UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021 |
For the quarterly period ended June 30, 2020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________ | |
Commission file number: 0-52577 |
For the transition period from __________ to ___________
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) |
(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 |
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 every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ |
| Accelerated filer | ☑ |
|
Non-accelerated filer ☐ |
| Smaller reporting company | ☐ |
|
|
| Emerging growth company | ☐ |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of AugustMay 7, 2020:2021: 43,743,243
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
FutureFuel Corp.
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited) | (Unaudited) | |||||||||||||||
June 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 187,823 | $ | 243,331 | $ | 193,979 | $ | 198,122 | ||||||||
Accounts receivable, inclusive of the blenders' tax credit of $16,307 and $97,295 at June 30, 2020 and December 31, 2019, respectively, and net of allowances for bad debt of $53 and $0 at June 30, 2020 and December 31, 2019, respectively | 29,223 | 110,264 | ||||||||||||||
Accounts receivable, inclusive of the blenders' tax credit of $11,276 and $8,300 at March 31, 2021 and December 31, 2020, respectively, and net of allowances for bad debt of $112 and $63 at March 31, 2021 and December 31, 2020, respectively | 27,902 | 21,387 | ||||||||||||||
Accounts receivable – related parties | 312 | 4,602 | 51 | 1,426 | ||||||||||||
Inventory | 42,183 | 37,573 | 45,278 | 33,889 | ||||||||||||
Income tax receivable | 27,442 | 8,062 | 16,894 | 17,668 | ||||||||||||
Prepaid expenses | 1,150 | 1,932 | 3,216 | 3,967 | ||||||||||||
Prepaid expenses – related parties | 12 | 12 | 12 | 0 | ||||||||||||
Marketable securities | 62,095 | 73,620 | 50,173 | 64,404 | ||||||||||||
Other current assets | 4,228 | 1,493 | 2,588 | 1,742 | ||||||||||||
Total current assets | 354,468 | 480,889 | 340,093 | 342,605 | ||||||||||||
Property, plant and equipment, net | 95,348 | 98,597 | 89,200 | 91,544 | ||||||||||||
Intangible assets | 1,408 | 1,408 | 1,408 | 1,408 | ||||||||||||
Other noncurrent assets | 5,622 | 5,611 | 5,721 | 5,747 | ||||||||||||
Total noncurrent assets | 102,378 | 105,616 | 96,329 | 98,699 | ||||||||||||
Total Assets | $ | 456,846 | $ | 586,505 | $ | 436,422 | $ | 441,304 | ||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Accounts payable, inclusive of the blenders' tax credit rebates due customers of $6,802 and $39,423 | $ | 31,503 | $ | 61,299 | ||||||||||||
Accounts payable, inclusive of the blenders' tax credit rebates due customers of $890 and $1,116 | $ | 16,841 | $ | 12,453 | ||||||||||||
Accounts payable – related parties | 1,475 | 1,255 | 8,798 | 984 | ||||||||||||
Deferred revenue – short-term | 3,427 | 5,237 | 4,946 | 3,976 | ||||||||||||
Dividends payable | 5,249 | 10,498 | 7,874 | 10,498 | ||||||||||||
Accrued expenses and other current liabilities | 6,982 | 4,410 | 4,568 | 5,077 | ||||||||||||
Accrued expenses and other current liabilities – related parties | - | 64 | ||||||||||||||
Total current liabilities | 48,636 | 82,763 | 43,027 | 32,988 | ||||||||||||
Deferred revenue – long-term | 22,442 | 21,291 | 20,322 | 21,861 | ||||||||||||
Noncurrent deferred income tax liability | 13,620 | 12,965 | 7,914 | 12,332 | ||||||||||||
Other noncurrent liabilities | 2,204 | 2,388 | 2,109 | 2,240 | ||||||||||||
Total noncurrent liabilities | 38,266 | 36,644 | 30,345 | 36,433 | ||||||||||||
Total liabilities | 86,902 | 119,407 | 73,372 | 69,421 | ||||||||||||
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, 43,743,243, issued and outstanding at June 30, 2020 and December 31, 2019 | 4 | 4 | ||||||||||||||
Accumulated other comprehensive income | 133 | 296 | ||||||||||||||
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding | 0 | 0 | ||||||||||||||
Common stock, $0.0001 par value, 75,000,000 shares authorized, 43,743,243, issued and outstanding at March 31, 2021 and December 31, 2020 | 4 | 4 | ||||||||||||||
Accumulated other comprehensive (loss) income | 148 | 208 | ||||||||||||||
Additional paid in capital | 282,215 | 282,166 | 282,215 | 282,215 | ||||||||||||
Retained earnings | 87,592 | 184,632 | 80,683 | 89,456 | ||||||||||||
Total stockholders’ equity | 369,944 | 467,098 | 363,050 | 371,883 | ||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 456,846 | $ | 586,505 | $ | 436,422 | $ | 441,304 |
The accompanying notes are an integral part of these consolidated financial statements.
FutureFuel Corp.
Consolidated Statements of Operations and Comprehensive Income
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
Revenue | $ | 47,310 | $ | 70,076 | $ | 99,682 | $ | 117,498 | $ | 41,158 | $ | 52,372 | ||||||||||||
Revenue – related parties | 112 | 788 | 822 | 1,867 | 358 | 710 | ||||||||||||||||||
Cost of goods sold | 43,469 | 61,501 | 76,250 | 101,566 | 41,378 | 32,781 | ||||||||||||||||||
Cost of goods sold – related parties | 1,342 | 4,063 | 3,557 | 7,859 | 9,210 | 2,215 | ||||||||||||||||||
Distribution | 1,657 | 1,994 | 3,297 | 3,319 | 1,609 | 1,640 | ||||||||||||||||||
Distribution – related parties | 43 | 36 | 90 | 89 | 55 | 47 | ||||||||||||||||||
Gross profit | 911 | 3,270 | 17,310 | 6,532 | ||||||||||||||||||||
Gross (loss) profit | (10,736 | ) | 16,399 | |||||||||||||||||||||
Selling, general, and administrative expenses | ||||||||||||||||||||||||
Compensation expense | 724 | 620 | 1,579 | 1,335 | 528 | 855 | ||||||||||||||||||
Other expense | 403 | 547 | 985 | 1,048 | 853 | 582 | ||||||||||||||||||
Related party expense | 155 | 130 | 303 | 259 | 167 | 148 | ||||||||||||||||||
Research and development expenses | 768 | 788 | 1,603 | 1,494 | 774 | 835 | ||||||||||||||||||
Total operating expenses | 2,050 | 2,085 | 4,470 | 4,136 | 2,322 | 2,420 | ||||||||||||||||||
(Loss) income from operations | (1,139 | ) | 1,185 | 12,840 | 2,396 | (13,058 | ) | 13,979 | ||||||||||||||||
Interest and dividend income | 1,519 | 2,750 | 3,486 | 5,112 | 1,005 | 1,967 | ||||||||||||||||||
Interest expense | (31 | ) | (44 | ) | (87 | ) | (87 | ) | (32 | ) | (56 | ) | ||||||||||||
Gain (loss) on marketable securities | 1,573 | 826 | (8,486 | ) | 3,753 | |||||||||||||||||||
Other income (expense) | 8,348 | (113 | ) | 8,348 | (113 | ) | ||||||||||||||||||
Other income | 11,409 | 3,419 | 3,261 | 8,665 | ||||||||||||||||||||
Income before taxes | 10,270 | 4,604 | 16,101 | 11,061 | ||||||||||||||||||||
Income tax (benefit) provision | (4,889 | ) | 917 | (18,101 | ) | 1,875 | ||||||||||||||||||
Net income | $ | 15,159 | $ | 3,687 | $ | 34,202 | $ | 9,186 | ||||||||||||||||
Loss on marketable securities | (1,075 | ) | (10,059 | ) | ||||||||||||||||||||
Other (expense) income | (102 | ) | (8,148 | ) | ||||||||||||||||||||
(Loss) income before taxes | (13,160 | ) | 5,831 | |||||||||||||||||||||
Income tax benefit | (4,387 | ) | (13,212 | ) | ||||||||||||||||||||
Net (loss) income | $ | (8,773 | ) | $ | 19,043 | |||||||||||||||||||
Earnings per common share | ||||||||||||||||||||||||
(Loss) earnings per common share | ||||||||||||||||||||||||
Basic | $ | 0.35 | $ | 0.08 | $ | 0.78 | $ | 0.21 | $ | (0.20 | ) | $ | 0.44 | |||||||||||
Diluted | $ | 0.35 | $ | 0.08 | $ | 0.78 | $ | 0.21 | $ | (0.20 | ) | $ | 0.44 | |||||||||||
Weighted average shares outstanding | ||||||||||||||||||||||||
Basic | 43,743,243 | 43,743,243 | 43,743,243 | 43,743,243 | 43,743,243 | 43,743,243 | ||||||||||||||||||
Diluted | 43,743,740 | 43,743,243 | 43,743,491 | 43,746,109 | 43,743,243 | 43,743,243 | ||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||
Net income | $ | 15,159 | $ | 3,687 | $ | 34,202 | $ | 9,186 | ||||||||||||||||
Other comprehensive income (loss) from unrealized net gains (losses) on available-for-sale debt securities | 190 | 22 | (207 | ) | 278 | |||||||||||||||||||
Net (loss) income | $ | (8,773 | ) | $ | 19,043 | |||||||||||||||||||
Other comprehensive loss from unrealized net loss on available-for-sale debt securities | (60 | ) | (397 | ) | ||||||||||||||||||||
Income tax effect | (40 | ) | (5 | ) | 44 | (59 | ) | 16 | 84 | |||||||||||||||
Total other comprehensive income (loss), net of tax | 150 | 17 | (163 | ) | 219 | |||||||||||||||||||
Comprehensive income | $ | 15,309 | $ | 3,704 | $ | 34,039 | $ | 9,405 | ||||||||||||||||
Total other comprehensive loss income, net of tax | (44 | ) | (313 | ) | ||||||||||||||||||||
Comprehensive (loss) income | $ | (8,817 | ) | $ | 18,730 |
The accompanying notes are an integral part of these consolidated financial statements.
FutureFuel Corp.
