<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 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
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Commission File Number 001-14171
C2, INC.
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(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 November 4, 1999.)
Page 1 of 14 total pages No exhibits are filed with this report.
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C2, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------- ------------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,781,000 $ 9,000
Accounts receivable, net 16,092,000 9,411,000
Inventories 6,363,000 2,346,000
Prepaids and other 1,334,000 85,000
-------------- --------------
Total Current Assets 27,570,000 11,851,000
-------------- --------------
Long-Term Assets:
Fixed assets, net 74,571,000 68,996,000
Goodwill 17,541,000 5,357,000
Other assets 1,476,000 857,000
-------------- --------------
Total Long-Term Assets 93,588,000 75,210,000
-------------- --------------
$121,158,000 $87,061,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 7,387,000 $ 6,519,000
Accrued liabilities 8,187,000 4,630,000
Short-term debt 4,054,000 --
Current portion of long-term debt 500,000 1,848,000
-------------- --------------
Total Current Liabilities 20,128,000 12,997,000
-------------- --------------
Due to Christiana Companies, Inc. -- 3,000,000
Long-Term Liabilities:
Long-term debt 67,594,000 35,277,000
Other liabilities 946,000 330,000
-------------- --------------
Total Long-Term Liabilities 68,540,000 35,607,000
-------------- --------------
Total Liabilities 88,668,000 51,604,000
-------------- --------------
Minority Shareholders' Interests 7,459,000 --
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 4,621,000 --
-------------- --------------
Total Shareholders' Equity 25,031,000 35,457,000
-------------- --------------
$121,158,000 $87,061,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenues:
Logistic revenues $ 26,817,000 $ 22,370,000 $ 74,953,000 $ 65,835,000
Product sales 9,995,000 -- 22,741,000 --
------------ ------------ ------------ ------------
36,812,000 22,370,000 97,694,000 $ 65,835,000
------------ ------------ ------------ ------------
Costs and Expenses:
Logistic expenses 22,324,000 16,912,000 60,801,000 50,624,000
Cost of product sales 7,021,000 -- 16,383,000 --
Depreciation and amortization 1,980,000 1,721,000 5,726,000 5,076,000
Selling, general and administrative 3,177,000 1,973,000 9,051,000 5,045,000
------------ ------------ ------------ ------------
34,502,000 20,606,000 91,961,000 60,745,000
------------ ------------ ------------ ------------
Earnings from Operations 2,310,000 1,764,000 5,733,000 5,090,000
Other Income (Expense):
Interest expense, net (1,268,000) (621,000) (3,360,000) (1,915,000)
Merger-related expense -- -- (343,000) --
Other income (expense), net (12,000) (57,000) (34,000) (52,000)
------------ ------------ ------------ ------------
(1,280,000) (678,000) (3,737,000) (1,967,000)
------------ ------------ ------------ ------------
Earnings before income taxes, extraordinary
Item and minority interest 1,030,000 1,086,000 1,996,000 3,123,000
Income tax provision 403,000 -- 832,000 --
------------ ------------ ------------ ------------
Net earnings before minority interest and
extraordinary item 627,000 1,086,000 1,164,000 3,123,000
Minority interest 216,000 -- 547,000 --
------------ ------------ ------------ ------------
Net earnings before extraordinary item 411,000 1,086,000 617,000 3,123,000
Extraordinary item net of income tax and
minority interest 153,000 -- 153,000 --
------------ ------------ ------------ ------------
Net Earnings $ 258,000 $ 1,086,000 $ 464,000 $ 3,123,000
============ ============ ============ ============
Basic earnings per share before extraordinary item $ 0.08 $ 0.21 $ 0.12 $ 0.60
============ ============ ============ ============
Basic earnings per share $ 0.05 $ 0.21 $ 0.09 $ 0.60
============ ============ ============ ============
Diluted earnings per share before extraordinary item $ 0.08 $ 0.20 $ 0.12 $ 0.59
============ ============ ============ ============
Diluted earnings per share $ 0.05 $ 0.20 $ 0.09 $ 0.59
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
3
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C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 -- $ -- $ -- $ --
Distribution to Christiana Companies, Inc. -- -- -- --
Sale of common stock 5,202,664 52,000 20,358,000 --
Adjustments related to the acquisition of -- -- -- 4,157,000
Total Logistic Control
Net earnings for the nine months
ended September 30, 1999 (unaudited) -- -- -- 464,000
----------------------------------------------------------
Balance, September 30, 1999 5,202,664 $ 52,000 $ 20,358,000 $ 4,621,000
==========================================================
</TABLE>
<TABLE>
<CAPTION>
MEMBER'S
EQUITY TOTAL
--------------------------------
<S> <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 -- 20,410,000
Adjustments related to the acquisition of (22,145,000) (17,988,000)
Total Logistic Control
Net earnings for the nine months
ended September 30, 1999 (unaudited) -- 464,000
--------------------------------
Balance, September 30, 1999 $ -- $ 25,031,000
================================
</TABLE>
See notes to consolidated financial statements.
4
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C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
1999 1998
----------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 464,000 $ 3,123,000
Adjustments to reconcile net earnings to net
Cash provided by operating activities:
Depreciation and amortization 5,726,000 5,076,000
(Gain) loss on sale of fixed assets (39,000) 98,000
Minority interest 484,000 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (4,764,000) 88,000
Increase in other assets (2,145,000) (983,000)
Increase in accounts payable and accrued liabilities 365,000 669,000
----------- -----------
Net cash provided by operating activities 91,000 8,071,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (5,924,000) (1,849,000)
Proceeds from sale of assets 34,000 746,000
Businesses acquired, net of cash received (13,089,000) --
----------- -----------
Net cash used in investing activities (18,979,000) (1,103,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of stock 20,410,000 --
Net borrowings on credit lines 4,054,000 --
Net (payments) borrowings on notes and loans payable 11,598,000 (5,957,000)
Distribution to minority shareholders (90,000) --
Distributions to Christiana Companies, Inc. (13,312,000) (979,000)
----------- -----------
Net cash provided by (used in) financing activities 22,660,000 (6,936,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,772,000 32,000
BEGINNING CASH AND CASH EQUIVALENTS, January 1 9,000 388,000
----------- -----------
ENDING CASH AND CASH EQUIVALENTS, September 30 $ 3,781,000 $ 420,000
=========== ============
Supplemental disclosures of cash flow information:
Interest paid $ 3,351,000 $1,702,000
Income taxes paid 1,113,000 292,000
</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 nine months ended September 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 nine months ended September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1999 1998 1999 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net revenues $ 36,812,000 $31,001,000 $103,461,000 $ 86,445,000
============ =========== ============ ============
Earnings from operations $ 2,310,000 $ 2,460,000 $ 6,378,000 $ 5,973,000
============ =========== ============ ============
Net earnings before extraordinary item $ 411,000 $ 332,000 $ 740,000 $ 628,000
Extraordinary item 153,000 -- 153,000 --
------------ ----------- ------------ ------------
Net earnings $ 258,000 $ 332,000 $ 587,000 $ 628,000
============ =========== ============ ============
Basic earnings per share before
extraordinary item $ 0.08 $ 0.06 $ 0.14 $ 0.12
============ =========== ============ ============
Basic earnings per share $ 0.05 $ 0.06 $ 0.11 $ 0.12
============ =========== ============ ============
</TABLE>
NOTE 5 -- EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per share
for the quarters and nine months ended September 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 September 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
----------------------- -----------------------
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Net earnings available to common shareholders
before extraordinary item $ 411,000 $1,086,000 $ 617,000 $3,123,000
Net earnings available to common shareholders $ 258,000 $1,086,000 $ 464,000 $3,123,000
Average shares of common stock outstanding 5,202,664 5,202,664 5,202,664 5,202,664
Basic earnings per share before extraordinary item $ 0.08 $ 0.21 $ 0.12 $ 0.60
Basic earnings per share $ 0.05 $ 0.21 $ 0.09 $ 0.60
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 114,842 114,842 115,818 115,818
Average common shares assuming full dilution 5,317,506 5,317,506 5,318,482 5,318,482
Diluted earnings per share before extraordinary item $ 0.08 $ 0.20 $ 0.12 $ 0.59
Diluted earnings per share $ 0.05 $ 0.20 $ 0.09 $ 0.59
</TABLE>
7
<PAGE> 8
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 nine month period ended September 30,
1999; those of C2 for the period February 8 to September 30, 1999 and those of
Zero Zone for the period March 12 to September 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
nine months ended September 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 September 30, 1999 totaled
$36,812,000 compared to $22,370,000 reflecting an increase of $14,442,000 or
64.6 percent. Revenues at TLC increased 19.9 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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<PAGE> 9
Zero Zone experienced continued strong demand for its refrigerated merchandising
products. Revenues attributable to Zero Zone totaled $9,995,000, an increase of
16 percent over the same period last year. Revenue growth at Zero Zone is being
driven by expanded manufacturing capacity and new product developments. Zero
Zone continues to maintain important sole source relationships with certain
large retailers and is achieving record volume in sales, orders and backlog.
C2, Inc.'s earnings from operations for the quarter were $2,310,000 compared to
$1,764,000 for the same period last year. The increase in operating earnings is
due to the addition of Zero Zone as TLC's operating earnings declined $514,000
quarter to quarter. TLC incurred higher than normal labor expense in certain
refrigerated warehouse facilities in both the quarter and nine months period due
to substantial growth in two large customer distribution programs and, in
transportation operations, TLC experienced increased costs related to sharply
higher fuel costs and maintenance. Fuel cost adjustments were instituted as of
October 1, 1999 and high maintenance, older fleet equipment is scheduled for
replacement during the fourth quarter.
Operating earnings for the second quarter attributable to Zero Zone totaled
$1,306,000, reflecting an increase of 29 percent over its results for the same
period last year, driven primarily by increased sales volume.
During the quarter, Zero Zone completed a refinancing of its senior debt, which
entailed the issuance of both non-taxable and taxable industrial revenue bonds
and an increase in its bank credit facility. The new debt facilities have
significantly extended maturities and will result in annual interest savings
exceeding $100,000. An extraordinary charge of $153,000, net of tax and minority
interest, related to the debt refinancing was incurred during the quarter.
Net interest expense in the quarter was $1,268,000 compared to $621,000 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.
Net earnings for the quarter were $258,000, or $0.05 per share, compared to
$1,086,000, or $0.21 per share, in the previous year. Net earnings were lower
this year due to the incurrance of an extraordinary charge of $153,000 related
to the refinancing of Zero Zone's senior debt, the fact that no income taxes
were provided last year due to TLC's structure as a limited liability company
and increased interest expense associated with the above mentioned TLC dividend.
Net earnings for the third quarter before extraordinary charges, were $411,000,
or $0.08 per share as compared to proforma net earnings of $332,000 or $0.06 per
share for the same period last year. (Note 4, Page 7 for Proforma Results.)
Revenues for the nine months ended September 30, 1999 increased 13.0 percent to
$97,694,000 compared to proforma revenues of $86,445,000 driven by growth at
both TLC and Zero Zone. Actual revenues, attributable to TLC only for the
comparable period in 1998, were $65,835,000 resulting in a year to year increase
of 48.4 percent. Actual results for the prior year period do not include Zero
Zone.
Earnings from operations for the nine months were $5,733,000 compared to
$5,090,000 for the comparable period in 1998, or an increase of 12.6 percent. On
a proforma basis, earnings from operations for the nine months ended September
30, 1999 would have been $6,378,000
9
<PAGE> 10
compared to $5,973,000 for the same period last year, reflecting an increase of
6.8 percent. (See Note 4, Page 7 for Proforma Results.)
During the first nine months of fiscal 1999, C2, Inc. incurred one-time charges
related to merger and acquisition and refinancing activities during the period
which totaled $502,000 or $.10 per share after taxes and minority interest.
These charges included non-recurring charges incurred by TLC of $343,000 in
connection with the merger of Christiana and Weatherford, and at Zero Zone an
inventory write-up charge of $198,000, and an extraordinary charge, net of tax
and minority interest, of $153,000. Including these special charges, C2 reported
net earnings for the first nine months of fiscal 1999 of $464,000, or $0.09 per
share. Net earnings before these one-time charges totaled $966,000 or $0.19 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 nine months ended September 30, 1999 would
have been $587,000, or $0.11 per share, compared to $628,000, or $0.12 per
share, for the comparable period of 1998. (See Note 4, Page 7 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 three major commercial banks. At
September 30, 1999, the Company had outstanding debt of $72,148,000, all of
which was borrowed under various facilities with these banks. The Company's
subsidiaries have committed credit facilities totaling $86,920,000, thereby
providing $14,772,000 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 September 30, 1999 TLC had $54.7 million in outstanding borrowings
under this facility with an average interest rate of LIBOR plus 175 or 6.86
percent.
During the quarter, Zero Zone completed a refinancing of its senior debt. The
new credit facilities include: $7,500,000 revolving line of credit; $3,420,000
tax-free industrial revenue bond (IRB), interest only until maturity on
September 1, 2019; and a $6,000,000 taxable industrial revenue bond (IRB),
amortizing $500,000 per year for 12 years beginning September 1, 2000. The IRB's
are supported by a letter of credit from a commercial bank and are secured,
along with the line of credit, by Zero Zone's assets. The approximate all-in
rates on the tax-free and taxable IRB's are 4.2% and 6.4%, respectively. The
rate on the credit line varies with a pricing grid based on the ratio of senior
debt to EBITDA. At September 30, the rate was LIBOR plus 2.25%, and the balance
outstanding was $4,054,000.
10
<PAGE> 11
Proceeds from the refinancing were used to pay off existing senior indebtedness.
Interest expense savings, exclusive of prepayment penalties and closing costs,
is anticipated to be approximately $190,000 per year.
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 September 30, 1999, the Company had cash and cash equivalents on hand of
$3,781,000 compared to $9,000 at December 31, 1998. Cash flows provided by
operations for the nine months ended September 30, 1999, totaled $91,000
compared to $8,071,000 in the previous period. Cash flows from operating
activities reflect changes in working capital accounts and other assets for TLC
for the full nine 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
increased volume in both TLC's expanded food distribution program and new
project logistics accounts, the inclusion of Zero Zone's operations and lower
net earnings.
Cash flows used in investing activities in the period totaled $18,979,000
compared to $1,103,000 for the same period last year. The significant increased
use of cash was due to the equity purchase of 66.7 percent of TLC for
$10,667,000 and the equity purchase of 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 $4,598,000 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 $22,660,000 compared to a use of
$6,936,000 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 have been
corrected through hardware and software upgrades. Non-financial systems,
primarily telephone and security, have been repaired or replaced in order to
achieve Year 2000 compliance. As of September 30, 1999, the Company has
completed its
11
<PAGE> 12
installation of Year 2000 upgrades with time remaining to allow
for sufficient testing. By the time this testing has been completed, the Company
estimates that it will have expended approximately $950,000 to address its Year
2000 compliance issues.
The Company believes that its efforts are sufficient to address its Year 2000
issues. However, there can be no assurances that the Company will be successful
in its efforts. Any failure to address the Year 2000 issues 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 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 the grocery and retail drug store industries, 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: November 4, 1999 /s/ William T. Donovan
---------------- -------------------------------------
William T. Donovan
Chairman and Chief Financial Officer
Date: November 4, 1999 /s/ David J. Lubar
---------------- -------------------------------------
David J. Lubar
President
14
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,781,000
<SECURITIES> 0
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0
0
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