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, 1997
[ ]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, 1997 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 6 Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I
ITEM 1 - FINANCIAL INFORMATION
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1997 1996
----------- ---------
(Unaudited)
ASSETS
Current Assets
Cash $109,352 $123,285
Receivables
Trade, less allowance for doubtful
accounts of $56,101 and $64,421 1,770,597 1,577,215
Other 14,929 5,185
Inventories
Raw materials and subassemblies 1,306,191 1,423,831
Work in process 479,089 229,374
Prepaid income taxes - 92,818
Other prepaid items 41,911 37,620
Deferred income taxes 59,453 59,453
---------- ----------
Total current assets 3,781,522 3,548,781
---------- ----------
Property, Plant and Equipment, at cost
Land and improvements 27,597 19,874
Buildings and improvements 261,234 250,109
Machinery and other equipment 1,538,997 1,464,360
---------- ----------
Total cost 1,827,828 1,734,343
---------- ----------
Less accumulated depreciation 1,416,905 1,328,533
---------- ----------
Undepreciated cost 410,923 405,810
---------- ----------
Other Assets
Net assets of discontinued operations 13,159 51,386
Note receivable-SPC Technologies, Inc. 96,758 98,059
Goodwill, less accumulated amortization
of $122,978 and $99,553 99,962 123,387
Cash surrender value of officers' life
insurance less policy loans of $68,770 10,620 10,620
---------- ----------
Total other assets 220,499 283,452
---------- ----------
$4,412,944 $4,238,043
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $44,000 $654,895
Current maturities of long-term debt 149,540 206,446
Accounts payable
Trade 845,703 597,101
Other - 13,911
Accrued items
Salaries, wages, commissions and
related payroll taxes 416,224 461,323
Income taxes 199,582 -
Other 69,128 58,975
---------- ----------
Total current liabilities 1,724,177 1,992,651
---------- ----------
Other Liabilities
Long-term debt, less current maturities 478,732 385,365
Deferred income taxes 22,042 25,842
---------- ----------
Total other liabilities 500,774 411,207
---------- ----------
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 566,757 182,630
Foreign currency translation adjustment (8,241) 22,078
---------- ----------
Total stockholders' equity 2,187,993 1,834,185
---------- ----------
$4,412,944 $4,238,043
---------- ----------
---------- ----------
See accompanying notes to financial statements.
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net sales $2,141,877 $2,065,233 $6,355,928 $5,647,531
Other income 2,611 3,425 17,903 8,766
---------- ---------- ---------- ----------
Total revenues 2,144,488 2,068,658 6,373,831 5,656,297
---------- ---------- ---------- ----------
Costs and expenses
Cost of products
sold 1,112,642 1,225,803 3,567,170 3,327,779
Selling general and
administrative 642,380 700,031 1,905,568 1,950,750
Research and
development 45,896 27,383 127,165 109,380
Interest expense 25,577 32,332 77,847 109,449
---------- ---------- ---------- ----------
Total costs
and expenses 1,826,495 1,985,549 5,677,750 5,497,358
---------- ---------- ---------- ----------
Earnings from continuing
operations before income
taxes 317,993 83,109 696,081 158,939
Federal and state income
taxes
Currently payable 141,480 32,200 283,080 69,500
Deferred (1,200) 8,200 (3,800) 18,600
---------- ---------- ---------- ----------
140,280 40,400 279,280 88,100
---------- ---------- ---------- ----------
Earnings from continuing
operations 177,713 42,709 416,801 70,839
Discontinued operations
Earnings (loss), net
of taxes 11,108 (13,125) (32,674) (35,866)
---------- ---------- ---------- ----------
Net earnings 188,821 29,584 384,127 34,973
Retained earnings at
beginning of period 377,936 411,616 182,630 463,036
Cash dividends paid - - - (56,809)
---------- ---------- ---------- ----------
Retained earnings at
beginning of period $566,757 $441,200 $566,757 $441,200
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per
common share
Continuing operations $.22 $.05 $.51 $.08
Discontinued operations .01 (.01) (.04) (.04)
---- ---- ---- ----
$.23 $.04 $.47 $.04
---- ---- ---- ----
---- ---- ---- ----
Dividends paid per
common share $ - $ - $ - $ -
Weighted average number
of common shares
outstanding 811,553 811,553 811,553 811,553
See accompanying notes to financial statements.
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31,
1997 1996
---------- ----------
Cash flows from continuing operating
activities
Earnings from continuing operations $416,801 $70,839
Adjustments to reconcile earnings from
continuing operations to net cash
provided by (used in) operating
activities:
Depreciation and amortization 104,042 113,525
Deferred income taxes (3,800) 18,600
Change in assets and liabilities:
(Increase) decrease in receivables (188,093) (293,558)
(Increase) decrease in inventories (120,269) (105,729)
(Increase) decrease in prepaid items
and other assets 90,385 92,919
Increase (decrease) in accounts payable
and accruals 384,479 138,331
---------- ----------
Net cash provided by (used in)
continuing operating activities 683,545 34,927
---------- ----------
Cash flows from discontinued activities
Earnings (loss) from discontinued
operations (32,674) (35,866)
Adjustments to reconcile earnings from
continuing operations to net cash
provided by (used in) operating
activities:
Depreciation and amortization - 41,535
Deferred income taxes - 13,200
(Increase) decrease in net assets
of discontinued operation 38,227 (8,120)
---------- ----------
Net cash provided by (used in)
discontinued activities 5,553 10,749
---------- ----------
Total net cash provided 689,098 45,676
---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (81,537) (64,625)
Receipts of principal on note receivable 1,302 1,315
Net cash provided by (used in)
---------- ----------
investing activities (80,235) (63,310)
---------- ----------
Cash flows from financing activities
Net borrowing (repayments) of short-term
debt (610,895) 155,560
Net borrowing (repayments) of long-term
debt 36,392 (140,027)
Dividends paid - (56,809)
---------- ----------
Net cash provided by (used in)
financing activities (574,503) (41,276)
---------- ----------
Effect of exchange rate changes on cash (48,293) (226)
---------- ----------
Net increase (decrease) in cash (13,933) (59,136)
Cash at beginning of period 123,285 157,786
---------- ----------
Cash at end of period $109,352 $98,650
---------- ----------
---------- ----------
Cash paid during the period for:
Interest $48,172 $107,611
Income taxes
- -
See accompanying notes to financial statements.
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 March
31, 1997, and the related consolidated statements of operations and
retained earnings and cash flows for the three and nine month periods
ended March 31, 1997 and 1996 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 nine month periods ended March 31, 1997 and 1996 are as
follows:
1997 1996
---------- ----------
Net sales $ - $1,535,182
---------- ----------
---------- ----------
Earnings (loss) from discontinued
operations before income taxes ($40,655) ($61,066)
Gain (loss) on sale of assets (14,519) -
---------- ----------
(55,174) (61,066)
Income taxes (benefit) (22,500) (25,200)
---------- ----------
Net earnings (loss) ($32,674) ($35,866)
---------- ----------
The net assets (liabilities) of discontinued operations have been
segregated in the accompanying consolidated balance sheets at March 31,
1997 and June 30, 1996 and consist of:
March 31, June 30,
1997 1996
--------- ---------
Assets
Accounts receivable $ - $163,630
Inventories - 75,000
Prepaid items 24,715 5,258
Plant and equipment, net - 216,000
--------- ---------
24,715 459,888
--------- ---------
Liabilities
Accounts payable and accrued items 11,556 159,536
Long-term debt - 248,966
--------- ---------
11,556 408,502
--------- ---------
Net assets of discontinued operations $13,159 $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.
4. Bank Loan Agreements
Effective January 15, 1997, the Company refinanced two of its existing
loans with its principal depository, National City Bank of
Pennsylvania. The Company obtained a new commercial demand line of
credit in the amount of $750,000. Interest is charged by the bank on
this credit facility at the prime rate. An initial borrowing on the
line of credit was used to pay off the existing line of credit with
National City Bank. The line of credit is being used to finance
accounts receivable and inventory of the Company. The loan is subject
to an annual review in November, 1997.
In addition to the line of credit loan, the Company obtained a new
commercial term loan in the amount of $650,000, the proceeds of which
were used to consolidate the existing term loan and to finance the
purchase of new equipment. The loan bears interest at 8.47% and is
being repaid over forty-eight (48) monthly principal and interest
installments of $16,050.
The commercial line of credit and term loan are collateralized by a
security interest in all of the business assets of the Company.<PAGE>
PART I
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity
The Company and its subsidiaries currently fund their needs for
liquidity and capital resources through cash from operations and both
short-term and long-term borrowing.
Effective January 15, 1997, the Company refinanced the line of credit
and term loan agreements with National City Bank of Pennsylvania. The
Company obtained a new commercial demand line of credit in the amount
of $750,000, with a variable interest rate equal to the prime rate. An
initial borrowing on the new line of credit was used to pay off the
balance of the old line of credit existing at December 31, 1996. The
line of credit is being used to finance accounts receivable and
inventory of the Company. The line of credit is subject to an annual
review by the bank each November. At March 31, 1997, a total of
$44,000 was outstanding under Control Chief's line of credit at the
rate of interest of 8.50%.
In addition to the line of credit loan, the Company obtained a new
commercial term loan, dated January 15, 1997, in the amount of
$650,000. The proceeds of this loan were used to pay off the existing
term loan at December 31, 1996, and to finance the purchase of new
equipment. The new term loan bears interest at 8.47% and is being
repaid in forty-eight (48) monthly principal and interest installments
of $16,050. At March 31, 1997, a total of $626,702 was outstanding
under this term loan.
The new commercial line of credit and term loan are collateralized by
a general security interest in all of the business assets of the
Company.
As of March 31, 1997, the Company's working capital increased by
$501,215 or 32% as compared with the balance as of June 30, 1996.
The Company currently has a commitment in the amount of approximately
$179,000 for the purchase of a new computer system and related software
and hardware to replace its current manufacturing and accounting
systems. The Company expects to finance this purchase from its credit
line and working capital from operations. The Company believes that
its working capital from operations and existing credit facilities will
be sufficient to meet the presently anticipated working capital and
capital expenditure requirements of its existing operations.
Results of Operations
Net sales from continuing operations for the quarter ended March 31,
1997 increased overall by $76,644 or 3.7% as compared to the same
quarter for last year, and increased overall by $708,397 or 12.5% for
the nine month period then ended as compared to the same nine months
for last year. Control Chief, the Company's domestic subsidiary,
accounted for $39,754 or 2.2% of the overall increase for the quarter
ended and $554,372 or 11% of the overall increase for the nine months
ended March 31, 1997 as compared to the same periods of the previous
year. Control Chief (UK) Limited, the Company's foreign subsidiary,
accounted for $36,890 or 17.2% of the Company's overall increase for
the quarter and $154,025 or 24.7% of the overall increase for the nine
months ended March 31, 1997 as compared to the same periods of the
previous year. This increase reflects the continued increased sales of
the foreign subsidiary's transformer components during the quarter and
nine months ended March 31, 1997.
Cost of products sold decreased overall by $113,161 or 9.2% for the
quarter and increased overall by $239,391 or 7.2% for the nine months
ended March 31, 1997 as compared to the same periods for last year.
Cost of products sold at the Company's domestic subsidiary, Control
Chief, decreased by $145,072 or 13.3% for the quarter and increased by
$129,271 or 4.5% for the nine months ended March 31, 1997 as compared
to the same periods last year. The decrease for the quarter ended is
reflective of changes in sales of the Company's product mixes,
consisting of a large volume of sales of replacement parts which management
believes may not be recurring. The overall increase for the nine month
period of the Company's domestic subsidiary is reflective of the
overall increase in its sales for the comparable period. Cost of
products sold of the Company's foreign subsidiary, Control Chief (UK)
Limited, increased by $31,911 or 23.4% for the quarter and increased by
$110,120 or 26% for the nine months ended March 31, 1997 as compared
to the same periods for last year. These overall increases in the cost
of products sold for the Company's foreign subsidiary are consistent
with the overall increases in the net sales and product mixes for the
comparable periods.
Selling, general and administrative costs decreased by $57,651 or 8.2%
for the quarter and decreased by $45,182 or 2.3% for the nine months
ended March 31, 1997 as compared to the same periods for last year.
This overall decrease for the quarter and for the nine months ended
March 31, 1997, as compared to the same periods for last year, reflect
reduced sales, marketing and administrative costs for the period.
Management expects higher overall costs beginning in the next quarter as
a result of increases in its sales force and marketing efforts.
Research and development costs increased by $18,513 for the quarter and
increased by $17,785 for the nine months ended March 31, 1997 as
compared with the same periods last year. This overall increase is
reflective of the Company's continuing commitment to invest funds in
research and development to stay abreast of technological changes,
enhance current products and develop 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 $6,755 or 20.1% for the
quarter and $31,602 or 28.9% for the nine months ended March 31, 1997
as compared to the same periods for last year. This decrease reflects
an overall reduction of the Company's long-term and short-term debt and
an improvement in the Company's cash flow.
Net earnings from continuing operations increased by $135,004 for the
quarter and increased by $345,962 for the nine months ended March 31,
1997, as compared to the same periods for last year. The provision for
income taxes for the nine months ended March 31, 1997 on pre-tax income
of $696,081 was $279,280, representing a tax rate of 40.1%. The
provision for income taxes for the nine months ended March 31, 1996 on
pre-tax income of $158,939 was $88,100, representing a tax rate of
55.4%. The overall decrease in the rate of income taxes on earnings
from continuing operations from 55.4% at March 31, 1996 to 40.1% at
March 31, 1997 is attributed to the pre-tax earnings of the Company's
foreign operations. Pre-tax earnings of the Company's foreign
subsidiary, Control Chief (UK) Limited, for the nine months ended March
31, 1997 were $6,724 as compared to a pre-tax loss of $28,884 for the
same nine month period for last year. The foreign subsidiary's
increase in pre-tax earnings increases profitability for financial
statement purposes but is not reflected when calculating taxable
income. The provision for income taxes on the Company's domestic
subsidiary decreased from a tax rate of approximately 47% on pre-tax
income for the nine months ended March 31, 1996 to a tax rate of
approximately 41% on pre-tax income for the nine months ended March 31,
1997. During the nine months ended March 31, 1997 and 1996, no
beneficial tax credits were available.
The Company continued to improve its earnings. The Company posted an
earnings of $.22 per common share from continuing operations for the
quarter ended March 31, 1997, as compared to $.05 per common share for
the comparable quarter of a year ago. The Company's earnings for the
nine months ended March 31, 1997 improved to $.51 per common share from
continuing operations as compared to $.08 per common share from
continuing operations for the nine month period ended March 31, 1996.
The Company experienced earnings of $.01 per common share from
discontinued operations for the three months ended March 31, 1997 as
compared to a loss of $.01 per common share for the comparable period
of a year ago and a loss of $.04 per common share from discontinued
operations for the nine months ended March 31, 1997 and 1996,
respectively. Overall earnings increased to $.23 per common share for
the quarter ended and $.47 for the nine months ended March 31, 1997
from $.04 per common share for the quarter ended and $.04 per common
share for the nine months ended March 31, 1996.
Net trade receivables at March 31, 1997 increased by $193,382 or 12.3%
as compared with the balance as of June 30, 1996. The increase is
consistent with the overall increase in net sales of approximately 13%
for the nine month period for the domestic and foreign operations and
improved collections.
Inventories in total increased $132,075 or 8% at March 31, 1997 as
compared to June 30, 1996. Of this overall increase, inventory
attributable to Company's foreign subsidiary, Control Chief (UK)
Limited, increased by $881. Control Chief, the Company's domestic
subsidiary, accounted for $131,194 or 7.9% of the remaining overall
increase. The Company's raw materials and subassemblies decreased by
$117,640 while the Company's work in process increased by $249,715 at
March 31, 1997 as compared to June 30, 1996. The increase in the work
in process inventory at March 31, 1997 as compared to June 30, 1996
results from a number of customer systems being in various stages of
completion.
Prepaid items decreased by $88,527 or 46.9% as compared with the
balance as of June 30, 1996. This overall Company decrease in prepaid
items results from the increase in the tax provision for the nine month
period ended March 31, 1997. Other prepaid items remained relatively
constant resulting from the Company's practice of prepaying certain
expenses such as insurance, professional fees and taxes at the
beginning of and during the fiscal year. This is typical of previous
years.
Property, plant and equipment, at cost increased by $93,485 or 5.4% as
compared with the balance as of June 30, 1996. This increase reflects
the initial commitment for the Company's purchase of a new computer
system and improvements made to the Company's Williams Street facility.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibit 27. Financial Data Schedule
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 6, 1997
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 entirely by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 109,352
<SECURITIES> 0
<RECEIVABLES> 1,841,627
<ALLOWANCES> 56,101
<INVENTORY> 1,785,280
<CURRENT-ASSETS> 3,781,522
<PP&E> 1,827,828
<DEPRECIATION> 1,416,905
<TOTAL-ASSETS> 4,412,944
<CURRENT-LIABILITIES> 1,724,177
<BONDS> 0
0
0
<COMMON> 405,776
<OTHER-SE> 1,782,217
<TOTAL-LIABILITY-AND-EQUITY> 4,412,944
<SALES> 6,355,928
<TOTAL-REVENUES> 6,373,831
<CGS> 3,567,170
<TOTAL-COSTS> 3,567,170
<OTHER-EXPENSES> 2,032,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,847
<INCOME-PRETAX> 696,081
<INCOME-TAX> 279,280
<INCOME-CONTINUING> 416,801
<DISCONTINUED> (32,674)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384,127
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
