-----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, PZtfnomKGy2t6H5odGIy8ab6X3nN5VwP5f09QNbj3sS7wFLVW7UuCGoMRDRpYaQC R1G6Z3UIubWZ/y8VUmUTkA== 0000950129-01-503965.txt : 20020410 0000950129-01-503965.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950129-01-503965 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07908 FILM NUMBER: 1782550 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-Q 1 h92135e10-q.txt ADAMS RESOURCES & ENERGY INC - SEPTEMBER 30, 2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001 or ------------------ [ ] Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from __________________ to ___________________ Commission File Number 1-7908 ----------------- ADAMS RESOURCES & ENERGY, INC. ------------------------------ (Exact name of Registrant as specified in its charter) Delaware 74-1753147 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4400 Post Oak Parkway, Houston, Texas 77027 -------------------------------------------- (Address of principal executive office & Zip Code) Registrant's telephone number, including area code (713) 881-3600 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ The number of shares of Common Stock of the Registrant, par value $.10 per share, outstanding at October 31, 2001 was 4,217,596. ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended Three Months Ended September 30, September 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- REVENUES: Marketing ..................................... $ 3,819,207 $ 5,705,834 $ 1,228,761 $ 1,743,796 Transportation ................................ 26,015 26,792 8,135 7,457 Oil and gas ................................... 5,588 4,258 1,315 1,925 ----------- ----------- ----------- ----------- 3,850,810 5,736,884 1,238,211 1,753,178 ----------- ----------- ----------- ----------- COSTS AND EXPENSES: Marketing ..................................... 3,814,924 5,690,938 1,227,933 1,738,942 Transportation ................................ 23,684 24,264 7,596 7,133 Oil and gas ................................... 2,252 1,336 557 471 General and administrative .................... 6,511 4,595 2,075 1,478 Depreciation, depletion and amortization ...... 5,112 5,042 1,683 1,700 ----------- ----------- ----------- ----------- 3,852,483 5,726,175 1,239,844 1,749,724 ----------- ----------- ----------- ----------- Operating earnings (loss) ........................ (1,673) 10,709 (1,633) 3,454 Other income (expense): Interest income and other ..................... 318 593 50 139 Interest expense .............................. (107) (144) (62) (27) ----------- ----------- ----------- ----------- 211 449 (12) 112 ----------- ----------- ----------- ----------- Earnings (loss) before income taxes .............. (1,462) 11,158 (1,645) 3,566 Income tax provision (benefit) Current ....................................... (527) 3,202 (532) 1,099 Deferred ...................................... -- 900 (64) 250 ----------- ----------- ----------- ----------- (527) 4,102 (596) 1,349 ----------- ----------- ----------- ----------- Earnings (loss) before cumulative effect of accounting change ............................. (935) 7,056 (1,049) 2,217 Cumulative effect of accounting change, net of tax .................................... 55 -- -- -- ----------- ----------- ----------- ----------- Net earnings (loss) .............................. $ (880) $ 7,056 $ (1,049) $ 2,217 =========== =========== =========== =========== EARNINGS (LOSS) PER SHARE: Before cumulative effect of accounting change .... $ (.22) $ 1.67 $ (.25) $ .52 Cumulative effect of accounting change ........... .01 -- -- -- ----------- ----------- ----------- ----------- Basic and diluted net earnings (loss) per common share .............................. $ (.21) $ 1.67 $ (.25) $ .52 =========== =========== =========== =========== Dividends per common share ....................... $ -- $ -- $ -- $ -- =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. -2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - - Marketing Marketing division revenues and operating earnings were as follows (IN THOUSANDS):
Nine Months Ended Three Months Ended September 30, September 30, ----------------------------- ----------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenues $ 3,819,207 $ 5,705,834 $ 1,228,761 $ 1,743,796 Operating earnings $ 2,265 $ 12,752 $ 175 $ 4,125
Supplemental volume and price information for the marketing division is as follows:
Nine Months Ended Three Months Ended September 30, September 30, ----------------------------- ----------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Wellhead Purchases - Per day (1) Crude oil 439,000 bbls 307,900 bbls 447,000 bbls 325,000 bbls Natural gas 793,163 mcf 843,200 mcf 801,489 mcf 819,300 mcf Average Purchase Price Crude oil - per barrel $ 26.21 $ 28.23 $ 25.46 $ 30.03 Natural gas - per mcf $ 4.62 $ 3.55 $ 2.74 $ 4.26
- ------------------ (1) Reflects the volume of crude oil purchased from third parties at the lease level and shipped to market, including 100% of joint venture activity. Gross revenues from marketing operations decreased by $1.9 billion or 33% for the comparative first nine months of 2001 as a result of the accounting treatment for a marketing joint venture. In May 2000, the Company entered into a joint venture with a third party for the purpose of purchasing, distributing, and marketing crude oil in the offshore Gulf of Mexico region. The venture became fully operational in October of 2000 and is accounted for under the equity method of accounting. Thus, certain crude oil purchases and sales previously consolidated on the statement of earnings are now reported on a net earnings basis in marketing segment revenues. In -3- actuality, including joint venture activity, crude oil lease purchase and sale volumes continued to grow. Such volumes averaged 439,000 barrels per day, in the first nine months of 2001 versus 307,900 barrels per day in last year. Operating earnings were reduced by 82% to $2,265,000 for the first nine months of 2001. This reduction resulted, in part, from a $4.2 million write-down in the carrying value of crude oil inventories during the third quarter of 2001. During the current quarter, the market price for crude oil dropped from approximately $26.50 per barrel to approximately $22 per barrel necessitating the write-down. Earnings for 2001 were also affected negatively by a sudden and dramatic weakening of inter-month crude oil price spreads, particularly in the second quarter. During 2000 through mid-March 2001, the Company's trading strategy was premised on current month crude oil prices being higher or stronger than succeeding month prices. When this situation reversed in late March 2001 (the current month price being lower than the next month's price) the Company chose to liquidate certain positions, necessitating a $1,375,000 charge to earnings. The adverse market conditions continued to hamper earnings recovery in the second quarter of 2001 because of the inherent time lag in reducing crude oil acquisition costs. Crude oil is normally purchased under 30-day evergreen contracts, while the resale of crude oil varies from day to day. Beginning in May 2001, the Company began to systematically cancel its crude oil acquisition contracts in accordance with the allowed terms. Effective with July 2001 production, the company had adjusted the pricing on its crude oil purchase contracts to be in line with current trends. However, in late September 2001, crude oil prices fell significantly resulting in the inventory valuation decline. As of September 30, 2001, the Company held approximately 900,000 barrels of crude oil inventory valued at $22 per barrel. - - Transportation Transportation revenues and operating earnings (loss) were as follows (IN THOUSANDS):
Nine Months Ended Increase Three Months Ended Increase September 30, (Decrease) September 30, (Decrease) ----------------------------- ------------ ----------------------------- ------------ 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenues $ 26,015 $ 26,792 (2.9)% $ 8,135 $ 7,457 9.1% Operating earnings (loss) $ 1,083 $ 1,429 (24.2)% $ 122 $ (41) n/a
Demand for transportation services and resulting operating earnings fell significantly last year and remained depressed during 2001, consistent with a general slowing of the United States economy. While the company experienced a slight comparative improvement for the third quarter of 2001, this item does not represent a trend. Success for the tank truck business is tied to demand from domestic manufacturers of petrochemicals. The petrochemical customer base has been hurt by the -4- weakened U. S. economy, plus the strong dollar has reduced chemical exports. Last year's run-up in natural gas prices, a key feedstock for petrochemicals, further hampered domestic chemical manufacturers. The events of September 11, 2001 exacerbated the situation as demand for petrochemicals continued to slow. To counter these problems, the Company has attempted to expand market share and has focused heavily on cost control. In the past 12 months, a limited number of layoffs were instituted and there have been no additions to the transportation fleet. Ordinarily, the Company would have sold off excess units, but the depressed state of the used truck market made this alternative much less attractive. An additional concern is the significantly increased liability insurance premiums forecasted for 2002. This situation results from failing insurance industry investment earnings coupled with higher incidents of claims throughout the industry. The Company's present liability policies renew on March 1, 2002. In recent years, the tank truck industry has seen a large volume of consolidation through mergers and acquisitions. Given current conditions for the industry, the company anticipates further fall out as less financial secure competitors fail or are acquired. This should reduce future competition. When the U.S. economy turns around and chemical demand resumes, the Company anticipates being a well-positioned survivor capable of capitalizing on new opportunities. - - Oil and Gas Oil and gas segment's revenues and operating earnings are primarily a function of crude oil and natural gas prices and volumes. Comparative amounts are as follows (IN THOUSANDS):
Nine Months Ended Three Months Ended September 30, September 30, ------------------------- ------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenues $ 5,588 $ 4,258 $ 1,315 $ 1,925 Operating earnings $ 1,490 $ 1,123 $ 145 $ 848
The increase in oil and gas division revenues during the first nine months of 2001 is primarily a result of improved prices for natural gas. During 2001, however, the Company sustained $542,000 of dry hole drilling costs that partially offset the gains realized through price increases. For the comparative third quarter of 2001, reduced production volumes from normal production declines and lower natural gas prices suppressed revenues and earnings. Comparative amounts are as follows: -5-
Nine Months Ended Three Months Ended September 30, September 30, ------------------------------ --------------------------------- 2001 2000 2001 2000 ------------- ------------- -------------- ------------- Crude oil Volume 50,900 bbls 43,400 bbls 14,200 bbls 17,400 bbls Average price per barrel $ 29.50 $ 28.64 $ 31.97 $ 29.95 Natural gas Volume 809,000 mcf 900,300 mcf 249,800 mcf 315,300 mcf Average price per mcf $ 4.99 $ 3.28 $ 3.38 $ 4.48
The Company has participated in the drilling of 23 wells in 2001. Ten wells were successfully completed, seven were dry holes, and six are currently drilling. In addition, the Company has acquired an interest in three wells in the White's Bayou Field of Chambers County, Texas. One of these wells is currently being recompleted to a previously untested zone, while a second well is currently producing and the third well is being placed on pump in anticipation of establishing production. Further, six wells (three exploratory and three developmental) are planned for spudding in the fourth quarter - - General and administrative Corporate general and administrative expenses increased for the comparative current periods because of additional personnel and support costs necessitated by the increased volume of business, most notably the expansion into the natural gas marketing arena. Liquidity and Capital Resources During the first nine months of 2001, the Company invested $1,808,000 in capital expenditures including $625,000 in marketing equipment, $357,000 in transportation operations and $826,000 in oil and gas drilling activities. Funding for these items came from general working capital availability. Effective November 1, 2001, the Company sold for cash an onshore crude oil pipeline and made a decision to exit its marketing joint venture arrangement (see Note 4). By exiting the joint venture, the Company was able to liquidate certain crude oil inventory positions. Combined, these events generated approximately $18 million of free cash for the Company. (See Note 7). Management places great importance on maintaining a strong liquid balance sheet and believes the availability of trade credit is critical to the success of the Company's operations. Refer to the "Liquidity and Capital Resources" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2000 for additional discussion of the Company's bank relationships and other matters. -6- ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
September 30, December 31, 2001 2000 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents .................................. $ 10,435 $ 36,140 Accounts receivable, net ................................... 273,605 346,152 Inventories ................................................ 20,792 35,453 Prepaid and other .......................................... 3,236 2,604 ------------ ------------ Total current assets ......................... 308,068 420,349 ------------ ------------ Property and equipment ....................................... 73,986 72,152 Less - accumulated depreciation, depletion and amortization .......................... (49,772) (44,635) ------------ ------------ 24,214 27,517 ------------ ------------ Other assets ................................................. 178 178 ------------ ------------ $ 332,460 $ 448,044 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ........................................... $ 240,710 $ 345,503 Notes payable .............................................. 3,000 -- Accrued and other liabilities .............................. 29,792 42,240 ------------ ------------ Total current liabilities ........................... 273,502 387,743 Long-term debt, less current maturities ...................... 11,900 11,900 Deferred taxes and other liabilities ......................... 3,625 4,088 ------------ ------------ 289,027 403,731 Shareholders' equity: Preferred stock - $1.00 par value, 960,000 shares authorized, none outstanding ........................... -- -- Common stock - $.10 par value, 7,500,000 shares authorized, 4,217,596 shares outstanding ............................................ 422 422 Contributed capital ........................................ 11,693 11,693 Retained earnings .......................................... 31,318 32,198 ------------ ------------ Total shareholders' equity .......................... 43,433 44,313 ------------ ------------ $ 332,460 $ 448,044 ============ ============
The accompanying notes are an integral part of these financial statements. -7- ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
Nine Months Ended September 30, -------------------------- 2001 2000 ---------- ---------- CASH PROVIDED (USED) BY OPERATIONS: Net earnings (loss) ..................................... $ (880) $ 7,056 Items of income not requiring (providing) cash - Depreciation, depletion and amortization ............... 5,112 5,042 Risk management activities ............................. (5,724) (803) Deferred income tax provision .......................... -- 900 Other, net ............................................. (464) (284) Decrease (increase) in accounts receivable .............. 66,217 (48,258) Decrease (increase) in inventories ...................... 14,661 (30,080) Decrease (increase) in prepaid and other ................ (632) (2,993) Increase (decrease) in accounts payable ................. (92,739) 75,618 Increase (decrease) in accrued liabilities .............. (12,448) 1,599 ---------- ---------- Net cash provided (required) by operating activities ... (26,897) 7,797 ---------- ---------- INVESTING ACTIVITIES: Property and equipment additions ........................ (1,808) (4,823) ---------- ---------- Net cash (required) by investing activities ............. (1,808) (4,823) ---------- ---------- FINANCING ACTIVITIES: Borrowings .............................................. 3,000 -- ---------- ---------- Net cash provided by financing activities ............... 3,000 -- ---------- ---------- Increase (decrease) in cash and cash equivalents ........... (25,705) 2,974 Cash at beginning of period ................................ 36,140 24,137 ---------- ---------- Cash at end of period ...................................... $ 10,435 $ 27,111 ========== ========== Supplemental disclosure of cash flow information: Interest paid during the period ......................... $ 107 $ 144 ========== ========== Income taxes paid during the period ..................... $ 270 $ 3,443 ========== ==========
The accompanying notes are an integral part of these financial statements. -8- ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The accompanying consolidated financial statements are unaudited but, in the opinion of the Company's management, include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of its financial position at September 30, 2001 and December 31, 2000 and its results of operations and cash flows for the nine months ended and three months ended September 30, 2001 and 2000. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations, although the Company believes the disclosures made are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements, and the notes thereto, included in the Company's latest annual report on Form 10-K. The interim statement of operations is not necessarily indicative of results to be expected for a full year. -9- ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Segment Reporting The Company is primarily engaged in the business of marketing crude oil, natural gas and petroleum products; tank truck transportation of liquid chemicals; and oil and gas exploration and production. Information concerning the Company's various business activities is summarized as follows (IN THOUSANDS):
Depreci- ation, Depletion Property Segment and and Operating Amorti- Equipment Revenues Earnings zation Additions ------------ ------------ ------------ ------------ For the nine months ended September 30, 2001 Marketing .................... $ 3,819,207 $ 2,265 $ 2,018 $ 625 Transportation ............... 26,015 1,083 1,248 357 Oil and gas .................. 5,588 1,490 1,846 826 ------------ ------------ ------------ ------------ $ 3,850,810 $ 4,838 $ 5,112 $ 1,808 ============ ============ ============ ============ For the nine months ended September 30, 2000 Marketing .................... $ 5,705,834 $ 12,752 $ 2,144 $ 832 Transportation ............... 26,792 1,429 1,099 778 Oil and gas .................. 4,258 1,123 1,799 3,213 ------------ ------------ ------------ ------------ $ 5,736,884 $ 15,304 $ 5,042 $ 4,823 ============ ============ ============ ============ For the three months ended September 30, 2001 Marketing .................... $ 1,228,761 $ 175 $ 653 $ 149 Transportation ............... 8,135 122 417 33 Oil and gas .................. 1,315 145 613 25 ------------ ------------ ------------ ------------ $ 1,238,211 $ 442 $ 1,683 $ 207 ============ ============ ============ ============ For the three months ended September 30, 2000 Marketing .................... $ 1,743,796 $ 4,125 $ 729 $ 248 Transportation ............... 7,457 (41) 365 320 Oil and gas .................. 1,925 848 606 1,737 ------------ ------------ ------------ ------------ $ 1,753,178 $ 4,932 $ 1,700 $ 2,305 ============ ============ ============ ============
-10- ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Identifiable assets by industry segment are as follows (IN THOUSANDS):
September 30, December 31, 2001 2000 --------------- --------------- Marketing ........................................ $ 295,466 $ 383,247 Transportation ................................... 14,486 16,329 Oil and gas ...................................... 11,479 11,971 Other ............................................ 11,029 36,497 --------------- --------------- $ 332,460 $ 448,044 =============== ===============
Intersegment sales are insignificant. Other identifiable assets are primarily corporate cash, accounts receivable, and properties not identified with any specific segment of the Company's business. All sales by the Company occurred in the United States. Earnings from operations by segment represent revenues less operating costs and expenses and depreciation, depletion and amortization and are reconciled to earnings from operations before income taxes, as follows (IN THOUSANDS):
Nine months ended Three months ended September 30, September 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Segment operating earnings ............... $ 4,838 $ 15,304 $ 442 $ 4,932 General and administrative expenses ...... 6,511 4,595 2,075 1,478 Operating earnings (loss) .............. (1,673) 10,709 (1,633) 3,454 Interest income and other ................ 318 593 50 139 Interest expense ......................... (107) (144) (62) (27) ---------- ---------- ---------- ---------- Earnings (loss) before income taxes .... $ (1,462) $ 11,158 $ (1,645) $ 3,566 ========== ========== ========== ==========
Note 3 - Price Risk Management Activities In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. In the Company's case, the statement requires that changes in the derivative's fair value be -11- recognized currently in earnings. In June 2000, the FASB issued SFAS No. 138, which amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. The Company adopted SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, on January 1, 2001. Based on the Company's assessment of its onshore physical delivery contracts that qualified as derivative instruments under SFAS No. 133 on January 1, 2001, the Company recorded a derivative asset of $55,000 (net of $29,000 of income tax), as the cumulative effect of this accounting change. The Company had no financial instruments outstanding that qualified as derivatives under SFAS No. 133 at June 30, 2001 that did not already meet the mark-to-market criteria under EITF 98-10 (see below). On January 1, 1999 the Company adopted EITF Issue 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." Issue 98-10 requires energy trading contracts (as defined) to be recorded at fair value on the balance sheet, with the change in fair value included in earnings. The accompanying statement of earnings includes pretax income of $5,724,000 and $803,000 in 2001 and 2000, respectively, to reflect the future income from marketing operations based upon end of period prices of the underlying commodities being traded. As of September 30, 2001, the accompanying balance sheet reflects the fair value of trading assets of $32,615,000 in current assets and the fair value of the trading liabilities of $24,060,000 in current liabilities. As of December 31, 2000, the accompanying balance sheet reflects the fair value of the trading assets of $38,945,000 in current assets and the fair value of the trading liabilities of $36,114,000 in current liabilities. Note 4 - Marketing Joint Venture Commencing in May 2000, the Company entered into a joint venture arrangement with a third party for the purpose of purchasing, distributing and marketing crude oil in the offshore Gulf of Mexico region. The venture operates as Williams-Gulfmark Energy Co. pursuant to the terms of a joint venture agreement. The Company holds a 50% interest in the net earnings of the venture and accounts for its interest under the equity method of accounting. The Company's net investment in the venture is reported in the consolidated balance sheet and its equity in the venture's pretax earnings is included in marketing segment revenues in the consolidated statement of earnings. As of September 30, 2001 and for the nine months then ended, the Company's investment, net of distributions received, included in current assets was $7,854,000 and the amount of equity earnings included in marketing revenues relating to the venture was a net loss of $1,337,000. Included in such equity earnings was $574,000, representing the impact of mark-to-market accounting as of September 30, 2001 related to certain energy contracts. Effective November 1, 2001, the Company exited the joint venture and was able to liquidate for cash its $7,854,000 net investment. (See Note 7). -12- Note 5 - Commitments and Contingencies On August 30, 2000 CJC Leasing, Inc. ("CJC"), a wholly owned subsidiary of the Company previously involved in the coal mining business, received a "Notice of Taxes Due" from the State of Kentucky regarding the results of a coal severance tax audit covering the years 1989 through 1993. The audit proposed a tax assessment of $8.3 million plus penalties and interest. CJC has protested this assessment and has set forth a number of defenses including that CJC was not a taxpayer engaged in severing and/or mining coal at anytime during the assessment period. Further, it is CJC's informed belief that such taxes were properly paid by the third parties that had in fact mined the coal. Management intends to vigorously defend CJC in this matter and believes that it will not ultimately have a significant adverse effect on the Company's financial position or results of operations. Note 6 - Recent Accounting Pronouncements In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement No. 144"). Statement No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The objective of Statement No. 144 is to establish one accounting model for long-lived assets to be disposed of by sale as well as resolve implementation issues related to Statement No. 121. The Company expects to adopt Statement No. 144 effective January 1, 2002 and does not expect such adoption to have a material impact on its financial condition and results of operations. Note 7 - Subsequent events. Effective November 1, 2001, the Company sold for cash an onshore crude oil pipeline. Additionally, effective November 1, 2001, the Company exited its marketing joint venture arrangement (See Note 4). The combined effect of these events permitted the Company to liquidate certain crude oil inventory positions and generate free cash totaling approximately $18 million. In addition, the Company will record a fourth quarter 2001 gain of approximately $5,000,000. -13- PART II. OTHER INFORMATION Item 1. - Legal Proceedings. On August 30, 2000 CJC Leasing, Inc. ("CJC"), a wholly owned subsidiary of the Company previously involved in the coal mining business received a "Notice of Taxes Due" from the State of Kentucky regarding the results of a coal severance tax audit covering the years 1989 through 1993. The audit proposed a tax assessment of $8.3 million plus penalties and interest. CJC has protested this assessment and has set forth a number of defenses including that CJC was not a taxpayer engaged in severing and/or mining coal at any time during the assessment period. Further, it is CJC's informed belief that such taxes were properly paid by the third parties that had in fact mined the coal. Management intends to vigorously defend CJC in this matter and believes that is will not ultimately have a significant adverse effect on the Company's its financial position or results of operations. Item 2. - None. Item 3. - None Item 4. - None Item 6. Exhibits and Reports on Form 8K a. Exhibits - None. b. Reports on Form 8-K - None. -14- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADAMS RESOURCES & ENERGY, INC. (Registrant) Date: November 12, 2001 By /s/ K.S. Adams, Jr. ---------------------------------- K.S. Adams, Jr. Chief Executive Officer By /s/ Richard B. Abshire ---------------------------------- Richard B. Abshire Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----