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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2001 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to _________________
Commission File Number 1-7908
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ADAMS RESOURCES & ENERGY, INC.
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(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.)
4400 Post Oak Pkwy Ste 2700, Houston, Texas 77027
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(Address of principal executive office & Zip Code)
Registrant's telephone number, including area code (713) 881-3600
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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 May 8, 2001 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)
Three Months Ended
March 31,
----------------------------
2001 2000
----------- -----------
REVENUES:
Marketing .......................................... $ 1,331,274 $ 2,000,432
Transportation ..................................... 8,377 9,780
Oil and gas ........................................ 2,299 1,116
----------- -----------
1,341,950 2,011,328
----------- -----------
COSTS AND EXPENSES:
Marketing .......................................... 1,327,426 1,995,700
Transportation ..................................... 7,826 8,728
Oil and gas ........................................ 671 473
General and administrative ......................... 1,751 1,539
Depreciation, depletion and amortization ........... 1,729 1,645
----------- -----------
1,339,403 2,008,085
----------- -----------
Operating earnings .................................... 2,547 3,243
Other income (expense):
Interest income and other .......................... 171 117
Interest expense ................................... (21) (72)
----------- -----------
Earnings before income taxes .......................... 2,697 3,288
Income tax provision
Current ............................................ 58 785
Deferred ........................................... 896 450
----------- -----------
954 1,235
----------- -----------
Earnings before cumulative effect of
accounting change .................................. 1,743 2,053
Cumulative effect of accounting change, net of tax .... 55 --
----------- -----------
Net earnings .......................................... $ 1,798 $ 2,053
=========== ===========
EARNINGS PER SHARE:
Before cumulative effect of accounting change ....... .42 .49
Cumulative effect of accounting change .............. .01 --
----------- -----------
Basic and diluted net earnings
per common share ................................. $ .43 $ .49
=========== ===========
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:
First Quarter First Quarter
2001 2000
-------------- --------------
Revenues $1,331,274,000 $2,000,432,000
Operating earnings $ 3,145,000 $ 4,024,000
Volume/Price Information
Wellhead Purchases - Per day(1)
Crude Oil 432,000 bbls 286,000 bbls
Natural Gas 822,000 mcf 803,000 mcf
Average Price
Crude Oil $ 27.25/ bbl $ 27.10/ bbl
Natural Gas $ 6.64/ mcf $ 2.57/ mcf
(1) Reflects the volume of crude oil or natural gas purchased from third
parties at the lease level and shipped to market. Crude oil volumes include
purchases made through joint venture operations.
Gross revenues for marketing operations decreased by $669,158,000 or
33% for the current period as a result of the accounting treatment for a new
marketing joint venture. In May 2000, the Company entered into a joint venture
with a third party for the purpose of purchasing, distributing, and marketing
crude oil in the offshore Gulf of Mexico region. The joint venture is accounted
for under the equity method of accounting. Thus, certain crude oil purchases and
sales previously consolidated on the statement of earnings are now reported on a
net earnings basis in marketing segment revenues. In actuality, including joint
venture activity, crude oil lease purchase and sale volumes continue to grow.
Such volumes averaged 432,000 barrels per day in the first quarter of 2001
versus 286,000 barrels per day in the 2000 period.
Operating earnings were reduced to $3,145,000 in the first quarter of
2001 because of a sudden weakening of inter-month crude oil price spreads.
During 2000 through mid March 2001, the Company's trading strategy was premised
on current month crude oil prices being higher or stronger than succeeding month
prices. When this situation reversed in late March 2001 (the current month price
being lower than the next month's price) the Company chose to liquidate certain
positions, necessitating a $1,375,000 charge to earnings.
Crude oil markets remain turbulent with general weakness in the near
months turning
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stronger in the outer months. Given current market conditions, the Company
anticipates a continued narrowing of margins during the second quarter of 2001.
- Transportation
Transportation revenues and operating earnings were as follows:
First Quarter First Quarter Percentage
2001 2000 Decrease
------------- ------------- ----------
Revenues $8,377,000 $9,780,000 14%
Operating earnings $ 143,000 $ 688,000 79%
Transportation revenues and operating earnings declined during 2001 as
a result of reduced customer demand consistent with a general slow down in the
United States economy. Because of the fixed costs associated with a trucking
operation, operating earnings on a percentage basis reduced at a faster rate
than revenues in the current period. Petrochemical trucking demand has remained
slow in this year's second quarter, so the near term outlook for transportation
remains cautionary.
- Oil and Gas
Oil and gas division revenues and operating earnings are primarily
a function of crude oil and natural gas prices and volumes. The increase in
this division's revenues and operating earnings is primarily a result of
improved natural gas prices. Comparative amounts are as follows:
First Quarter First Quarter
2001 2000
--------------- --------------
Revenues $ 2,299,000 $ 1,116,000
Operating earnings $ 1,010,000 $ 70,000
Volume/Price Information
Crude oil
Volume 16,900 bbls 11,200 bbls
Average price $ 30.20/bbl $ 27.78/bbl
Natural gas
Volume 272,000 mcf 305,000 mcf
Average price $ 6.55/mcf $ 2.54/mcf
The two Ft. Bend County, Texas wells drilling at year-end 2000
were recently
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completed and results to date are encouraging. A deep zone in one of the
producing wells has tested gas and confirmed an up dip location that will
be drilled in June 2001. We participated in two large 3-D seismic shoots in
this area and numerous prospects remain to be drilled. Further, during the
first four months of this year, we participated in the drilling of 10
additional wells. Six of these wells are now on production, two are
completing and two were dry. The company presently has five well locations
waiting on a drilling rig and more prospects are being developed.
- Outlook
Both the marketing and transportation operations are currently
facing an adverse marketplace and it appears this trend will continue
through the remainder of the second quarter. In contrast, with strong
natural gas prices, the exploration and production division is compensating
for some of the shortfall. Overall, however, management does not foresee a
return to earnings growth until at least the third quarter of this year.
Liquidity and Capital Resources
During the first three months of 2000, the Company's cash flow
from operations before working capital items totaled $4,441,000. The
Company invested $1,356,000 in capital expenditures including $421,000 in
marketing equipment, $309,000 in transportation operations and $626,000 in
oil and gas drilling activities. The remaining $3.1 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)
March 31, December 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 22,951 $ 36,140
Accounts receivable, net ................................. 242,012 346,152
Inventories .............................................. 27,731 35,453
Prepaid and other ........................................ 1,310 2,604
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Total current assets ....................................... 294,004 420,349
--------- ---------
Property and equipment ..................................... 73,519 72,152
Less - accumulated depreciation,
depletion and amortization ........................ (46,374) (44,635)
--------- ---------
27,145 27,517
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Other assets ............................................... 2,186 178
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$ 323,335 $ 448,044
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 246,409 $ 345,503
Accrued and other liabilities ............................ 13,912 42,240
--------- ---------
Total current liabilities .................. 260,321 387,743
Long-term debt, less current maturities .................... 11,900 11,900
Deferred taxes and other liabilities ....................... 5,003 4,088
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277,224 403,731
Commitments and contingencies (Note 5)
Shareholders' equity:
Preferred stock - $1.00 par value, 960,000 shares
authorized, none outstanding ......................... -- --
Common stock - $.10 par value, 7,500,000
shares authorized, 4,217,596 shares
outstanding .......................................... 422 422
Contributed capital ...................................... 11,693 11,693
Retained earnings ........................................ 33,996 32,198
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Total shareholders' equity ................. 46,111 44,313
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$ 323,335 $ 448,044
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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)
Three Months Ended
March 31,
------------------------
2001 2000
--------- ---------
CASH PROVIDED BY OPERATIONS:
Net earnings ............................................. $ 1,798 $ 2,053
Items of income not requiring (providing) cash -
Depreciation, depletion and amortization ............... 1,729 1,645
Deferred income tax provision .......................... 896 450
Other, net ............................................. 18 (45)
Decrease (increase) in accounts receivable ............... 104,140 (23,504)
Decrease (increase) in inventories ....................... 7,722 (12,218)
Decrease (increase) in prepaid and other ................. 1,294 46
Increase (decrease) in accounts payable .................. (99,094) 58,429
Increase (decrease) in accrued liabilities ............... (28,328) (139)
--------- ---------
Net cash provided by (used in) operating activities .... (9,825) 26,717
--------- ---------
INVESTING ACTIVITIES:
Property and equipment additions ......................... (1,356) (2,037)
Investment in joint venture .............................. (2,008) --
--------- ---------
Net cash provided by (used in) investing activities .... (3,364) (2,037)
--------- ---------
Increase (decrease) in cash and cash equivalents ........... (13,189) 24,680
Cash at beginning of period ................................ 36,140 24,137
--------- ---------
Cash at end of period ...................................... $ 22,951 $ 48,817
========= =========
Supplemental disclosure of cash flow information:
Interest paid during the period .......................... $ 21 $ 72
========= =========
Income taxes paid during the period ...................... $ -- $ 800
========= =========
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 a fair presentation of financial
position at March 31, 2001 and December 31, 2000 and results of operations and
cash flows for the three months ended March 31, 2001 and 2000. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
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 - Segment Reporting
The Company is primarily engaged in the business of crude oil, natural
gas and petroleum products marketing, as well as tank truck transportation of
liquid chemicals and oil and gas exploration and production. Information
concerning the Company's various business segments is summarized as follows (in
thousands):
Depreciation
Segment Depletion Property
Earnings and and
from Amorti- Equipment
Revenues Operations zation Additions
------------- ------------- ------------ -----------
For the three months ended
March 31, 2001
Marketing........................ $ 1,331,274 $ 3,145 $ 703 $ 421
Transportation................... 8,377 143 408 309
Oil and gas...................... 2,299 1,010 618 626
------------- ------------- ----------- -----------
$ 1,341,950 $ 4,298 $ 1,729 $ 1,356
============= ============= =========== ===========
For the three months ended
March 31, 2000
Marketing........................ $ 2,000,432 $ 4,024 $ 708 $ 234
Transportation................... 9,780 688 364 332
Oil and gas...................... 1,116 70 573 1,471
------------- ----------- ----------- -----------
$ 2,011,328 $ 4,782 $ 1,645 $ 2,037
============= =========== =========== ===========
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Identifiable assets by industry segment are as follows (in thousands):
March 31, December 31,
2001 2000
------------ -------------
Marketing...................... $ 272,375 $ 388,247
Transportation................. 15,137 16,329
Oil and gas.................... 12,118 11,971
Other.......................... 23,705 36,497
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$ 323,335 $ 448,044
============ =============
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):
For the three months ended
March 31,
--------------------------
2001 2000
------- -------
Segment operating earnings ............. $ 4,298 $ 4,782
General and administrative expenses .... (1,751) (1,539)
------- -------
Operating earnings ..................... 2,547 3,243
Interest income and other .............. 171 117
Interest expense ....................... (21) (72)
------- -------
Earnings before income taxes ........... $ 2,697 $ 3,288
======= =======
Note 3 - Price Risk Management Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS
No. 137, is effective for fiscal years beginning after June 15, 2000. 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. In the Company's case, the statement
requires that changes in the derivative's fair value be recognized currently in
earnings. 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. The Company adopted SFAS No. 133, as
amended by SFAS No. 137 and SFAS No. 138, on January 1, 2001. Based on the
Company's assessment of its onshore physical delivery contracts that qualified
as derivative instruments under SFAS No.
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133 on January 1, 2001, the Company disclosed in its annual report on Form 10-K
that the transition adjustment required at adoption would result in the
recording of a derivative asset of approximately $1.4 million, representing the
fair market value of those contracts on that date. After further analysis of its
onshore physical delivery contracts in the first quarter of 2001, the Company
concluded that most of those contracts had already been included in the
mark-to-market calculation required under Emerging Issues Task Force ("EITF")
Issue 98-10 at December 31, 2000. The Company ultimately recorded a revised
derivative asset of $84,000 and recognized the $84,000, net of $29,000 of income
tax, as the cumulative effect of accounting change on January 1, 2001. The
Company had no financial instruments outstanding that qualified as derivatives
under SFAS No. 133 at March 31, 2001 that did not already meet the
mark-to-market criteria under EITF 98-10 (see below).
On January 1, 1999 the Company adopted EITF Issue 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities." Issue
98-10 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 accompanying statement of earnings includes pretax income of $4,089,237 and
$385,000 in 2001 and 2000, respectively, to reflect the future income from
marketing operations based upon end of period prices of the underlying
commodities being traded. As of March 31, 2001, the accompanying balance sheet
reflects the fair value of trading assets of $12,317,000 in current assets and
the fair value of the trading liabilities of $8,228,000 in current liabilities.
As of December 31, 2000, the accompanying balance sheet reflects the fair value
of the trading assets of $38,945,000 in current assets and the fair value of the
trading liabilities of $36,114,000 in current liabilities.
Note 4 - Marketing Joint Venture
Commencing in May 2000, the Company entered into a joint venture
arrangement with a third party for the purpose of purchasing, distributing and
marketing crude oil in the offshore Gulf of Mexico region. The venture 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 the consolidated balance
sheet and its equity in the venture's pretax earnings is included in marketing
segment revenues in the consolidated statement of earnings. As of March 31, 2000
and for the three months then ended, the Company's investment, net of
distributions received, included in other assets was $2,008,000 and the amount
of equity earnings included in marketing revenues relating to the venture was
$836,000. Included in such equity earnings was $1,006,000, representing the
impact of mark-to-market accounting as of March 31, 2001 related to certain
energy contracts.
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
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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. - None
Item 2. - None
Item 3. - None
Item 4. - Submission of Matters to a Vote of Security Holders
The 2001 Annual Meeting of Stockholders (the "Meeting") of the Company
was held on April 25, 2001. At the Meeting, holders of common stock, $.10 par
value, of the Company elected nine members of the Company's Board of Directors.
Out of the 4,217,596 shares of common stock entitled to vote at the
Meeting, there were 3,980,175 shares of common stock voted for the election of
the nominees for Directors listed in the proxy statement.
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: May 8, 2001 By /s/ K. S. Adams, Jr.
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K. S. Adams, Jr.
Chief Executive Officer
By /s/ Richard B. Abshire
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Richard B. Abshire
Chief Financial Officer
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