 6,292 5,549
Income taxes payable (Notes 2 and 11) 141 165
Deferred revenue (Note 2) 71 537
Net liabilities of discontinued operations (Note 4) 52 -
------------------ -------------------
Total current liabilities 23,560 20,898
------------------ -------------------
LONG-TERM DEBT, net of current maturities (Note 9) 2,240 3,415
------------------ -------------------
DEFERRED INCOME TAXES PAYABLE (Notes 2 and 11) 1,050 1,027
------------------ -------------------
OTHER LONG-TERM LIABILITIES (Note 17) 695 931
------------------ -------------------
COMMITMENTS AND CONTINGENCIES (Notes 12 and 14)
STOCKHOLDERS' EQUITY (Notes 13 and 14):
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,
6,666,884 and 6,795,790 shares issued and outstanding in
1997 and 1996, respectively 7 7
Additional paid-in capital 9,026 9,601
Accumulated deficit (419) (878)
------------------ -------------------
Total stockholders' equity 8,614 8,730
------------------ -------------------
Total liabilities and stockholders' equity $36,159 $35,001
================== ===================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
<PAGE>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1997 1996 1995
------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Revenue (Note 2) $171,502 $163,090 $37,322
Cost of revenue 130,577 122,531 26,036
------------------- ---------------------- ----------------------
Gross profit 40,925 40,559 11,286
Selling, general and administrative expenses 38,223 42,027 10,708
------------------- ---------------------- ----------------------
Operating income (loss) 2,702 (1,468) 578
Other (income) expense
Gain on sale of subsidiary, net (Note 16) (816) - -
Interest expense 1,144 805 274
Other income, net (171) (461) (364)
------------------- ---------------------- ----------------------
Other (income) expense, net 157 344 (90)
------------------- ---------------------- ----------------------
Income (loss) from continuing operations before
provision for (benefit from) income taxes 2,545 (1,812) 668
Provision for (benefit from) income taxes
(Notes 2 and 11) 888 (958) 694
------------------- ---------------------- ----------------------
Income (loss) from continuing operations 1,657 (854) (26)
------------------- ---------------------- ----------------------
Discontinued operations (Note 4)
Income (loss) from discontinued operations, net of
income taxes (1,221) 171 (169)
Gain on disposal of assets, net of provision for
income taxes 23 - -
------------------- ---------------------- ----------------------
Income (loss) from discontinued operations (1,198) 171 (169)
------------------- ---------------------- ----------------------
Net income (loss) $459 ($683) ($195)
=================== ====================== ======================
Basic and diluted income (loss) per share (Note 2):
Continuing operations $.25 ($.13) ($.02)
Discontinued operations (.18) .03 (.08)
=================== ====================== ======================
Net income (loss) per share $.07 ($.10) ($.10)
=================== ====================== ======================
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (NOTE 13)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands except share data)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------------ Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
---------------- ------------- --------------- ---------------- ---------------
BALANCE AT
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 2,100,000 $ 2 $ - $ - $ 2
Repurchase of shares pursuant
to a termination agreement (1,400,000) (1) - - (1)
Reduction in ownership of
shares pursuant to a
management agreement (305,577) - - - -
Issuance of common stock:
Public offering, net of offering
costs 3,200,000 3 33,148 - 33,151
Acquisition of Founding
Companies 2,935,700 3 (3) - -
Distributions to Founding
Companies' Stockholders - - (29,604) - (29,604)
Shares issued in connection
with termination agreement 99,446 - - - -
Equity of Founding Companies - - 5,972 - 5,972
Distributions to stockholders - - (949) - (949)
Charge to capital in an amount
equal to the current income
tax benefit of S Corporations - - (65) - (65)
Net loss - - - (195) (195)
---------------- ------------- --------------- ---------------- ---------------
BALANCE AT
DECEMBER 31, 1995 6,629,569 7 8,499 (195) 8,311
Shares issued in connection with
acquisitions of businesses 166,221 - 1,102 - 1,102
Net loss - - - (683) (683)
---------------- ------------- --------------- ---------------- ---------------
BALANCE AT
DECEMBER 31, 1996 6,795,790 7 9,601 (878) 8,730
Retirement of common stock
pursuant to sale of subsidiary (137,239) - (600) - (600)
Shares issued in connection with
acquisition of a business 8,333 - 25 - 25
Net income - - - 459 459
---------------- ------------- --------------- ---------------- ---------------
BALANCE AT
DECEMBER 31, 1997 6,666,884 $7 $9,026 ($419) $8,614
================ ============= =============== ================ ===============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For The Years Ended December 31,
--------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
------------------- -------------- -------------
<S> <C> <C> <C>
Net income (loss) $459 ($683) ($195)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities -
(Gain) Loss on disposal of equipment and leasehold improvements (22) 29 63
Gain on sale of subsidiary (816) - -
(Income) loss from discontinued operations 1,221 (171) 169
Gain on disposal of assets of discontinued operations (23) - -
Depreciation and amortization 2,271 1,559 418
Provision for doubtful accounts 1,117 1,315 174
Capital contribution equal to current income taxes of S Corporations - - (65)
Deferred income tax (expense) benefit (35) (752) 77
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable (2,005) (4,235) 993
Prepaid expenses and other current assets (415) (477) 3,362
Other assets (303) 513 203
Increase (decrease) in -
Accounts payable, accrued liabilities and income taxes payable 1,359 (1,518) (1,211)
Other long-term liabilities (236) 736 (33)
------------------- -------------- -------------
Net cash provided by (used in) operating activities of
continuing operations 2,572 (3,684) 3,955
------------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements (1,191) (1,279) (353)
Proceeds from sales of equipment and leasehold improvements 112 66 -
Proceeds from sale of assets of discontinued operations 125 - -
Purchases of businesses, net of cash acquired - (1,176) (651)
Other, net - - (26)
------------------- -------------- -------------
Net cash used in investing activities (954) (2,389) (1,030)
------------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net 160 4,397 550
Proceeds from 8% Subordinated Convertible Debentures - - 2,000
Proceeds from long-term debt - 113 513
Repayments of long-term debt (1,393) (3,077) (1,411)
Issuance of Common Stock, net of offering costs - - 33,151
Cash acquired through acquisition of Founding Companies - - 1,172
Distributions to stockholders - - (949)
Distributions to Founding Companies' Stockholders - - (29,604)
Deferred financing costs (125) (152) -
Repurchase of Common Stock - - (1)
------------------- -------------- -------------
Net cash (used in) provided by financing activities (1,358) 1,281 5,421
------------------- -------------- -------------
CASH USED BY DISCONTINUED OPERATIONS (205) (611) (1,188)
------------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents 55 (5,403) 7,158
CASH AND CASH EQUIVALENTS, beginning of year 1,757 7,160 2
=================== ============== =============
CASH AND CASH EQUIVALENTS, end of year $1,812 $1,757 $7,160
=================== ============== =============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS:
Consolidated Delivery & Logistics, Inc. ("CD&L") was founded in June 1994. In
November 1995, simultaneously with the closing of CD&L's initial public offering
(the "Offering") separate wholly-owned subsidiaries of CD&L merged (the
"Merger") with each of the eleven acquired businesses. Consideration for the
acquisition of these businesses consisted of a combination of cash and common
stock of CD&L, par value $0.001 per share. The assets and liabilities of the
acquired businesses at September 30, 1995 were recorded by CD&L at their
historical amounts.
Consolidated Delivery & Logistics, Inc. and Subsidiaries (the "Company")
provides an extensive network of same-day ground and air delivery services to a
wide range of commercial, industrial and retail customers. The Company's ground
delivery operations currently are concentrated on the East Coast, with a
strategic presence in the Midwest and on the West Coast. The Company's air
delivery services are provided throughout the United States and to major cities
around the world.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
Use of Estimates in Preparation of the Financial Statements -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value. Included in cash and cash equivalents is
cash restricted for a national marketing and advertising program for the
Company's sales agency agreements (see Note 12).
Equipment and Leasehold Improvements -
Equipment and leasehold improvements are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements and assets subject to capital leases are
amortized over the shorter of the terms of the leases or lives of the assets.
Deferred Financing Costs -
The costs incurred for obtaining financing, including all related legal and
accounting fees are included in other assets in the accompanying consolidated
balance sheets and are amortized over the life of the related financing (2
years).
Intangible Assets -
Intangible assets consist of goodwill, customer lists, and noncompete
agreements. Goodwill represents the excess of the purchase price over the fair
value of assets of businesses acquired and is amortized on a straight-line basis
over 25 years. Customer lists and noncompete agreements are amortized over the
estimated period to be benefited, generally from 3 to 5 years.
Revenue Recognition -
Revenue is recognized when the shipment is completed, or when services are
rendered to customers, and expenses are recognized as incurred. Certain
customers pay in advance, giving rise to deferred revenue.
Income Taxes -
The Company accounts for income taxes utilizing the liability approach. Deferred
income taxes are provided for differences in the recognition of assets and
liabilities for tax and financial reporting purposes. Temporary differences
result primarily from accelerated depreciation and amortization for tax
purposes, various accruals and reserves being deductible for tax purposes in
future periods and certain acquired businesses reporting on the cash basis for
income tax purposes prior to the Merger.
Long-Lived Assets -
The Company reviews its long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable. The measurement of impairment losses
to be recognized is based on the difference between the fair values and the
carrying amounts of the assets. Impairment would be recognized in operating
results if a diminution in value occurred. The Company does not believe that any
such changes have occurred.
Fair Value of Financial Instruments -
Due to the short maturities of the Company's cash, receivables and payables, the
carrying value of these financial instruments approximates their fair values.
The fair value of the Company's debt is estimated based on the current rates
offered to the Company for debt with similar remaining maturities. The Company
believes that the carrying value of its debt estimates the fair value of such
debt instruments.
Stock Based Compensation -
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") requires that an entity account for employee stock
compensation under a fair value based method. However, SFAS 123 also allows an
entity to continue to measure compensation cost for employee stock-based
compensation plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
("Opinion 25"). The Company has elected to continue to account for employee
stock-based compensation under Opinion 25 and provide the required pro forma
disclosures as if the fair value based method of accounting under SFAS 123 had
been applied. (see Note 14).
Segment Reporting -
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information" ("SFAS 131") introduces a new model
for segment reporting, called the "management approach." The management approach
is based on the way that management organizes segments within a company for
making operating decisions and assessing performance. Reportable segments are
based on products and services, geography, legal structure, management structure
- - any manner in which management disaggregates a company. The management
approach replaces the notion of industry and geographic segments in current
accounting standards. SFAS 131 is effective for fiscal years beginning after
December 15, 1997 and early adoption is encouraged. However, SFAS 131 need not
be applied to interim statements in the initial year of application. SFAS 131
requires restatement of all prior period information reported. The Company
intends to adopt this standard when required and is in the process of
determining the effect of SFAS 131 on the Company's financial statements.
Income (Loss) Per Share -
The Company has implemented Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), which establishes standards for the method of
computation, presentation and disclosure for earnings per share ("EPS"). SFAS
128 simplifies the standards for computing EPS previously found in APB Opinion
No. 15, "Earnings Per Share," and makes them comparable to international EPS
standards. It requires the presentation of two EPS amounts, basic and diluted,
on the face of the income statement for all entities with complex capital
structures and the restatement of all prior period EPS calculations presented.
Previously reported EPS amounts were not affected by the adoption of this new
standard. Basic earnings per share represents net income (loss) divided by the
weighted average shares outstanding. Diluted earnings per share represents net
income (loss) divided by weighted average shares outstanding adjusted for the
incremental dilution of common stock equivalents. There were no differences
between basic and diluted EPS for 1997, 1996 and 1995 since the conversion of
the debentures into 180,995 shares of common stock (see Note 9) and conversion
of the stock options (see Note 14) were antidilutive for 1996 and 1995 and the
dilutive amount of options for 1997 was not significant.
A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Basic weighted average common
shares oustanding 6,672,284 6,677,546 2,059,894
Effect of dilutive securities:
Stock options 2,656 - -
------------- ------------- -------------
Diluted weighted average common
shares outstanding 6,674,940 6,677,546 2,059,894
============= ============= =============
</TABLE>
Options to purchase 579,795, 475,295 and 37,445 shares of common stock in 1997,
1996 and 1995, respectively, were not included in the computation of diluted
earnings per share because the option exercise price was greater than the
average market price of the common shares.
Reclassifications -
Certain reclassifications have been made to the prior years' consolidated
financial statements in order to conform to the 1997 presentation.
(3) BUSINESS COMBINATIONS:
During 1996, the Company acquired certain businesses in transactions accounted
for as purchases. The total consideration paid in these transactions is
contingent upon future activity and is estimated to aggregate $3.3 million,
which consists of $2.2 million in cash, 75,312 shares of Common Stock at $8 per
share and 90,909 shares of Common Stock at $5.50 per share. The Company also
assumed approximately $185,000 of debt due to the former owners of one of the
acquired businesses and their relatives. Of this amount $3.1 million has been
assigned to the excess of purchase price over net assets of businesses acquired
(goodwill) and other intangible assets. The purchase price was subsequently
reduced by approximately $357,000 during 1997 due to actual revenue not reaching
projected revenue as stipulated in the purchase agreements. Accordingly,
goodwill and seller financed debt were reduced by this amount to reflect the
reduction in the purchase price. Final determinations of the individual
acquisition costs will be made by April 2000.
In November 1995, the Company purchased certain assets of two Companies. The
total consideration paid in these transactions aggregated approximately
$900,000. The assets acquired include accounts receivable, customer lists,
machinery and equipment and various other assets. The transactions were
accounted for as purchases and resulted in excess of the purchase price over net
assets acquired (goodwill) of $501,000. One of the companies acquired was 50%
owned by stockholders of the Company.
The results of the acquired businesses have been reflected in the accompanying
consolidated statements of operations since their respective acquisition dates.
The results of operations of the acquired businesses prior to their acquisitions
are not material to the Company's consolidated statements of operations.
(4) DISCONTINUED OPERATIONS:
In October 1997, the Company announced its intention to pursue a plan to dispose
of its fulfillment and direct mail business. On December 31, 1997, the Company
entered into an agreement providing for the sale of certain assets of its
fulfillment and direct mail business. The purchase price for the assets was
$850,000 and is comprised of $125,000 in cash with the remainder in the form of
a promissory note (the "Note Receivable"). The Note Receivable will bear
interest at the rate of 6% per annum, with interest only in monthly installments
during 1998. Commencing February 1, 1999 the Note Receivable will be paid in
equal monthly installments of $14,016 including principal and interest through
January 1, 2004. The Note Receivable which totals $725,000 and is included in
security deposits and other assets in the accompanying consolidated balance
sheet as of December 31, 1997 and is collateralized by a security interest in
the purchaser's accounts receivable, equipment and general intangibles. The
security interest is subordinate to the interest of the purchaser's majority
shareholder.
Accordingly, the financial position, operating results and the gain on the
disposition of the Company's fulfillment and direct mail business have been
segregated from continuing operations and reclassified as a discontinued
operation in the accompanying consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Results from the discontinued fulfillment and direct mail business were as follows (in thousands) -
For the Years Ended December 31,
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Revenue $5,937 $7,959 $1,714
============ ============= ============
Income (loss) from discontinued
operations, net of income tax provision
(benefit) of ($811), $114 and ($112) in
1997, 1996 and 1995 ($1,221) $171 ($169)
============ ============= ============
Gain on disposal of assets, net of
income tax provision of $15 in 1997 $23 $ - $ -
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
The net assets (liabilities) of discontinued operations are comprised of the following (in thousands) -
December 31,
--------------------------------------------
1997 1996
------------------- -----------------
<S> <C> <C>
Current assets $3,829 $4,124
Current liabilities (3,881) (2,859)
------------------- -----------------
Net current assets (liabilities) (52) 1,265
Equipment and leasehold improvements 10 459
Other non-current assets - 77
------------------- -----------------
Net assets (liabilities) of discontinued
operations ($42) $1,801
=================== =================
</TABLE>
(5) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
<TABLE>
<CAPTION>
Prepaid expenses and other current assets consist of the following (in thousands) -
December 31,
---------------------------------------------
1997 1996
-------------------- ------------------
<S> <C> <C>
Other receivables $580 $326
Prepaid supplies and equipment deposits 564 78
Prepaid insurance 227 282
Prepaid shipping charges 86 96
Other 328 502
-------------------- ------------------
$1,785 $1,284
==================== ==================
</TABLE>
<PAGE>
(6) EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of the following (in thousands) -
<TABLE>
<CAPTION>
December 31,
--------------------------------
Useful Lives 1997 1996
------------ --------------- --------------
<S> <C> <C> <C>
Transportation and warehouse equipment 3-7 years $6,603 $4,995
Office equipment 3-7 years 4,443 5,107
Other equipment 5-7 years 811 729
Leasehold improvements Lease period 1,180 1,309
--------------- --------------
13,037 12,140
Less - accumulated depreciation and amortization (7,370) (8,283)
--------------- --------------
$5,667 $3,857
=============== ==============
</TABLE>
<TABLE>
<CAPTION>
Leased equipment under capitalized leases (included above) consists of the following (in thousands) -
December 31,
--------------------------------
1997 1996
---------------- --------------
<S> <C> <C>
Equipment $3,521 $952
Less - accumulated amortization (909) (347)
---------------- --------------
$2,612 $605
================ ==============
</TABLE>
The Company incurred a capital lease obligation of $2.5 million during 1997
in connection with an agreement to lease 175 delivery vehicles.
(7) INTANGIBLE ASSETS:
Intangible assets (see Note 3) consist of the following (in thousands) -
<TABLE>
December 31,
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Goodwill $2,992 $3,616
Noncompete agreements 336 336
Customer lists 242 167
Other 118 165
--------------- --------------
3,688 4,284
Less - accumulated amortization (590) (440)
--------------- --------------
$3,098 $3,844
=============== ==============
</TABLE>
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
<TABLE>
<CAPTION>
Accrued expenses and other current liabilities consist of the following (in thousands) -
December 31,
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Payroll and related expenses $3,088 $2,738
Third party delivery costs 1,525 605
Insurance 274 816
Professional fees 367 413
Rent 151 371
Other 887 606
--------------- --------------
$6,292 $5,549
=============== ==============
</TABLE>
<PAGE>
(9) SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Short-term borrowings -
At December 31, 1997 and 1996, the Company had line of credit agreements for $15
million and $10 million, respectively. The Company's outstanding borrowings on
such lines of credit were approximately $7.4 million at December 31, 1997 and
$7.2 million at December 31, 1996.
In July 1997, the Company entered into a two-year agreement with First Union
Commercial Corporation ("First Union") to establish a revolving credit facility
(the "First Union Agreement"). The proceeds of the credit facility were used to
repay borrowings under the credit agreement with Summit Bank and Mellon Bank
N.A. (See below). Credit availability is based on eligible amounts of accounts
receivable, as defined, up to a maximum amount of $15 million 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. The First Union Agreement provides for fixed rate
and variable rate loans. Interest rates on fixed rate borrowings are based on
LIBOR, which was 5.81% at December 31, 1997, plus 1.5% to 2%. Variable rate
borrowings are based on First Union's prime lending rate, which was 8.5% at
December 31, 1997, minus .25% to plus .25%. Based on eligible accounts
receivable at December 31, 1997, $3.9 million of the facility was available for
future borrowing.
Under the terms of the First Union Agreement, the Company is required to
maintain certain financial ratios and comply with other financial conditions.
The First Union Agreement 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. At
December 31, 1997 the Company was in compliance with all loan covenants.
Borrowings under the line of credit facility averaged approximately $7.7 million
with an average interest rate of 9.9% for the year ended December 31, 1997.
Maximum borrowings were $9.6 million for the same period.
In May 1996, the Company entered into a credit agreement (the"Credit Agreement")
with Summit Bank and Mellon Bank N.A. (the "Banks") to establish a revolving
credit facility. The line of credit was secured by substantially all assets of
the Company and provided for fixed rate and variable rate loans. Interest rates
on fixed rate borrowings were based on the London Inter-bank Offered Rate (the
"LIBOR") and variable rate borrowings were based on margins over the Banks'
lending rates. The line of credit was repaid in July 1997. In 1997, average
borrowings under this line of credit were approximately $8.1 million with an
average interest rate of 9.4%. Maximum borrowings for 1997 were approximately
$8.3 million. Borrowings under the line of credit averaged approximately $6.6
million with an average interest rate of 8.23% for the year ended December 31,
1996. Maximum borrowings were $7.3 million for the year ended December 31, 1996.
In 1996, the Company also had several available lines of credit which bore
interest at rates ranging from prime plus 0.75% to prime plus 1.5%. These lines
of credit were collateralized by certain subsidiaries' accounts receivable and
guaranteed by certain stockholders. In 1996, average borrowings under these
lines of credit were approximately $2.5 million with an average interest rate of
8.2%. Maximum borrowings for 1996 were approximately $2.9 million. These lines
of credit were repaid during 1996.
<PAGE>
Long-Term Debt -
Long-term debt consists of the following (in thousands) -
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- ------------
<S> <C> <C>
8% Subordinated Convertible Debentures (a) $2,000 $2,000
Capital lease obligations due through October 2000 with interest at rates
ranging from 5.3% to 15.2% and secured by the related property. 2,631 476
Seller-financed debt on acquisitions, payable in annual and quarterly
installments through April 1998 and monthly payments based on collected
revenues through September 2000 with interest imputed at the rate of 9%. 611 1,348
Various equipment and vehicle notes payable to banks and finance companies due
through January 2000 with interest ranging from 8.0% to 12.5% and secured by
various assets of certain subsidiaries. 133 501
Debt due to former owners, their relatives, and employees of a business
acquired by the Company in 1996, with quarterly principal and interest
payments through September 2001 together with interest at a rate of 8%. 145 185
Other - 57
----------- ------------
5,520 4,567
Less - Current maturities 3,280 1,152
----------- ------------
$2,240 $3,415
=========== ============
</TABLE>
(a) In September 1995, the Company issued $2 million in the aggregate principal
amount of its 8% Subordinated Convertible Debentures (the "Debentures"). The
Debentures mature on August 21, 2000. Interest on the Debentures accrues at the
rate of 8% per annum and is payable quarterly. The Debentures are redeemable at
the option of the Company, in whole or in part, without premium or penalty at
any time on or after August 18, 1998, at their face amount plus accrued and
unpaid interest, if any, to the date of redemption. The Debentures are
redeemable at the option of the holder, in whole but not in part, without
premium or penalty, at any time after August 21, 1998. Accordingly, the Company
has included the Debentures totaling $2 million in current maturities of
long-term debt at December 31, 1997. The Debentures are convertible into 180,995
shares of Common Stock at the option of the holder through August 20, 2000.
The aggregate annual principal maturities of debt (excluding capital lease
obligations) as of December 31, 1997 are as follows (in thousands) -
<TABLE>
<S> <C>
1998 $2,354
1999 258
2000 196
2001 81
-----------------
Total $2,889
=================
</TABLE>
<PAGE>
The Company leases certain transportation equipment under capital lease
agreements which expire at various dates. At December 31, 1997, minimum annual
payments under capital leases, including interest, are as follows
(in thousands) -
<TABLE>
<S> <C>
1998 $1,096
1999 1,075
2000 733
---------------
Total minimum payments 2,904
Less - Amounts representing interest (273)
---------------
Net minimum payments 2,631
Less - Current portion of obligations under capital leases (926)
---------------
Long-term portion of obligations under capital leases $1,705
===============
</TABLE>
(10) EMPLOYEE BENEFIT PLANS:
Several subsidiaries had defined contribution plans, which allowed for voluntary
pretax contributions by the employees. The subsidiaries paid all general and
administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. The Company adopted a 401(k)
retirement plan during 1996 and merged all of the subsidiary plans into the
newly adopted plan. Substantially all employees are eligible to participate in
the plan and are permitted to contribute between 1% and 20% of their annual
salary. The Company has the right to make discretionary contributions which will
be allocated to each eligible participant. The Company did not make
discretionary contributions for the years ended December 31, 1997 and 1996.
(11) INCOME TAXES:
<TABLE>
<CAPTION>
Federal and state income tax provision (benefit) for the years ended December 31, 1997, 1996 and 1995 are as
follows (in thousands) -
1997 1996 1995
--------------- --------------- -----------------
Federal-
<S> <C> <C> <C>
Current $723 ($60) $511
Deferred (35) (752) 77
State 200 (146) 106
--------------- --------------- -----------------
$888 ($958) $694
=============== =============== =================
</TABLE>
The differences in Federal income taxes provided and the amounts determined by
applying the Federal statutory tax rate (34%) to income (loss) from continuing
operations before income taxes for the years ended December 31, 1997, 1996 and
1995, result from the following (in thousands) -
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ------------------
<S> <C> <C> <C>
Tax at statutory rate $865 $(616) $227
Add (deduct) the effect of-
State income taxes 132 (96) 70
Nondeductible expenses and other, net (109) 65 27
Provision for potential tax matters - - 400
Reduction of estimated taxes provided in the prior
year - (311) -
Other - - (30)
---------------- ---------------- ------------------
$888 ($958) $694
================ ================ ==================
</TABLE>
The acquired businesses filed "short-period" Federal tax returns through
November 30, 1995. In connection with such filings the Company provided $400,000
during 1995 to cover any potential exposures related to the filings, which was
subsequently reduced by $311,000 in 1996.
<TABLE>
<CAPTION>
The components of deferred income tax assets and liabilities, are as follows (in thousands) -
December 31,
-----------------------------------
1997 1996
---------------- ---------------
Current deferred income tax asset -
<S> <C> <C>
Allowance for doubtful accounts $633 $690
Reserves and other, net 574 356
---------------- ---------------
Total deferred income tax asset $1,207 $1,046
================ ===============
Non-current deferred income tax liability -
Cash to accrual differences, net ($176) ($369)
Accumulated depreciation and amortization (320) (161)
Other (554) (497)
---------------- ---------------
Total deferred income tax liability ($1,050) ($1,027)
================ ===============
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES:
Operating Leases -
The Company leases its office and warehouse facilities under noncancellable
operating leases, which expire at various times through January 2007. The
approximate minimum rental commitments of the Company, under existing agreements
as of December 31, 1997, are as follows (in thousands) -
<TABLE>
<C> <C>
1998 $3,094
1999 2,502
2000 2,033
2001 1,600
2002 707
Thereafter 2,019
</TABLE>
Rent expense related to operating leases amounted to approximately $3.5 million,
$3.8 million and $1.6 million for the years ended December 31, 1997, 1996 and
1995, respectively. In connection with the sale of the assets of Logistics (see
Note 5), the Company guaranteed the warehouse lease obligation covering
Logistic's principal place of business (the "Facility Lease") for one year
commencing January 1, 1998. The purchaser's majority shareholder has personally
guaranteed the Facility Lease in favor of the Company for six months commencing
January 1, 1998. The Company's maximum exposure as guarantor is approximately
$396,000 at December 31, 1997.
<PAGE>
Litigation -
On March 19, 1997, a purported class action complaint, captioned Gapszewicz v.
Consolidated Delivery & Logistics, Inc., et al. (97 Civ. 1939), was filed in the
United States District Court for the Southern District of New York (the "Court")
against the Company, certain of the Company's present and former executive
officers, and the co-managing underwriters of the Company's initial public
offering (the "Offering"). The gravamen of the complaint is that the Company's
registration statement for the Offering contained misstatements and omissions of
material fact in violation of the federal securities laws and that the Company's
financial statements included in the registration statement were false and
misleading and did not fairly reflect the Company's true financial condition.
The complaint seeks the certification of a class consisting of purchasers of the
Company's Common Stock from November 21, 1995 through February 27, 1997,
rescission of the Offering, attorneys' fees and other damages. In April 1997,
five other complaints containing allegations identical to the Gapszewicz
complaint were filed in the same federal court against the Company. On May 27,
1997, these six complaints were consolidated into a single action entitled "In
re Consolidated Delivery & Logistics, Inc. Securities Litigation". On July 16,
1997, the Company and the underwriter defendants filed a motion to dismiss the
complaint. In response, the plaintiffs filed an amended complaint on October 20,
1997. A motion to dismiss the amended complaint was filed by the Company and the
underwriter defendants on December 15, 1997. No ruling on the Company's motion
has been rendered by the Court. The Company believes the allegations
contained in the amended complaint are without merit and intends to continue to
vigorously defend the action.
The Company and its subsidiaries are from time to time, parties to litigation
arising in the normal course of their business, most of which involves claims
for personal injury and property damage incurred in connection with their
operations. Management believes that none of these actions, including the above
action, will have a material adverse effect on the financial position or results
of operations of the Company and its subsidiaries.
Sales Agency Agreements -
The Company has entered into sales agency agreements with independent
contractors with varying terms to perform courier services on behalf of the
Company. The independent contractors provide marketing and sales services and
the Company provides the resources to perform courier services. In connection
with these transactions the Company retains from the independent contractors a
fee for services rendered of approximately 10% of revenues. The profit on these
sales net of the Company's fees for its services are remitted back to the
independent contractors as payment for marketing and sales services rendered.
Sales agency charges totaled $4.7 million, $3.8 million and $1 million in 1997,
1996 and 1995, respectively.
(13) STOCKHOLDERS' EQUITY:
Pursuant to a Representation Agreement, dated November 15, 1994 (as amended, the
"Representation Agreement"), between the Company and CTA Group, LLC ("CTA"),
David T. Lardier agreed to lend or otherwise advance to the Company all funds
necessary to effect the Mergers and to provide CTA with all funds necessary to
provide the services to be provided by CTA under the Representation Agreement,
including but not limited to, the funds necessary to retain and pay certain
professional expenses incurred in connection therewith. In exchange, the Company
agreed upon completion of the Mergers to reimburse Mr. Lardier for the amounts
advanced.
At June 30, 1995, CTA had incurred expenses totaling approximately $1.3 million
in connection with the Mergers (consisting primarily of professional fees and
expenses) for which it had not been reimbursed by Mr. Lardier. Under the terms
of the Representation Agreement, Messrs. Mattei and Wojak had the right to
require the Company to repurchase the 1,400,000 shares of common stock held by
Mr. Lardier at a price of $1,000 (his original purchase price) in the event that
Mr. Lardier did not advance funds needed to complete the Mergers.
Pursuant to Mr. Lardier's failure to perform under the Representation Agreement,
CTA redeemed his shares for his original purchase price. Pursuant to a
Termination Agreement, dated August 14, 1995 (the "Termination Agreement") the
Company agreed to permit Mr. Lardier to assign 99,446 shares of common stock and
his contingent right to repayment of funds advanced plus interest (fixed at $1.2
million) to certain of Mr. Lardier's creditors in exchange for their releases of
all claims against CTA and the Company. In addition, Mr. Lardier agreed that CTA
was not entitled to any fee upon the completion of the Mergers. The Company has
also agreed to release Mr. Lardier from any obligation to fund the unreimbursed
expenses incurred by CTA prior to the date of the Termination Agreement and his
continuing obligation to fund future expenses.
Under a management agreement in 1995, certain officers reduced their ownership
of Common Stock by 305,577 shares to an aggregate of 394,423 shares.
(14) STOCK OPTION PLANS:
The Company has two stock option plans under which employees and independent
directors may be granted options to purchase shares of Company Common
Stock at or above the fair market value at the date of grant. Options
generally vest in one to four years and expire in 10 years.
Employee Stock Compensation Program -
In September 1995, the Board of Directors adopted, and the stockholders of the
Company approved the Company's Employee Stock Compensation Program (the
"Employee Stock Compensation Program"). The Employee Stock Compensation Program
authorizes the granting of incentive stock options, non-qualified supplementary
options, stock appreciation rights, performance shares and stock bonus awards to
key employees of the Company, including those employees serving as officers or
directors of the Company. The Company has reserved 1,400,000 shares of Common
Stock for issuance in connection with the Employee Stock Compensation Program.
The Employee Stock Compensation Program is administered by a committee of the
Board of Directors (the "Administrators") made up of directors who are
disinterested persons. Options and awards granted under the Employee Stock
Compensation Program will have an exercise or payment price as established by
the Administrators provided that the exercise price of incentive stock options
may not be less than the fair market value of the underlying shares on the date
of grant. Unless otherwise specified by the Administrators, options and awards
will vest in four equal installments on the first, second, third and fourth
anniversaries of the date of grant.
<PAGE>
1995 Stock Option Plan for Independent Directors -
In September 1995, the Board of Directors adopted, and the stockholders of the
Company approved, the Company's 1995 Stock Option Plan for Independent Directors
(the "Director Plan"). The Director Plan authorizes the granting of
non-qualified stock options to non-employee directors of the Company. The
Company has reserved 100,000 shares of Common Stock for issuance in connection
with the Director Plan. The Director Plan is administered by a committee of the
Board of Directors (the "Committee"), none of whom will be eligible to
participate in the Director Plan. The Director Plan provided for an initial
grant of an option to purchase 1,500 shares of Common Stock upon election as a
director of the Company, a second option to purchase 1,000 shares of Common
Stock upon the one-year anniversary of such director's election and subsequent
annual options for 500 shares of Common Stock upon the anniversary of each year
of service as a director. In August 1997, the Board of Directors approved
amendments to the Director Plan. The amendments replace the annual stock option
grants of the original plan with grants of 1,250 shares of stock options on the
first trading day of each fiscal quarter commencing on October 1, 1997. The
amendments to the Director Plan are subject to shareholder approval at the next
annual meeting and accordingly the 5,000 options granted during 1997 under the
amended plan will be void if shareholder approval is not obtained.
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
Weighted
Number Average
Of Exercise
Shares Price
----------------- -----------------
<S> <C> <C>
Shares under option:
Outstanding at January 1, 1995 -
Granted 395,000 $13.00
Exercised - -
Canceled - -
-----------------
Outstanding at December 31, 1995 395,000 $13.00
Granted 219,706 (1) $8.86
Exercised - -
Canceled (52,138) $13.00
-----------------
Outstanding at December 31, 1996 562,568 $11.36
Granted 444,928 $3.85
Exercised - -
Canceled (99,373) $10.15
-----------------
Outstanding at December 31, 1997 908,123 $7.80
=================
Options exercisable at:
December 31, 1995 - -
================= =================
December 31, 1996 131,037 $11.94
================= =================
December 31, 1997 576,592 $7.33
================= =================
</TABLE>
(1) Includes 100,179 grants approved by the Compensation Committee of
the Board of Directors in January 1996 that were priced effective as of
the date of the Mergers (November 27, 1995).
At December 31, 1997, options available for grant under the Employee Stock
Compensation Plan and the Director Plan total 501,877 and 90,000, respectively.
The following summarizes information about option groups outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------------------------------------------- -------------------------------------
Number Number
Outstanding Weighted Weighted Exercisable Weighted
Range of as of Average Average as of Average
Exercise December 31, Remaining Exercise December 31, Exercise
Prices 1997 Life Price 1997 Price
- ----------------- ------------------ ---------------- ------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
$2.31 -
$4.75 364,492 9.73 $3.03 225,712 $3.09
$4.88 -
$7.88 160,161 9.25 $6.24 153,263 $6.25
$13.00 383,470 7.91 $13.00 197,617 $13.00
- ----------------- ------------------ ---------------- ------------- ------------------- --------------
</TABLE>
The Company adopted the provisions of SFAS 123 and has chosen to continue to
account for stock-based compensation using the intrinsic value method.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plans. Pro forma information regarding net income (loss) and
earnings (loss) per share is required, and has been determined as if the Company
had accounted for its stock options under the fair value method. 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 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- -----------------
<S> <C> <C> <C>
Weighted average fair value $1.50 $3.06 $6.39
Risk-free interest rate 5.60% 6.50% 6.50%
Volatility factor 55% 37% 37%
Expected life 5 years 7 years 10 years
Dividend Yield None None None
--------------- --------------- -----------------
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income (loss) and income (loss) per share were as follows (in
thousands except per share data):
<TABLE>
1997 1996 1995
--------------- --------------- -----------------
<S> <C> <C> <C>
Net income (loss) - as reported $459 ($683) ($195)
Net income (loss) - pro forma (295) (1,399) (283)
Basic and Diluted:
Income (loss) per share - as reported .07 (.10) (.10)
Income (loss) per share - pro forma (.04) (.21) (.14)
--------------- --------------- -----------------
</TABLE>
<PAGE>
(15) RELATED PARTY TRANSACTIONS:
Leasing Transactions -
Certain subsidiaries of the Company paid approximately $905,000, $851,000 and
$217,000 for the years ended December 31, 1997, 1996 and 1995, respectively, in
rent to certain directors, stockholders or Companies owned and controlled by
directors or stockholders of the Company. Rent is paid for office, warehouse
facilities and transportation equipment.
Administrative Fees and Other -
The Company incurred sales commissions and consulting fees of $1.3 million in
1997, $1.1 million in 1996 and $229,000 in 1995 to companies affiliated through
common ownership with directors or stockholders of the Company or to former
employees of the Company or its subsidiaries. As of December 31, 1997 and 1996,
accrued expenses and other current liabilities included approximately $274,000
and $191,000, respectively, of accrued sales commissions due to related parties.
See Note 17 for restructuring charges that pertain to related parties.
In connection with the Merger discussed in Note 1, stockholders of the acquired
businesses entered into five-year covenants-not-to-compete agreements with the
Company. Additionally, certain of the stockholders received employment
contracts.
(16) SALE OF SUBSIDIARY:
On January 31, 1997 the Company sold the stock of Distribution Solutions
International, Inc. (DSI), a subsidiary involved in contract logistics, to its
former owner and president in exchange for 137,239 shares of the Company's
common stock, valued at approximately $4.38 per share (the closing price of the
Company's common stock on the sale date.) In connection with the sale, the
Company recorded a gain of approximately $816,000 before applicable federal and
state income taxes. Revenue included in the accompanying consolidated financial
statements from the operation were approximately $400,000, $4.6 million and $1.9
million for the month of January 1997 and the years ended December 31, 1996 and
December 31, 1995, respectively. Operating losses were approximately $20,000,
$650,000 and $157,000 for the month of January 1997 and the years ended December
31, 1996 and December 31, 1995, respectively.
(17) RESTRUCTURING CHARGE:
During the fourth quarter of 1996, the Company recognized the impact of several
non-recurring charges totaling $1.4 million ($0.12 per share). The restructuring
charge included salary and contract settlements, abandonment of operating leases
and other costs associated with management headcount reduction and other
consolidation issues. At December 31, 1997, $339,000 was included in accrued
expenses and $344,000 was included in other liabilities, of which $275,000 and
$344,000, respectively, were payable to a former director and stockholder of the
Company or its subsidiaries. At December 31, 1996, $602,000 was included in
accrued expenses and $781,000 was included in other liabilities, of which
$275,000 and $619,000, respectively, were payable to a former director and
stockholder of the Company or its subsidiaries.
<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest and income taxes for the years ended December 31,
1997, 1996 and 1995 was as follows (in thousands) -
<TABLE>
<CAPTION>
1997 1996 1995
----------------- -------------- --------------
<S> <C> <C> <C>
Interest $1,024 $831 $177
Income taxes 245 878 383
---------------- -------------- --------------
</TABLE>
Supplemental schedule of noncash financing activities for the years ended
December 31, 1997, 1996 and 1995 was as follows (in thousands) -
<TABLE>
<CAPTION>
1997 1996 1995
----------------- -------------- --------------
<S> <C> <C> <C>
Capital lease obligations incurred $2,700 $202 $238
Seller financed debt related to purchase of businesses 50 1,929 52
Issuances of common stock in connection with purchases
of businesses 25 1,102 -
Adjustment of purchase price for businesses
previously acquired 357 - -
Note receivable issued in connection with disposal of
assets of discontinued operations 725 - -
----------------- -------------- --------------
</TABLE>
(19) SUBSEQUENT EVENT:
During February 1998, the Board of Directors approved, subject to shareholder
approval, the Employee Stock Purchase Plan ("Employee Purchase Plan"), effective
April 1, 1998. The Employee Purchase Plan permits eligible employees to purchase
Company common stock at 85% of the closing market price on the last trading day
prior to the commencement of the purchase period. It is intended to be an
"employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
<PAGE>
III-2
PART III
Item 10. Directors and Executive Officers of the Company
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1998 Annual Meeting of Stockholders,
except for certain information relating to the Company's executive officers
which is provided below.
Executive Officers
The following table sets forth certain information as of February 5, 1998
concerning each of the Company's executive officers:
Name Age Position
Albert W. Van Ness, Jr. 55 Chairman of the Board, Chief Executive Officer
and Director
William T. Brannan 49 President, Chief Operating Officer and Director
Joseph G. Wojak 60 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
Joseph J. Leonhard 46 Vice President - Controller
Mark Carlesimo 44 General Counsel
Michael Brooks 43 Southeast Region Manager
Randy Catlin 51 Air Division Manager
Robert Wyatt 39 Northeast Region Manager
.........Albert W. Van Ness, Jr. has served as the Chairman of the Board, Chief
Executive Officer and Director of the Company since February 1997. He remains a
Managing Partner of Club Quarters, LLC, a hotel development and management
company, since October 1992. From June 1990 until October 1992, Mr. Van Ness
served as Director of Managing People Productivity, a consulting firm. Prior
thereto, from 1982 until June 1990, Mr. Van Ness held various executive offices
with Cunard Line Limited, a passenger ship and luxury hotel company, including
Executive Vice President and Chief Operating Officer of the Cunard Leisure
Division and Managing Director and President of the Hotels and Resorts Division.
Prior thereto, Mr. Van Ness served as the President of Seatrain Intermodal
Services, Inc., a cargo shipping company.
.........William T. Brannan has served as the President and Chief Operating
Officer of the Company since November 1994. From January 1991 until October
1994, Mr. Brannan served as President, Americas Region - US Operations, for TNT
Express Worldwide, a major European-based overnight express delivery company.
Mr. Brannan has 23 years of experience in the transportation and logistics
industry.
.........Joseph G. Wojak has served as the Executive Vice President, Chief
Financial Officer and Secretary since June 1994. Prior thereto, from May 1994 to
June 1994, Mr. Wojak served as a consultant to the Company. From September 1990
until May 1994, Mr. Wojak was a financial and management consultant.
.........Joseph J. Leonhard has been the Controller of the Company since June
1995 and was appointed to the position of Vice-President in May 1996. Prior
thereto, from June 1987 until June 1995, Mr. Leonhard was the Controller and
Chief Financial Officer of Scientific Devices East, Inc.
.........Mark Carlesimo has been General Counsel of the Company since September
1997. From July 1983 until September 1997, Mr. Carlesimo served as Vice
President of Legal Affairs of Cunard Line Limited.
.........Michael Brooks has served as Director of the Company since December
1995, as Southeast Region Manager since August 1996 and as President of Silver
Star Express, Inc., a subsidiary of the Company, since November 1995. Prior to
the merger of Silver Star Express, Inc. into the Company, Mr. Brooks was
President of Siver Star Express, Inc. since 1988. Mr. Brooks has 24 years of
experience in the same-day ground and distribution industries. In addition, Mr.
Brooks is currently a Director of the Express Carriers Association, an associate
member of the National Small Shipment Traffic Conference and an affiliate of the
American Transportation Association.
.........Randy Catlin has served as Air Division Manager of the Company and as
Chief Executive Officer of SureWay Worldwide, a subsidiary of the Company, since
March 1997. From 1984 until 1997, Mr. Catlin was Vice-Chairman of SureWay
Worldwide, formerly known as Sureway Air Traffic Corporation. Mr. Catlin has 31
years of experience in the air courier industry. In addition, Mr. Catlin is
currently Chairman of the annual conference of the Air Courier Conference of
America, and has served previously as President and Director of the
organization.
.........Robert Wyatt has been the Northeast Region Manager since November 1997,
Manhattan Region Manager since August 1996 and President of Olympic Courier
Systems, Inc. a subsidary of the Company since November 1995. From December 1995
until November 1997, Mr. Wyatt served as Director of the Company. Prior thereto,
Mr. Wyatt was co-founder and President of certain of the companies comprising
Orbit/Lightspeed Courier Systems, Inc. ("Orbit/Lightspeed"), a former subsidiary
of the Company which has been merged into Olympic. Mr. Wyatt has 14 years of
experience in the same-day delivery industry. He currently serves on the Board
of Directors of the Messenger Courier Association of the Americas. Mr. Wyatt has
also served as the President of the New York State Messenger and Courier
Association.
Item 11. Executive Compensation
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1998 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1998 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1998 Annual Meeting of Stockholders.
<PAGE>
IV-5
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
See Item 8. Financial Statements and Supplementary Data.
(a)(2) Financial Statement Schedules
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES:
Schedule II - Consolidated Valuation and Qualifying Accounts -
For the years ended December 31, 1997, 1996, and 1995.................S-1
All other schedules called for by Regulation S-X are not submitted
because they are not applicable or not required or because the required
information is not material or is included in the financial statements or notes
thereto.
(a)(3) Exhibits
The Exhibits listed in (c) below are filed herewith.
(b) Reports on Form 8-K
Report on Form 8-K filed on January 15, 1998 concerning the Company's
sale of certain assets of Sureway Logistics Corporation, its
subisidiary, to Mimatar Corporation.
(c) Exhibits
Exhibit Description
Number
3.1 Second Restated Certificate of Incorporation of
Consolidated Delivery & Logistics, Inc. (filed as
Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (File No. 33-97008) and incorporated herein by
reference).
3.2 Amended and Restated By-laws of Consolidated Delivery &
Logistics, Inc. (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein by reference).
4.1 Form of certificate evidencing ownership of Common
Stock of Consolidated Delivery & Logistics, Inc.
(filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (File No. 33-97008) and incorporated
herein by reference).
4.2 Instruments defining the rights of holders of the
Company's long-term debt (not filed pursuant to
Regulation S-K Item 601((b)(4)(iii); to be furnished to
the Commission upon request).
10.1 Consolidated Delivery & Logistics, Inc. Employee Stock
Compensation Program (filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.2 Consolidated Delivery & Logistics, Inc. 1995 Stock
Option Plan for Independent Directors (filed as Exhibit
10. 2 to the Company's Registration Statement on Form
S-1 (File No. 33-97008) and incorporated herein by
reference).
10.3 Employment Agreement, dated as of February 5, 1997, with
Albert W. Van Ness, Jr.
10.4 Loan and Security Agreement, dated July 14, 1997 By and
Between First Union Commercial Corporation and Consolidated
Delivery & Logistics, Inc. and Subsidiaries (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1997 and incorporated
herein by reference).
10.5 Amendment, dated April 11, 1996, to Employment Agreement,
with John Mattei (filed as Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996 (File No. 0-26954) and incorporated herein
by reference).
10.6 Employment Agreement, dated as of September 8, 1995,
with William T. Brannan (filed as Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.7 Employment Agreement, dated as of September 8, 1995,
with Joseph G. Wojak (filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.8 Employment Agreement, dated as of September 15, 1995,
with William T. Beaury (filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.9 Amendment to Loan and Security Agreement, dated September
30, 1997 By and Between First Union Commercial Corporation
and Consolidated Delivery & Logistics, Inc. and
Subsidiaries (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997 and incorporated herein by reference).
10.10 Employment Agreement, dated as of September 15, 1995, with
Michael Brooks (filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
10.11 Asset Purchase Agreement dated December 31, 1997 by and
among Consolidated Delivery & Logistics, Inc., Mimatar
Corporation and Sureway Logistics Corporation (filed as
Exhibit 10.1 to the Company's Report on Form 8-K filed on
January 15, 1998 and incorporated herein by reference).
10.12 Promissory Note dated December 31, 1997 by and between
Mimatar Corporation and Sureway Logistics Corporation
(filed as Exhibit 10.2 to the Company's Report on Form 8-K
filed on January 15, 1998 and incorporated herein by
reference).
10.13 Consulting Agreement, dated July 27, 1997, by and between
Clayton/National Courier Systems, Inc., and Labe Leibowitz.
10.14 Amendment, dated December 23, 1997, to Employment
Agreement, with Al Van Ness, Jr.
10.15 Employment Agreement, dated as of September 15, 1995, with
Robert Wyatt (filed as Exhibit 10.35 to the Company's
Registration Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
11.1 Statement Regarding Computation of Net Income (Loss) Per
Share.
21.1 List of subsidiaries of Consolidated Delivery & Logistics,
Inc.
23.1 Consent of Independent Public Accountants
25.1 Power of Attorney
27.1 Financial Data Schedule (for electronic submission only)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 27, 1998.
CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: /s/ Albert W. Van Ness, Jr.
Albert W. Van Ness, Jr.,
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on March 27, 1998.
Signature Capacity
/s/ Albert W. Van Ness, Jr. Chairman of the Board, Chief Executive Officer
Albert W. Van Ness, Jr. (Principal Executive Officer) and Director
/s/ William T. Brannan President, Chief Operating Officer and Director
William T. Brannan
/s/ Joseph G. Wojak Executive Vice President, Chief Financial
Joseph G. Wojak Officer (Principal Financial and Accounting
Officer), and Secretary
/s/ William T. Beaury Director
William T. Beaury
/s/ Michael Brooks Director
Michael Brooks
/s/ Jon F. Hanson Director
Jon F. Hanson
/s/ Labe Leibowitz Director
Labe Leibowitz
/s/ Marilu Marshall Director
Marilu Marshall
/s/ Kenneth W. Tunnell Director
Kenneth W. Tunnell
/s/ John S. Wehrle Director
John S. Wehrle
*By: ___/s/ Albert W. Van Ness, Jr.
Albert W. Van Ness, Jr.,
Attorney-in-Fact
<PAGE>
<TABLE>
<CAPTION>
S-1
Schedule II
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Charged Balance
at to Costs at End
Beginning and Write-offs Other of
Description of Period Expenses (a) (b) Period
- ----------------------------- --------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997 -
Allowance for doubtful
accounts $1,598 $1,117 ($1,282) $- $1,433
=============== ============== ============== ============= =============
For the year ended
December 31, 1996 -
Allowance for doubtful
accounts $1,249 $1,315 ($966) $- $1,598
=============== ============== ============== ============= =============
For the year ended
December 31, 1995 -
Allowance for doubtful
accounts $- $174 ($54) $1,129 $1,249
=============== ============== ============== ============= =============
</TABLE>
(a) Represents write-offs net of recoveries.
(b) Represents the addition of the Founding Companies.
The accompanying notes to consolidated financial statements are an
integral part of this schedule.
<PAGE>
1
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Page
<C> <C>
10.13 Consulting Agreement, dated July 27, 1997, by and between Clayton/National Courier
Systems, Inc., and Labe Leibowitz. 2
10.14 Amendment, dated December 23, 1997, to Employment Agreement, with Al Van Ness, Jr.
6
11.1 Statement Regarding Computation of Net Income (Loss) Per Share 7
21.1 List of Subsidiaries of Consolidated Delivery & Logistics, Inc. 8
23.1 Consent of Independent Public Accountants 9
25.1 Power of Attorney 10
27.1 Financial Data Schedule (for electronic submission only) 11
</TABLE>
<PAGE>
Exhibit 10.13
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated as of July 21, 1997, by and
between Clayton/National Courier Systems, Inc., a Missouri Corporation, (the
"Company") and Labe Leibowitz (the "Consultant").
W I T N E S S E T H:
WHEREAS, Consolidated Delivery & Logistics, Inc. (the
"Parent") has acquired a network of courier and transportation companies (the
"Amalgamation"); and
WHEREAS the Company has been acquired by the Parent; and
WHEREAS, the Consultant has performed services as an
officer to the Company and its predecessors in the past;
WHEREAS the Consultant's cooperation in connection with the
effort to streamline and rationalize the operations of the Parent and the
Company and to continue performing services for the Company is essential for the
Company's long-term success; and
WHEREAS, the Consultant is willing to serve as a consultant to
the Company and the Company desires to engage the Consultant in such capacity on
the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
Section 1. Engagement as Consultant. (a) The Company agrees to
engage the Consultant, and the Consultant agrees to be engaged by the Company,
upon the terms and conditions hereinafter provided, for a period of three years,
commencing on September 1, 1997 (the "Commencement Date") and, subject to
earlier termination pursuant to Section 5 hereof, continuing until September 1,
2000 (the "Term").
(b) The Consultant hereby represents and warrants that he has
the legal capacity to execute and perform this Agreement, that it is a valid and
binding agreement enforceable against him according to its terms, and that its
execution and performance by him does not violate the terms of any existing
agreement or understanding to which the Consultant is a party. Further,
Consultant acknowledges and agrees that he has been represented by counsel with
respect to this Agreement.
Section 2. Position and Duties. (a) During the Term, the
Consultant agrees to serve as a consultant to the Company and will perform such
services as are reasonably requested of him from time to time by the Company or
the Parent. Consultant shall not be required to perform work that requires
travel and shall be permitted to file any and all reports as a result of his
consulting by written correspondence.
(b) Consultant shall be an independent
contractor with respect to the consulting services to be rendered hereunder.
Consultant shall not be considered as having employee status with the Company
or its affiliates and shall not be entitled to any benefit provided by the
Company or its affiliates to their respective agents and employees.
Section 3. Compensation. For all services rendered
by the Consultant during the Term, the Company shall pay the Consultant a
fixed fee at the rate of $4,166.66 per month ("Base Fee"). The Base Fee
shall be payable on the fifteenth of the month.
Section 4. Business Expenses. The Company shall pay or
reimburse the Consultant for all reasonable and necessary expenses incurred by
the Consultant in connection with the performance of his duties and obligations
under this Agreement, subject to the Consultant's presentation of appropriate
vouchers in accordance with such expense account policies and approval
procedures as the Company may from time to time establish (including but not
limited to prior approval of extraordinary expense) and to preserve any
deductions for Federal income taxation purposes to which the Company may be
entitled.
Section 5. Effect of Termination. (a) (i) In the event that
this Agreement terminates due to a Termination for Cause or the Consultant
terminates this Agreement with the Company for reasons other than permanent
disability or death, all monthly Base Fee installments shall cease as of the
date of termination of this Agreement. No other payments shall be made, or
benefits provided, by the Company or the Parent under this Agreement. (ii) In
the event the Company terminates this Agreement for any other reason other than
a Termination for Cause, then the Company shall be entitled to pay the balance
of unpaid portion of the Base Fee due under the Term in a lump-sum payment.
(b) For purposes of this Agreement, the following
term "Termination for Cause" means, to the maximum extent
permitted by applicable law, a termination of this Agreement
by the Company because the Consultant has (i) committed an act
of dishonesty in the performance of his duties hereunder or
engaged in conduct materially detrimental to the business of
the Company, (ii) been convicted of a felony (iii) violated in
any respect the representations made in Section 1 above or the
provisions of Section 6 below.
Section 6. Confidentiality; Covenant Against Competition. (a)
The Consultant acknowledges and agrees that the confidentiality,
non-solicitation and covenant against competition pursuant to Section 6 of the
Employment Agreement between the parties dated September 15, 1995 shall remain
in effect and be enforceable against the Consultant until September 1, 2000.
However, nothing herein shall preclude the Consultant from entering into an
archival or records storage business in the State of California.
(b) The Consultant acknowledges the
reasonableness of the restrictions contained in this Section 6. The Consultant
acknowledges that the Company, the Parent and their successors and assigns would
be irreparably injured in a manner not adequately compensated by money damages
by a breach or violation (or threatened breach or violation) of the provisions
of this Section 6 by the Consultant. Therefore, in the event of any such breach
or violation (or threatened breach or violation), in addition to all other
rights and remedies which the Company may have, whether at law or in equity, the
Company and its successors and assigns shall be entitled to obtain injunctive or
other equitable relief against the Consultant without the need to post bond or
other security in connection therewith and the Consultant hereby consents to the
entry of an order for such injunctive or other equitable relief.
(c) The obligation of the Company to make
payments, or provide for any benefits under this Agreement (except to the extent
vested or exercisable) shall cease upon a violation of the preceding provisions
of this section. The Consultant's agreement as set forth in this Section 6 shall
survive the expiration of the Term and the Consultant's termination of his
engagement as a consultant of the Company.
(d) If any court determines that the
provisions of this Section 6, or any part hereof, is unenforceable because
of the duration or geographic scope of such provisions, such court shall have
the power to reduce the duration or scope of such provisions, as the case may
be, so that, as so reduced, such provisions are then enforceable to the maximum
extent permitted by applicable law.
Section 7. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be given in writing and
shall be deemed to have been duly given if delivered or mailed, postage prepaid,
by same day or overnight mail as follows:
(a) To the Company:
General Counsel
Consolidated Delivery & Logistics, Inc.
380 Allwood Road
Clifton, New Jersey 07012
(b) To the Consultant:
Labe Leibowitz
1650 Timberhill Road
Santa Rosa, CA 95401
or to such other address as either party shall have previously specified in
writing to the other.
Section 8. No Attachment. Except as required by law, no right
to receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect; provided, however,
that nothing in this Section 8 shall preclude the assumption of such rights by
executors, administrators or other legal representatives of the Consultant or
his estate and their assigning any rights hereunder to the person or persons
entitled thereto.
Section 9. Binding Agreement; No Assignment. This Agreement
shall be binding upon, and shall inure to the benefit of, the Consultant and the
Company (and the Parent, to the extent set forth herein) and their respective
permitted successors, assigns, heirs, beneficiaries and representatives. This
Agreement is personal to the Consultant and may not be assigned by him without
the prior written consent of the Board, as evidenced by a resolution of the
Board. Any attempted assignment in violation of this Section 9 shall be null and
void.
Section 10. Governing Law; Consent to Jurisdiction. The
validity, interpretation, performance, and enforcement of this Agreement shall
be governed by the laws of the State of California without giving effect to its
choice of law provisions. All disputes arising under this agreement shall be
settled by arbitration in San Francisco, California in accordance with the rules
of the American Arbitration Association.
Section 11. Entire Agreement. This Agreement shall constitute
the entire agreement among the parties with respect to the matters covered
hereby and shall supersede all previous written, oral or implied understandings
among them with respect to such matters.
Section 13. Amendments. This Agreement may only be
amended or otherwise modified by a writing executed by all of the parties
hereto.
Section 14. Counterparts. This Agreement may be
executed in any number of counterparts, each of which when executed shall be
deemed to be an original and all of which together shall be deemed to be one
and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer and the Consultant has signed this
Agreement, all as of the first date above written.
CLAYTON/NATIONAL COURIER SYSTEMS, INC.
By:________________________________ Date:______________________
Joseph Wojak
Title:_______________________________
___________________________________ Date:_______________________
By: Labe Leibowitz
<PAGE>
Exhibit 10.14
AMENDMENT TO EMPLOYMENT AGREEMENT
Dated: December 23, 1997
This Amendment amends the Employment dated February 5, 1997
(the "Agreement") by and between Consolidated Delivery and Logistics,
Inc., (the "Company") and Albert W. Van Ness, Jr. (the "Executive").
WHEREAS, the Executive has served as Chairman and Chief Executive
Officer of the Company from February 5, 1997 to date; and
WHEREAS, the employee has assumed increased responsibilities and
devoted considerably more time then was originally anticipated for the
performance of his position; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company has recommended to the Board that the compensation of the Employee for
1997 should be increased by additional grants of fully invested incentive stock
options for 1997; and
WHEREAS, the Compensation Committee ("Committee") of the Board of
Directors of Consolidated Delivery and Logistics, Inc. have met at certain duly
convened meetings on November 12, 1997 and on December 12, 1997 and approved the
grant of additional fully vested incentive stock options to the Employee in
consideration of his expanded responsibilities and increased time and effort.
NOW, THEREFORE in consideration of the mutual promises herein to be
kept and other good and valuable considerations the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Capitalized terms used herein but not defined herein shall have the
meaning ascribed in the Agreement.
