<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year ended December 31, 1996
OR
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from to
------ ------
Commission File Number 1-7908
ADAMS RESOURCES & ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1753147
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 POST OAK PARK STE. 2700
HOUSTON, TEXAS 77027
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 881-3600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
COMMON STOCK, $.10 PAR VALUE AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days. YES X NO
--- ---
A total of 4,213,596 shares of Common Stock were outstanding at March 7,
1997.
The aggregate market value of the voting stock held by nonaffiliates as of
March 7, 1997 was $29,167,562.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Annual Meeting of Stockholders to be held
April 23, 1997 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, 1996 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. The Company holds an interest in 240 wells, of which 80 are
Company-operated.
Producing Wells--The following table sets forth the Company's gross
and net productive wells at December 31, 1996. 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 111 19.41 13 3.06 124 22.47
Oklahoma 12 3.50 9 1.56 21 5.06
Other 87 .04 8 .63 95 .67
------ ------ ------ ------ ------ ------
210 22.95 30 5.25 240 28.20
====== ====== ====== ====== ====== ======
</TABLE>
Acreage--The following table sets forth the Company's gross and net
developed and undeveloped acreage as of December 31, 1996.
<TABLE>
<CAPTION>
Developed Acreage Undeveloped Acreage
--------------------- ---------------------
Gross Net Gross Net
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Texas 46,295 9,141 53,042 9,721
Oklahoma 3,265 592 2,141 820
Other 3,911 1,185 671 609
--------- --------- --------- ---------
53,471 10,918 55,854 11,150
========= ========= ========= =========
</TABLE>
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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, 1996. All drilling activity was onshore in Texas and Oklahoma.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
Gross Net Gross Net Gross Net
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Exploratory wells drilled
- Productive -- -- -- -- -- --
- Dry -- -- 2 .38 -- --
Development wells drilled
- Productive 10 1.62 24 3.85 21 2.73
- Dry -- -- 1 .07 1 .05
</TABLE>
In addition to the above wells drilled and completed, at year end
1996, the Company had 4 wells (.78 net wells) in process. All such wells were
subsequently completed as producers in 1997.
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, 1996, are presented in the table below.
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Crude oil (Barrels) 225 281 229
Natural gas (Mcf) 9,834 7,692 8,759
Future net cash flows $ 29,566 $ 14,893 $ 13,131
Present value of future net cash flows $ 21,467 $ 10,102 $ 9,218
</TABLE>
The estimates of the Company's oil and gas reserves and future net
revenues therefrom as of December 31, 1996, were made by the Company's
independent petroleum engineers, Ryder Scott Company. The reserve estimates
provided at December 31, 1996 are based on oil prices of approximately $24.51
per barrel and natural gas prices of approximately $3.31 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 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
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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, 1996 has been as follows:
<TABLE>
<CAPTION>
Year Ended Crude Oil Natural
December 31, (Barrels) Gas (Mcf)
------------ ---------- ----------
<C> <C> <C>
1996 .................... 92,000 3,450,000
1995 .................... 105,000 3,055,000
1994 .................... 74,000 1,229,000
</TABLE>
Certain financial information relating to the Company's oil and gas
activities is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Average oil and condensate
sales price per Bbl .................. $ 18.31 $ 16.58 $ 15.08
Average natural gas
sales price per Mcf .................. $ 2.12 $ 1.50 $ 1.94
Average production cost,
per equivalent Bbl, charged to expense $ 2.54 $ 2.16 $ 3.35
</TABLE>
The average crude oil and natural gas sales price received for
December 1996 production was $21.32 per barrel and $3.56 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 except for required report on the Department of
Energy's "Annual Survey of Domestic Oil and Gas Reserves". The Company is not
obligated to provide any fixed and determinable quantities of oil or gas in the
future under existing contracts or agreements associated with its oil and gas
exploration and production segment.
Reference is made to the Supplementary Financial Data following the
Notes to Consolidated Financial Statements for additional disclosures relating
to oil and gas exploration and production activities.
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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
60,000 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 35 tractor-trailer rigs and maintains 31 pipeline
injection stations, all within the states of Texas and New Mexico.
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 $1.4 billion for 1996 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 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.
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Petroleum products marketing revenues totaled $32 million for 1996 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 170 truck tractors and 260 tank
trailers and also operates truck terminals in Houston, Corpus Christi, and
Orange, Texas as well as Geismar, Louisiana and Creola, Alabama. 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 subsequently sold all coal assets. 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 completed in 1996. The Company is awaiting final approval of the
project as completed.
The Company leases approximately 12,000 square feet of office space
for its executive offices located at 5 Post Oak Park, Suite 2700, Houston,
Texas.
Employees
At December 31, 1996 the Company employed 403 persons, 22 of whom were
employed in oil and gas exploration and production, 118 in the marketing of
crude oil and petroleum products, 252 in transportation operations and 11 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
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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 statutory depletion carryforwards,
the Company's current cash flow is not significantly impacted 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 carryforwards 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 current
federal tax rate until such time as its tax carryforwards are fully utilized,
which is expected to occur in 1997. When such carryforwards are fully
utilized, the Company's effective current federal tax rate is expected to
approach the statutory (34%) level.
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.
Forward-Looking Statements--Safe Harbor Provisions
This annual report for the year ended December 31, 1996 contains
certain forward-looking statements which are intended to be covered by the safe
harbors provided under Federal securities law and regulation. To the extent
such statements are not recitations of historical fact, forward-looking
statements involve risks and uncertainties. In particular, statements under
the captions (a) Production and Reserve Information, (b) Competition, (c)
Regulatory Status and Potential Environmental Liability, (d) Management's
Discussion and Analysis of Financial Condition and Results of Operations, (e)
Use of Estimates, (f) Coal Operations, (g) Income Taxes, (h) Concentration of
Credit Risk, (i) Commitments and Contingencies, (j) Supplementary Financial
Data, among others, contain forward-looking statements. Where the Company
expresses an expectation or belief to future results or events, such expression
is made in good faith and believed to have a reasonable basis in fact.
However, there can be no assurance that such expectation or belief will
actually result or be achieved.
A number of factors could cause actual results or events to differ
materially from those anticipated. Such factors include, (a) general economic
conditions, (b) fluctuations in hydrocarbon prices and margins, (c)
unanticipated environmental liabilities or regulatory changes, (d) the
availability and cost of insurance, (e) changes in tax laws, and (f) the
availability of capital, among others.
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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 conditions reduce certain
discharges. The Clean Water Act also requires pre-treatment of certain
discharges prior to release into a publicly owned treatment works.
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Federal Oil Pollution Act of 1990 ("OPA")--The OPA amends the Clean Water Act
and expands the liability for the discharge of oil into navigable waters.
Liability is triggered by discharge or substantial threat of a discharge of oil
into navigable waters of adjoining shoreline from any vessel or any on-shore or
off-shore facility. OPA defines three classes of parties subject to liability:
1) owners, operators, and persons chartering vessels; 2) lessees and permitees
of areas where off-shore facilities are located; and 3) owners and operators of
on-shore facilities.
The Clean Air Act of 1970, as amended (the "Clean Air Act")--The Clean Air Act
required EPA to establish and ensure compliance with national ambient air
quality standards ("NAAQS") for certain pollutants. The NAAQS generally are to
be achieved by the individual states through state implementation plans
("SIPs"). SIPs typically attempt to meet the NAAQS by, among other things,
regulating the quantity and quality of emissions from specific industrial
sources. As required by the Clean Air Act, EPA also has established
regulations that limit emissions of specified hazardous air pollutants and
other regulations that limit emissions from new industrial sources within
certain source categories. The Clean Air Act was amended extensively in 1990,
to, among other things, impose additional emissions standards that must be
implemented by the EPA through regulations. The implementation of the Clean
Air Act requirements is accomplished in Texas by the Texas Natural Resources
Conservation Commission ("TNRCC").
The Toxic Substances Control Act of 1976 ("TSCA")--TSCA authorizes the EPA to
gather information on the risks of chemicals, and to monitor and regulate the
manufacture, distribution, processing, use and disposal of many chemicals.
The Emergency Planning and Community Right-to-Know Act ("EPCRA")--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 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
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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 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
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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.
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)
I-11
<PAGE> 12
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.
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. 74 Chairman, President and Chief Executive Officer
William R. Sharp 72 Vice President-Oil and Gas
Claude H. Lewis 53 Vice President-Land Transportation
Richard B. Abshire 44 Vice President-Finance
David B. Hurst 43 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.
I-12
<PAGE> 13
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATE 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, 1995.
<TABLE>
<CAPTION>
American Stock Exchange
-----------------------
Year High Low
- - ---- ---- ---
<S> <C> <C>
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
1996
First Quarter . . . . . . . . . . . . . . . . . . . . 7-7/8 5-3/4
Second Quarter . . . . . . . . . . . . . . . . . . . . 8-5/8 6-1/2
Third Quarter . . . . . . . . . . . . . . . . . . . . 11 6-3/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . 13-7/8 9-1/2
</TABLE>
At December 31, 1996 there were 949 holders of record of the Company's
common stock and the closing stock price was $12-1/4 per share.
The terms of the Company's bank loan agreement require the Company to
retain at least 50% of annual net income as an addition to total shareholders'
equity, thus such amount would not be available for payment of cash dividends
on the Company's common stock.
On each of December 15, 1996, 1995 and 1994, the Company paid an
annual cash dividend of $.07, $ .05 and $.03, respectively, to all holders of
its common stock of record on December 1st of each year. Such dividends
aggregated $292,000, $207,000 and $124,000, respectively.
II-1
<PAGE> 14
Item 6. SELECTED FINANCIAL DATA
FIVE YEAR REVIEW OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Marketing ................................ $ 1,466,736 $ 803,669 $ 610,944 $ 675,915 $ 529,941
Transportation ........................... 21,282 21,390 20,455 16,687 16,752
Oil and gas .............................. 9,061 6,378 3,586 2,733 2,957
----------- ----------- ----------- ----------- -----------
$ 1,497,079 $ 831,437 $ 634,985 $ 695,335 $ 549,650
=========== =========== =========== =========== ===========
Operating earnings:
Marketing ................................ $ 5,816 $ 2,496 $ 2,114 $ 1,303 $ 477
Transportation ........................... 2,356 2,045 2,923 2,354 1,764
Oil and gas .............................. 3,711 (1,410)(1) 1,272 8611,227
----------- ----------- ----------- -----------
11,883 3,131 6,309 4,518 3,468
Other income(expenses):
General and administrative ............... (2,783) (2,176) (2,018) (2,015) (2,117)
Property sales and other ................. 142 1,134 583 4 162
Interest ................................. (477) (526) (106) (189) (223)
----------- ----------- ----------- ----------- -----------
Earnings before income taxes ................ 8,765 1,563 4,768 2,318 1,290
Income tax provision
Current .................................. 624 100 305 150 138
Deferred ................................. 2,500 238 1,446 716 391
----------- ----------- ----------- ----------- -----------
3,124 338 1,751 866 529
----------- ----------- ----------- ----------- -----------
Earnings before cumulative effect
of accounting change ..................... 5,641 1,225 3,017 1,452 761
Cumulative effect of accounting
change ................................... -- -- -- -- 3,391(2)
----------- ----------- ----------- ----------- -----------
Net earnings ................................ $ 5,641 $ 1,225 $ 3,017 $ 1,452 $ 4,152
=========== =========== =========== =========== ===========
Earnings per common share:
Before cumulative effect of
accounting change ...................... $ 1.34 $ .29 $ .72 $ .35 $ .18
Cumulative effect of accounting
change ................................. -- -- -- -- .82
----------- ----------- ----------- ----------- -----------
Net earnings ............................. $ 1.34 $ .29 $ .72 $ .35 $ 1.00
=========== =========== =========== =========== ===========
FINANCIAL POSITION
Working capital ............................. $ 10,484 $ 5,115 $ 2,957 $ 2,773 $ 2,504
Total assets ................................ 110,882 80,917 62,301 50,295 58,126
Long-term debt, net of
current maturities ....................... 6,171 10,589 9,263 3,947 3,914
Shareholders' equity ........................ 22,760 15,678 13,233 10,296 8,834
Dividends on common shares .................. 292 207 124 -- --
</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 of 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 1996 to 1995
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. 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 in 1996 had little or no impact on current operating margins.
Gross revenues for the Company's Marketing operations increased by
$663,067,000, or 83%, in the current year because of increased volumes of crude
oil purchased at the wellhead and a more active crude oil trading effort.
Comparative average purchases of crude oil at the wellhead were 58,000 barrels
per day in 1996 versus 45,000 barrels per day in 1995. Marketing division
operating margins also increased for 1996 to $5,816,000 versus $2,496,000 for
1995. The operating margin increase was partially a result of greater sales
volume and more astute trading. The most significant factor affecting 1996
margins, however, was a severe crude oil shortage situation that existed in the
mid-continent region of the United States during the first half of 1996. As a
supplier of crude oil to the region, this demand condition served to
temporarily improve the Company's margins. As crude oil markets returned to a
more normal balance between supply and demand during the third quarter of 1996,
the Company's level of Marketing earnings returned to its historic pattern.
While the Company policy is designed to minimize market risk, some degree of
exposure to unforeseen market conditions remains.
Transportation
Transportation revenues and earnings were consistent between the
comparative years. As presently configured, the Transportation division's
fixed costs are approximately $10.5 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 increased by 42% to $9,061,000 in the current
year as a direct result of increased oil and gas prices coupled with increased
natural gas production volumes. The Company's recent drilling efforts, led to
the production volume increase. Volumes and average prices compare as follows:
<TABLE>
<CAPTION>
Crude Oil Natural Gas
Year Ended ---------------------------- ---------------------------
December 31, Barrels Avg. Price Mcf's Avg. Price
------------ ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
1996 . . . . . . . . . . . . 92,000 $18.31 3,450,000 $2.12
1995 . . . . . . . . . . . . 105,000 $16.58 3,055,000 $1.50
1994 . . . . . . . . . . . . 74,000 $15.08 1,229,000 $1.94
</TABLE>
Oil and gas operating earnings improved to $3,711,000 in 1996 with
improved prices and volumes and because of a reduced provision for
depreciation, depletion and amortization. The $1,410,000 oil and gas division
operating loss experienced in 1995 resulted from reduced prices for natural gas
and a greater increased provision for depreciation, depletion and amortization.
The provision for oil and gas depreciation, depletion and amortization in 1995
was $6,460,000 as compared to $3,655,000 in 1996. The provision was reduced in
1996 as a result of lower capitalized costs subject to amortization and because
of favorable oil and gas reserve revisions.
Other income (expense)
Other income of $168,000 in 1996 reflects a gain on the sale of four
tractor units, while in 1995, the Company recognized a $704,000 gain upon the
sale of 19 tractors and 22 trailers. Also during 1995, the Company
substantially completed its coal land reclamation obligations and as a result,
the Company reduced its estimated liability for future coal related costs by
$482,000.
Comparison of 1995 to 1994
Marketing
Gross revenues for the Company's Marketing operations increased by
$192,725,000, or 31%, for 1995 relative to 1994 as the Company entered into a
greater number of crude oil buy/sell arrangements. The Company's purchases of
crude oil at the wellhead remained consistent at approximately 45,000 barrels
per day. Marketing division operating margins for 1995 were $2,496,000 versus
$2,114,000 in 1994 as the Company's crude oil trading strategy for 1995 served
to enhance margins.
Transportation
Transportation revenues remained consistent between the comparative
years 1995 and 1994. However, operating margin decreased by 30% to $2,045,000
because the Company's cost structure increased while trucking rates decreased
with 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.
II-4
<PAGE> 17
Oil and Gas
Oil and gas revenues were increased in 1995 relative to 1994 as a
result of stepped up drilling efforts commenced in the second half of 1994.
Operating earnings were reduced however, in 1995, by an increased provision for
depreciation, depletion and amortization. The provision increased in 1995
because of (1) increased capital costs and production volumes associated with
the Company's 1995 drilling activity, (2) negative reserve revisions, (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
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.
Interest expense increased in 1995 because the Company increased its level of
debt during 1994 and 1995 to finance its drilling activity.
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, amortization and federal
income taxes (See the discussion below concerning the availability of tax
carryforwards to offset taxable income). In recent years, the Company has
utilized its available cash flow to make discretionary investments in its oil
and gas, transportation and marketing businesses. The table below illustrates
this relationship.
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net earnings ................................. $ 5,641 $ 1,225 $ 3,017
Depreciation, depletion & amortization ....... 6,160 7,649 2,207
Non-cash income taxes ........................ 2,500 238 1,446
-------- -------- --------
Funds provided by operations ................. 14,301 9,112 6,670
Oil and gas loan proceeds (payments) ......... (5,200) -- 5,200
-------- -------- --------
Funds available .............................. 9,101 9,112 11,870
Property and equipment additions ............ (5,957) (6,865) (12,946)
-------- -------- --------
Net cash flow ................................ $ 3,144 $ 2,247 $ (1,076)
======== ======== ========
</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. Such loan was repaid during 1996.
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 for cash
flow is the practice of the crude oil industry to settle all accounts by cash
payment on the 20th of the month following inception of the 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
capacity under the line is calculated monthly and as of December 31, 1996 was
established at $3,906,000. 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 as
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, 1997.
The line of credit loans are scheduled to expire on October 31, 1998, with the
then present balance outstanding converting to a term loan payable in 12 equal
quarterly installments. As of December 31, 1996, bank debt outstanding under
the Company's two revolving credit facilities totaled $6,100,000, with letters
of credit outstanding totaling $25,000.
II-6
<PAGE> 19
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 $2,000,000 of crude oil inventory and certain accounts receivable
associated with crude oil sales. Such financing is provided on a demand note
basis with interest at the bank's prime rate plus 2 percent. As of December 31,
1996, no amounts were outstanding under this facility.
Investment Activities
During 1996, the Company invested approximately $3.2 million in oil
and gas projects and $800,000 for expansion of its truck terminal and fleet.
An additional $1.9 million was invested in facilities and equipment for the
Company's marketing operations. Oil and gas exploration and development
efforts continue and the Company plans to invest approximately $6 million
toward such projects in 1997. An additional $2 million is anticipated to be
invested during 1997 toward improvements in the Company's marketing and
transportation facilities.
During 1997, the Company anticipates entering into certain operating
lease transactions in order, , the Company's effective current to acquire
approximately 50 tractors and 30 trailers for use in its trucking fleet.
Annual lease costs associated with these new units is estimated to be $1
million.
Other
During 1995 and 1996, the Company expended approximately $560,000 to
complete remaining coal land reclamation obligations. Such funding came from
the Company's general working capital. Upon final approval of the project, the
State of Kentucky is obligated to release to the Company approximately
$1,087,000 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 1997.
As a result of certain tax loss and statutory depletion carryforwards,
the Company's obligation to pay federal income taxes has been substantially
reduced until such time as the carryforwards are fully utilized or expire.
Because of this situation, in recent years the Company has been 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. When
such carryforwards are depleted, which is expected to occur in 1997, the
Company's effective current federal tax rate is expected to approach the
statutory (34%) level. See also Note 4 to Consolidated Financial Statements.
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-7
<PAGE> 20
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Item 8.
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . II-10
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . II-11
Consolidated Statement of Earnings for
the Years Ended December 31, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-12
Consolidated Statement of Shareholders'
Equity for the Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . II-13
Consolidated Statement of Cash Flows
for the Years Ended December 31,
1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-14
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . II-15
Supplementary Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . II-25
</TABLE>
II-8
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Adams Resources & Energy, Inc.:
We have audited the accompanying consolidated balance sheet of Adams
Resources & Energy, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. 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, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, 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 7, 1997
II-9
<PAGE> 22
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
----------------------
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,782 $ 4,037
Accounts receivable, net 80,238 50,484
Inventories 4,867 3,177
Prepaids 1,116 1,020
Deferred income taxes 1,475 --
--------- ---------
Total current assets 91,478 58,718
--------- ---------
PROPERTY AND EQUIPMENT:
Marketing 7,607 5,803
Transportation 10,244 9,830
Oil and gas (successful efforts method) 25,677 23,364
Other 79 1,014
--------- ---------
43,607 40,011
Less-Accumulated depreciation, depletion
and amortization (25,440) (21,067)
--------- ---------
18,167 18,944
--------- ---------
DEFERRED INCOME TAXES -- 2,065
OTHER ASSETS 1,237 1,190
--------- ---------
$ 110,882 $ 80,917
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 77,449 $ 49,537
Accrued and other liabilities 3,481 2,416
Current maturities of long-term debt 64 1,650
--------- ---------
Total current liabilities 80,994 53,603
LONG-TERM DEBT, less current maturities 6,171 10,589
OTHER LIABILITIES 957 1,047
--------- ---------
88,122 65,239
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 960,000
shares authorized, none outstanding -- --
Common stock, $.10 par value, 7,500,000 shares
authorized, 4,203,346 and 4,197,596 shares
issued and outstanding, respectively 420 420
Contributed capital 11,628 9,895
Retained earnings since December 31, 1992 10,712 5,363
--------- ---------
Total shareholders' equity 22,760 15,678
--------- ---------
$ 110,882 $ 80,917
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-10
<PAGE> 23
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Marketing $ 1,466,736 $ 803,669 $ 610,944
Transportation 21,282 21,390 20,455
Oil and gas 9,061 6,378 3,586
----------- ----------- -----------
1,497,079 831,437 634,985
----------- ----------- -----------
COSTS AND EXPENSES:
Marketing 1,459,021 800,567 608,364
Transportation 18,346 18,814 17,172
Oil and gas 1,695 1,328 1,010
General and administrative 2,783 2,176 2,018
Depreciation, depletion and amortization 6,160 7,649 2,207
----------- ----------- -----------
1,488,005 830,534 630,771
----------- ----------- -----------
OPERATING EARNINGS 9,074 903 4,214
OTHER INCOME (EXPENSE):
Property sales and other 168 1,186 660
Interest (477) (526) (106)
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 8,765 1,563 4,768
INCOME TAX PROVISION
Current 624 100 305
Deferred 2,500 238 1,446
----------- ----------- -----------
3,124 338 1,751
----------- ----------- -----------
NET EARNINGS $ 5,641 $ 1,225 $ 3,017
=========== =========== ===========
NET EARNINGS PER SHARE $ 1.34 $ .29 $ .72
=========== =========== ===========
DIVIDENDS PER COMMON SHARE $ .07 $ .05 $ .03
=========== =========== ===========
</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 CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON CONTRIBUTED RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
Deferred income taxes .................... -- 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
Stock options exercised .................. -- 23 -- 23
Deferred income taxes (Note 4)............ -- 1,710 -- 1,710
Net earnings ............................. -- -- 5,641 5,641
Dividends paid on common stock ........... -- -- (292) (292)
---------- ---------- ---------- ----------
BALANCE, December 31, 1996 .................. $ 420 $ 11,628 $ 10,712 $ 22,760
========== ========== ========== ==========
</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 CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATIONS:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,641 $ 1,225 $ 3,017
Items of income not requiring (providing) cash -
Depreciation, depletion and amortization . . . . . . . . . . 6,160 7,649 2,207
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 2,500 238 1,446
Gain on sales of properties . . . . . . . . . . . . . . . . . (168) (704) --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (337) (1,208) 669
Decrease (increase) in accounts receivable . . . . . . . . . . (29,754) (14,532) (3,755)
Decrease (increase) in inventories . . . . . . . . . . . . . . (1,690) (1,053) (302)
Decrease (increase) in prepaids . . . . . . . . . . . . . . . . (96) (468) 15
Increase (decrease) in accounts payable . . . . . . . . . . . . 27,912 14,117 3,101
Increase (decrease) in accrued liabilities . . . . . . . . . . 1,065 29 (149)
--------- --------- ---------
Net cash provided by operating activities . . . . . . . . 11,233 5,293 6,249
--------- --------- ---------
INVESTING ACTIVITIES:
Property and equipment additions . . . . . . . . . . . . . . . (5,957) (6,865) (12,946)
Proceeds from property sales . . . . . . . . . . . . . . . . . 742 736 555
--------- --------- ---------
Net cash used in investing activities . . . . . . . . . . (5,215) (6,129) (12,391)
--------- --------- ---------
FINANCING ACTIVITIES:
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,375 5,900
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . (6,004) (52) (306)
Issuance of common stock . . . . . . . . . . . . . . . . . . . 23 62 44
Common stock dividends . . . . . . . . . . . . . . . . . . . . (292) (207) (124)
--------- --------- ---------
Net cash (used in) provided by financing activities . . . . (6,273) 2,178 5,514
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (255) 1,342 (628)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . 4,037 2,695 3,323
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . $ 3,782 $ 4,037 $ 2,695
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-13
<PAGE> 26
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Adams Resources & Energy, Inc., a Delaware corporation, and its
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, 1996 and 1995 is a $2 million deposit 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,
---------------
1996 1995
------ ------
<S> <C> <C>
Crude oil .......................................... $3,608 $1,845
Petroleum products ................................. 973 913
Materials and supplies ............................. 286 348
Oil and gas leases ................................. -- 71
------ ------
$4,867 $3,177
====== ======
</TABLE>
Property and Equipment
Expenditures for major renewals and betterments are capitalized, and
expenditures for maintenance and repairs are expensed as incurred. Interest
costs incurred in connection with major capital expenditures are capitalized
and amortized over the lives of the related assets. When properties are retired
or sold, the related cost and accumulated depreciation, depletion and
amortization ("DD&A") are removed from the accounts and any gain or loss is
reflected in earnings.
II-14
<PAGE> 27
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Oil and gas exploration and development expenditures are accounted
for in accordance with the successful efforts method of accounting. Direct
costs of acquiring developed or undeveloped leasehold acreage, including lease
bonus, brokerage and other fees, are capitalized. Exploratory drilling costs
are initially capitalized until the properties are evaluated and determined to
be either productive or nonproductive. If 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.
Effective December 31, 1995, the Company adopted the requirements of
Statement 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 specifies, in certain instances, that the carrying values of assets
be written down to fair values. In 1995, one of the Company's proved oil and
gas fields was deemed impaired because it was not expected to individually
recover its entire carrying value. A $677,000 pretax charge for this asset
impairment was included in 1995 DD&A. Prior to the adoption of SFAS No. 121,
the Company periodically reviewed the total carrying value of proven oil and
gas properties and an impairment reserve was provided if conditions warranted.
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. 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. The 1996 provision for depreciation, depletion
and amortization includes a $1,167,000 asset impairment recognized by the
Company on certain refined product marketing facilities and equipment. The
impairment was recorded because of continued operating and cash flow losses
associated with these assets.
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 $619,000,
$689,000 and $274,000 respectively, during the years ended December 31, 1996,
1995 and 1994. Income taxes paid during these same periods totaled $564,000,
$243,000 and $176,000, 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 averaged 4,200,225 for 1996, 4,189,097 for 1995, and
4,173,845 for 1994.
II-15
<PAGE> 28
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Examples of significant estimates used in the accompanying consolidated
financial statements include the accounting for depreciation, depletion and
amortization, income taxes and contingencies, among others.
Accounting Pronouncements
In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position No. 96-1, "Environmental Remediation
Liabilities," which establishes new accounting and reporting standards for the
recognition and disclosure of environmental remediation liabilities. The
provisions of the statement are effective for fiscal years beginning after
December 15, 1996. The impact of this new standard is not expected to have a
significant effect on the Company's financial position or results of
operations.
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which establishes new accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities. The statement is effective for transactions occurring after
December 31, 1996. The impact of the adoption of the new standard is not
expected to have a significant effect on the Company's financial position of
results of operations.
(2) LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
----------- ---------
<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, 1998 . . . . . . . . . . . . . . . . . . . . . . . . $ 6,100 $ 6,120
Term note, due in varying installments
commencing on September 30, 1996 . . . . . . . . . . . . . . . . - 5,200
Notes payable in varying installments
through September 1998, interest rate up
to 10%, secured by certain land and equipment . . . . . . . . . 135 194
GulfMark demand note payable, secured by
substantially all of GulfMark's assets . . . . . . . . . . . . . - 725
----------- ---------
Total debt . . . . . . . . . . . . . . . . . . . 6,235 12,239
Less - current maturities . . . . . . . . . . . . . . . . . . . 64 1,650
----------- ---------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,171 $ 10,589
=========== =========
</TABLE>
II-16
<PAGE> 29
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996 was
established at $3,906,000 with $3,200,000 outstanding at year-end 1996. 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 December 31, 1996, 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, 1997.
As of December 31, 1996, $2,900,000 was outstanding under the oil and gas
production loan facility. The revolving line of credit loans are scheduled to
expire on October 31, 1998, 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 a 1.0 to 1.0 ratio of
consolidated current assets to consolidated current liabilities. The Company is
also required to restrict from dividend payment at least 50% of annual net
income.
The Company's GulfMark subsidiary maintains a separate banking
relationship to provide Letters of Credit and to provide financing for up to $2
million of crude oil inventories and certain accounts receivable associated
with sales of crude oil. Such financing is provided on a demand note basis
with interest at the bank's prime rate plus 2 percent. The letter of credit
and demand note facilities are secured by substantially all of GulfMark's
assets. GulfMark had approximately $78.6 million and $45.6 million in letters
of credit outstanding as of December 31, 1996 and 1995, respectively, in
support of its crude oil purchasing activities.
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 was
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. During 1996, the company paid off the entire balance of the note.
Interest on the $5,200,000 term note was at the lender's quoted Eurodollar rate
(LIBOR) plus 1-1/4%.
The Company's average effective interest rate for 1996, 1995, and 1994
was 7.9 %, 8.2% and 7.4%, respectively. During 1995 and 1994, $330,000 and
$265,000, respectively, of interest incurred was capitalized. No interest was
capitalized during 1996. At December 31, 1996, the scheduled aggregate
principal maturities of the Company's long-term debt are: 1997 - $64,000; 1998
- - - $579,000; 1999 - $2,033,000; 2000 - $2,033,000; and 2001 - $1,525,000.
(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. The only remaining environmental
II-17
<PAGE> 30
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
obligation is the final approval of land reclamation on a 280-acre tract in
Kentucky. The Company has received preliminary approval and is presently
awaiting final approval of its efforts from the State of Kentucky and the
Federal Office of Surface Mining. Upon final approval, the State of Kentucky is
obligated to release to the Company approximately $1,087,000 of Company funds
that have been escrowed to insure compliance with all state regulations. Such
deposit is included in "Other assets" on the accompanying balance sheet.
(4) INCOME TAXES
The following table shows the components of the Company's income tax
provision (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . $ 170 $ 30 90
State . . . . . . . . . . . . . . . . . . . . . . . 454 70 215
---------- ---------- ---------
624 100 305
---------- ---------- ---------
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . 2,500 238 1,446
---------- ---------- ---------
$ 3,124 $ 338 $ 1,751
========== ========== =========
</TABLE>
The following table shows the components of the Company's deferred tax
asset and related valuation allowance (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Statutory depletion carryforward . . . . . . . . . . . . . . . . . $ 1,434 $ 2,240
Net operating loss carryforward . . . . . . . . . . . . . . . . . - 1,194
Alternative minimum tax credit carryforward . . . . . . . . . . . - 265
Excess tax basis of fixed assets and other . . . . . . . . . . . . 220 14
Excess tax (book) basis of coal assets . . . . . . . . . . . . . . (179) 62
---------- ---------
1,475 3,775
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . - (1,710)
---------- ----------
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . $ 1,475 $ 2,065
========== =========
</TABLE>
As of December 31, 1996, the Company had statutory depletion
carryforwards totaling $4,219,000 available to reduce future taxable earnings.
The statutory depletion carryforwards have no expiration date. The Company
fully utilized its alternative minimum tax credit and remaining net operating
loss carryforwards in 1996. For the year ended December 31, 1996, the
valuation allowance was reduced by $1,710,000 with such amount being credited
to contributed capital, in order to reflect pre-1992 statutory depletion
carryforwards now expected to be utilizable.
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,
------------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Statutory federal income tax provision . . . . . $ 2,825 $ 531 $ 1,621
State income tax provision . . . . . . . . . . . 454 70 215
Federal statutory depletion . . . . . . . . . . (175) (221) -
Other . . . . . . . . . . . . . . . . . . . . . 20 (42) (85)
---------- ---------- ---------
Income taxes as reported . . . . . . . . $ 3,124 $ 338 $ 1,751
========== ========== =========
</TABLE>
II-18
<PAGE> 31
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 amount 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 approximately 90% of the Company's
total receivables as of December 31, 1996, and industry practice requires
payment for purchases of crude 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, 1996 and 1995, of $97,000 and $171,000,
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 these contracts to be financial instruments since the contracts
require or permit settlement by the delivery of crude oil. Gains and losses
due to changes in the market value of the commodities underlying these
contracts are deferred to the forward period.
Trading Activities - Also in connection with its crude oil marketing
operations, the Company will occasionally 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 insure compliance with stated credit risk
management policies. At
II-19
<PAGE> 32
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, the Company had no outstanding 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 1996,
5,750 stock options were exercised at prices ranging from $3.625 to $4.75 per
share and no stock options were granted. 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 $3.625 per share and no stock options were
granted. As of December 31, 1996 there were 18,250 stock options outstanding
and exercisable at prices ranging from $3.625 to $4.75 per share. If not
exercised, all outstanding options will expire in 1997.
The Company maintains a 401(k) plan for the benefit of its employees. Company
contributions to the plan were $180,000 in 1996, $120,000 in 1995, and $100,000
in 1994.
(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, 1996, the Company was owed $161,000 from KASCO and SAKCO, and the
Company owed $580,000 to KASCO and SAKCO. As of December 31, 1995, the Company
was owed $521,000 from KASCO and SAKCO, and the Company owed $466,000 to KASCO
and SAKCO.
Sakdril and the Company had previously 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. Sakdril's financing of the Company's acreage
position was on an interest-free basis. During 1996 and 1995, the Company
repaid $166,000 and $111,000 , respectively, of funds previously advanced by
Sakdril in 1993. No borrowings were received from Sakdril during 1996 or 1995
As of December 31, 1996, the Company has no further obligation to Sakdrill and
the agreement has expired.
II-20
<PAGE> 33
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KSAI and other affiliated entities paid the Company approximately
$103,000, $292,000, and $295,000, respectively, in the years ended December 31,
1996, 1995, and 1994, for rental of space in the Company's leased office
building. Such rental charges are comparable to those charged to unaffiliated
entities. During 1996, the Company terminated its master office lease
agreement and the related sub-lease agreement with KSAI.
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.
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, 1996, 1995, and 1994 was $3,827,000,
$4,037,000 and $3,447,000, respectively. At December 31, 1996, commitments
under long-term noncancelable operating leases for the next five years and
thereafter are payable as follows: 1997 - $3,012,000; 1998 - $2,697,000; 1999
- - - $1,931,000; 2000 - $1,198,000; 2001 - $971,000; 2002 and thereafter -
$2,624,000.
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.
II-21
<PAGE> 34
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1996 -
Marketing ...................... $ 1,466,736 $ 5,816 $ 1,899 $ 1,953 $ 84,087
Transportation ................. 21,282 2,356 580 758 9,012
Oil and gas .................... 9,061 3,711 3,655 3,161 11,218
Other .......................... -- -- 26 85 6,565
------------- ------------- ------------- ------------- -------------
$ 1,497,079 $ 11,883 $ 6,160 $ 5,957 $ 110,882
============= ============= ============= ============= =============
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 7,345
------------- ------------- ------------- ------------- -------------
$ 831,437 $ 3,131 $ 7,649 $ 6,865 $ 80,917
============= ============= ============= ============= =============
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>
(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 1996, the Company had sales to two customers which totaled more
than 10% of total sales. Such 1996 sales totaled $166 million and $151 million,
respectively. During 1995 and 1994, the Company had no combined sales to one or
more unrelated entities which individually aggregated more than 10% of total
revenues.
II-22
<PAGE> 35
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Earnings from operations ........................ $ 11,883 $ 3,131 $ 6,309
General and administrative expenses ............. (2,783) (2,176) (2,018)
Property sales and other ........................ 142 1,134 583
Interest expense ................................ (477) (526) (106)
--------- --------- ---------
Earnings before income taxes .................... $ 8,765 $ 1,563 $ 4,768
========= ========= =========
</TABLE>
II-23
<PAGE> 36
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, 1996 and 1995 (in thousands, except per share
data):
<TABLE>
<CAPTION>
Net Earnings Dividends
Operating ------------------------- -----------------------
Earnings Per Per
Revenues (Loss) Amount Share Amount Share
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1996 -
March 31 ............. $ 284,901 $ 1,591 $ 1,035 $ .25 $ -- $ --
June 30 .............. 384,017 2,914 1,707 .40 -- --
September 30 ......... 371,781 1,454 859 .20 -- --
December 31 .......... 456,380 3,115 2,040 .49 292 .07
---------- ---------- ---------- ---------- ---------- ----------
$1,497,079 $ 9,074 $ 5,641 $ 1.34 $ 292 $ .07
========== ========== ========== ========== ========== ==========
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
========== ========== ========== ========== ========== ==========
</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.
II-24
<PAGE> 37
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
Oil and Gas Producing Activities (Unaudited) -
Total costs incurred in oil and gas exploration and development
activities, all incurred within the United States, were as follows (in
thousands, except per barrel information):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Property acquisition costs
Unproved . . . . . . . . . . . . . . . . . $ 41 $ 239 $ 5,259
Proved . . . . . . . . . . . . . . . . . . - - -
Exploration costs . . . . . . . . . . . . . . - - -
Development costs . . . . . . . . . . . . . . 3,120 4,560 4,129
</TABLE>
The aggregate capitalized costs relative to oil and gas producing
activities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Unproved oil and gas properties ............. $ 976 $ 2,710
Proved oil and gas properties ............... 24,701 20,654
-------- --------
25,677 23,364
Accumulated depreciation, depletion
and amortization .......................... (16,273) (13,066)
-------- --------
Net capitalized cost ....... $ 9,404 $ 10,298
======== ========
</TABLE>
II-25
<PAGE> 38
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
Estimated Oil and Natural Gas Reserves (Unaudited) -
The following information regarding estimates of the Company's proved
oil and gas reserves, all located in the United States, is based on reports
prepared on behalf of the Company by 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,
-----------------------------------------------------------------
1996 1995 1994
------------------ ------------------- ------------------
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 7,692 281 8,759 229 5,547 213
Revisions of previous
estimates 1,124 1 (1,108) 68 1,283 6
Extensions, discoveries
and other additions 4,468 35 3,096 89 3,158 84
Production (3,450) (92) (3,055) (105) (1,229) (74)
------ ------ ------ ------ ------ ---
End of year 9,834 225 7,692 281 8,759 229
====== ====== ====== ====== ====== ===
Proved developed reserves -
End of year 9,834 225 7,692 281 8,759 229
====== ====== ====== ====== ====== ===
</TABLE>
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, 1996 are based on oil
prices of approximately $24.51 per barrel and gas prices of approximately
$3.31 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.
II-26
<PAGE> 39
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
----------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Future gross revenues . . . . . . . . . . . . . . . . . . . . $ 38,074 $ 21,944 $ 19,160
Future costs -
Lease operating expenses . . . . . . . . . . . . . . . . (8,407) (6,950) (5,895)
Development costs . . . . . . . . . . . . . . . . . . . . (101) (101) (134)
----------- --------- ---------
Future net cash flows before income taxes . . . . . . . . . . 29,566 14,893 13,131
Discount at 10% per annum . . . . . . . . . . . . . . . . . . (8,099) (4,791) (3,913)
----------- --------- ---------
Discounted future net cash flows
before income taxes . . . . . . . . . . . . . . . . . . . 21,467 10,102 9,218
Future income taxes, net of discount at 10%
per annum . . . . . . . . . . . . . . . . . . . . . . . . (4,431) (1,891) (2,183)
----------- --------- ---------
Standardized measure of
discounted future net cash flows . . . . . . . . . . . . $ 17,036 $ 8,211 $ 7,035
========== ========= =========
</TABLE>
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
----------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Beginning of year ........................................... $ 8,211 $ 7,035 $ 3,971
Revisions to reserves proved in prior years -
Net change in prices and production costs .............. 2,875 1,192 112
Net change due to revisions in quantity estimates ...... 1,840 (706) 1,150
Accretion of discount .................................. 1,010 921 516
Production rate changes and other ...................... 2,383 (592) 938
-------- ------- --------
Total revisions .................................... 8,108 815 2,716
New field discoveries and extensions,
net of future production costs ......................... 10,623 5,124 4,001
Sales of oil and gas produced, net of
production costs ....................................... (7,366) (5,055) (2,664)
Net change in income taxes ............................... (2,540) 292 (989)
-------- ------- --------
Net change in standardized measure of
discounted future net cash flows ....................... 8,825 1,176 3,064
-------- -------- --------
End of year ................................................. $ 17,036 $ 8,211 $ 7,035
======== ======== ========
</TABLE>
II-27
<PAGE> 40
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
Results of Operations for Oil and Gas Producing Activities (Unaudited) -
The results of oil and gas producing activities, excluding corporate
overhead and interest costs, are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
----------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,061 $ 6,378 $ 3,586
Costs and expenses -
Production . . . . . . . . . . . . . . . . . . . . . . . 1,695 1,323 922
Exploration . . . . . . . . . . . . . . . . . . . . . . . - 5 88
Depreciation, depletion and amortization . . . . . . . . 3,655 6,460 1,304
---------- --------- ---------
Operating income (loss) before income taxes . . . . . . . . . 3,711 (1,410) 1,272
Income tax expense (benefit) . . . . . . . . . . . . . . . . 1,170 (479) 432
---------- --------- ---------
Operating income (loss) . . . . . . . . . . . . . . . . . . . $ 2,541 $ (931) $ 840
========== ========= =========
</TABLE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
II-28
<PAGE> 41
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information concerning executive officers of the Company is
included in Part I. The information concerning directors of the Company is
incorporated by reference from the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held April 23, 1997, 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 23, 1997, 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> 42
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Form 10-K:
1. Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheet as of December 31, 1996 and 1995
Consolidated Statement of Earnings for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statement of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
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> 43
4(c)* - Third Amendment to Loan Agreement between Service Transport
Company et al and NationsBank of Texas N.A. dated January 27,
1997.
21* - Subsidiaries of the Registrant
______________________________
* - 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> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ADAMS RESOURCES & ENERGY, INC.
(Registrant)
By /s/ RICHARD B. ABSHIRE By /s/ K. S. ADAMS, JR.
--------------------------------- -------------------------------------
(Richard B. Abshire, (K. S. Adams, Jr.,
Vice President-Finance, Director President,Chairman of the Board,
and Chief Financial Officer) and Chief Executive Officer)
Date: March 7, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
By /s/CLAUDE H. LEWIS By /s/ E. C. REINAUER, JR.
--------------------------------- -------------------------------------
(Claude H. Lewis, Director) (E. C. Reinauer, Jr., Director)
By /s/ THOMAS S. SMITH By /s/ E. JACK WEBSTER, JR.
--------------------------------- -------------------------------------
(Thomas S. Smith, Director) (E. Jack Webster, Jr., Director)
By /s/ FRANK T. WEBSTER By /s/ EDWARD WIECK
--------------------------------- -------------------------------------
(Frank T. Webster, Director) (Edward Wieck, Director)
Date: March 7, 1997
V-1
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------- -----------
<S> <C> <C>
3(a) - Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3(a) filed with the
Annual Report on Form 10-K of the Company for the fiscal year
ended December 31, 1987)
3(b) - Bylaws of the Company, as amended (Incorporated by reference
to Exhibits 3.2 and 3.2.1 of Amendment No. 1 to the
Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on October 29, 1973 - File No.
2-48144)
3(c) - Amendment to the Bylaws of the Company to add an Article VII,
Section 8. Indemnification of Directors, Officers, Employees
and Agents (Incorporated by reference to Exhibit 3(c) of the
Annual Report on Form 10-K of the Company for the fiscal year
ended December 31, 1986)
4(a) - Specimen common stock Certificate (Incorporated by reference
to Exhibit 4(a) of the Annual Report on Form 10-K of the
Company for the fiscal year ended December 31, 1991)
4(b) - Loan Agreement between Adams Resources & Energy, Inc. and
NationsBank Texas N.A. dated October 27, 1993 ( Incorporated
by reference to Exhibit 4(b) of the Annual Report on Form
10-K of the Company for the fiscal year ended December 31,
1993)
4(c)* - Third Amendment to Loan Agreement between Service Transport
Company et al and NationsBank of Texas N.A. dated January 27,
1997.
21 * - Subsidiaries of the Registrant
27 * - Financial Data Schedule
</TABLE>
______________________________
* - Filed herewith
VI-1
<PAGE> 1
EXHIBIT 4(c)
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this"Third Amendment") is made
and entered into as of the 27th day of January, 1997, 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 5 Post Oak Place, 4400 Post Oak Parkway, 27th Floor, Houston, Texas
77027 (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 and that certain Second Amendment to Loan Agreement
dated December 29, 1995 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 Third Amendment
through October 27, 1998, 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.
<PAGE> 2
2. The fourth and fifth sentences of Section 1.3(b) of the Loan
Agreement are deleted in their entirety, and the following is substituted in
their place:
Commencing October 31, 1998, 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, 1998. All unpaid principal and accrued and unpaid interest
on the Notes shall be due and payable on or before October 27, 2001.
3. Section 4.2 of the Loan Agreement is deleted in its entirety,
and the following is substituted in its place:
4.2 Operating Lease Commitments; Permitted Guarantees. Except
for the guarantees described on Schedule 4.2 hereto, the Borrowers
will not incur or commit to incur, or permit the Guarantor or any
Subsidiary (other than Gulfmark) to incur or commit to incur (a) any
Operating Lease Commitments classified as lease obligations under
generally accepted accounting principles if the aggregate of all such
Operating Lease Commitments of the Borrowers, the Guarantor and the
Subsidiaries other than Gulfmark (on a consolidated basis) equals or
exceeds $4,000,000.00 during any fiscal year of the Borrowers, or (b)
any Operating Lease Commitments classified as capital expenditures
under generally accepted accounting principles if the aggregate of all
such Operating Lease Commitments of the Borrowers, the Guarantor and
the Subsidiaries (on a consolidated basis) equals or exceeds
$4,000,000.00. Except for the foregoing, the Guarantor will not
guarantee or become liable for (i) Gulfmark Bulk Buy Sales Guarantees
in excess of the aggregate sum of $30,000,000.00 or (ii) Ada Resources
Guarantees and Gulfmark Purchase Obligation Guarantees which exceed,
in the aggregate, the sum of $8,000,000.00, no more than $1,500,000.00
of which may be Gulfmark Purchase Obligation Guarantees in favor of
Banque Paribas.
4. There is added to Section 5.1 of the Loan Agreement an
additional Event of Default, which shall be added as Section 5.1(h), and which
shall read as follows:
(h) Any demand is made upon the Guarantor to satisfy any
obligation guaranteed by the Guarantor and described in Section 4.2
hereof.
5. The closing of the transactions contemplated by this Third
Amendment is subject to the satisfaction of the following conditions:
-2-
<PAGE> 3
(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 Third 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 Third
Amendment and all documents, instruments and certificates referred to
herein.
6. 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.
7. 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 Third 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.
8. Each of the terms defined in the Loan Agreement is used in
this Third Amendment with the same meaning, except as otherwise indicated in
this Third Amendment. Each of the terms defined in this Third Amendment is used
in the Loan Agreement with the same meaning, except as otherwise indicated in
the Loan Agreement.
9. THIS THIRD 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.
10. THE LOAN AGREEMENT, AS AMENDED, REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
-3-
<PAGE> 4
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 Third Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
SERVICE TRANSPORT COMPANY
By: /s/ R.B. ABSHIRE
-------------------------------------
Name: R.B. ABSHIRE
-------------------------------
Title: TREASURER
------------------------------
ADAMS RESOURCES EXPLORATION
CORPORATION
By: /s/ R.B. ABSHIRE
-------------------------------------
Name: R.B. ABSHIRE
-------------------------------
Title: TREASURER
------------------------------
ADA CRUDE OIL COMPANY
By: /s/ R.B. ABSHIRE
-------------------------------------
Name: R.B. ABSHIRE
-------------------------------
Title: TREASURER
------------------------------
BUCKLEY MINING CORPORATION
By: /s/ R.B. ABSHIRE
-------------------------------------
Name: R.B. ABSHIRE
-------------------------------
Title: TREASURER
------------------------------
ADA RESOURCES, INC.
By: /s/ R.B. ABSHIRE
------------------------------------
Name: R.B. ABSHIRE
------------------------------
Title: TREASURER
-----------------------------
-4-
<PAGE> 5
CJC LEASING, INC.
By: /s/ R.B. ABSHIRE
------------------------------------
Name: R.B. ABSHIRE
------------------------------
Title: TREASURER
-----------------------------
CLASSIC COAL CORPORATION
By: /s/ R.B. ABSHIRE
------------------------------------
Name: R.B. ABSHIRE
------------------------------
Title: TREASURER
-----------------------------
ADA MINING CORPORATION
By: /s/ R.B. ABSHIRE
------------------------------------
Name: R.B. ABSHIRE
------------------------------
Title: TREASURER
-----------------------------
BAYOU CITY BARGE LINES, INC.
By: /s/ R.B. ABSHIRE
------------------------------------
Name: R.B. ABSHIRE
------------------------------
Title: TREASURER
-----------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ JOHN H. ROBERTS
------------------------------------
Name: JOHN H. ROBERTS
------------------------------
Title: TREASURER
-----------------------------
-5-
<PAGE> 6
Guarantor joins in the execution of this Third Amendment to evidence
that it hereby agrees and consents to all of the matters contained in this
Third Amendment and further agrees that (i) its liability under that certain
Guaranty Agreement dated October 27, 1993, executed by Guarantor for the
benefit of the Lender, as the same may be amended or modified from time to time
(the "Guaranty") shall not be reduced, altered, limited, lessened or in any way
affected by the execution and delivery of this Third Amendment or any of the
instruments or documents referred to herein by the parties hereto, except as
specifically set forth herein or therein, (ii) the Guaranty is hereby renewed,
extended, ratified, confirmed and carried forward in all respects, (iii) the
Guaranty is and shall remain in full force and effect and is and shall remain
enforceable against Guarantor in accordance with its terms and (iv) the
Guaranty shall cover all indebtedness of the Borrowers to the Lender described
in the Loan Agreement as amended hereby.
ADAMS RESOURCES & ENERGY, INC.
By: /s/ R.B. ABSHIRE
------------------------------------
Name: R.B. ABSHIRE
-------------------------------
Title: TREASURER
------------------------------
-6-
<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.
VI-2
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,782
<SECURITIES> 0
<RECEIVABLES> 80,334
<ALLOWANCES> (96)
<INVENTORY> 4,867
<CURRENT-ASSETS> 91,478
<PP&E> 43,607
<DEPRECIATION> (25,440)
<TOTAL-ASSETS> 110,882
<CURRENT-LIABILITIES> 80,994
<BONDS> 6,171
0
0
<COMMON> 420
<OTHER-SE> 22,340
<TOTAL-LIABILITY-AND-EQUITY> 110,882
<SALES> 1,497,079
<TOTAL-REVENUES> 1,497,247
<CGS> 1,479,062
<TOTAL-COSTS> 1,488,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477
<INCOME-PRETAX> 8,765
<INCOME-TAX> 3,124
<INCOME-CONTINUING> 5,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,641
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
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