Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following information should be read in conjunction with our Consolidated Financial Statements and accompanying notes included under Part II, Item 8 of this annual report. Our financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S.
Overview of Business
Adams Resources & Energy, Inc. and its subsidiaries are primarily engaged in crude oil marketing, transportation, terminalling and storage in various crude oil and natural gas basins in the lower 48 states of the 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 across the U.S.
We operate and report in three business segments: (i) crude oil marketing, transportation and storage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk; and (iii) beginning in the fourth quarter of 2020, pipeline transportation, terminalling and storage of crude oil, which includes the pipeline and related terminal facility assets we acquired in October 2020 (see Note 6 in the Notes to Consolidated Financial Statements for further information regarding this acquisition). See Note 9 in the Notes to Consolidated Financial Statements for further information regarding our business segments.
Results of Operations
Crude Oil Marketing
Our crude oil marketing segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
Change (1)
|
|
2018
|
|
Change (1)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
950,426
|
|
|
$
|
1,748,056
|
|
|
(45.6
|
%)
|
|
$
|
1,694,437
|
|
|
3.2
|
%
|
Operating earnings (2)
|
2,974
|
|
|
16,099
|
|
|
(81.5
|
%)
|
|
7,008
|
|
|
129.7
|
%
|
Depreciation and amortization
|
7,421
|
|
|
8,741
|
|
|
(15.1
|
%)
|
|
6,384
|
|
|
36.9
|
%
|
Driver compensation
|
18,549
|
|
|
22,754
|
|
|
(18.5
|
%)
|
|
14,567
|
|
|
56.2
|
%
|
Insurance
|
6,109
|
|
|
7,772
|
|
|
(21.4
|
%)
|
|
6,248
|
|
|
24.4
|
%
|
Fuel
|
5,967
|
|
|
8,979
|
|
|
(33.5
|
%)
|
|
7,435
|
|
|
20.8
|
%
|
____________________
(1)Represents the percentage increase (decrease) from the prior year.
(2)Operating earnings included net inventory valuation losses of $15.0 million, inventory liquidation gains of $3.7 million and inventory valuation losses of $5.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Volume and price information were as follows for the periods indicated:
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|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Field level purchase volumes – per day (1) (2)
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|
|
|
|
|
Crude oil – barrels
|
91,957
|
|
|
107,383
|
|
|
79,361
|
|
|
|
|
|
|
|
Average purchase price
|
|
|
|
|
|
Crude oil – per barrel
|
$
|
36.90
|
|
|
$
|
56.28
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|
|
$
|
64.53
|
|
____________________
(1)Reflects the volume purchased from third parties at the field level of operations.
(2)Effective October 1, 2018, in connection with the Red River acquisition, we entered into a new revenue contract to purchase crude oil. Volumes increased from the year ended December 31, 2018 as compared to the years ended December 31, 2019 and 2020, as 2019 and 2020 reflect a full twelve months of volumes purchased under the new revenue contract versus three months under the new contract in 2018.
2020 compared to 2019. Crude oil marketing revenues decreased by $797.6 million during the year ended December 31, 2020 as compared to 2019, primarily as a result of a decrease in the market price of crude oil, which decreased revenues by approximately $641.2 million, and lower crude oil volumes, which decreased revenues by approximately $156.4 million. The average crude oil price received was $56.28 for 2019, which decreased to $36.90 for 2020. Revenues from legacy volumes are based upon the market price in our other market areas, primarily in the Gulf Coast. 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 on the economy and the delay of OPEC to agree on crude oil production levels during the second quarter of 2020, both of which resulted in market disruptions that decreased the demand for and price of crude oil.
Our crude oil marketing operating earnings for the year ended December 31, 2020 decreased by $13.1 million as compared to 2019, primarily as a result of inventory valuation losses of $15.0 million in 2020 as compared to inventory liquidation gains of $3.7 million in 2019 (as shown in the following table), decreases in crude oil volumes in 2020, and a decrease in the average market price of crude oil.
Driver compensation decreased by $4.2 million during the year ended December 31, 2020 as compared to 2019, primarily as a result of a decrease in the number of drivers required for volumes transported in 2020 as compared to 2019.
Insurance costs decreased by $1.7 million during the year ended December 31, 2020 as compared to 2019, primarily due to decreases 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 2020. Fuel costs decreased by $3.0 million during the year ended December 31, 2020 as compared to 2019 consistent with the lower driver count in the current year and lower miles driven in 2020.
Depreciation and amortization expense decreased by $1.3 million during the year ended December 31, 2020 as compared to 2019, primarily due to the timing of purchases and retirements of tractors and other field equipment during 2019 and 2020.
2019 compared to 2018. Crude oil marketing revenues increased by $53.6 million during the year ended December 31, 2019 as compared to 2018, primarily as a result of higher crude oil volumes, which increased revenues by approximately $456.1 million, partially offset by a decrease in the market price of crude oil, which decreased revenues by approximately $402.5 million. The average crude oil price received was $64.53 for 2018, which decreased to $56.28 for 2019. Volumes increased by approximately 28,000 barrels per day during the year ended December 31, 2019 as compared to 2018 primarily as a result of the acquisition of a trucking company that owned approximately 113 tractors and 126 trailers operating in the Red River area in North Texas and South Central Oklahoma (the “Red River acquisition”) on October 1, 2018. The purchase price for Red River volumes is based on a contractual price for volumes in North Texas and Oklahoma, which had been slightly lower than the purchase price for legacy volumes. Revenues from legacy volumes are based upon the market price in our other market areas, primarily in the Gulf Coast.
Our crude oil marketing operating earnings for the year ended December 31, 2019 increased by $9.1 million as compared to 2018, primarily as a result of inventory liquidation gains of $3.7 million in 2019 as compared to inventory valuation losses of $5.4 million in 2018 (as shown in the following table) and increases in crude oil volumes in 2019, partially offset by a decrease in the average market price of crude oil. During 2019, volumes increased as activity in certain marketing areas increased primarily as a result of increased wellhead purchases.
Driver compensation increased by $8.2 million during the year ended December 31, 2019 as compared to 2018, primarily as a result of an increase in the number of drivers in 2019 as compared to 2018 due to the Red River acquisition on October 1, 2018. In connection with the Red River acquisition, we hired over one hundred additional drivers.
Insurance costs increased by $1.5 million during the year ended December 31, 2019 as compared to 2018, primarily due to a higher driver count and additional miles driven in 2019, as a result of the Red River acquisition in 2018. Fuel costs increased by $1.5 million during the year ended December 31, 2019 as compared to 2018 consistent with the higher driver count in 2019 and additional miles driven, primarily as a result of the additional drivers hired for the Red River assets.
Depreciation and amortization expense increased by $2.4 million during the year ended December 31, 2019 as compared to 2018, primarily as a result of the acquisition of the Red River assets, consisting of approximately 113 tractors and 126 trailers on October 1, 2018, which resulted in an increase in depreciation expense. In addition, we purchased 43 new tractors and other field equipment during 2019, and retired 48 tractors.
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. 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 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 derivative valuations on our crude oil marketing segment operating earnings is summarized in the following reconciliation of our non-GAAP financial measure for the periods indicated (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
As reported segment operating earnings (1)
|
$
|
2,974
|
|
|
$
|
16,099
|
|
|
$
|
7,008
|
|
Add (subtract):
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|
|
|
|
|
Inventory liquidation gains
|
—
|
|
|
(3,749)
|
|
|
—
|
|
Inventory valuation losses
|
14,967
|
|
|
—
|
|
|
5,363
|
|
Derivative valuation (gains) losses
|
(9)
|
|
|
24
|
|
|
(2)
|
|
Field level operating earnings (2)
|
$
|
17,932
|
|
|
$
|
12,374
|
|
|
$
|
12,369
|
|
____________________
(1)Segment operating earnings included net inventory valuation losses of $15.0 million, inventory liquidation gains of $3.7 million and inventory valuation losses of $5.4 million for the years ended December 31, 2020, 2019 and 2018, 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 points. Field level operating earnings increased during the year ended December 31, 2020 as compared to 2019, primarily due to lower operating expenses, partially offset by lower revenues resulting from lower volumes and a decrease in the market price of crude oil in 2020.
Field level operating earnings during the year ended December 31, 2019 were consistent with the year ended December 31, 2018, primarily due to higher revenues resulting from higher crude oil volumes in 2019, offset by a decrease in the market price of crude oil in 2019.
We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels and price per barrel):
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
Barrels
|
|
Price
|
|
Barrels
|
|
Price
|
|
Barrels
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil inventory
|
421,759
|
|
|
$
|
45.83
|
|
|
426,397
|
|
|
$
|
61.93
|
|
|
415,523
|
|
|
$
|
54.82
|
|
Historically, prices received for crude oil have been volatile and unpredictable with price volatility expected to continue. See “Item 1A. Risk Factors.”
Transportation
Our transportation segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
Change (1)
|
|
2018
|
|
Change (1)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
71,724
|
|
|
$
|
63,191
|
|
|
13.5
|
%
|
|
$
|
55,776
|
|
|
13.3
|
%
|
Operating earnings
|
$
|
1,873
|
|
|
$
|
1,899
|
|
|
(1.4
|
%)
|
|
$
|
3,337
|
|
|
(43.1
|
%)
|
Depreciation and amortization
|
$
|
10,963
|
|
|
$
|
7,900
|
|
|
38.8
|
%
|
|
$
|
4,270
|
|
|
85.0
|
%
|
Driver commissions
|
$
|
12,575
|
|
|
$
|
10,774
|
|
|
16.7
|
%
|
|
$
|
11,680
|
|
|
(7.8
|
%)
|
Insurance
|
$
|
6,462
|
|
|
$
|
5,938
|
|
|
8.8
|
%
|
|
$
|
4,716
|
|
|
25.9
|
%
|
Fuel
|
$
|
5,065
|
|
|
$
|
6,279
|
|
|
(19.3
|
%)
|
|
$
|
6,988
|
|
|
(10.1
|
%)
|
Maintenance expense
|
$
|
3,949
|
|
|
$
|
3,849
|
|
|
2.6
|
%
|
|
$
|
5,347
|
|
|
(28.0
|
%)
|
Mileage (000s) (2)
|
24,239
|
|
|
20,535
|
|
|
18.0
|
%
|
|
19,177
|
|
|
7.1
|
%
|
____________________
(1)Represents the percentage increase (decrease) from the prior year.
(2)The increase in mileage from 2019 to 2020 is primarily due to the CTL acquisition, which added services to new and existing customers, new product lines and six new market areas.
Our revenue rate structure includes a component for fuel costs in which fuel cost fluctuations are largely passed through to the customer over time. Revenues, net of fuel cost, were as follows for the periods indicated (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Total transportation revenue
|
$
|
71,724
|
|
|
$
|
63,191
|
|
|
$
|
55,776
|
|
Diesel fuel cost
|
(5,065)
|
|
|
(6,279)
|
|
|
(6,988)
|
|
Revenues, net of fuel cost (1)
|
$
|
66,659
|
|
|
$
|
56,912
|
|
|
$
|
48,788
|
|
____________________
(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.
2020 compared to 2019. Transportation revenues increased by $8.5 million during the year ended December 31, 2020 as compared to 2019, primarily as a result of the CTL acquisition in June 2020 and the EH Transport acquisition in May 2019 (see Note 6 in the Notes to Consolidated Financial Statements), partially offset by a decrease in customer activity as a result of the COVID-19 outbreak resulting in lower miles traveled in 2020. Revenues, net of fuel cost, increased by $9.7 million during the year ended December 31, 2020 as compared to 2019, primarily as a result of the higher transportation revenues and miles traveled during 2020.
Our transportation operating earnings for the year ended December 31, 2020 were consistent with the year ended December 31, 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 certain other operating expenses, offset by higher revenues and increased miles traveled during 2020.
Fuel costs decreased by $1.2 million during the year ended December 31, 2020 as compared to 2019, primarily as a result of lower fuel prices and fewer miles traveled during the first six months of 2020, partially offset by an increase in the number of miles traveled as a result of the CTL acquisition in June 2020. Insurance costs increased $0.5 million during the year ended December 31, 2020 as compared to 2019, primarily due to the CTL acquisition which resulted in a higher driver count and increased miles driven in 2020. Maintenance expense increased by $0.1 million during the year ended December 31, 2020 as compared to 2019, as a result of the purchase of new tractors and the retirement of older tractors, as the age of our fleet has decreased.
Depreciation and amortization expense increased by $3.1 million during the year ended December 31, 2020 as compared to 2019, primarily as a result of the CTL acquisition in June 2020, the EH Transport acquisition in May 2019 and the purchase and lease of new tractors and trailers in 2019 and 2020.
2019 compared to 2018. Transportation revenues increased by $7.4 million during the year ended December 31, 2019 as compared to 2018, primarily as a result of the EH Transport acquisition (see Note 6 in the Notes to Consolidated Financial Statements), increased miles traveled in 2019, and higher transportation rates in full effect in 2019 as a result of negotiations during 2018 with customers. Revenues, net of fuel cost, increased by $8.1 million during the year ended December 31, 2019 as compared to 2018, primarily as a result of the higher transportation revenues and miles traveled during 2019.
Our transportation operating earnings for the year ended December 31, 2019 decreased by $1.4 million as compared to 2018, primarily due to higher depreciation and amortization expense related to the EH Transport acquisition and new assets placed into service and higher insurance expense as a result of more miles traveled during the current year, partially offset by higher revenues as noted above, and lower other operating expenses.
Fuel costs decreased by $0.7 million during the year ended December 31, 2019 as compared to 2018, primarily as a result of a decrease in the price of diesel during 2019 as compared to 2018, partially offset by an increase in miles traveled.
Depreciation and amortization expense increased by $3.6 million during the year ended December 31, 2019 as compared to 2018, primarily as a result of the acquisition of the assets of EH Transport during the second quarter of 2019 and the purchase of new tractors in 2018 and 2019.
Maintenance expense decreased by $1.5 million during the year ended December 31, 2019 as compared to 2018, as a result of the purchase of new tractors and the retirement of older tractors, as the age of our fleet has decreased.
