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UNITED STATES
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 June 30, 2022
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: 1-07908
ADAMS RESOURCES & ENERGY, INC.
(Exact Name of Registrant as Specified in Its Charter) | | | | | | | | |
Delaware | | 74-1753147 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| | |
17 South Briar Hollow Lane, Suite 100 Houston, Texas 77027 |
(Address of Principal Executive Offices, including Zip Code) |
(713) 881-3600
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.10 Par Value | | AE | | NYSE American LLC |
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 þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☑ | | Smaller reporting company | ☑ |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
A total of 4,378,316 shares of Common Stock were outstanding at August 1, 2022.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) | | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 67,728 | | | $ | 97,825 | |
Restricted cash | | 7,853 | | | 9,492 | |
Accounts receivable, net of allowance for doubtful | | | | |
accounts of $100 and $108, respectively | | 267,634 | | | 137,789 | |
Accounts receivable – related party | | 2 | | | 2 | |
Inventory | | 61,281 | | | 18,942 | |
Derivative assets | | 1,501 | | | 347 | |
Income tax receivable | | — | | | 6,424 | |
Prepayments and other current assets | | 2,007 | | | 2,389 | |
Total current assets | | 408,006 | | | 273,210 | |
Property and equipment, net | | 84,528 | | | 88,036 | |
Operating lease right-of-use assets, net | | 6,437 | | | 7,113 | |
Intangible assets, net | | 2,938 | | | 3,317 | |
Other assets | | 2,714 | | | 3,027 | |
Total assets | | $ | 504,623 | | | $ | 374,703 | |
| | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 289,381 | | | $ | 168,224 | |
| | | | |
Derivative liabilities | | 848 | | | 324 | |
Current portion of finance lease obligations | | 4,308 | | | 3,663 | |
Current portion of operating lease liabilities | | 2,228 | | | 2,178 | |
Other current liabilities | | 14,207 | | | 11,622 | |
Total current liabilities | | 310,972 | | | 186,011 | |
Other long-term liabilities: | | | | |
| | | | |
Asset retirement obligations | | 2,406 | | | 2,376 | |
Finance lease obligations | | 8,609 | | | 9,672 | |
Operating lease liabilities | | 4,205 | | | 4,938 | |
Deferred taxes and other liabilities | | 10,979 | | | 11,320 | |
Total liabilities | | 337,171 | | | 214,317 | |
| | | | |
Commitments and contingencies (Note 14) | | | | |
| | | | |
Shareholders’ equity: | | | | |
Preferred stock – $1.00 par value, 960,000 shares | | | | |
authorized, none outstanding | | — | | | — | |
Common stock – $0.10 par value, 7,500,000 shares | | | | |
authorized, 4,378,316 and 4,355,001 shares outstanding, respectively | | 436 | | | 433 | |
Contributed capital | | 17,541 | | | 16,913 | |
Retained earnings | | 149,475 | | | 143,040 | |
Total shareholders’ equity | | 167,452 | | | 160,386 | |
Total liabilities and shareholders’ equity | | $ | 504,623 | | | $ | 374,703 | |
See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues: | | | | | | | |
Marketing | $ | 962,516 | | | $ | 463,092 | | | $ | 1,710,071 | | | $ | 767,115 | |
Transportation | 29,534 | | | 23,497 | | | 56,224 | | | 44,732 | |
Pipeline and storage | — | | | 155 | | | — | | | 388 | |
Total revenues | 992,050 | | | 486,744 | | | 1,766,295 | | | 812,235 | |
| | | | | | | |
Costs and expenses: | | | | | | | |
Marketing | 955,511 | | | 453,081 | | | 1,691,158 | | | 748,288 | |
Transportation | 23,674 | | | 19,078 | | | 44,539 | | | 36,538 | |
Pipeline and storage | 606 | | | 488 | | | 1,160 | | | 1,032 | |
General and administrative | 4,211 | | | 2,961 | | | 8,229 | | | 6,337 | |
Depreciation and amortization | 5,088 | | | 4,801 | | | 10,101 | | | 9,854 | |
Total costs and expenses | 989,090 | | | 480,409 | | | 1,755,187 | | | 802,049 | |
| | | | | | | |
Operating earnings | 2,960 | | | 6,335 | | | 11,108 | | | 10,186 | |
| | | | | | | |
Other income (expense): | | | | | | | |
Interest and other income | 303 | | | 62 | | | 327 | | | 196 | |
Interest expense | (136) | | | (204) | | | (250) | | | (424) | |
Total other income (expense), net | 167 | | | (142) | | | 77 | | | (228) | |
| | | | | | | |
Earnings before income taxes | 3,127 | | | 6,193 | | | 11,185 | | | 9,958 | |
Income tax provision | (651) | | | (1,484) | | | (2,619) | | | (2,441) | |
| | | | | | | |
Net earnings | $ | 2,476 | | | $ | 4,709 | | | $ | 8,566 | | | $ | 7,517 | |
| | | | | | | |
Earnings per share: | | | | | | | |
Basic net earnings per common share | $ | 0.57 | | | $ | 1.11 | | | $ | 1.96 | | | $ | 1.77 | |
Diluted net earnings per common share | $ | 0.56 | | | $ | 1.10 | | | $ | 1.95 | | | $ | 1.76 | |
| | | | | | | |
| | | | | | | |
Dividends per common share | $ | 0.24 | | | $ | 0.24 | | | $ | 0.48 | | | $ | 0.48 | |
| | | | | | | |
See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2022 | | 2021 |
Operating activities: | | | |
Net earnings | $ | 8,566 | | | $ | 7,517 | |
Adjustments to reconcile net earnings to net cash | | | |
(used in) provided by operating activities: | | | |
Depreciation and amortization | 10,101 | | | 9,854 | |
Gains on sales of property | (938) | | | (265) | |
Provision for doubtful accounts | (8) | | | (2) | |
Stock-based compensation expense | 458 | | | 417 | |
Deferred income taxes | (332) | | | (1,636) | |
Net change in fair value contracts | (630) | | | (25) | |
Changes in assets and liabilities: | | | |
Accounts receivable | (129,837) | | | (26,109) | |
Accounts receivable/payable, affiliates | — | | | (4) | |
Inventories | (42,339) | | | (10,376) | |
Income tax receivable | 6,424 | | | 7,442 | |
Prepayments and other current assets | 382 | | | 842 | |
Accounts payable | 121,144 | | | 63,831 | |
Accrued liabilities | 2,614 | | | 1,235 | |
Other | 217 | | | (614) | |
Net cash (used in) provided by operating activities | (24,178) | | | 52,107 | |
| | | |
Investing activities: | | | |
Property and equipment additions | (4,783) | | | (3,602) | |
| | | |
Proceeds from property sales | 1,374 | | | 1,316 | |
| | | |
Net cash used in investing activities | (3,409) | | | (2,286) | |
| | | |
Financing activities: | | | |
Borrowings under Credit Agreement | 30,000 | | | 8,000 | |
Repayments under Credit Agreement | (30,000) | | | — | |
Principal repayments of finance lease obligations | (2,306) | | | (2,123) | |
Payment for financed portion of VEX acquisition | — | | | (10,000) | |
Net proceeds from sale of equity | 283 | | | — | |
Dividends paid on common stock | (2,126) | | | (2,062) | |
Net cash used in financing activities | (4,149) | | | (6,185) | |
| | | |
(Decrease) Increase in cash and cash equivalents, including restricted cash | (31,736) | | | 43,636 | |
Cash and cash equivalents, including restricted cash, at beginning of period | 107,317 | | | 52,065 | |
Cash and cash equivalents, including restricted cash, at end of period | $ | 75,581 | | | $ | 95,701 | |
See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Total |
| | Common | | Contributed | | Retained | | Shareholders’ |
| | Stock | | Capital | | Earnings | | Equity |
| | | | | | | | |
Balance, January 1, 2022 | | $ | 433 | | | $ | 16,913 | | | $ | 143,040 | | | $ | 160,386 | |
Net earnings | | — | | | — | | | 6,090 | | | 6,090 | |
Stock-based compensation expense | | — | | | 195 | | | — | | | 195 | |
Vesting of restricted awards | | 2 | | | (2) | | | — | | | — | |
Cancellation of shares withheld to cover | | | | | | | | |
taxes upon vesting of restricted awards | | — | | | (86) | | | — | | | (86) | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,048) | | | (1,048) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (16) | | | (16) | |
Balance, March 31, 2022 | | 435 | | | 17,020 | | | 148,066 | | | 165,521 | |
Net earnings | | — | | | — | | | 2,476 | | | 2,476 | |
Stock-based compensation expense | | — | | | 263 | | | — | | | 263 | |
| | | | | | | | |
Cancellation of shares withheld to cover | | | | | | | | |
taxes upon vesting of restricted awards | | — | | | (24) | | | — | | | (24) | |
Shares sold at the market | | 1 | | | 282 | | | — | | | 283 | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,049) | | | (1,049) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (18) | | | (18) | |
Balance, June 30, 2022 | | $ | 436 | | | $ | 17,541 | | | $ | 149,475 | | | $ | 167,452 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Total |
| | Common | | Contributed | | Retained | | Shareholders’ |
| | Stock | | Capital | | Earnings | | Equity |
| | | | | | | | |
Balance, January 1, 2021 | | $ | 423 | | | $ | 13,340 | | | $ | 135,329 | | | $ | 149,092 | |
Net earnings | | — | | | — | | | 2,808 | | | 2,808 | |
Stock-based compensation expense | | — | | | 185 | | | — | | | 185 | |
Cancellation of shares withheld to cover | | | | | | | | |
taxes upon vesting of restricted awards | | — | | | (31) | | | — | | | (31) | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,019) | | | (1,019) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (18) | | | (18) | |
Balance, March 31, 2021 | | 423 | | | 13,494 | | | 137,100 | | | 151,017 | |
Net earnings | | — | | | — | | | 4,709 | | | 4,709 | |
Stock-based compensation expense | | — | | | 232 | | | — | | | 232 | |
Vesting of restricted awards | | 1 | | | (1) | | | — | | | — | |
Cancellation of shares withheld to cover | | | | | | | | |
taxes upon vesting of restricted awards | | — | | | (70) | | | — | | | (70) | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,021) | | | (1,021) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (16) | | | (16) | |
Balance, June 30, 2021 | | $ | 424 | | | $ | 13,655 | | | $ | 140,772 | | | $ | 154,851 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See Notes to Unaudited Condensed Consolidated Financial Statements.
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Organization
Adams Resources & Energy, Inc. is a publicly traded Delaware corporation organized in 1973, the common shares of which are listed on the NYSE American LLC under the ticker symbol “AE”. Through our subsidiaries, we are primarily engaged in crude oil marketing, transportation, terminalling and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also conduct tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with nineteen terminals across the U.S. Unless the context requires otherwise, references to “we,” “us,” “our” or “Company” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.
We operate and report in three business segments: (i) crude oil marketing, transportation and storage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk; and (iii) pipeline transportation, terminalling and storage of crude oil. See Note 7 for further information regarding our business segments.
Basis of Presentation
Our results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of results expected for the full year of 2022. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals necessary for fair presentation. The condensed consolidated financial statements and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and the rules of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) filed with the SEC on March 9, 2022. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of our financial statements in conformity with GAAP requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and on various other assumptions and information we believe to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. While we believe the estimates and assumptions used in the preparation of these condensed consolidated financial statements are appropriate, actual results could differ from those estimates.
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported in the unaudited condensed consolidated balance sheets that totals to the amounts shown in the unaudited condensed consolidated statements of cash flows at the dates indicated (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
| | | | |
Cash and cash equivalents | | $ | 67,728 | | | $ | 97,825 | |
Restricted cash: | | | | |
| | | | |
Captive insurance subsidiary (1) | | 7,853 | | | 9,492 | |
Total cash, cash equivalents and restricted cash shown in the | | | | |
unaudited condensed consolidated statements of cash flows | | $ | 75,581 | | | $ | 107,317 | |
_____________
(1)$1.5 million of the restricted cash balance relates to the initial capitalization of our captive insurance company formed in late 2020, and the remainder represents amounts paid to our captive insurance company for insurance premiums.
Common Shares Outstanding
The following table reconciles our outstanding common stock for the periods indicated:
| | | | | | | | |
| | Common |
| | shares |
| | |
Balance, January 1, 2022 | | 4,355,001 | |
Vesting of restricted stock unit awards (see Note 11) | | 15,966 | |
Shares withheld to cover taxes upon vesting of restricted stock unit awards | | (3,101) | |
Balance, March 31, 2022 | | 4,367,866 | |
Vesting of restricted stock unit awards (see Note 11) | | 2,953 | |
| | |
Shares withheld to cover taxes upon vesting of restricted stock unit awards | | (705) | |
Shares sold at the market | | 8,202 | |
Balance, June 30, 2022 | | 4,378,316 | |
| | |
| | |
Credit Agreement
At June 30, 2022, we had no borrowings outstanding under our $40.0 million Credit Agreement with Wells Fargo Bank, National Association (“Credit Agreement”) and $5.7 million of letters of credit issued under the Credit Agreement at a fee of 1.75 percent per annum. At June 30, 2022, we were in compliance with all financial covenants under the Credit Agreement. However, as of June 30, 2022, we obtained a waiver relating to a breach of a non-financial covenant in connection with our failure to timely notify the lender of the creation of a new holding company subsidiary.
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Earnings Per Share
Basic earnings per share is computed by dividing our net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by giving effect to all potential common shares outstanding, including our shares related to unvested restricted stock unit awards. Unvested restricted stock unit awards granted under the Adams Resources & Energy, Inc. 2018 Long-Term Incentive Plan, as amended and restated (“2018 LTIP”) are not considered to be participating securities as the holders of these shares do not have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares (see Note 11 for further discussion).
A reconciliation of the calculation of basic and diluted earnings per share was as follows for the periods indicated (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Earnings per share — numerator: | | | | | | | |
Net earnings | $ | 2,476 | | | $ | 4,709 | | | $ | 8,566 | | | $ | 7,517 | |
| | | | | | | |
Denominator: | | | | | | | |
Basic weighted average number of shares outstanding | 4,371 | | | 4,254 | | | 4,365 | | | 4,250 | |
| | | | | | | |
Basic earnings per share | $ | 0.57 | | | $ | 1.11 | | | $ | 1.96 | | | $ | 1.77 | |
| | | | | | | |
Diluted earnings per share: | | | | | | | |
Diluted weighted average number of shares outstanding: | | | | | | | |
Common shares | 4,371 | | | 4,254 | | | 4,365 | | | 4,250 | |
Restricted stock unit awards | 21 | | | 13 | | | 22 | | | 15 | |
Performance share unit awards (1) | 12 | | | 6 | | | 12 | | | 7 | |
Total diluted shares | 4,404 | | | 4,273 | | | 4,399 | | | 4,272 | |
| | | | | | | |
Diluted earnings per share | $ | 0.56 | | | $ | 1.10 | | | $ | 1.95 | | | $ | 1.76 | |
_______________
(1)The dilutive effect of performance share awards are included in the calculation of diluted earnings per share when the performance share award performance conditions have been achieved.
Equity At-The-Market Offerings
During the three and six months ended June 30, 2022, we received net proceeds of approximately $0.3 million (net of offering costs to B. Riley Securities, Inc. of $14 thousand) from the sale of 8,202 of our common shares at an average price per share of approximately $37.38 in at-the-market offerings under our At Market Issuance Sales Agreement with B. Riley Securities, Inc. dated December 23, 2020.
Fair Value Measurements
The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities are recorded at fair value based on market quotations from actively traded liquid markets.
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A three-tier hierarchy has been established that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate these fair values. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy.
Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and we elect, cash flow hedge accounting. We had no contracts designated for hedge accounting during any current reporting periods (see Note 10 for further information).
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of these items and their respective tax basis.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating losses (“NOL”) incurred in tax years 2018, 2019 and 2020 to offset 100 percent of taxable income and be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We carried back our NOL for fiscal year 2020 to fiscal years 2015 and 2016, and in June 2022, we received a cash refund of approximately $6.8 million.
Inventory
Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of our crude oil marketing and pipeline and storage operations. Crude oil inventory is carried at the lower of cost or net realizable value. At the end of each reporting period, we assess the carrying value of our inventory and make adjustments necessary to reduce the carrying value to the applicable net realizable value. Any resulting adjustments are a component of marketing costs and expenses or pipeline and storage expenses on our consolidated statements of operations. No charges were recognized during the three and six months ended June 30, 2022 and 2021.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for additions, improvements and other enhancements to property and equipment are capitalized, and minor replacements, maintenance and repairs that do not extend asset life or add value are charged to expense as incurred. When property and equipment assets are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in results of operations in operating costs and expenses for the respective period. Property and equipment, except for land, is depreciated using the straight-line method over the estimated average useful lives ranging from two to thirty-nine years.
We review our long-lived assets for impairment whenever there is evidence that the carrying value of these assets may not be recoverable. Any impairment recognized is permanent and may not be restored. Property and equipment is reviewed at the lowest level of identifiable cash flows. For property and equipment requiring impairment, the fair value is estimated based on an internal discounted cash flow model of future cash flows.
See Note 5 for additional information regarding our property and equipment.
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
We measure all share-based payment awards, including the issuance of restricted stock unit awards and performance share unit awards to employees and board members, using a fair-value based method. The cost of services received from employees and non-employee board members in exchange for awards of equity instruments is recognized in the consolidated statements of operations based on the estimated fair value of those awards on the grant date and is amortized on a straight-line basis over the requisite service period. The fair value of restricted stock unit awards and performance share unit awards is based on the closing price of our common stock on the grant date. We account for forfeitures as they occur. See Note 11 for additional information regarding our 2018 LTIP.
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Revenue Recognition
Revenue Disaggregation
The following table disaggregates our revenue by segment and by major source for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Reporting Segments | |
| Crude Oil Marketing | | Transportation | | Pipeline and storage | | Total |
| | | | | | | |
Three Months Ended June 30, 2022 | | | | | | | |
Revenues from contracts with customers | $ | 952,325 | | | $ | 29,534 | | | $ | — | | | $ | 981,859 | |
Other (1) | 10,191 | | | — | | | — | | | 10,191 | |
Total revenues | $ | 962,516 | | | $ | 29,534 | | | $ | — | | | $ | 992,050 | |
| | | | | | | |
Timing of revenue recognition: | | | | | | | |
Goods transferred at a point in time | $ | 952,325 | | | $ | — | | | $ | — | | | $ | 952,325 | |
Services transferred over time | — | | | 29,534 | | | — | | | 29,534 | |
Total revenues from contracts with customers | $ | 952,325 | | | $ | 29,534 | | | $ | — | | | $ | 981,859 | |
| | | | | | | |
Three Months Ended June 30, 2021 | | | | | | | |
Revenues from contracts with customers | $ | 452,820 | | | $ | 23,497 | | | $ | 155 | | | $ | 476,472 | |
Other (1) | 10,272 | | | — | | | — | | | 10,272 | |
Total revenues | $ | 463,092 | | | $ | 23,497 | | | $ | 155 | | | $ | 486,744 | |
| | | | | | | |
Timing of revenue recognition: | | | | | | | |
Goods transferred at a point in time | $ | 452,820 | | | $ | — | | | $ | — | | | $ | 452,820 | |
Services transferred over time | — | | | 23,497 | | | 155 | | | 23,652 | |
Total revenues from contracts with customers | $ | 452,820 | | | $ | 23,497 | | | $ | 155 | | | $ | 476,472 | |
| | | | | | | |
Six Months Ended June 30, 2022 | | | | | | | |
Revenues from contracts with customers | $ | 1,698,550 | | | $ | 56,224 | | | $ | — | | | $ | 1,754,774 | |
Other (1) | 11,521 | | | — | | | — | | | 11,521 | |
Total revenues | $ | 1,710,071 | | | $ | 56,224 | | | $ | — | | | $ | 1,766,295 | |
| | | | | | | |
Timing of revenue recognition: | | | | | | | |
Goods transferred at a point in time | $ | 1,698,550 | | | $ | — | | | $ | — | | | $ | 1,698,550 | |
Services transferred over time | — | | | 56,224 | | | — | | | 56,224 | |
Total revenues from contracts with customers | $ | 1,698,550 | | | $ | 56,224 | | | $ | — | | | $ | 1,754,774 | |
| | | | | | | |
Six Months Ended June 30, 2021 | | | | | | | |
Revenues from contracts with customers | $ | 750,295 | | | $ | 44,732 | | | $ | 388 | | | $ | 795,415 | |
Other (1) | 16,820 | | | — | | | — | | | 16,820 | |
Total revenues | $ | 767,115 | | | $ | 44,732 | | | $ | 388 | | | $ | 812,235 | |
| | | | | | | |
Timing of revenue recognition: | | | | | | | |
Goods transferred at a point in time | $ | 750,295 | | | $ | — | | | $ | — | | | $ | 750,295 | |
Services transferred over time | — | | | 44,732 | | | 388 | | | 45,120 | |
Total revenues from contracts with customers | $ | 750,295 | | | $ | 44,732 | | | $ | 388 | | | $ | 795,415 | |
_______________
(1)Other crude oil marketing revenues are recognized under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, and ASC 845, Nonmonetary Transactions – Purchases and Sales of Inventory with the Same Counterparty.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other Crude Oil Marketing Revenue
Certain of the commodity purchase and sale contracts utilized by our crude oil marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activity. From the time of contract origination, these contracts are marked-to-market and recorded on a net revenue basis in the accompanying consolidated financial statements.
Certain of our crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations. These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer. These buy/sell arrangements are reflected on a net revenue basis in the accompanying consolidated financial statements.
Reporting these crude oil contracts on a gross revenue basis would increase our reported revenues as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Revenue gross-up | $ | 419,081 | | | $ | 189,512 | | | $ | 726,467 | | | $ | 324,378 | |
Note 4. Prepayments and Other Current Assets
The components of prepayments and other current assets were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| | | |
Insurance premiums | $ | 724 | | | $ | 641 | |
Vendor prepayment | — | | | 602 | |
Rents, licenses and other | 1,283 | | | 1,146 | |
Total prepayments and other current assets | $ | 2,007 | | | $ | 2,389 | |
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Property and Equipment
The historical costs of our property and equipment and related accumulated depreciation and amortization balances were as follows at the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | |
| Estimated | | | | |
| Useful Life | | June 30, | | December 31, |
| in Years | | 2022 | | 2021 |
| | | | | |
Tractors and trailers | 5 – 6 | | $ | 109,390 | | | $ | 106,558 | |
Field equipment | 2 – 5 | | 22,959 | | | 22,851 | |
Finance lease ROU assets (1) | 3 – 6 | | 20,929 | | | 22,349 | |
Pipeline and related facilities | 20 – 25 | | 20,408 | | | 20,336 | |
Linefill and base gas (2) | N/A | | 3,922 | | | 3,922 | |
Buildings | 5 – 39 | | 16,163 | | | 16,163 | |
Office equipment | 2 – 5 | | 2,888 | | | 2,060 | |
Land | N/A | | 2,008 | | | 2,008 | |
Construction in progress | N/A | | 1,507 | | | 3,396 | |
Total | | | 200,174 | | | 199,643 | |
Less accumulated depreciation and amortization | | | (115,646) | | | (111,607) | |
Property and equipment, net | | | $ | 84,528 | | | $ | 88,036 | |
_______________
(1)Our finance lease right-of-use (“ROU)” assets arise from leasing arrangements for the right to use various classes of underlying assets including tractors, trailers, a tank storage and throughput arrangement and office equipment (see Note 13 for further information). Accumulated amortization of the assets presented as “Finance lease ROU assets” was $8.9 million and $9.8 million at June 30, 2022 and December 31, 2021, respectively.
(2)Linefill and base gas represents crude oil in the VEX pipeline and storage tanks we own, and the crude oil is recorded at historical cost.
Components of depreciation and amortization expense were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Depreciation and amortization, excluding amounts under finance leases | $ | 3,827 | | | $ | 3,591 | | | $ | 7,632 | | | $ | 7,504 | |
Amortization of property and equipment under finance leases | 1,261 | | | 1,210 | | | 2,469 | | | 2,350 | |
Total depreciation and amortization | $ | 5,088 | | | $ | 4,801 | | | $ | 10,101 | | | $ | 9,854 | |
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Other Assets
Components of other assets were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| | | |
Amounts associated with liability insurance program: | | | |
Insurance collateral deposits | $ | 375 | | | $ | 721 | |
Excess loss fund | 622 | | | 622 | |
Accumulated interest income | 515 | | | 489 | |
Other amounts: | | | |
State collateral deposits | 36 | | | 36 | |
Materials and supplies | 652 | | | 574 | |
Debt issuance costs | 229 | | | 292 | |
Other | 285 | | | 293 | |
Total other assets | $ | 2,714 | | | $ | 3,027 | |
We have established certain deposits to support participation in our liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits. Insurance collateral deposits are held by the insurance company to cover past or potential open claims based upon a percentage of the maximum assessment under our insurance policies. Insurance collateral deposits are invested at the discretion of our insurance carrier. Excess amounts in our loss fund represent premium payments in excess of claims incurred to date that we may be entitled to recover through settlement or commutation as claim periods are closed. Interest income is earned on the majority of amounts held by the insurance companies and will be paid to us upon settlement of policy years.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Segment Reporting
We operate and report in three business segments: (i) crude oil marketing, transportation and storage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk; and (iii) pipeline transportation, terminalling and storage of crude oil.
Financial information by reporting segment was as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reporting Segments | | |
| Crude Oil Marketing | | Transportation | | Pipeline and storage | | Other | | Total |
| | | | | | | | | |
Three Months Ended June 30, 2022 | | | | | | | | |
Segment revenues (1) | $ | 962,516 | | | $ | 29,621 | | | $ | 2,060 | | | $ | — | | | $ | 994,197 | |
Less: Intersegment revenues (1) | — | | | (87) | | | (2,060) | | | — | | | (2,147) | |
Revenues | $ | 962,516 | | | $ | 29,534 | | | $ | — | | | $ | — | | | $ | 992,050 | |
| | | | | | | | | |
Segment operating earnings (losses) (2) | 5,111 | | | 2,937 | | | (877) | | | — | | | 7,171 | |
Depreciation and amortization | 1,894 | | | 2,923 | | | 271 | | | — | | | 5,088 | |
Property and equipment additions (3) (4) | 884 | | | 159 | | | 46 | | | — | | | 1,089 | |
| | | | | | | | | |
Three Months Ended June 30, 2021 | | | | | | | | |
Segment revenues (1) | $ | 463,092 | | | $ | 23,535 | | | $ | 651 | | | $ | — | | | $ | 487,278 | |
Less: Intersegment revenues (1) | — | | | (38) | | | (496) | | | — | | | (534) | |
Revenues | $ | 463,092 | | | $ | 23,497 | | | $ | 155 | | | $ | — | | | $ | 486,744 | |
| | | | | | | | | |
Segment operating earnings (losses) (2) | 8,370 | | | 1,482 | | | (556) | | | — | | | 9,296 | |
Depreciation and amortization | 1,641 | | | 2,937 | | | 223 | | | — | | | 4,801 | |
Property and equipment additions (3) (4) | 492 | | | 2,761 | | | 179 | | | — | | | 3,432 | |
| | | | | | | | | |
Six Months Ended June 30, 2022 | | | | | | | | |
Segment revenues (1) | $ | 1,710,071 | | | $ | 56,398 | | | $ | 4,120 | | | $ | — | | | $ | 1,770,589 | |
Less: Intersegment revenues (1) | — | | | (174) | | | (4,120) | | | — | | | (4,294) | |
Revenues | $ | 1,710,071 | | | $ | 56,224 | | | $ | — | | | $ | — | | | $ | 1,766,295 | |
| | | | | | | | | |
Segment operating earnings (losses) (2) | 15,231 | | | 5,805 | | | (1,699) | | | — | | | 19,337 | |
Depreciation and amortization | 3,682 | | | 5,880 | | | 539 | | | — | | | 10,101 | |
Property and equipment additions (3) (4) | 4,008 | | | 694 | | | 73 | | | 8 | | | 4,783 | |
| | | | | | | | | |
Six Months Ended June 30, 2021 | | | | | | | | |
Segment revenues (1) | $ | 767,115 | | | $ | 44,803 | | | $ | 1,070 | | | $ | — | | | $ | 812,988 | |
Less: Intersegment revenues (1) | — | | | (71) | | | (682) | | | — | | | (753) | |
Revenues | $ | 767,115 | | | $ | 44,732 | | | $ | 388 | | | $ | — | | | $ | 812,235 | |
| | | | | | | | | |
Segment operating earnings (losses) (2) | 15,388 | | | 2,256 | | | (1,121) | | | — | | | 16,523 | |
Depreciation and amortization | 3,439 | | | 5,938 | | | 477 | | | — | | | 9,854 | |
Property and equipment additions(3) (4) (5) | 702 | | | 2,703 | | | 189 | | | 8 | | | 3,602 | |
_______________
(1)Segment revenues include intersegment amounts that are eliminated due to consolidation in operating costs and expenses in our unaudited condensed consolidated statements of operations. Intersegment activities are conducted at posted tariff rates where applicable, or otherwise at rates similar to those charged to third parties or rates that we believe approximate market at the time the agreement is executed.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(2)Our crude oil marketing segment’s operating earnings included inventory valuation losses of $1.5 million and inventory liquidation gains of $3.7 million for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, our crude oil marketing segment’s operating earnings included inventory liquidation gains of $7.2 million and $10.6 million, respectively.
(3)Our segment property and equipment additions do not include assets acquired under finance leases during the three and six months ended June 30, 2022 and 2021. See Note 13 for further information.
(4)Amounts included in property and equipment additions for Other are additions for computer equipment at our corporate headquarters, which were not attributed or allocated to any of our reporting segments.
(5)During the three months ended March 31, 2021, we received a refund of approximately $0.3 million for amounts previously spent in our transportation segment, which has been reflected as a reduction in property and equipment additions.
Segment operating earnings reflect revenues net of operating costs and depreciation and amortization expense and are reconciled to earnings before income taxes, as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Segment operating earnings | $ | 7,171 | | | $ | 9,296 | | | $ | 19,337 | | | $ | 16,523 | |
General and administrative | (4,211) | | | (2,961) | | | (8,229) | | | (6,337) | |
Operating earnings | 2,960 | | | 6,335 | | | 11,108 | | | 10,186 | |
Interest and other income | 303 | | | 62 | | | 327 | | | 196 | |
Interest expense | (136) | | | (204) | | | (250) | | | (424) | |
Earnings before income taxes | $ | 3,127 | | | $ | 6,193 | | | $ | 11,185 | | | $ | 9,958 | |
Identifiable assets by business segment were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| | | |
Reporting segment: | | | |
Crude oil marketing | $ | 332,711 | | | $ | 162,770 | |
Transportation | 66,138 | | | 67,167 | |
Pipeline and storage | 25,067 | | | 25,569 | |
Cash and other (1) | 80,707 | | | 119,197 | |
Total assets | $ | 504,623 | | | $ | 374,703 | |
_______________
(1)Other identifiable assets are primarily corporate cash, corporate accounts receivable, properties and operating lease right-of-use assets not identified with any specific segment of our business.
Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Transactions with Affiliates
We enter into certain transactions in the normal course of business with affiliated entities including direct cost reimbursement for shared phone and administrative services from KSA Industries, Inc. (“KSA”), an affiliated entity. We lease our corporate office space in a building operated by 17 South Briar Hollow Lane, LLC, an affiliate of KSA.
Activities with affiliates were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Affiliate billings to us | $ | — | | | $ | — | | | $ | 6 | | | $ | 12 | |
Billings to affiliates | 5 | | | 5 | | | 10 | | | 6 | |
Rentals paid to affiliate | 138 | | | 143 | | | 252 | | | 317 | |
During the six months ended June 30, 2022, we paid West Point Buick GMC, an affiliate of KSA, a total of approximately $0.1 million (net of trade-in values) for the purchase of two pickup trucks. During the six months ended June 30, 2021, we paid West Point Buick GMC, an affiliate of KSA, a total of approximately $0.4 million (net of trade-in values) for the purchase of eight pickup trucks.
Note 9. Other Current Liabilities
The components of other current liabilities were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| | | |
| | | |
Accrual for payroll, benefits and bonuses | $ | 5,317 | | | $ | 5,210 | |
Accrued automobile and workers’ compensation claims | 4,075 | | | 4,127 | |
Accrued medical claims | 1,618 | | | 1,100 | |
Accrued taxes | 2,488 | | | 534 | |
Other | 709 | | | 651 | |
Total other current liabilities | $ | 14,207 | | | $ | 11,622 | |
Note 10. Derivative Instruments and Fair Value Measurements
Derivative Instruments
In the normal course of our operations, our crude oil marketing segment purchases and sells crude oil. We seek to profit by procuring the commodity as it is produced and then delivering the material to the end users or the intermediate use marketplace. As typical for the industry, these transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts. Some of these contracts meet the definition of a derivative instrument, and therefore, we account for these contracts at fair value, unless the normal purchase and sale exception is applicable. These types of underlying contracts are standard for the industry and are the governing document for our crude oil marketing segment. None of our derivative instruments have been designated as hedging instruments.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2022, we had in place eight commodity purchase and sale contracts which had a fair value associated with them as the contractual prices of crude oil were outside of the range of prices specified in the agreements. These commodity purchase and sale contracts encompass approximately 324 barrels per day of crude oil during July 2022 through December 2022, and also include purchase and sale contracts entered into in May 2022 for an additional 300,000 barrels of crude oil in July 2022.
At December 31, 2021, we had in place four commodity purchase and sale contracts, of which two had a fair value associated with them as the contractual prices of crude oil were outside the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately 324 barrels per day of crude oil during January 2022 through December 2022.
The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheets were as follows at the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet Location and Amount |
| Current | | Other | | Current | | Other |
| Assets | | Assets | | Liabilities | | Liabilities |
June 30, 2022 | | | | | | | |
Asset derivatives: | | | | | | | |
Fair value forward hydrocarbon commodity | | | | | | | |
contracts at gross valuation | $ | 1,501 | | | $ | — | | | $ | — | | | $ | — | |
Liability derivatives: | | | | | | | |
Fair value forward hydrocarbon commodity | | | | | | | |
contracts at gross valuation | — | | | — | | | 848 | | | — | |
Less counterparty offsets | — | | | — | | | — | | | — | |
As reported fair value contracts | $ | 1,501 | | | $ | — | | | $ | 848 | | | $ | — | |
| | | | | | | |
December 31, 2021 | | | | | | | |
Asset derivatives: | | | | | | | |
Fair value forward hydrocarbon commodity | | | | | | | |
contracts at gross valuation | $ | 347 | | | $ | — | | | $ | — | | | $ | — | |
Liability derivatives: | | | | | | | |
Fair value forward hydrocarbon commodity | | | | | | | |
contracts at gross valuation | — | | | — | | | 324 | | | — | |
Less counterparty offsets | — | | | — | | | — | | | — | |
As reported fair value contracts | $ | 347 | | | $ | — | | | $ | 324 | | | $ | — | |
We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At June 30, 2022 and December 31, 2021, we were not holding nor have we posted any collateral to support our forward month fair value derivative activity. We are not subject to any credit-risk related trigger events. We have no other financial investment arrangements that would serve to offset our derivative contracts.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated statements of operations were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Gains (losses) |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Revenues – marketing | $ | (14) | | | $ | 5 | | | $ | 5 | | | $ | 25 | |
Cost and expenses – marketing | 625 | | | — | | | 625 | | | — | |
Fair Value Measurements
The following tables set forth, by level with the Level 1, 2 and 3 fair value hierarchy, the carrying values of our financial assets and liabilities at the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using | | | | |
| Quoted Prices | | | | | | | | |
| in Active | | Significant | | | | | | |
| Markets for | | Other | | Significant | | | | |
| Identical Assets | | Observable | | Unobservable | | | | |
| and Liabilities | | Inputs | | Inputs | | Counterparty | | |
| (Level 1) | | (Level 2) | | (Level 3) | | Offsets | | Total |
June 30, 2022 | | | | | | | | | |
Derivatives: | | | | | | | | | |
Current assets | $ | — | | | $ | 1,501 | | | $ | — | | | $ | — | | | $ | 1,501 | |
Current liabilities | — | | | (848) | | | — | | | — | | | (848) | |
Net value | $ | — | | | $ | 653 | | | $ | — | | | $ | — | | | $ | 653 | |
| | | | | | | | | |
December 31, 2021 | | | | | | | | | |
Derivatives: | | | | | | | | | |
Current assets | $ | — | | | $ | 347 | | | $ | — | | | $ | — | | | $ | 347 | |
Current liabilities | — | | | (324) | | | — | | | — | | | (324) | |
Net value | $ | — | | | $ | 23 | | | $ | — | | | $ | — | | | $ | 23 | |
These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input used to estimate their fair value. Our assessment of the relative significance of these inputs requires judgments.
When determining fair value measurements, we make credit valuation adjustments to reflect both our own nonperformance risk and our counterparty’s nonperformance risk. When adjusting the fair value of derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements. Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by us or our counterparties. At June 30, 2022 and December 31, 2021, credit valuation adjustments were not significant to the overall valuation of our fair value contracts. As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Stock-Based Compensation Plan
We have in place a long-term incentive plan in which any employee or non-employee director who provides services to us is eligible to participate. The 2018 LTIP, which is overseen by the Compensation Committee of our Board of Directors, provides for the grant of various types of equity awards, of which restricted stock unit awards and performance-based compensation awards have been granted. In May 2022, our shareholders approved an amendment and restatement of the 2018 LTIP, in which the maximum number of shares authorized for issuance under the 2018 LTIP was increased by 150,000 shares to a total of 300,000 shares, and the effective date of the 2018 LTIP was extended to February 23, 2032. After giving effect to awards granted and forfeitures made under the 2018 LTIP and assuming the potential achievement of the maximum amounts of the performance factors through June 30, 2022, a total of 154,975 shares were available for issuance.
