Company Quick10K Filing
Quick10K
Adams Resources & Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$41.31 4 $174
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-02-22 Regulation FD, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-08-15 Enter Agreement, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-06-11 Officers, Exhibits
8-K 2018-03-27 Officers, Exhibits
8-K 2018-03-16 Officers
8-K 2018-02-22 Regulation FD, Exhibits
CHRW CH Robinson Worldwide
GEL Genesis Energy
SUN Sunoco
NGL NGL Energy Partners
CAPL Crossamerica Partners
MMLP Martin Midstream Partners
SRLP Sprague Resources
CYRX Cryoport
RRTS Roadrunner Transportation Systems
SINO Sino-Global Shipping America
AE 2018-09-30
Part I. Financial Information
Item 1. 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. Cash Deposits and Other Assets
Note 7. Segment Reporting
Note 8. Transactions with Affiliates
Note 9. Derivative Instruments and Fair Value Measurements
Note 10. Share-Based Compensation Plan
Note 11. Supplemental Cash Flow Information
Note 12. Commitments and Contingencies
Note 13. Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Disclosure Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 a3q2018exhibit101.htm
EX-31.1 a3q2018exhibit311.htm
EX-31.2 a3q2018exhibit312.htm
EX-32.1 a3q2018exhibit321.htm
EX-32.2 a3q2018exhibit322.htm

Adams Resources & Energy Earnings 2018-09-30

AE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q
(Mark one)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018  

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___  to  ___.

Commission file number: 1-07908

ADAMS RESOURCES & ENERGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
74-1753147
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)

17 South Briar Hollow Lane, Suite 100
Houston, Texas 77027
(Address of Principal Executive Offices, including Zip Code)
(713) 881-3600
(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

A total of 4,217,596 shares of Common Stock were outstanding at November 1, 2018. Our Common Stock trades on the NYSE American (formerly the NYSE MKT) under the ticker symbol “AE.”



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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

Page No.



1

Table of Contents


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

September 30, December 31,
20182017
ASSETS 
Current assets: 
Cash and cash equivalents $130,774 $109,393 
Accounts receivable, net of allowance for doubtful 
accounts of $208 and $303, respectively 108,662 121,353 
Inventory 34,760 12,192 
Derivative assets 263 166 
Income tax receivable  1,317 
Prepayments and other current assets 1,271 1,264 
Total current assets 275,730 245,685 
Property and equipment, net 30,918 29,362 
Investment in unconsolidated affiliate 425 425 
Cash deposits and other assets 6,239 7,232 
Total assets $313,312 $282,704 
LIABILITIES AND SHAREHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable $146,895 $124,706 
Accounts payable – related party 6 5 
Derivative liabilities 247 145 
Current portion of capital lease obligations 568 338 
Other current liabilities 8,219 4,404 
Total current liabilities 155,935 129,598 
Other long-term liabilities: 
Asset retirement obligations 1,414 1,273 
Capital lease obligations 2,041 1,351 
Deferred taxes and other liabilities 2,655 3,363 
Total liabilities 162,045 135,585 
Commitments and contingencies (Note 12) 
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, 4,217,596 shares outstanding 422 422 
Contributed capital 11,837 11,693 
Retained earnings 139,008 135,004 
Total shareholders’ equity 151,267 147,119 
Total liabilities and shareholders’ equity $313,312 $282,704 

