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, 1999 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
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(Exact name of registrant as specified in its charter)
Delaware 39-0126090
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4180 Cherokee Drive, Brookfield Wisconsin 53045
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(Address of principal executive offices) (Zip code)
(414)781-7155
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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, 1999 there were 1,003,028 shares of Common Stock outstanding.
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
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STATEMENT OF OPERATIONS
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Three Months Ended
March 31
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1999 1998
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(thousands, except per share)
Sales $ 1,052 $ 1,503
Cost of sales 713 1,017
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Gross Margin 339 486
Marketing and administrative expense 390 359
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Income/(Loss) from Operations (51) 127
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Other income (expense)
Interest income 1 6
Interest expense (8) (9)
Other 1 13
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Net Income/(Loss) $ (57) $ 137
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Net Income/(Loss) per Common Share $ (.06) $ .14
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STATEMENT OF ACCUMULATED DEFICIT
Three Months Ended March 31 1999 1998
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(thousands)
Accumulated deficit - beginning of year $ (75,673) $ (76,291)
Net income/(loss) (57) 137
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Accumulated deficit - March 31 $ (75,730) $ (76,154)
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This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
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ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
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STATEMENT OF FINANCIAL CONDITION
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March 31, December 31,
1999 1998
(thousands)
Assets
Cash and short-term investments $ 222 $ 223
Trade receivables, net 604 796
Inventories, net 272 127
Other current assets 72 112
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Total Current Assets 1,170 1,258
Net property, plant and equipment 1,305 1,308
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Total Assets $ 2,475 $ 2,566
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Liabilities and Shareholders' Deficit
Current maturities of long-term debt $ 72 $ 60
Trade accounts payable 225 291
Accrued employee benefits 120 155
Accrued pension liability 67,901 67,901
Other current liabilities 385 312
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Total Current Liabilities 68,703 68,719
Accrued postretirement benefit obligations 963 981
Long-term debt 232 232
Shareholders' deficit
Common stock, ($.15 par value, authorized
2,000,000 shares, outstanding 1,003,028
at March 31, 1999 and December 31, 1998) 152 152
Capital in excess of par value 8,155 8,155
Accumulated deficit (accumulated deficit of
$424,208 eliminated on December 2, 1988) (75,730) (75,673)
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Total Shareholders' Deficit (67,423) (67,366)
Commitments and contingent liabilities
Total Liabilities and Shareholders'
Deficit $ 2,475 $ 2,566
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This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
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ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
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STATEMENT OF CASH FLOWS
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Three Months Ended
March 31
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1999 1998
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(thousands)
Cash flows from operating activities:
Net income/(loss) $ (57) $ 137
Adjustments to reconcile net income/(loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 42 46
Change in working capital:
Decrease (increase) in receivables, net 192 (512)
Increase in inventories (145) (55)
(Decrease) increase in trade accounts payable (66) 55
Increase in other current items 78 141
Increase in accrued pension liability, net 0 0
Other (18) (13)
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Net cash provided (used) by operating activities 26 (201)
Cash flows from investing activities:
Capital expenditures (39) (101)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt 29 71
Payment of long-term debt (17) (14)
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Net cash provided by financing activities 12 57
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Net (decrease) in cash and short-term investments (1) (245)
Cash and short-term investments at
beginning of period 223 699
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Cash and short-term investments at
end of period $ 222 $ 454
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Supplemental information - interest paid $ 8 $ 9
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This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
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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 1998 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 required
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 during 1996 and 1997. Given the inability of the Company to
fund such obligations with its current 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
discussions regarding definitive documentation continue with the PBGC on certain
issues contained in a proposed agreement between the Company and the PBGC. The
Company is close to resolving these issues with the PBGC and an agreement
between the Company and the PBGC should be signed in the near future. However,
if a satisfactory agreement cannot be finalized with the PBGC, Allis-Chalmers
will evaluate other alternatives, including a bankruptcy filing. .
The PBGC Agreement is also subject to satisfactory resolution of the Company's
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
5
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
resulted in estimated 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. On July 16, 1998, the parties reached a settlement agreement in principle
in the amount of $75,000. Following final IRS approval, payment of this amount
was made on August 11, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Operations of the Company consist of Houston Dynamic Service, Inc. (HDS), the
Company's machinery repair and service subsidiary.
Sales in the first quarter of 1999 totaled $1,052,000 a decrease from $1,503,000
in the first quarter of 1998. This decrease was due to extremely soft conditions
as a backlash to the very low oil prices during the second half of 1998 which
resulted in lower shipments compared to the same period in 1998. HDS continues
to be affected by volatile market conditions that prevail in the oil related
fields of refining, processing, chemical, and petrochemical operations
throughout the Gulf Coast.
Gross margin, as a percentage of sales, was 32% in the first quarter of 1999 no
change from 32% in 1998.
Marketing and administrative expense was $390,000 in the first quarter of 1999
compared with $359,000 in 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, insurance and other corporate requirements of a publicly held company.
The Company incurred a net loss of $57,000, or $.06 per common share, in the
first quarter of 1999 compared with net income of $137,000, or $.14 per common
share, in the same period of 1998.
Financial Condition and Liquidity
Cash and short term investments totaled $222,000 at March 31, 1999, no change
from $223,000 at December 31, 1998.
Net trade receivables, at March 31, 1999 were $604,000, reflecting a decrease
from the December 31, 1998 level of $796,000, due primarily to the reduction in
sales.
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Inventory at March 31, 1999 was $272,000, a significant increase from $127,000
at year end 1998 due to one particular order for $110,000 that remained in work
in process at March 31, 1999 and was subsequently shipped and billed in April
1999.
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
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 required
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 during 1996 and 1997. Given the inability of the Company to
fund such obligations with its current 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
discussions regarding definitive documentation continue with the PBGC on certain
issues contained in a proposed agreement between the Company and the PBGC. The
Company is close to resolving these issues with the PBGC and an agreement
between the Company and the PBGC should be signed in the near future. However,
if a satisfactory agreement cannot be finalized with the PBGC, Allis-Chalmers
will evaluate other alternatives, including a bankruptcy filing.
7
The PBGC Agreement is also subject to satisfactory resolution of the Company's
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
resulted in estimated 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. On July 16, 1998, the parties reached a settlement agreement in principle
in the amount of $75,000. Following final IRS approval, payment of this amount
was made on August 11, 1998.
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.
Management considers the Company's only significant application that is year
2000 sensitive to be its accounting system. The Company has received written
assurances from its software provider that the accounting system is year 2000
compliant.
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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None
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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See PART I. Item 2, "Management's Discussion and Analysis."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(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 1999.
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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
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(Registrant)
/s/ John T. Grigsby, Jr.
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John T. Grigsby, Jr.
Vice Chairman, Executive Vice
President and Chief Financial
Officer
May 15, 1999
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EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule
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