<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 September 30, 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 5,081,864
------------------------------- ------------------------------------------
(Class) (Outstanding at November 2, 2000.)
Page 1 of 14 total pages No exhibits are filed with this report.
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C2, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------------------- ----------------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,327,000 $ 4,953,000
Accounts receivable, net 20,916,000 18,016,000
Inventories 7,537,000 6,428,000
Prepaids and other 2,933,000 1,821,000
--------------------- -----------------------
Total Current Assets 32,713,000 31,218,000
--------------------- -----------------------
Long-Term Assets:
Fixed assets, net 76,299,000 73,495,000
Goodwill 15,905,000 17,102,000
Other assets 1,878,000 1,812,000
--------------------- -----------------------
Total Long-Term Assets 94,082,000 92,409,000
--------------------- -----------------------
$ 126,795,000 $ 123,627,000
====================== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term debt $ 500,000 $ 500,000
Short term debt 10,780,000 2,770,000
Accounts payable 10,847,000 8,764,000
Accrued liabilities 10,229,000 10,349,000
---------------------- -----------------------
Total Current Liabilities 32,356,000 22,383,000
---------------------- -----------------------
Long-Term Liabilities:
Long-term debt 66,193,000 66,373,000
Other liabilities 1,132,000 1,059,000
---------------------- ----------------------
Total Long-Term Liabilities 67,325,000 67,432,000
---------------------- ----------------------
Total Liabilities 99,681,000 89,815,000
---------------------- ----------------------
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, 5,081,864 issued and
outstanding 52,000 52,000
Additional paid-in capital 20,372,000 20,358,000
Treasury stock, at cost (578,000) --
Retained earnings 7,268,000 5,660,000
---------------------- ----------------------
Total Shareholders' Equity 27,114,000 26,070,000
---------------------- ----------------------
$ 126,795,000 $ 123,627,000
====================== ======================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ------------------------------
2000 1999 2000 1999
---------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenues:
Logistics revenues $ 30,787,000 $ 26,817,000 $ 92,774,000 $ 74,953,000
Product sales 13,440,000 9,995,000 40,299,000 22,741,000
---------------------------------- ------------------------------
44,227,000 36,812,000 133,073,000 97,694,000
---------------------------------- ------------------------------
Costs and Expenses:
Logistics expenses 26,208,000 22,324,000 78,715,000 60,801,000
Cost of product sales 9,450,000 7,021,000 28,156,000 16,383,000
Depreciation and amortization 2,174,000 1,980,000 6,280,000 5,726,000
Selling, general and administrative 3,852,000 3,177,000 11,378,000 9,051,000
---------------------------------- ------------------------------
41,684,000 34,502,000 124,529,000 91,961,000
---------------------------------- ------------------------------
Earnings from Operations 2,543,000 2,310,000 8,544,000 5,733,000
Other Income (Expense):
Interest expense, net (1,473,000) (1,268,000) (4,341,000) (3,360,000)
Merger-related expense -- -- -- (343,000)
Other income (expense), net 41,000 (12,000) 41,000 (34,000)
---------------------------------- ------------------------------
(1,432,000) (1,280,000) (4,300,000) (3,737,000)
---------------------------------- ------------------------------
Earnings before Income Taxes, Extraordinary Item
and Minority Interest 1,111,000 1,030,000 4,244,000 1,996,000
Income tax provision 524,000 403,000 1,779,000 832,000
---------------------------------- ------------------------------
Net Earnings before Minority Interest
and Extraordinary Item 587,000 627,000 2,465,000 1,164,000
Minority Interest 161,000 216,000 857,000 547,000
---------------------------------- ------------------------------
Net Earnings before Extraordinary Item 426,000 411,000 1,608,000 617,000
Extraordinary Item Net of Income Tax and Minority Interest -- (153,000) -- (153,000)
---------------------------------- ------------------------------
Net Earnings $ 426,000 $ 258,000 $ 1,608,000 $ 464,000
================================== ==============================
Basic Earnings per Share before Extraordinary Item
$ 0.08 $ 0.08 $ 0.31 $ 0.12
================================== ==============================
Basic Earnings per Share $ 0.08 $ 0.05 $ 0.31 $ 0.09
================================== ==============================
Diluted Earnings per Share before Extraordinary Item
$ 0.08 $ 0.08 $ 0.31 $ 0.12
================================== ==============================
Diluted Earnings per Share $ 0.08 $ 0.05 $ 0.31 $ 0.09
================================== ==============================
Weighted average number of shares outstanding 5,081,864 5,202,664 5,114,161 5,202,664
Diluted number of shares outstanding 5,278,150 5,317,506 5,265,530 5,318,482
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK 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 -- -- -- -- 4,405,000 (22,145,000) (17,740,000)
Control
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) -- -- (578,000) -- -- (578,000)
Exercise of stock options 3,400 -- 14,000 -- -- -- 14,000
Net earnings for the nine
months ended September 30, 2000 -- -- -- -- 1,608,000 -- 1,608,000
--------------------------------------------------------------------------------------------
Balance, September 30, 2000
(unaudited) 5,081,864 $ 52,000 $ 20,372,000 $(578,000) $7,268,000 -- $ 27,114,000
============================================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
C2, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------------
2000 1999
--------------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,608,000 $ 464,000
Adjustments to reconcile net earnings to
Net cash provided by operating activities:
Depreciation and amortization 6,280,000 5,726,000
(Gain) loss on sale of fixed assets (90,000) (39,000)
Minority interest 857,000 484,000
Changes in assets and liabilities:
(Increase) in accounts receivable (2,900,000) (4,764,000)
(Increase) in other assets (2,196,000) (2,145,000)
Increase in accounts payable and accrued liabilities 1,748,000 365,000
--------------------- ---------------------
Net cash provided by operating activities 5,307,000 91,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (8,201,000) (5,924,000)
Proceeds from sale of assets 459,000 34,000
Businesses acquired, net of cash received (8,285,000) (13,089,000)
--------------------- ---------------------
Net cash (used in) investing activities (16,027,000) (18,979,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of stock 14,000 20,410,000
Purchase treasury stock (578,000) --
Net (payments) borrowings on credit lines 8,010,000 4,054,000
Net (payments) borrowings on notes and loans payable (180,000) 11,598,000
Distribution to minority shareholders (172,000) (90,000)
Distributions to Christiana Companies, Inc. -- (13,312,000)
--------------------- ---------------------
Net cash provided by financing activities 7,094,000 22,660,000
NET INCREASE (DECREASE) IN CASH AND (3,626,000) 3,772,000
CASH EQUIVALENTS
BEGINNING CASH AND CASH EQUIVALENTS, January 1 4,953,000 9,000
--------------------- ---------------------
ENDING CASH AND CASH EQUIVALENTS, September 30 $ 1,327,000 $ 3,781,000
===================== =====================
Supplemental disclosures of cash flow information:
Interest paid $ 3,994,000 $ 3,351,000
Income taxes paid $ 2,966,000 $ 1,113,000
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
C2, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1999 Annual Report on
Form 10-K.
In the opinion of management, the aforementioned statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results for the interim periods. Results for the three
and nine months ended September 30, 2000, are not necessarily indicative of
results that may be expected for the year ending December 31, 2000.
NOTE 2 -- ACQUISITIONS
On January 5, 2000, Total Logistic Control, LLC completed the acquisition of a
deep-frozen and refrigerated warehouse facility 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 is
comprised of 2,500,000 cu.ft. of warehouse capacity, brings the TLC network to
13 logistic centers with 36.3 million cu.ft. of refrigerated capacity.
On September 30, 2000 the Company purchased the remaining 33.3% of TLC for
$8,285,000. As of September 30, 2000, TLC was a wholly-owned subsidiary of C2,
Inc.
