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

FORM 10-Q
(Mark one)

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

For the quarterly period ended September 30, 2018  2019

OR

oTRANSITION 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)
Delaware74-1753147
(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 Stock, $0.10 Par ValueAENYSE 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 filero
Accelerated filerþ
Non-accelerated filero
Smaller reporting companyo
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 4,217,5964,233,587 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.”2019.



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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
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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,September 30,December 31,
2018201720192018
ASSETS ASSETS ASSETS
Current assets: Current assets: Current assets:
Cash and cash equivalents Cash and cash equivalents $130,774 $109,393 Cash and cash equivalents$124,726  $117,066  
Restricted cashRestricted cash4,903  —  
Accounts receivable, net of allowance for doubtful Accounts receivable, net of allowance for doubtful Accounts receivable, net of allowance for doubtful
accounts of $208 and $303, respectively 108,662 121,353 
accounts of $117 and $153, respectivelyaccounts of $117 and $153, respectively77,665  85,197  
Accounts receivable – related partyAccounts receivable – related party—  425  
Inventory Inventory 34,760 12,192 Inventory24,900  22,779  
Derivative assets Derivative assets 263 166 Derivative assets129  162  
Income tax receivable Income tax receivable — 1,317 Income tax receivable2,539  2,404  
Prepayments and other current assets Prepayments and other current assets 1,271 1,264 Prepayments and other current assets1,391  1,557  
Total current assets Total current assets 275,730 245,685 Total current assets236,253  229,590  
Property and equipment, net Property and equipment, net 30,918 29,362 Property and equipment, net62,733  44,623  
Investment in unconsolidated affiliate 425 425 
Operating lease right-of-use assets, netOperating lease right-of-use assets, net10,137  —  
Intangible assets, netIntangible assets, net1,704  —  
Cash deposits and other assets Cash deposits and other assets 6,239 7,232 Cash deposits and other assets3,018  4,657  
Total assets Total assets $313,312 $282,704 Total assets$313,845  $278,870  
LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities: Current liabilities: Current liabilities:
Accounts payable Accounts payable $146,895 $124,706 Accounts payable$128,607  $116,068  
Accounts payable – related party Accounts payable – related party Accounts payable – related party 29  
Derivative liabilities Derivative liabilities 247 145 Derivative liabilities126  139  
Current portion of capital lease obligations 568 338 
Current portion of finance lease obligationsCurrent portion of finance lease obligations2,142  883  
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities2,245  —  
Other current liabilities Other current liabilities 8,219 4,404 Other current liabilities10,709  6,148  
Total current liabilities Total current liabilities 155,935 129,598 Total current liabilities143,835  123,267  
Other long-term liabilities: Other long-term liabilities: Other long-term liabilities:
Asset retirement obligations Asset retirement obligations 1,414 1,273 Asset retirement obligations1,549  1,525  
Capital lease obligations 2,041 1,351 
Finance lease obligationsFinance lease obligations4,927  3,209  
Operating lease liabilitiesOperating lease liabilities7,890  —  
Deferred taxes and other liabilities Deferred taxes and other liabilities 2,655 3,363 Deferred taxes and other liabilities5,763  4,271  
Total liabilities Total liabilities 162,045 135,585 Total liabilities163,964  132,272  
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 14)Commitments and contingencies (Note 14)
Shareholders’ equity: Shareholders’ equity: Shareholders’ equity:
Preferred stock – $1.00 par value, 960,000 shares Preferred stock – $1.00 par value, 960,000 shares Preferred stock – $1.00 par value, 960,000 shares
authorized, none outstanding — — 
authorized, NaN outstandingauthorized, NaN outstanding—  —  
Common stock – $0.10 par value, 7,500,000 shares Common stock – $0.10 par value, 7,500,000 shares Common stock – $0.10 par value, 7,500,000 shares
authorized, 4,217,596 shares outstanding 422 422 
authorized, 4,233,587 and 4,217,596 shares outstanding, respectivelyauthorized, 4,233,587 and 4,217,596 shares outstanding, respectively423  422  
Contributed capital Contributed capital 11,837 11,693 Contributed capital12,652  11,948  
Retained earnings Retained earnings 139,008 135,004 Retained earnings136,806  134,228  
Total shareholders’ equity Total shareholders’ equity 151,267 147,119 Total shareholders’ equity149,881  146,598  
Total liabilities and shareholders’ equity Total liabilities and shareholders’ equity $313,312 $282,704 Total liabilities and shareholders’ equity$313,845  $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 Ended Nine Months Ended Three Months EndedNine Months Ended
September 30, September 30, September 30,September 30,
20182017201820172019201820192018
Revenues: Revenues: Revenues:
Marketing Marketing $453,626 $282,229 $1,266,055 $872,020 Marketing$434,609  $453,626  $1,331,410  $1,266,055  
Transportation Transportation 14,265 13,082 41,509 40,153 Transportation15,698  14,265  48,498  41,509  
Oil and natural gas — — — 1,427 
Total revenues Total revenues 467,891 295,311 1,307,564 913,600 Total revenues450,307  467,891  1,379,908  1,307,564  
Costs and expenses: Costs and expenses: Costs and expenses:
Marketing Marketing 449,367 277,906 1,250,233 860,567 Marketing429,507  449,367  1,313,822  1,250,233  
Transportation Transportation 12,412 12,668 36,603 36,681 Transportation13,365  12,412  40,902  36,603  
Oil and natural gas — — — 951 
General and administrative General and administrative 1,533 2,787 6,100 6,884 General and administrative2,739  1,533  8,005  6,100  
Depreciation, depletion and amortization 2,340 3,240 7,014 10,772 
Depreciation and amortizationDepreciation and amortization4,393  2,340  12,266  7,014  
Total costs and expenses Total costs and expenses 465,652 296,601 1,299,950 915,855 Total costs and expenses450,004  465,652  1,374,995  1,299,950  
Operating earnings (losses) 2,239 (1,290)7,614 (2,255)
Operating earningsOperating earnings303  2,239  4,913  7,614  
Other income (expense): Other income (expense): Other income (expense):
Loss on deconsolidation of subsidiary — (1,870)— (3,505)
Impairment of investment in unconsolidated
affiliate — (2,500)— (2,500)
Gain on dissolution of investmentGain on dissolution of investment—  —  573  —  
Interest income Interest income 601 370 1,486 789 Interest income758  601  2,145  1,486  
Interest expense Interest expense (26)(8)(60)(10)Interest expense(242) (26) (424) (60) 
Total other income (expense), net Total other income (expense), net 575 (4,008)1,426 (5,226)Total other income (expense), net516  575  2,294  1,426  
(Losses) earnings before income taxes 2,814 (5,298)9,040 (7,481)
Income tax benefit (provision) (779)2,265 (2,247)3,306 
Earnings before income taxesEarnings before income taxes819  2,814  7,207  9,040  
Income tax provisionIncome tax provision(179) (779) (1,653) (2,247) 
Net (losses) earnings $2,035 $(3,033)$6,793 $(4,175)
Net earningsNet earnings$640  $2,035  $5,554  $6,793  
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)
Earnings per share:Earnings per share:
Basic net earnings per common shareBasic net earnings per common share$0.15  $0.48  $1.31  $1.61  
Diluted net earnings per common shareDiluted net earnings per common share$0.15  $0.48  $1.31  $1.61  
Dividends per common share Dividends per common share $0.22 $0.22 $0.66 $0.66 Dividends per common share$0.24  $0.22  $0.70  $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, 
Nine Months Ended
September 30,
Nine Months Ended
September 30,
2018201720192018
Operating activities: Operating activities: Operating activities:
Net (losses) earnings $6,793 $(4,175)
Adjustments to reconcile net (losses) earnings to net cash
Net earningsNet earnings$5,554  $6,793  
Adjustments to reconcile net earnings to net cashAdjustments to reconcile net earnings to net cash
provided by operating activities: provided by operating activities: provided by operating activities:
Depreciation, depletion and amortization 7,014 10,772 
Depreciation and amortizationDepreciation and amortization12,266  7,014  
Gains on sales of property Gains on sales of property (890)(347)Gains on sales of property(1,386) (890) 
Impairment of oil and natural gas properties — 
Provision for doubtful accounts Provision for doubtful accounts (95)(9)Provision for doubtful accounts(36) (95) 
Stock-based compensation expense Stock-based compensation expense 144 — Stock-based compensation expense352  144  
Deferred income taxes Deferred income taxes (685)(1,198)Deferred income taxes1,493  (685) 
Net change in fair value contracts Net change in fair value contracts 48 Net change in fair value contracts20   
Impairment of investment in unconsolidated affiliate — 2,500 
Loss on deconsolidation of subsidiary — 3,505 
Gain on dissolution of ARECGain on dissolution of AREC(573) —  
Changes in assets and liabilities: Changes in assets and liabilities: Changes in assets and liabilities:
Accounts receivable Accounts receivable 12,830 5,228 Accounts receivable8,520  12,830  
Accounts receivable/payable, affiliates Accounts receivable/payable, affiliates 266 Accounts receivable/payable, affiliates(23)  
Inventories Inventories (22,568)(9,328)Inventories(2,121) (22,568) 
Income tax receivable Income tax receivable 1,317 (1,412)Income tax receivable(135) 1,317  
Prepayments and other current assets Prepayments and other current assets (7)927 Prepayments and other current assets166  (7) 
Accounts payable Accounts payable 22,254 9,482 Accounts payable13,613  22,254  
Accrued liabilities Accrued liabilities 3,815 465 Accrued liabilities4,561  3,815  
Other Other (103)(240)Other871  (103) 
Net cash provided by operating activities Net cash provided by operating activities 29,825 16,487 Net cash provided by operating activities43,142  29,825  
Investing activities: Investing activities: Investing activities:
Property and equipment additions Property and equipment additions (7,756)(2,465)Property and equipment additions(25,425) (7,756) 
Asset acquisitionAsset acquisition(5,624) —  
Proceeds from property sales Proceeds from property sales 1,314 430 Proceeds from property sales2,853  1,314  
Proceeds from dissolution of ARECProceeds from dissolution of AREC998  —  
Insurance and state collateral (deposits) refunds Insurance and state collateral (deposits) refunds 1,070 439 Insurance and state collateral (deposits) refunds750  1,070  
Net cash used in investing activities Net cash used in investing activities (5,372)(1,596)Net cash used in investing activities(26,448) (5,372) 
Financing activities: Financing activities: Financing activities:
Principal repayments of capital lease obligations (288)— 
Principal repayments of finance lease obligationsPrincipal repayments of finance lease obligations(1,171) (288) 
Dividends paid on common stock Dividends paid on common stock (2,784)(2,784)Dividends paid on common stock(2,960) (2,784) 
Net cash used in financing activities Net cash used in financing activities (3,072)(2,784)Net cash used in financing activities(4,131) (3,072) 
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 
Increase in cash and cash equivalents, including restricted cashIncrease in cash and cash equivalents, including restricted cash12,563  21,381  
Cash and cash equivalents, including restricted cash, at beginning of periodCash and cash equivalents, including restricted cash, at beginning of period117,066  109,393  
Cash and cash equivalents, including restricted cash, at end of periodCash and cash equivalents, including restricted cash, at end of period$129,629  $130,774  


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 Total
Common Contributed Retained Shareholders’ CommonContributedRetainedShareholders’
Stock Capital Earnings Equity 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, 2018 422 11,693 135,214 147,329 
Net earnings — — 3,620 3,620 
Stock-based compensation expense — — 
Dividends declared:
Common stock, $0.22/share — — (928)(928)
Balance, June 30, 2018 422 11,696 137,906 150,024��
Balance, January 1, 2019Balance, January 1, 2019$422  $11,948  $134,228  $146,598  
Net earnings Net earnings — — 2,035 2,035 Net earnings—  —  4,908  4,908  
Stock-based compensation expense Stock-based compensation expense — 141 — 141 Stock-based compensation expense—  123  —  123  
Dividends declared: Dividends declared: Dividends declared:
Common stock, $0.22/share Common stock, $0.22/share — — (928)(928)Common stock, $0.22/share—  —  (928) (928) 
Awards under LTIP, $0.22/share Awards under LTIP, $0.22/share — — (5)(5)Awards under LTIP, $0.22/share—  —  (2) (2) 
Balance, September 30, 2018$422 $11,837 $139,008 $151,267 
Balance, March 31, 2019Balance, March 31, 2019422  12,071  138,206  150,699  
Net earningsNet earnings—  —    
Stock-based compensation expenseStock-based compensation expense—  74  —  74  
Issuance of common shares for acquisitionIssuance of common shares for acquisition 391  —  392  
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards
—  (39) —  (39) 
Dividends declared:Dividends declared:
Common stock, $0.24/shareCommon stock, $0.24/share—  —  (1,016) (1,016) 
Awards under LTIP, $0.24/shareAwards under LTIP, $0.24/share—  —  (8) (8) 
Balance, June 30, 2019Balance, June 30, 2019423  12,497  137,188  150,108  
Net earningsNet earnings—  —  640  640  
Stock-based compensation expenseStock-based compensation expense—  155  —  155  
Dividends declared:Dividends declared:
Common stock, $0.24/shareCommon stock, $0.24/share—  —  (1,016) (1,016) 
Awards under LTIP, $0.24/shareAwards under LTIP, $0.24/share—  —  (6) (6) 
Balance, September 30, 2019Balance, September 30, 2019$423  $12,652  $136,806  $149,881  



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 



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—   —   
Dividends declared:
Common stock, $0.22/share—  —  (928) (928) 
Balance, June 30, 2018422  11,696  137,906  150,024  
Net losses—  —  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  
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, andthrough 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 operatedWe operate and reportedreport in three2 business segments: (i) crude oil marketing, transportation and storage, and (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 filingbulk. See Note 8 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.  further information.

Basis of Presentation

Our results of operations for the three and nine months ended September 30, 20182019 are not necessarily indicative of results expected for the full year of 2018.2019. 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, 20172018 (the “2017“2018 Form 10-K”) filed with the SEC on March 12, 2018.11, 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.


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

Cash, Cash Equivalents and Restricted Cash

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 was 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 flows at the date indicated (in thousands):
September 30,
2019
Cash and cash equivalents$124,726 
Restricted cash4,903 
Total cash, cash equivalents and restricted cash shown in the
unaudited condensed consolidated statements of cash flows$129,629 

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 1011 for further discussion).

A reconciliation of the denominator used in the calculation of basic and diluted earnings (losses) per share iswas as follows for the periods indicated (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)
— — — 
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)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019201820192018
Earnings per share — numerator:
Net earnings$640  $2,035  $5,554  $6,793  
Denominator:
Basic weighted average number of shares
outstanding
4,234  4,218  4,226  4,218  
Basic earnings per share$0.15  $0.48  $1.31  $1.61  
Diluted earnings per share:
Diluted weighted average number of shares
outstanding:
Common shares4,234  4,218  4,226  4,218  
Restricted stock unit awards   —  
Performance share unit awards (1)
 —  —  —  
Total4,238  4,219  4,230  4,218  
Diluted earnings per share$0.15  $0.48  $1.31  $1.61  
_______________
(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 beare 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 nine months ended September 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 suchthese 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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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 910 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 maintainmaintained a Credit and Security Agreement with Wells Fargo Bank, National Association, to provide for the issuance of up to a $60.0 million in stand-by letterletters of credit facilityprimarily used to support crude oil purchases within our crude oil marketing segment and for other purposes. Stand-by letters of credit were issued as needed and were canceled as the underlying purchase obligations were satisfied by cash payment when due. The issuance of stand-by letters of credit enabled us to avoid posting cash collateral when procuring crude oil supply. We are currently usingused the letter of credit facility for a letterletters of credit related to our insurance program. At December 31, 2018, we had $4.6 million of letters of credit outstanding under this facility. This facility iswas collateralized by the eligible accounts receivable within our crude oil marketing segment and expiresexpired on August 30, 2019.

The issued stand-by letters of credit are canceledOur borrowing base was based on our net receivable balance, and due to customer prepayments, our borrowing base as outlined in the underlying purchase obligations are satisfied by cash payment when due. The letter of credit facility places certain restrictionsdid not fully support the outstanding letters of credit that have been issued. As a result, on GulfMark Energy, Inc., one of our wholly owned subsidiaries. These restrictions includeJuly 1, 2019, we canceled 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 defaultfacility, and secured the outstanding letters 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.  
credit with our restricted cash balance
.

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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.


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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.

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 statementstatements 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 1011 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, 2019 and September 30, 2019 (1)
4,233,587 
_______________
(1) There was no change in the number of common shares outstanding during the three months ended September 30, 2019.
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NOTES TO UNAUDITED CONDENSED 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 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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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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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 Reporting Segments
Marketing Transportation Total MarketingTransportationTotal
Three Months Ended September 30, 2019Three Months Ended September 30, 2019
Revenues from contracts with customersRevenues from contracts with customers$396,001  $15,698  $411,699  
Other (1)
Other (1)
38,608  —  38,608  
Total revenuesTotal revenues$434,609  $15,698  $450,307  
Timing of revenue recognition:Timing of revenue recognition:
Goods transferred at a point in timeGoods transferred at a point in time$396,001  $—  $396,001  
Services transferred over timeServices transferred over time—  15,698  15,698  
Total revenues from contracts with customersTotal revenues from contracts with customers$396,001  $15,698  $411,699  
Three Months Ended September 30, 2018 Three Months Ended September 30, 2018 Three Months Ended September 30, 2018
Revenues from contracts with customersRevenues from contracts with customers$424,061  $14,265  $438,326  
Other (1)
Other (1)
29,565  —  29,565  
Total revenuesTotal revenues$453,626  $14,265  $467,891  
Timing of revenue recognition:Timing of revenue recognition:
Goods transferred at a point in timeGoods transferred at a point in time$424,061  $—  $424,061  
Services transferred over timeServices transferred over time—  14,265  14,265  
Total revenues from contracts with customersTotal revenues from contracts with customers$424,061  $14,265  $438,326  
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2019
Revenues from contracts with customers Revenues from contracts with customers $424,061 $14,265 $438,326 Revenues from contracts with customers$1,147,139  $48,498  $1,195,637  
Other (1)
Other (1)
29,565 — 29,565 
Other (1)
184,271  —  184,271  
Total revenues Total revenues $453,626 $14,265 $467,891 Total revenues$1,331,410  $48,498  $1,379,908  
Timing of revenue recognition: Timing of revenue recognition: Timing of revenue recognition:
Goods transferred at a point in time Goods transferred at a point in time $424,061 $— $424,061 Goods transferred at a point in time$1,147,139  $—  $1,147,139  
Services transferred over time Services transferred over time — 14,265 14,265 Services transferred over time—  48,498  48,498  
Total revenues from contracts with customers Total revenues from contracts with customers $424,061 $14,265 $438,326 Total revenues from contracts with customers$1,147,139  $48,498  $1,195,637  
Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2018
Revenues from contracts with customers Revenues from contracts with customers $1,203,511 $41,509 $1,245,020 Revenues from contracts with customers$1,203,511  $41,509  $1,245,020  
Other (1)
Other (1)
62,544 — 62,544 
Other (1)
62,544  —  62,544  
Total revenues Total revenues $1,266,055 $41,509 $1,307,564 Total revenues$1,266,055  $41,509  $1,307,564  
Timing of revenue recognition: Timing of revenue recognition: Timing of revenue recognition:
Goods transferred at a point in time Goods transferred at a point in time $1,203,511 $— $1,203,511 Goods transferred at a point in time$1,203,511  $—  $1,203,511  
Services transferred over time Services transferred over time — 41,509 41,509 Services transferred over time—  41,509  41,509  
Total revenues from contracts with customers Total revenues from contracts with customers $1,203,511 $41,509 $1,245,020 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.


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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 Ended Nine Months Ended 
September 30, September 30, 
2018201720182017
Revenue gross-up $76,373 $46,306 $178,399 $148,779 

Three Months EndedNine Months Ended
September 30,September 30,
2019201820192018
Revenue gross-up$193,440  $76,373  $658,606  $178,399  


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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,September 30,December 31,
2018201720192018
Insurance premiums Insurance premiums $274 $425 Insurance premiums$127  $677  
Rents, licenses and other Rents, licenses and other 997 839 Rents, licenses and other1,264  880  
Total Total $1,271 $1,264 Total$1,391  $1,557  


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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 Estimated
Useful Life September 30, December 31,Useful LifeSeptember 30,December 31,
in Years 20182017in Years20192018
Tractors and trailers (1)
5 – 6 $84,578 $88,065 
Tractors and trailers (1)
Tractors and trailers (1)
5 – 6$109,595  $96,523  
Field equipment (2)Field equipment (2)2 – 5 19,987 18,490 Field equipment (2)2 – 2024,851  20,725  
Buildings Buildings 5 – 39 15,746 15,727 Buildings5 – 3916,003  15,746  
Office equipment Office equipment 2 – 5 1,808 1,929 Office equipment2 – 51,951  1,863  
Land Land 1,790 1,790 Land1,790  1,790  
Construction in progress Construction in progress 1,664 275 Construction in progress3,427  2,794  
Total Total 125,573 126,276 Total157,617  139,441  
Less accumulated depreciation Less accumulated depreciation (94,655)(96,914)Less accumulated depreciation(94,884) (94,818) 
Property and equipment, net Property and equipment, net $30,918 $29,362 Property and equipment, net$62,733  $44,623  
_______________
(1) Amounts include assetstractors held under capitalfinance leases for certain tractors in our marketing segment. Gross property and equipment associated with these assets held under capitalfinance leases were $3.0$5.5 million and $1.8$4.7 million at September 30, 20182019 and December 31, 2017,2018, respectively. Accumulated amortization associated with assets held under capitalthese finance leases were $0.4$1.5 million and $0.1$0.7 million at September 30, 20182019 and December 31, 2017,2018, respectively (see Note 1213 for further information).
(2) At September 30, 2019, amount includes a tank storage and throughput arrangement held under a finance lease 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 $0.5 million (see Note 13 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 
Three Months EndedNine Months Ended
September 30,September 30,
2019201820192018
Depreciation and amortization, excluding amounts
under finance leases$3,840  $2,210  $11,012  $6,703  
Amortization of property and equipment under
finance leases553  130  1,254  311  
Total depreciation and amortization$4,393  $2,340  $12,266  $7,014  


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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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
This acquisition added approximately 39 tractors and 53 trailers to our existing transportation fleet, and these assets are 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$5,624 
Value of AE common shares issued392 
Contingent consideration arrangement431 
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 equipment20 
Intangible assets — customer relationships1,851 
Total purchase price$6,447 

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 0 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 expect to amortize the customer relationship intangible assets over a period of seven years, using a modified straight-line approach.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the nine months ended September 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. At September 30, 2019, we had a remaining accrual for $0.3 million related to this contingent consideration arrangement.


Note 6.7. Cash Deposits and Other Assets

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

September 30, December 31,September 30,December 31,
2018201720192018
Amounts associated with liability insurance program: Amounts associated with liability insurance program: Amounts associated with liability insurance program:
Insurance collateral deposits Insurance collateral deposits $3,517 $3,767 Insurance collateral deposits$1,072  $1,453  
Excess loss fund Excess loss fund 1,662 2,284 Excess loss fund845  1,916  
Accumulated interest income Accumulated interest income 736 814 Accumulated interest income580  788  
Other amounts: Other amounts: Other amounts:
State collateral deposits State collateral deposits 61 57 State collateral deposits108  57  
Materials and supplies Materials and supplies 227 273 Materials and supplies413  443  
Other 36 37 
Total Total $6,239 $7,232 Total$3,018  $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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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7.8. Segment Reporting

Historically, our three reporting segments have been:We operate and report in 2 business segments: (i) crude oil marketing, transportation and storage, and (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.bulk.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Information concerning our various business activities was as follows for the periods indicated (in thousands):
Reporting Segments Reporting Segments
Marketing Transportation Oil and Gas and Other Total MarketingTransportationOtherTotal
Three Months Ended September 30, 2019Three Months Ended September 30, 2019
RevenuesRevenues$434,609  $15,698  $—  $450,307  
Segment operating earnings (1)
Segment operating earnings (1)
2,888  154  —  3,042  
Depreciation and amortizationDepreciation and amortization2,214  2,179  —  4,393  
Property and equipment additionsProperty and equipment additions3,894  8,410  —  12,304  
Three Months Ended September 30, 2018 Three Months Ended September 30, 2018 Three Months Ended September 30, 2018
Revenues Revenues $453,626 $14,265 $— $467,891 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 
Segment operating earnings (1)
Segment operating earnings (1)
2,982  790  —  3,772  
Depreciation and amortizationDepreciation and amortization1,277  1,063  —  2,340  
Property and equipment additions (2)
Property and equipment additions (2)
612 4,416 — 5,028 
Property and equipment additions (2)
612  4,416  —  5,028  
Three Months Ended September 30, 2017
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2019
Revenues Revenues $282,229 $13,082 $— $295,311 Revenues$1,331,410  $48,498  $—  $1,379,908  
Segment operating (losses) earnings (1) (4)
2,412 (915)— 1,497 
Depreciation, depletion and amortization 1,911 1,329 — 3,240 
Segment operating earnings (1)
Segment operating earnings (1)
10,948  1,970  —  12,918  
Depreciation and amortizationDepreciation and amortization6,640  5,626  —  12,266  
Property and equipment additions (2)
Property and equipment additions (2)
178 179 — 357 
Property and equipment additions (2)
6,896  18,529  —  25,425  
Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2018
Revenues Revenues $1,266,055 $41,509 $— $1,307,564 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 
Segment operating earnings (1)
Segment operating earnings (1)
11,712  2,002  —  13,714  
Depreciation and amortizationDepreciation and amortization4,110  2,904  —  7,014  
Property and equipment additions (2) (3)
Property and equipment additions (2) (3)
1,682 6,061 13 7,756 
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 crude oil marketing segment’s operating earnings included inventory valuation losses of $2.1 million and inventory liquidation gains of $0.1 million for the three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, our crude oil marketing segment’s operating earnings included inventory liquidation gains of $0.1$1.5 million and $2.5 million, forrespectively.
(2) Our crude oil marketing segment’s property and equipment additions do not include approximately $4.1 million of tractors and a tank storage and throughput arrangement acquired under finance leases during the nine months ended September 30, 2019. 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) Ourour crude oil 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 capitalfinance leases. See Note 1213 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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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) 2,239 (1,290)7,614 (2,255)
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)
(Losses) earnings before income taxes $2,814 $(5,298)$9,040 $(7,481)

_______________
(1) General and administrative expenses for the three and nine months ended September 30, 2017 included approximately $1.0 million of costs related to a voluntary early retirement program we implemented in August 2017.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019201820192018
Segment operating earnings$3,042  $3,772  $12,918  $13,714  
General and administrative(2,739) (1,533) (8,005) (6,100) 
Operating earnings303  2,239  4,913  7,614  
Gain on dissolution of investment—  —  573  —  
Interest income758  601  2,145  1,486  
Interest expense(242) (26) (424) (60) 
Earnings before income taxes$819  $2,814  $7,207  $9,040  

Identifiable assets by industrybusiness segment were as follows at the dates indicated (in thousands):

September 30, December 31,
20182017
Reporting segment: 
Marketing $143,427 $134,745 
Transportation 32,049 29,069 
Oil and Gas (1)
425 425 
Cash and other assets 137,411 118,465 
Total assets $313,312 $282,704 
_______________
(1) Amounts represent our cost method investment in this segment.
September 30,December 31,
20192018
Reporting segment:
Marketing$129,876  $119,370  
Transportation51,761  34,112  
Cash and other132,208  125,388  
Total assets$313,845  $278,870  

IntersegmentThere were 0 intersegment sales are insignificant.during the three and nine months ended September 30, 2019 and 2018, respectively. Other identifiable assets are primarily corporate cash, corporate accounts receivable and properties not identified with any specific segment of our business. Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.


Note 8.9. 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 from an affiliated entity.

We utilize our former affiliate, Bencap LLC (“Bencap”), to administer certain of our employee medical benefit programs including a detail audit of individual medical claims. Bencap earns a fee from usActivities with affiliates were as follows for providing these services at a discounted amount from its standard charge to non-affiliates. We had an equity method investment in Bencap, which was forfeited during the first quarter of 2017. As a result, we have no further ownership interest in Bencap.periods indicated (in thousands):

Three Months EndedNine Months Ended
September 30,September 30,
2019201820192018
Affiliate billings to us$20  $18  $63  $58  
Billings to affiliates    
Rentals paid to affiliate122  121  366  365  


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Activities with affiliates were as follows for the periods indicated (in thousands):

Three Months Ended Nine Months Ended 
September 30, September 30, 
2018201720182017
Affiliate billings to us $18 $16 $58 $52 
Billings to affiliates 
Rentals paid to affiliate 121 137 365 462 
Fees paid to Bencap (1)
— — — 108 
_______________
(1) Amount represents fees paid to Bencap through the date of the forfeiture of our investment during the first quarter of 2017. As a result of the investment forfeiture, Bencap is no longer an affiliate.


Note 9.10. Derivative Instruments and Fair Value Measurements

Derivative Instruments

In the normal course of our operations, our crude oil marketing segment purchases and sells crude oil. We seek to profit by procuring the commodity as it is produced and then delivering the material to the end users or the intermediate use marketplace. As typical for the industry, these transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts. Some of these contracts meet the definition of a derivative instrument, and therefore, we account for these contracts at fair value, unless the normal purchase and sale exception is applicable. These types of underlying contracts are standard for the industry and are the governing document for our crude oil marketing segment. None of our derivative instruments have been designated as hedging instruments.

At September 30, 2018,2019, we had in place 127 commodity purchase and sale contracts, of which four6 of these contracts had 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:
387 barrels per day of crude oil during October 2019 through December 2019;
258 barrels per day of crude oil during OctoberJanuary 2020 through February 2020; and
322 barrels per day of crude oil during March 2020 through April 2020.
The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheet were as follows at the date indicated (in thousands):
September 30, 2019
Balance Sheet Location and Amount
CurrentOtherCurrentOther
AssetsAssetsLiabilitiesLiabilities
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation$129  $—  $—  $—  
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation—  —  126  —  
Less counterparty offsets—  —  —  —  
As reported fair value contracts$129  $—  $126  $—  

At December 31, 2018, through December 2018;we had in place 10 commodity purchase and sale contracts with fair value associated with them as the contractual prices of crude oil were outside of the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately:
322 barrels per day of crude oil during January 2019 through April 2019;
258 barrels per day of crude oil during May 2019; and
322 barrels per day of crude oil during June 2019 through August 2019; and
258 barrels per day of crude oil during September 2019 through December 2019.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheet were as follows at the date indicated (in thousands):

September 30, 2018December 31, 2018
Balance Sheet Location and Amount Balance Sheet Location and Amount
Current Other Current Other CurrentOtherCurrentOther
Assets Assets Liabilities Liabilities AssetsAssetsLiabilitiesLiabilities
Asset derivatives: Asset derivatives: Asset derivatives:
Fair value forward hydrocarbon commodity Fair value forward hydrocarbon commodity Fair value forward hydrocarbon commodity
contracts at gross valuation contracts at gross valuation $263 $— $— $— contracts at gross valuation$162  $—  $—  $—  
Liability derivatives: Liability derivatives: Liability derivatives:
Fair value forward hydrocarbon commodity Fair value forward hydrocarbon commodity Fair value forward hydrocarbon commodity
contracts at gross valuation contracts at gross valuation — — 247 — contracts at gross valuation—  —  139  —  
Less counterparty offsets Less counterparty offsets — — — — Less counterparty offsets—  —  —  —  
As reported fair value contracts As reported fair value contracts $263 $— $247 $— As reported fair value contracts$162  $—  $139  $—  

At December 31, 2017, we had in place 20 commodity purchase and sale contracts, of which four of these contracts had 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:
• 452 barrels per day of crude oil during January 2018;
• 322 barrels per day of crude oil during February 2018 through May 2018;
• 258 barrels per day of crude oil during June 2018;
• 646 barrels per day of crude oil during July 2018;
• 322 barrels per day of crude oil during August 2018 through September 2018; and
• 258 barrels per day of crude oil during October 2018 through December 2018.
The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheet were as follows at the date indicated (in thousands):

December 31, 2017
Balance Sheet Location and Amount 
Current Other Current Other 
Assets Assets Liabilities Liabilities 
Asset derivatives: 
Fair value forward hydrocarbon commodity 
contracts at gross valuation $166 $— $— $— 
Liability derivatives: 
Fair value forward hydrocarbon commodity 
contracts at gross valuation — — 145 — 
Less counterparty offsets — — — — 
As reported fair value contracts $166 $— $145 $— 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At September 30, 20182019 and December 31, 2017,2018, we were not holding nor have we posted any collateral to support our forward month fair value derivative activity. We are not subject to any credit-risk related trigger events. We have no other financial investment arrangements that would serve to offset our derivative contracts.

Forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated statements of operations were as follows for the periods indicated (in thousands):

Gains (losses) 
Three Months Ended Nine Months Ended 
September 30, September 30, 
2018201720182017
Revenues – marketing $(7)$(748)$(5)$(48)

Gains (losses)
Three Months EndedNine Months Ended
September 30,September 30,
2019201820192018
Revenues – marketing$(1) $(7) $(21) $(5) 

Fair Value Measurements

The following tables set forth, by level with the Level 1, 2 and 3 fair value hierarchy, the carrying values of our financial assets and liabilities at the dates indicated (in thousands):

September 30, 2018September 30, 2019
Fair Value Measurements Using Fair Value Measurements Using
Quoted Prices Quoted Prices
in Active Significant in ActiveSignificant
Markets for Other Significant Markets forOtherSignificant
Identical Assets Observable Unobservable Identical AssetsObservableUnobservable
and Liabilities Inputs Inputs Counterparty and LiabilitiesInputsInputsCounterparty
(Level 1) (Level 2) (Level 3) Offsets Total (Level 1)(Level 2)(Level 3)OffsetsTotal
Derivatives: Derivatives: Derivatives:
Current assets Current assets $— $263 $— $— $263 Current assets$—  $129  $—  $—  $129  
Current liabilities Current liabilities — (247)— — (247)Current liabilities—  (126) —  —  (126) 
Net value Net value $— $16 $— $— $16 Net value$—  $ $—  $—  $ 

December 31, 2017
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 
Derivatives: 
Current assets $— $166 $— $— $166 
Current liabilities — (145)— — (145)
Net value $— $21 $— $— $21 


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
Fair Value Measurements Using
Quoted Prices
in ActiveSignificant
Markets forOtherSignificant
Identical AssetsObservableUnobservable
and LiabilitiesInputsInputsCounterparty
(Level 1)(Level 2)(Level 3)OffsetsTotal
Derivatives:
Current assets$—  $162  $—  $—  $162  
Current liabilities—  (139) —  —  (139) 
Net value$—  $23  $—  $—  $23  

These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input used to estimate their fair value. Our assessment of the relative significance of these inputs requires judgments.

When determining fair value measurements, we make credit valuation adjustments to reflect both our own nonperformance risk and our counterparty’s nonperformance risk. When adjusting the fair value of derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements. Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by us or our counterparties. At September 30, 20182019 and December 31, 2017,2018, 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.

Nonrecurring Fair Value Measurements

Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. We had no items requiring nonrecurring fair value measurements during the nine months ended September 30, 2018. The following table presents categories of long-lived assets that were subject to nonrecurring fair value measurements during the nine months ended September 30, 2017 (in thousands):

Fair Value Measurements at the End of the Reporting Period Using
Quoted Prices
in ActiveSignificant
CarryingMarkets forOtherSignificantTotal
Value atIdentical AssetsObservableUnobservableNon-Cash
September 30,and LiabilitiesInputsInputsImpairment
2017(Level 1)(Level 2)(Level 3)Loss
Oil and gas properties — 
Investment in AREC$3,200 $— $3,200 $— $3,505 
Investment in VestaCare— — — — 2,500 
$6,005 



Note 10.11. Share-Based Compensation Plan

In May 2018, our shareholders approved the 2018 LTIP,We have in place 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 were granted during the second quarter of 2018.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 share-based compensation to eligible employees and directors in June 2018. After giving effect to awards granted under the 2018 LTIP, forfeitures under the 2018 LTIP and assuming the potential achievement of the maximum amounts of the performance factors through September 30, 2018,2019, a total of 120,403106,573 shares were available for issuance. During the three and nine months ended September 30, 2018, we

Compensation expense recognized $0.1 million and $0.1 million, respectively, of compensation expense in connection with equity-based awards was as follows for the grant dateperiods presented (in thousands):
Three Months EndedNine Months Ended
September 30,September 30,
2019201820192018
Compensation expense$155  $141  $352  $144  

At September 30, 2019 and December 31, 2018, we had $21,377 and $9,533, respectively, of accrued dividend amounts for all awards granted under the 2018 LTIP was June 29, 2018.LTIP.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 September 30, 2018, we had $5 thousand 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.

The following table presents restricted stock unit award activity for the periods indicated:
Weighted- Weighted-
Average Grant Average Grant
Number of Date Fair Value Number ofDate Fair Value
Shares 
per Share (1)
Shares
per Share (1)
Restricted stock unit awards at January 1, 2018 — $— 
Restricted stock unit awards at January 1, 2019Restricted stock unit awards at January 1, 201913,733  $43.00  
Granted (2)
Granted (2)
13,733 $43.00 
Granted (2)
14,376  $34.00  
Vested Vested — $— Vested(5,729) $43.00  
Forfeited Forfeited — $— Forfeited(2,139) $38.42  
Restricted stock unit awards at September 30, 2018 13,733 $— 
Restricted stock unit awards at September 30, 2019Restricted stock unit awards at September 30, 201920,241  
_______________
(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 20182019 was $0.6$0.5 million based on a grant date market price of our common shares of $43.00$34.00 per share.

Unrecognized compensation cost associated with restricted stock unit awards was approximately $0.5 million at September 30, 2018.2019. 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 1.61.5 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. The performance goals were 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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 will be adjusted for the performance goals on a quarterly basis.

The following table presents performance share unit award activity for the periods indicated:
Weighted- Weighted-
Average Grant Average Grant
Number of Date Fair Value Number ofDate Fair Value
Shares 
per Share (1)
Shares
per Share (1)
Performance share unit awards at January 1, 2018 — $— 
Performance share unit awards at January 1, 2019Performance share unit awards at January 1, 20193,966  $43.00  
Granted (2)
Granted (2)
7,932 $43.00 
Granted (2)
8,094  $34.00  
Performance factor decrease (3)
Performance factor decrease (3)
(185) $43.00  
Vested Vested — $— Vested—  $—  
Forfeited Forfeited — $— Forfeited(1,545) $37.37  
Performance share unit awards at September 30, 2018 7,932 $— 
Performance share unit awards at September 30, 2019Performance share unit awards at September 30, 201910,330  
_______________
(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 20182019 was $0.4$0.3 million based on a grant date market price of our common shareshares of $43.00$34.00 per share and assuming a performance factor of 100 percent.
(3) The performance factor for awards granted during 2018 was lowered to 47.5 percent based upon a comparison of actual results for 2018 to performance goals.

Unrecognized compensation cost associated with performance share unit awards was approximately $0.3 million at September 30, 2018.2019. We expect to recognize the remaining compensation cost for these awards over a weighted-average period of 2.92.4 years.


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11.12. Supplemental Cash Flow Information

Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):
Nine Months Ended Nine Months Ended
September 30, September 30,
2018201720192018
Cash paid for interest Cash paid for interest $60 $10 Cash paid for interest$424  $60  
Cash paid for federal and state income taxes Cash paid for federal and state income taxes 811 381 Cash paid for federal and state income taxes234  811  
Non-cash transactions: Non-cash transactions: Non-cash transactions:
Change in accounts payable related to property and equipment additions Change in accounts payable related to property and equipment additions (84)— Change in accounts payable related to property and equipment additions(1,538) (84) 
Property and equipment acquired under capital leases 1,208 1,808 
Property and equipment acquired under finance leasesProperty and equipment acquired under finance leases4,148  1,208  
Issuance of common shares in asset acquisition (see Note 6)Issuance of common shares in asset acquisition (see Note 6)392  —  

See Note 13 for information related to non-cash transactions related to the adoption of the new lease accounting standard.


Note 13. 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 right-of-use (“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.


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

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, other current liabilities and operating lease liabilities in the condensed consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities and other long-term liabilities in the condensed 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.

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 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.

We are a lessee in noncancellable (1) 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 (2) finance leases for tractors and tank storage and throughput for our crude oil marketing business. 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.

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 for the periods indicated (in thousands):

Three MonthsNine Months
EndedEnded
September 30,September 30,
20192019
Finance lease cost:
Amortization of ROU assets$553  $1,254  
Interest on lease liabilities87  214  
Operating lease cost675  2,254  
Short-term lease cost2,527  7,355  
Total lease expense$3,842  $11,077  


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides supplemental cash flow and other information related to leases for the period indicated (in thousands):
Nine Months
Ended
September 30,
2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases (1)
$2,254 
Operating cash flows from finance leases197 
Financing cash flows from finance leases1,171 
ROU assets obtained in exchange for new lease liabilities:
Finance leases4,148 
Operating leases12,006 
______________
(1) Amount is included in Other operating activities on the unaudited condensed consolidated cash flow statement.

The following table provides the lease term and discount rate for the period indicated:
Nine Months
Ended
September 30,
2019
Weighted-average remaining lease term (years):
Finance leases3.28
Operating leases4.98
Weighted-average discount rate:
Finance leases4.9 %
Operating leases5.0 %

The following table provides supplemental balance sheet information related to leases at the date indicated (in thousands):
September 30,
2019
Assets
Finance lease ROU assets (1)
$6,937 
Operating lease ROU assets10,137 
Liabilities
Current
Finance lease liabilities2,142 
Operating lease liabilities2,245 
Noncurrent
Finance lease liabilities4,927 
Operating lease liabilities7,890 
______________
(1) Amount is included in Property and equipment, net on the unaudited condensed consolidated balance sheet.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides maturities of undiscounted lease liabilities at September 30, 2019 (in thousands):
FinanceOperating
LeaseLease
Remainder of 2019$606  $678  
20202,426  2,660  
20212,426  2,256  
20221,492  1,914  
2023642  1,776  
Thereafter38  2,113  
Total lease payments7,630  11,397  
Less: Interest(561) (1,262) 
Present value of lease liabilities7,069  10,135  
Less: Current portion of lease obligation(2,142) (2,245) 
Total long-term lease obligation$4,927  $7,890  

The following table provides maturities of undiscounted lease liabilities at December 31, 2018 (in thousands):
FinanceOperating
LeaseLease
2019$1,052  $4,242  
20201,052  2,258  
20211,052  2,107  
2022909  1,782  
2023451  1,495  
Thereafter—  1,488  
Total lease payments4,516  $13,372  
Less: Interest(424) 
Present value of lease liabilities4,092  
Less: Current portion of lease obligation(883) 
Total long-term lease obligation$3,209  


Note 12.14. Commitments and Contingencies

Capital Lease Obligations

During 2017 and 2018, we entered into capital leases for certain of our tractors in our crude oil marketing segment. The following table summarizes our principal contractual commitments outstanding under our capital leases at September 30, 2018 for the next five years, and in total thereafter (in thousands):

Remainder of 2018 $168 
2019671 
2020671 
2021670 
2022527 
Thereafter 158 
Total minimum lease payments 2,865 
Less: Amount representing interest (256)
Present value of capital lease obligations 2,609 
Less current portion of capital lease obligations (568)
Total long-term capital lease obligations $2,041 

Operating Lease Obligations

We lease certain property and equipment under noncancelable and cancelable operating leases. Our significant lease agreements consist of (i) arrangements with independent truck owner-operators for use of their equipment and driver services; (ii) leased office space; and (iii) certain lease and terminal access contracts in order to provide tank storage and dock access for our crude oil marketing business. Currently, our significant lease agreements have terms that range from one to eight years.

Lease expense is charged to operating costs and expenses on a straight-line basis over the period of expected economic benefit. Contingent rental payments are expensed as incurred. We are generally required to perform routine maintenance on the underlying leased assets. Maintenance and repairs of leased assets resulting from our operations are charged to expense as incurred. Rental expense was as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended 
September 30,September 30,
2018201720182017
Rental expense $2,869 $2,874 $8,291 $9,332 


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2018, rental obligations under non-cancelable operating leases and terminal arrangements with terms in excess of one year for the next five years and thereafter are payable as follows (in thousands):

Remainder of 2018 $1,536 
20193,551 
20201,780 
20211,651 
20221,570 
Thereafter 2,966 
Total operating lease payments $13,054 

Insurance Policies

UnderWe establish a liability under our automobile and workers’ compensation insurance policies that werefor expected claims incurred but not reported on a monthly basis. As claims are paid, the liability is relieved. Our accruals for automobile and workers’ compensation claims are presented in place through September 30,the table below.

For periods prior to October 1, 2017, we pre-funded our estimated losses,claims, and therefore, we could either receive a return of premium paid or be assessed for additional premiums up to pre-established limits. Additionally, in certain instances, the risk of insured losses was shared with a group of similarly situated entities through an insurance captive. We have appropriately recognized estimated expenses and liabilities related to these policies for losses incurred but not reported to us or our insurance carrier. The amount of pre-funded insurance premiums left to cover potential future losses are presented in the table below. If the potential insurance claims do not further develop, the pre-funded premiums will be returned to us as a premium refund.
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Effective October 1, 2017, we changed the structure of our automobile and workers’ compensation insurance policies. We exited the group captive and now establish a liability for expected claims incurred but not reported on a monthly basis as we move forward. As claims are paid, the liability is relieved. ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The amount of pre-funded insurance premiums left to cover potential future losses related to periods prior to October 1, 2017, and our accruals for automobile and workers’ compensation claims were as follows at the dates indicated (in thousands):
September 30, December 31, September 30,December 31,
2018201720192018
Pre-funded premiums for losses incurred but not reported Pre-funded premiums for losses incurred but not reported $497 $988 Pre-funded premiums for losses incurred but not reported$213  $427  
Accrued automobile and workers’ compensation claims Accrued automobile and workers’ compensation claims 1,721 450 Accrued automobile and workers’ compensation claims3,524  2,246  

We maintain a self-insurance program for managing employee medical claims. A liability for expected claims incurred but not reported is established on a monthly basis. As claims are paid, the liability is relieved. We also maintain third party insurance stop-loss coverage for individual medical claims exceeding a certain minimum threshold. In addition, we maintain $1.0 million of umbrella insurance coverage for annual aggregate medical claims exceeding $6.0approximately $9.6 million. Medical accrual amounts were as follows at the dates indicated (in thousands):
September 30, December 31, 
20182017
Accrued medical claims $1,100 $1,329 
September 30,December 31,
20192018
Accrued medical claims$1,221  $1,181  

Legal Proceedings

On August 15, 2019, we received a notice from the Internal Revenue Service (the “IRS”) regarding a proposed penalty of approximately $1.2 million for our 2017 tax year information returns. The notice alleges that certain taxpayer identification numbers supplied to the IRS for our returns in 2017 were either missing or incorrect and that certain filings were late.We believe that the IRS’ claims are without merit and plan to pursue all available administrative and judicial remedies necessary to resolve this matter. Accordingly, we responded to the IRS on September 25, 2019 disputing the proposed penalty and requesting that the amount be waived, abated or a hearing held. We have not received a response at this time and are unable to predict when this matter might be resolved. We regularly assess the likelihood of adverse outcomes resulting from examinations such as this to determine the adequacy of our tax reserves. Since we are unable to predict whether the IRS will waive or abate the proposed penalty as requested, no liabilities have been accrued to date. We intend to vigorously defend our position in this matter.We believe that the final adjudication of this matter will not have a material impact on our consolidated financial position, results of operations or cash flows.

Litigation

From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position or results of operations.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Subsequent Event

On October 1, 2018, we completed the purchase of a trucking company for $10.0 million that owned approximately 113 tractor trailer trucks and 125 trailers operating in the Red River area in North Texas and South Central Oklahoma. This acquisition will be included in our crude oil marketing segment.   


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Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and accompanying Notes included in this quarterly report on Form 10-Q and the Audited Consolidated Financial Statements and related Notes, together with our discussion and analysis of financial position and results of operations, included in our annual report on Form 10-K for the year ended December 31, 20172018 (the “2017“2018 Form 10-K”), as filed on March 12, 201811, 2019 with the U.S. Securities and Exchange Commission (“SEC”).  Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).


Cautionary Statement Regarding Forward-Looking Information

This quarterly report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and information that are based on our beliefs, as well as assumptions made by us and information currently available to us. When used in this document, words such as “anticipate,” “project,” “expect,” “plan,” “seek,” “goal,” “estimate,” “forecast,” “intend,” “could,” “should,” “would,” “will,” “believe,” “may,” “potential” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we believe that our expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct.  Forward-looking statements are subject to a variety of risks, uncertainties and assumptions as described in more detail under Part I, Item 1A of our 20172018 Form 10-K and within Part II, Item 1A of this quarterly report.  If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected.  You should not put undue reliance on any forward-looking statements.  The forward-looking statements in this quarterly report speak only as of the date hereof.  Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.


Overview of Business

Adams Resources & Energy, Inc. (“AE”), a Delaware corporation organized in 1973, and its 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 operatedWe operate and reportedreport in threetwo business segments: (i) crude oil marketing, transportation and storage, and (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 exitedbulk. See Note 8 in 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 filingNotes to Unaudited Condensed Consolidated Financial Statements 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.further information.

Recent Developments


On May 6, 2019, we completed the purchase of the assets of EH Transport, Inc. and affiliates (collectively, “EH Transport”), a Houston, Texas based bulk carrier trucking company, for approximately $6.4 million. This acquisition added approximately 39 tractors and 53 trailers to our existing transportation fleet, and is included in our transportation segment. See Note 6 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information.
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Recent Developments

On October 1, 2018, we completed the purchase of a trucking company for $10.0 million that owned approximately 113 tractor trailer trucks and 125 trailers operating in the Red River area in North Texas and South Central Oklahoma. This acquisition will be included in our crude oil marketing segment.  


Results of Operations

Marketing

Our crude oil marketing segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended Three Months EndedNine Months Ended
September 30, September 30, September 30,September 30,
20182017
Change (1)
20182017
Change (1)
20192018
Change (1)
20192018
Change (1)
Revenues Revenues $453,626 $282,229 61 %$1,266,055 $872,020 45 %Revenues$434,609  $453,626  (4 %)$1,331,410  $1,266,055  %
Operating earnings Operating earnings 2,982 2,412 24 %11,712 5,496 113 %Operating earnings2,888  2,982  (3 %)10,948  11,712  (7 %)
Depreciation and amortization Depreciation and amortization 1,277 1,911 (33)%4,110 5,957 (31)%Depreciation and amortization2,214  1,277  73 %6,640  4,110  62 %
Driver commissions 3,099 2,962 %9,155 9,153 — %
Driver compensationDriver compensation5,728  3,099  85 %17,439  9,155  90 %
Insurance Insurance 1,435 1,358 %3,849 3,855 %Insurance2,104  1,435  47 %6,336  3,849  65 %
Fuel Fuel 1,479 1,249 18 %4,647 3,887 20 %Fuel2,154  1,479  46 %6,952  4,647  50 %
_______________
(1) Represents the percentage increase (decrease) from the prior year period.

Volume and price information were as follows for the periods indicated:

Three Months Ended Nine Months Ended Three Months EndedNine Months Ended
September 30,September 30,September 30,September 30,
20182017201820172019201820192018
Field level purchase volumes – per day (1)
Field level purchase volumes – per day (1)
Field level purchase volumes – per day (1)
Crude oil – barrels Crude oil – barrels 70,635 64,104 68,767 65,760 Crude oil – barrels105,801  70,635  106,965  68,767  
Average purchase price Average purchase price Average purchase price
Crude oil – per barrel Crude oil – per barrel $71.69 $46.78 $68.11 $47.38 Crude oil – per barrel$55.84  $71.69  $56.61  $68.11  
_______________
(1) Reflects the volume purchased from third parties at the field level of operations.

Revenues and Operating EarningsThree Months Ended September 30, 2019 vs. Three Months Ended September 30, 2018. Crude oil marketing revenues increaseddecreased by $171.4$19.0 million during the three months ended September 30, 20182019 as compared to the three months ended September 30, 2017,2018, primarily as a result of an increasea decrease in the market price of crude oil, which increaseddecreased revenues by approximately $129.5$164.5 million, andpartially offset by higher overall crude oil volumes, which increased revenues by approximately $41.9$145.5 million. The average crude oil price received was $46.78 for the three months ended September 30, 2017, which increased to $71.69 for the three months ended September 30, 2018, which decreased to $55.84 for the three months ended September 30, 2019. Volumes increased approximately 31,000 barrels per day during the three months ended September 30, 2019 as compared to the same period in 2018 primarily as a result of the previously announced 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 has 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 three months ended September 30, 2018 increased2019 decreased by $0.6$0.1 million as compared to the same period in 2017,2018, primarily due to increased crude oil volumes and improved market conditions.  Operating earnings were also impacted by inventory valuation changes (as shown in the table below).following table) and higher fuel, insurance and driver compensation costs, partially offset by increased crude oil volumes.


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Driver compensation increased by $2.6 million during the three months ended September 30, 2019 as compared to the same period in 2018, primarily as a result of an increase in the number of drivers in the 2019 period as compared to the 2018 period 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 $0.7 million during the three months ended September 30, 2019 as compared to the same period in 2018, primarily due to a higher driver count and additional miles driven in the 2019 period. Fuel costs increased by $0.7 million during the three months ended September 30, 2019 as compared to the same period in 2018, consistent with a higher driver count in the current period and additional miles driven, primarily as a result of the additional drivers hired for the Red River assets.

Depreciation and amortization expense increased by $0.9 million during the three months ended September 30, 2019 as compared to the same period in 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 increased depreciation expense by approximately $0.9 million per quarter. In addition, we purchased fifteen new tractors and other field equipment during the third quarter of 2019.

Nine Months Ended September 30, 2019 vs. Nine Months Ended September 30, 2018. Crude oil marketing revenues increased by $394.0$65.4 million during the nine months ended September 30, 20182019 as compared to the nine months ended September 30, 2017,2018, primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately $338.7 million, and higher overall crude oil volumes, which increased revenues by approximately $55.3$487.3 million, partially offset by a decrease in the market price of crude oil, which decreased revenues by approximately $421.9 million. The average crude oil price received was $47.38 for the nine months ended September 30, 2017, which increased to $68.11 for the nine months ended September 30, 2018, which decreased to $56.61 for the nine months ended September 30, 2019. Volumes increased approximately 36,000 barrels per day primarily as a result of the Red River acquisition on October 1, 2018.

Our crude oil marketing operating earnings for the nine months ended September 30, 2018 increased2019 decreased by $6.2$0.8 million as compared to the same period in 2017,2018, primarily due to inventory valuation changes (as shown in the following table) and higher fuel, insurance and driver compensation costs, partially offset by increased crude oil volumes and improved market conditions. Operating earnings were also impacted by inventory valuation changes.

Expenses. Driver commissions increased by $0.1 million during the three months ended September 30, 2018 as compared to the same period in 2017, primarily due to increased driver pay and an increase in crude oil marketing volumes, partially offset by a decrease in the number of drivers in the 2018 period as compared to the 2017 period. Insurance costs were mostly consistent with the same period in 2017, primarily as a result of higher insurance claims in the 2018 period, offset by decreased mileage during the 2018 period as compared to the 2017 period, and favorable driver safety performance during the 2018 period. Fuel costs increased by $0.2 million during the three months ended September 30, 2018 as compared to the same period in 2017, consistent with higher crude oil prices during the 2018 period and an increase in the price of diesel fuel during the 2018 period as compared to the 2017 period. Depreciation and amortization expense decreased by $0.6 million during the three months ended September 30, 2018 as compared to the same period in 2017, primarily as a result of certain tractors, trailers and field equipment being fully depreciated during 2017.volumes.

Driver commissions during the nine months ended September 30, 2018 were consistent with the same period in 2017, with increased driver pay and an increase in crude oil marketing volumes, offset by a decrease in the number of drivers in the 2018 period as compared to the 2017 period. Insurance costs were consistent with the same period in 2017, primarily as a result of decreased mileage during the 2018 period as compared to the 2017 period, and favorable driver safety performance during the 2018 period, offset by higher insurance claims. Fuel costscompensation increased by $0.8$8.3 million during the nine months ended September 30, 20182019 as compared to the same period in 2017 consistent with higher crude oil prices during the 2018, period andprimarily as a result of an increase in the pricenumber of diesel fuel duringdrivers in the 20182019 period as compared to the 2017 period. Depreciation and amortization expense decreased2018 period primarily due to the Red River acquisition on October 1, 2018.

Insurance costs increased by $1.8$2.5 million during the nine months ended September 30, 20182019 as compared to the same period in 2017,2018, primarily due to a higher driver count and additional miles driven in the 2019 period. Fuel costs increased by $2.3 million during the nine months ended September 30, 2019 as compared to the same period in 2018, consistent with a higher driver count in the current period and additional miles driven, primarily as a result of certainthe additional drivers hired for the Red River assets.

Depreciation and amortization expense increased by $2.5 million during the nine months ended September 30, 2019 as compared to the same period in 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 increased depreciation expense by approximately $0.9 million per quarter. In addition, we purchased approximately 28 new tractors and other field equipment being fully depreciated during 2017.the first nine months of 2019.

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.

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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.


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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):
Three Months Ended Nine Months Ended Three Months EndedNine Months Ended
September 30,September 30,September 30,September 30,
20182017201820172019201820192018
As reported segment operating earnings (1)
As reported segment operating earnings (1)
$2,982 $2,412 $11,712 $5,496 
As reported segment operating earnings (1)
$2,888  $2,982  $10,948  $11,712  
Add (subtract): Add (subtract): Add (subtract):
Inventory liquidation gains Inventory liquidation gains (60)(1,954)(2,535)— Inventory liquidation gains—  (60) (1,459) (2,535) 
Inventory valuation losses Inventory valuation losses — — — 109 Inventory valuation losses2,051  —  —  —  
Derivative valuation losses 748 48 
Derivative valuation (gains) lossesDerivative valuation (gains) losses  21   
Field level operating earnings (2)
Field level operating earnings (2)
$2,929 $1,206 $9,182 $5,653 
Field level operating earnings (2)
$4,940  $2,929  $9,510  $9,182  
_______________
(1) Segment operating earnings included inventory liquidation gainsvaluation losses of $0.1$2.1 million and $2.5 million for the three and nine months ended September 30, 2018, respectively, inventory liquidation gains of $2.0$0.1 million for the three months ended September 30, 20172019 and inventory valuation losses of $0.1 million for2018, respectively. For the nine months ended September 30, 2017.2019 and 2018, segment operating earnings included inventory liquidation gains of $1.5 million and $2.5 million, respectively.
(2) The use of field level operating earnings is unique to us, not a substitute for a GAAP measure and may not be comparable to any similar measures developed by industry participants. We utilize this data to evaluate the profitability of our operations.

Field level operating earnings and field level purchase volumes depict our day-to-day operation of acquiring crude oil at the wellhead, transporting the product and delivering the product to market sales point. Field level operating earnings increased during the three and nine months ended September 30, 20182019 as compared to the same periods in 20172018 primarily due to an increase in the market price of crude oil, which increased revenues, the effects of lower barge costs, reduced operating expenses, increased crude oil volumes, partially offset by higher fuel, insurance and improved market conditions.driver compensation costs.

We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels):
September 30, 2018December 31, 2017
Average Average 
Barrels Price Barrels Price 
Crude oil inventory 476,703 $72.92 198,011 $61.57 
September 30, 2019December 31, 2018
AverageAverage
BarrelsPriceBarrelsPrice
Crude oil inventory439,173  $56.70  415,523  $54.82  

Historically, prices received for crude oil have been volatile and unpredictable with price volatility expected to continue. See “Part I, Item 1A. Risk Factors” in our 20172018 Form 10-K.


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Transportation

Our transportation segment revenues, operating earnings (losses) and selected costs were as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended Three Months EndedNine Months Ended
September 30,September 30,September 30,September 30,
20182017
Change (1)
20182017
Change (1)
20192018
Change (1)
20192018
Change (1)
Revenues Revenues $14,265 $13,082 %$41,509 $40,153 %Revenues$15,698  $14,265  10 %$48,498  $41,509  17 %
Operating earnings (losses) $790 $(915)186 %$2,002 $(920)318 %
Operating earningsOperating earnings$154  $790  (81 %)$1,970  $2,002  (2 %)
Depreciation and amortization Depreciation and amortization $1,063 $1,329 (20)%$2,904 $4,392 (34)%Depreciation and amortization$2,179  $1,063  105 %$5,626  $2,904  94 %
Driver commissions Driver commissions $3,163 $2,912 %$8,769 $8,640 %Driver commissions$2,588  $3,163  (18 %)$8,352  $8,769  (5 %)
Insurance Insurance $1,317 $1,598 (18)%$3,921 $4,051 (3)%Insurance$1,379  $1,317  %$4,557  $3,921  16 %
Fuel Fuel $1,770 $1,582 12 %$5,368 $4,691 14 %Fuel$1,454  $1,770  (18 %)$4,934  $5,368  (8 %)
Maintenance expense Maintenance expense $1,221 $1,532 (20)%$4,296 $4,641 (7)%Maintenance expense$981  $1,221  (20 %)$3,072  $4,296  (28 %)
Mileage (000s) Mileage (000s) 4,860 5,404 (10)%14,629 16,647 (12)%Mileage (000s)5,152  4,860  %15,866  14,629  %
_______________
(1) Represents the percentage increase (decrease) from the prior year period.

