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, 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 November 7, 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 Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Thousands, except per share)
Sales $ 813 $ 968 $ 2,826 $ 3,109
Cost of sales 652 792 2,186 2,301
------- ------- ------- -------
Gross Margin 161 176 640 808
Marketing and
administrative expense 356 307 1,080 1,006
------- ------- ------- -------
Loss from Operations (195) (131) (440) (198)
Other income (expense)
Interest income 10 16 36 50
Interest expense (8) (8) (28) (27)
Pension expense (465) (338) (1,397) (1,014)
Other 0 0 13 11
------- ------- ------- --------
Net Loss $ (658) $ (461) $ (1,816) $ (1,178)
======= ======= ======= ========
Net Loss per
Common Share $ (.66) $ (.46) $ (1.81) $ (1.17)
======= ======= ======= ========
STATEMENT OF ACCUMULATED DEFICIT
Nine Months Ended September 30 1997 1996
(thousands)
Accumulated deficit - beginning of year $ (9,746) $(8,018)
Net loss (1,816) (1,178)
-------- -------
Accumulated deficit - September 30 $(11,562) $(9,196)
======== =======
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,
1997 1996
(Thousands)
Assets
Cash and short-term investments $ 822 $ 1,568
Trade receivables, net 461 652
Non-trade receivables 21 36
Inventories, net 112 93
Other current assets 146 100
------- -------
Total Current Assets 1,562 2,449
Net property, plant and equipment 1,073 937
------- -------
Total Assets $2,635 $ 3,386
======= =======
Liabilities and Shareholders' Deficit
Current maturities of long-term debt $ 49 $ 54
Trade accounts payable 79 82
Accrued employee benefits 139 136
Accrued pension liability 8,347 6,949
Reserve for legal expenses 50 50
Other current liabilities 126 356
------- -------
Total Current Liabilities 8,790 7,627
Accrued pension liability 8,131 8,131
Accrued postretirement benefit
obligations 931 993
Long-term debt 243 279
Shareholders' deficit
Common stock, ($.15 par value,
authorized 2,000,000 shares,
outstanding 1,003,028 at
September 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) (11,562) (9,746)
Pension liability adjustment (12,205) (12,205)
------- -------
Total Shareholders' Deficit (15,460) (13,644)
Commitments and contingent
liabilities - -
------- -------
Total Liabilities and
Shareholders' Deficit $2,635 $ 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
Nine Months Ended
September 30
1997 1996
(thousands)
Cash flows from operating activities:
Net loss $(1,816) $ (1,178)
Adjustments to reconcile net loss to
net cash (used) provided by
operating activities:
Depreciation and amortization 107 58
Gain on sale of fixed assets (13) (3)
Change in working capital:
Decrease in receivables, net 206 413
(Increase) decrease in inventories (19) 53
(Decrease) increase in trade accounts
payable (3) 54
Decrease in other current items (273) (70)
Increase in accrued pension
liability, net 1,398 812
Other (62) (64)
------ ------
Net cash (used) provided by
operating activities (475) 75
Cash flows from investing activities:
Capital expenditures (245) (42)
Proceeds from sale of equipment 15 3
------- -------
Net cash used by investing
activities (230) (39)
Cash flows from financing activities:
Net proceeds from issuance of
long-term debt - 270
Payment of long-term debt (41) (299)
------- -------
Net cash used by financing
activities (41) (29)
------- -------
Net increase (decrease) in cash and
short-term investments (746) 7
Cash and short-term investments at
beginning of period 1,568 1,881
------- -------
Cash and short-term investments at
end of period $ 822 $ 1,888
======= =======
Supplemental information - interest
paid $ 28 $ 27
======= =======
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. Subsequent updates
to the underfunding calculation increased the present value of the
underfunding obligation to $15.1 million as of December 31, 1996.
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, however, subsequent required contributions were not paid.
Because such unpaid contributions exceeded $1,000,000, a lien was filed by
the Pension Benefit Guaranty Corporation (PBGC) against the Company in
favor of the Consolidated Plan. 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.
On September 30, 1997, the PBGC issued a determination approving the
Company's request for the distress termination of the Consolidated Plan
effective April 14, 1997, citing the significant underfunding of the
Consolidated Plan and the fact that the Company demonstrated that it does
not have the resources to fund the cash contributions necessary to meet
ERISA funding requirements.
In connection with the PBGC's action, the Company incurred a statutory
liability to the PBGC for the amount of the Consolidated Plan's
underfunded benefit liabilities, calculated using ERISA termination
assumptions to be $63,000,000. The Company may also have liability for
certain taxes arising from the Consolidated Plan's accumulated funding
deficiency.
The Company and the PBGC have entered into an agreement in principle to
settle all Consolidated Plan- related obligations to the PBGC. The
agreement in principle, which is subject to definitive documentation and
to an acceptable resolution of the Company's tax liability, will give PBGC
35% of the Company's common stock.
The Company has initiated discussions with the Internal Revenue Service
(IRS) concerning the Consolidated Plan-related taxes. Although it is not
possible to predict the outcome of discussions with the IRS, failure to
reach an acceptable agreement could jeopardize the continuation of the
Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Sales in the third quarter of 1997 totaled $813,000 a decrease from
$968,000 in the third quarter of 1996. Operations of the Company consist
of Houston Dynamic Service, Inc. (HDS), the Company's machinery repair and
service subsidiary. Through September 1997 sales were $2,826,000 compared
with $3,109,000 through the same period of 1996. The slight decline was
the result of very competitive pricing in the market place.
Gross margin, as a percentage of sales, was 19.8% in the third quarter of
1997, an increase from 18.2% in 1996. Gross margin through September 1997
was 22.6% compared with 26.0% in the same period of the prior year,
primarily due to competitive pricing along with product mix.
Marketing and administrative expense was $356,000 in the third quarter of
1997 compared with $307,000 in the prior year. The increase is due to
aggressive sales and marketing programs. For the first nine months of
1997, marketing and administrative expense was $1,080,000, a slight
increase from the first nine months of the prior year of $1,006,000. 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 $465,000 in the third quarter of 1997 which was a non-
cash expense on the unfunded liability of approximately $15,100,000
associated with the Consolidated Plan. Pension expense in the third
quarter of 1996 was $338,000.
The Company incurred a net loss of $658,000, or $.66 per common share, in
the third quarter of 1997 compared with a net loss of $461,000, or $.46
per common share, in the same period of 1996.
In the first nine months of 1997, the Company incurred a loss of
$1,816,000 or $1.81 per common share compared with a loss of $1,178,000 or
$1.17 per common share in the same period of 1996.
Financial Condition and Liquidity
Cash and short term investments totaled $822,000 at September 30, 1997, a
decrease from $1,568,000 at December 31, 1996.
Trade receivables, net at September 30, 1997 were $461,000, reflecting a
decrease from the December 31, 1996 level of $652,000, primarily due to
decreased sales.
Inventory at September 30, 1997 was $112,000, an increase from $93,000 at
year end 1996 due to material acquired for work in process.
Net property, plant and equipment was $1,073,000 at September 30, 1997 an
increase from $937,000 at year end 1996. For the nine months ending
September 30, 1997, $245,000 of capital expenditures were made to insure
cost competitiveness and ability to reach new markets.
Long-term debt, including current maturities at September 30, 1997, was
$292,000, a decrease from $333,000 at December 31, 1996.
Other current liabilities at September 30, 1997 were $126,000, 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 first quarter of
1997.
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 continued 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.
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 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. Subsequent updates to the underfunding
calculation increased the present value of the underfunding obligation to
$15.1 million as of December 31, 1996. 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, however, subsequent
required contributions were not paid. Because such unpaid contributions
exceeded $1,000,000, a lien was filed by the PBGC against the Company in
favor of the Consolidated Plan. 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.
On September 30, 1997, the PBGC issued a determination approving the
Company's request for the distress termination of the Consolidated Plan
effective April 14, 1997, citing the significant underfunding of the
Consolidated Plan and the fact that the Company demonstrated that it does
not have the resources to fund the cash contributions necessary to meet
ERISA funding requirements.
In connection with the PBGC's action, the Company incurred a statutory
liability to the PBGC for the amount of the Consolidated Plan's
underfunded benefit liabilities, calculated using ERISA termination
assumptions to be $63,000,000. The Company may also have liability for
certain taxes arising from the Consolidated Plan's accumulated funding
deficiency.
The Company and the PBGC have entered into an agreement in principle to
settle all Consolidated Plan-related obligations to the PBGC. The
agreement in principle, which is subject to definitive documentation and
to an acceptable resolution of the Company's tax liability, will give PBGC
35% of the Company's common stock.
The Company has initiated discussions with the IRS concerning the
Consolidated Plan-related taxes. Although it is not possible to predict
the outcome of discussions with the IRS, failure to reach an acceptable
agreement could jeopardize the continuation of the Company.
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.
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
third 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
November 13, 1997
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule