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
JUNE 30, 1997 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 August 4, 1997 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 Six Months Ended
June 30 June 30
1997 1996 1997 1996
(thousands, except per share)
Sales $ 985 $ 1,156 $ 2,013 $ 2,141
Cost of sales 717 814 1,534 1,509
----- ------- ------- -------
Gross Margin 268 342 479 632
Marketing and administrative
expense 355 373 724 699
----- ------- ------- -------
Loss from Operations (87) (31) (245) (67)
Other income (expense)
Interest income 11 1 26 34
Interest expense (12) (10) (20) (19)
Pension expense (466) (338) (932) (677)
Other 0 0 13 12
----- ------- ------- -------
Net Loss $(554) $ (378) $(1,158) $ (717)
===== ====== ======= =======
Net Loss per Common Share $(.55) $ (.38) $ (1.15) $ (.71)
===== ====== ======= =======
STATEMENT OF ACCUMULATED DEFICIT
Six Months Ended June 30 1997 1996
(thousands)
Accumulated deficit - beginning of year $ (9,746) $(8,018)
Net loss (1,158) (717)
-------- -------
Accumulated deficit - June 30 $(10,904) $(8,735)
======== =======
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
June 30, December 31,
1997 1996
(thousands)
Assets
Cash and short-term investments $ 915 $ 1,568
Trade receivables, net 577 652
Non-trade receivables 40 36
Inventories, net 94 93
Other current assets 135 100
-------- --------
Total Current Assets 1,761 2,449
Net property, plant and equipment 1,093 937
-------- --------
Total Assets $ 2,854 $ 3,386
======== ========
Liabilities and Shareholders' Deficit
Current maturities of long-term debt $ 56 $ 54
Trade accounts payable 86 82
Accrued employee benefits 144 136
Accrued pension liability 7,881 6,949
Reserve for legal expenses 50 50
Other current liabilities 111 356
-------- --------
Total Current Liabilities 8,328 7,627
Accrued pension liability 8,131 8,131
Accrued postretirement benefit obligations 946 993
Long-term debt 251 279
Shareholders' deficit
Common stock, ($.15 par value, authorized
2,000,000 shares, outstanding 1,003,028
at June 30, 1997 and December 31, 1996) 152 152
Capital in excess of par value 8,155 8,155
Accumulated deficit (accumulated deficit of
$424,208 eliminated on December 2, 1988) (10,904) (9,746)
Pension liability adjustment (12,205) (12,205)
-------- --------
Total Shareholders' Deficit (14,802) (13,644)
Commitments and contingent liabilities - -
-------- --------
Total Liabilities and Shareholders'
Deficit $ 2,854 $ 3,386
======== ========
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
Six Months Ended
June 30
1997 1996
(thousands)
Cash flows from operating activities:
Net loss $(1,158) $ (717)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 70 52
Gain on sale of fixed assets (13) (3)
Change in working capital:
Decrease in receivables, net 71 19
Increase in inventories (1) (23)
Increase in trade accounts payable 4 37
Decrease in other current items (272) (1)
Increase in accrued pension liability, net 932 473
Other (47) (45)
------- ------
Net cash (used) by operating activities (414) (208)
Cash flows from investing activities:
Capital expenditures (228) (39)
Proceeds from sale of equipment 15 3
------- ------
Net cash used by investing activities (213) (36)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt - -
Payment of long-term debt (26) (19)
------- ------
Net cash used by financing activities (26) (19)
------- ------
Net decrease in cash and short-term investments (653) (263)
Cash and short-term investments at
beginning of period 1,568 1,881
------- ------
Cash and short-term investments at
end of period $ 915 $ 1,618
======= =======
Supplemental information - interest paid $ 20 $ 19
======= =======
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
1996 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 $9.0 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 $15.1 million as of
December 31, 1996. 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 were estimated to be $2.3 million in 1996, $3.6 million in
1997 and $12.2 million between 1998 and 2002. Except for the contribution
of $205,000, subsequent contributions due through the date of this report
have not been paid. Because 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 tax liability for the period of
nonpayment and through the passage of time, may result in Internal Revenue
Service (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 Notice of Intent to terminate the
Consolidated Plan was filed with the PBGC on February 12, 1997 to become
effective April 14, 1997. The consequence of the Consolidated Plan
termination is a liability to the PBGC significantly in excess of the
Company's current net worth. While discussions with the PBGC have not
reached a conclusion, the Company intends to continue such discussions
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 its
options, which include attempting to raise additional capital to eliminate
the underfunding or seeking protection from its creditors by commencing
another voluntary bankruptcy proceeding 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. In the meantime, the
Company continues to administer the Consolidated Plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Sales in the second quarter of 1997 totaled $985,000 a decrease from
$1,156,000 in the second quarter of 1996. Operations of the Company
consist of Houston Dynamic Service, Inc. (HDS), the Company's machinery
repair and service subsidiary. Through June 1997 sales were $2,013,000
compared with $2,141,000 through the same period of 1996.
Gross margin, as a percentage of sales, was 27.2% in the second quarter of
1997, a decrease from 29.6% in 1996. Gross margin through June 1997 was
23.8% compared with 29.5% in the same period of the prior year, primarily
due to competitive pricing along with the product mix.
Marketing and administrative expense was $355,000 in the second quarter of
1997 compared with $373,000 in the prior year. For the first six months
of 1997, marketing and administrative expense was 724,000, a slight
increase from the first six months of the prior year of $699,000. 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.
Pension expense was $466,000 in the second quarter of 1997 which was a
non-cash expense on the unfunded liability of approximately $15.1 million
associated with the Consolidated Plan. Pension expense in the second
quarter of 1996 was $338,000.
The Company incurred a net loss of $554,000, or $.55 per common share, in
the second quarter of 1997 compared with a net loss of $378,000, or $.38
per common share, in the same period of 1996. The loss in the second
quarter of 1997 included an expense of $466,000 for pension expense on the
unfunded liability of approximately $15.1 million associated with the
Consolidated Plan.
In the first half of 1997, the Company incurred a loss of $1,158,000 or
$1.15 per common share compared with a loss of $717,000 or $.71 per common
share in the same period of 1996.
Financial Condition and Liquidity
Cash and short term investments totaled $915,000 at June 30, 1997, a
decrease from $1,568,000 at December 31, 1996.
Trade receivables, net at June 30, 1997 were $577,000, reflecting a
decrease from the December 31, 1996 level of $652,000, primarily due to
decreased sales.
Inventory at June 30, 1997 was $94,000, a slight increase from $93,000 at
year end 1996.
Net property, plant and equipment was $1,093,000 at June 30, 1997 an
increase from $937,000 at year end 1996. For the six months ending
June 30, 1997, $228,000 of capital expenditures were made.
Long-term debt, including current maturities at June 30, 1997, was
$307,000, a decrease from $333,000 at December 31, 1996.
Other current liabilities at June 30, 1997 were $111,000, a decrease from
$356,000 at December 31, 1996. A payment of approximately $198,000 was
made to the A-C Reorganization Trust for legal costs paid by the A-C
Reorganization Trust on behalf of the Company, during the second quarter.
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 $15.1 million on a present value basis as of
December 31, 1996.
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 were
estimated to be $2.3 million in 1996, $3.6 million in 1997 and $12.2
million between 1998 and 2002. Except for the contribution of $205,000,
subsequent contributions due through the date of this report have not been
paid. Because 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 tax 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 Notice of Intent to terminate the Consolidated Plan was filed
with the PBGC on February 12, 1997 to become effective April 14, 1997.
The consequence of the Consolidated Plan termination is a liability to the
PBGC in excess of the Company's current net worth. While discussions with
the PBGC have not reached a conclusion, the Company intends to continue
such discussions 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 its options, which include attempting to raise additional capital
to eliminate the underfunding or seeking protection from its creditors by
commencing another voluntary bankruptcy proceeding 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.
In the meantime, the Company continues to administer 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 several 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, certain
third parties have asserted that Allis-Chalmers is liable for cleanup
costs or associated EPA fines in connection with 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 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
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
second quarter of 1997.
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
August 13, 1997
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule