PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

FutureFuel Corp.

Consolidated Balance Sheets

(Dollars in thousands)

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)

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

FutureFuel Corp.

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

(Unaudited)

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

FutureFuel Corp.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited) 

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)

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by FutureFuel Corp. ("FutureFuel" or "the Company") in accordance and consistent with the accounting policies stated in the Company's 2022 Annual Report on Form 10-K, inclusive of the audited consolidated financial statements and should be read in conjunction with these consolidated financial 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.

Recent Accounting Standards

No new accounting standards have been adopted recently.

Proposed Accounting Standards  

In March 2023, the Financial Accounting Standards Board (the "FASB") issued Proposed Accounting Standards Update (ASU) No. 2023-ED100 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which aims to address requests for improved income tax disclosures from investors that use the financial statements to make capital allocation decisions. The amendments in this Proposed ASU, if adopted, would address the investor requests for more transparency of income tax information and would apply to all entities that are subject to income taxes. The Company is in the process of evaluating this proposed accounting standard.

In July 2023, the FASB issued Proposed Accounting Standards Update (ASU) No.2023-ED500 Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which aims to provide investors with more useful information about an entity’s expenses by improving disclosures on income statement expenses.  The amendments in this Proposed ASU would require public business entities to disclose disaggregated information about specific categories underlying certain income statement expense line items. The Company is evaluating this proposed accounting standard.

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 BTC will expire December 31, 2024 based on current law.  The Company records this credit as a reduction to cost of goods sold.

Within the law of the BTC, small agri-biodiesel producers with production capacity not in excess of 60 million gallons are eligible for an additional tax credit of $0.10 per gallon on the first 15 million gallons of agri-biodiesel sold (the “Small Agri-biodiesel Producer Tax Credit”). The Company was eligible for this credit as part of the tax provision.

CARES ACT – EMPLOYEE RETENTION TAX CREDIT

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), was enacted on March 27, 2020, to encourage eligible employers to retain employees on their payroll through, among other things, an available employee retention tax credit.  The Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the credit.  FutureFuel has applied for this credit and will recognize the benefit of the credit once reasonable assurance can be made as to the retention of the credit. 

NotestoConsolidatedFinancialStatementsofFutureFuelCorp.

(Dollarsinthousands,exceptpershareamounts)

(Unaudited)

The majority of revenue is from short term contracts with revenue recognized when a single performance obligation to transfer product under the terms of a contract with a customer are satisfied.

Certain of the Company's custom chemical contracts within the chemical segment contain a material right as defined by ASC Topic 606, from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers. Each contract also has a performance obligation to transfer products with 30-day payment terms. The Company recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pick up. If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with ASC Topic 606. The Company applies the renewal option approach in allocating the transaction price to these material rights and transfer of product. As a basis for allocating the transaction price to the material right and transfer of product, the Company estimates the expected life of the contract, the expected contractual volumes to be sold over that life, and the most likely expected sales price. Each estimate is updated quarterly on a prospective basis.

Contract Assets and Liabilities:

Contract assets consist of unbilled amounts typically resulting from revenue recognized through bill-and-hold arrangements. The contract assets at JuneSeptember 30, 2023 and December 31, 2022 consist of unbilled revenue from one customer and cash due from another customer and are recorded as accounts receivable in the consolidated balance sheets. Contract liabilities consist of advance paymentspayment arrangements related to material rights recorded as deferred revenue in the consolidated balance sheets. Increases to contract liabilities from cash received or due for a performance obligation of chemical segment plant expansions were $32$506 and $0$733 for the three months and $32$538 and $0$733 for the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively. Contract liabilities are reduced as the Company transfers product to the customer under the renewal option approach. Revenue recognized in the chemical segment from the contract liability reductions was $739$444 and $961$2,037 for the three months and $1,958$2,402 and $3,173$5,211 for the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively. These contract asset and liability balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

The following table provides the balances of receivables, contract assets, and contract liabilities from contracts with customers.

*Exclusive of the BTC of $9,807$13,084 and $8,970, respectively, and net of allowances for bad debt of $80$67 and $48, respectively, as of the dates noted.

Transaction price allocated to the remaining performance obligations:

At JuneSeptember 30, 2023, approximately $13,244$13,306 of revenue is expected to be recognized from remaining performance obligations. FutureFuel expects to recognize this revenue ratably over expected sales over the expected term of its long-term contracts which range from three to five years. Approximately 26%25% of this revenue is expected to be recognized over the next 12 months, and 74%75% is expected to be recognized over the subsequent 4845 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.

Notes to Consolidated Financial Statements of FutureFuel Corp.

NotestoConsolidatedFinancialStatementsofFutureFuelCorp.

(Dollarsinthousands,exceptpershareamounts)

(Unaudited)

The following tables provide revenue from customers disaggregated by the type of arrangement and by the timing of the recognized revenue.

Disaggregation of revenue - contractual and non-contractual:

Timing of revenue:

As of JuneSeptember 30, 2023 and December 31, 2022, $4,3024,010 and $4,473 of bill-and-hold revenue had not shipped, respectively. 

The carrying values of inventory were as follows as of:

NoA LIFO liquidation of last in first out ("LIFO") layers$151and $2,124 occurred in the sixnine and twelve months ended JuneSeptember 30, 2023 and 2022.December 31, 2022, respectively. The liquidation in 2023 related to the reduction of biodiesel inventory and the liquidation in 2022 related to the exit from pipeline business.

NotestoConsolidatedFinancialStatementsofFutureFuelCorp.

(Dollarsinthousands,exceptpershareamounts)

(Unaudited)

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 2023 or 2022. The Company has elected the normal purchase and normal sales exception for certain feedstock purchase contracts and supply agreements.

Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a loss of $14,068 and $1,373 (realized loss of $7,286 and gain of $4,389 and $12,695 (realized gains of $6,032 and $9,437)$2,150) for the three and sixnine months ended JuneSeptember 30, 2023, respectively, and a gain of $4,688 and loss of $17,476$21,917 (realized gain of $4,023 and $26,605 (realized lossesloss of $18,327 and $28,992)$24,970) for the three and sixnine months ended JuneSeptember 30, 2022, respectively.

The volumes and carrying values of FutureFuel’s derivative instruments were as follows at: 

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of ($1,066)$5,079 and $2,088 at JuneSeptember 30, 2023 and December 31, 2022, 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.

During the three months ended JuneSeptember 30, 2023, FutureFuel exited its position inheld no marketable equity and trust preferred (debt) securities. The previous sale of these securities was recorded as a component of net income with gainsa gain of $42 and $575 in the three and sixnine months ended JuneSeptember 30, 2023,2023. respectively. 

At December 31, 2022, FutureFuel had investments in certain marketable equity and trust preferred (debt) securities which had a fair market value of $37,126.  These investments were classified as current assets in the consolidated balance sheet.  The trust preferred securities held at December 31, 2022 were designated as being available-for-sale.  Accordingly, these securities were recorded at fair value of $3,675.

In accordance with ASC 321, the change in the fair value of marketable equity securities (preferred and other equity instruments) for the three months ended June 30, 2022 wasis reported as a component of net income as a loss of $3,239.income. The change in the fair value of marketable equity securities (preferred and other equity instruments) for the sixthree and nine months ended JuneSeptember 30, 2022 2022was a loss of $7,339.$602 and $7,940, respectively.

The aggregate fair value of debt securities with unrealized losses totaled $2,627 at December 31, 2022. Sales of debt securities were $0 in the sixnine months ended JuneSeptember 30, 2022.

NotestoConsolidatedFinancialStatementsofFutureFuelCorp.

(Dollarsinthousands,exceptpershareamounts)

(Unaudited)

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 JuneSeptember 30, 2023 and December 31, 2022. 

Accrued expenses and other current liabilities consisted of the following at:

NotestoConsolidatedFinancialStatementsofFutureFuelCorp.

(Dollarsinthousands,exceptpershareamounts)

(Unaudited)

On March 30, 2020, the Company, with FutureFuel Chemical Company as the borrower and certain of the Company’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 (as amended, the “Prior Credit Agreement”) with the lenders party thereto, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. The Credit Agreement consists of a five-year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $30,000 for letters of credit and $15,000 for swingline loans (collectively, the “Credit Facility”). The Credit Facility expires on March 30, 2025.

On March 1, 2023, the Company entered into a First Amendment to the Credit Agreement (the “First Amendment”). The First Amendment primarily amends the Credit Agreement to transition the Credit Facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”) and other conforming changes, in each case as more specifically set forth in the First Amendment. The First Amendment does not modify the aggregate amount, or expiration date, of the Credit Facility. We do not expect the transition from LIBOR to have a material impact on the Credit Facility. Pursuant to the First Amendment, the interest rate floats at the following margins over SOFR or base rate based upon our leverage ratio.

The terms of the Credit Facility contain certain negative covenants and conditions including a maximum consolidated leverage ratio and a consolidated minimum interest coverage ratio.

There were no borrowings under the Credit Agreement at JuneSeptember 30, 2023 or December 31, 2022.

The following table summarizes the income tax provision.  

The Company’s effectiveincome tax ratesprovision for the three and sixnine months ended JuneSeptember 30, 2023 decreased compared to the three and six months ended June 30, 2022 primarily due to changes in the assessment of realizability of deferred tax assets.  In the three and six month periods in 2023, the income tax provision reflectscomprises only small amounts of current state taxes.  No deferred tax benefits on ongoing tax losses have been recognized, reflecting management’s determination that none of the net deferred tax assets generated on its 2023 tax losses are more likely than not to be realized.  In theThe three and six month periods-month period in 2022 tax benefits on tax losses generated were recognized, but limited bysimilarly reflected immaterial state taxes and miscellaneous items, while the assessment thatnine-month period included the netcumulative impact of valuation allowances recorded against certain existing deferred tax assets generated would more likely than not be only partially realized.assets.

NotestoConsolidatedFinancialStatementsofFutureFuelCorp.

(Dollarsinthousands,exceptpershareamounts)

(Unaudited)

In the three and sixnine months ended JuneSeptember 30, 2023 and 2022, FutureFuel used the treasury method in computing earnings per share.

Basic and diluted (losses) earnings per common share were computed as follows:  

For the three and sixnine months ended JuneSeptember 30, 2023, 22,00041,534 and 42,35442,080 options to purchase FutureFuel’s common stock were excluded, respectively, in the computation of diluted earnings per share as all were anti-dilutive. In the three and sixnine months ended JuneSeptember 30, 2022, 12,00044,000 and 24,00030,667 options were excluded, respectively.

FutureFuel enters into transactions with companies affiliated with or controlled by a director and significant shareholder. Revenues, expenses, prepaid amounts, and unpaid amounts related to these transactions are captured in the accompanying consolidated financial statements as related party line items.

Related party revenues are the result of sales of biodiesel, petrodiesel, blends, other petroleum products, and other similar or related products to these related parties.  

Related party cost of goods sold and distribution are the result of sales and purchases of biodiesel, petrodiesel, blends, and other petroleum products with these related parties along with the associated expense from storage and terminalling services provided by these related parties.

During the 2021,three months ended September 30, 2023, a related party managedsettlement was reached on the previously disclosed natural gas purchases for FutureFuel, initially paid for the natural gas, and subsequently invoiced FutureFuel for the same plus a nominal fee for such services.  The natural gas matter as discussed indispute.  See Note 14 Legal Matters, is in reference to the natural gas supplier, not the related party. As of November 1, 2021, FutureFuel began managing all of its natural gas purchases.Matters.

NotestoConsolidatedFinancialStatementsofFutureFuelCorp.

(Dollarsinthousands,exceptpershareamounts)

(Unaudited)

FutureFuel has two reportable segments organized along similar product groups – chemicals and biofuels.

Chemicals

FutureFuel’s chemical segment manufactures diversified chemical products that are sold externally to third party customers. This segment is composed of two components: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).

Biofuels

FutureFuel’s biofuelsbiofuel 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. BiofuelsBiofuel revenues also include the sale of biodiesel blends with petrodiesel; petrodiesel with no biodiesel added; internally generated, separated Renewable Identification Numbers (“RINs”); and biodiesel production byproducts; and the purchase and sale of other petroleum products on common carrier pipelines.byproducts. 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.

As of JuneSeptember 30, 2023, FutureFuel held 11.84.2 million of RINs in inventory with a fair market value of $19,461$6,971 and no cost, which were traded in July. cost. Comparatively, at JuneSeptember 30, 2022, FutureFuel held 2.88.1 million of RINs in inventory with a fair market value of $4,943$12,752 and no cost.

Summary of business by segment

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.

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.

AsDuring the three months ended September 30, 2023, the parties to the previously disclosed natural gas dispute and the Company entered into a resultsettlement agreement to resolve the matter completely. Based on such settlement, the Company released $882 of the extraordinary increase in natural gas prices, the Attorney General of Arkansas launched a civil investigative demand against several natural gas suppliers in 2021.  The Company continues to dispute the February 2021 natural gas bill, and payment thereof is pending further investigation.previously accrued expense.

The Company identified a correction required to be made to its consolidated statementstatements of cash flows for the sixnine months ended JuneSeptember 30, 2023.  The correction relates solely to the reported amount of “Other assets” and the resulting total amount of “Net Cash Flows From Operating Activities” and the reported amount of “Collateralization of derivative instruments” and the resulting total amount of “Net Cash Flows from Investing Activities” in the consolidated statement of cash flows for the sixnine months ended JuneSeptember 30, 2023. The correction does not impact the Company’s overall cash position, its consolidated balance sheets, its consolidated statements of operations and comprehensive income, or its consolidated statements of stockholders’ equity as of and for the period ended JuneSeptember 30, 2023.

A summary of the impact on the consolidated statement of cash flows is as follows:

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. 

Effect of Restatement

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects correction of the errors described in the Explanatory Note with respect to the statement of cash flows included in the Original Form 10-Q. For additional information and a detailed discussion of the corrected errors, refer to the Explanatory Note and the Background of the Restatement.

Unless otherwise stated, all dollar amounts are in thousands.
 

Overview

Our companyCompany is managed and reported in two reporting segments: chemicals and biofuels. Within the chemical 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 product group is composed of chemicals manufactured for multiple customers. The biofuelsbiofuel segment is composed of one product group. Management believes that the diversity of each segment strengthens the company in the ability to utilize resources and is committed to growing each segment.

Within the United States Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS), we generate 1.5 Renewable Identification Numbers (RINs) for each gallon of biodiesel sold in the United States with a classification of a D4 or D6 RIN. RINs are used to monitor the level of renewable fuel traded in a given year in accordance with RFS 2 within the EPA moderated transaction system (EMTS).  We do not assign cost of goods sold to the generation of RINs as the physical fuel generates the full cost. As of JuneSeptember 30, 2023, we held 11.84.2 million D4 and D6 RINs with a fair market value of $19,461, all of which were sold in July.$6,971. Comparatively, as of JuneSeptember 30, 2022, we held 2.88.1 million RINs with a fair market value of $4,943.$12,752.   

Summary of Financial Results

Set forth below is a summary of certain consolidated financial information for the periods indicated.