FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] 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)
Registrant's telephone number, including area code (414)475-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock - $.15 Par Value
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 if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
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 March 1, 1997 there were 1,003,028 shares of Common Stock
outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Parts of Form 10-K Into Which
Portions of Document are
Document Incorporated by Reference
Annual Report to Shareholders Parts I and II
for fiscal year ended
December 31, 1996
<PAGE>
1996 FORM 10-K CONTENTS
PART I
Item Page
1. Business. 3
2. Properties. 5
3. Legal Proceedings. 5
4. Submission of Matters to a Vote of
Security Holders. 7
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters. 8
6. Selected Financial Data. 8
7. Management's Discussion and
Analysis of Financial
Condition and Results of Operations. 8
8. Financial Statements and
Supplementary Data. 8
9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure. 8
PART III
10. Directors and Executive Officers
of the Registrant. 9
11. Executive Compensation. 12
12. Security Ownership of Certain
Beneficial Owners and
Management. 13
13. Certain Relationships and Related
Transactions. 15
PART IV
14. Exhibits, Financial Statement
Schedules and Reports on
Form 8-K. 16
Signatures. 21
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) Development of the Business
GENERAL
Allis-Chalmers Corporation ("Allis-Chalmers" or the "Company") was
incorporated in 1913 under Delaware law. The Company sold its major
operating businesses in 1988 in accordance with its First Amended and
Restated Joint Plan of Reorganization (Plan of Reorganization) under
Chapter 11 of the United States Bankruptcy Code. The Plan of
Reorganization was confirmed by the Bankruptcy Court on October 31, 1988
after acceptance by creditors and shareholders and was consummated on
December 2, 1988. See Item 3. LEGAL PROCEEDINGS for a discussion of such
proceedings.
The Company has its principal executive office in West Allis, Wisconsin
and it maintains three wholly-owned subsidiaries. One subsidiary, Houston
Dynamic Service, Inc., operates a machine repair business in Houston,
Texas; the other two subsidiaries, KILnGAS R&D, Inc. and U.S. Fluidcarbon
Inc., are inactive.
On September 22, 1994, the Company sold its B.R.B. Industries division.
B.R.B. Industries, which was acquired by the Company on December 20, 1989
in a purchase of assets, is a Hoboken, New Jersey manufacturer of molded
fabric products serving the apparel and lingerie markets and the home
sewing and notions industries.
(b) Financial Information About Industry Segments
The Company operates in a single industry segment -- the repair and
service of mechanical rotating equipment for the industrial, utility and
governmental aftermarkets.
(c) Narrative Description of Business
The principal business activities of the Company are as follows:
MACHINE REPAIR
Sales of the machine repair business operated by Houston Dynamic Service,
Inc. (HDS), a wholly-owned subsidiary of the Company, were $4,060,000 in
1996, a 27% increase from 1995 sales, $3,190,000 in 1995 and $3,580,000 in
1994. The increase in sales from 1995 was primarily the result of strong
market conditions coupled with a more focused marketing strategy and
product offering.
HDS services and repairs various types of mechanical equipment, including
compressors (centrifugal, rotary, axial and reciprocating), pumps,
turbines, engines, heat exchangers, centrifuges, rollers, gears, valves,
blowers, kilns, crushers and mills. Services provided include emergency
repair, disassembly, inspection, repair testing, parts duplication,
machining, balancing, metalizing, milling, grinding, boring, welding,
modification, reassembly, field machining, maintenance, alignment, field
service, installation, startup and training.
HDS employed 38 people on December 31, 1996. It operates out of a
facility in Houston, Texas which was purchased by HDS in 1990. The
facility includes repair shop and office space.
HDS serves various industrial customers, including those in the
petrochemical, chemical, refinery, utility, waste and waste treatment,
minerals processing, power generation, pulp and paper and irrigation
industries.
OTHER DATA
Competition in the Company's machine repair business consists of nine
major original equipment manufacturers (OEM) and numerous smaller
independent competitors. Many of these competitors have special strengths
in certain product areas because of customer preferences for OEM suppliers
or because specialized patented technologies are offered. The principal
methods of competition are price, quality, delivery, customer service and
warranty.
The principal raw materials and purchased components used in the machine
repair business are alloy and stainless steels, castings and forgings,
aluminum, copper, gears and other basic materials. Alternative sources of
supply exist or could be developed for all of these raw materials and
components. This business is highly labor intensive.
Some of the Company's products, processes and systems are covered by
patents owned by or licensed to the Company. No particular product,
process or system is dependent on a single fundamental patent, the loss of
which would jeopardize the Company's businesses. The Company licenses the
use of a number of its trademarks, from which it receives income.
In 1996 and 1995, Amoco Chemical was the only customer which accounted for
10% or more of total Company sales -- Amoco Chemical generated 16% of 1996
sales and 26% of 1995 sales. In 1994, the Company had two customers
which accounted for 10% or more of total sales -- Amoco Chemical
generated 19% and Chevron Corporation generated 15%.
Expenditures relating to compliance with federal, state and local
environmental protection laws are not expected to have a material effect
on the Company's capital expenditures, results of operations, financial
condition or competitive position. The Company is not aware of any
present statutory requirements concerning environmental quality that would
necessitate capital outlays which would materially affect the Company. In
conjunction with consummation of the Plan of Reorganization, the Company
settled all known environmental claims asserted by the United States
Environmental Protection Agency (EPA) as well as claims asserted by
certain state agencies. However, the EPA and third parties have claimed
that Allis-Chalmers is liable for cleanup costs associated with certain
hazardous waste disposal sites in which products manufactured and sold by
Allis-Chalmers before consummation of the Plan of Reorganization were
ultimately disposed of by others. Since Allis-Chalmers manufactured and
sold the products disposed of in these sites before consummation of the
Plan of Reorganization, Allis-Chalmers has taken the position that all
cleanup costs or other liabilities related to these sites were discharged
in the bankruptcy. See Item 3. LEGAL PROCEEDINGS.
The Company's employment was 44, 34 and 41 at December 31, 1996, 1995 and
1994, respectively.
For more detailed information, the 1996 Consolidated Financial Statements,
Notes to Consolidated Financial Statements and Management's Discussion and
Analysis should be read in their entirety.
(d) Financial Information About Foreign and
Domestic Operations and Export Sales
The Company has no foreign operations or significant export sales.
ITEM 2. PROPERTIES.
The Company's principal operating facility is a repair shop and office
building in Houston, Texas which is owned by HDS. Allis-Chalmers leases
its administrative offices in West Allis, Wisconsin on a short-term basis.
The facilities are considered adequate and suitable for the Company's
principal business.
ITEM 3. LEGAL PROCEEDINGS.
REORGANIZATION PROCEEDINGS UNDER CHAPTER 11
OF THE UNITED STATES BANKRUPTCY CODE
On June 29, 1987 Allis-Chalmers and 17 of its domestic subsidiaries filed
separate voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code. The Plan of Reorganization was confirmed
by the Bankruptcy Court on October 31, 1988 after acceptance by creditors
and shareholders, and the Plan of Reorganization was consummated on
December 2, 1988.
At confirmation, the Bankruptcy Court approved the establishment of the A-
C Reorganization Trust as the primary vehicle for distributions under the
Plan of Reorganization, two trust funds to service health care and life
insurance programs for retired employees and a trust fund to process and
liquidate future product liability claims. Cash of approximately $400
million and other assets with a net book value of $38 million were
distributed to creditors or transferred to the trusts, and the trusts
assumed responsibility for substantially all remaining cash distributions
to be made to holders of claims and interests pursuant to the Plan of
Reorganization. The Company was thereby discharged of all debts that
arose before confirmation of the Plan of Reorganization, and all of its
capital stock was canceled and made eligible for exchange for shares of
the reorganized Company.
The Company does not administer any of the aforementioned trusts and
retains no responsibility for the assets transferred to or distributions
to be made by such trusts pursuant to the Plan of Reorganization.
For a description of restrictions on the transfer of the common stock of
the reorganized Company (Common Stock), see Item 5. MARKET FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
ENVIRONMENTAL PROCEEDINGS
As part of the Plan of Reorganization the Company made a cash payment of
$4.5 million to the EPA in settlement of the EPA's claims for cleanup
costs at all sites where the Company was alleged to have disposed of
hazardous waste. The EPA settlement included both past and future cleanup
costs at these sites and released the Company of liability for claims of
contribution or indemnity which may be asserted by other potentially
responsible parties against Allis-Chalmers in connection with these
specific sites.
In addition to the EPA settlement, the Company negotiated settlements of
various environmental claims which had been asserted by certain state
environmental protection agencies. These settlements, totaling
approximately $200,000, were approved by the Bankruptcy Court.
Since consummation of the Plan of Reorganization on December 2, 1988, a
number of parties, including the EPA, have asserted that the Company is
responsible for the cleanup of hazardous waste sites. These assertions
have been made only with respect to the Company's prebankruptcy
activities. No claims have been asserted against the Company involving
its postbankruptcy operations.
Before the settlement with the EPA in the bankruptcy proceedings, an
attempt was made by the parties to identify all possible hazardous waste
disposal sites and to settle all liabilities relating to those sites.
Notwithstanding the breadth of the settlement, various EPA regional
offices have continued to assert cleanup claims against Allis-Chalmers
with respect to several sites. Apparently, not all offices of the EPA are
aware of the settlement agreement, since at least two of these claims
involve sites with respect to which the EPA specifically agreed not to
sue.
Certain other parties have asserted that the Company is responsible for
environmental cleanup costs or associated EPA fines in connection with
additional sites. In each instance the Company activities complained of
occurred prior to the Company's bankruptcy proceedings and the third
parties did not file proofs of claim in the bankruptcy proceedings. The
filing of such proofs of claim is required by the Bankruptcy Code to
effect a claim against a Chapter 11 debtor. A bankruptcy discharge
defense has been asserted by the Company in each instance.
Although the law in this area is still somewhat unsettled, three Federal
Courts of Appeal have held that a debtor can be discharged of
environmental cleanup liabilities related to its prebankruptcy activities.
The Company believes it will prevail in its position that its liability to
the EPA and third parties for prebankruptcy environmental cleanup costs
has been fully discharged. 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.
The EPA and certain state agencies also continue to request information in
connection with various waste disposal sites in which products
manufactured by Allis-Chalmers before consummation of the Plan of
Reorganization were ultimately disposed of by other parties. Although the
Company has been discharged of liabilities with respect to hazardous waste
sites, it is under a continuing obligation to provide information with
respect to its products to federal and state agencies. The A-C
Reorganization Trust, under its mandate to provide Plan of Reorganization
implementation services to the Company, has responded to these
informational requests because prebankruptcy activities are involved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
The information required by Items 5, 6, 7 and 8 of Part II is incorporated
by reference to the Company's 1996 Annual Report to Shareholders as
follows:
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS - page 4 of 1996 Annual Report to
Shareholders.
Item 6. SELECTED FINANCIAL DATA - page 5 of 1996 Annual Report to
Shareholders.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - pages 6 through 10 of
1996 Annual Report to Shareholders.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - pages 11
through 26 of 1996 Annual Report to Shareholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors
The following individuals were elected as directors of the Company at
the meeting of shareholders on October 25, 1989 (or have been
appointed to fill vacancies caused by the resignation of two such
directors) to serve until the next meeting of shareholders.
John R. Collins, age 69, a director since December 1988. Mr. Collins
retired in 1989 after serving since 1985 as Administrative Assistant
to the Secretary-Treasurer of International Union, United Automobile,
Aerospace & Agricultural Implement Workers of America -- UAW.
John T. Grigsby, Jr., age 56, a director since December 1988.
Mr. Grigsby has been a Vice Chairman of the Board of the Company
since May 1989, an Executive Vice President since October 1989 and
Chief Financial Officer since January 1996, having previously served
since December 1988 as the Company's Chairman and Chief Executive
Officer. Prior to that time and since July 1987, Mr. Grigsby was
employed by the Company as Managing Director, Restructure Project.
Mr. Grigsby also serves as the A-C Reorganization Trustee, as
President of Thomson McKinnon Securities, Inc. during winddown and
liquidation of its affairs and President and Chief Executive Officer
of N.W. Liquidating, Inc. He has been a director of 1st Southern
Bank of Boca Raton, Florida since September 1987 and First Florida
Industries, Inc. since July 1985.
H. Sean Mathis, age 49, a director since December 1988. Mr. Mathis
was elected as Chairman and Chief Executive Officer of the Company on
January 16, 1996 and prior thereto, Mr. Mathis served as a Vice
President of the Company since July, 1989. Mr. Mathis acted as the
Federal Court Appointed Trustee for International Wire News Service
Liquidation Corp., formerly United Press International (UPI), from
August 1992 to May 1994. From November 1991 to July 1992, he served
as Vice Chairman and a Director of UPI (then a news syndication
service). Mr. Mathis was President and Chief Operating Officer of
Ameriscribe Corporation, New York from May 1990 to October 1993 and
is currently President and a Director of Universal Gym Equipment,
Inc. From 1993 to 1995 Mr. Mathis was President and a Director of
RCL Capital Corporation. He is also a Director of USTrails Inc., a
private company, Allied Digital Technologies Corp. and Canadians
Corp.
Claude D. Montgomery, age 44, a director since December 1988. Since
November 1996, Mr. Montgomery has been a partner in Phillips Lytle
Hitchcock Blaine & Huber, a law firm. From June 1993 to October
1996, Mr. Montgomery was a director and shareholder in Marcus
Montgomery P.C., a law firm, formerly known as Marcus Montgomery
Wolfson P.C. Mr. Montgomery was a director and shareholder in Varet,
Marcus & Fink P.C., formerly known as Milgrim, Thomajan & Lee P.C.,
attorneys, New York, from August 1989 through June 1993. Mr.
Montgomery was a founding partner of Myerson & Kuhn, attorneys, New
York, from January 1988 to July 1989. Prior to that time and since
1984, he was a founding partner of Booth, Marcus & Pierce, attorneys,
New York.
Robert E. Nederlander, age 63, a director since May 1989.
Mr. Nederlander was elected by the Board of Directors on November 16,
1993 to serve as a Vice Chairman of the Board, having previously
served as Chairman of the Board and Chief Executive Officer of the
Company since May 1989. He resigned as Vice Chairman on October 18,
1996. He is also President and director of Nederlander Organization,
Inc., New York, an owner and operator of one of the world's largest
chains of theaters, since November 1981; President of Nederlander
Television and Film Productions, Inc. since October 1985; Partner in
New York Yankees Baseball Club since 1973 and Managing General
Partner from September 13, 1990 through December 31, 1991; director
and Chairman of the Board of Riddell Sports, Inc. since April 1988;
Chairman of the Board of MEGO Financial Corporation since January
1988; and a director of MEGO Mortgage Corp., News Communications,
Inc. and HFS Incorporated since 1995.
John E. Sundman, age 70, a director since December 1988. Mr. Sundman
retired in December 1991 as Vice President of Corcap, Inc., Hartford,
Connecticut, a position which he held since July 1988, when Corcap
was spun off by Lydall, Inc., Manchester, Connecticut. Prior to that
time and since April 1978, he was Vice President, Chief Financial
Officer and a director of Lydall, Inc. He remains a director of
Corcap, Inc.
Allan R. Tessler, age 60, a director since September 1992. Mr.
Tessler served as Chairman of the Board and Chief Executive Officer
of the Company from November 1993 until January 1996. Mr. Tessler
is Chairman of the Board and Chief Executive Officer of International
Financial Group, Inc. since 1987; and Co-Chief Executive Officer of
Data Broadcasting Corporation since June 1992. Mr. Tessler is also
Chairman of the Board of Enhance Financial Services Group, Inc. and
Jackpot Enterprises, Inc. and director of The Limited, Inc.
Leonard Toboroff, age 63, a director since May 1989. Mr. Toboroff
has been a Vice Chairman of the Board and an Executive Vice President
of the Company since May 1989; a director and Vice Chairman of
Riddell Sports, Inc. from April 1988 to the present; a practicing
attorney continuously since 1961 to the present; a director since
August 1987 and former Chairman and Chief Executive Officer from
December 1987 to May 1988 of Ameriscribe Corporation; and formerly a
director, Chairman and Chief Executive Officer from May 1982 through
June 1982 and Vice Chairman June 1982 through September 1988 of
American Bakeries Company. Mr. Toboroff is also a director of Banner
Aerospace, Inc. and Saratoga Beverage, Inc.
(b) Identification of Executive Officers
Name, Age as of March 1,
1997, and Position Business Experience
H. Sean Mathis, 49, See Item 10, subsection (a) above.
Chairman of the Board and
Chief Executive Officer
Leonard Toboroff, 63, See Item 10, subsection (a) above.
Vice Chairman of the Board
and Executive Vice
President
John T. Grigsby, Jr., 56, See Item 10, subsection (a) above.
Vice Chairman of the Board,
Executive Vice President and
Chief Financial Officer
Jeffrey I. Lehman, 47, Mr. Lehman commenced his employment
Treasurer with Allis-Chalmers and was elected
to his current position in
February, 1996. Since 1991, Mr.
Lehman has been employed by the A-C
Reorganization Trust and Thomson
McKinnon Securities during winddown
and liquidation of their affairs.
He has also provided financial
consultation since 1985.
William L. Vaitl, 63, Mr. Vaitl commenced his employment
Secretary & Assistant Treasurer with Allis-Chalmers in July 1962
serving in a number of management
positions including Assistant
Treasurer. In December 1988 to the
present, Mr. Vaitl commenced
employment with the A-C
Reorganization Trust. In February
1996, he was reappointed Assistant
Treasurer and in April 1997,
elected as corporate Secretary.
(c) Identification of Certain Significant Employees
None
(d) Family Relationships
None
(e) Business Experience
See this Item 10, subsections (a) and (b) above.
(f) Involvement in Certain Legal Proceedings
None
(g) Promoters and Control Persons
Not applicable
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
No executive officer earned in excess of $100,000 in 1996. Allan R.
Tessler and H. Sean Mathis who served as Chairman of the Board and Chief
Executive Officer in 1995 and 1996, respectively, received no
compensation. Mr. Tessler resigned from these positions on January 16,
1996.
LONG-TERM STOCK INCENTIVE PLAN
The Company's Long-Term Stock Incentive Plan (1989), adopted by the
shareholders at the 1989 shareholders meeting, provides for grants to
officers and key employees of stock options, stock appreciation rights,
performance shares, restricted stock, restricted stock units and other
stock-based awards. The maximum number of shares which may be granted
with respect to stock-based awards is 50,000. Options to purchase shares
may be granted at prices equal to not less than the fair market value at
the date of grant, except that options to purchase up to 13,333 shares may
be granted at a price which is not less than the fair market value on
October 25, 1989, the date on which the Stock Incentive Plan was approved
by shareholders. Options are exercisable within a period not to exceed 10
years from date of grant. Stock appreciation rights allow the holder to
receive the difference between the exercise price and the fair market
value of the stock at the date of exercise in cash or shares of common
stock. No stock options or stock appreciation rights have been granted to
date.
RETIREMENT PLAN
The Allis-Chalmers Consolidated Pension Plan covers 6 active employees at
the beginning of 1997. The Retirement Plan is a tax qualified defined
benefit pension plan. Effective March 31, 1987, the Retirement Plan was
capped and frozen, without further increase in benefits provided by the
Company after that date.
The retirement benefits paid under this plan are before any adjustment for
a surviving spouse's pension and are not subject to Social Security offset
or other deductions.
SAVINGS PLAN
The Company's Savings Plan was initiated in 1968. The Savings Plan
permits the Company to contribute in its discretion cash or stock to
participants' accounts. However, on June 1, 1985 the Company discontinued
contributions to the Savings Plan. Employees may terminate voluntary
participation in certain portions of the Savings Plan and withdraw their
voluntary after tax contributions at any time. However, there are
restrictions on withdrawals of the Company matching contributions.
Upon retirement, death or other termination of employment, employee
account balances generally may be withdrawn in lump sum or in
installments. Withdrawal of contributions is also permitted for defined
hardships.
During 1996 contributions by Company participants to the Savings Plan
under Section 401(k) of the Internal Revenue Code totaled $49,204. At
December 31, 1996 there were a total of 234 participants in the Savings
Plan, of whom 17 were active employees of the Company.
COMPENSATION OF DIRECTORS
Since December 1, 1990, the annual retainer for services as a director
(previously $13,500 per year) has been suspended, the attendance fee for
each Board meeting attended was reduced from $425 to $100 and the
attendance fee for each Committee meeting was suspended.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT
None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners
The following table lists the beneficial ownership with respect to
all persons known to the Company to be the beneficial owner of more
than 5% of the Company's Common Stock as of March 1, 1997.
