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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Futuref Regs | LSE:FFU | London | Ordinary Share | COM STK USD0.0001 (REG S) |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 7.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
RNS Number:9570M FutureFuel Corp 01 February 2008 FutureFuel Corp. ("FutureFuel" or the "Company") First Half 2007 Financial Results FutureFuel, through its wholly owned subsidiary FutureFuel Chemical Company ("FutureFuel Chemical"), is a leading producer and marketer of alternative fuels in the United States as well as a specialty chemicals manufacturer. The Company is pleased to present its consolidated financial results for the first half of 2007, including its consolidated balance sheets as of June 30, 2007 and December 31, 2006 and its consolidated statements of operations and statements of cash flows for the six months ended June 30, 2007 and 2006. Notes on the Presentation of Financial Information *On July 21, 2006, Viceroy Acquisition Corporation ("Viceroy"), now known as FutureFuel Corp., 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"), an entity created by Eastman Chemical for purposes of effecting a sale of Eastman Chemical's manufacturing facility in Batesville, Arkansas (the "Batesville Plant"). 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. After purchase price adjustments to date, a price of approximately $71.0 million was paid for the stock of Eastman SE. Immediately subsequent to the acquisition, Viceroy changed its name to FutureFuel Corp. and Eastman SE changed its name to FutureFuel Chemical Company. *For purposes of preparing its financial statements, the Company initially accounted for the acquisition of FutureFuel Chemical as a reverse acquisition and did not apply purchase accounting to the transaction. FutureFuel announced its 2006 preliminary results on April 24, 2007. *The Company filed a registration statement on Form 10 with the U.S. Securities and Exchange Commission ("SEC") on April 24, 2007. The consolidated financial statements included in FutureFuel's April 24, 2007 preliminary results were included in this registration statement. This Form 10 registration statement along with the consolidated financial statements of FutureFuel and the financial statements of Viceroy were subject to review by the SEC. *On July 26, 2007, following a special meeting of the audit committee of the Company's board of directors, and as a result of SEC comments, FutureFuel announced that its previously issued financial statements for 2006 would require restatement to apply purchase accounting to the acquisition of FutureFuel Chemical and should not be relied upon. Trading of FutureFuel's shares on AIM has been suspended since the date of this announcement. On September 25, 2007 the Company further announced that it would not, for the same reasons, be able to publish its interim results for the six months ended June 30, 2007 by September 30 as required under AIM Rules and would release these results as soon as practical. *On December 28, 2007, FutureFuel filed its restated 2006 financial results with AIM. Trading of the Company's shares on AIM has remained suspended pending the release of financial results for the first half of 2007. *On the basis of the release of this announcement it is expected that the trading of the Company's shares on AIM will resume today, January 31, 2008. *As the acquisition of Eastman SE has been accounted for utilizing purchase accounting, the historical financial results of Eastman SE occurring before November 1, 2006 are not included within FutureFuel's historical financial statements. In order to provide a more meaningful presentation of the financial information within this announcement, the financial data presented herein represents the consolidated results of operations and cash flows for the six months ended June 30, 2006 for FutureFuel combined with the results of operations and cash flows of Eastman SE for the same period. The Company's consolidated financial statements and notes thereto, as well as the "carve-out" financial statements of FutureFuel Chemical and notes thereto, are included at the end of this announcement. Below follows the corporate and financial, operational and post period highlights associated with the first half of 2007: Corporate & Financial Highlights *Completed build-out of its information technology, procurement, finance and accounting functions and terminated the Transition Services Agreement that was in place with Eastman Chemical in March 2007, several months earlier than originally planned *Entered into a $50 million credit agreement with Regions Bank in March 2007; the loan is a revolving credit facility, proceeds of which may be used for working capital, capital expenditures and general corporate purposes *Revenues of $79.1 million (2006; $69.8 million) *EBITDA of $2.0 million (2006; $4.5 million) *Cash and cash equivalents of $62.9 million (December 31, 2006; $63.1 million) *Net working capital of $91.8 million (December 31,2006; $97.1 million) *Book value of $162.0 million (December 31, 2006; $161.2 million) Operational Highlights *Experienced increased biodiesel demand during late spring and into summer; operated our continuous production line near capacity during late May and early June *Biodiesel production capacity at June 30, 2007 of 24 million gallons per year; capacity expansion approved during second quarter of 2007 to expand capacity by an additional 35 million gallons per year by the second half of 2008 *Continued progress on construction of core infrastructure expansion projects at FutureFuel Chemical's plant site in Batesville, Arkansas *Addition of methanol recovery and feedstock pretreatment capabilities *Construction of additional on-site storage to support increased movements of feedstocks, methanol, glycerin and biodiesel *Expansion of on-site rail siding and railcar loading and unloading facilities *Addition of off-site storage/thruput in Little Rock, Arkansas, in Memphis, Tennessee, and in Port Allen, Louisiana *Procurement of railcars *Continued steady demand for all specialty and performance chemicals, providing sustainable cash flow generation to support biodiesel capacity and infrastructure expansion capital projects *Successfully passed along selective price increases to recoup higher raw material prices Post-Period Highlights *Reached agreements with several new custom chemical customers on projects that are expected to generate in excess of $10 million combined revenues annually Chairman's Statement The first half of 2007 can best be characterized as a transitional period for FutureFuel. Our management and employees devoted a significant portion of their time and energy towards the build out of corporate functions previously provided by Eastman Chemical Company and even more so towards cost cutting and gains in efficiency. We also implemented the first of a series of organizational changes, all of which were designed to create a flatter, less bureaucratic reporting structure. Our employees have responded well to the transition, bringing energy and enthusiasm to the job of establishing a lean organization that can both remain competitive in existing markets while simultaneously responding quickly to opportunities for growth. Overall the Company performed in line with expectations during the first half of 2007. We experienced light demand from several major customers during the first two months of the year, but by March we began to see strength across the entire business, and by the end of the second quarter this increased demand had mostly offset the weak start to the year. Revenues for the first half of 2007 increased 13% over the same period of 2006, from $69.8 million to $79.1 million. The majority of this increase was attributable to biodiesel, where revenues increased over 200%. Our chemical operations contributed moderately to the revenue gains and performed roughly in line with expectations, posting a 5% revenue increase, from $67.0 million to $70.1 million. In the chemicals segment we solidified our relationships with major long standing customers, ensuring each of these customers understood that the new organization would maintain a focus on the chemical industry. In fact, in most cases we believe these relationships have been improved by the flexibility and fast response our employees are able to provide in our new structure. And encouraging results from change have not been limited to existing customers; we witnessed a resurgence of new specialty chemical projects during the first half of 2007. The biodiesel industry has continued its rapid, and volatile, evolution. Front month heating oil futures increased 25.2% during the first half of 2007 and both diesel and biodiesel prices followed suit. However, feedstock prices tracked these increases closely and production margins remained thin during the period. In fact, the increase in front month soybean oil futures during the first half of 2007 exactly matched the rise in heating oil prices at 25.2%. We continue to see biodiesel gain acceptance in the petroleum industry, and this was particularly true as we entered the summer season. A center point of our biodiesel strategy is to produce as close to capacity as possible year round and utilize our on- and off-site storage to accumulate product during periods of weak demand. This strategy worked well during the first half of 2007. When our new tank farm comes online early in 2008 we will have even more storage capacity and greater flexibility. While FutureFuel has made solid progress in its biodiesel business, the industry as a whole is in turmoil. We believe producers that are limited to soybean oil as feedstock or that are not advantaged on production costs and logistical capabilities will likely be unable to survive through near term volatility. FutureFuel closed the first half of 2007 with $62.9 million in cash and equivalents and as we enter 2008 we will be looking for opportunities to put some of this capital to work, particularly in distressed situations. On a final note, I greatly appreciate the patience of our investor base over the past six months as we worked through the restatement of previously issued financial results. I understand your frustration with the lack of current financial information. I can assure you that we have worked as expeditiously as possible to complete the restatement and that, while the restatement received the utmost priority, we were also careful to ensure that there was no detrimental impact to our underlying business. Paul A. Novelly Chairman Chief Executive Officer's Review General Description of FutureFuel Chemical and Background of the Acquisition FutureFuel Chemical 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 infrastructure, including on-site liquid waste treatment. The plant is staffed by approximately 460 non-union employees. The Batesville Plant was constructed by Eastman Kodak Company in 1977, initially to produce proprietary photographic chemicals. Over the past 30 years the plant's business scope was broadened to include certain specialty chemicals for Eastman Chemical and, after Eastman Chemical split from Eastman Kodak Company in 1994, a more diverse portfolio 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 mid 2005, Eastman Chemical decided that specialty chemicals would no longer be a core business and that it would seek to divest the Batesville Plant. Around this same time, plant management began to actively pursue new businesses in which to focus their manufacturing capabilities. Recognizing that the plant was suited relative to geography and capabilities to manufacture products for the emerging alternative fuels markets, management launched a local biobased products platform in early 2005. With minimal capital expenditures, and using local technical resources, the management team was able to initiate biodiesel batch production in October 2005 at a capacity of 3 million gallons per year. Entry into the biofuels business was accomplished with excess plant capacity and without any reduction in production of specialty chemicals. FutureFuel was organized in late 2005 to pursue business combinations with target businesses engaged in the oil and gas industry. We began discussions with Eastman Chemical in June 2006, at which time the Batesville Plant had commercialized biodiesel and was capable of producing approximately 9 million gallons of biodiesel per year by batch processing. Upon completion of the acquisition of FutureFuel Chemical on October 31, 2006, the plant had increased biodiesel capacity to 24 million gallons per year. Plan of Operation and Growth Strategy for the Company Our strategy in relation to existing operations is to build upon and expand FutureFuel Chemical's biobased products platform, to continue FutureFuel Chemical's chemical manufacturing activities, and to pursue new chemical manufacturing projects utilizing excess capacity at FutureFuel Chemical. In addition, our growth strategy involves the acquisition of complementary businesses using existing cash reserves. At present, our only commercial biobased product is biodiesel. Our current biodiesel capacity is approximately 16 million gallons per year in our continuous line and 8 million gallons per year in our batch plant. We have focused biodiesel production on the continuous line as it is advantaged from a cost perspective; we generally utilize batch production only to meet rapid swings in demand and to test alternative feedstocks, as batch production offers a more controlled manufacturing environment for small volume trials. We initially planned to increase the plant's biodiesel capacity to 40 million gallons per year by May 2007 and to 160 million gallons per year by November 2007, with substantial expenditures on infrastructure to support this increased capacity. After closing the acquisition of FutureFuel Chemical on October 31, 2006, we and, to our knowledge, the industry as a whole, witnessed a rapid erosion in margins for producing biodiesel. As a result of these decreased margins, we determined that it was not in our shareholders' best interest to proceed on an accelerated basis to increase capacity and publicly announced this on January 19, 2007. In the second quarter of 2007, crude oil prices strengthened and, despite corresponding increases in feedstock prices, we judged these and future market conditions to be supportive of biodiesel capacity expansion and therefore resumed a project to expand capacity by 35 million gallons per year (for a total capacity of 59 million gallons per year) through a new continuous processing line, projected to be operational in the second half of 2008. We have also continued with certain core infrastructure expansion projects that we believe will bring efficiency, operational flexibility and cost savings to FutureFuel Chemical's existing biodiesel and chemical business lines. These projects include the addition of methanol recovery and biodiesel feedstock pretreatment, the construction of additional storage at the plant to support increased movements of feedstocks, methanol, glycerin and biodiesel, and the expansion of on-site rail siding and railcar loading and unloading facilities. We expect these projects to be complete early in 2008, with the exception of our methanol recovery project, which we expect to be complete by the third quarter of 2008. In addition, we have acquired a fleet of tanker trucks, procured railcars, and obtained storage/thruput in strategic regional ports. Feedstock and biodiesel prices continue to be extremely volatile. We believe that, to be competitive, a biodiesel producer must (1) be able to purchase and hold large quantities of feedstock, hold large quantities of finished product until prices become attractive, and utilize hedging instruments to reduce risk, (2) be able to produce high quality biodiesel from animal fats, (3) maintain a position among the lowest cost producers in the industry, (4) employ a technical staff capable of identifying and implementing process efficiencies and evaluating alternative feedstocks, and (5) have diversified revenue streams to generate cash flow to support the overall enterprise during periods of extreme weakness. FutureFuel possesses each of these strengths and while we do not expect an immediate favorable up turn in biodiesel demand or economics, we do believe that we will be in an optimum position to capitalize on this up turn when it arrives. Meanwhile we continue to pursue growth of our biofuels segment through the development and commercialization of cellulosic ethanol and other emerging technologies. We have a pending application with the U.S. Department of Energy to fund the construction of a one-tenth scale cellulosic ethanol demonstration plant utilizing the enzymatic hydrolysis process; grant awards are expected beginning in February 2008. We are also evaluating partnerships with technology providers to commercialize the production of cellulosic ethanol utilizing a biomass gasification process. In addition to cellulosic ethanol we are pursuing the conversion of glycerin to propylene glycol, as well as the production of biobased chemicals from cellulosic biomass derived from sugars. While the core of our growth strategy centers on FutureFuel Chemical's biobased products platform, we believe there is also tremendous opportunity to build on FutureFuel Chemical's reputation as a technology-driven, competitive chemical producer. The chemical business comprises two components: "custom manufacturing" (manufacturing chemicals for specific customers); and "performance chemicals" (multi-customer specialty chemicals). Custom manufacturing involves producing unique products for individual customers, generally under long-term contracts. The plant's custom manufacturing product portfolio includes four large products or product families which are generally produced throughout the year: (i) nonanoyloxybenzenesulfonate ("NOBS"), a bleach activator for a major detergent manufacturer; (ii) a proprietary herbicide for a major life sciences company; (iii) chlorinated polyolefin adhesion promoters ("CPOs") for Eastman Chemical Company; and (iv) antioxidant precursors ("DIPBs") for Eastman 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. The performance chemicals product lines 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. We expect to derive growth in the performance chemicals segment primarily as a result of new biobased co-products derived from biofuels manufacturing, such as glycerin and derivatives. We also expect to capitalize on FutureFuel Chemical's market position as one of the largest independent custom chemical manufacturers in North America. FutureFuel Chemical's strong customer relationships, technical capabilities and process improvement capabilities offer us a competitive advantage in securing new contracts for custom chemical production. In fact, during the first half of 2007 FutureFuel Chemical saw a sharp increase in the number and size of new business opportunities. This trend continued during the second half and I am happy to report that by the close of the year FutureFuel Chemical had secured contracts for the manufacture of several new custom products which, in total, will generate revenues in excess of $10 million annually once we reach targeted production. Discussion of Financial Performance Revenues for the six months ended June 30, 2007 were $79.1 million as compared to revenues for the six months ended June 30, 2006 of $69.8 million, an increase of 13%. The increase was primarily a result of increased sales of biodiesel during the first six months of 2007, as well as increased sales of CPOs, DIPBs, polymer modifiers and other chemical products. Revenues from biodiesel were $9.1 million in the first half of 2007, an increase of over 225% versus the same period of 2006. Revenues from CPOs, DIPBs, polymer modifiers and other chemical products increased 31%, 33%, 47% and 22%, respectively, over revenues during the first half of 2006. These increased revenues were partially offset by a 10% reduction in revenues from the proprietary herbicide. Revenues from NOBS decreased less than 1%. The majority of FutureFuel Chemical's expenses are cost of goods sold, which reflect raw material costs as well as fixed and variable conversion costs, conversion costs being those expenses that are directly or indirectly related to operation of FutureFuel Chemical's plant. Significant conversion costs include labor, benefits, energy, supplies and maintenance and repair. Total cost of goods sold and distribution for the first six months of 2007 increased 18% versus the same period of 2006, from $64.4 million to $76.0 million. Cost of goods sold for the chemical business decreased when measured as a percent of chemical revenues, from 87% in the first six months of 2006 to 85% in the same period of 2007. This was offset by significantly increased cost of goods sold related to biofuels as this business utilized a significant portion of the plant's reactors and hence absorbed more of the plant's conversion costs than it was able to cover in revenues. We believe that, as FutureFuel Chemical moves its biodiesel production from primarily batch processing to more continuous processing, it will become more efficient and will produce higher volumes of biodiesel per reactor, hence absorbing fewer overhead costs per gallon produced. Operating expenses decreased from $5.3 million in the six months ended June 30, 2006 to $3.3 million in the same period of 2007, or approximately 38%. This decrease was primarily the result of lower corporate expense allocations from Eastman Chemical, as well at the lower overall operating expenses incurred by FutureFuel on a standalone basis. Operating income in the first six months of 2007 was $(0.2) million, down from $0.1 million in the same period of 2006. Meanwhile, cash provided by (used in) operating activities was $8.3 million in the first six months of 2007 versus $ (1.6) million in the same period of 2006. This increase was primarily attributable to the improved management of working capital accounts. There were no significant other income or expense items during the first half of 2007 or 2006 with the exception of $1.8 million of interest income earned during 2007. Net income for the first half of 2007 was $0.9 million and both basic and diluted earnings per share were $0.03. On February 11, 2007 a fire damaged two centrifuges that are critical to FutureFuel Chemical's continuous biodiesel line as well as some nearby pipes. The plant was shut down for a short period of time as the piping damage was repaired. We did not miss any orders or experience production issues as a result of the fire in our chemical segment. However, our biofuels segment was impacted by the loss of continuous production until late May. During this time we increased batch production to offset lost production in the continuous line. However, the capacity of our batch plant was not