UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021 |
For the quarterly period ended September 30, 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________ | |
Commission file number: 0-52577 |
For the transition period from
Commission file number: 0-52577
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
| 20-3340900 |
(State or Other Jurisdiction of |
| (IRS Employer Identification No.) |
Incorporation or Organization) |
|
|
8235ForsythBlvd.,Suite400, St Louis, Missouri | 63105 | |
(Address of Principal Executive Offices) | (Zip Code) | |
(314) 854-8352 | ||
(Registrant’s Telephone Number, Including Area Code) |
8235ForsythBlvd.,Suite400
St. Louis, Missouri 63105
(AddressSecurities registered pursuant to Section 12(b) of Principal Executive Offices)the Act:
(314) 854-8352
(Registrant’s Telephone Number, Including Area Code)
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | FF | NYSE |
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 √☑ No ☐
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 √☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ |
| Accelerated filer |
|
| |
Non-accelerated filer ☐ |
| Smaller reporting company | ☐ |
| |
|
| Emerging growth company | ☐ |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No √☑
Indicate the number of shares outstanding of each of the issuer’sissuer’s classes of common stock, as of November 9, 2017: 43,741,670
2021: 43,763,243
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
The following sets forth our unaudited consolidated balance sheet as of September 30, 2017, our audited consolidated balance sheet as of December 31, 2016, our unaudited consolidated statements of operations and comprehensive income for the three-month and nine-month periods ended September 30, 2017 and September 30, 2016, and our unaudited consolidated statements of cash flows for the nine-month periods ended September 30, 2017 and 2016.
FutureFuel Corp.
Consolidated Balance Sheets
AsofSeptember 30, 2017andDecember 31, 2016
(Dollars in thousands)
(Unaudited) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 113,245 | $ | 199,272 | ||||
Accounts receivable, inclusive of the blenders' tax credit of $0 and $5,495 and net of allowances for bad debt of $0 and $0, at September 30, 2017 and December 31, 2016, respectively | 21,278 | 24,359 | ||||||
Accounts receivable �� related parties | 1,566 | 385 | ||||||
Inventory | 43,523 | 52,093 | ||||||
Income tax receivable | 14,962 | 20,508 | ||||||
Prepaid expenses | 542 | 1,694 | ||||||
Prepaid expenses – related parties | 16 | 12 | ||||||
Marketable securities | 123,588 | 106,146 | ||||||
Deferred financing costs | 144 | 144 | ||||||
Other current assets | 1,467 | 669 | ||||||
Total current assets | 320,331 | 405,282 | ||||||
Property, plant and equipment, net | 111,777 | 118,152 | ||||||
Intangible assets | 1,408 | 1,408 | ||||||
Deferred financing costs | 216 | 325 | ||||||
Other assets | 3,839 | 3,876 | ||||||
Total noncurrent assets | 117,240 | 123,761 | ||||||
Total Assets | $ | 437,571 | $ | 529,043 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Accounts payable | $ | 24,224 | $ | 22,799 | ||||
Accounts payable – related parties | 4,034 | 1,254 | ||||||
Deferred revenue – short-term | 6,100 | 5,530 | ||||||
Contingent liability – short-term | 1,151 | 1,151 | ||||||
Dividends payable | 2,625 | 110,688 | ||||||
Accrued expenses and other current liabilities | 4,072 | 2,485 | ||||||
Accrued expenses and other current liabilities – related parties | - | 142 | ||||||
Total current liabilities | 42,206 | 144,049 | ||||||
Deferred revenue – long-term | 13,002 | 16,792 | ||||||
Other noncurrent liabilities | 3,396 | 3,325 | ||||||
Noncurrent deferred income tax liability | 33,252 | 32,064 | ||||||
Total noncurrent liabilities | 49,650 | 52,181 | ||||||
Total liabilities | 91,856 | 196,230 | ||||||
Commitments and contingencies: | ||||||||
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding | - | - | ||||||
Common stock, $0.0001 par value, 75,000,000 shares authorized, 43,741,670 and 43,749,970, issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 4 | 4 | ||||||
Accumulated other comprehensive income | 8,152 | 3,540 | ||||||
Additional paid in capital | 281,813 | 281,087 | ||||||
Retained earnings | 55,746 | 48,182 | ||||||
Total stockholders’ equity | 345,715 | 332,813 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 437,571 | $ | 529,043 |
(Unaudited) | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 116,787 | $ | 198,122 | ||||
Accounts receivable, inclusive of the blenders' tax credit of $12,679 and $8,300 at September 30, 2021 and December 31, 2020, respectively, and net of allowances for bad debt of $55 and $63 at September 30, 2021 and December 31, 2020, respectively | 26,473 | 21,387 | ||||||
Accounts receivable – related parties | 82 | 1,426 | ||||||
Inventory | 43,694 | 33,889 | ||||||
Income tax receivable | 9,773 | 17,668 | ||||||
Prepaid expenses | 838 | 3,967 | ||||||
Prepaid expenses – related parties | 12 | 0 | ||||||
Marketable securities | 45,164 | 64,404 | ||||||
Other current assets | 1,732 | 1,742 | ||||||
Total current assets | 244,555 | 342,605 | ||||||
Property, plant and equipment, net | 84,343 | 91,544 | ||||||
Intangible assets | - | 1,408 | ||||||
Other noncurrent assets | 5,803 | 5,747 | ||||||
Total noncurrent assets | 90,146 | 98,699 | ||||||
Total Assets | $ | 334,701 | �� | $ | 441,304 | |||
Liabilities and Stockholders’ Equity | ||||||||
Accounts payable, inclusive of the blenders' tax credit rebates due customers of $890 and $1,116 at September 30, 2021 and December 31, 2020, respectively | $ | 25,864 | $ | 12,453 | ||||
Accounts payable – related parties | 8,629 | 984 | ||||||
Deferred revenue – short-term | 6,265 | 3,976 | ||||||
Dividends payable | 2,622 | 10,498 | ||||||
Accrued expenses and other current liabilities | 4,824 | 5,077 | ||||||
Total current liabilities | 48,204 | 32,988 | ||||||
Deferred revenue – long-term | 17,920 | 21,861 | ||||||
Noncurrent deferred income tax liability | 128 | 12,332 | ||||||
Other noncurrent liabilities | 1,886 | 2,240 | ||||||
Total noncurrent liabilities | 19,934 | 36,433 | ||||||
Total liabilities | 68,138 | 69,421 | ||||||
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding | 0 | 0 | ||||||
Common stock, $0.0001 par value, 75,000,000 shares authorized, 43,763,243 and 43,743,243 issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 4 | 4 | ||||||
Accumulated other comprehensive income | 155 | 208 | ||||||
Additional paid in capital | 282,446 | 282,215 | ||||||
Retained (deficit) earnings | (16,042 | ) | 89,456 | |||||
Total stockholders’ equity | 266,563 | 371,883 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 334,701 | $ | 441,304 |
The accompanying notes are an integral part of these consolidated financial statements.
FutureFuel Corp.
Consolidated Statements of Operations and Comprehensive Income
FortheThreeMonths and Nine Months EndedSeptember 30, 2017 and 2016
(Dollars in thousands, except per share amounts)
(Unaudited)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 77,106 | $ | 66,893 | $ | 198,726 | $ | 175,939 | ||||||||
Revenues – related parties | 500 | 2,413 | 1,039 | 7,881 | ||||||||||||
Cost of goods sold | 61,088 | 54,170 | 165,469 | 144,446 | ||||||||||||
Cost of goods sold – related parties | 9,880 | 3,384 | 17,995 | 6,819 | ||||||||||||
Distribution | 1,072 | 1,306 | 2,730 | 2,871 | ||||||||||||
Distribution – related parties | 40 | 127 | 117 | 340 | ||||||||||||
Gross profit | 5,526 | 10,319 | 13,454 | 29,344 | ||||||||||||
Selling, general, and administrative expenses | ||||||||||||||||
Compensation expense | 876 | 1,228 | 3,170 | 3,671 | ||||||||||||
Other expense | 477 | 505 | 1,562 | 1,668 | ||||||||||||
Related party expense | 38 | 57 | 138 | 146 | ||||||||||||
Research and development expenses | 935 | 688 | 2,535 | 2,113 | ||||||||||||
2,326 | 2,478 | 7,405 | 7,598 | |||||||||||||
Income from operations | 3,200 | 7,841 | 6,049 | 21,746 | ||||||||||||
Interest and dividend income | 1,965 | 1,637 | 5,679 | 4,446 | ||||||||||||
Interest expense | (43 | ) | (45 | ) | (129 | ) | (130 | ) | ||||||||
Gain/(loss) on marketable securities | 26 | (322 | ) | (543 | ) | (727 | ) | |||||||||
Other expense | (84 | ) | (111 | ) | (117 | ) | (331 | ) | ||||||||
1,864 | 1,159 | 4,890 | 3,258 | |||||||||||||
Income before income taxes | 5,064 | 9,000 | 10,939 | 25,004 | ||||||||||||
Provision/(benefit) for income taxes | 1,730 | (3,868 | ) | 3,375 | (12,657 | ) | ||||||||||
Net income | $ | 3,334 | $ | 12,868 | $ | 7,564 | $ | 37,661 | ||||||||
�� | ||||||||||||||||
Earnings per common share | ||||||||||||||||
Basic | $ | 0.08 | $ | 0.29 | $ | 0.17 | $ | 0.86 | ||||||||
Diluted | $ | 0.08 | $ | 0.29 | $ | 0.17 | $ | 0.86 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 43,705,234 | 43,570,734 | 43,662,672 | 43,524,729 | ||||||||||||
Diluted | 43,714,753 | 43,572,997 | 43,671,420 | 43,529,423 | ||||||||||||
Comprehensive Income | ||||||||||||||||
Net income | $ | 3,334 | $ | 12,868 | $ | 7,564 | $ | 37,661 | ||||||||
Other comprehensive income from unrealized net gain on available-for-sale securities | 1,006 | 1,714 | 7,102 | 3,741 | ||||||||||||
Income tax effect | (353 | ) | (832 | ) | (2,490 | ) | (1,542 | ) | ||||||||
Total unrealized gain, net of tax | 653 | 882 | 4,612 | 2,199 | ||||||||||||
Comprehensive income | $ | 3,987 | $ | 13,750 | $ | 12,176 | $ | 39,860 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue | $ | 98,490 | $ | 53,306 | $ | 213,461 | $ | 152,988 | ||||||||
Revenue – related parties | 192 | 832 | 855 | 1,654 | ||||||||||||
Cost of goods sold | 85,895 | 44,129 | 197,033 | 120,379 | ||||||||||||
Cost of goods sold – related parties | 2,889 | 1,508 | 14,826 | 5,065 | ||||||||||||
Distribution | 1,666 | 2,007 | 4,908 | 5,304 | ||||||||||||
Distribution – related parties | 40 | 48 | 136 | 138 | ||||||||||||
Gross profit (loss) | 8,192 | 6,446 | (2,587 | ) | 23,756 | |||||||||||
Selling, general, and administrative expenses | ||||||||||||||||
Compensation expense | 571 | 769 | 1,622 | 2,348 | ||||||||||||
Other expense | 529 | 927 | 1,851 | 1,912 | ||||||||||||
Related party expense | 136 | 155 | 473 | 458 | ||||||||||||
Research and development expenses | 814 | 791 | 2,386 | 2,394 | ||||||||||||
Total operating expenses | 2,050 | 2,642 | 6,332 | 7,112 | ||||||||||||
Income (loss) from operations | 6,142 | 3,804 |
| (8,919 | ) | 16,644 | ||||||||||
Interest and dividend income | 654 | 1,076 | 2,449 | 4,562 | ||||||||||||
Interest expense | (32 | ) | (32 | ) | (96 | ) | (119 | ) | ||||||||
(Loss) gain on marketable securities | (729 | ) | 1,213 | (192 | ) | (7,273 | ) | |||||||||
Other (expense) income | (14 | ) | (1 | ) | (1,369 | ) | 8,347 | |||||||||
Other (expense) income | (121 | ) | 2,256 | 792 | 5,517 | |||||||||||
Income (loss) before taxes | 6,021 | 6,060 | (8,127 | ) | 22,161 | |||||||||||
Income tax benefit | (3,181 | ) | (830 | ) | (12,037 | ) | (18,931 | ) | ||||||||
Net income | $ | 9,202 | $ | 6,890 | $ | 3,910 | $ | 41,092 | ||||||||
Earnings per common share | ||||||||||||||||
Basic | $ | 0.21 | $ | 0.16 | $ | 0.09 | $ | 0.94 | ||||||||
Diluted | $ | 0.21 | $ | 0.16 | $ | 0.09 | $ | 0.94 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 43,763,243 | 43,743,243 | 43,753,646 | 43,743,243 | ||||||||||||
Diluted | 43,763,243 | 43,745,339 | 43,753,709 | 43,744,107 | ||||||||||||
Comprehensive income | ||||||||||||||||
Net income | $ | 9,202 | $ | 6,890 | $ | 3,910 | $ | 41,092 | ||||||||
Other comprehensive loss from unrealized net losses on available-for-sale debt securities | (67 | ) | (8 | ) | (67 | ) | (215 | ) | ||||||||
Income tax effect | 14 | 1 |
| 14 | 45 | |||||||||||
Total other comprehensive loss, net of tax | (53 | ) | (7 | ) | (53 | ) | (170 | ) | ||||||||
Comprehensive income | $ | 9,149 | $ | 6,883 | $ | 3,857 | $ | 40,922 |
The accompanying notes are an integral part of these consolidated financial statements.
FutureFuelCorp.
ConsolidatedStatementsof Stockholders’ Equity
(Dollarsinthousands)
(Unaudited)
For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Additional | Total | ||||||||||||||||||||||
Common Stock | Comprehensive | Paid-in | Retained | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Income (Loss) | Capital | Earnings (Deficit) | Equity | |||||||||||||||||||
Balance - December 31, 2020 | 43,743,243 | $ | 4 | $ | 208 | $ | 282,215 | $ | 89,456 | $ | 371,883 | |||||||||||||
Other comprehensive loss | - | 0 | (60 | ) | 0 | 0 | (60) |
| ||||||||||||||||
Net loss | - | 0 | 0 | 0 | (8,773 | ) | (8,773 | ) | ||||||||||||||||
Balance - March 31, 2021 | 43,743,243 | $ | 4 | $ | 148 |
| $ | 282,215 | $ | 80,683 | $ | 363,050 | ||||||||||||
Cash dividends declared, $2.50 per share | - | 0 | 0 | 0 | (109,408 | ) | (109,408 | ) | ||||||||||||||||
Proceeds for the issuance of stock | 20,000 | 0 | 0 | 231 | 0 | 231 | ||||||||||||||||||
Other comprehensive income | - | 0 | 60 | 0 | 0 | 60 | ||||||||||||||||||
Net income | - | 0 | 0 | 0 | 3,481 | 3,481 | ||||||||||||||||||
Balance - June 30, 2021 | 43,763,243 | $ | 4 | $ | 208 | $ | 282,446 | $ | (25,244 | ) | $ | 257,414 | ||||||||||||
Other comprehensive loss | - | 0 | (53 | ) | 0 | 0 | (53 | ) | ||||||||||||||||
Net income | - | 0 | 0 | 0 | 9,202 | 9,202 | ||||||||||||||||||
Balance - September 30, 2021 | 43,763,243 | $ | 4 | $ | 155 | $ | 282,446 | $ | (16,042 | ) | $ | 266,563 |
FutureFuelCorp.
ConsolidatedStatementsofCashFlows
Forthe Nine MonthsEndedSeptember 30, 2017 and 2016
(Dollarsinthousands)
(Unaudited)
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows provided by operating activities | ||||||||
Net income | $ | 7,564 | $ | 37,661 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 8,735 | 7,960 | ||||||
Amortization of deferred financing costs | 109 | 108 | ||||||
Benefit for deferred income taxes | (1,303 | ) | (9,243 | ) | ||||
Change in fair value of derivative instruments | (60 | ) | 6,686 | |||||
Other than temporary impairment of marketable securities | 177 | 2,184 | ||||||
Impairment of fixed assets | 28 | 178 | ||||||
Gain/(loss) on the sale of investments | 366 | (1,457 | ) | |||||
Stock based compensation | 878 | 1,431 | ||||||
Losses on disposals of fixed assets | 145 | 147 | ||||||
Noncash interest expense | 20 | 20 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 3,081 | 16,333 | ||||||
Accounts receivable – related parties | (1,181 | ) | (21 | ) | ||||
Inventory | 8,570 | 17,009 | ||||||
Income tax receivable | 5,546 | (1,185 | ) | |||||
Prepaid expenses | 1,152 | 1,104 | ||||||
Prepaid expenses – related parties | (4 | ) | 35 | |||||
Accrued interest on marketable securities | 22 | (84 | ) | |||||
Other assets | 37 | (413 | ) | |||||
Accounts payable | 1,425 | (9,853 | ) | |||||
Accounts payable – related parties | 2,780 | 219 | ||||||
Accrued expenses and other current liabilities | 1,587 | 3,565 | ||||||
Accrued expenses and other current liabilities – related parties | (142 | ) | - | |||||
Deferred revenue | (3,220 | ) | 2,735 | |||||
Other noncurrent liabilities | 128 | 1,760 | ||||||
Net cash provided by operating activities | 36,440 | 76,879 | ||||||
Cash flows from investing activities | ||||||||
Collateralization of derivative instruments | (760 | ) | (4,009 | ) | ||||
Purchase of marketable securities | (25,795 | ) | (54,096 | ) | ||||
Proceeds from the sale of marketable securities | 14,913 | 20,768 | ||||||
Proceeds from the sale of fixed assets | 4 | - | ||||||
Capital expenditures | (2,614 | ) | (3,107 | ) | ||||
Net cash used in investing activities | (14,252 | ) | (40,444 | ) | ||||
Cash flows from financing activities | ||||||||
Minimum tax withholding on stock options exercised and awards vested | (121 | ) | (59 | ) | ||||
Excess tax benefits associated with stock options and awards | (31 | ) | (183 | ) | ||||
Payment of dividends | (108,063 | ) | (7,869 | ) | ||||
Net cash used in financing activities | (108,215 | ) | (8,111 | ) | ||||
Net change in cash and cash equivalents | (86,027 | ) | 28,324 | |||||
Cash and cash equivalents at beginning of period | 199,272 | 154,049 | ||||||
Cash and cash equivalents at end of period | $ | 113,245 | $ | 182,373 | ||||
Cash paid for interest | $ | - | $ | 2 | ||||
Cash paid for income taxes | $ | 55 | $ | 986 |
For the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Additional | Total | ||||||||||||||||||||||
Common Stock | Comprehensive | Paid-in | Retained | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Income (Loss) | Capital | Earnings | Equity | |||||||||||||||||||
Balance - December 31, 2019 | 43,743,243 | $ | 4 | $ | 296 | $ | 282,166 | $ | 184,632 | $ | 467,098 | |||||||||||||
Prior period adjustment: change in accounting principle | - | 0 | 0 | 0 | (12 | ) | (12 | ) | ||||||||||||||||
Balance – January 1, 2020, As adjusted | 43,743,243 | $ | 4 | $ | 296 | $ | 282,166 | $ | 184,620 | $ | 467,086 | |||||||||||||
Cash dividends declared, $3.00 per share | - | 0 | 0 | 0 | (131,230 | ) | (131,230 | ) | ||||||||||||||||
Stock based compensation | - | 0 | 0 | 49 | 0 | 49 | ||||||||||||||||||
Other comprehensive loss | - | 0 | (313 | ) | 0 | 0 | (313 | ) | ||||||||||||||||
Net income | - | 0 | 0 | 0 | 19,043 | 19,043 | ||||||||||||||||||
Balance - March 31, 2020 | 43,743,243 | $ | 4 | $ | (17 | ) | $ | 282,215 | $ | 72,433 | $ | 354,635 | ||||||||||||
Other comprehensive income | - | 0 | 150 | 0 | 0 | 150 | ||||||||||||||||||
Net income | - | 0 | 0 | 0 | 15,159 | 15,159 | ||||||||||||||||||
Balance - June 30, 2020 | 43,743,243 | $ | 4 | $ | 133 | $ | 282,215 | $ | 87,592 | $ | 369,944 | |||||||||||||
Other comprehensive loss | - | 0 | (7 | ) | 0 | 0 | (7 | ) | ||||||||||||||||
Net income | - | 0 | 0 | 0 | 6,890 | 6,890 | ||||||||||||||||||
Balance - September 30, 2020 | 43,743,243 | $ | 4 | $ | 126 | $ | 282,215 | $ | 94,482 | $ | 376,827 |
The accompanying notes are an integral part of these consolidated financial statements.
FutureFuelCorp.
ConsolidatedStatementsofCashFlows
(Dollarsinthousands)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 3,910 | $ | 41,092 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation | 7,887 | 8,554 | ||||||
Amortization of deferred financing costs | 72 | 84 | ||||||
Benefit from deferred income taxes | (12,190 | ) | (951 | ) | ||||
Change in fair value of equity securities | 1,027 | 5,445 | ||||||
Change in fair value of derivative instruments | 2,147 | (757 | ) | |||||
(Gain) loss on the sale of investments | (835 | ) | 1,828 | |||||
Stock based compensation | 0 | 49 | ||||||
Loss (gain) on disposal of property and equipment | 11 | (51 | ) | |||||
Impairment of intangible asset | 1,315 | 0 | ||||||
Noncash interest expense | 24 | 35 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (5,086 | ) | 73,041 | |||||
Accounts receivable – related parties | 1,344 | 3,218 | ||||||
Inventory | (9,805 | ) | 8,486 |
| ||||
Income tax receivable | 7,895 | (14,379 | ) | |||||
Prepaid expenses | 3,129 | 1,349 | ||||||
Prepaid expenses - related parties | (12 | ) | 0 | |||||
Other assets | 522 | 483 | ||||||
Accounts payable | 13,379 | (51,711 | ) | |||||
Accounts payable – related parties | 7,645 | (341 | ) | |||||
Accrued expenses and other current liabilities | (387 | ) | 2,295 | |||||
Accrued expenses and other current liabilities – related parties | 0 | (64 | ) | |||||
Deferred revenue | (1,652 | ) | (793 | ) | ||||
Other noncurrent liabilities | (513 | ) | (336 | ) | ||||
Net cash provided by operating activities | 19,827 | 76,576 | ||||||
Cash flows from investing activities | ||||||||
Collateralization of derivative instruments | (2,518 | ) | 801 |
| ||||
Purchase of marketable securities | (21,671 | ) | (5,073 | ) | ||||
Proceeds from the sale of marketable securities | 40,652 | 7,729 | ||||||
Proceeds from the sale of property and equipment | 0 | 104 | ||||||
Proceeds from the sale of intangible asset | 93 | 0 | ||||||
Capital expenditures | (665 | ) | (3,717 | ) | ||||
Net cash from (used in) investing activities | 15,891 | (156 | ) | |||||
Cash flows from financing activities | ||||||||
Loan proceeds | 0 | 8,180 | ||||||
Payment on loan | 0 | (8,180 | ) | |||||
Deferred financing costs | 0 | (477 | ) | |||||
Proceeds from the issuance of stock | 231 | 0 | ||||||
Payment of dividends | (117,284 | ) | (139,103 | ) | ||||
Net cash used in financing activities | (117,053 | ) | (139,580 | ) | ||||
Net change in cash and cash equivalents | (81,335 | ) | (63,160 | ) | ||||
Cash and cash equivalents at beginning of period | 198,122 | 243,331 | ||||||
Cash and cash equivalents at end of period | $ | 116,787 | $ | 180,171 | ||||
Cash paid for interest | $ | 43 | $ | 2 | ||||
Cash paid for income taxes | $ | 83 | $ | 660 | ||||
Noncash investing and financing activities: | ||||||||
Noncash capital expenditures | $ | 32 | $ | 98 | ||||
Noncash operating leases | $ | 269 | $ | 442 |
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
1) | NATURE OF OPERATIONS AND BASIS OF PRESENTATION |
Organization
FutureFuel Corp. (“FutureFuel” or “the Company”), through its wholly-owned subsidiary, FutureFuel Chemical Company (“FutureFuel Chemical”), owns and operates a chemical production facility located on approximately 2,200 acres of land six miles southeast of Batesville in north central Arkansas fronting the White River (the “Batesville Plant”). FutureFuel Chemical manufactures diversified chemical products, biobased products comprisedcomposed of biofuels, and biobased specialty chemical products. FutureFuel Chemical’sChemical’s operations are reported in two2 segments: chemicals and biofuels.
The chemicalschemical segment manufactures a diversified portfolio of chemical products that are sold to third party customers. The majority of the revenues from the chemicalschemical segment are derived from the custom manufacturing of specialty chemicals for specific customers.
The biofuels business segment primarily produces and sells biodiesel. FutureFuel Chemical also sells petrodiesel in blends with the company’sCompany’s biodiesel and, from time to time, with no biodiesel added. Finally, FutureFuel Chemical is also a shipper of refined petroleumpetroleum-based products on a common carrier pipelinespipeline and buys and sells petroleum products to maintain an active shipper status on these pipelines.this pipeline. In April 2021, FutureFuel sold a portion of its historical line space. See Note 8 for additional information.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel’s 2016FutureFuel’s 2020 audited consolidated financial statements and should be read in conjunction with the 2016 audited consolidatedthose financial statements of FutureFuel.statements.
In the opinion of FutureFuel, allAll normal recurring adjustments necessary for a fair presentation have been included in the unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared in compliance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10-Q10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements, and do include amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of FutureFuel and its direct and indirect wholly owned subsidiaries; namely, FutureFuel Chemical Company; FFC Grain, L.L.C.,; FutureFuel Warehouse Company, L.L.C.,; and Legacy Regional Transport, L.L.C. Intercompany transactions and balances have been eliminated in consolidation.
2) |
|
Reinstatement of the Biodiesel Blenders’ Tax Credit and Small Agri-Biodiesel Producer Tax Credit
The carrying valuesbiodiesel Blenders’ Tax Credit (“BTC”) provides a one dollar per gallon tax credit to the blender of inventorybiomass-based diesel with at least 0.1% petroleum-based diesel fuel.
The Further Consolidated Appropriations Act of 2020 was passed by Congress and signed into law on December 20, 2019, retroactively reinstating the BTC for 2018 and 2019 and extending it through December 31, 2022. As this act was passed into law in 2019, the Company recognized its impact in the last quarter of 2019 for both periods (2018 and 2019) within the Company’s 2019 financial results. The Company records the credit as a reduction to cost of goods sold.
As the law from which the BTC mentioned above was reinstated, small agri-biodiesel producers with production capacity not in excess of 60 million gallons were eligible for an additional tax credit of $0.10 per gallon on the first15 million gallons of agri-biodiesel sold (the “Small Agri-biodiesel Producer Tax Credit”). The Company was eligible for this credit and recognized its benefit in the three months ended December 31, 2019 for both periods (2018 and 2019) as follows as of: part of the tax provision.
CARES Act – Employee Retention Tax Credit
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), was enacted on March 27, 2020, to encourage eligible employers to retain employees on their payroll. FutureFuel did not qualify for this credit, however, the Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the Employee Retention TaxCredit. FutureFuel is continuing to monitor whether it would qualify for this credit.
September 30, 2017 | December 31, 2016 | |||||||
At average cost (approximates current cost) | ||||||||
Finished goods | $ | 18,926 | $ | 27,971 | ||||
Work in process | 2,046 | 1,913 | ||||||
Raw materials and supplies | 30,797 | 25,127 | ||||||
51,769 | 55,011 | |||||||
LIFO reserve | (8,246 | ) | (2,918 | ) | ||||
Total inventory | $ | 43,523 | $ | 52,093 |
4
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
Lower of Cost or Market ("LCM") adjustments are recorded as a decrease in inventory values and an increase in cost of goods sold. The inventory is relieved at the LCM adjusted cost basis when sold. There was no LCM adjustment in the three months ended September 30, 2017. In the nine months ended September 30, 2017, there were LCM adjustments of $1,912 of which all impacted inventory was sold prior to September 30, 2017. For the three and nine months ended September 30, 2016, the LCM adjustment was $1,877.
3) |
|
FutureFuel is exposed to certain risks relating to its ongoing business operations. Commodity price risk is the primary risk managed by using derivative instruments. Regulated fixed price futures and option contracts are utilized to manage the price risk associated with future purchases of feedstock used in FutureFuel’s biodiesel production along with physical feedstock and finished product inventories attributed to this process.
FutureFuel recognizes all derivative instruments as either assets or liabilities at fair value in its consolidated balance sheets. FutureFuel’s derivative instruments do not qualify for hedge accounting under the specific guidelines of ASC 815-20-25, DerivativesandHedging. Nonerevenue when performance obligations of the derivative instrumentscustomer contract are designatedsatisfied. FutureFuel sells to customers through master sales agreements or standalone purchase orders. The majority of FutureFuel's terms of sale have a single performance obligation to transfer products. Accordingly, FutureFuel recognizes revenue when control has been transferred to the customer, generally at the time of shipment or delivery of products. For certain contracts, this occurs upon delivery of the material to a FutureFuel storage location, ready for customer pickup and accountedseparated from other FutureFuel inventory. Revenue is measured as the amount of consideration FutureFuel expects to receive in exchange for transferring products and is generally based upon a negotiated price. FutureFuel sells its products directly to customers generally under agreements with payment terms of 30 to 75 days for chemical segment customers and 2 to 10 days for biofuels segment customers.
