Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10‑Q

(Mark one)

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

For the quarterly period ended March 31, 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)
Delaware
 
74-1753147
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
17 South Briar Hollow Lane, Suite 100
Houston, Texas 77027
(Address of Principal Executive Offices, including Zip Code)

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

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 May 1, 2018 . Our Common Stock trades on the NYSE American (formerly the NYSE MKT) under the ticker symbol “AE.”




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)
 
 
March 31,
 
December 31,
 
 
2018
 
2017
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
111,536

 
$
109,393

Accounts receivable, net of allowance for doubtful
 
 
 
 
accounts of $303 and $303, respectively
 
117,153

 
121,353

Inventory
 
19,267

 
12,192

Derivative assets
 
312

 
166

Income tax receivable
 
437

 
1,317

Prepayments and other current assets
 
1,111

 
1,264

Total current assets
 
249,816

 
245,685

Property and equipment, net
 
27,744

 
29,362

Investments in unconsolidated affiliates
 
425

 
425

Cash deposits and other assets
 
6,523

 
7,232

Total assets
 
$
284,508

 
$
282,704

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
126,044

 
$
124,706

Accounts payable – related party
 
5

 
5

Derivative liabilities
 
289

 
145

Current portion of capital lease obligations
 
341

 
338

Other current liabilities
 
5,255

 
4,404

Total current liabilities
 
131,934

 
129,598

Other long-term liabilities:
 
 
 
 
Asset retirement obligations
 
1,334

 
1,273

Capital lease obligations
 
1,265

 
1,351

Deferred taxes and other liabilities
 
2,646

 
3,363

Total liabilities
 
137,179

 
135,585

 
 
 
 
 
Commitments and contingencies (Note 11)
 

 

 
 
 
 
 
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 outstanding
 
422

 
422

Contributed capital
 
11,693

 
11,693

Retained earnings
 
135,214

 
135,004

Total shareholders’ equity
 
147,329

 
147,119

Total liabilities and shareholders’ equity
 
$
284,508

 
$
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
 
March 31,
 
2018
 
2017
Revenues:
 
 
 
Marketing
$
373,638

 
$
288,615

Transportation
13,618

 
13,455

Oil and natural gas
—

 
1,017

Total revenues
387,256

 
303,087

 
 
 
 
Costs and expenses:
 
 
 
Marketing
369,183

 
285,153

Transportation
12,301

 
12,162

Oil and natural gas
—

 
750

General and administrative
2,283

 
2,637

Depreciation, depletion and amortization
2,412

 
3,969

Total costs and expenses
386,179

 
304,671

 
 
 
 
Operating earnings (losses)
1,077

 
(1,584
)
 
 
 
 
Other income (expense):
 
 
 
Interest income
387

 
159

Interest expense
(19
)
 
(1
)
Total other income (expense), net
368

 
158

 
 
 
 
(Losses) earnings before income taxes
1,445

 
(1,426
)
Income tax benefit (provision)
(307
)
 
566

 
 
 
 
Net (losses) earnings
$
1,138

 
$
(860
)
 
 
 
 
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

 
 
 
 
Dividends per common share
$
0.22

 
$
0.22

 
 
 
 


See Notes to Unaudited Condensed Consolidated Financial Statements.



Table of Contents

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Three Months Ended
 
March 31,
 
2018
 
2017
Operating activities:
 
 
 
Net (losses) earnings
$
1,138

 
$
(860
)
Adjustments to reconcile net (losses) earnings to net cash
 
 
 
provided by operating activities:
 
 
 
Depreciation, depletion and amortization
2,412

 
3,969

Gains (losses) on sales of property
(26
)
 
7

Impairment of oil and natural gas properties
—

 
3

Deferred income taxes
(709
)
 
60

Net change in fair value contracts
(2
)
 
(420
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
4,200

 
(1,968
)
Inventories
(7,075
)
 
(7,557
)
Income tax receivable
880

 
(736
)
Prepayments and other current assets
153

 
744

Accounts payable
1,377

 
17,746

Accrued liabilities
851

 
1,084

Other
86

 
78

Net cash provided by operating activities
3,285

 
12,150

 
 
 
 
Investing activities:
 
 
 
Property and equipment additions
(866
)
 
(1,006
)
Proceeds from property sales
132

 
39

Insurance and state collateral (deposits) refunds
603

 
476

Net cash used in investing activities
(131
)
 
(491
)
 
 
 
 
Financing activities:
 
 
 
Principal repayments of capital lease obligations
(83
)
 
—

Dividends paid on common stock
(928
)
 
(928
)
Net cash used in financing activities
(1,011
)
 
(928
)
 
 
 
 
Increase in cash and cash equivalents
2,143

 
10,731

Cash and cash equivalents at beginning of period
109,393

 
87,342

Cash and cash equivalents at end of period
$
111,536

 
$
98,073



See Notes to Unaudited Condensed Consolidated Financial Statements.


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

 
 
 
 
 
 
 
 
Total
 
 
Common
 
Contributed
 
Retained
 
Shareholders’
 
 
Stock
 
Capital
 
Earnings
 
Equity
 
 
 
 
 
 
 
 
 
Balance, January 1, 2018
 
$
422

 
$
11,693

 
$
135,004

 
$
147,119

Net earnings
 
—

 
—

 
1,138

 
1,138

Dividends paid on common stock
 
—

 
—

 
(928
)
 
(928
)
Balance, March 31, 2018
 
$
422

 
$
11,693

 
$
135,214

 
$
147,329






 
 
 
 
 
 
 
 
Total
 
 
Common
 
Contributed
 
Retained
 
Shareholders’
 
 
Stock
 
Capital
 
Earnings
 
Equity
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
 
$
422

 
$
11,693

 
$
139,197

 
$
151,312

Net losses
 
—

 
—

 
(860
)
 
(860
)
Dividends paid on common stock
 
—

 
—

 
(928
)
 
(928
)
Balance, March 31, 2017
 
$
422

 
$
11,693

 
$
137,409

 
$
149,524




See Notes to Unaudited Condensed Consolidated Financial Statements.


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



Note 1. Organization and Basis of Presentation

Organization

Adams Resources & Energy, Inc. (“AE”) is a publicly traded Delaware corporation organized in 1973, the common shares of which are listed on the NYSE American LLC under the ticker symbol “AE”. We 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 of 2018.

Basis of Presentation

Our results of operations for the three months ended March 31, 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 Accounting and Disclosure Matters

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.

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.

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, 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 to twenty years.

We review our long-lived assets for impairment whenever there is evidence that the carrying value of such 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 future production, and prices are then discounted using a market based rate of return consistent with that used by us in evaluating cash flows for other assets of a similar nature.

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.



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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.

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 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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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
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 at the end of each reporting period.

Revenue Disaggregation

The following table disaggregates our revenue by segment and by major source for the three months ended March 31, 2018 (in thousands):
 
Reporting Segments
 
 
Marketing
 
Transportation
 
Total
 
 
 
 
 
 
Revenues from contracts with customers
$
360,085

 
$
13,618

 
$
373,703

Other (1)
13,553

 
—

 
13,553

Total revenues
$
373,638

 
$
13,618

 
$
387,256

 
 
 
 
 
 
Timing of revenue recognition:
 
 
 
 
 
Goods transferred at a point in time
$
360,085

 
$
—

 
$
360,085

Services transferred over time
—

 
13,618

 
13,618

Total revenues from contracts with customers
$
360,085

 
$
13,618

 
$
373,703

_______________
(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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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
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
 
March 31,
 
2018
 
2017
 
 
 
 
Revenue gross-up
$
45,691

 
$
57,565



Note 4. Prepayments and Other Current Assets

The components of prepayments and other current assets were as follows at the dates indicated (in thousands):
 
March 31,
 
December 31,
 
2018
 
2017
 
 
 
 
Insurance premiums
$
414

 
$
425

Rents, licenses and other
697

 
839

Total
$
1,111

 
$
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 Life
 
March 31,
 
December 31,
 
in Years
 
2018
 
2017
 
 
 
 
 
 
Tractors and trailers (1)
5 – 6
 
$
86,492

 
$
88,065

Field equipment
2 – 5
 
18,827

 
18,490

Buildings
5 – 39
 
15,728

 
15,727

Office equipment
1 – 5
 
1,831

 
1,929

Land
 
 
1,790

 
1,790

Construction in progress
 
 
761

 
275

Total
 
 
125,429

 
126,276

Less accumulated depreciation
 
 
(97,685
)
 
(96,914
)
Property and equipment, net
 
 
$
27,744

 
$
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 March 31, 2018 and December 31, 2017 , respectively. Accumulated amortization associated with assets held under capital leases were $0.2 million and $0.1 million at March 31, 2018 and December 31, 2017 , respectively (see Note 11 for further information).

    

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
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



Note 6. Cash Deposits and Other Assets

Components of cash deposits and other assets were as follows at the dates indicated (in thousands):
 
March 31,
 
December 31,
 
2018
 
2017
 
 
 
 
Amounts associated with liability insurance program:
 
 
 
Insurance collateral deposits
$
3,517

 
$
3,767

Excess loss fund
1,959

 
2,284

Accumulated interest income
627

 
814

Other amounts:
 
 
 
State collateral deposits
53

 
57

Materials and supplies
331

 
273

Other
36

 
37

Total
$
6,523

 
$
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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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
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
 
 
 
Marketing
 
Transportation
 
Oil and Gas
 
Total
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
Revenues
$
373,638

 
$
13,618

 
$
—

 
$
387,256

Segment operating (losses) earnings (1)
2,958

 
402

 
—

 
3,360

Depreciation, depletion and amortization
1,497

 
915

 
—

 
2,412

Property and equipment additions
793

 
73

 
—

 
866

 
 
 
 
 
 
 
 
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
Revenues
$
288,615

 
$
13,455

 
$
1,017

 
$
303,087

Segment operating (losses) earnings (1)
1,393

 
(298
)
 
(42
)
 
1,053

Depreciation, depletion and amortization
2,069

 
1,591

 
309

 
3,969

Property and equipment additions
82

 
102

 
822

 
1,006

_______________
(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.

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
 
March 31,
 
2018
 
2017
 
 
 
 
Segment operating earnings
$
3,360

 
$
1,053

General and administrative
(2,283
)
 
(2,637
)
Operating earnings (losses)
1,077

 
(1,584
)
Interest income
387

 
159

Interest expense
(19
)
 
(1
)
(Losses) earnings before income taxes
$
1,445

 
$
(1,426
)


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


Identifiable assets by industry segment were as follows at the dates indicated (in thousands):
 
March 31,
 
December 31,
 
2018
 
2017
 
 
 
 
Reporting segment:
 
 
 
Marketing
$
135,759

 
$
134,745

Transportation
29,422

 
29,069

Oil and Gas (1)
425

 
425

Cash and other assets
118,902

 
118,465

Total assets
$
284,508

 
$
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 such 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


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, 2018 , we had in place 20 commodity purchase and sale contracts, of which two 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 2019.
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
 
Balance Sheet Location and Amount
 
Current
 
Other
 
Current
 
Other
 
Assets
 
Assets
 
Liabilities
 
Liabilities
Asset derivatives:
 
 
 
 
 
 
 
Fair value forward hydrocarbon commodity
 
 
 
 
 
 
 
contracts at gross valuation
$
312

 
$
—

 
$
—

 
$
—

Liability derivatives:
 
 
 
 
 
 
 
Fair value forward hydrocarbon commodity
 
 
 
 
 
 
 
contracts at gross valuation
—

 
—

 
289

 
—

Less counterparty offsets
—

 
—

 
—

 
—

As reported fair value contracts
$
312

 
$
—

 
$
289

 
$
—


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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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
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.
The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheet were as follows at the date indicated (in thousands):
 
December 31, 2017
 
Balance Sheet Location and Amount
 
Current
 
Other
 
Current
 
Other
 
Assets
 
Assets
 
Liabilities
 
Liabilities
Asset derivatives:
 
 
 
 
 
 
 
Fair value forward hydrocarbon commodity
 
 
 
 
 
 
 
contracts at gross valuation
$
166

 
$
—

 
$
—

 
$
—

Liability derivatives:
 
 
 
 
 
 
 
Fair value forward hydrocarbon commodity
 
 
 
 
 
 
 
contracts at gross valuation
—

 
—

 
145

 
—

Less counterparty offsets
—

 
—

 
—

 
—

As reported fair value contracts
$
166

 
$
—

 
$
145

 
$
—


We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At March 31, 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



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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
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
 
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
$
—

 
$
312

 
$
—

 
$
—

 
$
312

Current liabilities
—

 
(289
)
 
—

 
—

 
(289
)
Net value
$
—

 
$
23

 
$
—

 
$
—

 
$
23


 
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


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, 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.


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


Note 10. Supplemental Cash Flow Information

Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):
 
Three Months Ended
 
March 31,
 
2018
 
2017
 
 
 
 
Cash paid for interest
$
19

 
$
—

Cash paid for federal and state taxes
52

 
14

 
 
 
 
Non-cash transactions:
 
 
 
Change in accounts payable related to property and equipment additions
(39
)
 
836



Note 11. 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, 2018 for the next five years, and in total thereafter (in thousands):
Remainder of 2018
$
299

2019
398

2020
398

2021
398

2022
255

Thereafter
—

Total minimum lease payments
1,748

Less: Amount representing interest
(142
)
Present value of capital lease obligations
1,606

Less current portion of capital lease obligations
(341
)
Total long-term capital lease obligations
$
1,265


Operating Lease Obligations

We lease certain property and equipment under noncancellable 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
 
March 31,
 
2018
 
2017
 
 
 
 
Rental expense
$
2,587

 
$
3,228


At March 31, 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

2019
2,016

2020
1,623

2021
1,513

2022
1,481

Thereafter
2,923

Total operating lease payments
$
12,453


Insurance Policies

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):
 
March 31,
 
December 31,
 
2018
 
2017
 
 
 
 
Pre-funded premiums for losses incurred but not reported
$
732

 
$
988

Accrued automobile and workers’ compensation claims
867

 
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 million . Medical accrual amounts were as follows at the dates indicated (in thousands):
 
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.  

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 of 2018.



    





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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
 
 
 
March 31,
 
 
 
2018
 
2017
 
Change (1)
 
 
 
 
 
 
Revenues
$
373,638

 
$
288,615

 
29
%
Operating earnings
2,958

 
1,393

 
112
%
Depreciation and amortization
1,497

 
2,069

 
(28
%)
Driver commissions
3,055

 
3,062

 
—
%
Insurance
1,289

 
1,239

 
4
%
Fuel
1,515

 
1,354

 
12
%
_________________________________
(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
 
March 31,
 
2018
 
2017
Field level purchase volumes – per day (1)
 
 
   
Crude oil – barrels
65,194

 
66,374

 
 
 
 
Average purchase price
 
 
 
Crude oil – per barrel
$
64.01

 
$
49.02

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

Crude oil marketing revenues increased by $85.0 million during the three months ended March 31, 2018 as compared to the three months ended March 31, 2017, primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately $91.8 million, partially offset by lower crude oil volumes, which decreased revenues by approximately $6.8 million. The average crude oil price received was $49.02 for the three months ended March 31, 2017, which increased to $64.01 for the three months ended March 31, 2018 .

Our crude oil marketing operating earnings for the three months ended March 31, 2018 increased by $1.6 million as compared to the same period in 2017, primarily as a result of an increase in the market price of crude oil. Operating earnings were also impacted by inventory valuation changes (as shown in the table below).

Driver commissions during the three months ended March 31, 2018 were consistent with the same period in 2017, with a slight decrease in crude oil marketing volumes in the 2018 period. Insurance costs increased by $0.1 million during the three months ended March 31, 2018 as compared to the same period in 2017, primarily as a result of increased mileage during the 2018 period as compared to the 2017 period, partially offset by favorable driver safety performance during the 2018 period. Fuel costs increased by $0.2 million during the three months ended March 31, 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, 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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Table of Contents

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.

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
 
March 31,
 
2018
 
2017
 
 
 
 
As reported segment operating earnings (1)
$
2,958

 
$
1,393

Add (subtract):
 
 
 
Inventory liquidation gains
(552
)
 
—

Inventory valuation losses
—

 
658

Derivative valuation (gains) losses
(1
)
 
(420
)
Field level operating earnings (2)
$
2,405

 
$
1,631

________________________________
(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.

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 months ended March 31, 2018 as compared to the same period 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 operating expenses.

We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels):
 
March 31, 2018
 
December 31, 2017
 
 
 
Average
 
 
 
Average
 
Barrels
 
Price
 
Barrels
 
Price
 
 
 
 
 
 
 
 
Crude oil inventory
296,808

 
$
64.91

 
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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Table of Contents

Transportation

Our transportation segment revenues, operating earnings (losses) and selected costs were as follows for the periods indicated (in thousands):
 
Three Months Ended
 
 
 
March 31,
 
 
 
2018
 
2017
 
Change (1)
 
 
 
 
 
 
Revenues
$
13,618

 
$
13,455

 
1
%
Operating earnings (losses)
$
402

 
$
(298
)
 
(235
%)
Depreciation and amortization
$
915

 
$
1,591

 
(42
%)
Driver commissions
$
2,880

 
$
2,836

 
2
%
Insurance
$
1,402

 
$
1,381

 
2
%
Fuel
$
1,876

 
$
1,632

 
15
%
Maintenance expense
$
1,527

 
$
1,638

 
(7
%)
Mileage (000s)
5,070

 
5,618

 
(10
%)
________________________________
(1)
Represents the percentage increase (decrease) from the prior year period.

Our revenue rate structure includes a component for fuel costs in which fuel cost fluctuations are largely passed through to the customer over time. Revenues, net of fuel cost, were as follows for the periods indicated (in thousands):
 
Three Months Ended
 
March 31,
 
2018
 
2017
 
 
 
 
Total transportation revenue
$
13,618

 
$
13,455

Diesel fuel cost
(1,876
)
 
(1,632
)
Revenues, net of fuel cost (1)
$
11,742

 
$
11,823

_________________________________
(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 increased by $0.2 million during the three months ended March 31, 2018 , primarily as a result of a 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 million during the three months ended March 31, 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 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 million during the three months ended March 31, 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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Oil and Gas

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 months ended March 31, 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 indicated (in thousands):
 
Three Months Ended
 
March 31,
 
2017
 
 
Revenues
$
1,017

Operating losses
(42
)
Depreciation and depletion
309


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


General and Administrative Expense

General and administrative expense decreased by $0.4 million during the three months ended March 31, 2018 as compared to the same period in 2017 primarily due to the deconsolidation of AREC in April 2017 and lower personnel costs in the 2018 period as a result of an early retirement program implemented in August 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 months ended March 31, 2018 as compared to the same period 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 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 2018 when the bankruptcy case is dismissed.

At March 31, 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,
 
2018
 
2017
 
 
 
 
Cash and cash equivalents
$
111,536

 
$
109,393

Working capital
117,882

 
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, 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.


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The most significant item affecting future increases or decreases in liquidity is earnings from operations, and these earnings are dependent on the success of future operations. See “Part I, Item 1A. Risk Factors ” in our 2017 Form 10-K.

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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):
 
Three Months Ended
 
March 31,
 
2018
 
2017
 
 
 
 
Cash provided by (used in):
 
 
 
Operating activities
$
3,285

 
$
12,150

Investing activities
(131
)
 
(491
)
Financing activities
(1,011
)
 
(928
)

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

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):
 
March 31,
 
December 31,
 
2018
 
2017
 
 
 
 
Early payments received
$
19,699

 
$
20,078

Early payments to suppliers
4,825

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

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


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

 
Financing activities . Cash used in financing activities for the three months ended March 31, 2018 increased by $0.1 million when compared to the same period in 2017. During each of the three months ended March 31, 2018 and 2017, we paid a quarterly dividend of $0.22 per common share, or $0.9 million . During the 2018 period, we paid $0.1 million of principal repayments on capital lease obligations that we entered into in 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.


Other Items

Contractual Obligations

The following table summarizes our significant contractual obligations at March 31, 2018 (in thousands):
 
 
 
Payments due by period
 
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
 
 
 
 
 
 
 
 
 
 
Capital lease obligations (1)
$
1,748

 
$
299

 
$
796

 
$
653

 
$
—

Operating lease obligations (2)
12,453

 
2,897

 
3,639

 
2,994

 
2,923

Total contractual obligations
$
14,201

 
$
3,196

 
$
4,435

 
$
3,647

 
$
2,923

______________
(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.

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.


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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.


Item 3. Quantitative and Qualitative Disclosures about Market Risk

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



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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.



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Item 6. Exhibits

Exhibit
 
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
10.1+*
10.2*
31.1*
31.2*
32.1*
32.2*
101.CAL*
XBRL Calculation Linkbase Document
101.DEF*
XBRL Definition Linkbase Document
101.INS*
XBRL Instance 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.


