ff20200331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to ___________
	Commission file number: 0-52577

(Exact Name of Registrant as Specified in Its Charter)

Delaware		20-3340900
(State or Other Jurisdiction of		(IRS Employer Identification No.)
Incorporation or Organization)

8235 Forsyth Blvd., Suite 400, St Louis, Missouri		63105
(Address of Principal Executive Offices)		(Zip Code)

	(314) 854-8352
	(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	FF	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer	☑
Non-accelerated filer ☐	Smaller reporting company	☐
	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 7, 2021: 43,743,243

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

FutureFuel Corp.

Consolidated Balance Sheets

(Dollars in thousands)

	(Unaudited)
	March 31, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	193,979	$	198,122
Accounts receivable, inclusive of the blenders' tax credit of $11,276 and $8,300 at March 31, 2021 and December 31, 2020, respectively, and net of allowances for bad debt of $112 and $63 at March 31, 2021 and December 31, 2020, respectively		27,902		21,387
Accounts receivable – related parties		51		1,426
Inventory		45,278		33,889
Income tax receivable		16,894		17,668
Prepaid expenses		3,216		3,967
Prepaid expenses – related parties		12		-
Marketable securities		50,173		64,404
Other current assets		2,588		1,742
Total current assets		340,093		342,605
Property, plant and equipment, net		89,200		91,544
Intangible assets		1,408		1,408
Other noncurrent assets		5,721		5,747
Total noncurrent assets		96,329		98,699
Total Assets	$	436,422	$	441,304
Liabilities and Stockholders’ Equity
Accounts payable, inclusive of the blenders' tax credit rebates due customers of $890 and $1,116	$	16,841	$	12,453
Accounts payable – related parties		8,798		984
Deferred revenue – short-term		4,946		3,976
Dividends payable		7,874		10,498
Accrued expenses and other current liabilities		4,568		5,077
Total current liabilities		43,027		32,988
Deferred revenue – long-term		20,322		21,861
Noncurrent deferred income tax liability		7,914		12,332
Other noncurrent liabilities		2,109		2,240
Total noncurrent liabilities		30,345		36,433
Total liabilities		73,372		69,421
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, 43,743,243, issued and outstanding at March 31, 2021 and December 31, 2020		4		4
Accumulated other comprehensive (loss) income		148		208
Additional paid in capital		282,215		282,215
Retained earnings		80,683		89,456
Total stockholders’ equity		363,050		371,883
Total Liabilities and Stockholders’ Equity	$	436,422	$	441,304

The accompanying notes are an integral part of these consolidated financial statements.

FutureFuel Corp.

Consolidated Statements of Operations and Comprehensive Income

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2021			2020
Revenue	$	41,158		$	52,372
Revenue – related parties		358			710
Cost of goods sold		41,378			32,781
Cost of goods sold – related parties		9,210			2,215
Distribution		1,609			1,640
Distribution – related parties		55			47
Gross (loss) profit		(10,736	)		16,399
Selling, general, and administrative expenses
Compensation expense		528			855
Other expense		853			582
Related party expense		167			148
Research and development expenses		774			835
Total operating expenses		2,322			2,420
(Loss) income from operations		(13,058	)		13,979
Interest and dividend income		1,005			1,967
Interest expense		(32	)		(56	)
Loss on marketable securities		(1,075	)		(10,059	)
Other (expense) income		(102	)		(8,148	)
(Loss) income before taxes		(13,160	)		5,831
Income tax benefit		(4,387	)		(13,212	)
Net (loss) income	$	(8,773	)	$	19,043

(Loss) earnings per common share
Basic	$	(0.20	)	$	0.44
Diluted	$	(0.20	)	$	0.44
Weighted average shares outstanding
Basic		43,743,243			43,743,243
Diluted		43,743,243			43,743,243

Comprehensive income
Net (loss) income	$	(8,773	)	$	19,043
Other comprehensive loss from unrealized net loss on available-for-sale debt securities		(60	)		(397	)
Income tax effect		16			84
Total other comprehensive loss income, net of tax		(44	)		(313	)
Comprehensive (loss) income	$	(8,817	)	$	18,730

The accompanying notes are an integral part of these consolidated financial statements.

FutureFuel Corp.

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

(Unaudited)

	For the Three Months Ended March 31, 2021
					Accumulated
					Other			Additional					Total
	Common Stock				Comprehensive			paid-in		Retained			Stockholders’
	Shares		Amount		Income (Loss)			Capital		Earnings			Equity
Balance - December 31, 2020		43,743,243	$	4	$	208		$	282,215	$	89,456		$	371,883
Other comprehensive loss		-		-		(60	)		-		-			(60	)
Net loss		-		-		-			-		(8,773	)		(8,773	)
Balance - March 31, 2021		43,743,243	$	4	$	148		$	282,215	$	80,683		$	363,050

	For the Three Months Ended March 31, 2020
					Accumulated
					Other			Additional					Total
	Common Stock				Comprehensive			paid-in		Retained			Stockholders’
	Shares		Amount		Income (Loss)			Capital		Earnings			Equity
Balance - December 31, 2019		43,743,243	$	4	$	296		$	282,166	$	184,632		$	467,098
Prior period adjustment: change in accounting principle		-		-		-			-		(12	)		(12	)
Balance - January 1, 2020, As adjusted		43,743,243	$	4	$	296		$	282,166	$	184,620		$	467,086
Cash dividends declared, $3.00 per share		-		-		-			-		(131,230	)		(131,230	)
Stock based compensation		-		-		-			49		-			49
Other comprehensive loss		-		-		(313	)		-		-			(313	)
Net income		-		-		-			-		19,043			19,043
Balance - March 31, 2020		43,743,243	$	4	$	(17	)	$	282,215	$	72,433		$	354,635

The accompanying notes are an integral part of these consolidated financial statements.

FutureFuel Corp.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities
Net (loss) income	$	(8,773	)	$	19,043
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		2,608			3,004
Amortization of deferred financing costs		24			36
Benefit for deferred income taxes		(4,402	)		(22	)
Change in fair value of equity securities		1,765			9,570
Change in fair value of derivative instruments		(695	)		(1,874	)
(Gain) loss on the sale of investments		(690	)		489
Stock based compensation		-			49
Loss on disposal of property and equipment		-			2
Noncash interest expense		8			19
Changes in operating assets and liabilities:
Accounts receivable		(6,515	)		(17,803	)
Accounts receivable – related parties		1,375			4,175
Inventory		(11,389	)		(3,878	)
Income tax receivable		774			(13,587	)
Prepaid expenses		751			171
Prepaid expenses - related parties		(12	)
Other assets		(43	)		120
Accounts payable		4,270			2,360
Accounts payable – related parties		7,814			(815	)
Accrued expenses and other current liabilities		(509	)		2,192
Accrued expenses and other current liabilities – related parties		-			(64	)
Deferred revenue		(569	)		925
Other noncurrent liabilities		(139	)		(78	)
Net cash (used in) provided by operating activities		(14,347	)		4,034
Cash flows from investing activities
Collateralization of derivative instruments		(106	)		1,876
Purchase of marketable securities		(15,601	)		(964	)
Proceeds from the sale of marketable securities		28,681			4,484
Proceeds from the sale of property and equipment		-			50
Capital expenditures		(146	)		(1,608	)
Net cash provided by investing activities		12,828			3,838
Cash flows from financing activities
Deferred financing costs		-			(477	)
Payment of dividends		(2,624	)		(2,624	)
Net cash used in financing activities		(2,624	)		(3,101	)
Net change in cash and cash equivalents		(4,143	)		4,771
Cash and cash equivalents at beginning of period		198,122			243,331
Cash and cash equivalents at end of period	$	193,979		$	248,102

Cash paid for interest	$	43		$	1
Cash paid for income taxes	$	52		$	453
Noncash investing and financing activities:
Cash dividends declared, not paid	$	-		$	131,230
Noncash capital expenditures	$	118		$	-

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

1)	NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Organization

FutureFuel Corp. (“FutureFuel” or “the Company”), through its wholly-owned subsidiary, FutureFuel Chemical Company (“FutureFuel Chemical”), owns and operates a chemical production facility located on approximately 2,200 acres of land six miles southeast of Batesville in north central Arkansas fronting the White River (the “Batesville Plant”). FutureFuel Chemical manufactures diversified chemical products, biobased products composed of biofuels, and biobased specialty chemical products. FutureFuel Chemical’s operations are reported in two segments: chemicals and biofuels.

The chemical segment manufactures a diversified portfolio of chemical products that are sold to third party customers. The majority of the revenues from the chemical segment are derived from the custom manufacturing of specialty chemicals for specific customers.

