-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TEZr3g9LSGKGiEhapgdXk9NTZYZAId46ngb+LPHtdNo7GwUjMNItsTqSL5PhSYSP R2tr1uB2vmI31IZFMAffuA== 0000950116-98-002421.txt : 19981215 0000950116-98-002421.hdr.sgml : 19981215 ACCESSION NUMBER: 0000950116-98-002421 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980929 ITEM INFORMATION: FILED AS OF DATE: 19981214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE AMERICA INC CENTRAL INDEX KEY: 0000083402 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 720654145 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-04408 FILM NUMBER: 98769010 BUSINESS ADDRESS: STREET 1: 1521 LOCUST ST STREET 2: 4TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2155465005 MAIL ADDRESS: STREET 1: 2876 SOUTH ARLINGTON ROAD CITY: AKRON STATE: OH ZIP: 44312 FORMER COMPANY: FORMER CONFORMED NAME: RESOURCE EXPLORATION INC DATE OF NAME CHANGE: 19890214 FORMER COMPANY: FORMER CONFORMED NAME: SMTR CORP DATE OF NAME CHANGE: 19700522 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) September 29, 1998 ------------------ Resource America, Inc. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-4408 72-0654145 - -------- ------ ---------- (State of incorporation (Commission File Number) (I.R.S. Employer or organization) Identification No.)
1521 Locust Street, 4th Floor, Philadelphia, PA 19102 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 546-5005 -------------- Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired Independent auditors' report Consolidated statements of financial position Consolidated statements of income Consolidated statements of cash flow Notes to consolidated financial statements (b) Unaudited Pro Forma Financial Information Pro forma combined consolidated balance sheet at June 30, 1998 Pro forma combined consolidated statement of operations for the nine months ended June 30, 1998 Pro forma combined consolidated statement of operations for the years ended September 30, 1997 and July 31, 1997 Notes to pro forma combined consolidated financial statements INDEPENDENT AUDITORS' REPORT Board of Directors The Atlas Group, Inc. Coraopolis, Pennsylvania We have audited the accompanying consolidated statements of financial position of The Atlas Group, Inc. and subsidiaries as of June 30, 1998 and July 31, 1997, and the related consolidated statements of income and cash flows for the eleven months ended June 30, 1998 and the year ended July 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Atlas Group, Inc. as of June 30, 1998 and July 31, 1997, and the results of its operations and its cash flows for the eleven months ended June 30, 1998 and the year ended July 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 17, on July 13, 1998 the Company entered into an Agreement and Plan of Merger with Resource America, Inc. pursuant to which The Atlas Group, Inc. will be merged into a wholly owned subsidiary of Resource America, Inc. /s/ McLaughlin & Courson - ------------------------ Pittsburgh, Pennsylvania July 31, 1998 - 1 - CONSOLIDATED STATEMENTS OF FINANCIAL POSITION --------------------------------------------- THE ATLAS GROUP, INC. JUNE 30, 1998 AND JULY 31, 1997
ASSETS ------ JUNE 30, JULY 31, 1998 1997 ---- ---- CURRENT ASSETS - -------------- Cash and cash equivalents $ 5,292,207 $ 9,385,866 Trade accounts and notes receivable, less allowance for doubtful accounts of $391,667 in 1998 and $300,000 in 1997 5,857,331 4,018,804 Other receivables 1,094,550 330,626 Accounts receivable - officers 464,859 41,449 Inventories 783,067 175,635 Prepaid expenses and other current assets 331,838 386,569 ------------- ------------ TOTAL CURRENT ASSETS 13,823,852 14,338,949 OIL AND GAS PROPERTIES - ---------------------- Oil and gas wells and leases 40,739,334 35,526,072 Less accumulated depreciation, depletion and amortization 16,598,203 14,694,388 ------------ ------------ 24,141,131 20,831,684 OTHER ASSETS 447,386 374,722 - ------------ PROPERTY, PLANT AND EQUIPMENT - ----------------------------- Land 504,693 504,693 Buildings 2,816,023 2,777,821 Equipment 1,687,956 1,565,391 Gathering lines 21,830,936 20,506,629 ------------ ------------ 26,839,608 25,354,534 Less accumulated depreciation 16,116,882 14,699,813 ------------ ------------ 10,722,726 10,654,721 ------------- ------------ $49,135,095 $46,200,076 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES - ------------------- Accounts payable and accrued expenses $ 4,402,878 $ 4,024,644 Working interests and royalties payable 4,890,885 4,504,911 Billings in excess of costs of $2,334,975 in 1998 and $2,916,951 in 1997 on uncompleted contracts 4,907,001 6,761,946 Current maturities on long-term debt: Subordinated notes payable to stockholders 1,348,189 1,907,084 Other 1,922,797 819,048 Income taxes payable -0- 336,873 --------------- ------------ TOTAL CURRENT LIABILITIES 17,471,750 18,354,506 DEFERRED INCOME TAXES 675,000 700,000 - --------------------- LONG-TERM DEBT, net of current maturities: Subordinated notes payable to stockholders -0- 1,348,190 Other 8,310,536 4,859,523 OTHER LONG-TERM LIABILITIES 400,000 323,742 - --------------------------- STOCKHOLDERS' EQUITY - -------------------- Capital stock, no par; authorized 2,000,000 shares; issued 500,000 shares 1,250 1,250 Paid-in capital 560,093 560,093 Retained earnings 26,931,861 25,404,167 Treasury stock, at cost (130,519 shares and 133,919 shares, respectively) (5,215,395) (5,351,395) ------------ ----------- 22,277,809 20,614,115 ----------- ----------- $49,135,095 $46,200,076 =========== ===========
See notes to consolidated financial statements - 2 - CONSOLIDATED STATEMENTS OF INCOME --------------------------------- THE ATLAS GROUP, INC. ELEVEN MONTHS ENDED JUNE 30, 1998 AND YEAR ENDED JULY 31, 1997
ELEVEN MONTHS ENDED YEAR ENDED JUNE 30, JULY 31, 1998 1997 ---- ---- INCOME - ------ Sales - gas wells $21,777,181 $22,354,389 Purchased gas revenues 21,786,823 29,908,989 Well operating fees 3,379,158 3,445,777 Gathering line charges 2,466,470 2,539,795 Working interests and royalties 4,505,756 5,124,912 Interest 137,835 227,524 Other 459,696 411,912 ------------- ------------- 54,512,919 64,013,298 COSTS OF SALES AND OTHER EXPENSES - --------------------------------- Costs of sales - gas wells 19,895,082 18,472,875 Cost of purchased gas 22,013,008 30,401,349 Gathering line and well operation expense 2,648,643 2,253,146 General and administrative 4,065,342 3,589,809 Interest: Subordinated notes payable to stockholders 277,213 536,096 Other 356,983 144,625 Depreciation, depletion and amortization 3,323,754 3,850,978 ------------ ------------ 52,580,025 59,248,878 ------------ ------------ INCOME BEFORE INCOME TAXES 1,932,894 4,764,420 INCOME TAXES - ------------ Current: Federal 450,000 665,000 State 100,000 560,000 Deferred (25,000) 45,000 -------------- ------------- 525,000 1,270,000 ------------- ------------ NET INCOME $ 1,407,894 $ 3,494,420 ============ ===========
See notes to consolidated financial statements - 3 - CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- THE ATLAS GROUP, INC. ELEVEN MONTHS ENDED JUNE 30, 1998 AND YEAR ENDED JULY 31, 1997
ELEVEN MONTHS ENDED YEAR ENDED JUNE 30, JULY 31, 1998 1997 ---- ---- Cash flows from operating activities: Net income $ 1,407,894 $ 3,494,420 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 3,323,754 3,850,978 Expense funded by issuance of capital stock 255,800 157,500 Other, net 22,503 -0- Change in assets and liabilities: Receivables (3,025,861) 1,935,803 Inventories (607,432) 273,558 Prepaid expenses and other current assets 82,468 406,004 Accounts payable and accrued expenses and working interests and royalties payable 764,208 (1,555,919) Uncompleted contract billings, net (1,854,945) (3,412,123) Income taxes payable (364,610) (662,000) Deferred income taxes (25,000) 45,000 Long-term liabilities 76,258 13,696 ------------ ------------ Net cash provided by operating activities 55,037 4,546,917 Cash flows used in investing activities: Investment in oil and gas wells and leases (5,213,262) (3,598,288) Other assets, net (72,664) (66,595) Gathering line additions (1,324,307) (2,062,390) Other property additions (186,140) (1,493,305) ------------ ------------ Net cash used in investing activities (6,796,373) (7,220,578) Cash flows provided by (used in) financing activities: Proceeds from long-term borrowings 9,475,000 4,750,000 Principal payments on long-term borrowings (4,920,238) (4,935,715) Principal payments on notes payable to stockholders (1,907,085) (1,669,660) ------------ ------------ Net cash provided by (used in) financing activities 2,647,677 (1,855,375) ------------ ------------ Net decrease in cash and cash equivalents (4,093,659) (4,529,036) Cash and cash equivalents at beginning of period 9,385,866 13,914,902 ------------ ------------ Cash and cash equivalents at end of period $ 5,292,207 $ 9,385,866 ============ ============ Additional Cash Flow Information: Cash paid during the period for: Interest $ 584,743 $ 691,226 Income taxes 914,609 1,887,000
See notes to consolidated financial statements - 4 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE ATLAS GROUP, INC. 1. DESCRIPTION OF BUSINESS The Atlas Group, Inc. (Atlas) was formed in July, 1995 to hold, through its wholly owned subsidiary AIC, Inc. also formed in July, 1995, Atlas Energy Group and its subsidiaries, including Atlas Resources, Inc. and Atlas Gas Marketing, Inc. The purpose of the reorganization is to achieve more efficient concentration of funds of the Atlas group of companies, thereby minimizing transaction costs and maximizing returns on investment vehicles. No changes in the consolidated assets, liabilities or stockholders' equity occurred as a result of the reorganization. Atlas and subsidiaries are engaged in the exploration for development, production, and marketing of natural gas and oil primarily in the Appalachian Basin area. In addition, the Company performs contract drilling and well operation services. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of The Atlas Group, Inc., and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories Inventories, consisting of oil and gas field materials and supplies, are stated at the lower of first-in, first-out cost or market. Method of accounting for oil and gas properties The Company uses the successful efforts method of accounting for oil and gas producing activities. Property acquisition costs are capitalized when incurred. Geological and geophysical costs and delay rentals are expensed when incurred. Development costs, including equipment and intangible drilling costs related to both producing wells and developmental dry holes, are capitalized. All capitalized costs are generally depreciated and depleted on the unit-of-production method using estimates of proven reserves. Oil and gas properties are periodically assessed and when unamortized costs exceed expected future net cash flows, a loss is recognized by recording a charge to income. On the sale or retirement of oil and gas properties, the cost and related accumulated depreciation, depletion and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. For tax purposes, intangible drilling costs are being written off as incurred. The greater of cost or percentage depletion as defined by the Internal Revenue Code, is used as a deduction from income. Property, plant and equipment Land, buildings, equipment and gathering lines are recorded at cost. Major additions and betterments are charged to the property accounts while replacements, maintenance and repairs which do not improve or extend the life of the respective assets are expensed currently. As property is retired or otherwise disposed of, the cost of the property is removed from the asset account, accumulated depreciation is charged with an amount equivalent to the depreciation provided, and the difference, if any, is charged or credited to income. Depreciation is computed over the estimated useful life of the assets generally by the straight-line method. Revenue recognition The Company sells interests in oil and gas wells and retains therefrom a working interest and/or overriding royalty in the producing wells. The income from the working interests is recorded when the natural gas and oil are produced. The Company also contracts to drill oil and gas wells. The income from these contracts is recorded upon substantial completion of the well. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Costs in excess of amounts billed are classified as current assets under costs in excess of billings on uncompleted contracts. Billings in excess of costs are classified under current liabilities as billings in excess of costs on uncompleted contracts. Contract retentions are included in accounts receivable. Working interests and royalties Revenues from working interests and royalties are reported net of all landowner royalty and lease operating expenses and are recognized when the natural gas and oil are produced. For the eleven months ended June 30, 1998, the Company recognized working interest income of $3,556,373 and royalty income of $949,383. Working interest and royalty income during the year ended July 31, 1997 amounted to $4,113,425 and $1,011,487, respectively. - 5 - 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain amounts contained in prior year comparative information have been reclassified to conform with the 1998 presentation. 3. AFFILIATED OIL AND GAS PARTNERSHIPS In connection with the sponsorship of oil and gas partnerships, the Company is reimbursed by the partnerships for certain operating and overhead costs incurred on their behalf. These reimbursements totalled approximately $370,000 during the eleven months ended June 30, 1998 and the year ended July 31, 1997. In addition, as part of its duties as well operator, the Company receives proceeds from the sale of oil and gas and makes distributions to investors according to their working interest in the related oil and gas properties. 4. PLAN OF REORGANIZATION On November 8, 1990 the Company adopted a plan of reorganization whereby a substantial portion of the common stock of the two majority shareholders would be purchased by the Company and shares of the Company's stock would be granted to certain key employees of the Company (Management Investors) giving the Management Investors control of the Company. PURCHASE OF TREASURY SHARES AND NOTES PAYABLE TO STOCKHOLDERS On November 14, 1990 the Company entered into an agreement effective as of August 16, 1990 to purchase 248,717 shares of common stock from its two majority shareholders at $40.00 per share ($9,948,680). The purchase price is evidenced by promissory notes bearing interest at 13.5%. Quarterly principal payments range from $100,574 on November 15, 1991 to a final payment of $856,103 on November 15, 1998. Payments may be deferred or accelerated under certain circumstances. Principal payments totaled $1,907,085 and $1,669,660 during the eleven months ended June 30, 1998 and the year ended July 31, 1997, respectively. Interest expense amounted to $277,213 and $536,096 for the eleven months ended June 30, 1998 and the year ended July 31, 1997, respectively. The notes are subordinate to all direct and indirect debt, past, present or future and all obligations, if any, to make contributions to any employee stock ownership plan now in existence or hereinafter created. The promissory notes are secured by warrants on the common stock of the Company that are exercisable upon an uncorrected event of default. At June 30, 1998 and July 31, 1997, the following warrants were outstanding: JUNE 30, JULY 31, 1998 1997 ---- ---- Number of shares 28,678 167,194 Exercise price 47.01 19.47 The Company has options to purchase, and the majority shareholders had options to sell 131,425 shares of the Company's common stock at per share prices ranging from $63.25 to $74.10 commencing on the earlier of the satisfaction of all the Company's obligations under the foregoing promissory notes or November 14, 1999. STOCK GRANTS The Company has established a management employee stock option consisting of an aggregate of options to acquire 47,578 shares of common stock at $1.00 per share. No options have been granted as of June 30, 1998. The option will terminate August 15, 2012. There are restrictions on the sale of the vested Management Investor and ESOP shares of common stock which include among other restrictions, that shares may not be sold until obligations to the majority shareholders are satisfied. Shares offered for sale must first be offered to the Company and then to other shareholders before being offered to a third party. Further conditions apply to sales that would result in a third party owning 5% or more of the total shares of the Company. - 6 - 5. OTHER LONG-TERM DEBT AND CREDIT FACILITY Long-term debt at June 30, 1998 and July 31, 1997 consists of the following:
JUNE 30, JULY 31, 1998 1997 ---- ---- Revolving credit loan payable to bank $ 9,475,000 $4,750,000 Note payable to bank in monthly installments through August 2002 of $15,476, plus interest at or below prime rate plus one-half percent (1/2%) (7.97% and 8.25% at June 30, 1998 and July 31, 1997, respectively). Secured by building and equipment having a net book value of $1,045,860 at June 30, 1998 758,333 928,571 ----------- ----------- 10,233,333 5,678,571 Less current maturities (1,922,797) (819,048) ----------- ----------- $ 8,310,536 $4,859,523 =========== ==========
The revolving credit and term loan agreement enables the Company to borrow $10,000,000 on a revolving basis until August 15, 1998. A commitment fee at a rate of three-eights of one percent (3/8%) is charged on the unused portion. During the revolving credit period, loans bear interest at or below prime rate plus one-quarter percent (1/4%). The average interest rate at June 30, 1998 was 7.79%. The agreement provides that the Company may convert any outstanding borrowings into a 5 year term loan, payable in equal monthly installments, plus interest at or below prime rate plus one-half percent (1/2%). The loan agreements are secured by certain assets of the Company. 6. MATURITIES ON LONG-TERM DEBT Aggregate maturities on long-term debt at June 30, 1998 for the next five fiscal years are as follows: FISCAL SUBORDINATED OTHER YEAR NOTES PAYABLE LONG-TERM ENDING TO STOCKHOLDERS DEBT TOTAL ------ --------------- ---- ----- 1999 1,348,189 $1,922,797 $3,270,986 2000 -0- 2,080,714 2,080,714 2001 -0- 2,080,714 2,080,714 2002 -0- 2,080,714 2,080,714 2003 -0- 1,910,476 1,910,476 7. LEASE COMMITMENTS The Company leases certain vehicles and compressor sites. These leases are accounted for as operating leases. Lease expense for the eleven months ended June 30, 1998 and the year ended July 31, 1997 amounted to $521,261 and $317,870, respectively. The future minimum lease payments at June 30, 1998 are as follows: FISCAL YEAR ENDING ------------------ 1999 $501,963 2000 162,848 2001 57,661 2002 21,690 2003 -0- - 7 - 8. INCOME TAXES Net deferred tax liabilities consist of the following:
JUNE 30, JULY 31, 1998 1997 ---- ---- Exploration and development costs expensed for income tax reporting $1,460,000 $1,250,000 Tax credits (310,000) (270,000) Other (475,000) (280,000) ---------- ---------- $ 675,000 $ 700,000 ========== ==========
A reconciliation between the Company's effective tax rate and the U.S. statutory rate is as follows:
1998 1997 ---- ---- U.S. statutory rate 34.0 % 34.0 % State income taxes net of federal income tax benefit 3.2 4.1 Depletion (5.4) (3.9) Nonconventional fuels and alternative minimum tax credits (1.9) (4.4) Other (2.8) (3.1) ---- ---- Effective tax rate 27.2 % 26.7 % ==== ====
9. PROFIT SHARING PLAN The Company maintains a defined contribution 401 (K) profit sharing plan covering substantially all of its employees. The Plan Administrator set the maximum allowable employee contribution at the lesser of 15% of their compensation or $10,000. The Company matches employee contributions by contributing an amount equal to 50% of each employee's contribution. Pension expense under the 401 (K) profit sharing plan was $154,997 for the eleven months ended June 30, 1998 and $142,189 for the year July 31, 1997. 10. OPTION ON BUILDING The majority shareholders were granted an option to acquire the land and building (having a net book value of $961,966 at June 30, 1998) utilized as the Company's headquarters for a period of six months commencing on August 15, 2003 and ending February 15, 2004 for $500,000. The option has been amended to allow the cancellation of the option, upon the event of a disposition of the Company, by payment of $500,000 to the majority shareholders. 11. CHANGES IN STOCKHOLDERS' EQUITY Changes in stockholders' equity during the eleven months ended June 30, 1998 and the year ended July 31, 1997 were as follows:
CAPITAL PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK ----- ------- -------- ----- BALANCE AT JULY 31, 1996 $1,250 $560,093 $21,892,247 $(5,491,395) Treasury stock issued to ESOP (3,000 shares) 15,000 120,000 Other (500 shares) 2,500 20,000 Net income for the year 3,494,420 --------- ------------ ------------ --------------- BALANCE AT JULY 31, 1997 1,250 560,093 25,404,167 (5,351,395) Treasury stock issued to ESOP (3,000 shares) 111,000 120,000 Other (400 shares) 8,800 16,000 Net income for the period 1,407,894 --------- ------------ ------------- --------------- BALANCE AT JUNE 30, 1998 $1,250 $560,093 $26,931,861 $(5,215,395) ======= ========= ============ ===========
12. EMPLOYEE STOCK OWNERSHIP PLAN Effective August 1, 1990 the Company established a non-contributory employee stock ownership plan (ESOP) covering substantially all employees except the Company's two majority shareholders. The Company contributed 3,000 shares of common stock based on a fair market value of $77.00 ($231,000) and $45 ($135,000) to the plan during the eleven months ended June 30, 1998 and the year ended July 31, 1997, respectively. The Company also contributed $30,595 and $29,413 in cash during the eleven months ended June 30, 1998 and the year ended July 31, 1997, respectively. Employee benefits vest after five years of service, including service prior to establishment of the plan. There are restrictions on the sale of the stock (see Plan of Reorganization). As of June 30, 1998 the Company has made provision of $462,000 for an ESOP contribution of 6,000 shares of common stock based on a fair market value of $77.00. - 8 - 13. FUTURES CONTRACTS The Company enters into natural gas futures contracts to hedge its exposure to changes in natural gas prices. At any point in time, such contracts may include regulated NYMEX futures contracts and non-regulated over-the-counter futures contracts with qualified counterparties. The futures contracts employed by the Company are commitments to purchase or sell natural gas at a future date and generally cover one month periods for up to 18 months in the future. Realized gains (losses) are recorded in the income accounts in the month(s) that the futures contracts are intended to hedge. Unrealized gains (losses) are deferred until realized. Deferred gains (losses) were $206,035 and $95,990 at June 30, 1998 and July 31, 1997, respectively. 14. COMMITMENTS Atlas Resources, Inc., as general partner in several oil and gas limited partnerships, and The Atlas Group, Inc. have agreed to indemnify each investor general partner from any liability incurred which exceeds such partner's share of partnership assets. Management believes that such liabilities that may occur will be covered by insurance and, if not covered by insurance, will not result in a significant loss to The Atlas Group, Inc. and its subsidiaries. Subject to certain conditions, investor general partners in certain oil and gas limited partnerships may present their interests beginning in 1998 for purchase by Atlas Resources, Inc., as managing general partner. Atlas Resources, Inc. is not obligated to purchase more than 5% of the units in any calendar year. Atlas Resources, Inc., as managing general partner in certain oil and gas limited partnerships has also agreed to subordinate its share of production revenues to the receipt by investor partners of cash distributions equal to at least 10% of their subscriptions in each of the first five years of partnership operations. During the eleven months ended June 30, 1998 and the year ended July 31, 1997, Atlas Resources, Inc. had net subordinations of $427,245 and $417,896, respectively. 15. YEAR 2000 The Company recognizes the need to ensure its operations will not be adversely impacted by year 2000 software failures. Software failures due to processing errors potentially arising from calculations using the year 2000 date are a known risk. The Company has established processes for evaluating and managing risks and costs associated with this problem. The computing portfolio was identified and an initial assessment has been completed. The Company anticipates corrective action to be completed during fiscal year 1999 and the aggregate costs of such corrections will not be material. 16. LITIGATION The Company and its subsidiaries are involved in legal proceedings, claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such current legal proceedings, claims and litigation will not have a material effect on operating results, or cash flows when resolved in a future period, and these matters will not materially affect the Company's consolidated financial position. 17. SUBSEQUENT EVENTS Merger On July 13, 1998 the Company entered into an Agreement and Plan of Merger with Resource America, Inc. pursuant to which The Atlas Group, Inc. will be merged into a wholly owned subsidiary of Resource America, Inc. The merger is expected to become effective in the late summer of 1998. The Company has the right to accelerate the payment of the options to purchase certain shares of the majority shareholders referred to in Note 4 to the financial statements, in event of a disposition of the Company. Stock Options On July 1, 1998 the Company granted to certain key employees options to purchase 36,374 shares of Common Stock of the Company at $1.00 per share. On July 6, 1998, 32,874 shares were exercised based on a fair market value of $77.00 per share. The charge to income, net of the estimated tax benefit, is approximately $1,850,000. - 9 - 18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) The supplementary information summarized below presents the results of natural gas and oil activities in accordance with SFAS No. 69, "Disclosures About Oil and Gas Producing Activities." (1) Production Costs The following table presents the costs incurred relating to natural gas and oil production activities:
JUNE 30, JULY 31, 1998 1997 ---- ---- Capitalized costs at: Capitalized costs $ 40,739,334 $35,526,072 Accumulated depreciation and depletion (16,598,203) (14,694,388) ------------ ----------- Net capitalized costs $ 24,141,131 $20,831,684 ============ =========== Costs incurred during the period ended: Property acquisition costs - proved undeveloped properties $ 234,985 $ 94,375 ============= ============ Developed costs $ 4,978,277 $ 3,503,913 ============ ===========
Property acquisition costs include costs to purchase, lease or otherwise acquire a property. Development costs include costs to gain access to and prepare development well locations for drilling, to drill and equip development wells and to provide facilities to extract, treat, gather and store oil and gas.
JUNE 30, JULY 31, 1998 1997 ---- ---- Capitalized gathering line costs at: Capitalized cost $ 4,754,778 $ 4,716,525 Accumulated depreciation (3,078,929) (2,979,430) ------------ ----------- Net capitalized costs $ 1,675,849 $ 1,737,095 ============ =========== Costs incurred during the period ended: Gathering line additions $ 288,434 $ 474,350 ============ ===========
(2) Results of Operations for Producing Activities The following table presents the results of operations related to natural gas and oil production for the eleven months ended June 30, 1998 and the year ended July 31, 1997:
ELEVEN MONTHS ENDED YEAR ENDED JUNE 30, 1998 JULY 31, 1997 ------------- ------------- Revenues $ 5,042,953 $ 5,709,065 Production costs (576,874) (518,224) Depreciation and depletion (2,161,354) (2,759,182) Income tax expense (674,593) (689,485) ----------- ----------- Results of operations from producing activities $ 1,630,132 $ 1,742,174 =========== ===========
Depreciation, depletion and amortization of natural gas and oil properties are provided on the unit-of-production method and gathering lines are depreciated over 10 years. - 10 - 18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (3) Reserve Information The information presented below represents estimates of proved natural gas and oil reserves. Proved developed reserves represent only those reserves expected to be recovered from existing wells and support equipment. Proved undeveloped reserves represent proved reserves expected to be recovered from new wells after substantial development costs are incurred. Substantially all reserves are located in Eastern Ohio and Western Pennsylvania.
JUNE 30, 1998 JULY 31, 1997 ------------- ------------- NATURAL GAS OIL NATURAL GAS OIL (Mcf) (Barrels) (Mcf) (Barrels) ----- --------- ----- --------- Proved developed and undeveloped reserves: Beginning of period 112,040,540 104,931 67,802,983 106,278 Revision of previous estimates 4,538,943 29,241 2,472,316 2,523 Extensions, discoveries and other additions 17,606,758 61,002 57,973,911 -0- Production (2,655,365) (7,647) (2,658,946) (3,870) Sales of minerals in place (17,709,377) -0- (13,549,724) -0- ----------- ---------- ----------- ---------- End of period 113,821,499 187,527 112,040,540 104,931 =========== ========== =========== ======= Proved developed reserves: Beginning of period 31,084,190 104,931 31,220,113 106,278 =========== ========== =========== ======= End of period 41,781,119 187,527 31,084,190 104,931 =========== ========== =========== =======
(4) Standard Measure of Discounted Future Cash Flows Management cautions that the standard measure of discounted future cash flows should not be viewed as an indication of the fair market value of natural gas and oil producing properties, nor of the future cash flows expected to be generated therefrom. The information presented does not give recognition to future changes in estimated reserves, selling prices or costs and has been discounted at an arbitrary rate of 10%. Estimated future net cash flows from natural gas and oil reserves based on selling prices and costs at June 30, 1998 and July 31, 1997 price levels are as follows:
1998 1997 ---- ---- Future cash inflows $307,132,350 $291,945,690 Future production costs (60,321,170) (47,469,590) Future development costs (69,941,230) (68,028,140) Future income tax expense (50,664,334) (52,958,050) ------------ ------------ Future net cash flow 126,205,616 123,489,910 10% annual discount for estimated timing of cash flows (93,549,205) (88,952,400) ------------ ------------ Standard measure of discounted future net cash flows $ 32,656,411 $ 34,537,510 ============ ============
Summary of changes in the standardized measure of discounted future net cash flows:
1998 1997 ---- ---- Sales of gas and oil produced - net $ (4,024,581) $ (3,900,673) Net changes in prices, production and development costs (4,884,526) 395,917 Extensions, discoveries, and improved recovery, less related costs 2,396,461 9,931,040 Development costs incurred 4,215,402 3,532,100 Revisions of previous quantity estimates 2,864,965 1,400,886 Sales of minerals in place (3,033,660) (1,255,106) Accretion of discount 2,258,881 2,161,723 Net change in income taxes (1,674,041) (1,448,161) ------------ ------------ Net (decrease) increase (1,881,099) 10,817,726 Beginning of period 34,537,510 23,719,784 ------------ ------------ End of period $ 32,656,411 $ 34,537,510 ============ ============
- 11 - RESOURCE AMERICA, INC. AND SUBSIDIARIES PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET (UNAUDITED) June 30, 1998 (Dollars in Thousands) - --------------------------------------------------------------------------------
Merger Historical Pro Forma Resource Atlas Adjustments Combined -------- ----- ----------- -------- ASSETS Current Assets Cash and cash equivalents $ 84,370 $ 5,292 $(7,814)(a) $81,848 Accounts and notes receivable 3,020 7,417 500 (a) 10,937 Prepaid expenses and other current assets 2,216 1,115 - 3,331 -------- ------- ------- -------- Total Current Assets 89,606 13,824 (7,314) 96,116 Investments in Real Estate Loans 188,996 - - 188,996 Investments in Leases and Notes Receivable 19,728 - - 19,728 Investment in Resource Asset Investment Trust 13,323 - - 13,323 Property and Equipment Oil and gas properties and equipment (successful efforts) 25,618 40,739 (22,081)(a) 44,276 Gas gathering and transmission facilities 1,628 21,831 (16,710)(a) 6,749 Other 4,614 5,010 (1,093)(a) 8,531 -------- ------- ------- -------- 31,860 67,580 (39,884) 59,556 Less - accumulated depreciation, depletion and amortization (16,440) (32,715) 32,715 (a) (16,440) -------- ------- ------- -------- Net Property and Equipment 15,420 34,865 (7,169) 43,116 Other Assets 14,946 446 44,690 (a)(b) 60,082 -------- ------- ------- -------- $342,019 $49,135 $30,207 $421,361 ======== ======= ======= ========
- 1 - RESOURCE AMERICA, INC. AND SUBSIDIARIES PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET (UNAUDITED) June 30, 1998 (Dollars in Thousands) - --------------------------------------------------------------------------------
Merger Historical Pro Forma Resource Atlas Adjustments Combined -------- ----- ----------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable - trade $ 3,008 $ 9,231 - $ 12,239 Accrued liabilities 3,974 4,907 228 (b) 9,109 Accrued interest 5,790 63 - 5,853 Estimated income taxes 1,171 - - 1,171 Current portion of long-term debt 3,828 3,271 (1,348)(a) 5,751 -------- ------- ------- -------- Total Current Liabilities 17,771 17,472 (1,120) 34,123 Long-term Debt 117,548 8,311 19,975 (a) 145,486 Deferred Income Taxes 727 675 2,730 4,132 Other Long-Term Liabilities 1,541 400 - 1,941 Commitments and Contingencies - - - - Stockholders' Equity Preferred stock, $1.00 par value; 1,000,000 shares authorized - - - - Common stock, $.01 par value, 49,000,000 shares authorized 209 1 20 (a) 230 Unrealized gain on investment reported at fair value, net of tax 930 930 Additional paid-in capital 178,697 560 30,319 (a) 209,576 Less treasury stock, at cost (13,967) (5,215) 5,215 (a) (13,967) Less loan receivable for ESOP (321) (321) Retained earnings 38,884 26,932 (26,932)(a) 38,884 -------- ------- ------- -------- Total Stockholders' Equity 204,432 22,278 8,622 235,332 -------- ------- ------- -------- $342,019 $49,135 $30,207 $421,361 ======== ======= ======= ========
- 2 - RESOURCE AMERICA, INC. AND SUBSIDIARIES PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Nine Months Ended June 30, 1998 (in thousands except per share data) - --------------------------------------------------------------------------------
Merger Historical Pro Forma Resource Atlas Adjustments Combined -------- ----- ----------- -------- Revenues Real estate finance $43,808 $ 43,808 Equipment leasing 9,985 9,985 Energy: production 3,294 $ 4,192 7,486 : marketing 19,185 19,185 : services 1,577 27,945 29,522 Interest and other 2,840 406 3,246 ------- -------- -------- -------- 61,504 51,728 - 113,232 Costs and Expenses Real estate finance 7,628 7,628 Equipment leasing 3,903 3,903 Energy: production and exploration 1,912 1,341 3,253 : marketing 18,841 18,841 : services 882 19,585 20,467 General and administrative 3,275 6,372 (1,345)(b) 8,302 Depreciation, depletion and amortization 1,948 2,547 (81)(e) 4,414 Interest 13,726 596 1,100 (d) 15,422 Provision for losses 1,204 1,204 ------- -------- -------- -------- 34,478 49,282 (326) 85,434 ------- -------- -------- -------- Income Before Income Taxes 27,026 2,447 (326) 29,798 Provision for Income Taxes 8,400 659 178 9,237 ------- -------- -------- -------- Net Income $18,626 $ 1,787 $ 148 $ 20,561 ======= ======== ======== ======== Net Income Per Common Share: Basic $ 1.20 $ 1.17 Diluted $ 1.16 $ 1.13 Weighted Average Shares Outstanding- Basic 15,544 2,063 17,607 Weighted Average Shares Outstanding - Diluted 16,087 2,183 18,270
- 3 - RESOURCE AMERICA, INC. AND SUBSIDIARIES PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Years Ended September 30, 1997 and July 31, 1997 (in thousands except per share data) - --------------------------------------------------------------------------------
Merger Historical Pro Forma Resource Atlas Adjustments Combined -------- ----- ----------- -------- Revenues Real estate finance $19,144 $19,144 Equipment leasing 7,162 7,162 Energy: production 3,936 5,125 9,061 : marketing 29,909 29,909 : services 1,672 28,339 30,011 Interest and other 1,031 640 1,671 ------- -------- --------- ------- 32,945 64,013 97,958 Costs and Expenses Real estate finance 1,069 1,069 Equipment leasing 3,822 3,822 Energy: production and exploration 1,823 2,253 4,076 : marketing 30,401 30,401 : services 909 18,473 19,382 General and administrative 2,851 3,590 (580)(b) 5,861 Depreciation, depletion and amortization 1,614 3,851 (562)(d) 4,903 Interest 5,273 681 1,467 7,421 Provision for losses 653 _ 653 ------- -------- --------- ------- 18,014 59,249 325 77,588 ------- -------- --------- ------- Income Before Income Taxes 14,931 4,764 (325) 19,370 Provision for Income Taxes 3,980 1,270 (20) 5,230 ------- -------- --------- ------- Net income $10,951 $ 3,494 $ (305) $14,140 ======= ======== ========= ======= Net Income Per Common Share: Basic $ 1.05 $ 1.13 Diluted $ 0.84 $ 0.93 Weighted Average Shares Outstanding- Basic 10,434 2,063 12,497 Weighted Average Shares Outstanding - Diluted 13,074 2,183 15,257
- 4 - RESOURCE AMERICA, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (a) Merger Pro Forma Adjustments as of June 30, 1998 The accompanying unaudited pro forma consolidated balance sheet as of June 30, 1998 has been prepared as if the acquisition of Atlas had occurred on June 30, 1998 and reflects the following adjustments: To adjust assets and liabilities under the purchase method of accounting based on the purchase price. Such purchase price has been allocated to the consolidated assets and liabilities of Atlas based on preliminary estimates of fair values, with the remainder allocated to goodwill. The information presented herein may differ from the actual purchase price allocation. The purchase price is determined as follows (in thousands): Cash consideration $ 7,814 Estimated fair value (at $14.31 per share) of 2,063,496 shares of Resource America Common Stock 29,535 Estimated fair value of options to purchase 120,213 shares of Resource America Common Stock 1,378 Estimated proceeds from options to purchase 120,213 shares of Resource America Common Stock (13) -------- $ 38,714 ======== The preliminary allocation of the purchase price included in the pro forma balance sheet is summarized as follows: (in thousands): Negative working capital assumed $ (3,648) Oil and gas properties: Proved 18,298 Unproved 360 Gas gathering systems 5,121 Other fixed assets 3,917 Other assets 44,908 Debt (26,686) Deferred income taxes (3,405) -------- $ 38,714 ======== The accompanying unaudited pro forma combined consolidated statement of operations for the nine months ended June 30, 1998 has been prepared as if the acquisition had occurred on October 1, 1997. The accompanying unaudited pro forma combined consolidated statement of operations for the year ended September 30, 1998 for the Company, and for the year ended July 31, 1997 for Atlas have been prepared to reflect operations of Atlas for its fiscal year that ended within ninety days of the Company's fiscal year end. (b) To record acquisition related costs. (c) To adjust general and administrative expenses for certain cost reductions realized from the combining of operations. (d) To adjust interest expense for additional borrowings of Atlas. (e) To record estimated adjustment to depletion, depreciation and amortization expense attributable to the allocation of the purchase price. - 5 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: December 14, 1998 RESOURCE AMERICA, INC. By: /s/ Steven J. Kessler --------------------------------------- Steven J. Kessler, Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----