SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

ADAMS RESOURCES & ENERGY, INC.



Delaware						74-1753147
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)



Large accelerated filer o			Accelerated filer þ
Non-accelerated filer o (Do not check if a smaller reporting company)			Smaller reporting company o
Emerging growth company o

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

Table of Contents

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Page No.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Unaudited Condensed Consolidated Balance Sheets

Unaudited Condensed Consolidated Statements of Operations

Unaudited Condensed Consolidated Statements Cash Flows

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

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

2124

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3034

Item 4.

Controls and Procedures

3034

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1.1A.

~~Legal Proceedings~~Risk Factors

3134

~~Item 1A.~~

~~Risk Factors~~

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3135

Item 3.

Defaults Upon Senior Securities

3135

Item 4.

Mine Safety Disclosures

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	March 31,		December 31,			June 30,		December 31,
	2018		2017			2018		2017
ASSETS					ASSETS
Current assets:					Current assets:
Cash and cash equivalents	$	111,536	$	109,393	Cash and cash equivalents	$	126,999	$	109,393
Accounts receivable, net of allowance for doubtful					Accounts receivable, net of allowance for doubtful
accounts of $303 and $303, respectively	117,153		121,353
accounts of $271 and $303, respectively					accounts of $271 and $303, respectively	118,533		121,353

Inventory	19,267		12,192		Inventory	21,513		12,192
Derivative assets	312		166		Derivative assets	538		166
Income tax receivable	437		1,317		Income tax receivable	—		1,317
Prepayments and other current assets	1,111		1,264		Prepayments and other current assets	1,197		1,264
Total current assets	249,816		245,685		Total current assets	268,780		245,685
Property and equipment, net	27,744		29,362		Property and equipment, net	27,304		29,362
Investments in unconsolidated affiliates	425		425		Investments in unconsolidated affiliates	425		425
Cash deposits and other assets	6,523		7,232		Cash deposits and other assets	6,618		7,232
Total assets	$	284,508	$	282,704	Total assets	$	303,127	$	282,704

LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:					Current liabilities:
Accounts payable	$	126,044	$	124,706	Accounts payable	$	140,296	$	124,706
Accounts payable – related party	5		5		Accounts payable – related party	5		5
Derivative liabilities	289		145		Derivative liabilities	514		145
Current portion of capital lease obligations	341		338		Current portion of capital lease obligations	345		338
Other current liabilities	5,255		4,404		Other current liabilities	6,845		4,404
Total current liabilities	131,934		129,598		Total current liabilities	148,005		129,598
Other long-term liabilities:					Other long-term liabilities:
Asset retirement obligations	1,334		1,273		Asset retirement obligations	1,405		1,273
Capital lease obligations	1,265		1,351		Capital lease obligations	1,177		1,351
Deferred taxes and other liabilities	2,646		3,363		Deferred taxes and other liabilities	2,516		3,363
Total liabilities	137,179		135,585		Total liabilities	153,103		135,585

Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)					Commitments and contingencies (Note 12)

Shareholders’ equity:					Shareholders’ equity:
Preferred stock – $1.00 par value, 960,000 shares					Preferred stock – $1.00 par value, 960,000 shares
authorized, none outstanding	—		—		authorized, none outstanding	—		—
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, 4,217,596 shares outstanding	422		422
Contributed capital	11,693		11,693		Contributed capital	11,696		11,693
Retained earnings	135,214		135,004		Retained earnings	137,906		135,004
Total shareholders’ equity	147,329		147,119		Total shareholders’ equity	150,024		147,119
Total liabilities and shareholders’ equity	$	284,508	$	282,704	Total liabilities and shareholders’ equity	$	303,127	$	282,704

See Notes to Unaudited Condensed Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	Three Months Ended							Three Months Ended						Six Months Ended
	March 31,							June 30,						June 30,
	2018			2017				2018		2017		2018		2017
Revenues:							Revenues:
Marketing	$	373,638		$	288,615		Marketing	$	438,791	$	301,176	$	812,429	$	589,791
Transportation	13,618			13,455			Transportation	13,626		13,616		27,244		27,071
Oil and natural gas	—			1,017			Oil and natural gas	—		410		—		1,427
Total revenues	387,256			303,087			Total revenues	452,417		315,202		839,673		618,289

Costs and expenses:							Costs and expenses:
Marketing	369,183			285,153			Marketing	431,683		297,508		800,866		582,661
Transportation	12,301			12,162			Transportation	11,890		11,851		24,191		24,013
Oil and natural gas	—			750			Oil and natural gas	—		201		—		951
General and administrative	2,283			2,637			General and administrative	2,284		1,460		4,567		4,097
Depreciation, depletion and amortization	2,412			3,969			Depreciation, depletion and amortization	2,262		3,563		4,674		7,532
Total costs and expenses	386,179			304,671			Total costs and expenses	448,119		314,583		834,298		619,254

Operating earnings (losses)	1,077			(1,584		)	Operating earnings (losses)	4,298		619		5,375		(965)

Other income (expense):							Other income (expense):
Loss on deconsolidation of subsidiary							Loss on deconsolidation of subsidiary	—		(1,635)		—		(1,635)

Interest income	387			159			Interest income	498		260		885		419
Interest expense	(19		)	(1		)	Interest expense	(15)		(1)		(34)		(2)
Total other income (expense), net	368			158			Total other income (expense), net	483		(1,376)		851		(1,218)

(Losses) earnings before income taxes	1,445			(1,426		)	(Losses) earnings before income taxes	4,781		(757)		6,226		(2,183)
Income tax benefit (provision)	(307		)	566			Income tax benefit (provision)	(1,161)		475		(1,468)		1,041

Net (losses) earnings	$	1,138		$	(860	)	Net (losses) earnings	$	3,620	$	(282)	$	4,758	$	(1,142)

Earnings (losses) per share:							Earnings (losses) per share:
Basic and diluted net (losses) earnings
per common share	$	0.27		$	(0.20	)

Weighted average number of common
shares outstanding	4,218			4,218
Basic net (losses) earnings per common share							Basic net (losses) earnings per common share	$	0.86	$	(0.07)	$	1.13	$	(0.27)
Diluted net (losses) earnings per common share							Diluted net (losses) earnings per common share	$	0.86	$	(0.07)	$	1.13	$	(0.27)

Dividends per common share	$	0.22		$	0.22		Dividends per common share	$	0.22	$	0.22	$	0.44	$	0.44

