<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 June 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
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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
South Hackensack, New Jersey 07606
---------------------------- ----------
(Address of principal (Zip Code)
executive offices)
(201) 487-7740
----------------------------------------------------
(Registrant's telephone number, including area code)
CONSOLIDATED DELIVERY & LOGISTICS, INC.
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___
The number of shares of common stock of the Registrant, par value $.001
per share, outstanding as of August 4, 2000 was 7,353,458.
<PAGE>
CD&L, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 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 June 30, 2000 and
December 31, 1999 3
Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 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 4 - Submission of Matters to a Vote of Security Holders 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
2
<PAGE>
CD&L, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 515 $ 339
Accounts receivable, net 28,251 27,560
Prepaid expenses and other current assets 3,419 4,321
------- -------
Total current assets 32,185 32,220
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 5,839 6,624
INTANGIBLE ASSETS, net 27,166 27,932
OTHER ASSETS 2,034 2,010
------- -------
Total assets $67,224 $68,786
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 9,755 $ 7,188
Current maturities of long-term debt 5,684 2,513
Accounts payable and accrued liabilities 14,603 16,530
------- -------
Total current liabilities 30,042 26,231
LONG-TERM DEBT 19,314 22,885
OTHER LONG-TERM LIABILITIES 1,481 2,301
------- -------
Total liabilities 50,837 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 June 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 3,821 4,803
------- -------
Total stockholders' equity 16,387 17,369
------- -------
Total liabilities and stockholders' equity $67,224 $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 Six Months
Ended Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue $58,767 $55,848 $118,769 $107,155
Cost of revenue 45,271 42,644 92,131 82,198
------- ------- -------- --------
Gross profit 13,496 13,204 26,638 24,957
Selling, general, and
administrative expenses 11,375 10,158 24,394 19,913
Depreciation and amortization 1,117 1,063 2,252 2,082
------- ------- -------- --------
Operating income (loss) 1,004 1,983 (8) 2,962
Other (income) expense:
Interest expense 969 878 1,853 1,525
Other income, net (178) (81) (224) (315)
------- ------- -------- --------
Income (loss) before provision
(benefit) for income taxes 213 1,186 (1,637) 1,752
Provision (benefit) for income taxes 85 451 (655) 675
------- ------- -------- --------
Net income (loss) $128 $735 $(982) $1,077
======= ======= ======== ========
Net income (loss) per share:
Basic $.02 $.10 $(.13) $.15
======= ======= ======== ========
Diluted $.02 $.09 $(.13) $.14
======= ======= ======== ========
Basic weighted average common
shares outstanding 7,353 7,246 7,353 7,095
======= ======= ======== ========
Diluted weighted average common
shares outstanding 7,915 7,962 7,353 7,710
======= ======= ======== ========
</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 Six Months
Ended June 30,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (982) $ 1,077
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities -
Gain on disposal of equipment and leasehold improvements (41) (31)
Depreciation and amortization 2,252 2,082
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net (691) (479)
Prepaid expenses and other current assets 902 (344)
Other assets 49 (609)
Increase (decrease) in -
Accounts payable and accrued liabilities (1,927) 1,140
Other long-term liabilities (322) 133
------- -------
Net cash (used in) provided by operating activities (760) 2,969
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements 76 166
Purchase of businesses, net of cash acquired - (6,438)
Additions to equipment and leasehold improvements (809) (1,065)
------- -------
Net cash used in investing activities (733) (7,337)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net 2,567 (7,812)
Borrowing of long-term debt - 15,000
Repayments of long-term debt (898) (2,214)
Issuance of stock warrants in connection with long-term financing - 885
Issuance of stock - 267
Deferred financing costs - (1,363)
------- -------
Net cash provided by financing activities 1,669 4,763
------- -------
Net increase in cash and cash equivalents 176 395
CASH AND CASH EQUIVALENTS, beginning of period 339 295
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 515 $ 690
======= =======
</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 six months ended June 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, 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
six months ended June 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, 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 six months ended June 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 six month periods ended June 30, 2000
and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------- ------------------------------------
Air Ground Total Air Ground Total
------------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from
external customers
2000 $16,831 $41,936 $58,767 $33,889 $84,880 $118,769
1999 16,918 38,930 55,848 31,941 75,214 107,155
Intersegment revenue
2000 11 430 441 129 1,092 1,221
1999 25 417 442 38 765 803
Interest expense
2000 278 691 969 529 1,324 1,853
1999 266 612 878 455 1,070 1,525
Depreciation and
amortization
2000 191 926 1,117 401 1,851 2,252
1999 180 883 1,063 385 1,697 2,082
Segment profit (loss)
2000 111 17 128 127 (1,109) (982)
1999 133 602 735 181 896 1,077
Segment assets
June 30, 2000 19,459 47,765 67,224 19,459 47,765 67,224
Dec. 31, 1999 19,893 48,893 68,786 19,893 48,893 68,786
Expenditures for
segment assets
2000 156 335 491 312 497 809
1999 (257) 615 358 166 899 1,065
</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. 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. Three additional
defendants were added by way of a second amended complaint on April 9,
1998. Securities and Mr. Brana have filed cross claims against each of
these additional defendants and certain original defendants who had acted
as 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. In April 1999 a motion for summary judgment was filed and
denied by the Court in December 1999. The plaintiff subsequently filed a
Third Amended Complaint for breach of contract and additional claims for
quantum meruit. The parties are presently participating in court-ordered
non-binding mediation in an attempt to resolve this litigation which
extends the time to respond to the Third Amended Complaint until thirty
days after completion of the final mediation session, subject to the
Court's
7
<PAGE>
approval. Mediation efforts continue at this time. Due to the continuing
legal costs in defending this suit, Mr. Brana has delivered 357,301 shares
of CD&L common stock to the Company as collateral for the note. The Company
does not believe that an adverse determination in this matter would result
in a material adverse effect 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 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 six months
ended June 30, 2000, equivalent shares represented by 67,185 Stock Options,
506,059 Warrants and 51,169 Employee Stock Purchase Plan shares would be
anti-dilutive and therefore are not presented for the six months ended June
30, 2000.
A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
--------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Basic weighted average
common shares outstanding 7,353 7,246 7,353 7,095
Effect of dilutive securities:
Stock options 12 208 - 184
Warrants 506 506 - 427
ESPP 44 2 - 4
----- ----- ----- -----
Diluted weighted average
common shares
outstanding 7,915 7,962 7,353 7,710
===== ===== ===== =====
</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 Six Months Ended
June 30, June 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
--------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Stock options 1,627,619 555,442 1,038,002 555,442
Subordinated
convertible debentures 145,750 161,818 145,750 161,818
Seller financed
convertible notes 593,332 676,666 593,332 676,666
</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, labor and insurance 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 credit facilities to
support its operations and revenue growth or other risks specified in the
Company's 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 Six Months
Ended Ended
June 30, June 30,
-------------------------------- -----------------------------
2000 1999 2000 1999
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Gross profit 23.0% 23.6% 22.4% 23.3%
Selling, general, and
administrative expenses 19.4% 18.2% 20.5% 18.6%
Depreciation and amortization 1.9% 1.9% 1.9% 1.9%
Operating income 1.7% 3.6% 0.0% 2.8%
Interest expense 1.6% 1.6% 1.6% 1.4%
Net income (loss) 0.2% 1.3% (0.8)% 1.0%
</TABLE>
9
<PAGE>
Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30,
1999
Revenue for the first half of 2000 increased by $11.6 million, or 10.8%, to
$118.8 million from $107.2 million for the first half of 1999. Ground
delivery revenue grew by 12.9% to $84.9 million and air courier revenue
grew 6.1% to $33.9 million for the first half of 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 $9.9 million, or 12.0%, to $92.1 million for
the first six months of 2000 from $82.2 million for the first six months of
1999. Cost of revenue for the six months ended June 30, 2000 represents
77.6% of revenues as compared to 76.7% for the same period in 1999. The
increase in cost of revenue is due to an increase in ground delivery cost
of revenue, which is primarily in the contract distribution business. This
business typically has lower initial margins due to start-up costs.
Additionally, labor and vehicle operating costs increased in 2000, but were
partially offset by a reclassification of $1.1 million in certain salaries
to selling, general, and administration ("SG&A") expense. The increased
labor cost is attributable to the tight labor market for reliable drivers
and sub-contractors.
SG&A expenses increased by $4.5 million, or 22.6%, to $24.4 million for the
first six months of 2000 from $19.9 million for the same period in 1999.
Stated as a percentage of revenue, SG&A increased to 20.5% for the six
months ended June 30, 2000 as compared to 18.6% for the same period in
1999. In addition to the $1.1 million reclassification from cost of
revenue, the variance is primarily attributable to increased staffing and
related expenses, the administrative expenses of the companies acquired in
1999, bad debt expense recorded as a result of a previous customer filing
for bankruptcy protection and increased consulting expenses.
Depreciation and amortization increased $0.2 million to $2.3 million for
the six months ended June 30, 2000 as compared to $2.1 million for the same
period in 1999, primarily reflecting an increase in goodwill amortization
expense as a result of the Company's acquisitions in 1999.
As a result of the factors discussed above, operating income decreased by
$3.0 million for the six months ended June 30, 2000 as compared to the same
period in 1999.
Interest expense increased by $0.4 million to $1.9 million for the six
months ended June 30, 2000 as compared to $1.5 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 facilites.
Net income (loss) decreased by $2.1 million to a loss of $(1.0) million for
the six months ended June 30, 2000 as compared to income of $1.1 million
for the same period in 1999 for the reasons discussed above.
Three Months Ended June 30, 2000 Compared to the Three Months Ended June
30, 1999
Revenue for the second quarter of 2000 increased by $3.0 million, or 5.4%,
to $58.8 million from $55.8 million for the second quarter of 1999. Ground
delivery revenue grew by 7.7% to $42.0 million and air courier revenue
decreased .5% to $16.8 million for the second quarter of 2000 compared to
the same period in 1999. Revenue from acquisitions completed in 1999
contributed $0.7 million to the ground revenue increase.
10
<PAGE>
Cost of revenue increased by $2.7 million, or 6.3%, to $45.3 million for
the second quarter of 2000 from $42.6 million for the second quarter of
1999. Cost of revenue for the three months ended June 30, 2000 represents
77.0% of revenues as compared to 76.4% for the same period in 1999. The
increase in cost of revenue is due to an increase in ground delivery cost
of revenue, which is primarily in the contract distribution business. This
business typically has lower initial margins due to start-up costs.
Additionally, labor and vehicle operating costs increased in 2000, but were
partially offset by a reclassification of $0.6 million in certain salaries
to SG&A expense. The increased labor cost is attributable to the tight
labor market for reliable drivers and sub-contractors.
SG&A expenses increased by $1.2 million, or 11.8%, to $11.4 million for the
second quarter of 2000 from $10.2 million for the same period in 1999.
Stated as a percentage of revenue, SG&A increased to 19.4% for the three
months ended June 30, 2000 as compared to 18.2% for the same period in
1999. In addition to the $0.6 million reclassification from cost of
revenue, the variance is primarily attributable to increased staffing and
related expenses and the administrative expenses of the companies acquired
in 1999.
As a result of the factors discussed above, operating income decreased by
$1.0 million to $1.0 million for the quarter ended June 30, 2000 as
compared to $2.0 million for the same period in 1999.
Interest expense increased by $0.1 million to $1.0 million for the three
months ended June 30, 2000 as compared to $0.9 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.
Net income decreased by $0.6 million to $0.1 million for the three months
ended June 30, 2000 as compared to $0.7 million for the same period in 1999
for the reasons discussed above.
Liquidity and Capital Resources
Working capital decreased from $6.0 million as of December 31, 1999 to $2.1
million as of June 30, 2000. This decrease of $3.9 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 $0.5 million. Cash was provided by financing
activities (an increase in the Company's borrowings on its line of credit
offset by repayments of long-term debt) and used in operations (primarily
as a result of the net loss for the six month period) as well as to finance
acquisitions of equipment and leasehold improvements. Capital expenditures
amounted to $0.8 million and $1.1 million for the six months ended June 30,
2000 and 1999, respectively. These expenditures primarily upgraded Company
computer system capability and maintained Company facilities in the
ordinary course of business. As of June 30, 2000 the Company had available
$5.7 million under its revolving credit facility after adjusting for the
restrictions for outstanding letters of credit and the subordinated
debentures. However, subsequent to June 30, 2000, use of availability for
increased letter of credit commitments as well as restrictions on
availability per the modified debt agreements have substantially decreased
the amount available.
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, or the availability of alternative
borrowing sources.
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.
11
<PAGE>
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 June 30, 2000, the Company's debt consisted of
approximately $25.0 million of fixed rate debt with a weighted average
interest rate of 10.7% and $9.8 million of variable rate debt with a
weighted average interest rate of 9.3% 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 85 basis points
(one-tenth of the rate at June 30, 2000), the net impact to the Company's
results of operations and cash flows for the six month period ended June
30, 2000 would be a decrease of approximately $38,000.
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. 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. Three additional
defendants were added by way of a second amended complaint on April 9,
1998. Securities and Mr. Brana have filed cross claims against each of
these additional defendants and certain original defendants who had acted
as 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. In April 1999 a motion for summary judgment was filed and
denied by the Court in December 1999. The plaintiff subsequently filed a
Third Amended Complaint for breach of contract and additional claims for
quantum meruit. The parties are presently participating in court-ordered
non-binding mediation in an attempt to resolve this litigation which
extends the time to respond to the Third Amended Complaint until thirty
days after completion of the final mediation session, subject to the
Court's approval. Mediation efforts continue at this time. Due to the
continuing legal costs in defending this suit, Mr. Brana has delivered
357,301 shares of CD&L common stock to the Company as collateral for the
note. The Company does not believe that an adverse determination in this
matter would result in a material adverse effect 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 action described above, will have a material adverse
effect on the consolidated financial position or results of operations of
the Company.
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Item 4 - Submission of Matters to a Vote of Security Holders.
On June 14, 2000, the Company held its annual meeting of stockholders.
The following sets forth a brief description of each matter which was acted
upon, as well as the votes cast for, against or withheld for each such matter,
and, where applicable, the number of abstentions and broker non-votes for each
matter:
1. Election of Directors.
Name of Director Votes For Withheld
---------------- --------- --------
Class II
Michael Brooks 6,116,109 170,536
Jon F. Hanson 6,116,506 170,139
Matthew Morahan 6,116,506 170,139
2. Approval of the Year 2000 Stock Incentive Plan.
Votes For: 2,335,376
Votes Against: 1,021,218
Abstentions: 8,042
Broker Non-Votes: 2,922,009
3. Approval of the Amendments to the Employee Stock Purchase Plan.
Votes For: 6,202,845
Votes Against: 79,480
Abstentions: 4,320
4. Approval of the Amendment to the Second Amended and Restated
Certificate of Incorporation to change the name of the Company to
CD&L, Inc.
Votes For: 6,193,197
Votes Against: 40,503
Abstentions: 52,945
5. Ratification of the selection by the Board of Directors of Arthur
Andersen LLP as the Company's independent public accountants for
2000.
Votes For: 5,519,043
Votes Against: 756,155
Abstentions: 11,447
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Certificate of Amendment of Second Amended and Restated
Certificate of Incorporation of Consolidated Delivery &
Logistics, Inc. (for electronic submission only)
10.1 August 17, 2000 Letter Amendment to the Loan and Security
Agreement dated July 14, 1997, as modified.
10.2 First Amendment and Consent dated August 17, 2000 to the Senior
Subordinated Loan Agreement dated January 29, 1999.
27.1 Financial Data Schedule (for electronic submission only)
(b) Reports on Form 8-K
No reports of Form 8-K were filed in the second 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: August 21, 2000 CD&L, INC.
By: \s\ Russell J. Reardon
-----------------------
Russell J. Reardon
Vice President and
Chief Financial Officer
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