What changed in this filing

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Item 1. Financial Statements

2022-05-09 compared with 2021-11-09 · 254 added, 423 removed, 524 unchanged (56% of the section changed)

3 unchanged sentences

(Dollars in thousands)

September 30, 2021  

March 31, 2022  

December 31, 2021

2 unchanged sentences

$ 137,521  

Accounts receivable, inclusive of the blenders' tax credit of $12,679  and $8,300 at September 30, 2021 and December 31, 2020, respectively, and net of allowances for bad debt of $55  and $63 at September 30, 2021 and December 31, 2020, respectively

Accounts receivable, inclusive of the blenders' tax credit of $ 5,550  and $ 8,232 , at March 31, 2022 and December 31, 2021, respectively, and net of allowances for bad debt of $ 55  and $ 67  at March 31, 2022 and December 31, 2021, respectively

18,048  

5 unchanged sentences

Income tax receivable

17,668  

Prepaid expenses

11 unchanged sentences

82,901  

Intangible assets

Other noncurrent assets

Total noncurrent assets

2 unchanged sentences

$ 324,383  

$ 344,330  

Liabilities and Stockholders ’

Accounts payable, inclusive of the blenders' tax credit rebates due customers of $890  and $1,116 at September 30, 2021 and December 31, 2020, respectively

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

$ 13,992  

4 unchanged sentences

Dividends payable

10,498  

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities –

related parties

Total current liabilities

5 unchanged sentences

Noncurrent deferred income tax liability

12,332  

Other noncurrent liabilities

5 unchanged sentences

55,402  

Commitments and contingencies:

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, none issued and outstanding

Common stock, $0.0001 par value, 75,000,000 shares authorized, 43,763,243 and 43,743,243 issued and outstanding at September 30, 2021 and December 31, 2020, respectively  

Accumulated other comprehensive income

Common stock, $ 0.0001 par value, 75,000,000 shares authorized, 43,763,243 and 43,763,243 issued and outstanding as of March 31, 2022 and December 31, 2021

Accumulated other comprehensive income

Additional paid in capital

1 unchanged sentence

282,443  

Retained (deficit) earnings

( 16,042 )  

Retained earnings (accumulated deficit)

( 16,598 )  

9 unchanged sentences

(Dollars in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Revenue –

5 unchanged sentences

related parties

Gross profit (loss)

Selling, general, and administrative expenses

4 unchanged sentences

Total operating expenses

Income (loss) from operations

Loss from operations

Interest and dividend income

Interest expense

(Loss) gain on marketable securities

Other (expense) income

Income (loss) before taxes

Loss on marketable securities

Other expense

Loss before taxes

Income tax benefit

Net income

Earnings per common share

Earnings (loss) per common share

Weighted average shares outstanding

Comprehensive income

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

Comprehensive earnings

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

Income tax effect

Total other comprehensive loss, net of tax

Comprehensive income

Total other comprehensive loss income, net of tax

Comprehensive loss

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

2 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Comprehensive

1 unchanged sentence

Income (Loss)

Earnings (Deficit)

Balance - December 31, 2021

3 unchanged sentences

$ 288,928  

Other comprehensive loss

( 8,773 )  

Balance - March 31, 2021

43,743,243  

$ 282,215  

$ 80,683  

$ 363,050  

Cash dividends declared, $2.50 per share  

( 109,408 )  

Proceeds for the issuance of stock  

20,000  

Other comprehensive income

Balance - June 30, 2021  

43,763,243  

$ 282,446  

 Cash dividends declared, $ 0.24  per common share 

( 10,503 )  

Other comprehensive loss

( 49 )  

Other comprehensive loss  

( 12,398 )  

Net income  

Balance - September 30, 2021

Balance - March 31, 2022

43,763,243  

2 unchanged sentences

$ 265,978  

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

Balance –

January 1, 2020, As adjusted

43,743,243  

$ 282,166  

$ 184,620  

$ 467,086  

Cash dividends declared, $3.00 per share

Stock based compensation

Other comprehensive loss

19,043  

Balance - March 31, 2021

43,743,243  

$ 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  

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

3 unchanged sentences

(Unaudited) 

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

Net income

Adjustments to reconcile net income to net cash from operating activities:

Amortization of deferred financing costs

Benefit from deferred income taxes

Benefit for deferred income taxes

Change in fair value of equity securities

1 unchanged sentence

(Gain) loss on the sale of investments

Stock based compensation

Loss (gain) on disposal of property and equipment

Impairment of intangible asset

Loss on disposal of property and equipment

Noncash interest expense

5 unchanged sentences

Prepaid expenses

Prepaid expenses - related parties

Accounts payable

6 unchanged sentences

Other noncurrent liabilities

Net cash provided by operating activities

Cash flows from investing activities

Net cash used in operating activities

Cash flows from investing activities

Collateralization of derivative instruments

2 unchanged sentences

Proceeds from the sale of property and equipment

Proceeds from the sale of intangible asset

Capital expenditures

Net cash from (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

Loan proceeds

Payment on loan

Deferred financing costs

Proceeds from the issuance of stock

Payment of dividends

6 unchanged sentences

Noncash investing and financing activities:

Cash dividends declared, not paid

Noncash capital expenditures

Noncash operating leases

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

11 unchanged sentences

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 also a shipper of petroleum-based products on a common carrier pipeline and buys and sells petroleum products to maintain an active shipper status on this pipeline. 

In April 2021, FutureFuel sold a portion of its historical line space.

See Note 8 for additional information.

FutureFuel Chemical also sells petrodiesel in blends with the Company’s biodiesel and, from time to time, with no biodiesel added. 

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 2020  audited consolidated financial statements and should be read in conjunction with those financial statements.

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 by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel’s 2021 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.

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”).

7 unchanged sentences

GOVERNMENT TAX CREDITS

Reinstatement of the Biodiesel Blenders’

Tax Credit and Small Agri-Biodiesel Producer Tax Credit

BIODIESEL BLENDERS ’

TAX CREDIT AND SMALL AGRI-BIODIESEL PRODUCER TAX CREDIT

The biodiesel Blenders’

Tax Credit (“BTC”) provides a one dollar per gallon tax credit to the blender of biomass-based diesel with at least 0.1% petroleum-based diesel fuel.

The Further Consolidated Appropriations Act of 2020 was passed by Congress and signed into law on December 20, 2019, retroactively reinstating the BTC for 2018 and 2019 and extending it through December 31, 2022.

As this act was passed into law in 2019, the Company recognized its impact in the last quarter of 2019 for both periods ( 2018 and 2019 ) within the Company’s 2019 financial results.

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

As the law from which the BTC mentioned above was reinstated, small agri-biodiesel producers with production capacity not in excess of 60 million gallons were eligible for an additional tax credit of $0.10 per gallon on the 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 for both periods ( 2018 and 2019 ) 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.

FutureFuel did not qualify for this credit, however, the Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the Employee Retention TaxCredit.

FutureFuel is continuing to monitor whether it would qualify for this credit.

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, 2022 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. 

The Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the credit. 

FutureFuel is in the process of applying for this credit  and will recognize the benefit of the credit once reasonable assurance can be made as to the retention of the credit. 

Notes to Consolidated Financial Statements of FutureFuel Corp.

17 unchanged sentences

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

The contract assets at September 30, 2021 

and December 31, 2020 

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

The contract assets at March 31, 2022 and December 31, 2021 consist of unbilled revenue from one customer and are recorded as accounts receivable in the consolidated balance sheets.

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

Increases to contract liabilities from cash received for a performance obligation of chemical segment plant expansions were $ 178  and $ 95  and $ 707  and $ 3,453  for the three and nine months ended September 30, 2021 

and 2020, respectively.

Increases to contract liabilities from cash received for a performance obligation of chemical segment plant expansions were $ 0  and $ 209  for the three months ended March 31, 2022 and 2021, respectively.

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

Revenue recognized in the chemical segment from the contract liability reductions were $ 456  and $ 174  for the three months, and $ 2,192  and $ 4,080  for the nine months ended September 30, 2021 

and 2020, respectively.

Revenue recognized in the chemical segment from the contract liability reductions were $ 2,213  and $ 723 in the three months ended March 31, 2022 and 2021, 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.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

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

Contract Assets and Liability Balances

September 30, 2021

March 31, 2022

December 31, 2021

3 unchanged sentences

Contract assets, included in accounts receivable

$ 1,422  

Contract liabilities, included in deferred revenue - short-term

6 unchanged sentences

Transaction price allocated to the remaining performance obligations:

At September 

30, 2021, approximately $ 20,227  of revenue is expected to be recognized from remaining performance obligations.

FutureFuel expects to recognize this revenue ratably over expected sales over the expected term of its long-term contracts which range from three  to five years.

Approximately 30 % of this revenue is expected to be recognized over the next 12 months, and 70 % is expected to be recognized over the subsequent 45  months.

At March 31, 2022, approximately $ 16,790  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 two to four  years.

Approximately 37 % of this revenue is expected to be recognized over the next 12 months, and 63 % is expected to be recognized over the subsequent 36 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.

1 unchanged sentence

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.

(Dollars in thousands, except per share amounts)

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

Disaggregation of revenue - contractual and non-contractual :

Three Months Ended September 30 ,

Nine Months Ended September 30,

Three Months Ended March 31,  

Contract revenue from customers with > 1 year arrangements

1 unchanged sentence

$ 5,106  

$ 17,109  

$ 19,518  

Contract revenue from customers with < 1 year arrangements

1 unchanged sentence

36,355  

197,041  

136,975  

Revenue from non-contractual arrangements

2 unchanged sentences

$ 41,516  

$ 214,316  

$ 154,642  

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

$ 7,549  

$ 24,612  

$ 24,888  

Non-bill-and-hold revenue

1 unchanged sentence

33,967  

189,704  

129,754  

Total revenue

1 unchanged sentence

$ 41,516  

$ 214,316  

$ 154,642  

As of September 30, 2021, $ 3,052  of the bill and hold revenue had not shipped.

As of March 31, 2022, $ 2,743  of the three months bill and hold revenue had not shipped. 

In comparison, $ 2,911  of bill and hold revenue recognized in the three months ended March 31, 2021 had not shipped. 

In addition, we continued to hold $ 572 of bill and hold inventory recognized as revenue in 2021.

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, 2021

March 31, 2022

December 31, 2021

13 unchanged sentences

$ 26,920  

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

For the three months ended March 31, 2022, a liquidation of $ 2,124  occurred as we exited the pipeline business. 

No liquidation occurred in the three months ended March 31, 2021.

DERIVATIVE INSTRUMENTS

8 unchanged sentences

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 $ 2,348  and $ 10,377  for the three months and nine months ended September 30, 2021, respectively and a gain of $ 867  and $ 6,789  for the three months and nine months ended September 30, 2020, respectively.

2021, respectively.

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

Asset (Liability)

September 30, 2021

March 31, 2022

December 31, 2021

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 $ 3,452  and $ 933  at September 30, 2021 

and December 31, 2020, respectively, and was classified as other current assets in the consolidated balance sheets.

Quantity 

Contract Quantity 

Regulated fixed price future commitments, included in other current assets (in thousand barrels)

$ 1,051  

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $ 4,348  and $ 1,684  at March 31, 2022 and December 31, 2021, 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.

The estimated fair market value of the underlying physical commodity (feedstock and finished biodiesel inventory and undelivered feedstock commitments) was $ 9.0  million at March 31, 2022. 

This is an estimate only and not reflected in the consolidated financial statements for the three months ended March 31, 2022. 

See Note 16 regarding subsequent events.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

MARKETABLE SECURITIES

At September 30, 2021 

and December 31, 2020, FutureFuel had investments in certain debt securities (trust preferred securities) and in preferred stock and other equity instruments.

These investments are classified as current assets in the consolidated balance sheets.

The unrealized (loss) 

gain  on equity securities held for the three months ended September 30, 2021 

and 2020  was ($ 805 ) and $ 1,961 , respectively.

The unrealized loss on equity securities held for the nine months ended September 30, 2021 and 2020 was $ 1,027  and $ 5,445 , respectively. 

Available for sale s ecurities :

FutureFuel has designated the debt securities as being available-for-sale.

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

September 30, 2021

Adjusted Cost

Unrealized Gains

Unrealized Losses

Trust preferred stock

$ 3,676  

$ 3,873  

At March 31, 2022 and December 31, 2021, FutureFuel had investments in certain marketable equity and trust preferred (debt) securities which had a fair market value of $ 42,751 and $ 47,109 , respectively. 

These investments are classified as current assets in the consolidated balance sheets. 

The Company has designated the trust preferred securities as being available-for-sale. 

Accordingly, these securities were recorded at fair value of $ 3,839  and $ 3,902 at March 31, 2022 and December 31, 2021, respectively, with the unrealized gains of $ 163  and $ 226 , net of taxes, as a component of stockholders' equity. 

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 March 31, 2022 and 2021, was a loss reported as a component of net income in the amount of $ 4,100 and $ 1,765 , respectively. 

The aggregate fair value of debt securities with unrealized losses totaled $ 0  at March 31, 2022 and 

December 31, 2021.

Adjusted Cost

Unrealized Gains

Unrealized Losses

Trust preferred stock

$ 3,676  

$ 3,940  

The aggregate fair value of debt securities with unrealized losses totaled $ 0  

at September 30, 2021 

and $ 0 at December 31, 2020.

The Company determined an allowance for credit losses for these debt securities was not necessary as of September 30, 2021.

The Company determined an allowance for credit losses for these debt securities was not necessary as of March 31, 2022.

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 nine months ended September 30, 2021. 

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

The debt securities held at September 30, 2021, had a contractual maturity of greater than ten years.

There were no sales of debt securities in the three months ended March 31, 2022 or 2021.

The debt securities held at March 31, 2022, had a contractual maturity of greater than ten years.

Notes to Consolidated Financial Statements of FutureFuel Corp.

10 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, 2021 

and December 31, 2020. 

The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at March 31, 2022 and December 31, 2021. 

Asset (Liability)

Fair Value Measurements Using

Fair Value at

Fair Value Measurements Using Inputs Considered as:

September 30, 2021

Inputs Considered as:

March 31, 2022

Derivative instruments

$ 1,051  

Preferred stock and other equity instruments

Trust preferred stock

$ 38,912  

Trust preferred stock 

$ 3,839  

Asset (Liability)

Fair Value Measurements Using

Fair Value at

Fair Value Measurements Using Inputs Considered as:

Inputs Considered as:

December 31, 2021

Derivative instruments

$ ( 485 )  

Preferred stock and other equity instruments

Trust preferred stock

 INTANGIBLE ASSET S

In April of 2015, FutureFuel acquired additional historical line space on a pipeline for $ 1,408 .

The acquired line space was recorded as an intangible asset with an indefinite life as there was no foreseeable limit on the time period over which it was expected to contribute to cash flows.

In April of 2021, FutureFuel made the strategic decision to reduce its status as a regular shipper on the pipeline and sold a portion of its line space.

At that time, it was also determined that the value of the remaining line space had declined. 

As a result, an impairment charge was recorded in Other Expense for $ 1,315 to further reduce the intangible asset carrying value to $0  at June 

30, 2021 from $ 1,408 at December 31, 2020.

$ 43,288  

Trust preferred stock 

$ 3,902  

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)   

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

September 30, 2021

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

March 31, 2022

December 31, 2021

Accrued employee liabilities

$ 2,983  

$ 3,347  

Accrued property, franchise, motor fuel and other taxes

Lease liability, current

Accrued directors' fees

$ 5,164  

$ 6,081  

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.

24 unchanged sentences

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 September 30, 2021 

or at December 31, 2020.

There were no borrowings under the Credit Agreement at March 31, 2022 or December 31, 2021.

INCOME TAX PROVISION

The following table summarizes the income tax provision.  

Three Months Ended September 30,

Nine Months Ended September 30,

Income tax benefit

$ ( 3,181 )  

Three Months Ended March 31,  

Income tax (benefit) provision

$ ( 704 )  

Effective tax rate

( 52.8 %)  

( 148.1 %)  

In order to minimize the potential for ambiguity and distortion produced using the annual effective tax rate approach, the Company has determined its income tax benefits for the three and nine months ended September 30, 2021 by applying its actual year-to-date effective tax rate to year-to-date pretax loss. 

In contrast, the tax benefits for the three and nine months ended September 30, 2020 reflect the application of an estimated annual effective tax rate to year-to-date pretax income.

The effective tax rates for both periods reflect the positive effects of certain tax credits and incentives, the most significant of which were the BTC and Small Agri-biodiesel Producer Tax Credit. 

Additionally, the effective rate for the three and nine months ended September 30, 2020 was favorably impacted by the enhanced NOL carryback provisions of the CARES Act.

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

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

The Company’s effective tax rate for the three months ended March 31, 2022 was unfavorably impacted by the assessment that the carryforwards of its 2022 net operating loss and tax credits would not more likely than not be realizable in full. 

Because the tax benefit of the year to date loss is greater than the anticipated realizable value of tax benefit of the full year loss, the year to date benefit has been limited to the anticipated full year benefit pursuant to ASC 740.