Amount and Nature Percent of
Name and Address of Ownership Class
AL-CH Company, L.P., 810
Seventh Avenue, New York,
NY 10019 (includes shares
held by Messrs. Nederlander
and Toboroff as described
below) 407,251(1) 40.6%
Wells Fargo Bank, P.O. Box
60347, Los Angeles, CA 90060,
Trustee under that certain
Amended and Restated Retiree
Health Trust Agreement for
UAW Retired Employees of
Allis-Chalmers Corporation 136,406 13.6%
Firstar Trust Company,
777 East Wisconsin Avenue,
Milwaukee, WI 53202, Trustee
under that certain Amended and
Restated Retiree Health Trust
Agreement for Non-UAW Retired
Employees of Allis-Chalmers
Corporation 101,977 10.2%
(1) Messrs. Nederlander and Toboroff are beneficial owners of and have
shared voting power and shared dispositive power over the 407,251
shares of common stock held by AL-CH Company, L.P., a Delaware
limited partnership, of which the general partners are Q.E.N., Inc.,
a Michigan corporation controlled by Mr. Nederlander, and Lenny
Corp., a Delaware corporation controlled by Mr. Toboroff. Mr. Allan
R. Tessler is a limited partner in AL-CH Company, L.P.
(b) Security Ownership of Management
The following table sets forth the number of shares of common stock
of the Company beneficially owned as of March 1, 1997 by directors,
and all directors and executive officers as a group. Except as
otherwise noted in the footnotes, the persons listed have sole voting
and investment power over the shares beneficially owned.
Amount and Nature Percent of
Name of Ownership Class
John R. Collins 0 *
John T. Grigsby, Jr. 9,535 1.0%
H. Sean Mathis 0 *
Claude D. Montgomery 533(1) *
Robert E. Nederlander 407,251(2) 40.6%(2)
John E. Sundman 3,333 *
Allan R. Tessler 0 *
Leonard Toboroff 407,251(2) 40.6%(2)
All directors and
officers as a group
(nine persons) 420,652 42.0%
*less than 1%
(1) Shares are owned beneficially by Mr. Montgomery's spouse as to which
he disclaims beneficial ownership.
(2) Messrs. Nederlander and Toboroff are beneficial owners of and have
shared voting power and shared dispositive power over the 407,251
shares of common stock held by AL-CH Company, L.P., a Delaware
limited partnership, of which the general partners are Q.E.N., Inc.,
a Michigan corporation controlled by Mr. Nederlander, and Lenny
Corp., a Delaware corporation controlled by Mr. Toboroff. Mr. Allan
R. Tessler is a limited partner in AL-CH Company, L.P.
(c) Changes in Control
None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with Management and Others
None
(b) Certain Business Relationships
None
(c) Indebtedness of Management
None
(d) Transactions with Promoters
Not applicable
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) The Selected Financial Data, Management's
Discussion and Analysis and the Company's
financial statements, together with the
report thereon of Price Waterhouse LLP,
appearing on pages 5 through 26 of the
Company's 1996 Annual Report to Shareholders,
are incorporated by reference in this Annual
Report on Form 10-K. With the exception of
the aforementioned information, the 1996
Annual Report to Shareholders is not deemed
to be filed as part of this report. The
schedule to the financial statements listed
below should be read in conjunction with the
financial statements in such 1996 Annual Report
to Shareholders. Financial statement schedules
not included in this Form 10-K Annual Report
have been omitted because they are not
applicable or the required information is shown
in the financial statements or notes thereto.
Allis-Chalmers Corporation and Consolidated
Subsidiaries - Schedule to Financial Statements:
II. Valuation and Qualifying Accounts. Page 19
Report of Independent Accountants on
Financial Statement Schedule.
Page 20
(b) Reports on Form 8-K. There were no reports
on Form 8-K filed in the fourth quarter of 1996.
However, the Company filed a Form 8-K dated
February 14, 1997 to report (under Item 5.) that
it filed with the PBGC to initiate the
termination of the Consolidated Plan.
(c) Exhibits:
2f.1. First Amended Disclosure Statement
pursuant to Section 1125 of the Bankruptcy Code,
which includes the First Amended and Restated
Joint Plan of Reorganization dated September 14, 1988
(incorporated by reference to the Company's Report
on Form 8-K dated December 1, 1988).
3.1. Amended and Restated Certificate of
Incorporation of Allis-Chalmers Corporation
(incorporated by reference to the Company's
Report on Form 8-A dated August 12, 1992).
3.2. By-laws of Allis-Chalmers Corporation
(incorporated by reference to the Company's
Report on Form 8-A dated August 12, 1992).
10.1. Amended and Restated Retiree Health
Trust Agreement between Allis-Chalmers
Corporation and Wells Fargo Bank (incorporated
by reference to Exhibit C-1 of the First Amended
and Restated Joint Plan of Reorganization dated
September 14, 1988 included in the Company's
Report on Form 8-K dated December 1, 1988).
10.2. Amended and Restated Retiree Health
Trust Agreement between Allis-Chalmers
Corporation and Firstar Trust Company
(incorporated by reference to Exhibit C-2
of the First Amended and Restated Joint Plan
of Reorganization dated September 14, 1988
included in the Company's Report on Form 8-K
dated December 1, 1988).
10.3. Reorganization Trust Agreement between
Allis-Chalmers Corporation and John T. Grigsby, Jr.,
Trustee (incorporated by reference to Exhibit D
of the First Amended and Restated Joint Plan of
Reorganization dated September 14, 1988 included
in the Company's Report on Form 8-K dated
December 1, 1988).
10.4. Product Liability Trust Agreement between
Allis-Chalmers Corporation and Bruce W. Strausberg,
Trustee (incorporated by reference to Exhibit E
of the First Amended and Restated Joint Plan of
Reorganization dated September 14, 1988 included
in the Company's Report on Form 8-K dated
December 1, 1988).
10.5.* Allis-Chalmers Corporation Long-Term
Stock Incentive Plan (1989) (incorporated by
reference to the Company's Report on Form 10-Q
for the three months ended September 30, 1989).
10.6. Subscription and Shareholder Agreement
between Allis-Chalmers Corporation and AL-CH
Company, L.P. dated May 18, 1989 (incorporated
by reference to the Company's Report on Form 8-K
dated May 24, 1989).
10.7. Commercial Installment Loan Agreement
by and between Allis-Chalmers Corporation and
Marine Midland Bank, N.A., dated as of
December 20, 1989 (incorporated by reference
to the Company's Report on Form 8-K dated
December 20, 1989).
10.8.* Employment Agreement between Allis-Chalmers
Corporation and John T. Grigsby, Jr. (incorporated
by reference to the Company's Report on Form 10-Q
for the three months ended September 30, 1989).
10.9. Asset Purchase Agreement by and between
Allis-Chalmers Corporation, B.R.B. Industries,
Inc., Jack Ehrenhaus and Fredric Allen dated
as of November 7, 1989 (incorporated by
reference to the Company's Report on Form 8-K
dated December 20, 1989).
10.10.*Allis-Chalmers Savings Plan
(incorporated by reference to the Company's
Report on Form 10-K for the year ended
December 31, 1988).
10.11.*Allis-Chalmers Consolidated
Pension Plan (incorporated by reference to
the Company's Report on Form 10-K for the
year ended December 31, 1988).
10.12. Asset Purchase Agreement by and
between Allis-Chalmers Corporation and BRB
Industries Corp. dated as of August 4, 1994,
and amended by and among Allis-Chalmers
Corporation, BRB Industries Corp.
and Power Manufacturing, Inc. as of
September 22, 1994 (incorporated by reference
to the Company's Report on Form 8-K
dated September 22, 1994).
13.1. 1996 Annual Report to Shareholders
of Allis-Chalmers Corporation (only those
portions of such Annual Report that are
incorporated by reference in this
Report on Form 10-K are deemed filed herewith).
21.1. Subsidiaries of Allis-Chalmers Corporation.
27.1. Financial Data Schedule.
*A management contract or compensatory plan or arrangement.
<PAGE>
<TABLE>
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<CAPTION>
(thousands)
Balance at Balance
Year Ended Beginning at Close
December 31, 1994 of Period Additions Deductions of Period
<S> <C> <C> <C> <C>
Doubtful receivables $ 249 $ 73 $ 3 $ 319
Plant rearrangement $ 68 $ 0 $ 0 $ 68
------------- ------------ ------------ ----------
Restructure costs 48 0 48 0
------------- ------------ ------------ ----------
$ 116 $ 0 $ 48 $ 68
============= ============ ============ ==========
<CAPTION>
Balance at Balance
Year Ended Beginning at Close
December 31, 1995 of Period Additions Deductions of Period
Doubtful receivables $ 319 $ 0 $ 13 $ 306
Plant rearrangement $ 68 $ 0 $ 0 $ 68
------------ ----------- ----------- ----------
<CAPTION>
Balance at Balance
Year Ended Beginning at Close
December 31, 1996 of Period Additions Deductions of Period
Doubtful receivables $ 306 $ 0 $ 276(a) $ 30
Plant rearrangement $ 68 $ 0 $ 68 $ 0
------------ ----------- ---------- ----------
(a) Includes writeoff of uncollectible receivables, less recoveries.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Allis-Chalmers Corporation
Our audits of the consolidated financial statements referred to in our
report dated March 24, 1997 appearing in the 1996 Annual Report to
Shareholders of Allis-Chalmers Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report
on Form 10-K) also included an audit of the Financial Statement Schedule
listed in Item 14(a) of this Form 10-K. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
March 24, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Allis-Chalmers Corporation
/s/John T. Grigsby, Jr.
John T. Grigsby, Jr.
Vice Chairman, Executive Vice
President and Chief Financial Officer
Date: March 15, 1997
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this report has been signed on March 15,
1997 by the following persons on behalf of the registrant and in the
capacities indicated.
/s/H. Sean Mathis /s/Robert E. Nederlander
H. Sean Mathis Robert E. Nederlander,
Chairman of the Board, Director
Chief Executive Officer
and Director
/s/ John R. Collins /s/John E. Sundman
John R. Collins, Director John E. Sundman, Director
/s/John T. Grigsby, Jr. /s/Allan R. Tessler
John T. Grigsby, Jr. Director Allan R. Tessler, Director
/s/Claude D. Montgomery /s/Leonard Toboroff
Claude D. Montgomery, Director Leonard Toboroff, Director
<PAGE>
EXHIBIT INDEX
13.1. 1996 Annual Report to Shareholders of Allis-Chalmers
Corporation (only those portions of such Annual Report
that are incorporated by reference in this Report on
Form 10-K are deemed filed herewith).
21.1. Subsidiaries of Allis-Chalmers Corporation.
27.1. Financial Data Schedule.
<PAGE>
THE BUSINESS OF ALLIS-CHALMERS
Houston Dynamic Service, Inc., a Company subsidiary, operates a business
in Houston, Texas which services and repairs mechanical equipment,
including compressors, pumps, turbines, engines, heat exchangers,
centrifuges, rollers, gears, valves, blowers, kilns, crushers and mills.
