Item 1. Financial Statements
Item 1. Financial Statements.
 
FutureFuel Corp.
Consolidated Balance Sheets
(Dollars in thousands)
 
    June 30, 2022     December 31, 2021
 
Assets
               
Cash and cash equivalents
  $ 129,154     $ 137,521  
Accounts receivable, inclusive of the blenders' tax credit of $ 13,084  and $ 8,232 , at June 30, 2022 and December 31, 2021, respectively, and net of allowances for bad debt of $ 87  and $67 at June 30, 2022 and December 31, 2021, respectively
    37,488       29,316  
Accounts receivable – related parties
    78       58  
Inventory
    31,584       26,920  
Income tax receivable
    9,780       9,760  
Prepaid expenses
    1,815       3,588  
Prepaid expenses – related parties
    12       4  
Marketable securities
    39,426       47,190  
Other current assets
    3,506       1,476  
Total current assets
    252,843       255,833  
Property, plant and equipment, net
    79,145       82,901  
Other assets
    5,398       5,596  
Total noncurrent assets
    84,543       88,497  
Total Assets
  $ 337,386     $ 344,330  
Liabilities and Stockholders ’ Equity
               
Accounts payable, inclusive of the blenders' tax credit rebates due customers of $ 890  and $ 890 , respectively
  $ 33,814     $ 14,912  
Accounts payable – related parties
    8,237       7,911  
Deferred revenue – current
    8,091       6,151  
Dividends payable
    5,252       -  
Accrued expenses and other current liabilities
    5,422       6,081  
Accrued expenses and other current liabilities – related parties
    -       1  
Total current liabilities
    60,816       35,056  
Deferred revenue – non-current
    12,046       16,755  
Noncurrent deferred income tax liability
    167       1,870  
Other noncurrent liabilities
    1,551       1,721  
Total noncurrent liabilities
    13,764       20,346  
Total liabilities
    74,580       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 43,763,243 issued and outstanding as of June 30, 2022 and December 31, 2021
    4       4  
Accumulated other comprehensive income
    61       178  
Additional paid in capital
    282,443       282,443  
Retained earnings (accumulated deficit)
    ( 19,702 )     6,303  
Total stockholders’ equity
    262,806       288,928  
Total Liabilities and Stockholders ’ Equity
  $ 337,386     $ 344,330  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
1
 
 
 
  FutureFuel Corp.
Consolidated Statements of Operations and Comprehensive Income
(Dollars in thousands, except per share amounts)
(Unaudited)
 
    Three Months Ended June 30,
    Six Months Ended June 30,
 
    2022     2021
    2022     2021
 
Revenue
  $ 117,640     $ 73,813     $ 159,714     $ 114,971  
Revenue – related parties
    156       305       343       663  
Cost of goods sold
    113,798       69,760       161,017       111,138  
Cost of goods sold – related parties
    1,956       2,727       3,216       11,937  
Distribution
    1,024       1,633       1,908       3,242  
Distribution – related parties
    41       41       94       96  
Gross profit (loss)
    977       ( 43 )
    ( 6,178 )     ( 10,779 )
Selling, general, and administrative expenses
                               
Compensation expense
    701       523       1,357       1,051  
Other expense
    886       469       1,849       1,322  
Related party expense
    150       170       304       337  
Research and development expenses
    755       798       1,434       1,572  
Total operating expenses
    2,492       1,960       4,944       4,282  
Loss   from operations
    ( 1,515 )     ( 2,003 )     ( 11,122 )     ( 15,061 )
Interest and dividend income
    747       790       1,411       1,795  
Interest expense
    ( 33 )     ( 32 )
    ( 65 )     ( 64 )
(Loss) gain on marketable securities
    ( 3,239 )     1,612       ( 7,366 )     537  
Other expense
    ( 2 )     ( 1,355 )     ( 2 )     ( 1,355 )
Other (expense) income
    ( 2,527 )     1,015       ( 6,022 )     913  
Loss before taxes
    ( 4,042 )     ( 988 )
    ( 17,144 )     ( 14,148 )
Income tax benefit
    ( 938 )     ( 4,469 )
    ( 1,642 )     ( 8,856 )
Net  ( loss) income
  $ ( 3,104 )   $ 3,481     $ ( 15,502 )   $ ( 5,292 )
                                 
Earnings (loss) per common share
                               
Basic
  $ ( 0.07 )   $ 0.08     $ ( 0.35 )   $ ( 0.12 )
Diluted
  $ ( 0.07 )   $ 0.08     $ ( 0.35 )   $ ( 0.12 )
Weighted average shares outstanding
                               
Basic
    43,763,243       43,754,232       43,763,243       43,748,768  
Diluted
    43,763,243       43,754,422       43,763,243       43,748,768  
                                 
Comprehensive income (loss)
                               
Net (loss) income
  $ ( 3,104 )   $ 3,481     $ ( 15,502 )   $ ( 5,292 )
Other comprehensive (loss) income from unrealized net (losses) gains on available-for-sale debt securities
    ( 86 )     60       ( 148 )     -  
Income tax effect
    18       ( 16 )
    31       -  
Total other comprehensive (loss) income, net of tax
    ( 68 )     44       ( 117 )     -  
Comprehensive (loss) income
  $ ( 3,172 )   $ 3,525     $ ( 15,619 )   $ ( 5,292 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
2
 
 
 
FutureFuel Corp.
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands)
(Unaudited)
 
    For the Six Months Ended June 30, 2022
 
                    Accumulated
                         
                    Other
    Additional
            Total
 
    Common Stock
    Comprehensive
    Paid-in
    Retained
    Stockholders ’
 
    Shares
    Amount
    Income (Loss)
    Capital
    Earnings (Deficit)
    Equity
 
Balance - December 31, 2021
    43,763,243     $ 4     $ 178     $ 282,443     $ 6,303     $ 288,928  
Cash dividends declared, $ 0.24 per common share
    -       -       -  
    -       ( 10,503 )     ( 10,503 )
Other comprehensive loss     -       -       ( 49 )     -       -       ( 49 )
Net loss
    -       -       -       -       ( 12,398 )
    ( 12,398 )
Balance - March 31, 2022
    43,763,243     $ 4     $ 129     $ 282,443     $ ( 16,598 )   $ 265,978  
Other comprehensive loss
    -       -       ( 68 )     -       -       ( 68 )
Net loss
    -       -       -       -       ( 3,104 )     ( 3,104 )
Balance - June 30, 2022
    43,763,243     $ 4     $ 61     $ 282,443     $ ( 19,702 )
  $ 262,806  
 
