FutureFuel Corp.
FutureFuel Corp. (Form: 10-Q, Received: 05/11/2015 17:48:26)

 

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, 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 May 11, 2015: 43,722,388

 

 

 
 

 

 

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

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

 

FutureFuel Corp.

Consolidated Balance Sheets

As of March 31, 2015 and December 31, 2014

(Dollars in thousands)

 

   

(Unaudited)

March 31, 2015

   

December 31, 2014

 

Assets

               

Cash and cash equivalents

  $ 160,444     $ 124,079  

Accounts receivable, inclusive of BTC of $0 and $28,954, net of allowances of $0 and $0 at March 31, 2015 and December 31, 2014, respectively

    16,426       50,135  

Accounts receivable – related parties

    69       1,173  

Inventory

    64,440       45,353  

Income tax receivable

    9,844       19,716  

Prepaid expenses

    1,320       1,670  

Prepaid expenses – related parties

    23       -  

Marketable securities

    82,381       87,720  

Other current assets

    1,959       1,619  

Total current assets

    336,906       331,465  

Property, plant and equipment, net

    127,565       127,371  

Other assets

    2,982       2,652  

Total noncurrent assets

    130,547       130,023  

Total Assets

  $ 467,453     $ 461,488  
                 

Liabilities and Stockholders’ Equity

               

Accounts payable

  $ 34,143     $ 30,386  

Accounts payable – related parties

    5       2,912  

Current deferred income tax liability

    4,744       11,003  

Deferred revenue – short-term

    4,756       1,940  

Contingent liability – short-term

    1,151       1,151  

Accrued expenses and other current liabilities

    7,349       4,649  

Accrued expenses and other current liabilities – related parties

    415       46  

Total current liabilities

    52,563       52,087  

Deferred revenue – long-term

    15,979       15,927  

Other noncurrent liabilities

    4,046       4,024  

Noncurrent deferred income tax liability

    30,494       30,441  

Total noncurrent liabilities

    50,519       50,392  

Total liabilities

    103,082       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, 43,722,388 issued and outstanding as of March 31, 2015 and December 31, 2014, respectively

    4       4  

Accumulated other comprehensive income

    3,658       4,259  

Additional paid in capital

    278,107       277,652  

Retained earnings

    82,602       77,094  

Total stockholders’ equity

    364,371       359,009  

Total Liabilities and Stockholders’ Equity

  $ 467,453     $ 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 March 31, 2015 and 2014

(Dollars in thousands, except per share amounts)

(Unaudited)

 

   

Three months ended

March 31:

 
   

2015

   

2014

As

reclassified

 

Revenues

  $ 49,815     $ 80,303  

Revenues – related parties

    4,272       1,894  

Cost of goods sold

    38,310       51,087  

Cost of goods sold – related parties

    1,744       20,513  

Distribution

    648       884  

Distribution – related parties

    71       111  

Gross profit

    13,314       9,602  

Selling, general, and administrative expenses

               

Compensation expense

    1,153       754  

Other expense

    609       631  

Related party expense

    60       64  

Research and development expenses

    715       702  
      2,537       2,151  

Income from operations

    10,777       7,451  

Interest and dividend income

    1,267       2,370  

Interest expense

    (6 )     (6 )

Gain (loss) on marketable securities

    1,020       (49 )

Other income (expense)

    (44 )     230  
      2,237       2,545  

Income before income taxes

    13,014       9,996  

Provision for income taxes

    4,883       3,722  

Net income

  $ 8,131     $ 6,274  
                 

Earnings per common share

               

Basic

  $ 0.19     $ 0.14  

Diluted

  $ 0.19     $ 0.14  

Weighted average shares outstanding

               

Basic

    43,372,388       43,343,502  

Diluted

    43,382,283       43,393,580  
                 

Comprehensive Income

               

Net income

  $ 8,131     $ 6,274  

Other comprehensive income (loss) from unrealized net losses on available-for-sale securities, net of tax of $(375) in 2015 and of $(477) in 2014

    (601 )     (764 )

Comprehensive income

  $ 7,530     $ 5,510  

 

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

 

 
2

 

 

FutureFuel Corp.

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2015 and 2014

(Dollars in thousands)

(Unaudited)

 

   

Three months ended

March 31:

 
   

2015

   

2014

 

Cash flows provided by operating activities

               

Net income

  $ 8,131     $ 6,274  

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

               

Depreciation

    2,301       2,360  

Benefit for deferred income taxes

    (5,831 )     (1,724 )

Change in fair value of derivative instruments

    4,653       404  

Other than temporary impairment of marketable securities

    186       -  

Loss (gain) on the sale of investments

    (1,207 )     49  

Stock based compensation

    477       -  

Losses on disposals of fixed assets

    44       5  

Noncash interest expense

    6       6  

Changes in operating assets and liabilities:

               

Accounts receivable

    33,709       11,247  

Accounts receivable – related parties

    1,104       504  

Inventory

    (19,087 )     (319 )

Income tax receivable

    9,872       5,240  

Prepaid expenses

    350       346  

Prepaid expenses – related party

    (23 )     187  

Accrued interest on marketable securities

    (56 )     -  

Other assets

    (330 )     (179 )

Accounts payable

    3,757       (2,532 )

Accounts payable – related parties

    (2,907 )     8,198  

Accrued expenses and other current liabilities

    2,700       (634 )

Accrued expenses and other current liabilities – related parties

    369       28  

Deferred revenue

    2,868       1,998  

Other noncurrent liabilities

    16       -  

Net cash provided by operating activities

    41,102       31,458  

Cash flows from investing activities

               

Collateralization of derivative instruments

    (4,937 )     (1,435 )

Purchase of marketable securities

    (13,324 )     (7,677 )

Proceeds from the sale of marketable securities

    18,708       388  

Capital expenditures

    (2,539 )     (2,682 )

Net cash used in investing activities

    (2,092 )     (11,406 )

Cash flows from financing activities

               

Minimum tax withholding on stock options exercised

    (22 )     (54 )

Excess tax benefits associated with stock options

    -       44  

Payment of dividends

    (2,623 )     (5,201 )

Net cash used in financing activities

    (2,645 )     (5,211 )

Net change in cash and cash equivalents

    36,365       14,841  

Cash and cash equivalents at beginning of period

    124,079       86,463  

Cash and cash equivalents at end of period

  $ 160,444     $ 101,304  
                 

Cash paid for interest

  $ -     $ -  

Cash paid for income taxes

  $ 827     $ 162  

 

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

 

 

 
3

 

 

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 chemical segment are derived from the custom manufacturing of specialty chemicals for specific customers.

 

Our biofuels business segment primarily produces and sells biodiesel. We also sell petrodiesel in blends with our biodiesel and, from time to time, with no biodiesel added. Finally, FutureFuel is a shipper of refined petroleum products on common carrier pipelines, and we buy and sell petroleum products to maintain our 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, 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.

 

 

 
4

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

   

2)      INVENTORY

 

The carrying values of inventory were as follows as of:

 

   

March 31,

201 5

   

December 31,

2014

 

At average cost (approximates current cost)

               

Finished goods

  $ 30,885     $ 25,369  

Work in process

    3,316       2,391  

Raw materials and supplies

    34,912       25,935  
      69,113       53,695  

LIFO reserve

    (4,673 )     (8,342 )

Total inventory

  $ 64,440     $ 45,353  

 

In determining the LIFO cost of its inventory, FutureFuel relies on certain pricing indices. In the three months ended March 31, 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 $3,669, the offset of which was recorded as a reduction to cost of goods sold of $1,190 in the Biofuels segment and a reduction of $2,479 in the Chemicals segment. Additionally, as a result of this LIFO adjustment, FutureFuel recorded a lower of cost or market adjustment of $704 in the three months ended March 31, 2015.  This lower of cost or market adjustment was recorded as a decrease in inventory values and an increase in cost of goods sold.  No such amounts were recognized in the three months ended March 31, 2014.

 

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 . While management believes these instruments are entered into in order to effectively manage various risks, 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, and amounted to a gain of $719 and a loss of $62 for the three months ended March 31, 2015 and 2014, respectively.

 

 

 
5

 

 

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)

 
   

March 31, 2015

   

December 31, 201 4

 
   

Quantity (contracts) Long/ (Short)

   

Fair

Value

   

Quantity (contracts) Long/ (Short)

   

Fair Value

 

Regulated options, included in other current assets

    (400 )   $ (832 )     (350 )   $ (794 )

Regulated fixed price future commitments, included in other current assets

    (159 )   $ (3,753 )     (225 )   $ 862  

 

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $6,401 and $1,464 at March 31, 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 March 31, 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 March 31, 2015 and December 31, 2014:

 

   

March 31, 2015

 
   

Adjusted Cost

   

Unrealized Gains

   

Unrealized Losses

   

Fair Value

 

Equity instruments

  $ 18,352     $ 2,290     $ (101 )   $ 20,541  

Preferred stock

    29,684       2,056       (8 )     31,732  

Trust preferred securities

    20,791       1,471       (1 )     22,261  

Exchange traded debt instruments

    7,619       273       (45 )     7,847  

Total

  $ 76,446     $ 6,090     $ (155 )   $ 82,381  

 

   

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  

 

 

 
6

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

The aggregate fair value of instruments with unrealized losses totaled $5,550 and $15,688 at March 31, 2015 and December 31, 2014, respectively. As of March 31, 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.

 

  5)     Accrued Expenses and Other Current Liabilities

   

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

 

   

March 31,

201 5

   

December 31,

2014

 

Accrued employee liabilities

  $ 4,225     $ 3,227  

Accrued property, use, and franchise taxes

    1,552       1,340  

Other

    1,987       128  

Total

  $ 7,764     $ 4,695  

 

6)      BORROWINGS

 

Effective June 30, 2013, FutureFuel Chemical extended the term of its $50 million credit agreement with a commercial bank. The loan was a revolving facility, the proceeds of which could be used for working capital, capital expenditures, and the general corporate purposes of FutureFuel Chemical. Advances would be pursuant to a borrowing base comprised of 85% of eligible accounts receivable, plus 60% of eligible direct inventory and 50% of eligible indirect inventory. The facility was secured by a perfected first priority security interest in accounts receivable and inventory. The interest rate floated at certain margins over the London Interbank Offered Rate (“LIBOR”) or base rate based upon the leverage ratio from time to time as set forth in the following table.

 

Leverage

Ratio

 

Base Rate

Margin

   

LIBOR

Margin

 
>  3  

 

    -0.55%       1.70%  
>  2 <

3

    -0.70%       1.50%  
>  1 <

2

    -1.00%       1.25%  
    <

1

    -1.00%       1.00%  

 

The facility contained an unused commitment fee of 0.25% per annum. On the last day of each fiscal quarter, the ratio of EBITDA to fixed charges was required to be not less than 3:1. FutureFuel guaranteed FutureFuel Chemical’s obligations under this credit agreement. There were no borrowings under this credit agreement at March 31, 2015 or December 31, 2014. This credit agreement was terminated on April 16, 2015.

 

On April 16, 2015, FutureFuel, with FutureFuel Chemical as borrowers, and certain of FutureFuel’s other subsidiaries, as guarantors, entered into a new $150,000,000 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 new credit facility consists of a five-year revolving credit facility in a dollar amount of up to $150,000,000, which includes a sublimit of $30,000,000 for letters of credit and $15,000,000 for swingline loans (collectively, the “Credit Facility”).

 

 

 
7

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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

 
    < 1.00

:1.0

    1.25%       0.25%  
1.00 :1.0 and < 1.50

:1.0

    1.50%       0.50%  
1.50 :1.0 and < 2.00

:1.0

    1.75%       0.75%  
2.00 :1.0 and < 2.50

:1.0

    2.00%       1.00%  
2.50    

:1.0

    2.25%       1.25%  

 

 

 

7)      Provision for Income Taxes

   

The following table summarizes the provision for income taxes.

 

   

Three months ended

March 31:

 
   

2015

   

2014

 

Provision for income taxes

  $ 4,883     $ 3,722  

Effective tax rate

    37.5 %     37.2 %

 

The effective tax rate for the three months ended March 31, 2015 and March 31, 2014 reflects 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.

 

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

 

FutureFuel records interest and penalties net as a component of income tax expense.  At March 31, 2015 and December 31, 2014, respectively, FutureFuel recorded $62 and $46 in accruals for interest and tax penalties.

 

FutureFuel and its subsidiaries file U.S. federal tax returns and various state returns. FutureFuel is subject to U.S., state, and local examinations by tax authorities from 2011 forward. The IRS has commenced an audit of FutureFuel’s 2010 through 2012 amended income tax returns. FutureFuel has provided requested information and believes that it will be successful in recovering the benefits previously recorded in its financial statements. In addition, the State of Arkansas initially has rejected the refunds claimed in FutureFuel’s 2010 through 2012 amended income tax returns. FutureFuel has entered into the administrative appeals process, which is ongoing as of the date of these financial statements.

 

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 March 31, 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 period ended March 31, 2015 as the vesting conditions had not been satisfied.

 

 

 
8

 

 

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

March 31:

 

Numerator:

 

201 5

   

201 4

 

Net income

  $ 8,131     $ 6,274  

Less: distributed earnings allocated to non-vested restricted stock

    (21 )     -  

Less: undistributed earnings allocated to non-vested restricted stock

    (44 )     -  

Numerator for basic earnings per share

  $ 8,066     $ 6,274  

Effect of dilutive securities:

               

Add: undistributed earnings allocated to non-vested restricted stock

    44       -  

Less: undistributed earnings reallocated to non-vested restricted stock

    (44 )     -  

Numerator for diluted earnings per share

  $ 8,066     $ 6,274  

Denominator:

               

Weighted average shares outstanding - basic

    43,372,388       43,343,502  

Effect of dilutive securities:

               

Stock options and other awards

    9,895       50,078  

Weighted average shares outstanding – diluted

    43,382,283       43,393,580  
                 

Basic earnings per share

  $ 0.19     $ 0.14  

Diluted earnings per share

  $ 0.19     $ 0.14  

 

Certain options to purchase FutureFuel’s common stock were not included in the computation of diluted earnings per share for the three months ended March 31, 2015 because they were anti-dilutive in the period. The weighted average number of options excluded on this basis was 100,000. No options to purchase shares of FutureFuel’s common stock were excluded from the computation of diluted earnings per share for the three months ended March 31, 2014.

 

9)      Segment Information

   

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

 

Chemicals

 

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

 

Biofuels

 

FutureFuel’s biofuels business segment primarily manufactures and markets biodiesel. Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at the Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks. 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.

 

 

 
9

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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 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

 

United

States

   

All Foreign

Countries

   

Total

 

March 31, 2015

  $ 53,577     $ 510     $ 54,087  

March 31, 2014

  $ 79,928     $ 2,269     $ 82,197  

 

For the three months ended March 31, 2015 and 2014, revenues from Mexico accounted for 0% and 2%, respectively, of total revenues. Other than Mexico, revenues from a single foreign country during the three months ended March 31, 2015 and 2014 did not exceed 1% of total revenues.

 

Summary of business by segment

 

   

Three months ended

March 31:

 
   

2015

   

2014

 

Revenues

               

Chemicals

  $ 34,206     $ 30,276  

Biofuels

    19,881       51,921  

Revenues

  $ 54,087     $ 82,197  
                 

Segment gross profit

               

Chemicals

  $ 10,853     $ 9,034  

Biofuels

    2,461       568  

Segment gross margins

    13,314       9,602  

Corporate expenses

    (2,537 )     (2,151 )

Income before interest and taxes

    10,777       7,451  

Interest and other income

    2,287       2,551  

Interest and other expense

    (50 )     (6 )

Provision for income taxes

    (4,883 )     (3,722 )

Net income

  $ 8,131     $ 6,274  

 

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

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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.

 

The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at March 31, 2015 and December 31, 2014.

 

   

Asset/(Liability)

 
   

Fair Value at March 31,

   

Fair Value Measurements Using

Inputs Considered as :

 

Description

 

2015

   

Level 1

   

Level 2

   

Level 3

 

Derivative instruments

  $ (4,585 )   $ (4,585 )   $ -     $ -  

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

  $ 82,381     $ 82,381     $ -     $ -  

 

   

Asset/(Liability)

 
   

Fair Value at December 31,

   

Fair Value Measurements Using

Inputs Considered as :

 

Description

 

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     $ -     $ -  

 

 

 
11

 

 

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 months ended March 31, 2015 and 2014.

 

Changes in Accumulated Other Comprehensive Income Unrealized

Gains and Losses on Available-for-Sale Securities For the 

Three Months Ended March 31, 2015

 

(net of tax)

 
   

2015

 

Balance at December 31, 2014

  $ 4,259  

Other comprehensive income before reclassifications

    28  

Amounts reclassified from accumulated other comprehensive income

    (629

Net current-period other comprehensive loss

    (601 )

Balance at March 31, 2015

  $ 3,658  

 

Changes in Accumulated Other Comprehensive Income Unrealized

Gains and Losses on Available-for-Sale Securities For the 

Three Months Ended March 31, 2014

 

(net of tax)

 
   

2014

 

Balance at December 31, 2013

  $ 7,436  

Other comprehensive loss before reclassifications

    (794 )

Amounts reclassified from accumulated other comprehensive income

    30  

Net current-period other comprehensive loss

    (764 )

Balance at March 31, 2014

  $ 6,672  

 

 
12

 

 

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 months ended March 31, 2015 and 2014:

 

Reclassifications from Accumulated Other Comprehensive Income

For the Three Months Ended March 31, 2015

   

Amount

Reclassified

 

Affected Line Item in

Statement of Operations

Unrealized gain on available-for-sale securities

  $ 1,020  

Gain on

marketable securities

Total before tax

    1,020    

Tax benefit

    (391  

Total reclassifications

  $ 629    

     

Reclassifications from Accumulated Other Comprehensive Income

For the Three Months Ended March 31, 2014

   

Amount

Reclassified

 

Affected Line Item in

Statement of Operations

Unrealized losses on available-for-sale securities

  $ (49 )

Loss on

marketable securities

Total before tax

    (49 )  

Tax benefit

    19    

Total Reclassification

  $ (30 )  

 

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 months ended March 31, 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.

 

 

 
13

 

 

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

 

14)    Recently Issued Accounting Statements

   

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. Early application is not permitted. The Company is currently evaluating the impact on the Company's financial position, results of operations and related disclosures.

 

 

 
14

 

 

 

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 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.

 

Results of Operations

 

In General

 

We break our chemicals business into two main product groups: custom manufacturing and performance chemicals. Custom manufacturing consists of products made for specific customers based upon specifications provided by such customers and includes products that are used in the agricultural chemical, coatings, chemical intermediates, industrial and consumer cleaning, oil and gas, and specialty polymers industries.

 

Historically, we have generally produced two significant custom products, or product families. One of these significant customer products is nonanoyloxybenzene-sulfonate (or “NOBS”), a bleach activator manufactured for The Procter & Gamble Company (“P&G”) for use in household laundry detergents. Revenues generated from the bleach activator are based on a supply agreement with P&G that expires December 31, 2016.

 

On March 19, 2015, we received notice from P&G exercising its right of early termination and advising us of its intent to terminate the NOBS contract effective December 31, 2015. P&G indicated that its decision to terminate resulted from its need for flexibility to address declining market trends in the dry laundry additives marketplace. P&G exercised its right to terminate the agreement with at least 270 days prior written notice pursuant to a contractual provision allowing for early termination in the event P&G’s expected annual purchases fell below a certain threshold. The agreement will remain in full force and effect during the notification period. We determined that no impairment of our fixed assets was necessary in the current period, however, we did reduce the estimated useful lives of the assets which resulted in an additional $32,000 of depreciation expense in the three months ended March 31, 2015.

 

Sales of the bleach activator represented 15% of our revenues for the three months ended March 31, 2015.  We believe that the loss of the bleach activator business has and will have a continuing adverse effect on our results from operations.

 

Pricing for the other custom manufacturing products is negotiated directly with the customer. Some, but not all, of these products have pricing mechanisms and/or protections against raw material or conversion cost changes.

 

Performance chemicals consist of specialty chemicals that are manufactured to general market-determined specifications and are sold to a broad customer base. The major product line in the performance chemicals group is SSIPA/LiSIPA, a polymer modifier that aids the properties of nylon. This group of products also includes other sulfonated monomers and hydrotropes, specialty solvents, polymer additives, and chemical intermediates, such as glycerin.

 

SSIPA/LiSIPA revenues are generated from a diverse customer base of nylon fiber manufacturers and other customers that produce condensation polymers. Contract sales are, in certain instances, indexed to key raw materials for inflation; otherwise, there is no pricing mechanism or specific protection against raw material or conversion cost changes.

 

Pricing for the other performance chemical products is established based upon competitive market conditions. Some, but not all, of these products have pricing mechanisms and/or specific protections against raw material or conversion cost changes.

 

 

 
15

 

 

For our biofuels segment, we procure all of our own feedstock and only sell biodiesel for our own account. In rare instances, we purchase biodiesel from other producers for resale. We have the capability to process multiple types of vegetable oils, animal fats, and separated food waste oils. We can receive feedstock by rail or truck, and we have substantial storage capacity to acquire feedstock at advantaged prices when market conditions permit. Annual capacity is in excess of 58 million gallons of biodiesel per year.

 

There currently is uncertainty as to whether we will produce biodiesel in the future. This uncertainty results from: (i) changes in feedstock prices relative to biodiesel prices; and (ii) the lack of permanency of government mandates and tax credits. See “Risk Factors” contained in our Form 10-K for the year ended December 31, 2014 filed with the SEC on March 13, 2015.  A copy can also be obtained at our website at http://ir.futurefuelcorporation.com/sec.cfm.

 

While biodiesel is the principal component of the biofuels segment, we also generate revenue from the sale of petrodiesel both in blends with our biodiesel and with no biodiesel added. Petrodiesel and biodiesel blends are available to customers at our leased storage facility in North Little Rock, Arkansas and at our Batesville plant. In addition, we deliver blended product to a small group of customers within our region. We also sell refined petroleum products on common carrier pipelines in part to maintain our status as a shipper on these pipelines.

 

The majority of our expenses are cost of goods sold. Cost of goods sold includes raw material costs as well as both fixed and variable conversion costs, conversion costs being those expenses that are directly or indirectly related to the operation of our plant. Significant conversion costs include labor, benefits, energy, supplies, depreciation, and maintenance and repair. In addition to raw material and conversion costs, cost of goods sold includes environmental reserves and costs related to idle capacity. Finally, cost of goods sold includes hedging gains and losses recognized by us related to our biofuels segment. Cost of goods sold is allocated to the chemicals and biofuels business segments based on equipment and resource usage for most conversion costs and based on revenues for most other costs.

 

Operating costs include selling, general and administrative, and research and development expenses.

 

The discussion of results of operations that follows is based on revenues and expenses in total and for individual product lines and does not differentiate related party transactions.

 

 

 
16

 

 

 

Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014

 

Set forth below is a summary of certain financial information for the periods indicated.

 

(Dollars in thousands other than per share amounts)

 

   

T hre e Months

Ended March

31, 2015

   

Three months

Ended March

31, 201 4

   

Dollar

Change

   

%

Change

 

Revenues

  $ 54,087     $ 82,197     $ (28,110 )     (34.2 %)

Income from operations

  $ 10,777     $ 7,451     $ 3,326       44.6 %

Net income

  $ 8,131     $ 6,274     $ 1,857       29.6 %

Earnings per common share:

                               

Basic

  $ 0.19     $ 0.14     $ 0.05       35.7 %

Diluted

  $ 0.19     $ 0.14     $ 0.05       35.7 %

Capital expenditures (net of customer reimbursements and regulatory grants)

  $ 2,320     $ 2,478     $ (158 )     (6.4 %)

Adjusted EBITDA

  $ 12,836     $ 10,108     $ 2,728       27.0 %

 

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 our liquidity, relative to a performance and liquidity based on GAAP results, while isolating the effects of depreciation and amortization, which may vary among our operating segments without any correlation to their underlying operating performance, and of 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, whose immediate recognition can cause net income to be volatile from period to period due to the timing of the valuation change in the derivative instruments relative to the sale of biofuel.

 

 

 
17

 

 

The following table reconciles adjusted EBITDA with net income, the most directly comparable GAAP performance financial measure.

 

(Dollars in thousands)

 

   

Three Months

Ended

March 31, 2015

   

Three Months

Ended

March 31, 2014

 

Adjusted EBITDA

  $ 12,836     $ 10,108  

Depreciation and amortization

    (2,301 )     (2,360 )

Non-cash stock-based compensation

    (477 )     -  

Interest and dividend income

    1,267       2,370  

Interest expense

    (6 )     (6 )

Loss on disposal of property and equipment

    (44 )     (5 )

Gains (losses) on derivative instruments

    719       (62 )

Other income (expenses), net

    1,020       (49 )

Income tax expense

    (4,883 )     (3,722 )

Net income

  $ 8,131     $ 6,274  

 

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

 

(Dollars in thousands)

 

   

Three Months

Ended

March 31, 2015

   

Three Months

Ended

March 31, 2014

 

Adjusted EBITDA

  $ 12,836     $ 10,108  

Benefit from deferred income taxes

    (5,831 )     (1,724 )

Interest and dividend income

    1,267       2,370  

Income tax expense

    (4,883 )     (3,722 )

Gains (losses) on derivative instruments

    719       (62 )

Change in fair value of derivative instruments

    4,653       404  

Changes in operating assets and liabilities, net

    32,342       24,084  
Other     1       -  

Net cash provided by operating activities

  $ 41,102     $ 31,458  

 

Revenues

 

Revenues for the three months ended March 31, 2015 were $54,087,000 as compared to revenues for the three months ended March 31, 2014 of $82,197,000, a decrease of 34%. Revenues from biofuels were $19,881,000, a decrease of $32,040,000 from the first quarter of 2014 and accounted for 37% of total revenues in the first quarter of 2015 as compared to 63% in the first quarter of 2014. Revenues from chemicals increased 13% and accounted for 63% of total revenues in the first quarter of 2015 as compared to 37% in the first quarter of 2014. Within the chemicals segment, revenues for the three months ended March 31, 2015 changed as follows compared to the three months ended March 31, 2014: (i) revenues from the proprietary herbicides and associated intermediates increased 125% relative to the revenues recognized in the prior period ; (ii) revenues from an industrial intermediate utilized in the antimicrobial industry and other custom chemicals increased 28%; (iii) revenues from the bleach activator decreased 27% and (iv) revenues from the performance chemicals product group increased 9%,

 

Revenue from the bleach activator is the most significant component of our chemicals segment’s revenue base, accounting for 15% of total revenues for the three months ended March 31, 2015 as compared to 13% of total revenues in March 31, 2014. The future volume of and revenues from the bleach activator will depend on consumer demand for the powder laundry detergents relative to liquid detergents and the availability of substitute products. Revenues for the bleach activator decreased on reduced volumes in the three months ended March 31, 2015 and our primary bleach activator customer advised us during the quarter that it would be terminating our supply contract at the end of this year. While the termination of our supply contract will adversely affect future revenue, discussions with our customer to extend our business relationship beyond that date are ongoing.

 

 
18

 

 

With respect to the proprietary herbicide and associated intermediates, sales volume increased 125% for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014. The results for the three months ended March 31, 2014 reflected the phasing out of the legacy proprietary herbicide customer along with a challenged start for new product production.

 

Revenues from the industrial intermediate utilized in the antimicrobial industry and other custom chemical products increased 28% in the first quarter of 2015 as compared to the first quarter of 2014. Increased sales volumes of three existing products accounted for 75% of the increase. Two of these products experienced increased demand. The third product’s increase in sales volume was attributed to the timing of delivery of the product.

 

Revenues from performance chemicals customers increased 9% for the first quarter of 2015 as compared to the first quarter of 2014 and accounted for approximately 8% of total revenues for the three months ended March 31, 2015. The increase was due in part to increased demand from various customers for two products.

 

Revenues from biofuels decreased $32,040,000 from the first quarter of 2014 to $19,881,000 in the first quarter of 2015. We experienced lower sales volume in the first quarter of 2015 as compared to the first quarter of 2014, primarily as a result of reduced overall demand from our major customers and reduced average selling prices in the weakened renewable energy market which tracked a global decline in fuel prices. The renewable fuel industry continues to suffer from the lack of the EPA’s final mandated volume for 2014 and 2015 and the lack of the $1.00 per gallon blenders’ tax credit (BTC). Revenues from biofuels benefitted in the first quarter of 2015 from the sales of refined petroleum products as a supplier on a common carrier pipeline. Such sales totaled $3,357,000 and $694,000 in the first three months of 2015 and 2014, respectively.

 

Cost of Goods Sold and Distribution

 

Total cost of goods sold and distribution for the first quarter of 2015 were $40,773,000 as compared to $72,595,000 for the first quarter of 2014, a decrease of 44%, which compares to a 34% decrease in revenues for the period.

 

Cost of goods sold and distribution for the three months ended March 31, 2015 for our chemicals segment totaled $23,353,000 as compared to $21,242,000 for the three months ended March 31, 2014. On a percentage basis, chemicals segment cost of goods sold and distribution increased approximately 10% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. This compares against a 13% increase in chemical segment revenue for the same comparison periods. This difference was largely a result of product mix, the benefit of the new proprietary herbicide plant which had startup problems in the first quarter of 2014, and the benefit from adjustments in our inventory carrying value as determined utilizing the LIFO method of inventory accounting. Regarding LIFO, significant deflation from the pricing indices we used resulted in a reduction to cost of goods sold of $2,479,000. No such reduction was recognized in the three months ended March 31, 2014. This LIFO benefit was minimized by higher uncapitalized operating costs stemming from reduced bleach activator and biodiesel plant production rates in the first quarter of 2015.

 

Cost of goods sold and distribution for the first quarter of 2015 in our biofuels segment were $17,420,000 as compared to $51,353,000 for the first quarter of 2014. On a percentage basis, cost of goods sold and distribution decreased 66% versus a 62% decrease in revenues.  Benefitting cost of goods sold were adjustments in our inventory carrying value as determined utilizing the LIFO method of inventory accounting. Regarding LIFO, significant deflation from the pricing indices we used resulted in a reduction to cost of goods sold of $1,190,000. Additionally, as a result of this LIFO adjustment, we recorded a lower of cost or market adjustment of $704,000 as an increase to cost of goods sold. No such net reduction was recognized in the three months ended March 31, 2014. This LIFO benefit was minimized by higher uncapitalized operating costs stemming from reduced biodiesel plant production rates in the first quarter of 2015.

 

Operating Expenses

 

Operating expenses increased 18% to $2,537,000 in the first quarter of 2015 from $2,151,000 in the first quarter of 2014. This increase was attributable to stock based compensation during the current quarter, while no such expense existed in the first quarter of 2014.

 

Provision for Income Taxes 

 

The effective tax rate for the three months ended March 31, 2015 and March 31, 2014 reflects 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.

 

 

 
19

 

 

Critical Accounting Estimates

 

Revenue Recognition

 

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

 

Revenue from bill and hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and title to the product has transferred. Bill and hold transactions for the 3 months ended March 31, 2015 and 2014 related to specialty chemical customers whereby revenue was recognized in accordance with contractual agreements based upon product being produced and ready for use. These sales were subject to written monthly purchase orders with agreement that production was reasonable. The inventory was custom manufactured and stored at the customer’s request and could not be sold to another buyer. Credit and payment terms for bill and hold customers are similar to other specialty chemical customers. Sales revenue under bill and hold arrangements were $7,625,000 and $8,904,000 for the three months ended March 31, 2015 and 2014, respectively.

 

Liquidity and Capital Resources

 

Our net cash provided by (used in) operating activities, investing activities, and financing activities for the three months ended March 31, 2015 and 2014 are set forth in the following chart.