Compensation expense recognized in connection with equity-based awards was as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Compensation expense | $ | 263 | | | $ | 232 | | | $ | 458 | | | $ | 417 | |
At June 30, 2022 and December 31, 2021, we had $91,200 and $82,500, respectively, of accrued dividend amounts for awards granted under the 2018 LTIP.
Restricted Stock Unit Awards
The following table presents restricted stock unit award activity for the periods indicated:
| | | | | | | | | | | |
| | | Weighted- |
| | | Average Grant |
| Number of | | Date Fair Value |
| Shares | | per Share (1) |
| | | |
Restricted stock unit awards at January 1, 2022 | 38,265 | | | $ | 28.78 | |
Granted (2) | 26,796 | | | $ | 31.83 | |
Vested | (18,919) | | | $ | 29.11 | |
Forfeited | (1,673) | | | $ | 30.64 | |
Restricted stock unit awards at June 30, 2022 | 44,469 | | | $ | 30.41 | |
_______________
(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
(2)The aggregate grant date fair value of restricted stock unit awards issued during 2022 was $0.9 million based on a grant date market price of our common shares ranging from $31.80 to $37.42 per share.
Unrecognized compensation cost associated with restricted stock unit awards was approximately $0.9 million at June 30, 2022. Due to the graded vesting provisions of these awards, we expect to recognize the remaining compensation cost for these awards over a weighted-average period of 1.5 years.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Unit Awards
The following table presents performance share unit award activity for the periods indicated:
| | | | | | | | | | | | | | |
| | | | Weighted- |
| | | | Average Grant |
| | Number of | | Date Fair Value |
| | Shares | | per Share (1) |
| | | | |
Performance share unit awards at January 1, 2022 | | 21,492 | | | $ | 26.64 | |
Granted (2) | | 13,458 | | | $ | 31.80 | |
| | | | |
Vested | | — | | | $ | — | |
Forfeited | | (756) | | | $ | 31.42 | |
Performance share unit awards at June 30, 2022 | | 34,194 | | | $ | 28.57 | |
_______________
(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
(2)The aggregate grant date fair value of performance share unit awards issued during 2022 was $0.4 million based on a grant date market price of our common shares of $31.80 per share and assuming a performance factor of 100 percent.
Unrecognized compensation cost associated with performance share unit awards was approximately $0.6 million at June 30, 2022. We expect to recognize the remaining compensation cost for these awards over a weighted-average period of 2.2 years.
Note 12. Supplemental Cash Flow Information
Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):
| | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2022 | | 2021 |
| | | |
Cash paid for interest | $ | 250 | | | $ | 424 | |
Cash paid for federal and state income taxes | 1,313 | | | 258 | |
Cash refund for NOL carryback under CARES Act | 6,907 | | | 3,712 | |
| | | |
Non-cash transactions: | | | |
Change in accounts payable related to property and equipment additions | — | | | (1,238) | |
Property and equipment acquired under finance leases | 1,888 | | | 2,083 | |
See Note 13 for information related to other non-cash transactions related to leases.
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Leases
The following table provides the components of lease expense for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Finance lease cost: | | | | | | | | |
Amortization of ROU assets | | $ | 1,261 | | | $ | 1,210 | | | $ | 2,469 | | | $ | 2,350 | |
Interest on lease liabilities | | 78 | | | 110 | | | 158 | | | 220 | |
Operating lease cost | | 676 | | | 623 | | | 1,349 | | | 1,247 | |
Short-term lease cost | | 3,802 | | | 3,448 | | | 7,583 | | | 6,698 | |
Variable lease cost | | 4 | | | 1 | | | 10 | | | 2 | |
Total lease expense | | $ | 5,821 | | | $ | 5,392 | | | $ | 11,569 | | | $ | 10,517 | |
The following table provides supplemental cash flow and other information related to leases for the periods indicated (in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, |
| | 2022 | | 2021 |
Cash paid for amounts included in measurement of lease liabilities: | | | | |
Operating cash flows from operating leases (1) | | $ | 1,347 | | | $ | 1,244 | |
Operating cash flows from finance leases | | 139 | | | 187 | |
Financing cash flows from finance leases | | 2,306 | | | 2,123 | |
| | | | |
ROU assets obtained in exchange for new lease liabilities: | | | | |
Finance leases | | 1,888 | | | 2,083 | |
Operating leases | | 549 | | | 285 | |
______________
(1)Amounts are included in Other operating activities on the unaudited condensed consolidated statements of cash flows.
The following table provides the lease terms and discount rates for the periods indicated:
| | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, |
| | 2022 | | 2021 |
Weighted-average remaining lease term (years): | | | | |
Finance leases | | 3.16 | | 3.92 |
Operating leases | | 3.53 | | 4.13 |
| | | | |
Weighted-average discount rate: | | | | |
Finance leases | | 2.5% | | 2.7% |
Operating leases | | 3.7% | | 4.2% |
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides supplemental balance sheet information related to leases at the dates indicated (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
Assets | | | | |
Finance lease ROU assets (1) | | $ | 12,012 | | | $ | 12,590 | |
Operating lease ROU assets | | 6,437 | | | 7,113 | |
| | | | |
Liabilities | | | | |
Current | | | | |
Finance lease liabilities | | 4,308 | | | 3,663 | |
Operating lease liabilities | | 2,228 | | | 2,178 | |
Noncurrent | | | | |
Finance lease liabilities | | 8,609 | | | 9,672 | |
Operating lease liabilities | | 4,205 | | | 4,938 | |
______________
(1)Amounts are included in Property and equipment, net on the unaudited condensed consolidated balance sheets.
The following table provides maturities of undiscounted lease liabilities at June 30, 2022 (in thousands):
| | | | | | | | | | | | | | |
| | Finance | | Operating |
| | Lease | | Lease |
| | | | |
Remainder of 2022 | | $ | 2,429 | | | $ | 1,298 | |
2023 | | 3,691 | | | 2,176 | |
2024 | | 2,450 | | | 1,996 | |
2025 | | 3,873 | | | 458 | |
2026 | | 903 | | | 387 | |
Thereafter | | 154 | | | 478 | |
Total lease payments | | 13,500 | | | 6,793 | |
Less: Interest | | (583) | | | (360) | |
Present value of lease liabilities | | 12,917 | | | 6,433 | |
Less: Current portion of lease obligation | | (4,308) | | | (2,228) | |
Total long-term lease obligation | | $ | 8,609 | | | $ | 4,205 | |
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides maturities of undiscounted lease liabilities at December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | Finance | | Operating |
| | Lease | | Lease |
| | | | |
2022 | | $ | 3,941 | | | $ | 2,399 | |
2023 | | 3,143 | | | 2,080 | |
2024 | | 2,348 | | | 1,911 | |
2025 | | 3,771 | | | 394 | |
2026 | | 801 | | | 333 | |
Thereafter | | — | | | 455 | |
Total lease payments | | 14,004 | | | 7,572 | |
Less: Interest | | (669) | | | (456) | |
Present value of lease liabilities | | 13,335 | | | 7,116 | |
Less: Current portion of lease obligation | | (3,663) | | | (2,178) | |
Total long-term lease obligation | | $ | 9,672 | | | $ | 4,938 | |
Note 14. Commitments and Contingencies
Insurance
We have accrued liabilities for estimated workers’ compensation and other casualty claims incurred based upon claim reserves plus an estimate for loss development and incurred but not reported claims. We self-insure a significant portion of expected losses relating to workers’ compensation, general liability and automobile liability, with a self-insured retention of $1.0 million. Insurance is purchased over our retention to reduce our exposure to catastrophic events. Estimates are recorded for potential and incurred outstanding liabilities for workers’ compensation, auto and general liability claims and claims that are incurred but not reported. Estimates are based on adjusters’ estimates, historical experience and statistical methods commonly used within the insurance industry that we believe are reliable. We have also engaged a third-party actuary to perform a review of our accrued liability for these claims as well as potential funded losses in our captive insurance company. Insurance estimates include certain assumptions and management judgments regarding the frequency and severity of claims, claim development and settlement practices and the selection of estimated loss among estimates derived using different methods. Unanticipated changes in these factors may produce materially different amounts of expense that would be reported under these programs.
On October 1, 2020, we elected to utilize a wholly owned insurance captive to insure the self-insured retention for our workers’ compensation, general liability and automobile liability insurance programs. All accrued liabilities associated with periods from October 1, 2017 through current were transferred to the captive.
We maintain excess property and casualty programs with third-party insurers in an effort to limit the financial impact of significant events covered under these programs. Our operating subsidiaries pay premiums to both the excess and reinsurance carriers and our captive for the estimated losses based on an external actuarial analysis. These premiums held by our wholly owned captive are currently held in a restricted account, resulting in a transfer of risk from our operating subsidiaries to the captive.
We also maintain a self-insurance program for managing employee medical claims in excess of employee deductibles. As claims are paid, the liability is relieved. We also maintain third party insurance stop-loss coverage for individual medical claims exceeding a certain minimum threshold. In addition, we maintain $1.2 million of umbrella insurance coverage for annual aggregate medical claims exceeding approximately $11.5 million.
Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Our accruals for automobile, workers’ compensation and medical claims were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| | | |
Pre-funded premiums for losses incurred but not reported | $ | 95 | | | $ | 50 | |
Accrued automobile and workers’ compensation claims | 4,075 | | | 4,127 | |
Accrued medical claims | 1,618 | | | 1,100 | |
Litigation
From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position, results of operations or cash flows.
Note 15. Subsequent Event
On August 11, 2022, we entered into an amendment to our Credit Agreement (the “Credit Agreement Amendment”). Pursuant to the terms of the Credit Agreement Amendment, we may now borrow or issue letters of credit in an aggregate of up to $60.0 million. The Credit Agreement Amendment also extended the maturity of the facility to August 11, 2025.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and accompanying Notes included in this quarterly report on Form 10-Q and the Audited Consolidated Financial Statements and related Notes, together with our discussion and analysis of financial position and results of operations, included in our annual report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as filed on March 9, 2022 with the U.S. Securities and Exchange Commission (“SEC”). Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).
Cautionary Statement Regarding Forward-Looking Information
This quarterly report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and information that are based on our beliefs, as well as assumptions made by us and information currently available to us. When used in this document, words such as “anticipate,” “project,” “expect,” “plan,” “seek,” “goal,” “estimate,” “forecast,” “intend,” “could,” “should,” “would,” “will,” “believe,” “may,” “potential” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we believe that our expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions as described in more detail under Part I, Item 1A of our 2021 Form 10-K. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. You should not put undue reliance on any forward-looking statements. The forward-looking statements in this quarterly report speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.
Overview of Business
Adams Resources & Energy, Inc., a Delaware corporation organized in 1973, and its subsidiaries are primarily engaged in crude oil marketing, transportation, terminalling and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also conduct tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with nineteen terminals across the U.S. Unless the context requires otherwise, references to “we,” “us,” “our” or the “Company” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.
We operate and report in three business segments: (i) crude oil marketing, transportation and storage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk; and (iii) pipeline transportation, terminalling and storage of crude oil. See Note 7 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding our business segments.
Results of Operations
Crude Oil Marketing
Our crude oil marketing segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2022 | | 2021 | | Change (1) | | 2022 | | 2021 | | Change (1) |
| | | | | | | | | | | |
Revenues | $ | 962,516 | | | $ | 463,092 | | | 108 | % | | $ | 1,710,071 | | | $ | 767,115 | | | 123 | % |
Operating earnings (2) | 5,111 | | | 8,370 | | | (39 | %) | | 15,231 | | | 15,388 | | | (1 | %) |
Depreciation and amortization | 1,894 | | | 1,641 | | | 15 | % | | 3,682 | | | 3,439 | | | 7 | % |
Driver compensation | 4,616 | | | 4,296 | | | 7 | % | | 9,242 | | | 8,686 | | | 6 | % |
Insurance | 1,674 | | | 1,869 | | | (10 | %) | | 3,408 | | | 3,846 | | | (11 | %) |
Fuel | 3,458 | | | 1,971 | | | 75 | % | | 6,004 | | | 3,712 | | | 62 | % |
_______________
(1)Represents the percentage increase (decrease) from the prior year period.
(2)Operating earnings included inventory valuation losses of $1.5 million and inventory liquidation gains of $3.7 million for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, operating earnings included inventory liquidation gains of $7.2 million and $10.6 million, respectively, as discussed further below.
Volume and price information were as follows for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Field level purchase volumes – per day (1) | | | | | | | |
Crude oil – barrels | 94,876 | | | 89,585 | | | 92,643 | | | 86,254 | |
| | | | | | | |
Average purchase price | | | | | | | |
Crude oil – per barrel | $ | 107.28 | | | $ | 63.27 | | | $ | 100.21 | | | $ | 59.28 | |
_______________
(1)Reflects the volume purchased from third parties at the field level of operations.
Three Months Ended June 30, 2022 vs. Three Months Ended June 30, 2021. Crude oil marketing revenues increased by $499.4 million during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately $445.7 million, and higher overall crude oil volumes, which increased revenues by approximately $53.7 million. The average crude oil price received was $63.27 during the three months ended June 30, 2021, which increased to $107.28 during the three months ended June 30, 2022. Revenues from legacy volumes are based upon the market price primarily in our Gulf Coast market area. The market price of crude oil has continued to increase in 2022, as it did throughout 2021, and was in excess of $100 per barrel by the end of June 2022. Many U.S. producers have been exercising capital discipline, maintaining oil production plans in spite of the crude oil price, and have been focusing capital on share buy-backs and renewables, although rig count has been increasing slowly. Contributing to the volatility in price has been the war in Europe, as well as COVID-19 outbreaks in China, supply chain issues and labor shortages, creating uncertainty for demand growth. OPEC+ has also maintained a disciplined approach, allowing only modest production increases.
Our crude oil marketing operating earnings decreased by $3.3 million during the three months ended June 30, 2022 as compared to the same period in 2021, primarily due to higher fuel costs, higher driver compensation and inventory valuation changes (as shown in the table below), partially offset by higher crude oil prices and volumes.
Driver compensation increased by $0.3 million during the three months ended June 30, 2022 as compared to the same period in 2021, primarily as a result of higher volumes transported in the 2022 period as compared to the same period in 2021.
Insurance costs decreased by $0.2 million during the three months ended June 30, 2022 as compared to the same period in 2021, primarily due in part to our safety performance in the prior year, and to a lower overall driver count in the 2022 period. Fuel costs increased by $1.5 million during the three months ended June 30, 2022 as compared to the same period in 2021, consistent with the increase in crude oil volumes in the current period and higher fuel prices.
Depreciation and amortization increased by $0.3 million during the three months ended June 30, 2022 as compared to the same period in 2021, primarily due to the timing of purchases and retirements of tractors and other field equipment during 2021 and 2022.
Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021. Crude oil marketing revenues increased by $943.0 million during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately $825.0 million, and higher overall crude oil volumes, which increased revenues by approximately $118.0 million. The average crude oil price received was $59.28 during the six months ended June 30, 2021, which increased to $100.21 during the six months ended June 30, 2022.
Our crude oil marketing operating earnings decreased by $0.2 million during the six months ended June 30, 2022, as compared to the same period in 2022, primarily due to inventory valuation changes (as shown in the table below), higher fuel costs and higher driver compensation, partially offset by higher crude oil prices and volumes.
Driver compensation increased by $0.6 million during the six months ended June 30, 2022 as compared to the same period in 2021, primarily as a result of higher volumes transported in the 2022 period as compared to the same period in 2021.
Insurance costs decreased by $0.4 million during the six months ended June 30, 2022 as compared to the same period in 2021, primarily due in part to our safety performance in the prior year, and to a lower overall driver count in the 2022 period. Fuel costs increased by $2.3 million during the six months ended June 30, 2022 as compared to the same period in 2021, consistent with the increase in crude oil volumes in the current period and higher fuel prices.
Depreciation and amortization expense increased by $0.2 million during the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to the timing of purchases and retirements of tractors and other field equipment during 2021 and 2022.
Field Level Operating Earnings (Non-GAAP Financial Measure). Inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations are two factors affecting comparative crude oil marketing segment operating earnings (losses), of which inventory valuations is the most significant. As a purchaser and shipper of crude oil, we hold inventory in storage tanks and third-party pipelines. During periods of increasing crude oil prices, we recognize inventory liquidation gains while during periods of falling prices, we recognize inventory liquidation and valuation losses.
Crude oil marketing operating earnings (losses) can be affected by the valuations of our forward month commodity contracts (derivative instruments), if material. These non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date. We generally enter into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level). The valuation of derivative instruments at period end requires the recognition of non-cash “mark-to-market” gains and losses.
The impact of inventory liquidations and valuations and derivative valuations on our crude oil marketing segment operating earnings is summarized in the following reconciliation of our non-GAAP financial measure and provides management a measure of the business unit’s performance without the impact of inventory valuation and liquidation adjustments for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
As reported segment operating earnings (1) | $ | 5,111 | | | $ | 8,370 | | | $ | 15,231 | | | $ | 15,388 | |
Add (subtract): | | | | | | | |
Inventory liquidation gains | — | | | (3,650) | | | (7,184) | | | (10,593) | |
Inventory valuation losses | 1,533 | | | — | | | — | | | — | |
Derivative valuation (gains) losses (2) | (611) | | | (4) | | | (630) | | | (25) | |
Field level operating earnings (3) | $ | 6,033 | | | $ | 4,716 | | | $ | 7,417 | | | $ | 4,770 | |
_______________
(1)Our crude oil marketing segment’s operating earnings included inventory valuation losses of $1.5 million and inventory liquidation gains of $3.7 million for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, operating earnings included inventory liquidation gains of $7.2 million and $10.6 million, respectively.
(2)During the second quarter of 2022, we entered into commodity purchase and sale contracts for 300,000 barrels of crude oil, which were adjusted to fair value at June 30, 2022.
(3)The use of field level operating earnings is unique to us, not a substitute for a GAAP measure and may not be comparable to any similar measures developed by industry participants. We utilize this data to evaluate the profitability of our operations.
Field level operating earnings and field level purchase volumes depict our day-to-day operation of acquiring crude oil at the wellhead, transporting the product and delivering the product to market sales point. Field level operating earnings increased during the three months ended June 30, 2022 as compared to the same period in 2021 primarily due to higher crude oil prices and volumes in the 2022 period, partially offset by higher fuel costs and higher driver compensation. Field level operating earnings increased during the six months ended June 30, 2022 as compared to the same period in 2021 primarily due to higher crude oil prices and volumes in the 2022 period, partially offset by higher fuel costs and higher driver compensation.
We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| | | Average | | | | Average |
| Barrels | | Price | | Barrels | | Price |
| | | | | | | |
Crude oil inventory (1) | 573,036 | | | $ | 101.69 | | | 259,489 | | | $ | 71.86 | |
_______________
(1)At June 30, 2022, crude oil inventory included approximately 159,000 barrels in which we had a contract with a customer to sell at June 2022 pricing. The barrels were delivered in early July 2022.
Prices received for crude oil have been volatile and unpredictable with price volatility expected to continue. See “Part I, Item 1A. Risk Factors” in our 2021 Form 10-K.
Transportation
Our transportation segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2022 | | 2021 | | Change (1) | | 2022 | | 2021 | | Change (1) |
| | | | | | | | | | | |
Revenues | $ | 29,534 | | | $ | 23,497 | | | 26 | % | | $ | 56,224 | | | $ | 44,732 | | | 26 | % |
Operating earnings | $ | 2,937 | | | $ | 1,482 | | | 98 | % | | $ | 5,805 | | | $ | 2,256 | | | 157 | % |
Depreciation and amortization | $ | 2,923 | | | $ | 2,937 | | | — | % | | $ | 5,880 | | | $ | 5,938 | | | (1 | %) |
Driver commissions | $ | 3,724 | | | $ | 3,875 | | | (4 | %) | | $ | 7,489 | | | $ | 7,471 | | | — | % |
Insurance | $ | 2,164 | | | $ | 2,164 | | | — | % | | $ | 4,313 | | | $ | 4,312 | | | — | % |
Fuel | $ | 3,709 | | | $ | 2,105 | | | 76 | % | | $ | 6,511 | | | $ | 3,980 | | | 64 | % |
Maintenance expense | $ | 1,270 | | | $ | 1,061 | | | 20 | % | | $ | 2,518 | | | $ | 1,974 | | | 28 | % |
Mileage (000s) | 6,863 | | | 7,246 | | | (5 | %) | | 13,661 | | | 14,178 | | | (4 | %) |
_______________
(1)Represents the percentage increase (decrease) from the prior year period.
Our revenue rate structure includes a component for fuel costs in which fuel cost fluctuations are largely passed through to the customer. Revenues, net of fuel costs, were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Total transportation revenue | $ | 29,534 | | | $ | 23,497 | | | $ | 56,224 | | | $ | 44,732 | |
Diesel fuel cost | (3,709) | | | (2,105) | | | (6,511) | | | (3,980) | |
Revenues, net of fuel costs (1) | $ | 25,825 | | | $ | 21,392 | | | $ | 49,713 | | | $ | 40,752 | |
_______________
(1) Revenues, net of fuel costs, is a non-GAAP financial measure and is utilized for internal analysis of the results of our transportation segment.
Three Months Ended June 30, 2022 vs. Three Months Ended June 30, 2021. Transportation revenues increased by $6.0 million during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. Transportation revenues, net of fuel costs, increased by $4.4 million during the three months ended June 30, 2022, as compared to the prior year period. These increases in transportation revenues were primarily due to increased transportation rates during the 2022 period through continued negotiations with customers to increase rates. In addition, as a result of customer demand, we opened four new terminals during the second half of 2021. These terminals, located in West Memphis, Arkansas, Charleston, West Virginia, Augusta, Georgia, and Joliet, Illinois, increased revenues by approximately $2.5 million during the second quarter of 2022.
Our transportation operating earnings increased by $1.5 million for the three months ended June 30, 2022 as compared to the same period in 2021, primarily due to higher revenues as a result of increased transportation rates and revenues from new terminals, partially offset by higher fuel costs and higher maintenance expense.
Driver commissions decreased by $0.2 million during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to lower mileage during the 2022 period, partially offset by an increase in driver pay.
Fuel costs increased by $1.6 million during the three months ended June 30, 2022 as compared to the same period in 2021, primarily as a result of an increase in the price of fuel during the 2022 period. Insurance costs remained constant during the three months ended June 30, 2022 as compared to the same period in 2021, primarily due to consistent insurance premiums during the 2021 and 2022 periods. Maintenance expense increased by $0.2 million during the three months ended June 30, 2022 as compared to the same period in 2021, primarily due to repairs and maintenance to older tractors and trailers in our fleet.
Depreciation and amortization expense was relatively consistent during the three months ended June 30, 2022 as compared to the same period in 2021, primarily as a result of the timing of purchases of new tractors and trailers in 2021 and 2022.
Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021. Transportation revenues increased by $11.5 million during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. Transportation revenues, net of fuel costs, increased by $9.0 million during the six months ended June 30, 2022, as compared to the prior year period. These increases in transportation revenues were primarily due to increased transportation rates during the 2022 period through continued negotiations with customers to increase rates. In addition, as a result of customer demand, we opened four new terminals during the second half of 2021. These terminals, located in West Memphis, Arkansas, Charleston, West Virginia, Augusta, Georgia, and Joliet, Illinois, increased revenues by approximately $4.5 million during the first half of 2022. In February 2021, a severe winter storm and resulting power outages affected Texas, which resulted in a significant decline in transportation services for over a week and a temporary loss of revenues in the 2021 period.
Our transportation operating earnings increased by $3.5 million for the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to higher revenues as a result of increased transportation rates and revenues from new terminals, partially offset by higher fuel costs and higher maintenance expense.
Driver commissions for the six months ended June 30, 2022 were consistent with the same period in 2021, with lower mileage during the 2022 period, offset by an increase in driver pay.
Fuel costs increased by $2.5 million during the six months ended June 30, 2022 as compared to the same period in 2021, primarily as a result of an increase in price of fuel during the 2022 period. Insurance costs remained constant during the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to consistent premiums during the 2021 and 2022 periods. Maintenance expense increased by $0.5 million during the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to repairs and maintenance to older tractors and trailers in our fleet.
Depreciation and amortization expense decreased by $0.1 million during the six months ended June 30, 2022 as compared to the same period in 2021, primarily as a result of the timing of purchases of new tractors and trailers in 2021 and 2022.
Pipeline and Storage
Our pipeline and storage segment revenues, operating losses and selected costs were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2022 | | 2021 | | Change (1) | | 2022 | | 2021 | | Change (1) |
| | | | | | | | | | | |
Segment revenues (2) | $ | 2,060 | | | $ | 651 | | | 216 | % | | $ | 4,120 | | | $ | 1,070 | | | 285% | |
Less: Intersegment revenues (2) | (2,060) | | | (496) | | | 315 | % | | (4,120) | | | (682) | | | 504% | |
Revenues | $ | — | | | $ | 155 | | | (100 | %) | | $ | — | | | $ | 388 | | | (100%) | |
| | | | | | | | | | | |
Operating losses | (877) | | | (556) | | | 58 | % | | (1,699) | | | (1,121) | | | 52% | |
Depreciation and amortization | 271 | | | 223 | | | 22 | % | | 539 | | | 477 | | | 13% | |
Insurance | 200 | | | 148 | | | 35 | % | | 400 | | | 358 | | | 12% | |
_______________
(1)Represents the percentage increase (decrease) from the prior year period.
(2)Segment revenues include intersegment revenues from our crude oil marketing segment, which are eliminated due to consolidation in our unaudited condensed consolidated statements of operations.
Volume information was as follows for the periods indicated (in barrels per day):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Pipeline throughput | 13,281 | | | 7,876 | | | 11,891 | | | 5,430 | |
Terminalling | 13,704 | | | 8,106 | | | 12,334 | | | 6,518 | |
During the three and six months ended June 30, 2022, all pipeline and storage segment revenues were earned from an affiliated shipper, while during the three and six months ended June 30, 2021, pipeline and storage revenues included revenues from a third party shipper under a contract that had been in place at the time of the acquisition of the pipeline and related terminal assets, and has subsequently ended. Revenues earned from an affiliated shipper are eliminated due to consolidation, with the offset to marketing costs and expenses in our unaudited condensed consolidated statements of operations.
We are continuing to focus on opportunities to increase our pipeline and storage capacity utilization, by identifying opportunities with our existing and new customers to increase volumes. In addition, we are exploring new connections for the pipeline system both upstream and downstream of the pipeline, to increase the crude oil supply and take-away capability of the system.
General and Administrative Expense
General and administrative expense increased by $1.3 million during the three months ended June 30, 2022 as compared to the same period in 2021, primarily due to higher salaries and wages and related personnel costs, insurance costs, outside service costs, audit fees and legal fees, partially offset by lower franchise and other taxes.
General and administrative expense increased by $1.9 million during the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to higher salaries and wages and related personnel costs, outside service costs, audit fees and legal fees, partially offset by lower franchise and other taxes.
Income Taxes
Provision for (benefit from) income taxes is based upon federal and state tax rates, and variations in amounts are consistent with taxable income (loss) in the respective accounting periods.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating losses (“NOL”) incurred in tax years 2018, 2019 and 2020 to offset 100 percent of taxable income and be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We carried back our NOL for fiscal year 2020 to fiscal years 2015 and 2016, and in June 2022, we received a cash refund of approximately $6.8 million.
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity are (i) our cash balance, (ii) cash flow from operating activities, (iii) borrowings under our $40.0 million credit agreement (“Credit Agreement”) and (iv) funds received from the sale of equity securities. Our primary cash requirements include, but are not limited to, (i) ordinary course of business uses, such as the payment of amounts related to the purchase of crude oil, and other expenses, (ii) discretionary capital spending for investments in our business and (iii) dividends to our shareholders. We believe we will have sufficient liquidity through our current cash balances, availability under our Credit Agreement, expected cash generated from future operations, and the ease of financing tractor and trailer additions through leasing arrangements (should the need arise) to meet our short-term and long-term liquidity needs for the reasonably foreseeable future. Our cash balance and cash flow from operating activities is dependent on the success of future operations. If our cash inflow subsides or turns negative, we will evaluate our investment plan accordingly and remain flexible.
We maintain cash balances in order to meet the timing of day-to-day cash needs. Cash and cash equivalents (excluding restricted cash) and working capital, the excess of current assets over current liabilities, were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| | | |
Cash and cash equivalents | $ | 67,728 | | | $ | 97,825 | |
Working capital | 97,034 | | | 87,199 | |
Our cash balance at June 30, 2022 decreased by 31 percent from December 31, 2021, as discussed further below.
At June 30, 2022, we had no borrowings outstanding under our Credit Agreement and $5.7 million of letters of credit issued under the Credit Agreement at a fee of 1.75 percent per annum. See Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information. During the second quarter of 2022, as a result of the significant increase in crude oil prices, we borrowed $30.0 million under the Credit Agreement for working capital purposes and repaid that amount in full shortly thereafter. At June 30, 2022, we were in compliance with all financial covenants under the Credit Agreement. However, as of June 30, 2022, we obtained a waiver relating to a breach of a non-financial covenant in connection with our failure to timely notify the lender of the creation of a new holding company subsidiary.
We have in place an At Market Issuance Sales Agreement (“ATM Agreement”) with B. Riley Securities, Inc., as agent (the “Agent”), in which we may offer to sell shares of our common stock through or to the Agent for cash from time to time. During the three and six months ended June 30, 2022, we received net proceeds of approximately $0.3 million (net of offering costs to B. Riley Securities, Inc. of $14 thousand) from the sale of 8,202 of our common shares at an average price per share of approximately $37.38 under this agreement.
We utilize cash from operations to make discretionary investments in our crude oil marketing, transportation and pipeline and storage businesses. With the exception of operating and finance lease commitments primarily associated with storage tank terminal arrangements, leased office space, tractors, trailers and other equipment, and borrowings outstanding under the Credit Agreement, our future commitments and planned investments can be readily curtailed if operating cash flows decrease. See “Material Cash Requirements” below for information regarding our operating and finance lease obligations.
The most significant item affecting future increases or decreases in liquidity is earnings from operations, and these earnings are dependent on the success of future operations. See “Part I, Item 1A. Risk Factors” in our 2021 Form 10-K.
Cash Flows from Operating, Investing and Financing Activities
Our consolidated cash flows from operating, investing and financing activities were as follows for the periods indicated (in thousands):
| | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2022 | | 2021 |
| | | |
Cash provided by (used in): | | | |
Operating activities | $ | (24,178) | | | $ | 52,107 | |
Investing activities | (3,409) | | | (2,286) | |
Financing activities | (4,149) | | | (6,185) | |
Operating activities. Net cash flows used in operating activities was $24.2 million for the six months ended June 30, 2022 as compared to net cash flows provided by operating activities of $52.1 million for the six months ended June 30, 2021. The decrease in net cash flows from operating activities of $76.3 million was primarily due to changes in our working capital accounts, including an increase of $42.3 million in crude oil inventory at June 30, 2022. The increase in inventory was primarily due to an increase in the price of our crude oil inventory, which increased from $71.86 at December 31, 2021 to $101.69 at June 30, 2022, and an increase of 121 percent in the number of barrels held in inventory. At June 30, 2022, crude oil inventory included approximately 159,000 barrels of pre-sold inventory at June 2022 pricing. The barrels were delivered in early July 2022.
At various times each month, we may make cash prepayments and/or early payments in advance of the normal due date to certain suppliers of crude oil within our crude oil marketing operations. Crude oil supply prepayments are recouped and advanced from month to month as the suppliers deliver product to us. In addition, in order to secure crude oil supply, we may also “early pay” our suppliers in advance of the normal payment due date of the twentieth of the month following the month of production. These “early payments” reduce cash and accounts payable as of the balance sheet date.
We also require certain customers to make similar early payments or to post cash collateral with us in order to support their purchases from us. Early payments and cash collateral received from customers increases cash and reduces accounts receivable as of the balance sheet date.
Early payments received from customers and prepayments to suppliers were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| | | |
Early payments received | $ | 54,434 | | | $ | 52,841 | |
Prepayments to suppliers | 30,903 | | | 5,732 | |
We rely heavily on our ability to obtain open-line trade credit from our suppliers especially with respect to our crude oil marketing operations. During December 2021 and June 2022, we received early payments from certain customers in our crude oil marketing operations as noted in the table above. Our cash balance decreased by approximately $30.1 million as of June 30, 2022 relative to the year ended December 31, 2021 primarily as a result of the timing of the receipt of these early payments received and prepayments made to suppliers during each period resulting from an increase in crude oil price and marketing activities.
Investing activities. Net cash flows used in investing activities for the six months ended June 30, 2022 increased by $1.1 million as compared to the same period in 2021. This increase was due to an increase of $1.2 million in capital spending for property and equipment (see following table), partially offset by an increase of $0.1 million in cash proceeds from the sales of assets.
Capital spending was as follows for the periods indicated (in thousands):
| | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2022 | | 2021 |
Crude oil marketing (1) | $ | 4,008 | | | $ | 702 | |
Transportation (2) | 694 | | | 2,703 | |
Pipeline and storage (3) | 73 | | | 189 | |
Other (4) | 8 | | | 8 | |
Capital spending | $ | 4,783 | | | $ | 3,602 | |
_______________
(1)2022 amount relates to the purchase of 20 tractors and other field equipment, and the 2021 amount primarily relates to the purchase of field equipment.
(2)2022 amount relates to the purchase of three tractors, one trailer and other field equipment, and the 2021 amount relates to the purchase of 52 trailers, of which 50 were placed into service during the third quarter of 2021, and computer software and equipment.
(3)2022 and 2021 amounts relate to the purchase of field equipment.
(4)2022 amount relates to the purchase of a copier, and the 2021 amount relates to the purchase of computer software and equipment.
Financing activities. Net cash used in financing activities for the six months ended June 30, 2022 decreased by $2.0 million as compared to the same period in 2021. This decrease in net cash used in financing activities was primarily due to borrowings and repayments under our Credit Agreement during each period. During the 2022 period, as a result of the significant increase in crude oil prices, we borrowed $30.0 million under the Credit Agreement for working capital purposes and repaid $30.0 million shortly thereafter, while during the 2021 period, we borrowed $8.0 million under the Credit Agreement primarily to repay the $10.0 million outstanding payable related to the purchase of the VEX pipeline system in October 2020. This decrease was partially offset by an increase of $0.2 million in principal repayments made for finance lease obligations (see “Material Cash Requirements” below for information regarding our finance lease obligations). During each of the six months ended June 30, 2022 and 2021, we paid cash dividends of $0.48 per common share, or a total of $2.1 million. During the six months ended June 30, 2022, we received net proceeds of approximately $0.3 million from the sale of 8,202 of our common shares under the ATM Agreement.
Material Cash Requirements
The following table summarizes our contractual obligations with material cash requirements at June 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments due by period |
Contractual Obligations | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| | | | | | | | | | |
Finance lease obligations (1) | | $ | 13,500 | | | $ | 4,572 | | | $ | 5,204 | | | $ | 3,724 | | | $ | — | |
Operating lease obligations (2) | | 6,793 | | | 2,410 | | | 3,295 | | | 741 | | | 347 | |
Purchase obligations (3) | | 15,499 | | | 15,499 | | | — | | | — | | | — | |
Total contractual obligations | | $ | 35,792 | | | $ | 22,481 | | | $ | 8,499 | | | $ | 4,465 | | | $ | 347 | |
_______________
(1)Amounts represent our principal contractual commitments, including interest, outstanding under finance leases for certain tractors, trailers, tank storage and throughput arrangements and other equipment.
(2)Amounts represent rental obligations under non-cancelable operating leases and terminal arrangements with terms in excess of one year.
(3)Amount represents commitments to purchase 35 new tractors and 40 new trailers in our transportation business and 35 new tractors and two new trailers in our crude oil marketing business.
See Note 13 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding our finance and operating leases.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably expected to have a material current or future effect on our financial position, results of operations or cash flows.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements.
Transactions with Affiliates
For more information regarding transactions with our affiliates during the three and six months ended June 30, 2022 and 2021, see Note 8 in the Notes to Unaudited Condensed Consolidated Financial Statements.
Critical Accounting Policies and Use of Estimates
A discussion of our critical accounting policies and estimates is included in our 2021 Form 10-K. Certain of these accounting policies require the use of estimates. There have been no material changes to our accounting policies since the disclosures provided in our 2021 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no other material changes to our “Quantitative and Qualitative Disclosures about Market Risk” that have occurred since the disclosures provided in our 2021 Form 10-K.
Item 4. Controls and Procedures
As of the end of the period covered by this quarterly report, our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15(e) of the Exchange Act. Based on this evaluation, as of the end of the period covered by this quarterly report, our Chief Executive Officer and our Chief Financial Officer concluded:
(i)that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow for timely decisions regarding required disclosures; and
(ii)that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(e) under the Exchange Act) during the fiscal quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position or results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2021 Form 10-K and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our businesses, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes in our Risk Factors from those disclosed in Item 1A of our 2021 Form 10-K, as updated by our Form 8-K filed on May 9, 2022 or our other SEC filings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| | | | | | | | |
Exhibit | | |
Number | | Exhibit |
| | |
3.1 | | |
3.2 | | |
10.1+ | | |
31.1* | | |
31.2* | | |
32.1* | | |
32.2* | | |
101.CAL* | | Inline XBRL Calculation Linkbase Document |
101.DEF* | | Inline XBRL Definition Linkbase Document |
101.INS* | | Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.LAB* | | Inline XBRL Labels Linkbase Document |
101.PRE* | | Inline XBRL Presentation Linkbase Document |
101.SCH* | | Inline XBRL Schema Document |
104* | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
____________
* Filed or furnished (in the case of Exhibits 32.1 and 32.2) with this report.
+ Management compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | ADAMS RESOURCES & ENERGY, INC. |
| | | (Registrant) |
| | | |
| | | |
| | | |
Date: | August 11, 2022 | By: | /s/ Kevin J. Roycraft |
| | | Kevin J. Roycraft |
| | | Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
| | By: | /s/ Tracy E. Ohmart |
| | | Tracy E. Ohmart |
| | | Chief Financial Officer |
| | | (Principal Financial Officer and Principal |
| | | Accounting Officer) |