sufficient to cover all lost production from the continuous line and production from the batch plant came at a higher cost. We were unable to build as much inventory as we had planned, which negatively impacted sales in the second and third quarters. We have filed property and business interruption claims with our insurance carriers and remain in the process of resolving these claims. With more than $60 million in cash and equivalents, $28.9 million in net working capital (excluding cash) and no outstanding debt, we maintained a high degree of liquidity as of June 30, 2007. Our liquidity and capital resources are further enhanced through a revolving credit facility with a commercial bank. The credit agreement makes up to $50 million available to FutureFuel Chemical for working capital requirements, capital expenditures and other corporate purposes. The credit agreement is secured by specific collateral, including FutureFuel Chemical's accounts receivable and inventory. Advances under the facility bear interest at rates based upon the then current prime rate or based upon the then current London interbank offered rate plus margins ranging from (1.00%) to 1.70%. Additionally, FutureFuel Chemical will pay a commitment fee of 0.25% on any used availability. No borrowings were outstanding as of June 30, 2007. Update on Trading During Second Half of 2007 & Outlook FutureFuel has continued to see strong demand in its chemicals segment during the second half of 2007 and into the first few weeks of 2008. We are producing at near capacity of the equipment that is currently in use and indications from our customers are for steady demand throughout the remainder of 2008. Our biodiesel segment performed well during the second half of 2007, selling all accumulated finished product out of storage tanks in Batesville and North Little Rock. We experienced good demand and pricing and even entered several new markets during the third quarter, before building inventory as we entered the winter season. We are currently completing the final stages of our tank farm construction which will provide enhanced flexibility, increased storage and reduced transportation costs. FutureFuel Chemical has generated sufficient cash to cover all operating needs as well as all capital requirements during the second half of the year. We expect FutureFuel Chemical to generate positive cash flow on a net basis during 2008 as our capital expenditure budget for 2008 is significantly less than during 2007. We continue to evaluate several new opportunities in both of our business segments and hope to have more positive news to reporting during the coming year. Interim Financial Statements The following sets forth our unaudited consolidated balance sheet as at June 30, 2007 and our audited consolidated balance sheet as at December 31, 2006 and the unaudited consolidated statements of operations and cash flows for the six-month periods ended June 30, 2007 and June 30, 2006. FutureFuel Corp. Consolidated Balance Sheets As of June 30, 2007 and December 31, 2006 (Dollars in thousands) --------- --------- (Unaudited) June 30, December31, 2007 2006 --------- --------- Assets Cash and cash equivalents $62,920 $63,129 Accounts receivable, net of allowances of $42 and $42, respectively 21,338 23,903 Inventory 21,707 22,582 Current deferred income tax asset 775 70 Income taxes receivable 853 - Prepaid expenses 587 1,248 Other current assets 741 3,131 --------- --------- Total current assets 108,921 114,063 --------- --------- Property, plant and equipment, net 89,666 82,626 Restricted cash and cash equivalents 3,201 3,127 Intangible assets 491 548 Other assets 3,070 2,765 --------- --------- Total noncurrent assets 96,428 89,066 --------- --------- Total Assets $205,349 $203,129 ========= ========= Liabilities and Stockholders' Equity Accounts payabe $14,566 $12,945 Accounts payable - related parties 181 112 Income taxes payable - 1,916 Short term contingent consideration 225 191 Accrued expenses and other current liabilities 2,140 1,717 Accrued expenses and other current liabilities - related parties - 40 --------- --------- Total current liabilities 17,112 16,921 --------- --------- Long term contingent consideration 2,075 2,168 Other noncurrent liabilities 1,115 914 Noncurrent deferred income taxes 23,024 21,970 --------- --------- Total noncurrent liabilities 26,214 25,052 --------- --------- Total Liabilities 43,326 41,973 --------- --------- 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, 26,700,000 issued and outstanding 3 3 Additional paid in capital 158,436 158,436 Retained earnings 3,584 2,717 --------- --------- Total stockholders' equity 162,023 161,156 --------- --------- Total Liabilities and Stockholders' Equity $205,349 $203,129 ========= ========= The accompanying notes are an integral part of these financial statements. FutureFuel Corp. Consolidated Statements of Operations For the Six Months Ended June 30, 2007 and 2006 (Dollars in thousands, except per share amounts) (Unaudited) Six Months Ended June 30, ---------------------- 2007 2006 --------- --------- Revenues 79,087 - Revenues - related parties 40 - Cost of goods sold 75,150 - Cost of goods sold - related parties 83 - Distribution 760 - --------- --------- Gross profit 3,134 - --------- --------- Selling, general and administrative expenses 1,540 303 Selling, general and administrative expenses - related parties 83 - Research and development expenses 1,669 - --------- --------- Loss from operations (158) (303) --------- --------- Interest income 1,819 5 Interest expense (13) - Gain on foreign currency 5 - Other expense (68) (2) --------- --------- 1,743 3 --------- --------- Income (loss) before income taxes 1,585 (300) Provision (benefit) for income taxes 718 (113) --------- --------- Net income (loss) $867 $(187) ========= ========= Earnings (loss) per common share Basic $0.03 $(0.01) Diluted $0.03 $(0.01) Weighted average shares outstanding Basic 26,700,000 26,700,000 Diluted 32,037,968 26,700,000 The accompanying notes are an integral part of these financial statements FutureFuel Corp. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2007 and 2006 (Dollars in thousands) (Unaudited) Six Months Ended June 30, ------------------ 2007 2006 --------- --------- Cash flows provide by (used in) operating activities Net income (loss) $7 $(187) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,127 - Provision (benefit) for deferred income taxes 349 - Change in fair value of derivative instruments 946 - Losses on disposals of fixed assets 112 - Noncash interest expense 11 - Changes in operating assets and liabilities: Accounts receivable 2,565 - Inventory 1,508 - Income taxes receivable (853) - Prepaid expenses 661 - Other assets (305) 94 Accounts payable 1,623 2 Accounts payable - related parties 68 - Income taxes payable (1,916) - Accrued expenses and other current liabilities 423 - Accrued expenses and other current liabilities - related parties (40) - Other noncurrent liabilities 190 - --------- --------- Net cash provided by (used in) operating activities 8,336 (91) --------- --------- Cash flows provided by (used in) investing activities Restricted cash (74) - Collateralization of derivative instruments 1,444 - Contingent purchase price payment (59) - Capital expenditures (9,806) - --------- --------- Net cash provided by (used in) investing activities (8,495) - --------- --------- Cash flows provided by (used in) financing activities Financing fee (50) - Proceeds from long term debt - related parties - 500 --------- --------- Net cash provided by (used in) financing activities (50) 500 --------- --------- Net change in cash and cash equivalents (209) 409 Cash and cash equivalents at beginning of period 63,129 28 --------- --------- Cash and cash equivalents at end of period $62,920 $437 ========= ========= Cash paid for interest $3 $- ========= ========= Cash paid for taxes $1,612 $- ========= ========= The accompanying notes are an integral part of these financial statements. Notes to Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) (Unaudited) 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. The accompanying consolidated financial statements have been prepared by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel's 2006 audited financial statements and should be read in conjunction with the 2006 audited consolidated financial statements of FutureFuel. Certain prior year balances have been reclassified to conform with the current year presentation. In the opinion of FutureFuel, all normal recurring adjustments necessary for a fair presentation have been included in the unaudited consolidated financial statements. The unaudited consolidated financial statements are presented in conformity with generally accepted accounting principles ("GAAP") in the United States and, of necessity, include some amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues and expenses of FutureFuel and its wholly owned subsidiary, FutureFuel Chemical. Intercompany transactions and balances have been eliminated in consolidation. 2) Inventories The carrying values of inventory were as follows as of: --------- --------- June 30, December 31, 2007 2006 --------- --------- At first-in, first-out or average cost (approximates current cost) Finished goods $8,961 $7,943 Work-in-process 1,848 1,750 Raw materials and supplies 11,576 12,894 --------- --------- 22,385 22,587 LIFO reserve (678) (5) --------- --------- Total inventories $21,707 $22,582 ========= ========= 3) Derivative instruments The volumes and carrying values of FutureFuel's derivative instruments were as follows at: Asset/(Liability) -------------------------------------------------------- June 30, 2007 December 31, 2006 -------------------------------------------------------- Quantity Fair Quantity Fair (000 bbls) Market (000 bbls) Market Long/(Short) Value Long/(Short) Value -------------- ---------------------- ----------- Regulated fixed price future commitments, included in other current assets - $(1,265) (250) $(28) Regulated options, included in other current assets (50) $(128) (100) $(419) The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $2,134 and $3,578 at June 30, 2007 and December 31, 2006, 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. 4) Accrued expenses and other current liabilities Accrued expenses and other current liabilities, including those associated with related parties, consisted of the following at: --------- --------- June 30, December 31, 2007 2006 --------- --------- Accrued employee liabilities $843 $773 Accrued property, use and franchise taxes 1,126 373 Accrued professional fees 140 340 Amounts collected on behalf of Eastman Chemical 20 178 Other 11 93 --------- --------- $ 2,140 $1,757 ========= ========= 5) 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 the following margins over the London Interbank Offered Rate ("LIBOR") or base rate based upon the leverage ratio from time to time. --------- --------- --------- Leverage Base Rate LIBOR Ratio Margin 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 debt to EBITDA 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. As of June 30, 2007 no borrowings were outstanding under this credit facility. 