 
    For the Six Months Ended June 30, 2021
 
                    Accumulated
                         
                    Other
    Additional
            Total
 
    Common Stock
    Comprehensive
    Paid-in
    Retained
    Stockholders ’
 
    Shares
    Amount
    Income (Loss)
    Capital
    Earnings (Deficit)
    Equity
 
Balance - December 31, 2020
    43,743,243     $ 4     $ 208     $ 282,215     $ 89,456     $ 371,883  
Other comprehensive loss
    -       -       ( 60 )
    -       -       ( 60 )
Net loss
    -       -       -       -       ( 8,773 )
    ( 8,773 )
Balance - March 31, 2021
    43,743,243     $ 4     $ 148     $ 282,215     $ 80,683     $ 363,050  
Cash dividends declared, $ 2.50 per share
    -       -       -       -       ( 109,408 )
    ( 109,408 )
Proceeds for the issuance of stock
    20,000       -       -       231       -       231  
Other comprehensive income
    -       -       60       -       -       60  
Net income
    -       -       -       -       3,481       3,481  
Balance - June 30, 2021
    43,763,243     $ 4     $ 208     $ 282,446     $ ( 25,244 )
  $ 257,414  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
3
 
 
 
FutureFuel Corp.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited) 
 
    Six Months Ended June 30,
 
    2022     2021
 
Cash flows from operating activities
               
Net loss
  $ ( 15,502 )   $ ( 5,292 )
Adjustments to reconcile net income to net cash from operating activities:
               
Depreciation
    5,276       5,231  
Amortization of deferred financing costs
    48       47  
Benefit for deferred income taxes
    ( 1,672 )     ( 8,881 )
Change in fair value of equity securities
    7,339       222  
Change in fair value of derivative instruments
    ( 2,388 )     1,136  
(Gain) loss on the sale of investments
    27       ( 758 )
Loss on disposal of property and equipment
    50       -  
Impairment of intangible asset
    -       1,315  
Noncash interest expense
    17       16  
Changes in operating assets and liabilities:
               
Accounts receivable
    ( 8,172 )     ( 9,946 )
Accounts receivable – related parties
    ( 20 )     1,405  
Inventory
    (4,664 )     ( 19,625 )
Income tax receivable
    ( 20 )     801  
Prepaid expenses
    1,773       1,977  
Prepaid expenses – related parties
    ( 8 )     ( 12 )
Other assets
    125       635  
Accounts payable
    19,171       23,074  
Accounts payable – related parties
    326       7,959  
Accrued expenses and other current liabilities
    ( 659 )     7  
Accrued expenses and other current liabilities – related parties
    ( 1 )     -  
Deferred revenue
    ( 2,769 )     ( 1,318 )
Other noncurrent liabilities
    ( 187 )     ( 342 )
Net cash used in operating activities
    ( 1,910 )     ( 2,349 )
Cash flows from investing activities
               
Collateralization of derivative instruments
    383       ( 2,060 )
Purchase of marketable securities
    -       ( 19,170 )
Proceeds from the sale of marketable securities
    250       37,873  
Proceeds from the sale of property and equipment
    56       -  
Proceeds from the sale of intangible asset
    -       93  
Capital expenditures
    ( 1,895 )     ( 488 )
Net cash (used in) provided by   investing activities
    ( 1,206 )     16,248  
Cash flows from financing activities
               
Proceeds from the issuance of stock
    -       231  
Payment of dividends
    ( 5,251 )     ( 114,658 )
Net cash used in financing activities
    ( 5,251 )     ( 114,427 )
Net change in cash and cash equivalents
    ( 8,367 )     ( 100,528 )
Cash and cash equivalents at beginning of period
    137,521       198,122  
Cash and cash equivalents at end of period
  $ 129,154     $ 97,594  
                 
Cash paid for interest
  $ -     $ 43  
Cash paid for income taxes
  $ 276     $ 79  
Noncash investing and financing activities:
               
Noncash capital expenditures
  $ 95     $ 51  
Noncash operating leases
  $ -     $ 269  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
4
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
1 )
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
 
Organization
 
FutureFuel Corp. (“FutureFuel” or “the Company”), through its wholly-owned subsidiary, FutureFuel Chemical Company (“FutureFuel Chemical”), owns and operates a chemical production facility located on approximately 2,200 acres of land six miles southeast of Batesville in north central Arkansas fronting the White River (the “Batesville Plant”). FutureFuel Chemical manufactures diversified chemical products, biobased products composed of biofuels, and biobased specialty chemical products. FutureFuel Chemical’s operations are reported in two segments: chemicals and biofuels.
 
The 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. 
 
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 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”). Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements, and do include amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of FutureFuel and its direct and indirect wholly owned subsidiaries; namely, FutureFuel Chemical Company; FFC Grain, L.L.C.; FutureFuel Warehouse Company, L.L.C.; and Legacy Regional Transport, L.L.C. Intercompany transactions and balances have been eliminated in consolidation.
  
 
2 )
GOVERNMENT TAX CREDITS
 
BIODIESEL BLENDERS ’ TAX CREDIT AND SMALL AGRI-BIODIESEL PRODUCER TAX CREDIT
 
The biodiesel Blenders’ Tax Credit (“BTC”) provides a one dollar per gallon tax credit to the blender of biomass-based diesel with at least 0.1% petroleum-based diesel fuel.  The BTC will expire December 31, 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. 
 
5
 
 
 
  Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
3 )
 REVENUE RECOGNITION
 
FutureFuel recognizes revenue when performance obligations of the customer contract are satisfied. FutureFuel sells to customers through master sales agreements or standalone purchase orders. The majority of FutureFuel's terms of sale have a single performance obligation to transfer products. Accordingly, FutureFuel recognizes revenue when control has been transferred to the customer, generally at the time of shipment or delivery of products. For certain contracts, this occurs upon delivery of the material to a FutureFuel storage location, ready for customer pickup and separated from other FutureFuel inventory. Revenue is measured as the amount of consideration FutureFuel expects to receive in exchange for transferring products and is generally based upon a negotiated price. FutureFuel sells its products directly to customers generally under agreements with payment terms of 30 to 75 days for 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. FutureFuel recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pickup. If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with Topic 606. FutureFuel applies the renewal option approach in allocating the transaction price to these material rights and transfer of product. As a basis for allocating the transaction price to the material right and transfer of product, FutureFuel estimates the expected life of the product, the expected contractual volumes to be sold over that life, and the most likely expected sales price. Each estimate is updated quarterly on a prospective basis.
 
Contract Assets and Liabilities:
 
Contract assets consist of unbilled amounts typically resulting from revenue recognized through bill-and-hold arrangements. The contract assets at June 30, 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 $ 0  and $ 320  and $ 0  and $ 529 for the three and six months ended  June 30, 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 $ 961  and $ 1,014 for the three months, and $ 3,173  and $ 1,737 for the  six months ended June 30, 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.
 
6
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
The following table provides the balances of receivables, contract assets, and contract liabilities from contracts with customers.
 
Contract Assets and Liability Balances
  June 30, 2022
    December 31, 2021
 
Trade receivables, included in accounts receivable*
  $ 23,756     $ 20,780  
Contract assets, included in accounts receivable
  $ 726
    $ 362  
Contract liabilities, included in deferred revenue - short-term
  $ 7,368     $ 5,944  
Contract liabilities, included in deferred revenue - long-term
  $ 8,461     $ 13,059  
 
* Exclusive of the BTC of $ 13,084  and $ 8,232 , respectively, and net of allowances for bad debt of $ 87  and $ 67 , respectively, as of the dates noted.
 
Transaction price allocated to the remaining performance obligations:
 
At June 30, 2022, approximately $ 15,829  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 47 % of this revenue is expected to be recognized over the next 12 months, and 53 % 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.
 
The Company applies the practical expedient in ASC 606 - 10 - 50 - 14 and excludes the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
 
The following tables provide revenue from customers disaggregated by the type of arrangement and by the timing of the recognized revenue.
 
Disaggregation of revenue - contractual and non-contractual :
 
    Three Months Ended June 30,
    Six Months Ended June 30,
 
    2022     2021
    2022     2021
 
Contract revenue from customers with > 1-year arrangements
  $ 6,148     $ 5,771     $ 16,290     $ 10,877  
Contract revenue from customers with < 1-year arrangements
    111,592       68,291       143,656       104,646  
Revenue from non-contractual arrangements
    56       56       111       111  
Total revenue
  $ 117,796     $ 74,118     $ 160,057     $ 115,634  
 
Timing of revenue :
 
    Three Months Ended June 30,
    Six Months Ended June 30,
 
    2022     2021
    2022     2021
 
Bill-and-hold revenue
  $ 7,971     $ 7,878     $ 17,247     $ 15,427  
Non-bill-and-hold revenue
    109,825       66,240       142,810       100,207  
Total revenue
  $ 117,796     $ 74,118     $ 160,057     $ 115,634  
 
As of June 30, 2022, $ 3,491  of the bill and hold revenue had not shipped.  In comparison, $ 3,421  of bill and hold revenue as of  June  30, 2021 had not shipped.
 
7
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
4 )
INVENTORY
 
The carrying values of inventory were as follows as of:
 
    June 30, 2022
    December 31, 2021
 
At average cost (approximates current cost)
               
Finished goods
  $ 22,435     $ 12,132  
Work in process
    942       462  
Raw materials and supplies
    28,822       30,117  
      52,200       42,711  
LIFO reserve
    (20,616)       (15,791 )
Total inventory
  $ 31,584     $ 26,920  
 
For the six  months ended June  30, 2022, a LIFO liquidation of $ 2,124  occurred as we exited the pipeline business.  No LIFO liquidation occurred in the six  months ended June  30, 2021.
 
5 )
DERIVATIVE INSTRUMENTS
 
The Company records all derivative instruments at fair value. Fair value is determined by using the closing prices of the derivative instruments on the New York Mercantile Exchange at the end of an accounting period. Changes in the fair value of derivative instruments are recognized at the end of each accounting period and recorded in the statement of income as a component of cost of goods sold.
 
In order to manage commodity price risk caused by market fluctuations in biofuel prices, future purchases of feedstock used in biodiesel production, physical feedstock, finished product inventories attributed to the process, and other petroleum products purchased or sold, the Company may enter into exchange-traded commodity futures and options contracts. The Company accounts for these derivative instruments in accordance with ASC 815 - 20 - 25,  Derivatives and Hedging. Under this standard, the accounting for changes in the fair value of a derivative instrument depends upon whether it has been designated as an accounting hedging relationship and, further, on the type of hedging relationship. To qualify for designation as an accounting hedging relationship, specific criteria must be met and appropriate documentation maintained. The Company had no derivative instruments that qualified under these rules as designated accounting hedges in 2022  or 2021. 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 $ 17,476  and $ 26,605  for the three and six  months ended June 30, 2022, respectively and a loss of $ 5,405   and $ 8,029  for the three months and six months ended June 30,  2021, respectively.
 
The volumes and carrying values of FutureFuel’s derivative instruments were as follows at: 
 
    Asset (Liability)
 
    June 30, 2022
    December 31, 2021
 
    Contract
Quantity 
    Fair Value
    Contract Quantity 
    Fair Value
 
Regulated fixed price future commitments, included in other current assets (in thousand barrels)
    190     $ 1,902       142     $ ( 485 )
 
The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $ 1,301  and $ 1,684  at June 30, 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 $ 5.8  million at June 30, 2022.  This is an estimate only and  not reflected in the consolidated financial statements for the six months ended June 30, 2022.
 
8
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
6 )
MARKETABLE SECURITIES
 
At June 30, 2022 and December 31, 2021, FutureFuel had investments in certain marketable equity and trust preferred (debt) securities which had a fair market value of $ 39,426  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 $ 3,754  and $ 3,902 at June 30, 2022 and December 31, 2021, respectively, with net unrealized gains of $ 77  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 June 30, 2022 and 2021, was reported as a component of net income with a loss of $ 3,239  and a gain of $ 1,543 , respectively.  The change in the fair value of marketable equity securities (preferred and other equity instruments) for the six months ended June 30, 2022 and 2021, was a loss of $ 7,339  and $ 222 , respectively. 
 
The aggregate fair value of debt securities with unrealized losses totaled $ 335  at June 30, 2022 and $ 0 at December 31, 2021.
 
The Company determined an allowance for credit losses for these debt securities was not necessary as of June 30, 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 six months ended June 30, 2022 or 2021.
 
The debt securities held at June 30, 2022, had a contractual maturity of greater than ten years.
 
9
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
7 )
 FAIR VALUE MEASUREMENTS
 
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value accounting pronouncements also include a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of FutureFuel. Unobservable inputs are inputs that reflect FutureFuel’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
 
The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at June 30, 2022 and December 31, 2021. 
 
    Asset (Liability)
 
            Fair Value Measurements Using
 
    Fair Value at
    Inputs Considered as:
 
Description
  June 30, 2022
    Level 1
    Level 2
    Level 3
 
Derivative instruments
  $ 1,902     $ 1,902     $ -     $ -  
Preferred stock and other equity instruments
  $ 35,672     $ 35,672     $ -     $ -  
Trust preferred stock 
  $ 3,754     $ 3,754     $ -     $ -  
 
    Asset (Liability)
 
            Fair Value Measurements Using
 
    Fair Value at
    Inputs Considered as:
 
Description
  December 31, 2021
    Level 1
    Level 2
    Level 3
 
Derivative instruments
  $ ( 485 )   $ ( 485 )   $ -     $ -  
Preferred stock and other equity instruments
  $ 43,288     $ 43,288     $ -     $ -  
Trust preferred stock 
  $ 3,902     $ 3,902     $ -     $ -  
 
10
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
8 )
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 
Accrued expenses and other current liabilities consisted of the following at:   
 
    June 30, 2022
    December 31, 2021
 
Accrued employee liabilities
  $ 3,208     $ 3,347  
Accrued property, franchise, motor fuel and other taxes
    1,210       1,912  
Lease liability, current
    492       644  
Other
    512       178  
Total
  $ 5,422     $ 6,081  
 
 
9 )
BORROWINGS
 
On March 30, 2020, FutureFuel, with FutureFuel Chemical as the borrower and certain of FutureFuel’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 ( as amended, the “Prior Credit Agreement”) with the lenders party, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. The Credit Agreement consists of a five -year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $ 30,000 for letters of credit and $ 15,000 for swingline loans (collectively, the “Credit Facility”). The credit facility expires on March 30, 2025.  The primary amendments from the Prior Credit Agreement were a reduction in the facility by $ 65,000 , a reduction in the facility’s applicable interest rate by 0.25 %, a reduction in the commitment fee, and elimination of the minimum consolidated fixed charge coverage ratio.
 
The interest rate floats at the following margins over LIBOR or base rate based upon the leverage ratio from time to time:
 
Consolidated Leverage Ratio
  Adjusted LIBOR Rate Loans and
Letter of Credit Fee
    Base Rate Loans
    Commitment Fee
 
< 1.00:1.0
 
 
    1.00 %       0.00 %       0.15 %  
≥ 1.00:1.0
And
< 1.50:1.0
    1.25 %       0.25 %       0.15 %  
≥ 1.50:1.0
And
< 2.00:1.0
    1.50 %       0.50 %       0.20 %  
≥ 2.00:1.0
And
< 2.50:1.0
    1.75 %       0.75 %       0.20 %  
≥ 2.50:1.0
 
 
    2.00 %       1.00 %       0.25 %  
 
The terms of the Credit Facility contain certain negative covenants and conditions including a maximum consolidated leverage ratio and a consolidated minimum interest coverage ratio.
 
There were no borrowings under the Credit Agreement at June 30, 2022 or December 31, 2021.
 
 
10 )
INCOME TAX PROVISION
 
The following table summarizes the income tax provision.  
 
    Three Months Ended June 30,
    Six Months Ended June 30,
 
    2022     2021
    2022     2021
 
Income tax benefit
  $ ( 938 )   $ ( 4,469 )
  $ ( 1,642 )   $ ( 8,856 )
Effective tax rate
    23.2 %     452.3 %
    9.6 %     62.6 %
 
11
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
The Company’s effective tax rate for the six months ended June 30, 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.
 
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 do  not meet the realizability standard of more likely than not.   This assessment was modified in the second quarter, when a reduction in the forecasted annual tax loss facilitated the release of some of the valuation allowance established in the first quarter.
 
In the three and six months ended June 30, 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 and six months ended June  30, 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.
 
 
 
11 )
EARNINGS PER SHARE
 
In the three and six months ended June 30, 2022 and 2021, FutureFuel used the treasury method in computing earnings per share.
 
Basic and diluted (losses) earnings per common share were computed as follows:  
 
    Three Months Ended June 30,
    Six Months Ended June 30,
 
    2022     2021
    2022     2021
 
Numerator:
                               
Net (loss) income
  $ (3,104)     $ 3,481     $ (15,502)     $ (5,292 )
Denominator:
                               
Weighted average shares outstanding – basic
    43,763,243       43,754,232       43,763,243       43,748,768  
Effect of dilutive securities:
                               
Stock options and other awards
    -       190       -       -  
Weighted average shares outstanding – diluted
    43,763,243       43,754,422       43,763,243       43,748,768  
                                 
Basic (loss) earnings per share
  $ (0.07)     $ 0.08     $ (0.35)     $ (0.12 )
Diluted (loss) earnings per share
  $ (0.07)     $ 0.08     $ (0.35)     $ (0.12 )
 
In the three and six months ended June 30, 2022, 12,000  and 24,000  options to purchase FutureFuel’s common stock were excluded, respectively, in the computation of diluted earnings per share as all were anti-dilutive.  In the three and six months ended June 30, 2021, 11,905 and 33,905 options were excluded, respectively.
 
12
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
12 )
RELATED PARTY TRANSACTIONS
 
FutureFuel enters into transactions with companies affiliated with or controlled by a director and significant shareholder. Revenues, expenses, prepaid amounts, and unpaid amounts related to these transactions are captured in the accompanying consolidated financial statements as related party line items.
 
Related party revenues are the result of sales of biodiesel, petrodiesel, blends, other petroleum products, and other similar or related products to these related parties.  
 
Related party cost of goods sold and distribution are the result of sales 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.
 
 
13 )
SEGMENT INFORMATION
 
FutureFuel has two reportable segments organized along similar product groups – chemicals and biofuels.
 
Chemicals
 
FutureFuel’s chemical segment manufactures diversified chemical products that are sold externally to third party customers. This segment is composed of two components: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).
 