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SIGNATURES

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

 
 
ADAMS RESOURCES & ENERGY, INC.
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
Date: May 9, 2018
By:
/s/ Townes G. Pressler
 
 
Townes G. Pressler
 
 
Executive Chairman
 
 
(Principal Executive Officer)
 
 
 
 
By:
/s/ Sharon C. Davis
 
 
Sharon C. Davis
 
 
Interim Chief Financial Officer
 
 
(Principal Financial Officer and Principal
 
 
Accounting Officer)


33



Exhibit 10.1






ADAMS RESOURCES & ENERGY, INC.
2018 LONG-TERM INCENTIVE PLAN
(Effective as of May 8, 2018)


1


1.
PURPOSE

This Plan is intended to foster and promote the long-term financial success of Adams Resources & Energy, Inc. and its Affiliates (the “Company Group”); to reward performance and to increase shareholder value by providing Participants appropriate incentives and rewards; to enable the Company Group to attract and retain the services of outstanding individuals upon whose judgment, interest and dedication the successful conduct of the Company Group’s businesses are largely dependent; to encourage Participants’ ownership interest in Adams Resources & Energy, Inc.; and to align the interests of management and directors with that of the Company’s shareholders.

2.
DEFINITIONS

(a) “Affiliate” means any entity (whether a corporation, partnership, joint venture or other form of entity) that directly, or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with, the Company, except solely with respect to the issuance of Incentive Stock Options, the term “Affiliate” shall be limited to any “parent corporation” or “subsidiary corporation” of the Company, as such terms are defined in Code Sections 424(e) and 424(f) respectively.

(b) “Award” means, individually or collectively, a grant under the Plan of Non‑Statutory Stock Options, Incentive Stock Options, Restricted Stock, Restricted Stock Units, and Stock Appreciation Rights.

(c) “Award Agreement” means a written or electronic agreement evidencing and setting forth the terms of an Award.

(d) “Board of Directors” means the board of directors of the Company.

(e) “Cause” means, with respect to the termination of a Participant by the Company or another member of the Company Group, that such termination is for “Cause” as such term (or word of like import) is expressly defined in a then-effective written employment or other agreement between the Participant and the Company or such other member of the Company Group. In the absence of such then-effective written agreement and definition, “Cause” means, unless otherwise specified in the applicable Award Agreement, with respect to a Participant:

(i) a material breach by the Participant of the Participant’s duties and obligations, including but not limited to gross negligence in the performance of his duties and responsibilities;

(ii) willful misconduct by the Participant which in the reasonable determination of the Board of Directors or Committee has caused or is likely to cause material injury to the reputation or business of the Company;

(iii) any act of fraud, material misappropriation or other dishonesty by the Participant; or

(iv) Participant’s conviction of a felony.

A Participant shall be considered to have been discharged for Cause if the Company determines within 30 days after his resignation or discharge that discharge for Cause was warranted.

(f) “Change in Control” means the first to occur of any of the following events:

(i) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), except for (A) any of the Company’s employee benefit plans, or any entity holding the Company’s voting securities for, or pursuant to, the terms of any such plan (or any trust forming a part thereof) (the “Benefit Plan(s)”), or (B) any acquisition by KSA Industries, Inc. and its affiliates (collectively, “KSA”) is or becomes the beneficial owner, directly or indirectly, of the Company’s securities representing 51% or more of the combined voting power of the Company’s then outstanding securities other than pursuant to a transaction excepted in Clause (ii);


2


(ii) the consummation of a merger, consolidation, or other reorganization of the Company, unless:

1.     under the terms of the agreement providing for such merger, consolidation, or reorganization, the shareholders of the Company immediately before such merger, consolidation, or reorganization, will own, directly or indirectly immediately following such merger, consolidation, or reorganization, at least 51% of the combined voting power of the outstanding voting securities of the Company resulting from such merger, consolidation, or reorganization (the Surviving Company) in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation, or reorganization;

2.     the individuals who were members of the Board immediately prior to the execution of such agreement constitute at least a majority of the members of the board of directors of the Surviving Company after such merger, consolidation, or reorganization; and

3.     no Person (other than (A) the Company or any Subsidiary of the Company, (B) any Benefit Plan, (C) KSA, (D) the Surviving Company or any Subsidiary of the Surviving Company, or (E) any Person who, immediately prior to such merger, consolidation, or reorganization had beneficial ownership of 51% or more of the then outstanding voting securities) will have beneficial ownership of 51% or more of the combined voting power of the Surviving Company’s then outstanding voting securities;

(iii) during any period of two consecutive years, individuals, who at the beginning of such period, constituted the Board cease for any reason to constitute at least a majority of the Board unless the election, or the nomination for election by the Company’s shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.

Notwithstanding Clause (i), a Change in Control shall not be deemed to have occurred if a Person becomes the beneficial owner, directly or indirectly, of the Company’s securities representing 51% or more of the combined voting power of the Company’s then outstanding securities solely as a result of an acquisition by the Company of its voting securities which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 51% or more of the combined voting power of the Company’s then outstanding securities; provided, however, that if a Person (other than KSA) becomes a beneficial owner of 51% or more of the combined voting power of the Company’s then outstanding securities by reason of share purchases by the Company and shall, after such share purchases by the Company, become the beneficial owner, directly or indirectly, of any additional voting securities of the Company (other than as a result of a stock split, stock dividend or similar transaction), then a Change in Control of the Company shall be deemed to have occurred with respect to such Person (other than KSA) under Clause (i).

Notwithstanding the foregoing, however, in any circumstance or transaction in which compensation resulting from or in respect of an Award would result in the imposition of an additional tax under Code Section 409A if the foregoing definition of “Change in Control” were to apply, but would not result in the imposition of any additional tax if the term “Change in Control” were defined herein to mean a “change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5), then “Change in Control” shall mean a “change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5), but only to the extent necessary to prevent such compensation from becoming subject to an additional tax under Code Section 409A.

(g) “Code” means the Internal Revenue Code of 1986, as amended.

(h) “Committee” means the Compensation Committee of the Board of Directors.

(i) “Common Stock” means the common stock of the Company, par value, $.10 per share.

(j) “Company” means Adams Resources & Energy, Inc., a corporation organized under the laws of Delaware, and all successors to it.


3


(k) “Date of Grant” means the date when the Company completes the corporate action necessary to create the legally binding right constituting an Award, as provided in Code Section 409A and the regulations thereunder.

(l) “Disability” means a medically determinable physical or mental impairment which is of such permanence and degree that it can be expected to result in death or that a Participant is unable, because of such impairment, to perform any substantial gainful activity for which the Participant is suited by virtue of such Participant’s experience, training or education and which would entitle the Participant to benefits under the Employer’s long-term disability plan, if any, or to Social Security disability benefits as evidenced by a disability award letter.

(m) “Effective Date” means May 8, 2018.

(n) “Employee” means any person employed by the Company or an Affiliate. Directors who are employed by the Company or an Affiliate shall be considered Employees under the Plan.

(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(p) “Exercise Price” means the price at which a Participant may purchase a share of Common Stock pursuant to an Option, or, in the case of Stock Appreciation Rights, the exercise price of the Stock Appreciation Right upon the Date of Grant.

(q) “Fair Market Value” on any date means the market price of Common Stock, determined by the Committee as follows:

(i) if the Common Stock is listed on one or more established stock exchanges or national market systems, including without limitation the New York Stock Exchange, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Common Stock is listed (as determined by the Committee) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable;

(ii) if the Common Stock is regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such stock as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

(iii) in the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Committee in good faith.

The Committee’s determination of Fair Market Value shall be conclusive and binding on all persons.

(r) “Incentive Stock Option” means a stock option granted to a Participant pursuant to Section 8 of the Plan that is intended to meet the requirements of Code Section 422.

(s) “Non-Statutory Stock Option” means a stock option granted to a Participant pursuant to Section 7 of the Plan that is not intended to qualify, or does not qualify, as an Incentive Stock Option.

(t) “Option” means an Incentive Stock Option or a Non-Statutory Stock Option.

(u) “Outside Director” means a member of the Board of Directors of the Company or an Affiliate who is not also an Employee of the Company or an Affiliate.


4


(v) “Participant” means any person who holds an outstanding Award.

(w) “Performance Criteria” means the criteria the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period, which need not be the same for each Participant. The Performance Criteria include, but are not limited to, the following:

(i) revenue and income measures (which include revenue, return or revenue growth, gross margin, income from operations, adjusted net income, net sales, earnings per share, earnings before interest, taxes, depreciation and amortization (“EBITDA”), achievement of profit, economic value added (“EVA”), and price per share of Common Stock), each of which may be subject to adjustment as provided under the terms of an Award Agreement;

(ii) expense measures (which include costs of goods sold, selling, loss or expense ratio, general and administrative expenses and overhead costs);

(iii) operating measures (which include productivity, operating income, operating earnings, cash flow (including adjusted cash flow), funds from operations, cash from operations, after-tax operating income, market share, expenses, margins, operating efficiency); cash flow measures;

(iv) liquidity measures (which include earnings before or after the effect of certain items such as interest, taxes, depreciation and amortization, and free cash flow);

(v) leverage measures (which include debt-to-equity ratio and net debt);

(vi) market measures (which include market share, stock price, growth measure, total stockholder return and market capitalization measures);

(vii) return measures (which include book value, return on capital, return on net assets, return on stockholders’ equity; return on assets; stockholder returns, and which may be risk-adjusted);

(viii) corporate value and sustainability measures which may be objectively determined (which include compliance, safety, environmental and personnel matters);

(ix) other measures such as those relating to acquisitions or dispositions (which include proceeds from dispositions); and

(x) such other measures as determined by the Committee in its discretion.

Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be: (i) expressed on a corporate-wide basis; with respect to one or more business units, divisions, subsidiaries or business segments, or any combination thereof; (ii) in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies; (iii) absolute or based on change in the Performance Criteria over a specified period of time and such change may be measured based on an arithmetic change over a specified period (e.g., cumulative change or average change), or percentage change over a specified period (e.g., cumulative percentage change, average percentage change or compounded percentage change), (iv) based on GAAP or non-GAAP calculations; or (v) any combination of the foregoing. The Committee shall establish Performance Goals for each Performance Period prior to, or as soon as practicable after, the commencement of such Performance Period. The Committee, in its discretion, may adjust or modify the calculation of Performance Goals for each Performance Period in order to prevent the dilution or enlargement of the rights of Participants (i) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development; (ii) in the event of, or in connection with, any acquisition or divestiture of a portion of the Company’s business or operations; or (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions.

5


(x) “Performance Period” means the designated period during which the Performance Goals must be satisfied with respect to the Award to which the Performance Goals relate

(y) “Permitted Transferees” means with respect to a Participant, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than 50% of the voting interests.

(z) “Plan” means this Adams Resources & Energy, Inc. 2018 Long-Term Incentive Plan.

(aa) “Restricted Stock” means one or more Shares granted to a Participant pursuant to Section 9 of the Plan.

(bb)    “Restricted Stock Unit” means a bookkeeping unit that represents a right to receive Shares upon the completion of a vesting period and/or the satisfaction of a designated Performance Criteria, which shall be granted to a Participant pursuant to Section 10 of the Plan.

(cc)    “Share” means a share of Common Stock.

(dd)    “Termination of Service” shall mean the termination of employment of an Employee by the Company and all Affiliates or the termination of service by an Outside Director as a member of the board of directors of the Company and all Affiliates. A Participant’s service shall not be deemed to have terminated because of a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service. Furthermore, a Participant’s service with the Company Group shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company or an Affiliate; provided, however, that unless otherwise determined by the Committee, if any such leave exceeds 90 days, on the 91st day of such leave the Participant’s service shall be deemed to have terminated unless the Participant’s right to return to service with the Company Group is guaranteed by statute or contract. Unless the Participant’s leave of absence is approved by the Committee, a Participant’s service shall be deemed to have terminated upon the entity for which the Participant performs service ceasing to be an Affiliate (or any successor). Subject to the foregoing, the Committee, in its discretion, shall determine whether a Participant’s service has terminated and the effective date of such termination.

3.
ADMINISTRATION

The Committee shall administer the Plan. The Committee shall consist of two or more disinterested directors of the Company, who shall be appointed by the Board of Directors. A member of the Board of Directors shall be deemed to be “disinterested” only if he satisfies (i) such requirements as the Securities and Exchange Commission may establish for non-employee directors administering plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act and (ii) such rules for an “independent director” as the principal U.S. national securities exchange on which Shares are traded may require. The Board of Directors may also appoint one or more separate committees of the Board of Directors, each composed of one or more directors of the Company or an Affiliate who need not be disinterested, that may grant Awards and administer the Plan with respect to Employees, Outside Directors, and other individuals who are not considered officers or directors of the Company under Section 16 of the Exchange Act.

(a) The Committee shall have the sole and complete authority to:

(i) determine the individuals to whom Awards are granted, the type and amounts of Awards to be granted and the time of all such grants;


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(ii) determine the terms, conditions and provisions of, and restrictions relating to, each Award granted;

(iii) interpret and construe the Plan and all Award Agreements;

(iv) prescribe, amend and rescind rules and regulations relating to the Plan;

(v) determine the content and form of all Award Agreements;

(vi) determine all questions relating to Awards under the Plan, including whether any conditions relating to an Award have been met;

(vii) determine the duration and purpose of leaves of absence that may be granted to a Participant without constituting termination of the Participant’s employment for the purpose of the Plan or any Award;

(viii) maintain accounts, records and ledgers relating to Awards;

(ix) maintain records concerning its decisions and proceedings;

(x) employ agents, attorneys, accountants or other persons for such purposes as the Committee considers necessary or desirable; and

(xi) do and perform all acts which it may deem necessary or appropriate for the administration of the Plan and to carry out the objectives of the Plan.

The Committee’s determinations under the Plan shall be final and binding on all persons.

(b) Each Award shall be evidenced by an Award Agreement containing such provisions as may be approved by the Committee. Each Award Agreement shall constitute a binding contract between the Company and the Participant, and every Participant, upon acceptance of the Award Agreement, shall be bound by the terms and restrictions of the Plan and the Award Agreement. The terms of each Award Agreement shall be in accordance with the Plan, but each Award Agreement may include such additional provisions and restrictions determined by the Committee, in its discretion, provided that such additional provisions and restrictions are not inconsistent with the terms of the Plan. In particular, and at a minimum, the Committee shall set forth in each Award Agreement (i) the type of Award granted, (ii) the Exercise Price of any Option or Stock Appreciation Right, (iii) the number of Shares subject to the Award; (iv) the expiration date of the Award, and (v) the restrictions, if any, placed upon such Award, or upon Shares which may be issued upon exercise of such Award.

(c) The Chairman of the Committee and such other directors and officers as shall be designated by the Committee is hereby authorized to execute Award Agreements on behalf of the Company and to cause them to be delivered to the recipients of Awards.

(d) The Committee in its sole discretion and on such terms and conditions as it may provide may delegate all or any part of its authority and powers under the Plan to one or more members of the Board of Directors and/or officers of the Company.

(e) The Committee in its sole discretion and on such terms and conditions as it may provide may delegate all authority for: (i) the determination of forms of payment to be made by or received by the Plan and (ii) the execution of any Award Agreement. The Committee may rely on the descriptions, representations, reports and estimates provided to it by the management of the Company or an Affiliate for determinations to be made pursuant to the Plan.


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4.
TYPES OF AWARDS AND RELATED RIGHTS

The following types of Awards may be granted under the Plan:

(a) Non-Statutory Stock Options;

(b) Incentive Stock Options;

(c) Restricted Stock;

(d) Restricted Stock Units; and

(e) Stock Appreciation Rights.

5.
STOCK SUBJECT TO THE PLAN

(a) Dedicated Shares . Except as otherwise expressly provided in Section 16 below, the total number of shares of Stock with respect to which Awards may be granted under the Plan shall be 150,000 shares. The shares of Stock may be treasury shares or authorized but unissued shares. The numbers of shares of Stock stated in this Section 5(a) shall be subject to adjustment in accordance with the provisions of Section 16 below.

(i) In connection with the granting of an Award, the number of shares of Stock available for issuance under this Plan shall be reduced by the number of shares of Stock in respect of which the Award is granted or denominated. For example, upon the grant of stock-settled SARs, the number of shares of Stock available for issuance under this Plan shall be reduced by the full number of SARs granted, and the number of shares of Stock available for issuance under this Plan shall not thereafter be increased upon the exercise of the SARs and settlement in shares of Stock, even if the actual number of shares of Stock delivered in settlement of the SARs is less than the full number of SARs exercised.

(ii) Any shares of Stock that are tendered by a Participant or withheld as full or partial payment of withholding or other taxes or as payment for the exercise or conversion price of an Award under this Plan shall not be added back to the number of shares of Stock available for issuance under this Plan.

(iii) Whenever any outstanding Option or other Award (or portion thereof) expires, is cancelled or forfeited or is otherwise terminated for any reason without having been exercised or payment having been made in the form of shares of Stock, then (A) the number of shares of Stock available for issuance under this Plan shall be increased by the number of shares of Stock allocable to the expired, forfeited, cancelled or otherwise terminated Option or other Award (or portion thereof); and (B) the shares of Stock subject to such Awards will not be counted as shares delivered under this Plan.

(iv) Awards valued by reference to Stock that may be settled in equivalent cash value will count as shares of Stock delivered to the same extent as if the Award were settled in shares of Stock.

(b) Award Limits . Notwithstanding any provision in the Plan to the contrary:

(i) The maximum number of shares of Stock that may be subject to Awards granted to any one Employee during any calendar year may not exceed 20,000 shares of Stock (subject to adjustment as provided in Section 16 below); and

(ii) The maximum dollar value of shares of Stock that may be subject to Awards granted to any individual Outside Director during any calendar year may not exceed $100,000 (subject to adjustment as provided in Section 16 below), as determined on the date of grant for such Awards.


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(c) Substitute Awards . The Committee may grant Awards under the Plan in substitution for stock and stock based awards held by service providers of another corporation in connection with a merger or consolidation of the service recipient corporation with the Company or an Affiliate or the acquisition by the Company or an Affiliate of property or stock of the service recipient corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. Such substitution of any outstanding Stock Option must satisfy the requirements of Treasury Regulation § 1.424-1 and Code Section 409A. Any substitute Awards granted under the Plan shall not count against the share limitations set forth in Sections 5(a) or 5(b), nor shall such Shares subject to substitute awards again be available for grant under the Plan to the extent of any forfeiture, expiration, or cash settlement.

(d) Source of Shares . Shares issued under the Plan may be either authorized but unissued Shares, authorized Shares previously issued held by the Company in its treasury which have been reacquired by the Company, or Shares purchased by the Company in the open market.

6.
ELIGIBILITY

Subject to the terms of the Plan, all Employees and Outside Directors shall be eligible to receive Awards under the Plan.

7.
NON-STATUTORY STOCK OPTIONS

The Committee may, subject to the limitations of this Plan and the availability of Shares reserved but not previously awarded under the Plan, grant Non-Statutory Stock Options to eligible individuals upon such terms and conditions as it may determine to the extent such terms and conditions are consistent with the following provisions:

(a) Exercise Price . The Committee shall determine the Exercise Price of each Non‑Statutory Stock Option. However, the Exercise Price shall not be less than the Fair Market Value of the Common Stock on the Date of Grant.

(b) Terms of Non-Statutory Stock Options . The Committee shall determine the term during which a Participant may exercise a Non‑Statutory Stock Option, but in no event may a Participant exercise a Non‑Statutory Stock Option, in whole or in part, more than 10 years from the Date of Grant. The Committee shall also determine the date on which each Non‑Statutory Stock Option, or any part thereof, first becomes exercisable and any terms or conditions a Participant must satisfy in order to exercise each Non-Statutory Stock Option. Shares underlying each Non-Statutory Stock Option may be purchased, in whole or in part, by the Participant at any time during the term of such Non‑Statutory Stock Option, after such Option becomes exercisable. A Non‑Statutory Stock Option may not be exercised for fractional shares. If, on the date when a Non‑Statutory Stock Option would otherwise terminate or expire the Exercise Price of the Non‑Statutory Stock Option is less than the Fair Market Value of the Shares subject to the Non‑Statutory Stock Option on such date but any portion of the Non‑Statutory Stock Option has not been exercised, then the Non‑Statutory Stock Option shall automatically be deemed to be exercised as of such date with respect to such portion by means of a “net exercise” as described in Section 7(g). An Award Agreement with respect to a Non‑Statutory Stock Option may also provide for an automatic exercise of the Non‑Statutory Stock Option on an earlier date.

(c) Termination of Service . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement, upon a Participant’s Termination of Service for any reason other than Termination for Cause, the Participant may exercise only those Non‑Statutory Stock Options that were vested and immediately exercisable by the Participant at the date of such termination and only for thirty (30) days following the date of such termination, or, if sooner, the expiration of the term of the Non‑Statutory Stock Option.

(d) Extension of Term of Option . The period during which a Non‑Statutory Stock Option is to remain exercisable following a Participant’s Termination of Service shall be extended if the exercise of the Non‑Statutory Stock Option would violate an applicable Federal, state, local, or foreign law until 30 days after the exercise of the Non‑Statutory Stock Option would no longer violate applicable Federal, state, local, and foreign laws, but not beyond the original term of the Non‑Statutory Stock Option pursuant to Section 7(b).

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(e) Settlement . Upon exercise, a Non‑Statutory Stock Option shall be settled in Shares.

(f) Vesting . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement evidencing an Award, a Non‑Statutory Stock Option shall vest in accordance with Sections 12(a) and 12(b), unless faster vesting is required by the forgoing provisions of this Section 7.

(g) Method of Exercise of Options . Subject to any applicable Award Agreement, any Option may be exercised by the Participant in whole or in part at such time or times, and the Participant may make payment of the Exercise Price in such form or forms, including, without limitation, payment by delivery of cash or Common Stock owned by the Participant having a Fair Market Value on the exercise date equal to the total Exercise Price, or by any combination of cash and Shares, including exercise by means of a cashless exercise arrangement with a qualifying broker-dealer or a “net exercise.” The Participant may deliver shares of Common Stock either by attestation or by the delivery of a certificate or certificates for shares duly endorsed for transfer to the Company. A “net exercise” means the delivery of a properly executed notice followed by a procedure pursuant to which (i) the Company will reduce the number of Shares otherwise issuable to a Participant upon the exercise of an Option by the largest whole number of Shares having a Fair Market Value that does not exceed the aggregate Exercise Price for the Shares with respect to which the Option is exercised, and (ii) the Participant shall pay to the Company in cash the remaining balance of such aggregate Exercise Price not satisfied by such reduction in the number of whole Shares to be issued. Shares will no longer be outstanding under an Option and will not be exercisable thereafter to the extent that (A) Shares are used to pay the Exercise Price pursuant to a “net exercise,” (B) Shares are delivered to the Participant as a result of such exercise, and (C) Shares are withheld to satisfy tax withholding obligations.

8.
INCENTIVE STOCK OPTIONS

The Committee may, subject to the limitations of the Plan and the availability of Shares reserved but not previously awarded under this Plan, grant Incentive Stock Options to Employees upon such terms and conditions as it may determine to the extent such terms and conditions are consistent with the following provisions:

(a) Exercise Price . The Committee shall determine the Exercise Price of each Incentive Stock Option. However, the Exercise Price shall not be less than the Fair Market Value of the Common Stock on the Date of Grant; provided, however, that if at the time an Incentive Stock Option is granted, the Employee owns or is treated as owning, for purposes of Code Section 422, Common Stock representing more than 10% of the total combined voting securities of the Company (“10% Owner”), the Exercise Price shall not be less than 110% of the Fair Market Value of the Common Stock on the Date of Grant.

(b) Amounts of Incentive Stock Options . To the extent the aggregate Fair Market Value of Shares with respect to which Incentive Stock Options that are exercisable for the first time by an Employee during any calendar year under the Plan and any other stock option plan of the Company or an Affiliate exceeds $100,000, or such higher value as may be permitted under Code Section 422, such Options in excess of such limit shall be treated as Non‑Statutory Stock Options. Fair Market Value shall be determined as of the Date of Grant with respect to each such Incentive Stock Option.

(c) Terms of Incentive Stock Options . The Committee shall determine the term during which a Participant may exercise an Incentive Stock Option, but in no event may a Participant exercise an Incentive Stock Option, in whole or in part, more than 10 years from the Date of Grant; provided, however, that if at the time an Incentive Stock Option is granted to an Employee who is a 10% Owner, the Incentive Stock Option granted to such Employee shall not be exercisable after the expiration of five years from the Date of Grant. The Committee shall also determine the date on which each Incentive Stock Option, or any part thereof, first becomes exercisable and any terms or conditions a Participant must satisfy in order to exercise each Incentive Stock Option. Shares underlying each Incentive Stock Option may be purchased, in whole or in part, at any time during the term of such Incentive Stock Option, after such Option becomes exercisable. An Incentive Stock Option may not be exercised for fractional shares. If, on the date when an Incentive Stock Option would otherwise terminate or expire the Exercise Price of the Incentive Stock Option is less than the Fair Market Value of the Shares subject to the Incentive Stock Option on such date but any portion of the Incentive Stock Option has not been exercised, then the Incentive Stock Option shall automatically be deemed to

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be exercised as of such date with respect to such portion by means of a “net exercise” as described in Section 7(g). An Award Agreement with respect to an Incentive Stock Option may also provide for an automatic exercise of the Incentive Stock Option on an earlier date.

(d) Termination of Employment . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement, upon a Participant’s Termination of Service for any reason other than Termination for Cause, the Participant may exercise only those Incentive Stock Options that were immediately exercisable by the Participant at the date of such termination and only for thirty (30) days following the date of such termination, or, if sooner, the expiration of the term of the Incentive Stock Option.

(e) Extension of Term of Option . The period during which an Incentive Stock Option is to remain exercisable following a Participant’s Termination of Service shall be extended if the exercise of the Incentive Stock Option would violate an applicable Federal, state, local, or foreign law until 30 days after the exercise of the Incentive Stock Option would no longer violate applicable Federal, state, local, and foreign laws, but not beyond the original term of the Incentive Stock Option pursuant to Section 8(c). Any extension of the term of an Incentive Stock Option pursuant to this Section 8(e) may cause the Option to be treated as a Non-Statutory Stock Option.

(f) Settlement . Upon exercise, an Incentive Stock Option shall be settled in Shares.

(g) Disqualifying Dispositions . Each Award Agreement with respect to an Incentive Stock Option shall require the Participant to notify the Committee of any disposition of Shares issued pursuant to the exercise of such Option under the circumstances described in Code Section 421(b) (relating to certain disqualifying dispositions), within 10 days of such disposition.

(h) Vesting . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement evidencing an Award, a Non‑Statutory Stock Option shall vest in accordance with Sections 12(a) and 12(b), unless faster vesting is required by the forgoing provisions of this Section 8.

9.
RESTRICTED STOCK AWARDS

The Committee may, subject to the limitations of the Plan and the availability of Shares reserved but not previously awarded under this Plan, grant Restricted Stock to eligible individuals upon such terms and conditions as it may determine to the extent such terms and conditions are consistent with the following provisions:

(a) Payment of the Restricted Stock . Awards of Restricted Stock may only be made in whole Shares.

(b) Terms of the Restricted Stock . The Committee shall determine the dates on which Restricted Stock granted to a Participant shall vest and any specific conditions or performance goals which must be satisfied prior to the vesting of any installment or portion of the Restricted Stock. The Committee may issue Restricted Stock that is immediately vested and not subject to any specific conditions or performance goals. Notwithstanding other paragraphs in this Section 9, the Committee may, in its sole discretion, accelerate the vesting of any Restricted Stock. The acceleration of any Restricted Stock shall create no right, expectation or reliance on the part of any other Participant or that certain Participant regarding any other Restricted Stock.

(c) Termination of Service . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement, upon a Participant’s Termination of Service for any reason, the Participant’s unvested Restricted Stock as of the date of termination shall be forfeited and any rights the Participant had to such unvested Restricted Stock shall become null and void.

(d) Dividends and Other Distributions . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement, a Participant shall not be paid any dividends or other distributions with respect to Restricted Stock until the Restricted Stock has become vested, and at the time of such vesting, the Participant shall receive a cash payment equal to the aggregate cash dividends (without interest) and the number of Shares equal to any stock dividends that the Participant would have received if the Participant had owned all of the Shares that vested for

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the period beginning on the Grant Date, and ending on the date of vesting. No dividends shall be paid to a Participant with respect to any Restricted Stock that is forfeited by the Participant.

(e) Voting of Restricted Stock . After a Restricted Stock Award has been granted, but for which Shares covered by such Restricted Stock have not yet vested, the Participant shall be entitled to vote such Shares subject to the rules and procedures adopted by the Committee for this purpose.

(f) Restrictive Legend . Each certificate issued in respect of a Restricted Stock shall be registered in the name of the Participant and, at the discretion of the Board, each such certificate may be deposited in a bank designated by the Board. Each such certificate shall bear the following (or a similar) legend:

“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) contained in the Adams Resources & Energy, Inc. 2018 Long-Term Incentive Plan and an agreement entered into between the registered owner and Adams Resources & Energy, Inc. A copy of such plan and agreement is on file at the principal office of Adams Resources & Energy, Inc.”

(g) Transfers of Unrestricted Shares . Upon the vesting date for a Restricted Stock, such Restricted Stock will be transferred free of all restrictions to a Participant (or his or her legal representative, beneficiary or heir).

(h) Vesting . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement evidencing an Award, Restricted Stock shall vest in accordance with Sections 12(a) and 12(b), unless faster vesting is required by the forgoing provisions of this Section 9.

10.
RESTRICTED STOCK UNITS

The Committee may, subject to the limitations of the Plan and the availability of Shares reserved but not previously awarded under this Plan, grant Restricted Stock Unit Awards to eligible individuals upon such terms and conditions as it may determine to the extent such terms and conditions are consistent with the following provisions. A “Restricted Stock Unit” Award is the grant of a right to receive Shares in the future.

(a) Settlement of Restricted Stock Unit Award . A Restricted Stock Unit Award shall be settled either by the delivery of whole Shares or by the payment of cash based upon the Fair Market Value of a specified number of Shares, in the discretion of the Committee, subject to the terms of the applicable Award Agreement. Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement, any stock certificate evidencing the Shares payable under a Restricted Stock Unit Award will be issued (or cash paid) within an administratively reasonable period after the date on which the Restricted Stock Unit vests so that the payment of Shares qualifies for the short‑term deferral exception under Code Section 409A.

(b) Terms of Restricted Stock Unit Awards . The Committee shall determine the dates on which Restricted Stock Units granted to a Participant shall vest and any specific conditions or performance goals which must be satisfied prior to the vesting of any Award. Notwithstanding other paragraphs in this Section 10, the Committee may, in its sole discretion, accelerate the vesting of any Restricted Stock Units. The acceleration of any Restricted Stock Unit Award shall create no right, expectation or reliance on the part of any other Participant or that Participant regarding any other Restricted Stock Unit Award.

(c) Termination of Service . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement, upon a Participant’s Termination of Service for any reason, the Participant’s unvested Restricted Stock Units as of the date of termination shall be forfeited and any rights the Participant had to such unvested Awards shall become null and void.

(d) Dividends and Other Distributions . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement, cash dividend equivalents with respect to any Restricted Stock Unit Award and any other property (other than cash) distributed as a dividend or otherwise with respect to the number of Shares covered

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by a Restricted Stock Unit Award that vests based on achievement of performance goals shall be accumulated and shall be subject to restrictions and risk of forfeiture to the same extent as the Restricted Stock Units with respect to which such cash, Shares or other property has been distributed and shall be paid at the time such restrictions and risk of forfeiture lapse.

(e) Deferral . Unless expressly permitted by the Committee in the Award Agreement, a Participant does not have any right to make any election regarding the time or form of any payment pursuant to a Restricted Stock Unit Award. To the extent permissible under applicable law, the Committee may permit a Participant to defer payment under a Restricted Stock Unit to a date or dates after the Restricted Stock Unit vests, provided that the terms of the Restricted Stock Unit and any deferral satisfy the requirements to avoid imposition of the “additional tax” under Code Section 409A(a)(1)(B).

(f) Vesting . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement evidencing an Award, a Restricted Stock Unit shall vest in accordance with Sections 12(a) and 12(b), unless faster vesting is required by the forgoing provisions of this Section 10.

11.
STOCK APPRECIATION RIGHTS

The Committee may, subject to the limitations of the Plan and the availability of Shares reserved but not previously awarded under this Plan, grant Stock Appreciation Rights to eligible individuals upon such terms and conditions as it may determine to the extent such terms and conditions are consistent with the following provisions. A Stock Appreciation Right is an award that entitles the holder to receive an amount equal to the difference between the Fair Market Value of the Shares at the time of exercise of the Stock Appreciation Right and the Exercise Price on the Date of Grant, subject to the provisions of this Section 11.

(a) Exercise Price . The Committee shall determine the Exercise Price of each Stock Appreciation Right. However, the Exercise Price shall not be less than the Fair Market Value of the Common Stock on the Date of Grant.

(b) Terms of Stock Appreciation Rights . The Committee shall determine the term during which a Participant may exercise a Stock Appreciation Right, but in no event may a Participant exercise a Stock Appreciation Right, in whole or in part, more than 10 years from the Date of Grant. The Committee shall also determine the date on which each Stock Appreciation Right, or any part thereof, first becomes exercisable and any terms or conditions a Participant must satisfy in order to exercise each Stock Appreciation Right. A Stock Appreciation Right may not be exercised for fractional shares. If, on the date when a Stock Appreciation Right would otherwise terminate or expire the Exercise Price of the Stock Appreciation Right is less than the Fair Market Value of the Shares subject to the Stock Appreciation Right on such date but any portion of the Stock Appreciation Right has not been exercised, then the Stock Appreciation Right shall automatically be deemed to be exercised as of such date with respect to such portion. An Award Agreement with respect to a Stock Appreciation Right may also provide for an automatic exercise of the Stock Appreciation Right on an earlier date.

(c) Termination of Service . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement, upon a Participant’s Termination of Service for any reason other than Termination for Cause, the Participant may exercise only those Stock Appreciation Rights that were immediately exercisable by the Participant at the date of such termination and only for thirty (30) days following the date of such termination, or, if sooner, the expiration of the term of the Stock Appreciation Right.

(d) Extension of Term of Stock Appreciation Right . The period during which a Stock Appreciation Right is to remain exercisable following a Participant’s Termination of Service shall be extended if the exercise of the Stock Appreciation Right would violate an applicable Federal, state, local, or foreign law until 30 days after the exercise of the Stock Appreciation Right would no longer violate applicable Federal, state, local, and foreign laws, but not beyond the original term of the Stock Appreciation Right pursuant to Section 11(b).

(e) Settlement . Upon exercise, a Stock Appreciation Right shall be settled in cash or Shares, or both, in the discretion of the Committee, subject to the terms of the applicable Award Agreement.

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(f) Vesting . Unless otherwise determined by the Committee and evidenced in an applicable Award Agreement evidencing an Award, a Stock Appreciation Right shall vest in accordance with Sections 12(a) and 12(b), unless faster vesting is required by the forgoing provisions of this Section 11.

12.
VESTING

(a) General . The Committee shall establish the vesting schedule to apply to any Award of Options, Restricted Stock, Restricted Stock Units or Stock Appreciation Rights. Each such Award issued under this Plan’s terms shall have a vesting period of not less than 1 year; provided, however, that, as determined by the Committee in its sole discretion, up to five percent (5%) of the Shares authorized for issuance under Section 5(a) are not required to have such minimum vesting period.

(b) Performance Vesting . The Committee may designate that an Award will become vested based on attainment of designated Performance Goals over a designated Performance Period (a “Performance Award”).

(i) Procedures with Respect to Grants . The Committee shall, in writing, (i) designate one or more Participants to receive Performance Awards, (ii) select the Performance Criteria applicable to the Performance Period, (iii) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (iv) specify the relationship between Performance Criteria and the Performance Goals and the amounts to be earned by each Participant for such Performance Period. The Performance Goals and Performance Period for a Performance Award generally shall be selected by the Committee in its sole discretion and, with the exception of Performance Awards issued during the period between May 1, 2018 and July 31, 2018, shall be designated within the first ninety (90) days of the Performance Period.

(ii) Committee Certification . Following the completion of each Performance Period, the Committee shall determine whether the applicable Performance Goals have been achieved for such Performance Period. No Performance Award or portion thereof that is subject to the satisfaction of any condition shall be considered to be earned or vested until the Committee certifies in writing that the conditions to which the distribution, earning or vesting of such Award is subject have been achieved.

(iii) Payment and Limitations . Performance Awards shall be paid on or before the 90th day following both (i) the end of the Performance Period, and (ii) certification by the Committee that the Performance Goals and any other material terms of the Award and the Plan have been satisfied, or as soon thereafter as is reasonably practicable. A Performance Award may be paid in Stock, cash, or a combination of Stock and cash, in the sole discretion of the Committee, which shall be determined in the applicable Award Agreement. If paid in whole or in part in Stock, the Stock shall be valued at Fair Market Value as of the date the Committee directs payments to be made in whole or in part in Stock. However, no fractional shares of Stock shall be issued, and the balance due, if any, shall be paid in cash. The maximum amount which may be paid to any Participant pursuant to one or more Awards under this Section 12 for any single Performance Period shall not exceed the limitations provided in Section 5(b) above.

(iv) Effect on Other Plans and Arrangements . Nothing contained in the Plan will be deemed in any way to limit or restrict the Committee from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.

(c) Effect of “Change in Control .”

(i) Unless otherwise provided in the applicable Award Agreement, in the event of a Change in Control of the Company in which the successor company assumes or substitutes for an Option, Stock Appreciation Right, Restricted Stock, or Restricted Stock Unit Award (or in which the Company is the ultimate parent corporation and continues the Award), if a Participant’s employment with such successor company (or the Company) or a subsidiary thereof is terminated without Cause within 12 months after such Change in Control (or such other period set forth in the Award Agreement):


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1.     Options and Stock Appreciation Rights outstanding as of the date of such Change in Control (or Termination of Service, if later) will immediately vest upon the Change in Control (or Termination of Service, if later), become fully exercisable, and may thereafter be exercised for two years (or the period of time set forth in the Award Agreement), or, if sooner, the expiration of the term of the Award; and

2.     The restrictions, limitations and other conditions applicable to Restricted Stock and Restricted Stock Units outstanding as of the Change in Control (or Termination of Service, if later) shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all restrictions, limitations and conditions and become fully vested.

For the purposes of this Section 12(b), an Option, Stock Appreciation Right, Restricted Stock, or Restricted Stock Unit Award shall be considered assumed or substituted for if following the Change in Control the Award confers the right to purchase or receive, for each Share subject to the Option, Stock Appreciation Right, Restricted Stock, or Restricted Stock Unit immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) received in the transaction constituting a Change in Control by holders of Shares for each Share held on the effective date of such transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the transaction constituting a Change in Control is not solely common stock of the successor company, the Committee may, with the consent of the successor company, provide that the consideration to be received upon the exercise or vesting of an Option, Stock Appreciation Right, Restricted Stock, or Restricted Stock Unit Award, for each Share subject thereto, will be solely common stock of the successor company substantially equal in fair market value to the per Share consideration received by holders of Shares in the transaction constituting a Change in Control. The determination of such substantial equality of value of consideration shall be made by the Committee in its sole discretion and its determination shall be conclusive and binding.

(ii) Unless otherwise provided in the applicable Award Agreement, in the event of a Change in Control, to the extent the successor company does not assume or substitute for an Option, Stock Appreciation Right, Restricted Stock, or Restricted Stock Unit Award (or in which the Company is the ultimate parent corporation and does not continue the Award), then as of the Change in Control:

1.     Those Options and Stock Appreciation Rights outstanding as of the date of the Change in Control that are not assumed or substituted for (or continued) shall immediately vest and become fully exercisable;

2.     Restrictions, limitations and other conditions applicable to Restricted Stock and Restricted Stock Units that are not assumed or substituted for (or continued) shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all restrictions, limitations and conditions and become fully vested and transferable to the full extent of the original grant; and

3.     Any Award subject to performance criteria shall be prorated based on the performance from the Award Date to the date of the Change in Control. The proration shall be based upon the method set forth in the Award Agreements evidencing the applicable Awards, or if no method is specified, based upon the total number of days during the performance period prior to the Change in Control in relation to the total number of days during the performance period.

13.
RIGHTS OF PARTICIPANTS

No Participant shall have any rights as a shareholder with respect to any Shares covered by an Award until the date of issuance of a stock certificate for such Common Stock. Nothing contained in this Plan or in any Award Agreement confers on any person any right to continue in the employ or service of the Company or an Affiliate or interferes in any way with the right of the Company or an Affiliate to terminate a Participant’s services.


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14.
DESIGNATION OF BENEFICIARY

A Participant may, with the consent of the Committee, designate a person or persons to receive, in the event of death, any Award to which the Participant would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If a Participant fails to designate a beneficiary, then the Participant’s estate will be deemed to be the beneficiary.

15.
TRANSFERABILITY OF AWARDS

(a) General Rule . Except as provided in Section 15(b) below, no Award and no right under any such Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution, and any such purported prohibited assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company Group.

(b) Non-Statutory Stock Options and Stock Appreciation Rights . With the approval of the Committee, a Participant may transfer a Non‑Statutory Stock Option or a Stock Appreciation Right for no consideration to or for the benefit of one or more Permitted Transferees subject to such limits as the Committee may establish, and the Permitted Transferee shall remain subject to all the terms and conditions applicable to the Award prior to such transfer. The transfer of an Award pursuant to this Section shall include a transfer of the rights of a Participant under this Plan to consent to certain amendments to the Plan or an Award Agreement and, in the discretion of the Committee, shall also include transfer of ancillary rights associated with the Award.

16.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR A CHANGE OF CONTROL

(a) Adjustment Clause . In the event of any change in the outstanding shares of Common Stock of the Company by reason of any stock dividend, split, spinoff, recapitalization, merger, consolidation, combination, extraordinary dividend, exchange of shares or other change affecting the outstanding shares of Common Stock as a class without the Company’s receipt of consideration, or other equity restructuring within the meaning of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation (formerly, FASB Statement 123R), appropriate adjustments shall be made to (i) the terms and the number of Shares and/or the Exercise Price per Share of any outstanding Stock Options, Stock Appreciation Rights, Restricted Stock and Restricted Stock Units, and (ii) the share limitations set forth in Section 5 hereof. The Committee shall also make appropriate adjustments described in (i)-(ii) of the previous sentence in the event of any distribution of assets to shareholders other than a normal cash dividend. Adjustments, if any, and any determination or interpretations, made by the Committee shall be final, binding and conclusive. Conversion of any convertible securities of the Company shall be deemed to have been effected for adequate consideration. Except as expressly provided herein, no issuance by the Company of shares of any class or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Award.

(b) Change in Control . If a Change in Control occurs, the Committee may, in its discretion and without limitation:

(i) cancel outstanding Awards in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Awards, as determined by the Committee or the Board in its sole discretion (it being understood that if shareholders receive consideration other than publicly traded equity securities of the surviving entity, any determination by the Committee that the value of a Stock Option or Stock Appreciation Right shall equal the excess, if any, of the value of the consideration being paid for each Share in such transaction over the Exercise Price of such Option or Stock Appreciation Right shall conclusively be deemed valid. Accordingly, if the Exercise Price of the Shares subject to a Stock Option or Stock Appreciation Right exceeds the Fair Market Value of such Shares, then such Stock Option or Stock Appreciation Right may be cancelled without making a payment to the holder of the Stock Option or Stock Appreciation Right);


16


(ii) substitute other property (including, without limitation, cash or other securities of the Company and securities of entities other than the Company) for Shares subject to outstanding Awards;

(iii) arrange for the assumption of Awards, or replacement of Awards with new awards based on other property or other securities (including, without limitation, other securities of the Company and securities of entities other than the Company); and

(iv) may, after giving Participants an opportunity to exercise their outstanding Stock Options and Stock Appreciation Rights, terminate any or all unexercised Stock Options and Stock Appreciation Rights. Such termination shall take place as of the date of the Change in Control or such other date as the Committee may specify.

(c) Section 409A Provisions with Respect to Adjustments . Notwithstanding the foregoing: (i) any adjustments made pursuant to this Section to Awards that are considered “deferred compensation” within the meaning of Code Section 409A shall be made in compliance with the requirements of Code Section 409A unless the Participant consents otherwise; (ii) any adjustments made to Awards that are not considered “deferred compensation” subject to Code Section 409A shall be made in such a manner as to ensure that after such adjustment, the Awards either continue not to be subject to Code Section 409A or comply with the requirements of Code Section 409A unless the Participant consents otherwise; and (iii) the Committee shall not have the authority to make any adjustments under this Section to the extent that the existence of such authority would cause an Award that is not intended to be subject to Code Section 409A to be subject thereto.

17.
TAX WITHHOLDING

The Company or any of its Affiliates is authorized to withhold from any Award, from any payment due or transfer made under any Award or from any compensation or other amount owing to a Participant the amount (in cash, Shares, or other property) of any applicable taxes required to be withheld by the Company or such Affiliate in respect of the Award, its exercise, the lapse of restrictions thereon, or any payment or transfer under the Award and to take such other action as may be necessary in the opinion of the Company to satisfy all of its obligations for the payment of such taxes. In addition, the Committee may provide, in an Award Agreement, that the Participant may make direct payment of any applicable taxes directly to the Company or may direct the Company to satisfy such Participant’s tax withholding obligations through the withholding of Shares otherwise to be acquired upon the exercise or payment of such Award, but only to the extent such withholding does not cause a charge to the Company’s financial earnings.

18.
CLAWBACK/RECOVERY

All Awards granted under the Plan will be subject to recoupment in accordance with any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Committee may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Committee determines necessary or appropriate, including, but not limited to, a recovery right in respect of previously acquired shares of Stock and/or a repayment right with respect to previously acquired cash or property, including the proceeds of any shares of Stock received under this Plan’s terms.

19.
AMENDMENT OF THE PLAN AND AWARDS

(a) The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, prospectively or retroactively; provided; however, (i) provisions governing grants of Incentive Stock Options shall be submitted for shareholder approval to the extent required by applicable law or regulation; (ii) except as permitted by Section 16, no amendment may increase the share limitations set forth in Section 5 or decrease the minimum Exercise Price for Stock Options or Stock Appreciation Rights set forth in Sections 7(a), 8(a) and 11(a), unless any such amendment is approved by the Company’s shareholders within 12 months before or after such amendment; and (iii) the provisions of Section 19(b) (relating to Option repricing) may not be amended, unless any such amendment is approved by the Company’s shareholders. Failure to ratify or approve amendments or modifications by shareholders

17


shall be effective only as to the specific amendment or modification requiring such approval or ratification. Other provisions of this Plan will remain in full force and effect. No such termination, modification or amendment may adversely affect the rights of a Participant under an outstanding Award without the written permission of such Participant.

(b) The Committee may amend any Award Agreement, prospectively or retroactively; provided, however, that no such amendment shall adversely affect the rights of any Participant under an outstanding Award without the written consent of such Participant; provided, however, that repricing of Stock Options or Stock Appreciation Rights shall not be permitted. For this purpose, a repricing means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of an Option or Stock Appreciation Right to lower its Exercise Price; (ii) any other action that is treated as a repricing under generally accepted accounting principles; and (iii) canceling an Option or Stock Appreciation Right at a time when its exercise price is equal to or greater than the fair market value of the underlying stock in exchange for cash or for another Option, Stock Appreciation Right or other Award, unless the cancellation and exchange occurs in connection with an event set forth in Section 16. Such cancellation and exchange would be considered a repricing regardless of whether it is treated as a repricing under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.

20.
RIGHT OF OFFSET

The Company will have the right to offset against its obligation to deliver shares of Common Stock (or other property) under the Plan or any Award Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, repayment obligations under any Awards, or amounts repayable to the Company pursuant to tax equalization, housing, automobile or other employee programs) that the Participant then owes to the Company and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement; provided, however, that no such offset shall be permitted if it would constitute an “acceleration” of a payment hereunder within the meaning of Code Section 409A. This right of offset shall not be an exclusive remedy and the Company’s election not to exercise the right of offset with respect to any amount payable to a Participant shall not constitute a waiver of this right of offset with respect to any other amount payable to the Participant or any other remedy.

21.
ELECTRONIC DELIVERY AND SIGNATURES

(a) Any reference in an Award Agreement or the Plan to a written document includes without limitation any document delivered electronically or posted on the Company’s or an Affiliate’s intranet or other shared electronic medium controlled by the Company or an Affiliate.

(b) The Committee and any Participant may use facsimile and PDF signatures in signing any Award or Award Agreement, in exercising any Option or Stock Appreciation Right, or in any other written document in the Plan’s administration. The Committee and each Participant are bound by facsimile and PDF signatures, and acknowledge that the other party relies on facsimile and PDF signatures.

22.
EFFECTIVE DATE OF PLAN

The Plan shall be effective upon May 8, 2018, if it shall have been approved by at least a majority vote of shareholders voting in person or by proxy with respect to the Plan at a duly held shareholders’ meeting. No Award shall be granted pursuant to the Plan after the tenth (10th) anniversary of the Plan’s effective date.

23.
TERMINATION OF THE PLAN

The right to grant Awards under the Plan will terminate 10 years after the Effective Date. The Board of Directors has the right to suspend or terminate the Plan at any time, provided that no such action will, without the consent of a Participant, adversely affect a Participant’s rights under an outstanding Award.


18


24.
APPLICABLE LAW; COMPLIANCE WITH LAWS

The Plan will be administered in accordance with the laws of the state of Delaware and applicable federal law. Notwithstanding any other provision of the Plan, the Company shall have no liability to issue any Shares under the Plan unless such issuance would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. Prior to the issuance of any Shares under the Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares.

25.
PROHIBITION ON DEFERRED COMPENSATION

It is the intention of the Company that no Award shall be “deferred compensation” subject to Code Section 409A unless and to the extent that the Committee specifically determines otherwise, and the Plan and the terms and conditions of all Awards shall be interpreted accordingly. The terms and conditions governing any Awards that the Committee determines will be subject to Code Section 409A, including any rules for elective or mandatory deferral of the delivery of cash or Shares pursuant thereto, shall be set forth in the applicable Award Agreement, and shall comply in all respects with Code Section 409A. Notwithstanding any provision herein to the contrary, any Award issued under the Plan that constitutes a deferral of compensation under a “nonqualified deferred compensation plan” as defined under Code Section 409A(d)(1) and is not specifically designated as such by the Committee shall be modified or cancelled to comply with the requirements of Code Section 409A, including any rules for elective or mandatory deferral of the delivery of cash or Shares pursuant thereto.

26.
NO GUARANTEE OF TAX TREATMENT

Notwithstanding anything herein to the contrary, a Participant shall be solely responsible for the taxes relating to the grant or vesting of, or payment pursuant to, any Award, and none of the Company, the Board of Directors or the Committee (or any of their respective members, officers or employees) guarantees any particular tax treatment with respect to any Award.




19


Exhibit 10.2

SEVENTH AMENDMENT TO
CREDIT AND SECURITY AGREEMENT

This Seventh Amendment TO CREDIT AND SECURITY AGREEMENT (the “ Amendment ”), dated as of March 19, 2018, is entered into by and between GULFMARK ENERGY, INC., a Texas corporation (“ Borrower ”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“ Wells Fargo ”), acting through its Wells Fargo Business Credit operating division.
RECITALS
A.    The Borrower, certain other parties thereto, and Wells Fargo, are parties to that certain Credit and Security Agreement dated August 27, 2009 (as the same has been and may be amended, restated or modified from time to time, the “ Credit Agreement ”). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified.
B.    SERVICE TRANSPORT COMPANY, a Texas corporation (“ STC ”), ADAMS RESOURCES & ENERGY, INC., a Delaware corporation (“ ARE ”; together with STC, the “ Guarantors ”) and certain other parties thereto, have each executed that certain Continuing Guaranty dated as of August 27, 2009 in favor of Wells Fargo.
C.    The Borrower has requested that certain amendments be made to the Credit Agreement, which Wells Fargo is willing to make pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows:
ARTICLE I

Amendments to Credit Agreement

Section 1.1     Amendment to Section 5.2(b) of the Credit Agreement . Effective as of the date hereof, Section 5.2(b) of the Credit Agreement is amended and restated to read in its entirety as follows:

(b)
[Intentionally Omitted.].
Section 1.2     Deletion to Exhibit A to Credit Agreement . Effective as of the date hereof, the definition of “Current Ratio” appearing on Exhibit A to the Credit Agreement is hereby deleted in its entirety.

Section 1.3     Amendments to Exhibit E to Credit Agreement . Effective as of the date hereof, Section F. 2. of Exhibit E to the Credit Agreement is hereby amended and restated in its entirety to read as follows:

2.    [Intentionally Omitted.].
Section 1.4     No Other Changes . Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder.


1


ARTICLE II

Conditions Precedent

Section 2.1     Conditions Precedent . This Amendment shall be effective when Wells Fargo shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to Wells Fargo in its sole discretion:

(a) This Amendment duly executed by the Borrower, the Guarantors and Wells Fargo.

(b) Such other matters as Wells Fargo may reasonably require.


ARTICLE III

Representations and Warranties; No Waiver

Section 3.1     Representations and Warranties . Borrower hereby represents and warrants to Wells Fargo as follows:

(a)    Borrower has all requisite power and authority to execute this Amendment and any other agreements or instruments required hereunder and to perform all of its obligations hereunder, and this Amendment and all such other agreements and instruments has been duly executed and delivered by Borrower and constitute the legal, valid and binding obligation of Borrower, enforceable in accordance with its terms except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and conveyance or similar laws of, general application relating to the enforcement of creditors’ rights and by general principles of equity.

(b)    The execution, delivery and performance by Borrower of this Amendment and any other agreements or instruments required hereunder have been duly authorized by all necessary corporate or company action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to Borrower, or the articles of incorporation, by-laws or other charter documents of Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which Borrower is a party or by which it or its properties may be bound or affected.

(c) All of the representations and warranties contained in Article 4 and Exhibit D of the Credit Agreement, are correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.

Section 3.2     No Waiver . The execution of this Amendment and the acceptance of all other agreements and instruments related hereto shall not be deemed to be a consent to or waiver of any default or Event of Default under the Credit Agreement or a waiver of any breach, default or event of default under any Loan Document or other document held by Wells Fargo, whether or not known to Wells Fargo and whether or not existing on the date of this Amendment. All terms and provisions of, and all rights and remedies of Wells Fargo under, the Loan Documents shall continue in full force and effect are hereby confirmed and ratified in all respects.


2


ARTICLE IV

Miscellaneous

Section 4.1     References . All references in the Credit Agreement to “this Agreement” shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby.

Section 4.2     INDEMNIFICATION OF BANK . EACH OF THE BORROWER AND GUARANTORS HEREBY AGREES TO INDEMNIFY WELLS FARGO AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, ATTORNEYS, AFFILIATES, AND AGENTS (COLLECTIVELY, “ RELEASED PARTIES ”) FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS’ FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (a) ANY AND ALL FAILURES BY BORROWER OR SUCH GUARANTOR TO COMPLY WITH ITS OR HIS AGREEMENTS CONTAINED IN THE LOAN DOCUMENTS, INCLUDING WITHOUT LIMITATION, THIS AMENDMENT, (b) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS PRIOR TO THE DATE HEREOF, (c) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS PRIOR TO THE DATE HEREOF, (d) ANY BREACH PRIOR TO THE DATE HEREOF BY BORROWER OR SUCH GUARANTOR OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AMENDMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS OR THIS AMENDMENT, OR (e) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING (COLLECTIVELY, “ RELEASED CLAIMS ”). WITHOUT LIMITING ANY PROVISION OF THIS AMENDMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH ENTITY OR PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS’ FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH ENTITY OR PERSON; PROVIDED HOWEVER, NO ENTITY OR PERSON SHALL BE INDEMNIFIED HEREUNDER FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

Section 4.3     WAIVER AND RELEASE . TO INDUCE WELLS FARGO TO AGREE TO THE TERMS OF THIS AMENDMENT, EACH OF THE BORROWER AND GUARANTORS REPRESENTS AND WARRANTS THAT AS OF THE DATE OF THIS AMENDMENT IT HAS NO CLAIMS AGAINST RELEASED PARTIES. WITHOUT LIMITING THE FOREGOING, EACH OF BORROWER AND GUARANTORS HEREBY:

(a)     WAIVER . WAIVES ANY AND ALL SUCH CLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE OF THIS AMENDMENT; AND

(b)     RELEASE . RELEASES, ACQUITS AND FOREVER DISCHARGES RELEASED PARTIES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE STATE AND FEDERAL LAW, FROM ANY AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITIES, CLAIMS, COUNTERCLAIMS, CONTROVERSIES, COSTS, DEBTS, SUMS OF MONEY, ACCOUNTS, BONDS, BILLS, RIGHTS, CAUSES OF ACTION OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, IN LAW OR EQUITY, WHICH BORROWER OR SUCH GUARANTOR EVER HAD, NOW HAS, CLAIMS TO HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE DATE HEREOF AND FROM OR IN CONNECTION WITH THIS AMENDMENT, THE LOAN DOCUMENTS OR THE TRANSACTIONS DIRECTLY OR INDIRECTLY CONTEMPLATED THEREBY.

    

3


Section 4.4     Costs and Expenses . Borrower hereby reaffirms its agreement under Section 7.7 of the Credit Agreement. Without limiting the generality of the foregoing, Borrower specifically agrees to pay all fees and disbursements of counsel to Wells Fargo for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. Borrower hereby agrees that Wells Fargo may, at any time or from time to time in its sole discretion and without further authorization by Borrower, make a loan to Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses.

Section 4.5     Counterparts . This Amendment and the Acknowledgment and Agreement of Guarantors may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. Signatures transmitted by facsimile, email or other electronic medium shall be effective as originals.

[Remainder of Page Intentionally Left Blank]



4


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.
 
WELLS FARGO BANK,
 
GULFMARK ENERGY, INC.
 
   NATIONAL ASSOCIATION
 
 
 
 
 
 
By:
/s/ James R. Harris
By:
/s/ Josh C. Anders
 
James R. Harris
 
Josh C. Anders
 
Vice President
 
Chief Financial Officer



5


ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
Each of the undersigned, each a guarantor of the indebtedness of GULFMARK ENERGY, INC., a Texas corporation (the “ Borrower ”), to Wells Fargo Bank, National Association (“ Wells Fargo ”), acting through its Wells Fargo Business Credit operating division, pursuant to that certain Continuing Guaranty dated as of August 27, 2009 (as the same has been or may have been amended, modified or restated from time to time, a “ Guaranty ”), hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms (including without limitation the release set forth in Section 5.3 of the Amendment) and execution thereof; (iii) reaffirms all obligations to Wells Fargo pursuant to the terms of the Guaranty; and (iv) acknowledges that Wells Fargo may amend, restate, extend, renew or otherwise modify the Credit Agreement and any indebtedness or agreement of Borrower, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under the Guaranty for all of Borrower’s present and future indebtedness to Wells Fargo.
 
 
 
GUARANTORS:
 
 
 
 
 
 
 
SERVICE TRANSPORT COMPANY
 
 
 
 
 
 
By:
/s/ Josh C. Anders
 
 
 
Josh Anders
 
 
 
Chief Financial Officer
 
 
 
 
 
 
 
ADAMS RESOURCES & ENERGY, INC.
 
 
 
 
 
 
By:
/s/ Josh C. Anders
 
 
 
Josh C. Anders
 
 
 
Chief Financial Officer


6


Exhibit 31.1

SARBANES-OXLEY SECTION 302 CERTIFICATION

I, Townes G. Pressler, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Adams Resources & Energy, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:
May 9, 2018
By:
/s/ Townes G. Pressler
 
 
 
Townes G. Pressler
 
 
 
Executive Chairman





Exhibit 31.2

SARBANES-OXLEY SECTION 302 CERTIFICATION

I, Sharon C. Davis, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Adams Resources & Energy, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:
May 9, 2018
By:
/s/ Sharon C. Davis
 
 
 
Sharon C. Davis
 
 
 
Interim Chief Financial Officer





Exhibit 32.1

SARBANES-OXLEY SECTION 906 CERTIFICATION

CERTIFICATION OF TOWNES G. PRESSLER,
EXECUTIVE CHAIRMAN OF ADAMS RESOURCES & ENERGY, INC.

In connection with this quarterly report of Adams Resources & Energy, Inc. (the “Registrant”) on Form 10-Q for the quarterly period ended March 31, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Townes G. Pressler, Executive Chairman of the Registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


Date:
May 9, 2018
By:
/s/ Townes G. Pressler

 
 
Townes G. Pressler
 
 
 
Executive Chairman








Exhibit 32.2

SARBANES-OXLEY SECTION 906 CERTIFICATION

CERTIFICATION OF SHARON C. DAVIS,
INTERIM CHIEF FINANCIAL OFFICER OF ADAMS RESOURCES & ENERGY, INC.

In connection with this quarterly report of Adams Resources & Energy, Inc. (the “Registrant”) on Form 10-Q for the quarterly period ended March 31, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sharon C. Davis, Interim Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


Date:
May 9, 2018
By:
/s/ Sharon C. Davis
 
 
 
Sharon C. Davis
 
 
 
Interim Chief Financial Officer