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Table of Contents


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

FORM 10-Q
(Mark one)

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

For the quarterly period ended September 30, 2020

OR

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

For the transition period from ___  to  ___.

Commission file number: 1-07908

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

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

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common 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 filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

A total of 4,242,284 shares of Common Stock were outstanding at November 1, 2020.


Table of Contents


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

Page No.



1

Table of Contents


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,December 31,
20202019
ASSETS
Current assets:
Cash and cash equivalents$53,106 $112,994 
Restricted cash4,865 9,261 
Accounts receivable, net of allowance for doubtful
accounts of $114 and $141, respectively
94,654 94,534 
Inventory15,942 26,407 
Derivative assets3  
Income tax receivable7,054 2,569 
Prepayments and other current assets1,417 1,559 
Total current assets177,041 247,324 
Property and equipment, net64,469 69,046 
Operating lease right-of-use assets, net8,453 9,576 
Intangible assets, net4,304 1,597 
Cash deposits and other assets2,193 3,299 
Total assets$256,460 $330,842 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$76,407 $147,851 
Accounts payable – related party158 5 
Current portion of finance lease obligations2,505 2,167 
Current portion of operating lease liabilities2,137 2,252 
Other current liabilities11,687 7,302 
Total current liabilities92,894 159,577 
Other long-term liabilities:
Asset retirement obligations1,610 1,573 
Finance lease obligations4,011 4,376 
Operating lease liabilities6,314 7,323 
Deferred taxes and other liabilities7,547 6,352 
Total liabilities112,376 179,201 
Commitments and contingencies (Note 14)
Shareholders’ equity:
Preferred stock – $1.00 par value, 960,000 shares
authorized, none outstanding
  
Common stock – $0.10 par value, 7,500,000 shares
authorized, 4,242,284 and 4,235,533 shares outstanding, respectively
423 423 
Contributed capital13,150 12,778 
Retained earnings130,511 138,440 
Total shareholders’ equity144,084 151,641 
Total liabilities and shareholders’ equity$256,460 $330,842 

See Notes to Unaudited Condensed Consolidated Financial Statements.
2

Table of Contents


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

Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Revenues:
Marketing$245,184 $434,609 $722,546 $1,331,410 
Transportation21,720 15,698 50,121 48,498 
Total revenues266,904 450,307 772,667 1,379,908 
Costs and expenses:
Marketing237,479 429,507 721,798 1,313,822 
Transportation17,105 13,365 41,178 40,902 
General and administrative1,405 2,739 7,030 8,005 
Depreciation and amortization4,859 4,393 13,610 12,266 
Total costs and expenses260,848 450,004 783,616 1,374,995 
Operating (losses) earnings6,056 303 (10,949)4,913 
Other income (expense):
Gain on dissolution of investment   573 
Interest income105 758 614 2,145 
Interest expense(70)(242)(288)(424)
Total other income (expense), net35 516 326 2,294 
(Losses) Earnings before income taxes6,091 819 (10,623)7,207 
Income tax benefit (provision)(3,018)(179)5,772 (1,653)
Net (losses) earnings$3,073 $640 $(4,851)$5,554 
(Losses) Earnings per share:
Basic net (losses) earnings per common share$0.72 $0.15 $(1.14)$1.31 
Diluted net (losses) earnings per common share$0.72 $0.15 $(1.14)$1.31 
Dividends per common share$0.24 $0.24 $0.72 $0.70 


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,
20202019
Operating activities:
Net (losses) earnings$(4,851)$5,554 
Adjustments to reconcile net (losses) earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization13,610 12,266 
Gains on sales of property(985)(1,386)
Provision for doubtful accounts(27)(36)
Stock-based compensation expense453 352 
Deferred income taxes(1,503)1,493 
Net change in fair value contracts(3)20 
Gain on dissolution of AREC (573)
Changes in assets and liabilities:
Accounts receivable(93)8,520 
Accounts receivable/payable, affiliates153 (23)
Inventories10,465 (2,121)
Income tax receivable(1,782)(135)
Prepayments and other current assets142 166 
Accounts payable(70,082)13,613 
Accrued liabilities4,396 4,561 
Other17 871 
Net cash provided by (used in) operating activities(50,090)43,142 
Investing activities:
Property and equipment additions(3,589)(25,425)
Asset acquisition(9,163)(5,624)
Proceeds from property sales2,282 2,853 
Proceeds from dissolution of AREC 998 
Insurance and state collateral (deposits) refunds1,127 750 
Net cash used in investing activities(9,343)(26,448)
Financing activities:
Principal repayments of finance lease obligations(1,677)(1,171)
Payment of contingent consideration liability(111) 
Dividends paid on common stock(3,063)(2,960)
Net cash used in financing activities(4,851)(4,131)
(Decrease) Increase in cash and cash equivalents, including restricted cash(64,284)12,563 
Cash and cash equivalents, including restricted cash, at beginning of period122,255 117,066 
Cash and cash equivalents, including restricted cash, at end of period$57,971 $129,629 


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, except per share data)

Total
CommonContributedRetainedShareholders’
StockCapitalEarningsEquity
Balance, January 1, 2020$423 $12,778 $138,440 $151,641 
Net losses— — (11,427)(11,427)
Stock-based compensation expense— 134 — 134 
Dividends declared:
Common stock, $0.24/share
— — (1,016)(1,016)
Awards under LTIP, $0.24/share
— — (6)(6)
Balance, March 31, 2020423 12,912 125,991 139,326 
Net earnings— — 3,503 3,503 
Stock-based compensation expense— 170 — 170 
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards
— (81)— (81)
Dividends declared:
Common stock, $0.24/share
— — (1,018)(1,018)
Awards under LTIP, $0.24/share
— — (10)(10)
Balance, June 30, 2020423 13,001 128,466 141,890 
Net earnings— — 3,073 3,073 
Stock-based compensation expense— 149 — 149 
Dividends declared:
Common stock, $0.24/share
— — (1,018)(1,018)
Awards under LTIP, $0.24/share
— — (10)(10)
Balance, September 30, 2020$423 $13,150 $130,511 $144,084 


See Notes to Unaudited Condensed Consolidated Financial Statements.



















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

Total
CommonContributedRetainedShareholders’
StockCapitalEarningsEquity
Balance, January 1, 2019$422 $11,948 $134,228 $146,598 
Net earnings— — 4,908 4,908 
Stock-based compensation expense— 123 — 123 
Dividends declared:
Common stock, $0.22/share
— — (928)(928)
Awards under LTIP, $0.22/share
— — (2)(2)
Balance, March 31, 2019422 12,071 138,206 150,699 
Net earnings— — 6 6 
Stock-based compensation expense— 74 — 74 
Issuance of common shares for acquisition1 391 — 392 
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards
— (39)— (39)
Dividends declared:
Common stock, $0.24/share
— — (1,016)(1,016)
Awards under LTIP, $0.24/share
— — (8)(8)
Balance, June 30, 2019423 12,497 137,188 150,108 
Net earnings— — 640 640 
Stock-based compensation expense— 155 — 155 
Dividends declared:
Common stock, $0.24/share
— — (1,016)(1,016)
Awards under LTIP, $0.24/share
— — (6)(6)
Balance, September 30, 2019$423 $12,652 $136,806 $149,881 


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. is a publicly traded Delaware corporation organized in 1973, the common shares of which are listed on the NYSE American LLC under the ticker symbol “AE”. Through our subsidiaries, we are primarily engaged in the business of crude oil marketing, transportation and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also conduct tank truck transportation of liquid chemicals and dry bulk primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with terminals in the Gulf Coast region of the U.S. Unless the context requires otherwise, references to “we,” “us,” “our” or “Company” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.  

We operate and report in two business segments: (i) crude oil marketing, transportation and storage, and (ii) tank truck transportation of liquid chemicals and dry bulk. See Note 8 for further information regarding our business segments.

