SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
Commission file number 1-2199
ALLIS-CHALMERS CORPORATION
(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.)
4180 Cherokee Drive
Brookfield, Wisconsin 53045
(Address of principal executive offices) (Zip code)
(414)781-7155
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
At July 15, 1999 there were 1,588,128 shares of Common Stock outstanding.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF OPERATIONS
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ---------------------
1999 1998 1999 1998
-------- ------- ------- -------
(thousands, except per share)
Sales $ 1,084 $ 1,249 $ 2,136 $ 2,752
Cost of sales 835 937 1,548 1,954
-------- ------- ------- -------
Gross Margin 249 312 588 798
Marketing and administrative expense 381 515 771 874
-------- ------- ------- -------
Income/(Loss) from Operations (132) (203) (183) (76)
Other income (expense)
Interest income 2 6 3 12
Interest expense (7) (9) (15) (18)
Other 0 9 1 22
-------- ------- ------- -------
Net Income/(Loss) $ (137) $ (197) $ (194) $ (60)
======== ======= ======= =======
Net Income/(Loss) per Common Share $ (.9) $ (.20) $ (.15) $ (.06)
======== ======= ======= =======
STATEMENT OF ACCUMULATED DEFICIT
Six Months Ended June 30 1999 1998
------------------------ -------- --------
(thousands)
Accumulated deficit - beginning of year $(75,673) $(76,291)
Net income/(loss) (194) (60)
-------- --------
Accumulated deficit - June 30 $(75,867) $ (76,351)
======== =========
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
3
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION
June 30, December 31,
1999 1998
--------- ------------
(thousands)
Assets
Cash and short-term investments $ 186 $ 223
Trade receivables, net 592 796
Inventories, net 67 127
Other current assets 56 112
--------- ---------
Total Current Assets 901 1,258
Net property, plant and equipment 1,270 1,308
--------- ---------
Total Assets $ 2,171 $ 2,566
========= =========
Liabilities and Shareholders' Deficit
Current maturities of long-term debt $ 75 $ 60
Trade accounts payable 179 291
Accrued employee benefits 135 155
Accrued pension liability 67,901 67,901
Other current liabilities 278 312
--------- ---------
Total Current Liabilities 68,568 68,719
Accrued postretirement benefit obligations 952 981
Long-term debt 211 232
Shareholders' deficit
Common stock, ($.15 par value, authorized
2,000,000 shares, outstanding 1,588,128
at June 30, 1999 and 1,000,028 at December 31, 1998) 152 152
Capital in excess of par value 8,155 8,155
Accumulated deficit (accumulated deficit of
$424,208 eliminated on December 2, 1988) (75,867) (75,673)
--------- ---------
Total Shareholders' Deficit (67,560) (67,366)
Commitments and contingent liabilities
--------- ---------
Total Liabilities and Shareholders'
Deficit $ 2,171 $ 2,566
======== =========
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
4
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Six Months Ended
June 30
-----------------------
1999 1998
------- -------
(thousands)
Cash flows from operating activities:
Net loss $ (194) $ (60)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 83 88
Change in working capital:
Decrease in receivables, net 204 23
Decrease in inventories 60 23
Decrease in trade accounts payable (112) (76)
Increase in other current items 2 185
Other (29) (26)
------- -------
Net cash provided by operating activities 14 157
Cash flows from investing activities:
Capital expenditures (47) (221)
Proceeds from sale of equipment 2 2
------- -------
Net cash (used) by investing activities (45) (219)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt 29 71
Payment of long-term debt (35) (30)
------- -------
Net cash provided (used) by financing activities (6) 41
------- -------
Net decrease in cash and short-term investments (37) (21)
Cash and short-term investments at
beginning of period 223 699
------- -------
Cash and short-term investments at
end of period $ 186 $ 678
======= =======
Supplemental information - interest paid $ 15 $ 18
======= =======
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
5
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
This interim financial data should be read in conjunction with the consolidated
financial statements and related notes, management's discussion and analysis and
other information included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
All adjustments considered necessary for a fair presentation of the results of
operations have been included in the unaudited financial statements. The results
of operations for any interim period are not necessarily indicative of
Allis-Chalmers operating results for a full year.
NOTE 2 - POSTRETIREMENT OBLIGATIONS--PENSION PLAN
In 1994, the Company's independent pension actuaries changed the assumptions for
mortality and administrative expenses used to determine the liabilities of the
Allis-Chalmers Consolidated Pension Plan (Consolidated Plan). Primarily as a
result of the changes in mortality assumptions to reflect decreased mortality
rates of the Company's retirees, the Consolidated Plan was underfunded on a
present value basis. In the first quarter of 1996, the Company made a required
cash contribution to the Consolidated Plan in the amount of $205,000. The
Company did not, however, have the financial resources to make the other
required payments during 1996 and 1997. Given the inability of the Company to
fund such obligations with its current financial resources, in February 1997,
Allis-Chalmers applied to the Pension Benefit Guaranty Corporation (PBGC) for a
"distress" termination of the Consolidated Plan under section 4041(c) of the
Employee Retirement Income Security Act of 1974, as amended (ERISA). The PBGC
approved the distress termination application in September 1997 and agreed to a
plan termination date of April 14, 1997. The PBGC became trustee of the
terminated Consolidated Plan on September 30, 1997.
Upon termination of the Consolidated Plan, Allis-Chalmers and its subsidiaries
incurred a liability to the PBGC for an amount equal to the Consolidated Plan's
unfunded benefit liabilities. Allis- Chalmers and its subsidiaries also have
liability to the PBGC, as trustee of the terminated Consolidated Plan, for the
outstanding balance of the Consolidated Plan's accumulated funding deficiencies.
The PBGC has estimated that the unfunded benefit liabilities and the accumulated
funding deficiencies (together, the PBGC Liability) totaled approximately $67.9
million.
In September 1997, Allis-Chalmers and the PBGC entered into an agreement in
principle for the settlement of the PBGC Liability which required, among other
things, satisfactory resolution of the Company's tax obligations with respect to
the Consolidated Plan under Section 4971 of the Internal Revenue Code of 1986,
as amended (Code). Section 4971(a) of the Code imposes, for each taxable year, a
first-tier tax of 10% on the amount of the accumulated funding deficiency under
a plan like the Consolidated Plan. Section 4971(b) of the Code imposes an
additional, second-tier tax equal to 100% of such accumulated funding deficiency
if the deficiency is not "corrected" within a specified period. Liability for
the taxes imposed under section 4971 extends, jointly and severally, to the
Company and to its commonly-controlled subsidiary corporations.
6
Prior to its termination, the Consolidated Plan had an accumulated funding
deficiency in the taxable years 1995, 1996, and 1997. Those deficiencies
resulted in estimated first-tier taxes under Code Section 4971(a) of
approximately $900,000.
On July 16, 1998, the Company and the Internal Revenue Service (IRS) reached an
agreement in principal to settle the Company's tax liability under Code Section
4971 for $75,000. Following final IRS approval, payment of this amount was made
on August 11, 1998.
In June 1999, but effective as of March 31, 1999, the Company and the PBGC
entered into an agreement for the settlement of the PBGC Liability (the PBGC
Agreement).
Pursuant to the terms of the PBGC Agreement, the Company issued 585,100 shares
of its common stock to the PBGC, or 35% of the total number of shares issued and
outstanding on a fully-diluted basis, and the Company has a right of first
refusal with respect to the sale of the shares of common stock owned by the
PBGC. In accordance with the terms of the PBGC Agreement, the Company is
required to (i) decrease the size of the Board of Directors of the Company (the
Board) to seven members; (ii) cause a sufficient number of current directors of
the Company to resign from the Board and all committess thereof; and (iii) cause
Thomas M. Barnhart, II, Alexander P. Sammarco and David A. Groshoff, designees
of the PBGC, to be elected to the Board. The PBGC has caused the Company to
amend its By-laws (By-laws) to conform to the terms of the PBGC Agreement.
Furthermore, the Company agreed to pay the PBGC's reasonable professional fees
on the 90th day after a Release Event (as hereinafter defined), which is
currently evidenced by a Company promissory note in favor of the PBGC in the
amount of $75,000. During the term of the PBGC Agreement, the Company has agreed
not to issue or agree to issue any common stock of the Company or any "common
stock equivalent" for less than fair value (as determined by a majority of the
Board). The Company also agreed not to merge or consolidate with any other
entity or sell, transfer or convey more than 50% of its property or assets
without majority Board approval and agreed not to amend its Amended and Restated
Certificate of Incorporation (Certificate) or By-laws.
In order to satisfy and discharge the PBGC Liability, the PBGC Agreement
provides that the Company must either: (i) receive, in a single transaction or
in a series of related transactions, debt financing which makes available to the
Company at least $10 million of borrowings or (ii) consummate an acquisition, in
a single transaction or in a series of related transactions, of assets and/or a
business where the purchase price (including funded debt assumed) is at least
$10 million (Release Event).
In connection with the PBGC Agreement, and as additional consideration for
settling the PBGC Liability, the following agreements, each dated as of March
31, 1999 were also entered into; (i) a Registration Rights Agreement between the
Company and PBGC (the Registration Rights Agreement); and (ii) a Lock-Up
Agreement by and among the Company, the PBGC, AL-CH Company, L.P., a Delaware
limited partnership (AL-CH), Wells Fargo Bank, as trustee under that certain
Amended and Restated Retiree Health Trust Agreement for UAW Retired Employees of
Allis-Chalmers Corporation (the UAW Trust), and Firstar Trust Company, as
trustee under that certain Amended and Restated Retiree Health Trust Agreement
for Non-UAW
7
Retired Employees of Allis-Chalmers Corporation (the Non-UAW Trust) (the Lock-Up
Agreement).
The Registration Rights Agreement grants each holder of Registrable Shares
(defined in the Registration Rights Agreement to basically mean the shares of
common stock issued to the PBGC under the PBGC Agreement) the right to have
their shares registered pursuant to the Securities Act of 1933, as amended, on
demand or incidental to a registration statement being filed by the
Company. In order to demand registration of Registrable Shares, a request for
registration by holders of not less than 20% of the Registrable Shares is
necessary. The Company may deny a request for registration of such shares if the
Company contemplated filing a registration statement within 90 days of receipt
of notice from the holders. The Registration Rights Agreement also contains
provisions that allow the Company to postpone the filing of any registration
statement for up to 180 days. The Registration Rights Agreement contains
indemnification language similar to that usually contained in agreements of this
kind.
The Lock-Up Agreement governs the transfer and disposition of shares of the
Company's common stock and the voting of such shares, as well as grants the PBGC
a right of sale of its shares prior to AL-CH, the UAW Trust and the Non-UAW
Trust.
Pursuant to the Lock-Up Agreement, unless the Board has terminated the common
stock transfer restrictions set forth in Article XIII of the Company's
Certificate, AL-CH, the UAW Trust and the Non-UAW Trust each agreed that, during
the period commencing on March 31, 1999 and ending on the third anniversary of
the Release Event, it will not, directly or indirectly, sell, transfer, assign
or dispose of any shares of Company stock it beneficially owns. Commencing with
the third anniversary of the Release Event and continuing until the fifth
anniversary of the Release Event, each of AL-CH, the UAW Trust and the Non-UAW
Trust agreed not to sell, transfer or dispose of any shares of Company stock
without first giving the PBGC an opportunity to sell all or any portion of the
shares of Company stock the PBGC owns. The foregoing right of the PBGC applies
to the sale of Company stock in a public offering or otherwise.
The Lock-Up Agreement also contains a voting component. During the term of the
Lock-Up Agreement, each party to the agreement agreed to vote, at any meeting of
the Company stockholders and in any written consent, all shares of Company stock
owned by it in favor of the election as directors of the Company the persons
nominated by the Nominating Committee of the Board and to refrain from taking
any action contrary to or inconsistent with such obligation. During the term of
the Lock-Up Agreement, each party to the agreement further agreed not to vote
its shares of Company stock or take any other action to amend the Company's
Certificate or By-laws in a manner that is inconsistent with, or in breach of,
the PBGC Agreement. Each party further agreed that it will vote all of its
shares (i) in favor of certain specified amendments to the Company's
Certificate, (ii) for the election of the persons designated by the PBGC (each,
a PBGC Director) to serve on the Board and (iii) in favor of the election of
Company directors who are committed to cause, and who do cause, one PBGC
Director to be appointed to the Nominating Committee of the Board and one PBGC
Director to be appointed as the Chairman of the Compensation Committee of the
Board.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Operations of the Company consist of Houston Dynamic Service, Inc. (HDS), the
Company's machinery repair and service subsidiary.
Sales in the second quarter of 1999 totaled $1,084,000 a decrease of 13% from
$1,249,000 in the second quarter of 1998. The decrease was due to extremely soft
conditions as a backlash to the very low oil prices during the second half of
1998 which resulted in lower shipments in 1999 compared to the same period in
1998. HDS continues to be affected by volatile market conditions that prevail in
the oil related fields of refining, processing, chemicals and petrochemical
operations throughout the Gulf Coast.
Gross margin, as a percentage of sales, was 23% in the second quarter of 1999, a
decrease from 25% in 1998 due to competitive pricing.
Marketing and administrative expense was $381,000 in the second quarter of 1999
compared with $515,000 in the prior year. The decrease reflects the 1998
nonreoccurring costs that were associated with the Consolidated Plan and related
IRS issues. See Note 2 to the Financial Statements for further discussion. A
significant portion of the Company's administrative expenses relates to expenses
for Securities and Exchange Commission and other governmental reporting as well
as legal, accounting and audit, tax, insurance and other corporate requirements
of a publicly held company.
The Company incurred a net loss of $137,000, or $.09 per common share, in the
second quarter of 1999 compared with a net loss of $197,000, or $.20 per common
share, in the same period of 1998.
In the first half of 1999, the Company incurred a net loss of $194,000 or $.15
per common share compared with a loss of $60,000 or $.06 per common share in the
same period of 1998.
Financial Condition and Liquidity
Cash and short term investments totaled $186,000 at June 30, 1999, a decrease
from $223,000 at December 31, 1998.
Net trade receivables at June 30, 1999 were $592,000, reflecting a decrease from
the December 31, 1998 level of $796,000. This decrease was due to lower sales in
the first half of 1999.
Inventory at June 30, 1999 was $67,000, a decrease from $127,000 at year end
1998. This reduction was primarily due to one order for $110,000 that was in
work in process at year end 1998 and was subsequently shipped in the second
quarter of 1999.
9
Net property, plant and equipment was $1,270,000 at June 30, 1999, a decrease
from $1,308,000 at year end 1998. For the six months ending June 30, 1999,
$47,000 of capital expenditures were made to insure cost competitiveness and the
ability to reach new markets.
Other current liabilities at June 30, 1999 were $278,000, a decrease from
$312,000 at December 31, 1998.
The A-C Reorganization Trust, pursuant to the Plan of Reorganization, funds all
costs incurred by Allis-Chalmers which relate to implementation of the Plan of
Reorganization, thus avoiding additional demands on the liquidity of the
Company. Such costs include an allocated share of certain expenses for Company
employees, professional fees and certain other administrative expenses.
In 1994, the Company's independent pension actuaries changed the assumptions for
mortality and administrative expenses used to determine the liabilities of the
Consolidated Plan. Primarily as a result of the changes in mortality assumptions
to reflect decreased mortality rates of the Company's retirees, the Consolidated
Plan was underfunded on a present value basis. In the first quarter of 1996, the
Company made a required cash contribution to the Consolidated Plan in the amount
of $205,000. The Company did not, however, have the financial resources to make
the other required payments during 1996 and 1997. Given the inability of the
Company to fund such obligations with its current financial resources, in
February 1997, Allis-Chalmers applied to the PBGC for a "distress" termination
of the Consolidated Plan under section 4041(c) of ERISA. The PBGC approved the
distress termination application in September 1997 and agreed to a plan
termination date of April 14, 1997. The PBGC became trustee of the terminated
Consolidated Plan on September 30, 1997.
Upon termination of the Consolidated Plan, Allis-Chalmers and its subsidiaries
incurred a liability to the PBGC for an amount equal to the Consolidated Plan's
unfunded benefit liabilities. Allis- Chalmers and its subsidiaries also have
liability to the PBGC, as trustee of the terminated Consolidated Plan, for the
outstanding balance of the Consolidated Plan's accumulated funding deficiencies.
The PBGC has estimated that the PBGC Liability totaled approximately $67.9
million.
In September 1997, Allis-Chalmers and the PBGC entered into an agreement in
principle for the settlement of the PBGC Liability which required, among other
things, satisfactory resolution of the Company's tax obligations with respect to
the Consolidated Plan under Section 4971 of the Code. Section 4971(a) of the
Code imposes, for each taxable year, a first-tier tax of 10% on the amount of
the accumulated funding deficiency under a plan like the Consolidated Plan.
