What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-09 · 293 added, 516 removed, 573 unchanged (59% of the section changed)

3 unchanged sentences

(Dollars in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

2 unchanged sentences

$ 198,122  

Accounts receivable, inclusive of the blenders' tax credit of $ 25,253 and $ 97,295 at September 30, 2020 and December 31, 2019, respectively, and net of allowances for bad debt of $ 43 and $ 0 at September 30, 2020 and December 31, 2019, respectively

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  

6 unchanged sentences

16,894  

17,668  

Prepaid expenses

19 unchanged sentences

Liabilities and Stockholders’

Accounts payable, inclusive of the blenders' tax credit rebates due customers of $ 1,365 and $ 39,423

Accounts payable, inclusive of the blenders' tax credit rebates due customers of $ 890  and $ 1,116

$ 16,841  

6 unchanged sentences

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities –

related parties

Total current liabilities

6 unchanged sentences

12,332  

12,965  

Other noncurrent liabilities

6 unchanged sentences

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 September 30, 2020 and December 31, 2019

Accumulated other comprehensive income

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

Accumulated other comprehensive (loss) income

Additional paid in capital

14 unchanged sentences

(Dollars in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

$ 53,306  

$ 65,332  

Three Months Ended March 31,

$ 41,158  

5 unchanged sentences

32,781  

120,379  

155,603  

Cost of goods sold –

related parties

12,314  

Distribution –

related parties

Gross (loss) profit

( 10,736 )  

6 unchanged sentences

Total operating expenses

Income from operations

(Loss) income from operations

( 13,058 )  

13,979  

Interest and dividend income

1 unchanged sentence

( 32 )  

( 43 )  

( 119 )  

Gain (loss) on marketable securities

Loss on marketable securities

( 1,075 )  

3 unchanged sentences

( 13,160 )  

18,697  

Income tax (benefit) provision

( 830 )  

( 18,931 )  

$ 6,890  

$ 6,622  

$ 41,092  

$ 15,808  

Earnings per common share

$ 0.16  

Income tax benefit

( 4,387 )  

Net (loss) income

$ ( 8,773 )  

$ 19,043  

(Loss) earnings per common share

$ ( 0.20 )  

7 unchanged sentences

43,743,243  

43,745,339  

43,743,243  

43,744,107  

43,745,153  

Comprehensive income

$ 6,890  

$ 6,622  

Net (loss) income

$ ( 8,773 )  

$ 19,043  

Other comprehensive (loss) income from unrealized net (losses) gains on available-for-sale debt securities

Other comprehensive loss from unrealized net loss on available-for-sale debt securities

( 60 )  

Income tax effect

Total other comprehensive (loss) income, net of tax

( 170 )  

Comprehensive income

$ 6,883  

Total other comprehensive loss income, net of tax

( 44 )  

Comprehensive (loss) income

$ ( 8,817 )  

4 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

Comprehensive

2 unchanged sentences

Balance - December 31, 2020

43,743,243  

$ 282,166  

$ 184,632  

$ 467,098  

Prior period adjustment:

change in accounting principle

( 12 )  

Balance - December 31, 2019

43,743,243  

$ 282,166  

$ 184,620  

$ 467,086  

Cash dividends declared, $3.00 per share

( 131,230 )  

Stock based compensation

Other comprehensive loss

( 313 )  

19,043  

Balance - March 31, 2021

43,743,243  

$ ( 17 )  

$ 282,215  

$ 72,433  

$ 354,635  

Other comprehensive income

15,159  

Balance - June 30, 2020

43,743,243  

$ 282,215  

$ 87,592  

$ 369,944  

Other comprehensive loss

Balance - September 30, 2020

43,743,243  

$ 282,215  

$ 94,482  

$ 376,827  

For the Nine Months Ended September 30, 2019

For the Three Months Ended March 31, 2020

Comprehensive

6 unchanged sentences

$ 467,098  

Prior period adjustment:

change in accounting principle  

( 12 )  

Other comprehensive income

Balance - March 31, 2019

Balance - January 1, 2020, As adjusted  

43,743,243  

2 unchanged sentences

$ 467,086  

Other comprehensive income

Balance - June 30, 2019

Cash dividends declared, $ 3.00 per share

( 131,230 )  

Stock based compensation

Other comprehensive loss

( 313 )  

1 unchanged sentence

19,043  

Stock based compensation, net of tax

Other comprehensive income

Balance - September 30, 2019

Balance - March 31, 2020

43,743,243  

2 unchanged sentences

$ 72,433  

$ 354,635  

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

2 unchanged sentences

(Dollars in thousands)

Nine Months Ended September 30,

(Unaudited) 

Three Months Ended March 31,

Cash flows from operating activities

Net (loss) income

$ ( 8,773 )  

2 unchanged sentences

Amortization of deferred financing costs

Change in deferred income taxes, net

Benefit for deferred income taxes

( 4,402 )  

2 unchanged sentences

( 695 )  

Loss on the sale of investments

Stock based compensation

Gain on disposal of property and equipment

(Gain) loss on the sale of investments

( 690 )  

Stock based compensation

Loss on disposal of property and equipment

Noncash interest expense

4 unchanged sentences

related parties

Income tax receivable

( 11,389 )  

Income tax receivable

Prepaid expenses

Accounts payable

Prepaid expenses - related parties  

( 12 )  

( 43 )  

Accounts payable

Accounts payable –

related parties

( 341 )  

Accrued expenses and other current liabilities

( 509 )  

Accrued expenses and other current liabilities –

related parties

( 64 )  

Deferred revenue

2 unchanged sentences

( 139 )  

Net cash provided by operating activities

76,576  

Net cash (used in) provided by operating activities

( 14,347 )  

1 unchanged sentence

Collateralization of derivative instruments

( 106 )  

Purchase of marketable securities

5 unchanged sentences

( 146 )  

Net cash (used in) provided by investing activities

Net cash provided by investing activities

12,828  

Cash flows from financing activities

Loan proceeds

Payment on loan

( 8,180 )  

Deferred financing costs

( 477 )  

Payment of dividends

4 unchanged sentences

( 4,143 )  

20,973  

Cash and cash equivalents at beginning of period

6 unchanged sentences

Cash paid for income taxes

$ 1,076  

Noncash investing and financing activities:

Cash dividends declared, not paid

$ 131,230  

Noncash capital expenditures

Noncash operating leases

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

8 unchanged sentences

chemicals and biofuels.

The chemicals segment manufactures a diversified portfolio of chemical products that are sold to third party customers.

The majority of the revenues from the chemicals segment are derived from the custom manufacturing of specialty chemicals for specific customers.

The chemical segment manufactures a diversified portfolio of chemical products that are sold to third party customers.

The majority of the revenues from the chemical 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.

FutureFuel Chemical is a shipper of refined petroleum products on common carrier pipelines and buys and sells petroleum products to maintain an active shipper status on these pipelines.

Until April 2021, FutureFuel Chemical was a shipper of refined petroleum products on common carrier pipelines and bought and sold petroleum products to maintain an active shipper status on these pipelines. 

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 2019 audited consolidated financial statements and should be read in conjunction with the 2019 audited consolidated financial statements of FutureFuel.

The unaudited consolidated financial statements have been prepared by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel’s 2020  audited consolidated financial statements and should be read in conjunction with these 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.

1 unchanged sentence

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;

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;

3 unchanged sentences

Intercompany transactions and balances have been eliminated in consolidation.

R EINSTATEMENT OF THE BIODIESEL BLENDERS’

GOVERNMENT TAX CREDITS

REINSTATEMENT OF THE BIODIESEL BLENDERS ’

TAX CREDIT AND SMALL AGRI-BIODIESEL PRODUCER TAX CREDIT

3 unchanged sentences

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 BTC as a reduction to cost of goods sold.

The Company records the credit as a reduction to cost of goods sold.

Notes to Consolidated Financial Statements of FutureFuel Corp.

2 unchanged sentences

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 three and nine months ended September 30, 2020 as part of the tax provision.

The Company was eligible for this credit and recognized its benefit in the three months ended December 31, 2019 for both periods ( 2018 and 2019 ) as 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. 

 REVENUE RECOGNITION

5 unchanged sentences

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 chemicals segment customers and 2 to 10 days for biofuels segment customers.

Certain of FutureFuel custom chemical contracts within the chemicals segment contain a material right as defined by ASU 2014 - 09, Revenue from Contracts with Customers (“

Topic 606”

), from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers.

FutureFuel sells its products directly to customers generally under agreements with payment terms of 30 to 75 days for chemical segment customers and 2 to 10 days for biofuels segment customers.

Certain of FutureFuel custom chemical contracts within the chemical segment contain a material right as defined by ASU 2014 - 09, Revenue from Contracts with Customers  ("Topic 606" ), from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers.

Each contract also has a performance obligation to transfer products with 30 -day payment terms.

5 unchanged sentences

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 September 30, 2020 and December 31, 2019 consist of unbilled revenue from one customer and are recorded as accounts receivable in the consolidated balance sheets.

Contract assets consist of unbilled amounts typically resulting from revenue recognized through bill-and-hold arrangements.

The contract assets at March 31, 2021 

and December 31, 2020 

consist of unbilled revenue from one customer and are recorded as accounts receivable in the consolidated balance sheets.

Contract liabilities consist of advance payments related to material rights recorded as deferred revenue in the consolidated balance sheets.

Increases to contract liabilities from cash received for a performance obligation of chemicals segment plant expansions were $ 95 and $ 492 , for the three months and $ 3,453 and $ 3,402 , for the nine months ended September 30, 2020 and 2019, respectively.

Increases to contract liabilities from cash received for a performance obligation of chemical segment plant expansions were $ 209  and $ 2,307  for the three months ended March 31, 2021 

and 2020, respectively.

Contract liabilities are reduced as the Company transfers product to the customer under the renewal option approach.

Revenue recognized in the chemicals segment from the contract liability reductions were $ 174 and $ 1,302 for the three months, and $ 4,080  and $ 3,510  for the nine months ended September 30, 2020 and 2019, respectively.

Revenue recognized in the chemical segment from the contract liability reductions were $ 723  and $ 1,327  in the three months ended March 31, 2021 

and 2020, respectively.

These contract asset and liability balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

Included in the nine months ended September 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 $ 0 and $ 214 , for the three months ended September 30, 2020 and 2019, respectively;

$ 3,452 and $ 784 , for the nine months ended September 30, 2020 and 2019, respectively.

Notes to Consolidated Financial Statements of FutureFuel Corp.

2 unchanged sentences

Contract Assets and Liability Balances

September 30, 2020

March 31, 2021

December 31, 2020

10 unchanged sentences

$ 17,943  

* Exclusive of the BTC of $ 25 , 253 and $ 97,29 5 , respectively, and net of allowances for bad debt of $4 3 and $ 0 as of the dates noted.

* Exclusive of the BTC of $ 11,276  and $ 8,300 , respectively, and net of allowances for bad debt of $ 112  and $ 63 , respectively, as of the dates noted.

Transaction price allocated to the remaining performance obligations:

At September 30, 2020, approximately $ 21,555 of revenue is expected to be recognized from remaining performance obligations.

FutureFuel expects to recognize this revenue ratably with product sold over the expected term of its long-term contracts which range from four to six years.

Approximately 16 % of this revenue is expected to be recognized over the next 12 months, and 84 % is expected to be recognized between years two and six.

At March 31, 2021, approximately $ 21,199  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 22 % of this revenue is expected to be recognized over the next 12 months, and 78 % is expected to be recognized over the subsequent 48 months.

