<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number: 001-14171
C2, INC.
(Exact name of registrant as specified in its charter)
A Wisconsin Corporation 39-1915787
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 N. Water Street, Suite 1200, Milwaukee, Wisconsin 53202
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (414) 291-9000
------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock - $1.00 par Value NASDAQ
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. [X]
The aggregate market value (based on $4.957 closing price) of voting stock less
stock owned by all executive officers and directors as a group: $9,110,247
Number of Shares of Common Stock Outstanding at March 10, 2000: 5,202,664
The Exhibit Index is located on page 35.
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PART 1
ITEM 1. BUSINESS
C2, INC.
C2, Inc. ("C2" or "the Company") was formed on December 11, 1997 for the
purpose of consummating the acquisition of 66.67% of Total Logistic Control, LLC
("TLC") for $10.67 million in cash, and the assumption of TLC's liabilities,
plus the assumption of contingent liabilities attributable to the historic
operations or assets of Christiana Companies, Inc. ("Christiana").
The Company's strategy provides that a substantial part of its future
growth will come from acquiring, either directly or through TLC, other
businesses, which may or may not be related to TLC's current business. In line
with that strategy, on March 12, 1999, C2, Inc. announced the purchase of Zero
Zone, Inc., a Wisconsin-based manufacturer of refrigerated and freezer display
cases. C2 invested $4.5 million in equity and capital notes for 70.6% of the
outstanding common stock of Zero Zone with the balance being held by the
President of Zero Zone and other members of its management team.
C2 completed its initial public offering on March 4, 1999. The offering
resulted in the sale of 5,202,664 shares of C2 common stock at $4.00 per share
raising $20,410,000 of initial equity capital, net of offering costs. From these
proceeds, C2 used $10.67 million in the acquisition of 666.67 membership units,
representing a 66.7% ownership interest in TLC as part of the merger of
Christiana with and into a subsidiary of Weatherford International, Inc.
("Weatherford"). Christiana, now a wholly owned subsidiary of Weatherford owns
the remaining 333.33 membership units of TLC representing at 33.3% ownership
interest.
TOTAL LOGISTIC CONTROL, LLC
TLC was formed on June 30, 1997 through a combination of the operations of
two wholly-owned subsidiaries of Christiana: Wiscold, Inc. ("Wiscold") and Total
Logistic Inc. On September 1, 1992, Christiana acquired the assets of Wiscold, a
company formed in 1915, which engaged in providing public refrigerated
warehousing services, vegetable processing and individual quick freeze ("IQF")
services, automated poly bag and bulk packaging services, and transportation
services into and out of its facilities. On January 4, 1994, Christiana acquired
Total Logistic Inc., a Zeeland, Michigan-based firm engaged in providing fully
integrated third-party logistic services, which include warehouse, distribution
and transportation services in both refrigerated and non-refrigerated
facilities.
Today, TLC provides integrated third-party logistic services as well as
full service public and contract warehousing in all ranges of frozen,
refrigerated and ambient temperatures. Integrated logistic services generally
combine transportation, warehousing and information services to manage the
distribution channel for a customer's products from the point of manufacture to
the point of consumption. TLC's transportation and distribution services include
full service truckload, less-than-truckload and pooled consolidation in both
temperature controlled and dry freight equipment, dedicated fleet services and
specialized store-door delivery formats. Transportation and logistic services
are provided utilizing company-owned equipment as well as through carrier
management services utilizing third party common and contract carriers. TLC also
provides product fulfillment services, international freight forwarding, food
distribution, kitting, repackaging and just-in-time production supply services.
TLC's transportation fleet is comprised of 195 tractors and 233
refrigerated trailers and 58 dry trailers providing transportation services
nationally.
TLC's customers consist primarily of national, regional and local firms
engaged in food processing, consumer and industrial product manufacturing,
wholesale distribution and retailing. During
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1999, TLC's top 10 customers accounted for approximately 41.7% of total
revenues. TLC services approximately 1,300 customers.
TLC believes it is the nation's seventh largest provider of public
refrigerated warehouse space. All of TLC's refrigerated facilities are modern
and efficient single story buildings at dock height elevation and fully
insulated. TLC's refrigerated logistic centers are as follows:
- Rochelle Cold Storage campus, located in Rochelle, Illinois, is TLC's
newest and largest refrigerated warehouse operation, initially
constructed in 1986. Currently this location is comprised of
14,100,000 cubic feet of capacity in two separate buildings having
undergone four capacity expansions in 1988, 1990, 1993 and 1996. All
space is capable of temperatures of -20 degrees F to ambient. Rochelle
Cold Storage is strategically located at the intersection of two main
line East-West railroads, the Burlington Northern and the Chicago
Northwestern, and the cross roads of two interstate highways, I-39 and
I-88. Rochelle Cold Storage serves primarily distribution customers in
the Midwest.
- Beaver Dam Logistic Center, located in Beaver Dam, Wisconsin, was
originally constructed in 1975. Since 1975, this facility has
undergone three freezer additions, the most recent in 1991, and today
is comprised of 7,200,000 cubic feet of freezer storage space. Beaver
Dam Logistic Center serves distribution related customers as well as
vegetable and cranberry processors. This facility's unique
capabilities involve value added services for vegetable processors
including IQF, blanching, slicing, dicing and food service and retail
poly bag packaging operations. Beaver Dam Logistic Center's IQF
tunnels have the capacity to freeze 30,000 pounds of product per hour.
- Milwaukee Logistic Center, located in Wauwatosa, Wisconsin, was
originally constructed in 1954. There have been six expansions of this
facility, and today the Milwaukee Logistic Center facility comprises
4,300,000 cubic feet of which 3,754,000 cubic feet is freezer capacity
and 546,000 cubic feet is cooler space. This facility has
multi-temperature refrigerated storage ranging from -20 degrees F to
+40 degrees F and daily blast freezing capacity of 750,000 pounds.
This location has a 7-car private rail siding. An additional 3 million
cubic feet of company owned refrigerated and processing space adjacent
to the Milwaukee Logistic Center facility is leased on a long term
basis to a third party retail grocery company.
- Kalamazoo Logistic Center, located in Kalamazoo, Michigan, has two
distribution centers. Facility #1 is a 3,300,000 cubic foot facility
with 1,100,000 cubic feet of freezer capacity, 400,000 cubic feet of
cooler capacity and 1,800,000 cubic feet of dry storage capacity. This
location services a number of distribution customers in the Midwest
and is strategically located at the I-94 and US 31 crossroads in
Michigan, equal distance between Chicago and Detroit. Facility #2 is
located adjacent to Facility #1 and is comprised of 2,800,000 cubic
feet of capacity. This facility contains 1,500,000 cubic feet of
cooler capacity and 1,300,000 cubic feet of freezer capacity. Two
large distribution customers utilize 85% of this space. These
facilities are held under long-term leases.
- Also located at the Kalamazoo Logistic Center is a company owned
10,000 square foot transportation equipment maintenance center.
Approximately 50% of TLC's fleet of over-the-road transportation units
is domiciled in Kalamazoo, Michigan.
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- Holland Logistic Center, located in Holland, Michigan, has undergone a
number of expansions over the years, with a major reconstruction in
1983 after a fire destroyed approximately 50 percent of the facility.
Today, this refrigerated facility comprises 2,100,000 cubic feet of
storage capacity of which 1,300,000 cubic feet is freezer capacity,
400,000 cubic feet is cooler capacity and 400,000 cubic feet is
convertible capacity between freezer and cooler. Holland Logistic
Center services both distribution customers as well as fruit growers
in the West Michigan area. This location is situated on a CSX rail
spur with two refrigerated rail docks. This facility is held under a
lease which expires December 31, 2000.
- As a Subsequent Event as described in Note H, TLC acquired a 2,500,000
cu. ft. refrigerated warehouse facility located in Paw Paw, Michigan.
This facility is located 15 miles west of the Kalamazoo facilities on
Interstate 94. This facility has 15 acres of land and can be expanded
by an additional 300,000 cubic feet. In addition as a part of the
acquisition, TLC received an option on 90 acres of land contiguous to
the facility. The Paw Paw facility was initially constructed in 1991
and under went two expansions in 1984 and 1990.
In addition to the refrigerated distribution centers described above, TLC
operates a network of owned and leased dry (non-refrigerated) distribution
centers comprising approximately 1.0 million square feet of storage capacity.
Dry distribution centers are located in Zeeland (2) and Kalamazoo, Michigan;
Munster, Indiana and Dayton, New Jersey.
Competition in integrated logistic services is on both a national and local
basis with a predominant emphasis on transportation services. At present, there
are no direct competitors providing the full scope of warehousing and
transportation services across the full range of temperatures provided by TLC.
However, each of TLC's individual business segments is highly fragmented with
many local, regional and national competitors, especially in the transportation
and dry warehousing industries. TLC's competitive edge is its ability to provide
fully integrated logistic services designed to its customers' distribution needs
which may, but would not necessarily, include utilizing its network of
strategically located refrigerated and dry distribution centers, transportation
equipment, and carrier management services. TLC's revenues and earnings can be
affected by changes in competitive pricing in both transportation and
warehousing operations, particularly at the local level; harvest yields of
certain vegetable and fruit crops grown in the Upper Midwest; changes in
customers distribution patterns or channels, and general economic conditions.
TLC holds a trademark on its name and logo. No other trademarks, patents,
licenses, franchises or concessions are considered material to its business.
Expenditures for research and development and compliance with environmental
regulations have not been, and are not anticipated to be, significant.
ZERO ZONE
Zero Zone, headquartered in North Prairie, Wisconsin, manufactures frozen
and refrigerated glass door reach-in display cases used by grocery, convenience
and drug store chains for retail manufacturing of food, beverage and floral
products.
Zero Zone currently operates two manufacturing facilities and uses one
warehouse for offsite storage of finished goods. Zero Zone's headquarters was
built in 1995. The original facility consisted of
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61,000 square feet and was expanded during 1999 by an additional 52,000 square
feet. Zero Zone is a light manufacturing environment consisting primarily of
panel molding and assembly operations.
Zero Zone's second facility is located four miles to the east of North
Prairie in Genesee, Wisconsin. This facility consists of 34,000 square feet. The
Genesee facility is primarily utilized for production of self-contained
equipment.
Zero Zone currently leases a warehouse in Waukesha, Wisconsin. The current
arrangement includes 30,000 square feet of space with an option to add up to
120,000 additional square feet. Zero Zone intends on leasing an additional
25,000 square feet beginning February 1, 2000.
Competition in commercial refrigeration equipment varies dependent on the
segment being served. Zero Zone is primarily a supplier to supermarkets and
convenience stores, not the food service industry. The competition consists of
larger companies that supply a complete line of refrigerated equipment while
Zero Zone's specialty is glass door reach-in display cases. Zero Zone's
competitive advantage has been product quality and performance, along with a
flexible manufacturing process that allows for shorter lead times and
responsiveness to customers.
Zero Zone sells primarily to large retail supermarket, drug and convenience
chains, refrigeration contractors, dealers, and food wholesalers. Zero Zone's
active customer list includes approximately 500 customers.
Zero Zone's revenues and earnings can be affected by a loss of a
significant customer, changes in competitive pricing, raw material cost changes,
changes in distribution channels, new construction and refurbishment of grocery
and chain store retailers and general economic conditions.
EMPLOYEES
The following table shows the number of fulltime C2, TLC and Zero Zone
employees at the dates indicated.
<TABLE>
<CAPTION>
FULLTIME EMPLOYEES AT FEBRUARY 28,
----------------------------------------------------------------------
1998 1999 2000
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
C2 - 10 11
TLC 699 743 913
ZERO ZONE -- -- 162
--------------------- --------------------- ---------------------
TOTAL 699 753 1,086
</TABLE>
At February 29, 2000, TLC has 170 more employees than at the same date a
year ago due primarily to expansion of its transportation fleet and a
substantial increase in a warehousing and distribution program at the Rochelle
Logistic Center.
ITEM 2. PROPERTIES
REFRIGERATED WAREHOUSING FACILITIES
At December 31, 1999, TLC owned or leased twelve facilities in five states.
Of this total, seven are refrigerated with the balance being non-refrigerated
facilities. Refrigerated operations are conducted through seven public
refrigerated warehouses located in Wisconsin (2), Michigan (3), and Illinois
(2).
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TLC's refrigerated facilities are large single-story buildings constructed at
dock height will full insulation and vapor barrier protection. Refrigeration is
provided by screw-type compressors in ammonia-based cooling systems. The
facilities are strategically located and well served by rail and truck.
TLC's refrigerated warehouse facilities are described in the following
table:
<TABLE>
<CAPTION>
TOTAL STORAGE SPACE
LOCATION (CUBIC FEET IN MILLIONS) TYPE OF FACILITY
- -------------------------------------------- ------------------------------ ----------------------------------
<S> <C> <C>
Rochelle Logistic Center I 10.6 Distribution
Rochelle Logistic Center II 3.5 Distribution
Beaver Dam Logistic Center 7.2 Distribution/Production
Milwaukee Logistic Center 4.3 Distribution
Holland Logistic Center (1) 2.1 Distribution/Production
Kalamazoo Logistic Center I (1)(2) 3.3 Distribution
Kalamazoo Logistic Center II (1) 2.8 Distribution
----
TOTAL (3) 33.8
====
</TABLE>
(1) Leased Facility
(2) Includes 1.8 million cubic feet of non-refrigerated storage capacity.
(3) On January 5, 2000, TLC completed the acquisition of the assets of Paw Paw
Freezer Corporation, a deep-frozen and refrigerated public warehouse in Paw
Paw, Michigan. The acquisition of this facility, which includes 2,500,000
cubic feet of freezer space, brings the TLC network to 13 logistic centers
with 36.3 million cubic feet of refrigerated capacity. See Note H,
Subsequent Event.
At both the Rochelle and Beaver Dam Logistic Centers, the Company owns
substantial additional acreage available for expansion. In addition, the Company
has an option on 90 acres of contiguous land for future expansion and
development at the Paw Paw facility.
At December 31, 1999, TLC operated 5 public non-refrigerated or dry
warehouse distribution facilities located in Michigan (3), Indiana and New
Jersey. Zeeland Distribution Center II, located in Zeeland, Michigan is a
company owned facility. All other dry facilities are held under leases. Lease
terms generally match underlying contracts with major customers served at each
facility. These facilities are single story block or metal construction
buildings. All dry facilities are constructed at dock height and are approved as
food grade storage facilities.
TLC's dry warehouse facilities are described on the following table:
<TABLE>
<CAPTION>
TOTAL STORAGE
SPACE
(SQ FT. IN
FACILITY LOCATION THOUSANDS) TYPE OF FACILITY
- --------------------------------------------- -------------------------- --------------------- -----------------------
<S> <C> <C> <C>
Zeeland Logistic Center I (1) Zeeland, MI 202 Public
Zeeland Logistic Center II Zeeland, MI 220 Public
Michigan Distr. Center I (1) Kalamazoo, MI 88 Public
Munster Logistic Center (1) Munster, IN 400 Public
Dayton Logistic Center (1) Dayton, NJ 90 Public
---------------------
TOTAL 1,000
=====================
</TABLE>
(1) Leased facility.
TLC owns and operates a 10,000 square foot truck maintenance facility
located at the Kalamazoo Logistic Center. This facility is used for the
maintenance of TLC transportation equipment.
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Zero Zone currently operates two manufacturing facilities and uses one
warehouse for offsite storage of finished goods. Zero Zone's headquarters was
built in 1995. The original facility consisted of 61,000 square feet and was
expanded during 1999 by an additional 52,000 square feet. Zero Zone is a light
manufacturing environment consisting primarily of panel molding and assembly
operations.
Zero Zone's second facility is located four miles to the east of North
Prairie in Genesee, Wisconsin. This facility consists of 34,000 square feet. The
Genesee facility is primarily utilized for production of self-contained
equipment.
Zero Zone currently leases a warehouse in Waukesha, Wisconsin. The current
arrangement includes 30,000 square feet of space with an option to add up to
120,000 additional square feet. Zero Zone intends on leasing an additional
25,000 square feet beginning February 1, 2000.
ITEM 3. LEGAL PROCEEDINGS.
TLC and Zero Zone are involved in litigation incidental to the conduct of
their business, none of which we believe is, individually or in the aggregate,
material to our consolidated financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The common stock of the Company was originally listed on the NASDAQ Small
Cap Market effective March 5, 1999. On June 4, 1999 the Company's common stock
was listed on the NASDAQ National Market. The table below sets forth the
reported high and low sales prices as reported by NASDAQ for the quarters ended
March 31, 1999 through March 10, 2000.
<TABLE>
<CAPTION>
2000 1999
------------------------- -------------------------
QUARTER ENDED HIGH LOW HIGH LOW
- ------------------------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
March 31* $ 5.125 $4.750 $6.000 $5.500
June 30 6.438 5.000
September 30 6.250 5.500
December 31 6.000 4.250
</TABLE>
* Ten weeks ended March 10, 2000
At March 3, 2000, there were approximately 141 shareholders of record.
There have been no dividends paid, and based on the Company's strategic business
plan of reinvesting cash flow and acquisitions, none are anticipated in the
foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data is provided under the caption "Five Year Financial
Information" which is included on page 33.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The Company's consolidated financial results for fiscal 1999 include a full
12 months of operations for TLC and a 9 1/2 month period for Zero Zone.
Accounting convention requires the consolidated financial results reported by C2
for fiscal 1999 be compared to the financial results of TLC alone reported for
fiscal 1998, even through TLC was a wholly owned limited liability company
subsidiary of Christiana Companies, Inc and therefore did not provide for
minority interest or a tax provision.
The Company's consolidated revenues for fiscal 1999 totaled $143,829,000
compared to $90,610,000 reported by TLC in fiscal 1998 reflecting an increase of
59%. Revenue growth was attributable to increased volume at TLC as Logistics
Revenues increased 19% to $107,732,000 and the inclusion of Zero Zone for the 9
1/2 month period, which contributed revenues of $36,097,000. Revenue growth at
TLC was driven primarily by new customers and increased volume in Logistics
Management Services and increased capacity utilization in Refrigerated
Warehousing operations. Revenues attributable to Zero Zone for the 9 1/2 month
period since its acquisition on March 12, 1999 were $36,097,000 versus
$25,055,000 reported for the comparable period in 1998 reflecting an increase of
44%. Zero Zone's growth is resulting from increased volume from both new and
existing customers and is facilitated by an expansion of its manufacturing
facility which approximately doubled its floor space and significantly increased
manufacturing capacity. Revenue from one customer represented approximately 16%
or $23,700,000 of total revenue in 1999.
Depreciation and amortization expense in fiscal 1999 was $7,519,000
compared to $6,254,000 reported by TLC in fiscal 1998 reflecting an increase of
$1,265,000 or 20%. The increase is primarily attributable to the inclusion of
Zero Zone in fiscal 1999 which had related depreciation and amortization charges
of $759,000 in fiscal 1999. Depreciation and amortization expense at TLC
increased $506,000 over the prior year.