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands)
(Unaudited)
For the Six Months Ended June 30, 2020 | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Additional | Total | ||||||||||||||||||||||
Common Stock | Comprehensive | Paid-in | Retained | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Income (Loss) | Capital | Earnings | Equity | |||||||||||||||||||
Balance - December 31, 2019 | 43,743,243 | $ | 4 | $ | 296 | $ | 282,166 | $ | 184,632 | $ | 467,098 | |||||||||||||
Prior period adjustment: change in accounting principle | - | - | - | - | (12 | ) | (12 | ) | ||||||||||||||||
Balance – January 1, 2020, As adjusted | 43,743,243 | $ | 4 | $ | 296 | $ | 282,166 | $ | 184,620 | $ | 467,086 | |||||||||||||
Cash dividends declared, $3.00 per share | - | - | - | - | (131,230 | ) | (131,230 | ) | ||||||||||||||||
Stock based compensation | - | - | - | 49 | - | 49 | ||||||||||||||||||
Other comprehensive loss | - | - | (313 | ) | - | - | (313 | ) | ||||||||||||||||
Net income | - | - | - | - | 19,043 | 19,043 | ||||||||||||||||||
Balance - March 31, 2020 | 43,743,243 | $ | 4 | $ | (17 | ) | $ | 282,215 | $ | 72,433 | $ | 354,635 | ||||||||||||
Other comprehensive income | - | - | 150 | - | - | 150 | ||||||||||||||||||
Net income | - | - | - | - | 15,159 | 15,159 | ||||||||||||||||||
Balance - June 30, 2020 | 43,743,243 | $ | 4 | $ | 133 | $ | 282,215 | $ | 87,592 | $ | 369,944 |
For the Three Months Ended March 31, 2021 | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Additional | Total | ||||||||||||||||||||||
Common Stock | Comprehensive | paid-in | Retained | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Income (Loss) | Capital | Earnings | Equity | |||||||||||||||||||
Balance - December 31, 2020 | 43,743,243 | $ | 4 | $ | 208 | $ | 282,215 | $ | 89,456 | $ | 371,883 | |||||||||||||
Other comprehensive loss | - | 0 | (60 | ) | 0 | 0 | (60 | ) | ||||||||||||||||
Net loss | - | 0 | 0 | 0 | (8,773 | ) | (8,773 | ) | ||||||||||||||||
Balance - March 31, 2021 | 43,743,243 | $ | 4 | $ | 148 | $ | 282,215 | $ | 80,683 | $ | 363,050 |
For the Six Months Ended June 30, 2019 | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Additional | Total | ||||||||||||||||||||||
Common Stock | Comprehensive | Paid-in | Retained | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Income (Loss) | Capital | Earnings | Equity | |||||||||||||||||||
Balance - December 31, 2018 | 43,743,243 | $ | 4 | $ | (20 | ) | $ | 282,145 | $ | 106,949 | $ | 389,078 | ||||||||||||
Other comprehensive income | - | - | 202 | - | - | 202 | ||||||||||||||||||
Net income | - | - | - | - | 5,499 | 5,499 | ||||||||||||||||||
Balance - March 31, 2019 | 43,743,243 | $ | 4 | $ | 182 | $ | 282,145 | $ | 112,448 | $ | 394,779 | |||||||||||||
Other comprehensive income | - | - | 17 | - | - | 17 | ||||||||||||||||||
Net income | - | - | - | - | 3,687 | 3,687 | ||||||||||||||||||
Balance - June 30, 2019 | 43,743,243 | $ | 4 | $ | 199 | $ | 282,145 | $ | 116,135 | $ | 398,483 |
For the Three Months Ended March 31, 2020 | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | Additional | Total | ||||||||||||||||||||||
Common Stock | Comprehensive | paid-in | Retained | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Income (Loss) | Capital | Earnings | Equity | |||||||||||||||||||
Balance - December 31, 2019 | 43,743,243 | $ | 4 | $ | 296 | $ | 282,166 | $ | 184,632 | $ | 467,098 | |||||||||||||
Prior period adjustment: change in accounting principle | - | 0 | 0 | 0 | (12 | ) | (12 | ) | ||||||||||||||||
Balance - January 1, 2020, As adjusted | 43,743,243 | $ | 4 | $ | 296 | $ | 282,166 | $ | 184,620 | $ | 467,086 | |||||||||||||
Cash dividends declared, $3.00 per share | - | 0 | 0 | 0 | (131,230 | ) | (131,230 | ) | ||||||||||||||||
Stock based compensation | 0 | 0 | 0 | 49 | 0 | 49 | ||||||||||||||||||
Other comprehensive loss | - | 0 | (313 | ) | 0 | 0 | (313 | ) | ||||||||||||||||
Net income | - | 0 | 0 | 0 | 19,043 | 19,043 | ||||||||||||||||||
Balance - March 31, 2020 | 43,743,243 | $ | 4 | $ | (17 | ) | $ | 282,215 | $ | 72,433 | $ | 354,635 |
The accompanying notes are an integral part of these consolidated financial statements.
FutureFuel Corp.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income | $ | 34,202 | $ | 9,186 | ||||||||||||
Net (loss) income | $ | (8,773 | ) | $ | 19,043 | |||||||||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||||||
Depreciation | 5,862 | 5,602 | 2,608 | 3,004 | ||||||||||||
Amortization of deferred financing costs | 60 | 72 | 24 | 36 | ||||||||||||
Benefit for deferred income taxes | 699 | (445 | ) | (4,402 | ) | (22 | ) | |||||||||
Change in fair value of equity securities | 7,405 | (4,891 | ) | 1,765 | 9,570 | |||||||||||
Change in fair value of derivative instruments | 198 | (297 | ) | (695 | ) | (1,874 | ) | |||||||||
Loss on the sale of investments | 1,080 | 1,138 | ||||||||||||||
(Gain) loss on the sale of investments | (690 | ) | 489 | |||||||||||||
Stock based compensation | 49 | - | 0 | 49 | ||||||||||||
Loss on disposal of property and equipment | 2 | 11 | 0 | 2 | ||||||||||||
Noncash interest expense | 27 | 14 | 8 | 19 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 81,029 | (5,347 | ) | (6,515 | ) | (17,803 | ) | |||||||||
Accounts receivable – related parties | 4,290 | 1,814 | 1,375 | 4,175 | ||||||||||||
Inventory | (4,610 | ) | 3,180 | (11,389 | ) | (3,878 | ) | |||||||||
Income tax receivable | (19,380 | ) | 1,336 | 774 | (13,587 | ) | ||||||||||
Prepaid expenses | 782 | 712 | 751 | 171 | ||||||||||||
Prepaid expenses – related parties | - | 12 | ||||||||||||||
Prepaid expenses - related parties | (12 | ) | 0 | |||||||||||||
Other assets | 350 | 539 | (43 | ) | 120 | |||||||||||
Accounts payable | (29,702 | ) | 958 | 4,270 | 2,360 | |||||||||||
Accounts payable – related parties | 220 | (1,248 | ) | 7,814 | (815 | ) | ||||||||||
Accrued expenses and other current liabilities | 2,572 | 688 | (509 | ) | 2,192 | |||||||||||
Accrued expenses and other current liabilities – related parties | (64 | ) | - | 0 | (64 | ) | ||||||||||
Deferred revenue | (659 | ) | 591 | (569 | ) | 925 | ||||||||||
Other noncurrent liabilities | (211 | ) | (98 | ) | (139 | ) | (78 | ) | ||||||||
Net cash provided by operating activities | 84,201 | 13,527 | ||||||||||||||
Net cash (used in) provided by operating activities | (14,347 | ) | 4,034 | |||||||||||||
Cash flows from investing activities | ||||||||||||||||
Collateralization of derivative instruments | (2,877 | ) | 908 | (106 | ) | 1,876 | ||||||||||
Purchase of marketable securities | (2,359 | ) | (14,323 | ) | (15,601 | ) | (964 | ) | ||||||||
Proceeds from the sale of marketable securities | 5,192 | 17,682 | 28,681 | 4,484 | ||||||||||||
Proceeds from the sale of property and equipment | 50 | 13 | 0 | 50 | ||||||||||||
Capital expenditures | (2,759 | ) | (4,659 | ) | (146 | ) | (1,608 | ) | ||||||||
Net cash used in investing activities | (2,753 | ) | (379 | ) | ||||||||||||
Net cash provided by investing activities | 12,828 | 3,838 | ||||||||||||||
Cash flows from financing activities | ||||||||||||||||
Loan proceeds | 8,180 | - | ||||||||||||||
Payment on loan | (8,180 | ) | - | |||||||||||||
Deferred financing costs | (477 | ) | - | 0 | (477 | ) | ||||||||||
Payment of dividends | (136,479 | ) | (5,249 | ) | (2,624 | ) | (2,624 | ) | ||||||||
Net cash used in financing activities | (136,956 | ) | (5,249 | ) | (2,624 | ) | (3,101 | ) | ||||||||
Net change in cash and cash equivalents | (55,508 | ) | 7,899 | (4,143 | ) | 4,771 | ||||||||||
Cash and cash equivalents at beginning of period | 243,331 | 214,972 | 198,122 | 243,331 | ||||||||||||
Cash and cash equivalents at end of period | $ | 187,823 | $ | 222,871 | $ | 193,979 | $ | 248,102 | ||||||||
Cash paid for interest | $ | 1 | $ | - | $ | 43 | $ | 1 | ||||||||
Cash paid for income taxes | $ | 639 | $ | 898 | $ | 52 | $ | 453 | ||||||||
Noncash investing and financing activities: | ||||||||||||||||
Cash dividends declared, not paid | $ | 0 | $ | 131,230 | ||||||||||||
Noncash capital expenditures | $ | 94 | $ | 108 | $ | 118 | $ | 0 | ||||||||
Noncash operating leases | $ | - | $ | 432 |
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
1) | NATURE OF OPERATIONS AND BASIS OF PRESENTATION |
Organization
FutureFuel Corp. (“FutureFuel” or “the Company”), through its wholly-owned subsidiary, FutureFuel Chemical Company (“FutureFuel Chemical”), owns and operates a chemical production facility located on approximately 2,200 acres of land six miles southeast of Batesville in north central Arkansas fronting the White River (the “Batesville Plant”). FutureFuel Chemical manufactures diversified chemical products, biobased products composed of biofuels, and biobased specialty chemical products. FutureFuel Chemical’s operations are reported in two segments: chemicals and biofuels.
The chemicalschemical segment manufactures a diversified portfolio of chemical products that are sold to third party customers. The majority of the revenues from the chemicalschemical segment are derived from the custom manufacturing of specialty chemicals for specific customers.
The biofuels 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. Until April 2021, FutureFuel Chemical iswas a shipper of refined petroleum products on common carrier pipelines and buysbought and sellssold petroleum products to maintain an active shipper status on these pipelines. See Note 9. Intangible Assets, and Note 17 Subsequent Event.
Basis of Presentation
The unaudited consolidated financial statements have been prepared by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel’s 20192020 audited consolidated financial statements and should be read in conjunction with the 2019 audited consolidatedthese 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-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements, and do include amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of FutureFuel and its direct and indirect wholly owned subsidiaries; namely, FutureFuel Chemical Company; FFC Grain, L.L.C.; FutureFuel Warehouse Company, L.L.C.; and Legacy Regional Transport, L.L.C. Intercompany transactions and balances have been eliminated in consolidation.
2) |
|
REINSTATEMENT OF THE BIODIESEL BLENDERS’ TAX CREDIT AND SMALL AGRI-BIODIESEL PRODUCER TAX CREDIT
The biodiesel Blenders’ Tax Credit (“BTC”) provides a one dollar per gallon tax credit to the blender of biomass-based diesel with at least 0.1% petroleum-based diesel fuel.
The Further Consolidated Appropriations Act of 2020 was passed by Congress and signed into law on December 20, 2019, retroactively reinstating the BTC for 2018 and 2019 and extending it through December 31, 2022. As this act was passed into law in 2019, the Company recognized its impact in the last quarter of 2019 for both periods (2018 and 2019) within the Company’s 2019 financial results. Rebates to customers are recorded as a reduction of revenue. The Company records the BTCcredit as a reduction to cost of goods sold.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
As the law from which the BTC mentioned above was reinstated, small agri-biodiesel producers with production capacity not in excess of 60 million gallons were eligible for an additional tax credit of $0.10 per gallon on the first 15 million gallons of agri-biodiesel sold (the “Small Agri-biodiesel Producer Tax Credit”). The Company was eligible for this credit and recognized its benefit in the three months ended December 31, 2019 and in the for both periods (three2018 and six2019 months ended June 30, 2020 ) as part of the tax provision.
CARES ACT – EMPLOYEE RENTENTION TAX CREDIT
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), was enacted on March 27, 2020, to encourage eligible employers to retain employees on their payroll. FutureFuel did not qualify for this credit, however, the Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the Employee Retention Tax Credit. FutureFuel is continuing to monitor whether it would qualify for this credit.