See Notes to Unaudited Condensed Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Three Months Ended Nine Months Ended 
September 30, September 30, 
2018201720182017
Revenues: 
Marketing $453,626 $282,229 $1,266,055 $872,020 
Transportation 14,265 13,082 41,509 40,153 
Oil and natural gas    1,427 
Total revenues 467,891 295,311 1,307,564 913,600 
Costs and expenses: 
Marketing 449,367 277,906 1,250,233 860,567 
Transportation 12,412 12,668 36,603 36,681 
Oil and natural gas    951 
General and administrative 1,533 2,787 6,100 6,884 
Depreciation, depletion and amortization 2,340 3,240 7,014 10,772 
Total costs and expenses 465,652 296,601 1,299,950 915,855 
Operating earnings (losses) 2,239 (1,290)7,614 (2,255)
Other income (expense): 
Loss on deconsolidation of subsidiary  (1,870) (3,505)
Impairment of investment in unconsolidated 
affiliate  (2,500) (2,500)
Interest income 601 370 1,486 789 
Interest expense (26)(8)(60)(10)
Total other income (expense), net 575 (4,008)1,426 (5,226)
(Losses) earnings before income taxes 2,814 (5,298)9,040 (7,481)
Income tax benefit (provision) (779)2,265 (2,247)3,306 
Net (losses) earnings $2,035 $(3,033)$6,793 $(4,175)
Earnings (losses) per share: 
Basic net (losses) earnings per common share $0.48 $(0.72)$1.61 $(0.99)
Diluted net (losses) earnings per common share $0.48 $(0.72)$1.61 $(0.99)
Dividends per common share $0.22 $0.22 $0.66 $0.66 


See Notes to Unaudited Condensed Consolidated Financial Statements.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Nine Months Ended
September 30, 
20182017
Operating activities: 
Net (losses) earnings $6,793 $(4,175)
Adjustments to reconcile net (losses) earnings to net cash 
provided by operating activities: 
Depreciation, depletion and amortization 7,014 10,772 
Gains on sales of property (890)(347)
Impairment of oil and natural gas properties  3 
Provision for doubtful accounts (95)(9)
Stock-based compensation expense 144  
Deferred income taxes (685)(1,198)
Net change in fair value contracts 5 48 
Impairment of investment in unconsolidated affiliate  2,500 
Loss on deconsolidation of subsidiary  3,505 
Changes in assets and liabilities: 
Accounts receivable 12,830 5,228 
Accounts receivable/payable, affiliates 1 266 
Inventories (22,568)(9,328)
Income tax receivable 1,317 (1,412)
Prepayments and other current assets (7)927 
Accounts payable 22,254 9,482 
Accrued liabilities 3,815 465 
Other (103)(240)
Net cash provided by operating activities 29,825 16,487 
Investing activities: 
Property and equipment additions (7,756)(2,465)
Proceeds from property sales 1,314 430 
Insurance and state collateral (deposits) refunds 1,070 439 
Net cash used in investing activities (5,372)(1,596)
Financing activities: 
Principal repayments of capital lease obligations (288) 
Dividends paid on common stock (2,784)(2,784)
Net cash used in financing activities (3,072)(2,784)
Increase in cash and cash equivalents 21,381 12,107 
Cash and cash equivalents at beginning of period 109,393 87,342 
Cash and cash equivalents at end of period $130,774 $99,449 


See Notes to Unaudited Condensed Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)

Total 
Common Contributed Retained Shareholders’ 
Stock Capital Earnings Equity 
Balance, January 1, 2018 $422 $11,693 $135,004 $147,119 
Net earnings — — 1,138 1,138 
Dividends declared: 
Common stock, $0.22/share — — (928)(928)
Balance, March 31, 2018 422 11,693 135,214 147,329 
Net earnings — — 3,620 3,620 
Stock-based compensation expense — 3 — 3 
Dividends declared: 
Common stock, $0.22/share — — (928)(928)
Balance, June 30, 2018 422 11,696 137,906 150,024 
Net earnings — — 2,035 2,035 
Stock-based compensation expense — 141 — 141 
Dividends declared: 
Common stock, $0.22/share — — (928)(928)
Awards under LTIP, $0.22/share — — (5)(5)
Balance, September 30, 2018$422 $11,837 $139,008 $151,267 



Total 
Common Contributed Retained Shareholders’ 
Stock Capital Earnings Equity 
Balance, January 1, 2017 $422 $11,693 $139,197 $151,312 
Net losses — — (860)(860)
Dividends declared: 
Common stock, $0.22/share — — (928)(928)
Balance, March 31, 2017 422 11,693 137,409 149,524 
Net losses — — (282)(282)
Dividends declared: 
Common stock, $0.22/share — — (928)(928)
Balance, June 30, 2017 422 11,693 136,199 148,314 
Net losses — — (3,033)(3,033)
Dividends declared: 
Common stock, $0.22/share — — (928)(928)
Balance, September 30, 2017$422 $11,693 $132,238 $144,353 



See Notes to Unaudited Condensed Consolidated Financial Statements.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation

Organization

Adams Resources & Energy, Inc. (“AE”) 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”. We and our subsidiaries are primarily engaged in the business of crude oil marketing, transportation 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 and dry bulk and ISO tank container storage and transportation primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with terminals in the Gulf Coast region of the U.S. Unless the context requires otherwise, references to “we,” “us,” “our,” the “Company” or “AE” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.  

Historically, we have operated and reported in three business segments: (i) crude oil marketing, transportation and storage, (ii) tank truck transportation of liquid chemicals and dry bulk and ISO tank container storage and transportation, and (iii) upstream crude oil and natural gas exploration and production. We exited the upstream crude oil and natural gas exploration and production business during 2017 with the sale of our upstream crude oil and natural gas exploration and production assets as a result of a voluntary bankruptcy filing for this subsidiary. The bankruptcy case involving the wholly owned subsidiary through which this business was conducted was dismissed in October 2018, and we expect final settlement to occur during the fourth quarter of 2018.  

Basis of Presentation

Our results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of results expected for the full year of 2018. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals necessary for fair presentation.  The condensed consolidated financial statements and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and the rules of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”) filed with the SEC on March 12, 2018. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of our financial statements in conformity with GAAP requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and on various other assumptions and information we believe to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. While we believe the estimates and assumptions used in the preparation of these condensed consolidated financial statements are appropriate, actual results could differ from those estimates.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies

Earnings Per Share

Basic earnings (losses) per share is computed by dividing our net earnings (losses) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (losses) per share is computed by giving effect to all potential shares of common stock outstanding, including our stock related to unvested restricted stock unit awards. Unvested restricted stock unit awards granted under the Adams Resources & Energy, Inc. 2018 Long-Term Incentive Plan (“2018 LTIP”) are not considered to be participating securities as the holders of these shares do not have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares (see Note 10 for further discussion).

A reconciliation of the denominator used in the calculation of basic and diluted earnings (losses) per share is as follows (in thousands, except per share data):
Three Months Ended
September 30, 
Nine Months Ended
September 30, 
2018201720182017
Basic earnings (losses) per share: 
Net earnings (losses) $2,035 $(3,033)$6,793 $(4,175)
Weighted average number of shares
outstanding — Basic 
4,218 4,218 4,218 4,218 
Basic earnings (losses) per share $0.48 $(0.72)$1.61 $(0.99)
Diluted earnings (losses) per share: 
Net earnings (losses) $2,035 $(3,033)$6,793 $(4,175)
Diluted weighted average number of
shares outstanding: 
Common shares 4,218 4,218 4,218 4,218 
Restricted stock unit awards (1)
1    
Performance share unit awards (2)
    
Total 4,219 4,218 4,218 4,218 
Diluted earnings (losses) per share $0.48 $(0.72)$1.61 $(0.99)
_______________
(1) The dilutive effect of restricted stock unit awards for the three and nine months ended September 30, 2018 is de minimis.
(2)  The dilutive effect of performance share awards will be included in the calculation of diluted earnings per share when the performance share award performance conditions have been achieved.

Fair Value Measurements

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities are recorded at fair value based on market quotations from actively traded liquid markets.

A three-tier hierarchy has been established that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate 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.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 current reporting periods (see Note 9 for further information).  

Income Taxes

Income taxes are accounted for using the asset and liability method. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of these items and their respective tax basis. On 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.

Investments in Unconsolidated Affiliates

AREC. In April 2017, one of our wholly owned subsidiaries, Adams Resources Exploration Corporation (“AREC”), filed a voluntary petition in the United States Bankruptcy Court for the District of Delaware seeking relief under Chapter 11 of Title 11 of the United States Code. As a result of the voluntary bankruptcy filing, we no longer controlled the operations of AREC; therefore, we deconsolidated AREC in April 2017, and we recorded our investment in this subsidiary under the cost method of accounting. During the second quarter of 2017, we recorded a non-cash charge of approximately $1.6 million associated with the deconsolidation of AREC. During the third quarter of 2017, as a result of the sale of substantially all of AREC’s assets, we recognized an additional loss of $1.9 million, which represents the difference between the net proceeds we expected to be paid upon settlement of the bankruptcy, net of anticipated remaining closing costs identified as part of the liquidation plan, and the book value of our cost method investment. At September 30, 2018, our remaining investment in AREC was $0.4 million. The bankruptcy case was dismissed during October 2018, and we expect final settlement to occur during the fourth quarter of 2018.

VestaCare. During the third quarter of 2017, we reviewed our investment in VestaCare, Inc. (“VestaCare”), in which we own an approximate 15 percent equity interest (less than 3 percent voting interest), and determined that the current projected operating results did not support the carrying value of the investment. As such, we recognized a pre-tax impairment charge of $2.5 million during the third quarter of 2017 and wrote-off our investment in VestaCare.

Letter of Credit Facility

We maintain a Credit and Security Agreement with Wells Fargo Bank, National Association to provide up to a $60.0 million stand-by letter of credit facility used to support crude oil purchases within our crude oil marketing segment and for other purposes. We are currently using the letter of credit facility for a letter of credit related to our insurance program. This facility is collateralized by the eligible accounts receivable within our crude oil marketing segment and expires on August 30, 2019.

The issued stand-by letters of credit are canceled as the underlying purchase obligations are satisfied by cash payment when due. The letter of credit facility places certain restrictions on GulfMark Energy, Inc., one of our wholly owned subsidiaries. These restrictions include the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions. We are currently in compliance with all such financial covenants. Subsequent to September 30, 2018, per the terms of our letter of credit agreement, we were in default of certain nonfinancial covenants and obtained a waiver whereby the creditor will not exercise any of their rights or remedies. At September 30, 2018 and December 31, 2017, we had $0.4 million and $2.2 million, respectively, outstanding under this facility.  


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED 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 ranging from two to thirty-nine years.

We review our long-lived assets for impairment whenever there is evidence that the carrying value of these assets may not be recoverable. Any impairment recognized is permanent and may not be restored. Property and equipment is reviewed at the lowest level of identifiable cash flows. For properties requiring impairment, the fair value is estimated based on an internal discounted cash flow model of future cash flows.

See Note 5 for additional information regarding our property and equipment.

Recent Accounting Developments

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), which requires substantially all leases (with the exception of leases with a term of one year or less) to be recorded on the balance sheet using a method referred to as the right-of-use (“ROU”) asset approach. We plan to adopt the new standard on January 1, 2019 using the modified retrospective approach and apply it to (i) all new leases entered into after January 1, 2019 and (ii) all existing lease contracts as of January 1, 2019 through a cumulative adjustment to equity. In accordance with this approach, our consolidated operating expenses for periods prior to January 1, 2019 will not be revised.  

The new standard introduces two lease accounting models, which result in a lease being classified as either a “finance” or “operating” lease on the basis of whether the lessee effectively obtains control of the underlying asset during the lease term. A lease would be classified as a finance lease if it meets one of five classification criteria, four of which are generally consistent with current lease accounting guidance. By default, a lease that does not meet the criteria to be classified as a finance lease will be deemed an operating lease. Regardless of classification, the initial measurement of both lease types will result in the balance sheet recognition of a ROU asset representing a company’s right to use the underlying asset for a specified period of time and a corresponding lease liability. The lease liability will be recognized at the present value of the future lease payments, and the ROU asset will equal the lease liability adjusted for any prepaid rent, lease incentives provided by the lessor, and any indirect costs.

The subsequent measurement of each type of lease varies. Leases classified as a finance lease will be accounted for using the effective interest method. Under this approach, a lessee will amortize the ROU asset (generally on a straight-line basis in a manner similar to depreciation) and the discount on the lease liability (as a component of interest expense). Leases classified as an operating lease will result in the recognition of a single lease expense amount that is recorded on a straight-line basis (or another systematic basis, if more appropriate).

We are in the process of reviewing our lease agreements in light of the new guidance. We anticipate that this new lease guidance will result in changes to the way our operating leases are recorded, presented and disclosed in our consolidated financial statements. 


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation

We measure all share-based payments, including the issuance of restricted stock units and performance share units 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 statement of operations based on the estimated fair value of those awards on the grant date and 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 10 for additional information regarding our 2018 LTIP.  


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 three and nine months ended September 30, 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

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 and storage of crude oil and other related products and the tank truck transportation of liquid chemicals 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. 

For our crude oil marketing segment, 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.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For our transportation segment, each sales order associated with our master transportation agreements is considered a distinct performance obligation. The performance obligations associated with this segment are satisfied over time as the goods and services are delivered.

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 sheet. 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.  


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue Disaggregation

The following table disaggregates our revenue by segment and by major source for the periods indicated (in thousands):
Reporting Segments 
Marketing Transportation Total 
Three Months Ended September 30, 2018 
Revenues from contracts with customers $424,061 $14,265 $438,326 
Other (1)
29,565  29,565 
Total revenues $453,626 $14,265 $467,891 
Timing of revenue recognition: 
Goods transferred at a point in time $424,061 $ $424,061 
Services transferred over time  14,265 14,265 
Total revenues from contracts with customers $424,061 $14,265 $438,326 
Nine Months Ended September 30, 2018 
Revenues from contracts with customers $1,203,511 $41,509 $1,245,020 
Other (1)
62,544  62,544 
Total revenues $1,266,055 $41,509 $1,307,564 
Timing of revenue recognition: 
Goods transferred at a point in time $1,203,511 $ $1,203,511 
Services transferred over time  41,509 41,509 
Total revenues from contracts with customers $1,203,511 $41,509 $1,245,020 
_______________
(1) Other 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 Marketing Revenue

Certain of the commodity purchase and sale contracts utilized by our crude oil marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activity. From the time of contract origination, these contracts are marked-to-market and recorded on a net revenue basis in the accompanying consolidated financial statements.

Certain of our crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations. These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer. These buy/sell arrangements are reflected on a net revenue basis in the accompanying consolidated financial statements.

Reporting these crude oil contracts on a gross revenue basis would increase our reported revenues as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended 
September 30, September 30, 
2018201720182017
Revenue gross-up $76,373 $46,306 $178,399 $148,779 



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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Prepayments and Other Current Assets

The components of prepayments and other current assets were as follows at the dates indicated (in thousands):
September 30, December 31,
20182017
Insurance premiums $274 $425 
Rents, licenses and other 997 839 
Total $1,271 $1,264 


Note 5. Property and Equipment

The historical costs of our property and equipment and related accumulated depreciation balances were as follows at the dates indicated (in thousands):
Estimated 
Useful Life September 30, December 31,
in Years 20182017
Tractors and trailers (1)
5 – 6 $84,578 $88,065 
Field equipment 2 – 5 19,987 18,490 
Buildings 5 – 39 15,746 15,727 
Office equipment 2 – 5 1,808 1,929 
Land 1,790 1,790 
Construction in progress 1,664 275 
Total 125,573 126,276 
Less accumulated depreciation (94,655)(96,914)
Property and equipment, net $30,918 $29,362 
_______________
(1) Amounts include assets held under capital leases for certain tractors in our marketing segment. Gross property and equipment associated with assets held under capital leases were $3.0 million and $1.8 million at September 30, 2018 and December 31, 2017, respectively. Accumulated amortization associated with assets held under capital leases were $0.4 million and $0.1 million at September 30, 2018 and December 31, 2017, respectively (see Note 12 for further information).

Components of depreciation, depletion and amortization expense were as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended 
September 30, September 30, 
2018201720182017
Depreciation, depletion and amortization, 
excluding amounts under capital leases $2,210 $3,210 $6,703 $10,742 
Amortization of property and equipment 
under capital leases 130 30 311 30 
Total depreciation, depletion and amortization $2,340 $3,240 $7,014 $10,772 


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Cash Deposits and Other Assets

Components of cash deposits and other assets were as follows at the dates indicated (in thousands):

September 30, December 31,
20182017
Amounts associated with liability insurance program: 
Insurance collateral deposits $3,517 $3,767 
Excess loss fund 1,662 2,284 
Accumulated interest income 736 814 
Other amounts: 
State collateral deposits 61 57 
Materials and supplies 227 273 
Other 36 37 
Total $6,239 $7,232 

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.


Note 7. Segment Reporting

Historically, our three reporting segments have been: (i) crude oil marketing, transportation and storage, (ii) tank truck transportation of liquid chemicals and dry bulk and ISO tank container storage and transportation and (iii) upstream crude oil and natural gas exploration and production. Our upstream crude oil and natural gas exploration and production wholly owned subsidiary filed for bankruptcy in April 2017, and as a result of our loss of control of the wholly owned subsidiary, AREC was deconsolidated and is accounted for under the cost method of accounting. AREC remained a reportable segment until its deconsolidation, effective April 30, 2017.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Information concerning our various business activities was as follows for the periods indicated (in thousands):
Reporting Segments 
Marketing Transportation Oil and Gas and Other Total 
Three Months Ended September 30, 2018 
Revenues $453,626 $14,265 $ $467,891 
Segment operating (losses) earnings (1)
2,982 790  3,772 
Depreciation, depletion and amortization 1,277 1,063  2,340 
Property and equipment additions (2)
612 4,416  5,028 
Three Months Ended September 30, 2017 
Revenues $282,229 $13,082 $ $295,311 
Segment operating (losses) earnings (1) (4)
2,412 (915) 1,497 
Depreciation, depletion and amortization 1,911 1,329  3,240 
Property and equipment additions (2)
178 179  357 
Nine Months Ended September 30, 2018 
Revenues $1,266,055 $41,509 $ $1,307,564 
Segment operating (losses) earnings (1)
11,712 2,002  13,714 
Depreciation, depletion and amortization 4,110 2,904  7,014 
Property and equipment additions (2) (3)
1,682 6,061 13 7,756 
Nine Months Ended September 30, 2017 
Revenues $872,020 $40,153 $1,427 $913,600 
Segment operating (losses) earnings (1) (4)
5,496 (920)53 4,629 
Depreciation, depletion and amortization 5,957 4,392 423 10,772 
Property and equipment additions (2)
451 189 1,825 2,465 
_______________
(1) Our marketing segment’s operating earnings included inventory liquidation gains of $0.1 million and $2.5 million for the three and nine months ended September 30, 2018, respectively, inventory valuation gains of $2.0 million for the three months ended September 30, 2017 and inventory valuation losses of $0.1 million for the nine months ended September 30, 2017.
(2) Our marketing segment’s property and equipment additions do not include approximately $1.2 million and $1.8 million  of tractors acquired during the nine months ended September 30, 2018 and 2017, respectively, under capital leases. See Note 12 for further information. 
(3) During the nine months ended September 30, 2018, we had $13 thousand of property and equipment additions for leasehold improvements at our corporate headquarters level, which is not attributed or allocated to any of our reporting segments.
(4) Segment operating (losses) earnings for the three and nine months ended September 30, 2017 included approximately $0.4 million of costs related to a voluntary early retirement program that was implemented in August 2017.


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Table of Contents

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Segment operating earnings reflect revenues net of operating costs and depreciation, depletion and amortization expense and are reconciled to earnings (losses) before income taxes, as follows for the periods indicated (in thousands):
Three Months Ended
September 30, 
Nine Months Ended
September 30, 
2018201720182017
Segment operating earnings $3,772 $1,497 $13,714 $4,629 
General and administrative (1)
(1,533)(2,787)(6,100)(6,884)
Operating earnings (losses)