6) Provision for income taxes For the six months ended June 30, --------------------------------- 2007 2006 -------- --------- Provision (benefit) for income taxes $718 $(113) Effective tax rate 45.3% 37.7% The effective tax rates for the six months ended June 30, 2007 and 2006 reflect FutureFuel's expected tax rate on reported operating earnings before income tax. FutureFuel adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretations No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48") on January 1, 2007. FutureFuel does not and has not possessed a liability for unrecognized tax benefits, and, as a result, did not recognize any change in this liability as a result of the implementation of FIN 48. FutureFuel records interest and penalties net as a component of income tax expense. As of June 30, 2007, FutureFuel had no accrual for interest or tax penalties. FutureFuel and its subsidiary, FutureFuel Chemical, 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 2005 forward. FutureFuel Chemical is subject to the effects of tax examinations that impact the carry-over basis of its assets and liabilities. FutureFuel Chemical's carry-over basis of its assets and liabilities are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2004. 7) Earnings per share The computation of basic and diluted earnings per common share was as follows: For the six months ended June 30, --------------------------------- 2007 2006 -------- -------- Net income (loss) available to common stockholders $ 867 $ (187) Weighted average number of common shares outstanding 26,700,000 26,700,000 Effect of warrants 5,337,968 - Weighted average diluted number of common shares outstanding 32,037,968 26,700,000 Basic earnings per share $ 0.03 $ (0.01) Diluted earnings per share $ 0.03 $ (0.01) Warrants to purchase 22,500,000 common shares of FutureFuel were not included in the computation of diluted earnings per share for the six months ended June 30, 2007 as FutureFuel reported a net loss for the period and the inclusion of those securities in the computation would have been antidilutive. 8) Segment information FutureFuel has determined that is has two reportable segments organized along product lines - chemicals and biofuels. Chemicals FutureFuel's chemicals segment manufactures diversified chemical products that are sold externally to third party customers and to Eastman Chemical. 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 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 six months ended June 30 attributable to the United States and foreign countries (based upon the billing addresses of its customers) were as follows: ------------------- -------------- -------------- --------- Six Months Ended United States All Foreign Total Countries ------------------- -------------- -------------- --------- June 30, 2007 $68,182 $10,945 $ 79,127 June 30, 2006 $0 $0 $0 Beginning in 2005, FutureFuel Chemical Company began invoicing Procter & Gamble International Operations Mexico, D.F. directly, at which time revenues from Mexico became a material component of total revenues. Revenues from Mexico account for 11% of total revenues for the six months ended June 30, 2007. Other than Mexico, revenues from a single foreign country during the six months ended June 30, 2007 did not exceed 3% of total revenues. Summary of business by segment For the six months ended June 30, ------------------------------------ 2007 2006 -------- -------- Revenues Chemicals $70,069 $- Biofuels 9,058 - -------- -------- Revenues $79,127 - ======== ======== Segmented gross margins Chemicals $10,721 $- Biofuels (7,587) - -------- -------- Segmented gross margins 3,134 - Corporate expenses (3,292) (303) -------- -------- Income (loss) before interest and taxes (158) (303) Interest income 1,819 5 Interest and other expenses (76) (2) (Provision) benefit for income taxes (718) 113 -------- -------- Net income (loss) $867 $(187) ======== ======== 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. 9) 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. Interim Financial Statements The following sets forth Eastman SE's unaudited statement of operations for the six-month period ended June 30, 2006 and the unaudited statement of cash flows for the six-month period ended June 30, 2006. FutureFuel Chemical Company, formerly known as Eastman SE, Inc. Statement of Operations For the Six Months Ended June 30, 2006 (Dollars in thousands, except per share amounts) (Unaudited) Six Months Ended June 30, 2006 ------------------------------- Revenues $59,515 Revenues - related parties 10,265 Cost of goods sold 53,542 Cost of goods sold - related parties 10,265 Distribution 611 ---------- Gross profit 5,362 ---------- Selling, general and administrative expenses 2,973 Research and development expenses 2,047 ---------- Income (loss) from operations 342 ---------- Other expense - ---------- - ---------- Income (loss) before income taxes 342 Provision (benefit) for income taxes 82 ---------- Net income (loss) $260 ========== The accompanying notes are an integral part of these financial statements. FutureFuel Chemical Company, formerly known as Eastman SE, Inc. Statement of Cash Flows For the Six Months Ended June 30, 2006 (Dollars in thousands) (Unaudited) Six Months Ended June 30, 2006 ------------------------------ Cash flows provide by (used in) operating activities Net income $260 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 4,482 Provision (benefit) for deferred income taxes 367 Losses on disposals of fixed assets 131 Changes in operating assets and liabilities: Accounts receivable (361) Inventory (2,845) Prepaid expenses (25) Other assets (67) Accounts payable (2,792) Accrued expenses and other current liabilities (1,248) Other noncurrent liabilities 624 ---------- Net cash provided by (used in) operating activities (1,474) ---------- Cash flows provided by (used in) investing activities Capital expenditures (4,404) ---------- Net cash provided by (used in) investing activities (4,404) ---------- Cash flows provided by (used