3) | REVENUE RECOGNITION |
FutureFuel recognizes revenue when performance obligations of the customer contract are satisfied. FutureFuel sells to customers through master sales agreements or standalone purchase orders. The majority of FutureFuel's terms of sale have a single performance obligation to transfer products. Accordingly, FutureFuel recognizes revenue when control has been transferred to the customer, generally at the time of shipment or delivery of products. For certain contracts, this occurs upon delivery of the material to a FutureFuel storage location, ready for customer pickup and separated from other FutureFuel inventory. Revenue is measured as the amount of consideration FutureFuel expects to receive in exchange for transferring products and is generally based upon a negotiated price. FutureFuel sells its products directly to customers generally under agreements with payment terms of 30 to 75 days for chemicalschemical segment customers and 2 to 10 days for biofuels segment customers.
Certain of FutureFuel custom chemical contracts within the chemicalschemical segment contain a material right as defined by ASU 2014-09,Revenue from Contracts with Customers ("Topic 606,606"), from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers. Each contract also has a performance obligation to transfer products with 30-day payment terms. FutureFuel recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pickup. If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with Topic 606. FutureFuel applies the renewal option approach in allocating the transaction price to these material rights and transfer of product. As a basis for allocating the transaction price to the material right and transfer of product, FutureFuel estimates the expected life of the product, the expected contractual volumes to be sold over that life, and the most likely expected sales price. Each estimate is updated quarterly on a prospective basis.
Contract Assets and Liabilities:
Contract assets consist of unbilled and undelivered amounts typically resulting from revenue recognized through bill-and-hold arrangements. The contract assets at June 30, 2020March 31, 2021 and December 31, 20192020 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 chemicalschemical segment plant expansions were $1,051$209 and $1,471, and $3,358 and $2,909,$2,307 for the three and sixmonths ended June 30, 2020March 31, 2021 and 2019,2020, respectively. Contract liabilities are reduced as the Company transfers product to the customer under the renewal option approach. Revenue recognized in the chemicalschemical segment from the contract liability reductions were $2,579$723 and $857 for$1,327 in the three months and $3,906 and $2,208 for the six months ended June 30, 2020March 31, 2021 and 2019,2020, respectively. These contract asset and liability balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. Included in the three months ended June 30, 2020, was the acceleration of the recognition of the remaining material right related to a customer contract which effectively ends December 31, 2020 for which all product shipments have been fulfilled. The amortization of this customer contract liability was $2,909 and $89, for the three months ended June 30, 2020 and 2019, respectively; $3,452 and $570, for the six months ended June 30, 2020 and 2019, respectively.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
The following table provides the balances of receivables, contract assets, and contract liabilities from contracts with customers.
Contract Assets and Liabilities | June 30, 2020 | December 31, 2019 | ||||||
Trade receivables, included in accounts receivable* | $ | 11,738 | $ | 11,902 | ||||
Contract assets included in accounts receivable | 1,104 | 1,067 | ||||||
Contract liabilities, included in Deferred revenue - short-term | 3,220 | 5,030 | ||||||
Contract liabilities, included in Deferred revenue - long-term | 18,414 | 17,151 |
Contract Assets and Liability Balances | March 31, 2021 | December 31, 2020 | ||||||
Trade receivables, included in accounts receivable* | $ | 15,587 | $ | 12,279 | ||||
Contract assets, included in accounts receivable | $ | 1,091 | $ | 808 | ||||
Contract liabilities, included in deferred revenue - short-term | $ | 4,739 | $ | 3,769 | ||||
Contract liabilities, included in deferred revenue - long-term | $ | 16,460 | $ | 17,943 |
*Exclusive of the BTC of $16,307$11,276 and $97,295,$8,300, respectively, and net of allowances for bad debt of $53$112 and $0$63, respectively, as of the dates noted.
Transaction price allocated to the remaining performance obligations:
At June 30, 2020,March 31, 2021, approximately $21,634$21,199 of revenue is expected to be recognized from remaining performance obligations. FutureFuel expects to recognize this revenue ratably with product soldover expected sales over the expected term of its long-term contracts which range from fourthree to sixfive years. Approximately 15%22% of this revenue is expected to be recognized over the next 12 months, and 85%78% is expected to be recognized between years two and six.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.
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:non-contractual:
Three months ended June 30, | Six months ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
Contract revenue from customers with > 1 year arrangements | $ | 4,909 | $ | 11,721 | $ | 14,523 | $ | 27,139 | $ | 5,106 | $ | 15,603 | ||||||||||||
Contract revenue from customer with < 1 year arrangement | 42,458 | 59,088 | 87,887 | 92,116 | ||||||||||||||||||||
Contract revenue from customers with < 1 year arrangements | 36,355 | 39,440 | ||||||||||||||||||||||
Revenue from non-contractual arrangements | 55 | 55 | 111 | 110 | 55 | 56 | ||||||||||||||||||
BTC rebate (customer rebates per Note 2) | - | - | (2,017 | ) | - | |||||||||||||||||||
BTC rebate | 0 | (2,017 | ) | |||||||||||||||||||||
Total revenue | $ | 47,422 | $ | 70,864 | $ | 100,504 | $ | 119,365 | $ | 41,516 | $ | 53,082 |
Timing of revenue:revenue:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Bill and hold revenue | $ | 7,335 | $ | 12,006 | $ | 17,488 | $ | 23,762 | ||||||||
Non-bill and hold revenue | 40,087 | 58,858 | 83,016 | 95,603 | ||||||||||||
Total revenue | $ | 47,422 | $ | 70,864 | $ | 100,504 | $ | 119,365 |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Bill-and-hold revenue | $ | 7,549 | $ | 10,153 | ||||
Non-bill-and-hold revenue | 33,967 | 42,929 | ||||||
Total revenue | $ | 41,516 | $ | 53,082 |
As of June 30, 2020,March 31, 2021, $4,1052,911 of the three- and six-months months bill and hold revenue had not shipped. In addition, $173 of bill and hold revenue recognized in the three months ended December 31, 2020 had not shipped.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
4) | INVENTORY |
The carrying values of inventory were as follows as of:
June 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
At average cost (approximates current cost) | ||||||||||||||||
Finished goods | $ | 22,844 | $ | 22,564 | $ | 25,436 | $ | 15,452 | ||||||||
Work in process | 2,133 | 2,768 | 1,408 | 1,632 | ||||||||||||
Raw materials and supplies | 22,193 | 20,121 | 28,216 | 22,674 | ||||||||||||
47,170 | 45,453 | 55,060 | 39,758 | |||||||||||||
LIFO reserve | (4,987 | ) | (7,880 | ) | (9,782 | ) | (5,869 | ) | ||||||||
Total inventory | $ | 42,183 | $ | 37,573 | $ | 45,278 | $ | 33,889 |
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 an LCM adjustment of $530 in the three and six months ended June 30, 2020.For the three and six months ended June30,2019,there was 0 LCM adjustment.
5) | DERIVATIVE INSTRUMENTS |
The Company records all derivative instruments at fair value. Fair value is determined by using the closing prices of the derivative instruments on the 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 20202021 or 2019.2020. The Company has elected the normal purchase and normal sales exception for certain feedstock purchase contracts and supply agreements.
Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a loss of $935 and a gain of $5,922$2,625 for the three months and six months ended June 30, 2020,March 31, 2021 respectively, and a gain of $443 and a loss of $1,033$6,857 for the three months and six months ended June 30, 2019, March 31, 2020.respectively.
The volumes and carrying values of FutureFuel’s derivative instruments were as follows at:
June 30, 2020 | December 31, 2019 | |||||||||||||||
Contract Quantity Short | Fair Value | Contract Quantity Short | Fair Value | |||||||||||||
Regulated fixed price future commitments | 415 | $ | (465 | ) | 140 | $ | (267 | ) |
Asset (Liability) | ||||||||||||||||
March 31, 2021 | December 31, 2020 | |||||||||||||||
Contract Quantity Short | Fair Value | Contract Quantity Short | Fair Value | |||||||||||||
Regulated fixed price future commitments | 265 | $ | 819 | 250 | $ | 124 |
The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $3,968$1,040 and $1,091$933 at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, and was 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.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
6) | MARKETABLE SECURITIES |
At March 31, 2021 and December 31, 2020, FutureFuel had investments in certain debt securities (trust preferred securities and exchange-traded debt instruments) and in preferred stock and other equity instruments. These investments are classified as current assets in the consolidated balance sheets. The unrealized loss on equity securities held for the three months ended March 31, 2021 and 2020 were $1,765 and $9,570, respectively.
Available for sale securities:
FutureFuel has designated the debt securities as being available-for-sale. The following comprises the available-for-sale debt securities balances included within marketable securities in the consolidated balance sheets at the respective dates:
March 31, 2021 | ||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
Trust preferred stock | $ | 3,676 | $ | 188 | $ | 0 | $ | 3,864 |
December 31, 2020 | ||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
Trust preferred stock | $ | 3,676 | $ | 264 | $ | 0 | $ | 3,940 |
The aggregate fair value of debt securities with unrealized losses totaled $0 at March 31, 2021 and December 31, 2020.
The Company determined an allowance for credit losses for these debt securities was not necessary as of March 31, 2021. The large financial institutions have strong credit ratings with no recent history of defaulting on outstanding obligations, nor is the Company aware of any long-term credit risk related to delinquency under these obligations.
There were 0 sales of debt securities in the three months ended March 31, 2021 or 2020.
The debt securities held at March 31, 2021, had a contractual maturity of greater than ten years.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
At June 30, 2020 and December 31, 2019, FutureFuel had investments in certain debt securities (trust preferred securities and exchange-traded debt instruments) and in preferred stock and other equity instruments. These investments are classified as current assets in the consolidated balance sheets. The unrealized gain on equity securities held for the three months ended June 30, 2020 and 2019 were $2,164 and $1,883, respectively. The unrealized (loss) gain on equity securities held for the six months ended June 30, 2020 and 2019 were ($7,405) and $4,891, respectively.
Available-for-sale securities:
FutureFuel has designated the debt securities as being available-for-sale. The following comprises the available-for-sale debt securities balances included within marketable securities in the consolidated balance sheets at the respective dates:
June 30, 2020 | ||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
Trust preferred stock | $ | 3,676 | $ | 84 | $ | - | $ | 3,760 | ||||||||
Exchange-traded debt | 1,428 | 86 | - | 1,514 | ||||||||||||
Total debt securities | $ | 5,104 | $ | 170 | $ | - | $ | 5,274 |
December 31, 2019 | ||||||||||||||||
Adjusted Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||
Trust preferred stock | $ | 3,676 | $ | 250 | $ | - | $ | 3,926 | ||||||||
Exchange-traded debt | 1,428 | 128 | (3 | ) | 1,553 | |||||||||||
Total debt securities | $ | 5,104 | $ | 378 | $ | (3 | ) | $ | 5,479 |
The aggregate fair value of debt securities with unrealized losses totaled $0 at June 30, 2020 and $151 at December 31, 2019. Effective January 1, 2020 the Company adopted ASU 2016-13 using the modified retrospective approach. Under ASU 2016-13 the Company evaluates the debt securities for credit losses using the current expected credit loss model (“CECL”). At the date of adoption and at June 30, 2020, the Company held no debt securities with a fair value below adjusted cost, and no evaluation under the CECL model was required.
There were 0 sales of debt securities in the six months ended June 30, 2020 or 2019.
The debt securities held at June 30, 2020, had a contractual maturity of greater than ten years.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
| 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’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.
