10-Q 1 e10-q.txt ADAMS RESOURCES & ENERGY, INC. - JUNE 30, 2000 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2000 or [ ] Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from ___________ to __________ Commission File Number 1-7908 ADAMS RESOURCES & ENERGY, INC. (Exact name of Registrant as specified in its charter)
Delaware 74-1753147 ---------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
5 Post Oak Park, Houston, Texas 77027 (Address of principal executive office & Zip Code) Registrant's telephone number, including area code (713) 881-3600 ------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares of Common Stock of the Registrant, par value $.10 per share, outstanding at August 7, 2000 was 4,217,596. 2 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data)
Six Months Ended Three Months Ended June 30, June 30, ---------------------- ---------------------- 2000 1999 2000 1999 -------- ------- -------- ------- Revenues: Marketing........................................... $ 3,962,038 $ 1,271,829 $ 1,961,606 $756,563 Transportation...................................... 19,335 16,925 9,555 9,074 Oil and Gas......................................... 2,333 1,716 1,217 863 ------------- ------------ ------------- ----------- 3,983,706 1,290,470 1,972,378 766,500 ------------- ------------ ------------- ----------- Costs and expenses: Operating Marketing........................................... 3,951,996 1,265,914 1,956,296 752,553 Transportation...................................... 17,131 15,229 8,403 7,996 Oil and gas......................................... 865 1,052 392 343 Corporate general and administrative................ 3,117 1,427 1,578 703 Depreciation, depletion and amortization............ 3,342 3,295 1,697 1,509 ------------- ------------ ------------- ----------- 3,976,451 1,286,917 1,968,366 763,104 ------------- ------------ ------------- ----------- Operating earnings..................................... 7,255 3,553 4,012 3,396 Other income (expense) Property sales and other............................ 454 705 337 39 Interest............................................ (117) (43) (45) (13) ------------- ------------ ------------- ----------- 337 662 292 26 ------------- ------------ ------------- ----------- Earnings before income taxes........................... 7,592 4,215 4,304 3,422 Income tax provision Current............................................. 2,103 234 1,318 189 Deferred............................................ 650 900 200 771 ------------- ------------ ------------- ----------- 2,753 1,134 1,518 960 ------------- ------------ ------------- ----------- Net earnings........................................... $ 4,839 $ 3,081 $ 2,786 $ 2,462 ============= ============ =========== =========== Basic and diluted net earnings per common share.................................... $ 1.15 $ .73 $ .66 $ .58 ============= =========== =========== =========== Dividends per common share............................. $ - $ - $ - $ - ============= =========== =========== ===========
The accompanying notes are an integral part of these financial statements. -2- 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Marketing Marketing division revenues and operating earnings were as follows (in thousands):
Six Months Ended Three Months Ended June 30, June 30, ---------------------------------- -------------------------------- 2000 1999 2000 1999 ---------- ----------- ----------- --------- Revenues $3,962,038 $ 1,271,829 $ 1,961,606 $ 756,563 Operating earnings $ 8,627 $ 4,269 $ 4,603 $ 3,195
Marketing division gross revenues increased by $2,690,209,000 or 212% and by $1,205,043,000 or 159% for the respective six month and three month periods. Such increases resulted because crude oil prices doubled and volumes grew by approximately 50% during the comparative periods. Further, during the fourth quarter of 1999, the Company significantly expanded its presence in the wholesale marketplace for natural gas. This event also contributed to increased revenues and earnings during 2000. Marketing division operating earnings increased by 102% to $8,627,000 for the current six month period and by 44% to $4,603,000 for the current three month period. Beginning in the second quarter of 1999, the price for crude oil began to rise in the marketplace. Such supply and demand conditions caused an improvement in per unit gross margins beginning midway through the second quarter of 1999. Hence, coupled with additional volumes, operating earnings improved significantly for the comparative current periods. -3- 4 Supplemental volume and price information for the marketing division is as follows:
Six Months Ended Three Months Ended June 30, June 30, --------------------------- ------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Wellhead Purchases - Per day (1) Crude oil 302,000 bbls 195,000 bbls 318,000 bbls 220,000 bbls Natural gas 829,000 mcf - (2) 855,000 mcf - (2) Average Price Crude oil - per barrel $ 27.01 $ 15.51 $ 26.91 $ 13.41 Natural gas - per mcf $ 3.20 $ - $ 3.42 $ -
-------------- (1) Reflects the volume of crude oil purchased from third parties at the lease level and shipped to market. (2) Natural gas marketing operations were significantly expanded effective October 1, 1999. - Transportation Transportation revenues and operating earnings were as follows (IN THOUSANDS):
Six Months Ended Increase Three Months Ended Increase June 30, (Decrease) June 30, (Decrease) ------------------------ ---------- ------------------- ----------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenues $ 19,335 $ 16,925 14% $ 9,555 $ 9,074 5% Operating earnings $ 1,470 $ 1,198 23% $ 782 $ 815 (4)%
During 2000, the Company experienced some improvement in demand for trucking services. Improved revenues caused an overall increase in operating earnings for the comparative first half of the year. For the comparative three month period however, the 5% revenue increase was not sufficient to cover increased fuel and other operating expenses. Thus, although revenues for the comparative three months ended June 30, 2000 increased slightly, operating earnings experienced a slight decline. -4- 5 - Oil and Gas Oil and gas division revenues and operating earnings are primarily a function of crude oil and natural gas prices and volumes. Comparative amounts are as follows (IN THOUSANDS):
Six Months Ended Three Months Ended June 30, June 30, --------------------- ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Revenues $ 2,333 $ 1,716 $ 1,217 $ 863 Operating earnings (loss) $ 275 $ (487) $ 205 $ 89
The increase in this division's revenues and operating earnings is a direct result of improved prices for both crude oil and natural gas, partially offset by normal natural gas production declines. See supplemental information below.
Six Months Ended Three Months Ended June 30, June 30, ----------------- ------------------ 2000 1999 2000 1999 ---- ----- ---- ---- Volume/Price Information: ------------------------ Crude oil Volume 26,000 bbls 21,000 bbls 15,000 bbls 11,000 bbls Average price per barrel $ 27.76 $ 12.42 $ 27.74 $ 14.23 Natural gas Volume 585,000 mcf 860,000 mcf 280,000 mcf 410,000 mcf Average price per mcf $ 2.63 $ 1.71 $ 2.72 $ 1.75
- General and administrative Corporate general and administrative expenses are increased for the comparative current periods because of additional personnel and support costs necessitated by the increased volume of business, most notably the expansion into the natural gas marketing arena. - Other income (expense) Property sales and other income of $454,000 and $705,000, respectively, resulted from interest income in 2000 and from gains realized on the sale of forty-five truck tractors in the first quarter of 1999. -5- 6 Liquidity and Capital Resources During the first six months of 2000, the Company's cash flow from operations before working capital items totaled $8,221,000. The Company invested $2,518,000 in capital expenditures including $458,000 in transportation operations, $584,000 in marketing equipment and $1,476,000 in oil and gas drilling activities. The remaining $5.7 million of cash flow before working capital items served to meet working capital needs. As the marketing business continues to grow, the availability of trade credit becomes increasingly critical to the success of the Company's operations. Thus, management places great importance on maintaining a strong liquid balance sheet. Refer to the "Liquidity and Capital Resources" section of the Company's Annual Report on Form 10-K for the year ended December 31, 1999 for additional discussion of the Company's bank relationships and other matters. -6- 7 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands)
June 30, December 31, 2000 1999 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents................................... $ 18,574 $ 24,137 Accounts receivable, net.................................... 292,161 216,978 Inventories................................................. 35,824 21,475 Prepaid and other........................................... 4,215 1,635 ------------ --------------- Total current assets.......................... 350,774 264,225 ------------ --------------- Property and equipment........................................ 69,641 67,235 Less - accumulated depreciation, depletion and amortization........................... (41,820) (38,590) ------------- --------------- 27,821 28,645 ------------ --------------- Other assets.................................................. 723 178 ------------ --------------- $ 379,318 $ 293,048 ============ =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable............................................ $ 313,639 $ 236,481 Accrued and other liabilities............................... 11,994 8,306 ------------ -------------- Total current liabilities............................ 325,633 244,787 Long-term debt, less current maturities....................... 9,900 9,900 Deferred taxes and other liabilities.......................... 2,925 2,340 ------------ --------------- 338,458 257,027 Shareholders' equity: Preferred stock - $1.00 par value, 960,000 shares authorized, none outstanding............................ - - Common stock - $.10 par value, 7,500,000 shares authorized, 4,217,596 shares outstanding ............................................ 422 422 Contributed capital......................................... 11,693 11,693 Retained earnings since December 31, 1992................... 28,745 23,906 ------------ --------------- Total shareholders' equity .......................... 40,860 36,021 ------------ --------------- $ 379,318 $ 293,048 ============ ===============
The accompanying notes are an integral part of these financial statements. -7- 8 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
Six Months Ended June 30, ------------------------- 2000 1999 ---------- ------- Net earnings ................................................................. $ 4,839 $ 3,081 Items of income not requiring (providing) cash - Depreciation, depletion and amortization .................................... 3,342 3,295 Deferred income tax provision ............................................... 650 900 Gain on sale of properties................................................... - (590) Equity in earnings of joint venture.......................................... (495) - Other, net .................................................................. (115) (26) Decrease (increase) in accounts receivable ................................... (75,183) (38,595) Decrease (increase) in inventories ........................................... (14,349) (2,257) Decrease (increase) in prepaid and other ..................................... (2,580) (677) Increase (decrease) in accounts payable ...................................... 77,158 38,604 Increase (decrease) in accrued liabilities ................................... 3,688 1,639 ---------- ---------- Net cash provided (required) by operating activities ........................ (3,045) 5,374 ----------- ---------- INVESTING ACTIVITIES: Property and equipment additions ............................................. (2,518) (2,231) Proceeds from property sales ................................................. - 1,245 ----------- ---------- Net cash provided by (used in) investing activities ......................... (2,518) (986) ---------- ---------- FINANCING ACTIVITIES: Repayment of debt ............................................................ - (600) ---------- ----------- Net cash provided by (used in) financing activities ......................... - (600) ---------- ---------- Increase (decrease) in cash and cash equivalents................................. (5,563) 3,788 Cash at beginning of period...................................................... 24,137 10,215 ---------- ---------- Cash at end of period............................................................ $ 18,574 $ 14,003 ========== ========== Supplemental disclosure of cash flow information: Interest paid during the period .............................................. $ 117 $ 43 ========== ========== Income taxes paid during the period........................................... $ 800 $ 141 ========== ==========
The accompanying notes are an integral part of these financial statements. -8- 9 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The accompanying consolidated financial statements are unaudited but, in the opinion of the Company's management, include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of its financial position at June 30, 2000 and December 31, 1999 and its results of operations and cash flows for the six months ended and three months ended June 30, 2000 and 1999. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations, although the Company believes the disclosures made are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements, and the notes thereto, included in the Company's latest annual report on Form 10-K. The interim statement of operations is not necessarily indicative of results to be expected for a full year. Note 2 - Joint Venture Commencing in May 2000, the Company entered into a joint venture agreement with Williams Energy Marketing & Trading Co. for the purpose of purchasing, distributing and marketing crude oil in the Offshore Gulf of Mexico region. The new business operates as Williams-Gulfmark Energy Co. pursuant to the terms of a joint venture agreement. The Company holds a 50% interest in the net earnings of the venture and accounts for its interest under the equity method of accounting. The Company's net investment in the venture is reported in other assets in the consolidated balance sheet and its equity in the venture's pretax earnings is included in marketing segment revenues in the consolidated statement of operations. As of June 30, 2000 and for the three and six month periods then ended, the Company's net investment included in other assets and the amount of pretax earnings included in marketing revenues relating to the venture was $495,000. Included in such amount was $368,000 which represents the impact of mark-to-market accounting for certain energy contracts. -9- 10 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Segment Reporting The Company is primarily engaged in the business of marketing crude oil, natural gas and petroleum products; tank truck transportation of liquid chemicals; and oil and gas exloration and production. Information concerning the Company's various business activities is summarized as follows (in thousands):
Depreci- ation, Depletion Property Segment and and Operating Amorti- Equipment Revenues Earnings zation Additions ------------- ------------ ----------- ---------- For the six months ended June 30, 2000 Marketing........................ $ 3,962,038 $ 8,627 $ 1,415 $ 584 Transportation................... 19,335 1,470 734 458 Oil and gas...................... 2,333 275 1,193 1,476 ------------- ----------- ----------- ----------- $ 3,983,706 $ 10,372 $ 3,342 $ 2,518 ============= =========== =========== =========== For the six months ended June 30, 1999 Marketing........................ $ 1,271,829 $ 4,269 $ 1,646 $ 1,020 Transportation................... 16,925 1,198 498 945 Oil and gas...................... 1,716 (487) 1,151 266 ------------- ----------- ----------- ----------- $ 1,290,470 $ 4,980 $ 3,295 $ 2,231 ============ =========== =========== =========== For the three months ended June 30, 2000 Marketing........................ $ 1,961,606 $ 4,603 $ 707 $ 350 Transportation................... 9,555 782 370 126 Oil and gas...................... 1,217 205 620 5 ------------- ----------- ----------- ----------- $ 1,972,378 $ 5,590 $ 1,697 $ 481 ============= =========== =========== =========== For the three months ended June 30, 1999 Marketing........................ $ 756,563 $ 3,195 $ 815 $ 808 Transportation................... 9,074 815 263 423 Oil and gas...................... 863 89 431 134 ------------- ----------- ----------- ----------- $ 766,500 $ 4,099 $ 1,509 $ 1,365 ============= =========== =========== ===========
-10- 11 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Identifiable assets by industry segment are as follows (in thousands):
June 30, December 31, 2000 1999 -------- ------------- Marketing................................................. $ 333,485 $ 242,786 Transportation............................................ 15,815 15,412 Oil and gas............................................... 11,039 10,449 Other..................................................... 18,979 24,401 ---------- -------------- $ 379,318 $ 293,048 ========== ==============
Intersegment sales are insignificant. Other identifiable assets are primarily corporate cash, accounts receivable, and properties not identified with any specific segment of the Company's business. All sales by the Company occurred in the United States. Earnings from operations by segment represent revenues less operating costs and expenses and depreciation, depletion and amortization and are reconciled to earnings from operations before income taxes, as follows (in thousands):
Six months ended Three months ended June 30, June 30, ----------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Segment operating earnings .................... $ 10,372 $ 4,980 $ 5,590 $ 4,099 General and administrative expenses............ (3,117) (1,427) (1,578) (703) --------- -------- --------- ---------- Operating earnings......................... 7,255 3,553 4,012 3,396 Property sales and other....................... 454 705 337 39 Interest expense .............................. (117) (43) (45) (13) --------- -------- --------- ---------- Earnings before income taxes............... $ 7,592 $ 4,215 $ 4,304 $ 3,422 ========= ======== ========= ==========
Note 3 - Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Qualifying hedges allow a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. -11- 12 In June 1999, the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. A company may implement SFAS No. 133 as of the beginning of any fiscal quarter after issuance, however, the statement cannot be applied retroactively. The Company does not plan to early adopt SFAS No. 133. Applications of this standard could increase volatility in earnings and shareholders' equity through other comprehensive income. On January 1, 1999 the Company adopted the Emerging Issues Task Force's (EITF) Issue 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." Issue 98-10 is effective for fiscal years beginning after December 15, 1998, and requires energy trading contracts (as defined) to be recorded at fair value on the balance sheet, with the change in fair value included in earnings. The effect of initial adoption on January 1, 1999 was not significant. The accompanying statement of operations includes pretax income of $2,820,000 to reflect the future income from marketing operations based upon the year-end prices of the underlying commodities being traded. The accompanying balance sheet reflects the fair value of the trading asset or $6,127,000 in other current assets and the fair value of the trading liability or $3,307,000 in current liabilities. -12- 13 PART II. OTHER INFORMATION Item 1. - None Item 2. - None Item 3. - None Item 4. - None Item 6. Exhibits and Reports on Form 8K a. Exhibits - None. b. Reports on Form 8-K - None. -13- 14 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADAMS RESOURCES & ENERGY, INC. (Registrant) Date: August 10, 2000 By /s/ K. S. Adams, Jr. -------------------- K. S. Adams, Jr. Chief Executive Officer By /s/ Richard B. Abshire ------------------------ Richard B. Abshire Chief Financial Officer -14- 15 EXHIBIT INDEX Exhibit Number Description --------- ----------- 27* - Financial Data Schedule ------------------------------ * - Filed herewith -15-