The biofuels segment primarily produces and sells biodiesel. FutureFuel Chemical also sells petrodiesel in blends with the Company’s biodiesel and, from time to time, with no biodiesel added. Until April 2021, FutureFuel Chemical was a shipper of refined petroleum products on common carrier pipelines and bought and sold petroleum products to maintain an active shipper status on these pipelines. See Note 9. Intangible Assets, and Note 17 Subsequent Event.

Basis of Presentation

The unaudited consolidated financial statements have been prepared by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel’s 2020 audited consolidated financial statements and should be read in conjunction with these financial statements.

In the opinion of FutureFuel, all normal recurring adjustments necessary for a fair presentation have been included in the unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared in compliance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements, and do include amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of FutureFuel and its direct and indirect wholly owned subsidiaries; namely, FutureFuel Chemical Company; FFC Grain, L.L.C.; FutureFuel Warehouse Company, L.L.C.; and Legacy Regional Transport, L.L.C. Intercompany transactions and balances have been eliminated in consolidation.

2)	GOVERNMENT TAX CREDITS

REINSTATEMENT OF THE BIODIESEL BLENDERS’ TAX CREDIT AND SMALL AGRI-BIODIESEL PRODUCER TAX CREDIT

The biodiesel Blenders’ Tax Credit (“BTC”) provides a one dollar per gallon tax credit to the blender of biomass-based diesel with at least 0.1% petroleum-based diesel fuel.

The Further Consolidated Appropriations Act of 2020 was passed by Congress and signed into law on December 20, 2019, retroactively reinstating the BTC for 2018 and 2019 and extending it through December 31, 2022. As this act was passed into law in 2019, the Company recognized its impact in the last quarter of 2019 for both periods (2018 and 2019) within the Company’s 2019 financial results. The Company records the credit as a reduction to cost of goods sold.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

As the law from which the BTC mentioned above was reinstated, small agri-biodiesel producers with production capacity not in excess of 60 million gallons were eligible for an additional tax credit of $0.10 per gallon on the first 15 million gallons of agri-biodiesel sold (the “Small Agri-biodiesel Producer Tax Credit”). The Company was eligible for this credit and recognized its benefit in the three months ended December 31, 2019 for both periods (2018 and 2019) as part of the tax provision.

CARES ACT – EMPLOYEE RENTENTION TAX CREDIT

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), was enacted on March 27, 2020, to encourage eligible employers to retain employees on their payroll. FutureFuel did not qualify for this credit, however, the Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the Employee Retention Tax Credit. FutureFuel is continuing to monitor whether it would qualify for this credit.

3)	REVENUE RECOGNITION

FutureFuel recognizes revenue when performance obligations of the customer contract are satisfied. FutureFuel sells to customers through master sales agreements or standalone purchase orders. The majority of FutureFuel's terms of sale have a single performance obligation to transfer products. Accordingly, FutureFuel recognizes revenue when control has been transferred to the customer, generally at the time of shipment or delivery of products. For certain contracts, this occurs upon delivery of the material to a FutureFuel storage location, ready for customer pickup and separated from other FutureFuel inventory. Revenue is measured as the amount of consideration FutureFuel expects to receive in exchange for transferring products and is generally based upon a negotiated price. FutureFuel sells its products directly to customers generally under agreements with payment terms of 30 to 75 days for chemical segment customers and 2 to 10 days for biofuels segment customers.

Certain of FutureFuel custom chemical contracts within the chemical segment contain a material right as defined by ASU 2014-09, Revenue from Contracts with Customers ("Topic 606"), from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers. Each contract also has a performance obligation to transfer products with 30-day payment terms. FutureFuel recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pickup. If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with Topic 606. FutureFuel applies the renewal option approach in allocating the transaction price to these material rights and transfer of product. As a basis for allocating the transaction price to the material right and transfer of product, FutureFuel estimates the expected life of the product, the expected contractual volumes to be sold over that life, and the most likely expected sales price. Each estimate is updated quarterly on a prospective basis.

Contract Assets and Liabilities:

Contract assets consist of unbilled amounts typically resulting from revenue recognized through bill-and-hold arrangements. The contract assets at March 31, 2021 and December 31, 2020 consist of unbilled revenue from one customer and are recorded as accounts receivable in the consolidated balance sheets. Contract liabilities consist of advance payments related to material rights recorded as deferred revenue in the consolidated balance sheets. Increases to contract liabilities from cash received for a performance obligation of chemical segment plant expansions were $209 and $2,307 for the three months ended March 31, 2021 and 2020, respectively. Contract liabilities are reduced as the Company transfers product to the customer under the renewal option approach. Revenue recognized in the chemical segment from the contract liability reductions were $723 and $1,327 in the three months ended March 31, 2021 and 2020, respectively. These contract asset and liability balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

The following table provides the balances of receivables, contract assets, and contract liabilities from contracts with customers.

Contract Assets and Liability Balances	March 31, 2021		December 31, 2020
Trade receivables, included in accounts receivable*	$	15,587	$	12,279
Contract assets, included in accounts receivable	$	1,091	$	808
Contract liabilities, included in deferred revenue - short-term	$	4,739	$	3,769
Contract liabilities, included in deferred revenue - long-term	$	16,460	$	17,943

*Exclusive of the BTC of $11,276 and $8,300, respectively, and net of allowances for bad debt of $112 and $63, respectively, as of the dates noted.

Transaction price allocated to the remaining performance obligations:

At March 31, 2021, approximately $21,199 of revenue is expected to be recognized from remaining performance obligations. FutureFuel expects to recognize this revenue ratably over expected sales over the expected term of its long-term contracts which range from three to five years. Approximately 22% of this revenue is expected to be recognized over the next 12 months, and 78% is expected to be recognized over the subsequent 48 months. These amounts are subject to change based upon changes in the estimated contract life and estimated quantities to be sold over the contract life.

The Company applies the practical expedient in ASC 606-10-50-14 and excludes the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

The following tables provide revenue from customers disaggregated by the type of arrangement and by the timing of the recognized revenue.

Disaggregation of revenue - contractual and non-contractual:

	Three Months Ended March 31,
	2021		2020
Contract revenue from customers with > 1 year arrangements	$	5,106	$	15,603
Contract revenue from customers with < 1 year arrangements		36,355		39,440
Revenue from non-contractual arrangements		55		56
BTC rebate		-		(2,017	)
Total revenue	$	41,516	$	53,082

Timing of revenue:

	Three Months Ended March 31,
	2021		2020
Bill-and-hold revenue	$	7,549	$	10,153
Non-bill-and-hold revenue		33,967		42,929
Total revenue	$	41,516	$	53,082

As of March 31, 2021, $2,911 of the three months bill and hold revenue had not shipped. In addition, $173 of bill and hold revenue recognized in the three months ended December 31, 2020 had not shipped.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

4)	INVENTORY

The carrying values of inventory were as follows as of:

	March 31, 2021			December 31, 2020
At average cost (approximates current cost)
Finished goods	$	25,436		$	15,452
Work in process		1,408			1,632
Raw materials and supplies		28,216			22,674
		55,060			39,758
LIFO reserve		(9,782	)		(5,869	)
Total inventory	$	45,278		$	33,889

5)	DERIVATIVE INSTRUMENTS

The Company records all derivative instruments at fair value. Fair value is determined by using the closing prices of the derivative instruments on the New York Mercantile Exchange at the end of an accounting period. Changes in the fair value of derivative instruments are recognized at the end of each accounting period and recorded in the statement of income as a component of cost of goods sold.

In order to manage commodity price risk caused by market fluctuations in biofuel prices, future purchases of feedstock used in biodiesel production, physical feedstock, finished product inventories attributed to the process, and other petroleum products purchased or sold, the Company may enter into exchange-traded commodity futures and options contracts. The Company accounts for these derivative instruments in accordance with ASC 815-20-25, Derivatives and Hedging. Under this standard, the accounting for changes in the fair value of a derivative instrument depends upon whether it has been designated as an accounting hedging relationship and, further, on the type of hedging relationship. To qualify for designation as an accounting hedging relationship, specific criteria must be met and appropriate documentation maintained. The Company had no derivative instruments that qualified under these rules as designated accounting hedges in 2021 or 2020. The Company has elected the normal purchase and normal sales exception for certain feedstock purchase contracts and supply agreements.

Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a loss of $2,625 for the three months ended March 31, 2021 and a gain of $6,857 for the three months ended March 31, 2020.

