UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q/A
(Amendment No. 1)
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2023 |
For the quarterly period ended September 30, 2017
OR
☐ | TRANSITION REPORT PURSUANTTOSECTION 13OR 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) | ||
8235 Forsyth Blvd., Suite 400, St Louis, Missouri | 63105 | |
(Address of Principal Executive Offices) | (Zip Code) | |
(314) 854-8352 | ||
(Registrant’s Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | FF | NYSE |
8235ForsythBlvd.,Suite400
St. Louis, Missouri 63105
(Address of Principal Executive Offices)
(314) 854-8352
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes √☑ 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 | ☐ | |||
| ☐ |
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 NovemberAugust 9, 2017: 43,741,670
2023: 43,763,243
PARTI FINANCIALINFORMATIONExplanatory Note
Item
FutureFuel Corp. (sometimes referred to as the “Company,” “we,” “us,” or “our,” and includes our wholly-owned subsidiaries) is filing this Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) to amend and restate certain items presented in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023, which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on August 9, 2023 (the “Original Form 10-Q”). This Amendment No. 1 contains our unaudited restated interim financial statements as of, and for the three months and six months ended, June 30, 2023, which have been restated to correct certain errors with respect to the statement of cash flows included in the Original Form 10-Q, as described in further detail below. In addition, we intend to file an amendment (collectively with this Amendment No. 1, the “Amendments”) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) and the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “Q3.2023 Form 10-Q”), respectively, to correct similar errors contained in the statements of cash flows included in each such original filing. All material restatement information that relates to these errors will be included in the Amendments.
This Amendment No. 1 also includes amendments to and restates and revises the following items of the Original Form 10-Q:
• | Part I — Item 1. Financial Statements |
• | Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Part I — Item 4. Controls and Procedures |
• | Part II — Item 6. Exhibits |
In accordance with applicable SEC rules, this Amendment No. 1 includes new certifications specified in Rule 13a-14 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), from our Chief Executive Officer and Chief Financial Officer dated as of the date of this filing.
Other than as described above, this Amendment No. 1 does not reflect adjustments for events occurring after the filing of the Original Form 10-Q except to the extent that they are otherwise required to be included and discussed herein. See below for a detailed discussion of the effect of the restatement on the financial statements included in this Amendment No. 1.FinancialStatements.
Pursuant to Rule 12b-15 under the Exchange Act, this Amendment No. 1 contains only the items and exhibits to the Original Form 10-K that are being amended and restated, and unaffected items and exhibits are not included herein. Except as noted herein, the information included in the Original Form 10-Q remains unchanged. This Amendment No. 1 continues to describe the conditions as of the date of the Original Form 10-Q, and except as contained herein, we have not updated or modified the disclosures contained in the Original Form 10-Q to reflect any events that have occurred after the Original Form 10-Q. Accordingly, forward-looking statements included in this Amendment No. 1 may represent management’s views as of the Original Form 10-Q and should not be assumed to be accurate as of any date thereafter. This Amendment No. 1 should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Form 10-Q, including any amendment to those filings.
Background of the Restatement
As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on May 9, 2024, management and the audit committee (the “Audit Committee”) of the Board of Directors of the Company, after consultation with the Company’s independent registered public accounting firm, RSM US LLP (“RSM”), determined on May 8, 2024, that certain of its previously issued financial statements, specifically its previously-issued statements of cash flows: (i) for the year ended December 31, 2023, included in the 2023 Form 10-K; (ii) for the nine months ended September 30, 2023, included in the Q3.2023 Form 10-Q; and (iii) for the six months ended June 30, 2023, included in the Original Form 10-Q, contained errors, should no longer be relied on and should be corrected by restating the affected statements of cash flows by filing the Amendments. The consolidated balance sheets, consolidated statements of operations and other comprehensive income and consolidated statements of stockholders’ equity included in the consolidated financial statements in this Amendment No. 1, and, other than the addition of Note 15 related to the restatement, the accompanying notes to such financial statements, were not affected by this error.
The restated financial statements contained in this Amendment No. 1 correct the following sets forth our unauditederrors:
The correction relates solely to the reported amount of “Other assets” and the resulting total amount of “Net Cash Flows From Operating Activities” and the reported amount of “Collateralization of derivative instruments” and the resulting total amount of “Net Cash Flows from Investing Activities” in the consolidated statement of cash flows for the six months ended June 30, 2023. The correction does not impact the Company’s overall cash position, its consolidated balance sheet as of September 30, 2017, our audited consolidated balance sheet as of December 31, 2016, our unauditedsheets, its 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 unauditedor its consolidated statements of cash flowsstockholders’ equity as of and for the nine-month periods ended SeptemberJune 30, 20172023. Further, in this Amendment No. 1, the Company has included supplemental information regarding the restatement in Note 15, Restatement, to the consolidated financial statements.
Internal Control Considerations
Management has reassessed its evaluation of the effectiveness of its internal control over financial reporting as of June 30, 2023 as further described in Part I, Item 4 of this Amendment No. 1, and 2016.concluded that a material weakness existed and that internal control over financial reporting was not effective as of June 30, 2023.
PARTI FINANCIALINFORMATION
Item1.FinancialStatements.
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 |
June 30, 2023 | December 31, 2022 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 166,690 | $ | 175,640 | ||||
Accounts receivable, inclusive of the blenders’ tax credit of $9,807 and $8,970, and net of allowances for bad debt of $80 and $48, respectively | 28,567 | 26,198 | ||||||
Accounts receivable – related parties | 7 | 6 | ||||||
Inventory | 67,362 | 26,761 | ||||||
Income tax receivable | 1,940 | 1,959 | ||||||
Prepaid expenses | 1,988 | 3,694 | ||||||
Prepaid expenses – related parties | 12 | 12 | ||||||
Marketable securities | - | 37,126 | ||||||
Other current assets | 7,707 | 2,380 | ||||||
Total current assets | 274,273 | 273,776 | ||||||
Property, plant and equipment, net | 75,689 | 76,941 | ||||||
Other assets | 4,497 | 5,252 | ||||||
Total noncurrent assets | 80,186 | 82,193 | ||||||
Total Assets | $ | 354,459 | $ | 355,969 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Accounts payable, inclusive of the blenders’ tax credit rebates due customers of $890 and $890, respectively | $ | 22,313 | $ | 28,546 | ||||
Accounts payable – related parties | 7,823 | 7,799 | ||||||
Deferred revenue – current | 3,602 | 3,772 | ||||||
Dividends payable | 5,252 | 10,503 | ||||||
Accrued expenses and other current liabilities | 5,798 | 5,477 | ||||||
Accrued expenses and other current liabilities – related parties | - | 1 | ||||||
Total current liabilities | 44,788 | 56,098 | ||||||
Deferred revenue – non-current | 13,212 | 15,079 | ||||||
Other noncurrent liabilities | 2,236 | 1,792 | ||||||
Total noncurrent liabilities | 15,448 | 16,871 | ||||||
Total liabilities | 60,236 | 72,969 | ||||||
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, 43,763,243 and 43,763,243 issued and outstanding as of June 30, 2023 and December 31, 2022 | 4 | 4 | ||||||
Accumulated other comprehensive loss | - | (1 | ) | |||||
Additional paid in capital | 282,489 | 282,489 | ||||||
Retained earnings | 11,730 | 508 | ||||||
Total stockholders’ equity | 294,223 | 283,000 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 354,459 | $ | 355,969 |
The accompanying notes are an integral part of these consolidated financial statements.
1
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 June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue | $ | 85,308 | $ | 117,640 | $ | 159,469 | $ | 159,714 | ||||||||
Revenue – related parties | - | 156 | 20 | 343 | ||||||||||||
Cost of goods sold | 92,626 | 113,798 | 144,562 | 161,017 | ||||||||||||
Cost of goods sold – related parties | 18 | 1,956 | 28 | 3,216 | ||||||||||||
Distribution | 1,216 | 1,024 | 1,774 | 1,908 | ||||||||||||
Distribution – related parties | 40 | 41 | 94 | 94 | ||||||||||||
Gross (loss) profit | (8,592 | ) | 977 | 13,031 | (6,178 | ) | ||||||||||
Selling, general, and administrative expenses | ||||||||||||||||
Compensation expense | 954 | 701 | 2,092 | 1,357 | ||||||||||||
Other expense | 874 | 886 | 1,883 | 1,849 | ||||||||||||
Related party expense | 156 | 150 | 309 | 304 | ||||||||||||
Research and development expenses | 1,007 | 755 | 2,079 | 1,434 | ||||||||||||
Total operating expenses | 2,991 | 2,492 | 6,363 | 4,944 | ||||||||||||
(Loss) income from operations | (11,583 | ) | (1,515 | ) | 6,668 | (11,122 | ) | |||||||||
Interest and dividend income | 1,732 | 747 | 4,068 | 1,411 | ||||||||||||
Interest expense | (34 | ) | (33 | ) | (67 | ) | (65 | ) | ||||||||
Gain (loss) on marketable securities | 42 | (3,239 | ) | 575 | (7,366 | ) | ||||||||||
Other expense | (1 | ) | (2 | ) | - | (2 | ) | |||||||||
Other income (expense) | 1,739 | (2,527 | ) | 4,576 | (6,022 | ) | ||||||||||
(Loss) income before taxes | (9,844 | ) | (4,042 | ) | 11,244 | (17,144 | ) | |||||||||
Income tax provision (benefit) | 15 | (938 | ) | 22 | (1,642 | ) | ||||||||||
Net (loss) income | $ | (9,859 | ) | $ | (3,104 | ) | $ | 11,222 | $ | (15,502 | ) | |||||
(Loss) earnings per common share | ||||||||||||||||
Basic | $ | (0.23 | ) | $ | (0.07 | ) | $ | 0.26 | $ | (0.35 | ) | |||||
Diluted | $ | (0.23 | ) | $ | (0.07 | ) | $ | 0.26 | $ | (0.35 | ) | |||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 43,763,243 | 43,763,243 | 43,763,243 | 43,763,243 | ||||||||||||
Diluted | 43,763,243 | 43,763,243 | 43,764,890 | 43,763,243 | ||||||||||||
Comprehensive (loss) income | ||||||||||||||||
Net (loss) income | $ | (9,859 | ) | $ | (3,104 | ) | $ | 11,222 | $ | (15,502 | ) | |||||
Other comprehensive (loss) income from unrealized net (losses) gains on available-for-sale debt securities | (20 | ) | (86 | ) | 2 | (148 | ) | |||||||||
Income tax effect | 4 | 18 | (1 | ) | 31 | |||||||||||
Total other comprehensive (loss) income, net of tax | (16 | ) | (68 | ) | 1 | (117 | ) | |||||||||
Comprehensive (loss) income | $ | (9,875 | ) | $ | (3,172 | ) | $ | 11,223 | $ | (15,619 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
2
FutureFuelCorp.
ConsolidatedStatementsof Stockholders’ Equity
(Dollarsinthousands)
(Unaudited)
For the Six Months Ended June 30, 2023 | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Additional | Total | ||||||||||||||||||||||
Common Stock | Comprehensive | paid-in | Retained | Stockholders’ | ||||||||||||||||||||
Shares | Amount | (Loss) Income | Capital | Earnings | Equity | |||||||||||||||||||
Balance - December 31, 2022 | 43,763,243 | $ | 4 | $ | (1 | ) | $ | 282,489 | $ | 508 | $ | 283,000 | ||||||||||||
Other comprehensive gain | - | - | 17 | - | - | 17 | ||||||||||||||||||
Net income | - | - | - | - | 21,081 | 21,081 | ||||||||||||||||||
Balance - March 31, 2023 | 43,763,243 | $ | 4 | $ | 16 | $ | 282,489 | $ | 21,589 | $ | 304,098 | |||||||||||||
Other comprehensive loss | - | - | (16 | ) | - | - | (16 | ) | ||||||||||||||||
Net loss | - | - | - | - | (9,859 | ) | (9,859 | ) | ||||||||||||||||
Balance - June 30, 2023 | 43,763,243 | $ | 4 | $ | - | $ | 282,489 | $ | 11,730 | $ | 294,223 |
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 Six Months Ended June 30, 2022 | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Additional | Total | ||||||||||||||||||||||
Common Stock | Comprehensive | paid-in | Retained | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Income (Loss) | Capital | Earnings | Equity | |||||||||||||||||||
Balance - December 31, 2021 | 43,763,243 | $ | 4 | $ | 178 | $ | 282,443 | $ | 6,303 | $ | 288,928 | |||||||||||||
Cash dividends declared, $0.24 per common share | - | - | - | - | (10,503 | ) | (10,503 | ) | ||||||||||||||||
Other comprehensive loss | - | - | (49 | ) | - | - | (49 | ) | ||||||||||||||||
Net loss | - | - | - | - | (12,398 | ) | (12,398 | ) | ||||||||||||||||
Balance - March 31, 2022 | 43,763,243 | $ | 4 | $ | 129 | $ | 282,443 | $ | (16,598 | ) | $ | 265,978 | ||||||||||||
Other comprehensive loss | - | - | (68 | ) | - | - | (68 | ) | ||||||||||||||||
Net loss | - | - | - | - | (3,104 | ) | (3,104 | ) | ||||||||||||||||
Balance - June 30, 2022 | 43,763,243 | $ | 4 | $ | 61 | $ | 282,443 | $ | (19,702 | ) | $ | 262,806 |
The accompanying notes are an integral part of these consolidated financial statements.
3
FutureFuelCorp.
ConsolidatedStatementsofCashFlows
(Dollarsinthousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2023 (Restated) | 2022 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 11,222 | $ | (15,502 | ) | |||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation | 5,155 | 5,276 | ||||||
Amortization of deferred financing costs | 49 | 48 | ||||||
Benefit for deferred income taxes | - | (1,672 | ) | |||||
Change in fair value of equity securities | (3,117 | ) | 7,339 | |||||
Change in fair value of derivative instruments | (3,259 | ) | (2,388 | ) | ||||
Loss on the sale of investments | 2,543 | 27 | ||||||
Loss on disposal of property and equipment | 8 | 50 | ||||||
Noncash interest expense | 17 | 17 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (2,369 | ) | (8,172 | ) | ||||
Accounts receivable – related parties | (1 | ) | (20 | ) | ||||
Inventory | (40,601 | ) | (4,664 | ) | ||||
Income tax receivable | 19 | (20 | ) | |||||
Prepaid expenses | 1,706 | 1,773 | ||||||
Prepaid expenses - related parties | - | (8 | ) | |||||
Other assets | (4,502 | ) | 125 | |||||
Accounts payable | (6,269 | ) | 19,171 | |||||
Accounts payable – related parties | 24 | 326 | ||||||
Accrued expenses and other current liabilities | 321 | (659 | ) | |||||
Accrued expenses and other current liabilities – related parties | (1 | ) | (1 | ) | ||||
Deferred revenue | (2,037 | ) | (2,769 | ) | ||||
Other noncurrent liabilities | 427 | (187 | ) | |||||
Net cash used in operating activities | (40,665 | ) | (1,910 | ) | ||||
Cash flows from investing activities | ||||||||
Collateralization of derivative instruments | 3,154 | 383 | ||||||
Proceeds from the sale of marketable securities | 37,701 | 250 | ||||||
Proceeds from the sale of property and equipment | - | 56 | ||||||
Capital expenditures | (3,875 | ) | (1,895 | ) | ||||
Net cash provided by (used in) investing activities | 36,980 | (1,206 | ) | |||||
Cash flows from financing activities | ||||||||
Payment of dividends | (5,251 | ) | (5,251 | ) | ||||
Deferred financing costs | (14 | ) | - | |||||
Net cash used in financing activities | (5,265 | ) | (5,251 | ) | ||||
Net change in cash and cash equivalents | (8,950 | ) | (8,367 | ) | ||||
Cash and cash equivalents at beginning of period | 175,640 | 137,521 | ||||||
Cash and cash equivalents at end of period | $ | 166,690 | $ | 129,154 | ||||
Cash paid for income taxes | $ | 20 | $ | 276 | ||||
Noncash investing and financing activities: | ||||||||
Noncash capital expenditures | $ | 244 | $ | 95 |
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) |
|
Organization
FutureFuel Corp. (“FutureFuel”), 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 comprised of biofuels, and biobased specialty chemical products. FutureFuel Chemical’s operations are reported in two segments: chemicals and biofuels.
The chemicals segment manufactures a diversified portfolio of chemical products that are sold to third party customers. The majority of the revenues from the chemicals 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’s biodiesel and, from time to time, with no biodiesel added. Finally, FutureFuel Chemical is a shipper of refined petroleum products on common carrier pipelines and buys and sells petroleum products to maintain an active shipper status on these pipelines.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by FutureFuel Corp. ("FutureFuel" or "the Company") in accordance and consistent with the accounting policies stated in FutureFuel’s 2016the Company's 2022 Annual Report on Form 10-K, inclusive of the audited consolidated financial statements and should be read in conjunction with the 2016 auditedthese consolidated financial statements of FutureFuel.statements.
In the opinion of FutureFuel, all 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.
Recent Accounting Standards
No new accounting standards have been adopted recently.
Proposed Accounting Standards
In March 2023, the Financial Accounting Standards Board (the "FASB") issued Proposed Accounting Standards Update (ASU) No.2023-ED100 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which aims to address requests for improved income tax disclosures from investors that use the financial statements to make capital allocation decisions. The amendments in this Proposed ASU, if adopted, would address the investor requests for more transparency of income tax information and would apply to all entities that are subject to income taxes. The Company is in the process of evaluating this proposed accounting standard.
2) |
|
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 inventory werebiomass-based diesel with at least 0.1% petroleum-based diesel fuel. The BTC will expire December 31, 2024 based on current law. The Company records this credit as follows as of: a reduction to cost of goods sold.
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 |
Within the law of the BTC, small agri-biodiesel producers with production capacity not in excess of 60 million gallons are 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 as part of the tax provision.
CARES ACT – EMPLOYEE RETENTION TAX CREDIT
4
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 through, among other things, an available employee retention tax credit. The Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the credit. FutureFuel has applied for this credit and will recognize the benefit of the credit once reasonable assurance can be made as to the retention of the credit.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
3) | REVENUE RECOGNITION |
The majority of revenue is from short term contracts with revenue recognized when a single performance obligation to transfer product under the terms of a contract with a customer are satisfied.
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.
|
|
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. NoneCertain of the derivative instruments are designated and accounted forCompany's custom chemical contracts within the chemical segment contain a material right as hedges primarilydefined by ASC 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. The Company 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 pick up. 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 ASC Topic 606. The Company 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, the Company estimates the expected life of the contract, 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 June 30, 2023 and December 31, 2022 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 $32 and $0 for the three months and $32 and $0 for the six months ended June 30, 2023 and 2022, 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 was $739 and $961 for the three months and $1,958 and $3,173 for the six months ended June 30, 2023 and 2022, 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 | June 30, 2023 | December 31, 2022 | ||||||
Trade receivables, included in accounts receivable* | $ | 17,670 | $ | 16,459 | ||||
Contract assets, included in accounts receivable | $ | 1,097 | $ | 775 | ||||
Contract liabilities, included in deferred revenue - short-term | $ | 3,395 | $ | 3,565 | ||||
Contract liabilities, included in deferred revenue - long-term | $ | 9,849 | $ | 11,605 |
*Exclusive of the BTC of $9,807and $8,970, respectively, and net of allowances for bad debt of $80and $48, respectively,as of the dates noted.
Transaction price allocated to the remaining performance obligations:
At June 30, 2023, approximately $13,244 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 26% of this revenue is expected to be recognized over the next 12 months, and 74% is expected to be recognized over the subsequent 48 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 June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Contract revenue from customers with > 1-year arrangements | $ | 9,562 | $ | 6,148 | $ | 20,027 | $ | 16,290 | ||||||||
Contract revenue from customers with < 1-year arrangements | 75,690 | 111,592 | 139,351 | 143,656 | ||||||||||||
Revenue from non-contractual arrangements | 56 | 56 | 111 | 111 | ||||||||||||
Total revenue | $ | 85,308 | $ | 117,796 | $ | 159,489 | $ | 160,057 |
Timing of revenue:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Bill-and-hold revenue | $ | 10,765 | $ | 7,971 | $ | 21,355 | $ | 17,247 | ||||||||
Non-bill-and-hold revenue | 74,543 | 109,825 | 138,134 | 142,810 | ||||||||||||
Total revenue | $ | 85,308 | $ | 117,796 | $ | 159,489 | $ | 160,057 |
As of June 30, 2023 and December 31, 2022, $4,302 and $4,473 of bill-and-hold revenue had not shipped, respectively.
4) | INVENTORY |
The carrying values of inventory were as follows as of:
June 30, 2023 | December 31, 2022 | |||||||
At average cost (approximates current cost) | ||||||||
Finished goods | $ | 30,632 | $ | 11,719 | ||||
Work in process | 1,574 | 879 | ||||||
Raw materials and supplies | 51,395 | 33,897 | ||||||
83,600 | 46,495 | |||||||
LIFO reserve | (16,238 | ) | (19,734 | ) | ||||
Total inventory | $ | 67,362 | $ | 26,761 |
No liquidation of last in first out ("LIFO") layers occurred in the six months ended June 30, 2023 and 2022.
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 2023 or 2022. 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 gain of $4,389 and $12,695 (realized gains of $6,032 and $9,437) for the three and six months ended June 30, 2023, respectively, and a loss of $3,314$17,476 and a gain$26,605 (realized losses of $803$18,327 and $28,992) for the three and six months ended SeptemberJune 30, 2017 and 2016, respectively, and losses of $1,511 and $5,375 for the nine months ended September 30, 2017 and 2016, 2022, 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) | ||||||||||||||||
June 30, 2023 | December 31, 2022 | |||||||||||||||
Contract Quantity | Fair Value | Contract Quantity | Fair Value | |||||||||||||
Regulated fixed price future commitments, included in other current assets (in thousand barrels) | 476 | $ | 3,117 | 305 | $ | (142 | ) |
The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $1,518($1,066) and $758$2,088 at SeptemberJune 30, 2017 2023 and December 31, 2016, 2022, 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.
