# To Our Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_FF_2018/NYSE_FF_2018.mmd` · pages 2-8_

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To Our Shareholders

FutureFuel Corp. gained strength in 2018 as we worked closely with our chemical customers to take advantage of strong demand in both the energy and agrochemical markets. We also benefited in February of 2018 from a fourteen-month belated retroactive reinstatement of the of the Blenders' Tax Credit (BTC) on the biodiesel we produced in 2017. The government has yet to reinstate the BTC beyond 2017, despite the fact that we, as many others in the biodiesel industry, have invested significant resources with the expectation that the incentive would exist. Our 2018 pre-tax earnings would have been \(31.3 million more with the BTC in place. Without the BTC in place, the ability to make a profit on biodiesel is significantly diminished. This also negatively affects the agricultural industry, as it denies farmers access to expanded markets for their commodities. Though the uncertainty on the reinstatement of the BTC creates a challenge for the biodiesel industry, our focus remains on efficiency and reliability to maximize profits when possible.

## 2018 Financial Highlights

(all comparisons are with the year ended December 31, 2017)

• Revenues were \(291.0 million, up 5.8% from \)275.0 million

• Adjusted EBITDA was \(74.0 million, up 180.5% from \)26.4 million

• Net income increased to \(53.2 million, or \)1.22 per diluted share, from \(23.5 million, or \)0.54 per diluted share.

At \(117.1 million, Chemical sales revenue increased 11.1% or \)11.7 million in 2018 compared with 2017. This increase was primarily attributed to increased sales volumes in the agrochemical and energy markets, new customer product sales, and increased amortization of deferred revenue (which was presented as a price variance). This increase was partially offset by reduced sales volumes and price of our laundry detergent additive. Performance chemicals revenue (comprised of multi-customer products which are sold based on specification) was \(19.4 million in 2018, an increase of \)1.9 million from 2017. This increase was primarily from a stronger glycerin market absent the Argentinian imports that impeded U.S. demand in 2017.

Gross profit for the chemicals segment was \(34.0 million, an increase of 21.3% or \)6.0 million in 2018 compared with 2017. This increase resulted from improved profits from higher volumes in the agrochemical and energy markets and the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. The change in LIFO reduced gross profit in both 2018 and 2017, however, the reduction in 2017 was greater. Gross profit was partially reduced by the impact of lower sales volumes and sales prices of the laundry detergent additive.

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Biofuels sales revenue was \(173.9 million, an increase of 2.5% or \)4.3 million in 2018 compared to 2017, primarily from increased sales prices of biodiesel and biodiesel blends. The fuel industry experienced favorable prices in 2018 versus 2017, however, this favorable price increase was mostly offset by the effect of the retroactive reinstatement of the 2017 BTC which reduced revenue \(13.6 million. Additionally, offsetting this price increase was reduced common carrier pipeline sales. Pipeline sales totaled \)0.5 million compared to $2.2 million in 2017.

Biofuels gross profit of \(39.4 million increased \)47.2 million in 2018 compared to a loss position in 2017. Cost of goods sold decreased largely as a result of the 2017 BTC which was retroactively reinstated on February 9, 2018. The BTC has not been reinstated beyond December 31, 2017. Gross profit was also benefited by the change in adjustments in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. The LIFO reserve for the biofuel segment increased in both 2018 and 2017, however, the increase in 2017 was greater resulting in an increase to gross profit for 2018. Additional benefit to gross profit was the change in the realized and unrealized activity of derivative instruments in comparison to the prior year with a gain of \(633 in 2018 and a loss of \)3,844 in 2017.

FutureFuel reported net income of \(53.2 million, or \)1.22 per diluted share, for 2018, compared with net income of \(23.5 million, or \)0.54 per diluted share in 2017. Adjusted EBITDA for 2018 totaled \(73.9 million, up from \)26.4 million in 2017. A one-time tax benefit of \(12.1 million was recognized in 2017 resulting from the enactment of The Tax Cuts and Jobs Act of 2017. This benefit was due to an anticipated lower tax rate for future reversals of deferred tax liabilities. Reducing net income was an uncertain tax position taken in the fourth quarter of \)3.2 million, inclusive of interest expense.

Our balance sheet remains strong, with cash and cash equivalents and marketable securities totaling \(294.9 million as of December 31, 2018, compared with \)235.3 million as of December 31, 2017. In 2018, we paid regular cash dividends aggregating $0.24 per share and totaling $10.5 million.

We will continue to add value to our Company at every opportunity. Thank you for your continued support.

![](images/3_0.jpg)

Paul A. Novelly

Chairman of the Board and Chief Executive Officer