<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1999
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 001-14171
C2, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Wisconsin 39-1915787
(State of Incorporation) (IRS Employer Identification No.)
700 N. Water Street, Suite 1200, Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 291-9000
-----------------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $1.00 par value 5,202,664
- ---------------------------- ----------------------------------
(Class) (Outstanding at August 5, 1999.)
Page 1 of 13 total pages No exhibits are filed with this report.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C2, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1999 1998
ASSETS: ------------ -------------
<S> <C> <C>
Current Assets:
Cash And Cash Equivalents $ 4,781,000 $ 9,000
Accounts receivable, net 14,188,000 9,411,000
Inventories 4,955,000 2,346,000
Prepaids and other 1,001,000 85,000
------------ ------------
Total Current Assets 24,925,000 11,851,000
------------ ------------
Long-Term Assets:
Fixed assets, net 75,422,000 68,996,000
Goodwill 17,776,000 5,357,000
Other assets 1,461,000 857,000
------------ ------------
Total Long-Term Assets 94,659,000 75,210,000
------------ ------------
$119,584,000 $ 87,061,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 8,207,000 $ 6,519,000
Accrued liabilities 8,157,000 4,630,000
Current portion of long-term debt 245,000 1,848,000
------------ ------------
Total Current Liabilities 16,609,000 12,997,000
------------ ------------
Due to Christiana Companies, Inc. -- 3,000,000
Long-Term Liabilities:
Long-term debt 69,727,000 35,277,000
Other liabilities 965,000 330,000
------------ ------------
Total Long-Term Liabilities 70,692,000 35,607,000
------------ ------------
Total Liabilities 87,301,000 51,604,000
------------ ------------
Minority Shareholders' Interests 7,454,000 --
Shareholders' Equity:
Preferred stock, par value $.01 per share, -- --
10,000,000 shares authorized, none issued or outstanding
Common stock, par value $.01 per share;
50,000,000 shares authorized, 5,202,664 issued and
outstanding 52,000 --
Additional paid-in capital 20,358,000 --
Members equity -- 35,457,000
Retained earnings 4,419,000 --
------------ ------------
Total Shareholders' Equity 24,829,000 35,457,000
------------ ------------
$119,584,000 $ 87,061,000
============ ============
</TABLE>
See notes to consolidated financial statements.
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C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Logistic revenues $ 24,389,000 $ 21,600,000 $ 48,136,000 $ 43,465,000
Product sales 10,618,000 -- 12,746,000 --
------------ ------------ ------------ ------------
$ 35,007,000 $ 21,600,000 $ 60,882,000 $ 43,465,000
------------ ------------ ------------ ------------
Costs and Expenses:
Logistic expenses 19,404,000 16,721,000 38,477,000 33,712,000
Cost of product sales 7,616,000 -- 9,361,000 --
Depreciation and amortization 1,938,000 1,547,000 3,688,000 3,355,000
Selling, general and administrative 3,549,000 1,443,000 5,874,000 3,072,000
------------ ------------ ------------ ------------
32,507,000 19,711,000 57,400,000 40,139,000
------------ ------------ ------------ ------------
Earnings from Operations 2,500,000 1,889,000 3,482,000 3,326,000
Other Income (Expense):
Interest expense, net (1,266,000) (589,000) (2,092,000) (1,294,000)
Merger-related expense -- -- (343,000) --
Other income (expense), net (29,000) (3,000) (21,000) 5,000
------------ ------------ ------------ ------------
(1,295,000) (592,000) (2,456,000) (1,289,000)
------------ ------------ ------------ ------------
Earnings before income taxes and
minority interest 1,205,000 1,297,000 1,026,000 2,037,000
Income tax provision 443,000 -- 432,000 --
------------ ------------ ------------ ------------
Net earnings before minority interest 762,000 1,297,000 594,000 2,037,000
Minority interest 322,000 -- 332,000 --
------------ ------------ ------------ ------------
Net Earnings $ 440,000 $ 1,297,000 $ 262,000 $ 2,037,000
============ ============ ============ ============
Basic Earnings per Share $ 0.08 $ 0.25 $ 0.05 $ 0.39
============ ============ ============ ============
Diluted Net Earnings per Share $ 0.08 $ 0.24 $ 0.05 $ 0.38
============ ============ ============ ============
Weighted average number of shares
outstanding 5,202,664 5,202,664 5,202,664 5,202,664
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED MEMBER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY TOTAL
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 -- $ -- $ -- $ -- $ 35,457,000 $ 35,457,000
Distribution to Christiana
Companies, Inc. -- -- -- -- (13,312,000) (13,312,000)
Sale of common stock 5,202,664 52,000 20,358,000 -- -- 20,410,000
Adjustments related to the
acquisition of -- -- -- 4,157,000 (22,145,000) (17,988,000)
Total Logistic Control
Net income for the six months
ended June 30, 1999 (unaudited) -- -- -- 262,000 -- 262,000
----------------------------------------------------------------------------------------
Balance, June 30, 1999 5,202,664 $ 52,000 $20,358,000 $4,419,000 $ -- $ 24,829,000
========================================================================================
</TABLE>
See notes to consolidated financial statements.
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C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------------
1999 1998
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 262,000 $ 2,037,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 3,688,000 3,355,000
(Gain) loss on sale of fixed assets (21,000) 159,000
Minority interest 332,000 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (2,859,000) 1,519,000
(Increase) in other assets (314,000) (384,000)
Increase (decrease) in accounts payable and accrued liabilities 1,157,000 (383,000)
------------ ------------
Net cash provided by operating activities 2,245,000 6,303,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (4,948,000) (1,303,000)
Proceeds from sale of assets 34,000 630,000
Businesses acquired, net of cash received (13,089,000) --
------------ ------------
Net cash (used in) investing activities (18,003,000) (673,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of stock 20,410,000 --
Net (payments) borrowings on credit lines (2,006,000) 239,000
Net (payments) borrowings on notes and loans payable 15,482,000 (4,737,000)
Distribution to minority shareholders (44,000) --
Distributions to Christiana Companies, Inc. (13,312,000) (979,000)
------------ ------------
Net cash provided by (used in) financing activities 20,530,000 (5,477,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,772,000 153,000
BEGINNING CASH AND CASH EQUIVALENTS, January 1 9,000 388,000
------------ ------------
ENDING CASH AND CASH EQUIVALENTS, June 30 $ 4,781,000 $ 541,000
============ ============
Supplemental disclosures of cash flow information:
Interest paid 2,077,000 1,129,000
Income taxes paid 410,000 292,000
</TABLE>
See notes to consolidated financial statements.
5
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C2, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
The accompanying unaudited financial statements reflect all adjustments which
are, in the opinion of management, necessary to present fairly the results for
the interim periods presented and should be read in conjunction with the
Company's 1998 Annual Report on Form 10-K.
NOTE 2 -- INITIAL PUBLIC OFFERING AND ACQUISITION OF TOTAL LOGISTIC CONTROL, LLC
On March 4, 1999, C2, Inc. common shares were issued to subscribers
contemporaneous with the distribution of the cash merger consideration
attributable to the Christiana Companies, Inc. (formerly NYSE:CST)
("Christiana") and Weatherford International, Inc. (NYSE:WFT) ("Weatherford")
transaction which closed on February 8, 1999. The stock offering was fully
subscribed and 5,202,664 shares were issued at $4.00 per share. Total proceeds
to the Company were $20,410,000, net of offering costs of $400,000.
Also in conjunction with the above-mentioned merger, C2, Inc. acquired a
two-thirds interest in Total Logistic Control, LLC ("TLC") for $10,667,000. TLC
provides integrated third party logistic services which include refrigerated and
non-refrigerated warehousing, transportation, transportation management, food
distribution, international freight forwarding and packaging.
NOTE 3 -- ACQUISITION OF ZERO ZONE, INC.
On March 12, 1999, C2, Inc. purchased 70.6 percent of the common stock of Zero
Zone, Inc. ("Zero Zone") in connection with a $19,500,000 recapitalization plan.
C2, Inc. invested $3,000,000 in common stock and $1,500,000 in capital notes.
Zero Zone, headquartered in North Prairie, Wisconsin, manufactures frozen and
refrigerated reach-in display cases used by grocery, convenience and drug store
chains for retail manufacturing of food, beverage and floral products.
NOTE 4 -- PRO FORMA RESULTS
C2, Inc. was organized to acquire 66.7 percent of Total Logistic Control, LLC in
connection with a merger transaction between Christiana and Weatherford which
was completed on February 8, 1999. On March 12, 1999, C2, Inc. acquired 70.6
percent of Zero Zone, Inc. The consolidated financial statements for the three
months and six months ended June 30, 1999 included herein reflect the results of
TLC from January 1, 1999 and of Zero Zone from March 12, 1999. Because the
controlling ownership of TLC is deemed to be substantially the same before and
after its acquisition by C2, comparable historical financial statements for the
three and six months ended June 30, 1998 included herein present the results of
operations of TLC only, without regard to minority interest or capital structure
changes. The following unaudited pro forma results of operations have been
prepared assuming the acquisitions had occurred on January 1, 1998. This pro
forma information is not necessarily indicative of results of operations that
would have occurred had the acquisitions been made on those dates, or of results
which may occur in the future.
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<TABLE>
<CAPTION>
PROFORMA PROFORMA
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $35,007,000 $30,273,000 $66,649,000 $55,444,000
=========== =========== =========== ===========
Earnings from operations $ 2,500,000 $ 2,306,000 $ 4,068,000 $ 3,513,000
=========== =========== =========== ===========
Net earnings $ 440,000 $ 375,000 $ 329,000 $ 296,000
=========== =========== =========== ===========
Basic earnings per share $ 0.08 $ 0.07 $ 0.06 $ 0.06
=========== =========== =========== ===========
</TABLE>
NOTE 5 -- EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per share for
the quarters and six months ended June 30, 1999 and 1998. The calculations are
based on the common shares outstanding since the offering and assumes that such
shares were issued and outstanding for each of the periods ended June 30, 1999
and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- ---------------------------
1999 1998 1999 1998
----------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Net earnings available to common shareholders $ 440,000 $1,297,000 $ 262,000 $2,037,000
Average shares of common stock outstanding 5,202,664 5,202,664 5,202,664 5,202,664
---------- ---------- ---------- ----------
Basic earnings per share $ 0.08 $ 0.25 $ 0.05 $ 0.39
========== ========== ========== ==========
Diluted Earnings per Share:
Average shares of common stock outstanding 5,202,664 5,202,664 5,202,664 5,202,664
Incremental common shares applicable to
Common stock options 118,505 118,505 116,077 116,077
--------- --------- ---------- ----------
Average common shares assuming full dilution 5,321,169 5,321,169 5,318,741 5,318,741
--------- --------- ---------- ----------
Diluted earnings per share $ 0.08 $ 0.24 $ 0.05 $ 0.38
========== ========== ========== ==========
</TABLE>
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Business
C2, Inc. ("C2 or the Company") was formed to facilitate the separation of
Christiana Companies, Inc.'s ("Christiana") warehousing and logistics business
from its holding of common stock of Weatherford International, Inc.
("Weatherford"). This separation was accomplished through the purchase by C2 of
66.7 percent of Christiana's operating unit, Total Logistic Control, LLC ("TLC")
and the subsequent merger of a subsidiary of Weatherford with and into
Christiana, whose assets then consisted of 33.3 percent of Total Logistic
Control, LLC and 4,386,762 shares of Weatherford common stock. These
transactions were completed on February 8, 1999 and on that date, Christiana
ceased trading of its common stock.
C2, Inc. completed an offering of 5,202,664 shares of its common stock to the
former shareholders of Christiana on March 4, 1999. The shares were priced at
$4.00 per share and were fully subscribed. Total proceeds to the Company were
$20,410,000, net of offerings costs of $400,000.
On March 12, 1999, C2 purchased 70.6 percent of the common stock of Zero Zone,
Inc., ("Zero Zone") a Wisconsin based manufacturer of frozen and refrigerated
display cases in connection with a $19,500,000 recapitalization plan.
The consolidated financial statements of C2, Inc. presented herein reflect the
results of operations of TLC for the full six month period ended June 30, 1999;
those of C2 for the period February 8 to June 30, 1999 and those of Zero Zone
for the period March 12 to June 30, 1999. Because the controlling ownership of
TLC is deemed to be substantially the same before and after its acquisition by
C2, comparable historical financial statements for the three and six months
ended June 30, 1998 included herein present the results of operations of TLC
only, without regard to minority interest or capital structure changes.