Certain of FutureFuel custom chemical contracts within the chemical segment contain a material right as hedges primarilydefined by ASU 2014-09,Revenue from Contracts with Customers ("Topic 606"), from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers. Each contract also has a performance obligation to transfer products with 30-day payment terms. FutureFuel recognizes revenue when the extensive record keeping requirements.customer takes control of the inventory, either upon shipment or when the material is made available for pickup. If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with Topic 606. FutureFuel applies the renewal option approach in allocating the transaction price to these material rights and transfer of product. As a basis for allocating the transaction price to the material right and transfer of product, FutureFuel estimates the expected life of the product, the expected contractual volumes to be sold over that life, and the most likely expected sales price. Each estimate is updated quarterly on a prospective basis.
Contract Assets and Liabilities:
Contract assets consist of unbilled amounts typically resulting from revenue recognized through bill-and-hold arrangements. The contract assets at September 30, 2021 and December 31, 2020 consist of unbilled revenue from one customer and are recorded as accounts receivable in the consolidated balance sheets. Contract liabilities consist of advance payments related to material rights recorded as deferred revenue in the consolidated balance sheets. Increases to contract liabilities from cash received for a performance obligation of chemical segment plant expansions were $178 and $95 and $707 and $3,453 for the three and nine months ended September 30, 2021 and 2020, respectively. Contract liabilities are reduced as the Company transfers product to the customer under the renewal option approach. Revenue recognized in the chemical segment from the contract liability reductions were $456 and $174 for the three months, and $2,192 and $4,080 for the nine months ended September 30, 2021 and 2020, respectively. These contract asset and liability balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.
The fairfollowing table provides the balances of receivables, contract assets, and contract liabilities from contracts with customers.
Contract Assets and Liability Balances | September 30, 2021 | December 31, 2020 | ||||||
Trade receivables, included in accounts receivable* | $ | 13,453 | $ | 12,279 | ||||
Contract assets, included in accounts receivable | $ | 423 | $ | 808 | ||||
Contract liabilities, included in deferred revenue - short-term | $ | 6,058 | $ | 3,769 | ||||
Contract liabilities, included in deferred revenue - long-term | $ | 14,169 | $ | 17,943 |
*Exclusive of the BTC of $12,679 and $8,300, respectively, and net of allowances for bad debt of $55 and $63, respectively, as of the dates noted.
Transaction price allocated to the remaining performance obligations:
At September 30,2021, approximately $20,227 of revenue is expected to be recognized from remaining performance obligations. FutureFuel expects to recognize this revenue ratably over expected sales over the expected term of its long-term contracts which range from three to five years. Approximately 30% of this revenue is expected to be recognized over the next 12 months, and 70% is expected to be recognized over the subsequent 45 months. These amounts are subject to change based upon changes in the estimated contract life and estimated quantities to be sold over the contract life.
The Company applies the practical expedient in ASC 606-10-50-14 and excludes the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
NotestoConsolidatedFinancialStatementsofFutureFuel’sCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
The following tables provide revenue from customers disaggregated by the type of arrangement and by the timing of the recognized revenue.
Disaggregation of revenue - contractual and non-contractual:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Contract revenue from customers with > 1 year arrangements | $ | 6,232 | $ | 4,995 | $ | 17,109 | $ | 19,518 | ||||||||
Contract revenue from customers with < 1 year arrangements | 92,395 | 49,088 | 197,041 | 136,975 | ||||||||||||
Revenue from non-contractual arrangements | 55 | 55 | 166 | 166 | ||||||||||||
BTC rebate | 0 | 0 | 0 | (2,017 | ) | |||||||||||
Total revenue | $ | 98,682 | $ | 54,138 | $ | 214,316 | $ | 154,642 |
Timing of revenue:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Bill-and-hold revenue | $ | 9,185 | $ | 7,400 | $ | 24,612 | $ | 24,888 | ||||||||
Non-bill-and-hold revenue | 89,497 | 46,738 | 189,704 | 129,754 | ||||||||||||
Total revenue | $ | 98,682 | $ | 54,138 | $ | 214,316 | $ | 154,642 |
As of September 30, 2021, $3,052 of the bill and hold revenue had not shipped.
4) | INVENTORY |
The carrying values of inventory were as follows as of:
September 30, 2021 | December 31, 2020 | |||||||
At average cost (approximates current cost) | ||||||||
Finished goods | $ | 8,119 | $ | 15,452 | ||||
Work in process | 483 | 1,632 | ||||||
Raw materials and supplies | 47,028 | 22,674 | ||||||
55,630 | 39,758 | |||||||
LIFO reserve | (11,936 | ) | (5,869 | ) | ||||
Total inventory | $ | 43,694 | $ | 33,889 |
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
5) | DERIVATIVE INSTRUMENTS |
The Company records all derivative instruments at fair value. Fair value is determined based onby using the closing prices of the derivative instruments on relevant commodity exchangesthe New York Mercantile Exchange at the end of an accounting period. Changes in the fair value of derivative instruments are recognized at the end of each accounting period and recorded in the statement of income as a component of cost of goods sold.
In order to manage commodity price risk caused by market fluctuations in biofuel prices, future purchases of feedstock used in biodiesel production, physical feedstock, finished product inventories attributed to the process, and other petroleum products purchased or sold, the Company may enter into exchange-traded commodity futures and options contracts. The Company accounts for these derivative instruments in accordance with ASC 815-20-25, Derivatives and Hedging. Under this standard, the accounting for changes in the fair value of a derivative instrument depends upon whether it has been designated as an accounting hedging relationship and, further, on the type of hedging relationship. To qualify for designation as an accounting hedging relationship, specific criteria must be met and appropriate documentation maintained. The Company had no derivative instruments that qualified under these rules as designated accounting hedges in 2021 or 2020. The Company has elected the normal purchase and normal sales exception for certain feedstock purchase contracts and supply agreements.
Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a loss of $3,314$2,348 and $10,377 for the three months and nine months ended September 30, 2021, respectively and a gain of $803$867 and $6,789 for the three months and nine months ended September 30, 2017 and 2016, respectively, and losses of $1,511 and $5,375 for the nine months ended September 30, 2017 and 2016, 2020, respectively.
The volumes and carrying values of FutureFuel’sFutureFuel’s derivative instruments were as follows at:
September 30, 2017 | December 31, 2016 | |||||||||||||
Number of Contracts Short | Fair Value | Number of Contracts Short | Fair Value | |||||||||||
Regulated options, included in other current assets | 200 | $ | (162 | ) | - | $ | - | |||||||
Regulated fixed price future commitments, included in other current assets | 182 | $ | (36 | ) | 135 | $ | (258 | ) |
Asset (Liability) | ||||||||||||||||
September 30, 2021 | December 31, 2020 | |||||||||||||||
Contract Quantity Short | Fair Value | Contract Quantity Short | Fair Value | |||||||||||||
Regulated fixed price future commitments | 360 | $ | (2,023 | ) | 250 | $ | 124 |
The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $1,518$3,452 and $758$933 at September 30, 2017 2021 and December 31, 2016, 2020, respectively, and iswas classified as other current assets in the consolidated balance sheets. The carrying values of the margin account and of the derivative instruments are included net, in other current assets.
5
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
| MARKETABLE SECURITIES |
At September 30, 2017 2021 and December 31, 2016, 2020, FutureFuel had investments in certain debt securities (trust preferred securities) and in preferred stock trust preferred securities, exchange traded debt instruments, and other equity instruments. These investments are classified as current assets in the consolidated balance sheets. The unrealized (loss) gain on equity securities held for the three months ended September 30, 2021 and 2020 was ($805) and $1,961, respectively. The unrealized loss on equity securities held for the nine months ended September 30, 2021 and 2020 was $1,027 and $5,445, respectively.
Available for sale securities:
FutureFuel has designated thesethe debt securities as being available-for-sale. Accordingly, they are recorded at fair value, withThe following comprises the unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity.
FutureFuel’savailable-for-sale debt securities balances included within marketable securities were comprised ofin the followingconsolidated balance sheets at September 30, 2017 and December 31, 2016:the respective dates:
September 30, 2021 | ||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
Trust preferred stock | $ | 3,676 | $ | 196 | $ | 0 | $ | 3,873 |
September 30, 2017 | ||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
Equity instruments | $ | 49,815 | $ | 9,206 | $ | (916 | ) | $ | 58,105 | |||||||
Preferred stock | 53,562 | 4,263 | (5 | ) | 57,820 | |||||||||||
Trust preferred securities | 3,147 | 114 | - | 3,261 | ||||||||||||
Exchange traded debt instruments | 4,154 | 248 | - | 4,402 | ||||||||||||
Total | $ | 110,678 | $ | 13,831 | $ | (921 | ) | $ | 123,588 | |||||||
December 31, 2016 | ||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
Equity instruments | $ | 32,667 | $ | 5,549 | $ | (304 | ) | $ | 37,912 | |||||||
Preferred stock | 57,105 | 1,196 | (698 | ) | 57,603 | |||||||||||
Trust preferred securities | 3,147 | - | (9 | ) | 3,138 | |||||||||||
Exchange traded debt instruments | 7,420 | 99 | (26 | ) | 7,493 | |||||||||||
Total | $ | 100,339 | $ | 6,844 | $ | (1,037 | ) | $ | 106,146 |
December 31, 2020 | ||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
Trust preferred stock | $ | 3,676 | $ | 264 | $ | 0 | $ | 3,940 |
The aggregate fair value of instrumentsdebt securities with unrealized losses totaled $16,854 and $31,126 0 at September 30, 2017 2021 and $0 at December 31, 2016, respectively. As of September 30, 2017 and December 31, 2016, FutureFuel had no investments in marketable securities that were in an unrealized loss position for a greater than 12-month period.2020.
|
|
Accrued expenses and other current liabilities, including those associatedThe Company determined an allowance for credit losses for these debt securities was not necessary as of September 30, 2021. The large financial institutions have strong credit ratings with no recent history of defaulting on outstanding obligations, nor is the Company aware of any long-term credit risk related parties, consisted of the following at: to delinquency under these obligations.
September 30, 2017 | December 31, 2016 | |||||||
Accrued employee liabilities | $ | 2,615 | $ | 864 | ||||
Accrued property, franchise, motor fuel and other taxes | 1,078 | 1,428 | ||||||
Other | 379 | 335 | ||||||
Total | $ | 4,072 | $ | 2,627 |
There were 0 sales of debt securities in the nine months ended September 30, 2021. Sales of debt securities amounted to $1,500 in the three and nine months ended September 30, 2020, resulting in a gain of $72.
The debt securities held at September 30, 2021, had a contractual maturity of greater than ten years.
6
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
On April 16, 2015, FutureFuel, with FutureFuel Chemical as the borrower, and certain of FutureFuel’s other subsidiaries, as guarantors, entered into a $150,000 secured and committed credit facility with the lenders party thereto, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. On May 25, 2016, FutureFuel increased the credit facility by $15,000. The credit facility consists of a five-year revolving credit facility in a dollar amount of up to $165,000, which includes a sublimit of $30,000 for letters of credit and $15,000 for swingline loans (collectively, the “Credit Facility”).
The interest rate floats at the following margins over LIBOR or base rate based upon the leverage ratio from time to time:
Consolidated Leverage Ratio |
| Adjusted LIBOR Rate Loans and Letter of Credit Fee |
| Base Rate Loans |
| Commitment Fee | ||||||||
< 1.00:1.0 |
|
|
|
| 1.25% |
|
|
| 0.25% |
|
|
| 0.15% |
|
≥ 1.00:1.0 | And | < 1.50:1.0 |
|
| 1.50% |
|
|
| 0.50% |
|
|
| 0.20% |
|
≥ 1.50:1.0 | And | < 2.00:1.0 |
|
| 1.75% |
|
|
| 0.75% |
|
|
| 0.25% |
|
≥ 2.00:1.0 | And | < 2.50:1.0 |
|
| 2.00% |
|
|
| 1.00% |
|
|
| 0.30% |
|
≥ 2.50:1.0 |
|
|
|
| 2.25% |
|
|
| 1.25% |
|
|
| 0.35% |
|
The terms of the Credit Facility contain certain covenants and conditions including a maximum consolidated leverage ratio, a minimum consolidated fixed charge coverage ratio, and a minimum liquidity requirement. FutureFuel was in compliance with such covenants as of September 30, 2017.
There were no borrowings under this credit agreement at September 30, 2017 or December 31, 2016.
7) |
|
The following table summarizes the provision/(benefit) for income taxes.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Provision/(benefit) for income taxes | $ | 1,730 | $ | (3,868 | ) | $ | 3,375 | $ | (12,657 | ) | ||||||
Effective tax rate | 34.2 | % | (43.0% | ) | 30.9 | % | (50.6% | ) |
The effective tax rate for the three months and nine months ended September 30, 2017, reflects our expected tax rate on reported operating income before income tax. Our effective tax rate in the three and nine months ended September 30, 2017, reflects the elimination of certain tax credits and incentives which expired December 31, 2016 and were not in effect for 2017.
7
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
The effective tax rate for the three and nine months ended September 30, 2016, reflects our expected tax rate on reported operating earnings before income tax. Our effective tax rate in the three and nine months ended September 30, 2016, reflects the positive effect of the reinstatement of certain tax credits and incentives for 2016. In 2016, these tax credits and incentives formed a large proportion of FutureFuel’s net income. This increase in proportion combined with the income tax treatment of the credits and incentives reduced FutureFuel’s effective income tax rate in 2016. In addition, during the second quarter of 2016, FutureFuel booked a tax benefit related to the reversal of a state’s treatment of the taxability of the tax credits and incentives.
Unrecognized tax benefits totaled $2,052 and $2,056 at September 30, 2017 and December 31, 2016, respectively.
FutureFuel records interest and penalties, net, as a component of income tax expense. At September 30, 2017 and December 31, 2016, FutureFuel recorded $248 and $193, respectively, in accruals for interest or tax penalties.
|
|
We compute earnings per share using the two-class method in accordance with ASC Topic No. 260, “Earnings per Share.” The two-class method is an allocation of earnings between the holders of common stock and a company’s participating security holders. Our outstanding non-vested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. We had no other participating securities at September 30, 2017 or 2016.
Contingently issuable shares associated with outstanding service-based restricted stock units were not included in the earnings per share calculations for the three-month and nine-month periods ended September 30, 2017 or 2016 as the vesting conditions had not been satisfied.
Basic and diluted earnings per common share were computed as follows:
For the three months ended September 30, | For the Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 3,334 | $ | 12,868 | $ | 7,564 | $ | 37,661 | ||||||||
Less: distributed earnings allocated to non-vested stock | - | (8 | ) | - | (32 | ) | ||||||||||
Less: undistributed earnings allocated to non-vested restricted stock | (3 | ) | (35 | ) | (15 | ) | (131 | ) | ||||||||
Numerator for basic earnings per share | $ | 3,331 | $ | 12,825 | $ | 7,549 | $ | 37,498 | ||||||||
Effect of dilutive securities: | ||||||||||||||||
Add: undistributed earnings allocated to non-vested restricted stock | 3 | 35 | 15 | 131 | ||||||||||||
Less: undistributed earnings reallocated to non-vested restricted stock | (3 | ) | (35 | ) | (15 | ) | (131 | ) | ||||||||
Numerator for diluted earnings per share | $ | 3,331 | $ | 12,825 | $ | 7,549 | $ | 37,498 | ||||||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding – basic | 43,705,234 | 43,570,734 | 43,662,672 | 43,524,729 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options and other awards | 9,519 | 2,263 | 8,748 | 4,694 | ||||||||||||
Weighted average shares outstanding – diluted | 43,714,753 | �� | 43,572,997 | 43,671,420 | 43,529,423 | |||||||||||
Basic earnings per share | $ | 0.08 | $ | 0.29 | $ | 0.17 | $ | 0.86 | ||||||||
Diluted earnings per share | $ | 0.08 | $ | 0.29 | $ | 0.17 | $ | 0.86 |
8
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
Certain options to purchase FutureFuel’s common stock were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2017 and 2016 because they were anti-dilutive in the periods. The weighted average number of options excluded on this basis was 0 and 10,000 for the three and nine-months ended September 30, 2017, respectively. The weighted average number of options excluded on this basis was 30,000 and 76,667 for the three-months and nine-months ended September 30, 2016, respectively.
|
|
FutureFuel has two reportable segments organized along similar product groups – chemicals and biofuels.
Chemicals
FutureFuel’s chemicals segment manufactures diversified chemical products that are sold externally to third party customers. This segment is comprised of two components: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).
Biofuels
FutureFuel’s biofuels business segment primarily manufactures and markets biodiesel. Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at the Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks. Biofuels revenues also include the sale of biodiesel blends with petrodiesel, petrodiesel with no biodiesel added, internally generated, separated RINs, biodiesel production byproducts, and the purchase and sale of other petroleum products on common carrier pipelines. Biodiesel selling prices and profitability can at times fluctuate based on the timing of unsold, internally generated RINs. FutureFuel does not allocate production costs to internally generated RINs, and, from time to time, can enter into sales of biodiesel on a “RINs-free” basis. Such method of selling results in FutureFuel maintaining possession of the applicable RINs from the sale. The benefit derived from the eventual sale of the RINs is not reflected in results of operations until such time as the RIN sale has been completed, which may lead to variability in reported operating results.
Summaryof long-livedassetsandrevenuesbygeographic area
All of FutureFuel’s long-lived assets are located in the United States.
Most of FutureFuel’s sales are transacted with title passing at the time of shipment from the Batesville Plant, although some sales are transacted with title passing at the delivery point. While many of FutureFuel’s chemicals are utilized to manufacture products that are shipped, further processed, and/or consumed throughout the world, the chemical products, with limited exceptions, generally leave the United States only after ownership has transferred from FutureFuel to the customer. FutureFuel is rarely the exporter of record, never the importer of record into foreign countries, and is not always aware of the exact quantities of its products that are moved into foreign markets by its customers. FutureFuel does track the addresses of its customers for invoicing purposes and uses this address to determine whether a particular sale is within or outside the United States. FutureFuel’s revenues attributable to the United States and foreign countries (based upon the billing addresses of its customers) were as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
United States | $ | 76,711 | $ | 68,462 | $ | 197,044 | $ | 181,677 | ||||||||
All Foreign Countries | 895 | 844 | 2,721 | 2,143 | ||||||||||||
Total | $ | 77,606 | $ | 69,306 | $ | 199,765 | $ | 183,820 |
Revenues from a single foreign country during the three and nine-months ended September 30, 2017 and 2016 did not exceed 1% of total revenues.
9
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
Summary ofbusinessbysegment
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | ||||||||||||||||
Custom chemicals | $ | 23,593 | $ | 20,455 | $ | 65,189 | $ | 60,148 | ||||||||
Performance chemicals | 4,574 | 3,844 | 12,686 | 13,782 | ||||||||||||
Chemicals revenue | 28,167 | 24,299 | 77,875 | 73,930 | ||||||||||||
Biofuels revenue | 49,439 | 45,007 | 121,890 | 109,890 | ||||||||||||
Total Revenue | $ | 77,606 | $ | 69,306 | $ | 199,765 | $ | 183,820 | ||||||||
Segment gross profit | ||||||||||||||||
Chemicals | $ | 8,060 | $ | 7,853 | $ | 20,401 | $ | 22,722 | ||||||||
Biofuels | (2,534 | ) | 2,466 | (6,947 | ) | 6,622 | ||||||||||
Total gross profit | 5,526 | 10,319 | 13,454 | 29,344 | ||||||||||||
Corporate expenses | (2,326 | ) | (2,478 | ) | (7,405 | ) | (7,598 | ) | ||||||||
Income/(loss) before interest and taxes | 3,200 | 7,841 | 6,049 | 21,746 | ||||||||||||
Interest and other income | 1,965 | 1,637 | 5,679 | 4,446 | ||||||||||||
Interest and other expense | (101 | ) | (478 | ) | (789 | ) | (1,188 | ) | ||||||||
(Provision)/benefit for income taxes | (1,730 | ) | 3,868 | (3,375 | ) | 12,657 | ||||||||||
Net income | $ | 3,334 | $ | 12,868 | $ | 7,564 | $ | 37,661 |
Depreciation is allocated to segment costs of goods sold based on plant usage. The total assets and capital expenditures of FutureFuel have not been allocated to individual segments as large portions of these assets are shared to varying degrees by each segment, causing such an allocation to be of little value.
| FAIR VALUE MEASUREMENTS |
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value accounting pronouncements also include a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of FutureFuel. Unobservable inputs are inputs that reflect FutureFuel’sFutureFuel’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
10
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at September 30, 2017 2021 and December 31, 2016.2020.
Asset (Liability) | Asset (Liability) | |||||||||||||||||||||||||||||||
Fair Value Measurements Using |
| |||||||||||||||||||||||||||||||
Fair Value at | Inputs Considered as: | Fair Value at | Fair Value Measurements Using Inputs Considered as: | |||||||||||||||||||||||||||||
Description | September 30, 2017 | Level 1 | Level 2 | Level 3 | September 30, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
Derivative instruments | $ | (198 | ) | $ | (198 | ) | $ | - | $ | - | $ | (2,023 | ) | $ | (2,023 | ) | $ | 0 | $ | 0 | ||||||||||||
Preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments | $ | 123,588 | $ | 123,588 | $ | - | $ | - | ||||||||||||||||||||||||
Asset (Liability) | ||||||||||||||||||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||||||||||||||||||
Fair Value at | Inputs Considered as: | |||||||||||||||||||||||||||||||
Description | December 31, 2016 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
Derivative instruments | $ | (258 | ) | $ | (258 | ) | $ | - | $ | - | ||||||||||||||||||||||
Preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments | $ | 106,146 | $ | 106,146 | $ | - | $ | - | ||||||||||||||||||||||||
Preferred stock and other equity instruments | $ | 41,291 | $ | 41,291 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
Trust preferred stock | $ | 3,873 | $ | 3,873 | $ | 0 | $ | 0 |
Asset (Liability) | ||||||||||||||||
| ||||||||||||||||
Fair Value at | Fair Value Measurements Using Inputs Considered as: | |||||||||||||||
Description | December 31, 2020 | Level 1 | Level 2 | Level 3 | ||||||||||||
Derivative instruments | $ | 124 | $ | 124 | $ | 0 | $ | 0 | ||||||||
Preferred stock and other equity instruments | $ | 60,464 | $ | 60,464 | $ | 0 | $ | 0 | ||||||||
Trust preferred stock | $ | 3,940 | $ | 3,940 | $ | 0 | $ | 0 |
|
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In April of 2015, FutureFuel acquired additional historical line space on a pipeline for $1,408. The following tables summarize changesacquired line space was recorded as an intangible asset with an indefinite life as there was no foreseeable limit on the time period over which it was expected to contribute to cash flows. In April of 2021, FutureFuel made the strategic decision to reduce its status as a regular shipper on the pipeline and sold a portion of its line space. At that time, it was also determined that the value of the remaining line space had declined. As a result, an impairment charge was recorded in accumulated other comprehensive incomeOther Expense for $1,315 to further reduce the intangible asset carrying value to $0 at June 30,2021 from unrealized gains and losses on available-for-sale securities in the three and nine months ended September 30, 2017 and 2016. $1,408 at December 31, 2020.
Changes in Accumulated Other Comprehensive Income From Unrealized | ||||||||
Gains and Losses on Available-for-Sale Securities | ||||||||
For the three months ended September 30, 2017 and 2016 | ||||||||
(net of tax) | ||||||||
2017 | 2016 | |||||||
Balance at July 1 | $ | 7,499 | $ | 3,372 | ||||
Other comprehensive income before reclassifications | 670 | 672 | ||||||
Amounts reclassified from accumulated other comprehensive income | (17 | ) | 210 | |||||
Net current-period other comprehensive income | 653 | 882 | ||||||
Balance at September 30 | $ | 8,152 | $ | 4,254 | ||||
Changes in Accumulated Other Comprehensive Income From Unrealized | ||||||||
Gains and Losses on Available-for-Sale Securities | ||||||||
For the nine months ended September 30, 2017 and 2016 | ||||||||
(net of tax) | ||||||||
2017 | 2016 | |||||||
Balance at January 1 | $ | 3,540 | $ | 2,055 | ||||
Other comprehensive income before reclassifications | 4,259 | 1,727 | ||||||
Amounts reclassified from accumulated other comprehensive income | 353 | 472 | ||||||
Net current-period other comprehensive income | 4,612 | 2,199 | ||||||
Balance at September 30 | $ | 8,152 | $ | 4,254 |
11
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
9) | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consisted of the following at:
September 30, 2021 | December 31, 2020 | |||||||
Accrued employee liabilities | $ | 2,632 | $ | 2,609 | ||||
Accrued property, franchise, motor fuel and other taxes | 1,141 | 1,730 | ||||||
Lease liability, current | 639 | 491 | ||||||
Accrued directors' fees | 208 | 0 | ||||||
Other | 204 | 247 | ||||||
Total | $ | 4,824 | $ | 5,077 |
10) | BORROWINGS |
On March 30, 2020, FutureFuel, with FutureFuel Chemical as the borrower and certain of FutureFuel’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 (as amended, the “Prior Credit Agreement”) with the lenders party, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. The Credit Agreement consists of a five-year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $30,000 for letters of credit and $15,000 for swingline loans (collectively, the “Credit Facility”). The credit facility expires on March 30, 2025. The primary amendments from the Prior Credit Agreement were a reduction in the facility by $65,000, a reduction in the facility’s applicable interest rate by 0.25%, a reduction in the commitment fee, and elimination of the minimum consolidated fixed charge coverage ratio.
The interest rate floats at the following margins over LIBOR or base rate based upon the leverage ratio from time to time:
Consolidated Leverage Ratio | Adjusted LIBOR Rate Loans and Letter of Credit Fee | Base Rate Loans | Commitment Fee | |||||||||||
< 1.00:1.0 |
|
| 1.00% | 0.00% | 0.15% | |||||||||
≥ 1.00:1.0 | And | < 1.50:1.0 | 1.25% | 0.25% | 0.15% | |||||||||
≥ 1.50:1.0 | And | < 2.00:1.0 | 1.50% | 0.50% | 0.20% | |||||||||
≥ 2.00:1.0 | And | < 2.50:1.0 | 1.75% | 0.75% | 0.20% | |||||||||
≥ 2.50:1.0 |
|
| 2.00% | 1.00% | 0.25% |
The terms of the Credit Facility contain certain negative covenants and conditions including a maximum consolidated leverage ratio and a consolidated minimum interest coverage ratio.
There were 0 borrowings under the Credit Agreement at September 30, 2021 or at December 31, 2020.
11) | INCOME TAX PROVISION |
The following tables summarize amounts reclassified from accumulated other comprehensivetable summarizes the income in the three and nine months ended September 30, 2017 and 2016:tax provision.
Reclassifications from Accumulated Other | |||||||||
Comprehensive Income for the three and nine months ended | |||||||||
September 30, 2017 and 2016 | |||||||||
Three months ended September 30, | |||||||||
2017 | 2016 | Affected Line Item in Statement of Operations | |||||||
Unrealized gains/(losses) on available-for-sale securities | $ | 26 | $ | (322 | ) | Gain/(loss) on marketable securities | |||
Total before tax | 26 | (322 | ) | ||||||
Tax (provision)/benefit | (9 | ) | 112 | ||||||
Total reclassifications | $ | 17 | $ | (210 | ) | ||||
Nine months ended September 30, | |||||||||
2017 | 2016 | Affected Line Item in Statement of Operations | |||||||
Unrealized losses on available-for-sale securities | $ | (543 | ) | $ | (727 | ) | Loss on marketable securities | ||
Total before tax | (543 | ) | (727 | ) | |||||
Tax benefit | 190 | 255 | |||||||
Total reclassifications | $ | (353 | ) | $ | (472 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Income tax benefit | $ | (3,181 | ) | $ | (830 | ) | $ | (12,037 | ) | $ | (18,931 | ) | ||||
Effective tax rate | (52.8 | %) | (13.7 | %) | (148.1 | %) | (85.4 | %) |
In order to minimize the potential for ambiguity and distortion produced using the annual effective tax rate approach, the Company has determined its income tax benefits for the three and nine months ended September 30, 2021 by applying its actual year-to-date effective tax rate to year-to-date pretax loss. In contrast, the tax benefits for the three and nine months ended September 30, 2020 reflect the application of an estimated annual effective tax rate to year-to-date pretax income.
The effective tax rates for both periods reflect the positive effects of certain tax credits and incentives, the most significant of which were the BTC and Small Agri-biodiesel Producer Tax Credit. Additionally, the effective rate for the three and nine months ended September 30, 2020 was favorably impacted by the enhanced NOL carryback provisions of the CARES Act. This law, enacted on March 27, 2020, allowed the Company to carry back its 2020 federal tax loss to a year with a higher tax rate rather than forward to a year with a lower rate.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
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From timeIn the three and nine months ended September 30, 2021 and 2020, FutureFuel used the treasury method in computing earnings per share.
Basic and diluted earnings per common share were computed as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 9,202 | $ | 6,890 | $ | 3,910 | $ | 41,092 | ||||||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding – basic | 43,763,243 | 43,743,243 | 43,753,646 | 43,743,243 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options and other awards | 0 | 2,096 | 63 | 864 | ||||||||||||
Weighted average shares outstanding – diluted | 43,763,243 | 43,745,339 | 43,753,709 | 43,744,107 | ||||||||||||
Basic earnings per share | $ | 0.21 | $ | 0.16 | $ | 0.09 | $ | 0.94 | ||||||||
Diluted earnings per share | $ | 0.21 | $ | 0.16 | $ | 0.09 | $ | 0.94 |
In the three and nine months ended September 30, 2021, 24,000 and 30,603 options to time, FutureFuel and its operations are parties to, or targets of, lawsuits, claims, investigations, regulatory matters, and proceedings, which are being handled and defendedpurchase FutureFuel’s common stock were excluded in the ordinary coursecomputation of business. While FutureFuel is unable to predictdiluted earnings per share as all were anti-dilutive, respectively. In the outcomes of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.three and nine months ended September 30, 2020, 40,000 and 54,667 options were excluded, respectively.
| RELATED PARTY TRANSACTIONS |
FutureFuel enters into transactions with companies affiliated with or controlled by a director and significant shareholder. Revenues, expenses, prepaid amounts, and unpaid amounts related to these transactions are captured in the accompanying consolidated financial statements as related party line items.
Related party revenues are the result of sales of biodiesel, petrodiesel, blends, other petroleum products, and other similar or related products to these related parties.
Related party cost of goods sold and distribution are the result of sales of biodiesel, petrodiesel, blends, and other petroleum products to third parties for items that were purchased from these related parties along with the associated expense from the purchase of natural gas, storage and terminalling services and income tax and consulting services by FutureFuel from these related parties.
A related party manages natural gas purchases for FutureFuel, initially pays for the natural gas, and subsequently invoices FutureFuel for the same plus a nominal fee for such services. The natural gas matter as discussed in Note 17, Legal Matters, is in reference to the natural gas supplier, not the related party.
12
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
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In AprilFutureFuel has 2 reportable segments organized along similar product groups – chemicals and biofuels.
Chemicals
FutureFuel’s chemical segment manufactures diversified chemical products that are sold externally to third party customers. This segment is composed of 2015,2 components: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).
Biofuels
FutureFuel’s biofuels segment primarily manufactures and markets biodiesel. Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at the Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks. Biofuels revenue also includes the sale of biodiesel blends with petrodiesel; petrodiesel with no biodiesel added; internally generated, separated Renewable Identification Numbers (“RINs”); biodiesel production byproducts; and the purchase and sale of other petroleum products on common carrier pipelines. Biodiesel selling prices and profitability can at times fluctuate based on the timing of unsold, internally generated RINs. FutureFuel acquired additional historical line spacedoes not allocate production costs to internally generated RINs, and, from time to time, can enter into sales of biodiesel on a pipeline for $1,408. The acquired line space was recorded as an intangible asset with an indefinite life as there was no foreseeable limit on the time period over which it is expected to contribute to cash flows. The carrying value“RINs-free” basis, resulting in FutureFuel maintaining possession of the asset was $1,408applicable RINs from the sale. The benefit derived from the eventual sale of the RINs is not reflected in results of operations until such time as the RINs sale has been completed, which may lead to variability in reported operating results.
Summary ofbusinessbysegment
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue | ||||||||||||||||
Custom chemicals | $ | 12,720 | $ | 10,328 | $ | 35,655 | $ | 52,129 | ||||||||
Performance chemicals | 3,971 | 2,409 | 12,693 | 11,139 | ||||||||||||
Chemicals revenue | 16,691 | 12,737 | 48.348 | 63,268 | ||||||||||||
Biofuels revenue | 81,991 | 41,401 | 165,968 | 91,374 | ||||||||||||
Total Revenue | $ | 98,682 | $ | 54,138 | $ | 214,316 | $ | 154,642 | ||||||||
Segment gross profit (loss) | ||||||||||||||||
Chemicals | $ | 5,105 | $ | 4,754 | $ | 8,089 | $ | 20,345 | ||||||||
Biofuels | 3,087 | 1,692 |
| (10,676 | ) | 3,411 | ||||||||||
Total gross profit (loss) | $ | 8,192 | $ | 6,446 | $ | (2,587 | ) | $ | 23,756 |
Depreciation is allocated to segment cost of September 30, 2017goods sold based on plant usage. The total assets and December 31, 2016.capital expenditures of FutureFuel tests the intangible asset for impairment have not been allocated to individual segments as large portions of these assets are shared to varying degrees by each segment, causing such an allocation to be of little value.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsin accordance with ASC 350-30-35-18 through 35-20.thousands,exceptpershareamounts)
(Unaudited)
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13
15) | SPECIAL CASH DIVIDEND |
On May 10, 2021, the Company declared a special cash dividend of $2.50 per share on common stock and paid $109,408 on June 4, 2021. In the three months ended March 31, 2020, we declared a special cash dividend of $3.00 per share and paid $131,230 on April 17, 2020.
16) | RECENTLY ISSUED ACCOUNTING STANDARDS |
ASU 2020-04,Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Effective March 12, 2020, the guidance in the update is in response to concerns about structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This guidance will ease the accounting burden associated with transitioning away from reference rates that are expected to be discontinued within our credit facility as described in Note 10, Borrowings.
17) | LEGAL MATTERS |
From time to time, FutureFuel and its operations are parties to, or targets of, lawsuits, claims, investigations, regulatory matters, and proceedings, which are being handled and defended in the ordinary course of business. While FutureFuel is unable to predict the outcomes of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.
As a result of the extraordinary increase in natural gas prices, the Attorney General of Arkansas has launched a civil investigative demand against several natural gas suppliers. At this time the company is disputing the February 2021 natural gas bill and payment thereof is pending further investigation.
The natural gas expense was a component of Cost of goods sold-related parties in the Consolidated Statements of Operations and Comprehensive Income in the three months ended March 31, 2021 and nine months ended September 30, 2021. However, as discussed in Note 13, Related Party Transactions, the "ultimate" natural gas supplier is not a related party of FutureFuel.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.444Operations.
Alldollar amountsexpressedasnumbersinthisMD&Aareinthousands(exceptpershareamounts).
Certaintablesmaynotadddueto rounding.
The following Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations of FutureFuel Corp. (“FutureFuel”, “the Company”, “we”, or “our”) should be read together with our consolidated financial statements, including the notes thereto, set forth herein. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements. See “Forward Looking“Forward-Looking Information” below for additional discussion regarding risks associated with forward-looking statements.
Unless otherwise stated, all dollar amounts are in thousands.
Overview
Our company is managed and reported in two reporting segments: chemicals segment and biofuels segment.biofuels. Within the chemicalschemical segment are two product groupings: custom chemicals and performance chemicals. The custom product group is comprisedcomposed of specialty chemicals manufactured for a single customer whereas the performance product group is comprisedcomposed of chemicals manufactured for multiple customers. The biofuels segment is comprisedcomposed of one product group. Management believes that the diversity of each segment strengthens the company in the ability to utilize resources and is committed to growing each segment.
Within the biofuels segment following the laws of the United States Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS), we generate 1.5 Renewable Identification Numbers (RINs) for each gallon of biodiesel sold in the United States, a classification of a D4 RINs. RINs are used to monitor the level of renewable fuel traded in a given year in accordance with RFS 2 within the EPA moderated transaction system (EMTS). We do not assign cost of goods sold to the generation of RINs as the physical fuel generates the full cost. We do not purchase RINs. The following table summarizes our RIN holdings and the median RIN market value at September 30, 2021 and September 30, 2020 according to Argus.
September 30, | |||||
2021 | 2020 | ||||
D4 RIN quantity | 12,074,116 | 2,967,799 | |||
Market Value per RIN | $ | 1.42 | $ | 0.74 |
We are also registered in California's Low Carbon Fuel Standard program and Oregon's Clean Fuels Program. Only minimal credits were held in California as of September 30, 2021 and none were held at September 30,2020. No credits were held in Oregon in either period.
COVID-19
In March 2020, the World Health Organization categorized COVID-19 as a pandemic and it continues to spread throughout the United States and other countries across the world. During the pandemic, our objectives have been to protect the well-being of our employees, support our customers, obtain materials from our suppliers, and maintain our manufacturing operations. While the pandemic has reduced the overall level of activity across much of the economy, we have largely met these objectives.
The effects of the pandemic are still uncertain. The virus (including variants thereof) is still spreading. The three principal areas where COVID-19 may still negatively impact our financial performance are customer demand, raw material procurement, and our ability to operate our manufacturing facility.
Customer Demand – Several of our major chemical customers sell the products we produce for them into markets that have been significantly impacted by COVID-19. The energy and automotive markets in particular have drastically been impacted since April 2020, and have not yet fully recovered to pre-pandemic levels. However, diesel prices and the value of Renewable Identification Numbers (RINs) have improved significantly in 2021 and while promising, this recovery is still fragile.
Supply Chain Impact – Our initial concern was that supplier shutdowns might result in raw material or input shortages and negatively impact our ability to manufacture products and meet our customers’ demands. This was true initially in our biofuel segment and the impact that had on the industry as a whole is part of the reason RINs have increased in value. We have managed supply such that our operations have not been hindered by shortages thus far and will continue in that effort.
Operations Impact - Our manufacturing is considered critical services and our plant has remained open to meet customer demand during the COVID-19 pandemic. The policies that were implemented including social distancing, enhanced cleaning and sanitizing, and the wearing of masks, have proven successful in preventing the spread of COVID-19 on-site. We will continue to take actions to help prevent the spread of COVID-19 at work and adjust policies as necessary. To date we have had no negative impact on our ability to operate the plant safely and in a way that meets our customers’ demands.
Even after the COVID-19 outbreak has subsided, we may experience materially adverse impacts on our financial condition and results of operations.
Summary of Financial Results
Set forth below is a summary of certain consolidated financial information for the periods indicated.
Three months ended September 30, | Three Months Ended September 30, | |||||||||||||||||||||||||||||||
Dollar | % | Dollar | % | |||||||||||||||||||||||||||||
2017 | 2016 | Change | Change | 2021 | 2020 | Change | Change | |||||||||||||||||||||||||
Revenues | $ | 77,606 | $ | 69,306 | $ | 8,300 | 12.0% | |||||||||||||||||||||||||
Revenue | $ | 98,682 | $ | 54,138 | $ | 44,544 | 82 | % | ||||||||||||||||||||||||
Income from operations | $ | 3,200 | $ | 7,841 | $ | (4,641 | ) | (59.2% | ) | $ | 6,142 | $ | 3,804 |
| $ | 2,338 | 61 | % | ||||||||||||||
Net income | $ | 3,334 | $ | 12,868 | $ | (9,534 | ) | (74.1% | ) | $ | 9,202 | $ | 6,890 | $ | 2,312 | 34 | % | |||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.08 | $ | 0.29 | $ | (0.21 | ) | (72.4% | ) | $ | 0.21 | $ | 0.16 | $ | 0.05 | 31 | % | |||||||||||||||
Diluted | $ | 0.08 | $ | 0.29 | $ | (0.21 | ) | (72.4% | ) | $ | 0.21 | $ | 0.16 | $ | 0.05 | 31 | % | |||||||||||||||
Capital expenditures and intangibles (net of customer reimbursements and regulatory grants) | $ | 856 | $ | 853 | $ | 3 | 0.4% | |||||||||||||||||||||||||
Adjusted EBITDA | $ | 9,553 | $ | 10,117 | $ | (564 | ) | (5.6% | ) | $ | 11,144 | $ | 5,575 | $ | 5,569 | 100 | % | |||||||||||||||
Nine months ended September 30, | ||||||||||||||||||||||||||||||||
Dollar | % | |||||||||||||||||||||||||||||||
2017 | 2016 | Change | Change | |||||||||||||||||||||||||||||
Revenues | $ | 199,765 | $ | 183,820 | $ | 15,945 | 8.7% | |||||||||||||||||||||||||
Income from operations | $ | 6,049 | $ | 21,746 | $ | (15,697 | ) | (72.2% | ) | |||||||||||||||||||||||
Net income | $ | 7,564 | $ | 37,661 | $ | (30,097 | ) | (79.9% | ) | |||||||||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.17 | $ | 0.86 | $ | (0.69 | ) | (80.2% | ) | |||||||||||||||||||||||
Diluted | $ | 0.17 | $ | 0.86 | $ | (0.69 | ) | (80.2% | ) | |||||||||||||||||||||||
Capital expenditures and intangibles (net of customer reimbursements and regulatory grants) | $ | 2,413 | $ | 2,988 | $ | (575 | ) | (19.2% | ) | |||||||||||||||||||||||
Adjusted EBITDA | $ | 17,201 | $ | 36,328 | $ | (19,127 | ) | (52.7% | ) |
14
Nine Months Ended September 30, | ||||||||||||||||
Dollar | % | |||||||||||||||
2021 | 2020 | Change | Change | |||||||||||||
Revenue | $ | 214,316 | $ | 154,642 | $ | 59,674 | 39 | % | ||||||||
(Loss) income from operations | $ | (8,919 | ) | $ | 16,644 | $ | (25,563 | ) | n/a | |||||||
Net income | $ | 3,910 | $ | 41,092 | $ | (37,182 | ) | (90 | %) | |||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.09 | $ | 0.94 | $ | (0.85 | ) | (90 | %) | |||||||
Diluted | $ | 0.09 | $ | 0.94 | $ | (0.85 | ) | (90 | %) | |||||||
Adjusted EBITDA | $ | 7,987 | $ | 18,404 | $ | (10,417 | ) | (57 | %) |
We use adjusted EBITDA as a key operating metric to measure both performance and liquidity. Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities (each as determined in accordance with GAAP) as a measure of performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP. We define adjusted EBITDA as net income before interest, income taxes, depreciation, and amortization expenses, excluding, when applicable, non-cash stock-based compensation expenses, public offering expenses, acquisition-related transaction costs, purchase accounting adjustments, losses on disposal of property and equipment, gains or losses on derivative instruments, and other non-operating income or expenses. Information relating to adjusted EBITDA is provided so that investors have the same data that we employ in assessing the overall operation and liquidity of our business. Our calculation of adjusted EBITDA may be different from similarly titled measures used by other companies; therefore, the results of our calculation are not necessarily comparable to the results of other companies.
Adjusted EBITDA allows our chief operating decision makers to assess the performance and liquidity of our business on a consolidated basis to assess the ability of our operating segments to produce operating cash flow to fund working capital needs, to fund capital expenditures, and to pay dividends. In particular, our management believes that adjusted EBITDA permits a comparative assessment of our operating performance and liquidity, relative to a performance and liquidity based on GAAP results, while isolatingresults. This measure isolates the effects of certain items, including depreciation and amortization which(which may vary among our operating segments without any correlation to their underlying operating performance,performance), non-cash stock-based compensation expense which(which is a non-cash expense that varies widely among similar companies,companies), and gains and losses on derivative instruments which(which can cause net income to appear volatile from period to period relative to the sale of the underlying physical product.product).
We enter intoutilize commodity derivative instruments primarily to protect our operations from downward movements in commodity prices, and to provide greater certainty of cash flows associated with sales of our commodities. We enter into hedges, and we utilize mark-to-market accounting to account for these instruments. Thus, our results in any given period can be impacted, and sometimes significantly, by changes in market prices relative to our contract price along with the timing of the valuation change in the derivative instruments relative to the sale of biofuel. We include this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.
Additionally, we invest in marketable securities of certain debt securities (trust preferred stock) and in preferred stock and other equity instruments. The realized and unrealized gains and losses on these marketable securities can fluctuate significantly from period to period. We include this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.
The following table reconciles adjusted EBITDA with net income, the most directly comparable GAAP performance financial measure.measure, with adjusted EBITDA.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Adjusted EBITDA | $ | 9,553 | $ | 10,117 | $ | 17,201 | $ | 36,328 | ||||||||
Depreciation | (2,927 | ) | (2,739 | ) | (8,735 | ) | (8,068 | ) | ||||||||
Non-cash stock-based compensation | (128 | ) | (477 | ) | (878 | ) | (1,431 | ) | ||||||||
Interest and dividend income | 1,965 | 1,637 | 5,679 | 4,446 | ||||||||||||
Interest expense | (43 | ) | (9 | ) | (129 | ) | (22 | ) | ||||||||
Losses on disposal of property and equipment | (68 | ) | (10 | ) | (145 | ) | (147 | ) | ||||||||
Gains/(losses) on derivative instruments | (3,314 | ) | 803 | (1,511 | ) | (5,375 | ) | |||||||||
Gains/(losses) on marketable securities | 26 | (322 | ) | (543 | ) | (727 | ) | |||||||||
Income tax (expense)/benefit | (1,730 | ) | 3,868 | (3,375 | ) | 12,657 | ||||||||||
Net income | $ | 3,334 | $ | 12,868 | $ | 7,564 | $ | 37,661 |
15
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net income | $ | 9,202 | $ | 6,890 | $ | 3,910 | $ | 41,092 | ||||||||
Depreciation | 2,656 | 2,692 | 7,887 | 8,554 | ||||||||||||
Non-cash stock-based compensation | - | - | - | 49 | ||||||||||||
Interest and dividend income | (654 | ) | (1,076 | ) | (2,449 | ) | (4,562 | ) | ||||||||
Non-cash interest expense and amortization of deferred financing costs | 33 | 32 | 96 | 119 | ||||||||||||
Loss (gain) on disposal of property and equipment | 11 | (53 | ) | 11 | (51 | ) | ||||||||||
Loss (gain) on derivative instruments | 2,348 | (867 | ) | 10,377 | (6,789 | ) | ||||||||||
Loss (gain) on marketable securities | 729 | (1,213 | ) | 192 | 7,273 | |||||||||||
Other income | - | - | - | (8,350 | ) | |||||||||||
Income tax benefit | (3,181 | ) | (830 | ) | (12,037 | ) | (18,931 | ) | ||||||||
Adjusted EBITDA | $ | 11,144 | $ | 5,575 | $ | 7,987 | $ | 18,404 |
The following table reconciles adjusted EBITDA with cash flows from operations, the most directly comparable GAAP liquidity financial measure.measure, with adjusted EBITDA.
Nine months ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2021 | 2020 | |||||||||||||
Net cash provided by operating activities | $ | 19,827 | $ | 76,576 | ||||||||||||
Benefit for deferred income taxes | 12,190 | 951 |
| |||||||||||||
Interest and dividend income | (2,449 | ) | (4,562 | ) | ||||||||||||
Income tax benefit | (12,037 | ) | (18,931 | ) | ||||||||||||
Loss (gain) on derivative instruments | 10,377 | (6,789 | ) | |||||||||||||
Change in fair value of derivative instruments | (2,147 | ) | 757 |
| ||||||||||||
Change in operating assets and liabilities, net | (16,459 | ) | (21,248 | ) | ||||||||||||
Other income | - | (8,350 | ) | |||||||||||||
Impairment of intangible asset | (1,315 | ) | - | |||||||||||||
Adjusted EBITDA | $ | 17,201 | $ | 36,328 | $ | 7,987 | $ | 18,404 | ||||||||
Benefit for deferred income taxes | (1,303 | ) | (9,243 | ) | ||||||||||||
Impairment of fixed assets | 28 | 178 | ||||||||||||||
Interest and dividend income | 5,679 | 4,446 | ||||||||||||||
Income tax (expense)/benefit | (3,375 | ) | 12,657 | |||||||||||||
Losses on derivative instruments | (1,511 | ) | (5,375 | ) | ||||||||||||
Change in fair value of derivative instruments | (60 | ) | 6,686 | |||||||||||||
Changes in operating assets and liabilities, net | 19,781 | 31,204 | ||||||||||||||
Other | - | (2 | ) | |||||||||||||
Net cash provided by operating activities | $ | 36,440 | $ | 76,879 |
Results of Operations
Consolidated
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||
2017 | 2016 | Amount | % | 2017 | 2016 | Amount | % | |||||||||||||||||||||||
Revenues | $ | 77,606 | $ | 69,306 | $ | 8,300 | 12.0% | $ | 199,765 | $ | 183,820 | $ | 15,945 | 8.7% | ||||||||||||||||
Volume/product mix effect | $ | (3,523 | ) | (5.1% | ) | $ | (20,033 | ) | (10.9% | ) | ||||||||||||||||||||
Price effect | $ | 11,823 | 17.1% | $ | 35,978 | 19.6% | ||||||||||||||||||||||||
Gross profit | $ | 5,526 | $ | 10,319 | $ | (4,793 | ) | (46.4% | ) | $ | 13,454 | $ | 29,344 | $ | (15,890 | ) | (54.2% | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
2021 | 2020 | Amount | % | 2021 | 2020 | Amount | % | |||||||||||||||||||||||||
Revenues | $ | 98,682 | $ | 54,138 | $ | 44,544 | 82.3 | % | $ | 214,316 | $ | 154,642 | $ | 59,674 | 38.6 | % | ||||||||||||||||
Volume/product mix effect | (502 | ) | (0.9 | %) | (23,750 | ) | (15.4 | )% | ||||||||||||||||||||||||
Price effect | 45,046 | 83.2 | % | 83,424 | 53.9 | % | ||||||||||||||||||||||||||
Gross profit (loss) | 8,192 | 6,446 | 1,746 | 27.1 | % | (2,587 | ) | 23,756 | (26,343 | ) | n/a | |||||||||||||||||||||
Operating expenses | 2,050 | 2,642 | (592 | ) | (22.4 | %) | 6,332 | 7,112 | (780 | ) | (11.0 | %) | ||||||||||||||||||||
Other (expense) income | (121 | ) | 2,256 | (2,377 | ) | n/a | 792 | 5,517 | (4,725 | ) | (85.6 | %) | ||||||||||||||||||||
Income tax benefit | (3,181 | ) | (830 | ) | (2,351 | ) | 283.3 | % | (12,037 | ) | (18,931 | ) | 6,894 | (36.4 | %) | |||||||||||||||||
Net income | $ | 9,202 | $ | 6,890 | $ | 2,312 | 33.6 | %) | $ | 3,910 | $ | 41,092 | $ | (37,182 | ) | (90.5 | %) |
Consolidated sales revenue in the three and nine months ended September 30, 20172021 increased $8,300$44,544 and $15,945, respectively,$59,674, compared to the three and nine months ended September 30, 2016.2020. This increase primarily resulted from higherincreased prices in the biofuels segment. Lower biofuels sales volumes partially reduced sales revenue in the comparative three- and nine-month periods.
Gross profitin the three months ended September 30, 2021 was $8,192 as compared to gross profit of $6,446 in the three months ended September 30, 2020. This increase primarily resulted from: i) improved margins in the biofuel segment and increased sales volumesii) the adjustment in the chemical segment. Incarrying value of our inventory as determined utilizing the nine-month comparison period, the increase from higher pricesLIFO method of inventory accounting which increased gross profit $961 in the biofuel segment was partiallycurrent three-month period as compared to a decrease in gross profit of $628 in the same prior year period. The change in the unrealized and realized positions in derivative instruments mostly offset by lower sales volumes largely fromthese increases with a loss of $2,348 in the expirationcurrent three-month period as compared to a gain of $867 in the federal blenders’ tax credit (“BTC”).same prior year period.
Gross profitloss in the three and nine months ended September 30, 2017 decreased $4,793 and $15,890, respectively, compared to the three and nine months ended September 30, 2016. In the biofuel segment, this decrease largely resulted from the absence of the BTC which expired on December 31, 2016. We also experienced a reduction in pipeline profits for the nine months ended September 30, 20172021 was $2,587 as compared to gross profit of $23,756 in the nine months ended September 30, 2020. This decline primarily resulted from: i) exorbitant natural gas prices invoiced from Winter Storm Uri which resulted in an increase of $7,800 as compared to the prior year period.
Another significant impact to theperiod; ii) a reduction in gross profitproduction volumes given the natural gas curtailment; iii) reduced sales volumes of two custom chemicals we no longer sell; iv) the change in the unrealized and realized positions in derivative instruments with a loss of $10,377 in the nine months ended September 30, 2017,2021 as compared to a gain of $6,789 in the prior year period, wasnine months ended September 30, 2020 and v) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment reduceddecreased gross profit $5,329$6,067 in the nine months ended September 30, 2017 and increased2021 as compared to an increase in gross profit $1,845of $2,266 in the nine months ended September 30, 2016. This changesame prior period. Partially offsetting these declines was improved margins in LIFO resultedthe biofuel segment.
As a result of the extraordinary increase in natural gas prices, the Attorney General of Arkansas launched a lowercivil investigative demand against several natural gas suppliers. At this time the company is disputing the February 2021 natural gas bill and payment thereof is pending further investigation. See Notes 13 and 17 of cost or market adjustment of $1,877the consolidated financial statements for further details.
Operating expenses
Operating expenses decreased $592 and $780 in the three and nine months ended September 30, 20162021, as compared to the same periods of 2020 from decreased compensation expenses.
Other income
Other income decreased $2,377 in the three months ended September 30, 2021 as compared to the same period of 2020, primarily due to the change in gains and losses in marketable securities. The loss (including unrealized losses) was $729 in the current three-month period as compared to gains (including unrealized gains) of $1,213 in the prior year period.
In the nine months ended September 30, 2021, Other income decreased $4,725 as compared to the same period in the prior year. This decrease resulted from: i) a legal resolution reached in the prior year on a contractual matter for which an accrual of $8,350 was relieved as Other income; ii) the impairment of intangible assets of $1,315 (see Note 8 of the consolidated financial statements for further details); and iii) reduced interest and dividend income. In addition, Other income was benefited from reduced losses in marketable securities (including unrealized losses) in the nine months ended September 30, 2021 compared to the prior year. The losses on marketable securities (including unrealized losses) were $192 and $7,273 in the nine months ended September 30, 2021 and 2020, respectively.
Income tax benefit
In order to minimize the potential for ambiguity and distortion produced using the annual effective tax rate approach, the Company has determined its income tax benefits for the three and nine months ended September 30, 2021 by applying its actual year-to-date effective tax rate to year-to-date pretax loss. In contrast, the tax benefits for the three and nine months ended September 30, 2020 reflect the application of an estimated annual effective tax rate to year-to-date pretax income.
The effective tax rates for both periods reflect the positive effects of certain tax credits and incentives, the most significant of which were the BTC and Small Agri-biodiesel Producer Tax Credit. Additionally, the effective rate for the three and nine months ended September 30, 2020 was favorably impacted by the enhanced NOL carryback provisions of the CARES Act. This law, enacted on March 27, 2020, allowed the Company to carry back its 2020 federal tax loss to a year with a higher tax rate rather than forward to a year with a lower rate.
Net income
Net income for the three and nine months ended September 30, 2021 increased $2,312 and decreased $37,182 as compared to the same period in 2020, respectively. This decrease resulted primarily from the changes explained in gross profit (loss) as previously noted, Other income, and Income tax benefit.
ChemicalSegment
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
2021 | 2020 | Amount | % | 2021 | 2020 | Amount | % | |||||||||||||||||||||||||
Revenues | $ | 16,691 | $ | 12,737 | $ | 3,954 | 31.0 | % | $ | 48,348 | $ | 63,268 | $ | (14,920 | ) | (23.6 | %) | |||||||||||||||
Volume/product mix effect | $ | 3,286 | 25.8 | % | $ | (15,558 | ) | (24.6 | %) | |||||||||||||||||||||||
Price effect | $ | 668 | 5.2 | % | $ | 638 | 1.0 | % | ||||||||||||||||||||||||
Gross profit | $ | 5,105 | $ | 4,754 | $ | 351 | 7.4 | % | $ | 8,089 | $ | 20,345 | $ | (12,256 | ) | (60.2 | %) |
Chemical revenue in the three months ended September 30, 2021 increased 31.0% or $3,954 compared to the three months ended September 30, 2020. Revenue from our custom chemicals (unique chemicals produced for specific customers) was $12,720, an increase of $2,391. Revenue from our performance chemicals (composed of multi-customer products which are sold based on specification) was $3,971, an increase of $1,562. Prior year sales volumes for both product lines were negatively impacted by COVID.
In the nine months ended September 30, 2021, chemical revenue totaled $48,348, a decrease of 23.6% or $14,920 from the same period in 2020. Revenue from custom chemicals was $35,655, a decrease of $16,474 from the prior year comparison period resulting from two products we no such adjustmentlonger sell. The remaining decrease in the nine-month comparison period was necessaryfrom lower sales volumes given the natural gas curtailment experienced in February of this year. Sales revenue improved $1,554 to $12,693 in the nine-month comparison period for performance chemicals. This increase was from: i) improved market conditions with higher sales volumes of our polymer modifier, ii) improved price of glycerin, and iii) the timing of campaigned products.
Gross profit for the chemical segment for the three and nine months ended September 30, 2021, increased $351 and decreased $12,256 when compared to the same periods of 2020. The decline of gross profit in the nine-month comparison period was driven mostly by the unusually high natural gas price, the loss of sales volume in our custom chemical products primarily driven by the effects of COVID-19 on customer demand, and the loss of two custom chemical products we no longer sell. Also reducing gross profit in the nine months ended September 30, 2021 as compared to the same prior year period was the increase in the LIFO reserve due to higher prices which decreased gross profit $1,202 in the nine months ended September 30, 2021; alternatively, in the same period of 2020, the LIFO reserve decreased due to lower prices increasing gross profit $748.
BiofuelsSegment
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
2021 | 2020 | Amount | % | 2021 | 2020 | Amount | % | |||||||||||||||||||||||||
Revenues | $ | 81,991 | $ | 41,401 | $ | 40,590 | 98.0 | % | $ | 165,968 | $ | 91,374 | $ | 74,594 | 81.6 | % | ||||||||||||||||
Volume/product mix effect | $ | (3,788 | ) | (9.1 | %) | $ | (8,192 | ) | (9.0 | %) | ||||||||||||||||||||||
Price effect | $ | 44,378 | 107.2 | % | $ | 82,786 | 90.6 | % | ||||||||||||||||||||||||
Gross profit (loss) | $ | 3,087 | $ | 1,692 |
| $ | 1,395 | 82.4 | % | $ | (10,676 | ) | $ | 3,411 | $ | (14,087 | ) | n/a |
Biofuels revenue in the three and nine months ended September 30, 2017. Please see footnote 2 for additional discussion.2021 increased $40,590 and $74,594 compared to the same periods of 2020, respectively. This increase was primarily driven from the overall improvement in fuel and RIN prices. The biodiesel and biodiesel blend volumes decreased approximately $3,000 in the nine-month comparison period primarily from the impact of Winter Storm Uri.
Also contributingA significant portion of our biodiesel sold was to the reduction in gross profit three major refiners in the three months ended September 30, 2017, was the loss in the unrealized2021 and realized activity in derivative instruments of $3,314, as compared to a gain of $803, in the prior year period. The change in the derivative activity in the nine months ending September 30, 2017 favorably impacted gross profit with a loss of $1,511, as compared to a loss of $5,375 in the prior year period.
OperatingExpenses
Operating expenses decreased from $2,478 to $2,326 or $152 in the three months ended September 30, 2017 and from $7,598 to $7,405 or $193major refiner/blenders in the nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016, respectively. This reduction in both periods was from lower compensation cost partially offset by higher research and development expense.
Provision/(Benefit)for IncomeTaxes
The effective tax rate for the three and nine months ended September 30, 2017, reflects our expected tax rate on reported operating income before income tax. Our effective tax rate in the three and nine months ended September 30, 2017, reflects the elimination of certain tax credits and incentives for 2017.
The effective tax rate for the three and nine months ended September 30, 2016, reflects our expected tax rate on reported operating income earnings before income tax. Our effective tax rate in the three and nine months ended September 30, 2016, reflects the positive effect of the reinstatement of the certain tax credits and incentives for 2016.2021. In addition, during the second quarter of 2016, FutureFuel booked a tax benefit related to the reversal of a state’s treatment of the taxability of the tax credits and incentives.
17
Unrecognized tax benefits totaled $2,052 and $2,056 at September 30, 2017 and December 31, 2016, respectively.
NetIncome
Net income for the three and nine months ended September 30, 2017 decreased $9,534 and $30,097, respectively, as compared to the same periods in 2016. The decrease resulted from the lack of the benefit of tax credits and incentives in effect in the three and nine months ended September 30, 2016 which were not in effect in the three and nine months ended September 30, 2017. Additionally, the adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting negatively impacted net income in both the three and nine months ended September 30, 2017. In comparison, net income in the three months ended September 30, 2016 was negatively impacted by this adjustment, but this adjustment benefited net income in the nine months ended September 30, 2016.
ChemicalsSegment
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||
2017 | 2016 | Amount | % | 2017 | 2016 | Amount | % | |||||||||||||||||||||||
Revenues | $ | 28,167 | $ | 24,299 | $ | 3,868 | 15.9% | $ | 77,875 | $ | 73,930 | $ | 3,945 | 5.3% | ||||||||||||||||
Volume/product mix effect | $ | 2,937 | 12.1% | $ | 2,774 | 3.8% | ||||||||||||||||||||||||
Price effect | $ | 931 | 3.8% | $ | 1,171 | 1.6% | ||||||||||||||||||||||||
Gross profit | $ | 8,060 | $ | 7,853 | $ | 207 | 2.6% | $ | 20,401 | $ | 22,722 | $ | (2,321 | ) | (10.2% | ) |
Sales revenue in the three months ended September 30, 2017 increased by $3,868 compared to the three months ended September 30, 2016. Sales revenue for our custom chemicals (unique chemicals produced for specific customers) for the three months ended September 30, 2017 totaled $23,593, an increase of $3,138 from the comparable period in 2016. This increase was primarily attributed to increased sales volumes in the agrochemical and energy markets. Performance chemicals (comprised of multi-customer products which are sold based on specification) sales revenues were $4,574 in the three months ended September 30, 2017, an increase of $730 from the three months ended September 30, 2016. This increase was primarily from increased sales of polymer modifiers and specialty additives.
Sales revenue in the nine months ended September 30, 2017 increased $3,945 compared to the nine months ended September 30, 2016. This increase was primarily attributed to increased sales volume in the agrochemical and energy markets, new customer product sales and increased amortization of deferred revenue which were mostly offset by the reduced price and volume of the laundry detergent additive. Performance chemical sales revenue were down $1,096 to $12,686, in the nine month period ended September 30, 2017. This decrease was primarily from reduced sales volumes of a polymer modifier product.
Gross profit for the chemicals segment for the three months ended September 30, 2017 increased by $207 when compared to the three months ended September 30, 2016. Factors positively impacting the three-month comparison of gross profit were from the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting and volume growth in the agrochemical and energy markets. Items negatively impacting gross profit were a decline in the sales volume and price of the laundry detergent additive and a change in product mix.
Gross profit for the chemicals segment for the nine months ended September 30, 2017 decreased by $2,321 when compared to the nine months ended September 30, 2016. Factors negatively impacting the nine-month comparison of gross profit were from the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting, a decline in the sales volume and price of the laundry detergent additive, and a decline in the sales volume of the polymer modifier product. Positively impacting the nine-month comparison period was the volume growth in the agrochemical and energy markets.
18
BiofuelsSegment
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||
2017 | 2016 | Amount | % | 2017 | 2016 | Amount | % | |||||||||||||||||||||||
Revenues | $ | 49,439 | $ | 45,007 | $ | 4,432 | 9.8% | $ | 121,890 | $ | 109,890 | $ | 12,000 | 10.9% | ||||||||||||||||
Volume/product mix effect | $ | (6,460 | ) | (14.4% | ) | $ | (22,807 | ) | (20.8% | ) | ||||||||||||||||||||
Price effect | $ | 10,892 | 24.2% | $ | 34,807 | 31.7% | ||||||||||||||||||||||||
Gross profit | $ | (2,534 | ) | $ | 2,466 | $ | (5,000 | ) | (202.8% | ) | $ | (6,947 | ) | $ | 6,622 | $ | (13,569 | ) | (204.9% | ) |
Biofuels sales revenue in the three and nine months ended September 30, 2017 increased $4,432 and $12,000 when compared to the three and nine months ended September 30, 2016. This increase was primarily from higher prices on biodiesel, biodiesel RINs, and biodiesel blends. The sale of separated, internally generated RINs, comprised a larger component of revenue in the current quarter and nine-month period as compared to the prior year periods. In addition, pipeline sales increased to $1,852 from $1,509 in the three months ended September 30, 2017 and 2016, respectively. For the nine-month comparison period, pipeline sales decreased to $1,852 from $7,390.
Revenue from common carrier pipelines varies as its revenue recognition depends upon whether a transaction is bought from and sold to the same party. Purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another (including buy/sell agreements) are combined and recorded on a net basis. Additionally, revenue from common carrier pipelines fluctuates with market conditions.
A portion of our biodiesel sold in 2017 was to two major refiners/blenders and2020, one major refiner in 2016.was greater than 10% of revenue. No assurances can be given that we will continue to sell to such major refiners, or, if we do sell, the volume we will sell or the profit margin we will realize. We do not believe that the loss of these customers would have a material adverse effect on our biofuels segment or on us as a whole in that:because: (i) unlike our custom manufacturing products, biodiesel is a commodity with a large potential customer base; (ii) we believe that we could readily sell our biodiesel to other customers as potential demand from other customers for biodiesel exceeds our production capacity; (iii)(ii) our sales to these customers are not under fixed terms and the customers have no fixed obligation to purchase any minimum quantities except as stipulated by short termshort-term purchase orders; and (iv)(iii) the prices we receive from these customers are based upon then-market rates, as would be the case with sales of this commodity to other customers.
Biofuels gross profit was $3,087 in the three and nine months ended September 30, 2017 decreased $5,000 and $13,569 when compared to the three and nine months ended September 30, 2016. Cost of goods sold increased2021, as a result of the absence of the blenders’ tax credit which expired December 31, 2016 and was in effect in the prior year’s period. Gross profits were reduced by the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment decreased gross profit $383 and $4,276 in the three and nine months ended September 30, 2017, respectively, compared to a decreasegross profit of $336$1,692 in the same period of 2020, primarily from: i) improved margins on biodiesel and ii) the reduction in our LIFO reserve from reduced inventories which increased gross profit $1,099 in the current period as compared to an increase of $898 in the three and nine months ended September 30, 2016, respectively. This change in LIFO resulted in a lower of cost or market adjustment of $1,877,reserve from higher prices in the three and nine months ended September 30, 2016. No such adjustment impactedsame period of the prior year decreasing gross profit in the three and nine months ended September 30, 2017. Please see footnote 2 for additional discussion.
$616. Biofuels gross profit wasdecreased further reducedin the three-month comparison periods by the change in the activity in derivative instruments in comparison to the prior year quarter with a loss of $3,314 as compared to a gain of $803$2,348 in the three months ended September 30, 2017 and 2016, respectively. The change2021, as compared to a gain of $867 in the derivative activitythree months ended September 30, 2020.
Biofuels gross loss was $10,676 in the nine months endingended September 30, 2017 favorably impacted2021, as compared to a gross profit of $3,411 in the same period of 2020, primarily from: i) the impact of Winter Storm Uri which dramatically increased the price of natural gas and consequently reduced sales volumes when production was curtailed to minimize natural gas consumption, further exacerbated by delays in restarting caused by the freezing weather; ii) the change in the activity in derivative instruments with a loss of $1,511,$10,377 in the nine months ended September 30, 2021, as compared to a lossgain of $5,375$6,789 in the prior year period. In order to better manage the commodity price risk caused by market fluctuations in biofuelnine months ended September 30, 2020 and iii) increased LIFO reserve from increased prices we may enter into exchange traded commodity futures and options contracts. We account for these derivative instruments in accordance with accounting standards whereby the fair value of FutureFuel’s derivative instruments is determined based on the closing prices of the derivative instruments on relevant commodity exchanges at the end of an accounting period. Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the statementnine months ended September 30, 2021 as compared to reduced prices lowering the LIFO reserve in the same period of operations as a component of cost of goods sold within the biofuels segment.2020; this adjustment decreased gross profit $4,865 and increased gross profit $1,518, respectively.
FutureFuel recognizesWe recognize all derivative instruments as either assets or liabilities at fair value in itsour consolidated balance sheet. FutureFuel’ssheets. Our derivative instruments do not qualify for hedge accounting under the specific guidelines of ASC 815-20-25,Topic 815, DerivativesandHedging. None of the derivative instruments are designated and accounted for as hedges primarily due primarily to the extensive record keeping requirements.
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The volumes and carrying values of FutureFuel’sour derivative instruments were as follows:
September 30, 2017 | December 31, 2016 | |||||||||||||
Number of Contracts Short | Fair Value | Number of Contracts Short | Fair Value | |||||||||||
Regulated options, included in other current assets | 200 | $ | (162 | ) | - | $ | - | |||||||
Regulated fixed price future commitments, included in other current assets | 182 | $ | (36 | ) | 135 | $ | (258 | ) |
Asset (Liability) | ||||||||||||||||
September 30, 2021 | December 31, 2020 | |||||||||||||||
Contract Quantity Short | Fair Value | Contract Quantity Short | Fair Value | |||||||||||||
Regulated fixed price future commitments | 360 | $ | (2,023 | ) | 250 | $ | 124 |
*All derivative instruments are entered into with the standard contract terms and conditions in accordance with major trading authorities of the New York Mercantile Exchange.
Critical Accounting Estimates
Revenue Recognition
The Company recognizes revenue under Topic 606, Revenue from Contracts with Customers. Certain long-term contracts had upfront non-cancellable payments considered material rights. The Company applied the renewal option approach in allocating the transaction price to the material rights. For each of these contracts, the Company estimated the expected contractual volumes to be sold at the most likely expected sales price as a basis for allocating the transaction price to the material right. Estimates are updated quarterly on a prospective basis. These custom chemical contracts have payment terms of 30 days. See Note 3 to our consolidated financial statements.
For most product sales, revenue is recognized when product is shipped from our facilities and risk of loss and title have passed to the customer, which is in accordance with our customer contracts and the stated shipping terms. Nearly all custom manufactured products are manufactured under written contracts.master service agreements. Performance chemicals and biodiesel are generally sold pursuant to the terms of written purchase orders. In general, customers do not have any rights of return, except for quality disputes. All of our products are tested for quality before shipment, and historically returns have been inconsequential. We do not offer rebates, or other warranties.except those related to the BTC.
Biodiesel selling prices can at times fluctuate based on the timing of unsold, internally generated RINs. From time to time, sales of biodiesel are on a “RINs-free” basis. Such method of selling results in applicable RINs being held. The value of the RINs is not reflected in revenue until such time as the RIN sale has been completed.
Revenue from bill and holdbill-and-hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and title tocontrol of the product has transferred. Bill and holdBill-and-hold transactions for the three and nine months ended September 30, 20172021 and 20162020 were related to specialtycustom chemicals customers whereby revenue was recognized in accordance with contractual agreements based upon product being produced and ready for use.use by the customer. These sales were subject to written monthly purchase orders with agreement that production was reasonable. The inventoryproduct was custom manufactured and stored at the customer’s request and could not be sold to another buyer. Credit and payment terms for bill and holdbill-and-hold customers are similar to other specialtycustom chemicals customers. Sales revenueRevenue under billbill-and-hold arrangements was $9,185 and hold arrangements were $4,519 and $6,759$7,400 for the three months ended September 30, 20172021 and 2016, and $12,477 and $17,103 for2020, respectively. For the nine months ended September 30, 20172021 and 2016,2020 bill and hold sales revenue was $24,612 and $24,888, respectively.
Liquidity and Capital Resources
Our net cash provided by (used in)from operating activities, investing activities, and financing activities for the nine months ended September 30, 20172021 and 20162020 are set forth in the following chart.table.
Nine months ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2021 | 2020 | |||||||||||||
Net cash provided by operating activities | $ | 36,440 | $ | 76,879 | $ | 19,827 | $ | 76,576 | ||||||||
Net cash used in investing activities | $ | (14,252 | ) | $ | (40,444 | ) | ||||||||||
Net cash provided by (used in) investing activities | $ | 15,891 | $ | (156 | ) | |||||||||||
Net cash used in financing activities | $ | (108,215 | ) | $ | (8,111 | ) | $ | (117,053 | ) | $ | (139,580 | ) |
We believe that existing cash balances and cash flow to be generated from operating activities and borrowing capacity under the amended and restated credit agreement will be sufficient to fund operations, product development, cash dividends, and capital requirements for the foreseeable future. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition.
Operating Activities
Cash from operating activities decreased from $76,879 of cash provided by operating activities was $19,827 in the first nine months of 20162021 as compared to $36,440 of cash provided by operating activities in the first nine months of 2017.2020 of $76,576, for a net decrease of $56,749. This decrease was primarily attributable to the decrease of $30,097 in net income, the decrease in the change in accounts receivable, including accounts receivable-related parties, of $13,252$80,001. This change resulted from the receipt of $76,259 in the first nine months of 2020, primarily from BTC payments, compared to a $3,742 increase in accounts receivable for the same period in 2021. Also contributing to the net decrease was the change in net income from $41,092 in the first nine months of 2020 to a net income of $729 for the same period in 2021 for a net decrease of $40,363, and higher cash outflows from inventory of $8,439 offset by$18,291 in the increase infirst nine months of 2021 compared to the first nine months of 2020. Partially offsetting these net cash outflows was a net change in accounts payable, including accounts payable-related parties, demonstrating a cash inflow of $11,278.
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$21,024 in the first nine months of 2021 as compared to a cash outflow of $52,052 in the first nine months of 2020, also primarily related to BTC rebates due to customers paid in 2020. In addition, there was a net change in income tax receivable, demonstrating a cash inflow of $7,768 in the first nine months of 2021 as compared to a cash outflow of $14,379 in the same period of 2020.
Investing Activities
Cash used infrom investing activities was $14,252$15,891 in the first nine months of 20172021 as compared to $40,444cash used in of $156 in the first nine months of 2016. This2020. Of the $16,047 change, $16,325 was primarily the result of an increase in net purchasessales of marketable securities in the first nine months of 20172021 compared to the first nine months of 2016. Such2020. Cash from net purchasessales totaled $10,882 and $33,328,$18,981, in the first nine months of 2017 and 2016, respectively. Our capital expenditures and customer reimbursements for capital expenditures are summarized2021, compared to $2,656 in the following table: first nine months of 2020.
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash paid for capital expenditures and intangibles | $ | 2,614 | $ | 3,107 | ||||
Cash received as reimbursement of capital expenditures | $ | (201 | ) | $ | (119 | ) | ||
Cash paid, net of reimbursement, for capital expenditures | $ | 2,413 | $ | 2,988 |
Financing Activities
Cash used in financing activities increased to $108,215was $117,053 and $139,580, in the first nine months ended September 30, 2021 and 2020, respectively. This $22,527 difference primarily resulted from the payment of 2017 from $8,111 in the first nine monthsspecial dividend of 2016. This change is primarily the result of payments of dividends$109,408 on our common stock in the first nine months of 20172021 compared to the first nine months of 2016. The payment of dividends totaled $108,063 and $7,869the special dividend of $131,230 in the first nine monthssame period of 2017 and 2016, respectively.2020, for a net difference of $21,822.
Credit Facility
Effective April 16, 2015,March 30, 2020, we entered into a new $150,000 secured committedan amended and restated credit facilityagreement with a syndicated group of commercial banks. On May 25, 2016, we increased the facility $15,000.banks for $100,000. The loan is a revolving facility, the proceeds of which may be used for our working capital, capital expenditures, and general corporate purposes. The facility terminates on April 16, 2020.March 30, 2025. See Note 6 – “Borrowings” in 10 to our consolidated financial statements ended September 30, 2017 for additional information regarding our Credit Agreement.
We intend to fund future capital requirements for our businesses from cash flow as well as from existing cash, cash investments, and, if the need should arise, borrowings under our credit facility. We do not believe there will be a need to issue any securities to fund such capital requirements.
Dividends
In the first three quarters of 2017,three and nine months ended September 30, 2021 and 2020, we paid a regular quarterly cash dividenddividends in the amount of $0.06 per share on our common stock. The regular cash dividend amounted to $2,625 per quarter$2,625 in each of the first second and third quarters of 2017. In the first quarter of 2017,three quarters. On May 10, 2021 we also paiddeclared a special cash dividend of $2.29$2.50 per share and paid $109,408 on our common stock. ThisJune 4, 2021. In the three months ended March 31, 2020, we declared a special cash dividend amounted to $100,188. Total cash dividends paid were $108,063 in the first nine months of 2017.
In the first three quarters of 2016, we paid a regular cash dividend in the amount of $0.06$3.00 per share and paid $131,230 on our common stock. The regular cash dividend amounted to $2,623 in the first, second, and third quarters of 2016, for aggregate dividend payments of $7,869 in the first nine months of 2016.
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April 17, 2020.
Capital Management
As a result of our initial equity offering, our subsequent positive operating results, the exercise of warrants, and the issuance of shares in our at-the-market offering, we accumulated excess working capital. Some of this excess working capital has been paid out as special and regular cash dividends. Additionally, regular cash dividends will be paid in 2017,December 2021, as previously reported. Third parties have not placed significant restrictions on our working capital management decisions.
A significant portion of these funds was held in cash or cash equivalents at multiple financial institutions. In the periods ended September 30, 20172021 and December 31, 2016,2020, we also had investments in certain preferred stock, trust preferreddebt securities, exchange traded debt instruments, and other equity instruments. We classify these investments as current assets in the accompanying consolidated balance sheets and designate themthe debt securities as being “available-for-sale.” Accordingly, theythe debt securities are recorded at fair value, with the unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity. We also held equity securities with readily available market values. These equity instruments are recorded at fair value, with the unrealized gains and losses reported as a component of net income. The fair value of these preferred stock, trust preferredthe debt securities exchange traded debt instruments, and other equity instruments totaled $123,588$45,164 and $106,146$64,404 at September 30, 20172021 and December 31, 2016,2020, respectively.
Lastly, we maintain depositary accounts such as checking accounts, money market accounts, and other similar accounts at selected financial institutions.
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Off- Balance Sheet Arrangements
We engage in two types of hedging transactions. First, we hedge our biofuels sales through the purchase and sale of futures contracts and options on futures contracts of energy commodities. This activity was captured onin our consolidated balance sheetsheets at September 30, 20172021 and December 31, 2016.2020. Second, we hedge our biofuels feedstock through the execution of purchase contracts and supply agreements with certain vendors.vendors or they meet the normal purchase and normal sales exception of ASC 815 Derivatives and Hedging. These hedging transactions are recognized in earnings and were not recorded onin our consolidated balance sheetsheets at September 30, 20172021 or December 31, 20162020 because they do not meet the definition of a derivativehedge instrument as defined under GAAP. The purchase of biofuels feedstock generally involves two risk components: basis and price. Basis covers any refining or processing required as well as transportation. Price covers the purchases of the actual agricultural commodity. Both basis and price fluctuate over time. A supply agreement with a vendor constitutes a hedge when we have committed to a certain volume of feedstock in a future period and have fixed the basis for that volume.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
All dollar amounts expressed as numbers in these Market Risk Disclosures are in thousands (except per share amounts).
In recent years, general economic inflation has not had a material adverse impact on our costs and, as described elsewhere herein, we have passed some price increases along to our customers. However, we are subject to certain market risks as described below.
Market risk represents the potential loss arising from adverse changes in market rates and prices. Commodity price risk is inherent in the chemicals and biofuels business both with respect to inputs (electricity, coal, raw materials, biofuels feedstock, etc.) and outputs (manufactured chemicals and biofuels).
We seek to mitigate our market risks associated with the manufacturing and sale of chemicals by entering into long-term sale contracts that include contractual market price adjustment protections to allow changes in market prices of key raw materials to be passed on to the customer. Such price protections are not always obtained, however, and some raw material price risk remains significant.
In order to manage price risk caused by market fluctuations in biofuels prices, we may enter into exchange tradedexchange-traded commodity futures and options contracts. We account for these derivative instruments in accordance with ASC 815-20-25, Topic 815, Derivatives and Hedging. Under this standard, the accounting for changes in the fair value of a derivative instrument depends upon whether it has been designated as an accounting hedging relationship and, further, on the type of hedging relationship. To qualify for designation as an accounting hedging relationship, specific criteria must be met and appropriate documentation maintained. We had no derivative instruments that qualified under these rules as designated accounting hedges in the first nine months of 20172021 or 2016.2020. Changes in the fair value of our derivative instruments are recognized at the end of each accounting period and recorded in the consolidated statement of operations as a component of cost of goods sold within the biodiesel segment.
Our immediate recognition of derivative instrument gains and losses can cause net income to be volatile from period to period due to the timing of the change in value of the derivative instruments relative to the volume of biofuel being sold. As ofAt September 30, 20172021 and December 31, 2016,2020, the fair values of our derivative instruments were a net liability in the amountand asset of $198$2,023 and $258,$124, respectively.
Our gross profit will be impacted by the prices we pay for raw materials and conversion costs (costs incurred in the production of chemicals and biofuels) for which we do not possess contractual market price adjustment protection. These items are principally comprisedcomposed of crude corn oil and yellow grease and petrodiesel. The availability and price of these items are subject to wide fluctuations due to unpredictable factors such as weather conditions, overall economic conditions, governmental policies, commodity markets, and global supply and demand.
We prepared a sensitivity analysis of our exposure to market risk with respect to key raw materials and conversion costs for which we do not possess contractual market price adjustment protections, based on average prices for the first nine months of 2017.2021. We included only those raw materials and conversion costs for which a hypothetical adverse change in price would result in a 1%1.0% or greater decrease in gross profit. Assuming that the prices of the associated finished goods could not be increased and assuming no change in quantities sold, a hypothetical 10% changeincrease in the average price of the commodity listed below would result in the following change in gross profit.
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(VolumeVolume and dollars in thousands)
Item |
| Volume Requirements (a) |
| Units |
| Hypothetical Adverse Change in Price |
| Decrease in Gross Profit |
| Percentage Decrease in Gross Profit | Volume Requirements (a) | Units | Hypothetical Adverse Change in Price | Decrease in Gross Profit | Percentage Decrease in Gross Profit | ||||||||||||
Biodiesel Feedstocks |
| 247,487 |
| LB |
| 10% |
| $ 7,267 |
| 54.0% | |||||||||||||||||
Ultra Low Sulfur Diesel |
| 12,150 |
| GAL |
| 10% |
| $ 1,962 |
| 14.6% | |||||||||||||||||
Biodiesel feedstocks | 307,046 | LB | 10.0 | % | $ | 14,707 | 563.9 | % | |||||||||||||||||||
Natural Gas | 916 | MCF | 10.0 | % | $ | 1,029 | 39.4 | % | |||||||||||||||||||
Methanol |
| 102,450 |
| LB |
| 10% |
| $ 1,660 |
| 12.3% | 53,548 | LB | 10.0 | % | $ | 975 | 37.4 | % | |||||||||
Electricity |
| 86 |
| MWH |
| 10% |
| $ 415 |
| 3.1% | 81 | MWH | 10.0 | % | $ | 418 | 16.0 | % | |||||||||
Natural Gas |
| 1,006 |
| MCF |
| 10% |
| $ 343 |
| 2.6% | |||||||||||||||||
Sodium Methylate |
| 8,287 |
| LB |
| 10% |
| $ 332 |
| 2.5% | 9,116 | LB | 10.0 | % | $ | 370 | 14.2 | % | |||||||||
Coal |
| 28 |
| Ton |
| 10% |
| $ 177 |
| 1.3% | 25 | Ton | 10.0 | % | $ | 180 | 6.9 | % | |||||||||
(a) Volume requirements and average price information are based upon volumes used and prices obtained for the nine months ended September 30, 2017. Volume requirements may differ materially from these quantities in future years as our business evolves. | |||||||||||||||||||||||||||
Caustic Soda | 9,291 | LB | 10.0 | % | $ | 110 | 4.2 | % | |||||||||||||||||||
Xylene | 1,024 | LB | 10.0 | % | $ | 35 | 1.3 | % | |||||||||||||||||||
Hydrogen Chloride | 94 | LB | 10.0 | % | $ | 34 | 1.3 | % | |||||||||||||||||||
190 Proof SDA | 674 | LB | 10.0 | % | $ | 33 | 1.3 | % | |||||||||||||||||||
Oleum | 2,768 | LB | 10.0 | % | $ | 27 | 1.0 | % | |||||||||||||||||||
Methyl Acetoacetate | 261 | LB | 10.0 | % | $ | 25 | 1.0 | % |
(a) Volume requirements and average price information are based upon volumes used and prices obtained for the nine months ended September 30, 2021. Volume requirements may differ materially from these quantities in future years as our business evolves. |
We had no borrowings as ofat September 30, 20172021 or December 31, 20162020 and, as such, we were not exposed to interest rate risk for those periods. Due to the relative insignificance of transactions denominated in foreign currency, we consider our foreign currency risk to be immaterial.
Item 4. Controls and Procedures.
Under the supervision and with the participation of our chief executive officer and our principal financial officer and other senior management personnel, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and our principal financial officer have concluded that these disclosure controls and procedures as ofat September 30, 20172021 were effective to ensure that information required to be disclosed 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.
There were no changes in our internal control over financial reporting during our last fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to, nor is any of our property subject to, any material pending legal proceedings, other than ordinary routine litigation incidental to our business. However, from time to time, we may be a party to, or a target of, lawsuits, claims, investigations, and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which we expect to be handled and defended in the ordinary course of business. While we are unable to predict the outcome of any matters currently pending, we do not believe that the ultimate resolution of any such pending matters will have a material adverse effect on our overall financial condition, results of operations, or cash flows. However, adverse developments could negatively impact earnings or cash flows in future periods.
Item 1A. Risk Factors.
There have been no material changes to the risk factors we previously disclosed in Item 1A of our Form 10-K, Annual
Report for the year ended December 31, 20162020 filed with the SEC on March 16, 2017.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit | Description |
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31(a). | Rule 13a-15(e)/15d-15(e) Certification of chief executive officer |
31(b). | Rule 13a-15(e)/15d-15(e) Certification of chief principal officer |
32. | Section 1350 Certification of chief executive officer and principal financial officer |
99. | Statement re Computation of per Share Earnings |
101 | Interactive Data Files** |
101.INS | Inline XBRL Instance |
101.SCH | Inline XBRL Taxonomy Extension Schema |
101.CAL | Inline XBRL Taxonomy Extension Calculation |
101.DEF | Inline XBRL Taxonomy Extension Definition |
101.LAB | Inline XBRL Taxonomy Extension Labels |
101.PRE | Inline XBRL Taxonomy Extension Presentation |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
** | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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Special Note Regarding Forward-Looking Information
This report, and the documents incorporated by reference into this report contain forward-looking statements. Forward- lookingForward-looking statements deal with our current plans, intentions, beliefs, and expectations, and statements of future economic performance. Statements containing such terms as “believe,” “do not believe,” “plan,” “expect,” “intend,” “estimate,” “anticipate,” and other phrases of similar meaning are considered to contain uncertainty and are forward-looking statements. In addition, from time to time we or our representatives have made or will make forward-looking statements orally or in writing. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC, or in press releases, or in oral statements made by or with the approval of one of our authorized executive officers.
These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, those set forth under the headings “Risk Factors” and “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in FutureFuel’s Form 10-K Annual Report for the year ended December 31, 20162020 and in our future filings made with the SEC. You should not place undue reliance on any forward-looking statements contained in this report which reflect our management’s opinions only as of their respective dates. Except as required by law, we undertake no obligation to revise or publicly release the results of any revisions to forward-looking statements. The risks and uncertainties described in this report and in subsequent filings with the SEC are not the only ones we face. New factors emerge from time to time, and it is not possible for us to predict which will arise. There may be additional risks not presently known to us or that we currently believe are immaterial to our business. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. If any such risks occur, our business, operating results, liquidity, and financial condition could be materially affected in an adverse manner. You should consult any additional disclosures we have made or will make in our reports to the SEC on Forms 10-K, 10-Q, and 8-K, and any amendments thereto. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this report.
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S I G N A T U R E S
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.
FUTUREFUEL CORP. |
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By: | /s/ Paul A. Novelly |
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Paul A. Novelly, Chairman and Chief Executive Officer |
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Date: November 9, |
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By: | /s/ Rose M. Sparks |
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Rose M. Sparks, Chief Financial Officer and Principal Financial Officer |
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Date: November 9, |
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