Our revenue rate structure includes a component for fuel costs in which fuel cost fluctuations are largely passed through to the customer over time. Revenues, net of fuel cost, were as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended Three Months EndedNine Months Ended
September 30,September 30,September 30,September 30,
20182017201820172019201820192018
Total transportation revenue Total transportation revenue $14,265 $13,082 $41,509 $40,153 Total transportation revenue$15,698  $14,265  $48,498  $41,509  
Diesel fuel cost Diesel fuel cost (1,770)(1,582)(5,368)(4,691)Diesel fuel cost(1,454) (1,770) (4,934) (5,368) 
Revenues, net of fuel cost (1)
Revenues, net of fuel cost (1)
$12,495 $11,500 $36,141 $35,462 
Revenues, net of fuel cost (1)
$14,244  $12,495  $43,564  $36,141  
_______________
(1) Revenues, net of fuel cost, is a non-GAAP financial measure and is utilized for internal analysis of the results of our transportation segment.

Three Months Ended September 30, 2019 vs. Three Months Ended September 30, 2018. Transportation revenues increased by $1.2$1.4 million during the three months ended September 30, 20182019 as compared to the three months ended September 30, 2017, primarily as a result of a new transportation agreement entered into in January 2018 and higher transportation rates in the 2018 period, partially offset by a decrease in revenue as a result of less miles traveled in the current period. Revenues, net of fuel cost, increased by $1.0 million during the three months ended September 30, 2018, primarily as a result of higher revenuesthe EH Transport asset acquisition (see Note 6 in the 2018 period, partially offsetNotes to Unaudited Condensed Consolidated Financial Statements), which increased revenues by an increaseapproximately $1.0 million and increased miles traveled in the pricecurrent period, and due to higher transportation rates in full effect in the 2019 period as a result of dieselnegotiations during 2018 with customers. Revenues, net of fuel cost, increased by $1.7 million during the three months ended September 30, 2019, primarily as a result of the higher transportation revenues and lower miles traveled during the 2019 period. Although the overall market has softened from 2018 period. Transportationlevels, transportation activity has continued to increase for our transportation segment as we continue to pursue our strategy of streamlining operations and diversifying offerings in our transportation segment. We have continuedcontinue to work with customers to increasemaintain our increased transportation rates as well as streamliningstreamline operations in low margin areas. This increase in services has resulted in an increase in revenues, an increase in variable expenses related to transportation activities and a decrease in mileage as we reduce low margin operations.

Fuel costs increased by $0.2 million as a result of an increase in the price of diesel during the 2018 period as compared to the 2017 period, partially offset by a decrease in miles traveled. Depreciation and amortization expense decreased by $0.3 million duringOur transportation operating earnings for the three months ended September 30, 20182019 decreased by $0.6 million as compared to the same period in 2017,2018, primarily due to higher depreciation and amortization expense related to the EH Transport asset acquisition and new assets placed into service and higher insurance expense as a result of certain tractors, trailers and field equipment being fully depreciatedmore miles traveled during 2017,the current period, partially offset by the purchase of new tractors in the the secondhigher revenues as noted above, and third quarters of 2018, which will result in increased depreciation expense in future periods.lower other operating expenses.

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Fuel costs decreased by $0.3 million during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, primarily as a result of a decrease in the price of diesel during the 2019 period as compared to the 2018 period, partially offset by an increase in miles traveled. Depreciation and amortization expense increased by $1.1 million during the three months ended September 30, 2019 as compared to the same period in 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.

Nine Months Ended September 30, 2019 vs. Nine Months Ended September 30, 2018. Transportation revenues increased by $1.4$7.0 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, primarily as a result of the new transportation agreement entered intoEH Transport asset acquisition, which increased revenues by approximately $1.0 million and increased miles traveled in January 2018the current period, and due to higher transportation rates in full effect in the 2019 period as a result of negotiations during 2018 period.with customers. Revenues, net of fuel cost, increased by $0.7$7.4 million during the nine months ended September 30, 2019, primarily as a result of the higher transportation revenues and increased miles traveled during the 2019 period.

Our transportation operating earnings for the nine months ended September 30, 2019 was consistent with the same period in 2018, primarily due to higher depreciation and amortization expense related to the EH Transport asset acquisition and new assets placed into service and higher insurance expense as a result of more miles traveled during the current period, partially offset by higher revenues as noted above, and lower other operating expenses.

Fuel costs decreased by $0.4 million during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, primarily as a result of higher revenuesa decrease in the price of diesel during the 2019 period as compared to the 2018 period, partially offset by an increase in the price of diesel fuel and lower miles traveled during the 2018 period. This increase in services resulted in an increase in variable expenses related to transportation activities.

Fuel costs increased by $0.7 million as a result of an increase in the price of diesel during the 2018 period as compared to the 2017 period, partially offset by a decrease in miles traveled. Depreciation and amortization expense decreasedincreased by $1.5$2.7 million during the nine months ended September 30, 20182019 as compared to the same period in 2017,2018, primarily as a result of certain tractors, trailersthe acquisition of the assets of EH Transport during the second quarter of 2019 and field equipment being fully depreciated during 2017, partially offset by the purchase of new tractors in the second2018 and third quarters of 2018, which will result in increased depreciation expense in future periods. During the remainder of 2018, we expect to purchase additional tractors, which will reduce the age of our fleet and increase depreciation expense. See “Other Items” below for further information regarding our purchase commitments.

Oil and Gas

Our upstream crude oil and natural gas exploration and production segment revenues and operating earnings were primarily a function of crude oil and natural gas prices and volumes. We accounted for our upstream operations under the successful efforts method of accounting. As a result of AREC’s bankruptcy filing in April 2017 and our loss of control of this subsidiary, we deconsolidated AREC effective with its bankruptcy filing in 2017 and recorded our investment in AREC under the cost method of accounting. Our results for the nine months ended September 30, 2017 were for the period in which AREC was consolidated (January 1, 2017 through April 30, 2017).

Our upstream crude oil and natural gas exploration and production segment revenues, operating earnings and depreciation and depletion expense were as follows for the nine months ended September 30, 2017 (in thousands):

Revenues (1)
$1,427 
Operating earnings (1)
53 
Depreciation and depletion (1)
423 
_______________
(1) Results for the nine months ended September 30, 2017 are only through April 30, 2017, as a result of the deconsolidation of this subsidiary due to its bankruptcy filing.


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Volume and price information were as follows for the nine months ended September 30, 2017 (volumes in thousands):

Crude oil 
Volume – barrels (1)
11,643 
Average price per barrel $49.44 
Natural gas 
Volume – Mcf (1)
189,488 
Average price per Mcf $2.86 
Natural gas liquids 
Volume – barrels (1)
11,204 
Average price per barrel $26.77 
_______________
(1) Volumes for the nine months ended September 30, 2017 are only through April 30, 2017, as a result of the deconsolidation of this subsidiary due to its bankruptcy filing.2019.

General and Administrative Expense

General and administrative expense decreasedincreased by $1.3$1.2 million during the three months ended September 30, 20182019 as compared to the same period in 20172018 primarily due to the receipt in the 2018 period of approximately $0.6 million in insurance proceeds related to Hurricane Harvey insurance claims, which reduced expenses and lower personnel costs in the 2018 period. The 2017prior year period, also included approximately $1.0 million of additional personnel expenses related to a voluntary early retirement program for certain employees. These decreases in expenses wereand higher outside service fees, legal fees, insurance costs and salaries and wages, partially offset by an increase in expenses related to the amortization of equity awards (see Note 10 in the Notes to Condensed Consolidated Financial Statements) and an increase in outside servicelower audit fees.

General and administrative expense decreasedincreased by $0.8$1.9 million during the nine months ended September 30, 20182019 as compared to the same period in 20172018 primarily due to the receipt in the 2018 period of approximately $0.6 million in insurance proceeds related to Hurricane Harvey insurance claims, which reduced expenses lower personnel costs in the 2018prior year period, and the reversal in the 2017 period of certain legal accruals of approximately $0.7 million related to legal matters. The 2017 period also included approximately $1.0 million of additional personnel expenses related to a voluntary early retirement program for certain employees. These decreases in expenses were partially offset byhigher outside service fees, audit fees, salaries and wages, franchise taxes, insurance costs and an increase in expenses related to the amortization of equity awards and an increase in legal and outside service fees in the 2018 period.

Investments in Unconsolidated Affiliates

AREC. In April 2017, we deconsolidated AREC effective with its bankruptcy filing on April 21, 2017 and recorded our investment in AREC 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 new grants in the sale of substantially all of AREC’s assets, we recognized an additional loss of $1.9 million, which representscurrent period (see Note 11 in the difference between the net proceeds we expectNotes 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.Unaudited Condensed Consolidated Financial Statements), partially offset by lower legal fees.

Gain on Dissolution of Investment
VestaCare
.
During 2019, we received a cash payment from Adams Resources Exploration Corporation (“AREC”) totaling approximately $1.0 million, related to the third quarterfinal settlement of 2017, we reviewedits bankruptcy and dissolution. AREC had been one of our investmentwholly owned subsidiaries, until its bankruptcy filing in VestaCare, Inc. (“VestaCare”),April 2017. Of the amount received, approximately $0.4 million was offset against a receivable that had been set up as of December 31, 2018 and $0.6 million was recorded as a gain in 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.unaudited condensed consolidated financial statements.


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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 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. As a result of the lower tax rate, our provision for income taxes reflects the effects of the new tax rate during the three and nine months ended September 30, 2018 as compared to the same periods in 2017.

Outlook

We plan to operate our remaining business segments with internally generated cash flows during 2018,the remainder of 2019, but intend to remain flexible as the focus will be on increasing efficiencies and on business development opportunities. During the remainder of 2018,2019, we plan to leverage our investment in our transportation segment’s Houston terminal with the continued efforts to diversify service offerings, and we plan to grow in new or existing areas with our crude oil marketing segment, including integrating the acquisition that occurred on October 1, 2018 with our existing business (see Note 13 in the Notes to Unaudited Condensed Consolidated Financial Statements).segment.


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.

One of our wholly owned subsidiaries, AREC, filed for bankruptcy in April 2017. Over the past few years, we have de-emphasized our upstream operations and do not expect this Chapter 11 filing by AREC to have a material adverse impact on any of our core businesses. As a result of an auction process, AREC sold its assets for approximately $5.2 million during 2017. After settlement of certain claims in late 2017, AE received approximately $2.8 million from AREC in December 2017. AE anticipates receiving an additional $0.8 million cash payment from AREC in the fourth quarter of 2018 when the bankruptcy is settled.

At September 30, 20182019 and December 31, 2017,2018, 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 working capital, the excess of current assets over current liabilities, were as follows at the dates indicated (in thousands):

September 30,December 31,September 30,December 31,
2018201720192018
Cash and cash equivalents Cash and cash equivalents $130,774 $109,393 Cash and cash equivalents$124,726  $117,066  
Working capital Working capital 119,795 116,087 Working capital92,418  106,323  

We maintainmaintained a stand-by letter of credit facility with Wells Fargo Bank, National Association, to provide for the issuance of up to $60.0 million in stand-by letters of credit for the benefit of suppliers ofprimarily used to support crude oil purchases within our crude oil marketing segment and for other purposes. Stand-by letters of credit arewere issued as needed and arewere canceled as the underlying purchase obligations arewere satisfied by cash payment when due. The issuance of stand-by letters of credit enablesenabled us to avoid posting cash collateral when procuring crude oil supply. We are currently usingused the letter of credit facility for a letterletters of credit related to our insurance program. At September 30, 2018 and December 31, 2017,2018, we had $0.4$4.6 million and $2.2 million, respectively,of letters of credit outstanding under this facility.Our borrowing base was 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 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.

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We believe current cash balances, together with expected cash generated from future operations, and the ease of financing truck and trailer additions through leasing arrangements (should the need arise) will be sufficient to meet our short-term and long-term liquidity needs. We expect to fund the $10.0 million purchase price of our Red River acquisition (see Note 13 in the Notes to Unaudited Condensed Consolidated Financial Statements) from our current cash balances.

We utilize cash from operations to make discretionary investments in our crude oil marketing and transportation businesses. With the exception of operating and capitalfinance lease commitments primarily associated with storage tank terminal arrangements, leased office space and tractors, 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 capitalfinance lease obligations.

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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” in our 20172018 Form 10-K.

Cash Flows from Operating, Investing and Financing Activities

Our consolidated cash flows from operating, investing and financing activities were as follows for the periods indicated (in thousands):
Nine Months Ended Nine Months Ended
September 30,September 30,
20182017 20192018
Cash provided by (used in): Cash provided by (used in): Cash provided by (used in):
Operating activities Operating activities $29,825 $16,487 Operating activities$43,142  $29,825  
Investing activities Investing activities (5,372)(1,596)Investing activities(26,448) (5,372) 
Financing activities Financing activities (3,072)(2,784)Financing activities(4,131) (3,072) 

Operating activities. Net cash flows provided by operating activities for the nine months ended September 30, 20182019 increased by $13.3 million when compared to the same period in 2017.2018. This increase was primarily due to an increase in revenues and operating expenses and the timing of collections of accounts receivable and payments of accounts payable, partially offset by a decrease in operating expenses.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 were as follows at the dates indicated (in thousands):
September 30,December 31, September 30,December 31,
20182017 20192018
Early payments received Early payments received $38,459 $20,078 Early payments received$49,020  $38,539  
Early payments to suppliers Early payments to suppliers 1,100 6,100 Early payments to suppliers—  —  


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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 the fourth quarter of 2017 and during the third quarter of 2018,nine months ended September 30, 2019, we elected to makereceived several early payments from certain customers in our crude oil marketing operations. Our cash balance increased by approximately $21.4$7.7 million as of September 30, 20182019 relative to the year ended December 31, 20172018 primarily as a result of the timing of the receipt of these early payments and prepayments made and received during each period.

Investing activities. Net cash flows used in investing activities for the nine months ended September 30, 20182019 increased by $3.8$21.1 million when compared to the same period in 2017.2018. This increase was primarily due to an increase of $5.3$17.7 million in capital spending for property and equipment (see following table), the payment of $5.6 million for the purchase of the EH Transport assets in May 2019 (see Note 6 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information) and a decrease of $0.3 million in insurance and state collateral refunds, partially offset by an increase of $0.9$1.5 million in cash proceeds from the sales of assets and an increasethe receipt of $0.6$1.0 million in insurance and state collateral refunds.cash proceeds related to the final settlement of AREC’s bankruptcy.

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Capital spending was as follows for the periods indicated (in thousands):
Nine Months Ended 
September 30,
20182017
Crude oil marketing (1) (2)
$1,682 $451 
Truck transportation (3)
6,061 189 
Oil and natural gas exploration — 1,825 
Other 13 — 
Capital spending $7,756 $2,465 
Nine Months Ended
September 30,
20192018
Crude oil marketing (1)
$6,896  $1,682  
Transportation (2) (3)
18,529  6,061  
Other—  13  
Capital spending$25,425  $7,756  
_______________
(1) 2019 amount primarily relates to the purchase of 28 tractors and other field equipment. 2018 amount primarily relates to construction of a pipeline connection.
(2) Our marketing segment amounts do not include approximately $1.2 million2019 amount relates to the purchase of 86 tractors, 46 trailers and $1.8 million, respectively, of tractors acquired under capital leases.
(3)other field equipment. 2018 amount primarily relates to the purchase of 40 tractors, 31tractors.
(3) 2019 amount does not include approximately $5.6 million of which were placed into service in June 2018 through September 2018. The remaining nine will be placed into service duringcapital spending related to the fourth quarter of 2018.EH Transport asset acquisition.

Financing activities. Cash used in financing activities for the nine months ended September 30, 20182019 increased by $0.3$1.1 million when compared to the same period in 2017.2018. The increase was primarily due to an increase of $0.9 million in principal repayments made for finance lease obligations in our crude oil marketing segment for certain of our tractors and a tank storage and throughput arrangement. During each of the nine months ended September 30, 20182019 and 2017,2018, we paid cash dividends of $0.70 per common share, or a quarterly cash dividendtotal of $0.22$3.0 million, and $0.66 per common share, or a total of $2.8 million, during each nine month period. During the 2018 period, we paid $0.3 million of principal repayments on capital lease obligations that we entered into in September 2017 and August 2018 for certain of our tractors in our crude oil marketing segment, with principal contractual commitments to be paid over a period of five years.respectively. See “Other Items” below for further information regarding our capitalfinance leases.



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Other Items

Contractual Obligations

The following table summarizes our significant contractual obligations at September 30, 20182019 (in thousands):
Payments due by period 
Contractual Obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years 
Capital lease obligations (1)
$2,865 $671 $1,341 $853 $— 
Operating lease obligations (2)
13,054 4,634 3,471 3,090 1,859 
Purchase obligations (3)
10,575 10,575 — — — 
Total contractual obligations $26,494 $15,880 $4,812 $3,943 $1,859 

Payments due by period
Contractual ObligationsTotalLess than 1 year1-3 years3-5 yearsMore than 5 years
Finance lease obligations (1)
$7,630  $2,425  $4,314  $891  $—  
Operating lease obligations (2)
11,397  2,679  4,378  3,479  861  
Purchase obligations (3)
18,508  18,508  —  —  —  
Total contractual obligations$37,535  $23,612  $8,692  $4,370  $861  
_______________
(1) Amounts represent our principal contractual commitments, including interest, outstanding under capitalfinance leases for certain tractors and tank storage and throughput arrangements in our crude oil marketing segment.
(2) Amounts represent rental obligations under non-cancelable operating leases and terminal arrangements with terms in excess of one year.
(3) Amount represents commitments to purchase 6155 new tractors and 2015 new trailers in connection with our transportation business and 10 new tractors in our crude oil marketing business.

We maintain certain lease arrangements with independent truck owner-operatorsSee Note 13 in the Notes to Unaudited Condensed Consolidated Financial Statements for use of their equipmentfurther information regarding our finance 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):operating leases.

Three Months Ended Nine Months Ended 
September 30,September 30,
2018201720182017
Rental expense $2,869 $2,874 $8,291 $9,332 
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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably expected to have a material current or future effect on our financial position, results of operations or cash flows.

Recent Accounting Pronouncements    

For information regarding recent accounting pronouncements, see Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements.

Related Party Transactions

For more information regarding related party transactions, see Note 89 in the Notes to Unaudited Condensed Consolidated Financial Statements.



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Critical Accounting Policies and Use of Estimates

A discussion of our critical accounting policies and estimates is included in our 20172018 Form 10-K. Certain of these accounting policies require the use of estimates. There have been no material changes to our accounting policies since the disclosures provided in our 20172018 Form 10-K.


Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our “Quantitative and Qualitative Disclosures about Market Risk” that have occurred since the disclosures provided in our 20172018 Form 10-K.


Item 4. Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report, our management carried out an evaluation, with the participation of our Executive Chairman and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15(e) of the Exchange Act. Based on this evaluation, as of the end of the period covered by this quarterly report, our Executive Chairman and our Chief Financial Officer concluded:

(i) that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow for timely decisions regarding required disclosures; and

(ii) that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(e) under the Exchange Act) during the fiscal quarter ended September 30, 2018,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position or results of operations.

See Note 14 in the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of a legal proceeding with the IRS.


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Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 20172018 Form 10-K and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our businesses, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes in our Risk Factors from those disclosed in Item 1A of our 2017 Annual Report on2018 Form 10-K or our other SEC filings.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3. Defaults Upon Senior Securities

None.


Item 4. Mine Safety Disclosures

Not applicable.


Item 5. Other Information

None.


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Item 6. Exhibits

Exhibit
NumberExhibit
3.1Certificate of Incorporation of Adams Resources & Energy, Inc., as amended (incorporated by reference to Exhibit 3(a) to Form 10-K for the fiscal year ended December 31, 1987).
3.2
10.1*
31.1*
31.2*
32.1*
32.2*
101.CAL*Inline XBRL Calculation Linkbase Document
101.DEF*Inline XBRL Definition Linkbase Document
101.INS*Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.LAB*Inline XBRL Labels Linkbase Document
101.PRE*Inline XBRL Presentation Linkbase Document
101.SCH*Inline XBRL Schema Document
104*Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
____________
+ Management contract or compensation plan or arrangement.
*Filed or furnished (in the case of Exhibit 32.1 and 32.2) with this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ADAMS RESOURCES & ENERGY, INC.
(Registrant)
Date:November 7, 20186, 2019By:/s/ Townes G. Pressler
Townes G. Pressler
Executive Chairman
(Principal Executive Officer)
By:/s/ Tracy E. Ohmart
Tracy E. Ohmart
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)

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