Basis of Presentation

Our results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of results expected for the full year of 2020. 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, 2019 (the “2019 Form 10-K”) filed with the SEC on March 6, 2020. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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



Note 2. Summary of Significant Accounting Policies

Cash, Cash Equivalents and Restricted Cash

Restricted cash represents an amount held in a segregated bank account by Wells Fargo as collateral for outstanding letters of credit.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported in the unaudited condensed consolidated balance sheets that totals to the amounts shown in the unaudited condensed consolidated statements of cash flows at the dates indicated (in thousands):

September 30,December 31,
20202019
Cash and cash equivalents$53,106 $112,994 
Restricted cash4,865 9,261 
Total cash, cash equivalents and restricted cash shown in the
unaudited condensed consolidated statements of cash flows$57,971 $122,255 

Common Shares Outstanding

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

Common
shares
Balance, January 1, 20204,235,533 
Vesting of restricted stock unit awards217 
Balance, March 31, 20204,235,750 
Vesting of restricted stock unit awards8,641 
Shares withheld to cover taxes upon vesting of restricted stock unit awards(2,107)
Balance, June 30, 20204,242,284 
No activity— 
Balance, September 30, 20204,242,284 

Earnings Per Share

Basic earnings (losses) per share is computed by dividing our net earnings (losses) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (losses) per share is computed by giving effect to all potential shares of common stock outstanding, including our stock related to unvested restricted stock unit awards. Unvested restricted stock unit awards granted under the Adams Resources & Energy, Inc. 2018 Long-Term Incentive Plan (“2018 LTIP”) are not considered to be participating securities as the holders of these shares do not have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares (see Note 11 for further discussion).


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the calculation of basic and diluted (losses) earnings per share was as follows for the periods indicated (in thousands, except per share data):

Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Earnings (losses) per share — numerator:
Net (losses) earnings $3,073 $640 $(4,851)$5,554 
Denominator:
Basic weighted average number of shares
outstanding
4,242 4,234 4,239 4,226 
Basic (losses) earnings per share$0.72 $0.15 $(1.14)$1.31 
Diluted (losses) earnings per share:
Diluted weighted average number of shares
outstanding:
Common shares4,242 4,234 4,239 4,226 
Restricted stock unit awards (1)
9 3  4 
Performance share unit awards (1) (2)
2 1   
Total diluted shares4,253 4,238 4,239 4,230 
Diluted (losses) earnings per share$0.72 $0.15 $(1.14)$1.31 
_______________
(1)For the nine months ended September 30, 2020, the effect of the restricted stock unit awards and the performance share awards on losses per share is anti-dilutive.
(2)The dilutive effect of performance share awards are included in the calculation of diluted earnings per share when the performance share award performance conditions have been achieved. For the nine months ended September 30, 2019, the effect of the performance share awards on earnings per share is anti-dilutive.

Fair Value Measurements

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

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

See Note 6 for a discussion of the Level 3 inputs used in the determination of the fair value of the intangible assets acquired in an asset acquisition that occurred in June 2020.

Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and we elect, cash flow hedge accounting. We had no contracts designated for hedge accounting during any current reporting periods (see Note 10 for further information).


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

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

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating losses (“NOL”) incurred in tax years 2018, 2019 and 2020 to offset 100 percent of taxable income and be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

We are continuing to evaluate the full impact of the CARES Act. However, we have determined that the NOL carryback provision in the CARES Act would result in a cash benefit to us for the fiscal years 2018 and 2019. We carried back our NOL for fiscal year 2018 to 2013, and in June 2020, we received a cash refund of approximately $2.7 million. We have an income tax receivable at September 30, 2020 of approximately $3.7 million for the benefit of carrying back the NOL for the fiscal year 2019 to 2014. We are forecasting an NOL for fiscal year 2020 and expect to carry it back to previous years. As a result, we have also included the 2020 provisional amounts in income tax receivable at September 30, 2020. As we are carrying the losses back to years beginning before January 1, 2018, the receivables were recorded at the previous 35 percent federal tax rate rather than the current statutory rate of 21 percent.

Inventory

Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of our crude oil marketing operations. Crude oil inventory is carried at the lower of cost or net realizable value. At the end of each reporting period, we assess the carrying value of our inventory and make adjustments necessary to reduce the carrying value to the applicable net realizable value. Any resulting adjustments are a component of marketing costs and expenses on our consolidated statements of operations. During the nine months ended September 30, 2020, we recorded a write-down of $18.2 million of our crude oil inventory due to significant declines in prices in 2020.

Property and Equipment

Property and equipment is recorded at cost. Expenditures for additions, improvements and other enhancements to property and equipment are capitalized, and minor replacements, maintenance and repairs that do not extend asset life or add value are charged to expense as incurred. When property and equipment assets are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in results of operations in operating costs and expenses for the respective period. Property and equipment, except for land, is depreciated using the straight-line method over the estimated average useful lives ranging from two to thirty-nine years.

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

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


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

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This new standard eliminates certain exceptions in Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted in any interim period within that year.

We elected to early adopt this standard during the period ended June 30, 2020, and most amendments within the standard were required to be applied on a prospective basis as of January 1, 2020, while certain amendments were applied on a retrospective or modified retrospective basis. The most significant impact to us is the removal of a limit on the tax benefit recognized on pre-tax losses in interim periods, which was required to be applied on a prospective basis. As a result of our adoption of ASU 2019-12, we calculated our quarterly income tax benefits based on ordinary losses incurred during the first, second and third quarters of 2020, no longer limiting the computed benefit if it exceeds the amount of benefit that would be recognized if the year-to-date ordinary loss were the anticipated ordinary loss for the full fiscal year.

Stock-Based Compensation

We measure all share-based payments, 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 statements of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period. The fair value of restricted stock unit awards and performance share unit awards is based on the closing price of our common stock on the grant date. We account for forfeitures as they occur. See Note 11 for additional information regarding our 2018 LTIP.


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

Revenue Disaggregation

The following table disaggregates our revenue by segment and by major source for the periods indicated (in thousands):
Reporting Segments
MarketingTransportationTotal
Three Months Ended September 30, 2020
Revenues from contracts with customers$242,267 $21,720 $263,987 
Other (1)
2,917  2,917 
Total revenues$245,184 $21,720 $266,904 
Timing of revenue recognition:
Goods transferred at a point in time$242,267 $ $242,267 
Services transferred over time 21,720 21,720 
Total revenues from contracts with customers$242,267 $21,720 $263,987 
Three Months Ended September 30, 2019
Revenues from contracts with customers$396,001 $15,698 $411,699 
Other (1)
38,608  38,608 
Total revenues$434,609 $15,698 $450,307 
Timing of revenue recognition:
Goods transferred at a point in time$396,001 $ $396,001 
Services transferred over time 15,698 15,698 
Total revenues from contracts with customers$396,001 $15,698 $411,699 
Nine Months Ended September 30, 2020
Revenues from contracts with customers$693,513 $50,121 $743,634 
Other (1)
29,033  29,033 
Total revenues$722,546 $50,121 $772,667 
Timing of revenue recognition:
Goods transferred at a point in time$693,513 $ $693,513 
Services transferred over time 50,121 50,121 
Total revenues from contracts with customers$693,513 $50,121 $743,634 
Nine Months Ended September 30, 2019
Revenues from contracts with customers$1,147,139 $48,498 $1,195,637 
Other (1)
184,271  184,271 
Total revenues$1,331,410 $48,498 $1,379,908 
Timing of revenue recognition:
Goods transferred at a point in time$1,147,139 $ $1,147,139 
Services transferred over time 48,498 48,498 
Total revenues from contracts with customers$1,147,139 $48,498 $1,195,637 
_______________
(1)Other marketing revenues are recognized under ASC 815, Derivatives and Hedging, and ASC 845, Nonmonetary Transactions – Purchases and Sales of Inventory with the Same Counterparty.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other Crude Oil Marketing Revenue

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

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 EndedNine Months Ended
September 30,September 30,
2020201920202019
Revenue gross-up$97,566 $193,440 $315,049 $658,606 



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,
20202019
Insurance premiums$153 $473 
Rents, licenses and other1,264 1,086 
Total prepayments and other current assets$1,417 $1,559 