The Company is comprised of two operating companies, TLC and Zero Zone. TLC,
based in Zeeland, Michigan, is a national provider of integrated third party
logistic services which include refrigerated and dry warehousing,
transportation, transportation management, international freight forwarding,
food distribution and packaging. Operations are conducted through a network of
12 distribution warehouses of which seven are refrigerated or frozen facilities
with an aggregate capacity of 34 million cubic feet. TLC also operates a
transportation fleet of 190 refrigerated units.
Zero Zone, based in North Prairie, Wisconsin, manufactures refrigerated and
freezer display cases used in grocery, convenience and drug store chains for
retail merchandising of food, beverage and floral products.
Results of Operations
Consolidated revenues for the three months ended June 30, 1999 totaled
$35,007,000 compared to $21,600,000 reflecting an increase of $13,407,000 or
62.1 percent. Revenues at TLC increased 12.9 percent with the balance of the
increase attributable to the inclusion of Zero Zone. The growth in revenue at
TLC was driven by higher utilization of refrigerated warehousing capacity, new
logistics programs and expanded food distribution activities.
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Zero Zone reported record revenues for the second quarter which was the first
full quarter of operations under C2, Inc. Revenues attributable to Zero Zone
totaled $10,618,000, an increase of 22 percent over the same period last year.
Revenue growth at Zero Zone is being driven by both new retail store
construction and refurbishment programs. Zero Zone continues to maintain
important sole source relationships with certain large retailers and is
achieving meaningful success in new customer sales as its high quality lines of
refrigerated and freezer display cases are incorporated into their new build and
refurbishment programs.
C2, Inc.'s earnings from operations for the quarter were $2,500,000 compared to
$1,889,000 for the same period last year. TLC incurred higher than normal labor
expense in certain refrigerated warehouse facilities in both the quarter and six
months period due to substantial growth in two large customer distribution
programs resulting in lower operating margins. These programs have been
operationalized and labor variances are declining. Operating earnings
contributed by TLC for the quarter were $1,651,000 compared to $1,893,000
recorded in the same period last year. Overhead expenses at TLC also increased
approximately $125,000 quarter to quarter largely due to infrastructure
investment in information systems and logistics personnel needed to support the
Company's growth strategy in developing high volume logistic management
projects.
Operating earnings for the second quarter attributable to Zero Zone totaled
$1,086,000, reflecting an increase of 47 percent over its results for the same
period last year, driven primarily by increased sales volume.
Net interest expense in the quarter was $1,266,000 compared to $589,000 in the
same period last year. Interest expense increased due to the payment by TLC of a
$20 million dividend to Christiana in connection with the Christiana/Weatherford
merger transaction funded by increased borrowings under TLC's revolving credit
facility at slightly higher interest rates, and the addition of Zero Zone
related borrowings, which accounted for $342,000 of the increase.
Net earnings for the quarter were $440,000, or $.08 per share, compared to
$1,297,000, or $.25 per share, in the previous year in which, due to TLC's
corporate structure as a limited liability company, no income taxes were
provided. On a proforma basis, net earnings for the three months ended June 30,
1998 would have been $375,000, or $.07 per share, reflecting an increase in net
earnings during 1999 of 17 percent. (See Note 4, Page 6 for Proforma Results.)
Revenues for the six months ended June 30, 1999 increased 10 percent to
$60,882,000 compared to proforma revenues of $55,444,000 driven by growth at
both TLC and Zero Zone. Actual revenues, attributable to TLC only for the
comparable period in 1998, were $43,465,000 resulting in a year to year increase
of 40 percent. Actual results for the prior year period do not include Zero
Zone.
Earnings from operations for the six months were $3,482,000 compared to
$3,326,000 for the comparable period in 1998, or an increase of 4.7 percent. On
a proforma basis, earnings from operations for the six months ended June 30,
1999 would have been $4,068,000 compared to $3,513,000 for the same period last
year, reflecting an increase of 16 percent. (See Note 4, Page 6 for Proforma
Results.)
During the first six months of fiscal 1999, C2, Inc. incurred one-time charges
related to merger and acquisition activities during the period which totaled
$541,000 ($349,000 after taxes and minority interest, or $.07 per share). These
charges included non-recurring charges incurred by TLC of $343,000 in connection
with the merger of Christiana and Weatherford, and an inventory
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write-up charge of $198,000. Including these special charges, C2 reported net
earnings for the first six months of fiscal 1999 of $262,000, or $0.05 per
share. Net earnings before these one-time charges totaled $611,000 or $0.12 per
share. On a proforma basis, assuming the merger between Christiana and
Weatherford and the acquisition of 70.6 percent of Zero Zone had occurred on
January 1, 1999, net earnings for the six months ended June 30, 1999 would have
been $329,000, or $0.06 per share, compared to $296,000, or $0.06 per share, for
the comparable period of 1998. (See Note 4, Page 6 for Proforma Results.)
Liquidity and Capital Resources
The Company's ongoing liquidity requirements arise primarily from its need to
service debt, fund working capital, service lease commitments, maintain and
improve warehouse, transportation and manufacturing facilities and equipment,
and make other investments. The company is active in the acquisition, leasing or
new construction of warehouse facilities, particularly refrigerated facilities.
Historically, bank financing or leasing and internally generated cash have
provided funding for these activities. Currently, the Company has significant
subsidiary level lending relationships with four major commercial banks. At June
30, 1999, the Company had outstanding debt of $69,972,000, all of which was
borrowed under various facilities with these banks. The Company's subsidiaries
have committed credit facilities totaling $86,200,000, thereby providing
$16,228,000 of currently undrawn and available credit.
TLC entered into a new $70 million revolving credit agreement, dated November 2,
1998. This credit facility is secured by substantially all of the assets of TLC
and mortgages on its real estate. This five year revolving credit facility, by
its terms, steps down on November 3 each year beginning in 1999 through November
2, 2003 by $1.25 million in 1999, $4.4 million in 2000, $5.0 million in 2001,
$6.0 million in 2002, and a final maturity of $53.35 million is due on November
2, 2003. The interest rate on borrowings under this credit agreement is based on
LIBOR or prime rate, at TLC's option, and varies pursuant to a pricing grid
based on the ratio of TLC's funded debt to EBITDA, as defined in the credit
agreement. At June 30, 1999 TLC had $53.8 million in outstanding borrowings
under this facility with an average interest rate of LIBOR plus 155 or 6.65
percent.
Zero Zone entered into an $11,000,000, 7 year acquisition term loan facility on
March 12, 1999. Amortization payments began in May 1999 in the amount of $70,833
per month and will increase to $100,000 per month in 2000, $125,000 per month in
2001 and $155,208 per month thereafter. Zero Zone also has a $1,400,000 term
loan facility to finance capital expenditures, including, but not limited to the
expenditures in connection with its plant expansion and related equipment.
Repayment terms are $17,000 per month beginning October 1999.
Zero Zone has outstanding industrial revenue bonds ("IRB") in the amount of
$1,520,000. Annual payments are $245,000 until 2002 declining to $135,000
through 2006. The IRB is supported by a letter of credit from its commercial
bank which is secured by a first mortgage on the headquarters' land and
building. The all-in rate on the IRB is approximately 4.5 percent.
Zero Zone has a $2 million working capital line of credit. There were no
borrowings under this facility at June 30, 1999.
The acquisition term loan, working capital line and capital expenditure term
loan are all secured by security interests in its accounts receivable,
inventory, and equipment. The interest rate on these facilities varies based on
a pricing grid based on the ratio of senior debt to EBITDA. At June 30,
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1999, the rate on the acquisition debt and capital expenditure line was LIBOR
plus 260 or 7.70 percent.
Zero Zone has unsecured senior subordinated indebtedness in the amount of
$2,350,000 to former and existing shareholders. Repayment terms are $1,000,000
each on December 31, 2000 and 2001 and a final payment of $350,000 on December
31, 2002. The interest rate is 8 percent. Zero Zone also has $3,000,000 of
unsecured junior subordinated indebtedness to existing shareholders. Payments of
$1,000,000 per year begin December 31, 2002. The interest rate is 8.5 percent of
which 3.4 percent is paid in cash and 5.1 percent is payment-in-kind.
C2 maintains a $15,000,000 unsecured line of credit for general corporate
purposes. During the period there were no borrowings under this credit facility.
On March 4, 1999, C2, Inc. completed an offering of 5,202,664 shares of its
common stock. The offering was fully subscribed by former Christiana Companies,
Inc. shareholders in connection with the previously described merger transaction
between Christiana and Weatherford. Total proceeds to the Company were
$20,410,000, net of offering costs of $400,000.
As of June 30, 1999, the Company had cash and cash equivalents on hand of
$4,781,000 compared to $9,000 at December 31, 1998. Cash flows provided by
operations for the six months ended June 30, 1999, totaled $2,245,000 compared
to $6,303,000 in the previous period. Cash flows from operating activities
reflect changes in working capital accounts and other assets for TLC for the
full six months, C2 corporate from February 8, 1999 and Zero Zone from March 12,
1999. The decline in cash flow from operating activities is attributable to an
increase in accounts receivable and inventory related to TLC's expanded food
distribution program, the inclusion of Zero Zone's operations and lower net
earnings.
Cash flows used in investing activities in the period totaled $18,003,000
compared to $673,000 for the same period last year. The significant increased
use of cash was due to the equity investment in 66.7 percent of TLC for
$10,667,000 and the equity investment in 70.6 percent of Zero Zone for
$3,000,000, net of cash acquired of $578,000. Higher capital expenditures at TLC
and the inclusion of those at Zero Zone were also contributing factors. TLC
invested approximately $3,783,000 during the period in refrigerated warehouse
projects, new information technology and transportation equipment. Zero Zone
completed a large expansion of its manufacturing facility in North Prairie,
Wisconsin.
Cash flows from financing activities totaled $20,530,000 compared to a use of
$5,477,000 for the same period last year. Major items included net proceeds of
$20,410,000 from the Company's initial public offering of its common stock and
increased borrowings to fund TLC's distributions to Christiana related to its
merger transaction with Weatherford.
During 1998, the Company completed a comprehensive assessment of Year 2000
issues for both its financial information systems and other non-financial
systems. In the opinion of management, all hardware and software that could have
a significant Year 2000 impact have been identified and a remediation plan has
been implemented. Year 2000 issues for financial information systems are being
corrected through hardware and software upgrades. Non-financial systems,
primarily telephone and security, will be repaired or replaced in order to
achieve Year 2000 compliance. Based upon the Company's current projections, all
Year 2000 compliant systems, both financial and non-financial, will be
implemented no later than September 1, 1999 to allow for sufficient testing. As
of June 30, 1999, the Company was approximately 95 percent
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complete with the installation of its Year 2000 upgrades. By the time these
upgrades are completed, the Company estimates that it will have expended
approximately $950,000 to resolve its Year 2000 problems.
The Company believes that its efforts are sufficient to address its Year 2000
problem. However, there can be no assurances that the Company will be successful
in its efforts. Any failure to address the Year 2000 problem may have a
materially adverse effect on the Company's ability to provide its transportation
and warehousing services and process vital financial data. This could result in
material lost revenues to the Company in amounts which are not known at this
time. The Company currently has no contingency plans if its efforts to address
the Year 2000 problem fail. After the Company has completed the upgrades
described above, contingency plans will be developed.
The Company has solicited all of its major service providers concerning their
progress in compliance with the Year 2000 problem. The Company has received
responses and is not aware of the inability of any service provider to address
its Year 2000 problem.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and other statements
that are not historical facts concerning, among other things, market conditions,
the demand for warehousing and transportation services, new building and
refurbishment programs for grocery and retail drug store industry, and future
capital expenditures. Such statements are subject to certain risks,
uncertainties and assumptions, including, without limitation, dependence on
refrigerated food production and the continuation of freezing as a preferred
method of food preparation, implementation of new information systems, risks
related to leverage, risks related to new construction of refrigerated
warehouses in the Company's existing markets, risks related to increased
competition in transportation operations resulting from higher levels of excess
capacity, higher fuel and driver costs and ongoing capital expenditures. There
can be no assurance that the Company has accurately identified and properly
weighted all of the factors which affect market conditions and demand for the
Company's services and products, that the information upon which the Company has
relied is accurate or complete, that the Company's analyses of the market and
demand for its services, particularly in third party transportation management
services is correct or that the strategy based on such analyses will be
successful.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Not applicable.
Item 2. Not applicable.
Item 3. Not applicable.
Item 4. Not applicable.
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C2, Inc.
(Registrant)
Date: August 5, 1999 /s/ William T. Donovan
-------------------------- ----------------------------------------
William T. Donovan
Chairman and Chief Financial Officer
Date: August 5, 1999 /s/ David J. Lubar
-------------------------- ----------------------------------------
David J. Lubar
President
14
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