Item
1.
Financial
Statements.
The following sets forth our unaudited consolidated balance sheet as of June
30, 2017, our audited consolidated balance sheet as of December 31, 2016, our unaudited consolidated statements of operations and comprehensive income for the three-month and six-month periods ended June 30, 2017 and June 30, 2016, and our unaudited consolidated statements of cash flows for the six-month periods ended June 30, 2017 and 2016.
FutureFuel
Corp.
Consolidated
Balance
Sheets
As
of
June
30, 2017
and
December 31, 2016
(Dollars
in
thousands)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,010
|
|
|
$
|
199,272
|
|
Accounts receivable, inclusive of the blenders' tax credit of $0 and $5,495 and net of allowances for bad debt of $0 and $0, at June 30, 2017 and December 31, 2016, respectively
|
|
|
18,746
|
|
|
|
24,359
|
|
Accounts receivable
– related parties
|
|
|
2,958
|
|
|
|
385
|
|
Inventory
|
|
|
36,889
|
|
|
|
52,093
|
|
Income tax receivable
|
|
|
16,246
|
|
|
|
20,508
|
|
Prepaid expenses
|
|
|
1,068
|
|
|
|
1,694
|
|
Prepaid expenses
– related parties
|
|
|
19
|
|
|
|
12
|
|
Marketable securities
|
|
|
120,728
|
|
|
|
106,146
|
|
Deferred financing costs
|
|
|
144
|
|
|
|
144
|
|
Other current assets
|
|
|
395
|
|
|
|
669
|
|
Total current assets
|
|
|
308,203
|
|
|
|
405,282
|
|
Property, plant and equipment, net
|
|
|
113,868
|
|
|
|
118,152
|
|
Intangible assets
|
|
|
1,408
|
|
|
|
1,408
|
|
Deferred financing costs
|
|
|
253
|
|
|
|
325
|
|
Other assets
|
|
|
3,857
|
|
|
|
3,876
|
|
Total noncurrent assets
|
|
|
119,386
|
|
|
|
123,761
|
|
Total Assets
|
|
$
|
427,589
|
|
|
$
|
529,043
|
|
Liabilities and Stockholders
’ Equity
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,649
|
|
|
$
|
22,799
|
|
Accounts payable
– related parties
|
|
|
1,779
|
|
|
|
1,254
|
|
Deferred revenue
– short-term
|
|
|
6,061
|
|
|
|
5,530
|
|
Contingent liability
– short-term
|
|
|
1,151
|
|
|
|
1,151
|
|
Dividends payable
|
|
|
5,250
|
|
|
|
110,688
|
|
Accrued expenses and other current liabilities
|
|
|
3,855
|
|
|
|
2,485
|
|
Accrued expenses and other current liabilities
– related parties
|
|
|
-
|
|
|
|
142
|
|
Total current liabilities
|
|
|
35,745
|
|
|
|
144,049
|
|
Deferred revenue
– long-term
|
|
|
14,289
|
|
|
|
16,792
|
|
Other noncurrent liabilities
|
|
|
3,374
|
|
|
|
3,325
|
|
Noncurrent deferred income tax liability
|
|
|
32,438
|
|
|
|
32,064
|
|
Total noncurrent liabilities
|
|
|
50,101
|
|
|
|
52,181
|
|
Total liabilities
|
|
|
85,846
|
|
|
|
196,230
|
|
Commitments and contingencies:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 75,000,000 shares authorized, 43,749,970 and 43,749,970, issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
4
|
|
|
|
4
|
|
Accumulated other comprehensive income
|
|
|
7,499
|
|
|
|
3,540
|
|
Additional paid in capital
|
|
|
281,828
|
|
|
|
281,087
|
|
Retained earnings
|
|
|
52,412
|
|
|
|
48,182
|
|
Total stockholders
’ equity
|
|
|
341,743
|
|
|
|
332,813
|
|
Total Liabilities and Stockholders
’ Equity
|
|
$
|
427,589
|
|
|
$
|
529,043
|
|
The accompanying notes are an integral part of these financial statements.
FutureFuel Corp.
Consolidated
Statements
of
Operations
and
Comprehensive
Income
For
the
Three
Months and Six Months Ended
June 30, 2017 and 2016
(Dollars
in thousands,
except
per
share
amounts)
(Unaudited)
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
67,972
|
|
|
$
|
65,842
|
|
|
$
|
121,620
|
|
|
$
|
109,046
|
|
Revenues
– related parties
|
|
|
76
|
|
|
|
2,037
|
|
|
|
539
|
|
|
|
5,468
|
|
Cost of goods sold
|
|
|
60,227
|
|
|
|
57,118
|
|
|
|
104,381
|
|
|
|
90,276
|
|
Cost of goods sold
– related parties
|
|
|
5,217
|
|
|
|
1,914
|
|
|
|
8,115
|
|
|
|
3,435
|
|
Distribution
|
|
|
769
|
|
|
|
768
|
|
|
|
1,658
|
|
|
|
1,565
|
|
Distribution
– related parties
|
|
|
37
|
|
|
|
107
|
|
|
|
77
|
|
|
|
213
|
|
Gross profit
|
|
|
1,798
|
|
|
|
7,972
|
|
|
|
7,928
|
|
|
|
19,025
|
|
Selling, general, and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
1,030
|
|
|
|
1,277
|
|
|
|
2,294
|
|
|
|
2,443
|
|
Other expense
|
|
|
505
|
|
|
|
540
|
|
|
|
1,085
|
|
|
|
1,163
|
|
Related party expense
|
|
|
44
|
|
|
|
41
|
|
|
|
100
|
|
|
|
89
|
|
Research and development expenses
|
|
|
845
|
|
|
|
738
|
|
|
|
1,600
|
|
|
|
1,425
|
|
|
|
|
2,424
|
|
|
|
2,596
|
|
|
|
5,079
|
|
|
|
5,120
|
|
Income/(loss) from operations
|
|
|
(626
|
)
|
|
|
5,376
|
|
|
|
2,849
|
|
|
|
13,905
|
|
Interest and dividend income
|
|
|
1,991
|
|
|
|
1,464
|
|
|
|
3,714
|
|
|
|
2,809
|
|
Interest expense
|
|
|
(43
|
)
|
|
|
(42
|
)
|
|
|
(86
|
)
|
|
|
(85
|
)
|
Gain/(loss) on marketable securities
|
|
|
(438
|
)
|
|
|
613
|
|
|
|
(569
|
)
|
|
|
(405
|
)
|
Other expense
|
|
|
(2
|
)
|
|
|
(104
|
)
|
|
|
(33
|
)
|
|
|
(220
|
)
|
|
|
|
1,508
|
|
|
|
1,931
|
|
|
|
3,026
|
|
|
|
2,099
|
|
Income before income taxes
|
|
|
882
|
|
|
|
7,307
|
|
|
|
5,875
|
|
|
|
16,004
|
|
Provision/(benefit) for income taxes
|
|
|
48
|
|
|
|
(6,917
|
)
|
|
|
1,645
|
|
|
|
(8,789
|
)
|
Net income
|
|
$
|
834
|
|
|
$
|
14,224
|
|
|
$
|
4,230
|
|
|
$
|
24,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
0.10
|
|
|
$
|
0.57
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
0.10
|
|
|
$
|
0.57
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
43,665,171
|
|
|
|
43,527,857
|
|
|
|
43,641,038
|
|
|
|
43,501,599
|
|
Diluted
|
|
|
43,675,688
|
|
|
|
43,528,759
|
|
|
|
43,649,400
|
|
|
|
43,507,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
834
|
|
|
$
|
14,224
|
|
|
$
|
4,230
|
|
|
$
|
24,793
|
|
Other comprehensive income from unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net gain on available-for-sale securities
|
|
|
3,210
|
|
|
|
1,349
|
|
|
|
6,096
|
|
|
|
2,027
|
|
Income tax effect
|
|
|
(1,126
|
)
|
|
|
(472
|
)
|
|
|
(2,137
|
)
|
|
|
(710
|
)
|
Total unrealized gain, net of tax
|
|
|
2,084
|
|
|
|
877
|
|
|
|
3,959
|
|
|
|
1,317
|
|
Comprehensive income
|
|
$
|
2,918
|
|
|
$
|
15,101
|
|
|
$
|
8,189
|
|
|
$
|
26,110
|
|
The accompanying notes are an integral part of these financial statements.
FutureFuel
Corp.
Consolidated
Statements
of
Cash
Flows
For
the Six
M
onths
Ended
June 30, 2017 and 2016
(Dollars
in
thousands)
(Unaudited)
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows provided by operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,230
|
|
|
$
|
24,793
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,808
|
|
|
|
5,257
|
|
Amortization of deferred financing costs
|
|
|
72
|
|
|
|
72
|
|
Benefit for deferred income taxes
|
|
|
(1,763
|
)
|
|
|
(4,969
|
)
|
Change in fair value of derivative instruments
|
|
|
318
|
|
|
|
4,869
|
|
Other than temporary impairment of marketable securities
|
|
|
177
|
|
|
|
1,879
|
|
Impairment of fixed assets
|
|
|
9
|
|
|
|
178
|
|
Gain/(loss) on the sale of investments
|
|
|
392
|
|
|
|
(1,474
|
)
|
Stock based compensation
|
|
|
750
|
|
|
|
954
|
|
Losses on disposals of fixed assets
|
|
|
77
|
|
|
|
137
|
|
Noncash interest expense
|
|
|
13
|
|
|
|
22
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5,613
|
|
|
|
21,708
|
|
Accounts receivable
– related parties
|
|
|
(2,573
|
)
|
|
|
(23
|
)
|
Inventory
|
|
|
15,204
|
|
|
|
6,240
|
|
Income tax receivable
|
|
|
4,262
|
|
|
|
(2,818
|
)
|
Prepaid expenses
|
|
|
626
|
|
|
|
589
|
|
Prepaid expenses
– related party
|
|
|
(7
|
)
|
|
|
-
|
|
Accrued interest on marketable securities
|
|
|
(11
|
)
|
|
|
(104
|
)
|
Other assets
|
|
|
19
|
|
|
|
(321
|
)
|
Accounts payable
|
|
|
(5,150
|
)
|
|
|
(17,948
|
)
|
Accounts payable
– related parties
|
|
|
525
|
|
|
|
1,584
|
|
Accrued expenses and other current liabilities
|
|
|
1,370
|
|
|
|
2,470
|
|
Accrued expenses and other current liabilities
– related parties
|
|
|
(142
|
)
|
|
|
-
|
|
Deferred revenue
|
|
|
(1,972
|
)
|
|
|
2,933
|
|
Other noncurrent liabilities
|
|
|
112
|
|
|
|
-
|
|
Net cash provided by operating activities
|
|
|
27,959
|
|
|
|
46,028
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Collateralization of derivative instruments
|
|
|
(34
|
)
|
|
|
(3,011
|
)
|
Purchase of marketable securities
|
|
|
(19,322
|
)
|
|
|
(32,299
|
)
|
Proceeds from the sale of marketable securities
|
|
|
10,268
|
|
|
|
16,524
|
|
Capital expenditures
|
|
|
(1,686
|
)
|
|
|
(2,254
|
)
|
Net cash used in investing activities
|
|
|
(10,774
|
)
|
|
|
(21,040
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Minimum tax withholding on stock options exercised and awards vested
|
|
|
(8
|
)
|
|
|
(55
|
)
|
Excess tax benefits associated with stock options and awards
|
|
|
(1
|
)
|
|
|
(136
|
)
|
Payment of dividends
|
|
|
(105,438
|
)
|
|
|
(5,246
|
)
|
Net cash used in financing activities
|
|
|
(105,447
|
)
|
|
|
(5,437
|
)
|
Net change in cash and cash equivalents
|
|
|
(88,262
|
)
|
|
|
19,551
|
|
Cash and cash equivalents at beginning of period
|
|
|
199,272
|
|
|
|
154,049
|
|
Cash and cash equivalents at end of period
|
|
$
|
111,010
|
|
|
$
|
173,600
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
55
|
|
|
$
|
985
|
|
The accompanying notes are an integral part of these 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”), 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 comprised of biofuels, and biobased specialty chemical products. FutureFuel Chemical
’s operations are reported in two segments: chemicals and biofuels.
The chemicals segment manufactures a diversified
portfolio of chemical products that are sold to third party customers. The majority of the revenues from the chemicals segment are derived from the custom manufacturing of specialty chemicals for specific customers.
The biofuels business 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. Finally, FutureFuel Chemical is a shipper of refined petroleum products on common carrier pipelines and buys and sells petroleum products to maintain an active shipper status on these pipelines.
Basis
of
Presentation
The accompanying unaudited consolidated financial statements have been prepared by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel
’s 2016 audited consolidated financial statements and should be read in conjunction with the 2016 audited consolidated financial statements of FutureFuel.
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 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 wholly owned subsidiaries; namely, FutureFuel Chemical, 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.
The carrying values of inventory were as follows as of:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
At average cost (approximates current cost)
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
21,279
|
|
|
$
|
27,971
|
|
Work in process
|
|
|
2,046
|
|
|
|
1,913
|
|
Raw materials and supplies
|
|
|
21,630
|
|
|
|
25,127
|
|
|
|
|
44,955
|
|
|
|
55,011
|
|
LIFO reserve
|
|
|
(8,066
|
)
|
|
|
(2,918
|
)
|
Total inventory
|
|
$
|
36,889
|
|
|
$
|
52,093
|
|
Notes
to
Consolidated
Financial
Statements
of
FutureFuel
Corp.
(Dollars
in
thousands,
except
per
share
amounts)
(Unaudited)
FutureFuel recorded a lower of co
st or market ("LCM") adjustment of $957 in the three and six months ended June 30, 2017. This LCM adjustment was recorded as a decrease in inventory values and an increase in cost of goods sold. For the three and six months ended June 30, 2016, the LCM adjustment was $1,895.
3
)
|
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 sheets. FutureFuel
’s derivative instruments do not qualify for hedge accounting under the specific guidelines of ASC 815-20-25,
Derivatives
and
Hedging
. 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 gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the statements of operations as a component of cost of goods sold, and amounted to a gain of $524 and a loss of $5,139 for the three months ended June 30, 2017 and 2016, respectively, and a gain of $1,803 and a loss of $6,178 for the six months ended June 30, 2017 and 2016, respectively.
The volumes and carrying values of FutureFuel
’s derivative instruments were as follows at:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Quantity (contracts) Short
|
|
|
Fair Value
|
|
|
Quantity (contracts) Short
|
|
|
Fair
Value
|
|
Regulated options, included in other current assets
|
|
|
75
|
|
|
$
|
(520
|
)
|
|
|
-
|
|
|
$
|
-
|
|
Regulated fixed price future commitments, included in other current assets
|
|
|
35
|
|
|
$
|
(58
|
)
|
|
|
135
|
|
|
$
|
(258
|
)
|
The margin account maintained with a broker to collateralize these derivative instruments
carried an account balance of $793 and $758 at June 30, 2017 and December 31, 2016, respectively, and is 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.
Notes
to
Consolidated
Financial
Statements
of
FutureFuel
Corp.
(Dollars
in
thousands,
except
per
share
amounts)
(Unaudited)
4
)
|
MARKETABLE SECURITIES
|
At June
30, 2017 and December 31, 2016, 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 sheets. 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 June 30, 2017 and December 31, 2016:
|
|
June 30, 2017
|
|
|
|
Adjusted Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
Equity instruments
|
|
$
|
45,596
|
|
|
$
|
7,552
|
|
|
$
|
(318
|
)
|
|
$
|
52,830
|
|
Preferred stock
|
|
|
55,927
|
|
|
|
4,360
|
|
|
|
(3
|
)
|
|
|
60,284
|
|
Trust preferred securities
|
|
|
3,147
|
|
|
|
40
|
|
|
|
-
|
|
|
|
3,187
|
|
Exchange traded debt instruments
|
|
|
4,154
|
|
|
|
273
|
|
|
|
-
|
|
|
|
4,427
|
|
Total
|
|
$
|
108,824
|
|
|
$
|
12,225
|
|
|
$
|
(321
|
)
|
|
$
|
120,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The aggregate fair value of instruments with unrealized losses totaled $8,964
and $31,126 at June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017 and December 31, 2016, FutureFuel had no investments in marketable securities that were in an unrealized loss position for a greater than 12-month period.
5
)
|
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
Accrued expenses and other current liabilities, including those associated with related parties, consisted of the following at:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Accrued employee liabilities
|
|
$
|
1,529
|
|
|
$
|
864
|
|
Accrued property, franchise, motor fuel and other taxes
|
|
|
1,978
|
|
|
|
1,428
|
|
Other
|
|
|
348
|
|
|
|
335
|
|
Total
|
|
$
|
3,855
|
|
|
$
|
2,627
|
|
Notes
to
Consolidated
Financial
Statements
of
FutureFuel
Corp.
(Dollars
in
thousands,
except
per
share
amounts)
(Unaudited)
On April 16, 2015, FutureFuel, with FutureFuel Chemical as the borrower, 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:
Consolidated 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 June
30, 2017.
There were no borrowings under this credit agreement at June
30, 2017 or December 31, 2016.
7
)
|
PROVISION/(BENEFIT) FOR INCOME TAXES
|
The following table summarizes the provision/(benefit) for income taxes.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Provision/(benefit) for income taxes
|
|
$
|
48
|
|
|
$
|
(6,917
|
)
|
|
$
|
1,645
|
|
|
$
|
(8,789
|
)
|
Effective tax rate
|
|
|
5.4
|
%
|
|
|
(94.7
|
%)
|
|
|
28.0
|
%
|
|
|
(54.9
|
%)
|
The effective tax rate for the three months and six months
ended June 30, 2017, reflects our expected tax rate on reported operating income before income tax. Our effective tax rate in the three and six months ended June 30, 2017, reflects the elimination of certain tax credits and incentives which expired December 31, 2016 and were not in effect for 2017.
Notes
to
Consolidated
Financial
Statements
of
FutureFuel
Corp.
(Dollars
in
thousands,
except
per
share
amounts)
(Unaudited)
The effective tax rate for the three and six months ended June 30, 2016, reflects our expected tax rate on reported operating earnings before income tax. Our effective tax rate in the three and six months ended June 30, 2016, reflects the positive effect
of the reinstatement of certain tax credits and incentives for 2016. In 2016, these tax credits and incentives formed a large proportion of FutureFuel’s net income. This increase in proportion combined with the income tax treatment of the credits and incentives reduced FutureFuel’s effective income tax rate in 2016. 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.
Unrecognized tax benefits totaled $2,056 and $2,056 at June 30, 2017 and December 31, 2016, respectively.
FutureFuel records interest and penalties, net, as a component of income tax expense.
At June 30, 2017 and December 31, 2016, FutureFuel recorded $230 and $193, respectively, in accruals for interest or tax penalties.
We compute earnings per share using the two-class method in accordance with
ASC Topic No. 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 non-vested 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 June 30, 2017 or 2016.
Contingently issuable shares associated with outstanding service-based restricted stock units were not included in the earnings per share calculations for the three-month and six month periods ended June
30, 2017 or 2016 as the vesting conditions had not been satisfied.
Basic and diluted earnings per common share were computed as follows:
|
|
For the three months ended June 30,
|
|
|
For the six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
834
|
|
|
$
|
14,224
|
|
|
$
|
4,230
|
|
|
$
|
24,793
|
|
Less: distributed earnings allocated to non-vested stock
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
(24
|
)
|
Less: undistributed earnings allocated to non-vested restricted stock
|
|
|
(1
|
)
|
|
|
(42
|
)
|
|
|
(10
|
)
|
|
|
(96
|
)
|
Numerator for basic earnings per share
|
|
$
|
833
|
|
|
$
|
14,172
|
|
|
$
|
4,220
|
|
|
$
|
24,673
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: undistributed earnings allocated to non-vested restricted stock
|
|
|
1
|
|
|
|
42
|
|
|
|
10
|
|
|
|
96
|
|
Less: undistributed earnings reallocated to non-vested restricted stock
|
|
|
(1
|
)
|
|
|
(42
|
)
|
|
|
(10
|
)
|
|
|
(96
|
)
|
Numerator for diluted earnings per share
|
|
$
|
833
|
|
|
$
|
14,172
|
|
|
$
|
4,220
|
|
|
$
|
24,673
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
– basic
|
|
|
43,665,171
|
|
|
|
43,527,857
|
|
|
|
43,641,038
|
|
|
|
43,501,599
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and other awards
|
|
|
10,517
|
|
|
|
902
|
|
|
|
8,362
|
|
|
|
5,910
|
|
Weighted average shares outstanding
– diluted
|
|
|
43,675,688
|
|
|
|
43,528,759
|
|
|
|
43,649,400
|
|
|
|
43,507,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
0.10
|
|
|
$
|
0.57
|
|
Diluted earnings per share
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
0.10
|
|
|
$
|
0.57
|
|
Notes
to
Consolidated
Financial
Statements
of
FutureFuel
Corp.
