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Previous: CAPITAL PACIFIC HOLDINGS INC, SC 13D/A, 2000-11-07 |
Next: CONTROL CHIEF HOLDINGS INC, 10QSB, EX-27, 2000-11-07 |
U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended ____________________
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from July 1, 2000 to September 30, 2000
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 incorporation or organization) | (I.R.S. Employer 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 October 30, 2000 was 986,930 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 | 3 |
| Consolidated Statements of Operations and Retained Earnings | 4 |
| Consolidated Statements of Cash Flows | 5 |
| Notes to Financial Statements | 6 |
| Item 2 Management's Discussion and Analysis or Plan of Operation | 7 |
| Part II Other Informations | |
| Item 5 Other Information | 11 |
| Item 6 Exhibits and Reports on Form 8-K | 11 |
| Signatures | 11 |
| September 30, | June 30, |
| 2000 | 2000 |
Assets | (Unaudited) |
|
Current assets |
|
|
Cash and cash equivalents | $ 766,267 | $ 670,481 |
Marketable securities, at fair value | 246,031 | 244,255 |
Accounts receivables, less allowance for |
|
|
doubtful accounts of $50,000 and $50,000 | 991,614 | 862,107 |
Inventories | 1,485,034 | 1,482,127 |
Other current assets | 263,979 | 270,055 |
|
|
|
Total current assets | 3,752,925 | 3,529,025 |
|
|
|
Equipment and leasehold improvements, net | 776,574 | 785,347 |
|
|
|
Other assets | - | 10,879 |
|
|
|
Total assets | $4,529,499 | $4,325,251 |
|
|
|
Liabilities and Stockholders' Equity |
|
|
Current liabilities |
|
|
Current maturities of long-term debt | $ 9,224 | $ 6,061 |
Accounts payable trade | 167,209 | 161,093 |
Accrued items | 722,057 | 684,628 |
|
|
|
Total current liabilities | 898,490 |
851,782 |
|
|
|
Long-term debt, less current maturities | - | 4,662 |
|
|
|
Deferred income taxes | 75,265 | 78,065 |
|
|
|
Stockholders' equity |
|
|
Common stock, $.50 par value, authorized 5,000,000 shares, |
|
|
issued 1,015,220 shares | 507,610 | 507,610 |
Capital in excess of par value | 1,123,279 | 1,123,279 |
Retained earnings | 2,024,378 | 1,855,075 |
Treasury stock, 23,134 and 21,885 shares, respectively, at cost | (95,149) | (89,793) |
Accumulated other comprehensive income |
|
|
Unrealized gain (loss) on available-for-sale securities | (4,374) | (5,429) |
|
|
|
Total stockholders' equity | 3,555,744 |
3,390,742 |
|
|
|
Total liabilities and stockholders' equity | $4,529,499 | $4,325,251 |
| Three Months Ended | |
| September 30, | |
| 2000 | 1999 |
|
|
|
Net sales | $1,856,059 | $1,978,407 |
|
|
|
Cost of products sold | 829,141 | 948,734 |
|
|
|
Gross margin | 1,026,918 | 1,029,673 |
|
|
|
Operating expenses |
|
|
Selling expenses | 323,926 | 314,370 |
General and administrative | 313,872 | 326,771 |
Research and development | 27,955 | 73,773 |
|
|
|
Total operating expenses | 665,753 | 714,914 |
|
|
|
Earnings from operations | 361,165 | 314,759 |
|
|
|
Other income (expense) |
|
|
Interest expense | (437) | (3,201) |
Other income | 13,982 | 15,241 |
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|
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Earnings before income taxes | 374,710 | 326,799 |
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|
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Provision for income taxes | 155,800 | 136,300 |
|
|
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Net earnings | 218,910 | 190,499 |
|
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Retained earnings, beginning of period | 1,855,075 | 1,510,589 |
|
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Cash dividends paid | (49,607) | (50,002) |
|
|
|
Retained earnings, end of period | $2,024,378 | $1,651,086 |
|
|
|
Earnings per common share |
|
|
Basic | $ .22 | $ .19 |
Diluted | $ .22 | $ .19 |
|
|
|
Dividends paid per common share | $ .05 | $ .05 |
|
|
|
Weighted average number of common shares outstanding | ||
Basic | 992,749 | 999,495 |
Diluted | 1,005,249 | 1,011,995 |
Three Months Ended | ||
September 30, | ||
| 2000 | 1999 |
Cash flows from operating activities |
|
|
Net earnings | $ 218,910 | $ 190,499 |
Adjustments to reconcile net earnings to net cash |
|
|
provided by (used in) operating activities: |
|
|
Depreciation and amortization | 44,055 | 31,132 |
Provision for bad debts | - | 43,275 |
Deferred income taxes | (2,800) | 3,200 |
Change in assets and liabilities: |
|
|
(Increase) decrease in receivables | (129,507) | (203,028) |
(Increase) decrease in inventories | (2,907) | 8,946 |
Decrease in other current assets | 5,355 | 65,049 |
Increase (decrease) in accounts payable and accruals | 43,545 | (50,810) |
|
|
|
Net cash provided by operating activities | 176,651 | 88,263 |
|
|
|
Cash flows from investing activities |
|
|
Purchase of equipment and leasehold improvements | (35,282) | (68,278) |
Decrease in other assets | 10,879 | - |
|
|
|
Net cash used in investing activities | (24,403) | (68,278) |
|
|
|
Cash flows from financing activities |
|
|
Net repayments of long-term debt | (1,499) | (48,355) |
Purchase of treasury stock | (5,356) | (1,405) |
Dividends paid | (49,607) | (50,002) |
|
|
|
Net cash used in financing activities | (56,462) | (99,762) |
|
|
|
Net increase (decrease) in cash | 95,786 | (79,777) |
|
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Cash at beginning of period | 670,481 | 684,912 |
|
|
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Cash at end of period | $ 766,267 | $ 605,135 |
|
|
|
Cash paid during the period for: |
|
|
Interest | $ 4,118 | $ 3,201 |
Income taxes | 115,970 | 21,825 |
1. Basis of Presentation
The financial statements include the accounts of the Control Chief Holdings, Inc. and its wholly owned subsidiary, Control Chief Corporation, (the "Company"). All significant intercompany accounts are eliminated upon consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included. 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 on Form 10-KSB for the fiscal year ended June 30, 2000.
2. Change in Fiscal Year to December 31, Effective June 30, 2000
On June 29, 2000, the Executive Committee of the Board of Directors of the Company changed its fiscal year end from June 30 to December 31, effective June 30, 2000. Accordingly, the Company will report a transition period from July 31, 2000 through December 31, 2000. The Company elected to change its fiscal year in order to more closely correspond to its current business cycle.
3. Earnings Per Common Share
Basic earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding. Diluted earnings per share assumes the exercise of stock options using the treasury stock method, if dilutive.
4. Cash Dividends Paid
The Board of Directors of the Company approved a cash dividend totaling $49,607 ($.05 per share) payable on September 29, 2000 to holders of record at the close of business on September 8, 2000.
4. Environmental Matters
The Company formerly owned and operated a manufacturing facility in the Borough of Lewis Run, Pennsylvania. The facility and surrounding property were sold in 1997. Subsequent to the sale, the purchaser of the property conducted certain environmental testing, and detected contamination of the soil and groundwater on the property. In addition, the Pennsylvania Department of Environmental Protection ("DEP") sampled the nearby municipal well, used as a secondary source of water supply for the Borough of Lewis Run, and detected contamination in the well. In addition, several remediations of adjacent, upgradient properties have recently been conducted by current and former owners of those properties to address contamination at those locations.
The Company entered into a Consent Order and Agreement ("Agreement") with the DEP on February 1, 2000. The Agreement requires the Company to conduct an investigation of the contamination on and adjacent to its former property, and to evaluate remedial alternatives to address the contamination found. The Agreement also requires that the Company identify and evaluate both interim and permanent options to replace or treat the water from the municipal well. Should the DEP determine that a supplemental water supply is needed, as in the case of a drought, for instance, the Company has agreed that it will, upon notification by the DEP, use its best efforts to implement the interim option selected. The Company did not commit in the Agreement to remediate contamination found on the property or to implement any permanent solution to replace the municipal well. One of the purposes of the investigation, in fact, is to try and determine if the source of some or all of the contamination is one or more of the upgradient properties.
The Company's consultant recently submitted to the DEP a revised Work Plan for the investigation, and expects approval shortly. The soil, groundwater, and surface water investigation is projected to be conducted this fall, with the report to be presented to the DEP early next year. For the three month period ended September 30, 2000, the Company's expense relating to this matter has been negligible, and for the previous fiscal year ended June 30, 2000, the Company incurred approximately $59,069 in professional fees relating to this matter. The Company also accrued and included the amount of $345,000 in "other accrued liabilities" on the consolidated balance sheet as of June 30, 2000, as its best estimate of its obligation of conducting the investigation on and adjacent to its former property, including the possible cost or remedial alternatives to address contamination found. Through September 30, 2000, there has been no change in the Company's recorded accrual estimate. However, it is reasonably possible the Company's recorded accrual estimate may change and the Company could incur additional obligations or share such obligations with other potential responsible parties in the future. Until the investigation is completed, it is not possible to assess the Company's overall potential liabilities, if any, for cleanup or the likelihood of an unfavorable outcome.
Part I - Financial Information
Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussion and analysis may be understood more fully by reference to the consolidated financial statements, notes to the consolidated financial statements, and management's discussion and analysis or plan of operations contained in the Control Chief Holdings, Inc. and Subsidiary annual report on Form 10-KSB for the fiscal year ended June 30, 2000.
Forward-Looking Information
This Form 10-QSB contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose any statements contained in this Form 10-QSB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or comparable terminology is intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within the Company's control. These factors include but are not limited to economic conditions generally and in the industries in which the Company's customers participate; competition within the Company's industry, including competition from much larger competitors; technological advances which could render the Company's products less competitive or obsolete; failure by the Company successfully to develop new products or to anticipate current or prospective customers' products needs; environmental investigation, remediation and monitoring costs relating to the Company's former facility in Lewis Run, PA; price increases or supply limitations for components purchased by the Company for use in its products; and delays, reductions, or cancellations of orders previously placed with the Company.
General
Control Chief Holdings, Inc. ("the Company") functions as a holding company and is the sole shareholder of Control Chief Corporation ("Control Chief"). Control Chief designs, engineers and produces remote control devices for material handling equipment and other industrial applications. These controls use either radio or infrared waves as communications media to transmit control data from portable units to receivers mounted on various types of apparatus. All models of products are microprocessor-based systems. These devices are utilized in concert with various material handling equipment, industrial machines, process equipment and mobile apparatus. Control Chief markets its products through a network of independent manufacturers' representatives located in key geographical centers throughout the United States, Canada, Central and South America. Products are also sold through direct efforts, distributors, private labeling agreements and licensees.
Results of Operations
The following table sets forth certain financial data, as a percentage of net sales, for the three months ended September 30, 2000 and 1999.
| Three Months Ended | ||
| September 30, | ||
| 2000 | 1999 |
|
|
|
|
|
Net sales | 100.0% | 100.0% |
|
|
|
|
|
Cost of products sold | 44.7% | 48.0% |
|
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|
|
|
Gross margin | 55.3% | 52.0% |
|
|
|
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Operating expenses |
|
|
|
Selling expenses | 17.5% | 15.9% |
|
General and administrative | 16.9% | 16.5% |
|
Research and development | 1.5% | 3.7% |
|
|
|
|
|
Total operating expenses | 35.9% | 36.1% |
|
|
|
|
|
Earnings from operations | 19.4% | 15.9% |
|
|
|
|
|
Other income (expense) |
|
|
|
Interest expense | -% | (0.1%) |
|
Other income | 0.8% | 0.7% |
|
|
|
|
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Earnings before income taxes | 20.2% | 16.5% |
|
|
|
|
|
Provision for income taxes | 8.4% | 6.9% |
|
|
|
|
|
Net earnings | 11.8% | 9.6% |
|
NET SALES. Net sales decreased to $1,856,059 for the three months ended September 2000 from $1,978,407 for the three months ended September 1999, a decrease of 6.2%.
COST OF PRODUCTS SOLD AND GROSS MARGIN. Cost of products sold decreased by $119,593 for the three months ended September 2000 as compared to the same period last year. This overall decrease in the cost of products sold is consistent with the overall decrease in net sales for the comparable period. Gross margin decreased for the three months ended September 2000 to $1,026,918 from $1,029,673 for the three months ended September 1999. However, the gross margin percentage increased by 3.3% from 52.0% in 1999 to 55.4% in 2000. The increase in gross margin percentage is attributable to the product mix, pricing changes and cost savings.
SELLING, GENERAL AND ADMINISTRATIVE COSTS. Selling, general and administrative costs decreased by $3,343 for the three months ended September 2000 as compared to the same period last year. These costs increased as a percentage of net sales from 32.4% in 1999 to 34.4% in 2000.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs decreased by $45,818 or 62% for the three months ended September 2000 as compared to the three months ended September 1999. It is the Company's policy not to release public information relating to its research and development programs until new or enhanced products are ready for market. 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 EXPENSE. Interest expense decreased by $2,764 for the three months ended September 2000 as compared to the same period last year. This decrease reflects the overall reduction in the Company's short-term debt due to an improvement in the Company's working capital and cash flow, and the decrease in long-term debt due to normal principal payments.
EARNINGS BEFORE INCOME TAXES. Earnings before income taxes were $374,710 for the three months ended September 2000 as compared to $326,799 for the three months ended September 1999, reflecting and increase of $47,911 or 14.6% for the three months ended September 2000 over 1999.
INCOME TAXES. The Company's effective income tax rate was 41.6% in 2000 and 41.7% in 1999.
NET EARNINGS. Overall earnings, after income taxes, were $218,910 for the three months ended September 2000 as compared to earnings, after income taxes, of $190,499 for the three-month period ended September 1999, reflecting an increase of $28,411 or 14.9%
EARNINGS PER COMMON SHARE. The Company's basic and diluted earnings per common share was $.22 for the three months ended September 2000 as compared to $.19 per common share for the three months ended September 1999.
Liquidity, Capital Resources and Financial Condition
The Company funds its needs for liquidity and capital resources through cash from operations, short-term and long-term borrowing.
The Company has a commercial demand line of credit in the amount of $750,000, with a variable interest rate equal to the lender's prime rate. The line of credit is 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 September 30, 2000, no amount was outstanding under the line of credit.
The Company also has term loans to finance the purchase of vehicles. The balance outstanding at September 30, 2000 was $9,224.
The Company's liquidity improved during the period. At September 30, 2000, the Company had net working capital of $2,854,435, compared to $2,677,243 at June 30, 2000. The Company's current ratio improved slightly during the first three months of fiscal 2000, with current assets at 4.18 times current liabilities at September 30, 2000, compared to 4.14 at June 30, 2000.
During the three-month period ended September 2000, the Company's cash expenditures for equipment totaled $35,282. In addition, during the first three months of fiscal 2000, the Company repaid $1,499 of bank indebtedness, paid cash dividends totaling $49,606 and purchased common stock for its treasury in the amount of $5,356.
Current financial resources, including working capital and the existing line of credit, and anticipated funds from operations are expected to be sufficient to meet cash requirements throughout the remainder of the year, including scheduled long-term debt repayment and planned capital expenditures. There can be no assurance, however, that unplanned capital replacement or other future events will not require the Company to seek additional debt or equity financing and, if so required, that it will be available on terms acceptable to the Company.
During the three months ended September 2000, the Company's net cash provided by operations was $176,651 as compared to net cash provided by operations of $88,263 for the three months ended September 1999.
Environmental Matters
The Company formerly owned and operated a manufacturing facility in the Borough of Lewis Run, Pennsylvania. The facility and surrounding property were sold in 1997. Subsequent to the sale, the purchaser of the property conducted certain environmental testing, and detected contamination of the soil and groundwater on the property. In addition, the Pennsylvania Department of Environmental Protection ("DEP") sampled the nearby municipal well, used as a secondary source of water supply for the Borough of Lewis Run, and detected contamination in the well. In addition, several remediations of adjacent, upgradient properties have recently been conducted by current and former owners of those properties to address contamination at those locations.
The Company entered into a Consent Order and Agreement ("Agreement") with the DEP on February 1, 2000. The Agreement requires the Company to conduct an investigation of the contamination on and adjacent to its former property, and to evaluate remedial alternatives to address the contamination found. The Agreement also requires that the Company identify and evaluate both interim and permanent options to replace or treat the water from the municipal well. Should the DEP determine that a supplemental water supply is needed, as in the case of a drought, for instance, the Company has agreed that it will, upon notification by the DEP, use its best efforts to implement the interim option selected. The Company did not commit in the Agreement to remediate contamination found on the property or to implement any permanent solution to replace the municipal well. One of the purposes of the investigation, in fact, is to try and determine if the source of some or all of the contamination is one or more of the upgradient properties.
The Company's consultant recently submitted to the DEP a revised Work Plan for the investigation, and expects approval shortly. The soil, groundwater, and surface water investigation is projected to be conducted this fall, with the report to be presented to the DEP early next year. For the three month period ended September 30, 2000, the Company's expense relating to this matter has been negligible, and for the previous fiscal year ended June 30, 2000, the Company incurred approximately $59, 069 in professional fees relating to this matter. The Company also accrued and included the amount of $345,000 in "other accrued liabilities" on the consolidated balance sheet as of June 30, 2000, as its best estimate of its obligation of conducting the investigation on and adjacent to its former property, including the possible cost or remedial alternatives to address contamination found. Through September 30, 2000, there has been no change in the Company's recorded accrual estimate. However, it is reasonably possible the Company's recorded accrual estimate may change and the Company could incur additional obligations or share such obligations with other potential responsible parties in the future. Until the investigation is completed, it is not possible to assess the Company's overall potential liabilities, if any, for cleanup or the likelihood of an unfavorable outcome.
Part II - Other Information
Item 5. Other Information
SHAREHOLDER PROPOSALS - DEADLINE FOR INCLUSION IN PROXY MATERIALS. Any proposal by a stockholder of the Company intended to be presented at the 2001 Annual Meeting of Stockholders must be received by the Company on or before December 22, 2000 to be included in the proxy materials of the Company relating to such meeting.
SHAREHOLDER PROPOSALS - DISCRETIONARY VOTING OF PROXIES. In accordance with Rule 14a-4 under the Securities Exchange Act of 1934, if notice of a proposal by a shareholder of the Company intended to be presented at the 2001 Annual Meeting of Shareholders is received by the Company after December 22, 2000, the persons authorized under the Company's management proxies may exercise discretionary authority to vote or act on such proposal if the proposal is raised at the 2001 Annual Meeting of Shareholders.
Item 6. Exhibits and Reports on Form 8-K
| a) Exhibit 27 Financial Data Schedule. | |
| b) The Company filed no Reports on Forms 8-K during the reporting period. |
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: October 31, 2000 | By: \s\ Douglas S. Bell | |
| Douglas S. Bell | ||
| Chairman of the Board, | ||
| Chief Executive Officer and President | ||
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|