See Notes to Unaudited Condensed Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Three Months Ended							Six Months Ended
	March 31,							June 30,
	2018			2017				2018		2017
Operating activities:							Operating activities:
Net (losses) earnings	$	1,138		$	(860	)	Net (losses) earnings	$	4,758	$	(1,142)
Adjustments to reconcile net (losses) earnings to net cash							Adjustments to reconcile net (losses) earnings to net cash
provided by operating activities:							provided by operating activities:
Depreciation, depletion and amortization	2,412			3,969			Depreciation, depletion and amortization	4,674		7,532
Gains (losses) on sales of property	(26		)	7
Gains on sales of property							Gains on sales of property	(446)		(129)
Impairment of oil and natural gas properties	—			3			Impairment of oil and natural gas properties	—		3
Provision for doubtful accounts							Provision for doubtful accounts	(32)		(8)
Stock-based compensation expense							Stock-based compensation expense	3		—
Deferred income taxes	(709		)	60			Deferred income taxes	(832)		(926)
Net change in fair value contracts	(2		)	(420		)	Net change in fair value contracts	(3)		(700)

Loss on deconsolidation of subsidiary							Loss on deconsolidation of subsidiary	—		1,635
Changes in assets and liabilities:							Changes in assets and liabilities:
Accounts receivable	4,200			(1,968		)	Accounts receivable	2,852		13,581
Accounts receivable/payable, affiliates							Accounts receivable/payable, affiliates	—		(151)
Inventories	(7,075		)	(7,557		)	Inventories	(9,321)		(2,887)
Income tax receivable	880			(736		)	Income tax receivable	1,317		(336)
Prepayments and other current assets	153			744			Prepayments and other current assets	67		887
Accounts payable	1,377			17,746			Accounts payable	15,634		3,357
Accrued liabilities	851			1,084			Accrued liabilities	2,441		(483)
Other	86			78			Other	125		(461)
Net cash provided by operating activities	3,285			12,150			Net cash provided by operating activities	21,237		19,772

Investing activities:							Investing activities:
Property and equipment additions	(866		)	(1,006		)	Property and equipment additions	(2,728)		(2,108)
Proceeds from property sales	132			39			Proceeds from property sales	655		190

Insurance and state collateral (deposits) refunds	603			476			Insurance and state collateral (deposits) refunds	465		347
Net cash used in investing activities	(131		)	(491		)	Net cash used in investing activities	(1,608)		(1,571)

Financing activities:							Financing activities:
Principal repayments of capital lease obligations	(83		)	—			Principal repayments of capital lease obligations	(167)		—
Dividends paid on common stock	(928		)	(928		)	Dividends paid on common stock	(1,856)		(1,856)
Net cash used in financing activities	(1,011		)	(928		)	Net cash used in financing activities	(2,023)		(1,856)

Increase in cash and cash equivalents	2,143			10,731			Increase in cash and cash equivalents	17,606		16,345
Cash and cash equivalents at beginning of period	109,393			87,342			Cash and cash equivalents at beginning of period	109,393		87,342
Cash and cash equivalents at end of period	$	111,536		$	98,073		Cash and cash equivalents at end of period	$	126,999	$	103,687

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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’				Common		Contributed		Retained		Shareholders’
	Stock		Capital		Earnings			Equity				Stock		Capital		Earnings		Equity

Balance, January 1, 2018	$	422	$	11,693	$	135,004		$	147,119		Balance, January 1, 2018	$	422	$	11,693	$	135,004	$	147,119
Net earnings	—		—		1,138			1,138			Net earnings	—		—		4,758		4,758
Stock-based compensation expense											Stock-based compensation expense	—		3		—		3
Dividends paid on common stock	—		—		(928		)	(928		)	Dividends paid on common stock	—		—		(1,856)		(1,856)
Balance, March 31, 2018	$	422	$	11,693	$	135,214		$	147,329
Balance, June 30, 2018											Balance, June 30, 2018	$	422	$	11,696	$	137,906	$	150,024


							Total
	Common		Contributed		Retained		Shareholders’
	Stock		Capital		Earnings		Equity

Balance, January 1, 2017	$	422	$	11,693	$	139,197	$	151,312
Net losses	—		—		(1,142)		(1,142)
Dividends paid on common stock	—		—		(1,856)		(1,856)
Balance, June 30, 2017	$	422	$	11,693	$	136,199	$	148,314

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

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

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

Basis of Presentation

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

Use of Estimates

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

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2. ~~General~~Summary of Significant Accounting Policies

Earnings Per Share

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

A reconciliation of the denominator used in the calculation of basic and ~~Disclosure Matters~~diluted earnings (losses) per share is as follows (in thousands, except per share data):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018		2017		2018		2017
Basic earnings (losses) per share:
Net earnings (losses)	$	3,620	$	(282)	$	4,758	$	(1,142)

Weighted average number of shares outstanding – Basic	4,218		4,218		4,218		4,218

Basic earnings (losses) per share	$	0.86	$	(0.07)	$	1.13	$	(0.27)

Diluted earnings (losses) per share:
Net earnings (losses)	$	3,620	$	(282)	$	4,758	$	(1,142)

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	4,218		4,218		4,218		4,218

Diluted earnings (losses) per share	$	0.86	$	(0.07)	$	1.13	$	(0.27)

_______________

(1) The dilutive effect of restricted stock unit awards for the three and six months ended June 30, 2018 is de minimis.

(2) Performance share awards will be included in the calculation of diluted earnings per share when the performance conditions have been achieved.

Fair Value Measurements

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

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

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and we elect, cash flow hedge accounting. We had no contracts designated for hedge accounting during any current reporting periods (see Note 9 for further information).

~~Investments in Unconsolidated Affiliates~~

As a result of the voluntary bankruptcy filing in April 2017 of one of our wholly owned subsidiaries, Adams Resources Exploration Corporation (“AREC”), and our loss of control of AREC, we deconsolidated AREC in April 2017, and we recorded our investment in this subsidiary under the cost method of accounting. At March 31, 2018, our remaining investment in AREC was $0.4 million. We expect the bankruptcy case to be dismissed during the second quarter of 2018.

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

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. At June 30, 2018, our remaining investment in AREC was $0.4 million. We expect the bankruptcy case to be dismissed during the second half of 2018.

Letter of Credit Facility

We maintain a Credit and Security Agreement with Wells Fargo Bank, National Association to provide up to a $60 million stand-by letter of credit facility used to support crude oil purchases within our crude oil marketing segment and for other purposes. We are currently using the letter of credit facility for a letter of credit related to our insurance program. This facility is collateralized by the eligible accounts receivable within our crude oil marketing segment and expires on August 27, 2019.

The issued stand-by letters of credit are canceled as the underlying purchase obligations are satisfied by cash payment when due. The letter of credit facility places certain restrictions on Gulfmark Energy, Inc., one of our wholly owned subsidiaries. These restrictions include the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions. We are currently in compliance with all such financial covenants. At ~~March 31,~~June 30, 2018 and December 31, 2017, we had $0.4 million and $2.2 million, respectively, outstanding under this facility.

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~~ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Property and Equipment

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

We review our long-lived assets for impairment whenever there is evidence that the carrying value of ~~such~~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. Cash flows are developed based on estimated~~model of future ~~production, and prices are then discounted using a market based rate~~cash flows.

Table of ~~return consistent with that used by us in evaluating cash flows for other assets of a similar nature.~~Contents

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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 have started the process of reviewing our lease agreements in light of the new guidance. Although we are in the early stages of our ASC 842 implementation project, we anticipate that this new lease guidance will cause significant changes to the way leases are recorded, presented and disclosed in our consolidated financial statements.

Stock-Based Compensation

8We measure all share-based payments, including the issuance of restricted stock units and performance share units to employees and board members, using a fair-value based method. The cost of services received from employees and non-employee board members in exchange for awards of equity instruments is recognized in the consolidated statement of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period. The fair value of restricted stock unit awards and performance share unit awards is based on the closing price of our common stock on the grant date. We account for forfeitures as they occur. See Note 10 for additional information regarding our 2018 LTIP.

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~~ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES~~

~~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. The comparative information has not been restated and continues to be reported under the 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. We expect the impact of the adoption of the new standard to remain immaterial to our net earnings on an ongoing basis.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

For our transportation segment, each sales order associated with our master transportation agreements ~~was~~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 used significant judgment when assessing our contracts for impact upon adoption. For example, our 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 significant judgment. 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

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

• 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 ~~sheet~~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 ~~three months ended March 31, 2018~~periods indicated (in thousands):


								Reporting Segments
	Reporting Segments							Marketing		Transportation		Total
	Marketing		Transportation		Total

Three Months Ended June 30, 2018							Three Months Ended June 30, 2018
Revenues from contracts with customers	$	360,085	$	13,618	$	373,703	Revenues from contracts with customers	$	419,365	$	13,626	$	432,991
Other ⁽¹⁾	13,553		—		13,553		Other ⁽¹⁾	19,426		—		19,426
Total revenues	$	373,638	$	13,618	$	387,256	Total revenues	$	438,791	$	13,626	$	452,417

Timing of revenue recognition:							Timing of revenue recognition:
Goods transferred at a point in time	$	360,085	$	—	$	360,085	Goods transferred at a point in time	$	419,365	$	—	$	419,365
Services transferred over time	—		13,618		13,618		Services transferred over time	—		13,626		13,626
Total revenues from contracts with customers	$	360,085	$	13,618	$	373,703	Total revenues from contracts with customers	$	419,365	$	13,626	$	432,991

Six Months Ended June 30, 2018							Six Months Ended June 30, 2018
Revenues from contracts with customers							Revenues from contracts with customers	$	779,450	$	27,244	$	806,694
Other ⁽¹⁾							Other ⁽¹⁾	32,979		—		32,979
Total revenues							Total revenues	$	812,429	$	27,244	$	839,673

Timing of revenue recognition:							Timing of revenue recognition:
Goods transferred at a point in time							Goods transferred at a point in time	$	779,450	$	—	$	779,450
Services transferred over time							Services transferred over time	—		27,244		27,244
Total revenues from contracts with customers							Total revenues from contracts with customers	$	779,450	$	27,244	$	806,694

_______________


~~(1)~~	~~Other marketing revenues are recognized under ASC 815,~~ ~~Derivatives and Hedging, and ASC 845,~~ ~~Nonmonetary Transactions – Purchases and Sales of Inventory with the Same Counterparty~~.

(1) Other marketing revenues are recognized under ASC 815, Derivatives and Hedging, and ASC 845, Nonmonetary Transactions – Purchases and Sales of Inventory with the Same Counterparty.

Other Marketing Revenue

Certain of the commodity purchase and sale contracts utilized by our crude oil marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activity. From the time of contract origination, these ~~trading activity~~ 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.

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~~NOTES TO UNAUDITED CONDENSED 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						Six Months Ended
	June 30,						June 30,
	2018		2017		2018		2017

Revenue gross-up	$	56,335	$	44,908	$	102,026	$	102,473

Three Months Ended
March 31,
2018 2017

Revenue gross-up $ 45,691
$ 57,565

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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):


	June 30,		December 31,
	2018		2017

Insurance premiums	$	582	$	425
Rents, licenses and other	615		839
Total	$	1,197	$	1,264

Note 5. Property and Equipment

The historical costs of our property and equipment and related accumulated depreciation balances were as follows at the dates indicated (in thousands):

Tractors and trailers ⁽¹⁾

(1) Amounts include assets held under capital leases for certain tractors in our marketing segment. Gross property and equipment associated with assets held under capital leases were $1.8 million and $1.8 million at June 30, 2018 and December 31, 2017, respectively. Accumulated amortization associated with assets held under capital leases were $0.3 million and $0.1 million at June 30, 2018 and December 31, 2017, respectively (see Note 12 for further information).

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Components of depreciation, depletion and amortization expense were as follows for the periods indicated (in thousands):

Three Months Ended
March 31,
2018 2017
Depreciation, depletion and amortization, excluding amounts
under capital leases $ 2,322
$ 3,969
Amortization of property and equipment under capital leases 90
—
Total depreciation, depletion and amortization $ 2,412
$ 3,969

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Cash Deposits and Other Assets

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

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. Segment Reporting

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

Information concerning our various business activities was as follows for the periods indicated (in thousands):


												Reporting Segments
	Reporting Segments											Marketing		Transportation		Oil and Gas		Total
	Marketing		Transportation			Oil and Gas			Total
Three Months Ended June 30, 2018											Three Months Ended June 30, 2018
Revenues											Revenues	$	438,791	$	13,626	$	—	$	452,417
Segment operating (losses) earnings ⁽¹⁾											Segment operating (losses) earnings ⁽¹⁾	5,772		810		—		6,582
Depreciation, depletion and amortization											Depreciation, depletion and amortization	1,336		926		—		2,262
Property and equipment additions ⁽²⁾											Property and equipment additions ⁽²⁾	277		1,572		—		1,849

Three Months Ended March 31, 2018
Three Months Ended June 30, 2017											Three Months Ended June 30, 2017
Revenues	$	373,638	$	13,618		$	—		$	387,256	Revenues	$	301,176	$	13,616	$	410	$	315,202
Segment operating (losses) earnings ⁽¹⁾	2,958		402			—			3,360		Segment operating (losses) earnings ⁽¹⁾	1,691		293		95		2,079
Depreciation, depletion and amortization	1,497		915			—			2,412		Depreciation, depletion and amortization	1,977		1,472		114		3,563
Property and equipment additions	793		73			—			866		Property and equipment additions	191		(92)		1,003		1,102