(Dollars
in
thousands,
except
per
share
amounts)
(Unaudited)
Certain options to purchase FutureFuel
’s common stock were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2017 and 2016 because they were anti-dilutive in the periods. The weighted average number of options excluded on this basis was 0 and 15,000 for the three and six-months ended June 30, 2017, respectively.
The weighted average number of options excluded on this basis was 110,000 and 100,000 for the three-months and six-months ended June 30, 2016, respectively.
FutureFuel has two reportable segments organized along similar product groups
– chemicals and biofuels.
Chemicals
FutureFuel
’s chemicals segment manufactures diversified chemical products that are sold externally to third party customers. This segment is comprised of two components: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).
Biofuels
FutureFuel
’s biofuels business 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 RINs, biodiesel production byproducts, and the purchase and sale of other petroleum products on common carrier pipelines.
Bi
odiesel 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. Such method of selling results 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 RIN sale has been completed, which may lead to variability in reported operating results.
Summary
of long-lived
assets
and
revenues
by
geographic area
All of FutureFuel
’s long-lived assets are located in the United States.
Most of FutureFuel
’s sales are transacted with title passing at the time of shipment from the Batesville Plant, although some sales are transacted with 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. FutureFuel is rarely the exporter of record, never the importer of record into foreign countries, and 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 outside the United States. FutureFuel’s revenues attributable to the United States and foreign countries (based upon the billing addresses of its customers) were as follows:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
United States
|
|
$
|
66,918
|
|
|
$
|
67,209
|
|
|
$
|
120,333
|
|
|
$
|
113,215
|
|
All Foreign Countries
|
|
|
1,130
|
|
|
|
670
|
|
|
|
1,826
|
|
|
|
1,299
|
|
Total
|
|
$
|
68,048
|
|
|
$
|
67,879
|
|
|
$
|
122,159
|
|
|
$
|
114,514
|
|
Revenues from a single foreign country during the
three and six-months ended June 30, 2017 and 2016 did not exceed 1% of total revenues.
Notes
to
Consolidated
Financial
Statements
of
FutureFuel
Corp.
(Dollars
in
thousands,
except
per
share
amounts)
(Unaudited)
Summary of
business
by
segment
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom chemicals
|
|
$
|
19,644
|
|
|
$
|
19,401
|
|
|
$
|
41,596
|
|
|
$
|
39,693
|
|
Performance chemicals
|
|
|
3,707
|
|
|
|
5,162
|
|
|
|
8,112
|
|
|
|
9,938
|
|
Chemicals revenue
|
|
|
23,351
|
|
|
|
24,563
|
|
|
|
49,708
|
|
|
|
49,631
|
|
Biofuels revenue
|
|
|
44,697
|
|
|
|
43,316
|
|
|
|
72,451
|
|
|
|
64,883
|
|
Total Revenue
|
|
$
|
68,048
|
|
|
$
|
67,879
|
|
|
$
|
122,159
|
|
|
$
|
114,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
$
|
5,332
|
|
|
$
|
6,297
|
|
|
$
|
12,341
|
|
|
$
|
14,869
|
|
Biofuels
|
|
|
(3,534
|
)
|
|
|
1,675
|
|
|
|
(4,413
|
)
|
|
|
4,156
|
|
Total gross profit
|
|
|
1,798
|
|
|
|
7,972
|
|
|
|
7,928
|
|
|
|
19,025
|
|
Corporate expenses
|
|
|
(2,424
|
)
|
|
|
(2,596
|
)
|
|
|
(5,079
|
)
|
|
|
(5,120
|
)
|
Income/(loss) before interest and taxes
|
|
|
(626
|
)
|
|
|
5,376
|
|
|
|
2,849
|
|
|
|
13,905
|
|
Interest and other income
|
|
|
1,991
|
|
|
|
1,464
|
|
|
|
3,714
|
|
|
|
2,809
|
|
Interest and other expense
|
|
|
(483
|
)
|
|
|
467
|
|
|
|
(688
|
)
|
|
|
(710
|
)
|
(Provision)/benefit for income taxes
|
|
|
(48
|
)
|
|
|
6,917
|
|
|
|
(1,645
|
)
|
|
|
8,789
|
|
Net income
|
|
$
|
834
|
|
|
$
|
14,224
|
|
|
$
|
4,230
|
|
|
$
|
24,793
|
|
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.
10
)
|
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.
Notes
to
Consolidated
Financial
Statements
of
FutureFuel
Corp.
(Dollars
in
thousands,
except
per
share
amounts)
(Unaudited)
The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at June
30, 2017 and December 31, 2016.
|
|
Asset (Liability)
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Fair Value at
|
|
|
Inputs Considered as:
|
|
Description
|
|
June 30, 2017
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative instruments
|
|
$
|
(578
|
)
|
|
$
|
(578
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
Preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments
|
|
$
|
120,728
|
|
|
$
|
120,728
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability)
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Fair Value at
|
|
|
Inputs Considered as:
|
|
Description
|
|
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
|
|
|
$
|
-
|
|
|
$
|
-
|
|
11
)
|
RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME:
|
The following tables summarize changes in accumulated other comprehensive income from unrealized gains and losses on available-for-sale securities in the
three and six months ended June 30, 2017 and 2016.
Changes in Accumulated Other Comprehensive Income Unrealized Gains and
|
|
Losses on Available-for-Sale Securities
|
|
For the three months ended June 30, 2017 and 2016
|
|
(net of tax)
|
|
|
|
2017
|
|
|
2016
|
|
Balance at April 1
|
|
$
|
5,415
|
|
|
$
|
2,495
|
|
Other comprehensive income before reclassifications
|
|
|
1,799
|
|
|
|
1,275
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
285
|
|
|
|
(398
|
)
|
Net current-period other comprehensive
income
|
|
|
2,084
|
|
|
|
877
|
|
Balance at June 30
|
|
$
|
7,499
|
|
|
$
|
3,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income Unrealized Gains and
|
|
Losses on Available-for-Sale Securities
|
|
For the six months ended June 30, 2017 and 2016
|
|
(net of tax)
|
|
|
|
2017
|
|
|
2016
|
|
Balance at January 1
|
|
$
|
3,540
|
|
|
$
|
2,055
|
|
Other comprehensive income before reclassifications
|
|
|
3,589
|
|
|
|
1,054
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
370
|
|
|
|
263
|
|
Net current-period other comprehensive
income
|
|
|
3,959
|
|
|
|
1,317
|
|
Balance at June 30
|
|
$
|
7,499
|
|
|
$
|
3,372
|
|
Notes
to
Consolidated
Financial
Statements
of
FutureFuel
Corp.