It serves various industrial customers, including those in the
petrochemical, chemical, refinery, utility, waste and waste treatment,
minerals processing, power generation, pulp and paper and irrigation
industries.
On March 1, 1997, Allis-Chalmers had 42 employees and 7,210 shareholders
of record.
Headquarters
Allis-Chalmers Corporation
Box 512
Milwaukee, WI 53201-0512
Contents
The Business of Allis-Chalmers 1
Report to Our Shareholders 2
Market for Common Stock and
Related Shareholder Matters 4
Selected Financial Data 5
Management's Discussion and Analysis 6
Report of Independent Accountants 11
Consolidated Financial Statements 12
Notes to Consolidated Financial Statements 15
Officers and Directors 27
Board Committees 28
<PAGE>
REPORT TO OUR SHAREHOLDERS
H. Sean Mathis
Chairman of the Board
and Chief Executive Officer
Dear Shareholders:
I am pleased to report that the Allis-Chalmers operating results of
Houston Dynamic Service, Inc. (HDS) have improved significantly from 1995.
However, Allis-Chalmers still has major obstacles to overcome to be able
to successfully continue its business. The major underfunding of the
Allis-Chalmers Consolidated Pension Plan (Consolidated Plan) along with
the continued unsuccessful search for an acquisition or a financing
partner continue to jeopardize the future of the Company. This became
more critical in 1996 as scheduled funding payments became past due to the
Consolidated Plan.
Financial Results
With the sale of the B.R.B. Industries division (BRB) in 1994, the
Company's continuing operation consists of HDS, a machinery repair and
service business.
Sales totaled $4.1 million in 1996, a 27% increase from $3.2 million
in 1995. The increase is primarily the result of strong market conditions
coupled with a more focused marketing strategy and product offering.
Gross margin as a percentage of sales was 26.1% in 1996 compared with
25.7% in 1995.
Marketing and administrative expense of $1.4 million in 1996 was
slightly higher then the 1995 level of $1.3 million. The increase was due
primarily to higher sales and marketing expense at HDS which was required
to achieve higher sales in 1996. The increase was kept to a minimum due
to cost reduction efforts at HDS and the absence of any significant
corporate expenses incurred in connection with an acquisition search. As
a percentage of sales, marketing and administrative expense decreased to
35% in 1996 compared with 41% in 1995.
The Company reported a net loss of $1.7 million (including
recognition of pension expense of $1.4 million), or $1.72 per common
share, in 1996 compared with a net loss of $1.4 million (including
recognition of pension expense of $1.1 million), or $1.44 per common
share, in 1995.
Acquisition Environment
The Company continued to attempt to identify and evaluate acquisition
candidates and financing partners during 1996. The Company's environment
for these transactions was and remains very difficult. The Company's lack
of cash for investment, restrictions on debt financing and the uncertainty
associated with the Company's exposure for the underfunding of the
Consolidated Plan all contribute to the Company's inability to consummate
an acquisition or financing.
Given the present financial condition of the Company, a meaningful
acquisition will be very difficult to identify and complete. The Company
continues to believe, however, that it should investigate suitable
acquisition or financing opportunities and attempt to develop an alliance
with a strategic partner in order to increase its operating base and
generate positive cash flow. The Company recognizes that any acquisition
would have to be financed by additional borrowing, new equity financing or
a capital infusion by a new partner. The current financial condition of
the Company is a significant impediment to additional borrowing or an
equity investment.
Pension Plan
The Company is the plan sponsor for the Consolidated Plan. For the years
1989 through 1993, retirees covered by the Consolidated Plan outlived the
assumptions of mortality used in 1988 to calculate the additional funding
needed to fully fund the Consolidated Plan. Given this continued
experience, the Company's independent actuaries revised the mortality
assumptions used to calculate future liabilities effective January 1, 1994
to reflect this decrease in mortality. As a result, the Company has a
greater future pension liability as its retirees continue to receive
monthly pensions throughout their longer-projected lives. This change in
mortality assumptions, along with a slight increase in the assumption for
future administrative costs, resulted in an underfunding on a present
value basis of $15.1 million as of December 31, 1996.
This underfunded condition required the Company to make significant
cash contributions to the Consolidated Plan pursuant to ERISA minimum
funding requirements starting in 1996. In 1994, the Retirement Protection
Act of 1994 (Act) was enacted as part of the General Agreement on Tariffs
and Trade legislation. This Act requires faster funding of underfunded
pension plans. While the first cash contribution to the Consolidated Plan
for $205,000 was made in January 1996, additional cash contributions and
interest of $2,386,000 are past due as of December 31, 1996. In addition
cash contributions and interest of $4,564,000 are due in 1997.
Based on the Company's limited financial resources to make
contributions, this requirement for contributions continues to have a
material adverse effect on the Company. 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. Given the inability
of the Company to fund such an obligation with its current financial
resources, a notice of intent to terminate the Consolidated Plan was
mailed to Plan participants on February 12, 1997 and a filing of
appropriate documentation was made with the Pension Benefit Guaranty
Corporation (PBGC). The termination is anticipated to result in the
assumption by the PBGC of the Consolidated Plan with the consequence of a
liability to the PBGC in excess of the current net worth of the Company.
The Company has been engaged in ongoing discussions with the PBGC
concerning the liability. Although it is not possible to predict the
outcome of such discussions, the Company's options include seeking
protection from its creditors by commencing another bankruptcy.
Outlook
The challenges for 1997 are significant. In particular, the pension plan
underfunding issue and the continued search for an acquisition or a
financing partner are matters on which we must remain focused. However,
limited financial resources and the uncertainty of available financing
will make these challenges most difficult.
On behalf of the directors and officers of Allis-Chalmers, I request
the support of you, the shareholders, as we address these difficult
challenges.
<PAGE> [Page 4]
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's First Amended and Restated Joint Plan of Reorganization
(Plan of Reorganization) provided for cancelling the old common stock of
Allis-Chalmers on December 2, 1988 and issuing new common stock of the
reorganized Company (Common Stock) to certain holders of claims and
interests, including holders of old common stock.
After receiving approval of a majority of shareholders of Common Stock,
the Company amended its Amended and Restated Certificate of Incorporation
(Amendment), effective as of July 8, 1992, to effect a 1-for-15 reverse
stock split of the Common Stock pursuant to which each 15 shares of Common
Stock, $.01 par value per share, were combined into one share of new
Common Stock, $.15 par value per share. In lieu of the issuance of
fractional shares of Common Stock, the Amendment provided that
shareholders owning less than 15 shares of Common Stock were entitled to
receive a cash payment at the rate of $8.85 per share of Common Stock
(equivalent to $0.59 per share of the presplit Common Stock). This
action, decreased the number of outstanding shares of Common Stock to
1,003,596 from 15,164,195 shares immediately prior to the reverse stock
split and decreased the number of shareholders to 7,408 from 17,799 prior
to the reverse stock split. Per share amounts in the accompanying
financial statements have been restated to reflect the reverse stock
split.
Pursuant to the Stock Sales Escrow Agreement which was established in
conjunction with the Plan of Reorganization, the Company's stock transfer
agent, Continental Stock Transfer & Trust Company, completed the first
release of shares of Common Stock from escrow in July 1992. Stock
certificates, representing approximately 40% of the outstanding shares of
Common Stock held in escrow, were distributed to shareholders of record as
of the close of business on July 8, 1992. The balance of the outstanding
shares of Common Stock were released from escrow on August 1, 1995.
The Common Stock is subject to trading restrictions that are set forth in
its Amended and Restated Certificate of Incorporation. The trading
restrictions are designed to maximize the likelihood of preserving the
Company's substantial net operating loss carryforwards. There is no
established public trading market for the Common Stock. It is not certain
when or if trading in the Common Stock will commence or on which
registered stock exchange or quotation system, if any, the Common Stock
may eventually be listed or quoted. At the present time, the Company does
not intend to file a listing application to any registered national stock
exchange or Nasdaq for trading or quotation of the Common Stock.
No dividends were declared or paid during 1996, 1995 or 1994.
[Page 5]
SELECTED FINANCIAL DATA (1)
1996 1995 1994 1993 1992
(millions, except per share data)
Statement of Operations
Data:
Sales $ 4.1 $ 3.2 $ 3.6 $ 3.3 $ 3.8
Income (loss) from:
Continuing Operations (1.7) (1.4) (1.1) (1.3) (1.7)
Discontinued
Operations - - (0.2) 0.2 0.9
Sale of molded
fabric products
division - - (2.9) - -
Cumulative effect
of accounting
change - - - (1.0) -
--- --- --- --- ---
Net loss (1.7) (1.4) (4.2) (2.1) (.8)
Income (loss) per share
from:
Continuing Operations (1.72) (1.44) (1.08) (1.31) (1.65)
Discontinued
Operations - - (.23) .24 .82
Sale of molded
fabric products
division - - (2.82) - -
Cumulative effect
of accounting
change - - - (1.02) -
---- ---- ---- ---- ----
Net loss (1.72) (1.44) (4.13) (2.09) (.83)
Statement of Financial
Condition Data:
Total assets 3.4 4.1 4.6 11.5 12.9
Long-term debt
classified as:
Current 0.1 0.3 - 0.2 1.1
Long-term 0.3 - 0.3 3.1 2.4
Shareholders'
(deficit) investment (13.6) (9.9) (6.9) (3.2) 8.0
(1) Restated to reflect the results of operations of the Company's BRB
division as discontinued operations. See Note 3 of Notes to
Consolidated Financial Statements.
<PAGE> [Pages 6-10]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion should be read in conjunction with the Report to Our
Shareholders and the Consolidated Financial Statements including the Notes
to Consolidated Financial Statements.
Overview
Allis-Chalmers, after emerging from Chapter 11 under the Company's Plan of
Reorganization which was consummated on December 2, 1988, entered into an
agreement with AL-CH Company, L.P. (Investor) pursuant to which the
Investor agreed to purchase 6.1 million shares of Common Stock (40% of the
outstanding Common Stock) for $3,750,000 in cash. The Investor is a
limited partnership controlled by Messrs. Robert E. Nederlander and
Leonard Toboroff.
The acquisition environment has been unfavorable since the Investor's cash
contribution to the Company and remained very difficult for the Company
during 1996. The problems continued to include the Company's lack of cash
for investment, limited availability of debt financing for acquisitions
and the financial exposure associated with the Allis-Chalmers Consolidated
Pension Plan (Consolidated Plan). These conditions become even more
critical in 1997 since as of December 31, 1996 payments totaling
$2,386,000 are past due to the Consolidated Plan. Therefore, the Company
continues to proceed cautiously with its efforts to identify and evaluate
potential candidates for acquisition. Currently, the Company is not in
discussions with any such potential candidate.
The Company continues its efforts to conserve cash resources. However,
the expenses associated with the ongoing Securities and Exchange
Commission and other governmental reporting as well as legal, accounting
and audit, tax, insurance and costs associated with other corporate
requirements of a publicly held company will make it difficult for the
Company, at its present size, to achieve a positive cash flow.
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 is underfunded on a present
value basis by $15.1 million. The Company has recorded the liability
related to this underfunded position, resulting in the elimination of its
shareholders' equity. In the first quarter of 1996, the Company made a
cash contribution in the amount of $205,000. The Company did not,
however, have the financial resources to make the other required payments
during 1996 and $2,386,000 in payments were past due as of December 31,
1996. In addition, there are substantial payments due in 1997 and 1998.
Given the inability of the Company to fund such an obligation with its
current financial resources, a Notice of Intent to Terminate the
Consolidated Plan was mailed to Plan participants on February 12, 1997 and
the filing of the appropriate documentation was made with the Pension
Benefit Guaranty Corporation (PBGC). The termination is anticipated to
result in the assumption by the PBGC of the Consolidated Plan with the
consequence of a liability to the PBGC significantly in excess of the
current net worth of the Company. The Company has been engaged in ongoing
discussions with the PBGC concerning the Consolidated Plan. The failure
to meet the 1995 minimum obligation of $378,459 to the Consolidated Plan
also results in a 10% excise tax liability to the IRS at December 31,
1996. To date, the IRS has not assessed the additional 100% excise tax
which may be imposed on the accumulated funding deficiency for 1995.
Failure to meet the minimum funding obligations for 1996 will also result
in additional excise tax liabilities to the IRS. The Company also intends
to seek a settlement of these tax obligations with the IRS. Although it
is not possible to predict the outcome of discussions with the PBGC and
IRS, the Company's options include seeking protection from its creditors
by commencing another bankruptcy filing.
Results of Operations
Results of operations for 1996 and 1995 reflect the sole operation of the
business of Allis-Chalmers: the machine repair business, HDS. The
results of operations for 1994 also included the molded-fabric-product
business, BRB, which was sold in September 1994.
Sales from continuing operations totaled $4.1 million in 1996, a 27%
increase over 1995 sales, compared with $3.2 million and $3.6 million in
1995 and 1994, respectively. The increase in sales from 1995 is primarily
the result of strong market conditions coupled with a more focused
marketing strategy and product offering.
Gross margins, as a percentage of sales, were 26.1%, 25.7% and 28.2% in
1996, 1995 and 1994, respectively.
Marketing and administrative expense was $1.4 million, $1.3 million and
$1.4 million in 1996, 1995 and 1994, respectively. The increase in 1996
was kept to a minimum despite a 27% increase in sales due to continued
cost reduction efforts and the absence of any significant expenses
relating to the Company's search for and evaluation of an acquisition
candidate in 1996. Marketing and administrative expense was 34.8% of
sales in 1996 compared with 41.1% in 1995 and 40.1% in 1994. Marketing
and administrative expense has been significantly reduced since 1994 as a
result of cost reduction activity at HDS and at the Company's corporate
offices. A significant portion of the Company's administrative expense
relates to expenses for Securities and Exchange Commission and other
governmental reporting as well as the legal, accounting and audit, tax,
insurance and other requirements of a publicly held company.
The Company had a loss from operations of $353,000 in 1996 compared with a
1995 loss of $491,000 and a loss of $382,000 in 1994. The change from
1995 resulted primarily from increased sales.
Interest income in each of the years resulted mainly from earnings on
short-term investments. However, for the complete year of 1995, interest
income also was derived from a note receivable from the sale of BRB in
September of 1994. This accounted for the increase in 1995. Interest
expense primarily relates to a term loan, the proceeds of which were used
to purchase the shop and office building from which HDS operates.
Pension expense was $1,422,000, $1,067,000 and $639,000 in 1996, 1995 and
1994, respectively. These amounts relate to the recognition of the
pension liability associated with the Consolidated Plan in accordance with
Statement of Financial Accounting Standards No. 87 "Employer's Accounting
for Pensions."
The Company incurred a net loss of $1,728,000 (including recognition of
pension expense of $1,422,000), or $1.72 per common share, in 1996
compared with a net loss of $1,448,000 (including recognition of pension
expense of $1,067,000), or $1.44 per common share, in 1995.
In 1994, the Company incurred a net loss of $4,174,000, or $4.13 per
common share. The net loss in 1994 included a loss from continued
operations of $1,087,000 or 1.08 per common share. The Company reported a
loss from discontinued operations of $231,000 or .23 per common share in
1994. The 1994 loss from discontinued operations reflected the continued
declining sales by BRB. The Company incurred a loss on the sale of BRB of
$2,856,000 or $2.82 per common share in 1994. The loss on the sale of BRB
included the write off of $2,076,720 in intangible assets associated with
the Company's acquisition of BRB in 1989.
Liquidity and Capital Resources
At December 31, 1996, the Company had cash and short term investments
totaling $1.6 million, a decrease from $1.9 million at December 31, 1995.
This decrease was the result of expenses associated with the ongoing
corporate reporting, as well as legal, accounting, pension, audit, tax and
insurance.
Trade receivables at December 31, 1996 were $652,000, compared with
$265,000 at December 31, 1995. This increase was primarily the result of
certain major projects completed and billed by HDS near the end of the
year.
Non-trade receivables were $36,000 at December 31, 1996 a decrease from
$664,000 at December 31, 1995. The decrease was primarily the result of a
negotiated settlement for $500,000 for amounts due from the sale of the
Company's BRB division.
Inventory at December 31, 1996, was $93,000, down from $128,000 at year
end 1995. The higher amount in 1995 was due to a job in progress at the
end of 1995 which was completed in early 1996.
The Company had no significant capital expenditure commitments as of
December 31, 1996.
Current maturities of long-term debt at December 31, 1996 were $54,000
compared with $299,000 at year-end 1995. This decrease was the result of
the refinancing of the balloon payment due August 20, 1996 from the real
estate loan originally refinanced by HDS in August, 1993. The proceeds of
the original loan were used in 1990 for the purchase of the land and
building in which HDS operates its business in Houston, Texas. The amount
refinanced is required to be repaid in monthly installments of $3,278
through August 20, 2001, when the remaining unpaid balance shall be due.
At December 31, 1996, the interest rate on the note was 10.25%. This rate
is subject to adjustments during the term of the note in accordance with
increases or decreases in the prime rate. The note is secured by the HDS
facility having a net book value of $472,000 at December 31, 1996 and the
Company's guaranty.
The Company's principal sources of cash include earnings from operations
and interest income on short-term investments. The cash requirements
needed for the administrative expenses associated with being a publicly
held company are significant, and management believes that the Company
will continue to use a substantial portion of its cash balances in 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. 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 1993, retirees eligible for benefits under the
Consolidated Plan have, 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
have been 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 have created an underfunded
condition as of December 31, 1996 in the Consolidated Plan of $15.1
million on a present value basis.
This underfunded condition in the Consolidated Plan requires the Company
to make significant cash contributions to the Consolidated Plan pursuant
to ERISA funding requirements starting in 1996. Contributions and
interest in the amount of $2.4 million were past due as of December 31,
1996 with payments of $4.6 million due in 1997.
In 1996, the Company made a payment of $205,000 to the Consolidated Plan.
The Company has failed to make required quarterly contributions starting
in April 1996, resulting in the filing of a lien by the PBGC against the
Company. Given the inability of the Company to fund such an obligation
with its current financial resources, a Notice of Intent to Terminate the
Consolidated Plan was mailed to Plan participants on February 12, 1997 and
the filing of the appropriate documentation was made with the Pension
Benefit Guaranty Corporation (PBGC). The termination is anticipated to
result in the assumption by the PBGC of the Consolidated Plan with the
consequence of a liability to the PBGC significantly in excess of the
current net worth of the Company. The Company has been engaged in ongoing
discussions with the PBGC concerning the Consolidated Plan. The failure
to meet the 1995 minimum obligation of $378,459 to the Consolidated Plan
also results in a 10% excise tax liability to the IRS at December 31,
1996. To date, the IRS has not assessed the additional 100% excise tax
which may be imposed on the accumulated funding deficiency for 1995.
Failure to meet the minimum funding obligations for 1996 will also result
in additional excise tax liabilities to the IRS. The Company also intends
to seek a settlement of these tax obligations with the IRS. Although it
is not possible to predict the outcome of discussions with the PBGC and
IRS, the Company's options include seeking protection from its creditors
by commencing another 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.
Financial Condition
Shareholders' deficit at December 31, 1996 was $13.6 million. A three-
year comparison of shareholders' deficit follows:
(millions) 1996 1995 1994
January 1 $ (9.9) $ (6.9) $ (3.2)
Net loss (1.7) (1.4) (4.1)
Pension liability adjustment (2.0) (1.6) 0.4
---- ---- ----
December 31 $ (13.6) $ (9.9) $ (6.9)
==== ==== ====
<PAGE> [Pages 11-26]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Allis-Chalmers Corporation
In our opinion, the consolidated financial statements appearing on pages
12 through 26 of this report present fairly, in all material respects, the
financial position of Allis-Chalmers Corporation and its subsidiaries at
December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has failed to make
required contributions to the Allis-Chalmers Consolidated Pension Plan.