NOTE 3 -- EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per share for
the quarters and nine months ended September 30, 2000 and 1999. The calculations
are based on the common shares outstanding since the offering and assume that
such shares were issued and outstanding for each of the periods ended September
30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Net earnings available to common shareholders $ 426,000 $ 258,000 $1,608,000 $ 464,000
Average shares of common stock outstanding 5,081,864 5,202,664 5,114,161 5,202,664
----------------------------------- -----------------------------------
Basic earnings per share $0.08 $0.05 $0.31 $0.09
=================================== ===================================
Diluted Earnings per Share:
Average shares of common stock outstanding 5,081,864 5,202,664 5,114,161 5,202,664
Incremental common shares applicable to
common stock options 196,286 114,842 151,369 115,818
----------------------------------- -----------------------------------
Average common shares assuming full dilution 5,278,150 5,317,506 5,265,530 5,318,482
----------------------------------- -----------------------------------
Diluted earnings per share $0.08 $0.05 $0.31 $0.09
=================================== ===================================
</TABLE>
6
<PAGE> 7
NOTE 4 - SEGMENT INFORMATION
TLC divides it 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 September 30, 2000, TLC's warehousing segment operated in thirteen
logistic centers consisting of eight refrigerated and five non-refrigerated
facilities. 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 logistics services segment offers transportation and logistics management
in addition to international customs house brokerage, freight forwarding and
food service distribution services. These services are provided using both
company-owned equipment and carrier management utilizing third-party owned
equipment.
Zero Zone manufactures frozen and refrigerated glass door and open-faced
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.
Financial information by business segment is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -------------------------------
2000 1999 2000 1999
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
Revenues:
Warehousing Services $ 13,804,000 $ 12,137,000 $ 40,215,000 $ 33,888,000
Logistics Services 16,983,000 14,680,000 52,560,000 41,065,000
Product Sales 13,440,000 9,995,000 40,298,000 22,741,000
----------------------------- ------------------------------
$ 44,227,000 $ 36,812,000 $ 133,073,000 $ 97,694,000
============================= ==============================
Operating Earnings:
Warehousing Services $ 2,116,000 $ 3,040,000 $ 5,860,000 $ 6,534,000
Logistics Services 936,000 267,000 3,855,000 3,263,000
Product Sales 1,795,000 1,306,000 5,289,000 2,317,000
Corporate (2,304,000) (2,303,000) (6,460,000) (6,381,000)
----------------------------- ------------------------------
$ 2,543,000 $ 2,310,000 $ 8,544,000 $ 5,733,000
============================= ==============================
</TABLE>
NOTE 5 - IMPACT OF ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED IN THE FUTURE
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" is required to be adopted as of January 1,
2001. Currently, the Company has no derivative instruments outstanding and
therefore, management believes the effect of adoption of FAS No. 133 to be
immaterial.
7
<PAGE> 8
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 percent of the common stock of Zero Zone,
Inc., ("Zero Zone") a Wisconsin-based manufacturer of frozen and refrigerated
display cases in connection with a $19,500,000 recapitalization plan.
On September 30, 2000, C2 purchased the remaining 33.3% of TLC for $8,285,000.
As of September 30, 2000, TLC was a wholly-owned subsidiary of C2. The premium
over the carrying value of minority interest was $868,000 which was allocated to
TLC's fixed assets.
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, dedicated third-party facility and
operations management, international customs house brokerage and freight
forwarding, food distribution, fulfillment services for e-commerce applications,
and packaging services. Operations are conducted through a network of 13
logistic centers with 36.3 cubic feet of refrigerated capacity and more than 1
million square feet of dry warehouse space. TLC operates a fleet of 235
refrigerated transportation 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 nine-month periods ended September
2000 and 1999; those of C2 for the full nine-month period ended September 30,
2000 and for the period February 8 to September 30, 1999; and those of Zero Zone
for the full nine-month period ended September 30, 2000 and the six and one-half
month period from March 12, 1999 to September 30, 1999.
Results of Operations
Consolidated revenues for the quarter ended September 30, 2000 increased 20.1%
to $44,227,000 compared to $36,812,000 reported for the same period last year.
Revenue growth
8
<PAGE> 9
was attributable to higher volume at both TLC and Zero Zone. Revenues
attributable to TLC increased 14.8% to $30,787,000 for the period compared to
$26,817,000 reported for the second quarter of fiscal 1999 driven by increased
capacity utilization in warehousing operations and growth in existing and new
customers in logistic management services and transportation operations.