Additionally, the net income tax benefit for the three months ended March 31, 2022 

was unfavorably impacted by the recognition of tax expense for valuation allowances against various tax attributes existing at January 1, 2022.  

The Company evaluates its deferred tax assets quarterly and records a valuation allowance to reduce these assets to the amount that is more likely than not to be realized.

During the first quarter of 2022, based on all available evidence, the Company determined that portions of its deferred tax assets for carryforwards of capital losses, state tax credits, and state net operating losses expiring in the next ten years are not more likely than not to be realized.

In the three months ended March 31, 2021, because the Company was unable to reliably estimate its annual effective tax rate, the tax benefit was determined by applying an actual year-to-date effective rate to year-to-date pretax income. 

The effective tax rate for the three months ended March 31, 2021 reflected the positive effects of certain tax credits and incentives, the most significant of which are the BTC and Small Agri-biodiesel Producer Tax Credit. While the Company remains eligible for these credits in 2022, realizability concerns have limited their impacts on the effective rate.

EARNINGS PER SHARE

In the three and nine months ended September 30, 2021 

and 2020, FutureFuel used the treasury method in computing earnings per share.

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

Three Months Ended September 30,

Nine Months Ended September 30,

$ 9,202  

$ 6,890  

$ 3,910  

In the three months ended March 31, 2022 and 2021, FutureFuel used the treasury method in computing earnings per share.

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

Three Months Ended March 31,  

$ ( 12,398 )  

2 unchanged sentences

43,743,243  

43,753,646  

43,743,243  

Effect of dilutive securities:

3 unchanged sentences

43,743,243  

43,753,709  

43,744,107  

Basic earnings per share

$ 0.21  

$ 0.16  

$ 0.09  

$ 0.94  

Diluted earnings per share

$ 0.21  

$ 0.16  

Basic loss per share

$ ( 0.28 )  

Diluted loss per share

$ ( 0.28 )  

In the three and nine months ended September 30, 2021, 24,000  and 30,603  options to purchase FutureFuel’s common stock were excluded in the computation of diluted earnings per share as all were anti-dilutive, respectively.

In the three  and nine months ended September 30, 2020, 40,000 and 54,667  options were excluded, respectively.

For the three months ended March 31, 2022 and 2021, 24,000 and 44,000 options to purchase FutureFuel’s common stock were excluded in the computation of diluted earnings per share as all were anti-dilutive. 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

RELATED PARTY TRANSACTIONS

2 unchanged sentences

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

Related party cost of goods sold and distribution are the result of sales of biodiesel, petrodiesel, blends, and other petroleum products to third parties for items that were purchased from these related parties along with the associated expense from the purchase of natural gas, storage and terminalling services 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. 

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.

During 2021, a related party managed natural gas purchases for FutureFuel, initially paid for the natural gas, and subsequently invoiced FutureFuel for the same plus a nominal fee for such services. 

The natural gas matter as discussed in Note 15, Legal Matters, is in reference to the natural gas supplier, not the related party.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)   

SEGMENT INFORMATION

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Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at the Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks.

Biofuels revenue also includes the sale of biodiesel blends with petrodiesel;

Biofuels revenues also include the sale of biodiesel blends with petrodiesel;

petrodiesel with no biodiesel added;

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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.

FutureFuel employs derivative instruments to manage biofuel commodity trading risk. 

See Note 5  for additional discussion regarding the fair market value of unsold inventory and undelivered feedstock commitments at March 31, 2022.

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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$ 10,675  

$ 52,129  

Performance chemicals

12,693  

11,139  

Chemicals revenue

1 unchanged sentence

16,110  

48.348  

63,268  

Biofuels revenue

1 unchanged sentence

25,406  

165,968  

91,374  

Total Revenue

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$ 41,516  

$ 214,316  

$ 154,642  

Segment gross profit (loss)

$ 5,105  

$ 4,754  

$ 8,089  

$ 20,345  

( 10,676 )  

Total gross profit (loss)

$ 8,192  

Segment gross (loss) profit

$ 5,418  

( 12,573 )  

Total gross loss

$ ( 7,155 )  

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(Dollars in thousands, except per share amounts)

(Unaudited)   

 SPECIAL CASH DIVIDEND

On May 10, 2021, the Company declared a special cash dividend of $ 2.50 per share on common stock and paid $ 109,408 on June 4, 2021.

In the three months ended March 31, 2020, we declared a special cash dividend of $ 3.00 per share and paid $ 131,230 on April 17, 2020.

 RECENTLY ISSUED ACCOUNTING STA NDARDS

ASU 2020 - 04,  

Reference Rate Reform (Topic 848 ):

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

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

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

 RECENTLY ISSUED ACCOUNTING STA NDARDS  

Recently Issued Accounting Standards Adopted  

Reference Rate Reform (ASU No.

In March 2020, the FASB issued an accounting standard update to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform, if certain criteria are met.

The amendments in this update are effective for all entities from January 1, 2020 through December 31, 2022.

The Company is in the process of evaluating the adoption of this optional accounting standards update as certain exceptions provided under this guidance may be applicable to future reference rate reform related transitions.

LEGAL MATTERS

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While FutureFuel is unable to predict the outcomes of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.

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

As a result of the ext raordinary increase in natural gas prices, the Attorney General of Arkansas launched a civil investigative demand against several natural gas suppliers in 2021.

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

The natural gas expense was a component of Cost of goods sold-related parties in the Consolidated Statements of Operations and Comprehensive Income in the three months ended March 31, 2021 and nine months ended September 30, 2021. 

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

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 12, Related Party Transactions, the natural gas supplier is not a related party of FutureFuel.

SUBSEQUENT EVENT

FutureFuel maintained a significant inventory position at March 31, 2022 for its biofuels segment consisting of finished biodiesel and feedstock purchase commitments. 

The Company uses derivative instruments to hedge commodity risk as described in Note 5.

Due to unprecedented volatility in the New York Mercantile Exchange May heating oil contract, FutureFuel incurred approximately $ 12  million of realized derivative losses during April and it is uncertain what additional costs will be incurred subsequently. 

These costs likely will not be fully recovered when the physical inventory is sold. 

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

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Management believes that the diversity of each segment strengthens the company in the ability to utilize resources and is committed to growing each segment.

Within the biofuels segment following the laws of the United States Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS), we generate 1.5 Renewable Identification Numbers (RINs) for each gallon of biodiesel sold in the United States, a classification of a D4 RINs. 

RINs are used to monitor the level of renewable fuel traded in a given year in accordance with RFS 2 within the EPA moderated transaction system (EMTS).

Within the United States Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS), we generate 1.5 Renewable Identification Numbers (RINs) for each gallon of biodiesel sold in the United States with a classification of a D4 RIN.

RINs are used to monitor the level of renewable fuel traded in a given year in accordance with RFS 2 within the EPA moderated transaction system (EMTS). 

We do not assign cost of goods sold to the generation of RINs as the physical fuel generates the full cost. 

We do not purchase RINs. 

The following table summarizes our RIN holdings and the median RIN market value at September 30, 2021 and September 30, 2020 according to Argus.

September 30,

D4 RIN quantity

Market Value per RIN

We are also registered in California's Low Carbon Fuel Standard program and Oregon's Clean Fuels Program.

Only minimal credits were held in California as of September 30, 2021 and none were held at September 30,2020. 

No credits were held in Oregon in either period.

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.

As of March 31, 2022, we held 3.6 million D4 RINs with a market value of $5,314.   

During the COVID-19 pandemic, our objectives have been to protect the well-being of our employees, support our customers, obtain materials from our suppliers, and maintain our manufacturing operations.

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

The effects of the pandemic are still uncertain.

The virus (including variants thereof) is still spreading. The three principal areas where COVID-19 may still negatively impact our financial performance are customer demand, raw material procurement, and our ability to operate our manufacturing facility.

As the pandemic has evolved, we have seen its effects disrupt supply chains and labor markets in often unpredictable ways.

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 into markets that have been significantly impacted by COVID-19.

The energy and automotive markets in particular have drastically been impacted since April 2020, and have not yet fully recovered to pre-pandemic levels. 

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

Supply Chain Impact  –

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

demands. 

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

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

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

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

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

Several of our major chemical customers sell the products we produce for them into markets that have been impacted by COVID-19, particularly the energy and automotive markets. 

However, demand on the whole has recovered from the immediate disruption caused by COVID-19, although it has not yet returned to pre-pandemic volumes.

COVID-19 is only one of many factors influencing the energy markets at the moment and we closely align our biodiesel production to match that demand when margins are positive.

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’

While we have managed supply such that our operations have not been significantly hindered by shortages, timing of deliveries and supply chain disruptions have on occasion tempered demand from our customers.

Operations Impact  - Two years into the pandemic, we have shown that our mitigation measures have been pragmatic and effective, even at the height of the Omicron variant.

However, each wave has presented different challenges and we will remain agile and flexible in our response to any future variant or surge.

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 experience materially adverse impacts on our financial condition and results of operations.

COVID-19 will be with us for some time, either as an on-going outbreak or as a future threat.

As such, we may continue to experience materially adverse impacts on our financial condition and results of operations.

Summary of Financial Results

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

Three Months Ended September 30,

Income from operations

Earnings per common share:

Adjusted EBITDA

Nine Months Ended September 30,

(Loss) income from operations

Three Months Ended March 31,

Loss from operations

Earnings per common share:

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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,

Net income

Non-cash stock-based compensation

Three Months Ended March 31,

Interest and dividend income

Non-cash interest expense and amortization of deferred financing costs

Loss (gain) on disposal of property and equipment

Loss (gain) on derivative instruments

Loss (gain) on marketable securities

Loss on disposal of property and equipment

Loss on derivative instruments

Loss on marketable securities

Income tax benefit

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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

Three Months Ended March 31,

Net cash used in operating activities

Benefit for deferred income taxes

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Income tax benefit

Loss (gain) on derivative instruments

Loss on derivative instruments

Change in fair value of derivative instruments

Change in operating assets and liabilities, net

Impairment of intangible asset

Adjusted EBITDA

Results of Operations  

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Volume/product mix effect

Gross profit (loss)

Operating expenses

Other (expense) income

Other expense

Income tax benefit

Consolidated revenue in the three and nine months ended September 30, 2021 increased $44,544 and $59,674, compared to the three and nine months ended September 30, 2020.

This increase primarily resulted from increased prices in the biofuels segment.

Lower biofuels sales volumes partially reduced sales revenue in the comparative three- and nine-month periods.

Gross profit  

in the three months ended September 30, 2021 was $8,192 as compared to gross profit of $6,446 in the three months ended September 30, 2020.

This increase primarily resulted from: 

i) improved margins in the biofuel segment and ii) the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting which increased gross profit $961 in the current three-month period as compared to a decrease in gross profit of $628 in the same prior year period.

The change in the unrealized and realized positions in derivative instruments mostly offset these increases with a loss of $2,348 in the current three-month period as compared to a gain of $867 in the same prior year period.

Gross loss in the nine months ended September 30, 2021 was $2,587 as compared to gross profit of $23,756 in the nine months ended September 30, 2020.

This decline primarily resulted from:

i) exorbitant natural gas prices invoiced from Winter Storm Uri which resulted in an increase of $7,800 as compared to the prior year period; ii) a reduction in production volumes given the natural gas curtailment; iii) reduced sales volumes of two custom chemicals we no longer sell;

iv) the change in the unrealized and realized positions in derivative instruments with a 

loss of $10,377 in the nine months ended September 30, 2021 as compared to a gain of $6,789 in the nine months ended September 30, 2020 and v) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. 

This adjustment decreased gross profit $6,067 in the nine months ended September 30, 2021 as compared to an increase in gross profit of $2,266 in the same prior period.

Partially offsetting these declines was improved margins in the biofuel segment.

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

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

See Notes 13 and 17 of the consolidated financial statements for further details.

Consolidated revenue in the three months ended March 31, 2022 increased 1.8% or $745 compared to the three months ended March 31, 2021.

This increase resulted from increased sales prices in both the chemicals and biofuels segments and increased sales volume in the chemical segment which was partially offset by reduced sales volumes in the biofuel segment.

Gross loss in the three months ended March 31, 2022 was $7,155 as compared to $10,736 in the three months ended March 31, 2021.

This decline primarily resulted from the change in the activity in derivative instruments with a loss of $9,129 in the three months ended March 31, 2022, as compared to $2,625 in the three months ended March 31, 2021 whereas inventories related to this change have not yet been sold.

See note 5 to our consolidated financial statements. Affordable feedstocks were acquired and converted to biodiesel which will be sold mostly in the three months ended June 30, 2022. 

Partially reducing gross losses was the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment increased gross profit $481 in the three months ended March 31, 2022 as compared to a decrease of $3,913 in the prior year quarter. 

See note 4 of our consolidated financial statements for additional detail. In addition, the prior year quarter was negatively impacted by the exorbitant natural gas prices invoiced from Winter Storm Uri which resulted in an addition to cost of goods sold of $7,800 with a reduction in production volumes given the natural gas curtailment.

Operating  e xpenses

Operating expenses decreased $592 and $780 in the three and nine months ended September 30, 2021, as compared to the same periods of 2020 from decreased compensation expenses.

Other income decreased $2,377 in the three months ended September 30, 2021 as compared to the same period of 2020, primarily due to the change in gains and losses in marketable securities. 

The loss (including unrealized losses) was $729 in the current three-month period as compared to gains (including unrealized gains) of $1,213 in the prior year period.

In the nine months ended September 30, 2021, Other income decreased $4,725 as compared to the same period in the prior year.

This decrease resulted from: 

i) a legal resolution reached in the prior year on a contractual matter for which an accrual of $8,350 was relieved as Other income;

ii) the impairment of intangible assets of $1,315 (see Note 8 of the consolidated financial statements for further details);

and iii) reduced interest and dividend income.

 In addition, Other income was benefited from reduced losses in marketable securities (including unrealized losses) in the nine months ended September 30, 2021 compared to the prior year. 

The losses on marketable securities (including unrealized losses) were $192 and $7,273 in the nine months ended September 30, 2021 and 2020, respectively.

Income tax benefit

In contrast, the tax benefits for the three and nine months ended September 30, 2020 reflect the application of an estimated annual effective tax rate to year-to-date pretax income.

The effective tax rates for both periods reflect the positive effects of certain tax credits and incentives, the most significant of which were the BTC and Small Agri-biodiesel Producer Tax Credit. 

Additionally, the effective rate for the three and nine months ended September 30, 2020 was favorably impacted by the enhanced NOL carryback provisions of the CARES Act.

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

Net income for the three and nine months ended September 30, 2021 increased $2,312 and decreased $37,182 as compared to the same period in 2020, respectively.

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

Operating expenses increased $130 in the three months ended March 31, 2022, as compared to the three-months ended March 31, 2021.

This slight increase was primarily from increased compensation expense.

Other expense

Other expense was $3,495 in the three months ended March 31, 2022, as compared to the same period of the prior year of $102 which was primarily from the change in unrealized losses on marketable securities.

Income tax benefit 

In contract, because the Company was unable to reliably estimate its annual effective tax rate for the three months ended March 31, 2021, the tax benefit was determined by applying an actual year-to-date effective rate to year-to-date pretax income. The effective tax rate for the three months ended March 31, 2021 reflected the positive effects of certain tax credits and incentives, the most significant of which are the BTC and Small Agri-biodiesel Producer Tax Credit. While the Company remains eligible for these credits in 2022, realizability concerns have limited their impacts on the effective rate.

Additionally, the net income tax benefit for the three months ended March 31, 2022 was unfavorably impacted by the recognition of tax expense for valuation allowances against various tax attributes existing at January 1, 2022. The Company evaluates its deferred tax assets quarterly and records a valuation allowance to reduce these assets to the amount that is more likely than not to be realized.

Chemical Segment

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Volume/product mix effect

Chemical revenue in the three months ended September 30, 2021 increased 31.0% or $3,954 compared to the three months ended September 30, 2020.

Revenue from our custom chemicals (unique chemicals produced for specific customers) was $12,720, an increase of $2,391. 

Revenue from our performance chemicals (composed of multi-customer products which are sold based on specification) was $3,971, an increase of $1,562. 

Prior year sales volumes for both product lines were negatively impacted by COVID.

In the nine months ended September 30, 2021, chemical revenue totaled $48,348, a decrease of 23.6% or $14,920 from the same period in 2020.

Revenue from custom chemicals was $35,655, a decrease of $16,474 from the prior year comparison period resulting from two products we no longer sell. 

The remaining decrease in the nine-month comparison period was from lower sales volumes given the natural gas curtailment experienced in February of this year. 

Sales revenue improved $1,554 to $12,693 in the nine-month comparison period for performance chemicals.

This increase was from:

i) improved market conditions with higher sales volumes of our polymer modifier, ii) improved price of glycerin, and iii) the timing of campaigned products.

Gross profit for the chemical segment for the three and nine months ended September 30, 2021, increased $351 and decreased $12,256 when compared to the same periods of 2020.

The decline of gross profit in the nine-month comparison period was driven mostly by the unusually high natural gas price, the loss of sales volume in our custom chemical products primarily driven by the effects of COVID-19 on customer demand, and the loss of two custom chemical products we no longer sell. Also reducing gross profit in the nine months ended September 30, 2021 as compared to the same prior year period was the increase in the LIFO reserve due to higher prices which decreased gross profit $1,202 in the nine months ended September 30, 2021;

alternatively, in the same period of 2020, the LIFO reserve decreased due to lower prices increasing gross profit $748.

Gross profit (loss)

Chemical revenue in the three months ended March 31, 2022 increased 33.8% or $5,451 compared to the three months ended March 31, 2021.

Revenue for our custom chemicals (unique chemicals produced under contract for specific customers) for the three months ended March 31, 2022 totaled $15,715, an increase of $5,040 from the same period in 2021. 

Two custom chemicals used in the energy and microbial control industries experienced stronger volumes and higher selling prices. 

Performance chemicals (composed of multi-customer products which are sold to the open market based on specification) revenue was $5,846, an increase of $411 from the three months ended March 31, 2021.

This increase was from increased sales volume of glycerin partially offset by the production timing of certain products which are produced batch-wise during the course of the year. 

There was also a weaker market for our monomer additive.  

Gross profit for the chemical segment for the three months ended March 31, 2022, increased $6,719 when compared to the same period of 2021 from increased sales as noted above and the absence of the unusually high natural gas price in the prior year period. 

Biofuels Segment

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Volume/product mix effect

Gross profit (loss)

Biofuels revenue in the three and nine months ended September 30, 2021 increased $40,590 and $74,594 compared to the same periods of 2020, respectively.

This increase was primarily driven from the overall improvement in fuel and RIN prices.

The biodiesel and biodiesel blend volumes decreased approximately $ 3,000 in the nine-month comparison period primarily from the impact of Winter Storm Uri.

A significant portion of our biodiesel sold was to three  major refiners in the three months ended September 30, 2021 and to three 

major refiner/blenders in the nine months ended September 30, 2021. In the same periods of the 2020, one major refiner was greater than 10% of revenue.

Biofuels revenue in the three months ended March 31, 2022 decreased 18.5% or $4,706 as compared to the same period of 2021.

The biodiesel and biodiesel blend volumes decreased as compared to the prior year, primarily from the availability of economical feedstock.

Offsetting this volume decrease as compared to the same period of 2021, was higher selling prices with the overall improvement in the fuel industry and from improved RIN prices. 

A significant portion of our biodiesel sold was to one major refiner/blender in the three months ended March 31, 2022 and to two major refiners in the first quarter of 2021. 

No assurances can be given that we will continue to sell to such major refiners, or, if we do sell, the volume we will sell or the profit margin we will realize.

We do not believe that the loss of these customers would have a material adverse effect on our biofuels segment or on us as a whole because:

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;

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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 profit was $3,087 in the three months ended September 30, 2021, as compared to a gross profit of $1,692 in the same period of 2020, primarily from : 

i) improved margins on biodiesel and ii) the reduction in our LIFO reserve from reduced inventories which increased gross profit $1,099 in the current period as compared to an increase in the LIFO reserve from higher prices in the same period of the prior year decreasing gross profit $616. 

Biofuels gross profit decreased further in the three-month comparison periods by the change in the activity in derivative instruments with a loss of $2,348 in the three months ended September 30, 2021, as compared to a gain of $867 in the three months ended September 30, 2020.

Biofuels gross loss was $10,676 in the nine months ended September 30, 2021, as compared to a gross profit of $3,411 in the same period of 2020, primarily from: i) the impact of Winter Storm Uri which dramatically increased the price of natural gas and consequently reduced sales volumes when production was curtailed to minimize natural gas consumption, further exacerbated by delays in restarting caused by the freezing weather; ii) the change in the activity in derivative instruments with a loss of $10,377 in the nine months ended September 30, 2021, as compared to a gain of $6,789 in the nine months ended September 30, 2020 and iii) increased LIFO reserve from increased prices in the nine months ended September 30, 2021 as compared to reduced prices lowering the LIFO reserve in the same period of 2020;

this adjustment decreased gross profit $4,865 and increased gross profit $1,518, respectively.

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

Biofuels gross loss was $12,573 in the three months ended March 31, 2022, an increased loss of $3,138 from the same period of 2021. 

This increased loss was from:

i) the change in the activity in derivative instruments with a loss of $9,129 in the three months ended March 31, 2022, as compared to $2,625 in the three months ended March 31, 2021 whereas inventories related to this change have not yet been sold (See note 5 of our consolidated financial statements), and ii) a reduction in biodiesel margins. 

Partially offsetting the gross losses were i) 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 2021;

this adjustment decreased gross losses this period $967 as compared to $3,243 in the same prior year period. 

Also note, the loss in the three months ended March 31, 2021 was driven by 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.  

In regards to our derivative activity, we recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets.

The realized and unrealized derivative gains and losses are recorded as cost of goods sold.

Our derivative instruments do not qualify for hedge accounting under the specific guidelines of Topic 815, Derivatives and Hedging .

None of the derivative instruments are designated and accounted for as hedges primarily due to the extensive record keeping requirements.

The volumes and carrying values of our derivative instruments were as follows:

Asset (Liability)

September 30, 2021

March 31, 2022

December 31, 2021

Contract Quantity Short

Regulated fixed price future commitments

Contract Quantity

Regulated fixed price future commitments (in thousand barrels)

*All derivative instruments are entered into with the standard contract terms and conditions in accordance with major trading authorities of the New York Mercantile Exchange.

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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 for the three months ended September 30, 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.

Bill-and-hold transactions for the three months ended March 31, 2022 and 2021 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 was $9,185 and $7,400 for the three months ended September 30, 2021 and 2020, respectively. 

For the nine months ended September 30, 2021 and 2020 bill and hold sales revenue was $24,612 and $24,888, respectively.

Revenues under bill-and-hold arrangements were $9,276 and $7,549 for the three months ended March 31, 2022 and 2021, respectively.

Liquidity and Capital Resources

Our net cash from operating activities, investing activities, and financing activities for the nine months ended September 30, 2021 and 2020 are set forth in the following table.

Nine Months Ended September 30,

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Our net cash from operating activities, investing activities, and financing activities for the three months ended March 31, 2022 and 2021 are set forth in the following table.

Three Months Ended March 31,

Net cash used in operating activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

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Operating Activities

Cash provided by operating activities was $19,827 in the first nine months of 2021 as compared to cash provided in the first nine months of 2020 of $76,576, for a net decrease of $56,749. This decrease was primarily attributable to the change in accounts receivable, including accounts receivable-related parties, of $80,001. 

This change resulted from the receipt of $76,259 in the first nine months of 2020, primarily from BTC payments, compared to a $3,742 increase in accounts receivable for the same period in 2021.

Also contributing to the net decrease was the change in net income from $41,092 in the first nine months of 2020 to a net income of $729 for the same period in 2021 for a net decrease of $40,363, and higher cash outflows from inventory of $18,291 in the first nine months of 2021 compared to the first nine months of 2020.

Partially offsetting these net cash outflows was a net change in accounts payable, including accounts payable-related parties, demonstrating a cash inflow of $21,024 in the first nine months of 2021 as compared to a cash outflow of $52,052 in the first nine months of 2020, also primarily related to BTC rebates due to customers paid in 2020.

In addition, there was a net change in income tax receivable, demonstrating a cash inflow of $7,768 in the first nine months of 2021 as compared to a cash outflow of $14,379 in the same period of 2020.

Cash used in operating activities was $10,576 in the three months ended March 31, 2022 as compared to $14,347 in the same period of 2021.

This increase was primarily attributable to the change in accounts receivable, including accounts receivable - related parties, demonstrating a cash inflow of $16,466 in the three months ended March 31, 2022 compared to the same period of 2021 primarily from the timing of customer payments. 

Partially offsetting cash inflow was a net change in accounts payable, including accounts payable-related parties, demonstrating a cash outflow of $12,757 primarily from the timing of vendor payments.

Also note, cash used for inventories was similar in each three-month period of 2022 and 2021, $10,700 and $11,389, respectively. 

Investing Activities

Cash from investing activities was $15,891 in the first nine months of 2021 as compared to cash used in of $156 in the first nine months of 2020.

Of the $16,047 change, $16,325 was the result of an increase in net sales of marketable securities in the first nine months of 2021 compared to the first nine months of 2020.

Cash from net sales totaled $18,981, in the first nine months of 2021, compared to $2,656 in the first nine months of 2020. 

Cash used by investing activities was $3,335 in the three months ended March 31, 2022 as compared to cash provided by investing activities of $12,828 in the three months ended March 31, 2021. 

Of the $16,163 of change, $12,830 was the result of a decrease in net sales of marketable securities. 

Such net sales totaled $250, in the first three months of 2022, compared to $13,080 in net sales in the first three months of 2021. 

The remaining change resulted from an increase in the collateralization of derivative instruments of $2,558 and an increase in capital expenditures of $831. 

Financing Activities

Cash used in financing activities was $117,053 and $139,580, in the nine months ended September 30, 2021 and 2020, respectively.

This $22,527 difference primarily resulted from the payment of the special dividend of $109,408 on our common stock in the first nine months of 2021 compared to the payment of the special dividend of $131,230 in the same period of 2020, for a net difference of $21,822.

Cash used in financing activities was $2,626 and $2,624 in the three months ended March 31, 2022 and 2021, respectively, for payments of dividends on our common stock. 

Credit Facility

Effective March 30, 2020, we entered into an amended and restated credit agreement with a syndicated group of commercial banks for $100,000.

We have a credit agreement with a syndicated group of commercial banks for $100,000 as amended on March 30, 2020.

The loan is a revolving facility, the proceeds of which may be used for our working capital, capital expenditures, and general corporate purposes.

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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, 2021 and 2020, we paid regular quarterly cash dividends in the amount of $0.06 per share on our common stock.

The regular cash dividend amounted to $ 2,625  in each of the first three quarters.

On May 10, 2021 we also declared a special cash dividend of $2.50 per share and paid $109,408 on June 4, 2021. In the three months ended March 31, 2020, we declared a special cash dividend of $3.00 per share and paid $131,230 on April 17, 2020.

On February 1, 2022, we declared a quarterly cash dividend program of $0.06 per common share. 

In the three months ended March 31, 2022 and 2021, we paid a regular quarterly cash dividend in the amount of $0.06 per share on our common stock.

The regular cash dividend amounted to $2,626 in the three months ended March 31, 2022 and $2,624 in the three months ended March 31, 2021. 

Capital Management

As a result of our positive operating results, we accumulated excess working capital.

As a result of our initial equity offering, our subsequent positive operating results, the exercise of warrants, and the issuance of shares in our at-the-market offering, we accumulated excess working capital.

Some of this excess working capital has been paid out as special and regular cash dividends.

Additionally, regular dividends will be paid in December 2021, as previously reported.

Additionally, regular dividends will be paid in 2022, as previously reported.

Third parties have not placed significant restrictions on our working capital management decisions.

A significant portion of these funds was held in cash or cash equivalents at multiple financial institutions.

In the periods ended September 30, 2021 and December 31, 2020, we also had investments in certain preferred stock, debt securities, and other equity instruments.

In the periods ended March 31, 2022 and December 31, 2021, 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 $45,164 and $64,404 at September 30, 2021 and December 31, 2020, respectively.

The fair value of the debt securities and equity instruments totaled $42,751 and $47,190 at March 31, 2022 and December 31, 2021, 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, 2021 and December 31, 2020.

This activity was captured in our consolidated balance sheets at March 31, 2022 and December 31, 2021.

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, 2021 or December 31, 2020 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, 2022 or December 31, 2021 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