UNITED STATES
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, 2004
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: 333-112653
ATLAS AMERICA, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0404430
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
311 Rouser Road
Moon Township, PA 15108
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (412) 262-2830
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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
13,333,333 Shares August 2, 2004
ATLAS AMERICA, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2004 (Unaudited) and
September 30, 2003.............................................................. 3
Consolidated Statements of Income for the Three and Nine Months Ended
June 30, 2004 and 2003 (Unaudited).............................................. 4
Consolidated Statement of Changes in Stockholders' Equity for the Nine
Months Ended June 30, 2004 (Unaudited).......................................... 5
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 2004 and 2003 (Unaudited).............................................. 6
Notes to Consolidated Financial Statements - June 30, 2004 (Unaudited).............. 7 - 19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................... 20 - 30
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 31 - 32
Item 4. Controls and Procedures............................................................. 32
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................................... 33
Item 4. Submission of Matters to a Vote of Security Holders................................. 33
Item 6. Exhibits and Reports on Form 8-K.................................................... 33 - 34
SIGNATURES........................................................................................... 35
ATLAS AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, September 30,
2004 2003
----------- -------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 39,992 $ 25,372
Accounts receivable................................................. 13,337 12,362
Accounts receivable - parent........................................ 1,915 -
Prepaid expenses.................................................... 1,481 1,131
----------- -------------
Total current assets............................................ 56,725 38,865
Property and equipment, net.............................................. 155,598 142,260
Goodwill 37,470 37,470
Intangible assets, net................................................... 7,460 8,239
Other assets, net........................................................ 9,407 5,554
----------- -------------
$ 266,660 $ 232,388
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................... $ 56 $ 56
Accounts payable.................................................... 20,282 14,663
Liabilities associated with drilling contracts...................... 18,012 22,157
Accrued liabilities................................................. 4,537 4,151
----------- -------------
Total current liabilities....................................... 42,887 41,027
Long-term debt........................................................... 35,846 31,138
Advance from parent...................................................... - 4,498
Deferred tax liability................................................... 30,032 21,031
Other liabilities........................................................ 3,515 3,207
Minority interest ....................................................... 67,762 43,976
Commitments and contingencies............................................ - -
Stockholders' equity:
Preferred stock, $0.01 par value: 1,000,000 authorized shares........ - -
Common stock, $0.01 par value: 49,000,000 authorized shares ........ 133 107
Additional paid-in capital........................................... 75,592 38,619
Retained earnings.................................................... 10,893 48,785
----------- -------------
Total stockholders' equity...................................... 86,618 87,511
----------- -------------
$ 266,660 $ 232,388
=========== =============
See accompanying notes to consolidated financial statements
3
ATLAS AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ --------------------
2004 2003 2004 2003
------- ------- -------- -------
(in thousands, except per share data)
REVENUES
Well drilling......................................... $16,370 $ 8,218 $ 64,577 $38,167
Gas and oil production................................ 12,977 10,066 34,972 27,551
Well services......................................... 2,146 1,737 6,206 5,789
Transportation........................................ 1,344 1,500 4,522 4,310
Other................................................. 110 346 609 659
------- ------- -------- -------
32,947 21,867 110,886 76,476
COSTS AND EXPENSES
Well drilling......................................... 14,235 7,146 56,154 33,189
Gas and oil production and exploration................ 2,369 2,006 7,377 6,194
Well services......................................... 1,009 903 3,071 2,843
Transportation........................................ 551 629 1,767 1,832
General and administrative............................ 2,604 2,329 4,763 5,770
Depreciation, depletion and amortization.............. 3,458 3,087 10,237 8,942
Interest.............................................. 460 450 1,420 1,509
Minority interest in Atlas Pipeline Partners, L.P..... 1,593 1,445 4,188 2,974
------- ------- -------- -------
26,279 17,995 88,977 63,253
------- ------- -------- -------
Income from operations before income taxes............ 6,668 3,872 21,909 13,223
Provision for income taxes............................ 2,486 1,315 7,668 4,400
------- ------- -------- -------
NET INCOME............................................ $ 4,182 $ 2,557 $ 14,241 $ 8,823
======= ======= ======== =======
NET INCOME PER COMMON SHARE - BASIC .................. $ .35 $ .24 $ 1.28 $ .83
======= ======= ======== =======
Weighted average common shares outstanding............ 12,015 10,688 11,129 10,688
======= ======= ======== =======
NET INCOME PER COMMON SHARE - DILUTED................. $ .35 $ .24 $ 1.28 $ .83
======= ======= ======== =======
Weighted average common shares........................ 12,018 10,688 11,131 10,688
======= ======= ======== =======
See accompanying notes to consolidated financial statements
4
ATLAS AMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
NINE MONTHS ENDED JUNE 30, 2004
(Unaudited)
(in thousands, except share data)
Common Stock Additional Total
-------------------- Paid-In Retained Stockholder's
Shares Amount Capital Earnings Equity
---------- ------ ---------- -------- -------------
Balance, October 1, 2003.................. 10,688,333 $ 107 $ 38,619 $ 48,785 $ 87,511
Initial public offering, net of costs..... 2,645,000 26 36,973 - 36,999
Dividend to parent........................ - - - (52,133) (52,133)
Net income................................ - - - 14,241 14,241
---------- ------ ---------- -------- --------
Balance, June 30, 2004.................... 13,333,333 $ 133 $ 75,592 $ 10,893 $ 86,618
========== ====== ========== ======== ========
See accompanying notes to consolidated financial statements
5
ATLAS AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
Nine Months Ended
June 30,
----------------------
2004 2003
-------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 14,241 $ 8,823
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization................................... 10,237 8,942
Amortization of deferred financing costs................................... 435 423
Minority interest in Atlas Pipeline Partners, L.P.......................... 4,188 2,974
Gain on asset dispositions................................................. (41) (7)
Property impairments and abandonments...................................... 721 18
Deferred income taxes...................................................... 9,001 4,400
Changes in operating assets and liabilities..................................... 3,211 11,848
-------- --------
Net cash provided by operating activities....................................... 41,993 37,421
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (22,669) (18,356)
Proceeds from sale of assets.................................................... 242 99
(Increase) decrease in other assets............................................. (3,546) 307
-------- --------
Net cash used in investing activities........................................... (25,973) (17,950)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings...................................................................... 61,500 56,383
Principal payments on debt...................................................... (56,792) (75,680)
Payments to parent.............................................................. (9,730) -
Issuance of Atlas Pipeline Partners common units................................ 25,188 25,255
Issuance of Atlas America, Inc. common stock.................................... 36,999 -
Dividends paid to parent........................................................ (52,133) -
Distributions paid to minority interests of Atlas Pipeline Partners, L.P........ (5,088) (2,660)
Increase in other assets........................................................ (1,344) (622)
-------- --------
Net cash (used in) provided by financing activities............................. (1,400) 2,676
Increase in cash and cash equivalents........................................... 14,620 22,147
Cash and cash equivalents at beginning of period................................ 25,372 8,922
-------- --------
Cash and cash equivalents at end of period...................................... $ 39,992 $ 31,069
======== ========
See accompanying notes to consolidated financial statements
6
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Atlas
America, Inc. ("the Company") which is an 80.2% owned subsidiary of Resource
America, Inc. ("Resource America"). The Company's subsidiaries are all wholly
owned except for Atlas Pipeline Partners, L.P. ("Atlas Pipeline").
The consolidated financial statements and the information and tables
contained in the notes to the consolidated financial statements as of June 30,
2004 and for the three and nine months ended June 30, 2004 and 2003 are
unaudited. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted in these
statements pursuant to the rules and regulations of the Securities and Exchange
Commission. However, in the opinion of management, these interim financial
statements include all the necessary adjustments to fairly present the results
of the interim periods presented. The results of operations for the nine months
ended June 30, 2004 may not necessarily be indicative of the results of
operations for the full fiscal year ending September 30, 2004.
Certain reclassifications have been made to the consolidated financial
statements as of September 30, 2003 and for the three months and nine months
ended June 30, 2003 to conform to the presentation as of and for the three
months and nine months ended June 30, 2004.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses the following methods and assumptions in estimating
the fair value of each class of financial instruments for which it is
practicable to estimate fair value.
For cash and cash equivalents, receivables and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments.
For secured revolving credit facilities and all other debt, the
carrying value approximates fair value because of the short term maturity of
these instruments and the variable interest rates in the debt agreements.
7
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for its employees' participation in the stock
option plans of its ultimate parent, Resource America, in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees ("APB 25"), and related interpretations. Compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. The Company adopted the disclosure
requirement of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," as amended by the required
disclosures of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure." No stock-based employee compensation cost is reflected in net
income of the Company, as all options granted under those plans had an exercise
price equal to the market value of the underlying Resource America common stock
on the date of grant. The following table illustrates the effect on net income
if the Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation.
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2004 2003 2004 2003
------ ------ ------ ------
(in thousands, except per share data)
Net income, as reported....................................... $4,182 $2,557 $14,241 $8,823
Stock-based employee compensation expense reported in
net income, net of tax..................................... - - - -
Less total stock-based employee compensation expense
determined under the fair value-based method for all
awards, net of income taxes................................ (307) (115) (469) (346)
------ ------ ------- ------
Pro forma net income.......................................... $3,875 $2,442 $13,772 $8,477
====== ====== ======= ======
Net income per common share:
Basic - as reported........................................ $ .35 $ .24 $ 1.28 $ .83
Basic - pro forma.......................................... $ .32 $ .23 $ 1.24 $ .79
Diluted - as reported...................................... $ .35 $ .24 $ 1.28 $ .83
Diluted - pro forma........................................ $ .32 $ .23 $ 1.24 $ .79
8
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
COMPREHENSIVE INCOME
Comprehensive income includes net income and all other changes in the
equity of a business during a period from transactions and other events and
circumstances from non-owner sources. These changes, other than net income, are
referred to as "other comprehensive income" and for the Company include only
changes in the fair value, net of taxes, of unrealized hedging gains and losses.
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2004 2003 2004 2003
------ ------ ------- ------
(in thousands)
Net income.................................................... $4,182 $2,557 $14,241 $8,823
Other comprehensive loss:
Unrealized loss on natural gas futures and
options contracts, net of taxes of $104 and $364......... - (212) - (740)
Less: reclassification adjustment for losses realized
in net income, net of taxes of $193 and $358............. - 391 - 726
------ ------ ------- ------
- 179 - (14)
------ ------ ------- ------
Comprehensive income.......................................... $4,182 $2,736 $14,241 $8,809
====== ====== ======= ======
EARNINGS PER SHARE
Basic earnings per share are determined by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Earnings per share - diluted is computed by dividing net income by the sum of
the weighted average number of shares of common stock outstanding and dilutive
potential shares issuable during the period. Dilutive potential shares of common
stock consist of the excess of shares issuable under the terms of the Company's
stock option plan over the number of such shares that could have been reacquired
(at the weighted average price of shares during the period) with the proceeds
received from the exercise of the options.
The following table presents a reconciliation of the components used in
the computation of net income per common share-basic and net income per common
share-diluted for the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2004 2003 2004 2003
------- ------- ------- -------
(in thousands)
Net income.................................................... $ 4,182 $ 2,557 $14,241 $ 8,823
======= ======= ======= =======
Weighted average common shares outstanding-basic.............. 12,015 10,688 11,129 10,688
Dilutive effect of stock option and award plan................ 3 0 2 0
------- ------- ------- -------
Weighted average common shares-diluted........................ 12,018 10,688 11,131 10,688
======= ======= ======= =======
9
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company from time to time enters into natural gas futures and
option contracts to hedge its exposure to changes in natural gas prices. At any
point in time, such contracts may include regulated New York Mercantile Exchange
("NYMEX") futures and options contracts and non-regulated over-the-counter
futures contracts with qualified counterparties. NYMEX contracts are generally
settled with offsetting positions, but may be settled by the delivery of natural
gas.
At June 30, 2004, the Company had no open natural gas futures contracts
related to natural gas sales. Gains or losses on futures contracts are
determined as the difference between the contract price and a reference price,
generally prices on NYMEX. The Company did not settle any contracts during the
nine months ended June 30, 2004. The Company recognized losses of $584,000 and
$1.1 million on settled contracts for the three months and nine months ended
June 30, 2003, respectively. The Company recognized no gains or losses during
the nine months ended June 30, 2004 and 2003 for hedge ineffectiveness or as a
result of the discontinuance of cash flow hedges.
Although hedging provides the Company some protection against falling
prices, these activities could also reduce the potential benefits of price
increases, depending upon the instrument.
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30, September 30,
2004 2003
-------- --------
Mineral interests in properties: (in thousands)
Proved properties.............................................. $ 844 $ 844
Unproved properties............................................ 984 563
Wells and related equipment........................................ 206,174 184,226
Support equipment.................................................. 2,452 2,189
Other.............................................................. 7,529 7,299
-------- --------
217,983 195,121
Accumulated depreciation, depletion, amortization and
valuation allowances:
Oil and gas properties......................................... (59,262) (50,170)
Other ......................................................... (3,123) (2,691)
-------- --------
(62,385) (52,861)
-------- --------
$155,598 $142,260
======== ========
ASSET RETIREMENT OBLIGATIONS
The Company accounts for its estimated plugging and abandonment of its
oil and gas properties in accordance with SFAS 143, "Accounting for Asset
Retirement Obligations."
10
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
A reconciliation of the Company's liability for well plugging and
abandonment costs for the periods indicated follows:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2004 2003 2004 2003
------ ------ ------ ------
(in thousands)
Asset retirement obligations, beginning
of period................................................. 3,371 $3,481 $3,131 $ -
Liabilities incurred......................................... 50 - 151 -
Adoption of SFAS 143......................................... - - - 3,380
Liabilities settled.......................................... (3) - (46) -
Revisions in estimates....................................... 47 - 130 -
Accretion expense............................................ 50 82 149 183
------ ------ ------ ------
Asset retirement obligations, end of period.................. $3,515 $3,563 $3,515 $3,563
====== ====== ====== ======
The above accretion expense is included in depreciation, depletion and
amortization in the Company's consolidated statements of income. The asset
retirement obligation liabilities are included in "Other Liabilities" in the
Company's balance sheets.
SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers temporary investments with maturity at the date
of acquisition of 90 days or less to be cash equivalents.
Supplemental disclosure of cash flow information:
Nine Months Ended
June 30,
------------------
2004 2003
------ ------
(in thousands)
Cash paid during the period for:
Interest............................................................... $1,100 $1,264
Income taxes........................................................... $ - $ 359
11
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In December 2003, the Financial Accounting Standards Board ("FASB")
revised SFAS No. 132, "Employers' Disclosures about Pensions and other
Postretirement Benefits," establishing additional annual disclosures about plan
assets, investment strategy, measurement date, plan obligations and cash flows.
In addition, the revised standard established interim disclosure requirements
related to the net periodic benefit cost recognized and contributions paid or
expected to be paid during the current fiscal year. The new annual disclosures
were effective for financial statements with fiscal years ending after December
15, 2003 and the interim-period disclosures were effective for interim periods
beginning after December 15, 2003. The adoption of the revised SFAS No. 132 had
no impact on the Company's results of operations or financial position.
In April 2003, the FASB issued SFAS No. 149 ("SFAS 149"), "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 was
effective for contracts entered into or modified after December 31, 2003 and
amends and clarifies financial accounting and reporting for derivative
instruments. The adoption of SFAS 149 had no impact on the Company's financial
position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). In
December 2003, the FASB issued a revised interpretation of FIN 46 ("FIN 46-R"),
which supersedes FIN 46 and clarifies and expands current accounting guidance
for variable interest entities ("VIE's"). FIN 46 clarifies when a company should
consolidate in its financial statements the assets, liabilities and activities
of a VIE. FIN 46 provides general guidance as to the definition of a VIE and
requires it to be consolidated if a party with an ownership, contractual or
other financial interest absorbs the majority of the VIE's expected losses, or
is entitled to receive a majority of the residual returns, or both. A variable
interest holder that is such a primary beneficiary of the VIE is required to
consolidate the VIE's assets, liabilities and non-controlling interests at fair
value at the date the interest holder first becomes the primary beneficiary of
the VIE. FIN 46 and FIN 46-R were effective immediately for all VIEs created
after January 31, 2003 and for VIEs created prior to February 1, 2003, no later
than the end of the first reporting period after March 15, 2004. The adoption of
FIN 46 on July 1, 2003 had no impact on the Company's financial position or
results of operations.
12
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 3 - OTHER ASSETS, INTANGIBLE ASSETS AND GOODWILL
OTHER ASSETS
The following table provides information about other assets at the
dates indicated:
June 30, September 30,
2004 2003
-------- -------------
(in thousands)
Deferred financing costs, net of accumulated amortization of
$999 and $1,091...................................................... $2,456 $1,548
Investments.............................................................. 2,897 2,974
Other.................................................................... 4,054 1,032
------ ------
$9,407 $5,554
====== ======
Deferred financing costs are amortized over the terms of the related
loan agreements.
INTANGIBLE ASSETS
Intangible assets consist of partnership management and operating
contracts acquired through acquisitions and recorded at fair value on their
acquisition dates. The Company amortizes contracts acquired on a declining
balance method over their respective estimated lives, ranging from five to
thirteen years. Amortization expense for the nine months ended June 30, 2004 and
2003 was $779,000 and $953,000, respectively. The aggregate estimated annual
amortization expense is approximately $1.1 million for each of the succeeding
five year periods.
The following table provides information about intangible assets at the
dates indicated:
June 30, September 30,
2004 2003
-------- -------------
(in thousands)
Partnership management and operating contracts........................... $14,343 $14,343
Accumulated amortization................................................. (6,883) (6,104)
------- -------
Intangible assets, net................................................... $ 7,460 $ 8,239
======= =======
GOODWILL
The Company accounts for its goodwill in accordance with SFAS 142,
"Goodwill and Other Intangible Assets." The Company evaluates its goodwill at
least annually as of the last day of the fiscal year and will reflect the
impairment of goodwill, if any, in operating income in the statement of income
in the period in which the impairment is indicated. At June 30, 2004 and
September 30, 2003, the Company had goodwill of $37.5 million, net of
accumulated amortization of $4.2 million.
13
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 4 - DEBT
Total debt consists of the following:
June 30, September 30,
2004 2003
------- -------------
(in thousands)
Revolving credit facilities.......................................... $35,750 $31,000
Other debt........................................................... 152 194
------- -------
35,902 31,194
Less current maturities.............................................. (56) (56)
------- ------
$35,846 $31,138
======= =======
At June 30, 2004, the Company has complied with all covenants in its
debt agreements.
NOTE 5 - COMMON STOCK SPLIT
On February 27, 2004 the Company effectuated a 106,833 for 1 stock
split in connection with its then-pending initial public offering of its common
shares. Income per share reflecting the retroactive effect of the stock split is
presented on the face of the consolidated statements of income for the nine
months ended June 30, 2004 and the three and nine months ended June 30, 2003.
NOTE 6 - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company's operations include two reportable operating segments. In
addition to the reportable operating segments, certain other activities are
reported in the "Other energy" category. These operating segments reflect the
way the Company manages its operations and makes business decisions. The Company
does not allocate income taxes to its operating segments.
Operating segment data for the periods indicated are as follows:
THREE MONTHS ENDED JUNE 30, 2004 (in thousands):
Production
Well and Other
Drilling Exploration Energy (a) Total
-------- ----------- ---------- --------
Revenues from external customers....................... $ 16,370 $ 12,977 $ 3,600 $ 32,947
Interest income........................................ - - 67 67
Interest expense....................................... - - 460 460
Depreciation, depletion and amortization............... - 2,468 990 3,458
Segment profit (loss).................................. 1,753 8,024 (3,109) 6,668
Other significant items:
Segment assets..................................... 7,951 156,895 101,814 266,660
14
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 6 - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS - (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2003 (in thousands):
Production
Well and Other
Drilling Exploration Energy (a) Total
--------- ----------- ---------- --------
Revenues from external customers................... $ 8,218 $ 10,066 $ 3,583 $ 21,867
Interest income.................................... - - 32 32
Interest expense................................... - - 450 450
Depreciation, depletion and amortization.......... - 2,107 980 3,087
Segment profit (loss).............................. 2,494 5,307 (3,929) 3,872
Other significant items:
Segment assets................................. 7,244 136,309 87,707 231,260
NINE MONTHS ENDED JUNE 30, 2004 (in thousands):
Production
Well and Other
Drilling Exploration Energy (a) Total
--------- ----------- ---------- --------
Revenues from external customers................... $ 64,577 $ 34,972 $ 11,337 $110,886
Interest income.................................... - - 126 126
Interest expense................................... - - 1,420 1,420
Depreciation, depletion and amortization........... - 7,190 3,047 10,237
Segment profit (loss).............................. 7,258 20,055 (5,404) 21,909
Other significant items:
Segment assets................................. 7,951 156,895 101,814 266,660
NINE MONTHS ENDED JUNE 30, 2003 (in thousands):
Production
Well and Other
Drilling Exploration Energy (a) Total
--------- ----------- ---------- --------
Revenues from external customers................... $ 38,167 $ 27,551 $ 10,758 $ 76,476
Interest income.................................... - - 170 170
Interest expense................................... - - 1,509 1,509
Depreciation, depletion and amortization.......... - 6,073 2,869 8,942
Segment profit (loss).............................. 3,888 13,133 (3,798) 13,223
Other significant items:
Segment assets................................. 7,244 136,309 87,707 231,260
- ---------------------------
(a) Revenues and expenses from segments below the quantitative thresholds are
attributable to two operating segments of the Company: well services and
transportation. These segments have never met any of the quantitative
thresholds for determining reportable segments. Other energy also includes
non-allocable interest, minority interest and general and administrative
expenses.
15
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 6 - OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS - (CONTINUED)
Operating profit (loss) per segment represents total revenues less
costs and expenses attributable thereto, including interest and depreciation,
depletion and amortization.
The Company markets its gas and oil production on a competitive basis.
Gas is sold under various types of contracts ranging from life-of-the-well to
short-term contracts. The Company is party to a ten-year agreement which expires
in March 2009 to sell the majority of its existing and future production to an
affiliate of FirstEnergy Corp. ("FEC"), a publicly-traded company (NYSE:FE).
Pricing under the contract is tied to index-based formulas which the Company
negotiates annually and payments are guaranteed by FEC.
The Company anticipates that it will negotiate mutually agreeable
pricing terms for subsequent 12-month periods pursuant to the aforementioned
agreement. Management believes that the loss of any one customer would not have
a material adverse effect as it believes that, under current market conditions,
the Company's production could readily be absorbed by other purchasers.
NOTE 7 - PUBLIC OFFERINGS
In May 2004, the Company completed an initial public offering of
2,645,000 shares of its common stock at a price of $15.50 per common share
including underwriters' over allotment. The net proceeds of the offering of
$37.0 million, after deducting underwriting discounts, were distributed to its
parent in the form of a repayment of inter-company debt and a non-taxable
dividend. Following the offering, its parent continues to own approximately
80.2% of the Company's common stock.
In April 2004, Atlas Pipeline completed a public offering of 750,000
common units. The net proceeds after underwriting discounts, commissions and
costs were approximately $25.2 million. Following this offering, common units
represented 67.9% of the limited partnership interest in Atlas Pipeline. Atlas
Pipeline's general partner, a wholly-owned subsidiary of the Company,
simultaneously contributed $512,700 in cash to Atlas Pipeline as required by
Atlas Pipeline's partnership agreement. As a result of SEMCO Energy, Inc.'s
("SEMCO") purported termination of Atlas Pipeline's acquisition of Alaska
Pipeline Company on July 1, 2004, Atlas Pipeline used these proceeds for the
acquisition of Spectrum Field Services, Inc. ("Spectrum") in July 2004 (see Note
10).
16
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2004
(UNAUDITED)
NOTE 8 - RELATED PARTY TRANSACTION
In June 2004, Atlas Pipeline entered into a definitive agreement to
acquire Spectrum, whose principal assets include 1,900 miles of natural gas
pipelines and a natural gas processing facility in Velma, Oklahoma (see Note
10). In connection with the acquisition of Spectrum, Resource America and the
Company committed to purchase up to $25.0 million of preferred units in Atlas
Pipeline Operating Partnership, L.P., Atlas Pipeline's subsidiary, upon the
closing of the acquisition. In consideration for their commitment, upon the
closing of the Spectrum acquisition on July 16, 2004 and the purchase by each of
$10.0 million in preferred units, Atlas Pipeline paid Resource America and the
Company commitment fees of $750,000 and $500,000, respectively. On July 20,
2004, Atlas Pipeline repurchased the preferred units from each of Resource
America and the Company for $10.2 million.
NOTE 9 - BENEFIT PLANS
Atlas Pipeline has a Long-Term Incentive Plan for officers and
non-employee managing board members of its general partner and employees of the
general partner, consultants and joint venture partners who perform services for
Atlas Pipeline. During the nine months ended June 30, 2004, 61,098 phantom units
were granted. Grants for 846 units were forfeited during the three months ended
June 30, 2004, leaving 60,252 phantom units outstanding as of June 30, 2004.
Atlas Pipeline recognized $69,800 and $72,300 in compensation expense related to
these grants and their associated distributions in the three months and nine
months ended June 30, 2004. The fair market value associated with these grants
was $2.2 million which will be amortized into expense over the vesting period of
the units.
The Company has a Stock Incentive Plan for employees, consultants and
directors of the Company and its affiliates, in which a maximum of 1,333,333
shares are reserved for issuance. In May 2004, 4,835 deferred units representing
a right to receive a share of common stock over a 4-year vesting period (at an
average price of $15.50 per unit) were issued to non-employee directors of the
Company under this plan. The fair value of the grants awarded ($75,000 in total)
will be charged to operations over the vesting period. Units will vest sooner
upon a change of control of the Company or death or disability of a grantee.
Upon termination of service by a grantee, all unvested units are forfeited.
In May 2004, the Company entered into an employment agreement with the
Chairman of its Board pursuant to which the Company has agreed to provide him
with a supplemental employment retirement plan ("SERP") and with certain
financial benefits upon termination of his employment. Under the SERP, he will
be paid an annual benefit equal to the product of (a) 6.5% multiplied by, (b)
his base salary at the time of his retirement, death or other termination of
employment with the Company, multiplied by, (c) the amount of years he shall be
employed by the Company commencing upon the effective date of the SERP
agreement, limited to an annual maximum benefit of 65% of his final base salary
and a minimum of 26% of his final base salary. During the three months ended
June 30, 2004, operations were charged $20,000 with respect to this commitment.
17
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 10 - SUBSEQUENT EVENTS
ACQUISITION
On July 16, 2004, Atlas Pipeline acquired Spectrum for approximately
$145.3 million, including the payment of anticipated taxes due as a result of
the transaction.
Atlas Pipeline financed the Spectrum acquisition, including
approximately $2.1 million of transaction costs, as follows:
o borrowing $100.0 million under the term loan portion and $2.2
million under the revolving credit portion of its $135.0 million
senior secured term loan and revolving credit facility administered
by Wachovia Bank, National Association;
o using the $20.0 million of proceeds received from the sale to
Resource America and the Company of preferred units in Atlas
Pipeline Operating Partnership; and
o using $25.2 million of net proceeds from Atlas Pipeline Partners'
April 2004 common unit offering.
CREDIT FACILITY
On July 16, 2004 Atlas Pipeline entered into a new $135.0 million
credit facility which replaces its existing $20.0 million facility. The loan
arrangement, for which Wachovia Bank, National Association will serve as
administrative agent, includes eleven additional lenders. The facility is
comprised of a five-year $100.0 million term loan and a four-year $35.0 million
revolving line of credit which can be increased by an additional $40.0 million
under certain circumstances.
PUBLIC OFFERING OF UNITS
On July 20, 2004 Atlas Pipeline closed an offering of 2,100,000 of its
common units through underwriters led by Lehman Brothers and including A.G.
Edwards & Sons, Inc., Friedman Billings Ramsey, KeyBanc Capital Markets and
Sanders Morris Harris, which was priced at $34.76 per common unit. After
underwriting discounts and commissions, Atlas Pipeline received net proceeds of
$69.5 million.
Atlas Pipeline has granted the underwriters an over-allotment option
for an additional 315,000 common units exercisable within thirty days. The
over-allotment option, if fully exercised, would generate an additional $10.4
million in net proceeds for Atlas Pipeline.
Atlas Pipeline used a portion of the net proceeds of the offering to
repay $40.0 million of the borrowings under its new credit facility and to
repurchase for $20.4 million the preferred units issued to Resource America and
the Company. The balance of approximately $8.9 million will be used for working
capital.
18
ATLAS AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 10- SUBSEQUENT EVENTS - (CONTINUED)
ALASKA PIPELINE COMPANY ACQUISITION
In September 2003, Atlas Pipeline entered into an agreement with SEMCO
Energy Inc. ("SEMCO") to purchase all of the stock of Alaska Pipeline Company.
The Regulatory Commission of Alaska approved the transaction, but on
June 4, 2004 vacated its order of approval based upon a motion for
clarification or reconsideration filed by SEMCO. On July 1, 2004, SEMCO sent
the Partnership a notice purporting to terminate the transaction. Atlas
Pipeline believes SEMCO caused the delay in closing the transaction and
breached its obligations under the acquisition agreement. Atlas Pipeline
intends to vigorously pursue its remedies under the acquisition agreement. In
connection with the acquisition, Atlas Pipeline incurred $2.2 million of costs,
which are included in other assets on Atlas Pipeline's balance sheet.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES" "ANTICIPATES,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
INCLUDING THE FOLLOWING:
o VOLATILITY IN THE PRICE WE RECEIVE FOR NATURAL GAS WE PRODUCE;
o THE SPECULATIVE NATURE OF DRILLING NATURAL GAS WELLS;
o COMPETITION IN OBTAINING SUITABLE PROPERTIES ON WHICH TO DRILL;
o INHERENT UNCERTAINTY IN OUR ESTIMATES OF PROVED RESERVES;
o OUR NEED TO REPLENISH RESERVES TO AVOID PRODUCTION DECLINES;
o OUR ABILITY TO RAISE CAPITAL FOR OUR DRILLING PROGRAMS THROUGH
SPONSORED DRILLING INVESTMENT PARTNERSHIPS;
o POTENTIAL LOSSES FROM OUR TRANSPORTATION ARRANGEMENTS WITH ATLAS
PIPELINE PARTNERS, L.P.; AND
o ENVIRONMENTAL AND OTHER LIABILITIES THAT WE MAY INCUR AS A RESULT OF
OUR DRILLING AND TRANSPORTATION.
THESE RISKS AND UNCERTAINTIES COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE UNDERTAKE
NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO
FORWARD-LOOKING STATEMENTS WHICH WE MAY MAKE TO REFLECT EVENTS OR CIRCUMSTANCES
AFTER THE DATE OF THIS FORM 10-Q OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED
EVENTS.
OVERVIEW OF THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2004 AND 2003
During the nine months ended June 30, 2004, our operations continued to
grow as we increased our gross revenues, number of wells drilled, number of
wells operated and total reserves.
We finance our drilling operations principally through funds raised
from investors in our public and private drilling investment partnerships. The
$67.8 million raised in the first nine months of fiscal 2004 represented a 43%
increase over the $47.5 million raised in first nine months of fiscal 2003.
Our gross revenues depend, to a significant extent, on the price of
natural gas which can fluctuate significantly. We seek to balance this
volatility with the more stable net income from our well drilling and well
servicing operations which are principally fee-based. Our well drilling
operations' gross margin was $2.1 million and $8.4 million for three months and
nine months ended June 30, 2004, respectively.
20
Our business strategy for increasing our reserve base includes
acquisitions of undeveloped properties or companies with significant amounts of
undeveloped property. At June 30, 2004, we had $27.6 million available under our
credit facility, which could be employed to finance such acquisitions. However,
as a result of our agreements with Resource America, Inc., our ultimate parent,
relating to its proposed tax-free distribution to its stockholders of the stock
it owns in us, described below under "-Recent Developments," we will be limited
in our ability to issue voting securities, non-voting securities or convertible
debt and in making acquisitions or entering into mergers or other business
combinations that would jeopardize the tax-free status of the distribution until
such time that Resource America completes the spin-off or informs us that it
will not complete the distribution.
