Document
Accelerated Filer4,217,596FALSEJune 30, 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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10Q

(Mark one)

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

For the quarterly period ended June 30, 2018 

OR

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

For the transition period from ___  to  ___.

Commission file number: 1-07908
ADAMS RESOURCES & ENERGY, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware74-1753147 
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)

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

(713) 881-3600
(Registrant’s Telephone Number, including Area Code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

A total of 4,217,596 shares of Common Stock were outstanding at 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.




1

Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30,
December 31,
20182017
ASSETS
Current assets:
Cash and cash equivalents$126,999 $109,393 
Accounts receivable, net of allowance for doubtful
accounts of $271 and $303, respectively
118,533 121,353 
Inventory21,513 12,192 
Derivative assets538 166 
Income tax receivable 1,317 
Prepayments and other current assets1,197 1,264 
Total current assets268,780 245,685 
Property and equipment, net27,304 29,362 
Investments in unconsolidated affiliates425 425 
Cash deposits and other assets6,618 7,232 
Total assets$303,127 $282,704 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$140,296 $124,706 
Accounts payable – related party5 5 
Derivative liabilities514 145 
Current portion of capital lease obligations345 338 
Other current liabilities6,845 4,404 
Total current liabilities148,005 129,598 
Other long-term liabilities:
Asset retirement obligations1,405 1,273 
Capital lease obligations1,177 1,351 
Deferred taxes and other liabilities2,516 3,363 
Total liabilities153,103 135,585 
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock – $1.00 par value, 960,000 shares
authorized, none outstanding  
Common stock – $0.10 par value, 7,500,000 shares
authorized, 4,217,596 shares outstanding422 422 
Contributed capital11,696 11,693 
Retained earnings137,906 135,004 
Total shareholders’ equity150,024 147,119 
Total liabilities and shareholders’ equity$303,127 $282,704 


See Notes to Unaudited Condensed Consolidated Financial Statements.
2

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

Three Months EndedSix Months Ended
June 30,June 30,
2018201720182017
Revenues:
Marketing$438,791 $301,176 $812,429 $589,791 
Transportation13,626 13,616 27,244 27,071 
Oil and natural gas 410  1,427 
Total revenues452,417 315,202 839,673 618,289 
Costs and expenses:
Marketing431,683 297,508 800,866 582,661 
Transportation11,890 11,851 24,191 24,013 
Oil and natural gas 201  951 
General and administrative2,284 1,460 4,567 4,097 
Depreciation, depletion and amortization2,262 3,563 4,674 7,532 
Total costs and expenses448,119 314,583 834,298 619,254 
Operating earnings (losses)4,298 619 5,375 (965)
Other income (expense):
Loss on deconsolidation of subsidiary (1,635) (1,635)
Interest income498 260 885 419 
Interest expense(15)(1)(34)(2)
Total other income (expense), net483 (1,376)851 (1,218)
(Losses) earnings before income taxes4,781 (757)6,226 (2,183)
Income tax benefit (provision)(1,161)475 (1,468)1,041 
Net (losses) earnings$3,620 $(282)$4,758 $(1,142)
Earnings (losses) per share:
Basic net (losses) earnings per common share$0.86 $(0.07)$1.13 $(0.27)
Diluted net (losses) earnings per common share$0.86 $(0.07)$1.13 $(0.27)
Dividends per common share$0.22 $0.22 $0.44 $0.44 



See Notes to Unaudited Condensed Consolidated Financial Statements.
3

Table of Contents
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Six Months Ended
June 30,
20182017
Operating activities:
Net (losses) earnings$4,758 $(1,142)
Adjustments to reconcile net (losses) earnings to net cash
provided by operating activities:
Depreciation, depletion and amortization4,674 7,532 
Gains on sales of property
(446)(129)
Impairment of oil and natural gas properties 3 
Provision for doubtful accounts(32)(8)
Stock-based compensation expense3  
Deferred income taxes(832)(926)
Net change in fair value contracts(3)(700)
Loss on deconsolidation of subsidiary 1,635 
Changes in assets and liabilities:
Accounts receivable2,852 13,581 
Accounts receivable/payable, affiliates (151)
Inventories(9,321)(2,887)
Income tax receivable1,317 (336)
Prepayments and other current assets67 887 
Accounts payable15,634 3,357 
Accrued liabilities2,441 (483)
Other125 (461)
Net cash provided by operating activities21,237 19,772 
Investing activities:
Property and equipment additions(2,728)(2,108)
Proceeds from property sales655 190 
Insurance and state collateral (deposits) refunds465 347 
Net cash used in investing activities(1,608)(1,571)
Financing activities:
Principal repayments of capital lease obligations(167) 
Dividends paid on common stock(1,856)(1,856)
Net cash used in financing activities(2,023)(1,856)
Increase in cash and cash equivalents17,606 16,345 
Cash and cash equivalents at beginning of period109,393 87,342 
Cash and cash equivalents at end of period$126,999 $103,687 



See Notes to Unaudited Condensed Consolidated Financial Statements.

4

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


Total
CommonContributedRetainedShareholders’
StockCapitalEarningsEquity
Balance, January 1, 2018$422 $11,693 $135,004 $147,119 
Net earnings— — 4,758 4,758 
Stock-based compensation expense— 3 — 3 
Dividends paid on common stock— — (1,856)(1,856)
Balance, June 30, 2018
$422 $11,696 $137,906 $150,024 







Total
CommonContributedRetainedShareholders’
StockCapitalEarningsEquity
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 




See Notes to Unaudited Condensed Consolidated Financial Statements.


5

Table of Contents
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 half of 2018.  

Basis of Presentation

Our results of operations for the three and six months ended 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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Note 2. Summary of Significant Accounting Policies

Earnings Per Share

Basic earnings (losses) per share is computed by dividing our net earnings (losses) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (losses) per share is computed by giving effect to all potential shares of common stock outstanding, including our stock related to unvested restricted stock 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 diluted earnings (losses) per share is as follows (in thousands, except per share data):
Three Months Ended
Six Months Ended
June 30,June 30,
2018201720182017
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 shares4,218 4,218 4,218 4,218 
Restricted stock unit awards (1)
    
Performance share unit awards (2)
    
Total4,218 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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Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and we elect, cash flow hedge accounting. We had no contracts designated for hedge accounting during any current reporting periods (see Note 9 for further information).

Income Taxes

Income taxes are accounted for using the asset and liability method. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of these items and their respective tax basis. On December 22, 2017, the Tax Cut and Jobs Act was enacted into law resulting in a reduction in the federal corporate income tax rate from 35 percent to 21 percent for years beginning in 2018, which impacts our income tax provision or benefit.

Investments in Unconsolidated Affiliates

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 June 30, 2018 and December 31, 2017, we had $0.4 million and $2.2 million, respectively, outstanding under this facility.

Property and Equipment

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

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

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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

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


Note 3. Revenue Recognition

Adoption of ASC 606

On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”) and all related Accounting Standards Updates by applying the modified retrospective method to all contracts that were not completed on January 1, 2018. The modified retrospective approach required us to recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings. 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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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 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
• Not accounting for the effects of significant financing components if the company expects that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable and customer advances and deposits (contract liabilities) on our consolidated balance sheet. Currently, we do not record any contract assets in our financial statements due to the timing of revenue recognized and when our customers are billed. Our crude oil marketing customers are generally billed monthly based on contractually agreed upon terms. However, we sometimes receive advances or deposits from customers before revenue is recognized, resulting in contract liabilities. These contract assets and liabilities, if any, are reported on our consolidated balance sheets at the end of each reporting period.
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Revenue Disaggregation

The following table disaggregates our revenue by segment and by major source for the periods indicated (in thousands):
Reporting Segments
MarketingTransportationTotal
Three Months Ended June 30, 2018
Revenues from contracts with customers$419,365 $13,626 $432,991 
Other (1)
19,426  19,426 
Total revenues$438,791 $13,626 $452,417 
Timing of revenue recognition:
Goods transferred at a point in time$419,365 $ $419,365 
Services transferred over time 13,626 13,626 
Total revenues from contracts with customers$419,365 $13,626 $432,991 
Six Months Ended June 30, 2018
Revenues from contracts with customers$779,450 $27,244 $806,694 
Other (1)
32,979  32,979 
Total revenues$812,429 $27,244 $839,673 
Timing of revenue recognition:
Goods transferred at a point in time$779,450 $ $779,450 
Services transferred over time 27,244 27,244 
Total revenues from contracts with customers$779,450 $27,244 $806,694 
_______________
(1) Other marketing revenues are recognized under ASC 815, Derivatives and Hedging, and ASC 845, Nonmonetary Transactions – Purchases and Sales of Inventory with the Same Counterparty.

Other Marketing Revenue

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

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

Reporting these crude oil contracts on a gross revenue basis would increase our reported revenues as follows for the periods indicated (in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
2018201720182017
Revenue gross-up$56,335 $44,908 $102,026 $102,473 

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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,
20182017
Insurance premiums$582 $425 
Rents, licenses and other615 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):
Estimated
Useful LifeJune 30,December 31,
in Years20182017
Tractors and trailers (1)
5 – 6$83,686 $88,065 
Field equipment2 – 519,811 18,490 
Buildings5 – 3915,727 15,727 
Office equipment2 – 51,808 1,929 
Land1,790 1,790 
Construction in progress960 275 
Total123,782 126,276 
Less accumulated depreciation(96,478)(96,914)
Property and equipment, net$27,304 $29,362 
______________
(1) Amounts include assets held under capital leases for certain tractors in our marketing segment. Gross property and equipment associated with assets held under capital leases were $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).

Components of depreciation, depletion and amortization expense were as follows for the periods indicated (in thousands):
Three Months EndedSix Months Ended
June 30,June 30,
2018201720182017
Depreciation, depletion and amortization,
excluding amounts under capital leases$2,171 $3,563 $4,493 $7,532 
Amortization of property and equipment
under capital leases91  181  
Total depreciation, depletion and amortization$2,262 $3,563 $4,674 $7,532 




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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):

June 30,
December 31,
20182017
Amounts associated with liability insurance program:
Insurance collateral deposits$3,517 $3,767 
Excess loss fund2,093 2,284 
Accumulated interest income642 814 
Other amounts:
State collateral deposits57 57 
Materials and supplies273 273 
Other36 37 
Total$6,618 $7,232 


We have established certain deposits to support participation in our liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits. Insurance collateral deposits are held by the insurance company to cover past or potential open claims based upon a percentage of the maximum assessment under our insurance policies. Insurance collateral deposits are invested at the discretion of our insurance carrier. Excess amounts in our loss fund represent premium payments in excess of claims incurred to date that we may be entitled to recover through settlement or commutation as claim periods are closed. Interest income is earned on the majority of amounts held by the insurance companies and will be paid to us upon settlement of policy years.
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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
MarketingTransportationOil and GasTotal
Three Months Ended June 30, 2018
Revenues$438,791 $13,626 $ $452,417 
Segment operating (losses) earnings (1)
5,772 810  6,582 
Depreciation, depletion and amortization1,336 926  2,262 
Property and equipment additions (2)
277 1,572  1,849 
Three Months Ended June 30, 2017
Revenues$301,176 $13,616 $410 $315,202 
Segment operating (losses) earnings (1)
1,691 293 95 2,079 
Depreciation, depletion and amortization1,977 1,472 114 3,563 
Property and equipment additions191 (92)1,003 1,102 
Six Months Ended June 30, 2018
Revenues$812,429 $27,244 $ $839,673 
Segment operating (losses) earnings (1)
8,730 1,212  9,942 
Depreciation, depletion and amortization2,833 1,841  4,674 
Property and equipment additions (2)
1,070 1,645  2,715 
Six Months Ended June 30, 2017
Revenues$589,791 $27,071 $1,427 $618,289 
Segment operating (losses) earnings (1)
3,084 (5)53 3,132 
Depreciation, depletion and amortization4,046 3,063 423 7,532 
Property and equipment additions273 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):

Three Months Ended
Six Months Ended
June 30,June 30,
2018201720182017
Segment operating earnings$6,582 $2,079 $9,942 $3,132 
General and administrative(2,284)(1,460)(4,567)(4,097)
Operating earnings (losses)4,298 619 5,375 (965)
Loss on deconsolidation of subsidiary (1,635) (1,635)
Interest income498 260 885 419 
Interest expense(15)(1)(34)(2)
(Losses) earnings before income taxes$4,781 $(757)$6,226 $(2,183)


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

June 30,
December 31,
20182017
Reporting segment:
Marketing$139,687 $134,745 
Transportation28,803 29,069 
Oil and Gas (1)
425 425 
Cash and other assets134,212 118,465 
Total assets$303,127 $282,704 
____________________
(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 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.

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

Three Months EndedSix Months Ended
June 30,June 30,
2018201720182017
Affiliate billings to us$25 $24 $40 $36 
Billings to affiliates1 1 3 2 
Rentals paid to affiliate122 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 June 30, 2018, we had in place 16 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:
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;  
322 barrels per day of crude oil during January 2019 through April 2019; and
258 barrels per day of crude oil during May 2019.