(Dollars
in
thousands,
except
per
share
amounts)
(Unaudited)
The following tables summarize amounts reclassified from accumulated other comprehensive income in the
three and six months ended June 30, 2017 and 2016:
Reclassifications from Accumulated Other
|
Comprehensive Income for the three and six months ended
|
June 30, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
Affected Line Item in Statement of Operations
|
Unrealized (losses)/gains on available-for-sale securities
|
|
$
|
(438
|
)
|
|
$
|
613
|
|
(Losses)/gains on marketable securities
|
Total before tax
|
|
|
(438
|
)
|
|
|
613
|
|
|
Tax provision/(benefit)
|
|
|
153
|
|
|
|
(215
|
)
|
|
Total reclassifications
|
|
$
|
(285
|
)
|
|
$
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
Affected Line Item in Statement of Operations
|
Unrealized losses on available-for-sale securities
|
|
$
|
(569
|
)
|
|
$
|
(405
|
)
|
Losses on marketable securities
|
Total before tax
|
|
|
(569
|
)
|
|
|
(405
|
)
|
|
Tax provision
|
|
|
199
|
|
|
|
142
|
|
|
Total reclassifications
|
|
$
|
(370
|
)
|
|
$
|
(263
|
)
|
|
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.
13
)
|
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, and income tax and consulting services by FutureFuel from these related parties.
Notes
to
Consolidated
Financial
Statements
of
FutureFuel
Corp.
(Dollars
in
thousands,
except
per
share
amounts)
(Unaudited)
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 expected to contribute to cash flows. The carrying value of the asset was $1,408 as of June
30, 2017 and December 31, 2016. FutureFuel tests the intangible asset for impairment in accordance with ASC 350-30-35-18 through 35-20.
15
)
|
RECENTLY ISSUED ACCOUNTING STATEMENTS
|
The following table provides a brief description of recent Accounting Standard Updates ("ASU") issued by the FASB:
|
|
|
|
|
|
|
|
Standard
|
|
Description
|
|
Effective Date
|
|
Effect on the Financial Statements or Other Significant Matters
|
In February 2016, the FASB issued ASU 2016-02, Leases.
|
|
The new guidance supersedes the lease guidance under FASB ASC Topic 840, Leases, resulting in the creation of FASB ASC Topic 842, Leases. The guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases.
|
|
Annual periods beginning after December 15, 2018. Early adoption is permitted.
|
|
The Company is currently evaluating its population of leases, and is continuing to assess all potential impacts of the standard, but currently believes the most significant impact relates to its accounting for logistics equipment. The Company anticipates recognition of additional assets and corresponding liabilities related to leases upon adoption. The Company plans to adopt the standard effective January 1, 2019.
|
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Since that date, the FASB has issued additional ASUs clarifying certain aspects of ASU 2014-09.
|
|
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.
|
|
Annual periods beginning after December 15, 2017.
Earlier adoption was permitted, but not before December 15, 2016.
|
|
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.
|
Item
2.
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results of
Operations.
All
dollar amounts
expressed
as
numbers
in
this
M
D&A
are
in
thousands
(except
per
share
amounts).
Certain
tables
may
not
add
due
to rounding.
The following Management
’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with our consolidated financial statements, including the notes thereto, set forth herein. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements. See “Forward Looking Information” below for additional discussion regarding risks associated with forward-looking statements.
Overview
Our company is managed and reported in two reporting segments: chemicals segment and biofuels segment. Within the chemicals segment are two product groupings: custom chemicals and performance chemicals. The custom product group is comprised of specialty chemicals manufactured for a single customer whereas the performance product group is comprised of chemicals manufactured for multiple customers. The biofuels segment is comprised of one product group. Management believes that the diversity of each segment strengthens the company in the ability to utilize resources and is committed to growing each segment.
Summary
of
Financial
Results
Set forth below is a summary of certain consolidated financial information for the periods indicated.
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
Revenues
|
|
$
|
68,048
|
|
|
$
|
67,879
|
|
|
$
|
169
|
|
|
|
0.2%
|
|
Income/(loss) from operations
|
|
$
|
(626
|
)
|
|
$
|
5,376
|
|
|
$
|
(6,002
|
)
|
|
|
(111.6%
|
)
|
Net income
|
|
$
|
834
|
|
|
$
|
14,224
|
|
|
$
|
(13,390
|
)
|
|
|
(94.1%
|
)
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
(0.31
|
)
|
|
|
(93.9%
|
)
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
(0.31
|
)
|
|
|
(93.9%
|
)
|
Capital expenditures and intangibles (net of customer reimbursements and regulatory grants)
|
|
$
|
715
|
|
|
$
|
1,357
|
|
|
$
|
(642
|
)
|
|
|
(47.3%
|
)
|
Adjusted EBITDA
|
|
$
|
2,079
|
|
|
$
|
13,581
|
|
|
$
|
(11,502
|
)
|
|
|
(84.7%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
Revenues
|
|
$
|
122,159
|
|
|
$
|
114,514
|
|
|
$
|
7,645
|
|
|
|
6.7%
|
|
Income from operations
|
|
$
|
2,849
|
|
|
$
|
13,905
|
|
|
$
|
(11,056
|
)
|
|
|
(79.5%
|
)
|
Net income
|
|
$
|
4,230
|
|
|
$
|
24,793
|
|
|
$
|
(20,563
|
)
|
|
|
(82.9%
|
)
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.57
|
|
|
$
|
(0.47
|
)
|
|
|
(82.5%
|
)
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.57
|
|
|
$
|
(0.47
|
)
|
|
|
(82.5%
|
)
|
Capital expenditures and intangibles (net of customer reimbursements and regulatory grants)
|
|
$
|
1,557
|
|
|
$
|
2,135
|
|
|
$
|
(578
|
)
|
|
|
(27.1%
|
)
|
Adjusted EBITDA
|
|
$
|
7,648
|
|
|
$
|
26,283
|
|
|
$
|
(18,635
|
)
|
|
|
(70.9%
|
)
|
We use adjusted EBITDA as a key operating metric to measure both performance and liquidity. Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities (each as determined in accordance with GAAP) as a measure of performance or liquidity. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP. We define adjusted EBITDA as net income before interest, income taxes, depreciation, and amortization expenses, excluding, when applicable, non-cash stock-based compensation expenses, public offering expenses, acquisition-related transaction costs, purchase accounting adjustments, losses on disposal of property and equipment, gains or losses on derivative instruments, and other non-operating income or expenses. Information relating to adjusted EBITDA is provided so that investors have the same data that we employ in assessing the overall operation and liquidity of our business. Our calculation of adjusted EBITDA may be different from similarly titled measures used by other companies; therefore, the results of our calculation are not necessarily comparable to the results of other companies.
Adjusted EBITDA allows our chief operating decision makers to assess the performance and liquidity of our business on a consolidated basis to assess the ability of our operating segments to produce operating cash flow to fund working capital needs, to fund capital expenditures and to pay dividends. In particular, our management believes that adjusted EBITDA permits a comparative assessment of our operating performance and liquidity, relative to a performance and liquidity based on GAAP results, while isolating the effects of certain items, including depreciation and amortization, which may vary among our operating segments without any correlation to their underlying operating performance, non-cash stock-based compensation expense, which is a non-cash expense that varies widely among similar companies, and gains and losses on derivative instruments, which can cause net income to appear volatile from period to period relative to the sale of the underlying physical product.