The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at June 30, 2020March 31, 2021 and December 31, 2019.2020.
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 | June 30, 2020 | Level 1 | Level 2 | Level 3 | March 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
Derivative instruments | $ | (465 | ) | $ | (465 | ) | $ | - | $ | - | $ | 819 | $ | 819 | $ | 0 | $ | 0 | ||||||||||||||
Preferred stock and other equity instruments | $ | 56,821 | $ | 56,821 | $ | - | $ | - | $ | 46,309 | $ | 46,309 | $ | 0 | $ | 0 | ||||||||||||||||
Trust preferred stock and exchange-traded debt instruments | $ | 5,274 | $ | 5,274 | $ | - | $ | - | $ | 3,864 | $ | 3,864 | $ | 0 | $ | 0 |
Asset (Liability) | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Fair Value at | Inputs Considered as: | |||||||||||||||
Description | December 31, 2019 | Level 1 | Level 2 | Level 3 | ||||||||||||
Derivative instruments | $ | (267 | ) | $ | (267 | ) | $ | - | $ | - | ||||||
Preferred stock and other equity instruments | $ | 68,141 | $ | 68,141 | $ | - | $ | - | ||||||||
Trust preferred stock and exchange-traded debt instruments | $ | 5,479 | $ | 5,479 | $ | - | $ | - |
Asset (Liability) | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Fair Value at | Inputs Considered as: | |||||||||||||||
Description | December 31, 2020 | Level 1 | Level 2 | Level 3 | ||||||||||||
Derivative instruments | $ | 124 | $ | 124 | $ | 0 | $ | 0 | ||||||||
Preferred stock and other equity instruments | $ | 60,464 | $ | 60,464 | $ | 0 | $ | 0 | ||||||||
Trust preferred stock and exchange-traded debt instruments | $ | 3,940 | $ | 3,940 | $ | 0 | $ | 0 |
8) | INTANGIBLE |
In April of 2015, FutureFuel acquired additional historical line space on a pipeline for $1,408. The acquired line space was recorded as an intangible asset with an indefinite life as there was no foreseeable limit on the time period over which it is expected to contribute to cash flows. The carrying value of the asset was $1,408 at June 30, 2020March 31, 2021 and December 31, 20192020 FutureFuel tests the intangible asset for impairment in accordance with Topic 350, Intangibles-Goodwill and Other. Please see Note 17, Subsequent Event, regarding this intangible asset.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
9) | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consisted of the following at:
June 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
Accrued employee liabilities | $ | 4,256 | $ | 2,534 | $ | 2,135 | $ | 2,609 | ||||||||
Accrued property, franchise, motor fuel and other taxes | 2,037 | 1,226 | 1,589 | 1,730 | ||||||||||||
Lease liability, current | 392 | 537 | 495 | 491 | ||||||||||||
Other | 297 | 113 | 349 | 247 | ||||||||||||
Total | $ | 6,982 | $ | 4,410 | $ | 4,568 | $ | 5,077 |
| BORROWINGS |
On March 30, 2020, FutureFuel, with FutureFuel Chemical as the borrower and certain of FutureFuel’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 (as amended, the “Prior Credit Agreement”) with the lenders party, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. The Credit Agreement consists of a five-year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $30,000 for letters of credit and $15,000 for swingline loans (collectively, the “Credit Facility”). The Credit Facilitycredit facility expires on March 30, 2025. The primary amendments from the Prior Credit Agreement were a reduction in the facility by $65,000, a reduction in the facility’s applicable interest rate by 0.25%, a reduction in the commitment fee, and elimination of the minimum consolidated fixed charge coverage ratio.
The interest rate floats at the following margins over LIBOR or base rate based upon the leverage ratio from time to time:
Consolidated Leverage Ratio | Adjusted LIBOR Rate Loans and Letter of Credit Fee | Base Rate Loans | Commitment Fee | |||||||||||
< 1.00:1.0 |
|
| 1.00% | 0.00% | 0.15% | |||||||||
≥ 1.00:1.0 | And | < 1.50:1.0 | 1.25% | 0.25% | 0.15% | |||||||||
≥ 1.50:1.0 | And | < 2.00:1.0 | 1.50% | 0.50% | 0.20% | |||||||||
≥ 2.00:1.0 | And | < 2.50:1.0 | 1.75% | 0.75% | 0.20% | |||||||||
≥ 2.50:1.0 |
|
| 2.00% | 1.00% | 0.25% |
The terms of the Credit Facility contain certain negative covenants and conditions including a maximum consolidated leverage ratio and a consolidated minimum consolidated interest coverage ratio.
There were 0 borrowings under the Credit Agreement at June 30, 2020March 31, 2021 or under the Prior Credit Agreement at December 31, 2019.2020.
On March 27, 2020,
11) | INCOME TAX PROVISION |
The following table summarizes the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to provide emergency assistance for individuals, families and businesses affected by the coronavirus pandemic. Under the CARES Act, certain subsidiaries of FutureFuel entered into a loan with Saint Louis Bank pursuant to the Paycheck Protection Program (“PPP”) totaling $8,180 on April 10, 2020. At the time that FutureFuel applied for the PPP loan, it qualified to receive the funds pursuant to the then published eligibility requirements. FutureFuel ensured continued operation as part of the nation’s critical infrastructure on the receipt and availability of these funds. However, the Small Business Administration and Treasury Department subsequently issued new guidance that cast doubt on the ability of public companies to qualify for a PPP loan. As a result, FutureFuel paid the full amount of the PPP loan on May 5, 2020. income tax provision.
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Income tax (benefit) provision | $ | (4,387 | ) | $ | (13,212 | ) | ||
Effective tax rate | 33.3 | % | (226.6 | %) |
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
The following table summarizesBecause the income tax provision.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Income tax (benefit) provision | $ | (4,889 | ) | $ | 917 | $ | (18,101 | ) | $ | 1,875 | ||||||
Effective tax rate | (47.6 | %) | 19.9 | % | (112.4 | %) | 17.0 | % |
TheCompany is unable to reliably estimate its annual effective tax rate for the three andmonths ended sixMarch 31, 2021, it has determined its income tax benefit by applying its actual year-to-date effective tax rate to year-to-date pretax income. In contrast, the tax benefit for the three months ended June 30,March 31, 2020 reflects the application of an estimated annual effective tax rate to year-to-date pretax income. The effective tax rates for both periods reflect the positive effect of the reinstatementeffects of certain tax credits and incentives, for 2020,the most significant of which wereare the BTC and Small Agri-biodiesel Producer Tax Credit. The BTC and Small Producer Agri-biodiesel Producer Credit were retroactively extended for 2018 and 2019 on December 20, 2019 and further extended through December 31, 2022. On March 27, 2020, President Trump signed into lawAdditionally, the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (“CARES Act”). The CARES Act provides that Net Operating Losses (“NOLs”) arising in a taxable year beginning after December 31, 2017 and before January 1, 2021 shall be treated as a carryback to each of the 5 preceding taxable years unless the taxpayer elects to forego the carryback. This enacted NOL provision had a positive effect on the effective tax rate for the three and sixmonths ended June 30,March 31, 2020 as FutureFuel will be ablewas favorably impacted by the enhanced NOL carryback provisions of the CARES Act. This law, enacted on March 27, 2020, allowed the Company to carrybackcarry back its 20192020 federal NOLtax loss to a year with a higher tax rate rather than forward to a year with a lower tax rate.
The effective tax rate for the three and six months ended June 30, 2019 reflects the unfavorable effect of the BTC and Small Producer Agri-biodiesel Producer Credit not being in the law for the firstsix months of 2019. The six months ended June 30, 2019 rate was also favorably impacted from a retroactive research and development credit for 2018 in a state where FutureFuel does significant business.
There were 0 unrecognized tax benefits at June 30, 2020 or December 31, 2019.
FutureFuel recorded interest and penalties, net, as a component of income tax provision and had accrued balances of $13 and ($557) at June 30, 2020 and December 31, 2019, respectively.
| EARNINGS PER SHARE |
In the three and sixmonths ended June 30, 2020March 31, 2021 and 2019,2020, FutureFuel used the treasury method in computing earnings per share.
Basic and diluted (losses) earnings per common share were computed as follows:
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net income | $ | 15,159 | $ | 3,687 | $ | 34,202 | $ | 9,186 | ||||||||||||||||
Numerator for diluted earnings per share | $ | 15,159 | $ | 3,687 | $ | 34,202 | $ | 9,186 | ||||||||||||||||
Net (loss) income | $ | (8,773 | ) | $ | 19,043 | |||||||||||||||||||
Denominator: | ||||||||||||||||||||||||
Weighted average shares outstanding – basic | 43,743,243 | 43,743,243 | 43,743,243 | 43,743,243 | 43,743,243 | 43,743,243 | ||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Stock options and other awards | 497 | - | 248 | 2,866 | 0 | 0 | ||||||||||||||||||
Weighted average shares outstanding – diluted | 43,743,740 | 43,743,243 | 43,743,491 | 43,746,109 | 43,743,243 | 43,743,243 | ||||||||||||||||||
Basic earnings per share | $ | 0.35 | $ | 0.08 | $ | 0.78 | $ | 0.21 | ||||||||||||||||
Diluted earnings per share | $ | 0.35 | $ | 0.08 | $ | 0.78 | $ | 0.21 | ||||||||||||||||
Basic (loss) earnings per share | $ | (0.20 | ) | $ | 0.44 | |||||||||||||||||||
Diluted (loss) earnings per share | $ | (0.20 | ) | $ | 0.44 |
For the three and sixmonths ended June 30, 2020,March 31, 2021 50,000 and 62,000all 44,000 options to purchase FutureFuel’s common stock were excluded on a weighted average basis respectively, as these options were anti-dilutive in the computation of diluted earnings per share. Forshare as all were anti-dilutive. In the three and sixmonths ended June 30, 2019,March 31, 2020, 40,000 and 20,0000 options were excluded on a weighted average basis, respectively.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)excluded.
| 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.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
Related party revenues are the result of sales of biodiesel, petrodiesel, blends, other petroleum products, and other similar or related products to these related parties.
Related party cost of goods sold and distribution are the result of sales of biodiesel, petrodiesel, blends, and other petroleum products to these related parties along with the associated expense from the purchase of natural gas, storage and terminalling services by FutureFuel from these related parties.
A related party manages natural gas purchases for FutureFuel, initially pays for the natural gas, and subsequently invoices FutureFuel for the same plus a nominal fee for such services. The natural gas matter as discussed in Note 16, Legal Matters, is in reference to the natural gas supplier, not the related party.
| SEGMENT INFORMATION |
FutureFuel has two reportable segments organized along similar product groups – chemicals and biofuels.
Chemicals
FutureFuel’s chemicalschemical segment manufactures diversified chemical products that are sold externally to third party customers. This segment is composed of 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; the sale of petrodiesel with no biodiesel added; the sale of internally generated, separated Renewable Identification Numbers (“RINs”); the sale of 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, resulting 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 RINs sale has been completed, which may lead to variability in reported operating results.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
Summary of business by segment
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
Revenue | ||||||||||||||||||||||||
Custom chemicals | $ | 18,041 | $ | 21,965 | $ | 41,801 | $ | 45,665 | $ | 10,675 | $ | 23,760 | ||||||||||||
Performance chemicals | 4,797 | 3,894 | 8,730 | 7,546 | 5,435 | 3,933 | ||||||||||||||||||
Chemicals revenue | 22,838 | 25,859 | 50,531 | 53,211 | 16,110 | 27,693 | ||||||||||||||||||
Biofuels revenue | 24,584 | 45,005 | 49,973 | 66,154 | 25,406 | 25,389 | ||||||||||||||||||
Total Revenue | $ | 47,422 | $ | 70,864 | $ | 100,504 | $ | 119,365 | $ | 41,516 | $ | 53,082 | ||||||||||||
Segment gross profit (loss) | ||||||||||||||||||||||||
Segment gross (loss) profit | ||||||||||||||||||||||||
Chemicals | $ | 7,577 | $ | 7,181 | $ | 15,591 | $ | 14,490 | $ | (1,301 | ) | $ | 8,014 | |||||||||||
Biofuels | (6,666 | ) | (3,911 | ) | 1,719 | (7,958 | ) | (9,435 | ) | 8,385 | ||||||||||||||
Total gross profit | $ | 911 | $ | 3,270 | $ | 17,310 | $ | 6,532 | ||||||||||||||||
Total gross (loss) profit | $ | (10,736 | ) | $ | 16,399 |
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 these assets are shared to varying degrees by each segment, causing such an allocation to be of little value.
|
|
On March 23, 2020, the Company declared a special cash dividend NotestoConsolidatedFinancialStatementsof $3.00 FutureFuelCorp.
(Dollarsinthousands,exceptpershare on common stock in the amount of $131,230 that was paid on April 17, 2020.amounts)
(Unaudited)
| RECENTLY ISSUED ACCOUNTING |
Recently Adopted Accounting Standards
In the first quarter of 2020, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and the associated ASUs (collectively “Topic 326”) on a modified retrospective approach. The amendments replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company recorded a $12 reduction to opening retained earnings and an allowance for bad debt of $12 on our consolidated financial statements.
Recently Issued Accounting Standards NotAdopted
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, "Income Taxes" and improve consistent application by clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, with the amendments to be appliedwas adopted on a retrospective, modified retrospective or prospective basis dependingand had an immaterial effect on the specific amendment. The Company is currently evaluating the impact of adopting this guidance.financials.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
Other
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Effective March 12, 2020, the guidance in the update is in response to concerns about structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR). Regulators, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This guidance will ease the accounting burden associated with transitioning away from reference rates that are expected to be discontinued within our credit facility as described in Note 10.
NotestoConsolidatedFinancialStatementsofFutureFuelCorp.
(Dollarsinthousands,exceptpershareamounts)
(Unaudited)
| LEGAL MATTERS |
From time to time, FutureFuel and its operations are parties to, or targets of, lawsuits, claims, investigations, regulatory matters, and proceedings, which are being handled and defended in the ordinary course of business. While FutureFuel is unable to predict the outcomes of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.
DuringAs a result of the extraordinary increase in natural gas prices, the Attorney General of Arkansas has launched a civil investigative demand against several natural gas suppliers. At this time the company is disputing the February 2021 natural gas bill and payment thereof is pending further investigation.
The natural gas expense was a component of Cost of goods sold-related parties in the Consolidated Statements of Operations and Comprehensive Income in the three months ended June 30, 2020,March 31, 2021. However, as discussed in Note 13, Related Party Transactions, the Company reachednatural gas supplier is not a legal resolutionrelated party of FutureFuel.
17) | SUBSEQUENT EVENT |
Upon making the strategic decision to exit its status as a prior year contractual matter for whichregular shipper on a common carrier pipeline in April 2021, FutureFuel may record an accrualimpairment charge of $8,350 was relieved as other income. its intangible asset.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’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 Information” below for additional discussion regarding risks associated with forward-looking statements.
Unless otherwise stated, all dollar amounts are in thousands.
Overview
Our Companycompany is managed and reported in two reporting segments: chemicals and biofuels. Within the chemicalschemical segment are two product groupings: custom chemicals and performance chemicals. The custom product group is composed of specialty chemicals manufactured for a single customer whereas the performance chemical product group is composed of chemicals manufactured for multiple customers. The biofuels segment is composed of one product group. Management believes that the diversity of each segment strengthens the Companycompany in the ability to utilize resources and is committed to growing each segment.
Coronavirus Disease 2019 (“COVID-19”)COVID-19
In March 2020, the World Health Organization categorized COVID-19 as a pandemic. COVID-19pandemic and it continues to spread throughout the United States and other countries across the world, andworld. During the duration and severity of its effects remain unknown. Our priority remainspandemic, our objectives have been to protect the well-being of our employees, support our customers, obtain materials from our suppliers, and maintain our manufacturing operations. WeWhile the pandemic has reduced the overall level of activity across much of the economy, we have been able to continue supplying our products to our customers to date, however, some customers have reduced their near-term demand. We have also been able to find alternative sources for raw materials and inputs to meet our near-term supply requirements. largely met these objectives.
We continue to closely monitorWhile the impactworst effects of COVID-19 on all aspects of our business, includingthe pandemic may be behind us in the United States, the virus is still spreading worldwide and the long-term economic consequences globally are still unclear, making its impact on our customers, employees, and suppliers. The extent to which COVID-19 impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and are difficult to predict; these developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.
Because the magnitude and duration of the COVID-19 pandemic and its economic consequences are unclear, the pandemic’s impact on our performance isstill difficult to predict. The three principleprinciples areas we anticipatewhere COVID-19 tomay still negatively impact our financial performance are our customer demand, our ability to procure raw materials and inputs from suppliers,material procurement, and our ability to operate our manufacturing facility.
Customer Demand – Several of our major chemical customers sell the products we produce for them in to markets that have been significantly impacted by COVID-19. The energy and automotive markets in particular have drastically been impacted starting insince April, which we anticipate will reduce chemicals segment revenue the remainder of the year based on current estimates. Low2020 and have not yet fully recovered to pre-pandemic levels. However, diesel prices and a Renewable Identification Number (RIN) market that has stagnated on uncertainty of required mandates has similarly reduced the value of our finished product. The duration ofRenewable Identification Numbers (RINs) have improved significantly in 2021 and while promising, this impact of COVID-19recovery is clearly difficult to forecast. We currently expect these markets to recover over time. However, the speed at which these market sectors rebound is highly uncertain and will be determined by reopening of economies and restoration of consumer confidence. still fragile.
Supply Chain Impact – SupplierOur initial concern was that supplier shutdowns maymight result in raw material or input shortages and negatively impact our ability to manufacture products and meet our customers’ demand. Indemands. This was true initially in our biofuelsbiofuel segment we are seeing significant contraction among many of our feedstock suppliers. Closures and idling of restaurants (used cooking oil source), ethanol plants (corn oil source), rendering and poultry plants (tallow and grease source) have impacted our traditional supply chain. In addition, supply shortages may impact the timing of when customer facilities reopen and/or increase production and the speed at which customers ramp up production, negatively impacting demand forimpact that had on the industry as a whole is part of the reason RINs have increased in value. We have managed supply such that our products. Lower demand increases the riskoperations have not been hindered by shortages thus far and will continue in that certain suppliers may face financial issues, potentially impacting their ability to supply.effort.
Operations Impact - Our manufacturing is generally considered critical services and our plant remainshas remained open to meet customer demand. In an effort to containdemand during the COVID-19 pandemic. The policies that were implemented including social distancing, enhanced cleaning and sanitizing, and the wearing of masks, have proven successful in preventing the spread of COVID-19 maintain the well-being of our employees, ensure compliance with governmental requirements or respond to declines in demand from customers, we have had, where possible, employees work from home and temporarily closed portions of our offices.on-site. We will continue to take actions to help prevent the spread of COVID-19 at work including social distancing, expanding cleaning and sanitization, adjusting work hours and temperature checks.adjust policies as necessary. To date we have had no negative impact on our ability to operate the plant safely and in a way that meets our customers’ demands.
Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts on our financial condition and results of operations. For more information on the risks associated with COVID-19, refer to Part II, Item 1A, "Risk Factors" herein.
Summary of Financial Results
Set forth below is a summary of certain consolidated financial information for the periods indicated.
Three Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
Dollar | % | Dollar | % | |||||||||||||||||||||||||||||
2020 | 2019* | Change | Change | 2021 | 2020 | Change | Change | |||||||||||||||||||||||||
Revenue | $ | 47,422 | $ | 70,864 | $ | (23,442 | ) | (33.1 | %) | $ | 41,516 | $ | 53,082 | $ | (11,566 | ) | (22 | %) | ||||||||||||||
(Loss) income from operations | $ | (1,139 | ) | $ | 1,185 | $ | (2,324 | ) | (196.2 | %) | $ | (13,058 | ) | $ | 13,979 | $ | (27,037 | ) | (193 | %) | ||||||||||||
Net income | $ | 15,159 | $ | 3,687 | $ | 11,472 | 311.1 | % | ||||||||||||||||||||||||
Net (loss) income | $ | (8,773 | ) | $ | 19,043 | $ | (27,816 | ) | (146 | %) | ||||||||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.35 | $ | 0.08 | $ | 0.27 | 337.5 | % | $ | (0.20 | ) | $ | 0.44 | $ | (0.64 | ) | (145 | %) | ||||||||||||||
Diluted | $ | 0.35 | $ | 0.08 | $ | 0.27 | 337.5 | % | $ | (0.20 | ) | $ | 0.44 | $ | (0.64 | ) | (145 | %) | ||||||||||||||
Capital expenditures (net of customer reimbursements) | $ | 563 | $ | 451 | $ | 112 | 24.8 | % | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 2,652 | $ | 3,514 | $ | (862 | ) | (24.5 | %) | $ | (7,825 | ) | $ | 10,177 | $ | (18,002 | ) | (177 | %) |
Six Months Ended June 30, | ||||||||||||||||
Dollar | % | |||||||||||||||
2020 | 2019* | Change | Change | |||||||||||||
Revenue | $ | 100,504 | $ | 119,365 | $ | (18,861 | ) | (15.8 | %) | |||||||
Income from operations | $ | 12,840 | $ | 2,396 | $ | 10,444 | 435.9 | % | ||||||||
Net income | $ | 34,202 | $ | 9,186 | $ | 25,016 | 272.3 | % | ||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.78 | $ | 0.21 | $ | 0.57 | 271.4 | % | ||||||||
Diluted | $ | 0.78 | $ | 0.21 | $ | 0.57 | 271.4 | % | ||||||||
Capital expenditures (net of customer reimbursements) | $ | 1,133 | $ | 874 | $ | 259 | 29.6 | % | ||||||||
Adjusted EBITDA | $ | 12,829 | $ | 8,929 | $ | 3,900 | 43.7 | % |
* Prior year amounts have been restated for comparison.
We use adjusted EBITDA as a key operating metric to measure both performance and liquidity. Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities (each as determined in accordance with GAAP) as a measure of performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP. We define adjusted EBITDA as net income before interest, income taxes, depreciation, and amortization expenses, excluding, when applicable, non-cash stock-based compensation expenses, public offering expenses, acquisition-related transaction costs, purchase accounting adjustments, losses on disposal of property and equipment, gains or losses on derivative instruments, and other non-operating income or expenses. Information relating to adjusted EBITDA is provided so that investors have the same data that we employ in assessing the overall operation and liquidity of our business. Our calculation of adjusted EBITDA may be different from similarly titled measures used by other companies; therefore, the results of our calculation are not necessarily comparable to the results of other companies.
Adjusted EBITDA allows our chief operating decision makers to assess the performance and liquidity of our business on a consolidated basis to assess the ability of our operating segments to produce operating cash flow to fund working capital needs, to fund capital expenditures, and to pay dividends. In particular, our management believes that adjusted EBITDA permits a comparative assessment of our operating performance and liquidity, relative to a performance and liquidity based on GAAP results. This measure isolates the effects of certain items, including depreciation and amortization (which may vary among our operating segments without any correlation to their underlying operating performance), non-cash stock-based compensation expense (which is a non-cash expense that varies widely among similar companies), and gains and losses on derivative instruments (which can cause net income to appear volatile from period to period relative to the sale of the underlying physical product).
We utilize commodity derivative instruments primarily to protect our operations from downward movements in commodity prices, and to provide greater certainty of cash flows associated with sales of our commodities. We enter into hedges, and we utilize mark-to-market accounting to account for these instruments. Thus, our results in any given period can be impacted, and sometimes significantly, by changes in market prices relative to our contract price along with the timing of the valuation change in the derivative instruments relative to the sale of biofuel. We include this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.
Additionally, we invest in marketable securities of certain debt securities (trust preferred stock and exchange-traded debt instruments) and in preferred stock and other equity instruments. The realized and unrealized gains and losses on these marketable securities can fluctuate significantly from period to period. We include this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.
The following table reconciles net income, the most directly comparable GAAP performance financial measure, with adjusted EBITDA.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019* | 2020 | 2019* | |||||||||||||
Net income | $ | 15,159 | $ | 3,687 | $ | 34,202 | $ | 9,186 | ||||||||
Depreciation | 2,858 | 2,877 | 5,862 | 5,602 | ||||||||||||
Non-cash stock-based compensation | - | - | 49 | - | ||||||||||||
Interest and dividend income | (1,519 | ) | (2,750 | ) | (3,486 | ) | (5,112 | ) | ||||||||
Non-cash interest expense and amortization of deferred financing costs | 31 | 44 | 87 | 87 | ||||||||||||
Losses on disposal of property and equipment | - | 8 | 2 | 11 | ||||||||||||
(Gain) loss on derivative instruments | 935 | (443 | ) | (5,922 | ) | 1,033 | ||||||||||
Loss (gain) on marketable securities | (1,573 | ) | (826 | ) | 8,486 | (3,753 | ) | |||||||||
Other income | (8,350 | ) | - | (8,350 | ) | - | ||||||||||
Income tax (benefit) provision | (4,889 | ) | 917 | (18,101 | ) | 1,875 | ||||||||||
Adjusted EBITDA | $ | 2,652 | $ | 3,514 | $ | 12,829 | $ | 8,929 |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net (loss) income | $ | (8,773 | ) | $ | 19,043 | |||
Depreciation | 2,608 | 3,004 | ||||||
Non-cash stock-based compensation | - | 49 | ||||||
Interest and dividend income | (1,005 | ) | (1,967 | ) | ||||
Non-cash interest expense and amortization of deferred financing costs | 32 | 56 | ||||||
Loss on disposal of property and equipment | - | 2 | ||||||
Loss (gain) on derivative instruments | 2,625 | (6,857 | ) | |||||
Loss on marketable securities | 1,075 | 10,059 | ||||||
Income tax benefit | (4,387 | ) | (13,212 | ) | ||||
Adjusted EBITDA | $ | (7,825 | ) | $ | 10,177 |
The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA.
Six Months Ended June 30, | ||||||||
2020 | 2019* | |||||||
Net cash provided by operating activities | $ | 84,201 | $ | 13,527 | ||||
Benefit for deferred income taxes | (699 | ) | 445 | |||||
Interest and dividend income | (3,486 | ) | (5,112 | ) | ||||
Income tax (benefit) provision | (18,101 | ) | 1,875 | |||||
(Gain) loss on derivative instruments | (5,922 | ) | 1,033 | |||||
Change in fair value of derivative instruments | (198 | ) | 297 | |||||
Change in operating assets and liabilities, net | (34,617 | ) | (3,137 | ) | ||||
Other income | (8,350 | ) | - | |||||
Other | 1 | 1 | ||||||
Adjusted EBITDA | $ | 12,829 | $ | 8,929 |
*Prior year amounts have been restated for comparison
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net cash (used in) provided by operating activities | $ | (14,347 | ) | $ | 4,034 | |||
Benefit for deferred income taxes | 4,402 | 22 | ||||||
Interest and dividend income | (1,005 | ) | (1,967 | ) | ||||
Income tax benefit | (4,387 | ) | (13,212 | ) | ||||
(Loss) gain on derivative instruments | 2,625 | (6,857 | ) | |||||
Change in fair value of derivative instruments | 695 | 1,874 | ||||||
Change in operating assets and liabilities, net | 4,192 | 26,282 | ||||||
Other | - | 1 | ||||||
Adjusted EBITDA | $ | (7,825 | ) | $ | 10,177 |
Results of Operations
Consolidated
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||
Change | Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | 2021 | 2020 | Amount | % | |||||||||||||||||||||||||||||||||||||
Revenues | $ | 47,422 | $ | 70,864 | $ | (23,442 | ) | (33.1 | %) | $ | 100,504 | $ | 119,365 | $ | (18,861 | ) | (15.8 | %) | $ | 41,516 | $ | 53,082 | $ | (11,566 | ) | (21.8 | %) | |||||||||||||||||||||
Volume/product mix effect | $ | (6,980 | ) | (9.8 | %) | $ | 5,782 | 4.8 | % | $ | (19,439 | ) | (36.6 | %) | ||||||||||||||||||||||||||||||||||
Price effect | $ | (16,462 | ) | (23.2 | %) | $ | (24,643 | ) | (20.6 | %) | $ | 7,873 | 14.8 | % | ||||||||||||||||||||||||||||||||||
Gross profit | $ | 911 | $ | 3,270 | $ | (2,359 | ) | (72.1 | %) | $ | 17,310 | $ | 6,532 | $ | 10,778 | 165.0 | % | |||||||||||||||||||||||||||||||
Gross (loss) profit | $ | (10,736 | ) | $ | 16,399 | $ | (27,135 | ) | (165.5 | %) | ||||||||||||||||||||||||||||||||||||||
Operating expenses | 2,322 | 2,420 | (98 | ) | (4.0 | %) | ||||||||||||||||||||||||||||||||||||||||||
Other expense | (102 | ) | (8,148 | ) | 8,046 | (98.7 | %) | |||||||||||||||||||||||||||||||||||||||||
Income tax benefit | (4,387 | ) | (13,212 | ) | 8,825 | (66.8 | %) | |||||||||||||||||||||||||||||||||||||||||
Net (loss) income | $ | (8,773 | ) | 19,043 | (27,816 | ) | (146.1 | %) |
Consolidated revenue in the three and six months ended June 30, 2020,March 31, 2021 decreased $23,442 and $18,861, compared to the three and six months ended June 30, 2019. The decrease in the three months ended June 30, 2020 primarily resulted from lower selling prices in the biofuel segment of $19,473 which was negatively impacted by supply demand imbalance and lower sales volume in the chemical segment of $6,032 from an agrochemical product we no longer make. The decrease in the six months ended June 30, 2020 primarily resulted from lower prices in the biofuel segment of $27,116 and lower sales volume in the chemical segment of $5,153. Partially offsetting this decrease in the six-month comparison period was higher sales volumes in the biofuels segment of $10,935 given the favorable market conditions with the reinstatement of the blenders' tax credit ("BTC").
Gross profit in the three months ended June 30, 2020 decreased $2,359$11,566 compared to the three months ended June 30, 2019.March 31, 2020. This decrease was driven by lower prices in the biofuels segment and lowerprimarily resulted from decreased sales volumes in both the chemicals and biofuels segments resultingthat were partially offset by increased prices of biodiesel in the three-month period.
Gross loss in the three months ended March 31, 2021 was $10,736 as compared to gross profit of $16,399 in the three months ended March 31, 2020. This decline primarily resulted from: i) exorbitant natural gas prices invoiced from reduced demand fromWinter Storm Uri which resulted in an increase of $7,800 as compared to the weakened global fuel market andprior year quarter, ii) a reduction in production volumes given the impact of the COVID-19 pandemic as well as an agrochemical product we no longer make. Gross profit was also reduced bynatural gas curtailment, iii) the change in the unrealized and realized activity in derivative instruments with a loss of $935$2,625 in the three months ended June 30, 2020 andMarch 31, 2021 as compared to a gain of $443$6,857 in the three months ended June 30, 2019.
Gross profit in the six months ended June 30,March 31, 2020 increased $10,778 compared to the six months ended June 30, 2019. This increase primarily resulted from: i) the BTC being in effect for the current period versus not being in effect in the prior six-month period; and ii)iv) the change in the unrealized and realized activity in derivative instruments with a gain of $5,922 in the six months ended June 30, 2020 and a loss of $1,033 in the six months ended June 30, 2019. Also benefiting gross profit in both the three and six months ended June 30, 2020 and 2019 was the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. InThis adjustment decreased gross profit $3,913 in the three months ended June 30, 2020 and 2019, this adjustment increasedMarch 31, 2021 as compared to an increase in gross profit $1,575of $1,319 in the prior year quarter.
As a result of the extraordinary increase in natural gas prices, the Attorney General of Arkansas has launched a civil investigative demand against several natural gas suppliers. At this time the company is disputing the February 2021 natural gas bill and $287, respectively. Inpayment thereof is pending further investigation. See Notes 13 and 16 of the six months ended June 30, 2020 and 2019, this adjustment increased gross profit $2,893 and $1,924, respectively. consolidated financial statements for further details.
Operating eExpensesxpenses
Operating expenses decreased nominally$98 in the three months ended June 30, 2020,March 31, 2021, as compared to the three-months ended March 31, 2020. This slight decrease was primarily from decreased compensation expenses.
Other expense
Other expense was $102 in the three months ended June 30, 2019. In the six months ended June 30, 2020 operating expenses increased $334March 31, 2021, as compared to the same period inof the prior year. This increaseyear of $8,148 which was primarily from increased compensation expenses.
Other Income
During the three months ended June 30, 2020, the Company reached a legal resolution of a prior year contractual matter for which an accrual of $8,350 was relieved as other income.change in unrealized losses on marketable securities.
Income Tax Provisiontax benefit
TheBecause the Company is unable to reliably estimate its annual effective tax rate for the three months ended June 30,March 31, 2021, it has determined its income tax benefit by applying its actual year to date effective tax rate to year-to-date pretax income. In contrast, the tax benefit for the three months ended March 31, 2020 reflects the application of an estimated annual effective tax rate to year-to-date pretax income.
The effective tax rates for both periods reflect the positive effect of the reinstatementeffects of certain tax credits and incentives, for 2020, the most significant of which wereare the BTC and Small Agri-biodiesel Producer Tax Credit. The BTC and Small Producer Agri-biodiesel Producer Credit were retroactively extendedAdditionally, the effective rate for 2018 and 2019 on December 20, 2019 and further extended through Decemberthe three months ended March 31, 2022. On March 27, 2020 President Trump signed into lawwas favorably impacted by the enhanced NOL carryback provisions of the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (“CARES Act”). The CARES Act provides that Net Operating Losses (“NOLs”) arising in a taxable year beginning after December 31, 2017 and before January 1, 2021 shall be treated as a carrybackThis law, enacted on March 27, 2020, allowed the Company to each of the 5 preceding taxable years unless the taxpayer elects to forego the carryback. This enacted NOL provision had a positive effect on the effectivecarry back its 2020 federal tax rate for the three and six months ended June 30, 2020 as FutureFuel will be able to carryback its 2019 federal NOLloss to a year with a higher tax rate rather than forward to a year with a lower tax rate.
The effective tax rate for the three months ended June 30, 2019 reflects the unfavorable effect of the BTC and Small Producer Agri-biodiesel Producer Credit not being in the law for the first half of 2019. The rate was also favorably impacted from a retroactive research and development credit for a prior year in a state where FutureFuel does significant business.
There were no unrecognized tax benefits at June 30, 2020 or December 31, 2019.
FutureFuel recorded interest and penalties, net, as a component of income tax provision and had accrued balances of $13 and ($557) at June 30, 2020 and December 31, 2019, respectively.
Net iIncomencome
Net income for the three and six months ended June 30, 2020 increased $11,472 and $25,016, respectively,March 31, 2021 decreased $27,816 as compared to the same periodsperiod in 2019.2020. This increasedecrease resulted primarily from biodieselthe changes explained in gross (loss) profit as previously noted, Other expense, and Income tax credits and incentives that were in effect in the three and six months ended June 30, 2020 that were not in effect for 2019 (see Note 2) and tax benefits in effect in the first half of 2020 not in effect for the same period in 2019 (see the income tax provision discussion above). In the three and six months ended June 30, 2020, income was also benefited by other income from the resolution of a prior year contractual matter. Partially offsetting this increase in the six month period was the unrealized loss on equity securities.benefit.
ChemicalsChemical Segment
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||
Change | Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | 2021 | 2020 | Amount | % | |||||||||||||||||||||||||||||||||||||
Revenues | $ | 22,838 | $ | 25,859 | $ | (3,021 | ) | (11.7 | %) | $ | 50,531 | $ | 53,211 | $ | (2,680 | ) | (5.0 | %) | $ | 16,110 | $ | 27,693 | $ | (11,583 | ) | (41.8 | %) | |||||||||||||||||||||
Volume/product mix effect | $ | (6,032 | ) | (23.3 | %) | $ | (5,153 | ) | (9.6 | %) | $ | (11,697 | ) | (42.2 | %) | |||||||||||||||||||||||||||||||||
Price effect | $ | 3,011 | 11.6 | % | $ | 2,473 | 4.6 | % | $ | 114 | 0.4 | % | ||||||||||||||||||||||||||||||||||||
Gross profit | $ | 7,577 | $ | 7,181 | $ | 396 | 5.5 | % | $ | 15,591 | $ | 14,490 | $ | 1,101 | 7.6 | % | ||||||||||||||||||||||||||||||||
Gross (loss) profit | $ | (1,301 | ) | $ | 8,014 | $ | (9,315 | ) | (116.2 | %) |
Chemical revenue in the three and six months ended June 30, 2020March 31, 2021 decreased $3,021 and $2,680 as41.8% or $11,583 compared to the three and six months ended June 30, 2019.March 31, 2020. Revenue for our custom chemicals (unique chemicals produced for specific customers) for the three and six months ended June 30, 2020March 31, 2021 totaled $18,041 and $41,801,$10,675, a decrease of $3,924 and $3,864$13,085 from the same period in 2019. Decreased revenue in the three and six months ended June 30 as compared to the prior three and six-month period were mostly driven by: i) an agrochemical product2020. Two products we no longer manufacture; ii) a slowdown in near-term business in both automotive and energy related applications resulting from COVID-19; and iii)sell benefited the phase out of a laundry detergent additive. Partially offsettingprior year revenue $8,097, the remaining decrease of other custom chemical revenue in the three and six months ended June 30, 2020 and 2019 was the change in accelerated amortization of deferred revenue from customer contracts of $1,722 and $1,698, respectively. This acceleration was primarily from fulfillment oflower sales volumes with the performance obligation on an herbicide intermediate product we will no longer make.natural gas curtailment and COVID-19. Performance chemicals (composed of multi-customer products which are sold based on specification) revenue was $4,797 and $8,730 in the three and six months ended June 30, 2020,$5,435, an increase of $903 and $1,184$1,502 from the three and six months ended June 30, 2019.March 31, 2020. This increase was primarily from product mix on higher pricesincreased sales volume of glycerin based on a reduced supplyand the timing of imported material and increased demand given COVID-19.campaign products, although market conditions were more supportive than during the same period of last year.
Gross profit for the chemicalschemical segment for the three and six months ended June 30, 2020, increased $396 and $1,101, respectively,March 31, 2021, decreased $9,315 when compared to the same periodsperiod of 2019. This increase was2020 driven mostly by the unusually high natural gas price, the loss of sales volume in our custom chemical products primarily fromdriven by the acceleration of amortization of deferred revenue from an herbicide intermediate product we will no longer make. In the three and six months ended June 30, 2020 and 2019, the change in amortization of the deferred revenue from customer contracts increased gross profit of $1,722 and $1,698, respectively. Partially offsetting this benefit was the unfavorable product mix variance without the production of the agrochemical product and the volume effects of COVID-19 on customer demand, and the loss of two custom chemical products we no longer sale. Also reducing gross profit in three-month periods ended March 31, 2021 was the change in adjustments in the carrying value of our business.inventory as determined utilizing the LIFO method of inventory accounting as compared to an increase in gross profit in the same period of 2020; this adjustment decreased gross profit $670 and increased gross profit $502, respectively.
Biofuels Segment
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||
Change | Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | Amount | % | 2020 | 2019 | Amount | % | 2021 | 2020 | Amount | % | |||||||||||||||||||||||||||||||||||||
Revenues | $ | 24,584 | $ | 45,005 | $ | (20,421 | ) | (45.4 | %) | $ | 49,973 | $ | 66,154 | $ | (16,181 | ) | (24.5 | %) | $ | 25,406 | $ | 25,389 | $ | 17 | 0.1 | % | ||||||||||||||||||||||
Volume/product mix effect | $ | (948 | ) | (2.1 | %) | $ | 10,935 | 16.5 | % | $ | (7,742 | ) | (30.5 | %) | ||||||||||||||||||||||||||||||||||
Price effect | $ | (19,473 | ) | (43.3 | %) | $ | (27,116 | ) | (41.0 | %) | $ | 7,759 | 30.6 | % | ||||||||||||||||||||||||||||||||||
Gross (loss) profit | $ | (6,666 | ) | $ | (3,911 | ) | $ | (2,755 | ) | 70.4 | % | $ | 1,719 | $ | (7,958 | ) | $ | 9,677 | (121.6 | %) | $ | (9,435 | ) | $ | 8,385 | $ | (17,820 | ) | (212.5 | %) |
Biofuels revenue in the three and six months ended June 30, 2020 decreased $20,421 and $16,181March 31, 2021 was flat as compared to the same periodsperiod of 2019, respectively.2020. The biodiesel and biodiesel blend pricesvolumes decreased as compared to the prior year, periods primarily from industry wide challenges in the fuel market. Global fuel markets were impacted by reduced demand for oil caused by the economic impact of Winter Storm Uri of approximately $3,000. Offsetting this volume decrease as compared to the COVID-19 pandemicsame period of 2020, was higher selling prices with the overall improvement in fuel and the decision by foreign oil producing nations notRIN prices.
A significant portion of our biodiesel sold was to cut supply. These factors resultedtwo major refiner/blenders in significant declines in petroleum and biodiesel oil prices. For the three months ended June 30, 2020 sales volume declined given the weakened market, however, for the six-month comparison period, sales volume improved $10,935.
Biofuels revenue from common carrier pipelines varies as its revenue recognition depends upon whether a transaction is bought fromMarch 31, 2021 and sold to the same party. Purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another (including buy/sell agreements) are combined and recorded on a net basis. Additionally, revenue from common carrier pipelines fluctuates with market conditions. Revenue from net transactions did not change in the three-month comparison period. In the six-month comparison period, revenue increased $169.
One major refiner/blenderfirst quarter of 2020 there were no significant customer within our biofuels segment was greater than 10% of revenue in 2020 and 2019.concentrations. 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 this customer would have a material adverse effect on our biofuels segment or on us as a whole because: (i) we believe that we could readily sell our biodiesel to other customers as potential demand from other customers for biodiesel exceeds our production capacity; (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-term purchase orders; and (iii) the prices we receive from these customers are based upon then-market rates, as would be the case with sales of this commodity to other customers.
Biofuels gross loss was $6,666$9,435 in the three months ended June 30, 2020,March 31, 2021, as compared to a gross lossprofit of $3,911$8,385 in the same period of 2019,2020, primarily fromfrom: i) the impact of Winter Storm Uri which dramatically increased the price of natural gas and consequently reduced sales volumes and lower margins given global market conditions as well as a lower of cost or market adjustment of $530 at June 30, 2020 and none forwhen production was curtailed to minimize natural gas consumption, further exacerbated by delays in restarting caused by the same period in 2019. Partially reducing this gross loss wasfreezing weather, ii) the change in the activity in derivative instruments with a loss of $935$2,625 in the three months ended June 30, 2020,March 31, 2021, as compared to a gain of $443$6,857 in the same period of 2019. In addition, gross profit was benefited in both three-month periodsthree months ended June 30,March 31, 2020, and 2019 byiii) the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment increased gross profit $1,317 and $70, respectively.
Biofuels gross profit was $1,719 in the six months ended June 30, 2020,accounting as compared to aan increase in gross loss of $7,958profit in the same period of 2019, primarily from the change in the activity in derivative instruments with a gain of $5,922 in the six months ended June 30, 2020 as compared to a loss of $1,033 in the same period of 2019. Also benefiting2020; this adjustment decreased gross profit in both three-month periods ended June 30, 2020$3,243 and 2019 was the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment increased gross profit $2,134 and $1,180,$817, respectively.
We recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets. Our derivative instruments do not qualify for hedge accounting under the specific guidelines of Topic 815, Derivatives and Hedging. None of the derivative instruments are designated and accounted for as hedges primarily due to the extensive record keeping requirements.
The volumes and carrying values of our derivative instruments were as follows:
Asset (Liability) | ||||||||||||||||
June 30, 2020 | December 31, 2019 | |||||||||||||||
Contract Quantity Short | Fair Value | Contract Quantity Short | Fair Value | |||||||||||||
Regulated fixed price future commitments* | 415 | $ | (465 | ) | 140 | $ | (267 | ) |
Asset (Liability) | ||||||||||||||||
March 31, 2021 | December 31, 2020 | |||||||||||||||
Contract Quantity Short | Fair Value | Contract Quantity Short | Fair Value | |||||||||||||
Regulated fixed price future commitments | 265 | $ | (819 | ) | 250 | $ | 124 |
*All derivative instruments are entered into with the standard contract terms and conditions in accordance with major trading authorities of the New York Mercantile Exchange.
Critical Accounting Estimates
Revenue Recognition
The Company recognizes revenue under Topic 606, Revenue from Contracts with Customers.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 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, 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-hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and control of the product has transferred. Bill-and-hold transactions for the three months ended March 31, 2021 and 2020 were related to custom chemicals customers whereby revenue was recognized in accordance with contractual agreements based upon product being produced and ready for use by the customer. These sales were subject to written monthly purchase orders with agreement that production was reasonable. The product 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-hold customers are similar to other custom chemicals customers. Revenue under bill-and-hold arrangements were $7,335$7,549 and $12,006$10,153 for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively. For the six months ended June 30, 2020 and 2019 bill and hold sales revenue was $17,488 and $23,762, respectively. As of June 30,2020, $4,105 of the three- and six-month bill and hold revenue had not shipped.
Liquidity and Capital Resources
Our net cash from operating activities, investing activities, and financing activities for the sixthree months ended June 30,March 31, 2021 and 2020 and 2019 are set forth in the following table.
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Net cash provided by operating activities | $ | 84,201 | $ | 13,527 | ||||
Net cash used in investing activities | $ | (2,753 | ) | $ | (379 | ) | ||
Net cash used in financing activities | $ | (136,956 | ) | $ | (5,249 | ) |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net cash (used in) provided by operating activities | $ | (14,347 | ) | $ | 4,034 | |||
Net cash provided by investing activities | $ | 12,828 | $ | 3,838 | ||||
Net cash used in financing activities | $ | (2,624 | ) | $ | (3,101 | ) |
We believe that existing cash balances and cash flow to be generated from operating activities and borrowing capacity under the amended and restated credit agreement will be sufficient to fund operations, product development, cash dividends, and capital requirements for the foreseeable future. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition.
Operating Activities
Cash providedwas used by operating activities increased from $13,527of $14,347 in the first six monthsquarter of 20192021 as compared to $84,201 of cash provided by in the first six monthsquarter of 2020 for a net increase of $70,674.$4,034. This increasedecrease was primarily attributable to the decreasechange in accounts receivable, including accounts receivable - related parties,net income of $86,376. The provision of this cash resulted from the receipt of $81,029$19,043 in the first halfquarter of 2020 primarily from BTC payments, as compared to a $5,347 decrease in accounts receivablenet loss of $8,773 for the same period in 2019. Offsetting2021 for a net decrease of $27,816. Also contributing to the change in cash from operating activities in the first quarter of 2021, by comparison to the first quarter of 2020, was a net reduction in the cash adjustment from the change in fair value of equity securities of $7,805 and from higher cash outflows from inventory of $7,511 during the first quarter of 2021 compared to the first quarter of 2020. Partially offsetting these net cash inflowsoutflows was a $30,660 net decreasechange in the accounts payable, calculated from the decreaseincome tax receivable, demonstrating a cash outflow of $29,702$13,587 in the first halfquarter of 2020 as compared to an increasea cash inflow of $774, and a net change in accounts payable, including accounts payable-related parties, demonstrating a higher cash inflow of $10,539 in the same period in 2019first quarter of $958. This cash outflow from accounts payable was also primarily related2021 as compared to BTC rebates due to customers and paid inthe first quarter of 2020.
Investing Activities
Cash used infrom investing activities increased from $379to $12,828 of cash used in the first six months of 2019 to $2,753 of cash used inprovided by investing activities in the first sixthree months of 2021 as compared to of $3,838 in the first three months of 2020. The primary source ofOf the increase in cash used$8,990 change, $9,560 was the result of a $3,785an increase in the collateralizationnet sales of derivative instrumentsmarketable securities in the first sixthree months of 20202021 compared to the first sixthree months of 2019. Offsetting this change was a decrease in capital expenditures of $1,900. Our capital expenditures and customer reimbursements for capital expenditures for the six months ended June 30, 2020 and 2019 are summarized2020. Such net sales totaled $13,080, in the following table:
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash paid for capital expenditures | $ | 2,759 | $ | 4,659 | ||||
Cash received from customers as reimbursement of capital expenditures | $ | (1,626 | ) | $ | (3,785 | ) | ||
Cash paid for capital expenditures, net of reimbursements | $ | 1,133 | $ | 874 |
first three months of 2021, compared to $3,520 in net sales in the first three months of 2020.
Financing Activities
Cash used in financing activities was $136,956$2,624 and $5,249,$3,101, in the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. This $131,707 difference was primarily resulting from the payment of the special dividend of $131,230 on our common stock in the first six months of 2020. The remaining increasedecrease of $477 was related to debtDebt origination costs in the sixthree months ofended March 31, 2020 from the amendment of our existing credit facility. The remaining $2,624 resulted from payments of dividends on our common stock in the first three months of 2021 and 2020.
Credit Facility
Effective March 30, 2020, we entered into an amended and restated credit agreement with a syndicated group of commercial 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 March 30, 2025. See Note 10 to our consolidated financial statements for additional information regarding our Credit Agreement.
During the three months ended June 30, 2020, we applied for and received loan proceeds under the Paycheck Protection Program. On May 5, 2020, we repaid the loan in full.
We intend to fund future capital requirements for our businesses from cash flow as well as from existing cash, cash investments, and, if the need should arise, borrowings under our credit facility. We do not believe there will be a need to issue any securities to fund such capital requirements.
Dividends
In the first three and six months of 20202021 and 2019,2020, we paid a regular quarterly cash dividendsdividend in the amount of $0.06 per share on our common stock. The regular quarterly cash dividend amounted to $2,624 in each period. OnIn the three months ended March 23,31, 2020, we also declared a special cash dividend of $3.00 per share in the amount of $131,230 that was paidpayable on April 17, 2020.
Capital Management
As a result of our initial equity offering, our subsequent positive operating results, the exercise of warrants, and the issuance of shares in our at-the-market offering, we accumulated excess working capital. Some of this excess working capital has been paid out as special and regular cash dividends. Additionally, regular cash dividends will be paid in 2020,2021, as previously reported. Third parties have not placed significant restrictions on our working capital management decisions.
A significant portion of these funds was held in cash or cash equivalents at multiple financial institutions. At June 30, 2020In the periods ended March 31, 2021 and December 31, 2019,2020, we also had investments in certain preferred stock, trust preferreddebt securities, exchange-traded debt instruments, and other equity instruments. We classify these investments as current assets in the accompanying consolidated balance sheets and designate the debt securities as being “available-for-sale.” Accordingly, the debt securities are recorded at fair value, with the unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity. We also held equity securities with readily available market values. These equity instruments are recorded at fair value, with the unrealized gains and losses reported as a component of net income. The fair value of the debt securities and equity instruments totaled $62,095$50,173 and $73,620$64,404 at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
Lastly, we maintain depositary accounts such as checking accounts, money market accounts, and other similar accounts at selected financial institutions.
Off-BalanceOff-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 in our consolidated balance sheets at June 30, 2020March 31, 2021 and December 31, 2019.2020. Second, we hedge our biofuels feedstock through the execution of purchase contracts and supply agreements with certain 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 in our consolidated balance sheets at June 30, 2020March 31, 2021 or December 31, 20192020 because they do not meet the definition of a hedge 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
All dollar amounts expressed as numbers in these Market Risk Disclosures are in thousands (except per share amounts).
In recent years, general economic inflation has not had a material adverse impact on our costs and, as described elsewhere herein, we have passed some price increases along to our customers. However, we are subject to certain market risks as described below.
Market risk represents the potential loss arising from adverse changes in market rates and prices. Commodity price risk is inherent in the chemicals and biofuels business both with respect to inputs (electricity, coal, raw materials, biofuels feedstock, etc.) and outputs (manufactured chemicals and biofuels).
We seek to mitigate our market risks associated with the manufacturing and sale of chemicals by entering into long-term sale contracts that include contractual market price adjustment protections to allow changes in market prices of key raw materials to be passed on to the customer. Such price protections are not always obtained, however, and some raw material price risk remains significant.
In order to manage price risk caused by market fluctuations in biofuels prices, we may enter into exchange-traded commodity futures and options contracts. We account for these derivative instruments in accordance with Topic 815, Derivatives and Hedging. Under this standard, the accounting for changes in the fair value of a derivative instrument depends upon whether it has been designated as an accounting hedging relationship and, further, on the type of hedging relationship. To qualify for designation as an accounting hedging relationship, specific criteria must be met and appropriate documentation maintained. We had no derivative instruments that qualified under these rules as designated accounting hedges in the first sixthree months of 20202021 or 2019.2020. Changes in the fair value of our derivative instruments are recognized at the end of each accounting period and recorded in the consolidated statement of operations as a component of cost of goods sold within the biofuelsbiodiesel 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. At June 30, 2020March 31, 2021 and December 31, 2019,2020, the fair values of our derivative instruments were a net liabilityasset of $465$819 and $267,$124, respectively.
Our gross profit will be impacted by the prices we pay for raw materials and conversion costs (costs incurred in the production of chemicals and biofuels) for which we do not possess contractual market price adjustment protection. These items are principally composed of crude corn oil and yellow grease and petrodiesel. The availability and price of these items are subject to 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 sixthree months of 2020.2021. 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.
(Volume and dollars in thousands)
Item | Volume Requirements (a) | Units | Hypothetical Adverse Change in Price | Decrease in Gross Profit | Percentage Decrease in Gross Profit | Volume Requirements (a) | Units | Hypothetical Adverse Change in Price | Decrease in Gross Profit | Percentage Decrease in Gross Profit | ||||||||||||||||||||||
Biodiesel feedstocks | 215,852 | LB | 10% | $ | 5,871 | 33.9% | 82,628 | LB | 10.0 | % | 3,115 | 29.0 | % | |||||||||||||||||||
Natural gas | 331 | MCF | 10.0 | % | 798 | 7.4 | % | |||||||||||||||||||||||||
Methanol | 35,908 | LB | 10% | $ | 524 | 3.0% | 14,980 | LB | 10.0 | % | 261 | 2.4 | % | |||||||||||||||||||
Electricity | 53 | MWH | 10% | $ | 319 | 1.8% | 26 | MWH | 10.0 | % | 116 | 1.1 | % | |||||||||||||||||||
Sodium Methylate | 5,978 | MCF | 10% | $ | 200 | 1.2% |
(a) Volume requirements and average price information are based upon volumes used and prices obtained for the |
We had no borrowings at June 30, 2020March 31, 2021 or December 31, 20192020 and, as such, we were not exposed to interest rate risk for those periods. Due to the relative insignificance of transactions denominated in foreign currency, we consider our foreign currency risk to be immaterial.
Item 4. Controls and Procedures.
Under the supervision and with the participation of our chief executive officer and our principal financial officer and other senior management personnel, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and our principal financial officer have concluded that these disclosure controls and procedures at June 30, 2020March 31, 2021 were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
There were no changes in our internal control over financial reporting during our last fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to, nor is any of our property subject to, any material pending legal proceedings, other than ordinary routine litigation incidental to our business. However, from time to time, we may be a party to, or a target of, lawsuits, claims, investigations, and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which we expect to be handled and defended in the ordinary course of business. While we are unable to predict the outcome of any matters currently pending, we do not believe that the ultimate resolution of any such pending matters will have a material adverse effect on our overall financial condition, results of operations, or cash flows. However, adverse developments could negatively impact earnings or cash flows in future periods.
Item 1A. Risk Factors.
There have been no material changes to the risk factors we previously disclosed in Item 1A of our Form 10-K, Annual Report for the year ended December 31, 20192020 filed with the SEC on March 13, 2020, except for the addition of the Risk Factor below:16, 2021.
We are subject to risks associated with public health threats and epidemics, including the novel coronavirus disease ("COVID-19").
We are subject to risks associated with public health threats and epidemics, including the global health concerns relating to the COVID-19 pandemic. The global pandemic has adversely impacted and is likely to further adversely impact our business and markets, including our workforce and operations and the operations of our customers and suppliers. In particular, we may experience material financial or operational impacts, including:
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The extent to which the COVID-19 global pandemic and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict; these developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts on our financial condition and our results of operations and many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019 may be heightened.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit | Description | |
11. | ||
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. |
Special Note Regarding Forward-LookingForward-Looking Information
This report, and the documents incorporated by reference into this report contain forward-looking statements. Forward-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 Discussion and Analysis of Financial Condition and Results of Operations” in FutureFuel’s Form 10-K Annual Report for the year ended December 31, 20192020 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.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FUTUREFUEL CORP. |
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By: | /s/ Paul A. Novelly |
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Paul A. Novelly, Chairman and Chief |
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Executive Officer |
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By: | /s/ Rose M. Sparks |
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Rose M. Sparks, Chief Financial Officer |
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and Principal Financial Officer |
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