# To Our Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_FF_2019/NYSE_FF_2019.mmd` · pages 2-8_

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To Our Shareholders

FutureFuel Corp. ended 2019 with a strong position in our biofuel segment. On December 20, 2019, the biodiesel "Blenders' Tax Credit" (BTC) was reinstated retroactively from its expiration on January 1, 2018, through December 31, 2022. This credit provides a \(1.00/gallon tax credit for biodiesel and biodiesel mixtures and its absence for nearly two years had a detrimental effect on the profitability of the biodiesel manufacturing industry. Prior to the reinstatement of the BTC, margins were challenged throughout 2019 and as a result, our production volumes were down by more than 10 million gallons year on year. Subsequent to the reinstatement, the Company recorded a gross profit from the BTC of \)57.9 million, comprised of \(26.6 million and \)31.3 million for 2019 and 2018, respectively. Knowing that the credit is now in place until the end of 2022 will allow us to further develop both our biodiesel and chemical segments with greater confidence and certainty in the years ahead.

## 2019 Financial Highlights

(all comparisons are with the year ended December 31, 2018)

• Revenues were \(205.2 million, down 29.5% from \)291.0 million

• Adjusted EBITDA was \(78.7 million, up 6.1% from \)74.2 million

• Net income increased to \(88.2 million, or \)2.02 per diluted share, from \(53.2 million, or \)1.22 per diluted share

Chemical sales revenue decreased 11% or \(12.3 million in 2019 compared with 2018. Sales revenue for our custom chemicals product line (chemicals produced for specific customers) totaled \)91.0 million, a decrease of \(6.8 million from 2018. This decrease was primarily attributed to decreased sales volumes in the agrochemical and energy markets and reduced sales volumes of our laundry detergent additive. Performance chemicals revenue (comprised of multi-customer products which are sold based on specification) was \)13.9 million in 2019, a decrease of \(5.5 million from 2018. This decrease resulted from reduced sales volumes of our polymer modifier and reduced selling price and volume of glycerin, which is directly related to our production of biodiesel.

Gross profit for the chemicals segment was \(29.9 million, a decrease of 12% or \)4.1 million in 2019 compared with 2018. This decrease resulted from lower sales volumes in the consumer product, agrochemical and energy markets and polymer modifier and glycerin. Partially offsetting the decrease was the change in adjustments in the carrying value of our inventory as determined using the LIFO method of inventory accounting resulting primarily from deflation experienced in 2019 and inflation experienced in 2018. The change in LIFO increased gross profit in 2019 by \(0.8 million and reduced gross profit by \)0.4 million in 2018.

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Biofuels sales revenue was \(100.3 million, a decrease of 42% or \)73.5 million in 2019 compared to 2018. Said decrease was primarily from decreased sales volumes of biodiesel and biodiesel blends given the challenging market without the BTC in effect and the increased number of RIN waivers granted. Biofuels revenue was also reduced by the recognition of rebates (shown as a price effect) owed to customers of \(39.4 million in 2019 as compared to \)13.6 million in 2018 (see Note 3 of our 2019 consolidated financial statements for further information). Additionally, a slight reduction in common carrier pipeline sales reduced revenue, \(0.4 million in 2019 compared to \)0.5 million in 2018.

Biofuels gross profit increased \(4.8 million in 2019 compared to 2018. Cost of goods sold decreased largely as a result of the 2018 and 2019 BTC (which was retroactively reinstated on December 20, 2019) in 2019 compared to 2018, when the 2017 BTC was retroactively reinstated on February 9, 2018. See Note 3 of our consolidated financial statements for additional discussion. Gross profit also benefited from the change in adjustments in the carrying value of our inventory as determined using the LIFO method of inventory accounting. The LIFO reserve for the biofuel segment decreased \)1.7 million in 2019 and increased \(1.8 million in 2018. Gross profit was reduced by the change in the realized and unrealized activity of derivative instruments in comparison to the prior year with a loss of \)1.3 million in 2019 and a gain of $0.6 million in 2018.

Our Company's balance sheet remained strong at year end, cash and cash equivalents and marketable securities totaled \(317.0 million as of December 31, 2019, compared with \)294.9 million as of December 31, 2018. On March 23, 2020, we declared a special cash dividend of \(3.00 per share on our common stock resulting in a total amount of \)131,230, which was paid on April 17, 2020. As I write this letter in June 2020 in the midst of the COVID-19 pandemic, this strength and stability has served FutureFuel Corp. well in navigating an uncertain and turbulent market.

Thank you for your continued support.

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Paul A. Novelly

Chairman of the Board and Chief Executive Officer

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