Item 1. Financial Statements
Item 1. Financial Statements.
 
FutureFuel Corp.
Consolidated Balance Sheets
(Dollars in thousands)
 
    March 31, 2023     December 31, 2022  
Assets
               
Cash and cash equivalents
  $ 145,058
    $ 175,640  
Accounts receivable, inclusive of the blenders’ tax credit of $ 7,037  and $ 8,970 , and net of allowances for bad debt of $ 74  and $ 48 , respectively
    25,921       26,198  
Accounts receivable – related parties
    6       6  
Inventory
    69,234       26,761  
Income tax receivable
    1,936       1,959  
Prepaid expenses
    3,169       3,694  
Prepaid expenses – related parties
    12       12  
Marketable securities
    37,681       37,126  
Other current assets
    8,481       2,380  
Total current assets
    291,498
      273,776  
Property, plant and equipment, net
    76,899       76,941  
Other assets
    4,881       5,252  
Total noncurrent assets
    81,780       82,193  
Total Assets
  $ 373,278     $ 355,969  
Liabilities and Stockholders ’ Equity
               
Accounts payable, inclusive of the blenders’ tax credit rebates due customers of $ 890 and $ 890 , respectively
  $ 29,009     $ 28,546  
Accounts payable – related parties
    7,824       7,799  
Deferred revenue – current
    3,664       3,772  
Dividends payable
    7,877       10,503  
Accrued expenses and other current liabilities
    5,207       5,477  
Accrued expenses and other current liabilities – related parties
    -       1  
Total current liabilities
    53,581       56,098  
Deferred revenue – non-current
    13,913       15,079  
Other noncurrent liabilities
    1,686       1,792  
Total noncurrent liabilities
    15,599       16,871  
Total liabilities
    69,180       72,969  
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 March 31, 2023 and December 31, 2022
    4       4  
Accumulated other comprehensive income (loss)
    16       ( 1 )
Additional paid in capital
    282,489       282,489  
Retained earnings
    21,589       508  
Total stockholders’ equity
    304,098       283,000  
Total Liabilities and Stockholders ’ Equity
  $ 373,278     $ 355,969  
 
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 March 31,  
    2023     2022  
Revenue
  $ 74,161     $ 42,074  
Revenue – related parties
    20       187  
Cost of goods sold
    51,936       47,219  
Cost of goods sold – related parties
    10       1,260  
Distribution
    558       884  
Distribution – related parties
    54       53  
Gross profit (loss)
    21,623       ( 7,155 )
Selling, general, and administrative expenses
               
Compensation expense
    1,138       656  
Other expense
    1,009       963  
Related party expense
    153       154  
Research and development expenses
    1,072       679  
Total operating expenses
    3,372       2,452  
Income (loss) from operations
    18,251       ( 9,607 )
Interest and dividend income
    2,336       664  
Interest expense
    ( 33 )     ( 32 )
Gain (loss) on marketable securities
    533       ( 4,127 )
Other income     1       -  
Other income ( expense)
    2,837       ( 3,495 )
Income (loss) before taxes
    21,088       ( 13,102 )
Income tax provision (benefit)
    7       ( 704 )
Net income (loss)
  $ 21,081     $ ( 12,398 )
                 
Earnings (loss) per common share
               
Basic
  $ 0.48     $ ( 0.28 )
Diluted
  $ 0.48
    $ ( 0.28 )
Weighted average shares outstanding
               
Basic
    43,763,243       43,763,243  
Diluted
    43,766,536       43,763,243  
                 
Comprehensive income (loss)
               
Net income (loss)
  $ 21,081     $ ( 12,398 )
Other comprehensive income (loss) from unrealized net gains (losses) on available-for-sale debt securities
    22       ( 62 )
Income tax effect
    ( 5 )     13  
Total other comprehensive income (loss), net of tax
    17       ( 49 )
Comprehensive income (loss)
  $ 21,098     $ ( 12,447 )
  
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 Three Months Ended March 31, 2023
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
Additional
 
 
 
 
 
 
Total
 
 
 
Common Stock
 
 
Comprehensive
 
 
paid-in
 
 
Retained
 
 
Stockholders’
 
 
 
Shares
 
 
Amount
 
 
 (Loss) Income
 
 
Capital
 
 
Earnings
 
 
Equity
 
Balance - December 31, 2022
 
 
43,763,243
 
 
$
4
 
 
$
( 1
)
 
$
282,489
 
 
$
508
 
 
$
283,000
 
Other comprehensive gain
 
 
 
 
 
 
-
 
 
 
17
 
 
 
-
 
 
 
-
 
 
 
17
 
Net income
 
 
 
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
21,081
 
 
 
21,081
 
Balance - March 31, 2023
 
 
43,763,243
 
 
$
4
 
 
$
16
 
 
$
282,489
 
 
$
21,589
 
 
$
304,098
 
 
    For the Three Months Ended March 31, 2022
 
                    Accumulated
                         
                    Other
    Additional
            Total
 
    Common Stock
    Comprehensive
    paid-in
    Retained
    Stockholders’
 
    Shares
    Amount
    Income (Loss)
    Capital
    Earnings
    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  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
3
 
 
 
FutureFuel Corp.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited) 
 
 
 
Three Months Ended March 31,
 
 
 
2023
 
 
2022
 
Cash flows from operating activities
 
 
 
 
 
 
 
 
Net income (loss)
 
$
21,081
 
 
$
( 12,398
)
Adjustments to reconcile net income to net cash from operating activities:
 
 
 
 
 
 
 
 
Depreciation
 
 
2,551
 
 
 
2,570
 
Amortization of deferred financing costs
 
 
24
 
 
 
24
 
Benefit for deferred income taxes
 
 
( 5
)
 
 
( 719
)
Change in fair value of equity securities
 
 
( 533
)
 
 
4,100
 
Change in fair value of derivative instruments
 
 
( 4,902
)
 
 
( 1,536
)
Loss on the sale of investments
 
 
-
 
 
 
27
 
Loss on disposal of property and equipment
 
 
-
 
 
 
6
 
Noncash interest expense
 
 
8
 
 
 
8
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
Accounts receivable
 
 
277
 
 
 
11,268
 
Accounts receivable – related parties
 
 
-
 
 
 
58
 
Inventory
 
 
(42,473
)
 
 
( 10,700
)
Income tax receivable
 
 
23
 
 
 
15
 
Prepaid expenses
 
 
525
 
 
 
631
 
Prepaid expenses - related parties
 
 
-
 
 
 
( 8
)
Other assets
 
 
( 5,165
)
 
 
38
 
Accounts payable
 
 
413
 
 
 
( 730
)
Accounts payable – related parties
 
 
25
 
 
 
57
 
Accrued expenses and other current liabilities
 
 
( 270
)
 
 
( 917
)
Accrued expenses and other current liabilities – related parties
 
 
( 1
)
 
 
( 1
)
Deferred revenue
 
 
( 1,274
)
 
 
( 2,269
)
Other noncurrent liabilities
 
 
( 114
)
 
 
( 100
)
Net cash used in operating activities
 
 
( 29,810
)
 
 
( 10,576
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
Collateralization of derivative instruments
 
 
4,327
 
 
 
( 2,664
)
Proceeds from the sale of marketable securities
 
 
-
 
 
 
250
 
Proceeds from the sale of property and equipment
 
 
-
 
 
 
56
 
Capital expenditures
 
 
( 2,459
)
 
 
( 977
)
Net cash provided by (used in) investing activities
 
 
1,868
 
 
 
( 3,335
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
Payment of dividends
 
 
( 2,626
)
 
 
( 2,626
)
Deferred financing costs
 
 
( 14
)
 
 
-
 
Net cash used in financing activities
 
 
( 2,640
)
 
 
( 2,626
)
Net change in cash and cash equivalents
 
 
( 30,582
)
 
 
( 16,537
)
Cash and cash equivalents at beginning of period
 
 
175,640
 
 
 
137,521
 
Cash and cash equivalents at end of period
 
$
145,058
 
 
$
120,984
 
 
 
 
 
 
 
 
 
 
Cash paid for interest
 
$
-
 
 
$
-
 
Cash paid for income taxes
 
$
-
 
 
$
-
 
Noncash investing and financing activities:
 
 
 
 
 
 
 
 
Cash dividends declared, not paid
 
$
7,877
 
 
$
7,877
 
Noncash capital expenditures
 
$
258
 
 
$
174
 
 
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 )
SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying unaudited consolidated financial statements have been prepared by FutureFuel Corp. ("FutureFuel" or "the Company") in accordance and consistent with the accounting policies stated in the Company's  2022 Annual Report on Form 10 -K, inclusive of the audited consolidated financial statements and should be read in conjunction with these consolidated financial statements.
 
In the opinion of FutureFuel, all normal recurring adjustments necessary for a fair presentation have been included in the unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared in compliance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10 -Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements, and do include amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of FutureFuel and its direct and indirect wholly owned subsidiaries; namely, FutureFuel Chemical Company; FFC Grain, L.L.C.; FutureFuel Warehouse Company, L.L.C.; and Legacy Regional Transport, L.L.C. Intercompany transactions and balances have been eliminated in consolidation.
 
Recent Accounting Standards
 
No new accounting standards have been adopted recently.
 
Proposed Accounting Standards   
 
In  March 2023, the Financial Accounting Standards Board (the "FASB") issued Proposed Accounting Standards Update (ASU) No. 2023 - ED100 Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures, which aims to address requests for improved income tax disclosures from investors that use the financial statements to make capital allocation decisions. The amendments in this Proposed ASU, if adopted, would address the investor requests for more transparency of income tax information and would apply to all entities that are subject to income taxes. The Company is in the process of evaluating this accounting standard.
 
  
 
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, 2024  based on current law.  The Company records this credit as a reduction to cost of goods sold.
 
Within the law of the BTC, small agri-biodiesel producers with production capacity not in excess of 60 million gallons are eligible for an additional tax credit of $0.10 per gallon on the first 15 million gallons of agri-biodiesel sold (the “Small Agri-biodiesel Producer Tax Credit”). The Company was eligible for this credit as part of the tax provision.
 
CARES ACT – EMPLOYEE RETENTION TAX CREDIT
 
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), was enacted on March 27, 2020, to encourage eligible employers to retain employees on their payroll.  The Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the credit.  FutureFuel has applied for this credit and will recognize the benefit of the credit once reasonable assurance can be made as to the retention of the credit. 
 
5
 
 
 
  Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
3 )
 REVENUE RECOGNITION
 
The majority of revenue is from short term contracts with revenue recognized when a single performance obligation to transfer product under the terms of a contract with a customer are satisfied.
 
Certain of the Company's custom chemical contracts within the chemical segment contain a material right as defined by ASC Topic 606, from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers. Each contract also has a performance obligation to transfer products with 30 -day payment terms. The Company recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pick up. If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with ASC Topic 606. The Company applies the renewal option approach in allocating the transaction price to these material rights and transfer of product. As a basis for allocating the transaction price to the material right and transfer of product, the Company estimates the expected life of the contract, the expected contractual volumes to be sold over that life, and the most likely expected sales price. Each estimate is updated quarterly on a prospective basis.
 
Contract Assets and Liabilities:
 
Contract assets consist of unbilled amounts typically resulting from revenue recognized through bill-and-hold arrangements. The contract assets at March 31, 2023  and December 31, 2022  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 was $ 0  for the three months ended March 31, 2023  and 2022. 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 $ 1,219  and $ 2,213  in the three months ended March 31, 2023  and 2022, respectively. These contract asset and liability balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.
 
The following table provides the balances of receivables, contract assets, and contract liabilities from contracts with customers.
 
Contract Assets and Liability Balances
  March 31, 2023
    December 31, 2022
 
Trade receivables, included in accounts receivable*
  $ 17,794     $ 16,459  
Contract assets, included in accounts receivable
  $ 1,096     $ 775  
Contract liabilities, included in deferred revenue - short-term
  $ 3,457     $ 3,565  
Contract liabilities, included in deferred revenue - long-term
  $ 10,493     $ 11,605  
 
* Exclusive of the BTC of $ 7,037  and $ 8,970 , respectively, and net of allowances for bad debt of $ 74  and $ 48 , respectively, as of the dates noted.
 
Transaction price allocated to the remaining performance obligations:
 
At March 31, 2023, approximately $ 13,950  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 four  years. Approximately 25 % of this revenue is expected to be recognized over the next 12 months, and 75 % 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.
6
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
The following tables provide revenue from customers disaggregated by the type of arrangement and by the timing of the recognized revenue.
 
Disaggregation of revenue - contractual and non-contractual :
 
    Three Months Ended March 31,  
    2023     2022  
Contract revenue from customers with > 1 year arrangements
  $ 10,465     $ 10,142  
Contract revenue from customers with < 1 year arrangements
    63,661       32,064  
Revenue from non-contractual arrangements
    55       55  
Total revenue
  $ 74,181     $ 42,261  
 
Timing of revenue :
 
    Three Months Ended March 31,  
    2023     2022  
Bill-and-hold revenue
  $ 10,590     $ 9,276  
Non-bill-and-hold revenue
    63,591       32,985  
Total revenue
  $ 74,181     $ 42,261  
 
As of March 31, 2023 and December 31, 2022,  $ 3,651 and $ 4,473  of bill-and-hold revenue had not shipped, respectively. 
 
 
4 )
INVENTORY
 
The carrying values of inventory were as follows as of:
 
    March 31, 2023
    December 31, 2022
 
At average cost (approximates current cost)
               
Finished goods
  $ 43,052     $ 11,719  
Work in process
    1,040       879  
Raw materials and supplies
    41,093       33,897  
      85,185       46,495  
LIFO reserve
    ( 15,951 )     ( 19,734 )
Total inventory
  $ 69,234     $ 26,761  
 
No liquidation occurred in the three months ended March 31, 2023  and 2022.
 
7
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
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 2023  or 2022. The Company has elected the normal purchase and normal sales exception for certain feedstock purchase contracts and supply agreements.
 
Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a gain of $ 8,307  and a loss of $ 9,129  for the three months ended March 31, 2023  and  2022, respectively.
 
The volumes and carrying values of FutureFuel’s derivative instruments were as follows at: 
 
 
 
Asset (Liability)
 
 
 
March 31, 2023
 
 
December 31, 2022
 
 
 
Contract
Quantity 
 
 
Fair Value
 
 
Contract Quantity 
 
 
Fair Value
 
Regulated fixed price future commitments, included in other current assets (in thousand barrels)
 
 
575
 
 
$
4,760
 
 
 
305
 
 
$
( 142
)
 
The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of ($ 2,329 ) and $ 2,088  at March 31, 2023  and December 31, 2022, respectively, and was classified as other current assets in the consolidated balance sheets. The carrying values of the margin account and of the derivative instruments are included net, in other current assets.
 
 
6 )
MARKETABLE SECURITIES
 
At March 31, 2023  and December 31, 2022, FutureFuel had investments in certain marketable equity and trust preferred (debt) securities which had a fair market value of $ 37,681  and $ 37,126 , 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 $ 3,697  and $ 3,675  at March 31, 2023  and December 31, 2022, respectively, with the unrealized gain of $ 21  and unrealized loss of $ 1 , 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, 2023  and 2022, was reported as a component of net income as a gain of $ 533  and a loss of $ 4,100 , respectively. 
 
The aggregate fair value of debt securities with unrealized losses totaled $ 1,676 and $ 2,627  at March 31, 2023  and  December 31, 2022, respectively.
 
The Company determined an allowance for credit losses for these debt securities was not necessary as of March 31, 2023. The large financial institutions have strong credit ratings with no recent history of defaulting on outstanding obligations, nor is the Company aware of any long-term credit risk related to delinquency under these obligations.
 
There were no sales of debt securities in the three months ended March 31, 2023  or 2022.
 
The debt securities held at March 31, 2023, had a contractual maturity of greater than ten years.
 
8
 
 
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 March 31, 2023  and December 31, 2022. 
 
 
 
Asset (Liability)
 
 
 
 
 
 
 
Fair Value Measurements Using
 
 
 
Fair Value at
 
 
Inputs Considered as:
 
Description
 
March 31, 2023
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Derivative instruments
 
$
4,760
 
 
$
4,760
 
 
$
-
 
 
$
-
 
Preferred stock and other equity instruments
 
$
33,984
 
 
$
33,984
 
 
$
-
 
 
$
-
 
Trust preferred stock 
 
$
3,697
 
 
$
3,697
 
 
$
-
 
 
$
-
 
 
 
 
Asset (Liability)
 
 
 
 
 
 
 
Fair Value Measurements Using
 
 
 
Fair Value at
 
 
Inputs Considered as:
 
Description
 
December 31, 2022
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Derivative instruments
 
$
( 142
)
 
$
( 142
)
 
$
-
 
 
$
-
 
Preferred stock and other equity instruments
 
$
33,450
 
 
$
33,450
 
 
$
-
 
 
$
-
 
Trust preferred stock 
 
$
3,676
 
 
$
3,676
 
 
$
-
 
 
$
-
 
 
 
8 )
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 
Accrued expenses and other current liabilities consisted of the following at:   
 
    March 31, 2023
    December 31, 2022
 
Accrued employee liabilities
  $ 3,119     $ 3,287  
Accrued property, franchise, motor fuel and other taxes
    1,086       1,165  
Lease liability, current
    571       630  
Other
    431       395  
Total
  $ 5,207     $ 5,477  
 
9
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
9 )
BORROWINGS
 
On March 30, 2020, the Company, with FutureFuel Chemical Company as the borrower and certain of the Company’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 ( as amended, the “Prior Credit Agreement”) with the lenders party, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. The Credit Agreement consists of a five -year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $ 30,000 for letters of credit and $ 15,000 for swingline loans (collectively, the “Credit Facility”). The Credit Facility expires on March 30, 2025.
 
On  March 1, 2023 ,  the Company entered into a First Amendment to the Credit Agreement (the “First Amendment”). The First Amendment primarily amends the Credit Agreement to transition the Credit Facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”) and other conforming changes, in each case as more specifically set forth in the First Amendment. The First Amendment does  not  modify the aggregate amount, or expiration date, of the Credit Facility. We do  not  expect the transition from LIBOR to have a material impact on the Credit Facility. Pursuant to the First Amendment, the interest rate floats at the following margins over SOFR or base rate based upon our leverage ratio.
 
Consolidated Leverage Ratio
  Adjusted SOFR 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 March 31, 2023  or December 31, 2022.
 
 
10 )
INCOME TAX PROVISION
 
The following table summarizes the income tax provision.  
 
    Three Months Ended March 31,  
    2023     2022  
Income tax provision (benefit)
  $ 7     $ ( 704 )
Effective tax rate
    0.0 %     5.4 %
 
The Company’s effective tax rate for the three months ended March 31, 2023  reflects management’s assessment that none of the tax benefits anticipated to be generated in 2023 are realizable.  Accordingly, valuation allowances have been recorded such that net deferred tax assets both generated in 2023 and anticipated at year-end are $ 0 .  The net deferred tax asset at December 31, 2022 was also $ 0 . 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 2023, based on all available evidence, the Company determined that its assets for net operating loss, capital loss, and tax credit carryforwards as well as its other deferred tax assets are more likely than not realizable only to the extent of its deferred liabilities.  Accordingly, its net deferred tax asset after application of valuation allowance at March 31, 2023 is $ 0 . 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.
 
The effective tax rate for the three months ended March 31, 2023 and March 31, 2022  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 benefits in 2023, realizability concerns have negated their impacts on the effective rate.
 
10
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
11 )
EARNINGS PER SHARE
 
In the three months ended March 31, 2023  and 2022, FutureFuel used the treasury method in computing earnings per share.
 
Basic and diluted earnings (losses) per common share were computed as follows:  
 
 
 
Three Months Ended March 31,
 
 
 
2023
 
 
2022
 
Numerator:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
21,081
 
 
$
( 12,398
)
Denominator:
 
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
 
 
43,763,243
 
 
 
43,763,243
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and other awards
 
 
3,293
 
 
 
-
 
Weighted average shares outstanding – diluted
 
 
43,766,536
 
 
 
43,763,243
 
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
$
0.48
 
 
$
( 0.28
)
Diluted earnings (loss) per share
 
$
0.48
 
 
$
( 0.28
)
For the three months ended March 31, 2023  and 2022, 40,707  and 24,000 options to purchase FutureFuel’s common stock were excluded in the computation of diluted earnings per share as all were anti-dilutive. 
 
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 storage and terminalling services provided by 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 14, Legal Matters, is in reference to the natural gas supplier, not the related party.
 
11
 
 
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
 
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.
 
Summary of business by segment
 
    Three Months Ended March 31,  
    2023     2022  
Revenue
               
Custom chemicals
  $ 16,620     $ 15,715  
Performance chemicals
    5,261       5,846  
Chemicals revenue
    21,881       21,561  
Biofuels revenue
    52,300       20,700  
Total Revenue
  $ 74,181     $ 42,261  
                 
Segment gross profit (loss)
               
Chemicals
  $ 8,623     $ 5,418  
Biofuels
    13,000       ( 12,573 )
Total gross profit (loss)
  $ 21,623     $ ( 7,155 )
 
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.
 
14 )
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 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.
 
12
 
 
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. As of March 31, 2023, we held 1.5 million D4 RINs with a market value of $2,357.   
 
13
 
 
 
Summary of Financial Results
 
Set forth below is a summary of certain consolidated financial information for the periods indicated.
 
 
 
Three Months Ended March 31,
 
 
 
 
 
 
 
 
 
 
 
Dollar
 
 
%
 
 
 
2023
 
 
2022
 
 
Change
 
 
Change
 
Revenue
 
$
74,181
 
 
$
42,261
 
 
$
31,920
 
 
 
76
%
Income (loss) from operations
 
$
18,251
 
 
$
(9,607
)
 
$
27,858
 
 
 
n/a
 
Net income (loss)
 
$
21,081
 
 
$
(12,398
)
 
$
33,479
 
 
 
n/a
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.48
 
 
$
(0.28
)
 
$
0.76
 
 
 
n/a
 
Diluted
 
$
0.48
 
 
$
(0.28
)
 
$
0.76
 
 
 
n/a
 
Adjusted EBITDA
 
$
12,495
 
 
$
2,098
 
 
$
10,397
 
 
 
496
%
 
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).
 
14
 
 
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 March 31,
 
 
 
2023
 
 
2022
 
Net income (loss)
 
$
21,081
 
 
$
(12,398
)
Depreciation
 
 
2,551
 
 
 
2,570
 
Interest and dividend income
 
 
(2,336
)
 
 
(664
)
Non-cash interest expense and amortization of deferred financing costs
 
 
32
 
 
 
32
 
Loss on disposal of property and equipment
 
 
-
 
 
 
6
 
(Gain) loss on derivative instruments
 
 
(8,307
)
 
 
9,129
 
(Gain) loss on marketable securities
 
 
(533
)
 
 
4,127
 
Income tax provision (benefit)
 
 
7
 
 
 
(704
)
Adjusted EBITDA
 
$
12,495
 
 
$
2,098
 
 
The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA.
 
 
 
Three Months Ended March 31,
 
 
 
2023
 
 
2022
 
Net cash used in operating activities
 
$
(29,810
)
 
$
(10,576
)
Benefit for deferred income taxes
 
 
5
 
 
 
719
 
Interest and dividend income
 
 
(2,336
)
 
 
(664
)
Income tax provision (benefit)
 
 
7
 
 
 
(704
)
(Gain) loss on derivative instruments
 
 
(8,307
)
 
 
9,129
 
Change in fair value of derivative instruments
 
 
4,902
 
 
 
1,536
 
Change in operating assets and liabilities, net
 
 
48,034
 
 
 
2,658
 
Adjusted EBITDA
 
$
12,495
 
 
$
2,098
 
 
15
 
 
Results of Operations  
 
Consolidated
 
 
 
Three Months Ended March 31,
 
 
 
 
 
 
 
 
 
 
 
Change
 
 
 
2023
 
 
2022
 
 
Amount
 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
74,181
 
 
$
42,261
 
 
$
31,920
 
 
 
75.5
%
Volume/product mix effect
 
 
 
 
 
 
 
 
 
$
17,944
 
 
 
42.5
%
Price effect
 
 
 
 
 
 
 
 
 
$
13,976
 
 
 
33.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit (loss)
 
$
21,623
 
 
$
(7,155
)
 
$
28,778
 
 
 
n/a
 
Operating expenses
 
 
(3,372
)
 
 
(2,452
)
 
 
(920
)
 
 
37.5
%
Other income (expense)
 
 
2,837
 
 
 
(3,495
)
 
 
6,332
 
 
 
n/a
 
Income tax provision (benefit)
 
 
7
 
 
 
(704
)
 
 
711
 
 
 
n/a
 
Net income (loss)
 
$
21,081
 
 
$
(12,398
)
 
$
33,479
 
 
 
n/a
 
 
Consolidated revenue in the three months ended March 31, 2023 increased 75.5% or $31,920 compared to the three months ended March 31, 2022. This increase resulted from increased sales volume and price in the biofuels segment and to a lesser extent, from increased sales volume in the chemical segment which was partially offset by reduced sales prices in the chemical segment from product mix.
 
Gross profit in the three months ended March 31, 2023 was $21,623 as compared to a gross loss of $7,155 in the three months ended March 31, 2022. This increase primarily resulted from i) the change in the activity in derivative instruments with a gain of $8,307 in the three months ended March 31, 2023 and a loss of $9,129 in the same period of the prior year (these include realized gains and losses and a mark to market assessment against inventories yet to be sold -see note 5 of our consolidated financial statements). Affordable feedstocks were acquired and converted to biodiesel which will be sold mostly in the three months ended June 30 and September 30, 2023; and ii) 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 $3,783 in the three months ended March 31, 2023 as compared to $481 in the prior year quarter.
 
Operating  e xpenses
 
Operating expenses increased $920 in the three months ended March 31, 2023, as compared to the three-months ended March 31, 2022. This slight increase was primarily from increased compensation and legal expense.
 
Other income (expense)
 
Other income was $2,837 in the three months ended March 31, 2023, as compared to the same period of the prior year other expense of $3,495 which was primarily from: i) the change in unrealized gains on marketable securities in the current period as compared to unrealized losses in the same period of the prior year and ii) an increase in interest income.
 
Income tax provision (benefit)
 
The Company’s effective tax rate for the three months ended March 31, 2023 was unfavorably impacted by the assessment that net deferred tax assets would not more likely than not be realizable in full.  The effective tax rate for the three months ended March 31, 2023 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 2023, realizability concerns have negated 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 attribute carryforwards 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.
 
16
 
 
Chemical Segment
 
 
 
Three Months Ended March 31,
 
 
 
 
 
 
 
 
 
 
 
Change
 
 
 
2023
 
 
2022
 
 
Amount
 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
21,881
 
 
$
21,561
 
 
$
320
 
 
 
1.5
%
Volume/product mix effect
 
 
 
 
 
 
 
 
 
$
987
 
 
 
4.6
%
Price effect
 
 
 
 
 
 
 
 
 
$
(667
)
 
 
(3.1
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
$
8,623
 
 
$
5,418
 
 
$
3,205
 
 
 
59.2
%
 
Chemical revenue in the three months ended March 31, 2023 increased 1.5% or $320 compared to the three months ended March 31, 2022. Revenue for our custom chemicals (unique chemicals produced under contract for specific customers) for the three months ended March 31, 2023 totaled $16,620, an increase of $905 from the same period in 2022. Custom chemicals used in the manufacture of industrial antioxidants experienced stronger volumes and higher selling prices.  In addition, new business from other custom products contributed $1,129, an increase of $893 from the prior year. Performance chemicals (composed of multi-customer products which are sold to the open market based on specification) revenue was $5,261, a decrease of $585 from the three months ended March 31, 2022. This decrease was from lower sales prices of glycerin partially offset by the production timing of certain products which are produced batch-wise during the course of the year.  
 
Gross profit for the chemical segment for the three months ended March 31, 2023, increased $3,205 when compared to the same period of 2022 primarily from favorable product mix as described above.   
 
17
 
 
Biofuels Segment
 
 
 
Three Months Ended March 31,
 
 
 
 
 
 
 
 
 
 
 
Change
 
 
 
2023
 
 
2022
 
 
Amount
 
 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
52,300
 
 
$
20,700
 
 
$
31,600
 
 
 
 
152.6
%
Volume/product mix effect
 
 
 
 
 
 
 
 
 
$
16,958
 
 
 
 
81.9
%
Price effect
 
 
 
 
 
 
 
 
 
$
14,642
 
 
 
 
70.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit (loss)
 
$
13,000
 
 
$
(12,573
)
 
$
25,573
 
 
 
 
n/a
 
 
Biofuels revenue in the three months ended March 31, 2023 increased 152.6% or $31,600 as compared to the same period of 2022. The biodiesel and biodiesel blend volumes increased as compared to the prior year, primarily from the absence of economical feedstock in the prior year period. In addition, selling prices increased with the overall improvement in the fuel industry and from improved RIN prices.   
     
A significant portion of our biodiesel sold was to three major refiners/blenders in the three months ended March 31, 2023 and to two major refiners in the first quarter of 2022.  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: (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 profit was $13,000 in the three months ended March 31, 2023, an increase of $25,573 from the gross loss of $12,573 in the same period of 2022.  This increased profit was from: i) the change in the activity in derivative instruments with a gain of $8,307 in the three months ended March 31, 2023, as compared to a loss of $9,129 in the three months ended March 31, 2022 (these include realized gains and losses and a mark to market assessment against inventories yet to be sold - see note 5 of our consolidated financial statements), ii) an increase in biodiesel margins, and iii) 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 $2,614 in the three months ended March 31, 2023 as compared to $967 in the prior year quarter.  
 
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)
 
 
 
March 31, 2023
 
 
December 31, 2022
 
 
 
Contract Quantity
 
 
Fair Value
 
 
Contract Quantity
 
 
Fair Value
 
Regulated fixed price future commitments (in thousand barrels)
 
 
575
 
 
$
4,760
 
 
 
305
 
 
$
(142
)
 
*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.
 
18
 
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 months ended March 31, 2023 and 2022 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 $10,590 and $9,276 for the three months ended March 31, 2023 and 2022, respectively.
 
19
 
 
Liquidity and Capital Resources
 
Our net cash from operating activities, investing activities, and financing activities for the three months ended March 31, 2023 and 2022 are set forth in the following table.
  
 
 
Three Months Ended March 31,
 
 
 
2023
 
 
2022
 
Net cash used in operating activities
 
$
(29,810
)
 
$
(10,576
)
Net cash provided by (used in) investing activities
 
$
1,868
 
 
$
(3,335
)
Net cash used in financing activities
 
$
(2,640
)
 
$
(2,626
)
 
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.
 
Operating Activities
 
Cash used in operating activities was $29,810 in the three months ended March 31, 2023 as compared to $10,576 in the same period of 2022. This decrease in cash was primarily attributable to the change in inventory demonstrating a cash outflow of $31,773, the change in accounts receivable, including accounts receivable - related parties, demonstrating a cash outflow of $11,049, primarily from the timing of customer payments, and the change in fair value of equity securities of $4,633.  Partially offsetting these cash outflows was the change in net income of $33,479.
 
Investing Activities
 
Cash provided by investing activities was $1,868 in the three months ended March 31, 2023 as compared to cash used in investing activities of $3,335 in the three months ended March 31, 2022.  Of the $5,203 change, $6,991 was the result of a decrease in the collateralization of derivate instruments.  Offsetting this increase in cash was an increase in capital expenditures of $1,482 and a net decrease in the sales of marketable securities of $250. 
 
Financing Activities
 
Cash used in financing activities was $2,640 and $2,626 in the three months ended March 31, 2023 and 2022, respectively, primarily for payments of dividends on our common stock. 
 
20
 
 
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 months ended March 31, 2023 and 2022, 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, 2023 and $2,626 in the three months ended March 31, 2022. The declaration of these regular quarterly cash dividends was made in the three months ended December 31, 2022 and March 31, 2022, respectively.
 
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 2023, 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 March 31, 2023 and December 31, 2022, 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 $37,681 and $37,126 at March 31, 2023 and December 31, 2022, respectively.
 
Lastly, we maintain depositary accounts such as checking accounts, money market accounts, and other similar accounts at selected financial institutions.
   
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 March 31, 2023 and December 31, 2022. 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 March 31, 2023 or December 31, 2022 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.
 
21
 
 
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.