U. S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY EPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
[ ] 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 December 31, 1995 was 811,553 shares.
Transitional Small Business Format (Check one): Yes [ ] No [X]
Control Chief Holdings, Inc. and Subsidiaries
Table of Contents
Page
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 4 Submission of Matters to a Vote of Security Holders
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, June 30,
1995 1995
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $72,338 $157,786
Receivables
Trade, less allowance for doubtful
accounts of $51,340 and $41,340 1,670,633 1,603,883
Other 7,464 8,903
Inventories
Raw materials and subassemblies 1,749,328 1,641,566
Work in process 497,013 433,661
Finished goods - 39,888
Prepaid income taxes 70,409 105,119
Other prepaid items 74,226 58,706
Deferred income taxes 58,405 71,505
---------- ----------
Total current assets 4,199,816 4,121,017
---------- ----------
Property, Plant and Equipment, at cost
Land and improvements 19,874 19,874
Buildings and improvements 251,619 245,777
Machinery and other equipment 2,013,874 1,978,463
---------- ----------
Total cost 2,285,367 2,244,114
Less accumulated depreciation 1,420,936 1,330,159
---------- ----------
Undepreciated cost 864,431 913,955
---------- ----------
Other Assets
Note receivable-SPC Technologies, Inc. 98,875 99,651
Goodwill, less accumulated amortization
of $81,043 and $68,341 141,897 154,599
Cash surrender value of officers' life
insurance less policy loans of $55,457 19,771 19,771
---------- ----------
Total other assets 260,543 274,021
---------- ----------
$5,324,790 $5,308,993
---------- ----------
---------- ----------
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<CAPTION>
December 31, June 30,
1995 1995
------------ ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $722,849 $520,000
Current maturities of long-term debt 291,492 275,813
Accounts payable
Trade 994,340 990,773
Other 13,920 15,567
Accrued items
Salaries, wages, commissions and
related payroll taxes 394,945 415,439
Income taxes - 507
Other 71,528 70,465
---------- ----------
Total current liabilities 2,489,074 2,288,564
---------- ----------
Other Liabilities
Long-Term Debt, less current maturities 689,562 822,621
Deferred income taxes 81,475 74,075
---------- ----------
Total other liabilities 771,037 896,696
---------- ----------
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 411,616 463,036
Foreign currency translation adjustment 23,586 31,220
---------- ----------
Total stockholders' equity 2,064,679 2,123,733
---------- ----------
$5,324,790 $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 Six Months Ended
December 31, December 31,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Net sales $2,282,032 $2,188,527 $4,610,676 $4,209,614
Other income 3,749 10,644 6,395 23,549
---------- ---------- ---------- ----------
Total revenues 2,285,781 2,199,171 4,617,071 4,233,163
---------- ---------- ---------- ----------
Costs and expenses
Cost of products sold 1,457,996 1,386,822 3,100,558 2,628,475
Selling general and
administrative 693,349 739,535 1,307,965 1,310,023
Research and development 38,209 80,231 81,997 125,031
Interest and financing 39,293 32,027 89,362 60,557
---------- ---------- ---------- ----------
Total costs and expenses 2,228,847 2,238,615 4,579,882 4,124,086
---------- ---------- ---------- ----------
Earnings (loss) before income
taxes 56,934 (39,444) 37,189 109,077
Federal and state income taxes
Currently payable (refundable) 11,000 (34,300) 11,300 8,800
Deferred 18,800 5,500 20,500 11,500
---------- ---------- ---------- ----------
29,800 (28,800) 31,800 20,300
---------- ---------- ---------- ----------
Net earnings (loss) 27,134 (10,644) 5,389 88,777
Retained earnings at beginning
of period 384,482 423,748 463,036 381,136
Cash dividends paid - - (56,809) (56,809)
---------- ---------- ---------- ----------
Retained earnings at end
of period $411,616 $413,104 $411,616 $413,104
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per common share $0.033 ($0.013) $0.007 $0.109
------ -------- ------ ------
------ -------- ------ ------
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>
Six Months Ended
December 31,
1995 1994
------- --------
<S> <C> <C>
Cash flows from operating activities
Net earnings $5,389 $88,777
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization 103,730 100,850
Deferred income taxes 20,500 11,500
Loss on sale of fixed assets - -
Change in assets and liabilities:
(Increase) decrease in receivables (70,944) (236,689)
(Increase) decrease in inventories (136,852) (73,242)
(Increase) decrease in prepaid items and
other assets 18,754 (23,625)
Increase (decrease) in accounts payable and
accruals (13,639) 339,871
--------- ---------
Net cash provided by (used in) operating
activities (73,062) 207,442
--------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (43,906) (83,742)
Receipts of principal on note receivable 776 -
--------- ---------
Net cash provided by (used in) investing
activities (43,130) (83,742)
--------- ---------
Cash flows from financing activities
Net borrowing (repayments) of short-term debt 202,849 60,000
Net borrowing (repayments) of long-term debt (117,256) (114,134)
Dividends paid (56,809) (56,809)
--------- ---------
Net cash provided by (used in) financing
activities 28,784 (110,943)
--------- ---------
Effect of exchange rate changes on cash 1,960 (2,630)
--------- ---------
Net increase (decrease) in cash (85,448) 10,127
Cash at beginning of period 157,786 106,572
--------- ---------
Cash at end of period $72,338 $116,699
--------- ---------
--------- ---------
Cash paid during the period for:
Interest $77,441 $65,978
Income taxes - 45,122
<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 December 31, 1995, and the related
consolidated statements of operations and retained earnings and cash flows
for the three and six month periods ended December 31, 1995 and 1994 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.<PAGE>
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 December 31, 1995, the rate of
interest on Control Chief's line of credit was 8.5%. 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
December 31, 1995, a total of $722,849 was outstanding under Control Chief's
line of credit.
At December 31, 1995, Control Chief Corporation also had outstanding $52,142
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, at December 31, 1995, the Company had outstanding $1,715 of debt
which is being repaid through March 1996, at 6% interest. This debt was
assumed in connection with the purchase of the net assets of NTR
Technologies, Inc.
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 December 31, 1995, $70,262 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 9% 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 additional indebtedness, and declares dividends.
The Company's working capital decreased by $121,711 or 6.6% as compared with
the balance as of June 30, 1995. The current ratio decreased to 1.7 at
December 31, 1995 from 1.8 at June 30, 1995.
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 for the quarter ended December 31, 1995 increased overall by
$93,504 or 4.3% compared to the same quarter last year, and increased overall
by $401,062 or 9.5% for the six month period. For the quarter ended December
31, 1995, net sales of Control Chief increased by $116,194 or 7.8%, and
increased overall by $287,620 or 10% as compared to the same six month period
last year. Tuna Valley experienced a decrease of $37,265 for the quarter
ended December 31, 1995 as compared to the same quarter last year. Net sales
for Tuna Valley increased overall for the six month period by $106,489 or
11.6% as compared to the same six month period the previous year. This
fluctuation in quarterly sales is due to the volatility of the wood market
and wood costs. Management is unable to predict at this time whether this
trend will continue. Control Chief (UK) experienced an increase in net sales
of $14,575 or 7% for the quarter and overall net sales increased by $6,953
or 1.7% as compared to the same six month period for the previous year. The
demand for the foreign subsidiary's transformer components remained strong
while sales of its radio control products decreased during the six month
period.
Cost of products sold increased by $71,174 or 5.1% for the quarter and
$472,083 or 18% for the six months ended December 31, 1995 as compared to the
same periods for last year. Cost of products sold at Control Chief increased
by $60,246 or 7.2% for the quarter and $213,423 or 13.3% for the six months
ended December 31, 1995 as compared with 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. The Company's
foreign operation, Control Chief (UK), was responsible for $61,059 of the
increase for the quarter and for $108,778 for the six months ended
December 31, 1995 as compared with the same periods last year. This increase
in cost of sales is due to products being sold with higher material costs and
increased labor costs. Cost of products sold at Tuna Valley, the dimensioned
wood blanks segment, experienced a decrease of $50,131 or 11% for the quarter
and an overall increase of $149,882 or 17.7% for the six months ended
December 31, 1995 as compared to the same periods for the previous year. The
decrease in the quarterly cost of sales results is reflective of the decrease in
net sales of approximately 9% for the quarter ended December 31, 1995. The
overall increase for the six months ended December 31, 1995 as compared to
the same six months of the previous year corresponds to the six 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. Additionally, short term
fluctuations may result from changes in product mix for the period, as well
as competitive discounting.
Selling, general and administrative costs decreased by $46,186 or 6.3% for
the quarter and decreased by $2,058 or .2% for the six months ended
December 31, 1995 as compared with the same periods for last year. These
overall decreases for the quarter and six months ended December 31, 1995 as
compared to the same periods for last year reflect relatively stable sales,
marketing and administrative forces in all segments and stable costs as
compared to the overall increases in net sales for the comparable periods.
Research and development costs decreased by $42,022 for the quarter and
decreased by $43,034 for the six months ended December 31, 1995 as compared
with the same periods last year. With the acquisition of NTR Technologies,
Inc., a significant portion of engineering outscourcing 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 $7,265 for the quarter and
$28,805 for the six months ended December 31, 1995 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 and
inventories, partially offset by increases in accounts payable. This
increase is also attributable to the financing of the acquisition of NTR
Technologies, Inc.
Consolidated earnings before income taxes increased by $96,378 or for the
quarter and decreased by $71,888 for the six months ended December 31, 1995
as compared to the same periods for last year. Control Chief posted increases
in earnings before income taxes of $131,328 and $80,838, respectively, for
the quarter and six months ended December 31, 1995 as compared to the same
periods of the previous year. The Company's other domestic operation, Tuna
Valley, posted net earnings of $21,480 before income taxes for the quarter
ended December 31, 1995 as compared to net earnings of $16,256 before income
taxes for the quarter ended December 31, 1994. For the six month period ended
December 31, 1995, Tuna Valley posted a net loss of $38,624 before income
taxes as compared to net earnings of $11,574 before income taxes for the
comparable period of a year ago. The Company's foreign operation, Control
Chief (UK), posted net losses of $7,912 and $27,455, respectively, for the
quarter and six months ended December 31, 1995 as compared to net earnings of
$32,262 and $75,055, respectively, for the same periods of the previous year.
On a consolidated basis, and after a provision for federal and state income
taxes, net earnings increased by $37,778 for the quarter and decreased by
$83,388 for the six months ended December 31, 1995 as compared to the same
periods last year. Management is encouraged by the quarterly results of
Control Chief Corporation and continues to review and develop plans to bring
the profitability of its other segments to management's expectations.
Management also continues to be encouraged by continuing orders and a
sustained backlog in all divisions.
The Company earned $.033 per common share for the quarter ended
December 31, 1995, resulting in six months earnings of $.007 per common
share. For the comparable period last year, the Company lost $.013 per
common share for the quarter and had six months earnings of $.109 per common
share.
Net trade receivables at December 31, 1995 increased by $66,750 or 4.2% as
compared with the balance as of June 30, 1995. The increase is reflective
of the increase in net sales for the six month period for the domestic and
foreign operations, and improvements made in collection cycle.
Inventories, in total increased $131,226 or 6.2% at December 31, 1995 as
compared to June 30, 1995. Of this increase, inventory attributable to
Control Chief's combined inventories of raw materials and work in process at
December 31, 1995, increased by $127,157. These increases are reflective of
a number of customer orders in various stages of completion as of
December 31, 1995, and materials for future orders. The Company's foreign
subsidiary's and Tuna Valley's total inventories at December 31, 1995 as
compared to June 30, 1995, remained relatively unchanged. Management
believes that the level and mix of inventory is now sufficient to meet future
demands and does not anticipate any significant increases in any of its
segments.
Prepaid items decreased by $19,190 or 12% as compared with the balance as of
June 30, 1995. Prepaid income taxes at December 31, 1995 accounted for
$34,710 of the decrease as compared with the balance as of June 30, 1995,
while other prepaid items increased by $15,520 at December 31, 1995 as
compared to June 30, 1995. The decrease in prepaid taxes for the six month
period reflects estimations of federal and state corporate income tax
liabilities as compared quarterly federal and state tax payments made to
date. The overall increase in other prepaid items reflects the practice of
the Company 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.
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 4. Submission of Matters to a Vote of Security Holders
a) An annual meeting of the Shareholders of the Company was held on
December 1, 1995.
b) Election of seven Directors.
Director For Withheld
-------- --- --------
Douglas S. Bell 686,835 676
Robert E. Crofford 687,036 475
Christopher G. Hauser 637,716 49,795
Arvid R. Nelson 637,666 49,845
C. Lawrence Shields 686,886 625
Patrick G. Shields 687,036 475
Jon T. Wray 686,936 575
c) Approve appointment of Diefenbach, Delio, Kearney & DeDionisio as
independent public accountants of the Company.
For Against Abstain
--- ------- -------
687,193 131 187
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: February 12, 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-SQB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 72,338
<SECURITIES> 0
<RECEIVABLES> 1,729,437
<ALLOWANCES> 51,340
<INVENTORY> 2,246,341
<CURRENT-ASSETS> 4,199,816
<PP&E> 2,285,367
<DEPRECIATION> 1,420,936
<TOTAL-ASSETS> 5,324,790
<CURRENT-LIABILITIES> 2,489,074
<BONDS> 0
0
0
<COMMON> 405,776
<OTHER-SE> 1,658,903
<TOTAL-LIABILITY-AND-EQUITY> 5,324,790
<SALES> 4,610,676
<TOTAL-REVENUES> 4,617,071
<CGS> 3,100,558
<TOTAL-COSTS> 3,100,558
<OTHER-EXPENSES> 1,389,962
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,362
<INCOME-PRETAX> 37,189
<INCOME-TAX> 31,800
<INCOME-CONTINUING> 5,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,389
<EPS-PRIMARY> .007
<EPS-DILUTED> .007
</TABLE>
