1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ ] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000 or
------------------
Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
[ ] For the transition period from to
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Commission File Number 1-7908
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ADAMS RESOURCES & ENERGY, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 74-1753147
---------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Houston, Texas 77027
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(Address of principal executive office & Zip Code)
Registrant's telephone number, including area code (713) 881-3600
----------------------
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
----- ------
The number of shares of Common Stock of the Registrant, par value $.10 per
share, outstanding at October 31, 2000 was 4,217,596.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ----------- -------------- -----------
REVENUE:
Marketing....................................... $ 5,705,834 $2,333,199 $ 1,743,796 $ 1,061,370
Transportation.................................. 26,792 25,723 7,457 8,798
Oil & gas....................................... 4,258 2,593 1,925 877
------------- ------------- ------------ ------------
5,736,884 2,361,515 1,753,178 1,071,045
------------- ------------- ------------ ------------
COSTS AND EXPENSES:
Operating
Marketing..................................... 5,690,938 2,324,002 1,738,942 1,058,088
Transportation................................ 24,264 23,338 7,133 8,109
Oil & gas..................................... 1,336 1,609 471 557
Corporate general and administrative............ 4,595 2,152 1,478 725
Depreciation, depletion and amortization........ 5,042 4,947 1,700 1,652
------------- ------------- ------------ ------------
5,726,175 2,356,048 1,749,724 1,069,131
------------- ------------- ------------ ------------
Operating earnings................................. 10,709 5,467 3,454 1,914
Other income (expense):
Property sales and other........................ 593 863 139 158
Interest........................................ (144) (53) (27) (10)
-------------- -------------- -------------- ------------
449 810 112 148
------------- ------------- ------------ ------------
Earnings before income taxes.................... 11,158 6,277 3,566 2,062
Income tax provision
Current....................................... 3,202 448 1,099 214
Deferred...................................... 900 1,200 250 300
------------- ------------- ----------- ------------
4,102 1,648 1,349 514
------------- ------------- ----------- ------------
Net earnings....................................... $ 7,056 $ 4,629 $ 2,217 $ 1,548
============= ============= =========== ============
Basic and diluted net earnings
per common share................................ $ 1.67 $ 1.10 $ .52 $ .37
============= ============= =========== ============
Dividends per common share......................... $ - $ - $ - $ -
============= ============= =========== ============
The accompanying notes are an integral part of these financial statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- Marketing
Marketing division revenues, operating earnings and significant
operating statistics were as follows (in thousands, except price information):
Marketing division revenues and operating earnings were as follows (IN
THOUSANDS):
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------------- ------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues $ 5,705,834 $ 2,333,199 $ 1,743,796 $ 1,061,370
Operating earnings $ 12,752 $ 6,813 $ 4,125 $ 2,544
Marketing division gross revenues increased by $3,372,635,000 or
145% and by $682,426,000 or 64% for the respective nine month and three
month periods. Such increases resulted because crude oil prices doubled and
volumes grew by approximately 50% during the comparative periods. Further,
during the fourth quarter of 1999, the Company significantly expanded its
presence in the wholesale marketplace for natural gas. This event also
contributed to increased revenues and earnings during 2000.
Third quarter 2000 results were additionally affected by two
events. First, in May 2000, the Company entered into a joint venture
agreement with a third party for the purpose of purchasing, distributing,
and marketing crude oil in the Offshore Gulf of Mexico region (see also
Note 2 to Consolidated Financial Statements). The joint venture is
accounted for under the equity method of accounting. As a result, certain
crude oil purchases and sales previously reported in a gross fashion on the
consolidated statement of operations, are currently being reported on a net
basis included in marketing segment revenues. The second event, resulted
because a customer commenced an involuntary bankruptcy proceeding. While
the Company is the sole secured creditor and seeks full recovery of the
balance due from the third party, management estimated and recorded a $2.6
million pre-tax bad debt reserve provision. Such amount was included in
marketing segment operating expenses.
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Supplemental volume and price information for the marketing
division is as follows:
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
Wellhead Purchases - Per day (1)
Crude oil - barrels 307,900 211,000 325,000 244,000
Natural gas - mmbtu 843,200 - (2) 819,300 - (2)
Average Price
Crude oil - per barrel $ 28.23 $ 16.88 $ 30.03 $ 19.64
Natural gas - per mmbtu $ 3.55 $ - (2) $ 4.26 $ - (2)
--------------
(1) Reflects the volume of crude oil or natural gas purchased from third
parties at the lease level and shipped to market. (2) Natural gas marketing
operations were significantly expanded effective October 1, 1999.
- Transportation
Transportation revenues and operating earnings (loss) were as
follows (IN THOUSANDS):
Nine Months Ended Increase Three Months Ended Increase
September 30, (Decrease) September 30, (Decrease)
------------------------ ---------- -------------------------- ----------
2000 1999 2000 1999
---- ---- ---- ----
Revenues $ 26,279 $ 25,723 2.2% $ 7,457 $ 8,798 (15.2)%
Operating earnings
(loss) $ 1,429 $ 1,597 (10.5)% $ (41) $ 399 (110.3)%
Gross revenues improved during the first half of 2000 as the
Company saw improving demand for its services. However, during the third
quarter of 2000, demand from the Company's petrochemical industry customer
base slowed, resulting in reduced revenues. Also negatively impacting 2000
operating earnings were increased fuel prices and driver wage scales.
Demand did, however, pick up in October 2000 and has remained strong to
date.
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- Oil and Gas
Oil and gas segment's revenues and operating earnings are
primarily a function of crude oil and natural gas prices and volumes.
Comparative amounts are as follows (IN THOUSANDS):
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -------------------------
2000 1999 2000 1999
---- ---- ----- ----
Revenues $ 4,258 $ 2,593 $ 1,925 $ 877
Operating earnings (loss) $ 1,123 $ (791) $ 848 $ (304)
The increase in this division's revenues and operating earnings is a
direct result of improved prices for both crude oil and natural gas,
partially offset by normal natural gas production declines. See
supplemental information below.
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Crude oil
Volume in barrels 43,400 33,000 17,400 12,000
Average price per barrel $ 28.64 $ 13.58 $ 29.95 $ 16.79
Natural gas
Volume in mmbtu's 900,300 1,200,000 315,300 340,000
Average price per mmbtu's $ 3.28 $ 1.77 $ 4.48 $ 2.09
- General and administrative
Corporate general and administrative expenses increased for the
comparative current periods because of additional personnel and support costs
necessitated by the increased volume of business, most notably the
expansion into the natural gas marketing arena.
- Other income (expense)
Property sales and other income totaling $593,000 for the first
nine months of 2000 reflects interest income received. Property sales and
other income totaling $863,000 for 1999 reflects gains realized on the sale
of forty-five truck tractors in the first quarter of 1999.
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Liquidity and Capital Resources
During the first nine months of 2000, the Company's cash flow from
operations before working capital items totaled $12,714,000. The Company
invested $4,823,000 in capital expenditures including $832,000 in marketing
equipment, $778,000 in transportation operations and $3,213,000 in oil and
gas drilling activities. The remaining $7.9 million of cash flow before
working capital items served to meet general working capital needs. As the
marketing business continues to grow, the availability of trade credit
becomes increasingly critical to the success of the Company's operations.
Thus, management places great importance on maintaining a strong liquid
balance sheet.