2. Sub-paragraph (a) of Section 3 of the Agreement is hereby deleted
and replaced with the following as new subparagraphs (a), (b) and
(c):
"(a) The Employee shall receive as compensation two (2)
incentive stock option grants for a total of 100,000 shares
which shall vest in full as of
January 6, 1997 as follows:
Number of Shares Strike (Exercise) Price
1) 50,000 4-7/8
2) 50,000 7-7/8
The option described in this subparagraph (a) shall expire at
5:00 PM on January 5, 2007."
"(b) The Employee shall receive as additional compensation the
following additional incentive stock option grants which shall
fully vest as of November 12, 1997:
Number of Shares Purchase Price
50,000 3 1/2
50,000 6
The options set forth in this subparagraph (b) shall expire at
5:00 PM on November 11, 2007."
"(c) The employee shall receive as additional compensation the
following stock option grant which shall vest in full as of
December 12, 1997:
Number of Shares Strike (Exercise)
105,263 2 3/8
The options specified in this subparagraph (c) shall expire at
5:00 PM on December 11, 2007."
3. The following shall be added as a new Section 15 to the Agreement:
"Section 15: The Company warrants and represents that the stock
option grants set forth in Section 3 of the Agreement have been
duly approved by the Compensation Committee of the Board of
Directors of the Company."
4. The parties agree that this Amendment may be executed by each
party signing a facsimile copy hereof and shall become
effective upon the Company 's receipt of one fully executed
facsimile copy. Each fully executed facsimile copy held by the
parties shall be deemed a valid and enforceable original copy of
this Amendment.
5. All terms and conditions of the Agreement not expressly amended
hereby shall remain in full force and effect.
IN WITNESS WHEREOF, the Company and the Executive each have caused this
Amendment to be executed by its duly authorized officers and shall be deemed to
be effective upon signature below by both parties.
CONSOLIDATED DELIVERY The EXECUTIVE:
AND LOGISTICS, INC.
By:___________________________ ______________________
William T. Brannan Albert W. Van Ness, Jr.
President
December 23, 1997
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
NET INCOME (LOSS) PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In Thousands Except Share Information)
SHARES CONSIDERED: 1997 1996 1995
---------------- -------------- --------------
Weighted average portion of 2,100,000 common shares issued in
connection with the formation of CD&L adjusted to reflect
1,400,000 common shares redeemed and canceled in connection
with a termination agreement and 305,577 common shares
<S> <C> <C> <C>
redeemed and canceled in connection with a management agreement 394,423 394,423 1,450,479
Weighted average portion of 99,446 common shares issued in
connection with a termination agreement 99,446 99,446 37,871
Weighted average portion of 2,935,700 common shares issued to
the stockholders of the Founding Companies 2,935,700 2,935,700 273,462
Weighted average portion of 3,200,000 common shares sold in the
Initial Public Offering 3,200,000 3,200,000 298,082
Weighted average portion of 166,221 common shares issued in
connection with the acquisitions of businesses 166,221 47,977 -
Weighted average portion of 137,239 common shares retired
pursuant to sale of subsidiary (125,583) - -
Weighted average portion of 8,333 common shares issued in
connection with the acquisition of a business 2,077 - -
---------------- -------------- --------------
Basic weighted average shares outstanding 6,672,284 6,677,546 2,059,894
Incremental shares assumed issued in connection with stock
options outstanding (a) 2,656 - -
---------------- -------------- --------------
Diluted weighted average shares outstanding 6,674,940 6,677,546 2,059,894
================ ============== ==============
Income (loss) from continuing operations $1,657 ($854) ($26)
Income (loss) from discontinued operations (1,198) 171 (169)
---------------- -------------- --------------
Net income (loss) $459 ($683) ($195)
================ ============== ==============
Basic and diluted income (loss) per share:
Continuing operations $.25 ($.13) ($.02)
Discontinued operations (.18) .03 (.08)
---------------- -------------- --------------
Net income (loss) per share $.07 ($.10) ($.10)
================ ============== ==============
</TABLE>
(a) The conversion of the Company's debentures into 180,995 shares of common
stock is excluded from the computations as the effect would be antidilutive in
1997, 1996 and 1995. Options to purchase 579,795, 475,295 and 37,445 shares of
common stock in 1997, 1996 and 1995, respectively, were not included in the
computation of diluted earnings per share because the option exercise price was
greater than the average market price of the common shares.
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
1. American Courier, Inc.
2. Clayton/National Courier Systems, Inc.
3. Click Messenger Service, Inc.
4. Click Messenger Service of N.Y., Inc.
5. Court Courier Systems, Inc.
6. National Express Company, Inc.
7. Olympic Courier Systems, Inc.
8. Securities Courier Corporation
9. Silver Star Express, Inc.
10. SureWay Air Traffic Corporation
11. Liberty Transfer Acquisition Co., Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Consolidated Delivery & Logistics, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 333-3321, 333-3323 and
333-47357).
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 27, 1998
<PAGE>
Exhibit 25.1
POWER OF ATTORNEY
WHEREAS, the undersigned officers and directors of
Consolidated Delivery & Logistics, Inc. (the "Company") desire to authorize
Albert W. Van Ness, Jr., William T. Brannan and Joseph G. Wojak to act as
their attorneys-in-fact and agents, for the purpose of executing and filing
the Company's Annual Report on Form 10-K, including all amendments thereto;
NOW, THEREFORE,
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Albert W. Van Ness, Jr.,
William T. Brannan and Joseph G. Wojak, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
to execute the Company's Annual Report on Form 10-K, including any and all
amendments and supplements thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned have executed this power
of attorney in the following capacities as of the 25th day of February, 1998.
SIGNATURE TITLE
/s/ Albert W. Van Ness, Jr. Chairman of the Board, Chief Executive
Albert W. Van Ness, Jr. Officer and Director (Principal Executive
Officer)
/s/ William T. Brannan President, Chief Operating Officer and Director
William T. Brannan
/s/ William T. Beaury Director
William T. Beaury
/s/ Michael Brooks Director
Michael Brooks
/s/ Jon F. Hanson Director
Jon F. Hanson
/s/ Labe Leibowitz Director
Labe Leibowitz
/s/ Marilu Marshall Director
Marilu Marshall
/s/ Kenneth W. Tunnell Director
Kenneth W. Tunnell
/s/ John S. Wehrle Director
John S. Wehrle
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
1997 Financial Data Schedule
</LEGEND>
<CIK> 0001000779
<NAME> ...Consolidated Delivery & Logistics, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<EXCHANGE-RATE> $1.00
<CASH> 1,812
<SECURITIES> 0
<RECEIVABLES> 22,708
<ALLOWANCES> 1,433
<INVENTORY> 0
<CURRENT-ASSETS> 26,079
<PP&E> 13,037
<DEPRECIATION> 7,370
<TOTAL-ASSETS> 36,159
<CURRENT-LIABILITIES> 23,560
<BONDS> 2,000
0
0
<COMMON> 7
<OTHER-SE> 8,607
<TOTAL-LIABILITY-AND-EQUITY> 36,159
<SALES> 0
<TOTAL-REVENUES> 171,502
<CGS> 0
<TOTAL-COSTS> 130,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,117
<INTEREST-EXPENSE> 1,144
<INCOME-PRETAX> 2,545
<INCOME-TAX> 888
<INCOME-CONTINUING> 1,657
<DISCONTINUED> (1,198)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 459
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
<PAGE>
Amended Exhibit 27.1
Consolidated Delivery & Logistics , Inc.
Restated Earnings Per Share due to the
Adoption of Statement of Financial Accounting Standard
No. 128
For Each of the Three Years in the Period Ended December 31, 1997 and for Each
of the Quarters in the Two Years Ended December 31,
1997
For the Year Ended December 31, 1995:
Basic and diluted loss per share ($.10)
================
For the Three Months Ended March 31, 1996:
Basic and diluted income per share $.03
================
For the Three Months Ended June 30, 1996:
Basic and diluted income per share $.05
================
For the Three Months Ended September 30, 1996:
Basic and diluted income per share $.07
================
For the Three Months Ended December 31, 1996:
Basic and diluted loss per share ($.25)
================
For the Year Ended December 31, 1996:
Basic and diluted loss per share ($.10)
================
For the Three Months Ended March 31, 1997:
Basic and diluted income per share $.02
================
For the Three Months Ended June 30, 1997:
Basic and diluted income per share $.03
================
For the Three Months Ended September 30, 1997:
Basic and diluted income per share $.01
================
For the Three Months Ended December 31, 1997
Basic and diluted income per share $.01
================
For the Year Ended December 31, 1997:
Basic and diluted income per share $.07
================
