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 MARCH 31, 1998 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 May 12, 1998 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
March 31
1998 1997
(thousands, except per share)
Sales $ 1,503 $1,028
Cost of sales 1,017 817
------- -------
Gross Margin 486 211
Marketing and administrative expense 359 369
------- -------
Income/(Loss) from Operations 127 (158)
------- -------
Other income (expense)
Interest income 6 15
Interest expense (9) (8)
Pension expense 0 (466)
Other 13 13
------- -------
Net Income/(Loss) $ 137 $ (604)
======= =======
Net Income/(Loss) per Common Share $ .14 $ (.60)
======= =======
STATEMENT OF ACCUMULATED DEFICIT
Three Months Ended March 31 1998 1997
(thousands)
Accumulated deficit - beginning of year $ (76,291) $ (9,746)
Net income/(loss) 137 (604)
------- -------
Accumulated deficit - March 31 $ (76,154) $(10,350)
======= =======
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
March 31, December 31,
1998 1997
(thousands)
Assets
Cash and short-term investments $ 454 $ 699
Trade receivables, net 1,195 683
Inventories, net 156 101
Other current assets 39 121
------- -------
Total Current Assets 1,844 1,604
Net property, plant and equipment 1,162 1,107
------- -------
Total Assets $3,006 $ 2,711
======= =======
Liabilities and Shareholders' Deficit
Current maturities of long-term debt $ 63 $ 38
Trade accounts payable 274 219
Accrued employee benefits 152 123
Reserve for legal expenses 174 174
Accrued pension liability 68,801 68,801
Other current liabilities 140 110
------- -------
Total Current Liabilities 69,604 69,465
Accrued pension liability - -
Accrued postretirement benefit
obligations 977 990
Long-term debt 272 240
Shareholders' deficit
Common stock, ($.15 par value,
authorized 2,000,000 shares,
outstanding 1,003,028 at
March 31, 1998 and December 31,
1997) 152 152
Capital in excess of par value 8,155 8,155
Accumulated deficit (accumulated
deficit of $424,208 eliminated on
December 2, 1988) (76,154) (76,291)
Pension liability adjustment - -
------- -------
Total Shareholders' Deficit (67,847) (67,984)
------- -------
Commitments and contingent liabilities
Total Liabilities and Shareholders'
Deficit $3,006 $ 2,711
======= =======
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
Three Months Ended
March 31
1998 1997
(thousands)
Cash flows from operating activities:
Net income/(loss) $ 137 $(604)
Adjustments to reconcile net income/
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 46 35
Change in working capital:
Increase in receivables, net (512) (103)
Decrease (increase) in inventories (55) 16
Increase in trade accounts payable 55 56
(Decrease) increase in other current
items 141 (244)
Increase in accrued pension liability,
net 0 466
Other (13) (31)
------ ------
Net cash (used) by operating
activities (201) (409)
Cash flows from investing activities:
Capital expenditures (101) (122)
Cash flows from financing activities:
Net proceeds from issuance of long-term
debt 71 -
Payment of long-term debt (14) (13)
------ ------
Net cash (used) by financing
activities 57 (13)
------ ------
Net (decrease) in cash and short-term
investments (245) (544)
Cash and short-term investments at
beginning of period 699 1,568
------ ------
Cash and short-term investments at
end of period $ 454 $1,024
====== ======
Supplemental information - interest paid $ 9 $ 7
====== ======
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
1997 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
In 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 was underfunded on a present value basis.
In the first quarter of 1996, the Company made a cash contribution to the
Consolidated Plan in the amount of $205,000. The Company did not,
however, have the financial resources to make the other required payments
to the Consolidated Plan during 1996 and 1997. Given the inability of the
Company to fund such obligations with its limited financial resources, in
February 1997, Allis-Chalmers applied to the Pension Benefit Guaranty
Corporation (PBGC) for a "distress" termination of the Consolidated Plan
under section 4041(c) of the Employee Retirement Income Security Act of
1974, as "amended" (ERISA). The PBGC approved the distress termination
application in September 1997 and agreed to a plan termination date of
April 14, 1997. The PBGC became trustee of the terminated Consolidated
Plan on September 30, 1997.
Upon termination of the Consolidated Plan, Allis-Chalmers and its
subsidiaries incurred a liability to the PBGC for an amount equal to the
Consolidated Plan's unfunded benefit liabilities. Allis-Chalmers and its
subsidiaries also have liability to the PBGC, as trustee of the terminated
Consolidated Plan, for the outstanding balance of the Consolidated Plan's
accumulated funding deficiencies. The PBGC has estimated that the
unfunded benefit liabilities and the accumulated funding deficiencies
(together, the PBGC Liability) total approximately $67.9 million.
In September 1997, Allis-Chalmers and the PBGC entered into an agreement
in principle for the settlement of the PBGC Liability (the PBGC
Agreement). The PBGC Agreement calls for the PBGC to release Allis-
Chalmers and its subsidiaries from the PBGC Liability in return for that
number of shares of Allis-Chalmers' common stock that represents 35% of
the total number of shares issued and outstanding on a fully-diluted
basis.
The PBGC Agreement is subject to negotiation of definitive documentation
and to satisfactory resolution of Allis-Chalmers tax obligations with
respect to the Consolidated Plan under section 4971 of the Internal
Revenue Code of 1986, as amended (Code). Section 4971(a) of the Code
imposes, for each taxable year, a first-tier tax of 10 percent on the
amount of the accumulated funding deficiency under a plan like the
Consolidated Plan. Section 4971(b) of the Code imposes an additional,
second-tier tax equal to 100 percent of such accumulated funding
deficiency if the deficiency is not "corrected" within a specified period.
Liability for the taxes imposed under section 4971 extends, jointly and
severally, to Allis-Chalmers and to its commonly-controlled subsidiary
corporations.
Prior to its termination, the Consolidated Plan had an accumulated funding
deficiency in the taxable years 1995, 1996, and 1997. Those deficiencies
have resulted, or will result, in first-tier taxes under Code section
4971(a) of approximately $900,000.
On March 2, 1998, Allis-Chalmers sent the Internal Revenue Service (IRS) a
formal Offer in Compromise of the Company's tax liability under Code
section 4971. If accepted by the IRS, the Offer in Compromise will (i)
require Allis-Chalmers to pay the IRS $25,000, plus interest from March 2,
1998 and (ii) extinguish the Company's tax liability under Code section
4971, subject to the standard conditions attendant to an Offer in
Compromise.
Although the IRS has not yet responded to the Offer in Compromise, Allis-
Chalmers' management is hopeful that a mutually acceptable settlement can
be achieved. If a satisfactory settlement cannot be reached with IRS, or
if definitive documentation of the PBGC Agreement is not achieved for any
other reason, Allis-Chalmers will evaluate other alternatives, including a
bankruptcy filing.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Sales in the first quarter of 1998 totaled $1,503,000 an increase of 46%
from $1,028,000 in the first quarter of 1997. This significant increase
was due to strong market conditions, new customers served and expanded
services provided. Operations of the Company consist of Houston Dynamic
Service, Inc. (HDS), the Company's machinery repair and service
subsidiary.
Gross margin, as a percentage of sales, was 32% in the first quarter of
1998, an increase from 20.5% in 1997. This significant increase was due
to selective, high margin and technical work, performed in a stronger
market environment.
Marketing and administrative expense was $359,000 in the first quarter of
1998 compared with $369,000 in the prior year. The slight decrease was
significant considering the aggressive sales and marketing programs. 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.
There was no pension expense in the first quarter of 1998 as compared to
pension expense in the first quarter of 1997 of $466,000. See Note 2 for
further discussion.
The Company incurred a net profit of $137,000, or $.14 per common share,
in the first quarter of 1998 compared with a net loss of $604,000, or $.60
per common share, in the same period of 1997.
Financial Condition and Liquidity
Cash and short term investments totaled $454,000 at March 31, 1998, a
decrease from $699,000 at December 31, 1997. The decrease in cash was due
to increased sales which resulted in an increase in trade receivables and
inventories. However, cash collections of $200,000 were received the day
after the period ended.
Net trade receivables, at March 31, 1998 were $1,195,000, reflecting an
increase from the December 31, 1997 level of $683,000, due primarily to
increased sales. However, cash collections of $200,000 were received the
day after the period ended, thereby, reducing the level.
Inventory at March 31, 1998 was $156,000, an increase from $101,000 at
year end 1997 due to material required to support the backlog of sales
orders.
Net property, plant and equipment was $1,162,000 at March 31, 1998, an
increase from $1,107,000 million at year end 1997. For the three months
ending March 31, 1998, $101,000 of capital expenditures were made to
insure cost competitiveness and the ability to reach new markets.
Other current liabilities at March 31, 1998 were $140,000, an increase
from $110,000 at December 31, 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 1994, the Company's independent pension actuaries changed the
assumptions for mortality and administrative expenses used to determine
the liabilities of the 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 was underfunded on a present
value basis. In the first quarter of 1996, the Company made a cash
contribution to the Consolidated Plan in the amount of $205,000. The
Company did not, however, have the financial resources to make the other
required payments to the Consolidated Plan during 1996 and 1997. Given
the inability of the Company to fund such obligations with its limited
financial resources, in February 1997, Allis-Chalmers applied to the PBGC
for a "distress" termination of the Consolidated Plan under section
4041(c) of the Employee Retirement Income Security Act of 1974, as
"amended" (ERISA). The PBGC approved the distress termination application
in September 1997 and agreed to a plan termination date of April 14, 1997.
The PBGC became trustee of the terminated Consolidated Plan on September
30, 1997.
Upon termination of the Consolidated Plan, Allis-Chalmers and its
subsidiaries incurred a liability to the PBGC for an amount equal to the
Consolidated Plan's unfunded benefit liabilities. Allis-Chalmers and its
subsidiaries also have liability to the PBGC, as trustee of the terminated
Consolidated Plan, for the outstanding balance of the Consolidated Plan's
accumulated funding deficiencies. The PBGC has estimated that the
unfunded benefit liabilities and the accumulated funding deficiencies
(together, the PBGC Liability) total approximately $67.9 million.
In September 1997, Allis-Chalmers and the PBGC entered into an agreement
in principle for the settlement of the PBGC Liability (the PBGC
Agreement). The PBGC Agreement calls for the PBGC to release Allis-
Chalmers and its subsidiaries from the PBGC Liability in return for that
number of shares of Allis-Chalmers' common stock that represents 35% of
the total number of shares issued and outstanding on a fully-diluted
basis.
The PBGC Agreement is subject to negotiation of definitive documentation
and to satisfactory resolution of Allis-Chalmers tax obligations with
respect to the Consolidated Plan under section 4971 of the Internal
Revenue Code of 1986, as amended (Code). Section 4971(a) of the Code
imposes, for each taxable year, a first-tier tax of 10 percent on the
amount of the accumulated funding deficiency under a plan like the
Consolidated Plan. Section 4971(b) of the Code imposes an additional,
second-tier tax equal to 100 percent of such accumulated funding
deficiency if the deficiency is not "corrected" within a specified period.
Liability for the taxes imposed under section 4971 extends, jointly and
severally, to Allis-Chalmers and to its commonly-controlled subsidiary
corporations.
Prior to its termination, the Consolidated Plan had an accumulated funding
deficiency in the taxable years 1995, 1996, and 1997. Those deficiencies
have resulted, or will result, in first-tier taxes under Code section
4971(a) of approximately $900,000.
On March 2, 1998, Allis-Chalmers sent the IRS a formal Offer in Compromise
of the Company's tax liability under Code section 4971. If accepted by
the IRS, the Offer in Compromise will (I) require Allis-Chalmers to pay
the IRS $25,000, plus interest from March 2, 1998 and (ii) extinguish the
Company's tax liability under Code section 4971, subject to the standard
conditions attendant to an Offer in Compromise.
Although the IRS has not yet responded to the Offer in Compromise, Allis-
Chalmers' management is hopeful that a mutually acceptable settlement can
be achieved. If a satisfactory settlement cannot be reached with IRS, or
if definitive documentation of the PBGC Agreement is not achieved for any
other reason, Allis-Chalmers will evaluate other alternatives, including a
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 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
first quarter of 1998.
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
May 15, 1998