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, 1996 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 November 5, 1996 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
1996 1995 1996 1995
(Thousands, except per share)
Sales $ 968 $ 770 $3,109 $2,392
Cost of sales 792 595 2,301 1,774
----- ----- ------ ------
Gross Margin 176 175 808 618
Marketing and administrative
expense 307 335 1,006 1,077
----- ----- ------ ------
Loss from Operations (131) (160) (198) (459)
Other income (expense)
Interest income 16 34 50 99
Interest expense (8) (16) (27) (35)
Other (338) (260) (1,003) (799)
----- ----- ------ ------
Loss Before Income Taxes (461) (402) (1,178) (1,194)
Charge in lieu of income taxes - - - -
----- ----- ------ ------
Net Loss $ (461) $ (402) $(1,178) $(1,194)
====== ====== ======= =======
Net Loss per Common Share $ (.46) $ (.40) $ (1.17) $ (1.18)
====== ====== ======= =======
STATEMENT OF ACCUMULATED DEFICIT
Nine Months Ended September 30 1996 1995
(thousands)
Accumulated deficit - beginning of year $(8,018) $(6,570)
Net loss (1,178) (1,194)
------- -------
Accumulated deficit - September 30 $(9,196) $(7,764)
======= =======
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,
1996 1995
(Thousands)
Assets
Cash and short-term investments $ 1,888 $ 1,881
Trade receivables, net 424 265
Non-trade receivables 92 664
Inventories, net 75 128
Other current assets 209 206
------- --------
Total Current Assets 2,688 3,144
Net property, plant and equipment 891 907
------- --------
Total Assets $ 3,579 $ 4,051
======= ========
Liabilities and Shareholders' Deficit
Current maturities of long-term debt $ 38 $ 299
Trade accounts payable 127 73
Accrued employee benefits 93 80
Accrued pension liability 2,289 2,493
Reserve for legal expenses 166 275
Other current liabilities 353 324
------- --------
Total Current Liabilities 3,066 3,544
Accrued pension liability 10,390 9,374
Accrued postretirement benefit obligations 956 1,020
Long-term debt 265 33
Shareholders' deficit
Common stock, ($.15 par value, authorized
2,000,000 shares, outstanding 1,003,028
at September 30, 1996 and December 31, 1995) 152 152
Capital in excess of par value 8,155 8,155
Accumulated deficit (accumulated deficit of
$424,208 eliminated on December 2, 1988) (9,196) (8,018)
Pension liability adjustment (10,209) (10,209)
------- --------
Total Shareholders' Deficit (11,098) (9,920)
Commitments and contingent liabilities ------- --------
Total Liabilities and Shareholders'
Deficit $ 3,579 $ 4,051
======= ========
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
1996 1995
(thousands)
Cash flows from operating activities:
Net loss $ (1,178) $ (1,194)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 58 88
Gain on sale of fixed assets (3) -
Change in working capital:
Decrease in receivable, net 413 82
Decrease (increase) in inventories 53 (92)
Increase (decrease) in trade accounts
payable 54 (62)
(Decrease) increase in other current items (70) 91
Increase in accrued pension liability, net 812 800
Other (64) (22)
------- -------
Net cash provided (used) by operating
activities
75 (309)
Cash flows from investing activities:
Capital expenditures (42) (84)
Proceeds from sale of equipment 3 4
------- -------
Net cash used by investing activities (39) (80)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt 270 67
Payment of long-term debt (299) (24)
------- -------
Net cash provided (used) by financing
activities (29) 43
------- -------
Net increase (decrease) in cash and short-term
investments 7 (346)
Cash and short-term investments at
beginning of period 1,881 2,225
------- -------
Cash and short-term investments at
end of period $ 1,888 $ 1,879
======= =======
Supplemental information - interest paid $ 27 $ 37
======= =======
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
1995 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, it was determined that the Consolidated Plan was 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. Subsequent updates to the underfunding calculation have increased
the present value of the underfunding obligation to $11.9 million as of
December 31, 1995. As a result of the underfunding condition and pursuant
to ERISA minimum funding requirements, on January 15, 1996 the Company
made a cash contribution to the Consolidated Plan in the amount of
$205,000. Additional cash contributions required to eliminate this
underfunding are estimated to be $2.3 million in 1996, $3.6 million in
1997 and $12.2 million between 1998 and 2002. The cash contributions of
$637,000 due on April 15, 1996 and July 15, 1996, and the cash
contribution of $378,000 due on September 15, 1996, were not made.
Because the unpaid contributions exceed $1,000,000, a lien has been filed
by the Pension Benefit Guaranty Corporation (PBGC) against the Company in
favor of the Consolidated Plan. The unpaid contributions result in
additional interest liability for the period of nonpayment and through the
passage of time, may result in IRS excise tax penalties if they remain
unpaid. Given the inability of the Company to fund the entire
underfunding obligation with its current financial resources, a
termination of the Consolidated Plan will likely occur, with the
consequence of a liability to the PBGC in excess of the current net worth
of the Company. However, the Company intends to continue discussions with
the PBGC concerning its obligations under the Consolidated Plan. Although
it is not possible to predict the outcome of such discussions, if the
Company is unable to negotiate a settlement with the PBGC on terms that
are acceptable to the Company, Allis-Chalmers will be required to evaluate
it options, which include attempting to raise additional capital to
eliminate the underfunding or seeking protection from its creditors by
commencing voluntary bankruptcy proceedings under the federal bankruptcy
laws. The Company does not believe it will be able to raise additional
capital to meet its obligations under the Consolidated Plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Sales in the third quarter of 1996 totaled $968,000 an increase from
$770,000 in the third quarter of 1995. The increase in sales from the
prior year is the result of a stronger market for machinery repair and
services along with expanded sales efforts. Operations of the Company
consist of Houston Dynamic Service, Inc. (HDS), the Company's machinery
repair and service subsidiary. Through September 1996 sales were
$3,109,000 compared with $2,392,000 through the same period of 1995.
Gross margin, as a percentage of sales, was 18.2% in the third quarter of
1996, a decrease from 22.7% in 1995 primarily due to product mix and down
time. Gross margin through September 1996 was 26.0% compared with 25.8%
in the same period of the prior year.
Marketing and administrative expense was $307,000 in the third quarter of
1996 compared with $335,000 in the prior year. For the first nine months
of 1996, marketing and administrative expense was $1,006,000, a decrease
from $1,077,000 for the first nine months of the prior year. 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.
Other expense was $338,000 in the third quarter of 1996 which included a
non-cash expense of $339,000 for pension expense on the unfunded liability
of approximately $11.9 million associated with the Consolidated Plan.
Pension expense in the third quarter of 1995 was $267,000.
The Company incurred a loss of $461,000, or $.46 per common share, in the
third quarter of 1996 compared with a loss of $402,000, or $.40 per common
share, in the same period of 1995. The loss in the third quarter of 1996
included an expense of $339,000 for pension expense on the unfunded
liability of approximately $11.9 million associated with the Consolidated
Plan.
In the first nine months of 1996, the Company incurred a loss of
$1,178,000 or $1.17 per common share compared with a loss of $1,194,000 or
$1.18 per common share in the same period of 1995.
Financial Condition and Liquidity
Cash and short term investments totaled $1.9 million at September 30,
1996, no change from December 31, 1995.
Trade receivables at September 30, 1996 were $424,000, reflecting an
increase from the December 31, 1995 level of $265,000, primarily due to
the timing of the billings for increased sales at the end of the quarter.
Non-trade receivables were $92,000 at September 30, 1996 reflecting a
major decrease from $664,000 at December 31, 1995. This decrease was the
result of a negotiated settlement for $500,000 for amounts due from the
sale of the Company's BRB division.
Inventory at September 30, 1996 was $75,000, a decrease from $128,000 at
year end 1995. The decrease is due to the completion of work in process
jobs which occurred at the end of the quarter.
Long-term debt, including current maturities at September 30, 1996, was
$303,000 a decrease from $322,000 at December 31, 1995. The decrease in
the current maturity balance at September 30, 1996 to $38,000 from the
balance of $299,000 at December 31, 1995 was the result of the refinancing
of a balloon payment due in August 1996. The effect of the decrease in
the balance of the current maturities of long-term debt was offset by a
similar increase in long- term debt.
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 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
were 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 created an underfunded condition in the
Consolidated Plan. Based on the most recent recalculation, the
underfunding was $11.9 million on a present value basis as of December 31,
1995.
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. Such
contributions are projected to be $2.5 million in 1996, $3.6 million in
1997 and $12.2 million between 1998 and 2002. On January 15, 1996, the
Company made a cash contribution to the Consolidated Plan in the amount of
$205,000 against the $2.5 million due in 1996, however, the $637,000 cash
contributions due on April 15 and July 15, 1996 and the cash contribution
of $378,000 due on September 15, 1996 were not made. Because the unpaid
contributions exceed $1,000,000, a lien has been filed by the PBGC against
the Company in favor of the Consolidated Plan. The unpaid contributions
result in additional interest liability for the period of nonpayment and
through the passage of time, may result in IRS excise tax penalties if
they remain unpaid. Given the inability of the Company to fund the entire
underfunding obligation with its current financial resources, a
termination of the Consolidated Plan will likely occur, with the
consequence of a liability to the PBGC in excess of the current net worth
of the Company. However, the Company intends to continue discussions with
the PBGC concerning its obligations under the Consolidated Plan. As
previously reported, although it is not possible to predict the outcome of
such discussions, if the Company is unable to negotiate a settlement with
the PBGC on terms that are acceptable to the Company, Allis-Chalmers will
be required to evaluate it options, which include attempting to raise
additional capital to eliminate the underfunding or seeking protection
from its creditors by commencing voluntary bankruptcy proceedings under
the federal bankruptcy laws. The Company does not believe it will be able
to raise additional capital to meet its obligations under the Consolidated
Plan.
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 six additional sites. The EPA's claims with respect
to one other 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 responsible for cleanup costs
or associated EPA fines in connection with eight additional sites. In
three of these instances, Allis-Chalmers and other potentially responsible
parties were sued for the cost of cleanup of these 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 all three of the lawsuits,
plaintiffs agreed to a dismissal of the claims against Allis-Chalmers. 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 and interest income on marketable securities. The cash
requirements needed for the administrative expenses associated with being
a publicly held company are significant, and the Company will continue to
use cash generated by operations to fund such expenses. However, the
Company does not have sufficient cash to cover the unfunded pension
liability payments.
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 Part I, 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 1996.
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/ John T. Grigsby, Jr.
John T. Grigsby, Jr.
Vice Chairman, Executive Vice
President and Chief Financial
Officer
November 13, 1996
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule