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 September 30, 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 September 30, 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
ITEM 1 - FINANCIAL INFORMATION
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, June 30,
1996 1996
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $179,195 $123,285
Receivables
Trade, less allowance for doubtful
accounts of $64,362 and $64,421 1,658,633 1,577,215
Other 5,588 5,185
Inventories
Raw materials and subassemblies 1,362,271 1,423,831
Work in process 404,843 229,374
Prepaid income taxes 18,250 92,818
Other prepaid items 56,483 37,620
Deferred income taxes 59,453 59,453
---------- ----------
Total current assets 3,744,716 3,548,781
---------- ----------
Property, Plant and Equipment, at cost
Land and improvements 19,874 19,874
Buildings and improvements 250,196 250,109
Machinery and other equipment 1,478,661 1,464,360
---------- ----------
Total cost 1,748,731 1,734,343
Less accumulated depreciation 1,361,839 1,328,533
---------- ----------
Undepreciated cost 386,892 405,810
---------- ----------
Other Assets
Net assets of discontinued operations $ - $51,386
Note receivable-SPC Technologies, Inc. 97,493 98,059
Goodwill, less accumulated amortization
of $105,733 and $99,553 117,207 123,387
Cash surrender value of officers' life
insurance less policy loans of $68,770 10,620 10,620
---------- ----------
Total other assets 225,320 283,452
---------- ----------
$4,356,928 $4,238,043
========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<CAPTION>
September 30, June 30,
1996 1996
----------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $638,941 $654,895
Current maturities of long-term debt 194,633 206,446
Accounts payable
Trade 759,695 597,101
Other 14,027 13,911
Accrued items
Salaries, wages, commissions and
related payroll taxes 404,838 461,323
Other 34,106 58,975
---------- ----------
Total current liabilities 2,046,240 1,992,651
---------- ----------
Other Liabilities
Net liabilities of discontinued operations 39,016 -
Long-term debt, less current maturities 344,390 385,365
Deferred income taxes 24,642 25,842
---------- ----------
Total other liabilities 408,048 411,207
---------- ----------
Stockholders' Equity
Common stock, authorized 5,000,000 shares
of $.50 par value; issued and outstanding
811,553 shares 405,776 405,776
Capital in excess of par value 1,223,701 1,223,701
Retained earnings 257,135 182,630
Foreign currency translation adjustment 16,028 22,078
---------- ----------
Total stockholders' equity 1,902,640 1,834,185
---------- ----------
$4,356,928 $4,238,043
========== ==========
<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
September 30,
1996 1995
--------- ---------
<S> <C> <C>
Revenues
Net sales $1,968,162 $1,760,788
Other income 13,453 2,646
--------- ---------
Total revenues 1,981,615 1,763,434
--------- ---------
Costs and expenses
Cost of products sold 1,108,791 1,050,022
Selling general and administrative 618,732 585,479
Research and development 48,112 43,789
Interest expense 29,040 43,767
--------- ---------
Total costs and expenses 1,804,675 1,723,057
--------- ---------
Earnings from continuing operations
before income taxes 176,940 40,377
Federal and state income taxes
Currently payable 75,300 29,500
Deferred (1,200) (2,700)
--------- ---------
74,100 26,800
--------- ---------
Earnings from continuing operations 102,840 13,577
Discontinued operations
Earnings (loss), net of taxes (28,335) (35,322)
--------- ---------
Net earnings (loss) 74,505 (21,745)
Retained earnings at beginning of period 182,630 463,036
Cash dividends paid - (56,809)
--------- ---------
Retained earnings at end of period $257,135 $384,482
========= =========
Earnings (loss) per common share
Continuing operations $.13 $.02
Discontinued operations (.04) (.04)
------ ------
$.09 ($.02)
====== ======
Dividends paid per common share $ - $.07
Weighted average number of common
shares outstanding 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>
Three Months Ended
September 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from continuing operating activities
Earnings from continuing operations $102,840 $13,577
Adjustments to reconcile earnings from
continuing operations to net cash
provided by(used in) operating activities:
Depreciation and amortization 32,965 38,326
Deferred income taxes (1,200) (2,700)
Change in assets and liabilities:
(Increase) decrease in receivables (85,853) (86,714)
(Increase) decrease in inventories (118,973) (112,479)
(Increase) decrease in prepaid items
and other assets 55,330 (9,729)
Increase (decrease) in accounts payable
and accruals 79,135 102,637
-------- --------
Net cash provided by (used in)
continuing operating activities 64,244 (57,082)
-------- --------
Cash flows from discontinued activities
Earnings (loss) from
discontinued operations ($28,335) ($35,322)
Adjustments to reconcile earnings from
continuing operations to net cash
provided by (used in) operating activities:
Depreciation and amortization - 13,865
Deferred income taxes - 4,400
(Increase) decrease in net assets
of discontinued operation 90,402 33,474
Net cash provided by (used in)
discontinued activities 62,067 16,417
-------- --------
Total net cash provided 126,311 (40,665)
-------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (6,788) (14,716)
Receipts of principal on note receivable 567 383
-------- --------
Net cash provided by (used in)
investing activities (6,221) (14,333)
-------- --------
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) - CONTINUED
<CAPTION>
Three Months Ended
September 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from financing activities
Net borrowing (repayments) of
short-term debt (15,953) 90,000
Net borrowing (repayments) of
long-term debt (52,799) (51,440)
Dividends paid - (56,809)
-------- --------
Net cash provided by (used in)
financing activities (68,752) (18,249)
-------- --------
Effect of exchange rate changes on cash 4,572 (278)
-------- --------
Net increase (decrease) in cash 55,910 (73,525)
Cash at beginning of period 123,285 157,786
-------- --------
Cash at end of period $179,195 $84,261
======== ========
Cash paid during the period for:
Interest $33,946 $40,565
Income taxes - 1,034
<FN>
See accompanying notes to financial statements.
</TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries after elimination of significant
intercompany transactions, and have been restated for the decision to
discontinue its wood products business. The consolidated balance
sheet as of September 30, 1996, and the related consolidated
statements of operations and retained earnings and cash flows for the
three month periods ended September 30, 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, 1996.
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. Discontinued Operations
Effective May 14, 1996, the Company adopted a formal plan to
discontinue its wood products operations and to sell off the related
assets of Bradford Classics Woodworking, Inc., d/b/a Tuna Valley Wood
Products, a wholly-owned subsidiary of the Company located in
Bradford, Pennsylvania. Accordingly, this business unit has been
accounted for as a discontinued operation in the accompanying
financial statements and amounts for prior periods have been
restated.
A summary of certain operating results of the discontinued operations
for the three month periods ended September 30, 1996 and 1995 are as
follows:
1996 1995
--------- ---------
Net sales $ - $567,857
========= =========
Earnings (loss) from operations
before income taxes ($33,116) ($60,122)
Gain (loss) on sale of assets (14,519) -
--------- ---------
(47,635) (60,122)
Income taxes (benefit) (19,300) (24,800)
--------- ---------
Net earnings (loss) ($28,335) ($35,322)
========= =========
The net assets (liabilities) of discontinued operations have been
segregated in the accompanying consolidated balance sheets at
September 30, and June 30, 1996 and consist of:
September 30, June 30,
1996 1996
---------- ---------
Assets
Accounts receivable $269,130 $163,630
Inventories - 75,000
Prepaid items 21,860 5,258
Plant and equipment, net - 216,000
--------- ---------
290,990 459,888
--------- ---------
Liabilities
Accounts payable and accrued items 157,994 159,536
Long-term debt 172,012 248,966
--------- ---------
330,006 408,502
--------- ---------
Net assets (liabilities) of
discontinued operations ($39,016) $51,386
========= =========
On September 14, 1996, the inventory and fixed assets of the
discontinued operations were sold for their approximate carrying
amounts at June 30, 1996. In connection with the closure of Bradford
Classics Woodworking, Inc., settlement of certain trade creditors
claims are pending, none of which are of a material amount.
PART I
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Business Changes
Due to declining profits and failure to increase its customer base
and market share, on May 14, 1996 a decision was made by the Board of
Directors to cease the operations of Bradford Classics Woodworking,
Inc., d/b/a Tuna Valley Wood Products ("Tuna Valley"), a wholly-owned
subsidiary of the Company, and conduct an orderly liquidation of the
subsidiary. On September 14, 1996, the inventory and fixed assets of
the discontinued operations were sold for their approximate carrying
amounts at June 30, 1996. Proceeds from the auction are being used
to pay the remaining secured and unsecured creditors as of June 30,
1996. 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 Vela Wilson
Limited, into its operations.
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.
The Company has a $750,000 line of credit with National City Bank,
which is subject to renewal on November 30, 1996. Amounts
outstanding under the line of credit bear interest at the bank's
prime rate, variable, and are payable on demand. As of September 30,
1996, the rate of interest on the line of credit was 8.25%. In
connection therewith, the Company has granted National City 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 and amortization expense. As of September 30, 1996, a
total of $638,941 was outstanding under the line of credit.
At September 30, 1996, Control Chief Corporation had outstanding
$21,211 of debt that is being repaid through March, 1997 at 8%
interest. This seller financed debt arises from the purchase of the
net operating assets of NTR Technologies, Inc. effective March 1,
1995.
Bradford Classics Woodworking, Inc. had a term loan with the City of
Bradford, Pennsylvania in the original principal amount of $100,000
that was used for purchasing equipment. Due to the ceasing of
operations of the subsidiary in May of 1996 and the liquidation of
its assets, Bradford Classics Woodworking, Inc. has paid off the
remaining principal portion of this loan in the amount of $59,765 as
of September 30, 1996. The City of Bradford has released its general
security interest in the assets of the subsidiary.
On December 8, 1995, the Company borrowed $850,000 from its principal
depository, National City Bank, under an installment loan agreement.
This term loan was obtained for the purpose of consolidating pre-existing
long-term loans of Control Chief and Bradford Classics Woodworking, Inc.
Amounts outstanding under this loan bear interest at the bank's commercial
base rate plus 5/8%, variable, and is repayable in 41 consecutive monthly
installments of $23,720, with a final payment of $21,141 due June 8, 1999.
In connection therewith, the Company and its US subsidiaries have granted
National City a general security interest in all of their 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. As of September 30, 1996, a
total of $687,652 was outstanding under this term loan, of which
$172,012 is included with the net liabilities of the discontinued
operations. Subsequent to the quarter ended September 30, 1996, from
the proceeds of the September 14, 1996 auction of the fixed assets and
inventory of Bradford Classics Woodworking, Inc., the Company reduced
this term loan by approximately $178,000.
The Company's working capital increased by $142,346 or 9.1% as
compared with the balance as of June 30, 1996. The Company's current
ratio increased slightly to 1.83 at September 30, 1996 from 1.78 at
June 30, 1996.
The Company currently does not have a material commitment for any
further capital expenditures and believes its current working capital
is sufficient for its operations.
Results of Operations
Net sales from continuing operations for the quarter ended September
30, 1996 increased overall by $207,374 or 11.8% as compared to the
same quarter for last year. Control Chief (UK) Limited accounted for
$56,852 or 30.2% of the Company's overall increase for the comparable
period. This increase is reflective of the increased sales for the
foreign subsidiary's transformer components during the quarter ended
September 30, 1996. The Company's domestic subsidiary, Control Chief,
accounted for the remaining $150,522 or 9.5%.
Cost of products sold increased by $58,769 or 5.6% for the quarter
ended September 30, 1996 as compared to the same quarter for last
year. Cost of products sold at the Company's foreign subsidiary,
Control Chief (UK) Limited, accounted for $14,662 or 11% of the increase
as compared with the same period last year. Control Chief accounted for the
remaining $44,107 of the overall Company increase. This increase
represents an increase of 4.8% of the domestic subsidiary's cost of
products sold for the quarter ended September 30, 1996, as compared
to its cost of products sold for the quarter ended September 30,
1995. These increases are consistent with the increases in the
Company's foreign and domestic subsidiary's sales and product mixes.
Selling, general and administrative costs increased by $33,253 or
5.7% for the quarter ended September 30, 1996 as compared with the
same period 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 increased by $4,323 or 9.9% for the
quarter ended September 30, 1996 as compared to the same period for
last year. This increase is reflective of the Company's continuing
commitment to invest funds in research and development to stay
abreast of technological changes, enhancement of current products and
development of new product lines in the electronic components and
devices segment. 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 decreased by $14,727 at September 30,
1996 as compared to the same period last year. This decrease is
reflective of an overall reduction of the Company's long-term and
short-term debt and a decrease in National City Bank's commercial
base interest rate as compared to the same period last year.
Net earnings from continuing operations increased by $89,263 for the
quarter ended September 30, 1996, as compared to the same period for
last year. The provision for income taxes at September 30, 1996 on
pre-tax income of $176,940 was $74,100 or 41.9%. The provision for
income taxes at September 30, 1995 on pre-tax income of $40,377 was
$26,800 or 66.4%. The overall decrease in the rate of income taxes
on earnings from continuing operations from 66.4% at September 30,
1995 to 41.9% at September 30, 1996 is attributed to the increase in
pre-tax income of the Company's foreign operations. Pretax income of
the Company's foreign subsidiary, Control Chief (UK) Limited, at
September 30, 1996 increased by $29,141 as compared to the same
period for last year. The pretax income of the Company's foreign
subsidiary increases profitability for financial statement purposes
but is not reflected when calculating taxable income. The foreign
subsidiary has carry forward net operating losses to offset its current
taxable income. The provision for income taxes on the Company's
domestic subsidiary remained at approximately 44% of pretax income
for the comparable quarters ended September 30, 1996 and 1995.
During the quarters ended September 30, 1996 and 1995, no beneficial
tax credits were available.
The Company's net earnings from continuing operations increased from
$.02 per common share for the quarter ended September 30, 1995 to
$.13 per common share for the quarter ended September 30, 1996.
Losses per common share from discontinued operations remained at
$.04. Overall earnings increased from a loss of $.02 per common
share for the quarter ended September 30, 1995 to earnings of $.09
per common share for the comparable quarter ended September 30, 1996.
Net trade receivables at September 30, 1996 increased by $81,418 or
5.2% as compared with the balance as of June 30, 1996. The increase
is reflective of the increase in net sales for the three month period
for the domestic and foreign operations and improvements made in
collection cycles.
Inventories in total increased $113,909 or 6.9% at September 30, 1996
as compared to June 30, 1996. Of this overall increase, inventory
attributable to Company's foreign subsidiary, Control Chief (UK)
Limited, increased by $48,312 or 21.9%. Control Chief, the Company's
domestic subsidiary, accounted for $65,597 or 4.6% of the remaining
overall increase. The majority of the overall total increase in
inventory is largely attributed to increases in the subsidiaries'
work in process inventories at September 30, 1996. The increase in
the work in process inventory at September 30, 1996 as compared to
June 30, 1996 is reflective of a number of customer systems in
various stages of completion.
Prepaid items decreased by $55,705 or 42.7% as compared with the
balance as of June 30, 1996. This overall Company decrease in
prepaid items results from an increase in the tax provision for the
quarterly period ended September 30, 1996. The Company also
maintains the practice of prepaying certain expenses such as
insurance, professional fees and taxes at the beginning and during
the fiscal year. This is typical of previous years.
There were no major additions of fixed assets during the quarter ended
September 30, 1996.
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 National City Bank.
Additionally, the Company has agreed to comply with additional
bank covenants.
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: November 12, 1996 By: \s\ Douglas S. Bell
Douglas S. Bell
Chairman of the Board,
Chief Executive Officer and President
<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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 179,195
<SECURITIES> 0
<RECEIVABLES> 1,728,583
<ALLOWANCES> 64,362
<INVENTORY> 1,767,114
<CURRENT-ASSETS> 3,744,716
<PP&E> 1,748,731
<DEPRECIATION> 1,361,839
<TOTAL-ASSETS> 4,356,928
<CURRENT-LIABILITIES> 2,046,240
<BONDS> 0
0
0
<COMMON> 405,776
<OTHER-SE> 1,496,864
<TOTAL-LIABILITY-AND-EQUITY> 4,356,928
<SALES> 1,968,162
<TOTAL-REVENUES> 1,981,615
<CGS> 1,108,791
<TOTAL-COSTS> 1,108,791
<OTHER-EXPENSES> 666,844
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,040
<INCOME-PRETAX> 176,940
<INCOME-TAX> 74,100
<INCOME-CONTINUING> 102,840
<DISCONTINUED> (28,335)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,505
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