As of December 31, 1996, approximately $2.4 million in contributions and
interest are past due and an additional $4.6 million in contributions will
be required during 1997. The Company does not currently have the
financial resources to make these required contributions and has expressed
its intent to terminate the plan effective April 14, 1997, which would
result in a liability to the Pension Benefit Guaranty Corporation
significantly in excess of the current net worth of the Company. This
matter raises substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to this matter are
described in Notes 10 and 11 to the financial statements. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Price Waterhouse LLP
March 24, 1997
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31 1996 1995 1994
(thousands, except per share)
Sales $ 4,060 $ 3,190 $ 3,580
Cost of sales 3,000 2,371 2,571
------ ------ ------
Gross Margin 1,060 819 1,009
Marketing and administrative
expense 1,413 1,310 1,434
Restructuring costs - - (43)
------ ------ ------
Loss from Operations (353) (491) (382)
Other income (expense)
Interest income 70 136 99
Interest expense (39) (46) (187)
Pension expense (1,422) (1,067) (639)
Other 16 20 22
------ ------ ------
Loss from Continuing
Operations (1,728) (1,448) (1,087)
Discontinued Operations:
Loss from operations of molded
fabric products division - - (231)
Loss on sale of molded fabric
products division - - (2,856)
------ ------ ------
Net Loss $(1,728) $(1,448) $ (4,174)
====== ====== ======
Loss per Common Share:
Continuing Operations $ (1.72) $ (1.44) $ (1.08)
Discontinued Operations - - (3.05)
------ ------ ------
Net Loss per Common Share $ (1.72) $ (1.44) $ (4.13)
====== ====== ======
STATEMENT OF ACCUMULATED DEFICIT
Year Ended December 31 1996 1995 1994
(thousands)
Accumulated deficit beginning
of year $(8,018) $(6,570) $ (2,396)
Net loss (1,728) (1,448) (4,174)
------ ------ ------
Accumulated deficit end
of year $(9,746) $(8,018) $ (6,570)
====== ====== ======
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
STATEMENT OF FINANCIAL CONDITION
December 31 1996 1995
(thousands)
Assets
Cash and short-term investments $ 1,568 $ 1,881
Trade receivables, net (Note 4) 652 265
Non-trade receivables (Note 3) 36 664
Inventories, net 93 128
Other current assets 100 206
------ ------
Total Current Assets 2,449 3,144
Net property, plant and
equipment (Note 5) 937 907
------ ------
Total Assets $ 3,386 $ 4,051
====== ======
Liabilities and Shareholders' Deficit
Current maturities of long-term debt $ 54 $ 299
Trade accounts payable 82 73
Accrued employee benefits 136 80
Reserve for legal expenses 50 275
Accrued pension liability (Note 10) 6,949 2,493
Other current liabilities 356 324
------ ------
Total Current Liabilities 7,627 3,544
Accrued pension liability (Note 10) 8,131 9,374
Accrued postretirement benefit
obligations (Note 10) 993 1,020
Long-term debt (Note 7) 279 33
Shareholders' deficit (Note 8)
Common stock ($.15 par value, authorized
2,000,000 shares, outstanding 1,003,028
at December 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) (9,746) (8,018)
Pension liability adjustment (12,205) (10,209)
------ ------
Total Shareholders' Deficit (13,644) (9,920)
Commitments and contingent liabilities
(Note 11) ------ ------
Total Liabilities and Shareholders'
Deficit $ 3,386 $ 4,051
====== ======
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
STATEMENT OF CASH FLOWS
Year Ended December 31 1996 1995 1994
(thousands)
Cash flows from operating
activities:
Net loss $(1,728) $(1,448) $ (4,174)
Adjustments to reconcile net loss
to net cash (used) provided by
operating activities:
Depreciation and amortization 92 112 126
Loss from discontinued
operations - - 3,087
Provision for restructuring
costs - - (48)
Changes in working capital:
Decrease in receivables,
net 241 240 556
Decrease (increase) in
inventories 35 (34) (35)
Decrease (increase) in
other current assets 106 (21) 443
Increase (decrease) in
trade accounts
payable 9 (128) (103)
Decrease in other current
liabilities (137) (42) (404)
Increase in accrued
pension liability 1,217 1,067 639
Net change in working capital
of discontinued operations - - (20)
Other (27) (13) 23
------ ------ ------
Net cash (used) provided
by operating activities (192) (267) 90
Cash flows from investing activities:
Capital expenditures (127) (116) (109)
Proceeds from sale of excess
equipment 5 6 20
------ ------ ------
Net cash (used) by
investing activities (122) (110) (89)
Cash flows from financing activities:
Net proceeds from issuance of
long-term debt 311 67 -
Payment of long-term debt (310) (34) (154)
Retirement of long-term debt - - (2,795)
Proceeds from certificate of
deposit - - 3,000
------ ------ ------
Net cash provided (used)
by financing activities 1 33 51
------ ------ ------
Net (decrease) increase in cash and
short-term investments (313) (344) 52
Cash and short-term investments at
beginning of year 1,881 2,225 2,173
------ ------ ------
Cash and short-term investments
at end of year $ 1,568 $ 1,881 $ 2,225
====== ====== ======
Supplemental information -
interest paid $ 39 $ 46 $ 189
====== ====== ======
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. EMERGENCE FROM CHAPTER 11
Allis-Chalmers Corporation ("Allis-Chalmers" or the "Company") emerged
from Chapter 11 proceedings on October 31, 1988 under a plan of
reorganization which was consummated on December 2, 1988. The Company was
thereby discharged of all debts that arose before confirmation of its
First Amended and Restated Joint Plan of Reorganization (Plan of
Reorganization), and all of its capital stock was cancelled and made
eligible for exchange for shares of common stock of the reorganized
Company (Common Stock).
Claims asserted against the Company and allowed by the Bankruptcy Court
beyond those recorded prior to the consummation date amounted to
approximately $483 million. Such amounts were subsequently recorded by
the Company in 1988. Because total recorded liabilities discharged at
consummation exceeded the book value of assets and Common Stock
distributed to creditors and the various trusts at that date,
extraordinary income of $388.1 million was recorded.
See the Plan of Reorganization and the First Amended Disclosure Statement
dated September 14, 1988 for additional information regarding
distributions to holders of claims and interests.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Allis-Chalmers through its wholly-owned subsidiary, Houston Dynamic
Service, Inc., services and repairs various types of mechanical equipment,
including compressors, pumps, turbines, engines, heat exchangers,
centrifuges, rollers, gears, valves, blowers, kilns, crushers and mills.
Principles of Consolidation
The consolidated financial statements include the accounts of Allis-
Chalmers and its subsidiaries. All significant intercompany transactions
have been eliminated.
Short-Term Investments
Short-term investments consist primarily of government repurchase
agreements and commercial paper with original maturities at date of
purchase less than three months.
Fair Value of Financial Instruments
The carrying amounts in the Statement of Financial Condition for cash and
short-term investments, trade receivables and long-term debt approximate
their fair market value.
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
Properties and Depreciation
Plant and equipment used in the business are stated at cost and
depreciated on the straight-line basis over the estimated useful lives of
the assets which generally range from 40 years for buildings, 3 to 12
years for machinery and equipment and 3 to 12 years for tools, patterns,
furniture and fixtures. Maintenance and repairs are expensed as incurred.
Expenditures which significantly increase asset values or extend useful
lives are capitalized.
Income Taxes
Deferred income taxes are determined on the liability method in accordance
with Statement of Financial Accounting Standards (FASB) No. 109. See Note
6. Income Taxes.
(Loss) Income Per Common Share
(Loss) Income per common share is based on the average number of shares of
common stock outstanding.
Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less at
date of purchase to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Major Customers
In 1996 and 1995, Amoco Chemical was the only customer which accounted for
10% or more of total sales -- 16% of 1996 sales and 26% of 1995 sales. In
1994, the Company had two customers which accounted for 10% or more of
total sales -- Amoco Chemical generated 19% and Chevron Corporation
generated 15%.
NOTE 3. SALE OF BRB DIVISION
On September 22, 1994, the Company sold substantially all of the assets,
excluding accounts receivable and certain other assets, and certain
liabilities of its BRB division. Pursuant to the terms and conditions of
an Asset Purchase Agreement, dated as of August 4, 1994 and as amended on
September 22, 1994 (the "Asset Purchase Agreement"), by and between the
Company and BRB Industries Corp., a New Jersey corporation, the purchase
price was $737,343, which consisted of $280,000 paid in cash at closing,
$100,000 payable in cash within 120 days after closing and a secured
promissory note in the amount of $357,343.
The Company recorded a loss on the sale of $2,856,000 which included the
write-off of $2,076,720 of intangible assets associated with the Company's
acquisition of BRB in 1989.
The Company did not sell the accounts receivable nor transfer the accounts
payable of the BRB business. Pursuant to the terms of the Asset Purchase
Agreement, the collection of the BRB receivables and payment of BRB
payables was administered on behalf of the Company by BRB management and
the proceeds from the collection of receivables over the payment of the
accounts payable were to be transferred to the Company.
In September 1996, a negotiated settlement was made for $500,000 for
amounts due from the sale. This included amounts due from the promissory
note as well as collection of receivables.
Sales of this discontinued operation were $3,676,800 for the nine months
ended September 20, 1994.
NOTE 4. RECEIVABLES
December 31 1996 1995
(thousands)
Trade accounts receivable $ 682 $ 571
Allowance for doubtful receivables (30) (306)
----- -----
$ 652 $ 265
===== =====
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
December 31 1996 1995
(thousands)
Land and buildings $ 545 $ 522
Machinery and equipment 1,339 1,302
Tools, patterns, furniture, fixtures
and leasehold improvements 441 380
------ ------
2,325 2,204
Accumulated depreciation (1,388) (1,297)
------ ------
$ 937 $ 907
====== ======
NOTE 6. INCOME TAXES
Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that
will result in differences between income for tax purposes and income for
financial statement purposes in future years.
The following table depicts the temporary differences as of December 31,
1996 and 1995:
1996 1995
(millions)
Net future tax deductible items $ 13 $ 10
Net operating loss carryforwards
and other tax credits 189 187
Valuation allowance (202) (197)
------ ------
Net deferred taxes $ 0 $ 0
====== ======
Net future tax deductible items relate primarily to estimated future
bankruptcy claim payments to be made by the Company's two grantor trusts.
Gross deferred tax liabilities at December 31, 1996 are not material.
The Plan of Reorganization established the A-C Reorganization Trust to
settle claims and to make distributions to creditors and certain
shareholders. The Company transferred cash and certain other property to
the A-C Reorganization Trust on December 2, 1988. Payments made by the
Company to the A-C Reorganization Trust do not generate tax deductions for
the Company upon the transfer but generate deductions for the Company as
payments are made by the A-C Reorganization Trust to holders of claims.
The Plan of Reorganization also created a trust to process and liquidate
product liability claims. Payments made by the A-C Reorganization Trust
to the product liability trust do not generate current tax deductions for
the Company. Future deductions will be available to the Company as the
product liability trust makes payments to liquidate claims.
The Company believes the above-named trusts are grantor trusts and
therefore includes the income or loss of these trusts in the Company's
income or loss for tax purposes, resulting in an adjustment of the tax
basis of net operating and capital loss carryforwards. The income or loss
of these trusts is not included in the Company's results of operations for
financial reporting purposes.
Tax carryforwards at December 31, 1996 are estimated to consist of net
operating losses of $510 million expiring 1998 through 2009, investment
tax credits of $7 million expiring 1997 through 2001 and energy tax
credits of $3 million expiring 1997 through 2001.
During 1990, the Company initiated litigation against the Internal Revenue
Service (IRS) in the United States Bankruptcy Court for the Southern
District of New York, challenging the validity and retroactive
applicability of proposed regulations issued by the IRS on August 13,
1990. On January 2, 1992 the IRS issued final regulations under Sections
269 and 382 of the Internal Revenue Code of 1986 relating to the use of
net operating loss carryforwards following corporate reorganizations under
the Bankruptcy Code.
Following issuance of the final regulations the Company withdrew its
retroactivity challenge because the final regulations were made
retroactive only to August 14, 1990 and are not applicable to a plan of
reorganization that was completed before then. The Company's Plan of
Reorganization was consummated on December 2, 1988. The Company, however,
continued to challenge the validity of other provisions of the
regulations.
On June 8, 1992, the Bankruptcy Court issued a decision denying the
Company's motion for a judgment against the IRS with respect to the
application of Section 269 of the IRS Code to the Company. The Court also
granted the IRS's motion to dismiss the Company's complaint challenging
the regulations. The Court entered judgment pursuant to its decision on
June 29, 1992 and, consistent with the advice of its counsel, the Company
decided not to appeal that judgment.
Although the Company was unable to obtain a judgment that would have
prevented the IRS from applying Section 269 to the Company, the Court's
ruling leaves the Company in substantially the same position it was in
prior to issuance of the final regulations. The possibility of an IRS
challenge under Section 269 of the Internal Revenue Code to the Company's
use of its prepetition net operating loss carryforwards has always existed
and, in light of the Court's ruling, that possibility continues to exist.
The Court, however, stated that, should the IRS ever seek to use its new
Section 269 regulations to limit the Company's use of its net operating
loss carryforwards, nothing in its opinion would prejudice the Company's
right to defend itself by using the Court's confirmation finding that the
primary purpose of the Company's Plan of Reorganization was not tax
avoidance.
NOTE 7. LONG-TERM DEBT
December 31 1996 1995
(thousands)
Real estate loan $ 267 $ 282
Other 66 50
------ ------
333 332
Less amounts classified as current 54 299
------ ------
$ 279 $ 33
====== ======
The real estate loan relates to the 1990 purchase of the land and building
in Houston, Texas which had previously been leased by HDS. In August
1996, HDS refinanced this loan which is required to be repaid in monthly
installments of $3,278 through August 20, 2001 when the remaining unpaid
balance shall be due. At December 31, 1996, the interest rate on the note
was 10.25%. This rate will be adjusted during the term of the note in
accordance with increases or decreases in the prime rate. The note is
secured by the HDS facility having a net book value of $472,000 at
December 31, 1996 and the Company's guaranty.
NOTE 8. SHAREHOLDERS' DEFICIT
The components of Shareholders' Deficit are as follows:
December 31 1996 1995
(thousands)
Common stock $ 152 $ 152
Capital in excess of par value 8,155 8,155
Retained deficit (9,746) (8,018)
Pension liability adjustment (12,205) (10,209)
------ ------
Shareholders' Deficit $ (13,644) $ (9,920)
====== ======
Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," requires recognition in the Statement of Financial
Condition of a minimum pension liability. The minimum pension liability
that must be recognized is equal to the excess of the accumulated benefit
obligation over plan assets. A reduction of shareholders' investment in
the amount of approximately $10.2 million in 1995 and $12.2 million in
1996 was recorded.
Pursuant to the Stock Sales Escrow Agreement which was established in
conjunction with the Plan of Reorganization, the Company's stock transfer
agent, Continental Stock Transfer & Trust Company, completed the first
release of shares of Common Stock from escrow in July 1992. Stock
certificates, representing approximately 40% of the shares of Common Stock
held in escrow, were distributed to shareholders of record as of the close
of business on July 8, 1992. The balance of outstanding shares of Common
Stock were released from escrow on August 1, 1995.
In conjunction with consummation of the Plan of Reorganization, the
cumulative retained deficit at December 2, 1988 of $424.2 million was
eliminated.
NOTE 9. LONG-TERM STOCK INCENTIVE PLAN
The Company's Long-Term Stock Incentive Plan (1989) provides for the grant
of stock options, stock appreciation rights, performance shares,
restricted stock, restricted stock units and other stock-based awards.
Under the plan the maximum number of shares which may be granted with
respect to stock-based awards is 50,000. Options may be granted at prices
equal to or not less than the fair market value at date of grant, except
that options to purchase up to 13,333 shares may be granted at a price
which is not less than the fair market value on October 25, 1989, the date
on which the plan was approved by shareholders. Options are exercisable
within a period not to exceed 10 years from date of grant. The plan also
provides for the discretionary grant of stock appreciation rights which
allow the holder to receive in cash or shares of common stock the
difference between the exercise price and the fair market value of the
stock at the date of exercise. There have been no grants under the plan.
NOTE 10. POSTRETIREMENT BENEFIT OBLIGATIONS
Pensions
As of the date of the Chapter 11 filings in June 1987 the Company
sponsored 19 defined benefit plans providing pensions for substantially
all U.S. employees. The pension plan for U.S. salaried employees was
capped and frozen effective March 31, 1987, so there have been no further
benefit accruals after that date. As a result of divestitures during the
Chapter 11 proceedings, eight active plans were transferred to the buyers
of the businesses, leaving the Company as sponsor of 11 plans, none of
which permitted additional benefit accruals. Effective January 1, 1989
the 11 remaining plans were consolidated into a single plan, the Allis-
Chalmers Consolidated Pension Plan (Consolidated Plan). The Company
continues as the plan sponsor for the Consolidated Plan.
In accordance with the Plan of Reorganization, the 11 plans received a
Company contribution of $53.8 million in December 1988. As a result of
actions taken in connection with this contribution and the then-existing
securities of the pension plans, the assets of the Consolidated Plan are
invested in a dedicated bond portfolio that consists of high-grade fixed
income securities in which the market value of the assets is matched to
the present value of the anticipated pension benefits and administrative
expenses of the Consolidated Plan in a way intended to make the pension
fund immune from interest rate fluctuations.
Under the Plan of Reorganization, future contributions to the Consolidated
Plan are required if the mortality assumptions used in calculating the
present value of the pension benefits expected to be paid or the
assumptions used in calculating the future administrative expenses prove
inaccurate. For the years 1989 through 1993, retirees eligible for
benefits under the Consolidated Plan, as a group, outlived the projections
of the mortality assumptions used in the Plan of Reorganization for
funding the Consolidated Plan. For the same five years, actual
administrative expenses were slightly in excess of assumed levels.
Effective January 1, 1994, the Company's independent actuaries reflected
such decreased mortality for funding calculation purposes. This change in
assumptions and an increase in the assumption for future administrative
expenses created an underfunded condition in the Consolidated Plan of
approximately $9 million on a present value basis. The recognition of
this $9 million liability by the Company in 1993 caused a corresponding
reduction in equity.
For the years 1994 through 1996, the mortality experience was negative
compared with the revised assumptions, in an amount in excess of the 1989-
1993 average actuarial loss. This mortality loss was partially offset,
however, by gains in the asset portfolio. At year end 1996, the
Consolidated Plan remained in an underfunded condition with a recorded
liability of $15.1 million.
This underfunded condition in the Consolidated Plan requires the Company
to make significant cash contributions to the Consolidated Plan pursuant
to ERISA funding requirements starting in 1996. Contributions and
interest in the amount of $2.4 million were past due as of December 31,
1996 with payments of $4.6 million due in 1997.
The Company has failed to make required quarterly contributions starting
in April 1996, resulting in the filing of a lien by the Pension Benefit
Guaranty Corporation (PBGC) against the Company. Given the inability of
the Company to fund such an obligation with its current financial
resources, a Notice of Intent to Terminate the Consolidated Plan was
mailed to Plan participants on February 12, 1997 and the filing of the
appropriate documentation was made with the Pension Benefit Guaranty
Corporation (PBGC). The termination is anticipated to result in the
assumption by the PBGC of the Consolidated Plan with the consequence of a
liability to the PBGC significantly in excess of the current net worth of
the Company. The Company has been engaged in ongoing discussions with the
PBGC concerning the Consolidated Plan. The failure to meet the 1995
minimum obligation of $378,459 to the Consolidated Plan also results in a
10% excise tax liability to the IRS at December 31, 1996. To date, the
IRS has not assessed the additional 100% excise tax which may be imposed
on the accumulated funding deficiency for 1995. Failure to meet the
minimum funding obligations for 1996 will also result in additional excise
tax liabilities to the IRS. The Company also intends to seek a settlement
of these tax obligations with the IRS. Although it is not possible to
predict the outcome of discussions with the PBGC and IRS, the Company's
options include seeking protection from its creditors by commencing
another bankruptcy filing.
The funded status of the Consolidated Plan is as follows:
December 31, December 31,
1996 1995
(thousands)
Actuarial present value of:
Vested benefit obligation $(235,211) $ (251,292)
======= =======
Accumulated benefit obligation $
(235,211) $ (251,292)
======= =======
Projected benefit obligation $(235,211) $ (251,292)
Plan assets at fair value 220,131 239,425
------- -------
Excess of projected benefit
obligation over plan assets (15,080) (11,867)
Unrecognized net loss 12,205 10,209
------- -------
Accrued pension liability before
adjustment for minimum liability (2,875) (1,658)
Adjustment required to recognize
minimum liability (12,205)* (10,209)*
------- -------
Accrued pension liability recognized
in the statement of financial
condition $ (15,080) $ (11,867)
======= =======
*This adjustment causes a corresponding reduction of equity.
Effective January 1, 1994, the Company's actuaries changed the mortality
assumptions used to calculate future pension liabilities. The Unisex
Pension 1984 Table was replaced by a newly created mortality assumption
which reflects the actual mortality experience of the Consolidated Plan
from 1989 through 1993. The effect of this change on the Company's
Statement of Financial Condition was material as a result of the
requirement to recognize a minimum pension liability under generally
accepted accounting principles.
The projected benefit obligation as of December 31 was determined using an
assumed discount rate of 7.45% for 1996 and 6.88% for 1995.
The components of pension expense are as follows:
1996 1995 1994
(thousands)
Service cost $ - $ - $ -
Interest cost on projected
benefit obligation 16,997 18,451 17,361
Actual return on plan assets (5,900) (52,480) 12,064
Net amortization and deferral (9,675) 35,096 (28,786)
------- ------- -------
Net pension expense $ 1,422 $ 1,067 $ 639
======= ======= =======
The net periodic pension expense is based on the assumed long-term rate of
return on plan assets of 8.87% in 1996, 8.87% in 1995, and 7.09% in 1994.
The Consolidated Plan pays premiums to the PBGC based on the number of
participants in the plan (fixed rate premium) and the funded status of the
plan (variable rate premium). Given that the Consolidated Plan is
underfunded, the variable rate portion of the PBGC premium was charged
starting in 1995. The 1996 variable rate premium (included above as
interest cost) was approximately $619,000, and the 1995 variable rate
premium was approximately $250,000. As long as the underfunding exists,
this variable rate premium will be an additional demand on the assets of
the Consolidated Plan.
Medical and Life
Pursuant to the Plan of Reorganization, the Company assumed the
contractual obligation to Simplicity Manufacturing, Inc. (SMI) to
reimburse SMI for 50% of the actual cost of medical and life insurance
claims for a select group of retirees (SMI Retirees) of the prior
Simplicity Manufacturing Division of Allis-Chalmers.
Net postretirement benefit expense for the years ended December 31, 1996,
1995 and 1994 included the following components (in thousands):
1996 1995 1994
Service cost $ - $ - $ -
Interest cost on accumulated
benefit obligation 54 59 60
Amortization of unrecognized
net gain (17) (24) (9)
------- ------- -------
Net postretirement benefit
expense $ 37 $ 35 51
======= ======= =======
Presently, the Company's postretirement benefit obligations are not
funded. The status of the Company's postretirement benefit obligations as
of December 31, 1996 and 1995 was as follows (in thousands):
1996 1995
Actuarial present value of accumulated
postretirement benefit obligation $ 867 $ 790
Unrecognized net gain 126 230
------- -------
Accrued postretirement benefit
liability $ 993 $ 1,020
======= =======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7.5% at December 31, 1996 and 7.75%
at December 31, 1995. The assumed rate in 1997 decreases 1/4% per year
until an ultimate rate of 6.5% is reached at December 31, 2001. The
health care cost trend rate has a significant effect on the amounts
reported. For example, a one percentage point increase in the health care
cost trend rate would increase the accumulated postretirement benefit
obligation by $53,220 at December 31, 1996. The discount rate used in
determining the accumulated postretirement benefit obligation was 7.50%
and 7.25% at December 31, 1996 and December 31, 1995, respectively.
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
Substantially all litigation proceedings pending against the Company were
resolved pursuant to emergence from the Chapter 11 proceedings in
1988.Various loans, lease agreements and other commitments and contractual
obligations of the Company were also satisfied pursuant to the Plan of
Reorganization. The Company knows of no significant pre-Plan of
Reorganization lawsuits presently pending against it or its subsidiaries
which have not been assumed by the various trusts or other entities.
The Company is a party to litigation matters and claims which are normal
in the course of its operations, and, while the results of litigation and
claims cannot be predicted with certainty, management believes that the
final outcome of such matters will not have a material adverse effect on
the Company's consolidated financial position.
Environmental Matters
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.
Allis-Chalmers Consolidated Pension Plan
Contributions to the Consolidated Plan were required starting in 1996 due
to a change in the mortality assumptions used in calculating the present
value of the pension benefits expected to be paid and the assumptions used
in calculating the future administrative expenses compared with the
projections of the mortality and administrative expense assumptions used
in the Plan of Reorganization for funding the Consolidated Plan.
Contributions were projected to be $2.5 million in 1996, then increasing
to $3.1 million in 1997 and $8.1 million in 1998. After making one
installment of $205,000 on January 15, 1996, the Company failed to make
any subsequent installments. Under these circumstances, the Company
announced on February 14, 1997 that it filed with the PBGC to initiate the
termination of the Consolidated Plan. In accordance with PBGC
requirements, notices were mailed to the almost 9,000 Consolidated Plan
participants. It is anticipated that the PBGC will assume the
responsibilities of the Consolidated Plan. The Company's failure to make
required quarterly contributions starting in April 1996, resulted in the
filing of a lien by the PBGC against the Company. Given the inability of
the Company to fund such an obligation with its current financial
resources, a Notice of Intent to Terminate the Consolidated Plan was
mailed to Plan participants on February 12, 1997 and the filing of the
appropriate documentation was made with the Pension Benefit Guaranty
Corporation (PBGC). The termination is anticipated to result in the
assumption by the PBGC of the Consolidated Plan with the consequence of a
liability to the PBGC significantly in excess of the current net worth of
the Company. The Company has been engaged in ongoing discussions with the
PBGC concerning the Consolidated Plan. The failure to meet the 1995
minimum obligation of $378,459 to the Consolidated Plan also results in a
10% excise tax liability to the IRS at December 31, 1996. To date, the
IRS has not assessed the additional 100% excise tax which may be imposed
on the accumulated funding deficiency for 1995. Failure to meet the
minimum funding obligations for 1996 will also result in additional excise
tax liabilities to the IRS. The Company also intends to seek a settlement
of these tax obligations with the IRS. Although it is not possible to
predict the outcome of discussions with the PBGC and IRS, the Company's
options include seeking protection from its creditors by commencing
another bankruptcy filing.
NOTE 12. RELATED PARTY TRANSACTIONS
As of December 31, 1996, the Company owes approximately $198,000 to the A-
C Reorganization Trust for costs paid by the A-C Reorganization Trust on
behalf of the Company. These costs primarily relate to legal costs and
are recorded within other current liabilities in the Statement of
Financial Condition.
H. Sean Mathis, Chairman of the Board and Chief Executive Officer, Leonard
Toboroff, Vice Chairman of the Board and Executive Vice President and John
T. Grigsby, Jr., Vice Chairman of the Board, Executive Vice President and
Chief Financial Officer did not receive any compensation for their
services as executive officers of the Company for the three years ended
December 31, 1996.
NOTE 13. QUARTERLY FINANCIAL DATA
(unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1996 1995 1996 1995 1996 1995 1996 1995
(thousands, except per share)
Sales $985 $769 $1,156 $ 853 $ 968 $ 770 $951 $ 798
Gross Margin 290 182 342 261 176 175 252 201
Net Loss (339) (432) (378) (360) (461) (402) (550) (254)
Loss per
Share (.34) (.43) (.38) (.35) (.46) (.40) (.54) (.26)
<PAGE> [Pages 27-28]
OFFICERS
H. Sean Mathis
chairman of the board and chief executive officer
Leonard Toboroff
vice chairman of the board and executive vice president
John T. Grigsby, Jr.
vice chairman of the board, executive vice president
and chief financial officer
Jeffrey I. Lehman
treasurer
William L. Vaitl
secretary & assistant treasurer
DIRECTORS
John R. Collins
retired administrative assistant to the secretary-treasurer, International
Union, United Automobile, Aerospace & Agricultural Implement Workers of
America--UAW
John T. Grigsby, Jr.
trustee, A-C Reorganization Trust; president, Thomson McKinnon
Securities, Inc. during winddown and liquidation of its affairs; president
and chief executive officer, N.W. Liquidating, Inc.; director, 1st
Southern Bank of Boca Raton, Florida and First Florida Industries, Inc.
H. Sean Mathis
president and director of Universal Gym Equipment, Inc.; director,
USTrails Inc. and Allied Digital Technologies Corp.
Claude D. Montgomery
partner, Phillips Lytle Hitchcock Blaine & Huber, attorneys
Robert E. Nederlander
president, director, Nederlander Organization, Inc.; president,
Nederlander Television and Film Productions, Inc.; partner, New York
Yankees Baseball Club; chairman of the board, Riddell Sports, Inc.;
chairman of the board, MEGO Financial Corporation; director HFS
Incorporated, MEGO Mortgage Corp. and News Communications, Inc.
John E. Sundman
director, retired vice president, Corcap, Inc.
Allan R. Tessler
chairman of the board, chief executive officer, International Financial
Group, Inc.; co-chief executive officer, Data Broadcasting Corporation;
chairman of the board, Great Dane Holdings, Inc., Jackpot Enterprises,
Inc. and Enhance Financial Services Group, Inc.; director, The Limited,
Inc.
Leonard Toboroff
director and vice chairman, Riddell Sports, Inc.; practicing attorney;
director, Banner Aerospace, Inc. and Saratoga Beverage, Inc.
BOARD COMMITTEES
Executive Committee -- The Executive Committee may exercise all the powers
and authority of the Board in the management of the business and affairs
of the Company except those powers specifically reserved for the Board.
Although the Executive Committee has very broad powers, in practice it
meets only when calling a meeting of the Board is impractical. Its
members are Messrs. Nederlander (chairman), Grigsby, Mathis, Tessler and
Toboroff.
Audit Committee -- The Audit Committee is responsible for recommending to
the full Board the engagement and discharge of the independent auditor of
the Company. It reviews financial data published by the Company and the
reports of the independent auditor. It monitors the accounting policies
and practices of the Company's businesses. Its members are Messrs.
Sundman (chairman), Collins and Montgomery.
Officers' Compensation Committee -- The Officers' Compensation Committee
reviews and makes recommendations to the full Board regarding the
compensation and other benefits of officers. Its members are Messrs.
Mathis (chairman) and Sundman.
Director Nominating Committee -- The Director Nominating Committee
investigates and makes recommendations to the Board regarding nominees for
election as directors. Its members are Messrs. Nederlander (chairman),
Collins, Grigsby, Montgomery and Toboroff.
Escrow Agent,
Transfer Agent and
Registrar
Continental Stock Transfer &
Trust Company
2 Broadway
New York, New York 10004
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K to the Securities and Exchange
Commission will be furnished without charge to shareholders upon written
request to the Secretary, Allis-Chalmers Corporation, Box 512, Milwaukee,
Wisconsin 53201-0512.
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
EXHIBIT 21.1.
SUBSIDIARIES
State
in Which
Subsidiary
Organized
Houston Dynamic Service, Inc. Texas
KILnGAS R&D, Inc. Illinois
U.S. Fluidcarbon Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE ALLIS-CHALMERS CORPORATION AS
OF AND FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 196
<SECURITIES> 1,372
<RECEIVABLES> 718
<ALLOWANCES> 30
<INVENTORY> 93
<CURRENT-ASSETS> 2,449
<PP&E> 2,325
<DEPRECIATION> 1,388
<TOTAL-ASSETS> 3,386
<CURRENT-LIABILITIES> 7,627
<BONDS> 333
0
0
<COMMON> 8,307
<OTHER-SE> (21,951)
<TOTAL-LIABILITY-AND-EQUITY> (3,386)
<SALES> 0
<TOTAL-REVENUES> 4,060
<CGS> 0
<TOTAL-COSTS> 3,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> (1,728)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,728)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,728)
<EPS-PRIMARY> (1.72)
<EPS-DILUTED> (1.72)
</TABLE>
