<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period
from_______________to____________
Commission File Number: 0-26954
CD&L, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-3350958
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
80 Wesley Street 07606
South Hackensack, New Jersey (Zip Code)
(Address of principal executive offices)
(201) 487-7740
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ----
The number of shares of common stock of the Registrant, par value $.001 per
share, outstanding as of November 10, 2000 was 7,658,660.
<PAGE>
CD&L, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information (unaudited)
Item 1 - Financial Statements
CD&L, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 3
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Part II - Other Information
Item 1 - Legal Proceedings 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
2
<PAGE>
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 435 $ 339
Accounts receivable, net 28,433 27,560
Prepaid expenses and other current assets 3,467 4,321
-------- ---------
Total current assets 32,335 32,220
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 5,614 6,624
INTANGIBLE ASSETS, net 26,894 27,932
OTHER ASSETS 2,096 2,010
-------- ---------
Total assets $66,939 $68,786
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $10,666 $7,188
Current maturities of long-term debt 6,443 2,513
Accounts payable and accrued liabilities 14,366 16,530
-------- ---------
Total current liabilities 31,475 26,231
LONG-TERM DEBT 17,548 22,885
OTHER LONG-TERM LIABILITIES 1,413 2,301
-------- ---------
Total liabilities 50,436 51,417
-------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 2,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.001 par value; 30,000,000 shares
authorized; 7,382,825 shares issued and 7,353,458 shares
outstanding at September 30, 2000 and December 31, 1999 7 7
Additional paid-in capital 12,721 12,721
Treasury stock, 29,367 shares at cost (162) (162)
Retained earnings 3,937 4,803
-------- ---------
Total stockholders' equity 16,503 17,369
-------- ---------
Total liabilities and stockholders' equity $66,939 $68,786
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ----- ----
<S> <C> <C> <C> <C>
Revenue $58,774 $57,952 $177,543 $165,107
Cost of revenue 45,945 43,636 138,076 125,834
-------- -------- ---------- ---------
Gross profit 12,829 14,316 39,467 39,273
Selling, general, and
administrative expenses 11,141 10,479 35,535 30,392
Depreciation and amortization 933 1,205 3,185 3,287
-------- -------- ---------- ---------
Operating income 755 2,632 747 5,594
Other (income) expense:
Interest expense 971 840 2,824 2,365
Other (income) expense, net (410) 290 (634) (25)
-------- -------- ---------- ---------
Income (loss) before provision
(benefit) for income taxes 194 1,502 (1,443) 3,254
Provision (benefit) for income taxes 78 599 (577) 1,274
-------- -------- ---------- ---------
Net income (loss) $ 116 $ 903 $ (866) $ 1,980
======== ======== ========== =========
Net income (loss) per share:
Basic $ .02 $ .12 $ (.12) $ .28
======== ======== ========== =========
Diluted $ .01 $ .11 $ (.12) $ .26
======== ======== ========== =========
Basic weighted average common
shares outstanding 7,353 7,311 7,353 7,168
======== ======== ========== =========
Diluted weighted average common
shares outstanding 8,034 8,023 7,353 7,647
======== ======== ========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-----------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (866) $ 1,980
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities -
Gain on disposal of equipment and leasehold improvements (92) (31)
Depreciation and amortization 3,185 3,287
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net (873) (1,303)
Prepaid expenses and other current assets 854 (952)
Other assets (101) (781)
Increase (decrease) in -
Accounts payable and accrued liabilities (2,164) 3,094
Other long-term liabilities (373) (220)
---------- ---------
Net cash (used in) provided by operating activities (430) 5,074
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements 142 166
Purchase of businesses, net of cash acquired -- (6,438)
Additions to equipment and leasehold improvements (1,172) (1,056)
---------- ---------
Net cash used in investing activities (1,030) (7,328)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net 3,478 (8,582)
Borrowing of long-term debt -- 15,000
Repayments of long-term debt (1,922) (2,840)
Issuance of stock warrants in connection with long-term financing -- 885
Issuance of stock -- 267
Deferred financing costs -- (1,329)
---------- ---------
Net cash provided by financing activities 1,556 3,401
---------- ---------
Net increase in cash and cash equivalents 96 1,147
CASH AND CASH EQUIVALENTS, beginning of period 339 295
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 435 $ 1,442
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CD&L, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
condensed consolidated balance sheet at December 31, 1999 has been
derived from the audited financial statements at that date. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and nine months ended
September 30, 2000 are not necessarily indicative of the results that
may be expected for any other interim period or for the year ending
December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the CD&L, Inc.
(the "Company" or "CD&L") Form 10-K for the year ended December 31,
1999.
Certain prior year amounts have been reclassified in order to conform
to the current year presentation.
(2) SHORT-TERM BORROWINGS:
Effective as of January 1 and July 1, 2000, CD&L and First Union
Commercial Corporation ("First Union") modified the Loan and Security
Agreement (the "First Union Agreement") entered into on July 14, 1997
to change the covenants and financial ratios that the Company must
maintain. Under the terms of the First Union Agreement, as amended, the
Company is in compliance with all such covenants and financial ratios
as of and for the nine months ended September 30, 2000.
(3) LONG-TERM DEBT:
On January 29, 1999, the Company completed a $15 million private
placement of senior subordinated notes and warrants (the "Senior
Notes") with three financial institutions. The Senior Notes bear
interest at 12% per annum and are subordinate to all senior debt
including the Company's credit facility with First Union. The Senior
Notes mature on January 29, 2006 and may be prepaid by the Company
under certain circumstances. The warrants expire January 19, 2009 and
are exercisable at any time prior to expiration at a price of $.001 per
equivalent share of common stock for an aggregate of 506,250 shares of
the Company's stock, subject to additional adjustments. The Company has
recorded the fair value of the warrants as a credit to additional
paid-in-capital and a debt discount on the Senior Notes. Under the
terms of the Senior Notes, the Company is required to maintain certain
financial ratios and comply with other financial conditions. Effective
as of January 1 and July 1, 2000, CD&L and the note holders modified
the Senior Subordinated Loan Agreement (the "Senior Note Agreement")
entered into on January 29, 1999 to change the financial ratios and
conditions that the Company must comply with and increased the interest
rate on the Senior Notes to 13% per annum. Under the terms of the
Senior Note Agreement, as amended, the Company is in compliance with
all such financial ratios and conditions as of and for the nine months
ended September 30, 2000.
(4) REPORTABLE SEGMENTS:
CD&L has two reportable segments: Air and Ground. Separate management
of each segment is required because each business unit is subject to
different cost and delivery parameters.
6
<PAGE>
Segment information for the three and nine month periods ended
September 30, 2000 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -----------------------------
Air Ground Total Air Ground Total
---- ------- ------- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue from
external customers
2000 $15,684 $43,090 $58,774 $49,573 $127,970 $177,543
1999 16,773 41,179 57,952 48,714 116,393 165,107
Intersegment revenue
2000 21 377 398 150 1,469 1,619
1999 43 444 487 81 1,209 1,290
Interest expense
2000 260 711 971 789 2,035 2,824
1999 243 597 840 698 1,667 2,365
Depreciation and
amortization
2000 204 729 933 605 2,580 3,185
1999 215 990 1,205 600 2,687 3,287
Segment profit (loss)
2000 524 (408) 116 651 (1,517) (866)
1999 543 360 903 724 1,256 1,980
Segment assets
Sept. 30, 2000 20,031 46,908 66,939 20,031 46,908 66,939
Dec. 31, 1999 19,893 48,893 68,786 19,893 48,893 68,786
Expenditures for
segment assets
2000 106 257 363 418 754 1,172
1999 (97) 88 (9) 69 987 1,056
</TABLE>
(5) LITIGATION:
In February 1996, Liberty Mutual Insurance Company ("Liberty Mutual")
filed an action against Securities Courier Corporation ("Securities"),
a subsidiary of the Company, Mr. Vincent Brana and certain other
parties in the United States District Court for the Southern District
of New York 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.
Securities and Mr. Brana have filed cross claims against certain
defendants including the insurance brokers for certain of the policies
at issue. Under the terms of its acquisition of Securities, the Company
has certain rights to indemnification from Mr. Brana. In connection
with the indemnification, Mr. Brana has entered into a Settlement
Agreement and executed a Promissory Note in the amount of up to
$500,000 or such greater amount as may be due for any defense costs or
award arising out of this suit. Mr. Brana has agreed to repay the
Company on December 1, 2002, together with interest calculated at a
rate per annum equal to the rate charged the Company by its senior
lender. Mr. Brana has delivered 357,301 shares of CD&L common stock to
the Company as collateral for the note. On September 8, 2000 the
parties entered into a settlement agreement in which Securities and Mr.
Brana agreed to pay Liberty Mutual $1,300,000. An initial payment of
$650,000 was made on October 16, 2000, $325,000 plus interest is due in
monthly installments ending July 1, 2001 and $325,000 plus interest is
due on August 1, 2001. Interest will be charged at 10.5% per annum. As
a result of this settlement agreement, the Third Amended Complaint was
dismissed on November 1, 2000.
7
<PAGE>
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 action described above, will have
a material adverse effect on the consolidated financial position or
results of operations of the Company.
(6) INCOME (LOSS) PER SHARE:
Basic income (loss) per share includes no dilution and is computed by
dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted
income (loss) per share reflects the potential dilution if certain
securities are converted and also includes certain shares that are
contingently issuable. Because of the Company's net loss for the nine
months ended September 30, 2000, equivalent shares represented by
48,010 Stock Options, 506,010 Warrants and 202,850 Employee Stock
Purchase Plan shares would be anti-dilutive and therefore are not
included in the loss per share calculation for the nine months ended
September 30, 2000.
A reconciliation of weighted average common shares outstanding to
weighted average common shares outstanding assuming dilution follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------- --------------------
(000s) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic weighted average
common shares outstanding 7,353 7,311 7,353 7,168
Effect of dilutive securities:
Stock options -- 205 -- 192
Warrants 506 506 -- 283
ESPP 175 1 -- 4
----- ------- ------ -------
Diluted weighted average
common shares outstanding 8,034 8,023 7,353 7,647
====== ====== ====== =======
</TABLE>
The following common stock equivalents were excluded from the
computation of diluted earnings per share because the exercise or
conversion price was greater than the average market price of common
shares:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
(000s) 2000 1999 2000 1999
---- ---- ----- ----
<S> <C> <C> <C> <C>
Stock options 2,459 555 1,469 555
Subordinated
convertible debentures 113 147 135 146
Seller financed
convertible notes 593 677 593 677
</TABLE>
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The following discussion of the Company's results of operations and of
its liquidity and capital resources should be read in conjunction with
the condensed consolidated financial statements of the Company and the
related notes thereto which appear elsewhere in this report.
Disclosure Regarding Forward-Looking Statements
The Company is provided a "safe harbor" for forward-looking statements
contained in this report by the Private Securities Litigation Reform
Act of 1995. The Company may discuss forward-looking information in
this report such as its expectations for future business development,
cost reduction programs, product-based operating structures, revenue
growth and fuel, insurance and labor cost controls, as well as its
liquidity and capital needs and its future prospects. These
forward-looking statements involve certain risks and uncertainties that
may cause the actual events or results to differ materially from those
indicated by such forward-looking statements. Potential risks and
uncertainties include without limitation the risk that the Company will
be unable to continue growing revenue internally, or that the Company's
cost reduction programs will fail to prevent further erosion of its
profit margins or cause loss of key personnel, or that the Company's
industry-based strategic re-positioning will fail to generate revenue
growth, profitability, operating efficiencies or improved service
levels, or that the Company will be unable to reduce its fuel,
insurance and labor costs, or that the Company will be unable to
achieve the other cost savings or additional profits for forward
quarters contemplated by the Company's business management strategy, or
that the Company will be unable to continue to meet its financial
covenants under existing credit lines or otherwise have adequate cash
flow from operations or credit facilities to support its operations and
revenue growth or other risks specified in the Company's 1999 Report on
Form 10-K and other SEC filings.
RESULTS OF OPERATIONS
Income and Expense as a Percentage of Revenue
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
-------------------------------- -----------------------------
2000 1999 2000 1999
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Gross profit 21.8% 24.7% 22.2% 23.8%
Selling, general, and
administrative expenses 18.9% 18.1% 20.0% 18.4%
Depreciation and amortization 1.6% 2.1% 1.8% 2.0%
Operating income 1.3% 4.5% 0.4% 3.4%
Interest expense 1.7% 1.4% 1.6% 1.4%
Net income (loss) 0.2% 1.6% (0.5)% 1.2%
</TABLE>
9
<PAGE>
Nine Months Ended September 30, 2000 Compared to the Nine Months Ended
September 30, 1999
Revenue for the nine months ended September 30, 2000 increased by $12.4
million, or 7.5%, to $177.5 million from $165.1 million for the nine
months ended September 30, 1999. Ground delivery revenue grew by 9.9%
to $127.9 million and air courier revenue grew 1.8% to $49.6 million
for the nine months ended September 30, 2000 compared to the same
period in 1999. Revenue from acquisitions completed in 1999 contributed
$3.0 million and $2.6 million to the ground and air courier revenue
increases, respectively.
Cost of revenue increased by $12.3 million, or 9.8%, to $138.1 million
for the nine months ended September 30, 2000 from $125.8 million for
the nine months ended September 30, 1999. Cost of revenue for the nine
months ended September 30, 2000 represents 77.8% of revenues as
compared to 76.2% for the same period in 1999. The increase in cost of
revenue is due primarily to an increase in ground delivery cost of
revenue in the contract distribution business. This business typically
has lower margins due to new customer start-up costs and competitively
bid contract pricing. Additionally, labor, insurance and vehicle
operating costs increased in 2000. The effect of these increases on
cost of revenue was partially offset by a reclassification of $1.8
million in certain salaries to selling, general, and administrative
("SG&A") expense to properly reflect the nature of such salaries. The
increased labor cost is attributable to the tight labor market for
reliable drivers and sub-contractors.
SG&A expenses increased by $5.1 million, or 16.8%, to $35.5 million for
the nine months ended September 30, 2000 from $30.4 million for the
same period in 1999. Stated as a percentage of revenue, SG&A increased
to 20.0% for the nine months ended September 30, 2000 as compared to
18.4% for the same period in 1999. In addition to the $1.8 million
reclassification from cost of revenue, the variance is primarily
attributable to bad debt expense recorded as a result of a previous
customer filing for bankruptcy protection, the administrative expenses
of the companies acquired in 1999 and increased consulting expenses.
As a result of the factors discussed above, operating income decreased
by $4.9 million for the nine months ended September 30, 2000 as
compared to the same period in 1999.
Interest expense increased by $0.4 million to $2.8 million for the nine
months ended September 30, 2000 as compared to $2.4 million for the
same period in 1999, primarily due to increased borrowings and higher
interest rates. Interest expense is expected to continue to increase as
a result of higher interest rates being charged under the amended
credit facilities.
Other (income) expense, net increased by $0.6 million to $(0.6) million
for the nine months ended September 30, 2000 due to the sale of a
franchise by the Company's air division for $0.6 million during the
third quarter of 2000.
Net income (loss) decreased by $2.9 million to a loss of $(0.9) million
for the nine months ended September 30, 2000 as compared to income of
$2.0 million for the same period in 1999 for the reasons discussed
above.
10
<PAGE>
Three Months Ended September 30, 2000 Compared to the Three Months
Ended September 30, 1999
Revenue for the third quarter of 2000 increased by $0.8 million, or
1.4%, to $58.8 million from $58.0 million for the third quarter of
1999. Ground delivery revenue grew by 4.6% to $43.1 million and air
courier revenue decreased 6.5% to $15.7 million for the third quarter
of 2000 compared to the same period in 1999. The decrease in air
courier revenue was primarily attributable to the decreased volume from
a major customer during the third quarter of 2000.
Cost of revenue increased by $2.3 million, or 5.3%, to $45.9 million
for the third quarter of 2000 from $43.6 million for the third quarter
of 1999. Cost of revenue for the three months ended September 30, 2000
represents 78.2% of revenues as compared to 75.3% for the same period
in 1999. The increase in cost of revenue is due primarily to an
increase in ground delivery cost of revenue in the contract
distribution business. This business typically has lower margins due to
new customer start-up costs and competitively bid contract pricing.
Additionally, labor, insurance and vehicle operating costs increased in
2000. The effect of these increases on cost of revenue was partially
offset by a reclassification of $0.6 million in certain salaries to
SG&A expense to properly reflect the nature of such salaries. The
increased labor cost is attributable to the tight labor market for
reliable drivers and sub-contractors.
SG&A expenses increased by $0.6 million, or 5.7%, to $11.1 million for
the third quarter of 2000 from $10.5 million for the same period in
1999. Stated as a percentage of revenue, SG&A increased to 18.9% for
the three months ended September 30, 2000 as compared to 18.1% for the
same period in 1999. The variance is primarily attributable to the $0.6
million reclassification from cost of revenue.
As a result of the factors discussed above, operating income decreased
by $1.8 million to $0.8 million for the quarter ended September 30,
2000 as compared to $2.6 million for the same period in 1999.
Interest expense increased by $0.2 million to $1.0 million for the
three months ended September 30, 2000 as compared to $0.8 million for
the same period in 1999, primarily due to increased borrowings and
higher interest rates. Interest expense is expected to continue to
increase as a result of higher interest rates being charged under the
amended credit facilities.
Other (income) expense, net increased by $0.7 million to $(0.4) million
for the three months ended September 30, 2000 due to the sale of a
franchise by the Company's air division for $0.6 million during the
third quarter of 2000.
Net income decreased by $0.8 million to $0.1 million for the three
months ended September 30, 2000 as compared to $0.9 million for the
same period in 1999 for the reasons discussed above.
11
<PAGE>
Liquidity and Capital Resources
Working capital decreased from $6.0 million as of December 31, 1999 to
$0.8 million as of September 30, 2000. This decrease of $5.2 million
reflects an increase in the amount of short-term borrowings outstanding
and long-term debt maturing in the next twelve months. Cash and cash
equivalents increased from $0.3 million to $0.4 million. Cash was
provided by financing activities (an increase in the Company's
borrowings on its line of credit in part offset by repayments of
long-term debt) and used in operations (primarily as a result of the
net loss for the nine month period) as well as to finance acquisitions
of equipment and leasehold improvements. Capital expenditures amounted
to $1.2 million and $1.1 million for the nine months ended September
30, 2000 and 1999, respectively. These expenditures primarily upgraded
Company computer system capability and improved Company facilities in
the ordinary course of business. As of September 30, 2000 the Company
had available $1.3 million under its revolving credit facility after
adjusting for the restrictions for outstanding letters of credit and
the subordinated debentures.
Management believes that anticipated cash flows generated from
operations, together with its borrowing capacity, are sufficient to
support the Company's operations and general business and liquidity
requirements for the foreseeable future. However, if cash flows from
operations materially fall short of our projections, no assurances can
be given with respect to the adequacy of existing credit lines, the
availability of alternative borrowing sources or the ability to sell
non-strategic assets.
Inflation
Other than the described effects of recent fuel increases and labor
costs, inflation has not had a material impact on the Company's results
of operations for the past three years.
Quantitative and Qualitative Disclosures About Market Risk
CD&L's major "market risk" exposure is the effect of changing interest
rates. CD&L manages its interest expense by using a combination of
fixed and variable rate debt. At September 30, 2000, the Company's debt
consisted of approximately $24.0 million of fixed rate debt with a
weighted average interest rate of 11.4% and $10.7 million of variable
rate debt with a weighted average interest rate of 9.9%. The amount of
variable rate debt fluctuates during the year based on CD&L's cash
requirements. If interest rates on such variable rate debt were to
increase by 90 basis points (one-tenth of the rate at September 30,
2000), the net impact to the Company's results of operations and cash
flows for the nine month period ended September 30, 2000 would be a
decrease of approximately $62,000.
12
<PAGE>
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings.
In February 1996, Liberty Mutual Insurance Company ("Liberty Mutual")
filed an action against Securities Courier Corporation ("Securities"),
a subsidiary of the Company, Mr. Vincent Brana and certain other
parties in the United States District Court for the Southern District
of New York 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.
Securities and Mr. Brana have filed cross claims against certain
defendants including the insurance brokers for certain of the policies
at issue. Under the terms of its acquisition of Securities, the Company
has certain rights to indemnification from Mr. Brana. In connection
with the indemnification, Mr. Brana has entered into a Settlement
Agreement and executed a Promissory Note in the amount of up to
$500,000 or such greater amount as may be due for any defense costs or
award arising out of this suit. Mr. Brana has agreed to repay the
Company on December 1, 2002, together with interest calculated at a
rate per annum equal to the rate charged the Company by its senior
lender. Mr. Brana has delivered 357,301 shares of CD&L common stock to
the Company as collateral for the note. On September 8, 2000 the
parties entered into a settlement agreement in which Securities and Mr.
Brana agreed to pay Liberty Mutual $1,300,000. An initial payment of
$650,000 was made on October 16, 2000, $325,000 plus interest is due in
monthly installments ending July 1, 2001 and $325,000 plus interest is
due on August 1, 2001. Interest will be charged at 10.5% per annum. As
a result of this settlement agreement, the Third Amended Complaint was
dismissed on November 1, 2000.
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 action described above, will have
a material adverse effect on the consolidated financial position or
results of operations of the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit
27.1 Financial Data Schedule (for electronic submission only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the third quarter of 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 20, 2000 CD&L, INC.
By: \s\ Russell J. Reardon
----------------------------
Russell J. Reardon
Vice President and
Chief Financial Officer
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