These amounts are subject to change based upon changes in the estimated contract life and estimated quantities to be sold over the contract life.

3 unchanged sentences

Disaggregation of revenue - contractual and non-contractual :

Three months ended

September 30,

Nine months ended

September 30,

Three Months Ended March 31,

Contract revenue from customers with > 1 year arrangements

1 unchanged sentence

$ 15,603  

$ 19,518  

$ 43,470  

Contract revenue from customer with < 1 year arrangements

49,088  

49,298  

Contract revenue from customers with < 1 year arrangements

36,355  

1 unchanged sentence

Revenue from non-contractual arrangements

( 2,017 )  

Total revenue

1 unchanged sentence

$ 53,082  

$ 154,642  

$ 185,049  

Timing of revenue :

Three months ended September 30,

Nine months ended September 30,

Three Months Ended March 31,

Bill-and-hold revenue

1 unchanged sentence

$ 10,153  

$ 24,888  

$ 38,179  

Non-bill-and-hold revenue

1 unchanged sentence

42,929  

129,754  

146,870  

Total revenue

1 unchanged sentence

$ 53,082  

$ 154,642  

$ 185,049  

As of September 30, 2020, $ 2,653 of the three - and nine -months bill-and-hold revenue had not shipped.

As of March 31, 2021, $ 2,911 of the three 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)

The carrying values of inventory were as follows as of:   

September 30, 2020

The carrying values of inventory were as follows as of:

March 31, 2021

December 31, 2020

1 unchanged sentence

Finished goods

$ 10,331  

$ 22,564  

Work in process

Raw materials and supplies

22,543  

20,121  

34,702  

45,453  

( 5,615 )  

Total inventory

$ 29,087  

$ 37,573  

DERIVATIVE INSTRUMENTS

3 unchanged sentences

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 .

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 2020 or 2019.

The Company had no derivative instruments that qualified under these rules as designated accounting hedges in 2021  or 2020.

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

Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a gain of $867 and $ 6,789 for the three months and nine months ended September 30, 2020, respectively, and a gain of $ 322 and a loss of $ 711 for the three months and nine months ended September 30, 2019, respectively.

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 $ 2,625  for the three months ended March 31, 2021 and a gain of $ 6,857  for the three months ended March 31, 2020.

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

Asset (Liability)

September 30, 2020

March 31, 2021

December 31, 2020

Quantity Short

Contract Quantity Short

Regulated fixed price future commitments

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $ 290 and $ 1,091 at September 30, 2020 and December 31, 2019, respectively, and was classified as other current assets in the consolidated balance sheets.

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $ 1,040  and $ 933  at March 31, 2021 

and December 31, 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.

2 unchanged sentences

MARKETABLE SECURITIES

At September 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.

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 gain on equity securities held for the three months ended September 30, 2020 and 2019 were $ 1,961 and $ 1,730 , respectively.

The unrealized (loss) gain on equity securities held for the nine months ended September 30, 2020 and 2019 were ($ 5,445 ) and $ 6,621 , respectively.

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 s ecurities :

1 unchanged sentence

The following comprises the available-for-sale debt securities balances included within marketable securities in the consolidated balance sheets at the respective dates:

September 30, 2020

March 31, 2021

Adjusted Cost

Unrealized Gains

Unrealized Losses

Trust preferred stock

1 unchanged sentence

$ 3,864  

Total debt securities

$ 3,676  

$ 3,836  

December 31, 2020

Adjusted Cost

Unrealized Gains

Unrealized Losses

Trust preferred stock

1 unchanged sentence

$ 3,940  

Exchange-traded debt

Total debt securities

$ 5,104  

$ ( 3 )  

$ 5,479  

The aggregate fair value of debt securities with unrealized losses totaled $ 0 at September 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 September 30, 2020, the Company held no debt securities with a fair value below adjusted cost, and no evaluation under the CECL model was required.

Sales of debt securities amounted to $ 1,500 in the three and nine months ended September 30, 2020, resulting in gains of $ 72 .

There were no sales of debt securities in the nine months ended September 30, 2019.

The debt securities held at September 30, 2020, had a contractual maturity of greater than ten years.

The aggregate fair value of debt securities with unrealized losses totaled $ 0  at March 31, 2021 

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 no sales of debt securities in the three months ended March 31, 2021 

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)

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.

7 unchanged sentences

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 September 30, 2020 and December 31, 2019. 

The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at March 31, 2021 

and December 31, 2020. 

Asset (Liability)

2 unchanged sentences

Inputs Considered as:

September 30, 2020

March 31, 2021

Derivative instruments

Preferred stock and other equity instruments

$ 59,640  

Trust preferred stock and exchange-traded debt instruments

$ 3,836  

Asset (Liability)

4 unchanged sentences

Derivative instruments

$ ( 267 )  

Preferred stock and other equity instruments

$ 68,141  

Trust preferred stock and exchange-traded debt instruments

$ 5,479  

 INTANGIBLE ASSET S

1 unchanged sentence

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 September 30, 2020 and December 31, 2019.

The carrying value of the asset was $ 1,408 at March 31, 2021 

and December 31, 2020 

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.

3 unchanged sentences

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

September 30, 2020

March 31, 2021

December 31, 2020

Accrued employee liabilities

$ 4,420  

$ 2,534  

Accrued property, franchise, motor fuel and other taxes

Lease liability, current

$ 6,886  

$ 4,410  

On March 30, 2020, FutureFuel, with FutureFuel Chemical as the borrower and certain of FutureFuel’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 ( as amended, the “Prior Credit Agreement”) with the lenders party, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent.

The Credit Agreement consists of a five -year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $ 30,000 for letters of credit and $ 15,000 for swingline loans (collectively, the “Credit Facility”).

The Credit Facility expires on March 30, 2025.

The credit facility expires on March 30, 2025. 

The primary amendments from the Prior Credit Agreement were a reduction in the facility by $ 65,000 , a reduction in the facility’s applicable interest rate by 0.25 %, a reduction in the commitment fee, and elimination of the minimum consolidated fixed charge coverage ratio.

15 unchanged sentences

1.75 %  

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

There were no borrowings under the Credit Agreement at September 30, 2020 or under the Prior Credit Agreement at December 31, 2019.

On March 27, 2020, 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 repaid the full amount of the PPP loan on May 5, 2020. 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

INCOME TAX PROVISION

The following table summarizes the income tax provision.  

Three Months Ended September 30,

Nine Months Ended September 30,

Income tax (benefit) provision

0.75 %  

2 unchanged sentences

1.00 %  

Effective tax rate

0.25 %  

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

There were no borrowings under the Credit Agreement at March 31, 2021 

or the Prior Credit Agreement at December 31, 2020.

INCOME TAX PROVISION

The following table summarizes the income tax provision.  

Three Months Ended March 31,

Income tax (benefit) provision

$ ( 4,387 )  

Effective tax rate

33.3 %  

The effective tax rate for the three and nine months ended September 30, 2020 reflects the positive effect of the reinstatement of certain tax credits and incentives for 2020, the most significant of which were 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 law 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 nine months ended September 30, 2020 as FutureFuel will be able to carry back its 2019 and 2020  federal NOLs to years with a higher tax rate rather than forward to years with a lower tax rate.

The effective tax rate for the three and nine months ended September 30, 2019 reflects the unfavorable effect of the BTC and Small Producer Agri-biodiesel Producer Credit not being in the law for the first nine months of 2019.

The nine months ended September 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 no unrecognized tax benefits at September 30, 2020 or December 31, 2019.

FutureFuel recorded interest and penalties, net, as a component of income tax provision and had accrued balances of $ 15  and ($ 557 ) at September 30, 2020 and December 31, 2019, respectively.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

Because the Company is unable to reliably estimate its annual effective tax rate for the three months ended 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 effects of certain tax credits and incentives, the most significant of which are the BTC and Small Agri-biodiesel Producer Tax Credit. 

Additionally, the effective rate for the three months ended March 31, 2020 was favorably impacted by the enhanced NOL carryback provisions of the CARES Act.

This law, enacted on March 27, 2020, allowed the Company to carry back its 2020 federal tax loss to a year with a higher tax rate rather than forward to a year with a lower rate.

EARNINGS PER SHARE

In the three and nine months ended September 30, 2020 and 2019, FutureFuel used the treasury method in computing earnings per share.

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

Three Months Ended September 30,

Nine Months Ended September 30,

$ 6,890  

$ 6,622  

$ 41,092  

$ 15,808  

In the three months ended March 31, 2021 

and 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 March 31,

Net (loss) income

Weighted average shares outstanding –

43,743,243  

Effect of dilutive securities:

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Weighted average shares outstanding –

43,745,339  

43,743,243  

43,744,107  

43,745,153  

Basic earnings per share

$ 0.16  

$ 0.15  

$ 0.94  

$ 0.36  

Diluted earnings per share

$ 0.16  

$ 0.15  

$ 0.94  

$ 0.36  

For the three and nine months ended September 30, 2020, 40,000  and 54,667 options were excluded on a weighted average basis respectively, as these options were anti-dilutive in the computation of diluted earnings per share.

For the three and nine months ended September 30, 2019, 50,000 and 30,000 options were excluded on a weighted average basis, respectively.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)   

RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables summarize changes in accumulated other comprehensive income from unrealized gains and losses on available-for-sale debt securities in the three and 

nine  months ended September 30, 2020 

Changes in Accumulated Other Comprehensive Income From Unrealized

Gains and Losses on Available-for-Sale Securities

Three Months Ended September 30, 2020 and 2019

Balance at July 1

Other comprehensive income before reclassifications

Amounts reclassified from accumulated other comprehensive income

( 67 )  

Net current-period other comprehensive (loss) income

Balance at September 30

Changes in Accumulated Other Comprehensive Income From Unrealized

Gains and Losses on Available-for-Sale Securities

Nine Months Ended September 30, 2020 and 2019

Balance at January 1

Other comprehensive income before reclassifications

( 71 )  

Amounts reclassified from accumulated other comprehensive income

( 99 )  

Net current-period other comprehensive (loss) income

( 170 )  

Balance at September 30

The following tables summarize amounts reclassified from accumulated other comprehensive income in the three and 

nine months ended September 30, 2020 

Reclassifications from Accumulated Other

Comprehensive Income for the Three and Nine Months Ended

September 30, 2020 and 2019

Three Months Ended September 30,

Affected Line Item in Statement of Operations

Unrealized gains on available-for-sale debt securities

Gain (loss) on marketable securities

Total before tax

( 18 )  

Total reclassifications

Nine Months Ended September 30,

Affected Line Item in Statement of Operations

Unrealized gains on available-for-sale debt securities

Gain (loss) on marketable securities

Total before tax

( 26 )  

Total reclassifications

There were no reclassifications from accumulated other comprehensive income in the three and nine  months ended September 30, 2019. 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)   

Basic (loss) earnings per share

Diluted (loss) earnings per share

For the three months ended March 31, 2021 all 44,000 options to purchase FutureFuel’s common stock were excluded in the computation of diluted earnings per share as all were anti-dilutive.

In the three months ended March 31, 2020, no options were excluded.

RELATED PARTY TRANSACTIONS

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Revenues, expenses, prepaid amounts, and unpaid amounts related to these transactions are captured in the accompanying consolidated financial statements as related party line items.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(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

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chemicals and biofuels.

FutureFuel’s chemicals segment manufactures diversified chemical products that are sold externally to third party customers.

FutureFuel’s chemical segment manufactures diversified chemical products that are sold externally to third party customers.

This segment is composed of two components:

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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;

petrodiesel with no biodiesel added;

internally generated, separated Renewable Identification Numbers (“RINs”);

biodiesel production byproducts;

and the purchase and sale of other petroleum products on common carrier pipelines. 

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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.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)   

Summary of business by segment

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Custom chemicals

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$ 23,760  

$ 52,129  

$ 70,935  

Performance chemicals

11,139  

10,922  

Chemicals revenue

1 unchanged sentence

27,693  

63,268  

81,857  

Biofuels revenue

1 unchanged sentence

25,389  

91,374  

103,192  

Total Revenue

1 unchanged sentence

$ 53,082  

$ 154,642  

$ 185,049  

Segment gross profit/(loss)

$ 4,754  

$ 8,488  

$ 20,345  

$ 22,978  

Segment gross 

(loss) profit

$ ( 1,301 )  

Total gross profit

$ 8,014  

( 9,435 )  

Total gross (loss) profit

$ ( 10,736 )  

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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.

SPECIAL CASH DIVIDEND

On March 23, 2020, the Company declared a special cash dividend of $ 3.00 per share on common stock in the amount of $ 131,230 that was paid on April 17, 2020 .

RECENTLY ISSUED ACCOUNTING STA NDARDS

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 Not Adopted

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 applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment.

The Company is currently evaluating the impact of adopting this guidance. 

Consolidated  

Financial  

Statements  

FutureFuel  

(Dollars  

thousands,  

except  

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)   

 RECENTLY ISSUED ACCOUNTING STA NDARDS  

Recently Issued Accounting Standards Adopted  

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 was adopted on a prospective basis and had an immaterial effect on the financials. 

ASU 2020 - 04,  

Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

Effective March 12, 2020, the guidance in the update is in response to concerns about structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR). Regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation.

This guidance will ease the accounting burden associated with transitioning away from reference rates that are expected to be discontinued within our credit facility as described in Note 10.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting . 

Effective March 12, 2020, the guidance in the update is in response to concerns about structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation.

This guidance will ease the accounting burden associated with transitioning away from reference rates that are expected to be discontinued within our credit facility as described in Note 10.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

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. 

During the nine months ended September 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.

As a result of the extraordinary increase in natural gas prices, the Attorney General of Arkansas has launched a civil investigative demand against several natural gas suppliers. 

At this time the company is disputing the February 2021 natural gas bill and payment thereof is pending further investigation.

The natural gas expense was a component of Cost of goods sold-related parties in the Consolidated Statements of Operations and Comprehensive Income in the three months ended March 31, 2021. 

However, as discussed in Note 13, Related Party Transactions, the natural gas supplier is not a related party of FutureFuel.

SUBSEQUENT EVENT

Upon making the strategic decision to exit its status as a regular shipper on a common carrier pipeline in April 2021, FutureFuel may record an impairment charge of its intangible asset.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

4 unchanged sentences

See “Forward-Looking Information”

below for additional discussion regarding risks associated with forward-looking statements.

Unless otherwise stated, all dollar amounts are in thousands.

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chemicals and biofuels.

Within the chemicals segment are two product groupings:

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 chemical product group is composed of chemicals manufactured for multiple customers.

The biofuels segment is composed of one product group.

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 biofuels 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.

Coronavirus Disease 2019 (“

COVID-19 ”)

In March 2020, the World Health Organization categorized COVID-19 as a pandemic.

COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects remain unknown.

Our priority remains to protect the well-being of our employees, support our customers, obtain materials from our suppliers, and maintain our manufacturing operations.

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.

We continue to closely monitor the impact of COVID-19 on all aspects of our business, including 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 is difficult to predict.

The principle area we continue to anticipate COVID-19 to negatively impact our financial performance is our customer demand.

In March 2020, the World Health Organization categorized COVID-19 as a pandemic and it continues to spread throughout the United States and other countries across the world. 

During the pandemic, our objectives have been to protect the well-being of our employees, support our customers, obtain materials from our suppliers, and maintain our manufacturing operations.

While the pandemic has reduced the overall level of activity across much of the economy, we have largely met these objectives.

While the worst effects of the 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 performance still difficult to predict. 

The three principles areas where COVID-19 may still negatively impact our financial performance are customer demand, raw material procurement, and our ability to operate our manufacturing facility.

Customer Demand – 

Several of our major chemical customers sell the products we produce for them in markets that have been significantly impacted by COVID-19.

The energy and automotive markets in particular have drastically been impacted starting in April which we anticipate will reduce chemicals segment revenue the remainder of the year based on current estimates.

Low 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 of this impact of COVID-19 is 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. 

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 since April, 2020 and have not yet fully recovered to pre-pandemic levels. 

However, diesel prices and the value of Renewable Identification Numbers (RINs) have improved significantly in 2021 and while promising, this recovery is still fragile.

Supply Chain Impact  –

Our initial concern was that supplier shutdowns might result in raw material or input shortages and negatively impact our ability to manufacture products and meet our customers’

demands. 

This was true initially in our biofuel segment and the impact that had on the industry as a whole is part of the reason RINs have increased in value. 

We have managed supply such that our operations have not been hindered by shortages thus far and will continue in that effort.

Operations Impact  - Our manufacturing is considered critical services and our plant has remained open to meet customer demand during the COVID-19 pandemic.

The policies that were implemented including social distancing, enhanced cleaning and sanitizing, and the wearing of masks, have proven successful in preventing the spread of COVID-19 on-site. 

We will continue to take actions to help prevent the spread of COVID-19 at work and adjust policies as necessary.

To date we have had no negative impact on our ability to operate the plant safely and in a way that meets our customers’

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 September 30,

Income from operations

Earnings per common share:

Capital expenditures (net of customer reimbursements)

Adjusted EBITDA

Nine Months Ended September 30,

Income from operations

Three Months Ended March 31,

(Loss) income from operations

Net (loss) income

Earnings per common share:

Capital expenditures (net of customer reimbursements)

Adjusted EBITDA

We use adjusted EBITDA as a key operating metric to measure both performance and liquidity.

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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.

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.

2 unchanged sentences

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).

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.

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The following table reconciles net income, the most directly comparable GAAP performance financial measure, with adjusted EBITDA. 

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Net (loss) income

Non-cash stock-based compensation

1 unchanged sentence

Non-cash interest expense and amortization of deferred financing costs

Gain on disposal of property and equipment

(Gain) loss on derivative instruments

(Gain) loss on marketable securities

Other non-operating income

Income tax (benefit) provision

Loss on disposal of property and equipment

Loss (gain) on derivative instruments

Loss on marketable securities

Income tax benefit

Adjusted EBITDA

The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA. 

Nine Months Ended September 30,

Net cash provided by operating activities

Deferred income taxes, net

The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA.

Three Months Ended March 31,

Net cash 

(used in) provided by operating activities

Benefit for deferred income taxes

Interest and dividend income

Income tax (benefit) provision

(Gain) loss on derivative instruments

Income tax benefit

(Loss) gain on derivative instruments

Change in fair value of derivative instruments

Change in operating assets and liabilities, net

Other income non-operating income

Adjusted EBITDA

Results of Operations  

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Volume/product mix effect

Consolidated revenue in the three and nine months ended September 30, 2020, decreased $11,546 and $30,407, compared to the three and nine months ended September 30, 2019.

This decrease primarily resulted from lower sales volumes in the chemicals segment and lower biofuel selling prices driven by the COVID-19 pandemic along with the absence of an agrochemical product we no longer make.

Partially offsetting this decline in the three and nine-month period was increased biofuels sales volumes.

Gross profit in the three and nine months ended September 30, 2020 increased $984 and $11,762 compared to the three and nine months ended September 30, 2019.

This increase was primarily from:

i) the blenders’

tax credit (“BTC”) being in effect for the current period and not in effect in the prior year periods;

ii) increased sales volumes of biofuels;

and iii) the change in the unrealized and realized activity in derivative instruments.

The change in derivatives was a gain of $867 and $322 in the three months ended September 30, 2020 and 2019, respectively.

The change in derivatives had a greater impact in the nine-month comparison period with a gain of $6,789 in the nine months ended September 30, 2020 and a loss of $711 in the nine months ended September 30, 2019.

Mostly reducing this profit was the reduction in chemical sales volumes as described above.

Also impacting gross profit in both the three and nine months ended September 30, 2020 and 2019 was the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. 

In the three months ended September 30, 2020 this adjustment decreased gross profit $628 and increased gross profit $557 in the three months ended September 30, 2019.

In the nine months ended September 30, 2020 and 2019, this adjustment increased gross profit $2,266 and $2,480, respectively.

Gross (loss) profit

Operating expenses

Operating expenses increased $455 and $789 in the three and nine months ended September 30, 2020, as compared to the three months ended September 30, 2019 from higher compensation expense and various external services.

Other I ncome

During the nine months ended September 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.

Income T ax P rovision

The effective tax rate for the three months ended September 30, 2020 reflects the positive effect of the reinstatement of certain tax credits and incentives for 2020, the most significant of which were 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 law the Coronavirus Aid, Relief, and Economic Security Act (H.R.

748) (“CARES Act”).

This enacted NOL provision had a positive effect on the effective tax rate for the three and nine months ended September 30, 2020 as FutureFuel will be able to carryback its 2019 and 2020 federal NOLs to years with a higher tax rate rather than forward to years with a lower tax rate.

The effective tax rate for the three months ended September 30, 2019 reflects the unfavorable effect of the BTC and Small Producer Agri-biodiesel Producer Credit not being in the law for the first nine months 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 September 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 September 30, 2020 and December 31, 2019, respectively.

Net income for the three and nine months ended September 30, 2020 increased $268 and $25,284, respectively, as compared to the same periods in 2019. This increase resulted primarily from biodiesel tax credits and incentives that were in effect in the three and nine months ended September 30, 2020 that were not in effect until the end of 2019 (see Note 2) and tax law changes in the first nine months of 2020 not in effect for 2019 (see the income tax provision discussion above).

In the three and nine months ended September 30, 2020, income was also benefited by other income from the resolution of a prior year contractual matter.

Partially offsetting this increase in the nine-month period was net unrealized losses on equity securities.

 Chemical s Segment

Three Months Ended September 30,

Nine Months Ended September 30,

Other expense

Income tax benefit

Net (loss) income

Consolidated revenue in the three months ended March 31, 2021 decreased $11,566 compared to the three months ended March 31, 2020.

This decrease primarily resulted from decreased sales volumes in both the chemicals and biofuels segments that 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 Winter Storm Uri which resulted in an increase of $7,800 as compared to the prior year quarter, ii) a reduction in production volumes given the natural gas curtailment, iii) the change in the unrealized and realized activity in derivative instruments with a 

loss of $2,625 in the three months ended March 31, 2021 as compared to a gain of $6,857 in the three months ended March 31, 2020 and iv) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. 

This adjustment decreased gross profit $3,913 in the three months ended March 31, 2021 as compared to an increase in gross profit of $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 payment thereof is pending further investigation.

See Notes 13 and 16 of the consolidated financial statements for further details.

Operating  e xpenses

Operating expenses decreased $98 in the three months ended 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 March 31, 2021, as compared to the same period of the prior year of $8,148 which was primarily from the change in unrealized losses on marketable securities.

Income tax benefit

Because the Company is unable to reliably estimate its annual effective tax rate for the three months ended 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 effects of certain tax credits and incentives, the most significant of which are the BTC and Small Agri-biodiesel Producer Tax Credit. 

Additionally, the effective rate for the three months ended March 31, 2020 was favorably impacted by the enhanced NOL carryback provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

This law, enacted on March 27, 2020, allowed the Company to carry back its 2020 federal tax loss to a year with a higher tax rate rather than forward to a year with a lower rate.

Net income for the three months ended March 31, 2021 decreased $27,816 as compared to the same period in 2020.

This decrease resulted primarily from the changes explained in gross (loss) profit as previously noted, Other expense, and Income tax benefit.  

Chemical Segment

Three Months Ended March 31,

Volume/product mix effect

Chemical revenue in the three and nine months ended September 30, 2020 decreased $15,909 and $18,589 as compared to the three and nine months ended September 30, 2019.

Revenue for our custom chemicals (unique chemicals produced for specific customers) for the three and nine months ended September 30, 2020 totaled $10,328 and $52,129, a decrease of $14,942 and $18,806 from the same period in 2019.

Decreased revenue in the three and nine months ended September 30 as compared to the prior three and nine-month period were mostly driven by:

i) an agrochemical product we no longer manufacture;

ii) a slowdown in near-term business in both automotive and energy related applications resulting from COVID-19;

and iii) the phase out of a laundry detergent additive.

Performance chemicals (composed of multi-customer products which are sold based on specification) revenue was $2,409 and $11,139 in the three and nine months ended September 30, 2020, a decrease of $967 from the same three months in 2019 and an increase of $217 from the same nine months ended in 2019.

The decrease in the three-month comparison period was primarily from reduced sales volume from COVID-19.

In the nine-month comparison period, revenue was benefited from higher glycerin prices based on the reduced supply of imported material as a result of COVID-19.

Gross profit for the chemicals segment for the three and nine months ended September 30, 2020, decreased $3,734 and $2,633, respectively, when compared to the same periods of 2019.

This decrease was driven primarily from volume effects resulting from COVID-19 and the absence of an herbicide intermediate product we no longer make.

Gross (loss) profit

Chemical revenue in the three months ended March 31, 2021 decreased 41.8% or $11,583 compared to the three months ended March 31, 2020.

Revenue for our custom chemicals (unique chemicals produced for specific customers) for the three months ended March 31, 2021 totaled $10,675, a decrease of $13,085 from the same period in 2020. 

Two products we no longer sell benefited the prior year revenue $8,097, the remaining decrease was primarily from lower sales volumes with the natural gas curtailment and COVID-19. 

Performance chemicals (composed of multi-customer products which are sold based on specification) revenue was $5,435, an increase of $1,502 from the three months ended March 31, 2020.

This increase was primarily from increased sales volume of glycerin and the timing of campaign products, although market conditions were more supportive than during the same period of last year.

Gross profit for the chemical segment for the three months ended March 31, 2021, decreased $9,315 when compared to the same period of 2020 driven mostly by the unusually high natural gas price, the loss of sales volume in our custom chemical products primarily driven by the effects of COVID-19 on customer demand, and the loss of two custom chemical products we no longer sale. 

Also reducing gross profit in three-month periods ended March 31, 2021 was the change in adjustments in the carrying value of our 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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Volume/product mix effect

Biofuels revenue in the three and nine months ended September 30, 2020 increased $4,363 and decreased $11,818 as compared to the same periods of 2019, respectively. 

Sales volumes improved in the three and nine-month periods but were reduced by lower selling prices from continued impact of COVID-19.

One major refiner/blender customer within our biofuels segment was greater than 10% of revenue in 2020 and 2019. 

Gross (loss) profit

Biofuels revenue in the three months ended March 31, 2021 was flat as compared to the same period of 2020.

The biodiesel and biodiesel blend volumes decreased as compared to the prior year, primarily from the impact of Winter Storm Uri of approximately $3,000.

Offsetting this volume decrease as compared to the same period of 2020, was higher selling prices with the overall improvement in fuel and RIN prices. 

A significant portion of our biodiesel sold was to two major refiner/blenders in the three months ended March 31, 2021 and in the first quarter of 2020 there were no significant customer 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 this customer are not under fixed terms and the customer has no fixed obligation to purchase any minimum quantities except as stipulated by short-term purchase orders;

and (iii) the prices we receive from this customer are based upon then-market rates, as would be the case with sales of this commodity to other customers.

Biofuels gross profit was $1,692 in the three months ended September 30, 2020, as compared to a gross loss of $3,026 in the same period of 2019.

This increase was primarily from stronger sales volumes with improved margins given the blenders tax credit in effect in the current year and not in effect in 2019.

Gross profit also improved from higher gains in derivatives:

$867 in the three months ended September 30, 2020 as compared to a gain of $322 in the three months ended September 30, 2019.

Biofuels gross profit was $3,411 in the nine months ended September 30, 2020, as compared to a gross loss of $10,984 in the same period of 2019.

This increase was primarily from the change in the activity in derivative instruments with a gain of $6,789 in the nine months ended September 30, 2020 as compared to a loss of $711 in the same period of 2019.

(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 $9,435 in the three months ended March 31, 2021, as compared to a gross profit of $8,385 in the same period of 2020, primarily from:

i) the impact of Winter Storm Uri which dramatically increased the price of natural gas and consequently reduced sales volumes when production was curtailed to minimize natural gas consumption, further exacerbated by delays in restarting caused by the freezing weather, ii) the change in the activity in derivative instruments with a loss of $2,625 in the three months ended March 31, 2021, as compared to a gain of $6,857 in the three months ended March 31, 2020, and iii) the change in adjustments in the carrying value of our 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 $3,243 and increased gross profit $817, respectively.

We recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets.

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Asset (Liability)

September 30, 2020

March 31, 2021

December 31, 2020

Contract Quantity Short

Regulated fixed price future commitments

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Revenue Recognition

The Company recognizes revenue under Topic 606 .

The Company recognizes revenue under Topic 606, Revenue from Contracts with Customers .

Certain long-term contracts had upfront non-cancellable payments considered material rights.

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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 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.

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.

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Credit and payment terms for bill-and-hold customers are similar to other custom chemicals customers.

Revenue under bill-and-hold arrangements were $7,400 and $14,417 for the three months ended September 30, 2020 and 2019, respectively.

For the nine months ended September 30, 2020 and 2019 bill-and-hold sales revenue was $24,888 and $38,179, respectively.

As of September 30,2020, $2,653 of the three- and nine-month bill-and-hold revenue had not shipped.

Revenue under bill-and-hold arrangements were $7,549 and $10,153 for the three months ended March 31, 2021 and 2020, respectively.

Liquidity and Capital Resources

Our net cash from operating activities, investing activities, and financing activities for the nine months ended September 30, 2020 and 2019 are set forth in the following table.

Nine Months Ended September 30 ,

Net cash provided by operating activities

Net cash (used in) provided by investing activities

Our net cash from operating activities, investing activities, and financing activities for the three months ended March 31, 2021 and 2020 are set forth in the following table.

Three Months Ended March 31,

Net cash (used in) provided by operating activities

Net cash provided by investing activities

Net cash used in financing activities

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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 provided by operating activities increased from $24,358 in the first nine months of 2019 to $76,576 of cash provided in the first nine months of 2020, for a net increase of $52,218.

This increase was primarily attributable to the decrease in accounts receivable of $77,567.

The provision of this cash resulted from the change of $73,041 in accounts receivable for the first nine months of 2020 primarily from BTC receivables, as compared to a $4,526 decrease in accounts receivable for the same period in 2019. Offsetting these net cash inflows was a $57,662 net decrease in the accounts payable, calculated from the decrease of $51,711 in the first nine months of 2020 as compared to an increase in the same period in 2019 of $5,951.

This cash outflow from accounts payable was also primarily related to BTC rebates due to customers and paid in 2020. 

The increase in net income also provided $25,284 in the first nine months of 2020 as compared to the same period in 2019. 

Operating Activities

Cash was used by operating activities of $14,347 in the first quarter of 2021 as compared to cash provided by in the first quarter of 2020 of $4,034.

This decrease was primarily attributable to the change in net income of $19,043 in the first quarter of 2020 compared to a net loss of $8,773 for the same period in 2021 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 outflows was a net change in the income tax receivable, demonstrating a cash outflow of $13,587 in the first quarter of 2020 as compared to a 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 first quarter of 2021 as compared to the first quarter of 2020.

Investing Activities

Cash provided by investing activities decreased from $4,488 of cash provided in the first nine months of 2019 to $156 of cash used in investing activities in the first nine months of 2020.

The primary source of the increase in cash used was the result of the decrease in the net sales of marketable securities of $7,106.

Those net sales amounted to $2,656 in the nine months ending September 30, 2020.

Offsetting this change was a decrease in capital expenditures of $2,422.

Our capital expenditures and customer reimbursements for capital expenditures for the nine months ended September 30, 2020 and 2019 are summarized in the following table: 

Cash paid for capital expenditures

Cash received from customers as reimbursement of capital expenditures

Cash paid for capital expenditures, net of reimbursements

Cash from investing activities increased to $12,828 of cash provided by investing activities in the first three months of 2021 as compared to of $3,838 in the first three months of 2020.

Of the $8,990 change, $9,560 was the result of an increase in net sales of marketable securities in the first three months of 2021 compared to the first three months of 2020.

Such net sales totaled $13,080, in the 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 $139,580 and $7,873, in the nine months ended September 30, 2020 and 2019, respectively.

This $131,707 increase in cash used was primarily the payment of a special dividend on our common stock in the first nine months of 2020 of $131,230.

The remaining increase of $477 related to debt origination costs in the nine months of 2020 from the amendment of our existing credit facility.

Cash used in financing activities was $2,624 and $3,101, in the three months ended March 31, 2021 and 2020, respectively.

The decrease of $477 was related to Debt origination costs in the three months ended 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

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See Note 10 to our consolidated financial statements for additional information regarding our Credit Agreement.

During the three months ended September 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.

In the three and nine months ended September 30, 2020 and 2019, we paid regular quarterly cash dividends in the amount of $0.06 per share on our common stock.

The regular quarterly cash dividend amounted to $2,624 in each of the first three quarters.

On March 23, 2020 we also declared a special cash dividend of $3.00 per share in the amount of $131,230 that was paid on April 17, 2020.

In the first three months of 2021 and 2020, we paid a regular quarterly cash dividend in the amount of $0.06 per share on our common stock.

The regular cash dividend amounted to $2,624 in each period.

In the three months ended March 31, 2020, we also declared a special cash dividend of $3.00 per share in the amount of $131,230 that was payable on April 17, 2020.

Capital Management

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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, as previously reported.

Additionally, regular dividends will be paid in 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 September 30, 2020 and December 31, 2019, we also had investments in certain preferred stock, trust preferred securities, exchange-traded debt instruments, and other equity instruments.

In the periods ended March 31, 2021 and December 31, 2020, we also had investments in certain preferred stock, debt securities, 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.”

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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 $63,476 and $73,620 at September 30, 2020 and December 31, 2019, respectively.

The fair value of the debt securities and equity instruments totaled $50,173 and $64,404 at March 31, 2021 and December 31, 2020, respectively.

Lastly, we maintain depositary accounts such as checking accounts, money market accounts, and other similar accounts at selected financial institutions.

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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 September 30, 2020 and December 31, 2019.

This activity was captured in our consolidated balance sheets at March 31, 2021 and December 31, 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 September 30, 2020 or December 31, 2019 because they do not meet the definition of a hedge instrument as defined under GAAP.

These hedging transactions are recognized in earnings and were not recorded in our consolidated balance sheets at March 31, 2021 or December 31, 2020 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:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements