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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
Incorporation or organization Identification No.)
80 Wesley Street
South Hackensack, New Jersey 07606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 487-7740
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.001 American Stock Exchange
per share
Securities registered pursuant to section 12(g) of the Act: None
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 number of shares of the registrant's Common Stock, $.001 par value
outstanding was 7,658,660 and the aggregate market value of voting stock held by
non-affiliates of the registrant was $3,548,720 as of March 31, 2001.
Documents Incorporated by Reference: None
================================================================================
PART I
Statements and information presented within this Annual Report on Form
10-K for CD&L, Inc. (the "Company", "CDL", or "we") include certain statements
that may be deemed to be "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E
of the Exchange Act. These forward-looking statements include, but are not
limited to, statements about our plans, objectives, expectations and intentions
and other statements contained in this report that are not historical facts.
When used in this report, the words "expects," "anticipates," "intends,"
"plans," "believes," "seeks" and "estimates" and similar expressions are
generally intended to identify forward-looking statements. These statements are
based on certain assumptions and analyses made by the Company in light of its
experience and perception of historical trends, current conditions, expected
future developments and other factors it believes are appropriate in the
circumstances. Such statements are subject to a number of assumptions, risks and
uncertainties, including the risk factors (Item 1 - Risk Factors) discussed
below, general economic and business conditions, the business opportunities (or
lack thereof) that may be presented to and pursued by the Company, changes in
law or regulations and other factors, many of which are beyond the control of
the Company. Readers are cautioned that any such statements are not guarantees
of future performance and that actual results or developments may differ
materially from those projected in the forward-looking statements. All
subsequent written or oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified by these
factors.
Item 1. Business Description.
Overview
We are one of the leading national full-service providers of customized,
time-critical, ground delivery services to a wide range of commercial,
industrial, retail and E-Commerce based customers. Our services are provided
throughout the United States but concentrated on the East Coast.
In conjunction with our initial public offering in November 1995 we
acquired 11 time-critical ground and air delivery businesses that operated in 52
cities across the United States. As of December 31, 2000, we had acquired 15
additional time-critical ground and air delivery businesses. Subsequently, on
March 30, 2001, we consummated a transaction providing for the sale of certain
assets and liabilities of Sureway Air Traffic Corporation, Inc., our air
delivery business. The selling price for the net assets was approximately
$14,150,000 and is comprised of $11,650,000 in cash, a promissory note (the
"Note Receivable") for $2,500,000 and contingent cash payments based upon the
ultimate development of certain liabilities retained by us. The Note Receivable
bears interest at the rate of 10.0% per annum, with interest only in monthly
installments. The entire balance of principal, plus all accrued interest, is due
and payable on March 30, 2006. Accordingly, the financial position, operating
results and the provision for loss on the disposition of the Company's air
delivery business have been segregated from continuing operations and
reclassified as a discontinued operation in the accompanying consolidated
financial statements.
We offer the following ground delivery services:
o rush delivery service, typically consisting of delivering
time-sensitive packages, such as critical machine parts or
emergency medical devices, from-point-to-point on an as needed
basis;
o dedicated contract logistics, providing a comprehensive
solution to major corporations that want the control,
flexibility and image of an in-house fleet with all the
economic benefits of outsourcing;
o routed services, providing, on a recurring and often daily
basis, deliveries from pharmaceutical suppliers to pharmacies,
from manufacturers to retailers, and the inter-branch
distribution of financial documents in a commingled system;
and
o facilities management, including providing and supervising
mailroom personnel, mail and package sorting, internal
delivery and outside local messenger services.
2
Our Industry
The overall U.S. ground delivery industry is composed largely of companies
that provide same-day, next-day and two-day delivery services. We primarily
service the same-day, time-critical delivery segment of that overall market. In
contrast, the next-day and two-day delivery market segments are dominated by
large national entities such as United Parcel Service, Federal Express Corp and
the United States Postal Service.
We believe that the same-day delivery industry, which is currently
serviced by a fragmented system of approximately 10,000 companies that include
only a small number of large regional or national operators, is undergoing
substantial growth and consolidation. We believe that several factors, including
the following, are driving that growth and consolidation:
o Outsourcing and Vendor Consolidation. Commercial and
industrial businesses, 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 and national
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. We believe that
significant opportunities exist for larger regional or
national carriers that are able to provide a full range of
services to such businesses.
o Heightened Customer Expectations. Increasing customer demand
for specialized services such as customized billing, enhanced
tracking, storage, inventory management and just-in-time
delivery capabilities favor companies with greater resources
to devote to providing those services. The use of facsimile
technology and the Internet have increased the speed at which
the processing of information and transactions occur such that
the requirements for immediate delivery of a wide range of
critical items has become commonplace. This practice increases
demand for same-day, time-critical delivery services.
o E-Commerce Opportunities. The significant growth in
business-to-business and business-to-consumer customized and
time-critical services through E-Commerce presents expansion
opportunities.
Our Services
We provide our customers with a full range of customized, time-critical
ground delivery service options.
Rush. In providing rush delivery services, or services on demand, our messengers
and drivers respond to customer requests for the immediate pick-up and delivery
of time-sensitive packages. We generally offer one-, two- and four-hour service,
on a 7-days-a-week, 24-hours-a-day basis. Our typical customers for rush service
include commercial and industrial companies, hospitals and service providers
such as accountants, lawyers, advertising and travel agencies and public
relations firms.
Scheduled. Our scheduled delivery services are provided on a recurring and often
daily basis. We typically pick up or receive large shipments of products, which
are then sorted, routed and delivered. These deliveries are made in accordance
with a customer's specific schedule that generally provides for deliveries to be
made at particular times. Typical routes may include deliveries from
pharmaceutical suppliers to pharmacies, from manufacturers to retailers, the
inter-branch distribution of financial documents, payroll data and other
time-critical documents for banks, financial institutions and insurance
companies. We also provide these services to large retailers for home delivery,
including large cosmetic companies, door-to-door retailers, catalog retailers,
home health care distributors and other direct sales companies.
Facilities Management. We provide mailroom management services, including the
provision and supervision of mailroom personnel, mail and package sorting,
internal delivery and outside local messenger services. Typical customers for
our facilities management services include commercial enterprises and
professional firms.
Dedicated Contract Logistics. We offer efficient and cost-effective dedicated
delivery solutions, such as fleet replacement solutions, dedicated delivery
systems and transportation systems management services. These services provide
major pharmaceutical wholesalers, office product companies and financial
institutions with the control, flexibility and image of an in-house fleet and
with all of the economic benefits of outsourcing.
3
Our Internal Operations
The ground division has operations centers staffed by dispatchers, as well
as order entry and other operations personnel. Our ground division operates from
66 leased facilities in 19 states.
In February 2000, the Company announced a plan to depart from
geographically based operations to product-driven business groups operating
nationally. The two major groups are the Distribution Group and the Courier
Group. The Distribution Group focuses on industry specific customer lines
including financial institutions, pharmaceuticals, healthcare, office products,
technology and retailing plus home delivery. The Courier Group focuses on
time-sensitive, same-day product movement business in similar industry focused
lines. Currently, however, the Company's internal reporting systems do not allow
management to accurately measure the results of operations for either of the two
groups independent of the other. The planned implementation of a new reporting
system will allow for such measurement and consequently, the independent
management of the two groups.
We accomplish coordination and deployment of our ground delivery personnel
either through communications systems linked to our computers, through pagers,
or by radio or telephone. A dispatcher coordinates shipments for delivery within
a specific time frame. We route a shipment according to its type and weight, the
geographic distance between its origin and destination and the time allotted for
its delivery. In the case of scheduled deliveries, we design routes to minimize
the unit costs of the deliveries and to enhance route density. We continue to
deploy new hardware and software systems designed to enhance the capture,
routing, tracking and reporting of deliveries throughout our network. To further
improve customer service, we have begun to provide certain customers the
opportunity to access this information via the Internet. Full implementation of
our Internet portal is expected during 2001.
Sales and Marketing
We believe that a direct sales force most effectively reaches customers
for same-day, time-critical delivery services and, accordingly, we do not
currently engage in mass media advertising. We market directly to individual
customers by designing and offering customized service packages after
determining their specific delivery and distribution requirements. We are
implementing a coordinated major account strategy by building on established
relationships with regional and national customers. We also employ certain
direct response marketing techniques.
Many of the services we provide, such as facilities management, dedicated
contract logistics and routed delivery services are determined on the basis of
competitive bids. However, we believe that quality and service capabilities are
also important competitive factors. In certain instances, we have obtained
business by offering a superior level of service, even though we were not the
low bidder for a particular contract. We derive a substantial portion of our
revenues from customers with whom we have entered into contracts. Virtually all
of the scheduled dedicated vehicle and facilities management services that we
provide are pursuant to contracts. Most of these contracts may be terminated by
the customer on relatively short notice, without penalty.
Competition
The market for our delivery services is highly competitive. We believe
that the principal competitive factors in the markets in which we compete are
reliability, quality, breadth of service offerings, technology and price. We
compete on all of those factors. Most of our competitors in the time-critical
ground delivery market are privately held companies that operate in only one
location or within a limited service area. In addition to our time-critical
delivery services, customers also utilize next-day and second-day services. The
market for next-day and second-day services is dominated by nationwide network
providers, which have built large, capital-intensive distribution channels that
allow them to process a high volume of materials. These companies typically have
fixed deadlines for next-day or second-day delivery services. By contrast, we
specialize in on-demand deliveries or services which, by their nature, are not
governed by rigid time schedules. If one of our customers is unable to meet a
network provider's established deadline, we can pick up the shipment on-demand
and deliver it, in some cases, before the network provider's scheduled delivery
time. Our services are available 24-hours-a-day, 7-days-a-week.
4
Acquisitions and Sales of Businesses
We were formed as a Delaware corporation in June 1994. As of December 31,
2000, we had acquired 26 same-day time-critical delivery businesses, including
the 11 companies that we acquired simultaneously with the commencement of our
operations in November 1995. We paid approximately $67,800,000 ($29,600,000 in
cash and 2,935,702 shares of our common stock) to acquire the 11 founding
companies. In addition to the acquisition of those companies, we acquired
certain additional assets from two companies in transactions that we accounted
for as purchases. Those acquired assets were not material.
In 1996, we acquired five additional businesses that had approximately
$15,600,000 in aggregate annual revenues. We paid approximately $3,300,000 to
acquire those companies using a combination of cash, seller-financed debt and
shares of our common stock. Subsequently, the aggregate purchase price paid for
those companies was reduced by approximately $616,000 because the actual
revenues of some of the acquired companies did not reach the revenues projected
by the sellers. We accounted for each of the 1996 acquisitions as purchases.
In 1997, we did not make any acquisitions and instead focused on internal
growth. Consistent with our change of strategic focus, in January 1997 we sold
our contract logistics subsidiary back to its founder in exchange for 137,239
shares of our common stock. In connection with that sale, we recorded a gain of
approximately $816,000 before the effect of Federal and state income taxes.
During December 1997, we sold our direct mail business for $850,000 in
cash and notes. In connection with that sale, we recorded a gain of
approximately $23,000 net of Federal and state income taxes of approximately
$15,000. In 1999, the company to which we sold our direct mail business went out
of business and defaulted on their note and the Company wrote off the remaining
balance of the note of $661,868.
In 1998, we acquired four same-day, time-critical delivery businesses
which had aggregate annual revenues of approximately $25,100,000. We paid
approximately $14,500,000 for the businesses consisting of a combination of
cash, shares of our common stock, and seller-financed debt. We accounted for
each of the 1998 acquisitions as purchases.
In 1999, we acquired four same-day, time critical delivery businesses
which had aggregate annual revenues of approximately $24,800,000. We paid
approximately $12,700,000 for the businesses consisting of a combination of
cash, shares of our common stock and seller-financed debt. The acquisitions were
accounted for as purchase transactions. Under the terms of the purchase
agreements, additional payments of approximately $600,000 were made in 2000 and
2001 upon the accomplishment of certain financial and operational objectives.
On December 1, 2000, we made a strategic decision to dispose of our air
delivery business and accordingly have restated the accompanying balance sheets,
statements of operations and statements of cash flows to reflect as such. On
March 30, 2001, the Company consummated a transaction providing for the sale of
certain assets and liabilities of Sureway Air Traffic Corporation, Inc., its air
delivery business. The selling price for the net assets was approximately
$14,150,000 and is comprised of $11,650,000 in cash, a subordinated promissory
note (the "Note Receivable") for $2,500,000 and contingent cash payments based
upon the ultimate development of certain liabilities retained by the Company.
The Note Receivable bears interest at the rate of 10.0% per annum, with interest
only in monthly installments. The entire balance of principal, plus all accrued
interest, is due and payable on March 30, 2006. As a result of this transaction,
a provision for loss on the disposition of the Company's air delivery business
has been provided in the amount of $2,807,000 (net of provision for income taxes
of $125,000).
Regulation
Our delivery operations are subject to various state and local regulations
and, in many instances, we 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 U.S. Department of Transportation ("DOT")
and by state departments of transportation. If we fail to comply with applicable
regulations, we could face substantial fines or possible revocation of one or
more of our operating permits.
5
Safety
We seek to ensure that all of our employee drivers meet safety standards
established by us and our insurance carriers as well as the U.S. DOT. In
addition, where required by the DOT, state or local authorities, we require that
our independent owner/operators meet certain specified safety standards. We
review prospective drivers in an effort to ensure that they meet applicable
requirements.
Employees and Independent Contractors
As of December 31, 2000, we employed, in our continuing operations,
approximately 2,500 people, 1,758 as drivers or messengers, 506 in operations,
175 in clerical and administrative positions, 38 in sales, 16 in information
technology and 7 in executive management. We are not a party to any collective
bargaining agreements, although we are subject to union organizing activity from
time to time. We also had agreements with approximately 1,750 independent
contractor drivers as of December 31, 2000. We have not experienced any work
stoppages and believe that our relationship with our employees and independent
contractor drivers is good.
Risk Factors
You should carefully consider the following factors as well as the other
information in this report before deciding to invest in shares of our common
stock.
We have suffered a significant loss in 2000.
Our net loss for 2000 was $7,648,000, including a net loss from continuing
operations of $6,229,000. We may also suffer a loss for the first quarter of
2001. While we have initiated efforts to reverse this trend, no assurances can
be given that the Company will again become profitable in 2001 or thereafter.
We have limited capital resources.
We had a working capital deficit of ($3,430,000) at December 31, 2000.
Ongoing labor shortages and fuel price increases continue to have a negative
impact on profit margins and cash flows from operations. While we believe that
cash flows from operations, together with our recently amended borrowing
facilities are sufficient to meet our liquidity needs for the foreseeable
future, no assurances can be given that cash flows from operations will be
satisfactory, that we will be able to satisfy all terms and covenants of our
lending arrangements and/or that additional borrowing capacity will be
available, if required.
Intense price competition could reduce the demand for our service.
We may not be able to compete successfully in the same-day ground delivery
and logistics market. Many of our competitors are larger than us and have
substantially greater financial resources than we do. The market for our
services has been extremely competitive and is expected to be so for the
foreseeable future. Price competition is often intense, particularly in the
market for basic delivery services where barriers to entry are low.
Claims above our insurance limits, or significant increases in our insurance
premiums, may reduce our profitability.
We utilize the services of approximately 1,000 employee drivers. From time
to time some of those drivers are involved in automobile accidents. We currently
carry liability insurance of $1,000,000 for each driver accident, subject to
applicable deductibles (generally $250,000 per occurrence) and carry umbrella
coverage up to $25,000,000 in the aggregate. However, claims against us may
exceed the amounts of our insurance coverage. If we were to continue to
experience a material increase in the frequency or severity of accidents,
liability claims or workers' compensation claims, or unfavorable resolutions of
claims, our operating results could be materially affected.
We may not be able to effectively manage our historic growth.
We expended significant time and effort in expanding our existing
businesses over the past five years. This growth placed considerable strain on
our resources. Our management and financial reporting systems, procedures and
controls may not be adequate to support our expanded operations. Any future
growth also will impose significant added responsibilities on our senior
management, including the need to identify, recruit and integrate additional
management and employees. We may not be able to identify and retain additional
management and employees to oversee our business. If we are unable to manage our
historic growth efficiently
6
and effectively, or if we are unable to attract and retain additional qualified
personnel, our business, financial condition and results of operations could be
materially adversely effected.
As a same-day delivery company, our ability to service our clients effectively
is often dependent upon factors beyond our control.
Our revenues and earnings are especially sensitive to events that are
beyond our control that affect the same-day delivery services industry,
including:
o extreme weather conditions;
o economic factors affecting our significant customers;
o mergers and consolidations of existing customers;
o fluctuations in fuel prices; and
o shortages of or disputes with labor, mainly drivers and messengers.
In addition, demand for our same-day delivery services may decrease as a
result of downturns in the level of general economic activity and employment.
The development and increased popularity of facsimile machines and electronic
mail has reduced the demand for certain types of delivery services, including
our services. As a result, same-day delivery companies, including CDL, have
changed focus to those delivery services involving items that are unable to be
delivered via alternative methods. Similar industry-wide developments may have a
material adverse effect on our business, financial condition or results of
operations.
Our reputation will be harmed, and we could lose customers, if the information
and telecommunications technologies on which we rely fail to adequately perform.
Our business depends upon a number of different information and
telecommunication technologies as well as the ability to develop and implement
new technology enabling us to manage and process a high volume of transactions
accurately and timely. Any impairment of our ability to process transactions in
this way could result in the loss of customers and diminish our reputation. In
support of the business reorganization announced in 2000 we will be further
consolidating our information systems to give management the ability to
accurately measure the results of operations for both the Distribution and
Courier Groups independent of the other. The contemplated computer system
implementations may not be successful or completed on a timely or cost effective
basis.
Governmental regulation of the transportation industry, particularly with
respect to our independent contractors, may substantially increase our operating
expenses.
From time to time, federal and state authorities have sought to assert
that independent contractors in the transportation industry, including those
utilized by us, are employees rather than independent contractors. We believe
that the independent contractors that we utilize are not employees under
existing interpretations of federal and state laws. However, federal and state
authorities have and may continue to challenge this position. Further, laws and
regulations, including tax laws, and the interpretations of those laws and
regulations, may change. If, as a result of changes in laws, regulations,
interpretations or enforcement by federal or state authorities, we become
required to pay for and administer added benefits to independent contractors,
our operating costs could substantially increase.
Shareholders will experience dilution when we issue the additional shares of
common stock that we are permitted or required to issue under convertible
debentures, convertible notes, options and warrants.
We are permitted, and in some cases obligated, to issue shares of common
stock in addition to the common stock that is currently outstanding. If and when
we issue these shares, the percentage of the common stock currently issued and
outstanding will be diluted. The following is a summary of additional shares of
common stock that we have currently reserved for issuance as of December 31,
2000:
o 506,250 shares are issuable upon the exercise of outstanding
warrants at an exercise price of $.001 per share.
o 3,250,000 shares are issuable upon the exercise of options or other
benefits under our employee stock option plan, consisting of:
7
o outstanding options to purchase 2,356,185 shares at a weighted
average exercise price of $3.79 per share, of which options covering
1,544,428 shares were exercisable as of December 31, 2000; and
o 893,815 shares available for future awards after December 31, 2000.
o 100,000 shares are issuable upon the exercise of options or other benefits
under our independent director stock option plan, consisting of:
o outstanding options to purchase 67,500 shares at a weighted average
exercise price of $3.07 per share, of which options covering 67,500
shares were exercisable as of December 31, 2000; and
o 32,500 shares available for future awards after December 31, 2000.
o 30,000 shares are issuable upon the exercise of outstanding convertible
debentures at a conversion price of $5.00 per share.
o 593,332 shares are issuable upon the exercise of outstanding convertible
notes at a weighted average exercise price of $6.59 per share.
Our success is dependent on the continued service of our key management
personnel.
Our future success depends, in part, on the continued service of our key
management personnel. If certain employees, including those individuals
identified to leading the product-driven groups were unable or unwilling to
continue in their present positions, our business, financial condition,
operating results and future prospects could be materially adversely affected.
If we fail to maintain our governmental permits and licenses, we may be subject
to substantial fines and possible revocation of our authority to operate our
business in certain jurisdictions.
Our delivery operations are subject to various state, local and federal
regulations that in many instances require permits and licenses. If we fail to
maintain required permits or licenses, or to comply with applicable regulations,
we could be subject to substantial fines or our authority to operate our
business in certain jurisdictions could be revoked.
Our certificate of incorporation, by-laws, shareholder rights plan and Delaware
law contain provisions that could discourage a takeover that current
shareholders may consider favorable.
Provisions of our certificate of incorporation, by-laws and our
shareholder rights plan, as well as Delaware law, may discourage, delay or
prevent a merger or acquisition that you may consider favorable. These
provisions of our certificate of incorporation and by-laws:
o establish a classified board of directors in which only a portion of
the total number of directors will be elected at each annual
meeting;
o authorize the board to issue preferred stock;
o prohibit cumulative voting in the election of directors;
o limit the persons who may call special meetings of stockholders;
o prohibit stockholder action by written consent; and
o establish advance notice requirements for nominations for the
election of the board of directors or for proposing matters that can
be acted on by stockholders at stockholder meetings.
In addition, we have adopted a Stockholder Protection Rights Plan in
order to protect against offers to acquire us that our Board of Directors
believe to be inadequate or not otherwise in our best interests. There are,
however, certain possible disadvantages to having the Plan in place which might
adversely impact us. The existence of the Plan may limit our flexibility in
dealing with potential acquirers in certain circumstances and may deter
potential acquirers from approaching us.
8
Item 2. Properties.
As of December 31, 2000, the Company operated (excluding Sureway Air
Traffic Corporation, Inc.) from 66 leased facilities (not including 25
customer-owned facilities). 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.
State Number of Facilities
----- --------------------
New York.......................................... 17
Florida........................................... 8
New Jersey........................................ 6
North Carolina.................................... 6
Georgia........................................... 4
Louisiana......................................... 3
South Carolina.................................... 3
California........................................ 2
Indiana........................................... 2
Maine............................................. 2
Massachusetts..................................... 2
Missouri.......................................... 2
Ohio.............................................. 2
Tennessee......................................... 2
Connecticut....................................... 1
Maryland.......................................... 1
Michigan.......................................... 1
Vermont........................................... 1
Washington........................................ 1
--
Total 66
The Company's corporate headquarters is located at 80 Wesley Street, South
Hackensack, 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, 2000, the Company owned or leased approximately 800
vehicles of various types, which are 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 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,
2000 was approximately $10,769,000. See Note 12 to the Company's Consolidated
Financial Statements.
Item 3. 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 had 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. At December 31, 2000 and
1999 the Company had a receivable due from Mr. Brana totaling $2,908,000 and
$1,315,000, respectively. Considering the current market value of the collateral
and Mr. Brana's failure to update and provide satisfactory evidence to support
his ability to pay the promissory note, the Company has recorded a $2,500,000
reserve against the $2,908,000 receivable as of December 31, 2000.
9
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 delivery
operations. In connection therewith the Company has recorded reserves of
$455,000 as of December 31, 2000.
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 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock has been trading on the American Stock Exchange
under the symbol "CDV" since February 23, 1999. Prior to that date, the
Company's Common Stock was 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 1999 and 2000.
1999 Low High
- ---- --- ----
First Quarter $3.06 $4.44
Second Quarter $2.88 $4.81
Third Quarter $2.94 $4.25
Fourth Quarter $2.75 $4.13
2000 Low High
- ---- --- ----
First Quarter $2.50 $3.87
Second Quarter $1.50 $2.50
Third Quarter $0.56 $1.50
Fourth Quarter $0.37 $0.75
On March 29, 2001, the last reported sale price of the Common Stock was
$0.55 per share. As of March 29, 2001, there were approximately 272 shareholders
of record of Common Stock and, based on security position listings, the Company
believes there were approximately 1,209 beneficial holders of the Common Stock.
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 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources.
10
Item 6. Selected Financial Data
The selected financial data with respect to CD&L, Inc.'s consolidated
statement of operations for the years ended December 31, 1998, 1999 and 2000 and
with respect to CD&L, Inc.'s consolidated balance sheet as of December 31, 1999
and 2000 have been derived from CD&L, Inc.'s consolidated financial statements
that appear elsewhere herein. The financial data provided below should be read
in conjunction with these accompanying consolidated financial statements and
notes thereto as well as Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Statement of Operations Data:
CD&L, Inc. and Subsidiaries (2)
------------------------------------------------------------------------------------
For The Years Ended
December 31,
------------------------------------------------------------------------------------
1996 (1) 1997 (1) 1998 1999 2000
-------- -------- -------- -------- --------
Revenue $110,404 $116,235 $130,121 $158,380 $170,079
Gross profit 19,762 25,043 27,709 35,175 34,463
Operating (loss) income (2,686) 1,312 2,999 4,380 (2,870)
(Loss) Income from
continuing operations (1,493) 909 1,075 950 (6,229)
Net (loss) income ($683) $459 $2,311 $2,911 ($7,648)
Basic (loss) income per
share:
-Continuing operations ($.22) $.14 $.16 $.13 ($.84)
-Net (loss) income ($.10) $.07 $.35 $.40 ($1.03)
======== ======== ======== ======== ========
Diluted (loss) income per share:
-Continuing operations ($.22) $.14 $.16 $.12 ($.84)
-Net (loss) income ($.10) $.07 $.34 $.37 ($1.03)
======== ======== ======== ======== ========
Balance Sheet Data:
CD&L, Inc. and Subsidiaries (1 & 2)
----------------------------------------------------------------------------------
December 31,
----------------------------------------------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------- ------- -------
Working capital (deficit) $5,472 $2,519 ($4,196) $5,989 ($3,430)
Equipment and leasehold
Improvements, net 2,857 4,531 5,299 4,321 2,841
Total assets 30,198 29,773 46,890 62,513 57,785
Long-term debt, net of current
maturities 2,335 1,721 6,137 22,858 17,765
Stockholders' equity $8,730 $8,614 $11,407 $17,369 $9,884
(1) 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.
(2) During 2000, the Company discontinued its air operations and subsequently
disposed of them in 2001. Accordingly, the operating results and loss on
disposition of the air delivery business have been reclassified as
discontinued operations for the periods presented.
11
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 the 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
factors listed in Item 1 - Risk Factors. Because of these and other reasons the
Company's actual results may vary 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.
Discontinued Operations
On December 1, 2000, the Company made a strategic decision to dispose of
its air delivery business and accordingly has restated the accompanying balance
sheets, statements of operations and statements of cash flows to reflect as
such. On March 30, 2001, the Company consummated a transaction providing for the
sale of certain assets and liabilities of Sureway Air Traffic Corporation, Inc.,
("Sureway") its air delivery business. The selling price for the net assets was
approximately $14,150,000 and is comprised of $11,650,000 in cash, a
subordinated promissory note (the "Note Receivable") for $2,500,000 and
contingent cash payments based upon the ultimate development of certain
liabilities retained by the Company. The Note Receivable bears interest at the
rate of 10.0% per annum, with interest only in monthly installments. The entire
balance of principal, plus all accrued interest, is due and payable on March 30,
2006. As a result of this transaction, a provision for loss on the disposition
of the Company's air delivery business has been provided in the amount of
$2,807,000 (net of provision for income taxes of $125,000).
The Company reported a net loss of $1,419,000 from discontinued operations
for the year ended December 31, 2000 (including a provision for loss on
disposition of the assets of Company's air delivery business, net of tax of
$2,807,000), and $1,961,000 and 1,236,000 income from discontinued operations,
net of tax for the years ended December 31, 1999 and 1998, respectively.
Results of Operations 2000 Compared with 1999
The following discussion compares the year ended December 31, 2000 and the
year ended December 31, 1999, for continuing operations.
12
Income and Expense as a Percentage of Revenue
For the Year Ended
December 31,
---------------------
2000 1999
------ ------
Revenue 100.0% 100.0%
Gross profit 20.3% 22.2%
Selling, general and
administrative expenses 20.0% 17.1%
Depreciation and amortization 2.0% 2.3%
Operating (loss) income (1.7)% 2.8%
Interest expense 1.8% 1.7%
(Loss) income from continuing
operations (3.7)% 0.6%
Revenue for the year ended December 31,2000 increased $11,699,000, or
7.4%, to $170,079,000 from $158,380,000 for the year ended December 31, 1999.
The increase included $2,978,000 contributed by the businesses acquired in 1999
as well as increased sales from the Company's existing operations.
Cost of revenue consists primarily of payments to employee drivers and
independent contractors, agents, other direct pick-up and delivery costs and the
costs of dispatching drivers and messengers. These costs increased $12,411,000,
or 10.1%, from $123,205,000 for 1999 to $135,616,000 in 2000. Stated as a
percentage of revenue, these costs increased to 79.7% for 2000 from 77.8% for
1999. This increase reflects the impact of higher insurance, facilities, vehicle
and labor costs offset, partially, by a reclassification of $2,400,000 in
administrative salaries and benefits previously considered a component of cost
of revenue to selling, general and administrative expenses. The increase in
insurance costs was primarily attributable to increased medical, workers'
compensation and auto liability claims. Additionally, the expense related to
unreported claims increased as a result of the increase in the reserve for
claims that have been incurred but not yet reported. The increase in facilities
costs includes the impact of opening 11 new facilities and the closing of 16
facilities during the year.
As a result of the above, gross profit decreased by $712,000, from
$35,175,000 in 1999 to $34,463,000 in 2000. As a percentage of revenue gross
profit decreased to 20.3% in 2000 compared to 22.2% of revenue in 1999.
Selling, general and administrative expense ("SG&A") includes costs
incurred at the terminal level related to taking orders and administrative costs
related to such functions. Also included are costs to support the Company's
marketing and sales effort and the expense of maintaining information systems,
human resources, financial, legal and other corporate administrative functions.
SG&A increased by $6,855,000, or 25.3%, from $27,123,000 in 1999 to $33,978,000
in 2000. As a percentage of revenue SG&A increased to 20.0% in 2000 compared to
17.1% of revenue in 1999. In addition to the $2,400,000 reclassification from
cost of revenue, SG&A expense was unfavorably impacted by increases in medical
insurance claims, bad debt expense related to the bankruptcy of a significant
customer, professional fees, administrative costs of the companies acquired in
1999, legal expenses and acquisition and merger related expenses.
Depreciation and amortization decreased by $317,000, or 8.6%, from
$3,672,000 for 1999 to $3,355,000 for 2000. The decrease was primarily
attributable to the full depreciation of certain vehicles held under a capital
lease that ended during 2000. Replacement vehicles under a similar capital lease
were not received until January 2001.
As a result of the above, operating (loss) income decreased to a loss of
($2,870,000) for the year ended December 31, 2000 compared to income of
$4,380,000 for the year ended December 31, 1999. The operating loss was (1.7%)
of revenue for the year ended December 31, 2000 compared to operating income of
2.8% of revenue for the year ended December 31, 1999.
13
Interest expense increased by $329,000 from $2,731,000 in 1999 to
$3,060,000 in 2000. The increase is primarily attributable to increased
borrowings on the Company's revolving line of credit and an increase in interest
rates.
Other expense increased by $2,358,000, to $2,438,000, primarily as a
result of recording a reserve related to a note receivable from a stockholder
related to the Company's funding of litigation defense and settlement expenses
in connection with the action filed by Liberty Mutual Insurance Company against
Securities Courier Corporation ("Securities"), a subsidiary of the Company, and
Mr. Vincent Brana. 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 due and payable on December 1, 2002. Mr. Brana has delivered
357,301 shares of CD&L common stock to the Company as collateral for the note.
Considering the current market value of the collateral and Mr. Brana's failure
to update and provide satisfactory evidence to support his ability to pay the
note when due, the Company has recorded a $2,500,000 reserve against the
$2,908,000 note receivable.
(Benefit) provision for income taxes decreased by $2,758,000 from a
provision for income taxes of $619,000 in 1999 to a (benefit) for income taxes
of ($2,139,000) in 2000. The decrease was caused by the decrease in pre-tax
income to a pre-tax loss in 2000 of ($8,368,000), partially offset by the
recording of a $1,000,000 reserve against the deferred tax assets recorded by
the Company.
Results of Operations 1999 Compared with 1998
The following discussion compares the year ended December 31,1999 and the year
ended December 31, 1998, for continuing operations.
Income and Expense as a Percentage of Revenue
For the Year Ended
December 31,
-------------------
1999 1998
------ ------
Revenue 100.0% 100.0%
Gross profit 22.2% 21.3%
Selling, general and
administrative expenses 17.1% 17.0%
Depreciation and amortization 2.3% 2.0%
Operating income 2.8% 2.3%
Interest expense 1.7% 0.9%
Income from continuing operations 0.6% 0.8%
Revenue for the year ended December 31,1999 increased $28,259,000, or
21.7%, to $158,380,000 from $130,121,000 for the year ended December 31, 1998.
The increase included $5,800,000 contributed by the businesses acquired in 1999
as well as increased sales from the Company's existing operations.
Cost of revenue increased $20,793,000, or 20.3% from $102,412,000 for 1998
to $123,205,000 in 1999. Stated as a percentage of revenue, these costs
decreased to 77.8% for 1999 from 78.7% for 1998. This decrease reflects the
Company's success in controlling costs and the impact of the synergies from
companies acquired in 1999.
As a result of the above, gross profit increased by $7,466,000 or 26.9%,
from $27,709,000 in 1998 to $35,175,000 in 1999.
SG&A increased by $5,002,000, or 22.6%, from $22,121,000 in 1998 to
$27,123,000 in 1999. As a percentage of revenue SG&A increased to 17.1% in 1999
compared to 17.0% of revenue in 1998.
14
Depreciation and amortization increased by $1,083,000, or 41.8%, from
$2,589,000 for 1998 to $3,672,000 for 1999 primarily due to amortization of the
intangible assets, equipment and leasehold improvements related to the companies
acquired in 1999.
As a result of the above, operating income increased $1,381,000, or 46.0%,
from $2,999,000 for the year ended December 31, 1998 to $4,380,000 for the year
ended December 31, 1999. Stated as a percentage of revenue, operating income
increased from 2.3% for 1998 to 2.8% for 1999.
Interest expense increased by $1,513,000 from $1,218,000 in 1998 to
$2,731,000 in 1999. The increase is primarily attributable to the debt incurred
in connection with the 1999 acquisitions.
Liquidity and Capital Resources
The Company's working capital decreased by $9,419,000 from $5,989,000 as
of December 31, 1999 to a deficit of ($3,430,000) as of December 31, 2000. The
decrease is a result of the Company's loss in 2000 plus the approaching
maturities of certain of the notes issued to sellers in connection with the
acquisitions consummated in 1998 and 1999.
Cash and cash equivalents decreased slightly during 2000. Cash of $754,000
was provided from operations and $1,323,000 from net financing activities while
$646,000 was used to acquire property and equipment. Cash used by the
discontinued operations was $1,438,000.
Capital expenditures amounted to $859,000, $746,000 and $1,547,000 for the
years ended December 31, 2000, 1999 and 1998, respectively. These expenditures
primarily upgraded and expanded computer system capability, expanded and
improved Company facilities in the ordinary course of business and upgraded the
Company fleet.
Outstanding borrowings under the Company's revolving credit facility were
$11,169,000 and $5,727,842 was outstanding in Standby Letters of Credit as of
December 31, 2000. The Company also had $15,000,000 in principal outstanding
under its 12% Senior Subordinated Notes ($14,081,000 net of un-amortized
discount). The Company also had $150,000 of outstanding debentures, $468,000 of
capital lease obligations and various equipment notes, $588,000 of debt related
to litigation settlements and $8,230,000 of seller financed debt. The Company
had $1,433,000 available under the revolving credit facility as of December 31,
2000.
Management believes that cash flows from operations, the proceeds from the
sale of Sureway and its borrowing capacity (see Note 9 of the accompanying notes
to the consolidated financial statements) are sufficient to support the
Company's operations and general business and capital liquidity requirements for
the foreseeable future. However, the Company's 2000 financial results were
impacted adversely by recent general labor shortages, fuel price increases, and
increased insurance costs. So long as such factors continue into 2001, the
Company expects to experience a negative impact on its profit margins and cash
flows. No assurances can be given that such factors and other pressures on
profits will not cause the Company to require additional capital and, if such
need occurs, no assurances can be given that such capital will be available on
terms satisfactory to the Company.
Inflation
While inflation has not had a material impact on the Company's results of
operations for the last three years, fluctuations in fuel prices can and do
affect the Company's operating costs.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
CDL's major "market risk" exposure is the effect of changing interest
rates. CDL manages its interest expense by using a combination of fixed and
variable rate debt. At December 31, 2000, the Company's debt consisted of
approximately $23,517,000 of fixed rate debt with a weighted average interest
rate of 11.50% and $11,169,000 of variable rate debt with a weighted average
interest rate of 9.06%. The amount of variable rate debt fluctuates during the
year based on CD&L's cash requirements. Maximum borrowings of variable rate debt
at any quarter end were $11,169,000. If interest rates on such variable rate
debt were to increase by 90 basis points (approximately one-tenth of the rate at
December 31, 2000), the net impact to the Company's results of operations and
cash flows would be a decrease of approximately $87,000.
