The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
1) | NATURE OF OPERATIONS AND BASIS OF PRESENTATION |
Organization
FutureFuel Corp. (“FutureFuel” or “the Company”), through its wholly-owned subsidiary, FutureFuel Chemical Company (“FutureFuel Chemical”), owns and operates a chemical production facility located on approximately 2,200 acres of land six miles southeast of Batesville in north central Arkansas fronting the White River (the “Batesville Plant”). FutureFuel Chemical manufactures diversified chemical products, biobased products composed of biofuels, and biobased specialty chemical products. FutureFuel Chemical’s operations are reported in two segments: chemicals and biofuels.
The chemical segment manufactures a diversified portfolio of chemical products that are sold to third party customers. The majority of the revenues from the chemical segment are derived from the custom manufacturing of specialty chemicals for specific customers.
The biofuels segment primarily produces and sells biodiesel. FutureFuel Chemical also sells petrodiesel in blends with the Company’s biodiesel and, from time to time, with no biodiesel added.
Basis of Presentation
The unaudited consolidated financial statements have been prepared by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel’s 2021 audited consolidated financial statements and should be read in conjunction with these financial statements.
In the opinion of FutureFuel, all normal recurring adjustments necessary for a fair presentation have been included in the unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared in compliance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements, and do include amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of FutureFuel and its direct and indirect wholly owned subsidiaries; namely, FutureFuel Chemical Company; FFC Grain, L.L.C.; FutureFuel Warehouse Company, L.L.C.; and Legacy Regional Transport, L.L.C. Intercompany transactions and balances have been eliminated in consolidation.
2) | GOVERNMENT TAX CREDITS |
BIODIESEL BLENDERS’ TAX CREDIT AND SMALL AGRI-BIODIESEL PRODUCER TAX CREDIT
The biodiesel Blenders’ Tax Credit (“BTC”) provides a one dollar per gallon tax credit to the blender of biomass-based diesel with at least 0.1% petroleum-based diesel fuel. The BTC will expire December 31, 2022 based on current law. The Company records this credit as a reduction to cost of goods sold.
Within the law of the BTC, small agri-biodiesel producers with production capacity not in excess of 60 million gallons are eligible for an additional tax credit of $0.10 per gallon on the first 15 million gallons of agri-biodiesel sold (the “Small Agri-biodiesel Producer Tax Credit”). The Company was eligible for this credit as part of the tax provision.
CARES ACT – EMPLOYEE RETENTION TAX CREDIT
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), was enacted on March 27, 2020, to encourage eligible employers to retain employees on their payroll. The Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the credit. FutureFuel is in the process of applying for this credit and will recognize the benefit of the credit once reasonable assurance can be made as to the retention of the credit.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
FutureFuel recognizes revenue when performance obligations of the customer contract are satisfied. FutureFuel sells to customers through master sales agreements or standalone purchase orders. The majority of FutureFuel's terms of sale have a single performance obligation to transfer products. Accordingly, FutureFuel recognizes revenue when control has been transferred to the customer, generally at the time of shipment or delivery of products. For certain contracts, this occurs upon delivery of the material to a FutureFuel storage location, ready for customer pickup and separated from other FutureFuel inventory. Revenue is measured as the amount of consideration FutureFuel expects to receive in exchange for transferring products and is generally based upon a negotiated price. FutureFuel sells its products directly to customers generally under agreements with payment terms of 30 to 75 days for chemical segment customers and 2 to 10 days for biofuels segment customers.
Certain of FutureFuel custom chemical contracts within the chemical segment contain a material right as defined by ASU 2014-09, Revenue from Contracts with Customers ("Topic 606"), from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers. Each contract also has a performance obligation to transfer products with 30-day payment terms. FutureFuel recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pickup. If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with Topic 606. FutureFuel applies the renewal option approach in allocating the transaction price to these material rights and transfer of product. As a basis for allocating the transaction price to the material right and transfer of product, FutureFuel estimates the expected life of the product, the expected contractual volumes to be sold over that life, and the most likely expected sales price. Each estimate is updated quarterly on a prospective basis.
Contract Assets and Liabilities:
Contract assets consist of unbilled amounts typically resulting from revenue recognized through bill-and-hold arrangements. The contract assets at June 30, 2022 and December 31, 2021 consist of unbilled revenue from one customer and are recorded as accounts receivable in the consolidated balance sheets. Contract liabilities consist of advance payments related to material rights recorded as deferred revenue in the consolidated balance sheets. Increases to contract liabilities from cash received for a performance obligation of chemical segment plant expansions were $0 and $320 and $0 and $529 for the three and six months ended June 30, 2022 and 2021, respectively. Contract liabilities are reduced as the Company transfers product to the customer under the renewal option approach. Revenue recognized in the chemical segment from the contract liability reductions were $961 and $1,014 for the three months, and $3,173 and $1,737 for the six months ended June 30, 2022 and 2021, respectively. These contract asset and liability balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
The following table provides the balances of receivables, contract assets, and contract liabilities from contracts with customers.
Contract Assets and Liability Balances | | June 30, 2022 | | | December 31, 2021 | |
Trade receivables, included in accounts receivable* | | $ | 23,756 | | | $ | 20,780 | |
Contract assets, included in accounts receivable | | $ | 726 | | | $ | 362 | |
Contract liabilities, included in deferred revenue - short-term | | $ | 7,368 | | | $ | 5,944 | |
Contract liabilities, included in deferred revenue - long-term | | $ | 8,461 | | | $ | 13,059 | |
*Exclusive of the BTC of $13,084 and $8,232, respectively, and net of allowances for bad debt of $87 and $67, respectively, as of the dates noted.
Transaction price allocated to the remaining performance obligations:
At June 30, 2022, approximately $15,829 of revenue is expected to be recognized from remaining performance obligations. FutureFuel expects to recognize this revenue ratably over expected sales over the expected term of its long-term contracts which range from two to four years. Approximately 47% of this revenue is expected to be recognized over the next 12 months, and 53% is expected to be recognized over the subsequent 36 months. These amounts are subject to change based upon changes in the estimated contract life and estimated quantities to be sold over the contract life.
The Company applies the practical expedient in ASC 606-10-50-14 and excludes the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
The following tables provide revenue from customers disaggregated by the type of arrangement and by the timing of the recognized revenue.
Disaggregation of revenue - contractual and non-contractual:
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Contract revenue from customers with > 1-year arrangements | | $ | 6,148 | | | $ | 5,771 | | | $ | 16,290 | | | $ | 10,877 | |
Contract revenue from customers with < 1-year arrangements | | | 111,592 | | | | 68,291 | | | | 143,656 | | | | 104,646 | |
Revenue from non-contractual arrangements | | | 56 | | | | 56 | | | | 111 | | | | 111 | |
Total revenue | | $ | 117,796 | | | $ | 74,118 | | | $ | 160,057 | | | $ | 115,634 | |
Timing of revenue:
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Bill-and-hold revenue | | $ | 7,971 | | | $ | 7,878 | | | $ | 17,247 | | | $ | 15,427 | |
Non-bill-and-hold revenue | | | 109,825 | | | | 66,240 | | | | 142,810 | | | | 100,207 | |
Total revenue | | $ | 117,796 | | | $ | 74,118 | | | $ | 160,057 | | | $ | 115,634 | |
As of June 30, 2022, $3,491 of the bill and hold revenue had not shipped. In comparison, $3,421 of bill and hold revenue as of June 30, 2021 had not shipped.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
The carrying values of inventory were as follows as of:
| | June 30, 2022 | | | December 31, 2021 | |
At average cost (approximates current cost) | | | | | | | | |
Finished goods | | $ | 22,435 | | | $ | 12,132 | |
Work in process | | | 942 | | | | 462 | |
Raw materials and supplies | | | 28,822 | | | | 30,117 | |
| | | 52,200 | | | | 42,711 | |
LIFO reserve | | | (20,616) | | | | (15,791 | ) |
Total inventory | | $ | 31,584 | | | $ | 26,920 | |
For the six months ended June 30, 2022, a LIFO liquidation of $2,124 occurred as we exited the pipeline business. No LIFO liquidation occurred in the six months ended June 30, 2021.
5) | DERIVATIVE INSTRUMENTS |
The Company records all derivative instruments at fair value. Fair value is determined by using the closing prices of the derivative instruments on the New York Mercantile Exchange at the end of an accounting period. Changes in the fair value of derivative instruments are recognized at the end of each accounting period and recorded in the statement of income as a component of cost of goods sold.
In order to manage commodity price risk caused by market fluctuations in biofuel prices, future purchases of feedstock used in biodiesel production, physical feedstock, finished product inventories attributed to the process, and other petroleum products purchased or sold, the Company may enter into exchange-traded commodity futures and options contracts. The Company accounts for these derivative instruments in accordance with ASC 815-20-25, Derivatives and Hedging. Under this standard, the accounting for changes in the fair value of a derivative instrument depends upon whether it has been designated as an accounting hedging relationship and, further, on the type of hedging relationship. To qualify for designation as an accounting hedging relationship, specific criteria must be met and appropriate documentation maintained. The Company had no derivative instruments that qualified under these rules as designated accounting hedges in 2022 or 2021. The Company has elected the normal purchase and normal sales exception for certain feedstock purchase contracts and supply agreements.
Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a loss of $17,476 and $26,605 for the three and six months ended June 30, 2022, respectively and a loss of $5,405 and $8,029 for the three months and six months ended June 30, 2021, respectively.
The volumes and carrying values of FutureFuel’s derivative instruments were as follows at:
| | Asset (Liability) | |
| | June 30, 2022 | | | December 31, 2021 | |
| | Contract Quantity | | | Fair Value | | | Contract Quantity | | | Fair Value | |
Regulated fixed price future commitments, included in other current assets (in thousand barrels) | | | 190 | | | $ | 1,902 | | | | 142 | | | $ | (485 | ) |
The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $1,301 and $1,684 at June 30, 2022 and December 31, 2021, respectively, and was classified as other current assets in the consolidated balance sheets. The carrying values of the margin account and of the derivative instruments are included net, in other current assets.
The estimated fair market value of the underlying physical commodity (feedstock and finished biodiesel inventory and undelivered feedstock commitments) was $5.8 million at June 30, 2022. This is an estimate only and not reflected in the consolidated financial statements for the six months ended June 30, 2022.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
At June 30, 2022 and December 31, 2021, FutureFuel had investments in certain marketable equity and trust preferred (debt) securities which had a fair market value of $39,426 and $47,109, respectively. These investments are classified as current assets in the consolidated balance sheets.
The Company has designated the trust preferred securities as being available-for-sale. Accordingly, these securities were recorded at fair value of $3,754 and $3,902 at June 30, 2022 and December 31, 2021, respectively, with net unrealized gains of $77 and $226, net of taxes, as a component of stockholders' equity.
In accordance with ASC 321, the change in the fair value of marketable equity securities (preferred and other equity instruments) for the three months ended June 30, 2022 and 2021, was reported as a component of net income with a loss of $3,239 and a gain of $1,543, respectively. The change in the fair value of marketable equity securities (preferred and other equity instruments) for the six months ended June 30, 2022 and 2021, was a loss of $7,339 and $222, respectively.
The aggregate fair value of debt securities with unrealized losses totaled $335 at June 30, 2022 and $0 at December 31, 2021.
The Company determined an allowance for credit losses for these debt securities was not necessary as of June 30, 2022. The large financial institutions have strong credit ratings with no recent history of defaulting on outstanding obligations, nor is the Company aware of any long-term credit risk related to delinquency under these obligations.
There were no sales of debt securities in the six months ended June 30, 2022 or 2021.
The debt securities held at June 30, 2022, had a contractual maturity of greater than ten years.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
7) | FAIR VALUE MEASUREMENTS |
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value accounting pronouncements also include a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of FutureFuel. Unobservable inputs are inputs that reflect FutureFuel’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at June 30, 2022 and December 31, 2021.
| | Asset (Liability) | |
| | | | | | Fair Value Measurements Using | |
| | Fair Value at | | | Inputs Considered as: | |
Description | | June 30, 2022 | | | Level 1 | | | Level 2 | | | Level 3 | |
Derivative instruments | | $ | 1,902 | | | $ | 1,902 | | | $ | - | | | $ | - | |
Preferred stock and other equity instruments | | $ | 35,672 | | | $ | 35,672 | | | $ | - | | | $ | - | |
Trust preferred stock | | $ | 3,754 | | | $ | 3,754 | | | $ | - | | | $ | - | |
| | Asset (Liability) | |
| | | | | | Fair Value Measurements Using | |
| | Fair Value at | | | Inputs Considered as: | |
Description | | December 31, 2021 | | | Level 1 | | | Level 2 | | | Level 3 | |
Derivative instruments | | $ | (485 | ) | | $ | (485 | ) | | $ | - | | | $ | - | |
Preferred stock and other equity instruments | | $ | 43,288 | | | $ | 43,288 | | | $ | - | | | $ | - | |
Trust preferred stock | | $ | 3,902 | | | $ | 3,902 | | | $ | - | | | $ | - | |
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
8) | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consisted of the following at:
| | June 30, 2022 | | | December 31, 2021 | |
Accrued employee liabilities | | $ | 3,208 | | | $ | 3,347 | |
Accrued property, franchise, motor fuel and other taxes | | | 1,210 | | | | 1,912 | |
Lease liability, current | | | 492 | | | | 644 | |
Other | | | 512 | | | | 178 | |
Total | | $ | 5,422 | | | $ | 6,081 | |
On March 30, 2020, FutureFuel, with FutureFuel Chemical as the borrower and certain of FutureFuel’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 (as amended, the “Prior Credit Agreement”) with the lenders party, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. The Credit Agreement consists of a five-year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $30,000 for letters of credit and $15,000 for swingline loans (collectively, the “Credit Facility”). The credit facility expires on March 30, 2025. The primary amendments from the Prior Credit Agreement were a reduction in the facility by $65,000, a reduction in the facility’s applicable interest rate by 0.25%, a reduction in the commitment fee, and elimination of the minimum consolidated fixed charge coverage ratio.
The interest rate floats at the following margins over LIBOR or base rate based upon the leverage ratio from time to time:
Consolidated Leverage Ratio | | Adjusted LIBOR Rate Loans and Letter of Credit Fee | | | Base Rate Loans | | | Commitment Fee | |
< 1.00:1.0 | | | | | 1.00% | | | | 0.00% | | | | 0.15% | |
≥ 1.00:1.0 | And | < 1.50:1.0 | | | 1.25% | | | | 0.25% | | | | 0.15% | |
≥ 1.50:1.0 | And | < 2.00:1.0 | | | 1.50% | | | | 0.50% | | | | 0.20% | |
≥ 2.00:1.0 | And | < 2.50:1.0 | | | 1.75% | | | | 0.75% | | | | 0.20% | |
≥ 2.50:1.0 | | | | | 2.00% | | | | 1.00% | | | | 0.25% | |
The terms of the Credit Facility contain certain negative covenants and conditions including a maximum consolidated leverage ratio and a consolidated minimum interest coverage ratio.
There were no borrowings under the Credit Agreement at June 30, 2022 or December 31, 2021.
The following table summarizes the income tax provision.
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Income tax benefit | | $ | (938 | ) | | $ | (4,469 | ) | | $ | (1,642 | ) | | $ | (8,856 | ) |
Effective tax rate | | | 23.2 | % | | | 452.3 | % | | | 9.6 | % | | | 62.6 | % |
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
The Company’s effective tax rate for the six months ended June 30, 2022 was unfavorably impacted by the assessment that the carryforwards of its 2022 net operating loss and tax credits would not more likely than not be realizable in full. Because the tax benefit of the year-to-date loss is greater than the anticipated realizable value of tax benefit of the full year loss, the year-to-date benefit has been limited to the anticipated full year benefit pursuant to ASC 740.
The Company evaluates its deferred tax assets quarterly and records a valuation allowance to reduce these assets to the amount that is more likely than not to be realized. During the first quarter of 2022, based on all available evidence, the Company determined that portions of its deferred tax assets for carryforwards of capital losses, state tax credits, and state net operating losses expiring in the next ten years do not meet the realizability standard of more likely than not. This assessment was modified in the second quarter, when a reduction in the forecasted annual tax loss facilitated the release of some of the valuation allowance established in the first quarter.
In the three and six months ended June 30, 2021, because the Company was unable to reliably estimate its annual effective tax rate, the tax benefit was determined by applying an actual year-to-date effective rate to year-to-date pretax income. The effective tax rate for the three and six months ended June 30, 2021 reflected the positive effects of certain tax credits and incentives, the most significant of which are the BTC and Small Agri-biodiesel Producer Tax Credit. While the Company remains eligible for these credits in 2022, realizability concerns have limited their impacts on the effective rate.
In the three and six months ended June 30, 2022 and 2021, FutureFuel used the treasury method in computing earnings per share.
Basic and diluted (losses) earnings per common share were computed as follows:
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Numerator: | | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (3,104) | | | $ | 3,481 | | | $ | (15,502) | | | $ | (5,292 | ) |
Denominator: | | | | | | | | | | | | | | | | |
Weighted average shares outstanding – basic | | | 43,763,243 | | | | 43,754,232 | | | | 43,763,243 | | | | 43,748,768 | |
Effect of dilutive securities: | | | | | | | | | | | | | | | | |
Stock options and other awards | | | - | | | | 190 | | | | - | | | | - | |
Weighted average shares outstanding – diluted | | | 43,763,243 | | | | 43,754,422 | | | | 43,763,243 | | | | 43,748,768 | |
| | | | | | | | | | | | | | | | |
Basic (loss) earnings per share | | $ | (0.07) | | | $ | 0.08 | | | $ | (0.35) | | | $ | (0.12 | ) |
Diluted (loss) earnings per share | | $ | (0.07) | | | $ | 0.08 | | | $ | (0.35) | | | $ | (0.12 | ) |
In the three and six months ended June 30, 2022, 12,000 and 24,000 options to purchase FutureFuel’s common stock were excluded, respectively, in the computation of diluted earnings per share as all were anti-dilutive. In the three and six months ended June 30, 2021, 11,905 and 33,905 options were excluded, respectively.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
12) | RELATED PARTY TRANSACTIONS |
FutureFuel enters into transactions with companies affiliated with or controlled by a director and significant shareholder. Revenues, expenses, prepaid amounts, and unpaid amounts related to these transactions are captured in the accompanying consolidated financial statements as related party line items.
Related party revenues are the result of sales of biodiesel, petrodiesel, blends, other petroleum products, and other similar or related products to these related parties.
Related party cost of goods sold and distribution are the result of sales of biodiesel, petrodiesel, blends, and other petroleum products to these related parties along with the associated expense from the purchase of natural gas, storage and terminalling services by FutureFuel from these related parties.
During 2021, a related party managed natural gas purchases for FutureFuel, initially paid for the natural gas, and subsequently invoiced FutureFuel for the same plus a nominal fee for such services. The natural gas matter as discussed in Note 15, Legal Matters, is in reference to the natural gas supplier, not the related party.
FutureFuel has two reportable segments organized along similar product groups – chemicals and biofuels.
Chemicals
FutureFuel’s chemical segment manufactures diversified chemical products that are sold externally to third party customers. This segment is composed of two components: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).
Biofuels
FutureFuel’s biofuels segment primarily manufactures and markets biodiesel. Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at the Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks. Biofuels revenues also include the sale of biodiesel blends with petrodiesel; petrodiesel with no biodiesel added; internally generated, separated Renewable Identification Numbers (“RINs”); biodiesel production byproducts; and the purchase and sale of other petroleum products on common carrier pipelines. Biodiesel selling prices and profitability can at times fluctuate based on the timing of unsold, internally generated RINs. FutureFuel does not allocate production costs to internally generated RINs, and, from time to time, can enter into sales of biodiesel on a “RINs-free” basis, resulting in FutureFuel maintaining possession of the applicable RINs from the sale. The benefit derived from the eventual sale of the RINs is not reflected in results of operations until such time as the RINs sale has been completed, which may lead to variability in reported operating results.
FutureFuel employs derivative instruments to manage biofuel commodity trading risk. See Note 5 for additional discussion regarding the fair market value of unsold inventory and undelivered feedstock commitments at June 30, 2022.
Summary of business by segment
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Revenue | | | | | | | | | | | | | | | | |
Custom chemicals | | $ | 12,266 | | | $ | 12,260 | | | $ | 27,981 | | | $ | 22,935 | |
Performance chemicals | | | 5,928 | | | | 3,287 | | | | 11,774 | | | | 8,722 | |
Chemicals revenue | | | 18,194 | | | | 15,547 | | | | 39,755 | | | | 31,657 | |
Biofuels revenue | | | 99,602 | | | | 58,571 | | | | 120,302 | | | | 83,977 | |
Total Revenue | | $ | 117,796 | | | $ | 74,118 | | | $ | 160,057 | | | $ | 115,634 | |
| | | | | | | | | | | | | | | | |
Segment gross (loss) profit | | | | | | | | | | | | | | | | |
Chemicals | | $ | 4,196 | | | $ | 4,285 | | | $ | 9,614 | | | $ | 2,984 | |
Biofuels | | | (3,219 | ) | | | (4,328 | ) | | | (15,792 | ) | | | (13,763 | ) |
Total gross (loss) profit | | $ | 977 | | | $ | (43 | ) | | $ | (6,178) | | | $ | (10,779 | ) |
Depreciation is allocated to segment cost of goods sold based on plant usage. The total assets and capital expenditures of FutureFuel have not been allocated to individual segments as large portions of these assets are shared to varying degrees by each segment, causing such an allocation to be of little value.
Notes to Consolidated Financial Statements of FutureFuel Corp.
(Dollars in thousands, except per share amounts)
(Unaudited)
14) | RECENTLY ISSUED ACCOUNTING STANDARDS |
Recently Issued Accounting Standards Adopted
Reference Rate Reform (ASU No. 2020-04)
In March 2020, the FASB issued an accounting standard update to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform, if certain criteria are met. The amendments in this update are effective for all entities from January 1, 2020 through December 31, 2022. The Company is in the process of evaluating the adoption of this optional accounting standards update as certain exceptions provided under this guidance may be applicable to future reference rate reform related transitions.
From time to time, FutureFuel and its operations are parties to, or targets of, lawsuits, claims, investigations, regulatory matters, and proceedings, which are being handled and defended in the ordinary course of business. While FutureFuel is unable to predict the outcomes of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.
As a result of the extraordinary increase in natural gas prices, the Attorney General of Arkansas launched a civil investigative demand against several natural gas suppliers in 2021. At this time, the company is disputing the February 2021 natural gas bill, and payment thereof is pending further investigation.
The natural gas expense was a component of Cost of goods sold-related parties in the Consolidated Statements of Operations and Comprehensive Income in the six months ended June 30, 2021. However, as discussed in Note 12, Related Party Transactions, the natural gas supplier is not a related party of FutureFuel.