in) financing activities Transfer to parent, net 5,878 ---------- Net cash provided by (used in) financing activities 5,878 ---------- Net change in cash and cash equivalents - Cash and cash equivalents at beginning of period - ---------- Cash and cash equivalents at end of period $- ========== The accompanying notes are an integral part of these financial statements. Notes to Financial Statements of FutureFuel Chemical Company, formerly known as Eastman SE, Inc. (Dollars in thousands, except per share amounts) (Unaudited) 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. The accompanying financial statements have been prepared by Eastman SE in accordance and consistent with the accounting policies stated in Eastman SE's 2006 audited financial statements and should be read in conjunction with the audited financial statements of Eastman SE. In the opinion of Eastman SE, all normal recurring adjustments necessary for a fair presentation have been included in the unaudited financial statements. The unaudited financial statements are presented in conformity with generally accepted accounting principles ("GAAP") in the United States and, of necessity, include some amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. Corporate Allocations The financial statements prior to October 31, 2006 include allocations of certain corporate services provided by Eastman Chemical's management, including finance, legal, information systems, human resources and distribution. Eastman Chemical has utilized its experience with the business of the Batesville Plant and its judgment in allocating such corporate services and other support to the periods prior to October 31, 2006. Costs allocated for such services were: Six Months Ended June 30, 2006 ------------------------------ Distribution $260 Selling, general and administrative 2,476 Research and development 261 ---------- Total cost and expenses allocated $2,997 ========== Allocations were made to distribution and selling, general and administrative expenses primarily based on a percentage of revenues and allocations to research and development were made primarily on actual time and effort incurred, which management believes represent reasonable allocation methodologies. These allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted if Eastman SE had been operating as a separate entity. 2) Provision for income taxes Six Months Ended June 30, 2006 ------------------------------ Provision for income taxes $82 Effective tax rate 24.0% The effective tax rate for the six-month period ended June 30, 2006 reflects Eastman SE's expected tax rate on reported operating earnings before income tax. 3) Segment information Eastman SE has determined that is has two reportable segments organized along product lines - chemicals and biofuels. Chemicals Eastman SE's chemicals segment manufactures diversified chemical products that are sold externally to third party customers and to Eastman Chemical. This segment comprises two components: "custom manufacturing" (manufacturing chemicals for specific customers); and "performance chemicals" (multi-customer specialty chemicals). Biofuels Eastman SE's biofuels business segment manufactures and markets biodiesel. Biodiesel revenues are generally derived in one of two ways. Revenues are generated under tolling agreements whereby customers supply key biodiesel feed stocks which Eastman SE 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 Eastman SE'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 revenues by geographic area Most of Eastman SE'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 Eastman SE'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 Eastman SE to the customer. Rarely is Eastman SE the exporter of record, never is Eastman SE the importer of record into foreign countries and Eastman SE is not always aware of the exact quantities of its products that are moved into foreign markets by its customers. Eastman SE 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. Eastman SE's revenues for the six months ended June 30, 2006 attributable to the United States and foreign countries (based upon the billing addresses of its customers) were as follows: --------------------------- -------------- -------------- --------- Period ended June 30, 2006 United States All Foreign Total Countries --------------------------- -------------- -------------- --------- Six months $59,673 $10,107 $69,780 Beginning in 2005, Eastman SE Company began invoicing Procter & Gamble International Operations Mexico, D.F. directly, at which time revenues from Mexico became a material component of total revenues. Revenues from Mexico account for 13% of total revenues for the six months ended June 30, 2006. Other than Mexico, revenues from a single foreign country during the six months ended June 30, 2006 did not exceed 3% of total revenues. Summary of business by segment Six Months Ended June 30, 2006 ------------------------------ Revenues Chemicals $67,039 Biofuels 2,740 ---------- Revenues $69,780 ========== Segmented gross margins Chemicals $8,491 Biofuels (3,129) ---------- Segmented gross margins 5,362 Corporate expenses (5,020) ---------- Income (loss) before taxes 342 (Provision) benefit for income taxes (82) ---------- Net income (loss) $260 ========== Depreciation is allocated to segment costs of goods sold based on plant usage. The total assets and capital expenditures of Eastman SE 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. Enquiries: Lee Mikles, CEO FutureFuel 001 805 565 9800 Daniel Harris, KBC Peel Hunt Ltd (Nominated Advisor) 0044 207 418 8900 This information is provided by RNS The company news service from the London Stock Exchange END IR BBMMTMMAJBAP
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