Biofuels
 
FutureFuel’s biofuels segment primarily manufactures and markets biodiesel. Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at the Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks. Biofuels revenues also include the sale of biodiesel blends with petrodiesel; petrodiesel with no biodiesel added; internally generated, separated Renewable Identification Numbers (“RINs”); biodiesel production byproducts; and the purchase and sale of other petroleum products on common carrier pipelines.  Biodiesel selling prices and profitability can at times fluctuate based on the timing of unsold, internally generated RINs. FutureFuel does not allocate production costs to internally generated RINs, and, from time to time, can enter into sales of biodiesel on a “RINs-free” basis, resulting in FutureFuel maintaining possession of the applicable RINs from the sale. The benefit derived from the eventual sale of the RINs is not reflected in results of operations until such time as the RINs sale has been completed, which may lead to variability in reported operating results.
 
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 June  30, 2022.
 
Summary of business by segment
 
    Three Months Ended June 30,
    Six Months Ended June 30,
 
    2022     2021
    2022     2021
 
Revenue
                               
Custom chemicals
  $ 12,266     $ 12,260     $ 27,981     $ 22,935  
Performance chemicals
    5,928       3,287       11,774       8,722  
Chemicals revenue
    18,194       15,547       39,755       31,657  
Biofuels revenue
    99,602       58,571       120,302       83,977  
Total Revenue
  $ 117,796     $ 74,118     $ 160,057     $ 115,634  
                                 
Segment gross (loss) profit
                               
Chemicals
  $ 4,196     $ 4,285     $ 9,614     $ 2,984  
Biofuels
    ( 3,219 )     ( 4,328 )
    ( 15,792 )     ( 13,763 )
Total gross (loss) profit
  $ 977     $ ( 43 )
  $ (6,178)     $ ( 10,779 )
 
Depreciation is allocated to segment cost of goods sold based on plant usage. The total assets and capital expenditures of FutureFuel have not been allocated to individual segments as large portions of these assets are shared to varying degrees by each segment, causing such an allocation to be of little value.
 
13
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
14 )    RECENTLY ISSUED ACCOUNTING STA NDARDS  
 
Recently Issued Accounting Standards Adopted  
 
Reference Rate Reform (ASU No. 2020 - 04 )
 
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.
 
 
15 )
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.
 
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 six  months ended June 30, 2021.  However, as discussed in Note 12, Related Party Transactions, the natural gas supplier is not a related party of FutureFuel.
 
 
 
 
 
14
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
  
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of FutureFuel Corp. (“FutureFuel”, “the Company”, “we”, or “our”) should be read together with our consolidated financial statements, including the notes thereto, set forth herein. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements. See “Forward-Looking Information” below for additional discussion regarding risks associated with forward-looking statements. 
Unless otherwise stated, all dollar amounts are in thousands.
 
Overview
 
Our company is managed and reported in two reporting segments: chemicals and biofuels. Within the chemical segment are two product groupings: custom chemicals and performance chemicals. The custom product group is composed of specialty chemicals manufactured for a single customer whereas the performance product group is composed of chemicals manufactured for multiple customers. The 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.
 
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.  As of June 30, 2022, we held 2.8 million D4 RINs with a market value of $4,943.   
 
COVID-19
 
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.
 
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 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’ demands. 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.
 
15
 
 
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’ demands.
 
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 June 30,
 
 
 
 
 
 
 
 
 
 
 
Dollar
 
 
%
 
 
 
2022
 
 
2021
 
 
Change
 
 
Change
 
Revenue
 
$
117,796
 
 
$
74,118
 
 
$
43,678
 
 
 
59
%
Loss from operations
 
$
(1,515
)
 
$
(2,003
)
 
$
488
 
 
 
(24
%)
Net (loss) income
 
$
(3,104
)
 
$
3,481
 
 
$
(6,585
)
 
 
n/a
 
(Loss) earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.07
)
 
$
0.08
 
 
$
(0.15
)
 
 
n/a
 
Diluted
 
$
(0.07
)
 
$
0.08
 
 
$
(0.15
)
 
 
n/a
 
Adjusted EBITDA
 
$
18,709
 
 
$
4,668
 
 
$
14,041
 
 
 
(301
%)
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
Dollar
 
 
%
 
 
 
2022
 
 
2021
 
 
Change
 
 
Change
 
Revenue
 
$
160,057
 
 
$
115,634
 
 
$
44,423
 
 
 
38
%
Loss from operations
 
$
(11,122
)
 
$
(15,061
)
 
$
3,939
 
 
 
26
%
Net loss
 
$
(15,502
)
 
$
(5,292
)
 
$
(10,210
)
 
 
(193
%)
Loss per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.35
)
 
$
(0.12
)
 
$
(0.23
)
 
 
(192
%)
Diluted
 
$
(0.35
)
 
$
(0.12
)
 
$
(0.23
)
 
 
(192
%)
Adjusted EBITDA
 
$
20,807
 
 
$
(3,157
)
 
$
(23,964
)
 
 
n/a
 
 
We use adjusted EBITDA as a key operating metric to measure both performance and liquidity. Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities (each as determined in accordance with GAAP) as a measure of performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP. We define adjusted EBITDA as net income before interest, income taxes, depreciation, and amortization expenses, excluding, when applicable, non-cash stock-based compensation expenses, public offering expenses, acquisition-related transaction costs, purchase accounting adjustments, losses on disposal of property and equipment, gains or losses on derivative instruments, and other non-operating income or expenses. Information relating to adjusted EBITDA is provided so that investors have the same data that we employ in assessing the overall operation and liquidity of our business. Our calculation of adjusted EBITDA may be different from similarly titled measures used by other companies; therefore, the results of our calculation are not necessarily comparable to the results of other companies.
     
Adjusted EBITDA allows our chief operating decision makers to assess the performance and liquidity of our business on a consolidated basis to assess the ability of our operating segments to produce operating cash flow to fund working capital needs, to fund capital expenditures, and to pay dividends. In particular, our management believes that adjusted EBITDA permits a comparative assessment of our operating performance and liquidity, relative to a performance and liquidity based on GAAP results. This measure isolates the effects of certain items, including depreciation and amortization (which may vary among our operating segments without any correlation to their underlying operating performance), non-cash stock-based compensation expense (which is a non-cash expense that varies widely among similar companies), and gains and losses on derivative instruments (which can cause net income to appear volatile from period to period relative to the sale of the underlying physical product).
 
16
 
 
We utilize commodity derivative instruments primarily to protect our operations from downward movements in commodity prices, and to provide greater certainty of cash flows associated with sales of our commodities. We enter into hedges, and we utilize mark-to-market accounting to account for these instruments. Thus, our results in any given period can be impacted, and sometimes significantly, by changes in market prices relative to our contract price along with the timing of the valuation change in the derivative instruments relative to the sale of biofuel. We include this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.
 
Additionally, we invest in marketable securities of certain debt securities (trust preferred stock) and in preferred stock and other equity instruments. The realized and unrealized gains and losses on these marketable securities can fluctuate significantly from period to period. We include this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.
 
The following table reconciles net income, the most directly comparable GAAP performance financial measure, with adjusted EBITDA. 
 
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
2022
 
 
2021
 
 
2022
 
 
2021
 
Net (loss) income 
 
$
(3,104
)
 
$
3,481
 
 
$
(15,502
)
 
$
(5,292
)
Depreciation
 
 
2,706
 
 
 
2,623
 
 
 
5,276
 
 
 
5,231
 
Interest and dividend income
 
 
(747
)
 
 
(790
)
 
 
(1,411
)
 
 
(1,795
)
Non-cash interest expense and amortization of deferred financing costs
 
 
33
 
 
 
31
 
 
 
65
 
 
 
63
 
Losses on disposal of property and equipment
 
 
44
 
 
 
-
 
 
 
50
 
 
 
-
 
Loss on derivative instruments
 
 
17,476
 
 
 
5,404
 
 
 
26,605
 
 
 
8,029
 
(Loss) gain on marketable securities
 
 
3,239
 
 
 
(1,612
)
 
 
7,366
 
 
 
(537
)
Income tax benefit
 
 
(938
)
 
 
(4,469
)
 
 
(1,642
)
 
 
(8,856
)
Adjusted EBITDA
 
$
18,709
 
 
$
4,668
 
 
$
20,807
 
 
$
(3,157
)
 
The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA.
 
 
 
Six Months Ended June 30,
 
 
 
2022
 
 
2021
 
Net cash used in operating activities
 
$
(1,910
)
 
$
(2,349
)
Benefit for deferred income taxes
 
 
1,672
 
 
 
8,881
 
Interest and dividend income
 
 
(1,411
)
 
 
(1,795
)
Income tax benefit
 
 
(1,642
)
 
 
(8,856
)
Loss on derivative instruments
 
 
26,605
 
 
 
8,029
 
Change in fair value of derivative instruments
 
 
2,388
 
 
 
(1,136
)
Change in operating assets and liabilities, net
 
 
(4,895
)
 
 
(4,615
)
Impairment of intangible asset
 
 
-
 
 
 
(1,315
)
Other
 
 
-
 
 
 
(1
)
Adjusted EBITDA
 
$
20,807
 
 
$
(3,157
)
 
17
 
 
Results of Operations  
 
Consolidated
 
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
 
 
Change
 
 
 
2022
 
 
2021
 
 
Amount
 
 
%
 
 
2022
 
 
2021
 
 
Amount
 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
117,796
 
 
$
74,118
 
 
$
43,678
 
 
 
58.9
%
 
$
160,057
 
 
$
115,634
 
 
$
44,423
 
 
 
38.4
%
Volume/product mix effect
 
 
 
 
 
 
 
 
 
 
(4,552
)
 
 
(6.1
%)
 
 
 
 
 
 
 
 
 
 
(14,730
)
 
 
(12.7
%)
Price effect
 
 
 
 
 
 
 
 
 
 
48,230
 
 
 
65.1
%
 
 
 
 
 
 
 
 
 
 
59,153
 
 
 
51.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit (loss) 
 
 
977
 
 
 
(43
)
 
 
1,020
 
 
 
n/a
 
 
 
(6,178
)
 
 
(10,779
)
 
 
4,601
 
 
 
42.7
%
Operating expenses
 
 
(2,492
)
 
 
(1,960
)
 
 
(532
)
 
 
27.1
%
 
 
(4,944
)
 
 
(4,282
)
 
 
(662
)
 
 
15.5
%
Other (expense) income
 
 
(2,527
)
 
 
1,015
 
 
 
(3,542
)
 
 
n/a
 
 
 
(6,022
)
 
 
913
 
 
 
(6,935
)
 
 
n/a
 
Income tax benefit
 
 
(938
)
 
 
(4,469
)
 
 
(3,531
)
 
 
(79
%)
 
 
(1,642
)
 
 
(8,856
)
 
 
7,214
 
 
 
(81.5
%)
Net (loss) income 
 
$
(3,104
)
 
$
3,481
 
 
$
(6,585
)
 
 
n/a
 
 
$
(15,502
)
 
$
(5,292
)
 
$
(10,210
)
 
 
(192.9
%)
 
Consolidated revenue in the three and six months ended June 30, 2022 increased $44 million compared to the three and six months ended June 30, 2021. This increase resulted from increased sales prices in the biofuels segment, and to a lesser extent, from increased prices in the chemicals segment.  This increase was partially reduced by lower sales volumes in biofuels for both the three-and six-month periods and from lower sales volumes in the chemical segment in the three-month period ending June 30, 2022.  
 
Gross profit in the three months ended June 30, 2022 increased $1.0 million as compared to the same periods of 2021. The increase primarily resulted from improved margins from the biofuels segment.  Mostly offsetting this increase was the change in the activity in derivative instruments with a loss of $17.5 million in the current three-month period, as compared to $5.4 million in the same period of 2021.  We experienced unprecedented volatility in the heating oil futures market which resulted in losses that were not fully recoverable on fuel sold. We have since amended our derivative strategy to help mitigate reoccurrence.  
 
Gross profit for the six months ended June 30, 2022 increased $4.6 million as compared to the same period of 2021. This increase primarily resulted from improved margins from biofuels and the prior year period included exorbitantly high natural gas prices experienced in the February 2021 from Winter Storm Uri.  Mostly offsetting this increase was the change in the activity in derivative instruments with a loss of $26.6 million in the current six-month period (from the unprecedented volatility noted previously), as compared to $8.0 million in the same period of 2021.  
 
Also impacting gross profit in both the three-and six-month periods ended June 30, 2022 as compared to the same period of 2021, was the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting.   In the three months ended June 30, 2022 and 2021, this adjustment decreased gross profit $5.3 million and $3.1 million, respectively. In the six months ended June 30, 2022 and 2021, this adjustment decreased gross profit $4.8 million and $7.0 million, respectively.  The change for the six months ended June 30, 2022 was inclusive of a liquidation of LIFO inventory from our biofuel segment as stated in note 4 to our consolidated financial statements.  
 
Operating  e xpenses 
 
Operating expenses increased $0.5 million and $0.7 million in the three and six months ended June 30, 2022, as compared to the same periods of 2021. This increase was primarily from increased administrative fees and compensation expense.
 
Other (expense) income
 
Other (expense) income reduced income $3.5 million and $6.9 million in the three and six months ended June 30, 2022 as compared to the same periods of 2021.  This reduction in both periods was primarily from unrealized losses on marketable securities.  In addition, an impairment charge for an intangible asset reduced other income in the prior year periods by $1.4 million. 
 
Income tax benefit 
 
The Company’s effective tax rate for the six months ended June 30, 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.  In contrast, because the Company was unable to reliably estimate its annual effective tax rate for the three and six months ended June 30, 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 and six months ended June 30, 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 six months ended June 30, 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 six months 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.
 
 
18
 
 
 
Chemical Segment
 
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
 
 
Change
 
 
 
2022
 
 
2021
 
 
Amount
 
 
%
 
 
2022
 
 
2021
 
 
Amount
 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
18,194
 
 
$
15,547
 
 
$
2,647
 
 
 
17.0
%
 
$
39,755
 
 
$
31,657
 
 
$
8,098
 
 
 
25.6
%
Volume/product mix effect
 
 
 
 
 
 
 
 
 
$
(1,316
)
 
 
(8.5
%)
 
 
 
 
 
 
 
 
 
$
(126
)
 
 
(0.4
%)
Price effect
 
 
 
 
 
 
 
 
 
$
3,963
 
 
 
25.5
%
 
 
 
 
 
 
 
 
 
$
8,224
 
 
 
26.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
$
4,196
 
 
$
4,285
 
 
$
(89
)
 
 
(2.1
%)
 
$
9,614
 
 
$
2,984
 
 
$
6,630
 
 
 
222.2
%
 
Chemical revenue in the three and six months ended June 30, 2022 increased 17% or $2.6 million and 25.6% or $8.1 million compared to the three and six months ended June 30, 2021. Revenue from our custom chemicals (unique chemicals produced under contract for specific customers) for the three and six months ended June 30, 2022 totaled $12.3 million and $28.0 million, no change from the three-month comparative period and an increase of $5.0 from the six-month comparative period in 2021, respectively.  The improvement in the six-month period was driven mostly from higher selling prices.  Performance chemicals (composed of multi-customer products which are sold to the open market based on specification) revenue was $5.9 million and $11.8 million, an increase of $2.6 million and $3.1 million as compared to the same periods of 2021, respectively. The increase in the current year periods was from higher sales volume of glycerin partially offset by a weaker market for our monomer additive.  
 
Gross profit for the chemical segment for the three months ended June 30, 2022 decreased $0.1 primarily from product mix.  For the six months ended June 30, 2022, gross profit increased $6.6 million when compared to the same periods of 2021 from increased sales as noted above and the absence of the unusually high natural gas price in the prior year period.   
 
19
 
 
Biofuels Segment
 
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
Change
 
 
 
 
 
 
 
 
 
 
Change
 
 
 
2022
 
 
2021
 
 
Amount
 
 
%
 
 
2022
 
 
2021
 
 
Amount
 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
99,602
 
 
$
58,571
 
 
$
41,031
 
 
 
70.1
%
 
$
120,302
 
 
$
83,977
 
 
$
36,325
 
 
 
43.3
%
Volume/product mix effect
 
 
 
 
 
 
 
 
 
$
(3,236
)
 
 
(5.5
%)
 
 
 
 
 
 
 
 
 
$
(14,604
)
 
 
(17.4
%)
Price effect
 
 
 
 
 
 
 
 
 
$
44,267
 
 
 
75.6
%
 
 
 
 
 
 
 
 
 
$
50,929
 
 
 
60.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross (loss) profit
 
$
(3,219
)
 
$
(4,328
)
 
$
1,109
 
 
 
25.6
%
 
$
(15,792
)
 
$
(13,763
)
 
$
(2,029
)
 
 
(14.7
%)
 
Biofuels revenue in the three and six months ended June 30, 2022 increased 70.1% or $41.0 million and $36.3 million as compared to the same periods of 2021, respectively. The biodiesel and biodiesel blend volumes decreased as compared to the prior year periods, primarily from the availability of economical feedstock. Offsetting these volume decreases as compared to the same period of 2021, was higher selling prices with the overall increase in the fuel market.   
     
A significant portion of our biodiesel sold was to two major refiner/blender in the three and six months ended June 30, 2022 and 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 this customer would have a material adverse effect on our biofuels segment or on us as a whole because: (i) we believe that we could readily sell our biodiesel to other customers as potential demand from other customers for biodiesel exceeds our production capacity; (ii) our sales to these customers are not under fixed terms and the customers have no fixed obligation to purchase any minimum quantities except as stipulated by short-term purchase orders; and (iii) the prices we receive from these customers are based upon then-market rates, as would be the case with sales of this commodity to other customers.
 
Biofuels gross loss was $3.2 million in the three months ended June 30, 2022, an improvement of $1.1 million as compared to the same period of 2021.  The increase primarily resulted from improved margins from the biofuels segment.  Mostly offsetting this increase was the change in the activity in derivative instruments with a loss of $17.5 million in the current three-month period, as compared to $5.4 million in the same period of 2021.  We experienced unprecedented volatility in the heating oil futures market which resulted in losses that were not fully recoverable on fuel sold. We have since amended the execution of our derivative strategy to help mitigate reoccurrence.  Also reducing gross profit was the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting as compared to the same period of 2021; this adjustment decreased gross profit this period $4.6 million as compared to a decrease in gross profit of $2.8 million in the same prior year period. 
 
Gross losses were $15.8 million in the six months ended June 30, 2022, an increased loss of $2.0 million from the same period in 2021.  This increased loss resulted primarily from:  i) the change in the activity in derivative instruments with a loss of $26.6 million and $8.0 million in the first six months of 2022 and 2021, respectively and ii) the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting as compared to the same period of 2021; this adjustment decreased gross profit this period $3.7 million as compared to a decrease in gross profit of $6.0 million in the same prior year period.  Partially offsetting this increased loss was the unfavorable impact in the prior year 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.
 
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.  
 
20
 
 
The volumes and carrying values of our derivative instruments were as follows:
 
 
 
Asset (Liability)
 
 
 
June 30, 2022
 
 
December 31, 2021
 
 
 
Contract Quantity
 
 
Fair Value
 
 
Contract Quantity
 
 
Fair Value
 
Regulated fixed price future commitments (in thousand barrels)
 
 
190
 
 
$
1,902
 
 
 
142
 
 
$
(485
)
 
*All derivative instruments are entered into with the standard contract terms and conditions in accordance with major trading authorities of the New York Mercantile Exchange.
 
Critical   Accounting   Estimates
 
Revenue Recognition
 
The Company recognizes revenue under Topic 606, Revenue from Contracts with Customers . Certain long-term contracts had upfront non-cancellable payments considered material rights. The Company applied the renewal option approach in allocating the transaction price to the material rights. For each of these contracts, the Company estimated the expected contractual volumes to be sold at the most likely expected sales price as a basis for allocating the transaction price to the material right. Estimates are updated quarterly on a prospective basis. These custom chemical contracts have payment terms of 30 days. See Note 3 to our consolidated financial statements.
 
For most product sales, revenue is recognized when product is shipped from our facilities and risk of loss and title have passed to the customer, which is in accordance with our customer contracts and the stated shipping terms. Nearly all custom manufactured products are manufactured under written master service agreements. Performance chemicals and biodiesel are generally sold pursuant to the terms of written purchase orders. In general, customers do not have any rights of return, except for quality disputes. All of our products are tested for quality before shipment, and historically returns have been inconsequential. We do not offer rebates, except those related to the BTC.
 
Biodiesel selling prices can at times fluctuate based on the timing of unsold, internally generated RINs. From time to time, sales of biodiesel are on a “RINs-free” basis. Such method of selling results in applicable RINs being held. The value of the RINs is not reflected in revenue until such time as the RIN sale has been completed.
 
Revenue from bill-and-hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and control of the product has transferred. Bill-and-hold transactions for the three and six months ended June 30, 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. The product was custom manufactured and stored at the customer’s request and could not be sold to another buyer. Credit and payment terms for bill-and-hold customers are similar to other custom chemicals customers. Revenues under bill-and-hold arrangements were $7,983 and $17,259 for the three and months ended June 30, 2022.
 
21
 
 
Liquidity and Capital Resources
 
Our net cash from operating activities, investing activities, and financing activities for the three months ended June 30, 2022 and 2021 are set forth in the following table.
  
 
 
Six Months Ended June 30,
 
 
 
2022
 
 
2021
 
Net cash used in operating activities
 
$
(1,910
)
 
$
(2,349
)
Net cash (used in) provided by investing activities
 
$
(1,206
)
 
$
16,248
 
Net cash used in financing activities
 
$
(5,251
)
 
$
(114,427
)
 
We believe that existing cash balances and cash flow to be generated from operating activities and borrowing capacity under the amended and restated credit agreement will be sufficient to fund operations, product development, cash dividends, and capital requirements for the foreseeable future. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition.
 
Operating Activities
 
Cash used in operating activities was $1,910 in the first six months of 2022 as compared to $2,349 in the same period of 2021. This increase in cash was attributable to the change in inventory, demonstrating a cash inflow of $14,961; the change in benefit for deferred income taxes of $7,253; and the change in fair value of equity securities of $7,117 also demonstrating cash inflows. Partially offsetting cash inflow was a net change in accounts payable, including accounts payable-related parties, demonstrating a cash outflow of $11,536 primarily from the timing of vendor payments, and the change in net income of $10,254 also demonstrating a cash out flow. 
 
Investing Activities
 
Cash used by investing activities was $1,206 in the six months ended June 30, 2022 as compared to cash provided by investing activities of $16,248 in the six months ended June 30, 2021.  Of the $17,454 of change, $18,453 was the result of a decrease in net sales of marketable securities.  Such net sales totaled $250 in the first six months of 2022, compared to $18,703 in net sales in the first six months of 2021.  The remaining change resulted from an increase in the collateralization of derivative instruments of $2,443 and an increase in capital expenditures of $1,407. 
 
Financing Activities
 
Cash used in financing activities was $5,251 and $114,427 in the six months ended June 30, 2022 and 2021, respectively, for payments of dividends on our common stock. This change resulted from the payment of a special dividend of $109,408 in the first six months of 2021. 
 
22
 
 
Credit Facility
 
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. The facility terminates on March 30, 2025. See Note 9 to our consolidated financial statements for additional information regarding our Credit Agreement.
 
We intend to fund future capital requirements for our businesses from cash flow as well as from existing cash, cash investments, and, if the need should arise, borrowings under our credit facility. We do not believe there will be a need to issue any securities to fund such capital requirements.
 
Dividends
 
In the three and six months of 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 $2,625 in each of the periods in 2022 and $2,624 in each of the periods of 2021.  On May 10, 2021 we declared a special cash dividend of $2.50 per share and paid $109,408 on June 4, 2021.
 
Capital Management
 
As a result of our initial equity offering, our subsequent positive operating results, the exercise of warrants, and the issuance of shares in our at-the-market offering, we accumulated excess working capital. Some of this excess working capital has been paid out as special and regular cash dividends. Additionally, regular 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 June 30, 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.” Accordingly, the debt securities are recorded at fair value, with the unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity. We also held equity securities with readily available market values. These equity instruments are recorded at fair value, with the unrealized gains and losses reported as a component of net income. The fair value of the debt securities and equity instruments totaled $39,426 and $47,190 at June 30, 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.
   
23
 
 
Off- Balance Sheet Arrangements
 
We engage in two types of hedging transactions. First, we hedge our biofuels sales through the purchase and sale of futures contracts and options on futures contracts of energy commodities. This activity was captured in our consolidated balance sheets at June 30, 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 June 30, 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: basis and price. Basis covers any refining or processing required as well as transportation. Price covers the purchases of the actual agricultural commodity. Both basis and price fluctuate over time. A supply agreement with a vendor constitutes a hedge when we have committed to a certain volume of feedstock in a future period and have fixed the basis for that volume.
 
24
 
 
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.