UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35397
______________________________________
RENEWABLE ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
416 South Bell Avenue, Ames, Iowa
(Address of principal executive offices)
26-4785427
(I.R.S. Employer
Identification No.)
50010
(Zip Code)
Registrant’s telephone number, including area code: (515) 239-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, par value $.0001 per share
Name of each exchange on which registered:
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
______________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
¨
Accelerated filer
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of June 30, 2014, the aggregate market value of Common Stock held by non-affiliates was $376,856,000.
As of February 27, 2015, 44,422,881 shares of Common Stock of the registrant were issued and outstanding.
¨ (Do not check if a smaller reporting company)
Smaller reporting company
x
¨
______________________________________
Documents Incorporated By Reference
All or a portion of Items 10 through 14 in Part III of this Form 10-K are incorporated by reference to the Registrant’s definitive proxy
statement on Schedule 14A, which will be filed within 120 days after the close of the fiscal year covered by this report on Form 10-K, or if
the Registrant’s Schedule 14A is not filed within such period, will be included in an amendment to this Report on Form 10-K which will be
filed within such 120 day period.
Table of Contents
TABLE OF CONTENTS
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Page
1
10
25
25
25
25
26
28
28
51
54
91
91
91
92
92
92
92
92
93
Table of Contents
PART I
Cautionary Statement Regarding Forward-Looking Information
This annual report on Form 10-K contains, in addition to historical information, certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this prospectus,
including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future
operations, are forward-looking statements. The words “believe,” “may,” “will,” “would,” “might,” “could,” “estimate,” “continue,”
“anticipate,” “design,” “intend,” “plan,” “seek,” “potential,” “expect” and similar expressions are intended to identify forward-looking
statements. We have based these forward-looking statements largely on our current expectations and projections about future events and
trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and
objectives, and financial needs. Forward-looking statements include, but are not limited to, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our financial performance, including revenues, cost of revenues and operating
expenses;
government programs, policymaking and mandates relating to renewable
fuels;
the availability, future price and volatility of
feedstocks;
the future price and volatility of
petroleum;
our liquidity and working capital
requirements;
anticipated trends and challenges in our business and competition in the markets in which we
operate;
our ability to successfully implement our acquisition strategy and integration
strategy;
progressing facilities currently under development to the construction and operational stages, including planned capital
expenditures and our ability to obtain financing for such construction;
our ability to protect proprietary technology and trade
secrets;
the development of competing alternative fuels and energy
services;
our risk management
activities;
product performance, in cold weather or
otherwise;
seasonal fluctuations in our
business;
our current products as well as products we are
developing;
critical accounting policies and estimates, the impact or anticipated impact of recent accounting pronouncements, guidance or
changes in accounting principles and future recognition of impairments for the fair value of assets, including goodwill,
financial instruments, intangible assets and other assets acquired; and
assumptions underlying or relating to any of the
foregoing.
These statements reflect current views with respect to future events and are based on assumptions and subject to risks and uncertainties. We
note that a variety of factors could cause actual results and experience to differ materially from the anticipated results or expectations
expressed in our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking
statements. Forward-looking statements are also subject to risks and uncertainties that could cause actual results to differ materially from
those expected. These risks and uncertainties include, but are not limited to, those risks discussed in Item 1A of this report.
Forward-looking statements contained in this report present management’s views only as of the date of this report. We undertake no
obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects in our 10-Q and 8-K reports filed with the Securities and
Exchange Commission.
ITEM 1.
Business
General
We are a leading producer of advanced biofuels and are expanding into production of renewable chemicals. We are currently the largest
producer of biomass-based diesel in the United States. We participate in each aspect of biomass-based diesel production, from acquiring
feedstock, managing construction and operating biomass-based diesel production facilities to
1
Table of Contents
marketing, selling and distributing biomass-based diesel and its co-products. During 2014, we sold 287 million gallons of biomass-based
diesel and had total revenues of $1.3 billion.
We operate a network of nine biomass-based diesel plants, with an aggregate nameplate production capacity of 332 million gallons per
year, or mmgy, and one fermentation facility. We believe our fully integrated approach, which includes acquiring feedstock, managing
biorefinery facility construction and upgrades, operating biorefineries, marketing renewable products and distributing through a network of
terminals, positions us to capitalize on growing demand for biomass-based diesel, renewable chemicals, other advanced biofuels along with
other products and services.
We are a lower-cost biomass-based diesel producer. We primarily produce our biomass-based diesel from a wide variety of lower cost
feedstocks, including inedible corn oil, used cooking oil and inedible animal fat. We also produce biomass-based diesel from virgin
vegetable oils, which are more widely available and tend to be higher in price. We believe our ability to process a wide variety of
feedstocks provides us with a cost advantage over many biomass-based diesel producers, particularly those that rely primarily on higher
cost virgin vegetable oils, such as soybean oil or canola oil.
In January 2014, we acquired substantially all of the assets and certain liabilities of LS9, Inc., or LS9, as part of our strategy to expand into
the production of renewable chemicals, additional advanced biofuels and other products. REG Life Sciences, formerly LS9, is a research
and development stage company focused on harnessing the power of microbial fermentation to develop and produce renewable chemicals,
fuels and other products. The assets acquired consist mainly of in-process research and development, intellectual property and fixed assets.
We are currently focused on developing a series of specialty chemicals.
We expanded our selling of petroleum-based heating oil and diesel fuel in February 2014. We sell heating oil and ultra-low sulfur diesel, or
ULSD, at terminals throughout the northeastern U.S. as well as BioHeat® blended heating fuel at one of our existing terminal locations.
We are expanding our sales of additional biofuel blends to Minnesota and Iowa terminal location and potentially in other locations across
North America.
In June 2014, we expanded into the renewable hydrocarbon diesel business through our acquisition of a 75 mmgy nameplate renewable
hydrocarbon diesel biorefinery located in Geismar, Louisiana. Our Geismar facility had been idled by its previous owners and began
operating again by us in October 2014 after our completion of certain upgrades.
We expanded our business to Europe in December 2014 by acquiring a majority interest in Petrotec AG, or Petrotec. Petrotec is a fully-
integrated biodiesel company and produces biodiesel at its two biorefineries in Emden and Oeding, Germany. Petrotec’s nameplate
production capacity is approximately 56 million gallons (185,000 metric tons or MT) per year.
Plant Network
2
Table of Contents
Our production network consists of the following facilities:
Property
Completed
Ralston, Iowa
Albert Lea, Minnesota
Newton, Iowa 2
Seabrook, Texas
Danville, Illinois
Seneca, Illinois
New Boston, Texas
Ellenwood, Georgia 3
Mason City, Iowa 4
Geismar, Louisiana 5
Okeechobee 6
Partially Constructed
St. Rose, Louisiana
Emporia, Kansas
Clovis, New Mexico
Nameplate
Production
Capacity1
Production
Capacity
for Current
Feedstock
Mix
REG
Operations
Commenced
12
30
30
35
45
60
15
15
30
75
n/a
60
60
15
12
30
24
33
37
55
12
n/a
30
75
n/a
n/a
n/a
n/a
2003
2006
2007
2008
2009
2010
2013
n/a
2013
2014
2014
% Complete
~45%
~20%
~50%
Feedstock Capability
Refined Oils and Fats
Crude, High FFA and Refined Oils
and Fats
Crude, High FFA and Refined
Oils and Fats
Refined Oils and Fats
Crude, High FFA and Refined
Oils and Fats
Crude, High FFA and Refined
Oils and Fats
Crude, High FFA and Refined
Oils and Fats
Refined Oils and Fats
Crude, High FFA and Refined
Oils and Fats
Crude, High FFA and Refined
Oils and Fats
n/a
Crude, High FFA and Refined
Oils and Fats
Crude, High FFA and Refined
Oils and Fats
Crude, High FFA and Refined
Oils and Fats
1
2
3
4
5
6
The nameplate capacity listed above is based on soybean
oil.
The $15.8 million upgrade and storage expansion to this facility to produce biomass-based diesel using crude and high FFA oils
and fats was completed on budget in December 2014.
Idled by prior owner at time of our purchase and remained idled pending repairs or upgrades. We have not yet set a production
date.
The $20 million upgrade to this facility to produce biomass-based diesel using crude and high FFA oils and fats was completed on
budget in October 2014.
Idled by prior owner at time of our purchase and began operating by us in October
2014.
Okeechobee is a demo-scale microbial fermentation facility for the development and production of renewable chemicals, fuels and
other products.
Petrotec's production network consists of the following facilities:
Property
Completed
Emden, Germany
Oeding, Germany
Nameplate
Production
Capacity
30
25.5
Production
Capacity
for Current
Feedstock
Mix
30
25.5
3
Operations
Commenced
Feedstock Capability
2008
2001
Crude, High FFA and Refined
Oils and Fats
Crude, High FFA and Refined
Oils and Fats
Table of Contents
In addition to the production facilities and fermentation facility listed above, we also maintain a testing laboratory at our corporate
headquarters in Ames, Iowa. The testing laboratory allows us to test various feedstocks for conversion into biomass-based diesel, as well as
various manufacturing processes available in the production of biomass-based diesel. Our industrial biotechnology research and
development activities are conducted in South San Francisco to allow us to expand into the production of renewable chemicals, advanced
biofuels and other products.
Our Feedstocks and Other Inputs
Our ability to use a wide range of feedstocks gives us the flexibility to quickly respond to changes in feedstock pricing to maintain our
feedstock cost advantage. We have the ability to rapidly change our processing techniques to accommodate different feedstocks and
feedstock mixes. In 2014, approximately 85% of our total feedstock usage was lower cost inedible corn oil, used cooking oil or inedible
animal fat feedstock and 15% was from refined vegetable oils, such as soybean oil or canola oil.
We procure our feedstocks from numerous vendors in small to medium quantities. There is no established futures market for lower cost
feedstocks. Inedible corn oil and used cooking oil can be purchased in nearby forward positions of three to twelve months on fixed priced
contracts or sometimes indexed to the New York Mercantile Exchange, or NYMEX, heating oil index. We generally purchase inedible
animal fats on a freight delivered basis and purchase in one to four week forward positions. We maintain both long-term contractual
arrangements and long-term trading relationships with key feedstock suppliers, which we believe provides us with an advantage. Some of
these relationships are with our investors, such as West Central. Soybean oil can be purchased on a spot or forward contract basis from a
number of suppliers.
We work with developers of next generation feedstocks, such as algae and camelina, to assist them in bringing these new feedstocks to
market. We have converted several of these feedstocks, as well as other second generation feedstocks, into high quality biomass-based
diesel in our laboratory and production facilities. We believe we are well positioned to incorporate these new feedstocks into our
production process as they become commercially available.
We procure methanol, chemical catalysts such as sodium methylate and hydrochloric acid, under fixed-price contracts and formula-indexed
contracts based upon competitive bidding. These procurement contracts typically last from three months to one year. The price of methanol
is indexed to the monthly reported published price of methanol plus or minus a negotiated basis.
Distribution
We have established a national distribution system to supply biomass-based diesel throughout the United States. Each of our biodiesel
facilities are equipped with an on-site rail loading system, a truck loading system, or both, and a logistics and supply chain management
staff. Our Seneca biorefinery near the Illinois River has direct barge access supplying customers using the inland waterways system. Our
Houston biorefinery has barge and deep-water ship loading capability. We also manage some customers’ biomass-based diesel storage
tanks and replenishment process. We lease more than 442 railcars for transportation and lease biomass-based diesel storage tanks in 28
terminals as of December 31, 2014. In general, the terminals where we lease our biomass-based diesel storage tanks are petroleum fuel
terminals so that fuel distributors and other biomass-based diesel customers can create a biomass-based diesel blend at the terminal before
further distribution. Terminal leases typically have one- to three-year terms and are generally renewable subject to certain terms and
conditions. We have sold biomass-based diesel in 46 states and three provinces in Canada.
Risk Management
The prices for feedstocks and biomass-based diesel can be volatile and are not always closely correlated. Lower cost feedstocks are
particularly difficult to risk manage given that such feedstocks are not traded in any public futures market. To manage feedstock and
biomass-based diesel price risks, we utilize forward contracting, hedging and other risk management strategies, including the use of futures,
swaps, options and over-the-counter products.
In establishing our risk management strategies, we draw from our own in-house risk management expertise and we consult with industry
experts. We utilize research conducted by outside firms to provide additional market information and risk management strategies. We
believe combining these sources of knowledge, experience and expertise gives us a more sophisticated and global view of the fluctuating
commodity markets for raw materials and energies, which we then can incorporate into our risk management strategies.
Seasonality
4
Table of Contents
Biodiesel producers have historically experienced seasonal fluctuations in demand for biodiesel. Biodiesel demand has tended to be lower
during the winter in Northern and Midwestern states due to lack of infrastructure to properly handle biodiesel in winter and concerns about
biodiesel’s ability to operate optimally in cold weather, as compared to the most commonly used petroleum-based diesel fuel. This seasonal
fluctuation is strongest for biodiesel made from inedible animal fats and used cooking oil. Biodiesel made from those feedstocks has a
higher cloud point, the point at which a fuel begins to gel, than biodiesel produced from soybean oil, canola oil or inedible corn oil, which
may cause cold weather performance issues.
Competition
We face competition in the distillate fuel market from producers and suppliers of petroleum-based diesel fuel and in the biomass-based
diesel sub-market from other biomass-based diesel producers, marketers, traders and distributors. Our principal methods of competition are
product quality, both biomass-based diesel and Renewable Identification Number, or RIN, quality, supply reliability and price. We also face
competition in the biomass-based diesel RIN compliance market from producers of renewable hydrocarbon diesel and in the advanced
biofuel RIN compliance market from producers of other advanced biofuels. In the United States and Canadian biomass-based diesel
markets, we compete with large, multi-product companies that have greater resources than we do. Archer Daniels Midland Company,
Cargill Incorporated, Louis Dreyfus Commodities Group and Ag Processing Inc. are major international agribusiness corporations and
biodiesel producers with the financial sourcing and marketing resources to be formidable competitors in the biodiesel industry. These
agribusiness competitors tend to make biodiesel from higher cost virgin vegetable oils such as soybean or canola oil, which they produce as
part of their integrated agribusinesses. We are also in competition with producers of renewable hydrocarbon diesel, such as Neste Oil,
which has approximately 600 million gallons of renewable hydrocarbon diesel production capacity in Asia and Europe and Diamond Green
Diesel, LLC, the joint venture between Valero Energy Corp. and Darling International with 135 million gallons of renewable diesel.
Renewable hydrocarbon diesel can also satisfy the RFS2 biomass-based diesel requirement if the renewable hydrocarbon diesel meets the
greenhouse gas reduction requirements and may satisfy Canadian renewable fuel requirements. Neste Oil and Diamond Green Diesel, LLC,
have greater financial resources than we do.
In the RFS2 advanced biofuel market, we also compete with other producers and importers of advanced biofuels, such as Brazilian
sugarcane ethanol producers and producers of biogas used in transportation. We face increasing competition from imported biomass-based
diesel and expect this to continue. The EPA recently announced that it has approved a plan that will enable Argentinian biodiesel made
from soybean oil to earn RINs.
We also face competition from independent biodiesel producers. Unlike us, most of these competitors own only one biodiesel plant and
thus, do not enjoy the benefits of scale that we do. Many of our competitors own biodiesel plants that can process only higher cost virgin
vegetable oils. Furthermore, in our marketing and distribution, we face competition from biomass-based diesel traders such as US Oil,
NGL, Noble, Morgan Stanley, Tenaska and Vitol. These trading companies may have greater financial resources than we do and are able to
take significant biomass-based diesel positions in the marketplace. These competitors are often customers and/or suppliers of ours as well.
The biomass-based diesel industry is also in competition with the petroleum-based diesel fuel industry. The size of the biomass-based diesel
industry is small compared to the size of the petroleum-based diesel fuel industry and large petroleum companies have greater resources
than we do.
Government Programs Favoring Biomass-Based Diesel Production and Use
The biomass-based diesel industry benefits from numerous federal and state government programs, the most important of which is RFS2.
Renewable Fuel Standard
On July 1, 2010, RFS2’s biomass-based diesel requirement became effective, requiring for the first time that a certain percentage of the
diesel fuel consumed in the United States be made from renewable sources. The biomass-based diesel requirement can be satisfied by two
primary fuels, biodiesel and renewable hydrocarbon diesel. RFS2 required the use of one billion gallons of biomass-based diesel in 2012,
required 1.28 billion gallons in 2013 and at least one billion gallons each year thereafter, with such higher amounts subject to the United
States Environmental Protection Agency, or EPA, proposals and the Office of Management and Budget, or OMB, approval. As of this
filing, the EPA has not finalized the 2014 biomass-based diesel requirement. In November 2013, the EPA proposed a 2014 biomass-based
diesel required volume obligation, or RVO, of 1.28 billion gallons and a reduced Advanced Biofuel RVO of 2.0 to 2.51 billion gallons
rather than the original Energy Independence and Security Act of 2009, or EISA, volume of 3.75 billion gallons of advanced biofuels for
2014. The EPA later issued a "notification of delay in issuing standards", effectively withdrawing the proposal. As of the date of this filing,
the RVO for 2014 and 2015 had not been proposed nor finalized. Notwithstanding these issues, we expect RFS2 to continue to create
demand for biomass-based diesel.
5
Table of Contents
The biomass-based diesel requirement is one of four separate renewable fuel requirements under RFS2. The RFS2 requirements are based
on two primary categories and two subcategories. The two primary categories are conventional renewable fuel, which is primarily satisfied
by corn ethanol, and advanced biofuel, which is defined as a biofuel that reduces lifecycle greenhouse gas emissions by at least 50%
compared to the petroleum-based fuel the biofuel is replacing. The advanced biofuel category has two subcategories, cellulosic biofuel, to
be satisfied by newly developed cellulosic biofuels, such as ethanol made from woody biomass, and biomass-based diesel, which is satisfied
by biodiesel and renewable hydrocarbon diesel. RFS2’s total advanced biofuel requirement is larger than the combined cellulosic fuel and
biomass-based diesel requirements, thus requiring the use of additional volumes of advanced biofuels.
The RFS2 requirement for additional volumes of advanced biofuels can be satisfied by any advanced biofuel, including biodiesel,
renewable hydrocarbon diesel, biogas used in transportation, biobutanol, cellulosic ethanol or sugarcane-based ethanol, so long as it meets
the 50% greenhouse gas reduction requirement. The additional advanced biofuel requirement was 500 million gallons in 2012, one billion
gallons in 2013. The requirement for 2014 and 2015 has not yet been established. Biomass-based diesel comprises the majority of advanced
biofuel produced in the United States and we expect the RFS2 advanced biofuel requirement to increase demand for biomass-based diesel.
The advanced biofuel RVO is expressed in terms of ethanol equivalent volumes, or EEV, which is based on the fuel’s renewable energy
content compared to ethanol. Biodiesel has an EEV of 1.5 and RHD has an EEV of 1.5-1.7 compared to 1.0 for sugarcane-based ethanol.
Accordingly, it requires less biomass-based diesel than sugarcane-based ethanol to meet the required volumes as each gallon of biomass-
based diesel counts as more gallons for purposes of fulfilling the advanced biofuel RVO, providing an incentive for Obligated Parties to
purchase biomass-based diesel to meet their advanced biofuel RVO.
The RFS2 volume requirements apply to petroleum refiners and petroleum fuel importers in the 48 contiguous states and Hawaii, who are
defined as “Obligated Parties” in the RFS2 regulations, and requires these Obligated Parties to incorporate into their petroleum-based fuel a
certain percentage of renewable fuel or purchase credits in the form of RINs from those who do. An Obligated Party’s RVO is based on the
volume of petroleum-based fuel they produce or import. The largest United States petroleum refining companies, such as Valero, Phillips
66, ExxonMobil, British Petroleum, Chevron and Shell, represent the majority of the total RVOs, with the remainder made up of smaller
refiners and importers.
Renewable Identification Numbers
The EPA created the renewable identification number, or RIN, system to track renewable fuel production and compliance with the
renewable fuel standard. EPA registered producers of renewable fuel may generate RINs for each gallon of renewable fuel they produce. In
the case of biomass-based diesel, generally 1.5 to 1.7 biomass-based diesel RINs may be generated for each gallon of biomass-based diesel
produced, based upon the fuel's renewable energy content. Renewable fuel, including biomass-based diesel, can then be sold with
associated RINs attached. RINs may also be separated from the gallons of renewable fuel they represent and once separated they may be
sold as a separate commodity. RINs are ultimately used by Obligated Parties to demonstrate compliance with the RFS2. Obligated Parties
must obtain and retire the required number of RINs to satisfy their RVO during a particular compliance period. An Obligated Party can
obtain RINs by buying renewable fuels with RINs attached, buying RINs that have been separated, or producing renewable fuels
themselves. All RIN activity under RFS2 must be entered into the EPA’s moderated transaction system, which tracks RIN generation,
transfer and retirement. RINs are retired when used for compliance with the RFS2 requirements.
The value of RINs is significant to the price of biomass-based diesel. As of December 31, 2011, RINs contributed approximately $1.83, or
38% of the average Jacobsen B100 Upper Midwest spot price of a gallon of biomass-based diesel. During 2012, the value of RINs, as
reported by OPIS, have contributed to the average B100 spot price of a gallon of biomass-based diesel, as reported by The Jacobsen, and
range from a low of $0.63 per gallon, or 24%, in October to a high of $2.39, or 50%, per gallon in January. During 2013, the value of RINs,
as reported by OPIS, have contributed to the average B100 spot price of a gallon of biomass-based diesel, as reported by The Jacobsen, and
range from a low of $0.35 per gallon, or 9%, in October to a high of $2.20 per gallon, or 43%, in January. During 2014, the value of RINs,
as reported by OPIS, contributed to the average B100 spot price of a gallon of biomass-based, as reported by The Jacobsen, and range from
a low of $0.64 per gallon, or 19%, in January to a high of $1.15 per gallon, or 34%, in December. There was a significant decline in RIN
prices during the second and third quarters of 2014. The prices rose in the fourth quarter and finished the year at their peak.
Biodiesel Tax Credit
The federal biodiesel mixture excise tax credit ("BTC"), when in place, provides a $1.00 per gallon excise tax credit to the first blender of
biomass-based diesel with at least 0.1% petroleum-based diesel fuel. The biodiesel tax credit can then be credited against such biodiesel
federal excise tax liability or the blender can obtain a cash refund from the United States Treasury for the value of the credit. The BTC
became effective January 1, 2005 and then lapsed January 1, 2010 before being reinstated
6
Table of Contents
retroactively on December 17, 2010. The BTC again expired as of December 31, 2011 and on January 2, 2013, it was again reinstated,
retroactively for 2012 and through December 31, 2013. The BTC expired again on December 31, 2013 and was retroactively reinstated for
2014 on December 19, 2014. Unlike prior years, Congress did not grant a two year reinstatement, but rather only reinstated the BTC for
2014. Accordingly, the BTC expired again on December 31, 2014. It is uncertain whether The BTC will be reinstated and if reinstated,
whether or not it would be reinstated retroactively.
State Programs
Several states have enacted legislation providing incentives for the use of biomass-based diesel, requiring the use of biomass-based diesel,
or both. For example, Illinois offers an exemption from the generally applicable 6.25% sales tax on fuel for biomass-based diesel blends
that incentivizes blending at 11% biomass-based diesel, or B11, through December 31, 2018. Illinois’ program has made that state the
largest biomass-based diesel market in the country. Since 2006, Iowa has had in place a retailer’s incentive for blended fuel which has been
modified over time. In 2012, retailers earned $0.02 per gallon for B2 blends or $0.045 per gallon for B5 blends. For 2013 through 2017,
retailers earn $0.045 per gallon of B5. Iowa also has a biomass-based diesel production incentive that provides $0.02 per gallon of
production capped after the first 25 million gallons per production plant. Iowa recently enacted an increase in its excise tax on fuel, which
is three cents per gallon less for B11 or higher blends than the diesel fuel tax. In Texas, the biomass-based diesel portion of biomass-based
diesel blends are exempt from state excise tax, which results in a $0.20 per gallon incentive for B100. In addition, regulatory changes in
2012 by the Texas Department of Revenue and Texas Commission on Environmental Equality have removed regulatory barriers and
eliminated limitations to blending biomass-based diesel under the Texas Low Emissions Diesel program. In addition, California has
adopted a low carbon fuel standard, which requires an increasing reduction in the carbon intensity of transportation fuels, which has created
an incentive for the use of lower carbon intensity biomass-based diesel. In addition, Oregon and Washington state have been in the process
of developing and implementing their own low carbon fuel programs. Oregon is currently engaged in the rulemaking process.
According to the U.S. Department of Energy, more than 40 states currently have implemented various programs that encourage the use of
biomass-based diesel through blending requirements as well as various tax incentives. Currently, Minnesota law requires a B5 biodiesel
blend throughout the entire year. In 2014, the law required the state to increase blends to a B10 blend in the summer months. Oregon has
implemented a B5 biodiesel blend requirement. New Mexico, Pennsylvania and Washington have all adopted legislation requiring
biomass-based diesel blends beginning at B2 (and B5 in New Mexico) with incremental increases, provided certain feedstock or production
minimums are met. Several northeast states, including Connecticut and Vermont, have adopted legislation requiring biomass-based diesel
blends in home heating oil. The City of New York has adopted legislation requiring biomass-based diesel blends at a 2% rate for heating oil
legislation increasing that requirement to B5 biodiesel has recently been introduced.
Although we believe that state requirements for the use of biofuels increase demand for our biomass-based diesel within such states, they
may not increase overall demand in excess of RFS2 requirements. Rather, existing demand for our biofuel from Obligated Parties in
connection with federal requirements may shift to states that have use requirements or tax incentive programs.
Environmental Matters
Our manufacturing facilities, like other fuel and chemical production facilities, are subject to various federal, state and local environmental
laws and regulations, including those relating to the discharge of materials into the air, water and ground; the generation, storage, handling,
use, transportation and disposal of hazardous materials; ecological and natural resources; and the health and safety of our employees,
contractors and the public. These laws and regulations require us to obtain and comply with numerous environmental permits to construct
and operate each facility. They can require expensive pollution control equipment or operational changes to limit actual or potential
impacts to human health and the environment. A violation of these laws, regulations or permit conditions could result in substantial fines,
natural resource damage, criminal sanctions, permit revocations and or facility shutdowns. However, we do not currently have any such
proceedings either pending or threatened against our facilities that would materially affect our business or financial condition. Furthermore,
we do not anticipate a material adverse effect on our business or financial condition as a result of our efforts to comply with these
requirements as presently in effect.
History
Our predecessor, REG Biofuels, LLC, formerly named REG Biofuels Inc., which was formerly named Renewable Energy Group, Inc., was
formed under the laws of the State of Delaware in August 2006 upon acquiring the assets and operations of the biodiesel division of West
Central Cooperative, or West Central, and two of West Central’s affiliated companies, InterWest, L.C. and REG, LLC. Set forth below is a
summary of the significant events of our company since June 2008.
7
Table of Contents
Date
June 2008
Events
Houston facility
February through
April 2010
Danville, Newton
and Seneca facilities
Descriptions
We acquired our Houston facility, which has access to deepwater ports, from U.S. Biodiesel Group,
Inc., or USBG, through a transaction which included an equity investment in us by USBG.
We acquired our Danville facility by merger from Blackhawk Biofuels, LLC. On March 8, 2010, we
acquired our Newton Facility, through the purchase of substantially all of the assets and liabilities of
Central Iowa Energy, LLC. On April 8, 2010, we closed a transaction in which we agreed to lease and
operate the Seneca facility and certain related assets.
July 2010
Tellurian Biodiesel,
Inc. and American
BDF, LLC
September 2010
July 2011
Clovis facility
SoyMor
January 2012
REG IPO
January 2012
October 2012
November 2012
Seneca facility
North Texas Bio
Energy, LLC
BullDog Biodiesel,
LLC
July 2013
Soy Energy, LLC
We acquired certain assets of Tellurian Biodiesel, Inc., or Tellurian, and American BDF, LLC, or
ABDF. Tellurian was a California-based biodiesel company and marketer. ABDF was a joint venture
owned by Golden State Service Industries, Restaurant Technologies, Inc., or RTI, and Tellurian. The
purchase connects RTI’s national used cooking oil collection system, with more than 16,000
installations, with our national network of biodiesel manufacturing facilities.
We acquired for stock the partially constructed Clovis facility.
We acquired for stock all the assets and certain liabilities of SoyMor cooperative and SoyMor
Biodiesel, LLC.
We completed our initial public offering in which we sold 6.8 million shares of our Common Stock at a
price to the public of $10.00 per share. Our Common Stock is currently traded publicly on the
NASDAQ Global Market under the symbol “REGI.”
We exercised an option to purchase our Seneca facility, which we previously operated under lease.
We acquired substantially all the assets of North Texas Bio Energy, LLC, or NTBE.
We acquired substantially all the assets of BullDog Biodiesel, LLC, or BullDog.
We acquired substantially all of the assets of Soy Energy, LLC's, or the Soy Energy Assets. The Soy
Energy Assets consisted of a 30 mmgy nameplate capacity biodiesel facility and related assets located
in Mason City, Iowa. We began producing biodiesel on October 1, 2013.
2013
Series B Preferred
Stock
Certain Series B Preferred Stockholders exercised their option to convert 2,333,428 shares of Series B
Preferred Stock into 4,716,043 shares of Common Stock. In addition, we opted to cause 50% of the
then-outstanding shares of Series B Preferred Stock to be converted as provided for in our certificate of
incorporation.
January 2014
March 2014
June 2014
LS9
Series B Preferred
Stock
Syntroleum/Dynamic
Fuels
We acquired substantially all of the assets and liabilities of LS9.
We redeemed all outstanding shares of Series B Preferred Stock.
We acquired substantially all the assets of Syntroleum, which consisted of a 50% limited liability
company membership interest in Dynamic Fuels, a 75 mmgy renewable hydrocarbon diesel production
facility in Geismar, LA. Subsequently on June 6, 2014, we acquired the remaining 50% ownership
interest in Dynamic Fuels from Tyson Foods. At closing, we renamed Dynamic Fuels, REG Geismar,
LLC or REG Geismar.
December 2014
Petrotec AG
We acquired 69% equity ownership in Petrotec AG from its majority shareholder. We made a cash
tender offer for all other Petrotec shares.
Employees
As of December 31, 2014, we employed 502 full-time employees. None of our employees are represented by a labor organization or under
any collective bargaining agreements. We consider our relationship with our employees to be good.
Intellectual Property
We own a significant number of U.S. and international patents, trade secrets, and licenses related to our biomass-based diesel and industrial
biotechnology businesses and expect that number to grow as we continue to pursue technological innovations.
Customer concentration
We have one customer, Pilot Travel Centers LLC, or Pilot, which accounts for 10% or more of our total revenues. Sales to Pilot were
$231.8 million, $243.3 million and $363.4 million, representing approximately 18%, 16% and 36%, respectively, of our total revenues for
2014, 2013, and 2012. Our revenues from Pilot generally do not include the RINs associated with the gallons
8
Table of Contents
of biomass-based diesel sold. The value of those RINs represented approximately an additional 7% of our total sales, based on the OPIS
average RIN price for the year.
Research and development
We devote considerable resources to our research and development programs. Our biomass-based diesel research and development
programs have been primarily targeted towards improving the quality and efficiency of the biomass-based diesel process and developing
applications for co-products. Our industrial biotechnology business has added additional resources towards our research and development
surrounding microbial fermentation and renewable chemicals, additional advanced biofuels and other products. We expect our research and
development expense associated with these programs to increase in future periods. We incurred research and development expense of $12.4
million, $0.26 million, and $0.01 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Executive Officers of the Registrant
Daniel J. Oh, age 49, has served as our Chief Executive Officer and as a Director since September 2011 and President since April 2009.
Mr. Oh served as our Chief Operating Officer from June 2007 to September 2011, our Chief Financial Officer and Executive Vice
President from June 2006 to June 2007 and as Secretary from August 2006 until March 2009. From May 2004 to May 2006, Mr. Oh served
at Agri Business Group, Inc., or ABG, an agribusiness management consulting firm, including as Associate Director, Director and Vice
President. Prior to joining ABG, Mr. Oh served in several different positions, including Senior Financial Analyst, Financial Team Member
and Manager, in the Corporate Finance and Investment Banking area of the Corporate Strategy and Business Development Group at Eli
Lilly and Company, a global pharmaceutical company, from August 2001 to May 2004. From 2000 to August 2001, Mr. Oh served as a
consultant with McKinsey & Company, a leading consulting firm, where he focused on the pharmaceutical industry. From 1987 to 1998,
Mr. Oh served as an officer in the United States Army, earning the rank of Major. Mr. Oh holds an M.B.A. from the University of Chicago
with concentrations in finance, accounting and strategic management as well as a B.S. with a concentration in economics from the United
States Military Academy. Mr. Oh serves as a director on Petrotec AG's supervisory board. Mr. Oh’s employment agreement with us
provides that he will serve as a director.
Chad Stone, age 45, has served as our Chief Financial Officer since August 2009. Prior to joining us, he was a Director at Protiviti Inc., a
global business consulting and internal audit firm, from October 2007 to May 2009. From August 1997 to September 2007, Mr. Stone
served as Director with PricewaterhouseCoopers and worked at Arthur Andersen from July 1992 to August 1997, departing as a manager.
Mr. Stone has served on executive Board of the Iowa Biodiesel Board since 2011 and was named chair in September 2014. Mr. Stone has
over 20 years of experience in leading financial reporting, strategy, policy and compliance. Mr. Stone holds an M.B.A. with concentrations
in finance, economics and accounting from the University of Chicago, Graduate School of Business and a B.B.A in Accounting from the
University of Iowa. He is also a Certified Public Accountant.
Brad Albin, age 52, has served as our Vice President, Manufacturing since February 2008. Mr. Albin also served as Vice President of
Construction Services from April 2007 through February 2008. From September 2006 through April 2007, Mr. Albin served as Director,
Construction. Prior to joining us, Mr. Albin served as General Manager for West Central, one of our predecessors from July 2006 through
September 2006. From November 2002 to January 2006, Mr. Albin served as Executive Director of Operations for Material Sciences
Corporation, where he directed multi-plant operations that served the automotive and global appliance industries. From 1996 to 2002,
Mr. Albin was the Vice President of Operations for Griffin Industries. Mr. Albin has over 25 years of experience in executive operations
positions in multi-feedstock biomass-based diesel, chemical, food and automotive supplier companies, such as The Monsanto Company,
The NutraSweet Company and Griffin Industries. Mr. Albin was a charter member of the National Biodiesel Accreditation Committee.
Mr. Albin serves on the board of the Iowa Renewable Fuels Association and was the President in 2012, as well as, Vice President in 2011.
Mr. Albin serves as a director on Petrotec AG's supervisory board. In November 2014, Mr. Albin completed the Advanced Management
Program from the University of Chicago Booth School of Business and he holds a B.S. in Chemistry from Eastern Illinois University.
David Elsenbast, age 53, has served as our Vice President, Supply Chain Management since April 2009. From August 2006 to April 2009,
Mr. Elsenbast served as our Vice President, Procurement. Prior to joining us, Mr. Elsenbast served in the same role for West Central, since
April 2006. Mr. Elsenbast has also served on the Board of the American Fats and Oils Association since October 2009. From 1990 to
March 2006, Mr. Elsenbast served in various roles for Milk Specialties Company, an animal nutrition company, including Vice President of
Business Development, Vice President of Operations and Purchasing and General Manager. Mr. Elsenbast has over 30 years in agricultural
business development, supply chain management, operations, and purchasing. Mr. Elsenbast holds a B.S. in agricultural business from
Iowa State University.
9
Table of Contents
Gary Haer, age 61, has served as our Vice President, Sales and Marketing since we commenced operations in August 2006. From October
1998 to August 2006, Mr. Haer served as the National Sales and Marketing Manager for biodiesel for West Central and was responsible for
developing the marketing and distribution infrastructure for biomass-based diesel sales in the United States. Mr. Haer has over 15 years of
experience in the biomass-based diesel industry. Mr. Haer currently serves on the Executive Committee of the National Biodiesel Board’s
Governing Board as Past Chairman and has been elected to various officer positions during his tenure from 1998 to 2014. Mr. Haer holds a
M.B.A. from Baker University and a B.S. in accounting from Northwest Missouri State University.
Available Information
Our internet address is http://www.regi.com. Through that address, our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports are available free of charge as soon as reasonably practicable after they are
filed with the United States Securities and Exchange Commission. The information contained on our website is not included in, or
incorporated by reference into, this annual report on Form 10-K.
ITEM 1A. Risk
Factors
Our business, financial condition, results of operations and liquidity are subject to various risks and uncertainties, including those described
below, and as a result, the trading price of our common stock could decline.
Risk Associated With Our Business
Loss or reductions of governmental requirements for the use of biofuels could have a material adverse effect on our revenues and
operating margins.
The biomass-based diesel industry relies substantially on federal requirements and state policies for use of biofuels. Since biomass-
based diesel has been more expensive to produce than petroleum-based diesel fuel over the past few years, the biomass-based diesel
industry depends on governmental programs that support a market for biomass-based diesel that might not otherwise exist.
The most important of these government programs in the United States is RFS2, which requires that a certain volume of biomass-
based diesel fuel, which includes biodiesel and renewable hydrocarbon diesel, be consumed. RFS2 became effective on July 1, 2010 and
applies through 2022. We believe that much of the increase in demand for our biomass-based diesel since July 2010 is attributable to and
accelerated by the implementation of RFS2. In addition, we believe that biomass-based diesel prices since July 2010 benefited significantly
from RFS2.
The EPA is required to determine the volume of biomass-based diesel that will be required each year based on the EPA’s
consideration of a variety of factors, with a minimum biomass-based diesel annual volume requirement be at least 1 billion gallons . The
biomass-based diesel volume requirement for 2013 was 1.28 billion gallons.
There can be no assurance that the United States Congress will not repeal, curtail or otherwise change, or that the EPA will not
curtail or otherwise change the RFS2 program in a manner adverse to us. The petroleum industry is generally opposed to RFS2 and can be
expected to continue to press for changes that eliminate or reduce its impact. Any repeal or reduction in the RFS2 requirements or
reinterpretation of RFS2 resulting in our biomass-based diesel failing to qualify as a required fuel would materially decrease the demand for
and price of our biomass-based diesel, which would materially and adversely harm our revenues and cash flows.
If Congress decides to repeal or curtail RFS2, or if the EPA is not able or willing to enforce RFS2 requirements, the demand for our
biomass-based diesel based on this program and any increases in demand that we expect due to RFS2 would be significantly reduced or
eliminated and our revenues and operating margins would be materially harmed. In addition, although we believe that state requirements
for the use of biofuels increase demand for our biomass-based diesel within such states, they generally may not increase overall demand in
excess of RFS2 requirements. Rather, existing demand for our biofuel from petroleum refiners and petroleum fuel importers in the 48
contiguous states or Hawaii, which are defined as “Obligated Parties” in the RFS2 regulations, in connection with federal requirements,
may shift to states that have use requirements or tax incentive programs.
As of the date of this filing, the EPA has not finalized the 2014 or 2015 Renewable Volume Obligations, or RVOs. The EPA
originally proposed a 2014 and 2015 biomass-based diesel RVO of 1.28 billion gallons in each of those years and a reduced Advanced
Biofuel RVO of 2.0 to 2.51 billion gallons rather than the original Energy Independence and Security Act of 2009, or EISA, volume of 3.75
billion gallons for 2014. The EPA received significant negative feedback to their proposal number and subsequently issued a "notification
in delay in issuing standards." Before the RVO can be finalized, the OMB has to approve EPA’s proposal, based on the same factors
outlined above. Due to the delay in publishing the proposal, which the EPA was required to determine and publish by November 30 two
years prior, it is possible that the 2014 and 2015 RVOs will be
10
Table of Contents
challenged in court which may further delay any final determination of such RVOs, which could reduce the demand for and price of our
biomass-based diesel and could harm our revenues and cash flows.
Our financial results may be harmed in the event biodiesel production exceeds the RVO.
Notwithstanding the lack of a finalized 2014 RVO, according to EMTS data, RINs representing 1.75 billion gallons of biomass-based
diesel were generated for the twelve months ended December 31, 2014. According to EMTS data, 1.78 billion gallons of biomass-based
diesel was produced and imported into the U.S. in 2013. Adding the 2012 carry-over to the 2013 RIN generation results in an estimated
total biomass-based diesel RIN availability of approximately 2.04 billion gallons, which is approximately 760 million gallons more than
required to satisfy the 1.28 billion gallon 2013 biomass-based diesel RVO. The originally proposed 2014 biomass-based diesel RVO of 1.28
billion gallons, would have limited the 2014 carryover to 256 million gallons, or 20%, of 1.28 billion, thus resulting in an excess supply of
504 million gallons of biomass-based diesel RINs. Excess biomass-based diesel RINs may be used to fulfill the advanced biofuel RVO or
the renewable fuel RVO. If the volume of excess biomass-based diesel RINs exceeds the volume the Obligated Parties desire to use to
fulfill their advanced biofuel and renewable fuel requirements, the demand for and price of our biomass-based and biomass-based diesel
RINs may be reduced, which could harm revenues and cash flows.
Our gross margins are dependent on the spread between biomass-based diesel prices and feedstock costs.
Our gross margins depend on the spread between biomass-based diesel prices and feedstock costs. Historically, the spread between
biomass-based diesel prices and feedstock costs has varied significantly. Although actual yields vary depending on the feedstock quality,
the average monthly spread between the price per gallon of 100% pure biodiesel, or B100, as reported by The Jacobsen Publishing
Company, or The Jacobsen, and the price per gallon for the amount of choice white grease, a common inedible animal fat used by us to
make biomass-based diesel, was $1.26 in 2012, $1.61 in 2013 and $0.92 in 2014 assuming 8.0 pounds of choice white grease yields one
gallon of biomass-based. The average monthly spread for the amount of crude soybean oil required to produce one gallon of biomass-based,
based on the nearby futures contract as reported on the Chicago Board of Trade, or CBOT, was $0.65 in 2012, $1.19 in 2013 and $0.58 in
2014 assuming 7.7 pounds of soybean oil yields one gallon of biomass-based. For 2012, 2013 and 2014, approximately 84%, 83% and
85%, respectively, of our total feedstock usage was inedible corn oil, used cooking oil or inedible animal fat and 16%, 17% and 15%,
respectively, was virgin vegetable oils.
Biomass-based diesel has traditionally been marketed primarily as an additive or alternative to petroleum-based diesel fuel and as a
result biomass-based diesel prices have been influenced by the price of petroleum-based diesel fuel, adjusted for government incentives
supporting renewable fuels, rather than biomass-based diesel production costs. Energy prices, particular the market price for crude oil,
significantly decreased throughout fourth quarter 2014. A lack of close correlation between production costs and biomass-based diesel
prices means that we may be unable to pass increased production costs on to our customers in the form of higher prices. Any decrease in
the spread between biomass-based diesel prices and feedstock costs, whether as a result of an increase in feedstock prices or a reduction in
biomass-based diesel prices, including, but not limited to, a reduction in the value of RINs would adversely affect our gross margins, cash
flow and results of operations.
The costs of raw materials that we use as feedstocks are volatile and our results of operations could fluctuate substantially as a
result.
The cost of feedstocks is a significant uncertainty for our business. The success of our operations is dependent on the price of
feedstocks and certain other raw materials that we use to produce biomass-based diesel. A decrease in the availability or an increase in the
price of feedstocks may have a material adverse effect on our financial condition and operating results. At elevated price levels, these
feedstocks may be uneconomical to use, as we may be unable to pass feedstock cost increases on to our customers.
The price and availability of feedstocks and other raw materials may be influenced by general economic, market and regulatory
factors. These factors include weather conditions, farming decisions, government policies and subsidies with respect to agriculture and
international trade and global supply and demand. The significance and relative impact of these factors on the price of feedstocks is
difficult to predict, especially without knowing what types of feedstock materials will be optimal for use in the future, particularly at new
facilities that we may construct or acquire.
The price of our feedstocks can vary significantly based on market conditions. Since January 1, 2008, the cost per pound of choice
white grease, an inedible animal fat commonly used by us in the production of biomass-based diesel, has traded in a range of $0.0950 to
$0.5250 based on the closing nearby futures prices on the CBOT. If biomass-based diesel production continues to increase in response to
RFS2, we expect that more biomass-based diesel producers will seek to use lower cost feedstocks, potentially increasing our costs of
production. In addition, because the market for animal fat is less developed than markets for vegetable oils such as soybean oil, we
generally are unable to enter into forward contracts at fixed prices.
11
Table of Contents
Inedible corn oil and used cooking oil are not generally available in quantities sufficient to cover all of our operations. If more ethanol
plants do not acquire and utilize corn oil extraction equipment, if extraction yields do not improve, if ethanol plants are idled, or ethanol
plants begin using the feedstock in their own operations, we may not be able to obtain the volumes of inedible corn oil we desire for use in
our production of biomass-based diesel at economical prices and may be forced to utilize higher cost feedstocks to meet increased demand,
which may not be economical.
Loss of or reductions in tax incentives for biomass-based diesel production or consumption may have a material adverse effect on
industry revenues and operating margins.
The biomass-based diesel industry has historically been substantially aided by federal and state tax incentives. Prior to RFS2, the
biomass-based diesel industry relied principally on these tax incentives to bring the price of biomass-based diesel more in line with the
price of petroleum-based diesel fuel to the end user. The most significant tax incentive program has been the federal biodiesel mixture
excise tax credit, or BTC. The BTC provided a $1.00 refundable tax credit per gallon of pure biomass-based, or B100, to the first blender of
biomass-based with petroleum-based diesel fuel. The BTC came into existence on January 1, 2005, had been continuously reinstated until it
expired on December 31, 2009 and was reinstated following the lapse in December 2010, retroactively for all of 2010 and prospectively for
2011. The BTC expired again on December 31, 2011 and was again reinstated on January 2, 2013, retroactively for all of 2012 and
prospectively for 2013, expired again December 31, 2013 and was again reinstated on December 19, 2014. Unlike prior reinstatement, this
last reinstatement was only for one year, retroactive for 2014, rather than two years as has previously been the case. It is generally
understood that Congress decided to only enact a one year extenders package, which included the BTC, because Congress wanted to take up
tax reform in 2015. There is no assurance that the BTC will be reinstated. Unlike RFS2, the BTC has a direct effect on federal government
spending and could be changed or eliminated as a result of changes in the federal budget policy. It is uncertain what action, if any, Congress
may take with respect to reinstating the BTC or when such action might be effective. If Congress does not reinstate the credit, demand for
our biomass-based diesel and the price we are able to charge for our product may be significantly reduced, harming revenues and
profitability. When the BTC expired on December 31, 2011, we experienced an industry-wide acceleration of gallons sold in the fourth
quarter of 2011, which was further influenced by the ability of Obligated Parties to satisfy up to 20% of their current RVO with prior year
RINs. We believe this increase in production at the end of the year resulted in a buildup of biomass-based diesel inventories and reduced
gallons sold in the first quarter of 2012. With the expiration of the BTC at the end of 2013 and 2014, the industry experienced a similar
increase in biomass-based diesel production in the fourth quarter of 2013 and 2014, which we believe reduced demand in the first quarter of
2014 and is reducing demand on the first quarter of 2015. In response to the regular lapsing and reinstatement of the BTC, the biomass-
based diesel industry and its customers have adopted arrangements for sharing the BTC if reinstated.
In addition, several states have enacted tax incentives for the use of biodiesel and/or biomass-based diesel. For example, Illinois
offers an exemption from the generally applicable 6.25% sales tax for biodiesel blends that incentivizes blending at 11% biodiesel, or B11.
Like the BTC, the Illinois tax incentive program and the tax incentive programs of other state could be changed as a result of state budget
considerations or otherwise. Reduction or elimination of such incentives could materially and adversely harm our revenues and
profitability.
Risk management transactions could significantly increase our operating costs and working capital requirements and may not be
effective.
In an attempt to partially offset the effects of volatile feedstock costs and biomass-based diesel fuel prices, we may enter into
contracts that establish market positions in feedstocks, such as inedible corn oil, used cooking oil, inedible animal fats and soybean oil, and
related commodities, such as heating oil and ultra-low sulfur diesel, or ULSD. The financial impact of such market positions depends on
commodity prices at the time that we are required to perform our obligations under these contracts. Risk management arrangements also
expose us to the risk of financial loss in situations where the counterparty defaults on its contract or, in the case of exchange-traded or over-
the-counter futures or options contracts, where there is a change in the expected differential between the underlying price in the contract
and the actual prices paid or received by us. Risk management activities can themselves result in losses when a position is purchased in a
declining market or a position is sold in a rising market. Changes in the value of these futures instruments are recognized in current income
and may result in margin calls. We may also vary the amount of risk management strategies we undertake, or we may choose not to engage
in risk management transactions at all. Our results of operation may be negatively impacted if we are not able to manage our risk
management strategy effectively.
One customer accounted for a meaningful percentage of revenues and a loss of this customer could have an adverse impact on our
total revenues.
One customer, Pilot Travel Centers LLC, or Pilot, accounted for 18%, 16% and 36% of our revenues in 2014, 2013 and 2012,
respectively. Our revenues from Pilot generally do not include the RINs associated with the gallons of biomass-based sold to Pilot. The
value of those RINs represented approximately an additional 7% of our total sales, based on the OPIS average RIN price for 2014. In the
event we lose Pilot as a customer or Pilot significantly reduces the volume of biomass-based
12
Table of Contents
diesel bought from us, it could be difficult to replace the lost revenues from biomass-based diesel and RINs, and our profitability and cash
flow could be materially harmed.
Our business is primarily dependent upon two similar products. As a consequence, we may not be able to adapt to changing market
conditions or endure any decline in the biomass-based diesel industry.
Our revenues are currently generated almost entirely from the production and sale of biodiesel and renewable hydrocarbon diesel,
collectively referred to as biomass-based diesel. Our reliance on biomass-based diesel means that we may not be able to adapt to changing
market conditions or to withstand any significant decline in the size or profitability of the biomass-based diesel industry. For example, in
2009 and the beginning of 2010, we were required to periodically idle our plants due to insufficient demand at profitable price points which
materially affected our revenues. If we are required to idle our plants in the future or are unable to adapt to changing market conditions, our
revenues and results of operations may be materially harmed.
Technological advances and changes in production methods in the biomass-based diesel industry could render our plants obsolete
and adversely affect our ability to compete.
It is expected that technological advances in biomass-based diesel production methods will continue to occur and new technologies
for biomass-based diesel production may develop. Advances in the process of converting oils and fats into biodiesel and renewable
hydrocarbon diesel could allow our competitors to produce biomass-based diesel faster and more efficiently and at a substantially lower
cost. If we are unable to adapt or incorporate technological advances into our operations, our production facilities could become less
competitive or obsolete. Further, it may be necessary for us to make significant expenditures to acquire any new technology and retrofit our
plants in order to incorporate new technologies and remain competitive. There is no assurance that third-party licenses for any proprietary
technologies that we would need access to in order to remain competitive for either existing processes or new technology will be available
to us on commercially reasonable terms or that any new technologies could be incorporated into our plants. In order to execute our strategy
to expand into the production of renewable chemicals, additional advanced biofuels, next generation feedstocks and related renewable
products, we may need to acquire licenses or other rights to technology from third parties. We can provide no assurance that we will be
able to obtain such licenses or rights on favorable terms. If we are unable to obtain, implement or finance new technologies, our production
facilities could be less efficient than our competitors, we may not be able to successfully execute our strategy and our results of operations
could be substantially harmed.
Our intellectual property is integral to our business. If we are unable to protect our intellectual property, or others assert that our
operations violate their intellectual property, our business could be adversely affected.
Our success depends in part upon our ability to protect our intellectual property. To accomplish this, we rely on a combination of
intellectual property rights, including patents, copyrights, trademarks and trade secrets in the United States and in selected foreign countries
where we believe filing for such protection is advantageous and cost-justified. Our ability to use and prevent others from using our
intellectual property is important to our success. Effective patent, copyright, trademark and trade secret protection may be unavailable,
limited or not applied for in some countries. Some of our products and technologies are not covered by any patent or patent application.
If we pursue litigation to assert our intellectual property rights, an adverse judicial decision in any of these legal actions could limit
our ability to assert our intellectual property rights, limit our ability to develop new products, limit the value of our technology or otherwise
negatively impact our business, financial condition and results of operations.
Any intellectual property rights claim against us, with or without merit, could be time-consuming, expensive to litigate or settle, divert
management resources and attention and force us to acquire intellectual property rights and licenses, which may involve substantial royalty
payments. Further, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages. Any of
these events could seriously harm our business, operating results and financial condition.
If we are unable to respond to changes in ASTM or customer standards, our ability to sell biomass-based may be harmed.
We currently produce biomass-based diesel to conform to or exceed standards established by ASTM. ASTM standards for biomass-
based diesel and biomass-based diesel blends may be modified in response to new observations from the industries involved with diesel
fuel. New tests or more stringent standards may require us to make additional capital investments in, or modify, plant operations to meet
these standards. In addition, some biomass-based customers have developed their own biomass-based standards which are stricter than the
ASTM standards. If we are unable to meet new ASTM standards or our biomass-based customers’ standards cost effectively or at all, our
production technology may become obsolete, and our ability to sell biomass-based may be harmed, negatively impacting our revenues and
profitability.
Increases in our transportation costs or disruptions in our transportation services could have a material adverse effect on our
business.
13
Table of Contents
Our business depends on transportation services to deliver our products to our customers and to deliver raw materials to us. The costs
of these transportation services are affected by the volatility in fuel prices, such as those caused by recent geopolitical and economic
events. For example, in 2012, the market rates of leasing new rail cars nearly doubled as a result of increased demand to move domestically
drilled crude oil from new supply fields in the upper Midwest to various refineries. We have not been able in the past, and may not be able
in the future, to pass along part or all of any of these increases to customers. If we continue to be unable to increase our prices as a result of
increased fuel costs charged to us by transportation providers, our gross margins may be materially adversely affected.
If any transportation providers fail to deliver raw materials to us in a timely manner, we may be unable to manufacture products on a
timely basis. Shipments of products and raw materials may be delayed due to weather conditions, strikes or other events. Any failure of a
third-party transportation provider to deliver raw materials or products in a timely manner could harm our reputation, negatively affect our
customer relationships and have a material adverse effect on our business, financial condition and results of operations.
We are dependent upon our key management personnel and critical talent whereby the loss of any of these persons could adversely
affect our results of operations.
We are highly dependent upon key members of our management team along with critical talent possessing unique technical skills for
the execution of our business plan. We believe that our future success is highly dependent on the contributions of these key employees.
There can be no assurance that any individual will continue in his or her capacity for any particular period of time. The loss of any of these
key employees could delay or prevent the achievement of our business objectives and have a material adverse effect upon our results of
operations and financial position.
We and certain subsidiaries have indebtedness, which subjects us to potential defaults, could adversely affect our ability to raise
additional capital to fund our operations and limits our ability to react to changes in the economy or the biomass-based diesel
industry.
At December 31, 2014, our total long-term debt was $252.9 million. This includes $121.4 million aggregate principal amount of
2.75% convertible senior notes due 2019 that we issued in June 2014, or the Convertible Notes, and $100.0 million of GOZone Bonds for
which our newly acquired subsidiary, REG Geismar, is obligated. Our obligation with respect to the GOZone Bonds is secured by the
deposit of $101.3 million with the financial institution whose letter of credit supports payments on the bonds. We also have short-term debt
obligations under a revolving credit agreement provided by a bank group. At December 31, 2014, there was $16.7 million borrowings made
under our revolving line of credit, all of which we guarantee. See "Note 12 - Debt" to our Consolidated Financial Statements for a
description of our indebtedness.
Our indebtedness could:
•
•
•
•
require us to dedicate a substantial portion of our cash flow from operations to payments of principal, interest on, and other
fees related to such indebtedness, thereby reducing the availability of our cash flow to fund working capital and capital
expenditures, and for other general corporate purposes;
increase our vulnerability to general adverse economic and biomass-based diesel industry
conditions;
limit our flexibility in planning for, or reacting to, changes in our business and the biomass-based diesel industry, which may
place us at a competitive disadvantage compared to our competitors that have less debt; and
limit among other things, our ability to borrow additional
funds.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the
Convertible Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our
control. Our business may not generate cash flow from operations in the future sufficient to satisfy our obligations under our indebtedness
and any future indebtedness we may incur and to make necessary capital expenditures. If we are unable to generate such cash flow, we may
be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing
or obtaining additional capital on terms that may be onerous or highly dilutive. Our ability to refinance the Convertible Notes, the GOZone
Bonds, our other existing indebtedness or future indebtedness will depend on the capital markets and our financial condition at such time.
We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on
our current or future indebtedness.
We may not have the ability to raise the funds necessary to settle conversions of our Convertible Notes in cash or to repurchase the
Convertible Notes for cash upon a fundamental change, and our future debt may contain limitations on our ability to repurchase
the Convertible Notes.
Holders of the Convertible Notes will have the right to require us to repurchase their Convertible Notes upon the occurrence of a
fundamental change at a repurchase price generally equal to 100% of their principal amount, plus accrued and unpaid interest, if any. In
addition, upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to settle such conversion
(other than paying cash in lieu of delivering any fractional share), we will be required
14
Table of Contents
to make cash payments in respect of the Convertible Notes being converted. However, we may not have enough available cash or be able to
obtain financing at the time we are required to make repurchases of the Convertible Notes upon a fundamental change or to settle
conversion of the Convertible Notes in cash.
In addition, our ability to repurchase the Convertible Notes may be limited by law, by regulatory authority or by agreements
governing our future indebtedness. Our failure to repurchase Convertible Notes at a time when the repurchase is required by the indenture
would constitute a default under the indenture governing the Convertible Notes. A default under the indenture or the fundamental change
itself could also lead to a default under agreements governing our other indebtedness. If the repayment of the related indebtedness were to
be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the
Convertible Notes.
Certain provisions in the indenture governing the Convertible Notes could delay or prevent an otherwise beneficial takeover or
takeover attempt of us.
Certain provisions in the Convertible Notes and the indenture could make it more difficult or more expensive for a third party to
acquire us. For example, if a takeover would constitute a fundamental change, holders of the notes will have the right to require us to
repurchase their notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the
conversion rate for holders who convert their notes in connection with such takeover. In either case, and in other cases, our obligations
under the notes and the indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or
removing incumbent management.
We are subject to counterparty risk with respect to the capped call transactions.
The counterparties to the capped call transactions are financial institutions, and we will be subject to the risk that they might default
under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Recent
global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If any
option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim
equal to our exposure at that time under our transactions with such option counterparty. Our exposure will depend on many factors, but,
generally, an increase in our exposure will be correlated to an increase in the market price and volatility of shares of our common stock. In
addition, upon a default by any option counterparty, we may suffer more dilution than we currently anticipate with respect to our common
stock. We can provide no assurances as to the financial stability or viability of the option counterparties.
We have generated no revenue from sales of renewable chemicals to date and we face significant challenges to developing this
business.
We have only recently entered the market for renewable chemicals with our acquisition of LS9, Inc.'s assets in January 2014. To date,
we have not generated any revenues from this business which is still at a pre-commercial stage. In order to generate revenue from our
renewable chemicals, we must be able to produce sufficient quantities of our products, which we have not done to date.
In entering this market, we intend to sell renewable chemicals as an alternative to chemicals currently in use, and in some cases the
chemicals that we seek to replace have been used for many years. The potential customers for our renewable chemical products generally
have well developed manufacturing processes and arrangements with suppliers of the chemical components of their products and may resist
changing these processes and components. These potential customers frequently impose lengthy and complex product qualification
procedures on their suppliers. Factors that these potential customers consider during the product qualification process include consumer
preference, manufacturing considerations such as process changes and capital and other costs associated with transitioning to alternative
components, supplier operating history, regulatory issues, product liability and other factors, many of which are unknown to, or not well
understood by, us. Satisfying these processes may take many months or years. If we are unable to convince these potential customers that
our products are comparable to the chemicals that they currently use or that the use of our products produces benefits to them, we will not
be successful in these markets and our business will be adversely affected. Additionally, in contrast to the tax incentives relating to
biofuels, tax credits and subsidies are not currently available in the United States for consumer products or chemical companies who use
renewable chemical products. We do not expect meaningful revenue from our sale of renewable chemicals in the near term.
If we fail to expand effectively in international markets, where we have limited operating history, our revenues and our business
may be harmed.
Historically, we have generated nearly all of our revenues from the United States. In December 2014, we acquired a 69% interest in
Petrotec, which owns two biorefineries in Germany. We have made a cash tender offer for the remaining Petrotec shares but there is no
assurance that we will be able to acquire these shares. If we are unable to complete the tender offer, our ability to control the operations of
Petrotec may be limited.
15
Table of Contents
We have no experience operating a biorefinery outside of the United States. Our ability to recognize the benefit of our investment in
Petrotec, or any other international operations we invest in, will require the attention of management and is subject to a number of risks.
Specifically, the biodiesel market in Europe benefits from regulations that encourage the use of biodiesel. As is the case in the United
States, these regulations are subject to political and public opinion and may be changed. In addition, expanding our operations
internationally subjects us to the following risks:
•
•
•
•
•
•
•
•
•
•
•
•
recruiting and retaining talented and capable management and employees in foreign
countries;
challenges caused by distance, language and cultural
differences;
protecting and enforcing our intellectual property
rights;
difficulties in the assimilation and retention of
employees;
the inability to extend proprietary rights in our technology into new
jurisdictions;
currency exchange rate
fluctuations;
general economic and political conditions in foreign
jurisdictions;
foreign tax
consequences;
foreign exchange controls or U.S. tax restrictions that might restrict or prevent us from repatriating income earned in countries
outside the United States;
political, economic and social
instability;
higher costs associated with doing business internationally;
and
export or import regulations; and trade and tariff
restrictions.
These factors and other factors could harm our ability to gain future international revenues. Our failure to successfully manage any
international operations and the associated risks effectively could have an adverse effect on our operating results and financial condition.
We might require additional capital to support business growth, and this capital might not be available on acceptable terms, or at
all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business
challenges, including the need to develop our renewable chemicals business or expand or enhance our biomass-based operations or acquire
complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financing to secure additional funds. If
we raise additional funds through further issuances of equity or convertible debt securities, our stockholders could suffer significant
dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common
stock. Any debt financing could involve restrictive covenants, which may restrict our flexibility in operating our business and make it more
difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to
obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing on terms satisfactory to us, when
we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited,
and our business, operating results, financial condition and prospects could be adversely affected.
We may encounter difficulties in effectively integrating the businesses we acquire.
We may face significant challenges in effectively integrating entities and businesses that we acquire, including our acquisition of
substantially all of LS9's assets in January 2014, as well as our acquisition of Syntroleum Corporation and Dynamic Fuels, LLC in June
2014, and our anticipated acquisition of the remaining ownership of Petrotec and we may not realize the benefits anticipated from such
acquisitions. Achieving the anticipated benefits of our acquired businesses will depend in part upon whether we can integrate our
businesses in an efficient and effective manner. Our integration of acquired businesses involves a number of risks, including:
•
•
•
•
•
•
•
•
•
difficulty in integrating the operations and personnel of the acquired
company;
difficulty in effectively integrating the acquired technologies, products or services with our current technologies, products or
services;
demands on management related to the increase in our size after the
acquisition;
the diversion of management’s attention from daily operations to the integration of acquired businesses and
personnel;
failure to achieve expected synergies and costs
savings;
difficulties in the assimilation and retention of
employees;
difficulties in the assimilation of different cultures and practices, as well as in the assimilation of broad and geographically
dispersed personnel and operations;
difficulties in the integration of departments, systems, including accounting systems, technologies, books and records and
procedures, as well as in maintaining uniform standards and controls, including internal control over financial reporting, and
related procedures and policies;
incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating
results;
16
Table of Contents
•
•
•
•
the need to fund significant working capital requirements of any acquired production
facilities;
potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges
of an acquired company or technology, including but not limited to, issues with the acquired company’s intellectual property,
product quality, environmental liabilities, data back-up and security, revenue recognition or other accounting practices,
employee, customer or partner issues or legal and financial contingencies;
exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition,
including but not limited to, claims from terminated employees, customers, former stockholders or other third parties; and
incurring significant exit charges if products or services acquired in business combinations are
unsuccessful.
We may not successfully identify and complete acquisitions and other strategic relationships on favorable terms in order to execute
our strategy to grow and diversify our business.
We regularly review domestic and international acquisitions of biofuel production facilities and have acquired most of our facilities
from third parties. However, we may be unable to identify suitable acquisition candidates in the future. Even if we identify appropriate
acquisition candidates, we may be unable to complete such acquisitions on favorable terms, if at all. If we are unable to successfully
acquire other businesses or facilities, we may not be able to grow our business as planned.
We may require additional capital to fund future acquisitions. If we are unable to obtain such capital on satisfactory terms, or if such
capital is otherwise unavailable, we may be unable to complete such acquisitions and our business may be harmed.
We may not realize the benefit of our investment in the renewable chemicals market.
We have only recently expanded our business into the production of renewable chemicals from biomass feedstocks through the
acquisition of certain assets. The renewable chemicals market is underdeveloped. Any chemicals that we produce from renewable sources
may not prove to be as effective as chemicals produced from conventional sources and, regardless of their effectiveness, renewable
chemicals may not be accepted in the chemical marketplace. If this were to occur, we would not realize the benefit of our investment in
renewable chemicals and our results of operations could be harmed.
We have three partially constructed plants, one non-operational plant, and planned upgrades to our operating plants, each of which
would require capital that we may not be able to raise and that may result in an impairment that could negatively impact our
financial position, results of operations and future cash flows.
We have three partially constructed plants, one near New Orleans, Louisiana, one in Emporia, Kansas and one in Clovis, New Mexico
and one non-operational plant near Atlanta, Georgia. We may choose to invest approximately $165 to $180 million in the aggregate,
excluding working capital requirements, before these four plants would be able to commence production. Our Clovis plant is currently
being operated as a terminal facility. In order to complete construction these facilities as planned, we will require additional capital. In
November 2012, we acquired the above mentioned biomass-based facility near Atlanta, Georgia, which had been idled prior to our
acquisition and will remain so until certain repairs or upgrades are made. While we intend to finance certain upgrades to our existing
facilities from our cash flow from operations, we will need to raise significant capital to complete construction of the three partially
constructed or non-operational facilities and to fund related working capital requirements. It is uncertain when or if financing will be
available. It is also likely that the terms of any project financing would include customary financial and other covenants restricting our
project subsidiaries, including restrictions on the ability to make distributions, to guarantee indebtedness and to incur liens on the plants of
such subsidiaries.
Our business is subject to seasonal fluctuations, which are likely to cause our revenues and operating results to fluctuate.
Our operating results are influenced by seasonal fluctuations in the price of and demand for biodiesel. Our sales tend to decrease
during the winter season due to perceptions that biodiesel will not perform adequately in colder weather. Colder seasonal temperatures can
cause the higher cloud point biodiesel we make from inedible animal fats to become cloudy and eventually gel at a higher temperature than
petroleum-based diesel or lower cloud point biodiesel made from soybean, canola, used cooking oil or inedible corn oil. Such gelling can
lead to plugged fuel filters and other fuel handling and performance problems for customers and suppliers. Reduced demand in the winter
for our higher cloud point biodiesel may result in excess supply of such higher cloud point biodiesel and lower prices for such higher cloud
point biodiesel. In addition, most of our production facilities are located in colder Midwestern states and our costs of shipping biodiesel to
warmer climates generally increase in cold weather months.
In addition, our RINs also have an element of seasonality to them. Since only 20% of an Obligated Party’s annual RVO can be
satisfied by prior year RINs, most RINs must come from biofuel produced or imported during the RVO year. As a result, one would expect
RIN prices to decrease as the calendar year progresses if the RIN market is oversupplied compared to that year’s RVO and increase if it is
undersupplied. For example, in 2012, which had a RVO for biomass-based diesel of one billion gallons, biomass-based diesel RIN prices,
as reported by OPIS, began to decrease in September when biomass-based diesel
17
Table of Contents
RIN generation neared the equivalent of 900 million gallons, as reported by EMTS. Similarly, in September of 2013 when biomass-based
diesel RIN generation reached approximately 960 million gallons compared to a 2013 RVO of 1.28 billion gallons, biomass-based diesel
RIN prices, as reported by OPIS, began to decline. As a result of these seasonal fluctuations, comparisons of operating measures between
consecutive quarters may not be as meaningful as comparisons between longer reporting periods.
Failure to comply with governmental regulations, including EPA requirements relating to RFS2, could result in the imposition of
penalties, fines, or restrictions on our operations and remedial liabilities.
The biomass-based diesel industry is subject to extensive federal, state and local laws and regulations related to the general
population’s health and safety and compliance and permitting obligations, including those related to the use, storage, handling, discharge,
emission and disposal of municipal solid waste and other waste, pollutants or hazardous substances, discharges, air and other emissions, as
well as land use and development. Existing laws also impose obligations to clean up contaminated properties or to pay for the cost of such
remediation, often upon parties that did not actually cause the contamination. Compliance with these laws, regulations and obligations
could require substantial capital expenditures. Failure to comply could result in the imposition of penalties, fines or restrictions on
operations and remedial liabilities. These costs and liabilities could adversely affect our operations.
Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste
handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to attain and maintain
compliance and may otherwise have a material adverse effect on our business in general and on our results of operations, competitive
position or financial condition. We are unable to predict the effect of additional environmental laws and regulations which may be adopted
in the future, including whether any such laws or regulations would significantly increase our cost of doing business or affect our operations
in any area.
Under certain environmental laws and regulations, we could be held strictly liable for the removal or remediation of previously
released materials or property contamination regardless of whether we were responsible for the release or contamination, or if current or
prior operations were conducted consistent with accepted standards of practice. Such liabilities can be significant and, if imposed, could
have a material adverse effect on our financial condition or results of operations.
In addition to the regulations mentioned above, we are subject to various laws and regulations related to RFS2, most significantly
regulations related to the generation and dissemination of RINs. These regulations are highly complex and evolving, requiring us to
periodically update our compliance systems. For example, in 2008, we unintentionally generated duplicate RINs as a result of a change to
the software we use to manage RIN generation. We voluntarily reported this violation to the EPA and followed EPA guidance in correcting
the issue promptly. In 2011, we entered into an administrative settlement agreement with the EPA regarding this violation and paid a fine
for this inadvertent violation. Any violation of these regulations by us, inadvertently or otherwise, could result in significant fines and harm
our customers’ confidence in the RINs we issue, either of which could have a material adverse effect on our business. For a detailed
description of RINs, see “Business-Government Programs Favoring Biodiesel Production and Use-Renewable Identification Numbers.”
In response to certain cases of RIN fraud whereby biomass-based producers were selling biomass-based diesel RINs without having
produced the required renewable fuel, the EPA is in the process of implementing a quality assurance program for RIN compliance.
Compliance with these or any new regulations or Obligated Party verification procedures could require significant expenditures to attain
and maintain compliance. Failure to comply could result in the imposition of penalties, fines, restrictions on operations, loss of customers
and remedial liabilities. These costs and liabilities may have a material adverse effect on our business in general and on our results of
operations, competitive position or financial condition. We are unable to predict the effect of any additional regulatory or customer
requirements which may be adopted in the future, including whether any such regulations or verification procedures would significantly
increase our cost of doing business or affect our operations in any area.
Our business may suffer if we are unable to attract or retain talented personnel.
Our success depends on the abilities, expertise, judgment, discretion, integrity and good faith of our management and employees to
manage the business and respond to economic, market and other conditions. We have a relatively small management team and employee
base, and the inability to attract suitably qualified replacements or additional staff could adversely affect our business. No assurance can be
given that our management team or employee base will continue their employment, or that replacement personnel with comparable skills
could be found. If we are unable to attract and retain key personnel and additional employees, our business may be adversely affected.
If we fail to maintain effective internal control over financial reporting, we might not be able to report our financial results
accurately or prevent fraud. In that case, our stockholders could lose confidence in our financial reporting, which would harm our
business and could negatively impact the value of our stock.
18
Table of Contents
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. The process of maintaining our
internal controls may be expensive and time consuming and may require significant attention from management. Although we have
concluded as of December 31, 2014 that our internal control over financial reporting provides reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements.
Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of
operations or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a
material weakness, the disclosure of that fact could harm the value of our stock and our business.
A natural disaster, leak, fire or explosion at any of our production plants or customer’s facilities could increase our costs and
liabilities.
Because biomass-based diesel and some of its inputs and outputs are combustible and/or flammable, a leak, fire or explosion may
occur at a plant or customer’s facility which could result in damage to the plant and nearby properties, injury to employees and others, and
interruption of operations. A majority of our facilities are also located in the Midwest, which is subject to tornado activity. Furthermore,
REG Life Sciences' research and development center is in South San Francisco, California, which is subject to earthquakes. In addition, our
Houston and Geismar facilities, due to their Gulf Coast location, are vulnerable to hurricanes, which may cause plant damage, injury to
employees and others and interruption of operations and all of our plants could incur damage from other natural disasters. If any of the
foregoing events occur, we may incur significant additional costs including, among other things, loss of profits due to unplanned temporary
or permanent shutdowns of our facilities, clean-up costs, liability for damages or injuries, legal expenses and reconstruction expenses,
which would seriously harm our results of operations and financial condition.
Our insurance may not protect us against our business and operating risks.
We maintain insurance for some, but not all, of the potential risks and liabilities associated with our business. For some risks, we may
not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market
conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance
policies may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our existing
insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Although we intend to maintain
insurance at levels we believe are appropriate for our business and consistent with industry practice, we will not be fully insured against all
risks. In addition, pollution, environmental risks and the risk of natural disasters generally are not fully insurable. Losses and liabilities
from uninsured and underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our
financial condition and results of operations.
Confidentiality agreements with employees and others may not adequately prevent disclosures of confidential information, trade
secrets and other proprietary information.
We rely in part on trade secret protection to protect our confidential and proprietary information and processes. However, trade
secrets are difficult to protect. We have taken measures to protect our trade secrets and proprietary information, but these measures may not
be effective. For example, we require new employees and consultants to execute confidentiality agreements upon the commencement of
their employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the
individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not
disclosed to third parties. These agreements also generally provide that knowhow and inventions conceived by the individual in the course
of rendering services to us are our exclusive property. Nevertheless, these agreements may be breached, or may not be enforceable, and our
proprietary information may be disclosed. Further, despite the existence of these agreements, third parties may independently develop
substantially equivalent proprietary information and techniques. Accordingly, it may be difficult for us to protect our trade secrets. Costly
and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or
maintain trade secret protection could adversely affect our competitive business position.
Moreover, we cannot assure you that our technology does not infringe upon any valid claims of patents that other parties own. In the
future, if we are found to be infringing on a patent owned by a third party, we might have to seek a license from such third party to use the
patented technology. We cannot assure you that, if required, we would be able to obtain such a license on terms acceptable to us, if at all. If
a third party brought a legal action against us or our licensors, we could incur substantial costs in defending ourselves, and we cannot assure
you that such an action would be resolved in our favor. If such a dispute were to be resolved against us, we could be subject to significant
damages.
We are a holding company and there are limitations on our ability to receive dividends and distributions from our subsidiaries.
19
Table of Contents
All of our principal assets, including our biomass-based diesel production facilities, are owned by subsidiaries and some of these
subsidiaries are subject to loan covenants that generally restrict them from paying dividends, making distributions or making loans to us or
to any other subsidiary. These limitations will restrict our ability to repay indebtedness, finance capital projects or pay dividends to
stockholders from our subsidiaries’ cash flows from operations.
Risks Related to the Biomass-based diesel Industry
The market price of biomass-based diesel is influenced by the price of petroleum-based distillate fuels, such as ultra-low sulfur
diesel, and decreases in the price of petroleum-based distillate fuels or RIN values would very likely decrease the price we can
charge for our biomass-based diesel, which could harm our revenues and profitability.
Historically, biodiesel prices have been strongly correlated to petroleum-based diesel prices and in particular ULSD, regardless of the
cost of producing biomass-based diesel itself. We market our biofuel as an alternative to petroleum-based fuels. Therefore, if the price of
petroleum-based diesel falls, the price of biomass-based diesel could decline, and we may be unable to produce products that are an
economically viable alternative to petroleum-based fuels. Petroleum prices are volatile due to global factors, such as the impact of wars,
political uprisings, new extraction technologies and techniques, OPEC production quotas, worldwide economic conditions, changes in
refining capacity and natural disasters. Additionally, demand for liquid transportation fuels, including biomass-based diesel, is impacted by
economic conditions.
Just as a small reduction in the real or anticipated supply of crude oil can have a significant upward impact on the price of petroleum-
based fuels, a perceived reduction of such threats can result in a significant reduction in petroleum-based fuel prices. A reduction in
petroleum-based fuel prices may have a material adverse effect on our revenues and profits if such price decrease reduces the price we are
able to charge for our biomass-based diesel.
There was a significant decline in RIN prices during the second and third quarters of 2014, but the price went back up in the fourth
quarter and finished the year at its peak at $0.77 per RIN, as reported by OPIS. In 2013, RIN prices decreased sharply from $1.09 per RIN
on July 1, 2013 to $0.35 per RIN at December 31, 2013. A reduction in RIN values, such as those experienced in 2013 and remaining low
throughout the majority of 2014, may have a material adverse effect on our revenues and profits as such price decrease reduce the price we
are able to charge for our biomass-based diesel.
We operate in a highly competitive industry and competition in our industry would increase if new participants enter the biomass-
based diesel business.
We operate in a very competitive environment. The biomass-based diesel industry is primarily comprised of smaller entities that
engage exclusively in biodiesel production, large integrated agribusiness companies that produce biodiesel along with their soybean crush
businesses and increasingly, integrated petroleum companies. We face competition for capital, labor, feedstocks and other resources from
these companies. In the United States, we compete with soybean processors and refiners, including Archer-Daniels-Midland Company,
Cargill, and Louis Dreyfus Commodities. In addition, petroleum refiners are increasingly entering into biomass-based diesel production,
which includes Neste Oil with approximately 600 million gallons of global renewable hydrocarbon diesel production capacity in Asia and
Europe and Valero Energy Corporation with its Diamond Green joint venture renewable hydrocarbon diesel plant. These and other
competitors that are divisions of larger enterprises may have greater financial resources than we do. We also have many smaller
competitors. If our competitors consolidate or otherwise grow and we are unable to similarly increase our scale, our business and prospects
may be significantly and adversely affected.
In addition, petroleum companies and diesel retailers form the primary distribution networks for marketing biomass-based diesel
through blended petroleum-based diesel. If these companies increase their direct or indirect biomass-based diesel production, there will be
less need to purchase biomass-based diesel from independent biomass-based diesel producers like us. Such a shift in the market would
materially harm our operations, cash flows and financial position.
The development of alternative fuels and energy sources may reduce the demand for biodiesel, resulting in a reduction in our
revenues and profitability.
The development of alternative fuels, including a variety of energy alternatives to biodiesel has attracted significant attention and
investment. Neste Oil operates four renewable hydrocarbon diesel plants: a 240 million gallon per year plant in Singapore, a 240 million
gallon per year plant in Rotterdam, Netherlands, and two 60 million gallon per year plants in Porvoo, Finland. In the United States,
Diamond Green Diesel, LLC operates a 137 million gallon per year renewable hydrocarbon diesel plant in Norco, Louisiana in 2013. Under
RFS2, renewable hydrocarbon diesel made from biomass meets the definition of biomass-based diesel and thus is eligible, along with
biodiesel, to satisfy the RFS2 biomass-based diesel requirement described in “Business-Government Programs Favoring Biodiesel
Production and Use.” Furthermore, under RFS2, renewable hydrocarbon diesel may receive up to 1.7 RINs per gallon, whereas biodiesel
currently receives 1.5 RINs per gallon. As the value of RINs increases, this 0.2 RIN advantage may make renewable hydrocarbon diesel
more cost-effective, both as a
20
Table of Contents
petroleum-based diesel substitute and for meeting RFS2 requirements. If renewable hydrocarbon diesel proves to be more cost-effective
than biodiesel, revenues from our biodiesel plants and our results of operations would be adversely impacted.
In addition, the EPA may allow other fuels to satisfy the RFS2 requirements and allow RINs to be generated upon the production of
these fuels. The EPA recently adopted regulations to amend the definition of “Home Heating Oil” under RFS2, which expands the scope of
fuels eligible to generate RINs.
The biomass-based diesel industry will also face increased competition resulting from the advancement of technology by automotive,
industrial and power generation manufacturers which are developing more efficient engines, hybrid engines and alternative clean power
systems. Improved engines and alternative clean power systems offer a technological solution to address increasing worldwide energy
costs, the long-term availability of petroleum reserves and environmental concerns. If and when these clean power systems are able to offer
significant efficiency and environmental benefits and become widely available, the biomass-based diesel industry may not be able to
compete effectively with these technologies and government requirements for the use of biofuels may not continue.
The development of alternative fuels and renewable chemicals also puts pressure on feedstock supply and availability to the biomass-
based diesel industry. If these emerging technologies compete with biomass-based diesel for feedstocks, are more profitable or have greater
governmental support than biomass-based diesel does, then the biomass-based diesel industry may have difficulty in procuring the
feedstocks necessary to be successful.
Increased industry-wide production of biomass-based diesel could have a negative effect on our margins and there remains excess
production capacity in the biomass-based diesel industry.
According to the National Biodiesel Board, or NBB, as of September 12, 2012, 2.7 billion gallons per year of biodiesel production
capacity in the United States was registered under the RFS2 program by NBB members. In addition to this amount, several hundred more
gallons of U.S. based biomass-based diesel production capacity was registered by non-NBB members and another 1.2 billion gallons of
biomass-based diesel production was registered by foreign producers. Furthermore, plants under construction and expansion in the United
States as of December 31 2011, if completed, could add an additional several hundred million gallons of annual biodiesel production
capacity. The annual production capacity of existing plants and plants under construction far exceeds both historic consumption of biomass-
based diesel in the United States and required consumption under RFS2. If this excess production capacity was fully utilized for the U.S.
market, it would increase competition for our feedstocks, increase the volume of biomass-based diesel on the market and may reduce
biomass-based diesel gross margins, harming our revenues and profitability.
The European Commission has imposed anti-dumping and countervailing duties on biodiesel blends imported into Europe, which
have effectively eliminated our ability to sell those biodiesel blends in Europe.
In March 2009, as a response to the BTC, the European Commission imposed anti-dumping and anti-subsidy tariffs on biodiesel
produced in the United States. These tariffs have effectively eliminated European demand for 20% biodiesel blends, or B20, or higher
imported from the United States. The European Commission has extended these tariffs through 2014. In May 2011, the European
Commission imposed similar anti-dumping and countervailing duties on biodiesel blends below B20. These duties significantly increase
the price at which we and other United States biodiesel producers will be able to sell such biodiesel blends in European markets, making it
difficult or impossible to compete in the European biodiesel market. These anti-dumping and countervailing duties therefore decrease the
demand for biodiesel produced in the United States and increase the supply of biodiesel available in the United States market. Such market
dynamics may negatively impact our revenues and profitability.
If automobile manufacturers and other industry groups express reservations regarding the use of biodiesel, our ability to sell
biodiesel will be negatively impacted.
Because it is a relatively new product compared with petroleum diesel, research on biodiesel use in automobiles is ongoing. While
most heavy duty automobile manufacturers have approved blends of up to 20% biodiesel, some industry groups have recommended that
blends of no more than 5% biodiesel be used for automobile fuel due to concerns about fuel quality, engine performance problems and
possible detrimental effects of biodiesel on rubber components and other engine parts. Although some manufacturers have encouraged use
of biodiesel fuel in their vehicles, cautionary pronouncements by other manufacturers or industry groups may impact our ability to market
our biodiesel.
Perception about “food vs. fuel” could impact public policy which could impair our ability to operate at a profit and substantially
harm our revenues and operating margins.
Some people believe that biomass-based diesel may increase the cost of food, as some feedstocks such as soybean oil used to make
biomass-based diesel can also be used for food products. This debate is often referred to as “food vs. fuel.” This is a concern to the biomass-
based diesel industry because biomass-based diesel demand is heavily influenced by government policy and if public opinion were to erode,
it is possible that these policies would lose political support. These views could also
21
Table of Contents
negatively impact public perception of biomass-based diesel. Such claims have led some, including members of Congress, to urge the
modification of current government policies which affect the production and sale of biofuels in the United States.
Concerns regarding the environmental impact of biomass-based diesel production could affect public policy which could impair
our ability to operate at a profit and substantially harm our revenues and operating margins.
Under the EISA, the EPA is required to produce a study every three years of the environmental impacts associated with current and
future biofuel production and use, including effects on air and water quality, soil quality and conservation, water availability, energy
recovery from secondary materials, ecosystem health and biodiversity, invasive species and international impacts. The first such triennial
report was released in February 2012. The 2012 report concludes that (1) the extent of negative impacts to date are limited in magnitude
and are primarily associated with the intensification of corn production; (2) whether future impacts are positive or negative will be
determined by the choice of feedstock, land use change, cultivation and conservation practices; and (3) realizing potential benefits will
require implementation and monitoring of conservation and best management practices, improvements in production efficiency, and
implementation of innovative technologies at commercial scales. Should future EPA triennial studies, or other analyses find that biofuel
production and use has resulted in, or could in the future result in, adverse environmental impacts, such findings could also negatively
impact public perception of biofuel and acceptance of biofuel as an alternative fuel, which also could result in the loss of political support.
To the extent that state or federal laws are modified or public perception turns against biomass-based diesel, use requirements such as
RFS2 and state tax incentives may not continue, which could materially harm our ability to operate profitably.
Problems with product performance, in cold weather or otherwise, could cause consumers to lose confidence in the reliability of
biodiesel which, in turn, would have an adverse impact on our ability to successfully market and sell biodiesel.
Concerns about the performance of biodiesel could result in a decrease in customers and revenues and an unexpected increase in
expenses. Biodiesel typically has a higher cloud point than petroleum-based diesel. The cloud point is the temperature below which a fuel
exhibits a noticeable cloudiness and is the conventional indicator of a fuel’s potential for cold weather problems. The lower the cloud point,
the better the fuel should perform in cold weather. According to an article published by Iowa State University Extension, the cloud point of
biodiesel is typically between 30 °F and 60 °F, while the cloud point of the most common form of pure petroleum-based diesel fuel is
typically less than 20 °F. It is our experience that when biodiesel is mixed with pure petroleum-based diesel to make a two percent biodiesel
blend, the cloud point of the blended fuel can be 2 °F to 6 °F higher than petroleum-based diesel and the cloud point of a twenty percent
biodiesel blend can be 15 °F to 35 °F higher than petroleum based diesel, depending on the individual cloud points of the biodiesel and
petroleum-based diesel. Cold temperatures can therefore cause biodiesel blended fuel to become cloudy and eventually to gel when pure
petroleum-based diesel would not, and this can lead to plugged fuel filters and other fuel handling and performance problems for customers
and suppliers. The consequences of these higher cloud points may cause demand for biodiesel in northern and eastern United States
markets to diminish during the colder months, which are the primary markets in which we currently operate.
The tendency of biodiesel to gel in colder weather may also result in long-term storage problems. In cold climates, fuel may need to
be stored in a heated building or heated storage tanks, which result in higher storage costs. This and other performance problems, including
the possibility of particulate formation above the cloud point of a blend of biodiesel and petroleum-based diesel, may also result in
increased expenses as we try to remedy these performance problems, including the costs of extra cold weather treatment additives.
Remedying these performance problems may result in decreased yields, lower process throughput or both, as well as substantial capital
costs. Any reduction in the demand for our biodiesel product, or the production capacity of our facilities will reduce our revenues and have
an adverse effect on our cash flows and results of operations.
Growth in the sale and distribution of biomass-based diesel is dependent on the expansion of related infrastructure which may not
occur on a timely basis, if at all, and our operations could be adversely affected by infrastructure limitations or disruptions.
Growth in the biomass-based diesel industry depends on substantial development of infrastructure for the distribution of biodiesel.
Substantial investment required for these infrastructure changes and expansions may not be made on a timely basis or at all. The scope and
timing of any infrastructure expansion are generally beyond our control. Also, we compete with other biofuel companies for access to some
of the key infrastructure components such as pipeline and terminal capacity. As a result, increased production of biomass-based diesel will
increase the demand and competition for necessary infrastructure. Any delay or failure in expanding distribution infrastructure could hurt
the demand for or prices of biomass-based diesel, impede delivery of our biomass-based diesel, and impose additional costs, each of which
would have a material adverse effect on our results of operations and financial condition. Our business will be dependent on the continuing
availability of infrastructure for the
22
Table of Contents
distribution of increasing volumes of biomass-based diesel and any infrastructure disruptions could materially harm our business.
We face competition from imported biodiesel and renewable hydrocarbon diesel, which may reduce demand for biomass-based
produced by us and cause our revenues and profits to decline.
Biodiesel and renewable hydrocarbon diesel imports into the United States have increased significantly and compete with United
States produced biodiesel. The imported fuels may benefit from production incentives or other financial incentives in their home countries
that offset some of their production costs and enable them to profitably sell biodiesel or renewable hydrocarbon diesel in the United States
at lower prices than United States-based biodiesel producers. Under RFS2, imported biodiesel and renewable hydrocarbon diesel is eligible
and, therefore, competes to meet the volumetric requirements for biomass-based diesel and advanced biofuels. If imports continue to
increase, this could make it more challenging for us to market or sell biomass-based diesel in the United States, which would have a
material adverse effect on our revenues. In January 2015, the EPA announced the approval for Argentinian biodiesel made from soybean
oil to earn RINs. Imported biomass-based diesel that does not qualify under RFS2, also competes in jurisdictions where there are biomass-
based diesel blending requirements.
Nitrogen oxide emissions from biodiesel may harm its appeal as a renewable fuel and increase costs.
In some instances, biodiesel may increase emissions of nitrogen oxide as compared to petroleum-based diesel fuel, which could harm
air quality. Nitrogen oxide is a contributor to ozone and smog. New Technology Diesel Engines eliminate any such increase. Emissions
from older vehicles while the fleet turns over may decrease the appeal of biodiesel to environmental groups and agencies who have been
historic supporters of the biodiesel industry, potentially harming our ability to market our biodiesel.
In addition, several states may act to regulate potential nitrogen oxide emissions from biodiesel. California recently adopted
regulations that may limit the volume of biodiesel that can be used or require an additive to reduce potential emissions. In states where such
an additive is required to sell biodiesel, the additional cost of the additive may make biodiesel less profitable or make biodiesel less cost
competitive against petroleum-based diesel or renewable hydrocarbon diesel, which would negatively impact our ability to sell our
products in such states and therefore have an adverse effect on our revenues and profitability.
Several biofuels companies throughout the United States have filed for bankruptcy over the last several years due to industry and
economic conditions.
A volatile regulatory environment, lack of debt or equity investments and volatile biofuel prices and feedstock costs have likely
contributed to the necessity of bankruptcy filings by biofuel producers. Our business has been, and in the future may be, negatively
impacted by the industry conditions that influenced the bankruptcy proceedings of other biofuel producers, or we may encounter new
competition from buyers of distressed biodiesel properties who enter the industry at a lower cost than original plant investors.
Risks Related to Our Common Stock
The market price for our common stock may be volatile.
Although there is currently an active and liquid trading market for our common stock, the market price for our common stock is likely
•
•
•
•
•
to be highly volatile and subject to wide fluctuations in response to factors including the following:
actual or anticipated fluctuations in our financial condition and operating
results;
changes in the performance or market valuations of other companies engaged in our
industry;
issuance of new or updated research reports by securities or industry
analysts;
changes in financial estimates by us or of securities or industry
analysts;
investors’ general perception of us and the industry in which we
operate;
changes in the political climate in the industry in which we operate, existing laws, regulations and policies applicable to our
business and products, including RFS2, and the continuation or adoption or failure to continue or adopt renewable energy
requirements and incentives, including the BTC;
other regulatory developments in our industry affecting us, our customers or our
competitors;
announcements of technological innovations by us or our
competitors;
announcement or expectation of additional financing efforts, including sales or expected sales of additional common
stock;
additions or departures of key management or other
personnel;
•
•
•
•
•
23
Table of Contents
•
•
•
•
litigation;
inadequate trading
volume;
general market conditions in our industry;
and
general economic and market conditions, including continued dislocations and downward pressure in the capital
markets.
In addition, stock markets generally and from time to time experience significant price and volume fluctuations that are not related to
the operating performance of particular companies. These market fluctuations may have material adverse effect on the market price of our
common stock.
We may issue additional common stock as consideration for future investments or acquisitions.
We have issued in the past, and may issue in the future, our securities in connection with investments and acquisitions. The amount of
our common stock or securities convertible into or exchangeable for our common stock issued in connection with an investment or
acquisition could constitute a material portion of our then outstanding common stock.
We have never paid dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future.
We have paid no cash dividends on any of our classes of common stock to date, have contractual restrictions against paying cash
dividends and currently intend to retain our future earnings to fund the development and growth of our business. As a result, stockholders
must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur. Investors
seeking cash dividends should not invest in our common stock.
Delaware law and our amended and restated certificate of incorporation and bylaws will contain anti-takeover provisions that
could delay or discourage takeover attempts that stockholders may consider favorable.
Provisions in our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing a change
of control or changes in our management. These provisions include the following:
•
•
•
•
•
•
•
the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of
directors;
the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be
acted upon at a stockholders’ meeting;
the ability of the board of directors to alter our bylaws without obtaining stockholder
approval;
the ability of the board of directors to issue, without stockholder approval, up to 10,000,000 shares of preferred stock with
rights set by the board of directors, which rights could be senior to those of common stock;
a classified
board;
the required approval of holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend
or repeal our bylaws or amend or repeal the provisions of our amended and restated certificate of incorporation regarding the
classified board, the election and removal of directors and the ability of stockholders to take action by written consent; and
the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written
consent.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, or DGCL. These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of our
outstanding voting stock, from merging or combining with us. These provisions in our amended and restated certificate of incorporation and
bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to
pay for shares of our common stock in the future and result in our market price being lower than it would without these provisions.
24
Table of Contents
If securities or industry analysts issue an adverse or misleading opinion regarding our stock or do not publish research or reports
about our business, our stock price and trading volume could decline.
The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and
our business. It is difficult for companies such as ours to attract independent equity research analysts to cover our common stock. We do
not control these analysts or the content and opinions included in their reports. The price of our common stock could decline if one or more
equity research analysts downgrade our common stock or if those analysts issue other unfavorable commentary or cease publishing reports
about us or our business. Although there is currently an active and liquid trading market for REG common stock, if one or more equity
research analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to
decline and the market for our common stock to become illiquid.
ITEM 1B. Unresolved Staff
Comments
None.
ITEM 2.
Properties
The following table lists each of our production facilities and their location, use, and nameplate production capacity. Each facility listed
below is used by our Biomass-based diesel Segment.
COMPLETED PRODUCTION FACILITIES
Location
Ralston, Iowa
Seabrook, Texas
Danville, Illinois
Newton, Iowa
Seneca, Illinois
Albert Lea, Minnesota
New Boston, Texas
Ellenwood, Georgia
Mason City, Iowa
Geismar, Louisiana
Okeechobee, Florida
Use
Biomass-based diesel production
Biomass-based diesel production
Biomass-based diesel production
Biomass-based diesel production
Biomass-based diesel production
Biomass-based diesel production
Biomass-based diesel production
Biomass-based diesel production
Biomass-based diesel production
Biomass-based diesel production
Fermentation facility
Nameplate
Production
Capacity
(mmgy)
12
35
45
30
60
30
15
15
30
75
N/A
Our Ellenwood facility was idled by the previous owners prior to our acquisition and will remain so until repairs or upgrades are made
where the facility meets our standards. We have not yet set a production date for our Ellenwood facility.
PETROTEC'S COMPLETED PRODUCTION FACILITIES
Location
Emden, Germany
Oeding, Germany
Use
Biomass-based diesel production
Biomass-based diesel production
Nameplate
Production
Capacity
(mmgy)
30
25.5
The following table lists our partially constructed or idled biomass-based diesel production facilities, the planned nameplate capacity and
the approximate level of completion.
PARTIALLY CONSTRUCTED FACILITIES
Location
St. Rose, Louisiana
Emporia, Kansas
Clovis, New Mexico
Use
Biomass-based diesel production
Biomass-based diesel production
Biomass-based diesel production
Nameplate
Production
Capacity
(mmgy)
60
60
15
Approximate
Completion
Level
45%
20%
50%
We own our corporate headquarters located at 416 South Bell Avenue, Ames, Iowa 50010, comprised of 60,480 square feet of office and
laboratory space; as well as another building located at 215 Alexander Avenue, Ames, Iowa 50010 which is comprised of 12,000 square
feet of office space.
ITEM 3.
Legal
Proceedings
We are not a party to any material pending legal proceeding, nor is any of our property the subject of any material pending legal
proceeding, except ordinary routine litigation arising in the ordinary course of our business and incidental to our business, none of which is
expected to have a material adverse impact upon our business, financial position or results of operations.
ITEM 4. Mine Safety
Disclosures
None.
25
Table of Contents
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market For Our Common Equity
Our common stock began trading on the NASDAQ Global market on January 19, 2012. Prior to that time, there was no public market
for our stock. The table below sets forth the high and low sales price of our common stock.
2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Holders
High
Low
10.97 $
12.30 $
12.66 $
12.89 $
8.67
9.98
9.75
9.61
High
Low
16.00 $
16.50 $
14.80 $
8.20 $
8.51
12.77
7.69
5.90
$
$
$
$
$
$
$
$
As of February 27, 2015, there were approximately 2,484 holders of record of our common stock.
Dividends
We have never paid, and do not intend to pay in the future, a cash dividend on our common stock. In addition, we have entered into
agreements that contractually restrict certain of our subsidiaries from paying dividends, making distributions or making loans to our parent
company or to any other subsidiaries.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides certain information as of December 31, 2014, with respect to our equity compensation plans:
PLAN CATEGORY
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
NUMBER OF
SECURITIES
TO BE ISSUED
UPON
EXERCISE OF
OUTSTANDING
OPTIONS,
WARRANTS
AND RIGHTS
WEIGHTED
AVERAGE
EXERCISE
PRICE OF
OUTSTANDING
OPTIONS,
WARRANTS
AND RIGHTS
NUMBER OF
SECURITIES
REMAINING
AVAILABLE
FOR FUTURE
ISSUANCE
UNDER EQUITY
COMPENSATION
PLANS
2,512,722 1 $
—
2,512,722
$
11.24 2
—
11.09
1,780,122
—
1,780,122
1
2
Includes stock options of 87,026, restricted stock units of 616,394 and stock appreciation rights of
1,809,302.
Restricted stock units do not have an exercise price and therefore have not been included in the calculation of weighted average
exercise price.
Performance Graph
The following performance graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by
reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, respectively.
26
Table of Contents
The following graph shows a comparison of the cumulative total returns from January 19, 2012 to December 31, 2014, for us, the
Clean Tech Index and the Russell 3000 Index. The graph assumes that $100 was invested on January 18, 2012 in our common stock, the
Clean Tech Index and the Russell 3000 Index, and that all dividends were reinvested.
REGI
Clean Tech Index
Russell 3000
Sales of Unregistered Securities
01/19/2012 12/31/2012 12/31/2013 12/31/2014
97.10
$
124.91
157.50
114.60 $
136.55
142.96
58.60 $
99.59
109.17
100.00 $
100.00
100.00
On January 22, 2014, we issued 2,230,559 shares of our common stock to LS9 pursuant to the terms of that certain Asset Purchase
Agreement, dated as of January 18, 2014, by and among LS9, REG, REG Life Sciences and Fortis Advisors LLC, solely in its capacity as
the representative of LS9 and the indemnity securityholders named therein.
On February 25, 2014, we issued 49,662 shares of common stock with respect to the intangible supply agreement in connection with
the purchase of substantially all Tellurian Biodiesel, Inc. and American BDF, LLC assets.
On June 3, 2014, we issued 3,493,613 shares of common stock to Syntroleum Corporation pursuant to the terms of the Asset
Purchase Agreement, dated December 17, 2013, by and among REG, REG Synthetic Fuels and Syntroleum Corporation.
On December 24, 2014, we issued 2,070,538 shares of common stock to IC Green Energy Ltd. pursuant to the terms of the
Agreement for the Sale and Purchase of Shares and Loan in Petrotec AG, dated December 9, 2014, by and among REG, REG European
Holdings B.V., and IC Green Energy Ltd.
Issuer Purchases of Equity Securities
As of December 31, 2014, there were no authorized repurchase programs in effect under which we may repurchase shares of our
outstanding common stock.
On February 19, 2015, the Company's board of directors approved a share repurchase program of up to $30 million of the Company's
shares of common stock. Under the program, REG may repurchase shares from time to time in open market transactions, privately
negotiated transactions or by other means. The timing and amount of repurchase transactions will be determined by the Company's
management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be
suspended, modified or discontinued at any time without prior notice.
27
Table of Contents
ITEM 6.
Selected Financial
Data
The following selected consolidated financial data should be read together with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and related notes included elsewhere in this annual report.
The selected consolidated balance sheet data as of December 31, 2014 and 2013, and the selected consolidated statements of
operations data for each year ended December 31, 2014, 2013 and 2012, have been derived from our audited consolidated financial
statements which are included elsewhere in this annual report. The selected consolidated balance sheet data as of December 31, 2012, 2011
and 2010, and the selected consolidated statements of operations data for the years ended December 31, 2011 and 2010 have been derived
from our audited consolidated financial statements not included in this annual report.
Consolidated Statement of Operations Data:
Total revenues
Net income (loss) attributable to the company's
common stockholders
Net income (loss) per share attributable to common
stockholders
Basic
Diluted
Consolidated Balance Sheet Data:
Total assets
Long-term debt
Redeemable preferred stock
2014(1)
Year Ended December 31,
2011 (4)
2012 (3)
(In thousands, except per share amounts)
2013 (2)
2010(5)
$
1,273,831 $
1,498,138 $ 1,015,034 $
824,031 $
216,455
81,620
165,254
43,482
42,753
(119,122)
2.00
1.99
5.00
5.00
1.53
0.27
3.14
3.14
(4.28)
(4.28)
$
1,372,888 $
247,183
—
740,855 $
27,151
3,963
495,784 $
31,806
83,043
484,447 $
73,079
147,779
369,643
61,024
122,436
(1)
(2)
(3)
(4)
(5)
Reflects the acquisitions of LS9 as of January 22, 2014, Syntroleum and Dynamic Fuels on June 3, 2014 and June 6, 2014,
respectively, and Petrotec as of December 24, 2014 as further described in Note 5 of Item 8 - Financial Statements and
Supplementary Data. In addition, the results reflect the issuance of the convertible senior notes on June 3, 2014 as further
described in Note 12 of Item 8 - Financial Statements and Supplementary Data.
Reflects the acquisition of Soy Energy as of July 30, 2013 as further described in Note 5 of Item 8 - Financial Statements and
Supplementary Data.
Reflects the acquisition of North Texas Bio Energy as of October 26, 2012 and BullDog Biodiesel on November 16, 2012 as
further described in Note 5 of Item 8 - Financial Statements and Supplementary Data.
Reflects the acquisition of SoyMor as of July 12,
2011.
Reflects the deconsolidation of Blackhawk as of January 1, 2010, the acquisition of Blackhawk as of February 26, 2010,
acquisition of CIE as of March 8, 2010, acquisition and consolidation of Seneca Landlord as of April 8, 2010, acquisition of
Tellurian and ABDF as of July 16, 2010, and the acquisition of Clovis as of September 21, 2010.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto that
appear elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks
and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors,
including those set forth in the section entitled “Risk Factors” and elsewhere in this report.
Overview
We are a leading North American advanced biofuels producer and are expanding into the development of renewable chemicals. We
have been a leader in the biomass-based diesel industry since 1996. We utilize a nationwide production, distribution and logistics system as
part of an integrated value chain model to focus on converting natural fats, oils and greases into advanced biofuels and converting diverse
feedstocks into renewable chemicals. We own and operate nine biomass-based
28
Table of Contents
diesel production facilities with aggregate nameplate production capacity of 332 million gallons per year, or mmgy, as well as one
fermentation facility.
During 2014, we sold 287 million gallons of biomass-based diesel, including 42 million gallons we purchased from third parties and
resold. During 2013, we sold 259 million gallons, including 48 million gallons we purchased from third parties and resold.
We are expanding into the production of renewable chemicals, additional advanced biofuels and other products through our
acquisition of LS9, Inc., or LS9, in January 2014. This industrial biotechnology business is a development stage company focusing on
harnessing the power of microbial fermentation to develop and produce renewable chemicals, fuels and other products. The assets we
acquired consist mainly of in-process research and development, fixed assets and goodwill.
We began selling petroleum-based heating oil and diesel fuel, and enables us to offer additional biofuel blends, while expanding our
customer base. We sell heating oil and ultra-low sulfur diesel, or ULSD, at terminals throughout the northeastern U.S. as well as BioHeat®
blended heating fuel at one of our existing Northeast terminal locations in February 2014. We are expanding our sales of additional biofuel
blends to Minnesota and Iowa terminal locations and potentially in other areas across North America.
We acquired a 75 mmgy nameplate capacity renewable hydrocarbon diesel biorefinery located in Geismar, Louisiana in June 2014.
Our Geismar facility had been idled by its previous owner and began operating again by us in October 2014 after our completion of certain
upgrades.
We also expanded our business internationally by acquiring a majority interest in Petrotec AG in December 2014. We have made a
cash tender offer for the remaining Petrotec shares, which had not closed as of the date of this filing. Petrotec is a fully-integrated company
utilizing more than 15,000 collection points to gather used cooking oil and other waste feedstocks to produce biomass-based diesel at its
two biorefineries in Emden and Oeding, Germany. Petrotec’s nameplate production capacity is approximately 56 mmgy.
We derive revenues from two reportable business segments: Biomass-based diesel and Services
Biomass-based diesel Segment
Our Biomass-based diesel segment, as reported herein, includes:
•
the operations of the following biomass-based diesel production
facilities:
•
a 12 mmgy nameplate biomass-based diesel production facility located in Ralston,
Iowa;
a 35 mmgy nameplate biomass-based diesel production facility located near Houston,
Texas;
a 45 mmgy nameplate biomass-based diesel production facility located in Danville,
Illinois;
a 30 mmgy nameplate biomass-based diesel production facility located in Newton,
Iowa;
a 60 mmgy nameplate biomass-based diesel production facility located in Seneca,
Illinois;
a 30 mmgy nameplate biomass-based diesel production facility located near Albert Lea,
Minnesota;
a 15 mmgy nameplate biomass-based diesel production facility located in New Boston,
Texas;
a 30 mmgy nameplate biomass-based diesel production facility located in Mason City,
Iowa;
a 75 mmgy nameplate renewable hydrocarbon diesel production facility located in Geismar, Louisiana, since its
acquisition in June 2014;
a 30 mmgy nameplate biomass-based diesel production facility located in Emden, Germany since its 69% majority
ownership was acquired in December 2014;
a 26 mmgy nameplate biomass-based diesel production facility located in Oeding, Germany since its 69% majority
ownership was acquired in December 2014; and
a demonstration scale facility located in Okeechobee, Florida since its acquisition in January
2014.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
purchases and resale of biomass-based diesel, Renewable Identification Numbers, or RINs, and raw material feedstocks
acquired from third parties;
our sales of biomass-based diesel produced under toll manufacturing arrangements with third party facilities using our
feedstocks; and
incentives received from federal and state programs for renewable
fuels.
We derive a small portion of our revenues from the sale of glycerin, free fatty acids, naphtha and other co-products of the biomass-
based diesel production process. In 2014 and 2013, our revenues from the sale of co-products were less than five percent of our total
Biomass-based diesel segment revenues. During 2014, revenues from the sale of petroleum-based heating oil and diesel fuel acquired from
third parties, along with the sale of these items further blended with biodiesel produced at
29
Table of Contents
wholly owned facilities were less than 2% of our total Biomass-based diesel segment revenues. We have not derived any revenues to date
from our renewable chemicals business.
In accordance with EPA regulations, we generate 1.5 to 1.7 RINS, for each gallon of biomass-based diesel we produce. RINs are used
to track compliance with RFS2 using the EPA moderated transaction system, or EMTS. RFS2 allows us to attach between zero and 2.5
RINs to any gallon of biomass-based diesel we sell. We generally attach 1.5 to 1.7 RINs when we sell a gallon of biomass-based diesel. As
a result, a portion of our selling price for a gallon of biomass-based diesel is generally attributable to RFS2 compliance, but no cost is
allocated to the RINs generated by our biomass-based diesel production because RINs are a form of government incentive and not a result
of the physical attributes of the biomass-based diesel production. In addition, RINs, once obtained with gallons of biomass-based diesel,
may be separated by the acquirer and sold separately. From time to time, we may obtain these RINs from third parties for resale. The value
of these RINs obtained from third parties is reflected in “Prepaid expenses and other assets” on our consolidated balance sheet. At each
balance sheet date, this RIN inventory is valued at the lower of cost or market and resulting adjustments are reflected in our cost of goods
sold for the period. The cost of RINs obtained from third parties is determined using the average cost method. Because we do not allocate
costs to RINs generated by our biomass-based diesel production, fluctuations in the value of our RIN inventory represent fluctuations in the
value of RINs we have obtained from third parties.
Services Segment
Our Services segment includes:
•
•
biomass-based diesel facility management and operational services, whereby we provide day-to-day management and
operational services to biomass-based diesel production facilities as well as other clean-tech companies; and
construction management services, whereby we act as the construction management and general contractor for the
construction of biomass-based diesel production facilities.
We have utilized our construction management expertise internally to upgrade our facilities. In October 2014, we completed a $20
million upgrade to our Mason City facility, enabling the plant to run on lower cost feedstocks in addition to refined vegetable oils the plant
was originally designed to process. In December 2014, we completed a $15.8 million upgrade and storage expansion to our Newton
facility. In 2013, we completed a $22 million upgrade to our Albert Lea facility and spent $4 million and $1 million in repairs of our
recently acquired New Boston and Mason City facilities, respectively. We anticipate external revenues derived from construction
management services will be minimal in future periods. Demand for our construction management and facility management and operational
services depend on capital spending by potential customers and existing customers, which is directly affected by trends in the biomass-
based diesel industry. We have not received any orders or provided services to outside parties for new facility construction services since
2009.
Factors Influencing Our Results of Operations
The principal factors affecting our segments are the market prices for biomass-based diesel and the feedstocks used to produce
biomass-based diesel, as well as governmental programs designed to create incentives for the production and use of biomass-based diesel.
