UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020March 31, 2021
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: 1-07908
ADAMS RESOURCES & ENERGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | | | | | | | |
Delaware | | 74-1753147 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| | |
17 South Briar Hollow Lane, Suite 100 Houston, Texas 77027 |
(Address of Principal Executive Offices, including Zip Code) |
(713) 881-3600
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.10 Par Value | | AE | | NYSE American LLC |
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 þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☐ | | Accelerated filer | ☑☐ |
Non-accelerated filer | ☐☑ | | Smaller reporting company | ☑ |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
A total of 4,242,2844,251,015 shares of Common Stock were outstanding at NovemberMay 1, 2020.2021.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| | | September 30, | | December 31, | | March 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 53,106 | | | $ | 112,994 | | Cash and cash equivalents | | $ | 58,985 | | | $ | 39,293 | |
Restricted cash | Restricted cash | | 4,865 | | | 9,261 | | Restricted cash | | 12,377 | | | 12,772 | |
Accounts receivable, net of allowance for doubtful | Accounts receivable, net of allowance for doubtful | | Accounts receivable, net of allowance for doubtful | |
accounts of $114 and $141, respectively | | 94,654 | | | 94,534 | | |
| accounts of $113 and $114, respectively | | accounts of $113 and $114, respectively | | 111,068 | | | 99,799 | |
Accounts receivable – related party | | Accounts receivable – related party | | 13 | | | 0 | |
Inventory | Inventory | | 15,942 | | | 26,407 | | Inventory | | 29,223 | | | 19,336 | |
Derivative assets | Derivative assets | | 3 | | | 0 | | Derivative assets | | 576 | | | 61 | |
Income tax receivable | Income tax receivable | | 7,054 | | | 2,569 | | Income tax receivable | | 11,638 | | | 13,288 | |
Prepayments and other current assets | Prepayments and other current assets | | 1,417 | | | 1,559 | | Prepayments and other current assets | | 3,621 | | | 2,964 | |
Total current assets | Total current assets | | 177,041 | | | 247,324 | | Total current assets | | 227,501 | | | 187,513 | |
Property and equipment, net | Property and equipment, net | | 64,469 | | | 69,046 | | Property and equipment, net | | 90,643 | | | 94,134 | |
Operating lease right-of-use assets, net | Operating lease right-of-use assets, net | | 8,453 | | | 9,576 | | Operating lease right-of-use assets, net | | 7,774 | | | 8,051 | |
Intangible assets, net | Intangible assets, net | | 4,304 | | | 1,597 | | Intangible assets, net | | 3,902 | | | 4,106 | |
Cash deposits and other assets | | 2,193 | | | 3,299 | | |
Other assets | | Other assets | | 2,482 | | | 2,383 | |
Total assets | Total assets | | $ | 256,460 | | | $ | 330,842 | | Total assets | | $ | 332,302 | | | $ | 296,187 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | | LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | | $ | 76,407 | | | $ | 147,851 | | Accounts payable | | $ | 122,155 | | | $ | 85,991 | |
Accounts payable – related party | | 158 | | | 5 | | |
| Derivative liabilities | | Derivative liabilities | | 546 | | | 52 | |
Current portion of finance lease obligations | Current portion of finance lease obligations | | 2,505 | | | 2,167 | | Current portion of finance lease obligations | | 4,494 | | | 4,112 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | | 2,137 | | | 2,252 | | Current portion of operating lease liabilities | | 2,172 | | | 2,050 | |
Other current liabilities | Other current liabilities | | 11,687 | | | 7,302 | | Other current liabilities | | 19,888 | | | 22,343 | |
Total current liabilities | Total current liabilities | | 92,894 | | | 159,577 | | Total current liabilities | | 149,255 | | | 114,548 | |
Other long-term liabilities: | Other long-term liabilities: | | | | | Other long-term liabilities: | | | | |
Asset retirement obligations | Asset retirement obligations | | 1,610 | | | 1,573 | | Asset retirement obligations | | 2,325 | | | 2,308 | |
Finance lease obligations | Finance lease obligations | | 4,011 | | | 4,376 | | Finance lease obligations | | 12,202 | | | 11,507 | |
Operating lease liabilities | Operating lease liabilities | | 6,314 | | | 7,323 | | Operating lease liabilities | | 5,603 | | | 6,000 | |
Deferred taxes and other liabilities | Deferred taxes and other liabilities | | 7,547 | | | 6,352 | | Deferred taxes and other liabilities | | 11,900 | | | 12,732 | |
Total liabilities | Total liabilities | | 112,376 | | | 179,201 | | Total liabilities | | 181,285 | | | 147,095 | |
| Commitments and contingencies (Note 14) | Commitments and contingencies (Note 14) | | Commitments and contingencies (Note 14) | | 0 | | 0 |
| Shareholders’ equity: | Shareholders’ equity: | | Shareholders’ equity: | |
Preferred stock – $1.00 par value, 960,000 shares | Preferred stock – $1.00 par value, 960,000 shares | | Preferred stock – $1.00 par value, 960,000 shares | |
authorized, NaN outstanding | authorized, NaN outstanding | | 0 | | | 0 | | authorized, NaN outstanding | | 0 | | | 0 | |
Common stock – $0.10 par value, 7,500,000 shares | Common stock – $0.10 par value, 7,500,000 shares | | Common stock – $0.10 par value, 7,500,000 shares | |
authorized, 4,242,284 and 4,235,533 shares outstanding, respectively | | 423 | | | 423 | | |
authorized, 4,251,015 and 4,243,716 shares outstanding, respectively | | authorized, 4,251,015 and 4,243,716 shares outstanding, respectively | | 423 | | | 423 | |
Contributed capital | Contributed capital | | 13,150 | | | 12,778 | | Contributed capital | | 13,494 | | | 13,340 | |
Retained earnings | Retained earnings | | 130,511 | | | 138,440 | | Retained earnings | | 137,100 | | | 135,329 | |
Total shareholders’ equity | Total shareholders’ equity | | 144,084 | | | 151,641 | | Total shareholders’ equity | | 151,017 | | | 149,092 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | $ | 256,460 | | | $ | 330,842 | | Total liabilities and shareholders’ equity | | $ | 332,302 | | | $ | 296,187 | |
See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| | September 30, | | September 30, | | March 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Revenues: | Revenues: | | | | | | | | Revenues: | | | | |
Marketing | Marketing | $ | 245,184 | | | $ | 434,609 | | | $ | 722,546 | | | $ | 1,331,410 | | Marketing | $ | 304,023 | | | $ | 337,221 | | |
Transportation | Transportation | 21,720 | | | 15,698 | | | 50,121 | | | 48,498 | | Transportation | 21,235 | | | 16,256 | | |
Pipeline and storage | | Pipeline and storage | 233 | | | 0 | | |
Total revenues | Total revenues | 266,904 | | | 450,307 | | | 772,667 | | | 1,379,908 | | Total revenues | 325,491 | | | 353,477 | | |
| Costs and expenses: | Costs and expenses: | | Costs and expenses: | | |
Marketing | Marketing | 237,479 | | | 429,507 | | | 721,798 | | | 1,313,822 | | Marketing | 295,207 | | | 352,865 | | |
Transportation | Transportation | 17,105 | | | 13,365 | | | 41,178 | | | 40,902 | | Transportation | 17,460 | | | 13,185 | | |
Pipeline and storage | | Pipeline and storage | 544 | | | 0 | | |
General and administrative | General and administrative | 1,405 | | | 2,739 | | | 7,030 | | | 8,005 | | General and administrative | 3,376 | | | 2,894 | | |
Depreciation and amortization | Depreciation and amortization | 4,859 | | | 4,393 | | | 13,610 | | | 12,266 | | Depreciation and amortization | 5,053 | | | 4,473 | | |
Total costs and expenses | Total costs and expenses | 260,848 | | | 450,004 | | | 783,616 | | | 1,374,995 | | Total costs and expenses | 321,640 | | | 373,417 | | |
| Operating (losses) earnings | 6,056 | | | 303 | | | (10,949) | | | 4,913 | | |
Operating earnings (losses) | | Operating earnings (losses) | 3,851 | | | (19,940) | | |
| Other income (expense): | Other income (expense): | | Other income (expense): | | |
Gain on dissolution of investment | 0 | | | 0 | | | 0 | | | 573 | | |
Interest income | 105 | | | 758 | | | 614 | | | 2,145 | | |
Interest and other income | | Interest and other income | 134 | | | 365 | | |
Interest expense | Interest expense | (70) | | | (242) | | | (288) | | | (424) | | Interest expense | (220) | | | (150) | | |
Total other income (expense), net | 35 | | | 516 | | | 326 | | | 2,294 | | |
Total other (expense) income, net | | Total other (expense) income, net | (86) | | | 215 | | |
| (Losses) Earnings before income taxes | 6,091 | | | 819 | | | (10,623) | | | 7,207 | | |
Income tax benefit (provision) | (3,018) | | | (179) | | | 5,772 | | | (1,653) | | |
Earnings (Losses) before income taxes | | Earnings (Losses) before income taxes | 3,765 | | | (19,725) | | |
Income tax (provision) benefit | | Income tax (provision) benefit | (957) | | | 8,298 | | |
| Net (losses) earnings | $ | 3,073 | | | $ | 640 | | | $ | (4,851) | | | $ | 5,554 | | |
Net earnings (losses) | | Net earnings (losses) | $ | 2,808 | | | $ | (11,427) | | |
| (Losses) Earnings per share: | | |
Basic net (losses) earnings per common share | $ | 0.72 | | | $ | 0.15 | | | $ | (1.14) | | | $ | 1.31 | | |
Diluted net (losses) earnings per common share | $ | 0.72 | | | $ | 0.15 | | | $ | (1.14) | | | $ | 1.31 | | |
Earnings (Losses) per share: | | Earnings (Losses) per share: | | |
Basic net earnings (losses) per common share | | Basic net earnings (losses) per common share | $ | 0.66 | | | $ | (2.70) | | |
Diluted net earnings (losses) per common share | | Diluted net earnings (losses) per common share | $ | 0.66 | | | $ | (2.69) | | |
| Dividends per common share | Dividends per common share | $ | 0.24 | | | $ | 0.24 | | | $ | 0.72 | | | $ | 0.70 | | Dividends per common share | $ | 0.24 | | | $ | 0.24 | | |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | Nine Months Ended | | Three Months Ended |
| | September 30, | | March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Operating activities: | Operating activities: | | | | Operating activities: | | | |
Net (losses) earnings | $ | (4,851) | | | $ | 5,554 | | |
Adjustments to reconcile net (losses) earnings to net cash | | |
Net earnings (losses) | | Net earnings (losses) | $ | 2,808 | | | $ | (11,427) | |
Adjustments to reconcile net earnings (losses) to net cash | | Adjustments to reconcile net earnings (losses) to net cash | |
provided by (used in) operating activities: | provided by (used in) operating activities: | | provided by (used in) operating activities: | |
Depreciation and amortization | Depreciation and amortization | 13,610 | | | 12,266 | | Depreciation and amortization | 5,053 | | | 4,473 | |
Gains on sales of property | Gains on sales of property | (985) | | | (1,386) | | Gains on sales of property | (83) | | | (140) | |
Provision for doubtful accounts | Provision for doubtful accounts | (27) | | | (36) | | Provision for doubtful accounts | (1) | | | (24) | |
Stock-based compensation expense | Stock-based compensation expense | 453 | | | 352 | | Stock-based compensation expense | 185 | | | 134 | |
Deferred income taxes | Deferred income taxes | (1,503) | | | 1,493 | | Deferred income taxes | (829) | | | (2,689) | |
Net change in fair value contracts | Net change in fair value contracts | (3) | | | 20 | | Net change in fair value contracts | (21) | | | (19) | |
Gain on dissolution of AREC | 0 | | | (573) | | |
Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
Accounts receivable | Accounts receivable | (93) | | | 8,520 | | Accounts receivable | (11,268) | | | 41,617 | |
Accounts receivable/payable, affiliates | Accounts receivable/payable, affiliates | 153 | | | (23) | | Accounts receivable/payable, affiliates | (13) | | | 1 | |
Inventories | Inventories | 10,465 | | | (2,121) | | Inventories | (9,887) | | | 16,386 | |
Income tax receivable | Income tax receivable | (1,782) | | | (135) | | Income tax receivable | 1,650 | | | (5,530) | |
Prepayments and other current assets | Prepayments and other current assets | 142 | | | 166 | | Prepayments and other current assets | (657) | | | 253 | |
Accounts payable | Accounts payable | (70,082) | | | 13,613 | | Accounts payable | 36,127 | | | (68,384) | |
Accrued liabilities | Accrued liabilities | 4,396 | | | 4,561 | | Accrued liabilities | 51 | | | 1,506 | |
Other | Other | 17 | | | 871 | | Other | (114) | | | (3) | |
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | (50,090) | | | 43,142 | | Net cash provided by (used in) operating activities | 23,001 | | | (23,846) | |
| Investing activities: | Investing activities: | | Investing activities: | |
Property and equipment additions | Property and equipment additions | (3,589) | | | (25,425) | | Property and equipment additions | (170) | | | (2,212) | |
Asset acquisition | (9,163) | | | (5,624) | | |
| Proceeds from property sales | Proceeds from property sales | 2,282 | | | 2,853 | | Proceeds from property sales | 1,005 | | | 502 | |
Proceeds from dissolution of AREC | 0 | | | 998 | | |
Insurance and state collateral (deposits) refunds | Insurance and state collateral (deposits) refunds | 1,127 | | | 750 | | Insurance and state collateral (deposits) refunds | 0 | | | 1,128 | |
Net cash used in investing activities | (9,343) | | | (26,448) | | |
Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 835 | | | (582) | |
| Financing activities: | Financing activities: | | Financing activities: | |
Principal repayments of finance lease obligations | Principal repayments of finance lease obligations | (1,677) | | | (1,171) | | Principal repayments of finance lease obligations | (1,014) | | | (532) | |
Payment for financed portion of VEX acquisition | | Payment for financed portion of VEX acquisition | (2,500) | | | 0 | |
Payment of contingent consideration liability | Payment of contingent consideration liability | (111) | | | 0 | | Payment of contingent consideration liability | 0 | | | (54) | |
Dividends paid on common stock | Dividends paid on common stock | (3,063) | | | (2,960) | | Dividends paid on common stock | (1,025) | | | (1,016) | |
Net cash used in financing activities | Net cash used in financing activities | (4,851) | | | (4,131) | | Net cash used in financing activities | (4,539) | | | (1,602) | |
| (Decrease) Increase in cash and cash equivalents, including restricted cash | (64,284) | | | 12,563 | | |
Increase (Decrease) in cash and cash equivalents, including restricted cash | | Increase (Decrease) in cash and cash equivalents, including restricted cash | 19,297 | | | (26,030) | |
Cash and cash equivalents, including restricted cash, at beginning of period | Cash and cash equivalents, including restricted cash, at beginning of period | 122,255 | | | 117,066 | | Cash and cash equivalents, including restricted cash, at beginning of period | 52,065 | | | 122,255 | |
Cash and cash equivalents, including restricted cash, at end of period | Cash and cash equivalents, including restricted cash, at end of period | $ | 57,971 | | | $ | 129,629 | | Cash and cash equivalents, including restricted cash, at end of period | $ | 71,362 | | | $ | 96,225 | |
See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Total |
| | Common | | Contributed | | Retained | | Shareholders’ |
| | Stock | | Capital | | Earnings | | Equity |
| | | | | | | | |
Balance, January 1, 2020 | | $ | 423 | | | $ | 12,778 | | | $ | 138,440 | | | $ | 151,641 | |
Net losses | | — | | | — | | | (11,427) | | | (11,427) | |
Stock-based compensation expense | | — | | | 134 | | | — | | | 134 | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,016) | | | (1,016) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (6) | | | (6) | |
Balance, March 31, 2020 | | 423 | | | 12,912 | | | 125,991 | | | 139,326 | |
Net earnings | | — | | | — | | | 3,503 | | | 3,503 | |
Stock-based compensation expense | | — | | | 170 | | | — | | | 170 | |
Cancellation of shares withheld to cover taxes upon vesting of restricted awards | | — | | | (81) | | | — | | | (81) | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,018) | | | (1,018) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (10) | | | (10) | |
Balance, June 30, 2020 | | 423 | | | 13,001 | | | 128,466 | | | 141,890 | |
Net earnings | | — | | | — | | | 3,073 | | | 3,073 | |
Stock-based compensation expense | | — | | | 149 | | | — | | | 149 | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,018) | | | (1,018) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (10) | | | (10) | |
Balance, September 30, 2020 | | $ | 423 | | | $ | 13,150 | | | $ | 130,511 | | | $ | 144,084 | |
See Notes to Unaudited Condensed Consolidated Financial Statements. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Total |
| | Common | | Contributed | | Retained | | Shareholders’ |
| | Stock | | Capital | | Earnings | | Equity |
| | | | | | | | |
Balance, January 1, 2021 | | $ | 423 | | | $ | 13,340 | | | $ | 135,329 | | | $ | 149,092 | |
Net earnings | | — | | | — | | | 2,808 | | | 2,808 | |
Stock-based compensation expense | | — | | | 185 | | | — | | | 185 | |
Cancellation of shares withheld to | | | | | | | | |
cover taxes upon vesting | | — | | | (31) | | | — | | | (31) | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,019) | | | (1,019) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (18) | | | (18) | |
Balance, March 31, 2021 | | $ | 423 | | | $ | 13,494 | | | $ | 137,100 | | | $ | 151,017 | |
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Total |
| | Common | | Contributed | | Retained | | Shareholders’ |
| | Stock | | Capital | | Earnings | | Equity |
| | | | | | | | |
Balance, January 1, 2019 | | $ | 422 | | | $ | 11,948 | | | $ | 134,228 | | | $ | 146,598 | |
Net earnings | | — | | | — | | | 4,908 | | | 4,908 | |
Stock-based compensation expense | | — | | | 123 | | | — | | | 123 | |
Dividends declared: | | | | | | | | |
Common stock, $0.22/share | | — | | | — | | | (928) | | | (928) | |
Awards under LTIP, $0.22/share | | — | | | — | | | (2) | | | (2) | |
Balance, March 31, 2019 | | 422 | | | 12,071 | | | 138,206 | | | 150,699 | |
Net earnings | | — | | | — | | | 6 | | | 6 | |
Stock-based compensation expense | | — | | | 74 | | | — | | | 74 | |
Issuance of common shares for acquisition | | 1 | | | 391 | | | — | | | 392 | |
Cancellation of shares withheld to cover taxes upon vesting of restricted awards | | — | | | (39) | | | — | | | (39) | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,016) | | | (1,016) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (8) | | | (8) | |
Balance, June 30, 2019 | | 423 | | | 12,497 | | | 137,188 | | | 150,108 | |
Net earnings | | — | | | — | | | 640 | | | 640 | |
Stock-based compensation expense | | — | | | 155 | | | — | | | 155 | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,016) | | | (1,016) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (6) | | | (6) | |
Balance, September 30, 2019 | | $ | 423 | | | $ | 12,652 | | | $ | 136,806 | | | $ | 149,881 | |
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| | | | | | | | Total |
| | Common | | Contributed | | Retained | | Shareholders’ |
| | Stock | | Capital | | Earnings | | Equity |
| | | | | | | | |
Balance, January 1, 2020 | | $ | 423 | | | $ | 12,778 | | | $ | 138,440 | | | $ | 151,641 | |
Net losses | | — | | | — | | | (11,427) | | | (11,427) | |
Stock-based compensation expense | | — | | | 134 | | | — | | | 134 | |
Dividends declared: | | | | | | | | |
Common stock, $0.24/share | | — | | | — | | | (1,016) | | | (1,016) | |
Awards under LTIP, $0.24/share | | — | | | — | | | (6) | | | (6) | |
Balance, March 31, 2020 | | $ | 423 | | | $ | 12,912 | | | $ | 125,991 | | | $ | 139,326 | |
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Organization
Adams Resources & Energy, Inc. is a publicly traded Delaware corporation organized in 1973, the common shares of which are listed on the NYSE American LLC under the ticker symbol “AE”. Through our subsidiaries, we are primarily engaged in the business of crude oil marketing, transportation, terminalling and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also conduct tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with fifteen terminals in the Gulf Coast region ofacross the U.S. Unless the context requires otherwise, references to “we,” “us,” “our” or “Company” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.
We operate and report in 23 business segments: (i) crude oil marketing, transportation and storage, andstorage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk.bulk; and (iii) pipeline transportation, terminalling and storage of crude oil. See Note 87 for further information regarding our business segments.
Basis of Presentation
Our results of operations for the three and nine months ended September 30, 2020March 31, 2021 are not necessarily indicative of results expected for the full year of 2020.2021. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals necessary for fair presentation. The condensed consolidated financial statements and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and the rules of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20192020 (the “2019“2020 Form 10-K”) filed with the SEC on March 6, 2020.5, 2021. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of our financial statements in conformity with GAAP requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and on various other assumptions and information we believe to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. While we believe the estimates and assumptions used in the preparation of these condensed consolidated financial statements are appropriate, actual results could differ from those estimates.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies
Cash, Cash Equivalents and Restricted Cash
RestrictedAt March 31, 2021 and December 31, 2020, $5.1 million and $5.1 million, respectively, of the restricted cash represents an amountbalance represented amounts held in a segregated bank account by Wells Fargo as collateral for outstanding letters of credit. At March 31, 2021 and December 31, 2020, $1.5 million and $1.5 million, respectively, of the restricted cash balance related to the initial capitalization of our captive insurance company formed in late 2020 and $5.7 million and $6.1 million, respectively, represented the amount paid to our captive insurance company for insurance premiums.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported in the unaudited condensed consolidated balance sheets that totals to the amounts shown in the unaudited condensed consolidated statements of cash flows at the dates indicated (in thousands):
| | | September 30, | | December 31, | | March 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 53,106 | | | $ | 112,994 | | Cash and cash equivalents | | $ | 58,985 | | | $ | 39,293 | |
Restricted cash | Restricted cash | | 4,865 | | | 9,261 | | Restricted cash | | 12,377 | | | 12,772 | |
Total cash, cash equivalents and restricted cash shown in the | Total cash, cash equivalents and restricted cash shown in the | | | | | Total cash, cash equivalents and restricted cash shown in the | | | | |
unaudited condensed consolidated statements of cash flows | unaudited condensed consolidated statements of cash flows | | $ | 57,971 | | | $ | 122,255 | | unaudited condensed consolidated statements of cash flows | | $ | 71,362 | | | $ | 52,065 | |
Common Shares Outstanding
The following table reconciles our outstanding common stock for the periods indicated:
| | | | | | | | |
| | Common |
| | shares |
| | |
Balance, January 1, 20202021 | | 4,235,5334,243,716 | |
Vesting of restricted stock unit awards | | 217 | |
Balance, March 31, 2020 | | 4,235,750 | |
Vesting of restricted stock unit awards | | 8,6418,544 | |
Shares withheld to cover taxes upon vesting of restricted stock unit awards | | (2,107)(1,245) | |
Balance, June 30, 2020March 31, 2021 | | 4,242,2844,251,015 | |
No activity | | — | |
Balance, September 30, 2020 | | 4,242,284 |
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Earnings Per Share
Basic earnings (losses) per share is computed by dividing our net earnings (losses) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (losses) per share is computed by giving effect to all potential shares of common stock outstanding, including our stock related to unvested restricted stock unit awards. Unvested restricted stock unit awards granted under the Adams Resources & Energy, Inc. 2018 Long-Term Incentive Plan (“2018 LTIP”) are not considered to be participating securities as the holders of these shares do not have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares (see Note 11 for further discussion).
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the calculation of basic and diluted earnings (losses) earnings per share was as follows for the periods indicated (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Earnings (losses) per share — numerator: | | | | | | | |
Net (losses) earnings | $ | 3,073 | | | $ | 640 | | | $ | (4,851) | | | $ | 5,554 | |
| | | | | | | |
Denominator: | | | | | | | |
Basic weighted average number of shares outstanding | 4,242 | | | 4,234 | | | 4,239 | | | 4,226 | |
| | | | | | | |
Basic (losses) earnings per share | $ | 0.72 | | | $ | 0.15 | | | $ | (1.14) | | | $ | 1.31 | |
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Diluted (losses) earnings per share: | | | | | | | |
Diluted weighted average number of shares outstanding: | | | | | | | |
Common shares | 4,242 | | | 4,234 | | | 4,239 | | | 4,226 | |
Restricted stock unit awards (1) | 9 | | | 3 | | | 0 | | | 4 | |
Performance share unit awards (1) (2) | 2 | | | 1 | | | 0 | | | 0 | |
Total diluted shares | 4,253 | | | 4,238 | | | 4,239 | | | 4,230 | |
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Diluted (losses) earnings per share | $ | 0.72 | | | $ | 0.15 | | | $ | (1.14) | | | $ | 1.31 | |
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2021 | | 2020 | | | | |
Earnings (losses) per share — numerator: | | | | | | | |
Net earnings (losses) | $ | 2,808 | | | $ | (11,427) | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Basic weighted average number of shares outstanding | 4,246 | | | 4,236 | | | | | |
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Basic earnings (losses) per share | $ | 0.66 | | | $ | (2.70) | | | | | |
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Diluted earnings (losses) per share: | | | | | | | |
Diluted weighted average number of shares outstanding: | | | | | | | |
Common shares | 4,246 | | | 4,236 | | | | | |
Restricted stock unit awards | 18 | | | 12 | | | | | |
Performance share unit awards (1) | 7 | | | 2 | | | | | |
Total diluted shares | 4,271 | | | 4,250 | | | | | |
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Diluted earnings (losses) per share | $ | 0.66 | | | $ | (2.69) | | | | | |
_______________
(1)For the nine months ended September 30, 2020, the effect of the restricted stock unit awards and the performance share awards on losses per share is anti-dilutive.
(2)The dilutive effect of performance share awards are included in the calculation of diluted earnings per share when the performance share award performance conditions have been achieved. For the nine months ended September 30, 2019, the effect of the performance share awards on earnings per share is anti-dilutive.
Fair Value Measurements
The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities are recorded at fair value based on market quotations from actively traded liquid markets.
A three-tier hierarchy has been established that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate these fair values. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy.
See Note 6 for a discussion of the Level 3 inputs used in the determination of the fair value of the intangible assets acquired in an asset acquisition that occurred in June 2020.
Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and we elect, cash flow hedge accounting. We had 0 contracts designated for hedge accounting during any current reporting periods (see Note 10 for further information).
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of these items and their respective tax basis.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating losses (“NOL”) incurred in tax years 2018, 2019 and 2020 to offset 100 percent of taxable income and be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.
We are continuing to evaluate the full impact of the CARES Act. However, we have determined that the NOL carryback provision in the CARES Act would result in a cash benefit to us for the fiscal years 2018 and 2019. We carried back our NOL for fiscal year 2018 to 2013, and in June 2020, we received a cash refund of approximately $2.7 million. We have an income tax receivablereceivables at September 30, 2020March 31, 2021 of approximately $3.7 million for the benefit of carrying back the NOL for the fiscal year 2019 to 2014. We are forecasting an2014 and approximately $6.8 million for the benefit of carrying back the NOL for the fiscal year 2020 to 2015 and expect to carry it back to previous years. As a result, we have also included the 2020 provisional amounts in income tax receivable at September 30, 2020.2016. As we are carrying the losses back to years beginning before January 1, 2018, the receivables were recorded at the previous 35 percent federal tax rate rather than the current statutory rate of 21 percent.
Inventory
Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of our crude oil marketing and pipeline and storage operations. Crude oil inventory is carried at the lower of cost or net realizable value. At the end of each reporting period, we assess the carrying value of our inventory and make adjustments necessary to reduce the carrying value to the applicable net realizable value. Any resulting adjustments are a component of marketing costs and expenses or pipeline and storage expenses on our consolidated statements of operations. During the ninethree months ended September 30,March 31, 2020, we recorded a write-downcharge of $18.2$24.2 million related to the write-down of our crude oil inventory in our crude oil marketing segment due to significant declines in prices in 2020.prices.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for additions, improvements and other enhancements to property and equipment are capitalized, and minor replacements, maintenance and repairs that do not extend asset life or add value are charged to expense as incurred. When property and equipment assets are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in results of operations in operating costs and expenses for the respective period. Property and equipment, except for land, is depreciated using the straight-line method over the estimated average useful lives ranging from two to thirty-nine years.
We review our long-lived assets for impairment whenever there is evidence that the carrying value of these assets may not be recoverable. Any impairment recognized is permanent and may not be restored. Property and equipment is reviewed at the lowest level of identifiable cash flows. For property and equipment requiring impairment, the fair value is estimated based on an internal discounted cash flow model of future cash flows.
See Note 5 for additional information regarding our property and equipment.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This new standard eliminates certain exceptions in Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted in any interim period within that year.
We elected to early adopt this standard during the period ended June 30, 2020, and most amendments within the standard were required to be applied on a prospective basis as of January 1, 2020, while certain amendments were applied on a retrospective or modified retrospective basis. The most significant impact to us is the removal of a limit on the tax benefit recognized on pre-tax losses in interim periods, which was required to be applied on a prospective basis. As a result of our adoption of ASU 2019-12, we calculated our quarterly income tax benefits based on ordinary losses incurred during the first, second and third quarters of 2020, no longer limiting the computed benefit if it exceeds the amount of benefit that would be recognized if the year-to-date ordinary loss were the anticipated ordinary loss for the full fiscal year.
Stock-Based Compensation
We measure all share-based payments,payment awards, including the issuance of restricted stock unitsunit awards and performance share unitsunit awards to employees and board members, using a fair-value based method. The cost of services received from employees and non-employee board members in exchange for awards of equity instruments is recognized in the consolidated statements of operations based on the estimated fair value of those awards on the grant date and is amortized on a straight-line basis over the requisite service period. The fair value of restricted stock unit awards and performance share unit awards is based on the closing price of our common stock on the grant date. We account for forfeitures as they occur. See Note 11 for additional information regarding our 2018 LTIP.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Revenue Recognition
Revenue Disaggregation
The following table disaggregates our revenue by segment and by major source for the periods indicated (in thousands):
| | | Reporting Segments | | | Reporting Segments | |
| | Marketing | | Transportation | | Total | | Marketing | | Transportation | | Pipeline and storage | | Total |
| Three Months Ended September 30, 2020 | | |
Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2021 | |
Revenues from contracts with customers | Revenues from contracts with customers | $ | 242,267 | | | $ | 21,720 | | | $ | 263,987 | | Revenues from contracts with customers | $ | 297,475 | | | $ | 21,235 | | | $ | 233 | | | $ | 318,943 | |
Other (1) | Other (1) | 2,917 | | | 0 | | | 2,917 | | Other (1) | 6,548 | | | 0 | | | 0 | | | 6,548 | |
Total revenues | Total revenues | $ | 245,184 | | | $ | 21,720 | | | $ | 266,904 | | Total revenues | $ | 304,023 | | | $ | 21,235 | | | $ | 233 | | | $ | 325,491 | |
| Timing of revenue recognition: | Timing of revenue recognition: | | Timing of revenue recognition: | |
Goods transferred at a point in time | Goods transferred at a point in time | $ | 242,267 | | | $ | 0 | | | $ | 242,267 | | Goods transferred at a point in time | $ | 297,475 | | | $ | 0 | | | $ | 0 | | | $ | 297,475 | |
Services transferred over time | Services transferred over time | 0 | | | 21,720 | | | 21,720 | | Services transferred over time | 0 | | | 21,235 | | | 233 | | | 21,468 | |
Total revenues from contracts with customers | Total revenues from contracts with customers | $ | 242,267 | | | $ | 21,720 | | | $ | 263,987 | | Total revenues from contracts with customers | $ | 297,475 | | | $ | 21,235 | | | $ | 233 | | | $ | 318,943 | |
| Three Months Ended September 30, 2019 | | |
Three Months Ended March 31, 2020 | | Three Months Ended March 31, 2020 | |
Revenues from contracts with customers | Revenues from contracts with customers | $ | 396,001 | | | $ | 15,698 | | | $ | 411,699 | | Revenues from contracts with customers | $ | 319,717 | | | $ | 16,256 | | | $ | 0 | | | $ | 335,973 | |
Other (1) | Other (1) | 38,608 | | | 0 | | | 38,608 | | Other (1) | 17,504 | | | 0 | | | 0 | | | 17,504 | |
Total revenues | Total revenues | $ | 434,609 | | | $ | 15,698 | | | $ | 450,307 | | Total revenues | $ | 337,221 | | | $ | 16,256 | | | $ | 0 | | | $ | 353,477 | |
| Timing of revenue recognition: | Timing of revenue recognition: | | Timing of revenue recognition: | |
Goods transferred at a point in time | Goods transferred at a point in time | $ | 396,001 | | | $ | 0 | | | $ | 396,001 | | Goods transferred at a point in time | $ | 319,717 | | | $ | 0 | | | $ | 0 | | | $ | 319,717 | |
Services transferred over time | Services transferred over time | 0 | | | 15,698 | | | 15,698 | | Services transferred over time | 0 | | | 16,256 | | | 0 | | | 16,256 | |
Total revenues from contracts with customers | Total revenues from contracts with customers | $ | 396,001 | | | $ | 15,698 | | | $ | 411,699 | | Total revenues from contracts with customers | $ | 319,717 | | | $ | 16,256 | | | $ | 0 | | | $ | 335,973 | |
| Nine Months Ended September 30, 2020 | | |
Revenues from contracts with customers | $ | 693,513 | | | $ | 50,121 | | | $ | 743,634 | | |
Other (1) | 29,033 | | | 0 | | | 29,033 | | |
Total revenues | $ | 722,546 | | | $ | 50,121 | | | $ | 772,667 | | |
| Timing of revenue recognition: | | |
Goods transferred at a point in time | $ | 693,513 | | | $ | 0 | | | $ | 693,513 | | |
Services transferred over time | 0 | | | 50,121 | | | 50,121 | | |
Total revenues from contracts with customers | $ | 693,513 | | | $ | 50,121 | | | $ | 743,634 | | |
| Nine Months Ended September 30, 2019 | | |
Revenues from contracts with customers | $ | 1,147,139 | | | $ | 48,498 | | | $ | 1,195,637 | | |
Other (1) | 184,271 | | | 0 | | | 184,271 | | |
Total revenues | $ | 1,331,410 | | | $ | 48,498 | | | $ | 1,379,908 | | |
| Timing of revenue recognition: | | |
Goods transferred at a point in time | $ | 1,147,139 | | | $ | 0 | | | $ | 1,147,139 | | |
Services transferred over time | 0 | | | 48,498 | | | 48,498 | | |
Total revenues from contracts with customers | $ | 1,147,139 | | | $ | 48,498 | | | $ | 1,195,637 | | |
|
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(1)Other crude oil marketing revenues are recognized under ASC 815, Derivatives and Hedging, and ASC 845, Nonmonetary Transactions – Purchases and Sales of Inventory with the Same Counterparty.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other Crude Oil Marketing Revenue
Certain of the commodity purchase and sale contracts utilized by our crude oil marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activity. From the time of contract origination, these contracts are marked-to-market and recorded on a net revenue basis in the accompanying consolidated financial statements.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Certain of our crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations. These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer. These buy/sell arrangements are reflected on a net revenue basis in the accompanying consolidated financial statements.
Reporting these crude oil contracts on a gross revenue basis would increase our reported revenues as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Revenue gross-up | $ | 97,566 | | | $ | 193,440 | | | $ | 315,049 | | | $ | 658,606 | |
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2021 | | 2020 | | | | |
| | | | | | | |
Revenue gross-up | $ | 134,866 | | | $ | 157,439 | | | | | |
Note 4. Prepayments and Other Current Assets
The components of prepayments and other current assets were as follows at the dates indicated (in thousands):
| | | September 30, | | December 31, | | March 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Insurance premiums | Insurance premiums | $ | 153 | | | $ | 473 | | Insurance premiums | $ | 793 | | | $ | 690 | |
Vendor prepayment | | Vendor prepayment | 1,690 | | | 1,085 | |
Rents, licenses and other | Rents, licenses and other | 1,264 | | | 1,086 | | Rents, licenses and other | 1,138 | | | 1,189 | |
Total prepayments and other current assets | Total prepayments and other current assets | $ | 1,417 | | | $ | 1,559 | | Total prepayments and other current assets | $ | 3,621 | | | $ | 2,964 | |
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Property and Equipment
The historical costs of our property and equipment and related accumulated depreciation and amortization balances were as follows at the dates indicated (in thousands):
| | | Estimated | | | Estimated | |
| | Useful Life | | September 30, | | December 31, | | Useful Life | | March 31, | | December 31, |
| | in Years | | 2020 | | 2019 | | in Years | | 2021 | | 2020 |
| Tractors and trailers (1) | Tractors and trailers (1) | 5 – 6 | | $ | 115,809 | | | $ | 115,693 | | Tractors and trailers (1) | 5 – 6 | | $ | 101,535 | | | $ | 101,813 | |
Field equipment (2) | Field equipment (2) | 2 – 5 | | 25,152 | | | 25,094 | | Field equipment (2) | 2 – 5 | | 22,318 | | | 22,139 | |
Finance lease ROU assets (1) | | Finance lease ROU assets (1) | 3 – 6 | | 22,357 | | | 20,266 | |
Pipeline and related facilities | | Pipeline and related facilities | 20 – 25 | | 21,275 | | | 21,265 | |
Linefill and base gas (2) | | Linefill and base gas (2) | N/A | | 3,333 | | | 3,333 | |
Buildings | Buildings | 5 – 39 | | 14,939 | | | 16,055 | | Buildings | 5 – 39 | | 14,977 | | | 14,977 | |
Office equipment | Office equipment | 2 – 5 | | 1,893 | | | 1,951 | | Office equipment | 2 – 5 | | 1,905 | | | 1,893 | |
Land | Land | | 1,790 | | | 1,790 | | Land | N/A | | 1,790 | | | 1,790 | |
Construction in progress | Construction in progress | | 606 | | | 3,661 | | Construction in progress | N/A | | 716 | | | 1,626 | |
Total | Total | | 160,189 | | | 164,244 | | Total | | 190,206 | | | 189,102 | |
Less accumulated depreciation | | (95,720) | | | (95,198) | | |
Less accumulated depreciation and amortization | | Less accumulated depreciation and amortization | | (99,563) | | | (94,968) | |
Property and equipment, net | Property and equipment, net | | $ | 64,469 | | | $ | 69,046 | | Property and equipment, net | | $ | 90,643 | | | $ | 94,134 | |
_______________
(1)Amounts includeOur finance lease right-of-use (“ROU)” assets arise from leasing arrangements for the right to use various classes of underlying assets including tractors, in our crude oil marketing segmenttrailers, a tank storage and trailers in our transportation segment held under finance leases. At September 30, 2020throughput arrangement and December 31, 2019, gross property andoffice equipment associated with these assets held under finance leases were $7.2 million and $5.5 million, respectively. Accumulated amortization associated with these assets held under these finance leases were $2.6 million and $1.7 million at September 30, 2020 and December 31, 2019, respectively (see Note 13 for further information). Accumulated amortization of the assets presented as “Finance lease ROU assets” was $6.2 million and $5.0 million at March 31, 2021 and December 31, 2020, respectively.
(2)Amounts include a tank storageLinefill and throughput arrangement in ourbase gas represents crude oil marketing segment held under a finance lease. At September 30, 2020in the VEX pipeline and December 31, 2019, gross propertystorage tanks we own, and equipment associated with these assets held under a finance lease were $3.3 million and $3.3 million, respectively. Accumulated amortization associated with these assets held under a finance lease was $1.6 million and $0.7 millionthe crude oil is recorded at September 30, 2020 and December 31, 2019, respectively (see Note 13 for further information).historical cost.
Components of depreciation and amortization expense were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Depreciation and amortization, excluding amounts under finance leases | $ | 4,237 | | | $ | 3,840 | | | $ | 11,882 | | | $ | 11,012 | |
Amortization of property and equipment under finance leases | 622 | | | 553 | | | 1,728 | | | 1,254 | |
Total depreciation and amortization | $ | 4,859 | | | $ | 4,393 | | | $ | 13,610 | | | $ | 12,266 | |
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2021 | | 2020 | | | | |
| | | | | | | |
Depreciation and amortization, excluding amounts under finance leases | $ | 3,913 | | | $ | 3,920 | | | | | |
Amortization of property and equipment under finance leases | 1,140 | | | 553 | | | | | |
Total depreciation and amortization | $ | 5,053 | | | $ | 4,473 | | | | | |
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Acquisition
On May 17, 2020, we entered into a purchase and sale agreement with Comcar Industries, Inc. (“Comcar”), a bulk carrier trucking company, for the purchase of substantially all of the transportation assets of Comcar’s subsidiary, CTL Transportation, LLC (“CTL”). CTL provides delivery services to customers in the chemical industry, with operations in 9 locations in the southeastern United States. On June 26, 2020, we closed on the asset acquisition for approximately $9.0 million in cash. This acquisition added approximately 163 tractors and 328 trailers to our existing transportation fleet, and these assets were included in our transportation segment. This acquisition added new customers, new market areas and new product lines to our transportation segment portfolio. As a result of the acquisition, we added services to new and existing customers in 6 new market areas, including new terminals in Louisiana, Missouri, Ohio, Georgia and Florida.
We also incurred approximately $0.1 million of acquisition costs in connection with this acquisition, which has been included in the allocation of the total purchase price of $9.2 million to the assets acquired.
The following table summarizes the estimated fair value of the assets acquired at the acquisition date (in thousands):
| | | | | | | | |
Property and equipment — tractors and trailers | | $ | 5,901 | |
Materials and supplies | | 87 | |
Intangible assets — customer relationships | | 3,175 | |
Total purchase price | | $ | 9,163 | |
The estimated fair value of the acquired property and equipment was determined using the estimated market value of each type of asset. The estimated fair value of the acquired customer relationship intangible assets was determined using an income approach, specifically a discounted cash flow analysis. The income approach estimates the future benefits of the customer relationships and deducts the expenses incurred in servicing the relationships and the contributions from the other business assets to derive the future net benefits of these assets. The future net benefits are discounted back to present value using the appropriate discount rate, which results in the value of the customer relationships.
A customer relationship intangible asset is the relationship between CTL and various customers to whom we did not have a previous relationship. The customer relationships we acquired in this transaction provide us with access to those customers to whom we did not have a previous relationship and allows us to enter product markets in which we have not previously participated. Because of the highly competitive and fragmented transportation market, we believe access to these customers will provide us with an entry into new market areas.
The discounted cash flow analysis used to estimate the fair value of the CTL customer relationships relied on Level 3 fair value inputs. Level 3 fair values are based on unobservable inputs. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date. With respect to the CTL customer relationships, the Level 3 inputs included the rate of retention of the current customers of CTL as of the valuation date, our transportation segment’s historical customer retention rate and projected future revenues associated with the customers. The CTL customers expected to remain with us after the transaction were included in the valuation of the customer relationships. We are amortizing the customer relationship intangible assets over a period of seven years, using a modified straight-line approach.
For the period from acquisition to September 30, 2020, we recorded $0.1 million of amortization expense related to these intangible assets.
In connection with the acquisition, we entered into a finance lease agreement for an additional 40 trailers with a six year term. See Note 13 for further information regarding finance leases.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Cash Deposits and Other Assets
Components of cash deposits and other assets were as follows at the dates indicated (in thousands):
| | | September 30, | | December 31, | | March 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Amounts associated with liability insurance program: | Amounts associated with liability insurance program: | | Amounts associated with liability insurance program: | |
Insurance collateral deposits | Insurance collateral deposits | $ | 675 | | | $ | 1,233 | | Insurance collateral deposits | $ | 714 | | | $ | 714 | |
Excess loss fund | Excess loss fund | 521 | | | 943 | | Excess loss fund | 617 | | | 617 | |
Accumulated interest income | Accumulated interest income | 425 | | | 609 | | Accumulated interest income | 459 | | | 449 | |
Other amounts: | Other amounts: | | Other amounts: | |
State collateral deposits | State collateral deposits | 65 | | | 37 | | State collateral deposits | 42 | | | 31 | |
Materials and supplies | Materials and supplies | 507 | | | 477 | | Materials and supplies | 460 | | | 488 | |
| Total cash deposits and other assets | $ | 2,193 | | | $ | 3,299 | | |
Other | | Other | 190 | | | 84 | |
Total other assets | | Total other assets | $ | 2,482 | | | $ | 2,383 | |
We have established certain deposits to support participation in our liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits. Insurance collateral deposits are held by the insurance company to cover past or potential open claims based upon a percentage of the maximum assessment under our insurance policies. Insurance collateral deposits are invested at the discretion of our insurance carrier. Excess amounts in our loss fund represent premium payments in excess of claims incurred to date that we may be entitled to recover through settlement or commutation as claim periods are closed. Interest income is earned on the majority of amounts held by the insurance companies and will be paid to us upon settlement of policy years.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8.7. Segment Reporting
We operate and report in 23 business segments: (i) crude oil marketing, transportation and storage, andstorage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk.bulk; and (iii) pipeline transportation, terminalling and storage of crude oil.
Financial information by reporting segment was as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Reporting Segments | | |
| Marketing | | Transportation | | Other | | Total |
| | | | | | | |
Three Months Ended September 30, 2020 | | | | | | | |
Revenues | $ | 245,184 | | | $ | 21,720 | | | $ | 0 | | | $ | 266,904 | |
Segment operating earnings (1) | 5,869 | | | 1,592 | | | 0 | | | 7,461 | |
Depreciation and amortization | 1,836 | | | 3,023 | | | 0 | | | 4,859 | |
Property and equipment additions (2) (3) | 684 | | | (32) | | | 52 | | | 704 | |
| | | | | | | |
Three Months Ended September 30, 2019 | | | | | | | |
Revenues | $ | 434,609 | | | $ | 15,698 | | | $ | 0 | | | $ | 450,307 | |
Segment operating earnings (1) | 2,888 | | | 154 | | | 0 | | | 3,042 | |
Depreciation and amortization | 2,214 | | | 2,179 | | | 0 | | | 4,393 | |
Property and equipment additions (3) | 3,894 | | | 8,410 | | | 0 | | | 12,304 | |
| | | | | | | |
Nine Months Ended September 30, 2020 | | | | | | | |
Revenues | $ | 722,546 | | | $ | 50,121 | | | $ | 0 | | | $ | 772,667 | |
Segment operating (losses) earnings (1) | (4,952) | | | 1,033 | | | 0 | | | (3,919) | |
Depreciation and amortization | 5,700 | | | 7,910 | | | 0 | | | 13,610 | |
Property and equipment additions (2) (3) | 2,734 | | | 332 | | | 523 | | | 3,589 | |
| | | | | | | |
Nine Months Ended September 30, 2019 | | | | | | | |
Revenues | $ | 1,331,410 | | | $ | 48,498 | | | $ | 0 | | | $ | 1,379,908 | |
Segment operating earnings (1) | 10,948 | | | 1,970 | | | 0 | | | 12,918 | |
Depreciation and amortization | 6,640 | | | 5,626 | | | 0 | | | 12,266 | |
Property and equipment additions (3) | 6,896 | | | 18,529 | | | 0 | | | 25,425 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reporting Segments | | |
| Marketing | | Transportation | | Pipeline and storage | | Other | | Total |
| | | | | | | | | |
Three Months Ended March 31, 2021 | | | | | | | | | |
Segment revenues (1) | $ | 304,023 | | | $ | 21,268 | | | $ | 419 | | | $ | 0 | | | $ | 325,710 | |
Less: Intersegment revenues (1) | 0 | | | (33) | | | (186) | | | 0 | | | (219) | |
Revenues | $ | 304,023 | | | $ | 21,235 | | | $ | 233 | | | $ | 0 | | | $ | 325,491 | |
| | | | | | | | | |
Segment operating earnings (losses) (2) | 7,018 | | | 774 | | | (565) | | | 0 | | | 7,227 | |
Depreciation and amortization | 1,798 | | | 3,001 | | | 254 | | | 0 | | | 5,053 | |
Property and equipment additions (3)(4)(5) | 210 | | | (58) | | | 10 | | | 8 | | | 170 | |
| | | | | | | | | |
Three Months Ended March 31, 2020 | | | | | | | | | |
Segment revenues | $ | 337,221 | | | $ | 16,256 | | | $ | 0 | | | $ | 0 | | | $ | 353,477 | |
Less: Intersegment revenues | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Revenues | $ | 337,221 | | | $ | 16,256 | | | $ | 0 | | | $ | 0 | | | $ | 353,477 | |
| | | | | | | | | |
Segment operating earnings (losses) (2) | (17,651) | | | 605 | | | 0 | | | 0 | | | (17,046) | |
Depreciation and amortization | 2,007 | | | 2,466 | | | 0 | | | 0 | | | 4,473 | |
Property and equipment additions (3) (4) | 2,032 | | | 41 | | | 0 | | | 139 | | | 2,212 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
_______________
(1)Segment revenues include intersegment amounts that are eliminated in operating costs and expenses in our unaudited condensed consolidated statements of operations. Intersegment activities are conducted at posted tariff rates where applicable, or otherwise at rates similar to those charged to third parties or rates that we believe approximate market at the time the agreement is executed.
(2)Our crude oil marketing segment’s operating (losses) earnings included inventory liquidation gains of $6.9 million and inventory valuation losses of $12 thousand and $2.1$24.2 million for the three months ended September 30,March 31, 2021 and 2020, respectively.
(3)Our segment property and 2019, respectively. Forequipment additions do not include assets acquired under finance leases during the ninethree months ended September 30, 2020 and 2019, our crude oil marketing segment’s operating (losses) earnings included inventory valuation losses of $18.2 million and inventory liquidation gains of $1.5 million, respectively.March 31, 2021. See Note 13 for further information.
(2)(4)During the three and nine months ended September 30,March 31, 2021 and 2020, we had $0.1 million$8.0 thousand and $0.5$0.1 million, respectively, of property and equipment additions for computer equipment and leasehold improvements at our corporate headquarters, which iswere not attributed or allocated to any of our reporting segments.
(3)(5)OurDuring the three months ended March 31, 2021, we received a refund of approximately $0.3 million for amounts previously spent in our transportation segment’ssegment, which has been reflected as a reduction in property and equipment additions do not include approximately $1.7 million of assets acquired under finance leases during the nine months ended September 30, 2020. Our crude oil marketing segment’s property and equipment additions do not include approximately $4.1 million of assets acquired under finance leases during the nine months ended September 30, 2019. See Note 13 for further information.additions.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Segment operating earnings (losses) earnings reflect revenues net of operating costs and depreciation and amortization expense and are reconciled to earnings (losses) earnings before income taxes, as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Segment operating (losses) earnings | $ | 7,461 | | | $ | 3,042 | | | $ | (3,919) | | | $ | 12,918 | |
General and administrative | (1,405) | | | (2,739) | | | (7,030) | | | (8,005) | |
Operating (losses) earnings | 6,056 | | | 303 | | | (10,949) | | | 4,913 | |
Gain on dissolution of investment | 0 | | | 0 | | | 0 | | | 573 | |
Interest income | 105 | | | 758 | | | 614 | | | 2,145 | |
Interest expense | (70) | | | (242) | | | (288) | | | (424) | |
Earnings (losses) before income taxes | $ | 6,091 | | | $ | 819 | | | $ | (10,623) | | | $ | 7,207 | |
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2021 | | 2020 | | | | |
| | | | | | | |
Segment operating earnings (losses) | $ | 7,227 | | | $ | (17,046) | | | | | |
General and administrative | (3,376) | | | (2,894) | | | | | |
Operating earnings (losses) | 3,851 | | | (19,940) | | | | | |
Interest and other income | 134 | | | 365 | | | | | |
Interest expense | (220) | | | (150) | | | | | |
Earnings (losses) before income taxes | $ | 3,765 | | | $ | (19,725) | | | | | |
Identifiable assets by business segment were as follows at the dates indicated (in thousands):
| | | September 30, | | December 31, | | March 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Reporting segment: | Reporting segment: | | Reporting segment: | |
Marketing | Marketing | $ | 119,758 | | | $ | 141,402 | | Marketing | $ | 153,723 | | | $ | 128,441 | |
Transportation | Transportation | 67,310 | | | 58,483 | | Transportation | 65,572 | | | 72,247 | |
Cash and other | 69,392 | | | 130,957 | | |
Pipeline and storage | | Pipeline and storage | 24,290 | | | 24,541 | |
Cash and other (1) | | Cash and other (1) | 88,717 | | | 70,958 | |
Total assets | Total assets | $ | 256,460 | | | $ | 330,842 | | Total assets | $ | 332,302 | | | $ | 296,187 | |
_______________
(1)
There were 0 significant intersegment sales during the three and nine months ended September 30, 2020 and 2019, respectively. Other identifiable assets are primarily corporate cash, corporate accounts receivable, properties and propertiesoperating lease right-of-use assets not identified with any specific segment of our business.
Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.
Note 9.8. Transactions with Affiliates
We enter into certain transactions in the normal course of business with affiliated entities including direct cost reimbursement for shared phone and administrative services. In addition, we lease our corporate office space in a building operated by 17 South Briar Hollow Lane, LLC, an affiliate of KSA Industries, Inc., which is an affiliated entity.
Activities with affiliates were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Affiliate billings (refunds) to us (1) | $ | (15) | | | $ | 20 | | | $ | 17 | | | $ | 63 | |
Billings to affiliates | 1 | | | 1 | | | 3 | | | 3 | |
Rentals paid to affiliate (2) | 256 | | | 122 | | | 500 | | | 366 | |
_______________ | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2021 | | 2020 | | | | |
| | | | | | | |
Affiliate billings to us | $ | 12 | | | $ | 17 | | | | | |
Billings to affiliates | 1 | | | 1 | | | | | |
Rentals paid to affiliate | 174 | | | 122 | | | | | |
(1)During the third quarter of 2020, we received a refund for overpayment of certain affiliate billings.
(2)2020 amounts include the payment of rental adjustments for common area maintenance.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Other Current Liabilities
The components of other current liabilities were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2021 | | 2020 |
| | | |
Accrued purchase price for VEX acquisition | $ | 7,500 | | | $ | 10,000 | |
Accrual for payroll, benefits and bonuses | 5,865 | | | 6,575 | |
Accrued automobile and workers’ compensation claims | 3,913 | | | 3,171 | |
Accrued medical claims | 1,033 | | | 915 | |
Other | 1,577 | | | 1,682 | |
Total other current liabilities | $ | 19,888 | | | $ | 22,343 | |
Note 10. Derivative Instruments and Fair Value Measurements
Derivative Instruments
In the normal course of our operations, our crude oil marketing segment purchases and sells crude oil. We seek to profit by procuring the commodity as it is produced and then delivering the material to the end users or the intermediate use marketplace. As typical for the industry, these transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts. Some of these contracts meet the definition of a derivative instrument, and therefore, we account for these contracts at fair value, unless the normal purchase and sale exception is applicable. These types of underlying contracts are standard for the industry and are the governing document for our crude oil marketing segment. None of our derivative instruments have been designated as hedging instruments.
At September 30, 2020,March 31, 2021, we had in place 47 commodity purchase and sale contracts, one of which 5 had fair value associated with it as the contractual price of crude oil was outside of the range of prices specified in the agreement. These commodity purchase and sale contracts encompassed approximately:
•258 barrels per day of crude oil during October 2020 through December 2020; and
•64 barrels per day of crude oil during January 2021 through December 2021.
At December 31, 2019, we had in place 6 commodity purchase and sale contracts with noa fair value associated with them as the contractual prices of crude oil were withinoutside of the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately:approximately 740 barrels per day of crude oil during April 2021 through December 2021.
•258At December 31, 2020, we had in place 6 commodity purchase and sale contracts, of which 3 had a fair value associated with them as the contractual prices of crude oil were outside the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately 192 barrels per day of crude oil during January 2020 through February 2020;
•322 barrels per day of crude oil during March 2020 through April 2020; and
•258 barrels per day of crude oil during May 20202021 through December 2020.2021.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheetsheets were as follows at the dates indicated (in thousands):
| | | Balance Sheet Location and Amount | | Balance Sheet Location and Amount |
| | Current | | Other | | Current | | Other | | Current | | Other | | Current | | Other |
| | Assets | | Assets | | Liabilities | | Liabilities | | Assets | | Assets | | Liabilities | | Liabilities |
September 30, 2020 | | | | | | | | |
March 31, 2021 | | March 31, 2021 | | | | | | | |
Asset derivatives: | Asset derivatives: | | Asset derivatives: | |
Fair value forward hydrocarbon commodity | Fair value forward hydrocarbon commodity | | Fair value forward hydrocarbon commodity | |
contracts at gross valuation | contracts at gross valuation | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | contracts at gross valuation | $ | 576 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Liability derivatives: | Liability derivatives: | | Liability derivatives: | |
Fair value forward hydrocarbon commodity | Fair value forward hydrocarbon commodity | | Fair value forward hydrocarbon commodity | |
contracts at gross valuation | contracts at gross valuation | 0 | | | 0 | | | 0 | | | 0 | | contracts at gross valuation | 0 | | | 0 | | | 546 | | | 0 | |
Less counterparty offsets | Less counterparty offsets | 0 | | | 0 | | | 0 | | | 0 | | Less counterparty offsets | 0 | | | 0 | | | 0 | | | 0 | |
As reported fair value contracts | As reported fair value contracts | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | As reported fair value contracts | $ | 576 | | | $ | 0 | | | $ | 546 | | | $ | 0 | |
| December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Asset derivatives: | Asset derivatives: | | Asset derivatives: | |
Fair value forward hydrocarbon commodity | Fair value forward hydrocarbon commodity | | Fair value forward hydrocarbon commodity | |
contracts at gross valuation | contracts at gross valuation | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | contracts at gross valuation | $ | 61 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Liability derivatives: | Liability derivatives: | | Liability derivatives: | |
Fair value forward hydrocarbon commodity | Fair value forward hydrocarbon commodity | | Fair value forward hydrocarbon commodity | |
contracts at gross valuation | contracts at gross valuation | 0 | | | 0 | | | 0 | | | 0 | | contracts at gross valuation | 0 | | | 0 | | | 52 | | | 0 | |
Less counterparty offsets | Less counterparty offsets | 0 | | | 0 | | | 0 | | | 0 | | Less counterparty offsets | 0 | | | 0 | | | 0 | | | 0 | |
As reported fair value contracts | As reported fair value contracts | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | As reported fair value contracts | $ | 61 | | | $ | 0 | | | $ | 52 | | | $ | 0 | |
We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At September 30, 2020March 31, 2021 and December 31, 2019,2020, we were not holding nor have we posted any collateral to support our forward month fair value derivative activity. We are not subject to any credit-risk related trigger events. We have no other financial investment arrangements that would serve to offset our derivative contracts.
Forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated statements of operations were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Gains (losses) |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Revenues – marketing | $ | (9) | | | $ | (1) | | | $ | 3 | | | $ | (21) | |
| | | | | | | | | | | | | | | |
| Gains (losses) |
| Three Months Ended | | |
| March 31, | | |
| 2021 | | 2020 | | | | |
| | | | | | | |
Revenues – marketing | $ | 20 | | | $ | 19 | | | | | |
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
The following tables set forth, by level with the Level 1, 2 and 3 fair value hierarchy, the carrying values of our financial assets and liabilities at the dates indicated (in thousands):
| | | Fair Value Measurements Using | | | Fair Value Measurements Using | |
| | Quoted Prices | | | | Quoted Prices | | |
| | in Active | | Significant | | | in Active | | Significant | |
| | Markets for | | Other | | Significant | | | Markets for | | Other | | Significant | |
| | Identical Assets | | Observable | | Unobservable | | | Identical Assets | | Observable | | Unobservable | |
| | and Liabilities | | Inputs | | Inputs | | Counterparty | | | and Liabilities | | Inputs | | Inputs | | Counterparty | |
| | (Level 1) | | (Level 2) | | (Level 3) | | Offsets | | Total | | (Level 1) | | (Level 2) | | (Level 3) | | Offsets | | Total |
September 30, 2020 | | | | | | | | | | |
March 31, 2021 | | March 31, 2021 | | | | | | | | | |
Derivatives: | Derivatives: | | Derivatives: | |
Current assets | Current assets | $ | 0 | | | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 3 | | Current assets | $ | 0 | | | $ | 576 | | | $ | 0 | | | $ | 0 | | | $ | 576 | |
Current liabilities | Current liabilities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Current liabilities | 0 | | | (546) | | | 0 | | | 0 | | | (546) | |
Net value | Net value | $ | 0 | | | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 3 | | Net value | $ | 0 | | | $ | 30 | | | $ | 0 | | | $ | 0 | | | $ | 30 | |
| December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Derivatives: | Derivatives: | | Derivatives: | |
Current assets | Current assets | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Current assets | $ | 0 | | | $ | 61 | | | $ | 0 | | | $ | 0 | | | $ | 61 | |
Current liabilities | Current liabilities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Current liabilities | 0 | | | (52) | | | 0 | | | 0 | | | (52) | |
Net value | Net value | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Net value | $ | 0 | | | $ | 9 | | | $ | 0 | | | $ | 0 | | | $ | 9 | |
These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input used to estimate their fair value. Our assessment of the relative significance of these inputs requires judgments.
When determining fair value measurements, we make credit valuation adjustments to reflect both our own nonperformance risk and our counterparty’s nonperformance risk. When adjusting the fair value of derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements. Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by us or our counterparties. At September 30, 2020March 31, 2021 and December 31, 2019,2020, credit valuation adjustments were not significant to the overall valuation of our fair value contracts. As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Stock-Based Compensation Plan
We have in place a long-term incentive plan in which any employee or non-employee director who provides services to us is eligible to participate. The 2018 LTIP, which is overseen by the Compensation Committee of our Board of Directors, provides for the grant of various types of equity awards, of which restricted stock unit awards and performance-based compensation awards have been granted. The maximum number of shares authorized for issuance under the 2018 LTIP is 150,000 shares, and the 2018 LTIP is effective until May 8, 2028. After giving effect to awards granted and forfeitures made under the 2018 LTIP, the achievement of performance factors through December 31, 2020, and assuming the potential achievement of the maximum amounts of the performance factors through September 30, 2020,March 31, 2021, a total of 81,73537,761 shares were available for issuance.
Compensation expense recognized in connection with equity-based awards was as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Compensation expense | $ | 149 | | | $ | 155 | | | $ | 453 | | | $ | 352 | |
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2021 | | 2020 | | | | |
| | | | | | | |
Compensation expense | $ | 185 | | | $ | 134 | | | | | |
At September 30, 2020March 31, 2021 and December 31, 2019,2020, we had $37,900$62,900 and $23,600,$50,800, respectively, of accrued dividend amounts for awards granted under the 2018 LTIP.
Restricted Stock Unit Awards
The following table presents restricted stock unit award activity for the periods indicated:
| | | Weighted- | | Weighted- |
| | Average Grant | | Average Grant |
| | Number of | | Date Fair Value | | Number of | | Date Fair Value |
| | Shares | | per Share (1) | | Shares | | per Share (1) |
| Restricted stock unit awards at January 1, 2020 | 18,782 | | | $ | 37.05 | | |
Restricted stock unit awards at January 1, 2021 | | Restricted stock unit awards at January 1, 2021 | 27,490 | | | $ | 28.64 | |
Granted (2) | Granted (2) | 20,346 | | | $ | 24.85 | | Granted (2) | 26,369 | | | $ | 29.70 | |
Vested | Vested | (8,858) | | | $ | 36.87 | | Vested | (8,544) | | | $ | 24.83 | |
Forfeited | Forfeited | (1,804) | | | $ | 32.29 | | Forfeited | 0 | | | $ | 0 | |
Restricted stock unit awards at September 30, 2020 | 28,466 | | | $ | 28.68 | | |
Restricted stock unit awards at March 31, 2021 | | Restricted stock unit awards at March 31, 2021 | 45,315 | | | $ | 29.97 | |
_______________
(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
(2)The aggregate grant date fair value of restricted stock unit awards issued during 20202021 was $0.5$0.8 million based on a grant date market price of our common shares ranging from $24.77$29.70 to $26.23$30.00 per share.
Unrecognized compensation cost associated with restricted stock unit awards was approximately $0.4$0.9 million at September 30, 2020.March 31, 2021. Due to the graded vesting provisions of these awards, we expect to recognize the remaining compensation cost for these awards over a weighted-average period of 1.41.7 years.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Unit Awards
The following table presents performance share unit award activity for the periods indicated:
| | | Weighted- | | Weighted- |
| | Average Grant | | Average Grant |
| | Number of | | Date Fair Value | | Number of | | Date Fair Value |
| | Shares | | per Share (1) | | Shares | | per Share (1) |
| Performance share unit awards at January 1, 2020 | | 2,787 | | | $ | 43.00 | | |
Performance share unit awards at January 1, 2021 | | Performance share unit awards at January 1, 2021 | | 16,241 | | | $ | 27.67 | |
Granted (2) | Granted (2) | | 10,781 | | | $ | 24.92 | | Granted (2) | | 12,205 | | | $ | 29.70 | |
| Vested | Vested | | 0 | | | $ | 0 | | Vested | | 0 | | | $ | 0 | |
Forfeited | Forfeited | | (595) | | | $ | 30.22 | | Forfeited | | 0 | | | $ | 0 | |
Performance share unit awards at September 30, 2020 | | 12,973 | | | $ | 28.56 | | |
Performance share unit awards at March 31, 2021 | | Performance share unit awards at March 31, 2021 | | 28,446 | | | $ | 28.54 | |
_______________
(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
(2)The aggregate grant date fair value of performance share unit awards issued during 20202021 was $0.2$0.4 million based on a grant date market price of our common shares ranging from $24.77 to $26.23of $29.70 per share and assuming a performance factor of 100 percent.
Unrecognized compensation cost associated with performance share unit awards was approximately $0.2$0.6 million at September 30, 2020.March 31, 2021. We expect to recognize the remaining compensation cost for these awards over a weighted-average period of 2.22.5 years.
Note 12. Supplemental Cash Flow Information
Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):
| | | Nine Months Ended | | Three Months Ended |
| | September 30, | | March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Cash paid for interest | Cash paid for interest | $ | 288 | | | $ | 424 | | Cash paid for interest | $ | 220 | | | $ | 150 | |
Cash paid for federal and state income taxes | Cash paid for federal and state income taxes | 419 | | | 234 | | Cash paid for federal and state income taxes | 2 | | | 21 | |
Cash refund for NOL carryback under CARES Act | 2,703 | | | 0 | | |
| | Non-cash transactions: | Non-cash transactions: | | Non-cash transactions: | |
Change in accounts payable related to property and equipment additions | Change in accounts payable related to property and equipment additions | (1,232) | | | (1,538) | | Change in accounts payable related to property and equipment additions | (44) | | | 1,129 | |
Property and equipment acquired under finance leases | Property and equipment acquired under finance leases | 1,655 | | | 4,148 | | Property and equipment acquired under finance leases | 2,091 | | | 0 | |
Issuance of common shares in asset acquisition | 0 | | | 392 | | |
See Note 13 for information related to other non-cash transactions related to leases.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Leases
The following table provides the components of lease expense for the periods indicated (in thousands):
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| | September 30, | | September 30, | | March 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Finance lease cost: | Finance lease cost: | | | | | | | | | Finance lease cost: | | | | | |
Amortization of ROU assets | Amortization of ROU assets | | $ | 622 | | | $ | 553 | | | $ | 1,728 | | | $ | 1,254 | | Amortization of ROU assets | | $ | 1,140 | | | $ | 553 | | |
Interest on lease liabilities | Interest on lease liabilities | | 70 | | | 87 | | | 212 | | | 214 | | Interest on lease liabilities | | 110 | | | 74 | | |
Operating lease cost | Operating lease cost | | 681 | | | 675 | | | 2,038 | | | 2,254 | | Operating lease cost | | 623 | | | 679 | | |
Short-term lease cost | Short-term lease cost | | 3,085 | | | 2,527 | | | 7,756 | | | 7,355 | | Short-term lease cost | | 3,212 | | | 2,503 | | |
Variable lease cost | | Variable lease cost | | 1 | | | — | | |
Total lease expense | Total lease expense | | $ | 4,458 | | | $ | 3,842 | | | $ | 11,734 | | | $ | 11,077 | | Total lease expense | | $ | 5,086 | | | $ | 3,809 | | |
The following table provides supplemental cash flow and other information related to leases for the periods indicated (in thousands):
| | | Nine Months Ended | | Three Months Ended |
| | September 30, | | March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash paid for amounts included in measurement of lease liabilities: | Cash paid for amounts included in measurement of lease liabilities: | | | | | Cash paid for amounts included in measurement of lease liabilities: | | | | |
Operating cash flows from operating leases (1) | Operating cash flows from operating leases (1) | | $ | 2,037 | | | $ | 2,254 | | Operating cash flows from operating leases (1) | | $ | 622 | | | $ | 678 | |
Operating cash flows from finance leases | Operating cash flows from finance leases | | 295 | | | 197 | | Operating cash flows from finance leases | | 109 | | | 105 | |
Financing cash flows from finance leases | Financing cash flows from finance leases | | 1,677 | | | 1,171 | | Financing cash flows from finance leases | | 1,014 | | | 532 | |
| ROU assets obtained in exchange for new lease liabilities: | ROU assets obtained in exchange for new lease liabilities: | | ROU assets obtained in exchange for new lease liabilities: | |
Finance leases (2) | Finance leases (2) | | 1,655 | | | 4,148 | | Finance leases (2) | | 2,091 | | | 0 | |
Operating leases | Operating leases | | 630 | | | 12,006 | | Operating leases | | 264 | | | 81 | |
______________
(1)Amounts are included in Other operating activities on the unaudited condensed consolidated statements of cash flows.
(2)2020 amount consists of a finance lease agreement for 40 trailers with a six year term that we entered into in connection with the CTL acquisition. See Note 6 for further information.
The following table provides the lease terms and discount rates for the periods indicated:
| | | Nine Months Ended | | Three Months Ended |
| | September 30, | | March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Weighted-average remaining lease term (years): | Weighted-average remaining lease term (years): | | | | | Weighted-average remaining lease term (years): | | | | |
Finance leases | Finance leases | | 3.18 | | 3.28 | Finance leases | | 4.10 | | 2.78 |
Operating leases | Operating leases | | 4.46 | | 4.98 | Operating leases | | 4.32 | | 4.58 |
| Weighted-average discount rate: | Weighted-average discount rate: | | Weighted-average discount rate: | |
Finance leases | Finance leases | | 4.3% | | 4.9% | Finance leases | | 2.8% | | 4.9% |
Operating leases | Operating leases | | 4.4% | | 5.0% | Operating leases | | 4.2% | | 5.0% |
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides supplemental balance sheet information related to leases at the dates indicated (in thousands):
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
| | 2020 | | 2019 |
Assets | | | | |
Finance lease ROU assets (1) | | $ | 6,307 | | | $ | 6,384 | |
Operating lease ROU assets | | 8,453 | | | 9,576 | |
| | | | |
Liabilities | | | | |
Current | | | | |
Finance lease liabilities | | 2,505 | | | 2,167 | |
Operating lease liabilities | | 2,137 | | | 2,252 | |
Noncurrent | | | | |
Finance lease liabilities | | 4,011 | | | 4,376 | |
Operating lease liabilities | | 6,314 | | | 7,323 | |
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
| | 2021 | | 2020 |
Assets | | | | |
Finance lease ROU assets (1) | | $ | 16,202 | | | $ | 15,251 | |
Operating lease ROU assets | | 7,774 | | | 8,051 | |
| | | | |
Liabilities | | | | |
Current | | | | |
Finance lease liabilities | | 4,494 | | | 4,112 | |
Operating lease liabilities | | 2,172 | | | 2,050 | |
Noncurrent | | | | |
Finance lease liabilities | | 12,202 | | | 11,507 | |
Operating lease liabilities | | 5,603 | | | 6,000 | |
______________
(1)Amounts are included in Property and equipment, net on the unaudited condensed consolidated balance sheets.
The following table provides maturities of undiscounted lease liabilities at September 30, 2020March 31, 2021 (in thousands):
| | | Finance | | Operating | | Finance | | Operating |
| | Lease | | Lease | | Lease | | Lease |
| Remainder of 2020 | | $ | 681 | | | $ | 678 | | |
2021 | | 2,723 | | | 2,343 | | |
Remainder of 2021 | | Remainder of 2021 | | $ | 3,657 | | | $ | 1,845 | |
2022 | 2022 | | 1,789 | | | 2,002 | | 2022 | | 3,942 | | | 2,128 | |
2023 | 2023 | | 939 | | | 1,821 | | 2023 | | 3,145 | | | 1,839 | |
2024 | 2024 | | 336 | | | 1,700 | | 2024 | | 2,350 | | | 1,702 | |
2025 | | 2025 | | 3,773 | | | 222 | |
Thereafter | Thereafter | | 445 | | | 679 | | Thereafter | | 802 | | | 674 | |
Total lease payments | Total lease payments | | 6,913 | | | 9,223 | | Total lease payments | | 17,669 | | | 8,410 | |
Less: Interest | Less: Interest | | (397) | | | (772) | | Less: Interest | | (973) | | | (635) | |
Present value of lease liabilities | Present value of lease liabilities | | 6,516 | | | 8,451 | | Present value of lease liabilities | | 16,696 | | | 7,775 | |
Less: Current portion of lease obligation | Less: Current portion of lease obligation | | (2,505) | | | (2,137) | | Less: Current portion of lease obligation | | (4,494) | | | (2,172) | |
Total long-term lease obligation | Total long-term lease obligation | | $ | 4,011 | | | $ | 6,314 | | Total long-term lease obligation | | $ | 12,202 | | | $ | 5,603 | |
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides maturities of undiscounted lease liabilities at December 31, 20192020 (in thousands):
| | | Finance | | Operating | | Finance | | Operating |
| | Lease | | Lease | | Lease | | Lease |
| 2020 | | $ | 2,426 | | | $ | 2,660 | | |
2021 | 2021 | | 2,426 | | | 2,256 | | 2021 | | $ | 4,496 | | | $ | 2,343 | |
2022 | 2022 | | 1,492 | | | 1,914 | | 2022 | | 3,562 | | | 2,002 | |
2023 | 2023 | | 642 | | | 1,776 | | 2023 | | 2,764 | | | 1,821 | |
2024 | 2024 | | 37 | | | 1,668 | | 2024 | | 1,969 | | | 1,700 | |
2025 | | 2025 | | 2,992 | | | 222 | |
Thereafter | Thereafter | | 0 | | | 443 | | Thereafter | | 802 | | | 675 | |
Total lease payments | Total lease payments | | 7,023 | | | 10,717 | | Total lease payments | | 16,585 | | | 8,763 | |
Less: Interest | Less: Interest | | (480) | | | (1,142) | | Less: Interest | | (966) | | | (713) | |
Present value of lease liabilities | Present value of lease liabilities | | 6,543 | | | 9,575 | | Present value of lease liabilities | | 15,619 | | | 8,050 | |
Less: Current portion of lease obligation | Less: Current portion of lease obligation | | (2,167) | | | (2,252) | | Less: Current portion of lease obligation | | (4,112) | | | (2,050) | |
Total long-term lease obligation | Total long-term lease obligation | | $ | 4,376 | | | $ | 7,323 | | Total long-term lease obligation | | $ | 11,507 | | | $ | 6,000 | |
Note 14. Commitments and Contingencies
Insurance Policies
We establish a liability under our automobile andhave accrued liabilities for estimated workers’ compensation insurance policiesand other casualty claims incurred based upon claim reserves plus an estimate for expected claimsloss development and incurred but not reported claims. We self-insure a significant portion of expected losses relating to workers’ compensation, general liability and automobile liability, with a self-insured retention of $1.0 million. Insurance is purchased over our retention to reduce our exposure to catastrophic events. We also share 20 percent of the risk of loss, capped at $1.0 million for any claims in excess of $5.0 million. Estimates are recorded for potential and incurred outstanding liabilities for workers’ compensation, auto and general liability claims and claims that are incurred but not reported. Estimates are based on adjusters’ estimates, historical experience and statistical methods commonly used within the insurance industry that we believe are reliable. We have also engaged a monthly basis.third-party actuary to perform a review of our accrued liability for these claims as well as potential funded losses in our captive insurance company. Insurance estimates include certain assumptions and management judgments regarding the frequency and severity of claims, claim development and settlement practices and the selection of estimated loss among estimates derived using different methods. Unanticipated changes in these factors may produce materially different amounts of expense that would be reported under these programs.
On October 1, 2020, we elected to utilize a wholly owned insurance captive to insure the self-insured retention for our workers’ compensation, general liability and automobile liability insurance programs.All accrued liabilities associated with periods from October 1, 2017 through current were transferred to the captive.
We maintain excess property and casualty reinsurance programs with third-party insurers in an effort to limit the financial impact of significant events covered under these programs. Our operating subsidiaries pay premiums to both the excess and reinsurance carriers and our captive for the estimated losses based on an external actuarial analysis. These premiums held by our wholly owned captive are currently held in a restricted account, resulting in a transfer of risk from our operating subsidiaries to the captive.
We also maintain a self-insurance program for managing employee medical claims in excess of employee deductibles. As claims are paid, the liability is relieved. Our accrualsWe also maintain third party insurance stop-loss coverage for automobile and workers’ compensationindividual medical claims are presented in the table below.
exceeding a certain minimum threshold
For periods prior to October 1, 2017,. In addition, we pre-funded our estimatedmaintain $1.4 million of umbrella insurance coverage for annual aggregate medical claims and therefore, we could either receive a return of premium paid or be assessed for additional premiums up to pre-established limits. Additionally, in certain instances, the risk of insured losses was shared with a group of similarly situated entities through an insurance captive. We have appropriately recognized estimated expenses and liabilities related to these policies for losses incurred but not reported to us or our insurance carrier. The amount of pre-funded insurance premiums left to cover potential future losses are presented in the table below. If the potential insurance claims do not further develop, the pre-funded premiums will be returned to us as a premium refund.
The amount of pre-funded insurance premiums left to cover potential future losses related to periods prior to October 1, 2017, and our accruals for automobile and workers’ compensation claims were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2020 | | 2019 |
| | | |
Pre-funded premiums for losses incurred but not reported | $ | 57 | | | $ | 168 | |
Accrued automobile and workers’ compensation claims | 2,686 | | | 2,956 | |
exceeding approximately $7.5 million.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We maintain a self-insurance programOur accruals for managing employeeautomobile, workers’ compensation and medical claims. A liability for expected claims incurred but not reported is established on a monthly basis. As claims are paid, the liability is relieved. We also maintain third party insurance stop-loss coverage for individual medical claims exceeding a certain minimum threshold. In addition, we maintain $1.4 million of umbrella insurance coverage for annual aggregate medical claims exceeding approximately $7.5 million. Medical accrual amounts were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2020 | | 2019 |
| | | |
Accrued medical claims | $ | 2,249 | | | $ | 1,016 | |
Legal Proceedings
On August 15, 2019, we received a notice from the Internal Revenue Service (the “IRS”) regarding a proposed penalty of approximately $1.2 million for our 2017 tax year information returns. The notice alleges that certain taxpayer identification numbers supplied to the IRS for our returns in 2017 were either missing or incorrect and that certain filings were late. We responded to the IRS on September 25, 2019 disputing the proposed penalty and requesting that the amount be waived, abated or a hearing held. On March 11, 2020, we received a response from the IRS indicating that they had reviewed our response and waived the full penalty. As such, this matter will not have a material impact on our consolidated financial position, results of operations or cash flows. | | | | | | | | | | | |
| March 31, | | December 31, |
| 2021 | | 2020 |
| | | |
Pre-funded premiums for losses incurred but not reported | $ | 55 | | | $ | 55 | |
Accrued automobile and workers’ compensation claims | 3,913 | | | 3,171 | |
Accrued medical claims | 1,033 | | | 915 | |
Litigation
From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position, or results of operations.operations or cash flows.
Note 15. Subsequent Event
On October 22, 2020,May 4, 2021, we acquired the outstanding equity interestsentered into a Credit Agreement (“Credit Agreement”) with Wells Fargo Bank, National Association, as Agent and Issuing Lender, under which we may borrow an aggregate of Victoria Express Pipeline, LLC (“VEX”up to $40.0 million under a revolving credit facility (the “Revolving Credit Facility”) and, which will mature on May 4, 2024, subject to our compliance with certain related pipeline terminal facility assets from EnLink Midstream Operating, L.P. for $20.0 million. Of the total purchase price, $10.0 million was paid at closing, with the remainder to be paid in 4 quarterly installments of $2.5 million, plus interest at a rate of 4.0% per annum, beginning in March 2021. The equity interests in GulfMark Terminals, LLC, VEX and the other acquired assets were pledged to secure the payment of the installment portions of the purchase price as part of the agreement.financial covenants.
For each borrowing under the Revolving Credit Facility, we can elect whether the loans bear interest at (i) the Base Rate plus Applicable Margin; or (ii) the LIBOR Rate plus Applicable Margin. Base Rate is the highest of (a) the Prime Rate, (b) the Federal Funds Rate, plus 0.50% and (c) LIBOR for an interest period of three months plus 1.00%. The VEX Pipeline System, with truck and storage terminals at both Cuero andApplicable Margin to be added to a Base Rate borrowing is 0.75%. The LIBOR Rate is (x) LIBOR (which shall not be less than 1.00%) divided by (y) 1.00 minus the PortEurodollar Reserve Percentage. The Applicable Margin to be added to a LIBOR borrowing is 1.75%. A commitment fee of Victoria, Texas, is a crude oil and condensate pipeline system, which connects0.25% per annum will accrue on the heartdaily average unused amount of the Eagle Ford Basin tocommitments under the Gulf Coast waterborne market. The VEX Pipeline System includes 56 miles of 12-inch pipeline, which spans DeWitt county to Victoria County, Texas, with 350,000 barrels of above ground storage, 2 8 bay truck offload stations, and access to 2 docks at the Port of Victoria. The VEX Pipeline System can receive crude oil by pipeline and truck, and has downstream pipeline connections to 2 terminals today, with potential for additional downstream connection opportunities in the future. The pipeline system has a current capacity of 90,000 barrels per day.Revolving Credit Facility.
We planUnder the Credit Agreement, we are required to integrate the VEX Pipeline System into our Gulf Coast marketing business, which we expect will further strengthen our ability to provide excellent service to the producersmaintain compliance with certain financial covenants, as described in the region, as well as more effectively serviceCredit Agreement, commencing with the quarter ending June 30, 2021. Our obligations under the Credit Agreement are secured by a pledge of substantially all of our end-user markets alongpersonal property and substantially all of the Gulf Coast. In addition, the VEX Pipeline System complementspersonal property of certain of our existing storage terminalother direct and dock at the Port of Victoria, where we now control 450,000 barrels of storage with 3 docks after giving effect to the acquisition.indirect subsidiaries.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and accompanying Notes included in this quarterly report on Form 10-Q and the Audited Consolidated Financial Statements and related Notes, together with our discussion and analysis of financial position and results of operations, included in our annual report on Form 10-K for the year ended December 31, 20192020 (the “2019“2020 Form 10-K”), as filed on March 6, 20205, 2021 with the U.S. Securities and Exchange Commission (“SEC”). Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).
Cautionary Statement Regarding Forward-Looking Information
This quarterly report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and information that are based on our beliefs, as well as assumptions made by us and information currently available to us. When used in this document, words such as “anticipate,” “project,” “expect,” “plan,” “seek,” “goal,” “estimate,” “forecast,” “intend,” “could,” “should,” “would,” “will,” “believe,” “may,” “potential” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we believe that our expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions as described in more detail under Part I, Item 1A of our 20192020 Form 10-K and within Part II, Item 1A of this quarterly report.10-K. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. You should not put undue reliance on any forward-looking statements. The forward-looking statements in this quarterly report speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.
Overview of Business
Adams Resources & Energy, Inc., a Delaware corporation organized in 1973, and its subsidiaries are primarily engaged in the business of crude oil marketing, transportation, terminalling and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also conduct tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with fifteen terminals in the Gulf Coast region ofacross the U.S. Unless the context requires otherwise, references to “we,” “us,” “our” or the “Company” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.
We operate and report in twothree business segments: (i) crude oil marketing, transportation and storage, andstorage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk.bulk; and (iii) pipeline transportation, terminalling and storage of crude oil. See Note 87 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding our business segments.
Recent Developments and Outlook
CTL Asset AcquisitionCOVID-19 Update
On May 17, 2020, we entered into a purchase and sale agreement with Comcar Industries, Inc. (“Comcar”), a bulk carrier trucking company, for the purchase of substantially all of the transportation assets of Comcar’s subsidiary, CTL Transportation, LLC (“CTL”). CTL provides delivery services to customers in the chemical industry, with operations in nine locations in the southeastern United States. On June 26, 2020, we closed on the asset acquisition for approximately $9.2 million in cash, including acquisition costs. This acquisition added approximately 163 tractors and 328 trailers to our existing transportation fleet, and these assets were included in our transportation segment.
Global Pandemic and Industry Supply Events
On January 30, 2020, the World Health Organization (“WHO”) announced aThe global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak, as a pandemic, based on the rapid increase in exposure globally. The COVID-19 pandemic and the emergency response measures enactedassociated countermeasures implemented by the United States and governments around the world, have caused material disruptions to many businesses resulting in a severe slowdown in global economies, including the United States, leading toas well as increased volatility in financial markets worldwide and reduced demand for crude oil and other commodities.
In March 2020, members of OPEC failed to agree on crude oil production levels, which resulted in an increased supply of crude oil and led to a substantial decline in crude oil prices and an increasingly volatile market. During the second quarter of 2020, while members of OPEC reached agreements to cut crude oil production, downward pressure on crude oil prices continued due to concerns regarding an oversupply of crude oil inventories. Crude oil prices weakened during the third quarter of 2020, with the price at the end of September being slightly below $40 per barrel after trading around $42 per barrel in August.
The COVID-19 outbreak continues to spread globally, which is slowing U.S. and global crude oil demand recovery. U.S. crude oil production levels are well below where they were at the beginning of 2020, with shale crude production significantly lower than production amounts in the first quarter of 2020. Refinery margins continue to weaken, resulting in a number of U.S. refineries shutting in, and nearly all domestic refineries running well below capacity. As markets compete for the limited crude oil supply, buy-sell margins have been tightening. As a result, prices of crude oil and other commodities continue to remain volatile.
The adverse economic effects of the COVID-19 outbreak, including the restrictions in place by governments,business uncertainty, changes in consumer behavior related to the slowdown of the economy and the disruption of historical supply and demand patterns and the volatility of the crude oil markets haveduring 2020 resulted in a decline in our crude oil marketing operations and significantly decreased demand for our transportation services. Our crude oil marketing operations have declined as low crude oil prices have negatively impacted productionservices through global shutdowns and supply chain and operational disruptions at times during 2020. We took a variety of crude oil,actions in 2020 to help mitigate the financial impact, including executing temporary cost saving measures and demand for crude oil and other related products has significantly decreased duereducing our capital spending. As economic conditions improve, we are beginning to resume normal capital spending activities, but may implement additional cost saving measures in the global economic slowdown from COVID-19. During the first quarter of 2020, our overall transportation operations remained steady as we transported products including bleach, disinfectant, soap and other similar products in high demand, while seeing an offsetting drop in demand for other products we typically transport. During April and May 2020, we saw a significant decline in our overall transportation operations primarily due to the continuation of the governmental restrictions and the adverse economic effects. However, beginning in late June, demand for transportation of products began to increase. During the third quarter of 2020, demand for transportation of chemicals and personal care products, along with automotive plants coming back online and strong home building product lines, resulted in an increase in our transportation operations.future, if needed.
At September 30, 2020, we had 411,380 barrels of crude oil in inventory, and during the nine months ended September 30, 2020, we recognized an inventory valuation loss of approximately $18.2 million as the price of our crude oil inventory declined from $61.93 per barrel at December 31, 2019 to $38.75 per barrel at September 30, 2020. Further valuation losses may occur if the price of crude oilOur primary focus continues to decline.
We are dependent on our workforce of truck drivers to transport crude oil and products for our customers. Developments such as social distancing and shelter-in-place directives thus far have not had a significant impact on our ability to deploy our workforce effectively asbe the transportation industry has been deemed an essential service under current Cybersecurity and Infrastructure Security Agency guidelines. We have taken measures to seek to ensure the safety of our employees and operations while maintaining uninterrupted service to our customers. The safety of our employees and operations while providing uninterrupted service to our customers remainscustomers. We will continue to maintain the safety protocols we established, including encouraging our primary focus.employees to seek vaccination when eligible. We are actively monitoring the global situation and its effect on our financial condition, liquidity, operations, customers, industry and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we cannot estimate the length or gravity of the impacts of these events at this time. While we consider the decreased demand for crude oil and in transportation services andoverall effects of the lower crude oil pricespandemic to be temporary, if the pandemic and decline in oil pricesits economic effects continue, theyit may have a material adverse effect on our results of future operations, financial position and liquidity in 2021.
We plan to continue to operate our remaining business segments with internally generated cash flows during the remainder of 2020,2021, but intend to remain flexible as the focus will be on increasing efficiencies and on business development opportunities. During the remainder of 2020,2021, we plan to integrate our newly acquired terminals and leverage back haul opportunities with the continued efforts to diversify service offerings, and we plan to grow in new or existing areas with our crude oil marketing segment.
Voluntary Early Retirement Program and Terminations
In May 2020, primarily as a result of the economic downturn, we implemented a voluntary early retirement program for certain employees, which resulted in an increase in personnel expenses of approximately $0.4 million. Of this amount, approximately $0.3 million was included in general and administrative expenses and $0.1 million was included in operating expenses.
Acquisition of Pipeline and Related Terminal Facility AssetsCredit Agreement
On October 22, 2020,May 4, 2021, we acquired the outstanding equity interests of Victoria Express Pipeline, LLCentered into a Credit Agreement (“VEX”Credit Agreement”) with Wells Fargo Bank, National Association, as Agent and certain related pipeline terminal facility assets from EnLink Midstream Operating, L.P. for $20.0 million. The VEX Pipeline System, with truck and storage terminals at both Cuero and the Port of Victoria, Texas, is a crude oil and condensate pipeline system, which connects the heart of the Eagle Ford Basin to the Gulf Coast waterborne market. The VEX Pipeline System includes 56 miles of 12-inch pipeline, which spans DeWitt county to Victoria County, Texas, with 350,000 barrels of above ground storage, two 8 bay truck offload stations, and access to two docks at the Port of Victoria. The VEX Pipeline System can receive crude oil by pipeline and truck, and has downstream pipeline connections to two terminals today, with potential for additional downstream connection opportunities in the future. The pipeline system has a current capacity of 90,000 barrels per day.
We plan to integrate the VEX Pipeline System into our Gulf Coast marketing business,Issuing Lender, under which we expectmay borrow an aggregate of up to $40.0 million under a revolving credit facility (the “Revolving Credit Facility”), which will further strengthenmature on May 4, 2024, subject to our ability to provide excellent service to the producers in the region, as well as more effectively service our end-user markets along the Gulf Coast. In addition, the VEX Pipeline System complements our existing storage terminal and dock at the Port of Victoria, where we now control 450,000 barrels of storagecompliance with three docks after giving effect to the acquisition.
certain financial covenants. See Note 15 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information.
Results of Operations
Crude Oil Marketing
Our crude oil marketing segment revenues, operating earnings (losses) earnings and selected costs were as follows for the periods indicated (in thousands):
| | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | |
| | September 30, | | September 30, | | | March 31, | | |
| | 2020 | | 2019 | | Change (1) | | 2020 | | 2019 | | Change (1) | | 2021 | | 2020 | | Change (1) | |
| Revenues | Revenues | $ | 245,184 | | | $ | 434,609 | | | (44 | %) | | $ | 722,546 | | | $ | 1,331,410 | | | (46 | %) | Revenues | $ | 304,023 | | | $ | 337,221 | | | (10 | %) | |
Operating (losses) earnings (2) | 5,869 | | | 2,888 | | | 103 | % | | (4,952) | | | 10,948 | | | (145 | %) | |
Operating earnings (losses) (2) | | Operating earnings (losses) (2) | 7,018 | | | (17,651) | | | (140 | %) | |
Depreciation and amortization | Depreciation and amortization | 1,836 | | | 2,214 | | | (17 | %) | | 5,700 | | | 6,640 | | | (14 | %) | Depreciation and amortization | 1,798 | | | 2,007 | | | (10 | %) | |
Driver compensation | Driver compensation | 4,579 | | | 5,728 | | | (20 | %) | | 13,961 | | | 17,439 | | | (20 | %) | Driver compensation | 4,390 | | | 5,293 | | | (17 | %) | |
Insurance | Insurance | 553 | | | 2,104 | | | (74 | %) | | 5,193 | | | 6,336 | | | (18 | %) | Insurance | 1,977 | | | 2,474 | | | (20 | %) | |
Fuel | Fuel | 1,372 | | | 2,154 | | | (36 | %) | | 4,538 | | | 6,952 | | | (35 | %) | Fuel | 1,741 | | | 2,034 | | | (14 | %) | |
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(1)Represents the percentage increase (decrease) from the prior year period.
(2)Operating earnings (losses) earnings included inventory liquidation gains of $6.9 million and inventory valuation losses of $12 thousand and $2.1$24.2 million for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively. For the nine months ended September 30, 2020 and 2019, operating (losses) earnings included inventory valuation losses of $18.2 million and inventory liquidation gains of $1.5 million, respectively, as discussed further below.
Volume and price information were as follows for the periods indicated:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| | September 30, | | September 30, | | March 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Field level purchase volumes – per day (1) | Field level purchase volumes – per day (1) | | | | | | | | Field level purchase volumes – per day (1) | | | | |
Crude oil – barrels | Crude oil – barrels | 90,896 | | | 105,801 | | | 93,762 | | | 106,965 | | Crude oil – barrels | 82,889 | | | 109,253 | | |
| Average purchase price | Average purchase price | | Average purchase price | | |
Crude oil – per barrel | Crude oil – per barrel | $ | 37.12 | | | $ | 55.84 | | | $ | 36.38 | | | $ | 56.61 | | Crude oil – per barrel | $ | 54.91 | | | $ | 44.87 | | |
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(1)Reflects the volume purchased from third parties at the field level of operations.
Three Months Ended September 30, 2020 vs. Three Months Ended September 30, 2019. Crude oil marketing revenues decreased by $189.4$33.2 million during the three months ended September 30, 2020March 31, 2021 as compared to the three months ended September 30, 2019,March 31, 2020, primarily as a result of a decrease in the market price of crude oil, which decreased revenues by approximately $149.2 million, and lower overall crude oil volumes, which decreased revenues by approximately $40.2$101.2 million, partially offset by an increase in the market price of crude oil, which increased revenues by approximately $68.0 million. The average crude oil price received was $55.84$44.87 during the three months ended September 30, 2019,March 31, 2020, which decreasedincreased to $37.12$54.91 during the three months ended September 30, 2020.March 31, 2021. The decrease in the2020 period was impacted by a lower market price of crude oil and the lower crude oil volumes produced and available for purchase were due to the effects of the COVID-19 outbreak and the delay of OPEC to agree on crude oil production levels, during the second quarter, both of which resulted in market disruptions that decreased the demand for and price of crude oil during the three months ended September 30,March 31, 2020. The 2021 period was impacted by increased demand for crude oil, but with less supply as production has not yet increased to previous levels, thus increasing the market price of crude oil. Volumes decreased during the 2021 period as compared to the prior year period as a result of increased competition for supply from shippers and marketers to fill obligations to pipelines with the lower crude oil production available.
Our crude oil marketing operating earnings forincreased by $24.7 million during the three months ended September 30,March 31, 2021 as compared to the same period in 2020, increased by $3.0 million, primarily due to inventory valuation changes (as shown in the table below) and lower insurance, fuel and driver compensation costs and higher crude oil prices, partially offset by lower crude oil prices and volumes.
Driver compensation decreased by $1.1$0.9 million during the three months ended September 30, 2020March 31, 2021 as compared to the same period in 2019,2020, primarily as a result of a decrease in the number of drivers required for volumes transported in the 20202021 period as compared to the 20192020 period.
Insurance costs decreased by $1.6$0.5 million during the three months ended September 30, 2020March 31, 2021 as compared to the same period in 2019,2020, primarily due to favorable adjustments to reserves for insurance claims resulting from our favorable safety record over the policy period, a lower driver count and lower miles driven in the 20202021 period. Fuel costs decreased by $0.8$0.3 million during the three months ended September 30, 2020March 31, 2021 as compared to the same period in 2019,2020, consistent with a lower driver count and lower miles driven in the current period.
Depreciation and amortization expense decreased by $0.4$0.2 million during the three months ended September 30, 2020March 31, 2021 as compared to the same period in 2019,2020, primarily due to the timing of purchases and retirements of tractors and other field equipment during 20192020 and 2020.
Nine Months Ended September 30, 2020 vs. Nine Months Ended September 30, 2019. Crude oil marketing revenues decreased by $608.9 million during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily as a result of a decrease in the market price of crude oil, which decreased revenues by approximately $510.2 million, and lower overall crude oil volumes, which decreased revenues by approximately $98.7 million. The average crude oil price received was $56.61 during the nine months ended September 30, 2019, which decreased to $36.38 during the nine months ended September 30, 2020. The decrease in the market price of crude oil and the lower crude oil volumes produced and available for purchase were due to the effects of the COVID-19 outbreak and the delay of OPEC to agree on crude oil production levels during the second quarter, both of which resulted in market disruptions that decreased the demand for and price of crude oil.
Our crude oil marketing operating (losses) earnings for the nine months ended September 30, 2020 decreased by $15.9 million, from earnings of $10.9 million during the 2019 period to a loss of $5.0 million in the 2020 period, primarily due to inventory valuation changes (as shown in the table below) and lower revenues due to lower crude oil prices and volumes, partially offset by lower insurance, fuel and driver compensation costs.
Driver compensation decreased by $3.5 million during the nine months ended September 30, 2020 as compared to the same period in 2019, primarily as a result of a decrease in the number of drivers required for volumes transported in the 2020 period as compared to the 2019 period.
Insurance costs decreased by $1.1 million during the nine months ended September 30, 2020 as compared to the same period in 2019, primarily due to favorable adjustments to reserves for insurance claims resulting from our favorable safety record over the policy period, lower hours worked by drivers and lower miles driven in the 2020 period. Fuel costs decreased by $2.4 million during the nine months ended September 30, 2020 as compared to the same period in 2019, consistent with the lower driver count and lower miles driven in the current period.
Depreciation and amortization expense decreased by $0.9 million during the nine months ended September 30, 2020 as compared to the same period in 2019, primarily due to the timing of purchases and retirements of tractors and other field equipment during 2019 and 2020.2021.
Field Level Operating Earnings (Non-GAAP Financial Measure). Inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations are two significant factors affecting comparative crude oil marketing segment operating earnings (losses) earnings.. As a purchaser and shipper of crude oil, we hold inventory in storage tanks and third-party pipelines. During periods of increasing crude oil prices, we recognize inventory liquidation gains while during periods of falling prices, we recognize inventory liquidation and valuation losses.
Crude oil marketing operating earnings (losses) earnings can be affected by the valuations of our forward month commodity contracts (derivative instruments). These non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date. We generally enter into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level). The valuation of derivative instruments at period end requires the recognition of non-cash “mark-to-market” gains and losses.
The impact of inventory liquidations and valuations and derivative valuations on our crude oil marketing segment operating earnings (losses) earnings is summarized in the following reconciliation of our non-GAAP financial measure for the periods indicated (in thousands):
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| | September 30, | | September 30, | | March 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
| As reported segment operating (losses) earnings (1) | $ | 5,869 | | | $ | 2,888 | | | $ | (4,952) | | | $ | 10,948 | | |
As reported segment operating earnings (losses) (1) | | As reported segment operating earnings (losses) (1) | $ | 7,018 | | | $ | (17,651) | | |
Add (subtract): | Add (subtract): | | Add (subtract): | | |
Inventory liquidation gains | Inventory liquidation gains | — | | | — | | | — | | | (1,459) | | Inventory liquidation gains | (6,943) | | | — | | |
Inventory valuation losses | Inventory valuation losses | 12 | | | 2,051 | | | 18,196 | | | — | | Inventory valuation losses | — | | | 24,215 | | |
Derivative valuation (gains) losses | Derivative valuation (gains) losses | 9 | | | 1 | | | (3) | | | 21 | | Derivative valuation (gains) losses | (20) | | | (19) | | |
Field level operating earnings (2) | Field level operating earnings (2) | $ | 5,890 | | | $ | 4,940 | | | $ | 13,241 | | | $ | 9,510 | | Field level operating earnings (2) | $ | 55 | | | $ | 6,545 | | |
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(1)Our crude oil marketing segment’s operating earnings (losses) earnings included inventory liquidation gains of $6.9 million and inventory valuation losses of $12 thousand and $2.1$24.2 million for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively. For the nine months ended September 30, 2020 and 2019, operating (losses) earnings included inventory valuation losses of $18.2 million and inventory liquidation gains of $1.5 million, respectively.
(2)The use of field level operating earnings is unique to us, not a substitute for a GAAP measure and may not be comparable to any similar measures developed by industry participants. We utilize this data to evaluate the profitability of our operations.
Field level operating earnings and field level purchase volumes depict our day-to-day operation of acquiring crude oil at the wellhead, transporting the product and delivering the product to market sales point. Field level operating earnings increaseddecreased during the three months ended September 30, 2020March 31, 2021 as compared to the same period in 20192020 primarily due to lower insurance, fuel and driver compensation costs, partially offset by lower revenues resulting from lower crude oil margins and volumes. Field level operating earnings increased during the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due tovolumes, partially offset by lower insurance, fuel and driver compensation costs, partially offset by lower crude oil margins and volumes.costs.
We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| | | Average | | | | Average |
| Barrels | | Price | | Barrels | | Price |
| | | | | | | |
Crude oil inventory | 411,380 | | | $ | 38.75 | | | 426,397 | | | $ | 61.93 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| | | Average | | | | Average |
| Barrels | | Price | | Barrels | | Price |
| | | | | | | |
Crude oil inventory | 469,226 | | | $ | 62.20 | | | 421,759 | | | $ | 45.83 | |
Prices received for crude oil have been volatile and unpredictable with price volatility expected to continue. See “Recent Developments and Outlook” above, “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q and “Part I, Item 1A. Risk Factors” in our 20192020 Form 10-K.
Transportation
Our transportation segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
| September 30, | | | | September 30, | | |
| 2020 | | 2019 | | Change (1) | | 2020 | | 2019 | | Change (1) |
| | | | | | | | | | | |
Revenues | $ | 21,720 | | | $ | 15,698 | | | 38 | % | | $ | 50,121 | | | $ | 48,498 | | | 3 | % |
Operating earnings | $ | 1,592 | | | $ | 154 | | | 934 | % | | $ | 1,033 | | | $ | 1,970 | | | (48 | %) |
Depreciation and amortization | $ | 3,023 | | | $ | 2,179 | | | 39 | % | | $ | 7,910 | | | $ | 5,626 | | | 41 | % |
Driver commissions | $ | 4,069 | | | $ | 2,588 | | | 57 | % | | $ | 8,627 | | | $ | 8,352 | | | 3 | % |
Insurance | $ | 1,711 | | | $ | 1,379 | | | 24 | % | | $ | 4,797 | | | $ | 4,557 | | | 5 | % |
Fuel | $ | 1,599 | | | $ | 1,454 | | | 10 | % | | $ | 3,486 | | | $ | 4,934 | | | (29 | %) |
Maintenance expense | $ | 1,295 | | | $ | 981 | | | 32 | % | | $ | 2,746 | | | $ | 3,072 | | | (11 | %) |
Mileage (000s) | 7,625 | | | 5,152 | | | 48 | % | | 16,755 | | | 15,866 | | | 6 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | |
| March 31, | | | | | | |
| 2021 | | 2020 | | Change (1) | | | | | | |
| | | | | | | | | | | |
Revenues | $ | 21,235 | | | $ | 16,256 | | | 31 | % | | | | | | |
Operating earnings | $ | 774 | | | $ | 605 | | | 28 | % | | | | | | |
Depreciation and amortization | $ | 3,001 | | | $ | 2,466 | | | 22 | % | | | | | | |
Driver commissions | $ | 3,596 | | | $ | 2,607 | | | 38 | % | | | | | | |
Insurance | $ | 2,148�� | | | $ | 1,524 | | | 41 | % | | | | | | |
Fuel | $ | 1,875 | | | $ | 1,281 | | | 46 | % | | | | | | |
Maintenance expense | $ | 913 | | | $ | 831 | | | 10 | % | | | | | | |
Mileage (000s) | 6,932 | | | 5,240 | | | 32 | % | | | | | | |
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(1)Represents the percentage increase (decrease) from the prior year period.
Our revenue rate structure includes a component for fuel costs in which fuel cost fluctuations are largely passed through to the customer. Revenues, net of fuel cost, were as follows for the periods indicated (in thousands):
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| | September 30, | | September 30, | | March 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
| Total transportation revenue | Total transportation revenue | $ | 21,720 | | | $ | 15,698 | | | $ | 50,121 | | | $ | 48,498 | | Total transportation revenue | $ | 21,235 | | | $ | 16,256 | | |
Diesel fuel cost | Diesel fuel cost | (1,599) | | | (1,454) | | | (3,486) | | | (4,934) | | Diesel fuel cost | (1,875) | | | (1,281) | | |
Revenues, net of fuel cost (1) | Revenues, net of fuel cost (1) | $ | 20,121 | | | $ | 14,244 | | | $ | 46,635 | | | $ | 43,564 | | Revenues, net of fuel cost (1) | $ | 19,360 | | | $ | 14,975 | | |
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(1) Revenues, net of fuel cost, is a non-GAAP financial measure and is utilized for internal analysis of the results of our transportation segment.
Three Months Ended September 30, 2020 vs. Three Months Ended September 30, 2019.
Transportation revenues increased by $6.0$5.0 million during the three months ended September 30, 2020March 31, 2021 as compared to the three months ended September 30, 2019,March 31, 2020. Transportation revenues, net of fuel cost, increased by $4.4 million during the three months ended March 31, 2021, as compared to the prior year period. These increases were primarily as a resultdue to increased revenues resulting from the acquisition of substantially all of the transportation assets of CTL acquisitionTransportation, LLC, a subsidiary of Comcar Industries, Inc. (the “CTL acquisition”) in June 2020 and increased transportation rates, partially offset by a decrease in business activities of our customers as a result of the continuing effects of the COVID-19 outbreak.outbreak and the effects of extreme weather conditions in February 2021. On June 26, 2020, we completed the CTL acquisition, of the transportation assets of CTL, which added new customers, new market areas and new product lines to our portfolio. As a result of the CTL acquisition, we added services to new and existing customers in six new market areas, including new terminals in Louisiana, Missouri, Ohio, Georgia and Florida. We also hired approximately 140 additional drivers in connection with this acquisition. Revenues, netWe have also been working with our customers to increase our transportation rates, which has resulted in an increase in revenues as compared to the prior year period.
The adverse economic effects of fuel cost, increasedthe COVID-19 outbreak, including the continued restrictions in place by $5.9 milliongovernments, changes in consumer behavior related to the slowdown of the economy and the disruption of historical supply and demand patterns, decreased demand for our transportation services during early to mid-2020. However, during the three months ended September 30,second half of 2020, primarilydemand for transportation of chemicals and personal care products, along with automotive plants coming back online and strong home building product lines, resulted in an increase in our transportation operations, which continued into the first quarter of 2021. In February 2021, a severe winter storm and resulting power outages affected Texas, which resulted in a significant decline in transportation services for over a week and a temporary loss of revenues. When production and customer facilities resumed normal operating conditions, demand for truck transportation increased to even higher levels as a result of the higher transportation revenues and increased miles traveled during the 2020 period as a resultdisruption of the CTL acquisition.supply chain normally serviced by rail capacity shifting to truck transportation in an effort to get products to the end users in a more timely manner.
As a result of the COVID-19 outbreak, our transportation operations declined primarily during April and May 2020, after having remained steady through March 2020. During the first quarter of 2020, we transported products in higher demand, including bleach, disinfectant, soap and other similar products, which had offset decreased transportation demand for certain other products that we transported. However, during the second quarter of 2020, we experienced a significant decline in transportation operations. During the third quarter of 2020, we experienced an increase in transportation operations, as well as the additional revenues related to the CTL acquisition. As a result, revenues, net of fuel cost, increased by $5.9 million during the three months ended September 30, 2020, primarily as a result of increased miles traveled during the 2020 period.
Our transportation operating earnings increased by $0.2 million for the three months ended September 30, 2020 increased by $1.4 millionMarch 31, 2021 as compared to the same period in 2019,2020, primarily due to higher revenues resulting from increased miles traveled primarily as a result of the CTL acquisition, partially offset by higher depreciation and amortization expense related to new assets placed into service and higher insurance, fuel costs, maintenance expense and other operating expenses.
Fuel costs increased by $0.1$0.6 million during the three months ended September 30, 2020March 31, 2021 as compared to the three months ended September 30, 2019,March 31, 2020, primarily as a result of the CTL acquisition, which increased the number of miles traveled during the 20202021 period. Insurance costs increased by $0.3$0.6 million during the three months ended September 30, 2020March 31, 2021 as compared to the same period in 2019,2020, primarily due to the CTL acquisition which resulted in a higher driver count and increased miles driven in the 20202021 period. Depreciation and amortization expense increased by $0.8$0.5 million during the three months ended September 30, 2020March 31, 2021 as compared to the same period in 2019,2020, primarily as a result of the CTL asset acquisition in June 2020 and the purchase and lease of new tractors and trailers in 2019.2020.
Nine Months Ended September
30 2020 vs. Nine Months Ended September 30, 2019. Transportation revenues increased by $1.6 million during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily as a result
Table of the CTL acquisition in June 2020Contents
Pipeline and the previously announced acquisition of assets of a transportation company (the “EH Transport acquisition”) in May 2019, partially offset by a decrease in certain business activities of our customers as a result of the COVID-19 outbreak resulting in lower miles traveled. Revenues, net of fuel cost, increased by $3.1 million during the nine months ended September 30, 2020, primarily as a result of the higher transportation revenues and increased miles traveled during the 2020 period.Storage
Our transportationpipeline and storage segment revenues, operating earningslosses and selected costs were as follows for the nine months ended September 30, 2020 decreased by $0.9 million as compared toperiod indicated (in thousands):
| | | | | |
| Three Months |
| Ended |
| March 31, |
| 2021 |
| |
Segment revenues (1) | $ | 419 | |
Less: Intersegment revenues (1) | (186) | |
Revenues | $ | 233 | |
| |
Operating losses | (565) | |
Depreciation and amortization | 254 | |
Insurance | 210 | |
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(1)Segment revenues represent revenues from the same periodcrude oil marketing segment, which are eliminated in 2019, primarily due to higher depreciation and amortization expense related to the CTL acquisition, the EH Transport acquisition and new assets placed into service, and higher insurance and other operating expenses, partially offset by higher revenues and increased miles traveled during the 2020 period.our unaudited condensed consolidated statements of operations.
Fuel costs decreasedWe are continuing to focus on opportunities to increase our pipeline and storage capacity utilization, by $1.4 million duringidentifying opportunities with our existing and new customers to increase volumes. In addition, we are exploring new connections for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily as a result of lower miles traveled during the first six months of 2020, partially offset by an increase in the number of miles traveled as a resultpipeline system both upstream and downstream of the CTL asset acquisition in June 2020. Insurance costs increased by $0.2 million duringpipeline, to increase the nine months ended September 30, 2020 as compared to the same period in 2019, primarily due to the CTL acquisition which resulted in a higher driver countcrude oil supply and increased miles driven in the 2020 period. Depreciation and amortization expense increased by $2.3 million during the nine months ended September 30, 2020 as compared to the same period in 2019, primarily as a resulttake-away capability of the CTL asset acquisition in June 2020, the EH Transport acquisition during the second quarter of 2019 and the purchase of new tractors and trailers in 2019.system.
General and Administrative Expense
General and administrative expense decreasedincreased by $1.3$0.5 million during the three months ended September 30, 2020March 31, 2021 as compared to the same period in 2019,2020, primarily due to lower insurance costs due to insurance premium true-ups and lower salaries and wages and outside service costs, partially offset by higher audit fees, office rental costs due to true-ups related to common area maintenance and legal fees.
General and administrative expense decreased by $1.0 million during the nine months ended September 30, 2020 as compared to the same period in 2019, primarily due to lower insurance costs due to insurance premium true-ups and lower audit fees, partially offset by higher salaries and wages, outside service costs, insurance costs and office rental costs due to true-ups related to common area maintenance and legal fees.
Gain on Dissolution of Investment
During the nine months ended September 30, 2019, we received a cash payment from Adams Resources Exploration Corporation (“AREC”) totaling approximately $1.0 million, related to the final settlement of its bankruptcy and dissolution. AREC had been one of our wholly owned subsidiaries, until its bankruptcy filing in April 2017. Of the amount received, approximately $0.4 million was offset against a receivable that had been set up as of December 31, 2018 and $0.6 million was recorded as a gain in our unaudited condensed consolidated financial statements during the nine months ended September 30, 2019.costs.
Income Taxes
Provision for (benefit from) income taxes is based upon federal and state tax rates, and variations in amounts are consistent with taxable income (loss) in the respective accounting periods.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating losses (“NOL”) incurred in tax years 2018, 2019 and 2020 to offset 100 percent of taxable income and be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.
We are continuing to evaluate the full impact of the CARES Act. However, we have determined that the NOL carryback provision in the CARES Act would result in a cash benefit to us for the fiscal years 2018 and 2019. We carried back our NOL for fiscal year 2018 to 2013, and in June 2020, we received a cash refund of approximately $2.7 million. We have an income tax receivablereceivables at September 30, 2020March 31, 2021 of approximately $3.7 million for the benefit of carrying back the NOL for the fiscal year 2019 to 2014. We are forecasting an2014 and approximately $6.8 million for the benefit of carrying back the NOL for the fiscal year 2020 to 2015 and expect to carry it back to previous years. As a result, we have also included the 2020 provisional amounts in income tax receivable at September 30, 2020.2016. As we are carrying the losses back to years beginning before January 1, 2018, the receivables were recorded at the previous 35 percent federal tax rate rather than the current statutory rate of 21 percent.
Liquidity and Capital Resources
Liquidity
Our liquidity is from our cash balance and net cash provided by operating activities and is therefore dependent on the success of future operations. If our cash inflow subsides or turns negative, we will evaluate our investment plan accordingly and remain flexible.
At September 30, 2020March 31, 2021 and December 31, 2019,2020, we had no bank debt or other forms of debenture obligations. On May 4, 2021, we entered into a Credit Agreement (“Credit Agreement”) with Wells Fargo Bank, National Association, as Agent and Issuing Lender, under which we may borrow an aggregate of up to $40.0 million under a revolving credit facility (the “Revolving Credit Facility”), which will mature on May 4, 2024, subject to our compliance with certain financial covenants. See Note 15 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information.
We maintain cash balances in order to meet the timing of day-to-day cash needs. Cash and cash equivalents (excluding restricted cash) and working capital, the excess of current assets over current liabilities, were as follows at the dates indicated (in thousands):
| | | September 30, | | December 31, | | March 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 53,106 | | | $ | 112,994 | | Cash and cash equivalents | $ | 58,985 | | | $ | 39,293 | |
Working capital | Working capital | 84,147 | | | 87,747 | | Working capital | 78,246 | | | 72,965 | |
Although ourOur cash balance at September 30, 2020 decreasedMarch 31, 2021 increased by 5350 percent from December 31, 2019,2020, as discussed further below, webelow. We believe current cash balances, together with expected cash generated from future operations, and the ease of financing truck and trailer additions through leasing arrangements (should the need arise) will be sufficient to meet our short-term and long-term liquidity needs. During June 2020,In March 2021, we made a cash payment of approximately $9.2$2.5 million, including acquisition costs,representing the first of four quarterly installments, plus interest of 4.0 percent per annum, of the remaining $10.0 million purchase price for the acquisition of CTL transportation assets. In October 2020, we also made a cash payment of approximately $10.0 million for the acquisition of a pipeline and related terminal facilities (see Note 15 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information). In addition, we have significantly curtailed our capital spending asVEX acquisition. As a result of the current business environment.continued uncertainty relating to the economic environment resulting from the COVID-19 pandemic, we have also continued to significantly curtail our capital spending.
On December 23, 2020, we entered into an At Market Issuance Sales Agreement (“ATM Agreement”) with B. Riley Securities, Inc., as agent (the “Agent”). Pursuant to the ATM Agreement, we may offer to sell shares of our common stock through or to the Agent for cash from time to time. We are currently evaluating other long-term financing optionsfiled a registration statement initially registering an aggregate of $20.0 million of shares of common stock for sale under the ATM Agreement. The total number of shares of common stock to be sold, if any, and the price the shares will be sold at will be determined by us periodically in connection with any such sales, though the total amount sold may not exceed the limitations stated in the eventregistration statement. We did not sell any shares of common stock under the need arises.ATM Agreement during the first quarter of 2021.
We utilize cash from operations to make discretionary investments in our crude oil marketing, transportation and transportationpipeline and storage businesses. With the exception of operating and finance lease commitments primarily associated with storage tank terminal arrangements, leased office space, tractors, trailers and trailers,other equipment, and payment of our remaining purchase price for the VEX Pipeline System, our future commitments and planned investments can be readily curtailed if operating cash flows decrease. See “Other Items” below for information regarding our operating and finance lease obligations.
The most significant item affecting future increases or decreases in liquidity is earnings from operations, and these earnings are dependent on the success of future operations. See “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q and “Part I, Item 1A. Risk Factors” in our 20192020 Form 10-K.
Cash Flows from Operating, Investing and Financing Activities
Our consolidated cash flows from operating, investing and financing activities were as follows for the periods indicated (in thousands):
| | | Nine Months Ended | | Three Months Ended |
| | September 30, | | March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Cash provided by (used in): | Cash provided by (used in): | | Cash provided by (used in): | |
Operating activities | Operating activities | $ | (50,090) | | | $ | 43,142 | | Operating activities | $ | 23,001 | | | $ | (23,846) | |
Investing activities | Investing activities | (9,343) | | | (26,448) | | Investing activities | 835 | | | (582) | |
Financing activities | Financing activities | (4,851) | | | (4,131) | | Financing activities | (4,539) | | | (1,602) | |
Operating activities. Net cash flows used inprovided by operating activities was $50.1$23.0 million for the ninethree months ended September 30, 2020March 31, 2021 as compared to net cash flows provided byused in operating activities of $43.1$23.8 million for the ninethree months ended September 30, 2019.March 31, 2020. The decreaseincrease in net cash flows from operating activities of $93.2$46.8 million was primarily due to lowerhigher earnings in the current period and changes in our working capital accounts.
At various times each month, we may make cash prepayments and/or early payments in advance of the normal due date to certain suppliers of crude oil within our crude oil marketing operations. Crude oil supply prepayments are recouped and advanced from month to month as the suppliers deliver product to us. In addition, in order to secure crude oil supply, we may also “early pay” our suppliers in advance of the normal payment due date of the twentieth of the month following the month of production. These “early payments” reduce cash and accounts payable as of the balance sheet date. At September 30, 2020, we had no cash prepayments or early payments outstanding.
We also require certain customers to make similar early payments or to post cash collateral with us in order to support their purchases from us. Early payments and cash collateral received from customers increases cash and reduces accounts receivable as of the balance sheet date.
Early payments received from customers and prepayments to suppliers were as follows at the dates indicated (in thousands):
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2020 | | 2019 |
| | | |
Early payments received | $ | — | | | $ | 54,108 | |
| | | |
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2021 | | 2020 |
| | | |
Early payments received | $ | 20,095 | | | $ | 939 | |
Prepayments to suppliers | 7,358 | | | 1,085 | |
We rely heavily on our ability to obtain open-line trade credit from our suppliers especially with respect to our crude oil marketing operations. During December 2019,2020, we received severala small amount of early payments from certain customers in our crude oil marketing operations, while during September 2020,March 2021, we did not receive anyreceived an increase in early payments from customers. Our cash balance decreasedincreased by approximately $59.9$19.7 million as of September 30, 2020March 31, 2021 relative to the year ended December 31, 20192020 primarily as a result of the timing of the receipt of these early payments received during each period resulting from the decreasean increase in crude oil marketing activities.activities, partially offset by early payments made to our suppliers.
Investing activities. Net cash flows provided by investing activities was $0.8 million for the three months ended March 31, 2021 as compared to net cash flows used in investing activities of $0.6 million for the ninethree months ended September 30, 2020 decreased by $17.1March 31, 2020. This increase in net cash flows from investing activities of $1.4 million when compared to the same period in 2019. This decrease was primarily due to a decrease of $21.8$2.0 million in capital spending for property and equipment (see following table) and an increase of $0.4 million in insurance and state collateral refunds, partially offset by an increase of $3.5 million in cash paid for asset acquisitions ($9.2 million was paid in June 2020 for the purchase of the CTL transportation assets while $5.6 million was paid in May 2019 for the purchase of the EH Transport assets — both in our transportation segment), the receipt in 2019 of $1.0 million in cash proceeds related to the final settlement of AREC’s bankruptcy and a decrease of $0.6$0.5 million in cash proceeds from the sales of assets.assets, partially offset by a decrease of $1.1 million in insurance and state collateral refunds.
Capital spending was as follows for the periods indicated (in thousands):
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, |
| 2020 | | 2019 |
Crude oil marketing (1) | $ | 2,734 | | | $ | 6,896 | |
Transportation (2) | 332 | | | 18,529 | |
Other (3) | 523 | | | — | |
Capital spending | $ | 3,589 | | | $ | 25,425 | |
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2021 | | 2020 |
Crude oil marketing (1) | $ | 210 | | | $ | 2,032 | |
Transportation (2) | (58) | | | 41 | |
Pipeline and storage | 10 | | | — | |
Other (3) | 8 | | | 139 | |
Capital spending | $ | 170 | | | $ | 2,212 | |
_______________
(1)2021 amount primarily relates to the purchase of other field equipment. 2020 amount primarily relates to the purchase of 16 tractors and other field equipment. 2019
(2)During the three months ended March 31, 2021, we received a refund of approximately $0.3 million for amounts previously spent in our transportation segment, which has been reflected as a reduction in property and equipment additions. The remaining 2021 amount primarily relates to the purchase of 28 tractorstwo trailers and other fieldcomputer software and equipment.
(2)(3)20202021 amount does not include approximately $9.2 million of capital spending related to the CTL asset acquisition. 2019 amount primarily relates to the purchase of 86 tractors, 46 trailerscomputer software and other field equipment, and does not include approximately $5.6 million of capital spending related to the EH Transport asset acquisition.
(3)Amount2020 amount relates to leasehold improvements at our corporate headquarters, both of which isare not attributed to any of our reporting segments.
Financing activities. Cash used in financing activities for the ninethree months ended September 30, 2020March 31, 2021 increased by $0.7$2.9 million when compared to the same period in 2019.2020. The increase was primarily due to the payment of the first $2.5 million installment related to the purchase of the VEX pipeline in October 2020, and an increase of $0.5 million in principal repayments made for finance lease obligations for certain of our tractors, trailers and a tank storage and throughput arrangement. During the nine months ended September 30, 2020, we paid cash dividends of $0.72 per common share, or a total of $3.1 million, while during the nine months ended September 30, 2019, we paid a cash dividend of $0.70 per common share, or a total of $3.0 million.obligations. See “Other Items” below for further information regarding our finance leases. During each of the three months ended March 31, 2021 and 2020, we paid a cash dividend of $0.24 per common share, or a total of $1.0 million.
Other Items
Contractual Obligations
The following table summarizes our significant contractual obligations at September 30, 2020March 31, 2021 (in thousands):
| | | Payments due by period | | Payments due by period |
Contractual Obligations | Contractual Obligations | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | Contractual Obligations | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Finance lease obligations (1) | Finance lease obligations (1) | | $ | 6,913 | | | $ | 2,725 | | | $ | 3,279 | | | $ | 687 | | | $ | 222 | | Finance lease obligations (1) | | $ | 17,669 | | | $ | 4,876 | | | $ | 6,486 | | | $ | 5,580 | | | $ | 727 | |
Operating lease obligations (2) | Operating lease obligations (2) | | 9,223 | | | 2,451 | | | 3,971 | | | 2,291 | | | 510 | | Operating lease obligations (2) | | 8,410 | | | 2,400 | | | 3,837 | | | 1,553 | | | 620 | |
| Payments for VEX Pipeline | | Payments for VEX Pipeline | |
System acquisition (3) | | System acquisition (3) | | 7,750 | | | 7,750 | | | — | | | — | | | — | |
Purchase obligations (4) | | Purchase obligations (4) | | 15,670 | | | 15,670 | | | — | | | — | | | — | |
Total contractual obligations | Total contractual obligations | | $ | 16,136 | | | $ | 5,176 | | | $ | 7,250 | | | $ | 2,978 | | | $ | 732 | | Total contractual obligations | | $ | 49,499 | | | $ | 30,696 | | | $ | 10,323 | | | $ | 7,133 | | | $ | 1,347 | |
_______________
(1)Amounts represent our principal contractual commitments, including interest, outstanding under finance leases for certain tractors, andtrailers, tank storage and throughput arrangements in our crude oil marketing segment and for certain trailers in our transportation segment.other equipment.
(2)Amounts represent rental obligations under non-cancelable operating leases and terminal arrangements with terms in excess of one year.
(3)Amount represents our contractual obligation, including interest, related to the remaining three equal quarterly installments for the remaining purchase price for the acquisition of the VEX Pipeline System in October 2020.
(4)Amount represents commitments to purchase 31 new tractors and 50 new trailers in our transportation business and 51 new tractors in our crude oil marketing business.
See Note 13 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding our finance and operating leases.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably expected to have a material current or future effect on our financial position, results of operations or cash flows.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements.
Related Party Transactions
For more information regarding related party transactions, see Note 98 in the Notes to Unaudited Condensed Consolidated Financial Statements.
Critical Accounting Policies and Use of Estimates
A discussion of our critical accounting policies and estimates is included in our 20192020 Form 10-K. Certain of these accounting policies require the use of estimates. There have been no material changes to our accounting policies since the disclosures provided in our 20192020 Form 10-K, except as discussed in Note 2 and Note 6 in the Notes to Unaudited Condensed Consolidated Financial Statements in relation to Level 3 inputs used in the determination of fair value of intangible assets acquired.10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to our “Quantitative and Qualitative Disclosures about Market Risk” that have occurred since the disclosures provided in our 20192020 Form 10-K.
Item 4. Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15(e) of the Exchange Act. Based on this evaluation, as of the end of the period covered by this quarterly report, our Chief Executive Officer and our Chief Financial Officer concluded:
(i)that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow for timely decisions regarding required disclosures; and
(ii)that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(e) under the Exchange Act) during the fiscal quarter ended September 30, 2020,March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position or results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 20192020 Form 10-K and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our businesses, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. Except as set forth below, thereThere have been no material changes in our Risk Factors from those disclosed in Item 1A of our 20192020 Form 10-K or our other SEC filings.
The ongoing COVID-19 pandemic and the recent OPEC price war could disrupt our operations and adversely impact our business and financial results.
The outbreak of COVID-19 has resulted in the implementation of significant governmental measures to control the spread of the virus, including quarantines, travel restrictions, business shutdowns and restrictions on non-essential activities in the United States and abroad. As a result, the global economy has been marked by significant slowdown and uncertainty, which has led to a precipitous decline in crude oil prices in response to demand concerns, further exacerbated by the OPEC price war during the first quarter of 2020 and global storage considerations. During the second quarter of 2020, while members of OPEC reached agreements to cut crude oil production,
downward pressure on crude oil prices continues and could continue into the foreseeable future, due to concerns regarding an oversupply of crude oil inventories. As a result, prices of crude oil and other commodities continue to remain volatile.
The ongoing COVID-19 pandemic has caused a number of adverse economic effects, including government restrictions, changes in consumer behavior related to the economic slowdown, and disruption of historical supply and demand patterns, which have negatively affected our business and the businesses of our customers.
As a result, our crude oil marketing operations have declined, as low crude oil prices have negatively impacted production of crude oil, and demand for crude oil and other related products has significantly decreased. While we consider the lower crude oil prices and decrease in demand to be temporary, if the pandemic and decline in crude oil prices continue, they may have a material adverse on our results of future operations, financial position and liquidity in 2021. We are actively monitoring our financial condition, liquidity, operations, customers, industry and workforce. Although we cannot estimate the length or gravity of the impacts of these events at this time, if the pandemic and decline in oil prices continue, we expect that they will have an adverse effect on our results of future operations, financial position and liquidity.
Additionally, during the second quarter of 2020, we saw a significant decline in our overall transportation operations primarily due to the continuation of the governmental restrictions and the adverse economic effects. While we have seen signs that demand for transportation of products has begun to increase, such demand may decrease again in the future, particularly if governmental restrictions are renewed or reinstituted.
The implementation of governmental restrictions related to COVID-19 has not to date had a significant impact on our ability to deploy our workforce effectively, as the transportation industry has been deemed an essential service, but limitations or restrictions could be enacted in the future that would impact our operations. Additionally, we may also experience disruptions in our workforce related to COVID-19, which may negatively affect our revenues in 2020 and our overall liquidity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| | | | | | | | |
Exhibit | | |
Number | | Exhibit |
| | |
3.1 | | |
3.2 | | |
10.1+* | | |
31.1* | | |
31.2* | | |
32.1* | | |
32.2* | | |
101.CAL* | | Inline XBRL Calculation Linkbase Document |
101.DEF* | | Inline XBRL Definition Linkbase Document |
101.INS* | | Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.LAB* | | Inline XBRL Labels Linkbase Document |
101.PRE* | | Inline XBRL Presentation Linkbase Document |
101.SCH* | | Inline XBRL Schema Document |
104* | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
____________
*Filed or furnished (in the case of Exhibits 32.1 and 32.2) with this report.
+ Management contract or compensation plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | ADAMS RESOURCES & ENERGY, INC. |
| | | (Registrant) |
| | | |
| | | |
| | | |
Date: | November 5, 2020May 6, 2021 | By: | /s/ Kevin J. Roycraft |
| | | Kevin J. Roycraft |
| | | Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
| | By: | /s/ Tracy E. Ohmart |
| | | Tracy E. Ohmart |
| | | Chief Financial Officer |
| | | (Principal Financial Officer and Principal |
| | | Accounting Officer) |