FutureFuel Corp.
FutureFuel Corp. (Form: 10-Q, Received: 11/09/2015 18:24:47)

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 September 30, 2015

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________

  Commission file number: 0-52577

 

FUTUREFUEL CORP.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

20-3340900

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer Identification No.)

8235 Forsyth Blvd., Suite 400

St. Louis, Missouri  63105

(Address of Principal Executive Offices)

 

(314) 854-8385

(Registrant’s Telephone Number, Including Area Code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  √  No  ☐

 

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

 

Large accelerated filer  ☐

Accelerated filer

Non-accelerated filer  ☐

(do not check if a smaller reporting company)

Smaller reporting  company

 

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 November 9, 2015: 43,712,388

 

 
 

 

 

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

The following sets forth our unaudited consolidated balance sheet as at September 30, 2015, our audited consolidated balance sheet as at December 31, 2014, our unaudited consolidated statements of operations and comprehensive income for the three-month and nine-month periods ended September 30, 2015 and September 30, 2014, and our unaudited consolidated statements of cash flows for the nine-month periods ended September 30, 2015 and September 30, 2014.

 

FutureFuel Corp.

Consolidated Balance Sheets

As of September 30, 2015 and December 31, 2014

(Dollars in thousands)

 

               

    (Unaudited)          
   

September 30, 2015

   

December 31, 2014

 

Assets

               

Cash and cash equivalents

  $ 176,547     $ 124,079  

Accounts receivable, inclusive of federal $1.00 per gallon blenders’ tax credit (“BTC”) of $0 and $28,954, net of allowances for bad debt of $0 and $0 at September 30, 2015 and December 31, 2014, respectively

    19,768       50,135  

Accounts receivable – related parties

    32       1,173  

Inventory

    34,372       45,353  

Income tax receivable

    9,281       19,716  

Prepaid expenses

    391       1,670  

Prepaid expenses – related parties

    35       -  

Marketable securities

    70,887       87,720  

Deferred financing costs

    144       -  

Other current assets

    3,683       1,619  

Total current assets

    315,140       331,465  

Property, plant and equipment, net

    125,756       127,371  

Intangible assets

    1,408       -  

Deferred financing costs

    505       -  

Other assets

    2,962       2,652  

Total noncurrent assets

    130,631       130,023  

Total Assets

  $ 445,771     $ 461,488  

Liabilities and Stockholders’ Equity

               

Accounts payable

  $ 18,689     $ 30,386  

Accounts payable – related parties

    2       2,912  

Current deferred income tax liability

    3,838       11,003  

Deferred revenue – short-term

    2,296       1,940  

Contingent liability – short-term

    1,151       1,151  

Accrued expenses and other current liabilities

    6,504       4,649  

Accrued expenses and other current liabilities – related parties

    367       46  

Total current liabilities

    32,847       52,087  

Deferred revenue – long-term

    16,559       15,927  

Other noncurrent liabilities

    1,613       4,024  

Noncurrent deferred income tax liability

    29,064       30,441  

Total noncurrent liabilities

    47,236       50,392  

Total liabilities

    80,083       102,479  

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, 43,712,388 and 43,722,388, issued and outstanding as of September 30, 2015 and December 31, 2014, respectively

    4       4  

Accumulated other comprehensive income

    1,094       4,259  

Additional paid in capital

    278,592       277,652  

Retained earnings

    85,998       77,094  

Total stockholders’ equity

    365,688       359,009  

Total Liabilities and Stockholders’ Equity

  $ 445,771     $ 461,488  

 

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

 

 
1

 

 

FutureFuel Corp.

Consolidated Statements of Operations and Comprehensive Income

For the Three Months Ended September 30, 2015 and 2014

(Dollars in thousands, except per share amounts)

(Unaudited)

 

   

Three months ended September 30:

 
   

2015

   

2014

 
           

As reclassified

 

Revenue

  $ 79,375     $ 93,418  

Revenues – related parties

    27,679       9,717  

Cost of goods sold

    96,977       59,964  

Cost of goods sold – related parties

    959       21,409  

Distribution

    320       817  

Distribution – related parties

    123       73  

Gross profit

    8,675       20,872  

Selling, general, and administrative expenses

               

Compensation expense

    1,346       1,425  

Other expense

    619       434  

Related party expense

    39       110  

Research and development expenses

    738       728  
      2,742       2,697  

Income from operations

    5,933       18,175  

Interest and dividend income

    1,336       1,432  

Interest expense

    (42 )     (6 )

Loss on marketable securities

    (269 )     -  

Other expense

    (48 )     (16 )
      977       1,410  

Income before income taxes

    6,910       19,585  

Provision for income taxes

    2,060       8,134  

Net income

  $ 4,850     $ 11,451  
                 

Earnings per common share

               

Basic

  $ 0.11     $ 0.26  

Diluted

  $ 0.11     $ 0.26  

Weighted average shares outstanding

               

Basic

    43,460,449       43,361,123  

Diluted

    43,461,286       43,387,238  
                 

Comprehensive Income

               

Net income

  $ 4,850     $ 11,451  

Other comprehensive loss from unrealized net losses on available-for-sale securities, net of tax benefit of $(799) in 2015 and of $(433) in 2014

    (1,282 )     (695 )

Comprehensive income

  $ 3,568     $ 10,756  

 

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

 

 
2

 

 

FutureFuel Corp.

Consolidated Statements of Operations and Comprehensive Income

For the Nine Months Ended September 30 , 2015 and 2014

(Dollars in thousands, except per share amounts)

(Unaudited)

 

   

Nine months ended September 30:

 
   

2015

   

2014

 
           

As reclassified

 

Revenue

  $ 207,880     $ 240,654  

Revenues – related parties

    57,859       12,717  

Cost of goods sold

    232,187       158,916  

Cost of goods sold – related parties

    3,766       54,532  

Distribution

    1,954       2,608  

Distribution – related parties

    299       263  

Gross profit

    27,533       37,052  

Selling, general, and administrative expenses

               

Compensation expense

    3,558       3,034  

Other expense

    1,800       1,601  

Related party expense

    165       321  

Research and development expenses

    2,123       2,299  
      7,646       7,255  

Income from operations

    19,887       29,797  

Interest and dividend income

    4,008       5,369  

Interest expense

    (91 )     (19 )

Gain on marketable securities

    1,202       2,900  

Other (expense)/income

    (170 )     150  
      4,949       8,400  

Income before income taxes

    24,836       38,197  

Provision for income taxes

    8,062       15,125  

Net income

  $ 16,774     $ 23,072  
                 

Earnings per common share

               

Basic

  $ 0.38     $ 0.53  

Diluted

  $ 0.38     $ 0.53  

Weighted average shares outstanding

               

Basic

    43,418,243       43,352,552  

Diluted

    43,424,423       43,395,566  
                 

Comprehensive Income

               

Net income

  $ 16,774     $ 23,072  

Other comprehensive (loss)/income from unrealized net (losses)/gains on available-for-sale securities, net of tax benefit of $(1,973) in 2015 and net of tax of $656 in 2014

    (3,165 )     1,052  

Comprehensive income

  $ 13,609     $ 24,124  

 

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

 

 
3

 

 

FutureFuel Corp.

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2015 and 2014

(Dollars in thousands)

(Unaudited)

 

   

Nine months ended September 30:

 
   

2015

   

2014

 

Cash flows provided by operating activities

               

Net income

  $ 16,774     $ 23,072  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    7,476       6,722  

Amortization of deferred financing costs

    72       -  

(Benefit)/provision for deferred income taxes

    (6,569 )     2,132  

Change in fair value of derivative instruments

    1,755       1,923  

Other than temporary impairment of marketable securities

    606       -  

Impairment of fixed assets

    -       247  

Gain on the sale of marketable securities

    (1,808 )     (2,900 )

Stock based compensation

    1,431       980  

Losses on disposals of fixed assets

    168       15  

Noncash interest expense

    20       19  

Changes in operating assets and liabilities:

               

Accounts receivable

    30,367       (4,870 )

Accounts receivable – related parties

    1,141       4,504  

Inventory

    10,981       (17,020 )

Income tax receivable

    10,435       3,536  

Prepaid expenses

    1,279       1,608  

Prepaid expenses – related party

    (35 )     -  

Accrued interest on marketable securities

    13       118  

Other assets

    (310 )     (3,012 )

Accounts payable

    (11,697 )     5,429  

Accounts payable – related parties

    (2,910 )     8,060  

Accrued expenses and other current liabilities

    1,855       (1,444 )

Accrued expenses and other current liabilities – related parties

    321       96  

Deferred revenue

    988       (2,729 )

Other noncurrent liabilities

    (2,431 )     -  

Net cash provided by operating activities

    59,922       26,486  

Cash flows from investing activities

               

Collateralization of derivative instruments

    (3,832 )     (4,465 )

Purchase of marketable securities

    (32,952 )     (30,312 )

Proceeds from the sale of marketable securities

    45,849       32,945  

Proceeds from the sale of fixed assets

    -       3  

Expenditures for intangible assets

    (1,408 )     -  

Capital expenditures

    (6,029 )     (6,691 )

Net cash provided by (used in) investing activities

    1,628       (8,520 )

Cash flows from financing activities

               

Minimum tax withholding on stock options exercised

    (120 )     (175 )

Excess tax benefits associated with stock options

    (371 )     59  

Deferred financing costs

    (721 )     -  

Payment of dividends

    (7,870 )     (15,681 )

Net cash used in financing activities

    (9,082 )     (15,797 )

Net change in cash and cash equivalents

    52,468       2,169  

Cash and cash equivalents at beginning of period

    124,079       86,463  

Cash and cash equivalents at end of period

  $ 176,547     $ 88,632  
                 

Cash paid for interest

    -       -  

Cash paid for income taxes

  $ 13,377     $ 7,000  

 

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

 

 
4

 

 

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 listing 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 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 consolidated financial statements have been prepared by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel’s 2014 audited consolidated financial statements and should be read in conjunction with the 2014 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 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 accounting principles generally accepted in the United States 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.

