Company Quick10K Filing
Quick10K
Adams Resources & Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$35.00 4 $148
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
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
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-05-27 Quarter: 2014-05-27
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-07-26 Exhibits
8-K 2019-05-21 Exhibits
8-K 2019-05-14 Regulation FD, Exhibits
8-K 2019-05-14 Shareholder Vote
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-05-03 Enter Agreement, Exhibits
8-K 2019-03-08 Earnings, Exhibits
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
GOOG Alphabet Google 806,980
W Wayfair 13,520
SMAR Smartsheet 3,100
AQ Aquantia 462
SYRS Syros Pharmaceuticals 292
VOXX VOXX 100
FWP Forward Pharma 52
MOSY Mosys 10
CLWT Euro Tech Holdings 10
VNUE VNUE 0
AE 2019-06-30
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. Asset Acquisition
Note 7. Cash Deposits and Other Assets
Note 8. Segment Reporting
Note 9. Transactions with Affiliates
Note 10. Derivative Instruments and Fair Value Measurements
Note 11. Share-Based Compensation Plan
Note 12. Supplemental Cash Flow Information
Note 13. Leases
Note 14. Commitments and Contingencies
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-31.1 a2q2019exhibit311.htm
EX-31.2 a2q2019exhibit312.htm
EX-32.1 a2q2019exhibit321.htm
EX-32.2 a2q2019exhibit322.htm

Adams Resources & Energy Earnings 2019-06-30

AE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents


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

FORM 10-Q
(Mark one)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from ___  to  ___.

Commission file number: 1-07908

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockAENYSE American LLC

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

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

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

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

A total of 4,233,587 shares of Common Stock were outstanding at August 1, 2019.


Table of Contents


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)
June 30,December 31,
20192018
ASSETS
Current assets:
Cash and cash equivalents$127,670 $117,066 
Restricted cash4,876  
Accounts receivable, net of allowance for doubtful
accounts of $117 and $153, respectively
74,499 85,197 
Accounts receivable – related party 425 
Inventory19,977 22,779 
Derivative assets240 162 
Income tax receivable2,217 2,404 
Prepayments and other current assets1,828 1,557 
Total current assets231,307 229,590 
Property and equipment, net55,555 44,623 
Operating lease right-of-use assets10,093 — 
Intangible assets1,936  
Cash deposits and other assets2,873 4,657 
Total assets$301,764 $278,870 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$116,983 $116,068 
Accounts payable – related party6 29 
Derivative liabilities236 139 
Current portion of finance lease obligations2,116 883 
Current portion of operating lease liabilities2,097 — 
Other current liabilities9,913 6,148 
Total current liabilities131,351 123,267 
Other long-term liabilities:
Asset retirement obligations1,550 1,525 
Finance lease obligations5,473 3,209 
Operating lease liabilities7,999 — 
Deferred taxes and other liabilities5,283 4,271 
Total liabilities151,656 132,272 
Commitments and contingencies (Note 14)
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, 4,233,587 and 4,217,596 shares outstanding, respectively
423 422 
Contributed capital12,497 11,948 
Retained earnings137,188 134,228 
Total shareholders’ equity150,108 146,598 
Total liabilities and shareholders’ equity$301,764 $278,870 
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 EndedSix Months Ended
June 30,June 30,
2019201820192018
Revenues:
Marketing$467,040 $438,791 $896,801 $812,429 
Transportation17,393 13,626 32,800 27,244 
Total revenues484,433 452,417 929,601 839,673 
Costs and expenses:
Marketing463,774 431,683 884,315 800,866 
Transportation14,436 11,890 27,537 24,191 
General and administrative2,582 2,284 5,266 4,567 
Depreciation and amortization4,284 2,262 7,873 4,674 
Total costs and expenses485,076 448,119 924,991 834,298 
Operating (losses) earnings(643)4,298 4,610 5,375 
Other income (expense):
Gain on dissolution of investment75  573  
Interest income731 498 1,387 885 
Interest expense(117)(15)(182)(34)
Total other income (expense), net689 483 1,778 851 
Earnings before income taxes46 4,781 6,388 6,226 
Income tax provision(40)(1,161)(1,474)(1,468)
Net earnings$6 $3,620 $4,914 $4,758 
Earnings per share:
Basic net earnings per common share$ $0.86 $1.16 $1.13 
Diluted net earnings per common share$ $0.86 $1.16 $1.13 
Dividends per common share$0.24 $0.22 $0.46 $0.44 


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)

Six Months Ended
June 30,
20192018
Operating activities:
Net earnings$4,914 $4,758 
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization7,873 4,674 
Gains on sales of property(434)(446)
Provision for doubtful accounts(36)(32)
Stock-based compensation expense197 3 
Deferred income taxes1,012 (832)
Net change in fair value contracts19 (3)
Gain on dissolution of AREC(573) 
Changes in assets and liabilities:
Accounts receivable11,812 2,852 
Accounts receivable/payable, affiliates(23) 
Inventories2,802 (9,321)
Income tax receivable187 1,317 
Prepayments and other current assets(271)67 
Accounts payable1,505 15,634 
Accrued liabilities3,765 2,441 
Other999 125 
Net cash provided by operating activities33,748 21,237 
Investing activities:
Property and equipment additions(13,121)(2,728)
Asset acquisition(5,611) 
Proceeds from property sales1,287 655 
Proceeds from dissolution of AREC998  
Insurance and state collateral (deposits) refunds774 465 
Net cash used in investing activities(15,673)(1,608)
Financing activities:
Principal repayments of finance lease obligations(651)(167)
Dividends paid on common stock(1,944)(1,856)
Net cash used in financing activities(2,595)(2,023)
Increase in cash and cash equivalents, including restricted cash15,480 17,606 
Cash and cash equivalents, including restricted cash, at beginning of period117,066 109,393 
Cash and cash equivalents, including restricted cash, at end of period$132,546 $126,999 


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
CommonContributedRetainedShareholders’
StockCapitalEarningsEquity
Balance, January 1, 2019$422 $11,948 $134,228 $146,598 
Net earnings— — 4,908 4,908 
Stock-based compensation expense— 123 — 123 
Dividends declared:
Common stock, $0.22/share
— — (928)(928)
Awards under LTIP, $0.22/share
— — (2)(2)
Balance, March 31, 2019422 12,071 138,206 150,699 
Net earnings— — 6 6 
Stock-based compensation expense— 74 — 74 
Issuance of common shares for acquisition1 391 — 392 
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards
— (39)— (39)
Dividends declared:
Common stock, $0.24/share
— — (1,016)(1,016)
Awards under LTIP, $0.24/share
— — (8)(8)
Balance, June 30, 2019$423 $12,497 $137,188 $150,108 



Total
CommonContributedRetainedShareholders’
StockCapitalEarningsEquity
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, 2018422 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 



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, through 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 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.  

We operate and report in two business segments: (i) crude oil marketing, transportation and storage, and (ii) tank truck transportation of liquid chemicals and dry bulk.

Basis of Presentation

Our results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of results expected for the full year of 2019. 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, 2018 (the “2018 Form 10-K”) filed with the SEC on March 8, 2019. 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.


Note 2. Summary of Significant Accounting Policies

Cash, Cash Equivalents and Restricted Cash

Restricted cash represents an amount held in a segregated bank account by Wells Fargo as collateral for amounts outstanding under our letter of credit facility. In June 2019, the amount of outstanding letters of credit under our letter of credit facility exceeded the borrowing base as defined in the letter of credit facility agreement. As a result, we were required to deposit cash with the lender as security for the outstanding letters of credit. See “Letter of Credit Facility” within this Note 2 for further information. Our borrowing base is based on our net receivable balance, and due to customer prepayments, our borrowing base as outlined in the letter of credit facility did not fully
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
support the outstanding letters of credit that have been issued. As a result, on July 1, 2019, we canceled the letter of credit facility, and secured the outstanding letters of credit with our restricted cash balance.

The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported with the unaudited condensed consolidated balance sheet that totals to the amounts shown in the unaudited condensed consolidated statements of cash flow (in thousands):
June 30,
2019
Cash and cash equivalents$127,670 
Restricted cash4,876 
Total cash, cash equivalents and restricted cash shown in the
unaudited condensed consolidated statements of cash flow$132,546 

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 calculation of basic and diluted earnings per share is as follows (in thousands, except per share data):
Three Months Ended
June 30,
Six Months Ended
June 30,
2019201820192018
Earnings per share — numerator:
Net earnings $6 $3,620 $4,914 $4,758 
Denominator:
Basic weighted average number of shares
outstanding
4,227 4,218 4,223 4,218 
Basic earnings per share$ $0.86 $1.16 $1.13 
Diluted earnings per share:
Diluted weighted average number of shares
outstanding:
Common shares4,227 4,218 4,223 4,218 
Restricted stock unit awards  6  
Performance share unit awards (1)
    
Total4,227 4,218 4,229 4,218 
Diluted earnings per share$ $0.86 $1.16 $1.13 
_______________
(1) 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 were achieved as of December 31, 2018. For the three and six months ended June 30, 2019, the effect of the performance share awards on earning per share is anti-dilutive.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements

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

A three-tier hierarchy has been established that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate these fair values.  The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3).  At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy.

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 10 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.

Letter of Credit Facility

We maintained a Credit and Security Agreement with Wells Fargo Bank, National Association to provide for the issuance of up to $60.0 million in stand-by letters of credit primarily used to support crude oil purchases within our crude oil marketing segment and for other purposes. We used the letter of credit facility for letters of credit related to our insurance program. This facility was 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 were canceled as the underlying purchase obligations were satisfied by cash payment when due. The letter of credit facility placed certain restrictions on GulfMark Energy, Inc., one of our wholly owned subsidiaries. These restrictions included the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions. At June 30, 2019 and December 31, 2018, we had $4.6 million and $4.6 million, respectively, of letters of credit outstanding under this facility. On July 1, 2019, we canceled the letter of credit facility, and secured the outstanding letters of credit with our restricted cash balance.

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.


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

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 11 for additional information regarding our 2018 LTIP.

Common Shares Outstanding

The following table reconciles our outstanding common stock for the periods indicated:

Common
shares
Balance, January 1, 20194,217,596 
Vesting of restricted stock unit awards375
Balance, March 31, 20194,217,971 
Issuance of shares in acquisition (see Note 6)11,145 
Vesting of restricted stock unit awards (see Note 11)5,354 
Shares withheld to cover taxes upon vesting of restricted stock unit awards(883)
Balance, June 30, 20194,233,587 

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Revenue Recognition

Revenue Disaggregation

The following table disaggregates our revenue by segment and by major source for the periods indicated (in thousands):
Reporting Segments
MarketingTransportationTotal
Three Months Ended June 30, 2019
Revenues from contracts with customers$390,407 $17,393 $407,800 
Other (1)
76,633  76,633 
Total revenues$467,040 $17,393 $484,433 
Timing of revenue recognition:
Goods transferred at a point in time$390,407 $ $390,407 
Services transferred over time 17,393 17,393 
Total revenues from contracts with customers$390,407 $17,393 $407,800 
Three Months Ended June 30, 2018
Revenues from contracts with customers$419,365 $13,626 $432,991 
Other (1)
19,426  19,426 
Total revenues$438,791 $13,626 $452,417 
Timing of revenue recognition:
Goods transferred at a point in time$419,365 $ $419,365 
Services transferred over time 13,626 13,626 
Total revenues from contracts with customers$419,365 $13,626 $432,991 
Six Months Ended June 30, 2019
Revenues from contracts with customers$751,138 $32,800 $783,938 
Other (1)
145,663  145,663 
Total revenues$896,801 $32,800 $929,601 
Timing of revenue recognition:
Goods transferred at a point in time$751,138 $ $751,138 
Services transferred over time 32,800 32,800 
Total revenues from contracts with customers$751,138 $32,800 $783,938 
Six Months Ended June 30, 2018
Revenues from contracts with customers$779,450 $27,244 $806,694 
Other (1)
32,979  32,979 
Total revenues$812,429 $27,244 $839,673 
Timing of revenue recognition:
Goods transferred at a point in time$779,450 $ $779,450 
Services transferred over time 27,244 27,244 
Total revenues from contracts with customers$779,450 $27,244 $806,694 
_______________
(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.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 EndedSix Months Ended
June 30,June 30,
2019201820192018
Revenue gross-up$223,043 $56,335 $465,166 $102,026 


Note 4. Prepayments and Other Current Assets

The components of prepayments and other current assets were as follows at the dates indicated (in thousands):
June 30,December 31,
20192018
Insurance premiums$705 $677 
Rents, licenses and other1,123 880 
Total$1,828 $1,557 


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Property and Equipment

The historical costs of our property and equipment and related accumulated depreciation balances were as follows at the dates indicated (in thousands):
Estimated
Useful LifeJune 30,December 31,
in Years20192018
Tractors and trailers (1)
56
$106,046 $96,523 
Field equipment (2)
220
24,895 20,725 
Buildings
539
16,003 15,746 
Office equipment
25
1,923 1,863 
Land1,790 1,790 
Construction in progress2,538 2,794 
Total153,195 139,441 
Less accumulated depreciation(97,640)(94,818)
Property and equipment, net$55,555 $44,623 
_______________
(1) Amounts include assets held under finance leases for certain tractors in our marketing segment. Gross property and equipment associated with these assets held under finance leases were $5.5 million and $4.7 million at June 30, 2019 and December 31, 2018, respectively. Accumulated amortization associated with assets held under these finance leases were $1.2 million and $0.7 million at June 30, 2019 and December 31, 2018, respectively (see Note 13 for further information).
(2) At June 30, 2019, amount includes assets held under finance leases for certain tank storage and throughput arrangements in our marketing segment. Gross property and equipment associated with these assets held under finance leases were $3.3 million. Accumulated amortization associated with these assets held under finance leases was $0.2 million (see Note 13 for further information).

Components of depreciation and amortization expense were as follows for the periods indicated (in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
2019201820192018
Depreciation and amortization, excluding amounts
under finance leases$3,828 $2,171 $7,172 $4,493 
Amortization of property and equipment under
finance leases456 91 701 181 
Total depreciation and amortization$4,284 $2,262 $7,873 $4,674 


Note 6. Asset Acquisition

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.



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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
This acquisition added approximately 39 tractors and 53 trailers to our existing transportation fleet, and these assets will be included in our transportation segment. This acquisition adds new customers and new product lines to our transportation segment portfolio, which allows us to grow into new markets. In addition to general chemical products, we expect to haul liquefied petroleum gas, asphalt, bleach and crude oil 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$5,611 
Value of AE common shares issued392 
Contingent consideration arrangement431 
Fair value of total consideration transferred$6,434 
Recognized amounts of identifiable assets acquired:
Property and equipment — tractors and trailers$4,408 
Shop, office and telecommunication equipment19 
Intangible assets — customer relationships2,007 
Total purchase price$6,434 

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 in which we did not have a previous relationship. The customer relationships we acquired in this transaction provide us with access to those customers in which 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 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 expect to amortize the customer relationship intangible assets over a period of seven years, using a modified straight-line approach.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the six months ended June 30, 2019, we recorded $0.1 million of amortization expense related to these intangible assets.

The purchase and sale agreement includes a contingent consideration arrangement that requires 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 is based upon the number of qualified truck drivers that are 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 is 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 to be employed at each payment date.


Note 7. Cash Deposits and Other Assets

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

June 30,December 31,
20192018
Amounts associated with liability insurance program:
Insurance collateral deposits$1,071 $1,453 
Excess loss fund821 1,916 
Accumulated interest income527 788 
Other amounts:
State collateral deposits61 57 
Materials and supplies393 443 
Total$2,873 $4,657 

We have established certain deposits to support participation in our liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits. Insurance collateral deposits are held by the insurance company to cover past or potential open claims based upon a percentage of the maximum assessment under our insurance policies. Insurance collateral deposits are invested at the discretion of our insurance carrier. Excess amounts in our loss fund represent premium payments in excess of claims incurred to date that we may be entitled to recover through settlement or commutation as claim periods are closed. Interest income is earned on the majority of amounts held by the insurance companies and will be paid to us upon settlement of policy years.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Segment Reporting

We operate and report in two business segments: (i) crude oil marketing, transportation and storage, and (ii) tank truck transportation of liquid chemicals and dry bulk.

Information concerning our various business activities was as follows for the periods indicated (in thousands):
Reporting Segments
MarketingTransportationOtherTotal
Three Months Ended June 30, 2019
Revenues$467,040 $17,393 $ $484,433 
Segment operating earnings (1)
962 977  1,939 
Depreciation and amortization2,304