Equipment additions and retirements for the transportation fleet were as follows for the periods indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
New tractors purchased (1) (2)
|
12 units
|
|
151 units
|
|
60 units
|
Tractors retired (1)
|
49 units
|
|
107 units
|
|
67 units
|
New trailers purchased (1) (2)
|
10 units
|
|
77 units
|
|
—
|
Trailers retired
|
30 units
|
|
20 units
|
|
12 units
|
________________
(1)2020 amounts do not include 163 tractors and 328 trailers purchased in connection with the CTL asset acquisition in June 2020. Of the 163 tractors purchased as part of the CTL acquisition, 66 tractors have been retired and are not included in the number of units noted in the table.
(2)2020 amounts do not include 33 tractors and 40 trailers which were acquired under finance lease agreements.
The sales of retired equipment in our transportation segment produced gains of approximately $0.2 million, $0.5 million and $0.8 million during the years ended December 31, 2020, 2019 and 2018, respectively.
Our customers are primarily in the domestic petrochemical industry. Customer demand is affected by low natural gas prices (a basic feedstock cost for the petrochemical industry) and high export demand for petrochemicals. During 2018, we began a strategy of streamlining operations and diversifying offerings in our transportation segment. We have continued to work with customers to increase our transportation rates as well as streamlining operations in low margin areas.
Pipelines and Storage
Our pipelines and storage segment revenues, operating losses and selected costs were as follows for the period indicated (in thousands):
|
|
|
|
|
|
|
Year Ended
|
|
December 31,
|
|
2020 (1)
|
|
|
Revenues
|
$
|
272
|
|
Operating losses
|
(310)
|
|
Depreciation and amortization
|
189
|
|
Insurance
|
138
|
|
____________________
(1)Represents the period from acquisition, October 22, 2020 through December 31, 2020.
In October 2020, we purchased the VEX Pipeline System. 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 approximately 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 and has a current capacity of 90,000 barrels per day.
We are focusing on opportunities to increase our pipeline and storage capacity utilization, by identifying opportunities with our existing and new customers to increase volumes. In addition, we are exploring new connections for the pipeline system both upstream and downstream of the pipeline, to increase the crude oil supply and take-away capability of the system.
General and Administrative Expense
General and administrative expenses increased by $0.1 million during the year ended December 31, 2020 as compared to 2019, primarily due to higher personnel costs, included approximately $0.3 million of additional personal expenses related to a voluntary early retirement program and terminations for certain employees, and higher rental expense and director fees in 2020, partially offset by lower insurance costs, audit fees and outside service fees.
General and administrative expenses increased by $1.3 million during the year ended December 31, 2019 as compared to 2018, primarily due to the receipt in 2018 of approximately $0.6 million in insurance proceeds related to Hurricane Harvey insurance claims, which reduced expenses in the prior year, and higher outside service fees, audit fees and personnel costs in 2019, partially offset by lower insurance costs and legal fees.
Gain on Dissolution of Investment
During 2019, we received a cash payment from AREC totaling approximately $1.0 million, related to the final settlement of its bankruptcy and dissolution. 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 consolidated statements of operations during the year ended December 31, 2019.
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 receivable at December 31, 2020 of approximately $3.7 million for the benefit of carrying back the NOL for the fiscal year 2019 to 2014. We are forecasting an NOL for fiscal year 2020 and expect to carry it back to 2015 and 2016. As a result, we have also included the 2020 provisional amounts in income tax receivable at December 31, 2020. 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.
At December 31, 2020 and 2019, we had deferred tax liabilities of approximately $12.7 million and $6.3 million, respectively.
See Note 13 in the Notes to Consolidated Financial Statements for further information.
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 December 31, 2020, 2019 and 2018, we had no bank debt or other forms of debenture obligations. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
39,293
|
|
|
$
|
112,994
|
|
|
$
|
117,066
|
|
Working capital
|
72,965
|
|
|
87,747
|
|
|
106,323
|
|
Although our cash balance at December 31, 2020 decreased by 65.2 percent from December 31, 2019, as discussed further below, we believe current cash balances, together with expected cash generated from future operations, and the ease of financing tractor 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 and October 2020, we made cash payments, including acquisition costs, of approximately $9.2 million and $10.6 million, respectively, for the acquisitions of CTL transportation assets and the VEX Pipeline System (see Note 6 in the Notes to Consolidated Financial Statements for further information). We are also required to pay the remainder of the purchase price for the VEX Pipeline System in four quarterly installments of $2.5 million each during 2021, plus interest of 4 percent per annum. As a result of the uncertainty relating to the economic environment resulting from the COVID-19 pandemic, we have also significantly curtailed 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 filed 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 registration statement. We did not sell any shares of common stock under the ATM Agreement in 2020.
We utilize cash from operations to make discretionary investments in our crude oil marketing, transportation and pipeline 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 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 I, Item 1A. Risk Factors.”
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
Operating activities
|
$
|
(43,999)
|
|
|
$
|
46,899
|
|
|
$
|
31,014
|
|
Investing activities
|
(19,663)
|
|
|
(36,037)
|
|
|
(19,135)
|
|
Financing activities
|
(6,528)
|
|
|
(5,673)
|
|
|
(4,206)
|
|
Operating activities. Net cash flows used in operating activities was $44.0 million for the year ended December 31, 2020 compared to net cash flows provided by operating activities of $46.9 million for the year ended December 31, 2019. The decrease in net cash flows from operating activities of $90.9 million was primarily due to lower earnings in 2020 and changes in our working capital accounts.
Net cash flows provided by operating activities for the year ended December 31, 2019 increased by $15.9 million when compared to 2018. This increase was primarily due to an increase in revenues and a decrease in general and administrative expenses, partially offset by increased operating expenses, and the timing of collections of accounts receivable and payments of accounts payable.
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.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Early payments received
|
$
|
939
|
|
|
$
|
54,108
|
|
|
$
|
38,539
|
|
Prepayments to suppliers
|
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, we received several early payments from certain customers in our crude oil marketing operations, while during December 2020, we received significantly less in early payments from customers. Our cash balance decreased by approximately $73.7 million at December 31, 2020 relative to the year ended December 31, 2019 primarily as a result of the timing of the receipt of these early payments received during each year and the decrease in crude oil marketing activities in 2020.
Investing activities. Net cash flows used in investing activities for the year ended December 31, 2020 decreased by $16.4 million when compared to 2019. This decrease was primarily due to a decrease of $30.7 million in capital spending for property and equipment (see “Capital Projects” below), an increase of $0.8 million in cash proceeds from sales of assets and an increase of $0.4 million in insurance and state collateral refunds in 2020. These decreases in net cash flows used in investing activities were partially offset by an increase in cash paid for asset acquisitions ($10.0 million was paid in October 2020 for the purchase the VEX Pipeline System and $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 (see Note 6 in the Notes to Consolidated Financial Statements for further information)) and the receipt in 2019 of $1.0 million in cash proceeds related to the final settlement of AREC’s bankruptcy.
Net cash flows used in investing activities for the year ended December 31, 2019 increased by $16.9 million when compared to 2018. This increase was primarily due to an increase of $24.0 million in capital spending for property and equipment and a decrease of $0.2 million in insurance and state collateral refunds in 2019. These increases in net cash flows used in investing activities were partially offset by a decrease in cash paid for asset acquisitions ($5.6 million was paid in May 2019 for the purchase of the EH Transport assets in our transportation segment, while $10.3 million was paid in October 2018 for the purchase of the Red River assets in our crude oil marketing segment), an increase of $1.6 million in cash proceeds from the sales of assets and the receipt of $1.0 million in cash proceeds related to the final settlement of AREC’s bankruptcy in 2019.
Financing activities. Cash used in financing activities for the year ended December 31, 2020 increased by $0.9 million when compared to 2019. This increase was primarily due to an increase of $0.6 million in principal repayments made for finance lease obligations (see “Other Items” below for information regarding our finance lease obligations). During the years ended December 31, 2020 and 2019, we paid aggregate cash dividends of $0.96 per common share, or a total of $4.1 million, and $0.94 per common share, or a total of $4.0 million, respectively.
Cash used in financing activities for the year ended December 31, 2019 increased by $1.5 million when compared to 2018. This increase was primarily due to an increase of $1.2 million in principal repayments made for finance lease obligations. During the years ended December 31, 2019 and 2018, we paid aggregate cash dividends of $0.94 per common share, or a total of $4.0 million, and $0.88 per common share, or a total of $3.7 million, respectively.
Capital Projects
We use cash from operations and existing cash balances to make discretionary investments in our businesses. Capital spending was as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Crude oil marketing (1) (2)
|
$
|
3,130
|
|
|
$
|
7,249
|
|
|
$
|
1,540
|
|
Transportation (3)
|
1,355
|
|
|
28,472
|
|
|
10,178
|
|
Pipeline and storage (4)
|
—
|
|
|
—
|
|
|
—
|
|
Other (5)
|
523
|
|
|
22
|
|
|
13
|
|
Capital spending
|
$
|
5,008
|
|
|
$
|
35,743
|
|
|
$
|
11,731
|
|
_______________
(1)Amounts for the years ended December 31, 2020, 2019 and 2018, do not include approximately $3.6 million, $4.1 million and $2.9 million, respectively, of tractors acquired under finance leases.
(2)Amount for the year ended December 31, 2018 does not include approximately $10.3 million of capital spending related to the Red River acquisition.
(3)Amounts for the years ended December 31, 2020 and 2019 do not include approximately $9.2 million and $6.4 million of capital spending related to the acquisitions of CTL and EH Transport, respectively. Amount for the year ended December 31, 2020 does not include approximately $7.3 million of tractors and trailers acquired under finance leases.
(4)Amount for the year ended December 31, 2020 does not include approximately $10.0 million of capital spending related to the acquisition of the VEX Pipeline System.
(5)Amounts relate to leasehold improvements at our corporate headquarters, which is not attributed to any of our reporting segments.
Crude oil marketing. During 2018, capital expenditures were primarily related to construction of a pipeline connection and a truck loading/unloading facility. Capital expenditures during 2019 were primarily related to the purchase of 43 tractors and other field equipment, and during 2020 were primarily related to the purchase of 16 tractors and other field equipment.
Transportation. Beginning in 2018, we implemented a plan to improve the age of our transportation fleet. During 2018, we purchased 60 new tractors, and during 2019, we purchased 152 new tractors and 77 new trailers. Capital expenditures during 2020 were primarily related to the purchase of other field equipment. As a result of the uncertainty relating to the economic environment resulting from the COVID-19 pandemic, we significantly reduced our capital spending in 2020 and, as a result, entered into finance lease agreements for the use of 33 tractors and 40 trailers during 2020. See “Other Items” below for information regarding our finance lease obligations.
Other Items
Contractual Obligations
The following table summarizes our significant contractual obligations at December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
Contractual Obligations
|
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease obligations (1)
|
|
$
|
16,585
|
|
|
$
|
4,496
|
|
|
$
|
6,326
|
|
|
$
|
4,961
|
|
|
$
|
802
|
|
Operating lease obligations (2)
|
|
8,763
|
|
|
2,343
|
|
|
3,823
|
|
|
1,922
|
|
|
675
|
|
Payments for VEX Pipeline
|
|
|
|
|
|
|
|
|
|
|
System acquisition (3)
|
|
10,250
|
|
|
10,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|
Crude oil marketing — crude oil (4)
|
|
92,391
|
|
|
92,391
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
127,989
|
|
|
$
|
109,480
|
|
|
$
|
10,149
|
|
|
$
|
6,883
|
|
|
$
|
1,477
|
|
___________________
(1)Amounts represent our principal contractual commitments, including interest, outstanding under finance leases for certain tractors, trailers, tank storage and throughput arrangements and 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 four 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 certain quantities of crude oil substantially in January 2021 in connection with our crude oil marketing activities. These commodity purchase obligations are the basis for commodity sales, which generate the cash flow necessary to meet these purchase obligations.
We maintain certain lease arrangements with independent truck owner-operators for use of their equipment and driver services on a month-to-month basis. In addition, we enter into office space and certain lease and terminal access contracts in order to provide tank storage and dock access for our crude oil marketing business. These storage and access contracts require certain minimum monthly payments for the term of the contracts.
Rental expense was as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Rental expense
|
$
|
16,585
|
|
|
$
|
14,662
|
|
|
$
|
11,078
|
|
Insurance
Our primary insurance needs are workers’ compensation, automobile and umbrella liability coverage for our trucking fleet and medical insurance for our employees. See Note 17 in the Notes to Consolidated Financial Statements for further information. Insurance costs were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Insurance costs
|
$
|
13,283
|
|
|
$
|
14,149
|
|
|
$
|
11,374
|
|
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.
Related Party Transactions
For information regarding our related party transactions, see Note 10 in the Notes to Consolidated Financial Statements included under Part II, Item 8 of this annual report.
Recent Accounting Developments
For information regarding recent accounting developments, see Note 2 in the Notes to Consolidated Financial Statements included under Part II, Item 8 of this annual report.
Outlook
Our focus in 2021 will be to expand our core businesses while delivering value to our shareholders. We will work to achieve positive results in markets with strong competition and margin pressures throughout all segments of our business.
Our major objectives for 2021 are as follows:
•Crude oil marketing – We plan to focus on increasing margins to maximize cash flow and capturing midstream opportunities in an increasingly volatile market. We will utilize a new fleet dispatch and maintenance software system to help drive more efficiency in our fleet operations and lower our operating costs, which we believe will help drive increased profitability. In addition, we will look for opportunities to increase our trucking fleet to add to our overall ability to gather and distribute crude oil.
•Transportation – We plan to continue to increase truck utilization, upgrade our fleet quality and enhance driver retention and recruitment. We also plan to capitalize on our recent acquisitions to improve quality of revenue through improved efficiencies, and we will continue to look for ways to expand our terminal footprint to put us in a position to better compete for new business.
•Pipeline and storage – We will focus on opportunities to increase our pipeline and storage capacity utilization, by identifying opportunities with our existing and new customers to increase volumes. In addition, we will explore new connections for the pipeline system both upstream and downstream of the pipeline, to increase the crude oil supply and take-away capability of the system.
•Strategic business development – We will deploy a disciplined investment approach to growth in our three segments and funding new growth opportunities that are adjacent and complimentary to existing operating activities.
Critical Accounting Policies and Estimates
In our financial reporting processes, we employ methods, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our financial statements. These methods, estimates and assumptions also affect the reported amounts of revenues and expenses for each reporting period. Investors should be aware that actual results could differ from these estimates if the underlying assumptions prove to be incorrect. The following sections discuss the use of estimates within our critical accounting policies and estimates.
Valuation and Amortization Methods of Customer Relationship Intangible Assets
Customer relationship intangible assets represent the estimated economic value assigned to relationships between an acquisition target and its various customers to whom we did not have a previous relationship. These customer relationships 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.
In order to estimate the fair value of the customer relationships, we use a discounted cash flow analysis that relies 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. The Level 3 inputs generally include such items as the rate of retention of the current customers of the acquisition target as of the valuation date, our historical customer retention rate and projected future revenues associated with the customers. The customers expected to remain with us after the transaction are included in the valuation of the customer relationships. For our existing customer relationship intangible assets, we are amortizing these assets over a period of seven years, using a modified straight-line approach.
At December 31, 2020 and 2019, the carrying values of our customer relationship intangible assets were $4.1 million and $1.6 million, respectively. See Note 6 and Note 8 in the Notes to Consolidated Financial Statements for further information.
Fair Value Accounting
We enter into certain forward commodity contracts that are required to be recorded at fair value, and these contracts 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 no contracts designated for hedge accounting during the years ended December 31, 2020, 2019 and 2018.
We utilize a market approach to valuing our commodity contracts. On a contract by contract, forward month by forward month basis, we obtain observable market data for valuing our contracts that typically have durations of less than 18 months. At December 31, 2020, all of our market value measurements were based on inputs based on observable market data (Level 2 inputs). See discussion under “Fair Value Measurements” in Note 2 and Note 12 in the Notes to Consolidated Financial Statements.
Our fair value contracts give rise to market risk, which represents the potential loss that may result from a change in the market value of a particular commitment. We monitor and manage our exposure to market risk to ensure compliance with our risk management policies. These risk management policies are regularly assessed to ensure their appropriateness given our objectives, strategies and current market conditions.
Liability and Contingency Accruals, including those related to Insurance Liabilities
We establish a liability under the automobile and workers’ compensation insurance policies for expected claims incurred but not reported on a monthly basis. We retain a third-party consulting actuary to establish loss development factors, based on historical claims experience as well as industry experience. We apply those factors to current claims information to derive an estimate of the ultimate claims liability. See Note 17 in the Notes to Consolidated Financial Statements for further information.
From time to time as incidental to our operations, we become involved in various accidents, lawsuits and/or disputes. As an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims or other items of general liability as are typical for the industry. In addition, we have extensive operations that must comply with a wide variety of tax laws, environmental laws and labor laws, among others. Should an incident occur, we evaluate the claim based on its nature, the facts and circumstances and the applicability of insurance coverage. When our assessment indicates that it is probable that a liability has occurred and the amount of the liability can be reasonably estimated, we make appropriate accruals or disclosure. We base our estimates on all known facts at the time and our assessment of the ultimate outcome, including consultation with external experts and counsel. We revise these estimates as additional information is obtained or resolution is achieved. At December 31, 2020, we do not believe any of our outstanding legal matters would have a material adverse effect on our financial position, results of operations or cash flows.
Revenue Recognition
On January 1, 2018, we adopted Financial Accounting Standards Board Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”) and all related Accounting Standards Updates by applying the modified retrospective approach to all contracts that were not completed on January 1, 2018. The new revenue standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new revenue standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.
Our revenues are primarily generated from the marketing, transportation, storage and terminalling of crude oil and other related products and the tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. To identify the performance obligations, we considered all of the products or services promised in the contracts with customers, whether explicitly stated or implied based on customary business practices. Revenue is recognized when, or as, each performance obligation is satisfied under terms of the contract. Payment is typically due in full within 30 days of the invoice date.
Crude oil marketing segment. Crude oil marketing activities generate revenues from the sale and delivery of crude oil purchased either directly from producers or on the open market. Most of our crude oil purchase and sale contracts qualify and are designated as non-trading activities, and we consider these contracts as normal purchases and sales activity. For normal purchases and sales, our customers are invoiced monthly based upon contractually agreed upon terms with revenue recognized in the month in which the physical product is delivered to the customer, generally upon delivery of the product to the customer. Revenue is recognized based on the transaction price and the quantity delivered.
The majority of our crude oil sales contracts have multiple distinct performance obligations as the promise to transfer the individual goods (e.g., barrels of crude oil) is separately identifiable from the other goods promised within the contracts. Our performance obligations are satisfied at a point in time. For normal sales arrangements, revenue is recognized in the month in which control of the physical product is transferred to the customer, generally upon delivery of the product to the customer.
Transportation segment. Transportation activities generate revenue from the truck transportation of liquid chemicals, pressurized gases, asphalt or dry bulk for customers. Each sales order is associated with our master transportation agreements and is considered a distinct performance obligation. The performance obligations associated with this segment are satisfied over time as the goods and services are delivered.
Pipeline and storage segment. Pipeline and storage activities generate revenue by transporting crude oil on our pipeline and providing storage and terminalling services for our customers. Our operations generally consist of fee-based activities associated with the transportation of crude oil and providing storage and terminalling services for crude oil. Revenues from pipeline tariffs and fees are associated with the transportation of crude oil at a published tariff. We primarily recognize pipeline tariff and fee revenues over time as services are rendered, based on the volumes transported. As is common in the pipeline transportation industry, our tariffs incorporate a loss allowance factor. We recognize the allowance volumes collected as part of the transaction price and record this non-cash consideration at fair value, measured as of the contract inception date.
Storage fees are typically recognized in revenue ratably over the term of the contract regardless of the actual storage capacity utilized as our performance obligation is to make available storage capacity for a period of time. Terminalling fees are recognized as the crude oil enters or exits the terminal and are received from or delivered to the connecting carrier or third-party terminal, as applicable.
See Note 3 in the Notes to Consolidated Financial Statements for further information.
Item 8. Financial Statements and Supplementary Data.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page No.
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
Consolidated Balance Sheets as of December 31, 2020 and 2019
|
|
|
|
Consolidated Statements of Operations
for the Years Ended December 31, 2020, 2019 and 2018
|
|
|
|
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2020, 2019 and 2018
|
|
|
|
Consolidated Statements of Shareholders’ Equity
for the Years Ended December 31, 2020, 2019 and 2018
|
|
|
|
Notes to Consolidated Financial Statements
|
|
Note 1 – Organization and Basis of Presentation
|
|
Note 2 – Summary of Significant Accounting Policies
|
|
Note 3 – Revenue Recognition
|
|
Note 4 – Prepayments and Other Current Assets
|
|
Note 5 – Property and Equipment
|
|
Note 6 – Acquisitions
|
|
Note 7 – Other Assets
|
|
Note 8 – Intangible Assets
|
|
Note 9 – Segment Reporting
|
|
Note 10 – Transactions with Affiliates
|
|
Note 11 – Other Current Liabilities
|
|
Note 12 – Derivative Instruments and Fair Value Measurements
|
|
Note 13 – Income Taxes
|
|
Note 14 – Stock-Based Compensation Plan
|
|
Note 15 – Supplemental Cash Flow Information
|
|
Note 16 – Leases
|
|
Note 17 – Commitments and Contingencies
|
|
Note 18 – Concentration of Credit Risk
|
|
Note 19 – Quarterly Financial Information (Unaudited)
|
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Adams Resources & Energy, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Adams Resources & Energy, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 5, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 16 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Initial measurement of the fair value of the customer relationship intangible asset acquired in the CTL Transportation, LLC acquisition
As discussed in Note 6 of the consolidated financial statements, on June 26, 2020, the Company completed the purchase of assets from CTL Transportation, LLC (CTL) in an asset acquisition. As a result of the transaction, the Company acquired a customer relationship intangible asset associated with the generation of future income from CTL’s existing customers and product lines. The allocation of the purchase price based on the estimated acquisition-date fair value of the customer relationship intangible asset was $3.2 million.
We identified the evaluation of the initial measurement of the fair value of the customer relationship intangible asset acquired in the CTL transaction as a critical audit matter. A high degree of subjectivity was required to assess the internally-developed assumptions used to determine the fair value of the intangible asset, specifically the forecasted revenue attributable to customer contracts and estimated annual attrition rate of existing customers. Subjective auditor judgment was required as there was limited observable market information and the estimated fair value of the customer relationship intangible asset was sensitive to possible changes to these assumptions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s acquisition-date valuation process, including certain controls over the development of the key assumptions noted above. We compared the Company’s estimate of forecasted revenue attributable to customer contracts used in the valuation to the historical results of the Company, CTL and market participants. We evaluated the Company’s estimated annual attrition rate of existing customers by comparing to the historical customer retention rate of the Company. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in (1) assessing the reasonableness of the Company’s revenue growth projections by comparing to those of a market participant and (2) calculating an annual attrition rate of existing customers using CTL’s historical data and comparing that result to the attrition rate used by the Company.
Measurement of accrued liabilities for automobile and workers’ compensation claims
As discussed in Note 17 to the consolidated financial statements, the Company establishes accrued liabilities for automobile and workers’ compensation claims reported plus an estimate for loss development and potential claims that have been incurred but not reported to the Company or its insurance provider. The estimates are based on insurance adjusters’ estimates, historical experience and statistical methods commonly used within the insurance industry. The Company retains a third-party actuary to review its accrued liabilities for such claims. As of December 31, 2020, the accrued liabilities for automobile and workers’ compensation were $3.2 million.
We identified the assessment of the accrued liabilities for automobile and workers’ compensation claims that have been incurred but not reported as a critical audit matter. Specialized skills and knowledge were required to evaluate the Company’s actuarial models and underlying assumptions made by the Company to estimate these accrued liabilities for incurred but not reported claims. Specifically, the accrued liabilities were sensitive to possible changes to the following key underlying assumptions:
— incurred and paid loss development factors used in the determination of the ultimate loss
— initial expected loss rates
— the selection of estimated loss among estimates derived using different methods.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to estimate accrued liabilities for automobile and workers compensation claims that have been incurred but not reported, including controls related to the development of the key assumptions listed above. In addition, we involved actuarial professionals with specialized skills and knowledge, who assisted in:
— assessing the actuarial models and procedures used by the Company by comparing them to generally accepted actuarial methods and procedures to estimate the ultimate losses
— evaluating the Company’s key assumptions and judgments underlying the Company’s estimate by developing an independent range of the incurred but not reported claims and comparing it against the Company’s recorded amount.
/s/ KPMG LLP
We have served as the Company’s auditor since 2017.
Houston, Texas
March 5, 2021
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,293
|
|
|
$
|
112,994
|
|
Restricted cash
|
|
12,772
|
|
|
9,261
|
|
Accounts receivable, net of allowance for doubtful
accounts of $114 and $141, respectively
|
|
99,799
|
|
|
94,534
|
|
Inventory
|
|
19,336
|
|
|
26,407
|
|
Derivative assets
|
|
61
|
|
|
—
|
|
Income tax receivable
|
|
13,288
|
|
|
2,569
|
|
Prepayments and other current assets
|
|
2,964
|
|
|
1,559
|
|
Total current assets
|
|
187,513
|
|
|
247,324
|
|
Property and equipment, net
|
|
94,134
|
|
|
69,046
|
|
Operating lease right-of-use assets, net
|
|
8,051
|
|
|
9,576
|
|
Intangible assets, net
|
|
4,106
|
|
|
1,597
|
|
Other assets
|
|
2,383
|
|
|
3,299
|
|
Total assets
|
|
$
|
296,187
|
|
|
$
|
330,842
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
85,991
|
|
|
$
|
147,851
|
|
Accounts payable – related party
|
|
—
|
|
|
5
|
|
Derivative liabilities
|
|
52
|
|
|
—
|
|
Current portion of finance lease obligations
|
|
4,112
|
|
|
2,167
|
|
Current portion of operating lease liabilities
|
|
2,050
|
|
|
2,252
|
|
Other current liabilities
|
|
22,343
|
|
|
7,302
|
|
Total current liabilities
|
|
114,548
|
|
|
159,577
|
|
Other long-term liabilities:
|
|
|
|
|
Asset retirement obligations
|
|
2,308
|
|
|
1,573
|
|
Finance lease obligations
|
|
11,507
|
|
|
4,376
|
|
Operating lease liabilities
|
|
6,000
|
|
|
7,323
|
|
Deferred taxes and other liabilities
|
|
12,732
|
|
|
6,352
|
|
Total liabilities
|
|
147,095
|
|
|
179,201
|
|
|
|
|
|
|
Commitments and contingencies (Note 17)
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
Preferred stock – $1.00 par value, 960,000 shares
authorized, none outstanding
|
|
—
|
|
|
—
|
|
Common stock – $0.10 par value, 7,500,000 shares
authorized, 4,243,716 and 4,235,533 shares outstanding, respectively
|
|
423
|
|
|
423
|
|
Contributed capital
|
|
13,340
|
|
|
12,778
|
|
Retained earnings
|
|
135,329
|
|
|
138,440
|
|
Total shareholders’ equity
|
|
149,092
|
|
|
151,641
|
|
Total liabilities and shareholders’ equity
|
|
$
|
296,187
|
|
|
$
|
330,842
|
|
See Notes to Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Revenues:
|
|
|
|
|
|
|
Marketing
|
|
$
|
950,426
|
|
|
$
|
1,748,056
|
|
|
$
|
1,694,437
|
|
Transportation
|
|
71,724
|
|
|
63,191
|
|
|
55,776
|
|
Pipeline and storage
|
|
272
|
|
|
—
|
|
|
—
|
|
Total revenues
|
|
1,022,422
|
|
|
1,811,247
|
|
|
1,750,213
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
Marketing
|
|
940,031
|
|
|
1,723,216
|
|
|
1,681,045
|
|
Transportation
|
|
58,888
|
|
|
53,392
|
|
|
48,169
|
|
Pipeline and storage
|
|
393
|
|
|
—
|
|
|
—
|
|
General and administrative
|
|
10,284
|
|
|
10,198
|
|
|
8,937
|
|
Depreciation and amortization
|
|
18,573
|
|
|
16,641
|
|
|
10,654
|
|
Total costs and expenses
|
|
1,028,169
|
|
|
1,803,447
|
|
|
1,748,805
|
|
|
|
|
|
|
|
|
Operating (losses) earnings
|
|
(5,747)
|
|
|
7,800
|
|
|
1,408
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Gain on dissolution of investment
|
|
—
|
|
|
573
|
|
|
—
|
|
Interest income
|
|
656
|
|
|
2,766
|
|
|
2,155
|
|
Interest expense
|
|
(444)
|
|
|
(636)
|
|
|
(109)
|
|
Total other income (expense), net
|
|
212
|
|
|
2,703
|
|
|
2,046
|
|
|
|
|
|
|
|
|
(Losses) earnings before income taxes
|
|
(5,535)
|
|
|
10,503
|
|
|
3,454
|
|
|
|
|
|
|
|
|
Income tax (provision) benefit:
|
|
|
|
|
|
|
Current
|
|
12,919
|
|
|
(211)
|
|
|
427
|
|
Deferred
|
|
(6,389)
|
|
|
(2,085)
|
|
|
(936)
|
|
Income tax benefit (provision)
|
|
6,530
|
|
|
(2,296)
|
|
|
(509)
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
995
|
|
|
$
|
8,207
|
|
|
$
|
2,945
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic net earnings per common share
|
|
$
|
0.23
|
|
|
$
|
1.94
|
|
|
$
|
0.70
|
|
Diluted net earnings per common share
|
|
$
|
0.23
|
|
|
$
|
1.94
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
0.96
|
|
|
$
|
0.94
|
|
|
$
|
0.88
|
|
See Notes to Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Operating activities:
|
|
|
|
|
|
|
Net earnings
|
|
$
|
995
|
|
|
$
|
8,207
|
|
|
$
|
2,945
|
|
Adjustments to reconcile net earnings to net cash
|
|
|
|
|
|
|
(used in) provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
18,573
|
|
|
16,641
|
|
|
10,654
|
|
Gains on sales of property
|
|
(1,859)
|
|
|
(1,400)
|
|
|
(1,240)
|
|
Provision for doubtful accounts
|
|
(27)
|
|
|
(12)
|
|
|
(150)
|
|
Stock-based compensation expense
|
|
643
|
|
|
478
|
|
|
255
|
|
Deferred income taxes
|
|
6,389
|
|
|
2,085
|
|
|
936
|
|
Net change in fair value contracts
|
|
(9)
|
|
|
23
|
|
|
(2)
|
|
Gain on dissolution of AREC
|
|
—
|
|
|
(573)
|
|
|
—
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
(5,162)
|
|
|
(8,373)
|
|
|
36,350
|
|
Accounts receivable/payable, affiliates
|
|
(5)
|
|
|
(24)
|
|
|
24
|
|
Inventories
|
|
4,751
|
|
|
(3,628)
|
|
|
(10,587)
|
|
Income tax receivable
|
|
(10,719)
|
|
|
(165)
|
|
|
(1,087)
|
|
Prepayments and other current assets
|
|
(1,401)
|
|
|
(2)
|
|
|
(293)
|
|
Accounts payable
|
|
(61,116)
|
|
|
31,795
|
|
|
(10,252)
|
|
Accrued liabilities
|
|
5,052
|
|
|
1,154
|
|
|
1,744
|
|
Other
|
|
(104)
|
|
|
693
|
|
|
1,717
|
|
Net cash (used in) provided by operating activities
|
|
(43,999)
|
|
|
46,899
|
|
|
31,014
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
Property and equipment additions
|
|
(5,008)
|
|
|
(35,743)
|
|
|
(11,731)
|
|
Acquisitions
|
|
(20,200)
|
|
|
(5,624)
|
|
|
(10,272)
|
|
Proceeds from property sales
|
|
4,515
|
|
|
3,680
|
|
|
2,038
|
|
Proceeds from dissolution of AREC
|
|
—
|
|
|
998
|
|
|
—
|
|
Insurance and state collateral (deposits) refunds
|
|
1,030
|
|
|
652
|
|
|
830
|
|
Net cash used in investing activities
|
|
(19,663)
|
|
|
(36,037)
|
|
|
(19,135)
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
Principal repayments of finance lease obligations
|
|
(2,336)
|
|
|
(1,697)
|
|
|
(495)
|
|
Payment of contingent consideration liability
|
|
(111)
|
|
|
—
|
|
|
—
|
|
Dividends paid on common stock
|
|
(4,081)
|
|
|
(3,976)
|
|
|
(3,711)
|
|
Net cash used in financing activities
|
|
(6,528)
|
|
|
(5,673)
|
|
|
(4,206)
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash and cash equivalents,
including restricted cash
|
|
(70,190)
|
|
|
5,189
|
|
|
7,673
|
|
Cash and cash equivalents, including restricted cash,
at beginning of period
|
|
122,255
|
|
|
117,066
|
|
|
109,393
|
|
Cash and cash equivalents, including restricted cash,
at end of period
|
|
$
|
52,065
|
|
|
$
|
122,255
|
|
|
$
|
117,066
|
|
See Notes to Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Common
|
|
Contributed
|
|
Retained
|
|
Shareholders’
|
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018
|
|
$
|
422
|
|
|
$
|
11,693
|
|
|
$
|
135,004
|
|
|
$
|
147,119
|
|
Net earnings
|
|
—
|
|
|
—
|
|
|
2,945
|
|
|
2,945
|
|
Stock-based compensation expense
|
|
—
|
|
|
255
|
|
|
—
|
|
|
255
|
|
Dividends declared:
|
|
|
|
|
|
|
|
|
Common stock, $0.88 per share
|
|
—
|
|
|
—
|
|
|
(3,711)
|
|
|
(3,711)
|
|
Awards under LTIP, $0.44 per share
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
(10)
|
|
Balance, December 31, 2018
|
|
422
|
|
|
11,948
|
|
|
134,228
|
|
|
146,598
|
|
Net earnings
|
|
—
|
|
|
—
|
|
|
8,207
|
|
|
8,207
|
|
Stock-based compensation expense
|
|
—
|
|
|
478
|
|
|
—
|
|
|
478
|
|
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, $0.94 per share
|
|
—
|
|
|
—
|
|
|
(3,976)
|
|
|
(3,976)
|
|
Awards under LTIP, $0.94 per share
|
|
—
|
|
|
—
|
|
|
(19)
|
|
|
(19)
|
|
Balance, December 31, 2019
|
|
423
|
|
|
12,778
|
|
|
138,440
|
|
|
151,641
|
|
Net earnings
|
|
—
|
|
|
—
|
|
|
995
|
|
|
995
|
|
Stock-based compensation expense
|
|
—
|
|
|
643
|
|
|
—
|
|
|
643
|
|
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards
|
|
—
|
|
|
(81)
|
|
|
—
|
|
|
(81)
|
|
Dividends declared:
|
|
|
|
|
|
|
|
—
|
|
Common stock, $0.96 per share
|
|
—
|
|
|
—
|
|
|
(4,070)
|
|
|
(4,070)
|
|
Awards under LTIP, $0.96 per share
|
|
—
|
|
|
—
|
|
|
(36)
|
|
|
(36)
|
|
Balance, December 31, 2020
|
|
$
|
423
|
|
|
$
|
13,340
|
|
|
$
|
135,329
|
|
|
$
|
149,092
|
|
See Notes to Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO 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 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 across 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 three business segments: (i) crude oil marketing, transportation and storage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk; and (iii) beginning in the fourth quarter of 2020, pipeline transportation, terminalling and storage of crude oil, which includes the pipeline and related terminal facility assets we acquired in October 2020 (see Note 6 for further information regarding our acquisition). See Note 9 for further information regarding our business segments.
The consolidated financial statements and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). 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 the consolidated financial statements are appropriate, actual results could differ from those estimates.
Note 2. Summary of Significant Accounting Policies
We adhere to the following significant accounting policies in the preparation of our consolidated financial statements.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable associated with crude oil marketing activities comprise approximately 90 percent of our total receivables, and industry practice requires payment for these sales to occur within 20 days of the end of the month following a transaction. Our customer makeup, credit policies and the relatively short duration of receivables mitigate the uncertainty typically associated with receivables management. We manage our crude oil marketing receivables by participating in a monthly settlement process with each of our counterparties. Ongoing account balances are monitored monthly, and we reconcile outstanding balances with counterparties. We also place great emphasis on collecting cash balances due.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We maintain and monitor our allowance for doubtful accounts. Our allowance for doubtful accounts is determined based on specific identification combined with a review of the general status of the aging of all accounts. We consider the following factors in our review of our allowance for doubtful accounts: (i) historical experience with customers, (ii) the perceived financial stability of customers based on our research, (iii) the levels of credit we grant to customers, and (iv) the duration of the receivable. We may increase the allowance for doubtful accounts in response to the specific identification of customers involved in bankruptcy proceedings and similar financial difficulties. On a routine basis, we review estimates associated with the allowance for doubtful accounts to ensure that we have recorded sufficient reserves to cover potential losses. Customer payments are regularly monitored. However, a degree of risk remains due to the custom and practices of the industry. See Note 18 for further information regarding credit risk.
The following table presents our allowance for doubtful accounts activity for the periods indicated (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
141
|
|
|
$
|
153
|
|
|
$
|
303
|
|
Charges to costs and expenses
|
—
|
|
|
26
|
|
|
43
|
|
Deductions
|
(27)
|
|
|
(38)
|
|
|
(193)
|
|
Balance at end of period
|
$
|
114
|
|
|
$
|
141
|
|
|
$
|
153
|
|
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents represent unrestricted cash on hand and highly liquid investments with original maturities of less than three months from the date of purchase. Cash and cash equivalents are maintained with major financial institutions, and deposit amounts may exceed the amount of federally backed insurance provided. While we regularly monitor the financial stability of these institutions, cash and cash equivalents ultimately remain at risk subject to the financial viability of these institutions.
At December 31, 2020 and 2019, $5.1 million and $9.3 million, respectively, of the restricted cash balance represents amounts held in a segregated bank account by Wells Fargo as collateral for outstanding letters of credit. At December 31, 2020, $1.5 million of the restricted cash balance relates to the initial capitalization of our newly formed captive insurance company and $6.1 million represents the amount paid to our captive insurance company for insurance premiums.
The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported in the consolidated balance sheets that totals to the amounts shown in the consolidated statements of cash flows at the dates indicated (in thousands):
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December 31,
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|
|
2020
|
|
2019
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,293
|
|
|
$
|
112,994
|
|
Restricted cash
|
|
12,772
|
|
|
9,261
|
|
Total cash, cash equivalents and restricted cash shown in the
|
|
|
|
|
consolidated statements of cash flows
|
|
$
|
52,065
|
|
|
$
|
122,255
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Shares Outstanding
The following table reconciles our outstanding common stock for the periods indicated:
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Common
|
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|
shares
|
|
|
|
Balance, December 31, 2017 and 2018
|
|
4,217,596
|
|
Issuance of shares in acquisition (see Note 6)
|
|
11,145
|
|
Vesting of restricted stock unit awards (see Note 14)
|
|
7,604
|
|
Shares withheld to cover taxes upon vesting of restricted stock unit awards
|
|
(883)
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|
Other
|
|
71
|
|
Balance, December 31, 2019
|
|
4,235,533
|
|
Vesting of restricted stock unit awards (see Note 14)
|
|
10,290
|
|
Shares withheld to cover taxes upon vesting of restricted stock unit awards
|
|
(2,107)
|
|
Balance, December 31, 2020
|
|
4,243,716
|
|
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 product 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.
Earnings Per Share
Basic earnings per share is computed by dividing our net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings 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 14 for further discussion).
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the calculation of basic and diluted earnings per share was as follows for the periods indicated (in thousands, except per share data):
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|
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|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Earnings per share – numerator:
|
|
|
|
|
|
Net earnings
|
$
|
995
|
|
|
$
|
8,207
|
|
|
$
|
2,945
|
|
|
|
|
|
|
|
Denominator:
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|
|
|
|
|
Basic weighted average number of shares outstanding
|
4,240
|
|
|
4,228
|
|
|
4,218
|
|
Basic earnings per share
|
$
|
0.23
|
|
|
$
|
1.94
|
|
|
$
|
0.70
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|
|
|
|
|
|
|
Diluted earnings per share:
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|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares outstanding:
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|
|
|
|
|
Common shares
|
4,240
|
|
|
4,228
|
|
|
4,218
|
|
Restricted stock unit awards (1)
|
11
|
|
|
5
|
|
|
—
|
|
Performance share unit awards (2)
|
3
|
|
|
—
|
|
|
—
|
|
Total
|
4,254
|
|
|
4,233
|
|
|
4,218
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.23
|
|
|
$
|
1.94
|
|
|
$
|
0.70
|
|
_______________
(1)The dilutive effect of restricted stock unit awards for the year ended December 31, 2018 is de minimis.
(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. The performance conditions for the performance share unit awards granted in 2018, 2019 and 2020 were achieved as of December 31, 2018, 2019 and 2020, respectively. For the years ended December 31, 2019 and 2018, the effects of the performance share awards on earning per share were anti-dilutive.
Employee Benefits
We maintain a 401(k) savings plan for the benefit of our employees. We do not maintain any other pension or retirement plans. Our 401(k) plan contributory expenses were as follows for the periods indicated (in thousands):
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|
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|
|
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Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Contributory expenses
|
$
|
1,100
|
|
|
$
|
1,117
|
|
|
$
|
808
|
|
Fair Value Measurements
The carrying amounts reported in the 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.
Our fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk, in the principal market of the asset or liability at a specified measurement date. Recognized valuation techniques employ inputs such as contractual prices, quoted market prices or rates, operating costs, discount factors and business growth rates. These inputs may be either readily observable, corroborated by market data or generally unobservable. In developing our estimates of fair value, we endeavor to utilize the best information available and apply market-based data to the highest extent possible. Accordingly, we utilize valuation techniques (such as the market approach) that maximize the use of observable inputs and minimize the use of unobservable inputs.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 such 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.
The characteristics of the fair value amounts classified within each level of the hierarchy are described as follows:
•Level 1 fair values are based on quoted prices, which are available in active markets for identical assets or liabilities as of the measurement date. Active markets are defined as those in which transactions for identical assets or liabilities occur with sufficient frequency so as to provide pricing information on an ongoing basis. For Level 1 valuation of marketable securities, we utilize market quotations provided by our primary financial institution. For the valuations of derivative financial instruments, we utilize the New York Mercantile Exchange (“NYMEX”) for certain commodity valuations.
•Level 2 fair values are based on (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical assets or liabilities but in markets that are not actively traded or in which little information is released to the public, (c) observable inputs other than quoted prices, and (d) inputs derived from observable market data. Source data for Level 2 inputs include information provided by the NYMEX, published price data and indices, third party price survey data and broker provided forward price statistics.
•Level 3 fair values are based on unobservable market data inputs for assets or liabilities.
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 asset acquisitions.
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 no contracts designated for hedge accounting during any of the current reporting periods (see Note 12 for further information).
Fair value estimates are based on assumptions that market participants would use when pricing an asset or liability, and we use a fair value hierarchy of three levels that prioritizes the information used to develop those assumptions. Currently, for all items presented herein, we utilize a market approach to valuing our contracts. On a contract by contract, forward month by forward month basis, we obtain observable market data for valuing our contracts. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.
Impairment Testing for Long-Lived Assets
Long-lived assets (primarily property and equipment and intangible assets) are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Long-lived assets with carrying values that are not expected to be recovered through future cash flows are written-down to their estimated fair values. The carrying value of a long-lived asset is deemed not recoverable if it exceeds the sum of undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the asset’s carrying value exceeds the sum of its undiscounted cash flows, a non-cash asset impairment charge equal to the excess of the asset’s carrying value over its estimated fair value is recorded. Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at a specified measurement date. We measure fair value using market price indicators or, in the absence of such data, appropriate valuation techniques.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO 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 such items and their respective tax basis (see Note 13 for further information). On December 22, 2017, the Tax Cut and Jobs Act was enacted into law resulting in a reduction in the federal corporate income tax rate from 35 percent to 21 percent for years beginning in 2018, which impacts our income tax provision or benefit.
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 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 receivable at December 31, 2020 of approximately $3.7 million for the benefit of carrying back the NOL for the fiscal year 2019 to 2014. We are forecasting an NOL for fiscal year 2020 and expect to carry it back to 2015 and 2016. As a result, we have also included the 2020 provisional amounts in income tax receivable at December 31, 2020. 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 years ended December 31, 2020 and 2018, we recorded a charge of $24.2 million and $5.4 million, respectively, related to the write-down of our crude oil inventory in our crude oil marketing segment due to declines in prices. There were no charges recognized during the year ended December 31, 2019.
Linefill and base gas in assets we own are recorded at historical cost and consist of crude oil. We classify as linefill or base gas our proportionate share of barrels used to fill a pipeline that we own (see Note 6) and barrels that represent the minimum working requirements in storage tanks. Linefill and base gas are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Linefill and base gas are included in “Property and equipment” on our Consolidated Balance Sheets.
Investment in Unconsolidated Affiliate
We own an approximate 15 percent equity interest (less than 3 percent voting interest) in VestaCare, Inc., a California corporation (“VestaCare”), which we purchased for a $2.5 million cash payment in 2016. VestaCare provides an array of software as a service (SaaS) electronic payment technologies to medical providers, payers and patients including VestaCare’s product offering, VestaPay™. VestaPay™ allows medical care providers to structure fully automated and dynamically updating electronic payment plans for their patients. We account for this investment under the cost method of accounting. During 2017, we reviewed our investment in VestaCare and determined that the current projected operating results did not support the carrying value of the investment. As a result, during 2017, we recognized an impairment charge of $2.5 million to write-off our investment in VestaCare. At December 31, 2020, we continue to own an approximate 15 percent equity interest in VestaCare.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 of two to thirty-nine years.
Asset retirement obligations (“AROs”) are legal obligations associated with the retirement of tangible long-lived assets that result from their acquisition, construction, development and/or normal operation. When an ARO is incurred, we record a liability for the ARO and capitalize an equal amount as an increase in the carrying value of the related long-lived asset. ARO amounts are measured at their estimated fair value using expected present value techniques. Over time, the ARO liability is accreted to its present value (through accretion expense), and the capitalized amount is depreciated over the remaining useful life of the related long-lived asset. We will incur a gain or loss to the extent that our ARO liabilities are not settled at their recorded amounts.
See Note 5 for additional information regarding our property and equipment and AROs.
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 and second 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 payment awards, including the issuance of restricted stock unit awards and performance share unit 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 14 for additional information regarding our 2018 LTIP.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Revenue Recognition
Adoption of ASC 606
On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”) and all related Accounting Standards Updates by applying the modified retrospective method to all contracts that were not completed on January 1, 2018. The modified retrospective approach required us to recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings on January 1, 2018. Comparative information has not been restated and continues to be reported under the historical accounting standards in effect for those periods. The adoption of the new revenue standard did not result in a cumulative effect adjustment to our retained earnings since there was no significant impact upon adoption of the new standard. There was also no material impact to revenues, or any other financial statement line items for the year ended December 31, 2018 as a result of applying ASC 606. We expect the impact of the adoption of ASC 606 to remain immaterial to our net earnings on an ongoing basis.
Revenue Recognition
ASC 606’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new revenue standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.
Our revenues are primarily generated from the marketing, transportation, storage and terminalling of crude oil and other related products and the tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. To identify the performance obligations, we considered all of the products or services promised in the contracts with customers, whether explicitly stated or implied based on customary business practices. Revenue is recognized when, or as, each performance obligation is satisfied under terms of the contract. Payment is typically due in full within 30 days of the invoice date.
The following information describes the nature of our significant revenue streams by segment and type:
Crude oil marketing segment. Crude oil marketing activities generate revenues from the sale and delivery of crude oil purchased either directly from producers or on the open market. Most of our crude oil purchase and sale contracts qualify and are designated as non-trading activities, and we consider these contracts as normal purchases and sales activity. For normal purchases and sales, our customers are invoiced monthly based upon contractually agreed upon terms with revenue recognized in the month in which the physical product is delivered to the customer, generally upon delivery of the product to the customer. Revenue is recognized based on the transaction price and the quantity delivered.
The majority of our crude oil sales contracts have multiple distinct performance obligations as the promise to transfer the individual goods (e.g., barrels of crude oil) is separately identifiable from the other goods promised within the contracts. Our performance obligations are satisfied at a point in time. For normal sales arrangements, revenue is recognized in the month in which control of the physical product is transferred to the customer, generally upon delivery of the product to the customer.
Transportation segment. Transportation activities generate revenue from the truck transportation of liquid chemicals, pressurized gases, asphalt or dry bulk from point A to point B for customers. Each sales order is associated with our master transportation agreements and is considered a distinct performance obligation. The performance obligations associated with this segment are satisfied over time as the goods and services are delivered.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pipeline and storage segment. Pipeline and storage activities generate revenue by transporting crude oil on our pipeline and providing storage and terminalling services for our customers. Our operations generally consist of fee-based activities associated with the transportation of crude oil and providing storage and terminalling services for crude oil. Revenues from pipeline tariffs and fees are associated with the transportation of crude oil at a published tariff. We primarily recognize pipeline tariff and fee revenues over time as services are rendered, based on the volumes transported. As is common in the pipeline transportation industry, our tariffs incorporate a loss allowance factor. We recognize the allowance volumes collected as part of the transaction price and record this non-cash consideration at fair value, measured as of the contract inception date.
Storage fees are typically recognized in revenue ratably over the term of the contract regardless of the actual storage capacity utilized as our performance obligation is to make available storage capacity for a period of time. Terminalling fees are recognized as the crude oil enters or exits the terminal and is received from or delivered to the connecting carrier or third-party terminal, as applicable.
Practical Expedients
In connection with our adoption of ASC 606, we reviewed our revenue contracts for impact upon adoption. For example, our revenue contracts often include promises to transfer various goods and services to a customer. Determining whether goods and services are considered distinct performance obligations that should be accounted for separately versus together will continue to require continual assessment. We also used practical expedients permitted by ASC 606 when applicable. These practical expedients included:
•Applying the new guidance only to contracts that were not completed as of January 1, 2018; and
•Not accounting for the effects of significant financing components if the company expects that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and customer advances and deposits (contract liabilities) on our consolidated balance sheets. Currently, we do not record any contract assets in our financial statements due to the timing of revenue recognized and when our customers are billed. Our crude oil marketing customers are generally billed monthly based on contractually agreed upon terms. However, we sometimes receive advances or deposits from customers before revenue is recognized, resulting in contract liabilities. These contract assets and liabilities, if any, are reported on our consolidated balance sheets at the end of each reporting period.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Disaggregation
The following table disaggregates our revenue by segment and by major source for the periods indicated (in thousands):
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|
|
|
|
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|
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|
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|
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|
|
|
|
|
|
|
|
Reporting Segments
|
|
|
|
Marketing
|
|
Transportation
|
|
Pipeline and storage (1)
|
|
Total
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
|
|
|
|
Revenues from contracts with customers
|
$
|
915,438
|
|
|
$
|
71,724
|
|
|
$
|
272
|
|
|
$
|
987,434
|
|
Other (2)
|
34,988
|
|
|
—
|
|
|
—
|
|
|
34,988
|
|
Total revenues
|
$
|
950,426
|
|
|
$
|
71,724
|
|
|
$
|
272
|
|
|
$
|
1,022,422
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition:
|
|
|
|
|
|
|
|
Goods transferred at a point in time
|
$
|
915,438
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
915,438
|
|
Services transferred over time
|
—
|
|
|
71,724
|
|
|
272
|
|
|
71,996
|
|
Total revenues from contracts with customers
|
$
|
915,438
|
|
|
$
|
71,724
|
|
|
$
|
272
|
|
|
$
|
987,434
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
Revenues from contracts with customers
|
$
|
1,555,393
|
|
|
$
|
63,191
|
|
|
$
|
—
|
|
|
$
|
1,618,584
|
|
Other (2)
|
192,663
|
|
|
—
|
|
|
—
|
|
|
192,663
|
|
Total revenues
|
$
|
1,748,056
|
|
|
$
|
63,191
|
|
|
$
|
—
|
|
|
$
|
1,811,247
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition:
|
|
|
|
|
|
|
|
Goods transferred at a point in time
|
$
|
1,555,393
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,555,393
|
|
Services transferred over time
|
—
|
|
|
63,191
|
|
|
—
|
|
|
63,191
|
|
Total revenues from contracts with customers
|
$
|
1,555,393
|
|
|
$
|
63,191
|
|
|
$
|
—
|
|
|
$
|
1,618,584
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
Revenues from contracts with customers
|
$
|
1,580,997
|
|
|
$
|
55,776
|
|
|
$
|
—
|
|
|
$
|
1,636,773
|
|
Other (2)
|
113,440
|
|
|
—
|
|
|
—
|
|
|
113,440
|
|
Total revenues
|
$
|
1,694,437
|
|
|
$
|
55,776
|
|
|
$
|
—
|
|
|
$
|
1,750,213
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition:
|
|
|
|
|
|
|
|
Goods transferred at a point in time
|
$
|
1,580,997
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,580,997
|
|
Services transferred over time
|
—
|
|
|
55,776
|
|
|
—
|
|
|
55,776
|
|
Total revenues from contracts with customers
|
$
|
1,580,997
|
|
|
$
|
55,776
|
|
|
$
|
—
|
|
|
$
|
1,636,773
|
|
_______________
(1)On October 22, 2020, we acquired a crude oil pipeline and related terminal facility assets, resulting in a new operating segment. See Note 6 and Note 9 for further information.
(2)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.
Other Crude Oil Marketing Revenue
Certain of the commodity purchase and sale contracts utilized by our crude oil marketing segment 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.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Revenue gross-up
|
$
|
419,127
|
|
|
$
|
859,091
|
|
|
$
|
448,846
|
|
Note 4. Prepayments and Other Current Assets
The components of prepayments and other current assets were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
Insurance premiums
|
$
|
690
|
|
|
$
|
473
|
|
Vendor prepayment
|
1,085
|
|
|
—
|
|
Rents, licenses and other
|
1,189
|
|
|
1,086
|
|
Total
|
$
|
2,964
|
|
|
$
|
1,559
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO 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
|
|
|
|
|
|
Useful Life
|
|
December 31,
|
|
in Years
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Tractors and trailers
|
5 – 6
|
|
$
|
101,813
|
|
|
$
|
110,153
|
|
Field equipment
|
2 – 5
|
|
22,139
|
|
|
21,780
|
|
Finance lease ROU assets (1)
|
3 – 6
|
|
20,266
|
|
|
8,854
|
|
Pipeline and related facilities
|
20 – 25
|
|
21,265
|
|
|
—
|
|
Linefill and base gas (2)
|
N/A
|
|
3,333
|
|
|
—
|
|
Buildings
|
5 – 39
|
|
14,977
|
|
|
16,055
|
|
Office equipment
|
2 – 5
|
|
1,893
|
|
|
1,951
|
|
Land
|
N/A
|
|
1,790
|
|
|
1,790
|
|
Construction in progress
|
N/A
|
|
1,626
|
|
|
3,661
|
|
Total property and equipment, at cost
|
|
|
189,102
|
|
|
164,244
|
|
Less accumulated depreciation and amortization
|
|
|
(94,968)
|
|
|
(95,198)
|
|
Property and equipment, net
|
|
|
$
|
94,134
|
|
|
$
|
69,046
|
|
______________
(1)Our finance lease right-of-use (“ROU”) assets arise from leasing arrangements for the right to use various classes of underlying assets including tractors, trailers, a tank storage and throughput arrangement and office equipment (see Note 16 for further information). Accumulated amortization of the assets presented as “Finance lease ROU assets” was $5.0 million and $2.5 million as of December 31, 2020 and 2019, respectively.
(2)Linefill and base gas represents crude oil in the VEX pipeline (Note 6) and storage tanks we own, and the crude oil is recorded at historical cost.
Components of depreciation and amortization expense were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Depreciation and amortization, excluding amounts
|
|
|
|
|
|
under finance leases
|
$
|
16,026
|
|
|
$
|
14,833
|
|
|
$
|
10,112
|
|
Amortization of property and equipment under finance leases
|
2,547
|
|
|
1,808
|
|
|
542
|
|
Total depreciation and amortization
|
$
|
18,573
|
|
|
$
|
16,641
|
|
|
$
|
10,654
|
|
Gains on Sales of Assets
We sold certain used tractors, trailers and other equipment and recorded net pre-tax gains as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Gains on sales of used tractors, trailers and equipment
|
$
|
1,859
|
|
|
$
|
1,400
|
|
|
$
|
1,240
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Asset Retirement Obligations
We record AROs for the estimated retirement costs associated with certain tangible long-lived assets. The estimated fair value of AROs are recorded in the period in which they are incurred and the corresponding cost is capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the useful life of the asset. If the liability is settled for an amount other than the recorded amount, an increase or decrease to expense is recognized. The following table reflects a summary of our AROs for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
ARO liability at beginning of year
|
$
|
1,573
|
|
|
$
|
1,525
|
|
|
$
|
1,273
|
|
Liabilities incurred
|
—
|
|
|
17
|
|
|
252
|
|
Accretion of discount
|
49
|
|
|
48
|
|
|
36
|
|
Liabilities settled
|
(38)
|
|
|
(17)
|
|
|
(36)
|
|
AROs related to pipeline acquisition (see Note 6)
|
723
|
|
|
—
|
|
|
—
|
|
ARO liability at end of year
|
$
|
2,307
|
|
|
$
|
1,573
|
|
|
$
|
1,525
|
|
Note 6. Acquisitions
Acquisition of Pipeline and Related Terminal Facility Assets
On October 22, 2020, we and our subsidiary, GulfMark Terminals, LLC (“GMT”) entered into a purchase and sale agreement with EnLink Midstream Operating, L.P. for the purchase of the outstanding equity interests of Victoria Express Pipeline, LLC (“VEX”) and certain related pipeline terminal facility assets for $20.0 million, plus a cash payment for working capital items. Of the purchase price, $10.0 million was paid at closing, with the remainder to be paid in four quarterly installments of $2.5 million, plus interest at a rate of 4.0 percent per annum, beginning in March 2021. The equity interests in GMT, 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.
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.
The VEX Pipeline System and related terminal assets have been included in our new pipeline and storage segment. We expect that this acquisition will further strengthen our ability to provide excellent service to the producers in the Gulf Coast 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 approximately 450,000 barrels of storage with three docks after giving effect to the acquisition.
In addition to the purchase price of $20.0 million and a cash payment of $0.5 million for working capital items, we also incurred approximately $0.6 million of acquisition costs in connection with this acquisition, which has been included in the allocation of the total purchase price of $21.0 million to the assets acquired.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the allocation of the purchase price based on the estimated fair value of the assets and liabilities acquired at the acquisition date (in thousands):
|
|
|
|
|
|
|
|
|
Accounts receivable and other current assets
|
|
$
|
80
|
|
Linefill and base gas
|
|
1,013
|
|
Property and equipment — Pipeline and related terminal facilities
|
|
20,542
|
|
Accounts payable and other accrued liabilities
|
|
(598)
|
|
Total purchase price
|
|
$
|
21,037
|
|
The estimated fair value of the acquired property and equipment was determined using the cost approach, specifically determining the replacement cost value of each type of asset.
In connection with the acquisition, we recorded an asset retirement obligation of approximately $0.7 million related to legal and regulatory requirements to perform specified retirement activities, including purging and sealing the pipeline if it is abandoned.
CTL
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 short-haul 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 $9.0 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 six 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 allocation of the purchase price based on 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.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. See Note 8 for further information regarding our 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 16 for further information regarding finance leases.
EH Transport
On April 10, 2019, we entered into a purchase and sale agreement with EH Transport, Inc. and affiliates (collectively, “EH Transport”), a Houston, Texas based bulk carrier trucking company, for the purchase of certain transportation assets. On May 6, 2019, we closed on the asset acquisition for approximately $6.4 million, which consisted of $5.6 million in cash after post-closing adjustments related to equipment qualifications, 11,145 of our common shares valued at $0.4 million and contingent consideration valued at approximately $0.4 million.
This acquisition added approximately 39 tractors and 51 trailers to our existing transportation fleet, and these assets were included in our transportation segment. This acquisition added new customers and new product lines to our transportation segment portfolio, which allows us to grow into new markets. As a result of the acquisition, in addition to general chemical products, we transport liquefied petroleum gas, asphalt and bleach for customers.
We incurred approximately $0.1 million of acquisition costs in connection with this acquisition, which has been included in the allocation of the purchase price to the assets acquired.
The following table summarizes the consideration paid for the EH Transport assets and the estimated fair value of the assets acquired at the acquisition date (in thousands):
|
|
|
|
|
|
|
|
|
Consideration:
|
|
|
Cash
|
|
$
|
5,624
|
|
Value of AE common shares issued
|
|
392
|
|
Contingent consideration arrangement
|
|
431
|
|
Fair value of total consideration transferred
|
|
$
|
6,447
|
|
|
|
|
Recognized amounts of identifiable assets acquired:
|
|
|
Property and equipment — tractors and trailers
|
|
$
|
4,576
|
|
Shop, office and telecommunication equipment
|
|
20
|
|
Intangible assets — customer relationships
|
|
1,851
|
|
Total purchase price
|
|
$
|
6,447
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair market value of the common shares issued in this transaction was determined based upon the closing share price of AE common stock on May 6, 2019 of $35.15.
We assumed no liabilities in this acquisition. 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 EH Transport 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 had not previously participated. Because of the highly competitive and fragmented transportation market, we believe access to these customers and product lines will provide us with an entry into new markets.
The discounted cash flow analysis used to estimate the fair value of the EH Transport 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 EH Transport customer relationships, the Level 3 inputs include the rate of retention of the current customers of EH Transport as of the valuation date, our transportation segment’s historical customer retention rate and projected future revenues associated with the customers. The EH Transport 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. See Note 8 for further information regarding our intangible assets.
The purchase and sale agreement included a contingent consideration arrangement that required us to pay the former owner of the assets up to a quarterly maximum amount of $146,875 (undiscounted) plus interest for the first four quarters following the closing date of the acquisition. The amount to be paid was based upon the number of qualified truck drivers that were employed by us at the end of each quarter. The potential undiscounted amount of all future payments that could be required to be paid under the contingent consideration arrangement was between $0 and $587,500. The fair value of the contingent consideration arrangement of $0.4 million was estimated by applying an income valuation approach, which is based on Level 3 inputs, including the number of qualified truck drivers we expect will be employed at each payment date. At December 31, 2020, all amounts outstanding under the contingent consideration arrangement had been paid.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Red River
On October 1, 2018, we completed the purchase of a trucking company for $10.0 million that owned approximately 113 tractors and 126 trailers operating in the Red River area in North Texas and South Central Oklahoma. This acquisition was included in our crude oil marketing segment from the date of the acquisition. We incurred approximately $0.3 million of acquisition costs in connection with this acquisition, which was included in the allocation of the purchase price to the assets acquired. The purchase price of approximately $10.3 million was allocated on October 1, 2018 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Tractors
|
|
$
|
4,799
|
|
Trailers
|
|
4,901
|
|
Field equipment
|
|
381
|
|
Materials and supplies
|
|
191
|
|
Total purchase price
|
|
$
|
10,272
|
|
Note 7. Other Assets
Components of other assets were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
Amounts associated with liability insurance program:
|
|
|
|
Insurance collateral deposits
|
$
|
714
|
|
|
$
|
1,233
|
|
Excess loss fund
|
617
|
|
|
943
|
|
Accumulated interest income
|
449
|
|
|
609
|
|
Other amounts:
|
|
|
|
State collateral deposits
|
31
|
|
|
37
|
|
Materials and supplies
|
488
|
|
|
477
|
|
Other
|
84
|
|
|
—
|
|
Total
|
$
|
2,383
|
|
|
$
|
3,299
|
|
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.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Intangible Assets
The following table summarizes our intangible assets at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Gross
|
|
Accumulated
|
|
|
|
Gross
|
|
Accumulated
|
|
|
|
|
Value
|
|
Amortization
|
|
Net
|
|
Value
|
|
Amortization
|
|
Net
|
Customer relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
EH Transport acquisition
|
|
$
|
1,703
|
|
|
$
|
(500)
|
|
|
$
|
1,203
|
|
|
$
|
1,808
|
|
|
$
|
(211)
|
|
|
$
|
1,597
|
|
CTL acquisition
|
|
3,173
|
|
|
(270)
|
|
|
2,903
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Intangible assets, net
|
|
$
|
4,876
|
|
|
$
|
(770)
|
|
|
$
|
4,106
|
|
|
$
|
1,808
|
|
|
$
|
(211)
|
|
|
$
|
1,597
|
|
We are amortizing the customer relationship intangible assets over a period of seven years, using a modified straight-line approach. During the years ended December 31, 2020 and 2019, we recorded $0.6 million and $0.2 million, respectively, of amortization expense related to these intangible assets. The following table presents our forecast of amortization expense associated with these intangible assets for the years indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
|
|
|
|
|
|
|
|
|
|
EH Transport acquisition
|
|
$
|
274
|
|
|
$
|
254
|
|
|
$
|
235
|
|
|
$
|
218
|
|
|
$
|
202
|
|
CTL acquisition
|
|
524
|
|
|
492
|
|
|
460
|
|
|
428
|
|
|
413
|
|
Total
|
|
$
|
798
|
|
|
$
|
746
|
|
|
$
|
695
|
|
|
$
|
646
|
|
|
$
|
615
|
|
Note 9. Segment Reporting
We operate and report in three business segments: (i) crude oil marketing, transportation and storage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk; and (iii) beginning in the fourth quarter of 2020, pipeline transportation, terminalling and storage of crude oil, which includes the pipeline and related terminal facility assets we acquired in October 2020 (see Note 6 for further information regarding our acquisition). Our business segments are generally organized and managed according to the types of services rendered. See Note 3 for a summary of the types of products and services from which each segment derives its revenues.
Our Chief Operating Decision Maker (“CODM”) (our Chief Executive Officer) evaluates segment performance based on measures including segment operating (losses) earnings and capital spending (property and equipment additions). Segment operating (losses) earnings is calculated as segment revenues less segment operating costs and depreciation and amortization expense.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial information by reporting segment was as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting Segments
|
|
|
|
Marketing
|
|
Transportation
|
|
Pipeline and storage
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
950,426
|
|
|
$
|
71,724
|
|
|
$
|
272
|
|
|
$
|
—
|
|
|
$
|
1,022,422
|
|
Segment operating (losses) earnings (1)
|
2,974
|
|
|
1,873
|
|
|
(310)
|
|
|
—
|
|
|
4,537
|
|
Depreciation and amortization
|
7,421
|
|
|
10,963
|
|
|
189
|
|
|
—
|
|
|
18,573
|
|
Property and equipment additions (2) (3)
|
3,130
|
|
|
1,355
|
|
|
—
|
|
|
523
|
|
|
5,008
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,748,056
|
|
|
$
|
63,191
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,811,247
|
|
Segment operating earnings (1)
|
16,099
|
|
|
1,899
|
|
|
—
|
|
|
—
|
|
|
17,998
|
|
Depreciation and amortization
|
8,741
|
|
|
7,900
|
|
|
—
|
|
|
—
|
|
|
16,641
|
|
Property and equipment additions (2) (3)
|
7,249
|
|
|
28,472
|
|
|
—
|
|
|
22
|
|
|
35,743
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,694,437
|
|
|
$
|
55,776
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,750,213
|
|
Segment operating earnings (1)
|
7,008
|
|
|
3,337
|
|
|
—
|
|
|
—
|
|
|
10,345
|
|
Depreciation and amortization
|
6,384
|
|
|
4,270
|
|
|
—
|
|
|
—
|
|
|
10,654
|
|
Property and equipment additions (2) (3)
|
1,540
|
|
|
10,178
|
|
|
—
|
|
|
13
|
|
|
11,731
|
|
_________________
(1)Our crude oil marketing segment’s operating earnings included inventory valuation losses of $15.0 million, inventory liquidation gains of $3.7 million, and inventory valuation losses of $5.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.
(2)Our segment property and equipment additions do not include assets acquired under finance leases during the years ended December 31, 2020, 2019 and 2018. See Note 16 for further information.
(3)During the years ended December 31, 2020, 2019 and 2018, we had $0.5 million, $22 thousand and $13 thousand, respectively, of property and equipment additions for leasehold improvements at our corporate headquarters, which were not attributed or allocated to any of our reporting segments.
Segment operating earnings reflect revenues net of operating costs and depreciation and amortization expense and are reconciled to earnings (losses) before income taxes, as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Segment operating earnings
|
$
|
4,537
|
|
|
$
|
17,998
|
|
|
$
|
10,345
|
|
General and administrative
|
(10,284)
|
|
|
(10,198)
|
|
|
(8,937)
|
|
Operating earnings
|
(5,747)
|
|
|
7,800
|
|
|
1,408
|
|
Gain on dissolution of investment
|
—
|
|
|
573
|
|
|
—
|
|
Interest income
|
656
|
|
|
2,766
|
|
|
2,155
|
|
Interest expense
|
(444)
|
|
|
(636)
|
|
|
(109)
|
|
(Losses) earnings before income taxes
|
$
|
(5,535)
|
|
|
$
|
10,503
|
|
|
$
|
3,454
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Identifiable assets by industry segment were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Reporting segment:
|
|
|
|
|
|
Marketing
|
$
|
128,441
|
|
|
$
|
141,402
|
|
|
$
|
119,370
|
|
Transportation
|
72,247
|
|
|
58,483
|
|
|
34,112
|
|
Pipeline and storage
|
24,541
|
|
|
—
|
|
|
—
|
|
Cash and other (1)
|
70,958
|
|
|
130,957
|
|
|
125,388
|
|
Total assets
|
$
|
296,187
|
|
|
$
|
330,842
|
|
|
$
|
278,870
|
|
_________________
(1)Other identifiable assets are primarily corporate cash, corporate accounts receivable, properties and operating lease right-of-use assets not identified with any specific segment of our business.
All of our property and equipment is located in the U.S. Substantially all of our consolidated revenues are earned in the U.S. and derived from a wide customer base. Intersegment sales during the year ended December 31, 2020 were insignificant, and there were no intersegment sales during the years ended December 31, 2019 and 2018. Accounting policies for transactions between business segments are consistent with applicable accounting policies as disclosed herein.
Note 10. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Affiliate billings to us
|
$
|
18
|
|
|
$
|
83
|
|
|
$
|
75
|
|
Billings to affiliates
|
5
|
|
|
5
|
|
|
6
|
|
Rentals paid to affiliate
|
644
|
|
|
487
|
|
|
487
|
|
Note 11. Other Current Liabilities
The components of other current liabilities were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
Accrued purchase price for VEX acquisition (see Note 6)
|
$
|
10,000
|
|
|
$
|
—
|
|
Accrual for payroll, benefits and bonuses
|
6,575
|
|
|
2,301
|
|
Other
|
5,768
|
|
|
5,001
|
|
Total
|
$
|
22,343
|
|
|
$
|
7,302
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Derivative Instruments and Fair Value Measurements
Derivative Instruments
At December 31, 2020, we had in place six commodity purchase and sale contracts, of which three 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 2021 through December 2021.
At December 31, 2019, we had in place six commodity purchase and sale contracts with no fair value associated with them as the contractual prices of crude oil were within the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately:
•258 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 2020 through December 2020.
The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying consolidated balance sheets were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location and Amount
|
|
Current
|
|
Other
|
|
Current
|
|
Other
|
December 31, 2020
|
Assets
|
|
Assets
|
|
Liabilities
|
|
Liabilities
|
Asset derivatives:
|
|
|
|
|
|
|
|
Fair value forward hydrocarbon commodity
|
|
|
|
|
|
|
|
contracts at gross valuation
|
$
|
61
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liability derivatives:
|
|
|
|
|
|
|
|
Fair value forward hydrocarbon commodity
|
|
|
|
|
|
|
|
contracts at gross valuation
|
—
|
|
|
—
|
|
|
52
|
|
|
—
|
|
Less counterparty offsets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
As reported fair value contracts
|
$
|
61
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Asset derivatives:
|
|
|
|
|
|
|
|
Fair value forward hydrocarbon commodity
|
|
|
|
|
|
|
|
contracts at gross valuation
|
$
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liability derivatives:
|
|
|
|
|
|
|
|
Fair value forward hydrocarbon commodity
|
|
|
|
|
|
|
|
contracts at gross valuation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Less counterparty offsets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
As reported fair value contracts
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At December 31, 2020 and 2019, 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.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forward month commodity contracts (derivatives) reflected in the accompanying consolidated statements of operations were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Revenues – marketing
|
$
|
9
|
|
|
$
|
(24)
|
|
|
$
|
2
|
|
Fair Value Measurements
The following table reflects, 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
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
Identical Assets
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
and Liabilities
|
|
Inputs
|
|
Inputs
|
|
Counterparty
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Offsets
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
—
|
|
|
$
|
61
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61
|
|
Current liabilities
|
—
|
|
|
(52)
|
|
|
—
|
|
|
—
|
|
|
(52)
|
|
Net value
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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 December 31, 2020 and 2019, 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.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Income Taxes
The components of our income tax (provision) benefit were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
Federal
|
$
|
13,246
|
|
|
$
|
164
|
|
|
$
|
388
|
|
State
|
(327)
|
|
|
(375)
|
|
|
39
|
|
Total current
|
12,919
|
|
|
(211)
|
|
|
427
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(6,631)
|
|
|
(2,063)
|
|
|
(752)
|
|
State
|
242
|
|
|
(22)
|
|
|
(184)
|
|
Total deferred
|
(6,389)
|
|
|
(2,085)
|
|
|
(936)
|
|
Total (provision for) benefit from income taxes
|
$
|
6,530
|
|
|
$
|
(2,296)
|
|
|
$
|
(509)
|
|
A reconciliation of the (provision for) benefit from income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes was as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Pre-tax net book income (loss)
|
$
|
(5,535)
|
|
|
$
|
10,503
|
|
|
$
|
3,454
|
|
|
|
|
|
|
|
Statutory federal income tax (provision) benefit
|
$
|
1,162
|
|
|
$
|
(2,206)
|
|
|
$
|
(725)
|
|
State income tax (provision) benefit
|
(16)
|
|
|
(397)
|
|
|
(145)
|
|
2018/2019 carryback
|
2,664
|
|
|
—
|
|
|
—
|
|
2020 carryback
|
2,642
|
|
|
—
|
|
|
—
|
|
Reverse valuation allowance
|
—
|
|
|
—
|
|
|
98
|
|
Return to provision adjustments
|
13
|
|
|
285
|
|
|
388
|
|
Other
|
65
|
|
|
22
|
|
|
(125)
|
|
Total (provision for) benefit from income taxes
|
$
|
6,530
|
|
|
$
|
(2,296)
|
|
|
$
|
(509)
|
|
Effective income tax rate (1)
|
118
|
%
|
|
22
|
%
|
|
15
|
%
|
_______________
(1)Excluding the adjustment related to the carryback of the 2018, 2019 and 2020 losses, the effective income tax rate for 2020 is 22 percent.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net difference between the financial statement carrying amounts and the underlying income tax basis in these items. The components of the federal deferred tax asset (liability) were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
Long-term deferred tax asset (liability):
|
|
|
|
Prepaid and other insurance
|
$
|
(861)
|
|
|
$
|
248
|
|
Property
|
(12,807)
|
|
|
(9,953)
|
|
Investment in unconsolidated affiliate
|
525
|
|
|
525
|
|
Valuation allowance related to investment in unconsolidated affiliate
|
(525)
|
|
|
(525)
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
536
|
|
|
3,567
|
|
Other
|
423
|
|
|
(184)
|
|
Net long-term deferred tax liability
|
(12,709)
|
|
|
(6,322)
|
|
Net deferred tax liability
|
$
|
(12,709)
|
|
|
$
|
(6,322)
|
|
Financial statement recognition and measurement of positions taken, or expected to be taken, by an entity in its income tax returns must consider the uncertainty and judgment involved in the determination and filing of income taxes. Tax positions taken in an income tax return that are recognized in the financial statements must satisfy a more-likely-than-not recognition threshold, assuming that the tax position will be examined by taxing authorities with full knowledge of all relevant information. We have no significant unrecognized tax benefits. Interest and penalties associated with income tax liabilities are classified as income tax expense.
The earliest tax years remaining open for audit for federal and major states of operations are as follows:
|
|
|
|
|
|
|
Earliest Open
|
|
Tax Year
|
|
|
Federal
|
2013
|
Texas
|
2016
|
Louisiana
|
2017
|
Michigan
|
2016
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Stock-Based Compensation Plan
In May 2018, our shareholders approved the 2018 LTIP, a long-term incentive plan under which any employee or non-employee director who provides services to us is eligible to participate in the plan. 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. We began awarding stock-based compensation to eligible employees and directors in June 2018. After giving effect to awards granted and forfeitures made under the 2018 LTIP, and the achievement of performance factors through December 31, 2020, a total of 88,374 shares were available for issuance.
Compensation expense recognized in connection with equity-based awards was as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Compensation expense
|
$
|
643
|
|
|
$
|
478
|
|
|
$
|
255
|
|
If dividends are paid with respect to our common shares during the vesting period, an equivalent amount will accrue and be held by us without interest until the restricted stock unit awards and performance share unit awards vest, at which time the amount will be paid to the recipient. If the award is forfeited prior to vesting, the accrued dividends will also be forfeited. At December 31, 2020 and 2019, we had $50,800 and $23,600, respectively, of accrued dividend amounts for awards granted under the 2018 LTIP.
Restricted Stock Unit Awards
A restricted stock unit award is a grant of a right to receive our common shares in the future at no cost to the recipient apart from fulfilling service and other conditions once a defined vesting period expires, subject to customary forfeiture provisions. A restricted stock unit award will either be settled by the delivery of common shares or by the payment of cash based upon the fair market value of a specified number of shares, at the discretion of the Compensation Committee, subject to the terms of the applicable award agreement. The Compensation Committee intends for these awards to vest with the settlement of common shares. Restricted stock unit awards generally vest at a rate of approximately 33 percent per year beginning one year after the grant date and are non-vested until the required service periods expire.
The fair value of a restricted stock unit award is based on the market price per share of our common shares on the date of grant. Compensation expense is recognized based on the grant date fair value over the requisite service or vesting period.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents restricted stock unit award activity for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Average Grant
|
|
Number of
|
|
Date Fair Value
|
|
Shares
|
|
per Share (1)
|
|
|
|
|
Restricted stock unit awards at January 1, 2018
|
—
|
|
|
$
|
—
|
|
Granted (2)
|
13,733
|
|
|
$
|
43.00
|
|
Vested
|
—
|
|
|
$
|
—
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Restricted stock unit awards at December 31, 2018
|
13,733
|
|
|
$
|
43.00
|
|
Granted (3)
|
14,376
|
|
|
$
|
34.00
|
|
Vested
|
(7,188)
|
|
|
$
|
41.90
|
|
Forfeited
|
(2,139)
|
|
|
$
|
38.42
|
|
Restricted stock unit awards at December 31, 2019
|
18,782
|
|
|
$
|
37.05
|
|
Granted (4)
|
20,346
|
|
|
$
|
24.85
|
|
Vested
|
(9,578)
|
|
|
$
|
36.36
|
|
Forfeited
|
(2,060)
|
|
|
$
|
30.07
|
|
Restricted stock unit awards at December 31, 2020
|
27,490
|
|
|
$
|
28.64
|
|
____________________
(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 2018 was $0.6 million based on a grant date market price of our common shares of $43.00 per share.
(3)The aggregate grant date fair value of restricted stock unit awards issued during 2019 was $0.5 million based on a grant date market price of our common shares of $34.00 per share.
(4)The aggregate grant date fair value of restricted stock unit awards issued during 2020 was $0.5 million based on grant date market prices of our common shares ranging from $24.77 to $26.23 per share.
Unrecognized compensation cost associated with restricted stock unit awards was approximately $0.3 million at December 31, 2020. 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 1.4 years.
Performance Share Unit Awards
An award granted as performance-based compensation is awarded to a participant contingent upon attainment of our future performance goals during a performance cycle. Performance goals are pre-established by the Compensation Committee. Following the end of the performance period, the holder of a performance-based compensation award is entitled to receive payment of an amount not exceeding the number of shares of common stock subject to, or the maximum value of, the performance-based compensation award, based on the achievement of the performance measures for the performance period. The performance share unit awards generally vest in full approximately three years after grant date, and are non-vested until the required service period expires.
The fair value of a performance share unit award is based on the market price per share of our common shares on the date of grant. Compensation expense is recognized based on the grant date fair value over the requisite service or vesting period. Compensation expense is generally adjusted for the performance goals on a quarterly basis.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents performance share unit award activity for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Average Grant
|
|
|
Number of
|
|
Date Fair Value
|
|
|
Shares
|
|
per Share (1)
|
|
|
|
|
|
Performance share unit awards at January 1, 2018
|
|
—
|
|
|
$
|
—
|
|
Granted (2)
|
|
7,932
|
|
|
$
|
43.00
|
|
Performance factor decrease (3)
|
|
(3,966)
|
|
|
$
|
43.00
|
|
Vested
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
—
|
|
|
$
|
—
|
|
Performance share unit awards at December 31, 2018
|
|
3,966
|
|
|
$
|
43.00
|
|
Granted (4)
|
|
8,094
|
|
|
$
|
34.00
|
|
Performance factor decrease (3)
|
|
(7,312)
|
|
|
$
|
34.23
|
|
Vested
|
|
(416)
|
|
|
$
|
43.00
|
|
Forfeited
|
|
(1,545)
|
|
|
$
|
37.37
|
|
Performance share unit awards at December 31, 2019
|
|
2,787
|
|
|
$
|
43.00
|
|
Granted (5)
|
|
10,781
|
|
|
$
|
24.92
|
|
Performance factor increase (3)
|
|
3,981
|
|
|
$
|
24.92
|
|
Vested
|
|
(713)
|
|
|
$
|
28.55
|
|
Forfeited
|
|
(595)
|
|
|
$
|
30.22
|
|
Performance share unit awards at December 31, 2020
|
|
16,241
|
|
|
$
|
27.67
|
|
____________________
(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 2018 was $0.2 million based on a grant date market price of our common shares of $43.00 per share and assuming a performance factor of 100 percent.
(3)The performance factor for awards granted in 2018 was lowered to 47.5 percent based on a comparison of actual results for 2018 to performance goals. The performance factor for awards granted in 2019 was lowered to 0 percent based upon a comparison of actual results for 2019 to performance goals. The performance factor for awards granted in 2020 was increased to 138.5 percent based upon a comparison of actual results for 2020 to performance goals.