The volumes and carrying values of FutureFuel’s derivative instruments were as follows at:

	Asset (Liability)
	March 31, 2021				December 31, 2020
	Contract Quantity Short		Fair Value		Contract Quantity Short		Fair Value
Regulated fixed price future commitments		265	$	819		250	$	124

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $1,040 and $933 at March 31, 2021 and December 31, 2020, respectively, and was classified as other current assets in the consolidated balance sheets. The carrying values of the margin account and of the derivative instruments are included net, in other current assets.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

6)	MARKETABLE SECURITIES

At March 31, 2021 and December 31, 2020, FutureFuel had investments in certain debt securities (trust preferred securities and exchange-traded debt instruments) and in preferred stock and other equity instruments. These investments are classified as current assets in the consolidated balance sheets. The unrealized loss on equity securities held for the three months ended March 31, 2021 and 2020 were $1,765 and $9,570, respectively.

Available for sale securities:

FutureFuel has designated the debt securities as being available-for-sale. The following comprises the available-for-sale debt securities balances included within marketable securities in the consolidated balance sheets at the respective dates:

	March 31, 2021
	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value
Trust preferred stock	$	3,676	$	188	$	-	$	3,864

	December 31, 2020
	Adjusted Cost		Unrealized Gains		Unrealized Losses		Fair Value
Trust preferred stock	$	3,676	$	264	$	-	$	3,940

The aggregate fair value of debt securities with unrealized losses totaled $0 at March 31, 2021 and December 31, 2020.

The Company determined an allowance for credit losses for these debt securities was not necessary as of March 31, 2021. The large financial institutions have strong credit ratings with no recent history of defaulting on outstanding obligations, nor is the Company aware of any long-term credit risk related to delinquency under these obligations.

There were no sales of debt securities in the three months ended March 31, 2021 or 2020.

The debt securities held at March 31, 2021, had a contractual maturity of greater than ten years.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

7)	FAIR VALUE MEASUREMENTS

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value accounting pronouncements also include a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of FutureFuel. Unobservable inputs are inputs that reflect FutureFuel’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at March 31, 2021 and December 31, 2020.

	Asset (Liability)
			Fair Value Measurements Using
	Fair Value at		Inputs Considered as:
Description	March 31, 2021		Level 1		Level 2		Level 3
Derivative instruments	$	819	$	819	$	-	$	-
Preferred stock and other equity instruments	$	46,309	$	46,309	$	-	$	-
Trust preferred stock and exchange-traded debt instruments	$	3,864	$	3,864	$	-	$	-

	Asset (Liability)
			Fair Value Measurements Using
	Fair Value at		Inputs Considered as:
Description	December 31, 2020		Level 1		Level 2		Level 3
Derivative instruments	$	124	$	124	$	-	$	-
Preferred stock and other equity instruments	$	60,464	$	60,464	$	-	$	-
Trust preferred stock and exchange-traded debt instruments	$	3,940	$	3,940	$	-	$	-

8)	INTANGIBLE ASSETS

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 at March 31, 2021 and December 31, 2020 FutureFuel tests the intangible asset for impairment in accordance with Topic 350, Intangibles-Goodwill and Other. Please see Note 17, Subsequent Event, regarding this intangible asset.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

9)	ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at:

	March 31, 2021		December 31, 2020
Accrued employee liabilities	$	2,135	$	2,609
Accrued property, franchise, motor fuel and other taxes		1,589		1,730
Lease liability, current		495		491
Other		349		247
Total	$	4,568	$	5,077

10)	BORROWINGS

On March 30, 2020, FutureFuel, with FutureFuel Chemical as the borrower and certain of FutureFuel’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 (as amended, the “Prior Credit Agreement”) with the lenders party, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. The Credit Agreement consists of a five-year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $30,000 for letters of credit and $15,000 for swingline loans (collectively, the “Credit Facility”). The credit facility expires on March 30, 2025. The primary amendments from the Prior Credit Agreement were a reduction in the facility by $65,000, a reduction in the facility’s applicable interest rate by 0.25%, a reduction in the commitment fee, and elimination of the minimum consolidated fixed charge coverage ratio.

The interest rate floats at the following margins over LIBOR or base rate based upon the leverage ratio from time to time:

Consolidated Leverage Ratio			Adjusted LIBOR Rate Loans and Letter of Credit Fee		Base Rate Loans		Commitment Fee
< 1.00:1.0				1.00%		0.00%		0.15%
≥ 1.00:1.0	And	< 1.50:1.0		1.25%		0.25%		0.15%
≥ 1.50:1.0	And	< 2.00:1.0		1.50%		0.50%		0.20%
≥ 2.00:1.0	And	< 2.50:1.0		1.75%		0.75%		0.20%
≥ 2.50:1.0				2.00%		1.00%		0.25%

The terms of the Credit Facility contain certain negative covenants and conditions including a maximum consolidated leverage ratio and a consolidated minimum interest coverage ratio.

There were no borrowings under the Credit Agreement at March 31, 2021 or the Prior Credit Agreement at December 31, 2020.

11)	INCOME TAX PROVISION

The following table summarizes the income tax provision.

	Three Months Ended March 31,
	2021			2020
Income tax (benefit) provision	$	(4,387	)	$	(13,212	)
Effective tax rate		33.3	%		(226.6	%)

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

Because the Company is unable to reliably estimate its annual effective tax rate for the three months ended March 31, 2021, it has determined its income tax benefit by applying its actual year-to-date effective tax rate to year-to-date pretax income. In contrast, the tax benefit for the three months ended March 31, 2020 reflects the application of an estimated annual effective tax rate to year-to-date pretax income. The effective tax rates for both periods reflect the positive effects of certain tax credits and incentives, the most significant of which are the BTC and Small Agri-biodiesel Producer Tax Credit. Additionally, the effective rate for the three months ended March 31, 2020 was favorably impacted by the enhanced NOL carryback provisions of the CARES Act. This law, enacted on March 27, 2020, allowed the Company to carry back its 2020 federal tax loss to a year with a higher tax rate rather than forward to a year with a lower rate.

12)	EARNINGS PER SHARE

In the three months ended March 31, 2021 and 2020, FutureFuel used the treasury method in computing earnings per share.

Basic and diluted (losses) earnings per common share were computed as follows:

	Three Months Ended March 31,
	2021			2020
Numerator:
Net (loss) income	$	(8,773	)	$	19,043
Denominator:
Weighted average shares outstanding – basic		43,743,243			43,743,243
Effect of dilutive securities:
Stock options and other awards		-			-
Weighted average shares outstanding – diluted		43,743,243			43,743,243

Basic (loss) earnings per share	$	(0.20	)	$	0.44
Diluted (loss) earnings per share	$	(0.20	)	$	0.44

For the three months ended March 31, 2021 all 44,000 options to purchase FutureFuel’s common stock were excluded in the computation of diluted earnings per share as all were anti-dilutive. In the three months ended March 31, 2020, no options were excluded.

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.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

Related party revenues are the result of sales of biodiesel, petrodiesel, blends, other petroleum products, and other similar or related products to these related parties.

Related party cost of goods sold and distribution are the result of sales of biodiesel, petrodiesel, blends, and other petroleum products to these related parties along with the associated expense from the purchase of natural gas, storage and terminalling services by FutureFuel from these related parties.

A related party manages natural gas purchases for FutureFuel, initially pays for the natural gas, and subsequently invoices FutureFuel for the same plus a nominal fee for such services. The natural gas matter as discussed in Note 16, Legal Matters, is in reference to the natural gas supplier, not the related party.

14)	SEGMENT INFORMATION

FutureFuel has two reportable segments organized along similar product groups – chemicals and biofuels.

Chemicals

FutureFuel’s chemical segment manufactures diversified chemical products that are sold externally to third party customers. This segment is composed of two components: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).

Biofuels

FutureFuel’s biofuels segment primarily manufactures and markets biodiesel. Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at the Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks. Biofuels revenues also include the sale of biodiesel blends with petrodiesel; petrodiesel with no biodiesel added; internally generated, separated Renewable Identification Numbers (“RINs”); biodiesel production byproducts; and the purchase and sale of other petroleum products on common carrier pipelines. Biodiesel selling prices and profitability can at times fluctuate based on the timing of unsold, internally generated RINs. FutureFuel does not allocate production costs to internally generated RINs, and, from time to time, can enter into sales of biodiesel on a “RINs-free” basis, resulting in FutureFuel maintaining possession of the applicable RINs from the sale. The benefit derived from the eventual sale of the RINs is not reflected in results of operations until such time as the RINs sale has been completed, which may lead to variability in reported operating results.

Summary of business by segment

	Three Months Ended March 31,
	2021			2020
Revenue
Custom chemicals	$	10,675		$	23,760
Performance chemicals		5,435			3,933
Chemicals revenue		16,110			27,693
Biofuels revenue		25,406			25,389
Total Revenue	$	41,516		$	53,082

Segment gross (loss) profit
Chemicals	$	(1,301	)	$	8,014
Biofuels		(9,435	)		8,385
Total gross (loss) profit	$	(10,736	)	$	16,399

Depreciation is allocated to segment cost of goods sold based on plant usage. The total assets and capital expenditures of FutureFuel have not been allocated to individual segments as large portions of these assets are shared to varying degrees by each segment, causing such an allocation to be of little value.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

15)	RECENTLY ISSUED ACCOUNTING STANDARDS

Recently Issued Accounting Standards Adopted

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, "Income Taxes" and improve consistent application by clarifying and amending existing guidance. The new standard was adopted on a prospective basis and had an immaterial effect on the financials.

Other

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. Effective March 12, 2020, the guidance in the update is in response to concerns about structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This guidance will ease the accounting burden associated with transitioning away from reference rates that are expected to be discontinued within our credit facility as described in Note 10.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

16)	LEGAL MATTERS

From time to time, FutureFuel and its operations are parties to, or targets of, lawsuits, claims, investigations, regulatory matters, and proceedings, which are being handled and defended in the ordinary course of business. While FutureFuel is unable to predict the outcomes of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.

As a result of the extraordinary increase in natural gas prices, the Attorney General of Arkansas has launched a civil investigative demand against several natural gas suppliers. At this time the company is disputing the February 2021 natural gas bill and payment thereof is pending further investigation.

The natural gas expense was a component of Cost of goods sold-related parties in the Consolidated Statements of Operations and Comprehensive Income in the three months ended March 31, 2021. However, as discussed in Note 13, Related Party Transactions, the natural gas supplier is not a related party of FutureFuel.

17)	SUBSEQUENT EVENT

Upon making the strategic decision to exit its status as a regular shipper on a common carrier pipeline in April 2021, FutureFuel may record an impairment charge of its intangible asset.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of FutureFuel Corp. (“FutureFuel”, “the Company”, “we”, or “our”) should be read together with our consolidated financial statements, including the notes thereto, set forth herein. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements. See “Forward-Looking Information” below for additional discussion regarding risks associated with forward-looking statements.

Unless otherwise stated, all dollar amounts are in thousands.

Overview

Our company is managed and reported in two reporting segments: chemicals and biofuels. Within the chemical segment are two product groupings: custom chemicals and performance chemicals. The custom product group is composed of specialty chemicals manufactured for a single customer whereas the performance product group is composed of chemicals manufactured for multiple customers. The biofuels segment is composed of one product group. Management believes that the diversity of each segment strengthens the company in the ability to utilize resources and is committed to growing each segment.

COVID-19

In March 2020, the World Health Organization categorized COVID-19 as a pandemic and it continues to spread throughout the United States and other countries across the world. During the pandemic, our objectives have been to protect the well-being of our employees, support our customers, obtain materials from our suppliers, and maintain our manufacturing operations. While the pandemic has reduced the overall level of activity across much of the economy, we have largely met these objectives.

While the worst effects of the pandemic may be behind us in the United States, the virus is still spreading worldwide and the long-term economic consequences globally are still unclear, making its impact on our performance still difficult to predict. The three principles areas where COVID-19 may still negatively impact our financial performance are customer demand, raw material procurement, and our ability to operate our manufacturing facility.

Customer Demand – Several of our major chemical customers sell the products we produce for them in to markets that have been significantly impacted by COVID-19. The energy and automotive markets in particular have drastically been impacted since April, 2020 and have not yet fully recovered to pre-pandemic levels. However, diesel prices and the value of Renewable Identification Numbers (RINs) have improved significantly in 2021 and while promising, this recovery is still fragile.

Supply Chain Impact – Our initial concern was that supplier shutdowns might result in raw material or input shortages and negatively impact our ability to manufacture products and meet our customers’ demands. This was true initially in our biofuel segment and the impact that had on the industry as a whole is part of the reason RINs have increased in value. We have managed supply such that our operations have not been hindered by shortages thus far and will continue in that effort.

SEC Form 10-Q filed by FutureFuel Corp.