PUBLIC OFFERINGS
In May 2004, we completed an initial public offering of 2,645,000
shares of our common stock at a price of $15.50 per common share. The net
proceeds of the offering of $37.0 million, after deducting underwriting
discounts, were distributed to our parent in the form of a repayment of
inter-company debt and a non-taxable dividend. Following the offering, our
parent continues to own approximately 80.2% of our common stock.
Resource America has advised us that it intends to spin-off its
remaining ownership interest in us to its common stockholders by means of a tax
free distribution to its shareholders of all of our common stock owned by
Resource America. Resource America has sole discretion if and when to complete
the distribution and its terms, and does not intend to complete the distribution
unless it receives a ruling from the Internal Revenue Service and/or an opinion
from its tax counsel as to the tax-free nature of the distribution to Resource
America and its stockholders for U.S. federal income tax purposes. The Internal
Revenue Service requirements for tax-free distributions of this nature are
complex and the Internal Revenue Service has broad discretion, so there is
significant uncertainty as to whether Resource America will be able to obtain
such a ruling. Because of this uncertainty and the fact that the timing and
completion of the distribution is in Resource America's sole discretion, we
cannot assure you that the distribution will occur.
For the proposed distribution of Resource America's common stock in us
to its stockholders to be tax-free to them, Resource America must, among other
things, own at least 80% of all of our voting power at the time of the
distribution. Therefore, until such time that Resource America completes the
distribution or informs us that it will not complete the distribution, we will
be limited in our ability to issue voting securities, non-voting stock or
convertible debt without Resource America's prior consent, and Resource America
may be unwilling to give that consent. In addition, agreements that we entered
into with Resource America upon the closing of our initial public offering
prohibit us from making acquisitions or entering into mergers or other business
combinations that would jeopardize the tax-free status of the distribution.
In April 2004, our subsidiary, Atlas Pipeline Partners, completed a
public offering of 750,000 common units of limited partner interest. The net
proceeds after underwriting discounts, commissions and estimated costs were
approximately $25.2 million.
21
SPECTRUM ACQUISITION
On July 16, 2004, Atlas Pipeline acquired Spectrum for approximately
$145.3 million, including the payment of anticipated taxes due as a result of
the transaction. This acquisition significantly increases Atlas Pipeline's size
and diversifies the natural gas supply basins in which it operates and the
natural gas midstream services it provides to our customers.
Atlas Pipeline financed the Spectrum acquisition, including
approximately $2.1 million of transaction costs as follows:
o borrowing $100.0 million under the term loan portion and $2.2 million
under the revolving credit portion of our $135.0 million senior
secured term loan and revolving credit facility administered by
Wachovia Bank, National Association;
o using the $20.0 million of net proceeds received from the sale to
Resource America and us of preferred units in Atlas Pipeline
Operating Partnership; and
o using $25.2 million of the net proceeds from Atlas Pipeline's April
2004 common unit offering.
On July 20, 2004 Atlas Pipeline closed an offering of 2,100,000 of its
common units through underwriters led by Lehman Brothers and including A.G.
Edwards & Sons, Inc., Friedman Billings Ramsey, KeyBanc Capital Markets and
Sanders Morris Harris, which was priced at $34.76 per common unit. After
underwriting discounts and commissions Atlas Pipeline received net proceeds of
$69.5 million. It also granted the underwriters an over-allotment option for an
additional 315,000 common units exercisable within thirty days. The
over-allotment option, if fully exercised, would generate an additional $10.4
million in net proceeds for Atlas Pipeline.
Atlas Pipeline used a portion of the net proceeds of this offering to
repay $40.0 million of the borrowings under its new credit facility and to
repurchase for $20.4 million the preferred units it issued to Resource America
and us. Atlas Pipeline will use the balance of approximately $8.9 million for
working capital.
The acquisition of Spectrum will significantly change our financial
position and results of operations. With proceeds from Atlas Pipeline's
July 2004 public offering, it reduced outstanding debt to $60.0 million, leaving
an available borrowing capacity $73.0 million. Atlas Pipeline intends to finance
its growth with a combination of long-term debt and equity to maintain its
financial flexibility to fund future opportunities.
ALASKA PIPELINE COMPANY ACQUISITION
In September 2003, Atlas Pipeline entered into an agreement with SEMCO to
purchase all of the stock of Alaska Pipeline Company. The Regulatory Commission
of Alaska approved the transaction, but on June 4, 2004 vacated its order of
approval based upon a motion for clarification or reconsideration filed by
SEMCO. On July 1, 2004, SEMCO sent the Partnership a notice purporting to
terminate the transaction. Atlas Pipeline believes SEMCO caused the delay in
closing the transaction and breached its obligations under the acquisition
agreement. Atlas Pipeline intends to vigorously pursue its remedies under the
acquisition agreement. In connection with the acquisition, Atlas Pipeline
incurred $2.2 million of costs, which are included in other assets on Atlas
Pipeline's balance sheet.
22
RESULTS OF OPERATIONS
The following tables set forth information relating to production
revenues, daily production volumes, average sales prices, production costs as a
percentage of natural gas and oil revenues and depletion for our energy
operations during the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------
Production revenues (in thousands):
Gas (1)................................................ $11,607 $ 9,027 $30,789 $24,308
Oil.................................................... $ 1,395 $ 1,021 $ 4,183 $ 3,224
Production volume:
Gas (mcf/day) (1) (2).................................. 20,710 18,118 19,485 18,471
Oil (bbls/day) (2)..................................... 452 427 494 428
Total (mcfe/day) (2)................................... 23,422 20,680 22,449 21,039
Average sales prices:
Gas (per mcf).......................................... $ 6.16 $ 5.47 $ 5.77 $ 4.82
Oil (per bbl).......................................... $ 33.87 $ 26.25 $ 30.93 $ 27.58
Production costs (3):
As a percent of production revenues.................... 14% 17% 15% 18%
Per mcf equivalent unit................................ $ .84 $ .90 $ .84 $ .85
Depletion per equivalent mcfe.............................. $ 1.13 $ 1.12 $ 1.17 $ 1.06
- ---------------------------
(1) Excludes sales of residual gas and sales to landowners.
(2) As used in this discussion, "mcf" and mmcf" means thousand cubic feet and
million cubic feet; "mcfe" and "mmcfe" means thousand cubic feet equivalent
and million cubic feet equivalent, and "bbls" means barrels. Bbls are
converted to mcfe using the ratio of six mcfs to one bbl.
(3) Production costs include labor to operate the wells and related equipment,
repairs and maintenance, materials and supplies, property taxes, severance
taxes, insurance, gathering charges and production overhead.
23
Our well drilling revenues and costs and expenses incurred represent
the billings and costs associated with the completion of 68 and 29 net wells for
partnerships we sponsored in the three months ended June 30, 2004 and 2003,
respectively, and 336 and 189 net wells in the nine months ended June 30, 2004
and 2003, respectively. The following table sets forth information relating to
these revenues and costs during the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2004 2003 2004 2003
------ ------ ------ ------
(dollars in thousands)
Average drilling revenue per well................... $ 241 $ 283 $ 192 $ 202
Average drilling cost per well (1).................. 209 246 167 176
------ ------ ------ ------
Average drilling gross profit per well.............. $ 32 $ 37 $ 25 $ 26
====== ====== ====== ======
Gross profit margin................................. $2,135 $1,072 $8,423 $4,978
====== ====== ====== ======
Gross margin percent................................ 13% 13% 13% 13%
====== ====== ====== ======
Net wells drilled................................... 68 29 336 189
====== ====== ====== ======
- ---------------------------
(1) The amounts shown do not reflect the total cost of a well. The drilling
revenue and associated drilling cost reflect that portion of the total
well cost that is attributable to our investor partners in each
investment drilling program as specified in the relevant drilling
contracts.
Our natural gas revenues were $11.6 million and $30.8 million in the
three months and nine months ended June 30, 2004, an increase of $2.6 million
(29%) and $6.5 million (27%) from $9.0 million and $24.3 million in the three
months and nine months ended June 30, 2003, respectively. The increases were due
to increases in the average sales price of natural gas of 13% and 20% for the
three months and nine months ended June 30, 2004 and increases of 14% and 5% in
the volume of natural gas we produced in the three months and nine months ended
June 30, 2004, respectively. The $2.6 million increase in gas revenues in the
three months ended June 30, 2004 as compared to the prior year period consisted
of a $1.1 million increase attributable to increases in natural gas sales
prices, and a $1.5 million increase attributable to increased production
volumes. The $6.5 million increase in natural gas revenues in the nine months
ended June 30, 2004 as compared to the prior period consisted of a $4.8 million
increase attributable to an increase in natural gas sales prices, and a $1.7
million increase attributable to increased production volumes.
Our oil revenues were $1.4 million and $4.2 million in the three months
and nine month periods ended June 30, 2004, an increase of $374,000 (37%) and
$959,000 (30%) from $1.0 million and $3.2 million in the three months and nine
months ended June 30, 2003, primarily due to increases in oil production volumes
of 6% and 15% and increases in oil prices of 29% and 12% during the three months
and nine months ended June 30, 2004 and 2003, respectively. The $374,000
increase in oil revenues in the three months ended June 30, 2004 as compared to
the prior period consisted of $296,000 attributable to increases in oil sale
prices, and a $78,000 increase in production volumes. The $959,000 increase in
oil revenues for the nine months ended June 30, 2004 as compared to the prior
period consisted of $392,000 attributable to increases in oil sale prices, and a
$567,000 increase in production volumes.
24
Our well drilling gross margin was $2.1 million and $8.4 million in the
three months and nine months ended June 30, 2004, an increase of $1.1 million
and $3.4 million from $1.1 million and $5.0 million in the three months and nine
months ended June 30, 2003, respectively. In the three months ended June 30,
2004, the increase of $1.1 million was attributable to an increase in the number
of wells drilled ($1.2 million) offset by a decrease in the gross margin per
well ($161,000). In the nine months ended June 30, 2004, the increase of $3.4
million was attributable to an increase in the number of wells drilled ($3.7
million) offset by a decrease in the gross margin per well ($240,000).
Our gross profit per well decreased as a result of a decrease in our
average cost per well which, because our drilling contracts are on a "cost plus"
basis (typically cost plus 15%), determines our average revenue per well. The
decrease in our average cost per well in the three months and nine months ended
June 30, 2004 resulted from a decrease in the cost of tangible equipment used in
the wells because a portion of the wells we drilled targeted shallower
formations and required less equipment. In addition, it should be noted that
"Liabilities associated with drilling contracts" on our balance sheet represents
funds raised in our drilling investment program in the first nine months of
fiscal 2004 that had not been applied to drill wells as of June 30, 2004 due to
the timing of drilling operations, and thus had not been recognized as well
drilling revenue. We expect to recognize this amount as revenue in the remainder
of fiscal 2004. Because we raised $40.2 million in the first quarter of fiscal
2004 alone, we anticipate drilling revenues and related costs to be
substantially higher than in fiscal 2003.
Our production costs were $1.8 million and $5.2 million in the three
months and nine months ended June 30, 2004, an increase of $84,000 (5%) and
$337,000 (7%) from the three months and nine months ended June 30, 2003,
respectively. These increases include normal operating expenses and coincide
with the increased production revenues we realize from the increased number of
wells we operate. Production costs per equivalent unit produced remained
consistent at $.84 per mcfe for the three months and nine months ended June 30,
2004, a decrease of $.06 per mcfe (7%) and $.01 per mcfe (1%) compared to the
prior year periods.
Our exploration costs were $585,000 and $2.2 million in the three
months and nine months ended June 30, 2004, an increase of $279,000 and $846,000
from the three months and nine months ended June 30, 2003, respectively. These
increases were principally attributable to dry hole costs of $116,000 and
$703,000 in the three months and nine months ended June 30, 2004. We charge
expenditures made for drilled wells in an exploratory area of our operations
which we determine are not capable of economic production to operations upon
making that determination.
Our depletion, depreciation and amortization costs consist mainly of
depletion of oil and gas properties and amortization of contracts acquired. Our
depletion as a percentage of oil and gas production revenues was 19% and 21% in
the three and nine months ended June 30, 2004 compared to 21% and 22% in the
three and nine months ended June 30, 2003. The variance from period to period is
directly attributable to changes in our oil and gas reserve quantities, product
prices, and fluctuations in the depletable cost basis of oil and gas properties.
25
Our interest expense was $460,000 and $1.4 million in the three months
and nine months ended June 30, 2004, an increase of $10,000 and a decrease
$89,000 from $450,000 and $1.5 million in the three months and nine months ended
June 30, 2003, respectively. The decrease in the nine months ended June 30, 2004
was primarily a result of lower funds borrowed.
Our general and administrative expenses were $2.6 million and $4.8
million in the three months and nine months ended June 30, 2004, an increase of
$275,000 (12%) and decrease of $1.0 million (17%), respectively. The increase in
the three months ended June 30, 2004 was a result of increases in salaries and
wages and outside services due to the growth of our energy operations. These
increases were partially offset by reimbursements we received for costs incurred
in our partnership management and drilling activities resulting from an increase
in the number of wells drilled and managed compared to the prior year period.
The decrease in the nine months ended June 30, 2004 was attributable to
reimbursements we received for costs we incurred in our partnership management
and drilling activities, partially offset by increases in the cost of running
our energy corporate office as a result of continued growth in our energy
operations.
At June 30, 2004, we owned a combined 34% interest in Atlas Pipeline
through both our general partner interest and our subordinated limited partner
units. As general partner, we control Atlas Pipeline; therefore we include it in
our consolidated financial statements and show the ownership by the public as a
minority interest. The minority interest in Atlas Pipeline earnings was $1.6
million and $4.2 million in the three months and nine months ended June 30,
2004, as compared to $1.4 million and $3.0 million in the three months and nine
months ended June 30, 2003, an increase of $148,000 (10%) and $1.2 million
(41%), respectively. These increases were the result of an increase in Atlas
Pipeline's net income principally caused by increases in transportation fees
received and an increase in the amount of its earnings attributable to minority
interests as a result of its May 2003 and April 2004 public offerings.
LIQUIDITY AND CAPITAL RESOURCES
General. We fund our exploration and production operations from a
combination of cash generated by operations, capital raised through drilling
investment partnerships and, if required, use of our credit facility. We fund
our transportation operations, which are conducted through Atlas Pipeline,
through a combination of cash generated by operations, Atlas Pipeline's credit
facility and the sale of Atlas Pipeline's common units. The following table
sets forth our sources and uses of cash for the periods indicated:
Nine Months Ended
June 30
---------------------
2004 2003
-------- --------
(in thousands)
Provided by operations............................................. $ 41,993 $ 37,421
Used in investing activities....................................... (25,973) (17,950)
(Used in) provided by financing activities......................... (1,400) 2,676
-------- --------
$ 14,620 $ 22,147
======== ========
26
We had $40.0 million in cash and cash equivalents on hand at June 30,
2004, as compared to $25.4 million at September 30, 2003. Our ratio of earnings
from continuing operations before income taxes, minority interest and interest
expense to fixed charges was 19.4 to 1.0 in the nine months ended June 30, 2004
as compared to 11.7 to 1.0 in the nine months ended June 30, 2003. We had
working capital of $13.8 million and a working capital deficit of $2.2 million
at June 30, 2004 and September 30, 2003, respectively. The increase in our
working capital was primarily due to an increase in cash and cash equivalents at
June 30, 2004 as a result of our public offerings and funds received from our
sponsored investment drilling programs. Our long-term debt (including current
maturities) was 41% of our total capital at June 30, 2004 and 36% at September
30, 2003.
In March 2004, the borrowing base under our energy credit facility was
increased to $65.0 million from $54.2 million. At June 30, 2004, we had $28.3
million and $20.0 million available on this energy credit facility and Atlas
Pipeline's credit facility, respectively.
Cash flows from operating activities. Cash provided by operations is an
important source of short-term liquidity for us. It is directly affected by
changes in the price of natural gas and oil, interest rates and our ability to
raise funds for our drilling investment partnerships. Net cash provided by
operating activities increased $4.6 million in the nine months ended June 30,
2004 to $42.0 million from $37.4 million in the nine months ended June 30, 2003,
substantially as a result of the following:
o Changes in operating assets and liabilities decreased operating cash
flow by $8.6 million in the nine months ended June 30, 2004, compared
to the nine months ended June 30, 2003, primarily due to payments
during the nine months ended June 30, 2004 of accounts payable and
accrued liabilities. Our level of liabilities is dependent upon the
remaining amount of our drilling obligations at any balance sheet
date, which is dependent upon the timing of funds raised through our
investment partnerships.
o An increase in net income before depreciation and amortization of
$6.7 million in the nine months ended June 30, 2004 as compared to
the prior year period principally a result of higher natural gas
prices and drilling profits.
o An increase in our deferred tax liability of $4.6 million over the
June 30, 2003 increase.
o An increase in minority interest of $1.2 million due to an increase
in Atlas Pipeline's earnings and common units outstanding.
Cash flows from investing activities. Net cash used in our investing
activities increased $8.0 million in the nine months ended June 30, 2004 to
$26.0 million from $18.0 million in the nine months ended June 30, 2003 as a
result of the following:
o Capital expenditures increased $4.3 million due to an increase in the
number of wells we drilled.
o Cash used in other assets increased by $3.8 million due to $1.8
million of costs associated with Atlas Pipeline's acquisition of
Spectrum and Alaska Pipeline Company. We also incurred $2.0 million
of debt issuance costs associated with our new credit facility.
27
Cash flows from financing activities. Net cash used in our financing
activities increased $4.1 million in the nine months ended June 30, 2004 to $1.4
million from cash provided of $2.7 million in the nine months ended June 30,
2003, as a result of the following:
o We received proceeds of $37.0 million and $25.2 million from public
offerings of our common stock and Atlas Pipeline's common units,
respectively.
o We made payments to our parent of $52.1 million in the form of a
dividend and $9.7 million for the repayment of debt in the nine
months ended June 30, 2004; no such payments were made in the prior
year similar period.
o Net borrowings increased cash flows by $24.0 million in the nine
months ended June 30, 2004, as compared to the prior year similar
period.
o Dividends paid to minority interests increased $2.4 million as a
result of higher earnings and more common units outstanding for Atlas
Pipeline as a result of its April 2004 offering of common units.
Capital Requirements
During the nine months ended June 30, 2004 and 2003, our capital
expenditures related primarily to investments in our drilling partnerships and
pipeline expansions, in which we invested $22.2 million and $17.3 million,
respectively. For the nine months ended June 30, 2004 and the remaining quarters
of fiscal 2004, we funded and expect to continue to fund these capital
expenditures through cash on hand, borrowings under our credit facilities, and
from operations. We have established two credit facilities to facilitate the
funding of our capital expenditures. In March 2004, we obtained an increase in
our borrowing base on our credit facility administered by Wachovia Bank to $65.0
million from $54.2 million.
The level of capital expenditures we must devote to our exploration and
production operations depends upon the level of funds raised through our
drilling investment partnerships. We have budgeted to raise up to $90.0 million
in fiscal 2004 through drilling partnerships. Through the nine months ended June
30, 2004 we had raised $68.0 million. We believe cash flow from operations and
amounts available under our credit facility will be adequate to fund our
contributions to these partnerships. However, the amount of funds we raise and
the level of our capital expenditures will vary in the future depending on
market conditions for natural gas and other factors.
We continuously evaluate acquisitions of gas and oil and pipeline
assets. In order to make any acquisition, we believe we will be required to
access outside capital either through debt or equity placements or through joint
venture operations with other energy companies. There can be no assurance that
we will be successful in our efforts to obtain outside capital. For a discussion
of limitations on our ability to issue equity or make certain acquisitions or
business combinations, see "-Overview of Three and Nine Months Ended June 30,
2004 and 2003."
28
LONG-TERM DEBT
Atlas Pipeline Credit Facility
On July 16, 2004 Atlas Pipeline closed a loan with Wachovia Bank for a
$135.0 million credit facility that replaced its existing $20.0 million facility
concurrently with the completion of the Spectrum acquisition. The facility
includes a $35.0 million four year revolving line of credit which can be
increased by an additional $40.0 million under certain circumstances and a
$100.0 million five year term loan. Up to $5.0 million of the facility may be
used for standby letters of credit. Borrowings under the facility will be
secured by a lien on and security interest in all of our property and that of
our subsidiaries and by the guaranty of each of its subsidiaries. The credit
facility bears interest at one of two rates, elected at its option:
o the base rate plus the applicable margin; or
o the adjusted London Interbank Offered Rate, or LIBOR, plus the
applicable margin.
The base rate for any day equals the higher of the federal funds rate
plus 1/2 of 1% or the Wachovia Bank prime rate. Adjusted LIBOR is LIBOR divided
by 1.00 minus the percentage prescribed by the Board of Governors of the Federal
Reserve System for determining the reserve requirement for euro currency
funding. The applicable margin for the revolving line of credit is as follows:
o where its leverage ratio, that is, the ratio of our debt to earnings
before income, taxes, depreciation and amortization or EBITDA, is
less than or equal to 2.5, the applicable margin is 1.00% for base
rate loans and 2.00% for LIBOR loans;
o where its leverage ratio is greater than 2.5 but less than or equal
to 3.0, the applicable margin is 1.25% for base rate loans and 2.25%
for LIBOR loans;
o where its leverage ratio is greater than 3.0 but less than or equal
to 3.5, the applicable margin is 1.75% for base rate loans and 2.75%
for LIBOR loans; and
o where its leverage ratio is greater than 3.5, the applicable margin
is 2.25% for base rate loans and 3.25% for LIBOR loans.
The applicable margin for the term loan is .75% higher for both base rate loans
and LIBOR loans.
The credit facility requires Atlas Pipeline to maintain a ratio of
funded debt to EBITDA of not more than 4.25 to 1.0, reducing to 4.0 to 1.0 on
December 31, 2004 and 3.5 to 1.0 on June 30, 2005 and an interest coverage ratio
of not less than 3.0 to 1.0. In addition, it will be required to prepay the term
loan with the net proceeds of any asset sales or issuances of debt. With respect
to any issuances of equity, it will be required to repay the term loan from the
proceeds of such issuances to the extent its ratio of funded debt to EBITDA
exceeds 3.5 to 1.0. On July 20, 2004, Atlas Pipeline prepaid $40.0 million of
the $100.0 million it had borrowed under the term loan in connection with its
acquisition of Spectrum. See "Spectrum Acquisition." Atlas Pipeline will be
required to pay down $1.25 million in principal on the outstanding balance of
the term loan quarterly, but any prepayments of principal that it makes will be
credited pro rata against this repayment obligation.
The credit agreement contains covenants customary for loans of this
size, including restrictions on incurring additional debt and making material
acquisitions, and a prohibition on paying distributions to Atlas Pipeline's
unitholders if an event of default occurs. The events which constitute an event
of default are also customary for loans of this size, including payment
defaults, breaches of Atlas Pipeline's representations or covenants contained in
the credit agreement, adverse judgments against it in excess of a specified
amount, and a change of control of its general partner.
29
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table summarizes our contractual obligations at June 30,
2004.
Payments Due By Period
(in thousands)
--------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual cash obligations: Total 1 Year Years Years Years
- ---------------------------- ------- --------- -------- ----- -------
Long-term debt.............................. $35,902 $ 56 $35,846 $ - $ -
Secured revolving credit facilities......... - - - - -
Operating lease obligations................. 885 542 335 6 2
Capital lease obligations................... - - - - -
Unconditional purchase obligations.......... - - - - -
Other long-term obligations................. - - - - -
------- --------- ------- ----- -------
Total contractual cash obligations.......... $36,787 $ 598 $36,181 $ 6 $ 2
======= ========= ======= ===== =======
Payments Due By Period
(in thousands)
--------------------------------------------
Less than 1 - 3 4 - 5 After 5
Other commercial commitments: Total 1 Year Years Years Years
- ---------------------------- ------- --------- ------- ----- -------
Standby letters of credit................... $ 1,695 $ 1,695 $ - $ - $ -
Guarantees.................................. - - - - -
Standby replacement commitments............. - - - - -
Other commercial commitments................ 2,424 2,424 - - -
------- --------- ------- ----- -------
Total commercial commitments................ $ 4,119 $ 4,119 $ - $ - $ -
======= ========= ======= ===== =======
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of our
assets, liabilities, revenues and cost and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to the provision for possible losses,
deferred tax assets and liabilities, goodwill and identifiable intangible
assets, and certain accrued liabilities. We base our estimates on historical
experience and on various other assumptions that we believe reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
For a detailed discussion on the application of policies critical to
our business operations and other accounting policies, see Note 2 of the "Notes
to Consolidated Financial Statements" included in this report.
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of the following information is to provide
forward-looking quantitative and qualitative information about our potential
exposure to market risks. The term "market risk" refers to the risk of loss
arising from adverse changes in interest rates and oil and gas prices. The
disclosures are not meant to be precise indicators of expected future losses,
but rather indicators of reasonable possible losses. This forward-looking
information provides indicators of how we view and manage our ongoing market
risk exposures. All of our market risk sensitive instruments were entered into
for purposes other than trading.
GENERAL
We are exposed to various market risks, principally fluctuating
interest rates and changes in commodity prices. These risks can impact our
results of operations, cash flows and financial position. We manage these risks
through regular operating and financing activities and periodically use
derivative financial instruments.
The following analysis presents the effect on our earnings, cash flows
and financial position as if the hypothetical changes in market risk factors
occurred on June 30, 2004. Only the potential impacts of hypothetical
assumptions are analyzed. The analysis does not consider other possible effects
that could impact our business.
Interest Rate Risk. At June 30, 2004, the amount outstanding under our
credit facility had increased to $35.8 million from $31.1 million at September
30, 2003. The weighted average interest rate for this facility increased from
2.9% at September 30, 2003 to 3.5% at June 30, 2004 due to a larger portion of
our borrowings being at the bank's prime rate. Holding all other variables
constant, if interest rates hypothetically increased or decreased by 10%, our
net annual income would change by approximately $81,000.
At June 30, 2004, Atlas Pipeline had a $20.0 million revolving credit
facility to fund the expansion of its existing gathering systems and the
acquisitions of other gas gathering systems. In the nine months ended June 30,
2004, it had no borrowings under this facility (see Long Term Debt).
Commodity Price Risk. Our major market risk exposure in commodities is
fluctuations in the pricing of our gas and oil production. Realized pricing is
primarily driven by the prevailing worldwide prices for crude oil and spot
market prices applicable to United States natural gas production. Pricing for
gas and oil production has been volatile and unpredictable for many years. To
limit our exposure to changing natural gas prices, we use hedges. Through our
hedges, we seek to provide a measure of stability in the volatile environment of
natural gas prices. Our risk management objective is to lock in a range of
pricing for expected production volumes.
31
We do not hold or issue derivative instruments for trading purposes.
Historically, we have entered into financial hedging activities for a portion of
our projected natural gas production. We recognize gains and losses from the
settlement of these hedges in gas revenues when the associated production
occurs. The gains and losses realized as a result of hedging are substantially
offset in the market when we deliver the associated natural gas. We determine
gains or losses on open and closed hedging transactions as the difference
between the contract price and a reference price, generally closing prices on
NYMEX. We did not settle any contracts during the nine months ended June 30,
2004. We recognized losses of $1.1 million on settled contracts during the nine
months ended June 30, 2003. We had no open hedge transactions in place as of
June 30, 2004.
In addition, FirstEnergy Solutions and other third party marketers to
which we sell gas, also use financial hedges to hedge their pricing exposure and
make price hedging opportunities available to us. These transactions are similar
to NYMEX-based futures contracts, swaps and options, but also required firm
delivery of the hedged quantity. Thus, we limit these arrangements to much
smaller quantities than those projected to be available at any delivery point.
For the fiscal year ending September 30, 2004, we estimate in excess of 50% of
our produced natural gas volumes will be sold in this manner, leaving our
remaining production to be sold at contract prices in the month produced or at
spot market prices. We also negotiate with certain purchasers for delivery of a
portion of natural gas we will produce for the upcoming twelve months. The
prices under most of our gas sales contracts are negotiated on an annual basis
and are index-based. Considering those volumes already designated for the fiscal
year ending September 30, 2004, and current indices, a theoretical 10% upward or
downward change in the price of a natural gas would result in approximately a 5%
change in our projected natural gas revenues.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Securities Exchange Act
of 1934 reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, our management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Under the supervision of our Chief Executive Officer and Chief
Financial Officer and with the participation of the disclosure committee of our
parent, we have carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective.
There have been no significant changes in our internal controls over
financial reporting that has partially affected, or is reasonably likely to
materially affect, our internal control over financial reporting during our most
recent fiscal quarter.
32
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The registration statement for our initial public offering became
effective and commenced on April 5, 2004 under SEC commission file number
333-112653 underwritten by Friedman, Billings, Ramsey & Co., Inc. and
KeyBanc Capital Markets. We registered and sold 2,645,000 common shares at
$15.50 per share resulting in aggregate gross proceeds to us of approximately
$41.0 million, approximately $3.5 million of which we applied to underwriting
discounts and commissions and approximately $530,000 of which we applied to
related costs. None of these expenses were direct or indirect payments to
directors, officers or holders of 10% or more of any class of our equity. As a
result, we received approximately $37.0 million in aggregate net proceeds from
the offering.
As of June 30, 2004, we paid the net proceeds to our parent in the form
of a repayment of intercompany debt and a non-taxable dividend.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the three
months ended June 30, 2004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Certificate of
Incorporation.(1)
3.2 Amended and Restated Bylaws.(1)
10.1 Credit Agreement among Atlas America, Inc.,
Resource America, Inc., Wachovia Bank, National
Association, and other banks party thereto, dated
March 12, 2004.(2)
10.1(a) First Amendment to Credit Agreement, dated July
10, 2004.
10.2 Stock Incentive Plan.
10.3 Credit Agreement among Atlas Pipeline Partners,
L.P., Wachovia Bank, National
Association, and the other parties thereto, dated
July 16, 2004.
10.4 Purchase and Sale Agreement between Atlas
Pipeline Partners, L.P. and SEMCO Energy, Inc.
dated September 16, 2003.(3)
10.5 Master Separation and Distribution Agreement
between Atlas America, Inc. and Resource America,
Inc. dated May 14, 2004.
10.6 Registration Rights Agreement between Atlas
America, Inc. and Resource America, Inc. dated
May 14, 2004.
10.7 Tax Matters Agreement between Atlas America, Inc.
and Resource America, Inc. dated May 14, 2004.
10.8 Transition Services Agreement between Atlas
America, Inc. and Resource America, Inc. dated
May 14, 2004.
10.9 Employment Agreement for Edward E. Cohen dated
May 14, 2004.
31.1 Rule 13(a)-14(a)/15d-14(a) Certification.
31.2 Rule 13(a)-14(a)/15d-14(a) Certification.
32.1 Section 1350 Certification.
32.2 Section 1350 Certification.
- ---------------------------------
(1) Previously filed as an exhibit to our Form 10-Q for the
quarter ended March 31, 2004.
(2) Previously filed as an exhibit to our registration statement
on Form S-1 on March 17, 2004.
(3) Previously filed as an exhibit to our registration statement
on Form S-1 on February 10, 2004.
33
(B) REPORTS ON FORM 8-K:
During the quarter ended June 30, 2004, we filed two current
reports on Form 8-K as follows:
o We filed a Form 8-K on June 9, 2004 regarding SEMCO Energy,
Inc.'s petition with the Regulatory Commission of Alaska seeking
clarification of their order issued on April 20, 2004 in
connection with approvals sought by Atlas Pipeline and SEMCO
Energy, Inc. in connection with the proposed sale of Alaska
Pipeline Company to Atlas Pipeline.
o We filed a Form 8-K on June 15, 2004 regarding Atlas Pipeline's
belief that SEMCO Energy, Inc. had breached its obligations under
the Purchase and Sale Agreement with respect to the sale of
Alaska Pipeline Company.
34
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.
ATLAS AMERICA, INC.
(REGISTRANT)
Date: August 11, 2004 By: /s/ Freddie M. Kotek
----------------------------------
Freddie M. Kotek
Executive Vice President and
Chief Financial Officer
Date: August 11, 2004 By: /s/ Nancy J. McGurk
----------------------------------
Nancy J. McGurk
Senior Vice President and
Chief Accounting Officer
35