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, 1998
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 1-3846
CHRISTIANA COMPANIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Wisconsin 95-1928079
(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 5,149,330
- ---------------------------- -----------------------------------
(Class) (Outstanding at November 13, 1998.)
No exhibits are filed with this report.
Page 1 of 11 total pages
1
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHRISTIANA COMPANIES, INC. AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(UNAUDITED) (AUDITED)
SEPTEMBER 30, JUNE 30,
1998 1998
-------------- -------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 5,286,000 $ 5,539,000
Accounts receivable, net 9,172,000 8,342,000
Inventories, prepaids and other 3,839,000 2,775,000
Current portion of mortgage notes receivable -- 347,000
------------- -------------
Total Current Assets 18,297,000 17,003,000
------------- -------------
Long-Term Assets:
Investment in Weatherford 84,283,000 144,206,000
Mortgage notes receivable 187,000 185,000
Fixed assets, net 69,906,000 71,112,000
Other assets 6,678,000 6,735,000
------------- -------------
Total Long-Term Assets 161,054,000 222,238,000
------------- -------------
$ 179,351,000 $ 239,241,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 4,248,000 $ 3,505,000
Accrued liabilities 6,822,000 6,763,000
Line of credit -- 239,000
Current portion of long-term debt 2,630,000 3,003,000
------------- -------------
Total Current Liabilities 13,700,000 13,510,000
------------- -------------
Long-Term Liabilities:
Long-term debt 26,275,000 27,122,000
Deferred federal and state income taxes 37,917,000 61,207,000
Other liabilities 1,162,000 1,173,000
------------- -------------
Total Long-Term Liabilities 65,354,000 89,502,000
------------- -------------
Total Liabilities 79,054,000 103,012,000
------------- -------------
Shareholders' Equity:
Preferred stock
Common stock, par value $1 per share;
authorized 12,000,000 shares; issued 5,208,330 5,209,000 5,209,000
Additional paid-in capital 12,347,000 12,347,000
Unrealized gain on securities available for sale 21,365,000 57,799,000
Treasury stock, at cost (1,236,000) (1,236,000)
Retained earnings 62,612,000 62,110,000
------------- -------------
Total Shareholders' Equity 100,297,000 136,229,000
------------- -------------
$ 179,351,000 $ 239,241,000
============= =============
See notes to consolidated financial statements.
2
3
CHRISTIANA COMPANIES, INC. AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
------------ ------------
Revenues:
Warehousing and logistic services $ 22,370,000 $ 23,047,000
------------ ------------
Costs and Expenses:
Warehousing and logistic services 18,633,000 19,201,000
Selling, general and administrative 2,365,000 2,229,000
------------ ------------
20,998,000 21,430,000
------------ ------------
Earnings from Operations 1,372,000 1,617,000
Other Income (Expense):
Interest income 80,000 132,000
Interest expense (573,000) (752,000)
Equity in earnings of Weatherford -- 1,937,000
Other income (expense), net (54,000) (496,000)
------------ ------------
(547,000) 821,000
------------ ------------
Earnings before income taxes 825,000 2,438,000
Income tax provision 323,000 953,000
------------ ------------
Net Earnings $ 502,000 $ 1,485,000
============ ============
Basic Earnings per Share $ 0.10 $ 0.29
============ ============
Diluted Earnings per Share $ 0.10 $ 0.29
============ ============
Weighted average number of shares outstanding 5,149,330 5,136,630
============ ============
See notes to consolidated financial statements.
3
4
CHRISTIANA COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK TREASURY STOCK
--------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------
Balance, June 30, 1998 5,208,330 $ 5,209,000 (59,000) $(1,236,000)
--------------------------------------------------------
Unrealized loss on securities
available for sale -- -- -- --
Net earnings for the three months
ended September 30, 1998 -- -- -- --
(unaudited)
--------------------------------------------------------
Balance, September 30, 1998 5,208,330 $ 5,209,000 (59,000) $(1,236,000)
========================================================
UNREALIZED
GAIN ON
ADDITIONAL SECURITIES
PAID-IN AVAILABLE RETAINED
CAPITAL FOR SALE EARNINGS TOTAL
-----------------------------------------------------------------
Balance, June 30, 1998 $12,347,000 $57,799,000 $62,110,000 $136,229,000
-----------------------------------------------------------------
Unrealized loss on securities
available for sale -- (36,434,000) -- (36,434,000)
Net earnings for the three months
ended September 30, 1998 -- -- 502,000 502,000
(unaudited)
-----------------------------------------------------------------
Balance, September 30, 1998 $12,347,000 $21,365,000 $62,612,000 $100,297,000
=================================================================
See notes to consolidated financial statements.
