SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 9, 2001
ALLIS-CHALMERS CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-2199 33-0126090
-------- ------ ----------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
8150 Lawndale Avenue, Houston, Texas 77012
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 928-6200
NOT APPLICABLE
-------------------------------------------------------------
(Former name or former address, if changed since last report)
This Form 8-K/A, Amendment No. 1, amends and supplements the Form 8-K
(the "Original Form 8-K") filed by Allis-Chambers Corporation (the "Company" or
"Allis-Chalmers") on May 15, 2001 in connection with a transaction pursuant to
which the Company's wholly-owned subsidiary, Allis-Chalmers Acquisition Corp.,
merged with and into OilQuip Rentals, Inc., a Delaware corporation ("OilQuip"),
in accordance with an Agreement and Plan of Merger dated as of May 9, 2001.
Mountain Compressed Air, Inc. is a wholly-owned subsidiary of OilQuip which
acquired assets from Mountain Air Drilling Service Co., Inc. The financial
statements of the business acquired and the unauditied pro forma financial
information relating to such acquisition is filed herewith as item 7 to the
Original Form 8-K. This Form 8-K/A also contains information regarding a change
in the Company's certifying accountant.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
----------------------------------------------
(a) The financial statements of the Company for the years ended
December 31, 2000 and 1999 have been audited by PricewaterhouseCoopers LLP
("PWC"), independent accountants. By letter dated July 10, 2001 and received by
the Company on July 11, 2001, PWC resigned as the independent accountants to the
Company.
PWC's reports on the financial statements of the Company for
the two most recent fiscal years did not contain any adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle except that PWC's reports for each of the
past two fiscal years included an explanatory paragraph which noted that, as of
September 30, 1997, the Company and its subsidiaries incurred an estimated
liability to the PBGC for unfunded benefit liabilities and accumulated funding
deficiencies totaling approximately $68 million. Such qualified opinions noted
that the Company did not have the financial resources to fund this liability to
the PBGC. Such qualified opinions also noted that the matter raised substantial
doubt about the Company's ability to continue as a going concern.
During the Company's two most recent fiscal years and the
subsequent interim period preceding the resignation of PWC, there were no
disagreements with PWC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to PWC's satisfaction, would have caused PWC to make reference to the
subject matter of the disagreements in connection with its audit reports with
respect to financial statements of the Company for 2000 and 1999. The term
"disagreement" is utilized in accordance with Instruction 4 to Item 304 of
Regulation S-K. The Company requested PWC to furnish a letter to the Securities
and Exchange Commission stating whether PWC agrees with the statements made by
the Company in this Form 8-K. Such letter is attached as an exhibit to this Form
8-K.
(b) At this time, the Company is investigating various accounting
firms, including Gordon, Hughes & Banks, LLP, in search of a new firm for this
fiscal year.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
----------------------------------
(a) Financial Statements of Business Acquired.
------------------------------------------
MOUNTAIN AIR DRILLING SERVICE CO., INC.
---------------------------------------
Independent Auditor's Report
Independent Auditors' Report
2
Balance Sheet - December 31, 2000
Statements of Operations - Three Years ended December 31, 2000
Statements of Shareholders' Equity - Three Years ended
December 31, 2000 Statements of Cash Flows - Three Years ended
December 31, 2000 Notes to Consolidated Financial Statements
OILQUIP RENTALS, INC.
---------------------
Independent Auditors' Report
Balance Sheet - December 31, 2000
Consolidated Statement of Operations - For the Period
February 4, 2000 through December 31, 2000
Consolidated Statement of Cash Flows - For the Period
February 4, 2000 through December 31, 2000
Consolidated Statement of Stockholders' Equity - For the
Period February 4, 2000 through December 31, 2000
Notes to Consolidated Financial Statements
MOUNTAIN AIR DRILLING SERVICE CO., INC. (UNAUDITED)
---------------------------------------------------
Statements of Operation - Period from January 1, 2001 to
February 6, 2001 and Quarter Ended March 31, 2000
Statements of Cash Flows - Period from January 1, 2001 to
February 6, 2001 and Quarter Ended March 31, 2000
Notes to Consolidated Financial Statements
OILQUIP RENTALS, INC. (UNAUDITED)
---------------------------------
Consolidated Balance Sheet - March 31, 2001
Consolidated Statement of Operations - Quarter Ended
March 31, 2001
Consolidated Statement of Cash Flows - Quarter Ended
March 31, 2001
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information.
--------------------------------
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------
Unaudited Summary Pro Forma Combined Condensed Financial
Information
Pro Forma Consolidated Statement of Operations - Year Ended
December 31, 2000
Pro Forma Consolidated Balance Sheet - March 31, 2001
Pro Forma Consolidated Statement of Operations - Three Months
Ended March 31, 2001
Notes to Unaudited Pro Forma Consolidated Financial Statements
(c) Exhibits.
---------
3
16.1 Letter, dated July 16, 2001, from PricewaterhouseCoopers
LLP to the Securities and Exchange Commission regarding
its termination as the Company's principal accountant
responsible for auditing the Company's financial
statements.
4
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Mountain Air Drilling Service Co., Inc.
Grand Junction, Colorado
We have audited the accompanying balance sheet of Mountain Air Drilling Service
Co., Inc. as of December 31, 2000, and the related statements of operations,
shareholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial portion of Mountain Air Drilling Service
Co., Inc. as of December 31, 2000, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounted principles.
WHEELER WASOFF. P.C.
Denver, Colorado
April 24, 2001
5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Mountain Air Drilling Service Co., Inc.
Grand Junction, Colorado
We have audited the accompanying balance sheets of Mountain Air Drilling Service
Co., Inc. as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mountain Air Drilling Service
Co., Inc. as of December 31, 1999 and 1998, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
Gordon, Hughes & Banks, LLP
Lakewood, Colorado
July 21, 2000
6
MOUNTAIN AIR DRILLING SERVICE CO., INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
2000 1999 1998
---- ---- ----
ASSETS
Current Assets
Cash $ 634 $ 502 $ 301
Accounts receivable - trade 610 452 720
Other current assets 40 127 31
------- ------- -------
Total Current Assets 1,284 1,081 1,052
Property and Equipment, net 1,430 1,584 1,500
------- ------- -------
Total Assets $ 2,714 $ 2,665 $ 2,552
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 69 $ 244 $ 238
Accrued expenses 134 139 173
Deposits and other 100 - 16
------- ------- -------
Total Current Liabilities 303 383 427
------- ------- -------
Shareholders' Equity
Common stock: no par value, 10,000 shares Authorized;
2,000 shares issued and outstanding 1,895 1,895 1,895
Retained earnings 516 387 230
------- ------- -------
Total Shareholders' Equity 2,411 2,282 2,125
------- ------- -------
Total Liabilities and Shareholders' Equity $ 2,714 $ 2,665 $ 2,552
======= ======= =======
The accompanying notes are an integral part of the financial statements.
7
MOUNTAIN AIR DRILLING SERVICE CO., INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Revenue
Equipment rental $ 2,761 $ 3,004 $ 3,182
Operator revenue 2,158 2,461 2,658
Supply sales 523 626 660
Subcontract revenue 191 301 104
Other revenue 59 37 153
------- ------- -------
5,692 6,429 6,757
Cost of revenue 2,689 3,779 3,687
------- ------- -------
Gross profit 3,003 2,650 3,070
General and administrative expenses 613 622 579
------- ------- -------
Income from operations 2,390 2,028 2,491
------- ------- -------
Other income (expense)
Interest income 21 8 -
Interest (expense) - (1) (14)
Miscellaneous income 2 2 2
------- ------- -------
23 9 (12)
------- ------- -------
Net income $ 2,413 $ 2,037 $ 2,479
======= ======= =======
The accompanying notes are an integral part of the financial statements.
8
MOUNTAIN AIR DRILLING SERVICE CO., INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT FOR SHARES)
Partnership Common Stock Retained
Equity Shares Amount Earnings
----------- ------ ------ --------
Balance, January 1, 1998 $ 1,895 - $ - $ -
Transfer partnership equity to
common stock (1,895) 2,000 1,895 -
Net income - - - 2,479
Distributions - - - (2,249)
-------- ------- ------- --------
Balance, December 31, 1998 - 2,000 1,895 230
Net income - - - 2,037
Distributions - - - (1,880)
-------- ------- ------- --------
Balance, December 31, 1999 - 2,000 1,895 387
Net income - - - 2,413
Distributions - - - (2,284)
-------- ------- ------- --------
Balance, December 31, 2000 $ - 2,000 $ 1,895 $ 516
======== ======= ======= ========
9
MOUNTAIN AIR DRILLING SERVICE CO., INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended December 31,
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 2,413 $ 2,037 $ 2,479
Adjustments to reconcile net income to cash
provided by operations
Depreciation 283 260 220
Changes in assets and liabilities
Decrease (increase) in accounts receivable (158) 267 (22)
Decrease (increase) in prepaid and other assets 87 (95) (10)
(Decrease) increase in accounts payable (175) 6 82
(Decrease) increase in accrued expenses (5) (34) 46
Increase in deposits 100 - -
------- ------- -------
Net cash flows provided by operating activities 2,545 2,441 2,795
------- ------- -------
Cash flows from investing activities
Purchase of property and equipment (129) (344) (389)
------- ------- -------
Net cash flows (used) by investing activities (129) (344) (389)
------- ------- -------
Cash flows from financing activities
Distributions paid in cash (2,284) (1,880) (2,249)
Proceeds from debt - - 143
Repayment of long term debt - (16) (174)
------- ------- -------
Net cash flows (used) by financing activities (2,284) (1,896) (2,280)
------- ------- -------
Net increase in cash 132 201 126
Cash, beginning of year 502 301 175
------- ------- -------
Cash, end of year $ 634 $ 502 $ 301
======= ======= =======
Cash paid in interest $ - $ 1 $ 14
======= ======= =======
The accompanying notes are an integral part of the financial statements.
10
MOUNTAIN AIR DRILLING SERVICE CO., INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Mountain Air Drilling Service Co., Inc. (Mountain Air) was formed in 1975 as a
Colorado general partnership to provide service to the drilling industry.
Effective January 1, 1998, Mountain Air filed Articles of Incorporation with the
State of Colorado and became an S Corporation.
Mountain Air provides the lease of equipment and manpower to the oil and gas
industry. Mountain Air's customers consist primarily of businesses with well
sites in Colorado, New Mexico, Utah, Nevada and Wyoming.
Property and Equipment
Property and equipment represents the cost of equipment in use in the operations
of Mountain Air.
Equipment in assembly represents the direct cost of components used in the
equipment being constructed and does not include any internal labor or
administrative costs. This equipment will be used in the normal operations of
Mountain Air and will be reclassified to field equipment and depreciated as it
is completed and placed in service.
Equipment not in service represents the cost of various parts and components
that have been purchased for use in field equipment as needed. These components
will be used in the normal operations of Mountain Air and will be reclassified
to field equipment and depreciated as they are added to operating equipment.
Maintenance and repairs are charged to operations when incurred. Betterments and
renewals are capitalized. When property and equipment are sold or otherwise
disposed of, the asset account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.
The cost of property and equipment currently in service is depreciated over the
estimated useful lives of the related assets, which range from three to ten
years. Depreciation is computed on the straight-line method for financial
reporting purposes. Depreciation expense charged to operations was $283,000,
$260,000, and $220,000 for the years ended December 31, 2000, 1999, and 1998,
respectively.
Income Taxes
Mountain Air was originally formed as a Colorado general partnership and
effective January 1, 1998, Mountain Air filed Articles of Incorporation and
elected to be treated as a S Corporation. The taxable income or loss of a
partnership and S Corporation is passed through to its partners/shareholders
without being taxed at the entity level. Accordingly, no provision for income
taxes has been made in the accompanying financial statements.
Cash Equivalents
For the purpose of reporting cash flows, Mountain Air considers as cash
equivalents all highly liquid investments with a maturity of three months or
less at the time of purchase. On occasion, Mountain Air has cash in banks in
excess of federally insured amounts.
Use of Estimates
11
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Advertising
Mountain Air has the policy of expensing nondirect-response advertising costs as
incurred. Total advertising costs charged to operations were $31,000, $44,000
and $95,000 during the years ended December 31, 2000, 1999, and 1998,
respectively.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
2000 1999 1998
---- ---- ----
(in thousands)
Field equipment $ 2,865 $ 2,779 $ 2,463
Shop equipment 88 88 88
Vehicles and trucks 179 179 179
Office furniture and equipment 45 57 66
Equipment in assembly 63 63 106
Equipment not in service 685 630 568
------- ------- -------
3,925 3,796 3,470
Less accumulated depreciation (2,495) (2,212) (1,970)
------- ------- --------
$ 1,430 $ 1,584 $ 1,500
======= ======= =======
NOTE 3. RELATED PARTY TRANSACTIONS
Mountain Air leases the shop and administrative office space in Colorado from a
partnership whose partners are the stockholders of Mountain Air. The current
lease agreement requires a monthly rent payment of $8,500 and expires December
31, 2001. Rent expense charged to operations under the lease was $102,000,
$102,000, and $77,000 during the years ended December 31, 2000, 1999, and 1998,
respectively.
Mountain Air has financed the purchase of various vehicles with a partnership
whose partners are the stockholders of Mountain Air. Interest paid on these
obligations totaled $1,000 and $14,000 during the years ended December 31, 1999
and 1998, respectively. Notes related to these vehicles were paid off in March
1998 and July 1999.
Mountain Air paid salaries of $180,000 to its officers for 2000, 1999, and 1998.
Mountain Air incurred expenses on behalf of its officers of $47,000 and $59,000
for 2000 and 1999, respectively.
NOTE 4. LEASE COMMITMENTS
Shop and administrative office space in Colorado is leased under a commitment
with a related party and as described in Note 3.
12
Mountain Air is obligated under a lease agreement for shop and administrative
space in New Mexico on a month to month basis, currently at $500 per month; and
also leases field equipment on a month to month basis when required to perform
services for customers.
Minimum future lease payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 2000 for each of the
next five years are:
Year ended December 31, 2001 $102,000
Rent expense charged to operations, including related party amounts, was
$108,000, $102,000 and $79,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
NOTE 5. SHAREHOLDERS EQUITY
Mountain Air was originally formed as a Colorado general partnership and
effective January 1, 1998, Mountain Air filed Articles of Incorporation and
elected to be treated as an S Corporation. The income or loss of a partnership
and S Corporation is passed through to its partners/shareholders.
NOTE 6. MAJOR CUSTOMERS
Mountain Air had equipment and manpower rental income from one customer,
Burlington Resources, which accounted for approximately 69.3%, 54.6% and 52.5%
of total revenue during the years ended December 31, 2000, 1999 and 1998,
respectively.
NOTE 7. FINANCIAL INSTRUMENTS
Fair Value
The carrying amount reported in the balance sheet for cash, accounts receivable,
prepaid expenses, accounts payable and accrued liabilities approximates fair
value because of the immediate or short-term maturity of these financial
instruments.
Concentration of Credit Risk
Statement of Financial Accounting Standards No. 105, "Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk", requires disclosure of
significant concentration of credit risk regardless of the degree of such risk.
Mountain Air maintains its cash balances in one financial institution. The cash
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000. Uninsured balances totaled approximately $530,000, $400,000, and
$200,000 as of December 31, 2000, 1999, and 1998, respectively. Mountain Air's
cash balances in the financial institution are covered by a sweep account
arrangement, with excess funds invested overnight. During the investment period,
the Federal Deposit Insurance Corporation does not insure the funds.
NOTE 8. SEGMENT REPORTING
Mountain Air has one reportable segment, the leasing of equipment and manpower
to the oil and gas industry. All revenues and assets of Mountain Air are
attributable to this segment.
NOTE 9. COMPREHENSIVE INCOME
13
There are no adjustments necessary to net income as presented in the
accompanying statements of operations to derive comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income."
NOTE 10. RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to current year
presentation.
NOTE 11. SALE OF BUSINESS
On February 6, 2001, Mountain Air completed the sale of certain assets pursuant
to an Asset Purchase Agreement with Mountain Compressed Air, Inc., a non-related
entity, for $12,200,000. As of December 31, 2000, Mountain Air had received a
deposit of $100,000 from the purchaser in contemplation of the sale, and an
additional $100,000 had been placed in escrow by the purchaser with a selling
agent. Subsequent to December 31, 2000, the escrow was released directly to the
shareholders of Mountain Air.
14
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
OilQuip Rentals, Inc. (A Development Stage Company)
Los Angeles, California
We have audited the accompanying balance sheet of OilQuip Rentals, Inc. (A
Development Stage Company) as of December 31, 2000 and the related statements of
operations, stockholders' equity and cash flows for the period from February 4,
2000 (Inception) to December 31, 2000. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OilQuip Rentals, Inc. (A
Development Stage Company) as of December 31, 2000 and the results of its
operations and cash flows for the period from February 4, 2000 (Inception) to
December 31, 2000, in conformity with generally accepted accounting principles.
GORDON, HUGHES & BANKS, LLP
Englewood, Colorado
May 15, 2001
15
OILQUIP RENTALS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS
Cash $4
Common stock subscribed 1,838
Other receivable 20
Due from related party 104
---
Total current assets 1,966
Business acquisition costs 379
Deferred financing costs 15
--
Total assets $2,360
======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $12
---
Total liabilities 12
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized and
9,875 shares issued and outstanding at December 31, 2000 -
Additional paid in capital 2,975
(Deficit) accumulated during development stage (627)
-----
Total stockholders' equity 2,348
Total liabilities and stockholders' equity $2,360
======
See accompanying summary of accounting policies and notes to the financial
statements.
16
OILQUIP RENTALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 4, 2000 (INCEPTION)
THROUGH DECEMBER 31, 2000
(IN THOUSANDS)
Cumulative
During
Development
Stage
---------------
Revenue $-
Operating expenses:
Abandoned acquisition costs 244
General and administrative 383
---------------
Total operating expenses 627
---------------
Net (loss) $(627)
===============
See accompanying summary of accounting policies and notes to the financial
statements.
17
OILQUIP RENTALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FEBRUARY 4, 2000 (INCEPTION)
THROUGH DECEMBER 31, 2000
(IN THOUSANDS)
Cumulative
During
Development
Stage
---------------
Cash flows from operating activities:
Net (loss) $(627)
Adjustments to reconcile net (loss) to cash
provided by operating activities:
Abandoned acquisition costs 244
Contributed Services 250
Change in assets and liabilities: 538
(Increase) in other receivables (20)
Due from related party (104)
Increase in accounts payable 12
---------------
Net cash provided by operating activities 293
---------------
Cash flows from investing activities:
Business Acquisition costs (624)
---------------
Net cash (used) by investing activities (624)
---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 350
Deferred financing costs (15)
---------------
Net cash provided by financing activities 335
---------------
Net increase in cash 4
Cash, beginning of period -
---------------
Cash, end of period $4
===============
See accompanying summary of accounting policies and notes to the financial
statements.
18
OILQUIP RENTALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 4, 2000 (INCEPTION)
THROUGH DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
Accumulated
(Deficit)
Common Stock Additional During the
------------ Paid-in Development
Shares Amount Capital Stage Total
Balances, February 4, 2000 (Inception) - $ - $ - $ - $ -
Issuance of common stock subscribed
at $94 per share 4,250 399,958 - 400,000
Issuance of common stock for conversion
of notes payable at $250 per share 1,000 249,990 - 250,000
Issuance of common stock for cash at
$326 per share 307 3 99,997 - 100,000
Issuance of common stock subscribed at
$326 per share 3,068 31 999,969 - 1,000,000
Issuance of common stock subscribed at
$350 per share 1,250 13 437,488 - 437,500
Contributed capital - - 788,106 - 788,106
Net (1oss) - - - (627,295) (627,295)
----- --- ---------- --------- ----------
Balances, December 31, 2000 9,875 $99 $2,975,507 $(627,295) $2,348,311
===== === ========== ========= ==========
See accompanying summary of accounting policies and notes to the financial
statements.
19
OILQUIP RENTALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature Of Business And Summary Of Significant Accounting Policies
Nature Of Business And Organization
OilQuip Rentals, Inc., a Delaware corporation (the "Company" or "OilQuip"), was
incorporated on February 4, 2000. During the period February 4, 2000 (Inception)
to December 31, 2000, the Company has been in the development stage. The
Company's activities since inception have consisted of developing its business
plan, raising capital and negotiating with potential business acquisition
targets. During the development stage, the Company has had no revenues and has
expensed general and administrative costs in the amount of $382,893 and
acquisition costs of $244,402 related to abandoned acquisition targets.
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.
Actual results could differ from those estimates.
Cash And Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash or cash equivalents for the purpose of
presentation in the statement of cash flows.
Concentration Of Credit Risk And Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 105, "Disclosure of
Information About Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentrations of Credit Risk", requires disclosure
of significant concentrations of credit risk regardless of the degree of such
risk. Financial instruments with significant credit risk include cash and
receivables.
The Company transacts its business with one financial institution. The amount on
deposit in that financial institution did not exceed the $100,000 federally
insured limit at December 31, 2000. Management believes that the financial
institution is financially sound.
Receivables at December 31, 2000 include common stock subscriptions receivable,
amounts due from a related party and a financing deposit, all of which have been
collected in 2001.
Business acquisition costs
The Company capitalizes direct costs and deposits associated with successful
business acquisitions and expenses acquisition costs for unsuccessful
acquisition efforts.
Deferred Financing Costs
20
Deferred financing costs are direct expenditures incurred to obtain credit
instruments from a bank. These costs will be amortized to interest expense over
the expected term of the related debt instruments after the instruments were
activated in February 2001. The amortization will be on a straight-line basis
since the principal is payable at the end of the debt term.
Income Taxes
The Company accounts for deferred income taxes in accordance with the liability
method as required by SFAS No. 109, "Accounting for Income Taxes." Deferred
income taxes are recognized for the tax consequences in future years for
differences between the tax bases of assets and liabilities and their financial
reporting amounts at the end of each period, based on enacted laws and statutory
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the expected realizable amount. The provision (benefit)
for income taxes consists of the current tax provision (benefit) and the change
during the period in deferred tax assets and liabilities. Any liability for
actual taxes to taxing authorities is recorded as income tax liability.
Impairment Of Long-Lived Assets
The Company adheres to the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of."
The Company reviews the carrying value of its long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable through undiscounted net cash flows. Impairment is calculated based
on fair value of the asset, generally using net discounted cash flows. Any
long-lived assets to be disposed of are reported at the lower of the carrying
amount or fair value less estimated costs to sell.
Capital Structure
The Company utilizes SFAS No. 129, "Disclosure of Information about Capital
Structure", which requires companies to disclose all relevant information
regarding their capital structure.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" requires the presentation and
disclosure of all changes in equity from non-owner sources as "Comprehensive
Income". The Company had no items of comprehensive income in the period from the
date of inception through December 31, 2000.
Stock Based Compensation
The Company follows Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" in accounting for stock based
compensation. Under APB No. 25, the Company recognizes no compensation expense
related to employee or director stock options unless options are granted with an
exercise price below fair value on the day of grant. SFAS No. 123, "Accounting
for Stock- Based Compensation" provides an alternative method of accounting for
stock-based compensation arrangements for employees and directors, based on fair
value of the stock-based compensation utilizing various assumptions regarding
the underlying attributes of the options and stock. Stock, options or warrants
issued to consultants and outsiders are recorded at fair value under SFAS No.
123. The Financial Accounting Standards Board encourages, but does not require,
entities to adopt the fair-value based method. The Company will continue its
accounting under APB No. 25 for employees and directors but uses the
disclosure-only provisions of SFAS No. 123 for any options or warrants issued to
employees and directors. No options or warrants have been granted or are
outstanding as of December 31, 2000.
Segments Of An Enterprise And Related Information
21
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" replaces the industry segment approach under previously issued
pronouncements with the management approach. The management approach designates
the internal organization that is used by management for allocating resources
and assessing performance as the source of the Company's reportable segments.
SFAS No. 131 also requires disclosures about products and services, geographic
areas and major customers. At present, the Company only operates in one segment.
Pension And Other Post Retirement Benefits
SFAS No. 132, "Employers' Disclosures about Pension and Other Post Retirement
Benefits" requires certain disclosures about employers' pension and other post
retirement benefit plans and specifies the accounting and measurement or
recognition of those plans. SFAS No. 132 requires disclosure of information on
changes in the benefit obligations and fair values of the plan assets that
facilitates financial analysis. This standard currently has no impact on the
Company.
Derivative Instruments And Hedging Activities
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Currently, as the Company has no derivative
instruments, the adoption of SFAS No. 133 has no impact on the Company's
financial condition or results of operations.
Mortgage Backed Securities Retained After The Securitization Of Mortgage Loans
By Mortgage Banking Enterprises
The Financial Accounting Standards Board recently issued SFAS No. 134,
"Accounting for Mortgage Backed Securities Retained after the Securitization of
Mortgage Loans Held by Mortgage Banking Enterprises". SFAS No. 134 establishes
new reporting standards for certain activities of mortgage banking enterprises.
The Company believes this statement has no impact on its financial statements.
Note 2 - Business Acquisition Costs
On June 6, 2000, the Company signed a letter of intent to purchase the business
and certain assets of Mountain Air Drilling Service Co., Inc. ("Mountain Air").
During 2000, a total of $200,000 was paid to secure the letter of intent to
purchase Mountain Air. The acquisition was completed in February 2001.
As of December 31, 2000, the Company has capitalized additional acquisition
expenses associated with the Mountain Air business and asset purchase. These
costs include due diligence expenses, audit fees and legal fees totaling
$179,529 incurred during 2000.
During 2000, the Company pursued two other business acquisition targets and
incurred acquisition expenses and paid deposits totaling $244,402. The
acquisition negotiations for these two targets have terminated and the Company
has expensed these costs.
Note 3 - Related Party Transactions
The President and majority stockholder of the Company advanced the Company a
total of $538,106 by paying expenses of the Company during 2000. Effective
December 31, 2000, the President and majority stockholder forgave the
outstanding balance and the amount was recorded as additional paid-in capital of
the Company.
22
As of December 31, 2000, the Company has paid personal expenses on behalf of the
President and majority stockholder of $104,640. The President and majority
stockholder repaid these amounts in January 2001.
Note 4 - Stockholders' Equity
During 2000, investors subscribed to 4,250 shares of common stock for $400,000
($94 per share), 3,068 shares of common stock for $1,000,000 ($326 per share)
and 1,250 shares of common stock for $437,500 ($350 per share). As of December
31, 2000, $1,837,500 in subscriptions receivable was outstanding. The entire
amount was received from the investors in cash in January and February 2001.
During 2000, the Company issued 1,000 shares of common stock for $250,000 ($250
per share) and 307 shares of common stock for $100,000 ($326 per share), all in
cash.
During 2000, the Company recorded $250,000 in compensation expense for services
contributed by the Company's President and majority stockholder.
During 2000, the Company's President and majority stockholder advanced an
aggregate of $538,106 by paying corporate expenses on the Company's behalf. The
amount has been recorded as a contribution to the Company's capital.
Note 5 - Lease Commitments
As of December 31, 2000, the Company has no lease commitments. The Company rents
office space on a month-to-month basis. There are no minimum future rental
commitments over the next five years. Rent expense was $12,445 for the period
ending December 31, 2000.
Note 6 - Income Taxes
There is no current or deferred tax expense for the period from February 4, 2000
(inception) to December 31, 2000 due to net losses from operations.
Deferred income tax assets and liabilities are recorded to reflect the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end. Deferred
income tax assets are recorded to reflect the tax consequences on future years
of income tax carryforward benefits, reduced by valuation allowance for future
benefit amounts not expected to be realized by the Company.
At December 31, 2000, the company's net deferred income tax asset is comprised
of the following:
Net operating loss benefit carryforward $ 128,360
Valuation allowance for the deferred tax asset (128,360)
---------
Net deferred income tax asset $ -
=========
As of December 31, 2000, the Company had an operating loss carryforward of
approximately $600,000. The operating loss carryforward expires 2020.
Note 7 - Subsequent Events
23
On January 25, 2001, OilQuip formed a subsidiary, Mountain Compressed Air, Inc.
("Mountain Compressed"), a Texas corporation. On February 6, 2001, Mountain
Compressed acquired the business and certain assets of Mountain Air, a private
company, for $10,000,000 (including the $200,000 deposit paid in 2000) in cash
and a $2,200,000 promissory note to the sellers (interest at 5 3/4 percent and
principal and interest due February 6, 2006). The acquisition was accounted for
using the purchase method of accounting. Goodwill of $2,622,459 was recorded
with the acquisition.
In order to make the acquisition, the Company borrowed amounts from a bank under
two debt instruments: (1) a $3,550,000 term loan, 8% interest payable monthly,
quarterly principal payments of $147,917 and maturity on February 6, 2006 and
(2) a subordinated $2,000,000 note, interest at 13%, interest payable quarterly
and principal due January 31, 2004. In connection with the subordinated note,
Mountain Compressed issued warrants to the note holder for the purchase of
1,350,000 shares of Mountain Compressed common stock exercisable for five years
at $.01 per share. At December 31, 2000, Mountain Compressed had 8,030,000
shares outstanding and owned by OilQuip. The note holder has the right to
require Mountain Compressed to redeem the shares for up to $600,000 in cash in
five years.
In connection with the acquisition, Mountain Compressed also issued a warrant to
the outside acquisition consultants for the purchase of 620,000 shares of
Mountain Compressed common stock exercisable for five years at $.01 per share.
The transaction was valued at $200,000.
Mountain Compressed sold part of its assets it acquired from Mountain Air to a
leasing company. No gain or loss was recognized on the transaction. Mountain
Compressed has leased these assets under a five-year operating lease. The lease
payments are as follows:
2001 $ 565,740
2002 678,888
2003 678,888
2004 678,888
2005 678,888
2006 113,148
----------
$3,394,440
==========
On May 9, 2001, OilQuip was acquired by Allis-Chalmers Corporation ("A-C"), a
public company. In the transaction, OilQuip stockholders will receive 1,000
shares of A-C common stock for each share of OilQuip common stock. In total,
approximately 10 million shares of A-C common stock will be exchanged for all of
the outstanding common stock of OilQuip. After the merger is complete, OilQuip
stockholders will own approximately 86% of the common stock of A-C. For
accounting purposes, the merger will be recorded as a reverse acquisition
whereby OilQuip will be treated as the acquirer. Since A-C is an operating
company, OilQuip will record the transaction under purchase accounting with the
recognition of goodwill.
24
MOUNTAIN AIR DRILLING SERVICE CO., INC.
STATEMENTS OF OPERATION
(UNAUDITED)
Period January 1, Three Months
2001 through Ended
February 6, 2001 March 31, 2000
(In thousands)
Sales $ 493 $ 1,315
Cost of Sales 214 560
-------- --------
Gross Margin 279 755
Marketing and Administrative Expenses 165 199
-------- --------
Income from Operations 114 556
Other Income (Expenses)
Interest Income 0 5
Interest Expense 0 0
Other 0 6
-------- --------
Net Income $ 114 $ 567
======== ========
This interim statement is unaudited.
The accompanying notes are an integral part of the Financial Statements.
25
MOUNTAIN AIR DRILLING SERVICE CO., INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
Period January 1, Three Months
2001 through Ended
February 6, 2001 March 31, 2000
---------------- --------------
(In thousands)
Cash flows from operating activities
Net Income (Loss) $ 114 $ 567
Adjustments to reconcile net loss to net cash
(used) provided by operating activities:
Depreciation and amortization 7 16
Change in working capital:
Decrease in receivables, net 35 37
Increase (decrease) in trade accounts payable 41 (39)
Decrease (increase) in other current items 55 127
------- -------
Net cash provided by operating activities 252 708
Cash flows from investing activities Capital expenditures (5) (23)
Distribution to shareholders 0 (700)
------- -------
Net (decrease) in cash and cash equivalents 247 (15)
Cash and cash equivalents at beginning of period 634 502
------- -------
Cash and cash equivalents at end of period $ 881 $ 487
=== ===
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
26
MOUNTAIN AIR DRILLING SERVICE CO., INC.
NOTES TO FINANCIAL STATEMENTS
ITEM 1. NOTES
NOTE 1 - ACCOUNTING POLICIES
This interim financial data should be read in conjunction with the consolidated
financial statements and related notes, management's discussion and analysis and
other information included elsewhere in this proxy statement for the period from
January 1, 2001 to February 6, 2001.
All adjustments considered necessary for a fair presentation of the
results of operation have been included in the unaudited financial statements.
The results of operations for any interim period are not necessarily indicative
of the Company's operating results for a full year.
27
OILQUIP RENTALS, INC.
AND ITS CONSOLIDATED SUBSIDIARY
UNAUDITED BALANCE SHEET
MARCH 31, 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
Assets
CURRENT ASSETS
Cash $205
Accounts receivable, net 524
Other current assets 40
-------
Total current assets 769
Property and equipment, net 6,422
Goodwill and other intangibles, net 2,768
Other Assets 701
-------
Total Assets $10,660
=======
Liabilities and Stockholders' Equity
CURRENT LIABILITIES
Debt - current portion $647
Accounts payable 219
Accrued expenses 271
Other current liabilities 75
-------
Total current liabilities 1,212
Long-term debt 6,569
-------
Total liabilities 7,781
Redeemable warrant
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares
authorized and 9,875 shares issued and outstanding at
December 31, 2000 1
Additional paid in capital 3,175
(Deficit) accumulated during development stage (627)
Retained Earnings (270)
-------
Total stockholders' equity 2,279
-------
Total liabilities and stockholders' equity $10,660
=======
See notes to financial statements.
28
OILQUIP RENTALS, INC. AND ITS CONSOLIDATED SUBSIDIARY
UNAUDITED STATEMENT OF OPERATIONS
QUARTER ENDED MARCH 31, 2001
(IN THOUSANDS)
Revenue $ 606
Cost of Sales 420
-------
Gross Profit 186
Marketing and Administrative Expenses 313
Amortization 22
-------
(Loss) from Operations (149)
Other Income (Expenses)
Interest Expense (95)
Miscellaneous (26)
-------
(Loss) before Income Taxes (270)
Provision for Income Tax -
-------
Net Income (Loss) $ (270)
=======
See notes to financial statements.
29
OILQUIP RENTALS, INC. AND ITS CONSOLIDATED SUBSIDIARY
UNAUDITED STATEMENT OF CASH FLOWS
QUARTER ENDED MARCH 31, 2001
(IN THOUSANDS)
Cash flows from operating activities:
Net (loss) $ (270)
Adjustments to reconcile net (loss) to cash provided by
operating activities:
Depreciation and amortization 71
Change in working capital:
(Increase) in receivables, net (504)
Increase in accounts payable 477
Increase in other current items 204
(Increase) in lease deposit (701)
Other 0
--------
Net cash (used) provided by operating activities (719)
Cash flows from investing activities:
Investment in acquisition of business (9,813)
Capital expenditures (51)
Proceeds from sale of equipment 3,549
--------
Net cash (used) provided by operating activities (6,315)
Cash flows from financing activities:
Common stock subscription received 1,838
Net proceeds from issuance of long-term debt 5,550
Deferred financing cost (153)
--------
Net cash (used) provided by operating activities 7,235
--------
Net increase (decrease) in cash and cash equivalents 201
Cash and cash equivalents, beginning of period 4
--------
Cash and cash equivalents, end of period $ 205
========
Supplemental information - interest paid $ 95
========
See notes to financial statements.
30
OILQUIP RENTALS, INC. AND ITS CONSOLIDATED SUBSIDIARY
UNAUDITED STATEMENTOF CASH FLOWS
QUARTER ENDED MARCH 31, 2001
(CONTINUED)
(IN THOUSANDS)
Non-cash investing and financing transactions in connection
with the acquisition of Mountain Air assets:
Fair value of net assets acquired $ 9,970
Goodwill and other intangibles 2,622
Note payable to prior owner (2,200)
Other adjustments (579)
-------
Net cash paid to acquire subsidiary $ 9,813
=======
See notes to financial statements.
31
OILQUIP RENTALS, INC AND ITS CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
ITEM 1. NOTES
NOTE 1 - ACCOUNTING POLICIES
This interim financial data should be read in conjunction with the consolidated
financial statements and related notes, management's discussion and analysis and
other information included elsewhere in this proxy statement for the period from
February 4, 2000 to December 31, 2000.
All adjustments considered necessary for a fair presentation of the results of
operation have been included in the unaudited financial statements. The results
of operations for any interim period are not necessarily indicative of the
Company's operating results for a full year.
NOTE 2 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature Of Business And Organization
OilQuip Rentals, Inc. and Subsidiary, a Delaware corporation (the "Company") was
incorporated on February 4, 2000 to find and acquire targets to operate as
subsidiaries.
During the period February 4, 2000 (Inception) to February 6, 2001, the Company
had been in the development stage. The Company's activities through February 6,
2001 have consisted of developing its business plan, raising capital and
negotiating with potential acquisition targets.
On February 6, 2001, the Company, through its subsidiary Mountain Compressed
Air, Inc. ("MCA"), acquired certain assets of Mountain Air Drilling Service Co.,
Inc., whose business consists of providing equipment and trained personnel in
the four corner areas of the southwestern United States. MCA primarily provides
compressed air equipment and trained operators to companies in the business of
drilling for natural gas.
Property and Equipment
On February 6, 2001, the Company, through its subsidiary MCA, acquired certain
assets of Mountain Air Drilling Service Co., Inc., mainly consisting of boosters
and compressors used in the business of drilling for natural gas. These assets
are being depreciated over their estimated life, ten years.
Deferred Financing Costs
Debt acquisition costs are direct expenditures incurred with regard to
borrowings. These costs are being amortized to interest expense over six years,
the expected term of the related debt instruments after the instruments have
been activated.
Goodwill and Other Intangibles
On February 6, 2001, MCA, a subsidiary of OilQuip, completed the purchase of
certain assets pursuant to an Asset Purchase Agreement with Mountain Air
Drilling Service Co., Inc., a non-related entity. OilQuip obtained an appraisal
on all the assets acquired, which was the determining factor in the calculation
of goodwill and other intangibles. Goodwill and other intangibles are being
amortized over a period not in excess of twenty years.
32
Long-Term Debt
Long-term debt is as a result of the cost of the acquisition of certain assets
of Mountain Air Drilling Service Co., Inc.
o A term loan in the amount of $3,550,000 at 8%, interest payable
monthly, with quarterly principal payments of $147,916.67 due on
the last day of April, July, October, and January. The maturity
date of the loan is February 7, 2007.
o A sellers note in the amount of $2,200,000 at 5.75% simple
interest. The principal and interest are due on February 6, 2006.
O Subordinated debt in the amount of $2,000,000 at 13% with interest
payable quarterly commencing on April 1, 2001. The principal will
be due upon on January 31, 2004.
NOTE 3 - INVESTMENT ACQUISITION COST
The Company has capitalized expenses associated with the cost to acquire
Mountain Air Drilling Service Co., Inc. These costs include a payment of
$200,000 to secure the letter of intent, audit fees, feasibility study, and
legal fees totaling $179,529 during 2000.
See Note 8 for further discussion of this acquisition.
During 2000, the Company pursued two other acquisition targets and incurred
acquisition costs totaling $234,402. As of December 31, 2000, acquisition
negotiations for these two targets have ceased, and the Company has expensed the
costs as abandoned.
NOTE 4 - LEASE COMMITMENTS
On February 6, 2001, MCA, a subsidiary of OilQuip, completed the purchase of
certain assets pursuant to an Asset Purchase Agreement with Mountain Air
Drilling Service Co., Inc. A portion of the purchased equipment was sold to a
leasing company. The leasing of the equipment is being accounted for as an
operating lease. Lease payments totaling $3,480,000 will be made over a period
of six years.
The Company rents office space on a five-year lease, which expires February 5,
2006. Rent expense for the first quarter of 2001 was $18,000. The Company has no
further lease obligations.
NOTE 5 - SUBSEQUENT EVENTS
On May 9, 2001, OilQuip Rentals, Inc., an oil and gas rental company, merged
into a subsidiary of Allis-Chalmers Corporation. In the merger, all of OilQuip's
outstanding common stock was converted into 400,000 shares of Allis-Chalmers'
common stock and the right to receive the remaining 9,600,000 shares of
Allis-Chalmers' common stock upon the filing of an amendment to the Amended and
Restated Certificate of Incorporation to authorize the issuance of such shares.
33
UNAUDITED SUMMARY PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
The accompanying unaudited pro forma combined condensed financial
information has been derived from the audited and unaudited financial statements
included elsewhere in this proxy statement. This data is not necessarily
indicative of the combined results of operations or financial position that
would have occurred if the merger had occurred at the beginning of each period
presented or on the dates indicated, nor is it necessarily indicative of our
future operating results or financial position. The data set forth below should
be read in conjunction with our (audited) financial statements (and unaudited
interim financial statements), including the notes thereto, which are
incorporated herein by reference.
The accompanying pro forma consolidated financial statements present
the historical financial information of Allis-Chalmers, as adjusted for the
merger with OilQuip, pursuant to the merger agreement. OilQuip was formed in
February 2000 to fund and acquire targets to operate as subsidiaries. In
February 2001, OilQuip, through its subsidiary MCA acquired the assets of
Mountain Air Drilling Service Co., Inc., and OilQuip is currently a holding
company for MCA. In the future, the operations of Allis-Chalmers' wholly-owned
subsidiary, Houston Dynamic Services, and OilQuip's wholly-owned subsidiary MCA
will comprise the continuing operations of Allis-Chalmers.
The accompanying pro forma balance sheet presents the historical
financial information of Allis-Chalmers as of March 31, 2001, as adjusted for
the merger with OilQuip. The historical financial information of OilQuip is as
of March 31, 2001. The accompanying pro forma consolidated statement of
operations for the year ended December 31, 2000 combines the historical
financial information of Allis-Chalmers for the year ended December 31, 2000
with the historical financial information of Mountain Air for the year ended
December 31, 2000 and the historical financial information of OilQuip for the
period from its inception in February 2000 through December 31, 2000, as if the
acquisition had incurred at the beginning of 2000. The accompanying pro forma
consolidated statement of operations for the quarter ended March 31, 2001
combines the historical financial information of OilQuip with the historical
financial information of Allis-Chalmers for the quarter ended March 31, 2001,
and Mountain Air for the period of January 1, 2001 through February 7, 2001, as
if the acquisition had occurred at January 1, 2000.
The pro forma consolidated financial statements have been prepared by
management, based on the historical financial statements of Allis-Chalmers,
OilQuip, and Mountain Air. These pro forma consolidated financial statements may
not be indicative of the results that actually would have occurred if the
combination had been in effect on the dates indicated or which may be obtained
in the future.
34
ALLIS-CHALMERS CONSOLIDATED
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED DECEMBER 31, 2000
(EXCEPT FOR OILQUIP FOR WHICH THE PERIOD IS FEBRUARY 9, 2000
TO DECEMBER 31, 2000)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
MOUNTAIN AIR OILQUIP* PRO FORMA
ALLIS-CHALMERS DRILLING RENTALS ADJUSTMENTS TOTAL
-------------- ------------ -------- ----------- ---------
Revenues $4,552 $5,692 $ - $ - $10,244
Cost of Revenues 3,315 2,689 - 731(4) 6,735
----- ------ ------ ------- -----
Gross Profit General &
Administrative 1,237 3,003 - (731) 3,509
Expenses 1,413 613 627 198 (5)(9) 2,851
Amortization - - - 212 (6)(9) 212
----- ------ ------ ------- -----
Income (Loss) from Operations (176) 2,390 (627) (1,141) 446
Other Income (Expense)
Interest Income 8 21 - - 29
Interest Expense (38) - - (649)(7) (687)
Miscellaneous Income 17 2 - - 19
----- ------ ------ ------- -----
Income (Loss) before Income Tax (189) 2,413 (627) (1,790)(8) (193)
Provision for Income Taxes - (1)(2) - (3) - 33 (8) (33)
----- ----- ------ ----- -----
Net Income (Loss) $(189) $2,413 $ (627) $(1,823) $(226)
===== ====== ====== ======= =====
Basic and diluted (loss) per share $(0.12) $(0.02)
====== ======
Weighted Average Shares outstanding:
Basic and diluted 1,588,128 11,588,128
========= ==========
*See notes to unaudited pro forma combined consolidated
35
ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000
(IN THOUSANDS)
OILQUIP* PRO FORMA
ALLIS-CHALMERS RENTALS ADJUSTMENTS TOTAL
-------------- ------------ ----------- ---------
Cash and cash equivalents $192 $205 $- $397
Accounts receivable, net 883 524 - 1,407
Inventories 192 - - 192
Other current assets 29 40 69
-------------- ------------ ----------- ---------
Total current assets 1,296 769 - 2,065
Property and equipment, net 1,018 6,422 900 (9) 8,340
Goodwill and other intangibles, net - 2,768 1,050 (9) 3,818
Other assets, net - 701 701
-------------- ------------ ----------- ---------
Total assets $2,314 $10,660 $1,950 $14,924
============== ============ =========== =========
Current maturities of long-term $ 195 $ 647 $ - $ 842
Accounts payable 283 219 - 502
Accrued expenses 199 271 - 470
Accrued pension liability 66,877 - (66,877) (10) -
Other current liabilities 97 75 - 172
-------------- ------------ ----------- ---------
Total current liabilities 67,651 1,212 (66,877) 1,986
Accrued post-retirement benefit
obligation 881 - - 881
Long-term debt 341 7,169 - 7,510
-------------- ------------ ----------- ---------
Total liabilities 68,873 8,381 (66,877) 10,377
Stockholders' equity (deficit) (66,559) 2,279 68,827 4,547
-------------- ------------ ----------- ---------
Total liabilities and
stockholders' equity (deficit) $2,314 $10,660 $1,950 $14,924
============== ============ =========== =========
See notes to unaudited pro forma combined consolidated balance sheet.
ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
AS OF MARCH 31, 2000
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
MOUNTAIN AIR OILQUIP* PRO FORMA
ALLIS-CHALMERS DRILLING RENTALS ADJUSTMENTS TOTAL
-------------- ------------ -------- ----------- ---------
Revenues $ 1,377 $ 606 $ 493 $ - $ 2,476
Cost of Revenues 853 420 214 73 (4) 1,560
--------- ------- ------- -------- --------
Gross Profit 524 186 279 (73) 916
General and Administrative
Expenses 391 313 165 58 (5)(9) 927
Amortization - 22 - 28 (6)(9) 50
--------- ------- ------- -------- --------
Income (Loss) from Operations 133 (149) 114 (159) (61)
Other Income (Expense)
Interest Income - - - - -
Interest Expense (8) (95) - (68) (7) (171)
Misc. Income (Expense) - (26) - - (26)
--------- ------- ------- -------- --------
Income (Loss) before Income
Tax 125 (270) 114 (227) (258)
Provision for Income Taxes - - - -
--------- ------- ------- -------- --------
Net Income $ 125 $ (270) $ 114 $ (227) $ (258)
========= ======= ======= ======== ========
Basic and diluted income
(loss) per share $ .08 $ (.02)
========= ========
Weighted Average Shares
Outstanding: 1,588,128 11,588,128
========= ==========
ALLIS-CHALMERS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCAL STATEMENTS
Note 1 - Basis Of Presentation
------------------------------
The accompanying pro forma consolidated financial statements are presented to
reflect the merger of OilQuip and Allis-Chalmers, accounted for as a reverse
acquisition, with the pre-merger operation of Allis-Chalmers and OilQuip
becoming the ongoing operations of the combined entities.
In February 2001, OilQuip, through its subsidiary Mountain Compressed Air, Inc.
("MCA"), acquired the assets of Mountain Air Drilling, Inc. OilQuip is currently
a holding company for MCA.
The accompanying pro forma consolidated balance sheet as of March 31, 2001 has
been prepared to give effect to the merger of OilQuip and Allis as if the
acquisition occurred on March 31, 2001. The accompanying pro forma consolidated
statements of operations combines the historical operations of Allis-Chalmers,
OilQuip, and Mountain Air Drilling Service Co., Inc. for the year ended December
31, 2000 and the three months ended March 31, 2001 as if the acquisition had
occurred at January 1, 2000 of each of the periods presented.
On June 29, 2001, the Financial Accounting Standards Board (FASB) voted in favor
of FASB Statement No. 142 (FAS 142), "Goodwill and Other Tangible Assets." FASB
expects to release FAS 142 in the last half of July 2001. FAS 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Upon adoption of FAS 142, goodwill will be tested at the reporting
unit annually and whenever events or circumstances occur indicating that
goodwill might be impaired. Amortization of goodwill, including goodwill
recorded in past business combinations, will cease. The adoption date for us
will be January 1, 2002. We have not yet determined what the impact of FAS 142
will be on our results of operations and financial position.
Note 2 - Pro Forma Adjustments
------------------------------
(1) Allis-Chalmers Corporation emerged from Chapter 11 proceedings on October
31, 1988 under a Plan of Reorganization which was consummated on December 2,
1988. 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, 1998. Payments made by the Company to the
A-C Reorganization Trust did not generate tax deductions for the Company upon
the transfer but generated deductions for the Company as payments are made by
the A-C Reorganization Trust to holders of claims. Taxable loss of $921,000 was
included in 2000.
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 did not generate current tax deductions for the Company. Future
income and deductions will be available to the Company as the product liability
trust earns interest on its investments and makes payments to liquidate claims.
Taxable income of $781,000 was included in 2000.
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.
(2) Tax carryforwards at December 31, 2000 are estimated to consist of net
operating losses of $319 million expiring 2001 through 2019, investment tax
credits of $16,000 expiring in 2001 and energy tax credits of $141,000
expiring 2001 through 2002. We believe that in connection with the merger
the Company's retention of the net operating losses or tax credits will be
limited, if any.
(3) Mountain Air Drilling Service Co., Inc., effective January 1, 1988, filed
Articles of Incorporation and elected to be treated as a S Corporation. No
past provisions for income taxes were made as the taxable income or loss of
a S corporation is passed through to its partnership/shareholders without
being taxed at the entity level. Effective with the merger, their income
will be included in the tax calculation.
(4) The equipment lease expense of certain assets acquired in the sale of
Mountain Air, which became part of a sale/leaseback to help finance the
acquisition.
(5) Additional depreciation expense on assets acquired and adjusted to fair
value from the purchase of certain assets of Mountain Air and additional
corporate administrative expenses.
(6) Amortization expense for goodwill and other intangibles, net, as a result
of the acquisition of certain assets of Mountain Air Drilling Service Co.,
Inc. Goodwill is being amortized over 20 years.
(7) Interest costs as a result of the cost of the acquisition of certain assets
of Mountain Air Drilling Service Co., Inc.
o A term loan in the amount of $3,550,000 at 8%, interest payable
monthly, with quarterly principal payments of $147,916.67 due on the
last day of April, July, October, and January. The maturity date of
the loan is February 7, 2007.
o A sellers note in the amount of $2,200,000 at 5.75% simple interest.
The principal and interest are due on February 6, 2006.
o Subordinated debt in the amount of $2,000,000 at 13% with interest
payable monthly and principal due in 2004.
o Deferred financing costs are being amortized over 6 years, the length
of the term loan.
(8) Provisions for income taxes had Mountain Air Drilling operations and
OilQuip Rentals been part of Allis-Chalmers for the entire year ending
December 31, 2000. This includes state taxes of $33,000 and no federal
income taxes. Computation of the federal income tax indicates the retention
of only $1,077,000 of the tax carryforwards as noted in footnote 2.
(9) For legal purposes, Allis-Chalmers acquired OilQuip, the parent company of
MCA. However, for accounting purposes OilQuip was treated as the acquiring
company in a reverse acquisition of Allis-Chalmers. As a result the fixed
assets, and goodwill and other intangibles of Allis-Chalmers are increased
by $1,950,000. Goodwill and other intangibles are being amortized over 20
years and the fixed assets are being depreciated over 10 years.
(10) See Allis-Chalmers Note 2 - Post Retirement Obligation-Pension Plan.
(11) Certain assets of Mountain Air Drilling were acquired on February 7, 2001
by Mountain Compressed Air, which is a subsidiary of OilQuip Rentals, Inc.
Mountain Air Drilling's operational data is for the period January 1, 2001
through February 6, 2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALLIS-CHALMERS CORPORATION,
a Delaware corporation
Dated: July 17, 2001 By: /s/ John T. Grigsby, Jr.
-------------------------
Name: John T. Grigsby, Jr.
Title: Chief Financial Officer
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
16.1 Letter, dated July 16, 2001, from PricewaterhouseCoopers
LLP to the Securities and Exchange Commission regarding its
termination as the Company's principal accountant
responsible for auditing the Company's financial statements.