FutureFuel Corp. 10-K Summary (Fiscal Year Ended Dec 31, 2010)
Business Context and Reporting Period
FutureFuel Corp. is a Delaware corporation operating two primary business segments: Chemicals (custom manufacturing and performance chemicals) and Biofuels (biodiesel production and distribution). The company operates a manufacturing facility in Batesville, Arkansas, and a granary in Marianna, Arkansas. The reporting period covers the fiscal year ended December 31, 2010. In early 2011, the company received approval to list its common stock on the New York Stock Exchange (NYSE) under the symbol "FF."
Key Financial Metrics
| Metric | 2010 | 2009 | 2008 |
|---|---|---|---|
| Total Revenues | $219.2 million | $196.7 million | $198.3 million |
| Net Income | $23.1 million | $17.0 million | $22.7 million |
| Gross Profit | $41.3 million | $34.4 million | $40.4 million |
| Operating Cash Flow | $17.8 million | $25.9 million | $36.3 million |
| Total Assets | $343.2 million | $246.0 million | $238.1 million |
| Long-term Obligations | $46.7 million | $34.8 million | $34.4 million |
| Cash & Equivalents | $91.1 million | $65.5 million | $27.5 million |
Segment Performance (2010):
- Chemicals: Revenue of $178.3 million (up 24% from 2009); Gross Margin of $41.4 million.
- Biofuels: Revenue of $40.9 million (down 23% from 2009); Gross Margin of $(0.1) million (loss).
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 11% year-over-year, driven primarily by a 24% increase in the Chemicals segment. This growth was offset by a 23% decline in Biofuels revenue due to lower biodiesel volumes and the expiration of the federal blender's tax credit at the end of 2009.
- Profitability: Net income increased 36% to $23.1 million. This was significantly aided by the retroactive reinstatement of the $1.00 per gallon biodiesel blender's tax credit in December 2010, which resulted in a $10.8 million receivable recorded in Q4 2010.
- Cash Flow: Operating cash flow decreased 31% to $17.8 million. The decline was primarily due to a $13.4 million increase in accounts receivable (largely the uncollected tax credit receivable) and a $10.9 million increase in inventory levels.
- Dividends: The company paid special cash dividends totaling $0.80 per share ($31.1 million) in 2010, compared to $0.30 per share ($8.5 million) in 2009.
Guidance, Outlook, and Risks
Outlook and Strategy: Management intends to continue growing the chemical business through cost control and new product development. For the biofuels segment, the company is debugging a redesigned continuous processing line to handle high fatty acid feedstocks, which are more cost-effective than the low fatty acid feedstocks used previously. Future biodiesel production remains uncertain pending the renewal of the federal tax credit.
Key Risks and Contingencies:
- Tax Credit Expiration: The $1.00 per gallon federal blender's tax credit is scheduled to expire on December 31, 2011. Failure to renew this credit could render biodiesel production unprofitable and materially adversely affect the company.
- Customer Concentration: Two customers (The Procter & Gamble Company and Arysta LifeScience North America Corporation) accounted for approximately 54% of total revenues in 2010. Loss of these contracts would have a material adverse effect.
- Feedstock Availability: Biodiesel production relies on adequate supplies of cost-effective feedstocks (e.g., animal fats, vegetable oils), which are subject to price volatility and supply constraints.
- Legal Proceedings: The company is involved in litigation regarding a defaulted general contractor for a plant construction project and a dispute with a biodiesel trade association regarding fees. The financial impact of these matters is currently undetermined.
Investor Verification Checklist
- Tax Credit Status: Verify the legislative status of the $1.00 per gallon biodiesel blender's tax credit and its renewal prospects beyond December 31, 2011.
- Customer Contracts: Review the terms and expiration dates of supply agreements with Procter & Gamble and Arysta LifeScience to assess revenue stability.
- Biofuels Margin: Analyze the progress of the redesigned high fatty acid processing line and its impact on future gross margins in the biofuels segment.
- Receivables Collection: Confirm the collection of the $10.8 million tax credit receivable recorded in Q4 2010 (noted as collected in February 2011).
- Capital Expenditures: Monitor the $6.6 million committed capital expenditure for two specialty chemical plants and the $12.6 million Department of Energy grant for lithium-ion battery materials.