<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
-------- ---------
Commission File Number 1-7908
--------
ADAMS RESOURCES & ENERGY, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 74-1753147
------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Houston, Texas 77027
------------------------------------------------
(Address of principal executive office & Zip Code)
Registrant's telephone number, including area code (713) 881-3600
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock of the Registrant, par value $.10 per
share, outstanding at August 5, 1999 was 4,217,596.
<PAGE> 2
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Marketing ................................... $ 1,271,829 $ 860,706 $ 756,563 $ 454,329
Transportation .............................. 16,925 16,992 9,074 8,329
Oil and Gas ................................. 1,716 3,516 863 1,920
----------- ----------- ----------- -----------
1,290,470 881,214 766,500 464,578
----------- ----------- ----------- -----------
Costs and expenses:
Operating
Marketing .................................. 1,265,914 856,572 752,553 452,099
Transportation ............................. 15,229 14,890 7,996 7,356
Oil and gas ................................ 1,052 1,939 343 1,637
Corporate general and administrative ........ 1,427 1,157 703 614
Depreciation, depletion and amortization .... 3,295 4,252 1,509 2,059
----------- ----------- ----------- -----------
1,286,917 878,810 763,104 463,765
----------- ----------- ----------- -----------
Operating earnings ............................ 3,553 2,404 3,396 813
Other income (expense)
Property sales and other .................... 705 108 39 --
Interest .................................... (43) (146) (13) (81)
----------- ----------- ----------- -----------
662 (38) 26 (81)
----------- ----------- ----------- -----------
Earnings before income taxes .................. 4,215 2,366 3,422 732
Income tax provision
Current ..................................... 234 702 189 208
Deferred .................................... 900 200 771 100
----------- ----------- ----------- -----------
1,134 902 960 308
----------- ----------- ----------- -----------
Net earnings .................................. $ 3,081 $ 1,464 $ 2,462 $ 424
=========== =========== =========== ===========
Basic and diluted net earnings
per common share ............................ $ .73 $ .35 $ .58 $ .10
=========== =========== =========== ===========
Dividends per common share .................... $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- Marketing
Marketing division revenues, operating earnings and significant
operating statistics were as follows (in thousands except price information):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $1,271,829 $ 860,706 $ 756,563 $ 454,329
Operating earnings $ 4,269 $ 2,577 $ 3,195 $ 1,452
Volume/Price Information:
Wellhead Purchases 195 Bbls 111 Bbls 220 Bbls 105 Bbls
Per day (1)
Average Crude
Oil Price per Bbl $ 15.51 $ 13.39 $ 13.41 $ 12.48
</TABLE>
(1) Reflects the volume of crude oil purchased from third parties at
the lease level and shipped to market.
Second quarter 1999 marketing revenues were $756,563,000 a 66%
increase over the comparative 1998 period. The revenue growth resulted from
increased purchase volumes together with rising crude oil prices. While
marketing volumes were increasing, marketing operating earnings were
increasing at a faster rate due to improved margins. The general trend for
crude prices caused margins to increase in the current period. During the
second quarter of 1999, the Company was selling its crude oil inventory
into a rising marketplace while during the second quarter of 1998,
inventory was sold into a market experiencing declining prices.
-3-
<PAGE> 4
- Transportation
Transportation revenues and operating earnings were as follows (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended Increase Three Months Ended Increase
June 30, (Decrease) June 30, (Decrease)
------------------- -------- -------------------- --------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues $16,925 $16,992 -- $ 9,074 $ 8,329 9%
Operating earnings $ 1,198 $ 1,659 (28%) $ 815 $ 740 10%
</TABLE>
During the second quarter of 1999, the Company began to experience
an increase in the demand for its petrochemical trucking services. Trucking
revenues improved to $9,074,000 in the current quarter versus $8,329,000 in
the prior year period. The revenue increase caused operating earnings to
improve by 10% to $815,000 for the second quarter of 1999. Trucking
operations have not experienced the level of demand originally anticipated
for 1999. In addition, higher fuel prices and driver wage scales have
served to stymie earnings growth.
- Oil and Gas
Oil and gas division revenues and operating earnings are primarily
a function of crude oil and natural gas prices and volumes. Comparative
amounts are as follows (in thousands except price information):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------- ------------------
1999 1998 1999 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenues $ 1,716 $ 3,516 $ 863 $ 1,920
Operating earnings (loss) $ (487) $ (675) $ 89 $ (765)
Volume/Price Information:
Crude oil
Volume 21 Bbls 36 Bbls 11 Bbls 19 Bbls
Average price per Bbl $ 12.42 $ 13.75 $ 14.23 $ 13.03
Natural gas
Volume 860 Mcf 1,625 Mcf 410 Mcf 825 Mcf
Average price per Mcf $ 1.71 $ 1.95 $ 1.75 $ 1.99
</TABLE>
Oil and gas revenues totaled $863,000 for the second quarter of
1999 as compared to
-4-
<PAGE> 5
$1,920,000 for the similar 1998 period. Reduced revenues were caused by
normal declining natural gas production volumes which fell to 410,000 Mcf
in the current quarter compared to 825,000 Mcf in the prior year period.
Comparative divisional operating earnings were improved, however, to
$89,000 against a prior period operating loss of $765,000. Last year's
operating loss resulted from $1,044,000 of seismic geophysical costs
incurred and expensed by the Company. Such expenditures are periodically
necessary in an effort to locate new reserves.
The Company plans to participate in the drilling of 21 wells
during the second half of 1999. Sixteen of the wells will be development
wells, ten of which will test "bright spot" amplitudes defined by 3-D
seismic surveys in two producing fields. Four of the five exploratory wells
will test "bright spot" amplitudes identified on two large 3-D shoots
conducted last year in Willacy and Matagorda Counties of Texas. Estimated
costs to be incurred by the Company in 1999 are approximately $2.7 million.
Funding for these projects will come from current cash flow. In addition,
the Company has taken an interest in a large acreage position in Fort Bend
County, Texas where a 3-D survey had recently been completed. Coupled with
the 1999 efforts, these prospects are expected to provide additional
drilling opportunities into the year 2000.
Depreciation, depletion, and amortization
The provision for depreciation, depletion and amortization is
reduced in the current quarter due to lower oil and gas production volumes.
- Other income (expense)
Property sales and other income of $705,000 and $108,000,
respectively, resulted primarily from gains realized on the sale of
forty-five truck tractors in the first quarter of 1999 and from the sale of
a former gasoline service station location during the first quarter of
1998. Interest expense is reduced in 1999 because the Company used its
excess cash flow to reduce its level of long-term debt.
Liquidity and Capital Resources
Cash flow from operations before working capital items for the
first six months of 1999 totaled $6,660,000. The portion of cash flow
invested in transportation operations totaled $945,000, while marketing
equipment additions totaled $1,020,000 and $266,000 went toward oil and gas
drilling. The remaining $4.4 million of cash flow before working capital
items served to bolster cash reserves. As business continues to grow, the
availability of trade credit becomes increasingly critical to the success
of the Company's operation. Thus, management places great importance on
maintaining a strong liquid balance sheet.
Refer to the "Liquidity and Capital Resources" section of the
Company's Annual Report on Form 10-K for the year ended December 31, 1998
for additional discussion of the Company's bank relationships and other
matters.
-5-
<PAGE> 6
Year 2000
Many currently installed computer systems and software products
are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these date code fields will need to accept
four-digit entries to distinguish 21st century dates from 20th century
dates. As a result, computer systems and software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated
with such compliance, but systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Company has completed a review of its key computer systems and is
in the process of implementing certain new operating systems applications
necessary to resolve potential year 2000 compliance issues. Many of the
Company's operating and financial systems are already compliant. The
Company's remaining operating and financial systems are scheduled for
compliance in phases and will be compliant by the year 2000.
The Company has communicated with software vendors, business partners
and others with which it conducts business to provide assurances that their
systems will be year 2000 compliant. Adams could be adversely affected by
the failure of these unaffiliated companies to adequately address the year
2000 issue. Contingency planning will be included in this assessment to
identify arrangements to mitigate the impact of disruptions from outside
sources.
As of June 30, 1999, the Company had incurred and expensed
approximately $175,000 of costs to become year 2000 compliant. An
additional $25,000 is expected to be incurred and expensed during the
remainder of 1999 in order to complete this project.
-6-
<PAGE> 7
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 14,003 $ 10,215
Accounts receivable, net ............................ 112,459 73,864
Inventories ......................................... 10,545 8,288
Prepaid and other ................................... 1,478 801
--------- -----------
Total current assets .................. 138,485 93,168
--------- -----------
Property and equipment ................................ 64,834 64,019
Less - accumulated depreciation,
depletion and amortization ................... (38,759) (36,226)
--------- -----------
26,075 27,793
--------- -----------
Other assets .......................................... 1,373 1,373
--------- -----------
$ 165,933 $ 122,334
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 117,048 $ 78,444
Accrued and other liabilities ....................... 5,508 3,869
--------- -----------
Total current liabilities .................... 122,556 82,313
Long-term debt, less current maturities ............... 8,500 9,100
Deferred taxes and other liabilities .................. 1,740 865
--------- -----------
132,796 92,278
Shareholders' equity:
Preferred stock - $1.00 par value, 960,000 shares
authorized, none outstanding .................... -- --
Common stock - $.10 par value, 7,500,000
shares authorized, 4,217,596 shares
outstanding ..................................... 422 422
Contributed capital ................................. 11,693 11,693
Retained earnings since December 31, 1992 ........... 21,022 17,941
--------- -----------
Total shareholders' equity ................... 33,137 30,056
--------- -----------
$ 165,933 $ 122,334
========= ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-7-
<PAGE> 8
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATIONS:
Net earnings .............................................. $ 3,081 $ 1,464
Items of income not requiring (providing) cash -
Depreciation, depletion and amortization ................ 3,295 4,252
Deferred income tax provision ........................... 900 200
Gain on sale of properties .............................. (590) (61)
Other, net .............................................. (26) (376)
Decrease (increase) in accounts receivable ................ (38,595) 22,200
Decrease (increase) in inventories ........................ (2,257) (955)
Decrease (increase) in prepaid and other .................. (677) 487
Increase (decrease) in accounts payable ................... 38,604 (25,343)
Increase (decrease) in accrued liabilities ................ 1,639 (512)
-------- --------
Net cash provided (required) by operating activities .... 5,374 1,356
-------- --------
INVESTING ACTIVITIES:
Property and equipment additions .......................... (2,231) (4,462)
Proceeds from property sales .............................. 1,245 95
-------- --------
Net cash provided by (used in) investing activities ..... (986) (4,367)
-------- --------
FINANCING ACTIVITIES:
Repayment of debt ......................................... (600) (235)
-------- --------
Net cash provided by (used in) financing activities ..... (600) (235)
-------- --------
Increase (decrease) in cash and cash equivalents ............ 3,788 (3,246)
Cash at beginning of period ................................. 10,215 6,496
-------- --------
Cash at end of period ....................................... $ 14,003 3,250
======== ========
Supplemental disclosure of cash flow information:
Interest paid during the period ........................... $ 43 $ 146
======== ========
Income taxes paid during the period ....................... $ 141 $ 513
======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-8-
<PAGE> 9
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying condensed consolidated financial statements are
unaudited but, in the opinion of the Company's management, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position at June 30, 1999 and December 31, 1998 and
results of operations and cash flows for the six months ended and three months
ended June 30, 1999 and 1998. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
Securities and Exchange Commission rules and regulations, although the Company
believes the disclosures made are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements, and the notes
thereto, included in the Company's latest annual report on Form 10-K. The
interim statement of operations is not necessarily indicative of results to be
expected for a full year.
Note 2 - Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" effective January 1, 1998. Under this new
standard, companies are required to report certain information about operating
segments in consolidated statements. Operating segments are determined based on
the method by which management organizes its business for making operating
decisions and assessing performance.
-9-
<PAGE> 10
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
The Company is primarily engaged in the business of crude oil and
petroleum products marketing, transportation, and oil and gas exploration and
production. Information concerning the Company's various business activities is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Depreci-
ation,
Earnings Depletion Property
(Loss) and and
from Amorti- Equipment
Revenues Operations zation Additions
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
For the six months ended
June 30, 1999
Marketing ............................................. $1,271,829 $ 4,269 $ 1,646 $ 1,020
Transportation ........................................ 16,925 1,198 498 945
Oil and gas ........................................... 1,716 (487) 1,151 266
---------- ---------- ---------- ----------
$1,290,470 $ 4,980 $ 3,295 $ 2,231
========== ========== ========== ==========
For the six months ended
June 30, 1998
Marketing ............................................. $ 860,706 $ 2,577 $ 1,556 $ 1,747
Transportation ........................................ 16,992 1,659 444 1,458
Oil and gas ........................................... 3,516 (675)(1) 2,252 1,257
---------- ---------- ---------- ----------
$ 881,214 $ 3,561 $ 4,252 $ 4,462
========== ========== ========== ==========
For the three months ended
June 30, 1999
Marketing ............................................. $ 756,563 $ 3,195 $ 815 $ 808
Transportation ........................................ 9,074 815 263 423
Oil and gas ........................................... 863 89 431 134
---------- ---------- ---------- ----------
$ 766,500 $ 4,099 $ 1,509 $ 1,365
========== ========== ========== ==========
For the three months ended
June 30, 1998
Marketing ............................................. $ 454,329 $ 1,452 $ 777 $ 919
Transportation ........................................ 8,329 740 234 1,044
Oil and gas ........................................... 1,920 (765)(1) 1,048 459
---------- ---------- ---------- ----------
$ 464,578 $ 1,427 $ 2,059 $ 2,422
========== ========== ========== ==========
</TABLE>
(1) Includes a $1,044,000 comparative earnings decrease caused by the Company
expensing certain 3-D seismic geophysical costs.
-10-
<PAGE> 11
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Identifiable assets by industry segment are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Marketing .................... $126,910 $ 86,510
Transportation ............... 14,061 13,947
Oil and gas .................. 9,258 10,227
Other ........................ 15,704 11,650
-------- ------------
$165,933 $ 122,334
======== ============
</TABLE>
Intersegment sales are insignificant. Other identifiable assets are
primarily corporate cash, accounts receivable, and properties not identified
with any specific segment of the Company's business. All sales by the Company
occurred in the United States.
Earnings from operations by segment represent revenues less operating
costs and expenses and depreciation, depletion and amortization and are
reconciled to earnings from operations before income taxes, as follows (in
thousands):
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Earnings from operations ............... $ 4,980 $ 3,561 $ 4,099 $ 1,427
General and administrative expenses .... (1,427) (1,157) (703) (614)
Property sales and other ............... 705 108 39 --
Interest expense ....................... (43) (146) (13) (81)
------- ------- ------- -------
Earnings before income taxes ........... $ 4,215 $ 2,366 $ 3,422 $ 732
======= ======= ======= =======
</TABLE>
Note 3 - Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Qualifying hedges allow a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that
- 11 -
<PAGE> 12
receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000. The standard cannot be applied retroactively but early
adoption is permitted. The Company has not yet determined the impacts of
adopting SFAS No. 133; however, this standard could increase volatility in
earnings and shareholder's equity through other comprehensive income.
On January 1, 1999 the Company adopted the Emerging Issues Task Force's
(EITF) Issue 98-10, "Accounting for Contracts Involved in Energy Trading and
Risk Management Activities." Issue 98-10 is effective for fiscal years beginning
after December 15, 1998, and requires energy trading contracts (as defined) to
be recorded at fair value on the balance sheet, with the change in fair value
included in earnings. The effect of initial adoption on January 1, 1999 was not
significant. The accompanying statement of operations includes a net charge of
$471,000 to reflect a loss in marketing revenues for the current period relating
to such activities. The accompanying balance sheet reflects the fair value of
the trading asset or $424,000 in other current assets and the fair value of the
trading liability or $895,000 in current liabilities.
- 12 -
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. - None
Item 2. - None
Item 3. - None
Item 4. - None
Item 6. Exhibits and Reports on Form 8K
a. Exhibits - None.
b. Reports on Form 8-K - None.
- 13 -
<PAGE> 14
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADAMS RESOURCES & ENERGY, INC.
(Registrant)
Date: August 5, 1999 By /s/ K. S. Adams, Jr.
-----------------------------
K. S. Adams, Jr.
Chief Executive Officer
By /s/ Richard B. Abshire
-----------------------------
Richard B. Abshire
Chief Financial Officer
- 14 -
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27* - Financial Data Schedule
</TABLE>
- ----------------------
* - Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,003
<SECURITIES> 0
<RECEIVABLES> 112,703
<ALLOWANCES> (244)
<INVENTORY> 10,545
<CURRENT-ASSETS> 138,485
<PP&E> 64,834
<DEPRECIATION> (38,759)
<TOTAL-ASSETS> 165,933
<CURRENT-LIABILITIES> 122,556
<BONDS> 8,500
0
0
<COMMON> 422
<OTHER-SE> 32,715
<TOTAL-LIABILITY-AND-EQUITY> 165,933
<SALES> 1,290,470
<TOTAL-REVENUES> 1,290,470
<CGS> 1,282,195
<TOTAL-COSTS> 1,286,212
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 4,215
<INCOME-TAX> 1,134
<INCOME-CONTINUING> 3,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,081
<EPS-BASIC> .73
<EPS-DILUTED> .73
</TABLE>