 

   

March 31, 201 5

   

March 31, 2014

 

Net cash provided by operating activities

  $ 41,102     $ 31,458  

Net cash used by investing activities

  $ (2,092 )   $ (11,406 )

Net cash used by financing activities

  $ (2,645 )   $ (5,211 )

 

Operating Activities

 

Cash from operating activities increased from $31,458,000 of cash provided by operating activities in the first three months of 2014 to $41,102,000 of cash provided by operating activities in the first three months of 2015. This increase was primarily attributable to a large decrease in our accounts receivable, including accounts receivable from related parties. In the first three months of 2015, the change in accounts receivable, including accounts receivable from related parties, increased cash provided by operating activities by $34,813,000. In the first three months of 2014, the change in accounts receivable, including accounts receivable from related parties, increased cash from operating activities to $11,751,000. The decrease in accounts receivable balances in 2015 was primarily related to the cash received for the BTC that was retroactively reinstated in December 2014 to January 1, 2014. The decrease in accounts receivable balances in 2014 was primarily related to the timing and amount of sales made on a common carrier pipeline. Partially offsetting this increase to cash from operating activities was an increase in inventory balances for the first three months of 2015 as compared to the increase in inventory balances for the first three months of 2014. In the first three months of 2015, inventory purchases decreased cash from operating activities by $19,087,000. In the first three months of 2014, changes in inventory carrying values decreased cash from operating activities by $319,000. The reduced increase in the inventory carrying value in the first three months of 2014 is primarily due to decreased purchases of biodiesel feedstock and from the timing and amount of purchases made on a common carrier pipeline.

 

 
20

 

 

Investing Activities

 

Cash used in investing activities decreased from $11,406,000 in the first three months of 2014 to $2,092,000 in the first three months of 2015. This decrease was primarily the result of net sales of marketable securities in the first three months of 2015 compared to net purchases of marketable securities in the first three months of 2014. Such net purchases totaled $7,289,000 in the first three months of 2014 and such net sales totaled $5,384,000 in the first three months of 2015. Our capital expenditures and customer reimbursements for capital expenditures are summarized in the following table

 

(Dollars in thousands)

 

   

Three Months

Ended

March 31, 2015

   

Three Months

Ended

March 31, 2014

 

Cash paid for capital expenditures

  $ 2,539     $ 2,682  

Cash received as reimbursement of capital expenditures

    (219 )     (204 )

Cash paid, net of reimbursement, for capital expenditures

  $ 2,320     $ 2,478  

 

Financing Activities

 

Cash used in financing activities decreased from $5,211,000 for the first three months of 2014 to $2,645,000 of cash used by financing activities in the first three months of 2015. This change is primarily the result of a decrease in cash used for dividend payments. In the first three months of 2014, dividends paid totaled $5,201,000. In the first three months of 2015, dividends paid totaled $2,623,000.

 

Credit Facility  

 

Effective April 16, 2015, we entered into a new $150 million secured committed credit facility with a syndicated group of commercial banks. The loan is a revolving facility the proceeds of which may be used for our working capital, capital expenditures, and general corporate purposes. The facility terminates on April 16, 2020 and replaces a $50 million asset-based line of credit with a commercial bank that was terminated upon commencement of the new line. See Note 6 – “Borrowing” in the Notes to our condensed consolidated financial statements for additional information regarding our Credit Agreement.

 

We intend to fund future capital requirements for our businesses from cash flow as well as from existing cash, cash investments, and, if the need should arise, borrowings under our credit facility. We do not believe there will be a need to issue any securities to fund such capital requirements.

 

Dividends

 

In the first quarter of 2015, we paid a regular cash dividend in the amount of $0.06 per share on our common stock. The regular cash dividend amounted to $2,623,000.

 

In the first quarter of 2014, we paid a regular cash dividend in the amount of $0.12 per share on our common stock. The regular cash dividend amounted to $5,201,000.

 

Capital Management

 

As a result of our initial equity offering, our subsequent positive operating results, the exercise of warrants, and the issuance of shares in our at-the-market offering, we accumulated excess working capital. Some of this excess working capital has been paid out as special and regular cash dividends. Additional, regular cash dividends will be paid in 2015, as previously reported. Third parties have not placed significant restrictions on our working capital management decisions.

 

A significant portion of these funds were held in cash or cash equivalents at multiple financial institutions. In the periods ended March 31, 2015 and December 31, 2014, we also had investments in certain preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments. We classify these investments as current assets in the accompanying consolidated balance sheets and designate them as being “available-for-sale.” Accordingly, they are recorded at fair value, with the unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity. The fair value of these preferred stock, trust preferred securities, exchange traded debt instruments, and other equity instruments totaled $82,381,000 and $87,720,000 at March 31, 2015 and December 31, 2014, respectively.

 

Lastly, we maintain depositary accounts such as checking accounts, money market accounts, and other similar accounts at selected financial institutions.

 

 

 
21

 

 

Off-Balance Sheet Arrangements

 

We engage in two types of hedging transactions. First, we hedge our biofuels sales through the purchase and sale of futures contracts and options on futures contracts of energy commodities. This activity was captured on our balance sheet at March 31, 2015 and December 31, 2014. Second, we hedge our biofuels feedstock through the execution of purchase contracts and supply agreements with certain vendors. These hedging transactions are recognized in earnings and were not recorded on our balance sheet at March 31, 2015 or December 31, 2014 as they do not meet the definition of a derivative instrument as defined under accounting principles generally accepted in the U.S. The purchase of biofuels feedstock generally involves two risk components: basis and price. Basis covers any refining or processing required as well as transportation. Price covers the purchases of the actual agricultural commodity. Both basis and price fluctuate over time. A supply agreement with a vendor constitutes a hedge when we have committed to a certain volume of feedstock in a future period and have fixed the basis for that volume.

 

 

 
22

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

In recent years, general economic inflation has not had a material adverse impact on our costs and, as described elsewhere herein, we have passed some price increases along to our customers. However, we are subject to certain market risks as described below.

 

Market risk represents the potential loss arising from adverse changes in market rates and prices. Commodity price risk is inherent in the chemical and biofuels business both with respect to input (electricity, coal, raw materials, biofuels feedstock, etc.) and output (manufactured chemicals and biofuels).

 

We seek to mitigate our market risks associated with the manufacturing and sale of chemicals by entering into term sale contracts that include contractual market price adjustment protections to allow changes in market prices of key raw materials to be passed on to the customer. Such price protections are not always obtained, however, and some raw material price risk remains significant.

 

In order to manage price risk caused by market fluctuations in biofuels prices, we may enter into exchange traded commodity futures and options contracts. We account for these derivative instruments in accordance with ASC 815-20-25, Derivatives and Hedging, Hedging-General, Recognition . 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. We had no derivative instruments that qualified under these rules as designated accounting hedges in the first three months of 2015 or 2014. Changes in the fair value of our derivative instruments are recognized at the end of each accounting period and recorded in the statement of operations as a component of cost of goods sold.

 

Our immediate recognition of derivative instrument gains and losses can cause net income to be volatile from period to period due to the timing of the change in value of the derivative instruments relative to the volume of biofuel being sold. As of March 31, 2015 and December 31, 2014, the fair values of our derivative instruments were a net liability in the amount of $4,585,000 and a net asset of $68,000, respectively.

 

Our gross profit will be impacted by the prices we pay for raw materials and conversion costs (costs incurred in the production of chemicals and biofuels) for which we do not possess contractual market price adjustment protection. These items are principally comprised of crude corn oil and yellow grease and petrodiesel. The availability and price of these items are subject to wide fluctuations due to unpredictable factors such as weather conditions, overall economic conditions, governmental policies, commodity markets, and global supply and demand.

 

We prepared a sensitivity analysis of our exposure to market risk with respect to key raw materials and conversion costs for which we do not possess contractual market price adjustment protections, based on average prices for the first three months of 2015. We included only those raw materials and conversion costs for which a hypothetical adverse change in price would result in a 1% or greater decrease in gross profit. Assuming that the prices of the associated finished goods could not be increased and assuming no change in quantities sold, a hypothetical 10% change in the average price of the commodity listed below would result in the following change in gross profit.

 

 

 
23

 

 

(Volume and dollars in thousands)

 

Item

 

Volume (a) Requirements

 

Units

 

Hypothetical Adverse Change

in Price

   

Decrease

in Gross

Profit

   

Percentage Decrease in

Gross Profit

 

Crude corn oil and yellow grease

    46,941  

LB

    10%     $ 1,338       10.0%  

Petrofuels

    4,698  

GAL

    10%     $ 831         6.2%  

Methanol

    18,455  

LB

    10%     $ 384         2.9%  

Natural Gas

    388  

MCF

    10%     $ 135          1.0%  

 

(a)

Volume requirements and average price information are based upon volumes used and prices obtained for the three months ended March 31, 2015. Volume requirements may differ materially from these quantities in future years as our business evolves.

 

We had no borrowings as of March 31, 2015 or December 31, 2014 and, as such, we were not exposed to interest rate risk for those periods. Due to the relative insignificance of transactions denominated in foreign currency, we consider our foreign currency risk to be immaterial.

 

 

 
24

 

 

Item 4. Controls and Procedures.

 

Under the supervision and with the participation of our chief executive officer and our principal financial officer and other senior management personnel, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e)) under the Securities Exchange Act of 1934, as amended (or the Exchange Act), as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and our principal financial officer have concluded that these disclosure controls and procedures as of March 31, 2015 were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

 

There were no changes in our internal control over financial reporting during our last fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

 

 

 
25

 

 

PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not a party to, nor is any of our property subject to, any material pending legal proceedings, other than ordinary routine litigation incidental to our business. However, from time to time, we may be a party to, or a target of, lawsuits, claims, investigations, and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which we expect to be handled and defended in the ordinary course of business. While we are unable to predict the outcome of any matters currently pending, we do not believe that the ultimate resolution of any such pending matters will have a material adverse effect on our overall financial condition, results of operations, or cash flows. However, adverse developments could negatively impact earnings or cash flows in future periods.

 

Item 1A. Risk Factors.

 

There have been no material changes to the risk factors we previously disclosed in Item 1A of our Form 10-K, Annual Report for the year ended December 31, 2014 filed with the SEC on March 13, 2015.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults U pon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

On April 16, 2015, FutureFuel, with FutureFuel Chemical as borrowers, and certain of FutureFuel’s other subsidiaries, as guarantors, entered into a new $150,000,000 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 new credit facility consists of a five-year revolving credit facility in a dollar amount of up to $150,000,000, which includes a sublimit of $30,000,000 for letters of credit and $15,000,000 for swingline loans (collectively, the “Credit Facility”).

 

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

 

Consolidated

Leverage Ratio

 

Adjusted LIBOR Rate Loans and Letter of Credit Fee

   

Base Rate

Loans

 

< 1.00:1.0

    1.25%       0.25%  

≥ 1.00:1.0 and < 1.50:1.0

    1.50%       0.50%  

≥ 1.50:1.0 and < 2.00:1.0

    1.75%       0.75%  

≥ 2.00:1.0 and < 2.50:1.0

    2.00%       1.00%  

≥ 2.50:1.0

    2.25%       1.25%  

 

 

 
26

 

 

Item 6. Exhibits.

 

Exhibit

Description

10.20

Credit Agreement

10.21

Pledge and Security Agreement

11.

Statement re Computation of per Share Earnings

31(a).

Rule 13a-15(e)/15d-15(e) Certification of chief executive officer

31(b).

Rule 13a-15(e)/15d-15(e) Certification of chief principal officer

32.

Section 1350 Certification of chief executive officer and principal financial officer

101

Interactive Data Files**

101.INS

XBRL Instance

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation

101.DEF

XBRL Taxonomy Extension Definition

101.LAB

XBRL Taxonomy Extension Labels

101.PRE

XBRL Taxonomy Extension Presentation

**

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

 
27

 

 

Special Note Regarding Forward Looking Information

 

This report, and the documents incorporated by reference into this report, contain forward-looking statements. Forward-looking statements deal with our current plans, intentions, beliefs, and expectations, and statements of future economic performance. Statements containing such terms as “believe,” “do not believe,” “plan,” “expect,” “intend,” “estimate,” “anticipate,” and other phrases of similar meaning are considered to contain uncertainty and are forward-looking statements. In addition, from time to time we or our representatives have made or will make forward-looking statements orally or in writing. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC, or in press releases, or in oral statements made by or with the approval of one of our authorized executive officers.

 

These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, those set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in FutureFuel's Form 10-K Annual Report for the year ended December 31, 2014 and in our future filings made with the SEC. You should not place undue reliance on any forward-looking statements contained in this report which reflect our management’s opinions only as of their respective dates. Except as required by law, we undertake no obligation to revise or publicly release the results of any revisions to forward-looking statements. The risks and uncertainties described in this report and in subsequent filings with the SEC are not the only ones we face. New factors emerge from time to time, and it is not possible for us to predict which will arise. There may be additional risks not presently known to us or that we currently believe are immaterial to our business. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. If any such risks occur, our business, operating results, liquidity, and financial condition could be materially affected in an adverse manner. You should consult any additional disclosures we have made or will make in our reports to the SEC on Forms 10-K, 10-Q, and 8-K, and any amendments thereto. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this report.

 

 

 
28

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

FUTUREFUEL CORP.

 

By:

/s/ Paul A. Novelly    

 

     

Paul A. Novelly, Chairman and Chief

 

Executive Officer  
   

Date:  May 11, 2015

 

 

 

 

By:

/s/ Rose M. Sparks    

 

     

Rose M. Sparks, Chief Financial Officer

 

and Principal Financial Officer  
   

Date:  May 11, 2015

 

 

 

30

Exhibit 10.20

 

 



 

 

 

CREDIT AGREEMENT

 

dated as of April 16, 2015

 

among

 

FUTUREFUEL CORP.
and
FUTUREFUEL CHEMICAL COMPANY,
as Borrowers,

 

CERTAIN Subsidiaries OF THE BORROWERS
PARTY HERETO FROM TIME TO TIME,
as Guarantors

 

THE LENDERS PARTY HERETO,

 

REGIONS BANK,
as Administrative Agent and Collateral Agent

 

PNC BANK, NATIONAL ASSOCIATION,
as Syndication Agent

 

 

 

 

 

 

 

 

 

 

 

REGIONS CAPITAL MARKETS,
a division of Regions Bank ,
as Sole Lead Arranger and Sole Bookrunner

 



 

 
 

 

   

TABLE OF CONTENTS

 

Page

 

Section 1.

DEFINITIONS AND INTERPRETATION

1

         
 

Section 1.1

Definitions.

1

 

Section 1.2

Accounting Terms.

29

 

Section 1.3

Rules of Interpretation.

29

       

Section 2.

LOANS AND LETTERS OF CREDIT

31

         
 

Section 2.1

Revolving Loans.

31

 

Section 2.2

Swingline Loans.

33

 

Section 2.3

Issuances of Letters of Credit and Purchase of Participations Therein.

36

 

Section 2.4

Pro Rata Shares; Availability of Funds.

39

 

Section 2.5

Evidence of Debt; Register; Lenders’ Books and Records; Notes.

41

 

Section 2.6

Scheduled Principal Payments.

41

 

Section 2.7

Interest on Loans.

41

 

Section 2.8

Conversion/Continuation.

43

 

Section 2.9

Default Rate of Interest.

44

 

Section 2.10

Fees.

44

 

Section 2.11

Prepayments/Commitment Reductions.

46

 

Section 2.12

Application of Prepayments.

47

 

Section 2.13

General Provisions Regarding Payments.

48

 

Section 2.14

Sharing of Payments by Lenders.

49

 

Section 2.15

Cash Collateral.

49

 

Section 2.16

Defaulting Lenders.

50

 

Section 2.17

Removal or Replacement of Lenders.

53

 

Section 2.18

Additional Borrowers.

54

 

Section 2.19

Appointment of Borrower Agent.

54

 

Section 2.20

Joint and Several Liability.

55

       

Section 3.

YIELD PROTECTION

56

         
 

Section 3.1

Making or Maintaining LIBOR Loans.

56

 

Section 3.2

Increased Costs.

58

 

Section 3.3

Taxes.

59

 

Section 3.4

Mitigation Obligations; Designation of a Different Lending Office.

63

       

Section 4.

Guaranty

63

         
 

Section 4.1

The Guaranty.

63

 

Section 4.2

Obligations Unconditional.

64

 

Section 4.3

Reinstatement.

65

 

Section 4.4

Certain Additional Waivers.

65

 

Section 4.5

Remedies.

65

 

Section 4.6

Rights of Contribution.

65

 

Section 4.7

Guarantee of Payment; Continuing Guarantee.

65

 

Section 4.8

Keepwell.

66

       

Section 5.

CONDITIONS PRECEDENT

66

         
 

Section 5.1

Conditions Precedent to Initial Credit Extensions.

66

 

Section 5.2

Conditions to Each Credit Extension.

68

 

 

 

 

 

Section 6.

REPRESENTATIONS AND WARRANTIES

69

         
 

Section 6.1

Organization; Requisite Power and Authority; Qualification.

69

 

Section 6.2

Equity Interests and Ownership.

69

 

Section 6.3

Due Authorization.

69

 

Section 6.4

No Conflict.

69

 

Section 6.5

Governmental Consents.

69

 

Section 6.6

Binding Obligation.

69

 

Section 6.7

Financial Statements.

70

 

Section 6.8

No Material Adverse Effect; No Default.

70

 

Section 6.9

Tax Matters.

70

 

Section 6.10

Properties.

71

 

Section 6.11

Environmental Matters.

71

 

Section 6.12

No Defaults.

71

 

Section 6.13

No Litigation or other Adverse Proceedings.

72

 

Section 6.14

Information Regarding each Borrower and its Subsidiaries.

72

 

Section 6.15

Governmental Regulation.

72

 

Section 6.16

Employee Matters.

73

 

Section 6.17

Pension Plans.

73

 

Section 6.18

Solvency.

74

 

Section 6.19

Compliance with Laws.

74

 

Section 6.20

Disclosure.

74

 

Section 6.21

Insurance.

74

 

Section 6.22

Pledge and Security Agreement.

74

       

Section 7.

AFFIRMATIVE COVENANTS

75

         
 

Section 7.1

Financial Statements and Other Reports.

75

 

Section 7.2

Existence.

77

 

Section 7.3

Payment of Taxes and Claims.

77

 

Section 7.4

Maintenance of Properties.

77

 

Section 7.5

Insurance.

78

 

Section 7.6

Inspections.

78

 

Section 7.7

Lenders Meetings.

78

 

Section 7.8

Compliance with Laws and Material Contracts.

78

 

Section 7.9

Use of Proceeds.

78

 

Section 7.10

Environmental Matters.

79

 

Section 7.11

Pledge of Personal Property Assets.

79

 

Section 7.12

Books and Records.

80

 

Section 7.13

Additional Subsidiaries.

80

 

Section 7.14

Post-Closing Covenant.

80

       

Section 8.

NEGATIVE COVENANTS

81

         
 

Section 8.1

Indebtedness.

81

 

Section 8.2

Liens.

81

 

Section 8.3

No Further Negative Pledges.

83

 

Section 8.4

Restricted Payments.

83

 

Section 8.5

Burdensome Agreements.

84

 

Section 8.6

Investments.

84

 

Section 8.7

Use of Proceeds.

85

 

Section 8.8

Financial Covenants.

85

 

Section 8.9

Fundamental Changes; Disposition of Assets; Acquisitions.

85

 

 

 
 ii

 

 

 

Section 8.10

Disposal of Subsidiary Interests.

86

 

Section 8.11

Sales and Lease-Backs.

86

 

Section 8.12

Transactions with Affiliates and Insiders.

86

 

Section 8.13

Prepayment of Other Funded Debt.

86

 

Section 8.14

Conduct of Business.

87

 

Section 8.15

Fiscal Year.

87

 

Section 8.16

Amendments to Organizational Agreements/Material Agreements.

87

 

Section 8.17

Consolidated Capital Expenditures.

87

 

Section 8.18

Master Custody Account

87

       

Section 9.

EVENTS OF DEFAULT; Remedies; Application of Funds.

87

         
 

Section 9.1

Events of Default.

87

 

Section 9.2

Remedies.

89

 

Section 9.3

Application of Funds.

90

       

Section 10.

AGENCY

91

         
 

Section 10.1

Appointment and Authority.

91

 

Section 10.2

Rights as a Lender.

92

 

Section 10.3

Exculpatory Provisions.

92

 

Section 10.4

Reliance by Administrative Agent.

93

 

Section 10.5

Delegation of Duties.

93

 

Section 10.6

Resignation of Administrative Agent.

93

 

Section 10.7

Non-Reliance on Administrative Agent and Other Lenders.

94

 

Section 10.8

No Other Duties, etc.

95

 

Section 10.9

Administrative Agent May File Proofs of Claim.

95

 

Section 10.10

Collateral Matters.

95

       

Section 11.

MISCELLANEOUS

97

         
 

Section 11.1

Notices; Effectiveness; Electronic Communications.

97

 

Section 11.2

Expenses; Indemnity; Damage Waiver.

98

 

Section 11.3

Set-Off.

100

 

Section 11.4

Amendments and Waivers.

101

 

Section 11.5

Successors and Assigns.

102

 

Section 11.6

Independence of Covenants.

106

 

Section 11.7

Survival of Representations, Warranties and Agreements.

106

 

Section 11.8

No Waiver; Remedies Cumulative.

106

 

Section 11.9

Marshalling; Payments Set Aside.

106

 

Section 11.10

Severability.

107

 

Section 11.11

Obligations Several; Independent Nature of Lenders’ Rights.

107

 

Section 11.12

Headings.

107

 

Section 11.13

Applicable Laws.

107

 

Section 11.14

WAIVER OF JURY TRIAL.

108

 

Section 11.15

Confidentiality.

108

 

Section 11.16

Usury Savings Clause.

109

 

Section 11.17

Counterparts; Integration; Effectiveness.

109

 

Section 11.18

No Advisory of Fiduciary Relationship.

110

 

Section 11.19

Electronic Execution of Assignments and Other Documents.

110

 

Section 11.20

USA PATRIOT Act.

110

 

 

 
 iii

 

 

Appendices

 

Appendix A

Lenders, Commitments and Commitment Percentages

Appendix B

Notice Information

   

Schedules

 

Schedule 6.1

Organization; Requisite Power and Authority; Qualification

Schedule 6.2

Equity Interests and Ownership

Schedule 6.10(b)

Real Estate Assets

Schedule 6.14

Name, Jurisdiction and Tax Identification Numbers of Borrowers and their Subsidiaries

Schedule 6.21

Insurance Coverage

Schedule 8.1

Existing Indebtedness

Schedule 8.2

Existing Liens

Schedule 8.6

Existing Investments

   

Exhibits

 

Exhibit 1.1

Form of Secured Party Designation Notice

Exhibit 2.1

Form of Funding Notice

Exhibit 2.3

Form of Issuance Notice

Exhibit 2.5-1

Form of Revolving Loan Note

Exhibit 2.5-2

Form of Swingline Note

Exhibit 2.8

Form of Conversion/Continuation Notice

Exhibit 2.18-1

Form of Borrower Request and Assumption Agreement

Exhibit 2.18-2

Form of New Borrower Notice

Exhibit 3.3

Forms of U.S. Tax Compliance Certificates (Forms 1 – 4)

Exhibit 7.1(c)

Form of Compliance Certificate

Exhibit 7.13

Form of Guarantor Joinder Agreement

Exhibit 11.5

Form of Assignment Agreement

 

   

 
 iv

 

 

CREDIT AGREEMENT

 

This CREDIT AGREEMENT, dated as of April 16, 2015 (as amended, restated, supplemented, increased, extended, supplemented or otherwise modified from time to time, this “ Agreement ”), is entered into by and among FUTUREFUEL CORP., a Delaware corporation (the “ Parent ”), and FUTUREFUEL CHEMICAL COMPANY, a Delaware corporation (the “ Company ”, and together with the Parent and any Additional Borrowers (defined herein), the “ Borrowers ” and each a “ Borrower ”), certain Subsidiaries of the Borrowers from time to time party hereto, as Guarantors, the Lenders from time to time party hereto, and REGIONS BANK, as administrative agent (in such capacity, “ Administrative Agent ”) and collateral agent (in such capacity, “ Collateral Agent ”).

 

RECITALS:

 

WHEREAS, the Borrowers have requested that the Lenders provide revolving credit facilities for the purposes set forth herein; and

 

WHEREAS, the Lenders have agreed to make the requested facilities available on the terms and conditions set forth herein;

 

NOW, THEREFORE, in consideration of these premises and the mutual covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows:

 

Section 1.      DEFINITIONS AND INTERPRETATION

 

Section 1.1      Definitions . The following terms used herein, including in the introductory paragraph, recitals, exhibits and schedules hereto, shall have the following meanings:

 

Acquisition ” means, with respect to any Person, the acquisition by such Person, in a single transaction or in a series of related transactions, of (a) all or any substantial portion of the property of another Person, or any division, line of business or other business unit of another Person or (b) at least a majority of the Voting Stock of another Person, in each case whether or not involving a merger or consolidation with such other Person and whether for cash, property, services, assumption of Indebtedness, securities or otherwise.

 

Additional Borrower ” means as defined in Section 2.18.

 

Adjusted LIBOR Rate ” means, for any Interest Rate Determination Date with respect to an Interest Period for an Adjusted LIBOR Rate Loan, the rate per annum obtained by dividing (a) (i) the rate per annum (rounded upward to the next whole multiple of one sixteenth of one percent (1/16 of 1%)) equal to the LIBOR or a comparable or successor rate, which rate is approved by the Administrative Agent, as published on the applicable Reuters screen page (or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time) for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (ii) in the event the rate referenced in the preceding clause (i) does not appear on such page or service or if such page or service shall cease to be available, the rate per annum (rounded upward to the next whole multiple of one sixteenth of one percent (1/16 of 1%)) equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service which displays an average settlement rate for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (iii) in the event the rates referenced in the preceding clauses (i) and (ii) are not available, the rate per annum (rounded upward to the next whole multiple of one sixteenth of one percent (1/16 of 1%)) equal to quotation rate (or the arithmetic mean of rates) offered to first class banks in the London interbank market for deposits (for delivery on the first day of the relevant period) in Dollars of amounts in same day funds comparable to the principal amount of the applicable Loan of Regions Bank or any other Lender selected by the Administrative Agent, for which the Adjusted LIBOR Rate is then being determined with maturities comparable to such period as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, by (b) an amount equal to (i) one, minus (ii) the Applicable Reserve Requirement. Notwithstanding anything contained herein to the contrary, the Adjusted LIBOR Rate shall not be less than zero.

 

 

 
1

 

 

Adjusted LIBOR Rate Loan ” means Loans bearing interest based on the Adjusted LIBOR Rate.

 

Administrative Agent ” means as defined in the introductory paragraph hereto, together with its successors and assigns.

 

Administrative Questionnaire ” means an administrative questionnaire provided by the Lenders in a form supplied by the Administrative Agent.

 

Adverse Proceeding ” means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of any Credit Party or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority, whether pending, threatened in writing against any Credit Party or any of its Subsidiaries or any material property of any Credit Party or any of its Subsidiaries.

 

Affected Lender ” means as defined in Section 3.1(b) .

 

Affected Loans means as defined in Section 3.1(b) .

 

Affiliate ” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

 

Agent ” means each of the Administrative Agent and the Collateral Agent.

 

Aggregate Revolving Commitments ” means the Revolving Commitments of all the Lenders. The aggregate principal amount of the Aggregate Revolving Commitments in effect on the Closing Date is ONE HUNDRED FIFTY MILLION DOLLARS ($150,000,000).

 

Agreement ” means as defined in the introductory paragraph hereto.

 

ALTA ” means American Land Title Association.

 

Applicable Laws ” means all applicable laws, including all applicable provisions of constitutions, statutes, rules, ordinances, regulations and orders of all Governmental Authorities and all orders, rulings, writs and decrees of all courts, tribunals and arbitrators.

 

Applicable Margin ” means (a) from the Closing Date through the date two (2) Business Days immediately following the date a Compliance Certificate is delivered pursuant to Section 7.1(c) for the Fiscal Quarter ending March 31, 2015, the percentage per annum based upon Pricing Level I in the table set forth below, and (b) thereafter, the percentage per annum determined by reference to the table set forth below using the Consolidated Leverage Ratio as set forth in the Compliance Certificate most recently delivered to the Administrative Agent pursuant to Section 7.1(c) , with any increase or decrease in the Applicable Margin resulting from a change in the Consolidated Leverage Ratio becoming effective on the date two (2) Business Days immediately following the date on which such Compliance Certificate is delivered.

 

Pricing Level

Consolidated

Leverage Ratio

Adjusted LIBOR Rate Loans

and Letter of Credit Fee

Base Rate

Loans

Commitment

Fee

I

< 1.00:1.0

1.25%

0.25%

0.15%

II

> 1.00:1.0 and < 1.50:1.0

1.50%

0.50%

0.20%

III

> 1.50:1.0 and < 2.00:1.0

1.75%

0.75%

0.25%

IV

> 2.00:1.0 and < 2.50:1.0

2.00%

1.00%

0.30%

V

> 2.50:1.0

2.25%

1.25%

0.35%

 

 

 
2

 

 

Notwithstanding the foregoing, (x) if at any time a Compliance Certificate is not delivered when due in accordance herewith, then Pricing Level V as set forth in the table above shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered and (y) the determination of the Applicable Margin for any period shall be subject to the provisions of Section 2.7(e) .

 

Applicable Reserve Requirement ” means, at any time, for any LIBOR Loan, the maximum rate, expressed as a decimal, at which reserves (including any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against “Eurocurrency liabilities” (as such term is defined in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the applicable Adjusted LIBOR Rate or LIBOR Index Rate or any other interest rate of a Loan is to be determined, or (b) any category of extensions of credit or other assets which include Adjusted LIBOR Rate Loans or Base Rate Loans determined by reference to the LIBOR Index Rate. Adjusted LIBOR Rate Loans and Base Rate Loans determined by reference to the LIBOR Index Rate shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefit of credit for pro ration, exception or offsets that may be available from time to time to the applicable Lender. The rate of interest on Adjusted LIBOR Rate Loans and Base Rate Loans determined by reference to the Index Rate shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement.

 

Approved Fund ” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

 

Asset Sale ” means a sale, lease, sale and leaseback, assignment, conveyance, exclusive license (as licensor), transfer or other disposition to, or any exchange of property with, any Person, in one transaction or a series of transactions, of all or any part of any Credit Party or any of its Subsidiaries’ businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, created, leased or licensed, including the Equity Interests of any Subsidiary of any Borrower, other than (a) dispositions of surplus, obsolete or worn out property or property no longer used or useful in the business of the Borrowers and their Subsidiaries, whether now owned or hereafter acquired, in the ordinary course of business; (b) dispositions of inventory sold, and Intellectual Property licensed, in the ordinary course of business; (c) dispositions of accounts or payment intangibles (each as defined in the UCC) resulting from the compromise or settlement thereof in the ordinary course of business for less than the full amount thereof; (d) dispositions of Cash Equivalents in the ordinary course of business; and (e) licenses, sublicenses, leases or subleases granted to any third parties in arm’s-length commercial transactions in the ordinary course of business that do not interfere in any material respect with the business of any Borrower or any of its Subsidiaries.

 

 

 
3

 

 

Assignment Agreement ” means an assignment agreement entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.5(b)) and accepted by the Administrative Agent, in substantially the form of Exhibit 11.5 or any other form (including electronic documentation generated by MarkitClear or other electronic platform) approved by the Administrative Agent.

 

Attributable Principal Amount ” means (a) in the case of Capital Leases, the amount of Capital Lease obligations determined in accordance with GAAP, (b) in the case of Synthetic Leases, an amount determined by capitalization of the remaining lease payments thereunder as if it were a Capital Lease determined in accordance with GAAP, (c) in the case of Securitization Transactions, the outstanding principal amount of such financing, after taking into account reserve amounts and making appropriate adjustments, determined by the Administrative Agent in its reasonable judgment and (d) in the case of Sale and Leaseback Transactions, the present value (discounted in accordance with GAAP at the debt rate implied in the applicable lease) of the obligations of the lessee for rental payments during the term of such lease.

 

Authorized Officer ” means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), chief financial officer or treasurer and, solely for purposes of making the certifications required under Section 5.1(b)(ii) and (iv) , any secretary or assistant secretary.

 

Auto Borrow Agreement ” has the meaning specified in Section 2.2(b)(vi) .

 

Bankruptcy Code