 

2)

INVENTORY

 

The carrying values of inventory were as follows as of:

 

   

September 30, 2015

   

December 31, 2014

 

At average cost (approximates current cost)

               

Finished goods

  $ 14,295     $ 25,369  

Work in process

    2,447       2,391  

Raw materials and supplies

    24,835       25,935  
      41,577       53,695  

LIFO reserve

    (7,205 )     (8,342 )

Total inventory

  $ 34,372     $ 45,353  

 

 
5

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

In determining the LIFO cost of its inventory, FutureFuel relies on certain pricing indices.

 

In the three months ended September 30, 2015, these index values changed in such a way as to decrease FutureFuel’s LIFO cost relative to weighted average cost. As such, FutureFuel recorded an increase in its LIFO reserve of $2,187, the offset of which was recorded as an increase to cost of goods sold of $1,334 in the biofuels segment and an increase of $853 in the chemicals segment for the three months ended September 30, 2015. Additionally, as a result of this LIFO adjustment, FutureFuel recorded a lower of cost or market adjustment of $192 in the three months ended September 30, 2015. This lower of cost or market adjustment was recorded as a decrease in inventory values and an increase in cost of goods sold within the biofuels segment. For the three months ended September 30, 2014, FutureFuel recorded a decrease in its LIFO reserve of $22, the offset of which was recorded as a decrease to cost of goods sold of $12 in the biofuels segment and a decrease of $10 in the chemicals segment.

 

In the nine months ended September 30, 2015, these index values changed in such a way as to increase FutureFuel’s LIFO cost relative to weighted average cost. As such, FutureFuel recorded a reduction in its LIFO reserve of $1,137, the offset of which was recorded as a reduction to cost of goods sold of $948 in the biofuels segment and a reduction of $189 in the chemicals segment for the nine months ended September 30, 2015.  Additionally, as a result of this LIFO adjustment, FutureFuel recorded a lower of cost or market adjustment of $192 in the nine months ended September 30, 2015. This lower of cost or market adjustment was recorded as a decrease in inventory values and an increase in cost of goods sold within the biofuels segment. For the nine months ended September 30, 2014, FutureFuel recorded an increase in its LIFO reserve of $710, the offset of which was recorded as an increase to cost of goods sold of $332 in the biofuels segment and an increase of $378 in the chemicals segment.

 

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 sheet.  FutureFuel’s derivative instruments do not qualify for hedge accounting under the specific guidelines of ASC 815-20-25, Derivatives and Hedging, Hedging-General, Recognition . 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 statement of operations as a component of cost of goods sold within the biofuels segment, and amounted to gains of $6,456 and $5,239 for the three months ended September 30, 2015 and 2014, respectively, and gains of $4,119 and $4,945 for the nine months ended September 30, 2015 and 2014, respectively.

 

 
6

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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

 

 

   

Asset (Liability)

 
   

September 30, 2015

   

December 31, 2014

 
   

Quantity

(contracts) Short

   

Fair Value

   

Quantity

(contracts) Short

   

Fair Value

 

Regulated options, included in other current assets

    (700 )   $ (1,612 )     (350 )   $ (794 )

Regulated fixed price future commitments, included in other current assets

    (275 )   $ (75 )     (225 )   $ 862  

 

 

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $5,296 and $1,464 at September 30, 2015 and December 31, 2014, respectively. The carrying values of the margin account and of the derivative instruments are included, net, in other current assets.

 

4)

MARKETABLE SECURITIES

 

At September 30, 2015 and December 31, 2014, FutureFuel had investments in certain preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments. These investments are classified as current assets in the consolidated balance sheet. FutureFuel has designated these securities as being available-for-sale. Accordingly, they are recorded at fair value, with the unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity.

 

FutureFuel’s marketable securities were comprised of the following at September 30, 2015 and December 31, 2014:

 

   

September 30, 2015

 
   

Adjusted Cost

   

Unrealized Gains

   

Unrealized L osses

   

Fair Value

 

Equity instruments

  $ 10,626     $ 76     $ (1,019 )   $ 9,683  

Preferred stock

    36,870       1,443       (174 )     38,139  

Trust preferred securities

    15,944       1,214       (1 )     17,157  

Exchange traded debt instruments

    5,710       198       -       5,908  

Total

  $ 69,150     $ 2,931     $ (1,194 )   $ 70,887  

 

 

   

December 31, 2014

 
   

Adjusted Cost

   

Unrealized Gains

   

Unrealized Losses

   

Fair Value

 

Equity instruments

  $ 35,062     $ 5,214     $ (1,526 )   $ 38,750  

Preferred stock

    21,660       1,626       -       23,286  

Trust preferred securities

    18,920       1,285       (1 )     20,204  

Exchange traded debt instruments

    5,292       192       (4 )     5,480  

Total

  $ 80,934     $ 8,317     $ (1,531 )   $ 87,720  

 

 

The aggregate fair value of instruments with unrealized losses totaled $13,955 and $15,688 at September 30, 2015 and December 31, 2014, respectively. As of September 30, 2015 and December 31, 2014, FutureFuel had no investments in marketable securities that were in an unrealized loss position for a greater than 12-month period, respectively.

 

 
7

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

5)

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities, including those associated with related parties, consisted of the following at:

 

   

September 30, 2015

   

December 31, 2014

 

Accrued employee liabilities

  $ 5,008     $ 3,227  

Accrued property, use, and franchise taxes

    1,171       1,340  

Other

    692       128  

Total

  $ 6,871     $ 4,695  

 

 

6)

BORROWINGS

 

On April 16, 2015, FutureFuel, with FutureFuel Chemical as borrowers, and certain of FutureFuel’s other subsidiaries, as guarantors, entered into a $150,000 secured and committed credit facility with the lenders party thereto, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. The credit facility consists of a five-year revolving credit facility in a dollar amount of up to $150,000 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 LIB OR 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 September 30, 2015.

 

There were no borrowings under this credit agreement at September 30, 2015 and there were no borrowings under the former credit agreement at December 31, 2014, which terminated on April 16, 2015.

 

7)

PROVISION FOR INCOME TAXES

 

The following table summarizes the provision for income taxes.

 

   

Three months ended September 30:

   

Nine months ended September 30:

 
   

2015

   

2014

   

2015

   

2014

 

Provision for income taxes

  $ 2,060     $ 8,134     $ 8,062     $ 15,125  

Effective tax rate

    29.8 %     41.5 %     32.5 %     39.6 %

 

 
8

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

The effective tax rate for the three and nine-month periods ended September 30, 2015 and September 30, 2014 reflect our expected tax rate on reported operating earnings before income tax and reflects the elimination of the small agri-biodiesel producer tax credit and the elimination of the tax credit for increasing research activities. Additionally, the effective tax rate for the nine-months ended September 30, 2015 reflects changes in estimates concerning FutureFuel’s unrecognized tax benefits. FutureFuel’s effective tax rate for the nine-months ended September 30, 2015 is lower than it otherwise would have been. This reduced rate is not expected to continue for the remainder of 2015.

 

Unrecognized tax benefits totaled $517 and $2,981 at September 30, 2015 and December 31, 2014, respectively, and were included in other noncurrent liabilities on the balance sheet.

 

FutureFuel records interest and penalties net as a component of income tax expense. At September 30, 2015 and December 31, 2014, respectively, FutureFuel recorded $80 and $46 in accruals for interest and tax penalties.

 

In the second quarter of 2015, the IRS completed its audit of FutureFuel’s 2010 through 2012 amended federal income tax returns. FutureFuel was successful in recovering the benefits previously unrecorded in its financial statements. Also during the second quarter of 2015, FutureFuel received notice of rejection from an administrative law judge in The Arkansas Office of Hearings and Appeals regarding FutureFuel’s 2010 through 2012 amended state income tax returns. In connection with these matters, FutureFuel recognized a net income tax benefit of $695 in the second quarter of 2015 upon the recognition of previously unrecognized net tax benefits.

 

8)

EARNINGS PER SHARE

 

We compute earnings per share using the two-class method in accordance with Accounting Standards Codification 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 September 30, 2015 or 2014.

 

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 nine-month periods ended September 30, 2015 or 2014 as the vesting conditions had not been satisfied.

 

 
9

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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

 

   

For the three months ended
September 30:

   

For the nine months ended
September 30:

 
   

2015

   

2014

   

2015

   

2014

 

Numerator

                               

Net income

  $ 4,850     $ 11,451     $ 16,774     $ 23,072  

Less: distributed earnings allocated to non-vested stock

    (15 )     (42 )     (52 )     (72 )

Less: undistributed earnings allocated to non-vested restricted stock

    (12 )     (50 )     (57 )     (60 )

Numerator for basic earnings per share

  $ 4,823     $ 11,359     $ 16,665     $ 22,940  

Effect of dilutive securities:

                               

Add: undistributed earnings allocated to non-vested restricted stock

    12       50       57       60  

Less: undistributed earnings reallocated to non-vested restricted stock

    (12 )     (50 )     (61 )     (60 )

Numerator for diluted earnings per share

  $ 4,823     $ 11,359     $ 16,661     $ 22,940  

Denominator:

                               

Weighted average shares outstanding – basic

    43,460,449       43,361,123       43,418,243       43,352,552  

Effect of dilutive securities:

                               

Stock options and other awards

    837       26,115       6,180       43,014  

Weighted average shares outstanding – diluted

    43,461,286       43,387,238       43,424,423       43,395,566  
                                 

Basic earnings per share

  $ 0.11     $ 0.26     $ 0.38     $ 0.53  

Diluted earnings per share

  $ 0.11     $ 0.26     $ 0.38     $ 0.53  

 

 

Certain options to purchase FutureFuel’s common stock were not included in the computation of diluted earnings per share for the three and nine-months ended September 30, 2015 because they were anti-dilutive in the period. The weighted average number of options excluded on this basis was 190,000 and 130,000 for the three and nine-months ended September 30, 2015, respectively. No options to purchase shares of FutureFuel’s common stock were excluded from the computation of diluted earnings per share for the three and nine-months ended September 30, 2014.

 

9)

SEGMENT INFORMATION

 

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).

 

 
10

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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. Results of the biofuels business segment also reflect the sale of biodiesel blends with petrodiesel, petrodiesel with no biodiesel added, RINs, biodiesel production byproducts, and the purchase and sale of other petroleum products on common carrier pipelines.

 

Summary of long-lived assets and revenues by geographic area

 

All of FutureFuel’s long-lived assets are located in the U.S.

 

Most of FutureFuel’s sales are transacted with title passing at the time of shipment from the Batesville Plant, although some sales are transacted based on title passing at the customer location delivery point. While many of FutureFuel’s chemicals are utilized to manufacture products that are shipped, further processed, and/or consumed throughout the world, the chemical products, with limited exceptions, generally leave the United States only after ownership has transferred from FutureFuel to the customer. Rarely is FutureFuel the exporter of record, never is FutureFuel the importer of record into foreign countries, and FutureFuel is not always aware of the exact quantities of its products that are moved into foreign markets by its customers. FutureFuel does track the addresses of its customers for invoicing purposes and uses this address to determine whether a particular sale is within or without the United States. FutureFuel’s revenues attributable to the United States and foreign countries (based upon the billing addresses of its customers) were as follows:

 

   

Three months ended September 30:

   

Nine months ended September 30:

 
   

2015

   

2014

   

2015

   

2014

 

United States

  $ 106,300     $ 100,925     $ 264,034     $ 247,314  

All Foreign Countries

  $ 754     $ 2,210     $ 1,705     $ 6,057  

Total

  $ 107,054     $ 103,135     $ 265,739     $ 253,371  

 

For the three months ended September 30, 2015 and 2014, revenues from Mexico accounted for 0% and 2%, respectively, of total revenues. For the nine months ended September 30, 2015 and 2014, revenues from Mexico accounted for 0% and 2% of total revenues, respectively. Other than Mexico, revenues from a single foreign country during the three and nine-months ended September 30, 2015 and 2014 did not exceed 1% of total revenues.

 

Summary of business by segment

 

   

Three months ended September 30:

   

Nine months ended September 30:

 
   

2015

   

2014

   

2015

   

2014

 

Revenues:

                               

Custom chemicals

  $ 26,665     $ 40,633     $ 84,624     $ 94,206  

Performance chemicals

    4,942       4,306       13,880       13,618  

Chemicals Revenues

    31,607       44,939       98,501       107,824  

Biofuels Revenues

    75,447       58,196       167,238       145,547  

Total Revenues

  $ 107,054     $ 103,135     $ 265,739     $ 253,371  
                                 

Segment gross profit:

                               

Chemicals

  $ 7,294     $ 17,824     $ 28,159     $ 33,989  

Biofuels

    1,381       3,048       (626 )     3,063  

Total gross profit

    8,675       20,872       27,533       37,052  

Corporate expenses

    (2,742 )     (2,697 )     (7,646 )     (7,255 )

Income before interest and taxes

    5,933       18,175       19,887       29,797  

Interest and other income

    1,336       1,432       5,210       8,419  

Interest and other expense

    (359 )     (22 )     (261 )     (19 )

Provision for income taxes

    (2,060 )     (8,134 )     (8,062 )     (15,125 )

Net income

  $ 4,850     $ 11,451     $ 16,774     $ 23,072  

 

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.

 

 
11

 

 

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 September 30, 2015 and December 31, 2014.

 

   

Asset (Liability)

 
   

 

   

Fair Value Measurements
using inputs considered as:

 

Description

  Fair Value at
September 30, 2015
 
   

Level 1

   

Level 2

   

Level 3

 

Derivative instruments

  $ (1,687 )   $ (1,687 )   $ -     $ -  

Preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments

  $ 70,887     $ 70,887     $ -     $ -  

 

 

 

   

Asset (Liability)

 
         

Fair Value Measurements

using inputs considered as:

 

Description

  Fair Value at
December 31, 2014
   

Level 1

   

Level 2

   

Level 3

 

Derivative instruments

  $ 68     $ 68     $ -     $ -  

Preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments

  $ 87,720     $ 87,720     $ -     $ -  

 

 
12

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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 nine months ended September 30, 2015 and 2014.

 

Changes in Accumulated Other Comprehensive Income Unrealized Gains and Losses on Available-for-Sale Securities
For the three and nine months ended September 30, 2015 and 2014

(net of tax)

 
   

2015

   

2014

 

Balance at June 30

  $ 2,376     $ 9,183  

Other comprehensive loss before reclassifications

    (1,448 )     (695 )

Amounts reclassified from accumulated other comprehensive income

    166       -  

Net current-period other comprehensive loss

    (1,282 )     (695 )

Balance at September 30

  $ 1,094     $ 8,488  
                 
   

2015

   

2014

 

Balance at December 31

  $ 4,259     $ 7,436  

Other comprehensive (loss)/gain before reclassifications

    (2,425 )     4,571  

Amounts reclassified from accumulated other comprehensive income

    (740 )     (3,519 )

Net current-period other comprehensive (loss)/gain

    (3,165 )     1,052  

Balance at September 30

  $ 1,094     $ 8,488  

 

 
13

 

 

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 nine-months ended September 30, 2015 and 2014:

 

   

Reclassification from Accumulated Other Comprehensive Income

   

Three months ended September 30, 2015

   

Nine months ended September 30, 2015

 

Affected Line Item in Statement of Operations

Unrealized (loss)/gain on available-for-sale securities

  $ (269 )   $ 1,202  

(Loss)/gains on marketable securities

Total before tax

    (269 )     1,202    

Tax benefit/(provision)

    103       (462 )  

Total reclassifications

  $ (166 )   $ 740    

 

   

Three months ended September 30, 2014

   

Nine months ended September 30, 2014

 

Affected Line Item in Statement of Operations

Unrealized gain on available-for-sale securities

  $ -     $ 5,713  

Gains on marketable securities

Total before tax

    -       5,713    

Tax provision

    -       (2,194 )  

Total reclassifications

  $ -     $ 3,519    

 

 

12)

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.

 

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.

 

As previously disclosed, related party costs of goods sold for the three and nine-months ended September 30, 2014 have been reclassified from their prior presentation. For revised prior period comparative information, please see Note 19 – “Related party transactions” in the notes to consolidated financial statements in our Form 10-K for the year ended December 31, 2014.

 

 
14

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

14)

INTAGIBLE ASSET

 

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 and $0, respectively, as of September 30, 2015 and 2014. The Company will test the intangible asset for impairment in accordance with codification ASC 350-30-35-18 through 35-20.

 

15)

RECENTLY ISSUED ACCOUNTING STATEMENTS

 

In July 2015, the Financial Accounting Standards Board (the “FASB”) issued new guidance that requires inventory not measured using either the last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. The new standard will be effective for periods on or after December 15, 2016 and will be applied prospectively. Early adoption is permitted. FutureFuel is currently evaluating the impact on its financial position, results of operations, and related disclosures.

   

In April 2015, the FASB issued new guidance for debt issuance costs as a part of the simplification and productivity initiative. Under this guidance, debt issuance costs will be presented as a direct reduction from the carrying amount of the debt liability, consistent with the presentation of debt discounts. The amortization of debt issuance costs will be reported as interest expense. The recognition and measurement guidance for debt issuance costs is not affected by the amendment. In August 2015, the FASB released clarifying guidance for debt issuance costs related to line-of-credit arrangements that may be deferred and for presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The new guidance is to be applied on a retrospective basis and reported as a change in an accounting principle. This guidance is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted for financial statements that have not been previously issued. FutureFuel has shown the payment of these debt issuance costs as an asset.

 

In May 2014, the FASB and International Accounting Standards Board jointly issued new principles-based accounting guidance for revenue recognition that will supersede virtually all existing revenue guidance. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To achieve the core principle, the guidance establishes the following five steps: 1) identify the contract(s) with a customer, 2) identify the performance obligation in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also details the accounting treatment for costs to obtain or fulfill a contract. Lastly, disclosure requirements have been enhanced to provide sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. However, in a July 2015 meeting, the FASB affirmed its proposal to defer the effective date by one year. The provisions of the ASU are to be applied retrospectively; early adoption prior to the original effective date is not permitted. FutureFuel is currently evaluating the impact on its financial position, results of operations, and related disclosures.

 

 
15

 

 

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

 

All dollar amounts expressed as numbers in this MD&A (except per share amounts) are in thousands .

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

September 30, 2015

   

Three months ended

September 30, 2014

   

Dollar Change

   

% Change

 

Revenues

  $ 107,054     $ 103,135     $ 3,919       3.8 %

Income from operations

  $ 5,933     $ 18,175     $ (12,242 )     (67.4 %)

Net income

  $ 4,850     $ 11,451     $ (6,601 )     (57.6 %)

Earnings per common share:

                               

Basic

  $ 0.11     $ 0.26     $ (0.15 )     (57.7 %)

Diluted

  $ 0.11     $ 0.26     $ (0.15 )     (57.7 %)

Capital expenditures and intangibles (net of customer reimbursements and regulatory grants)

  $ 996     $ 671     $ 325       48.4 %

Adjusted EBITDA

  $ 2,592     $ 15,902     $ (13,310 )     (83.7 %)

 

 

   

Nine months ended

September 30, 2015

   

Nine months ended

September 30, 2014

   

Dollar

Change

   

% Change

 

Revenues

  $ 265,739     $ 253,371     $ 12,368       4.9 %

Income from operations

  $ 19,887     $ 29,797     $ (9,910 )     (33.3 %)

Net income

  $ 16,774     $ 23,072     $ (6,298 )     (27.3 %)

Earnings per common share:

                               

Basic

  $ 0.38     $ 0.53     $ (0.15 )     (28.3 %)

Diluted

  $ 0.38     $ 0.53     $ (0.15 )     (28.3 %)

Capital expenditures and intangibles (net of customer reimbursements and regulatory grants)

  $ 5,967     $ 5,790     $ 177       3.1 %

Adjusted EBITDA

  $ 24,745     $ 32,719     $ (7,975 )     (24.4 %)

 

 
16

 

 

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 September 30:

   

Nine months ended September 30:

 
   

2015

   

2014

   

2015

   

2014

 

Adjusted EBITDA

  $ 2,592     $ 15,902     $ 24,745     $ 32,719  

Depreciation and amortization

    (2,640 )     (2,195 )     (7,548 )     (6,722 )

Non-cash stock-based compensation

    (477 )     (776 )     (1,431 )     (980 )

Interest and dividend income

    1,336       1,432       4,008       5,369  

Interest expense

    (42 )     (6 )     (91 )     (19 )

Losses on disposal of property and equipment

    (46 )     (11 )     (168 )     (15 )

Gains on derivative instruments

    6,456       5,239       4,119       4,945  

(Losses)/gains on marketable securities

    (269 )     -       1,202       2,900  

Income tax expense

    (2,060 )     (8,134 )     (8,062 )     (15,125 )

Net income

  $ 4,850     $ 11,451     $ 16,774     $ 23,072  

 

 
17

 

 

The following table reconciles adjusted EBITDA with cash flows from operations, the most directly comparable GAAP liquidity financial measure. 

 

   

Nine months ended September 30:

 
   

2015

   

2014

 

Adjusted EBITDA

  $ 24,745     $ 32,719  

Amortization of deferred financing costs

    (72 )     -  

(Provision)/benefit from deferred income taxes

    (6,569 )     2,132  

Impairment of fixed assets

    -       247  

Interest and dividend income

    4,008       5,369  

Income tax expense

    (8,062 )     (15,125 )

Gains on derivative instruments

    4,119       4,945  

Change in fair value of derivative instruments

    1,755       1,923  

Changes in operating assets and liabilities, net

    39,997       (5,724 )

Other

    1       -  

Net cash provided by operating activities

  $ 59,922     $ 26,486  

 

 
18

 

 

Results of Operations 

 

   

Three months ended September 30:

   

Nine months ended September 30:

 
                   

Change

                   

Change

 
   

2015

   

2014

   

$

   

%

   

2015

   

2014

   

$

   

%

 

Sales

  $ 107,054     $ 103,135     $ 3,919       3.8 %   $ 265,739     $ 253,371     $ 12,368       4.9 %

Volume/product mix effect

                    23,595       22.9 %                     62,884       24.8 %

Price effect

                    (19,676 )     (19.1 %)                     (50,516 )     (19.9 %)
                                                                 

Gross profit

  $ 8,675     $ 20,872     $ (12,197 )     (58.4 %)   $ 27,533     $ 37,052     $ (9,519 )     (25.7 %)

 

Consolidated sales revenue in the three and nine months ended September 30, 2015 increased $3,919 and $12,368, compared to the three and nine months ended September 30, 2014, respectively. This increase was primarily from increased sales volume in the biofuels segment offset by lower biofuels sales prices and lower chemicals segment sales. The reduction to the chemicals segment revenue was primarily attributed to the graphite powder contract termination payment of $8,816, which was recorded in revenue in the third quarter of 2014 and did not recur in 2015.

 

Gross profit in the three and nine months ended September 30, 2015 decreased to $8,675 and $27,533 compared to $20,872 and $37,052 for the three and nine months ended September 30, 2014, respectively. These decreases resulted from: i) the before mentioned contract termination payment of $8,816, which benefited the third quarter of 2014 and did not recur in 2015; ii) reduced chemicals sales volumes of the bleach activator laundry additive partially offset by improved margins in other custom chemicals; iii) reduced profitability on biodiesel as feedstock prices decreased at a slower rate than the selling price; and iv) reduced profitability on common carrier pipeline activity consistent with the global decline in the fuel market. Furthermore, our gross profit was impacted by adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. Please see footnote 2 to our consolidated financial statements for the three and nine months ended September 30, 2015 for a detailed discussion of the impact of these adjustments on gross profit.

   

Chemicals Segment

 

   

Three months ended September 30:

   

Nine months ended September 30:

 
                   

Change

                   

Change

 
   

2015

   

2014

   

$

   

%

   

2015

   

2014

   

$

   

%

 

Sales

  $ 31,607     $ 44,939     $ (13,332 )     (29.7% )   $ 98,501     $ 107,824     $ (9,323 )     (8.6% )

Volume/product mix effect

                    (13,035 )     (29.0% )                     (8,875 )     (8.2% )

Price effect

                    (297 )     (0.7% )                     (448 )     (0.4% )
                                                                 

Gross profit

  $ 7,294     $ 17,824     $ (10,530 )     (59.1% )   $ 28,159     $ 33,989     $ (5,830 )     (17.2% )

 

Sales revenue in the three months ended September 30, 2015 declined by $13,332 compared to the three months ended September 30, 2014. Sales revenue for our custom chemicals (unique chemicals produced for specific customers) for the three months ended September 30, 2015 totaled $26,665, a decline of $13,968 from the comparable period in 2014. This decline was primarily attributed to the graphite powder contract termination payment of $8,816, which was recorded in revenue in the third quarter of 2014 and did not recur in the third quarter of 2015. The decline in sales revenue was further due to continued reductions in the sales of the bleach activator laundry additive sold to Procter & Gamble ("P&G"). Our agreement with P&G for sales of the bleach activator laundry additive (entered into by our subsidiary, FutureFuel Chemical Company) was set to expire on December 31, 2015. On September 30, 2015, FutureFuel Chemical Company signed a contract amendment to extend the supply of the bleach activator laundry detergent additive through 2018. The amendment provides for sales of the product to P&G in reduced volumes with adjusted pricing during 2015-2018 to account for revised market conditions. We do not anticipate that sales of the bleach activator laundry detergent additive to P&G will account for 10% or more of our consolidated revenues going forward. Also, we acquired certain intellectual property rights related to the bleach activator product, which we anticipate will support sales of this product to other customers. To the extent such sales are realized, we anticipate reporting such sales as a component of our performance chemicals segment. Performance chemicals (comprised of multi-customer products which are sold based on specification) sales revenues were $4,942 in the three months ended September 30, 2015, an increase of $636 from the three months ended September 30, 2014. This increase was due to improved sales of glycerin products, which offset declines in sales of polymer modifier products.

 

Sales revenue in the nine months ended September 30, 2015 declined compared to the revenue in the nine months ended September 30, 2014 by $9,323. Sales revenue for our custom chemicals declined $9,585. This decline was primarily attributed to the graphite powder contract termination payment of $8,816, which was recorded in revenue in 2014 and did not recur in 2015. Additionally, sales revenue declines were experienced due to continued declines in our bleach activator laundry additive business. Increased sales revenue from herbicide intermediates, antimicrobial intermediates and fuel additive products helped offset these declines by $12,916. Performance chemicals sales revenues increased 2% to $13,880 for the nine months ended September 30, 2015 due to improved sales of glycerin products, which were offset by declines in sales of polymer modifier products.

 

 
19

 

 

Gross profit for the Chemicals segment for the three months ended September 30, 2015 decreased by $10,530 when compared to the three months ended September 30, 2014. This decrease was primarily from the above mentioned termination payment of $8,816, which was recorded in revenue in the third quarter of 2014 and did not recur in 2015. Furthermore, gross profit in the Chemicals segment for the three months ended September 30, 2015 was impacted by adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. Please see footnote 2 to our consolidated financial statements for the three months ended September 30, 2015 for a detailed discussion of the impact on gross profit.

 

Gross profit for the Chemicals segment for the nine months ended September 30, 2015 decreased by $5,830 when compared to the nine months ended September 30, 2014. This decrease was primarily from the above mentioned termination payment of $8,816, which was recorded in revenue in the third quarter of 2014 and did not recur in 2015, as well as declines in the bleach activator laundry detergent additive. This decrease was offset by net gross profit improvements in Custom chemicals due to growth in herbicide intermediate, antimicrobial intermediates and fuel additive products.

   

Biofuels Segment 

 

   

Three months ended September 30:

   

Nine months ended September 30:

 
                   

Change

                   

Change

 
   

2015

   

2014

   

$

   

%

   

2015

   

2014

   

$

   

%

 

Sales

  $ 75,447     $ 58,196     $ 17,251       29.6 %   $ 167,238     $ 145,547     $ 21,691       14.9 %

Volume/product mix effect

                    36,630       62.9 %                     71,759       49.3 %

Price effect

                    (19,379 )     (33.3 %)