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 June 30, 1994 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.
Common Stock, Par Value $0.10 per share -
Outstanding at September 30, 1995 _,___,___ shares
PART I - FINANCIAL INFORMATION
ALATENN RESOURCES, INC.
CONSOLIDATED STATEMENINCOME
(UNAUDITED)
3 Mo. Ended 9 Mo. Ended
September 30, September 30,
1995 1994 1995 1994
(in thousands, except per share data)
OPERATING REVENUES:
Industrial sales 11,188 8,519 28,806 31,974
Resale sales 1,618 1,440 7,272 6,116
Transportation 2,466 2,452 8,240 8,265
Off-system sales 455 1,894 4,770 2,237
Health Care Product 2,556 2,410 8,126 5,093
TOTAL OPERATING REVEN 18,283 16,715 57,214 53,685
COST OF GOODS SOLD 14,146 12,669 44,373 42,320
GROSS MARGIN 4,137 4,046 12,841 11,365
OTHER OPERATING EXPENSES:
Operations 1,776 1,828 5,422 4,850
Maintenance 79 75 205 241
Depr. and amort. 294 290 894 680
Other taxes 96 86 286 256
2,245 2,279 6,807 6,027
OPERATING INCOME 1,892 1,767 6,034 5,338
OTHER INCOME:
Interest and investment
income 116 127 354 357
Other income -4 -3 95 -11
112 124 449 346
INTEREST EXPENSE 37 109 137 244
INCOME BEFORE TAXES 1,967 1,782 6,346 5,440
INCOME TAXES 713 643 2,300 1,917
NET INCOME 1,254 1,139 4,046 3,523
EARNINGS PER SHARE: 0.59 0.54 1.91 1.67
DIVIDENDS PER SHARE 0.3 0.3 0.9 0.9
AVERAGE SHARES
OUTSTANDING 2,118,010 2,114,888 2,116,490 2,112,499
The accompanying notes to consolidated financial statements
are an integral part of these statements.
ALATENN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
Sept.30, Dec.31,
1995 1994
(In thousands)
CURRENT ASSETS:
Cash and temporary
cash investments 2,555 440
Accounts receivable,
including $2,318,000 in 1995
and $2,583,000 in 1994
of take-or-pay settlement costs 10,166 10,643
Materials and supplies 950 521
Inventories 761 745
Prepaid expenses and other 320 317
14,752 12,666
PROPERTY, PLANT AND EQUIPMENT:
Original cost 33,615 33,123
Less - Accumulated depreciation
and amortization 15,476 15,117
18,139 18,006
DEFERRED CHARGES:
Take-or-pay settlement costs 114 2,197
Patents 5,615 5,944
Goodwill 2,680 2,765
Other 2,165 2,159
10,574 13,065
43,465 43,737
The accompanying notes to consolidated financial statements
are an integral part of these statements.
ALATENN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SHAREHOLDERS' EQUITY AND
LIABILITIES
Sept. 30, Dec. 31,
1995 1994
(In thousands)
CURRENT LIABILITIES:
Current maturities of long-term debt 203 203
Accounts payable and accrued liabilities,
including $76,000 in 1995
and $921,000 in 1994 of take-or-pay
settlement costs 7,966 10,010
Accrued income and other taxes 788 621
Accrued interest 32 15
8,989 10,849
LONG-TERM DEBT, LESS
CURRENT MATURITIES 2,067 2,682
OTHER LIAB. AND DEF. CREDITS:
Accumulated deferred income taxes 1,369 1,299
Unamortized investment tax credits 246 256
Other 1,497 1,541
3,112 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 6,072 6,049
Retained earnings 24,867 22,726
Treasury shares, at cost (1,870) (1,893)
Total shareholders' equity 29,297 27,110
43,465 43,737
The accompanying notes to consolidated financial statements are
an integral part of these statements.
ALATENN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
9 Months End
September 30,
1995 1994
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 4,046 3,523
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation and amortization 1,474 768
Deferred income taxes 70 78
Take-or-pay recoveries
(net of expenditures) 1,883 1,069
Other -433 235
7,040 5,673
Change in current assets and liab.:
Decrease in accts. rec. 705 4,535
Increase in other current assets -447 -685
Decrease in accts pay. (2,043) (5,413)
Increase (decrease) in other
current liabilities 155 -196
5,410 3,914
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equip. additions -820 (14,114)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in long-term indebtedness -615 3,714
Issuance of common shares 45 80
Cash dividends paid (1,905) (1,901)
(2,475) 1,893
Net increase (decrease) in cash and
temporary cash 2,115 (8,307)
Cash and temporary cash investments,
beginning of period 440 8,761
Cash and temporary cash investments,
end of period 2,555 454
Cash paid for:
Interest (net of capitalized amounts) 120 139
Income taxes (net of refunds) 2,219 2,245
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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 certain 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, purchased the business of
Ryder International Corporation (Ryder) 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, 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 regional bank. As of September 30,
1995, the Company's remaining indebtedness associated
with this acquisition was $1.8 million.
ALATENN RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results For The Three Months Ended September 30, 1995
The Company's consolidated net income for the quarter
ended September 30, 1995 was $1,254,000 or $.59 per
share, compared with $1,139,000 or $.54 per share, for
the third quarter of 1994. The earnings per share
computations are based on shares outstanding of 2,118,010
in 1995 and 2,114,888 in 1994.
Consolidated revenues of $18.3 million for the third
quarter of 1995 were 9% higher than revenues of $16.7
million for the third quarter of 1994. The increase in
revenues in the third quarter of 1995 was due primarily
to higher natural gas sales by the Company's natural gas
marketing subsidiary to an industrial customer on the
Company's pipeline partially offset by a 13% decrease in
spot market natural gas prices.
Gross margin of $4.1 million in the third quarter of 1995
was $.1 million higher than that in the comparable period
in 1994. Higher margins in the medical and health care
products segment and increased margin on natural gas
sales to the industrial customer referred to above offset
lower margins on off-system natural gas sales.
The cost of goods sold was $14.1 million for the third
quarter of 1995, a 12% increase from the same period in
1994. This increase was consistent with the changes in
revenues referred to above.
The Company's operations and maintenance expenses of $1.8
million for the third quarter of 1995 were $.1 million
lower than in the third quarter of 1994. This decrease
was attributable primarily to the capitalization of
certain operating costs associated with the construction
of a new oxygen pipeline.
Depreciation and amortization expense of $.3 million for
the third quarter of 1995 was comparable to that for the
same period in the prior year.
Interest and other income of $112,000 in the third
quarter of 1995 was $12,000 less than in the third
quarter of 1994 as higher earnings on investments were
more than offset by lower earnings on the take-or-pay
receivable at the Company's interstate pipeline
subsidiary.
Interest expense of $37,000 in the third quarter of 1995
was $72,000 lower than in the comparable prior-year
period because of the reduction of debt related to the
acquisition of the business of Ryder in the prior-year
period.
Income taxes in the third quarter of 1995 were $70,000
greater than in the comparable period in the prior year
due to the increase in income in the current period.
Results For The Nine Months Ended September 30, 1995
The Company's consolidated net income for the nine months
ended September 30, 1995 was $4,046,000 or $1.91 per
share compared with $3,523,000 or $1.67 per share for the
first nine months of 1994. The earnings per share
computations are based on shares outstanding of 2,116,490
in 1995 and 2,112,499 in 1994.
Consolidated revenues of $57.2 million for the first nine
months of 1995 were 7% higher than revenues of $53.7
million for the first nine months of 1994. This increase
in revenues in the first nine months of 1995 was
primarily due to the inclusion of medical and health care
product revenues for the entire nine month period in the
current year and to higher sales volumes by the Company's
natural gas marketing subsidiary partially offset by a
decrease in natural gas prices.
Gross margin of $12.8 million was $1.5 million or 13%
higher than in the comparable prior-year period. This
increase in margin resulted primarily from higher margins
at our medical and health care products subsidiary and
the inclusion of such margins for the full year-to-date
period in 1995 compared to the inclusion of medical and
health care product margins for only a portion of the
same period in 1994 due to the acquisition of the
business of Ryder in April 1994.
The Company's consolidated costs of goods sold of $44.4
million for the first nine months of 1995 was 5% higher
than the cost of goods sold for the same period in 1994.
This increase in cost of goods sold was due to the
inclusion of our medical and health care products
subsidiary for the full nine-month period in 1995
compared to only six months in the same period in the
prior year and increased natural gas sales volumes for
the Company's natural gas marketing subsidiary partially
offset by lower spot natural gas pricing.
The Company's operations and maintenance expenses of $5.6
million were 11% higher for the first nine months of 1995
compared with the first nine months of 1994. This
increase was primarily attributable to the inclusion of
our medical and health care products subsidiary's
operating expenses for the full nine-month period in 1995
compared to the inclusion for only six months in the same
period in 1994.
Depreciation and amortization expense increased $214,000
in the first nine months of 1995 compared with the
comparable period in 1994 due to the inclusion of our
medical and health care products subsidiary's expenses
for the full nine-month period in 1995 compared to the
inclusion for only six months in the same period in 1994.
Interest and other income of $449,000 in the first nine
months of 1995 increased by 30% compared to the first
nine months of 1994 due primarily to a favorable
adjustment related to certain customers, income from a
limited partnership in which the Company has an ownership
interest and an adverse adjustment on an investment
account in the prior-year period. The increase in
earnings on investments was partially offset by lower
earnings on the take-or-pay receivable from interstate
pipeline customers.
Interest expense of $137,000 in the first nine months of
1995 was $107,000 lower than in the first nine months of
1994. The lower interest expense in the current year
period reflects the reduction in the take-or-pay
liability to Tennessee Gas Pipeline (TGP) and lower
interest expense on borrowings used in the purchase of
the business of Ryder.
Income tax expense was $383,000 higher in the first nine
months of 1995 compared with the first nine months of
1994 due to the increase in income in the current year
period.
Liquidity and Capital Resources
At September 30, 1995, the Company had $.5 million in
temporary borrowings under its $20.0 million revolving
loan facilities with a regional bank and had other long-term debt,
including current maturities, of $1.8 million
which was related to its medical and health care products
subsidiary. The Company's total debt as a percent of
total capitalization at September 30, 1995 was 8%.
At September 30, 1995, the Company had cash and temporary
cash investments of $2.6 million compared with $.4
million at December 31, 1994. This increase was
attributable to an increase in cash flow from operations
and net collections of receivables of take-or-pay costs
by its interstate pipeline subsidiary from its customers
which more than offset a temporary adverse change in
working capital, the payment of dividends, minor capital
expenditures and the pay down of 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 the Company's
interstate pipeline subsidiary from its customers and
borrowings available under the Company's revolving loan
agreement will be sufficient to fund operations,
repurchases of the Company's common shares pursuant to
the Company's stock repurchase program and budgeted
capital expenditures, including the previously announced
22-mile oxygen pipeline, over the next two years.
Regulatory Matters
During the third quarter of 1995, two of the Company's
interstate pipeline subsidiary's municipal customers,
the cities of Decatur and Huntsville, Alabama, which
together accounted for approximately 4% of AlaTenn's
revenues and 16% of its gross margin for the first nine
months of 1995, received a proposal from another
interstate pipeline company for construction of a
pipeline to serve their natural gas transportation
requirements beginning in late 1997. The Company's
interstate pipeline subsidiary, in conjunction with an
upstream pipeline that currently also provides service
for those municipalities, made a joint proposal to the
two municipalities which would provide substantial cost
reductions for them. However, the competing pipeline
company's proposal, which has been reported to be
contingent upon acceptance by both cities, has been
accepted by Decatur and the Huntsville Gas and Water
Board and is pending action by the Huntsville City
Council. The Company will continue to pursue its joint
proposal with the Huntsville City Council, which is
expected to decide this issue later this year or early
next year. The Company's interstate pipeline unit
currently has firm transportation contracts with both
cities. The contracts for most of this volume expire on
November 1, 1997 for Decatur and April 1, 1998 for
Huntsville. The contracts for the balance of the
volumes, 7% for Decatur and 14% for Huntsville, expire on
November 1, 2000.
Other
The Company, on October 27, 1995, purchased from Chiron
Vision Corporation the worldwide marketing and
manufacturing rights to a semi-flexible balloon catheter
used to clear obstructions in the nasolacrimal duct which
cause excessive tearing of the eye. These obstructions
occur in a half-million people each year in the United
States alone. The Company anticipates that the first
sales will be made in 1996 and that there will be
synergies between this product and the Company's medical
and health care unit. With successful market
development, this product is anticipated to make a
material contribution to the Company's earnings in the
future.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments during the third
quarter of 1995 in any of the Company's legal proceedings
as described in the Company's Form 10-K for the year
ended December 31, 1994.
For information regarding certain litigation filed during
the first quarter of 1995, see Item 1 of Part II in the
Company Form 10-Q for the period ended March 31, 1995.
There were no material developments during the third
quarter of 1995 in such litigation.
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 September 30, 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: November 14, 1995 s/s Jerry A. Howard
Jerry A. Howard
Chairman, President
& Chief Executive
Officer
Date: November 14, 1995 s/s George G. Petty
George G. Petty
Vice President-Finance
& Chief Financial
Officer