Three Months Ended March 31, 2017
Six Months Ended June 30, 2018											Six Months Ended June 30, 2018
Revenues											Revenues	$	812,429	$	27,244	$	—	$	839,673
Segment operating (losses) earnings ⁽¹⁾											Segment operating (losses) earnings ⁽¹⁾	8,730		1,212		—		9,942
Depreciation, depletion and amortization											Depreciation, depletion and amortization	2,833		1,841		—		4,674
Property and equipment additions ⁽²⁾											Property and equipment additions ⁽²⁾	1,070		1,645		—		2,715

Six Months Ended June 30, 2017											Six Months Ended June 30, 2017
Revenues	$	288,615	$	13,455		$	1,017		$	303,087	Revenues	$	589,791	$	27,071	$	1,427	$	618,289
Segment operating (losses) earnings ⁽¹⁾	1,393		(298		)	(42		)	1,053		Segment operating (losses) earnings ⁽¹⁾	3,084		(5)		53		3,132
Depreciation, depletion and amortization	2,069		1,591			309			3,969		Depreciation, depletion and amortization	4,046		3,063		423		7,532
Property and equipment additions	82		102			822			1,006		Property and equipment additions	273		10		1,825		2,108

(1) Our marketing segment’s operating earnings included inventory liquidation gains of $1.9 million and $2.5 million for the three and six months ended June 30, 2018, respectively, and inventory valuation losses of $1.4 million and $2.1 million for the three and six months ended June 30, 2017, respectively.

(2) During the six months ended June 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.

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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):

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Oil and Gas ⁽¹⁾

____________________

(1) Amounts represent our cost method investment in this segment.

Intersegment sales are insignificant. Other identifiable assets are primarily corporate cash, corporate accounts receivable, investments 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. 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 us for providing ~~such~~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.

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

Three Months Ended
March 31,
2018 2017

Affiliate billings to us $ 15
$ 12
Billings to affiliates 2
1
Rentals paid to affiliate 122
167
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.~~

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018		2017		2018		2017


Affiliate billings to us	$	25	$	24	$	40	$	36
Billings to affiliates	1		1		3		2
Rentals paid to affiliate	122		158		244		325
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. 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 ~~March 31,~~June 30, 2018, we had in place 2016 commodity purchase and sale contracts, of which ~~two~~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:

~~322 barrels per day of crude oil during April 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 through September 2018;

• 258 barrels per day of crude oil during October through December 2018; ~~and~~

• 322 barrels per day of crude oil during January 2019 through ~~March~~April 2019; and

• 258 barrels per day of crude oil during May 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):


	March 31, 2018									June 30, 2018
	Balance Sheet Location and Amount									Balance Sheet Location and Amount
	Current		Other		Current		Other			Current		Other		Current		Other
	Assets		Assets		Liabilities		Liabilities			Assets		Assets		Liabilities		Liabilities
Asset derivatives:									Asset derivatives:
Fair value forward hydrocarbon commodity									Fair value forward hydrocarbon commodity
contracts at gross valuation	$	312	$	—	$	—	$	—	contracts at gross valuation	$	538	$	—	$	—	$	—
Liability derivatives:									Liability derivatives:
Fair value forward hydrocarbon commodity									Fair value forward hydrocarbon commodity
contracts at gross valuation	—		—		289		—		contracts at gross valuation	—		—		514		—
Less counterparty offsets	—		—		—		—		Less counterparty offsets	—		—		—		—
As reported fair value contracts	$	312	$	—	$	289	$	—	As reported fair value contracts	$	538	$	—	$	514	$	—

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 through May 2018;

• 258 barrels per day of crude oil during June 2018;

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

• 646 barrels per day of crude oil during July 2018;

• 322 barrels per day of crude oil during August through September 2018; and

• 258 barrels per day of crude oil during October through December 2018.


	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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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
$ —
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

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 ~~March 31,~~June 30, 2018 and December 31, 2017, 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
March 31,
2018 2017

Revenues – marketing $ 1
$ 420


	Gains (losses)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018		2017		2018		2017

Revenues – marketing	$	1	$	280	$	2	$	700

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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):


	March 31, 2018													June 30, 2018
	Fair Value Measurements Using													Fair Value Measurements Using
	Quoted Prices													Quoted Prices
	in Active		Significant											in Active		Significant
	Markets for		Other			Significant								Markets for		Other		Significant
	Identical Assets		Observable			Unobservable								Identical Assets		Observable		Unobservable
	and Liabilities		Inputs			Inputs		Counterparty						and Liabilities		Inputs		Inputs		Counterparty
	(Level 1)		(Level 2)			(Level 3)		Offsets		Total				(Level 1)		(Level 2)		(Level 3)		Offsets		Total

Derivatives:													Derivatives:
Current assets	$	—	$	312		$	—	$	—	$	312		Current assets	$	—	$	538	$	—	$	—	$	538
Current liabilities	—		(289		)	—		—		(289		)	Current liabilities	—		(514)		—		—		(514)
Net value	$	—	$	23		$	—	$	—	$	23		Net value	$	—	$	24	$	—	$	—	$	24


	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

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

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 ~~March 31,~~June 30, 2018 and December 31, 2017, 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.

Note 10. Share-Based Compensation Plan

In May 2018, our shareholders approved the 2018 LTIP, a long-term incentive plan under which any employee or non-employee director who provides services to us is eligible to participate in the plan. The 2018 LTIP, which is overseen by the Compensation Committee of our Board of Directors, provides for the grant of various types of equity awards, of which restricted stock unit awards and performance-based compensation awards were granted during the second quarter of 2018. 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 and assuming the potential achievement of the maximum amounts of the performance factors through June 30, 2018, a total of 120,403 shares were available for issuance. During the six months ended June 30, 2018, we recognized a nominal amount of compensation expense in connection with equity-based awards as the grant date for all awards under the 2018 LTIP was June 29, 2018.

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 and performance 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 June 30, 2018, there were no 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 33% 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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents restricted stock unit award activity for the periods indicated:


		Weighted-
		Average Grant
	Number of	Date Fair Value
	Shares	per Share ⁽¹⁾

Restricted stock unit awards at January 1, 2018	—	$	—
Granted ⁽²⁾	13,733	$	43.00
Vested	—	$	—
Forfeited	—	$	—
Restricted stock unit awards at June 30, 2018	13,733	$	—

____________________

(1) Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.

(2) The aggregate grant date fair value of restricted stock unit awards issued during 2018 was $0.6 million based on a grant date market price of our common shares of $43.00 per share.

Unrecognized compensation cost associated with restricted stock unit awards was approximately $0.6 million. 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 1.7 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.

