SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1995 Commission File Number 0-10763
AlaTenn Resources, Inc.
(Exact Name of Registrant as Specified in its Charter)
Alabama 63-0821819
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification Number)
Post Office Box 918, Florence, Alabama 35631
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (205) 383-3631
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class March 31, 1995
Common Stock, Par Value $0.10 per share 2,115,484 shares
PART I - FINANCIAL INFORMATION
ALATENN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
1995 1994
(in thousands, except
per share data)
OPERATING REVENUES:
Industrial sales $8,886 $13,252
Resale sales 3,706 3,156
Transportation 3,293 3,294
Off-system sales
and other 3,376 305
Health Care Products 3,292 0
TOTAL OPERATING REVENUES 22,553 20,000
COST OF GOODS SOLD 17,699 16,519
GROSS MARGIN 4,854 3,488
OTHER OPERATING EXPENSES:
Operations 2,099 1,373
Maintenance 60 81
Depreciation and amort. 300 129
Other taxes 94 88
2,553 1,671
OPERATING INCOME 2,301 1,817
OTHER INCOME:
Interest and
investment income 111 185
Other income 46 -3
157 182
INTEREST EXPENSE 58 23
INCOME BEFORE TAXES 2,400 1,976
INCOME TAXES 869 688
NET INCOME $1,531 $1,288
EARNINGS PER SHARE: $0.72 $0.61
DIVIDENDS PER SHARE $0.30 $0.30
AVERAGE SHARES
OUTSTANDING 2,115,484 2,111,284
ASSETS
March 31, Dec. 31,
1995 1994
(In thousands)
CURRENT ASSETS:
Cash and temporary cash
investments $2,071 $440
Accts. rec., including
$2,437,000 in 1995
and $2,462,000 in 1994
of take-or-pay
settlement costs 11,682 10,643
Materials and supplies 488 521
Inventories 661 745
Prepaid expenses
and other 467 317
15,369 12,666
PROPERTY, PLANT
AND EQUIPMENT:
Original cost 33,191 33,123
Less - Accumulated dep.
and amortization 15,347 15,117
17,844 18,006
OTHER ASSETS AND
DEFERRED CHARGES:
Take-or-pay settlement
costs 1,398 2,197
Patents 5,834 5,944
Goodwill 2,737 2,765
Other 2,250 2,159
12,219 13,065
$45,432 $43,737
(Continued)
SHAREHOLDERS' EQUITY AND LIABILITIES
Mar. 31 Dec. 31
1995 1994
(In thousands)
CURRENT LIABILITIES:
Current maturities of
long-term debt $203 $203
Accounts payable and accrued
liab., incl. $514,000
in 1995
and $741,000 in 1994
of take-or-pay
settlement costs 11,161 10,010
Accrued income and
other taxes 1,111 621
Accrued interest 23 15
12,498 10,849
LONG-TERM DEBT,
LESS CURRENT MATURITIES 1,711 2,682
OTHER LIABILITIES
AND DEFERRED CREDITS:
Accumulated deferred
income taxes 1,322 1,299
Unamortized investment
tax credits 253 256
Other 1,642 1,541
3,217 3,096
COMMON SHAREHOLDERS' EQUITY
Common shares, par value
$0.10 per share,
authorized 10,000,000
shares, issued
2,280,000 shares 228 228
Paid-in capital 6,049 6,049
Retained earnings 23,621 22,725
Treasury shares,
at cost (1,892) (1,892)
Total shareholders'
equity 28,006 27,110
$45,432 $43,737
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1995 1994
(In thousands)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $1,531 $1,288
Adj.to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amort. 503 129
Deferred income taxes 24 22
Take-or-pay recoveries
(net of expenditures) 728 538
Other -129 -35
2,657 1,942
Change in current assets
and liab.:
(Increase) in a/r -955 -638
(Increase) in other
current assets -32 -185
Increase (decrease)
in a/p 1,152 -497
Increase in other
current liab. 484 304
3,306 926
CASH FLOWS FROM
INVESTING ACTIVITIES:
Property, plant and
equipment additions -68 -345
-68 -345
CASH FLOWS FROM
FINANCING ACTIVITIES:
Decrease in long-term
indebtedness -971 0
Cash dividends paid -635 -633
(1,606) -633
Net increase (decrease)
in cash and temp. cash
investments 1,632 -52
Cash and temporary cash
investments, beg. of period 439 8,761
Cash and temporary cash
investments, end of period $2,071 $8,709
Cash paid for:
Interest (net of capital $19 $0
Income taxes (net of refunds) 358 412
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
</FN>
ALATENN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management, all adjustments necessary for a fair
presentation of results of operations for the periods presented
have been included in the accompanying unaudited consolidated
financial statements of AlaTenn Resources, Inc. (the Company).
Such adjustments consist of normal recurring items. The
accompanying financial statements have been prepared in accordance
with the instructions to Form 10-Q and include only the information
and notes required by such instructions. Accordingly, the
consolidated financial statements and notes thereto should be read
in conjunction with the financial statements and notes included in
the Company's 1994 Annual Report on Form 10-K.
Because of the seasonal nature of the Company's operations, among
other factors, the results of operations for the periods presented
are not necessarily indicative of the results which will be
achieved for an entire year.
2. Purchase of Ryder International Corporation
On April 19, 1994, the Company, through RIC Acquisition
Corporation, a wholly-owned subsidiary of the Company formed to
effect the acquisition, purchased the business of Ryder
International Corporation by acquiring its operating assets,
including plant, equipment, inventory, patents and other
intangibles but excluding cash and receivables, and assuming
substantially all of its liabilities. The Company paid to Ryder
International Corporation, including post-closing adjustments,
$11.1 million in cash, issued a promissory note in the principal
amount of $1.0 million and assumed liabilities totaling $2.2
million. To fund the cash portion of the purchase price, the
Company used available cash and borrowings on a revolving loan
agreement with a bank group. As of March 31, 1995, the Company's
remaining indebtedness associated with this acquisition was $1.9
million. The acquisition was recorded using the purchase method of
accounting. Accordingly, the purchase price was allocated to the
assets and liabilities acquired based on their estimated fair value
at the date of acquisition. The excess of the consideration paid
over the estimated fair value of the assets acquired of $2.5
million was recorded as goodwill and is being amortized over 25
years. Only results from operations subsequent to the acquisition
date are reflected in the accompanying consolidated financial
statements. Following the closing, RIC Acquisition Corporation's
name was changed to Ryder International Corporation (Ryder).
Ryder is principally engaged in the design, development,
manufacture and sale of proprietary products for the health care
industry, including disposable or semi-disposable soft contact lens
storage and disinfection systems and diagnostic products used or
distributed by major health care companies. These products are
generally marketed to major health care companies, both in the U.S.
and overseas, in conjunction with their technology and products.
The following table presents selected financial data on a pro forma
basis assuming the purchase of the business of Ryder International
Corporation had occurred as of January 1, 1994. The pro forma data
reflect asset and liability values and other assumptions which are
based on estimates and subject to revision. The pro forma combined
results presented have been prepared for comparative purposes only
and are not necessarily indicative of actual results that would
have been achieved had the acquisition occurred at the beginning of
the periods presented or of future results.
Three Months Ended
March 31,
1995 1994
Operating Revenues (000) $22,553 $ 22,658
Income From Operations (000) $ 2,301 $ 2,568
Net Income (000) $ 1,531 $ 1,628
Net Income Per Share $ .72 $ .77
ALATENN RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results For The Three Months Ended March 31, 1995
The Company's consolidated net income for the quarter ended March
31, 1995 was $1,531,000, or $0.72 per share, compared with
$1,288,000, or $.61 per share, for the first quarter of 1994. The
earnings per share computations are based on shares outstanding of
2,115,484 in 1995 and 2,111,284 in 1994.
Consolidated revenues of $22.6 million for the first quarter of
1995 were 13% higher than revenues of $20 million for the first
quarter of 1994. The increase in revenues in the first quarter of
1995 was due to added revenues from health care products related to
the Company's April 1994 acquisition of Ryder International
Corporation (Ryder). The acquisition was accounted for using the
purchase method of accounting and, therefore, the Company's results
for the first quarter of 1994 did not include the operations of the
new unit (see Note 2 of Notes to Consolidated Financial
Statements). Sales volumes for the Company's natural gas
marketing subsidiary, ATEMCO, increased 48% in the first quarter
of 1995 compared to the same prior-year period due to higher on-
and off-system sales although natural gas revenues were lower due
to a 31% decrease in natural gas spot prices between periods.
Gross margin of $4.9 million was approximately $1.4 million or 39%
greater in the first quarter of 1995 than in the first quarter of
1994. This significant increase in gross margin is attributable to
the inclusion of margins from Ryder partially offset by lower
margins in the first quarter of 1995 at ATEMCO due to certain
one-time favorable transactions in the same prior-year period.
The major portion of the Company's cost of goods sold of $17.7
million for the first quarter of 1995 was due to the cost of
natural gas which was 2% higher than the cost of natural gas for
the same period in 1994. This change is due to the increase in
ATEMCO's sales volumes in the first quarter of 1995 compared to the
comparable period in the prior year partially offset by a reduction
in spot natural gas prices.
The Company's operations and maintenance expenses of $2.2 million
were 49% higher for the first quarter of 1995 compared with the
first quarter of 1994. This increase was attributable primarily to
the inclusion of Ryder expenses partially offset by slightly lower
legal and regulatory expenses.
Depreciation and amortization expense of $.3 million for the first
quarter was 33% greater than for the comparable period in the prior
year due primarily to the acquisition of the business of Ryder.
Interest and other income of $157,000 was $25,000 lower in the
first quarter of 1995 compared with the first quarter of 1994 due
primarily to lower interest income on take-or-pay receivables from
customers of Alabama-Tennessee Natural Gas Company (Alabama-Tennessee)
and lower interest income due to substantially reduced
invested cash balances partially offset by income from the
Company's investment in an oil and gas exploration and production
partnership.
Interest expense of $58,000 in the first quarter of 1995 was
$23,000 higher then in the comparable prior year period due to
interest on debt related to the acquisition of the business of
Ryder and higher interest rates on interest expense related to the
take-or-pay liability to Tenneco Gas.
Liquidity and Capital Resources
On January 20, 1995, the Company terminated its existing loan
facility with several banks and entered into a $20 million
revolving loan agreement with a different bank. At March 31, 1995,
the Company had no borrowings under this facility but had total
debt, including current maturities, of $1.9 million which was
related to its health care products subsidiary. The Company's
total debt as a percent of total capitalization at March 31, 1995
was 6%.
At March 31, 1995, the Company had cash and temporary cash
investments of $2.1 million compared with $.4 million at December
31, 1994. This cash increase was generated by cash flow from
operations, temporary working capital changes and net collections
of receivables of take-or-pay costs by Alabama-Tennessee from its
customers which offset the payment of dividends, minor capital
expenditures and the pay down of all remaining debt on the
revolving loan facility.
The Company believes that existing cash and temporary cash
investments, cash flows from operations, cash recoveries of
take-or-pay costs by Alabama-Tennessee from its customers and borrowings
available under the Company's existing revolving loan agreement
will be sufficient to fund operations, take-or-pay obligations,
repurchases of the Company's common shares pursuant to the stock
repurchase program referred to below and budgeted capital
expenditures, including the pipeline project referred to below,
over the next twenty-four months.
Regulatory Matters
The City of Decatur, Alabama, which accounted for approximately 17%
of Alabama-Tennessee's pipeline throughput in the first quarter of
1995, has received authorization from the FERC to connect directly
to TGP via a proposed 37-mile pipeline to be constructed and
operated by Decatur, and thereby bypass Alabama-Tennessee's
facilities. In the event Decatur bypasses Alabama-Tennessee's
pipeline system, Alabama-Tennessee would attempt to resell
Decatur's capacity to other Alabama-Tennessee customers and would
be permitted by the FERC to seek the recovery from
Alabama-Tennessee's remaining customers of revenues lost as a result of the
by-pass. The FERC has granted authorization to three of Decatur's
major industrial customers to obtain natural gas service directly
from Alabama-Tennessee, thus bypassing Decatur. All three of these
customers have begun to receive service directly from the Company.
These bypasses of Decatur have had the effect of reducing the
adverse impact that could result from Decatur's bypass
of Alabama-Tennessee's pipeline system.
Other
The Company has completed a definitive agreement with a
manufacturer of industrial gases whereby the Company will build,
own and manage a 22-mile gaseous oxygen pipeline that will link one
of the Company's current natural gas customers to this industrial
gas supplier. This project is expected to provide a fixed return
for an initial term of 15 years. A major portion of the Company's
1995 estimated capital expenditures budget of $4.7 million will be
used to construct the oxygen pipeline.
In early May 1995, the Company's Board of Directors authorized a
stock repurchase program under which the Company may purchase up to
100,000 shares of its common stock in open market or negotiated
transactions at such times and at such prices as management may
from time to time decide.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments during the first quarter
of 1995 in any of the Company's legal proceedings as described in
its Form 10-K for the year ended December 31, 1994. On April 11,
1995, the City of Decatur, which has obtained permits from the
Alabama Department of Transportation (DOT) authorizing the
construction and operation of a pipeline (see section entitled
"Other above) within rights-of-way along certain Alabama highways,
filed a declaratory judgment action against Alabama-Tennessee and
the State of Alabama in the Circuit Court of Morgan County, Alabama
seeking a declaration that the DOT is authorized to issue pipeline
permits for the construction and operation of such pipeline.
Decatur is also seeking a declaration that pursuant to such permits
it is authorized and empowered to construct and operate the
pipeline within highway rights-of-way and that such construction
and operation would not constitute additional burdens on or the
taking of any property interest in the land upon which the
rights-or-way are located.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 1995.
SIGNATURES
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.
AlaTenn Resources, Inc.
(Registrant)
Date: May 15, 1995 s/s Jerry A. Howard
Jerry A. Howard
Chairman, President
& Chief Executive Officer
Date: May 15, 1995 s/s George G. Petty
George G. Petty
Vice President-Finance
& Chief Financial Officer