Section 4971(b) of the Code imposes an additional, second-tier tax equal to 100%
of such accumulated funding deficiency if the deficiency is not "corrected"
within a specified period. Liability for the taxes imposed under section 4971
extends, jointly and severally, to the Company and to its commonly-controlled
subsidiary corporations.
Prior to its termination, the Consolidated Plan had an accumulated funding
deficiency in the taxable years 1995, 1996, and 1997. Those deficiencies
resulted in estimated first-tier taxes under Code Section 4971(a) of
approximately $900,000.
10
On July 16, 1998, the Company and the IRS reached an agreement in principal to
settle the Company's tax liability under Code Section 4971 for $75,000.
Following final IRS approval, payment of this amount was made on August 11,
1998.
In June 1999, but effective as of March 31, 1999, the Company and the PBGC
entered into the PBGC Agreement.
Pursuant to the terms of the PBGC Agreement, the Company issued 585,100 shares
of its common stock to the PBGC, or 35% of the total number of shares issued and
outstanding on a fully-diluted basis, and the Company has a right of first
refusal with respect to the sale of the shares of common stock owned by the
PBGC. In accordance with the terms of the PBGC Agreement, the Company is
required to (i) decrease the size of the Board to seven members; (ii) cause a
sufficient number of current directors of the Company to resign from the Board
and all committees thereof; and (iii) cause Thomas M. Barnhart, II, Alexander P.
Sammarco and David A. Groshoff, designees of the PBGC, to be elected to the
Board. The PBGC has caused the Company to amend its By-laws to conform to the
terms of the PBGC Agreement. Furthermore, the Company agreed to pay the PBGC's
reasonable professional fees on the 90th day after a Release Event, which is
currently evidenced by a Company promissory note in favor of the PBGC in the
amount of $75,000. During the term of the PBGC Agreement, the Company has agreed
not to issue or agree to issue any common stock of the Company or any "common
stock equivalent" for less than fair value (as determined by a majority of the
Board). The Company also agreed not to merge or consolidate with any other
entity or sell, transfer or convey more than 50% of its property or assets
without majority Board approval and agreed not to amend its Certificate or
By-laws.
In order to satisfy and discharge the PBGC Liability, the PBGC Agreement
provides that the Company must either: (i) receive, in a single transaction or
in a series of related transactions, debt financing which makes available to the
Company at least $10 million of borrowings or (ii) consummate an acquisition, in
a single transaction or in a series of related transactions, of assets and/or a
business where the purchase price (including funded debt assumed) is at least
$10 million (Release Event).
In connection with the PBGC Agreement, and as additional consideration for
settling the PBGC Liability, the following agreements, each dated as of March
31, 1999, were also entered into: the Registration Rights Agreement and the
Lock-Up Agreement.
The Registration Rights Agreement grants each holder of Registrable Shares
(defined in the Registration Rights Agreement to basically mean the shares of
common stock issued to the PBGC under the PBGC Agreement) the right to have
their shares registered pursuant to the Securities Act of 1933, as amended, on
demand or incidental to a registration statement being filed by the Company. In
order to demand registration of Registrable Shares a request for registration by
holders of not less than 20% of the Registrable Shares is necessary. The Company
may deny a request for registration of such shares if the Company contemplated
filing a registration statement within 90 days of receipt of notice from the
holders. The Registration Rights Agreement also contains provisions that allow
the Company to postpone the filing of any
11
registration statement for up to 180 days. The Registration Rights Agreement
contains indemnification language similar to that usually contained in
agreements of this kind.
The Lock-Up Agreement governs the transfer and disposition of shares of the
Company's common stock, the voting of such shares as well as grants the PBGC a
right of sale of its shares prior to AL-CH, the UAW Trust and the Non-UAW Trust.
Pursuant to the Lock-Up Agreement, unless the Board has terminated the common
stock transfer restrictions set forth in Article XIII of the Company's
Certificate, AL-CH, the UAW Trust and the Non-UAW Trust each agreed that, during
the period commencing on March 31, 1999 and ending on the third anniversary of
the Release Event, it will not, directly or indirectly, sell, transfer, assign
or dispose of any shares of Company stock it beneficially owns. Commencing with
the third anniversary of the Release Event and continuing until the fifth
anniversary of the Release Event, each of AL-CH, the UAW Trust and the Non-UAW
Trust agreed not to sell, transfer or dispose of any shares of Company stock
without first giving the PBGC an opportunity to sell all or any portion of the
shares of Company stock the PBGC owns. The foregoing right of the PBGC applies
to the sale of Company stock in a public offering or otherwise.
The Lock-Up Agreement also contains a voting component. During the term of the
Lock-Up Agreement, each party to the agreement agreed to vote, at any meeting of
the Company stockholders and in any written consent, all shares of Company stock
owned by it in favor of the election as directors of the Company the persons
nominated by the Nominating Committee of the Board and to refrain from taking
any action contrary to or inconsistent with such obligation. During the term of
the Lock-Up Agreement, each party to the agreement further agreed not to vote
its shares of Company stock or take any other action to amend the Company's
Certificate or By-laws in a manner that is inconsistent with, or in breach of,
the PBGC Agreement. Each party further agreed that it will vote all of its
shares (i) in favor of certain specified amendments to the Company's
Certificate, (ii) for the election of PBGC Directors and (iii) in favor of the
election of Company directors who are committed to cause, and who do cause, one
PBGC Director to be appointed to the Nominating Committee of the Board and one
PBGC Director to be appointed as the Chairman of the Compensation Committee of
the Board.
The foregoing are summaries of certain provisions of the PBGC Agreement, the
Registration Rights Agreement and the Lock-Up Agreement. The summaries are not
complete descriptions of the terms and conditions of those agreements and are
qualified in their entirety by reference to the full text of the PBGC Agreement,
the Registration Rights Agreement and the Lock-Up Agreement, which are
incorporated herein by reference and copies of which have been filed with the
Securities and Exchange Commission as exhibits to this Quarterly Report on Form
10-Q.
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
12
liable for cleanup costs or associated EPA fines in connection with additional
sites. In one of these instances a former site operator has joined
Allis-Chalmers and 47 other potentially responsible parties as a third-party
defendant in a lawsuit involving cleanup of one of the sites. In each instance
the environmental claims asserted against the Company involve its prebankruptcy
operations. Accordingly, Allis-Chalmers has taken the position that all cleanup
costs or other liabilities related to these sites were discharged in the
bankruptcy. In one particular site, the EPA's Region III has concurred with the
Company's position that claims for environmental cleanup were discharged
pursuant to the bankruptcy. While each site is unique with different
circumstances, the Company has notified other Regional offices of the EPA of
this determination associated with the Region III site. The Company has not
received responses from the other Regional offices. No environmental claims have
been asserted against the Company involving its postbankruptcy operations.
The Company's principal sources of cash include earnings from the operations of
HDS and interest income on marketable securities. The cash requirements needed
for the administrative expenses associated with being a publicly held company
are significant, and the Company will continue to use cash generated by
operations to fund such expenses.
The necessity to assure liquidity emphasizes the need for the Company to
continue in a prudent manner its search for appropriate acquisition candidates
in order to increase the Company's operating base and generate positive cash
flow.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See PART I. Item 2, "Management's Discussion and Analysis."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The exhibits listed in the accompanying exhibit index are filed as
a part of this Form 10-Q.
(b) Reports on Form 8-K - No report on Form 8-K was filed during the second
quarter of 1999.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Allis-Chalmers Corporation
(Registrant)
/s/ John T. Grigsby, Jr.
John T. Grigsby, Jr.
Vice Chairman, Executive Vice
President and Chief Financial
Officer
August 3, 1999
14
ALLIS-CHALMERS CORPORATION
Exhibit Index
Exhibit No. Description
- ----------- -----------
(10.1) Agreement dated as of March 31, 1999, by and between
Allis-Chalmers Corporation and the Pension Benefit Guaranty
Corporation
(10.2) Lock-Up Agreement dated as of March 31, 1999, by and among
Allis-Chalmers Corporation, the Pension Benefit Guaranty
Corporation, acting in its individual capacity and as trustee
of the Allis-Chalmers Consolidated Pension Plan, AL-CH
Company, L.P., Wells Fargo Bank, as trustee under that certain
Amended and Restated Retiree Health Trust Agreement for UAW
Retired Employees of Allis-Chalmers Corporation and Firstar
Trust Company, as trustee under that certain Amended and
Restated Retiree Health Trust Agreement for non-UAW Retired
Employees of Allis-Chalmers Corporation.
(10.3) Registration Rights Agreement dated as of March 31, 1999, by
and between Allis-Chalmers Corporation and the Pension Benefit
Guaranty Corporation
(27) Financial Data Schedule