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 September 30, 2001 or
------------------
[ ] 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.
------------------------------
(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, 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 October 31, 2001 was 4,217,596.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUES:
Marketing ..................................... $ 3,819,207 $ 5,705,834 $ 1,228,761 $ 1,743,796
Transportation ................................ 26,015 26,792 8,135 7,457
Oil and gas ................................... 5,588 4,258 1,315 1,925
----------- ----------- ----------- -----------
3,850,810 5,736,884 1,238,211 1,753,178
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Marketing ..................................... 3,814,924 5,690,938 1,227,933 1,738,942
Transportation ................................ 23,684 24,264 7,596 7,133
Oil and gas ................................... 2,252 1,336 557 471
General and administrative .................... 6,511 4,595 2,075 1,478
Depreciation, depletion and amortization ...... 5,112 5,042 1,683 1,700
----------- ----------- ----------- -----------
3,852,483 5,726,175 1,239,844 1,749,724
----------- ----------- ----------- -----------
Operating earnings (loss) ........................ (1,673) 10,709 (1,633) 3,454
Other income (expense):
Interest income and other ..................... 318 593 50 139
Interest expense .............................. (107) (144) (62) (27)
----------- ----------- ----------- -----------
211 449 (12) 112
----------- ----------- ----------- -----------
Earnings (loss) before income taxes .............. (1,462) 11,158 (1,645) 3,566
Income tax provision (benefit)
Current ....................................... (527) 3,202 (532) 1,099
Deferred ...................................... -- 900 (64) 250
----------- ----------- ----------- -----------
(527) 4,102 (596) 1,349
----------- ----------- ----------- -----------
Earnings (loss) before cumulative effect of
accounting change ............................. (935) 7,056 (1,049) 2,217
Cumulative effect of accounting change,
net of tax .................................... 55 -- -- --
----------- ----------- ----------- -----------
Net earnings (loss) .............................. $ (880) $ 7,056 $ (1,049) $ 2,217
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Before cumulative effect of accounting change .... $ (.22) $ 1.67 $ (.25) $ .52
Cumulative effect of accounting change ........... .01 -- -- --
----------- ----------- ----------- -----------
Basic and diluted net earnings (loss)
per common share .............................. $ (.21) $ 1.67 $ (.25) $ .52
=========== =========== =========== ===========
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>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues $ 3,819,207 $ 5,705,834 $ 1,228,761 $ 1,743,796
Operating earnings $ 2,265 $ 12,752 $ 175 $ 4,125
</Table>
Supplemental volume and price information for the marketing division is
as follows:
<Table>
<Caption>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Wellhead Purchases - Per day (1)
Crude oil 439,000 bbls 307,900 bbls 447,000 bbls 325,000 bbls
Natural gas 793,163 mcf 843,200 mcf 801,489 mcf 819,300 mcf
Average Purchase Price
Crude oil - per barrel $ 26.21 $ 28.23 $ 25.46 $ 30.03
Natural gas - per mcf $ 4.62 $ 3.55 $ 2.74 $ 4.26
</Table>
- ------------------
(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 from marketing operations decreased by $1.9 billion or
33% for the comparative first nine months of 2001 as a result of the accounting
treatment for a 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 and 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
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actuality, including joint venture activity, crude oil lease purchase and sale
volumes continued to grow. Such volumes averaged 439,000 barrels per day, in the
first nine months of 2001 versus 307,900 barrels per day in last year.
Operating earnings were reduced by 82% to $2,265,000 for the first nine
months of 2001. This reduction resulted, in part, from a $4.2 million write-down
in the carrying value of crude oil inventories during the third quarter of 2001.
During the current quarter, the market price for crude oil dropped from
approximately $26.50 per barrel to approximately $22 per barrel necessitating
the write-down. Earnings for 2001 were also affected negatively by a sudden and
dramatic weakening of inter-month crude oil price spreads, particularly in the
second quarter. 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 had adjusted the pricing on its crude oil
purchase contracts to be in line with current trends. However, in late September
2001, crude oil prices fell significantly resulting in the inventory valuation
decline. As of September 30, 2001, the Company held approximately 900,000
barrels of crude oil inventory valued at $22 per barrel.
- - Transportation
Transportation revenues and operating earnings (loss) were as follows
(IN THOUSANDS):
<Table>
<Caption>
Nine Months Ended Increase Three Months Ended Increase
September 30, (Decrease) September 30, (Decrease)
----------------------------- ------------ ----------------------------- ------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues $ 26,015 $ 26,792 (2.9)% $ 8,135 $ 7,457 9.1%
Operating earnings
(loss) $ 1,083 $ 1,429 (24.2)% $ 122 $ (41) n/a
</Table>
Demand for transportation services and resulting operating earnings
fell significantly last year and remained depressed during 2001, consistent with
a general slowing of the United States economy. While the company experienced a
slight comparative improvement for the third quarter of 2001, this item does not
represent a trend. Success for the tank truck business is tied to demand from
domestic manufacturers of petrochemicals. The petrochemical customer base has
been hurt by the
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weakened U. S. economy, plus the strong dollar has reduced chemical exports.
Last year's run-up in natural gas prices, a key feedstock for petrochemicals,
further hampered domestic chemical manufacturers. The events of September 11,
2001 exacerbated the situation as demand for petrochemicals continued to slow.
To counter these problems, the Company has attempted to expand market
share and has focused heavily on cost control. In the past 12 months, a limited
number of layoffs were instituted and there have been no additions to the
transportation fleet. Ordinarily, the Company would have sold off excess units,
but the depressed state of the used truck market made this alternative much less
attractive. An additional concern is the significantly increased liability
insurance premiums forecasted for 2002. This situation results from failing
insurance industry investment earnings coupled with higher incidents of claims
throughout the industry. The Company's present liability policies renew on March
1, 2002.
In recent years, the tank truck industry has seen a large volume of
consolidation through mergers and acquisitions. Given current conditions for the
industry, the company anticipates further fall out as less financial secure
competitors fail or are acquired. This should reduce future competition. When
the U.S. economy turns around and chemical demand resumes, the Company
anticipates being a well-positioned survivor capable of capitalizing on new
opportunities.
- - 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):
<Table>
<Caption>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenues $ 5,588 $ 4,258 $ 1,315 $ 1,925
Operating earnings $ 1,490 $ 1,123 $ 145 $ 848
</Table>
The increase in oil and gas division revenues during the first nine
months of 2001 is primarily a result of improved prices for natural gas. During
2001, however, the Company sustained $542,000 of dry hole drilling costs that
partially offset the gains realized through price increases. For the comparative
third quarter of 2001, reduced production volumes from normal production
declines and lower natural gas prices suppressed revenues and earnings.
Comparative amounts are as follows:
-5-
<Table>
<Caption>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ ---------------------------------
2001 2000 2001 2000
------------- ------------- -------------- -------------
Crude oil
Volume 50,900 bbls 43,400 bbls 14,200 bbls 17,400 bbls
Average price per barrel $ 29.50 $ 28.64 $ 31.97 $ 29.95
Natural gas
Volume 809,000 mcf 900,300 mcf 249,800 mcf 315,300 mcf
Average price per mcf $ 4.99 $ 3.28 $ 3.38 $ 4.48
</Table>
The Company has participated in the drilling of 23 wells in 2001. Ten
wells were successfully completed, seven were dry holes, and six are currently
drilling. In addition, the Company has acquired an interest in three wells in
the White's Bayou Field of Chambers County, Texas. One of these wells is
currently being recompleted to a previously untested zone, while a second well
is currently producing and the third well is being placed on pump in
anticipation of establishing production. Further, six wells (three exploratory
and three developmental) are planned for spudding in the fourth quarter
- - 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.
Liquidity and Capital Resources
During the first nine months of 2001, the Company invested $1,808,000
in capital expenditures including $625,000 in marketing equipment, $357,000 in
transportation operations and $826,000 in oil and gas drilling activities.
Funding for these items came from general working capital availability.
Effective November 1, 2001, the Company sold for cash an onshore crude oil
pipeline and made a decision to exit its marketing joint venture arrangement
(see Note 4). By exiting the joint venture, the Company was able to liquidate
certain crude oil inventory positions. Combined, these events generated
approximately $18 million of free cash for the Company. (See Note 7). Management
places great importance on maintaining a strong liquid balance sheet and
believes the availability of trade credit is critical to the success of the
Company's operations.
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.
-6-
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<Table>
<Caption>
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 10,435 $ 36,140
Accounts receivable, net ................................... 273,605 346,152
Inventories ................................................ 20,792 35,453
Prepaid and other .......................................... 3,236 2,604
------------ ------------
Total current assets ......................... 308,068 420,349
------------ ------------
Property and equipment ....................................... 73,986 72,152
Less - accumulated depreciation,
depletion and amortization .......................... (49,772) (44,635)
------------ ------------
24,214 27,517
------------ ------------
Other assets ................................................. 178 178
------------ ------------
$ 332,460 $ 448,044
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 240,710 $ 345,503
Notes payable .............................................. 3,000 --
Accrued and other liabilities .............................. 29,792 42,240
------------ ------------
Total current liabilities ........................... 273,502 387,743
Long-term debt, less current maturities ...................... 11,900 11,900
Deferred taxes and other liabilities ......................... 3,625 4,088
------------ ------------
289,027 403,731
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 .......................................... 31,318 32,198
------------ ------------
Total shareholders' equity .......................... 43,433 44,313
------------ ------------
$ 332,460 $ 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>
Nine Months Ended
September 30,
--------------------------
2001 2000
---------- ----------
CASH PROVIDED (USED) BY OPERATIONS:
Net earnings (loss) ..................................... $ (880) $ 7,056
Items of income not requiring (providing) cash -
Depreciation, depletion and amortization ............... 5,112 5,042
Risk management activities ............................. (5,724) (803)
Deferred income tax provision .......................... -- 900
Other, net ............................................. (464) (284)
Decrease (increase) in accounts receivable .............. 66,217 (48,258)
Decrease (increase) in inventories ...................... 14,661 (30,080)
Decrease (increase) in prepaid and other ................ (632) (2,993)
Increase (decrease) in accounts payable ................. (92,739) 75,618
Increase (decrease) in accrued liabilities .............. (12,448) 1,599
---------- ----------
Net cash provided (required) by operating activities ... (26,897) 7,797
---------- ----------
INVESTING ACTIVITIES:
Property and equipment additions ........................ (1,808) (4,823)
---------- ----------
Net cash (required) by investing activities ............. (1,808) (4,823)
---------- ----------
FINANCING ACTIVITIES:
Borrowings .............................................. 3,000 --
---------- ----------
Net cash provided by financing activities ............... 3,000 --
---------- ----------
Increase (decrease) in cash and cash equivalents ........... (25,705) 2,974
Cash at beginning of period ................................ 36,140 24,137
---------- ----------
Cash at end of period ...................................... $ 10,435 $ 27,111
========== ==========
Supplemental disclosure of cash flow information:
Interest paid during the period ......................... $ 107 $ 144
========== ==========
Income taxes paid during the period ..................... $ 270 $ 3,443
========== ==========
</Table>
The accompanying notes are an integral part of these financial statements.
-8-
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, 2001 and December 31, 2000 and its results
of operations and cash flows for the nine months ended and three months ended
September 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.
-9-
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 exploration and production. Information concerning
the Company's various business activities is summarized as follows (IN
THOUSANDS):
<Table>
<Caption>
Depreci-
ation,
Depletion Property
Segment and and
Operating Amorti- Equipment
Revenues Earnings zation Additions
------------ ------------ ------------ ------------
For the nine months ended
September 30, 2001
Marketing .................... $ 3,819,207 $ 2,265 $ 2,018 $ 625
Transportation ............... 26,015 1,083 1,248 357
Oil and gas .................. 5,588 1,490 1,846 826
------------ ------------ ------------ ------------
$ 3,850,810 $ 4,838 $ 5,112 $ 1,808
============ ============ ============ ============
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 three months ended
September 30, 2001
Marketing .................... $ 1,228,761 $ 175 $ 653 $ 149
Transportation ............... 8,135 122 417 33
Oil and gas .................. 1,315 145 613 25
------------ ------------ ------------ ------------
$ 1,238,211 $ 442 $ 1,683 $ 207
============ ============ ============ ============
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
------------ ------------ ------------ ------------
$ 1,753,178 $ 4,932 $ 1,700 $ 2,305
============ ============ ============ ============
</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>
September 30, December 31,
2001 2000
--------------- ---------------
Marketing ........................................ $ 295,466 $ 383,247
Transportation ................................... 14,486 16,329
Oil and gas ...................................... 11,479 11,971
Other ............................................ 11,029 36,497
--------------- ---------------
$ 332,460 $ 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>
Nine months ended Three months ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Segment operating earnings ............... $ 4,838 $ 15,304 $ 442 $ 4,932
General and administrative expenses ...... 6,511 4,595 2,075 1,478
Operating earnings (loss) .............. (1,673) 10,709 (1,633) 3,454
Interest income and other ................ 318 593 50 139
Interest expense ......................... (107) (144) (62) (27)
---------- ---------- ---------- ----------
Earnings (loss) before income taxes .... $ (1,462) $ 11,158 $ (1,645) $ 3,566
========== ========== ========== ==========
</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
-11-
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. 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 $5,724,000 and
$803,000 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 September 30, 2001, the accompanying balance
sheet reflects the fair value of trading assets of $32,615,000 in current assets
and the fair value of the trading liabilities of $24,060,000 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 September 30,
2001 and for the nine months then ended, the Company's investment, net of
distributions received, included in current assets was $7,854,000 and the amount
of equity earnings included in marketing revenues relating to the venture was a
net loss of $1,337,000. Included in such equity earnings was $574,000,
representing the impact of mark-to-market accounting as of September 30, 2001
related to certain energy contracts.
Effective November 1, 2001, the Company exited the joint venture and
was able to liquidate for cash its $7,854,000 net investment. (See Note 7).
-12-
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.
Note 6 - Recent Accounting Pronouncements
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("Statement No. 144"). Statement No. 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" and APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The objective of Statement No. 144 is to establish one accounting
model for long-lived assets to be disposed of by sale as well as resolve
implementation issues related to Statement No. 121. The Company expects to adopt
Statement No. 144 effective January 1, 2002 and does not expect such adoption to
have a material impact on its financial condition and results of operations.
Note 7 - Subsequent events.
Effective November 1, 2001, the Company sold for cash an onshore crude
oil pipeline. Additionally, effective November 1, 2001, the Company exited its
marketing joint venture arrangement (See Note 4). The combined effect of these
events permitted the Company to liquidate certain crude oil inventory positions
and generate free cash totaling approximately $18 million. In addition, the
Company will record a fourth quarter 2001 gain of approximately $5,000,000.
-13-
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.
-14-
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 12, 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