RNS Number:4823R
FutureFuel Corp
02 April 2008
FUTUREFUEL CORP.
Completion of Audit of 2007 Financial Statements
FutureFuel Corp. (the "Company") yesterday completed the audit of its 2007
financial statements, a copy of which follows this release. The Company is in
the process of preparing its annual report for 2007 and expects to release its
annual report electronically in the next two weeks. This annual report will
include statements by key members of the Company's management team, detail on
its business and strategy, and a detailed discussion of financial results.
Prior to submission of this annual report, investors may review the Form 10-K
for the year ended December 31, 2007 which the Company filed yesterday with the
U.S. Securities and Exchange Commission pursuant to the U.S. Securities Exchange
Act of 1934, as amended. Such Form 10-K may be read and/or copied at the U.S.
Securities and Exchange Commission'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 U.S. Securities and Exchange Commission at
1-800-SEC-0330. In addition, the Securities and Exchange Commission maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that electronically file with the U.S. Securities
and Exchange Commission at http://www.sec.gov. Such Securities and Exchange
Commission Filings may be obtained through such site. They may also be obtained
free of charge on the Company's website at http://ir.futurefuelcorporation.com/
sec.cfm or by requesting the same from the Company at:
FutureFuel Corp.
8235 Forsyth Blvd., 4th Floor
Clayton, Missouri 63105
USA
Attn: Investor Relations
Enquiries:
Lee E Mikles +1 805 565 9800
Chief Executive Officer
FutureFuel Corp.
Matt Goode/Daniel Harris +44 20 7418 8900
Nominated Adviser Broker
KBC Peel Hunt Ltd
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FutureFuel Corp.:
We have audited the accompanying consolidated balance sheet of FutureFuel Corp.
and subsidiary as of December 31, 2007, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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
subsidiary as of December 31, 2007, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ RubinBrown LLP
St. Louis, Missouri
March 31, 2008
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
FutureFuel Corp.:
We have audited the accompanying consolidated balance sheet of FutureFuel Corp.
and subsidiary (the Company) as of December 31, 2006, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the years ended December 31, 2006 and 2005. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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
subsidiary as of December 31, 2006, and the results of their operations and
their cash flows for each of the years ended December 31, 2006 and 2005; in
conformity with U.S. generally accepted accounting principles.
As described in Note 21 to the consolidated financial statements, the Company
restated the accompanying consolidated financial statements as of December 31,
2006 and for each of the years ended December 31, 2006 and 2005.
/s/ KPMG LLP
St. Louis, Missouri
April 23, 2007, except as to Note 21,
which is dated as of December 27, 2007
FutureFuel Corp.
Consolidated Balance Sheets
As of December 31, 2007 and 2006
(Dollars in thousands)
2007 2006
Assets
Cash and cash equivalents $ 54,655 $ 63,129
Accounts receivable, net of allowances of $42 and 17,514 23,903
$42, respectively
Inventory 24,192 22,582
Prepaid expenses 1,200 1,248
Marketable debt securities 15,086 -
Other current assets 541 3,131
Total current assets 113,188 113,993
Property, plant and equipment, net 95,036 82,626
Restricted cash and cash equivalents 3,263 3,127
Intangible assets 435 548
Other assets 4,191 2,765
Total noncurrent assets 102,925 89,066
Total Assets $ 216,113 $ 203,059
Liabilities and Stockholders' Equity
Accounts payable $ 12,622 $ 12,945
Accounts payable - related parties 121 112
Income taxes payable 1,231 1,916
Short term contingent consideration 197 191
Current deferred income tax liability 4,597 4,242
Accrued expenses and other current liabilities 3,370 1,717
Accrued expenses and other current liabilities - - 40
related parties
Total current liabilities 22,138 21,163
Long term contingent consideration 1,989 2,168
Deferred revenue 1,571 -
Other noncurrent liabilities 1,126 914
Noncurrent deferred income taxes 19,667 17,658
Total noncurrent liabilities 24,353 20,740
Total Liabilities 46,491 41,903
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 3 3
shares authorized, 26,700,000 issued and
outstanding
Accumulated other comprehensive income 58 -
Additional paid in capital 158,436 158,436
Retained earnings 11,125 2,717
Total stockholders' equity 169,622 161,156
Total Liabilities and Stockholders' Equity $ 216,113 $ 203,059
The accompanying notes are an integral part of these financial statements.
FutureFuel Corp.
Consolidated Statements of Operations
for the Years Ended December 31, 2007, 2006 and 2005
(Dollars in thousands, except per share amounts)
2007 2006 2005
Revenues $ 169,732 $ 23,043 $ -
Revenues - related parties 56 - -
Cost of goods sold 149,181 19,966 -
Cost of goods sold - related 1,529 - -
parties
Distribution 1,845 133 -
Gross profit 17,233 2,944 -
Selling, general and
administrative expenses
Compensation expense 2,502 328 -
Formation expense and cancelled 117 427 1
offering costs
Other expense 1,353 400 -
Related party expense 172 104 -
Research and development expenses 3,434 923 -
7,578 2,182 1
Income (loss) from operations 9,655 762 (1)
Interest income 3,567 3,365 1
Interest expense (24) (37) -
Gain on foreign currency 16 - -
Other expense (23) - -
3,536 3,328 1
Income before income taxes 13,191 4,090 -
Provision for income taxes 4,783 1,373 -
Net income $ 8,408 $ 2,717 $ -
Earnings per common share
Basic $ 0.31 $ 0.10 $ -
Diluted $ 0.26 $ 0.09 $ -
Weighted average shares
outstanding
Basic 26,700,000 26,700,000 5,625,000
Diluted 32,286,996 31,818,772 5,625,000
The accompanying notes are an integral part of these financial statements.
FutureFuel Corp.
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2007, 2006 and 2005
(Dollars in thousands)
2007 2006 2005
Cash flows provided by (used in)
operating activities
Net income $ 8,408 $ 2,717 $ -
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,712 630 -
Provision (benefit) for deferred 2,330 (956) -
income taxes
Change in fair value of derivative (199) 447 -
instruments
Accretion of the discount of (127) - -
marketable debt securities
Losses on disposals of fixed 64 - -
assets
Noncash interest expense 21 37 -
Changes in operating assets and
liabilities:
Accounts receivable 6,389 (20,434) -
Inventory (977) (1,256) -
Prepaid expenses 48 (1,240) -
Accrued interest on marketable (64) - -
debt securities
Other assets (1,426) 653 -
Accounts payable (323) 2,724 10
Accounts payable - related parties 9 112 -
Income taxes payable (685) 1,916 -
Accrued expenses and other current 1,653 1,747 -
liabilities
Accrued expenses and other current (40) 40 -
liabilities - related parties
Deferred revenue 1,571 - -
Other noncurrent liabilities 191 369 -
Net cash provided by (used in) 21,554 (12,494) 10
operating activities
Cash flows used in investing
activities
Restricted cash (136) (3,127) -
Collateralization of derivative 2,789 (3,578) -
instruments
Purchase of marketable securities (14,803) - -
Proceeds from the sale of fixed 55 - -
assets
Acquisition of the stock of - (72,634) -
Eastman SE, Inc.
Contingent purchase price payment (173) (11) -
Capital expenditures (17,710) (3,269) -
Net cash used in investing (29,978) (82,619) -
activities
Cash flows provided by (used in)
financing activities
Equity offering expenditures - - (207)
Proceeds from long-term debt - - 500 200
related parties
Repayment of long-term debt - - (700) -
related parties
Proceeds from the issuance of - 169,382 25
stock
Stock redemption - (10,968) -
Bank financing fee (50) - -
Net cash provided by (used in) (50) 158,214 18
financing activities
Net change in cash and cash (8,474) 63,101 28
equivalents
Cash and cash equivalents at 63,129 28 -
beginning of period
Cash and cash equivalents at end $ 54,655 $ 63,129 $ 28
of period
Cash paid for interest $ 3 $ - $ -
Cash paid for income taxes $ 2,992 $ - $ -
The accompanying notes are an integral part of these financial statements.
FutureFuel Corp.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 2007, 2006 and 2005
(Dollars in thousands)
Other Additional Total
Common Stock Comprehensive Paid-In Retained Stockholders'
Shares Amount Income Capital Earnings Equity
Balance - - $ - $ - $ - $ - $ -
August 12, 2005
(Inception)
Common shares 5,000,000 1 - 24 - 25
issued
Net income - - - - - -
Balance - 5,000,000 1 - 24 - 25
December 31,
2005
Common share 1,250,000 - - - - -
dividend
Common share (625,000) - - - - -
cancellation
Proceeds from 22,500,000 2 - 169,380 - 169,382
the issuance of
stock
Stock (1,425,000) - - (10,968) (10,968)
redemption
Net income - - - - 2,717 2,717
Balance - 26,700,000 3 - 158,436 2,717 161,156
December 31,
2006
Other - - 58 - - 58
income
Net income - - - - 8,408 8,408
Balance - 26,700,000 $ 3 $ 58 $ 158,436 $ 11,125 $ 169,622
December 31,
2007
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2007, 2006 and 2005
Comprehensive income 2007 2006 2005
Net income $ 8,408 $ 2,717 $ -
Other comprehensive income, net of 58 - -
tax ($34 in 2007)
Comprehensive income $ 8,466 $ 2,717 $ -
The accompanying notes are an integral part of these financial statements.
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 12).
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, bioethanol and
lignin/biomass solid fuels) 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.
Certain prior year balances have been reclassified to conform to the current
presentation.
2) Significant accounting policies
Consolidation
The accompanying consolidated financial statements include the accounts of
FutureFuel and its wholly-owned subsidiary, FutureFuel Chemical. The results for
the fiscal year ended December 31, 2006 include: (i) the operations of Viceroy
from January 1, 2006 through October 31, 2006; and (ii) the operations of both
FutureFuel and FutureFuel Chemical from November 1, 2006 through December 31,
2006. 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 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 June 2008. Sales of the bleach activator totalled $82,500 for the year
ended December 31, 2007. 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 totalled $25,177 for the
year ended December 31, 2007. These two customers represented 51% of
FutureFuel's accounts receivable balance at December 31, 2007.
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 Statement of Financial Accounting Standards ("SFAS") No. 133
Accounting for Derivative Instruments and Hedging Activities, as amended. 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
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.
Restricted cash and cash equivalents
Restricted cash and cash equivalents include cash and cash equivalents reserved
for purposes of meeting certain Arkansas Department of Environmental Quality
requirements that become applicable in the event of a closure of the Batesville
Plant. The amount of cash reserved for this purpose is based on a formula
derived by the state of Arkansas and totalled $3,263 at December 31, 2007 and
$3,127 at December 31, 2006.
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 is funded by the customer but with title and risk of loss to the
equipment residing with FutureFuel. Reimbursements are being recognized as
deferred revenue and will be amortized over the life of the contract as product
is shipped. Production is expected to begin in the third 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 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
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.
Deferred 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.
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 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.
Bill and hold transactions for 2007 related to two 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. Both customers' credit and payment terms are
similar to other specialty chemical customers. Sales revenue under bill and hold
arrangements were $33,494, $3,858, and $0 for the years ended December 31, 2007,
2006 and 2005, 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 (and one-half cent for
each percentage point of recycled oils and other non-agricultural biodiesel).
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.
Uncertainty in income taxes
In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"), Accounting for
Uncertainty in Income Taxes-an Interpretation of SFAS 109 Accounting for Income
Taxes. FIN 48 prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements uncertain
tax positions that a company has taken or expects to take on a tax return. Under
FIN 48, the financial statements reflect expected future tax consequences of
such positions presuming the taxing authorities' full knowledge of the position
and all relevant facts, but without considering time values. FIN 48 also revises
disclosure requirements and introduces a prescriptive, annual, tabular
roll-forward of the unrecognized tax benefits. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The adoption of FIN 48 did not have a
material effect on the consolidated financial position, liquidity or results of
operations of FutureFuel.
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 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.
The weighted average basic and diluted shares outstanding for the years ended
December 31, 2006 and 2005 have been calculated assuming that all shares
outstanding at December 31, 2007 were outstanding for all periods presented. The
dilutive impact of the warrants, as described in Note 14, was calculated based
upon the trading activity of FutureFuel's common stock from July 13, 2006 to
December 31, 2007.
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 debt securities classified as available for sale (see Note 6). For
the year ended December 31, 2007, FutureFuel recorded an unrealized gain of $58,
net of income taxes of $34, on these securities. There were no elements of other
comprehensive income in 2006 or 2005.
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,
bioethanol and lignin/biomass solid fuels) and biobased specialty products
(biobased lubricants, solvents and intermediates). In addition to the biobased
products platform, the Batesville Plant has 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, 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. Contingent purchase price payments to Eastman Chemical
based on volumes of biodiesel sold totalled $11 through December 31, 2006 and
$183 through December 31, 2007. The contingent purchase price payments offset a
contingent consideration liability that FutureFuel recorded as of the closing
date of the acquisition.