4
5
CHRISTIANA COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1997
-------------- --------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings $ 502,000 $ 1,485,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,735,000 1,708,000
Deferred income tax expenses 200,000 1,171,000
Equity in earnings of Weatherford -- (1,937,000)
Changes in assets and liabilities:
Increase in accounts receivable (830,000) (2,419,000)
(Increase) decrease in other assets (1,125,000) 254,000
Increase in accounts payable and accrued liabilities 791,000 1,525,000
------------ ------------
Net cash provided by operating activities 1,273,000 1,787,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments, net -- (1,987,000)
Capital expenditures (546,000) (1,029,000)
Proceeds from sale of assets 134,000 --
Decrease in mortgage notes receivable 345,000 3,000
------------ ------------
Net cash (used in) investing activities (67,000) (3,013,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on credit lines (239,000) 944,000
Net payments of notes and loans payable (1,220,000) (2,020,000)
------------ ------------
Net cash (used in) financing activities (1,459,000) (1,076,000)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (253,000) (2,302,000)
BEGINNING CASH AND CASH EQUIVALENTS, July 1 5,539,000 2,888,000
------------ ------------
ENDING CASH AND CASH EQUIVALENTS, September 30 $ 5,286,000 $ 586,000
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 573,000 $ 765,000
Income taxes paid 401,000 --
See notes to consolidated financial statements.
5
6
CHRISTIANA COMPANIES, 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 1998 Annual Report on Form 10-K.
NOTE 2 - INVESTMENT IN WEATHERFORD INTERNATIONAL, INC.
Prior to May 27, 1998, the Company accounted for its investment in Weatherford
under the equity method. As such, the Company's proportionate share of
Weatherford earnings through May 27, 1998, is recorded in the statement of
earnings as "Equity in Earnings of Weatherford." On May 27, 1998, Weatherford
acquired Weatherford Enterra, Inc. issuing additional shares of common stock
which reduced the Company's ownership percentage to approximately 4%. As a
result of this reduction in ownership, the Company no longer accounts for this
investment under the equity method; but rather accounts for its investment in
Weatherford using the cost method. Under the cost method, only dividends paid by
Weatherford will be reflected in future earnings of the Company.
The Company has classified its investment in Weatherford as
"available-for-sale." Accordingly, the Weatherford shares owned by the Company
(3,897,462 shares as of September 30, 1998) are recorded at their fair market
value on the balance sheet. Unrealized gains, net of deferred taxes, in the
amount of $21,365,000, are reflected as an increase to Shareholders' Equity.
NOTE 3 - WEATHERFORD/CHRISTIANA MERGER
On October 14, 1998, Christiana and Weatherford International, Inc. announced
amended merger terms which were designed both to improve the terms for
Christiana shareholders and to increase substantially the likelihood of
completing the merger on a partially tax free basis. The amended terms eliminate
a $10 million contingent holdback that was previously required and commits
Christiana to purchase at least $10 million of Weatherford common stock, plus up
to an additional $5 million of Weatherford share purchases, if necessary, to
allow for the stock consideration in the merger to be received by the Christiana
shareholders to be on a tax-free basis. The cash component in the merger is
anticipated to be between $3.00 and $4.00 per Christiana share depending on if
any of the additional $5 million Weatherford common share purchases are
completed. Completion of the merger, as amended, is subject to various
conditions, including approvals by Weatherford and Christiana shareholders.
NOTE 4 - COMPREHENSIVE INCOME
Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes rules for the reporting of
comprehensive income and its components. The Company's comprehensive income
components consist of net income and unrealized gains on securities available
for sale and are presented in the Consolidated Statement of Shareholders'
Equity. For interim reporting, the Company has chosen to disclose comprehensive
income in the
6
7
notes to financial statements. The components of comprehensive
income for the three months ended September 30, 1998 and 1997 are as follows:
THREE MONTHS ENDED
SEPTEMBER 30
----------------------------------------
1998 1997
------------- -------------
Net income $502,000 $1,485,000
Unrealized loss on securities
held for sale, net of taxes (36,434,000) --
============= =============
Total comprehensive income/(loss) $(35,932,000) $1,485,000
============= =============
NOTE 5 - EARNINGS PER SHARE
In fiscal 1998, the Company adopted SFAS No. 128, "Earnings per Share." The
following is a reconciliation of basic and diluted earnings per share for the
quarters ended September 30, 1998 and 1997:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
-------------- -------------
Basic Earnings per Share:
Net income available to common shareholders $ 502,000 $1,485,000
Average shares of common stock outstanding 5,149,330 5,136,630
-------------- -------------
Basic earnings per share $0.10 $0.29
============== =============
Diluted Earnings per Share:
Average shares of common stock outstanding 5,149,330 5,136,630
Incremental common shares applicable to common stock options 1,898 70,483
-------------- -------------
Average common shares assuming full dilution 5,151,228 5,207,113
-------------- -------------
Diluted earnings per share $0.10 $0.29
============== =============
NOTE 6 - ACCOUNTING PRONOUNCEMENTS
The Company is currently researching SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement shall be effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. Earlier application of all provisions of this
statement is permitted. This statement shall not be applied retroactively to
financial statements of prior periods. This statement is expected not to impact
the Company's operating results or financial position as the Company does not
currently use derivative financial instruments.
7
8
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operations
Christiana Companies consolidated revenues for the three months ended September
30, 1998 were $22,370,000 compared to $23,047,000 reflecting a decline of 2.9%
due primarily to the closure of two dry warehouses offset partially by a 3.8%
revenue gain in refrigerated warehousing services. Volume growth in refrigerated
warehousing services resulted primarily from increased capacity utilization due
both to new customer relationships and expanded programs with existing customers
at the Rochelle and Milwaukee Logistic Centers. Revenues for the quarter
attributable to transportation services were level with the prior year's period.
Earnings from operations for the quarter were $1,372,000 compared to $1,617,000
for the same period last year. Operating earnings contributed by Total Logistic
Control, the Company's principal operating unit, totaled $1,764,000 in the first
quarter compared to $1,987,000 for the same period last year. The decline in
operating earnings was primarily attributable to increased depreciation,
marketing and administrative expenses directed at developing new value-added
logistic service programs.
Consolidated net earnings for the quarter were $502,000 or $0.10 per share
compared to $1,485,000 or $0.29 per share for the same period last year.
Included in the prior year's period results were equity earnings of Weatherford
International, Inc. (formerly EVI, Inc.) which contributed net earnings of
$1,178,000 or $0.23 per share. Since May 27, 1998, Christiana no longer reports
its proportionate share of Weatherford's earnings under the equity method. On a
comparable basis, without equity earnings of Weatherford, Christiana's net
earnings increased 64% from $307,000 to $502,000 quarter to quarter. The
improvement in net earnings for the quarter, adjusted to eliminate Weatherford's
contribution, was primarily due to reduced interest expense and other charges
related to litigation settlement and facility closures which were incurred in
the comparable period last year.
Interest income was lower in the quarter compared to the same period last year
due both to lower rates available on short-term U.S. government securities and
lower principal amount of mortgage notes receivable.
Interest expense was lower this period due primarily to reduced borrowings as a
result of $9,699,000 in debt reduction from internally generated cash flow
during the last twelve months ended September 30, 1998.
Financial Condition
Cash equivalents and short-term investments totaled $5,286,000 at September 30,
1998 compared to $5,539,000 at June 30, 1998, a decrease of $253,000.
Cash flow provided by operating activities in the period of $1,273,000 was
attributable primarily to net earnings, depreciation and amortization and
increased accounts payable and accrued liabilities offset by increased accounts
receivable, and inventories. Cash flow used in investing activities of $67,000
resulted from capital expenditures offset by a decrease in mortgage notes
receivable and
8
9
sale of assets. Capital expenditures in the period of $546,000 were attributable
to Total Logistic Control. Net cash flow used in financing activities to reduce
debt in the quarter totaled $1,459,000. At September 30, 1998 the Company had no
commitments for any material capital expenditures.
On October 14, 1998, Christiana and Weatherford International, Inc. announced
amended merger terms which were designed both to improve the terms for
Christiana shareholders and to increase substantially the likelihood of
completing the transaction on a tax free basis. The amended terms eliminate a
$10 million contingent holdback that was previously required and commits
Christiana to purchase at least $10 million of Weatherford common stock, plus up
to an additional $5 million of Weatherford share purchases, if necessary, to
allow for the stock consideration in the merger to be received by the Christiana
shareholders on a tax-free basis. Completion of the merger, as amended, is
subject to various conditions, including stockholder approval by Weatherford and
Christiana at Special Meetings that are expected to be held in December, 1998.
Based on the Company's current projections, all Year 2000 compliant systems,
both financial and non-financial, will be implemented no later than January 1,
1999. As of September 30, 1998, the Company is approximately 70% complete with
the installation of its Year 2000 upgrades. By the time these upgrades are
completed, the Company estimates that it will have expended approximately
$950,000 to resolve its Year 2000 problems and improve its systems in this
regards.
9
10
PART II - OTHER INFORMATION
Item 1. Not applicable.
Item 2. Not applicable.
Item 3. Not applicable.
Item 4. A special shareholders meeting in connection with the merger
will be held in lieu of an Annual Meeting.
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K
None
10
11
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.
CHRISTIANA COMPANIES, INC.
(Registrant)
Date: November 13, 1998
------------------ ----------------------------------------
/s/ Sheldon B. Lubar
Chairman and Chief Executive Officer
Date: November 13, 1998
----------------- -----------------------------------------
/s/ William T. Donovan
President and Chief Financial Officer
11