AE 10-Q Quarterly Report Sept. 30, 2014 | Alphaminr
ADAMS RESOURCES & ENERGY, INC.
ALPHAMINR

AE 10-Q Quarter ended Sept. 30, 2014

Balance Sheet
Cash Flow
Income Statement
ADAMS RESOURCES & ENERGY, INC.
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10-Q 1 form10q.htm ADAMS RESOURCES 3RD QT 2014 10-Q form10q.htm

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q

x
Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2014
Commission File Number 1-7908

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 office & Zip Code)

Registrant's telephone number, including area code (713) 881-3600

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 x 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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of ‟large accelerated filer”, ‟accelerated filer” and ‟smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller Reporting Company 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 x

A total of 4,217,596 shares of Common Stock were outstanding at November 5, 2014.


PART 1 – FINANCIAL INFORMATION
Item 1.  Financial Statements

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

Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
2014
2013
REVENUES:
Marketing
$ 3,219,457 $ 2,915,056 $ 1,153,249 $ 1,039,337
Transportation
52,490 51,795 17,538 16,906
Oil and natural gas
11,143 11,022 3,183 4,097
3,283,090 2,977,873 1,173,970 1,060,340
COSTS AND EXPENSES:
Marketing
3,190,264 2,874,030 1,145,758 1,026,004
Transportation
43,383 42,053 14,192 13,871
Oil and gas operations
6,277 4,659 1,958 1,698
Oil and natural gas property sale (gain)
(2,198 ) - (2,198 ) -
General and administrative
6,701 6,711 2,300 2,248
Depreciation, depletion and amortization
18,443 16,147 6,228 5,373
3,262,870 2,943,600 1,168,238 1,049,194
Operating earnings
20,220 34,273 5,732 11,146
Other income (expense):
Interest income
205 103 118 33
Interest expense
(2 ) (24 ) (2 ) (1 )
Earnings from continuing operations before income taxes
20,423 34,352 5,848 11,178
Income tax (provision)
(7,230 ) (12,425 ) (1,993 ) (3,940 )
Earnings from continuing operations
13,193 21,927 3,855 7,238
Earnings (loss) from discontinued operations net of tax
benefit of  zero, $229, zero and $44 respectively
- (426 ) - (82 )
Net earnings
$ 13,193 $ 21,501 $ 3,855 $ 7,156
EARNINGS (LOSS) PER SHARE:
From continuing operations
$ 3.13 $ 5.20 $ .92 $ 1.72
From discontinued operations
- (.10 ) - (.02 )
Basic and diluted net earnings per common share
$ 3.13 $ 5.10 $ .92 $ 1.70
DIVIDENDS PER COMMON SHARE
$ .66 $ .44 $ .22 $ .22


The accompanying notes are an integral part of these financial statements.

2

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30,
December 31,
2014
2013
ASSETS
Current assets:
Cash and cash equivalents
$ 97,435 $ 60,733
Accounts receivable, net of allowance for doubtful
accounts of $129 and $252, respectively
226,300 243,930
Inventory
23,324 27,616
Fair value contracts
- 395
Income tax receivable
961 2,097
Prepayments
8,433 16,779
Current assets of discontinued operations
- 180
Total current assets
356,453 351,730
Property and Equipment
Marketing
63,118 52,996
Transportation
63,955 59,185
Oil and gas (successful efforts method)
94,673 98,947
Other
1,305 1,305
223,051 212,433
Less – Accumulated depreciation, depletion and amortization
(129,420 ) (120,568 )
93,631 91,865
Other Assets:
Cash deposits and other
5,816 4,487
$ 455,900 $ 448,082
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
$ 261,979 $ 266,099
Accounts payable – related party
56 38
Fair value contracts
10 -
Accrued and other liabilities
9,767 5,583
Current deferred income taxes
478 358
Current liabilities of discontinued operations
- 91
Total current liabilities
272,290 272,169
Other Liabilities:
Asset retirement obligations
2,443 2,564
Deferred taxes and other liabilities
16,073 18,664
290,806 293,397
Commitments and Contingencies (Note 5)
Shareholders’ Equity:
Preferred stock - $1.00 par value, 960,000 shares
authorized, none outstanding
- -
Common stock - $.10 par value, 7,500,000 shares
authorized, 4,217,596 shares outstanding
422 422
Contributed capital
11,693 11,693
Retained earnings
152,979 142,570
Total shareholders’ equity
165,094 154,685
$ 455,900 $ 448,082

The accompanying notes are an integral part of these financial statements.

3

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
2014
2013
CASH PROVIDED BY OPERATIONS:
Net earnings
$ 13,193 $ 21,501
Adjustments to reconcile net earnings to net cash
from operating activities -
Depreciation, depletion and amortization
18,443 16,294
Property sales (gains) oil and gas
(2,198 ) -
Property sale (gains) other
(297 ) (480 )
Dry hole costs incurred
1,028 105
Impairment of oil and gas properties
572 414
Provision for doubtful accounts
(123 ) 72
Deferred income taxes
(2,455 ) 2,598
Net change in fair value contracts
405 (510 )
Decrease (increase) in accounts receivable
17,933 (48,539 )
Decrease (increase) in inventories
4,292 4,127
Decrease (increase) in income tax receivable
1,136 (667 )
Decrease (increase) in prepayments
8,346 (492 )
Increase (decrease) in accounts payable
(6,210 ) 28,493
Increase (decrease) in accrued liabilities
4,393 5,660
Other changes, net
(999 ) 549
Net cash provided by operating activities
57,459 29,125
INVESTING ACTIVITIES:
Property and equipment additions
(22,655 ) (23,133 )
Insurance and state collateral (deposits) refunds
(467 ) (179 )
Proceeds from property sales
5,149 847
Net cash (used in) investing activities
(17,973 ) (22,465 )
FINANCING ACTIVITIES
Dividend payments
(2,784 ) (1,855 )
Net cash (used in) financing activities
(2,784 ) (1,855 )
Increase (decrease) in cash and cash equivalents
36,702 4,805
Cash and cash equivalents at beginning of period
60,733 47,239
Cash and cash equivalents at end of period
$ 97,435 $ 52,044


The accompanying notes are an integral part of these financial statements

4

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

Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, in the opinion of the Company's management, include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of its financial position at September 30, 2014, its results of operations for the nine months and three months ended September 30, 2014 and 2013 and its cash flows for the nine months ended September 30, 2014 and 2013. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations.  The impact on the accompanying financial statements of events occurring after September 30, 2014, has been evaluated through the date these financial statements were issued.

Although the Company believes the disclosures made are adequate to make the information presented not misleading, it is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements, and the notes thereto, included in the Company's latest annual report on Form 10-K. The interim statement of operations is not necessarily indicative of results to be expected for a full year.

Note 2 - Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation

The Company is engaged in the business of crude oil marketing, tank truck transportation of liquid chemicals and oil and gas exploration and production.  Its primary area of operation is within a 1,000 mile radius of Houston, Texas.  The accompanying unaudited condensed consolidated financial statements include the accounts of Adams Resources & Energy, Inc., a Delaware corporation, and its wholly owned subsidiaries (the ‟Company”) after elimination of all intercompany accounts and transactions.

Cash and Cash Equivalents

Cash and cash equivalents include any Treasury bill, commercial paper, money market fund or federal funds with maturity of 90 days or less.  Depending on cash availability and market conditions, investments in corporate and municipal bonds, which are classified as investments in marketable securities, may also be made from time to time.  Cash and cash equivalents are maintained with major financial institutions and such deposits may exceed the amount of federally backed insurance provided.  While the Company regularly monitors the financial stability of such institutions, cash and cash equivalents ultimately remain at risk subject to the financial viability of such institutions.

Inventory

Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of the Company’s crude oil marketing operations.  Crude oil inventory is carried at the lower of average cost or market.

5

Prepayments

The components of prepayments and other are as follows (in thousands):

September 30,
December 31,
2014
2013
Cash collateral deposits for commodity purchases
$ 5,000 $ 13,705
Insurance premiums
2,596 2,490
Rents, license and other
837 584
$ 8,433 $ 16,779

Property and Equipment

Expenditures for major renewals and betterments are capitalized, and expenditures for maintenance and repairs are expensed as incurred.  Interest costs incurred in connection with major capital expenditures are capitalized and amortized over the lives of the related assets. When properties are retired or sold, the related cost and accumulated depreciation, depletion and amortization is removed from the accounts and any gain or loss is reflected in earnings.

Oil and gas exploration and development expenditures are accounted for in accordance with the successful efforts method of accounting.  Direct costs of acquiring developed or undeveloped leasehold acreage, including lease bonus, brokerage and other fees, are capitalized. Exploratory drilling costs are initially capitalized until the properties are evaluated and determined to be either productive or nonproductive.  Such evaluations are made on a quarterly basis.  If an exploratory well is determined to be nonproductive, the costs of drilling the well are charged to expense. Costs incurred to drill and complete development wells, including dry holes, are capitalized.  As of September 30, 2014, the Company had no unevaluated or suspended exploratory drilling costs.

Depreciation, depletion and amortization of the cost of proved oil and gas properties are calculated using the unit-of-production method.  The reserve base used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves.  For lease and well equipment, development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves.  All other property and equipment is depreciated using the straight-line method over the estimated average useful lives of three to twenty years.

The Company reviews its 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.  Producing oil and gas properties are reviewed on a field-by-field basis.  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 the Company in evaluating cash flows for other assets of a similar nature.  For the nine-month periods ended September 30, 2014 and 2013 there were zero and $216,000, respectively, of impairment provisions on producing oil and gas properties.  Such impairment provisions were $74,000 for the three-month period ended September 30, 2013.

6

On a quarterly basis, management evaluates the carrying value of non-producing oil and gas leasehold properties and may deem them impaired based on remaining lease term, area drilling activity and the Company’s plans for the property.  This fair value measure depends highly on management’s assessment of the likelihood of continued exploration efforts in a given area and, as such, data inputs are categorized as ‟unobservable” or ‟Level 3” inputs.  Importantly, this fair value measure only applies to the write-down of capitalized costs and will never result in an increase to reported earnings. Accordingly, impairment provisions on non-producing properties totaling $572,000 and $198,000 were recorded for the nine-month periods ended September 30, 2014 and 2013, respectively.  Such impairment provisions were $168,000 and $98,000 for the three-month periods ended September 30, 2014 and 2013, respectively.  Capitalized costs for non-producing oil and gas leasehold interests currently represent approximately four percent of total oil and gas property costs and are categorized as follows (in thousands):

September 30,
December 31,
2014
2013
South Texas Project acreage
$ 3,569 $ 4,217
West Texas Project acreage
- 116
Napoleonville, Louisiana acreage
48 162
Other acreage areas
407 411
Total Non-producing Leasehold Costs
$ 4,024 $ 4,906

The South Texas, West Texas and Napoleonville acreage areas have active or scheduled drilling operations underway and holding the underlying acreage is essential to the ongoing exploration effort.  The ‟other acreage areas” category consists of smaller onshore interests dispersed over a wide geographical area.  Since the Company is generally not the operator of its oil and gas property interest, it does not maintain the underlying detail acreage data and the Company is dependent on the operator when determining which specific acreage will ultimately be drilled.  However, the capitalized cost detail on a property-by-property basis is reviewed by management, and deemed impaired if development is not anticipated prior to lease expiration.  Onshore leasehold periods are normally three years and may contain renewal options.  Capitalized cost activity on the ‟other acreage areas” was as follows (in thousands):

Leasehold Costs
September 30,
December 31,
2014
2013
Net book value January 1
$ 411 $ 329
Property additions
200 304
Impairments
(204 ) (222 )
Net book value end of period
$ 407 $ 411

Cash Deposits and Other Assets

The Company has established certain deposits to support participation in its liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits.  Insurance collateral deposits are invested at the discretion of the Company’s insurance carrier and such investments primarily consist of intermediate term federal government bonds and bonds backed by federal agencies.  Components of cash deposits and other assets are as follows (in thousands):

September 30,
December 31,
2014
2013
Insurance collateral deposits
$ 5,210 $ 3,718
State collateral deposits
149 160
Materials and supplies
457 609
$ 5,816 $ 4,487


7

Revenue Recognition

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

Most crude oil purchase contracts and sale contracts qualify and are designated as non-trading activities and the Company considers such contracts as normal purchases and sales activity.  For normal purchases and sales, the Company’s 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.  Such sales are recorded gross in the financial statements because the Company takes title, has risk of loss for the products, is the primary obligor for the purchase, establishes the sale price independently with a third party and maintains credit risk associated with the sale of the product.

Certain 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.  Such buy/sell arrangements are reflected on a net revenue basis in the accompanying unaudited condensed consolidated financial statements.  Reporting such crude oil contracts on a gross revenue basis would increase the Company’s reported revenues by $1,054,350,000 and $1,176,156,000 for the nine months ended September 30, 2014 and 2013, respectively.

Transportation segment customers are invoiced, and the related revenue is recognized, as the service is provided. Oil and gas revenue from the Company’s interests in producing wells is recognized as title and physical possession of the oil and gas passes to the purchaser.

Sales of long-lived assets

Gains and losses from the sale or disposal of long-lived assets that do not meet the criteria for presentation as a discontinued operation are presented in the accompanying financial statements as a component of operating earnings.

Concentration of Credit Risk

The Company’s largest customers consist of large multinational integrated oil companies and independent refiners of crude oil.  In addition, the Company transacts business with independent oil producers, major chemical concerns, crude oil trading companies and a variety of commercial energy users.  Within this group of customers the Company generally derives approximately 50 percent of its revenues from three or four large crude oil refining concerns.  While the Company has ongoing established relationships with certain domestic refiners of crude oil, alternative markets are readily available since the Company supplies less than one percent of U.S. domestic refiner demand.  As a fungible commodity delivered to major Gulf Coast supply points, the Company’s crude oil sales can be readily delivered to alternative end markets.  Management believes that a loss of any of those customers where the Company currently derives more than 10 percent of its revenues would not have a material adverse effect on the Company’s operations.

Accounts receivable associated with crude oil activities comprise approximately 95 percent of the Company’s total receivables and industry practice requires payment for such sales to occur within 20 days of the end of the month following a transaction.  The Company’s customer makeup, credit policies and the relatively short duration of receivables mitigate the uncertainty typically associated with receivables management.


8


Letter of Credit Facility

The Company maintains a Credit and Security Agreement with Wells Fargo Bank to provide a $60 million stand-by letter of credit facility that is used to support the Company’s crude oil purchases.   This facility is collateralized by the eligible accounts receivable within the segment.  Stand-by letters of credit issued totaled $13.1 million and $14.6 million as of September 30, 2014 and December 31, 2013, respectively.  The issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due.  The letter of credit facility places certain restrictions on the Company’s Gulfmark Energy, Inc. subsidiary.  Such restrictions include the maintenance of a combined 1.1 to 1.0 current ratio and the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions.  The Company is currently in compliance with all such financial covenants.

Statement of Cash Flows

Interest paid totaled $2,000 and $24,000 during the nine-month periods ended September 30, 2014 and 2013, respectively, while taxes paid during these same periods totaled $8,140,000 and $9,863,000, respectively.  Non-cash investing activities for property and equipment were $3,315,000 and $1,507,000 as of September 30, 2014 and December 31, 2013, respectively and $1,454,000 and $2,419,000 as of September 30, 2013 and December 31, 2012, respectively.  There were no significant non-cash financing activities in any of the periods reported.

Earnings Per Share

Earnings per share are based on the weighted average number of shares of common stock and potentially dilutive common stock shares outstanding during the period presented herein. The weighted average number of shares outstanding was 4,217,596 for 2014 and 2013.  There were no potentially dilutive securities during those periods.

Share-Based Payments

During the periods presented herein, the Company had neither stock-based employee compensation plans nor any other share-based payment arrangements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. Examples of significant estimates used in the accompanying consolidated financial statements include oil and gas reserve volumes forming the foundation for calculating depreciation, depletion and amortization and for estimating cash flows when assessing impairment triggers and when estimating values associated with oil and gas properties.  Other examples include revenue accruals, the provision for bad debts, insurance related accruals, income tax permanent and timing differences, contingencies and valuation of fair value contracts.

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 assets and liabilities and their respective tax basis.

9


Use of Derivative Instruments

The Company’s marketing segment is involved in the purchase and sale of crude oil.  The Company seeks 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, such transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts.  Certain of these contracts meet the definition of a derivative instrument, and therefore, the Company accounts for such contracts at fair value, unless the normal purchase and sale exception is applicable.  Such underlying contracts are standard for the industry and are the governing document for the Company’s crude oil wholesale distribution businesses.  The accounting methodology utilized by the Company for its commodity contracts is further discussed below under the caption ‟Fair Value Measurements”.

None of the Company’s derivative instruments have been designated as hedging instruments and the estimated fair value of forward month commodity contracts (derivatives) is reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of September 30, 2014 as follows (in thousands):

Balance Sheet Location and Amount
Current
Other
Current
Other
Assets
Assets
Liabilities
Liabilities
Asset Derivatives
- Fair Value Forward Hydrocarbon Commodity
Contracts at Gross Valuation
$ - $ - $ - $ -
Liability Derivatives
- Fair Value Forward Hydrocarbon Commodity
Contracts at Gross Valuation
- - 10 -
Less Counterparty Offsets
- - - -
As Reported Fair Value Contracts
$ - $ - $ 10 $ -

As of September 30, 2014, one commodity purchase and sale contract comprised the Company’s derivative valuations.  This contract encompasses approximately 165 barrels per day of crude oil during October 2014 through February 2015.

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2013 as follows (in thousands):

Balance Sheet Location and Amount
Current
Other
Current
Other
Assets
Assets
Liabilities
Liabilities
Asset Derivatives
- Fair Value Forward Hydrocarbon Commodity
Contracts at Gross Valuation
$ 449 $ - $ - $ -
Liability Derivatives
- Fair Value Forward Hydrocarbon Commodity
Contracts at Gross Valuation
- - 54 -
Less Counterparty Offsets
(54 ) - (54 ) -
As Reported Fair Value Contracts
$ 395 $ - $ - $ -


10

As of December 31, 2013, one 100,000 barrel crude oil commodity put option and one commodity purchase and sale contract comprised the Company’s derivative valuations.  The purchase and sale contract encompasses approximately 175 barrels per day of crude oil in each of January and February 2014.

The Company only enters into commodity contracts with credit worthy counterparties or obtains collateral support for such activities.  As of September 30, 2014 and December 31, 2013, the Company was not holding nor has it posted any collateral to support its forward month fair value derivative activity. The Company is not subject to any credit-risk related trigger events.  The Company has no other financial investment arrangements that would serve to offset its derivative contracts.

Forward month commodity contracts (derivatives) are reflected in the accompanying Unaudited Condensed Consolidated Statement of Operations for the nine months ended September 30, 2014 and 2013 as follows (in thousands):

Earnings (Loss)
Earnings (Loss)
Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
2014
2013
Revenues – Marketing
$ 310 $ (73 ) $ (74 ) $ (72 )

Fair Value Measurements

The carrying amount reported in the consolidated balance sheet 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.

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 the Company elects, cash flow hedge accounting.  The Company had no contracts designated for hedge accounting during any current reporting periods.

Fair value estimates are based on assumptions that market participants would use when pricing an asset or liability and the Company uses a fair value hierarchy of three levels that prioritizes the information used to develop those assumptions.  Currently, for all items presented herein, the Company utilizes a market approach to valuing its contracts.  On a contract by contract, forward month by forward month basis, the Company obtains observable market data for valuing its contracts.  The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.  The fair value hierarchy is summarized as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities that may be accessed at the measurement date.  Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  For Level 1 valuation of marketable securities, the Company utilizes market quotations provided by its primary financial institution and for the valuation of derivative financial instruments the Company utilizes the New York Mercantile Exchange (NYMEX) for such valuations.

11

Level 2 – (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical assets or liabilities but in markets that are not actively traded or in which little information is released to the public, (c) observable inputs other than quoted prices and (d) inputs derived from observable market data.  Source data for Level 2 inputs include information provided by the NYMEX, published price data and indices, third party price survey data and broker provided forward price statistics.

Level 3 – unobservable market data inputs for assets or liabilities.

As of September 30, 2014, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

Market Data Inputs
Gross Level 1
Gross Level 2
Gross Level 3
Counterparty
Quoted Prices
Observable
Unobservable
Offsets
Total
Derivatives
- Current assets
$ - $ 117 $ - $ - $ 117
- Current liabilities
- (127 ) - - (127 )
Net Value
$ - $ (10 ) $ - $ - $ (10 )

As of December 31, 2013, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):

Market Data Inputs
Gross Level 1
Gross Level 2
Gross Level 3
Counterparty
Quoted Prices
Observable
Unobservable
Offsets
Total
Derivatives
- Current assets
$ - $ 449 $ - $ (54 ) $ 395
- Current liabilities
- (54 ) - 54 -
Net Value
$ - $ 395 $ - $ - $ 395

When determining fair value measurements, the Company makes credit valuation adjustments to reflect both its own nonperformance risk and its counterparty’s nonperformance risk.  When adjusting the fair value of derivative contracts for the effect of nonperformance risk, the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, and guarantees are considered.  Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by the Company or its counterparties.  As of September 30, 2014 and December 31, 2013, credit valuation adjustments were not significant to the overall valuation of the Company’s fair value contracts.  As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.

Recent Accounting Pronouncement

In April 2014, the Financial Accounting Standards Board (‟FASB”) issued updated guidance that changes the criteria for reporting discontinued operations including enhanced disclosure requirements.  Under the new guidance, only activities representing a strategic shift in operations will be presented as discontinued operations.  Such strategic shifts are those that would have a major effect on the organization’s operations and financial results.  The Company adopted the new guidance effective July 1, 2014 and the adoption  did not have a material effect on the consolidated financial statements.

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In May 2014, the FASB amended the existing accounting standards for revenue recognition.  The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The new guidance is effective January 1, 2017.  Early adoption is not permitted.  The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application.  The impact of these amendments on the Company’s consolidated financial statements and the transition alternatives are currently being evaluated.

In August 2014, the FASB issued guidance requiring management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.  The standard also provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements.  The new guidance is effective for the annual period ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.  The Company does not expect the adoption of this guidance to have an impact on the consolidated financial statements.

Management believes the impact of recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows upon adoption.

Note 3 – Segment Reporting

The Company is engaged in the business of crude oil marketing as well as tank truck transportation of liquid chemicals, and oil and gas exploration and production.  Information concerning the Company's various business activities is summarized as follows (in thousands):

- Nine Month Comparison
Segment
Depreciation
Property and
Operating
Depletion and
Equipment
Revenues
Earnings
Amortization
Additions
Period Ended September 30, 2014
Marketing
$ 3,219,457 $ 22,187 $ 7,006 $ 9,308
Transportation
52,490 3,594 5,513 6,280
Oil and gas
11,143 1,140 5,924 7,067
$ 3,283,090 $ 26,921 $ 18,443 $ 22,655
Period Ended September 30, 2013
Marketing
$ 2,915,056 $ 35,509 $ 5,517 $ 9,512
Transportation
51,795 4,479 5,263 3,162
Oil and gas
11,022 996 5,367 10,459
$ 2,977,873 $ 40,984 $ 16,147 $ 23,133


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- Three Month Comparison

Segment
Depreciation
Property and
Operating
Depletion and
Equipment
Revenues
Earnings
Amortization
Additions
Period Ended September 30, 2014
Marketing
$ 1,153,249 $ 5,041 $ 2,450 $ 3,377
Transportation
17,538 1,464 1,882 5,851
Oil and gas
3,183 1,527 1,896 1,338
$ 1,173,970 $ 8,032 $ 6,228 $ 10,566
Period Ended September 30, 2013
Marketing
$ 1,039,337 $ 11,394 $ 1,939 $ 932
Transportation
16,906 1,248 1,787 1,589
Oil and gas
4,097 752 1,647 4,314
$ 1,060,340 $ 13,394 $ 5,373 $ 6,835

Segment operating earnings reflect revenues net of operating costs and depreciation, depletion and amortization and are reconciled to earnings from continuing operations before income taxes, as follows (in thousands):
Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
2014
2013
Segment operating earnings
$ 26,921 $ 40,984 $ 8,032 $ 13,394
- General and administrative
(6,701 ) (6,711 ) (2,300 ) (2,248 )
Operating earnings
20,220 34,273 5,732 11,146
- Interest income
205 103 118 33
- Interest expense
(2 ) (24 ) (2 ) (1 )
Earnings from continuing operations
before income taxes and
discontinued operations
$ 20,423 $ 34,352 $ 5,848 $ 11,178

Identifiable assets by industry segment are as follows (in thousands) :

September 30,
December 31,
2014
2013
Marketing
$ 275,239 $ 306,693
Transportation
40,492 34,406
Oil and gas
33,875 37,093
Other
106,294 69,890
$ 455,900 $ 448,082

Intersegment sales are insignificant and all sales occurred in the United States.  Other identifiable assets are primarily corporate cash, corporate accounts receivable and properties not identified with any specific segment of the Company’s business.  Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.

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Note 4 - Transactions with Affiliates

The late Mr. K. S. Adams, Jr., former Chairman of the Board of the Company, and certain of his family partnerships and affiliates have participated as working interest owners with the Company’s subsidiary, Adams Resources Exploration Corporation.  Mr. Adams and the affiliates participated on terms similar to those afforded other non-affiliated working interest owners.  While the affiliates have generally maintained their existing property interest, they have not participated in any such transactions originating after the death of Mr. Adams in October 2013.  As of September 30, 2014 and December 31, 2013, the Company owed a combined net total of $56,000 and $38,000, respectively, to these related parties.  In connection with the operation of certain oil and gas properties, the Company also charges such related parties for administrative overhead primarily as prescribed by the Council of Petroleum Accountants Society Bulletin 5. Such overhead recoveries totaled $124,000 and $119,000 for the nine-month periods and $42,000 and $41,000 for the three-month periods ended September 30, 2014 and 2013, respectively.

The Company also enters into certain transactions in the normal course of business with other affiliated entities including direct cost reimbursement for shared phone and secretarial services.  For the nine-month periods ended September 30, 2014 and 2013, the affiliated entities charged the Company $48,000 and $54,000, respectively, of expense reimbursement and the Company charged the affiliates $31,000 and $75,000, respectively, for such expense reimbursements.  In addition, the Company leases office space from an affiliated entity based on a lease rental rate determined by an independent appraisal.  Rental expense paid to such related party for the nine months ended September 30, 2014 and 2013 totaled $464,000 and $360,000, respectively. Such rental expense for the three months ended September 30, 2014 and 2013 totaled $162,000 and $120,000, respectively.

Note 5 - Commitments and Contingencies

Under the Company’s automobile and workers’ compensation insurance policies, the Company can 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 is shared with a group of similarly situated entities.  The Company has appropriately recognized estimated expenses and related liabilities for losses incurred but not reported to the Company or its insurance carrier of $1,628,000 and $1,796,000 as of September 30, 2014 and December 31, 2013, respectively.

The Company maintains a self-insurance program for managing employee medical claims.  A liability for expected claims incurred is established on a monthly basis and as claims are paid, the liability is relieved.  As of September 30, 2014 and December 31, 2013, accrued medical claims totaled $1,338,000 and $1,129,000, respectively.  The Company maintains third party insurance stop-loss coverage for annual individual medical claims exceeding $100,000.  In addition, the Company maintains $2 million of umbrella insurance coverage for aggregate medical claims exceeding approximately $4.5 million for each of the calendar years ended 2014 and 2013.

During 2013 and continuing in 2014, Adams Resources Exploration Corporation has been noticed as a defendant in a number of Louisiana based suits involving alleged environmental contamination from prior drilling operations.  Such suits typically allege improper disposal of oilfield wastes in earthen pits with one suit alleging subsidence contributing to the formation of a sink hole.  The Company is currently named as a defendant in four such suits.  The suits are styled LePetit Chateau Deluxe v. Adams Resources Exploration Corporation dated March 2004, Gustave J. LaBarre, Jr., et. al. v. Adams Resources Exploration Corporation et al dated October 2012 and Henning Management, LLC v. Adams Resources Exploration Corporation dated November 2013.  Each suit involves multiple industry defendants with substantially larger proportional interest in the properties.  The plaintiffs in each of these matters are seeking unspecified compensatory and punitive damages.  In August 2014, the Company was dismissed from a similar suit styled Edward Conner, et. al. v. Adams Resources Exploration Corporation dated October 2013.  While management does not believe that a material adverse effect will result from the claims, significant attorney fees will be incurred to defend these matters.  As of September 30, 2014, the Company has accrued $200,000 of future legal costs for these matters.

15

From time to time as incidental to its operations, the Company may become involved in various lawsuits and/or disputes.  Primarily as an operator of an extensive trucking fleet, the Company is a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. Management of the Company is presently unaware of any claims against the Company 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 the Company’s financial position or results of operations.

Note 6 – Discontinued Operation

Due to inadequate earnings, the Company completed an orderly wind-down and closure of its natural gas marketing segment effective October 31, 2013.  Revenues from this segment included in net earnings from discontinued operations totaled $2,272,000 and $430,000 for the nine months and three months ended September 30, 2013, respectively.  All obligations were satisfied during 2013 and no further events are anticipated.

Item 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

-
Marketing

Marketing segment revenues, operating earnings, depreciation and certain costs were as follows ( in thousands ):
Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
Change (1)
2014
2013
Change (1)
Revenues
$ 3,219,457 $ 2,915,056 10.4 % $ 1,153,249 $ 1,039,337 11.0 %
Operating earnings
$ 22,187 $ 35,509 (37.5 )% $ 5,041 $ 11,394 (55.7 )%
Depreciation
$ 7,006 $ 5,517 27.0 % $ 2,450 $ 1,939 26.3 %
Driver commissions
$ 15,680 $ 14,400 8.9 % $ 5,421 $ 5,070 6.9 %
Insurance
$ 6,227 $ 4,784 30.1 % $ 2,064 $ 1,512 36.5 %
Fuel
$ 10,949 $ 10,216 7.1 % $ 3,339 $ 3,523 (5.2 )%
_________________________________
(1)
Represents the percentage increase (decrease) from the prior year.

Supplemental volume and price information is as follows:

Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
2014
2013
Field Level Purchase Volumes – Per day (1)
Crude oil – barrels
115,335 104,160 119,823 107,772
Average Purchase Price
Crude oil – per barrel
$ 96.64 $ 101.94 $ 94.11 $ 104.76
_____________________________
(1) Reflects the volume purchased from third parties at the oil and natural gas field level and pipeline pooling points.

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Crude oil revenues increased during 2014 with increased volumes resulting from new well production by the Company’s customer base in the Eagle Ford shale trend of South Texas.  Per day average volumes moved are shown in the table above.

Crude Oil – Field Level Operating Earnings (Non GAAP-Measure)

Two significant factors affecting comparative crude oil segment operating earnings are inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations.  As a purchaser and shipper of crude oil, the Company holds inventory in storage tanks and third-party pipelines.  Inventory sales turnover occurs approximately every three days, but the quantity held in stock at the end of a given period is reasonably consistent.  As a result, during periods of increasing crude oil prices, the Company recognizes inventory liquidation gains while during periods of falling prices, the Company recognizes inventory valuation losses.  Over time, these gains and losses tend to offset and have limited impact on cash flow.  While crude oil prices fluctuated during the first nine months of 2014, the net impact yielded inventory write-downs totaling $1,641,000 as prices declined from $90 per barrel in January 2014 to a composite average of $86 per barrel in September 2014 for all grades of crude oil held by the Company.  The impact of crude oil price declines was most severe during the third quarter of 2014 as shown in the table below.  Crude oil prices were generally increasing during the 2013 comparative period producing inventory liquidation gains totaling $471,000.  As of September 30, 2014, the Company held 271,025 barrels of crude oil inventory at a composite average price of $86.06 per barrel.

Crude oil marketing operating earnings are also affected by the valuations of the Company’s forward month commodity contracts (derivative instruments) as of the various report dates.  Such non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date.  The Company generally enters into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level).  Only those contracts qualifying as derivative instruments are accorded fair value treatment while the companion contracts to purchase crude oil at the wellhead (field level) are not accorded fair value treatment.  For derivative instruments, the recognition of ‟mark-to-market” gains and losses is required at each period end.  The impact on crude oil segment operating earnings of inventory liquidations and derivative valuations is summarized as follows in reconciliation from the GAAP to non-GAAP financial measure (in thousands):

Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
2014
2013
As reported segment operating earnings
Add (less) -
$ 22,187 $ 35,509 $ 5,041 $ 11,394
Inventory valuation (gains) losses
1,641 (471 ) 4,203 (851 )
Derivative valuation (gains) losses
(310 ) 73 74 72
Field level operating earnings (1)
$ 23,518 $ 35,111 $ 9,318 $ 10,615
____________________________________
(1)
Such designation is unique to the Company and is not comparable to any similar measures developed by industry participants.  The Company utilizes such data to evaluate the profitability of its operations.

Field level operating earnings and field level purchase volumes (see earlier table) depict the Company’s day-to-day operation of acquiring crude oil at the wellhead, transporting the material, and delivery to market at the sales point.  Comparative field level operating earnings declined during 2014 relative to the nine month 2013 period as the infrastructure developed for delivering South Texas sourced crude oil to the marketplace.  Such activity increased competition which reduced unit margins.  In addition, as shown in the previous table depreciation expense increased with facilities expansion while a combination of higher mileage and accident frequency increased insurance costs.  Driver commission and diesel fuel expense increases generally tracked with additional purchase volumes.

17


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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

- Transportation

Transportation segment revenues, earnings and depreciation are as follows ( in thousands ):

Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
Change (1)
2014
2013
Change (1)
Revenues
$ 52,490 $ 51,795 1.3 % $ 17,538 $ 16,906 3.7 %
Operating earnings
$ 3,594 $ 4,479 (19.7 )% $ 1,464 $ 1,248 17.3 %
Depreciation
$ 5,513 $ 5,263 4.7 % $ 1,882 $ 1,787 5.3 %
Driver Commissions
$ 10,255 $ 9,877 3.8 % $ 3,432 $ 3,244 5.8 %
Insurance
$ 4,452 $ 4,205 5.9 % $ 1,513 $ 1,423 6.3 %
Fuel
$ 10,868 $ 11,169 (2.7 )% $ 3,310 $ 3,562 (7.1 )%
Maintenance expense
$ 4,768 $ 3,964 20.3 % $ 1,522 $ 1,413 7.7 %
__________________________
(1) Represents the percentage increase (decrease) from the prior year.

Transportation segment customer demand and revenues were consistent and strong during the comparative periods.  This segment benefits from the present low price environment for natural gas since this commodity is a basic feedstock to the petrochemical industry which makes up the Company’s customer base.  As the petrochemical industry continues to expand capacity, the long-term prospect for chemical hauling demand remains positive.  However, the Company is operating below its full physical equipment capacity with the availability of qualified drivers the significant constraint.  Additional depreciation and insurance charges stemming from excess physical capacity has hampered operating earnings for the first nine months of 2014. In addition, the imposition of new emission system requirements increased maintenance expense and highway break-down inefficiencies from the Company’s 2011 and 2012 model year truck-tractors.  Since these factors adversely affect earnings, the Company has begun to replace such problem units as the truck manufacturers correct defaults.  Driver recruiting efforts have also intensified with only limited favorable results to date.  During the third quarter of 2014, the Company realized a $247,000 gain from the sale of used truck-tractors and saw diesel fuel prices begin to slacken consistent with declining crude oil prices.

18


-           Oil and Gas

Oil and gas segment revenues and operating earnings are primarily a function of crude oil and natural gas prices and volumes.  Comparative amounts for revenues, operating earnings and depreciation and depletion are as follows (in thousands):

Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
Change (1)
2014
2013
Change (1)
Revenues
$ 11,143 $ 11,022 1.1 % $ 3,183 $ 4,097 (22.3 )%
Operating earnings
$ 1,140 $ 996 14.5 % $ 1,527 $ 752 103.1 %
Depletion
$ 5,924 $ 5,367 10.3 % $ 1,896 $ 1,647 15.1 %
________________________________
(1)
Represents the percentage increase (decrease) from the prior year.

Oil and gas operating earnings during 2014 benefited from a third quarter gain of $2,198,000 from the sale of certain oil and gas properties partially offset by increased exploration expenses as shown in the table below.  Comparative nine-month 2014 oil and gas revenues improved with increased associated natural gas liquid production (included with crude oil volumes in the table below) and higher dry natural gas prices.  Revenues declined in the comparative third quarter of 2014 following reduced natural gas volumes and reduced crude oil prices, as shown in the table below.

Production volumes and price information is as follows (in thousands):

Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
2014
2013
Crude Oil (1)
Volume – barrels
98,364 77,781 31,198 29,680
Average price per barrel
$ 69.62 $ 78.65 $ 64.43 $ 88.65
Natural gas
Volume – mcf
885,161 1,309,023 285,278 384,406
Average price per mcf
$ 4.85 $ 3.75 $ 4.11 $ 3.81

__________________________________
(1) Crude oil volumes and prices included the value of associated natural gas liquids production.

Comparative exploration costs are summarized in the table below.  Exploration cost components were as follows (in thousands):

Nine Months Ended
Three Months Ended
September 30,
September 30,
2014
2013
2014
2013
Dry hole expense
$ 1,028 $ 105 $ 71 $ -
Prospect and property impairments
572 414 168 172
Seismic and geological
11 113 3 23
Total
$ 1,611 $ 632 $ 242 $ 195


19



During the first nine months of 2014, the Company participated in the drilling of 35 successful wells with seven dry holes.  Additionally, the Company has an interest in 19 wells that were in process on September 30, 2014.  Evaluation on the in-process wells is anticipated during the fourth quarter of 2014.  Participation in the drilling of approximately nine wells is planned for the remainder of 2014 on the Company’s prospect acreage in Texas.

-           Outlook

Crude oil marketing operations look to be leveling as reduced prices for crude oil may slow drilling activity.   Demand for transportation services remains strong but driver shortages and persistently high operating cost is dampening profitability within this segment.  In the Company’s oil and gas segment, participation in active drilling efforts is curtailed from recent trends which may lead to reduced revenues consistent with normal production declines.  However, dry hole and other exploration expense should also be reduced.

Liquidity and Capital Resources

The Company’s liquidity primarily derives from net cash provided by operating activities and such amount was $57,459,000 and $29,125,000 for the nine-month periods ended September 30, 2014 and 2013, respectively.  As of September 30, 2014 and December 31, 2013, the Company had no bank debt or other forms of debenture obligations.  Cash and cash equivalents totaled $97,435,000 as of September 30, 2014, and such balances are maintained in order to meet the timing of day-to-day cash needs.  Working capital, the excess of current assets over current liabilities, totaled $84,163,000 as of September 30, 2014.  The Company heavily relies on its ability to obtain open-line trade credit from its suppliers especially with respect to its crude oil marketing operation.  In this regard, the Company generally maintains substantial cash balances and avoids debt obligations.  Cash balances were increased during the current period from $60,733,000 as of year-end 2013 when the Company was able to reduce prepayments for crude oil supply and reduce working crude oil inventory balances.  In addition, the Company reduced accounts receivable and increased cash balances with early payments from customers in order to maintain their credit terms.

From time to time, the Company may make cash prepayments to certain suppliers of crude oil for the Company’s marketing operations.  Such prepayments totaled $5,000,000 as of September 30, 2014.  Prepayment amounts are recouped and advanced from day-to-day as the suppliers deliver product to the Company.  In addition, in order to secure crude oil supply, the Company may also ‟early pay” its suppliers in advance of the normal payment due date of the twentieth of the month following the month of production.  Such ‟early payments” serve to reduce accounts payable as of the balance sheet date.  The Company also requires certain counterparties to make similar early payments or to post cash collateral with the Company in order to support their purchases from the Company.  Early payments received from customers serve to reduce accounts receivable as of the balance sheet date.  Such cash collateral held by the Company totaled $13,319,000 as of September 30, 2014.  Management believes 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 short-term and long-term liquidity needs.

The Company utilizes cash from operations to make discretionary investments in its oil and natural gas exploration, marketing and transportation businesses, which comprise substantially all of the Company’s investing cash outflows for each of the periods in this report.  The Company does not look to proceeds from property sales to fund its cash flow needs.  Except for an approximate $9.5 million commitment for storage tank terminal arrangements and office lease space, the Company’s future commitments and planned investments can be readily curtailed if operating cash flows contract.

20


Capital expenditures during the first nine months of 2014 included $15,588,000 for marketing and transportation equipment additions and $7,067,000 in property additions associated with oil and gas exploration and production activities.  For the remainder of 2014, the Company anticipates expending an additional approximate $2 million within the crude oil marketing operation to expand its truck and trailer fleet and to expand barge loading facilities.  The transportation segment anticipates expending approximately $2 million toward equipment replacements and expansion while the oil and gas operation will expend approximately $1.5 million on drilling projects for the remainder of 2014.  For 2015, the Company anticipates investing approximately $11 million to expand its crude oil barge facilities and approximately $5 million to improve its chemical hauling truck facilities.  In addition, approximately $8 million is anticipated for investment in oil and gas development projects in 2015.

Historically, the Company paid an annual dividend in the fourth quarter of each year until June 17, 2013 when the Company initiated payment of a quarterly dividend.  A quarterly dividend of $0.22 per common share or $928,000 was paid during each of the first three quarters of 2014.  The most significant item affecting future increases or decreases in liquidity is earnings from operations and such earnings are dependent on the success of future operations.  See Part I, Item 1A Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Critical Accounting Policies and Use of Estimates

There have been no material changes to the Company’s ‟ Critical Accounting Policies and Use of Estimates” disclosures that have occurred since the disclosures provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the Company’s ‟Quantitative and Qualitative Disclosures about Market Risk” that have occurred since the disclosures provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Forward-Looking Statements – Safe Harbor Provisions

This quarterly report for the period ended September 30, 2014 contains certain forward-looking statements covered by the safe harbors provided under federal securities law and regulations.  To the extent such statements are not recitations of historical fact, forward-looking statements involve risks and uncertainties.  In particular, statements included herein and/or in the Company’s latest annual report on Form 10-K under the captions (a) Production and Reserve Information, (b) Regulatory Status and Potential Environmental Liability, (c) Management’s Discussion and Analysis of Financial Condition and Results of Operations, (d) Critical Accounting Policies and Use of Estimates, (e) Quantitative and Qualitative Disclosures about Market Risk, (f) Income Taxes, (g) Concentration of Credit Risk, (h) Fair Value Contract Activities, and (i) Commitments and Contingencies, among others, contain forward-looking statements.  Where the Company expresses an expectation or belief regarding future results of events, such expression is made in good faith and believed to have a reasonable basis in fact.  However, there can be no assurance that such expectation or belief will actually result or be achieved.

With the uncertainties of forward looking statements in mind, the reader should consider the risks discussed elsewhere in this report and other documents filed with the Securities and Exchange Commission from time to time and the important factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, under ‟Item 1A Risk Factors” that could cause actual results to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company.

21


Item 4.  Disclosure Controls and Procedures

In May 2013, the Committee of Sponsoring Organizations of the Treadway Commission (‟COSO”) issued an updated version of its Internal Control – Integrated Framework (the ‟2013 Framework”).  Originally issued in 1992 (the ‟1992 Framework”), the Framework helps organizations design, implement and evaluate the effectiveness of internal control concepts and simplify their use and application.  The 1992 Framework remains available during the transition period, which extends to December 15, 2014, after which time COSO will consider it as superseded by the 2013 Framework.  As of September 30, 2014, the Company continues to utilize the 1992 Framework during its transition to the 2013 Framework by the end of 2014.

The Company maintains ‟disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.  Management necessarily applied its judgment in assessing the costs and benefit of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s disclosure control objectives.

As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


22


PART II.  OTHER INFORMATION


Item 1. Legal Proceedings

During 2013 and continuing in 2014, Adams Resources Exploration Corporation was noticed as a defendant in a number of Louisiana based suits involving alleged environmental contamination from prior drilling operations.  Such suits typically allege improper disposal of oilfield wastes in earthen pits with one suit alleging subsidence contributing to the formation of a sink hole.  The Company is currently named as a defendant in four such suits.  The suits are styled LePetit Chateau Deluxe v. Adams Resources Exploration Corporation dated March 2004, Gustave J. LaBarre, Jr., et. al. v. Adams Resources Exploration Corporation et al dated October 2012 and Henning Management, LLC v. Adams Resources Exploration Corporation dated November 2013.  Each suit involves multiple industry defendants with substantially larger proportional interest in the properties.  The plaintiffs in each of these matters are seeking unspecified compensatory and punitive damages.  In August 2014, the Company was dismissed from a similar suit styled Edward Conner, et. al. v. Adams Resources Exploration Corporation dated October 2013.  While management does not believe that a material adverse effect will result from the claims, significant attorney fees will be incurred to defend these matters.  As of June 30, 2014, the Company has accrued $200,000 of future legal costs for these matters.

From time to time as incident to its operations, the Company becomes involved in various lawsuits and/or disputes.  Primarily as an operator of an extensive trucking fleet, the Company may be a party to motor vehicle accidents, worker compensation claims or other items of general liability as would be typical for the industry.  Management of the Company is presently unaware of any claims against the Company 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 the Company’s financial position or results of operations.

Item 1A.
Risk Factors – There are no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
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
Item 6.
Exhibits

The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.


23


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


ADAMS RESOURCES & ENERGY, INC
(Registrant)
Date:  November 7, 2014
By /s/Frank T. Webster
Frank T. Webster
President, Chief Executive Officer
and Chief Operating Officer
(Principal Executive Officer)
By /s/Richard B. Abshire
Richard B. Abshire
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)


24

EXHIBIT INDEX


Exhibit
Number
Description
*31.1
Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2
Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1
Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2
Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*    **101.INS-
XBRL Instance Document
*    **101.SCH -
XBRL Schema Document
*    **101.CAL -
XBRL Calculation Linkbase Document
*    **101.DEF
XBRL Definition Linkbase Document
*    **101.LAB -
XBLR Label Linkbase Document
*    **101.PRE -
XBRL Presentation Linkbase Document

*
Exhibits filed herewith

**
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income – Nine Months Ended September 30 , 2014 and 2013, (ii) the Consolidated Balance Sheets – September 30, 2014 and December 31, 2013, (iii) the Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2014 and 2013 and (iv) Notes to Consolidated Financial Statements.







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