We enter into commodity derivative instruments primarily to protect our operations from downward movements in commodity prices, and to provide greater certainty of cash flows associated with sales of our commodities. We enter into hedges, and we utilize mark-to-market accounting to account for these instruments. Thus, our results in any given period can be impacted, and sometimes significantly, by changes in market prices relative to our contract price along with the timing of the valuation change in the derivative instruments relative to the sale of biofuel. We include this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.
The following table reconciles adjusted EBITDA with net income, the most directly comparable GAAP performance financial measure.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
(1)
|
|
|
2017
|
|
|
2016
(1)
|
|
Adjusted EBITDA
|
|
$
|
2,079
|
|
|
$
|
13,581
|
|
|
$
|
7,648
|
|
|
$
|
26,283
|
|
Depreciation
|
|
|
(2,912
|
)
|
|
|
(2,671
|
)
|
|
|
(5,808
|
)
|
|
|
(5,329
|
)
|
Non-cash stock-based compensation
|
|
|
(273
|
)
|
|
|
(477
|
)
|
|
|
(750
|
)
|
|
|
(954
|
)
|
Interest and dividend income
|
|
|
1,991
|
|
|
|
1,464
|
|
|
|
3,714
|
|
|
|
2,809
|
|
Interest expense
|
|
|
(43
|
)
|
|
|
(42
|
)
|
|
|
(86
|
)
|
|
|
(85
|
)
|
Losses on disposal of property and equipment
|
|
|
(46
|
)
|
|
|
(22
|
)
|
|
|
(77
|
)
|
|
|
(137
|
)
|
Gains/(losses) on derivative instruments
|
|
|
524
|
|
|
|
(5,139
|
)
|
|
|
1,803
|
|
|
|
(6,178
|
)
|
Gains/(losses) on marketable securities
|
|
|
(438
|
)
|
|
|
613
|
|
|
|
(569
|
)
|
|
|
(405
|
)
|
Income tax (expense)/benefit
|
|
|
(48
|
)
|
|
|
6,917
|
|
|
|
(1,645
|
)
|
|
|
8,789
|
|
Net income
|
|
$
|
834
|
|
|
$
|
14,224
|
|
|
$
|
4,230
|
|
|
$
|
24,793
|
|
The following table reconciles adjusted EBITDA with cash flows from operations, the most directly comparable GAAP liquidity financial measure.
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
(1)
|
|
Adjusted EBITDA
|
|
$
|
7,648
|
|
|
$
|
26,283
|
|
Provision for deferred income taxes
|
|
|
(1,763
|
)
|
|
|
(4,969
|
)
|
Impairment of fixed assets
|
|
|
9
|
|
|
|
178
|
|
Interest and dividend income
|
|
|
3,714
|
|
|
|
2,809
|
|
Income tax (expense)/benefit
|
|
|
(1,645
|
)
|
|
|
8,789
|
|
Gains/(losses) on derivative instruments
|
|
|
1,803
|
|
|
|
(6,178
|
)
|
Change in fair value of derivative instruments
|
|
|
318
|
|
|
|
4,869
|
|
Changes in operating assets and liabilities, net
|
|
|
17,876
|
|
|
|
14,310
|
|
Other
|
|
|
(1
|
)
|
|
|
(63
|
)
|
Net cash provided by operating activities
|
|
$
|
27,959
|
|
|
$
|
46,028
|
|
(1) Prior year adjusted EBITDA reconciliations have been modified to be consistent with current year presentations.
Results
of
Operations
Consolidated
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
%
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
68,048
|
|
|
$
|
67,879
|
|
|
$
|
169
|
|
|
0.2
|
%
|
|
$
|
122,159
|
|
|
$
|
114,514
|
|
|
$
|
7,645
|
|
|
6.7
|
%
|
Volume/product mix effect
|
|
|
|
|
|
|
|
|
|
$
|
(11,693
|
)
|
|
(17.2
|
%)
|
|
|
|
|
|
|
|
|
|
$
|
(16,510
|
)
|
|
(14.4
|
%)
|
Price effect
|
|
|
|
|
|
|
|
|
|
$
|
11,862
|
|
|
17.5
|
%
|
|
|
|
|
|
|
|
|
|
$
|
24,155
|
|
|
21.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
1,798
|
|
|
$
|
7,972
|
|
|
$
|
(6,174
|
)
|
|
(77.4
|
%)
|
|
$
|
7,928
|
|
|
$
|
19,025
|
|
|
$
|
(11,097
|
)
|
|
(58.3
|
%)
|
Consolidated sales revenue in the three and six months ended
June 30, 2017 increased $169 and $7,645 compared to the three and six months ended June 30, 2016. This increase primarily resulted from higher prices in the biofuel segment. However, for the three months ended June 30, 2017, higher prices in the biofuel segment were mostly offset by reduced biofuel sales volumes driven in part by the expiration of the federal blenders’ tax credit (“BTC”). Also, partially offsetting the increase in the three months ended June 30, 2017, chemical segment revenue declined 5% as compared to the prior year period.
Gross profit in the three and six months ended June 30, 2017 decreased
$6,174 and $11,097, compared to the three and six months ended June 30, 2016. In the biofuel segment, this decrease largely resulted from the absence of the BTC which expired on December 31, 2016 and from losses incurred on common carrier pipelines. We also experienced a reduction in chemical sales volume for the three months ended June 30, 2017 as compared to the prior year period.
Another significant impact to the reduction in gross profit in the three and six months ended June 30, 2017 as compared to the prior year periods was the adjustment in the carrying value of our inventory as
determined utilizing the LIFO method of inventory accounting. This adjustment reduced gross profit $3,271 and $5,148 in the three and six months ended June 30, 2017 and decreased gross profit $3,319 in the three months ended June 30, 2016 and increased gross profit $2,257 in the six months ended June 30, 2016.
Partially offsetting these declines was the change in the unrealized and realized activity in derivative instruments.
In the three and six months ended June 30, 2017, the gain was $524 and $1,803, respectively as compared to a loss in the three and six months ended June 30, 2016 of $5,139 and $6,178. In addition, the change in the lower of cost or market adjustment in the three and six months ended June 30, 2017 was a benefit as compared to the prior year periods. In the three and six months ended June 30, 2017, the lower of cost or market adjustment was $957 in comparison to $1,895 in the three and six months ended June 30, 2016
Operating
Expenses
Operating expenses decreased
$172 and $41 in the three and six months ended June 30, 2017, respectively, as compared to the three and six months ended June 30, 2016. This reduction in both periods was from lower compensation cost partially offset by higher research and development expense.
Provision/(Benefit)
for Income
Taxes
The effective tax rate for the three and six months ended June 30, 2017, reflects our expected tax rate on reported operating income before income tax. Our effective tax rate in the three and six months ended June 30, 2017, reflects the elimination of cer
tain tax credits and incentives for 2017.
The effective tax rate for the three and six months ended June 30, 2016, reflects our expected tax rate on reported operating income earnings before income tax. Our effective tax rate in the three and six months
ended June 30, 2016, reflects the positive effect of the reinstatement of the certain tax credits and incentives for 2016.
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.
Unrecognized tax benefits totaled $2,056
at June 30, 2017 and December 31, 2016.
Net
Income
Net income for the three and six months
ended June 30, 2017 decreased $13,390 and $20,563, respectively, as compared to the same periods in 2016. The decrease resulted from the lack of the benefit of tax credits and incentives in effect in the three and six months ended June 30, 2016 which was not in effect in the three and six months ended June 30, 2017. Additionally, the adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting negatively impacted net income in the three and six months ended June 30, 2017 and in comparison, negatively impacted net income in the three months ended June 30, 2016 and benefited net income in the six months ended June 30, 2016.
Chemicals
Segment
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
%
|
|
|
2017
|
|
|
2016
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
23,351
|
|
|
$
|
24,563
|
|
|
$
|
(1,212
|
)
|
|
(4.9
|
%)
|
|
$
|
49,708
|
|
|
$
|
49,631
|
|
$
|
77
|
|
|
0.2
|
%
|
Volume/product mix effect
|
|
|
|
|
|
|
|
|
|
$
|
(1,172
|
)
|
|
(4.8
|
%)
|
|
|
|
|
|
|
|
|
$
|
(163
|
)
|
|
(0.3
|
%)
|
Price effect
|
|
|
|
|
|
|
|
|
|
$
|
(40
|
)
|
|
(0.2
|
%)
|
|
|
|
|
|
|
|
|
$
|
240
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
5,332
|
|
|
$
|
6,297
|
|
|
$
|
(965
|
)
|
|
(15.3
|
%)
|
|
$
|
12,341
|
|
|
$
|
14,869
|
|
$
|
(2,528
|
)
|
|
(17.0
|
%)
|
Sales revenue in the three months ended June 30, 2017 decreased by $1,212 compared to the three months ended June 30, 2016. Sales revenue for our custom chemicals (unique chemicals produced for specific customers) for the three months ended June 30, 2017
totaled $19,644, an increase of $243 from the comparable period in 2016. This increase was primarily attributed to increased sales volumes in the agrochemical and energy markets and accelerated amortization of deferred revenue from headwinds of global competition partially offset by the reduced price and volume of the laundry detergent additive. Performance chemicals (comprised of multi-customer products which are sold based on specification) sales revenues were $3,707 in the three months ended June 30, 2017, a decrease of $1,455 from the three months ended June 30, 2016. This decrease was primarily from a temporary reduction in sales volumes of a monomer product related to equipment modifications at one of our key customer’s facilities.
Sales revenue in th
e six months ended June 30, 2017 increased $77 compared to the three months ended June 30, 2016. This increase was primarily attributed to increased sales volume in the agrochemical and energy markets and increased amortization of deferred revenue mostly offset by the reduced price and volume of the laundry detergent additive. Performance chemical sales revenue were down $1,826 to $8,112. This decrease was primarily from reduced sales volumes of a polymer modifier product and glycerin products.
Gross profit for the chemicals segment for the three and six months ended
June 30, 2017 decreased by $965 and $2,528 when compared to the three and six months ended June 30, 2016. Gross profits were decreased by the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment decreased gross profit $837 and $1,256 in the three and six months ended June 30, 2017, respectively, compared a decrease of $515 and an increase of $1,023 in the three and six months ended June 30, 2016, respectively. Also impacting gross profit in the three and six months ended June 30, 2017, to a lesser extent, was the change in product mix.
Biofuels
Segment
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
44,697
|
|
|
$
|
43,316
|
|
|
$
|
1,381
|
|
|
|
3.2
|
%
|
|
$
|
72,451
|
|
|
$
|
64,883
|
|
|
$
|
7,568
|
|
|
11.7
|
%
|
Volume/product mix effect
|
|
|
|
|
|
|
|
|
|
$
|
(10,521
|
)
|
|
|
(24.3
|
%)
|
|
|
|
|
|
|
|
|
|
$
|
(16,347
|
)
|
|
(25.2
|
%)
|
Price effect
|
|
|
|
|
|
|
|
|
|
$
|
11,902
|
|
|
|
27.5
|
%
|
|
|
|
|
|
|
|
|
|
$
|
23,915
|
|
|
36.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
(3,534
|
)
|
|
$
|
1,675
|
|
|
$
|
(5,209
|
)
|
|
|
311.0
|
%
|
|
$
|
(4,413
|
)
|
|
$
|
4,156
|
|
|
$
|
(8,569
|
)
|
|
(206.2
|
%)
|
Biofuels sales revenue in the three and six months ended
June 30, 2017 increased $1,381 and $7,568 when compared to the three and six months ended June 30, 2016. This increase was primarily from a favorable price variance on biodiesel, biodiesel RINS, and biodiesel blends. The sale of separated, internally generated RINs, comprised a larger component of revenue in the current quarter and six-month period as compared to the prior periods. Partially offsetting this increase was a reduction in pipeline sales which totaled $0 and $0 in the three and six months ended June 30, 2017 and $2,678 and $5,881 in the three and six months ended June 30 2016, respectively.
Revenue from common carrier pipelines varies as its revenue recognition depends upon whether a transaction is bought from and sold to the same party. Purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another (including buy/sell agreements) are combined and recorded on a net basis. Additionally, revenue from common carrier pipelines fluctuates with market conditions.
A portion of our biodiesel sold in 2017 was to three major refiners/blenders in 2017 and one major
refiner in 2016. No assurances can be given that we will continue to sell to such major companies, or, if we do sell, the volume we will sell or the profit margin we will realize. We do not believe that the loss of these customers would have a material adverse effect on our biofuels segment or on us as a whole in that: (i) unlike our custom manufacturing products, biodiesel is a commodity with a large potential customer base; (ii) we believe that we could readily sell our biodiesel to other customers as potential demand from other customers for biodiesel exceeds our production capacity; (iii) our sales to these customers are not under fixed terms and the customers have no fixed obligation to purchase any minimum quantities except as stipulated by short term purchase orders; and (iv) the prices we receive from these customers are based upon then-market rates, as would be the case with sales of this commodity to other customers.
Biofuels gross profit in the three and six months ended
June 30, 2017 decreased $5,209 and $8,569 when compared to the three and six months ended June 30, 2016. Cost of goods sold increased as a result of the absence of the blenders’ tax credit which expired December 31, 2016 and was in effect in the prior year’s period. Gross profits were benefited by the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting in the three months ended June 30, 2017 as compared to the same period of 2016. The LIFO adjustment decreased gross profit $2,435 and $2,804, in the three months ended June 30, 2017 and 2016, respectively. The LIFO adjustment decreased gross profit $3,893 in the six months ended June 30, 2017 and increased gross profit in the six months ended June 30, 2016 $1,234. The LIFO adjustment resulted in a lower of cost or market adjustment of $938 in the three and six months ended June 30, 2016 and $957 in the three and six months ended, June 30, 2017, respectively.
Biofuels gross profit was benefited by the change in the activity in
derivative instruments. The unrealized and realized gain from derivative instruments activity was $524 and $1,803 in the three and six months ended June 30, 2017 and an unrealized and realized loss of $5,139 and $6,178 for the three and six months ended June 30, 2016. In order to better manage the commodity price risk caused by market fluctuations in biofuel prices, we may enter into exchange traded commodity futures and options contracts. We account for these derivative instruments in accordance with accounting standards whereby 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 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 within the biofuels segment.
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
. None of the derivative instruments are designated and accounted for as hedges due primarily to the extensive record keeping requirements.
The volumes and carrying values of FutureFuel
’s derivative instruments were as follows:
|
|
June 30
, 2017
|
|
|
December 31, 2016
|
|
|
|
Quantity (contracts) Short
|
|
Fair Value
|
|
Quantity (contracts) Short
|
|
Fair
Value
|
Regulated options, included in other current assets
*
|
|
|
75
|
|
|
$
|
(520
|
)
|
|
|
-
|
|
|
$
|
-
|
|
Regulated fixed price future commitments, included in other current assets
*
|
|
|
35
|
|
|
$
|
(58
|
)
|
|
|
135
|
|
|
$
|
(258
|
)
|
*All derivative instruments are entered into with the standard contract terms and conditions in accordance with major trading authorities of the New York Mercantile Exchange.
Critical
Accounting
Estimates
Revenue
Recognition
For most product sales, revenue is recognized when product is shipped from our facilities and risk of loss and title have passed to the customer, which is in accordance with our customer contracts and the stated shipping terms. Nearly all custom manufactured products are manufactured under written contracts. Performance chemicals and biodiesel are generally sold pursuant to the terms of written purchase orders. In general, customers do not have any rights of return, except for quality disputes. All of our products are tested for quality before shipment, and historically returns have been inconsequential. We do not offer rebates or other warranties.
Biodiesel selling prices can at times fluctuate based on the timing of unsold, internally generated RINs. From time to time, sales of biodiesel are on a “
RINs-free” basis. Such method of selling results in applicable RINs being held. The value of the RINs is not reflected in revenue until such time as the RIN sale has been completed.
Revenue from bill and hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and title to the product has transferred. Bill and hold transactions for the
three and six months ended June 30, 2017 and 2016 were related to specialty chemicals customers whereby revenue was recognized in accordance with contractual agreements based upon product being 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 customers are similar to other specialty chemicals customers. Sales revenue under bill and hold arrangements were $3,460 and $4,019 for the three months ended June 30, 2017 and 2016, and $7,958 and $10,344 for the six months ended June 30, 2017 and 2016, respectively.
Liquidity
and
Capital
Resources
Our net cash provided by (used in) operating activities, investing activities, and financing activities for the
six months ended June 30, 2017 and 2016 are set forth in the following chart.
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash provided by operating activities
|
|
$
|
27,959
|
|
|
$
|
46,028
|
|
Net cash used in investing activities
|
|
$
|
(10,774
|
)
|
|
$
|
(21,040
|
)
|
Net cash used in financing activities
|
|
$
|
(105,447
|
)
|
|
$
|
(5,437
|
)
|
Operating
Activities
Cash from operating activities decreased from $46,028
of cash provided by operating activities in the first six months of 2016 to $27,959 of cash provided by operating activities in the first six months of 2017. This decrease was primarily attributable to the decrease in net income.
Investing Activities
Cash used in investing activities was $10
,774 in the first six months of 2017 compared to $21,040 used in the first six months of 2016. This change was primarily the result of net purchases of marketable securities in the first six months of 2017 compared to the first six months of 2016. Such net purchases totaled $9,054 and $15,775, in the first six months of 2017 and 2016, respectively. Our capital expenditures and customer reimbursements for capital expenditures are summarized in the following table:
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash paid for capital expenditures and intangibles
|
|
$
|
1,686
|
|
|
$
|
2,254
|
|
Cash received as reimbursement of capital expenditures
|
|
$
|
(129
|
)
|
|
$
|
(119
|
)
|
Cash paid, net of reimbursement, for capital expenditures
|
|
$
|
1,557
|
|
|
$
|
2,135
|
|
Financing Activities
Cas
h used in financing activities increased
to $105,447 in the first six months of 2017
from $5,437 in the first six months of 2016. This change is primarily the result of payments of dividends on our common stock in the first six months of 2017 compared to the first six months of 2016. The payment of dividends totaled $105,438 and $5,246 in the first six months of 2017 and 2016, respectively.
Credit
Facility
Effective April 16, 2015, we entered into a new $150,000 secured committed credit facility with a syndicated group of commercial banks. On May 25, 2016, we increased the facility $15,000
. The loan is a revolving facility, the proceeds of which may be used for our working capital, capital expenditures, and general corporate purposes. The facility terminates on April 16, 2020. See Note 6 – “Borrowings” in our consolidated financial statements ended June 30, 2017 for additional information regarding our Credit Agreement.
We intend to fund future capital requirements for our businesses from cash flow as well as from existing cash, cash investments, and, if the need should arise, borrowings under our credit facility. We do not believe there will be a need to issue any securities to fund such capital requirements.
Dividends
In the first two quarters of 2017, we paid a regular cash dividend in the amount of $0.06 per share on
our common stock. The regular cash dividend amounted to $2,625 per quarter in the first and second quarters of 2017.
In the first quarter of 2017, we also paid a special cash dividend of $2.29 per share on our common stock.
This special cash dividend amounted to $100,188. Total cash dividends paid were $105,438 in the first six months of 2017.
In the first two quarters of 2016, we paid a
regular cash dividend in the amount of $0.06 per share on our common stock. The regular cash dividend amounted to $2,623 in the first quarter of 2016 and $2,623 in the second quarter of 2016, for aggregate dividend payments of $5,246 in the first six months of 2016.
Capital
Management
As a result of our initial equity offering, our subsequent positive operating results, the exercise of warrants, and the issuance of shares in our at-the-market offering, we accumulated excess working capital. Some of this excess working capital has been paid out as special and regular cash dividends. Additionally, regular cash dividends will be paid in 2017, as previously reported. Third parties have not placed significant restrictions on our working capital management decisions.
A significant portion of these funds was held in cash or cash equivalents at multiple financial institutions. In the periods ended
June 30, 2017 and December 31, 2016, we also had investments in certain preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments. We classify these investments as current assets in the accompanying consolidated balance sheets and designate them 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. The fair value of these preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments totaled $120,728 and $106,146 at June 30, 2017 and December 31, 2016, respectively.
Lastly, we maintain depositary accounts such as checking accounts, money market accounts, and other similar accounts at selected financial institutions.
Off-
Balance
Sheet
Arrangements
We engage in two types of hedging transactions. First, we hedge our biofuels sales through the purchase and sale of futures contracts and options on futures contracts of energy commodities. This activity was captured on our balance sheet at
June 30, 2017 and December 31, 2016. Second, we hedge our biofuels feedstock through the execution of purchase contracts and supply agreements with certain vendors. These hedging transactions are recognized in earnings and were not recorded on our balance sheet at June 30, 2017 or December 31, 2016 because they do not meet the definition of a derivative instrument as defined under GAAP. The purchase of biofuels feedstock generally involves two risk components: basis and price. Basis covers any refining or processing required as well as transportation. Price covers the purchases of the actual agricultural commodity. Both basis and price fluctuate over time. A supply agreement with a vendor constitutes a hedge when we have committed to a certain volume of feedstock in a future period and have fixed the basis for that volume.