Zero Zone contributed revenues of $13,440,000 for the three months ended
September 30, 2000 compared to $9,995,000 for last year's comparable period, an
increase of $3,445,000 or 34.5%. The increase was the result of higher demand
from existing accounts as well as new customer relationships.
Consolidated earnings from operations for the quarter were $2,543,000,
representing growth of 10% compared to $2,310,000 for the same period last year.
Operating earnings contributed by TLC for the quarter were $991,000 compared to
$1,240,000. The reduction in operating earnings was the result of higher
depreciation and amortization expense partially due to retooling the Milwaukee
Logistic Center for a customer's longer-term lease commitment and the addition
of the new refrigerated warehouse facility in Paw Paw, Michigan. Additionally,
lower dry warehousing volume contributed to the reduction in operating expenses.
At Zero Zone, operating earnings increased $577,000, or 44.2%, over the same
period in 1999, reflecting higher sales volume.
Net interest expense in the quarter ended September 30, 2000 was $1,473,000
compared to $1,268,000. The increase is attributable to both higher interest
rates and increased borrowings related to the acquisition of a refrigerated
warehouse during the first quarter and increased working capital requirements to
fund Zero Zone's high growth.
Net earnings for the quarter ended September 30, 2000 were $426,000, or $0.08
per share ($0.08 basic and diluted), compared to $258,000, or $0.05 per share
(basic and diluted), reported for the prior year's third quarter, which included
an extraordinary charge of $153,000. Net earnings before the extraordinary
charge associated with the write-off of deferred debt issuance costs at Zero
Zone for the third quarter of fiscal 1999 were $411,000 or $0.08 per share
(basic and diluted).
For the nine months ended September 30, 2000, consolidated revenues were
$133,073,000 compared to $97,694,000 in the same period last year, representing
an increase of 36.2%. Revenues attributable to TLC for the period were
$92,774,000, an increase of 23.8% over last year's level of $74,953,000. For the
period, Zero Zone's sales totaled $40,299,000 reflecting an increase of 77.2%
over last year's comparable period. Growth in new retail store construction,
refurbishment of existing stores, and a full nine-month period this year were
principal factors in the Company's year-to-year sales growth.
Earnings from operations for the nine months were $8,544,000 compared to
$5,733,000 for the comparable period in 1999, reflecting an increase of 49%.
Operating earnings contributed by TLC for the period decreased slightly to
$4,047,000 compared to $4,075,000 recorded in the same period last year.
Earnings from operations contributed by Zero Zone in the first nine months of
2000 totaled $5,554,000 reflecting a 111% increase over the previous year's
earnings
9
<PAGE> 10
from operations of $2,635,000 which were attributable to a six and one-half
month period as Zero Zone was acquired by C2 on March 12, 1999.
Net interest expense in the first nine months of 2000 was $4,341,000 compared to
$3,360,000 for the same period last year. Interest expense increased primarily
due to a full period of increased debt in fiscal 2000 compared to the same
period last year, the acquisition of a refrigerated warehouse facility which was
funded by an increase in TLC's revolving credit facility and higher interest
rates on variable rate borrowings. 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
For the first nine months of fiscal 2000, C2, Inc. reported net earnings of
$1,608,000, or $0.31 per share (basic and diluted) compared to $464,000, or
$0.09 per share (basic and diluted), reported for the same period a year ago. In
last year's period, the operations of Zero Zone were included for a six and
one-half month period due to its acquisition on March 12, 1999 and Zero Zone
incurred an extraordinary charge of $153,000. Net earnings for the first nine
months of fiscal 1999, before the extraordinary charge were $617,000 or $0.12
per share (basic and diluted).
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.
Additionally, the Company is active in seeking acquisitions that will
strategically build Zero Zone's business. Historically, bank financing, leasing
and internally generated cash have provided funding for these activities. To the
extent that acquisitions or new facility development exceed historical funding
sources, the Company may consider issuing equity securities in an underwritten
stock offering, a rights offering or in private placement transactions.
Currently, the Company has significant subsidiary level lending relationships
with three major commercial banks. At September 30, 2000, the Company and its
operating subsidiaries had outstanding debt of $77,473,000, all of which is
borrowed under various facilities with these banks.
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. At September 30, 2000 outstandings under
this facility totaled $53,300,000 The interest rate on borrowings under this
credit agreement are LIBOR or prime rate based, 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 September 30, 2000 borrowings under this
facility carried an average interest rate of LIBOR plus 155 or 8.55%.
10
<PAGE> 11
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 for $3,420,000 issued through the
State of Wisconsin for a facility addition. The bond has a 20-year life with no
annual amortization and carries a seven day variable interest rate. The second
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 was 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. The interest rate on the
line of credit, which is secured by Zero Zone's assets, is based on LIBOR plus
an amount that varies according to a pricing grid determined by the ratio of
funded debt to EBITDA. The interest rate at September 30, 2000 was 8.12%
Zero Zone has unsecured senior subordinated indebtedness in the amount of
$2,350,000 to former and existing shareholders. The interest rate on the senior
subordinated notes 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 on the junior subordinated notes is 8.5% of which 3.4% is paid
in cash and 5.1% is payment-in-kind.
In connection with the acquisition of the remaining 33.3% of TLC for $8,285,000,
C2 drew $7,000,000 under its existing unsecured demand line of credit facility
and used cash of $1,285,000. The interest rate on this borrowing is LIBOR plus
1.5%, or 8.11875%. This borrowing is expected to be refinanced on a long-term
basis prior to January 31, 2001.
As of September 30, 2000, the Company had cash and cash equivalents on hand of
$1,327,000 compared to $4,953,000 at December 31, 1999.
Cash flows provided by operations for nine months ended September 30, 2000,
totaled $5,307,000 compared to $91,000 in the previous period. The increase in
cash flows from operating activities compared to the prior year period is
primarily attributable to the increase in earnings, higher depreciation and
amortization expense and lower working capital growth.
Cash flows used in investing activities in the period totaled $16,027,000
compared to $18,979,000 for the same period last year. In the nine months ended
September 30, 2000, the use of cash was primarily the result of the acquisition
of a refrigerated warehouse, capital expenditures and the $8,285,000 acquisition
of the remaining 33.3% of TLC. In the previous year, the significant use of cash
was primarily due to the acquisition of 66.7% of TLC for a cash equity payment
of $10,667,000 and the acquisition of 70.6% of Zero Zone for a cash equity
payment of $3,000,000.
Cash flows from financing activities for the first nine months of fiscal 2000
totaled $7,094,000 compared to $22,660,000 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 acquisitions and
distributions. In the first nine months of fiscal 2000, cash flows from
financing activities of $7,094,000 were primarily related to borrowings to fund
the
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purchase of 33.3% of TLC, working capital growth at Zero Zone and the purchase
of 124,200 shares of C2 common stock at $4.654 per share for a total of
$578,000.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and other statements
that are not historical facts. Actual results may differ materially from
management's expectations. The forward-looking statements involve risks and
uncertainties, including but not limited to:
- Demand for warehousing, transportation, logistics services and
refrigerated display cases may be adversely affected by increases in
interest rates, adverse economic conditions, increased energy costs,
weather or market conditions which adversely affect vegetable and
fruit crop yields, loss of a material customer or other factors.
- Growth in volume of services or products may be adversely affected by
reduced ability to identify and hire qualified employees.
- The Company's profitability may be adversely affected by increases in
interest rates because a significant portion of the Company's debt
bears interest at variable interest rates.
- The Company's liquidity could be adversely affected by changes in
credit markets which would limit the Company's ability to convert
short-term borrowings into a longer-term credit facility
Additional information about risks and uncertainties discussed above as well as
additional material risks in the Company's business may be found in the
Company's annual report on Form 10K for the year 1999 and other filings made by
the Company from time to time with the Securities and Exchange Commission.
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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
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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: November 2, 2000 /s/ William T. Donovan
------------------------ -------------------------------------------
William T. Donovan
President and Chief Financial Officer
Date: November 2, 2000 /s/ Betty J. White
------------------------ -------------------------------------------
Betty J. White
Treasurer and Controller
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