15
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants .................................................. 17
Consolidated Balance Sheets as of December 31, 2000 and 1999 .............................. 18
Consolidated Statements of Operations For The Years Ended December 31, 2000, 1999 and
1998 .................................................................................. 19
Consolidated Statements of Changes in Stockholders' Equity For The Years Ended December 31,
2000, 1999 and 1998 ................................................................... 20
Consolidated Statements of Cash Flows For The Years Ended December 31, 2000, 1999 and
1998 .................................................................................. 21
Notes to Consolidated Financial Statements ................................................ 22
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CD&L, Inc.:
We have audited the accompanying consolidated balance sheets of CD&L, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the United States. 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 CD&L, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
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
April 25, 2001
17
CD&L, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
December 31,
----------------------
2000 1999
-------- --------
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 319 $ 326
Accounts receivable, less allowance for doubtful accounts of $1,840
and $1,195 in 2000 and 1999, respectively (Note 9) 17,596 17,518
Deferred income taxes (Notes 2 and 11) 1,369 876
Prepaid expenses and other current assets (Note 5) 1,548 2,673
Net assets of discontinued operations (Note 3) 4,591 4,617
-------- --------
Total current assets 25,423 26,010
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net (Notes 2 and 6) 2,841 4,321
INTANGIBLE ASSETS, net (Notes 2, 4 and 7) 20,666 22,375
NOTE RECEIVABLE FROM STOCKHOLDER, less allowance of $2,500
and $0 in 2000 and 1999, respectively (Note 16) 408 1,315
SECURITY DEPOSITS AND OTHER ASSETS 402 402
NET ASSETS OF DISCONTINUED OPERATIONS (Note 3) 8,045 8,090
-------- --------
Total assets $ 57,785 $ 62,513
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 9) $ 11,169 $ 7,188
Current maturities of long-term debt (Note 9) 5,752 2,307
Accounts payable 4,316 4,435
Accrued expenses and other current liabilities (Note 8) 7,616 6,091
-------- --------
Total current liabilities 28,853 20,021
-------- --------
LONG-TERM DEBT, net of current maturities (Note 9) 17,765 22,858
-------- --------
DEFERRED INCOME TAXES PAYABLE (Notes 2 and 11) 1,159 1,625
-------- --------
OTHER LONG-TERM LIABILITIES 124 640
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13)
STOCKHOLDERS' EQUITY (Notes 13, 14 and 15):
Preferred stock, $.001 par value; 2,000,000 shares authorized; no
shares issued and outstanding -- --
Common stock, $.001 par value; 30,000,000 shares authorized,
7,688,027 and 7,382,825 shares issued in 2000 and 1999, respectively 8 7
Additional paid-in capital 12,883 12,721
Treasury stock, 29,367 shares at cost (162) (162)
(Accumulated deficit) retained earnings (2,845) 4,803
-------- --------
Total stockholders' equity 9,884 17,369
-------- --------
Total liabilities and stockholders' equity $ 57,785 $ 62,513
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
18
CD&L, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31,
------------------------------------
2000 1999 1998
--------- -------- --------
Revenue (Note 2) $ 170,079 $158,380 $130,121
Cost of revenue 135,616 123,205 102,412
--------- -------- --------
Gross profit 34,463 35,175 27,709
Selling, general and administrative expenses 33,978 27,123 22,121
Depreciation and amortization 3,355 3,672 2,589
--------- -------- --------
Operating (loss) income (2,870) 4,380 2,999
Other expense
Interest expense 3,060 2,731 1,218
Other expense, net 2,438 80 48
--------- -------- --------
5,498 2,811 1,266
--------- -------- --------
(Loss) income from continuing operations before
(benefit) provision for income taxes (8,368) 1,569 1,733
(Benefit) provision for income taxes
(Notes 2 and 11) (2,139) 619 658
--------- -------- --------
(Loss) income from continuing operations (6,229) 950 1,075
--------- -------- --------
Discontinued operations (Note 3)
Income from discontinued operations, net of
provision for income taxes of $796, $1,276 and
$758, respectively 1,388 1,961 1,236
Provision for loss on disposal of assets, net of
benefit for income taxes of $125 (2,807) -- --
--------- -------- --------
Net (loss) income from discontinued operations (1,419) 1,961 1,236
--------- -------- --------
Net (loss) income ($ 7,648) $ 2,911 $ 2,311
========= ======== ========
Basic (loss) income per share:
Continuing operations ($ .84) $ .13 $ .16
Discontinued operations ($ .19) $ .27 $ .19
--------- -------- --------
Net (loss) income per share ($ 1.03) $ .40 $ .35
========= ======== ========
Diluted (loss) income per share:
Continuing operations ($ .84) $ .12 $ .16
Discontinued operations ($ .19) $ .25 $ .18
--------- -------- --------
Net (loss) income per share ($ 1.03) $ .37 $ .34
========= ======== ========
Basic weighted average common
shares outstanding 7,430 7,214 6,662
========= ======== ========
Diluted weighted average common
shares outstanding 7,430 7,868 6,839
========= ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
19
CD&L, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands, except share data)
(Accumulated
Common Stock Additional Deficit) Total
------------------- Paid-in Treasury Retained Stockholders'
Shares Amount Capital Stock Earnings Equity
----------------------------------------------------------------------
BALANCE AT
DECEMBER 31,1997 6,666,884 $ 7 $ 9,026 $ -- ($ 419) $ 8,614
Treasury shares acquired in
connection with adjustment
of purchase price of a
business acquired (29,367) -- -- (162) -- (162)
Shares issued in connection with
acquisitions of businesses 206,185 -- 644 -- -- 644
Net income -- -- -- -- 2,311 2,311
----------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 6,843,702 7 9,670 (162) 1,892 11,407
Discount for warrants issued in
connection with private
placement -- -- 1,265 -- -- 1,265
Shares issued in connection with
Employee Stock Purchase
Plans 73,172 -- 251 -- -- 251
Shares issued in connection with
executive compensation 47,051 -- 150 -- -- 150
Shares issued in connection with
acquisitions of businesses 389,533 -- 1,385 -- -- 1,385
Net income -- -- -- -- 2,911 2,911
----------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1999 7,353,458 7 12,721 (162) 4,803 17,369
Shares issued in connection with
Employee Stock Purchase
Plan 305,202 1 162 -- -- 163
Net loss -- -- -- -- (7,648) (7,648)
----------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 2000 7,658,660 $ 8 $12,883 ($162) ($2,845) $ 9,884
======================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
20
CD&L, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For The Years Ended December 31,
----------------------------------
2000 1999 1998
------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($7,648) $ 2,911 $ 2,311
Adjustments to reconcile net (loss) income to net cash provided by
operating activities of continuing operations -
Gain on disposal of equipment and leasehold improvements (116) (36) (16)
Income from discontinued operations (1,388) (1,961) (1,236)
Loss on disposal of assets of discontinued operations 2,807 -- --
Depreciation and amortization 3,355 3,672 2,589
Provision for doubtful note receivable 2,500 -- --
Provision for doubtful accounts 1,995 522 558
Deferred income tax (benefit) provision (959) 488 300
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable (2,073) (1,852) (3,840)
Prepaid expenses and other current assets 1,089 (1,927) 607
Note receivable from stockholder, security deposits and other assets (250) (149) (446)
Increase (decrease) in -
Accounts payable, accrued expenses and other current liabilities 1,438 115 1,061
Other long-term liabilities 4 (77) (346)
------- -------- -------
Net cash provided by operating activities of continuing
operations 754 1,706 1,542
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements (859) (746) (1,547)
Proceeds from sales of equipment and leasehold improvements 213 433 20
Purchases of businesses, net of cash acquired -- (3,360) (7,233)
------- -------- -------
Net cash used in investing activities of continuing operations (646) (3,673) (8,760)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net 3,981 (6,389) 6,217
Proceeds from long-term debt -- 15,000 150
Repayments of long-term debt (2,821) (3,487) (3,238)
Issuance of debt in connection with acquisition of assets included in
discontinued operations (retained by continuing operations) -- 2,170 --
Issuance of common stock 163 401 --
Deferred financing costs -- (1,171) (34)
------- -------- -------
Net cash provided by financing activities of continuing operations 1,323 6,524 3,095
------- -------- -------
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS (1,438) (4,514) 2,605
------- -------- -------
Net (decrease) increase in cash and cash equivalents (7) 43 (1,518)
CASH AND CASH EQUIVALENTS, beginning of year 326 283 1,801
------- -------- -------
CASH AND CASH EQUIVALENTS, end of year $ 319 $ 326 $ 283
======= ======== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
CD&L, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS:
CD&L, Inc. (the "Company") was founded in June 1994. In November 1995,
simultaneous with the closing of the Company's initial public offering (the
"Offering") separate wholly owned subsidiaries of the Company merged (the
"Merger") with each of eleven acquired businesses. Consideration for the
acquisition of these businesses consisted of a combination of cash and common
stock of the Company, par value $0.001 per share. The assets and liabilities of
the acquired businesses at September 30, 1995 were recorded by the Company at
their historical amounts.
CD&L, Inc. and subsidiaries ("CDL") provides an extensive network of same-day
ground delivery services to a wide range of commercial, industrial and retail
customers. CDL operations currently are concentrated on the East Coast, with a
strategic presence both in the Midwest and on the West Coast.
The consolidated financial statements included herein have been prepared on the
basis that the Company will continue as a going concern. The Company suffered a
loss from operations of $6,229 for the year ended December 31, 2000, and at
December 31, 2000 and had a working capital deficit of $3,430,000. In addition,
the Company was in violation of certain loan covenants that gave the Company's
lenders the right to accelerate the due date of their loans. As discussed more
fully in Note 9, the lenders and the Company have amended such agreements with
respect to such defaults, which enabled the Company to be in compliance with
such amended covenants and resulted in, among other revisions, a decrease in
the Company's credit facility. In March 2001, the Company sold its Sureway
division, and used the proceeds from the sale to pay down a portion of the
Company's existing debt. Additionally, management has taken steps to mitigate
the factors that led to the net loss in 2000, which arose as a result of
increased labor, insurance and vehicle operating costs and increased selling,
general and administrative expenses. Management believes that based upon the
expected results of the above described actions that cash flow from operations
and other available sources will be sufficient to meet its cash requirements in
the next twelve months.
(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 inter-company
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 -
CDL 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.
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 from 2 -
7 years.
Intangible Assets -
Intangible assets consist of goodwill, customer lists, and non-compete
agreements. Goodwill represents the excess of the purchase price over the fair
value of assets of businesses acquired and is amortized on a straight-
22
line basis over 25 years to 40 years. Customer lists and non-compete 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 -
CDL 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 and various
accruals and reserves being deductible for tax purposes in future periods.
Long-Lived Assets -
CDL 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 CDL's cash, receivables and payables, the
carrying value of these financial instruments approximates their fair values.
The fair value of CDL's debt is estimated based on the current rates offered to
CDL for debt with similar remaining maturities. CDL believes that the carrying
value of its debt estimates the fair value of such debt instruments.
Stock Based Compensation -
Statement of Financial Accounting Standards ("SFAS") 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"). CDL 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 13).
Income (Loss) Per Share -
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. Because of the Company's net
loss for the year ended December 31, 2000, equivalent shares represented by
1,840 Stock Options and 505,955 Warrants would be anti-dilutive and therefore
are not included in the loss per share calculation for the year ended December
31, 2000.
A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
2000 1999 1998
--------- --------- ---------
Basic weighted average common
shares outstanding 7,430,175 7,214,426 6,662,258
Effect of dilutive securities:
Stock options and warrants -- 648,952 175,249
Employee stock purchase plan -- 4,450 1,496
--------- --------- ---------
Diluted weighted average common
shares outstanding 7,430,175 7,867,828 6,839,003
========= ========= =========
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 -
23
2000 1999 1998
--------- ------- -------
Stock options 1,982,534 522,546 573,684
Subordinated convertible debentures 109,098 145,750 161,818
Seller financed convertible notes 593,333 593,333 685,470
========= ======= =======
Accounting Pronouncement -
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded on the balance sheet as either an asset or a
liability measured at fair value. This statement also requires that changes in
derivative fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. SFAS 133 will be effective for the Company's
financial statements in the year effective January 1, 2001. The Company has not
entered into any derivatives or hedging activities and, as such, does not
anticipate any immediate impact of adoption on its financial statements.
Reclassifications -
Certain reclassifications have been made to the prior years' consolidated
financial statements in order to conform to the 2000 presentation.
(3) DISCONTINUED OPERATIONS:
On December 1, 2000, the Company made a strategic decision to dispose of its air
delivery business. On March 30, 2001, the Company consummated a transaction
providing for the sale of certain assets and liabilities of Sureway Air Traffic
Corporation, Inc. ("Sureway"), its air delivery business. The selling price for
the net assets was approximately $14,150,000 and is comprised of $11,650,000 in
cash, a promissory note (the "Note Receivable") for $2,500,000 and contingent
cash payments based upon the ultimate development of certain liabilities
retained by the Company. The Note Receivable bears interest at the rate of 10.0%
per annum, with only interest payable in monthly installments. The entire
balance of principal, plus all accrued interest, is due and payable on March 30,
2006.
Accordingly, the financial position, operating results and the provision for
loss on the disposition of the Company's air delivery business have been
segregated from continuing operations and reclassified as a discontinued
operation in the accompanying consolidated financial statements.
Results from the discontinued air delivery business were as follows (in
thousands) -
For the Eleven For the Years Ended
Month Period Ended December 31,
November 30, 2000 1999 1998
----------------- ------- -------
Revenue $ 61,037 $66,184 $55,618
======== ======= =======
Income from discontinued
operations, net of provision for income
taxes of $796, $1,276 and $758 in
2000, 1999 and 1998, respectively $ 1,388 $ 1,961 $ 1,236
======== ======= =======
Provision for loss on disposal of assets,
net of benefit for income taxes of $125
in 2000 ($ 2,807) $ -- $ --
======== ======= =======
The income from discontinued operations includes allocated interest of $642,000,
$460,000 and $4,000 for the eleven month period ended November 30, 2000 and the
years ended December 31, 1999 and 1998, respectively. Such interest was
allocated based upon the proportion of net assets employed in the discontinued
operations to the total net assets of the Company..
24
The net assets of discontinued operations are comprised of the following (in
thousands) -
December 31,
------------------------
2000 1999
-------- --------
Current assets $ 11,172 $ 10,827
Current liabilities (6,581) (6,210)
-------- --------
Net current assets 4,591 4,617
-------- --------
Equipment and leasehold improvements, net 2,243 2,303
Intangible assets, net 5,264 5,557
Other non-current assets, net 538 230
-------- --------
Net non-current assets 8,045 8,090
-------- --------
Net assets of discontinued operations $ 12,636 $ 12,707
======== ========
As a result of the sale of its air delivery business, the Company now operates
in only one reportable business segment.
(4) BUSINESS COMBINATIONS:
On February 16, 1999, CDL and its subsidiary, Sureway, entered into and
consummated an asset and stock purchase agreement with Victory Messenger
Service, Inc., Richard Gold, Darobin Freight Forwarding Co., Inc., ("Darobin")
and The Trust Created Under Paragraph Third of the Last Will and Testament of
Charles Gold (the "Trust"), (collectively "Gold Wings"), whereby Sureway
purchased all of the outstanding shares of the capital stock of Darobin and
certain of the assets and liabilities of the other sellers. The purchase price
was comprised of approximately $3,000,000 in cash including estimated direct
acquisition costs, $1,650,000 in a 7% subordinated note (the "Note") and 200,000
shares of CDL common stock at $3.875 per share. The Note is due April 16, 2001
with interest payable quarterly commencing April 1, 1999. The Note is
subordinate to all existing or future senior debt of CDL. In addition, a
contingent earn out in the aggregate amount of up to $520,000 is payable based
on the achievement of certain financial goals during the two year period
following the closing. The earn out is payable 55% in cash and 45% in CDL common
stock. The net assets acquired in this transaction are included in net assets of
discontinued operations in the accompanying financial statements. The
obligations under the Note and earn out, however, remain with CDL following the
sale of the air delivery business. During 2000 approximately $250,000 of the
earn out was paid in cash and the remaining obligation under the earn out was
reduced by approximately $100,000.
On April 30, 1999, CDL entered into and consummated an asset purchase agreement
with its subsidiary, Silver Star Express, Inc. ("Silver Star") and Metro Parcel
Service, Inc., Nathan Spaulding and Kelly M. Spaulding, (collectively, "Metro
Parcel"), whereby Silver Star purchased certain of the assets and liabilities of
Metro Parcel. The purchase price was comprised of approximately $710,000 in
cash, $202,734 in a 7% subordinated note (the "Metro Parcel Note") and 40,000
shares of CDL's common stock at $3.25 per share. The Metro Parcel Note is due
April 30, 2001 with interest payable quarterly commencing August 1, 1999. The
Metro Parcel Note is subordinate to all existing or future senior debt of CDL.
On April 30, 1999, CDL entered into and consummated an asset purchase agreement
with its subsidiary, Clayton/National Courier Systems, Inc. ("Clayton/National")
and Westwind Express, Inc., Logistics Delivery Systems, Inc., Fastrak Delivery
Systems, Inc., Sierra Delivery Services, Inc., and Steven S. Keihner
(collectively, "Westwind"), whereby Clayton/National purchased certain of the
assets and liabilities of Westwind. The purchase price was comprised of
approximately $2,650,000 in cash, $1,680,000 in various 7% subordinated notes
(the "Westwind Notes") and 149,533 shares of CDL's common stock at $3.21 per
share. The Westwind Notes are comprised of two-year notes due April 30, 2001
with a total principal amount of $1,200,000 and three-year notes due April 30,
2002 with a total principal amount of $480,000. Interest on the Westwind Notes
is payable quarterly commencing July 31, 1999. The Westwind Notes are
subordinate to all existing or future senior debt of CDL. In addition, a
contingent earn out in the aggregate amount of up to $700,000 is payable based
on the achievement of certain financial goals during the two year period
following the closing. The earn out is payable 60% in cash and 40% in one year
promissory notes bearing interest at a rate of 7% per annum having similar terms
as the Westwind Notes referred to above. During 2000, the earn out was settled
for $100,000 payable in twelve monthly cash installments commencing November 1,
2000.
On May 10, 1999, CDL entered into and consummated an asset purchase agreement
(the "Skycab Purchase Agreement") with its subsidiary, Sureway, Skycab, Inc. and
Martin Shulman (collectively, "Skycab"), whereby
25
Sureway purchased certain assets of Skycab. The purchase price was comprised of
approximately $78,100 in cash. In addition, a contingent earn out is payable for
sixteen quarters following the closing date. The amount of the earn out per
quarter is the greater of either $6,250 or 15% of collected revenues for the
three-month period then ended, as defined in the Skycab Purchase Agreement. The
net assets acquired in this transaction are included in net assets of
discontinued operations in the accompanying financial statements.
Any adjustments to the earn outs discussed above effect the goodwill recorded
for the acquisition of the applicable company. The amortization of any
additional goodwill and the conversion of any of the convertible notes payable
into common stock will negatively affect the Company's future earnings per
share.
CDL financed each of the above acquisitions using proceeds from its revolving
credit facility with First Union Commercial Corporation. All of the above
transactions have been accounted for under the purchase method of accounting.
Accordingly, the allocation of the cost of the acquired assets and liabilities
have been made on the basis of the estimated fair value. The aggregate amount of
goodwill recorded for the Gold Wings and Skycab acquisitions is approximately
$5,200,000 and was to be amortized over 25 years and is now included in net
assets of discontinued operations. The goodwill recorded for the Metro Parcel
acquisition is approximately $1,100,000 to be amortized over 25 years. The
goodwill for the Westwind acquisition is approximately $5,200,000 to be
amortized over 40 years. The consolidated financial statements include the
operating results of Gold Wings, Metro Parcel, Westwind, and Skycab from their
respective acquisition dates.
The following summarized unaudited pro forma financial information was prepared
assuming that the Metro Parcel and Westwind acquisitions occurred on the first
day of such periods and include certain pro forma adjustments. This information
is not necessarily indicative of the results the Company would have obtained had
these events actually occurred on such dates or of the Company's actual or
future results (in thousands, except per share amounts).
For the Year For the Year
Ended Ended
December 31, 1999 December 31, 1998
----------------- -----------------
(Unaudited) (Unaudited)
Revenue $161,358 $139,056
Operating income 4,640 3,780
Income from continuing operations $ 1,009 $ 1,253
Basic income per share from
continuing operations $ .14 $ .19
Diluted income per share from
continuing operations $ .13 $ .18
During 1998, the Company acquired four businesses in transactions accounted for
as purchases. The total consideration paid in these transactions is contingent
upon future activity and is estimated to aggregate $14,500,000, which consists
of approximately $8,000,000 paid in cash and 206,185 shares of Common Stock at
$3.44 per share. Of this amount, approximately $13,900,000 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 $921,000 during 1999 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. In addition, approximately $424,000 of additional costs were
allocated to goodwill in 1999 related to these acquisitions. Final
determinations of the individual acquisition costs will be made by May 2003. The
results of the acquired businesses have been reflected in the accompanying
consolidated statements of operations since their respective acquisition dates.
(5) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following (in
thousands) -
26
December 31,
---------------------
2000 1999
------ ------
Other receivables $ 150 $ 513
Prepaid supplies and equipment deposits -- 291
Prepaid insurance 152 1,158
Prepaid rent 21 66
Prepaid income taxes 1,025 470
Other 200 175
------ ------
$1,548 $2,673
====== ======
(6) EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of the following (in thousands) -
December 31,
----------------------
Useful Lives 2000 1999
------------ -------- --------
Transportation and warehouse equipment 3-7 years $ 7,652 $ 8,019
Office equipment 3-7 years 4,540 3,974
Other equipment 5-7 years 800 768
Leasehold improvements Lease period 1,025 937
-------- --------
14,017 13,698
Less - accumulated depreciation and amortization (11,176) (9,377)
-------- --------
$ 2,841 $ 4,321
======== ========
Leased equipment under capitalized leases (included above) consists of the
following (in thousands) -
December 31,
---------------------
2000 1999
------- -------
Equipment $ 2,872 $ 2,872
Less - accumulated depreciation (2,554) (1,981)
------- -------
$ 318 $ 891
======= =======
The Company incurred capital lease obligations of $0 in 2000 and $564,000 in
1999 for vehicles and warehouse equipment.
(7) INTANGIBLE ASSETS:
Intangible assets (see Note 4) consist of the following (in thousands) -
December 31,
----------------------
Useful Lives 2000 1999
------------ -------- --------
Goodwill 25 - 40 years $ 21,914 $ 22,530
Non-compete agreements 3 - 5 years 416 416
Customer lists 3 - 5 years 53 65
Deferred financing costs and other 3 - 7 years 1,313 1,313
-------- --------
23,696 24,324
Less - accumulated amortization (3,030) (1,949)
-------- --------
$ 20,666 $ 22,375
======== ========
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following (in
thousands) -
27
December 31,
-------------------
2000 1999
------ ------
Payroll and related expenses $2,500 $3,122
Third party delivery costs 2,241 1,945
Insurance 767 67
Professional fees 427 332
Interest 310 219
Rent 82 75
Legal judgments and settlements (See Note 12) 455 --
Other 834 331
------ ------
$7,616 $6,091
====== ======
(9) SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Short-term borrowings -
At December 31, 2000 and 1999, the Company had a line of credit agreement for
$22,500,000. Subsequent to year end, upon the closing of the sale of its air
delivery business, the credit agreement was amended, reducing the maximum
available amount to $15,000,000. The Company's short-term borrowings on its line
of credit are as follows for the years ended December 31 (in thousands) -
2000 1999 1998
---- ---- ----
End of year balance $11,169 $ 7,188 $13,577
Maximum amount outstanding during the year 14,000 14,600 13,600
Average balance outstanding during the year 9,700 5,600 7,800
Weighted average borrowing cost during the year 9.5% 9.8% 9.1%
Subsequent to December 31, 2000, CDL and First Union Commercial Corporation
("First Union") modified an agreement entered into in July 1997, establishing a
revolving credit facility (the "First Union Agreement"). The First Union
Agreement decreased the credit facility from $22,500,000 to $15,000,000 and
modified other terms and conditions. Credit availability is based on eligible
amounts of accounts receivable, as defined, up to a maximum amount of
$15,000,000 and is secured by substantially all of the assets, including certain
cash balances, accounts receivable, equipment and leasehold improvements and
general intangibles of the Company and its subsidiaries. The First Union
Agreement provides for both fixed and variable rate loans. Interest rates on
fixed rate borrowings are based on LIBOR, plus 1.5% to 2%. Variable rate
borrowings are based on First Union's prime lending rate (which was 9.50% at
December 31, 2000), minus .25% to plus .25%. Based on eligible accounts
receivable at December 31, 2000, $1,400,000 of the credit facility was available
for future borrowings.
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, 2000 the Company was in compliance with all loan covenants.
Long-Term Debt -
On January 29, 1999, the Company completed a $15,000,000 private placement of
senior subordinated notes and warrants with three financial institutions. The
notes bear interest at 12.0% per annum and are subordinate to all senior debt
including the Company's credit facility with First Union. Under the terms of the
notes, the Company is required to maintain certain financial ratios and comply
with other financial conditions for which the Company was in compliance as of
December 31, 2000. The notes mature on January 29, 2006 and may be prepaid by
the Company under certain circumstances. The warrants expire on January 19, 2009
and are exercisable at any time prior to expiration at a price of $.001 per
equivalent share of common stock for an aggregate of 506,250 shares of the
Company's stock, subject to additional adjustments. The Company has recorded the
fair value of the warrants of $1,265,000 as a credit to additional
paid-in-capital and a debt discount on the senior subordinated notes. The
Company used the proceeds to finance acquisitions and to reduce outstanding
short-term borrowings. Effective as o