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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File Number 0-10763
AlaTenn Resources, Inc.
(Exact Name of Registrant as Specified in its Charter)
Alabama 63-0821819
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Post Office Box 918, Florence, Alabama 35631
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (205) 383-3631
---------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (Par Value $0.10 Per Share)
----------------------------------------
(Title of Class)
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
--- ---
Estimated aggregate market value of the voting stock held by nonaffiliates of
the registrant at February 29, 1996 $40,261,717
Number of shares of Common Stock outstanding
at February 29, 1996 2,120,084 Shares
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. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV of this report incorporate by reference certain portions of
the Registrant's 1995 Annual Report to shareholders.
Part III of this report incorporates by reference the Registrant's Proxy
Statement relating to the 1996 annual meeting of shareholders.
<PAGE> 2
ALATENN RESOURCES, INC.
FORM 10-K
ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
PART I.
1. Business ............................................... 1
2. Properties ............................................. 12
3. Legal Proceedings ...................................... 13
4. Submission of Matters to a Vote of Security Holders .... 13
PART II.
5. Market for Registrant's Common Equity and
Related Shareholder Matters ..................... 16
6. Selected Financial Data ................................ 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 16
8. Financial Statements and Supplementary Data ............ 16
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ........... 16
PART III.
10. Directors and Executive Officers of the Registrant ..... 16
11. Executive Compensation ................................. 17
12. Security Ownership of Certain Beneficial Owners
and Management .................................. 17
13. Certain Relationships and Related Transactions ......... 17
PART IV.
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ............................. 18
</TABLE>
<PAGE> 3
ALATENN RESOURCES, INC.
PART I
Item 1 - Business
General
AlaTenn Resources, Inc. (AlaTenn or the Company) was incorporated in the
state of Alabama in 1982 in connection with a reorganization of
Alabama-Tennessee Natural Gas Company (Alabama-Tennessee) which was
founded in 1944 and which has been in operation since 1950. AlaTenn is a
diversified holding company which is engaged in two lines of business: (1)
pipeline and energy services and (2) medical and health care products.
During 1995, the Company was the sole owner of five natural gas
transmission companies, a natural gas marketing company, two natural gas
distribution companies, one company which is engaged in oil and gas
exploration through its participation in a limited partnership and a new
pipeline subsidiary, formed in 1994, to transport gaseous oxygen. The
Company also owns a manufacturer of medical and health care products and,
in 1995, formed a new subsidiary to market and distribute a new line of
medical products.
The Company's principal pipeline subsidiary, Alabama-Tennessee, is an
interstate natural gas pipeline company engaged in the transportation of
natural gas in the Tennessee Valley. Its main pipeline extends from
Selmer, Tennessee approximately 130 miles across northern Mississippi and
Alabama to Huntsville, Alabama. This system includes approximately 288
miles of pipeline and two compressor stations.
Because it is engaged in the transportation of natural gas in interstate
commerce, Alabama-Tennessee is a "natural gas company" as defined in the
Natural Gas Act of 1938. As such, it is subject to the jurisdiction of the
Federal Energy Regulatory Commission (FERC), which jurisdiction includes
the power to determine Alabama-Tennessee's maximum rates for the
transportation of natural gas for its customers, as well as the power to
authorize the construction and operation of certain new facilities.
Tennessee River Intrastate Gas Company, Inc. (TRIGAS), one of the
Company's intrastate pipeline subsidiaries, completed construction in 1990
of a 38-mile, 10-inch pipeline that extends from Barton, Alabama to
Courtland, Alabama. In 1990, TRIGAS entered into a long-term agreement to
transport natural gas to an industrial customer in the Courtland, Alabama
area. In 1993, this customer substantially increased its transportation
volume under its existing contract. In 1994, TRIGAS completed a one mile,
8-inch pipeline to transport natural gas to an industrial customer on a
fixed fee basis for a minimum period of ten years.
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AlaTenn Energy Marketing Company, Inc. (ATEMCO) is the Company's natural
gas marketing subsidiary. ATEMCO buys natural gas primarily on the spot
market and sells that natural gas to customers on the Company's interstate
and intrastate pipeline systems, as well as to off-system customers. As
part of its services, ATEMCO evaluates customers' supply requirements,
locates natural gas supplies and negotiates and manages contracts for
those customers. ATEMCO also can arrange for the use of its customers'
excess gas storage and transportation rights by other natural gas
transporters through capacity release transactions, generating savings for
its customers.
Two of the Company's subsidiaries, Central Gas Company (Central) and
Tennessee River Development Company (Tennessee River), operated natural
gas distribution systems in Alabama prior to May 3, 1991, when both
subsidiaries sold substantially all their distribution assets to the City
of Florence, Alabama. Since that time, both subsidiaries have transported
or sold natural gas to the City of Florence for resale to its customers.
Hardin County Gas Company (Hardin County), an AlaTenn distribution
subsidiary, served approximately 140 customers in Hardin County,
Tennessee. In early 1996, Hardin County sold substantially all of its
assets and is not currently active. In 1994, North Mississippi Natural
Gas Corporation, which is also an AlaTenn distribution subsidiary, sold
substantially all of its distribution assets to a former customer and is
not active at the current time.
Vulcan Oil and Gas Company (Vulcan) is a wholly owned subsidiary of
AlaTenn that is engaged in limited oil and natural gas production through
its participation as a limited partner in Lima Resources Associates
(Lima). Vulcan did not make any additional investments in Lima during
1995. As of December 31, 1992, the total investment in Lima had been
written off by the Company, and Vulcan is under no obligation to invest
any additional funds in the limited partnership. The Company does not
anticipate any significant income in the future from Lima's operations.
In recent years, changes in the nature of Alabama-Tennessee's business,
attributable in large part to significant regulatory changes in the
natural gas industry, contributed to the emergence of ATEMCO as the
Company's primary marketer of natural gas. Also, as a result of these
regulatory changes, Alabama-Tennessee's customers have utilized
Alabama-Tennessee to provide transportation services rather than sales
services and have utilized other companies, including ATEMCO, for the
purchase of their natural gas supplies. While this change in the nature
of its business has had an adverse impact on Alabama-Tennessee, ATEMCO has
benefitted from the open-access status of Alabama-Tennessee and other
pipelines. Also, TRIGAS contributed materially to the Company's earnings
in 1995, 1994 and 1993 as a result of transportation revenues derived from
deliveries through its pipeline.
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In 1994, the Company formed AlaTenn Pipeline Company Inc., which is party
to a contract with an industrial gas producer to construct and operate a
22-mile high pressure steel pipeline to transport gaseous oxygen in north
Alabama. Construction began in 1995 and the pipeline is expected to be
operational in the second quarter of 1996.
On April 19, 1994, the Company through RIC Acquisition Corporation, a
wholly-owned subsidiary of the Company formed to effect the acquisition,
purchased the business of Ryder International Corporation by acquiring its
assets, excluding cash and receivables, and assuming substantially all of
its liabilities. The Company paid to Ryder International Corporation,
including post-closing adjustments, $11.1 million in cash, issued a
promissory note in the principal amount of $1.0 million and assumed
liabilities totaling $2.2 million. Following the closing, RIC Acquisition
Corporation's name was changed to Ryder International Corporation (Ryder).
Ryder is principally engaged in the design, development, manufacture and
sale of proprietary products for the health care industry, including
disposable or semi-disposable soft contact lens storage and disinfection
systems as well as diagnostic devices used in blood analysis and tissue
biopsies, and inflation devices used with balloon catheters. Ryder's
products are sold primarily to major health care companies which market
and distribute the products to hospitals, clinics, surgical centers,
physicians and other health care providers. Since the acquisition, Ryder
has significantly contributed to the Company's earnings.
In 1995, the Company through a new subsidiary, ATRION Medical Products,
Inc. (ATRION Medical Products) purchased exclusive worldwide marketing
and manufacturing rights to a newly developed line of products, called
LacriCATH, to be used in a patented ophthalmic surgical procedure for
treating excessive tearing of the eye. The Company acquired the product
and licensing rights to the product, under a licensing agreement with the
product's inventor, for $425,000 and the assumption of certain
liabilities. ATRION Medical Products was formed to market and distribute
the new line of products. Marketing and distribution began in early 1996.
Unless the context otherwise requires, references in this report to
AlaTenn or the Company mean AlaTenn Resources, Inc. and its subsidiaries.
Additional information respecting certain of the above matters is
contained in Management's Discussion and Analysis of Financial Condition
and Results of Operations and in the Notes to Consolidated Financial
Statements in the Company's 1995 Annual Report to shareholders
incorporated herein by reference.
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REVENUES
During 1995, 1994 and 1993, Alabama-Tennessee accounted for 12%, 14% and
30% of the Company's total revenues, respectively. ATEMCO accounted for
72%, 72% and 68% of revenues during these same periods. Ryder, the
Company's medical and health care products subsidiary, accounted for 14%
and 10% of total revenues in 1995 and 1994, respectively. Ryder was
acquired by the Company in April, 1994 and revenues for 1994 reflect only
results after the acquisition. The table below summarizes total revenue
and delivered volumes for the Company's pipelines as well as for its
natural gas marketing and other subsidiaries.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- -------------------- -----------------------
Revenue Volume Revenue Volume Revenue Volume
($000) (MMMBtu) ($000) (MMMBtu) ($000) (MMMBtu)
------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PIPELINE AND ENERGY SERVICES
Pipeline Transportation
Interstate Pipelines 9,669 37,021 8,764 32,637 4,702 32,186
Intrastate Pipelines 2,533 9,340 2,656 9,461 2,004 10,111
------ ------- ------ ------- ------- -------
12,202 46,361 11,420 42,098 6,706 42,297
------ ------- ------ ------- ------- -------
Gas Marketing 57,879 30,141 51,214 22,744 80,501 35,026
Other Natural Gas Sales 927 309 2,007 354 33,191 3,473
------ ------- ------ ------- ------- -------
58,806 30,450 53,221 23,098 113,692 38,499
------ ------- ------ ------- ------- -------
Affiliated Transactions (1,654) (26,099) (1,196) (20,280) (1,376) (34,045)
------ ------- ------ ------- ------- -------
69,354 50,712 63,445 44,916 119,022 46,751
------ ------- ------ ------- ------- -------
MEDICAL AND
HEALTH CARE PRODUCTS 11,025 N/A 6,876 N/A 0 N/A
------ ------- ------ ------- ------- -------
Total 80,379 50,712 70,321 44,916 119,022 46,751
====== ======= ====== ======= ======= =======
</TABLE>
The 1995 gas marketing sales by ATEMCO totaled 30.1 million MMBtu of natural
gas, an increase of 7.4 million MMBtu from the 1994 volume of 22.7 million
MMBtu. Related revenues increased to $57.9 million in 1995, an increase of
$6.7 million from 1994. These increases in volumes and revenues resulted
from increased sales to customers on Alabama-Tennessee's system, primarily
six industrial customers including three of which were formerly served by
the City of Decatur. In addition, off-system sales volumes increased 78%
over 1994 volumes to 4.6 million MMBtu, resulting in a $2.4 million increase
in revenues. The increase in volumes was partially offset by a 12% decrease
in natural gas prices in 1995, as compared with 1994. Gas marketing sales
in 1994 totaled 22.7 million MMBtu of natural gas, a decrease of 12.3
million MMBtu from the 1993 volume of 35.0 million MMBtu. Related revenues
decreased to $51.2 million in 1994, a reduction of $29.3 million from 1993.
These decreases in volumes and revenues resulted from the loss of certain
ATEMCO customers in late 1993, as described below, three of which have since
returned to ATEMCO for sales services. The decreases in revenues and volume
between years associated with the loss of such customers were partially
offset by an increase of approximately 1.8 million MMBtu and $2.1 million in
revenues
4
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from off-system sales. The decrease in revenues from 1993 to 1994 was
also attributable to a decrease in the price of natural gas purchased and
sold. Natural gas prices decreased by approximately 14% in 1994 compared
with 1993. During 1995, 1994 and 1993, ATEMCO sold approximately 56%, 47% and
74%, respectively, of the natural gas delivered on the Company's pipelines.
For a description of recent changes in ATEMCO's contractual relationship with
certain of its municipal customers, see "Competition" below.
Alabama-Tennessee receives a fee for transportation services provided to its
customers which is set by the FERC. In 1993, as a result of changes in the
natural gas industry brought about by FERC Order 636, Alabama-Tennessee's
sales customers converted their firm sales service on Alabama-Tennessee to
firm transportation service, and also acquired Alabama-Tennessee's firm
capacity on Tennessee Gas Pipeline Company (TGP), an upstream pipeline. The
conversion of sales service to transportation service along with the
upstream assignments resulted in decreased revenues by Alabama-Tennessee
because (1) transportation service does not include a gas cost component as
does a bundled sales and transportation service and (2) the assignment of
upstream capacity on TGP required those customers to pay TGP directly,
thereby removing those revenues from Alabama-Tennessee.
As in 1994, during 1995 the Company's two largest industrial customers each
accounted for more than 10% of the Company's revenues. Champion
International Corporation and Amoco Chemicals Corporation, accounted for
approximately 25% and 12%, respectively, of the Company's operating
revenues.
Approximately 52% of Alabama-Tennessee's natural gas throughput in 1995 was
delivered to 17 municipal customers serving 28 communities under contracts
expiring in late 1997 through 2001. Alabama-Tennessee currently serves most
of the communities extending from Selmer, Tennessee to Huntsville, Alabama,
including portions of northeast Mississippi, the Shoals area of northwest
Alabama, and Athens, Decatur and Huntsville, Alabama. The remaining 48% of
Alabama-Tennessee's throughput was delivered directly to eight industrial
users. A substantial portion of the deliveries to industrial users was
delivered to a major customer under a contract expiring in September, 1997.
The remaining portion was delivered under short-term interruptible contracts
with annual renewals. Approximately 99% of TRIGAS's deliveries through its
pipeline were delivered to one major industrial customer while the remaining
1% was delivered to a single resale customer.
Alabama-Tennessee's business is seasonal in nature and is strongly
influenced by weather conditions. Natural gas deliveries on
Alabama-Tennessee's pipeline system tend to be higher in the winter months
due to increased consumption for residential heating. Natural gas deliveries
during the summer months decline as a result of lower residential usage.
Sales by ATEMCO
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to municipal customers on the Company's pipelines also tend to be
seasonal in nature, while sales to industrial users are not normally impacted
by weather changes. TRIGAS, the Company's intrastate pipeline, is less
subject to such seasonal fluctuations because the majority of its pipeline
deliveries are to one industrial user whose usage does not materially change
as a result of weather conditions.
Ryder, the Company's medical and health care products subsidiary, is engaged
in the design, development, manufacture and sale of proprietary products
used in the medical and health care industry. Ryder's products are
generally manufactured through an injection molding process, using
state-of-the-art equipment. These products include disposable and
semi-disposable soft contact lens storage and disinfection systems which are
marketed to major medical and health care companies in conjunction with
their name-brand products. In 1995, more than 28% of Ryder's products were
shipped to international markets. Ryder also produces a range of diagnostic
devices, including products used in blood analysis and tissue biopsies, and
inflation devices used with balloon catheters. Ryder sells it products to
major health care companies which market and distribute the products to
hospitals, clinics, surgical centers, physicians and other health care
providers. Ryder develops working models or prototypes that allow its
customers to test products in their own markets.
As a result of its development of various products and engineering
solutions, Ryder currently holds a number of design and use patents. Ryder
relies on patents and contracts to protect its proprietary technology.
Ryder generally enters into confidentiality agreements with its employees,
consultants and customers and limits access to and distribution of its
documentation and other proprietary information. In 1995 and 1994, Ryder
spent approximately $1 million and $.5 million, respectively, for research
and development of new products or improvements to existing product lines.
Typically, Ryder bears the expense of the product-development phase and then
enters into long-term contracts with its customers which allow Ryder to
retain exclusive world-wide manufacturing rights to the products it has
developed. Generally, these long-term contracts are full-requirements
contracts and Ryder manufactures the product only upon receipt of customer
purchase orders. Since lead times on materials purchases and production
schedules for the manufacture of its products are relatively short, Ryder
does not have any significant backlog. Ryder employs a limited number of
sales persons who make direct contact with potential customers who may have
need of Ryder's services.
Revenues for Ryder in 1995 and 1994 totaled $11.0 million and $6.9 million,
respectively. The increase in revenues at Ryder between years is
attributable to the inclusion of a full year's operations in 1995 compared
to eight months in the prior year, but also reflected, on a comparable
basis, higher sales volumes. The acquisition of Ryder's business was
recorded using the purchase method of accounting. Accordingly, only results
from
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Ryder's operations subsequent to the acquisition date of April 19, 1994
are reflected in the Company's financial statements for 1995 and 1994 and
results for prior periods are not included.
For additional financial information regarding each operating segment, see
Note 11 of Notes to Consolidated Financial Statements contained in the
Company's 1995 Annual Report to shareholders incorporated herein by
reference.
AVAILABILITY OF NATURAL GAS SUPPLY AND RAW MATERIALS
Alabama-Tennessee's historical supplier of natural gas under firm contract
until the implementation of FERC Order 636 (see Regulation) was TGP, a
subsidiary of Tenneco, Inc. In November 1992, Alabama-Tennessee assigned
all of its storage entitlement and related firm transportation capacity on
the TGP system to its resale customers. On September 1, 1993,
Alabama-Tennessee converted the balance of its capacity on TGP to firm
transportation service as a result of regulatory changes requiring the
implementation by TGP of FERC Order 636, which resulted in the "unbundling"
of sales and transportation service on regulated pipelines. Effective
September 1, 1993, Alabama-Tennessee also implemented Order 636 allowing its
customers to convert firm sales capacity on Alabama-Tennessee to firm
transportation service. Alabama-Tennessee, as required by Order 636,
assigned to its customers the firm transportation service which it held on
TGP, giving its customers firm transportation service on both
Alabama-Tennessee and its upstream pipeline. The assignment of these firm
transportation and storage rights enhanced these customers' flexibility in
acquiring and maintaining gas supplies by allowing them to benefit from
recent changes in the natural gas industry (see Regulation).
During 1995 and 1994, transportation services by Alabama-Tennessee
constituted 100% of its throughput. As a result of FERC Order 636, as noted
above, Alabama-Tennessee has no obligation to provide a natural gas supply,
or sales, service to its customers. ATEMCO, the Company's natural gas
marketing subsidiary, generally purchases natural gas on the spot market,
but has contracted for longer-term supplies as required to meet its
commitments to its customers. In all cases in which ATEMCO contracts for
long-term supplies, matching long-term sales contracts are also obtained
that allow ATEMCO to serve as a conduit between the producer and the
end-user of the natural gas without incurring the risk of shortfalls in
either the demand or supply. These spot market and long-term arrangements
should provide ATEMCO with an adequate supply of natural gas in 1996.
In 1990, ATEMCO entered into a 15-year contract with a producer to purchase
up to 20,000 MMBtu of natural gas per day. ATEMCO obtained this supply to
meet a matching sales obligation with an industrial customer. During 1993,
this industrial customer increased its supply requirements by 9,000 MMBtu
per day. At that time, ATEMCO entered into new agreements with a natural
gas
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producer to secure a source of supply to meet this increased obligation
(see Revenues).
Ryder purchases high-grade resin and other minor components for its
manufacturing process from various suppliers. The resin is a readily
available material and, while Ryder is selective in its choice of suppliers,
it believes that there are no significant restrictions or limitations on
supply.
COMPETITION
Except for natural gas deliveries to four municipal customers and one indus-
trial customer from other intrastate pipelines, Alabama-Tennessee's and
TRIGAS's pipelines currently are the only pipelines utilized by their
customers to access upstream pipelines and supplies of natural gas. In 1995
and 1994, transportation constituted 100% of all deliveries on these
pipelines. The principal competitive fuels for industrial and commercial
purposes are coal and fuel oil. Electricity is the main competition for
residential uses.
The Cities of Decatur and Huntsville, which accounted for approximately 14%
and 16%, respectively of Alabama-Tennessee's pipeline throughput in 1995,
have entered into a 20 year contract with Southern Natural Gas Company
(Southern), a wholly owned subsidiary of Sonat, Inc., for natural gas
transportation services. In order to provide service under these contracts,
Southern plans to construct a new pipeline to serve the Huntsville and
Decatur area. Southern has filed an application with the FERC to build a
110-mile pipeline from Tuscaloosa, Alabama to North Alabama to provide such
service to Huntsville and Decatur beginning in or after the fourth quarter
of 1997. These contracts with Southern cover substantially all of the
natural gas requirements of Huntsville and Decatur. For further information
regarding the proposed bypass see Item 3 - Legal Proceedings.
In 1994, the FERC granted authorization for three of Decatur's major
industrial customers to obtain natural gas service directly from
Alabama-Tennessee, thus bypassing Decatur. As of the end of 1995, all of
these customers, Monsanto Company, Minnesota Mining and Manufacturing, and
American Maize had already begun to receive service directly from the
Company. This bypass of Decatur would have the effect of reducing the
adverse impact of the intended by-pass of Alabama-Tennessee's pipeline
system.
ATEMCO buys and resells natural gas primarily on the spot market, resulting
in a gross margin equal to the difference between the purchase price and the
resale price of such gas. ATEMCO has a long-term agreement to supply
natural gas for a major industrial customer on the TRIGAS pipeline. Almost
all of ATEMCO's other contracts are shorter-term agreements. Through its
knowledge of the industry and contacts with industry
8
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personnel, ATEMCO identifies potential natural gas markets, contracts
for the sale of natural gas to these markets, contracts for the purchase of
natural gas from suppliers and arranges for the transportation of the natural
gas over one or more pipeline systems. ATEMCO's success is highly dependent
upon its ability to find and market competitively-priced natural gas.
Regulatory changes culminating with FERC Order 636 have given customers on
Alabama-Tennessee's pipeline system increased flexibility over the past few
years in contracting directly with producers and marketing companies for
their natural gas supplies. While such changes have required
Alabama-Tennessee to transport natural gas as opposed to its traditional
role as a seller of natural gas, ATEMCO has been able to provide numerous
services to its customers in the new environment which have helped to offset
revenues lost at Alabama-Tennessee.
Ryder, the Company's health care products subsidiary, manufactures products
for certain major health care companies and is dependent on several
customers for the majority of its sales. The loss of one or more of these
customers would have a material adverse impact on the health care products
segment of the Company. Also, the fact that Ryder's products are somewhat
limited in number and normally are only a component of the ultimate product
sold by Ryder's customers, requires Ryder to be continually attentive to the
need to manufacture such products at competitive prices and in compliance
with strict manufacturing standards. Depending on the product and the
nature of the project, Ryder competes on the basis of its ability to provide
engineering and design expertise as well as on the basis of product and
price. Ryder believes that its expertise and reputation for quality
products have allowed it to compete favorably with respect to each such
factor and to maintain long-term relationships with these customers. Also,
as Ryder continues to expand its product lines, adding new products and
customers, dependency on a limited number of customers will be reduced.
Ryder frequently designs products for a customer, or potential customer, at
its own expense prior to entering into long-term development and
manufacturing agreements with that customer. While certain of Ryder's
customers may internally design and develop their own products, or out
source certain aspects of the design and development processes, the Company
is unaware of any other companies who directly compete on the same basis as
Ryder.
To the extent that each Ryder product is sold to a single customer, Ryder is
dependent on the ability of that customer to sell its products, of which
Ryder's products are a component. Therefore, Ryder seeks to choose highly
successful companies with which to do business. This risk is somewhat
minimized by Ryder's ability to obtain long-term exclusive manufacturing
rights while its customers have long-term marketing rights.
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REGULATION
Alabama-Tennessee is subject to the Natural Gas Pipeline Safety Act of 1968,
as amended, which regulates pipeline safety requirements, and to the
National Environmental Policy Act and other environmental legislation.
Alabama-Tennessee has a continuing program of inspection designed to keep
all of its facilities in compliance with environmental and pipeline safety
requirements.
Also, as an interstate natural gas pipeline company, Alabama-Tennessee
is subject to the jurisdiction of the FERC (under the Natural Gas Act of 1938
and other federal legislation) with respect to interstate transportation of
natural gas, certain rates and charges, construction of new facilities,
extension or abandonment of services and facilities, accounts and records,
depreciation and amortization policies and certain other related matters.
Alabama-Tennessee holds certificates of public convenience and necessity
issued by the FERC authorizing it to construct and operate all pipelines,
facilities and properties which it now operates, and to transport natural gas
in interstate commerce in instances where such certificates are required. As
necessary, Alabama-Tennessee files with the FERC applications for changes in
its transportation rates and charges which are designed to allow it to
recover its costs of providing such services to its customers, as well as a
reasonable return on its investment. These rates are normally allowed to
become effective, subject to refund, until such time as the FERC determines
the just and reasonable rates.
During 1992, the FERC issued Order Nos. 636, 636-A and 636-B, (collectively
referred to as the "Restructuring Rule"). Under the Restructuring Rule,
which is pending review by certain federal appellate courts, all interstate
natural gas pipelines were required to make a number of changes in the
structure of the services which they provided prior to the end of 1993.
Among other things, the Restructuring Rule required interstate pipelines to
revise their tariffs to reflect a separating or "unbundling" of their sales
services from their transportation services and the provision of all
transportation services on a basis that is equal in quality for all natural
gas supplies, whether purchased from the pipeline or from any other natural
gas supplier. The Restructuring Rule also provides that pipelines would be
allowed to collect from their customers the prudently incurred "transition
costs" associated with the changes required by these orders, including gas
supply realignment costs.
Alabama-Tennessee implemented restructured services on its system as of
September 1, 1993 in compliance with the FERC's orders under the
Restructuring Rule.
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From 1988 through 1992, Alabama-Tennessee's firm supplier of natural gas,
TGP, passed on to its customers certain take-or-pay costs paid to its
producers. During the same period, Alabama-Tennessee sought to recover from
its customers the take-or-pay costs passed through to it by TGP. In
accordance with the allocation method required by the FERC at the time, the
Company recorded a provision of $6.4 million, net of income taxes, in 1989
for its estimate of the nonrecoverable portion of its take-or-pay
obligation. However, changes in the allocation methodology employed by the
FERC and agreements with customers in 1991 resulted in a favorable after-tax
adjustment of $3.4 million in the estimate for non-recoverable take-or-pay
expense. Based on this favorable adjustment and a favorable settlement with
the Internal Revenue Service in 1993 concerning the Company's treatment of
take-or-pay payments and collections in certain tax returns, the Company
recorded income in 1993 of $3.6 million, reduced by income taxes of $1.3
million.
Based on settlements with its customers which became final in 1991,
Alabama-Tennessee anticipates collections of approximately $1.8 million
during 1996, which will complete its recovery of take-or-pay payments from
its customers. As a result of the payments made by Alabama-Tennessee to TGP
since 1988, Alabama-Tennessee had fully paid its take-or-pay obligation to
TGP.
For more information on take-or-pay matters, see Note 3 of Notes to
Consolidated Financial Statements contained in the Company's 1995 Annual
Report to shareholders incorporated herein by reference.
The facilities of Ryder, the Company's health care products subsidiary, are
registered with the Food and Drug Administration (FDA). All of Ryder's
medical products are manufactured in accordance with Good Manufacturing
Practices as set forth in the Food, Drug and Cosmetic Act of 1938. The FDA
does not establish or regulate price levels for products manufactured by
Ryder.
TRIGAS, the Company's intrastate pipeline subsidiary, is subject to the
jurisdiction of the Alabama Public Service Commission (APSC), as are Central
Gas Company and Tennessee River Development Company. There are no material
proceedings before the Commission involving these companies.
AlaTenn Pipeline Company, Inc. a company engaged in the transportation of
gaseous oxygen is not a regulated pipeline.
Hardin County Gas Company and North Mississippi Natural Gas Corporation are
subject to the jurisdiction of the Tennessee Public Service Commission and
the Mississippi Public Service Commission, respectively. Both companies have
sold substantially all of their assets and are currently inactive. There
are no material proceedings before these state commissions involving these
companies.
11
<PAGE> 14
Company pipeline facilities are subject to federal safety guidelines as
promulgated by the Department of Transportation (D.O.T.).
Alabama-Tennessee's facilities are subject to periodic inspection by the
D.O.T. to ensure compliance with these guidelines. Intrastate pipeline
facilities owned and operated by the Company's subsidiaries are subject to
the same D.O.T. guidelines and are inspected periodically by the appropriate
state agencies to verify compliance.
Additional regulatory information is contained in Management's Discussion
and Analysis of Financial Condition and Results of Operations and in Note 3
of Notes to Consolidated Financial Statements in the Company's 1995 Annual
Report to shareholders incorporated herein by reference.
PEOPLE
At December 31, 1995, the Company had 169 full-time employees, 40 of which
are employed in the pipeline and energy services segment. The remaining 129
are employed in the medical and health care products segment.
Employee relations are good and there has not been any work stoppage due to
labor disagreements. None of the Company's employees are represented by any
labor union.
ITEM 2 - PROPERTIES
The headquarters of the Company and its subsidiaries, except for Ryder and
ATRION Medical Products, are located in a Company-owned office building in
Sheffield, Alabama. Ryder is located in Arab, Alabama and ATRION Medical
Products leases office space in Birmingham, Alabama.
Alabama-Tennessee has approximately 288 miles of transmission pipeline and
two compressor stations. Its primary transmission pipeline extends from an
interconnection with TGP's pipeline near Selmer, Tennessee approximately 130
miles eastward across northern Mississippi and Alabama to Huntsville,
Alabama. The system interconnects with TGP's Kinder-Portland line near
Corinth, Mississippi and its Delta-Portland line near Barton, Alabama. The
system also interconnects with the Columbia Gulf Transmission Pipeline near
Corinth and with the Texas Eastern Transmission Pipeline near Barton. Pipe
sizes range from 2-inch to 16-inch, including 74 miles of 12-inch, 97 miles
of 10-inch, 48 miles of 8-inch, 51 miles of 6-inch and 18 miles of various
other diameters. These transmission pipelines are located primarily on
rights-of-way held under easement, license or permit on lands owned by
others. None of Alabama-Tennessee's properties is subject to any liens.
Alabama-Tennessee's pipeline system is certificated by the FERC to deliver
approximately 133,000 MMBtu per day of natural gas to its customers.
12
<PAGE> 15
TRIGAS has 38 miles of 10-inch pipeline, extending from Barton, Alabama to
Courtland, Alabama, and 1 mile of 8-inch pipeline that transports gas from
an interconnect with Alabama-Tennessee Natural Gas Company to an end user
near Decatur, Alabama.
Ryder's manufacturing facilities, which are owned by Ryder, are located on a
67-acre site in Arab, Alabama. In addition to three office buildings which
house administrative, engineering and design operations, the manufacturing
facility, situated on the same location, contains approximately 112,000
square feet of manufacturing space.
In 1994, North Mississippi Natural Gas Corporation, which is also a
distribution subsidiary sold substantially all of its distribution assets to
a former customer and is not active at the current time. Hardin County Gas
Company, the Company's only remaining active natural gas distribution
subsidiary owned 11 miles of distribution pipeline which were sold in early
1996.
ITEM 3 - LEGAL PROCEEDINGS
For information concerning regulatory proceedings, see the section entitled
"Regulation" in Item 1 above and see Note 3 of the Notes to Consolidated
Financial Statements in the Company's 1995 Annual Report to shareholders
incorporated herein by reference.
On February 9, 1996 the Company filed a lawsuit in state court in Alabama.
In the lawsuit, the Company is asserting that the recently approved contract
between Southern Natural Gas Company and the City of Huntsville violates
Alabama's competitive bid laws and is requesting the contract be declared
void. (See "Competition".)
There were no other material pending legal proceedings to which the Company
or any of its subsidiaries was a party, or of which any of their property
was the subject, as of December 31, 1995.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE> 16
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Jerry A. Howard 53 Chairman of the Board,
President and Chief Executive
Officer of the Company and of
Alabama-Tennessee Natural Gas
Company and Chairman of the
Board or President of all
other subsidiaries.
George G. Petty 55 Vice President-Finance, Chief
Financial Officer and
Secretary-Treasurer of the
Company and of Alabama-Tennessee
Natural Gas Company.
Jeffery Strickland 37 Vice President-Corporate
Development, Asst. Secretary
and Asst. Treasurer of the
Company and Vice President-Planning
of Alabama-Tennessee
Natural Gas Company.
Gus Magrini 43 President and Secretary of
AlaTenn Energy Marketing
Company, Inc.
Richard Rabenau 54 President and Secretary of
Ryder International
Corporation and President of
ATRION Medical Products, Inc.
</TABLE>
The persons who are identified as executive officers of the Company
currently serve as officers of the Company or of Alabama-Tennessee, Ryder
International Corporation, ATRION Medical Products, Inc., AlaTenn Energy
Marketing Company, Inc. or of both the Company and Alabama-Tennessee. The
officers of the Company and Ryder International Corporation, ATRION Medical
Products, Inc., Alabama-Tennessee and AlaTenn Energy Marketing Company are
elected annually by the respective Boards of Directors of the Company and
its subsidiaries at the first meeting of such Boards of Directors held after
the annual meetings of shareholders of such entities. Accordingly, the
terms of office of the current officers of the Company and its subsidiaries
are due to expire on May 6, 1996 when such meetings of the Boards of
Directors of the Company and its subsidiaries are scheduled to be held or
when their successors are elected.
14
<PAGE> 17
There are no arrangements or understandings between any officer and any
other person pursuant to which the officer was elected. There are no family
relationships between any of the executive officers or directors.
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of
the ability and integrity of any executive officers during the past five
years.
BRIEF ACCOUNT OF THE BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
Except as noted below, the above listed executive officers have served in
the positions indicated above for more than the past five years.
Mr. Howard has served as Chairman of the Board, President and Chief
Executive Officer of the Company and of Alabama-Tennessee and Chairman of
the Board and President of all other subsidiaries, except for AlaTenn Energy
Marketing Company, Inc., Ryder International Company, and ATRION Medical
Products, Inc. for more than five years. Mr. Howard also serves as Chairman
of the Board for AlaTenn Energy Marketing Company, Inc. and served as its
President and Chief Executive Officer until May, 1992. Mr. Howard has also
served as Chairman of the Board of Ryder International Corporation since
April, 1994, and Chairman of the Board of ATRION Medical Products, Inc.
since September, 1995.
Mr. Strickland has served as Vice President-Corporate Development of the
Company since May 1992 and as Assistant Secretary and Assistant Treasurer of
the Company since May 1990. Mr. Strickland served as Director of Planning
of the Company from December 1988 until May 1992. Mr. Strickland has served
as Vice President-Planning of Alabama-Tennessee since May 1992 and as
Director of Planning of Alabama-Tennessee prior to May 1992.
Mr. Magrini has served as President and Secretary of AlaTenn Energy
Marketing Company, Inc. since May, 1993. From May, 1992 until May, 1993,
Mr. Magrini served as Vice-President-Customer Relations of
Alabama-Tennessee. Prior to that time, Mr Magrini served as Vice
President-Sales and Supply of Alabama-Tennessee.
Mr. Rabenau has served as President and Secretary of Ryder International
Corporation since April 19, 1994. From April 1, 1990 until April 19, 1994,
Mr. Rabenau served as President of the predecessor company, also named Ryder
International Corporation prior to the purchase of its assets by the
Company. Mr. Rabenau has served as President and Secretary of ATRION Medical
Products, Inc. since September, 1995.
15
<PAGE> 18
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The information for this item is set forth on page 28 of the Company's 1995
Annual Report to shareholders (Exhibit 13) under the heading "Stock
Information" and is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information for this item is set forth in the section entitled "Selected
Financial Data" on page 22 of the Company's 1995 Annual Report to
shareholders (Exhibit 13) and is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information for this item is set forth in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 23 through 26 of the Company's 1995 Annual Report to
shareholders (Exhibit 13) and is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information for this item is set forth on pages 11 through 21 of the
Company's 1995 Annual Report to shareholders (Exhibit 13) and is
incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS -
The information for this item relating to directors and nominees of the
Company and to the filing of reports under Section 16(a) of the Securities
Exchange Act of 1934 is set forth in the section entitled "Election of
Directors" in the Company's Proxy Statement related to the annual meeting of
shareholders to be
16
<PAGE> 19
held on May 6, 1996, which section is incorporated herein by reference.
EXECUTIVE OFFICERS -
The information for this item relating to executive officers of the Company
is set forth on pages 16 through 18 of this report.
ITEM 11 - EXECUTIVE COMPENSATION
The information for this item is set forth in the section entitled
"Executive Compensation" in the Company's Proxy Statement related to the
annual meeting of shareholders to be held on May 6, 1996, which section
(except for the portions thereof entitled "Compensation Committee Report on
Executive Compensation" and "Performance of Common Shares") is incor-
porated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS -
The information for this item is set forth in the section entitled
"Information Regarding Certain Beneficial Owners of Common Shares" in the
Company's Proxy Statement related to the annual meeting of shareholders to
be held on May 6, 1996, which section is incorporated herein by reference.
SECURITY OWNERSHIP OF MANAGEMENT -
The information for this item is set forth in the section entitled
"Securities Ownership of Management" in the Company's Proxy Statement
related to the annual meeting of shareholders to be held on May 6, 1996,
which section is incorporated herein by reference.
CHANGES IN CONTROL -
The Company knows of no arrangements which may at a subsequent date result
in a change in control of the Company.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information for this item is set forth in the section entitled "Certain
Transactions" in the Company's Proxy Statement related to the annual meeting
of shareholders to be held on May 6, 1996, which section is incorporated
herein by reference.
17
<PAGE> 20
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
<TABLE>
<CAPTION>
ANNUAL REPORT
FINANCIAL STATEMENTS PAGE NUMBER
- -------------------- -------------
<S> <C>
The following consolidated financial
statements, related notes to consolidated
financial statements and report of independent public
accountants contained on pages 11
through 21 of the Company's 1995 Annual
Report to shareholders (Exhibit 13) are
incorporated herein by reference in Item 8:
Consolidated Statements of Income
for the years ended December 31, 1995, 1994
and 1993 11
Consolidated Balance Sheets as of
December 31, 1995 and 1994 12-13
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994
and 1993 14
Notes to Consolidated Financial Statements 15-21
Report of Independent Public Accountants 10
</TABLE>
FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted since the
required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
The following exhibits are filed as part of this 1995 Form 10-K
Report. Those exhibits previously filed and incorporated herein by
reference are identified below by a note reference to the previous
filing.
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
<S> <C>
2 Stock Purchase Agreement dated February 17, 1990, between
AlaTenn Resources, Inc. and MEGA Natural Gas Company, as
amended by Letter Agreement dated March 9, 1990 (1)
3a Articles of Incorporation, as amended (5)
3b Bylaws, as amended (3)
4a Rights Agreement, dated as of February 1, 1990, between
AlaTenn Resources, Inc. and American Stock Transfer &
Trust Company, which includes the form of Right
Certificate as Exhibit A and the Summary of Rights to
Purchase Common Shares as Exhibit B (4)
4b Loan Agreement dated November 15, 1989, among AlaTenn
Credit Corp., Third National Bank in Nashville, and The
First National Bank of Florence (16)
4c Revolving Credit Note in the principal amount of $20
million dated November 15, 1989, by AlaTenn Credit Corp.
in favor of Third National Bank in Nashville and The
First National Bank of Florence (17)
4d First Amendment to Loan Agreement dated December 29, 1989
among AlaTenn Credit Corp., Third National Bank in
Nashville, and the First National Bank of Florence (23)
4e Second Amendment to Loan Agreement dated November 6, 1990
among AlaTenn Credit Corp., Third National Bank in
Nashville, and the First National Bank of Florence (24)
4f Credit Agreement in the amount of $20 million, dated
January 20, 1995 between AlaTenn Credit Corporation and
Compass Bank (34)
10a* Performance Share Plan of AlaTenn Resources, Inc. (13)
10b* Change in Control Agreement between AlaTenn Resources,
Inc. and Jerry A. Howard, dated October 23, 1987 and
amendment dated March 11, 1988 (14)
10c* Change in Control Agreement between AlaTenn Resources,
Inc. and George G. Petty, dated October 23, 1987 and
amendment dated March 11, 1988 (15)
10d Escrow Agreement dated December 27, 1989 by Alabama-Tennessee
Natural Gas Company and Third National Bank In
Nashville, as escrow agent and Tennessee Gas Pipeline
Company (18)
10e Gas Sales Contract between Alabama-Tennessee Natural Gas
Company and Tennessee Gas Pipeline Company, dated August
1, 1989 (19)
10f Agreement for Purchase and Sale of Assets, dated October
3, 1990, by and among Central Gas Company, Tennessee
River Development Company and the City of Florence,
Alabama (25)
10g First Amendment to Agreement for Purchase and Sale of
Assets, dated March 5, 1991, by and among Central Gas
Company, Tennessee River Development Company and the City
of Florence, Alabama (26)
10h Offer to Purchase, dated December 27, 1989 between Oryx
Energy Company and Alabama-Tennessee Natural Gas Company
(27)
</TABLE>
19
<PAGE> 22
<TABLE>
<S> <C>
10i Agreement of Sale, dated November 19, 1990 by and among
AlaTenn Resources, Inc., Triton Energy Corporation and
Pacific Basin Company (28)
10j* 1990 Stock Option Plan, adopted March 15, 1990 (20)
10k* Form of Incentive Stock Option Agreement (21)
10l* Restricted Shares Compensation Plan for Non-Employee
Directors, adopted May 6, 1991 (22)
10m* Alabama-Tennessee Natural Gas Company Non-Employee
Directors Deferral Plan (29)
10n* Alabama-Tennessee Natural Gas Company Supplemental
Executive Retirement Plan (30)
10o* Alabama-Tennessee Natural Gas Company Supplemental
Executive Thrift Plan (31)
10p Assets Purchase Agreement, dated April 19, 1994 between
Ryder International Corporation, Frank and Carolyn Ryder,
RIC Acquisition Corporation and AlaTenn Resources (32)
101* 1994 Key Employee Stock Incentive Plan (33)
13 Portions of 1995 Annual Report to Shareholders which are
incorporated by reference into the form 10-K (5)
21 Subsidiaries of AlaTenn Resources, Inc. as of December
31, 1995 (5)
23 Consent of Arthur Andersen & Co. (5)
24 Powers of Attorney authorizing Jerry A. Howard and George
G. Petty to sign the AlaTenn Resources, Inc. Annual
Report on Form 10-K for fiscal year ended December 31,
1995 on behalf of certain directors of the Company (5)
27 Financial Data Schedules (filed electronically only) (5)
99 System map of Alabama-Tennessee Pipeline System (35)
</TABLE>
Notes:
(1) Filed as Exhibit 2 to Form 8-K of AlaTenn Resources, Inc.
dated March 26, 1990
(2) Filed as Exhibit 3a to Form 10-K of AlaTenn Resources,
Inc. dated March 27, 1987
(3) Filed as Exhibit 3b to Form 10-Q of AlaTenn Resources,
Inc. dated May 14, 1987
(4) Filed as Exhibit 1 to Registration Statement on Form 8-A
of AlaTenn Resources, Inc. dated February 15, 1990.
(5) Filed herewith
(6) Filed as Exhibit 2 to Form 8-K of AlaTenn Resources, Inc.
dated October 28, 1986
(7) Filed as Exhibit 10b to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1989.
(8) Filed as Exhibit 10c to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1989.
(9) Filed as Exhibit 10d to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1989.
(10) Filed as Exhibit 10e to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1989.
(11) Filed as Exhibit 10f to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1989.
(12) Filed as Exhibit 10g to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1989.
20
<PAGE> 23
(13) Filed as Exhibit A to the definitive Proxy Statement of
AlaTenn Resources, Inc. dated March 25, 1983
(14) Filed as Exhibit 10c to Form 10-K of AlaTenn Resources,
Inc. dated March 29, 1988
(15) Filed as Exhibit 10d to Form 10-K of AlaTenn Resources,
Inc. dated March 29, 1988
(16) Filed as Exhibit 4b to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1990.
(17) Filed as Exhibit 4c to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1990.
(18) Filed as Exhibit 10k to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1990.
(19) Filed as Exhibit 10l to Form 10-K of AlaTenn Resources,
Inc. dated March 30, 1990.
(20) Filed as Appendix A to the Definitive Proxy Statement of
the Company dated April 6, 1990.
(21) Filed as Exhibit 4(d) to the Registration Statement on
Form S-8 of AlaTenn Resources, Inc., filed May 17, 1991
(File No. 33-40639).
(22) Filed as Appendix A to the Definitive Proxy Statement of
the Company dated March 29, 1991.
(23) Filed as Exhibit 4d to Form 10-K of AlaTenn Resources,
Inc., dated March 28, 1991.
(24) Filed as Exhibit 4e to Form 10-K of AlaTenn Resources,
Inc., dated March 28, 1991.
(25) Filed as Exhibit 10m to Form 10-K of AlaTenn Resources,
Inc., dated March 28, 1991.
(26) Filed as Exhibit 10n to Form 10-K of AlaTenn Resources,
Inc., dated March 28, 1991.
(27) Filed as Exhibit 10o to Form 10-K of AlaTenn Resources,
Inc., dated March 28, 1991.
(28) Filed as Exhibit 10p to Form 10-K of AlaTenn Resources,
Inc., dated March 28, 1991.
(29) Filed as Exhibit 10t to Form 10-K of AlaTenn Resources,
Inc., dated March 27, 1992.
(30) Filed as Exhibit 10u to Form 10-K of AlaTenn Resources,
Inc., dated March 26, 1993.
(31) Filed as Exhibit 10v to Form 10-K of AlaTenn Resources,
Inc., dated March 26, 1993.
(32) Filed as Exhibit 2 to Form 8-K of AlaTenn Resources,
Inc., dated May 2, 1994.
(33) Filed as Appendix A to the Definitive Proxy Statement of
the Company dated March 28, 1994.
(34) Filed as Exhibit 4f to Form 10-K of AlaTenn Resources,
Inc., dated March 30, 1995.
(35) Filed as Exhibit 99 to Form 10-K of AlaTenn Resources,
Inc., dated March 30, 1995.
* Management Contract or Compensatory Plan or Arrangement
21
<PAGE> 24
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 1995.
22
<PAGE> 25
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.
AlaTenn Resources, Inc.
By: /s/Jerry A. Howard
-------------------------
Jerry A. Howard
Chairman of the Board,
President and Chief
Executive Officer
Dated: April 1, 1996
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 and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
(I) Principal Executive
Officer:
/s/Jerry A. Howard Chairman of the Board, April 1, 1996
- ------------------------ President and Chief
(Jerry A. Howard) Executive Officer
(ii) Principal Financial
Officer:
/s/George G. Petty Vice President - April 1, 1996
- ------------------------ Finance and Chief
(George G. Petty) Financial Officer
(iii) Directors:
/s/Emile A. Battat Director April 1, 1996
- ------------------------
(Emile A. Battat)
/s/Jerry A. Howard Director April 1, 1996
- ------------------------
Jerry A. Howard
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Richard O. Jacobson Director April 1, 1996
- ------------------------
(Richard O. Jacobson)
/s/John H.P. Maley Director April 1, 1996
- ------------------------
(John H.P. Maley)
/s/Jerome J. McGrath Director April 1, 1996
- ------------------------
(Jerome J. McGrath)
/s/Hugh J. Morgan, Jr. Director April 1, 1996
- ------------------------
(Hugh J. Morgan, Jr.)
/s/J. Kenneth Smith Director April 1, 1996
- ------------------------
(J. Kenneth Smith)
/s/Roger F. Stebbing Director April 1, 1996
- ------------------------
(Roger F. Stebbing)
/s/John P. Stupp, Jr. Director April 1, 1996
- ------------------------
(John P. Stupp, Jr.)
</TABLE>
24
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
the Board of Directors of
AlaTenn Resources, Inc.:
We have audited the accompanying consolidated balance sheets of AlaTenn
Resources, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income and cash flows for each of the
three years in the period ended December 31, 1995. 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 AlaTenn Resources,
Inc. and subsidiaries as of December 31, 1995 and 1994 and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
------------------------
Atlanta, Georgia
February 10, 1995
<PAGE> 28
ALATENN RESOURCES, INC.
INDEX OF EXHIBITS
The following exhibits are filed as part of this 1995 Form 10-K Report. Those
exhibits previously filed and incorporated herein by reference are identified
below by a note reference to the previous filing.
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ------
2 Stock Purchase Agreement dated February 17, 1990,
between AlaTenn Resources, Inc. and MEGA Natural
Gas Company, as amended by Letter Agreement dated
March 9, 1990 (1)
3a Articles of Incorporation, as amended (5)
3b Bylaws, as amended (3)
4a Rights Agreement, dated as of February 1, 1990,
between AlaTenn Resources, Inc. and American Stock
Transfer & Trust Company, which includes the form
of Right Certificate as Exhibit A and the Summary
of Rights to Purchase Common Shares as Exhibit B
(4)
4b Loan Agreement dated November 15, 1989, among
AlaTenn Credit Corp., Third National Bank in
Nashville, and The First National Bank of Florence
(16)
4c Revolving Credit Note in the principal amount of
$20 million dated November 15, 1989, by AlaTenn
Credit Corp. in favor of Third National Bank in
Nashville and The First National Bank of Florence
(17)
4d First Amendment to Loan Agreement dated December
29, 1989 among AlaTenn Credit Corp., Third National
Bank in Nashville, and the First National Bank of
Florence (23)
4e Second Amendment to Loan Agreement dated November
6, 1990 among AlaTenn Credit Corp., Third National
Bank in Nashville, and the First National Bank of
Florence (24)
4f Credit Agreement in the amount of $20 million,
dated January 20, 1995 between AlaTenn Credit
Corporation and Compass Bank (34)
10a* Performance Share Plan of AlaTenn Resources, Inc. (13)
10b* Change in Control Agreement between AlaTenn Re-
sources, Inc. and Jerry A. Howard, dated October
23, 1987 and amendment dated March 11, 1988 (14)
10c* Change in Control Agreement between AlaTenn Re-
sources, Inc. and George G. Petty, dated October
<PAGE> 29
23, 1987 and amendment dated March 11, 1988 (15)
10d Escrow Agreement dated December 27, 1989 by
Alabama-Tennessee Natural Gas Company and Third
National Bank In Nashville, as escrow agent and
Tennessee Gas Pipeline Company (18)
10e Gas Sales Contract between Alabama-Tennessee
Natural Gas Company and Tennessee Gas Pipeline
Company, dated August 1, 1989 (19)
10f Agreement for Purchase and Sale of Assets, dated
October 3, 1990, by and among Central Gas Company,
Tennessee River Development Company and the City of
Florence, Alabama (25)
10g First Amendment to Agreement for Purchase and Sale
of Assets, dated March 5, 1991, by and among
Central Gas Company, Tennessee River Development
Company and the City of Florence, Alabama (26)
10h Offer to Purchase, dated December 27, 1989 between
Oryx Energy Company and Alabama-Tennessee Natural
Gas Company (27)
10i Agreement of Sale, dated November 19, 1990 by and
among AlaTenn Resources, Inc., Triton Energy
Corporation and Pacific Basin Company (28)
10j* 1990 Stock Option Plan, adopted March 15, 1990 (20)
10k* Form of Incentive Stock Option Agreement (21)
10l* Restricted Shares Compensation Plan for Non-Employee
Directors, adopted May 6, 1991 (22)
10m* Alabama-Tennessee Natural Gas Company Non-Employee
Directors Deferral Plan (29)
10n* Alabama-Tennessee Natural Gas Company Supplemental
Executive Retirement Plan (30)
10o* Alabama-Tennessee Natural Gas Company Supplemental
Executive Thrift Plan (31)
10p Assets Purchase Agreement, dated April 19, 1994
between Ryder International Corporation, Frank and
Carolyn Ryder, RIC Acquisition Corporation and
AlaTenn Resources (32)
101* 1994 Key Employee Stock Incentive Plan (33)
13 Portions of 1995 Annual Report to Shareholders
which are incorporated by reference into the form
10-K (5)
21 Subsidiaries of AlaTenn Resources, Inc. as of
December 31, 1995 (5)
23 Consent of Arthur Andersen & Co. (5)
24 Powers of Attorney authorizing Jerry A. Howard and
George G. Petty to sign the AlaTenn Resources, Inc.
Annual Report on Form 10-K for fiscal year ended
December 31, 1995 on behalf of certain directors of
the Company (5)
27 Financial Data Schedules (filed electronically
only) (5)
99 System Map of Alabama-Tennessee Pipeline System (35)
<PAGE> 30
Notes:
(1) Filed as Exhibit 2 to Form 8-K of AlaTenn
Resources, Inc. dated March 26, 1990
(2) Filed as Exhibit 3a to Form 10-K of AlaTenn
Resources, Inc. dated March 27, 1987
(3) Filed as Exhibit 3b to Form 10-Q of AlaTenn
Resources, Inc. dated May 14, 1987
(4) Filed as Exhibit 1 to Registration Statement on
Form 8-A of AlaTenn Resources, Inc. dated February
15, 1990.
(5) Filed herewith
(6) Filed as Exhibit 2 to Form 8-K of AlaTenn
Resources, Inc. dated October 28, 1986
(7) Filed as Exhibit 10b to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1989.
(8) Filed as Exhibit 10c to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1989.
(9) Filed as Exhibit 10d to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1989.
(10) Filed as Exhibit 10e to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1989.
(11) Filed as Exhibit 10f to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1989.
(12) Filed as Exhibit 10g to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1989.
(13) Filed as Exhibit A to the definitive Proxy
Statement of AlaTenn Resources, Inc. dated March
25, 1983
(14) Filed as Exhibit 10c to Form 10-K of AlaTenn
Resources, Inc. dated March 29, 1988
(15) Filed as Exhibit 10d to Form 10-K of AlaTenn
Resources, Inc. dated March 29, 1988
(16) Filed as Exhibit 4b to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1990.
(17) Filed as Exhibit 4c to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1990.
(18) Filed as Exhibit 10k to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1990.
(19) Filed as Exhibit 10l to Form 10-K of AlaTenn
Resources, Inc. dated March 30, 1990.
(20) Filed as Appendix A to the Definitive Proxy
Statement of the Company dated April 6, 1990.
(21) Filed as Exhibit 4(d) to the Registration Statement
on Form S-8 of AlaTenn Resources, Inc., filed May
17, 1991 (File No. 33-40639).
(22) Filed as Appendix A to the Definitive Proxy
Statement of the Company dated March 29, 1991.
(23) Filed as Exhibit 4d to Form 10-K of AlaTenn
Resources, Inc., dated March 28, 1991.
(24) Filed as Exhibit 4e to Form 10-K of AlaTenn
Resources, Inc., dated March 28, 1991.
(25) Filed as Exhibit 10m to Form 10-K of AlaTenn
Resources, Inc., dated March 28, 1991.
<PAGE> 31
(26) Filed as Exhibit 10n to Form 10-K of AlaTenn
Resources, Inc., dated March 28, 1991.
(27) Filed as Exhibit 10o to Form 10-K of AlaTenn
Resources, Inc., dated March 28, 1991.
(28) Filed as Exhibit 10p to Form 10-K of AlaTenn
Resources, Inc., dated March 28, 1991.
(29) Filed as Exhibit 10t to Form 10-K of AlaTenn
Resources, Inc., dated March 27, 1992.
(30) Filed as Exhibit 10u to Form 10-K of AlaTenn
Resources, Inc., dated March 26, 1993.
(31) Filed as Exhibit 10v to Form 10-K of AlaTenn
Resources, Inc., dated March 26, 1993.
(32) Filed as Exhibit 2 to Form 8-K of AlaTenn
Resources, Inc., dated May 2, 1994.
(33) Filed as Appendix A to the Definitive Proxy
Statement of the Company dated March 28, 1994.
(34) Filed as Exhibit 4f to Form 10-K of AlaTenn
Resources, Inc., dated March 30, 1995.
(35) Filed as Exhibit 99 to Form 10-K of AlaTenn Resources,
Inc., dated March 30, 1995.
* Management Contract or Compensatory Plan or Arrangement
<PAGE> 32
EXHIBIT 3a
Articles of Incorporation
of
AlaTenn Resources, Inc.
The undersigned, for the purpose of forming a corporation pursuant to the
provisions of the Alabama Business Corporation Act, does hereby certify as
follows:
Article I
Name
1.01 The name of the Corporation is AlaTenn Resources, Inc.
Article II
Duration
2.01 The duration of the Corporation shall be perpetual.
Article III
Purposes
3.01 The purposes for which the Corporation is organized are:
(a) To drill for, explore for, mine, produce, recover, refine, store,
manufacturer purchase, sell, transport and distribute and generally to trade
and deal in petroleum and other oils, natural gas and other volatile
substances, mineral ores, clays and other mineral substances and products
derived in whole or in part therefrom; to construct, own, operate, lease and
repair pipe lines for the transmission of natural, manufactured and/or other
gases.
(b) To purchase, lease from others and otherwise acquire, own, hold,
develop, improve, operate, use, sell, mortgage, lease to others and otherwise
dispose of real property and estates and interests therein, and concessions,
licenses or franchises relating thereto, oil and gas wells, mines, quarries,
refineries, works, tanks, pipelines for its private use, and all other
structures, machinery, cars, vessels, containers, lamps, utensils, stoves,
burners and apparatus of any kind in which the material or products dealt in
are used, stored or transported, and all other equipment and appliances and
appurtenances thereto and all other personal property necessary or convenient
for conducting its business.
<PAGE> 33
(c) To manufacture, acquire, mine for, produce, distribute, use and
sell artificial gas for light, heat, power and other purposes, and also to
produce, acquire, use, sell and distribute the by-products and residual
products therefrom, and to construct or in any manner acquire, maintain,
operate, encumber, sell or in any manner dispose of works therefor.
(d) To purchase, acquire, own, hold, improve, develop, operate,
manage, sell, convey, assign, transfer, exchange, release, dispose of,
mortgage, encumber, pledge, create security interest in, lease, hire, deal in,
and loan or borrow money upon, alone or in conjunction with others, real and
personal property, tangible and intangible, of every kind, character and
description, or any interest therein.
(e) To apply for, purchase, or acquire by assignment, transfer or
otherwise, and hold, mortgage, or otherwise pledge, and to sell, exchange,
transfer, deal in and with any license, power, authority, concession, right or
privilege which any corporation may make or grant.
(f) To manufacture, purchase or otherwise acquire, and to hold, own,
mortgage, pledge, sell, assign and transfer, exchange or otherwise dispose of,
and invest, trade and deal in and with goods, wares and merchandise and
personal property of every class and description, wherever situated, whether or
not the same specifically pertain to the classes of business specified in this
Article III; and to own and operate mines, plants, factories, mills,
warehouses, yards, merchandise stores, commissaries and all other installations
or establishments of whatever character or description, together with the
equipment, rolling stock and other facilities used or useful in connection with
or incidental thereto.
(g) To engage in the business of exploiting natural resources, to
search, prospect and explore for useful or valuable substances to acquire and
extract such substances, to sell and dispose of such substances, and to refine
such substances and manufacture and sell and dispose of products and
by-products derived therefrom.
(h) To purchase or otherwise acquire, hold, use, sell, assign,
lease, mortgage or in any manner dispose of, and to take, exchange and grant
licenses, or other rights therein, in respect of letters patent of the United
States or any foreign country, patent rights, licenses and privileges,
inventions, improvements, processes, formulae, methods, copyrights, trademarks
and trade names, know how, and trade secrets, relating to or useful in
connection with any business, objects or purposes of the Corporation.
(i) To acquire, by purchase, subscription or otherwise, and to own,
hold, sell and dispose of, exchange, deal, in and with
2
<PAGE> 34
shares, bonds, debentures, obligations, evidences of indebtedness, open
accounts, promissory notes, mortgages and securities executed by any individual
or by any corporation in Alabama or any other state or foreign countries,
whether public or private government or municipality or otherwise, and to issue
and exchange for all such shares, bonds, debentures, obligations, evidences of
indebtedness, open accounts, promissory notes, mortgages or securities, the
shares, bonds, debentures or other evidences of indebtedness of this
Corporation, and this Corporation shall have express power to hold, sell,
assign, transfer, mortgage, pledge or otherwise dispose of the shares, bonds,
debentures, promissory notes, mortgages and securities so acquired by it and,
while the owner thereof, to exercise all the rights, privileges and powers of
ownership, including the right to vote thereon, to the same extent as a natural
person may do, subject to the limitations, if any, on such rights now or
hereafter provided by the laws of Alabama.
(j) To endorse, lend its credit to, or otherwise guarantee, or
become a surety with respect to, or obligate itself for, or pledge or mortgage
all or any part of its properties to secure the payment of the principal and
interest, or either, on any bonds, debentures, notes, scrip, coupons, or other
obligations or evidences of indebtedness, or the performance of any contract,
lease, mortgage, or obligation, of any subsidiary, affiliated or related
corporation or any other corporation or association, domestic or foreign, or of
any person, firm, partnership or joint venture.
(k) To enter into, make and perform contracts of every kind for any
lawful purpose without limit as to amount, with any person, firm, association,
partnership, limited partnership, corporation, municipality, county, state,
territory, government, governmental subdivision, or body politic.
(l) To acquire the good will, rights, assets and properties, and to
undertake the whole or any part of the liabilities of any person, firm,
association or corporation; to pay for the same in cash, the shares or other
securities of the Corporation, or otherwise; to hold, or in any manner dispose
of, the whole or part of the property so acquired; to conduct in any lawful
manner the whole or any part of the business so acquired and to exercise all
the powers necessary or convenient in and about the conduct and management of
any such business.
(m) To borrow and lend money, without security, or upon the giving
or receipt of such security as the Board of Directors of the Corporation may
deem advisable by way of mortgage, pledger transfer, assignment, or otherwise,
of real and personal property of every nature and description, or by way of
guaranty, or otherwise, and to enter into revolving credit agreements or other
loan agreements of any kind with banks or other financial or institutional
investors.
3
<PAGE> 35
(n) To draw, make; accept, endorse, discount, execute and issue
promissory notes, drafts, bills of exchange, warrants, debentures and other
negotiable or transferable instruments.
(o) To issue bonds, debentures or other securities or obligations
and to secure the same by mortgage, pledge, deed of trust, or otherwise.
(p) To act as agent, jobber, broker or attorney-in-fact in buying,
selling and dealing in real and personal property of every nature and
description and leases respecting the same and estates and interests therein
and mortgages and securities thereon, in making and obtaining loans, whether
secured by such property or not, and in supervising, managing and protecting
such property and loans and all interests in and claims affecting the same.
(q) To purchase, take, receive, redeem, exchange, or otherwise
acquire, hold, own, pledge, transfer or otherwise dispose of the Corporation's
own shares, whether or not redeemable (so far as may be permitted by law), and
its bonds, debentures, notes, scrip or other securities or evidences of
indebtedness, and to hold, sell, transfer or reissue the same.
(r) To enter into any plan or project for the assistance and welfare
of its employees, to lend money and use its credit to assist its employees, and
to pay pensions and establish pension plans, pension trusts, profit-sharing
plans, stock bonus plans, stock option plans, employee stock ownership plans
and other incentive or welfare plans for any or all of the Corporation's
directors, officers and employees.
(s) To enter into any lawful arrangements for sharing of profits,
union of interest, reciprocal concession, or cooperation, as partner (general
or limited), joint venturer, or otherwise, with any person, partnership,
corporation, association, combination, organization, entity or other body
whatsoever, domestic or foreign, carrying on or proposing to carry on any
business which this Corporation is authorized to carry on, or any business or
transaction deemed necessary, convenient or incidental to the carrying out of
any of the purposes of this Corporation.
(t) To do all kinds of mining, manufacturing and trading business;
to transport goods and merchandise by land or water in any manner; to build
houses, warehouses, buildings. structures, vessels, cars, wharves, docks and
piers; to do a general warehouse and storage business; to do a general
cooperative business; to buy, sell, deal in, issue, transfer, register, certify
and guarantee warehouse receipts.
(u) To manufacture, construct, install, service, repair, maintain,
operate, buy, lease, sell, let out upon license or royalty, or otherwise
dispose of, and generally deal in and deal
4
<PAGE> 36
with, boilers, heating plants, power plants, furnaces, burners, heaters,
stoking devices, machinery, apparatus, equipment, appliances, and any other
article or thing necessary, useful or advantageous in the business of
furnishing apparatus for the development of heat, power and/or refrigeration in
any or all of their respective branches.
(v) To manufacturer purchase or otherwise acquire, own, mortgage,
pledge, sell, assign and transfer, or otherwise dispose of, to invest, trade,
deal in and deal with goods, wares and merchandise and personal property of
every class and description.
(w) To have one or more offices to carry on all of the Corporation's
operations and business without restriction or limit as to amount, in any of
the states, districts, territories or possessions or colonies of the United
States, and in any and all foreign countries, subject to the laws of such
state, district, territory, possession, colony or country.
(x) To carry on any other business in connection with the foregoing,
to transact any or all lawful business for which corporations may be
incorporated under the Alabama Business Corporation Act, as amended, and to
have and exercise all powers necessary or convenient to effect the purposes of
the Corporation.
(y) To do any and all of the things herein set out and such other
things as are incidental or conducive to the attainment of the objects and
purposes of this Corporation, to the same extent as natural persons might or
could do and in any part of the world, as principal, factor, agent, contractor,
or otherwise, either alone or in conjunction with any person, firm,
association, partnership, corporation or any entity of whatsoever kind, and to
do any and all such acts and things and to have and exercise any and all such
powers to the full extent authorized or permitted to a corporation under any
laws that may now or hereafter be applicable or available to this Corporation.
(z) The Corporation's power to acquire property of any kind which it
is or shall be authorized to acquire and to engage in business in which it is
or shall be authorized to engage may be exercised directly or indirectly
through subsidiaries and the acquisition of shares and bonds representative of
such property or business and for the purpose of acquiring and holding either
in perpetuity or for a limited period.
The foregoing clauses, and each phrase thereof, shall be construed, in their
broadest sense as purposes and powers of the Corporation in addition to those
powers specifically conferred upon the Corporation by law, and it is hereby
expressly provided that the
5
<PAGE> 37
foregoing specific enumeration of purposes and powers shall not be held to
limit or restrict in any manner the powers of the Corporation otherwise granted
by law. Nothing herein contained, however, shall be construed as authorizing
this Corporation to carry on the business of banking or that of a trust
company, or the business of insurance.
Article IV
Authorized Capital
4.01 The aggregate number of shares which the Corporation shall have
authority to issue is 2,000,000 common shares of the par value of $1.00 each.
4.02 Each outstanding common share shall be entitled to one vote
on each matter submitted to a vote of Shareholders, to be cast in person or by
proxy.
Article V
Initial Registered Office And Agent
5.01 The location and mailing address of the initial registered office
of the Corporation is P. 0. Box 918, Florence, Alabama 35631 and the name of
its initial registered agent at such address is M. D. Prouty, Jr.
Article VI
Directors
6.01 The number of directors constituting the initial Board of
Directors shall be eight. Thereafter, the number of directors shall be fixed
in the manner provided in the Bylaws, and may be increased or decreased from
time to time by amendment to, or in the
6
<PAGE> 38
manner provided in, the Bylaws, but no decrease shall have the effect of
shortening the term of any incumbent director.
6.02 The name and address of each person who is to serve as a director
until the first annual meeting of shareholders or until his successor shall be
elected and qualified is as follows:
Name Address
---- -------
Lewis C. Bartmess P. 0. Box 918
Florence, Alabama 35631
Stephen A. Bergman P.O. Box 7366
Shawnee Mission, Kansas 66207
Stanley M. Morley 1700 K Street, N.W.
Washington, D.C. 20006
M. D. Prouty, Jr. P. 0. Box 918
Florence, Alabama 35631
Paul E. Sackett P. 0 Box 201
Lynchburg, Virginia, 24505
J. Kenneth Smith 1800 K Street, N.W.
Washington, D.C. 20006
John P. Stupp P. 0. Box 6600
St. Louis, Missouri 63125
Claude A. Wilson, Jr. P. 0. Box 4087
Greenwich, Connecticut 06830
Article VII
Incorporator
7.01 The name and address of the incorporator is Alabama-Tennessee
Natural Gas Company, P. 0. Box 918, Florence, Alabama 35631.
7
<PAGE> 39
Article VIII
Description and Terms of Shares
8.01 The Corporation may from time to time issue its shares for such
Consideration (not less than the par value respecting shares having a par
value) as may be fixed from time-to-time by the Board of Directors and may
receive in payment thereof, in whole or in part, money, labor done, services
actually performed, or real or personal property (tangible or intangible). Any
and all shares so issued for which the consideration so fixed shall have been
paid or delivered shall be deemed fully paid shares and shall not be liable to
any further call or assessment thereon, and the holders of such shares shall
not be liable for any further payment in respect thereof.
8.02 If at any time the Corporation is engaged in the business of
exploiting natural resources, dividends may be declared and paid in cash out of
the depletion reserves, but each such dividend shall be identified as a
distribution of such reserves and the amount per share paid from such reserves
shall be disclosed to the shareholders receiving the same concurrently with the
distribution thereof.
8.03 No holder of any shares of the Corporation of any class shall have
any preferential or preemptive right to subscribe for, purchase, or receive any
shares of the Corporation of any class, including treasury shares, now or
hereafter authorized, or any securities convertible into, exchangeable for, or
carrying a right or option to purchase its shares of any class, which may at
any
8
<PAGE> 40
time be issued, sold, or offered for sale by the Corporation for cash or
other consideration.
8.04 The Corporation shall have the right to purchase, take, receive or
otherwise acquire, hold, own, pledge and transfer or otherwise dispose of its
own shares, but purchases of its own shares, whether direct or indirect, shall
be made only to the extent of unreserved and unrestricted earned surplus and
unreserved and unrestricted capital surplus available therefor.
8.05 The private property of the shareholders shall not be subject to the
payment of debts of the Corporation to any extent whatever.
Article IX
Board of Directors
9.01 Except as may be otherwise provided by law or in these Articles of
incorporation, all corporate powers of the Corporation shall be exercised by or
under authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors. In furtherance and not
in limitation of the powers conferred by statute, the Board of Directors shall
have the following powers:
(a) In the interval between the meetings of the shareholders, to alter, amend
or repeal the Bylaws or adopt new Bylaws provided, however, that the Board of
Directors may not alter, amend or repeal any Bylaw establishing what
constitutes a quorum at shareholders meetings or which was adopted by the
shareholders and specifically provides that it cannot be altered, amended or
repealed by the Board of Directors, or which is not otherwise permitted by
applicable law to be altered, amended or repealed solely by the action of the
Board of Directors;
9
<PAGE> 41
(b) To fix and determine and to vary the amount of working capital
of the Corporation; to determine whether any, and if any, what part of the net
income of the Corporation or its net assets in excess of its capital shall be
declared and paid as dividends and paid to the shareholders and whether or not
in cash or shares of the Corporation or in other property; to determine the
date or dates for the declaration and payment of dividends; and to direct and
determine the use and disposition of any such net income or any such excess of
net assets over paid in capital;
(c) From time to time, and without other limit as to amount, except
as may be provided in a resolution or resolutions adopted by the shareholders
of the Corporation, to borrow or otherwise raise monies for any of the purposes
of the Corporation; to authorize the issue of bonds, debentures, notes, or
other obligations of the corporation, of any nature, or in any manner, and to
authorize the creation of mortgages upon, or the pledge, conveyance or
assignment in trust of, the whole or any part of the property of the
Corporation, real or personal whether at the time owned or thereafter acquired,
including contract rights, to secure the payment of any such bonds, debentures,
notes or other obligations and the interest thereon; and to authorize the sale
or pledge or other disposition of such bonds, debentures, notes or other
obligations of the Corporation for its corporate purposes;
(d) By resolution adopted by a majority of the full Board of
Directors, to designate from among its members one or more committees, each
committee to consist of at least three members of the Board of Directors, which
to the extent provided in such resolution or in the Bylaws of the Corporation
shall have and may, exercise all of the authority of the Board of Directors
except the authority reserved to the Board of Directors as provided by law or
by the Bylaws.
Article X
Amendment
10.01 The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation in the manner
now or hereafter provided by law, and all rights conferred herein upon
shareholders and directors are granted subject to this reservation.
10
<PAGE> 42
IN WITNESS WHEREOF, the undersigned Alabama-Tennessee Natural Gas Company
hereunto subscribed its name to these Articles of Incorporation on this the day
26th of January, 1982.
ALABAMA-TENNESSEE NATURAL
GAS COMPANY
ATTEST: By:/s/ M. D. Prouty, Jr.
---------------------
Its:President
By:/s/ John R. Severin, Jr.
------------------------
Its: Secretary
11
<PAGE> 43
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
ALATENN RESOURCES, INC.
Pursuant to the provisions of Section 10-2A-113 of the Code of Alabama,
the undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is AlaTenn Resources, Inc.
SECOND: The following amendments of the Articles of Incorporation were
adopted by the shareholders of the Corporation on May 2, 1993, in the manner
prescribed by the Alabama Business Corporation Act.
RESOLVED, that Paragraph 4.01 of the Article IV, Authorized Capital, of
the Articles of Incorporation of the Company be amended to read as
follows:
4.01 The aggregate number of shares which the Corporation shall have
authority to issue is 3,000,000 common shares of the par value of $1.00
each."
THIRD: The number of shares of the Corporation outstanding at the time
of such adoption was 1,080,000; and the number of shares entitled to vote
thereon was 1,080,000.
FOURTH: The number of shares voted for such amendment was 707,713; and
the number of shares voted against such amendment was 5,593.
Dated: May 18, 1983
ALATENN RESOURCES, INC.
By: /s/ M.D. Prouty, Jr.
------------------------
Its President
and /s/ R.N. Lawson
------------------------
Its Secretary
12
<PAGE> 44
STATE OF ALABAMA )
) ss
COUNTY OF COLBERT )
I, Pamela P. Zalot, a notary public, do hereby certify that on this 18th
day of May, 1983, personally appeared before me M.D. Prouty, Jr. and R. N.
Lawson, who, being by me first duly sworn, declared that they are the President
and Secretary of AlaTenn Resources, Inc., that they signed the foregoing
document as President and Secretary of the Corporation, and that the statements
therein contained are true.
/s/ Pamela P. Zalot
---------------------
Notary Public
13
<PAGE> 45
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ALATENN RESOURCES, INC.
Pursuant to the provisions of Code of Alabama (1975), # 10-2A-113,
the undersigned Corporation hereby adopts the following Articles of
Amendment to its Articles of Incorporation:
1. The name of the Corporation is:
AlaTenn Resources, Inc.
2. The amendments so adopted are:
FIRST: The following new Section 6.03 is hereby added to Article
VI of the original Articles of Incorporation:
6.03. At a meeting called expressly for that purpose, any director or the
entire Board of Directors may be removed, with or without cause, but only
upon the affirmative vote of the holders of not less than eighty percent
(80%) of the then outstanding common shares of the Corporation and the
affirmative vote of the holders of not less than sixty-seven percent (67%)
of the then outstanding common shares of the Corporation which are not
held by a Substantial Shareholder or any of its Affiliates or Associates.
Notwithstanding any other provision of these Articles of Incorporation or
the Bylaws (and notwithstanding the fact that a lesser percentage may be
specified by law,, these Articles of Incorporation or the Bylaws), the
provisions of this Section 6.03 may not be amended or repealed, and no
provision inconsistent herewith may be adopted, unless such action shall
have been approved by the affirmative vote of the holders of not less than
eighty percent (80%) of the then outstanding common shares of the
Corporation and the affirmative vote of the holders of not less than
sixty-seven percent (67%) of the then outstanding common shares of the
Corporation which are not held by a Substantial Shareholder or any of its
Affiliates or Associates.
SECOND: Paragraph (a) of Section 9.01 of Article IX of the
original Articles of Incorporation is hereby amended by deleting
said Paragraph (a) of said Section 9.01, Article IX in its
entirety, and substituting the following Paragraph (a), Section
9.01, Article IX in lieu thereof:
(a) The Board of Directors shall have the power to adopt, amend and
repeal from time to time Bylaws of the Corporation (other than any Bylaw
establishing what constitutes a quorum at shareholders meetings), subject
to the right of the
14
<PAGE> 46
shareholders to adopt new Bylaws and to amend and repeal Bylaws made by
the Board of Directors; provided, however, that no Bylaws shall be
adopted, amended or repealed by the shareholders of the Corporation unless
such action shall have been approved by the affirmative vote of the
holders of not less than eighty percent (80%) of the then outstanding
common shares of the Corporation and the affirmative vote of the holders
of not less than sixty-seven percent (67%) of the then outstanding common
shares of the Corporation which are not held by a Substantial Shareholder
or any of its Affiliates or Associates. Notwithstanding any other
provision of these Articles of Incorporation or the Bylaws (and
notwithstanding the fact that a lesser percentage may be specified by law,
these Articles of Incorporation or the Bylaws), the provisions of this
Paragraph (a) may not be amended or repealed, and no provision
inconsistent herewith may be adopted, unless such action shall have been
approved by the affirmative vote of the holders of not less than eighty
percent (80%) of the then outstanding common shares of the Corporation and
the affirmative vote of the holders of not less than sixty-seven percent
(67%) of the then outstanding common shares of the Corporation which are
not held by a Substantial Shareholder or any of its Affiliates or
Associates.
THIRD: Article X of the original Articles of Incorporation is
hereby redesignated as Article XI of the Articles of Incorporation,
and the following new Article X is hereby added to the Articles of
Incorporation:
Article X
Certain Business Combinations
10.01. In addition to any affirmative vote, or other approval, required
by law or any other provision of these Articles of Incorporation or the
Bylaws, and except as otherwise expressly provided in Section 10.02 of
this Article X, any Business Combination (as defined in Section 10.03 of
this Article X) shall require the affirmative vote of the holders of not
less than eighty percent (80%) of the then outstanding common shares of
the Corporation (the "common shares") and the affirmative vote of the
holders of not less than sixty-seven percent (67%) of the then outstanding
common shares not held by a Substantial Shareholder (as defined in Section
10.03 of this Article X) or by any of its Affiliates (as defined in
Section 10.03 of this Article X) or Associates (as defined in Section
10.03 of this Article X). Such affirmative votes shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or otherwise.
10.02. The provisions of Section 10.01 of this Article X shall not
apply to any particular Business Combination, and
15
<PAGE> 47
such Business Combination shall require only such affirmative vote, or
other approval, as is required by law and any other provision of these
Articles of Incorporation or the Bylaws, if all of the conditions
specified in either Section 10.02(a) or Section 10.02(b) of this Article X
are met.
(a) The Business Combination shall have been approved by a majority
of the Disinterested Directors (as defined in Section 10.03 of this
Article X).
(b) All of the conditions of clauses (1),(2),(3) and (4) below shall
have been met:
(1) The aggregate amount of the cash and the Fair Market Value
(as defined in Section 10.03 of this Article X) as of the date
of consummation of the Business Combination of consideration
other than cash to be received per common share by the
shareholders in such Business Combination is not less than the
higher of:
(i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees)
paid by the Substantial Shareholder for any common shares,
with appropriate adjustments for share splits, share
dividends and like distributions; or
(ii) the Fair Market Value per common share on the date on
which the first public announcement of the proposal of the
Business Combination is made or on the date on which the
Substantial Shareholder became a Substantial Shareholder,
whichever is higher.
(2) The consideration payable to the holders of common shares of the
Corporation shall be in cash or in the same form as the Substantial
Shareholder has previously paid for common shares. If the
Substantial Shareholder has paid for common shares with varying forms
of consideration, the consideration payable shall be either cash or
the form used to acquire the largest number of common shares acquired
by the Substantial Shareholder.
(3) Subsequent to the Substantial Shareholder having become a
Substantial Shareholder, and prior to the consummation of the
Business Combination:
(i) except as approved by a majority of Disinterested
Directors, there shall have been: (A) no reduction in the annual
rate of dividends paid on the common shares of the Corporation
(except as
16
<PAGE> 48
necessary to reflect any subdivision of such common shares);
and (B) no failure to increase such annual rate of dividends as
necessary to reflect any reclassification (including any reverse
share split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of
outstanding common shares of the Corporation; and
(ii) such Substantial Shareholder shall not have become the
Beneficial Owner (as defined in Section 10.03 of this Article X)
of any additional common shares except as part of the
transaction which results in such Substantial Shareholder
becoming a Substantial Shareholder and except in a transaction
which, after giving effect thereto, would not result in the
Substantial Shareholder becoming the Beneficial Owner of a
greater percentage of the outstanding common stock of the
Corporation; and
(iii) such Substantial Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a
shareholder of the Corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise; and
(iv) except as approved by a majority of Disinterested
Directors, there shall have been no major change in the
Corporation's business or equity capital structure.
(4) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 shall be mailed to all shareholders
of the Corporation at least thirty (30) days prior to consummation of
the Business Combination, whether or not such proxy or information
statement would be required by the Securities Exchange Act of 1934.
10.03. For purposes of Section 6.03 of Article VI, Section 9.01(a) of
Article IX and this Article X of these Articles of Incorporation:
(a) The term "Person" shall mean any individual, firm, corporation
or other entity.
17
<PAGE> 49
(b) The term "Affiliate" and the term "Associate" shall have the
respective meanings which were contained in the definitions thereof
set forth as of July 1, 1984, in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
(c) A Person shall be a "Beneficial Owner" of any common shares:
(1) which such Person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(2) which such Person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding; or
(3) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of its Affiliates
or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of
any common shares.
(d) The term "Business Combination" shall mean:
(1) any merger or consolidation of the corporation or any
Subsidiary (as defined in this Section 10.03) with (i) any
Substantial Shareholder or (ii) any other corporation (whether
or not itself a Substantial Shareholder) which is, or after such
merger or consolidation would be, an Affiliate of a Substantial
Shareholder, regardless of which entity survives; or
(2) any sale, lease, exchange, loan, advance, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) to, or with, any Substantial Shareholder or any
Affiliate of a Substantial Shareholder, of any assets or
securities of the Corporation or any Subsidiary, or both, having
an aggregate Fair Market Value in excess of $1,000,000; or
(3) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation
18
<PAGE> 50
proposed by or on behalf of a Substantial Shareholder or any
Affiliate of a Substantial Shareholder; or
(4) any transaction involving the Corporation or any
Subsidiary, including, without limitation, the issuance or
transfer of any securities of, any reclassification of
securities of, or any recapitalization of, the Corporation or
any Subsidiary, or any merger or consolidation of the
Corporation with any Subsidiary (whether or not involving a
Substantial Shareholder), if the transaction would have the
effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
owned directly or indirectly by a Substantial Shareholder or any
Affiliate of a Substantial Shareholder; or
(5) any agreement, contract or other arrangement providing for
any one or more of the actions specified in clauses (1) through
(4) of this Section 10.03(d).
(e) The term "Disinterested Director" shall mean any member of the
Board of Directors of the Corporation who is not an Affiliate or
Associate of the Substantial shareholder, and who was a member of the
Board of Directors prior to the time that the Substantial Shareholder
became a Substantial Shareholder; and any successor of a
Disinterested Director, if the successor is not an Affiliate or
Associate of the Substantial Shareholder and is recommended or
elected to succeed a Disinterested Director by a majority of
Disinterested Directors.
(f) The term "Fair Market Value" shall mean:
(1) in the case of shares, the highest closing sale price per
share of such shares during the 30-day period immediately
preceding the date in question as reported by any United States
securities exchange registered under the Securities Exchange Act
of 1934 on which such shares are listed, or, if such shares are
not listed on any such securities exchange, then the highest
closing bid quotation for any of such shares as reported during
the aforesaid 30-day period on the National Association of
Securities Dealers, Inc. Automatic Quotations System or any
system then in use, or, if no such closing sales price or bid
quotation is
19
<PAGE> 51
reported, the fair market value of such shares on the date in
question, as determined in good faith by the Board of Directors;
or
(2) in the case of property or securities other than cash or
shares, the fair market value of said property or securities on
the date in question, as determined in good faith by the Board
of Directors.
(g) The term "Substantial Shareholder" shall mean any Person (other
than the Corporation or any Subsidiary) who or which, together with
its Affiliates and Associates, is at any time the Beneficial Owner in
the aggregate of more than ten percent (10%) of the outstanding
common shares or who or which is an Affiliate of the Corporation and
at any time within the two-year period immediately prior to the date
in question was the Beneficial Owner of more than ten percent (10%)
of the then outstanding common shares. For the purpose of
determining whether a Person is a Substantial Shareholder, the number
of common shares deemed to be outstanding shall include common shares
deemed beneficially owned through application of Section 10.03(c) of
this Article X but shall not include any other common shares which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants,
options or otherwise.
(h) The term "Subsidiary" shall mean any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Substantial Shareholder set forth in
Paragraph (g) of this Section 10.03, the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(i) In the event of any Business Combination in which this
Corporation survives, the phrase "consideration other than cash to be
received" as used in Paragraph (b)(1) of Section 10.02 of this
Article X shall include the common shares retained by the holders of
such shares.
10.04. The directors of the Corporation shall have the power and duty
to determine, on the basis of information known to them after reasonable
inquiry, the following:
(a) whether a Person is a Substantial Shareholder;
(b) the number of common shares of which any Person is the
Beneficial Owner;
20
<PAGE> 52
(c) whether a Person is an Affiliate or Associate of another;
(d) whether any transaction described in Section 10.03(d)(2) of this
Article X involves assets or securities having an aggregate Fair
Market Value in excess of $1,000,000;
and the good faith determination of a majority of the directors on
such matters shall be conclusive and binding for the purposes of
Section 6.03 of Article VI, Section 9.01(a) of Article IX and this
Article X.
10.05. Nothing contained in this Article X shall be construed to
relieve any Substantial Shareholder from any fiduciary obligation imposed
by law.
10.06. The fact that any Business Combination complies with the
provisions of Section 10.02(b) of this Article X shall not be construed to
impose any fiduciary duty, obligation or responsibility on the Board of
Directors, or any member thereof, to approve such Business Combination or
recommend its adoption or approval to the shareholders of the Corporation,
nor shall such compliance limit, prohibit or otherwise restrict in any
manner the Board of Directors, or any member thereof, with respect to
evaluations of or actions and responses taken with respect to such
Business Combination.
10.07. Notwithstanding any other provision of these Articles of
Incorporation or the Bylaws (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
Bylaws), the provisions of this Article X may not be amended or repealed,
and no provision inconsistent herewith may be adopted, unless such action
shall have been approved by the affirmative vote of the holders of not
less than eighty percent (80%) of the then outstanding common shares and
the affirmative vote of not less than sixty-seven percent (67%) of the
then outstanding common shares which are not held by a Substantial
Shareholder or any of its Affiliates or Associates.
FOURTH: Except as hereinabove amended, the Articles of Incorporation of the
Corporation are continued in full force and effect.
3. The foregoing amendments to the Articles of Incorporation of the
Corporation were adopted by the shareholders of the Corporation on the 26th day
of October, 1984.
4. The number of shares of the Corporation outstanding at the time of the
adoption of the amendments was 2,160,100 and the number of shares entitled to
vote thereon was 2,160,000.
21
<PAGE> 53
5. The number of shares voted for such amendments was 1,347,214 and the
number of shares voted against such amendments was 85,772.
6. The amendments do not provide for an exchange, reclassification or
cancellation of issued shares.
7. The amendments do not effect a change in the amount of stated capital of
the Corporation.
This the 31st day of October, 1984.
ALATENN RESOURCES, INC.
By: /s/ M.D. Prouty, Jr.
------------------------
M.D. Prouty, Jr.
President
By: /s/ R.N. Lawson
------------------------
R.N. Lawson
Secretary
22
<PAGE> 54
VERIFICATION
The undersigned, M.D. Prouty, Jr., President of AlaTenn Resources, Inc., a
corporation organized and existing under the laws of the State of Alabama,
hereby certifies, as such President, that M.D. Prouty, Jr. and R.N. Lawson,
whose names as the respective President and Secretary of AlaTenn Resources,
Inc. are signed to the foregoing Articles of Amendment, constitute such
respective officers of ALATENN RESOURCES, INC. and that the statements set
forth in the foregoing Articles of Amendment are true and correct.
WITNESS, my hand and seal this 31st day of October, 1984.
/s/ M.D. Prouty, Jr.
------------------------
M.D. Prouty, Jr.
President
Subscribed and sworn to
before me this the 31st.
day of October, 1984.
/s/ Shirley Mullins
- ----------------------------
Notary Public
My Commission Expires:3/9/85
23
<PAGE> 55
THIS INSTRUMENT PREPARED BY:
B. G. MINISMAN, JR.
ATTORNEY AT LAW
BERKOWITZ, LEFKOVITS, ISOM & KUSHNER
A PROFESSIONAL CORPORATION
1600 SOUTHTRUST TOWER
BIRMINGHAM, ALABAMA 35203
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
ALATENN RESOURCES, INC.
Pursuant to the provisions of Code of Alabama Sec. 10-2B-10.06 (1994), the
undersigned Corporation hereby files the following Articles of Amendment to its
Articles of Incorporation:
1. The name of the Corporation is:
AlaTenn Resources, Inc.
2. The amendment so adopted is as follows:
Article IX of the Articles of Incorporation, as amended, is hereby amended
by adding the following as Section 9.02:
9.02. A director of the Corporation shall have no personal liability
to the Corporation or its shareholders for money damages for any action
taken, or any failure to take any action, as a director, except liability
for (i) the amount of any financial benefit received by a director to
which he or she is not entitled; (ii) an intentional infliction of harm on
the Corporation or the shareholders; (iii) a violation of Section
10-2B-8.33 of the Alabama Business Corporation Act as the same now exists
or may hereafter be amended; (iv) an intentional violation of criminal
law; or (v) a breach of the director's duty of loyalty to the Corporation
or its shareholders. If the Alabama Business Corporation Act, or any
successor statute thereto, is hereafter amended to authorize the further
elimination or limitation of the liability of a director of a corporation,
then the liability of a director of the Corporation, in addition to the
limitations on liability provided herein, shall be limited to the fullest
extent permitted by the Alabama Business Corporation Act, as amended, or
any successor statute thereto. No amendment to or repeal of this
<PAGE> 56
Section 9.02 shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect
to any acts or omissions of such director occurring prior to such
amendment or repeal.
Except as hereinabove amended, the Articles of Incorporation of the
Corporation, as amended, are continued in full force and effect.
3. The number of shares of the Corporation outstanding at the time of the
adoption of the amendment was 2,115,484 common shares, and the number of shares
entitled to vote thereon at the meeting of shareholders held on May 1, 1995 was
2,115,484 common shares. The number of shares represented at the meeting of
shareholders on May 1, 1995 was 1,754,702 common shares.
4. The foregoing amendment to the Articles of Incorporation of the
Corporation was adopted by the shareholders of the Corporation on May 1, 1995.
The number of shares voting for the amendment was 1,671,897 common shares, and
the number of shares voting against the amendment was 54,956 common shares.
5. The amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
This the 5th day of May, 1995.
ALATENN RESOURCES, INC.
By:/s/ Jerry A. Howard
-----------------------------
Chairman of the Board,
President and Chief Executive
Officer
2
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT
<PAGE> 2
AlaTenn Resources
1995 Annual Report
Broadening Our Focus
Enhancing Shareholder Value
<PAGE> 3
ALATENN RESOURCES, INC. (ALATENN), A DIVERSIFIED HOLDING COMPANY, PROVIDES
PIPELINE AND ENERGY SERVICES AND DESIGNS, MANUFACTURES, AND MARKETS INNOVATIVE
MEDICAL AND HEALTH CARE PRODUCTS.
PIPELINE AND ENERGY SERVICES
The Company's traditional pipeline subsidiaries transport natural gas
in the lower Tennessee Valley. The Company's newest pipeline subsidiary has
substantially completed a pipeline to transport an industrial gas. The
Company's energy marketing subsidiary provides energy services to industrial
and municipal customers both on and off the Company's pipeline systems.
ALABAMA-TENNESSEE NATURAL GAS COMPANY (ALABAMA-TENNESSEE), an
interstate pipeline company which began its deliveries of natural gas in 1950,
provides a vital energy link between upstream pipelines and municipal and
industrial customers.
TENNESSEE RIVER INTRASTATE GAS COMPANY, INC. (TRIGAS), an intrastate
pipeline company established in 1989, transports natural gas primarily to one
large industrial user.
ALATENN PIPELINE COMPANY, INC. (ALATENN PIPELINE), a company formed in
1994, has used the expertise developed in the natural gas pipeline business to
build, own and operate a pipeline for the transmission of gaseous oxygen
beginning in 1996.
ALATENN ENERGY MARKETING COMPANY, INC. (ATEMCO), an energy marketing
company organized in 1986 in response to changing regulations in the natural
gas industry, sells natural gas and provides other natural gas marketing
services to its customers.
MEDICAL AND HEALTH CARE PRODUCTS
In 1995 the Company expanded its medical and health care products
operations by introducing a new line of products and a new marketing
subsidiary.
RYDER INTERNATIONAL CORPORATION (RYDER), a company founded in 1968 and
acquired in 1994 by AlaTenn, designs, develops, manufactures and sells
innovative medical and health care products which range from contact lens
storage and disinfection systems to diagnostic and inflation devices.
ATRION MEDICAL PRODUCTS COMPANY, INC. (ATRION MEDICAL PRODUCTS), a
marketing company incorporated in 1995, markets medical products directly to
physicians, clinics and hospitals.
SOURCES OF REVENUE
<TABLE>
<S> <C>
1994 1995
Pipeline and Energy Services - 90% Pipeline and Energy Services - 86%
Medical and Health Care Products - 10% Medical and Health Care Products - 14%
[GRAPH] [GRAPH]
</TABLE>
<PAGE> 4
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year ended December 31, 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Revenues from pipeline and
energy services $ 69,354,000 $ 63,445,000
Revenues from medical and
health care products 11,025,000 6,876,000
Total revenues 80,379,000 70,321,000
Net income 5,340,000 4,690,000
Net income per share 2.52 2.22
Dividends per share 1.20 1.20
As of December 31, 1995 1994
- ----------------------------------------------------------------------------------
Total assets $ 48,506,000 $ 43,737,000
Long-term debt, including
current maturities 1,812,000 2,885,000
</TABLE>
NET INCOME PER SHARE OPERATING REVENUES DIVIDENDS PER SHARE
(from continuing operations) (in millions)
[GRAPH] [GRAPH] [GRAPH]
1 Excludes favorable adjustments to take-or-pay provision and gain on the sale
of substantially all the assets of two natural gas distribution subsidiaries.
2 Excludes favorable adjustments to reserves previously established for
potentially unrecoverable take-or-pay expenses and for operations that were
previously discontinued.
1
<PAGE> 5
To Our Shareholders
AlaTenn Resources broadened its focus beyond its traditional pipeline and
energy services with its 1994 acquisition of a medical and health care products
company. As a result of this diversification, and higher earnings from our
energy marketing subsidiary, the Company's net income rose 14% in 1995 to $2.52
per share. Importantly, we achieved this diversification while maintaining a
strong balance sheet.
Our Pipeline and Energy Marketing Businesses
During 1995, we began construction of our 22-mile pipeline to transport gaseous
oxygen under a long-term contract with a large industrial gas supplier. We
expanded the magnitude of this project when it was announced that a major new
steel plant was to be built in north Alabama, boosting the requirements for
gaseous oxygen. We expect to begin operating our gaseous oxygen pipeline, on
schedule, in the spring of 1996.
[PICTURE]
In recent years, our interstate natural gas pipeline business has faced -- and
continues to face -- a less regulated, more competitive environment. A major
interstate pipeline company has announced its intention to build a pipeline
into our market area and has entered into agreements to transport substantially
all of the natural gas requirements for two of our major municipal customers in
north Alabama. We are challenging these arrangements in the state courts and
opposing the construction of the pipeline before the appropriate federal
regulatory agencies.
Our intrastate pipeline continues to benefit from long-term contracts with its
principal industrial customer. Our energy marketing subsidiary, which
accounted for a significant percentage of the Company's operating
income in 1995, increased the volumes of natural gas it sold in 1995 for
transportation on our own as well as other pipeline systems.
Our Medical and Health Care Products Businesses
This past year we witnessed great progress in our medical and health care
products business. For more than 25 years, Ryder has designed, developed,
manufactured, and sold innovative health care products for worldwide
distribution by its customers. As planned, in 1995 Ryder expanded its
operations by developing new products and services for its customers. We
anticipate that Ryder will continue to prosper as it
2
<PAGE> 6
applies its technical expertise to developing new medical and health care
products. Ryder's annual contribution has grown to 30% of the Company's
operating income in only two years.
Ryder's management team assisted the Company during 1995 in obtaining the
exclusive worldwide rights to manufacture and market a new line of medical
products, called LacriCATH, which we introduced in the first quarter of 1996.
With this line of medical products, ophthalmologists will be able to clear
blockages in tear ducts using a minimally invasive procedure. We are excited
about the benefits of this new product line and procedure, as well as the
opportunity for Ryder to manufacture an inflation device used with the
LacriCATH balloon catheter and to assemble the final kits. Our newly created
medical products marketing subsidiary will be responsible for worldwide
distribution of the LacriCATH product line directly to end users -- physicians,
clinics and hospitals. We believe the synergy between Ryder and our medical
products marketing subsidiary will enhance the Company's growth in the medical
and health care products field.
Our Corporate Name
While the Company continues to pursue internal and external opportunities for
growth, it remains dedicated to providing quality service, creating innovative
solutions and enhancing shareholder value. We believe that a new corporate
name would provide a unified identity for the Company's increasingly diverse
operations and would better reflect our vision for the Company's future. To
arrive at a new corporate name, we have drawn from the identities of our
Company and our subsidiaries. Accordingly, at our 1996 Annual Meeting of
Shareholders, we will ask our shareholders to approve the change of the
Company's corporate name from AlaTenn Resources, Inc. to ATRION Corporation.
By broadening our focus, we have laid the foundation for ongoing growth. We
envision building on our strengths as a diversified company to further enhance
shareholder value.
Respectfully,
/s/ Jerry A. Howard
- -------------------
Jerry A. Howard
Chairman, President and
Chief Executive Officer
3
<PAGE> 7
Pipeline and Energy Services
The Company's traditional business has been the transportation of natural gas.
However, in 1995, the Company expanded the scope of its pipeline operations by
committing to build, own and operate a 22-mile pipeline designed to transport
gaseous oxygen. By early 1996, AlaTenn Pipeline had substantially completed
construction of the gaseous oxygen pipeline. Under a long-term contract with
the gaseous oxygen supplier, AlaTenn Pipeline plans to begin operating its
pipeline in the spring of 1996.
The Company's natural gas pipelines serve industrial and municipal customers in
the lower Tennessee Valley. TRIGAS, which serves primarily one industrial
customer, extended a contract to transport supplemental volumes of natural gas
for that customer until 1999. As expected, volumes transported on TRIGAS
remained steady in 1995. Volumes of natural gas transported on the Company's
interstate pipeline, Alabama-Tennessee, increased by 13% in 1995.
ATEMCO, the Company's energy marketing subsidiary, supplied nearly 33% more
natural gas to its industrial and municipal customers in 1995 than in 1994. The
increased natural gas sales in 1995 can be attributed to colder weather, greater
requirements by industrial customers on Alabama-Tennessee's pipeline system and
more business from customers on other pipeline systems.
By early 1996, the Company had consummated the sale of the last of its small
natural gas distribution companies. The purchaser, a newly formed gas company,
has become a customer of ATEMCO.
With the federal government's decreased regulation of the natural gas industry,
the environment in which the Company's interstate natural gas pipeline operates
has become extremely competitive. In response to the challenges of this less
regulated environment, the Company's pipeline and energy marketing businesses
have used their existing expertise to create new opportunities.
Tony Burns, Vice President of Operations for AlaTenn's pipeline subsidiary
(left), and Mark Watkins, Plant Manager for a gaseous oxygen supplier in
Decatur, Alabama, inspect the supplier's connection point to AlaTenn's 22-mile
oxygen pipeline. For safety purposes, the underground pipeline uses small,
specially designed valves situated at intervals to equalize pressure around
main line valves.
[PICTURE]
4
<PAGE> 8
[PICTURE]
5
<PAGE> 9
Medical and Health Care Products
Ryder has been designing, developing and manufacturing high-quality health care
products for more than a quarter of a century. Ryder's product line now
includes not only ophthalmic products such as storage and disinfection systems
for soft contact lenses, but also diagnostic devices used in blood analysis and
tissue biopsies, and inflation devices used with balloon catheters.
Ryder generally enters into long-term exclusive agreements to manufacture
proprietary products for worldwide distribution by its customers. In 1995,
Ryder began to manufacture a patented medical device, designed by Ryder, which
is included in a blood-monitoring kit used by diabetics. Also in 1995, Ryder
contracted to produce a patented inflation device it had developed for a leader
in the balloon catheter business. This high-quality, reliable product inflates
the balloon catheter used in angioplasty procedures. Ryder anticipates
applying its inflation device technology to other specialties, including
ophthalmology, radiology and urology. At the request of a longtime customer,
Ryder entered into a short-term contract to package products for national
distribution.
Ryder also played an important role in the Company's acquisition of the
LacriCATH product line. Initially, Ryder was asked to develop an inflation
device for use with the LacriCATH balloon catheter. In late 1995, AlaTenn
purchased the exclusive worldwide manufacturing and marketing rights to the
entire product line. Ryder will not only manufacture the inflation device, but
will also package the catheter kit. In conjunction with the Company's new
medical products marketing subsidiary, Ryder will distribute the completed kits
to end users.
Since becoming a subsidiary of AlaTenn in 1994, Ryder has expanded its product
line, its marketing efforts, and its customer base. It has also contributed
significantly to the profitability of AlaTenn and to the Company's continuing
efforts to diversify its operations.
Sherry Hodges, an employee in the molding department at Ryder, pad prints
graduations on barrel components of balloon catheter inflators used by
physicians in angioplasty procedures. Looking on is Vandy Cruise, Ryder's Vice
President of Operations. The finished barrels are inspected and transferred
into a controlled environment room for final assembly.
[PICTURE]
6
<PAGE> 10
[PICTURE]
7
<PAGE> 11
Steps for Future Growth
AlaTenn expanded the scope of its medical and health care products business
during the last year by forming a medical products marketing subsidiary, ATRION
Medical Products. In 1995, the Company acquired the exclusive worldwide
marketing and manufacturing rights to a newly developed line of products to be
used in a patented ophthalmic surgical procedure. In the first quarter of
1996, ATRION Medical Products introduced this new minimally invasive procedure
and related product line to physicians, clinics and hospitals.
Each year, an estimated half million pediatric and adult patients suffer
painful or irritating blockages of the tear duct which result in epiphora, or
excessive tearing of the eye. The patented LacriCATH product, a sterile,
single-use balloon catheter, has been designed for use by ophthalmologists to
dilate the tear duct and remove those blockages. Clinical studies have shown
that patients who undergo this procedure bear no scarring, lose less blood and
resume normal daily activities sooner than patients undergoing conventional
surgery. Pediatric and adult versions of the LacriCATH products have received
clearance for marketing from the Food and Drug Administration.
ATRION Medical Products markets the LacriCATH line of products through
company-employed Clinical Sales Specialists strategically located across the
country. These products are now being sold in the United States and in
targeted markets abroad.
ATRION Medical Products represents the Company's entry into direct sales of
medical and health care products. By combining the marketing company's sales
efforts with Ryder's product development and manufacturing expertise, AlaTenn
is well-positioned to take advantage of other opportunities in the medical and
health care products field.
AlaTenn's new medical products marketing subsidiary, ATRION Medical Products,
has introduced the LariCATH product line. Steve Ferens, Vice President of
Sales for Ryder (left), and Mark Prodger, Vice President of Marketing for
ATRION Medical Products, (right), demonstrate the Ryder inflation device that
ophthalmologists use with the LariCATH balloon catheter.
[PICTURE]
8
<PAGE> 12
[PICTURE]
9
<PAGE> 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of AlaTenn Resources, Inc.:
We have audited the accompanying consolidated balance sheets of AlaTenn
Resources, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1995. 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 AlaTenn
Resources, Inc. and subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 9, 1996
10
<PAGE> 14
CONSOLIDATED STATEMENTS OF INCOME
(For the years ended December 31, 1995, 1994 and 1993)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES $ 80,379 $ 70,321 $ 119,022
COST OF GOODS SOLD 63,082 54,728 106,881
- -------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 17,297 15,593 12,141
- -------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSES:
Operations 7,685 6,779 4,655
Maintenance 255 345 376
Depreciation and amortization 1,191 976 577
Taxes other than income taxes 355 360 321
- -------------------------------------------------------------------------------------------------------------------------
9,486 8,460 5,929
- -------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 7,811 7,133 6,212
RECOVERY OF ESTIMATED NONRECOVERABLE
TAKE-OR-PAY EXPENSE - - 3,636
INTEREST AND OTHER INCOME 753 482 529
INTEREST EXPENSE (193) (330) (248)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME BEFORE INCOME TAXES 8,371 7,285 10,129
- -------------------------------------------------------------------------------------------------------------------------
INCOME TAXES (NOTE 5) (3,031) (2,595) (3,362)
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 5,340 4,690 6,767
INCOME FROM DISCONTINUED OPERATIONS (NOTE 2) - - 565
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5,340 $ 4,690 $ 7,332
=========================================================================================================================
EARNINGS PER SHARE:
EARNINGS FROM CONTINUING OPERATIONS $ 2.52 $ 2.22 $ 3.21
EARNINGS FROM DISCONTINUED OPERATIONS - - 0.27
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 2.52 $ 2.22 $ 3.48
=========================================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 2,117 2,113 2,108
=========================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
11
<PAGE> 15
CONSOLIDATED BALANCE SHEETS
As of December 31, 1995 and 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ASSETS: 1995 1994
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 2,811 $ 440
Accounts receivable, including $1,860,000 in 1995 and
$2,462,000 in 1994 of take-or-pay settlement costs
(Note 3) 13,890 10,643
Materials and supplies, at average cost 689 521
Inventories 717 745
Prepaid expenses 288 317
- ---------------------------------------------------------------------------------------------------------
18,395 12,666
- ---------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Original cost 35,447 33,123
Less accumulated depreciation and amortization 15,725 15,117
- ---------------------------------------------------------------------------------------------------------
19,722 18,006
- ---------------------------------------------------------------------------------------------------------
OTHER ASSETS AND DEFERRED CHARGES:
Take-or-pay settlement costs (Note 3) - 2,197
Patents, net (Note 1) 5,505 5,944
Goodwill, net (Note 1) 2,652 2,765
Other 2,232 2,159
- ---------------------------------------------------------------------------------------------------------
10,389 13,065
- ---------------------------------------------------------------------------------------------------------
$ 48,506 $ 43,737
=========================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
12
<PAGE> 16
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY AND LIABILITIES: 1995 1994
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) $ 203 $ 203
Accounts payable and accrued liabilities, including $746,000 in 1994
of take-or-pay obligation (Note 3) 12,646 10,025
Accrued income and other taxes 537 621
- ---------------------------------------------------------------------------------------------------------
13,386 10,849
- ---------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 4) 1,609 2,682
- ---------------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes (Note 5) 1,559 1,299
Unamortized investment tax credits (Note 5) 243 256
Other 1,739 1,541
- ---------------------------------------------------------------------------------------------------------
3,541 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 6,078 6,049
Retained earnings (Note 7) 25,525 22,725
Treasury shares, 160,916 shares in 1995 and 164,516 shares in 1994,
at cost (Note 6) (1,861) (1,892)
- ---------------------------------------------------------------------------------------------------------
29,970 27,110
- ---------------------------------------------------------------------------------------------------------
$ 48,506 $ 43,737
=========================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
13
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
(For the years ended December 31, 1995, 1994 and 1993)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,340 $ 4,690 $ 7,332
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,978 1,120 577
Deferred income taxes 260 (125) 19
Provision for estimated nonrecoverable take-or-pay
expense (Note 3) - - (3,636)
Net take-or-pay recoveries (Note 3) 1,735 1,128 1,563
Other 163 121 (587)
- ------------------------------------------------------------------------------------------------------------------------
9,476 6,934 5,268
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable (3,615) 3,142 6,329
(Increase) in other current assets (110) (1,757) (180)
Increase (decrease) in accounts payable 3,376 (3,125) (2,156)
Increase (decrease) in other current liabilities (123) 585 396
- ------------------------------------------------------------------------------------------------------------------------
9,004 5,779 9,657
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Ryder assets (Note 2) - (11,124) -
Property, plant and equipment additions (3,080) (1,390) (578)
- ------------------------------------------------------------------------------------------------------------------------
(3,080) (12,514) (578)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in long-term indebtedness (1,073) 870 -
Issuance of common shares 60 80 139
Cash dividends paid (2,540) (2,536) (2,530)
- ------------------------------------------------------------------------------------------------------------------------
(3,553) (1,586) (2,391)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS 2,371 (8,321) 6,688
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF YEAR 440 8,761 2,073
- ------------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS, END OF YEAR $ 2,811 $ 440 $ 8,761
========================================================================================================================
CASH PAID FOR:
Interest (net of capitalized amounts) $ 207 $ 315 $ 253
Income taxes (net of refunds) 2,931 2,742 2,294
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
14
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AlaTenn Resources is a diversified holding company which provides pipeline and
energy services to the lower Tennessee Valley area and manufactures products
for the medical and health care industry. The Company is engaged in two lines
of business: (1) pipeline and energy services - natural gas transmission and
marketing and (2) medical and health care products - manufacturing of
innovative products for the medical and health care products industry.
Principles of Consolidation
The consolidated financial statements include the accounts of AlaTenn
Resources, Inc. and its subsidiaries (the Company). All significant
intercompany transactions and balances have been eliminated in consolidation.
Property, Plant and Equipment
Property, plant and equipment are stated at original cost. The cost of
additions to property, plant and equipment includes direct labor and materials
costs, allocable overheads and, in the case of pipeline plant, an allowance for
the estimated cost of funds used during construction (AFUDC). Such provisions
for AFUDC are not reflected separately in the accompanying consolidated
statements of income as the amounts are not material. Maintenance and repairs,
including the cost of renewals of minor items of property, are charged
principally to expense as incurred. Replacements of property (exclusive of
minor items of property) are charged to the appropriate property accounts.
Upon retirement of a pipeline plant asset, its cost is charged to accumulated
depreciation together with the cost of removal, less salvage value.
Depreciation and Amortization
Depreciation on pipeline plant is calculated using the composite rate method
which approximated an average depreciation rate of 2.1% in 1995, 2.0% in 1994
and 2.1% in 1993. Depreciation on facilities and equipment used in the
manufacture of medical and health care products is calculated on a
straight-line basis over the useful lives of the assets. Goodwill is being
amortized at a rate of 4% per year and patents are being amortized over the
remaining lives of the individual patents.
Operating Revenue
The Company recognizes revenue from natural gas sales and transportation
service in the period the service is provided. Provision is made for possible
refund of revenues collected which are subject to future rate decisions.
Revenues from the sale of manufactured medical and health care products are
recognized on an accrual basis, at the time of sale.
Income Taxes
The Company's deferred income taxes reflect the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. These temporary differences
are determined in accordance with Statement of Financial Accounting Standard
No. 109 (SFAS 109), Accounting for Income Taxes (see Note 5). Investment tax
credits are deferred and amortized to income over the lives of the related
assets (see Note 5).
Inventory
Inventories are stated at lower of cost or market. Cost is determined by using
the first-in, first-out method.
Goodwill and Patents
Goodwill represents the excess of cost over the fair market value of tangible
and identifiable intangible net assets. Values assigned to patents were agreed
to at the time of the acquisition between selling and acquiring parties.
Temporary Cash Investments
Temporary cash investments are securities with original maturities of 90 days
or less. For purposes of the Consolidated Statements of Cash Flows, temporary
cash investments are considered cash equivalents.
Financial Presentation
Certain prior-year amounts have been reclassified to conform with current-year
presentation.
Estimates
The 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 at the date of the
financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS AND DISPOSITIONS OF ASSETS AND SUBSIDIARIES
Acquisition of Ryder International
On April 19, 1994, the Company, through a wholly-owned subsidiary, purchased
the business of Ryder International Corporation by acquiring certain of its
operating assets and assuming substantially all of its liabilities. The
Company paid to Ryder International Corporation $11.1 million in cash, issued a
promissory note in the principal amount of $1.0 million and assumed liabilities
totaling $2.2 million. The acquisition was recorded using the purchase method
of accounting. Accordingly, the purchase price was
15
<PAGE> 19
allocated to the assets and liabilities acquired based on their estimated fair
values at the date of acquisition. The excess of the consideration paid over
the estimated fair value of the identifiable assets acquired of $2.4 million
was recorded as goodwill and is being amortized over 25 years. Only results
from operations subsequent to the acquisition date are reflected in the
accompanying consolidated financial statements. Following the closing, the
name of the Company's subsidiary was changed to Ryder International Corporation
(Ryder).
The following table presents selected unaudited financial data for the years
ended December 31, 1994 and 1993 on a pro forma basis assuming that the
purchase of the business of Ryder International Corporation had occurred as of
January 1, 1993. The pro forma data reflect asset and liability values and
other assumptions which are based on estimates and subject to revision. The
pro forma combined results presented have been prepared for comparative
purposes only and are not necessarily indicative of actual results that would
have been achieved had the acquisition occurred at the beginning of the periods
presented or of future results.
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
1994 1993
(in thousands)
- ------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $73,925 $129,432
Income From Continuing
Operations 4,937 7,767
Net Income 4,937 8,332
Net Income Per Share 2.34 3.94
</TABLE>
On October 27, 1995, the Company, through a new subsidiary, ATRION Medical
Products, Inc., purchased exclusive worldwide marketing and manufacturing
rights to a patented product for treating excessive tearing of the eye. The
Company acquired licensing rights to the product under a licensing agreement
with the product's inventor. The Company paid $425,000 and assumed certain
liabilities in connection with the acquisition of the product and licensing
rights. The line of products, called LacriCATH, provides a minimally invasive
procedure for clearing obstructions in the nasolacrimal duct. Ryder will
manufacture components for the product line and provide assembly of the kits.
Disposition of Assets
In the second quarter of 1993, the Company recorded income of $565,000 for
additional tax benefits associated with the disposal of the assets of End
Devices, Inc. which the Company sold in 1990. This income has been reflected
as income from discontinued operations in 1993 in the Consolidated Statements
of Income.
3. REGULATORY AND RATE MATTERS
The Company's interstate pipeline subsidiary, Alabama-Tennessee Natural Gas
Company (Alabama-Tennessee), is regulated by the Federal Energy Regulatory
Commission (FERC). The FERC establishes the maximum and minimum transportation
rates Alabama-Tennessee is permitted to charge its customers. The Company's
intrastate pipeline subsidiary, Tennessee River Intrastate Gas Company, Inc.
(TRIGAS), is regulated by the Alabama Public Service Commission (APSC). The
rates to TRIGAS's transportation customers are determined by negotiated
contracts which were approved by the APSC.
On April 1, 1993, Alabama-Tennessee increased its jurisdictional rates from
rates that had been in effect since April, 1990. This rate increase was agreed
to in an uncontested settlement with Alabama-Tennessee's customers which the
FERC approved on December 30, 1993. As a result of this settlement,
Alabama-Tennessee realized an increase in its jurisdictional revenues of
approximately $400,000 per year which was offset by the lower recovery of
certain demand charges, resulting in a net decrease in jurisdictional revenues
of approximately $350,000 per year compared with actual jurisdictional revenues
realized in the twelve months ended May 31, 1992, the base period used in the
rate filing.
During 1992, the FERC issued Order Nos. 636, 636-A and 636-B, respectively
(together hereafter referred to as the "Restructuring Rule"). Under the
Restructuring Rule, which is pending federal appellate court review, all
interstate natural gas pipelines were required to make a number of changes in
the structure of the services they provide effective with the 1993-1994 winter
heating season, the primary change being an "unbundling" or separation of
their sales services from their transportation services. Alabama-Tennessee
implemented restructured services on its system as of September 1, 1993 in
compliance with the FERC's orders under the Restructuring Rule.
Alabama-Tennessee did not have any contracts with producers for the purchase of
natural gas supplies at the time of restructuring and, therefore, did not incur
any gas supply realignment costs directly with producers in connection with its
implementation of restructured service under the Restructuring Rule. However,
Alabama-Tennessee's historical supplier, Tennessee Gas Pipeline Company (TGP),
made a series of filings with the FERC, commencing in 1993, for recovery from
its customers of certain transition
16
<PAGE> 20
costs incurred as a result of its implementation of services under the
Restructuring Rule, including $5.5 million from Alabama-Tennessee. As of
December 31, 1995, Alabama-Tennessee had paid this amount to TGP and has
recovered most of these costs and has contractual arrangements which allow for
the recovery of the balance over the next two years.
During the 1980s and early 1990s, many interstate natural gas pipelines
incurred significant take-or-pay liabilities owed to natural gas producers.
Alabama-Tennessee and the other subsidiaries of the Company did not incur any
direct take-or-pay obligations to natural gas suppliers or producers. However,
through various orders issued during the period from 1988 to 1992, the FERC
allowed TGP to pass on to its customers, including Alabama-Tennessee, certain
buyout and buydown costs. The portion of this take-or-pay obligation which
Alabama-Tennessee owed to TGP under various FERC approved orders, including
interest, totaled $23 million, all of which was paid by Alabama-Tennessee
during the period from 1988 through 1995.
In 1991, Alabama-Tennessee reached a settlement with its customers which
provided for the recovery of a portion of the take-or-pay costs billed to it by
TGP over a five-year period. The Company currently estimates that
Alabama-Tennessee will ultimately recover approximately 89% of the $23 million
take-or-pay costs billed by TGP. Alabama-Tennessee's take-or-pay accounts
receivable balance, net of customer payments, was $1.8 million as of December
31, 1995.
In 1989, the Company recorded a net provision for estimated nonrecoverable
take-or-pay expense of $6.4 million. However, changes in the allocation
methodology employed by the FERC and agreements with customers in 1991
resulted in a favorable after-tax adjustment of $3.4 million in the estimate
for non-recoverable take-or-pay expense. Based on this favorable adjustment
and a favorable settlement with the Internal Revenue Service (IRS) in 1993
concerning the Company's treatment of take-or-pay payments and collections in
certain tax returns, the Company recorded income in 1993 of $3.6 million,
reduced by income taxes of $1.3 million.
The facilities of Ryder, the Company's medical and health care products
subsidiary, are registered with the Food and Drug Administration (FDA). All
medical products are manufactured in accordance with Good Manufacturing
Practices as set forth in the Food, Drug and Cosmetic Act of 1938. The FDA does
not establish or regulate price levels for products manufactured by Ryder.
4. LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt as of year-end consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit agreement $ - $ 870
Industrial revenue bonds 812 1,015
Notes payable 1,000 1,000
- ----------------------------------------------------------------------------------
1,812 2,885
Less amounts due in one year 203 203
- ----------------------------------------------------------------------------------
$ 1,609 $ 2,682
==================================================================================
</TABLE>
The Company has entered into a $20 million revolving credit agreement with a
bank. Under this agreement there is a $10 million unsecured revolving facility
and a $10 million revolving facility which must be secured at the time it is
used. The term of the agreement has been extended through January 20, 1997,
and the Company has the right to extend the term through January 20, 1998. At
any time during the term of the agreement, the Company may convert any or all
outstanding amounts, under either facility, to a secured term loan with a
minimum maturity of two years. The Company's ability to borrow funds under
the secured and unsecured credit facilities is contingent on meeting certain
restrictions in the loan agreement. The Company currently is in compliance
with all requirements. At December 31, 1995, the Company had no borrowings
under the revolving loan commitment.
The industrial revenue bonds bear interest at 70% of the prime rate with a
minimum rate of 6%, payable monthly, and are secured by Ryder's land, buildings
and equipment, and by a Company guaranty. In April 1994, Ryder executed a
promissory note, guaranteed by the Company, for $1.0 million to the former
owner of the business. Interest is paid quarterly at 6% on the unpaid balance.
The aggregate maturities of long-term debt for the next five years and
thereafter, are as follows:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 and
(In thousands) Thereafter
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$203 $703 $703 $203 $0
================================================================================================================
</TABLE>
17
<PAGE> 21
5. INCOME TAXES
The items comprising income tax expense are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(In thousands)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current - Federal $2,729 $2,563 $2,404
- State 260 260 247
- ------------------------------------------------------------------------------------------------------------------
2,989 2,823 2,651
- ------------------------------------------------------------------------------------------------------------------
Deferred - Federal 27 (207) 73
- State 28 (7) 87
- ------------------------------------------------------------------------------------------------------------------
55 (214) 160
- ------------------------------------------------------------------------------------------------------------------
Investment tax (13) (14) (14)
- ------------------------------------------------------------------------------------------------------------------
Total income tax expense $3,031 $2,595 $2,797
==================================================================================================================
</TABLE>
On February 10, 1992, the Financial Accounting Standards Board (FASB) issued
Statement No. 109, "Accounting For Income Taxes", which changed the criteria
for measuring the provisions of income taxes and recognizing deferred tax
assets and liabilities on the balance sheet. The Company adopted the new
accounting and disclosure rules of SFAS 109 in the first quarter of 1993 and
did not restate prior periods. The adoption of SFAS 109 required a one-time
adjustment that increased income by $184,000 in the first quarter of 1993.
Temporary differences and carryforwards which gave rise to a significant
portion of deferred tax assets and liabilities as of December 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
(In thousands)
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred investment tax credits $ 88 $ 93
Provisions for refunds 120 465
Benefit plans 406 251
Other, net 414 369
- ---------------------------------------------------------------------------
Subtotal 1,028 1,178
Valuation allowance - -
- ---------------------------------------------------------------------------
Total deferred tax assets $1,028 $1,178
===========================================================================
Deferred tax liabilities:
Depreciation and basis differences $2,069 $1,928
Pensions 138 135
Other, net 380 414
- ---------------------------------------------------------------------------
Total deferred tax liabilities $2,587 $2,477
===========================================================================
</TABLE>
No valuation allowance is deemed necessary, as the Company anticipates
generating adequate future taxable income to realize the benefits of all
deferred tax assets on the balance sheet.
Total income tax expense differs from the amount which would be provided by
applying the statutory federal income tax rate to pretax earnings as
illustrated below:
<TABLE>
<CAPTION>
1995 1994 1993
(In thousands)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at
statutory federal
income tax rate $2,846 $2,477 $3,444
Increase(decrease)
resulting from:
State income taxes 190 166 232
Tax exempt interest - (46) (40)
Other, net (5) (2) (839)
- ------------------------------------------------------------------------------------------------------------------
Total income tax expense $3,031 $2,595 $2,797
==================================================================================================================
</TABLE>
6. COMMON SHARES
The Company utilized 4,600 and 4,200 treasury shares in 1995 and 1994,
respectively, to make distributions under its Restricted Shares Compensation
Plan for Non-employee Directors and its 1994 Stock Incentive Plan (see Note
10). On May 4, 1995, the Board of Directors authorized a program under which
the Company may repurchase 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. In 1995 the Company repurchased 1,000
shares of its common stock under the Stock Repurchase Program. At December 31,
1995 there were 160,916 shares being held in treasury and the cost of the
shares is shown as a reduction in common shareholders' equity in the
Consolidated Balance Sheets.
The Company has adopted a Common Share Purchase Rights Plan which is intended
to protect the interests of shareholders in the event of a hostile attempt to
take over the Company. The Rights, which are not presently exercisable and do
not have any voting powers, represent the right of the Company's shareholders
to purchase at a substantial discount, upon the occurrence of certain events,
common shares of the Company or of an acquiring company involved in a business
combination with the Company.
7. RETAINED EARNINGS
The following is a recap of consolidated retained earnings for the years ended
December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
(In thousands)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $22,725 $20,571 $15,769
Add - net income for
the year 5,340 4,690 7,332
Deduct - cash dividends,
$1.20 per share in
1995, 1994 and 1993 (2,540) (2,536) (2,530)
- ------------------------------------------------------------------------------------------------------------------
Balance, end of year $25,525 $22,725 $20,571
==================================================================================================================
</TABLE>
18
<PAGE> 22
8. REVENUES FROM MAJOR CUSTOMERS
In 1995, approximately $20.0 million (24.8%) and $10.0 million (12.4%) of the
Company's operating revenues were attributable to two natural gas customers.
In 1994, approximately $23.0 million (32.4%) and $8.8 million (12.4%) of the
Company's operating revenues were attributable to two natural gas customers.
In 1993, approximately $24.6 million (20.7%), $18.4 million (15.5%), $18.1
million (15.2%) and $13.2 million (11%) of the Company's operating revenues
were attributable to four natural gas customers.
9. EMPLOYEE RETIREMENT AND BENEFIT PLANS
A noncontributory retirement plan is maintained for all regular employees of
the Company. The plan provides benefits based on years of service and other
factors. The Company's funding policy is to make the annual contributions
required by applicable regulations and recommended by its actuary.
Net pension income for 1995, 1994 and 1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
(In thousands)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 112 $ 139 $ 94
Interest cost 287 277 271
Actual (return) loss on assets (919) 66 (429)
Net amortization and deferral 509 (492) 20
- ----------------------------------------------------------------------------------------
Net periodic pension income $ (11) $ (10) $ (44)
========================================================================================
</TABLE>
The following schedule sets forth the plan's funded status as of December 31,
1995 and 1994 and the amounts recognized in the Company's Consolidated Balance
Sheets during those years:
<TABLE>
<CAPTION>
1995 1994
(In thousands)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value
of benefit obligation
Vested $ 3,353 $ 2,827
Non-vested 17 33
- ----------------------------------------------------------------------------------------------
Accumulated benefit obligation $ 3,370 $ 2,860
- ----------------------------------------------------------------------------------------------
Projected benefit obligation $(4,123) $(3,436)
Plan assets at fair value 5,263 4,569
- ----------------------------------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 1,140 1,133
Unrecognized net gain (156) (128)
Unrecognized net assets at date
of initial adoption (558) (618)
- ----------------------------------------------------------------------------------------------
Prepaid pension asset $ 426 $ 387
==============================================================================================
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation shown above was 7.25% in 1995 and
8.50% in 1994. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
shown above was 6% in both 1995 and 1994. The expected long-term rate of
return on assets was 8% in both years. At December 31, 1995, plan assets were
invested approximately 40% in fixed income securities, 4% in cash and cash
equivalents and 56% in equity securities.
Effective July 1, 1992, the Company adopted a nonqualified Supplemental
Executive Retirement Plan (SERP) which provides additional pension benefits to
certain executive officers of the Company. Expense recognized in connection
with the SERP in 1995, 1994 and 1993 was $69,000, $50,000 and $40,000,
respectively.
The Company also sponsors a defined contribution 401(k) plan and a supplemental
thrift plan for its employees, including Ryder's employees who were added to
the plan on August 1, 1994. These plans provide participants a mechanism for
making contributions for retirement savings. Each participant may contribute
certain amounts of eligible compensation. The Company makes a matching
contribution to the plans. The Company's contribution under these plans was
$245,000 in 1995, $166,000 in 1994 and $104,000 in 1993.
The Company also provides certain contributory postretirement health care and
life insurance benefits to full-time employees of Alabama-Tennessee. The
Company's commitment towards the cost of these postretirement health care
benefits in the year 2000 and later is capped based on the levels provided in
1999.
The Company adopted FASB Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions"(SFAS 106) effective as of January
1, 1993. Prior to 1993, the Company recognized these postretirement benefits in
the year the benefits were paid. In its last rate case, Alabama-Tennessee was
allowed by the FERC to recover SFAS 106 costs in its rates. Therefore, the
adoption of this new standard did not have a material impact on the Company's
financial results. Alabama-Tennessee, in compliance with requirements by the
FERC, has established a VEBA trust and is currently funding and plans to
continue funding these expenses, calculated in accordance with SFAS 106. The
expected long-term
19
<PAGE> 23
rate of return on plan assets was 8.0% as of December 31, 1995. The investment
income of the trust is subject to federal income tax.
The following schedule presents the plan's funded status reconciled with
amounts recognized in the Company's Consolidated Balance Sheet as of December
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
(In thousands)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $(365) $(355)
Fully eligible active plan participants (140) (118)
Other active plan participants (175) (113)
- ----------------------------------------------------------------------------------
Total $(680) $(586)
Plan Assets 202 122
- ----------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation
in excess of plan assets $(478) $(464)
Unrecognized prior service cost - -
Unrecognized net loss (gain) 25 (25)
Unrecognized transition obligation 470 498
- ----------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 17 $ 9
==================================================================================
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1995 1994
(In thousands)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 13 $ 15
Interest cost 49 44
Actual (return) loss on plan assets (27) 3
Amortization of transition obligation
over 20 years 28 28
Net amortization and deferral 19 (9)
- ----------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 82 $ 81
==================================================================================
</TABLE>
The assumed rate of increase in the per capita cost of covered health care
benefits for pre age 65 plan participants is 11.0% for 1996 and is assumed to
decrease gradually to 5.5% by 2007 and then remain level. For post age 64
participants, the rate is 11.0% for 1996 and is assumed to decrease gradually
to 5.0% by 2008 and then remain level. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995 by $2,400 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1995 by $200.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% at December 31, 1995 and 8.50% at December 31, 1994.
10. STOCK OPTION PLAN
During 1994, the shareholders of the Company approved the adoption of the
Company's 1994 Key Employee Stock Incentive Plan (the Stock Incentive Plan).
The Stock Incentive Plan provides for the grant to key employees of incentive
and nonqualified options and restricted shares up to 105,000 common shares of
the Company. The purchase price of the shares under option must be at least
equal to the fair market value of such shares on the date of grant. The options
granted become exercisable no earlier than six months and one day after date of
grant and expire ten years after date of grant. The purchase price, if any, to
be paid for restricted shares is fixed by the Compensation Committee of the
Company. During 1990, the shareholders of the Company approved the adoption of
the Company's 1990 Stock Option Plan which provided for the grant to key
employees of incentive and nonqualified options to purchase common shares of
the Company.
Option transactions for the years 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
Shares Price Per Share
- ----------------------------------------------------------------------------
<S> <C> <C>
Options outstanding
at December 31, 1992 49,000 $10.125 - 24.125
Granted in 1993 28,500 $22.75
Exercised in 1993 (3,500) $14.875 - 20.00
- -----------------------------------------------------------------------------
Options outstanding
at December 31, 1993 74,000 $10.125 - 24.125
Granted in 1994 37,350 $17.50 - 21.75
Exercised in 1994 - -
- -----------------------------------------------------------------------------
Options outstanding
at December 31, 1994 111,350 $10.125 - 24.125
Granted in 1995 44,100 $18.00
Expired in 1995 (1,500) $22.75
Exercised in 1995 (1,800) $10.125 - 17.50
- -----------------------------------------------------------------------------
Options outstanding
at December 31, 1995 152,150 $10.125 - 24.125
=============================================================================
</TABLE>
As of December 31, 1995 there remained 24,800 shares for which options may be
granted in the future under the Stock Incentive Plan.
20
<PAGE> 24
11. SEGMENT INFORMATION
Beginning in 1994, with the acquisition of Ryder, the Company classifies its
continuing operations into two industry segments which are described in
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Summarized financial information for these segments is as follows:
<TABLE>
<CAPTION>
Segment
--------------------------------------
Pipeline Medical and
& Energy Health Care Consoli-
Services Products dated
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues -1995 $69,354 $11,025 $80,379
-1994 63,445 6,876 70,321
Operating income -1995 5,762 2,049 7,811
-1994 5,899 1,234 7,133
Depreciation -1995 588 603 1,191
-1994 567 409 976
Identifiable assets -1995 32,994 15,512 48,506
-1994 28,216 15,521 43,737
==========================================================================
</TABLE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Earnings
Quarter Operating Operating Net Per
Ended Revenue Income Income Share
(In thousands, except per share amounts)
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
3/31/95 $22,474 $2,301 $1,531 $0.72
6/30/95 16,349 1,831 1,261 0.60
9/30/95 18,134 1,862 1,254 0.59
12/31/95 23,422 1,817 1,294 0.61
- ---------------------------------------------------------------------
3/31/94 $20,007 $1,817 $1,288 $0.61
6/30/94 16,519 1,751 1,096 0.52
9/30/94 16,695 1,767 1,139 0.54
12/31/94 17,100 1,798 1,167 0.55
=====================================================================
</TABLE>
21
<PAGE> 25
SELECTED FINANCIAL DATA
(In thousands except per share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Industrial sales (3) $41,767 $40,688 $ 62,234 $ 56,825 $48,570
Resale sales (3) 10,942 8,506 49,132 45,734 35,503
Transportation 11,069 11,050 6,525 4,550 4,219
Natural gas marketing 5,486 3,119 1,052 14,474 5,270
Distribution sales 90 82 79 68 284
Medical and health care products 11,025 6,876 - - -
- -----------------------------------------------------------------------------------------------------------------------
Total operating revenues $80,379 $70,321 $119,022 $121,651 $93,846
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 5,340 $ 4,690 $ 6,767 $ 4,665 $ 7,934
Net income (1) (2) 5,340 4,690 7,332 4,665 8,375
Total assets 48,506 43,737 42,653 42,766 44,858
Long-term debt (incl. current maturities) 1,812 2,885 - - -
Income from continuing operations,
per share 2.52 2.22 3.21 2.23 3.80
Net income per share 2.52 2.22 3.48 2.23 4.01
Dividends per share 1.20 1.20 1.20 1.18 1.10
Average shares outstanding 2,117 2,113 2,108 2,094 2,089
Pipeline sales volumes (MMBtu) - - 3,182 372 667
Pipeline transportation volumes
(MMBtu) (3) 46,361 42,098 42,297 41,550 39,842
Natural gas marketing volumes
(MMBtu) 4,630 2,599 836 7,897 3,358
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 1993 amount includes income of $565,000 related to discontinued
operations and $2.3 million attributable to a favorable revision of an
after-tax provision recorded in 1989 of $6.4 million for estimated
nonrecoverable take-or-pay expense.
(2) The 1991 amount includes a $1.0 million after-tax gain on sale of assets
and income of $3.4 million attributable to a favorable revision of an after-tax
provision recorded in 1989 of $6.4 million for estimated nonrecoverable
take-or-pay expense.
(3) Revenues and volume amounts include sales volumes in MMMBtu of 25,790 in
1995, 19,924 in 1994, 33,538 in 1993, 38,436 in 1992 and 35,855 in 1991 which
were sold to pipeline customers by a marketing subsidiary of the Company.
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
AlaTenn Resources is a diversified holding company which is engaged in
two lines of business: (1) pipeline and energy services and (2) medical and
health care products.
The Company's energy services are provided primarily by Alabama-Tennessee
Natural Gas Company (Alabama-Tennessee), Tennessee River Intrastate Gas Company,
Inc. (TRIGAS) and AlaTenn Energy Marketing Company, Inc. (ATEMCO).
Alabama-Tennessee operates an interstate natural gas pipeline which provides
natural gas transportation service directly to eight industrial plants and 17
municipal gas systems in the Tennessee Valley and is regulated by the Federal
Energy Regulatory Commission (FERC). TRIGAS which operated an intrastate
natural gas pipeline in northern Alabama serves primarily one major industrial
customer with which it has long-term contracts. ATEMCO is a natural gas
marketing company which provides various services to its customers, including
the sale of natural gas to customers both on and off the Company's pipeline
systems.
The Company, through a subsidiary, AlaTenn Pipeline Company, Inc. (AlaTenn
Pipeline Company), began in 1995 and substantially completed in early 1996
construction of a 22-mile pipeline, consisting of approximately 17 miles of
8-5/8-inch and 5 miles of 12-inch high pressure steel pipeline to transport
gaseous oxygen, under a long-term contract with a large industrial gas
supplier, to one of the Company's existing natural gas customers.
The Company's medical and health care products business is conducted by
Ryder International Corporation (Ryder) and ATRION Medical Products, Inc.
(ATRION Medical Products). Ryder, which was acquired in April 1994, is
principally engaged in the design, development, manufacture and sale of
proprietary products for the medical and health care industry. Ryder currently
holds a number of design and use patents. Its products include disposable or
semi-disposable soft contact lens storage and disinfection systems as well as
diagnostic and medical products used or distributed, both domestically and
internationally, by major medical and health care companies (see Notes 2 and 11
of Notes to Consolidated Financial Statements).
On October 27, 1995, the Company through a new subsidiary, ATRION Medical
Products purchased exclusive worldwide marketing and manufacturing rights to a
newly developed line of products to be used in a patented ophthalmic surgical
procedure for treating excessive tearing of the eye. The Company acquired the
product and licensing rights to the product, under a licensing agreement with
the product's inventor, for $425,000 and the assumption of certain
liabilities. The line of products, called LacriCATH enables ophthalmologists
to perform a minimally invasive procedure for clearing obstructions in the
nasolacrimal duct. Ryder will manufacture certain components for the product
line and provide assembly of the kits.
During the last ten years, the natural gas industry has undergone
substantial change, in part in response to certain actions taken by the FERC to
promote greater competition within the industry. The FERC's actions to increase
the availability of transportation services on the nation's interstate pipeline
system, together with the oversupply of deliverable natural gas, have had a
significant impact on the way pipeline companies operate. The Company has
responded to these changes by expanding its efforts in the energy sector through
the development of ATEMCO, a natural gas marketing company, as well as
construction by TRIGAS of an intrastate pipeline which was placed into service
in 1990. The Company has also diversified by expanding into the medical and
health care products industry through the acquisition of Ryder and the
formation of ATRION Medical Products.
RESULTS OF OPERATIONS
The Company's 1995 net income was $5.3 million or $2.52 per share compared
with $4.7 million or $2.22 per share in 1994 and with $7.3 million or $3.48 per
share in 1993. However, net income in 1993 included income from a favorable
adjustment to a 1989 provision for estimated nonrecoverable take-or-pay expense
and a favorable adjustment to a reserve established in 1989 for a discontinued
operation. Excluding these items, net income in 1993 was $4.4 million or $2.11
per share.
Operating revenues were $80.4 million in 1995 compared with $70.3 million
in 1994 and $119.0 million in 1993. Natural gas revenues totaled $69.4 million
in 1995, increasing from $63.4 million in 1994 which had decreased from $119.0
million in 1993. The increase in natural gas revenues in 1995 was attributable
to higher sales volumes by ATEMCO, both to customers on the Company's pipeline
system and to off-system customers, offset somewhat by a decrease in natural gas
prices in 1995 as compared to 1994. The decline in natural gas revenues in 1994
as compared to 1993 was primarily attributable to lower sales volumes by ATEMCO,
lower Alabama-Tennessee revenues due to the impact of Order 636 on operations
and lower spot market natural gas prices in 1994 compared with 1993. ATEMCO's
sales volumes increased by 33% in 1995 compared with 1994 sales while 1994
sales decreased by 34% from 1993 levels. The increase in ATEMCO's sales in 1995
resulted from a 27% increase in pipeline sales as well as greater sales to
off-system customers. The reduction in ATEMCO's sales in 1994 compared with
1993 resulted from reduced sales to customers on the Company's pipeline system
partially offset by higher sales to off-system customers between those years.
Revenues of $11.0 million and $6.9 million for 1995 and 1994, respectively, were
attributable to the operations of Ryder, acquired by the Company in April
1994. The increase in revenues at Ryder between years is attributable to the
inclusion of a full year's operations in 1995 compared to eight months in the
prior year, but also reflected, on a comparable basis, higher sales volumes. The
acquisition of Ryder's business was recorded using the purchase method of
accounting. Accordingly, only results from Ryder's operations
23
<PAGE> 27
subsequent to the acquisition date of April 19, 1994 are reflected in the
Company's financial statements for 1995 and 1994 and results for prior periods
are not included.
As a result of regulatory changes culminating with FERC Order No. 636,
customers on the Company's pipeline systems have gained considerable flexibility
over the past several years in contracting directly with producers and marketing
companies for their natural gas supplies. While such changes have required
Alabama-Tennessee to transport natural gas as opposed to its traditional role as
a seller of natural gas, ATEMCO has been able to provide numerous services to
its customers in the new environment which have helped to offset revenues lost
at Alabama-Tennessee. Transportation service accounted for 100% of
Alabama-Tennessee's pipeline throughput during 1995 and 1994 compared with 93%
in 1993.
As a result of lower natural gas costs and an improved industrial economy,
total natural gas deliveries on the Company's pipeline systems have remained at
high levels over the past several years. Deliveries of natural gas on the
Company's pipelines totaled 46.3 million MMBtu in 1995 compared with 42.1
million MMBtu in 1994 and 45.5 million MMBtu in 1993. The 10% increase in
throughput in 1995 compared to 1994 was due primarily to higher deliveries to
industrial customers, as well as to colder weather which resulted in higher
deliveries to municipal customers. The 7% decrease in deliveries in 1994
compared to 1993 was due to warmer weather in 1994 and higher than normal
deliveries in 1993 to the TVA steam plant that could not get alternate fuels due
to the flooding on the Mississippi River. The availability of low-priced natural
gas supplies during this period had a favorable impact on the utilization of the
Company's pipelines and decreased the attractiveness of alternate fuels. Some of
the industrial customers directly or indirectly served by the Company's
pipelines have the capability to burn fuels other than natural gas, and these
customers generally switch from natural gas when it costs more than an alternate
fuel.
The Company's cost of sales were $63.1 million in 1995 compared with $54.7
million in 1994 and $106.9 million in 1993. In 1995, the cost of purchased
natural gas was $57.6 million and the cost of sales for the medical and health
care products segment was $5.4 million. In 1994, the cost of purchased natural
gas was $51.5 million and the cost of sales for the medical and health care
products segment after its acquisition in April 1994 was $3.2 million. The
increase in purchased natural gas costs for 1995 and 1994 was consistent with
the changes in revenues discussed above.
Gross margins were $17.3 million in 1995 compared with $15.6 million in
1994 and $12.1 million in 1993. Energy margins of $11.7 million in 1995
decreased $.2 million compared with 1994 as slightly higher margins at ATEMCO
were more than offset by lower pipeline margins at Alabama-Tennessee and
TRIGAS. The lower pipeline margins in 1995 were the result of favorable
one-time adjustments in 1994 at Alabama-Tennessee and higher margins in 1994 at
TRIGAS due to higher rates resulting from temporary pricing adjustments,
partially offset by the favorable effect of higher throughput. Energy gross
margins in 1994 decreased $.2 million compared with 1993 due to higher sales
volumes to the TVA steam plant in 1993, lower earnings in 1994 at
Alabama-Tennessee related to the restructuring of two industrial contracts and
to the lower recovery of certain demand charges. These reductions more than
offset the favorable impact of higher margins from the Company's natural gas
marketing subsidiary due to increased marketing opportunities as a result of
Order 636, a full year of higher margins on sales to a major customer which
increased its contract volumes in June of 1993.
Margins from medical and health care products increased by $1.9 million in
1995 compared with 1994. Ryder's 1995 results included a full year of Ryder's
business compared to only eight months in 1994, and on a comparable basis with
the prior year, include higher sales volumes, a more favorable product mix and
lower unit operating costs.
The Company, through ATEMCO and Alabama-Tennessee, presently has contracts
with a major industrial customer for the sale and transportation of natural gas.
In 1995, gross margin under these contracts totaled $2.1 million. On August 31,
1997, certain of these contracts expire and the Company does not expect one of
the contracts, which provides an annual gross margin of $1.0 million, to be
renewed. However, the Company anticipates that margins from AlaTenn Pipeline
Company's long-term contract with a gaseous oxygen supplier will partially
offset this annual loss of margin. Also, the Company recently extended until
1999 an existing contract with a major industrial customer on TRIGAS.
Operations and maintenance expenses were $7.9 million in 1995 compared with
$7.1 million in 1994 and $5.0 million in 1993. This increase of $.8 million from
1994 to 1995 resulted from a $.9 million increase in expenses in the medical and
health care products segment, offset by a $.1 million decrease in the pipeline
and energy services segment. For 1995 and 1994, $2.9 million and $2.0 million,
respectively, of total operations and maintenance expenses, including an
allocation of such expenses from affiliates, were attributable to the medical
and health care products segment. Expenses at Ryder increased by $.6 million,
primarily due to the inclusion of Ryder operations for a full year in 1995 as
compared to a partial year in 1994, the year of its acquisition. The $.1 million
decrease in operations and maintenance expenses for the pipeline and energy
services segment in 1995 compared with 1994 was due to the capitalization of
expenses related to the construction of a pipeline to transport gaseous oxygen
to an industrial customer. The $.1 million increase in operations and
maintenance expense for this segment in 1994 compared with 1993 was due to
higher legal and regulatory expenses along with the capitalization of expenses
for certain major capital projects in 1993.
Operating income for 1995 was $7.8 million compared with $7.1 million in
1994 and $6.2 million in 1993. For 1995, $2.0 million of operating income
resulted from the medical and health care products segment as compared with $1.2
million in 1994. Higher sales and margins at Ryder in 1995 resulted in increased
operating income from the medical and health care products, due in part to the
inclusion of a full year of
24
<PAGE> 28
Ryder's business as compared to a partial year in 1994. This was partially
offset by start-up costs at the Company's new medical and health care products
marketing subsidiary. The $.1 million decrease in operating income from the
pipeline and energy services segment in 1995 compared with 1994 was due to lower
margins as described above and the $.3 million decrease in operating income in
1994 compared to 1993 was due to lower margins from the natural gas transmission
business on the Company's pipelines and higher operations and maintenance
expenses.
Interest and other income amounted to $753,000 in 1995 compared with
$482,000 in 1994 and $529,000 in 1993. The increase in other income in 1995
compared with 1994 reflects higher miscellaneous tooling sales at Ryder,
capitalized interest on construction projects, income from a joint venture
project and higher earnings on investments, partially offset by a decrease in
interest income on the take-or-pay receivable due from Alabama-Tennessee's
customers. The decrease in other income in 1994 compared with 1993 primarily
reflects lower interest on the take-or-pay receivable between years. The
decrease in 1994 also reflects lower invested cash balances in 1994 compared
with 1993, partially offset by higher interest rates in 1994.
Interest expense was $193,000 in 1995 compared with $330,000 in 1994
and $248,000 in 1993. The decrease in 1995 is due to lower borrowings under the
Company's loan revolver while the increase in 1994 relates to interest on debt
incurred in the acquisition of the business of Ryder and higher interest rates.
Income taxes were $3.0 million in 1995 compared with $2.6 million in
1994 and $3.4 million in 1993. Income taxes for 1993 include $1.3 million for
taxes associated with the $3.6 million favorable adjustment of the Company's
provision for estimated nonrecoverable take-or-pay expense and reflect a $.2
million one-time favorable adjustment for the implementation of SFAS 109. Other
differences between years reflect changes in pre-tax income between the
respective years.
IMPACT OF INFLATION
The Company experiences the effects of inflation primarily in the
prices it pays for labor, materials and services. Over the last three years,
the Company has experienced the effects of moderate inflation in these costs.
At times the Company has been able to offset a portion of these increased costs
by increasing the rates it charges for transportation of natural gas and
through cost escalators in certain sales contracts in its medical and health
care products segment.
LIQUIDITY AND CAPITAL RESOURCES
On January 20, 1995, the Company terminated an existing loan agreement
and entered into a new $20 million revolving loan agreement to be utilized for
the funding of operations and for major capital projects or acquisitions,
subject to certain limitations and restrictions (see Note 4 of Notes to
Consolidated Financial Statements). There was no indebtedness under this
agreement at December 31, 1995 while the Company had $.9 million in
indebtedness under the previous loan agreement as of December 31, 1994 and no
indebtedness as of December 31, 1993. The Company did not borrow any
significant amounts under its revolving loan agreement during 1995 or 1993
because excess cash and cash flow from operations were sufficient to fund cash
requirements during these periods.
As of December 31, 1995, the Company had cash and temporary cash
investments of $2.8 million, compared with $.4 million and $8.8 million at the
end of 1994 and 1993, respectively. The Company had long-term debt of $1.6
million as of December 31, 1995 compared with $2.7 million as of December 31,
1994 and no long-term debt at the end of 1993. The decrease in long-term debt
in 1995 was due to the repayment of debt under the loan agreement and the
payment of the annual installment on industrial revenue bonds at Ryder. The
decrease in cash and increase in long-term debt during 1994 was primarily due
to the acquisition of the business of Ryder. In April 1994, the Company
purchased the business of Ryder for $11.1 million in cash, issued a promissory
note in the principal amount of $1.0 and assumed liabilities of $2.2 million.
Capital expenditures for plant and equipment totaled $3.1 million in
1995. Of this amount, the majority was attributable to the partial
construction of a 22-mile pipeline to deliver gaseous oxygen to an industrial
customer. In 1994, excluding the assets acquired in the purchase of the Ryder
business, capital expenditures for plant and equipment totaled approximately
$1.4 million, compared with $.6 million in 1993. The capital expenditures in
1994 and 1993 were related to the improvement of existing facilities and
replacement of certain equipment at Alabama-Tennessee. The primary items
providing cash flow in 1995 were earnings from operations and net take-or-pay
collections. The most significant uses of cash flow in 1995 were capital
expenditures of $3.1 million, payment of $2.5 million of dividends on common
shares and repayment of debt.
Based on settlements with its customers which became final in 1991,
Alabama-Tennessee anticipates collections of approximately $1.8 million during
1996, which will complete its recovery of take-or-pay payments from its
customers. Alabama-Tennessee has no remaining liability to Tennessee Gas
Pipeline (TGP) for take-or-pay. The Company has budgeted capital expenditures
of approximately $2.6 million in 1996 and $.9 million in 1997. A major portion
of the 1996 budget is for the completion of the 22-mile, gaseous oxygen
pipeline. The Company believes that cash flows from operations, cash recoveries
of take-or-pay by Alabama-Tennessee from its customers, and borrowings under the
Company's new revolving loan agreement and other term financing which the
Company believes would be available, if necessary, will be sufficient to fund
the construction of the pipeline described above, potential projects and
budgeted capital expenditures for the next two years.
RATE AND REGULATORY MATTERS
On April 1, 1993, Alabama-Tennessee increased its jurisdictional rates
from rates that had been in effect since April 1, 1990. This rate increase was
agreed to in an uncontested settlement with Alabama-Tennessee's customers which
the FERC approved. As a result of this settlement, Alabama-Tennessee realized
an increase in its jurisdictional revenues of approximately $400,000 per year
which was more than offset by the
25
<PAGE> 29
lower recovery of certain demand charges, resulting in a net decrease of
approximately $350,000 per year compared with actual jurisdictional revenues
realized in the twelve months ended May 31, 1992, the base period used in the
rate filing.
As a result of Order No. 636 and several amendments issued by FERC in 1992, all
interstate natural gas pipelines were required to make a number of changes in
the structure of the services they provide prior to the end of 1993.
Alabama-Tennessee implemented restructured services pursuant to the new orders
on September 1, 1993. Alabama-Tennessee did not have any contracts with
producers for the purchase of natural gas supplies and, therefore, has not
directly incurred any gas supply realignment costs with producers in connection
with its implementation of restructured services under Order No. 636. For more
information on this matter, see Note 3 of Notes to Consolidated Financial
Statements.
ACCOUNTING PRONOUNCEMENTS
In March, 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" (SFAS 121). This statement requires that
long-lived assets be reviewed for impairment whenever events or changes in the
circumstances indicate that the carrying amount for an asset may not be
recoverable. This statement also imposes stricter criteria for regulatory
assets by requiring that such assets be probable of future recovery at each
balance sheet date. The Company must adopt this standard by January 1, 1996 and
does not expect that the adoption will have a material impact on the financial
position or results of operations of the Company.
In October, 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). This statement is effective for
transactions that are entered into in fiscal years beginning after December 15,
1995. SFAS 123 establishes a fair value-based method of accounting for employee
stock options. This method provides for a compensation cost to be charged to
results of operations at the grant date. However, the statement allows
companies to continue to follow the accounting treatment prescribed by APB
Opinion No. 25. Opinion 25 generally requires compensation cost to be
recognized only for the excess of the quoted market price at the grant date
over the price that an employee must pay to acquire the stock. Companies
electing to continue with Opinion 25 must make disclosure of net income as if
Statement 123 had been adopted. The Company has not yet determined the method
of accounting that it will follow for stock options. However, it does not
expect that adoption of the requirements of Statement 123 would have a material
impact on the results of operations.
The Company is subject to the provisions of Statement of Accounting Standards
71, "Accounting for the Effects of Certain Types of Regulation." Regulatory
assets represent probable future revenue to the Company associated with certain
costs which will be recovered from customers through the regulatory, or
ratemaking process. The Company had no material regulatory assets on its books
as of December 31, 1995.
OTHER MATTERS
Environmental matters have gained increased attention in the natural gas
pipeline and distribution industry over the past few years. The Company
believes that its properties and operations in both the pipeline and energy
services segment as well as the medical and health care products segment are in
full compliance with all applicable environmental statutes and regulations.
There are no administrative or judicial proceedings arising under environmental
statutes pending or known to be contemplated by governmental agencies to which
the Company is a party.
As has been previously reported, the City of Decatur, Alabama received
authorization from the FERC in 1994 to construct a pipeline that would bypass
Alabama-Tennessee's facilities and allow Decatur to connect directly to TGP. It
does not appear at this time that Decatur will continue to pursue this option
since Decatur and the City of Huntsville have recently entered into contracts
with Southern Natural Gas Company (Southern), a wholly owned subsidiary of
Sonat, Inc., for natural gas transportation services. In order to provide
service under these contracts, Southern plans to construct a new pipeline to
serve the Huntsville/Decatur area, which now receives its natural gas supplies
through Alabama-Tennessee and TGP. Southern has filed an application with the
FERC to build a 110-mile pipeline from Tuscaloosa, Alabama to North Alabama to
provide such service to Huntsville and Decatur beginning in or after the fourth
quarter of 1997. These contracts with Southern cover substantially all of the
natural gas requirements of Huntsville and Decatur.
The Company is opposing Southern's application at the FERC and on February 9,
1996 filed a lawsuit in state court in Alabama against Southern and the City of
Huntsville. The Company is asserting that the contract between Southern and
Huntsville violates Alabama's competitive bid law and is requesting that the
contract be declared void.
In the meantime, Alabama-Tennessee continues to maintain firm transportation
contracts with both cities. Contracts with Decatur for approximately 93% of
that municipality's contract volume expire on November 1, 1997 with the
remaining due to expire on November 1, 2000. Contracts with Huntsville for
approximately 86% of that municipality's contract volume expire on April 1,
1998 with the balance also expiring on November 1, 2000. In 1995, Huntsville
and Decatur accounted for approximately 4% of the Company's revenues and 16%,
or $2.8 million, of the Company's gross margin.
26
<PAGE> 30
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Emile A. Battat
President and Chief
Executive Officer
Piedmont Enterprises, Inc.
Riverside, Connecticut
Jerry A. Howard
Chairman of the Board, President
and Chief Executive Officer
Richard O. Jacobson
President and Chief
Executive Officer
Jacobson Warehouse Company, Inc.
Des Moines, Iowa
John H.P. Maley
Consultant
Signal Mountain, Tennessee
Jerome J. McGrath
Of counsel to the law firm of
Gallagher, Boland, Meiburger
& Brosnan
Washington, D.C.
Hugh J. Morgan, Jr.
Chairman of the Board
National Bank of Commerce
of Birmingham
Birmingham, Alabama
J. Kenneth Smith
Retired, Former Director,
Government Relations
Oryx Energy Company
Gretna, Louisiana
Roger F. Stebbing
President and Chief Executive Officer
Stebbing and Associates, Inc. and
Marlboro Enterprises, Inc.
Signal Mountain, Tennessee
John P. Stupp, Jr.
Executive Vice President
and Secretary
Stupp Bros., Inc.
St. Louis, Missouri
EXECUTIVE OFFICERS
Jerry A. Howard
Chairman of the Board, President
and Chief Executive Officer
AlaTenn Resources, Inc.
Chairman of the Board or
President of all subsidiaries
George G. Petty
Vice President -- Finance,
Chief Financial Officer and
Secretary-Treasurer
AlaTenn Resources, Inc.
Jeffery Strickland
Vice President -- Corporate Development,
Assistant Secretary and Assistant
Treasurer AlaTenn Resources, Inc.
Richard Rabenau
President and Secretary
Ryder International Corporation
Gus Magrini
President and Secretary
AlaTenn Energy Marketing Company, Inc.
OFFICERS OF PRINCIPAL SUBSIDIARIES
ALABAMA-TENNESSEE NATURAL
GAS COMPANY
Jerry A. Howard
Chairman of the Board, President and
Chief Executive Officer
George G. Petty
Vice President -- Finance, Chief
Financial Officer and
Secretary-Treasurer
Robert A. Burns
Vice President -- Operations
Donald A. Whittington
Vice President -- Customer Services
and Regulatory Affairs
Jeffery Strickland
Vice President -- Planning
RYDER INTERNATIONAL CORPORATION
Jerry A. Howard
Chairman of the Board
Richard Rabenau
President and Secretary
Daniel S. Clark
Vice President -- Regulatory
and Quality
Vandy J. Cruise
Vice President -- Operations
Steven E. Ferens
Vice President -- Sales
Rowland W. Kanner
Vice President -- Technology
Stephen P. Lisak
Vice President -- Engineering
TENNESSEE RIVER INTRASTATE GAS COMPANY, INC.
Jerry A. Howard
Chairman of the Board
and President
Gus Magrini
Vice President
George G. Petty
Secretary and Treasurer
Jeffery Strickland
Asst. Secretary and
Asst. Treasurer
ALATENN ENERGY MARKETING COMPANY, INC.
Jerry A. Howard
Chairman of the Board
Gus Magrini
President and Secretary
27
<PAGE> 31
CORPORATE DATA
COMPANY OFFICE
P.O. Box 918
Florence, Alabama 35631
Telephone: (205) 383-3631
REGISTRAR AND TRANSFER AGENT
American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
FORM 10-K
A copy of the Company's Form 10-K Annual Report to the Securities and Exchange
Commission may be obtained by any shareholder without charge by written request
to:
Corporate Secretary
AlaTenn Resources, Inc.
Post Office Box 918
Florence, Alabama 35631
STOCK INFORMATION
The Company's common shares trade in the Nasdaq National Market (Symbol ATNG).
As of March 15, 1996, there were approximately 3,300 shareholders in the
Company, including beneficial owners holding shares in nominee or "street"
name. The high and low closing prices as reported by Nasdaq for each quarter of
1995 and 1994 are shown below along with the quarterly cash dividends paid per
share.
<TABLE>
<CAPTION>
1995
- ------------------------------------------------------------------
Quarter March June Sept. Dec.
Ended 31 30 30 31
<S> <C> <C> <C> <C>
High 19 3/4 20 1/4 22 22
Low 16 1/2 17 5/8 19 3/4 20 1/4
Dividends
per share $.30 $.30 $.30 $.30
<CAPTION>
1994
- ------------------------------------------------------------------
Quarter March June Sept. Dec.
Ended 31 30 30 31
<S> <C> <C> <C> <C>
High 22 1/4 20 1/2 18 3/4 18 1/2
Low 19 3/4 18 17 1/2 16 1/2
Dividends
per share $.30 $.30 $.30 $.30
</TABLE>
28
<PAGE> 1
EXHIBIT (21) - SUBSIDIARIES OF ALATENN RESOURCES, INC.
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION OWNERSHIP
---------- ---------------------- ---------
<S> <C> <C>
Alabama-Tennessee Natural
Gas Company Alabama 100%
Warrior Basin Gas Company Alabama 100%
Vulcan Oil and Gas Company Alabama 100%
Central Gas Company Alabama 100%
Tennessee River Development
Company Alabama 100%
North Mississippi Natural
Gas Corporation Mississippi 100%
Hardin County Gas Company Tennessee 100%
AlaTenn Energy Marketing
Company Alabama 100%
Tennessee River Intrastate
Gas Company Alabama 100%
AlaTenn Credit Corp. Alabama 100%
AlaTenn Pipeline Company Alabama 100%
Ryder International Corporation Alabama 100%
Atrion Medical Products Alabama 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 9, 1996 incorporated by reference in this Form 10-K
into the Company's previously filed Registration Statement (File No. 33-40639).
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 9, 1996
<PAGE> 1
EXHIBIT(24)-Power of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Jerome J.
McGrath, who is a director of AlaTenn Resources, Inc., does hereby appoint
Jerry A. Howard and George G. Petty, or either of them, to be his true and
lawful attorney to execute in his name (whether on behalf of AlaTenn Resources,
Inc., or as a director of AlaTenn Resources, Inc.) the annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1995, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto this
11th day of March, 1996.
/s/ Jerome J. McGrath
<PAGE> 2
EXHIBIT (24)-Power of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, J. Kenneth
Smith, who is a director of AlaTenn Resources, Inc., does hereby appoint Jerry
A. Howard and George G. Petty, or either of them, to be his true and lawful
attorney to execute in his name (whether on behalf of AlaTenn Resources, Inc.,
or as a director of AlaTenn Resources, Inc.) the annual report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1995, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto this
12th day of March, 1996.
/s/ J. Kenneth Smith
<PAGE> 3
EXHIBIT(24)-Power of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, John P. Stupp,
Jr., who is a director of AlaTenn Resources, Inc., does hereby appoint Jerry A.
Howard and George G. Petty, or either of them, to be his true and lawful
attorney to execute in his name (whether on behalf of AlaTenn Resources, Inc.,
or as a director of AlaTenn Resources, Inc.) the annual report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1995, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto this
11th day of March, 1996.
/s/ John P. Stupp, Jr.
<PAGE> 4
EXHIBIT(24)-Power of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Hugh Morgan,
Jr., who is a director of AlaTenn Resources, Inc., does hereby appoint Jerry A.
Howard and George G. Petty, or either of them, to be his true and lawful
attorney to execute in his name (whether on behalf of AlaTenn Resources, Inc.,
or as a director of AlaTenn Resources, Inc.) the annual report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1995, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto this
12th day of March, 1996.
/s/ Hugh Morgan, Jr.
<PAGE> 5
EXHIBIT(24)-Power of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Emile A.
Battat, who is a director of AlaTenn Resources, Inc., does hereby appoint Jerry
A. Howard and George G. Petty, or either of them, to be his true and lawful
attorney to execute in his name (whether on behalf of AlaTenn Resources, Inc.,
or as a director of AlaTenn Resources, Inc.) the annual report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1995, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto this
11th day of March, 1996.
/s/ Emile A. Battat
<PAGE> 6
EXHIBIT(24)-Power of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Richard O.
Jacobson, who is a director of AlaTenn Resources, Inc., does hereby appoint
Jerry A. Howard and George G. Petty, or either of them, to be his true and
lawful attorney to execute in his name (whether on behalf of AlaTenn Resources,
Inc., or as a director of AlaTenn Resources, Inc.) the annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1995, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto this
11th day of March, 1996.
/s/ Richard O. Jacobson
<PAGE> 7
EXHIBIT(24)-Power of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Roger F.
Stebbing, who is a director of AlaTenn Resources, Inc., does hereby appoint
Jerry A. Howard and George G. Petty, or either of them, to be his true and
lawful attorney to execute in his name (whether on behalf of AlaTenn Resources,
Inc., or as a director of AlaTenn Resources, Inc.) the annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1995, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto this
13th day of March, 1996.
/s/ Roger F. Stebbing
<PAGE> 8
EXHIBIT(24)-Power of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, John H. P.
Maley, who is a director of AlaTenn Resources, Inc., does hereby appoint Jerry
A. Howard and George G. Petty, or either of them, to be his true and lawful
attorney to execute in his name (whether on behalf of AlaTenn Resources, Inc.,
or as a director of AlaTenn Resources, Inc.) the annual report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, on SEC Form 10-K
for the year ended December 31, 1995, any and all amendments to such Form 10-K,
and any and all other instruments and documents to be filed with the Securities
and Exchange Commission relating to such Form 10-K, and the undersigned does
hereby ratify, confirm and approve all that such attorney shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed his name hereto this
17th day of March, 1996.
/s/ John H. P. Maley
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,811
<SECURITIES> 0
<RECEIVABLES> 13,890
<ALLOWANCES> 0
<INVENTORY> 717
<CURRENT-ASSETS> 18,395
<PP&E> 35,447
<DEPRECIATION> 15,725
<TOTAL-ASSETS> 48,506
<CURRENT-LIABILITIES> 13,386
<BONDS> 1,609
0
0
<COMMON> 228
<OTHER-SE> 29,742
<TOTAL-LIABILITY-AND-EQUITY> 48,506
<SALES> 80,379
<TOTAL-REVENUES> 80,379
<CGS> 63,082
<TOTAL-COSTS> 63,082
<OTHER-EXPENSES> 9,486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> 8,371
<INCOME-TAX> 3,031
<INCOME-CONTINUING> 5,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,340
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.52
</TABLE>
