-----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, B1/3YhG8z48xDhEBicgZFNAFVnLv5dUqfVHcDv1wm12etqpYAc2tRe3rMSmwJiE0 kubG7veiw/mZEf1WUeCeYg== 0000950129-99-004899.txt : 19991115 0000950129-99-004899.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950129-99-004899 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: SEC FILE NUMBER: 001-07908 FILM NUMBER: 99746927 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 ADAMS RESOURCES & ENERGY, INC. - DATED 09/30/99 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X} Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________________ to _________________ Commission File Number 1-7908 -------- ADAMS RESOURCES & ENERGY, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 74-1753147 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 Post Oak Park, Houston, Texas 77027 -------------------------------------------------- (Address of principal executive office & Zip Code) Registrant's telephone number, including area code (713) 881-3600 ---------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of Common Stock of the Registrant, par value $.10 per share, outstanding at October 31, 1999 was 4,217,596. 2 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, -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- REVENUE: Marketing .................................. $ 2,333,199 $ 1,394,599 $ 1,061,370 $ 533,893 Transportation ............................. 25,723 24,215 8,798 7,223 Oil & gas .................................. 2,593 4,790 877 1,274 ----------- ----------- ----------- ----------- 2,361,515 1,423,604 1,071,045 542,390 ----------- ----------- ----------- ----------- COSTS AND EXPENSES: Operating Marketing ................................ 2,324,002 1,388,723 1,058,088 532,151 Transportation ........................... 23,338 21,317 8,109 6,427 Oil & gas ................................ 1,609 2,659 557 720 Corporate general and administrative ....... 2,152 1,825 725 668 Depreciation, depletion and amortization ... 4,947 6,288 1,652 2,036 ----------- ----------- ----------- ----------- 2,356,048 1,420,812 1,069,131 542,002 ----------- ----------- ----------- ----------- Operating earnings ............................ 5,467 2,792 1,914 388 Other income (expense): Property sales and other ................... 863 78 158 (30) Interest ................................... (53) (268) (10) (122) ----------- ----------- ----------- ----------- 810 (190) 148 (152) ----------- ----------- ----------- ----------- Earnings before income taxes ............... 6,277 2,602 2,062 236 Income tax provision Current .................................. 448 770 214 68 Deferred ................................. 1,200 225 300 25 ----------- ----------- ----------- ----------- 1,648 995 514 93 ----------- ----------- ----------- ----------- Net earnings .................................. $ 4,629 $ 1,607 $ 1,548 $ 143 =========== =========== =========== =========== Basic and diluted net earnings per common share ........................... $ 1.10 $ .38 $ .37 $ .03 =========== =========== =========== =========== Dividends .................................. $ -- $ -- $ -- $ -- =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. -2- 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Marketing Marketing division revenues, operating earnings and significant operating statistics were as follows (in thousands, except price information):
Nine Months Ended Three Months Ended September 30, September 30, ----------------------- ----------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenues $2,333,199 $1,394,599 $1,061,370 $ 533,893 Operating earnings $ 6,813 $ 3,542 $ 2,544 $ 965 Purchase Volume and Price Information Wellhead Purchases Per day (1) 211 Bbls 112 Bbls 244 Bbls 126 Bbls Average Crude Oil Price per Bbl $ 16.88 $ 12.20 $ 19.64 $ 11.95
(1) Reflects the volume of crude oil purchased from third parties at the lease level and shipped to market. Year-to-date September 30, 1999 and third quarter 1999 marketing revenues increased by 67% and 99%, respectively, over the comparative 1998 periods. The revenue growth resulted from increased purchase volumes together with rising crude oil prices as shown above. While marketing volumes were increasing, marketing operating earnings were able to increase at a faster rate as administration of the volume increase was substantially absorbed by the existing overhead structure. In addition, during the second quarter of 1999, the Company was selling its crude oil inventory into a market experiencing rising prices. This afforded the Company improved sales margins. Transportation Transportation revenues and operating earnings were as follows (in thousands):
Nine Months Ended Increase Three Months Ended Increase September 30, (Decrease) September 30, (Decrease) ----------------- ---------- ------------------ ---------- 1999 1998 1999 1998 ------- ------- ------- ------- Revenues $25,723 $24,215 6% $ 8,798 $ 7,223 22% Operating earnings $ 1,597 $ 2,197 (27%) $ 399 $ 538 (26%)
-3- 4 During the second quarter of 1999, the Company began to experience an increase in the demand for its petrochemical trucking services. This trend continued in the third quarter of 1999 as trucking revenues improved to $8,798,000 versus $7,223,000 in the prior year period. While revenue increased, operating earnings have declined in 1999 as a result of higher fuel prices and driver wage scales. - Oil and Gas Oil and gas division revenues and operating earnings are primarily a function of crude oil and natural gas prices and volumes. Comparative amounts are as follows (in thousands, except price information):
Nine Months Ended Three Months Ended September 30, September 30, ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Revenues $ 2,593 $ 4,790 $ 877 $ 1,274 Operating earnings (loss) $ (791) $ (1,122) $ (304) $ (447) Volume/Price Information: Crude oil Volume 33 Bbls 56 Bbls 12 Bbls 20 Bbls Average price per Bbl $ 13.58 $ 12.90 $ 16.79 $ 11.55 Natural gas Volume 1,200 Mcf 2,180 Mcf 340 Mcf 555 Mcf Average price per Mcf $ 1.77 $ 1.90 $ 2.09 $ 1.86
Oil and gas division revenues were reduced in both the nine month and three month periods of 1999 relative to 1998 due to normal production declines. The operating loss in 1999 is reduced from the levels experienced in 1998 despite the current year volume declines. This apparent contradiction results because $1,404,000 of 3-D seismic geophysical costs were incurred and expensed in 1998, of which $360,000 was charged against third quarter 1998 earnings. Depreciation, depletion, and amortization The provision for depreciation, depletion and amortization is reduced in the current quarter due to lower oil and gas production volumes. - Other income (expense) Property sales and other income of $863,000 and $78,000, respectively, resulted primarily from gains realized on the sale of forty-five truck tractors in the first quarter of 1999 and from the sale of a former gasoline service station location during the first quarter of 1998. Interest expense is reduced in -4- 5 1999 because the Company used its excess cash flow to reduce its level of long-term debt. Liquidity and Capital Resources Cash flow from operations before working capital items for the first nine months of 1999 totaled $10,099,000. The portion of cash flow invested in transportation operations totaled $1,564,000, while marketing equipment additions totaled $1,850,000 and $636,000 went toward oil and gas drilling. The remaining $6 million of cash flow before working capital items served to reduce bank debt and bolster cash reserves. As the marketing business continues to grow, the availability of trade credit becomes increasingly critical to the success of the Company's operations. Thus, management places great importance on maintaining a strong liquid balance sheet. Effective October 1, 1999, the Company formed Adams Resources Marketing, Ltd. ("ARM") to commence operations as a wholesale purchaser, distributor and marketer of natural gas. In connection with the formation of the new venture, Adams Resources hired substantially all of the personnel (approximately 20 individuals) formerly employed by H&N Gas, Ltd., a privately held natural gas marketing concern. The Company paid no cash and assumed no debt in order to complete this transaction. ARM's operation will focus on the purchase of natural gas at the producer level and the new venture anticipates purchasing approximately 1 BCF of natural gas per day at the wellhead. Business will be concentrated among approximately 60 independent producers with the primary production area being the offshore Gulf of Mexico region. In connection with this operation, the Company has established a separate $22 million letter of credit facility with a commercial bank. Management is currently estimating that annual revenues from this start-up venture will approximate $1 billion Refer to the "Liquidity and Capital Resources" section of the Company's Annual Report on Form 10-K for the year ended December 31, 1998 for additional discussion of the Company's bank relationships and other matters. Year 2000 Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists concerning the potential effects associated with such compliance, but systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company has completed a review of its key computer systems and has implemented certain new operating systems applications necessary to resolve potential year 2000 compliance issues. As of September 30, 1999, the Company had incurred and expensed approximately $200,000 of costs to become year 2000 compliant. As of November 1, 1999, the Company believes that all of its entered systems are year 2000 compliant. -5- 6 The Company has communicated with software vendors, business partners and others with which it conducts business to provide assurances that their systems will be year 2000 compliant. Adams could be adversely affected by the failure of these unaffiliated companies to adequately address the year 2000 issue. Contingency planning is included in this assessment to identify arrangements to mitigate the impact of disruptions from outside sources. -6- 7 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
September 30, December 31, 1999 1998 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents .......................... $ 38,194 $ 10,215 Accounts receivable, net ........................... 161,749 73,864 Inventories ........................................ 6,950 8,288 Prepaid and other .................................. 1,017 801 --------- --------- Total current assets .................. 207,910 93,168 --------- --------- Property and equipment ................................ 64,348 64,019 Less - accumulated depreciation, depletion and amortization .................. (38,106) (36,226) --------- --------- 26,242 27,793 --------- --------- Other assets .......................................... 177 1,373 --------- --------- $ 234,329 $ 122,334 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ................................... $ 183,160 $ 78,444 Accrued and other liabilities ...................... 8,505 3,869 --------- --------- Total current liabilities ................... 191,665 82,313 Long-term debt, less current maturities ............... 6,000 9,100 Deferred taxes and other liabilities .................. 1,979 865 --------- --------- 199,644 92,278 Shareholders' equity: Preferred stock - $1.00 par value, 960,000 shares authorized, none outstanding .................... -- -- Common stock - $.10 par value, 7,500,000 shares authorized, 4,217,596 shares outstanding ..................................... 422 422 Contributed capital ................................. 11,693 11,693 Retained earnings since December 31, 1992 ........... 22,570 17,941 --------- --------- Total shareholders' equity ................... 34,685 30,056 --------- --------- $ 234,329 $ 122,334 ========= =========
The accompanying notes are an integral part of these financial statements. -7- 8 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
Nine Months Ended September 30, ------------------------ 1999 1998 --------- --------- CASH PROVIDED (USED) BY OPERATIONS: Net earnings ............................................. $ 4,629 $ 1,607 Items of income not requiring (providing) cash - Depreciation, depletion and amortization ............... 4,947 6,288 Deferred income taxes .................................. 1,200 -- Gain on sale of properties ............................. (590) (78) Other, net ............................................. (87) (522) Decrease (increase) in accounts receivable ............... (87,885) 3,110 Decrease (increase) in inventories ....................... 1,338 (316) Decrease (increase) in prepaid and other ................. (216) 622 Increase (decrease) in accounts payable .................. 104,716 (719) Increase (decrease) in accrued liabilities ............... 4,636 257 --------- --------- Net cash provided (required) by operating activities ... 32,688 10,249 --------- --------- INVESTING ACTIVITIES: Property and equipment additions ......................... (4,050) (7,534) Proceeds from property sales ............................. 1,245 170 Recovery of escrow cash .................................. 1,196 -- --------- --------- Net cash provided by (used in) investing activities .... (1,609) (7,364) --------- --------- FINANCING ACTIVITIES: Borrowings from bank .................................... -- 900 Repayment of debt ....................................... (3,100) (71) --------- --------- Net cash provided by (used in) financing activities ..... (3,100) 829 --------- --------- Increase (decrease) in cash and cash equivalents ........... 27,979 3,714 Cash at beginning of period ................................ 10,215 6,496 --------- --------- Cash at end of period ...................................... $ 38,194 $ 10,210 ========= ========= Supplemental disclosure of cash flow information: Interest paid during the period .......................... $ 53 $ 268 ========= ========= Income taxes paid during the period ...................... $ 651 $ 550 ========= =========
The accompanying notes are an integral part of these financial statements. -8- 9 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The accompanying condensed consolidated financial statements are unaudited but, in the opinion of the Company's management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position at September 30, 1999 and December 31, 1998 and results of operations and cash flows for the nine months ended and three months ended September 30, 1999 and 1998. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles 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 condensed consolidated financial statements be read in conjunction with the financial statements, and the notes thereto, included in the Company's latest annual report on Form 10-K. The interim statement of operations is not necessarily indicative of results to be expected for a full year. Note 2 - Long-term debt The Company has amended its revolving bank loan agreements to extend the initial maturity date from October 27, 2000 to October 27, 2001. All other terms of the bank loan facility remain substantially unchanged. Note 3 - Segment Reporting The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" effective January 1, 1998. Under this new standard, companies are required to report certain information about operation segments in consolidated statements. Operating segments are determined based on the method by which management organizes its business for making operating decisions and assessing performance. -9- 10 ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The Company is primarily engaged in the business of crude oil and petroleum products marketing, transportation, and oil and gas exploration and production. Information concerning the Company's various business activities is summarized as follows (in thousands):
Depreci- ation, Earnings Depletion Property (Loss) and and from Amorti- Equipment Revenues Operations zation Additions ---------- ---------- ---------- ---------- For the nine months ended September 30, 1999 Marketing .................... $2,333,199 $ 6,813 $ 2,384 $ 1,850 Transportation ............... 25,723 1,597 788 1,564 Oil and gas .................. 2,593 (791) 1,775 636 ---------- ---------- ---------- ---------- $2,361,515 $ 7,619 $ 4,947 $ 4,050 ========== ========== ========== ========== For the nine months ended September 30, 1998 Marketing .................... $1,394,599 $ 3,542 $ 2,334 $ 2,281 Transportation ............... 24,215 2,197 701 2,464 Oil and gas .................. 4,790 (1,122)(1) 3,253 2,789 ---------- ---------- ---------- ---------- 1,423,604 $ 4,617 $ 6,288 $ 7,534 ========== ========== ========== ========== For the three months ended September 30, 1999 Marketing .................... $1,061,370 $ 2,544 $ 738 $ 830 Transportation ............... 8,798 399 290 619 Oil and gas .................. 877 (304) 624 370 ---------- ---------- ---------- ---------- $1,071,045 $ 2,639 $ 1,652 $ 1,819 ========== ========== ========== ========== For the three months ended September 30, 1998 Marketing .................... $ 533,893 $ 965 $ 778 $ 534 Transportation ............... 7,223 538 257 1,006 Oil and gas .................. 1,274 (447)(1) 1,001 1,532 ---------- ---------- ---------- ---------- $ 542,390 $ 1,056 $ 2,036 $ 3,072 ========== ========== ========== ==========
(1) Includes a $1,404,000 earnings decrease caused by the Company expensing certain 3-D seismic geophysical costs. -10- 11 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, 1999 1998 ------------- ------------ Marketing ........................ $171,889 $ 86,510 Transportation ................... 14,684 13,947 Oil and gas ...................... 9,292 10,227 Other ............................ 38,464 11,650 -------- -------- $234,329 $122,334 ======== ========
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, -------------------- -------------------- 1999 1998 1999 1998 ------- ------- ------- ------- Earnings from operations .............. $ 7,619 $ 4,617 $ 2,639 $ 1,056 General and administrative expenses ... (2,152) (1,825) (725) (668) Property sales and other .............. 863 78 158 (30) Interest expense ...................... (53) (268) (10) (122) ------- ------- ------- ------- Earnings before income taxes .......... $ 6,277 $ 2,602 $ 2,062 $ 236 ======= ======= ======= =======
Note 3 - Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Qualifying hedges allow a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a -11- 12 company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The standard cannot be applied retroactively but early adoption is permitted. The Company has not yet determined the impacts of adopting SFAS No. 133; however, this standard could increase volatility in earnings and shareholder's equity through other comprehensive income. On January 1, 1999 the Company adopted the Emerging Issues Task Force's (EITF) Issue 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." Issue 98-10 is effective for fiscal years beginning after December 15, 1998, and requires energy trading contracts (as defined) to be recorded at fair value on the balance sheet, with the change in fair value included in earnings. The effect of initial adoption on January 1, 1999 was not significant. The accompanying statements of operations include a net credit of $462,000 to reflect income from marketing operations for the current period relating to such activities. The accompanying balance sheet reflects the fair value of the trading asset or $1,368,000 in other current assets and the fair value of the trading liability or $906,449 in current liabilities. Note 4 - Subsequent Event Effective October 1, 1999, the Company formed Adams Resources Marketing, Ltd. ("ARM") to commence operations as a wholesale purchaser, distributor and marketer of natural gas. In connection with the formation of the new venture, Adams Resources hired substantially all of the personnel (approximately 20 individuals) formerly employed by H&N Gas, Ltd., a privately held natural gas marketing concern. The Company paid no cash and assumed no debt in order to complete this transaction. ARM's operation will focus on the purchase of natural gas at the producer level and the new venture anticipates purchasing approximately 1 BCF of natural gas per day at the wellhead. Business will be concentrated among approximately 60 independent producers with the primary production area being the offshore Gulf of Mexico region. In connection with this operation, the Company has established a separate $22 million letter of credit facility with a commercial bank. Management is currently estimating that annual revenues from this start-up venture will approximate $1 billion. -12- 13 PART II. OTHER INFORMATION Item 1. - None Item 2. - None Item 3. - None Item 4. - None Item 6. Exhibits and Reports on Form 8K a. Exhibits - None. b. Reports on Form 8-K - None. -13- 14 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADAMS RESOURCES & ENERGY, INC. (Registrant) By /s/ K. S. Adams,Jr. -------------------------------------- K. S. Adams, Jr. Chief Executive Officer By /s/ Richard B.Abshire -------------------------------------- Richard B. Abshire Chief Financial Officer Date: November 10, 1999 ----------------- -14- 15 EXHIBIT INDEX
Exhibit Number Description - ------- ----------- 27* - Financial Data Schedule
- -------- * - Filed herewith EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 SEP-30-1999 38,194 0 162,002 (253) 6,950 207,910 64,348 (38,106) 234,329 191,665 6,000 0 0 422 34,263 234,329 2,361,515 2,361,515 2,348,949 2,355,185 0 0 53 6,277 1,648 4,629 0 0 0 4,629 1.10 1.10
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