<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------------------
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number 001-14171
C2, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Wisconsin 39-1915787
(State of Incorporation) (IRS Employer Identification No.)
700 N. Water Street, Suite 1200, Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 291-9000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $1.00 par value 5,078,464
- - ---------------------------- ------------------------------
(Class) (Outstanding at May 12, 2000.)
Page 1 of 12 total pages No exhibits are filed with this report.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C2, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
MARCH 31, DECEMBER 31,
2000 1999
------------------- ------------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,439,000 $ 4,953,000
Accounts receivable, net 16,519,000 18,016,000
Inventories 8,260,000 6,428,000
Prepaids and other 2,313,000 1,821,000
------------------- ------------------
Total Current Assets 30,531,000 31,218,000
------------------- ------------------
Long-Term Assets:
Fixed assets, net 77,038,000 73,495,000
Goodwill 16,719,000 17,102,000
Other assets 1,993,000 1,812,000
------------------- ------------------
Total Long-Term Assets 95,750,000 92,409,000
------------------- ------------------
$ 126,281,000 $ 123,627,000
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current maturities of long-term debt $ 500,000 $ 500,000
Short-term debt 2,800,000 2,770,000
Accounts payable 10,090,000 8,764,000
Accrued liabilities 8,771,000 10,349,000
------------------- ------------------
Total Current Liabilities 22,161,000 22,383,000
------------------- ------------------
Long-Term Liabilities:
Long-term debt 69,292,000 66,373,000
Other liabilities 1,170,000 1,059,000
------------------- ------------------
Total Long-Term Liabilities 70,462,000 67,432,000
------------------- ------------------
Total Liabilities 92,623,000 89,815,000
------------------- ------------------
Minority Shareholders' Interests 7,616,000 7,742,000
Shareholders' Equity:
Preferred stock, par value $.01 per share,
10,000 shares authorized, none issued or outstanding -- --
Common stock, par value $.01 per share;
50,000 shares authorized, 5,078,464 issued and
outstanding 52,000 52,000
Additional paid-in capital 20,358,000 20,358,000
Treasury stock, at cost (574,000) --
Retained earnings 6,206,000 5,660,000
------------------- ------------------
Total Shareholders' Equity 26,042,000 26,070,000
------------------- ------------------
$ 126,281,000 $ 123,627,000
=================== ==================
</TABLE>
See notes to consolidated financial statements.
2
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C2, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
2000 1999
------------------- ------------------
<S> <C> <C>
Revenues:
Logistic revenues $ 33,683,000 $ 23,747,000
Product sales 12,070,000 2,127,000
------------------- ------------------
45,753,000 25,874,000
------------------- ------------------
Costs and Expenses:
Logistic expenses 28,968,000 19,073,000
Cost of product sales 8,255,000 1,744,000
Depreciation and amortization 2,040,000 1,749,000
Selling, general and administrative expenses 3,665,000 2,334,000
------------------- ------------------
42,928,000 24,900,000
------------------- ------------------
Earnings from Operations 2,825,000 974,000
Other Income (Expense):
Interest expense, net (1,376,000) (827,000)
Merger-related expense -- (326,000)
Other income (expense) (2,000) --
------------------- ------------------
(1,378,000) (1,153,000)
------------------- ------------------
Earnings (loss) before income taxes
and minority interest 1,447,000 (179,000)
Income tax provision 588,000 (11,000)
------------------- ------------------
Net earnings (loss) before minority interest 859,000 (168,000)
Minority interest 313,000 10,000
------------------- ------------------
Net earnings (loss) $ 546,000 $ (178,000)
=================== ==================
Basic net earnings (loss) per share $ 0.11 $ ($0.03)
=================== ==================
Diluted net earnings (loss) per share $ 0.10 $ ($0.03)
=================== ==================
Average number of shares outstanding 5,180,827 5,202,664
=================== ==================
Diluted number of shares outstanding 5,251,469 5,202,664
=================== ==================
</TABLE>
3
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C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN TREASURY RETAINED MEMBER'S
SHARES AMOUNT CAPITAL STOCK EARNINGS EQUITY TOTAL
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 -- $ -- $ -- $ -- $ -- $ 35,457,000 $ 35,457,000
Distribution to Christiana Companies, Inc. -- -- -- -- (13,312,000) (13,312,000)
Sale of common stock 5,202,664 52,000 20,358,000 -- -- -- 20,410,000
Adjustments related to the acquisition
of Total Logistic Control -- -- -- -- 4,405,000 (22,145,000) (17,740,000)
Net earnings -- -- -- 1,255,000 -- 1,255,000
-----------------------------------------------------------------------------------------
Balance, December 31, 1999 5,202,664 52,000 20,358,000 -- 5,660,000 -- 26,070,000
Purchase of treasury stock (124,200) -- -- (574,000) -- -- (574,000)
Net earnings for the three months ended
March 31, 2000 -- -- -- -- 546,000 -- 546,000
-----------------------------------------------------------------------------------------
Balance, March 31, 2000 (unaudited) 5,078,464 $52,000 $20,358,000 $(574,000) $6,206,000 -- $ 26,042,000
=========================================================================================
</TABLE>
See notes to consolidated financial statements.
4
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15
C2, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
2000 1999
---------------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 546,000 $ (178,000)
Adjustments to reconcile net earnings to net
cash (used in) provided by operating activities:
Depreciation and amortization 2,040,000 1,749,000
Gain on sale of fixed assets (11,000) (12,000)
Minority interest in consolidated income of subsidiaries 313,000 10,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,497,000 (943,000)
(Increase) in other assets (2,302,000) (1,407,000)
(Decrease) in accounts payable and accrued liabilities (252,000) (134,000)
---------------------- ---------------------
Net cash provided by (used in) operating activities 1,831,000 (915,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (5,742,000) (1,985,000)
Proceeds from sale of assets 212,000 34,000
Businesses acquired, net of cash received -- (13,089,000)
---------------------- ---------------------
Net cash (used in) investing activities (5,530,000) (15,040,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of stock -- 20,410,000
Purchase treasury stock (574,000) --
Net borrowings on credit lines 30,000 1,939,000
Net borrowings on notes and loans payable 2,919,000 12,994,000
Distribution to minority interest (190,000) --
Distributions to Christiana Companies, Inc. -- (13,312,000)
---------------------- ---------------------
Net cash provided by financing activities 2,185,000 22,031,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,514,000) 6,076,000
BEGINNING CASH AND CASH EQUIVALENTS, January 1 4,953,000 9,000
---------------------- ---------------------
ENDING CASH AND CASH EQUIVALENTS, March 31 $ 3,439,000 $ 6,085,000
====================== =====================
Supplemental disclosures of cash flow information:
Interest paid $ 1,329,000 $ 755,000
Income taxes paid $ 1,525,000 $ 73,000
</TABLE>
See notes to consolidated financial statements.
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C2, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED 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 1999 Annual Report on Form 10-K.
NOTE 2 -- ACQUISITION OF REFRIGERATED WAREHOUSE
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 cu. ft. of
freezer space, brings the TLC network to 13 logistic centers with 36.3 million
cu. ft. of refrigerated capacity.
NOTE 3 -- EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per share for
the quarters ended March 31, 2000 and 1999. 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 quarters ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Basic Earnings per Share:
Net income available to common shareholders $ 546,000 $ (178,000)
Average shares of common stock outstanding 5,180,827 5,202,664
----------------- -----------------
Basic earnings per share $ 0.11 ($0.03)
================= =================
Diluted Earnings per Share:
Average shares of common stock outstanding 5,180,827 5,202,664
Incremental common shares applicable to common stock options 70,642 --*
----------------- -----------------
Average common shares assuming full dilution 5,251,469 5,202,664
----------------- -----------------
Diluted earnings per share $ 0.10 ($0.03)
================= =================
</TABLE>
* No shares are included because the impact is anti-dilutive.
6
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Business
C2, Inc. ("C2 or the Company") was formed in connection with 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% 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% 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% 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 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, supply chain management, international freight forwarding, food
distribution and packaging and fulfillment services. Operations are conducted
through a network of 13 distribution warehouses of which eight are refrigerated
or frozen facilities with an aggregate capacity of 34 million cubic feet. TLC
also operates a transportation fleet of 203 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.
The consolidated financial statements of C2, Inc. presented herein reflect the
results of operations of TLC for the full three month periods ended March 31,
2000 and 1999; those of C2 for the full three month period ended March 31, 2000
and for the period February 8 to March 31, 1999; and those of Zero Zone for the
full three month period ended March 31, 2000 and the period March 12-31, 1999.
Results of Operations
Consolidated revenues for the quarter ended March 31, 2000 increased 77% to
$45,753,000 compared to $25,874,000 reported for the same period last year.
Revenue growth was attributable to higher volume at both TLC and Zero Zone and a
full three month period this year for Zero Zone. Revenues attributable to TLC
increased 42% to $33,683,000 for the period compared to $23,747,000 reported for
the first quarter of fiscal 1999 driven by increased capacity utilization in
7
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warehousing and logistics operations and higher volume from existing and new
customers in logistic management services.
Zero Zone contributed revenues of $12,070,000 for the three months ended March
31, 2000 compared to $2,127,000 for last years first quarter. In last year's
quarter Zero Zone's operations were included for the two week period since its
acquisition by C2, Inc. on March 12, 1999. In comparing Zero Zone's sales for a
full three month period in both year's sales increased 50%.
Consolidated earnings from operations for the quarter were $2,825,000 compared
to $974,000 for the same period last year. Operating earnings contributed by TLC
for the quarter increased 23% to $1,443,000 compared to $1,173,000 recorded in
the same period last year. Overhead expenses at TLC decreased approximately
$315,000 quarter to quarter largely due to infrastructure investment in
information systems in the first quarter of 1999. In the quarter, TLC announced
the acquisition of a deep-frozen and refrigerated public warehouse in Paw Paw,
Michigan for $4,250,000, bringing the TLC network to 13 logistic centers with
36.3 million cu. ft. of refrigerated capacity.
Earnings from operations contributed by Zero Zone in the first quarter of 2000
totaled $1,726,000 reflecting significant increase over the $155,000 income from
operations recorded for the two week period in last year's first quarter. On a
full three month comparative basis Zero Zone's earnings from operations in the
first quarter of fiscal 2000 increased 139% over those recorded for the three
months ended March 31, 1999.
Net interest expense in the first quarter of fiscal 2000 was $1,376,000 compared
to $827,000 for the same period last year. Interest expense increased primarily
due to a full three month period of increased debt in fiscal 2000 compared to
the same period last year. In last year's period TLC increased its outstanding
debt by $10 million on February 8, 1999 in connection with the merger
transaction between Christiana and Weatherford. Additionally, on March 12, 1999
the Company acquired 70.6% of Zero Zone, Inc. which increased debt outstanding.
Interest expense increased year over year to a lesser extent due to higher
interest rates on short term borrowings at TLC.
Net earnings for the quarter ended March 31, 2000 were $546,000, or $0.11 per
share, compared to a net loss of $178,000, or $0.03 per share, reported for the
prior year's first quarter. In last year's first quarter the operations of Zero
Zone were included for a two week period as its acquisition by C2, Inc. was
completed on March 12, 1999. Additionally, in last year's period, C2, Inc.
incurred one-time merger and acquisition related charges of $337,000, net of tax
and minority interest.
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, 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
March 31, 2000, the Company's operating subsidiaries had outstanding debt of
$72,592,000, all of which is borrowed under various facilities with these banks.
None of this debt is guaranteed by the Company.
8
<PAGE> 9
TLC entered into a $70 million credit agreement, dated November 2, 1998. This
credit facility is secured by liens or security interests on 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 are LIBOR or prime rate, at TLC's option, and vary pursuant to
a pricing grid based on the ratio of TLC's funded debt to EBITDA, as defined in
the credit agreement. At March 31, 2000 TLC had $56.4 million in outstanding
borrowings under this facility with an average interest rate of LIBOR plus 155
or 7.88%.
Zero Zone completed a 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. 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. 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.
Zero Zone has unsecured senior subordinated indebtedness in the amount of
$2,350,000 to former and existing shareholders. The interest rate is 8%.
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% of which 3.4% is paid in cash and 5.1% is
payment-in-kind.
As of March 31, 2000, the Company had cash and cash equivalents on hand of
$3,439,000 compared to $4,953,000 at December 31, 1999.
Cash flows provided by operations for the quarter ended March 31, 2000, totaled
$1,831,000 compared to cash flows used of $915,000 in the previous period. The
increase in cash flows from operating activities is primarily attributable to
the increase in earnings and lower accounts receivable at both TLC and Zero
Zone.
Cash flows used in investing activities in the quarter totaled $5,530,000
compared to $15,040,000 for the same period last year. In the quarter ended
March 31, 2000, the use of cash was primarily the result of the acquisition of a
refrigerated warehouse and capital expenditures. In the previous year, the
significant use of cash was due to the acquisition of 66.7% of TLC for
$10,667,000 and the acquisition of 70.6% of Zero Zone for $3,000,000, net of
cash acquired of $578,000.
9
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Cash flows from financing activities totaled $2,185,000 compared to $22,031,000
for the same period last year, which 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. In the current quarter
cash flow from net borrowings under notes payable and credit lines was
$2,919,000 and related primarily to the acquisition of a refrigerated warehouse.
The Company purchased 124,200 shares of C2 common stock at $4.625 per share for
a total of $574,000.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Reform Act of 1995. These statements include, among other
things, discussions of growth in the market and demand for services in third
party logistics, as well the outlook for new construction or the refurbishment
of grocery, drug and convenience stores. These forward-looking statements are
subject to risks and uncertainties, including, but are not limited to, the pace
of consolidation within the food industry and among food retailers, the impact
of new or increased competition in providing warehousing or transportation
services or display case manufacturing, the risk that the costs of providing
transportation services, including fuel, are not able to be fully recovered from
customers, other risks detailed from time to time in the Company's Securities
and Exchange Commission filings, including its Form 10-K for the year ended
December 31, 1999. 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 analysis 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. Actual results may differ materially
from management expectations.
10
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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
11
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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: May 12, 2000 /s/ William T. Donovan
------------------- -----------------------------------------
William T. Donovan William T. Donovan
Chairman and Chief Financial Officer
Date: May 12, 2000 /s/ David J. Lubar
------------------- -----------------------------------------
David J. Lubar
President
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,439,000
<SECURITIES> 0
<RECEIVABLES> 16,774,000
<ALLOWANCES> 255,000
<INVENTORY> 8,260,000
<CURRENT-ASSETS> 30,531,000
<PP&E> 116,821,000
<DEPRECIATION> 39,783,000
<TOTAL-ASSETS> 126,281,000
<CURRENT-LIABILITIES> 22,161,000
<BONDS> 69,792,000
0
0
<COMMON> 52,000
<OTHER-SE> 25,990,000
<TOTAL-LIABILITY-AND-EQUITY> 126,281,000
<SALES> 33,683,000
<TOTAL-REVENUES> 45,753,000
<CGS> 8,255,000
<TOTAL-COSTS> 42,928,000
<OTHER-EXPENSES> 2,000
<LOSS-PROVISION> 110,000
<INTEREST-EXPENSE> 1,376,000
<INCOME-PRETAX> 1,134,000
<INCOME-TAX> 588,000
<INCOME-CONTINUING> 546,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 546,000
<EPS-BASIC> .11
<EPS-DILUTED> .10
</TABLE>
