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, 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 May 6, 1996 there were 1,003,028 shares of Common Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF OPERATIONS
Three Months Ended
March 31
1996 1995
(thousands, except per share)
Sales $ 985 $ 769
Cost of sales 695 587
--------- --------
Gross Margin 290 182
Marketing and administrative expense 326 368
--------- --------
Loss from Operations (36) (186)
--------- --------
Other income (expense)
Interest income 33 27
Interest expense (9) (8)
Other (327) (265)
--------- --------
Loss Before Income Taxes (339) (432)
Charge in lieu of income taxes - -
---------- ---------
Net Loss $ (339) $ (432)
========== =========
Net Loss per Common Share $ (.34) $ (.43)
========== =========
STATEMENT OF ACCUMULATED DEFICIT
Three Months Ended March 31 1996 1995
(thousands)
Accumulated deficit - beginning
of year $ (8,018) $ (6,570)
Net loss (339) (432)
-------- --------
Accumulated deficit - March 31 $ (8,357) $ (7,002)
======== ========
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION
March 31, December 31,
1996 1995
(thousands)
Assets
Cash and short-term investments $ 1,485 $ 1,881
Trade receivables, net 532 265
Non-trade receivables 663 664
Inventories, net 191 128
Other current assets 197 206
-------- --------
Total Current Assets 3,068 3,144
Net property, plant and equipment 895 907
-------- --------
Total Assets $ 3,963 $ 4,051
======== ========
Liabilities and Shareholders' Deficit
Current maturities of long-term
debt $ 295 $ 299
Trade accounts payable 131 73
Accrued employee benefits 104 80
Accrued pension liability 2,289 2,493
Reserve for legal expenses 275 275
Other current liabilities 380 324
--------- --------
Total Current Liabilities 3,474 3,544
Accrued pension liability 9,712 9,374
Accrued postretirement benefit
obligations 1,008 1,020
Long-term debt 28 33
Shareholders' deficit
Common stock, ($.15 par value,
authorized 2,000,000 shares,
outstanding 1,003,028 at March
31, 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) (8,357) (8,018)
Pension liability adjustment (10,209) (10,209)
------- --------
Total Shareholders' Deficit (10,259) (9,920)
Commitments and contingent liabilities
------- --------
Total Liabilities and
Shareholders' Deficit $ 3,963 $ 4,051
======= ========
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Three Months Ended
March 31
1996 1995
(thousands)
Cash flows from operating
activities:
Net loss $(339) $ (432)
Adjustments to reconcile net
loss to net cash provided (used)
by operating activities:
Depreciation and amortization 24 32
Change in working capital:
Increase in receivables, net (266) (95)
Increase in inventories (63) (7)
(Decrease) increase in trade
accounts payable 58 (42)
Increase in other current items 89 167
Increase in accrued pension
liability, net 134 267
Other (12) (6)
------ ------
Net cash (used) by operating
activities (375) (116)
Cash flows from investing activities:
Capital expenditures (12) (4)
Cash flows from financing activities:
Net proceeds from issuance of long-
term debt - 67
Payment of long-term debt (9) (6)
------ -------
Net cash provided (used) by
financing activities (9) 61
------ -------
Net (decrease) in cash and
short-term investments (396) (59)
Cash and short-term investments at
beginning of period 1,881 2,225
------- -------
Cash and short-term investments at
end of period $ 1,485 $ 2,166
====== ======
Supplemental information - interest
paid $ 9 $ 8
====== ======
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
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 contribution due
on April 15, 1996 in the amount of $637,000 was not made. 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 Pension
Benefit Guaranty Corporation (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 is not optimistic that in its current condition 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 first quarter of 1996 totaled $985,000 an increase from
$769,000 in the first 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.
Gross margin, as a percentage of sales was 29.5% in the first quarter of
1996, an increase from 23.7% in 1995 as a result of increased sales and an
increase in sales of more profitable services such as field services which
are more labor intensive.
Marketing and administrative expense was $326,000 in the first quarter of
1996 compared with $368,000 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, tax, insurance and other corporate requirements of a
publicly held company.
Other expense was $327,000 in the first 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 first quarter of 1995 was $267,000.
The Company incurred a loss of $339,000, or $.34 per common share, in the
first quarter of 1996 compared with a loss of $432,000, or $.43 per common
share, in the same period of 1995. The loss in the first 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.
Financial Condition and Liquidity
Cash and short term investments totaled $1.5 million at March 31, 1996
compared with $1.9 million at December 31, 1995.
Trade receivables at March 31, 1996 were $532,000, reflecting an increase
from the December 31, 1995 level of $265,000. This increase is primarily
the result of increased sales.
Non-trade receivables were $663,000 at March 31, 1996 primarily from the
proceeds of the sale of the Company's BRB division in September 1994.
Non-trade receivables were $664,000 at December 31, 1995.
Inventory at March 31, 1996 was $191,000, an increase from $128,000 at
year end 1995. The increased level is due to sales related to one long-
term job not being recognized until completion, which is expected in May
1996.
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. 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
contribution due on April 15, 1996 was not made. 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 is not optimistic that in its current condition 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 two 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, payments on obligations arising from the sale of BRB
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 over the remainder of 1996.
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
first quarter of 1996.
<PAGE>
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 14, 1996
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ALLIS-CHALMERS CORPORATION AS OF AND FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 187
<SECURITIES> 1,298
<RECEIVABLES> 1,195
<ALLOWANCES> 0<F1>
<INVENTORY> 191
<CURRENT-ASSETS> 3,068
<PP&E> 2,218
<DEPRECIATION> 1,323
<TOTAL-ASSETS> 3,963
<CURRENT-LIABILITIES> 3,474
<BONDS> 28
0
0
<COMMON> 8,307
<OTHER-SE> (18,566)
<TOTAL-LIABILITY-AND-EQUITY> (3,963)
<SALES> 0
<TOTAL-REVENUES> 985
<CGS> 0
<TOTAL-COSTS> 695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> (339)
<INCOME-TAX> 0
<INCOME-CONTINUING> (339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (339)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
<FN>
<F1>The Company Reports Accounts Receivable Net of Allowances for Doubtful Accounts.
</FN>
</TABLE>
