FUTUREFUEL CORP.
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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√
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2009
or
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from _____________ to
______________
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Commission
file number: 0-52577
FUTUREFUEL
CORP.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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20-3340900
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(State
or Other Jurisdiction of Incorporation or Organization)
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(IRS
Employer Identification No.)
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8235
Forsyth Blvd., Suite 400
Clayton,
Missouri 63105
(Address
of Principal Executive Offices)
(805)
565-9800
(Registrant’s
Telephone Number)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
Of Each Class
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Name
Of Each Exchange On Which Registered
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n/a
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n/a
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Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
No √
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes
No √
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 or 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
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 filed” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer
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Accelerated
filer √
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Non-accelerated
filer
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Smaller
reporting
company
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(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
No √
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. $74,309,760.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date: 28,572,570.
Table of
Contents
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The
Company
FutureFuel
Corp. (including our wholly-owned subsidiary FutureFuel Chemical Company, the
“
Company
”
or “
we
”,
“
our
” or
“
us
”) is a
Delaware corporation incorporated on August 12, 2005 under the name
“Viceroy Acquisition Corporation”. We were formed to serve as a
vehicle for the acquisition by way of an asset acquisition, merger, capital
stock exchange, share purchase or similar transaction of one or more operating
businesses in the oil and gas industry. On July 12, 2006, we
completed an offering of 22,500,000 units, each unit consisting of one share of
our common stock and one warrant to acquire one share of our common
stock. These units were issued at $8.00 per unit. On
July 21, 2006, we entered into an acquisition agreement with Eastman
Chemical Company to acquire its wholly-owned subsidiary, Eastman SE, Inc., a
chemical manufacturer which had just launched a biobased products
platform. Our shareholders approved the acquisition of Eastman SE,
Inc. on October 27, 2006. On October 31, 2006, the
acquisition of Eastman SE, Inc. was consummated (effective after the close of
business on that day) and Eastman SE, Inc. became our wholly-owned
subsidiary. In connection with such closing, we changed our name to
FutureFuel Corp. and Eastman SE, Inc. changed its name to FutureFuel Chemical
Company.
Our
shares of common stock are quoted on the Over-the-Counter Bulletin Board (“
OTCBB
”). The
OTCBB is an electronic trading service offered by the National Association of
Security Dealers (“
NASD
”)
that shows real-time quotes, last sale prices and volume information for
over-the-counter equity securities. Since our warrants must be in
certificated form for the reasons set forth below in Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities -- Market Information, our warrants do not qualify for
quotation on the OTCBB. As such, our warrants are not listed or
quoted on any established exchange.
We
declared a special cash dividend on March 12, 2010 of $0.20 per share of
our common stock, with a record date of March 23, 2010 and payable on April 9,
2010.
FutureFuel
Chemical Company
FutureFuel
Chemical Company is a Delaware corporation incorporated on September 1,
2005 under the name Eastman SE, Inc. It owns approximately 2,200
acres of land six miles southeast of Batesville in north central Arkansas
fronting the White River. Approximately 500 acres of the site are
occupied with batch and continuous manufacturing facilities, laboratories and
associated infrastructure, including on-site liquid waste
treatment. The plant is staffed by approximately 464 non-union
full-time employees. FutureFuel Chemical Company manufacturers
diversified chemical products and biobased products comprised of biofuels and
biobased specialty chemical products.
In May
2009, we completed a project to increase production capacity at our Batesville
facility to 59 million gallons of biodiesel per year through the addition
of a new continuous processing line. We are currently making process
changes that will allow us to use high free fatty acid/low cost
feedstock. This should allow us to produce a fungible product that
can be handled in pipelines as well as truck and rail
transportation. However, no assurances can be given that we will be
successful. Further, the federal blenders tax credit of $1.00 per
gallon expired on December 31, 2009. No assurances can be given
that this tax credit will be renewed or, if renewed, that such renewal will be
retroactive. The non-renewal of the federal blenders tax credit will
have a material adverse effect upon our biodiesel business. See “Risk
Factors” below.
In the
chemicals segment, the demand for our core existing product lines remained in
line with expectations. We also completed plant modifications and
additions to enable the processing of several new product lines. We
continue to focus on building and maintaining our reputation as a
technology-driven competitive chemical producer. We have retained a
strong emphasis on cost control and efficiency improvements that, we believe,
will enable us to take advantage of growth opportunities that exist as a result
of conditions in the worldwide chemical industry.
1
Unless
otherwise noted, the financial data presented herein represents our consolidated
operations for the twelve-month periods ended December 31, 2009,
December 31, 2008, and December 31, 2007. The following
table sets forth: (i) our consolidated revenues from external customers for
the years ended December 31, 2009, 2008 and 2007; (ii) our
consolidated net income for the years ended December 31, 2009, 2008 and
2007; and (iii) our total assets at December 31, 2009, 2008, and
2007.
(Dollars
in thousands)
|
Period
|
Revenues
from
External Customers
|
Net
Income
|
Total
Assets
|
|||||||||
|
Year
ended December 31, 2009
|
$ | 196,711 | $ | 16,992 | $ | 246,007 | ||||||
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Year
ended December 31, 2008
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$ | 198,330 | $ | 22,675 | $ | 238,126 | ||||||
|
Year
ended December 31, 2007
|
$ | 169,788 | $ | 8,408 | $ | 216,113 | ||||||
We have
two business reporting “segments” as defined by U.S. generally accepted
accounting principles: chemicals and biofuels. We are not able to
allocate net income and total assets between theses two business
segments. However, revenues from external customers and gross margins
can be allocated between the two business segments as set forth in the following
chart.
(Dollars
in thousands)
|
Period
|
Revenues
from
Chemical
Segment
|
Revenues
from
Biofuels
Segment
|
Total
Revenues
from
External
Customers
|
Gross
Margin
from
Chemical
Segment
|
Gross
Margin
from
Biofuels
Segment
|
Gross
Margin
|
||||||||||||||||||
|
Year
ended December 31, 2009
|
$ | 143,759 | $ | 52,952 | $ | 196,711 | $ | 33,007 | $ | 1,430 | $ | 34,437 | ||||||||||||
|
Year
ended December 31, 2008
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$ | 155,553 | $ | 42,777 | $ | 198,330 | $ | 32,738 | $ | 7,679 | $ | 40,417 | ||||||||||||
|
Year
ended December 31, 2007
|
$ | 144,474 | $ | 25,314 | $ | 169,788 | $ | 27,107 | $ | (9,874 | ) | $ | 17,233 | |||||||||||
See
note 19 to our consolidated financial statements contained in “Item 8.
Financial Statements and Supplementary Data” for adjustments to gross margins to
arrive at net income.
Principal
Executive Offices
Our
principal executive offices are located at 8235 Forsyth Blvd., 4
th
Floor, Clayton, Missouri 63105. Our telephone number is (805)
565-9800. FutureFuel Chemical Company’s principal executive offices
are located at 2800 Gap Road, Highway 394 South, Batesville, Arkansas
72501-9680. Its telephone number at such office is
(870) 698-1811.
The
Company
We
completed the offering described above on July 12, 2006 and acquired
FutureFuel Chemical Company at the close of business on October 31,
2006. On July 11, 2008, our common stock began to be quoted on
the OTCBB under the symbol “FTFL”. Our warrants are not listed or
quoted on any national exchange or any other price quotation
system.
We own
approximately 2,200 acres of land six miles southeast of Batesville in north
central Arkansas fronting the White River. Approximately 500 acres of
the site are occupied with batch and continuous manufacturing facilities,
laboratories and associated infrastructure, including on-site liquid waste
treatment. The plant is staffed by
2
approximately
464 non-union full-time employees. Land and support infrastructure
are available to support expansion and business growth. In March
2009, we acquired a granary in Marianna, Arkansas.
For the
year ended December 31, 2009, approximately 69% of site revenue was derived
from manufacturing specialty chemicals for specific customers (“custom
manufacturing”) with 4% of revenues being derived from multi-customer specialty
chemicals (“performance chemicals”) and 27% from biofuels. Custom
manufacturing involves producing unique products for individual customers,
generally under long-term contracts. The plant’s custom manufacturing
product portfolio includes a bleach activator for a major detergent
manufacturer, a proprietary herbicide for a major life sciences company and
chlorinated polyolefin adhesion promoters and antioxidant precursors for a major
chemical company. The performance chemicals product portfolio
includes polymer (nylon) modifiers and several small-volume specialty chemicals
for diverse applications.
We are
committed to growing the specialty chemical business and biofuels business, and
FutureFuel Chemical Company’s biofuels platform has become a core segment of our
business. We intend to: (i) increase production capacity of
biodiesel as set forth above, and will make future capacity expansions when
market conditions support such an increase; and (ii) pursue
commercialization of other products, including building block
chemicals. In pursuing this strategy, we will continue to establish a
name identity in the biofuels business, leverage our technical capabilities and
quality certifications, secure local and regional markets and expand marketing
efforts to fleets and regional/national customers. Concurrent efforts
will also seek to enhance margins via: (i) volume increases;
(ii) conversion cost reductions by transition to continuous processing and
economies of scale; (iii) expansion of feedstock options;
(iv) legislative incentives; and (v) value-enhancing applications for
glycerin co-product (from the biodiesel manufacturing process). These
items are discussed in greater detail below.
Biofuels
Business Segment
Overview
of the Segment
Our
biofuels segment was established in early 2005 as an initiative of the site
management team to leverage technical and operational expertise as well as
available manufacturing capacity to pursue business growth opportunities in
addition to the legacy specialty chemicals business. The biofuels
segment had revenue of $52,952,000 for the year ended December 31, 2009,
$42,777,000 for the year ended December 31, 2008, and $25,314,000 for the
year ended December 31, 2007.
Biofuel
Products
Our
biofuels business segment currently targets biodiesel. In addition,
we sell petrodiesel in blends with our biodiesel and, from time to time, with no
biodiesel added. Our biofuels segment also includes the operation of
a granary in central Arkansas that we acquired in March 2009. The
infrastructure and location of the granary provide an advantaged position
related to several expansion projects we are evaluating within our biofuels
segment. We can provide no assurance that any of these expansion
projects will come to fruition. Until such time as we elect to pursue
one or more of these expansion projects, we intend to continue purchasing grain
from farmers in central Arkansas and reselling that grain to buyers at major
agricultural centers for export out of our region.
Biodiesel
is a sustainable, renewable transportation fuel with a growing market in the
United States and internationally.
See
http://www.emerging-markets.com/biodiesel/default.asp
. As
an alternative to petrodiesel and other petroleum-based fuels, biodiesel has
several advantages, including:
|
·
|
extending
domestic diesel fuel supplies;
|
|
·
|
reducing
dependence on foreign crude oil
supplies;
|
|
·
|
expanding
markets for domestic and international agricultural
products;
|
|
·
|
reducing
emissions of greenhouse gases and other gases that are regulated by the
United States Environmental Protection Agency
(see,
e.g.,
http://www.cyberlipid.org/glycer/biodiesel.htm
);
and
|
3
|
·
|
being
usable by existing diesel engines while extending their useful lives (see,
e.g.,
http://www.cyberlipid.org/glycer/biodiesel.htm
).
|
As a
result of the benefits that are expected from the widespread use of biodiesel,
federal and state laws (including tax laws), and governmental policy favor and
in some jurisdictions require the increasing use of biodiesel instead of
petrodiesel. For example, the Energy Independence and Security Act of
2007 requires U.S. petroleum refiners and importers to blend 1.5 billion
gallons of biodiesel into petrodiesel in 2010, with increased percentages of
renewable fuel blending required in future years. See “Legislative
Incentives” below.
Biodiesel
commercialization was achieved at our Batesville plant in October
2005. Technical and operational competency developed as a supplier of
specialty chemicals enabled the development of a flexible manufacturing process
which can utilize the broadest possible range of feedstock oils, including soy
oil, cottonseed oil, palm oil, pork lard, poultry fat and beef
tallow. The Batesville plant produces B100. B20 (20%
biodiesel; 80% petrodiesel) is currently used in the facility’s diesel fleet and
is available for retail sale at the site. In the second quarter of
2009, we began offering B100, biodiesel blended with petrodiesel (B2, B5, B10
and B20 grades) and petrodiesel at our leased storage facility in Little Rock,
Arkansas. In addition, we deliver blended product to a small group of
customers within our region.
The
Biodiesel Production Process
Biodiesel
can be made from renewable sources such as:
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·
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crude
and refined virgin vegetable oils;
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·
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crude
and refined animal fats; and
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·
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used
cooking oils and trap grease.
|
The
choice of feedstock is determined primarily by the price and availability of
each feedstock variety, yield loss of lower quality feedstock, and the
capabilities of the producer’s biodiesel production facility. In the
United States, the majority of biodiesel historically has been made from
domestically produced soybean oil. However, our plant has been
designed to process a wide variety of feedstocks to take advantage of
fluctuating prices and availability of the various feedstocks.
The
biodiesel manufacturing process has three distinct steps: the chemical reaction
step, the separation step and the polishing step as shown in the following
table.
4
Table
1
Chemical
Reaction
. In the chemical reaction step, a mix of biodiesel,
glycerin and soap is created from the selected feedstock, methanol and a
catalyst. The collection of equipment that performs this chemical
reaction step in producing biodiesel is referred to as the
“reactors.” Depending upon the type of reactor used, the mix of
biodiesel, glycerin and soap produced requires differing degrees of further
processing to separate the methyl esters comprising the biodiesel from the
glycerin and soap, to clean or “polish” both the biodiesel and glycerin and to
recover excess methanol from both the biodiesel and
glycerin. Generally, the more efficient the reactor, the less
downstream processing that is required. If the feedstock used is high
in free fatty acids, a preliminary processing step may be
required. Transesterification is the process of exchanging the alkoxy
group of an ester compound by another alcohol.
Separation
. The
methyl esters are separated from the glycerin and soap produced during the
chemical reaction step.
Polishing
. The
methyl esters are purified to remove residual catalysts and other
impurities. Any excess water and methanol is also removed and may be
recycled into earlier steps in the production process train.
Legislative
Incentives
Agencies
of the United States government, including the Department of Energy, the
Environmental Protection Agency, the Internal Revenue Service and the Department
of Agriculture, and many states offer biodiesel incentives or have mandates for
the use of biodiesel, or both. There are other governmental
incentives that do not directly reduce the net cost of producing or blending
biodiesel but that drive the demand for biodiesel. For example, tax
credits are available under the Internal Revenue Code for investment in
qualifying refueling property, the Environmental Protection Agency will pay
50-100% of the cost for schools to upgrade and/or replace their buses, and
programs administered by the Department of Energy indirectly require government
fleet operators to purchase substantial amounts of biodiesel. The
principal federal incentives that we believe will have the greatest positive
effect on our business are discussed below.
5
The
Energy Policy Act of 1992 requires government fleet operators to use a certain
percentage of alternatively fueled vehicles. The Act established a
goal of replacing 10% of motor fuels with non-petroleum alternatives by 2000,
increasing to 30% by the year 2010. Currently, 75% of all new
light-duty federal vehicles purchased are required to have alternative fuel
capability to set an example for the private automotive and fuel
industries.
Under the
Energy Conservation Reauthorization Act of 1998, vehicle fleets that are
required to purchase alternatively fueled vehicles can generate credit toward
this requirement by purchasing and using biodiesel in a conventional
vehicle. Since there are few cost-effective options for purchasing
heavy-duty alternatively fueled vehicles, federal and state fleet providers can
meet up to 50% of their heavy-duty alternatively fueled vehicle purchase
requirements with biodiesel. The biodiesel fuel credit allows fleets
to purchase and use 450 gallons of biodiesel in vehicles in excess of 8,500
pounds gross vehicle weight instead of alternatively fueled
vehicles. Fleets must purchase and use the equivalent of 450 gallons
of pure biodiesel in a minimum of a 20% blend to earn one
credit. Covered fleets earn one vehicle credit for every light-duty
alternatively fueled vehicle they acquire annually beyond their base vehicle
acquisition requirements. Credits can be banked or sold.
In
October 2004, Congress passed a biodiesel tax incentive, structured as a federal
excise tax credit, as part of the American Jobs Creation Act of
2004. The credit amounted to one cent for each percentage point of
vegetable oil or animal fat biodiesel that was blended with petrodiesel (and
one-half cent for each percentage point of recycled oils and other
non-agricultural biodiesel). For example, blenders that blended B20
made from soy, canola and other vegetable oils and animal fats received a 20¢
per gallon excise tax credit, while biodiesel made from recycled restaurant oils
(yellow grease) received half of this credit. The tax incentive
generally was taken by petroleum distributors and was substantially passed on to
the consumer. It was designed to lower the cost of biodiesel to
consumers in both taxable and tax-exempt markets. The tax credit was
scheduled to expire at the end of 2006, but was extended in the Energy Policy
Act of 2005 to the end of 2008 and subsequently extended to December 31,
2009 through the Emergency Economic Stabilization Act of 2008. This
Act also revised the credit for recycled oils from a half credit to a full
credit as described below. The tax credit expired on
December 31, 2009 and was not renewed. If this tax credit is not
renewed, its expiration may have a material adverse effect on our biodiesel
business. See “Risk Factors” below.
Congress
enacted the Energy Policy Act of 2005 in August 2005 and included a number of
provisions intended to spur the production and use of biodiesel. In
particular, the Act’s provisions include biodiesel as part of the minimum volume
of renewable fuels (the renewable fuels standard or “
RFS
”), in
the nationwide gasoline and diesel pool, with the Environmental Protection
Agency being directed to determine the share to be allocated to biodiesel and
other details through its rulemaking process. The Act also extended
the biodiesel tax credit to 2008 and included a new tax credit for renewable
diesel. More specifically, the RFS requires a specific amount of
renewable fuel to be used each year in the nationwide gasoline and diesel
pool. The volume increases each year, from 4 billion gallons per
year in 2006 to 7.5 billion gallons per year in 2012. The Act
requires the Environmental Protection Agency, beginning in 2006, to publish by
November 30
th
of
each year, “renewable fuel obligations” that will be applicable to refineries,
blenders and importers in the contiguous 48 states. There must be no
geographic restrictions on where renewable fuel may be used or per-gallon
obligations for the use of renewable fuel. The renewable fuel
obligations are required to be expressed in terms of a volume percentage of
gasoline sold or introduced into commerce and consist of a single applicable
percentage that will apply to all categories of refineries, blenders and
importers. The renewable fuel obligations are to be based on
estimates that the Energy Information Association provides to the Environmental
Protection Agency on the volumes of gasoline it expects will be sold or
introduced into commerce. The Environmental Protection Agency
released the final rules to implement the RFS on April 10,
2007. Under those rules, the RFS compliance period did not begin
until September 1, 2007. The applicable volume of renewable fuel
under this program was 4.7 billion gallons for 2007, 5.4 billion
gallons for 2008, 11.1 billion gallons for 2009, and 12.95 billion
gallon for 2010.
The
Energy Policy Act of 2005 also created a new tax credit for small agri-biodiesel
producers with production capacity not in excess of 60 million gallons, of
10¢ per gallon for the first 15 million gallons of agri-biodiesel
sold. Our 2009 biodiesel production capacity did not exceed
60 million gallons and thus we qualified for this credit. We
expect that our 2010 biodiesel production capacity will not exceed
60 million gallons and that we will qualify for this credit in
2010.
On
December 19, 2007, the Energy Independence and Security Act of 2007 (“
Energy Bill of
2007
”) was enacted which, among other things, expanded the
RFS. In contrast to the Energy Policy Act of 2005, this bill provided
an
6
RFS
carve-out applicable specifically to biodiesel; the RFS requirement of the
Energy Policy Act of 2005 had mostly been filled by
ethanol. Beginning January 1, 2009, the Energy Bill of 2007
mandates that 500 million gallons of biomass-based diesel (biodiesel) be
used per year. On November 21, 2008, the USEPA announced that
the 2009 RFS for refiners, importers, and blenders was 10.21%. The
2008 RFS was 7.76%. The 2009 RFS represents 11.1 billion gallons
of renewable fuel and includes 500 million gallons of biodiesel and
renewable diesel. The mandate under the Energy Bill of 2007 increases
each year and reaches 1 billion gallons per year in 2012. Beyond
2012, the mandate is to be determined by the Environmental Protection Agency
administrator in coordination with the secretaries of energy and agriculture,
but with a minimum of that mandated in 2012, thus a 1 billion gallons per
year floor.
The
Emergency Economic Stabilization Act of 2008 extended the biodiesel tax credit
through December 31, 2009 and qualified all biodiesel for a $1.00 per
gallon tax credit, including biodiesel made from non-virgin feedstocks such as
yellow grease. As noted above, prior legislation limited the tax
credit for biodiesel manufactured from non-virgin feedstocks to $0.50 per
gallon. Also as noted above, this credit terminated on
December 31, 2009 and was not renewed.
The
federal government offers other programs as summarized in the table
below.
|
Federal
Agency
that
Administers/
Oversees
|
Type
of
Incentive
|
Who
Receives
Incentive
|
Commonly
Known
As
|
Summary
|
|
IRS
|
income
tax
credit
|
infrastructure
providers
|
Alternative
Fuel
Infrastructure
Credit
|
Provides
a tax credit in an amount equal to 50% of the cost of any qualified
non-residential alternatively fueled vehicle refueling property placed
into service in the United States up to $50,000 in 2009 and 2010, subject
to certain limits.
|
|
EPA
|
grant
program
|
school
districts
|
Clean
School
Bus
Program
|
Reduces
operating costs and children’s exposure to harmful diesel exhaust by
limiting bus idling, implementing pollution reduction technology,
improving route logistics and switching to biodiesel. The
Energy Bill of 2005 utilizes this program to grant up to a 50% cost share
(depending on the age and emissions of the original bus) to replace school
buses with buses that operate on alternative fuel or low-sulfur diesel, or
up to 100% for retrofit projects.
|
|
USDA
|
grant
program
|
agricultural
producers
and
small
businesses
|
Renewable
Energy
Systems
and
Energy
Efficiency
Improvements
Grant
|
In
2005, the U.S. Department of Agriculture’s Office of Rural Development
made available $22.8 million in competitive grant funds and
guaranteed loans for the purchase of renewable energy systems and energy
improvements for agricultural producers and small rural
businesses. Eligible projects include biofuels, hydrogen and
energy efficiency improvements, as well as solar, geothermal and
wind.
|
|
USDA/DOE
|
grant
program
|
biobased
fuels
researchers
|
Biomass
Research
and
Development
Act
of 2000
|
Funds
research, development and demonstration biomass projects with respect to
renewable energy resources from the agricultural and agro-forestry
sectors. Biomass is defined as organic matter that is available
on a renewable or recurring basis.
|
7
Many
states are following the federal government’s lead and are offering similar
programs and incentives to spur biodiesel production and use. For
example, Arkansas provides an income tax credit of 5% of the cost of the
facilities and equipment used directly in the wholesale or retail distribution
of biodiesel where the equipment has not been claimed in a previous tax
year. In addition, Arkansas offers a tax refund of $0.50 for each
gallon of biodiesel used by a supplier to produce a biodiesel/petrodiesel
mixture of not more than 2% biodiesel. In April 2007, Arkansas passed
legislation that provides for a $0.20 per gallon biodiesel producer credit and
up to $50,000 in grants per site for biodiesel producers and distributors to
install distribution infrastructure. The $0.20 per gallon Arkansas
producer credit is capped at 10 million gallons of production, or
$2 million, per defined time intervals. The first interval was
January 1, 2007 through June 30, 2008. We submitted an
application for the $0.20 per gallon biodiesel producer credit for production
during this 18-month interval and received the $2 million credit in March
2008. The next funding interval was July 1, 2008 to
June 30, 2009. We applied for funding under this program for
biodiesel produced during this interval and received the $2 million credit
in July 2009. The current funding interval is July 1, 2009
through June 30, 2010. We intend to apply for the credit in
future years when and as such credit is available. However, due to
the characteristics of the Arkansas Alternative Fuels Development Program and
the State funding supporting this program, there is no certainty that credits
will be funded even if the program is technically still in place.
Our
review of state statutes reveals that approximately 46 states provide either
user or producer incentives for biodiesel, several states provide both types of
incentives and approximately 37 states provide incentives to biodiesel producers
to build facilities in their states, typically offering tax credits, grants and
other financial incentives. As we expand our business outside of
Arkansas, we will evaluate these additional state incentives to determine if we
qualify for them.
We will
continue to identify and pursue other incentives to support our
business. However, no assurances can be given that we will qualify
for any such incentives or, if we do qualify, what the amount of such incentives
will be.
BQ-9000
Status
The
BQ-9000 program was launched in late 2005 by the National Biodiesel Board
through the National Biodiesel Accreditation Commission, which has full autonomy
and design implementation over BQ-9000 certification. The program
requires certified and accredited companies to possess a quality manual and
quality control system and employ best practices in biodiesel sampling, testing,
blending, shipping, storage and distribution. The goal of the program
is to help assure quality of biodiesel from plant gate to consumer
tank. We achieved the fourth BQ-9000 certification in the nation (as
of December 31, 2009, 36 biodiesel producers had achieved this quality
standard - see
http://www.bq-9000.org/companies/producers.aspx). Consistent with
BQ-9000, all manufactured product is tested in on-site quality control
laboratories and confirmed to meet the ASTM D6751 standard.
Future
Strategy
In 2009,
we commercialized two biobased solvents: FutureSol FAME and FutureSol Glysol,
which we intend to market. In addition, we intend to expand our
biodiesel capacity utilizing available facilities as market conditions
dictate. All future capacity will be operated primarily in continuous
processing mode to realize operating economies and optimum
throughput. Existing and future processes will accommodate a wide
range of feedstock oils, allowing optimization relative to supply and
pricing. However, our continued production of biodiesel will be
severely limited, or eliminated entirely, in the event the United States
Congress does not renew the $1.00 per gallon blenders tax credit. See
“Risk Factors”.
8
Customers
and Markets
We
currently market our biodiesel products by truck and rail directly to customers
in the United States. Through the utilization of liquid bulk storage
facilities and barge loading capabilities, we are positioned to market biodiesel
throughout the United States for transportation and home heating fuel
usage. For the twelve months ended December 31, 2009, 18 of our
customers represented 80% of biofuels revenues (22% of total revenues) and 32
customers represented 20% of biofuels revenues (5% of total
revenues). Although the regional market is still being developed, we
estimate that the regional direct market available to us at maturity will be at
least 30 million gallons per year.
Competition
As of
June 22, 2009, there was a reported 2.69 billion gallons per year of
biodiesel production capacity in the United States, although only approximately
450-490 million gallons of biodiesel were actually produced in
2009. We produced 20 million gallons or an estimated 4% of such
2009 production. We compete with other producers of biodiesel, both
locally, regionally and nationally. There are five biodiesel plants
in the state of Arkansas (two of them are under construction), but only our
plant is currently operating. There are several operating facilities
in surrounding states and announced biodiesel production facilities in Arkansas
and surrounding states. We estimate that regional competitive
producers had approximately 95 million gallons of capacity at the end of
2009.
In
addition to biodiesel producers, we compete with new technologies that are being
developed as alternatives to biodiesel. For example, Biotech company
LS9 Inc. has announced that it is producing renewable diesel fuel from E. coli
excrement. See
http://www.cnn.com/2008/TECH/science/08/12/bug.diesel/index.html
. UOP,
a major supplier to the petrochemical refining industry, has also reported the
development of technology for the production of fungible fuels (diesel and
gasoline) by hydro-processing of vegetable oils and
cellulose. See
http://www.alternatefuelsworld.com/greendiesel-greengasoline.html
. We
cannot give any assurances that renewable diesel fuel (or some other product)
produced by these competing technologies will not supplant biodiesel as an
alternative to conventional petrodiesel.
Supply
and Distribution
As a
result of our feedstock-flexible process, we are able to source feedstock from a
broad supplier base which includes pork, chicken and beef rendering facilities
from both national and regional suppliers. Soybean oil has been
sourced from several national and regional producers. Cottonseed oil
has been sourced from a regional cooperative. All feedstocks are
currently supplied by either rail or truck. We believe that an
adequate supply of feedstocks can be sourced to support anticipated
production.
We intend
that biodiesel and other biofuels will be sold from the plant site as well as
shipped to liquid bulk storage facilities for further
distribution. Sales from the plant site are made by railcar and tank
truck. Biodiesel is being delivered to liquid bulk storage facilities
by company-owned tank trucks and common carriers for distribution there and for
further transportation by barge or tank truck.
Cyclicality
and Seasonality
The
following charts depict our monthly sales of biodiesel (in gallons) for 2008 and
2009.
9
Our sales
of biodiesel have been limited in winter months. Non-seasonal
business (primarily on-road transportation) has not been sufficient regionally
to generate biodiesel sales at blends greater than B5 in winter months at the
end of farming activity. Also, cold weather usage and storage
properties which reduce biodiesel demand during winter months require resolution
in order to fully exploit year-round demand opportunities. Our
distilled biodiesel available in mid-March 2010 should mitigate the cold weather
property concern and provide more robust winter time sales.
Chemicals
Business Segment
Overview
of the Segment
Our
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). The chemicals segment had revenue of $143,759,000,
$155,553,000, and $144,474,000 for the years ended December 31, 2009, 2008,
and 2007, respectively.
Chemical
Products
Custom
manufacturing involves producing unique products for individual customers,
generally under long-term contracts. Many of these products are
produced under confidentiality agreements in order to protect intellectual
property. This is a service-based business where customers value
technical capabilities, responsiveness and process improvement to continually
improve costs and reliability. The plant’s custom manufacturing
product portfolio includes four large products or product families which are
generally produced throughout the year: (i) a bleach activator for a major
detergent and consumer products manufacturer; (ii) a proprietary herbicide
for a major life sciences company; (iii) chlorinated polyolefin adhesion
promoters (“
CPOs
”) for
a major chemical company; and (iv) antioxidant precursors (“
DIPBs
”)
for a major chemical company. The portfolio also contains a number of
smaller products which are produced intermittently in a “batch campaign” mode,
for diverse customers and end markets.
Performance
chemicals comprise multi-customer products which are sold based upon
specification and/or performance in the end-use application. This
portfolio includes a family of polymer (nylon) modifiers and several
small-volume specialty chemicals for diverse applications. In
addition, we have recently been successful in our strategy to grow our
performance chemical business through new product development. New
products include a family of acetal based solvents, including dimethoxymethane,
dibutoxymethane and glycerol formal, and phenol sulfonic acid, which build on
our revenue stream from our sulfonations technology. Revenue from
products less than one year old in the performance chemicals business increased
from approximately 1% of total performance chemicals revenue in 2008 to 14% in
2009.
Future
Strategy
To build
on and maintain our reputation as a technology-driven competitive chemical
producer, we believe that we must continuously focus on cost control,
operational efficiency and capacity utilization to maximize
earnings. The ability to utilize large scale batch and continuous
production processes and a continuous focus on process
10
improvements
allow us to compete effectively in the custom manufacturing market and to remain
cost competitive with, and for some products cost-advantaged over, our
competitors. We intend to improve margins in this area of the our
business by careful management of product mix with regard to size of
opportunity, timing to market, capital efficiency and matching of opportunities
to assets and capabilities.
We expect
to derive significant growth in performance chemicals as a result of the
application of new technologies to the conversion of biomass and waste carbon
sources in order to produce a range of specialty chemical
products. If we are successful in developing these products, they
would represent a first generation of renewable chemicals that we believe would
displace materials currently produced from fossil fuels. However, no
assurances can be made that we will successfully develop such products or, if
developed, that they will be accepted commercially.
Customers
and Markets
Our
chemical products are used in a variety of markets and end uses, including
detergent, agrochemical, automotive, photographic imaging, coatings, nutrition
and polymer additives. These products are generally non-cyclical;
however, the customers are often the “brand owners” and therefore control
factors related to demand, such as market development strategy. In
many cases, we may be unable to increase or maintain our level of sales revenue
for these products.
All sales
of the bleach activator are made to The Procter & Gamble Company pursuant to
a multi-year supply agreement that was effective April 1,
2008. Sales of the bleach activator totaled $73,466,000, $83,995,000,
and $82,500,000 for the years ended December 31, 2009, 2008, and 2007,
respectively. Additionally, all sales of a proprietary herbicide and
certain other intermediates used in the production of this herbicide are made to
Arysta LifeScience North America Corporation pursuant to contracts which
continue year-to-year unless terminated by notice given no later than 270 days
prior to the end of the current term for the herbicide and not later than 18
months prior to the current term for the intermediates. No assurances
can be given that these contracts will not be terminated. Sales of
this herbicide and its intermediates totaled $31,587,000, $34,156,000, and
$25,177,000 for the years ended December 31, 2009, 2008, and 2007,
respectively. These two customers represented approximately 53%, 60%,
and 63% of our revenues in 2009, 2008, and 2007, respectively.
Competition
Historically,
there have been significant barriers to entry for competitors with respect to
chemicals primarily due to the fact that the relevant technology and
manufacturing capability has been held by a small number of
companies. As technology and investment have increasingly moved
outside of North America, competition from multi-national chemical manufacturers
has intensified, primarily from India and China. We compete with
these and other producers primarily based on price, customer service,
technology, quality and reliability. Our major competitors in this
segment include large multi-national companies with specialty chemical business
units, and smaller independent producers. The multi-national
competitors are often disadvantaged by poor responsiveness and customer service,
while the small producers often have limited technology and financial
resources. We believe that we should be well positioned for growth
due to the combination of our scale of operations, technical capabilities, and
financial resources.
Supply
and Distribution
Specialty
chemicals are generally high unit value products sold in packaged, or low-volume
bulk form, for which distribution is a relatively minor component of
cost. Most products are sold FOB the Batesville site for distribution
globally. Similarly, raw materials for these products are
comparatively higher-value components that are sourced globally. An
exception will be the biofuels co-products, which will be recovered from local
processing and purified or further functionalized into other products at the
site.
Cyclicality
and Seasonality
Our
chemical products typically are not cyclical but they are sensitive to global
economic conditions. Supply and demand dynamics determine
profitability at different stages of cycles and global economic conditions
affect the length of each cycle. Despite some sensitivity to global
economic conditions, many of the products in the chemical segment provide a
stable foundation of earnings.
11
Backlog
The
majority of our revenues are derived under custom manufacturing agreements with
specific customers. These customers generally provide us with
forecasts of demand on a monthly or quarterly basis. These forecasts
are intended to enable us to optimize the efficiency of our production processes
and generally are not firm sales orders. As such, we do not monitor
or report backlog.
Management
Team and Workforce
Our
executive management team at the Batesville plant consists of four individuals
with a combined 100 plus years of experience in the chemicals industry,
comprising technical, operational and business
responsibilities. Three of the four members of the executive team
have international experience, including assignments in Europe and
Asia. The operational and commercial management group at the
Batesville site includes five additional degreed professionals with an average
experience of over 20 years in the chemical industry.
The
Batesville workforce comprises approximately 464 additional full-time employees,
with a total of 75 degreed professionals, including 19 chemists (10 PhDs) and 41
engineers (including 10 licensed professional engineers and 20 chemical
engineers). The site is non-unionized. Operations
personnel are highly skilled as all site manufacturing and infrastructure is
fully automated and computer-controlled. The workforce is
substantially self-sufficient in the range of required operational skills and
experience due to the lack of locally-available process industry
infrastructure. Voluntary attrition at the site has averaged less
than 4% annually since 2006.
Intellectual
Property
We
consider our intellectual property portfolio to be a valuable corporate asset
which we intend to expand and protect globally through a combination of trade
secrets, confidentiality and non-disclosure agreements, patents and
copyrights. As a producer of a broad and diverse portfolio of
chemicals, our intellectual property relates to a wide variety of products and
processes acquired through the development and manufacture of over 300 specialty
chemicals during the history of the site. Our primary strategy
regarding our intellectual property portfolio will be to appropriately protect
all innovations and know-how in order to provide our business segments with a
technology-based competitive advantage wherever possible. In the
chemicals business segment, custom manufacturing projects are primarily
conducted within the framework of confidentiality agreements with each customer
to ensure that intellectual property rights are defined and
protected. In the biofuels business segment, innovations and process
know-how will be vigorously protected as appropriate. As may be
necessary, we will seek to license technology from third parties that
complements our strategic business objectives. Neither our business
as a whole nor any particular segment is materially dependent upon any one
particular patent, copyright or trade secret. As the laws of many
foreign countries do not protect intellectual property to the same extent as the
laws of the United States, we can make no assurance that we will be able to
adequately protect all of our intellectual property assets.
Research
and Development
We devote
significant resources to our research and development programs which are
primarily targeted towards two objectives:
|
·
|
innovating,
developing and improving biofuels processes, in particular biodiesel and
other biofuels, including value-up technology and applications for
co-products; and
|
|
·
|
developing
and improving processes for custom manufacturing products or performance
chemicals.
|
Our
research and development capabilities comprise analytical chemistry competencies
to assay and characterize raw materials and products, organic chemistry
expertise applied across a breadth of reaction chemistries and materials and
process engineering capabilities for batch and continuous processing of both
solid and liquid materials. We believe that these core competencies,
established in support of the legacy chemical business, are applicable to
building a technology-based position in biofuels and associated biobased
specialty products.
12
Research
and development expense incurred by us for the years ended December 31,
2009, 2008, and 2007 were $4,165,000, $3,951,000, and $3,434,000,
respectively. Substantially all of such research and development
expense related to the development of new products, services and processes or
the improvement of existing products, services and processes.
Regulatory
and Environmental Matters
Various
aspects of our operations are subject to regulation by state and federal
agencies. Biofuel and chemical operations are subject to numerous,
stringent and complex laws and regulations at the federal, state and local
levels governing the discharge of materials into the environment or otherwise
relating to environmental protection. These laws and regulations
may:
|
·
|
require
acquisition of permits regarding discharges into the air and discharge of
waste waters;
|
|
·
|
place
restrictions on the handling and disposal of hazardous and other wastes;
and
|
|
·
|
require
capital expenditures to implement pollution control
equipment.
|
Compliance
with such laws and regulations can be costly and noncompliance can result in
substantial civil and even criminal penalties. Some environmental
laws impose strict liability for environmental contamination, rendering a person
liable for environmental damages and cleanup costs without regard to negligence
or fault. Moreover, public interest in the protection of the
environment has increased substantially in recent years. Our
operations could be adversely affected to the extent laws are enacted or other
governmental action is taken that imposes environmental protection requirements
that result in increased costs to the biofuels and/or chemical manufacturing
industry in general. The following provides a general discussion of
some of the significant environmental laws and regulations that impact our
activities.
The
federal Comprehensive Environmental Response, Compensation and Liability Act
(“
CERCLA
”),
and analogous state laws, impose joint and several liability, without regard to
fault or the legality of the original act, on certain classes of persons that
contributed to the release of a hazardous substance into the
environment. These persons include the owner and operator of the site
where the release occurred, past owners and operators of the site, and companies
that disposed or arranged for the disposal of hazardous substances found at the
site. Responsible parties under CERCLA may be liable for the costs of
cleaning up hazardous substances that have been released into the environment
and for damages to natural resources. Additionally, it is not
uncommon for third parties to assert claims for personal injury and property
damage allegedly caused by the release of hazardous substances or other
pollutants into the environment.
The
federal Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act (“
RCRA
”), is
the principal federal statute governing the management of wastes, including the
treatment, storage and disposal of hazardous wastes. RCRA imposes
stringent operating requirements, and liability for failure to meet such
requirements, on a person who is either a generator or transporter of hazardous
waste or an owner or operator of a hazardous waste treatment, storage or
disposal facility. Many of the wastes generated in our manufacturing
facility are governed by RCRA.
The
federal Oil Pollution Act of 1990 (“
OPA
”) and
regulations thereunder impose liability on responsible parties for damages
resulting from oil spills into or upon navigable waters, adjoining shorelines or
in the exclusive economic zone of the United States. A responsible
party includes the owner or operator of an onshore facility. OPA
limits liability for onshore facilities to $350 million. These
liability limits may not apply if a spill is caused by a party’s gross
negligence or willful misconduct, the spill resulted from violation of a federal
safety, construction or operating regulation, or if a party fails to report a
spill or to cooperate fully in a clean-up. Failure to comply with
OPA’s requirements may subject a responsible party to civil, criminal or
administrative enforcement actions.
The
federal Water Pollution Control Act (“
Clean Water
Act
”) imposes restrictions and controls on the discharge of pollutants
into navigable waters. These controls have become more stringent over
the years, and it is possible that additional restrictions may be imposed in the
future. Permits must be obtained to discharge pollutants into state
and federal waters. The Clean Water Act provides for civil, criminal
and administrative penalties for discharges of oil and other pollutants, and
imposes liability on parties responsible for those discharges for the costs of
cleaning up any
13
environmental
damage caused by the release and for natural resource damages resulting from the
release. Comparable state statutes impose liability and authorize
penalties in the case of an unauthorized discharge of petroleum or its
derivatives, or other pollutants, into state waters.
The
federal Clean Air Act (“
Clean Air
Act
”), and associated state laws and regulations, restrict the emission
of air pollutants from many sources, including facilities involved in
manufacturing chemicals and biofuels. New facilities are generally
required to obtain permits before operations can commence, and new or existing
facilities may be required to incur certain capital expenditures to install air
pollution control equipment in connection with obtaining and maintaining
operating permits and approvals. Federal and state regulatory
agencies can impose administrative, civil and criminal penalties for
non-compliance with permits or other requirements of the Clean Air Act and
associated state laws and regulations.
The
federal Endangered Species Act, the federal Marine Mammal Protection Act, and
similar federal and state wildlife protection laws prohibit or restrict
activities that could adversely impact protected plant and animal species or
habitats. Manufacturing activities could be prohibited or delayed in
areas where such protected species or habitats may be located, or expensive
mitigation may be required to accommodate such activities.
Our
policy is to operate our plant and facilities in a manner that protects the
environment and the health and safety of our employees and the
public. We intend to continue to make expenditures for environmental
protection and improvements in a timely manner consistent with our policies and
with the technology available. In some cases, applicable
environmental regulations such as those adopted under the Clean Air Act and
RCRA, and related actions of regulatory agencies, determine the timing and
amount of environmental costs incurred by us.
We
establish reserves for closure/post-closure costs associated with the
environmental and other assets we maintain. Environmental assets
include waste management units such as incinerators, landfills, storage tanks
and boilers. When these types of assets are constructed or installed,
a reserve is established for the future costs anticipated to be associated with
the closure of the site based on an expected life of the environmental assets,
the applicable regulatory closure requirements and our environmental policies
and practices. These expenses are charged into earnings over the
estimated useful life of the assets. Currently, we estimate the
useful life of each individual asset up to 35 years.
In
addition to our general environmental policies and policies for asset retirement
obligations and environmental reserves, we accrue environmental costs when it is
probable that we have incurred a liability and the amount can be reasonably
estimated. In some instances, the amount cannot be reasonably
estimated due to insufficient data, particularly in the nature and timing of the
future performance. In these cases, the liability is monitored until
such time that sufficient data exists. With respect to a contaminated
site, the amount accrued reflects our assumptions about remedial requirements at
the site, the nature of the remedy, the outcome of discussions with regulatory
agencies and other potentially responsible parties at multi-party sites, and the
number and financial viability of other potentially responsible
parties. Changes in the estimates on which the accruals are based,
unanticipated government enforcement action, or changes in health, safety,
environmental, chemical control regulations, and testing requirements could
result in higher or lower costs.
Our cash
expenditures related to environmental protection and improvement were
approximately $9,923,000, $11,507,000, and $13,500,000 for the years ended
December 31, 2009, 2008, and 2007, respectively. These amounts
pertain primarily to operating costs associated with environmental protection
equipment and facilities, but also include expenditures for construction and
development. We do not expect future environmental capital
expenditures arising from requirements of environmental laws and regulations to
materially increase our planned level of annual capital expenditures for
environmental control facilities.
We
believe that we have obtained in all material respects the necessary permits and
licenses to carry on our operations as presently conducted. We have
reviewed environmental investigations of the properties owned by us and believe,
on the basis of the results of the investigations carried out to date, that
there are no material regulatory and/or environmental issues which adversely
impact us. In addition, under our acquisition agreement with Eastman
Chemical Company, Eastman Chemical Company acquired environmental insurance with
respect to environmental conditions at the Batesville plant existing as of the
closing date and Eastman Chemical Company has agreed, subject to certain
limitations, to indemnify FutureFuel Chemical Company with respect to such
environmental conditions.
14
Objectives
Our
business objectives are to: (i) exploit growth opportunities in our two
core business segments, biofuels and chemicals; and (ii) improve gross
margins.
Exploit
Growth Opportunities in Core Business Segments
We
believe that we can become a market leader in biofuels by leveraging our
specialty chemicals technical expertise and by fully utilizing idle site assets
and infrastructure headspace, with emphasis on:
|
·
|
operational
expertise to produce ASTM D6751 quality biodiesel from diverse
feedstocks;
|
|
·
|
leveraging
quality certifications to supply demanding biodiesel
applications;
|
|
·
|
conversion
of available capacity at below new-build
costs;
|
|
·
|
service
to regional markets and enhanced distribution channels to national
markets;
|
|
·
|
process
improvement to reduce costs of manufacturing;
and
|
|
·
|
adding
value to co-products and by-products from biofuels
production.
|
We
estimate that we produced 4% of all biodiesel produced in the United States
during 2009.
We
believe that we are one of the largest independent custom chemical manufacturers
in North America and that we will continue to grow this business based
upon:
|
·
|
long
term contracts for most custom manufacturing
products;
|
|
·
|
strong
relationships with customers who are market leaders, leading to repeat
business;
|
|
·
|
technical
capability to innovate processes, particularly the ability to apply both
chemistry and engineering disciplines to solve complex technical
problems;
|
|
·
|
responsiveness
and customer service from an entrepreneurial
organization;
|
|
·
|
ability
to practice a range of manufacturing scale;
and
|
|
·
|
process
improvement capability to achieve lowest-cost manufacturing
position.
|
We intend
to grow our multi-customer chemicals portfolio by developing technologies that
allow us to make use of renewable feedstock in order to produce a wide range of
specialty chemical products that replace or compete with chemicals produced from
fossil fuels, petroleum, and/or coal.
Improve
Gross Margins
We will
continue to work to maximize the value of our core businesses by improving gross
margins through:
|
·
|
enhancing
pricing processes and strategies, and optimizing biofuels channels to
market;
|
|
·
|
continuing
to pursue cost reduction opportunities, including improved operational
efficiency through business
simplification;
|
|
·
|
achieving
high utilization of manufacturing
assets;
|
|
·
|
improving
capital efficiency through high value de-bottlenecking opportunities and
incremental expansions of existing assets and infrastructure;
and
|
15
|
·
|
enhancing
custom manufacturing project selection and portfolio
mix.
|
However,
no assurances can be given that these objectives will be met, in whole or in
part.
Most of
our sales are FOB the Batesville plant, although some FOB points are in other
states or at foreign ports. While many of our 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 us to the
customer. Rarely are we the exporter of record, never are we the
importer of record into foreign countries and we are not always aware of the
exact quantities of our products that are moved into foreign markets by our
customers. We do track the addresses of our customers for invoicing
purposes and use this address to determine whether a particular sale is within
or outside the United States. Our revenues for the last three fiscal
years attributable to the United States and foreign countries (based upon the
billing addresses of our customers) were as set forth in the following
table.
(Dollars
in thousands)
|
Period
|
United
States
|
All
Foreign
Countries
|
Total
|
|||||||||
|
Year
ended December 31, 2009
|
$ | 179,505 | $ | 17,206 | $ | 196,711 | ||||||
|
Year
ended December 31, 2008
|
$ | 164,963 | $ | 33,367 | $ | 198,330 | ||||||
|
Year
ended December 31, 2007
|
$ | 141,233 | $ | 28,555 | $ | 169,788 | ||||||
For the
years ended December 31, 2009, 2008, and 2007, revenues from Mexico
accounted for 8%, 11%, and 11%, respectively, of total
revenues. Beginning in the third quarter of 2007 and ending in 2008,
FutureFuel Chemical Company sold significant quantities of biodiesel to
companies from Canada, during which time revenues from Canada became a material
component of total revenues. Revenues from Canada accounted for 0%,
5%, and 5% of total revenues for each of the years ended December 31, 2009,
2008, and 2007, respectively. Other than Mexico and Canada, revenues
from a single foreign country during 2009, 2008, and 2007 did not exceed 1% of
our total revenues.
All of
our long-lived assets are located in the United States.
See
“Item 1A. Risk Factors” below for a discussion of risks attendant to our
foreign operations.
We make
available free of charge, through the “Investor Relations - SEC Filings” section
of our Internet website (http://www.FutureFuelCorporation.com), our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports, filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “
Exchange
Act
”), as soon as reasonably practicable after electronically filing such
material with, or furnishing it to, the Securities and Exchange Commission
(“
SEC
”). Once
filed with the SEC, such documents may be read and/or copied at the SEC’s Public
Reference Room at 100 F Street N.E., Washington, D.C.
20549. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-800-SEC-0330. In addition, the
SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that electronically file
with the SEC at http://www.sec.gov.
We make
available free of charge, through the “Investor Relations - Corporate
Governance” section of our website (http://www.FutureFuelCorporation.com), the
corporate governance guidelines of our board of directors, the charters of each
of the committees of our board of directors, and codes of ethics and business
conduct for our directors, officers and employees. Such materials
will be made available in print upon the written request of any shareholder to
FutureFuel Corp., 8235 Forsyth Blvd., 4
th
Floor, Clayton, Missouri 63105, Attention: Investor Relations.
16
An
investment in us involves a high degree of risk and may result in the loss of
all or part of your investment. You should consider carefully all of
the information set out in this document and the risks attaching to an
investment in us, including, in particular, the risks described
below. The information below does not purport to be an exhaustive
list and should be considered in conjunction with the contents of the rest of
this document.
The
federal excise tax credit for biodiesel expired on December 31, 2009 and
Congress has not enacted legislation to extend this credit. If the
credit is not renewed, our cost of producing biodiesel will be increased, which
could have an adverse effect on our financial position.
In
October 2004, Congress passed a biodiesel tax incentive, structured as a federal
excise tax credit, as part of the American Jobs Creation Act of
2004. The credit amounted to one cent for each percentage point of
vegetable oil or animal fat biodiesel that was blended with petrodiesel (and
one-half cent for each percentage point of recycled oils and other
non-agricultural biodiesel), subsequently amended and increased to one
cent. For example, blenders that blended B20 made from soy, canola
and other vegetable oils and animal fats received a 20¢ per gallon excise tax
credit. The tax incentive generally was taken by petroleum
distributors and was passed on to the consumer. It was designed to
lower the cost of biodiesel to consumers in both taxable and tax-exempt
markets. The tax credit was scheduled to expire at the end of 2006,
but was extended in the Energy Policy Act of 2005 to December 31, 2008 and
most recently it was extended to December 31, 2009.
Congress
did not enact any legislation to extend this tax credit beyond December 31,
2009 and it expired at that time. In December 2009, the United States
House of Representatives passed a bill extending this credit to
December 31, 2010. On March 10, 2010, the United States
Senate passed a similar bill as part of the American Workers, State and Business
Relief Act, H.R. 4213. In addition to extending the credit to
December 31, 2010, both bills retroactively apply the credit to the
beginning of 2010. The House and Senate bills must now be reconciled
before being sent to the President for his signature. The exact
timeframe for reconciling the two bills has not been set. If the tax
credit is not renewed, our biodiesel production costs will increase by $1.00 per
gallon. If biodiesel feedstock costs do not decrease significantly
relative to biodiesel prices, we will realize a negative gross margin on
biodiesel. As a result, we would cease producing biodiesel, which
could have an adverse effect on our financial condition.
The
current volatility in global economic conditions and the financial markets may
adversely affect our industry, business and results of operations.
The
volatility and disruption to the capital and credit markets since mid-2008 have
affected global economic conditions, resulting in significant recessionary
pressures and declines in consumer confidence and economic
growth. These conditions have led to economic contractions in the
developed economies and reduced growth rates in the emerging
markets. Despite fiscal and monetary intervention, it is possible
that further declines in consumer spending and global growth rates may occur in
the foreseeable future. Reduced consumer spending may cause changes
in customer order patterns including order cancellations, and changes in the
level of inventory held by our customers, which may adversely affect our
industry, business and results of operations. The impact of the
credit crisis and economic slowdown will vary by region and
country. The diversity of our geographic customer and operating
footprint limits our reliance and exposure to any single economy.
These
conditions have also resulted in a substantial tightening of the credit markets,
including lending by financial institutions and other sources of credit and
liquidity. This tightening of the credit markets has increased the
cost of capital and reduced the availability of credit. Based on our
latest discussions, we believe that our sources of credit and liquidity are able
to fulfill their commitments to us as of our filing date. We cannot
predict, however, how long the current economic and capital and credit market
conditions will continue, whether they will deteriorate and which aspects of our
products or business could be adversely affected. However, if current
levels of economic and capital and credit market disruption and volatility
continue or worsen, there can be no assurance that we will not experience an
adverse impact, which may be material, on our business, the cost of and access
to capital and credit markets, and our results of operations. In
addition, we monitor the financial condition of our customers on a regular basis
based on public information or data provided directly to us. If the
financial condition of one of our major customers was
17
negatively
impacted by market conditions or liquidity, we could be adversely impacted in
terms of accounts receivable and/or inventory specifically attributable to
them.
The
industries in which we compete are highly competitive.
The
biodiesel industry, as well as the chemical business, are highly
competitive. There is competition within these industries and also
with other industries in supplying the energy, fuel and chemical needs of
industry and individual consumers. We will compete with other firms
in the sale or purchase of various goods or services in many national and
international markets. We will compete with large national and
multi-national companies that have longer operating histories, greater
financial, technical and other resources and greater name recognition than we
do. In addition, we will compete with several smaller companies
capable of competing effectively on a regional or local basis, and the number of
these smaller companies is increasing. Our competitors may be able to
respond more quickly to new or emerging technologies and services and changes in
customer requirements. As a result of competition, we may lose market
share or be unable to maintain or increase prices for our products and/or
services or to acquire additional business opportunities, which could have a
material adverse effect on our business, financial condition, results of
operations and cash flows. Although we will employ all methods of
competition which are lawful and appropriate for such purposes, no assurances
can be made that they will be successful. A key component of our
competitive position, particularly given the expected commodity-based nature of
many of our products, will be our ability to manage expenses successfully, which
requires continuous management focus on reducing unit costs and improving
efficiency. No assurances can be given that we will be able to
successfully manage such expenses.
Our
competitive position in the markets in which we participate is, in part, subject
to external factors in addition to those that we can impact. Natural
disasters, changes in laws or regulations, war or other outbreak of hostilities,
or other political factors in any of the countries or regions in which we
operate or do business, or in countries or regions that are key suppliers of
strategic raw materials, could negatively impact our competitive position and
our ability to maintain market share.
Increases
in the construction of biodiesel production plants may cause excess biodiesel
production capacity in the market. Excess capacity may adversely
affect the price at which we are able to sell the biodiesel that we produce and
may also adversely affect our anticipated results of operation and financial
condition.
In 2008
and 2009, approximately 700 million gallons and 450-490 million
gallons, respectively, of biodiesel were produced in the United
States. As of June 22, 2009, there were a reported
2.69 billion gallons per year of biodiesel production capacity in the
United States operated by 173 companies. Twenty-nine companies had
announced expansions totaling an addition 428 million gallons of production
when completed within the next 12-18 months. See
http://www.biodiesel.org/pdf_files/fuelfactsheets/Production_Capacity.pdf
. With
such biodiesel production capacity in the United States, compared to historical
production levels, there is a risk that there will be a significant amount of
excess biodiesel produced in the U.S., which may adversely affect the price at
which we are able to sell the biodiesel that we produce and thereby adversely
affect our anticipated results of operation and financial
condition.
The
U.S. biodiesel manufacturing base is contracting. This contraction
may adversely affect our ability to sell biodiesel.
The
excess biodiesel production in the U.S. as described above has been ameliorated
somewhat in 2009 in that at least two-thirds of 177 plants are idled while
others have reduced production, which has resulted in approximately
450-490 million gallons of biodiesel actually produced in the United States
in 2009 as compared to actual production capacity. Further industry
consolidation is expected. While such industry consolidation
addresses the issue of excess production, it could affect the willingness of
potential customers to purchase biodiesel if they perceive that the biodiesel
market is not a stable long-term supply of product, which could adversely affect
our financial condition and results of operation.
18
Anti-subsidy
and anti-dumping complaints have been filed with the European Commission
concerning imports of biodiesel originating in the United States. The
existence of such complaints, and an adverse decision by the European
Commission, could reduce demand for biodiesel produced in the United
States.
Anti-subsidy
and anti-dumping complaints have been filed with the European Commission
concerning imports of biodiesel originating in the United
States. Although we are not a target of such complaints and do not
import biodiesel into the European community, the existence of such complaints,
and an adverse decision by the European Commission, could reduce demand for
biodiesel produced in the United States. Such a reduction in demand
could reduce the amount of biodiesel that we sell, which could have an adverse
effect on our financial condition.
Fluctuations
in commodity prices may cause a reduction in the demand or profitability of the
products or services we produce.
Prices
for alternative fuels tend to fluctuate widely based on a variety of political
and economic factors. These price fluctuations heavily influence the
oil and gas industry. Lower energy prices for existing products tend
to limit the demand for alternative forms of energy services and related
products and infrastructure. Historically, the markets for
alternative fuels have been volatile, and they are likely to continue to be
volatile. Wide fluctuations in alternative fuel prices may result
from relatively minor changes in the supply of and demand for oil and natural
gas, market uncertainty and other factors that are beyond our control,
including:
|
|
·
|
worldwide
and domestic supplies of oil and
gas;
|
|
|
·
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the
price and/or availability of biodiesel
feedstocks;
|
|
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·
|
weather
conditions;
|
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·
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the
level of consumer demand;
|
|
|
·
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the
price and availability of alternative
fuels;
|
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·
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the
availability of pipeline and refining
capacity;
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·
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the
price and level of foreign imports;
|
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·
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domestic
and foreign governmental regulations and
taxes;
|
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·
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the
ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production
controls;
|
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·
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political
instability or armed conflict in oil-producing regions;
and
|
|
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·
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the
overall economic environment.
|
These
factors and the volatility of the commodity markets make it extremely difficult
to predict future alternative fuel price movements with any
certainty. There may be a decrease in the demand for our products or
services and our profitability could be adversely affected.
We
are reliant on certain strategic raw materials for our operations.
We are
reliant on certain strategic raw materials (such as acetic anhydride, pelargonic
acid, soybean oil and methanol) for our operations. We have
implemented certain risk management tools, such as multiple suppliers and
hedging, as appropriate, to mitigate short-term market fluctuations in raw
material supply and costs. There can be no assurance, however, that
such measures will result in cost savings or that all market fluctuation
exposure will be eliminated. In addition, natural disasters, changes
in laws or regulations, war or other outbreak of hostilities, or other political
factors in any of the countries or regions in which we operate or do business,
or in countries or regions that are key suppliers of strategic raw materials,
could affect availability and costs of raw materials.
19
While
temporary shortages of raw materials may occasionally occur, these items have
historically been sufficiently available to cover current
requirements. However, their continuous availability and price are
impacted by natural disasters, plant interruptions occurring during periods of
high demand, domestic and world market and political conditions, changes in
government regulation, and war or other outbreak of hostilities. In
addition, as we increase our biodiesel capacity, we will require larger supplies
of raw materials which have not yet been secured and may not be available for
the foregoing reasons, or may be available only at prices higher than current
levels. Our operations or products may, at times, be adversely
affected by these factors.
We
are reliant upon two customers for a substantial amount of our
sales.
All sales
of the bleach activator are made to The Procter & Gamble Company and all
sales of a proprietary herbicide and certain other intermediates used in the
production of this herbicide are made to Arysta LifeScience North America
Corporation. These two customers represented approximately 53% of our
revenues for the year ended December 31, 2009. The contract with
The Procter & Gamble Company is a multi-year contract and no assurances can
be given that such contract will be extended or, if extended, upon what
terms. The contracts with Arysta LifeScience North America
Corporation contain certain termination provisions and no assurances can be
given that these contracts will not be terminated. The loss of these
two companies as customers would have a material adverse effect on
us.
Changes
in technology may render our products or services obsolete.
The
alternative fuel and chemical industries may be substantially affected by rapid
and significant changes in technology. Examples include competitive
product technologies, such as green gasoline and renewable diesel produced from
catalytic hydroforming of renewable feedstock oils and competitive process
technologies such as advanced biodiesel continuous reactor and washing designs
that increase throughput. These changes may render obsolete certain
existing products, energy sources, services and technologies currently used by
us. We cannot assure you that the technologies used by or relied upon
by us will not be subject to such obsolescence. While we may attempt
to adapt and apply the services provided by us to newer technologies, we cannot
assure you that we will have sufficient resources to fund these changes or that
these changes will ultimately prove successful.
Failure
to comply with governmental regulations could result in the imposition of
penalties, fines or restrictions on operations and remedial
liabilities.
The
biofuel and chemical industries are subject to extensive federal, state, local
and foreign laws and regulations related to the general population’s health and
safety and those associated with compliance and permitting obligations
(including those related to the use, storage, handling, discharge, emission and
disposal of municipal solid waste and other waste, pollutants or hazardous
substances or waste, or discharges and air and other emissions) as well as land
use and development. Existing laws also impose obligations to clean
up contaminated properties or to pay for the cost of such remediation, often
upon parties that did not actually cause the
contamination. Compliance with these laws, regulations and
obligations could require substantial capital expenditures. Failure
to comply could result in the imposition of penalties, fines or restrictions on
operations and remedial liabilities. These costs and liabilities
could adversely affect our operations.
Changes
in environmental laws and regulations occur frequently, and any changes that
result in more stringent or costly waste handling, storage, transport, disposal
or cleanup requirements could require us to make significant expenditures to
attain and maintain compliance and may otherwise have a material adverse effect
on our business segments in general and on our results of operations,
competitive position or financial condition. We are unable to predict
the effect of additional environmental laws and regulations which may be adopted
in the future, including whether any such laws or regulations would materially
adversely increase our cost of doing business or affect our operations in any
area.
Under
certain environmental laws and regulations, we could be held strictly liable for
the removal or remediation of previously released materials or property
contamination regardless of whether we were responsible for the release or
contamination, or if current or prior operations were conducted consistent with
accepted standards of practice. Such liabilities can be significant
and, if imposed, could have a material adverse effect on our financial condition
or results of operations.
20
Our
biofuels operations may be harmed if the government were to change current laws
and regulations.
Alternative
fuels businesses benefit from tax credits and government
subsidies. If any of the state or federal laws and regulations
relating to the tax credits and government subsidies change, the ability to
recover capital expenditures from our alternative fuels business could be
harmed. Our biofuels platform is subject to federal, state, and local
laws and regulations governing the application and use of alternative energy
products, including those related specifically to biodiesel. For
instance, biodiesel products benefit from being the only alternative fuel
certified by the U.S. Environmental Protection Agency that fulfills the
requirements of Section 211(B) of the Clean Air Act. If agency
determinations, laws, and regulations relating to the application and use of
alternative energy are changed, the marketability and sales of biodiesel
production could be materially adversely affected.
Market
conditions or transportation impediments may hinder access to raw goods and
distribution markets.
Market
conditions, the unavailability of satisfactory transportation, or the location
of our manufacturing complex from more lucrative markets may hinder our access
to raw goods and/or distribution markets. The availability of a ready
market for biodiesel depends on a number of factors, including the demand for
and supply of biodiesel and the proximity of the plant to trucking and terminal
facilities. The sale of large quantities of biodiesel necessitates
that we transport our biodiesel to other markets since the Batesville, Arkansas
regional market is not expected to absorb all of our contemplated
production. Currently, common carrier pipelines are not transporting
biodiesel. This leaves trucks, barges, and rail cars as the means of
distribution of our product from the plant to these storage terminals for
further distribution. However, the current availability of rail cars
is limited and at times unavailable because of repairs or improvements, or as a
result of priority transportation agreements with other
shippers. Additionally, the current availability of barges is
limited, particularly heated barges to transport biodiesel during winter
months. If transportation is restricted or is unavailable, we may not
be able to sell into more lucrative markets and consequently our cash flow from
sales of biodiesel could be restricted.
The
biodiesel industry also faces several challenges to wide biodiesel acceptance,
including cold temperature limitations, storage stability, fuel quality
standards, and exhaust emissions. If the industry does not satisfy
consumers that these issues have been resolved or are being resolved, biodiesel
may not gain widespread acceptance which may have an adverse impact on our cash
flow from sales of biodiesel.
Our
insurance may not protect us against our business and operating
risks.
We
maintain insurance for some, but not all, of the potential risks and liabilities
associated with our business. For some risks, we may not obtain
insurance if we believe the cost of available insurance is excessive relative to
the risks presented. As a result of market conditions, premiums and
deductibles for certain insurance policies can increase substantially and, in
some instances, certain insurance policies may become unavailable or available
only for reduced amounts of coverage. As a result, we may not be able
to renew our existing insurance policies or procure other desirable insurance on
commercially reasonable terms, if at all. Although we will maintain
insurance at levels we believe are appropriate for our business and consistent
with industry practice, we will not be fully insured against all risks which
cannot be sourced on economic terms. In addition, pollution and
environmental risks generally are not fully insurable. Losses and
liabilities from uninsured and underinsured events and delay in the payment of
insurance proceeds could have a material adverse effect on our financial
condition and results of operations.
If a
significant accident or other event resulting in damage to our operations
(including severe weather, terrorist acts, war, civil disturbances, pollution,
or environmental damage) occurs and is not fully covered by insurance or a
recoverable indemnity from a customer, it could adversely affect our financial
condition and results of operations.
We
depend on key personnel, the loss of any of whom could materially adversely
affect our future operations.
Our
success will depend to a significant extent upon the efforts and abilities of
our executive officers. The loss of the services of one or more of
these key employees could have a material adverse effect on us. Our
business will also be dependent upon our ability to attract and retain qualified
personnel. Acquiring or retaining these personnel could prove more
difficult to hire or cost substantially more than estimated. This
could cause us to incur greater costs, or prevent us from pursuing our expansion
strategy as quickly as we would otherwise wish to do.
21
If
we are unable to effectively manage the commodity price risk of our raw
materials or finished goods, we may have unexpected losses.
We hedge
our raw materials and/or finished products for our biofuels segment to some
degree to manage the commodity price risk of such items. This
requires the purchase or sale of commodity futures contracts and/or options on
those contracts or similar financial instruments. We may be forced to
make cash deposits available to counterparties as they mark-to-market these
financial hedges. This funding requirement may limit the level of
commodity price risk management that we are prudently able to
complete. If we do not or are not capable of managing the commodity
price risk of our raw materials and/or finished products for our biofuels
segment, we may incur losses as a result of price fluctuations with respect to
these raw materials and/or finished products.
In most
cases we are not capable of hedging raw material and/or finished products for
our chemicals segment. Certain of our products are produced under
manufacturing agreements with our customers which provide us the contractual
ability to pass along raw material price increases. However, we do
not have this protection for all product lines within the chemicals
segment. If we do not or are not capable of managing escalating raw
material prices and/or passing these increases along to our customers via prices
for our finished products, we may incur losses.
If
we are unable to acquire or renew permits and approvals required for our
operations, we may be forced to suspend or cease operations
altogether.
The
operation of our manufacturing plant requires numerous permits and approvals
from governmental agencies. We may not be able to obtain all
necessary permits (or modifications thereto) and approvals and, as a result, our
operations may be adversely affected. In addition, obtaining all
necessary renewal permits (or modifications to existing permits) and approvals
for future expansions may necessitate substantial expenditures and may create a
significant risk of expensive delays or loss of value if a project is unable to
function as planned due to changing requirements.
The
lack of business diversification may adversely affect our results of
operations.
It is
possible that we will not consummate more than one business combination with the
proceeds from our July 2006 offering and FutureFuel Chemical Company may be the
only target business that we acquire. Accordingly, the prospects for
our success may be entirely dependent upon FutureFuel Chemical
Company. Unlike other entities which may have the resources to
complete several business combinations of entities operating in multiple
industries or multiple areas of a single industry, it is possible that we will
not have the resources to diversify effectively our operations or benefit from
the possible spreading of risks or offsetting of losses.
Our
indebtedness may limit our ability to borrow additional funds or capitalize on
acquisition or other business opportunities.
We have
entered into a $50 million revolving credit facility with a commercial
bank. The restrictions governing this indebtedness (such as total
debt to EBITDA limitations) may reduce our ability to incur additional
indebtedness, engage in certain transactions or capitalize on acquisition or
other business opportunities. If we are unable to meet our future
debt service obligations and other financial obligations, we could be forced to
restructure or refinance such indebtedness and other financial transactions,
seek additional equity or sell assets.
We
expect to have capital expenditure requirements, and we may be unable to obtain
needed financing on satisfactory terms.
We expect
to make capital expenditures for the expansion of our biofuels and chemicals
production capacity and complementary infrastructure. We intend to
finance these capital expenditures primarily through cash flow from our
operations, borrowings under our credit facility, and existing
cash. However, if our capital requirements vary materially from those
provided for in our current projections, we may require additional financing
sooner than anticipated. A decrease in expected revenues or adverse
change in market conditions could make obtaining this financing economically
unattractive or impossible. As a result, we may lack the capital
necessary to complete the projected expansions or capitalize on other business
opportunities.
22
We
may be unable to successfully integrate future acquisitions with our operations
or realize all of the anticipated benefits of such acquisitions.
Failure
to successfully integrate future acquisitions, if any, in a timely manner may
have a material adverse effect on our business, financial condition, results of
operations, and cash flows. The difficulties of combining acquired
operations include, among other things:
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·
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operating
a significantly larger combined
organization;
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·
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consolidating
corporate technological and administrative
functions;
|
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·
|
integrating
internal controls and other corporate governance matters;
and
|
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·
|
diverting
management’s attention from other business
concerns.
|
In
addition, we may not realize all of the anticipated benefits from future
acquisitions, such as increased earnings, cost savings, and revenue
enhancements, for various reasons, including difficulties integrating operations
and personnel, higher and unexpected acquisition and operating costs, unknown
liabilities, and fluctuations in markets. If benefits from future
acquisitions do not meet the expectations of financial or industry analysts, the
market price of our shares of common stock may decline.
The
exercise of our warrants are subject to transfer and exercise requirements under
the Securities Act. In addition, our warrants are represented by
definitive certificates, which could reduce the liquidity of our
warrants.
The
exercise of the warrants for shares of our common stock are subject to certain
conditions designed to ensure compliance with U.S. securities
laws. More specifically, we are not obligated to deliver securities
upon the exercise of a warrant unless we receive a written certification that
the exercising warrant holder is neither within the U.S. nor a U.S. person and
that the warrant is not being exercised on behalf of a U.S. person (as such term
is defined in Regulation S of The United States Securities Act of 1933, as
amended (the “
Securities
Act
”). In the case of a holder who cannot make the foregoing
representation, we may require that the holder provide to us a written opinion
of counsel to the effect that the warrants and the shares of our common stock to
be delivered upon the exercise of such warrants have been registered under the
Securities Act or are exempt from registration thereunder and such securities
are qualified for sale or are exempt from qualification under applicable
securities laws of the state or other jurisdiction in which the registered
holder resides. (We have not, however, required this opinion in each
instance in which a warrant was exercised.) As a result, our warrants
are represented by definitive certificates which contain the following
legend.
Prior to
investing in the securities or conducting any transactions in the securities,
investors are advised to consult professional advisers regarding the
restrictions on transfer summarized below and any other
restrictions.
This
security (or its predecessor) was originally issued in a transaction exempt from
registration under the United States Securities Act of 1933, as amended (the
“Securities Act”), and is a restricted security (as defined in Rule 144
under the Securities Act). This security may not be offered, sold or
otherwise transferred in the absence of registration or an applicable exemption
therefrom. Hedging transactions involving this security may not be
conducted directly or indirectly, unless in compliance with the Securities
Act. Each purchaser of this security is hereby notified that the
seller of this security may be relying on the exemption from the provisions of
Section 5 of the Securities Act provided by Rule 144A or
Regulation S thereunder.
The
holder of this security agrees for the benefit of the Company that (a) this
security may be offered, resold, pledged or otherwise transferred, only
(i) in the United States to a person whom the seller reasonably believes is
a qualified
23
institutional
buyer (as defined in Rule 144A under the Securities Act) in a transaction
meeting the requirements of Rule 144A, (ii) outside of the
United\States in an offshore transaction in accordance with Rule 903 or
Rule 904 under the Securities Act, (iii) pursuant to an exemption from
registration under the Securities Act provided by Rule 144 thereunder (if
available) or (iv) pursuant to an effective registration statement under
the Securities Act, in each of cases (i) through (iv) in accordance with any
applicable securities laws of any state of the United States, and (b) the
holder will, and each subsequent holder is required to, notify any purchaser of
this security from it of the resale restrictions referred to in (a)
above.
The
securities represented by this certificate are subject to transfer restrictions
which require that in addition to any certifications required from a transferor
as set forth on the reverse of this certificate, prior to the expiration of a
distribution compliance period of at least one year, the transferee certifies as
to whether or not it is a US person within the meaning of Regulation S and
provides certain other certifications and agreements. Prior to
permitting any transfer, the Company may request an opinion of counsel
reasonably satisfactory to the Company that such transfer is to be effected in a
transaction meeting the requirements of Regulation S under the Securities
Act or is otherwise exempt from registration under the Securities
Act.
In order
to transfer or sell our warrants, holders must provide the definitive
certificates to the transfer agent, who will require certain certifications, and
on occasion a legal opinion, prior to issuing new warrant certificates to new
warrant holders. The Depository Trust Company, which settles
electronic trades, does not allow electronic settlement until the legend has
been removed and the certification requirements required under U.S. securities
laws have expired. The lack of a fully electronic settlement
mechanism may have a material adverse effect on the liquidity and the price of
our warrants.
A
minimum holding period for our shares received upon exercise of our warrants
will commence upon the exercise of such warrants.
The
shares of our common stock issued upon the exercise of a warrant generally will
be considered restricted securities subject to a six-month holding period as
described below. In general, a security holder who has not been our
affiliate for three months may resell these securities without any restriction
after satisfying the six-month holding period, provided that we are current in
our SEC filings.
The Rule
144 holding period for the shares of our common stock received upon exercise of
our warrants will start upon the exercise of such
warrants. Accordingly, holders of our warrants that exercise their
warrants for cash will receive shares of our common stock subject to trading
restrictions which are greater than those imposed on the trading of previously
issued shares. Such restrictions may mean the value of the shares
received upon exercise of the warrants may be significantly lower, at least
until the six-month holding period has expired, than the shares originally
issued.
If
our founding shareholders and Mr. Novelly or his designees exercise their
registration rights, such exercise may have an adverse effect on the market
price of our shares of common stock.
Those
shareholders holding shares of our common stock prior to our July 2006 offering
(the “founding shareholders”; see “Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters -- Founding
Shares Owned by the Founding Shareholders” below for a list of the founding
shareholders) and Mr. Paul A. Novelly, our executive chairman of the board, or
his designees, are entitled to demand that we register under the Securities Act,
the resale of their shares of our common stock issued prior to our July 2006
offering (the “founding shares”) and their shares included in the units
purchased in our July 2006 offering. The demand may be made at any
time after the date on which we have become a reporting company under the
Exchange Act, and their founding shares have been released from
escrow. This occurred on July 12, 2009. If our
founding shareholders exercise their registration rights with respect to all of
their shares of our common stock, there will be an additional 11,250,000 shares
and/or up to 5,000,000 shares issued on exercise of their warrants eligible for
trading in
24
the
public market. The presence of this additional number of shares
eligible for trading in the public market may have an adverse effect on the
market price of our shares.
We
may not list our common stock on a stock exchange other than the OTCBB and we
may not list our warrants on any stock exchange.
Under the
investor rights agreement that we entered into on July 12, 2006 with CRT
Capital Group LLC and KBC Peel Hunt Ltd, we are obligated to use our
commercially reasonable efforts to cause our shares of common stock to be
authorized to be quoted and/or listed (to the extent applicable) on the American
Stock Exchange, the New York Stock Exchange, the NASD Automated Quotation System
or the NASDAQ National Market (or, in each case, a successor thereto) or a
similarly recognized national trading platform, if our common stock so
qualifies. Prior to December 2008, we did not satisfy the listing
requirements of any such exchange other than the OTCBB. Application
for listing was made to the OTCBB and our shares of common stock are quoted
thereon. In December 2008, we met the listing requirements for
certain of the NASDAQ markets, and we are currently assessing whether listing on
a NASDAQ market is commercially reasonable. However, no assurances
can be given that we will list our common stock on such exchange, or, if listed,
whether our common stock will continue to qualify for quotation or listing on
such exchange or other similarly recognized national trading platform, including
the OTCBB.
We have
no obligation to list or quote our warrants on any exchange, and no assurances
can be given that we will attempt to cause our warrants to be authorized to be
quoted and/or listed on any exchange or recognized national trading
platform.
During
2009, we did not receive any comments from the SEC regarding our periodic or
current reports under the Exchange Act.
Our
principal asset is a manufacturing plant situated on approximately 2,200 acres
of land six miles southeast of Batesville in north central Arkansas fronting the
White River. Approximately 500 acres of the site are occupied with
batch and continuous manufacturing facilities, laboratories and infrastructure,
including on-site liquid waste treatment. FutureFuel Chemical Company
is the fee owner of this plant and the land upon which it is situated (which
plant and land are not subject to any major encumbrances), and manufactures both
biofuels and chemicals at the plant. Utilization of these facilities
may vary with product mix and economic, seasonal and other business conditions,
but the plant is substantially utilized with the exception of facilities
designated for capacity expansion of biodiesel. The plant, including
approved expansions, has sufficient capacity for existing needs and expected
near-term growth. We believe that the plant is generally well
maintained, in good operating condition and suitable and adequate for its
uses.
In
February 2009, we formed FFC Grain, L.L.C. to acquire a granary in Marianna,
Arkansas. FFC Grain, L.L.C. acquired the granary in March 2009 and
owns it in fee simple.
We
entered into an agreement with a customer to construct, at a fixed price, a
processing plant and produce a certain chemical for the customer. We
engaged a third party to act as general contractor on the construction of this
plant for a guaranteed price. That general contractor defaulted on
its obligations under its contract with us and abandoned the
project. As a result, we undertook the general contractor role
ourselves. We also filed suit against our former contractor to recoup
any damages that we may incur as a result of his default. The former
contractor has counterclaimed against us for amounts he asserts are due him
under our contract with him. At this time, we are unable to determine
what effect the general contractor’s counterclaim will have on us or on our
financial condition.
We are
not a party to, nor is any of our property subject to, any material pending
legal proceedings, other than the litigation described above and other than
ordinary routine litigation incidental to our business. However, from
time to time, we may be parties to, or targets of, lawsuits, claims,
investigations and proceedings, including product liability, personal injury,
asbestos, patent and intellectual property, commercial, contract, environmental,
antitrust,
25
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.
No matter
was submitted by us during the fourth quarter of 2009 to a vote of holders of
our securities, whether through the solicitation of proxies or
otherwise.
26
Market Informa
tion
Commencing
July 11, 2008, shares of our common stock were quoted on the OTCBB under
the symbol “FTFL”. The high and low bid quotations on the OTCBB for
our shares of common stock for 2008 for the periods during which it was quoted
on the OTCBB and for 2009 are set forth in the following table.
|
Shares
|
||||
|
Period
|
High
|
Low
|
||
|
July 11,
2008 - September 30, 2008
|
$7.00
|
$6.00
|
||
|
October
1, 2008 - December 31, 2008
|
$6.40
|
$4.00
|
||
|
January 1,
2009 - March 31, 2009
|
$4.98
|
$3.83
|
||
|
April 1,
2009 - June 30, 2009
|
$5.15
|
$4.70
|
||
|
July 1,
2009 - September 30, 2009
|
$7.04
|
$5.03
|
||
|
October 1,
2009 - December 31, 2009
|
$7.10
|
$6.00
|
||
Our
warrants are not quoted or listed on any established exchange or quotation
system.
There are
currently outstanding 28,572,570 shares of our common stock and warrants to
purchase 19,292,930 shares of our common stock at $6.00 per
share. Under U.S. securities laws at the time of our offering, shares
of our common stock and warrants that were sold or acquired on July 12,
2006 could not be re-sold until they had been held for two years, unless
registered with the SEC or unless an exemption from registration was
available. The relevant U.S. securities laws were revised to reduce
the holding period for non-affiliates to six months, effective February 15,
2008. As a result, such shares and warrants (subject, in the case of
warrants, to the qualification discussed below) may be sold by non-affiliates of
the Company, either within or outside the U.S., without restrictions imposed by
U.S. securities laws. Affiliates of the Company, defined generally as
any person that directly or indirectly controls, is controlled by, or is under
common control with the Company (typically directors, executive officers, and
primary shareholders) remain limited in the amount and manner in which they may
sell our shares and warrants. Thus, non-affiliates who acquired our
shares and warrants which were issued in our initial offering on July 12,
2006 may generally freely trade those shares and warrants in the United
States.
Please
note, however, that the exercise of the warrants for shares of our common stock
are subject to certain conditions designed to ensure compliance with U.S.
securities laws. These conditions include the provision to us of a
written certification that the exercising shareholder is neither within the U.S.
nor a U.S. person and that the warrant is not being exercised on behalf of a
U.S. person. In the case of a holder who cannot make the foregoing
representation, we may require that the holder provide to us a written opinion
of counsel to the effect that the warrants and the shares of our common stock to
be delivered upon the exercise of such warrants have been registered under the
Securities Act or are exempt from registration thereunder and such securities
are qualified for sale or are exempt from qualification under applicable
securities laws of the state or other jurisdiction in which the registered
holder resides. The shares of our common stock issued upon the
exercise of a warrant generally will be considered restricted securities subject
to a six-month holding period. In general, a security holder who has
not been an affiliate of the Company for three months may resell these
securities without any restriction after satisfying the six-month holding
period, provided that we are current in our SEC filings. Because of
these restrictions, our warrants must contain an appropriate legend, which means
they must be certificated.
The
shares of our common stock and our warrants were held by approximately 385 and
67 holders of record, respectively, on March 4, 2010 as recorded on our
transfer agents’ registers.
27
The
payment of cash dividends by us is dependent upon our existing cash and cash
equivalents, future earnings, capital requirements, and overall financial
condition. Based on such criteria, we paid special cash dividends of
$0.70 and $0.30 per share on our common stock in 2008 and 2009,
respectively. In addition, we declared a special cash dividend on
March 12, 2010 of $0.20 per share on our common stock, with a record date
of March 23, 2010 and payable on April 9, 2010. No assurances
can be given that we will pay additional dividends in 2010 or thereafter or, if
we do pay dividends in the future, no assurances can be given as to the amount
of such dividends.
Our board
of directors adopted an omnibus incentive plan which was approved by our
shareholders at our 2007 annual shareholder meeting on June 26,
2007. We do not have any other equity compensation
plan. Under this plan, we are authorized to issue 2,670,000 shares of
our common stock. The shares to be issued under the plan were
registered with the SEC on a Form S-8 filed on April 29,
2008. Through December 31, 2009, we issued options to purchase
690,500 shares of our common stock and awarded an additional 39,800 shares to
participants under the plan. The following additional information
regarding this plan is as of December 31, 2009.
|
Plan
Category
|
Number
of securities
to
be issued upon
exercise
of
outstanding
options,
warrants
and rights
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
|
Number
of securities
remaining
available
or
future issuance
under
equity
compensation
plans
(excluding
securities
reflected
in column
(a))
|
|
(a)
|
(b)
|
(c)
|
|
|
Equity
compensation plans
approved
by security holders
|
422,500
|
$6.41
|
1,939,700
|
The
following graph shows changes over the 41-month period beginning July 13,
2006 (the completion of our offering of units) through December 31, 2009 in
the value of a $100 investment in: (i) our common stock; (ii) Russell
2000; and (iii) an industry group of other companies that file reports with
the SEC using SIC Code 2860. These companies are: AE Biofuels Inc.,
Alternative Energy Sources Inc., Aventine Renewable Energy Holdings Inc.,
Biofuel Energy Corp., Bluefire Ethanol Finanzierungs Inc., Cavitation
Technologies Inc., China Clean Energy Inc., China Rutai International Holdings
Company, Epolin Inc., Ethos Environmental Inc., Four Rivers Bioenergy Inc.,
Freestone Resources Inc., FutureFuel Corp., Geo Systems Chemicals Inc., Global
Clean Energy Inc., Global Green Solutions Inc., Green Energy Resources Inc.,
Green Plains Renewable Energy Inc., Greenshift Corp., Hybrid Fuels Inc.,
International Flavors & Fragrances Inc., Kreido Biofuels Inc., Luna
Technologies International Inc., Momentum Biofuels Inc., New Generation Biofuels
Holdings Inc., OM Group Inc., Originoil Inc., Orion Ethanol Inc., Pacific
Ethanol Inc., Panda Ethanol Inc., Pure Biofuels Corp., Rentech Inc., Stratos
Renewables Corp., Synthetech Inc., Texas Petrochemicals Inc., United Energy
Corp., Verasun Energy Corp., and Westlake Chemical Corp.
28
We did
not sell any of our securities within the three-year period ended
December 31, 2009.
Neither
we nor anyone acting on our behalf purchased during 2009 any shares of our
common stock, which is the only class of our equity securities that is
registered pursuant to section 12 of the Exchange Act.
The
following chart sets forth the status of the outstanding warrants as of
December 31, 2008.
|
Initial
issuance of warrants
|
22,500,000
|
|
Warrants
exercised in 2006
|
-
|
|
Outstanding
warrants at December 31, 2006
|
22,500,000
|
|
Warrants
exercised in 2007
|
-
|
|
Outstanding
warrants at December 31, 2007
|
22,500,000
|
|
Warrants
exercised in 2008
|
1,182,500
|
|
Outstanding
warrants at December 31, 2008
|
21,317,500
|
No
warrants were exercised in 2009.
29
During
2009, our board approved the purchase by us of our outstanding warrants, whether
in the open market or through privately negotiated transactions, in an aggregate
amount not to exceed $3 million. Pursuant to that authorization,
during 2009, we purchased and canceled the following warrants.
|
Date
|
#
of Warrants
|
Average
Price Per Warrant
|
Purchase
Price
|
||||||||
|
August
1-31, 2009
|
1,100,000 | $0.35 | $ | 385,005 | |||||||
|
October
1-31, 2009
|
91,400 | $0.70 | 63,985 | ||||||||
|
November
1-30, 2009
|
450,900 | $0.78 | 350,720 | ||||||||
|
Total
|
1,642,300 | $ | 799,710 | ||||||||
As a
result of those purchases, there were 19,675,200 of our warrants outstanding as
of December 31, 2009.
Historically,
the business and assets included in FutureFuel Chemical Company were accounted
for by Eastman Chemical Company in various segments of Eastman Chemical
Company’s overall business. Although FutureFuel Chemical Company was
incorporated on September 1, 2005, Eastman Chemical Company did not begin
transferring assets into FutureFuel Chemical Company until January 1, 2006
and completed the transfer in subsequent periods prior to the closing of our
acquisition of FutureFuel Chemical Company. Notwithstanding that
FutureFuel Chemical Company was a separately incorporated entity, Eastman
Chemical Company did not prepare separate financial statements for FutureFuel
Chemical Company nor was it required to do so under local law or accounting
rules. Rather, the operations of the Batesville plant were reported
within Eastman Chemical Company based upon the underlying products, and the
revenues and expenses of the plant were presented in various segments within
Eastman Chemical Company’s financial statements. In addition,
allocations to the plant of Eastman Chemical Company overhead (such as
insurance, employee benefits, legal expenses and the like) were based upon
assumptions made by Eastman Chemical Company and such assumptions historically
did not reflect expenses which FutureFuel Chemical Company would have incurred
had it been a stand-alone entity. Since we did not acquire or succeed
to all of the assets and liabilities of Eastman Chemical Company, “carve-out”
financial statements have been prepared for the acquired component business,
excluding the continuing operations retained by Eastman Chemical Company, and
allocations for overhead components described above have been
effected.
For
purposes of preparing our financial statements, we initially accounted for the
acquisition of Eastman SE, Inc. as a reverse acquisition and did not apply
purchase accounting to such transaction. On July 27, 2007, we
issued a Form 8-K pursuant to Item 4.02(a) of Form 8-K, informing
investors that our 2006 Annual Financial Statements should not be relied upon
for the reasons set forth therein. A copy of that Form 8-K may
be obtained free of charge on our website at
http://ir.futurefuelcorporation.com/sec.cfm
or by
requesting the same from us at FutureFuel Corp., 8235 Forsyth Blvd., 4
th
Floor, Clayton, Missouri 63105 Attn: Investor Relations. We restated
our 2006 financial statements to apply purchase accounting to our acquisition of
Eastman SE, Inc., a portion of which 2006 financial statements are included
herein. See Note 2 to our consolidated financial statements for
the year ended December 31, 2006 included in Amendment No. 3 to our
Form 10 filed with the SEC on April 9, 2008 for a detailed discussion
of the effects of such restatement.
The
following tables set forth our and FutureFuel Chemical Company’s summary
historical financial and operating data for the periods indicated
below. This summary historic financial and operating data has been
derived from FutureFuel Chemical Company’s “carve-out” financial statements as
of and for the ten months ended October 31, 2006 (the period between
January 1, 2006 and the date we acquired FutureFuel Chemical Company), and
the twelve months ended December 31, 2005, and our consolidated financial
statements for the twelve months ended December 31, 2006, 2007, 2008, and
2009, all of which are included elsewhere herein or in Amendment No. 3 to
our Form 10 filed with the SEC on April 9, 2008. The
information presented in the table below should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and such financial statements and notes thereto. The
selected financial data for FutureFuel Chemical Company prior to our acquisition
thereof represent the complete financial information prepared and provided by
Eastman Chemical Company to us in conjunction with the carve out and sale of the
Batesville plant to us for the twelve months ended December 31, 2005, as
well as the ten months ended October 31, 2006.
30
(Dollars
in thousands, except per share amounts)
|
FutureFuel
Corp. Consolidated
|
FutureFuel
Corp.
and FutureFuel Chemical Company Combined
|
FutureFuel
Corp.
Consolidated
|
FutureFuel
Chemical Company
|
|||||||||||||||||||||||||
|
Item
|
Twelve
Months
Ended
December 31, 2009
|
Twelve
Months
Ended
December 31, 2008
|
Twelve
Months
Ended
December 31, 2007
|
Twelve
Months
Ended
December 31, 2006
|
Twelve
Months
Ended
December 31, 2006
|
Ten
Months Ended October 31,
2006
|
Twelve
Months
Ended
December 31, 2005
|
|||||||||||||||||||||
|
Operating
Revenues
|
$ | 196,711 | $ | 198,330 | $ | 169,788 | $ | 150,770 | $ | 23,043 | $ | 127,727 | $ | 119,539 | ||||||||||||||
|
Net
income (loss)
|
$ | 16,992 | $ | 22,675 | $ | 8,408 | $ | 2,242 | $ | 2,717 | $ | (475 | ) | $ | 381 | |||||||||||||
|
Earnings
per common share:
|
||||||||||||||||||||||||||||
|
Basic
|
$ | 0.60 | $ | 0.84 | $ | 0.31 | $ | 0.08 | $ | 0.10 |
NA
|
NA
|
||||||||||||||||
|
Diluted
|
$ | 0.58 | $ | 0.82 | $ | 0.26 | $ | 0.07 | $ | 0.09 |
NA
|
NA
|
||||||||||||||||
|
Total
Assets
|
$ | 246,007 | $ | 238,126 | $ | 216,113 | $ | 203,059 | $ | 203,516 |
NA
|
$ | 114,500 | |||||||||||||||
|
Long-term
obligations
|
$ | 34,842 | $ | 34,377 | $ | 24,353 | $ | 20,740 | $ | 20,740 |
NA
|
$ | 24,830 | |||||||||||||||
|
Cash
dividends per common share
|
$ | 0.30 | $ | 0.70 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||||||||
|
Net
cash provided by (used in) operating activities
|
$ | 25,883 | $ | 36,275 | $ | 21,554 | $ | (3,960 | ) | $ | (12,494 | ) | $ | 8,534 | $ | 7,556 | ||||||||||||
|
Net
cash provided by (used in) investing activities
|
$ | 21,430 | $ | (52,009 | ) | $ | (29,978 | ) | $ | (91,168 | ) | $ | (82,619 | ) | $ | (8,549 | ) | $ | (6,594 | ) | ||||||||
|
Net
cash provided by (used in) financing activities
|
$ | (9,256 | ) | $ | (11,466 | ) | $ | (50 | ) | $ | 158,229 | $ | 158,214 | $ | 15 | $ | (962 | ) | ||||||||||
For the
combined year ended December 31, 2006, operating revenues, net income
(loss) and earnings per common share combine our consolidated results for the
entire twelve months ended December 31, 2006 and FutureFuel Chemical
Company’s results for the ten months ended October 31,
2006. This information is for illustrative purposes
only. The consolidated company would likely have performed
differently had they always been combined. The information should not
be relied on as an indication of future results that the combined company will
experience after the acquisition of FutureFuel Chemical Company because of a
variety of factors, including access to additional information and changes in
value.
Our
Amendment No. 3 to Form 10 Registration Statement filed with the SEC
on April 9, 2008 contains all the financial statements and selected
financial data for FutureFuel Chemical Company that was provided to us by
Eastman Chemical Company.
Prior to
the initiation of its biofuels program in 2005, the Batesville plant did not
report financial results by business “segments” as defined by generally accepted
accounting principles. After the initiation of such program and upon
divestiture, it defined two segments: chemicals and biofuels.
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
31
statements. See
“Forward Looking Information” below for additional discussion regarding risks
associated with forward-looking statements.
Our net
cash provided by (used in) operating activities, investing activities and
financing activities for the years ended December 31, 2009, 2008, and 2007
are set forth in the following chart.
(Dollars
in thousands)
|
2009
|
2008
|
2007
|
||||||||||
|
Net
cash provided by operating activities
|
$ | 25,883 | $ | 36,275 | $ | 21,554 | ||||||
|
Net
cash provided by (used in) investing activities
|
$ | 21,430 | $ | (52,009 | ) | $ | (29,978 | ) | ||||
|
Net
cash used in financing activities
|
$ | (9,256 | ) | $ | (11,446 | ) | $ | (50 | ) | |||
Operating
Activities
Cash
provided by operating activities decreased from $36,275,000 in 2008 to
$25,883,000 in 2009. The decrease in cash provided by operating
activities was primarily the result of a $4,164,000 decrease in cash provided by
the change in fair value of derivative instruments and a $9,069,000 decrease in
cash provided by the change in deferred revenue. Partially offsetting
these decreases was an increase in cash provided by the change in
inventory. The decrease in cash provided by the change in fair value
of derivative instruments was primarily a result of a decrease in our short
position of regulated options at December 31, 2009 as compared to
December 31, 2008. The decrease in cash provided by the change
in deferred revenue resulted from the completion of the capital project we
undertook on behalf of our customer at the end of 2008 and the resultant
termination of spending on this project and reimbursements from our customer in
2009. The increase in cash provided by the change in inventory
resulted from an inventory build from 2007 to 2008, as compared to a moderate
liquidation of inventory from 2008 to 2009.
Cash
provided by operating activities increased from $21,554,000 in 2007 to
$36,275,000 in 2008. The increase in cash provided by operating
activities was the result of a $14,267,000 increase in net income, a $6,852,000
increase in cash provided by the change in deferred revenue, a $3,127,000
increase in the fair value of derivative instruments and other marketable
securities, a $2,468,000 increase in cash provided by the change in other
assets, a $1,088,000 increase in depreciation and amortization, and a $1,325,000
increase in cash provided by the change in accounts payable, including related
party balances. Offsetting these cash flows were a $8,923,000
increase in cash used for accounts receivable, a $3,172,000 increase in cash
used for inventory and a $2,712,000 increase in cash used for accrued expenses,
including related party balances and other current liabilities. Other
than the changes in cash discussed above, no single item resulted in a greater
or less than $1,000,000 change in cash provided from operating activities
between 2007 and 2008.
Investing
Activities
Cash
provided by (used in) investing activities increased from $(52,009,000) in 2008
to $21,430,000 in 2009. The increase in cash provided by investing
activities was almost entirely related to the liquidation of investments in
marketable securities, auction rate securities and commercial paper in
2009. Cash used in the purchase of marketable securities decreased
from $40,835,000 in 2008 to $19,999,000 in 2009. We reported net
purchases of auction rate securities of $14,985,000 in 2008 as compared to net
sales of auction rate securities of $12,185,000 in 2009. Cash
provided by (used in) the net purchases of commercial paper increased from
$(15,384,000) in 2008 to $15,424,000 in 2009. Also contributing to
the increase in cash provided by investing activities was an increase in cash
provided by (used in) the collateralization of derivative instruments from
$(7,037,000) in 2008 to $5,270,000 in 2009. Partially offsetting the
increase in cash provided by investing activities was an increase in capital
expenditures from $16,436,000 in 2008 to $21,910,000 in 2009 and the purchase of
$3,965,000 of preferred stock and trust preferred securities in
2009.
Cash used
in investing activities increased from $29,978,000 in 2007 to $52,009,000 in
2008. The aggregate amount of cash used in the purchase and sale of
marketable securities, auction rate securities and commercial paper increased
from $14,803,000 in 2007 to $31,647,000 in 2008 as we sought both higher yield
and security for our cash. These investments are further described
under “Capital Management”. In addition, the increase in cash
used
32
in
investing activities was attributable to a $9,826,000 increase in cash used for
the collateralization of derivative instruments, which in turn resulted from a
greater use of options in our hedging activities, partially offset by an
increase in cash provided by restricted cash (which resulted from the Arkansas
Department of Environmental Quality relinquishing the need for us to maintain a
trust account to satisfy potential plant closure obligations).
Financing
Activities
Cash used
in financing activities decreased from $11,466,000 in 2008 to $9,256,000 in
2009. The decrease in cash used in financing activities resulted from
a decrease in cash used in the payment of dividends from $19,705,000 in 2008 to
$8,457,000 in 2009, partially offset by a decrease in cash provided by proceeds
from the issuance of stock from $8,169,000 in 2008 to $-0- in 2009, which itself
resulted from no exercise of warrants or options in 2009.
Cash used
in financing activities was $50,000 in 2007 as compared to $11,466,000 in
2008. Financing activities during 2007 consisted solely of the
payment of a bank financing fee. Financing activities during 2008
consisted primarily of the payment of $19,705,000 in dividends offset by
$8,169,000 in proceeds from the issuance of shares of our common
stock. The issuance of shares of our common stock resulted from the
exercise of warrants and options.
Capital
Expenditure Commitments
We had
three capital projects as of December 31, 2009 with material capital
expenditure commitments: (i) biofuels segment capital projects; (ii) a
chemicals segment capital project; and (iii) an upgrade to lab
equipment. The biofuels segment capital projects related to
improvements in our processing capabilities and continued expansion of our
biodiesel segment infrastructure via additional storage, both of which are
expected to improve efficiency and operational flexibility. The
biofuels segment capital projects are now complete. The chemicals
segment capital project was for the capital repair of an existing product line;
this project is now complete. The project to upgrade lab equipment is
expected to be complete by the end of the second quarter of 2010.
For the
infrastructure projects discussed immediately above as well as any additional
capital projects being pursued, we typically do not enter into financial or
other commitments that would preclude our ability to expand or decrease the
scope of a given project or cancel it altogether. The following were
our material commitments for capital expenditures as of December 31,
2009.
|
General
Purpose of the Commitment
|
December 31,
2009
|
|||
|
Biofuels
segment capital projects
|
$ | 858,000 | ||
|
Chemicals
segment capital project
|
281,000 | |||
|
Lab
equipment upgrade
|
276,000 | |||
|
Total
|
$ | 1,415,000 | ||
Historically,
we finance capital requirements for our business with cash flows from operations
and have not had the need to incur bank indebtedness to finance any of our
operations during the periods discussed herein.
Credit
Facility
We
entered into a $50 million credit agreement with a commercial bank in March
2007. 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 in March 2010 and we expect to
renew the facility on similar terms. Advances are made pursuant to a
borrowing base. Advances are secured by a perfected first priority
security interest in our accounts receivable and inventory. The
interest rate floats at certain margins over LIBOR or base rate based upon the
leverage ratio from time to time. There is an unused commitment
fee. The ratio of total funded debt to EBITDA may not be less than
3:1. We had no borrowings under this credit facility at
December 31, 2009, 2008, or 2007.
33
We intend
to fund future capital requirements for our businesses from cash flow generated
by us as well as from existing cash and cash investments and borrowings under
our credit facility. We do not believe there will be a need to issue
any securities to fund such capital requirements.
Special
Dividend
On
November 30, 2009, we declared a special cash dividend of $0.30 per share
on our common stock, with a record date of December 1, 2009 and a payment
date of December 22, 2009. The special cash dividend amounted to
$8,457,000.
On
October 1, 2008, we declared a special cash dividend of $0.70 per share on
our common stock, with a record date of October 22, 2008 and a payment date
of November 11, 2008. The special cash dividend amounted to
$19,705,000.
We did
not pay any dividends in 2007.
Capital
Management
As a
result of our initial equity offering and our subsequent positive operating
results, we have accumulated excess working capital. Some of this
excess working capital was paid out in 2008 and 2009 as a special cash
dividend. We intend to retain the remaining cash to fund
infrastructure and capacity expansion at our Batesville plant and to pursue
complimentary acquisitions in the energy and chemical
industries. Given the recent and current conditions in capital
markets, we intend to take a risk averse approach to managing these
funds. Third parties have not placed significant restrictions on our
working capital management decisions.
In 2009,
these funds were predominantly held in cash or cash equivalents at multiple
financial institutions. We also maintained a small position in
auction rate securities. We have selectively made investments in
certain auction rate securities that we believe offer sufficient yield along
with sufficient liquidity. To date, all the auction rate securities
in which we invested have maintained a mechanism for liquidity, meaning that the
respective auctions have not failed, the issuers have called the instruments, or
a secondary market exists for liquidation of the securities. We
classified these instruments as current assets in the accompanying consolidated
balance sheet and carry them at their estimated fair market
value. The fair value of these instruments approximated their par
value and, including accrued interest, totaled $2,800,000 at December 31,
2009 and $14,990,000 at December 31, 2008. Auction rate
securities are typically long term bonds issued by an entity for which there is
a series of auctions over the life of the bond that serve to reset the interest
rate on the bonds to a market rate. These auctions also serve as a
mechanism to provide liquidity to the bond holders; as long as there are
sufficient purchasers of the auction rate securities, the then owners of the
auction rate securities are able to liquidate their investment through a sale to
the new purchasers. In the event of an auction failure, a situation
when there are more sellers than buyers of a particular issue, the current
owners of an auction rate security issue may not be able to liquidate their
investment. As a result of an auction failure, a holder may be forced
to hold the particular security either until maturity or until a willing buyer
is found. Even if a willing buyer is found, however, there is no
guarantee that this willing buyer will purchase the security for its carrying
value, which would result in a loss being realized on the sale. The
liquidity problems recently experienced in the U.S. auction rate securities
markets have generally been focused on closed-end fund and student loan auction
rate securities, asset classes that we have avoided.
Lastly,
we maintain depository accounts such as checking accounts, money market accounts
and other similar accounts at selected financial institutions.
Results of Operat
ions
In
General
We break
our chemicals business into two main product groups: custom manufacturing and
performance chemicals. Major products in the custom manufacturing
group include: (i) nonanoyloxybenzene-sulfonate, a bleach activator
manufactured exclusively for a customer for use in a household detergent;
(ii) a proprietary herbicide (and intermediates) manufactured exclusively
for a customer; (iii) two product lines (CPOs and DIPBs) produced under
conversion contracts for another customer; and (iv) an industrial
intermediate manufactured for a customer for use in
34
the
antimicrobial industry. The major product line in the performance
chemicals group is SSIPA/LiSIPA, a polymer modifier that aids the properties of
nylon manufactured for a broad customer base. There are a number of
additional small volume custom and performance chemical products that we group
into “other products”.
Revenues
generated from the bleach activator are based on a supply agreement with the
customer. The supply agreement stipulates selling price per kilogram
based on volume sold, with price moving up as volumes move down, and
vice-versa. The current contract expires in March 2013. We
pay for raw materials required to produce the bleach activator. The
contract with the customer provides that the price received by us for the bleach
activator is indexed to changes in certain items, enabling us to pass along most
inflationary increases in production costs to the customer.
We have
been the exclusive manufacturer for a customer of a proprietary herbicide and
certain intermediates. These products are facing some generic
competition, and no assurances can be given that we will remain the exclusive
manufacturer for this product line. The contracts automatically renew
for successive one-year periods, subject to the right of either party to
terminate the contract not later than 270 days prior to the end of the then
current term for the herbicide and not later than 18 months prior to the then
current term for the intermediates. No assurances can be given that
these contracts will not be terminated. The customer supplies most of
the key raw materials for production of the proprietary
herbicide. There is no pricing mechanism or specific protection
against cost changes for raw materials or conversion costs that we are
responsible for purchasing and/or providing.
CPOs are
chemical intermediates that promote adhesion for plastic coatings and DIPBs are
intermediates for production of Eastman Chemical Company products used as
general purpose inhibitors, intermediates or antioxidants. As part of
our acquisition of FutureFuel Chemical Company, we entered into conversion
agreements with Eastman Chemical Company that effectively provide a conversion
fee to us for CPOs and DIPB based on volume manufactured, with a minimum annual
fee for both products. In addition, the conversion agreements provide
for revenue adjustments for actual price of raw materials purchased by us at
standard usages. Eastman Chemical Company provides key raw materials
at no cost. For the key raw materials, usage over standard is owed
Eastman Chemical Company; likewise, any improvement over standard is owed to us
at the actual price Eastman Chemical Company incurred for the key raw
material.
In 2008,
we entered into a contract with a new customer for the toll manufacture of an
industrial intermediate utilized in the antimicrobial industry. We
invested approximately $10 million in capital expenditures to modify and
expand our plant to produce this industrial intermediate. The
customer reimbursed these expenditures, which reimbursements have been
classified as deferred revenue on our balance sheet and will be earned into
income over the expected life of the product. The contract stipulates
a price curve based on volumes sold and has an inflationary pricing provision
whereby we pass along most inflationary changes in production costs to the
customer. The contract expires in December 2013.
SSIPA/LiSIPA
revenues are generated from a diverse customer base of nylon fiber manufacturers
and other customers that produce condensation polymers. Contract
sales are indexed to key raw materials for inflation; otherwise, there is no
pricing mechanism or specific protection against raw material or conversion cost
changes.
Other
products include agricultural intermediates and additives, imaging chemicals,
fiber additives, and various specialty pharmaceutical intermediates that we have
in full commercial production or in development. These products
currently are sold in small quantities to a large customer
base. Pricing for these products is negotiated directly with the
customer (in the case of custom manufacturing) or is established based upon
competitive market conditions (in the case of performance
chemicals). In general, these products have no pricing mechanism or
specific protection against raw material or conversion cost
changes.
We
procure all of our own biodiesel 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 and animal fats, we can receive feedstock by rail or
truck, and we have completed the construction of substantial storage capacity to
acquire feedstock at advantaged prices when market conditions
permit. We recently completed a project to increase our production
capacity to 59 million gallons of biodiesel per year through the addition
of a new continuous processing line. We initiated commercial
production from this new line in May 2009. By the end of the second
quarter, daily production volumes from the new processing line were demonstrated
at approximately 80% of nameplate capacity. We believe we
successfully demonstrated our ability to keep our former continuous
processing
35
line at
or near capacity for sustained periods of time as well as our ability to procure
and logistically handle large quantities of feedstock. We are
currently making process changes that will allow us to use high free fatty
acid/low cost feedstock. After the alterations are made, our plant
should be able to produce a fungible product that can be handled in pipelines as
well as truck and rail transportation, although no assurances can be given that
we will be successful.
Uncertainty
related to our future biodiesel production relates to changes in feedstock
prices relative to biodiesel prices and the $1.00 per gallon federal blenders
tax credit, which terminated at the end of 2009 and has not been
renewed. See “Risk Factors” above.
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, from
time to time, with no biodiesel added. Petrodiesel and biodiesel
blends are available to customers at our leased storage facility in North Little
Rock, Arkansas. In addition, we deliver blended product to a small
group of customers within our region.
The
majority of our expenses are cost of goods sold. Cost of goods sold
include 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. These expense categories include expenses that were
directly incurred by us.
The
discussion of results of operations that follows is based on revenues and
expenses in total and for individual product lines and do not differentiate
related party transactions.
Fiscal
Year Ended December 31, 2009 Compared to Fiscal Year Ended
December 31, 2008
Revenues
Revenues
for the year ended December 31, 2009 were $196,711,000 as compared to
revenues for the year ended December 31, 2008 of $198,330,000, a decrease
of 1%. Revenues from biofuels increased 24% and accounted for 27% of
total revenues in 2009 as compared to 21% in 2008. Revenues from
chemicals decreased 8% and accounted for 73% of total revenues in 2009 as
compared to 79% in 2008. Within the chemicals segment, revenues for
2009 changed as follows as compared to 2008: revenues from the bleach activator
decreased 13%; revenues from the proprietary herbicide and intermediates
decreased 8%; revenues from CPOs decreased 65%; revenues from DIPB increased 2%;
and revenues from other products decreased 3%.
Revenues
from the bleach activator and the proprietary herbicide and intermediates are
together the most significant components of FutureFuel Chemical Company’s
revenue base, accounting for 53% of revenues for the year ended
December 31, 2009 as compared to 59% for the year ended December 31,
2008. The decrease in revenue from the bleach activator during 2009
as compared to 2008 was attributable to lower volumes sold in
2009. The future volume of and revenues from the bleach activator
depend on both consumer demand for the product containing the bleach activator
and the manufacturing, sales, and marketing priorities of our
customer. We are unable to predict with certainty the revenues we
will receive from this product in the future. With respect to the
proprietary herbicide, the decrease in revenues in 2009 as compared to 2008 was
primarily a result of lower volumes, although we did reduce the price of our
product as a result of declines in raw material prices.
Revenues
from CPOs and DIPB together decreased 31% during 2009. The end market
for CPOs is the automotive industry and demand for this product has been
impacted by both economic conditions and an inventory build by our customer at
the end of 2008. Revenues from DIPB in 2009 were roughly in line with
revenues in 2008; revenues in the second half of 2009 were sufficient to offset
reduced revenues in the first half of the year related to a scheduled
maintenance shutdown and reduced demand from our customer.
36
Increased
revenues in 2009 from the biofuels segment resulted from higher volumes of
biodiesel produced and sold, higher volumes of petrodiesel and biodiesel blends
distributed to our regional market, and the addition of revenues from our
granary. The volume of biodiesel sold in 2009 increased 59% as
compared to 2008; this was a result of new customer relationships both in our
region and throughout the United States. The volume of petrodiesel
and biodiesel blends (ranging from less than 5% biodiesel to as much as 20%
biodiesel) increased more than twenty-fold in 2009 as compared to 2008; this
increase was primarily a result of our success with regional fuel distribution
strategy. We purchased a granary in March 2009. Because we
anticipate future synergies with our biofuels business, we include the granary’s
operating results in our biofuels segment. Granary revenues are
generated from the sale of agricultural commodities, primarily soybeans, rice,
and corn.
Cost
of Goods Sold and Distribution
Total
cost of goods sold and distribution for 2009 were $162,274,000 as compared to
total cost of goods sold and distribution for 2008 of $157,913,000, an increase
of 3%.
Cost of
goods sold and distribution for 2009 for our chemicals segment were $110,752,000
as compared to cost of goods sold and distribution for 2008 of
$122,815,000. On a percentage basis, the 10% decrease in cost of
goods sold and distribution was slightly greater than the 8% decrease in
chemicals segment revenues. Improved margin for the chemicals segment
is a result of our continued focus on cost control as well as the growth of our
biofuels segment, as some of our cost is allocated to segments based on
revenue.
Cost of
goods sold and distribution for 2009 for our biofuels segment were $51,522,000
as compared to cost of goods sold and distribution for 2008 of
$35,098,000. On a percentage basis, cost of goods sold and
distribution increased 47% versus an increase in revenues of
24%. This difference is a result of growth in our fuel distribution
business, higher distribution costs, and decreases in gains from hedging
activity. In our fuel distribution business, we sell petrodiesel and
biodiesel blends of less than 5% to as much as 20%. The margin we
earn on the petrodiesel resold as a stand-alone product or as a component of the
biodiesel blend is less than we earn on biodiesel. The increase in
our distribution costs in 2009 is primarily related to railcar leases and rail
transport charges. Finally, our gain on hedging activity in 2009 was
substantially less than in 2008. Both the 2008 and 2009 periods
include the $2,000,000 award from the Arkansas Alternative Fuels Development
Program. Under this program, biodiesel producers in the state of
Arkansas are eligible to receive $0.20 per gallon for every gallon of biodiesel
produced during defined time periods, up to a maximum of $2,000,000 per period,
subject to funding by the State of Arkansas. We applied for and, in
the first quarter of 2008, received the maximum $2,000,000 funding under this
program for biodiesel produced between January 1, 2007 and June 30,
2008. We applied for and, in the third quarter of 2009, received
maximum funding under the program for biodiesel produced between July 1,
2008 and June 30, 2009. Based on the characteristics of the
Arkansas Alternative Fuels Development Program and the State funding behind this
program, we recognize income in the period funding is received.
Operating
Expenses
Operating
expenses increased 17% from $8,236,000 in 2008 to $9,598,000 in
2009. Compensation expense increased 24% as a result of additions to
our chemical sales department and, to a lesser extent, additions to our
administrative team. Other expense increased 28%, primarily as a
result of the addition of our granary and, to a lesser extent, from increased
legal fees stemming from issues described under “Other
Matters”. Related party expense increased 59%, though on a dollar
value basis the increase was less significant. Related party expense
is described in detail in Note 18 of our consolidated financial statements
included elsewhere herein.
Provision
for Income Taxes
The
effective tax rates for the years ended December 31, 2009 and 2008 reflect
our expected tax rate on reported operating earnings before income
taxes. We have determined that we do not believe that we have a more
likely than not probability of realizing a portion of our deferred tax
assets. As such, we have recorded a valuation allowance of $714,000
at December 31, 2009.
37
Income
Taxes
Our total
liability for uncertain tax positions was $696,712 as of December 31,
2009. We are not able to reasonably estimate the amount by which the
liability will increase or decrease over time; however, at this time, we do not
expect a significant payment related to these obligations within the next
year. See Note 14 to our consolidated financial statements
included elsewhere herein.
Fiscal
Year Ended December 31, 2008 Compared to Fiscal Year Ended
December 31, 2007
Revenues
Revenues
for the year ended December 31, 2008 were $198,330,000 as compared to
revenues for the year ended December 31, 2007 of $169,788,000, an increase
of 17%. The increase was mainly attributable to increased volumes and
prices of biodiesel and the proprietary herbicide and
intermediates. Revenues from biofuels increased 69% and accounted for
21% of total revenues in 2008 as compared to 15% in 2007. Revenues
from chemicals increased 8% and accounted for 79% of total revenues in 2008 as
compared to 85% in 2007. Within the chemicals segment, revenues for
the year ended December 31, 2008 changed as follows as compared to the year
ended December 31, 2007: revenues from the bleach activator increased 2%;
revenues from the proprietary herbicide and intermediates increased 36%;
revenues from CPOs increased 11%; revenues from DIPB decreased 4%; revenues from
SSIPA/LiSIPA decreased 12%; and revenues from other products increased
9%.
Sales
volumes of the bleach activator during the year ended December 31, 2008
were unchanged from volumes for the year ended December 31, 2007 and were
generally in-line with expectations. The 2% increase in revenue was
mainly attributable to higher prices that resulted from contractual inflationary
increases of certain raw material prices. We experienced relatively
stable demand from this customer through 2007 and 2008.
Revenues
from the bleach activator and the proprietary herbicide and intermediates
together were the most significant components of our revenue base, together
accounting for 59% of revenues in the year ended December 31, 2008 as
compared to 64% in the year ended December 31, 2007. The future
volume of and revenues from the bleach activator depend on both consumer demand
for the product containing the bleach activator and the manufacturing, sales and
marketing priorities of our customer. We are unable to predict with
certainty the revenues we will receive from this product in the
future. We believe our customer for the proprietary herbicide has
been able to maintain or increase its volume in light of generic competition by
being more price competitive, changing its North American distribution system
and developing new applications. In addition, our customer has
benefited from the general increase in planted acreage in the markets it
serves.
Revenues
from CPOs and DIPBs together increased 3% during 2008, due mainly to higher
prices stemming from contractual inflationary increases of certain raw material
prices and conversion costs. Both of these products are late in their
life cycle and both were negatively impacted by the automotive and housing slow
down. As a result, our customer’s demand for these products, CPOs in
particular, eroded in the first quarter of 2009 and future market conditions for
both CPOs and DIPBs may be challenging. We believe our customer is
actively seeking new customers and new applications for these
products.
The
majority of the increased revenues from biodiesel stemmed from higher selling
prices during 2008 as compared to 2007. In addition, gallons of
biodiesel sold during 2008 were 42% greater than 2007; this volume increase was,
in turn, due to stronger demand from certain key bulk
customers. There were no material shutdowns during 2008 and we
leveraged our newly built storage capacity and expanded infrastructure, as well
as our fleet of leased railcars, to meet customer requirements during the peak
demand season for biodiesel.
Cost
of Goods Sold and Distribution
Total
cost of goods sold and distribution for the year ended December 31, 2008
were $157,913,000 as compared to total cost of goods sold and distribution for
the year ended December 31, 2007 of $152,555,000, an increase of
4%.
Cost of
goods sold and distribution for the year ended December 31, 2008 for our
chemicals segment were $122,815,000 as compared to cost of goods sold and
distribution for the year ended December 31, 2007 of
$117,367,000. On a percentage basis, cost of goods sold and
distribution increased 5% as compared to an 8%
38
increase
in revenues. This margin increase was due to: (i) our ability to
pass the majority of raw material prices increases on to our customers via
contractual inflationary price adjustments (although, in some cases, increases
in prices of finished products via these contractual adjustments lagged
increases in raw material prices); (ii) overall conversion cost control;
and (iii) increased sales of biodiesel during 2008, which in turn pulled a
greater share of fixed cost away from the chemicals segment as compared to
2007.
Cost of
goods sold and distribution for 2008 for our biofuels segment were $35,098,000
as compared to cost of goods sold and distribution for 2007 of
$35,188,000. On a percentage basis, cost of goods sold and
distribution did not change against increased revenues of 69%, resulting in
increased margins for the biofuels segment for 2008 as compared to
2007. These increased margins were a result of economies of scale
that resulted from higher volumes of biodiesel produced and sold. In
addition, margins were favorably impacted by gains on hedging activity of
$9,519,000 during 2008 as compared to losses of $6,910,000 during
2007. The gains on hedging activity were a direct result of declining
prices of heating oil and other commodities during the second half of
2008. We managed price risk in our biofuels segment by selling
heating oil futures contracts (and/or options on futures contracts) at the time
of establishing price commitments for feedstock purchases, thereby preserving
the per gallon margin available at the time of such commitment. As
heating oil (and biodiesel) prices declined during the second half of 2008, we
recognized gains on our hedging positions and lower margins (or in some cases
losses) on the sale of the physical product. In addition, commodity
price declines resulted in our cost of biodiesel (and certain associated raw
material) inventory at December 31, 2008 exceeding its market
value. Cost of goods sold for 2008 included a $3,973,000 charge to
reduce these inventories to market value. The majority of this charge
was attributable to the biofuels segment. Cost of goods sold and
distribution for the biofuels segment included funding from the State of
Arkansas under the Arkansas Alternative Fuels Development Program of
$2,000,000. Under this program, biodiesel producers in the state of
Arkansas were eligible to receive $0.20 per gallon for every gallon of biodiesel
produced during defined time periods, up to a maximum of $2,000,000 per
period. We applied for and received the maximum $2,000,000 funding
under this program for biodiesel produced between January 1, 2007 and
June 30, 2008. The next eligible application period opened
July 1, 2008 and closed June 30, 2009. We applied for the
$0.20 per gallon credit for biodiesel produced during the second half of
2008. Due to the uncertainty of funding from this program, we do not
recognize a credit to cost of goods sold and distribution until such time as our
application is approved and funding is received.
Operating
Expenses
Operating
expense increased from $7,578,000 in 2007 to $8,236,000 in 2008, or
approximately 9%. This increase was primarily the result of higher
compensation expense and research and development expense.
Our
consolidated financial statements present the four principal components of
selling, general and administrative expenses: (i) compensation expense,
which includes salaries, wages and benefits paid to sales and administrative
personnel, as well as fees paid to directors; (ii) formation expense and
cancelled offerings costs; (iii) other expense, which includes travel and
entertainment, selling, advertising, third party services, charitable
contributions, memberships, dues and subscriptions and overhead allocations; and
(iv) related party expenses, which consist primarily of reimbursement of
travel and administrative services incurred on our behalf, as well as fees for a
commodity trading advisory agreement with an affiliate.
Selling,
general and administrative expense increased $141,000 from 2007 to 2008, or
approximately 3%. This increase was a result of higher compensation
expense for 2008, partially offset by the lack of formation expense or canceled
offering costs in 2008, as well as a decline in other
expense. Research and development expense increased $517,000 from
2007 to 2008, or approximately 15%. This increase was the result of
customer reimbursement of certain research and development activities in 2007,
which had the effect of reducing overall research and development expense in
that year, as well as expanded utilization of external resources to advance
certain key projects during 2008.
Provision
for Income Taxes
The
effective tax rates for the years ended December 31, 2008 and
December 31, 2007 reflect our expected tax rate on reported operating
earnings before income taxes. We determined that we do not believe
that we have a more likely than not probability of realizing a portion of our
deferred tax assets. As such, we recorded a valuation allowance of
$737,000 at December 31, 2008. An allowance of $472,000 was
recorded at December 31, 2007.
39
Critical
Accounting Estimates
Allowance
for Doubtful Accounts
We reduce
our accounts receivable by amounts that may be uncollectible in the
future. This estimated allowance is based upon management’s
evaluation of the collectibility of individual invoices and is based upon
management’s evaluation of the financial condition of our customers and
historical bad debt experience. This estimate is subject to change
based upon the changing financial condition of our customers. At
December 31, 2008, we recorded an allowance for doubtful accounts of
$4,000, the majority of which pertained to one customer. We recorded
no allowance for doubtful accounts at December 31, 2009. We
historically have not experienced significant problems in collecting our
receivables and we do not expect this to change going forward.
Depreciation
Depreciation
is provided for using the straight-line method over the associated assets’
estimated useful lives. We primarily base our estimate of an asset’s
useful life on our experience with other similar assets. The actual
useful life of an asset may differ significantly from our estimate for such
reasons as the asset’s build quality, the manner in which the asset is used, or
changes in the business climate. When the actual useful life differs
from the estimated useful life, impairment charges may result. We
monitor the estimate useful lives of our assets and do not currently anticipate
impairment charges.
Asset
Retirement Obligations
We
establish reserves for closure/post-closure costs associated with the
environmental and other assets we maintain. Environmental assets
include waste management units such as incinerators, landfills, storage tanks,
and boilers. When these types of assets are constructed or installed,
a reserve is established for the future costs anticipated to be associated with
the closure of the site based on an expected life of the environmental assets,
the applicable regulatory closure requirements, and our environmental policies
and practices. These expenses are charged into earnings over the
estimated useful life of the assets. The future costs anticipated to
be associated with the closure of the site are based upon estimated current
costs for such activities adjusted for anticipated future inflation
rates. Unanticipated changes in either of these two variables or
changes in the anticipated timing of closure/post-closure activities may
significantly affect the established reserves. As of
December 31, 2009 and December 31, 2008, we recorded a reserve for
closure/post-closure liabilities of $680,000 and $588,000,
respectively. We monitor this reserve and the assumptions used in its
calculation. As deemed necessary, we have made changes to this
reserve balance and anticipate that future changes will occur.
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 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 volume discounts, 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. Bill
and hold transactions for four specialty chemical customers in 2009 and for
three specialty chemical customers in 2008 related to revenue that was
recognized in accordance with contractual agreements based on product 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
$42,773,000, $50,527,000, and $33,494,000 for the years ended December 31,
2009, 2008, and 2007, respectively.
40
Income
Taxes
We
account for income taxes using the asset and liability method. Under
this method, income tax assets and liabilities are recognized for temporary
differences between financial statement carrying amounts of assets and
liabilities and their respective income tax basis. A future income
tax asset or liability is estimated for each temporary difference using enacted
and substantively enacted income tax rates and laws expected to be in effect
when the asset is realized or the liability settled. Changes in the
expected tax rates and laws to be in effect when the asset is realized or the
liability settled could significantly affect the income tax assets and
liabilities booked by us. We monitor changes in applicable tax laws
and adjust our income tax assets and liabilities as necessary.
Our only
off-balance sheet arrangements in 2009 were hedging transactions. 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 December 31, 2009 and December 31,
2008. 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 December 31, 2009 or
December 31, 2008 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
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.
The
following table sets forth as of December 31, 2009 the payments due by
period for the following contractual obligations.
(Dollars
in thousands)
|
Contractual
Obligations
|
Total
|
Less
than
1
Year
|
1-3
Years
|
4-5
Years
|
More
than
5
Years
|
|||||||||||||||
|
Long-term
debt obligations
(a)
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
|
Capital
lease obligations
|
- | - | - | - | - | |||||||||||||||
|
Operating
lease obligations
|
2,887 | 818 | 1,084 | 540 | 445 | |||||||||||||||
|
Purchase
obligations
(b)
|
1,718 | 1,718 | - | - | - | |||||||||||||||
|
Other
long-term liabilities reflected on our balance sheet under GAAP
(c)
|
- | - | - | - | - | |||||||||||||||
|
Total
|
$ | 4,605 | $ | 2,536 | $ | 1,084 | $ | 540 | $ | 445 | ||||||||||
__________
|
(a)
|
As
of December 31, 2009, we had no borrowings under the $50 million
credit agreement with Regions Bank described
above.
|
|
(b)
|
Purchase
obligations within less than one year include: (i) $1,415 for capital
expenditure commitments related to biofuels segment capital projects, a
chemicals segment expansion project, and the upgrade of lab equipment; and
(ii) $303 for information technology maintenance and software license
commitments.
|
|
(c)
|
Our
total liability for uncertain tax positions, including interest, was $696
as of December 31, 2009. We are not able to reasonably
estimate the amount by which the liability will increase or decrease over
time; however, at this time, we do not expect a significant payment
related to these obligations within the next year. Our
liability for uncertain tax positions is a component of other noncurrent
liabilities on our consolidated balance sheet included elsewhere
herein. Also a component of other noncurrent liabilities is a
reserve for asset retirement obligations and environmental contingencies
of $680 at December 31, 2009. We are liable for these
asset retirement obligations and environmental contingencies only in
certain events, primarily the closure of our Batesville, Arkansas
facility. As such, we do expect a payment related to these
liabilities in the foreseeable
future.
|
41
We
entered into an agreement with a customer to construct at a fixed price a
processing plant and produce a certain chemical for the customer. We
engaged a third party to act as general contractor on the construction of this
plant for a guaranteed price. That general contractor defaulted on
its obligations under its contract with us and abandoned the
project. As a result, we undertook the general contractor role
ourselves. We also filed suit against our former contractor to recoup
any damages that we may incur as a result of his default. The former
contractor counterclaimed against us for amounts he asserts are due him under
our contract with him. At this time, we are unable to determine what
effect the general contractor’s default and/or his counterclaim will have on us
or on our financial condition.
We
entered into an agreement with a biodiesel trade association to pay certain fees
and dues to the association in order to obtain access and registration to the
association’s compiled biodiesel health effects data (“
HED
”)
required by the United States Environmental Protection Agency for biodiesel
manufacturers. Manufacturers of biodiesel who pay their fair share of
costs for the HED can have access to and obtain registration with the United
States Environmental Protection Agency. We brought suit against the
trade association for rescission of the agreement for various reasons including,
among other things, that we already paid our fair share of costs for the data to
the trade association; and that the fees and dues structure of the trade
association were overly excessive and against public policy. The
trade association filed suit against us for collection of alleged fees and dues
owed by us to it. At this time, we are unable to determine what
effect the trade association’s suit against us will have on us or on our
financial condition.
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, biofuel
feedstocks, 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, so raw material price risk remains a significant
risk.
In order
to manage price risk caused by market fluctuations in biofuel prices, we may
enter into exchange traded commodity futures and options
contracts. We account for these derivative instruments in accordance
with 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
2009 or 2008. 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 quarter to quarter due to the timing of the change in
value of the derivative instruments relative to the sale of biofuel being
sold. As of December 31, 2009 and 2008, the fair values of our
derivative instruments were a net liability in the amount of $1,930,000 and
$3,175,000, 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 animal fat and electricity. 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.
42
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 in
2009. We included only those raw materials and conversion costs for
which a hypothetical adverse change in price would result in a 1.5% 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 commodities listed below
would result in the following change in annual gross profit.
(Volumes
and dollars in thousands)
|
Item
|
Volume
(a)
Requirements
|
Units
|
Hypothetical
Adverse
Change
in
Price
|
Decrease
in
Gross
Profit
|
Percentage
Decrease
in
Gross
Profit
|
||||||||||||
|
Animal
fat
|
146,886 |
LB
|
10% | $ | 3,746 | 10.9% | |||||||||||
|
Electricity
|
81 |
MWH
|
10% | $ | 511 | 1.5% | |||||||||||
__________
|
(a)
|
Volume
requirements and average price information are based upon volumes used and
prices obtained for the twelve months ended December 31,
2009. Volume requirements may differ materially from these
quantities in future years as our business
evolves.
|
We had no
borrowings as of December 31, 2009 or 2008 and, as such, we were not
exposed to interest rate risk for those years. Due to the relative
insignificance of transactions denominated in a foreign currency, we consider
our foreign currency risk to be immaterial.
43
The
following sets forth our consolidated balance sheets as at December 31,
2009 and 2008 and our consolidated statements of operations, statements of cash
flows and statements of stockholders’ equity for each of the three years in the
period ended December 31, 2009, together with RubinBrown LLP’s report
thereon.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders
FutureFuel
Corp.:
We have
audited the accompanying consolidated balance sheets of FutureFuel Corp. and
subsidiaries (the Company) as of December 31, 2009 and 2008, and the
related consolidated statements of operations, comprehensive income, changes in
stockholders’ equity and cash flows for
each of the three years
in the period ended December 31, 2009. These consolidated
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of FutureFuel Corp. and
subsidiaries as of December 31, 2009 and December 31, 2008, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), FutureFuel Corp. and subsidiaries’ internal
control over financial reporting as of December 31, 2009, based on criteria
established in
Internal
Control-Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated March 15,
2010 expressed an unqualified opinion on the Company’s internal control over
financial reporting.
/s/
RubinBrown LLP
St.
Louis, Missouri
March 15,
2010
44
FutureFuel
Corp.
Consolidated
Balance Sheets
As
of December 31, 2009 and 2008
(Dollars
in thousands)
|
2009
|
2008
|
|||||||
|
Assets
|
||||||||
|
Cash and cash
equivalents
|
$ | 65,512 | $ | 27,455 | ||||
|
Accounts
receivable, net of allowances of $0 and $4, respectively
|
21,759 | 20,048 | ||||||
|
Inventory
|
26,444 | 27,585 | ||||||
|
Income taxes
receivable
|
912 | 792 | ||||||
|
Prepaid expenses
|
1,297 | 1,294 | ||||||
|
Prepaid expenses - related
parties
|
23 | - | ||||||
|
Marketable and auction rate
securities
|
6,811 | 46,411 | ||||||
|
Other current
assets
|
828 | 4,751 | ||||||
|
Total current
assets
|
123,586 | 128,336 | ||||||
|
Property, plant and equipment,
net
|
119,248 | 106,320 | ||||||
|
Intangible assets
|
208 | 321 | ||||||
|
Other assets
|
2,965 | 3,149 | ||||||
|
Total noncurrent
assets
|
122,421 | 109,790 | ||||||
|
Total
Assets
|
$ | 246,007 | $ | 238,126 | ||||
|
Liabilities
and Stockholders’ Equity
|
||||||||
|
Accounts payable
|
$ | 14,269 | $ | 13,332 | ||||
|
Accounts payable - related
parties
|
556 | 422 | ||||||
|
Current deferred income tax
liability
|
3,172 | 4,151 | ||||||
|
Short term contingent
consideration
|
- | 1,936 | ||||||
|
Accrued expenses and other
current liabilities
|
2,832 | 2,251 | ||||||
|
Accrued expenses and other
current liabilities - related parties
|
67 | 20 | ||||||
|
Total current
liabilities
|
20,896 | 22,112 | ||||||
|
Deferred revenue
|
9,348 | 9,994 | ||||||
|
Other noncurrent
liabilities
|
1,376 | 1,243 | ||||||
|
Noncurrent deferred income tax
liability
|
24,118 | 23,140 | ||||||
|
Total noncurrent
liabilities
|
34,842 | 34,377 | ||||||
|
Total
Liabilities
|
55,738 | 56,489 | ||||||
|
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, 28,190,300 issued
and
outstanding as of December 31, 2009 and 2008
|
3 | 3 | ||||||
|
Accumulated other comprehensive
income
|
38 | 15 | ||||||
|
Additional paid in
capital
|
167,598 | 167,524 | ||||||
|
Retained earnings
|
22,630 | 14,095 | ||||||
|
Total stockholders’
equity
|
190,269 | 181,637 | ||||||
|
Total
Liabilities and Stockholders’ Equity
|
$ | 246,007 | $ | 238,126 | ||||
The
accompanying notes are an integral part of these financial
statements.
45
FutureFuel
Corp.
Consolidated
Statements of Operations
for
the Years Ended December 31, 2009, 2008, and 2007
(Dollars
in thousands, except per share amounts)
|
2009
|
2008
|
2007
|
||||||||||
|
Revenues
|
$ | 194,217 | $ | 193,466 | $ | 169,732 | ||||||
|
Revenues
– related parties
|
2,494 | 4,864 | 56 | |||||||||
|
Cost
of goods sold
|
151,359 | 149,122 | 149,181 | |||||||||
|
Cost
of goods sold – related parties
|
5,933 | 5,331 | 1,529 | |||||||||
|
Distribution
|
4,894 | 3,460 | 1,845 | |||||||||
|
Distribution
- related parties
|
88 | - | - | |||||||||
|
Gross
profit
|
34,437 | 40,417 | 17,233 | |||||||||
|
Selling,
general, and administrative expenses
|
||||||||||||
|
Compensation
expense
|
3,605 | 2,907 | 2,502 | |||||||||
|
Formation
expense and canceled offering costs
|
- | - | 117 | |||||||||
|
Other
expense
|
1,530 | 1,191 | 1,353 | |||||||||
|
Related
party expense
|
298 | 187 | 172 | |||||||||
|
Research
and development expenses
|
4,165 | 3,951 | 3,434 | |||||||||
| 9,598 | 8,236 | 7,578 | ||||||||||
|
Income
from operations
|
24,839 | 32,181 | 9,655 | |||||||||
|
Interest
income
|
403 | 2,965 | 3,567 | |||||||||
|
Interest
expense
|
(27 | ) | (26 | ) | (24 | ) | ||||||
|
Gain
(loss) on foreign currency
|
(3 | ) | 287 | 16 | ||||||||
|
Loss
on sale of marketable securities
|
(15 | ) | (377 | ) | - | |||||||
|
Other
income (expense)
|
249 | (34 | ) | (23 | ) | |||||||
| 607 | 2,815 | 3,536 | ||||||||||
|
Income
before income taxes
|
25,446 | 34,996 | 13,191 | |||||||||
|
Provision
for income taxes
|
8,454 | 12,321 | 4,783 | |||||||||
|
Net income
|
$ | 16,992 | $ | 22,675 | $ | 8,408 | ||||||
|
Earnings
per common share
|
||||||||||||
|
Basic
|
$ | 0.60 | $ | 0.84 | $ | 0.31 | ||||||
|
Diluted
|
$ | 0.58 | $ | 0.82 | $ | 0.26 | ||||||
|
Weighted
average shares outstanding
|
||||||||||||
|
Basic
|
28,190,300 | 27,029,210 | 26,700,000 | |||||||||
|
Diluted
|
29,254,272 | 27,550,441 | 32,286,996 | |||||||||
|
Comprehensive income
|
2009
|
2008
|
2007
|
|||||||||
|
Net
income
|
$ | 16,992 | $ | 22,675 | $ | 8,408 | ||||||
|
Other
comprehensive income (loss), net of tax (benefit)
of $14 in 2009, $(26) in 2008 and $34 in 2007
|
23 | (43 | ) | 58 | ||||||||
|
Comprehensive
income
|
$ | 17,015 | $ | 22,632 | $ | 8,466 | ||||||
The
accompanying notes are an integral part of these financial
statements.
46
FutureFuel
Corp.
Consolidated
Statements of Cash Flows
for
the Years Ended December 31, 2009, 2008, and 2007
(Dollars
in thousands)
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
flows provided by operating activities
|
||||||||||||
|
Net income
|
$ | 16,992 | $ | 22,675 | $ | 8,408 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation and
amortization
|
7,517 | 5,800 | 4,712 | |||||||||
|
Provision
for deferred income taxes
|
1,025 | 3,053 | 2,330 | |||||||||
|
Change
in fair value of derivative instruments
|
(1,236 | ) | 2,928 | (199 | ) | |||||||
|
Loss
on the sale of investments
|
15 | 377 | - | |||||||||
|
Accretion
of the discount of marketable debt securities
|
- | (188 | ) | (127 | ) | |||||||
|
Losses on disposals of fixed
assets
|
240 | 24 | 63 | |||||||||
|
Stock based
compensation
|
873 | 849 | - | |||||||||
|
Noncash interest
expense
|
22 | 22 | 21 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
(1,711 | ) | (2,534 | ) | 6,389 | |||||||
|
Inventory
|
1,141 | (4,149 | ) | (977 | ) | |||||||
|
Income taxes
receivable
|
(120 | ) | (793 | ) | - | |||||||
|
Prepaid expenses
|
(3 | ) | (94 | ) | 48 | |||||||
|
Prepaid
expenses - related parties
|
(23 | ) | - | - | ||||||||
|
Accrued
interest on marketable securities
|
5 | 63 | (64 | ) | ||||||||
|
Other assets
|
(19 | ) | 1,042 | (1,426 | ) | |||||||
|
Accounts payable
|
937 | 711 | (323 | ) | ||||||||
|
Accounts payable - related
parties
|
134 | 300 | 9 | |||||||||
|
Income taxes
payable
|
- | (1,231 | ) | (685 | ) | |||||||
|
Accrued
expenses and other current liabilities
|
581 | (1,119 | ) | 1,653 | ||||||||
|
Accrued
expenses and other current liabilities - related parties
|
47 | 20 | (40 | ) | ||||||||
|
Deferred revenue
|
(646 | ) | 8,423 | 1,571 | ||||||||
|
Other noncurrent
liabilities
|
112 | 96 | 191 | |||||||||
|
Net
cash provided by operating activities
|
25,883 | 36,275 | 21,554 | |||||||||
47
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Restricted cash
|
- | 3,263 | (136 | ) | ||||||||
|
Collateralization of derivative
instruments
|
5,270 | (7,037 | ) | 2,789 | ||||||||
|
Purchase of marketable
securities
|
(19,999 | ) | (40,835 | ) | (14,803 | ) | ||||||
|
Proceeds
from the sale of marketable securities
|
35,972 | 39,557 | - | |||||||||
|
Net
sales (purchases) of auction rate securities
|
12,185 | (14,985 | ) | - | ||||||||
|
Purchase of commercial
paper
|
- | (15,384 | ) | - | ||||||||
|
Proceeds
from the sale of commercial paper
|
15,424 | - | - | |||||||||
|
Purchase
of preferred stock and trust preferred securities
|
(3,965 | ) | - | - | ||||||||
|
Proceeds from the sale of fixed
assets
|
17 | 8 | 55 | |||||||||
|
Acquisition of a
granary
|
(1,252 | ) | - | - | ||||||||
|
Contingent purchase price
payment
|
(312 | ) | (250 | ) | (172 | ) | ||||||
|
Capital
expenditures
|
(21,910 | ) | (16,346 | ) | (17,711 | ) | ||||||
|
Net
cash provided by (used in) investing activities
|
21,430 | (52,009 | ) | (29,978 | ) | |||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Proceeds from the issuance of
stock
|
- | 8,169 | - | |||||||||
|
Purchase
of warrants
|
(799 | ) | - | - | ||||||||
|
Payment
of dividend
|
(8,457 | ) | (19,705 | ) | - | |||||||
|
Excess
tax benefit associated with stock options
|
- | 70 | - | |||||||||
|
Financing fee
|
- | - | (50 | ) | ||||||||
|
Net
cash used in financing activities
|
(9,256 | ) | (11,466 | ) | (50 | ) | ||||||
|
Net
change in cash and cash equivalents
|
38,057 | (27,200 | ) | (8,474 | ) | |||||||
|
Cash
and cash equivalents at beginning of period
|
27,455 | 54,655 | 63,129 | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 65,512 | $ | 27,455 | $ | 54,655 | ||||||
|
Cash
paid for interest
|
$ | 8 | $ | 4 | $ | 3 | ||||||
|
Cash
paid for income taxes
|
$ | 7,677 | $ | 11,117 | $ | 2,992 |
The
accompanying notes are an integral part of these financial
statements.
48
FutureFuel
Corp.
Consolidated
Statements of Changes in Stockholders’ Equity
For
the years ended December 31, 2009, 2008, and 2007
(Dollars
in thousands)
|
Common
Stock
|
Other
Comprehensive
|
Additional
Paid-In
|
Retained
|
Total
Stockholders’
|
||||||||||||||||||||
|
Shares
|
Amount
|
Income
|
Capital
|
Earnings
|
Equity
|
|||||||||||||||||||
|
Balance
- December 31, 2006
|
26,700,000 | $ | 3 | $ | - | $ | 158,436 | $ | 2,717 | $ | 161,156 | |||||||||||||
|
Other
comprehensive income
|
- | - | 58 | - | - | 58 | ||||||||||||||||||
|
Net
income
|
- | - | - | - | 8,408 | 8,408 | ||||||||||||||||||
|
Balance
- December 31, 2007
|
26,700,000 | 3 | 58 | 158,436 | 11,125 | 169,622 | ||||||||||||||||||
|
Special
cash dividend
|
- | - | - | - | (19,705 | ) | (19,705 | ) | ||||||||||||||||
|
Stock
based compensation
|
39,800 | - | - | 849 | - | 849 | ||||||||||||||||||
|
Proceeds
from the issuance of stock
|
1,450,500 | - | -- | 8,169 | - | 8,169 | ||||||||||||||||||
|
Excess
income tax benefits from exercise of stock options
|
- | - | - | 70 | - | 70 | ||||||||||||||||||
|
Other
comprehensive income (loss)
|
- | - | (43 | ) | - | - | (43 | ) | ||||||||||||||||
|
Net
income
|
- | - | - | - | 22,675 | 22,675 | ||||||||||||||||||
|
Balance
- December 31, 2008
|
28,190,300 | 3 | 15 | 167,524 | 14,095 | 181,637 | ||||||||||||||||||
|
Special
cash dividend
|
- | - | - | - | (8,457 | ) | (8,457 | ) | ||||||||||||||||
|
Stock
based compensation
|
- | - | - | 873 | - | 873 | ||||||||||||||||||
|
Purchase
of warrants
|
- | - | - | (799 | ) | - | (799 | ) | ||||||||||||||||
|
Other
comprehensive income
|
- | - | 23 | - | - | 23 | ||||||||||||||||||
|
Net
income
|
- | - | - | - | 16,992 | 16,992 | ||||||||||||||||||
|
Balance
- December 31, 2009
|
28,190,300 | $ | 3 | $ | 38 | $ | 167,598 | $ | 22,630 | $ | 190,269 | |||||||||||||
The
accompanying notes are an integral part of these financial
statements.
49
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
1) Nature
of operations and basis of presentation
Viceroy
Acquisition Corporation
Viceroy
Acquisition Corporation (“Viceroy”) was incorporated under the laws of the state
of Delaware on August 12, 2005 to serve as a vehicle for the acquisition by
way of asset acquisition, merger, capital stock exchange, share purchase or
similar transaction (“Business Combination”) of one or more operating businesses
in the oil and gas industry. On July 12, 2006 Viceroy completed
an equity offering (see Note 15).
On
July 21, 2006, Viceroy entered into an acquisition agreement with Eastman
Chemical Company (“Eastman Chemical”) to purchase all of the issued and
outstanding stock of Eastman SE, Inc. (“Eastman SE”). On
October 27, 2006, a special meeting of the shareholders of Viceroy was held
and the acquisition of Eastman SE was approved by the
shareholders. On October 31, 2006, Viceroy acquired all of the
issued and outstanding shares of Eastman SE from Eastman
Chemical. Immediately subsequent to the acquisition, Viceroy changed
its name to FutureFuel Corp. (“FutureFuel”) and Eastman SE changed its name to
FutureFuel Chemical Company (“FutureFuel Chemical”).
Eastman
SE, Inc.
Eastman
SE was incorporated under the laws of the state of Delaware on September 1,
2005 and subsequent thereto operated as a wholly-owned subsidiary of Eastman
Chemical through October 31, 2006. Eastman SE was incorporated
for purposes of effecting a sale of Eastman Chemical’s manufacturing facility in
Batesville, Arkansas (the “Batesville Plant”). Commencing
January 1, 2006, Eastman Chemical began transferring the assets associated
with the business of the Batesville Plant to Eastman SE.
The
Batesville Plant was constructed to produce proprietary photographic chemicals
for Eastman Kodak Company (“Eastman Kodak”). Over the years, Eastman
Kodak shifted the plant’s focus away from the photographic imaging business to
the custom synthesis of fine chemicals and organic chemical intermediates used
in a variety of end markets, including paints and coatings, plastics and
polymers, pharmaceuticals, food supplements, household detergents and
agricultural products.
In 2005,
the Batesville Plant began the implementation of a biobased products
platform. This includes the production of biofuels (biodiesel and
cellulose-derived biofuels) and biobased specialty chemical products (biobased
solvents, chemicals and intermediates). In addition to biobased
products, the Batesville Plant continues to manufacture fine chemicals and other
organic chemicals.
2) Significant
accounting policies
Consolidation
The
accompanying consolidated financial statements include the accounts of
FutureFuel and its wholly-owned subsidiaries, FutureFuel Chemical and FFC Grain,
L.L.C., which was formed in February 2009 to acquire a granary in Marianna,
Arkansas. All significant intercompany transactions have been
eliminated.
Cash
and cash equivalents
Cash
equivalents consist of highly liquid investments with maturities of three months
or less when purchased and are carried at cost, which approximates
market. FutureFuel places its temporary cash investments with high
credit quality financial institutions. At times, such investments may
be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance
limit.
Accounts
receivable, allowance for doubtful accounts and credit risk
Accounts
receivable are recorded at the invoiced amount and do not bear
interest. FutureFuel has established procedures to monitor credit
risk and has not experienced significant credit losses in prior
years. Accounts receivable have been reduced by an allowance for
amounts that may be uncollectible in the future. This estimated
allowance is based upon management’s evaluation of the collectibility of
individual
50
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
invoices
and is based upon management’s evaluation of the financial condition of its
customers and historical bad debt experience. Write-offs are recorded
at the time a customer receivable is deemed uncollectible.
Customer
concentrations
Significant
portions of FutureFuel’s sales are made to a relatively small number of
customers. All sales of a bleach activator are made to a leading
North American consumer products company pursuant to a supply contract that is
set to expire in May 2013. Sales of the bleach activator totaled
$73,466 for the year ended December 31, 2009. Additionally, all
sales of a herbicide and certain other intermediates used in the production of
this herbicide are made to one customer. Sales of this herbicide and
its intermediates totaled $31,587 for the year ended December 31,
2009. These two customers represented 41% of FutureFuel’s accounts
receivable balance at December 31, 2009.
Inventory
FutureFuel
determines the cost of substantially all raw materials and finished goods
inventories by the last-in, first-out (“LIFO”) method. FutureFuel
writes down its inventories for estimated obsolescence or unmarketable inventory
equal to the difference between the carrying value of inventory and the
estimated market value based upon current demand and market
conditions.
Financial
and derivative instruments
The
carrying values of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses and other current liabilities approximate their
fair values due to the short-term maturities of these instruments.
FutureFuel
maintains inventories of biodiesel and utilizes various derivative instruments
such as regulated futures and regulated options as an economic hedge to reduce
the effects of fluctuations in the prices of biodiesel. These
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 each
of these instruments are entered into in order to effectively manage various
market risks, none of the derivative instruments are designated and accounted
for as hedges primarily as a result of the extensive record-keeping
requirements.
FutureFuel
records all derivative instruments at fair value. Fair value is
determined by using the closing prices of the derivative instruments on the New
York Mercantile Exchange at the end of an accounting period. Changes
in fair value of the derivative instruments are recorded in the statements of
operations as a component of cost of goods sold. FutureFuel maintains
a margin account with a broker to collateralize these derivative
instruments.
Property,
plant and equipment
Property,
plant and equipment is carried at cost. Maintenance and repairs are
charged to earnings; replacements and betterments are
capitalized. When FutureFuel retires or otherwise disposes of assets,
it removes the cost of such asset and related accumulated depreciation from the
accounts. FutureFuel records any profit and loss on retirement or
other disposition in earnings. Asset impairments are reflected as
increases in accumulated depreciation. Depreciation is provided using
the straight-line method over the following estimated useful lives:
|
Buildings
and building equipment
|
20
– 39 years
|
|
Machinery
and equipment
|
3 –
33 years
|
|
Transportation
equipment
|
5 –
33 years
|
|
Other
|
5 –
33 years
|
51
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
Customer
relationships
Customer
relationships are recorded at acquisition cost and are amortized on a
straight-line basis over their estimated useful lives of 5
years. FutureFuel reviews and evaluates the recoverability of the
carrying amounts of its acquired customer contracts annually, or whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable.
Impairment
of assets
FutureFuel
evaluates the carrying value of long-lived assets when events or changes in
circumstances indicate that the carrying value may not be
recoverable. Such events and circumstances include, but are not
limited to, significant decreases in the market value of the asset, adverse
changes in the extent or manner in which the asset is being used, significant
changes in business climate, or current or projected cash flow losses associated
with the use of the assets. The carrying value of a long-lived asset
is considered impaired when the total projected undiscounted cash flows from
such assets are separately identifiable and are less than its carrying
value. In that event, a loss is recognized based on the amount by
which the carrying value exceeds the fair value of the long-lived
asset. For long-lived assets to be held for use in future operations
and for fixed (tangible) assets, fair value is determined primarily using either
the projected cash flows discounted at a rate commensurate with the risk
involved or appraisal. For long-lived assets to be disposed of by
sale or other than sale, fair value is determined in a similar manner, except
that fair values are reduced for disposal costs.
Deferred
revenue
FutureFuel
signed a contract with a customer to construct a plant on FutureFuel’s property
for the manufacture of a custom chemical. The cost of construction
was funded by the customer with title and risk of loss to the equipment residing
with FutureFuel. Reimbursements were recognized as deferred revenue
and amortized over the expected life of the customer relationship as product is
shipped. Production began in the fourth quarter of 2008.
Asset
retirement obligations
FutureFuel
establishes reserves for closure/post-closure costs associated with the
environmental and other assets it maintains. Environmental assets
include but are not limited to waste management units such as destructors,
landfills, storage tanks and boilers. When these types of assets are
constructed or installed, a reserve is established for the future costs
anticipated to be associated with the closure of the site based on an expected
life of the environmental assets, the applicable regulatory closure requirements
and FutureFuel’s environmental policies and practices. These expenses
are charged into earnings over the estimated useful life of the
assets. Currently, FutureFuel estimates the useful life of each
individual asset up to 35 years. Changes made in estimates of the
asset retirement obligation costs or the estimate of the useful lives of these
assets are reflected in earnings as an increase or decrease in the period such
changes are made.
Environmental
costs are capitalized if they extend the life of the related property, increase
its capacity and/or mitigate or prevent future contamination. The
cost of operating and maintaining environmental control facilities is charged to
expense.
Income
taxes
Income
taxes are accounted for using the asset and liability method. Under
this method, income tax assets and liabilities are recognized for temporary
differences between financial statement carrying amounts of assets and
liabilities and their respective income tax basis. A future income
tax asset or liability is estimated for each temporary difference using enacted
and substantively enacted income tax rates and laws expected to be in effect
when the asset is realized or the liability settled. A valuation
allowance is established, if necessary, to reduce any future income tax asset to
an amount that is more likely than not to be realized.
52
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
FASB ASC
Topic 740,
Income Taxes
(“ASC 740”), clarifies the accounting for uncertainty in income taxes recognized
in the financial statements. ASC 740 provides that a tax benefit from
an uncertain tax position may be recognized when it is more likely than not that
the position will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. Income tax positions must meet a more-likely-than-not
recognition threshold to be recognized. ASC 740 also provides
guidance on measurement, derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. These
provisions are effective for fiscal years beginning after December 15,
2006. The adoption of these provisions did not have a material impact
on the consolidated financial position, liquidity or results of operations of
FutureFuel.
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. All custom
manufactured products are manufactured under written
contracts. Performance chemicals and biofuels are 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. FutureFuel does not offer volume
discounts, rebates or warranties.
Bill and
hold transactions for 2009 related to four specialty chemical customers whereby
revenue was recognized in accordance with contractual agreements based on
product 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 transactions are similar to other specialty
chemical customers. Sales revenue under bill and hold arrangements
were $42,773, $50,527, and $33,494 for the years ended December 31, 2009,
2008, and 2007, respectively.
Shipping
and handling fees
Shipping
and handling fees related to sales transactions are billed to customers and
recorded as sales revenues.
Cost
of goods sold and selling, general and administration expense
Cost of
goods sold includes the costs of inventory sold, related purchasing,
distribution and warehousing costs, costs incurred for shipping and handling,
and environmental remediation costs. Netted from cost of goods sold
is the biodiesel tax incentive for blending biodiesel with
petrodiesel. The biodiesel tax credit amounts to one cent for each
percentage point of vegetable oil or animal fat biodiesel that is blended with
petrodiesel. The credit is recognized as it is earned when biodiesel
is blended with petrodiesel.
Selling,
general and administration expense includes personnel costs associated with
sales, marketing and administration, legal and legal-related costs, consulting
and professional services fees, advertising expenses, and other similar
costs.
Research
and development
All costs
identified as research and development costs are charged to expense when
incurred.
Planned
major maintenance activities
Expenditures
for planned major maintenance activities are recognized as expense as
incurred.
Earnings
per share
Basic
earnings per share is computed by dividing net income (the numerator) by the
weighted average number of outstanding shares (the denominator) for the
period. Diluted earnings per share are calculated in accordance with
the treasury stock method to determine the dilutive effect of warrants and
options. The
53
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
computation
of diluted earnings per share includes the same numerator, but the denominator
is increased to include the number of additional common shares from the exercise
of warrants and options that would have been outstanding if potentially dilutive
common shares had been issued.
Comprehensive
income
Comprehensive
income is comprised of net income and other comprehensive income
(“OCI”). Comprehensive income comprises all changes in shareholders’
equity from transactions and other events and circumstances from non-owner
sources. FutureFuel’s OCI is comprised of gains resulting from its
investment in certain marketable securities classified as available for sale
(see Note 6). For the year ended December 31, 2009,
FutureFuel recorded an unrealized gain of $23, net of income taxes of $14, on
these securities. For the year ended December 31, 2008,
FutureFuel recorded an unrealized loss of $43, net of income tax benefit of $26,
on these securities. For the year ended December 31, 2007,
FutureFuel recorded an unrealized gain of $58, net of income taxes of $34, on
these securities.
Commitments
and contingent liabilities
In the
ordinary course of its business, FutureFuel enters into supply and sales
contracts as deemed commercially desirable. Supply contracts are
utilized to ensure the availability of raw materials used in the production
process. Sales contracts are utilized to ensure the future sale of
produced product.
FutureFuel
and its operations from time to time may be parties to or targets of lawsuits,
claims, investigations and proceedings including product liability, personal
injury, patent and intellectual property, commercial, contract, environmental,
health and safety and environmental matters, which are handled and defended in
the ordinary course of business. FutureFuel accrues a liability for
such matters when it is probable that a liability has been incurred and the
amount can be reasonably estimated. When a single amount cannot be
reasonably estimated but the cost can be estimated within a range, FutureFuel
accrues the minimum amount.
Use
of estimates
The
preparation of financial statements in conformity with accounting principals
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during a reporting
period. Estimates are used when accounting for allowance for doubtful
accounts, depreciation, amortization, asset retirement obligations and income
taxes as well as the evaluation of potential losses due to impairments or future
liabilities. Actual results could differ materially from those
estimates.
Segment
reporting
FutureFuel
identifies operating segments when separate financial information is available
that is evaluated regularly by its chief operating decision maker in assessing
the performance of those segments and in determining how to allocate
resources. FutureFuel has determined that it has two reportable
segments organized along product lines -- chemicals and biofuels.
3) Business
combination
FutureFuel
was incorporated on August 12, 2005 to serve as a vehicle for a business
combination of one or more operating businesses in the oil and gas
industry. In 2006, FutureFuel identified such an operating business
in Eastman SE. Eastman SE, as owner of the Batesville Plant, began
the implementation of a biobased products platform, including the production of
biofuels (biodiesel and cellulose-derived biofuels) and biobased specialty
products (biobased lubricants, solvents and intermediates). In
addition to the biobased products platform, the Batesville Plant continued the
custom synthesis of fine chemicals and other organic chemicals. On
October 31, 2006, FutureFuel acquired all of the issued and outstanding
shares of Eastman SE from Eastman Chemical for cash consideration and $0.02 per
gallon of biodiesel sold by FutureFuel during the three-year period commencing
on November 1, 2006 and ending on October 31,
54
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
2009. Immediately
subsequent to its acquisition, Eastman SE changed its name to FutureFuel
Chemical. The results of FutureFuel Chemical have been included in
FutureFuel’s results of operations since October 31, 2006. After
final purchase price adjustments, a price of $70,970 was paid for the stock of
Eastman SE. Cumulative contingent purchase price payments to Eastman
Chemical based on volumes of biodiesel sold totaled $11 through
December 31, 2006, $183 through December 31, 2007, $433 through
December 31, 2008, and $745 through December 31, 2009. The
obligation to make this contingent payment terminated on October 31,
2009. The contingent purchase price payments offset a contingent
consideration liability that FutureFuel recorded as of the closing date of the
acquisition. This contingent consideration liability was established
based upon management’s estimates, as of the closing date of the acquisition, of
the volume of biodiesel that would be sold during the three-year period
beginning November 1, 2006 and ending October 31, 2009. The
value of the contingent consideration liability at October 31, 2006 was
$2,370. As indicated immediately above, actual contingent purchase
price payments during the three-year period totaled $745, leaving a balance of
$1,625 at October 31, 2009. As of December 31, 2009, we
eliminated this remaining liability from our balance sheet as we no longer have
any obligation to Eastman Chemical Company, and we simultaneously wrote-down our
assets by the same amount; the elimination of the contingent consideration
liability had no impact on earnings.
4) Inventories
The
carrying values of inventory were as follows as of December 31:
|
2009
|
2008
|
|||||||
|
At
first-in, first-out or average cost (approximates current
cost)
|
||||||||
|
Finished goods
|
$ | 14,078 | $ | 15,634 | ||||
|
Work in process
|
1,841 | 1,800 | ||||||
|
Raw materials and
supplies
|
16,451 | 14,833 | ||||||
| 32,370 | 32,267 | |||||||
|
LIFO reserve
|
(5,926 | ) | (4,682 | ) | ||||
|
Total inventories
|
$ | 26,444 | $ | 27,585 | ||||
Inventory
balances at December 31, 2009 include the impact of a $1,710 write-down to
market value for biodiesel and a key biodiesel raw material. The
write-down was a result of the expired federal blender’s credit which reduced
the expected selling price of biodiesel.
FutureFuel’s
calculation of its LIFO reserve is reliant, in part, upon the Producer Price
Index published by the Bureau of Labor Statistics (“PPI”). For its
December 31, 2008 LIFO reserve calculation, FutureFuel changed its policy
to use the November preliminary PPI as opposed to the December
PPI. This change was made to enable FutureFuel to meet an accelerated
closing process which, in turn, enables FutureFuel to meet the U.S. Securities
and Exchange Commission’s filing deadlines for FutureFuel’s financial
statements. The impact of this change was an increase in the LIFO
reserve of $753 at December 31, 2008. FutureFuel will continue
to utilize the preliminary November PPI in future years.
5) Derivative
instruments
FutureFuel
is exposed to certain risks relating to its ongoing business
operations. The primary risk managed by using derivative instruments
is commodity price risk. 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 each of 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.
55
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
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. Changes in fair value of the derivative
instruments are recorded in the statement of operations as a component of cost
of good sold, and amounted to a gain of $488 and $9,519 for the years ended
December 31, 2009 and 2008, respectively, and a loss of $6,910 for the year
ended December 31, 2007.
The
volumes and carrying values of FutureFuel’s derivative instruments were as
follows at December 31:
|
Asset/(Liability)
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
Quantity
(contracts) Long/ (Short)
|
Fair
Value
|
Quantity
(contracts) Long/ (Short)
|
Fair
Value
|
|||||||||||||
|
Regulated
options, included in prepaid expenses and other current
assets
|
(150 | ) | $ | (1,998 | ) | (875 | ) | $ | (3,175 | ) | ||||||
|
Regulated
fixed price future commitments, included in other current
assets
|
10 | $ | 68 | - | $ | - | ||||||||||
The
margin account maintained with a broker to collateralize these derivative
instruments carried an account balance of $2,556 and $7,826 at December 31,
2009 and 2008, respectively, and is classified as other current assets in the
consolidated balance sheet. The carrying values of the margin account
and of the derivative instruments are included, net, in other current
assets.
6) Marketable
securities
As of
December 31, 2008, FutureFuel had made investments in certain U.S. treasury
bills and notes. As of December 31, 2008, these marketable debt
securities had maturities ranging from January 2009 to March
2009. FutureFuel anticipated these securities being sold or maturing
within one year and therefore classified all marketable debt securities as
current assets in the accompanying consolidated balance
sheet. FutureFuel designated these securities as being
available-for-sale. Accordingly, these securities were carried at
fair value, with the unrealized gains and losses, net of taxes, reported as a
component of stockholders’ equity. At December 31, 2009 no such
securities were held.
The fair
market value of these marketable debt securities, including accrued interest,
totaled $15,999 at December 31, 2008.
Additionally,
FutureFuel has made investments in certain auction rate
securities. As of December 31, 2009, these securities had a
maturity of August 2037. FutureFuel classified these instruments as
current assets in the accompanying consolidated balance sheets as the issuers of
these instruments have either exercised their right to repurchase or a liquid
market still exists for these securities, which allows FutureFuel to exit its
positions within a short period of time. FutureFuel anticipates these
securities either being sold or repurchased within the next
year. FutureFuel has designated these securities as being
available-for-sale. Accordingly, these securities are carried at fair
value, with unrealized gains and losses, net of taxes, reported as a component
of stockholders’ equity. No realized gains or losses have been
incurred related to these securities through December 31,
2009.
The fair
market value of these auction rate securities approximated their par value and,
including accrued interest, totaled $2,800 and $14,990 at December 31, 2009
and December 31, 2008, respectively.
At
December 31, 2008, FutureFuel had investments in certain commercial
paper. These investments had maturity dates ranging from January 2009
to March 2009 and have been classified as current assets in the accompanying
consolidated balance sheet. FutureFuel had designated these
securities as being available for sale. Accordingly, they were
recorded at fair value, with the unrealized gains and losses, net of taxes,
reported as a component of stockholders’ equity. At December 31,
2009 no such investments were held.
56
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
The fair
value of these investments, including accrued interest, totaled $15,422 at
December 31, 2008.
At
December 31, 2009, FutureFuel had investments in certain preferred stock
and trust preferred securities. These investments have been
classified as current assets in the accompanying 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. At December 31, 2008, no such investments
were held.
The fair
market value of these preferred stock and trust preferred securities, including
accrued interest, totaled $4,011 at December 31, 2009.
7) Property,
plant and equipment
Property, plant and equipment consisted
of the following at December 31:
|
2009
|
2008
|
|||||||
|
Land
and land improvements
|
$ | 4,599 | $ | 4,570 | ||||
|
Buildings
and building equipment
|
22,325 | 22,023 | ||||||
|
Machinery
and equipment
|
100,215 | 87,388 | ||||||
|
Construction
in progress
|
11,564 | 4,447 | ||||||
|
Accumulated
depreciation
|
(19,455 | ) | (12,108 | ) | ||||
|
Total
|
$ | 119,248 | $ | 106,320 | ||||
Depreciation
expense totaled $7,404, $5,686, and $4,599 for the years ended December 31,
2009, 2008, and 2007, respectively.
8) Intangible
assets
In
connection with its acquisition of Eastman SE, a certain portion of the purchase
price was allocated to the intangible asset customer
relationships. Customer relationships consisted of the following at
December 31:
|
2009
|
2008
|
|||||||
|
Cost
|
$ | 567 | $ | 567 | ||||
|
Accumulated
amortization
|
(359 | ) | (246 | ) | ||||
| $ | 208 | $ | 321 | |||||
Amortization
expense totaled $113, $114, and $113 for the years ended December 31, 2009,
2008, and 2007, respectively. FutureFuel estimates that amortization
expense for 2010 will be $113 and that amortization expense in 2011 will be
$95.
9) Other
assets
Other
assets are comprised of supplies and parts that have been held longer than 24
months and are not expected to be used in the twelve-month period subsequent to
the balance sheet date. The balance related to these items totaled
$2,965 and $3,149 at December 31, 2009 and 2008, respectively.
10) Accrued
expenses and other current liabilities
Accrued
expenses and other current liabilities, including those associated with related
parties, consisted of the following at December 31:
|
2009
|
2008
|
|||||||
|
Accrued
employee liabilities
|
$ | 1,499 | $ | 1,248 | ||||
|
Accrued
property, use and franchise taxes
|
1,064 | 975 | ||||||
|
Other
|
336 | 48 | ||||||
|
Total
|
$ | 2,899 | $ | 2,271 | ||||
57
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
11) Borrowings
In March
2007, FutureFuel Chemical entered into a $50 million credit agreement with
a commercial bank. The loan is a revolving facility the proceeds of
which may be used for working capital, capital expenditures and the general
corporate purposes of FutureFuel Chemical. The facility terminates in
March 2010. Advances are made pursuant to a borrowing base comprised
of 85% of eligible accounts plus 60% of eligible direct inventory plus 50% of
eligible indirect inventory. Advances are secured by a perfected
first priority security interest in accounts receivable and
inventory. The interest rate floats 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%
|
1.55%
|
||
|
>
1 < 2
|
-0.85%
|
1.40%
|
||
|
<
1
|
-1.00%
|
1.25%
|
There is
an unused commitment fee of 0.25% per annum. Beginning
December 31, 2007, and on the last day of each fiscal quarter thereafter,
the ratio of EBITDA to fixed charges may not be less than
1.5:1. Beginning June 30, 2007, the ratio of total funded debt
to EBITDA may not exceed 3.50:1, reduced to 3.25:1 at March 31, 2008,
June 30, 2008 and September 30, 2008, and then 3:1
thereafter. FutureFuel has guaranteed FutureFuel Chemical’s
obligations under this credit agreement.
There
were no borrowings at December 31, 2009 or 2008.
12) Asset
retirement obligations and environmental reserves
The
Batesville Plant generates hazardous and non-hazardous wastes, the treatment,
storage, transportation and disposal of which are regulated by various
governmental agencies. In addition, the Batesville Plant may be
required to incur costs for environmental and closure and post closure costs
under the Resource Conservation and Recovery Act
(“RCRA”). FutureFuel’s reserve for asset retirement obligations and
environmental contingencies was $680 and $588 as of December 31, 2009 and
2008, respectively. These amounts are recorded in other noncurrent
liabilities in the accompanying balance sheet.
The
following table summarizes the activity of accrued obligations for asset
retirement obligations:
|
2009
|
2008
|
|||||||
|
Beginning
balance
|
$ | 588 | $ | 566 | ||||
|
Accretion
expense
|
22 | 22 | ||||||
|
Change
in estimate
|
70 | - | ||||||
|
Balance
at December 31
|
$ | 680 | $ | 588 | ||||
13) Stock
based compensation
The board
of directors of FutureFuel adopted an omnibus incentive plan which was approved
by the shareholders of FutureFuel at its 2007 annual shareholder meeting on
June 26, 2007. The purpose of the plan is to:
|
·
|
Encourage
ownership in FutureFuel by key personnel whose long-term employment with
or engagement by FutureFuel or its subsidiaries is considered essential to
its continued progress and, thereby, encourage recipients to act in
FutureFuel’s shareholders’ interests and share in its
success;
|
|
·
|
Encourage
such persons to remain in FutureFuel’s employ or in the employ of its
subsidiaries; and
|
58
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
|
·
|
Provide
incentives to persons who are not FutureFuel employees to promote
FutureFuel’s success.
|
The plan
authorizes FutureFuel to issue stock options (including incentive stock options
and nonqualified stock options), stock awards and stock appreciation
rights. Eligible participants in the plan include: (i) members
of FutureFuel’s board of directors and its executive officers;
(ii) regular, active employees of FutureFuel and any of its subsidiaries;
and (iii) persons engaged by FutureFuel or any of its subsidiaries to
render services to FutureFuel or its subsidiaries as an advisor or
consultant.
Awards
under the plan are limited to shares of FutureFuel’s common stock, which may be
shares acquired by FutureFuel, including shares purchased in the open market, or
authorized but un-issued shares. Awards are limited to 10% of the
issued and outstanding shares of FutureFuel’s common stock in the
aggregate.
The plan
became effective upon its approval by FutureFuel’s shareholders on June 26,
2007 and continues in effect for a term of ten years thereafter unless amended
and extended by FutureFuel or unless otherwise terminated.
FutureFuel
recognizes compensation expense in its financial statements for stock based
options based upon the grant-date fair value over the requisite service
period.
In April
2008, FutureFuel granted a total of 250,000 stock options to members of its
board of directors (“Director Options”). Additionally, the Company
granted a total of 55,000 stock options to selected members of its management
(“Management Options”). An additional 5,000 Management Options were
issued in September 2008 and an additional 100,000 Director Options were granted
on December 10, 2008. The options awarded in April 2008 have an
exercise price equal to the average of the bid and ask price of FutureFuel’s
common stock on the date of grant as established in private sales, which the
board of directors determined to be the fair value of such stock on that
date. The Management Options awarded in September 2008 and the
Director Options awarded in December 2008 have an exercise price equal to the
closing price of FutureFuel’s common stock on the date of grant as quoted on the
Over-the-Counter Bulletin Board. The Director Options vested
immediately upon grant. Originally, one-third of the Management
Options granted in April 2008 vested on each of the annual anniversary dates of
the grant. Those Management Options were amended in September 2008 to
provide for immediate vesting. The Management Options issued in
September 2008 vested immediately upon grant. Both the Director
Options and the Management Options awarded in April 2008 expire on April 7,
2013. The Management Options awarded in September 2008 expire on
September 30, 2013. The Director Options awarded in December
2008 expire on December 10, 2013. FutureFuel has utilized the
Black Scholes Merton option pricing model, which relies on certain assumptions,
to estimate the fair value of the options it granted.
In
December 2009, FutureFuel granted a total of 185,000 Director Options to members
of its board. Additionally, the Company granted a total of 95,500
Management Options to selected members of its management. The options
awarded in December 2009 have an exercise price equal to the closing price of
FutureFuel’s common stock on the date of grant as quoted on the Over-the-Counter
Bulletin Board. The Director Options and Management Options vested
immediately upon grant. Both the Director Options and the Management
Options expire on December 21, 2014. FutureFuel has utilized the
Black Scholes Merton option pricing model, which relies on certain assumptions,
to estimate the fair value of the options it granted.
The
assumptions used in the determination of the fair value of the options granted
are provided in the following table:
59
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
|
Assumptions
|
April
2008
Director
Options
|
April
2008
Management
Options
|
September
2008
Management
Options
|
December
2008
Director
Options
|
December
2009
Options
|
|
Expected
volatility rate
|
46.78%
|
48.74%
|
50.63%
|
60.88%
|
73.10%
|
|
Expected
dividend yield
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
|
Risk-free
interest rate
|
2.03%
|
2.26%
|
2.22%
|
1.04%
|
1.12%
|
|
Expected
forfeiture rate
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
|
Expected
term in years
|
2.5
|
2.5
|
2.5
|
2.5
|
2.5
|
The
volatility rate for the options granted is derived from the historical stock
price volatility of a peer group of companies over the same time period as the
expected term of each stock option award. The volatility rate is
derived by a mathematical formula utilizing the daily closing stock price data
over the expected term. It is FutureFuel’s expectation that
volatility rates for future stock option grants will be based on FutureFuel’s
historical stock price volatility as FutureFuel develops a lengthier stock
trading history.
The
expected dividend yield is calculated using FutureFuel’s expected dividend
amount at the date of the option grant over the expected term divided by the
fair market value of FutureFuel’s common stock.
The
risk-free interest rate is derived from the United States Federal Reserve’s
published interest rates of yields for the same time period as the expected
term.
FutureFuel
only includes share-based awards expected to vest in share-based compensation
expense. The estimated forfeiture rates are based upon FutureFuel’s
expected rate of forfeiture and are excluded from the quantity of awards
included in share-based compensation expense.
FutureFuel
has granted stock options in 2008 and 2009 only and therefore does not have a
substantial historical record of share-based award transactions on which to base
an estimate of expected term. FutureFuel has therefore elected to
utilize the “simplified” method of estimating expected term as discussed in
Staff Accounting Bulletins No. 107 and No. 110.
On
December 3, 2008, FutureFuel granted a stock award of 100 shares of its
common stock to 398 of FutureFuel Chemical’s employees. FutureFuel
recognized compensation expense as a result of this award equal to the number of
shares granted multiplied by the fair value of its common stock on the date of
the award. Such compensation expense was recorded as a component of
cost of goods sold and totaled $225 in the twelve months ended December 31,
2008. No such awards were granted in 2009.
For the
years ended December 31, 2009, 2008, and 2007, total share-based
compensation expense (before tax) totaled $873, $849, and $0,
respectively. In the year ended December 31, 2009, $762, $74 and
$37 of this balance was recorded as an element of selling, general and
administrative expense, cost of goods sold and research and development expense,
respectively. In the year ended December 31, 2008, $225, $610
and $14 of this balance was recorded as an element of selling, general and
administrative expense, cost of goods sold and research and development expense,
respectively.
The
weighted average fair value of options granted in 2009 was $3.11 per option and
in 2008 was $1.52 per option.
60
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
A summary
of the activity of FutureFuel’s stock option awards for the period beginning
January 1, 2008 and ending December 31, 2009 is presented
below.
|
Options
|
Weighted
Average Exercise Price
|
|||||||
|
Outstanding
as January 1, 2008
|
- | $ | - | |||||
|
Granted
|
410,000 | $ | 4.43 | |||||
|
Exercised
|
268,000 | $ | 4.00 | |||||
|
Canceled,
forfeited or expired
|
- | $ | - | |||||
|
Outstanding
at December 31, 2008
|
142,000 | $ | 5.25 | |||||
|
Granted
|
280,500 | $ | 7.00 | |||||
|
Exercised
|
- | $ | - | |||||
|
Canceled,
forfeited or expired
|
- | $ | - | |||||
|
Outstanding
at December 31, 2009
|
422,500 | $ | 6.41 | |||||
There
were 1,939,700 options available for grant at December 31,
2009. The following table provides the remaining contractual term and
weighted average exercise prices of stock options outstanding and exercisable at
December 31, 2009.
|
Options
Outstanding
|
Options
Exercisable
|
||||||||
|
Exercise
Price
|
Number
Outstanding
at
December 31,
2009
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
at December 31,
2009
|
Weighted
Average
Exercise
Price
|
||||
|
$4.00
|
37,000
|
3.27
|
$4.00
|
37,000
|
$4.00
|
||||
|
$5.65
|
100,000
|
3.95
|
$5.65
|
100,000
|
$5.65
|
||||
|
$6.48
|
5,000
|
3.75
|
$6.48
|
5,000
|
$6.48
|
||||
|
$7.00
|
280,500
|
4.98
|
$7.00
|
280,500
|
$7.00
|
||||
|
422,500
|
4.57
|
$6.41
|
422,500
|
$6.41
|
|||||
The
weighted average remaining contractual life of all exercisable options is 4.57
years.
The
aggregate intrinsic values of total options outstanding and total options
exercisable at December 31, 2009 and 2008 are $122 and $50,
respectively. Intrinsic value is the amount by which the last trade
price of the common stock closest to December 31, 2009 exceeded the
exercise price of the options granted.
The
amendment of the Management Options in September 2008 referred to above resulted
in the immediate recognition into expense of the estimated fair value of those
options not previously recognized, which totaled $74.
In 2008,
FutureFuel realized gross proceeds from stock option exercises of $1,072 and
realized a net tax benefit of $204. FutureFuel did not realize any
proceeds on the December 3, 2008 stock grant but did realize a net tax
benefit of $86. No stock options were exercised in 2009, nor was any
stock awarded.
61
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
14) Provision
for income taxes
The
following table summarizes the provision for income taxes:
|
2009
|
2008
|
2007
|
||||||||||
|
Income
before taxes - U.S.
|
$ | 25,446 | $ | 34,996 | $ | 13,191 | ||||||
|
Provision
for income taxes:
|
||||||||||||
|
Current
|
$ | 6,811 | $ | 8,176 | $ | 2,080 | ||||||
|
Deferred
|
739 | 2,710 | 2,201 | |||||||||
|
State
and other
|
||||||||||||
|
Current
|
843 | 1,093 | 228 | |||||||||
|
Deferred
|
61 | 342 | 274 | |||||||||
|
Total
|
$ | 8,454 | $ | 12,321 | $ | 4,783 | ||||||
Differences
between the provision for income taxes computed using the U.S. federal statutory
income tax rate were as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Amount
computed using the statutory rate of 35%, 35% and 34%,
respectively
|
$ | 8,906 | $ | 12,249 | $ | 4,485 | ||||||
|
Section
199 manufacturing deduction
|
(237 | ) | (271 | ) | (183 | ) | ||||||
|
Agri-biodiesel
production credit
|
(975 | ) | (812 | ) | (564 | ) | ||||||
|
Credit
for increasing research activities
|
(144 | ) | (78 | ) | (69 | ) | ||||||
|
Alternative
fueling equipment credit
|
(160 | ) | - | - | ||||||||
|
Tax
exempt interest income
|
(74 | ) | (541 | ) | - | |||||||
|
Change
in the valuation allowance
|
(23 | ) | 265 | 472 | ||||||||
|
State
income taxes, net
|
1,011 | 1,336 | 601 | |||||||||
|
Other
|
150 | 173 | 41 | |||||||||
|
Provision
for income taxes
|
$ | 8,454 | $ | 12,321 | $ | 4,783 | ||||||
The
significant components of deferred tax assets and liabilities were as follows as
of December 31:
|
2009
|
2008
|
|||||||
|
Deferred
tax assets
|
||||||||
|
Vacation
pay
|
$ | 122 | $ | 117 | ||||
|
Allowance
for doubtful accounts
|
- | 2 | ||||||
|
Agri-biodiesel
production credit
|
190 | 190 | ||||||
|
Inventory
reserves
|
1,050 | 1,919 | ||||||
|
Self
insurance
|
104 | 96 | ||||||
|
Asset
retirement obligation
|
266 | 231 | ||||||
|
Derivative
instruments
|
889 | 251 | ||||||
|
Stock
based compensation
|
441 | 106 | ||||||
|
Total
deferred tax assets
|
3,062 | 2,912 | ||||||
|
Deferred
tax liabilities
|
||||||||
|
Available
for sale securities
|
(23 | ) | (9 | ) | ||||
|
Accrued
expenses
|
(18 | ) | (19 | ) | ||||
|
LIFO
inventory
|
(4,320 | ) | (5,530 | ) | ||||
|
Intangible
assets
|
(81 | ) | (126 | ) | ||||
|
Depreciation
|
(25,196 | ) | (23,782 | ) | ||||
|
Total
deferred tax liabilities
|
(29,638 | ) | (29,466 | ) | ||||
|
Valuation
allowance
|
(714 | ) | (737 | ) | ||||
|
Net
deferred tax liabilities
|
$ | (27,290 | ) | $ | (27,291 | ) | ||
62
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
| 2009 | 2008 | |||||||
|
As
recorded in the consolidated balance sheet
|
||||||||
|
Current
deferred tax liability
|
$ | (3,172 | ) | $ | (4,151 | ) | ||
|
Noncurrent
deferred tax liability
|
(24,118 | ) | (23,140 | ) | ||||
|
Net
deferred tax liabilities
|
$ | (27,290 | ) | $ | (27,291 | ) |
The
effective tax rates for the years December 31, 2009 and 2008 reflect
FutureFuel’s expected tax rate on reported operating earnings before income
tax.
FutureFuel’s
unrecognized tax benefits, recorded as an element of other noncurrent
liabilities, totaled $559 at both December 31, 2009 and December 31,
2008, the total amount of which, if recognized, would reduce FutureFuel’s
effective tax rate.
FutureFuel
does not expect its unrecognized tax benefits to change significantly over the
next 12 months.
FutureFuel
records interest and penalties net as a component of income tax
expense. FutureFuel accrued a balance of $138 and $96 at
December 31, 2009 and December 31, 2008, respectively, for interest or
tax penalties.
FutureFuel
and its subsidiaries file tax returns in the U.S. federal jurisdiction and with
various state jurisdictions. FutureFuel was incorporated in 2005 and
is subject to U.S., state and local examinations by tax authorities from 2006
forward. FutureFuel Chemical is subject to the effects of tax
examinations that may impact the carry-over basis of its assets and
liabilities.
15) Stockholders’
equity
On
July 12, 2006, Viceroy and its founding shareholders entered into a
registration rights agreement pursuant to which the holders of the majority of
founding shares and shares of common stock included in the units purchased in
Viceroy’s July 2006 offering by a director or his designees are entitled to make
up to two demands that Viceroy register with the SEC their founding shares and
the shares included in the units purchased in Viceroy’s July 2006
offering. The holders of the majority of such shares can elect to
exercise these registration rights at any time after the date on which Viceroy
has become a reporting company under the Securities Exchange Act of 1934
(“Securities Act”), as amended, and such shares have been released from any
applicable escrow agreement and lock-in deeds. In addition, those
shareholders have certain “piggyback” registration rights on registration
statements filed subsequent to the date on which such shares are released from
escrow or other lock up arrangements. Viceroy agreed to bear the
expenses incurred in connection with the filing of any such registration
statements. There are 11,250,000 shares of Viceroy’s common stock
subject to this registration rights agreement.
On
July 12, 2006, Viceroy entered into an investor rights agreement with each
of KBC Peel Hunt Ltd, Viceroy’s Nominated Advisor on the AIM, and CRT Capital
Group LLC, Viceroy’s placing agent, for the benefit of the holders of its shares
of common stock and warrants in which Viceroy agreed, at its cost, to provide
“piggyback” registration rights as to any shares of its common stock that are
not, at the time, freely saleable identical to the “piggyback” registration
rights of the founding shareholders described above, plus the right to piggyback
on any registration statement filed pursuant to the founding shareholders’
demand registration rights described above, provided that in the event such
piggyback rights are exercised in an underwritten offering, the number of shares
of Viceroy’s common stock registered will be subject to a cutback, pro rata with
the founding shareholders, if the underwriter so requires. There are
15,450,000 shares of Viceroy’s common stock subject to this investor rights
agreement.
In 2008,
1,182,500 warrants to purchase FutureFuel’s common stock were
exercised. Proceeds from the exercise of these warrants totaled
$7,095. At December 31, 2008, warrants to purchase 21,317,500
shares of FutureFuel’s common stock were outstanding and
unexercised.
None of
FutureFuel’s warrants were exercised in 2009. FutureFuel did
repurchase and cancel 1,642,300 of its warrants for an aggregate purchase price
of $799. At December 31, 2009, warrants to purchase 19,675,200
shares of FutureFuel’s common stock were outstanding and
unexercised.
63
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
16) Earnings
per share
The
computation of basic and diluted earnings per common share was as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Net
income available to common stockholders
|
$ | 16,992 | $ | 22,675 | $ | 8,408 | ||||||
|
Weighted
average number of common shares outstanding
|
28,190,300 | 27,029,210 | 26,700,000 | |||||||||
|
Effect
of warrants
|
1,045,203 | 487,180 | 5,586,996 | |||||||||
|
Effect
of stock options
|
18,769 | 34,051 | - | |||||||||
|
Weighted
average diluted number of common shares outstanding
|
29,254,272 | 27,550,441 | 32,286,996 | |||||||||
|
Basic
earnings per share
|
$ | 0.60 | $ | 0.84 | $ | 0.31 | ||||||
|
Diluted
earnings per share
|
$ | 0.58 | $ | 0.82 | $ | 0.26 | ||||||
Certain
warrants to purchase shares of FutureFuel’s common stock were not included in
the computation of diluted earnings per share for the years ended
December 31, 2009 and 2008 as they were anti-dilutive in the
period. The weighted average number of warrants excluded on this
basis was 10,658,750 and 16,579,375, respectively. Additionally,
certain options to purchase shares of FutureFuel’s common stock were not
included in the computation of diluted earnings per share for the years ended
December 31, 2009 and 2008 as they were anti-dilutive in the
period. The weighted average number of options excluded on this basis
was 53,750 and 1,250, respectively.
17) Employee
benefit plans
Defined
contribution savings plan
FutureFuel
currently offers its employees a company 401(k) matching savings plan, which
covers substantially all employees. Under this plan, FutureFuel
matches the amount of eligible employees’ contributions, subject to specified
limits, up to 6% of earnings. Company contributions totaled $1,663,
$1,763, and $1,552 for the years ended December 31, 2009, 2008, and 2007,
respectively.
18) 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 on our
accompanying consolidated financial statements as related party line
items. These related party transactions are summarized in the
following table and further described below.
64
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
Related
party balance sheet accounts
|
2009
|
2008
|
|||||||
|
Prepaid
expenses
|
||||||||
|
Income
tax and consulting services
|
$ | 23 | $ | - | ||||
|
Total
prepaid expenses
|
$ | 23 | $ | - | ||||
|
Accounts
payable
|
||||||||
|
Distribution
and related services
|
$ | 82 | $ | 18 | ||||
|
Storage
and terminalling services
|
2 | - | ||||||
|
Natural
gas purchases
|
472 | 404 | ||||||
|
Total
accounts payable
|
$ | 556 | $ | 422 | ||||
|
Accrued
liabilities
|
||||||||
|
Travel
and administrative services
|
$ | 67 | $ | 20 | ||||
|
Total
accrued liabilities
|
$ | 67 | $ | 20 | ||||
Related
party income statement accounts
|
2009
|
2008
|
2007
|
||||||||||
|
Revenues
|
||||||||||||
|
Biodiesel,
petrodiesel and blends
|
$ | 2,494 | $ | 4,864 | $ | 56 | ||||||
|
Total
revenues
|
$ | 2,494 | $ | 4,864 | $ | 56 | ||||||
|
Cost
of goods sold
|
||||||||||||
|
Biodiesel,
petrodiesel and blends
|
$ | 2,802 | $ | 2,357 | $ | 26 | ||||||
|
Natural
gas purchases
|
2,706 | 2,904 | 1,403 | |||||||||
|
Storage
and terminalling services
|
334 | - | 79 | |||||||||
|
Income
tax and consulting services
|
91 | 70 | 21 | |||||||||
|
Total
cost of goods sold
|
$ | 5,933 | $ | 5,331 | $ | 1,529 | ||||||
|
Distribution
|
||||||||||||
|
Distribution
and related services
|
$ | 88 | $ | - | $ | - | ||||||
|
Total
distribution
|
$ | 88 | $ | - | $ | - | ||||||
|
Selling,
general and administrative expense
|
||||||||||||
|
Commodity
trading advisory fees
|
$ | 132 | $ | 132 | $ | 107 | ||||||
|
Travel
and administrative services
|
166 | 55 | 65 | |||||||||
|
Total
selling, general and administrative expense
|
$ | 298 | $ | 187 | $ | 172 | ||||||
Biodiesel,
petrodiesel and blends
FutureFuel
enters into agreements to sell biofuels (biodiesel, petrodiesel, or
biodiesel/petrodiesel blends) to an affiliate from time to time. Such
agreements are priced at the then current market price of biodiesel as
determined from bids from other customers and/or market pricing
services. Cost of goods sold related to these sales includes variable
costs and allocated fixed costs. In addition, cost of goods sold
includes allocated hedging gains (losses) for the respective period, as
applicable.
Natural
gas purchases
FutureFuel
utilizes natural gas to generate steam for its manufacturing process and to
support certain of its air and waste treatment utilities. This
natural gas is purchased through an affiliate provider of natural gas marketing
services. Expenses related to these purchases include the cost of the
natural gas only; transportation charges are paid to an independent third
party.
Storage
and terminalling services
FutureFuel
leases oil storage capacity from an affiliate under a storage and thruput
agreement. This agreement provides for the storage of biodiesel,
diesel or biodiesel/petrodiesel blends, methanol, and biodiesel feedstocks in
above-ground storage tankage at designated facilities of the
affiliate. Expenses
65
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
related
to this agreement include monthly lease charges, generally on a per barrel
basis, and associated heating, thruput, and other customary terminalling
charges.
Income
tax and consulting services
An
affiliate provides professional services to FutureFuel, primarily in the area of
income tax preparation and consulting. FutureFuel also receives
certain finance and accounting expertise from this affiliate as
requested. Expenses related to these services are comprised of an
agreed quarterly fee plus reimbursement of expense, at cost.
Distribution
and related services
Distribution
and related services are comprised of barge transportation and related unloading
charges for petrodiesel that were arranged and paid by an affiliate and
subsequently rebilled to FutureFuel.
Commodity
trading advisory fees
FutureFuel
entered into a commodity trading advisory agreement with an
affiliate. Pursuant to the terms of this agreement, the affiliate
provides advice to FutureFuel concerning the purchase, sale, exchange,
conversion, and/or hedging of commodities as FutureFuel may request from time to
time.
Travel
and administrative services
FutureFuel
reimburses an affiliate for travel and other administrative services incurred on
its behalf. Such reimbursement is performed at cost with the
affiliate realizing no profit on the transaction.
Railcar
sublease agreement
FutureFuel
entered into a railcar sublease agreement with an affiliate. Pursuant
to the terms of this sublease, FutureFuel leases from the affiliate railcars
upon the same terms, conditions, and price the affiliate leases the
railcars. Lease terms for individual railcars begin upon delivery of
the railcars. Forty railcars were received through December 31,
2009. From the onset of this lease, FutureFuel has been paying lease
charges directly to the entity leasing the railcars to the affiliate, as opposed
to paying the affiliate itself. Hence, no related party expense is
reflected in the above table, although the affiliate has essentially been
guaranteeing FutureFuel’s obligations to the lessor. In September
2009, the master lease was modified such that the affiliate was removed and
FutureFuel leases the railcars directly, with no guarantee remaining on the part
of the affiliate. Expenses related to this lease were $248, $331, and
$72 for the years ended December 31, 2009, 2008, and 2007,
respectively.
19) Segment
information
FutureFuel
has determined that is has two reportable segments organized along product lines
– chemicals and biofuels. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies in
Note 2.
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 manufactures and markets
biodiesel. Biodiesel revenues were generally derived in one of two
ways. Revenues were generated under tolling agreements whereby
customers supplied key biodiesel feed stocks which FutureFuel then converted
into biodiesel at the Batesville Plant in exchange for a fixed price processing
charge per gallon of biodiesel produced. Tolling agreements were
terminated in 2007. Revenues are also generated through the sale of
biodiesel to
66
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
customers
through FutureFuel’s distribution network at the Batesville Plant and through
distribution facilities available at a leased oil storage facility near Little
Rock, Arkansas at negotiated prices.
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 for the year ended December 31,
2009, 2008, and 2007 attributable to the United States and foreign countries
(based upon the billing addresses of its customers) were as
follows.
|
Fiscal
Year
|
United
States
|
All
Foreign Countries
|
Total
|
|||||||||
|
December 31,
2009
|
$ | 179,505 | $ | 17,206 | $ | 196,711 | ||||||
|
December 31,
2008
|
$ | 164,963 | $ | 33,367 | $ | 198,330 | ||||||
|
December 31,
2007
|
$ | 141,233 | $ | 28,555 | $ | 169,788 | ||||||
For the
years ended December 31, 2009, 2008, and 2007, revenues from Mexico
accounted for 8%, 11%, and 11%, respectively, of total
revenues. Beginning in the third quarter of 2007 and ending in 2008,
FutureFuel Chemical Company sold significant quantities of biodiesel to
companies from Canada, during which time revenues from Canada became a material
component of total revenues. Revenues from Canada accounted for 0%,
5% and 5% of total revenues for the years ended December 31, 2009, 2008,
and 2007, respectively. Other than Mexico and Canada, revenues from a
single foreign country during 2009, 2008, or 2007 did not exceed 1% of total
revenues.
Summary
of business by segment
|
2009
|
2008
|
2007
|
||||||||||
|
Revenues
|
||||||||||||
|
Chemicals
|
$ | 143,759 | $ | 155,553 | $ | 144,474 | ||||||
|
Biofuels
|
52,952 | 42,777 | 25,314 | |||||||||
|
Revenues
|
$ | 196,711 | $ | 198,330 | $ | 169,788 | ||||||
|
Segment
gross margins
|
||||||||||||
|
Chemicals
|
$ | 33,007 | $ | 32,738 | $ | 27,107 | ||||||
|
Biofuels
|
1,430 | 7,679 | (9,874 | ) | ||||||||
|
Segment
gross margins
|
34,437 | 40,417 | 17,233 | |||||||||
|
Corporate
expenses
|
(9,598 | ) | (8,236 | ) | (7,578 | ) | ||||||
|
Income
before interest and taxes
|
24,839 | 32,181 | 9,655 | |||||||||
|
Interest
income
|
403 | 2,965 | 3,567 | |||||||||
|
Interest
and other income (expense)
|
204 | (150 | ) | (31 | ) | |||||||
|
Provision
for income taxes
|
(8,454 | ) | (12,321 | ) | (4,783 | ) | ||||||
|
Net
income
|
$ | 16,992 | $ | 22,675 | $ | 8,408 | ||||||
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.
67
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
Gross
margins for the biodiesel segment for the years ended December 31, 2009 and
2008 were favorably impacted by the receipt of $2,000 from the State of Arkansas
in each year resulting from our biodiesel operating cost grant application under
the Arkansas Alternative Fuels Development Program. The 2008 funding
was attributable to our biodiesel production between January 1, 2007 and
June 30, 2008 and the 2009 funding was attributable to our biodiesel
production between July 1, 2008 and June 30, 2009 and both grants were
calculated as $0.20 per gallon of biodiesel produced, capped at $2,000 for each
year. FutureFuel has applied for funding under this program for
biodiesel produced during the period July 1 to December 31, 2009 but
has not yet received notification that its application has been
approved. Based on the characteristics of the Arkansas Alternative
Fuels Development Program and the State funding behind this program, FutureFuel
recognizes income in the period funding is received.
20) 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 table provides information by level for assets and liabilities that
are measured at fair value, on a recurring basis.
|
Asset/(Liability)
|
||||||||||||||||
|
Fair
Value at December 31,
|
Fair
Value Measurements Using
Inputs
Considered as
|
|||||||||||||||
|
Description
|
2009
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||
|
Available
for sale:
|
||||||||||||||||
|
Auction
rate securities
|
$ | 2,800 | - | $ | 2,800 | - | ||||||||||
|
Derivative
instruments
|
$ | (1,930 | ) | $ | (1,930 | ) | - | - | ||||||||
|
Preferred
stock and trust preferred securities
|
$ | 4,011 | $ | 4,011 | - | - | ||||||||||
68
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
21) Commitments
Lease
agreements
FutureFuel
has entered into lease agreements for oil storage capacity, railcars,
isotainers, gas cylinders and argon tanks. Minimum rental
commitments under existing noncancellable operating leases as of
December 31, 2009 were as follows:
|
2010
|
$ | 818 | ||
|
2011
|
402 | |||
|
2012
|
351 | |||
|
2013
|
331 | |||
|
2014
|
286 | |||
|
Thereafter
|
699 | |||
|
Total
|
$ | 2,887 |
Lease
expenses totaled $1,446, $885, and $408 for the years ended December 31,
2009, 2008, and 2007, respectively.
Purchase
obligations
FutureFuel
has entered into contracts for the purchase of goods and services including
contracts for the expansion of FutureFuel’s biofuels related infrastructure, the
development, implementation and maintenance of an enterprise resource planning
computer software package, and the licensing of a chemical modeling software
product.
Deferred
payments to Eastman Chemical
In
connection with the purchase of shares of Eastman SE, FutureFuel agreed to pay
Eastman Chemical $0.02 per gallon of biodiesel sold by FutureFuel during the
three-year period commencing on October 31, 2006 and ending on
October 31, 2009. Payments to Eastman Chemical in 2009, 2008,
and 2007 for this agreement totaled $312, $250, and $172,
respectively.
22) Quarterly
financial information (unaudited)
|
Quarter
|
||||||||||||||||
|
1
st
|
2
nd
|
3
rd
|
4
th
|
|||||||||||||
|
2008
|
||||||||||||||||
|
Revenues
|
$ | 43,220 | $ | 49,896 | $ | 60,585 | $ | 44,629 | ||||||||
|
Gross
profit
|
$ | 10,582 | $ | 4,451 | $ | 10,880 | $ | 14,504 | ||||||||
|
Net
income
|
$ | 6,160 | $ | 2,913 | $ | 5,389 | $ | 8,213 | ||||||||
|
Net
income per common share:
|
||||||||||||||||
|
Basic
|
$ | 0.23 | $ | 0.11 | $ | 0.20 | $ | 0.29 | ||||||||
|
Diluted
|
$ | 0.23 | $ | 0.11 | $ | 0.19 | $ | 0.29 | ||||||||
|
2009
|
||||||||||||||||
|
Revenues
|
$ | 39,737 | $ | 41,831 | $ | 52,263 | $ | 62,880 | ||||||||
|
Gross
profit
|
$ | 6,355 | $ | 5,873 | $ | 13,650 | $ | 8,559 | ||||||||
|
Net
income
|
$ | 2,821 | $ | 2,850 | $ | 7,384 | $ | 3,937 | ||||||||
|
Net
income per common share:
|
||||||||||||||||
|
Basic
|
$ | 0.10 | $ | 0.10 | $ | 0.26 | $ | 0.14 | ||||||||
|
Diluted
|
$ | 0.10 | $ | 0.10 | $ | 0.25 | $ | 0.13 | ||||||||
Earnings
per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly amounts will not
necessarily equal the total for the year.
69
Notes
to Consolidated Financial Statements of FutureFuel Corp.
(Dollars
in thousands, except per share amounts)
23) Recently
issued accounting standards
In March
2008, the FASB issued SFAS Statement No. 161 “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS No. 161”). The new
standard is intended to improve financial reporting about derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. The new standard also
improves transparency about the location and amounts of derivative instruments
in an entity’s financial statements; how derivative instruments and related
hedged items are accounted for under SFAS No. 133 “Accounting for Derivative
Instruments and Hedging Activities”; and how derivative instruments and related
hedged items affect its financial position, financial performance, and cash
flows. FutureFuel has concluded that SFAS No. 161 will not have a
material impact on the Company’s disclosures.
24) Reserve
roll forwards - valuation and qualifying accounts
| Additions | ||||||||||||||||||||
|
Balance
at January 1,
2009
|
Charged
to
Cost
and
Expense
|
Charged
to
Other Accounts
|
Deductions
|
Balance
at December 31, 2009
|
||||||||||||||||
|
Reserve
for:
|
||||||||||||||||||||
|
Doubtful
accounts and returns
|
$ | 4 | $ | 1 | $ | - | $ | 5 | $ | - | ||||||||||
|
LIFO
inventory
|
4,682 | 1,244 | - | - | 5,926 | |||||||||||||||
|
Aged
and obsolete inventory
|
253 | 4 | - | - | 257 | |||||||||||||||
|
Deferred
tax valuation allowance
|
737 | - | - | 23 | 714 | |||||||||||||||
|
Aged
and obsolete supplies and parts
|
666 | 44 | - | - | 710 | |||||||||||||||
| $ | 6,342 | $ | 1,293 | $ | - | $ | 28 | $ | 7,607 | |||||||||||
| Additions | ||||||||||||||||||||
|
Balance
at January 1,
2008
|
Charged
to
Cost
and
Expense
|
Charged
to
Other
Accounts
|
Deductions
|
Balance
at December 31, 2008
|
||||||||||||||||
|
Reserve
for:
|
||||||||||||||||||||
|
Doubtful
accounts and returns
|
$ | 42 | $ | 4 | $ | - | $ | 42 | $ | 4 | ||||||||||
|
LIFO
inventory
|
1,562 | 3,120 | - | - | 4,682 | |||||||||||||||
|
Aged
and obsolete inventory
|
124 | 129 | - | - | 253 | |||||||||||||||
|
Deferred
tax valuation allowance
|
472 | 265 | - | - | 737 | |||||||||||||||
|
Aged
and obsolete supplies and parts
|
436 | 230 | 666 | |||||||||||||||||
| $ | 2,636 | $ | 3,748 | $ | - | $ | 42 | $ | 6,342 | |||||||||||
| Additions | ||||||||||||||||||||
|
Balance
at January 1,
2007
|
Charged
to
Cost
and
Expense
|
Charged
to
Other
Accounts
|
Deductions
|
Balance
at
December 31,
2007
|
||||||||||||||||
|
Reserve
for:
|
||||||||||||||||||||
|
Doubtful
accounts and returns
|
$ | 42 | $ | - | $ | - | $ | - | $ | 42 | ||||||||||
|
LIFO
inventory
|
5 | 1,557 | - | - | 1,562 | |||||||||||||||
|
Aged
and obsolete inventory
|
2 | 122 | - | - | 124 | |||||||||||||||
|
Deferred
tax valuation allowance
|
- | 472 | - | - | 472 | |||||||||||||||
|
Aged
and obsolete supplies and parts
|
442 | (6 | ) | 436 | ||||||||||||||||
| $ | 491 | $ | 2,145 | $ | - | $ | - | $ | 2,636 | |||||||||||
70
RubinBrown
LLP was engaged as the principal accountant to audit our financial statements
for 2008 and 2009, and no other independent accountant was so
engaged. There were no disagreements with RubinBrown LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
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
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 December 31, 2009 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.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on this assessment, management has concluded that,
as of December 31, 2009, our internal control over financial reporting is
effective based on those criteria.
The
effectiveness of our internal control over financial reporting as of
December 31, 2009 has been audited by our auditor, RubinBrown LLP, an
independent registered public accounting firm, which expressed an unqualified
opinion as stated in their report, a copy of which is included
below.
The Board
of Directors and Stockholders
FutureFuel
Corp.:
We have
audited the internal control over financial reporting of FutureFuel Corp. and
subsidiaries (the Company) as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating
71
effectiveness
of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable details,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the balance sheets and related statements of
operations, comprehensive income, changes in stockholders’ equity, and cash
flows of the Company, and our report dated March 15, 2010 expressed an
unqualified opinion on those financial statements.
/s/
RubinBrown LLP
St.
Louis, Missouri
March 15,
2010
We did
not make any changes in our internal control over financial reporting as a
result of our evaluation that occurred during the fiscal quarter ended
December 31, 2009.
72
Our
directors are as follows.
|
Name
|
Age
|
Director
Since
|
Term
Expires
|
|||
|
Paul
A. Novelly, executive chairman of the board
|
66
|
2005
|
2012
|
|||
|
Lee
E. Mikles, chief executive officer and president
|
54
|
2005
|
2011
|
|||
|
Edwin
A. Levy
|
72
|
2005
|
2010
|
|||
|
Thomas
R. Evans
|
55
|
2006
|
2011
|
|||
|
Richard
L. Knowlton
|
77
|
2007
|
2012
|
|||
|
Paul
G. Lorenzini, chief operating officer
|
70
|
2007
|
2012
|
|||
|
Donald
C. Bedell
|
68
|
2008
|
2010
|
There is
no arrangement or understanding between any of the above directors and any other
person pursuant to which such person was or is to be selected as a
director.
Our
executive officers are as follows.
|
Name
|
Position
|
Age
|
Officer
Since
|
|||
|
Paul
A. Novelly
|
Executive
chairman of the board
|
66
|
2005
|
|||
|
Lee
E. Mikles
|
Chief
executive officer and president
|
54
|
2005
|
|||
|
Paul
G. Lorenzini
|
Chief
operating officer
|
70
|
2008
|
|||
|
Douglas
D. Hommert
|
Principal
financial officer, executive vice president, secretary and
treasurer
|
54
|
2005
|
There is
no arrangement or understanding between any of the above officers and any other
person pursuant to which such person was or is to be selected as an
officer.
The
following individuals are executive officers of FutureFuel Chemical Company who
are expected to make significant contributions to our business.
|
Name
|
Position
|
Age
|
Officer
Since
|
|||
|
David
Baker
|
Senior
vice president - operations support
|
63
|
2006
|
|||
|
Gary
Hess
|
Senior
vice president - commercial operations
|
58
|
2006
|
|||
|
Benjamin
Ladd
|
Chief
financial officer and treasurer
|
33
|
2006
|
|||
|
Samuel
Dortch
|
Senior
vice president - operations
|
61
|
2007
|
There is
no family relationship between any of our executive officers and
directors.
Paul A.
Novelly
has been our chairman of the board since
inception. For at least the past five years, Mr. Novelly has been
chairman and chief executive officer of Apex Oil Company, Inc., a privately-held
company based in St. Louis, Missouri engaged in the trading, storage, marketing,
and transportation of petroleum products, including
73
liquid
terminal facilities in the Midwest and Eastern United States, and towboat and
barge operations on the inland waterway system. Mr. Novelly is
president and a director of AIC Limited, a Bermuda-based oil trading company,
chairman and a director of World Point Terminals Inc., a publicly-held Canadian
company based in Calgary which owns and operates petroleum storage facilities in
the United States, and chief executive officer of St. Albans Global Management,
Limited Partnership, LLLP, which provides corporate management
services. He currently serves on the board of directors at Boss
Holdings, Inc., a distributor of work gloves, boots and rainwear, and other
consumer products, and within the past five years also served on the board of
directors of Intrawest Corporation, a company in the destination resorts and
adventure travel industry, and The Bear Stearns Companies, Inc., a broker-dealer
and global securities and investment firm.
Lee E.
Mikles
has been our chief executive officer and a member of our board
since inception. In addition, he served as our principal financial
officer before our acquisition of FutureFuel Chemical Company and thereafter
through January 31, 2008. Mr. Mikles was chairman of
Mikles/Miller Management, Inc., a registered investment adviser and home to the
Kodiak family of funds, between 1992 and 2005. He was also chairman
of Mikles/Miller Securities, LLC, a registered broker-dealer, between 1999 and
2005. Additionally, Mr. Mikles has served on the board of directors
of Pacific Capital Bankcorp., Official Payments Corporation, Coastcast
Corporation, Nelnet, Inc., Imperial Bank and Imperial Bancorp. He
currently serves on the board of directors of Boss Holdings, Inc. and is the
chair of the audit committee for Boss Holdings, Inc.
Paul G.
Lorenzini
has been a member of our board since January 2007 and our chief
operating officer since April 21, 2008. In January 1970, Mr.
Lorenzini co-founded Packaging Consultants, Inc., a distribution business
supplying packaging materials to the food industry. In 1983, Bunzl
PLC, a supplier of supermarket and food service packaging, acquired Packaging
Consultants, Inc. Mr. Lorenzini continued to work for Bunzl PLC and
in 1986 became president of Bunzl USA. He subsequently became the
chief executive officer of Bunzl USA and retired in July 2004 with the title of
chairman emeritus. Mr. Lorenzini served as a director of Bunzl PLC
between 1999 and 2004.
Douglas D.
Hommert
has been our executive vice president, secretary, and treasurer
since inception. He was a member of our board from inception through
January 14, 2008. He became our principal financial officer on
February 1, 2008. Mr. Hommert has been executive vice president
and general counsel of Apex Oil Company, Inc. since September
2002. Between October 1988 and September 2002, he was a partner in
the St. Louis law firm of Lewis, Rice & Fingersh, L.C. With that
firm, he practiced in the areas of business law, taxation, mergers and
acquisitions, financing and partnerships. He was licensed as a
Certified Public Accountant in 1982.
Edwin A.
Levy
has been a member of our board since November 2005. In
1979, Mr. Levy co-founded Levy, Harkins & Co., Inc., an investment advisory
firm, where he now serves as chairman of the board and individual
advisor. Mr. Levy was a director of Traffix, Inc. between November
1995 and 2006, and served as a member of its audit committee and stock options
committee. He is a director of World Point Terminals Inc., a
publicly-held Canadian company based in Calgary which owns and operates
petroleum storage facilities in the United States, and in the past five years
was a director of Forward Industries, Inc., a publicly-held company in the
business of designing, manufacturing and distributing custom carrying case
solutions.
Thomas R.
Evans
has been a member of our board since May 2006. Since
June 2004, he has served as president and chief executive officer of Bankrate,
Inc., an Internet based aggregator of financial rate information. Mr.
Evans was elected to Bankrate, Inc.’s board of directors in May
2004. From 1999 to 2002, Mr. Evans was chairman and chief executive
officer of Official Payments Corporation, an Internet processor of payment to
government entities.
Richard L.
Knowlton
has been a member of our board since January
2007. Between 1956 and 1995, Mr. Knowlton worked for Hormel Foods
Corporation, a multinational manufacturer and marketer of consumer-branded meat
and food products. He started as a merchandising manager and became
the president and chief operating officer in 1979. He became the
chief executive officer and chairman of the board in 1981 and retired in
1995. Mr. Knowlton currently serves as a director on The Hormel
Foundation and the Horatio Alger Association and is a member of the Business
Advisory Council for the University of Colorado Leeds School of Business, the
Mayo Laboratory Services Advisory Board and the Eisenhower Medical Center
Board. Mr. Knowlton served as a director of NG America Insurance
Holdings, Inc. between 2000 and 2005 and SUPERVALU INC. between 1994 and
2005.
74
Donald C.
Bedell
has been a member of our board since March 17,
2008. Mr. Bedell is chairman of the board of privately held Castle
Partners and its affiliates, based in Sikeston, Missouri, which operate over 35
skilled nursing, health care, pharmaceutical, hospice, and therapy facilities
throughout Missouri and other states. Mr. Bedell is a director of
several privately held commercial banks, including First Community Bank of
Batesville, Arkansas and is a member of the executive committee of such bank and
its holding company. He is also a director of World Point Terminals
Inc., serving as chairman of World Point’s Corporate Governance and Human
Resources Committees. FutureFuel Corp.’s chairman, Paul A. Novelly,
is the chairman of the board of World Point Terminals Inc.
David
Baker
was the vice president - manufacturing operations of FutureFuel
Chemical Company between October 31, 2006 and October 14, 2007 and has
been senior vice president - operations support since October 15,
2007. In 1967, he joined Eastman Chemical Company’s filter products
division in Kingsport, Tennessee as a development engineer. In 2001,
Mr. Baker was named managing director of Eastman Chemical Company’s Peboc
division, relocating to the United Kingdom. The Peboc division
manufactures specialty chemicals including active pharmaceutical
ingredients. In August 2005, Mr. Baker relocated to Kingsport as a
business development manager in performance chemicals exclusive
manufacturing. Mr. Baker is a registered professional engineer and
past president of the East Tennessee Society of Professional
Engineers.
Gary Hess
was the vice president - commercial operations of FutureFuel Chemical Company
between October 31, 2006 and October 14, 2007, senior vice president -
sales and marketing between October 15, 2007 and March 12, 2008 and
senior vice president - commercial operations since March 13,
2008. Mr. Hess was the vice president for commercial operations for
Bayer Corporation, where he had responsibility for sales, marketing, customer
service, purchasing, research and development and quality control, prior to
joining Eastman Chemical Company in December 2002 as the market development
executive for agrochemicals. During his tenure with Bayer
Corporation, Mr. Hess resided two years in Germany where he directed the market
development efforts in pharmaceutical intermediates and photographic
chemicals. In 2004, he was appointed to the position of global
business leader for exclusive manufacturing with responsibility for sales,
marketing and business development.
Benjamin
Ladd
became FutureFuel Chemical Company’s chief financial officer on
October 31, 2006. From October 2003 to October 2006, Mr.
Ladd was a fund manager and financial consultant for St. Albans Global
Management, Limited Partnership, LLLP. In this position, he assisted
with the management of capital in the equity and derivative markets worldwide
and was responsible for all financial analysis and reporting related to the
firm’s merchant banking and consulting activities. From 1999 to 2003,
Mr. Ladd served in various capacities for Green Manning & Bunch, Ltd., a
middle-market investment banking firm in Denver, Colorado.
Samuel
Dortch
was the vice president - operations services of FutureFuel
Chemical Company between July 30, 2007 and October 14, 2007 and has
been senior vice president - operations since October 15,
2007. In 1972, Mr. Dortch joined Eastman Chemical Company’s technical
services division in Kingsport, Tennessee as a development chemical
engineer. He has served in numerous management positions in
Kingsport, Batesville and at Eastman Kodak’s Kirby, England
facility. In 2004, Mr. Dortch became manager of research and
development at the Batesville plant and director of research and development in
December 2006.
To our
knowledge, based upon the reports provided to us under Section 16(a) of the
Exchange Act, all filings required under such section were timely filed by each
person who at any time during 2009, was our director or officer or who was a
beneficial owner of more than 10% of our common stock, other than Paul G.
Lorenzini with respect to purchases made of our common stock in November and
December 2009. Mr. Lorenzini is our director and chief operating
officer.
We
adopted a code of ethics and business conduct that applies to all of our
employees and the employees of our subsidiaries, including our principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A copy of this
code of ethics and business conduct has been posted on our Internet website and
may be accessed at
http://ir.futurefuelcorporation.com/governance.cfm
. We
will provide any person, without charge, a copy of such code of ethics and
business conduct upon request to FutureFuel Corp., 8235 Forsyth Blvd., 4
th
Floor, Clayton, Missouri 63105, attention: Investor Relations.
75
Our board
established a nominating committee and adopted a charter for such nominating
committee. A copy of this nominating committee charter is posted on
our Internet website and may be accessed at
http://ir.futurefuelcorporation.com/governance.cfm
. The
nominating committee charter contains procedures for Company shareholders to
submit recommendations for nomination to our board. There have not
been any changes to those procedures since that charter was attached as an
exhibit to our Form 10 Registration Statement filed with the SEC on
April 24, 2007.
We have a
separately-designated standing audit committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act, and have adopted an audit
committee charter. A copy of this audit committee charter has been
posted on our Internet website and may be accessed at
http://ir.futurefuelcorporation.com/governance.cfm
. The
current members of the audit committee are as follows:
Thomas R. Evans
Edwin A. Levy
Richard L. Knowlton
Our board
of directors determined that each member of our audit committee is an audit
committee financial expert. Each such member of our audit committee
is independent, as independence for audit committee members is defined in the
listing standards applicable to us.
Our board
of directors has established a remuneration committee. The
remuneration committee’s responsibilities include, among other things,
determining our policy on remuneration to our (that is, FutureFuel Corp.’s)
officers and directors and the executive officers and directors of FutureFuel
Chemical Company. We paid each of our directors $25,000 for
2009. We determined for 2009 not to pay salaries, bonuses, or other
forms of cash compensation (other than stock options) to any of our executive
officers (in their capacities as such) (other than certain executive officers of
FutureFuel Chemical Company). The remuneration committee did approve
the awarding of certain stock options to our directors and executive officers in
2009 as described below. No compensation for our directors or
executive officers (other than certain executive officers of FutureFuel Chemical
Company) has been set at this time for the calendar year
2010. Rather, our board believes it is more appropriate to set such
compensation later in the year when 2010 results are capable of reasonable
estimation.
In 2009,
we paid salaries, bonuses, and other forms of compensation to the officers of
FutureFuel Chemical Company as described below. For purposes of the
following discussion of executive compensation, the term “executive officers”
includes executive officers of both FutureFuel Corp. and FutureFuel Chemical
Company. Only Paul A. Novelly, Lee E. Mikles, Paul G. Lorenzini, and
Douglas D. Hommert have been elected officers of FutureFuel Corp. by our board
of directors.
The
elements of our compensation program include base salary, bonuses, and certain
retirement, insurance, and other benefits generally available to all
employees. In addition, our board adopted an Omnibus Incentive Plan
(the “
Incentive
Plan
”) which was approved by our shareholders at our 2007 annual meeting
on June 26, 2007. The Incentive Plan provides equity-based
compensation to our executive officers and our directors.
Cash
Salaries and Bonuses
We
determined not to pay cash salaries or bonuses to Messrs. Novelly, Mikles,
Lorenzini or Hommert for 2009. Our executive chairman, Mr. Novelly,
receives compensation from our affiliate, St. Albans Global
Management,
76
Limited
Partnership, LLLP. Our chief executive officer, Mr. Mikles, receives
compensation from existing business enterprises and investments, none of which
are affiliated with us. Our executive vice president, secretary and
treasurer, Mr. Hommert, receives compensation from our affiliate, Apex Oil
Company, Inc. None of Messrs. Novelly, Mikles, Lorenzini or Hommert
received any increase in their salary, bonus, or other income to compensate them
for their services to us. As to our other executive officers, we
continued their base salaries paid for 2008 with a modest percentage increase
for 2009.
For the
year 2009, we established a bonus pool for the employees of our subsidiary,
FutureFuel Chemical Company. The total bonus target amount was
determined at 10% of the estimated (as of the end of November 2009) after-tax
earnings of FutureFuel Chemical Company for the year ended December 31,
2009, subject to certain adjustments. We believe the 10% amount was
reasonable and provides an incentive for such employees to continue implementing
the business plan that we have installed at FutureFuel Chemical
Company. FutureFuel Chemical Company employees hired after
January 1, 2009 received $250. Eligible employees hired prior to
January 1, 2009 received 48 hours of pay at their normal hourly
rate. Salaried employees of FutureFuel Chemical Company received an
additional bonus amount ranging from $0 to $40,000, with the larger bonuses
going to FutureFuel Chemical Company’s executive officers as determined by
FutureFuel Chemical Company’s board of directors. The bonuses were
paid in cash on December 18, 2009.
We expect
to establish an annual cash bonus program for fiscal years commencing after 2009
in an amount equal to 10% of after-tax earnings of FutureFuel Chemical Company,
subject to certain adjustments, but solely on a discretionary
basis. In determining actual bonus payouts for such years, we expect
that the remuneration committee will consider performance against Company
performance goals to be established, as well as individual performance
goals. We expect that this annual cash bonus program will apply to
certain key employees of FutureFuel Chemical Company in addition to the
executives whose compensation is described herein. The actual amount
of bonuses, if any, will be determined near the end of our fiscal
year.
Omnibus
Incentive Plan
Our board
of directors adopted the Incentive Plan, which was approved by our shareholders
at our 2007 annual shareholder meeting on June 26, 2007. The
purpose of the Incentive Plan is to:
|
·
|
encourage
ownership in us by key personnel whose long-term employment with or
engagement by us or our subsidiaries (including FutureFuel Chemical
Company) is considered essential to our continued progress and, thereby,
encourage recipients to act in our shareholders’ interests and share in
our success;
|
|
·
|
encourage
such persons to remain in our employ or in the employ of
our subsidiaries; and
|
|
·
|
provide
incentives to persons who are not our employees to promote our
success.
|
The
Incentive Plan authorizes us to issue stock options (including incentive stock
options and nonqualified stock options), stock awards, and stock appreciation
rights. To date, options for 690,500 shares of stock and awards of
39,800 shares of stock have been made. We will consider issuing
additional stock options, stock awards, and/or stock appreciation rights
pursuant to the criteria set forth below. However, no determinations
have been made for 2010.
Eligible
participants in the Incentive Plan include: (i) members of our board of
directors and our executive officers; (ii) regular, active employees of us
or of any of our subsidiaries; and (iii) persons engaged by us or by any of
our subsidiaries to render services to us or our subsidiaries as an advisor or
consultant.
Awards
under the Incentive Plan are limited to shares of our common stock, which may be
shares reacquired by us, including shares purchased in the open market, or
authorized but un-issued shares. Awards will be limited to 10% of the
issued and outstanding shares of our common stock in the aggregate, or
approximately 2,670,000 shares as of the date of adoption of the Incentive
Plan.
The
Incentive Plan will be administered by our board’s remuneration committee (the
“
Administrator
”). The
Administrator may appoint agents to assist it in administering the Incentive
Plan. The Administrator may delegate
77
to one or
more individuals the day-to-day administration of the Incentive Plan and any of
the functions assigned to the Administrator in the Incentive
Plan. Such delegation may be revoked at any time. All
decisions, determinations, and interpretations by the Administrator regarding
the Incentive Plan and the terms and conditions of any award granted thereunder
will be final and binding on all participants.
The
Incentive Plan became effective upon its approval by our shareholders on
June 26, 2007 and continues in effect for a term of ten years thereafter
unless amended and extended by us or unless earlier terminated. The
individuals and number of persons who may be selected to participate in the
Incentive Plan in the future is at the discretion of the Administrator and,
therefore, are not determinable at this time. Likewise, the number of
stock options, stock awards, and stock appreciation rights that will be granted,
or that would have been granted during the last completed fiscal year if the
Incentive Plan had been in effect, to eligible participants pursuant to the
Incentive Plan are not determinable at this time.
The
Administrator may grant a stock option or provide for the grant of a stock
option either from time to time in the discretion of the Administrator or
automatically upon the occurrence of events specified by the Administrator,
including the achievement of performance goals or the satisfaction of an event
or condition within the control of the participant or within the control of
others. Each option agreement must contain provisions regarding:
(i) the number of shares of common stock that may be issued upon exercise
of the option; (ii) the type of option; (iii) the exercise price of
the shares and the means of payment for the shares; (iv) the term of the
option; (v) such terms and conditions on the vesting or exercisability of
the option as may be determined from time to time by the Administrator;
(vi) restrictions on the transfer of the option and forfeiture provisions;
and (vii) such further terms and condition not inconsistent with the plan
as may be determined from time to time by the Administrator. Unless
otherwise specifically determined by the Administrator or otherwise set forth in
the Incentive Plan, the vesting of an option will occur only while the
participant is employed or rendering services to us or one of our subsidiaries,
and all vesting will cease upon a participant’s termination of employment for
any reason.
The
Administrator may grant annual performance vested
options. Performance will be tied to annual cash flow targets (our
consolidated income plus depreciation plus amortization) in amounts to be
determined. Annual performance vested options will vest 25% for each
year that the annual cash flow target is achieved (with provisions for
subsequent year catch-ups).
The
Administrator may grant cumulative performance vested
options. Performance will be tied to cumulative cash flow in amounts
to be determined for periods to be determined.
The
Administrator may issue other options based upon the following performance
criteria either individually, alternatively, or in any combination, applied to
either the Company as a whole or to a business unit, subsidiary, or business
segment, either individually, alternatively, or in any combination, and measured
either annually or cumulatively over a period of years, on an absolute basis or
relative to a pre-established target, to previous years’ results or to a
designated comparison group, in each case as specified by the Administrator:
(i) cash flow; (ii) earnings (including gross margin, earnings before
interest and taxes, earnings before taxes, and net earnings);
(iii) earnings per share; (iv) growth in earnings or earnings per
share; (v) stock price; (vi) return on equity or average shareholders’
equity; (vii) total shareholder return; (viii) return on capital;
(ix) return on assets or net assets; (x) return on investment;
(xi) revenue; (xii) income or net income; (xiii) operating income
or net operating income; (xiv) operating profit or net operating profit;
(xv) operating margin; (xvi) return on operating revenue;
(xvii) market share; (xviii) overhead or other expense reduction;
(xix) growth in shareholder value relative to the moving average of the
S&P 500 Index or a peer group index; (xx) strategic plan development
and implementation; and (xxi) any other similar criteria.
Such
options will vest and expire (including on a pro rata basis) on such terms as
may be determined by the Administrator from time to time consistent with the
terms of the Incentive Plan.
The
Administrator may award our common stock to participants. The grant,
issuance, retention, or vesting of each stock award may be subject to such
performance criteria and level of achievement versus these criteria as the
Administrator determines, which criteria may be based on financial performance,
personal performance evaluations, or completion of service by the
participant. Unless otherwise provided for by the Administrator, upon
the participant’s termination of employment other than due to death or
retirement, the unvested portions of the stock award and the shares of our
common stock subject thereto will generally be forfeited. Unless
otherwise provided for
78
by the
Administrator, if a participant’s termination of employment is due to death or
retirement, all outstanding stock awards will continue to vest provided certain
conditions to be determined are met. Unless otherwise provided for by
the Administrator, if a participant’s termination of employment is due to his
death, a portion of each outstanding stock award granted to such participant
will immediately vest and all forfeiture provisions and repurchase rights will
lapse as to a prorated number of shares of common stock determined by dividing
the number of whole months since the grant date by the number of whole months
between the grant date and the date that the stock award would have fully
vested.
The
Administrator may grant stock appreciation rights either alone or in conjunction
with other awards. The Administrator will determine the number of
shares of common stock to be subject to each award of stock appreciation
rights. The award of stock appreciation rights will not be
exercisable for at least six months after the date of grant except as the
Administrator may otherwise determine in the event of death, disability,
retirement, or voluntary termination of employment of the
participant. Except as otherwise provided by the Administrator, the
award of stock appreciation rights will not be exercisable unless the person
exercising the award of stock appreciation rights has been at all times during
the period beginning with the date of the grant thereof and ending on the date
of such exercise, employed by or otherwise performing services for us or one of
our subsidiaries.
In the
event there is a change in control of the Company, as determined by our board,
our board may, in its discretion: (i) provide for the assumption or
substitution of, or adjustment to, each outstanding award; (ii) accelerate
the vesting of awards and terminate any restrictions on cash awards or stock
awards; and (iii) provide for the cancellation of awards for a cash payment
to the participant.
Retirement
Benefits
We
adopted a 401(k) plan for FutureFuel Chemical Company which is generally
available to all of its employees.
Founder’s
Grant
Certain
of our executive officers were granted founders shares as described
herein. Please refer to the discussion under “Item 12. - Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters - Founding Shares Owned by the Founding Shareholders”
below.
Our
executive officers who are not officers of FutureFuel Corp. participate in
employee welfare plans (life insurance, medical insurance, disability insurance,
vacation pay, and the like) maintained by FutureFuel Chemical Company for all of
its employees. We do not provide life insurance or other employee
benefits for our executive officers who have been elected to officer positions
with both FutureFuel Corp. and FutureFuel Chemical Company.
The
Remuneration Committee
Our
remuneration committee currently consists of Mr. Bedell, Mr. Knowlton, and Mr.
Levy. Each of these individuals is an “independent director” under
the rules of the New York Stock Exchange, a “Non-Employee Director” within the
meaning of Section 16 of the Exchange Act, and an “outside director” within the
meaning of §162(m) of the Internal Revenue Code of 1986, as
amended.
79
Our
executive officers were paid the following compensation for the three-year
period ended December 31, 2009.
Summary
Compensation Table
|
Person
|
Year
|
Salary
|
Bonus
(e)
|
Stock
Awards
(d)
|
Option
Awards
(f)
|
All
Other
Compensa-tion
(b)
|
Total
|
||||||||||||
|
Paul
A. Novelly
(c)
Executive
chairman
FutureFuel
Corp.
|
2009
2008
2007
|
$
$
$
|
0
0
0
|
$
$
$
|
0
0
100,000
|
$
$
$
|
0
0
0
|
$
$
$
|
171,050
341,450
0
|
$
$
$
|
25,000
25,000
25,000
|
$
$
$
|
196,050
366,450
125,000
|
||||||
|
Lee
E. Mikles
(c)
Chief
executive officer
FutureFuel
Corp.
|
2009
2008
2007
|
$
$
$
|
0
0
0
|
$
$
$
|
0
0
0
|
$
$
$
|
0
0
0
|
$
$
$
|
171,050
12,797
0
|
$
$
$
|
25,000
25,000
25,000
|
$
$
$
|
196,050
37,797
25,000
|
||||||
|
Paul
G. Lorenzini
(c)
Chief
operating officer
FutureFuel
Corp.
|
2009
2008
2007
|
$
$
$
|
0
0
0
|
$
$
$
|
0
100,000
100,000
|
$
$
$
|
0
0
0
|
$
$
$
|
171,050
127,967
0
|
$
$
$
|
25,000
25,000
25,000
|
$
$
$
|
196,050
152,967
125,000
|
||||||
|
Douglas
D. Hommert
(c)
Executive
vice president, secretary and treasurer, FutureFuel Corp.
|
2009
2008
2007
|
$
$
$
|
0
0
0
|
$
$
$
|
0
0
0
|
$
$
$
|
0
0
0
|
$
$
$
|
0
0
0
|
$
$
$
|
0
0
0
|
$
$
$
|
0
0
0
|
||||||
|
Benjamin
Ladd
(a)
Chief
financial officer and treasurer, FutureFuel Chemical
Company
|
2009
2008
2007
|
$
$
$
|
169,999
163,943
147,117
|
$
$
$
|
46,865
74,788
27,885
|
$
$
$
|
0
525
0
|
$
$
$
|
33,003
14,584
0
|
$
$
$
|
10,719
11,586
99,547
|
$
$
$
|
260,586
265,426
274,549
|
||||||
|
David
Baker
(a)
Senior
vice president - operations support, FutureFuel Chemical
Company
|
2009
2008
2007
|
$
$
$
|
169,998
170,957
170,005
|
$
$
$
|
46,865
75,173
28,270
|
$
$
$
|
0
525
0
|
$
$
$
|
33,000
14,584
0
|
$
$
$
|
14,045
14,266
24,634
|
$
$
$
|
263,908
275,505
222,909
|
||||||
|
Gary
Hess
(a)
Senior
vice president - commercial operations, FutureFuel Chemical
Company
|
2009
2008
2007
|
$
$
$
|
169,999
170,623
170,000
|
$
$
$
|
46,865
75,173
18,268
|
$
$
$
|
0
525
0
|
$
$
$
|
33,000
14,584
0
|
$
$
$
|
15,443
14,633
11,359
|
$
$
$
|
265,307
275,538
199,628
|
||||||
|
Samuel
Dortch
(a)
Senior
vice president, operations, FutureFuel Chemical Company
|
2009
2008
2007
|
$
$
$
|
169,998
176,298
145,000
|
$
$
$
|
46,865
74,692
27,788
|
$
$
$
|
0
0
525
|
$
$
$
|
33,000
14,584
0
|
$
$
$
|
14,955
20,381
9,689
|
$
$
$
|
264,818
286,480
182,477
|
__________
|
(a)
|
Executive
officers of FutureFuel Chemical Company for the years
indicated.
|
|
(b)
|
For
Messrs. Novelly, Mikles, and Lorenzini, includes $25,000 in directors fees
for 2009, 2008, and 2007 as described below. For our executive
officers, includes our contributions (including accrued contributions) to
vested and unvested defined contribution plans and the dollar value of any
insurance premiums paid by, or on behalf of, us during or for the covered
fiscal year with respect to life and disability insurance for the benefit
of the named person. 2007 includes a relocation allowance of
$13,077 for Mr. Baker, and nondeductible moving expenses (grossed up) of
$78,746 and deductible moving expenses (not grossed up) of $11,123 for Mr.
Ladd. 2008 includes $6,003 of moving expenses for Mr. Dortch,
exclusive of $14,686 in deductible moving expenses paid directly to
movers. The above amounts do not include travel expenses
reimbursed pursuant to Company
policy.
|
|
(c)
|
Our
executive officers for the years indicated. We reimbursed an
affiliate of Mr. Mikles $100,000 in 2008 and 2007 as set forth above for
expenses incurred by such affiliate in 2008 and 2007 in connection with
Mr. Mikles performing services for us and FutureFuel Chemical Company in
2008 and 2007. We reimbursed an affiliate of Mr. Novelly
$100,000 in 2008 as set forth above for expenses incurred by such
affiliate in 2008 in connection with Mr. Novelly performing services for
us and FutureFuel Chemical Company in
2008.
|
|
(d)
|
Calculated
at the number of shares awarded multiplied by the average between the high
and low trade prices of shares of our common stock on the OTCBB on the
date of the award.
|
|
(e)
|
2007
amounts were earned in 2007 but paid in
2008.
|
80
|
(f)
|
Represents
the grant date valuation of the awards under FASB ASC Topic
718. Assumptions used for determining the value of option
awards reported here are set forth in Note 13 to our consolidated
financial statements included elsewhere
herein.
|
None of
the above-named persons is a party to an employment agreement or employment
arrangement with us or with FutureFuel Chemical Company.
We
adopted the Incentive Plan but did not make any awards thereunder until
2008. In April 2008, we granted a total of 55,000 stock options to
selected members of our management. An additional 5,000 management
options were issued in September 2008. The options awarded in April
2008 had an exercise price equal to the average of the bid and ask price of our
common stock on the date of grant as established in private sales, which our
board of directors determined to be the fair market value of such stock on that
date. The management options awarded in September 2008 had an
exercise price equal to the closing price of our common stock on the date of
grant as quoted on the OTCBB. Originally, one-third of the management
options granted in April 2008 vested on each of the annual anniversary dates of
the grant. Our compensation committee determined that it was in our
best interests if those options were to vest
immediately. Accordingly, those management options were amended in
September 2008 to provide for immediate vesting. The management
options issued in September 2008 vested immediately upon grant. The
management options awarded in April 2008 expire on April 7,
2013. The management options awarded in September 2008 expire on
September 30, 2013. On December 3, 2008, we awarded an
aggregate of 39,800 shares of our common stock to employees of FutureFuel
Chemical Company. These shares vested upon grant.
In 2009,
we awarded 280,500 stock options to our directors, executive officers, and
certain other members of our management. These options vested upon
grant, had an exercise price equal to the closing price of our common stock on
the date of grant as quoted on the OTCBB, and expire upon December 21, 2014
if not exercised by that date.
The
following tables set forth certain information regarding the awards to our
executive officers and certain officers of FutureFuel Chemical Company of
options and shares of our common stock under the Incentive Plan.
81
Grants
of Plan-Based Awards
|
Estimated
Future Payout Under
Equity
Incentive Plan Awards
|
||||||||
|
Name
|
Grant
Date
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
All
Other Option
Awards:
Number
of
Shares
of
Stock
or
Units
(#)
|
All
Other
Option
Awards:
Number
of
Securities
Underlying
Options(#)
|
Exercise
or
Base
Price
of
Option
Awards
($/Sh)
|
Grant
Date
Fair
Value
of
Stock
and
Option
Awards
|
|
Paul
A. Novelly
Executive
chairman
FutureFuel
Corp.
|
04/07/08
12/10/08
12/21/09
|
100,000
100,000
55,000
|
100,000
100,000
55,000
|
100,000
100,000
55,000
|
0
|
0
|
$4.00
$5.65
$7.00
|
$4.00
$5.65
$7.00
|
|
Lee
E. Mikles
Chief
executive officer
FutureFuel
Corp.
|
04/07/08
12/21/09
|
10,000
55,000
|
10,000
55,000
|
10,000
55,000
|
0
|
0
|
$4.00
$7.00
|
$4.00
$7.00
|
|
Paul
G. Lorenzini
Chief
operating officer
FutureFuel
Corp.
|
04/07/08
12/21/09
|
100,000
55,000
|
100,000
55,000
|
100,000
55,000
|
0
|
0
|
$4.00
$7.00
|
$4.00
$7.00
|
|
Douglas
D. Hommert
Executive
vice president,
secretary
and treasurer, and
principal
financial officer,
FutureFuel
Corp.
|
n/a
|
n/a
|
n/a
|
n/a
|
0
|
0
|
n/a
|
n/a
|
|
Benjamin
Ladd
Chief
financial officer and
treasurer,
FutureFuel Chemical
Company
|
04/07/08
12/03/08
12/21/09
|
10,000
100
10,612
|
10,000
100
10,612
|
10,000
100
10,612
|
0
|
0
|
$4.00
n/a
$7.00
|
$4.00
$5.65
$7.00
|
|
David
Baker
Senior
vice president -
operations
support, FutureFuel
Chemical
Company
|
04/0708
12/03/08
12/21/09
|
10,000
100
10,611
|
10,000
100
10,611
|
10,000
100
10,611
|
0
|
0
|
$4.00
n/a
$7.00
|
$4.00
$5.65
$7.00
|
|
Gary
Hess
Senior
vice president - sales and
marketing,
FutureFuel
Chemical
Company
|
04/07/08
12/03/08
12/21/09
|
10,000
100
10,611
|
10,000
100
10,611
|
10,000
100
10,611
|
0
|
0
|
$4.00
n/a
$7.00
|
$4.00
$5.65
$7.00
|
|
Samuel
Dortch
Senior
vice president,
operations,
FutureFuel
Chemical
Company
|
04/07/08
12/03/08
12/21/09
|
10,000
100
10,611
|
10,000
100
10,611
|
10,000
100
10,611
|
0
|
0
|
$4.00
n/a
$7.00
|
$4.00
$5.65
$7.00
|
The
following table sets forth information concerning unexecuted options, stock that
has not vested, and equity incentive plan awards as of December 31, 2009
with respect to our executive officers.
|
Option
Awards
|
Stock
Awards
|
||||||||
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (3)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Unexercised Unearned Options
(#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
Number
of Shares or
Units
of Stock That Have Not Vested (#)
|
Market
Value of Shares or Units of Stock That Have Not Vested ($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units
or
Other
Rights
That Have Not Vested (#)
|
Equity
Incentive Plan Awards: Market or Payout Value
of
Unearned Shares, Units
or
Other
Rights
That Have Not Vested ($)
|
|
Paul
A. Novelly
|
55,000
|
0
|
0
|
$7.00
|
12/21/14
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Lee
E. Mikles
|
55,000
|
0
|
0
|
$7.00
|
12/21/14
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Paul
G. Lorenzini
|
55,000
|
0
|
0
|
$7.00
|
12/21/14
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Douglas
D. Hommert
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Benjamin
Ladd
|
10,612
|
0
|
0
|
$7.00
|
12/21/14
|
0
|
0
|
0
|
0
|
|
David
Baker
|
10,000
10,611
|
0
|
0
|
$4.00
$7.00
|
04/07/13
12/21/14
|
0
|
0
|
0
|
0
|
|
Gary
Hess
|
10,611
|
0
|
0
|
$7.00
|
12/21/14
|
0
|
0
|
0
|
0
|
|
Sam
Dortch
|
10,000
10,611
|
0
|
0
|
$4.00
$7.00
|
04/07/13
12/21/14
|
0
|
0
|
0
|
0
|
The
following table sets forth the number of options exercised by each of our
executive officers in 2009, and stock awards which vested in such individual in
2009.
82
|
Option
Awards
|
Stock
Awards
|
|||
|
Name
|
Number
of
Shares
Acquired
on
Exercise
(#)
|
Value
Realized
on
Exercise
($)
|
Number
of
Shares
Acquired
on
Vesting
(#)
|
Value
Realized
on
Vesting
($)
|
|
Paul
A. Novelly
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Lee
E. Mikles
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Paul
G. Lorenzini
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Douglas
D. Hommert
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Benjamin
Ladd
|
n/a
|
n/a
|
n/a
|
n/a
|
|
David
Baker
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Gary
Hess
|
n/a
|
n/a
|
n/a
|
n/a
|
|
Sam
Dortch
|
n/a
|
n/a
|
n/a
|
n/a
|
We
awarded 5,000 stock options to each of our directors in December
2009. These options vested upon grant, had an exercise price equal to
the closing price of our common stock on the date of grant as quoted on the
OTCBB, and expire upon December 21, 2014 if not exercised by that
date. Consistent with prior years, we also paid each of our directors
$25,000 for the year 2009.
The
following is the compensation our directors earned for 2009.
|
Director
|
Fees
Earned
or
Paid
in
Cash
|
Stock
Awards
|
Option
Awards
(a)
|
Non-
Equity
Incentive
Plan
Compensa-
tion
|
Change
in Pension
Value
and
Non-
Qualified
Deferred Compensa-
tion
Earnings
|
All
Other
Compensa-
tion
|
Total
|
|||||||||||||||||||||
|
Paul
A. Novelly
|
$ | 25,000 | $ | 0 |
(b)
|
$ | 0 | $ | 0 | $ | 0 | $ | 25,000 | |||||||||||||||
|
Lee
E. Mikles
|
$ | 25,000 | $ | 0 |
(b)
|
$ | 0 | $ | 0 | $ | 0 | $ | 25,000 | |||||||||||||||
|
Edwin
A. Levy
|
$ | 25,000 | $ | 0 | $ | 15,550 | $ | 0 | $ | 0 | $ | 0 | $ | 40,550 | ||||||||||||||
|
Thomas
R. Evans
|
$ | 25,000 | $ | 0 | $ | 15,550 | $ | 0 | $ | 0 | $ | 0 | $ | 40,550 | ||||||||||||||
|
Richard
L. Knowlton
|
$ | 25,000 | $ | 0 | $ | 15,550 | $ | 0 | $ | 0 | $ | 0 | $ | 40,550 | ||||||||||||||
|
Paul
G. Lorenzini
|
$ | 25,000 | $ | 0 |
(b)
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||
|
Donald
C. Bedell
|
$ | 25,000 | $ | 0 | $ | 15,550 | $ | 0 | $ | 0 | $ | 0 | $ | 40,550 | ||||||||||||||
__________
|
(a)
|
The
amounts reported represent the grant date fair value of options vested in
2009 and recognized as expense in our financial statements in 2009,
measured in accordance with ASC
718.
|
|
(b)
|
Messrs.
Novelly, Mikles and Lorenzini also received compensation as executive
officers and their stock options are included in the discussion above
regarding our executive officers.
|
The
members of our remuneration committee during 2009 were Mr. Bedell, Mr. Knowlton,
and Mr. Levy and the committee was chaired by Mr. Bedell. None of
such individuals are or have been an officer or employee of the
Company.
Mr.
Novelly, our executive chairman of the board, and Mr. Mikles, our chief
executive officer and one of our directors, are both directors of Boss Holdings,
Inc. Mr. Novelly is a member of Boss Holdings, Inc.’s compensation
committee and Mr. Mikles is a member of its audit committee. Mr.
Novelly, Mr. Levy (one of our directors and a member of our remuneration
committee), and Mr. Bedell (one of our directors and a member of our
remuneration committee) are directors of World Point Terminals Inc.; World Point
Terminals Inc. does not have a separate compensation committee.
83
The
remuneration committee of our board has reviewed and discussed the Compensation
Discussion and Analysis set forth above with our management. Based on
this review and discussions, the remuneration committee recommended to our board
of directors that the Compensation Discussion and Analysis be included in this
annual report on Form 10-K.
Donald C.
Bedell, Richard L. Knowlton, and Edwin A. Levy
Our board
of directors adopted an omnibus incentive plan which was approved by our
shareholders at our 2007 annual shareholder meeting on June 26,
2007. We do not have any other equity compensation
plan. Under this plan, we are authorized to issue 2,670,000 shares of
our common stock. The shares to be issued under the plan were
registered with the SEC on a Form S-8 filed on April 29,
2008. Through December 31, 2009, we issued options to purchase
690,500 shares of our common stock and awarded an additional 39,800 shares to
participants under the plan. The following additional information
regarding this plan is as of December 31, 2009.
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
(a)
|
(b)
|
(c)
|
|
|
Equity
compensation plans
approved
by security holders
|
422,500
|
1,939,700
|
As of the
date of this report, 28,572,570 shares of our common stock are issued and
outstanding and we have issued warrants to purchase 19,292,930 additional shares
of our common stock, of which 19,292,930 are unexercised. The shares
of common stock are our only voting securities issued and
outstanding. The following table sets forth the number and percentage
of shares and warrants owned by all persons known by us to be the beneficial
owners of more than 5% of our shares of common stock and warrants as of
March 11, 2009.
|
Common
Stock
|
Warrants
|
Fully
Diluted
|
||||||
|
Name and Address of Beneficial
Owner
|
Amount
of
Beneficial
Ownership
|
Percent
of
Common
Stock
|
Amount
of
Beneficial
Ownership
|
Percent
of
Warrants
|
Amount
of
Beneficial
Ownership
|
Percent
of
Common
Stock
and
Warrants
(f)
|
||
|
Paul
A. Novelly,
8235 Forsyth Blvd.,
4
th
Floor,
Clayton, MO 63105
(a)
|
11,547,500
|
40.4%
|
6,012,600
|
31.2%
|
17,560,100
|
36.7%
|
||
|
Lee
E. Mikles,
1486 E. Valley Road,
Santa Barbara, CA 93108
(b)
|
2,256,875
|
7.9%
|
59,375
|
0.3%
|
2,316,250
|
4.8%
|
||
|
SOF
Investments, L.P.,
645 5
th
Avenue,
21
st
Floor,
New York, NY 10022
(c)
|
1,800,000
|
6.3%
|
1,800,000
|
9.3%
|
3,600,000
|
7.5%
|
||
84
|
Common
Stock
|
Warrants
|
Fully
Diluted
|
||||||
|
Name and Address of Beneficial
Owner
|
Amount
of
Beneficial
Ownersh
|
Percent
of
Common
Stock
|
Amount
of
Beneficial
Ownership
|
Percent
of
Warrants
|
Amount
of
Beneficial
Ownership
|
Percent
of
Common
Stock
and
Warrants
(f)
|
||
|
Fir
Tree, LLC, Camellia Partners, LLC,
Jeffrey Tannenbaum and Andrew Fredman,
505 Fifth Avenue, 23
rd
Floor,
New York, NY 10017
(d)
|
0
|
0.0%
|
1,350,000
|
7.0%
|
1,350,000
|
2.8%
|
||
|
Burlingame
Equity Investors, LP,
One Market Street,
Spear Street Tower, Suite 3750,
San Francisco, California 94105
(e)
|
567,350
|
2.0%
|
1,972,500
|
10.2%
|
2,539,850
|
5.3%
|
||
|
Osmium
Special Situations Fund Ltd.,
Canon’s Court, 22 Victoria Street,
Hamilton, Bermuda DO HM 11
(g)
|
4,212,292
|
14.7%
|
3,014,150
|
15.6%
|
7,226,442
|
15.1%
|
||
|
David
M. Knott,
485 Underhill Blvd.,
Suite 205,
Syosset, New York 11791-3419
(h)
|
2,204,380
|
7.7%
|
1,763,900
|
9.1%
|
3,968,280
|
8.3%
|
||
__________
|
(a)
|
Includes
10,822,500 shares of common stock and 6,012,600 warrants held by St.
Albans Global Management, Limited Partnership, LLLP, 625,000 shares of
common stock held by Apex Holding Co. and 100,000 shares of common stock
held by Mr. Novelly. Mr. Novelly is the chief executive officer
of both of these entities and thereby has voting and investment power over
such shares, but he disclaims beneficial ownership except to the extent of
a minor pecuniary interest.
|
|
(b)
|
Includes
2,110,000 shares of common stock held by Lee E. Mikles Revocable Trust
dated March 26, 1996 and 100,000 shares of common stock held by Lee
E. Mikles Gift Trust dated October 6, 1999. Also includes
12,500 warrants held by the Alison L. Mikles Irrevocable
Trust. Miss Mikles is the minor child of Mr. Mikles and lives
in Mr. Mikles household. However, Mr. Mikles is not the trustee
of such trust and disclaims beneficial ownership. Also includes
46,875 shares of common stock and 46,875 warrants held by Lori Mikles, the
spouse of Mr. Mikles. Mr. Mikles disclaims beneficial ownership
thereof.
|
|
(c)
|
Based
solely upon review of a Schedule 13G filed on February 14, 2008,
we understand that SOF Investments, L.P. is the record and direct
beneficial owner of the shares and warrants listed above, MSD Capital,
L.P. is the general partner of SOF Investments, L.P. and may be deemed to
indirectly beneficially own securities owned by SOF Investments, L.P., and
MSD Capital Management LLC is the general partner of MSD Capital,
L.P. Except as set forth in this footnote, we have no knowledge
as to the beneficial owners of these
entities.
|
|
(d)
|
Based
solely upon information contained in a Form 3 filed with the SEC on
March 7, 2008 and a Form 4 filed on July 17, 2008, Fir
Tree, L.L.C. is the general partner of Fir Tree Value Master Fund, LP, a
Cayman Islands exempted limited partnership (“
Fir Tree
Value
”), and Camellia Partners, LLC is the general partner of Fir
Tree Capital Opportunity Master Fund, LP, a Cayman Islands exempted
limited partnership (“
Fir Tree
Capital Opportunity
”). Fir Tree, L.L.C. and Camellia
Partners, LLC hold indirectly the common stock through the accounts of Fir
Tree Capital Opportunity and Fir Tree Value; Jeffrey Tannenbaum, a
principal of Fir Tree, L.L.C. and Camellia Partners, LLC, and Andrew
Fredman, another principal of Camellia Partners, LLC, at the time of
purchase, controlled the disposition and voting of the common
stock. Except as set forth in this footnote, we have no
knowledge as to the beneficial owners of these
entities.
|
|
(e)
|
Based
solely upon a Schedule 13G/A filed with the SEC on February 12,
2010. Burlingame Equity Investors, LP beneficially owns 376,067
shares of common stock and 1,330,668 warrants. Burlingame
Equity Investors II, LP beneficially owns 45,787 shares of common stock
and 164,410 warrants. Burlingame Equity Investors (Offshore)
Ltd. beneficially owns 72,994 shares of common stock and 477,422
warrants. Burlingame Special Opportunities III, LP owns 72,504
shares of common stock. Burlingame Asset Management, LLC is the
general partner of Burlingame Equity Investors, LP, Burlingame Equity
Investors II, LP, and Burlingame Special Opportunities III, LP, and is the
investment manager of Burlingame Equity Investors (Offshore) Ltd. and may
be deemed to beneficially own the shares and warrants held by
them. Mr. Blair E. Sanford is the managing member of Burlingame
Asset Management, LLC and may be deemed to beneficially own the shares and
warrants held by it. Except as set forth in this footnote, we
have no knowledge as to the beneficial owners of these
entities. Subsequent to the filing of the Schedule 13G/A.
these entities exercised, in the aggregate, 332,270
warrants. However, we do not know how these exercises were
allocated amongst this group.
|
85
|
(f)
|
Assumes
the exercise of all warrants issued and outstanding as of the date of this
report.
|
|
(g)
|
Based
solely on Schedule 13Gs, Form 3 and Form 4s filed with the
SEC. Mr. Chris Kuchanny, as chairman and chief executive
officer of Osmium Special Situations Fund Ltd., may, by virtue of such
position, be deemed to have beneficial ownership of such shares and
warrants. Mr. Kuchanny disclaims beneficial ownership other
than the portion of such shares and warrants which relates to his
individual economic interest in Osmium Special Situations Fund
Ltd. Except as set fort in this footnote, we have no knowledge
as to the beneficial owners of Osmium Special Situations Fund
Ltd.
|
|
(h)
|
Based
solely on Schedule 13G, Form 3 and Form 4s filed with the
SEC. Knott Partners, L.P. beneficially owns 895,900 shares of
common stock and 883,800 warrants. Shoshone Partners, L.P.
beneficially owns 236,630 shares of common stock and 355,300
warrants. Mulsanne Partners, L.P. beneficially owns 178,400
shares of common stock. Knott Partners Offshore Master Fund,
L.P. beneficially owns 824,150 shares of common stock and 454,200
warrants. 69,300 shares of common stock and 70,600 warrants are
held in accounts managed by Dorset Management
Corporation. David M. Knott is the managing member of Knott
Partners Management, LLC, a general partner of Knott Partners, L.P. and
the sole director of Dorset Management Corporation. Knott
Partners Management, LLC is: (i) the sole general partner of Shoshone
Partners, L.P., Knott Partners Offshore Master Fund, L.P. and Mulsanne
Partners, L.P.; and (ii) the managing general partner of Knott
Partners, L.P. As a result of Mr. Knott’s interests in Knott
Partners Management, LLC and in Dorset Management Corporation, Mr. Knott
has investment discretion and control of the securities described
above. Mr. Knott may be deemed to beneficially own an indirect
pecuniary interest in the securities described above as a result of its
performance-related fee. Except with respect to Knott Partners,
L.P., Knott Partners Offshore Master Fund, L.P. and Shoshone Partners,
L.P., in which Mr. Knott owns a beneficial interest, Mr. Knott disclaims
beneficial ownership therein except to the extent ultimately
realized. Each of Knott Partners, L.P., Knott Partners Offshore
Master Fund, L.P., Shoshone Partners, L.P., Mulsanne Partners, L.P. and
each of the managed accounts disclaims beneficial ownership of securities
reported as owned by any other party. Except as set forth in
this footnote, we have no knowledge as to the beneficial owners of these
entities.
|
The
following table sets forth information regarding the beneficial ownership of our
common stock and warrants as of the date of this report by each of our directors
and executive officers and the executive officers of FutureFuel Chemical
Company. Unless otherwise indicated, we believe that all persons
named in the table below have sole voting and investment power with respect to
all shares of common stock beneficially owned by them and none of such shares or
warrants have been pledged as security.
|
Common
Stock
|
Warrants
|
Fully
Diluted
|
||||||
|
Name of Beneficial Owner
|
Amount
of
Beneficial
Ownership
|
Percent
of
Common
Stock
|
Amount
of
Beneficial
Ownership
|
Percent
of
Warrants
|
Amount
of
Beneficial
Ownership
|
Percent
of
Common
Stock
and
Warrants
(d)
|
||
|
Paul
A. Novelly
(a)
|
11,547,500
|
40.4%
|
6,012,600
|
31.2%
|
17,560,100
|
36.7%
|
||
|
Lee
E. Mikles
(b)
|
2,256,875
|
7.9%
|
59,375
|
0.3%
|
2,316,250
|
4.8%
|
||
|
Douglas
D. Hommert
(c)
|
260,000
|
0.9%
|
--
|
0.0%
|
260,000
|
0.5%
|
||
|
Edwin
A. Levy
|
260,000
|
0.9%
|
--
|
0.0%
|
260,000
|
0.5%
|
||
|
Thomas
R. Evans
|
30,000
|
0.1%
|
30,000
|
0.2%
|
60,000
|
0.1%
|
||
|
Richard
L. Knowlton
|
160,000
|
0.6%
|
--
|
0.0%
|
160,000
|
0.3%
|
||
|
Paul
G. Lorenzini
(e)
|
400,000
|
1.4%
|
--
|
0.0%
|
400,000
|
0.8%
|
||
|
Donald
C. Bedell
|
10,000
|
0.0%
|
--
|
0.0%
|
10,000
|
0.0%
|
||
|
David
Baker
|
6,650
|
0.0%
|
--
|
0.0%
|
6,650
|
0.0%
|
||
|
Gary
Hess
|
10,100
|
0.0%
|
--
|
0.0%
|
10,100
|
0.0%
|
||
|
Sam
Dortch
|
100
|
0.0%
|
--
|
0.0%
|
100
|
0.0%
|
||
|
Ben
Ladd
|
20,100
|
0.1%
|
--
|
0.0%
|
20,100
|
0.0%
|
||
|
All
directors and executive officers
|
14,961,325
|
52.4%
|
6,101,975
|
31.6%
|
21,063,300
|
44.0%
|
||
__________
|
(a)
|
Includes 10,822,500 shares of
common stock and 6,012,600 warrants held by St. Albans Global
Management, Limited Partnership, LLLP, 625,000 shares of common
stock held by Apex Holding Co., and 100,000 shares of common stock held by
Mr. Novelly. Mr. Novelly is the chief executive officer of both
of these entities and thereby has voting and investment power over such
shares, but he disclaims beneficial ownership except to the extent of a
minor pecuniary interest.
|
86
|
(b)
|
Includes
2,110,000 shares of common stock held by Lee E. Mikles Revocable Trust
dated March 26, 1996 and 100,000 shares of common stock held by Lee
E. Mikles Gift Trust dated October 6, 1999. Also includes
12,500 warrants held by the Alison L. Mikles Irrevocable
Trust. Miss Mikles is the minor child of Mr. Mikles and lives
in Mr. Mikles household. However, Mr. Mikles is not the trustee
of such trust and disclaims beneficial ownership. Also includes
46,875 shares of common stock and 46,875 warrants held by Lori Mikles, the
spouse of Mr. Mikles. Mr. Mikles disclaims beneficial ownership
thereof.
|
|
(c)
|
Includes
260,000 shares of common stock held by the Douglas D. Hommert Revocable
Trust, which is a trust established by Mr. Hommert for the benefit of his
descendants, of which Mr. Hommert is the
trustee.
|
|
(d)
|
Assumes
the exercise of all warrants issued and outstanding as of the date of this
report.
|
|
(e)
|
Includes
50,000 shares of common stock owned by Mr. Lorenzini’s
spouse. Mr. Lorenzini disclaims beneficial ownership
thereof.
|
Prior to
our July 2006 offering, there were 5,625,000 shares of our common stock issued
as follows (“founding shares”).
|
Founding
Shareholder
|
Shares
|
Relationship
to the Company
|
||
|
St.
Albans Global Management, Limited
Partnership,
LLLP
|
2,250,000
|
Shareholder
(affiliate of Mr. Novelly)
|
||
|
Lee
E. Mikles Revocable Trust
|
2,000,000
|
Shareholder
(affiliate of Mr. Mikles)
|
||
|
Douglas
D. Hommert Revocable Trust
|
250,000
|
Shareholder
(affiliate of Mr. Hommert)
|
||
|
Edwin
A. Levy
|
250,000
|
Director
and Shareholder
|
||
|
Joe
C. Leach
|
250,000
|
Shareholder
|
||
|
Edwin
Wahl
|
150,000
|
Shareholder
|
||
|
Jeffery
Call
|
150,000
|
Shareholder
|
||
|
Mark
R. Miller
|
100,000
|
Shareholder
|
||
|
Lee
E. Mikles Gift Trust
|
100,000
|
Shareholder
(affiliate of Mr. Mikles)
|
||
|
Ken
Fenton
|
75,000
|
Shareholder
|
||
|
RAS1,
LLC
|
50,000
|
Shareholder
|
We are
not aware of any arrangement the operation of which may at a date subsequent to
the date of this report result in a change in control of us.
Sales
of Products
From time
to time, we may sell to Apex Oil Company, Inc. and/or its affiliates biofuels
(including biodiesel) produced by us, and Apex Oil Company, Inc. and/or its
affiliates may sell to us diesel fuel, gasoline, and other petroleum products
for use in our biofuels business. Such sales will be at then posted
prices for comparable products plus or minus applicable geographical
differentials.
Lease
of Centrifuge
We
executed an agreement with South Riding Point Holding, Ltd. to lease a
centrifuge at a lease rate of $750 per day. This lease commenced upon
delivery and installation of the centrifuge, which occurred in March
2009. South Riding Point Holding, Ltd. is a wholly-owned subsidiary
of World Point Terminals Inc., an affiliate of Mr. Novelly. The lease
terminated on September 30, 2009 and the centrifuge was returned to
us.
87
Other
related party transactions are detailed in Note 18 to our consolidated
financial statements included elsewhere herein.
Any
transaction in which we (or one of our subsidiaries) are a participant, the
amount involved exceeds the lesser of $120,000 or 5% of our net income, total
assets or total capital, and in which any party related to us has or will have a
direct or indirect material interest must be approved by a majority of the
disinterested members of our board of directors as fair to us and our
shareholders. This policy was adopted by our board on January 8,
2007 and can be found through the “Investor Relations - Corporate Governance”
section of our internet website
(http://www.FutureFuelCorporation.com). All of the agreements
described above in this Item 13 have been approved by a majority of the
disinterested members of our board of directors.
In
addition, we adopted a Code of Ethics and Business Conduct which sets forth
legal and ethical standards of conduct for our directors, officers, and
employees and the directors, officers, and employees of our
subsidiaries. This Code is designed to deter wrongdoing and to
promote: (i) honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and professional
relationships; (ii) full, fair, accurate, timely, and understandable
disclosure in reports and documents that we file with, or submit to, the SEC and
in other public communications made by us; (iii) compliance with applicable
governmental laws, rules, and regulations; (iv) the prompt internal
reporting of violations of this Code to appropriate persons identified in this
Code; and (v) accountability for adherence to this Code. This
Code was adopted by our board on November 30, 2005, is in writing, and can
be found through the “Investor Relations - Corporate Governance” section of our
internet website (http://www.FutureFuelCorporation.com).
Each of
the transactions described above (under the caption “Transactions with
Management, Promoters and Others”) was undertaken in compliance with our Code of
Ethics and Business Conduct and approved by a majority of the disinterested
members of our board of directors.
The SEC
has promulgated Rule 10A-3, which sets forth the independence requirements
for members of an audit committee. The following members of our board
of directors are independent under the SEC’s definitions of
independence:
Edwin A. Levy
Thomas R. Evans
Richard L. Knowlton
Donald C. Bedell
In
addition, each member of our board of directors’ remuneration, audit, and
nominating committees are comprised of directors who are independent under such
definitions.
During
fiscal 2009 and 2008, we incurred $292,000 and $307,000, respectively, for audit
and financial statement review services from RubinBrown LLP.
During
fiscal 2009 and 2008, we incurred $13,130 and $12,000, respectively, for
employee benefit plan audits from RubinBrown LLP.
During
fiscal 2009 and 2008, we incurred fees of $15,500 and $15,100, respectively, for
tax compliance, tax advice, and tax planning services from RubinBrown
LLP.
88
No other
fees were incurred by us from RubinBrown LLP in fiscal 2009 or
2008.
Our audit
committee approves the engagement of our independent auditors prior to their
rendering audit or non-audit services and sets their
compensation. Pursuant to SEC regulations, our audit committee
approves all fees payable to the independent auditors for all routine and
non-routine services provided. Our audit committee considers and
approves the budget for the annual audit and financial statement review services
prior to the initiation of the work. Non-routine services in the
ordinary course of business which are not prohibited under SEC regulation, such
as tax planning, tax compliance, and other services generally, are pre-approved
on a case-by-case basis.
This
report contains or incorporates by reference “forward-looking
statements”. When used in this document, the words “anticipate,”
“believe,” “estimate,” “expect,” “plan,” “intend”, and similar expressions, as
they relate to us or our management, are intended to identify forward-looking
statements. These forward-looking statements are based on current
management assumptions and are subject to uncertainties and inherent risks that
could cause actual results to differ materially from those contained in any
forward-looking statement. We caution you therefore that you should
not rely on any of these forward-looking statements as statements of historical
fact or as guarantees or assurances of future performance. Important
factors that could cause actual results to differ materially from those in the
forward-looking statements include regional, national or global political,
economic, business, competitive, market, and regulatory conditions as well as,
but not limited to, the following:
|
·
|
conflicts
of interest of our officers and
directors;
|
|
·
|
potential
future affiliations of our officers and directors with competing
businesses;
|
|
·
|
the
control by our founding shareholders of a substantial interest in
us;
|
|
·
|
the
highly competitive nature of the chemical and alternative fuel
industries;
|
|
·
|
fluctuations
in energy prices may cause a reduction in the demand or profitability of
the products or services we may ultimately produce or offer or which form
a portion of our business;
|
|
·
|
changes
in technology may render our products or services
obsolete;
|
|
·
|
failure
to comply with governmental regulations could result in the imposition of
penalties, fines, or restrictions on operations and remedial
liabilities;
|
|
·
|
the
operations of our biofuels business may be harmed if the applicable
government were to change current laws and/or
regulations;
|
|
·
|
we
may engage in hedging transactions in an attempt to mitigate exposure to
price fluctuations in petroleum product transactions and other portfolio
positions which may not ultimately be successful;
and
|
|
·
|
we
may not continue to have access to capital markets and commercial bank
financing on favorable terms and we may lose our ability to buy on open
credit terms.
|
Although
we believe that the expectations reflected by such forward-looking statements
are reasonable based on information currently available to us, no assurances can
be given that such expectations will prove to have been correct. All
forward-looking statements included herein and all subsequent oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these cautionary
statements. We undertake no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information, future
events, or otherwise. Readers are cautioned not to place undue
reliance on any forward-looking statements, which speak only as to their
particular dates.
89
(a) List
separately all financial statements filed as part of this report.
|
1.
|
FutureFuel
Corp.’s audited consolidated Balance Sheets as at December 31, 2009
and 2008 and the related consolidated Statements of Operations, Statements
of Changes in Stockholders’ Equity and Statements of Cash Flows for the
years ended December 31, 2009, 2008, and
2007.
|
(b) Exhibits
required by Item 601 of Regulation S-K.
|
|
2.
|
Acquisition
Agreement dated July 21, 2006 between FutureFuel Corp. and Eastman
Chemical Company (incorporated by reference to Exhibit No. 2 to
Form 10 filed April 24,
2007)
|
|
|
3.1.
|
Fourth
Amended and Restated Certificate of Incorporation filed on June 27,
2007 (incorporated by reference to Exhibit No. 3.1.f to Amendment No.
2 to Form 10 filed February 29,
2008)
|
|
|
3.2.
|
FutureFuel
Corp.’s Bylaws (incorporated by reference to Exhibit No. 3.2.a to
Form 10 filed April 24,
2007)
|
|
|
4.1.
|
Stock
Escrow Agreement dated July 12, 2006 among FutureFuel Corp., Capita
IRG (Offshore) Limited, St. Albans Global Management, Limited Partnership,
LLLP, Lee E. Mikles as Trustee of the Lee E. Mikles Gift Trust dated
October 6, 1999, Lee E. Mikles as Trustee of the Lee E. Mikles
Revocable Trust dated March 26, 1996, Douglas D. Hommert as Trustee
of the Douglas D. Hommert Revocable Trust, Edwin A. Levy, Joe C. Leach,
Mark R. Miller, RAS LLC, Edwin L. Wahl, Jeffery H. Call and Ken Fenton
(incorporated by reference to Exhibit No. 4.1 to Form 10 filed
April 24, 2007)
|
|
|
4.2.
|
Warrant
Deed dated July 12, 2006 between FutureFuel Corp. and Capita IRG
(Offshore) Limited (incorporated by reference to Exhibit No. 4.2 to
Form 10 filed April 24, 2007); Addendum to Warrant Deed dated
July 18, 2008 between FutureFuel Corp. and Computershare Investor
Services (Channel Islands), Limited (incorporated by reference to Exhibit
No. 4.2 to Form 10-K filed March 16,
2009)
|
|
|
4.3
|
Insider
Letters dated July 12, 2006 to FutureFuel Corp., CRT Capital Group
LLC and KBC Peel Hunt Ltd from the following persons: (incorporated by
reference to Exhibit No. 4.3 to Form 10 filed April 24,
2007)
|
|
|
4.3a
|
Paul
Anthony Novelly
|
|
|
4.3b
|
St.
Albans Global Management, Limited Partnership,
LLLP
|
|
|
4.3c
|
Lee
E. Mikles
|
|
|
4.3d
|
Lee
E. Mikles as Trustee of the Lee E. Mikles Gift Trust dated October 6,
1999
|
|
|
4.3e
|
Lee
E. Mikles as Trustee of the Lee E. Mikles Revocable Trust dated
March 26, 1996
|
|
|
4.3f
|
Douglas
D. Hommert
|
|
|
4.3g
|
Douglas
D. Hommert as Trustee of the Douglas D. Hommert Revocable
Trust
|
|
|
4.3h
|
Edwin
A. Levy
|
|
|
4.3i
|
Joe
C. Leach
|
|
|
4.3j
|
Mark
R. Miller
|
90
|
|
4.3k
|
RAS
LLC
|
|
|
4.3l
|
William
J. Doré
|
|
|
4.3m
|
Thomas
R. Evans
|
|
|
4.3n
|
Edwin
L. Wahl
|
|
|
4.3o
|
Jeffery
H. Call
|
|
|
4.3p
|
Ken
Fenton
|
|
|
4.4.
|
Investor
Rights Agreement dated July 12, 2006 among FutureFuel Corp., CRT
Capital Group LLC and KBC Peel Hunt Ltd (incorporated by reference to
Exhibit No. 4.4 to Form 10 filed April 24,
2007)
|
|
|
4.5.
|
Registration
Rights Agreement dated July 12, 2006 among FutureFuel Corp., St.
Albans Global Management, Limited Partnership, LLLP, Lee E. Mikles as
Trustee of the Lee E. Mikles Gift Trust dated October 6, 1999, Lee E.
Mikles as Trustee of the Lee E. Mikles Revocable Trust dated
March 26, 1996, Douglas D. Hommert as Trustee of the Douglas D.
Hommert Revocable Trust, Edwin A. Levy, Joe C. Leach, Mark R. Miller, RAS
LLC, Edwin L. Wahl, Jeffery H. Call and Ken Fenton (incorporated by
reference to Exhibit No. 4.5 to Form 10 filed April 24,
2007)
|
|
|
4.6.
|
Lock-in
Deed dated July 12, 2006 among FutureFuel Corp., KBC Peel Hunt Ltd,
St. Albans Global Management, Limited Partnership, LLLP, Lee E. Mikles as
Trustee of the Lee E. Mikles Gift Trust dated October 6, 1999, Lee E.
Mikles as Trustee of the Lee E. Mikles Revocable Trust dated
March 26, 1996, Douglas D. Hommert as Trustee of the Douglas D.
Hommert Revocable Trust, Edwin A. Levy, Paul Anthony Novelly, Lee E.
Mikles, Douglas D. Hommert, Thomas R. Evans and William J. Doré
(incorporated by reference to Exhibit No. 4.6 to Form 10 filed
April 24, 2007)
|
|
|
10.1.
|
Placing
Agreement dated July 12, 2006 among CRT Capital Group LLC, KBC Peel
Hunt Ltd, FutureFuel Corp. and FutureFuel Corp.’s Directors (incorporated
by reference to Exhibit No. 10.1 to Form 10 filed April 24,
2007)
|
|
|
10.2.
|
Offshore
Registrar Agreement dated July 12, 2006 between FutureFuel Corp. and
Capita IRG (Offshore) Limited (incorporated by reference to Exhibit
No. 10.2 to Form 10 filed April 24, 2007); Registrar
Agreement dated June 27, 2008 between FutureFuel Corp. and
Computershare Investor Services (Channel Islands) Limited (incorporated by
reference to Exhibit No. 10.2 to Form 10-K filed March 16,
2009)
|
|
|
10.3.
|
Warrant
Solicitation Fee Letter dated July 12, 2006 between FutureFuel Corp.
and CRT Capital Group LLC (incorporated by reference to Exhibit
No. 10.3 to Form 10 filed April 24,
2007)
|
|
|
10.4.
|
Storage
and Thruput Agreement dated November 1, 2006 between FutureFuel
Chemical Company and Center Point Terminal Company (incorporated by
reference to Exhibit No. 10. to Form 10 filed April 24,
2007)
|
|
|
10.5
|
Commodity
Trading Advisor Agreement dated November 1, 2006 between FutureFuel
Chemical Company and Apex Oil Company, Inc. (incorporated by reference to
Exhibit No. 10.5 to Form 10 filed April 24,
2007)
|
|
|
10.6
|
Service
Agreement dated November 1, 2006 between FutureFuel Corp. and
Pinnacle Consulting, Inc. (incorporated by reference to Exhibit
No. 10.6 to Form 10 filed April 24,
2007)
|
|
|
10.7
|
Purchase
Agreement made and entered into as of April 1, 2008 between The
Procter & Gamble Manufacturing Company, The Procter & Gamble
Distributing LLC and Procter & Gamble International Operations SA, as
buyer, and FutureFuel Chemical Company, as seller (portions of the exhibit
have been omitted pursuant to a request for confidential treatment)
(incorporated by reference to Exhibit 10.7 to Form 10-Q filed
August 14, 2008.)
|
91
|
|
10.8
|
Custom
Manufacturing Agreement dated September 1, 1992 between Tomen
Corporation and Eastman Kodak Company, as amended October 2, 1992,
February 1, 1993, March 19, 1993, September 28, 1995,
October 30, 1998, May 24, 1999, November 10, 1999,
December 12, 2000 and July 25, 2006 (portions of the exhibit
have been omitted pursuant to a request for confidential treatment)
(incorporated by reference to Exhibit No. 10.8 to Form 10 filed
April 24, 2007)
|
|
|
10.9
|
Conversion
Agreement dated October 1, 1993 between Tomen Corporation and Eastman
Chemical Company, as amended March 7, 1994, May 13, 1994,
May 17, 1994, June 14, 1994, July 19, 1994, August 17,
1994, February 10, 1995, May 25, 1995, October 15, 1997,
March 27, 1998, June 23, 1998, September 29, 1998,
October 30, 1998, November 10, 1999 and July 25, 2006
(portions of the exhibit have been omitted pursuant to a request for
confidential treatment) (incorporated by reference to Exhibit
No. 10.9 to Form 10 filed April 24,
2007)
|
|
10.10
|
Credit
Agreement dated March 14, 2007 between FutureFuel Chemical Company
and Regions Bank (portions of the exhibit have been omitted pursuant to a
request for confidential treatment) (incorporated by reference to Exhibit
No. 10.10 to Form 10 filed April 24,
2007)
|
|
10.11
|
Revolving
Credit Promissory Note dated March 14, 2007 executed by FutureFuel
Chemical Company and payable to the order of Regions Bank (incorporated by
reference to Exhibit No. 10.11 to Form 10 filed April 24,
2007)
|
|
10.12
|
Security
Agreement -Accounts and Inventory dated March 14, 2007 executed by
FutureFuel Chemical Company in favor of Regions Bank (incorporated by
reference to Exhibit No. 10.12 to Form 10 filed April 24,
2007)
|
|
10.13
|
Continuing
Unlimited Guaranty Agreement dated March 14, 2007 executed by
FutureFuel Corp. in favor of Regions Bank (incorporated by reference to
Exhibit No. 10.13 to Form 10 filed April 24,
2007)
|
|
10.14
|
Car
Subleasing Agreement dated November 1, 2006 between Apex Oil Company,
Inc. and FutureFuel Chemical Company (incorporated by reference to Exhibit
No. 10.14 to Form 10 filed April 24,
2007)
|
|
10.15
|
Time
Sharing Agreement dated April 18, 2007 between Apex Oil Company, Inc.
and FutureFuel Corp. (incorporated by reference to Exhibit No. 10.15
to Form 10 filed April 24,
2007)
|
|
10.16
|
Omnibus
Incentive Plan (incorporated by reference to Exhibit No. 10.16 to
Amendment No. 1 to Form 10 filed June 26,
2007)
|
|
|
11.
|
Statement
re Computation of per Share
Earnings
|
|
|
21.
|
Subsidiaries
of FutureFuel Corp.
|
|
|
23
|
Consent
of RubinBrown LLP
|
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 principal financial officer
32. Section
1350 Certification of chief executive officer and principal financial
officer
92
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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/ Douglas D.
Hommert
Douglas
D. Hommert, Executive Vice President, Secretary,
Treasurer
and Principal Financial Officer
/s/ Paul A.
Novelly
Paul A.
Novelly, Director
/s/ Lee E.
Mikles
Lee. E.
Mikles, Director and Chief Executive Officer
/s/Edwin A.
Levy
Edwin A.
Levy, Director
/s/ Thomas R.
Evans
Thomas R.
Evans, Director
/s/ Richard L.
Knowlton
Richard
L. Knowlton, Director
/s/ Paul G.
Lorenzini
Paul G.
Lorenzini, Director and Chief Operating Officer
/s/ Donald C.
Bedell
Donald C.
Bedell, Director
Date: March 15,
2010
93
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules