FutureFuel Corp

Previous wording

Within the United States Environmental Protection Agency (“EPA”) Renewable Fuel Standard (“RFS”), we generate 1.5 Renewable Identification Numbers (“RINs”) for each gallon of biodiesel sold in the United States with a classification of a D4 or D6 RIN. RINs are used to monitor the level of renewable fuel traded in a given year in accordance with RFS 2 within the EPA moderated transaction system. We do not assign cost of goods sold to the generation of RINs as the physical fuel generates the full cost. As of March 31, 2024, we held 2.0 million D4 and D6 RINs with a fair market value of $1,624. Comparatively, as of March 31, 2023, FutureFuel held no inventory.

Current wording

Within the United States Environmental Protection Agency (“EPA”) Renewable Fuel Standard (“RFS”), we generate 1.5 Renewable Identification Numbers (“RINs”) for each gallon of biodiesel sold in the United States with a classification of a D4 or D6 RIN. RINs are used to monitor the level of renewable fuel traded in a given year in accordance with RFS 2 within the EPA moderated transaction system. We do not assign cost of goods sold to the generation of RINs as the physical fuel generates the full cost. As of June 30, 2024, we held 2.1 million D4 and D6 RINs with a fair market value of $1,055. Comparatively, as of June 30, 2023, FutureFuel held 11.8 million RINs with a fair market value of $19,461, and at December 31, 2023 4.3 million RINs were held with a fair market value of $6,567.

Previous wording

We utilize commodity derivative instruments primarily to protect our operations from downward movements in commodity prices, and to provide greater certainty of cash flows associated with sales of our commodities. We enter into hedges, and we utilize mark-to-market accounting to account for these instruments. Thus, our results in any given period can be impacted, and sometimes significantly, by changes in market prices relative to our contract price along with the timing of the valuation change in the derivative instruments relative to the sale of biofuel. We include the mark-to-market or non-cash portion of this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.

Current wording

We utilize commodity derivative instruments primarily to attempt to mitigate the effect of commodity price volatility and to provide greater certainty of cash flows associated with sales of our commodities. 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 the mark-to-market or non-cash portion of this item as an adjustment to adjusted EBITDA as we believe it provides a relevant indicator of the underlying performance of our business in a given period.

Previous wording

Additionally, we held marketable securities of certain debt securities (trust preferred stock) and in preferred stock and other equity instruments during the three months ended March 31, 2023, but sold all marketable security investments during the three months ended June 30, 2023. The realized and unrealized gains and losses on these marketable securities fluctuated from period to period. We included this item as an adjustment in the prior year period as we believed it provided a relevant indicator of the underlying performance of our business.

Current wording

Additionally, we held marketable securities of certain debt securities (trust preferred stock) and in preferred stock and other equity instruments during the six months ended June 30, 2023, but sold all marketable security investments during the three months ended June 30, 2023. The realized and unrealized gains and losses on these marketable securities fluctuated from period to period. We included this item as an adjustment to adjusted EBITDA in the prior year period as we believed it provided a relevant indicator of the underlying performance of our business.

Previous wording

Gross profit in the three months ended March 31, 2024 decreased $16,616 as compared to the same period of 2023, from: (i) the narrowing of the spread in biofuel price and feedstock price (inclusive of the effect of the RIN price decline); (ii) the change in the activity in derivative instruments with a realized loss of $1,190 in the current three-month period as compared to a realized gain of $3,405 in the same three months of the prior year; (iii) the change in the mark-to-market derivative position which was an unrealized loss of $2,274 as compared to an unrealized gain of $4,902 in the three months ended March 31, 2024 and 2023, respectively; and (iv) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. The adjustment in item (iv) increased gross profit $3,027 in the three months ended March 31, 2024 as compared to $3,783 in 2023. The contrasting results in items (i) and (ii) reflect the impact of price movements in the biodiesel market during the course of each year compared to when we committed to our feedstock acquisition. In addition, gross profit was negatively impacted in the three-month period ended March 31, 2024 by higher costs resulting from the impact of extreme winter weather.

Current wording

Gross profit in the three months ended June 30, 2024 increased $17,249 as compared to the same period of 2023, due primarily to: (i) the benefit of not holding significant inventory of RINs at the end of the current three-month period ($1,055 as compared to $19,461 at June 30, 2023); separated RINs are recognized when transferred; (ii) the change in the mark-to-market derivative position which was an unrealized gain of $578 as compared to an unrealized loss of $1,643 in the three months ended June 30, 2024 and 2023, respectively; and (iii) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment increased gross profit $1,313 in the three months ended June 30, 2024 and decreased gross profit $288 in the same period of the prior year. Partially offsetting these benefits were: (i) the narrowing of the spread in biofuel price and feedstock price (inclusive of the effect of the RIN price decline); and (ii) the change in the activity in derivative instruments with a realized gain of $835 in the current three-month period as compared to a realized gain of $6,032 in the prior year period. The contrasting results in the offsetting items (i) and (ii) reflect the impact of price movements in the biodiesel market during the course of each year compared to when we committed to our feedstock acquisition.

Previous wording

Operating expenses decreased $563 in the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. This decrease was from reduced compensation, legal, and research and development expenses.

Current wording

Operating expenses increased $215 in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was from increased compensation and administrative expenses. Operating expenses decreased $348 in the six months ended June 30, 2024 as compared to the same period of 2023. The decrease was from lower research and development and compensation expenses.

Previous wording

Other income (expense) decreased income a net $73 in the three months ended March 31, 2024, as compared to the same period of 2023. In the current three-month period, interest income was $2,800 as compared to dividend and interest income of $2,336 and a gain of $533 on marketable securities in the same period of 2023.

Current wording

Other income (expense) increased income a net $2,387 and $2,314 in the three and six months ended June 30, 2024, as compared to the same periods of 2023. The increase was from the receipt of a legal settlement of $2,750 in the current three-month period. Partially offsetting this increase in the current three-month period was lower interest income of $1,521 as compared to dividend and interest income of $1,732 and a gain of $42 on marketable securities in the same period of 2023. For the six-month period, interest income was $4,321 as compared to dividend and interest income of $4,068 and a gain of $575 on marketable securities in the same period of 2023.

Previous wording

The Company’s income tax provision for the three months ended March 31, 2024 comprises primarily an increase in the valuation allowance against net deferred assets, plus immaterial state taxes and miscellaneous items. No deferred tax benefits on ongoing tax losses have been recognized, reflecting management’s determination that none of the net deferred tax assets generated on the Company's 2023 tax losses are more likely than not to be realized. The three-month period in 2023 similarly reflected immaterial state taxes and miscellaneous items.

Current wording

The Company’s income tax provision for the three and six months ended June 30, 2024 comprises primarily an increase in the valuation allowance against net deferred assets, plus immaterial state taxes and miscellaneous items. No deferred tax benefits on ongoing tax losses or other deferred tax assets have been recognized, reflecting management’s determination that none of the net deferred tax assets are more likely than not to be realized. The three-month period in 2023 similarly reflected immaterial state taxes and miscellaneous items.

Previous wording

Chemical revenue in the three months ended March 31, 2024 decreased 17.5% or $3,822 compared to the same period of 2023. Revenue for our custom chemicals for the three months ended March 31, 2024 totaled $15,427, a decrease of $1,193 from the same period in 2023 from reduced sales volumes of chemicals sold into the energy market. Partially offsetting these reductions were sales from increased volumes of chemicals sold into the automotive coatings marketas well as sales of two new contracts in the agricultural market. Performance chemicals revenue was $2,632, a decrease of $2,629 from the three months ended March 31, 2023. This decrease was mostly from lower sales of glycerin as markets softened on increased imports. Production and sales volumes for the segment were negatively impacted by extreme winter weather experienced during the three-month period ended March 31, 2024.

Current wording

Chemical revenue in the six months ended June 30, 2024 decreased 8.2% or $3,342 compared to the six months ended June 30, 2023. Revenue from custom chemicals for the six months ended June 30, 2024 totaled $31,010, a decrease of $1,186 from the same period in 2023. The sales revenue decline was from reduced sales prices of chemicals sold into the agricultural and energy markets. Partially offsetting these reductions were sales from increased volumes of chemicals sold into the automotive coatings market as well as sales of one new product into the coatings market. Performance chemicals revenue was $6,285, a decrease of $2,156 from the six months ended June 30, 2023. The decrease was mostly from lower sales volumes and price of glycerin from reduced production.

Previous wording

Gross profit for the chemical segment for the three months ended March 31, 2024, decreased $4,602 when compared to the same period of 2023. This decrease was primarily from: (i) reduced sales volumes as noted above, and (ii) impact of higher costs from extreme winter weather experienced in the current period.

Current wording

Gross profit for the chemical segment for the three and six months ended June 30, 2024, decreased $1,739 and $6,341 when compared to the same periods of 2023. This decrease was primarily from reduced sales prices as noted above, and partially offset by increased sales volumes from the automotive and coatings markets.

Previous wording

Biofuels revenue in the three months ended March 31, 2024 decreased $12,078 as compared to the same period of 2023. This decrease primarily resulted from a 23% reduction in the average price of fuel sold. The lower prices were driven in part by the reduction in D4 RIN prices which fell following the EPA’s proposed rule issued June 21, 2023. In addition, production and sales volumes were negatively impacted by extreme winter weather experienced during the three-month period ended March 31, 2024.

Current wording

Biofuels revenue in the three months ended June 30, 2024 decreased $13,379 as compared to the same period of 2023. This decrease resulted from an 11% or $7,439 reduction in sales volume and a 9% or $5,940 reduction in the average price of fuel sold. The lower prices were driven in part by the reduction in D4 RIN prices as a result of the excess of the EPA's mandated volumes.

Previous wording

A significant portion of our biodiesel sold was to four major refiners/blenders in the three months ended March 31, 2024 and 2023. No assurances can be given that we will continue to sell to such major refiners, or, if we do sell, the volume we will sell or the profit margin we will realize. We do not believe that the loss of these customers would have a material adverse effect on our biofuels segment or on us as a whole because: (i) we believe that we could readily sell our biodiesel to other customers on equivalent terms as potential demand from other customers for biodiesel exceeds our production capacity; (ii) our sales to these customers are not under fixed terms and the customers have no fixed obligation to purchase any minimum quantities except as stipulated by short-term purchase orders; and (iii) the prices we receive from these customers are based upon then-market rates, as would be the case with sales of this commodity to other customers.

Current wording

A significant portion of our biodiesel sold was to three major refiners/blenders in the three and six months ended June 30, 2024 and 2023. No assurances can be given that we will continue to sell to such major refiners, or, if we do sell, the volume we will sell or the profit margin we will realize. We do not believe that the loss of these customers would have a material adverse effect on our biofuels segment or on us as a whole because: (i) we believe that we could readily sell our biodiesel to other customers on equivalent terms as potential demand from other customers for biodiesel exceeds our production capacity; (ii) our sales to these customers are not under fixed terms and the customers have no fixed obligation to purchase any minimum quantities except as stipulated by short-term purchase orders; and (iii) the prices we receive from these customers are based upon then-market rates, as would be the case with sales of this commodity to other customers.

Previous wording

Biofuels gross profit was $986 in the three months ended March 31, 2024, a decrease in gross profit of $12,014 from the comparative period. This decrease primarily resulted from the change in the activity of derivative instruments with a realized loss of $1,190 as compared to a realized gain of $3,405 in the same three months of the prior year. Also decreasing gross losses was the change in the mark-to-market derivative position which was an unrealized loss of $2,274 as compared to an unrealized gain of $4,902 in the same three months of the prior year. In addition, gross profit was negatively impacted in the three-month period ended March 31, 2024 by lower RIN prices and higher costs resulting from extreme winter weather.

Current wording

Biofuel gross profit was $4,966 in the six months ended June 30, 2024, an increase of $6,974 from the comparative period of 2023. This increase resulted from the change in the number of separated RINs held in inventory at June 30 for each year as noted above. Partially reducing gross profit was the change in the activity of derivative instruments with a realized loss of $354 and an unrealized loss of $1,696 in the current six-month period as compared to a realized gain of $9,437 and an unrealized gain of $3,259 in the same six months of the prior year. In addition, gross profit was negatively impacted by lower RIN prices and in the six-month period ended June 30, 2024, from higher costs resulting from extreme winter weather in the first quarter of 2024.

Previous wording

For most product sales, revenue is recognized when product is shipped from our facilities and risk of loss and title have passed to the customer, which is in accordance with our customer contracts and the stated shipping terms. Nearly all custom manufactured products are manufactured under written master service agreements. Performance chemicals and biodiesel are generally sold pursuant to the terms of written purchase orders. In general, customers do not have any rights of return, except for quality disputes. All of our products are tested for quality before shipment, and historically returns have been inconsequential. We do not offer rebates, except those related to the BTC.

Current wording

For most product sales, revenue is recognized when product is shipped from our facilities and risk of loss and title have passed to the customer, which is in accordance with our customer contracts and the stated shipping terms. Nearly all custom manufactured products are manufactured under written master service agreements. Performance chemicals and biodiesel are generally sold pursuant to the terms of written purchase orders. In general, customers do not have any rights of return, except for quality disputes. All of our products are tested for quality before shipment, and historically returns have been inconsequential and we typically do not offer rebates.

Previous wording

Revenue from bill-and-hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and control of the product has transferred. Bill-and-hold transactions for the three months ended March 31, 2024 and 2023 were related to custom chemicals customers whereby revenue was recognized in accordance with contractual agreements based upon product being produced and ready for use by the customer. These sales were subject to written monthly purchase orders. The product was custom manufactured and stored at the customer’s request and could not be sold to another buyer. Credit and payment terms for bill-and-hold customers are similar to other custom chemicals customers. Revenues under bill-and-hold arrangements were $11,644 and $10,590 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, $3,291 and $4,317 of bill-and-hold revenue had not shipped, respectively.

Current wording

Revenue from bill-and-hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and control of the product has transferred. Bill-and-hold transactions for the three and six months ended June 30, 2024 and 2023 were related to custom chemicals customers whereby revenue was recognized in accordance with contractual agreements based upon product being produced and ready for use by the customer. These sales were subject to written monthly purchase orders. The product was custom manufactured and stored at the customer’s request and could not be sold to another buyer. Credit and payment terms for bill-and-hold customers are similar to other custom chemicals customers. Revenues under bill-and-hold arrangements were$11,020 and$22,664 for the three and six months ended June 30, 2024, respectively. As of June 30, 2024 and December 31, 2023, $3,651 and $4,317 of bill-and-hold revenue had not shipped, respectively.

Previous wording

Our net cash from operating activities, investing activities, and financing activities for the three months ended March 31, 2024 and 2023 are set forth in the following table.

Current wording

Our net cash from operating activities, investing activities, and financing activities for the six months ended June 30, 2024 and 2023 are set forth in the following table.

Previous wording

Cash used in operating activities was $12,211 in the three months ended March 31, 2024 as compared to $29,810 in the same period of 2023. This decrease in cash used was primarily attributable to the change in inventory resulting in less cash used of $19,354, the change in the fair value of derivative instruments of $7,176, and the change in other assets of $5,237. Partially offsetting these cash inflows was the reduction in net income of $16,751, and the change in accounts payable, including accounts payable - related parties, demonstrating a cash outflow of $6,191, primarily from the timing of vendor payments.

Current wording

Cash provided by operating activities was $15,588 in the six months ended June 30, 2024 as compared to cash used in operating activities of $40,665 in the same period of 2023. This increase in cash was primarily attributable to a $40,601 build of inventory in the prior year, primarily biodiesel and related feedstock, whereas this build of inventory did not occur in the current period. Also contributing to the current period increase in cash was the change in accrued expenses and other current liabilities of $6,389, the change in other assets of $5,057, the change in the fair value of derivative instruments of $4,955, and the change in net income of $2,679. Partially offsetting these cash inflows was the change in accounts payable, including accounts payable - related parties, demonstrating a cash outflow of $5,404, primarily from the timing of vendor payments, and the change in accounts receivable, including accounts receivable - related parties, of $2,617.

Previous wording

Cash used in investing activities was $3,485 in the three months ended March 31, 2024 as compared to cash provided by investing activities of $1,868 in the three months ended March 31, 2023. This $5,353 decrease in cash was primarily due to an increase in the collateralization of derivative instruments of $5,539.

Current wording

Cash used in investing activities was $5,312 in the six months ended June 30, 2024 as compared to cash provided by investing activities of $36,980 in the six months ended June 30, 2023. This $42,292 decrease in cash was primarily due to the change in proceeds from the sale of marketable securities of $37,701, and an increase in the collateralization of derivative instruments of $3,196.

Previous wording

Cash used in financing activities was $2,626 and $2,640 in the three months ended March 31, 2024 and 2023, respectively, primarily for payments of dividends on our common stock.

Current wording

Cash used in financing activities was $114,660 and $5,265 in the six months ended June 30, 2024 and 2023, respectively, primarily for payments of dividends on our common stock inclusive of a special dividend of $109,408 paid in the current three-month period.

Previous wording

In the first quarter of 2024 we declared a special dividend of $2.50 per share on our common stock which amounted to $109,408. The special dividend had a record date of March 26, 2024 and a payment date of April 9, 2024. In the first quarter of 2024 and 2023, we paid a regular quarterly cash dividend of $0.06 per share on our common stock. The regular cash dividend amounted to $2,626 in each of the quarters of 2024 and 2023. The declaration of these regular quarterly cash dividends was made in the three months ended December 31, 2023 and December 31, 2022, respectively.

Current wording

On April 9, 2024, we paid a special dividend of $2.50 per share on our common stock which amounted to $109,408. The declaration of this special dividend was made in the first quarter of 2024. In the first two quarters of 2024 and 2023, we paid a regular quarterly cash dividend of $0.06 per share on our common stock. The regular cash dividend amounted to $2,626 in each of the quarters of 2024 and 2023. The declaration of these regular quarterly cash dividends was made in the three months ended December 31, 2023 and December 31, 2022, respectively.

Previous wording

We engage in two types of hedging transactions. First, we hedge our biofuels sales through the purchase and sale of futures contracts and options on futures contracts of energy commodities. This activity was captured in our consolidated balance sheets at March 31, 2024 and December 31, 2023. Second, we hedge our biofuels feedstock through the execution of purchase contracts and supply agreements with certain vendors or they meet the normal purchase and normal sales exception of ASC Topic 815, Derivatives and Hedging. These hedging transactions are recognized in earnings and were not recorded in our consolidated balance sheets at March 31, 2024 or December 31, 2023 because they do not meet the definition of a hedge instrument as defined under GAAP. The purchase of biofuels feedstock generally involves two risk components: basis and price. Basis covers any refining or processing required as well as transportation. Price covers the purchases of the actual agricultural commodity. Both basis and price fluctuate over time. A supply agreement with a vendor constitutes a hedge when we have committed to a certain volume of feedstock in a future period and have fixed the basis for that volume.

Current wording

We engage in two types of transactions to mitigate the impacts of changes in prices for both commodity sales and purchases. First, for our biofuel sales, we enter into the purchase and sale of futures contracts and options on futures contracts of energy commodities. This activity was captured in our consolidated balance sheets at June 30, 2024 and December 31, 2023 as derivative instruments recorded in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). Second, for our biofuel feedstocks, we execute purchase contracts and supply agreements with certain vendors that may meet the normal purchase and normal sales exception of ASC 815. These transactions are recognized in earnings and were not recorded in our consolidated balance sheets at June 30, 2024 or December 31, 2023 to the extent that we are able to apply the normal purchase and normal sales exception of ASC 815. 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.