<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 1-14998
ATLAS PIPELINE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 23-3011077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
311 Rouser Road
Moon Township, Pennsylvania 15108
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (412) 262-2830
Securities registered pursuant to Section 12(b) of the Act:
Common Units of Limited Partnership Interest
Securities registered pursuant to Section 12(g) of the Act:
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
None
As of April 21, 2000, there were outstanding 1,500,000 Common
Units and 1,641,026 Subordinated Units
The aggregate market value of the equity securities held by non-affiliates of
the registrant, based on the closing price on April 25, 2000 was approximately
$19,125,000.
EXPLANATORY NOTE
This report is being filed pursuant to Rule 15d-2 under the Securities Exchange
Act of 1934 and contains only certified financial statements as required by
Rule 15d-2. The registrant is not filing statements of income and cash flows for
itself because it had no operations during the fiscal year end.
<PAGE>
ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
Page
<S> <C>
INDEX TO FINANCIAL STATEMENTS............................................................................. 3
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 5
SIGNATURES................................................................................................ 88
</TABLE>
2
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REGISTRANT'S FINANCIAL STATEMENTS
ATLAS PIPELINE PARTNERS, L.P.
BALANCE SHEET
Report of Independent Certified Public Accountants................................................................ 5
Balance Sheet as of December 31, 1999............................................................................. 6
Notes to Balance Sheet............................................................................................ 7
ATLAS PIPELINE PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Introduction...................................................................................................... 8
Pro Forma Balance Sheet as of December 31, 1999................................................................... 9
Pro Forma Statement of Operations for the year ended December 31, 1999............................................ 10
Pro Forma Statement of Operations for the year ended December 31, 1998............................................ 11
Notes to Pro Forma Financial Statements........................................................................... 12
ATLAS PIPELINE PARTNERS GP, LLC
BALANCE SHEET
Report of Independent Certified Public Accountants................................................................ 14
Balance Sheet as of December 31, 1999............................................................................. 15
Notes to Balance Sheet............................................................................................ 16
HISTORICAL OPERATING FINANCIAL STATEMENTS
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants................................................................ 17
Combined Balance Sheets as of December 31, 1999 and 1998.......................................................... 18
Combined Statements of Operations for the years ended December 31, 1999, 1998 and 1997............................ 19
Combined Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997............................ 20
Notes to Combined Financial Statements............................................................................ 21
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants................................................................ 25
Statements of Assets and Liability as of August 31, 1999 (unaudited) and December 31, 1998 and 1997............... 26
Statements of Operations for the eight months ended August 31, 1999 and 1998 (unaudited) and
the years ended December 31, 1998, 1997, and 1996............................................................... 27
Statements of Cash Flows for the eight months ended August 31, 1999 and 1998 (unaudited) and
the years ended December 31, 1998, 1997, and 1996............................................................... 28
Notes to Financial Statements.................................................................................... 29
THE ATLAS GROUP, INC. GATHERING OPERATIONS
COMBINED FINANCIAL STATEMENTS
Report of Certified Public Independent Accountants................................................................ 33
Combined Balance Sheet as of September 30, 1998 .................................................................. 34
Combined Statements of Operations for the nine months ended September 29, 1998 and
the year ended December 31, 1997................................................................................ 35
Combined Statements of Cash Flows for the nine months ended September 29, 1998 and
the year ended December 31, 1997................................................................................ 36
Notes to Combined Financial Statements............................................................................ 37
</TABLE>
3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
OBLIGORS' FINANCIAL STATEMENTS
ATLAS AMERICA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of December 31, 1999 (unaudited).................................................. 40
Consolidated Statements of Operations for the three months ended December 31, 1999
and 1998 (unaudited).......................................................................................... 41
Consolidated Statements of Cash Flows for the three months ended December 31, 1999
and 1998 (unaudited).......................................................................................... 42
Notes to Consolidated Financial Statements (unaudited).......................................................... 43
ATLAS AMERICA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.............................................................. 44
Consolidated Balance Sheets as of September 30, 1999 and 1998................................................... 45
Consolidated Statement of Operations for the year ended September 30, 1999...................................... 46
Consolidated Statements of Changes in Stockholder's Equity for the year ended September 30, 1999................ 47
Consolidated Statement of Cash Flows for the year ended September 30, 1999...................................... 48
Notes to Consolidated Financial Statements...................................................................... 49
THE ATLAS GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.................................................................................... 58
Consolidated Statements of Financial Position as of June 30, 1998 and July 31, 1997............................. 59
Consolidated Statements of Income for the eleven months ended June 30, 1998 and the year
ended July 31, 1997........................................................................................... 60
Consolidated Statements of Cash Flows for the eleven months ended June 30, 1998 and the year
ended July 31, 1997........................................................................................... 61
Notes to Consolidated Financial Statements...................................................................... 62
RESOURCE ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at December 31, 1999 (unaudited)..................................................... 71
Consolidated Statements of Operations for the three months ended December 31, 1999
and 1998 (unaudited).......................................................................................... 72
Consolidated Statements of Cash Flows for the three months ended December 31, 1999
and 1998 (unaudited).......................................................................................... 73
Notes to Consolidated Financial Statements (unaudited).......................................................... 74
RESOURCE ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.............................................................. 75
Consolidated Balance Sheets as of September 30, 1999 and 1998................................................... 76
Consolidated Statements of Operations for the years ended September 30, 1999, 1998 and 1997..................... 77
Consolidated Statements of Changes in Stockholder's Equity for the years ended September 30, 1999,
1998 and 1997................................................................................................. 78
Consolidated Statements of Cash Flows for the years ended September 30, 1999, 1998 and 1997..................... 79
Notes to Consolidated Financial Statements...................................................................... 80
</TABLE>
4
<PAGE>
ITEM 14. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Certified Public Accountants
Partners
Atlas Pipeline Partners, L.P.
We have audited the accompanying balance sheet of Atlas Pipeline
Partners, L.P. (the "Partnership") (a development stage partnership) as of
December 31, 1999. This balance sheet is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Partnership, as of December 31,
1999 in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
- ---------------------
Cleveland, Ohio
April 21, 2000
5
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
(A DEVELOPMENT STAGE PARTNERSHIP)
BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSET
Cash.................................................................................... $ 1,000
========
PARTNERS' EQUITY
PARTNERS' EQUITY................................................................................. $ 1,000
========
</TABLE>
See notes to balance sheet
6
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
(A DEVELOPMENT STAGE PARTNERSHIP)
NOTES TO BALANCE SHEET
December 31, 1999
NOTE 1 -- NATURE OF OPERATIONS
Atlas Pipeline Partners, L.P. ("the Partnership") is a Delaware limited
partnership that was formed May 6, 1999, by subsidiaries of Resource America,
Inc. ("RAI"), to acquire the gathering operations of RAI and to sell limited
partnership units. These gathering operations operate 888 miles of gas gathering
pipelines located in Pennsylvania, Ohio and New York. RAI is a publicly traded
company (trading under the symbol REXI on the NASDAQ system) operating in the
real estate finance, leasing, and energy sectors. The Partnership is a
development stage company and has not commenced significant operations.
NOTE 2 -- SUBSEQUENT EVENT
In January 2000, Atlas Pipeline Partners, L.P. completed its initial
public offering of 1.5 million of its common units at a price of $13 per unit
and subsequently acquired the gathering operations of RAI.
7
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Following are the unaudited pro forma financial statements of Atlas
Pipeline Partners, L.P. ("Atlas Pipeline"), as of December 31, 1999 and for the
years ended December 31, 1999 and 1998. The unaudited pro forma balance sheet
assumes that the registrant's initial public offering and the acquisition of the
natural gas pipeline gathering systems occurred as of December 31, 1999, and the
statements of operations assume the offering and transaction occurred January 1,
1998. The transaction adjustments are presented in the notes to the unaudited
pro forma financial statements. The unaudited pro forma financial statements and
accompanying notes should be read together with the Financial Statements and
related notes included elsewhere.
Atlas Pipeline accounted for the acquisition of the gathering systems
in the unaudited pro forma financial statements as a "drop-down" transaction in
accordance with the guidance of Emerging Issues Task Force Statement No. 87-21,
"Changing Accounting Basis in Master Limited Partnership Transactions." Based on
such guidance, the assets acquired from the gathering operations of Resource
America, Inc. and The Atlas Group, Inc. were recorded at historical cost.
The pro forma balance sheet and the pro forma statements of operations
are unaudited and were derived by adjusting the historical financial statements
of the gathering operations of Resource America, Inc. ("RAI") and its
wholly-owned subsidiaries, The Atlas Group, Inc., and Viking Resources
Corporation. Atlas Pipeline is a newly formed limited partnership which acquired
the net assets related to the gathering operations of RAI and its
above-mentioned Subsidiaries in January 2000. Atlas Pipeline is providing
unaudited pro forma financial statements for informational purposes only. They
should not be construed as indicative of Atlas Pipeline's financial position or
results of operations had the transactions been consummated on the dates
assumed. Moreover, they do not project Atlas Pipeline's financial position or
results of operations for any future date or period.
8
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA BALANCE SHEET (UNAUDITED)
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical
Atlas Pro Forma and
Pipeline Offering Pro Forma
Partners Adjustments As Adjusted
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................................... $ 1 $ 17,385 A $ 750
(16,636) B
Property and equipment
Gas gathering and transmission facilities.................................... - 15,760 B 15,760
Less - accumulated depreciation and amortization............................. - - -
---------- ---------- ----------
- 15,760 15,760
---------- ---------- ----------
$ 1 $ 16,509 $ 16,510
========== ========== ==========
LIABILITIES
Advances from parent......................................................... $ - $ (12,970) B $ -
12,970 B
Accounts payable............................................................. - (874) B -
874 B
PARTNERS' EQUITY
Common units................................................................. 17,393 A 17,393
Subordinated units........................................................... - (876) B (876)
General partner interest .................................................... 1 (8) A (7)
---------- ---------- ----------
$ 1 $ 16,509 $ 16,510
========== ========== ==========
</TABLE>
See notes to pro forma financial statements
9
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands, except per unit amount)
<TABLE>
<CAPTION>
Historical Historical
Resource Viking
America Resources Pro Forma and
Gathering Gathering Offering Pro Forma
Operations Operations Adjustments As Adjusted
<S> <C> <C> <C> <C>
Revenues:
Transportation and compression revenue..................... $ 3,541 $ 509 $ 3,386 C $ 7,436
Costs and expenses:
Transportation and compression............................. 695 83 - 778
General and administrative................................. 417 77 - 494
Property tax............................................... 16 3 - 19
Interest expense........................................... 397 - (397) D -
Depreciation and amortization.............................. 680 45 (725) E 1,051
1,051 F
----------- ----------- ---------
Total costs and expenses................................. 2,205 208 (71) 2,342
----------- ----------- ---------- -----------
Income from operations........................................ 1,336 301 3,457 5,094
Provision (benefit) for income taxes.......................... 532 120 (652) G -
----------- ----------- --------- -----------
Net income.................................................... $ 804 $ 181 $ 4,109 $ 5,094
=========== =========== ========= ===========
Net income per unit........................................... $ 1.59
===========
</TABLE>
See notes to pro forma financial statements
10
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except per unit amount)
<TABLE>
<CAPTION>
Historical
---------------------------------------------
Resource Viking Atlas
America Resources Group
Gathering Corporation Gathering
Operations Operations Operations
Year Year Nine Months Additional
Ended Ended Ended Pro Forma Pro Forma
December 31, December 31, September 29, Pro Forma and Offering as
1998 1998 1998 Adjustments Adjustments Adjusted
------------- -------------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Transportation and compression
revenue.......................... $ 1,022 $ 769 $ 2,026 $ - $ 3,300C $ 7,117
Costs and expenses:
Transportation and compression..... 191 71 315 - - 577
General and administrative......... 90 116 355 - - 561
Property tax expense............... 39 9 1 - - 49
Interest expense................... 79 - 277 - (356)D -
Depreciation and amortization ..... 275 49 1,098 (1,422)E - 1,051
1,051 F
--------- --------- --------- ----------- --------- -----------
Total costs and expenses......... 674 245 2,046 (371) (356) 2,238
--------- --------- --------- ----------- --------- -----------
Income (loss) from operations......... 348 524 (20) 371 3,656 4,879
Provision (benefit) for income taxes.. 138 210 (8) 145 (485)G -
--------- --------- --------- ----------- --------- -----------
Net income (loss)..................... $ 210 $ 314 $ (12) $ 226 $ 4,141 $ 4,879
========= ========= ========= =========== ========= ===========
Net income per unit................... $ 1.52
==========
</TABLE>
See notes to pro forma financial statements
11
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The accompanying pro forma financial statements include the gathering
operations pipeline assets, liabilities, equity and operations of Atlas America,
Inc., Viking Resources Corporation ("VRC"), and Resource Energy, Inc.,
wholly-owned subsidiaries of Resource America, Inc. These gathering operations
operate gas gathering pipelines located in Pennsylvania, Ohio and New York.
Resource America is a publicly traded company (trading under the symbol REXI on
the NASDAQ system) operating in the real estate finance, leasing, and energy
sectors.
On September 29, 1998, Resource America acquired all of the common
stock of Atlas America, formerly The Atlas Group, Inc., in exchange for
2,063,496 shares of Resource America's common stock and the assumption of Atlas
America's debt. The acquisition was recorded under the purchase method of
accounting and, accordingly, the results of the gas gathering operations of
Atlas America are included in these pro forma financial statements commencing
January 1, 1998. The purchase price has been allocated to gathering assets
acquired and related liabilities assumed based on the fair market value at the
date of acquisition. The pro forma statement of operations for the year ended
December 31, 1998 includes the historical results for Atlas gathering operations
for the nine months ended September 30, 1998. The three months of
post-acquisition operations is included in the Resource America gathering
operations results.
On August 31, 1999, Resource America acquired all of the common stock
of VRC in exchange for 1,243,684 shares of Resource America's common stock,
$29.0 million in cash and the assumption of VRC debt. The acquisition was
recorded under the purchase method of accounting and, accordingly, the results
of the gas gathering and transportation operations of VRC are included in these
financial statements commencing January 1, 1998. The purchase price has been
allocated to pipeline assets acquired and liabilities assumed based on the fair
market value at the date of acquisition. The pro forma statement of operations
for the year ended December 31, 1999 includes the historical results for Viking
Resources gathering operations for the eight months ended August 31, 1999. The
four months of post-acquisition operations is included in the Resource America
gathering operations results.
The pro forma and offering adjustments have been prepared as if the
acquisition of the gathering systems had taken place on December 31, 1999, in
the case of the pro forma balance sheet, or as of January 1, 1998 in the case of
the pro forma income statement for the years ended December 31, 1999 and 1998.
A. Reflects the estimated net proceeds to the Partnership of $17.4
million from the issuance and sale of 1.5 million common units at
an initial public offering price of $13.00 per common unit, net of
underwriters' discounts and commissions of approximately $1.4
million and offering expenses of approximately $750,000. Upon
completion of the offering, Atlas Pipeline will have $750,000 of
working capital.
B. Reflects the transaction by which Atlas Pipeline will obtain
ownership of the assets of Resource America gathering operations
at net book value in exchange for cash of $2.8 million, the
assumption of $13.0 million in debt, a $874,000 payment to two
affiliated partnerships from whom a portion of the gathering
systems will be acquired and 1,641,026 subordinated units. As this
transaction is between entities under common control, it has been
recorded at historical net book value of $15.8 million, with the
incremental amount of $876,000 recorded as a reduction in
partners' equity relating to the subordinated units.
C. Reflects the pro forma revenues from the master natural gas
gathering agreement effective upon consummation of the offering
pursuant to which Atlas Pipeline will transport natural gas
production. Pro forma revenues from such agreements were
calculated based on Resource America Gathering Operations
historical natural gas production volumes.
D. Reflects the elimination of historical interest expense paid to
Resource America as such loans will not be assumed.
E. Reflects the elimination of historical depreciation and
amortization expense.
F. Reflects pro forma depreciation expense based on the fair value
assigned to the assets in allocating the purchase price paid by
Resource America for The Atlas Group, Inc. and an assessment of
the remaining useful lives of those assets at the date of
acquisition.
G. Reflects the elimination of the historical income tax provision as
income taxes will be borne by the partners and not Atlas Pipeline.
12
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
Pro Forma Net Income Per Unit
Pro forma net income per unit is determined by dividing the pro forma
net income that would have been allocated to the common and subordinated
unitholders, which is 98% of pro forma net income, by the number of common and
subordinated units expected to be outstanding at the closing of the offering.
For purposes of this calculation, the minimum quarterly cash distribution was
assumed to have been paid to both common and subordinated unitholders and the
number of common and subordinated units outstanding, 3,205,129, was assumed to
have been outstanding the entire period. Pursuant to the partnership agreement,
to the extent that the minimum quarterly distribution is exceeded, the general
partner is entitled to certain incentive distributions which will result in less
income proportionately being allocated to the common and subordinated
unitholders. Basic and diluted pro forma net income per common and subordinated
units are equal as there are no dilutive units.
Distribution of Cash Upon Liquidation
Following the beginning of Atlas Pipeline's dissolution and
liquidation, assets will be sold or otherwise disposed of and the partners'
capital account balances will be adjusted to reflect any resulting gain or loss.
The proceeds of liquidation will first be applied to the payment of its
creditors in the order of priority provided in the partnership agreement and by
law. After that, the proceeds will be distributed to the unitholders and the
general partner in accordance with their capital account balances, as so
adjusted.
13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Atlas Pipeline Partners GP, LLC
We have audited the accompanying balance sheet of Atlas Pipeline
Partners GP, LLC (the "Company") (a development stage company) as of December
31, 1999. This balance sheet is the responsibility of the Company's management.
Our responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Company, as of December 31,
1999 in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
April 21, 2000
14
<PAGE>
ATLAS PIPELINE PARTNERS GP, LLC
(A Development Stage Company)
BALANCE SHEET
December 31, 1999
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSET
Cash.................................................................................... $ 1,000
========
STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY............................................................................. $ 1,000
========
</TABLE>
See notes to balance sheet
15
<PAGE>
ATLAS PIPELINE PARTNERS GP, LLC
(A Development Stage Company)
NOTES TO BALANCE SHEET
December 31, 1999
NOTE 1 -- NATURE OF OPERATIONS
Atlas Pipeline Partners GP, LLC (an indirect wholly owned subsidiary of
Resource America, Inc. ("RAI")) is a Delaware corporation that was formed
November 18, 1999 to become the general partner and manage the operations and
activities of Atlas Pipeline Partners, L.P. a partnership formed to acquire RAI
gas gathering operations. RAI gathering operations operate 888 miles of gas
gathering pipelines located in Pennsylvania, Ohio and New York. RAI is a
publicly traded company (trading under the symbol REXI on the NASDAQ system)
operating in the real estate finance, leasing, and energy sectors.
Atlas Pipeline Partners GP, LLC, Inc. is a development stage company
and has not commenced significant operations.
NOTE 2 -- SUBSEQUENT EVENT
In January 2000, Atlas Pipeline Partners, L.P. completed its initial
public offering of 1.5 million of its common units at a price of $13 per unit
and subsequently acquired RAI's gas gathering operations.
16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Resource America, Inc.
We have audited the accompanying combined balance sheets of Resource
America, Inc. Gathering Operations as of December 31, 1999 and 1998, and the
related combined statements of operations and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of Resource
America, Inc. Gathering Operations as of December 31, 1999 and 1998, and the
combined results of their operations and their combined cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Grant Thorton LLP
Cleveland, Ohio
April 21, 2000
17
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------- -------------
ASSETS
<S> <C> <C>
Cash and cash equivalents......................................................... $ 3,000 $ 9,000
Accounts receivable - affiliates.................................................. 374,000 250,000
--------------- -------------
Total current assets......................................................... 377,000 259,000
Property and equipment (at cost)
Gas gathering and transmission facilities...................................... 16,744,000 8,078,000
Less - accumulated depreciation................................................ (1,858,000) (1,266,000)
--------------- -------------
Net property and equipment................................................. 14,886,000 6,812,000
Goodwill (net of accumulated amortization of $110,000 at December 31, 1999
and $22,000 at December 31, 1998).............................................. 2,480,000 2,568,000
--------------- -------------
$ 17,743,000 $ 9,639,000
=============== =============
LIABILITIES AND COMBINED EQUITY
Accounts payable and accrued liabilities.......................................... $ 33,000 $ 47,000
--------------- -------------
Total current liabilities ................................................... 33,000 47,000
Advances from parent.............................................................. 12,970,000 6,599,000
Combined equity................................................................... 4,740,000 2,993,000
--------------- -------------
$ 17,743,000 $ 9,639,000
=============== =============
</TABLE>
See accompanying notes to combined financial statements
18
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
1999 1998 1997
----------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Transportation and compression revenue-affiliates......................... $ 3,541,000 $ 1,022,000 $ 349,000
Costs and expenses:
Transportation and compression............................................ 711,000 191,000 81,000
General and administration................................................ 417,000 129,000 45,000
Interest expense.......................................................... 397,000 79,000 -
Depreciation and amortization............................................. 680,000 275,000 172,000
----------- ------------- -------------
Total costs and expenses.................................................. 2,205,000 674,000 298,000
----------- ------------- -------------
Income from operations....................................................... 1,336,000 348,000 51,000
Provision for income taxes................................................... 532,000 138,000 19,000
----------- ------------- -------------
Net income .................................................................. $ 804,000 $ 210,000 $ 32,000
=========== ============= =============
</TABLE>
See accompanying notes to combined financial statements
19
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................... $ 804,000 $ 210,000 $ 32,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................. 680,000 275,000 172,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable................................ (124,000) (14,000) 5,000
Increase (decrease) in accounts payable and accrued liabilities........... (14,000) (64,000) -
------------ ------------- -------------
Net cash provided by operating activities................................. 1,346,000 407,000 209,000
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash acquired in business acquisition.................................... - 10,000 -
Capital expenditures......................................................... (1,366,000) (402,000) (19,000)
------------- ------------- --------------
Cash used in investing activities......................................... (1,366,000) (392,000) (19,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (to) from parent.................................................... 14,000 (6,000) (190,000)
------------ ------------- -------------
Cash used in financing activities......................................... 14,000 (6,000) (190,000)
Increase (decrease) in cash and cash equivalents............................. (6,000) 9,000 -
Cash and cash equivalents, beginning of period............................... 9,000 - -
------------ ------------- -------------
Cash and cash equivalents, end of period..................................... $ 3,000 $ 9,000 $ -
============ ============= =============
</TABLE>
See accompanying notes to combined financial statements
20
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
The accompanying combined financial statements include the pipeline
assets, liabilities, equity, and operations of the wholly owned subsidiaries of
AIC, Inc. ("AIC") and the pipeline operating divisions of Resource Energy, Inc.
("REI") and Viking Resources Corporation ("VRC"). These entities operate 888
miles of gas gathering pipelines located in Pennsylvania, Ohio and New York. AIC
is a wholly owned subsidiary of Atlas America, Inc. ("ATLAS"). REI, ATLAS, and
VRC are wholly owned subsidiaries of Resource America, Inc. ("RAI"). AIC and REI
and VRC will be referred to as Gathering Operations. RAI is a publicly traded
company (trading under the symbol REXI on the NASDAQ system) operating in the
real estate finance, leasing, and energy sectors.
In January 2000, RAI sold the net assets of the Gathering Operations to
Atlas Pipeline Partners, L.P., a newly formed limited partnership, in connection
with its initial public offering of limited partnership units. See Note 5.
On September 29, 1998, RAI acquired all of the common stock of ATLAS,
formerly The Atlas Group, Inc., in exchange for 2,063,496 shares of RAI's common
stock and the assumption of ATLAS debt. The acquisition was recorded under the
purchase method of accounting and accordingly the results of the gas gathering
and transportation operations of ATLAS are included in these financial
statements commencing September 30, 1998. The purchase price has been allocated
to pipeline assets acquired and liabilities assumed based on the fair market
value at the date of acquisition.
The following unaudited pro forma information is presented to show the
effect on revenue and net income had the acquisition been consummated on January
1, 1998:
Year Ended
December 31,
1998
-------------
(in thousands)
Revenue......................................................... $ 3,048
Net income...................................................... 490
On August 31, 1999, RAI acquired all of the common stock of VRC in
exchange for 1,243,684 shares of RAI's common stock, $29.0 million in cash and
the assumption of VRC debt. The acquisition was recorded under the purchase
method of accounting and, accordingly, the results of the gas gathering and
transportation operations of VRC are included in these financial statements
commencing September 1, 1999. The purchase price has been allocated to pipeline
assets acquired and liabilities assumed based on the fair market value at the
date of acquisition.
The following unaudited pro forma information is presented to show the
effect on revenue and net income had the acquisition been consummated on January
1, 1998:
Years Ended
December 31,
------------------------
1999 1998
------------ --------
(in thousands)
Revenue................................................ $ 4,050 $ 3,817
Net income............................................. 985 729
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statement follows.
21
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Use of Estimates
Preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives. Gas gathering and transmission facilities are depreciated over 15 or 25
years using the double declining balance and straight-line methods. Other
equipment is depreciated over 5 to 10 years using the straight-line methods.
Impairment of Long-Lived Assets
The Gathering Operations reviews its long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined that an asset's estimated future
cash flows will not be sufficient to recover its carrying amount, an impairment
charge will be recorded to reduce the carrying amount for that asset to its
estimated fair value.
Goodwill
Goodwill is associated with the purchase of the pipeline assets of
Atlas and is being amortized over a period of 30 years, using the straight line
method.
Federal Income Taxes
The Gathering Operations are included in the consolidated federal
income tax return of RAI. Income taxes are calculated as if the Gathering
Operations had filed a return on a separate company basis utilizing a statutory
rate of 34%. Deferred taxes represent deferred tax assets or liabilities which
are recognized based on the temporary differences between the tax basis of the
Gathering Operations assets and liabilities and the amounts reported in the
financial statements. These amounts are owed to RAI and are included in Advances
from Parent. Separate company state tax returns are filed in those states in
which subsidiaries and divisions of Atlas, REI, and VRC are registered to do
business.
Revenue Recognition
Revenues are recognized at the time the natural gas is transmitted
through the pipelines.
Fair Value of Financial Instruments
For cash and cash equivalents, receivable and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments.
Accounts Receivable - Affiliates
The Gathering Operations are affiliated with other companies which are
subsidiaries of AIC and limited partnerships controlled by AIC, REI, and VRC.
The Gathering Operations are dependent upon the resources and services provided
by AIC, REI, VRC and these affiliates. Accounts receivable represent the net
balance due from these affiliates and includes reimbursements of Gathering
Operations expenses to be reimbursed, which have been paid by these affiliates.
22
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Cash Flow Statements
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Supplemental Disclosure of Cash Flow Information
Information for the years ended December 31, 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
December 31,
------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash paid for:
Interest................................................................ $ 389,000 $ 79,000 $ -
============= ============= =============
Income taxes............................................................ $ 403,000 $ 207,000 $ 17,000
============= ============= =============
Details of Viking Acquisition at August 31, 1999
Fair value of assets acquired........................................................... $ 7,407,000
Liabilities assumed..................................................................... (6,464,000)
Capital contributed..................................................................... ( 943,000)
-----------------
Net cash acquired....................................................................... $ 0
=================
Details of Atlas Acquisition at September 29, 1998
Fair value of assets acquired........................................................... $ 7,786,000
Liabilities assumed..................................................................... (5,308,000)
Capital contributed..................................................................... (2,488,000)
-----------------
Net cash acquired....................................................................... $ (10,000)
=================
</TABLE>
Expense Allocation
RAI allocated certain direct and indirect general and administrative
expenses to the Gathering Operations during each of the years presented.
Indirect costs were allocated based on the number of employees. The types of
indirect expenses allocated to the Gathering Operations during this period
consisted of salaries and benefits, legal, office rent, utilities, telephone
services, data processing services, and office supplies. Management believes
that the method used to allocate these expenses is reasonable.
New Accounting Standards
Effective January 1999, the Gathering Operations became subject to the
provisions of Statement of Financial Accounting Standards No. 130. (SFAS 130).
SFAS 130, "Reporting Comprehensive Income" requires disclosure of comprehensive
income and its components. Comprehensive income includes net income and all
other changes in 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". The Gathering
Operations have no material elements of comprehensive income, other than net
income to report.
23
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
In June 1998 the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging". SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its consolidated
balance sheet and to measure those instruments at fair value. The Company is
required to adopt SFAS 133 effective October 1, 2000. The effect of adopting
SFAS 133 on the Company's consolidated financial position, results of operations
and cash flows will be dependent on the extent of future hedging activities and
fluctuations in interest rates.
NOTE 3 -- INCOME TAXES
As discussed in Note 2, the Gathering Operations results are included
in RAI's consolidated federal income tax return. The amounts presented below
were calculated as if the Gathering Operations filed a separate federal income
tax return. The provision for income taxes for each period consists of the
following:
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
December 31,
------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Federal...................................................................... $ 414,000 $ 118,000 $ 17,000
State and local.............................................................. 118,000 20,000 2,000
------------- ------------- -------------
$ 532,000 $ 138,000 $ 19,000
============= ============= =============
</TABLE>
RAI records current and deferred tax assets and liabilities on its
books and the Gathering Operations allocation was settled through increases or
decreases to Advances from parent. At December 31, 1999 the Gathering Operations
deferred tax asset, related to depreciation of property and equipment, would
have approximated $1.6 million. At December 31, 1998 the deferred tax asset
would have approximated $1.3 million.
NOTE 4 -- COMBINED EQUITY
The following is a reconciliation of the combined equity balance of Gathering
Operations:
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
December 31,
------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of period................................................. $ 2,993,000 $ 295,000 $ 263,000
Net income................................................................... 804,000 210,000 32,000
Capital contribution in connection with acquisitions......................... 943,000 2,488,000 -
------------- ------------- -------------
Balance, end of period....................................................... $ 4,740,000 $ 2,993,000 $ 295,000
============= ============= =============
</TABLE>
NOTE 5 -- SUBSEQUENT EVENT
As described in Note 1, RAI sold its gas gathering and transmission
facilities to Atlas Pipeline Partners, L.P., a newly formed limited partnership.
In connection therewith, in January 2000, Atlas Pipeline Partners, L.P.
completed its initial public offering of 1.5 million limited partnership common
units at $13.00 per unit. As a result, RAI no longer has gathering operations.
24
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Resource America, Inc.
We have audited the accompanying Statement of Assets and Liability of
Viking Resources Corporation Gathering Operations (a division of Viking
Resources Corporation) as of December 31, 1998 and 1997, and the related
statements of operations and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Viking Resources
Corporation Gathering Operations (a division of Viking Resources Corporation) as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
October 8, 1999
Cleveland, Ohio
25
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
STATEMENTS OF ASSETS AND LIABILITY
<TABLE>
<CAPTION>
December 31,
August 31, --------------------------------
1999 1998 1997
----------- -------------- ------------
(unaudited)
Assets
<S> <C> <C> <C>
Accounts receivable--affiliates.......................................... $ 107,000 $ 113,000 $ 96,000
----------- ----------- -----------
Total current assets................................................. 107,000 113,000 96,000
Property and equipment (at cost):
Gas gathering and transmission facilities............................ 1,454,000 1,401,000 682,000
Less--accumulated depreciation........................................ (629,000) (584,000) (536,000)
----------- ----------- -----------
Net property and equipment.............................................. 825,000 817,000 146,000
Total assets......................................................... $ 932,000 $ 930,000 $ 242,000
=========== =========== ===========
Liabilities
Advances from Viking Resources Corporation.............................. $ 932,000 $ 930,000 $ 242,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Eight Months Ended Years Ended
------------------------- ---------------------------------------
August 31, December 31,
------------------------- ---------------------------------------
1999 1998 1998 1997 1996
------------ ---------- ----------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Transportation and compression
Revenue - affiliates........................... $ 509,000 $ 437,000 $ 769,000 $ 640,000 $ 557,000
Costs and expenses
Transportation and compression.................... 83,000 48,000 71,000 60,000 50,000
General and administration........................ 77,000 77,000 116,000 101,000 103,000
Property tax expense.............................. 3,000 5,000 9,000 7,000 6,000
Depreciation and amortization..................... 45,000 32,000 49,000 17,000 24,000
----------- ----------- ----------- ----------- -----------
Total costs and expenses....................... 208,000 162,000 245,000 185,000 183,000
Income from operations............................ 301,000 275,000 524,000 455,000 374,000
Provision for income taxes........................ 120,000 110,000 210,000 182,000 150,000
----------- ----------- ----------- ----------- -----------
Net income........................................ $ 181,000 $ 165,000 $ 314,000 $ 273,000 $ 224,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Eight Months Ended Years Ended
-------------------------- -----------------------------------------
August 31, December 31,
-------------------------- -----------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income........................................ $ 181,000 $ 165,000 $ 314,000 $ 273,000 $ 224,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 45,000 32,000 49,000 17,000 24,000
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable-
affiliates............................... 6,000 1,000 (17,000) (7,000) (25,000)
----------- ----------- ----------- ------------ -----------
Net cash provided by operating activities......... 232,000 198,000 346,000 283,000 223,000
Cash flows from investing activities
Capital expenditures.............................. (53,000) (576,000) (720,000) (127,000) -
----------- ----------- ----------- ----------- -----------
Cash used in investing activities................. (53,000) (576,000) (720,000) (127,000) -
Cash flows from financing activities
Net intercompany activity with Viking
Resources Corporation.......................... (179,000) 378,000 374,000 (156,000) (223,000)
----------- ----------- ----------- ----------- -----------
Cash used in (provided by) financing activities... (179,000) 378,000 374,000 (156,000) (223,000)
Increase in cash and cash equivalents............. - - - - -
Cash and cash equivalents, beginning of period.... - - - - -
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period.......... $ - $ - $ - $ - $ -
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
NOTE 1 - NATURE OF OPERATIONS
The accompanying financial statements include the pipeline assets,
equity, and operations of Viking Resources Corporation ("VRC"). VRC operates gas
gathering pipelines and related equipment located in Pennsylvania and Ohio.
VRC's pipeline operations are referred to as Viking Gathering Operations. Viking
Gathering Operations is a division of VRC and has no separate legal status.
On August 31, 1999, Resource America, Inc. ("RAI") acquired all of the
common stock of VRC (see Note 5).
RAI intends to sell the net assets of its Gathering Operations and the
Viking Gathering Operations to Atlas Pipeline Partners, L.P., a newly formed
limited partnership, in connection with its initial public offering of limited
partnership units.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the results of operations
for the interim periods included herein have been made.
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statement follows.
Use of Estimates
Preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives. Gas gathering and transmission facilities are depreciated over five or
twenty two years using the straight-line method. Other equipment is depreciated
over five years using the straight-line method.
Impairment of Long-Lived Assets
Viking Gathering Operations reviews its long-lived assets for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that an asset's estimated
future cash flows will not be sufficient to recover its carrying amount, an
impairment charge will be recorded to reduce the carrying amount for that asset
to its estimated fair value.
Federal Income Taxes
Viking Gathering Operations is included in the consolidated federal
income tax return of VRC. Federal income taxes have been provided as if Viking
Gathering Operations had filed a return on a separate company basis utilizing a
statutory rate of 34%. Deferred income taxes represent deferred tax assets or
liabilities which are recognized based on the temporary differences between the
tax basis of Viking Gathering Operations assets and liabilities and the amounts
reported in the financial statements. These amounts are owed to/due from VRC and
are included in Advances from Viking Resources Corporation in the accompanying
balance sheet. Separate company state tax returns are filed in those states in
which VRC is registered to do business.
29
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 - (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Revenue Recognition
Revenues are recognized at the time the natural gas is transmitted
through the pipelines.
Revenue and Accounts Receivable-Affiliates
Viking Gathering Operations is affiliated with various limited
partnerships managed by VRC. Viking Gathering Operations derives substantially
all of its revenue from VRC and its affiliated limited partnerships and is
dependent upon the resources and services provided by VRC. Accounts
Receivable--Affiliates represents the net balance due from VRC and the limited
partnerships managed by VRC and includes transportation fees and reimbursements
of Viking Gathering Operations expenses such as compression and maintenance
costs. The outstanding receivable balance does not bear interest.
The carrying amounts of accounts receivable approximate fair value
because of the short maturity of these instruments.
Cash Flow Statements
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
For the eight months ended August 31, 1999 and 1998 and the years ended
December 31, 1998, 1997 and 1996, the cash paid by the Gathering Operations for
income taxes equals the provision for income taxes, which is included in the
intercompany liability.
Expense Allocation
VRC allocated certain direct and indirect general and administrative
expenses to Viking Gathering Operations during the years ended December 31,
1998, 1997 and 1996 and the eight months ended August 31, 1999 and 1998,
respectively. Indirect costs were allocated based on the number of employees.
The types of indirect expenses allocated to Viking Gathering Operations during
this period consisted of salaries and benefits, legal, office rent, utilities,
telephone services, data processing services, and office supplies.
The allocation of these costs for the years ended December 31, 1998,
1997 and 1996 and for the eight months ended August 31, 1999 and 1998 amounted
to $17,200, $14,100 and $14,800 and $18,500 and $15,500, respectively.
Management believes that the method used to allocate these expenses is
reasonable. However, the above amounts are not necessarily indicative of the
level of expenses that might have been incurred had Viking Gathering Operations
been operating as a stand-alone entity.
Advances from Viking Resources Corporation
The advances from VRC represent the cumulative net amount of
investments and all other transactions between Viking Gathering Operations and
VRC. The account does not bear interest and had an average balance of $626,000
in 1998 and $184,000 in 1997.
30
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 - (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
New Accounting Standards
Effective January 1999, Viking Gathering Operations became subject to
the provisions of Statement of Financial Accounting Standards No. 130. SFAS
130, "Reporting Comprehensive Income" requires disclosure of comprehensive
income and its components. Comprehensive income includes net income and all
other changes in 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". Viking Gathering
Operations has no material elements of comprehensive income, other than net
income, to report.
In June 1998 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging." SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its balance sheet
and to measure those instruments at fair value. The Company is required to adopt
SFAS 133 effective October 1, 2000. The effect of adopting SFAS 133 on the
Company's financial position, results of operations and cash flows will be
dependent on the extent of future hedging activities and fluctuations in
interest rates.
NOTE 3 - INCOME TAXES
As discussed in Note 2, the results of operations of Viking Gathering
Operations are included in VRC's consolidated federal income tax return. The
amounts presented below were calculated as if Viking Gathering Operations filed
a separate federal income tax return. The provision for income taxes for each
period consists of the following:
<TABLE>
<CAPTION>
Eight Months Ended Years Ended
August 31, December 31,
1999 1998 1998 1997 1996
---------- ---------- ----------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal........................................... $ 102,000 $ 93,000 $ 178,000 $ 155,000 $ 127,000
State and local................................... 18,000 17,000 32,000 27,000 23,000
----------- ----------- ----------- ----------- -----------
$ 120,000 $ 110,000 $ 210,000 $ 182,000 $ 150,000
=========== =========== =========== =========== ===========
</TABLE>
VRC records current and deferred tax assets and liabilities on its
books and Viking Gathering Operations allocation was settled through increases
or decreases in the advances from Viking Resources Corporation. At December 31,
1998 and 1997 Viking Gathering Operations would have recorded a deferred tax
liability of approximately $7,000 and a deferred tax asset of approximately
$2,000, respectively, related primarily to depreciation of property and
equipment.
NOTE 4 - YEAR 2000 (UNAUDITED)
Viking Gathering operations utilizes VRC's computer systems to process
all of its transactions. Viking Gathering Operations has been informed that VRC
utilizes unmodified vendor software and management of VRC believes that
appropriate actions have been taken to upgrade its existing software and systems
in order for it to be Year 2000 compliant. Costs associated with making the
systems Year 2000 compliant have not been material.
31
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 - (Continued)
NOTE 5 - SALE OF COMPANY
On August 31, 1999, Resource America, Inc. ("RAI") acquired all of the
common stock of VRC, in exchange for 1,243,684 shares of RAI's common stock,
$29.0 million in cash and the assumption of VRC debt. RAI is a publicly traded
company (trading under the symbol REXI on the NASDAQ system) operating in the
real estate finance, leasing, and energy sectors. As a result of this
acquisition, VRC became a wholly owned subsidiary of RAI. The acquisition will
be recorded under the purchase method of accounting. The purchase price will be
allocated to pipeline assets acquired and liabilities assumed based on the fair
market value at the date of acquisition. The accompanying financial statements
are presented based on VRC's historical cost.
32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Atlas America, Inc.
We have audited the accompanying combined balance sheet of The Atlas
Group, Inc.'s Gathering Operations as of September 29, 1998 and the related
combined statements of operations and cash flows for the nine-month period ended
September 29, 1998 and the years ended December 31, 1997. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of The
Atlas Group, Inc.'s Gathering Operations as of September 29, 1998 and the
combined results of their operations and their combined cash flows for the
nine-month period ended September 29, 1998 and the year ended December 31, 1997,
in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
July 14, 1999
33
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
COMBINED BALANCE SHEET
September 30,1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents.............................................. $ 18,000
Accounts receivable - affiliates....................................... 193,000
---------------
Total current assets.............................................. 211,000
Property and equipment (at cost)
Gas gathering and transmission facilities........................... 20,162,000
Land................................................................ 20,000
Less - accumulated depreciation..................................... (11,918,000)
---------------
Net property and equipment........................................ 8,264,000
---------------
$ 8,475,000
===============
LIABILITIES AND COMBINED EQUITY
Accounts payable and accrued liabilities............................... $ 110,000
---------------
Total current liabilities......................................... 110,000
Advances from parent................................................... 5,168,000
Other long-term liabilities............................................ 410,000
Combined equity........................................................ 2,787,000
---------------
$ 8,475,000
===============
</TABLE>
See accompanying notes to combined financial statements
34
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 29, December 31,
------------ -------------
1998 1997
------------ -------------
<S> <C> <C>
Revenues:
Transportation and compression revenue - affiliates.. $ 2,026,000 $ 2,578,000
Costs and expenses:
Transportation and compression....................... 315,000 479,000
General and administration........................... 356,000 289,000
Interest expense..................................... 277,000 370,000
Depreciation and amortization........................ 1,098,000 1,188,000
------------ -------------
Total costs and expenses........................... 2,046,000 2,326,000
------------ -------------
Income (loss) from operations........................... (20,000) 252,000
Provision (benefit) for income taxes.................... (8,000) 101,000
------------- -------------
Net income (loss)....................................... $ (12,000) $ 151,000
============= =============
</TABLE>
See accompanying notes to combined financial statements
35
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 29, December 31,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ........................................ $ (12,000) $ 151,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 1,098,000 1,188,000
Change in operating assets and liabilities:
Increase (decrease) in accounts receivable............. 20,000 (17,000)
Increase (decrease) in accounts payable and accrued
liabilities............................................ 69,000 (270,000)
------------- -------------
Net cash provided by operating activities............ 1,175,000 1,052,000
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (1,236,000) (1,108,000)
(Increase) decrease in other assets....................... - 71,000
------------- -------------
Cash used in investing activities...................... (1,236,000) (1,037,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments to) advances from parent...................... 61,000 (33,000)
Decrease in other long-term liabilities................... (12,000) -
-------------- -------------
Cash provided by (used in) financing activities........ 49,000 (33,000)
Decrease in cash and cash equivalents..................... (12,000) (18,000)
Cash and cash equivalents at the beginning of period...... 30,000 48,000
------------- -------------
Cash and cash equivalents at the end of period............ $ 18,000 $ 30,000
============= =============
</TABLE>
See accompanying notes to combined financial statements
36
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
The accompanying combined financial statements include the pipeline
assets, liabilities, equity, and operations of the wholly owned subsidiaries of
AIC, Inc. ("AIC") which is a wholly owned subsidiary of The Atlas Group, Inc.
("AGI"). These entities operate approximately 650 miles of gas gathering
pipelines located in Pennsylvania and Ohio. AGI will be referred to as Gathering
Operations. On September 29, 1998, RAI acquired all of the common stock of AGI
in exchange for 2,063,496 shares of RAI's common stock and the assumption of AGI
debt. RAI is a publicly traded company (trading under the symbol REXI on the
NASDAQ system) operating in the real estate finance, leasing, and energy
sectors. After the acquisition, AGI was merged into Atlas America, Inc.
("ATLAS"), a newly formed subsidiary of RAI formed in June 1998 to acquire AGI.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying combined financial statements follows.
Use of Estimates
Preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives. Gas gathering and transmission facilities are depreciated over 15 or 25
years using the double declining balance method. Other equipment is depreciated
over 10 years using the straight-line method.
Impairment of Long-Lived Assets
Gathering Operations reviews its long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined that an asset's estimated future
cash flows will not be sufficient to recover its carrying amount, an impairment
charge will be recorded to reduce the carrying amount for that asset to its
estimated fair value.
Federal Income Taxes
Gathering Operations was included in the consolidated federal income
tax return of AGI. Income taxes are calculated as if the Gathering Operations
had filed a return on a separate company basis utilizing a statutory rate of
34%. Deferred taxes represent deferred tax assets or liabilities which are
recognized based on the temporary differences between the tax basis of the
Gathering Operations assets and liabilities and the amounts reported in the
financial statements. These amounts are owed to AGI and are included in advances
from parent. Separate company state tax returns are filed in those states in
which subsidiaries and divisions of AGI are registered to do business.
Revenue Recognition
Revenues are recognized at the time the natural gas is transmitted
through the pipelines.
37
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Fair Value of Financial Instruments
For cash and cash equivalents, receivable and payables, the carrying amounts
approximate fair value because of the short maturity of these instruments. For
long-term debt, the fair value approximates historically recorded cost, since
interest rates approximate market.
Accounts Receivable - Affiliates
Gathering Operations is an affiliate to other companies which are
subsidiaries of AGI. Gathering Operations is dependent upon the resources and
services provided by AGI. Accounts receivable represent the net balance due from
these affiliates and include reimbursements of Gathering Operations expenses
due from these affiliates.
Cash Flow Statements
For purposes of the statement of cash flows, the Gathering Operations
consider all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Supplemental Disclosure of Cash Flow Information
Information for the nine months ended September 29, 1998 and the year
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 29, December 31,
--------------------- -------------
1998 1997
--------------------- -------------
<S> <C> <C>
Cash Paid for:
Interest.............................................. $ 276,000 $ 435,000
============== =============
Income taxes.......................................... $ 0 $ 67,000
============== =============
</TABLE>
Expense Allocation
AGI allocated certain direct and indirect general and administrative
expenses to the Gathering Operations during the year ended December 31, 1997 and
the nine months ended September 29, 1998, respectively. Indirect costs were
allocated based on the number of employees. The types of indirect expenses
allocated to the Gathering Operations during this period consisted of salaries
and benefits, legal, office rent, utilities, telephone services, data processing
services, and office supplies. Management believes that the method used to
allocate these expenses is reasonable.
New Accounting Standards
Effective October 1, 1998, the Gathering Operations became subject to
the provisions of Statement of Financial Accounting Standards No. 130 (SFAS
130). SFAS 130, "Reporting Comprehensive Income" requires disclosure of
comprehensive income and its components. Comprehensive income includes net
income and all other changes in 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".
The Gathering Operations has no material elements of comprehensive income, other
than net income to report.
38
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging. SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its consolidated
balance sheet and to measure those instruments at fair value. The Company is
required to adopt SFAS 133 effective October 1, 2000. The effect of adopting
SFAS 133 on the Company's consolidated financial position, results of operations
and cash flows will be dependent on the extent of future hedging activities and
fluctuations in interest rates.
NOTE 3 - INCOME TAXES
As discussed in Note 2, the Gathering Operations results are included
in AGI's consolidated federal income tax return. The amounts presented below
were calculated as if the Gathering Operations filed a separate federal income
tax return. The provision (benefit) for income taxes for each period consists of
the following:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 29, December 31,
----------------------- -------------
1998 1997
----------------------- -------------
<S> <C> <C>
Federal........................................................... $ (7,000) $ 86,000
State and local................................................... (1,000) 15,000
------------- -------------
$ (8,000) $ 101,000
============= =============
</TABLE>
AGI records current and deferred tax assets and liabilities on its
books and the Gathering Operations allocation was settled through increases or
decreases to Advances from Parent. At September 29, 1998, the Gathering
Operations deferred tax asset, related to depreciation of property and
equipment, would have approximated $492,000.
NOTE 4 - COMBINED EQUITY
The following is a reconciliation of the combined equity balance of the
Gathering Operations:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 29, December 31,
---------------- -------------
1998 1997
---------------- -------------
<S> <C> <C>
Balance, beginning of period...................................... $ 2,799,000 $ 2,648,000
Net income (loss)................................................. (12,000) 151,000
------------- -------------
Balance, end of period............................................ $ 2,787,000 $ 2,799,000
============= =============
</TABLE>
39
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED BALANCE SHEET
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1999
ASSETS
<S> <C>
Cash and cash equivalents................................................................................. $ 10,486
Accounts and other receivables............................................................................ 13,172
Prepaid expenses and other current assets................................................................. 383
-------------
Total current assets................................................................................. 24,041
Property, plant and equipment - at cost
Oil and gas properties and equipment (successful efforts).............................................. 26,465
Gas gathering and transmission facilities.............................................................. 6,865
Other.................................................................................................. 4,280
-------------
37,610
Less - accumulated depreciation, depletion and amortization............................................ (3,041)
-------------
Net property, plant and equipment.................................................................... 34,569
Goodwill (net)............................................................................................ 21,469
Contract rights and other intangibles..................................................................... 13,583
-------------
$ 93,662
=============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable - trade.................................................................................. $ 7,114
Accrued liabilities....................................................................................... 8,281
Investor funds raised..................................................................................... 9,086
Current portion of long-term debt......................................................................... 1,819
-------------
Total current liabilities............................................................................ 26,300
Long-term debt............................................................................................ 20,151
Other long-term liabilities............................................................................... 646
Advances from parent...................................................................................... 2,349
Commitments and contingencies............................................................................. -
Stockholder's equity
Common stock, $.01 par value, 100 shares authorized and outstanding.................................... 1
Additional paid-in capital............................................................................. 38,725
Retained earnings...................................................................................... 5,490
-------------
Total stockholder's equity........................................................................... 44,216
-------------
$ 93,662
=============
</TABLE>
See accompanying notes to consolidated financial statements
40
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Well construction................................................................... $ 7,153 $ 10,401
Oil and gas production.............................................................. 2,131 1,438
Well services....................................................................... 2,187 1,720
Interest and other income........................................................... 237 87
----------- -----------
11,708 13,646
Costs and expenses:
Well construction................................................................... 5,836 8,313
Oil and gas production.............................................................. 677 208
Well services....................................................................... 578 107
Exploration......................................................................... 456 105
General and administrative.......................................................... 1,441 1,372
Depreciation, depletion and amortization............................................ 971 882
Interest............................................................................ 331 454
----------- -----------
10,290 11,441
Income from operations.................................................................... 1,418 2,205
Provision for income taxes................................................................ 567 882
----------- -----------
Net income................................................................................ $ 851 $ 1,323
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
41
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................................. $ 851 $ 1,323
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization............................................. 971 882
Property impairments................................................................. 379 -
Amortization of deferred finance costs............................................... 16 -
Change in operating assets and liabilities:
Increase in prepaid expenses and accounts receivable................................. (6,420) (3,354)
Increase in accounts payable and accrued liabilities................................. 6,775 7,210
------------- -------------
Cash provided by operating activities.............................................. 2,572 6,061
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................................................... (1,829) (3,428)
Increase in other assets.................................................................. (443) (950)
Decrease in other long-term liabilities................................................... (38) -
------------- -------------
Cash used in investing activities.................................................... (2,310) (4,378)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from parent...................................................................... 1,660 88
Payment on revolving credit loan.......................................................... (22,425) (25,331)
Borrowings on revolving credit loan....................................................... 21,925 25,300
Payment on long-term debt................................................................. (31) (350)
-------------- -------------
Cash provided by (used in) financing activities........................................ 1,129 (293)
Increase in cash.......................................................................... 1,391 1,390
Cash at the beginning of period........................................................... 9,095 9,231
-------------- -------------
Cash at the end of period................................................................. $ 10,486 $ 10,621
============== =============
</TABLE>
See accompanying notes to consolidated financial statements
42
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the results of operations
for the interim periods included herein have been made.
The accounting policies followed by the Company, are set forth in Note
2 to the Company's consolidated financial statements for the year ended
September 30, 1999 included elsewhere in this Form 10K.
NOTE 2 - NATURE OF OPERATIONS
Atlas America, Inc. ("ATLAS" or the "Company") is an energy finance and
production company, engaged in the syndication, exploration for and development,
production and transportation of natural gas and oil primarily in the
Appalachian Basin Area. In addition, the Company performs contract drilling and
well operation services. ATLAS was incorporated in Pennsylvania in June 1998 and
is a wholly-owned subsidiary of Resource America, Inc. ("RAI") which is a
publicly traded company (trading under the symbol REXI on the NASDAQ system)
operating in the real estate finance, leasing and energy business sectors.
On September 29, 1998, ATLAS acquired all the common stock of The Atlas
Group, Inc., the former parent company of AIC, Inc., in exchange for 2,063,496
shares of RAI common stock worth approximately $29.5 million and the assumption
of debt. The acquisition was recorded under the purchase method of accounting
and accordingly the purchase price was allocated to assets acquired and
liabilities assumed based on their fair market values, at the date of
acquisition, as summarized below (in thousands):
Fair value of assets acquired....................... $ 71,951
Liabilities assumed................................. (43,284)
Amounts due seller.................................. (9,191)
Common stock issued................................. (29,534)
-----------
Net cash acquired .................................. $ (10,058)
===========
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES
Supplemental Disclosure of Cash Flow Information
Information for the three months ended December 31, 1999 and 1998 (in
thousands).
Three Months Ended
December 31,
--------------------------
1999 1998
----------- -----------
Cash paid for:
Interest ....................................... $ 316 $ -
=========== ===========
Income Taxes.................................... $ 484 $ -
=========== ===========
43
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Atlas America, Inc.
We have audited the accompanying consolidated balance sheets of Atlas
America, Inc. (a Pennsylvania corporation) and Subsidiaries as of September 30,
1999 and 1998, and the related consolidated statements of operations, changes in
stockholder's equity and cash flows for the year ended September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Atlas
America, Inc. and Subsidiaries as of September 30, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year ended September 30, 1999, in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
November 17, 1999
Except for Note 10
as to which the date
is January 28, 2000
44
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
ASSETS
<S> <C> <C>
Cash and cash equivalents........................................................... $ 9,095 $ 9,231
Accounts and other receivables...................................................... 6,717 3,202
Prepaid expenses and other current assets........................................... 418 1,281
Net assets held for disposition..................................................... - 6,760
------------- -------------
Total current assets........................................................... 16,230 20,474
Property, plant and equipment - at cost
Oil and gas properties and equipment (successful efforts)........................ 25,430 16,381
Gas gathering and transmission facilities........................................ 6,388 5,121
Other............................................................................ 4,084 3,856
------------- -------------
35,902 25,358
Less - accumulated depreciation, depletion and amortization...................... (2,435) -
------------- -------------
Net property, plant and equipment................................................ 33,467 25,358
Goodwill less accumulated amortization of $786 in 1999.............................. 21,258 22,308
Contract rights and other intangibles............................................... 13,730 13,869
------------- -------------
$ 84,685 $ 82,009
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable - trade............................................................ $ 7,410 $ 7,775
Accrued liabilities................................................................. 6,562 2,673
Investor funds raised............................................................... 3,474 4,001
Current portion of long-term debt................................................... 1,819 1,586
------------- -------------
Total current liabilities...................................................... 19,265 16,035
Long-term debt...................................................................... 20,682 26,101
Advances from parent................................................................ 689 1,147
Other long-term liabilities......................................................... 684 -
Commitments and contingencies....................................................... - -
Stockholder's equity
Common stock, $.01 par value, 100 shares authorized and outstanding.............. 1 1
Additional paid-in capital....................................................... 38,725 38,725
Retained earnings................................................................ 4,639 -
------------- -------------
Total stockholder's equity..................................................... 43,365 38,726
------------- -------------
$ 84,685 $ 82,009
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
45
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Well construction................................................................. $ 32,422
Oil and gas production............................................................ 6,345
Well services..................................................................... 7,432
Interest and other income......................................................... 1,329
-----------
47,528
Costs and expenses:
Well construction................................................................. 26,253
Oil and gas production............................................................ 2,912
Well services..................................................................... 889
Exploration....................................................................... 362
General and administrative........................................................ 3,511
Depreciation, depletion and amortization.......................................... 3,962
Interest.......................................................................... 1,886
Other............................................................................. 24
-----------
39,799
Income from operations.................................................................. 7,729
Provision for income taxes.............................................................. 3,090
-----------
Net income.............................................................................. $ 4,639
===========
</TABLE>
See accompanying notes to consolidated financial statements
46
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEAR ENDED SEPTEMBER 30, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Paid-In Retained Stockholder's
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998.................... 100 $ 1 $ 38,725 $ - $ 38,726
Net Income.................................... - - - 4,639 4,639
------- ------- --------- ---------- -----------
Balance at September 30, 1999.................... 100 $ 1 $ 38,725 $ 4,639 $ 43,365
======= ======= ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
47
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Year ended September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................................................... $ 4,639
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization...................................................... 3,962
Gain on sale of assets........................................................................ (1,019)
Abandonment of leases......................................................................... 89
Change in operating assets and liabilities:
Increase in prepaid expenses and accounts receivable.......................................... 1,861
Increase in accounts payable and accrued liabilities.......................................... 3,524
------------
Cash provided by operating activities....................................................... 13,056
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of net assets held for disposition............................................ 4,017
Capital expenditures............................................................................. (10,787)
Proceeds from sale of assets..................................................................... 141
Decrease in other assets......................................................................... (316)
Increase in other long-term liabilities.......................................................... (76)
------------
Cash used in investing activities........................................................... (7,021)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances to parent............................................................................... (458)
Payment on revolving credit loan................................................................. (107,226)
Borrowings on revolving credit loan.............................................................. 103,276
Payment on long-term debt........................................................................ (1,236)
Decrease in investor funds raised................................................................ (527)
------------
Cash used in financing activities........................................................... (6,171)
Decrease in cash................................................................................. (136)
Cash at the beginning of period.................................................................. 9,231
------------
Cash at the end of period........................................................................ $ 9,095
============
</TABLE>
See accompanying notes to consolidated financial statements
48
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
Atlas America, Inc. and subsidiaries ("ATLAS" or the "Company") are
energy finance and production companies, engaged in the syndication, exploration
for and development, production and transportation of natural gas and oil
primarily in the Appalachian Basin Area. In addition, the Company performs
contract drilling and well operation services. ATLAS was incorporated in
Pennsylvania in June 1998 and is a wholly-owned subsidiary of Resource America,
Inc. ("RAI" or "Parent") which is a publicly traded company (trading under the
symbol REXI on the NASDAQ system) operating in the real estate finance, leasing
and energy business sectors.
On September 29, 1998, ATLAS acquired all the common stock of The Atlas
Group, Inc., in exchange for 2,063,496 shares of RAI common stock worth
approximately $29.5 million and the assumption of debt. The acquisition was
recorded under the purchase method of accounting and accordingly the purchase
price was allocated to assets acquired and liabilities assumed based on their
fair market values, at the date of acquisition, as summarized below (in
thousands):
Fair value of assets acquired...................... $ 71,951
Liabilities assumed................................ (43,284)
Amounts due seller................................. (9,191)
Common stock issued................................ (29,534)
-----------
$ (10,058)
-----------
Net cash acquired above includes $827,000 of cash of the business unit
held for disposition (see Note 8) which is included in net assets held for sale
on the consolidated balance sheet.
ATLAS is the successor company to The Atlas Group, Inc. However, its
consolidated balance sheets as of September 30, 1999 and 1998 and its
consolidated statements of operations for the year ended September 30, 1999 are
not comparable with the historical statements of The Atlas Group, Inc. due to
the revaluation based upon the purchase price allocation, of the assets acquired
and liabilities assumed.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and its pro rata share of the assets,
liabilities, income, and expenses of the partnerships in which the Company has
an interest. All material intercompany transactions have been eliminated.
Use of Estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
49
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
Oil and Gas Properties
The Company follows the successful efforts method of accounting.
Accordingly, property acquisition costs, costs of successful exploratory wells,
all development costs, and the cost of support equipment and facilities are
capitalized. Costs of unsuccessful exploratory wells are expensed when such
wells are determined to be nonproductive. The costs associated with drilling and
equipping wells not yet completed are capitalized uncompleted wells, equipment
and facilities. Geological and geophysical costs and the costs of carrying and
retaining undeveloped properties, including delay rentals, are expensed.
Production costs, overhead, and all exploration costs other than costs of
exploratory drilling are charged to expense as incurred.
Unproved properties are assessed periodically to determine whether
there has been a decline in value and, if such decline is indicated, a loss will
be recognized. The Company compares the carrying value of its oil and gas
producing properties to the estimated future cash flow, net of applicable income
taxes, from such properties in order to determine whether their carrying values
should be reduced. No adjustment was necessary at September 30, 1999.
On an annual basis, the Company estimates the costs of future
dismantlement, restoration, reclamation, and abandonment of its gas and oil
producing properties. Additionally, the Company evaluates the estimated salvage
value of equipment recoverable upon abandonment. At September 30, 1999 and 1998,
the Company's evaluation of equipment salvage values was greater than or equal
to the estimated costs of future dismantlement, restoration, reclamation and
abandonment.
Depreciation, Depletion and Amortization
Proved developed oil and gas properties, which include intangible
drilling and development costs, tangible well equipment and leasehold costs, are
amortized on the unit-of-production method using the ratio of current production
to the estimated aggregate proved developed oil and gas reserves.
Property, Plant and Equipment
Property, plant and equipment, other than oil and gas properties, is
stated at their estimated fair value at the date of acquisition of The Atlas
Group, Inc. while subsequent additions are recorded at cost. Depreciation is
provided using the straight-line method over the following estimated useful
lives once the asset is put into productive use:
Building........................................... 39 years
Gas gathering and transmission facilities.......... 20 years
Other equipment.................................... 3 - 7 years
Long-Lived Assets
Contract rights and other intangibles consist of contracts purchased to
operate wells and manage limited partnerships and the ongoing partnership
syndication business. Operating and management contracts are amortized on a
straight-line basis over the lives of the respective partnerships (up to 13
years) while the syndication rights are amortized on a straight-line basis over
30 years.
Goodwill is the excess of cost over the fair value of net assets
acquired and is amortized by the straight-line method over 30 years. The Company
evaluates both contract rights and goodwill periodically to determine potential
impairment by comparing the carrying value to the undiscounted estimated future
cash flows of the related assets.
50
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
Revenue Recognition
The Company sells interests in oil and gas wells and retains therefrom
a working interest and/or overriding royalty in the producing wells. The income
from the working interests is recorded when the natural gas and oil are
produced.
The Company also contracts to drill oil and gas wells. The income from
these contracts is recorded upon substantial completion of the well.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined that an asset's estimated future cash flows
will not be sufficient to recover its carrying amount, an impairment charge will
be recorded to reduce the carrying amount for that asset to its estimated fair
value.
Investor Funds Raised
Investor funds raised represent monies received from investors to drill
partnership wells for which the partnership has not completed the process of
selling units.
Federal Income Taxes
The Company is included in the consolidated federal income tax return
of RAI. Income taxes are calculated as if the Company had filed a return on a
separate company basis utilizing a statutory rate of 35%. Deferred taxes
represent deferred tax assets or liabilities which are recognized based on the
temporary differences between the tax basis of the Company's assets and
liabilities and the amounts reported in the financial statements. Separate
company state tax returns are filed in those states in which the Company is
registered to do business.
Fair Value of Financial Instruments
For cash and cash equivalents, receivable and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments. For long-term debt, the fair value approximates historically
recorded cost, since interest rates approximate market. Management believes the
fair value of any financial commitments are not material.
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Year Ended
September 30, 1999
------------------
Interest ............................................... $ 2,004
===========
Income taxes............................................ $ 181
===========
51
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
New Accounting Standards
Effective October 1, 1998, the Company became subject to the provisions
of Statement of Financial Accounting Standards No. 130 (SFAS 130). SFAS 130,
"Reporting Comprehensive Income" requires disclosure of comprehensive income and
its components. Comprehensive income includes net income and all other changes
in 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". The Company has no material
elements of comprehensive income, other than net income to report.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging. SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its consolidated
balance sheet and to measure those instruments at fair value. The Company is
required to adopt SFAS 133 effective October 1, 2000. The effect of adopting
SFAS 133 on the Company's consolidated financial position, results of operations
and cash flows will be dependent on the extent of future hedging activities and
fluctuations in interest rates.
NOTE 3 - RELATED PARTIES
The Company conducts certain energy activities through, and a
substantial portion of its revenues are attributable to, limited partnerships
("Partnerships"). The Company serves as general partner of the Partnerships and
assumes customary rights and obligations for the Partnerships. As the general
partner, the Company is liable for Partnership liabilities and can be liable to
limited partners if it breaches its responsibilities with respect to the
operations of the Partnerships. The Company is entitled to receive management
fees, reimbursement for administrative costs incurred, and to share in the
Partnerships' revenue and costs and expenses according to the respective
Partnership agreements.
NOTE 4 - INCOME TAXES
A reconciliation between the statutory federal income tax rate and the
Company's effective income tax rate is as follows:
Year Ended
September 30, 1999
------------------
Statutory tax rate..................................... 35%
Statutory depletion.................................... (3)
Goodwill amortization.................................. 4
Non-conventional fuel credits.......................... (2)
State income taxes, net of federal tax benefit......... 5
Other.................................................. 1
---------
40%
=========
As discussed in Note 2, the Company's federal income tax provision is
an allocation from RAI, in whose consolidated tax return the Company is
included. The provision allocated to the Company is not materially different
from what the total provision would have been had the Company filed a separate
federal income tax return. The components of the net deferred tax liability (in
thousands) are calculated as if the Company filed a separate tax return. RAI
recorded current and deferred tax liabilities on its books and the Company's
allocation was settled through increases or decreases to the Advances from
Parent balance.
52
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 - INCOME TAXES -- (Continued)
<TABLE>
<CAPTION>
September 30,
-----------------------------
1999 1998
------------- -----------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Accrued liabilities........................................................ $ 661 $ 545
Provision for possible losses.............................................. - 290
Net operating loss carry forwards.......................................... - 1,148
Alternative minimum tax credit............................................. 1,163 1,555
Percentage depletion carry forwards........................................ - 187
------------- -----------
1,824 3,725
Deferred tax liabilities:
Fixed asset basis difference............................................... (3,419) (4,231)
Other items, net........................................................... (187) (413)
------------- -----------
(3,606) (4,644)
------------- -----------
Net deferred tax liability..................................................... $ (1,782) $ (919)
============= ===========
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
September 30,
-------------------------------
1999 1998
------------- -------------
(in thousands)
Credit facility
Revolving credit facility, secured by certain oil and gas properties and
pipelines; interest ranging from 7.0625% to 9.0% due
November 2002................................................................ $ 21,975 $ 19,975
Term loan facility secured by certain oil and gas properties; interest
ranging from 7.09% to 7.19%; terminated September 1999....................... - 7,000
Note payable to bank, secured by a building and certain equipment,
monthly installments of $15 plus interest at or below the prime rate
plus1/2% (8.25% at September 30, 1999) due August 2002........................ 526 712
----------- ----------
22,501 27,687
Less current portion........................................................... 1,819 1,586
------------- -----------
$ 20,682 $ 26,101
============= ===========
</TABLE>
The Company along with other energy affiliates owned by RAI maintains a
$45.0 million credit facility (with $22.0 million of permitted draws available
to the Company) at PNC Bank ("PNC"). The facility is cross collateralized by the
assets of all of the energy affiliates, and a breach of the loan agreement by
any of the energy affiliates would constitute a default by the Company. The
revolving credit facility has a term ending in November 2002 and bears interest
at one of two rates (elected at borrower's option) which increase as the amount
outstanding under the facility increases: (i) PNC prime rate plus between 0 to
75 basis points, or (ii) the Eurodollar rate plus between 150 to 225 basis
points. The credit facility contains certain financial covenants and imposes the
following limits: (a) ATLAS's exploration expense can be no more than 20% of
capital expenditures plus exploration expense, without PNC's consent: (b)
limitations on indebtedness, sales, leases or transfers of property by ATLAS
without PNC's consent: and (c) the maintenance of certain financial ratios.
Borrowings under the credit facility are collateralized by substantially all the
oil and gas properties and pipelines of ATLAS. At September 30, 1999, long-term
debt maturing over the next five fiscal years is as follows: (in thousands):
2000 - $1,819; 2001 - $1,002; 2002 - $155 and 2003 - $19,525.
53
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - COMMITMENTS
The Company is the managing general partner in several oil and gas
limited partnerships, and ATLAS has agreed to indemnify each investor general
partner from any liability, which exceeds such partner's share of partnership
assets. Management believes that any such liabilities that may occur will be
covered by insurance and, if not covered by insurance, will not result in a
significant loss to the Company.
Subject to certain conditions, investor general partners in certain oil
and gas limited partnerships have the right to present their interests for
purchase by the Company, as managing general partner. The Company is not
obligated to purchase more than 5% or 10% of the units in any calendar year. The
Company believes that any liability incurred would not be material based on past
experience.
The Company subordinates a part of its net partnership revenues to the
receipt by investor general partners of cash distributions from the Partnership
equal to at least 10% of their agreed subscriptions determined on a cumulative
basis, in accordance with the terms of the partnership agreement.
NOTE 7 - FUTURES CONTRACTS
The Company enters into natural gas futures contracts to hedge its
exposure to changes in natural gas prices. At any point in time, such contracts
may include regulated NYMEX futures contracts and non-regulated over-the-counter
futures contracts with qualified counterparties. The futures contracts employed
by the Company are commitments to purchase or sell natural gas at future date
and generally cover one month periods for up to 18 months in the future. Gains
and losses on such contracts are deferred and recognized in the month the gas is
sold. The Company had no significant futures contracts at September 30, 1999.
NOTE 8 - NET ASSETS HELD FOR DISPOSITION
A business unit entered into natural gas futures contracts to hedge its
exposure to changes in natural gas prices. The futures contracts employed by the
Company were commitments to purchase or sell natural gas at a future date and
generally covered one-month periods for up to 18 months in the future. The
Company, in accordance with its intent, at the date of acquisition of The Atlas
Group, Inc., disposed of this business unit on March 31, 1999 and recognized a
gain of $1.0 million which is included in other income.
NOTE 9 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Results of operations for oil and gas producing activities:
<TABLE>
<CAPTION>
Year Ended
September 30, 1999
------------------
(in thousands)
<S> <C>
Revenues ...................................................... $ 6,345
Production costs................................................. (2,912)
Exploration expenses............................................. (362)
Depreciation, depletion and amortization......................... (1,923)
Income taxes..................................................... -
-----------
Results of operations for producing activities................... $ 1,148
===========
</TABLE>
54
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) - (Continued)
The estimates of the Company's proved and unproved gas reserves are
based upon evaluations verified by Wright & Company, Inc., an independent
petroleum engineering firm, as of September 30, 1999 and 1998. All reserves are
located in the Appalachian Basin Area. Reserves are estimated in accordance with
guidelines established by the Securities and Exchange Commission and the
Financial Accounting Standards Board which require that reserve estimates be
prepared under existing economic and operating conditions with no provision for
price and cost escalation except by contractual arrangements. Proved reserves
are estimated quantities of oil and natural gas which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs. Proved developed reserves are those which are expected to
be recovered through existing wells with existing equipment and operating
methods.
The components of capitalized costs related to the Company's oil and gas
producing activities are as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------------
1999 1998
------------- -----------
(in thousands)
<S> <C> <C>
Proved properties.............................................................. $ 25,408 $ 16,370
Unproved properties............................................................ 22 11
Pipeline, equipment and other interests........................................ 6,388 5,121
------------- -----------
31,818 21,502
Accumulated depreciation, depletion and amortization........................... (2,223) -
------------- -----------
Net capitalized costs.......................................................... $ 29,595 $ 21,502
============= ===========
</TABLE>
The costs incurred by the Company in its oil and gas activities during
the fiscal year are as follows:
<TABLE>
<CAPTION>
Year Ended
September 30, 1999
------------------
(in thousands)
<S> <C>
Property acquisition costs:
Unproved properties........................................................................... $ 11
Proved properties............................................................................. 22
Exploration costs............................................................................. 451
Development costs............................................................................. 8,736
</TABLE>
There are numerous uncertainties inherent in estimating quantities of
proven reserves and in projecting future net revenues and the timing of
development expenditures. The reserve data presented represents estimates only
and should not be construed as being exact. In addition, the standardized
measures of discounted future net cash flows may not represent the fair market
value of the Company's oil and gas reserves or the present value of future cash
flows of equivalent reserves, due to anticipated future changes in oil and gas
prices and in production and development costs and other factors for which
effects have not been provided.
The standardized measure of discounted future net cash flows is
information provided for the financial statement user as a common base for
comparing oil and gas reserves of enterprises in the industry. The following
schedule presents the standardized measure of estimated discounted future net
cash flows from the company's proved reserves. Estimated future cash flows are
determined by using the weighted average price received for the last month of
each fiscal year, adjusted only for fixed and determinable increases in natural
gas prices provided by contractual agreements. The standardized measure of
future net cash flows was prepared using the prevailing economic conditions
existing at September 30, 1999 and 1998 and such conditions continually change.
Accordingly, such information should not serve as a basis in making any judgment
on the potential value of recoverable reserves or in estimating future results
of operations.
55
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) - (Continued)
<TABLE>
<CAPTION>
Gas Oil
(mcf) (bbls)
------------- ------------
<S> <C> <C>
Proved developed and undeveloped reserves at September 30, 1998................ 71,278,940 133,755
Current additions............................................................ 29,705,025 -
Revision of previous estimates............................................... (4,579,800) (29,783)
Transfer to limited partnerships............................................. (18,221,632) -
Production................................................................... (2,761,948) (10,832)
------------- -----------
Proved developed and undeveloped reserves at September 30, 1999................ 75,420,585 93,140
============= ===========
Proved developed reserves at
September 30, 1999........................................................... 33,464,323 93,140
September 30, 1998........................................................... 31,263,480 133,755
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES
(in thousands)
September 30,
-----------------------------
1999 1998
------------- -----------
Future cash inflows............................................................ $ 220,611 $ 170,166
Future production and development costs........................................ (102,312) (77,262)
------------- -----------
Future net cash flows before income taxes...................................... 118,299 92,904
Future income taxes............................................................ 22,739 7,388
------------- -----------
Future net cash flows.......................................................... 95,560 85,516
Annual discount for estimated timing of cash flows............................. 65,856 61,642
------------- -----------
Standardized measure of discounted future net cash flows....................... $ 29,704 $ 23,874
============= ===========
</TABLE>
The following table summarizes the changes in the standardized measure
of discounted future net cash flows from estimated production of proved
developed and undeveloped oil and gas reserves after income taxes.
<TABLE>
<CAPTION>
Year Ended
September 30, 1999
------------------
(in thousands)
<S> <C>
Balance, beginning of year...................................................................... $ 23,874
Increase (decrease) in discounted future net cash flows:
Sales and transfers of oil and gas net of related costs....................................... (3,433)
Net changes in prices and production costs.................................................... 3,543
Revisions of previous quantity estimates...................................................... (2,662)
Extensions, discoveries, and improved recovery less related costs............................. 8,587
Purchases of reserves in-place................................................................ -
Sales of reserves in-place, net of tax effect................................................. -
Accretion of discount......................................................................... 3,556
Net change in future income taxes............................................................. (7,037)
Other......................................................................................... 3,276
-----------
Balance, end of year............................................................................ $ 29,704
===========
</TABLE>
56
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 10 - SUBSEQUENT EVENT
The Company sold its gas gathering and transmission facilities to Atlas
Pipeline Partners, L.P., a newly formed master limited partnership. In January
2000, Atlas Pipeline Partners, L.P. was formed by subsidiaries of RAI. In
connection with the sale of its gas gathering and transmission facilities, the
Company entered into a master gas gathering agreement with the Partnership
whereby the Company together with two other subsidiaries of RAI will be
obligated to pay fees ranging from the greater of $.35 per mcf or $.40 per mcf
and 16% of the gross sales price of the natural gas transported.
In connection with the sale of its gas gathering and transmission
facilities, the Company, together with two other subsidiaries of RAI, has signed
an omnibus agreement with Atlas Pipeline Partners, L.P., requiring them to:
o Connect wells within 2,500 feet of one of Atlas Pipeline Partners,
L.P.'s gathering systems to that system;
o Drill and connect a minimum of 225 wells to Atlas Pipeline
Partners, L.P.'s gathering systems before 2003;
o Provide Atlas Pipeline Partners, L.P. with construction financing
for new gathering systems or gathering system extensions of $1.5
million per year for five years.
57
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Atlas Group, Inc.
Coraopolis, Pennsylvania
We have audited the accompanying consolidated statements of financial
position of The Atlas Group, Inc. and subsidiaries as of June 30, 1998 and July
31, 1997, and the related consolidated statements of income and cash flows for
the eleven months ended June 30, 1998 and the year ended July 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Atlas Group,
Inc. as of June 30, 1998 and July 31, 1997, and the results of its operations
and its cash flows for the eleven months ended June 30, 1998 and the year ended
July 31, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 17, on July 13, 1998 the Company entered into an
Agreement and Plan of Merger with Resource America, Inc. pursuant to which The
Atlas Group, Inc. will be merged into a wholly owned subsidiary of Resource
America, Inc.
/s/ McLAUGHLIN & COURSON
- ---------------------
Pittsburgh, Pennsylvania
July 31, 1998
58
<PAGE>
THE ATLAS GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
June 30, July 31,
1998 1997
------------- -------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents........................................................ $ 5,292,207 $ 9,385,866
Trade accounts and notes receivable, less allowance for doubtful accounts of
$391,667 in 1998 and $300,000 in 1997.......................................... 5,857,331 4,018,804
Other receivables................................................................ 1,094,550 330,626
Accounts receivable - officers................................................... 464,859 41,449
Inventories...................................................................... 783,067 175,635
Prepaid expenses and other current assets........................................ 331,838 386,569
------------- -------------
TOTAL CURRENT ASSETS........................................................... 13,823,852 14,338,949
OIL AND GAS PROPERTIES
Oil and gas wells and leases..................................................... 40,739,334 35,526,072
Less accumulated depreciation, depletion and amortization........................ 16,598,203 14,694,388
------------- -------------
24,141,131 20,831,684
OTHER ASSETS........................................................................ 447,386 374,722
PROPERTY, PLANT AND EQUIPMENT
Land............................................................................. 504,693 504,693
Buildings........................................................................ 2,816,023 2,777,821
Equipment........................................................................ 1,687,956 1,565,391
Gathering lines.................................................................. 21,830,936 20,506,629
------------- -------------
26,839,608 25,354,534
Less accumulated depreciation.................................................... 16,116,882 14,699,813
------------- -------------
10,722,726 10,654,721
------------- -------------
$ 49,135,095 $ 46,200,076
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses............................................ $ 4,402,878 $ 4,024,644
Working interests and royalties payable.......................................... 4,890,885 4,504,911
Billings in excess of costs of $2,334,975 in 1998 and $2,916,951 in 1997 on
uncompleted contracts.......................................................... 4,907,001 6,761,946
Current maturities on long-term debt:
Subordinated notes payable to stockholders..................................... 1,348,189 1,907,084
Other.......................................................................... 1,922,797 819,048
Income taxes payable............................................................. - 336,873
------------- -------------
TOTAL CURRENT LIABILITIES.................................................... 17,471,750 18,354,506
DEFERRED INCOME TAXES............................................................... 675,000 700,000
LONG-TERM DEBT, net of current maturities:
Subordinated notes payable to stockholders....................................... - 1,348,190
Other............................................................................ 8,310,536 4,859,523
OTHER LONG-TERM LIABILITIES......................................................... 400,000 323,742
STOCKHOLDERS' EQUITY
Capital stock, no par; authorized 2,000,000 shares; issued 500,000 shares........ 1,250 1,250
Paid-in capital.................................................................. 560,093 560,093
Retained earnings................................................................ 26,931,861 25,404,167
Treasury stock, at cost (130,519 shares and 133,919 shares, respectively)........ (5,215,395) (5,351,395)
------------- -------------
22,277,809 20,614,115
------------- -------------
$ 49,135,095 $ 46,200,076
============= =============
</TABLE>
See notes to consolidated financial statements
59
<PAGE>
THE ATLAS GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
ELEVEN MONTHS ENDED JUNE 30, 1998 AND YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
Eleven
Months Ended Year Ended
June 30, July 31,
1998 1997
------------- -------------
<S> <C> <C>
INCOME
Sales - gas wells................................................................ $ 21,777,181 $ 22,354,389
Purchased gas revenues........................................................... 21,786,823 29,908,989
Well operating fees.............................................................. 3,379,158 3,445,777
Gathering line charges........................................................... 2,466,470 2,539,795
Working interests and royalties.................................................. 4,505,756 5,124,912
Interest......................................................................... 137,835 227,524
Other............................................................................ 459,696 411,912
-------------- --------------
54,512,919 64,013,298
COSTS OF SALES AND OTHER EXPENSES
Costs of sales - gas wells....................................................... 19,895,082 18,472,875
Cost of purchased gas............................................................ 22,013,008 30,401,349
Gathering line and well operation expense........................................ 2,648,643 2,253,146
General and administrative....................................................... 4,065,342 3,589,809
Interest:
Subordinated notes payable to stockholders..................................... 277,213 536,096
Other.......................................................................... 356,983 144,625
Depreciation, depletion and amortization......................................... 3,323,754 3,850,978
-------------- --------------
52,580,025 59,248,878
-------------- --------------
INCOME BEFORE INCOME TAXES................................................... 1,932,894 4,764,420
INCOME TAXES
Current:
Federal........................................................................ 450,000 665,000
State.......................................................................... 100,000 560,000
Deferred......................................................................... (25,000) 45,000
-------------- --------------
525,000 1,270,000
-------------- --------------
NET INCOME................................................................... $ 1,407,894 $ 3,494,420
============== ==============
</TABLE>
See notes to consolidated financial statements
60
<PAGE>
THE ATLAS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
ELEVEN MONTHS ENDED JUNE 30, 1998 AND YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
Eleven
Months Ended Year Ended
June 30, July 31,
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 1,407,894 $ 3,494,420
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization......................................... 3,323,754 3,850,978
Expense funded by issuance of capital stock...................................... 255,800 157,500
Other, net....................................................................... 22,503 -
Change in assets and liabilities:
Receivables.................................................................... (3,025,861) 1,935,803
Inventories.................................................................... (607,432) 273,558
Prepaid expenses and other current assets...................................... 82,468 406,004
Accounts payable and accrued expenses and working interests and royalties
payable...................................................................... 764,208 (1,555,919)
Uncompleted contract billings, net............................................. (1,854,945) (3,412,123)
Income taxes payable........................................................... (364,610) (662,000)
Deferred income taxes.......................................................... (25,000) 45,000
Long-term liabilities.......................................................... 76,258 13,696
-------------- --------------
Net cash provided by operating activities.................................... 55,037 4,546,917
Cash flows used in investing activities:
Investment in oil and gas wells and leases....................................... (5,213,262) (3,598,288)
Other assets, net................................................................ (72,664) (66,595)
Gathering line additions......................................................... (1,324,307) (2,062,390)
Other property additions......................................................... (186,140) (1,493,305)
-------------- --------------
Net cash used in investing activities........................................ (6,796,373) (7,220,578)
Cash flows provided by (used in) financing activities:
Proceeds from long-term borrowings............................................... 9,475,000 4,750,000
Principal payments on long-term borrowings....................................... (4,920,238) (4,935,715)
Principal payments on notes payable to stockholders.............................. (1,907,085) (1,669,660)
-------------- --------------
Net cash provided by (used in) financing activities.......................... 2,647,677 (1,855,375)
-------------- ---------------
Net decrease in cash and cash equivalents........................................... (4,093,659) (4,529,036)
Cash and cash equivalents at beginning of period.................................... 9,385,866 13,914,902
-------------- --------------
Cash and cash equivalents at end of period.......................................... $ 5,292,207 $ 9,385,866
============== ==============
Additional Cash Flow Information:
Cash paid during the period for:
Interest....................................................................... $ 584,743 $ 691,226
-------------- --------------
Income taxes................................................................... $ 914,609 $ 1,887,000
============== ==============
</TABLE>
See notes to consolidated financial statements
61
<PAGE>
THE ATLAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The Atlas Group, Inc. (Atlas) was formed in July, 1995 to hold, through
its wholly owned subsidiary AIC, Inc. also formed in July, 1995, Atlas Energy
Group and its subsidiaries, including Atlas Resources, Inc. and Atlas Gas
Marketing, Inc. The purpose of the reorganization is to achieve more efficient
concentration of funds of the Atlas group of companies, thereby minimizing
transaction costs and maximizing returns on investment vehicles. No changes in
the consolidated assets, liabilities or stockholders' equity occurred as a
result of the reorganization.
Atlas and subsidiaries are engaged in the exploration for development,
production, and marketing of natural gas and oil primarily in the Appalachian
Basin area. In addition, the Company performs contract drilling and well
operation services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of The Atlas
Group, Inc., and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Inventories
Inventories, consisting of oil and gas field materials and supplies,
are stated at first-in, first-out, lower of cost or market method of accounting.
The Company uses the successful efforts method of accounting for oil
and gas producing activities. Property acquisition costs are capitalized when
incurred. Geological and geophysical costs and delay rentals are expensed when
incurred. Development costs, including equipment and intangible drilling costs
related to both producing wells and developmental dry holes, are capitalized.
All capitalized costs are generally depreciated and depleted on the
unit-of-production method using estimates of proven reserves. Oil and gas
properties are periodically assessed and when unamortized costs exceed expected
future net cash flows, a loss is recognized by recording a charge to income.
On the sale or retirement of oil and gas properties, the cost and
related accumulated depreciation, depletion and amortization are eliminated from
the property accounts, and the resultant gain or loss is recognized.
For tax purposes, intangible drilling costs are being written off as
incurred. The greater of cost or percentage depletion as defined by the Internal
Revenue Code, is used as a deduction from income.
Property, plant and equipment
Land, buildings, equipment and gathering lines are recorded at cost.
Major additions and betterments are charged to the property accounts while
replacements, maintenance and repairs which do not improve or extend the life of
the respective assets are expensed currently. As property is retired or
otherwise disposed of, the cost of the property is removed from the asset
account, accumulated depreciation is charged with an amount equivalent to the
depreciation provided, and the difference, if any, is charged or credited to
income. Depreciation is computed over the estimated useful life of the assets
generally by the straight-line method.
62
<PAGE>
THE ATLAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Revenue recognition
The Company sells interests in oil and gas wells and retains therefrom
a working interest and/or overriding royalty in the producing wells. The income
from the working interests is recorded when the natural gas and oil are
produced.
The Company also contracts to drill oil and gas wells. The income from
these contracts is recorded upon substantial completion of the well.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation costs. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
Costs in excess of amounts billed are classified as current assets
under costs in excess of billings on uncompleted contracts. Billings in excess
of costs are classified under current liabilities as billings in excess of costs
on uncompleted contracts. Contract retentions are included in accounts
receivable.
Working interests and royalties
Revenues from working interests and royalties are reported net of all
landowner royalty and lease operating expenses and are recognized when the
natural gas and oil are produced. For the eleven months ended June 30, 1998, the
Company recognized working interest income of $3,556,373 and royalty income of
$949,383. Working interest and royalty income during the year ended July 31,
1997 amounted to $4,113,425 and $1,011,487, respectively.
Cash equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain amounts contained in prior year comparative information have
been reclassified to conform with the 1998 presentation.
3. AFFILIATED OIL AND GAS PARTNERSHIPS
In connection with the sponsorship of oil and gas partnerships, the
Company is reimbursed by the partnerships for certain operating and overhead
costs incurred on their behalf. These reimbursements totaled approximately
$370,000 during the eleven months ended June 30, 1998 and the year ended July
31, 1997. In addition, as part of its duties as well operator, the Company
receives proceeds from the sale of oil and gas and makes distributions to
investors according to their working interest in the related oil and gas
properties.
63
<PAGE>
THE ATLAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. PLAN OF REORGANIZATION
On November 8, 1990, the Company adopted a plan of reorganization
whereby a substantial portion of the common stock of the two majority
shareholders would be purchased by the Company and shares of the Company's stock
would be granted to certain key employees of the Company (Management Investors),
giving the Management Investors control of the Company.
Purchase of treasury shares and notes payable to stockholders
On November 14, 1990, the Company entered into an agreement effective
as of August 16, 1990 to purchase 248,717 shares of common stock from its two
majority shareholders at $40.00 per share ($9,948,680).
The purchase price is evidenced by promissory notes bearing interest at
13.5%. Quarterly principal payments range from $100,574 on November 15, 1991 to
a final payment of $856,103 on November 15, 1998. Payments may be deferred or
accelerated under certain circumstances. Principal payments totaled $1,907,085
and $1,669,660 during the eleven months ended June 30, 1998 and the year ended
July 31, 1997, respectively. Interest expense amounted to $277,213 and $536,096
for the eleven months ended June 30, 1998 and the year ended July 31, 1997,
respectively.
The notes are subordinate to all direct and indirect debt, past,
present or future and all obligations, if any, to make contributions to any
employee stock ownership plan now in existence or hereinafter created.
The promissory notes are secured by warrants on the common stock of the
Company that are exercisable upon an uncorrected event of default. At June 30,
1998 and July 31, 1997, the following warrants were outstanding:
June 30 July 31,
1998 1997
------------- -------------
Number of shares......................... 28,678 167,194
Exercise price........................... $ 47.01 $ 19.47
The Company has options to purchase, and the majority shareholders had
options to sell 131,425 shares of the Company's common stock at per share prices
ranging from $63.25 to $74.10 commencing on the earlier of the satisfaction of
all the Company's obligations under the foregoing promissory notes or November
14, 1999.
Stock grants
The Company has established a management employee stock option
consisting of an aggregate of options to acquire 47,578 shares of common stock
at $1.00 per share. No options have been granted as of June 30, 1998. The
options will terminate August 15, 2012.
There are restrictions on the sale of the vested Management Investor
and ESOP shares of common stock which include, among other restrictions, that
shares may not be sold until obligations to the majority shareholders are
satisfied. Shares offered for sale must first be offered to the Company and then
to other shareholders before being offered to a third party. Further conditions
apply to sales that would result in a third party owning 5% or more of the total
shares of the Company.
64
<PAGE>
THE ATLAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. OTHER LONG-TERM DEBT AND CREDIT FACILITY
Long-term debt at June 30, 1998 and July 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
June 30 July 31,
1998 1997
------------- -------------
<S> <C> <C>
Revolving credit loan payable to bank............................................... $ 9,475,000 $ 4,750,000
Note payable to bank in monthly installments through August 2002 of
$15,476, plus interest at or below prime rate plus one-half percent
(1/2%) (7.97% and 8.25% at June 30, 1998 and July 31, 1997,
respectively). Secured by building and equipment having a net book
value of $1,045,860 at June 30, 1998............................................. 758,333 928,571
------------- -------------
10,233,333 5,678,571
Less current maturities............................................................. (1,922,797) (819,048)
------------- -------------
$ 8,310,536 $ 4,859,523
============= =============
</TABLE>
The revolving credit and term loan agreement enables the Company to
borrow $10,000,000 on a revolving basis until August 15, 1998. A commitment fee
at a rate of three-eighths of one percent (3/8%) is charged on the unused
portion. During the revolving credit period, loans bear interest at or below
prime rate plus one-quarter percent (1/4%). The average interest rate at June
30, 1998 was 7.79%. The agreement provides that the Company may convert any
outstanding borrowings into a 5 year term loan, payable in equal monthly
installments, plus interest at or below prime rate plus one-half percent (1/2%).
The loan agreements are secured by certain assets of the Company.
6. MATURITIES ON LONG-TERM DEBT
Aggregate maturities on long-term debt at June 30, 1998 for the next
five fiscal years are as follows:
<TABLE>
<CAPTION>
Fiscal Subordinated Other
Year Notes Payable Long-Term
Ending To Stockholders Debt Total
- ------ -------------- ------------- ---------
<S> <C> <C> <C>
1999................................................ $ 1,348,189 $ 1,922,797 $ 3,270,986
2000................................................ 0 2,080,714 2,080,714
2001................................................ 0 2,080,714 2,080,714
2002................................................ 0 2,080,714 2,080,714
2003................................................ 0 1,910,476 1,910,476
</TABLE>
7. LEASE COMMITMENTS
The Company leases certain vehicles and compressor sites. These leases
are accounted for as operating leases. Lease expense for the eleven months ended
June 30, 1998 and the year ended July 31, 1997 amounted to $521,261 and
$317,870, respectively. The future minimum lease payments at June 30, 1998 are
as follows:
Fiscal
Year
Ending
1999..........................................$ 501,963
2000.......................................... 162,848
2001.......................................... 57,661
2002.......................................... 21,690
2003.......................................... 0
65
<PAGE>
THE ATLAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. INCOME TAXES
Net deferred tax liabilities consist of the following:
<TABLE>
<CAPTION>
June 30 July 31,
1998 1997
------------- -------------
<S> <C> <C>
Exploration and development costs expenses for income tax reporting................. $ 1,460,000 $ 1,250,000
Tax credits......................................................................... (310,000) (270,000)
Other ............................................................................. (475,000) (280,000)
------------- -------------
$ 675,000 $ 700,000
============= =============
A reconciliation between the Company's effective tax rate and the U.S. statutory rate is as follows:
1998 1997
------------- --------
U.S. statutory rate................................................................. 34.0% 34.0%
State income taxes net of federal income tax benefit................................ 3.2 4.1
Depletion........................................................................... (5.4) (3.9)
Nonconventional fuels and alternative minimum tax credits........................... (1.9) (4.4)
Other............................................................................... (2.7) (3.1)
---------- --------
Effective tax rate.................................................................. 27.2% 26.7%
========= ========
</TABLE>
9. PROFIT SHARING PLAN
The Company maintains a defined contribution 401(k) profit sharing plan
covering substantially all of its employees. The Plan Administrator set the
maximum allowable employee contribution at the lesser of 15% of their
compensation or $10,000. The Company matches employee contributions by
contributing an amount equal to 50% of each employee's contribution. Pension
expense under the 401(k) profit sharing plan was $154,997 for the eleven months
ended June 30, 1998 and $142,189 for the year ended July 31, 1997.
10. OPTION ON BUILDING
The majority shareholders were granted an option to acquire the land
and building (having a net book value of $961,966 at June 30, 1998) utilized as
the Company's headquarters for a period of six months commencing on August 15,
2003 and ending February 15, 2004 for $500,000. The option has been amended to
allow the cancellation of the option, upon the event of a disposition of the
Company, by payment of $500,000 to the majority shareholders.
66
<PAGE>
THE ATLAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. CHANGES IN STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the eleven months ended June 30,
1998 and the year ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
Capital Paid-In Retained Treasury
Stock Capital Earnings Stock
<S> <C> <C> <C> <C>
BALANCE AT JULY 31, 1996.................................... $ 1,250 $ 560,093 $ 21,892,247 $ (5,491,395)
Treasury stock issued to ESOP (3,000 shares)................ 15,000 120,000
Other (500 shares).......................................... 2,500 20,000
Net income for the year..................................... 3,494,420
-------- ---------- -------------- -------------
$ 1,250 $ 560,093 $ 25,404,167 $ (5,351,395)
BALANCE AT JULY 31, 1997....................................
Treasury stock issued to ESOP (3,000 shares)................ 111,000 120,000
Other (400 shares).......................................... 8,800 16,000
Net income for the period................................... 1,407,894
-------- ---------- -------------- -------------
BALANCE AT JUNE 30, 1998.................................... $ 1,250 $ 560,093 $ 26,931,861 $ (5,215,395)
======== ========== ============== =============
</TABLE>
12. EMPLOYEE STOCK OWNERSHIP PLAN
Effective August 1, 1990 the Company established a non-contributory
employee stock ownership plan (ESOP) covering substantially all employees except
the Company's two majority shareholders. The Company contributed 3,000 shares of
common stock based on a fair market value of $77.00 ($231,000) and $45.00
($135,000) to the plan during the eleven months ended June 30, 1998 and the year
ended July 31, 1997, respectively. The Company also contributed $30,595 and
$29,413 in cash during the eleven months ended June 30, 1998 and the year ended
July 31, 1997, respectively. Employee benefits vest after five years of service,
including service prior to establishment of the plan. There are restrictions on
the sale of the stock (see Plan of Reorganization).
As of June 30, 1998 the Company has made provision of $462,000 for an
ESOP contribution of 6,000 shares of common stock based on a fair market value
of $77.00.
13. FUTURES CONTRACTS
The Company enters into natural gas futures contracts to hedge its
exposure to changes in natural gas prices. At any point in time, such contracts
may include regulated NYMEX futures contracts and non-regulated over-the-counter
futures contracts with qualified counterparties. The futures contracts employed
by the Company are commitments to purchase or sell natural gas at a future date
and generally cover one month periods for up to 18 months in the future.
Realized gains (losses) are recorded in the income accounts in the month(s) that
the futures contracts are intended to hedge. Unrealized gains (losses) are
deferred until realized. Deferred gains (losses) were $206,035 and $95,990 at
June 30, 1998 and July 31, 1997, respectively.
14. COMMITMENTS
Atlas Resources, Inc., as general partner in several oil and gas
limited partnerships, and The Atlas Group, Inc. have agreed to indemnify each
investor general partner from any liability incurred which exceeds such
partner's share of partnership assets. Management believes that such liabilities
that may occur will be covered by insurance and, if not covered by insurance,
will not result in a significant loss to The Atlas Group, Inc. and its
subsidiaries.
Subject to certain conditions, investor general partners in certain oil
and gas limited partnerships may present their interests beginning in 1998 for
purchase by Atlas Resources, Inc., as managing general partner. Atlas Resources,
Inc. is not obligated to purchase more than 5% of the units in any calendar
year.
67
<PAGE>
THE ATLAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. COMMITMENTS - (Continued)
Atlas Resources, Inc., as managing general partner in certain oil and
gas limited partnerships has also agreed to subordinate its share of production
revenues to the receipt by investor partners of cash distributions equal to at
least 10% of their subscriptions in each of the first five years of partnership
operations. During the eleven months ended June 30, 1998 and the year ended July
31, 1997, Atlas Resources, Inc. had net subordinations of $427,245 and $417,896,
respectively.
15. YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000 date
are a known risk. The Company has established processes for evaluating and
managing risks and costs associated with this problem. The computing portfolio
was identified and an initial assessment has been completed. The Company
anticipates corrective action to be completed during fiscal year 1999 and the
aggregate costs of such corrections will not be material.
16. LITIGATION
The Company and its subsidiaries are involved in legal proceedings,
claims and litigation arising in the ordinary course of business. In the opinion
of management, the outcome of such current legal proceedings, claims and
litigation will not have a material effect on operating results, or cash flows
when resolved in a future period, and these matters will not materially affect
the Company's consolidated financial position.
17. SUBSEQUENT EVENTS
Merger
On July 13, 1998 the Company entered into an Agreement and Plan of
Merger with Resource America, Inc. pursuant to which The Atlas Group, Inc. will
be merged into a wholly owned subsidiary of Resource America, Inc.
The merger is expected to become effective in the late summer of 1998.
The Company has the right to accelerate the payment of the options to
purchase certain shares of the majority shareholders referred to in Note 4 to
the financial statements, in event of a disposition of the Company.
Stock options
On July 1, 1998 the Company granted to certain key employees options to
purchase 36,374 shares of Common Stock of the Company at $1.00 per share. On
July 6, 1998, 32,874 shares were exercised based on a fair market value of
$77.00 per share. The charge to income, net of the estimated tax benefit, is
approximately $1,850,000.
68
<PAGE>
THE ATLAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
The supplementary information summarized below presents the results of
natural gas and oil activities in accordance with SFAS No. 69, "Disclosures
About Oil and Gas Producing Activities."
(1) Production Costs
The following table presents the costs incurred relating to natural gas
and oil production activities:
<TABLE>
<CAPTION>
June 30 July 31,
1998 1997
------------- --------------
<S> <C> <C>
Capitalized costs at:
Capitalized costs................................................................ $ 40,739,334 $ 35,526,072
Accumulated depreciation and depletion........................................... (16,598,203) (14,694,388)
-------------- --------------
Net capitalized costs........................................................ $ 24,141,131 $ 20,831,684
============== ==============
Costs incurred during the period ended:
Property acquisition costs - proved undeveloped properties....................... $ 234,985 $ 94,375
============== ==============
Developed costs.................................................................. $ 4,978,277 $ 3,503,913
============== ==============
Property acquisition costs include costs to purchase, lease or
otherwise acquire a property. Development costs include costs to gain access to
and prepare development well locations for drilling, to drill and equip
development wells and to provide facilities to extract, treat, gather and store
oil and gas.
June 30 July 31,
1998 1997
------------- --------------
Capitalized gathering line costs at:
Capitalized costs................................................................ $ 4,754,778 $ 4,716,525
Accumulated depreciation and depletion........................................... (3,078,929) (2,979,430)
-------------- --------------
Net capitalized costs.......................................................... $ 1,675,849 $ 1,737,095
============== ==============
Costs incurred during the period ended:
Gathering line additions......................................................... $ 288,434 $ 474,350
============== ==============
(2) Results of Operations for Producing Activities
The following table presents the results of operations related to
natural gas and oil production for the eleven months ended June 30, 1998 and the
year ended July 31, 1997:
Eleven
Months Ended Year Ended
June 30, 1998 July 31, 1997
-------------- -------------
Revenues............................................................................ $ 5,042,953 $ 5,709,065
Production Costs.................................................................... (576,874) (518,224)
Depreciation and depletion.......................................................... (2,161,354) (2,759,182)
Income tax expense.................................................................. (674,593) (689,485)
-------------- --------------
Results of operations from producing activities................................ $ 1,630,132 $ 1,742,174
============== ==============
</TABLE>
Depreciation, depletion and amortization of natural gas and oil
properties are provided on the unit-of-production method and gathering lines are
depreciated over 10 years.
69
<PAGE>
THE ATLAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) - (Continued)
(3) Reserve Information
The information presented below represents estimates of proved natural
gas and oil reserves. Proved developed reserves represent only those reserves
expected to be recovered from existing wells and support equipment. Proved
undeveloped reserves represent proved reserves expected to be recovered from new
wells after substantial development costs are incurred. Substantially all
reserves are located in Eastern Ohio and Western Pennsylvania.
<TABLE>
<CAPTION>
June 30, 1998 July 31, 1997
-------------------------- ----------------------------
Natural Gas Oil Natural Gas Oil
(Mcf) (Barrels) (Mcf) (Barrels)
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of period................................... 112,040,540 104,931 67,802,983 106,278
Revision of previous estimates........................ 4,538,943 29,241 2,472,316 2,523
Extensions, discoveries and other additions........... 17,606,758 61,002 57,973,911 -
Production............................................ (2,655,365) (7,647) (2,658,946) (3,870)
Sales of minerals in place............................ (17,709,377) - (13,549,724) -
---------- ----------- ------------- ---------
End of period......................................... 113,821,499 187,527 112,040,540 104,931
============= =========== ============= =========
Proved developed reserves:
Beginning of period................................... 31,084,190 104,931 31,220,113 106,278
============= =========== ============= =========
End of period......................................... 41,781,119 187,527 31,084,190 104,931
============= =========== ============= =========
</TABLE>
(4) Standard Measure of Discounted Future Cash Flows
Management cautions that the standard measure of discounted future cash
flows should not be viewed as an indication of the fair market value of natural
gas and oil producing properties, nor of the future cash flows expected to be
generated therefrom. The information presented does not give recognition to
future changes in estimated reserves, selling prices or costs and has been
discounted at an arbitrary rate of 10%. Estimated future net cash flows from
natural gas and oil reserves based on selling prices and costs at June 30, 1998
and July 31, 1997 price levels are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Future gas inflows.................................................................. $ 307,132,350 $ 291,945,690
Future production costs............................................................. (60,321,170) (47,469,590)
Future development costs............................................................ (69,941,230) (68,028,140)
Future income tax expense........................................................... (50,664,334) (52,958,050)
---------------- ---------------
Future net cash flow................................................................ 126,205,616 123,489,910
10% annual discount for estimated timing of cash flows.............................. (93,549,205) (88,952,400)
---------------- ---------------
Standard measure of discounted future net cash flows................................ $ 32,656,411 $ 34,537,510
=============== ===============
</TABLE>
Summary of changes in the standardized measure of discounted future net
cash flows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Sales of gas and oil produced - net................................................. $ (4,024,581) $ (3,900,673)
Net changes in prices, production and development costs............................. (4,884,526) 395,917
Extensions, discoveries, and improved recovery, less related costs.................. 2,396,461 9,931,040
Development costs incurred.......................................................... 4,215,402 3,532,100
Revisions of previous quantity estimates............................................ 2,864,965 1,400,886
Sales of minerals in place.......................................................... (3,033,660) (1,255,106)
Accretion of discount............................................................... 2,258,881 2,161,723
Net change in income taxes.......................................................... (1,674,041) (1,448,161)
--------------- ---------------
Net (decrease) increase.......................................................... (1,881,099) 10,817,726
Beginning of period................................................................. 34,537,510 23,719,784
--------------- ---------------
End of period....................................................................... $ 32,656,411 $ 34,537,510
=============== ===============
</TABLE>
70
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
December, 31
1999
-----------
ASSETS
<S> <C>
Cash and cash equivalents................................................................................. $ 693
Accounts and other receivables............................................................................ 1,079
Prepaid expenses and other current assets................................................................. 86
-----------
Total current assets................................................................................. 1,858
Property, plant and equipment - at cost
Oil and gas properties (successful efforts)............................................................ 26,249
Gas gathering and transmission facilities.............................................................. 1,702
Other.................................................................................................. 1,130
-----------
29,081
Less - accumulated depreciation, depletion and amortization............................................... (17,368)
-----------
Net property, plant and equipment.................................................................... 11,713
Contract rights and other intangibles..................................................................... 1,326
Goodwill (net)............................................................................................ 322
-----------
$ 15,219
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable - trade.................................................................................. $ 644
Accrued liabilities....................................................................................... 154
Current maturities of long-term debt...................................................................... 417
-----------
Total current liabilities............................................................................ 1,215
Advance from Parent....................................................................................... 790
Long-term debt, net of current maturities................................................................. 4,583
Commitments and contingencies............................................................................. -
Stockholder's equity
Common stock, $.01 par value, 100 shares authorized and outstanding.................................... 1
Additional paid-in capital............................................................................. 2,169
Retained earnings...................................................................................... 6,461
-----------
Total stockholder's equity........................................................................... 8,631
-----------
$ 15,219
===========
</TABLE>
See accompanying notes to consolidated financial statements
71
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
1999 1998
----------- ---------
<S> <C> <C>
Revenues:
Oil and gas production.................................................................... $ 1,314 $ 1,082
Well services............................................................................. 435 485
Interest and other income................................................................. 16 4
----------- -----------
1,765 1,571
Costs and Expenses:
Oil and gas production.................................................................... 718 428
Well services............................................................................. 300 264
Exploration............................................................................... 29 60
General and administrative................................................................ 148 196
Depreciation, depletion and amortization.................................................. 354 350
Interest.................................................................................. 92 9
----------- -----------
1,641 1,307
----------- -----------
Income from operations....................................................................... 124 264
Provision for income taxes................................................................... 38 81
----------- -----------
Net income................................................................................... $ 86 $ 183
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
71
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................................................... $ 86 $ 183
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization.................................................. 354 350
Property impairments and abandonments..................................................... 2 -
Amortization of deferred finance costs.................................................... - 2
Change in operating assets and liabilities:
Increase in accounts receivable and other current assets.................................. (112) (237)
Decrease in accounts payable and accrued liabilities...................................... (126) (307)
----------- ----------
Cash provided by (used in) operating activities......................................... 204 (9)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures......................................................................... (40) (322)
Proceeds from sale of assets................................................................. 11 1
Increase in other assets..................................................................... 2 (10)
----------- ----------
Cash used in investing activities....................................................... (27) (331)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (to) from parent.................................................................... (120) 590
----------- ----------
Cash provided by (used in) financing activities......................................... (120) 590
Increase in cash............................................................................. 57 250
Cash at the beginning of period.............................................................. 636 652
----------- ----------
Cash at the end of period.................................................................... $ 693 $ 902
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
72
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - MANAGEMENT'S OPNION REGARDING INTERIM FINANCIAL STATEMENTS
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the results of operations
for the interim periods included herein have been made.
The accounting policies followed by the Company, as set forth in Note 2
to the Company's consolidated financial statements for the year ended September
30, 1999 included elsewhere in this form 10K.
NOTE 2 - CASH FLOWS
For the purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Information for the three months ended December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1999 1998
----------- ---------
<S> <C> <C>
Cash paid for:
Interest.................................................................................. $ 92 $ 4
======= ======
Income taxes.............................................................................. $ 0 $ 0
======= ======
</TABLE>
74
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Resource America, Inc.
We have audited the accompanying consolidated balance sheets of
Resource Energy, Inc. and subsidiaries as of September 30, 1999 and 1998, and
the related consolidated statements of operations, changes in stockholder's
equity and cash flows for each of the three years in the period ended September
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Resource Energy, Inc. and subsidiaries as of September 30, 1999 and 1998, and
the consolidated results of their operations and their consolidated cash flows
for each of the years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
November 17, 1999
Except for Note 7
as to which the
date is January 28, 2000
75
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
1999 1998
------------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents................................................................. $ 636 $ 652
Accounts and other receivables............................................................ 998 1,180
Inventories............................................................................... 47 108
Prepaid expenses and other current assets................................................. 8 39
------------- -----------
Total current assets................................................................... 1,689 1,979
Property, plant and equipment - at cost
Oil and gas properties (successful efforts)............................................... 26,364 25,858
Gas gathering and transmission facilities................................................. 1,673 1,630
Other..................................................................................... 1,122 1,085
------------- -----------
29,159 28,573
Less - accumulated depreciation, depletion and amortization............................... (17,168) (16,053)
------------- -----------
Net property, plant and equipment...................................................... 11,991 12,520
Contract rights and other intangibles..................................................... 1,370 1,552
Goodwill (net)............................................................................ 332 353
------------- -----------
$ 15,382 $ 16,404
============= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable - trade.................................................................. $ 849 $ 811
Accrued liabilities....................................................................... 78 28
Current maturities of long-term debt...................................................... 367 463
------------- -----------
Total current liabilities.............................................................. 1,294 1,302
Commitments and contingencies............................................................. - -
Advance from Parent....................................................................... 910 7,428
Long-term debt, net of current maturities................................................. 4,633 -
Stockholder's equity
Common stock, $.01 par value, 100 shares authorized and outstanding.................... 1 1
Additional paid-in capital............................................................. 2,169 2,169
Retained earnings...................................................................... 6,375 5,504
------------- -----------
Total stockholder's equity........................................................... 8,545 7,674
------------- -----------
$ 15,382 $ 16,404
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements
76
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Oil and gas production....................................................... $ 4,552 $ 4,682 $ 3,936
Well services................................................................ 1,731 2,053 1,672
Interest and other income.................................................... 51 57 28
----------- ----------- -----------
6,334 6,792 5,636
Costs and Expenses
Oil and gas production....................................................... 1,891 2,022 1,635
Well services................................................................ 994 1,136 908
Exploration.................................................................. 162 503 187
General and administrative................................................... 780 694 205
Depreciation, depletion and amortization..................................... 1,344 1,273 1,202
Interest..................................................................... 11 40 20
Other ....................................................................... 64 22 -
----------- ----------- -----------
5,246 5,690 4,157
----------- ------------ -----------
Income from operations.......................................................... 1,088 1,102 1,479
Provision for income taxes...................................................... 217 336 450
----------- ----------- -----------
Net income...................................................................... $ 871 $ 766 $ 1,029
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
77
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED SEPTEMBER 30,
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Paid-In Retained Stockholder's
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996.................... 100 $ 1 $ 2,169 $ 3,709 $ 5,879
Net Income.................................... - - - 1,029 1,029
------- ------- --------- ---------- -----------
Balance at September 30, 1997.................... 100 $ 1 $ 2,169 $ 4,738 $ 6,908
Net Income.................................... - - - 766 766
------- ------- --------- ---------- -----------
Balance at September 30, 1998.................... 100 $ 1 $ 2,169 $ 5,504 $ 7,674
Net Income.................................... - - - 871 871
------- ------- --------- ---------- -----------
Balance at September 30, 1999.................... 100 $ 1 $ 2,169 $ 6,375 $ 8,545
======= ======= ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
78
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income...................................................................... $ 871 $ 766 1,029
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization..................................... 1,344 1,273 1,202
(Gain) loss on sale of assets................................................ (8) (15) 8
Property impairments and abandonments........................................... (6) 260 38
Amortization of deferred finance costs.......................................... 7 8 -
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable and other current assets.......... 274 (232) (203)
Increase in accounts payable and accrued liabilities......................... 88 275 117
----------- ----------- ----------
Cash provided by operating activities...................................... 2,570 2,335 2,191
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid in business acquisition........................................... - - (1,226)
Capital expenditures............................................................ (668) (2,094) (639)
Proceeds from sale of assets.................................................... 47 145 136
Decrease (increase) in other assets............................................. 16 (67) (110)
----------- ----------- ----------
Cash used in investing activities.......................................... (605) (2,016) (1,839)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (to) from parent....................................................... (6,518) 651 (436)
Payment on long term debt....................................................... (463) (462) -
Borrowings on revolving credit loan............................................. 5,000 - -
Increase in other assets........................................................ - (15) -
----------- ----------- ----------
Cash (used in) provided by financing activities............................ (1,981) 174 (436)
(Decrease) increase in cash..................................................... (16) 493 (84)
Cash at the beginning of period................................................. 652 159 243
----------- ----------- ----------
Cash at the end of period....................................................... $ 636 $ 652 $ 159
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
79
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Resource Energy, Inc. and subsidiaries ("REI" or the "Company") are
energy finance and production companies, engaged in the exploration,
development, production and transportation of natural gas and oil primarily in
the Appalachian Basin Area. REI was incorporated in Delaware in 1993 and is a
wholly-owned subsidiary of Resource America, Inc. ("RAI" or "Parent") which is a
publicly traded company (trading under the symbol REXI on the NASDAQ system)
operating in the real estate finance, leasing and energy business sectors.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries and its pro rata share of assets and
liabilities, income and expenses of the partnerships in which it has an
interest. All material intercompany transactions have been eliminated.
Use of Estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Inventories
Inventories, consisting of oil and gas field materials and supplies,
are stated at the lower of cost or market. Cost is determined by the first-in
first-out method.
Oil and Gas Properties
The Company follows the successful efforts method of accounting.
Accordingly, property acquisition costs, costs of successful exploratory wells,
all development costs, and the cost of support equipment and facilities are
capitalized. Costs of unsuccessful exploratory wells are expensed when such
wells are determined to be nonproductive. The costs associated with drilling and
equipping wells not yet completed are capitalized as uncompleted wells,
equipment and facilities. Geological and geophysical costs and the costs of
carrying and retaining undeveloped properties, including delay rentals, are
expensed as incurred.
Production costs, overhead and all exploration costs other than costs
of exploratory drilling are charged to expense as incurred.
Unproved properties are assessed periodically to determine whether
there has been a decline in value and, if such decline is indicated, a loss will
be recognized. The Company compares the carrying value of its oil and gas
producing properties to the estimated future cash flow, net of applicable income
taxes, from such properties in order to determine whether their carrying values
should be reduced. No adjustment was necessary at September 30, 1999.
On an annual basis, the Company estimates the costs of future
dismantlement, restoration, reclamation, and abandonment of its gas and oil
producing properties. Additionally, the Company evaluates the estimated salvage
value of equipment recoverable upon abandonment. At September 30, 1999 and 1998,
the Company's evaluation of equipment salvage values was greater than or equal
to the estimated costs of future dismantlement, restoration, reclamation and
abandonment.
80
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES - (Continued)
Depreciation, Depletion and Amortization
Proved developed oil and gas properties, which include intangible
drilling and development costs, tangible well equipment, and lease-hold costs,
are amortized on the unit-of-production method using the ratio of current
production to the estimated aggregate proved developed oil and gas reserves.
Property, plant and equipment, other than oil and gas properties, is
stated at cost. Depreciation is provided using the straight-line method over the
following estimated useful lives once the asset is put into productive use:
Gas gathering and transmission facilities......Up to 25 years
Building....................................... 25 years
Other equipment................................ 3 - 7 years
Long-Lived Assets
Contract rights and other intangibles consist of contracts purchased to
operate wells and manage limited partnerships. Operating and management
contracts are amortized on a straight-line basis over the lives of the
respective wells (up to 13 years).
Goodwill is the excess of cost over the fair value of net assets
acquired and is amortized by the straight-line method over 10 to 15 years. The
Company evaluates both contract rights and goodwill periodically to determine
potential impairment by comparing the carrying value to the undiscounted
estimated future cash flows of the related assets.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined that an asset's estimated future cash flows
will not be sufficient to recover its carrying amount, an impairment charge will
be recorded to reduce the carrying amount for that asset to its estimated fair
value.
Federal Income Taxes
The Company is included in the consolidated federal income tax return
of RAI. The Company records a provision for federal income taxes in an amount
equal to the product of its pre-tax book income less any permanent tax
differences, and RAI's incremental federal tax rate. Separate company state tax
returns are filed in those states in which the Company is registered to do
business.
Fair Value of Financial Instruments
For cash and cash equivalents, receivables and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments. For long-term debt, the fair value approximates historically
recorded cost, since interest rates approximate market.
81
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES - (Continued)
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------
1999 1998 1997
---------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Interest .................................................................... $ 20 $ 43 $ -
========== ========= =========
Income Taxes................................................................. $ - $ - $ -
========== ========= =========
</TABLE>
New Accounting Standards
Effective October 1, 1998, the Company became subject to the provisions
of Statement of Financial Accounting Standards No. 130 (SFAS 130). SFAS 130,
"Reporting Comprehensive Income" requires disclosure of comprehensive income and
its components. Comprehensive income includes net income and all other changes
in 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". The Company has no material
elements of comprehensive income, other than net income to report.
In June 1998 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging. "SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its consolidated
balance sheet and to measure those instruments at fair value. The Company is
required to adopt SFAS 133 effective October 1, 2000. The effect of adopting
SFAS 133 on the Company's consolidated financial position, results of operations
and cash flows will be dependent on the extent of future hedging activities and
fluctuations in interest rates.
NOTE 3 - RELATED PARTIES
The Company conducts certain energy activities through, and a
substantial portion of its revenues are attributable to, limited partnerships
("Partnerships"). The Company serves as general partner of the Partnerships and
assumes customary rights and obligations for the Partnerships. As the general
partner, the Company is liable for Partnership liabilities and can be liable to
limited partners if it breaches its responsibilities with respect to the
operations of the Partnerships. The Company is entitled to receive management
fees, reimbursement for administrative costs incurred, and to share in the
Partnerships' revenue and costs and expenses according to the respective
Partnership agreements.
NOTE 4 - INCOME TAXES
A reconciliation between the statutory federal income tax rate and the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statutory tax rate........................................................ 35% 35% 34%
Statutory depletion....................................................... (12) (5) (4)
Tax credits............................................................... (3) - -
-------- ------- -------
20% 30% 30%
======= ======= =======
</TABLE>
82
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 - INCOME TAXES - (Continued)
As discussed in Note 2, the Company's federal income tax provision has
been an allocation from RAI, whose consolidated tax return includes the Company.
The provision allocated to the Company is not materially different from what the
total provision would have been had the Company filed a separate federal income
tax return.
RAI recorded current and deferred tax liabilities on its books and the
Company's allocation was settled through increases or decreases to the Advances
from Parent balance.
As discussed in Note 2, the Company's results are included in RAI's
consolidated federal income tax return. The components of the net deferred tax
liability at September 30, 1999 presented below are calculated as if the Company
filed a separate tax return:
<TABLE>
<CAPTION>
September 30,
----------------------
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment basis differences.................................... $ 2,086 $ 2,024
Other items, net................................................................... - 7
--------- ---------
Net deferred tax liability............................................................ $ 2,086 $ 2,031
========= =========
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
September 30,
1999 1998
--------- ---------
(in thousands)
Unsecured note payable, due in two equal annual installments of principal and
interest beginning March 1998, interest at LIBOR
(5.79% at September 30, 1998)...................................................... $ - $ 463
Revolving credit facility, secured by certain oil and gas properties and pipelines;
Interest rates ranging from 7.0625% to 9.0% due November 2002...................... 5,000 -
--------- ---------
5,000 463
Less current maturities............................................................... (367) (463)
--------- ---------
$ 4,633 $ -
========= =========
</TABLE>
The Company along with other energy affiliates owned by RAI maintains a
$45.0 million credit facility (with $5.0 million of permitted draws available to
the Company) at PNC Bank ("PNC"). The facility is cross collateralized by the
assets of all of the energy affiliates, and a breach of the loan agreement by
any of the energy affiliates would constitute a default by the Company. The
revolving credit facility has a term ending in November 2002 and bears interest
at one of two rates (elected at borrower's option) which increase as the amount
outstanding under the facility increases: (i) PNC prime rate plus between 0 to
75 basis points, or (ii) the Eurodollar rate plus between 150 to 225 basis
points. The credit facility contains certain financial covenants and imposes the
following limits: (a) The Company's exploration expense can be no more than 20%
of capital expenditures plus exploration expense, without PNC's consent: (b)
limitations on indebtedness, sales, leases or transfers of property without
PNC's consent: and (c) the maintenance of certain financial ratios. Borrowings
under the credit facility are collateralized by substantially all the oil and
gas properties and pipelines of the Company. At September 30, 1999, long-term
debt maturing over the next five fiscal years is as follows: (in thousands):
2000 - $367; 2001 - $183; 2002 - $-0- and 2003 - $4,450.
83
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Results of operations for oil and gas producing activities:
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------
1999 1998 1997
---------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Revenues .................................................................... $ 4,552 $ 4,682 $ 3,936
Production costs............................................................. (1,891) (2,022) (1,636)
Exploration expenses......................................................... (162) (503) (187)
Depreciation, depletion, and amortization.................................... (808) (809) (712)
Income taxes................................................................. (439) (263) (197)
-------- --------- ---------
Results of operations for producing activities............................... $ 1,252 $ 1,085 $ 1,204
======== ========= =========
Capitalized Costs Related to Oil and Gas Producing Activities
The components of capitalized costs related to the Company's oil and
gas producing activities (less impairment reserve of $10,000 in fiscal 1999,
$20,000 in fiscal 1998 and $28,000 in fiscal 1997) are as follows:
Years Ended September 30,
------------------------------------
1999 1998 1997
---------- ---------- --------
(in thousands)
Proved properties............................................................ $ 24,669 $ 24,159 $ 23,254
Unproved properties.......................................................... 825 804 846
Pipelines, equipment and other interests..................................... 2,543 2,525 2,445
-------- --------- ---------
Total................................................................... 28,037 27,488 26,545
Accumulated depreciation, depletion and amortization......................... (16,619) (15,611) (15,145)
-------- --------- ---------
Net capitalized costs........................................................ $ 11,418 $ 11,877 $ 11,400
======== ========= =========
Costs Incurred in Oil and Gas Producing Activities
The costs incurred by the Company in its oil and gas activities during
fiscal years 1999, 1998, and 1997 are as follows:
Years Ended September 30,
-------------------------------------
1999 1998 1997
---------- ---------- ---------
(in thousands)
Property acquisition costs:
Unproved properties....................................................... $ 6 $ 18 $ 321
Proved properties......................................................... 302 1,138 782
Exploration costs......................................................... 207 816 238
Development costs......................................................... 272 416 144
</TABLE>
Oil and Gas Reserve Information (unaudited)
The Company's estimates of net proved developed oil and gas reserves
and the present value thereof have been verified by Wright & Company, Inc. in
fiscal 1999 and 1998 and by E.E. Templeton & Associates, Inc. in fiscal 1997.
Both are independent petroleum engineering firms.
84
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) - (Continued)
The Company's oil and gas reserves are located within the United
States. There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future net revenues and the timing of
development expenditures. The reserve data presented represent estimates only
and should not be construed as being exact. In addition, the standardized
measure of discounted future net cash flows may not represent the fair market
value of the Company's oil and gas reserves or the present value of future cash
flows of equivalent reserves, due to anticipated future changes in oil and gas
prices and in production and development costs and other factors for which
effects have not been provided.
The standardized measure of discounted future net cash flows is
information provided for the financial statement user as a common base for
comparing oil and gas reserves of enterprises in the industry.
<TABLE>
<CAPTION>
Gas Oil
(mcf) (bbls)
----------- ----------
<S> <C> <C>
Balance at September 30, 1996....................................................... 12,852,274 310,020
Purchase of reserves in-place.................................................... 1,903,853 45,150
Current additions................................................................ 15,984 -
Sales of reserves in-place....................................................... (1,393) -
Revision to previous estimates................................................... 1,614,704 38,654
Production....................................................................... (1,227,887) (35,811)
----------- -----------
Balance at September 30, 1997....................................................... 15,157,535 358,013
Purchase of reserves in-place.................................................... 3,259,578 60,303
Current additions................................................................ 217,508 41,406
Sales of reserves in-place....................................................... (53,320) (2,523)
Revision to previous estimates................................................... 1,151,890 29,461
Production....................................................................... (1,485,008) (48,113)
---------- ----------
Balance at September 30, 1998....................................................... 18,248,183 438,547
Purchase of reserves in-place.................................................... 1,497,886 36,827
Current additions................................................................ - -
Sales of reserves in-place....................................................... - -
Revision to previous estimates................................................... (3,024,387) 34,069
Production....................................................................... (1,476,498) (56,463)
------------ ----------
Balance September 30, 1999.......................................................... 15,245,184 452,980
============ ==========
</TABLE>
85
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) - (Continued)
Presented below is the standardized measure of discounted future net
cash flows and changes therein relating to proved developed oil and gas
reserves. The estimated future production is priced at fiscal year-end prices.
The resulting estimated future cash inflows are reduced by estimated future
costs to develop and produce the proved developed reserves based on fiscal
year-end cost levels. The future net cash flows are reduced to present value
amounts by applying a 10% discount factor.
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------
1999 1998 1997
-------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Future cash inflows.......................................................... $ 49,594 $ 50,977 $ 42,634
Future production and development costs................................... (24,818) (24,530) (21,585)
Future income tax expense................................................. (4,848) (4,502) (2,740)
-------- --------- ---------
Future net cash flows........................................................ 19,928 21,945 18,309
Less 10% annual discount for estimated timing of cash flows............... (8,589) (10,251) (8,186)
-------- --------- ---------
Standardized measure of discounted future net cash flows..................... $ 11,339 $ 11,694 $ 10,123
======== ========= =========
The following table summarizes the changes in the standardized measure
of discounted future net cash flows from estimated production of proved
developed oil and gas reserves after income taxes.
Years Ended September 30,
-------------------------------------
1998 1997 1996
---------- ---------- ---------
(in thousands)
Balance, beginning of year................................................... $ 11,694 $ 10,123 $ 8,349
Increase (decrease) in discounted future net cash flows:
Sales and transfers of oil and gas net of related costs................... (2,661) (2,822) (2,411)
Net changes in prices and production costs................................ 1,096 171 512
Revisions of previous quantity estimates.................................. (1,909) 597 2,483
Extensions, discoveries, and improved recovery less related costs......... - 194 10
Purchases of reserves in-place............................................ 1,321 1,549 1,474
Sales of reserves in-place, net of tax effect............................. - (30) (1)
Accretion of discount..................................................... 1,399 1,012 997
Net change in future income taxes......................................... (195) (1,012) (14)
Other..................................................................... 594 1,912 (1,276)
-------- --------- ---------
Balance, end of year......................................................... $ 11,339 $ 11,694 $ 10,123
======== ========= =========
</TABLE>
NOTE 7 - SUBSEQUENT EVENT
The Company sold its gas gathering and transmission facilities to Atlas
Pipeline Partners, L.P., a newly formed master limited partnership. Atlas
Pipeline Partners, L.P. was formed by subsidiaries of RAI. In connection with
the sale of its gas gathering and transmission facilities, the Company entered
into a master gas gathering agreement with the Partnership, whereby, the Company
together with the two other subsidiaries of RAI, will be obligated to pay a fee
ranging from the greater of $.35 per mcf or $.40 per mcf and 16% of the gross
sales price of the natural gas transported.
86
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 - SUBSEQUENT EVENT - (Continued)
In connection with the sale of its gas gathering and transmission
facilities, the Company, together with two other subsidiaries of RAI, has signed
an omnibus agreement with Atlas Pipeline Partners, L.P., requiring them to:
o Connect wells within 2,500 feet of one of Atlas Pipeline Partners,
L.P.'s gathering systems to that system;
o Drill and connect a minimum of 225 wells to Atlas Pipeline
Partners, L.P.'s gathering systems before 2003;
o Provide Atlas Pipeline Partners, L.P. with construction financing
for new gathering systems or gathering system extensions of $1.5
million per year for five years.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 PIPELINE PARTNERS, L.P. (Registrant)
April 25, 2000 By: /s/ Edward E. Cohen
-------------------
Chairman of the Managing Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of December 31, 1999.
/s/ Edward E. Cohen Chairman of the Managing Board
- ------------------------------------
EDWARD E. COHEN
/s/ Jonathan Z. Cohen Vice Chairman of the Managing Board
- ------------------------------------
JONATHAN Z. COHEN
/s/ Tony C. Banks President and Managing Board Member
- ------------------------------------
TONY C. BANKS
/s/ Michael L. Staines Chief Operating Officer, Secretary and
- ------------------------------------ Managing Board Member
MICHAEL L. STAINES
/s/ William R. Seiler Vice President and Controller
- ------------------------------------
WILLIAM R. SEILER
/s/ Jeffrey C. Simmons Vice President
- ------------------------------------
JEFFREY C. SIMMONS
/s/ Frank P. Carolas Vice President
- ------------------------------------
FRANK P. CAROLAS
/s/ Nancy J. McGurk Chief Accounting Officer
- ------------------------------------
NANCY J. McGURK
/s/ William R. Bagnell Managing Board Member
- ------------------------------------
WILLIAM R. BAGNELL
/s/ George C. Beyer, Jr. Managing Board Member
- ------------------------------------
GEORGE C. BEYER, JR.
/s/ William P. Nicoletti Managing Board Member
- ------------------------------------
WILLIAM P. NICOLETTI
88
