1
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 June 30, 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
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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.)
4400 Post Oak Parkway Ste 2700, Houston, Texas 77027
(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 August 9, 2001 was 4,217,596.
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2
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------- ---------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUES:
Marketing ..................................... $ 2,590,446 $ 3,962,038 $ 1,259,172 $ 1,961,606
Transportation ................................ 17,880 19,335 9,503 9,555
Oil and gas ................................... 4,273 2,333 1,974 1,217
----------- ----------- ----------- -----------
2,612,599 3,983,706 1,270,649 1,972,378
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Marketing ..................................... 2,586,991 3,951,996 1,259,565 1,956,296
Transportation ................................ 16,088 17,131 8,262 8,403
Oil and gas ................................... 1,695 865 1,024 392
General and administrative .................... 4,436 3,117 2,685 1,578
Depreciation, depletion and amortization ...... 3,429 3,342 1,700 1,697
----------- ----------- ----------- -----------
2,612,639 3,976,451 1,273,236 1,968,366
----------- ----------- ----------- -----------
Operating earnings (loss) ........................ (40) 7,255 (2,587) 4,012
Other income (expense):
Interest income and other ..................... 268 454 97 337
Interest expense .............................. (45) (117) (24) (45)
----------- ----------- ----------- -----------
223 337 73 292
----------- ----------- ----------- -----------
Earnings (loss) before income taxes .............. 183 7,592 (2,514) 4,304
Income tax provision (benefit)
Current ....................................... 5 2,103 (53) 1,318
Deferred ...................................... 64 650 (832) 200
----------- ----------- ----------- -----------
69 2,753 (885) 1,518
----------- ----------- ----------- -----------
Earnings (loss) before cumulative effect of
accounting change ............................. 114 4,839 (1,629) 2,786
Cumulative effect of accounting change,
net of tax .................................... 55 -- -- --
----------- ----------- ----------- -----------
Net earnings (loss) .............................. $ 169 $ 4,839 $ (1,629) $ 2,786
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Before cumulative effect of accounting change .... .03 1.15 (.39) .66
Cumulative effect of accounting change ........... .01 -- -- --
Basic and diluted net earnings (loss)
----------- ----------- ----------- -----------
per common share .............................. $ .04 $ 1.15 $ (.39) $ .66
=========== =========== =========== ===========
Dividends per common share ....................... $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</Table>
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 and operating earnings were as follows
(IN THOUSANDS):
<Table>
<Caption>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------- ---------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues $ 2,590,446 $ 3,962,038 $ 1,259,172 $ 1,961,606
Operating earnings (loss) $ 2,090 $ 8,627 $ (1,055) $ 4,603
</Table>
Supplemental volume and price information for the marketing division is
as follows:
<Table>
<Caption>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Wellhead Purchases -- Per day (1)
Crude oil 436,000 bbls 302,000 bbls 440,000 bbls 318,000 bbls
Natural gas 789,000 mcf 829,000 mcf 757,000 mcf 855,000 mcf
Average Purchase Price
Crude oil -- per barrel $ 26.74 $ 27.01 $ 26.24 $ 26.91
Natural gas -- per mcf $ 5.56 $ 3.20 $ 4.49 $ 3.42
</Table>
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(1) Reflects the volume of crude oil purchased from third parties at the lease
level and shipped to market, including 100% of joint venture activity.
Gross revenues for marketing operations decreased by $1.4 billion or
35% for the comparative first half 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 venture became
fully operational in October of 2000. 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
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volumes averaged 436,000 barrels per day, in the first half of 2001 versus
302,000 barrels per day last year.
Operating earnings were reduced by 75% to $2,090,000 in the first half
of 2001. Further, for the second quarter of 2001, the company sustained an
operating loss of $1,055,000. Earnings were negatively affected by a sudden and
dramatic weakening of inter-month crude oil price spreads, particularly in the
second quarter of this year. 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. The adverse market conditions continued to hamper earnings recovery
in the second quarter of 2001 because of the inherent time lag in reducing crude
oil acquisition costs. Crude oil is normally purchased under 30-day evergreen
contracts, while the resale of crude oil varies from day to day.
Beginning in May 2001, the Company began to systematically cancel its
crude oil acquisition contracts in accordance with the allowed terms. Effective
with July 2001 production, the company has adjusted the pricing on its crude oil
purchase contracts to be in line with current trends. However, crude oil markets
remain turbulent and given current market conditions, the Company anticipates a
continuation of narrow margins during the second half of 2001.
-- Transportation
Transportation revenues and operating earnings were as follows
(IN THOUSANDS):
<Table>
<Caption>
Six Months Ended Increase Three Months Ended Increase
June 30, (Decrease) June 30, (Decrease)
------------------ ---------- ------------------ --------
2001 2000 2001 2000
------- ------- ------- -------
Revenues $17,880 $19,335 (8)% $ 9,503 $ 9,555 --%
Operating earnings $ 961 $ 1,470 (35)% $ 818 $ 782 --%
</Table>
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. In the second quarter of 2001 however,
demand for the Company's trucking services stabilized as the Company was able to
secure a number of agricultural chemical hauls. However, the near term outlook
for transportation remains cautionary.
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-- Oil and Gas
Oil and gas division revenues and operating earnings are primarily a
function of crude oil and natural gas prices and volumes. Comparative amounts
are as follows (IN THOUSANDS):
<Table>
<Caption>
Six Months Ended Three Months Ended
June 30, June 30,
----------------- ------------------
2001 2000 2001 2000
------ ------ ------ ------
Revenues $4,273 $2,333 $1,974 $1,217
Operating earnings (loss) $1,345 $ 275 $ 335 $ 205
</Table>
The increase in oil and gas division revenues and operating earnings is
a direct result of improved prices for natural gas. In the second quarter of
2001, however, the Company sustained $508,000 of dry hole drilling costs which
substantially offset the gains realized through price increases. Comparative
amounts are as follows:
<Table>
<Caption>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Volume/Price Information:
Crude oil
Volume 36,700 bbls 26,000 bbls 19,800 bbls 15,000 bbls
Average price per barrel $ 28.54 $ 27.76 $ 27.13 $ 27.74
Natural gas
Volume 560,000 mcf 585,000 mcf 288,000 mcf 280,000 mcf
Average price per mcf $ 5.71 $ 2.63 $ 4.92 $ 2.72
</Table>
The Company has participated in the drilling of 16 wells in 2001. Nine
wells were successfully completed, three were dry holes, and four wells are
currently drilling. One of the in process wells is on the Company's Ft. Bend
County, Texas acreage. Two successful Wilcox wells were recently drilled on this
prospect and three shallower prospects with significant potential have been
identified for drilling later this year.
-- General and administrative
Corporate general and administrative expenses are 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.
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-- Outlook
The Company continues to experience adverse conditions in both the
marketing and transportation divisions. Earnings from these operations, while
expected to be positive, are not expected to contribute substantially to 2001
results. We do, however, expect to see growth from our exploration and
production division. As recently drilled wells are brought on production,
stronger natural gas prices should afford earnings improvement.
Liquidity and Capital Resources
During the first half of 2001, the Company's cash flow from operations
before working capital items totaled $3,664,000. The Company invested $1,601,000
in capital expenditures including $476,000 in marketing equipment, $324,000 in
transportation operations and $801,000 in oil and gas drilling activities. The
remaining $2.1 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)
<Table>
<Caption>
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 21,413 $ 36,140
Accounts receivable, net ............................. 239,085 346,152
Inventories .......................................... 21,119 35,453
Prepaid and other .................................... 1,565 2,604
--------- ---------
Total current assets ................... 283,182 420,349
--------- ---------
Property and equipment ................................. 73,776 72,152
Less - accumulated depreciation,
depletion and amortization .................... (48,086) (44,635)
--------- ---------
25,690 27,517
--------- ---------
Other assets ........................................... 5,158 178
--------- ---------
$ 314,030 $ 448,044
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 232,237 $ 345,503
Accrued and other liabilities ........................ 21,257 42,240
--------- ---------
Total current liabilities ..................... 253,494 387,743
Long-term debt, less current maturities ................ 11,900 11,900
Deferred taxes and other liabilities ................... 4,154 4,088
--------- ---------
269,548 403,731
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 .................................... 32,367 32,198
--------- ---------
Total shareholders' equity .................... 44,482 44,313
--------- ---------
$ 314,030 $ 448,044
========= =========
</Table>
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)
<Table>
<Caption>
Six Months Ended
June 30,
-----------------------
2001 2000
--------- ---------
CASH PROVIDED (USED) BY OPERATIONS:
Net earnings ............................................. $ 169 $ 4,839
Items of income not requiring (providing) cash --
Depreciation, depletion and amortization ................ 3,429 3,342
Deferred income tax provision ........................... 64 650
Other, net .............................................. 2 (115)
Decrease (increase) in accounts receivable ............... 107,067 (75,183)
Decrease (increase) in inventories ....................... 14,334 (14,349)
Decrease (increase) in prepaid and other ................. 1,039 (2,580)
Increase (decrease) in accounts payable .................. (113,266) 77,158
Increase (decrease) in accrued liabilities ............... (20,983) 3,688
--------- ---------
Net cash provided (required) by operating activities .... (8,145) (2,550)
--------- ---------
INVESTING ACTIVITIES:
Property and equipment additions ......................... (1,601) (2,518)
Investment in joint venture .............................. (4,981) (495)
--------- ---------
Net cash provided by (used in) investing activities ..... (6,582) (3,013)
--------- ---------
Increase (decrease) in cash and cash equivalents ............ (14,727) (5,563)
Cash at beginning of period ................................. 36,140 24,137
--------- ---------
Cash at end of period ....................................... $ 21,413 $ 18,574
========= =========
Supplemental disclosure of cash flow information:
Interest paid during the period .......................... $ 45 $ 117
========= =========
Income taxes paid during the period ...................... $ 164 $ 800
========= =========
</Table>
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 June 30, 2001 and December 31, 2000 and its results of
operations and cash flows for the six months ended and three months ended June
30, 2001 and 2000. 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.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Note 2 -- 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 exloration and production. Information concerning the
Company's various business activities is summarized as follows (in thousands):
<Table>
<Caption>
Depreci-
ation,
Segment Depletion Property
Operating and and
Earnings Amorti- Equipment
Revenues (Loss) zation Additions
---------- ---------- ---------- ----------
For the six months ended
June 30, 2001
Marketing .................. $2,590,446 $ 2,090 $ 1,365 $ 476
Transportation ............. 17,880 961 831 324
Oil and gas ................ 4,273 1,345 1,233 801
---------- ---------- ---------- ----------
$2,612,599 $ 4,396 $ 3,429 $ 1,601
========== ========== ========== ==========
For the six months ended
June 30, 2000
Marketing .................. $3,962,038 $ 8,627 $ 1,415 $ 584
Transportation ............. 19,335 1,470 734 458
Oil and gas ................ 2,333 275 1,193 1,476
---------- ---------- ---------- ----------
$3,983,706 $ 10,372 $ 3,342 $ 2,518
========== ========== ========== ==========
For the three months ended
June 30, 2001
Marketing .................. $1,259,172 $ (1,055) $ 662 $ 55
Transportation ............. 9,503 818 423 15
Oil and gas ................ 1,974 335 615 175
---------- ---------- ---------- ----------
$1,270,649 $ 98 $ 1,700 $ 245
========== ========== ========== ==========
For the three months ended
June 30, 2000
Marketing .................. $1,961,606 $ 4,603 $ 707 $ 350
Transportation ............. 9,555 782 370 126
Oil and gas ................ 1,217 205 620 5
---------- ---------- ---------- ----------
$1,972,378 $ 5,590 $ 1,697 $ 481
========== ========== ========== ==========
</Table>
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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):
<Table>
<Caption>
June 30, December 31,
2001 2000
Marketing ......... $265,598 $383,247
Transportation .... 15,256 16,329
Oil and gas ....... 11,763 11,971
Other ............. 21,413 36,497
-------- --------
$314,030 $448,044
======== ========
</Table>
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):
<Table>
<Caption>
Six months ended Three months ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
-------- -------- -------- --------
Segment operating earnings ................. $ 4,396 $ 10,372 $ 98 $ 5,590
General and administrative expenses ........ (4,436) (3,117) (2,685) (1,578)
-------- -------- -------- --------
Operating earnings ..................... (40) 7,255 (2,587) 4,012
Interest income and other .................. 268 454 97 337
Interest expense ........................... (45) (117) (24) (45)
-------- -------- -------- --------
Earnings (loss) before income taxes .... $ 183 $ 7,592 $ (2,514) $ 4,304
======== ======== ======== ========
</Table>
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
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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. 133 on January 1, 2001, the Company
recorded a derivative asset of $55,000 (net of $29,000 of income tax), as the
cumulative effect of this accounting change. The Company had no financial
instruments outstanding that qualified as derivatives under SFAS No. 133 at June
30, 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 $5,857,467 and
$2,820,000 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 June 30, 2001, the accompanying balance sheet
reflects the fair value of trading assets of $24,190,713 in current assets and
the fair value of the trading liabilities of $18,333,246 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 June 30, 2001
and for the six months then ended, the Company's investment, net of
distributions received, included in other assets was $4,981,000 and the amount
of equity earnings included in marketing revenues relating to the venture was
$5,000. Included in such equity earnings was $961,000, representing the impact
of mark-to-market accounting as of June 30, 2001 related to certain energy
contracts.
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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. -- None
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: August 10, 2001 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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