-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VRoJmj/jWcQeGM+BQ6gVlMZhK2D0Bbx0aPXwvP0zTBXv91VWxZd54Pb6bWNuMg8j BB4MdgZ+vGedaD6tBXysHA== 0000950129-01-001573.txt : 20010323 0000950129-01-001573.hdr.sgml : 20010323 ACCESSION NUMBER: 0000950129-01-001573 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAMS RESOURCES & ENERGY INC CENTRAL INDEX KEY: 0000002178 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 741753147 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-07908 FILM NUMBER: 1576251 BUSINESS ADDRESS: STREET 1: 6603 KIRBYVILLE STREET 2: P O BOX 844 CITY: HOUSTON STATE: TX ZIP: 77033 BUSINESS PHONE: 7136400100 MAIL ADDRESS: STREET 1: P O BOX 844 CITY: HOUSTON STATE: TX ZIP: 77001 FORMER COMPANY: FORMER CONFORMED NAME: ADA RESOURCES INC DATE OF NAME CHANGE: 19790620 10-K405 1 h85167e10-k405.txt ADAMS RESOURCES & ENERGY, INC. - 12/31/2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------ EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year ended December 31, 2000 OR - ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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 Identification No.) incorporation or organization) 4400 POST OAK PARKWAY STE. 2700 HOUSTON, TEXAS 77027 (Address of Principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 881-3600 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- COMMON STOCK, $.10 PAR VALUE AMERICAN STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- 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 the filing requirements for the past 90 days. YES X NO ----- ----- A total of 4,217,596 shares of Common Stock were outstanding at March 7, 2001. The aggregate market value of the voting stock held by nonaffiliates as of March 7, 2001 was $30,321,278. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for Annual Meeting of Stockholders to be held April 25, 2001 are incorporated by reference in Part III. I-1 2 PART I Items 1 and 2. BUSINESS AND PROPERTIES. General Adams Resources & Energy, Inc. and its subsidiaries (the "Company") are engaged in the business of marketing crude oil, natural gas and petroleum products; tank truck transportation of liquid chemicals; and oil and gas exploration and production. The revenues and operating earnings for each industry segment and the identifiable assets attributable to each industry segment for the three years ended December 31, 2000 are set forth in Note 8 of the Notes to Consolidated Financial Statements included elsewhere herein. Marketing Through its Gulfmark Energy, Inc., ("Gulfmark") subsidiary, the Company purchases crude oil and arranges transportation to refiners and other customers. The Company also participates in a joint venture arrangement with a third party for the purpose of purchasing, distributing and marketing crude oil in the offshore Gulf of Mexico region. The venture operates as Williams-Gulfmark Energy Co. ("Willmark") pursuant to the terms of the venture agreement. Through Gulfmark and Willmark, crude oil and condensate is purchased and transported via common carrier pipeline, barge or truck. Activity is concentrated offshore Louisiana and onshore in Texas. Gulfmark also has significant and growing operations in California and Michigan. The combined entities currently purchase approximately 365,000 barrels per day of crude oil at the wellhead or lease level. With this business, Gulfmark operates 79 tractor-trailer rigs and maintains over 100 pipeline inventory locations or injection stations. In addition, the Company owns and operates a 7.5 mile 6 inch crude oil gathering pipeline in the Louisiana offshore, Ship Shoal area. Two separate crude oil pipeline systems in the Gulf Coast region of Texas are also owned and operated by the Company. Further, the Company barges oil from 18 oil storage facilities along the intercoastal waterway of Texas and Louisiana. The Company maintains 440,000 barrels of storage capacity at certain of the dock facilities in order to access waterborne markets for its products. The Company's Adams Resources Marketing, Ltd. ("ARM") subsidiary operates as a wholesale purchaser, distributor and marketer of natural gas. ARM's focus is on the purchase of natural gas at the producer level. The Company currently buys approximately 855,000 mmbtu's of natural gas per day at the wellhead. Business is concentrated among approximately 60 independent producers with the primary production area being the Gulf Coast of Texas and the offshore Gulf of Mexico region. As one outlet for its natural gas supply, ARM established a retail natural gas sales group with offices in Providence, Rhode Island and Manchester, New Hampshire. Operating under the trade name Adams Energy Group, the Company is currently selling 33,000 mmbtu's per day of natural gas directly to commercial and industrial end-use customers, municipalities and other retail level establishments. This business serves as a natural complement to the Company's wholesale supply and distribution business. Crude oil and natural gas are generally purchased at indexed prices that fluctuate with market conditions. The product is transported and either sold outright at the field level, or buy-sell arrangements (trades) are made in order to minimize transportation costs or maximize the sales price. Except where back-to-back fixed price arrangements are in place, the contracted sales price is also pegged to an index that fluctuates with market conditions. This reduces the Company's loss exposure from sudden changes I-2 3 in commodity prices. A key element of profitability is the differential between market prices at the field level and at the various sales points. Such price differentials vary with local supply and demand conditions. Unforeseen fluctuations can impact financial results either favorably or unfavorably. In addition, through its trading activities, the Company attempts to capture additional margins that may exist between the futures market and cash market pricing. While the Company's policies are designed to minimize market risk, some degree of exposure to unforeseen fluctuations in market conditions remains. Operating results are sensitive to a number of factors. Such factors include commodity location, grades of product, individual customer demand for grades or location of product, localized market price structures, availability of transportation facilities, actual delivery volumes that vary from expected quantities and timing and costs to deliver the commodity to the customer. The term "basis risk" is used to describe the inherent market price risk created when a commodity of a certain location or grade is purchased, sold or exchanged versus a purchase, sale or exchange of a like commodity of varying location or grade. The Company attempts to reduce its exposure to basis risk by grouping its purchase and sale activities by geographical region in order to stay balanced within such designated region. However, there can be no assurance that all basis risk is eliminated. Crude oil and natural gas marketing revenues totaled $6.9 billion for 2000 and the Company believes alternative customers are available should any of its customers reduce the level of their purchases. Through its subsidiary, Ada Resources, Inc., the Company markets branded and unbranded refined petroleum products, such as motor fuels and lubricants. Motor fuels sold are mainly automobile and aviation gasoline, distillates and jet fuels. Lubricants consist of passenger car motor oils as well as a full compliment of industrial oils and greases. The Company is also involved in the railroad servicing industry as well as Coast Guard approved delivery to marine vessels. Purchases are made at the suppliers' established jobber/distributor prices with such prices generally being lower than the Company's sales price to its customers. The marketing service area includes primarily the Texas Gulf Coast and southern Louisiana. The primary product distribution and warehousing facility is located on 5.5 acres in Houston, Texas. The property includes a 60,000 square foot warehouse, 11,000 square feet of office space and bulk storage for 24,000 gallons of motor fuels and 280,000 gallons of lubricating oil. Petroleum products marketing revenues totaled $76.9 million for 2000, and the Company believes alternative customers are available should any of its customers reduce the level of their purchases. Tank Truck Transportation Through its Service Transport Company subsidiary, the Company transports liquid chemicals on a "for hire" basis throughout the Continental United States and Canada. Transportation service is provided to over 400 customers under contracts and on a call and demand basis. Pursuant to regulatory requirements, the Company holds a Hazardous Materials Certificate of Registration issued by the U.S. Department of Transportation. The Company presently operates 270 truck tractors and 388 tank trailers and maintains truck terminals in Houston, Corpus Christi, and Nederland, Texas as well as Baton Rouge (St. Gabriel), Louisiana, Mobile (Saraland), Alabama and Atlanta (Winder), Georgia. Transportation operations are headquartered at the Houston terminal facility. This terminal is situated on 22 owned acres and includes maintenance facilities, an office building and a six bay internal tank washrack and water treatment system. The Company's St. Gabriel, Louisiana terminal is situated on 11.5 owned acres and includes an office building, maintenance bays and a tank cleaning facility. I-3 4 Service Transport Company has maintained its registration to the ISO-9002 Quality Management Standard. The scope of this Quality System Certificate, registered in both the United States and Europe, covers the carriage of bulk liquids throughout their area of operations as well as the tank trailer cleaning facilities and equipment maintenance. The Company's quality management process is one of its major assets. The practice of using statistical process control covering safety, on-time performance and customer satisfaction aids the Company to continuously improve in all areas of quality service to its customers. Oil and Gas Exploration and Production The Company is actively engaged in the exploration and development of domestic oil and gas properties primarily in the state of Texas. Exploration offices are maintained at the Company's headquarters in Houston and the Company holds an interest in 279 wells, of which 44 are Company-operated. Producing Wells--The following table sets forth the Company's gross and net productive wells at December 31, 2000. Gross wells are the total number of wells in which the Company has an interest, while net wells are the sum of the fractional interests owned.
Oil Wells Gas Wells Total Wells --------------- --------------- --------------- Gross Net Gross Net Gross Net ----- ----- ----- ----- ----- ----- Texas 62 10.12 53 6.62 115 16.74 Other 125 3.66 39 5.17 164 8.83 ----- ----- ----- ----- ----- ----- 187 13.78 92 11.79 279 25.57 ===== ===== ===== ===== ===== =====
Acreage--The following table sets forth the Company's gross and net developed and undeveloped acreage as of December 31, 2000.
Developed Acreage Undeveloped Acreage -------------------- -------------------- Gross Net Gross Net ------ ------ ------ ------ Texas 55,978 10,762 83,609 7,949 Other 6,854 1,780 7,883 1,556 ------ ------ ------ ------ 62,832 12,542 91,492 9,505 ====== ====== ====== ======
Drilling Activity--The following table sets forth the Company's drilling activity for each of the three years ended December 31, 2000. All drilling activity was offshore Louisiana or onshore in Texas and Louisiana. I-4 5
2000 1999 1998 --------------- ---------------- ---------------- Gross Net Gross Net Gross Net ----- ---- ----- --- ----- ---- Exploratory wells drilled - Productive 3 .24 1 .06 1 .13 - Dry 6 .43 5 .64 1 .13 Development wells drilled - Productive 18 1.38 10 .44 10 1.82 - Dry 6 .34 2 .15 -- --
In addition to the above wells drilled and completed at year end 2000, the Company had 2 wells (.10 net wells) in process and expected to be completed in 2001. Production and Reserve Information--The Company's estimated net quantities of proved oil and gas reserves, the estimated future net cash flows and present value of future net cash flows from oil and gas reserves before income taxes, calculated at a 10% discount rate for the three years ended December 31, 2000, are presented in the table below.
December 31, ------------------------------------- 2000 1999 1998 ------- ------- ------- (In thousands) Crude oil (Barrels) 626 597 195 Natural gas (Mcf) 8,642 7,387 9,248 Future net cash flows $69,752 $21,848 $12,710 Present value of future net cash flows $38,166 $13,011 $ 7,606
The estimates of the Company's oil and gas reserves and future net revenues therefrom as of December 31, 2000, were made by the Company's petroleum engineers. The reserve estimates provided at December 31, 2000 are based on year-end market prices of $25.08 per barrel for crude oil and $8.79 per Mcf for natural gas. Subsequent to year end, natural gas prices declined from the levels at December 31, 2000. Based on the price for natural gas on March 5, 2001 of approximately $5.40 per Mcf, the Company's "Future net cash flows" and "Present value of future net cash flows" at December 31, 2000 would be reduced by approximately $24 million and $12 million, respectively. Reserve estimates are based on many judgmental factors. The accuracy of reserve estimates depends on the quantity and quality of geological data, production performance data and reservoir engineering data, as well as the skill and judgment of petroleum engineers in interpreting such data. The process of estimating reserves involves continual revision of estimates (usually on an annual basis) as additional information is made available through drilling, testing, reservoir studies and acquiring historical pressure and production data. In addition, the discounted present value of estimated future net revenues should not be construed as the fair market value of oil and gas producing properties. Such estimates do not necessarily portray a realistic assessment of current value or future performance of such properties. Such revenue calculations are also based on estimates by petroleum engineers as to the timing of oil and gas production, and there is no assurance that the actual timing of production will conform to or approximate such estimates. Also, certain assumptions have been made with respect to pricing. The estimates assume prices will remain constant from the date of the engineer's estimates, except for changes reflected under natural gas sales contracts. There can be no assurance that actual future prices I-5 6 will not vary as industry conditions, governmental regulation and other factors impact the market price for oil and gas. The Company's net oil and gas production for the three years ended December 31, 2000 has been as follows:
Years Ended Crude Oil Natural December 31, (Barrels) Gas (Mcf) ------------ --------- --------- 2000............................ 62,000 1,161,000 1999............................ 42,000 1,435,000 1998............................ 68,000 2,552,000
Certain financial information relating to the Company's oil and gas activities is summarized as follows:
Years Ended December 31, ---------------------------------------- 2000 1999 1998 -------- -------- -------- Average oil and condensate sales price per Bbl ........................... $ 30.03 $ 16.27 $ 12.37 Average natural gas sales price per Mcf ........................... $ 3.63 $ 1.92 $ 1.89 Average production cost, per equivalent Bbl, charged to expense ........ $ 5.61 $ 4.35 $ 3.13
The average crude oil and natural gas sales price received for December 2000 production was $31.71 per barrel and $5.30 per Mcf, respectively. The Company has had no reports to Federal authorities or agencies of estimated oil and gas reserves except for a required report on the Department of Energy's "Annual Survey of Domestic Oil and Gas Reserves." The Company is not obligated to provide any fixed and determinable quantities of oil or gas in the future under existing contracts or agreements associated with its oil and gas exploration and production segment. Reference is made to the Supplementary Financial Data following the Notes to Consolidated Financial Statements for additional disclosures relating to oil and gas exploration and production activities. Employees At December 31, 2000 the Company employed 685 persons, 16 of whom were employed in the exploration and production of oil and gas, 291 in the marketing of crude oil, natural gas and petroleum products, 373 in transportation operations and 5 in administrative capacities. None of the Company's employees are represented by a union. Management believes its employee relations are satisfactory. Federal and State Taxation The Company is subject to the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). In accordance with the Code, the Company computes its income tax provision based on a 34% tax rate. The Company's operations are primarily conducted within the State of Texas. As such, the Company is subject to a 4.5% state tax on corporate net taxable income as computed for federal income I-6 7 tax purposes. Oil and gas activities are also subject to state and local income, severance, property and other taxes. Management believes the Company is currently in compliance with all federal and state tax regulations. Forward-Looking Statements--Safe Harbor Provisions This annual report for the year ended December 31, 2000 contains certain forward-looking statements which are intended to be covered by the safe harbors provided under Federal securities law and regulation. To the extent such statements are not recitations of historical fact, forward-looking statements involve risks and uncertainties. In particular, statements under the captions (a) Production and Reserve Information, (b) Competition, (c) Regulatory Status and Potential Environmental Liability, (d) Management's Discussion and Analysis of Financial Condition and Results of Operations, (e) Use of Estimates, (f) Income Taxes, (g) Concentration of Credit Risk, (h) Commitments and Contingencies, and (i) Supplementary Financial Data, among others, contain forward-looking statements. Where the Company expresses an expectation or belief to future results or events, such expression is made in good faith and believed to have a reasonable basis in fact. However, there can be no assurance that such expectation or belief will actually result or be achieved. A number of factors could cause actual results or events to differ materially from those anticipated. Such factors include, (a) general economic conditions, (b) fluctuations in hydrocarbon prices and margins, (c) unanticipated environmental liabilities or regulatory changes, (d) the availability and cost of insurance, (e) changes in tax laws, and (f) the availability of capital, among others. Environmental Compliance and Regulation The Company is subject to an extensive variety of evolving United States federal, state and local laws, rules and regulations governing the storage, transportation, manufacture, use, discharge, release and disposal of product and contaminants into the environment, or otherwise relating to the protection of the environment. A non-exclusive listing of the environmental laws which potentially impact the Company's Regulated Environmental Activities is set out below: Resource Conservation and Recovery Act of 1976, as amended in 1984 ("RCRA")--The United States Congress enacted RCRA in 1976 and amended it in 1984. RCRA established a comprehensive regulatory framework for the management of hazardous wastes at active facilities. RCRA creates a "cradle to grave" system for managing hazardous wastes. Those who generate, transport, treat, store or dispose of waste above certain quantities are required to undertake certain performance, testing and record keeping. The 1984 amendments to RCRA known as the Hazardous and Solid Waste Amendments "HSWA" increased the scope of RCRA to regulate small quantity hazardous waste generators and waste oil handlers and recyclers as well as require the identification and regulation of underground storage tanks in which liquid petroleum or hazardous substances were stored. HSWA and its implementing regulations require the notification to designated state agencies of the existence and condition of regulated underground storage tanks and impose design, construction and installation requirements; leak detection, reporting, and cleanup requirements; tank closure and removal requirements; and fiscal responsibility requirements. RCRA specifically excludes "drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas or geothermal energy." Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA" or "Superfund"), as amended in 1986--CERCLA established the Superfund program to clean up inactive I-7 8 sites at which hazardous substances had been released. Superfund has been interpreted to create strict, joint and several liability for the costs of removal and remediation, other necessary response costs and damages for injury to natural resources. Superfund liability extends to generators of hazardous substances, as well as to (i) the current owners and operators of a site at which hazardous substances were disposed; (ii) any prior owner or operator of the site at the time of disposal; and (iii) waste transporters who selected such facilities for treatment or disposal of hazardous substances. CERCLA allows the United States Environmental Protection Agency ("EPA") to investigate and remediate contaminated sites and to recover the costs of such activities (response costs), as well as damages to natural resources, from parties specified as liable under the statute. CERCLA also authorizes private parties who incur response costs to seek recovery from statutorily liable parties. CERCLA was amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"). SARA provides a separate funding mechanism for the clean up of underground storage tanks. CERCLA excludes petroleum, including crude oil or any fraction thereof, with certain limitations from the definition of "hazardous substances" for which liability for clean up of a contaminated site will attach. This exclusion also applies to those otherwise hazardous substances which are inherent in petroleum, but not to those added to or mixed with petroleum products. The Clean Water Act of 1972, as amended (the "Clean Water Act")--The Clean Water Act establishes water pollutant discharge standards applicable to many basic types of manufacturing facilities and imposes standards on municipal sewage treatment plants. The Clean Water Act requires states to set water quality standards for significant bodies of water within their boundaries and to ensure attainment and/or maintenance of those standards. Many industrial and governmental facilities must apply for and obtain discharge permits, monitor pollutant discharges and under certain conditions reduce certain discharges. The Clean Water Act also requires pre-treatment of certain discharges prior to release into a publicly owned treatment works. Federal Oil Pollution Act of 1990 ("OPA")--The OPA amends the Clean Water Act and expands the liability for the discharge of oil into navigable waters. Liability is triggered by discharge or substantial threat of a discharge of oil into navigable waters of adjoining shoreline from any vessel or any on-shore or off-shore facility. OPA defines three classes of parties subject to liability: 1) owners, operators, and persons chartering vessels; 2) lessees and permitees of areas where off-shore facilities are located; and 3) owners and operators of on-shore facilities. The Clean Air Act of 1970, as amended (the "Clean Air Act")--The Clean Air Act required EPA to establish and ensure compliance with national ambient air quality standards ("NAAQS") for certain pollutants. The NAAQS generally are to be achieved by the individual states through state implementation plans ("SIPs"). SIPs typically attempt to meet the NAAQS by, among other things, regulating the quantity and quality of emissions from specific industrial sources. As required by the Clean Air Act, EPA also has established regulations that limit emissions of specified hazardous air pollutants and other regulations that limit emissions from new industrial sources within certain source categories. The Clean Air Act was amended extensively in 1990, to, among other things, impose additional emissions standards that must be implemented by the EPA through regulations. The implementation of the Clean Air Act requirements is accomplished in Texas by the Texas Natural Resources Conservation Commission ("TNRCC"). The Toxic Substances Control Act of 1976 ("TSCA")--TSCA authorizes the EPA to gather information on the risks of chemicals, and to monitor and regulate the manufacture, distribution, processing, use and disposal of many chemicals. The Emergency Planning and Community Right-to-Know Act ("EPCRA")-- EPCRA requires emergency I-8 9 planning notification, emergency release notification and reports with respect to the storage and release of specified chemicals. Industry must provide information to communities regarding the presence of extremely hazardous substances at facilities within those communities. The Occupational Safety and Health Administration Act ("OSHA")--OSHA regulates exposure to toxic substances and other forms of workplace pollution. The Department of Labor administers OSHA. OSHA specifies maximum levels of toxic substance exposure. OSHA also sets out a "right-to-know" rule which requires that workers be informed of, and receive training relating to, the physical and health hazards posed by hazardous materials in the workplace. Texas Clean Air Act and Texas Natural Resources Conservation Commission Regulations--Pursuant to the federal Clean Air Act and the Texas Clean Air Act, the TNRCC has established rules that, among other things, regulate various types of emissions from industrial sources. Among these rules is a requirement that each industrial source in Texas that emits any air pollutant be authorized by a permit, or be exempt from permitting through a standard exemption or because such facility was in existence as of August 30, 1971 and has not been modified since then (i.e., is "grandfathered"). Industrial sources that are located in areas in which the NAAQS have not been attained for certain pollutants ("non-attainment areas") and that emit such pollutants, are often subject to additional and/or more stringent rules than similar facilities located in attainment areas. Texas Solid Waste Disposal Act ("TSWDA")--The TSWDA and the TNRCC regulations promulgated thereunder regulate the generation and management of industrial solid waste, including hazardous waste, and municipal solid waste. These regulations include permitting requirements applicable to most facilities that manage such wastes. The TNRCC regulations relating to the generation and management of hazardous wastes implement the requirement of RCRA (discussed above). The TSWDA also contains enforcement provisions that allow for civil and criminal penalties and/or injunctive relief for violations of the TSWDA and/or associated regulations. A state "superfund" program, which is similar to the federal Superfund program, was also established by the TSWDA to provide remediation of inactive sites at which hazardous substances have been released. Texas Water Code--Chapter 26 of the Texas Water Code and the TNRCC regulations promulgated thereunder prohibit the unauthorized discharge of waste into or adjacent to waters of the State. They also regulate (including requiring permits) industrial, domestic, and municipal wastewater discharges to ensure that the state water quality standards are satisfied. The Texas Water Code contains enforcement provisions that provide for civil and/or criminal penalties and/or injunctive relief for violations of the Texas Water Code and/or associated regulations. Another program mandated by the Texas Water Code regulates underground storage tanks that store certain materials, including among other materials gasoline, oil, and other petroleum products, and established a fee-based fund to remediate contamination from leaking underground storage tanks. Texas Oil Spill Prevention and Response Act of 1991 ("OSPRA")--With respect to oil spills in the marine environment, OSPRA provides a comprehensive legal framework and funding system allowing the State to establish and monitor oil spill prevention and response requirements for vessels and facilities that handle oil, to establish and carry out an effective program for state response to oil spills, to provide timely and equitable settlement and compensation of claims for those harmed by oil spills, and to provide for assessment and restoration for environmental damage from oil spills. OSPRA supports and compliments OPA. State and Local Government Regulation--Many states have been authorized by the EPA to enforce regulations promulgated under various federal statutes. In addition, there are numerous other state as I-9 10 well as local authorities that regulate the environment, some of which impose more stringent environmental standards than Federal laws and regulations. The penalties for violations of state law vary but typically include injunctive relief, recovery of damages for injury to air, water or property and fines for non-compliance. Oil and Gas Operations--The Company's oil and gas drilling and production activities are generally subject to existing laws and regulations relating to environmental quality and pollution control. One associated aspect of the Company's oil and gas operation is the disposal of used drilling fluids, saltwater, and crude oil sediments. In addition, at times low-level naturally occurring radiation may occur with the production of crude oil and natural gas. The Company's policy in these areas has been to comply with environmental regulations and industry standards as they have historically existed. Environmental standards in these areas are becoming increasingly stringent and the Company, from time to time, has been required to remediate past practices. Management believes that such required remediations in the future, if any, will not have a material adverse impact on the Company's financial position or results of operations. All states in which the Company owns significant producing oil and gas properties have statutory provisions regulating the production and sale of crude oil and natural gas. Regulations generally require permits for the drilling of wells and extend to the spacing of wells, the prevention of waste of oil and gas reserves, the rate of production, prevention and clean-up of pollution and other matters. In Texas, the Texas Railroad Commission is the state agency with primary jurisdiction for regulating oil and gas operations. Historically, the Federal government has instituted a number of regulations designed to control and limit the market price for crude oil and/or natural gas. Under the current market conditions and the recent deregulation practices of the federal government, this area of federal law does not generally impact the Company's operations. Marketing Operations--The Company's marketing facilities are subject to a number of state and federal environmental statutes and regulations, including the regulation of underground fuel storage tanks. The EPA's Office of Underground Tanks has established regulations requiring owners or operators of underground fuel tanks to demonstrate evidence of financial responsibility for the costs of corrective action and the compensation of third parties for bodily injury and property damage caused by sudden and nonsudden accidental releases arising from operating underground tanks. In addition, the EPA requires the installation of leak detection devices and stringent monitoring of the ongoing condition of underground tanks. Should leakage develop in an underground tank, the Company would be obligated for clean up costs. The Company has secured insurance covering both third party liability and clean up costs. Currently, the Company is responsible for less than 10 underground storage tanks. Transportation Operations--The Company's tank truck operations are conducted pursuant to authority of the United States Department of Transportation (DOT) and various State regulatory authorities. The Company's transportation operations must also be conducted in accordance with various laws relating to pollution and environmental control. Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. Such matters as weight and dimension of equipment are also subject to federal and state regulations. DOT regulations also require mandatory drug testing of drivers and require certain tests for alcohol levels in drivers and other safety personnel. The trucking industry is subject to possible regulatory and legislative changes such as increasingly stringent environmental regulations or limits on vehicle weight and size. Regulatory change may affect the economics of the industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providing truckload services. In addition, the Company's tank wash I-10 11 facilities are subject to increasingly more stringent local, state and federal environmental regulations. Regulatory Status and Potential Environmental Liability--The operations and facilities of the Company are subject to numerous federal, state and local environmental laws and regulations including those described above, as well as associated permitting and licensing requirements. The Company regards compliance with applicable environmental regulations as a critical component of its overall operation, and devotes significant attention to providing quality service and products to its customers, protecting the health and safety of its employees, and protecting the Company's facilities from damage. Management believes the Company has obtained or applied for all permits and approvals required under existing environmental laws and regulations to operate its current business. Management has reported that the Company is not subject to any pending or threatened environmental litigation or enforcement action(s) which could materially and adversely affect the Company's business. While the company has, where appropriate, implemented operating procedures at each of its facilities designed to assure compliance with environmental laws and regulation, the Company, given the nature of its business, is subjected to environmental risks and the possibility remains that the Company's ownership of its facilities and its operations and activities could result in civil or criminal enforcement and public as well as private action(s) against the Company, which may necessitate or generate mandatory clean up activities, revocation of required permits or licenses, denial of application for future permits, or significant fines, penalties or damages, any and all of which could have a material adverse effect on the Company. At December 31, 2000, the Company had no unresolved environmental issues for which an accounting accrual is necessary. Item 3. LEGAL PROCEEDINGS On August 30, 2000 CJC Leasing, Inc. ("CJC"), a wholly owned subsidiary of the Company previously involved in the coal mining business, received a "Notice of Taxes Due" from the State of Kentucky regarding the results of a coal severance tax audit covering the years 1989 through 1993. The audit proposed a tax assessment of $8.3 million plus penalties and interest. CJC protested this assessment and set forth a number of defenses including that CJC was not a taxpayer engaged in severing and/or mining coal at anytime during the assessment period. Further, it is CJC's informed belief that such taxes were properly paid by the third parties that had in fact mined the coal. Management intends to vigorously defend CJC and believes no material adverse effect on the Company's financial position or results of operations will occur from the resolution of this matter. In the normal course of business, the Company becomes involved in litigation incident to its operations. In management's opinion, the ultimate resolution of all litigation matters and disputes will not have a material adverse impact on the Company's financial position or results of operations. I-11 12 Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS. None. EXECUTIVE OFFICERS OF THE REGISTRANT The persons who are currently serving as executive officers of the Company, their ages and the positions they hold with the Company are as follows:
Name Age Positions with the Company - ------------------ --- ----------------------------------------------- K. S. Adams, Jr. 78 Chairman, President and Chief Executive Officer Claude H. Lewis 58 Vice President-Land Transportation Richard B. Abshire 48 Vice President-Finance David B. Hurst 48 Secretary
Each officer has served in his present position for at least five years. No family relationship exists between any of the officers. Mr. Hurst is a partner in the law firm of Chaffin & Hurst. I-12 13 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is traded on the American Stock Exchange. The following table sets forth the high and low sales prices of the common stock as published in The Wall Street Journal for issues listed on the American Stock Exchange for each calendar quarter since January 1, 1999.
American Stock Exchange ------------------------- Year High Low - ---- --------- -------- 1999 First Quarter............. $ 7-1/4 $ 5-7/8 Second Quarter............ 8-1/2 5-13/16 Third Quarter............. 11-1/4 7-5/8 Fourth Quarter............ 10-13/16 7-7/8 2000 First Quarter............. $ 12-3/4 $ 8-1/8 Second Quarter............ 21-1/16 9-1/8 Third Quarter............. 17 12-1/16 Fourth Quarter............ 15-1/4 12-1/8
At December 31, 2000 there were 365 holders of record of the Company's common stock and the closing stock price was $14-1/4 per share. The terms of the Company's bank loan agreement require the Company to retain at least 50% of annual net income as an addition to total shareholders' equity, thus such amount would not be available for payment of cash dividends on the Company's common stock. On each of December 15, 2000, 1999 and 1998, the Company paid an annual cash dividend of $.13, $.10 and $.10 per common share, respectively, to all holders of its common stock of record on December 1st of each year. Such dividends aggregated $548,000, $422,000 and $422,000, respectively for each year. II-1 14 Item 6. SELECTED FINANCIAL DATA FIVE YEAR REVIEW OF SELECTED FINANCIAL DATA
Years Ended December 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (In thousands, except per share data) Revenues: Marketing .................... $ 6,980,277 $ 3,956,477 $ 1,936,358 $ 1,921,486 $ 1,466,736 Transportation ............... 35,824 35,559 32,145 31,970 21,282 Oil and gas .................. 6,059 3,441 5,689 9,904 9,061 ----------- ----------- ----------- ----------- ----------- $ 7,022,160 $ 3,995,477 $ 1,974,192 $ 1,963,360 $ 1,497,079 =========== =========== =========== =========== =========== Operating earnings: Marketing .................... $ 15,389 $ 10,424 $ 4,478 $ 1,382 $ 5,816 Transportation ............... 2,311 2,878 3,474 5,225 2,356 Oil and gas .................. 1,624 (520) (1,840)(1) 4,038 3,711 General and administrative ... (6,463) (4,819) (2,738) (2,578) (2,783) ----------- ----------- ----------- ----------- ----------- 12,861 7,963 3,374 8,067 9,100 Other income (expense): Interest income and other .... 1,233 1,182 420 813 142 Interest expense ............. (172) (75) (327) (318) (477) ----------- ----------- ----------- ----------- ----------- Earnings before income taxes ..... 13,922 9,070 3,467 8,562 8,765 Income tax provision Current ...................... 3,925 1,740 226 1,092 624 Deferred ..................... 1,157 943 901 1,737 2,500 ----------- ----------- ----------- ----------- ----------- 5,082 2,683 1,127 2,829 3,124 ----------- ----------- ----------- ----------- ----------- Net earnings ..................... $ 8,840 $ 6,387 $ 2,340 $ 5,733 $ 5,641 =========== =========== =========== =========== =========== Basic and diluted earnings per common share ................. $ 2.10 $ 1.51 $ .55 $ 1.36 $ 1.34 =========== =========== =========== =========== =========== FINANCIAL POSITION Working capital .................. $ 32,606 $ 19,438 $ 10,855 $ 8,694 10,484 Total assets ..................... 448,044 293,048 122,334 114,283 110,882 Long-term debt, net of current maturities ........... 11,900 9,900 9,100 6,900 6,171 Shareholders' equity ............. 44,313 36,021 30,056 28,138 22,760 Dividends on common shares ....... 548 422 422 422 292
- ---------- (1) The oil and gas operating loss for 1998 resulted principally from additional 3D seismic expense and a write-down of oil and gas properties due to reduced prices for crude oil and natural gas. II-2 15 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - Marketing Marketing segment profitability depends upon the spread between prices paid for the commodity purchased (i.e., crude oil, natural gas or refined products) and the sales price to the end market customer, less distribution costs. Since the Company sells a commodity, the gross purchase price at the supplier level and the gross sales price at the customer level tend to move in unison. However, the spread between purchase and sale will vary with localized supply and demand conditions. In a commodity business, operating margins as a percentage of revenues are typically very narrow; e.g., less than 1/2 of 1% in the case of crude oil and natural gas. As a low margin, high volume business, a relatively minor change in the spread can have a significant impact on earnings. The strategy for this operation is to link purchase and sales contracts to established quotations that move with market trends. Thus, the Company is insulated from absolute movements in hydrocarbon prices. While policy is designed to minimize risk, exposure to unforeseen conditions remains. Marketing division revenues, operating earnings and significant operating statistics were as follows (in thousands except volume information):
Wellhead Purchases per day(1) ------------------------------ Operating Crude Natural Revenues Earnings Oil Gas ---------- ---------- ------------ --------------- 2000 ............... $6,980,277 $ 15,389 312,000 bbls 801,000 mmbtu's 1999 ............... $3,956,477 $ 10,424 228,000 bbls 255,000 mmbtu's 1998 ............... $1,936,358 $ 4,478 136,000 bbls 54,000 mmbtu's
(1) Reflects the volume purchased from third parties at the lease level and shipped to market. Gross revenues for 2000 increased by $3,023,800,000 or 76% as a result of higher crude oil prices during most of the year, coupled with an approximate 37% growth in crude oil volumes. Further, during the fourth quarter of 1999, the Company significantly expanded its presence in the wholesale marketplace for natural gas. Natural gas volumes combined with higher prices added $1.3 billion to 2000 revenues. Partially reducing current year revenues was the accounting treatment for a new marketing joint venture. In May 2000, the Company entered into a joint venture with a third party for the purpose of purchasing, distributing, and marketing crude oil in the offshore Gulf of Mexico region. The joint venture is accounted for under the equity method of accounting. Thus, certain crude oil purchases and sales previously consolidated on the statement of earnings began being reported on a net earnings basis in marketing segment revenues. Operating earnings for 2000 improved by 48% because of the crude oil volume increases and a strong operating environment for crude oil margins. Absolute crude oil prices rose during much of the year to a high of $34 per barrel in November, but fell off during December to their original levels. The resulting effect on operating earnings from the rise and fall of crude oil prices was negligible for the year. As of December 31, 2000, the Company had 1.2 million barrels of crude oil inventory valued at approximately $26.75 per barrel. While the natural gas business added significantly to revenues, its impact on operating margins was a loss of $4.1 million, stemming from bad debt write-offs recorded in late 2000. Such write-offs resulted from the commencement of involuntary bankruptcy proceedings by a customer of the Company. No further losses should result from this item. II-3 16 Gross revenues for 1999 increased significantly relative to 1998 due to increased purchase volumes and prices. The volume increase came through aggressive marketing efforts while world crude oil prices rose steadily during 1999 to a year-end value of approximately $26 per barrel. Conversely, crude oil prices began 1998 at the $17 per barrel level, falling to $10 per barrel at the end of 1998. Because of the effect on the value of crude oil inventory, 1999 operating earnings benefited from the general increase in crude oil prices. In contrast, 1998 was adversely effected by the falling prices. When crude oil prices fell at year-end 1998, the Company recognized inventory valuation declines of $1.1 million. - Transportation Transportation revenues and operating earnings were as follows (in thousands):
Revenues Operating Earnings --------------------- -------------------- Percentage Percentage Amount Change(1) Amount Change(1) ------- ---------- ------ ---------- 2000.............................. $35,824 -- $2,311 (20)% 1999.............................. $35,559 11% $2,878 (17)% 1998.............................. $32,145 1% $3,474 (33)%
(1) Represents the percentage increase (decrease) from the prior year. Historically, the Company has achieved transportation revenue growth through increased customer demand for its services. However, during 2000, the Company saw stagnant demand as the general United States economy slowed. In contrast, fuel, wages and insurance costs continued to increase during the current year, causing reduced operating earnings. For the 1999 and 1998 periods, growing customer demand necessitated expanding both the Company's fleet and terminal capacity. In order to maintain a high service level, it was necessary to first build the infrastructure prior to engaging in a greater volume of business. Because of increased fixed costs, operating margins were adversely impacted in both years in spite of revenue growth. As presently configured, the Transportation division's fixed costs are approximately $18.5 million per year and consist primarily of tractor-trailer rentals, insurance, depreciation and terminal operating expenses. Variable costs, which typically approximate 33 percent of gross revenues, consist primarily of drivers' wages and fuel. As a result of varying demand conditions, revenues and operating earnings may experience significant variations between periods. - Oil and Gas Oil and gas division revenues and operating earnings are primarily derived from crude oil and natural gas production volumes and prices. Comparative amounts are as follows (in thousands except average price data): II-4 17
Crude Oil Natural Gas Operating ----------------- ------------------ Earnings Average Average Revenues (Loss) Barrels Price Mcf's Price ------- --------- ------- ------- ----- ------- 2000....... $6,059 $ 1,624 62 $30.03 1,161 $3.63 1999....... $3,441 $ (520) 42 $16.27 1,436 $1.92 1998....... $5,689 $(1,840) 68 $12.37 2,552 $1.89
As reflected in the table above, oil and gas revenues and operating earnings increased in 2000 due primarily to improved commodity prices. In 1999 revenues and earnings were reduced relative to 1998 primarily as a result of lower natural gas production volumes. Operating earnings for 1998 also included a $1.4 million expense for 3D seismic costs and an approximate $1 million write-down in the carrying value of certain oil and gas properties resulting from year-end price declines. Other Income (Expense) General and administrative expenses increased in 1999 and again in 2000 because of additional personnel costs stemming from increased crude oil and natural gas marketing activities. Other income totaling $1,233,000 for 2000 reflects interest income received, while other income for 1999 includes a $617,000 gain from the sale of forty-five truck-tractors and $565,000 of interest income. Other income for 1998 includes $179,000 of interest income and $182,000 in gains from various property and equipment sales. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity and its capital investment program are primarily a function of annual net earnings as adjusted by the non-cash provisions for depreciation, depletion, and amortization and deferred income taxes. In recent years, the Company utilized a portion of available cash flow to make discretionary investments in its oil and gas, transportation and marketing businesses. Additional cash generated was used to build working capital. Historically, the Company's operating earnings from its diversified operations have been stable and reliable. Management relies on the continued stability of this earnings stream in making capital project decisions. All capital projects are divided into manageable segments and the timing of their implementation is accelerated or delayed based on current cash flows. The balancing factor for the Company's short-term cash needs is the Company's bank line of credit. For the past five years the Company has periodically borrowed from $7 - 12 million on its bank line of credit. Day-to-day cash flow needs are accommodated by daily borrowing or repayments on the line of credit. While the Company's line of credit is fully secured, the bank is primarily relying on the Company's ability to generate cash flow from continuing operations for repayment. At December 31, 2000, the Company's bank debt outstanding of $11.9 million was more than offset by cash balances of $36.1 million. Also important for liquidity and capital availability is the Company's ability to conduct its truck fleet management program through lease financing transactions. The Company has readily found lease financing from a number of major national leasing concerns. The Company's philosophy is to maintain a modern, up-to-date fleet of tractors and trailers to accommodate demand for its services. This requires frequent tractor replacements as well as modest growth in the size of the fleet. Since there is a large active secondary market for truck-tractors, historically, the Company has realized gains upon the disposition of such equipment. II-5 18 Due to the high volume of the Company's transactions, the components of working capital such as accounts receivable and accounts payable can fluctuate dramatically from day to day. No particular significance should be ascribed to such variations. A key factor that provides order and discipline for cash flow is the practice of the crude oil industry to settle all accounts by cash payment on the 20th of the month following inception of the transaction. A similar procedure exists for the natural gas industry with cash settlement on the 25th of the month. Since 98% of the Company's business is tied to crude oil and natural gas marketing, this settlement process is critical. The Company relies on payments received from its customers to satisfy the requirements to pay its suppliers on the same day. See Note 4 to Consolidated Financial Statements for a discussion of "Concentration of Credit Risk." Banking Relationships The Company's bank loan agreement provides for two separate lines of credit with interest at the bank's prime rate minus 1%. The agreement also provides for an interest rate option at the lender's quoted Eurodollar rate (LIBOR) plus 2%. The working capital loan provides for borrowings up to $7,500,000 based on 80% of eligible accounts receivable and 50% of eligible inventories. Available capacity under the line is calculated monthly and as of December 31, 2000 was established at $7,500,000. The oil and gas production loan provides for flexible borrowings subject to a borrowing base established semi-annually by the bank. The borrowing base is presently established at $5,000,000, with the next scheduled redetermination date being September 1, 2001. The working capital loans also provide for the issuance of letters of credit. The amount of each letter of credit obligation is deducted from the borrowing capacity. The line of credit loans are scheduled to expire on October 29, 2002, with the then present balance outstanding converting to a term loan payable in 12 equal quarterly installments. As of December 31, 2000, bank debt outstanding under the Company's two revolving credit facilities totaled $11,900,000, with letters of credit outstanding totaling $25,000. The Company's Gulfmark subsidiary maintains a separate banking relationship in order to support its crude oil purchasing activities. In addition to providing letters of credit, Gulfmark's banking institution will also finance up to $5,000,000 of crude oil inventory and certain accounts receivable associated with crude oil sales. Such financing is provided on a demand note basis with interest at the bank's prime rate plus 1%. As of December 31, 2000 the Company had $32,556,000 of crude oil inventory eligible for collateral. However, no amounts were outstanding under this facility. In addition to the Gulfmark letter of credit facility, ARM maintains a separate letter of credit facility to support its natural gas marketing activities. Investment Activities During 2000, the Company invested approximately $3.1 million in oil and gas projects, $1.4 million for expansion of its truck terminals and fleet and $1.2 million was invested in facilities, trucks and equipment for the Company's marketing operations. Oil and gas exploration and development efforts continue, and the Company plans to invest approximately $5 million toward such projects in 2001. An additional $2 million is anticipated to be invested during 2001 toward the Company's marketing and transportation activities. During 2000, the Company entered into certain operating lease transactions in order to acquire 53 tractors and 12 trailers for use in its common carrier fleet. Further, during 2001 the Company anticipates entering into certain operating lease transactions in order to acquire approximately 25 additional tractors for use in its trucking fleet. Annual lease costs associated with the planned 2001 additions are estimated to be $400,000. II-6 19 Competition In all phases of its operations, the Company encounters strong competition from a number of entities. Many of these competitors possess and employ financial and personnel resources substantially in excess of those which are available to the Company. The Company faces competition principally in pricing and quality of service. In its oil and gas operation, the Company also competes for the acquisition of mineral properties. The Company's marketing division competes with integrated oil companies which in some cases own or control refining and marketing facilities. These major oil companies may offer their products to others on more favorable terms than those available to the Company. From time to time in recent years, there have been supply imbalances for crude oil and natural gas in the marketplace. This in turn has led to significant fluctuations in prices for crude oil and natural gas. As a result, there is a high degree of uncertainty regarding the future market price for crude oil and natural gas. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk, including adverse changes in interest rates and commodity prices. Interest Rate Risk Total long-term debt at December 31, 2000 included $11,900,000 of floating rate debt. As a result, the Company's annual interest costs in 2001 will fluctuate based on interest rate changes. Because the interest rate on the Company's long-term debt is a floating rate, the fair value approximates carrying value as of December 31, 2000. A hypothetical 10 percent adverse change in the floating rate would not have had a material effect on the Company's results of operations for the fiscal year ending December 31, 2000. Commodity Price Risk. The Company's major market risk exposure is in the pricing applicable to its marketing and production of crude oil and natural gas. Realized pricing is primarily driven by the prevailing spot prices applicable to oil and gas. Commodity price risk in the Company's marketing operations represents the potential loss that may result from a change in the market value of an asset or a commitment. As part of its marketing operations, the Company enters into forward contracts to minimize or hedge the impact of market fluctuations on its purchases of crude oil and natural gas. The Company may also enter into price support contracts with certain customers to secure a floor price on the purchase of certain supply. In each instance, the Company locks in a separate matching price support contract with a third party in order to minimize the risk of these financial instruments. The forward contracts are no longer than three years in duration. The Company monitors all commitments and positions and endeavors to maintain a balanced portfolio. Historically, prices received for oil and gas production have been volatile and unpredictable. Price volatility is expected to continue. Gas price realizations ranged from a monthly low of $2.40 per Mcf to a monthly high of $8.90 per Mcf during 2000. Oil prices ranged from a low of $26.00 per barrel to a high of $34.00 per barrel during the same period. A hypothetical 10 percent adverse change in average natural gas and crude oil prices, assuming no changes in volume levels, would have reduced earnings by approximately $330,000 and $3,200,000, respectively, for the fiscal year ended December 31, 2000. II-7 20 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Item 8.
Page ----- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS .................................. II-9 FINANCIAL STATEMENTS: Consolidated Balance Sheet as of December 31, 2000 and 1999 ..................................... II-10 Consolidated Statement of Earnings for the Years Ended December 31, 2000, 1999 and 1998................................................... II-11 Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998................................ II-12 Consolidated Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998............................................. II-13 Notes to Consolidated Financial Statements ....................... II-14 Supplementary Financial Data...................................... II-24
II-8 21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Adams Resources & Energy, Inc.: We have audited the accompanying consolidated balance sheet of Adams Resources & Energy, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Adams Resources & Energy, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Houston, Texas March 8, 2001 II-9 22 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
December 31, ---------------------- 2000 1999 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 36,140 $ 24,137 Accounts receivable, net 346,152 216,978 Inventories 35,453 21,475 Prepaids 2,604 1,635 --------- --------- Total current assets 420,349 264,225 --------- --------- PROPERTY AND EQUIPMENT: Marketing 21,450 20,406 Transportation 17,257 16,022 Oil and gas (successful efforts method) 33,346 30,708 Other 99 99 --------- --------- 72,152 67,235 Less -Accumulated depreciation, depletion and amortization (44,635) (38,590) --------- --------- 27,517 28,645 --------- --------- OTHER ASSETS 178 178 --------- --------- $ 448,044 $ 293,048 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 345,503 $ 236,481 Accrued and other liabilities 42,240 8,306 --------- --------- Total current liabilities 387,743 244,787 LONG-TERM DEBT 11,900 9,900 DEFERRED TAXES AND OTHER LIABILITIES 4,088 2,340 --------- --------- 403,731 257,027 --------- --------- COMMITMENTS AND CONTINGENCIES (NOTE 7) 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 issued and outstanding 422 422 Contributed capital 11,693 11,693 Retained earnings 32,198 23,906 --------- --------- Total shareholders' equity 44,313 36,021 --------- --------- $ 448,044 $ 293,048 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. II-10 23 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- REVENUES: Marketing $ 6,980,277 $ 3,956,477 $ 1,936,358 Transportation 35,824 35,559 32,145 Oil and gas 6,059 3,441 5,689 ----------- ----------- ----------- 7,022,160 3,995,477 1,974,192 ----------- ----------- ----------- COSTS AND EXPENSES: Marketing 6,962,066 3,942,909 1,928,754 Transportation 32,042 31,571 27,706 Oil and gas 1,983 2,144 3,014 General and administrative 6,463 4,819 2,738 Depreciation, depletion and amortization 6,745 6,071 8,606 ----------- ----------- ----------- 7,009,299 3,987,514 1,970,818 ----------- ----------- ----------- OPERATING EARNINGS 12,861 7,963 3,374 OTHER INCOME (EXPENSE): Interest income and other 1,233 1,182 420 Interest expense (172) (75) (327) ----------- ----------- ----------- EARNINGS BEFORE INCOME TAXES 13,922 9,070 3,467 INCOME TAX PROVISION Current 3,925 1,740 226 Deferred 1,157 943 901 ----------- ----------- ----------- 5,082 2,683 1,127 ----------- ----------- ----------- NET EARNINGS $ 8,840 $ 6,387 $ 2,340 =========== =========== =========== BASIC AND DILUTED EARNINGS PER SHARE $ 2.10 $ 1.51 $ .55 =========== =========== =========== DIVIDENDS PER COMMON SHARE $ .13 $ .10 $ .10 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. II-11 24 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
TOTAL COMMON CONTRIBUTED RETAINED SHAREHOLDERS' STOCK CAPITAL EARNINGS EQUITY -------- ----------- -------- ------------- BALANCE, December 31, 1997 ............. $ 422 $ 11,693 $ 16,023 $ 28,138 Net earnings ........................ -- -- 2,340 2,340 Dividends paid on common stock ...... -- -- (422) (422) -------- -------- -------- -------- BALANCE, December 31, 1998 ............. 422 11,693 17,941 30,056 Net earnings ........................ -- -- 6,387 6,387 Dividends paid on common stock ...... -- -- (422) (422) -------- -------- -------- -------- BALANCE, December 31, 1999 ............. 422 11,693 23,906 36,021 Net earnings ........................ -- -- 8,840 8,840 Dividends paid on common stock ...... -- -- (548) (548) -------- -------- -------- -------- BALANCE, December 31, 2000 ............. $ 422 $ 11,693 $ 32,198 $ 44,313 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. II-12 25 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
Years Ended December 31, -------------------------------- 2000 1999 1998 --------- --------- --------- CASH PROVIDED BY OPERATIONS: Net earnings ........................................ $ 8,840 $ 6,387 $ 2,340 Items of income not requiring (providing) cash - Depreciation, depletion and amortization .......... 6,745 6,071 8,606 Gain on sales of properties ....................... (27) (617) (182) Deferred income taxes ............................. 1,157 943 901 Other, net ........................................ 592 476 (321) Decrease (increase) in accounts receivable .......... (129,174) (143,114) (58) Decrease (increase) in inventories .................. (13,978) (13,187) (3,196) Decrease (increase) in prepaids ..................... (969) (834) 194 Increase (decrease) in accounts payable ............. 109,022 158,037 3,615 Increase (decrease) in accrued liabilities .......... 33,934 4,437 394 --------- --------- --------- Net cash provided by operating activities ...... 16,142 18,599 12,293 --------- --------- --------- INVESTING ACTIVITIES: Property and equipment additions .................... (5,684) (7,557) (10,771) Proceeds from property sales ........................ 93 1,252 490 Deposits returned ................................... -- 1,250 -- --------- --------- --------- Net cash used in investing activities .......... (5,591) (5,055) (10,281) --------- --------- --------- FINANCING ACTIVITIES: Borrowings .......................................... 2,000 3,375 2,200 Repayment of debt ................................... -- (2,575) (71) Dividend payments ................................... (548) (422) (422) --------- --------- --------- Net cash provided by financing activities ....... 1,452 378 1,707 --------- --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS ...................................... 12,003 13,922 3,719 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......................................... 24,137 10,215 6,496 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR .............. $ 36,140 $ 24,137 $ 10,215 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. II-13 26 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of Adams Resources & Energy, Inc., a Delaware corporation, and its wholly owned subsidiaries (the "Company") after elimination of all significant intercompany accounts and transactions. In addition, these statements include the Company's share of oil and gas joint interests using pro-rata consolidation and its interest in a 50% owned marketing joint venture using the equity method of accounting. Nature of Operations The Company is engaged in the business of crude oil, natural gas and petroleum products marketing, as well as tank truck transportation of liquid chemicals and oil and gas exploration and production. Its primary area of operation is within a 500 mile radius of Houston, Texas. Cash and Cash Equivalents Cash and cash equivalents include any treasury bill, commercial paper, money market fund or federal fund with a maturity of 30 days or less. Included in the cash balance at December 31, 2000 and 1999 is a deposit of $3 million to collateralize the Company's month-to-month crude oil letter of credit facility. See Note 2 to Consolidated Financial Statements. Inventories Crude oil and petroleum products inventories are carried at the lower of cost or market. Petroleum products inventories include gasoline, lubricating oils and other petroleum products purchased for resale and are priced at cost determined on the first-in, first-out basis, while crude oil inventory is priced at average cost. Materials and supplies inventories are included in inventories at specific cost, with a valuation allowance provided if needed. Natural gas inventories are carried at market. Components of inventory are as follows (in thousands):
December 31, ----------------- 2000 1999 ------- ------- Crude oil ............... $32,556 $19,754 Petroleum products ...... 1,589 1,069 Materials and supplies... 797 652 Natural gas ............. 511 -- ------- ------- $35,453 $21,475 ======= =======
Property and Equipment Expenditures for major renewals and betterments are capitalized, and expenditures for maintenance and repairs are expensed as incurred. Interest costs incurred in connection with major capital expenditures are capitalized and amortized over the lives of the related assets. When properties are retired or sold, the related cost and accumulated depreciation, depletion and amortization ("DD&A") are removed from the accounts and any gain or loss is reflected in earnings. II-14 27 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Oil and gas exploration and development expenditures are accounted for in accordance with the successful efforts method of accounting. Direct costs of acquiring developed or undeveloped leasehold acreage, including lease bonus, brokerage and other fees, are capitalized. Exploratory drilling costs are initially capitalized until the properties are evaluated and determined to be either productive or nonproductive. If an exploratory well is determined to be nonproductive, the capitalized costs of drilling the well are charged to expense. Costs incurred to drill and complete development wells, including dry holes, are capitalized. Producing oil and gas leases, equipment and intangible drilling costs are depleted or amortized over the estimated recoverable reserves using the units-of-production method. Other property and equipment is depreciated using the straight-line method over the estimated average useful lives of three to twenty years for marketing, three to fifteen years for transportation and ten to twenty years for all others. The Company is required to periodically review long-lived assets for impairment whenever there is evidence that the carrying value of such assets may not be recoverable. This consists of comparing the carrying value of the asset with the asset's expected future undiscounted cash flows without interest costs. Estimates of expected future cash flows represent management's best estimate based on reasonable and supportable assumptions. Proved oil and gas properties are reviewed on a field-by-field basis when such evidence exists. Any impairment so recognized is permanent and may not be restored. Due principally to the prolonged depressed state of oil and natural gas prices during 1998, one of the Company's proved oil and gas fields was deemed impaired at year-end 1998. A $1 million charge for this asset impairment was included in DD&A for 1998. Revenue Recognition The Company's natural gas and crude oil marketing customers are invoiced based on contractually agreed upon terms on a monthly basis. Revenue is recognized in the month where the physical product is delivered to the customer. The Company also recognizes mark-to-market gains and losses related to its natural gas and offshore crude oil trading activities on a monthly basis. Effective January 1, 2001, a portion of the Company's onshore crude oil trading activities will also become subject to mark-to-market accounting. A detailed discussion of the Company's price risk management activities are included later in this footnote. Customers of the Company's petroleum products marketing subsidiary are invoiced and revenue is recognized in the period the product is shipped or received by the customer based on applicable shipping terms. Transportation customers are invoiced, and the related revenue is recognized as the service is provided. Oil and gas revenue from the Company's interests in producing wells is recognized as oil and gas is produced from these wells. Marketing Joint Venture Commencing in May 2000, the Company entered into a joint venture arrangement with a third party for the purpose of purchasing, distributing and marketing crude oil in the offshore Gulf of Mexico region. The venture operates as Williams-Gulfmark Energy Co. pursuant to the terms of a joint venture II-15 28 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS agreement. The Company holds a 50% interest in the net earnings of the venture and accounts for its interest under the equity method of accounting. The Company's net investment in the venture is reported in the consolidated balance sheet and its equity in the venture's pretax earnings is included in marketing segment revenues in the consolidated statement of earnings. As of December 31, 2000 and for the year then ended, the Company's investment, net of distributions received, included in accounts payable was $912,000 and the amount of equity earnings included in marketing revenues relating to the venture was $3,643,000. Included in such equity earnings was $1,480,000, representing market gains recorded as of December 31, 2000 related to certain energy contracts. Statement of Cash Flows Interest paid totaled $172,000, $75,000 and $327,000 during the years ended December 31, 2000, 1999 and 1998, respectively. Income taxes paid during these same periods totaled $2,814,000, $895,000 and $566,000, respectively. Earnings Per Share The Company computes and presents earnings per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which requires the presentation of basic earnings per share and diluted earnings per share for potentially dilutive securities. Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Such shares outstanding on both a basic and diluted basis averaged 4,217,596 for 2000, 1999 and 1998. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Examples of significant estimates used in the accompanying consolidated financial statements include the accounting for depreciation, depletion and amortization, income taxes, contingencies and price risk management activities. Price Risk Management Activities The Company's trading and non-trading transactions give rise to market risk, which represents the potential loss that may result from a change in the market value of a particular commitment. The Company closely monitors and manages its exposure to market risk to ensure compliance with the Company's risk management policies. Such policies are regularly assessed to ensure their appropriateness given management's objectives, strategies and current market conditions. Outside of its trading activities, the Company has a price risk management program that utilizes crude oil swaps to reduce the price risk associated with fluctuations in crude oil prices. Such contracts usually are placed with major derivative dealers which are minimal credit risks. These financial instruments for non-trading activities are accounted for using the hedge (or deferral) method of accounting. Under this method, realized gains and losses from price risk management activities are II-16 29 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS recognized in cost of sales when the associated production occurs and the resulting cash flows are reported as cash flows from operating activities. Gains and losses on crude oil swaps that are closed before the hedged production occurs are deferred until the production month originally hedged. As a result of these activities, the Company recognized net hedging losses of $5,809,340 and $1,199,000 for the years ended December 31, 2000 and 1999, respectively. No such agreements were entered into in 1998. As of December 31, 2000, the Company had no open swap positions. With respect to trading activities, in June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as subsequently amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. In the Company's case, the statement requires that changes in the derivative's fair value be recognized currently in earnings. In June 2000, the FASB issued SFAS No. 138, which amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. The Company adopted SFAS No. 133, as amended by SFAS No. 137 and No. 138, on January 1, 2001 for the accounting periods that begin thereafter. Based on the Company's assessment of its onshore physical delivery contracts, the transition adjustment required at adoption of SFAS No. 133 will require the Company to record a derivative asset of approximately $1.4 million, representing the fair market value of those contracts on that date, and recognize $1.4 million in income as the cumulative effect of a change in accounting principle. 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 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 earnings includes pretax income of $2,831,000 and $2,535,000 in 2000 and 1999, respectively, to reflect the future income from marketing operations based upon the year-end prices of the underlying commodities being traded. As of December 31, 2000, the accompanying balance sheet reflects the fair value of trading assets of $38,945,000 in current assets and the fair value of the trading liabilities of $36,114,000 in current liabilities. As of December 31, 1999 the accompanying balance sheet reflects the fair value of the trading assets of $4,420,000 in current assets and the fair value of the trading liabilities of $1,885,000 in current liabilities. The average fair value of the Company's energy trading contracts for the years ended December 31, 2000 and 1999 was $2,344,000 and $571,000, respectively. New Accounting Pronouncements in 2000 In September 2000, the EITF reached a consensus on EITF No. 00-10, "Accounting for Shipping and Handling Fees and Costs." Pursuant to the consensus, amounts paid related to certain transportation must be reported as an expense on the consolidated statement of earnings rather than reporting revenues net of transportation as has been common within the industry. In addition, pertinent amounts in financial statements for prior periods should be reclassified to reflect the same accounting treatment. The Company has, for all years presented, included all shipping and handling fees and costs in operating costs and expenses in the consolidated statement of earnings and as such no reclassification of amounts is required. II-17 30 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) LONG-TERM DEBT Long-term debt is comprised of the following (in thousands):
December 31, ----------------- 2000 1999 ------- ------- Bank lines of credit, secured by substantially all of the Company's (excluding Gulfmark's) assets, due in twelve quarterly installments commencing on October 29, 2002 ...................................... $11,900 $ 9,900 Less - current maturities ............................. -- -- ------- ------- Long-term debt .......................................... $11,900 $ 9,900 ======= =======
The Company's revolving bank loan agreement provides for two separate lines of credit with interest at the bank's prime rate minus 1%. The agreement also provides for an interest rate option at the lender's quoted Eurodollar rate (LIBOR) plus 2%. The first line of credit or working capital loan provides for borrowings up to $7,500,000 based on the total of 80% of eligible accounts receivable and 50% of eligible inventories. Available borrowing capacity under the working capital line is calculated monthly and as of December 31, 2000 was established at $7,500,000 with $6,925,000 outstanding at December 31, 2000. The second line of credit or oil and gas production loan provides for flexible borrowings, subject to a borrowing base established semi-annually by the bank. The borrowing base is presently established at $5,000,000, with the next scheduled redetermination date being September 1, 2001. As of December 31, 2000, $4,975,000 was outstanding under the oil and gas production loan facility. The working capital loans also provide for the issuance of letters of credit. The amount of each letter of credit obligation is deducted from the borrowing capacity. As of December 31, 2000, letters of credit under this facility totaled $25,000. The revolving line of credit loans are scheduled to expire on October 29, 2002, with the then present balance outstanding converting to a term loan payable in 12 equal quarterly installments. The revolving loan agreement, among other things, places certain restrictions with respect to additional borrowings and the purchase or sale of assets, as well as requiring the Company to comply with certain financial covenants, including maintaining a 1.0 to 1.0 ratio of consolidated current assets to consolidated current liabilities. The Company is also required to restrict from dividend payment at least 50% of annual net income. At December 31, 2000, the Company was in compliance with all loan covenants. A subsidiary of the Company, Gulfmark Energy, Inc. ("Gulfmark"), maintains a separate banking relationship to provide letters of credit and to provide financing for up to $5 million of crude oil inventories and certain accounts receivable associated with sales of crude oil. Such financing is provided on a demand note basis with interest at the bank's prime rate plus 1%. The letter of credit and demand note facilities are secured by substantially all of Gulfmark's assets. Gulfmark had approximately $53 million and $150 million in letters of credit outstanding as of December 31, 2000 and 1999, respectively, in support of its crude oil purchasing activities. As of December 31, 2000, the Company had $32.5 million of crude oil inventory eligible for collateral. However, no amounts were outstanding under the Gulfmark term loan facility. The Company's Adams Resources Marketing, Ltd. subsidiary II-18 31 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ("ARM") maintains a separate letter of credit facility to support its natural gas purchasing business. At December 31, 2000, ARM had $25.5 million of letters of credit outstanding under this facility. The Company's weighted average effective interest rate for 2000, 1999, and 1998 was 8.5%, 7.5% and 6.75%, respectively. No interest was capitalized during 2000, 1999 or 1998. At December 31, 2000, the scheduled aggregate principal maturities of the Company's long-term debt are: 2001 - None; 2002 - $991,000; 2003 - $3,967,000; 2004 - $3,967,000; and 2005 - $2,975,000. (3) INCOME TAXES The following table shows the components of the Company's income tax provision (in thousands):
Years Ended December 31, ------------------------ 2000 1999 1998 ------ ------ ------ Current: Federal ........ $3,299 $1,333 $ 71 State .......... 626 407 155 ------ ------ ------ 3,925 1,740 226 Deferred: Federal ........ 1,157 943 901 ------ ------ ------ $5,082 $2,683 $1,127 ====== ====== ======
As of December 31, 2000 and 1999, the Company's deferred tax liability totaled $3,915,000 and $2,095,000, respectively, and consisted principally of financial statement carrying amounts in excess of the underlying tax basis of fixed assets and mark-to-market gains on energy contracts not included in taxable income. Taxes computed at the corporate federal income tax rate reconcile to the reported income tax provision as follows (in thousands):
Years Ended December 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Statutory federal income tax provision at 34% ..... $ 4,520 $ 2,945 $ 1,126 State income tax provision ........................ 626 407 155 Federal statutory depletion ....................... (51) (659) (153) Other ............................................. (13) (10) (1) ------- ------- ------- Income taxes as reported ................. $ 5,082 $ 2,683 $ 1,127 ======= ======= =======
The Company's remaining statutory depletion carryforwards were utilized in 1999 to reduce taxable earnings. (4) FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK Fair Value of Financial Instruments The carrying amount of cash equivalents are believed to approximate their fair values because of the short maturities of these instruments. Substantially all of the Company's long and short-term debt II-19 32 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS obligations bear interest at floating rates. As such, carrying amounts approximate fair values. For a discussion of the fair value of commodity financial instruments see "Price Risk Management Activities" in Note 1. Concentration of Credit Risk Credit risk represents the account loss which the Company would absorb if its customers failed to perform pursuant to contractual terms. Management of credit risk involves a number of considerations, such as the financial profile of the customer, the value of collateral held, if any, specific terms and duration of the contractual agreement, and the customer's sensitivity to economic developments. The Company has established various procedures to manage credit exposure, including initial credit approval, credit limits, and rights of offset. Letters of credit and guarantees are also utilized to limit credit risk. The Company's largest customers consist of large multinational integrated oil companies and utilities. In addition, the Company transacts business with independent oil producers, major chemical concerns, crude oil and natural gas trading companies and a variety of commercial energy users. Accounts receivable associated with crude oil and natural gas marketing activities comprise approximately 95% of the Company's total receivables as of December 31, 2000, and industry practice requires payment for purchases of crude oil to take place on the 20th of the month following a transaction, while natural gas transactions are settled on the 25th of the month. The Company's credit policy and the relatively short duration of receivables mitigates the uncertainty typically associated with longer term receivables management. Accordingly, the amount of the allowance for doubtful accounts required is minimal. The Company had accounts receivable from one customer that comprised 11% of total receivables at December 31, 2000 and from one customer that comprised 31% of total receivables at December 31, 1999. In late 2000, the Company wrote off bad debts totaling $4.1 million. These write-offs resulted from the commencement of involuntary bankruptcy proceedings by a customer of the Company. Otherwise, an allowance for doubtful accounts is provided where appropriate and accounts receivable are presented herein net of allowances for doubtful accounts of $559,000 and $223,000 at December 31, 2000 and 1999, respectively. (5) EMPLOYEE BENEFITS The Company maintains a 401(k) savings plan for the benefit of its employees. Company contributions to the plan were $374,000 in 2000, $314,000 in 1999, and $210,000 in 1998. There are no pension or retirement plans maintained by the Company. (6) TRANSACTIONS WITH RELATED PARTIES Sakco, Ltd. ("Sakco"), Kenada Oil & Gas, Ltd. ("Kenada") and Kasco, Ltd. ("Kasco"), family limited partnerships of which Mr. K. S. Adams, Jr., Chairman and President, is a limited partner, Sakdril, Inc. ("Sakdril"), a wholly owned subsidiary of KSA Industries Inc., a major stockholder of the Company, and certain officers and members of the Board of Directors of the Company have participated as working interest owners in certain oil and gas wells administered by the Company. Sakco, Kenada, Kasco, Sakdril and the officers and directors participated in each of the wells under terms no better than II-20 33 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS those afforded other non-affiliated working interest owners. As of December 31, 2000, the Company was owed $76,000 from these related parties and the Company owed $339,000 to these related parties. As of December 31, 1999, the Company was owed $120,000 from these related parties, and the Company owed $225,000 to these related parties. David B. Hurst, Secretary of the Company, is a partner in the law firm of Chaffin & Hurst. The Company has been represented by Chaffin & Hurst since 1974 and plans to use the services of that firm in the future. Chaffin & Hurst currently leases office space from the Company. Transactions with Chaffin & Hurst are on the same terms as those prevailing at the time for comparable transactions with unrelated entities. The Company also enters into certain transactions in the normal course of business with other affiliated entities. These transactions with affiliated companies are on the same terms as those prevailing at the time for comparable transactions with unrelated entities. (7) COMMITMENTS AND CONTINGENCIES The Company has operating lease arrangements for tractors, trailers, office space, warehousing and other equipment and facilities. Rental expense for the years ended December 31, 2000, 1999, and 1998 was $6,981,000, $7,573,000 and $7,093,000, respectively. At December 31, 2000, commitments under long-term noncancelable operating leases for the next five years and thereafter are payable as follows: 2001 - $5,515,000; 2002 - $4,677,000; 2003 - $3,966,000; 2004 - $2,674,000; 2005 - $1,133,000; 2006 and thereafter - $876,000. On August 30, 2000 CJC Leasing, Inc. ("CJC"), a wholly owned subsidiary of the Company previously involved in the coal mining business, received a "Notice of Taxes Due" from the State of Kentucky regarding the results of a coal severance tax audit covering the years 1989 through 1993. The audit proposed a tax assessment of $8.3 million plus penalties and interest. CJC protested this assessment and set forth a number of defenses including that CJC was not a taxpayer engaged in severing and/or mining coal at anytime during the assessment period. Further, it is CJC's informed belief that such taxes were properly paid by the third parties that had in fact mined the coal. Management intends to vigorously defend CJC and believes no material adverse effect on the Company's financial position or results of operations will occur from the resolution of this matter. In the normal course of business, the Company and its subsidiaries become involved in litigation incident to operations. In management's opinion, the ultimate resolution of all litigation matters and disputes will not have a material adverse impact on the Company's financial position or results of its operations. II-21 34 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) SEGMENT REPORTING The Company is engaged in the business of crude oil, natural gas and petroleum products marketing as well as tank truck transportation of liquid chemicals, and oil and gas exploration and production. Information concerning the Company's various business activities is summarized as follows (in thousands):
Depreci- Segment ation, Earnings Depletion Property (Loss) and and Identi- from Amorti- Equipment fiable Revenues Operations zation Additions Assets ---------- ---------- ---------- ---------- ---------- Year ended December 31, 2000 - Marketing ......... $6,980,277 $ 15,389 $ 2,822 $ 1,170 $ 383,247 Transportation .... 35,824 2,311 1,471 1,430 16,329 Oil and gas ....... 6,059 1,624 2,435 3,084 11,971 Other ............. -- -- 17 -- 36,497 ---------- ---------- ---------- ---------- ---------- $7,022,160 $ 19,324 $ 6,745 $ 5,684 $ 448,044 ========== ========== ========== ========== ========== Year ended December 31, 1999 - Marketing ......... $3,956,477 $ 10,424 $ 3,144 $ 3,382 $ 242,786 Transportation .... 35,559 2,878 1,110 2,127 15,412 Oil and gas ....... 3,441 (520) 1,795 2,048 10,449 Other ............. -- -- 22 -- 24,401 ---------- ---------- ---------- ---------- ---------- $3,995,477 $ 12,782 $ 6,071 $ 7,557 $ 293,048 ========== ========== ========== ========== ========== Year ended December 31, 1998 - Marketing ......... $1,936,358 $ 4,478 $ 3,126 $ 3,370 $ 86,510 Transportation .... 32,145 3,474 965 4,378 13,947 Oil and gas ....... 5,689 (1,840)(1) 4,493 3,023 10,227 Other ............. -- -- 22 -- 11,650 ---------- ---------- ---------- ---------- ---------- $1,974,192 $ 6,112 $ 8,606 $ 10,771 $ 122,334 ========== ========== ========== ========== ==========
- --------- (1) Includes $5,899,000 in charges related to 3D seismic expense, decreased crude oil and natural gas prices and a related write-down of oil and gas properties. II-22 35 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. During 2000, 1999, and 1998, the Company had sales to one customer that totaled $1,036 million, $565 million and $319 million, respectively. No other customers accounted for greater than 10% of sales. Earnings from operations by segment represent revenues less operating costs and expenses and depreciation, depletion and amortization and are reconciled to operating earnings and earnings from operations before income taxes, as follows (in thousands):
Years Ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Segment operating earnings ............. $ 19,324 $ 12,782 $ 6,112 General and administrative expenses .... (6,463) (4,819) (2,738) -------- -------- -------- Operating earnings ..................... 12,861 7,963 3,374 Interest income and other .............. 1,233 1,182 420 Interest expense ....................... (172) (75) (327) -------- -------- -------- Earnings before income taxes ........... $ 13,922 $ 9,070 $ 3,467 ======== ======== ========
II-23 36 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES SUPPLEMENTARY FINANCIAL DATA Quarterly Financial Data (Unaudited) - Selected quarterly financial data and earnings per share of the Company are presented below for the years ended December 31, 2000 and 1999 (in thousands, except per share data):
Net Earnings Dividends Segment -------------------- ----------------- Operating Per Per Revenues Earnings Amount Share(1) Amount Share ---------- ---------- ---------- ------- ------- ------- 2000 - March 31 ......... $2,011,328 $ 4,782 $ 2,053 $ .49 $ -- $ -- June 30 .......... 1,972,378 5,590 2,786 .66 -- -- September 30 ..... 1,753,178 4,932 2,217 .52 -- -- December 31 ...... 1,285,276 4,020 1,784 .43 548 .13 ---------- ---------- ---------- ------- ------- ------- $7,022,160 $ 19,324 $ 8,840 $ 2.10 $ 548 $ .13 ========== ========== ========== ======= ======= ======= 1999 - March 31 ......... $ 523,970 $ 881 $ 619 $ .15 $ -- $ -- June 30 .......... 766,500 4,099 2,462 .58 -- -- September 30 ..... 1,071,045 2,639 1,548 .37 -- -- December 31 ...... 1,633,962 5,163 1,758 .41 422 .10 ---------- ---------- ---------- ------- ------- ------- $3,995,477 $ 12,782 $ 6,387 $ 1.51 $ 422 $ .10 ========== ========== ========== ======= ======= =======
- --------- (1) Reflects basic and diluted earnings per share for indicated periods. II-24 37 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES SUPPLEMENTARY FINANCIAL DATA Oil and Gas Producing Activities (Unaudited)- Total costs incurred in oil and gas exploration and development activities, all incurred within the United States, were as follows (in thousands, except per barrel information):
Years Ended December 31, ------------------------ 2000 1999 1998 ------ ------ ------ Property acquisition costs Unproved ................... $ 30 $1,385 $ 600 Proved ..................... 190 -- 788 Exploration costs ............... 1,732 665 1,559 Development costs ............... 1,613 663 1,636 ------ ------ ------ Total costs incurred ............ $3,565 $2,713 $4,583 ====== ====== ======
The aggregate capitalized costs relative to oil and gas producing activities are as follows (in thousands):
December 31, -------------------- 2000 1999 -------- -------- Unproved oil and gas properties ......... $ 3,429 $ 1,966 Proved oil and gas properties ........... 29,917 28,742 -------- -------- 33,346 30,708 Accumulated depreciation, depletion and amortization ...................... (22,931) (20,941) -------- -------- Net capitalized cost ........... $ 10,415 $ 9,767 ======== ========
II-25 38 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES SUPPLEMENTARY FINANCIAL DATA Estimated Oil and Natural Gas Reserves (Unaudited)- The following information regarding estimates of the Company's proved oil and gas reserves, all located in the United States, is based on reports prepared on behalf of the Company by petroleum engineers. Because oil and gas reserve estimates are inherently imprecise and require extensive judgments of reservoir engineering data, they are generally less precise than estimates made in conjunction with financial disclosures. The revisions of previous estimates as reflected in the table below result from more precise engineering calculations based upon additional production histories and price changes.
Years Ended December 31, ---------------------------------------------------------- 2000 1999 1998 ------------------ ------------------ ------------------ Natural Natural Natural Gas Oil Gas Oil Gas Oil (Mcf's) (Bbls.) (Mcf's) (Bbls.) (Mcf's) (Bbls.) -------- -------- -------- -------- -------- -------- (In thousands) Proved developed and undeveloped reserves- Beginning of year 7,387 597 9,248 195 9,761 211 Revisions of previous estimates 861 (65) (1,247) 197 75 19 Purchase of oil and gas reserves 995 147 -- -- 1,281 3 Extensions, discoveries and other additions 560 9 821 247 683 30 Production (1,161) (62) (1,435) (42) (2,552) (68) -------- -------- -------- -------- -------- -------- End of year 8,642 626 7,387 597 9,248 195 ======== ======== ======== ======== ======== ======== Proved developed reserves- End of year 8,640 626 7,026 491 9,248 195 ======== ======== ======== ======== ======== ========
Standardized Measure of Discounted Future Net Cash Flows from Oil and Gas Operations and Changes Therein (Unaudited)- The standardized measure of discounted future net cash flows was determined based on the economic conditions in effect at the end of the years presented, except in those instances where fixed and determinable gas price escalations are included in contracts. The disclosures below do not purport to present the fair market value of the Company's oil and gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money and risks inherent in reserve estimates. II-26 39 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES SUPPLEMENTARY FINANCIAL DATA
Years Ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (In thousands) Future gross revenues ......................... $ 90,473 $ 32,011 $ 19,157 Future costs- Lease operating expenses .................. (20,444) (9,013) (6,381) Development costs ......................... (277) (1,150) (66) -------- -------- -------- Future net cash flows before income taxes ..... 69,752 21,848 12,710 Discount at 10% per annum ..................... (31,586) (8,837) (5,104) -------- -------- -------- Discounted future net cash flows before income taxes ....................... 38,166 13,011 7,606 Future income taxes, net of discount at 10% per annum ................................. (12,976) (4,424) (1,765) -------- -------- -------- Standardized measure of discounted future net cash flows .......... $ 25,190 $ 8,587 $ 5,841 ======== ======== ========
The reserve estimates provided at December 31, 2000 are based on year-end market prices of $25.08 per barrel for crude oil and $8.79 per Mcf for natural gas. Subsequent to year end 2000, natural gas prices declined from the levels at December 31, 2000. Based on the price for natural gas on March 5, 2001 of approximately $5.40 per Mcf, the Company's "Future net cash flows", "Discounted future net cash flows" and "Standardized measure of discounted future net cash flows" at December 31, 2000 would be reduced by approximately $24 million, $12 million and $8 million, respectively. The following are the principal sources of changes in the standardized measure of discounted future net cash flows:
Years Ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (In thousands) Beginning of year ................................... $ 8,587 $ 5,841 $ 11,867 Revisions to reserves proved in prior years - Net change in prices and production costs ..... 21,930 1,272 (2,625) Net change due to revisions in quantity estimates ................................... 3,606 (85) 316 Accretion of discount ......................... 883 760 1,364 Production rate changes and other ............. (3,416) 1,033 (3,218) -------- -------- -------- Total revisions ............................ 23,003 2,980 (4,163) Purchase of oil and gas reserves, net of future production costs ....................... 2,795 -- 1,282 New field discoveries and extensions, net of future production costs ................ 3,897 4,365 1,080 Sales of oil and gas produced, net of production costs .............................. (4,540) (1,940) (4,213) Net change in income taxes ...................... (8,552) (2,659) (12) -------- -------- -------- Net change in standardized measure of discounted future net cash flows .............. 16,603 2,746 (6,026) -------- -------- -------- End of year ......................................... $ 25,190 $ 8,587 $ 5,841 ======== ======== ========
II-27 40 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES SUPPLEMENTARY FINANCIAL DATA Results of Operations for Oil and Gas Producing Activities (Unaudited) - The results of oil and gas producing activities, excluding corporate overhead and interest costs, are as follows:
Years Ended December 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- (In thousands) Revenues ......................................... $ 6,059 $ 3,441 $ 5,689 Costs and expenses - Production ................................... 1,519 1,501 1,477 Exploration .................................. 481 665 1,559 Depreciation, depletion and amortization ..... 2,435 1,795 4,493 --------- --------- --------- Operating income (loss) before income taxes ...... 1,624 (520) (1,840) Income tax (expense) benefit ..................... (552) 153 644 --------- --------- --------- Operating income (loss) .......................... $ 1,072 $ (367) $ (1,196) ========= ========= =========
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II-28 41 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information concerning executive officers of the Company is included in Part I. The information concerning directors of the Company is incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001, to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K. Item 11. EXECUTIVE COMPENSATION Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Items 11, 12 and 13 is incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001, to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K. III-1 42 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this Form 10-K: 1. Financial Statements Report of Independent Public Accountants Consolidated Balance Sheet as of December 31, 2000 and 1999 Consolidated Statement of Earnings for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Supplementary Financial Data (All unaudited) 2. Exhibits required to be filed 3(a) - Certificate of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3(a) filed with the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1987) 3(b) - Bylaws of the Company, as amended (Incorporated by reference to Exhibits 3.2 and 3.2.1 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 29, 1973 - File No. 2-48144) 3(c) - Amendment to the Bylaws of the Company to add an Article VII, Section 8. Indemnification of Directors, Officers, Employees and Agents (Incorporated by reference to Exhibit 3(c) of the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1986) 4(a) - Specimen common stock Certificate (Incorporated by reference to Exhibit 4(a) of the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1991) IV-1 43 4(c)* - Eighth Amendment to Loan Agreement between Service Transport Company et al and Bank of America, N.A. dated October 27, 2000. 21* - Subsidiaries of the Registrant 27* - Financial Data Schedule - --------- * - Filed herewith All other financial schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. The separate financial statements of Adams Resources & Energy, Inc. (the "Parent") are omitted because the conditions specified in Rules 5-04 and 12-04 of regulation S-X are met. Copies of all agreements defining the rights of holders of long-term debt of the Company and its subsidiaries, which agreements authorize amounts not in excess of 10% of the total consolidated assets of the Company, are not filed herewith but will be furnished to the Commission upon request. IV-2 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) By /s/ RICHARD B. ABSHIRE By /s/ K. S. ADAMS, JR. ----------------------------------- -------------------------------- (Richard B. Abshire, (K. S. Adams, Jr., Vice President-Finance, Director President,Chairman of the and Chief Financial Officer) Board, and Chief Executive Officer) Date: March 8, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. By /s/CLAUDE H. LEWIS By /s/ E. C. REINAUER, JR. ----------------------------------- -------------------------------- (Claude H. Lewis, Director) (E. C. Reinauer, Jr., Director) By /s/ THOMAS S. SMITH By /s/ E. JACK WEBSTER, JR. ----------------------------------- -------------------------------- (Thomas S. Smith, Director) (E. Jack Webster, Jr., Director) By /s/ JUANITA G. SIMMONS By /s/ EDWARD WIECK ----------------------------------- -------------------------------- (Juanita G. Simmons, Director) (Edward Wieck, Director) By /s/ JOHN A. BARRETT ----------------------------------- (John A. Barrett, Director) Date: March 8, 2001 V-1 45 EXHIBIT INDEX
Exhibit Number Description - ------- ----------- 3(a) - Certificate of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3(a) filed with the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1987) 3(b) - Bylaws of the Company, as amended (Incorporated by reference to Exhibits 3.2 and 3.2.1 of Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 29, 1973 - File No. 2-48144) 3(c) - Amendment to the Bylaws of the Company to add an Article VII, Section 8. Indemnification of Directors, Officers, Employees and Agents (Incorporated by reference to Exhibit 3(c) of the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1986) 4(a) - Specimen common stock Certificate (Incorporated by reference to Exhibit 4(a) of the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1991) 4(b) - Loan Agreement between Adams Resources & Energy, Inc. and NationsBank Texas N.A. dated October 27, 1993 ( Incorporated by reference to Exhibit 4(b) of the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1993) 4(c)* - Eighth Amendment to Loan Agreement between Service Transport Company et al and Bank of America, N.A. dated October 27, 2000. 21* - Subsidiaries of the Registrant 27* - Financial Data Schedule
- --------- * - Filed herewith V-2 EX-4.C 2 h85167ex4-c.txt 8TH AMENDMENT TO LOAN AGREEMENT 1 EXHIBIT 4(C) EIGHT AMENDMENT TO LOAN AGREEMENT THIS EIGHTH AMENDMENT TO LOAN AGREEMENT (this "Eighth Amendment") is made and entered into as of the 27th day of October, 2000, by and among SERVICE TRANSPORT COMPANY, a Texas corporation ("Service Transport Company"), ADAMS RESOURCES EXPLORATION CORPORATION, a Delaware corporation ("Exploration"), BUCKLEY MINING CORPORATION, a Kentucky corporation ("Buckley Mining"), CJC LEASING, INC., a Kentucky corporation ("CJC"), CLASSIC COAL CORPORATION, a Delaware corporation ("Classic Coal"), ADA MINING CORPORATION, a Texas corporation ("Ada Mining"), ADA RESOURCES, INC., a Texas corporation ("Ada Resources"), and BAYOU CITY PIPELINES, INC., a Texas corporation formerly known as Bayou City Barge Lines, Inc. ("Bayou City"), each with offices and place of business at 5 Post Oak Place, 4400 Post Oak Parkway, 27th Floor, Houston, Texas 77027 (Service Transport Company, Exploration, Buckley Mining, CJC, Classic Coal, Ada Mining and Bayou City are hereinafter individually called a "Borrower" and collectively called the "Borrowers"), and BANK OF AMERICA, N.A., a national banking association (the "Lender"), successor in interest by merger to NationsBank, N.A. ("NationsBank"), which had changed its name to Bank of America, N.A., and which was the successor in interest by merger to NationsBank of Texas, N.A. (the "Original Lender"). WHEREAS, the Borrowers and Ada Crude Oil Company ("Ada Crude Oil") (collectively referred to as the "Original Borrowers") and the Original Lender entered into that certain Loan Agreement dated October 27, 1993, which Loan Agreement was amended by that certain First Amendment to Loan Agreement dated October 27, 1994 among the Original Borrowers and the Original Lender, that certain Second Amendment to Loan Agreement dated December 29, 1995 among the Original Borrowers and the Original Lender, that certain Third Amendment to Loan Agreement dated January 27, 1997 among the Original Borrowers and the Original Lender and that certain Fourth Amendment to Loan Agreement (the "Fourth Amendment") dated September 30, 1997 among the Original Borrowers and the Original Lender (as amended, the "Original Loan Agreement"); and WHEREAS, the Borrowers (other than Ada Resources) and NationsBank entered into that certain Fifth Amendment to Loan Agreement dated February 2, 1999, and the Borrowers (other than Ada Resources) and Lender entered into that certain Sixth Amendment to Loan Agreement dated October 29, 1999; and WHEREAS, the Borrowers and the Lender entered into that certain Seventh Amendment to Loan Agreement dated March 22, 2000 (the "Seventh Amendment") (the Original Loan Agreement, as amended by the Fifth Amendment, the Sixth Amendment and the Seventh Amendment, is referred to herein as the "Loan Agreement"); and WHEREAS, due to the assignment of the assets and assumption of liabilities of Ada Crude Oil, it is no longer a party under the Loan Agreement; and WHEREAS, the Borrowers and the Lender desire to make certain amendments to the terms and provisions of the Loan Agreement, as set forth herein. NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 2 1. The first sentence of Section 1.3(a) of the Loan Agreement is deleted in its entirety, and the following is substituted in its place: The Lender, during the period from the date of the Eighth Amendment through October 29, 2002, subject to the terms and conditions of this Agreement, agrees (i) to make loans to the Borrowers pursuant to a revolving credit and term loan facility up to but not in excess of the lesser of $10,000,000.00 or the amount of the Tranche A Borrowing Base and (ii) to make additional loans to the Borrowers pursuant to a revolving credit and term loan facility up to but not in excess of the lesser of $7,500,000.00 or the amount of the Tranche B Borrowing Base. 2. The fourth and fifth sentences of Section 1.3(b) of the Loan Agreement are deleted in their entirety, and the following is substituted in their place: Commencing October 31, 2002, a principal payment shall made on each Note on the last day of each October, January, April and July in an amount equal to one-twelfth (1/12th) of the principal amount outstanding under such Note at the close of Lender's business on October 29, 2002. All unpaid principal and accrued and unpaid interest on the Notes shall be due and payable on or before October 29, 2005. 3. The closing of the transactions contemplated by this Eighth Amendment is subject to the satisfaction of the following conditions: (a) All legal matters incident to the transactions herein contemplated shall be satisfactory to Gardere Wynne Sewell & Riggs, L.L.P., counsel to the Lender; (b) The Lender shall have received a fully executed copy of this Eighth Amendment and a Notice as to Written Agreement; and (c) The Lender shall have received an executed copy of resolutions of the Board of Directors of each of the Borrowers and the Guarantor, in form and substance satisfactory to the Lender, authorizing the execution, delivery and performance of this Eighth Amendment and all documents, instruments and certificates referred to herein. 4. Each of the Borrowers hereby reaffirms each of its representations, warranties, covenants and agreements set forth in the Loan Agreement with the same force and effect as if each were separately stated herein and made as of the date hereof. Except as amended hereby, the Loan Agreement shall remain unchanged, and the terms, conditions and covenants of the Loan Agreement shall continue and be binding upon the parties hereto. 5. Each of the Borrowers hereby agrees that its liability under any and all documents and instruments executed by it as security for the Indebtedness (including, without limitation, the Mortgages, the Security Agreements, the Collateral Assignment and the Pledges) shall not be reduced, altered, limited, lessened or in any way affected by the execution and delivery of this Eighth Amendment or any of the instruments or documents referred to herein, except as specifically set forth herein or therein, that all of such documents and instruments are hereby renewed, extended, ratified, confirmed and carried forward by the Borrowers in all respects, that all of such documents and instruments shall remain in full force and effect and are and shall remain enforceable against the Borrowers in accordance with their terms and that all of such -2- 3 documents and instruments shall cover all indebtedness of the Borrowers to the Lender described in the Loan Agreement as amended hereby. 6. Each of the terms defined in the Loan Agreement is used in this Eighth Amendment with the same meaning, except as otherwise indicated in this Eighth Amendment. Each of the terms defined in this Eighth Amendment is used in the Loan Agreement with the same meaning, except as otherwise indicated in the Loan Agreement. 7. THIS EIGHTH AMENDMENT SHALL BE DEEMED TO BE A CONTRACT UNDER, SUBJECT TO, AND SHALL BE CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 8. THE LOAN AGREEMENT, AS AMENDED, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties have caused this Eighth Amendment to be executed by their duly authorized officers as of the day and year first above written. SERVICE TRANSPORT COMPANY By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- ADAMS RESOURCES EXPLORATION CORPORATION By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- BUCKLEY MINING CORPORATION By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- -3- 4 CJC LEASING, INC. By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- CLASSIC COAL CORPORATION By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- ADA MINING CORPORATION By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- ADA RESOURCES, INC. By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- BAYOU CITY PIPELINES, INC. By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- BANK OF AMERICA, N.A. By: /s/ RICHARD L. STEIN ---------------------------------- Name: Richard L. Stein --------------------------- Title: Vice President --------------------------- -4- 5 Guarantor joins in the execution of this Eighth Amendment to evidence that it hereby agrees and consents to all of the matters contained in this Eighth Amendment and further agrees that (i) its liability under that certain Guaranty Agreement dated October 27, 1993, executed by Guarantor for the benefit of the Lender, as the same may be amended or modified from time to time (the "Guaranty") shall not be reduced altered, limited, lessened or in any way affected by the execution and delivery of this Eighth Amendment or any of the instruments or documents referred to herein by the parties hereto, except as specifically set forth herein or therein, (ii) the Guaranty is hereby renewed, extended , ratified, confirmed and carried forward in all respects, (iii) the Guaranty is and shall remain in full force and effect and is and shall remain enforceable against Guarantor in accordance with its terms and (iv) the Guaranty shall cover all indebtedness of the Borrowers to the Lender described in the Loan Agreement as amended hereby. ADAMS RESOURCES & ENERGY, INC. By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Vice President --------------------------- -5- 6 NOTICE AS TO WRITTEN AGREEMENT THIS NOTICE AS TO WRITTEN AGREEMENT is given pursuant to Chapter 26 of the Texas Business and Commerce Code and pertains to an amendment to a loan in the amount of $15,000,000.00 made effective the 29th day of October, 2000 from BANK OF AMERICA, N.A. ("Lender") to SERVICE TRANSPORT COMPANY, ADAMS RESOURCES EXPLORATION CORPORATION, BUCKLEY MINING CORPORATION, CJC LEASING, INC., CLASSIC COAL CORPORATION, ADA MINING CORPORATION, ADA RESOURCES, INC. AND BAYOU CITY PIPELINES, INC. (collectively "Borrower") evidenced by the following written agreements ("Loan Agreements"): 1. Eighth Amendment to Loan Agreement. THE WRITTEN LOAN AGREEMENTS REPRESENT THE FINAL AGREEMENTS BETWEEN THE BORROWER AND THE LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE BORROWER AND THE LENDER. THERE ARE NOT UNWRITTEN ORAL AGREEMENTS BETWEEN THE LENDER AND THE BORROWER. BANK OF AMERICA, N.A. By: /s/ RICHARD L. STEIN ------------------------------------ Name: Richard L. Stein ------------------------------- Title: Vice President ------------------------------ 7 SERVICE TRANSPORT COMPANY By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- ADAMS RESOURCES EXPLORATION CORPORATION By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- BUCKLEY MINING CORPORATION By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- CJC LEASING, INC. By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- CLASSIC COAL CORPORATION By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- -2- 8 ADA MINING COMPANY By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- ADA RESOURCES, INC. By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- BAYOU CITY PIPELINES, INC. By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Treasurer --------------------------- "BORROWERS" ADAMS RESOURCES & ENERGY, INC. By: /s/ R. B. ABSHIRE ---------------------------------- Name: R. B. Abshire --------------------------- Title: Vice President --------------------------- "GUARANTOR" -3- EX-21 3 h85167ex21.txt SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following is a list of all subsidiary corporations of the registrant. All subsidiaries are wholly-owned by the Company, except that Buckley Mining Corporation and Plastics Universal Corporation are wholly-owned subsidiaries of Ada Mining Corporation. The Company's consolidated financial statements include the accounts of all subsidiaries.
State of Subsidiary Incorporation ---------- ------------- Adams Resources Exploration Corporation Delaware Kirbyville Marketing Co., Inc. Texas Service Transport Company Texas Bayou City Pipelines, Inc. Texas Ada Crude Oil Company Texas Ada Mining Corporation Texas Classic Coal Corporation Delaware Plastics Universal Corporation Kentucky CJC Leasing, Inc. Kentucky Buckley Mining Corporation Kentucky GulfMark Energy, Inc. Texas Ada Resources, Inc. Texas Adams Resources Marketing, Ltd. Texas Adams Resources Marketing GP, Inc. Texas Adams Resources Marketing II, Inc. Nevada Gulfmark Energy Marketing, Inc. Nevada
EX-27 4 h85167ex27.txt FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-2000 DEC-31-2000 36,140 0 346,711 (559) 35,453 420,349 72,152 (44,635) 448,044 387,743 11,900 422 0 0 43,891 448,044 7,022,160 7,023,393 6,996,091 7,009,299 0 0 172 13,922 5,082 8,840 0 0 0 8,840 2.10 2.10
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