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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
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SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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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)
P.O. BOX 844
HOUSTON, TEXAS 77001
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 797-9966
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $.10 Par Value American Stock Exchange
</TABLE>
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
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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
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A total of 4,198,098 shares of Common Stock were outstanding at March
11, 1996.
The aggregate market value of the voting stock held by nonaffiliates as
of March 11, 1996 was $11,751,815.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Annual Meeting of Stockholders to
be held April 24, 1996 are incorporated by reference in Part III.
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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 oil and gas exploration and production, crude oil
marketing, petroleum products marketing and tank truck transportation of
petroleum products and liquid chemicals.
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, 1995 are set forth in Note 9 of the Notes to Consolidated
Financial Statements included elsewhere herein.
Oil and Gas Exploration and Production
Since its inception, the Company has been actively engaged in domestic
onshore oil and gas exploration and development activities, primarily in Texas
and Oklahoma. Exploration offices are maintained at the Company's headquarters
in Houston, Texas, with a district office in Oklahoma City, Oklahoma. The
Company holds an interest in 232 wells, of which 79 are Company-operated.
Producing Wells--The following table sets forth the Company's gross and
net productive wells at December 31, 1995. Gross wells are the total number of
wells in which the Company has an interest, while net wells are the sum of the
Company's fractional interests owned.
<TABLE>
<CAPTION>
Oil Wells Gas Wells Total Wells
------------ ----------- ------------
Gross Net Gross Net Gross Net
----- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Texas................. 103 18.29 13 3.06 116 21.35
Oklahoma.............. 12 3.50 9 1.56 21 5.06
Other................. 87 .04 8 .63 95 .67
--- ----- -- ---- --- -----
202 21.83 30 5.25 232 27.08
=== ===== == ==== === =====
</TABLE>
Acreage--The following table sets forth the Company's gross and net
developed and undeveloped acreage as of December 31, 1995.
<TABLE>
<CAPTION>
Undeveloped
Developed Acreage Acreage
-------------------- --------------------
Gross Net Gross Net
------ ------ ------ ------
<S> <C> <C> <C> <C>
Texas .................. 42,848 8,292 50,083 9,790
Oklahoma ............... 3,265 592 2,141 820
Other .................. 3,911 1,185 671 609
------ ------ ------ ------
50,024 10,069 52,895 11,219
====== ====== ====== ======
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Drilling Activity--The following table sets forth the Company's
drilling activity for each of the three years during the period ended December
31, 1995. All drilling activity was onshore in Texas and Oklahoma.
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory wells drilled
- Productive -- -- -- -- -- --
- Dry 2 .38 -- -- -- --
Development wells drilled
- Productive 24 3.85 21 2.73 5 .68
- Dry 1 .07 1 .05 -- --
</TABLE>
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, 1995, are presented in the table below.
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Crude oil (barrels) ................... 281 229 213
Natural gas (Mcf) ..................... 7,692 8,759 5,547
Future net cash flows ................. $14,893 $13,131 $8,157
Present value of
future net cash flows .............. $10,102 $ 9,218 $5,165
</TABLE>
The estimates of the Company's oil and gas reserves and future net
revenues therefrom as of December 31, 1995, were made by the Company's
independent petroleum engineers, Ryder Scott Company. The reserve estimates
provided at December 31, 1995 are based on oil prices of approximately $18.72
per barrel and natural gas prices of approximately $2.17 per Mcf. In most
instances, the Company's natural gas sales contracts provide for the Company to
receive a percentage of the combined proceeds from the sales of natural gas and
associated natural gas liquids. Therefore, average natural gas reserve
quantities and prices reported herein include the value of associated natural
gas liquids.
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
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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 the actual timing of production will
conform to or approximate such estimates. Also, certain assumptions have been
made with respect to pricing; essentially, the estimates assume that 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 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, 1995 has been as follows:
<TABLE>
<CAPTION>
Year Ended Crude Oil Natural
December 31, (Barrels) Gas (Mcf)
------------ --------- ---------
<S> <C> <C>
1995............................... 105,000 3,055,000
1994............................... 74,000 1,229,000
1993............................... 54,000 885,000
</TABLE>
Certain financial information relating to the Company's oil and gas
activities is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Average oil and condensate
sales price per Bbl ......................... $16.58 $15.08 $16.33
Average natural gas
sales price per Mcf ......................... $ 1.50 $ 1.94 $ 2.00
Average production cost,
per equivalent Bbl, charged to expense ...... $ 2.16 $ 3.35 $ 4.72
</TABLE>
The average crude oil and natural gas sales price received for December 1995
production was $17.95 per barrel and $1.85 per Mcf, respectively. In most
instances, the Company's natural gas sales contracts provide for the Company to
receive a percentage of the combined proceeds from the sales of natural gas and
associated natural gas liquids. Therefore, average natural gas prices reported
herein include the value of associated natural gas liquids.
The Company has had no reports to Federal authorities or agencies of
estimated oil and gas reserves and the Company is not obligated to provide any
fixed and determinable quantities of oil or gas in the future under existing
contracts or agreements.
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.
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Crude Oil Marketing
The Company's crude oil marketing subsidiaries, GulfMark Energy, Inc.
and Ada Crude Oil Company, purchase crude oil at the wellhead and arrange
transportation to refiners and other customers. Crude oil acquired at the
wellhead is transported via common carrier pipeline, barge or truck, with
activity primarily concentrated on properties located offshore Louisiana and
onshore throughout Texas. Crude oil purchases at the wellhead approximate 45,000
barrels per day. In addition, on a fee for service basis, the Company hauls
approximately 4,000 barrels per day of saltwater from the wellhead to approved
disposal sites. As part of its crude oil marketing business, the Company
currently operates 25 tractor-trailer rigs and maintains 23 pipeline injection
stations, all within the state of Texas.
Crude oil is generally purchased at field posted prices that fluctuate
with market conditions. The crude oil is transported and either sold outright at
the field level or the Company will enter into buy-sell arrangements (trades) in
order to minimize transportation or to maximize the sales prices. Except in
certain limited situations where back-to-back fixed price trades are in place,
the contracted sales price is also pegged to a posted price that fluctuates with
market conditions, thus reducing the Company's loss exposure from sudden changes
in crude oil prices. Sales of crude oil are facilitated in the industry by
established trade points that include Cushing, Oklahoma, St. James, Louisiana
and Midland, Texas. A key element of the Company's profitability is the
differential between market prices at the field level and at the various trade
points. Such price differentials will vary with local supply and demand
conditions and unforeseen fluctuations in price differentials can impact the
Company's financial results in either a favorable or an unfavorable manner.
While the Company's policies are designed to minimize market risk, some degree
of exposure to unforeseen fluctuations in market conditions will remain.
Crude oil marketing revenues totaled $780 million for 1995 and the
Company believes alternative customers are available should any of its customers
reduce their purchases.
Petroleum Products Marketing
Through its subsidiary Ada Resources, Inc., the Company markets branded
and unbranded refined petroleum products, such as gasoline and diesel fuel, at
the wholesale level and directly to commercial and consumer accounts. The
marketing service area includes primarily metropolitan Houston and the
surrounding one hundred miles. Branded supply contracts are with Phillips
Petroleum Company, Citgo Petroleum Company, and Conoco, Inc. The contracts
require that purchases be made at the suppliers' established jobber prices with
such prices generally being lower than the Company's sales price to its
customers. The Company relies upon such sales price differentials for its margin
of profit. In order to secure certain market outlets, the Company will, from
time to time, assist third parties by financing a portion of the construction
costs of facilities for purposes of conducting gasoline service station
operations. Earnings stem from the lease of the property and sales of gasoline.
The Company is currently involved with 17 such properties.
The Company is also a supplier of industrial lubricants, oils and
greases. A number of branded and unbranded products are offered for commercial
industrial lubricant needs, with Unocal, Mobil, Amoco, Phillips, and Shell Oil
Company being the primary branded suppliers. The
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Company's primary product distribution and warehousing facility is located on
5.5 acres in Houston, Texas. This facility includes a 60,000 square foot
warehouse, 11,000 square feet of office space, bulk storage for 100,000 gallons
of motor fuels and a high speed loading rack and storage facility for 110,000
gallons of lubricating oil.
Petroleum products marketing revenues totaled $24 million for 1995 and
the Company believes alternative customers are available should any of its
customers reduce their purchases.
Tank Truck Transportation
Through its Service Transport Company subsidiary, the Company
transports liquid chemicals and petroleum products on a "for hire" basis
throughout the Continental United States and Canada. Transportation service is
provided to over 400 customers under contracts or 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 155 truck tractors and 269 tank trailers
and also operates truck terminals in Houston, Texas, Corpus Christi, Texas and
Geismar, Louisiana. The Company's primary terminal facility in Houston, is
situated on 22 acres and includes maintenance facilities, an office building and
a six bay state of the art internal tank washrack and water treatment system.
Service Transport Company has established and is maintaining a Quality
System Certificate for the carriage of bulk liquids including tank trailer
cleaning facilities and equipment maintenance. This certificate was issued to
the Company in accordance with the requirements of ISO-9002. The Company's
quality process is one of its major assets. The practice of using statistical
process control covering safety and on-time assurance allows the Company to
continuously improve in all areas of quality service to customers.
Other Operations
The Company previously operated three coal mining subsidiaries. Due to
continuing losses and the capital requirements of these subsidiaries, the
Company began in 1982 to liquidate its coal assets. Presently, the Company only
retains a royalty interest in certain coal properties. All environmental
obligations associated with the former coal properties have been satisfied
except for one 280-acre area in Kentucky where in November 1992, the Company
received final approval on a proposed post-mining land use plan. This project
commenced in 1993 and was substantially completed in 1995.
The Company maintains its executive offices in the APC Building,
located at 6910 Fannin, Houston, Texas. The Company holds the master lease on
the building, which contains approximately 100,000 square feet of rentable
space. The Company occupies 20% of the rentable office space and an additional
50% of the office space is sublet to others. The remaining office space is
available for sublease from the Company.
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Employees
At December 31, 1995 the Company employed 378 persons, 20 of whom were
employed in oil and gas exploration and production, 87 in the marketing of crude
oil and petroleum products, 257 in transportation operations and 14 in
administrative capacities. None of the Company's employees are represented by a
union. Management believes its employee relations are satisfactory.
Competition
In all phases of its operations, the Company encounters strong
competition from a number of companies, including some very large companies.
Many of these larger 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 also competes with
integrated oil companies which in some cases own or control a majority of their
own refining and marketing facilities. These major oil companies may offer their
products to others on more favorable terms than those available to the Company.
The Company is a minor competitor in all the businesses in which it has
operations.
From time to time in recent years, there has been an oversupply of
crude oil and natural gas in the marketplace. This in turn has led to a reduced
level of prices for crude oil and natural gas, and as a result, there is a high
degree of uncertainty regarding the future market price for oil and gas.
Historically, however, demand for oil and gas has been in balance with readily
available supplies, and the Company believes the long-term prospects for the oil
and gas industry continue to be good.
Federal and State Taxation
The Company is subject to the provisions of the Internal Revenue Code
of 1986, as amended. Because of available net operating loss and statutory
depletion carryforwards, the Company's cash flow is not currently affected
significantly by federal taxation. The Company is, however, affected by the
alternative minimum tax provisions of the federal law. Under certain provisions
of the alternative minimum tax, the availability of tax loss carryforward to
offset taxable income is limited to 90% of alternative minimum taxable income.
As a result of this combination of factors, the Company will generally pay a 2%
effective federal tax rate until such time as its tax loss carryforwards are
fully utilized or expired.
The Company's operations are primarily conducted within the State of
Texas. As such, the Company is subject to a 4.5% tax on corporate net taxable
income as computed for federal income 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.
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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 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
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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 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")--EPRCA
requires emergency 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
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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 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
states 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
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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 weak 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 to provide for clean up costs, subject to certain recoveries
from the State of Texas sponsored clean up fund.
Transportation Operations--The Company's tank truck operations are conducted
pursuant to authority of the United States Department of Transportation 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.
Former Coal Operations--Under Kentucky and Illinois law and the Federal Surface
Mining Control and Reclamation Act of 1977, the Company was required to obtain
permits prior to beginning active mining operations. In order to obtain a
permit, the Company was required to show that its mining operations would meet
certain reclamation and environmental standards. The Company believes it has
complied in all respects with the regulations under which the permits were
issued.
In November 1979, the U.S. Office of Surface Mining ("OSM") issued
Buckley Mining Corporation, a subsidiary of the Company, a notice of violation
affecting certain surface mined areas. When mining operations began, Buckley had
the approval of the land owners and permits from the State of Kentucky which, if
certain conditions were met, would allow Buckley to leave the resulting cuts
along the hillsides, fronting a state highway, as a level area for the
development of residential homesites. However, the Surface Mining Control and
Reclamation Act of 1977 (the "Act") requires operators of surface mines to
restore mined areas to their original contour. If applied literally, the Act
would require Buckley to restore the contour to an approximate 280-acre area,
which would cause significant costs to be incurred. In response, Buckley
submitted an application to the State of Kentucky to receive a mining permit
under certain provisions of Section 711 of the Act, and in November 1992, the
State of Kentucky in consultation with OSM, approved the Company's permit
application. In the interim, in 1989 the local school district purchased a
portion of the previously mined area and constructed a high school. The actions
of the school board supported Buckley's and the landowner's contention that the
site was most suitable for development. In 1995, the Company substantially
completed its reclamation obligation in accordance with the revised permit and
the State of Kentucky reduced certain performance bond requirements as the work
progressed. The Company is currently awaiting final approval from the State of
Kentucky and the OSM.
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<PAGE> 12
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.
Item 3. LEGAL PROCEEDINGS
In the normal course of business, the Company and its subsidiaries
become involved in litigation incident to operations. Management is of the
opinion that ultimate resolution of all matters of litigation and dispute will
not have a material adverse impact on the Company's financial position or
results of operations.
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
None.
I-12
<PAGE> 13
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:
<TABLE>
<CAPTION>
Name Age Positions with the Company
- ------------------ --- ---------------------------------------
<S> <C> <C>
K. S. Adams, Jr. 73 Chairman, President and Chief Executive
Officer
William R. Sharp 71 Vice President-Oil and Gas
Claude H. Lewis 52 Vice President-Land Transportation
Richard B. Abshire 43 Vice President-Finance
David B. Hurst 42 Secretary
</TABLE>
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.
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, 1994.
<TABLE>
<CAPTION>
American Stock Exchange
-----------------------
Year High Low
---- ---- ---
<S> <C> <C>
1994
First Quarter......................... 5 1/4 4 7/16
Second Quarter........................ 6 1/8 4 7/8
Third Quarter......................... 8 3/4 5 5/8
Fourth Quarter........................ 10 3/4 7
1995
First Quarter ........................ 10 7 1/2
Second Quarter ....................... 8 5/8 7 1/2
Third Quarter ........................ 8 3/8 6 3/8
Fourth Quarter ....................... 7 3/8 4 7/8
</TABLE>
At December 31, 1995 there were 949 holders of record of the Company's
common stock and the closing stock price was $7 1/8 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, 1995 and 1994, the Company paid an annual cash
dividend of $0.05 and $0.03, respectively, to all holders of its commons stock
of record on December 1st of each year. Such dividends aggregated $207,812 and
$124,003, respectively.
II-1
<PAGE> 14
Item 6. SELECTED FINANCIAL DATA
FIVE YEAR REVIEW OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Marketing.......................... $803,669 $610,944 $675,915 $529,941 $102,209
Transportation..................... 21,390 20,455 16,687 16,752 14,911
Oil and gas........................ 6,378 3,586 2,733 2,957 2,636
-------- -------- -------- -------- --------
$831,437 $634,985 $695,335 $549,650 $119,756
======== ======== ======== ======== ========
Operating earnings:
Marketing.......................... $ 2,496 $ 2,114 $ 1,303 $ 477 $ 471
Transportation..................... 2,045 2,923 2,354 1,764 2,252
Oil and gas ....................... (1,410)(1) 1,272 861 1,227 1,288
-------- -------- -------- -------- --------
3,131 6,309 4,518 3,468 4,011
Other income(expenses):
General and administrative......... (2,176) (2,018) (2,015) (2,117) (1,737)
Property sales and other........... 1,134 583 4 162 (66)
Interest .......................... (526) (106) (189) (223) (327)
-------- -------- -------- -------- --------
Earnings before income taxes .......... 1,563 4,768 2,318 1,290 1,881
Income tax provision
Current............................ 100 305 150 138 124
Deferred........................... 238 1,446 716 391 --
-------- -------- -------- -------- --------
338 1,751 866 529 124
-------- -------- -------- -------- --------
Earnings before cumulative effect
of accounting change............... 1,225 3,017 1,452 761 1,757
Cumulative effect of accounting
change ............................ -- -- -- 3,391(2) --
-------- -------- -------- -------- --------
Net earnings........................... $ 1,225 $ 3,017 $ 1,452 $ 4,152 $ 1,757
======== ======== ======== ======== ========
Earnings per common share:
Before cumulative effect of
accounting change................ $ .29 $ .72 $ .35 $ .18 $ .45
Cumulative effect of accounting
change........................... -- -- -- .82 --
-------- -------- -------- -------- --------
Net earnings .......................... $ .29 $ .72 $ .35 1.00 $ .45
======== ======== ======== ======== ========
FINANCIAL POSITION
Working capital........................ $ 5,115 $ 2,957 $ 2,773 $ 2,504 $ 2,800
Total assets........................... 80,432 62,301 50,295 58,126 20,614
Long-term debt, net of
current maturities ................ 10,589 9,263 3,947 3,914 3,723
Shareholders' equity................... 15,678 13,233 10,296 8,834 7,371
Dividends on common shares............. 207 124 -- -- --
</TABLE>
(1) The oil and gas operating loss in 1995 resulted from reduced prices for
natural gas and an increased provision for depreciation, depletion and
amortization ("DD&A"). Contributing to increased DD&A were certain
write-downs of oil and gas property costs. See Note 1 to the
Consolidated Financial Statements.
(2) Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109-"Accounting for Income Taxes".
Primarily due to the availability to tax net operating loss
carryforwards, the Company recorded a cumulative accounting adjustment
in order to reflect this deferred tax asset.
II-2
<PAGE> 15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of 1995 to 1994
Marketing
Marketing segment profitability is dependent upon the spread between
the price paid to suppliers for the commodity purchased (i.e., crude oil or
refined products) and the sales price to the end market customer less
distribution costs. Since the Company is marketing 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 sales
contracts will vary with localized supply and demand conditions. In a commodity
business, operating margins as a percentage of gross revenues are typically very
narrow; e.g., less than 1/2 of 1% in the case of crude oil. As a small margin,
high volume business, a relatively minor change in the spread can have a
significant impact on earnings.
Gross revenues for the Company's Marketing operations increased by
$192,725,000 in 1995, or 31%. A greater number of crude oil buy/sell
arrangements were entered into in order to maximize profitability. The core of
the Company's crude oil marketing operation, the purchase of crude oil at the
wellhead, remained consistent between the periods at approximately 45,000
barrels per day. The Company's strategy for crude oil marketing is to link
purchase and sales contracts to established quotations (postings) that move with
general market trends. Thus, the Company is substantially insulated from the
impact of general movements in world crude oil prices. Because of the Company's
crude oil marketing strategy, absolute world crude oil prices had little or no
impact on current operating margins. Marketing division operating margins for
1995 were $2,496,000 versus $2,114,000 in 1994. While the Company policy is
designed to minimize market risk, some degree of exposure to unforeseen market
conditions remains.
Transportation
Transportation revenues remained fairly consistent between the
comparative years. However, operating margin decreased by 30% to $2,045,000
because the Company's cost structure increased while trucking rates decreased as
a result of the January 1, 1995 deregulation of intrastate rates. Increased
costs are attributable to competitive pressures to increase driver wages and
improve the level of service. In addition, the Company is in the process of
increasing its sales volumes to better match its expanded terminal facility and
the fleet capacity. As an improved balance between sales volumes and service
capacity is obtained, profitability should improve dramatically.
As presently configured, the Transportation division's fixed costs are
approximately $10 million per year and consist primarily of tractor-trailer
rentals, insurance and terminal operating expenses. Variable costs, which
typically approximate 40 percent of gross revenues, consist primarily of
drivers' wages and fuel. Historically, when revenues increasingly exceed the
Company's fixed cost requirements, operating profits increase at an even faster
rate, and vice versa. As a result of varying demand conditions, revenues and
operating earnings may experience significant variations between periods.
II-3
<PAGE> 16
Oil and Gas
Oil and gas revenues doubled in the current period to $6,378,000 as a
direct result of increased oil and gas production volumes stemming from the
Company's recent drilling efforts. Volumes and average prices compare as
follows:
<TABLE>
<CAPTION>
Year Ended Crude Oil Natural Gas
Year Ended ----------------------- -------------------------
December 31, Barrels Avg. Price Mcf's Avg. Price
------------ ------- ---------- --------- ----------
<S> <C> <C> <C> <C>
1995 ....... 105,000 $16.58 3,055,000 $1.50
1994 ....... 74,000 $15.08 1,229,000 $1.94
1993 ....... 54,000 $16.33 885,000 $2.00
</TABLE>
The oil and gas division experienced a $1,410,000 operating loss in
1995 as a result of reduced prices for natural gas and an increased provision
for depreciation, depletion and amortization. The provision for depreciation,
depletion and amortization in 1995 was $6,460,000 as compared to $1,304,000 in
1994. The provision increased in 1995 because of (1) increased capital costs and
production volumes associated with the Company's recent oil and gas drilling
activity, (2) negative current year reserve revisions relative to such activity,
(3) depressed natural gas prices coupled with marginal results from drilling
efforts, causing the Company to record a $900,000 write-down of its unproved oil
and gas leasehold position and (4) the Company's early adoption of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Assets to be
Disposed Of", resulting in a $677,000 write-down of capitalized oil and gas
property costs.
Other income (expense)
During 1995, the Company substantially completed its coal land
reclamation obligations and obtained general approval from the state of
Kentucky. As a result, the Company reduced its estimated liability for future
coal related costs by $482,000. The Company also recognized a $704,000 gain
during 1995, when 19 tractors and 22 trailers were sold.
Interest expense has increased in 1995 because the Company increased
its level of debt during 1994 and 1995 to finance its drilling activity.
Income tax provision
During 1995, the Company reduced its estimated effective tax rate to
reflect the recognition of approximately $221,000 in statutory depletion tax
benefits which the Company expects to ultimately realize.
Comparison of 1994 to 1993
Marketing
Gross revenues for the Company's Marketing operations decreased by
$64,971,000, or 10%, for 1994 relative to 1993 as a result of generally lower
world crude oil prices. In contrast to lower crude oil prices, the Company's
purchases of crude oil at the wellhead remained consistent at approximately
45,000 barrels per day. As a result of a general improvement in the 1994 spreads
between the acquisition cost of crude oil and its resale price, operating
margins for 1994 were increased to $2,114,000 from $1,303,000 in 1993.
II-4
<PAGE> 17
Transportation
Transportation revenues increased by 22% and operating margins
increased by 24% to $20,455,000 and $2,923,000, respectively, for 1994. These
increases were a direct result of strong overall demand from the Company's
petrochemical industry customer base.
Oil and Gas
Although crude oil and natural gas prices were reduced during much of
1994 relative to 1993, the Company improved its oil and gas revenues and
operating margin to $3,586,000 and $1,272,000 respectively. These improvements
resulted from increased production volumes stemming from 1994 drilling efforts.
Other
Other income of $583,000 in 1994 was primarily attributable to the
Company's former coal operations. The Company sold an overriding royalty
interest in certain previously owned coal reserves and settled a related claim.
Liquidity and Capital Resources
Overview
The Company's liquidity and its capital investment program are
primarily a function of the level of ongoing annual net earnings as adjusted by
the non-cash provisions for depreciation, depletion and federal income taxes
(See the discussion below concerning the availability of net operating loss
carryforwards and other tax assets to offset taxable income). In recent years,
the Company has utilized its available cash flow as defined above to make
discretionary investments in its oil and gas, transportation and marketing
businesses. The table below illustrates this relationship.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net earnings ...................... $ 1,225 $ 3,017 $ 1,452
Depreciation, depletion
and amortization ................ 7,649 2,207 1,520
Non-cash income taxes ............. 238 1,446 716
-------- -------- --------
Funds provided by
operations ...................... 9,112 6,670 3,688
Oil and gas loan proceeds ......... -- 5,200 --
-------- -------- --------
Funds available ................... 9,112 11,870 3,688
Property and equipment
additions ....................... (6,865) (12,946) (3,205)
-------- -------- --------
Net cash flow ..................... $ 2,247 $ (1,076) $ 483
======== ======== ========
</TABLE>
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.
II-5
<PAGE> 18
The balancing factor for the Company's short term cash needs is the
Company's bank line of credit. For the past five years and currently the Company
has maintained an approximate $4 - 6 million bank line of credit. Day-to-day
fluctuations in cash flow needs are accommodated by daily borrowing or
repayments on the line of credit. While the Company's bank 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.
In 1994, the Company purchased for approximately $5 million an average
35% interest in approximately 63,000 prospective oil and gas leasehold acres.
Because of the relative significance of this purchase, the Company was unable to
fund this property addition through normal operating cash flow. As a result, a
$5.2 million term loan was obtained from the Company's primary bank lending
institution. See Note 2 to Consolidated Financial Statements.
Also important to the Company's 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. See Note 8 to Consolidated
Financial Statements. 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 replacements as well as modest growth in the
size of the fleet. Since tractors and trailers hold their value and there is a
large active secondary market for such used equipment, historically the Company
has realized gains upon the disposition of such equipment.
With respect to the other components of working capital such as
accounts receivable and accounts payable, because of the high volume of
transactions that flow through the Company, such items can fluctuate
dramatically from day to day and no particular significance should be ascribed
to such variations. A key factor that provides order and discipline 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 date of the transaction. Since 90%
of the Company's business is tied to crude oil marketing, this settlement
process is critical and the Company relies on payments received from its
customers to satisfy the requirements to pay its suppliers on the same day. See
Note 5 to Consolidated Financial Statements for a discussion of "Concentration
of Credit Risk." Also, with respect to the other components of working capital,
the Company relies on its bank lines of credit to balance day-to-day cash needs.
Banking Relationships
The Company's bank loan agreement provides for two separate lines of
credit with interest at the bank's prime rate. 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 borrowing up to $5 million based on 80% of
eligible accounts receivable and 50% of eligible inventories. Available
borrowing capacity under the line is calculated monthly and as of December 31,
1995 was established at $3,175,000. The working capital loan also provides for
the issuance of letters of credit for the account of the Company, and the amount
of each letter of credit obligation is deducted from the borrowing capacity for
so long as the letter of credit is outstanding. 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 $3
million, with the next scheduled redetermination date being September 1, 1996.
The line of credit loans are scheduled to expire on October 31, 1997, with the
then present balance outstanding converting to a term loan payable in 12 equal
quarterly installments. As
II-6
<PAGE> 19
of December 31, 1995, bank debt outstanding under the Company's two revolving
credit facilities totaled $6,120,000, with letters of credit outstanding
totaling $25,000.
In 1994, the Company entered into a $5,200,000 term note with its
primary bank to finance certain oil and gas leasehold interests. The note
becomes due and payable in installments of $433,333 due on each of September 30,
1996 and December 31, 1996, with a final payment of $4.3 million due on January
26, 1997. Interest on the $5,200,000 term note is at the lender's quoted
Eurodollar rate (LIBOR) plus 1-1/4%. The loan is supported by an agreement
between the bank and the Company's affiliate, KSA Industries, Inc., that
requires KSA Industries, Inc. to purchase the note should the Company incur an
event of default.
The Company's GulfMark subsidiary maintains a separate banking
relationship in order to support its crude oil purchasing activities. GulfMark
has established a bank letter of credit facility that is maintained on a
month-to-month basis in order to secure the purchase of crude oil. In addition
to providing letters of credit, GulfMark's banking institution will also finance
up to $500,000 of crude oil inventory and up to $1 million of 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 2 percent.
Outstanding borrowings under this facility totaled $725,000 as of December 31,
1995.
Investment Activities
During 1995, the Company invested approximately $4.8 million in oil and
gas projects and $1.1 million for expansion of its truck terminal and fleet. An
additional $900,000 was invested in equipment for the Company's marketing
operations. Oil and gas exploration and development efforts continue and the
Company plans to invest approximately $2.5 million toward such projects in 1996.
An additional $1 million is anticipated to be invested during 1996 toward
improvements in the Company's marketing and transportation facilities.
During 1995, the Company entered into operating lease transactions with
an annual lease cost of approximately $725,000 to acquire 22 tractors and 52
trailers for use in its trucking fleet. Nineteen tractors and 22 trailers were
replacement units and the remaining equipment represents an addition to the
fleet.
Other
During 1995, the Company expended approximately $450,000 to
substantially complete remaining coal land reclamation obligations. Such funding
came from the Company's general working capital. However, upon final approval of
the project, the State of Kentucky is obligated to release to the Company
approximately $1,033,000 of Company funds that have been escrowed to insure
compliance with all state regulations. The Company anticipates release of a
substantial portion of such funds during 1996.
As a result of certain tax loss and statutory depletion carryforwards,
the Company's obligation to pay federal income taxes is substantially reduced
until such time as the tax loss carryforwards are fully utilized or expired.
Because of this situation, the Company is required to pay state income and
federal alternative minimum tax only. As a result, the Company's recorded
provision for federal income taxes represents primarily a non-cash charge to
earnings based on the federal statutory tax rate until such time as the
Company's carryforward items are fully utilized or expire. See also Note 4 to
Consolidated Financial Statements.
II-7
<PAGE> 20
From time to time in recent years there has been an oversupply of crude
oil and natural gas in the marketplace. This in turn has led to a reduced level
of prices for crude oil and natural gas, and as a result, there is a high degree
of uncertainty regarding the future market price for oil and gas. Historically,
however, demand for oil and gas has been in balance with readily available
supplies, and the Company believes the long-term prospects for the oil and gas
industry continue to be good.
II-8
<PAGE> 21
Item 8. ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ............................ II-10
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of
December 31, 1995 and 1994 ............................... II-11
Consolidated Statement of Earnings for
the Years Ended December 31, 1995,
1994 and 1993 ............................................ II-12
Consolidated Statement of Shareholders'
Equity for the Years Ended
December 31, 1995, 1994 and 1993.......................... II-13
Consolidated Statement of Cash Flows
for the Years Ended December 31,
1995, 1994 and 1993....................................... II-14
Notes to Consolidated Financial Statements ................. II-15
Supplementary Financial Data................................ II-25
II-9
<PAGE> 22
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, 1995 and 1994, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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 generally accepted auditing
standards. 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, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the Consolidated Financial Statements,
effective December 31, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ".
ARTHUR ANDERSEN LLP
Houston, Texas
March 12, 1996
II-10
<PAGE> 23
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 4,037 $ 2,695
Accounts receivable, net ....................... 50,484 35,952
Inventories .................................... 3,177 2,218
Prepaid and other .............................. 1,020 552
-------- --------
Total current assets ........................... 58,718 41,417
-------- --------
PROPERTY AND EQUIPMENT:
Marketing ...................................... 5,803 4,964
Transportation ................................. 9,830 9,374
Oil and gas (successful efforts method) ........ 23,364 19,891
Other .......................................... 1,014 1,001
-------- --------
40,011 35,230
Less - Accumulated depreciation, depletion
and amortization ............................... (21,067) (15,564)
-------- --------
18,944 19,666
-------- --------
DEFERRED INCOME TAXES .......................... 2,065 960
OTHER ASSETS ................................... 705 258
-------- --------
$ 80,432 $ 62,301
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................... $ 49,537 $ 35,420
Accrued and other liabilities .................. 2,416 2,387
Current maturities of long-term debt ........... 1,650 653
-------- --------
Total current liabilities ...................... 53,603 38,460
LONG-TERM DEBT, less current maturities ........ 10,589 9,263
OTHER LIABILITIES .............................. 562 1,345
-------- --------
64,754 49,068
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 1,000,000
shares authorized, none outstanding ............ -- --
Common stock, $.10 par value, 7,500,000 shares
authorized, 4,197,598 and 4,180,596 shares
issued and outstanding ......................... 420 418
Contributed capital ............................ 9,895 8,470
Retained earnings since December 31, 1992 ...... 5,363 4,345
-------- --------
Total shareholders' equity ..................... 15,678 13,233
-------- --------
$ 80,432 $ 62,301
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-11
<PAGE> 24
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Marketing ................................. $ 803,669 $ 610,944 $ 675,915
Transportation ............................ 21,390 20,455 16,687
Oil and gas ............................... 6,378 3,586 2,733
--------- --------- ---------
831,437 634,985 695,335
--------- --------- ---------
COSTS AND EXPENSES:
Operating -
Marketing ................................. 800,567 608,364 674,286
Transportation ............................ 18,814 17,172 13,942
Oil and gas ............................... 1,328 1,010 1,148
General and administrative ................ 2,176 2,018 2,015
Depreciation, depletion and amortization .. 7,649 2,207 1,520
--------- --------- ---------
830,534 630,771 692,911
--------- --------- ---------
OPERATING EARNINGS ........................ 903 4,214 2,424
OTHER INCOME (EXPENSE):
Property sales and other .................. 1,186 660 83
Interest .................................. (526) (106) (189)
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES .............. 1,563 4,768 2,318
INCOME TAX PROVISION
Current ................................... 100 305 150
Deferred .................................. 238 1,446 716
--------- --------- ---------
338 1,751 866
--------- --------- ---------
NET EARNINGS .............................. $ 1,225 $ 3,017 $ 1,452
========= ========= =========
NET EARNINGS PER SHARE .................... $ .29 $ .72 $ .35
========= ========= =========
DIVIDENDS PER COMMON SHARE ................ $ .05 $ .03 $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-12
<PAGE> 25
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON CONTRIBUTED RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
----- ------- -------- ------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992 ....... $ 416 $ 8,418 $ -- $ 8,834
Exercise of stock options ...... 1 9 -- 10
Net earnings ................... -- -- 1,452 1,452
-------- -------- -------- --------
BALANCE, December 31, 1993 ....... 417 8,427 1,452 10,296
Exercise of stock options ...... 1 43 -- 44
Net earnings ................... -- -- 3,017 3,017
Dividends paid on common
stock ........................ -- -- (124) (124)
-------- -------- -------- --------
BALANCE, December 31, 1994 ....... 418 8,470 4,345 13,233
Stock options exercised ........ 2 60 -- 62
Reduction in deferred tax
valuation allowance (Note 4).. -- 1,365 -- 1,365
Net earnings ................... -- -- 1,225 1,225
Dividends paid on common stock -- -- (207) (207)
-------- -------- -------- --------
BALANCE, December 31, 1995 ....... $ 420 $ 9,895 $ 5,363 $ 15,678
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-13
<PAGE> 26
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH PROVIDED BY OPERATIONS:
Net earnings......................................................... $ 1,225 $ 3,017 $ 1,452
Items of income not requiring (providing) cash -
Depreciation, depletion and amortization .......................... 7,649 2,207 1,520
Deferred income tax provision...................................... 238 1,446 716
Gain on sales of properties ....................................... (704) - (83)
Other, net......................................................... (1,208) 669 (284)
Decrease (increase) in accounts receivable ......................... (14,532) (3,755) 8,147
Decrease (increase) in inventories................................... (1,053) (302) 1,475
Decrease (increase) in prepaid and other............................. (468) 15 (13)
Increase (decrease) in accounts payable ............................. 14,117 3,101 (9,706)
Increase (decrease) in accrued liabilities........................... 29 (149) 352
--------- --------- ---------
Net cash provided by operating activities....................... 5,293 6,249 3,576
--------- --------- ---------
INVESTING ACTIVITIES:
Property and equipment additions..................................... (6,865) (12,946) (3,205)
Proceeds from property sales......................................... 736 555 110
--------- --------- ---------
Net cash used in investing activities........................... (6,129) (12,391) (3,095)
--------- --------- ---------
FINANCING ACTIVITIES:
Borrowings........................................................... 2,375 5,900 466
Repayment of debt.................................................... (52) (306) (290)
Issuance of common stock............................................. 62 44 10
Common stock dividends............................................... (207) (124) -
--------- --------- ---------
Net cash provided by financing activities........................ 2,178 5,514 186
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 1,342 (628) 667
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 2,695 3,323 2,656
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 4,037 $ 2,695 $ 3,323
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-14
<PAGE> 27
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 subsidiaries
(the "Company") after elimination of all significant intercompany accounts and
transactions. Certain reclassifications have been made to prior year balances in
order to conform to current year classifications.
Nature of Operations
The Company is engaged in the business of oil and gas exploration and
production, crude oil marketing, petroleum products marketing and tank truck
transportation of petroleum products and liquid chemicals. 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, 1995 and 1994 is $2 million, deposited in a
bank 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 primarily on the first-in, first-out basis, while crude oil inventory
is priced at average cost. Materials and supplies inventories and oil and gas
leases held for sale to joint venture investors are included in inventories at
specific cost, with a valuation allowance provided if needed.
Components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Crude oil ............................. $1,845 $ 878
Petroleum products .................... 913 897
Materials and supplies................. 348 279
Oil and gas leases..................... 71 164
------ ------
$3,177 $2,218
====== ======
</TABLE>
Oil and gas lease inventory is net of a reserve for impairment in value
of $36,000 and $60,000 as of December 31, 1995 and 1994, respectively.
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-15
<PAGE> 28
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 any 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. The acquisition costs of unproved properties are
assessed quarterly to determine whether there has been a decline in value, and
if such decline is indicated, the capitalized acquisition costs are expensed. In
accordance with this policy, the Company assessed its unproved properties and
recognized a write-down of $900,000 through an increase in DD&A.
Producing oil and gas leases, equipment and intangible drilling costs
are depleted or amortized over the estimated recoverable reserves using the
unit-of-production method. In 1995, increased capital costs and production
volumes together with negative reserve revisions, caused DD&A on producing oil
and gas leases to increase by $5,156,000 relative to 1994. Other property and
equipment is depreciated using the straight-line method over the estimated
average useful lives of eight to twenty years for marketing, three to fifteen
years for transportation and ten to twenty years for all other.
Effective December 31, 1995, the Company adopted the requirements of
Statements of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
", which is intended to establish more consistent accounting standards for
measuring the recoverability of long-lived assets. In certain instances, the
statement specifies that the carrying values of assets be written down to fair
values. In determining whether an asset is impaired under the new standard,
assets are required to be grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other
groups of assets. On this basis, one of the Company's proved oil and gas fields
was deemed to be impaired because it was not expected to individually recover
its entire carrying value. The pretax charge for this asset impairment was
$677,000 and is included in DD&A. The fair value used in calculating the
required write-down for this property was determined using the present value of
its expected future net cash flows. Prior to the adoption of SFAS No. 121, the
Company periodically reviewed the total carrying value of proven properties and
an impairment reserve was provided if conditions warranted.
Crude Oil Marketing
Revenues from marketing crude oil are recognized upon physical delivery
of product. Such revenues and related purchases include all transactions in
which the Company takes title to product. All direct operating expenses
associated with crude oil purchasing and resale are included in cost of sales.
Statement of Cash Flows
Interest paid (net of interest capitalized) totaled $689,000, $274,000
and $248,000
II-16
<PAGE> 29
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
respectively, during the years ended December 31, 1995, 1994 and 1993. Income
taxes paid during these same periods totaled $243,000, $176,000 and $115,000,
respectively.
Earnings Per Share
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 average 4,189,097 for 1995, 4,173,845 for 1994, and 4,165,718
for 1993.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
(2) LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
Bank lines of credit, secured by substantially all of
the Company's (excluding GulfMark's)
assets, due in twelve quarterly installments
commencing on October 31, 1997.................................. $ 6,120 $ 3,870
Term note, due in varying installments
commencing on September 30, 1996................................ 5,200 5,200
Notes payable in varying installments
through September 1998, interest rate up
to 10%, secured by certain land and equipment................... 194 246
GulfMark demand note payable, secured by sub-
stantially all of GulfMark's assets............................. 725 600
------- -------
Total debt........................................................ 12,239 9,916
Less - current maturities....................................... 1,650 653
------- -------
Long-term debt.................................................... $10,589 $ 9,263
======= =======
</TABLE>
The Company's revolving bank loan agreement provides for two separate
lines of credit with interest at the bank's prime rate. 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 $5 million 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, 1995 was
established at $3,175,000 with $3,145,000 outstanding at year-end 1995. The
working capital loan also provides for the issuance of letters of credit for the
account of the Company, and the amount of each letter of credit obligation will
be deducted from the borrowing capacity for so long as the letter of credit is
outstanding. As of
II-17
<PAGE> 30
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, letters of credit under this facility totaled $25,000. 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 $3 million, with the next
scheduled redetermination date being September 1, 1996. As of December 31, 1995,
$2,975,000 was outstanding under the oil and gas production loan facility. The
revolving line of credit loans are scheduled to expire on October 31, 1997, 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 on the Company 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 consolidated tangible net
worth of at least $10,847,000 as of December 31, 1995 and maintaining a 1.0 to
1.0 ratio of consolidated current assets to consolidated current liabilities.
In 1994, the Company entered into a $5,200,000 term note with its
primary bank to finance certain oil and gas leasehold interests. The note
becomes due and payable in installments of $433,333 due in each of September 30,
1996 and December 31, 1996, with a final payment of $4,300,000 due on January
26, 1997. Interest on the $5,200,000 term note is at the lender's quoted
Eurodollar rate (LIBOR) plus 1-1/4%. The loan is supported by an agreement
between the bank and the Company's affiliate, KSA Industries, Inc., that
requires KSA Industries, Inc. to purchase the note from the bank should the
Company incur an event of default. See Note 7 to financial statements.
The Company's GulfMark subsidiary maintains a separate banking
relationship to provide Letters of Credit and to provide financing for up to
$500,000 of crude oil inventories and up to $1 million of 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 2 percent. The
letter of credit and demand note facilities are secured by substantially all of
GulfMark's assets. GulfMark had approximately $45.6 million and $26.6 million in
letters of credit outstanding as of December 31, 1995 and 1994, respectively, in
support of its crude oil purchasing activities.
The Company's average effective interest rate for 1995, 1994, and 1993
was 8.2%, 7.4% and 5.5%, respectively. During 1995 and 1994, $330,000 and
$265,000, respectively, of interest incurred was capitalized. No interest was
capitalized during 1993. At December 31, 1995, the scheduled aggregate principal
maturities of the Company's long-term debt are: 1996 - $1,650,000; 1997 -
$4,908,000; 1998 - $2,111,000; 1999 - $2,040,000; and 2000 - $1,530,000.
(3) COAL OPERATIONS
In 1982, the Company discontinued its coal operations due to continuing
losses and the lack of favorable economic conditions. All coal related assets
have been sold except for a retained royalty interest in certain properties. The
only remaining environmental obligation is the final completion of land
reclamation on a 280-acre tract in Kentucky.
During 1995, the Company expended $450,000 and substantially completed
this reclamation obligation. The Company has received preliminary approval and
is presently awaiting final approval
II-18
<PAGE> 31
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of its efforts from the State of Kentucky and the Federal Office of Surface
Mining. In connection therewith, the Company reduced its estimated liability for
future coal related costs by $482,000 and such amount is included in other
income. Upon final approval, the State of Kentucky is obligated to release to
the Company approximately $1,033,000 of Company funds that have been escrowed to
insure compliance with all state regulations.
(4) INCOME TAXES
The following table shows the components of the Company's income tax
provision (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1994 1993
------- --------- ------
<S> <C> <C> <C>
Current:
Federal..................... $ 30 $ 90 $ 46
State 70 215 104
-------- ---------- --------
100 305 150
-------- ---------- --------
Deferred:
Federal..................... 238 1,446 716
-------- ---------- --------
$ 338 $ 1,751 $ 866
======== ========== ========
</TABLE>
The following table shows the components of the Company's deferred tax
asset and related valuation allowance (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Net operating loss carryforward.............................. $ 1,194 $ 1,920
Statutory depletion carryforward............................. 2,240 2,140
Alternative minimum tax credit carryforward.................. 265 235
Excess tax (book) basis of fixed assets and other............ 14 (80)
Excess tax basis of coal assets.............................. 62 250
------- -------
3,775 4,465
Less valuation allowance..................................... (1,710) (3,505)
------- -------
Deferred tax asset........................................... $ 2,065 $ 960
======= =======
</TABLE>
As of December 31, 1995, the Company had an alternative minimum tax
("AMT") credit carryforward of $265,000, a tax net operating loss carryforward
totaling $3,500,000 and statutory depletion carryforwards totaling $6,600,000
available to reduce future taxable earnings. The net operating loss
carryforwards expire in 1998, while the AMT and statutory depletion
carryforwards have no expiration date.
In the event the Company is able to realize certain of its deferred tax
assets to a greater extent than the amounts recorded as of December 31, 1995,
such additional benefit will be recorded as a direct addition to contributed
capital. However, should the Company be unable to fully realize such assets,
then such shortfall, when recognized, would be charged to current earnings. For
the year ended December 31, 1995, the valuation allowance was reduced by
$1,365,000 with such amount being credited to contributed capital, in order to
reflect net operating loss carryforwards which are now estimated to be
utilizable. The remaining allowance, as of December 31, 1995, is attributable to
the statutory depletion carryforwards from which the Company does not currently
expect to realize (through income) the associated tax benefits.
II-19
<PAGE> 32
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of taxes computed at the corporate federal income tax
rate to the reported income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax provision......... $ 531 $ 1,621 $ 788
State income tax provision..................... 70 215 104
Federal statutory depletion.................... (221) - -
Other.......................................... (42) (85) (26)
------- -------- -------
Income taxes as reported................ $ 338 $ 1,751 $ 866
======= ======== =======
</TABLE>
In 1995, the Company recognized tax benefits of $221,000 associated
with previously unrecognized prior years' federal statutory depletion
deductions. Under certain provisions of the alternative minimum tax regulations,
the availability of tax loss carryforwards to offset taxable income is limited
to 90 percent of alternative minimum taxable income. As a result, the Company
will generally pay less than a 2% effective current federal tax rate until the
net operating loss carryforwards expire. The Company's operations are primarily
conducted within the State of Texas, and the state imposes a tax of 4.5% on
corporate taxable income earned in Texas.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONCENTRATION OF CREDIT
RISK, AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents are assumed to
approximate their fair values because of the short maturities of these
instruments. Substantially all of the Company's long and short term debt
obligations bear interest at floating rates, so their carrying amounts and fair
values are approximately the same.
Concentration of Credit Risk
Credit risk represents the account loss which the Company would record
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 the large multinational
integrated oil companies. In addition, the Company transacts business with
independent oil producers, major chemical concerns, crude oil trading companies
and a variety of commercial energy users. Accounts receivable associated with
crude oil marketing activities comprise 90% of the Company's total receivables
as of December 31, 1995, and industry practice requires payment for purchases of
crude
II-20
<PAGE> 33
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
oil to take place on the 20th of the month following a transaction. The
Company's credit policy and the relatively short duration of receivables
mitigate the amount of the allowance for doubtful accounts required.
An allowance for doubtful accounts is provided on non-crude oil
marketing receivables and accounts receivable are net of allowances for doubtful
accounts at December 31, 1995 and 1994, of $171,000 and $192,000, respectively.
Off-Balance-Sheet Risk
Non-Trading Activities - As part of its crude oil marketing operation,
the Company enters into forward contracts to hedge the impact of market
fluctuations on its purchases of crude oil. The Company does not consider its
commodity forward contracts to be financial instruments since these contracts
require or permit settlement by the delivery of the underlying commodity.
Changes in the market value of these transactions are deferred until the gain or
loss is recognized on the hedged item.
Trading Activities - Also in connection with its crude oil marketing
operations, the Company, will sometimes guarantee customers a floor price on its
crude oil for a set period of time. However, in each such instance, the Company
secures a separate matching price support contract in order to eliminate all
market risk for the Company. The Company is however, subject to credit risk on
such transactions in the event that one of the two counterparties is unable to
perform. The Company closely monitors and manages its exposure to credit risk to
ensure compliance with stated credit risk management policies. At December 31,
1995, the Company owed and was due $12,000 related to its matching price support
contracts. Gains and losses on these contracts, which tend to offset, are
recognized as incurred; such gains and losses have not been significant to date.
(6) EMPLOYEE BENEFITS
The Company's 1984 stock option plan authorized the granting of
incentive stock options or non-qualified stock options to certain executives and
key employees to purchase an aggregate of 125,000 shares of common stock at not
less than the fair market value at the date of grant. The plan expired in 1994
with respect to the granting of additional stock options. During 1995, 16,500
stock options were exercised at prices ranging from $3.625 to $4.75 per share
and no stock options were granted. During 1994, 13,500 stock options were
exercised at prices ranging from $3.00 to $3.63 per share and no stock options
were granted. During 1993, 2,750 stock options were exercised at prices ranging
from $3.00 to $3.75 per share and no stock options were granted. As of December
31, 1995 there were 24,000 stock options outstanding and exercisable at prices
ranging from $3.625 to $4.75 per share.
The Company maintains a 401(k) plan for the benefit of its employees.
Company contributions to the plan were $120,000 in 1995, $100,000 in 1994, and
$84,000 in 1993.
II-21
<PAGE> 34
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) TRANSACTIONS WITH RELATED PARTIES
SAKCO, Ltd. ("SAKCO") 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. (KSAI), 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 and programs drilled or administered by the Company. SAKCO, KASCO, Sakdril
and the officers and directors participated in each of the wells and programs on
the same terms as those afforded the other non-affiliated working interest
owners. Associated with this activity, as of December 31, 1995, the Company was
owed $381,000 and $140,000 from KASCO and SAKCO, respectively, and the Company
owed $293,712 and $172,288 to KASCO and SAKCO, respectively.
Sakdril and the Company have entered into certain agreements that
provided for Sakdril to finance 100% of the Company's acquisition costs of
certain prospective oil and gas acreage in exchange for a right to purchase a
50% interest in the properties under the same terms and conditions as those
prevailing for the Company. The Company retained a 50% interest in the acreage
and at such time as either a well is drilled or the acreage is abandoned, the
Company will reimburse Sakdril for the Company's retained interest. During 1994
and 1993, Sakdril advanced $40,000 and $518,000, respectively, on the Company's
behalf under such arrangements and during 1995, 1994 and 1993, the Company
repaid $111,000, $440,000 and $131,000, respectively, of such advanced funds. As
of December 31, 1995, the Company's obligation to Sakdril under these
arrangements is $166,000. Sakdril's financing of the Company's acreage position
is on an interest-free basis.
During 1994, the Company formed a joint venture with KASCO wherein the
Company contributed $4,845,000 of oil and gas leasehold acreage to the venture
and KASCO agreed to fund the first $4,845,000 of drilling costs. All other costs
and expenses and all revenues of the venture will be shared equally between the
Company and KASCO. Prior to formation of the venture, the Company had acquired
its leasehold acreage position by obtaining a $5.2 million loan from its primary
bank. The loan is supported by an agreement between the bank and KSAI, that
requires KSAI to purchase the note from the bank should the Company incur an
event of default. The Company pays KSAI a credit enhancement fee of 3/4 of 1% as
consideration for its support. The fee paid to KSAI for 1995 and 1994 totaled
$39,000 and $28,000, respectively.
KSAI and other affiliated entities paid the Company approximately
$292,000, $295,000, and $304,000, respectively, in the years ended December 31,
1995, 1994, and 1993, for rental of space in the Company's leased office
building. Such rental charges are comparable to those charged to unaffiliated
entities.
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. Such transactions with Chaffin &
Hurst are on the same terms as those prevailing at the time for comparable
transactions with unrelated entities.
II-22
<PAGE> 35
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
(8) 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, 1995, 1994, and 1993 was $4,037,000, $3,447,000,
and $3,011,000, respectively. At December 31, 1995, commitments under long-term
noncancelable operating leases for the next five years and thereafter are
payable as follows: 1996 - $3,537,000; 1997 - $2,994,000; 1998 - $2,626,000;
1999 - $1,860,000; 2000 - $1,127,000; 2001 and thereafter - $3,268,000.
In the normal course of business, the Company and its subsidiaries
become involved in litigation incident to operations. Management is of the
opinion that ultimate resolution of all matters of litigation and dispute will
not have a material adverse impact on the Company's financial position or
results of operations.
(9) SEGMENT REPORTING
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):
<TABLE>
<CAPTION>
Depreci-
ation,
Earnings Depletion Property
(Loss) and and Identi-
from Amorti- Equipment fiable
Revenues Operations zation Additions Assets
-------- ---------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1995 -
Marketing .................... $803,669 $ 2,496 $ 606 $ 924 $52,416
Transportation................ 21,390 2,045 531 1,128 8,987
Oil and gas................... 6,378 (1,410)(1) 6,460 4,799 12,169
Other......................... - - 52 14 6,860
-------- -------- -------- -------- -------
$831,437 $ 3,131 $ 7,649 $ 6,865 $80,432
======== ======== ======== ======== =======
Year ended
December 31, 1994 -
Marketing..................... $610,944 $ 2,114 $ 466 $ 843 $36,666
Transportation................ 20,455 2,923 360 2,689 7,945
Oil and gas................... 3,586 1,272 1,304 9,388 13,921
Other......................... - - 77 26 3,769
-------- -------- -------- -------- -------
$634,985 $ 6,309 $ 2,207 $ 12,946 $62,301
======== ======== ======== ======== =======
</TABLE>
II-23
<PAGE> 36
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year ended
December 31, 1993 -
<S> <C> <C> <C> <C> <C>
Marketing..................... $675,915 $ 1,303 $ 326 $ 1,265 $33,597
Transportation................ 16,687 2,354 391 720 5,631
Oil and gas .................. 2,733 861 724 1,202 5,208
Other......................... - - 79 18 5,859
-------- -------- ------- -------- -------
$695,335 $ 4,518 $ 1,520 $ 3,205 $50,295
======== ======== ======= ======== =======
</TABLE>
(1) Includes a $5,156,000 comparative earnings decrease related to additional
DD&A on oil and gas properties. See also Note 1.
Intersegment sales are insignificant. Other identifiable assets are
primarily corporate cash, accounts receivable, deferred tax asset and properties
not identified with any specific segment of the Company's business. All sales by
the Company occurred in the United States.
During 1995, 1994 and 1993, the Company had no combined sales to one or
more unrelated entities which individually aggregated more than 10% of total
revenues.
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):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Earnings from operations................. $ 3,131 $ 6,309 $ 4,518
General and administrative expenses...... (2,176) (2,018) (2,015)
Property sales and other................. 1,134 583 4
Interest expense ........................ (526) (106) (189)
------- ------- -------
Earnings before income taxes............. $ 1,563 $ 4,768 $ 2,318
======= ======= =======
</TABLE>
II-24
<PAGE> 37
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
Quarterly Financial Data (Unaudited) -
Selected quarterly financial data of the Company are presented below
for the years ended December 31, 1995 and 1994 (in thousands, except per share
data):
<TABLE>
<CAPTION>
Net Earnings Dividends
Operating ----------------------------- ----------------------
Earnings Per Per
Revenues (Loss) Amount Common Share Amount Common Share
-------- ------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
1995 -
March 31................. $ 161,901 $ 1,136 $ 659 $ .16 $ - $ -
June 30.................. 192,020 871 453 .11 - -
September 30............. 208,568 (1,131)(1) 24 - - -
December 31.............. 268,948 27 89 .02 207 .05
--------- ------- ------- -------- ------- --------
$ 831,437 $ 903 $ 1,225 $ .29 $ 207 $ .05
========= ======= ======= ======== ======= ========
1994 -
March 31................. $ 135,659 $ 954 $ 598 $ .14 $ - $ -
June 30 ................. 159,364 1,206 1,096 .26 - -
September 30............. 197,038 1,227 705 .17 - -
December 31.............. 142,924 827 618 .15 124 .03
--------- ------- ------- -------- ------- --------
$ 634,985 $ 4,214 $ 3,017 $ .72 $ 124 $ .03
========= ======= ======= ======== ======= ========
</TABLE>
(1) Includes a $2,558,000 comparative third quarter earnings decrease related
to additional DD&A on oil and gas properties. See also Note 1.
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):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Property acquisition costs
Unproved ................................... $ 239 $5,259 $ 545
Proved...................................... - - -
Exploration costs ............................ - - -
Development costs............................. 4,560 4,129 657
Depreciation, depletion and amortization
per equivalent barrel of production......... 10.52 4.70 3.60
</TABLE>
II-25
<PAGE> 38
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
The aggregate capitalized costs relative to oil and gas producing
activities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1994
---- ----
<S> <C> <C>
Unproved oil and gas properties................... $ 2,710 $ 5,376
Proved oil and gas properties..................... 20,654 14,515
-------- -------
23,364 19,891
Accumulated depreciation, depletion
and amortization................................ (13,066) (8,026)
-------- -------
Net capitalized cost................... $ 10,298 $11,865
======== =======
</TABLE>
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 independent petroleum engineers, Ryder
Scott Company. 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.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
Natural Natural Natural
Gas Oil Gas Oil Gas Oil
(Mcf's) (Bbls.) (Mcf's) (Bbls.) (Mcf's) (Bbls.)
------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Proved developed and
undeveloped reserves -
Beginning of year................... 8,759 229 5,547 213 5,152 190
Revisions of previous
estimates ........................ (1,108) 68 1,283 6 1,010 9
Extensions, discoveries
and other additions............... 3,096 89 3,158 84 270 68
Production.......................... (3,055) (105) (1,229) (74) (885) (54)
------- ---- ------ --- ----- ---
End of year......................... 7,692 281 8,759 229 5,547 213
======= ==== ======= === ===== ===
Proved developed reserves -
End of year......................... 7,692 281 8,759 229 5,493 189
======= ==== ======= === ===== ===
</TABLE>
II-26
<PAGE> 39
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
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.
The reserve estimates provided at December 31, 1995 are based on oil
prices of approximately $18.72 per barrel and gas prices of approximately $2.17
per Mcf. In most instances, the Company's natural gas sales contracts provide
for the Company to receive a percentage of the combined proceeds from the sales
of natural gas and associated natural gas liquids. Therefore, average natural
gas prices reported herein include the value of associated natural gas liquids.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1995 1994 1993
-------- -------- ------
(In thousands)
<S> <C> <C> <C>
Future gross revenues....................... $20,452 $19,160 $13,164
Future costs -
Lease operating expenses................ (5,458) (5,895) (4,782)
Development costs....................... (101) (134) (225)
------- ------- -------
Future net cash flows before
income taxes.............................. 14,893 13,131 8,157
Discount at 10% per annum................... (4,791) (3,913) (2,992)
------- ------- -------
Discounted future net cash flows
before income taxes....................... 10,102 9,218 5,165
Future income taxes, net of
discount at 10% per annum................. (1,891) (2,183) (1,194)
------- ------- -------
Standardized measure of
discounted future net cash flows.......... $ 8,211 $ 7,035 $ 3,971
======= ======= =======
</TABLE>
II-27
<PAGE> 40
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1995 1994 1993
---- ----- ----
(In thousands)
<S> <C> <C> <C>
Beginning of year........................... $ 7,035 $ 3,971 $ 5,037
Revisions to reserves proved in
prior years -
Net change in prices and
production costs.................... 1,192 112 (1,293)
Net change due to revisions in
quantity estimates ................... (706) 1,150 815
Accretion of discount................... 921 516 685
Production rate changes and other ...... (592) 938 (919)
------- ------- -------
Total revisions....................... 815 2,716 (712)
New field discoveries and extensions,
net of future production costs.......... 5,124 4,001 804
Sales of oil and gas produced, net of
production costs ....................... (5,055) (2,664) (1,785)
Net change in income taxes................ 292 (989) 627
------- ------- -------
Net change in standardized measure of
discounted future net cash flows ....... 1,176 3,064 (1,066)
------- ------- -------
End of year................................. $ 8,211 $ 7,035 $ 3,971
======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1995 1994 1993
---- ----- ----
(In thousands)
<S> <C> <C> <C>
Revenues.................................... $ 6,378 $ 3,586 $ 2,733
Costs and expenses -
Production............................... 1,323 922 948
Exploration.............................. 5 88 200
Depreciation, depletion and
amortization ........................ 6,460 1,304 724
------- -------- --------
Operating income (loss) before income
taxes.................................... (1,410) 1,272 861
Income tax expense (benefit)................ (479) 432 293
------- ------- -------
Operating income (loss)..................... $ (931) $ 840 $ 568
======= ======= =======
</TABLE>
II-28
<PAGE> 41
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
II-29
<PAGE> 42
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 24, 1996, 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 24, 1996, 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
<PAGE> 43
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, 1995 and 1994
Consolidated Statement of Earnings for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statement of Shareholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
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
<PAGE> 44
4(b) - Loan Agreement between Service Transport Company et. al. and
NationsBank of 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)* - Second Amendment to Loan Agreement between Service Transport Company
et al. and NationsBank of Texas N.A. dated December 21, 1995.
4(d)* - $5,200,000 Promissory Note between Adams Resources Exploration
Corporation and NationsBank of Texas N.A., dated December 29, 1995 and
related Note Purchase Agreement between KSA Industries, Inc. and
NationsBank of Texas N.A., dated December 29, 1995.
10(a) - 1984 Stock Option Plan (Incorporated by reference to Exhibit 10(k)
filed with the Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1984)
10(b) - Letter agreements between Adams Resources Exploration Corporation and
Sakdril, Inc. dated June 5, 1991 (Incorporated by reference to Exhibit
10(i) filed with the Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 1991)
10(c) - Letter agreement between Adams Resources Exploration Corporation and
Sakdril, Inc. dated December 2, 1993 (Incorporated by reference to
Exhibit 10(c) filed with the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1993)
10(d) - Credit Enhancement Agreement between Adams Resources Exploration
Corporation and KSA Industries, Inc. dated April 13, 1994.
(Incorporated by reference to Exhibit 10(d) filed with the Annual
Report on Form 10-K of the Company for the fiscal year ended December
31, 1994.)
10(e) - Participation Agreement between Adams Resources Exploration Corporation
and KASCO Ltd., dated June 3, 1994. (Incorporated by reference to
Exhibit 10(e) filed with the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1994.)
21 * - Subsidiaries of the Registrant
23.1* - Consent of Independent Public Accountants
23.2* - Consent of Ryder Scott Company
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
<PAGE> 45
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, Vice Pres- (K. S. Adams, Jr., President,
ident-Finance, Director and Chairman of the Board, and Chief
Chief Financial Officer) Executive Officer)
Date: March 12, 1996
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/ SIDNEY A. ADGER By /s/ E. C. REINAUER, JR.
-------------------------------- ---------------------------------
(Sidney A. Adger, 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/ FRANK T. WEBSTER
--------------------------------
(Frank T. Webster, Director)
By /s/ EDWARD WIECK
--------------------------------
(Edward Wieck, Director)
Date: March 12, 1996
IV-3
<PAGE> 46
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 Service Transport Company et. al.
and NationsBank of 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)* - Second Amendment to Loan Agreement between Service
Transport Company et al. and NationsBank of Texas N.A.
dated December 21, 1995.
4(d)* - $5,200,000 Promissory Note between Adams Resources
Exploration Corporation and NationsBank of Texas N.A.,
dated December 29, 1995 and related Note Purchase
Agreement between KSA Industries, Inc. and NationsBank of
Texas N.A., dated December 29, 1995.
10(a) - 1984 Stock Option Plan (Incorporated by reference to
Exhibit 10(k) filed with the Annual Report on Form 10-K of
the Company for the fiscal year ended December 31, 1984)
10(b) - Letter agreements between Adams Resources Exploration
Corporation and Sakdril, Inc. dated June 5, 1991
(Incorporated by reference to Exhibit 10(i) filed with the
Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1991)
10(c) - Letter agreement between Adams Resources Exploration
Corporation and Sakdril, Inc. dated December 2, 1993
(Incorporated by reference to Exhibit 10(c) filed with the
Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1993)
10(d) - Credit Enhancement Agreement between Adams Resources
Exploration Corporation and KSA Industries, Inc. dated
April 13, 1994. (Incorporated by reference to Exhibit
10(d) filed with the Annual Report on Form 10-K of the
Company for the fiscal year ended December 31, 1994.)
S-1
<PAGE> 47
Exhibit
Number Description
- ------ -----------
10(e) - Participation Agreement between Adams Resources
Exploration Corporation and KASCO Ltd., dated June 3,
1994. (Incorporated by reference to Exhibit 10(e) filed
with the Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 1994.)
21 * - Subsidiaries of the Registrant
23.1* - Consent of Independent Public Accountants
23.2* - Consent of Ryder Scott Company
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.
S-2
<PAGE> 1
EXHIBIT 4(c)
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Second Amendment") is made
and entered into as of the 29th day of December, 1995, by and among SERVICE
TRANSPORT COMPANY, a Texas corporation ("Service Transport Company"), ADAMS
RESOURCES EXPLORATION CORPORATION, a Delaware corporation ("Exploration"), ADA
CRUDE OIL COMPANY, a Texas corporation ("Ada Crude Oil"), BUCKLEY MINING
CORPORATION, a Kentucky corporation ("Buckley Mining"), ADA RESOURCES, INC., a
Texas corporation ("Ada Resources"), CJC LEASING, INC., a Kentucky corporation
("CJC"), CLASSIC COAL CORPORATION, a Delaware corporation ("Classic Coal") ,
ADA MINING CORPORATION, a Texas corporation ("Ada Mining") and BAYOU CITY BARGE
LINES, INC., a Texas corporation ("Bayou City"), each with offices and place of
business at 6910 Fannin, Houston, Texas 77030 (Service Transport Company,
Exploration, Ada Crude Oil, Buckley Mining, Ada Resources, CJC, Classic Coal,
Ada Mining and Bayou City are hereinafter individually called a "Borrower" and
collectively called the "Borrowers"), and NATIONSBANK OF TEXAS, N.A., a
national banking association (the "Lender").
WHEREAS, the Borrowers and the 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
Borrowers and the Lender (as amended, the "Loan Agreement");
WHEREAS, the Borrowers and the Lender desire to amend certain 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:
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 Second Amendment
through October 27, 1997, 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
$5,000,000.00 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:
<PAGE> 2
Commencing October 31, 1997, a principal payment shall be 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 27, 1997. All unpaid principal
and accrued and unpaid interest on the Notes shall be due and payable on or
before October 27, 2000.
3. The closing of the transactions contemplated by this Second 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 fully executed copies of this
Second Amendment; 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 Second 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 Second
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 documents and instruments shall cover all indebtedness of the Borrowers to
the Lender described in the Loan Agreement as amended hereby.
-2-
<PAGE> 3
6. Each of the terms defined in the Loan Agreement is used in this Second
Amendment with the same meaning, except as otherwise indicated in this Second
Amendment. Each of the terms defined in this Second Amendment is used in the
Loan Agreement with the same meaning, except as otherwise indicated in the Loan
Agreement.
7. THIS SECOND 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 Second 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. ABSHZAS
-------------------------------
Name: R. B. Abshzas
Title: Treasurer
ADAMS RESOURCES EXPLORATION
CORPORATION
By: /s/ R. B. ABSHZAS
-------------------------------
Name: R. B. Abshzas
Title: Treasurer
-3-
<PAGE> 4
ADA CRUDE OIL COMPANY
By: /s/
-----------------------------------------
Name: R.B. Abshzas
Title: Treasurer
BUCKLEY MINING CORPORATION
By: /s/
-----------------------------------------
Name: R.B. Abshzas
Title: Treasurer
ADA RESOURCES, INC.
By: /s/
-----------------------------------------
Name: R.B. Abshzas
Title: Treasurer
CJC LEASING, INC.
By: /s/
-----------------------------------------
Name: R.B. Abshzas
Title: Treasurer
CLASSIC COAL CORPORATION
By: /s/
-----------------------------------------
Name: R.B. Abshzas
Title: Treasurer
ADA MINING CORPORATION
By: /s/
-----------------------------------------
Name: R.B. Abshzas
Title: Treasurer
-4-
<PAGE> 5
BAYOU CITY BARGE LINES, INC.
By: /s/
------------------------------
Name: R.B. Abshzas
Title: Treasurer
NATIONSBANK OF TEXAS, N.A.
By: /s/
------------------------------
Name: James R. Allred
Title: Vice President
Guarantor joins in the execution of this Second Amendment to evidence that
it hereby agrees and consents to all of the matters contained in this Second
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 (the "Guaranty") shall not be reduced, altered, limited, lessened or in
any way affected by the execution and delivery of this Second 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/
---------------------------
Name:
Title:
-5-
<PAGE> 1
EXHIBIT 4(d)
P R 0 M I S S 0 R Y N 0 T E
$5,200,000.00 December 29, 1995
FOR VALUE RECEIVED, after date, without grace, in the manner, on the
dates and in the amounts so herein stipulated, the undersigned, ADAMS RESOURCES
EXPLORATION CORPORATION, a Delaware corporation ("Borrower") , PROMISES TO PAY
TO THE ORDER OF NATIONSBANK OF TEXAS, N.A., a national banking association
("Lender"), in Houston, Harris County, Texas, the sum of FIVE MILLION TWO
HUNDRED THOUSAND AND N0/100 DOLLARS ($5,200,000.00) or, if less, the aggregate
unpaid principal amount of advances made by Lender to Borrower pursuant to this
Note, in lawful money of the United States of America, which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, and to pay interest on the unpaid principal amount from date until
maturity at the rate or rates described in this Note ("Stated Rate"), not to
exceed the maximum non-usurious interest rate permitted by applicable law from
time to time in effect as such law may be interpreted, amended, revised,
supplemented or enacted ("Maximum Rate"), provided that if at any time the
Stated Rate exceeds the Maximum Rate then interest hereon shall accrue at the
Maximum Rate. In the event the Stated Rate subsequently decreases to a level
less than the Maximum Rate or if the Maximum Rate applicable to this Note
should subsequently be increased to a level greater than the Stated Rate, then,
in either case, interest hereon shall thereafter accrue at a rate equal to the
applicable Maximum Rate until the aggregate amount of interest accrued through
the term of this Note equals the aggregate amount of interest which would have
accrued at the Stated Rate without regard to any usury limit, at which time
interest hereon shall again accrue at the Stated Rate.
Accrued and unpaid interest on each LIBOR Loan shall be due and payable on
the last day of the Interest Period with respect to such LIBOR Loan. All other
accrued and unpaid interest hereunder shall be due and payable on December 31,
1995 and on the last day of each calendar quarter thereafter. A principal
payment in the amount of $433,333.00 shall be due and payable on September 30,
1996, and on the last day of each calendar quarter thereafter. All unpaid
principal and accrued and unpaid interest on this Note shall be due and payable
on January 26, 1997.
Subject to the provisions of paragraphs (3) and (5) below, unless Borrower
has elected, pursuant to paragraph (2) below, that interest on all or a portion
of the outstanding principal amount of this Note shall accrue at the Adjusted
LIBOR Rate, Borrower shall
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pay interest on the outstanding principal amount of this Note at
the Base Rate.
(1) Borrower may, at any time upon the expiration of any Interest
Period, or at any time with respect to a portion of the outstanding
principal balance of this Note that does not constitute a LIBOR Loan, elect
that the per annum rate of interest on all or any portion of the
outstanding principal amount of this Note accrue at the Base Rate. Accrued
and unpaid interest on this Note under this paragraph (1) shall be
calculated on the basis of a 365-day year, and the actual number of days
elapsed.
(2) Upon three (3) business days written notice to Lender of such
election and of the Interest Period selected by Borrower, Borrower may,
effective upon the expiration of any Interest Period, or effective any
other time with respect to a portion of the outstanding principal balance
of this Note that does not constitute a LIBOR Loan, elect that the per
annum rate of interest on at least $100,000.00 of the outstanding principal
amount of this Note accrue at the Adjusted LIBOR Rate, but only if at the
time of such election (A) no Event of Default exists hereunder, and (B)
after giving effect to such election, the aggregate number of all
outstanding LIBOR Loans will not exceed eight (8). Accrued and unpaid
interest on each LIBOR Loan shall be calculated on the basis of a 365-day
year, and the actual number of days elapsed.
(3) In the event that Lender shall have determined (which
determination shall, absent manifest error, be final, conclusive and
binding):
(i) that adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the
definition of the LIBOR Rate;
(ii) that the relevant LIBOR Rate does not represent the
effective pricing to Lender for funding or maintaining a LIBOR Loan,
or Lender shall incur increased costs or reductions in the amounts
received or receivable hereunder in respect of any LIBOR Loan, in any
such case because of (a) any change in any applicable law or
governmental rule, regulation, guideline or order or any
interpretation thereof and including the introduction of any new law
or governmental rule, regulation, guideline or order (such as, for
example but not limited to, a change in official
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reserve requirements) and/or (b) other circumstances which materially and
adversely affect Lender, the LIBOR Market, or the position of Lender in
such market; or
(iii) that the making or continuance by Lender of any LIBOR Loan has
become unlawful by its compliance in good faith with any law, governmental
rule, regulation, guideline or order (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful), or
has become impracticable as a result of a contingency occurring which
materially and adversely affects Lender, the LIBOR Market, or the position
of Lender in such market;
then, and in any such event, Lender shall promptly after making such
determination give written notice to Borrower. Thereafter, in the case of clause
(i) or (ii) above, the applicable Adjusted LIBOR Rate shall be the per annum
rate of interest for each Interest Period specified from time to time by Lender,
taking into account the circumstances described above. Any subsequent election
of the Adjusted LIBOR Rate by Borrower shall be an election of the Adjusted
LIBOR Rate so specified by Lender. In the case of clause (iii) above, Borrower's
right to elect the Adjusted LIBOR Rate as the basis for determining accrued
interest under this Note shall be suspended until such time as Lender notifies
Borrower that the circumstances described in such clause no longer exist, and
interest on this Note shall, after the end of the then applicable Interest
Period(s), but subject to the post-default provisions of this Note, accrue
at the Base Rate.
(4) Borrower shall compensate Lender, upon its written request (which
request shall set forth in reasonable detail the basis for requesting such
amounts and the calculation thereof and shall, absent manifest error, be final,
conclusive and binding), for all losses, expenses and liabilities (including,
without limitation, any loss, interest, expense, penalty or other amounts paid
or incurred by Lender in connection with any deposits or funds liquidated or
re-employed by Lender, to the extent not received by Lender in connection with
the re-employment of such funds) reasonably incurred by Lender (A) if any
repayment or-prepayment (including, without limitation, payment after
acceleration) of any LIBOR Loan occurs on a date which is not the last day of
the Interest Period applicable thereto, (B) if any prepayment of any LIBOR Loan
is not made on any date
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specified in a notice of prepayment given by Borrower, or (C) as a consequence
of any default by Borrower in repaying any interest or principal on this Note
when required. The calculation of all amounts payable to Lender on LIBOR Loans
shall be made on the assumption that Lender has funded each LIBOR Loan through
the purchase of a Eurodollar deposit bearing interest at the Adjusted LIBOR
Rate in an amount equal to the amount of such LIBOR Loan with a maturity
equivalent to the Interest Period applicable to such LIBOR Loan, and through
the transfer of such Eurodollar deposit from an office of Lender outside the
United States to an office of Lender in the United States; provided that Lender
may fund any LIBOR Loan in any manner that it chooses in its sole discretion
and the foregoing assumptions shall only be made in order to calculate amounts
payable under this Note.
(5) In the event that Lender shall have determined that the adoption of any
requirement of law, rule or regulation regarding capital adequacy, or any change
therein or in the interpretation or application thereof, or compliance by
Lender with any request or directive regarding capital adequacy made or issued
(whether or not having the force of law and whether or not non-compliance
therewith would be unlawful) from any central bank or other governmental
authority or agency, does or will have the effect of increasing the amount of
capital required or expected to be maintained by Lender (or any corporation
controlling Lender), and Lender shall determine that such increase is based upon
the existence of Lender's commitment or obligations hereunder with respect to
making LIBOR Loans and other commitments or obligations of this type, then from
time to time upon the written demand by Lender to Borrower, Borrower shall pay
to Lender such additional amount or amounts as will compensate Lender for any
increased costs or reduced rate of return on capital or assets of Lender
resulting from such circumstances. A certificate as to any such additional
amount or amounts showing in reasonable detail the basis for the calculation
thereof submitted to Borrower by Lender shall, absent manifest error, be final,
conclusive and binding.
(6) As used herein, the following terms shall have the following meanings:
(i) "Adjusted LIBOR Rate" shall mean the LIBOR Rate plus one and
one-fourth percent (1-1/4%) per annum.
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(ii) "Base Rate" shall mean the variable rate of interest announced by
Lender from time to time as its base rate of interest and, without notice to
Borrower or any other person, such rate of interest shall change as and when
changes in that base rate of interest are announced. The Base Rate is set by
Lender as a general reference rate of interest, taking into account such factors
as Lender may deem appropriate, it being understood that many of Lender's
commercial or other loans are priced in relation to such rate, that it is not
necessarily the lowest or best rate of interest actually charged on any loan,
and that Lender may make various commercial or other loans at rates of interest
having no relationship to the Base Rate.
(iii) "Interest Period" shall mean the interest period to be applicable to
any LIBOR Loan, each of which Interest Periods shall be either a one month
period, a two month period, a three month period or a six month period;
provided, however,
(A) if any Interest Period would otherwise expire on a day which is
not a business day, such Interest Period shall expire on the next
succeeding business day; provided, that if any Interest Period would
otherwise expire on a day which is not a business day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the immediately preceding business day;
(B) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last business day of
such calendar month; and
(C) No Interest Period shall extend beyond the maturity date of this
Note.
(iv) "LIBOR Loan" shall mean at least $100,000.00 of the outstanding
principal balance of this Note as to which Borrower has elected the Adjusted
LIBOR Rate option.
(v) "LIBOR Rate" shall mean, with respect to each Interest Period, but
subject to the provisions this Note, the rate per annum quoted by Lender
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as the rate which Lender, in accordance with its usual practice,
is offering first-class banks in the LIBOR Market for deposits of
dollars (lawful money of the United States of America) for such
Interest Period at or about 11:00 a.m. London, England time two
(2) business days prior to the beginning of such Interest Period
for delivery on the first day of such Interest Period.
(vi) "LIBOR Market" shall mean the London interbank
Eurocurrency market.
Upon the occurrence of an Event of Default (hereinafter defined), or
in the event this Note is declared due, interest shall accrue at the Maximum
Rate.
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) Any default in the payment of any installment of interest when
due hereunder if such default remains uncured for a period of three (3)
days after Lender gives written notice of the existence thereof to
Borrower;
(b) Any default in the payment of any installment of principal
when due hereunder, or any other default hereunder;
(c) Any Event of Default under, and as defined in, that certain
Loan Agreement dated August 20, 1993, by and between Lender and KSA
Industries, Inc. ("KSA") , as amended by that certain First Amendment
to Loan Agreement dated September 8, 1993 between KSA and Lender, by
that certain Second Amendment to Loan Agreement dated May 31, 1994
between KSA and Lender and by that certain Third Amendment to Loan
Agreement dated April 28, 1995 between KSA and Lender, and as the same
may be further amended from time to time;
(d) Any Event of Default under, and as defined in, that certain
Loan Agreement dated October 27, 1993 by and among Lender and Service
Transport Company, Borrower, Ada Crude Oil Company, Buckley Mining
Corporation, Ada Resources, Inc., CJC Leasing, Inc., Classic Coal
Corporation, Ada Mining Corporation and Bayou City Barge Lines, Inc.
(collectively, the "Borrower Group"), as amended by that certain First
Amendment to Loan Agreement dated October 27, 1994 among the Borrower
Group and Lender and by that certain Second Amendment to Loan Agreement
of even date herewith among the Borrower Group
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and Lender, and as the same may be further amended from time to time;
or
(e) Any Event of Default under, and as defined in, that certain
Note Purchase Agreement (the "Note Purchase Agreement") of even date
herewith, executed by KSA for the benefit of Lender.
Upon the occurrence of an Event of Default hereunder, Lender may
accelerate and declare this Note immediately due and payable without notice. Any
failure to exercise this option shall not constitute a waiver by Lender of the
right to exercise the same at any other time. It is agreed that time is of the
essence of this agreement.
Borrower may prepay this Note, in whole or in part, at any time prior
to maturity without penalty (except as may be expressly required pursuant to the
provisions of this Note), and interest shall cease on any amount prepaid. Any
partial prepayment shall be applied to payments in the inverse order of
maturity.
Any check, draft, money order or other instrument given in payment of
all or any part hereof may be accepted by the holder hereof and handled in
collection in a customary manner, but same shall not constitute payment hereof
or diminish any rights of Lender except to the extent that actual cash proceeds
of such instrument are unconditionally received by Lender.
Borrower hereby agrees to pay all expenses, including reasonable
attorneys' fees, all of which shall become a part of the principal hereof,
incurred by Lender if this Note is placed in the hands of an attorney for
collection or if collected by suit or through any probate, bankruptcy or any
other legal proceedings.
It is expressly stipulated and agreed to be the intent of Borrower and
Lender to comply with applicable Texas law governing the maximum non-usurious
rate or amount of interest payable on or in connection with this Note (or
applicable United States federal law to the extent that it permits Lender to
contract for, charge, take, reserve or receive a greater amount of interest than
under Texas law). Accordingly, it is agreed that notwithstanding any provision
to the contrary in this Note, or in any of the documents securing payment hereof
or otherwise relating hereto, no such provision shall require the payment or
permit the collection of interest in excess of the Maximum Rate. If any excess
of interest in such respect is provided for, or shall be judicially interpreted
to be so provided for, in this Note or in any of the documents securing payment
hereof or otherwise relating hereto, or if the acceleration of the maturity of
this Note or any prepayment by Borrower results in Borrower's having paid any
interest in excess of that permitted by applicable law, then in any such event,
it is
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the express intent of Borrower and Lender that (1) the provisions of this
paragraph shall govern and control, (2) neither Borrower nor any endorser or
guarantor of this Note, nor their respective heirs, legal representatives,
successors or assigns, nor any other party liable for the payment hereof, shall
be obligated to pay the amount of such interest to the extent that it is in
excess of the Maximum Rate, (3) any such excess which may have been collected
shall be either applied as a credit against the then unpaid principal amount
hereof or refunded to Borrower, and (4) the provisions of this Note and any
documents securing payment of this Note shall be automatically deemed reformed
and the amounts thereafter collectible thereunder reduced, without the necessity
of the execution of any new document, so that the effective rate of interest
shall be reduced to the Maximum Rate. For the purpose of determining the Maximum
Rate, all sums paid or agreed to be paid to Lender for the use, forbearance or
detention of the proceeds of this Note shall be amortized, prorated, allocated
and spread throughout the full term of this Note so that the rate or amount of
interest on account of this Note is uniform throughout the term hereof and does
not exceed the applicable usury ceiling.
Borrower agrees that the Maximum Rate to be charged or collected
pursuant to this Note shall be the applicable indicated rate ceiling as defined
in TEX. REV. CIV. STAT. ANN. Art. 5069-1.04, provided that Lender may rely on
other applicable laws, including without limitation laws of the United States,
for calculation of the Maximum Rate if the application thereof results in a
greater Maximum Rate. Except as provided above, the provisions of this Note
shall be governed by the laws of the State of Texas.
Each maker, surety, guarantor and endorser waives demand, grace,
notice, presentment for payment, notice of intention to accelerate the maturity
hereof, notice of the acceleration of the maturity hereof and protest, and
agrees that this Note and the liens securing its payment may be renewed, and the
time of payment extended, from time to time, without notice and without
releasing any of the foregoing.
This Note is given in renewal and extension of a Promissory Note dated
June 15, 1995, executed by Borrower, payable to the order of Lender in the
amount of $5,200,000.00, which Promissory Note was given in renewal and
extension of a Promissory Note (the "Original Note") dated April 13, 1994,
executed by Borrower, payable to Lender in the amount of $5,200,000.00, and the
liens securing the payment thereof are not released but are hereby ratified and
hereby carried forward to secure this Note.
The principal of the Original Note was advanced by Lender to Borrower
to permit Borrower to acquire certain oil and gas properties from Torch-I
Development Drilling Program, Ltd. Borrower will not sell, transfer, pledge,
encumber or otherwise
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dispose of any of such oil and gas properties without the prior written consent
of Lender.
This Note is the Note referred to in, is subject to, and is entitled to
the benefits of, the Note Purchase Agreement and that certain Guaranty Agreement
dated October 27, 1993, executed by Adams Resources & Energy, Inc. for the
benefit of Lender, as amended from time to time, including by that certain
Amendment to Guaranty Agreement of even date herewith, executed by Adams
Resources & Energy, Inc. for the benefit of Lender.
Borrower represents and warrants that this loan is for business,
commercial, investment or similar purpose and not primarily for personal, family
or household use, as such terms are used in (i) Chapter One of the Texas Credit
Code, (ii) 12 CFR 226 (1969 and as amended) and (iii) 12 CFR Part 34, Subpart B
(1988).
ADAMS RESOURCES EXPLORATION
CORPORATION
By:
----------------------------------------
Name:
-----------------------------------
Title: Treasurer
----------------------------------
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NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (this "Note Purchase Agreement") dated the
29th day of December, 1995, is among KSA INDUSTRIES, INC., a Delaware
corporation (the "Purchaser") , ADAMS RESOURCES EXPLORATION CORPORATION, a
Delaware corporation (the "Borrower"), and NATIONSBANK OF TEXAS, N.A., a
national banking association (the "Bank")
1. Declaration. The Borrower has executed a promissory note dated of
even date herewith, in the original principal amount of $5,200,000.00, payable
to the order of the Bank (which promissory note or any renewal, extension or
rearrangement thereof is referred to herein as the "Note"), a copy of which is
attached hereto as Exhibit "A". As a condition precedent to funding the Note,
the Bank requires the Purchaser to enter into this Note Purchase Agreement. The
Purchaser believes, and represents and warrants to the Bank, that the Purchaser
will obtain substantial benefit from the loan made by the Bank to the Borrower
pursuant to the Note. Therefore, in order to induce the Bank to fund the Note
and enter into all related credit documents, and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the Borrower, the Purchaser and the Bank hereby agree to the terms set forth
herein.
2. Events of Default. For purposes of this Note Purchase Agreement,
each of the following items will be an event of default ("Event of Default")
hereunder:
2.01 The Borrower shall fail to pay all amounts due under the Note
on or prior to the date on which the Note matures, whether upon acceleration, or
at any other time;
2.02 Any other default, however denominated, under the terms of this
Note Purchase Agreement, the Note or any agreement securing the Note or any
related credit document, shall have occurred;
2.03 Any representation or warranty made in this Note Purchase
Agreement, the Note or any related credit document shall prove to be incorrect
in any material respect when made;
2.04 Any Event of Default under, and as defined in, that certain
Loan Agreement dated August 20, 1993, between the Purchaser and the Bank, as
amended by that certain First Amendment to Loan Agreement dated September 8,
1993 between the Purchaser and the Bank, by that certain Second Amendment to
Loan Agreement dated May 31, 1994 between the Purchaser and the Bank and by that
certain Third Amendment to Loan Agreement dated April 28, 1995 between the
Purchaser and the Bank, and as the same may be further amended from time to
time, shall have occurred, or if the commitment of the Bank under said Loan
Agreement is terminated for any reason; or
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2.05 Any Event of Default under, and as defined in, that certain
Loan Agreement dated October 27, 1993, among the Bank and Service Transport
Company, the Borrower, Ada Crude Oil Company, Buckley Mining Corporation, Ada
Resources, Inc., CJC Leasing, Inc., Classic Coal Corporation, Ada Mining
Corporation and Bayou City Barge Lines, Inc. (collectively, the "Borrower
Group") , as amended by that certain First Amendment to Loan Agreement dated
October 27, 1994 among the Borrower Group and the Bank and by that certain
Second Amendment to Loan Agreement of even date herewith among the Borrower
Group and the Bank, and as the same may be further amended from time to time,
shall have occurred.
3. Note Purchase.
3.01 Note Purchase Obligation. Following an Event of Default, the
Bank may at any time request that Purchaser purchase the Note, and, within five
(5) business days after such request is made, Purchaser will purchase the Note
by paying to the Bank, as the purchase price therefor, an amount (the "Purchase
Amount") equal to the entire outstanding principal balance of and accrued and
unpaid interest on the Note and all other fees or indebtedness owed to the Bank
under the Note, any document securing the Note or any related credit document as
of the date of such purchase, such payment to be made at Bank's office at 700
Louisiana, 8th Floor, Houston, Texas 77002, in lawful money of the United States
and in immediately available funds, without offset, defense or counterclaim.
3.02 Assignment and Delegation. If the Note is purchased by
Purchaser pursuant to this Note Purchase Agreement, the Bank upon receipt of the
Purchase Amount, shall endorse and deliver the Note to Purchaser and assign and
delegate all of the Bank's rights and duties under the Note, all without
recourse to the Bank and without representations or warranties of any kind or
character, express or implied, except for the Bank's warranty of title to the
Note. Purchaser agrees to accept the assignment and delegation and therefore to
accept the rights and assume the duties of the Bank in relation thereto. The
Borrower agrees, that following such assignment and delegation, the Bank shall
be released from any duties the Bank might have to the Borrower under the Note
or any related documents, and that following such assignment and delegation, the
Borrower will look solely to the Purchaser for performance of those duties. The
Borrower agrees that following such assignment and delegation, the Borrower will
remain fully bound by the terms and conditions of the Note and any related
documents as if the Purchaser had been the Bank when the Note and any other
documents were initially executed.
3.03 Subordination. If the Note is purchased by the Purchaser
pursuant to this Note Purchase Agreement, the Purchaser may receive payments on
the Note unless and until such time as
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Borrower is in default of any of its obligations to the Bank, or any document or
instrument on which the Borrower has liability is in default to the Bank, after
which time the Purchaser will not ask, demand, sue for, take or receive any part
of the indebtedness evidenced by the Note unless or until all indebtedness of
the Borrower to the Bank, now existing or hereafter arising, shall have been
paid in full. Notwithstanding the foregoing, at all times after its purchase of
the Note pursuant to this Note Purchase Agreement, the Purchaser shall be
entitled to receive, and shall apply against the indebtedness evidenced by the
Note, all proceeds generated by the operation or sale of the oil and gas
properties acquired by the Borrower with the proceeds of the Note. The Purchaser
hereby agrees that, except as expressly set forth above, in the event it
purchases the Note from the Bank, all of its rights to receive any payments
under the Note from the Borrower, as well as any and all rights it may have or
acquire to any security for the repayment of the Note other than the proceeds of
the oil and gas properties described above, shall be subordinate and junior in
all respects to all indebtedness of the Borrower to the Bank outstanding at any
time, whether now or hereafter incurred, created or evidenced, and however such
indebtedness may be extended, renewed or evidenced, as well as to all security
held by the Bank for such indebtedness.
4. Purchaser's Representations and Warranties. The Purchaser hereby
represents and warrants to the Bank as follows:
4.01 Documents. The Purchaser (i) has examined the Note and the
related credit documents and approved them for the purposes of this Note
Purchase Agreement and (ii) agrees to any renewal, extension or rearrangement of
the Note or any related credit document which may hereafter be executed in
connection with the Note.
4.02 Authority. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The execution, delivery and performance by the Purchaser of this Note Purchase
Agreement are within the Purchaser's powers, have been duly authorized by all
necessary action, will not contravene (i) the Purchaser's Certificate of
Incorporation or Bylaws or (ii) any law, regulation, order or material
contractual restriction affecting the Purchaser or its property and will not
result in, or require the creation or imposition of, any lien on any of the
Purchaser's property, assets or revenues pursuant to the provisions of any such
contract or other agreement, instrument or undertaking. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery and
performance by the Purchaser of this Note Purchase Agreement.
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4.03 Binding Obligations. This Note Purchase Agreement is the legal,
valid and binding obligation of the Purchaser, enforceable against the Purchaser
in accordance with its terms, subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally.
5. Purchaser's Covenants.
5.01 Purchase Obligation Absolute. The Purchaser will perform under
the terms of this Note Purchase Agreement regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the Bank with respect thereto. The duty of the Purchaser
hereunder shall be absolute and unconditional irrespective of:
(a) any default or event of default, however, denominated, that
has occurred under the Note or any related credit document;
(b) any lack of validity or enforceability of the Note or any
related credit document;
(c) any amendment to, waiver of or consent to departure from
the terms of the Note or any related credit document;
(d) any renewal, extension, assumption or rearrangement of, or
any other indulgence with respect to, the Note or any related credit
document;
(e) any exchange, release or non-perfection of any collateral,
or any release of, amendment to, waiver of or consent to departure from
any guaranty hereafter executed in favor of the Bank guaranteeing the
obligations of Borrower under the Note or any related credit document;
(f) any lack of validity or enforceability of any lien on any
collateral securing the repayment of the Note or any related credit
document, including a lack of validity or enforceability due to prior
or otherwise competing liens;
(g) any lack of creditworthiness of the Borrower, including the
Borrower's bankruptcy, assignment for the benefit of creditors or
appointment of a receiver; or
(h) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, the Borrower or any guarantor.
5.02 Payment Amount. The Purchaser agrees that, to the extent that
the Borrower makes payments to the Bank, or the Bank
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receives any proceeds of collateral, and such payments or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or otherwise required to be repaid, then to the extent the Purchase
Amount would have been reduced by the amount of such invalidated, set aside or
repaid payments, the Purchase Amount shall be increased to reflect such
occurrence. The Purchaser shall defend and indemnify the Bank from and against
any claim or loss under this Section (including reasonable attorneys, fees and
expenses) in the defense of any such action or suit.
5.03 Waiver of Notices. The Purchaser hereby waives promptness,
diligence, notice of acceptance, notice of acceleration, notice of intent to
accelerate and any other notice with respect to any actions the Bank may take
pursuant to this Note Purchase Agreement, the Note or any related credit
document. Nothing in this Section is intended to eliminate the requirement that
the Bank make a request to purchase the Note pursuant to Section 3.01 of this
Note Purchase Agreement.
5.04 Other Remedies. The Purchaser hereby waives any requirement
that the Bank protect, secure, perfect or insure any lien or any property
subject thereto or exhaust any right or take any action against the Borrower or
any other person or any collateral, including any action required by Chapter 34
of the Texas Business and Commerce Code.
5.05 Costs and Expenses. The Purchaser agrees to pay to the Bank all
costs, attorneys' fees and other expenses incurred by the Bank in an effort to
enforce and/or collect all or any part of the indebtedness evidenced by the
Note, or to enforce any of the Purchaser's obligations hereunder.
6. Remedies.
6.01 Right of Set-Off. Upon making the request that the Purchaser
purchase the Note pursuant to Section 3.01 hereof, the Bank is authorized to
hold as collateral for the payment of the Purchase Amount any funds, investment
accounts or deposits the Purchaser has at the Bank, up to the amount of the
Purchase Amount, and, if the Purchaser defaults in the payment of the Purchase
Amount when due, to set off and apply any funds, investment accounts or deposits
and other indebtedness that the Bank owes the Purchaser against any and all of
the obligations of the Purchaser under this Note Purchase Agreement. The Bank
agrees promptly to notify the Purchaser after any such holding of collateral or
set-off made by the Bank, provided that the failure to give such notice shall
not affect the validity of such holding of collateral or set-off.
-5-
<PAGE> 15
6.02 Limitation of Remedy. If the Bank should breach any of the
terms of this Note Purchase Agreement, the Bank shall be liable for actual
damages, if any, incurred by the Purchaser as a result of such breach, but such
breach shall in no way release the Purchaser from its obligations hereunder,
including the Purchaser's obligation to purchase the Note for the Purchase
Amount, and any damages the Purchaser might incur as a result of such breach
shall not be offset against the Purchase Amount that the Purchaser is required
to pay under the terms of this Note Purchase Agreement.
7. Miscellaneous.
7.01 Notice. Unless otherwise specified, all notices and other
communications provided for in this Note Purchase Agreement shall be in writing
and delivered or transmitted, including by telecopy, to the addresses set forth
below the signatures herein, or to such other address as shall be designated by
the Purchaser, the Borrower or the Bank in written notice to the other parties.
Any notice pursuant to this Note Purchase Agreement shall be deemed given when
received by the party to whom it is directed or when deposited in the United
States mail, certified, return receipt requested, with the postage prepaid,
addressed to the party as provided herein.
7.02 Amendments, Etc. No amendment or waiver of any provision of
this Note Purchase Agreement, nor any consent to any departure by the Purchaser
or the Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
7.03 No Waiver. No failure on the part of the Bank to exercise, and
no delay in exercising, any right hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right.
7.04 Transfer of Interest. This Note Purchase Agreement shall create
a continuing obligation and shall (a) remain in full force and effect until
payment in full and termination of the obligations of Borrower to the Bank under
the Note and all related credit documents, (b) be binding upon the Borrower, the
Purchaser and their respective heirs, legal representatives, successors and
assigns, and (c) inure, together with the rights and remedies of the Bank
hereunder, to the benefit of the Bank and its successors, transferees and
assigns. The Purchaser may not assign its rights nor delegate its duties
hereunder without the prior written permission of the Bank.
7.05 Termination of Purchase Obligation. When the Borrower has fully
paid or otherwise performed the obligations under the Note and all related
credit documents, and the Bank has
-6-
<PAGE> 16
received all of the outstanding principal, interest, fees and other amounts due
it under the Note and all related credit documents, the obligations of the
Purchaser hereunder shall be terminated and released.
7.06 Governing Law. THIS NOTE PURCHASE AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
7.07 Counterparts. This Note Purchase Agreement may be executed in
multiple counterparts, any one or more of which may contain the signature of
any party hereto. All of such counterparts taken together shall constitute a
complete executed original hereof.
EXECUTED as of the day and year first above written.
KSA INDUSTRIES, INC.
By: /s/ Scott L. Thompson
---------------------------------
Name: Scott L. Thompson
----------------------------
Title: EVP
---------------------------
Address for Notice:
6910 Fannin
Houston, Texas 77030
Telecopy No.: 797-9301
ADAMS RESOURCES EXPLORATION
CORPORATION
By:
---------------------------------
Name:
----------------------------
Title: Treasurer
---------------------------
Address for Notice:
6910 Fannin
Houston, Texas 77030
Telecopy No.: 795-4495
-7-
<PAGE> 17
NATIONSBANK OF TEXAS, N.A.
By: /s/ James R. Allred
---------------------------------
Name: James R. Allred
----------------------------
Title: Vice President
---------------------------
Address for Notice:
700 Louisiana, 8th Floor
Houston, Texas 77002
Telecopy No.: 247-6432
-8-
<PAGE> 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 Barge Lines, 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
In addition, Adams Resources Exploration Corporation ("Ada Exco") owns
certain general partner and special limited partner interest in six oil and gas
exploration and income partnerships which were organized under the partnership
laws of the State of Texas. Ada Exco's equity in the partnerships' earnings or
losses is included in the Company's consolidated financial statements.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 10-K of our report dated March 12, 1996 included in
Registration Statement File No. 2-57098.
ARTHUR ANDERSEN LLP
Houston, Texas
March 12, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the use of our
name in this Form 10-K and the data extracted from our reports and the
references to our firm appearing under the caption "BUSINESS AND PROPERTIES -
Production and Reserve Information" and under the caption "SUPPLEMENTARY
FINANCIAL DATA" in this Form 10-K.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
March 12, 1996
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