Notes to Con
solidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
1)
|
Nature of operations and basis of presentation
|
Viceroy Acquisition Corporation
Viceroy Acquisition Corporation (“
Viceroy”) was incorporated under the laws of the state of Delaware on August 12, 2005 to serve as a vehicle for the acquisition of one or more operating businesses in the oil and gas industry. On July 12, 2006, Viceroy completed an equity offering (see Note 16).
On October
31, 2006, Viceroy acquired all of the issued and outstanding shares of Eastman SE, Inc. (“Eastman SE”) from Eastman Chemical Company (“Eastman Chemical”). Immediately subsequent to the acquisition, Viceroy changed its name to FutureFuel Corp. (“FutureFuel”) and Eastman SE changed its name to FutureFuel Chemical Company (“FutureFuel Chemical”).
Eastman SE, Inc.
Eastman SE was incorporated under the laws of the state of Delaware on September
1, 2005 and subsequent thereto operated as a wholly owned subsidiary of Eastman Chemical through October 31, 2006. Eastman SE was incorporated for purposes of effecting a sale of Eastman Chemical’s manufacturing facility in Batesville, Arkansas (the “Batesville Plant”).
The Batesville Plant was constructed to produce pro
prietary photographic chemicals for Eastman Kodak Company (“Eastman Kodak”). Over the years, Eastman Kodak shifted the plant’s focus away from the photographic imaging business to the custom synthesis of fine chemicals and organic chemical intermediates used in a variety of end markets, including paints and coatings, plastics and polymers, pharmaceuticals, food supplements, household detergents, and agricultural products.
In 2005, the Batesville Plant began the implementation of a bio-based products platf
orm. This included the production of biofuels (biodiesel) and bio-based specialty chemical products (bio-based solvents, chemicals, and intermediates). In addition to bio-based products, the Batesville Plant continues to manufacture specialty and other organic chemicals.
2)
|
Significant accounting policies
|
Consolidation
The accompanying consolidated financial statements include the accounts of FutureFuel and its wholly-owned subsidiaries: FutureFuel Chemical Company; FFC Grain, L.L.C., which was
formed in 2009 to acquire a granary in Marianna, Arkansas; FutureFuel Warehouse Company, L.L.C., which was formed in 2011 to acquire a warehouse in Batesville, Arkansas; and Legacy Regional Transport, L.L.C., which was formed in 2012 and operates FutureFuel’s truck fleet.
All significant intercompany transactions have been eliminated.
Cash and cash equivalents
Cash equivalents consist of highly liquid investments with
original maturities of three months or less and are carried at cost, which approximates market. FutureFuel places its temporary cash investments with high credit quality financial institutions. At times, bank deposits may be in excess of the Federal Deposit Insurance Corporation insurance limit.
Notes to Consolidated
Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Accounts receivable, allowance for doubtful accounts
,
and credit risk
Accounts receivable are recorded at the invoiced amount and do not bear interest.
FutureFuel has established procedures to monitor credit risk and has not experienced significant credit losses in prior years. Accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future. This estimated allowance is based upon management’s evaluation of the collectability of individual invoices and is based upon management’s evaluation of the financial condition of its customers and historical bad debt experience. Write-offs are recorded at the time a customer receivable is deemed uncollectible.
Customer concentrations
Significant portions of FutureFuel
’s sales are made to a relatively small number of customers. All sales of a laundry detergent additive were made to a leading North American consumer products company. Sales of the laundry detergent additive were less than 10% of total revenue for the years ended December 31, 2016 and 2015.
Such sales were
greater than 10% for the year ended December 31, 2014 at $43,927. Sales to one biodiesel customer totaled $35,568, $33,255, and $62,994 for the years ended December 31, 2016, 2015, and 2014, respectively. Additionally, sales of biodiesel, petrodiesel, petrodiesel blends, and other petroleum products to a related party totaled $64,981 and $39,090 for the years ended December 31, 2015 and 2014, respectively. For the period ended December 31, 2016, sales to the related party were not greater than 10%. See Note 19 below.
Inventory
FutureFuel determines the cost of substantially all raw materials and finished goods
inventories by the last-in, first-out (“LIFO”) method. FutureFuel writes down its inventories for estimated obsolescence or unmarketable inventory equal to the difference between the carrying value of inventory and the estimated market value based upon current demand and market conditions.
Financial and derivative instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses and other current liabilities approximate their fair values due to the
short-term maturities of these instruments.
FutureFuel 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 fair value of the derivative instruments are recorded in the statements of operations as a component of cost of goods sold. FutureFuel maintains a margin account with a broker to collateralize these derivative instruments.
In order to
manage commodity price risk caused by market fluctuations in biofuel prices, future purchases of feedstock used in our biodiesel production, physical feedstock, finished product inventories attributed to the process, and other petroleum products purchased or sold, we may enter into exchange traded commodity futures and options contracts. We account 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. We had no derivative instruments that qualified under these rules as designated accounting hedges in 2016 or 2015. Changes in the fair value of our derivative instruments are recognized at the end of each accounting period and recorded in the statement of operations as a component of cost of goods sold.
Our immediate recognition of derivative instrument gains and losses can cause net income to be volatile from period to period due to the timing of the change in valu
e of the derivative instruments relative to the sale of the physical commodity sold. As of December 31, 2016 and 2015, the fair values of our derivative instruments were ($258) and $3,362, respectively. They were comprised of short positions of 135 regulated fixed price futures contracts with a fair value of ($258) at December 31, 2016. Comparatively, we held a short position of 200 regulated options with a value of $(427) and a short position of 631 regulated fixed price future commitments with a value of $3,789 at December 31, 2015.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Property, plant
,
and equipment
Property, plant, and equipment is carried at cost. Maintenance and
repairs are charged to earnings; replacements and betterments are capitalized. When FutureFuel retires or otherwise disposes of an asset, it removes the cost of such asset and related accumulated depreciation from the accounts. FutureFuel records any profit and loss on retirement or other disposition in earnings. Depreciation is provided using the straight-line method over the following estimated useful lives:
Building & building equipment (years)
|
|
|
20
|
-
|
39
|
|
Machinery and equipment (years)
|
|
|
3
|
–
|
33
|
|
Transportation equipment (years)
|
|
|
5
|
–
|
33
|
|
Other (years)
|
|
|
5
|
–
|
33
|
|
Impairment of assets
Long-lived tangible assets
FutureFuel evaluates the carrying value of long-lived tangible assets when events or changes in circumstances indicate that
the carrying value may not be recoverable. Such events and circumstances include, but are not limited to, significant decreases in the market value of the asset, adverse changes in the extent or manner in which the asset is being used, significant changes in business climate, or current or projected cash flow losses associated with the use of the assets. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from such assets are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. For long-lived assets to be held for use in future operations and for fixed (tangible) assets, fair value is determined primarily using either the projected cash flows discounted at a rate commensurate with the risk involved or an appraisal. For long-lived assets to be disposed of by sale or other than sale, fair value is determined in a similar manner, except that fair values are reduced for disposal costs.
Indefinite-lived intangible asset
Intangible assets with indefinite lives are not amortized, but are reviewed for impairment at least annually or whenever events or circumstances
indicate the carrying value of the asset may not be recoverable. The Company performs annual impairment tests of the intangible assets during the fourth quarter of each fiscal year and assesses qualitative factors to determine the likelihood of impairment. The Company’s qualitative analysis includes, but is not limited to, assessing the changes in macroeconomic conditions, legal and regulatory environment, industry and market conditions, financial performance, and any other relevant events or circumstances specific to the intangible asset. If it is more likely than not that the fair value of the intangible asset is greater than the carrying value, no further testing is required. Otherwise, the Company will apply the quantitative impairment test method. In performing the Company's qualitative analysis, the Company determined that it was more likely than not that the indefinite-lived intangible asset's fair value was greater than the carrying value.
Deferred revenue
FutureFuel has signed contracts with c
ustomers to construct plant and related assets on FutureFuel’s property for the manufacture of custom chemicals. The cost of construction has been funded by the customers with title and risk of loss to the equipment residing with FutureFuel. Reimbursements are recognized as deferred revenue and are amortized over the expected life of the customer relationship starting upon the completion of construction and the asset being placed into service.
Additionally, FutureFuel has been awarded grants from governme
ntal agencies related to the construction of production equipment and infrastructural improvements at its plant site. The cost of construction of these projects has been either funded by the governmental agencies directly or funded by FutureFuel who has then been reimbursed by the governmental agencies. Direct payments and reimbursements for construction costs have been recognized as deferred revenue and will be amortized into earnings over the expected life of the applicable customer relationship or the life of the asset if no direct customer relationship is tied to the asset. Such amortization will not begin until the asset has been placed into service and all contingencies associated with the grants are fulfilled.
Notes to Consolidated
Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Asset retirement obligations
FutureFuel establishes reserves for closure/post-closure costs associated with the environmental and other assets it maintains. Env
ironmental assets include but are not limited to waste management units such as destructors, landfills, storage tanks, and boilers. When these types of assets are constructed or installed, a liability is established for the future costs anticipated to be associated with the closure of the site based on an expected life of the environmental assets, the applicable regulatory closure requirements, and FutureFuel’s environmental policies and practices. These expenses are charged into earnings over the estimated useful life of the assets. Currently, FutureFuel estimates the useful life of each individual asset up to 35 years. Changes made in estimates of the asset retirement obligation costs or the estimate of the useful lives of these assets are reflected in earnings as an increase or decrease in the period such changes are made.
Environmental costs are capitalized if they extend the life of the related property, increase its capacity, and/or mitigate or prevent future contamination. The cost of operating and
maintaining environmental control facilities is charged to expense.
Income taxes
Income taxes are accounted for using the asset and liability method. Under this method, income tax assets and liabilities are recognized for temporary differences between
financial statement carrying amounts of assets and liabilities and their respective income tax basis. A future income tax asset or liability is estimated for each temporary difference using enacted and substantively enacted income tax rates and laws expected to be in effect when the asset is realized or the liability settled. A valuation allowance is established, if necessary, to reduce any future income tax asset to an amount that is more likely than not to be realized.
FASB ASC Topic 740,
Income Taxes
(“ASC 740”), clarifies the accounting for uncertainty in income taxes recognized in the financial statements. ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. ASC 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
In November 2015, the FASB issued
additional guidance for Topic 740,
Income Taxes: Balance Sheet Classification of Deferred Taxes
, under the simplification and productivity initiative for presentation of deferred income tax liabilities and assets. This guidance simplifies the presentation of deferred income taxes such that deferred tax liabilities and assets are to be classified as noncurrent in a classified balance sheet. The update does not amend the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount. This guidance was effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company elected to adopt this standard in the fourth quarter of 2016 on a prospective basis. The 2015 financial statements were not retrospectively adjusted. The adoption of this guidance resulted in a decrease in current deferred income tax liability by $7,188 and an increase in noncurrent deferred income tax liability of $7,188.
Revenue recognition
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. All custom manufactured products are manufactured under written contracts. Performance chemicals and biofuels are usually sold pursuant to the terms of written purchase orders. In general, customers do not have any rights of return, except for quality disputes. However, all of our products are tested for quality before shipment, and historically returns have been inconsequential. FutureFuel does not offer rebates or other warranties.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Bill and hold transactions for
2016, 2015, and 2014 related to three specialty chemical customers in 2016 and 2015 and four in 2014, whereby revenue was recognized in accordance with contractual agreements based on product produced and ready for use. These sales were subject to written monthly purchase orders with agreement that production was reasonable. The inventory 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 transactions are similar to other specialty chemical customers. Sales revenue under bill and hold arrangements totaled $23,725, $28,740, and $31,598 for the years ended December 31, 2016, 2015, and 2014, respectively.
Taxes collected from customers a
nd remitted to governmental authorities
Taxes collected from customers and remitted to governmental authorities are excluded from revenues and cost of goods sold.
Shipping and handling fees
Shipping and handling fees related to sales transactions
are billed to customers and recorded as sales revenues.
Cost of goods sold and selling, general,
and administration expenses
Cost of goods sold includes the costs of inventory sold, related purchasing, distribution, and warehousing costs, costs incurred for shipping and handling, and environmental remediation costs. In
2016, 2015 and 2014, the biodiesel tax incentive for blending biodiesel with petroleum diesel is netted with costs of goods sold. The one dollar per gallon blenders’ tax credit (“BTC”) amounted to one cent for each percentage point of vegetable oil or animal fat biodiesel that was blended with petrodiesel. The credit was recognized as it was earned as a reduction to cost of goods sold, i.e., when biodiesel blended with petrodiesel was sold or when such credit was made law. This tax credit expired on December 31, 2016.
Selling, general, and administration expenses
include personnel costs associated with sales, marketing and administration, legal and legal-related costs, consulting and professional services fees, advertising expenses, and other similar costs.
Notes to Consolidated Financial Statements of
FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Research and development
All costs identified as research and development costs are charged to expense when incurred.
Planned major maintenance activities
Expenditures for planned
major maintenance activities are recognized as expense as incurred.
Earnings per share
Earnings per share is computed using the two-class method in accordance with ASC 260,
Earnings Per Share
. The two-class method is an allocation of earnings between the holders of common stock and a company’s participating security holders. FutureFuel’s outstanding unvested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. FutureFuel had no other participating securities at December 31, 2016 or 2015.
Contingently issuable shares associated with outstanding service-based restricted stock shares were not included in
the earnings per share calculations for the year ended December 31, 2016, 2015 and 2014.
Co
mprehensive income
Comprehensive income is comprised of net income and other comprehensive income/(losses) (“
OCI”). Comprehensive income comprises all changes in stockholders’ equity from transactions and other events and circumstances from non-owner sources. FutureFuel’s OCI is comprised of unrealized gains and losses resulting from its investment in certain marketable securities classified as available for sale (see Note 6). For the year ended December 31, 2016, FutureFuel recorded other comprehensive income of $1,485, net of income taxes of $1,158. For the year ended December 31, 2015, FutureFuel recorded other comprehensive losses of $2,204, net of income tax benefit of $1,314, on these securities. For the year ended December 31, 2014, FutureFuel recorded other comprehensive losses of $3,177, net of income tax benefit of $1,980, on these securities. For the year ended December 31, 2016 and 2015, FutureFuel reclassified a portion of its unrealized income related to certain of its available-for-sale securities from OCI to a component of net income as a result of recording an other than temporary impairment. This reclassification totaled $1,419 and $394, net of income tax benefit of $765 and $212 for the years ended December 31, 2016 and 2015, respectively. No such reclassification was made for the year ended December 31, 2014.
Realized gains and losses are recognized on the specific identification method.
Commitments and contingent liabilities
In the ordinary course of its business, FutureFuel enters into supply and sales contracts as deemed commercially desirable. Supply contracts are util
ized to ensure the availability of raw materials used in the production process. Sales contracts are utilized to ensure the future sale of produced product.
FutureFuel and its operations from time to time may be parties to or targets of lawsuits, claims,
investigations, and proceedings including product liability, personal injury, patent and intellectual property, commercial, contract, environmental, health and safety, and environmental matters, which are handled and defended in the ordinary course of business. FutureFuel accrues a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When a single amount cannot be reasonably estimated but the cost can be estimated within a range, FutureFuel accrues the minimum amount.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during a reporting period. Estimates are used when accounting for allowance for doubtful accounts, depreciation, amortization, asset retirement obligations, and income taxes as well as the evaluation of potential losses due to impairments or future liabilities. Actual results could differ materially from those estimates.
Segment reporting
FutureFuel identifies operating segments when separate financial information is available that is evaluated regularly b
y its chief operating decision maker in assessing the performance of those segments and in determining how to allocate resources. FutureFuel has determined that it has two reportable segments organized along product lines -- chemicals and biofuels.
3)
|
Re
instatement of biodiesel BTC and small agri-biodiesel producers tax credit
|
On December 22, 2014, the BTC was retroactively reinstated for 2014 and expired on December 31, 2014. The retroactive credit for 2014 totaled $33,031, and $28,954 was recognized as a reduction in cost of goods sold in the fourth quarter of 2014, with the
remainder recognized as a reduction of cost of goods sold in 2015. Pursuant to the terms of certain 2014 sales commitments, $18,628 of the 2014 retroactive credit was owed to customers. This obligation was recognized as a reduction in sales revenue in the fourth quarter of 2014. The BTC was reinstated on December 18, 2015. The retroactive credit for 2015 totaled $30,895 and was recognized as a reduction of cost of goods sold in the fourth quarter of 2015. Pursuant to the terms of certain 2015 sales commitments, $16,544 of the 2015 retroactive credit was owed to customers. This obligation was recognized as a reduction in sales revenue in the fourth quarter of 2015. No such adjustments were required for 2016 because the BTC was in effect throughout the year and expired December 31, 2016.
A
part of the bill from which the BTC mentioned above was reinstated, was a small agri-biodiesel producer tax credit of $0.10 per gallon qualifying on the first 15 million gallons sold. A small agri-biodiesel producer’s capacity can not exceed 60 million gallons. As such, the tax credit, totaling $1,500, was effective for 2016 and was also retroactively reinstated for 2015 and 2014. This credit expired December 31, 2016.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
The carrying values of inventory were as follows as of December 31:
|
|
201
6
|
|
|
201
5
|
|
At average cost (approximates current cost)
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
2
7,971
|
|
|
$
|
35,517
|
|
Work in process
|
|
|
1,
913
|
|
|
|
1,695
|
|
Raw materials and supplies
|
|
|
2
5,127
|
|
|
|
31,247
|
|
Total inventories at weighted average
cost
|
|
|
55
,011
|
|
|
|
68,459
|
|
LIFO reserve
|
|
|
(
2,918
|
)
|
|
|
(3,502
|
)
|
Total inventories
|
|
$
|
52
,093
|
|
|
$
|
64,957
|
|
A lower of cost or market adjustment was recorded at December 31, 201
6 and 2015 of $1,435 and $1,595, respectfully, which was caused in part by the change in the LIFO reserve.
5)
|
Derivative instruments
|
FutureFuel is exposed to certain risks relating to its ongoing business operations. Commodity price risk is the primary risk managed by using derivative instruments. Regulated fixed
price futures and option contracts are utilized to manage the price risk associated with future purchases of feedstock used in FutureFuel’s biodiesel production along with physical feedstock and finished product inventories attributed to this process.
FutureFuel recognizes all derivative instruments as either assets or liabilities at fair value in its consolidated balance sheet. FutureFuel
’s derivative instruments do not qualify for hedge accounting under the specific guidelines of ASC 815-20-25,
Derivatives and Hedging, Hedging-General, Recognition
. While management believes each of these instruments are entered into in order to effectively manage various risks, none of the derivative instruments are designated and accounted for as hedges primarily as a result of the extensive record keeping requirements. The fair value of FutureFuel’s derivative instruments is determined based on the closing prices of the derivative instruments on relevant commodity exchanges at the end of an accounting period. Realized and unrealized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the statement of operations as a component of cost of goods sold, and amounted to a loss of $(6,220) and gains of $9,101 and $12,757 for the years ended December 31, 2016, 2015, and 2014, respectively.
The volumes and carrying values of FutureFuel
’s derivative instruments were as follows at December 31:
|
|
Asset/(Liability)
|
|
|
|
201
6
|
|
|
201
5
|
|
|
|
Quantity
/
contracts
Short
|
|
|
Fair
Value
|
|
|
Quantity
/
contracts
Short
|
|
|
Fair
Value
|
|
Regulated options, included in other current assets
|
|
|
-
|
|
|
$
|
-
|
|
|
|
200
|
|
|
$
|
(427
|
)
|
Regulated fixed price future commitments, included in other current assets
|
|
|
135
|
|
|
$
|
(258
|
)
|
|
|
631
|
|
|
$
|
3,789
|
|
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
The margin account maintained with a broker to collateralize these derivative instruments carried an account
balance of $758 and $225 at December 31, 2016 and 2015, respectively, and is classified as other current assets in the consolidated balance sheet. The carrying values of the margin account and of the derivative instruments are included, net, in other current assets.
At
December 31, 2016 and 2015, FutureFuel had investments in certain preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments. These investments are classified as current assets in the consolidated balance sheet. FutureFuel has designated these securities as being available-for-sale. Accordingly, they are recorded at fair value, with the unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity.
FutureFuel
’s marketable securities were comprised of the following at:
|
|
December 31, 2016
|
|
|
|
Adjusted Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
Equity instruments
|
|
$
|
32,667
|
|
|
$
|
5,549
|
|
|
$
|
(304
|
)
|
|
$
|
37,912
|
|
Preferred stock
|
|
|
57,105
|
|
|
|
1,196
|
|
|
|
(698
|
)
|
|
|
57,603
|
|
Trust preferred securities
|
|
|
3,147
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
3,138
|
|
Exchange traded debt instruments
|
|
|
7,420
|
|
|
|
99
|
|
|
|
(26
|
)
|
|
|
7,493
|
|
Total
|
|
$
|
100,339
|
|
|
$
|
6,844
|
|
|
$
|
(1,037
|
)
|
|
$
|
106,146
|
|
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
|
|
December 31,
201
5
|
|
|
|
Adjusted
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
E
quity instruments
|
|
$
|
10,825
|
|
|
$
|
44
|
|
|
$
|
(711
|
)
|
|
$
|
10,158
|
|
Preferred stock
|
|
|
37,703
|
|
|
|
2,419
|
|
|
|
(122
|
)
|
|
|
40,000
|
|
Trust preferred securities
|
|
|
16,464
|
|
|
|
1,303
|
|
|
|
(66
|
)
|
|
|
17,701
|
|
Exchange traded debt instruments
|
|
|
6,511
|
|
|
|
297
|
|
|
|
-
|
|
|
|
6,808
|
|
Total
|
|
$
|
71,503
|
|
|
$
|
4,063
|
|
|
$
|
(899
|
)
|
|
$
|
74,667
|
|
The aggregate fair value of investments with unrealized losses totaled $
31,126 and $15,571 at December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, FutureFuel had no investments in marketable securities that were in an unrealized loss position for a greater than 12-month period, respectively.
In 201
6, FutureFuel recategorized a net gain of $728 from accumulated other comprehensive income to a component of net income as a result of sales of available for sale securities. This amount totaled $2,402 and $5,712 of net gains in 2015 and 2014, respectively.
7)
|
Property, plant, and equipment
|
Property, plant, and equipment consisted of the
following at December 31:
|
|
2016
|
|
|
2015
|
Land and land improvements
|
|
$
|
5,741
|
|
|
$
|
5,741
|
Buildings and building equipment
|
|
|
26,171
|
|
|
|
26,478
|
Machinery and equipment
|
|
|
163,40
1
|
|
|
|
157,289
|
Construction in progress
|
|
|
2,271
|
|
|
|
3,586
|
Accumulated depreciation
|
|
|
(79,432)
|
|
|
|
(68,764)
|
Total
|
|
$
|
118,15
2
|
|
|
$
|
124,330
|
Depreciation expense totaled $10,
819, $10,187, and $8,891 for the years ended December 31, 2016, 2015, and 2014, respectively.
In April of 2015, FutureFuel acquired additional historical line space on a pipeline for $1,408. The acquired line space was recorded as an intangible asset with an indefinite life as there was no foreseeable limit on the time period over which it is expe
cted to contribute to cash flows. The carrying value of the asset was $1,408 and $1,408, respectively, as of December 30, 2016 and 2015. The Company tested the intangible asset for impairment in accordance with codification ASC 350-30-35-18 through 35-20 and no impairment was necessary for either period.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Other assets are primarily comprised of supplies and
parts that have been held longer than 24 months and are not expected to be used in the twelve-month period subsequent to the balance sheet date. The balance related to these items totaled $3,876 and $3,078 at December 31, 2016 and 2015, respectively.
10)
|
Accrued expenses and other current liabilities
|
Accrued expenses and other current liabilities, including those associated with related parties, consisted of the following at December
31:
|
|
201
6
|
|
|
201
5
|
|
Accrued employee liabilities
|
|
$
|
864
|
|
|
$
|
1,474
|
|
Accrued property, use, and franchise taxes
|
|
|
1,
428
|
|
|
|
1,248
|
|
Other
|
|
|
3
35
|
|
|
|
254
|
|
Total
|
|
$
|
2,
627
|
|
|
$
|
2,976
|
|
On April 16, 2015, FutureFuel, with FutureFuel Chemical as borrowers, and certain of FutureFuel
’s other subsidiaries, as guarantors, entered into a $150,000 secured and committed credit facility with the lenders party thereto, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. On May 25, 2016, FutureFuel increased the credit facility by $15,000. The credit facility consists of a five-year revolving credit facility in a dollar amount of up to $165,000, which includes a sublimit of $30,000 for letters of credit and $15,000 for swingline loans (collectively, the “Credit Facility”).
The interest rate floats at the following margins over LIBOR or base rate based upon the leverage ratio from time to time:
Conso
lidated Leverage Ratio
|
|
Adjusted LIBOR Rate Loans and Letter of
Credit Fee
|
|
|
Base Rate
Loans
|
|
|
Commitment
Fee
|
|
< 1.00:1.0
|
|
|
1.25%
|
|
|
|
0.25%
|
|
|
|
0.15%
|
|
≥
1.00:1.0 and
< 1.50:1.0
|
|
|
1.50%
|
|
|
|
0.50%
|
|
|
|
0.20%
|
|
≥
1.50:1.0 and
< 2.00:1.0
|
|
|
1.75%
|
|
|
|
0.75%
|
|
|
|
0.25%
|
|
≥
2.00:1.0 and
< 2.50:1.0
|
|
|
2.00%
|
|
|
|
1.00%
|
|
|
|
0.30%
|
|
≥ 2.50:1.0
|
|
|
2.25%
|
|
|
|
1.25%
|
|
|
|
0.35%
|
|
The terms of the Credit Facility contain certain covenants and conditions including a maximum consolidated
leverage ratio, a minimum consolidated fixed charge coverage ratio, and a minimum liquidity requirement. FutureFuel was in compliance with such covenants as of December 31, 2016.
There were no borrowings under this credit agreement at December 31, 201
6 and 2015.
12)
|
Asset retirement obligations and environmental reserves
|
The Batesville Plant generates hazardous and non-hazardous wastes, the treatment, storage, transportation, and disposal of which are regulated by various governmental agencies. I
n addition, the Batesville Plant may be required to incur costs for environmental and closure and post-closure costs under the Resource Conservation and Recovery Act. FutureFuel’s liability for asset retirement obligations and environmental contingencies was $849 and $822 as of December 31, 2016 and 2015, respectively. These amounts are recorded in other noncurrent liabilities in the accompanying balance sheet.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in
thousands, except per share amounts)
The following table summarizes the activity of accrued obligations for asset retirement obligations:
|
|
201
6
|
|
|
201
5
|
|
B
alance at January 1
|
|
$
|
822
|
|
|
$
|
7
96
|
|
Accretion expense
|
|
|
2
7
|
|
|
|
2
6
|
|
Balance at
December 31
|
|
$
|
8
49
|
|
|
$
|
822
|
|
13)
|
Stock based compensation
|
The board of directors of FutureFuel adopted an omnibus incentive plan which was approved by the shareholders of FutureFuel at its 2007 annual shareholder meeting on June
26, 2007. The purpose of the plan is to:
●
|
Encourage ownership in FutureFuel by key personnel whose long-term employment with or engagement by FutureFuel or its subsidiaries is considered essential to its continued progress and, thereby, encourage recipients to act
in FutureFuel’s shareholders’ interests and share in its success;
|
●
|
Encourage such persons to remain in FutureFuel
’s employ or in the employ of its subsidiaries; and
|
●
|
Provide incentives to persons who are not FutureFuel employees to promote
FutureFuel’s success.
|
The plan authorizes FutureFuel to issue stock options (including incentive stock options and nonqualified stock options), stock awards, and stock appreciation rights. Eligible participants in the plan include: (i)
members of FutureFuel’s board of directors and its executive officers; (ii) regular, active employees of FutureFuel and any of its subsidiaries; and (iii) persons engaged by FutureFuel or any of its subsidiaries to render services to FutureFuel or its subsidiaries as an advisor or consultant.
Awards under the plan are limited to shares of FutureFuel
’s common stock, which may be shares acquired by FutureFuel, including shares purchased in the open market, or authorized but un-issued shares. Awards are limited to 10% of the issued and outstanding shares of FutureFuel’s common stock in the aggregate.
The plan became effective upon its approval by FutureFuel
’s shareholders on June 26, 2007 and continues in effect for a term of ten years thereafter unless amended and extended by FutureFuel or unless otherwise terminated.
FutureFuel recognizes compensation expense in its financial statements for stock based options based upon the grant-date fair value over the requisite service period.
In May 2014, FutureFuel issued a
restricted stock award of 250,000 shares to Paul A. Novelly, FutureFuel’s Chief Executive Officer. The restricted shares vest in three annual installments on the first, second, and third anniversaries of the grant date as service to the company is fulfilled. The total expense for the award was $4,195 and will be recognized into expense equally over the three years.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
In July 2014, Futu
reFuel issued a restricted stock award of 125,000 shares to Paul M. Flynn, FutureFuel’s Executive Vice President of Business and Marketing, upon commencement of employment on September 2, 2014. Twenty percent of the shares vested immediately. The remaining shares vest equally over the remaining annual installments on the first, second, third, and fourth anniversaries of the commencement of employment as service to the company is fulfilled. The total expense for the award was $2,136, with 20% recognized immediately and the remainder to be recognized into expense equally over the four years.
No stock awards were issued in 2015
or 2016.
In December 2014, FutureFuel granted a total of 90,000 stock options to select members of management. The options awarded
have an exercise price equal to the mean between the highest and lowest quoted sales prices for FutureFuel’s common stock as of the grant date as reported by the New York Stock Exchange. The options awarded vest annually in equal increments over three years and expire on December 2, 2019. FutureFuel has utilized the Black Scholes Merton option pricing model, which relies on certain assumptions, to estimate the fair value of the options it granted.
In December 2015, FutureFuel granted a total of 30,000 sto
ck options to new members of the Board of Directors. The options awarded in 2015 have an exercise price equal to the mean between the highest and lowest quoted sales prices for FutureFuel’s common stock as of the grant date as reported by the New York Stock Exchange. All options awarded in 2015 vested immediately upon grant and expire in December 2020. FutureFuel has utilized the Black Scholes Merton option pricing model, which relies on certain assumptions, to estimate the fair value of the options it granted.
No stock options
were granted in
2016.
The assumptions used in the determination of the fair value of the options granted are provided in the following table:
Assumptions
|
|
December 2015
Options
|
|
December 2014
Options
|
Expected volatility rate
|
|
43.08%
|
|
41.48%
|
Expected dividend yield
|
|
1.72%
|
|
4.23%
|
Risk-free interest rate
|
|
1.67%
|
|
1.25%
|
Expected forfeiture rate
|
|
0.00%
|
|
0.00%
|
Expected term in years
|
|
4.5
|
|
4.5
|
|
|
|
|
|
The volatility rate for the options granted in 2015 and 2014 were derived from the historical stock price
volatility of FutureFuel’s common stock over the same time period as the expected term of each stock option award. The volatility rate is derived by a mathematical formula utilizing the daily closing stock price data over the expected term.
The expected
dividend yield is calculated using FutureFuel’s expected dividend amount at the date of the option grant over the expected term divided by the fair market value of FutureFuel’s common stock.
The risk-free interest rate is derived from the United States F
ederal Reserve’s published interest rates of yields for the same time period as the expected term.
FutureFuel has only included share-based awards expected to vest in share-based compensation expense. The estimated forfeiture rates are based upon FutureF
uel’s expected rate of forfeiture and are excluded from the quantity of awards included in share-based compensation expense.
For the years ended
December 31, 2016, 2015, and 2014, total share-based compensation expense (before tax) totaled $1,908, $2,043, and $1,440, respectively. In the years ended December 31, 2016, 2015, and 2014, this balance was recorded as an element of selling, general, and administrative expenses. As of December 31, 2016, $1,243 of total unrecognized compensation expense related to restricted stock awards is expected to be recognized over a weighted average period of 1.15 years. As of December 31, 2016, $75 of the total unrecognized compensation expense related to stock options is expected to be recognized over a weighted average period of 0.92 years. Each amount will be adjusted for any future changes in estimated forfeitures.
The weighted average fair value of options granted in 2015 was $4.55 per option, in 2014, it was $2.78 per option.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
A summary of the activity of FutureFuel
’s stock options and awards for the period beginning January 1, 2014 and ending December 31, 2016 is presented below.
|
|
Options
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at January 1, 201
4
|
|
|
18
0,611
|
|
|
$
|
11.
70
|
|
Granted
|
|
|
90,000
|
|
|
$
|
11.34
|
|
Exercised
|
|
|
(30,
611
|
)
|
|
$
|
1
0.06
|
|
Canceled, forfeited, or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 201
4
|
|
|
24
0,000
|
|
|
$
|
11.
77
|
|
Granted
|
|
|
3
0,000
|
|
|
$
|
1
3.99
|
|
Exercised
|
|
|
(
20,000
|
)
|
|
$
|
11
.68
|
|
Canceled, forfeited, or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at
December 31, 2015
|
|
|
2
50,000
|
|
|
$
|
1
2.05
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(
120,000
|
)
|
|
$
|
1
1.45
|
|
Canceled, forfeited, or expired
|
|
|
(60,000
|
)
|
|
$
|
12.74
|
|
Outstanding at December 31, 201
6
|
|
|
7
0,000
|
|
|
$
|
12.
48
|
|
There were 1,1
94,700 options available for grant under the incentive plan at December 31, 2016. The following table provides the remaining contractual term and weighted average exercise prices of stock options outstanding and exercisable at December 31, 2016.
|
|
|
|
Options
Outstanding
|
|
|
Options Exercisable
|
|
Exercise
Price
|
|
|
Number
Outstanding at
December 31, 201
6
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable at
December 31, 201
6
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
11.34
|
|
|
|
4
0,000
|
|
|
|
2
.92
|
|
|
$
|
11.34
|
|
|
|
1
0,000
|
|
|
$
|
11.34
|
|
$
|
13.99
|
|
|
|
30,000
|
|
|
|
3
.97
|
|
|
$
|
13.99
|
|
|
|
30,000
|
|
|
$
|
13.99
|
|
|
|
|
|
|
70
,000
|
|
|
|
3
.37
|
|
|
$
|
12.
48
|
|
|
|
4
0,000
|
|
|
$
|
1
3.33
|
|
The weighted average remaining contractual life of all exercisable options is
3.71 years.
The aggregate intrinsic values of total options outstanding and at
December 31, 2016 and 2015 were $102 and $378, respectively. The aggregate intrinsic values of total options exercisable at December 31, 2016 and 2015 were $26 and $248, respectively. Intrinsic value is the amount by which the last trade price of the common stock closest to December 31, 2016 and December 31, 2015, respectively, exceeded the exercise price of the options granted.
In 201
6, FutureFuel realized gross proceeds from stock option exercises of $213 and realized a net tax expense of $23. A portion of the options exercised in 2016 were exercised on a cashless basis and resulted in 85,862 shares of FutureFuel’s common stock being returned to FutureFuel by the stock option holder. All of the stock awards that vested were issued on a cash basis. Minimum tax requirements related to these exercises were $128.
Notes to Consolidated
Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
The following summarizes unvested restricted stock activity:
|
|
Number
of
Restricted
Stock
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
|
Weighted
Average
Life
Remaining
|
|
Unvested as of
January 1, 2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
375,000
|
|
|
$
|
16.88
|
|
|
|
-
|
|
Vested
|
|
|
25,000
|
|
|
$
|
17.09
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unvested as of December 31, 2014
|
|
|
350,000
|
|
|
$
|
16.87
|
|
|
|
2.73
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
108,333
|
|
|
$
|
16.85
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unvested as of December 31, 2015
|
|
|
241,667
|
|
|
$
|
16.88
|
|
|
|
1.86
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
108,333
|
|
|
$
|
16.85
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unvested as of December 31, 201
6
|
|
|
133
,334
|
|
|
$
|
16.
90
|
|
|
|
1.
15
|
|
The company realized a tax benefit
of $160, $339, and $164 in the years ended December 31, 2016, 2015 and 2014, respectively, related to the vesting of restricted shares. The excess tax benefit attributable to restricted stock has been recorded as a decrease to additional paid-in-capital and is reflected as a financing cash inflow in the accompanying Consolidated Statement of Cash Flows.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
The following summarizes unvested stock option activity:
|
|
Stock Options
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
|
Weighted
Average
Life
Remaining
|
|
Unvested as of January 1, 201
4
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
90,000
|
|
|
$
|
2.78
|
|
|
|
-
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unvested as of December 31, 201
4
|
|
|
90,000
|
|
|
$
|
2.78
|
|
|
|
2.92
|
|
Granted
|
|
|
30,000
|
|
|
$
|
4.55
|
|
|
|
-
|
|
Vested
|
|
|
(60,000
|
)
|
|
$
|
3.67
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unvested as of December 31, 201
5
|
|
|
60,000
|
|
|
$
|
2.78
|
|
|
|
1.92
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(3
0,000
|
)
|
|
$
|
2.78
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unvested as of December 31, 201
6
|
|
|
30,000
|
|
|
$
|
2.78
|
|
|
|
0
.92
|
|
14)
|
Provision
/(benefit) for income taxes
|
The following table summarizes the provision/
(benefit) for income taxes:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income before taxes - U.S.
|
|
$
|
40,806
|
|
|
$
|
51,869
|
|
|
$
|
67,345
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(13,014
|
)
|
|
|
7,475
|
|
|
|
8,455
|
|
Deferred
|
|
|
(1,437
|
)
|
|
|
(2,283
|
)
|
|
|
3,858
|
|
State and other
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(1,120
|
)
|
|
|
487
|
|
|
|
1,306
|
|
Deferred
|
|
|
36
|
|
|
|
(231
|
)
|
|
|
526
|
|
Total
|
|
$
|
(15,535
|
)
|
|
$
|
5,448
|
|
|
$
|
14,145
|
|
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in
thousands, except per share amounts)
Differences between the provision
/(benefit) for income taxes computed using the U.S. federal statutory income tax rate were as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Amount computed using the statutory rate of 35%
|
|
$
|
14,282
|
|
|
$
|
18,154
|
|
|
$
|
23,571
|
|
Section 199 manufacturing deduction
|
|
|
-
|
|
|
|
(163
|
)
|
|
|
-
|
|
Agri-biodiesel production credit
|
|
|
(975
|
)
|
|
|
(975
|
)
|
|
|
(975
|
)
|
Federal excise tax benefit
|
|
|
(20,048
|
)
|
|
|
(9,958
|
)
|
|
|
(10,344
|
)
|
State excise tax benefit
|
|
|
(6,845
|
)
|
|
|
(792
|
)
|
|
|
(2,409
|
)
|
Credit for increasing research activities
|
|
|
(56
|
)
|
|
|
(51
|
)
|
|
|
(80
|
)
|
Alternative fueling equipment credit
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
Dividends received deduction
|
|
|
(730
|
)
|
|
|
(427
|
)
|
|
|
(336
|
)
|
State income taxes, net
|
|
|
(1,262
|
)
|
|
|
695
|
|
|
|
3,189
|
|
Tax (benefit)/expense recorded as a decrease/increase in unrecognized tax benefit
|
|
|
193
|
|
|
|
(747
|
)
|
|
|
1,309
|
|
Other
|
|
|
(94
|
)
|
|
|
(288
|
)
|
|
|
222
|
|
(Benefit)/provision for income taxes
|
|
$
|
(15,535
|
)
|
|
$
|
5,448
|
|
|
$
|
14,145
|
|
The effective tax rates for the years December 31, 2016 and 2015
, reflect FutureFuel’s expected tax rate on reported operating earnings before income tax. Our effective tax rate for the years December 31, 2016 and 2015, reflects the positive effect of the reinstatement of certain tax credits and incentives for 2016 and 2015. In 2016 and 2015, these tax credits and incentives formed a larger proportion of FutureFuel’s net income than in prior years. This increase in proportion combined with the income tax treatment of the credits and incentives reduced FutureFuel’s effective income tax rate in 2016 and 2015 relative to prior years. In addition, during the second quarter of 2016, FutureFuel booked a tax benefit related to the reversal of a state’s treatment of the taxability of the tax credits and incentives. The tax credits and incentives and the impact seen from the income tax treatment of these credits and incentive are not presently anticipated to continue after December 31, 2016. As a result, our effective tax rate in 2017 and beyond is currently expected to be significantly higher than the effective tax rates of 2016 and 2015.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
The significant components of deferred tax assets and liabilities
were as follows as of December 31:
|
|
2016
|
|
|
2015
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Compensation
|
|
$
|
-
|
|
|
$
|
249
|
|
Inventory reserves
|
|
|
1,149
|
|
|
|
1,244
|
|
Self insurance
|
|
|
90
|
|
|
|
111
|
|
Asset retirement obligation
|
|
|
299
|
|
|
|
299
|
|
Deferred revenue
|
|
|
9,388
|
|
|
|
9,993
|
|
Stock based compensation
|
|
|
77
|
|
|
|
144
|
|
Derivative instruments
|
|
|
90
|
|
|
|
|
|
Other
|
|
|
2,546
|
|
|
|
-
|
|
Total deferred tax assets
|
|
|
13,639
|
|
|
|
12,040
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
|
(1,376
|
)
|
|
|
(1,075
|
)
|
Derivative instruments
|
|
|
-
|
|
|
|
(1,348
|
)
|
Accrued expenses
|
|
|
-
|
|
|
|
(656
|
)
|
LIFO inventory
|
|
|
(5,821
|
)
|
|
|
(5,163
|
)
|
Depreciation
|
|
|
(38,293
|
)
|
|
|
(39,930
|
)
|
Other
|
|
|
(213
|
)
|
|
|
(45
|
)
|
Total deferred tax liabilities
|
|
|
(45,703
|
)
|
|
|
(48,217
|
)
|
Valuation allowance
|
|
|
-
|
|
|
|
-
|
|
Net deferred tax liabilities
|
|
$
|
(32,064
|
)
|
|
$
|
(36,177
|
)
|
|
|
2016
|
|
|
2015
|
|
As recorded in the consolidated balance sheet
|
|
|
|
|
|
|
|
|
Current deferred tax liability
|
|
$
|
-
|
|
|
$
|
(7,060
|
)
|
Noncurrent deferred tax liability
|
|
|
(32,064
|
)
|
|
|
(29,117
|
)
|
Net deferred tax liabilities
|
|
$
|
(32,064
|
)
|
|
$
|
(36,177
|
)
|
Prior to 2013, FutureFuel had historically included revenue from the biodiesel BTC in taxable income on its federal and state income tax returns. In 2013,
as a result of then recently issued technical guidance from the U.S. Internal Revenue Service, FutureFuel changed its position related to the benefit from the biodiesel BTC to exclude this credit from taxable income for 2010 and all future years. The biodiesel BTC expired effective December 31, 2016 and has not been reenacted.
FutureFuel elected
to early adopt ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
, in the fourth quarter of 2016 on a prospective basis. The 2015 financial statements were not retrospectively adjusted. The adoption of this guidance resulted in a decrease in current deferred income tax liability by $7,188 and an increase in noncurrent deferred income tax liability of $7,188.
FutureFuel
’s unrecognized tax benefits totaled $2,056 and $4,588 at December 31, 2016 and 2015, respectively.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
The following table summarizes
FutureFuel’s unrecognized tax benefits activity.
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at January 1
|
|
$
|
4,588
|
|
|
$
|
2,981
|
|
|
$
|
1,718
|
|
Increases to tax positions taken in the current year
|
|
|
2,056
|
|
|
|
1,471
|
|
|
|
1,255
|
|
Increases to tax positions taken in a prior year
|
|
|
-
|
|
|
|
3,117
|
|
|
|
8
|
|
Decrease due to resolution of tax positions taken in a prior year
|
|
|
(4,588
|
)
|
|
|
(2,981
|
)
|
|
|
-
|
|
Balance at December 31
|
|
$
|
2,056
|
|
|
$
|
4,588
|
|
|
$
|
2,981
|
|
FutureFuel does not expect its unrecognized
tax benefits to change significantly over the next 12 months.
FutureFuel records interest and penalties net as a component of income tax expense. FutureFuel accrued balances of $
193 and $61 at December 31, 2016 and 2015, respectively, for interest or tax penalties.
FutureFuel and its subsidiaries file tax returns in the U.S. federal jurisdiction and with various state jurisdictions. In general, FutureFuel is subject to U.S., state, and local examinations by tax authorities from 201
3 forward. In the second quarter of 2015, the IRS completed its audit of FutureFuel’s 2010 through 2012 amended federal income tax returns. FutureFuel was successful in recovering the benefits previously unrecorded in its financial statements. Also, during the second quarter of 2015, FutureFuel received notice of rejection from an administrative law judge in The Arkansas Office of Hearings and Appeals regarding FutureFuel’s 2010 through 2012 amended state income tax returns. This decision was subsequently reversed in 2016 by the Arkansas Department of Finance and Administration which resulted in FutureFuel being successful in recovering the benefits previously unrecorded in the financial statements.
15)
|
Deferred revenue and contingent liability
|
FutureFuel has signed contracts
with customers to construct plant and other related assets on FutureFuel’s property for the manufacture of custom chemicals. The cost of the construction has been funded by the customers. Additionally, FutureFuel has been awarded grants from governmental agencies related to the construction of production equipment and infrastructural improvements. As these customers and governmental agencies have paid for such projects, FutureFuel has recorded such amounts as deferred revenue. Deferred revenue totaled $22,322 at December 31 2016, with $5,530 classified as a current liability and $16,792 classified as a noncurrent liability. Deferred revenue totaled $18,588 at December 31, 2015, with $2,680 classified as a current liability and $15,908 classified as a noncurrent liability.
The following table summarizes FutureFuel
’s deferred revenue activity:
|
|
201
6
|
|
|
201
5
|
|
Beginning balance
|
|
$
|
18
,588
|
|
|
$
|
17,867
|
|
Amortization
|
|
|
(
4,018
|
)
|
|
|
(2,468
|
)
|
Additions
|
|
|
7,752
|
|
|
|
3,365
|
|
Impairment
|
|
|
-
|
|
|
|
(176
|
)
|
Balance at December 31
|
|
$
|
22
,322
|
|
|
$
|
18,588
|
|
One of the grants from a governmental agency is contingent upon FutureFuel meeting certain employment goals. If these goals are not reached, FutureFuel may be required to remit a portion of the
grant back to the agency. As a result of this provision, FutureFuel has recorded a contingent liability for the monies received under this grant. This balance totaled $1,151 and $1,151 at December 31, 2016 and 2015.
Notes to Consolidated
Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
16)
|
Stockholders
’ equity
|
On July
12, 2006, Viceroy and its founding shareholders entered into a registration rights agreement pursuant to which the holders of the majority of founding shares and shares of common stock included in the units purchased in Viceroy’s July 2006 offering by a director or his designees are entitled to make up to two demands that Viceroy register with the SEC their founding shares and the shares included in the units purchased in Viceroy’s July 2006 offering. The holders of the majority of such shares can elect to exercise these registration rights at any time after the date on which Viceroy has become a reporting company under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and such shares have been released from any applicable escrow agreement and lock-in deeds. In addition, those shareholders have certain “piggyback” registration rights on registration statements filed subsequent to the date on which such shares are released from escrow or other lock up arrangements. Viceroy agreed to bear the expenses incurred in connection with the filing of any such registration statements. There are 16,250,000 shares of Viceroy’s common stock subject to this registration rights agreement.
On February
10, 2011, FutureFuel filed with the SEC a Form S-3 Registration Statement commonly referred to as a “shelf registration” whereby FutureFuel registered shares of its common stock, preferred stock, warrants, rights, and units which it might issue in the future in an aggregate amount not to exceed $50,000. This registration statement became effective on March 10, 2011. Pursuant to this registration statement, on May 11, 2011, FutureFuel commenced an “At-the-Market” offering under which FutureFuel could from time to time over the succeeding three years sell up to 3,000,000 shares of its common stock. During 2011, FutureFuel issued 1,313,985 shares of its common stock pursuant to this “At-the-Market” offering for a net aggregate purchase price of $15,763, and paid its underwriters $488 as compensation with respect to such issuances. During 2012, FutureFuel issued 91,143 shares of its common stock pursuant to this offering for a net aggregate purchase price of $1,074, and paid its underwriters $33 as compensation with respect to such issuances. During 2013, FutureFuel issued 1,594,872 shares of its common stock pursuant to this offering for a net aggregate purchase price of $19,292, and paid its underwriters $599 as compensation with respect to such issuances.
On February 6, 2013, FutureFuel announced the completion of the sale of shares of its common stock under the At-the-Market offering. An aggregate 3,000,000 shares were sold in open mark
et trading for aggregate gross proceeds of approximately $37,247, resulting in net proceeds of approximately $36,127 after deducting commissions and fees.
We compute earnings per share using the two-class method in accordance wi
th ASC 260,
Earnings Per Share
. The two-class method is an allocation of earnings between the holders of common stock and a company’s participating security holders. Our outstanding unvested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. We had no other participating securities at December 31, 2016 or 2015.
Notes to Consolidated Financial
Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Contingently issuable shares associated with outstanding service-based restricted stock units were not included in the earnings per share calculations for the year ended
December 31, 2016 and 2015.
|
|
For the twelve months ended December 31:
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
56,341
|
|
|
$
|
46,421
|
|
|
$
|
53,200
|
|
Less: distributed earnings allocated to non-vested stock
|
|
|
(377
|
)
|
|
|
(66
|
)
|
|
|
(114
|
)
|
Less: undistributed earnings allocated to non-vested restricted stock
|
|
|
264
|
|
|
|
(237
|
)
|
|
|
(258
|
)
|
Numerator for basic earnings per share
|
|
$
|
56,228
|
|
|
$
|
46,118
|
|
|
$
|
52,828
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: undistributed earnings allocated to non-vested restricted stock
|
|
|
(264
|
)
|
|
|
237
|
|
|
|
258
|
|
Less: undistributed earnings reallocated to non-vested restricted stock
|
|
|
264
|
|
|
|
(237
|
)
|
|
|
(258
|
)
|
Numerator for diluted earnings per share
|
|
$
|
56,228
|
|
|
$
|
46,118
|
|
|
$
|
52,828
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
– basic
|
|
|
43,542,785
|
|
|
|
43,432,149
|
|
|
|
43,357,602
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and other awards
|
|
|
4,753
|
|
|
|
13,581
|
|
|
|
34,409
|
|
Weighted average shares outstanding
– diluted
|
|
|
43,547,538
|
|
|
|
43,445,730
|
|
|
|
43,392,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.29
|
|
|
$
|
1.06
|
|
|
$
|
1.22
|
|
Diluted earnings per share
|
|
$
|
1.29
|
|
|
$
|
1.06
|
|
|
$
|
1.22
|
|
Certain options to purchase FutureFuel
’s common stock were not included in the computation of diluted earnings per share for the years ended December 31, 2016, 2015 and 2014 because they were anti-dilutive in the period. The weighted number of options excluded on this basis was 65,000, 97,500 and 25,000, respectively.
18)
|
Employee benefit plans
|
Defined contribution savings plan
FutureFuel currently offers its employees a company 401(k) matching savings plan, which covers substantially all employees. Under this plan, FutureFuel matches the amount of eligible employees
’ contributions, subject to specified limits, up to 6% of earnings. Company contributions totaled $1,540, $1,648, and $1,683 for the years ended December 31, 2016, 2015, and 2014, respectively.
19)
|
Related
party transactions
|
FutureFuel enters into transactions with companies affiliated with or controlled by a dire
ctor and significant stockholder. Revenues, expenses, prepaid amounts, and unpaid amounts related to these transactions are captured on our accompanying consolidated financial statements as related party line items. These related party transactions are summarized in the following table and further described below.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Related party balance sheet accounts
|
|
201
6
|
|
|
201
5
|
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
Biodiesel, petrodiesel, blends and other petroleum products
|
|
$
|
385
|
|
|
$
|
10
|
|
Total accounts receivable
|
|
$
|
385
|
|
|
$
|
10
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
|
Administrative services and other
|
|
$
|
12
|
|
|
$
|
35
|
|
Total
prepaid expenses
|
|
$
|
12
|
|
|
$
|
35
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
Natural gas and fuel purchases
|
|
$
|
1,045
|
|
|
$
|
233
|
|
Travel and administrative services
|
|
$
|
209
|
|
|
$
|
11
|
|
Total accounts payable
|
|
$
|
1,
254
|
|
|
$
|
244
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Travel and administrative services
|
|
$
|
142
|
|
|
$
|
-
|
|
Total accrued liabilities
|
|
$
|
142
|
|
|
$
|
-
|
|
Related party income statement
accounts
|
|
For the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Biodiesel, petrodiesel, blends and other petroleum products
|
|
$
|
8,37
1
|
|
|
$
|
64,981
|
|
|
$
|
39,090
|
|
Total
revenues
|
|
$
|
8
,371
|
|
|
$
|
64,981
|
|
|
$
|
39,090
|
|
Cost of g
oods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
Biodiesel, petrodiesel, blends, and other petroleum products
|
|
$
|
6
,016
|
|
|
$
|
2,412
|
|
|
$
|
51,647
|
|
Natural gas purchases
|
|
|
4,
223
|
|
|
|
4,190
|
|
|
|
7,095
|
|
Income tax, consulting services and other
|
|
|
8
0
|
|
|
|
60
|
|
|
|
80
|
|
Tot
al cost of goods sold
|
|
$
|
10
,319
|
|
|
$
|
6,662
|
|
|
$
|
58,822
|
|
Distribut
ion
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and related services
|
|
$
|
378
|
|
|
$
|
405
|
|
|
$
|
335
|
|
Total dis
tribution
|
|
$
|
378
|
|
|
$
|
405
|
|
|
$
|
335
|
|
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity trading advisory fees
|
|
$
|
3
07
|
|
|
$
|
143
|
|
|
$
|
132
|
|
Travel and administrative services
|
|
|
21
6
|
|
|
|
72
|
|
|
|
82
|
|
Total sel
ling, general, and administrative expenses
|
|
$
|
5
23
|
|
|
$
|
215
|
|
|
$
|
214
|
|
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Biodiesel, petrodiesel and blends
FutureFuel enters into agreements to buy and sell biofuels (biodiesel, petrodiesel,
biodiesel/petrodiesel blends, RINs, and biodiesel production byproducts) and other petroleum products such as gasoline with an affiliate from time to time. Such agreements are priced at the then current market price of the product, as determined from bids from other customers and/or market pricing services. Cost of goods sold related to these sales includes variable costs and allocated fixed costs.
Natural gas purchases
FutureFuel utilizes natural gas to generate steam for its manufacturing process and
to support certain of its air and waste treatment utilities. This natural gas is purchased through an affiliate provider of natural gas marketing services. Expenses related to these purchases include the cost of the natural gas only; transportation charges are paid to an independent third party.
Income tax and consulting services
An affiliate provides professional services to FutureFuel, primarily in the area of income tax preparation and consulting. FutureFuel also receives certain finance and accounti
ng expertise from this affiliate as requested. Expenses related to these services are comprised of an agreed quarterly fee plus reimbursement of expense, at cost.
Distribution and related services
Distribution and related services are comprised of
barge transportation and related unloading charges for petrodiesel that were arranged and paid by an affiliate and subsequently rebilled to FutureFuel. Additionally, FutureFuel leases oil storage capacity from an affiliate under a storage and throughput agreement. This agreement provides for the storage of biodiesel, diesel or biodiesel/petrodiesel blends, methanol, and biodiesel feedstocks in above-ground storage tankage at designated facilities of the affiliate. Expenses related to this agreement include monthly lease charges, generally on a per barrel basis, and associated heating, throughput, and other customary terminalling charges.
Commodity trading advisory fees
FutureFuel entered into a commodity trading advisory agreement with an affiliate. Purs
uant to the terms of this agreement, the affiliate provides advice to FutureFuel concerning the purchase, sale, exchange, conversion, and/or hedging of commodities as FutureFuel may request from time to time.
Legal, t
ravel and administrative services
F
utureFuel reimburses an affiliate for legal, trading, travel and other administrative services incurred on its behalf. Such reimbursement is performed at cost with the affiliate realizing no profit on the transaction.
Notes to Consolidated
Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
FutureFuel has two reportable segments organized along similar product lines
– chemicals and biofuels. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2.
Chemicals
FutureFuel
’s chemicals segment manufactures diversified chemical products that are sold to third party customers. This segment is comprised of two product groups: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).
Biofuels
FutureFuel
’s biofuels business segment 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. Results of the biofuels business segment also reflect the sale of biodiesel blends with petrodiesel, petrodiesel with no biodiesel added, RINs, biodiesel production byproducts, and the purchase and sale of other petroleum products on common carrier pipelines.
Summary of long-lived assets and revenues by geographic area
All of FutureFuel
’s long-lived assets are located in the U.S.
Most of FutureFuel
’s sales are transacted with title passing at the time of shipment from the Batesville Plant, although some sales are transacted based on title passing at the delivery point. While many of FutureFuel’s chemicals are utilized to manufacture products that are shipped, further processed, and/or consumed throughout the world, the chemical products, with limited exceptions, generally leave the United States only after ownership has transferred from FutureFuel to the customer. Rarely is FutureFuel the exporter of record, never is FutureFuel the importer of record into foreign countries, and FutureFuel is not always aware of the exact quantities of its products that are moved into foreign markets by its customers. FutureFuel does track the addresses of its customers for invoicing purposes and uses this address to determine whether a particular sale is within or without the United States. FutureFuel’s revenues for the years ended December 31, 2016, 2015, and 2014 attributable to the United States and foreign countries (based upon the billing addresses of its customers) were as follows.
Fiscal Year
|
|
United States
|
|
|
All Foreign
Countries
|
|
|
Total
|
|
December 31, 201
6
|
|
$
|
2
50,320
|
|
|
$
|
2,
873
|
|
|
$
|
2
53,193
|
|
December 31, 201
5
|
|
$
|
297,415
|
|
|
$
|
2,196
|
|
|
$
|
299,611
|
|
December 31, 201
4
|
|
$
|
334,210
|
|
|
$
|
7,628
|
|
|
$
|
341,838
|
|
For the years ended
December 31, 2016, 2015, and 2014, revenues from Mexico accounted for 0%, 0%, and 1%, respectively, of total revenues. Other than Mexico, revenues from a single foreign country during 2016, 2015, or 2014 did not exceed 1% of total revenues.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
Summary of business by segment
|
|
Twelve months ended
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom chemicals
|
|
$
|
82,667
|
|
|
$
|
108,160
|
|
|
$
|
127,956
|
|
Performance chemicals
|
|
|
18,240
|
|
|
|
17,688
|
|
|
|
18,190
|
|
Chemicals revenue
|
|
|
100,907
|
|
|
|
125,848
|
|
|
|
146,146
|
|
Biofuels revenue
|
|
|
152,286
|
|
|
|
173,763
|
|
|
|
195,692
|
|
Total Revenue
|
|
$
|
253,193
|
|
|
$
|
299,611
|
|
|
$
|
341,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
$
|
32,055
|
|
|
$
|
35,452
|
|
|
$
|
46,062
|
|
Biofuels
|
|
|
14,803
|
|
|
|
21,594
|
|
|
|
19,911
|
|
Total gross profit
|
|
|
46,858
|
|
|
|
57,046
|
|
|
|
65,973
|
|
Corporate expenses
|
|
|
10,335
|
|
|
|
10,075
|
|
|
|
9,845
|
|
Income before interest and taxes
|
|
|
36,523
|
|
|
|
46,971
|
|
|
|
56,128
|
|
Interest and other income
|
|
|
6,152
|
|
|
|
5,213
|
|
|
|
6,877
|
|
Interest and other expense
|
|
|
(1,869
|
)
|
|
|
(315
|
)
|
|
|
4,340
|
|
Benefit/(provision) for income taxes
|
|
|
15,535
|
|
|
|
(5,448
|
)
|
|
|
(14,145
|
)
|
Net income
|
|
$
|
56,341
|
|
|
$
|
46,421
|
|
|
$
|
53,200
|
|
Depreciation is allocated to segment costs 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.
Gross margins for the biofuels segment for the year ended December 31, 201
6 were favorably impacted by the receipt of approximately $220 awarded to FutureFuel under the United States Department of Agriculture Section 9005 – Advanced Biofuel Producers program in 2016. This award totaled $147 and $420 in 2015 and 2014, respectively. Based on the characteristics of this award, FutureFuel recognizes the income from the award in the period the funding is received. The biofuels segment also includes activity on common carrier pipelines.
21)
|
Fair value measurements
|
Fair value is defined as the exit price, or the amo
unt 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.
Notes to Consolidated Financial Statements of
FutureFuel Corp.
(Dollars in thousands, except per share amounts)
The following table provides information by level for assets and liabilities that are measured at fair value, on a recurring basis.
|
|
|
Asset (Liability)
|
|
|
|
|
|
|
|
Fair Value Measurements Using
Inputs Considered as
|
|
Description
|
|
|
Fair Value at December 31, 2016
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative instruments
|
|
$
|
(258
|
)
|
|
$
|
(258
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
Preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments
|
|
$
|
106,146
|
|
|
$
|
106,146
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
Asset/(Liability)
|
|
|
|
|
|
|
|
Fair Value Measurements Using
Inputs
Considered as
|
|
Description
|
|
|
Fair Value
at
December
31, 201
5
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative instruments
|
|
$
|
3,362
|
|
|
$
|
3,362
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments
|
|
$
|
74,667
|
|
|
$
|
74,667
|
|
|
$
|
-
|
|
|
$
|
-
|
|
22)
|
Reclassifications from
accumulated other comprehensive income
|
The following tables summarize the changes in accumulated other comprehensive income from unrealized gains and losses on available-for-sale securities:
Changes in Accumulated Other Comprehensive Income
Unrealized
Gains and Losses on Available-for-Sale Securities
For the
Twelve Months Ended December 31, 201
6 and 2015
(net of tax)
|
|
201
6
|
|
Balance at January 1, 201
6
|
|
$
|
2,055
|
|
Other comprehensive
gain before reclassifications
|
|
|
6
15
|
|
Amounts
reclassified from accumulated other comprehensive income
|
|
|
870
|
|
Net current-period other comprehensive
gain - twelve months ended December 31, 2016
|
|
|
1
,485
|
|
Balance at December 31, 201
6
|
|
$
|
3
,540
|
|
|
|
2015
|
|
Balance at January 1, 2015
|
|
$
|
4,259
|
|
Other comprehensive loss before reclassifications
|
|
|
(2,134
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(70
|
)
|
Net current-period other comprehensive loss - twelve months ended December 31, 2015
|
|
|
(2,204
|
)
|
Balance
at December 31, 2015
|
|
$
|
2,055
|
|
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
The following table summarizes amounts reclassified from accumulated other comprehensive income in the years ended
December 31, 2016 and 2015:
Reclassifications from Accumulated Other Comprehensive Income
|
|
|
201
6
|
|
Affected Line Item
in
Statement
of Operations
|
|
Unrealized
losses on available-for-sale securities
|
|
$
|
(
1,340
|
)
|
Loss
on marketable securities
|
|
Total before tax
|
|
|
(
1,340
|
)
|
|
|
Tax
benefit
|
|
|
470
|
|
|
|
Total reclassifications
|
|
$
|
(
870
|
)
|
|
|
|
|
|
2015
|
|
Affected Line Item
in
Statement
of Operations
|
Unrealized gains on
available-for-sale securities
|
|
$
|
107
|
|
Gain on marketable securities
|
Total before tax
|
|
|
107
|
|
|
Tax expense
|
|
|
(37
|
)
|
|
Total reclassifications
|
|
$
|
70
|
|
|
Lease agreements
FutureFuel has entered into lease agreements for oil
storage capacity, railcars, isotainers, gas cylinders, argon tanks, and office machines. Minimum rental commitments under existing noncancellable operating leases as of December 31, 2016 were as follows:
|
|
Minimum Rental
Commitment
|
|
2017
|
|
$
|
714
|
|
2018
|
|
|
132
|
|
2019
|
|
|
95
|
|
2020
|
|
|
95
|
|
2021
|
|
|
95
|
|
Thereafter
|
|
|
215
|
|
Total
|
|
$
|
1,
346
|
|
Lease expenses totaled $1,
121, $1,060, and $946 for the years ended December 31, 2016, 2015, and 2014, respectively.
Purchase obligations
FutureFuel has entered into contracts for the purchase of goods and services including contracts for the purchase of feedstocks for biodiesel and expansion of FutureFuel
’s specialty chemicals segment and related infrastructure.
Notes to Con
solidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
24)
|
Quarterly financial
information (unaudited)
|
|
|
Quarter
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
46,635
|
|
|
$
|
67,879
|
|
|
$
|
69,306
|
|
|
$
|
69,373
|
|
Gross profit
|
|
$
|
11,053
|
|
|
$
|
7,972
|
|
|
$
|
10,319
|
|
|
$
|
17,514
|
|
Net income
|
|
$
|
10,569
|
|
|
$
|
14,224
|
|
|
$
|
12,868
|
|
|
$
|
18,680
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.33
|
|
|
$
|
0.29
|
|
|
$
|
0.43
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.33
|
|
|
$
|
0.29
|
|
|
$
|
0.43
|
|
|
|
Quarter
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
201
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
54,087
|
|
|
$
|
104,598
|
|
|
$
|
107,054
|
|
|
$
|
33,872
|
|
Gross profit
|
|
$
|
13,314
|
|
|
$
|
5,544
|
|
|
$
|
8,675
|
|
|
$
|
29,513
|
|
Net income
|
|
$
|
8,131
|
|
|
$
|
3,793
|
|
|
$
|
4,850
|
|
|
$
|
29,647
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|
|
$
|
0.68
|
|
Diluted
|
|
$
|
0.19
|
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|
|
$
|
0.68
|
|
Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly amounts will not necessarily equal the
total for the year.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
25)
|
Recently issued accounting standards
|
In May 2014, the FASB and International Accounting Standards Board jointly issued new principles-based accounting guidance for revenue recognition that will supersede virtually all existing revenue guidance. The core principle of this guidance is that an
entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To achieve the core principle, the guidance establishes the following five steps: 1) identify the contract(s) with a customer, 2) identify the performance obligation in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also details the accounting treatment for costs to obtain or fulfill a contract. Lastly, disclosure requirements have been enhanced to provide sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In July 2015, the FASB affirmed its proposal to defer the effective date by one year. In May 2016, the FASB issued improvements and practical expedients to the standard that included clarification of the collectability criterion, noncash considerations as well as clarification of options at transition. In December 2016, the FASB issued additional corrections and improvements. The Company is in the process of evaluating the impact of this guidance. This new guidance, will likely result in a change in the nature and extent of the related footnote disclosures. The Company plans to adopt the new guidance when effective and presently anticipates adopting on a modified retrospective basis to each prior reporting period presented with the election of applicable practical expedients.
In August 2016, the
Financial Accounting Standards Board (the “FASB”) issued guidance to reduce existing diversity in practice in regards to how cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance specifically addresses the following items: debt
prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interest in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and early adoption is permitted, including adoption in an interim period. The new guidance is to be applied retrospectively to each period presented at the date of adoption. FutureFuel has concluded this guidance will have a minimal impact on the Company’s statement of cash flows and related disclosures and plans to adopt in accordance with the guidance.
During June 2016, the FASB issued new guidance related to credit losses. The new guidance replaces the incurred loss impairment methodology in current GAAP with an expected cre
dit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated loans will receive an allowance account for expected credit losses at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available for sale debt securities will be recorded through an allowance for expected credit losses, with such allowance limited to the amount by which fair value is below amortized cost. An allowance will be established for estimated credit losses on held to maturity securities. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. FutureFuel has historically had minor credit losses and therefore expects this standard to have minimal to no impact on the Company’s financial position and results of operations and related disclosures.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
In March 2016, the FASB issued guidance in regards to stock compensat
ion as a part of the simplification initiative that covers related tax accounting, cash flow presentation, and forfeitures. The two tax accounting related amendments are as follows: all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement, the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur, an entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period; and the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. The cash flow presentation items set forth that excess tax benefits should be classified along with other income tax cash flows as an operating activity and cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. For forfeitures, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and early adoption is permitted, including adoption in an interim period. Management has determined this standard will not have a material impact on the Company's financial position and results of operations and related disclosures.
In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance
requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures in order to help users of financial statements better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. FutureFuel is currently evaluating the impact of the new pronouncement on its financial statements.
In November 2015, the FASB issued guidance
under the simplification and productivity initiative for presentation of deferred income tax liabilities and assets. This guidance simplifies the presentation of deferred income taxes such that deferred tax liabilities and assets are to be classified as noncurrent in a classified balance sheet. The update does not amend the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount. This guidance was effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company elected to adopt this standard in the fourth quarter of 2016 on a prospective basis. The 2015 financial statements were not retrospectively adjusted. The adoption of this guidance resulted in a decrease in current deferred income tax liability by $7,188 and an increase in noncurrent deferred income tax liability of $7,188.
In July 2015, the Financial Accounting Standards Board issued new guidance that requires
inventory not measured using either the last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. The new standard will be effective for periods on or after December 15, 2016 and will be applied prospectively. FutureFuel has concluded that the change in accounting required by this standard will not materially impact the Company’s financial position or results of operations and related disclosures.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
26)
|
Reserve
roll forwards - valuation and qualifying accounts
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
|
Balance at
|
|
|
|
January 1,
|
|
|
Cost and
|
|
|
Other
|
|
|
|
|
|
|
December
|
|
|
|
2016
|
|
|
Expense
|
|
|
Accounts
|
|
|
Deductions
|
|
|
|
31,2016
|
|
Reserve for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful accounts and returns
|
|
$
|
-
|
|
|
$
|
106
|
|
|
$
|
-
|
|
|
$
|
106
|
|
|
$
|
-
|
|
LIFO inventory
|
|
|
3,502
|
|
|
|
-
|
|
|
|
-
|
|
|
|
584
|
|
|
|
2,918
|
|
Aged and obsolete inventory
|
|
|
546
|
|
|
|
-
|
|
|
|
-
|
|
|
|
205
|
|
|
|
341
|
|
Deferred tax valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Aged and obsolete supplies and parts
|
|
|
987
|
|
|
|
235
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,222
|
|
|
|
$
|
5,035
|
|
|
$
|
341
|
|
|
$
|
-
|
|
|
$
|
895
|
|
|
$
|
4,481
|
|
|
|
Balance at
January 1,
2015
|
|
|
Charged to
Cost and
Expense
|
|
|
Charged to
Other
Accounts
|
|
|
Deductions
|
|
|
Balance at
December
31,
201
5
|
|
Reserve for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful accounts and returns
|
|
$
|
-
|
|
|
$
|
37
|
|
|
$
|
-
|
|
|
$
|
37
|
|
|
$
|
-
|
|
LIFO inventory
|
|
|
8,342
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,840
|
|
|
|
3,502
|
|
Aged and obsolete inventory
|
|
|
633
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87
|
|
|
|
546
|
|
Deferred tax valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Aged and obsolete supplies and parts
|
|
|
949
|
|
|
|
38
|
|
|
|
-
|
|
|
|
-
|
|
|
|
987
|
|
|
|
$
|
9,924
|
|
|
$
|
75
|
|
|
$
|
-
|
|
|
$
|
4,964
|
|
|
$
|
5,035
|
|
|
|
Balance at
January 1,
2014
|
|
|
Charged to
Cost and
Expense
|
|
|
Charged to
Other
Accounts
|
|
|
Deductions
|
|
|
Balance
at
December
31,
2014
|
|
Reserve for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful accounts and returns
|
|
$
|
-
|
|
|
$
|
46
|
|
|
$
|
-
|
|
|
$
|
46
|
|
|
$
|
-
|
|
LIFO inventory
|
|
|
9,287
|
|
|
|
-
|
|
|
|
-
|
|
|
|
945
|
|
|
|
8,342
|
|
Aged and obsolete inventory
|
|
|
408
|
|
|
|
225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
633
|
|
Deferred tax valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Aged and obsolete supplies and parts
|
|
|
945
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
949
|
|
|
|
$
|
10,640
|
|
|
$
|
229
|
|
|
$
|
-
|
|
|
$
|
945
|
|
|
$
|
9,924
|
|
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
On July 29, 2013, FutureFuel received notice from a chemicals segment customer for the intermediate anode powder that the customer will terminate the contract in accordance with its terms effective August 9, 2014. This contract subsequently terminated on August 9, 2014 without any additional material being produced or sold in 2014. As a result of the cancelation notice, FutureFuel assessed the carrying values of its fixed assets and deferred revenue associated with this product and recorded an impairment loss of $17,580 for the equipment based on the scrap value method less disposition costs and recorded a reduction of deferred revenue as an element of cost of goods sold slightly offset by other expenses in the amount of $16,160 in 2013. The net impact of this impairment recorded in cost of goods sold for 2013 was $1,420. FutureFuel’s customer remitted payment for all remaining minimum take or pay quantities per the terms of the sales agreement in 2014. FutureFuel also recognized the shortfall payment from 2013 in 2014. Such amounts totaled $4,176 and $4,640 respectively, and were recorded as a component of chemical segment revenue in 2014.
FutureFuel is not a party to, nor is any of its property
subject to, any material pending legal proceedings, other than ordinary routine litigation incidental to its business. However, from time to time, FutureFuel may be a party to, or a target of, lawsuits, claims, investigations, and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which FutureFuel expects to be handled and defended in the ordinary course of business. While FutureFuel is unable to predict the outcome of any matters currently pending, FutureFuel does not believe 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. However, adverse developments could negatively impact earnings or cash flows in future periods.
Supplementary Financial Information.
The following is selected quarterly financial data for each full quarter within our
two most recent fiscal years.
(Dollars in thousands except per share amounts)
|
|
Quarter
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
46,635
|
|
|
$
|
67,879
|
|
|
$
|
69,306
|
|
|
$
|
69,373
|
|
Gross profit
|
|
$
|
11,053
|
|
|
$
|
7,972
|
|
|
$
|
10,319
|
|
|
$
|
17,514
|
|
Net income
|
|
$
|
10,569
|
|
|
$
|
14,224
|
|
|
$
|
12,868
|
|
|
$
|
18,680
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.33
|
|
|
$
|
0.29
|
|
|
$
|
0.43
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.33
|
|
|
$
|
0.29
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
54,087
|
|
|
$
|
104,598
|
|
|
$
|
107,054
|
|
|
$
|
33,872
|
|
Gross profit
|
|
$
|
13,314
|
|
|
$
|
5,544
|
|
|
$
|
8,675
|
|
|
$
|
29,513
|
|
Net income
|
|
$
|
8,131
|
|
|
$
|
3,793
|
|
|
$
|
4,850
|
|
|
$
|
29,647
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|
|
$
|
0.68
|
|
Diluted
|
|
$
|
0.19
|
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|
|
$
|
0.68
|
|
Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly amounts will not necessarily equal the total for the year.