Selling general and administrative expenses in fiscal 1999 totaled
$13,460,000 compared to $7,140,000 reported by TLC in fiscal 1998, or an
increase of 89%. The increase is due entirely to the inclusion of Zero Zone
which reported $5,544,000 of selling general and administrative expense for
fiscal 1999. This expense category at TLC declined $71,000 in fiscal 1999 due to
aggressive cost management. Also included in this expense category is $847,000
of corporate related expense.
Consolidated earnings from operations for fiscal 1999 totaled $9,044,000
compared to $6,850,000 reported for TLC in fiscal 1998, or an increase of 32%.
Growth in earnings from operations was attributable primarily to the inclusion
of Zero Zone for the period which contributed $4,209,000 of earnings from
operations. Earnings from operations contributed by TLC in fiscal 1999 totaled
$5,682,000, a decline of $1,168,000 or 17% from the prior year due primarily to
increased labor and warehousing costs for much of fiscal 1999 in Refrigerated
Warehousing at two facilities resulting from significantly expanded distribution
programs with two accounts. Operational and pricing changes were instituted
which will enable TLC to earn its targeted profit levels in the future. Earnings
from operations in fiscal 1999 also include $847,000 of corporate related
expenses which are not reflected in the prior year's results.
Consolidated net interest expense in fiscal 1999 was $4,644,000 compared to
$2,586,000 reported by TLC in fiscal 1998. Increased interest expense is
primarily related to two factors: increased
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debt at TLC related to the $20 million dividend and the repayment of a
$3,000,000 note to Christiana, in connection with the merger transaction between
Christiana and Weatherford, and secondly, the inclusion of Zero Zone in fiscal
1999 which had interest expense of $1,032,000 for the period. Corporate
activities contributed $312,000 of interest income for the year.
During fiscal 1999 both TLC and Zero Zone incurred one-time charges related
to merger or acquisition activities or debt refinancing. In the first half of
fiscal 1999, TLC and Zero Zone incurred one-time merger or acquisition related
charges totaling $349,000, net of tax and minority interest. In the third
quarter of fiscal 1999, Zero Zone refinanced its senior debt which both reduced
its average rate of interest and significantly extended its average maturity.
Related to this debt refinancing transaction, Zero Zone incurred a one-time,
extraordinary charge of $153,000, net of tax and minority interest.
Consolidated net earnings for fiscal 1999 before one-time and extraordinary
charges as previously described totaled $1,757,000 or $0.34 per share compared
to net earnings reported by TLC in fiscal 1998 of $4,375,000 or $0.84 per share.
The decline in earnings is attributable to increased interest expense as
previously noted, the inclusion of minority interest and a tax provision in
fiscal 1999 related to both TLC and Zero Zone, one-time charges as previously
noted and lower earnings from operations at TLC. Consolidated net earnings after
one-time and extraordinary items in fiscal 1999 were $1,255,000, or $0.24 per
share.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
TLC's consolidated revenues for the year ended December 31, 1998 were
$90,610,000 compared to $90,100,000 for the year ended December 31, 1997, an
increase of $510,000 or .6%. Revenue in 1998 attributable to Warehousing
Services declined by $296,000 or .8% compared to the prior year due to the
closure of two non-refrigerated warehousing operations in the third quarter of
1997. The remaining facilities generated revenue growth primarily through higher
capacity utilization and to a lesser extent from price increases in 1998
compared to 1997. Logistic Service revenues in 1998 increased $806,000 or 1.6%
in 1998 due primarily to a combination of continued high utilization of
transportation assets and expanded volume attributable to the distribution
services of food products for the State of Michigan Department of Education
under a multi-year contract.
Earnings from operations reported by TLC in fiscal 1998 increased $644,000
or 10.4% to $6,850,000 compared to $6,206,000 reported for fiscal 1997. This
increase is due primarily to the decline in depreciation and amortization
expense of $499,000 year to date and improved operating profitability in
Warehousing Operations. In fiscal 1998, warehouse facilities had higher
utilization and improved productivity. Additionally, two non-refrigerated
facilities which had low utilization and generated losses were closed.
Selling, general and administrative expenses, which includes marketing and
advertising expenses, increased $196,000 or 2.8% in 1998 due to increased
staffing in information technology, logistic engineering and sales to support
the Company's growth strategy in non-asset based, third party logistic services
offset by certain cost savings in other areas.
Income from operations for 1998 increased by $644,000 or 10.4% due
primarily to improved gross profit, particularly from efficiencies resulting
from higher utilization of refrigerated warehousing facilities and lower
depreciation and amortization expenses.
Interest expense in fiscal 1998 was $2,586,000, a reduction of $367,000
from the prior year of $2,953,000. Interest expense in 1998 was reduced due to
strong cash flow, which enabled over $7,700,000 of debt reduction during the
year. At the end of 1998, a $10,000,000 dividend was paid to
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Christiana, the Company's then parent, related to its merger transaction with
Weatherford. This distribution was funded by borrowings under TLC's revolving
credit facility.
Pretax earnings in 1998 totaled $4,375,000, an increase of $1,460,000 or
50.1% over 1997 pretax earnings of $2,915,000. Higher operating profit and lower
interest expense were principal factors in this improvement. The net increase in
other income of $899,000 over 1997 also contributed to the improvement in pretax
earnings in 1998.
No provision for income tax was recorded in 1998, as TLC was a limited
liability company for this period. In 1997, TLC recorded an income tax provision
of $515,000 on earnings through June 30, 1997, the period during which TLC was a
taxable entity. During 1997, TLC also recognized a non-recurring increase to
earnings of $11,171,000 related to the removal of deferred income taxes due to
its conversion from a taxable C Corporation to a nontaxable limited liability
company.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash equivalents and short-term investments at December 31, 1999 totaled
$4,953,000 compared to $9,000 at December 31, 1998. The Company's working
capital at December 31, 1999 was $8,704,000 compared to a deficit of $1,146,000
at December 31, 1998.
Operating activities in 1999 provided cash of $4,374,000 derived primarily
from net earnings of $1,255,000, depreciation and amortization of $7,519,000,
offset by a net increase in working capital accounts of $5,280,000.
Net cash used in investing activities in fiscal 1999 totaled $19,616,000
and included capital expenditures totaling $7,435,000, the major components of
which were: $3,408,000 related to warehousing operations, $1,732,000 related to
information systems and equipment, $558,000 of transportation equipment and
$1,531,000 for capital additions at Zero Zone primarily related to the expansion
of its manufacturing facility; acquisition of businesses, net of cash totaling
$13,089,000 and proceeds from the sale of fixed assets, primarily transportation
equipment of $908,000. Businesses acquired include 66.7% of TLC for $10,667,000
and 70.6% of Zero Zone for $3,000,000 of equity and $1,500,000 in capital notes.
Cash flows from financing activities in fiscal 1999 totaled $20,186,000 the
major components of which were $20,410,000 in net proceeds from the Company's
initial public offering of common stock, $7,823,000 in debt reduction at both
TLC and Zero Zone, $13,312,000 of distributions to Christiana related to the
merger transaction with Weatherford and $2,769,000 in borrowings under Zero
Zone's line of credit.
At December 31, 1999, TLC had a secured revolving credit facility that
provided for borrowings up to $70,000,000. Outstanding indebtedness under this
facility totaled $53,552,000 at December 31, 1999. During the third quarter Zero
Zone refinanced its senior debt issuing a $3,420,000 tax exempt Industrial
Revenue Bond and a $6,000,000 taxable Industrial Revenue Bond both of which were
credit enhanced by a major commercial bank's letter of credit. In addition Zero
Zone has a $7,500,000 secured line of credit facility which at year end had
outstanding borrowings of $2,770,000. Zero Zone issued $4,401,000 of
subordinated notes in connection with its acquisition by C2 on March 12, 1999.
At year end the Company had in place a $15,000,000 unsecured line of credit
facility for general corporate purposes. There were no borrowings under this
facility during fiscal 1999.
The Company's current sources of capital include: cash generated from
operations, existing cash resources which at year end totaled $4,953,000 and
unused borrowings under existing credit
10
<PAGE> 11
facilities. The Company believes these resources are sufficient to fund
projected cash requirements of its current operations.
The Company continues to evaluate new acquisitions in areas strategic to
existing operations as well as in new lines of business. Future acquisitions may
be funded through cash flows from operations, existing credit facilities and the
issuance of equity securities under a rights offering to shareholders or
otherwise, if desirable.
As of December 31, 1999, the Company had no material capital commitments.
This Form 10-K includes forward-looking statements. These include, among
other, discussions of growth in the market and demand for services in third
party logistics, the outlook for growth in the market for new construction or
refurbishment of grocery, drug and convenience stores, and thus demand for Zero
Zone's products. Although the Company believes its expectations are based on
reasonable assumptions, it can give no assurance that its goals will be
achieved. Important factors that could cause actual results to differ materially
from those in the forward-looking statements included herein include, among
others, that consolidations within the food industry or food retailers
accelerates and impacts the Company's customers; that the Company's market share
may decrease as a result of new or increased competitive conditions in
warehousing, transportation or display case manufacturing, and the costs of
providing transportation services, including fuel are not able to be fully
recovered in transportation revenues.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.
See Index to Financial Information on page 18.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
11
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The following table provides certain information, as of the date hereof,
about the Company's Board of Directors and Executive Officers and also provides
information about the beneficial ownership of the Company's capital stock by all
of the directors and executive officers as a group. Directors of the Company are
elected annually by a plurality of the votes cast by shareholders. Executive
Officers are appointed annually by the Board of Directors.
<TABLE>
<CAPTION>
NO. OF SHARES
PRINCIPAL OCCUPATION BENEFICIALLY
NAME (AND AGE) DURING THE LAST FIVE YEARS OWNED
-------------- -------------------------- -----
<S> <C> <C>
Nicholas F. Brady (69) Chairman and President (since 2/93) of Darby 278,300 (1)
Overseas Investments, LTD, a private investment (5.3%)
company, Easton, Maryland (1)
William T. Donovan (48) Chairman and Chief Financial Officer of C2, Inc.(2) 147,816 (2)
(2.8%)
David J. Lubar (45) President of C2, Inc. 919,164 (3)(8)
(17.7%)
Sheldon B. Lubar (70) Chairman of Lubar & Co., venture capital and 1,060,743 (5)(8)
investments, Milwaukee, Wisconsin (4) (20.4%)
Albert O. Nicholas (69) Chairman and Chief Executive Officer of Nicholas 310,700 (6)
Company, Inc., a registered investment advisor, (6.0%)
Milwaukee, Wisconsin (6)
Oyvind Solvang (41) Vice President of C2, Inc. (7) 648,086 (7)(8)
(12.4%)
All directors and executive officers as a group. 3,364,809
(64.7%)
</TABLE>
(1) Previously, Secretary of the United States Department of the Treasury for
over four years, and before that, Chairman of Dillon, Read & Co., Inc. He
is also a director of Amerada Hess Corporation and H. J. Heinz Company, as
well as a director (or trustee) of 27 Templeton Funds, which are registered
investment companies. The shares listed are owned by a trust of which Mr.
Brady is the beneficiary and a co-trustee. Mr. Brady disclaims beneficial
interest of 3,300 of these shares held by a foundation.
(2) Mr. Donovan has served in the capacity listed or in another capacity as an
executive officer of Christiana for more than the last five years. He has
also been a principal of Lubar & Co. for more than the last five years. Mr.
Donovan is a director of Grey Wolf, Inc. Shares reported by Mr. Donovan
include 20,000 shares held by a partnership in which Mr. Donovan is a
General Partner. Mr. Donovan disclaims beneficial interest in 15,935 of
these shares.
(3) Shares reported by David Lubar include 501,628 shares over which he may be
deemed to share voting power and investment power. David Lubar shares
voting and investment power over 423,250 shares held by various Lubar
family minor childrens' trusts. Of these shares, 50,000 are also included
as beneficially owned by Sheldon Lubar and 78,378 represent shares for
which Mrs. David Lubar shares voting and investment power.
The remaining 417,536 shares are held by David Lubar directly.
12
<PAGE> 13
(4) Sheldon Lubar has also been a principal of Lubar & Co. for more than the
last five years. Sheldon Lubar is also a director of Ameritech Corporation,
Weatherford International, Inc., Firstar Corporation, Massachusetts Mutual
Life Insurance Co., Jeffries & Company, Inc. and MGIC Investment
Corporation.
(5) Shares reported by Sheldon Lubar include 182,000 shares held by various
Lubar family minor children's' trusts over which Sheldon Lubar may be
deemed to share voting power and investment power as a trustee. Of these
shares, 50,000 shares are also included as beneficially owned by David
Lubar. Also includes 415,615 shares held directly by Sheldon Lubar's wife
and 8,312 shares held by the Lubar Family Foundation for which she may be
deemed to have voting power and investment power as a director. The
remaining 454,816 shares are held directly by Mr. Lubar or his retirement
plans.
(6) Albert O. Nicholas has been a Director of C2 since December 1997. Mr.
Nicholas has been owner and President of Nicholas Company, Inc., a
registered investment advisor located in Milwaukee, Wisconsin since
December, 1967. Nicholas Company is the adviser to six registered
investment companies: Nicholas Fund, Inc., Nicholas II, Inc., Nicholas
Income Fund, Inc., Nicholas Limited Edition, Inc., Nicholas Money Market
Fund, Inc. and Nicholas Equity Fund. Mr. Nicholas is the president and a
director of each of those companies. Mr. Nicholas is also a director of
Bando McGlocklin Capital Corporation.
(7) Oyvind Solvang has been Vice President of C2 since December 1997. Mr.
Solvang has served as President of Cleary Gull Rieland & McDevitt, Inc., an
investment banking firm located in Milwaukee, Wisconsin from January 1996
to October 1996 and Chief Operating Officer from October 1995 to January
1996. Prior thereto, from May 1994 to September 1995, Mr. Solvang served as
President of Scinticor, Incorporated, a manufacturer of cardiac imaging
devices, located in Milwaukee, Wisconsin, and from August 1990 to April
1994 as Vice President and General Manager of Applied Power, Inc., a
supplier of hydraulic systems, located in Butler, Wisconsin. Shares
reported by Oyvind Solvang include 50,000 shares over which he may be
deemed to share voting power and investment power as trustee, 433,086
shares held directly by his wife, and 143,000 shares over which his wife
may be deemed to share voting power and investment power as a trustee.
(8) Sheldon B. Lubar is the father of David J. Lubar and father-in-law of
Oyvind Solvang.
During 1999, the Board of Directors met three times. Each director attended
all meetings. The Board has established three standing committees: audit,
finance and compensation. It has no standing nominating committee or any
committee performing similar functions.
ITEM 11. EXECUTIVE COMPENSATION.
During 1999, William T. Donovan, David J. Lubar and Oyvind Solvang were the
most highly compensated officers, earning $155,000, $106,000 and $120,000,
respectively. The Company anticipates that during 2000 its most highly
compensated officers will be William T. Donovan, David J. Lubar and Oyvind
Solvang, who will be paid salaries of $183,000, $125,500 and $125,500,
respectively. On February 8, 1999 and in connection with C2's completion of its
public offering, stock options were granted to the Company's Executive Officers
and Board of Directors. Each independent director received an option to purchase
12,000 shares of C2, Inc. common stock at $4.00 per share. C2's Executive
Officers received Incentive Stock options to purchase C2, Inc. common stock at
$4.00 per share as follows:
<TABLE>
<CAPTION>
Option Shares
-------------------
<S> <C>
William T. Donovan 100,000
David J. Lubar 100,000
Oyvind Solvang 60,000
</TABLE>
13
<PAGE> 14
All granted options vest ratably over a 5 year timeframe. In total, options
to purchase 348,000 shares of C2, Inc. were granted. Of the 348,000 total
options granted, 40,000 were issued to employees other than executive or
directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table gives information, as of March 5, 1999 about the
beneficial ownership of Common Stock of the Company by the persons known to the
Board of Directors who own beneficially more than 5% of the outstanding Common
Stock. As used in this Form 10K, "beneficial ownership" means, in general, the
sole or shared power to vote or dispose of stock.
<TABLE>
<CAPTION>
No. of Shares
Name and Address Beneficially Owned Percent of Class
- ---------------------------------------- -------------------------- -------------------------
<S> <C> <C>
Nicholas F. Brady 278,300 5.3%
1133 Connecticut Ave. NW, Ste 200
Washington, DC 20036
Sheldon B. Lubar 636,816 (1) 12.2
700 N. Water Street
Suite 1200
Milwaukee, WI 53202
Marianne S. Lubar 423,927 (2) 8.1
700 N. Water Street
Suite 1200
Milwaukee, WI 53202
David J. Lubar 919,164 (3) 17.7
700 N. Water Street
Suite 1200
Milwaukee, WI 53202
Joan P. Lubar 584,973 (4) 11.2
700 N. Water Street
Suite 1200
Milwaukee, WI 53202
Susan Lubar Solvang 648,086 (5) 12.4
700 N. Water Street
Suite 1200
Milwaukee, WI 53202
Kristine Lubar MacDonald 638,014 (6) 12.3
700 N. Water Street
Suite 1200
Milwaukee, WI 53202
Albert O. Nicholas 310,700 6.0
700 N. Water Street
Suite 1010
Milwaukee, WI 53202
</TABLE>
(1) Shares reported by Sheldon Lubar include 182,000 shares held by various
Lubar family minor childrens' trusts over which he may be deemed to share
voting power and investment power as a trustee. Of these shares, 50,000
shares are also included as beneficially owned by David Lubar. The
remaining 454,816 shares are held directly by Mr. Lubar or his retirement
plans.
14
<PAGE> 15
(2) Shares reported by Marianne S. Lubar include 415,615 shares held by her
directly and 8,312 shares held by the Lubar Family Foundation for which she
may be deemed to have voting power and investment power as a director.
(3) Shares reported by David Lubar include 501,628 shares over which he may be
deemed to share voting power and investment power as a trustee. David Lubar
shares voting and investment power over 423,250 shares held by various
Lubar family minor children's' trusts. Of these shares, 50,000 are also
included as beneficially owned by Sheldon Lubar and 78,378 represent shares
for which Mrs. David Lubar shares voting and investment power. The
remaining 417,536 shares are held by him directly.
(4) Shares reported by Joan P. Lubar include 441,973 shares held by her
directly and 143,000 shares for which she may be deemed to share voting
power and investment power as a trustee.
(5) Shares reported by Susan L. Solvang include 433,086 shares held by her
directly, 22,000 shares held directly by her husband, 143,000 shares for
which she may be deemed to share voting power and investment power as a
trustee, and 50,000 shares for which her husband may be deemed to share
voting power and investment power as a trustee.
(6) Shares reported by Kristine L. MacDonald include 425,546 shares held by her
directly and 213,368 shares for which she may be deemed to share voting
power and investment power as a trustee.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Lubar family, Lubar & Co., Venture Capital Fund, L.P., a fund managed
by Lubar & Co., and William T. Donovan own 5.3%, 0.8%, 6.0% and 0.7%,
respectively of Emmpak Foods, Inc., a customer of TLC. During fiscal 1999,
Emmpak Foods, Inc. accounted for approximately $ 2.8 million in gross revenue
for TLC. David J. Lubar serves on the board of directors of Emmpak Foods, Inc.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Financial Statement and Schedules:
See Index on page 18.
Exhibits:
See Index on page 35.
Reports on Form 8-K:
In a Current Report filed on Form 8-K dated February 17, 1999, the Company
reported the acquisition of two-thirds of the outstanding interests of
Total Logistic Control, LLC for $10.67 million, as previously reported in
the Form S-1 Registration Statement of C2, Inc.
In an Amended Report filed on Form 8-K dated March 15, 1999, the Company
filed the required financial statements for the acquisition of two-thirds
of the outstanding interests of Total Logistic Control, LLC.
In a Current Report filed on form 8-K dated March 29, 1999, the company
reported the acquisition of 70.6% of the outstanding interests of Zero
Zone, Inc. for $4,500,000.
In an amended report filed on Form 8-K dated April 12, 1999, the company
filed the required financial statements for the acquisition of 70.6%, of
the outstanding interests of Zero Zone, Inc.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirement of Section 13 of 15(d) 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.
Date: March 10, 2000 By: /s/ William T. Donovan
------------------------------------
William T. Donovan, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934 this
10-K report has been signed below on March 10, 2000 the following persons on
behalf of the Registrant and in the capacity indicated.
Signature
/s/ William T. Donovan Chairman, Chief Financial Officer and
- ------------------------------- a Director
William T. Donovan
/s/David J. Lubar President and a Director
- -------------------------------
David J. Lubar
/s/ Oyvind Solvang Vice President
- -------------------------------
Oyvind Solvang
/s/ Betty J. White Treasurer, Controller and Assistant
- ------------------------------- Secretary
Betty J. White
/s/ David E. Beckwith Secretary
- ------------------------------
David E. Beckwith
/s/ Nicholas F. Brady Director
- ------------------------------
Nicholas F. Brady
/s/ Sheldon B. Lubar Director
- ------------------------------
Sheldon B. Lubar
/s/ Albert O. Nicholas Director
- ------------------------------
Albert O. Nicholas
16
<PAGE> 17
C2, INC.
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
17
<PAGE> 18
C2, INC.
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C>
Report of Independent Public Accountants.......................................................19
C2, Inc. Consolidated Balance Sheets as of December 31, 1999 and 1998..........................20
C2, Inc. Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.............................................................21
C2, Inc. Consolidated Statements of Shareholder's Equity
For the years ended December 31, 1999, 1998 and 1997.........................................22
C2, Inc. Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997.......................................................23
Notes to Consolidated Financial Statements.....................................................24
Selected Financial Data........................................................................33
</TABLE>
18
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of C2, Inc.:
We have audited the accompanying consolidated balance sheets of C2, Inc. and
subsidiaries (a Wisconsin Corporation) as of December 31, 1999 and 1998, and
the related consolidated statements of income, shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of C2, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
February 3, 2000
Milwaukee, Wisconsin
19
<PAGE> 20
C2, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 4,953,000 $ 9,000
Accounts receivable, net 18,016,000 9,411,000
Inventories 6,428,000 2,346,000
Prepaids and other assets 1,821,000 85,000
------------ ------------
Total current assets 31,218,000 11,851,000
------------ ------------
Long-Term Assets:
Property, plant and equipment, net 73,495,000 68,996,000
Goodwill, net 17,102,000 5,357,000
Other assets 1,812,000 857,000
------------ ------------
Total long-term assets 92,409,000 75,210,000
------------ ------------
Total assets $123,627,000 $ 87,061,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current maturities of long-term debt $ 500,000 $ 1,848,000
Short-term debt 2,770,000 --
Accounts payable 8,764,000 6,519,000
Accrued liabilities 10,349,000 4,630,000
------------ ------------
Total current liabilities 22,383,000 12,997,000
------------ ------------
Due to Christiana Companies, Inc. -- 3,000,000
Long-Term Liabilities:
Long-term debt, less current maturities 66,373,000 35,277,000
Other liabilities 1,059,000 330,000
------------ ------------
Total long-term liabilities 67,432,000 38,607,000
------------ ------------
Total liabilities 89,815,000 51,604,000
------------ ------------
Minority shareholders' interests 7,742,000 --
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 5,660,000 --
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 26,070,000 35,457,000
------------ ------------
$123,627,000 $ 87,061,000
============ ============
</TABLE>
See notes to financial statements.
20
<PAGE> 21
C2, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Logistics revenue $ 107,732,000 $ 90,610,000 $ 90,100,000
Product sales 36,097,000 -- --
------------- ------------- -------------
143,829,000 90,610,000 90,100,000
------------- ------------- -------------
Costs and expenses:
Logistics expenses 88,222,000 70,366,000 70,197,000
Cost of product sales 25,584,000 -- --
Depreciation and amortization 7,519,000 6,254,000 6,753,000
Selling, general and administrative 13,460,000 7,140,000 6,944,000
------------- ------------- -------------
134,785,000 83,760,000 83,894,000
------------- ------------- -------------
Earnings from operations 9,044,000 6,850,000 6,206,000
Other Income (expense):
Interest expense, net (4,644,000) (2,586,000) (2,953,000)
Merger-related expenses (343,000) -- --
Gain (loss) on disposal of assets 64,000 (212,000) 238,000
Other income (expense), net (82,000) 323,000 (576,000)
------------- ------------- -------------
(5,005,000) (2,475,000) (3,291,000)
Earnings before income taxes, minority interest
and extraordinary item 4,039,000 4,375,000 2,915,000
Provision for income taxes 1,619,000 -- 515,000
Adjustment of deferred income taxes resulting
from a change in tax status -- -- 11,171,000
------------- ------------- -------------
Net earnings before minority interest and
extraordinary item 2,420,000 4,375,000 13,571,000
Minority interest 1,012,000 -- --
------------- ------------- -------------
Net earnings before extraordinary item 1,408,000 4,375,000 13,571,000
Extraordinary item, net of tax and minority interest 153,000 -- --
------------- ------------- -------------
Net earnings $ 1,255,000 $ 4,375,000 $ 13,571,000
============= ============= =============
Basic earnings per share before extraordinary item $ 0.27 $ 0.84 $ 2.61
============= ============= =============
Basic earnings per share $ 0.24 $ 0.84 $ 2.61
============= ============= =============
Diluted earnings per share before extraordinary item $ 0.27 $ 0.82 $ 2.55
============= ============= =============
Diluted earnings per share $ 0.24 $ 0.82 $ 2.55
============= ============= =============
</TABLE>
See notes to financial statements.
21
<PAGE> 22
C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Shares Amount Capital
-------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1996 -- $ -- $ --
Net earnings -- -- --
Distribution to Christiana for promissory note -- -- --
Balance December 31, 1997 -- -- --
Net earnings -- -- --
Distribution to Christiana for income taxes -- -- --
Distribution to Christiana
Balance, December 31, 1998 -- -- --
Distribution to Christiana -- -- --
Sale of common stock 5,202,664 52,000 20,358,000
Adjustments related to the acquisition of Total -- -- --
Logistic Control
Net earnings -- -- --
------------ ------------ ------------
Balance, December 31, 1999 5,202,664 $ 52,000 $ 20,358,000
============ ============ ============
<CAPTION>
Retained Members
Earnings Equity Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1996 $ -- $ 31,594,000 $ 31,594,000
Net earnings -- 13,571,000 13,571,000
Distribution to Christiana for promissory note -- (2,326,000) (2,326,000)
------------ ------------
Balance December 31, 1997 -- 42,839,000 42,839,000
Net earnings -- 4,375,000 4,375,000
Distribution to Christiana for income taxes -- (1,757,000) (1,757,000)
Distribution to Christiana (10,000,000) (10,000,000)
------------ ------------
Balance, December 31, 1998 -- 35,457,000 35,457,000
Distribution to Christiana -- (13,312,000) (13,312,000)
Sale of common stock -- -- 20,410,000
Adjustments related to the acquisition of Total 4,405,000 (22,145,000) (17,740,000)
Logistic Control
Net earnings 1,255,000 -- 1,255,000
------------ ------------ ------------
Balance, December 31, 1999 $ 5,660,000 $ -- $ 26,070,000
============ ============ ============
</TABLE>
See notes to financial statements.
22
<PAGE> 23
C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,255,000 $ 4,375,000 $ 13,571,000
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 7,519,000 6,254,000 6,753,000
(Gain) loss on disposal of assets (64,000) 212,000 (238,000)
Minority interest in consolidated income of subsidiaries 944,000 -- --
Deferred income tax provision (728,000) -- (46,000)
Adjustment of deferred income taxes resulting
from a change in tax status -- -- (11,171,000)
Changes in Assets and Liabilities:
(Increase) decrease in accounts receivable (6,688,000) (717,000) 74,000
(Increase) in inventories (4,082,000) (1,643,000) (345,000)
(Increase) decrease in prepaids and others assets 2,407,000 (67,000) 681,000
Increase in accounts payable and accrued liabilities 3,811,000 2,746,000 2,312,000
------------ ------------ ------------
Net cash provided by operating activities 4,374,000 11,160,000 11,591,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (7,435,000) (2,845,000) (2,602,000)
Businesses acquired, net of cash received (13,089,000) -- --
Proceeds from sale of fixed assets 908,000 801,000 950,000
------------ ------------ ------------
Net cash used in investing activities (19,616,000) (2,044,000) (1,652,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 20,410,000 -- --
Borrowings (payments) on line of credit, net 2,769,000 -- (1,735,000)
Proceeds from issuance of long-term debt 18,276,000 10,000,000 --
Payment of amounts due to Christiana (3,000,000) -- (295,000)
Payment of long-term debt (4,823,000) (7,738,000) (5,703,000)
Distribution to Christiana for promissory note retirement -- -- (2,326,000)
Distribution for income taxes (134,000) (1,757,000) --
Distribution to Christiana related to merger agreement (13,312,000) (10,000,000) --
------------ ------------ ------------
Net cash provided by (used in) financing activities 20,186,000 (9,495,000) (10,059,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,944,000 (379,000) (120,000)
BEGINNING CASH AND CASH EQUIVALENTS 9,000 388,000 508,000
------------ ------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 4,953,000 $ 9,000 $ 388,000
============ ============ ============
Supplemental Disclosures of Cash Flow Information
Interest paid $ 4,791,000 $ 2,915,000 $ 3,065,000
Amounts paid for income taxes $ 1,922,000 $ 1,757,000 $ 300,000
</TABLE>
See notes to financial statements
23
<PAGE> 24
C2, INC AND SUBSIDIAIRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: C2, Inc. is a Milwaukee-based public company
principally engaged in third-party product distribution services and equipment
manufacturing. C2, Inc.'s operating units include Total Logistic Control, LLC, a
provider of refrigerated and non-refrigerated third-party integrated logistic
services, and Zero Zone, Inc., a manufacturer of refrigerated and freezer
display cases used in grocery, convenience and drug store chains for retail
merchandising of food, beverage and floral products.
INITIAL PUBLIC OFFERING: 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.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of C2, Inc. and its subsidiaries, Total Logistic Control LLC and
Zero Zone, Inc. All material intercompany transactions have been eliminated in
consolidation.
ACQUISITIONS: 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, logistics management, food distribution, product fulfillment,
international freight forwarding and packaging.
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.
These acquisitions have been accounted for as purchases.
REVENUE RECOGNITION: Transportation revenue is recognized when the goods are
delivered to the customer. Warehousing revenue is recognized as services are
provided. Costs and related expenses are recorded as incurred. Revenues and
costs related to product sales are recognized when products are shipped to
customers.
USE OF ESTIMATES: 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 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: Cash and cash equivalents consist of cash and
U.S. Treasury securities having a maturity of less than 12 months.
ACCOUNTS RECEIVABLE: Accounts receivable are presented net of an allowance
for uncollectible accounts of $330,000 and $200,000 at December 31, 1999 and
1998, respectively. The provision for bad debts was $82,000, $145,000, and
$106,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
24
<PAGE> 25
INVENTORIES: Inventories at TLC consist of repair parts and commodities held
for distribution under an exclusive logistic contract. These items are carried
at their lower of FIFO (first-in, first-out) cost or market value. At Zero Zone,
inventories are stated at the lower of FIFO cost or market value and include
materials, labor and manufacturing overhead. As of December 31, 1999 and 1998,
inventories are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Repair parts $ 113,000 $ 137,000
Commodities and other 2,611,000 2,209,000
Raw materials and work in process 2,639,000 --
Finished goods 1,065,000 --
---------- ----------
$6,428,000 $2,346,000
========== ==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT: Fixed assets are carried at cost, less
accumulated depreciation, which is computed using both straight-line and
accelerated methods for financial reporting purposes. The cost of major renewals
and improvements are capitalized; repair and maintenance costs are expensed as
incurred. Tires related to new equipment are included in the capitalized
equipment cost and depreciated using the same methods as equipment. Replacement
tires are expensed when placed in service. A summary of the cost of fixed
assets, accumulated depreciation and the estimated useful lives for financial
reporting purposes is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------ ESTIMATED
1999 1998 USEFUL LIVES
------------- ------------- ------------
<S> <C> <C> <C>
Land $ 4,332,000 $ 3,330,000 --
Machinery and equipment 60,774,000 54,838,000 3-7 years
Buildings and improvements 47,129,000 41,047,000 30-40 years
Construction in progress 128,000 1,038,000 --
------------- -------------
112,363,000 100,253,000
Less: Accumulated depreciation (38,868,000) (31,257,000)
============= =============
$ 73,495,000 $ 68,996,000
============= =============
</TABLE>
GOODWILL: Goodwill is amortized on a straight-line basis over 40 years
($469,000 in 1999 and $157,000 in 1998 and 1997, respectively). The accumulated
amortization at December 31, 1999 and 1998 was $1,227,000 and $758,000,
respectively. C2, Inc. continually evaluates whether events and circumstances
have occurred that indicate the remaining useful life may warrant revision or
that the remaining balance of goodwill may not be recoverable. When factors
indicate that goodwill should be evaluated for possible impairment, C2, Inc.
uses an estimate of the undiscounted cash flows over the remaining life of the
goodwill to measure whether the goodwill is impaired. If impaired, a loss is
recognized for the amount by which the carrying value exceeds the fair value.
EXTRAORDINARY ITEM: During the third quarter of 1999, 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. An extraordinary charge of $362,000, related to the debt refinancing
was incurred during the quarter. The charge to C2, Inc. was $153,000, net of tax
and minority interest.
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 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 year ended December 31, 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
25
<PAGE> 26
be substantially the same before and after its acquisition by C2, Inc.,
comparable historical financial statements for the years ended December 31, 1998
and 1997 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.
<TABLE>
<CAPTION>
PRO FORMA OPERATING RESULTS (UNAUDITED)
AT DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net revenues $149,596,000 $118,971,000
Earnings from operations 9,630,000 8,488,000
Net earnings before extraordinary item 1,473,000 1,137,000
Extraordinary item 153,000 --
Net earnings 1,320,000 1,137,000
Basic and diluted earnings per share before extraordinary
item 0.28 0.22
Basic and diluted earnings per share 0.25 0.22
</TABLE>
EARNINGS PER SHARE: Following is a reconciliation of basic and diluted
earnings per share for the years ended December 31, 1999, 1998, and 1997. The
proforma calculations for 1998 and 1997 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 December 31, 1998 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Basic Earnings per Share:
Net earnings available to common
shareholders before extraordinary
item $ 1,408,000 $ 4,375,000 $13,571,000
Net earnings available to common
shareholders $ 1,255,000 $ 4,375,000 $13,571,000
Average shares of common stock
outstanding 5,202,664 5,202,664 5,202,664
Basic earnings per share before
extraordinary item $ 0.27 $ 0.84 $ 2.61
Basic earnings per share $ 0.24 $ 0.84 $ 2.61
Diluted Earnings per Share:
Average shares of common stock
outstanding 5,202,664 5,202,664 5,202,664
Incremental common shares applicable
to common stock options 109,807 109,807 109,807
----------- ----------- -----------
Average common shares assuming full
dilution 5,312,471 5,312,471 5,312,471
Diluted earnings per share before
extraordinary item $ 0.27 $ 0.82 $ 2.55
Diluted earnings per share $ 0.24 $ 0.82 $ 2.55
</TABLE>
26
<PAGE> 27
LONG-LIVED ASSETS: The Company continually evaluates whether events and
circumstances have occurred that may indicate the remaining useful life of
long-lived assets may warrant revision or that the remaining balance may not be
recoverable. When factors indicate that long-lived assets should be evaluated
for possible impairment, the Company uses an estimate of the undiscounted cash
flows over the remaining life of the long-lived assets to measure whether the
long-lived assets are impaired. If impaired, a loss is recognized for the amount
by which the carrying value exceeds the fair value.
OTHER ASSETS: Other assets represent primarily deferred charges and cash
surrender value of officer's life insurance.
RECLASSIFICATIONS: Certain reclassifications have been made in the 1998 and
1997 statements to conform with 1999 presentation.
B. RELATED PARTY TRANSACTIONS:
Sheldon B. Lubar and David J. Lubar are officers and directors of Lubar &
Co. Incorporated, and own 50% each of its stock. The Company's headquarters
shares offices with Lubar & Co. Incorporated. The office building is owned by
700 North Water LLC which is owned by Sheldon B. Lubar, David J. Lubar, the
Lubar Family (90%) and William T. Donovan (5%). The Company pays its pro rata
share of the rent, utilities and other expenses of these premises (approximately
$7,000 per month).
As of December 31, 1998 and 1997, TLC had amounts due to Christiana of
$3,000,000 which represented a note payable to Christiana that bears interest at
a rate of 8.0% per annum. Related party interest expense was $240,000 for 1998
and 1997. Prior to the combination of Wiscold and Total Logistic, Wiscold
charged Christiana a management fee related to certain administrative services
rendered by TLC on behalf of Christiana. The amount of the management fee was
$120,000 for 1997, and is reflected as a reduction to selling, general and
administrative expenses in the statement of earnings. The amount of services
rendered by Christiana on behalf of Wiscold and TLC for 1998 and 1997 is not
material.
During 1997, TLC made a payment on behalf of Christiana to retire a
promissory note and accrued interest thereon in the amount of $2,326,000. TLC
also repaid $295,000 of debt to Christiana during 1997. In 1999 TLC was required
to make distributions to Christiana for income taxes of $1,757,000. Also during
1999 and 1998, TLC made distributions to Christiana of $13,312,000 and
$10,000,000, respectively. These distributions to Christiana are reflected as
reductions to Members' Equity in 1999, 1998, and 1997 as applicable.
C. INDEBTEDNESS:
The following is a summary of long term indebtedness as of December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revolving credit agreement $ 53,552,000 $ 35,198,000
Notes payable -- 163,000
Bonds payable 9,420,000 --
Subordinated note 3,901,000 1,764,000
------------ ------------
66,873,000 37,125,000
Less: Current portion of long-term debt (500,000) (1,848,000)
------------ ------------
$ 66,373,000 $ 35,277,000
============ ============
</TABLE>
TLC has a revolving credit agreement that provides for borrowings at
December 31, 1999 of up to
27
<PAGE> 28
$70,000,000. Borrowings under this agreement mature on November 2, 2003 and bear
interest, payable monthly at either LIBOR plus 175 basis points, or a floating
rate at the bank's prime rate (8.5% at December 31, 1999) and are secured by
substantially all of TLC's assets. The interest rate will vary over the term of
the credit agreement pursuant to a pricing grid based on the ratio of funded
debt to EBITDA (earnings before interest, taxes, depreciation, amortization and
other non-recurring items) as defined. The weighted average interest rate on
these borrowings was 6.85% in 1999. The revolving credit agreement requires,
among other things, that defined levels of net worth and debt service coverage
be maintained and restricts certain activities including limitation on new
indebtedness and the disposition of assets. As of December 31, 1999, TLC was in
compliance with all covenants. No compensating balances are required under the
terms of this credit facility.
Zero Zone completed a new financing package August 31, 1999 with a major
commercial bank. The package contains two bond issues and a demand line of
credit. The first is a tax free Industrial Revenue Bond issue for $3,420,000
that was issued through the State of Wisconsin for the company's building
addition. The bond has a 20 year life with no annual amortization and has a
seven day variable interest rate, which was 5.75% at December 31, 1999. The
second issue is a taxable Industrial Revenue Bond for $6,000,000 issued through
a bank. This bond also has a 20 year maturity schedule with annual principal
repayments of $500,000. The effective life of this bond is 12 years. The
interest rate on the second bond is also a seven day variable interest rate,
which was 6.75% at December 31, 1999. Both bonds are secured by Letters of
Credit issued by a major commercial bank. Interest rate on the line is based on
LIBOR plus an amount that varies according to a pricing grid determined by the
ratio of funded debt to EBITDA. No amounts were outstanding at December 31,
1999. In addition, Zero Zone has $3,901,000 of subordinated notes which include
$2,350,000 of notes to former shareholders of Zero Zone and bear the rate of 8%.
The balance of $1,551,000 is a capital note bearing interest at 8.5% to a member
of its management.
C2, Inc. has a $15,000,000 unsecured line of credit, renewable annually.
Borrowings under this line bear interest at either the London Interbank Offered
Rate ("LIBOR") plus 125 basis points, or prime at the Company's option. No
compensating balances are required under the terms of this credit facility.
There were no borrowings under this credit line in 1999 or 1998.
As of December 31, 1999, the future maturities of consolidated indebtedness
are as follows:
<TABLE>
<S> <C>
2000 $ 500,000
2001 500,000
2002 1,500,000
2003 55,052,000
2004 850,000
Thereafter 8,471,000
</TABLE>
D. INCOME TAXES:
Prior to July 1, 1997, TLC was included in the consolidated income tax
return of Christiana. The amounts reflected in the financial statements are as
if TLC was filing on a stand-along basis. Income taxes paid as shown in the
statement of cash flows represents combined cash payments made to Christiana by
TLC.
Effective June 20, 1997, TLC converted from a C-Corporation to a Limited
Liability Company. For purposes of taxation, all earnings of TLC are passed
through to its members and taxed at the member level. C2, Inc. is taxed as a
C-Corporation. Taxes for TLC in fiscal 1999 are booked at the C2, Inc. level and
only represent tax on income from the two-thirds ownership held by C2, Inc..
28
<PAGE> 29
As TLC was no longer a taxable entity as of June 30, 1997, all deferred
taxes of TLC were removed from the balance sheet. The elimination of deferred
taxes resulted in an increase in earnings of $11,171,000 in fiscal 1997. The
$515,000 provision for income taxes for 1997 represents the combined Federal and
state income tax provision for the period during which TLC was a C-Corporation.
For 1998, there was no tax provision recorded by TLC. The tax provision recorded
by C2, Inc. on its consolidated income statement for 1999 represents taxes
booked at the C2, Inc. level for corporate activity, operations related to Zero
Zone and for its share of TLC income.
The summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- -------------- -----------
<S> <C> <C> <C>
Current:
Federal $ 1,961,000 -- $ 487,000
State 277,000 -- 74,000
Deferred (619,000) -- (46,000)
----------- -------------- -----------
$ 1,619,000 -- $ 515,000
=========== ============== ===========
</TABLE>
The net deferred tax asset is classified in the consolidated balance sheet as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C>
Current net deferred income
tax asset $ 859,000 $ -- $ --
Non-current net deferred
income tax liability (131,000) -- (46,000)
--------- ---------- ---------
$ 728,000 $ -- $ (46,000)
========= ========== =========
</TABLE>
A reconciliation of the statutory Federal income tax rate for the six months
ended June 30, 1997 and the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
12/31/99 6/30/97
-------- -------
<S> <C> <C>
Statutory Federal income tax rate 34% 34%
Increase in taxes resulting from state income tax, net 4% 4%
Other, net 2% 4%
----- -----
40% 42%
===== =====
</TABLE>
E. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS:
The Company has 520,000 shares of its common stock reserved for issuance
under a stock option plan, which permits the granting of options as well as
appreciation rights and awards. During 1999, the first year of the stock option
plan, options totaling 348,000 were granted at an exercise price of $4.00. No
options were cancelled. At December 31, 1999 none of the total options granted
were exercisable. Options are exercisable over the next five years.
The weighted-average exercise price of total stock options outstanding was
$4.00. No options were currently exercisable. Additionally, the weighted average
contractual life of stock options outstanding at December 31, 1999 was 4.9
years.
29
<PAGE> 30
Changes in stock options outstanding are summarized as follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF PRICE
OPTIONS PER OPTION
------- ----------
<S> <C> <C>
Balance December 31, 1998 -- --
Options granted 348,000 $4.00
-------
Balance December 31, 1999 348,000 $4.00
=======
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123 and has been
determined as if the Company had accounted for its stock options under the fair
value method as provided therein. The fair value of each option is estimated on
the date of the grant using an option pricing model with the following
weighted-average assumptions used for options issued in 1999: risk-free interest
rate of 6.5%, expected remaining life of 5 years, expected volatility of 57.6%,
and no expected dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net earnings and earnings per share as
reported and pro forma, as if the fair value based method of accounting defined
in SFAS No. 123 had been applied.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
As Reported Pro Forma
-------------- --------------
<S> <C> <C>
Net earnings $1,255,000 $1,127,000
Basic earnings per share $ 0.24 $0.22
</TABLE>
The Company has a 401(k) plan covering substantially all of its employees. The
costs under this plan have not been material. The Company does not provide post
employment medical or life insurance benefits.
F. COMMITMENTS:
TLC and Zero Zone have operating leases for warehouse and office facilities
and transportation equipment. Rental expense under these leases was $6,606,000,
$6,017,000 and $6,965,000 in 1999, 1998 and 1997, respectively. At December 31,
1999, future minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
2000 $6,521,000
2001 5,691,000
2002 4,513,000
2003 2,926,000
2004 1,985,000
Thereafter 7,607,000
</TABLE>
G. ACCOUNTING PRONOUNCEMENTS:
During 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income". This statement establishes
standards for the reporting and display of comprehensive income and its
components. Components of comprehensive income are net income and all
30
<PAGE> 31
other non-member changes in equity. C2, Inc. does not have any other
comprehensive income items. Accordingly, comprehensive income and net income are
the same for all periods presented.
During 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivatives and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. As C2, Inc. does not use
derivatives nor engage in hedging activities, this statement will not have a
material impact on C2, Inc.'s financial position. Adoption of this statement is
required beginning June 15, 2000.
H. SUBSEQUENT EVENT:
On January 5, 2000, TLC completed the acquisition of a deep-frozen and
refrigerated public warehouse in Paw Paw, Michigan for $4,250,000. This purchase
was funded by increased borrowings under TLC's existing revolving credit
facility. The acquisition of this facility, which includes 2,500,000 cubic foot
of freezer space, brings the TLC network to 13 logistic centers with 36.3
million cubic foot of refrigerated capacity.
I. SEGMENT INFORMATION:
TLC divides its operations into two primary segments - warehousing services and
logistic services. These segments are determined based upon the primary service
lines provided to customers by TLC. However, TLC provides multiple services from
both segments to many customers.
As of December 31, 1999, TLC's warehousing segments operated in twelve logistic
centers consisting of seven refrigerated and five non-refrigerated. These
logistic centers offer storage, order selection, product fulfillment, assembly
and repackaging services in addition to inventory management services. In
addition, TLC's refrigerated warehousing operations offer temperature sensitive
storage, blast freezing and individual quick freeze (IQF) and packaging
services.
TLC's logistic segment offers transportation and logistics management services
in addition to international transportation and food service distribution
services. These services are provided using both company owned equipment and
carrier management services utilizing third party owned equipment.
Zero Zone manufactures frozen and refrigerated glass door reach-in display cases
referred to as Product Sales and are used primarily by grocery, convenience and
drug store chains for retail merchandising of food, beverage and floral
products.
The accounting policies used by TLC's business segments are the same accounting
policies used in the preparation of TLC financial statements. Segment profit for
1999 and 1998 is revenues less direct and allocable operating expenses. Segment
profit for 1997 reflects only the segment gross margin as TLC did not
specifically allocate selling, general and administrative expenses to its
warehousing and logistic segments during that year. Corporate items include
interest income, amortization expense, selling, general and administrative
expenses, other income/expense and income taxes. Beginning in 1998, all
corporate depreciation and amortization has been included as a component of
warehousing and logistic segment profit. Corporate assets are principally cash
and cash equivalents, goodwill, prepaid items and certain non-operating fixed
assets. Corporate capital expenditures consist primarily of computer equipment
and software and other non-operating fixed assets.
31
<PAGE> 32
Financial information by business segment is as follows:
<TABLE>
<CAPTION>
Warehousing Logistic Product
Services Services Sales Corporate Total
----------- ------------- ------------ ------------ ------------
1999
- ----
<S> <C> <C> <C> <C>
Revenues $47,622,000 $ 60,110,000 $ 36,097,000 -- $143,829,000
Extraordinary item, net 153,000 153,000
Segment net earnings 216,000 493,000 936,000 (390,000) 1,255,000
Total assets 62,828,000 11,869,000 27,113,000 21,817,000 123,627,000
Capital expenditures 2,795,000 296,000 1,531,000 2,813,000 7,435,000
Depreciation and amortization 4,753,000 1,088,000 759,000 919,000 7,519,000
1998
- ----
Revenues $38,099,000 $ 52,511,000 -- $ -- $ 90,610,000
Segment net earnings 4,609,000 2,241,000 -- (2,475,000) 4,375,000
Total assets 68,644,000 10,723,000 -- 7,694,000 87,061,000
Capital expenditures 1,888,000 296,000 -- 661,000 2,845,000
Depreciation and amortization 5,107,000 1,147,000 -- -- 6,254,000
1997
- ----
Revenues $38,395,000 $ 51,705,000 -- $ -- $ 90,100,000
Segment net earnings 9,414,000(1) 4,318,000(1) -- (161,000)(2) 13,571,000
Total assets 71,927,000 10,424,000 -- 7,083,000 89,434,000
Capital expenditures 2,146,000 102,000 -- 354,000 2,602,000
Depreciation and amortization 4,998,000 1,216,000 -- 539,000 6,753,000
</TABLE>
(1) Segment profit in 1997 does not include an allocation for selling,
general and administrative expenses.
(2) Corporate segment profit for 1997 includes selling, general and
administrative expenses of TLC's warehousing and logistic segments.
Included in segment profit during 1997 is the $11,171,000 adjustment of
deferred income taxes related to TLC's change in tax status.
32
<PAGE> 33
C2, INC AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (1)
(unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Revenues $25,874,000 $35,007,000 $36,812,000 $46,136,000 $143,829,000
Earnings from operations 974,000 2,500,000 2,310,000 3,260,000 9,044,000
Earnings before income taxes,
extraordinary item and
minority interest (179,000) 1,205,000 1,030,000 1,983,000 4,039,000
Net earnings (loss) before (178,000) 440,000 411,000 735,000 1,408,000
extraordinary item
Extraordinary item, net of tax 153,000 153,000
Net earnings (loss) (178,000) 440,000 258,000 735,000 1,255,000
Basic and diluted earnings (loss)
per share before extraordinary
item (0.03) 0.08 0.08 0.14 0.27
Basic and diluted earnings (loss)
per share (0.03) 0.08 0.05 0.14 0.24
1998
Revenues $21,865,000 $21,600,000 $22,370,000 $24,775,000 $ 90,610,000
Earnings from operations 1,437,000 1,784,000 1,764,000 1,865,000 6,850,000
Earnings before taxes 740,000 1,297,000 1,086,000 1,252,000 4,375,000
Net earnings 740,000 1,297,000 1,086,000 1,252,000 4,375,000
Pro forma:
Basic earnings per share 0.14 0.25 0.21 0.24 0.84
Diluted earnings per share 0.14 0.24 0.20 0.24 0.82
</TABLE>
(1) The unaudited quarterly data for 1998 reflects the historical financial
information of TLC alone.
FIVE YEAR FINANCIAL INFORMATION (1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $143,829,000 $ 90,610,000 $ 90,100,000 $ 78,349,000 $ 74,266,000
Net Earnings 1,255,000 4,375,000 13,571,000 416,000 1,966,000
Basic Earnings Per Share 0.24 0.84 2.61 0.08 0.38
Total Assets 123,627,000 87,061,000 89,434,000 94,823,000 91,651,000
Long-Term Liabilities 67,432,000 38,607,000 36,967,000 58,037,000 58,281,000
Shareholders' Equity 26,070,000 35,457,000 42,839,000 36,786,000 36,370,000
</TABLE>
(1) The fiscal years ended December 31, 1998, 1997, 1996 and 1995 reflect
the historical financial information of TLC alone.
33
<PAGE> 34
CORPORATE INFORMATION
DIRECTORS
Nicholas F. Brady David J. Lubar
Chairman President
Darby Overseas Investments, LTD C2, Inc.
William T. Donovan Sheldon B. Lubar
Chairman Chairman
C2, Inc. Lubar & Co.
William H. Lacy Albert O. Nicholas,
Retired Chairman and CEO Chairman
MGIC Investment Corporation Nicholas Company, Inc.
OFFICERS
William T. Donovan Betty J. White
Chairman and Chief Financial Officer Treasurer, Controller and
Assistant Secretary
David J. Lubar Gary R. Sarner
President Chief Executive Officer
Total Logistic Control, LLC
Oyvind Solvang Jack Van Der Ploeg
Vice President Chief Executive Officer
e-commerce and Business Development Zero Zone, Inc.
David E. Beckwith
Secretary
TRANSFER AGENT AND REGISTRAR CORPORATE HEADQUARTERS
Firstar Trust Company 700 N. Water, Suite 1200
P.O. Box 2077 Milwaukee, WI 53202
Milwaukee, Wisconsin 53201 Telephone: (414) 291-9000
Facsimile: (414) 291-9061
www.c2-inc.com
EXCHANGE LISTING
C2, Inc. common stock trades on the Nasdaq Stock Market (R) under the symbol:
CTOO.
ANNUAL MEETING
C2, Inc. Annual Meeting of Shareholders will be held at 9:00 a.m. on April 27,
2000 at the Galleria Conference Room, Firstar Center, 777 East Wisconsin Avenue,
Milwaukee, Wisconsin.
34
<PAGE> 35
C2, INC. AND SUBSIDIARIES
EXHIBITS
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1999
INDEX TO EXHIBITS
EXHIBIT NO. BRIEF DESCRIPTION OF EXHIBIT
2 Purchase Agreement dated as of December 22, 1997, as amended
by subsidiary Weatherford International, Inc., TLC, Christiana
Companies, Inc. and the Company [Incorporated by referenced to
Annex A of the C2, Inc. Prospectus filed as part of Company's
Form S-1 Registration Statement (Reg. No. 333-460270)].
3A Company's Amended and Restated Articles of Incorporation.
[Incorporated by referenced to Exhibit 3.1 to Company's Form
S-1 Registration Statement (Reg. No. 333-46027)].
10 Purchase agreement dated as of December 22, 1997, as amended
by subsidiary Weatherford International, Inc., TLC, Christiana
Companies, Inc. and the Company [Incorporated by referenced to
Annex A of the C2, Inc. Prospectus filed as part of Company's
Form S-1 Registration Statement (Reg. No. 333-46027)].
3B Company's Amended and Restated Bylaws. [Incorporated by
reference to Exhibit 3.2 to Company's Form S-1 Registration
Statement (Reg. No. 333-46027)].
21 Company's Subsidiaries.
27 Financial Data Schedule.
35
<PAGE> 1
C2, INC.
EXHIBIT 21 - SUBSIDIARIES
This exhibit sets forth the Registrant's corporate subsidiaries at December 31,
1999 and their states of incorporation. These subsidiaries do business under
their own corporate names and are included in the Consolidated Financial
Statement.
<TABLE>
<CAPTION>
JURISDICTION OF C2
NAME INCORPORATION OWNERSHIP
- -------------------------------- -------------------------------------------
<S> <C> <C>
Total Logistic Control, LLC Delaware 66.7%
Zero Zone, Inc. Wisconsin 70.6%
</TABLE>
36
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,953,000
<SECURITIES> 0
<RECEIVABLES> 18,346,000
<ALLOWANCES> 330,000
<INVENTORY> 6,428,000
<CURRENT-ASSETS> 31,218,000
<PP&E> 112,363,000
<DEPRECIATION> 38,868,000
<TOTAL-ASSETS> 123,627,000
<CURRENT-LIABILITIES> 22,383,000
<BONDS> 66,873,000
0
0
<COMMON> 52,000
<OTHER-SE> 26,018,000
<TOTAL-LIABILITY-AND-EQUITY> 123,627,000
<SALES> 36,097,000
<TOTAL-REVENUES> 143,829,000
<CGS> 25,584,000
<TOTAL-COSTS> 134,785,000
<OTHER-EXPENSES> 343,000
<LOSS-PROVISION> 82,000
<INTEREST-EXPENSE> 4,644,000
<INCOME-PRETAX> 4,039,000
<INCOME-TAX> 1,619,000
<INCOME-CONTINUING> 1,408,000
<DISCONTINUED> 0
<EXTRAORDINARY> 153,000
<CHANGES> 0
<NET-INCOME> 1,255,000
<EPS-BASIC> .24
<EPS-DILUTED> .24
</TABLE>
