U. S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________
Commission File Number 0-15910
Control Chief Holdings, Inc.
(Exact name of small business issuer as specified in its charter)
New York 16-0955704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 141, 200 Williams Street, Bradford, Pennsylvania 16701
(Address of principal executive offices)
(814) 368-4132
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months(or for
such 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of issuer's Common Stock, par value
$.50 per share, as of March 31, 1996 was 811,553 shares.
Transitional Small Business Format (Check one): Yes [ ] No [X]
Control Chief Holdings, Inc. and Subsidiaries
Table of Contents
PART I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations and Retained Earnings
Consolidated Statements of Cash Flows
Notes to Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II Other Information
Item 2 Changes in Securities
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, June 30,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $98,650 $157,786
Receivables
Trade, less allowance for doubtful
accounts of $66,854 and $41,340 1,866,395 1,603,883
Other 2,813 8,903
Inventories
Raw materials and subassemblies 1,596,850 1,641,566
Work in process 518,765 433,661
Finished goods - 39,888
Prepaid income taxes 40,686 105,119
Other prepaid items 47,203 58,706
Deferred income taxes 58,405 71,505
----------- -----------
Total current assets 4,229,767 4,121,017
----------- -----------
Property, Plant and Equipment, at cost
Land and improvements 19,874 19,874
Buildings and improvements 253,304 245,777
Machinery and other equipment 2,034,750 1,978,463
Total cost 2,307,928 2,244,114
----------- -----------
Less accumulated depreciation 1,465,912 1,330,159
----------- -----------
Undepreciated cost 842,016 913,955
Other Assets
Note receivable-SPC Technologies, Inc. 98,336 99,651
Goodwill, less accumulated amortization
of $87,157 and $68,341 135,783 154,599
Cash surrender value of officers' life
insuranceless policy loans of $55,457 19,771 19,771
----------- -----------
Total other assets 253,890 274,021
----------- -----------
$5,325,673 $5,308,993
=========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<CAPTION>
March 31, June 30,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $675,560 $520,000
Current maturities of long-term debt 283,207 275,813
Accounts payable
Trade 1,063,352 990,773
Other 13,693 15,567
Accrued items
Salaries, wages, commissions and
related payroll taxes 420,955 415,439
Income taxes 507 507
Other 60,190 70,465
----------- -----------
Total current liabilities 2,517,464 2,288,564
Other Liabilities
Long-Term Debt, less current maturities 626,921 822,621
Deferred income taxes 92,775 74,075
----------- -----------
Total other liabilities 719,696 896,696
----------- -----------
Stockholders' Equity
Common stock, authorized 5,000,000 shares
of $.50 par value; issued and outstanding
811,551 shares 405,776 405,776
Capital in excess of par value 1,223,701 1,223,701
Retained earnings 441,201 463,036
Foreign currency translation adjustment 17,835 31,220
----------- -----------
Total stockholders' equity 2,088,513 2,123,733
----------- -----------
$5,325,673 $5,308,993
=========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Net sales $2,572,038 $2,542,116 $7,182,714 $6,751,730
Other income 6,424 7,667 12,819 31,216
---------- ---------- ---------- ----------
Total revenues 2,578,462 2,549,783 7,195,533 6,782,946
---------- ---------- ---------- ----------
Costs and expenses
Cost of products sold 1,727,249 1,646,636 4,827,807 4,275,111
Selling general and
administrative 726,063 694,463 2,034,028 2,004,486
Research and development 27,383 56,965 109,380 181,996
Interest and financing 37,082 31,825 126,444 92,382
---------- ---------- ---------- ----------
Total costs and expenses 2,517,777 2,429,889 7,097,659 6,553,975
---------- ---------- ---------- ----------
Earnings before income taxes 60,685 119,894 97,874 228,971
Federal and state income taxes
Currently payable 19,800 60,500 31,100 69,300
Deferred 11,300 8,400 31,800 19,900
---------- ---------- ---------- ----------
31,100 68,900 62,900 89,200
---------- ---------- ---------- ----------
Net earnings 29,585 50,994 34,974 139,771
Retained earnings at beginning
of period 411,616 413,104 463,036 381,136
Cash dividends paid - - (56,809) (56,809)
---------- ---------- ---------- ----------
Retained earnings at end of
period $441,201 $464,098 $441,201 $464,098
========== ========== ========== ==========
Earnings per common share $0.036 $0.063 $0.043 $0.172
====== ====== ====== ======
Dividends paid per common share - - $0.07 $0.07
Weighted average number of
common shares outstanding 811,553 811,553 811,553 811,553
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
March 31,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net earnings $34,973 $139,771
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Depreciation and amortization 155,060 152,451
Deferred income taxes 31,800 19,900
Loss on sale of fixed assets - -
Change in assets and liabilities:
(Increase) decrease in receivables (262,889) (488,271)
(Increase) decrease in inventories (9,897) (168,275)
(Increase) decrease in prepaid items
and other assets 75,809 (108,919)
Increase (decrease) in accounts
payable and accruals 72,457 560,612
--------- ---------
Net cash provided by (used in)
operating activities 97,313 107,269
--------- ---------
Cash flows from investing activities
Purchase of property, plant and
equipment (68,145) (137,358)
Receipts of principal on note receivable 1,315 1,198
--------- ---------
Net cash provided by (used in)
investing activities (66,830) (136,160)
Cash flows from financing activities
Net borrowing (repayments) of short-term
debt 155,560 160,000
Net borrowing (repayments) of long-term debt (188,146) (74,621)
Dividends paid (56,809) (56,809)
--------- ---------
Net cash provided by (used in)
financing activities (89,395) 28,570
--------- ---------
Effect of exchange rate changes on cash (224) 2,508
--------- ---------
Net increase (decrease) in cash (59,136) 2,187
Cash at beginning of period 157,786 106,572
--------- ---------
Cash at end of period $98,650 $108,759
========= =========
Cash paid during the period for:
Interest $107,611 $97,802
Income taxes - 78,845
<FN>
See accompanying notes to financial statements.
</TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Principles of Consolidation
The consolidated financial statements include the accounts of Control Chief
Holdings, Inc., and its wholly-owned subsidiaries, Control Chief Corporation,
Bradford Classics Woodworking, Inc. and Control Chief (UK) Limited (the
"Company"). All significant intercompany accounts are eliminated upon
consolidation.
The consolidated balance sheet as of March 31, 1996, and the related
consolidated statements of operations and retained earnings and cash flows
for the three and nine month periods ended March 31, 1996 and 1995 are
unaudited. The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates. In the opinion of management, all adjustments necessary for a
fair presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-QSB,
and do not contain certain information included in the Company's annual
financial statements and notes. Accordingly, these statements should be read
in conjunction with the consolidated financial statements and notes thereto
appearing in the Annual Report of the Company for the fiscal year ended June
30, 1995.
2. Earnings Per Common Share
Earnings per common share are computed based on the weighted average shares
of common stock outstanding during the period of computation. Although the
Company has issued dilutive common stock equivalents in the form of incentive
stock options, the dilutive effect of these securities in the aggregate is
less than three percent of earnings per common share.
3. Cash Dividends Paid
The Board of Directors of the Company approved a cash dividend totaling
$56,809 ($.07 per share) payable on September 25, 1995 to holders of record
at the close of business on September 11, 1995.
4. Long-Term Borrowing
On December 8, 1995, the Company borrowed $850,000 from its principal
depository under an installment loan agreement, the proceeds of which were
used to retire other debt of the Company. The loan bears interest at 9% and
is payable in 41 monthly installments of $23,720, with a final payment of
$21,141 due June 8, 1999.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Business Changes
Effective March 1, 1995, the Company acquired the net operating assets of NTR
Technologies, Inc. The operating results of this acquisition, which is a
division of Control Chief Corporation, are included in the Company's
consolidated results of operations from the date of acquisition. On November
18, 1994, the Company approved an amendment to the Company's foreign
subsidiary's charter to change the subsidiary's name from IRT Holdings
Limited to Control Chief (UK) Limited. In addition, effective April 1, 1995,
the Company's foreign subsidiary merged its affiliates, Infra-Red Technology
Limited and Vella Willson Limited, into its operations. In September 1993,
the previously non-operating subsidiary, Bradford Classics Woodworking, Inc.
began the start-up of a new wood processing operation. This Operation is
doing business under the name Tuna Valley Wood Products ("Tuna Valley").
Liquidity
The Company and its subsidiaries currently fund their needs for liquidity and
capital resources through cash from operations, short-term and long-term
borrowing.
Control Chief Corporation has a $750,000 line of credit with Integra Bank
("Integra"), which matures on November 30, 1996. Amounts outstanding under
this line of credit bear interest at Integra's commercial base rate,
variable, and are payable on demand. As of March 31, 1996, the rate of
interest on Control Chief's line of credit was 8.25% . In connection
therewith, Control Chief has granted Integra a general security interest in
its assets, excluding real property. The line of credit agreement requires
the Company to maintain certain minimum financial ratios and, among other
things, to obtain approval from the bank before the Company permits any
additional encumbrances on its assets, guarantees or incurs any additional
indebtedness, declares or pays dividends, and incurs annual capital
expenditures and/or acquisition expenses in an amount in excess of its annual
depreciation expense. At March 31, 1996, a total of $675,560 was outstanding
under Control Chief's line of credit.
At March 31, 1996, Control Chief Corporation also had outstanding $43,418 of
debt that is being repaid through March 1997, at 8% interest. This seller
financed debt was incurred in connection with the purchase of the net
operating assets of NTR Technologies, Inc., effective March 1, 1995.
In addition, Tuna Valley has a term loan with the City of Bradford,
Pennsylvania in the original principal amount of $100,000 that was used for
purchasing equipment. Amounts outstanding under this loan bear interest at
3% and are repayable in 84 consecutive monthly installments of principal plus
interest. At March 31, 1996, $66,811 was outstanding under this term loan.
In connection therewith, Tuna Valley has granted the City of Bradford a
general security interest in all of its assets.
On December 8, 1995, the Company borrowed $850,000 from its principal
depository, Integra Bank, under an installment loan agreement. This term
loan was obtained for the purpose of consolidating pre-existing long-term
loans of Control Chief Corporation and Tuna Valley Wood Products. Amounts
outstanding under this loan bear interest at Integra's commercial base rate
plus 5/8%, variable, and is payable in 41 consecutive monthly installments of
$23,720, with a final payment of $21,141 due June 8, 1999. In connection
therewith, the Company has granted Integra a general security interest in all of
its assets, excluding real property. The Company is also required to maintain
a debt service coverage ratio in excess of 1.0 and, among other things, to
obtain approval from the bank before the Company permits any additional
encumbrances on its assets, guarantees or incurs any addition indebtedness,
and declares dividends.
The Company's working capital decreased by $120,150 or 6.6% as compared with
the balance as of June 30, 1995. The current ratio decreased to 1.7 at March
31, 1996 from 1.8 at June 30, 1995.
The Company currently does not have a material commitment for an further
capital expenditures and believes its current working capital is sufficient
for its operations.
Results of Operations
Net sales for the quarter ended March 31, 1996 increased overall by $29,922
or 1.2% compared to the same quarter last year, and increased overall by
$430,984 or 6.4% for the nine month period then ended. For the quarter ended
March 31, 1996, net sales of Control Chief increased by $90,380 or 5.1%, and
increased overall by $378,000 or 8.1% as compared to the same nine month
period last year. Tuna Valley experienced a decrease of $52,157 for the
quarter ended March 31, 1996 as compared to the same quarter last year. Net
sales for Tuna Valley increased overall for the nine month period by $54,332
or 3.7% as compared to the same nine month period the previous year.
Quarterly results for Tuna Valley did not meet the Company's expectations.
Management is reviewing the overall operation of Tuna Valley. Control Chief
(UK) experienced a decrease in net sales of $8,301 or 3.7% for the quarter
and overall net sales decreased by $1,348 or .2% as compared to the same nine
month period for the previous year. The demand for the foreign subsidiary's
transformer components remained strong while sales of its radio control
products continued to decrease during the nine month period.
Cost of products sold increased by $80,613 or 4.9% for the quarter and
$552,696 or 12.9% for the nine months ended March 31, 1996 as compared to the
same periods for last year. Cost of products sold at Control Chief increased
by $124,749 or 12.9% for the quarter and $338,172 or 13.2% for the nine
months ended March 31, 1996 as compared to the same periods for last year.
These increases reflect the segment's increased sales for the comparable
periods, material cost increases and production wage increases. Cost of
products sold at Tuna Valley, the dimensioned wood blanks segment,
experienced a decrease of $15,086 or 2.9% for the quarter and an overall
increase of $134,796 or 9.9% for the nine months ended March 31, 1996 as
compared to the same periods for the previous year. The decrease in
quarterly cost of sales results is reflective of the decrease in net sales of
approximately 9% for the quarter ended March 31, 1996. The overall increase
for the nine months ended March 31, 1996 as compared to the same nine months
of the previous year corresponds to the nine month increase in net sales
combined with the fact that the component cost of this segment is
significantly higher than electronics manufacturing, and as such generates a
much lower gross profit rate. The Company s foreign operation, Control Chief
(UK) experienced a decrease of $29,050 or 17.6% in cost of products sold, as
compared to the same period of last year. Overall cost of products sold
increased by $79,728 or 23.2% for the nine months ended March 31, 1996 as
compared to the same nine month period of last year. Additionally, short
term fluctuations may result from changes in product mix for the period, wood
yields, as well as competitive pricing.
Selling, general and administrative costs increased by $31,600 or 4.6% for
the quarter and $29,542 or 1.5% for the nine months ended March 31, 1996 as
compared with the same periods for last year. This overall increase reflects
continued investment in areas of marketing, sales staffing and travel.
Management is expanding the sales and marketing of the Company's products to
domestic and foreign markets.
Research and development costs decreased by $29,582 for the quarter and
$72,616 for the nine months ended March 31, 1996 as compared with the same
periods last year. With the acquisition of NTR Technologies, Inc., a
significant portion of engineering outsourcing is now being done internally
at a lower cost by the Company s engineers. The Company maintains a
continuing commitment to invest funds in research and development to stay
abreast of changes in technology and improve and expand its product lines in
the electronic components and devices segment to remain competitive and
responsive in the market. It is the policy of the Company not to release to
the public continuing programs in research and development until products are
ready for introduction. The premature public notification of product
development, in the opinion of management, stands to potentially reduce the
anticipated return on its research and development investment by notifying
competitors of a significant portion of the Company's marketing strategy.
Interest and financing charges increased by $5,257 for the quarter and
$34,062 for the nine months ended March 31, 1996 as compared to the same
periods for last year. The increase relates to the increase in the Company's
short-term borrowing to finance overall increases in receivables which is
partially offset by increases in accounts payable. This increase is also
attributable to the financing of the acquisition of NTR Technologies, Inc.
Net earnings decreased by $21,409 or 42% for the quarter and decreased by
$104,797 for the nine months ended March 31, 1996 as compared to the same
periods for last year. The provision for income taxes at March 31, 1996 on
pre-tax income of $97,874 was $62,900 or 64%. The provision for income taxes
at March 31, 1995 on pre-tax income of $228,971 was $89,200 or 39%. The
approximate pre-tax $30,000 loss of the foreign subsidiary for the nine month
period ended March 31, 1996 decreases earnings before income taxes for
financial statement purposes but does not correspondingly reduce income tax
expense when calculating taxable income. While the approximate pre-tax
$50,000 earnings of the foreign subsidiary for the nine month period ended
March 31, 1995 does not increase income tax expense when calculating taxable
income. The foreign subsidiaries have considerable carry forward operating
losses to offset its current and future taxable income. During the current
year's quarter and nine months ended March 31, 1996, no beneficial tax
credits were available.
The Company earned $.036 per common share for the quarter ended March 31,
1996, resulting in nine months earnings of $.043 per common share. For the
same period last year, the Company earned $.063 per common share for the
quarter resulting in nine months earnings of $.172 per common share.
Net trade receivables at March 31, 1996 increased by $256,422 or 15.9% as
compared with the balance as of June 30, 1995. The increase is reflective of
the increase in net sales for the nine month period for the domestic and
foreign operations.
Inventories remained relatively unchanged in total in total at March 31, 1996
as compared to June 30, 1995.
Prepaid items decreased by $75,936 or 46.3% as compared with the balance as
of June 30, 1995. Prepaid income taxes at Mach 31, 1996 accounted for
$64,433 of the decrease as compared with the balance at June 30, 1995, while
other prepaid items decreased by $11,503 at March 31, 1996 as compared to
June 30, 1995.
Undepreciated cost of property, plant and equipment remained relatively
unchanged as compared with the balance as of June 30, 1995. Management does
not anticipate any major capital expenditures in the near future.
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities
a) Working Capital restrictions and other limitations upon the payment
of dividends.
Common Stock, par value $.50 per share.
The Company has agreed not to distribute dividends unless specific
written approval is received from Integra Bank. Additionally, the
Company has agreed to maintain a debt service coverage ratio in
excess of 1.0.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibit 27.
b) None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Control Chief Holdings, Inc.
(Registrant)
Date: May 15, 1996 By: \s\ Douglas S. Bell
Douglas S. Bell
Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 98,650
<SECURITIES> 0
<RECEIVABLES> 1,936,062
<ALLOWANCES> 66,854
<INVENTORY> 2,115,615
<CURRENT-ASSETS> 4,229,767
<PP&E> 2,307,928
<DEPRECIATION> 1,465,912
<TOTAL-ASSETS> 5,325,673
<CURRENT-LIABILITIES> 2,517,464
<BONDS> 0
<COMMON> 405,776
0
0
<OTHER-SE> 1,682,737
<TOTAL-LIABILITY-AND-EQUITY> 5,325,673
<SALES> 7,182,714
<TOTAL-REVENUES> 7,195,533
<CGS> 4,827,807
<TOTAL-COSTS> 4,827,807
<OTHER-EXPENSES> 2,143,408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,444
<INCOME-PRETAX> 97,874
<INCOME-TAX> 62,900
<INCOME-CONTINUING> 34,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,974
<EPS-PRIMARY> .043
<EPS-DILUTED> .043
</TABLE>