(4)The aggregate grant date fair value of performance share unit awards issued during 2019 was $0.3 million based on a grant date market price of our common shares of $34.00 per share and assuming a performance factor of 100 percent.
(5)The aggregate grant date fair value of performance share unit awards issued during 2020 was $0.2 million based on grant date market prices of our common shares ranging from $24.77 to $26.23 per share and assuming a performance factor of 100 percent.
Unrecognized compensation cost associated with performance share unit awards was approximately $0.3 million at December 31, 2020. We expect to recognize the remaining compensation cost for these awards over a weighted-average period of 2.1 years.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Supplemental Cash Flow Information
Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
444
|
|
|
$
|
636
|
|
|
$
|
109
|
|
Cash paid for federal and state income taxes
|
418
|
|
|
234
|
|
|
787
|
|
Cash refund for NOL carryback under CARES Act
|
2,703
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
Change in accounts payable related to property and equipment
additions
|
(1,237)
|
|
|
(448)
|
|
|
1685
|
|
Property and equipment acquired under finance leases
|
11,412
|
|
|
4,148
|
|
|
2,898
|
|
Issuance of common shares in asset acquisition (see Note 6)
|
—
|
|
|
392
|
|
|
—
|
|
Receivable for sale of property and equipment
|
—
|
|
|
952
|
|
|
—
|
|
See Note 16 for information related to non-cash transactions related to the adoption of the new lease accounting standard.
Note 16. Leases
Adoption of ASC 842
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Codification 842, Leases (“ASC 842”), which requires lessees to recognize a ROU asset and a corresponding lease liability for leases with terms longer than twelve months. We adopted the new standard effective January 1, 2019, using a modified retrospective transition method and applied certain optional transitional practical expedients.
We elected an optional transition method that allowed application of the new standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption with no adjustment to previously reported results. In accordance with this approach, our consolidated financial statements for periods prior to January 1, 2019 were not revised to reflect the new lease accounting guidance. We also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the carry forward of historical lease classification. We did not elect the practical expedient related to hindsight.
ASC 842 changes the way our operating leases are recorded, presented and disclosed in our consolidated financial statements. Upon adoption of ASC 842 on January 1, 2019, we recognized a ROU asset and a corresponding lease liability based on the present value of then existing operating lease obligations of approximately $11.4 million on our consolidated balance sheet. In addition, there are several key accounting policy elections that we made upon adoption of ASC 842 including:
•We did not recognize ROU assets and lease liabilities for short-term leases and instead record them in a manner similar to operating leases under ASC 840, Leases, lease accounting guidelines. A short term lease is one with a maximum lease term of 12 months or less and does not include a purchase option or renewal option the lessee is reasonably certain to exercise.
•We have also elected the non-lease component practical expedient for any asset class where lease and non-lease components are comingled and the non-lease component is determined to be insignificant when compared to the lease component.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease Recognition
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, current liabilities and long-term operating lease liabilities in the consolidated balance sheets. Finance leases are included in property and equipment, current liabilities and long-term finance lease liabilities in the consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. For determining the present value of lease payments, we use the discount rate implicit in the lease when readily determinable. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate in determining the present value of lease payments that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. At adoption, the ROU asset also includes any lease payment made and excludes lease incentives and initial direct costs. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
We are a lessee in noncancellable (i) operating leases for office space, equipment and lease and terminal access contracts for tank storage and dock access for our crude oil marketing business, and (ii) finance leases for tractors, trailers, a tank storage and throughput arrangement in our crude oil marketing business and office equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Our lease agreements have remaining lease terms ranging from one year to approximately eight years. Four of our finance lease agreements for tractors and trailers contain residual value guarantee provisions, which would become due at the expiration of the finance lease if the fair value of the lease vehicles is less than the guaranteed residual value. At December 31, 2020, we have recorded a liability of $1.8 million for the estimated end of term loss related to these residual value guarantees as we expect that we will pay the full amount of the guarantees at the end of the leases.
Our lease agreements do not contain any leases with variable lease payments (i.e., payments that depend on a percentage of sales of a lessee or payments that increase based upon an index such as CPI), residual value guarantees probable of being paid other than those noted above or material restrictive covenants. Lease agreements with lease and non-lease components are generally accounted for separately when practical. For leases where the lease and non-lease component are comingled and the non-lease component is determined to be insignificant when compared to the lease component, the lease and the non-lease components are treated as a single lease component for all asset classes.
Some leases include one or more options to renew, with renewal terms that can extend the lease term for generally one year with exercise of lease renewal options being at our sole discretion as lessee.
The following table provides the components of lease expense the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
Finance lease cost:
|
|
|
|
|
Amortization of ROU assets
|
|
$
|
2,547
|
|
|
$
|
1,807
|
|
Interest on lease liabilities
|
|
300
|
|
|
295
|
|
Operating lease cost
|
|
2,718
|
|
|
2,933
|
|
Short-term lease cost
|
|
11,020
|
|
|
9,627
|
|
Total lease expense
|
|
$
|
16,585
|
|
|
$
|
14,662
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides supplemental cash flow and other information related to leases for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases (1)
|
|
$
|
2,717
|
|
|
$
|
2,934
|
|
Operating cash flows from finance leases
|
|
291
|
|
|
295
|
|
Financing cash flows from finance leases
|
|
2,336
|
|
|
1,697
|
|
|
|
|
|
|
ROU assets obtained in exchange for new lease liabilities:
|
|
|
|
|
Finance leases (2)
|
|
11,412
|
|
|
4,148
|
|
Operating leases
|
|
819
|
|
|
12,006
|
|
______________
(1)Amounts are included in Other operating activities on the consolidated cash flow statements.
(2)2020 amount consists of a finance lease agreements for 58 tractors with five year terms, 40 trailers with a six year term that we entered into in connection with the CTL acquisition (see Note 6 for further information) and other office equipment.
The following table provides the lease terms and discount rates for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
Weighted-average remaining lease term (years):
|
|
|
|
|
Finance leases
|
|
4.16
|
|
3.03
|
Operating leases
|
|
4.57
|
|
4.78
|
|
|
|
|
|
Weighted-average discount rate:
|
|
|
|
|
Finance leases
|
|
3.0
|
%
|
|
4.9
|
%
|
Operating leases
|
|
4.3
|
%
|
|
5.0
|
%
|
The following table provides supplemental balance sheet information related to leases at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Assets
|
|
|
|
|
Finance lease ROU assets (1)
|
|
$
|
15,251
|
|
|
$
|
6,384
|
|
Operating lease ROU assets
|
|
8,051
|
|
|
9,576
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
|
|
|
|
|
Finance lease liabilities
|
|
4,112
|
|
|
2,167
|
|
Operating lease liabilities
|
|
2,050
|
|
|
2,252
|
|
Noncurrent
|
|
|
|
|
Finance lease liabilities
|
|
11,507
|
|
|
4,376
|
|
Operating lease liabilities
|
|
6,000
|
|
|
7,323
|
|
______________
(1)Amounts are included in Property and equipment, net on the consolidated balance sheets.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides maturities of undiscounted lease liabilities at December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
Operating
|
|
|
Lease
|
|
Lease
|
|
|
|
|
|
2021
|
|
$
|
4,496
|
|
|
$
|
2,343
|
|
2022
|
|
3,562
|
|
|
2,002
|
|
2023
|
|
2,764
|
|
|
1,821
|
|
2024
|
|
1,969
|
|
|
1,700
|
|
2025
|
|
2,992
|
|
|
222
|
|
Thereafter
|
|
802
|
|
|
675
|
|
Total lease payments
|
|
16,585
|
|
|
8,763
|
|
Less: Interest
|
|
(966)
|
|
|
(713)
|
|
Present value of lease liabilities
|
|
15,619
|
|
|
8,050
|
|
Less: Current portion of lease obligation
|
|
(4,112)
|
|
|
(2,050)
|
|
Total long-term lease obligation
|
|
$
|
11,507
|
|
|
$
|
6,000
|
|
The following table provides maturities of undiscounted lease liabilities at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
Operating
|
|
|
Lease
|
|
Lease
|
|
|
|
|
|
2020
|
|
$
|
2,426
|
|
|
$
|
2,660
|
|
2021
|
|
2,426
|
|
|
2,256
|
|
2022
|
|
1,492
|
|
|
1,914
|
|
2023
|
|
642
|
|
|
1,776
|
|
2024
|
|
37
|
|
|
1,668
|
|
Thereafter
|
|
—
|
|
|
443
|
|
Total lease payments
|
|
7,023
|
|
|
10,717
|
|
Less: Interest
|
|
(480)
|
|
|
(1,142)
|
|
Present value of lease liabilities
|
|
6,543
|
|
|
9,575
|
|
Less: Current portion of lease obligation
|
|
(2,167)
|
|
|
(2,252)
|
|
Total long-term lease obligation
|
|
$
|
4,376
|
|
|
$
|
7,323
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Commitments and Contingencies
Insurance
We have accrued liabilities for estimated workers’ compensation and other casualty claims incurred based upon claim reserves plus an estimate for loss 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 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. 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.
Our accruals for automobile, workers’ compensation and medical claims were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
|
|
|
Pre-funded premiums for losses incurred but not reported
|
$
|
55
|
|
|
$
|
168
|
|
Accrued automobile and workers’ compensation claims
|
3,171
|
|
|
2,956
|
|
Accrued medical claims
|
915
|
|
|
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 alleged 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 requested 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.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, results of operations or cash flows.
Guarantees
We issue parent guarantees of commitments associated with the activities of our subsidiary companies. The guarantees generally result from subsidiary commodity purchase obligations, subsidiary operating lease commitments and subsidiary banking transactions. The nature of these arrangements is to guarantee the performance of the subsidiary in meeting their respective underlying obligations. We would only be called upon to perform under the guarantee in the event of a payment default by the applicable subsidiary company. In satisfying these obligations, we would first look to the assets of the defaulting subsidiary company.
At December 31, 2020, parental guaranteed obligations were approximately $24.1 million. Currently, neither we nor any of our subsidiaries has any other types of guarantees outstanding that require liability recognition, except for the residual value guarantees for certain of our finance leases (see Note 16 for further discussion).
Note 18. Concentration of Credit Risk
We may incur credit risk to the extent our customers do not fulfill their obligations to us pursuant to contractual terms. Risks of nonpayment and nonperformance by our customers are a major consideration in our business, and our credit procedures and policies may not be adequate to sufficiently eliminate customer credit risk. Managing credit risk involves a number of considerations, such as the financial profile of the customer, the value of collateral held, if any, specific terms and duration of the contractual agreement, and the customer’s sensitivity to economic developments. We have established various procedures to manage credit exposure, including initial credit approval, credit limits and rights of offset. We also utilize letters of credit and guarantees to limit exposure.
Our largest customers consist of large multinational integrated crude oil companies and independent domestic refiners of crude oil. In addition, we transact business with independent crude oil producers, major chemical companies, crude oil trading companies and a variety of commercial energy users. Within this group of customers, we derive approximately 50 percent of our revenues from three to five large crude oil refining customers. While we have ongoing established relationships with certain domestic refiners of crude oil, alternative markets are readily available since we supply less than one percent of U.S. domestic refiner demand. As a fungible commodity delivered to major Gulf Coast supply points, our crude oil sales can be readily delivered to alternative end markets.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables reflect the percentages of individual customer sales in excess of 10 percent of our consolidated revenues and individual customer receivables in excess of 10 percent of our total consolidated receivables for the periods indicated. We believe that a loss of any of the customers where we currently derive more than 10 percent of our revenues would not have a material adverse effect on our operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual customer sales
|
|
Individual customer receivables in excess
|
in excess of 10% of revenues
|
|
of 10% of total receivables
|
Year Ended December 31,
|
|
December 31,
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
24.0
|
%
|
|
37.3
|
%
|
|
27.3
|
%
|
|
11.3
|
%
|
|
16.6
|
%
|
|
18.4
|
%
|
10.8
|
%
|
|
11.4
|
%
|
|
14.1
|
%
|
|
10.9
|
%
|
|
12.6
|
%
|
|
11.9
|
%
|
|
|
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
10.4
|
%
|
|
|
|
|
Note 19. Quarterly Financial Information (Unaudited)
The following table presents selected quarterly financial data for the periods indicated (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
Year Ended December 31, 2020
|
|
|
|
|
|
|
|
Revenues
|
$
|
353,477
|
|
|
$
|
152,286
|
|
|
$
|
266,904
|
|
|
$
|
249,755
|
|
Operating (losses) earnings (1)
|
(19,940)
|
|
|
2,935
|
|
|
6,056
|
|
|
5,202
|
|
Net (losses) earnings
|
(11,427)
|
|
|
3,503
|
|
|
3,073
|
|
|
5,846
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share: (2)
|
|
|
|
|
|
|
|
Basic net (losses) earnings per share
|
$
|
(2.70)
|
|
|
$
|
0.83
|
|
|
$
|
0.72
|
|
|
$
|
1.38
|
|
Diluted net (losses) earnings per share
|
$
|
(2.69)
|
|
|
$
|
0.82
|
|
|
$
|
0.72
|
|
|
$
|
1.37
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
Revenues
|
$
|
445,168
|
|
|
$
|
484,433
|
|
|
$
|
450,307
|
|
|
$
|
431,339
|
|
Operating earnings (losses)
|
5,253
|
|
|
(643)
|
|
|
303
|
|
|
2,887
|
|
Net earnings
|
4,908
|
|
|
6
|
|
|
640
|
|
|
2,653
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic net earnings per share
|
$
|
1.16
|
|
|
$
|
—
|
|
|
$
|
0.15
|
|
|
$
|
0.63
|
|
Diluted net earnings per share
|
$
|
1.16
|
|
|
$
|
—
|
|
|
$
|
0.15
|
|
|
$
|
0.63
|
|
____________________
(1)The first quarter of 2020 includes inventory valuation losses of approximately $24.2 million in our crude oil marketing segment.
(2)The sum of our quarterly earnings (losses) per share amounts may not equal our full year amounts due to slight rounding differences.