SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
Commission file number 1-2199
ALLIS-CHALMERS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 39-0126090
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Box 512, Milwaukee, Wisconsin 53201-0512
(Address of principal executive offices) (Zip code)
(414)475-2000
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter 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
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No
At October 24, 1995 there were 1,003,028 shares of Common Stock
outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(thousands, except per share)
Sales $ 770 $ 882 $ 2,392 $ 2,655
Cost of sales 595 620 1,774 1,856
------- ------- ------- -------
Gross Margin 175 262 618 799
Marketing and administrative
expense 335 394 1,077 995
------- ------- ------- -------
Income (Loss) from Operations (160) (132) (459) (196)
Other income (expense)
Interest income 34 24 99 78
Interest expense (16) (61) (35) (173)
Other (260) (146) (799) (459)
------- ------- ------- -------
Loss from Continuing
Operations Before
Income Taxes (402) (315) (1,194) (750)
Charge in lieu of income taxes - - - -
------- ------- ------- -------
Loss from Continuing
Operations (402) (315) (1,194) (750)
Discontinued Operations:
Loss from Operations of
molded fabrics products
division - (137) - (344)
Loss on sale of molded fabric
products division - (2,808) - (2,808)
------- ------- ------- -------
Net Loss $ (402) $(3,260) $(1,194) $(3,902)
======= ======= ======= =======
Loss per Common Share
Continuing Operations $ (.40) $ (.31) $ (1.18) $ (.74)
Discontinued Operations - (2.91) - (3.12)
------- ------- ------- -------
Net Loss per Common Share $ (.40) $ (3.22) $ (1.18) $ (3.86)
======= ======= ======= =======
STATEMENT OF ACCUMULATED DEFICIT
Nine Months Ended September 30 1995 1994
(thousands)
Accumulated deficit - beginning of year $(6,570) $(2,396)
Net loss (1,194) (3,902)
------- -------
Accumulated deficit - September 30 $(7,764) $(6,298)
======= =======
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION
September 30, December 31,
1995 1994
(Thousands)
Assets
Cash and short-term investments $ 1,879 $ 2,225
Trade receivables, net 452 388
Notes receivable 302 368
Non-trade receivables 333 413
Inventories, net 186 94
Other current assets 301 185
------- -------
Total Current Assets 3,453 3,673
Net property, plant and equipment 919 923
------- -------
Total Assets $ 4,372 $ 4,596
====== =======
Liabilities and Shareholders' Deficit
Current maturities of long-term debt $ 306 $ 20
Trade accounts payable 139 201
Accrued employee benefits 152 121
Accrued pension liability 1,857 -
Reserve for legal expenses 275 275
Other current liabilities 501 325
------- -------
Total Current Liabilities 3,230 942
Accrued pension liability 8,171 9,228
Accrued postretirement benefit
obligations 1,029 1,046
Long-term debt 35 279
Shareholders' deficit
Common stock, ($.15 par value,
authorized 2,000,000 shares,
outstanding 1,003,028 at
September 30, 1995 and
December 31, 1994) 152 152
Capital in excess of par value 8,155 8,155
Accumulated deficit (accumulated
deficit of $424,208 eliminated
on December 2, 1988) (7,764) (6,570)
Pension liability adjustment (8,636) (8,636)
------- -------
Total Shareholders' Deficit (8,093) (6,899)
Commitments and contingent liabilities - -
------- -------
Total Liabilities and
Shareholders' Deficit $ 4,372 $ 4,596
====== ======
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Nine Months Ended
September 30
1995 1994
(thousands)
Cash flows from operating activities:
Net loss $(1,194) $(3,902)
Adjustments to reconcile net loss to
net cash provided (used) by operating
activities:
Depreciation and amortization 88 94
Loss on sale of discontinued operations - 2,808
Charge in lieu of income taxes - -
Change in working capital:
Decrease (increase) in accounts
receivable, net 82 (72)
Increase in inventories (92) (51)
(Decrease) increase in trade
accounts payable (62) 51
Increase (decrease) in other
current items 91 (168)
Net change in working capital
of discontinued operations - 68
Pension expense 800 480
Other (22) (1)
------- -------
Net cash used by operating activities (309) (693)
Cash flows from investing activities:
Capital expenditures (84) (105)
Proceeds from sale of excess equipment 4 -
------- -------
Net cash used by investing activities (80) (105)
Cash flows from financing activities:
Net proceeds from issuance of
long-term debt 67 -
Payment of long-term debt (24) (133)
------- -------
Net cash provided (used) by
financing activities 43 (133)
------- -------
Net decrease in cash and short-term
investments (346) (931)
Cash and short-term investments at
beginning of period 2,225 2,173
------- -------
Cash and short-term investments at
end of period $ 1,879 $ 1,242
======= =======
Supplemental information - interest paid $ 37 $ 162
======= =======
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
This interim financial data should be read in conjunction with the
consolidated financial statements and related notes, management's
discussion and analysis and other information included in the Company's
1994 Annual Report.
All adjustments considered necessary for a fair presentation of the
results of operations have been included in the unaudited financial
statements. The results of operations for any interim period are not
necessarily indicative of Allis-Chalmers operating results for a full
year.
NOTE 2 - POSTRETIREMENT OBLIGATIONS--PENSION PLAN
Effective January 1, 1994 the Company's independent pension actuaries
changed the assumptions for mortality and administrative expenses used to
determine the liabilities of the Allis-Chalmers Consolidated Pension Plan
(Consolidated Plan). Primarily as a result of the changes in mortality
assumptions to reflect decreased mortality rates of the Company's
retirees, the Consolidated Plan is underfunded on a present value basis by
approximately $10.0 million. In the fourth quarter of 1993, the Company
recorded the liability related to this underfunded position, resulting in
the elimination of its shareholders' equity. Cash contributions, required
to eliminate this underfunding, are required starting in 1996.
Contributions are projected to be $2.5 million in 1996, $3.1 million in
1997 and $8.1 million in 1998. Given the inability of the Company to fund
such an obligation with its current financial resources, a termination of
the Consolidated Plan will likely occur, with the consequence of a
liability to the Pension Benefit Guaranty Corporation in excess of the
current net worth of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Sales in the third quarter of 1995 totaled $770,000 from continuing
operations, a decrease from $882,000 in the third quarter of 1994. The
decrease in sales from the prior year is primarily the result of a
weakened market for machinery repair and services. Continuing operations
of the Company consist of Houston Dynamic Service, Inc. (HDS), the
Company's machinery repair and service subsidiary. Through September
1995, sales from continuing operations were $2,392,000 compared with
$2,655,000 through the same period of 1994.
Gross margin, as a percentage of sales from continuing operations, was
22.7% in the third quarter of 1995, a decrease from 29.7% in 1994 as a
result of decreased sales and a decrease in sales of more profitable
services. Gross margin through September 1995 was 25.8% compared with
30.1% in the same period of the prior year.
Marketing and administrative expense associated with continuing operations
was $335,000 in the third quarter of 1995 compared with $394,000 in the
prior year. For the first nine months of 1995, marketing and
administrative expense was $1,077,000, an increase from the first nine
months of the prior year at $995,000. A significant portion of the
Company's administrative expenses relates to expenses for Securities and
Exchange Commission and other governmental reporting as well as legal,
accounting and audit, tax, insurance and other corporate requirements of a
publicly held company.
Interest income was from earnings on cash and marketable securities.
Interest expense relates mainly to a real estate loan, the proceeds of
which were used in 1990 to purchase the shop and office building from
which HDS operates in Houston, Texas. Compared with the prior year,
interest expense is lower as a result of the retirement in October 1994 of
the term loan used for the acquisition of BRB Industries (BRB) in 1989.
Other expense was $260,000 in the third quarter of 1995 of which $267,000
relates to pension expense on the unfunded liability of approximately
$10.0 million associated with the Consolidated Plan. Pension expense in
the third quarter of 1994 was $160,000.
The Company incurred a loss from continuing operations of $402,000, or
$.40 per common share, in the third quarter of 1995 compared with a loss
from continuing operations of $315,000, or $.31 per common share, in the
same period of 1994. The net loss in the third quarter was also $402,000,
or $.40 per common share compared with a net loss of $3,260,000, or $3.22
per common share in the prior year. The 1994 third quarter net loss
included a loss from discontinued operations of $137,000 and a loss on
sale of the molded fabric products division of $2,808,000.
In the first nine months of 1995, the Company incurred a loss from
continuing operations of $1,194,000, or $1.18 per common share compared
with a loss from continuing operations of $750,000, or $.74 per common
share in the same period of the prior year. For the first nine months of
1995, the Company incurred a net loss of $1,194,000, or $1.18 per common
share, compared with a net loss of $3,902,000, or $3.86 per common share,
in 1994. The 1994 net loss included a loss from discontinued operations
of $344,000 or $.34 per common share and a loss on the sale of the molded
fabric products division of $2,808,000 or $2.78 per common share.
Financial Condition and Liquidity
Cash and short term investments totaled $1.9 million at September 30, 1995
compared with $2.2 million at December 31, 1994.
Trade receivables at September 30, 1995 were $452,000, reflecting an
increase from the December 31, 1994 level of $388,000.
Notes receivable and Non-trade receivables were $302,000 and $333,000
respectively at September 30, 1995, representing a portion of the proceeds
from the sale of the BRB division in September, 1994.
Inventory at September 30, 1995, was $186,000, an increase from $94,000 at
year end 1994.
The A-C Reorganization Trust, pursuant to the Plan of Reorganization,
funds all costs incurred by Allis-Chalmers which relate to implementation
of the Plan of Reorganization, thus avoiding additional demands on the
liquidity of the Company. Such costs include an allocated share of
certain expenses for Company employees, professional fees and certain
other administrative expenses.
In 1988, the Plan of Reorganization provided for the contribution of $53.8
million to the Company's then-existing 11 salaried and inactive hourly
pension plans. This funding, in addition to the then-existing assets in
the pension plans, was used to establish a high-grade fixed income
securities portfolio. The market value of the portfolio assets was
matched to the present value of the expected pension benefits and
administrative expenses of the plans in a way intended to make the pension
fund immune from interest rate fluctuations, thus substantially
eliminating the need for future Company contributions. Effective January
1, 1989 the 11 remaining Allis-Chalmers pension plans were consolidated
into a single plan, the Consolidated Plan. Pursuant to its obligations
under the Plan of Reorganization, the Company continues as the plan
sponsor for the Consolidated Plan.
For the years 1989 through 1994, retirees eligible for benefits under the
Consolidated Plan have, as a group, outlived the projections based on the
mortality assumptions used in the Plan of Reorganization for funding the
Consolidated Plan. During this period, actual administrative expenses
have been slightly in excess of assumed levels. The Company was advised
by its independent actuaries that effective January 1, 1994 it was
required to reflect such decreased mortality for funding calculation
purposes. This change in the mortality assumptions and an increase in the
assumption for future administrative expenses have created an underfunded
condition in the Consolidated Plan of approximately $10.0 million on a
present value basis.
This underfunded condition in the Consolidated Plan requires the Company
to make significant cash contributions to the Consolidated Plan pursuant
to ERISA minimum funding requirements starting in 1996. Required
contributions are projected to be $2.5 million in 1996, $3.1 million in
1997 and $8.1 million in 1998. The inability of the Company to fund such
an obligation will likely lead to a termination of the Consolidated Plan
with the consequence of a liability to the Pension Benefit Guaranty
Corporation (PBGC) in excess of the net worth of the Company.
As previously reported, if the Company is unable to reach an acceptable
arrangement with the PBGC concerning the Company's funding obligation or
to raise additional capital, it will have to evaluate its alternatives,
which include, among others, another bankruptcy filing.
The Environmental Protection Agency (EPA) and certain state environmental
protection agencies have requested information in connection with eleven
potential hazardous waste disposal sites in which products manufactured by
Allis-Chalmers before consummation of the Plan of Reorganization were
disposed. The EPA has claimed that Allis-Chalmers is liable for cleanup
costs associated with seven additional sites. The EPA's claims with
respect to one site were withdrawn in 1994 based upon settlements reached
with the EPA in the bankruptcy proceeding. In addition, eight third
parties have asserted that Allis-Chalmers is liable for cleanup costs or
associated EPA fines in connection with seven additional sites. In one of
these instances a former site operator has joined Allis-Chalmers and 47
other potentially responsible parties as a third-party defendant in a
lawsuit involving cleanup of one of the sites. In each instance the
environmental claims asserted against the Company involve its
prebankruptcy operations. Accordingly, Allis-Chalmers has taken the
position that all cleanup costs or other liabilities related to these
sites were discharged in the bankruptcy. In one particular site, the
EPA's Region III has concurred with the Company's position that claims for
environmental cleanup were discharged pursuant to the bankruptcy. While
each site is unique with different circumstances, the Company has notified
other Regional offices of the EPA of this determination associated with
the Region III site. The Company has not received responses from the
other Regional offices. No environmental claims have been asserted
against the Company involving its postbankruptcy operations.
The Company's principal sources of cash include earnings from the
operations of HDS, payments on the notes and non-trade receivables due
from the sale of BRB and interest income on marketable securities. The
cash requirements needed for the administrative expenses associated with
being a publicly held company are significant, and management believes
that the Company will continue to use a substantial portion of its cash
over the remainder of 1995.
On September 22, 1994, the Company sold substantially all of the assets
and certain liabilities of BRB.
The necessity to assure liquidity emphasizes the need for the Company to
continue in a prudent manner its search for appropriate acquisition
candidates in order to increase the Company's operating base and generate
positive cash flow.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to litigation matters and claims which are normal
in the course of its operations, and, the results of litigation and claims
cannot be predicted with certainty. Excluding any potential claims
relating to the Company's failure to make the required contributions to
the Consolidated Plan described herein, management believes that the final
outcome of such matters will not have a material adverse effect on the
Company's consolidated financial position. See Item 2 "Management's
Discussion and Analysis."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: (27) - Financial Data Schedule
(b) Reports on Form 8-K - No report on Form 8-K was filed during the
third quarter of 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Allis-Chalmers Corporation
(Registrant)
/s/Robert M. Qualls
Robert M. Qualls
Vice President and
Chief Financial Officer
October 31, 1995
Exhibit Index
Exhibit No. Description
(27) Financial Data Schedule