6) | MARKETABLE SECURITIES |
5During the three months ended June 30, 2023, FutureFuel exited its position in marketable equity and trust preferred (debt) securities. The sale of these securities was recorded as a component of net income with gains of $42 and $575 in the three and six months ended June 30, 2023, respectively.
At December 31, 2022, FutureFuel had investments in certain marketable equity and trust preferred (debt) securities which had a fair market value of $37,126. These investments were classified as current assets in the consolidated balance sheet. The trust preferred securities held at December 31, 2022 were designated as being available-for-sale. Accordingly, these securities were recorded at fair value of $3,675.
In accordance with ASC 321, the change in the fair value of marketable equity securities (preferred and other equity instruments) for the three months ended June 30, 2022 was reported as a component of net income as a loss of $3,239. The change in the fair value of marketable equity securities (preferred and other equity instruments) for the six months ended June 30, 2022 was a loss of $7,339.
The aggregate fair value of debt securities with unrealized losses totaled $2,627 at December 31, 2022. Sales of debt securities were $0 in the six months ended June 30, 2022.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
At September 30, 2017 and December 31, 2016, FutureFuel had investments in certain 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. FutureFuel has designated these securities as being available-for-sale. Accordingly, they are recorded at fair value, with the unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity.
FutureFuel’s marketable securities were comprised of the following at September 30, 2017 and December 31, 2016:
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 |
The aggregate fair value of instruments with unrealized losses totaled $16,854 and $31,126 at September 30, 2017 and 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.
|
|
Accrued expenses and other current liabilities, including those associated with related parties, consisted of the following at:
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 |
6
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(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.
|
|
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 SeptemberJune 30, 2017 2023 and December 31, 2016.2022.
Asset (Liability) | Asset (Liability) | |||||||||||||||||||||||||||||||
Fair Value Measurements Using | Fair Value Measurements Using | |||||||||||||||||||||||||||||||
Fair Value at | Inputs Considered as: | Fair Value at | Inputs Considered as: | |||||||||||||||||||||||||||||
Description | September 30, 2017 | Level 1 | Level 2 | Level 3 | June 30, 2023 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
Derivative instruments | $ | (198 | ) | $ | (198 | ) | $ | - | $ | - | $ | 3,117 | $ | 3,117 | $ | - | $ | - | ||||||||||||||
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 | $ | - | $ | - |
Asset (Liability) | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Fair Value at | Inputs Considered as: | |||||||||||||||
Description | December 31, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||
Derivative instruments | $ | (142 | ) | $ | (142 | ) | $ | - | $ | - | ||||||
Preferred stock and other equity instruments | $ | 33,450 | $ | 33,450 | $ | - | $ | - | ||||||||
Trust preferred stock | $ | 3,676 | $ | 3,676 | $ | - | $ | - |
|
|
TheAccrued expenses and other current liabilities consisted of the following tables summarize changes in accumulated other comprehensive income from unrealized gains and losses on available-for-sale securities in the three and nine months ended September 30, 2017 and 2016. at:
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 |
June 30, 2023 | December 31, 2022 | |||||||
Accrued employee liabilities | $ | 3,871 | $ | 3,287 | ||||
Accrued property, franchise, motor fuel and other taxes | 1,281 | 1,165 | ||||||
Lease liability, current | 498 | 630 | ||||||
Other | 148 | 395 | ||||||
Total | $ | 5,798 | $ | 5,477 |
11
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
9) | BORROWINGS |
On March 30, 2020, the Company, with FutureFuel Chemical Company as the borrower and certain of the Company’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.
On March 1, 2023, the Company entered into a First Amendment to the Credit Agreement (the “First Amendment”). The First Amendment primarily amends the Credit Agreement to transition the Credit Facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”) and other conforming changes, in each case as more specifically set forth in the First Amendment. The First Amendment does not modify the aggregate amount, or expiration date, of the Credit Facility. We do not expect the transition from LIBOR to have a material impact on the Credit Facility. Pursuant to the First Amendment, the interest rate floats at the following margins over SOFR or base rate based upon our leverage ratio.
Consolidated Leverage Ratio | Adjusted SOFR 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 no borrowings under the Credit Agreement at June 30, 2023 or December 31, 2022.
10) | INCOME TAX PROVISION |
The following tables summarize amounts reclassified from accumulated other comprehensivetable summarizes the income tax provision.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Income tax provision (benefit) | $ | 15 | $ | (938 | ) | $ | 22 | $ | (1,642 | ) | ||||||
Effective tax rate | (0.2 | %) | 23.2 | % | 0.2 | % | 9.6 | % |
The Company’s effective tax rates for the three and six months ended June 30, 2023 decreased compared to the three and six months ended June 30, 2022 primarily due to changes in the assessment of realizability of deferred tax assets. In the three and ninesix month periods in 2023, the income tax provision reflects only small amounts of current state taxes. No deferred tax benefits have been recognized, reflecting management’s determination that none of the net deferred tax assets generated on its 2023 tax losses are more likely than not to be realized. In the three and six month periods in 2022, tax benefits on tax losses generated were recognized, but limited by the assessment that the net deferred tax assets generated would more likely than not be only partially realized.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
11) | EARNINGS PER SHARE |
In the three and six months ended SeptemberJune 30, 2017 2023 and 2016:2022, FutureFuel used the treasury method in computing earnings per share.
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 | ) |
Basic and diluted (losses) earnings per common share were computed as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Numerator: | ||||||||||||||||
Net (loss) income | $ | (9,859 | ) | $ | (3,104 | ) | $ | 11,222 | $ | (15,502 | ) | |||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding – basic | 43,763,243 | 43,763,243 | 43,763,243 | 43,763,243 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options and other awards | - | - | 1,647 | - | ||||||||||||
Weighted average shares outstanding – diluted | 43,763,243 | 43,763,243 | 43,764,890 | 43,763,243 | ||||||||||||
Basic (loss) earnings per share | $ | (0.23 | ) | $ | (0.07 | ) | $ | 0.26 | $ | (0.35 | ) | |||||
Diluted (loss) earnings per share | $ | (0.23 | ) | $ | (0.07 | ) | $ | 0.26 | $ | (0.35 | ) |
For the three and six months ended June 30, 2023, 22,000 and 42,354 options to purchase FutureFuel’s common stock were excluded, respectively, in the computation of diluted earnings per share as all were anti-dilutive. In the three and six months ended June 30, 2022, 12,000 and 24,000 options were excluded, respectively.
12) |
|
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.
| 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 and purchases of biodiesel, petrodiesel, blends, and other petroleum products towith these related parties along with the associated expense from the purchase of natural gas, storage and terminalling services and income tax and consulting servicesprovided by FutureFuel from these related parties.
During 2021, a related party managed natural gas purchases for FutureFuel, initially paid for the natural gas, and subsequently invoiced FutureFuel for the same plus a nominal fee for such services. The natural gas matter as discussed in Note 14, Legal Matters, is in reference to the natural gas supplier, not the related party. As of November 1, 2021, FutureFuel began managing all of its natural gas purchases.
12
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
In AprilFutureFuel has two 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,two 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 revenues also include 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.“RINs-free” basis, resulting in FutureFuel maintaining possession of the applicable RINs from the sale. The acquired line space was recordedbenefit derived from the eventual sale of the RINs is not reflected in results of operations until such time as an intangible assetthe RINs sale has been completed, which may lead to variability in reported operating results.
As of June 30, 2023, FutureFuel held 11.8 million of RINs in inventory 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 carryinga fair market value of the asset was $1,408$19,461 and no cost, which were traded in July. Comparatively, at June 30, 2022, FutureFuel held 2.8 million of RINs in inventory with a fair market value of $4,943 and no cost.
Summary ofbusinessbysegment
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue | ||||||||||||||||
Custom chemicals | $ | 15,576 | $ | 12,266 | $ | 32,196 | $ | 27,981 | ||||||||
Performance chemicals | 3,180 | 5,928 | 8,441 | 11,774 | ||||||||||||
Chemical revenue | 18,756 | 18,194 | 40,637 | 39,755 | ||||||||||||
Biofuel revenue | 66,552 | 99,602 | 118,852 | 120,302 | ||||||||||||
Total Revenue | $ | 85,308 | $ | 117,796 | $ | 159,489 | $ | 160,057 | ||||||||
Segment gross profit (loss) | ||||||||||||||||
Chemical | $ | 6,416 | $ | 4,196 | $ | 15,039 | $ | 9,614 | ||||||||
Biofuel | (15,008 | ) | (3,219 | ) | (2,008 | ) | (15,792 | ) | ||||||||
Total gross profit (loss) | $ | (8,592 | ) | $ | 977 | $ | 13,031 | $ | (6,178 | ) |
Depreciation is allocated to segment cost 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 September 30, 2017 and December 31, 2016. FutureFuel tests the intangible asset for impairment in accordance with ASC 350-30-35-18 through 35-20.these assets are shared to varying degrees by each segment, causing such an allocation to be of little value.
|
|
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 launched a civil investigative demand against several natural gas suppliers in 2021. The Company continues to dispute the February 2021 natural gas bill, and payment thereof is pending further investigation.
| ||||||
15 | RESTATEMENT | |||||
|
|
|
| |||
|
|
|
| |||
|
|
|
|
The Company identified a correction required to be made to its consolidated statement of cash flows for the six months ended June 30,2023. The correction relates solely to the reported amount of “Other assets” and the resulting total amount of “Net Cash Flows From Operating Activities” and the reported amount of “Collateralization of derivative instruments” and the resulting total amount of “Net Cash Flows from Investing Activities” in the consolidated statement of cash flows for the six months ended June 30,2023. The correction does not impact the Company’s overall cash position, its consolidated balance sheets, its consolidated statements of operations and comprehensive income, or its consolidated statements of stockholders’ equity as of and for the period ended June 30,2023.
A summary of the impact on the consolidated statement of cash flows is as follows:
Six Months Ended June 30, 2023 | ||||||||||||
As Originally Reported | Adjustment | As Restated | ||||||||||
Cash flows from operating activities: | ||||||||||||
Other assets | $ | 1,806 | $ | (6,308 | ) | $ | (4,502 | ) | ||||
Net cash used in operating activities | $ | (34,357 | ) | $ | (6,308 | ) | $ | (40,665 | ) | |||
Cash flows from investing activities: | ||||||||||||
Collateralization of derivative instruments | $ | (3,154 | ) | $ | 6,308 | $ | 3,154 | |||||
Net cash provided by (used in) investing activities | $ | 30,672 | $ | 6,308 | $ | 36,980 |
Item 2. Management’sManagement’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.
Effect of Restatement
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects correction of the errors described in the Explanatory Note with respect to the statement of cash flows included in the Original Form 10-Q. For additional information and a detailed discussion of the corrected errors, refer to the Explanatory Note and the Background of the Restatement.
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 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 with a classification of a D4 RIN. 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. As of June 30, 2023, we held 11.8 million D4 RINs with a fair market value of $19,461, all of which were sold in July. Comparatively, as of June 30, 2022, we held 2.8 million RINs with a fair market value of $4,943.
Summary of Financial Results
Set forth below is a summary of certain consolidated financial information for the periods indicated.
Three months ended September 30, | ||||||||||||||||
Dollar | % | |||||||||||||||
2017 | 2016 | Change | Change | |||||||||||||
Revenues | $ | 77,606 | $ | 69,306 | $ | 8,300 | 12.0% | |||||||||
Income from operations | $ | 3,200 | $ | 7,841 | $ | (4,641 | ) | (59.2% | ) | |||||||
Net income | $ | 3,334 | $ | 12,868 | $ | (9,534 | ) | (74.1% | ) | |||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.08 | $ | 0.29 | $ | (0.21 | ) | (72.4% | ) | |||||||
Diluted | $ | 0.08 | $ | 0.29 | $ | (0.21 | ) | (72.4% | ) | |||||||
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% | ) | |||||||
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% | ) |
Three Months Ended June 30, | ||||||||||||||||
Dollar | % | |||||||||||||||
2023 | 2022* | Change | Change | |||||||||||||
Revenue | $ | 85,308 | $ | 117,796 | $ | (32,488 | ) | (28 | %) | |||||||
Loss from operations | $ | (11,583 | ) | $ | (1,515 | ) | $ | (10,068 | ) | (665 | %) | |||||
Net loss | $ | (9,859 | ) | $ | (3,104 | ) | $ | (6,755 | ) | (218 | %) | |||||
Loss per common share: | ||||||||||||||||
Basic | $ | (0.23 | ) | $ | (0.07 | ) | $ | (0.16 | ) | (229 | %) | |||||
Diluted | $ | (0.23 | ) | $ | (0.07 | ) | $ | (0.16 | ) | (229 | %) | |||||
Adjusted EBITDA* | $ | (7,329 | ) | $ | 382 | $ | (7,711 | ) | n/a |
Six Months Ended June 30, | ||||||||||||||||
Dollar | % | |||||||||||||||
2023 | 2022* | Change | Change | |||||||||||||
Revenue | $ | 159,489 | $ | 160,057 | $ | (568 | ) | 0 | % | |||||||
Income (loss) from operations | $ | 6,668 | $ | (11,122 | ) | $ | 17,790 | n/a | ||||||||
Net income (loss) | $ | 11,222 | $ | (15,502 | ) | $ | 26,724 | n/a | ||||||||
Earnings (loss) per common share: | ||||||||||||||||
Basic | $ | 0.26 | $ | (0.35 | ) | $ | 0.61 | n/a | ||||||||
Diluted | $ | 0.26 | $ | (0.35 | ) | $ | 0.61 | n/a | ||||||||
Adjusted EBITDA* | $ | 8,571 | $ | (8,186 | ) | $ | 16,757 | n/a |
14
* Adjusted EBITDA restated for the three and six months of 2022 consistent with 2023 reporting to exclude cash (realized) gains and losses on derivative instruments.
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, non-cash 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 non-cash 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 the mark-to-market or non-cash portion of 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 held marketable securities of certain debt securities (trust preferred stock) and in preferred stock and other equity instruments during the six months ended June 30, 2023, but sold all investments during the three months ended June 30, 2023. The realized and unrealized gains and losses on these marketable securities fluctuated from period to period. We included this item as an adjustment as we believed it provided 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 June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022* | 2023 | 2022* | |||||||||||||
Net (loss) income | $ | (9,859 | ) | $ | (3,104 | ) | $ | 11,222 | $ | (15,502 | ) | |||||
Depreciation | 2,604 | 2,706 | 5,155 | 5,276 | ||||||||||||
Interest and dividend income | (1,732 | ) | (747 | ) | (4,068 | ) | (1,411 | ) | ||||||||
Non-cash interest expense and amortization of deferred financing costs | 34 | 33 | 66 | 65 | ||||||||||||
Loss on disposal of property and equipment | 8 | 44 | 8 | 50 | ||||||||||||
Unrealized loss (gain) on derivative instruments | 1,643 | (851 | ) | (3,259 | ) | (2,388 | ) | |||||||||
(Gain) loss on marketable securities | (42 | ) | 3,239 | (575 | ) | 7,366 | ||||||||||
Income tax provision (benefit) | 15 | (938 | ) | 22 | (1,642 | ) | ||||||||||
Adjusted EBITDA* | $ | (7,329 | ) | $ | 382 | $ | 8,571 | $ | (8,186 | ) |
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, | ||||||||
2017 | 2016 | |||||||
Adjusted EBITDA | $ | 17,201 | $ | 36,328 | ||||
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 |
Six Months Ended June 30, | ||||||||
(Restated) | ||||||||
2023 | 2022* | |||||||
Net cash used in operating activities | $ | (40,665 | ) | $ | (1,910 | ) | ||
Benefit for deferred income taxes | - | 1,672 | ||||||
Interest and dividend income | (4,068 | ) | (1,411 | ) | ||||
Income tax provision (benefit) | 22 | (1,642 | ) | |||||
Change in operating assets and liabilities, net | 53,282 | (4,895 | ) | |||||
Adjusted EBITDA* | $ | 8,571 | $ | (8,186 | ) |
* Adjusted EBITDA restated for the three and six months of 2022 consistent with 2023 reporting to exclude cash (realized) gains and losses on derivative instruments.
16
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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
2023 | 2022 | Amount | % | 2023 | 2022 | Amount | % | |||||||||||||||||||||||||
Revenues | $ | 85,308 | $ | 117,796 | $ | (32,488 | ) | (27.6 | %) | $ | 159,489 | $ | 160,057 | $ | (568 | ) | (0.4 | %) | ||||||||||||||
Volume/product mix effect | $ | (10,574 | ) | (9.0 | %) | $ | 7,370 | 4.6 | % | |||||||||||||||||||||||
Price effect | $ | (21,914 | ) | (18.6 | %) | $ | (7,938 | ) | (5.0 | %) | ||||||||||||||||||||||
Gross (loss) profit | $ | (8,592 | ) | $ | 977 | $ | (9,569 | ) | n/a | $ | 13,031 | $ | (6,178 | ) | $ | 19,209 | n/a | |||||||||||||||
Operating expenses | (2,991 | ) | (2,492 | ) | (499 | ) | (20.0 | %) | (6,363 | ) | (4,944 | ) | (1,419 | ) | (28.7 | %) | ||||||||||||||||
Other income (expense) | 1,739 | (2,527 | ) | 4,266 | n/a | 4,576 | (6,022 | ) | 10,598 | n/a | ||||||||||||||||||||||
Income tax provision (benefit) | 15 | (938 | ) | 953 | n/a | 22 | (1,642 | ) | 1,664 | n/a | ||||||||||||||||||||||
Net (loss) income | $ | (9,859 | ) | $ | (3,104 | ) | $ | (6,755 | ) | (217.6 | %) | $ | 11,222 | $ | (15,502 | ) | $ | 26,724 | n/a |
Consolidated sales revenue in the three and ninesix months ended SeptemberJune 30, 2017 increased $8,3002023 decreased $32,488 and $15,945, respectively,$568 compared to the three and ninesix months ended SeptemberJune 30, 2016. This increase primarily2022. These decreases resulted, in part, from higher pricesthe timing of separated RINs in theour biofuel segment and increased sales volumesheld in the chemical segment.inventory at June 30, 2023 with a fair market value of $19,461 which were sold in July. (See Critical Accounting Estimates.) In the nine-month comparison period, the increase from higher prices in the biofuel segment was partially offset by lower sales volumes largely from the expiration of the federal blenders’ tax credit (“BTC”).
Gross profitaddition, in the three and nine months ended SeptemberJune 30, 20172023, biofuel segment sales volume decreased $4,793 and $15,890, respectively, compared11% or $11,057 (and inventory increased) on forward sales to the three and ninesecond half of 2023 on stronger margins. In the six months ended SeptemberJune 30, 2016. In the2023, 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, 2017 as compared to the prior year period. sales volumes increased 4.9% or $5,901.
Another significant impact toAs a result of the reductionseparated RINs mentioned above, and held in inventory at no cost, a gross profitloss of $8,592 resulted in the ninethree months ended SeptemberJune 30, 2017, as compared to2023 (a reduction of $9,569 from the comparative prior year period,period). Partially offsetting this decrease was 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 in the nine months ended September 30, 2017$288 and increased gross profit $1,845 in the nine months ended September 30, 2016. This change in LIFO resulted in a lower of cost or market adjustment of $1,877 in the three and nine months ended September 30, 2016 and no such adjustment was necessary in the three and nine months ended September 30, 2017. Please see footnote 2 for additional discussion.
Also contributing to the reduction in gross profit $5,307 in the three months ended SeptemberJune 30, 2017, was the loss2023 and 2022, respectively. In addition, in the unrealizedprior three-month comparison period, derivative losses resulted from unprecedented volatility in the heating oil futures market for which we modified our derivative strategy to help mitigate reoccurrence. Margins also improved in our chemical segment to 34% from 23% in the prior year period on new product trials and realized activity in derivative instruments of $3,314,product mix.
Gross profit for the six months ended June 30, 2023 was $13,031 as compared to a gaingross loss of $803,$6,178 in the six months ended June 30, 2022. This increase resulted from (i) the change in our realized derivative gains of $9,437 in the current six-month period as compared to realized losses of $28,992 in the prior year period. Thesix-month period given unprecedented market volatility as described above, and (ii) 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 $193 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. 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 adjustmentsadjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting negatively impacted net incomeaccounting. This adjustment increased gross profit $3,495 in boththe current six-month period as compared to a decrease of gross profit of $4,825 in the prior six-month period. Gross profit did not include $19,461 from separated RINs generated in the six months ended June 30, 2023 and sold in July 2023. Lastly, for the six-month comparative period, chemical margins improved to 37% from 24% in the prior six-month period on new products and product mix.
Operating expenses
Operating expenses increased $499 and $1,419 in the three and ninesix months ended SeptemberJune 30, 2017. In comparison, net2023, as compared to the three and six months ended June 30, 2022. This increase was primarily from increased compensation and legal expense.
Other income (expense)
Other income (expense) increased income $4,266 and $10,598 in the three and six months ended SeptemberJune 30, 2016 was negatively impacted by this adjustment, but this adjustment benefited net2023, as compared to the same periods of 2022. In the current three- and six-month period, marketable securities were sold with realized gains of $42 and $575 as compared to the comparative prior periods with unrealized losses on marketable securities of $3,239 and $7,366, respectively. In addition, interest and dividend income increased $985 and $2,657 in the nine months ended September 30, 2016.
current three- and six-month periods.
ChemicalsIncome tax provision (benefit)Segment
The Company’s effective tax rates for the three and six months ended June 30, 2023 decreased compared to the three and six months ended June 30, 2022 primarily due to changes in the assessment of realizability of deferred tax assets. In the three- and six-month periods in 2023, the income tax provision reflects only small amounts of current state taxes. No deferred tax benefits have been recognized, reflecting management’s determination that none of the net deferred tax assets generated on its 2023 tax losses are more likely than not to be realized. In the three- and six-month periods in 2022, tax benefits on tax losses generated were recognized, but limited by the assessment that the net deferred tax assets generated would more likely than not be only partially realized.
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% | ) |
ChemicalSegment
Sales
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
2023 | 2022 | Amount | % | 2023 | 2022 | Amount | % | |||||||||||||||||||||||||
Revenues | $ | 18,756 | $ | 18,194 | $ | 562 | 3.1 | % | $ | 40,637 | $ | 39,755 | $ | 882 | 2.2 | % | ||||||||||||||||
Volume/product mix effect | $ | 483 | 2.7 | % | $ | 1,469 | 3.7 | % | ||||||||||||||||||||||||
Price effect | $ | 79 | 0.4 | % | $ | (587 | ) | (1.5 | %) | |||||||||||||||||||||||
Gross profit | $ | 6,416 | $ | 4,196 | $ | 2,220 | 52.9 | % | $ | 15,039 | $ | 9,614 | $ | 5,425 | 56.4 | % |
Chemical revenue in the three and six months ended SeptemberJune 30, 20172023 increased by $3,8683.1% or $562 and 2.2% or $882 compared to the three and six months ended SeptemberJune 30, 2016. Sales revenue2022. Revenue for our custom chemicals (unique chemicals produced under contract for specific customers) for the three and six months ended SeptemberJune 30, 20172023 totaled $23,593,$15,576 and $32,196, an increase of $3,138$3,310 and $4,215 from the comparable periodsame periods in 2016. This increase was primarily attributed to increased sales volumes2022. Custom chemicals used in the agrochemicalgas and energy markets.oil and antioxidant industries experienced stronger volumes and higher selling prices. In addition, new business from other custom products increased $1,622 and $2,155, in the three and six months, respectively, from the comparative prior year periods. Performance chemicals (comprised(composed of multi-customer products which are sold to the open market based on specification) sales revenues were $4,574 in the three months ended September 30, 2017, an increaserevenue was $3,180 and $8,441, a decrease of $730$2,748 and $3,333 from the three and six months ended SeptemberJune 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, 2017.2022, respectively. This decrease was primarilymostly from reducedlower sales volumes of a polymer modifier product. glycerin as markets softened.
Gross profit for the chemicalschemical segment for the three and six months ended September June 30, 20172023, increased by $207$2,220 and $5,425 when compared to the three months ended September 30, 2016. Factors positively impacting the three-month comparisonsame period of gross profit were2022 primarily 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 revenueimproved margins in the three and ninesix 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 quarteryear (34% and nine-month period37%) as compared to the prior year periods.(23% and 24%) on stronger volumes as noted above and on favorable product mix from new products.
BiofuelSegment
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
2023 | 2022 | Amount | % | 2023 | 2022 | Amount | % | |||||||||||||||||||||||||
Revenues | $ | 66,552 | $ | 99,602 | $ | (33,050 | ) | (33.2 | %) | $ | 118,852 | $ | 120,302 | $ | (1,450 | ) | (1.2 | %) | ||||||||||||||
Volume/product mix effect | $ | (11,057 | ) | (11.1 | %) | $ | 5,901 | 4.9 | % | |||||||||||||||||||||||
Price effect | $ | (21,993 | ) | (22.0 | %) | $ | (7,351 | ) | (6.1 | %) | ||||||||||||||||||||||
Gross (loss) profit | $ | (15,008 | ) | $ | (3,219 | ) | $ | (11,789 | ) | (366.2 | %) | $ | (2,008 | ) | $ | (15,792 | ) | $ | 13,784 | 87.3 |
Biofuels revenue in the three and six months ended June 30, 2023 decreased $33,050 and $1,450 as compared to the same periods of 2022. These decreases resulted, in part, from the timing of separated RINs held in inventory at June 30, 2023, with a fair market value of $19,461 which were sold in July. (See Critical Accounting Estimates.) In addition, pipeline sales increased to $1,852 from $1,509 in the three months ended SeptemberJune 30, 2017 and 2016, respectively. For the nine-month comparison period, pipeline2023, biofuel segment sales volume 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 sold11% or $11,057 (and inventory increased) on forward sales to the same party. Purchases andsecond half of 2023 on stronger margins. In the six months ended June 30, 2023, biofuel segment 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.volumes increased 4.9% or $5,901.
A significant portion of our biodiesel sold in 2017 was to two major refiners/blenders in the three and one major refiner in 2016.six months ended June 30, 2023 and 2022. 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.
BiofuelsAs a result of the separated RINs mentioned above, and held in inventory at no cost, biofuels gross profitloss was $15,008 and $2,008, in the three and ninesix months ended September June 30, 20172023; an increased loss of $11,789 in the three-month comparative period, and a decreased $5,000 and $13,569 whenloss of $13,784 in the six-month comparative period of 2022.
Partially offsetting this increased loss in the three-month comparative period was the change in the activity in derivative instruments with a realized gain of $6,032 in the current three-month period, as compared to the three and nine months ended September 30, 2016. Costa realized loss of goods sold increased as a result of the absence of the blenders’ tax credit which expired December 31, 2016 and was in effect$18,327 in the prior year’s period. Gross profits were reduced byyear comparative period and the change in adjustmentsthe adjustment 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$251 in the three and nine months ended September 30, 2017, respectively,current three-month period as compared to a decrease of $336 and an increase of $898$4,640 in the three and ninethree-month period of 2022.
Gross losses in the six months ended SeptemberJune 30, 2016, respectively. This change in LIFO resulted in a2023 were lower as compared to the same period of cost or market adjustment of $1,877, in the three and nine months ended September 30, 2016. No such adjustment impacted gross profit in the three and nine months ended September 30, 2017. Please see footnote 2 for additional discussion.
Biofuels gross profit was further reduced byprior year from: (i) the change in the activity in derivative instruments in comparison to the prior year quarter with a lossrealized gain of $3,314$9,437 in the six months ended June 30, 2023, as compared to a gainrealized loss of $803$28,992 in the threesix months ended SeptemberJune 30, 2017 and 2016, respectively. The2022, (ii) the change in the derivative activity in derivative instruments with unrealized gains of $3,259 in the ninesix months ending Septemberended June 30, 2017 favorably impacted2023 as compared to an unrealized gain of $2,388 in the prior year six month period, and (iii) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment increased gross profit with a loss of $1,511,$2,624 in the six months ended June 30, 2023 as compared to a lossdecrease in gross profit of $5,375$3,652 in the same prior year period. In order to better manage the commodity price risk caused by market fluctuations in biofuel 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 statement of operations as a component of cost of goods sold within the biofuels segment.
FutureFuel recognizesIn regards to our derivative activity, we recognize all derivative instruments as either assets or liabilities at fair value in itsour consolidated balance sheet. FutureFuel’ssheets. The realized and unrealized derivative gains and losses are recorded as cost of goods sold. 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.
19
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) | ||||||||||||||||
June 30, 2023 | December 31, 2022 | |||||||||||||||
Contract Quantity | Fair Value | Contract Quantity | Fair Value | |||||||||||||
Regulated fixed price future commitments (in thousand barrels) | 476 | $ | 3,117 | 305 | $ | (142 | ) |
*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 ninesix months ended SeptemberJune 30, 20172023 and 20162022 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 revenueRevenues under bill and holdbill-and-hold arrangements were $4,519$10,765 and $6,759$21,355 for the three and six months ended SeptemberJune 30, 2017 and 2016, and $12,477 and $17,103 for the nine months ended September 30, 2017 and 2016,2023, respectively.
Liquidity and Capital Resources
Our net cash provided by (used in)from operating activities, investing activities, and financing activities for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 are set forth in the following chart.table.
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Net cash provided by operating activities | $ | 36,440 | $ | 76,879 | ||||
Net cash used in investing activities | $ | (14,252 | ) | $ | (40,444 | ) | ||
Net cash used in financing activities | $ | (108,215 | ) | $ | (8,111 | ) |
Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Net cash used in operating activities | $ | (40,665 | ) | $ | (1,910 | ) | ||
Net cash provided by (used in) investing activities | $ | 36,980 | $ | (1,206 | ) | |||
Net cash used in financing activities | $ | (5,265 | ) | $ | (5,251 | ) |
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.
Operating Activities
Cash fromused in operating activities decreased from $76,879 of cash provided by operating activitieswas $40,665 in the first ninesix months of 2016ended June 30, 2023 as compared to $36,440 of cash provided by operating activities$1,910 in the first nine monthssame period of 2017.2022. This decrease in cash was primarily attributable to the decrease of $30,097 in net income, the decrease in the change in accounts receivableinventory demonstrating a cash outflow of $13,252 and inventory of $8,439 offset by the increase in$35,937, the change in accounts payable, including accounts payable - related parties, demonstrating a cash outflow of $11,278.
20
$25,742, primarily from the timing of vendor payments, and the change in fair value of equity securities of $10,456. Partially offsetting these cash outflows was the change in net income of $26,724.
Investing Activities
Cash provided by investing activities was $36,980 in the six months ended June 30, 2023 as compared to cash used in investing activities was $14,252of $1,206 in the first ninesix months of 2017 compared to $40,444 used in the first nine months of 2016.ended June 30, 2022. This $38,186 change was primarily the result of net purchasesincreased proceeds from the sale of marketable securities of $37,451 and a decrease in the first nine monthscollateralization of 2017 compared to the first nine monthsderivative instruments of 2016. Such net purchases totaled $10,882 and $33,328,$2,771. Partially offsetting this increase in the first nine monthscash was an increase of 2017 and 2016, respectively. Our capital expenditures and customer reimbursements for capital expenditures are summarized in the following table: of $1,980.
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 $5,265 and $5,251 in the first ninesix months of 2017 from $8,111 in the first nine months of 2016. This change isended June 30, 2023 and 2022, respectively, primarily the result offor payments of dividends on our common stock in the first nine months of 2017 compared to the first nine months of 2016. The payment of dividends totaled $108,063 and $7,869 in the first nine months of 2017 and 2016, respectively.stock.
Credit Facility
Effective April 16, 2015, we entered intoWe have a new $150,000 secured committed credit facilityagreement, as amended on March 30, 2020, 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 9 to our consolidated financial statements ended September 30, 2017 for additional information regarding our Credit Agreement.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 threetwo quarters of 2017,2023 and 2022, we paid a regular quarterly cash dividend in the amount of $0.06 per share on our common stock. The regular cash dividend amounted to $2,626 in each of the quarters of 2023 and $2,625 per quarterin each of the quarters of 2022. The declaration of these regular quarterly cash dividends was made in the first, secondthree months ended December 31, 2022 and third quarters of 2017. In the first quarter of 2017, we also paid a special cash dividend of $2.29 per share on our common stock. This special cash dividend amounted to $100,188. Total cash dividends paid were $108,063 in the first nine months of 2017.March 31, 2022, respectively.
In the first three quarters of 2016, we paid a regular cash dividend in the amount of $0.06 per share 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.
21
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 2017,2023, 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 periodsperiod ended September 30, 2017 and December 31, 2016,2022, we also had investments in certain preferred stock, trust preferreddebt securities, exchange traded debt instruments, and other equity instruments. We classifyclassified these investments as current assets in the accompanying consolidated balance sheets and designate themdesignated the debt securities as being “available-for-sale.” Accordingly, they arethe debt securities were 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 were recorded at fair value, with the unrealized gains and losses reported as a component of net income. We sold all marketable securities in the three months ended June 30, 2023. The fair value of these preferred stock, trust preferredthe debt securities exchange traded debt instruments, and other equity instruments totaled $123,588$0 and $106,146$37,126 at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively.
Lastly, we maintain depositary accounts such as checking accounts, money market accounts, and other similar accounts at selected financial institutions.
22
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 June 30, 20172023 and December 31, 2016.2022. 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 SeptemberJune 30, 20172023 or December 31, 20162022 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.
23
Item3. Quantitative andQualitativeDisclosures AboutMarketRisk.
Alldollar amountsexpressedasnumbersintheseMarket Risk Disclosuresareinthousands(exceptpershareamounts).
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 traded commodity futures and options contracts. We account for these derivative instruments in accordance with ASC 815-20-25, DerivativesandHedging. 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 2017 or 2016. Changes in the fair value of our derivative instruments are recognized at the end of each accounting period and recorded in the 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 of September 30, 2017 and December 31, 2016, the fair values of our derivative instruments were a net liability in the amount of $198 and $258, 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 comprised 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. We included only those raw materials and conversion costs for which a hypothetical adverse change in price would result in a 1% 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% change in the average price of the commodity listed below would result in the following change in gross profit.
24
(Volume and dollars in thousands)
Item |
| 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% |
Methanol |
| 102,450 |
| LB |
| 10% |
| $ 1,660 |
| 12.3% |
Electricity |
| 86 |
| MWH |
| 10% |
| $ 415 |
| 3.1% |
Natural Gas |
| 1,006 |
| MCF |
| 10% |
| $ 343 |
| 2.6% |
Sodium Methylate |
| 8,287 |
| LB |
| 10% |
| $ 332 |
| 2.5% |
Coal |
| 28 |
| Ton |
| 10% |
| $ 177 |
| 1.3% |
(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. |
We had no borrowings as of September 30, 2017 or December 31, 2016 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.
Management’s Evaluation of our Disclosure 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 at the time the Original Form 10-Q was filed that these disclosure controls and procedures as of Septemberat June 30, 20172023 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.
ThereSubsequent to that evaluation, our chief executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of June 30, 2023, because of a material weakness in our internal control over financial reporting discussed below.
Material Weakness in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statement will not be prevented or detected on a timely basis. Management identified a material weakness in our internal control over financial reporting at each of June 30, 2023, September 30, 2023, and December 31, 2023, due to a deficiency in our review control in accordance with applicable accounting guidance over cash flows from investments within the statements of cash flows for the six months ended June 30, 2023, for the nine months ended September 30, 2023 and for the year ended December 31, 2023. Therefore, the Company has an ineffective financial reporting control over the review of the statement of cash flow. The control did not operate at a level precise enough to detect material errors in calculations and formulas and as a result did not detect material differences between the operating and investing sections of the statement of cash flow.
Remediation Plan
The Company’s management, under the oversight of the Audit Committee, is implementing additional review procedures to enhance our internal control over financial reporting with respect to the statement of cash flows. These review procedures include the development of a review checklist to ensure that the Company will apply the applicable accounting guidance under ASC 230, Statement of Cash Flows.
Changes in Internal Control over Financial Reporting
Except as described above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our last fiscalthe quarter ended June 30, 2023 that have materially affected, or wereare reasonably likely to materially affect, our internal control over financial reporting.
25
PART II OTHER INFORMATION
Item 1.LegalProceedings.
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.
Item1A.RiskFactors.
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, 2016 filed with the SEC on March 16, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item3. DefaultsUponSeniorSecurities.
None.
Item 4.MineSafetyDisclosures.
None.
Item5.OtherInformation.
None.
Item 6. Exhibits.
Exhibit | Description |
|
|
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 |
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. |
26
Special Note Regarding ForwardLookingForward-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, 20162023 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.
27
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. | |||
By: | /s/ | ||
Tom McKinlay, Chief Executive Officer | |||
| |||
| |||
Date: | |||
By: | /s/ Rose M. Sparks | ||
Rose M. Sparks, Chief Financial Officer | |||
and Principal Financial Officer | |||
Date: |
28