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

The historical costs of our property and equipment and related accumulated depreciation balances were as follows at the dates indicated (in thousands):
Estimated
Useful LifeSeptember 30,December 31,
in Years20202019
Tractors and trailers (1)
56
$115,809 $115,693 
Field equipment (2)
25
25,152 25,094 
Buildings
539
14,939 16,055 
Office equipment
25
1,893 1,951 
Land1,790 1,790 
Construction in progress606 3,661 
Total160,189 164,244 
Less accumulated depreciation(95,720)(95,198)
Property and equipment, net$64,469 $69,046 
_______________
(1)Amounts include tractors in our crude oil marketing segment and trailers in our transportation segment held under finance leases. At September 30, 2020 and December 31, 2019, gross property and equipment associated with these assets held under finance leases were $7.2 million and $5.5 million, respectively. Accumulated amortization associated with these assets held under these finance leases were $2.6 million and $1.7 million at September 30, 2020 and December 31, 2019, respectively (see Note 13 for further information).
(2)Amounts include a tank storage and throughput arrangement in our crude oil marketing segment held under a finance lease. At September 30, 2020 and December 31, 2019, gross property and equipment associated with these assets held under a finance lease were $3.3 million and $3.3 million, respectively. Accumulated amortization associated with these assets held under a finance lease was $1.6 million and $0.7 million at September 30, 2020 and December 31, 2019, respectively (see Note 13 for further information).

Components of depreciation and amortization expense were as follows for the periods indicated (in thousands):
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Depreciation and amortization, excluding
amounts under finance leases
$4,237 $3,840 $11,882 $11,012 
Amortization of property and equipment
under finance leases
622 553 1,728 1,254 
Total depreciation and amortization$4,859 $4,393 $13,610 $12,266 


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Acquisition

On May 17, 2020, we entered into a purchase and sale agreement with Comcar Industries, Inc. (“Comcar”), a bulk carrier trucking company, for the purchase of substantially all of the transportation assets of Comcar’s subsidiary, CTL Transportation, LLC (“CTL”). CTL provides delivery services to customers in the chemical industry, with operations in nine locations in the southeastern United States. On June 26, 2020, we closed on the asset acquisition for approximately $9.0 million in cash. This acquisition added approximately 163 tractors and 328 trailers to our existing transportation fleet, and these assets were included in our transportation segment. This acquisition added new customers, new market areas and new product lines to our transportation segment portfolio. As a result of the acquisition, we added services to new and existing customers in six new market areas, including new terminals in Louisiana, Missouri, Ohio, Georgia and Florida.

We also incurred approximately $0.1 million of acquisition costs in connection with this acquisition, which has been included in the allocation of the total purchase price of $9.2 million to the assets acquired.

The following table summarizes the estimated fair value of the assets acquired at the acquisition date (in thousands):

Property and equipment — tractors and trailers$5,901 
Materials and supplies87 
Intangible assets — customer relationships3,175 
Total purchase price$9,163 

The estimated fair value of the acquired property and equipment was determined using the estimated market value of each type of asset. The estimated fair value of the acquired customer relationship intangible assets was determined using an income approach, specifically a discounted cash flow analysis. The income approach estimates the future benefits of the customer relationships and deducts the expenses incurred in servicing the relationships and the contributions from the other business assets to derive the future net benefits of these assets. The future net benefits are discounted back to present value using the appropriate discount rate, which results in the value of the customer relationships.

A customer relationship intangible asset is the relationship between CTL and various customers to whom we did not have a previous relationship. The customer relationships we acquired in this transaction provide us with access to those customers to whom we did not have a previous relationship and allows us to enter product markets in which we have not previously participated. Because of the highly competitive and fragmented transportation market, we believe access to these customers will provide us with an entry into new market areas.

The discounted cash flow analysis used to estimate the fair value of the CTL customer relationships relied on Level 3 fair value inputs. Level 3 fair values are based on unobservable inputs. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date. With respect to the CTL customer relationships, the Level 3 inputs included the rate of retention of the current customers of CTL as of the valuation date, our transportation segment’s historical customer retention rate and projected future revenues associated with the customers. The CTL customers expected to remain with us after the transaction were included in the valuation of the customer relationships. We are amortizing the customer relationship intangible assets over a period of seven years, using a modified straight-line approach.

For the period from acquisition to September 30, 2020, we recorded $0.1 million of amortization expense related to these intangible assets.

In connection with the acquisition, we entered into a finance lease agreement for an additional 40 trailers with a six year term. See Note 13 for further information regarding finance leases.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Cash Deposits and Other Assets

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

September 30,December 31,
20202019
Amounts associated with liability insurance program:
Insurance collateral deposits$675 $1,233 
Excess loss fund521 943 
Accumulated interest income425 609 
Other amounts:
State collateral deposits65 37 
Materials and supplies507 477 
Total cash deposits and other assets$2,193 $3,299 

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


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

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

Financial information by reporting segment was as follows for the periods indicated (in thousands):

Reporting Segments
MarketingTransportationOtherTotal
Three Months Ended September 30, 2020
Revenues$245,184 $21,720 $ $266,904 
Segment operating earnings (1)
5,869 1,592  7,461 
Depreciation and amortization1,836 3,023  4,859 
Property and equipment additions (2) (3)
684 (32)52 704 
Three Months Ended September 30, 2019
Revenues$434,609 $15,698 $ $450,307 
Segment operating earnings (1)
2,888 154  3,042 
Depreciation and amortization2,214 2,179  4,393 
Property and equipment additions (3)
3,894 8,410  12,304 
Nine Months Ended September 30, 2020
Revenues$722,546 $50,121 $ $772,667 
Segment operating (losses) earnings (1)
(4,952)1,033  (3,919)
Depreciation and amortization5,700 7,910  13,610 
Property and equipment additions (2) (3)
2,734 332 523 3,589 
Nine Months Ended September 30, 2019
Revenues$1,331,410 $48,498 $ $1,379,908 
Segment operating earnings (1)
10,948 1,970  12,918 
Depreciation and amortization6,640 5,626  12,266 
Property and equipment additions (3)
6,896 18,529  25,425 
_______________
(1)Our crude oil marketing segment’s operating (losses) earnings included inventory valuation losses of $12 thousand and $2.1 million for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, our crude oil marketing segment’s operating (losses) earnings included inventory valuation losses of $18.2 million and inventory liquidation gains of $1.5 million, respectively.
(2)During the three and nine months ended September 30, 2020, we had $0.1 million and $0.5 million, respectively, of property and equipment additions for leasehold improvements at our corporate headquarters, which is not attributed or allocated to any of our reporting segments.
(3)Our transportation segment’s property and equipment additions do not include approximately $1.7 million of assets acquired under finance leases during the nine months ended September 30, 2020. Our crude oil marketing segment’s property and equipment additions do not include approximately $4.1 million of assets acquired under finance leases during the nine months ended September 30, 2019. See Note 13 for further information.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Segment operating (losses) earnings reflect revenues net of operating costs and depreciation and amortization expense and are reconciled to (losses) earnings before income taxes, as follows for the periods indicated (in thousands):
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Segment operating (losses) earnings$7,461 $3,042 $(3,919)$12,918 
General and administrative(1,405)(2,739)(7,030)(8,005)
Operating (losses) earnings6,056 303 (10,949)4,913 
Gain on dissolution of investment   573 
Interest income105 758 614 2,145 
Interest expense(70)(242)(288)(424)
Earnings (losses) before income taxes$6,091 $819 $(10,623)$7,207 

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

September 30,December 31,
20202019
Reporting segment:
Marketing$119,758 $141,402 
Transportation67,310 58,483 
Cash and other69,392 130,957 
Total assets$256,460 $330,842 

There were no significant intersegment sales during the three and nine months ended September 30, 2020 and 2019, respectively. Other identifiable assets are primarily corporate cash, corporate accounts receivable 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 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 in a building operated by 17 South Briar Hollow Lane, LLC, an affiliate of KSA Industries, Inc., which is an affiliated entity.

Activities with affiliates were as follows for the periods indicated (in thousands):

Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Affiliate billings (refunds) to us (1)
$(15)$