The following table summarizes the preliminary estimated fair values of the
Eastman SE assets acquired and liabilities assumed and related deferred income
taxes as of the acquisition date:
Eastman SE
Assets acquired
Current assets $ 24,804
Property, plant and equipment 79,968
Noncurrent deferred income tax asset 373
Intangible assets subject to amortization 567
Other assets 3,211
Total assets 108,923
Liabilities assumed
Current liabilities 10,353
Long-term contingent consideration 2,198
Other noncurrent liabilities 508
Noncurrent deferred income taxes 23,230
Total liabilities 36,289
Net assets acquired $ 72,634
In the allocation of the fair values of the assets acquired and liabilities
assumed, FutureFuel determined there was a balance of $2,370 of negative
goodwill. As the purchase of Eastman SE provided for contingent consideration to
be paid to Eastman Chemical, the negative goodwill has been allocated to
contingent consideration. FutureFuel has not identified any material unrecorded
pre-acquisition contingencies where the related asset, liability or impairment
is probable and the amount can be reasonably estimated.
The following unaudited pro forma consolidated results of operations assume that
the acquisition of Eastman SE was completed as of January 1:
2006 2005
Revenues $ 150,770 $ 119,539
Net income $ 5,142 $ 3,769
Basic earnings per share $ 0.19 $ 0.14
Diluted earnings per share $ 0.16 $ 0.12
Pro-forma data may not be indicative of the results that would have been
obtained had these events actually occurred at the beginning of the periods
presented, nor does it intend to be a projection of future results.
4) Inventories
The carrying values of inventory were as follows as of December 31:
2007 2006
At first-in, first-out or average cost
(approximates current cost)
Finished goods $ 8,993 $ 7,943
Work in process 1,091 1,750
Raw materials and supplies 15,670 12,894
25,754 22,587
LIFO reserve (1,562) (5)
Total inventories $ 24,192 $ 22,582
5) Derivative instruments
The volumes and carrying values of FutureFuel's derivative instruments were as
follows at December 31:
Asset/(Liability)
2007 2006
Quantity Fair Quantity Fair
(000 bbls) Market (000 bbls) Market
Long/ Value Long/ Value
(Short) (Short)
Regulated fixed price future - $ - (250) $ (28)
commitments, included in
prepaid expenses and other
current assets
Regulated options, included in (100) $ (247) (100) $ (419)
prepaid expenses and other
current assets
The margin account maintained with a broker to collateralize these derivative
instruments carried an account balance of $789 and $3,578 at December 31, 2007
and 2006, 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 in other current assets and comprise the
entire account balance.
6) Marketable debt securities
In September 2007, FutureFuel made an investment in certain U.S. treasury bills
and notes. These marketable debt securities have maturities ranging from March
2008 to August 2009. FutureFuel anticipates these securities being sold within
one year, regardless of the maturity date, and has therefore classified all
marketable debt securities as current assets in the accompanying consolidated
balance sheet. FutureFuel has designated these securities as being
available-for-sale. Accordingly, these securities are carried at fair value,
with the 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, 2007.
The fair market value of these marketable debt securities, including accrued
interest, totalled $15,086 and $0 at December 31, 2007 and December 31, 2006,
respectively.
7) Property, plant and equipment
Property, plant and equipment consisted of the following at December 31:
2007 2006
Land and land improvements $ 4,260 $ 4,260
Buildings and building equipment 20,444 19,037
Machinery and equipment 69,309 54,797
Construction in progress 6,126 5,143
Accumulated depreciation (5,103) (611)
Total $ 95,036 $ 82,626
Depreciation expense totalled $4,599 for the year ended December 31, 2007 and
$611 for the year ended December 31, 2006.
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:
2007 2006
Cost $ 567 $ 567
Accumulated amortization (132) (19)
$ 435 $ 548
Amortization expense totalled $113 and $19 for the years ended December 31, 2007
and 2006, respectively. FutureFuel estimates that amortization expense for 2008
to 2010 will be $113 annually and that amortization expense in 2011 will be $94.
9) Other assets
Other assets is comprised of spare equipment and parts that have not been placed
into service as of the balance sheet date and are not expected to be placed into
service for the twelve-month period subsequent to the balance sheet date. The
balance related to these items totalled $4,191 and $2,765 at December 31, 2007
and 2006, 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:
2007 2006
Accrued employee liabilities $ 1,722 $ 773
Accrued property, use and franchise taxes 1,110 373
Accrued professional fees 30 340
Amounts collected on behalf of Eastman - 178
Chemical
Other 508 93
Total $ 3,370 $ 1,757
FutureFuel Chemical entered into a $50 million credit agreement with Regions
Bank in March 2007. The loan is a revolving facility the proceeds of which may
be used for working capital, capital expenditures and general corporate purposes
of FutureFuel Chemical. The facility terminates in March 2010. Advances are made
pursuant to a borrowing base. Advances are secured by a perfected first priority
security interest in 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. 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.
11) 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 $566 and $545 as of
December 31, 2007 and 2006, 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:
2007 2006
Beginning balance $ 545 $ -
Batesville Plant acquisition opening balance - 508
Accretion expense 21 37
Balance at December 31 $ 566 $ 545
12) Deferred taxes
The following table summarizes the provision for income taxes:
2007 2006
Income before taxes - U.S. $ 13,191 $ 4,090
Provision/(benefit) for income taxes:
Current $ 2,080 $ 1,818
Deferred 2,201 (687)
State and other
Current 228 466
Deferred 274 (224)
Total $ 4,783 $ 1,373
Differences between the provision for income taxes computed using the U.S.
federal statutory income tax rate were as follows:
2007 2006
Amount computed using the statutory rate of $ 4,485 $ 1,390
34%
Section 199 manufacturing deduction (183) (33)
Agri-biodiesel production credit (564) (78)
Credit for increasing research activities (69) -
Change in the valuation allowance 472 -
State income taxes, net 601 94
Other 41 -
Provision for income taxes $ 4,783 $ 1,373
The significant components of deferred tax assets and liabilities were as
follows as of December 31:
2007 2006
Deferred tax assets
Vacation pay $ 115 $ 52
Allowance for doubtful accounts 16 16
Agri-biodiesel production credit 190 -
Inventory reserves 219 175
Self insurance 123 -
Asset retirement obligation 222 214
Directors and officers fees 122 -
Derivative instruments 444 -
Total deferred tax assets 1,451 457
Deferred tax liabilities
Derivative instruments - (45)
Available for sale securities (34) -
Accrued expenses (18) -
LIFO inventory (4,684) (4,312)
Intangible assets (170) (215)
Insurance proceeds (275) -
Depreciation (20,062) (17,829)
Total deferred tax liabilities (25,243) (22,401)
Valuation allowance (472) -
Net deferred tax liabilities $ (24,264) $ (21,944)
As recorded in the consolidated balance sheet
Current deferred income tax liability $ (4,597) $ (4,242)
Accrued expenses and other current - (44)
liabilities
Noncurrent deferred income tax liability (19,667) (17,658)
Net deferred income tax liabilities $ (24,264) $ (21,944)
As discussed in Note 1, FutureFuel adopted the provisions of FIN 48 on
January 1, 2007. FutureFuel did not recognize a significant change in liability
for uncertain tax positions as a result of its implementation of FIN 48.
FutureFuel's unrecognized tax benefits, recorded as an element of other
noncurrent liabilities, totalled $559 at December 31, 2007, the total amount of
which, if recognized, would reduce FutureFuel's effective tax rate.
We do not expect our unrecognized tax benefits to change significantly over the
next 12 months.
FutureFuel records interest and penalties net as a component of income tax
expense. As of December 31, 2007, FutureFuel had no accrual for interest or tax
penalties.
FutureFuel and its subsidiary, FutureFuel Chemical, files tax returns in the
U.S. federal jurisdiction and with various state jurisdictions. Future Fuel was
incorporated in 2005 and is subject to examination by U.S., state and local tax
authorities from 2005 forward. FutureFuel Chemical is subject to the effects of
tax examination that may impact the carryover basis of its assets and
liabilities.
13) Stockholders' equity
On July 12, 2006, Viceroy completed an offering of 22,500,000 units. Each unit
consisted of one share of Viceroy's common stock and one warrant to acquire one
share. The units were issued at $8.00 per unit. In connection with this
offering, the shares and warrants issued were listed on the Alternative
Investment Market ("AIM") maintained by the London Stock Exchange plc. The net
proceeds of this offering totalled $172,500 and were placed into a trust fund.
All or a portion of the trust fund was to be released for, among other things, a
Business Combination approved by the holders of Viceroy's common stock.
Moreover, the trust fund was to be released in its entirety upon the completion
of a Business Combination which, either on its own or when combined with all
previous Business Combinations, had an aggregate transaction value of at least
50% of the initial trust amount (which initial trust amount excluded certain
deferred placing fees).
Certain of the Viceroy shareholders who purchased units in the July 12, 2006
offering were granted repurchase rights whereby at the time Viceroy sought
approval for a Business Combination these shareholders could vote against the
Business Combination and require Viceroy to repurchase their common shares for
$7.667 per common share plus accrued interest earned on the offering proceeds
held in trust net of expenses and income taxes payable on the interest earned.
Shareholders who exercised their repurchase rights retained all rights to any
warrants that they may have held.
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 addition, the July 12, 2006 investor rights agreement stipulates that Viceroy
has agreed, at its cost, to file with the SEC no later than the 180th day after
the date of a consummation of a Business Combination which, either on its own or
when combined with all previous Business Combinations, had an aggregate
transaction value of at least 50% of the initial trust amount (which initial
trust amount excluded certain deferred placing fees) ("Registration Trigger"), a
registration statement ("Exchange Act Registration Statement") on Form 10 to
register its common shares. Additionally, Viceroy agreed to use commercially
reasonable efforts to cause the Exchange Act Registration Statement to become
effective under the Securities Act no later than 270 days after the Registration
Trigger and use reasonable commercial efforts promptly upon effectiveness of the
Exchange Act Registration Statement to list the common shares of Viceroy on the
American Stock Exchange, the New York Stock Exchange, NASDAQ or a similarly
recognized trading platform in the United States. Viceroy did not make any
assurances that any such listing application would be accepted.
If the Exchange Act Registration Statement was not declared effective on or
prior to the 270th day after the date of the Registration Trigger ("Registration
Default"), Viceroy would have paid liquidated damages to each holder of its
common stock issued in connection with its July 2006 offering. The liquidated
damages would have been:
* paid to each holder in the form of common stock in Viceroy in an amount
equal to 0.5% per month of the number of each holder's common shares in
Viceroy;
* payable promptly after the occurrence of the Registration Default, but
in no event later than two days after the end of the month in which the
Registration Default has occurred;
* payable within two days of the end of each month, until the Registration
Default has been cured, provided that a pro rata payment shall be made with
respect to a month a portion of which Viceroy has been in default; and
* payable for a maximum of 12 months.
The investors rights agreement provided that the liquidated damages specified
above were the only exclusive remedy available to holders of Viceroy's common
shares for any failure by Viceroy to comply with the requirements of the
investors rights agreement.
On April 24, 2007, Viceroy filed the Exchange Act Registration Statement. On
June 23, 2007, the Exchange Act Registration Statement became effective. This
was prior to the 270th day after the date of the Registration trigger.
Consequently, no liquidated damages, as described above, were paid.
Viceroy has also agreed to use reasonable commercial efforts to maintain its
listing on the AIM for at least two years.
At the October 27, 2006 special meeting of the shareholders of Viceroy, the
acquisition of Eastman SE by Viceroy was approved by the shareholders of
Viceroy. Shareholders owning 1,425,000 common shares of Viceroy voted against
the acquisition and exercised their repurchase rights. Accordingly, such shares
are deemed to be held for redemption, are not deemed to be outstanding, and are
not included in equity in the post-acquisition period. The repurchase price
totalled $7.71 per share, calculated as $7.667 plus $0.043 of accrued interest
earned on the offering proceeds held in trust net of expenses and income taxes
payable on the interest earned per share. Pursuant to the terms of the July 12,
2006 offering, the repurchase price was payable by Viceroy only when those
shareholders who exercised their repurchase rights surrendered to Viceroy their
common share certificates. Through December 31, 2006, shareholders owing
1,175,000 common shares of FutureFuel had surrendered their shares to FutureFuel
and FutureFuel had paid an aggregate $9,059 to repurchase these shares. At
December 31, 2006, FutureFuel remained obligated to repurchase 250,000 common
shares at the $7.71 per share repurchase price. The $1,928 payable to these
shareholders was paid in January 2007.
As discussed in Note 1, immediately subsequent to the acquisition Viceroy
changed its name to FutureFuel Corp. and Eastman SE changed its name to
FutureFuel Chemical Company.
14) Earnings per share
The computation of basic and diluted earnings per common share was as follows:
2007 2006 2005
Net income available to common $ 8,408 $ 2,717 $ -
stockholders
Weighted average number of 26,700,000 26,700,000 5,625,000
common shares outstanding
Effect of warrants 5,586,996 5,118,772 -
Weighted average diluted number 32,286,996 31,818,772 5,625,000
of common shares outstanding
Basic earnings per share $ 0.31 $ 0.10 $ -
Diluted earnings per share $ 0.26 $ 0.09 $ -
15) Employee benefit plans
Defined contribution savings plan
FutureFuel currently offers its employees a company 401(k) match and a defined
contribution savings plan, which covers substantially all employees. Under this
plan, FutureFuel matches the amount of employee contributions, subject to
specified limits and makes a retirement savings safe harbor contribution to
employees' 401(k) savings plans. Plan related expenses totalled $1,552 and $120
for the years ended December 31, 2007 and 2006, respectively. No expense related
to this plan was incurred from August 12, 2005 (Inception) to October 31, 2006.
16) Related party transactions
FutureFuel enters into transactions with companies affiliated with or controlled
by a director and significant shareholder.
FutureFuel leases oil storage capacity from an affiliate under a storage and
thruput agreement. This agreement provides for the storage of biodiesel,
biodiesel/petrodiesel blends, palm oil, methanol and other biodiesel feedstocks
in above-ground storage tankage at designated facilities of the affiliate. Lease
expense related to this agreement totalled $126 and $9 for the years ended
December 31, 2007 and 2006, respectively, and $0 for the period from August 12,
2005 (Inception) to December 31, 2005.
FutureFuel entered into a commodity trading advisor 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. Expenditures related to
this agreement totalled $127 and $20 in the years ended December 31, 2007 and
2006, respectively.
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, 2007 but no railcars had been
received in 2006 under this agreement. Expenditures incurred under this
agreement were $72 and $0, respectively, and $0 for the period from August 12,
2005 (Inception) to December 31, 2005.
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. These reimbursements totalled
$78 and $123 in 2007 and 2006, respectively, and $0 for the period from
August 12, 2005 (Inception) to December 31, 2005.
At December 31, 2005, FutureFuel had unsecured promissory notes payable to
shareholders (one of these shareholders was an officer and director of
FutureFuel and the other was affiliated with one) of $200 in aggregate. The
loans were non-interest bearing and were payable upon the consummation of a
Business Combination. Due to the short-term nature of the notes, the fair value
of the notes approximated their carrying value. These notes were repaid in
November 2006 in connection with the consummation of the acquisition of Eastman
SE.
Accounts payable included $121 and $112 and accrued expenses and other current
liabilities included $0 and $40 due to related parties at December 31, 2007 and
2006, respectively.
As new payment instructions were adopted by FutureFuel Chemical's customers
subsequent to its acquisition by FutureFuel, Eastman Chemical collected trade
accounts receivable on FutureFuel Chemical's behalf. These collections were
subsequently remitted to FutureFuel Chemical. At December 31, 2006, Eastman
Chemical had collected $3,046 of trade accounts receivable on FutureFuel
Chemical's behalf. No amounts were outstanding at December 31, 2007.
17) 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 commercialization was achieved in October 2005 at the Batesville
Plant. Biodiesel revenues are generally derived in one of two ways. Revenues are
generated under tolling agreements whereby customers supply key biodiesel feed
stocks which FutureFuel then converts into biodiesel at the Batesville Plant in
exchange for a fixed price processing charge per gallon of biodiesel produced.
Revenues are also generated through the sale of biodiesel to 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, 2007 and 2006 attributable to the United States
and foreign countries (based upon the billing addresses of its customers) were
as follows:
Fiscal Year United All Foreign Total
States Countries
December 31, 2007 $ 141,233 $ 28,555 $ 169,788
December 31, 2006 $ 21,474 $ 1,569 $ 23,043
August 12, 2005 (Inception) $ - $ - $ -
to December 31, 2005
For the years ended December 31, 2007 and 2006, revenues from Mexico accounted
for 11% and 7%, respectively, of total revenues. Beginning in the third quarter
of 2007, FutureFuel Chemical Company began selling significant quantities of
biodiesel to companies in Canada, at which time revenues from Canada became a
material component of total revenues. Revenues from Canada accounted for 5% of
total revenues for the year ended December 31, 2007. Other than Mexico and
Canada, revenues from a single foreign country during 2007 or 2006 did not
exceed 3% of total revenues.
Summary of business by segment
2007 2006 2005
Revenues
Chemicals $ 144,474 $ 21,282 $ -
Biofuels 25,314 1,761 -
Revenues $ 169,788 $ 23,043 $ -
Segment gross margins
Chemicals $ 27,107 $ 6,054 $ -
Biofuels (9,874) (3,110) -
Segment gross margins 17,233 2,944 -
Corporate expenses (7,578) (2,182) (1)
Income (loss) before interest 9,655 762 (1)
and taxes
Interest income 3,567 3,365 1
Interest and other expense (31) (37) -
Provision for income taxes (4,783) (1,373) -
Net income $ 8,408 $ 2,717 $ -
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.
18) Commitments
Lease agreements
FutureFuel has entered into lease agreements for oil storage capacity, railcars,
isotainers, gas cylinders, argon tanks and office machines. Minimum rental
commitments under existing noncancellable operating leases as of December 31,
2007 were as follows:
2008 724
2009 482
2010 419
2011 393
2012 331
Thereafter 1,316
Total $ 3,665
Lease expenses totalled $408 and $9 for the years ended December 31, 2007 and
2006, respectively, and $0 from August 12, 2005 (Inception) to December 31,
2005.
Purchase obligations
FutureFuel has entered into contracts for the purchase of goods and services
including contracts for the expansion of FutureFuel's biodiesel related
infrastructure, the development, implementation and maintenance of an enterprise
resource planning computer software package and the licensing of a chemical
modelling 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 2007 and 2006 for this agreement totalled $172
and $11, respectively.
19) Quarterly financial information (unaudited)
Quarter
1st 2nd 3rd 4th
2007
Revenues $ 37,506 $ 41,620 $ 46,558 $ 44,104
Gross profit $ (2,448) $ 5,582 $ 6,885 $ 7,214
(loss)
Net income $ (2,040) $ 2,907 $ 3,343 $ 4,198
(loss)
Net income
(loss) per
common share:
Basic $ (0.08) $ 0.11 $ 0.13 $ 0.16
Diluted $ (0.08) $ 0.09 $ 0.10 $ 0.13
2006
Revenues $ - $ - $ - $ 23,043
Gross profit $ - $ - $ - $ 2,944
Net income $ (188) $ 1 $ 1,151 $ 1,753
(loss)
Net income
(loss) per
common share:
Basic $ (0.01) $ - $ 0.04 $ 0.07
Diluted $ (0.01) $ - $ 0.04 $ 0.05
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.
20) Recently issued accounting standards
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
addresses the measurement of fair value by companies when they are required to
use a fair value measure for recognition or disclosure purposes under GAAP. SFAS
No. 157 provides a common definition of fair value to be used throughout GAAP
which is intended to make the measurement of fair value more consistent and
comparable and improve disclosures about those measures. With the exception of
other non-financial assets and liabilities, SFAS No. 157 will be effective for
an entity's financial statements issued for fiscal years beginning after
November 15, 2007. With respect to other non-financial assets and liabilities,
the Financial Accounting Standards Board has provided a one-year implementation
deferral. FutureFuel is currently evaluating the effect SFAS No. 157 will have
on its consolidated financial position, liquidity, and results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115. SFAS No. 159 permits companies to choose to measure many
financial instruments and certain other items at fair value at specified
election dates. Upon adoption, an entity shall report unrealized gains and
losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date. Most of the provisions apply only to entities
that elect the fair value option. However, the amendment to SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, applies to all
entities with available for sale and trading securities. SFAS No. 159 will be
effective as of the beginning of an entity's first fiscal year that begins after
November 15, 2007. FutureFuel is currently evaluating the effect SFAS No. 159
will have on its consolidated financial position, liquidity, and results of
operations.
21) Restatement of consolidated financial results
On October 31, 2006, FutureFuel acquired Eastman SE. For purposes of preparing
its financial statements, FutureFuel accounted for the acquisition as a reverse
acquisition; FutureFuel did not apply purchase accounting to the transaction.
Upon further review of the accounting for the acquisition of Eastman SE in
connection with the filing of its Form 10 Registration Statement, FutureFuel
reassessed its accounting for the acquisition and determined that FutureFuel's
financial statements should be restated to apply purchase accounting to the
acquisition. The consolidated financial statements of FutureFuel along with the
accompanying notes to the financial statements contained herein reflect this
restatement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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