Refer to the "Liquidity and Capital Resources" section of the
Company's Annual Report on Form 10-K for the year ended December 31, 2000
for additional discussion of the Company's bank relationships and other
matters.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
September 30, December 31,
2000 1999
------------ --------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................... $ 27,111 $ 24,137
Accounts receivable, net.................................... 268,420 216,978
Inventories................................................. 51,555 21,475
Prepaid and other........................................... 4,628 1,635
-------------- ---------------
Total current assets.......................... 351,714 264,225
-------------- ---------------
Property and equipment........................................ 71,942 67,235
Less - accumulated depreciation,
depletion and amortization........................... (43,516) (38,590)
--------------- ---------------
28,426 28,645
-------------- ---------------
Other assets.................................................. 323 178
-------------- ---------------
$ 380,463 $ 293,048
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 314,480 $ 236,481
Accrued and other liabilities............................... 9,905 8,306
-------------- ---------------
Total current liabilities............................ 324,385 244,787
Long-term debt, less current maturities....................... 9,900 9,900
Deferred taxes and other liabilities.......................... 3,101 2,340
-------------- ---------------
337,386 257,027
Shareholders' equity:
Preferred stock - $1.00 par value, 960,000 shares
authorized, none outstanding............................ - -
Common stock - $.10 par value, 7,500,000
shares authorized, 4,217,596 shares outstanding......... 422 422
Contributed capital......................................... 11,693 11,693
Retained earnings since December 31, 1992................... 30,962 23,906
-------------- ---------------
Total shareholders' equity .......................... 43,077 36,021
-------------- ---------------
$ 380,463 $ 293,048
============== ===============
The accompanying notes are an integral part of these
financial statements.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended
September 30,
-------------------------
2000 1999
---------- ---------
CASH PROVIDED (USED) BY OPERATIONS:
Net earnings ................................................................. $ 7,056 $ 4,629
Items of income not requiring (providing) cash -
Depreciation, depletion and amortization .................................... 5,042 4,947
Deferred income tax provision ............................................... 900 1,200
Gain on sale of properties................................................... - (590)
Equity in earnings of joint venture.......................................... (145) -
Other, net .................................................................. (139) (87)
Decrease (increase) in accounts receivable ................................... (51,442) (87,885)
Decrease (increase) in inventories ........................................... (30,080) 1,338
Decrease (increase) in prepaid and other ..................................... (2,993) (216)
Increase (decrease) in accounts payable ...................................... 77,999 104,716
Increase (decrease) in accrued liabilities ................................... 1,599 4,636
---------- ----------
Net cash provided (required) by operating activities ........................ 7,797 32,688
---------- ----------
INVESTING ACTIVITIES:
Property and equipment additions ............................................. (4,823) (4,050)
Proceeds from property sales ................................................. - 1,245
Deposits returned ............................................................ - 1,196
----------- ----------
Net cash provided by (used in) investing activities ......................... (4,823) (1,609)
----------- ----------
FINANCING ACTIVITIES:
Repayment of debt ............................................................ - (3,100)
---------- -----------
Net cash provided by (used in) financing activities ......................... - (3,100)
---------- ----------
Increase (decrease) in cash and cash equivalents................................. 2,974 27,979
Cash at beginning of period...................................................... 24,137 10,215
---------- ----------
Cash at end of period............................................................ $ 27,111 $ 38,149
========== ==========
Supplemental disclosure of cash flow information:
Interest paid during the period .............................................. $ 144 $ 53
========== ==========
Income taxes paid during the period........................................... $ 3,443 $ 651
========== ==========
The accompanying notes are an integral part of these
financial statements.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying consolidated financial statements are unaudited
but, in the opinion of the Company's management, include all adjustments
(consisting of normal recurring accruals) necessary for the fair
presentation of its financial position at September 30, 2000 and December
31, 1999 and its results of operations and cash flows for the nine months
ended and three months ended September 30, 2000 and 1999. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to
Securities and Exchange Commission rules and regulations, although the
Company believes the disclosures made are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements, and the
notes thereto, included in the Company's latest annual report on Form 10-K.
The interim statement of operations is not necessarily indicative of
results to be expected for a full year.
Note 2 - Joint Venture
Commencing in May 2000, the Company entered into a joint venture
arrangement with Williams Energy Marketing & Trading Co. for the purpose of
purchasing, distributing and marketing crude oil in the Offshore Gulf of
Mexico region. The new business operates as Williams-Gulfmark Energy Co.
pursuant to the terms of a joint venture agreement. The Company holds a 50%
interest in the net earnings of the venture and accounts for its interest
under the equity method of accounting. The Company's net investment in the
venture is reported in other assets in the consolidated balance sheet and
its equity in the venture's pretax earnings is included in marketing
segment revenues in the consolidated statement of operations. As of
September 30, 2000 and for the three and nine month periods then ended, the
Company's investment, net of distributions received, included in other
assets was $145,000 and the amount of pretax earnings included in marketing
revenues relating to the venture was $1,313,000. Included in such amount
was $690,000 which represents the impact of certain energy contracts
carried at fair market value.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Segment Reporting
The Company is primarily engaged in the business of marketing
crude oil, natural gas and petroleum products; tank truck transportation of
liquid chemicals; and oil and gas exploration and production. Information
concerning the Company's various business activities is summarized as
follows (IN THOUSANDS):
Depreci-
ation,
Depletion Property
Segment and and
Operating Amorti- Equipment
Revenues Earnings zation Additions
------------- ----------- ----------- -----------
For the nine months ended
September 30, 2000
Marketing...................... $ 5,705,834 $ 12,752 $ 2,144 $ 832
Transportation................. 26,792 1,429 1,099 778
Oil and gas.................... 4,258 1,123 1,799 3,213
------------- ----------- ----------- -----------
$ 5,736,884 $ 15,304 $ 5,042 $ 4,823
============= =========== =========== ===========
For the nine months ended
September 30, 1999
Marketing...................... $ 2,333,199 $ 6,813 $ 2,384 $ 1,850
Transportation................. 25,723 1,597 788 1,564
Oil and gas.................... 2,593 (791) 1,775 636
------------- ----------- ----------- -----------
$ 2,361,515 $ 7,619 $ 4,947 $ 4,050
============ =========== =========== ===========
For the three months ended
September 30, 2000
Marketing...................... $ 1,743,796 $ 4,125 $ 729 $ 248
Transportation................. 7,457 (41) 365 320
Oil and gas.................... 1,925 848 606 1,737
------------- ----------- ----------- -----------
$ 1,753,158 $ 4,932 $ 1,700 $ 2,305
============= =========== =========== ===========
For the three months ended
September 30, 1999
Marketing...................... $ 1,061,370 $ 2,544 $ 738 $ 830
Transportation................. 8,798 399 290 619
Oil and gas.................... 877 (304) 624 370
------------- ------------ ----------- -----------
$ 1,071,045 $ 2,639 $ 1,652 $ 1,819
============= =========== =========== ===========
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Identifiable assets by industry segment are as follows (IN THOUSANDS):
September 30, December 31,
2000 1999
------------ -----------------
Marketing........................................... $ 325,977 $ 242,786
Transportation...................................... 14,460 15,412
Oil and gas......................................... 12,727 10,449
Other............................................... 27,299 24,401
------------ -----------------
$ 380,463 $ 293,048
============ =================
Intersegment sales are insignificant. Other identifiable assets
are primarily corporate cash, accounts receivable, and properties not
identified with any specific segment of the Company's business. All sales
by the Company occurred in the United States.
Earnings from operations by segment represent revenues less
operating costs and expenses and depreciation, depletion and amortization
and are reconciled to earnings from operations before income taxes, as
follows (IN THOUSANDS):
Nine months ended Three months ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
Segment operating earnings ........... $ 15,304 $ 7,619 $ 4,932 $ 2,639
General and administrative expenses... 4,595 2,152 1,478 725
--------- --------- -------- --------
Operating earnings.................. 10,709 5,467 3,454 1,914
Property sales and other.............. 593 863 139 158
Interest expense ..................... (144) (53) (27) (10)
--------- --------- -------- --------
Earnings before income taxes........ $ 11,158 $ 6,277 $ 3,566 $ 2,062
========= ========= ======== ========
Note 4 - Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Qualifying hedges allow a
derivative's gains and losses to offset related results on the hedged item
in the income statement, and requires that a
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company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the FASB issued SFAS NO. 137 which deferred the
effective date of SFAS No. 133 to fiscal years beginning after June 15,
2000. In June 2000, the FASB issued SFAS No. 138, which amends the
accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and certain hedging activities. SFAS No. 133, as amended by
SFAS No. 137 and No.138, cannot be applied retroactively and must be
applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired or
substantively modified after a transition date to be selected by the
Company of either December 31, 1997 or December 31, 1998. The Company plans
to adopt SFAS No. 133 on January 1, 2001. During the third quarter of 2000,
the Company completed an assessment of the Company's current derivative
activities. Based on this assessment, the Company estimates that pre-tax
earnings would be increased by approximately $500,000 upon adoption of SFAS
No. 133.
On January 1, 1999 the Company adopted the Emerging Issues Task
Force's (EITF) Issue 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities." Issue 98-10 is effective for
fiscal years beginning after December 15, 1998, and requires energy trading
contracts (as defined) to be recorded at fair value on the balance sheet,
with the change in fair value included in earnings. The effect of initial
adoption on January 1, 1999 was not significant. The accompanying statement
of operations includes pretax income of $3,338,000 to reflect the future
income from marketing operations based upon the quarter prices of the
underlying commodities being traded. The accompanying balance sheet
reflects the fair value of the trading asset or $7,604,000 in current
assets and the fair value of the trading liability or $4,266,000 in current
liabilities.
Note 5 - Commitments and Contingencies
On August 30, 2000 CJC Leasing, Inc. ("CJC"), a wholly owned
subsidiary of the Company previously involved in the coal mining business,
received a "Notice of Taxes Due" from the State of Kentucky regarding the
results of a coal severance tax audit covering the years 1989 through 1993.
The audit proposed a tax assessment of $8.3 million plus penalties and
interest. CJC has protested this assessment and has set forth a number of
defenses including that CJC was not a taxpayer engaged in severing and/or
mining coal at anytime during the assessment period. Further, it is CJC's
informed belief that such taxes were properly paid by the third parties
that had in fact mined the coal. Management intends to vigorously defend
CJC in this matter and believes that it will not ultimately have a
significant adverse effect on the Company's financial position or results
of operations.
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PART II. OTHER INFORMATION
Item 1. - Legal Proceedings. On August 30, 2000 CJC Leasing, Inc. ("CJC"), a
wholly owned subsidiary of the Company previously involved in the coal
mining business received a "Notice of Taxes Due" from the State of
Kentucky regarding the results of a coal severance tax audit covering
the years 1989 through 1993. The audit proposed a tax assessment of
$8.3 million plus penalties and interest. CJC has protested this
assessment and has set forth a number of defenses including that CJC
was not a taxpayer engaged in severing and/or mining coal at any time
during the assessment period. Further, it is CJC's informed belief
that such taxes were properly paid by the third parties that had in
fact mined the coal. Management intends to vigorously defend CJC in
this matter and believes that is will not ultimately have a
significant adverse effect on the Company's its financial position or
results of operations.
Item 2. - None.
Item 3. - None
Item 4. - None
Item 6. - Exhibits and Reports on Form 8K
a. Exhibits - None.
b. Reports on Form 8-K - None.
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ADAMS RESOURCES & ENERGY, INC.
(Registrant)
Date: November 10, 2000 By /s/K. S. Adams, Jr.
----------------- ------------------------------
K. S. Adams, Jr.
Chief Executive Officer
By /s/Richard B. Abshire
------------------------------
Richard B. Abshire
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
27* - Financial Data Schedule
- ------------------------------
* - Filed herewith
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