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-
		Average Grant
	Number of	Date Fair Value
	Shares	per Share ⁽¹⁾

Performance share unit awards at January 1, 2018	—	$	—
Granted ⁽²⁾	7,932	$	43.00
Vested	—	$	—
Forfeited	—	$	—
Performance share unit awards at June 30, 2018	7,932	$	—

____________________

(1) Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.

(2) The aggregate grant date fair value of performance share unit awards issued during 2018 was $0.4 million based on a grant date market price of our common share of $43.00 per share and assuming a performance factor of 100 percent.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unrecognized compensation cost associated with performance share unit awards was approximately $0.4 million. We expect to recognize the remaining compensation cost for these awards over a weighted-average period of 2.9 years.

Note ~~10.~~11. Supplemental Cash Flow Information

Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):


	Six Months Ended
	June 30,
	2018		2017

Cash paid for interest	$	34	$	2
Cash paid for federal and state income taxes	210		225

Non-cash transactions:
Change in accounts payable related to property and equipment additions	(44)		455

Note ~~11.~~12. Commitments and Contingencies

Capital Lease Obligations

We have 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 ~~March 31,~~June 30, 2018 for the next five years, and in total thereafter (in thousands):

Operating Lease Obligations

We lease certain property and equipment under ~~noncancellable~~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.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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						Six Months Ended
	June 30,						June 30,
	2018		2017		2018		2017

Rental expense	$	2,835	$	3,230	$	5,422	$	6,458

Three Months Ended
March 31,
2018 2017

Rental expense $ 2,587
$ 3,228

At ~~March 31,~~June 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	$	2,897	Remainder of 2018	$	2,986
2019	2,016		2019	3,336
2020	1,623		2020	1,641
2021	1,513		2021	1,531
2022	1,481		2022	1,499
Thereafter	2,923		Thereafter	2,966
Total operating lease payments	$	12,453	Total operating lease payments	$	13,959

Under our automobile and workers’ compensation insurance policies that were in place through September 30, 2017, we pre-funded our estimated losses, 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.

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. The amount of pre-funded insurance premiums left to cover potential future losses and our accruals for automobile and workers’ compensation claims were as follows at the dates indicated (in thousands):


	June 30,		December 31,
	2018		2017

Pre-funded premiums for losses incurred but not reported	$	516	$	988
Accrued automobile and workers’ compensation claims	1,262		450

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 annual aggregate medical claims exceeding ~~$4.5~~$6.0 million. Medical accrual amounts were as follows at the dates indicated (in thousands):


	June 30,		December 31,
	2018		2017

Accrued medical claims	$	1,439	$	1,329

March 31, December 31,
2018 2017

Accrued medical claims $ 1,353
$ 1,329

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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Item 2. Management’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, 2017 (the “2017 Form 10-K”), as filed on March 12, 2018 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 2017 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.

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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							Three Months Ended								Six Months Ended
	March 31,							June 30,								June 30,
	2018		2017		Change ⁽¹⁾			2018		2017		Change ⁽¹⁾		2018		2017		Change ⁽¹⁾

Revenues	$	373,638	$	288,615	29	%	Revenues	$	438,791	$	301,176	46	%	$	812,429	$	589,791	38	%
Operating earnings	2,958		1,393		112	%	Operating earnings	5,772		1,691		241	%	8,730		3,084		183	%
Depreciation and amortization	1,497		2,069		(28	%)	Depreciation and amortization	1,336		1,977		(32)	%	2,833		4,046		(30)	%
Driver commissions	3,055		3,062		—	%	Driver commissions	3,001		3,129		(4)	%	6,056		6,191		(2)	%
Insurance	1,289		1,239		4	%	Insurance	1,125		1,258		(11)	%	2,414		2,497		(3)	%
Fuel	1,515		1,354		12	%	Fuel	1,653		1,284		29	%	3,168		2,638		20	%


~~(1)~~	~~Represents the percentage increase (decrease) from the prior year period.~~

(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					Three Months Ended						Six Months Ended
	March 31,					June 30,						June 30,
	2018		2017			2018		2017		2018		2017
Field level purchase volumes – per day ⁽¹⁾					Field level purchase volumes – per day ⁽¹⁾
Crude oil – barrels	65,194		66,374		Crude oil – barrels	70,389		66,817		67,815		66,605

Average purchase price					Average purchase price
Crude oil – per barrel	$	64.01	$	49.02	Crude oil – per barrel	$	68.24	$	46.34	$	66.22	$	47.67


~~(1)~~	(1) Reflects the volume purchased from third parties at the field level of operations.

Revenues and Operating Earnings. Crude oil marketing revenues increased by ~~$85.0~~$137.6 million during the three months ended ~~March 31,~~June 30, 2018 as compared to the three months ended ~~March 31,~~June 30, 2017, primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately ~~$91.8~~$115.3 million, ~~partially offset by lower~~and higher overall crude oil volumes, which ~~decreased~~increased revenues by approximately ~~$6.8~~$22.3 million. The average crude oil price received was ~~$49.02~~$46.34 for the three months ended ~~March 31,~~June 30, 2017, which increased to ~~$64.01~~$68.24 for the three months ended ~~March 31,~~June 30, 2018.

Our crude oil marketing operating earnings for the three months ended ~~March 31,~~June 30, 2018 increased by ~~$1.6~~$4.1 million as compared to the same period in 2017, ~~primarily as a result of an increase in the market price of~~due to low margin contracts being canceled or renegotiated and increased crude ~~oil.~~oil volumes. Operating earnings were also impacted by inventory valuation changes (as shown in the table below).

Crude oil marketing revenues increased by $222.6 million during the six months ended June 30, 2018 as compared to the six months ended June 30, 2017, primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately $208.1 million, and higher overall crude oil volumes, which increased revenues by approximately $14.5 million. The average crude oil price received was $47.67 for the six months ended June 30, 2017, which increased to $66.22 for the six months ended June 30, 2018.

Our crude oil marketing operating earnings for the six months ended June 30, 2018 increased by $5.6 million as compared to the same period in 2017, due to improved market conditions. Operating earnings were also impacted by inventory valuation changes.

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Expenses. Driver commissions decreased by $0.1 million during the three months ended ~~March 31,~~June 30, 2018 ~~were consistent with~~as compared to the same period in 2017, ~~with~~primarily due to a ~~slight~~ decrease in the number of drivers in the 2018 period as compared to the 2017 period, partially offset by an increase in crude oil marketing volumes in the 2018 period. Insurance costs ~~increased~~decreased by $0.1 million during the three months ended ~~March 31,~~June 30, 2018 as compared to the same period in 2017, primarily as a result of ~~increased~~decreased mileage during the 2018 period as compared to the 2017 period, ~~partially offset by~~and favorable driver safety performance during the 2018 period. Fuel costs increased by ~~$0.2~~$0.4 million during the three months ended ~~March 31,~~June 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 ~~March 31,~~June 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.

Driver commissions decreased by $0.1 million during the six months ended June 30, 2018 as compared to the same period in 2017, primarily due to a decrease in the number of drivers in the 2018 period as compared to the 2017 period, partially offset by an increase in crude oil marketing volumes in the 2018 period. Insurance costs decreased by $0.1 million during the six months ended June 30, 2018 as compared to 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. Fuel costs increased by $0.5 million during the six months ended June 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 $1.2 million during the six months ended June 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.

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Field Level Operating Earnings (Non-GAAP Financial Measure). Inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations are two significant factors affecting comparative crude oil marketing segment operating earnings. As a purchaser and shipper of crude oil, we hold inventory in storage tanks and third-party pipelines. During periods of increasing crude oil prices, we recognize inventory liquidation gains while during periods of falling prices, we recognize inventory liquidation and valuation losses.

Crude oil marketing operating earnings can be affected by the valuations of our forward month commodity contracts (derivative instruments). These non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date. We generally enter into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level). The valuation of derivative instruments at period end requires the recognition of non-cash “mark-to-market” gains and losses.

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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							Three Months Ended						Six Months Ended
	March 31,							June 30,						June 30,
	2018			2017				2018		2017		2018		2017

As reported segment operating earnings ⁽¹⁾	$	2,958		$	1,393		As reported segment operating earnings ⁽¹⁾	$	5,772	$	1,691	$	8,730	$	3,084
Add (subtract):							Add (subtract):
Inventory liquidation gains	(552		)	—			Inventory liquidation gains	(1,923)		—		(2,475)		—
Inventory valuation losses	—			658			Inventory valuation losses	—		1,405		—		2,063
Derivative valuation (gains) losses	(1		)	(420		)	Derivative valuation (gains) losses	(1)		(280)		(2)		(700)
Field level operating earnings ⁽²⁾	$	2,405		$	1,631		Field level operating earnings ⁽²⁾	$	3,848	$	2,816	$	6,253	$	4,447

(1) Segment operating earnings included inventory liquidation gains of $1.9 million and $2.5 million for the three and six months ended June 30, 2018, respectively, and inventory valuation losses of $1.4 million and $2.1 million for the three and six months ended June 30, 2017, respectively.

(2) The use of field level operating earnings is (a) unique to us, (b) not a substitute for a GAAP measure and (c) 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 six months ended ~~March 31,~~June 30, 2018 as compared to the same ~~period~~periods in 2017 due to an increase in the market price of crude oil, which increased revenues, ~~and~~ the effects of lower barge costs, ~~which reduced~~reducing operating ~~expenses.~~expenses, increased crude oil volumes and improved market conditions.

We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels):


	June 30, 2018				December 31, 2017
		Average			Average
	Barrels	Price		Barrels	Price

Crude oil inventory	302,591	$	71.10	198,011	$	61.57

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 2017 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								Three Months Ended								Six Months Ended
	March 31,								June 30,								June 30,
	2018		2017			Change ⁽¹⁾			2018		2017		Change ⁽¹⁾		2018		2017		Change ⁽¹⁾

Revenues	$	13,618	$	13,455		1	%	Revenues	$	13,626	$	13,616	—	%	$	27,244	$	27,071	1	%
Operating earnings (losses)	$	402	$	(298	)	(235	%)	Operating earnings (losses)	$	810	$	293	176	%	$	1,212	$	(5)	(24,340)	%
Depreciation and amortization	$	915	$	1,591		(42	%)	Depreciation and amortization	$	926	$	1,472	(37)	%	$	1,841	$	3,063	(40)	%
Driver commissions	$	2,880	$	2,836		2	%	Driver commissions	$	2,726	$	2,892	(6)	%	$	5,606	$	5,728	(2)	%
Insurance	$	1,402	$	1,381		2	%	Insurance	$	1,202	$	1,072	12	%	$	2,604	$	2,453	6	%
Fuel	$	1,876	$	1,632		15	%	Fuel	$	1,722	$	1,477	17	%	$	3,598	$	3,109	16	%
Maintenance expense	$	1,527	$	1,638		(7	%)	Maintenance expense	$	1,548	$	1,471	5	%	$	3,075	$	3,109	(1)	%
Mileage (000s)	5,070		5,618			(10	%)	Mileage (000s)	4,699		5,625		(16)	%	9,769		11,243		(13)	%

(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):

Revenues, net of fuel cost ⁽¹⁾

(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.

Transportation revenues during the three months ended June 30, 2018 were generally consistent with transportation revenues during the three months ended June 30, 2017, with a slight increase as a result of a new transportation agreement entered into in January 2018 and higher transportation rates in the 2018 period offset by a decrease in revenues as a result of less miles traveled. Revenues, net of fuel cost, decreased by $0.2 million during the three months ended June 30, 2018, primarily as a result of an increase in the price of diesel and lower miles traveled during the 2018 period. Transportation activity has been increasing, and we continue to pursue our strategy of streamlining operations and diversifying offerings in our transportation segment. We have been working with customers to increase our transportation rates as well as streamlining 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 $0.5 million during the three months ended June 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, partially offset by the purchase of new tractors in the the second quarter of 2018, which will result in increased depreciation expense in future periods.

Transportation revenues increased by $0.2 million during the ~~three~~six months ended ~~March 31,~~June 30, 2018, primarily as a result of athe new transportation agreement entered into in January 2018 and higher transportation rates in the 2018 period. Revenues, net of fuel cost, decreased by ~~$0.1~~$0.3 million during the ~~three~~six months ended ~~March 31,~~June 30, 2018, primarily as a result of an increase in the price of diesel during the 2018 period, partially offset by increased activity in our transportation segment. ~~Transportation activity began to increase during late 2017, and we continue to pursue our strategy of streamlining operations and diversifying offerings in our transportation segment.~~ This increase in services resulted in an increase in variable expenses related to transportation activities. Fuel costs increased by ~~$0.2~~$0.5 million as a result of an increase in the price of diesel during the 2018 period as compared to the 2017 period. Depreciation and amortization expense decreased by ~~$0.7~~$1.2 million during the ~~three~~six months ended ~~March 31,~~June 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.~~2017, partially offset by the purchase of new tractors in the second quarter 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.

Our upstream crude oil and natural gas exploration and production segment revenues and operating earnings (losses) 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 three and six months ended ~~March 31,~~June 30, 2017 were for the period in which AREC was consolidated.

Our upstream crude oil and natural gas exploration and production segment revenues, operating losses and depreciation and depletion expense were as follows for the ~~period~~periods indicated (in thousands):

Volume and price information were as follows for the ~~period~~periods indicated (volumes in thousands):


	Three Months		Six Months
	Ended		Ended
	June 30,		June 30,
	2017		2017
Crude oil
Volume – barrels ⁽¹⁾	3,169		11,643
Average price per barrel	$	51.20	$	49.44

Natural gas
Volume – Mcf ⁽¹⁾	48,781		189,488
Average price per Mcf	$	2.48	$	2.86

Natural gas liquids
Volume – barrels ⁽¹⁾	3,911		11,204
Average price per barrel	$	30.06	$	26.77

(1) Volumes for the six months ended June 30, 2017 are only through April 30, 2017, as a result of the deconsolidation of this subsidiary due to its bankruptcy filing.

Three Months Ended
March 31,
2017
Crude oil
Volume – barrels 8,474
Average price per barrel $ 48.78

Natural gas
Volume – Mcf 140,707
Average price per Mcf $ 2.99

Natural gas liquids
Volume – barrels 7,293
Average price per barrel $ 25.00

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General and Administrative Expense

General and administrative expense ~~decreased~~increased by ~~$0.4~~$0.8 million during the three months ended ~~March 31,~~June 30, 2018 as compared to the same period in 2017 primarily due to the ~~deconsolidation~~reversal in the 2017 period of ~~AREC~~certain legal accruals of approximately $0.7 million related to legal matters and higher legal and outside service fees in ~~April 2017 and~~the 2018 period, partially offset by lower personnel costs in the 2018 period.

General and administrative expense increased by $0.5 million during the six months ended June 30, 2018 as compared to the same period ~~as a result~~in 2017 primarily due to the reversal in the 2017 period of ~~an early retirement program implemented~~certain legal accruals of approximately $0.7 million related to legal matters and higher legal and outside service fees in ~~August~~the 2018 period, partially offset by the deconsolidation of AREC in April 2017.

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 six months ended ~~March 31,~~June 30, 2018 as compared to the same ~~period~~periods in 2017.

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Outlook

We plan to operate our remaining business segments with internally generated cash flows during 2018, but intend to remain flexible as the focus will be on increasing efficiencies and on business development opportunities. During 2018, 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.

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 $0.4 million in the second half of 2018 when the bankruptcy case is dismissed.

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At ~~March 31,~~June 30, 2018 and December 31, 2017, 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):


	March 31,		December 31,			June 30,		December 31,
	2018		2017			2018		2017

Cash and cash equivalents	$	111,536	$	109,393	Cash and cash equivalents	$	126,999	$	109,393
Working capital	117,882		116,087		Working capital	120,775		116,087

We maintain a stand-by letter of credit facility with Wells Fargo Bank, National Association to provide for the issuance of up to $60 million in stand-by letters of credit for the benefit of suppliers of crude oil within our crude oil marketing segment and for other purposes. Stand-by letters of credit are issued as needed and are canceled as the underlying purchase obligations are satisfied by cash payment when due. The issuance of stand-by letters of credit enables us to avoid posting cash collateral when procuring crude oil supply. We are currently using the letter of credit facility for a letter of credit related to our insurance program. At ~~March 31,~~June 30, 2018 and December 31, 2017, we had $0.4 million and $2.2 million, respectively, outstanding under this facility.

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 utilize cash from operations to make discretionary investments in our marketing and transportation businesses. With the exception of operating and capital 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 capital lease obligations.

The most significant item affecting future increases or decreases in liquidity is earnings from operations, and these earnings are dependent on the success of future operations. See “Part I, Item 1A. Risk Factors” in our 2017 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):


	Six Months Ended
	June 30,
	2018		2017

Cash provided by (used in):
Operating activities	$	21,237	$	19,772
Investing activities	(1,608)		(1,571)
Financing activities	(2,023)		(1,856)

Operating activities. Net cash flows provided by operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2018 ~~decreased~~increased by ~~$8.9~~$1.5 million when compared to the same period in 2017. This ~~decrease~~increase was primarily due to an increase in ~~operating expenses~~revenues and the timing of collections of accounts receivable and payments of accounts payable, partially offset by ~~increased revenues.~~a decrease in operating expenses.

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):


	June 30,		December 31,
	2018		2017

Early payments received	$	29,839	$	20,078
Early payments to suppliers	4,500		6,100

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 ~~first~~second quarter of 2018, we elected to make several early payments in our crude oil marketing operations. Our cash balance increased by approximately ~~$2.1~~$17.6 million as of ~~March 31,~~June 30, 2018 relative to the year ended December 31, 2017 primarily as a result of the timing of the early payments and prepayments made and received during each period.

Investing activities. Net cash flows used in investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2018 ~~decreased by $0.4 million when compared to~~was consistent with the same period in 2017. ~~The decrease in net cash flows used in investing activities~~Increases during the 2018 period ~~was primarily due to a $0.1~~of $0.5 million ~~increase~~ in cash proceeds from the sales of assets aand $0.1 million ~~decrease~~in insurance and state collateral refunds were offset by an increase of $0.6 million in capital spending for property and equipment (see following table) ~~and a $0.1 million increase in insurance and state collateral refunds.~~.

Capital spending was as follows for the periods indicated (in thousands):


	Six Months Ended
	June 30,
	2018		2017

Crude oil marketing ⁽¹⁾	$	1,070	$	273
Truck transportation ⁽²⁾	1,645		10
Oil and natural gas exploration	—		1,825
Other	13		—
Capital spending	$	2,728	$	2,108

Three Months Ended
March 31,
2018 2017

Crude oil marketing $ 793
$ 82
Truck transportation 73
102
Oil and natural gas exploration —
822
Capital spending $ 866
$ 1,006
__________________

(1) 2018 amount primarily relates to construction of a pipeline connection.

(2) 2018 amount primarily relates to the purchase of 10 tractors, five of which were placed into service in June 2018 and five of which were placed into service in July 2018.

Financing activities. Cash used in financing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2018 increased by ~~$0.1~~$0.2 million when compared to the same period in 2017. During each of the ~~three~~six months ended ~~March 31,~~June 30, 2018 and 2017, we paid a quarterly dividend of $0.22 per common share, or ~~$0.9 million.~~a total of $1.9 million during each six month period. During the 2018 period, we paid ~~$0.1~~$0.2 million of principal repayments on capital lease obligations that we entered into in September 2017 for certain of our tractors in our crude oil marketing segment, with principal contractual commitments to be paid over a period of five years. See “Other Items” below for further information regarding our capital leases.

Contractual Obligations

The following table summarizes our significant contractual obligations at ~~March 31,~~June 30, 2018 (in thousands):

Capital lease obligations ⁽¹⁾

Operating lease obligations ⁽²⁾

Purchase obligations ⁽³⁾

(1) Amounts represent our principal contractual commitments, including interest, outstanding under capital leases for certain tractors 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 41 new tractors during the remainder of 2018 in connection with our transportation business.

We maintain certain lease arrangements with independent truck owner-operators for use of their equipment and driver services on a month-to-month basis. In addition, we enter into office space and certain lease and terminal access contracts in order to provide tank storage and dock access for our crude oil marketing business. These storage and access contracts require certain minimum monthly payments for the term of the contracts. Rental expense was as follows for the periods indicated (in thousands):

Three Months Ended
March 31,
2018 2017

Rental expense $ 2,587
$ 3,228

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 8 in the Notes to Unaudited Condensed Consolidated Financial Statements.

Critical Accounting Policies and Use of Estimates

A discussion of our critical accounting policies and estimates is included in our 2017 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 2017 Form 10-K.

There have been no material changes to our “Quantitative and Qualitative Disclosures about Market Risk” that have occurred since the disclosures provided in our 2017 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 ~~March 31,~~June 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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 2017 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 our 2017 Form 10-K or our other SEC filings.

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

Item 3. Defaults Upon Senior Securities

Item 4. Mine Safety Disclosures

Item 5. Other Information

Table of Contents

Item 6. Exhibits


Exhibit
Number		Exhibit

~~Exhibit~~3.1
~~Number~~	~~Exhibit~~

~~3.1~~	Certificate 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		Bylaws of Adams Resources & Energy, Inc., as amended (incorporated by reference to Exhibit 3(b) to Form 10-K for the year ended December 31, 2012).
10.1+*		Form of Director Restricted Stock Unit Award Agreement under the Adams Resources & Energy, Inc. 2018 Long-Term Incentive ~~Plan, effective as of May 8, 2018.~~Plan.
10.210.2+		~~Seventh Amendment to Credit and Security~~Form of Employee Restricted Stock Unit Award Agreement ~~dated as of March 19, 2018 between GulfMark~~under the Adams Resources & Energy, Inc. ~~and Wells Fargo Bank, National Association.~~2018 Long-Term Incentive Plan.
31.110.3+		Form of Employee Performance Share Unit Award Agreement under the Adams Resources & Energy, Inc. 2018 Long-Term Incentive Plan.
31.1*		Sarbanes-Oxley Section 302 certification of Executive Chairman pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Sarbanes-Oxley Section 302 certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Sarbanes-Oxley Section 906 certification of Executive Chairman pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002 .
32.2*		Sarbanes-Oxley Section 906 certification of Chief Financial Officer pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.CAL*		XBRL Calculation Linkbase Document
101.DEF*		XBRL Definition Linkbase Document
101.INS*		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*		XBRL Labels Linkbase Document
101.PRE*		XBRL Presentation Linkbase Document
101.SCH*		XBRL Schema Document

____________

+ Management contract or compensation plan or arrangement.

*Filed or furnished (in the case of Exhibit 32.1 and 32.2) with this report.

Table of Contents

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)


			~~ADAMS RESOURCES & ENERGY, INC.~~
	~~(Registrant)~~



Date: ~~May 9,~~August 8, 2018		By:	/s/ Townes G. Pressler
			Townes G. Pressler
			Executive Chairman
			(Principal Executive Officer)

		By:	/s/ ~~Sharon C. Davis~~Tracy E. Ohmart
			~~Sharon C. Davis~~Tracy E. Ohmart
			~~Interim~~ Chief Financial Officer
			(Principal Financial Officer and Principal
			Accounting Officer)


	Estimated								Estimated
	Useful Life	March 31,			December 31,				Useful Life	June 30,		December 31,
	in Years	2018			2017				in Years	2018		2017

Tractors and trailers ⁽¹⁾	5 – 6	$	86,492		$	88,065		Tractors and trailers ⁽¹⁾	5 – 6	$	83,686	$	88,065
Field equipment	2 – 5	18,827			18,490			Field equipment	2 – 5	19,811		18,490
Buildings	5 – 39	15,728			15,727			Buildings	5 – 39	15,727		15,727
Office equipment	1 – 5	1,831			1,929			Office equipment	2 – 5	1,808		1,929
Land		1,790			1,790			Land		1,790		1,790
Construction in progress		761			275			Construction in progress		960		275
Total		125,429			126,276			Total		123,782		126,276
Less accumulated depreciation		(97,685		)	(96,914		)	Less accumulated depreciation		(96,478)		(96,914)
Property and equipment, net		$	27,744		$	29,362		Property and equipment, net		$	27,304	$	29,362


Remainder of 2018	$	299		Remainder of 2018	$	199
2019	398			2019	398
2020	398			2020	398
2021	398			2021	398
2022	255			2022	255
Thereafter	—			Thereafter	—
Total minimum lease payments	1,748			Total minimum lease payments	1,648
Less: Amount representing interest	(142		)	Less: Amount representing interest	(126)
Present value of capital lease obligations	1,606			Present value of capital lease obligations	1,522
Less current portion of capital lease obligations	(341		)	Less current portion of capital lease obligations	(345)
Total long-term capital lease obligations	$	1,265		Total long-term capital lease obligations	$	1,177



17 South Briar Hollow Lane, Suite 100 Houston, Texas 77027
(Address of Principal Executive Offices, including Zip Code)


~~(1)~~	Our marketing segment’s operating earnings included inventory liquidation gains of $0.6 million for the three months ended March 31, 2018, and inventory valuation losses of $0.7 million for the three months ended March 31, 2017.


~~(1)~~	~~Amounts represent our cost method investment in this segment.~~


~~(1)~~	Segment operating earnings included inventory liquidation gains of $0.6 million for the three months ended March 31, 2018, and inventory valuation losses of $0.7 million for the three months ended March 31, 2017.


~~(2)~~	The use of field level operating earnings is (a) unique to us, (b) not a substitute for a GAAP measure and (c) may not be comparable to any similar measures developed by industry participants. We utilize this data to evaluate the profitability of our operations.


~~(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.~~


			Payments due by period											Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years			Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Capital lease obligations ⁽¹⁾	$	1,748	$	299	$	796	$	653	$	—	Capital lease obligations ⁽¹⁾	$	1,648	$	398	$	796	$	454	$	—
Operating lease obligations ⁽²⁾	12,453		2,897		3,639		2,994		2,923		Operating lease obligations ⁽²⁾	13,959		2,986		4,977		3,030		2,966
Purchase obligations ⁽³⁾											Purchase obligations ⁽³⁾	5,000		5,000		—		—		—
Total contractual obligations	$	14,201	$	3,196	$	4,435	$	3,647	$	2,923	Total contractual obligations	$	20,607	$	8,384	$	5,773	$	3,484	$	2,966


~~(1)~~	~~Amounts represent our principal contractual commitments, including interest, outstanding under capital leases for certain tractors 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.~~


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