SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1995
Commission File Number 0-10763
AlaTenn Resources, Inc.
(Exact Name of Registrant as Specified in its Charter)
Alabama 63-0821819
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Post Office Box 918, Florence, Alabama 35631
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (205) 383-3631
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934, during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class June 30, 1995
Common Stock, Par Value $0.10 per share 2,115,484 shares
PART I - FINANCIAL INFORMATION
ALATENN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(in thousands, except except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Industrial sales $ 8,732 $ 10,203 $ 17,618 $ 23,455
Resale sales 1,948 1,520 5,654 4,676
Transportation 2,481 2,519 5,774 5,813
Off-system sales and other 939 38 4,315 343
Health Care Products 2,277 2,683 5,570 2,683
TOTAL OPERATING REVENUES 16,377 16,963 38,931 36,970
COST OF GOODS SOLD 12,527 13,132 30,227 29,651
GROSS MARGIN 3,850 3,831 8,704 7,319
OTHER OPERATING EXPENSES:
Operations 1,547 1,649 3,646 3,022
Maintenance 66 85 126 166
Depreciation and amort. 300 261 600 390
Other taxes 96 82 190 170
2,009 2,077 4,562 3,748
OPERATING INCOME 1,841 1,754 4,142 3,571
OTHER INCOME:
Interest and investment inc 127 45 238 230
Other income 53 (5) 99 (8)
180 40 337 222
INTEREST EXPENSE 42 112 100 135
INCOME BEFORE TAXES 1,979 1,682 4,379 3,658
INCOME TAXES 718 586 1,587 1,274
NET INCOME $ 1,261 $ 1,096 $ 2,792 $ 2,384
EARNINGS PER SHARE: $ 0.60 $ 0.52 $ 1.32 $ 1.13
DIVIDENDS PER SHARE $ 0.30 $ 0.30 $ 0.60 $ 0.60
AVERAGE SHARES OUTSTND. 2,115,948 2,111,284 2,115,717 2,111,284
The accompanying notes to consolidated financial statements are
an integral part of these statements.
ALATENN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<CAPTION>
June 30, December 31,
1995 1994
(In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 3,178 $ 440
Accounts receivable, including
$2,426,000 in 1995 and $2,462,000 in 1994
of take-or-pay settlement costs 9,373 10,643
Materials and supplies 504 521
Inventories 529 745
Prepaid expenses and other 467 317
14,051 12,666
PROPERTY, PLANT AND EQUIP:
Original cost 33,230 33,123
Less - Accumulated depreciation
and amortization 15,322 15,117
17,908 18,006
DEFERRED CHARGES:
Take-or-pay settlement costs 827 2,197
Patents 5,724 5,944
Goodwill 2,709 2,765
Other 2,204 2,159
11,464 13,065
$ 43,423 $ 43,737
(Continued)
The accompanying notes to consolidated financial statements
are an integral part of these statements.
ALATENN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SHAREHOLDERS' EQUITY AND LIABILITIES
<CAPTION>
June 30, December 31,
1995 1994
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 203 $ 203
Accounts payable and accrued liabilities,
including $277,572 in 1995 and $741,000
in 1994 of take-or-pay settlement costs 9,234 10,010
Accrued income and other taxes 659 621
Accrued interest 27 15
10,123 10,849
LONG-TERM DEBT, LESS
LESS CURRENT MATURITIES 1,711 2,682
OTHER LIAB. AND DEF. CR.:
Accumulated deferred income taxes 1,366 1,299
Unamortized investment tax credits 250 256
Other 1,347 1,541
2,963 3,096
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $0.10
per share, authorized 10,000,000
shares, issued 2,280,000 shares 228 228
Paid-in capital 6,047 6,049
Retained earnings 24,248 22,725
Treasury shares, at cost (1,897) (1,892)
Total shareholders' equity 28,626 27,110
$ 43,423 $ 43,737
The accompanying notes to consolidated financial statements
are an integral part of these statements.
ALATENN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
1995 1994
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPER. ACTIVITIES:
Net income $ 2,792 $ 2,384
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 906 430
Deferred income taxes 68 54
Take-or-pay recoveries (net of expenditures) 1,232 833
Other (397) (348)
4,601 3,353
Change in current assets and liab.:
(Inc.) decr. in accounts receivable 1,431 (599)
(Inc.) decr. in other current assets 84 (564)
Increase (decrease) in accts. pay. (776) 2,910
Increase in other current liabilities 27 (328)
5,367 4,772
CASH FLOWS FROM
INVESTING ACTIVITIES:
Property, plant and equip. additions (383) (13,558)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Decrease in long-term indebtedness (971) 9,160
Repurchase of common shares (5) 0
Cash dividends paid (1,270) (1,267)
(2,246) 7,893
Net increase (decrease) in cash and
temporary cash investments 2,738 (893)
Cash and temporary cash
investments, beginning of period 440 8,761
Cash and temporary cash
investments, end of period $ 3,178 $ 7,868
Cash paid for:
Interest (net of capitalized amounts) $ 88 $ 21
Income taxes (net of refunds) 1,219 1,729
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
ALATENN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management, all adjustments necessary for a fair
presentation of results of operations for the periods presented
have been included in the accompanying unaudited consolidated
financial statements of AlaTenn Resources, Inc. (the Company).
Such adjustments consist of normal recurring items. The
accompanying financial statements have been prepared in accordance
with the instructions to Form 10-Q and include only the information
and notes required by such instructions. Accordingly, the
consolidated financial statements and notes thereto should be read
in conjunction with the financial statements and notes included in
the Company's 1994 Annual Report on Form 10-K.
Because of the seasonal nature of certain of the Company's
operations, among other factors, the results of operations for the
periods presented are not necessarily indicative of the results
which will be achieved for an entire year.
2. Purchase of Ryder International Corporation
On April 19, 1994, the Company, purchased the business of Ryder
International Corporation (Ryder) by acquiring its operating
assets, including plant, equipment, inventory, patents and other
intangibles but excluding cash and receivables, and assuming
substantially all of its liabilities. The Company paid to Ryder,
including post-closing adjustments, $11.1 million in cash, issued
a promissory note in the principal amount of $1.0 million and
assumed liabilities totaling $2.2 million. To fund the cash
portion of the purchase price, the Company used available cash and
borrowings on a revolving loan agreement with a bank group. As of
June 30, 1995, the Company's remaining indebtedness associated with
this acquisition was $1.9 million.
ALATENN RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results For The Three Months Ended June 30, 1995
The Company's consolidated net income for the quarter ended June
30, 1995 was $1,261,000 or $.60 per share, compared with $1,096,000
or $.52 per share, for the second quarter of 1994. The earnings
per share computations are based on shares outstanding of 2,115,948
in 1995 and 2,111,284 in 1994.
Consolidated revenues of $16.4 million for the second quarter of
1995 were 4% lower than revenues of $17 million for the second
quarter of 1994. The decrease in revenues in the second quarter of
1995 was due primarily to lower health care product revenues and a
14% decrease in spot market natural gas prices which more than
offset higher sales volumes for the Company's natural gas marketing
subsidiary.
Gross margin of $3.8 million in the second quarter of 1995 was
approximately the same as that in the comparable period in 1994.
Lower margins in the health care products segment due to lower
revenues were offset by higher natural gas marketing and
transmission margins.
The cost of goods sold was $12.5 million for the second quarter of
1995, a 5% decrease from the same period in 1994. This decrease
was consistent with the changes in revenues referred to above.
The Company's operations and maintenance expenses of $1.6 million
for the second quarter of 1995 were $.1 million lower than in the
second quarter of 1994. This decrease was attributable primarily to
the capitalization of certain operating costs associated with the
construction of a new oxygen pipeline.
Depreciation and amortization expense of $.3 million for the second
quarter of 1995 was 15% greater than for the comparable period in
the prior year due primarily to the acquisition of the business of
Ryder.
Interest and other income of $180,000 in the second quarter of 1995
was $140,000 greater than in the second quarter of 1994 due
primarily to a favorable adjustment related to certain customers in
the current quarter and an adverse adjustment to an investment
account in the prior-year period.
Interest expense of $42,000 in the second quarter of 1995 was
$70,000 lower than in the comparable prior-year period due to less
interest this year due to the reduction of debt related to the
acquisition of the business of Ryder in the prior-year period.
Income taxes in the second quarter of 1995 were $132,000 greater
than in the comparable period in the prior year due primarily to
the increase in income in the current period.
Results For The Six Months Ended June 30, 1995
The Company's consolidated net income for the six months ended June
30, 1995 was $2,792,000 or $1.32 per share compared with $2,384,000
or $1.13 per share for the first six months of 1994. The earnings
per share computations are based on shares outstanding of 2,115,717
in 1995 and 2,111,284 in 1994.
Consolidated revenues of $38.9 million for the first six months of
1995 were 5% higher than revenues of $37.0 million for the first
six months of 1994. This increase in revenues in the first six
months of 1995 was primarily due to the inclusion of health care
product revenues for the entire six month period in the current
year and to higher sales volumes by the Company's natural gas
marketing subsidiary partially offset by a decrease in natural gas
prices.
Gross margin of $8.7 million was $1.4 million or 19% higher than in
the comparable prior-year period. This increase in margin
resulted primarily from the inclusion of the margin on our health
care products subsidiary for the full year-to-date period in 1995
compared to the inclusion of health care product margins for only
a portion of the same period in 1994 due to the acquisition of the
business of Ryder in April 1994.
The Company's consolidated costs of goods sold of $30.2 million for
the first six months of 1995 was 2% higher than the cost of goods
sold for the same period in 1994. This increase in cost of goods
sold was due to the inclusion of our health care products
subsidiary for the full six-month period in 1995 compared to only
three months in the same period in the prior year and increased
natural gas sales volumes for the Company's natural gas marketing
subsidiary partially offset by lower spot natural gas pricing.
The Company's operations and maintenance expenses of $3.8 million
were 18% higher for the first six months of 1995 compared with the
first six months of 1994. This increase was primarily attributable
to the inclusion of our health care products subsidiary's operating
expenses for the full six-month period in 1995 compared to the
inclusion for only three months in the same period in 1994.
Depreciation and amortization expense increased $210,000 in the
first half of 1995 compared with the first half of 1994 due to the
inclusion of our health care products subsidiary's expenses for the
full six-month period in 1995 compared to the inclusion for only
three months in the same period in 1994.
Interest and other income of $337,000 in the first six months of
1995 increased by 52% compared to the first six months of 1994 due
primarily to a favorable adjustment related to certain customers,
income from a limited partnership in which the Company has an
ownership interest and an adverse adjustment on an investment
account in the prior-year period.
Interest expense of $100,000 in the first six months of 1995 was
$35,000 lower than in the first six months of 1994. The lower
interest expense in the current year period reflects the reduction
in the take-or-pay liability to Tennessee Gas Pipeline (TGP) and
lower interest expense on borrowings used in the purchase of the
business of Ryder.
Income tax expense was $313,000 higher in the first six months of
1995 compared with the first six months of 1994 primarily due to
the increase in income in the current year period.
Liquidity and Capital Resources
At June 30, 1995, the Company had no borrowings under its $20.0
million revolving loan facilities with a regional bank but had
long-term debt, including current maturities, of $1.9 million which
was related to its health care products subsidiary. The Company's
total debt as a percent of total capitalization at June 30, 1995
was 6%.
At June 30, 1995, the Company had cash and temporary cash
investments of $3.2 million compared with $.4 million at December
31, 1994. This increase was attributable to an increase in cash
flow from operations, temporary working capital changes and net
collections of receivables of take-or-pay costs by its interstate
pipeline subsidiary from its customers which more than offset the
payment of dividends, minor capital expenditures and the pay down
of all remaining debt on the revolving loan facility.
The Company believes that existing cash and temporary cash
investments, cash flows from operations, cash recoveries of
take-or-pay costs by the Company's interstate pipeline subsidiary from
its customers and borrowings available under the Company's
revolving loan agreement will be sufficient to fund operations,
take-or-pay obligations, repurchases of the Company's common shares
pursuant to the Company's stock repurchase program and budgeted
capital expenditures, including the previously announced 23-mile
oxygen pipeline, over the next two years.
<PAGE>
Regulatory Matters
As previously reported, the City of Decatur, Alabama, which
accounted for approximately 15% of Alabama-Tennessee Natural Gas
Company's (Alabama-Tennessee) pipeline throughput in the second
quarter of 1995, received authorization in November 1994 from the
FERC to connect directly to TGP via a proposed 37-mile pipeline to
be constructed and operated by Decatur, and thereby bypass Alabama-
Tennessee's facilities. While construction of the pipeline has not
begun, if Decatur bypasses Alabama-Tennessee's pipeline system,
Alabama-Tennessee would attempt to resell Decatur's capacity to
other Alabama-Tennessee customers and would seek permission of the
FERC to seek the recovery from Alabama-Tennessee's remaining
customers of revenues lost as a result of the by-pass. Three of
Decatur's major industrial customers have recently begun to receive
natural gas service directly from Alabama-Tennessee, thus bypassing
Decatur. These bypasses of Decatur have had the effect of reducing
the adverse impact that could result from Decatur's bypass of
Alabama-Tennessee's pipeline system.
Other
In early May 1995, the Company's Board of Directors authorized a
stock repurchase program under which the Company may purchase up to
100,000 shares of its common stock in open market or negotiated
transactions at such times and at such prices as management may
from time to time decide.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments during the second quarter
of 1995 in any of the Company's legal proceedings as described in
the Company's Form 10-K for the year ended December 31, 1994.
For information regarding certain litigation filed during the first
quarter of 1995, see Item 1 of Part II in the Company Form 10-Q for
the period ended March 31, 1995. There were no material
developments during the second quarter of 1995 in such litigation.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of shareholders held on May 1, 1995, the
Company's shareholders voted to adopt an amendment to the Company's
Articles of Incorporation, as permitted by the recently revised
Alabama Business Corporation Act, to eliminate the liability of the
Company's directors to the Company and its shareholders for money
damages in the event of certain breaches of duty, with 1,671,897
shares voted for adoption of such amendment, 54,956 shares voted
against adoption of the amendment and 27,849 abstentions and broker
non-votes. At such meeting the Company's shareholders also
ratified the Board of Directors' appointment of Arthur Andersen LLP
as independent accountants, with 1,744,067 shares voted for
ratification, 5,244 shares voted against and 5,391 abstentions and
broker non-votes. The voting with respect to the nominees for
election as directors was as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
<S> <C> <C>
Jerry A. Howard 1,723,563 31,139
Roger F. Stebbing 1,737,965 16,737
John P. Stupp, Jr. 1,740,111 14,591
</TABLE>
The terms of the following directors of the Company continued after
the meeting: Emile A. Battat, Richard O. Jacobson, Jerome J.
McGrath, Hugh J. Morgan, Jr. and J. Kenneth Smith.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AlaTenn Resources, Inc.
(Registrant)
Date: August 14, 1995 s/s Jerry A. Howard
Jerry A. Howard
Chairman, President
& Chief Executive Officer
Date: August 14, 1995 s/s George G. Petty
George G. Petty
Vice President-Finance
& Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701288
<NAME> ALATENN RESOURCES, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 3,178
<SECURITIES> 0
<RECEIVABLES> 9,373
<ALLOWANCES> 0
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<PP&E> 33,230
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<BONDS> 1,914
<COMMON> 228
0
0
<OTHER-SE> 28,398
<TOTAL-LIABILITY-AND-EQUITY> 43,423
<SALES> 16,377
<TOTAL-REVENUES> 16,377
<CGS> 12,527
<TOTAL-COSTS> 12,527
<OTHER-EXPENSES> 2,009
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<INTEREST-EXPENSE> 42
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<INCOME-TAX> 718
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