FF

FutureFuel Corp. 10-K Summary (Fiscal Year Ended Dec 31, 2007)

Business Context and Reporting Period

FutureFuel Corp. (formerly Viceroy Acquisition Corporation) is a Delaware corporation that acquired FutureFuel Chemical Company (formerly Eastman SE, Inc.) on October 31, 2006. The company operates a manufacturing facility in Batesville, Arkansas, producing specialty chemicals and biofuels (primarily biodiesel). The reporting period covers the fiscal year ended December 31, 2007. The company is listed on the Alternative Investment Market (AIM) of the London Stock Exchange.

Key Financial Metrics

Note: 2006 figures represent combined results of FutureFuel Corp. and FutureFuel Chemical Company for comparative purposes, as the acquisition closed in late 2006.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 13% to $169.8 million. Biofuels revenue surged 88% to $25.3 million (15% of total), while Chemicals revenue grew to $144.5 million (85% of total).
• Profitability: Net income increased significantly to $8.4 million, driven by improved gross margins in the chemicals segment and reduced operating expenses following the transition to standalone operations.
• Segment Performance: The biofuels segment reported a gross loss of $9.9 million in 2007, primarily due to $6.9 million in hedging losses related to rising energy prices and a fire in early 2007 that disrupted continuous production. The chemicals segment generated a gross profit of $27.1 million.
• Operational Disruption: A fire in Q1 2007 destroyed centrifuges in the continuous biodiesel line, forcing a shift to less efficient batch production. Insurance claims for business interruption were approved in March 2008.

Guidance, Outlook, and Risks

• Capacity Expansion: The company resumed a project to expand biodiesel capacity by 35 million gallons per year (totaling 59 million gallons), targeting operational status in the second half of 2008. This decision was based on strengthened crude oil prices.
• Strategic Focus: Management intends to transition biodiesel production from batch to continuous processing to reduce costs. The company is also pursuing cellulosic ethanol technology, currently in the R&D stage.
• Key Risks:
  • Customer Concentration: Two customers (Procter & Gamble and Arysta LifeScience) accounted for approximately 63% of 2007 revenues. The P&G contract expires in June 2008.
  • Commodity Volatility: Profitability is highly sensitive to feedstock costs (soybean oil, animal fats) and petrodiesel prices. Hedging activities caused significant volatility in 2007 results.
  • Regulatory Dependence: The biofuels business relies heavily on federal and state tax credits and mandates (e.g., Renewable Fuel Standard), which are subject to legislative change.
  • Internal Controls: The company previously identified material weaknesses in internal controls over financial reporting, which were addressed during the 2006 restatement process.

Investor Verification Checklist

• Verify the renewal status and terms of the supply contract with Procter & Gamble (expires June 2008), which represents a significant portion of revenue.
• Confirm the operational status and timeline of the 35 million gallon biodiesel capacity expansion project.
• Assess the impact of the Q1 2007 fire on current production efficiency and the status of insurance claim payouts.
• Monitor the status of federal biodiesel tax credits and the Renewable Fuel Standard mandates, as these are critical to the biofuels segment's economics.
• Review the company's hedging strategy and exposure to commodity price fluctuations given the significant hedging losses incurred in 2007.