Governmental programs favoring biomass-based diesel production and use
Biomass-based diesel has historically been more expensive than petroleum-based diesel, excluding biomass-based diesel incentives
and credits. The biomass-based diesel industry’s growth has largely been the result of federal and state programs that require or incentivize
biomass-based diesel, which allows biomass-based diesel to compete with petroleum-based diesel on price.
On July 1, 2010, RFS2 was implemented, stipulating volume requirements for the amount of biomass-based diesel and other
advanced biofuels that must be utilized in the United States each year. Under RFS2, Obligated Parties, including petroleum refiners and
fuel importers, must show compliance with these standards. Currently, biodiesel and renewable hydrocarbon diesel production meets two
categories of an Obligated Party’s annual renewable fuel required volume obligation, or RVO—biomass-based diesel and undifferentiated
advanced biofuel. The RFS2 program required the domestic use of one billion gallons of biomass-based diesel in 2012 and 1.28 billion
gallons in 2013. As of this filing, the EPA has not finalized the 2014 or the 2015 RVO. In November 2013, the EPA proposed that the 2014
and 2015 biomass-based diesel RVO be 1.28 billion gallons for each of those years and a reduced Advanced Biofuel RVO of 2.20 billion
gallons rather than the original EISA volume of 3.75 for 2014, a proposal whereby the EPA has issued a "notification of delay in issuing
standards." Our sales volumes and revenues have benefited from our increased production capacity, as well as demand relating to the
implementation of RFS2.
30
Table of Contents
Volumes of biomass-based diesel produced increased from 2010 to 2013. From 2013 through 2014 volumes of biomass-based diesel
were flat. According to EMTS data, 1.78 billion gallons of biomass-based diesel was produced and imported into the U.S. in 2013.
Notwithstanding the lack of a finalized 2014 RVO, according to EMTS data, 1.75 billion gallons of biomass-based diesel was produced and
imported into the U.S. in 2014.
The BTC provided a $1.00 refundable tax credit per gallon of 100% pure biomass-based diesel, or B100, to the first blender of
biomass-based diesel with petroleum-based diesel fuel. The BTC became effective January 1, 2005 and then lapsed January 1, 2010 before
being reinstated retroactively on December 17, 2010. The BTC again expired as of December 31, 2011 and on January 2, 2013, it was
again reinstated, retroactively for 2012 and through December 31, 2013. The BTC expired again on December 31, 2013 and was
retroactively reinstated for 2014 on December 19, 2014. Unlike prior years, Congress did not grant a two year reinstatement, but rather only
reinstated the BTC for 2014. Accordingly, the BTC expired again on December 31, 2014. We recognized a net benefit from the BTC of
$78.8 million in 2014 and expect to recognize a net benefit of $16.5 million in 2015 relating to 2014 activity. It is uncertain whether the
BTC will be reinstated and if reinstated, whether or not it would be reinstated retroactively. The expiration of the BTC along with any
amendments that may be made if the BTC is reinstated or a similar credit is enacted, could adversely affect our financial results in the
future.
Biomass-based diesel and feedstock price fluctuations
Our operating results generally reflect the relationship between the price of biomass-based diesel, including credits and incentives,
like RINs and the BTC and the price of feedstocks used to produce biomass-based diesel.
Biomass-based diesel is a low carbon, renewable alternative to petroleum-based diesel fuel and is primarily sold to the end user after
it has been blended with petroleum-based diesel fuel. Biomass-based diesel prices have historically been heavily influenced by petroleum-
based diesel fuel prices. Accordingly, biomass-based diesel prices have generally been impacted by the same factors that affect petroleum
prices, such as crude oil supply and demand balance, worldwide economic conditions, wars and other political events, OPEC production
quotas, changes in refining capacity and natural disasters.
Regulatory and legislative factors also influence the price of biomass-based diesel. Biomass-based diesel RIN pricing, a value
component that was introduced via RFS2 in July 2010, has had a significant impact on our biomass-based diesel pricing. During 2013, the
value of RINs, as reported by OPIS, have contributed to the average B100 spot price of a gallon of biomass-based diesel, as reported by
The Jacobsen, and range from a low of $0.35 per gallon, or 9%, in October to a high of $2.20, or 43% per gallon in January. During 2014,
the value of RINs, as reported by OPIS, have contributed to the average B100 spot price of a gallon of biomass-based diesel, as reported by
The Jacobsen, from a low of $0.64 per gallon, or 19%, in January to a high of $1.15, or 34%, per gallon in December. There was a
significant decline in RIN prices during the second and third quarters of 2014, but the prices went back up in the fourth quarter and finished
the year at their peak.
This decrease in the value of RINs during 2014 and 2013 resulted in a $4.3 million and $3.2 million, respectively, write-down to
lower of cost or market on RIN inventory acquired from third parties that occurred throughout the year. See “Note 10 – Other Assets” to
our consolidated financial statements. We enter into forward contracts to sell RINs and we use risk management position limits to manage
RIN exposure. Because of EPA rules limiting the amount of assigned RINs we can hold at any one time, the value of these assigned RINs
held in inventory does not have a material effect on margins from period to period.
During 2014, feedstock expense accounted for 80% of our production cost, while methanol and chemical catalysts expense accounted
for 5% and 3% of our costs of goods sold, respectively.
Feedstocks for biomass-based diesel production, such as inedible corn oil, used cooking oil, inedible animal fat and soybean oil are
commodities and market prices for them will be affected by a wide range of factors unrelated to the price of biomass-based diesel and
petroleum-based diesel fuels. The following table outlines some of the factors influencing supply and price for each feedstock:
31
Table of Contents
Feedstock
Inedible Corn Oil
Used Cooking Oil
Factors Influencing Supply and Price
Demand for inedible corn oil from biomass-based diesel and other markets
Ethanol production
Export demand
Extraction system yield
Implementation of inedible corn oil separation systems into existing and new
ethanol facilities
Biomass-based diesel demand
Export demand
Population
Number of restaurants in the vicinity of collection facilities and terminals which is
dependent on population density
Cooking methods and eating habits, which can be impacted by the economy
Inedible Animal Fat
Export demand
Number of slaughter kills in the United States
Demand for inedible animal fat from biomass-based diesel and other markets
Soybean Oil
Export demand
Weather conditions
Soybean meal demand
Farmer planting decisions
Government policies and subsidies
Crop disease
Biomass-based diesel demand
During 2014 and 2013, 85% and 83%, respectively, of our feedstocks were comprised of inedible corn oil, used cooking oil and
inedible animal fats with the remainder coming from virgin vegetable oil.
The graph below illustrates the spread between the cost of producing one gallon of biodiesel made from soybean oil to the cost of
producing one gallon of biodiesel made from a lower cost feedstock for the period December 2011 through December 2014. The results
were derived using assumed conversion factors for the yield of each feedstock and subtracting the cost of producing one gallon of biodiesel
made from each respective lower cost feedstock from the cost of producing one gallon of biodiesel made from soybean oil.
32
Table of Contents
(1)
(2)
(3)
(4)
Soybean oil (crude) prices are based on the monthly average of the daily closing sale price of the nearby soybean oil contract as
reported by CBOT (based on 7.7 pounds per gallons).
Used cooking oil prices are based on the monthly average of the daily low sales price of Missouri River yellow grease as reported
by The Jacobsen (based on 8.5 pounds per gallon).
Inedible corn oil prices are reported as the monthly average of the daily distillers’ corn oil market values delivered to Illinois as
reported by The Jacobsen (based on 8.2 pounds per gallon).
Choice white grease prices are based on the monthly average of the daily low prices of Missouri River choice white grease as
reported by The Jacobsen (based on 8.0 pounds per gallon).
Our results of operations generally will benefit when the spread between biomass-based diesel prices and feedstock prices widens and
will be harmed when this spread narrows. The following graph shows feedstock cost data of choice white grease and soybean oil on a per
gallon basis compared to the sale price data for biodiesel, and the spread between the two, from December 2011 to December 2014.
33
Table of Contents
(1)
(2)
(3)
(4)
(5)
Biodiesel prices are based on the monthly average of the midpoint of the high and low prices of B100 (Upper Midwest) as
reported by The Jacobsen.
Soybean oil (crude) prices are based on the monthly average of the daily closing sale price of the nearby soybean oil contract as
reported by CBOT (based on 7.7 pounds per gallon).
Choice white grease prices are based on the monthly average of the daily low price of Missouri River choice white grease as
reported by The Jacobsen (based on 8.0 pounds per gallon).
Spread between biodiesel price and choice white grease
price.
Spread between biodiesel price and soybean oil (crude)
price.
Feedstock prices began to decline in June 2014 which continued throughout 2014. Palm oil prices also moved lower in third quarter
and traded in a sideways-pattern in fourth quarter 2014. A record corn and soybean harvest coupled with lower energy prices helped push
feedstock prices lower in the last-half of 2014. US cattle slaughter numbers continued at a historically low rate as a result of the two year
drought in the southern plains. Hog slaughter saw a seasonal increase in the last half of 2014, though numbers stayed below the previous
year due to impact on the herd size related to the PED virus. Feedstock price declines were offset by a sharp decrease in energy prices
mainly driven by a decrease in crude oil prices beginning in October.
Risk Management
The profitability of the biomass-based diesel production business largely depends on the spread between prices for feedstocks and
biomass-based diesel, including RINs and BTC, each of which is subject to fluctuations due to market and policy factors and each of which
is not significantly correlated. Adverse price movements for these commodities directly affect our operating results. We attempt to protect
operating margins by entering into risk management contracts that mitigate price volatility of our feedstocks, such as inedible corn oil, used
cooking oil and inedible animal fat and energy prices. We create offsetting positions by using a combination of forward fixed-price
physical purchases and sales contracts on feedstock and biomass-based diesel, including risk management futures contracts, swaps and
options primarily on heating oil and soybean oil; however, the extent to which we engage in risk management activities varies substantially
from time to time, and from feedstock to feedstock, depending on market conditions and other factors. In making risk management
decisions, we utilize research conducted by outside firms to provide additional market information.
Inedible corn oil, used cooking oil and inedible animal fat are the primary feedstocks we used to produce biomass-based diesel in
2012, 2013 and 2014. We utilize several varieties of inedible animal fat, such as beef tallow, choice white grease and poultry fat derived
from livestock. There is no established futures market for these lower cost feedstocks. The purchase prices for lower cost feedstocks are
generally set on a negotiated flat price basis or spread to a prevailing market price reported by the USDA price sheet or The Jacobsen. Our
limited efforts to risk manage against changing inedible corn oil, used cooking oil and
34
Table of Contents
inedible animal fat prices have involved entering into futures contracts, swaps or options on other commodity products, such as soybean oil
or heating oil. However, these products do not always experience the same price movements as lower cost feedstocks, making risk
management for these feedstocks challenging. We manage feedstock supply risks related to biomass-based diesel production in a number of
ways, including, where available, through long-term supply contracts. For example, most of the feedstock requirements for our Ralston
facility were supplied under an agreement with West Central which expired on January 31, 2015 and automatically renewed for one
additional year. The purchase price for soybean oil under these contracts may be indexed to prevailing Chicago Board of Trade, or CBOT,
soybean oil market prices with a negotiated market basis. We utilize futures contracts, swaps and options to risk manage, or lock in, the cost
of portions of our future soybean oil requirements generally for varying periods up to one year.
Our ability to mitigate our risk of falling biomass-based diesel and RIN prices is limited. We have entered into forward contracts to
supply biomass-based diesel. However, pricing under these forward sales contracts generally has been indexed to prevailing market prices,
as fixed price contracts for long periods on acceptable terms have generally not been available. There is no established market for biomass-
based diesel futures in the United States. Our efforts to hedge against falling biomass-based diesel prices generally involve entering into
futures contracts, swaps and options on other commodity products, such as diesel fuel and heating oil. However, price movements on these
products are not highly correlated to price movements of biomass-based diesel.
We generate 1.5 to 1.7 biomass-based diesel RINs for each gallon of biomass-based diesel we produce and sell. We also obtain RINs
from third party transactions which we hold for resale. There is no established futures market for RINs, which severely limits the ability to
risk manage the price of RINs. We enter into forward contracts to sell RINs and we use risk management position limits to manage RIN
exposure.
As a result of our strategy, we frequently have gains or losses on derivative financial instruments that are conversely offset by losses
or gains on forward fixed-price physical contracts on feedstocks and biomass-based diesel or inventories. Gains and losses on derivative
financial instruments are recognized each period in operating results while corresponding gains and losses on physical contracts are
generally not recognized until quantities are delivered or title transfers. Our results of operations are impacted when there is a period
mismatch of recognized gains or losses associated with the change in fair value of derivative instruments used for risk management
purposes at the end of the reporting period when the purchase or sale of feedstocks or biomass-based diesel has not yet occurred and thus
the offsetting gain or loss will be recognized in a later accounting period.
We incurred risk management gains of $61.6 million from our derivative financial instrument trading activity for the year ended
December 31, 2014, compared to risk management losses of $5.7 million for the year ended December 31, 2013. Changes in the value of
these futures or swap instruments are recognized in current income or loss. Over the year 2014, risk management gains were impacted
mostly from the significant decline in energy market prices, specifically the fourth quarter decline of crude oil and heating oil. 2014 risk
management gains have represented an income of $0.21 per gallon sold. Over the last three years prior to 2014, risk management losses
have represented an average expense of $0.02 per gallon sold. The current three-year average, which incorporates 2014 risk management
gains, represents an average income of $0.07 per gallon sold.
Seasonality
Our operating results are influenced by seasonal fluctuations in the demand for biodiesel. Our sales tend to decrease during the winter
season due to blending concentrations being reduced to adjust for performance during colder weather. Colder seasonal temperatures can
cause the higher cloud point biodiesel we make from inedible animal fats to become cloudy and eventually gel at a higher temperature than
petroleum-based diesel or lower cloud point biodiesel made from soybean oil, canola oil or inedible corn oil. Such gelling can lead to
plugged fuel filters and other fuel handling and performance problems for customers and suppliers. Reduced demand in the winter for our
higher cloud point biodiesel can result in excess supply of such higher cloud point biodiesel and lower prices for such higher cloud point
biodiesel. In addition, most of our production facilities are located in colder Midwestern states and our costs of shipping increases as more
biodiesel is transported to warmer climate states during winter.
RIN prices may also be subject to seasonal fluctuations. The RIN is dated for the calendar year in which it is generated. Since only
20% of an Obligated Party's annual RVO can be satisfied by prior year RINs, most RINs must come from biofuel produced or imported
during the RVO year. As a result, RIN prices can be expected to decrease as the calendar year progresses if the RIN market is oversupplied
compared to that year's RVO and increase if it is undersupplied. Similar to prior years, during 2013, biomass-based diesel RIN generation
was 1.78 billion gallons when the RVO for biomass-based diesel was 1.28 billion gallons and RIN prices declined during the third and
fourth quarters as production rates exceeded the RVO. For 2014, biomass-
35
Table of Contents
based diesel RIN generation was 1.75 billion gallons even though the RVO for biomass-based diesel was originally proposed at 1.28 billion
gallons. As of the date of this filing, the RVOs for 2014 and 2015 are still not finalized.
Industry capacity and production
Our operating results are influenced by our industry’s capacity and production, including in relation to RFS2 production
requirements. According to EMTS data, approximately 1.1 billion gallons of biomass-based diesel was produced in the United States in
2011, primarily reflecting the recommencement of, or increase in, operations at underutilized facilities in response to RFS2 requirements.
Such production was in excess of the 800 million gallon RFS2 requirement for 2011. During 2012, according to EMTS data, approximately
1.1 billion gallons of biomass-based diesel was produced, which also was above RFS2 required volumes of 1 billion gallons of biomass-
based diesel for 2012. Production in 2011, 2012 and 2013 was in excess of a continued expanding RFS2 volume requirements. As reported
by EMTS, the biomass-based diesel RIN generation was 1.78 billion gallons in 2013 when the RVO for biomass-based diesel was 1.28
billion. As of this filing, the EPA has not finalized the 2014 or 2015 RVO. In November 2013 the EPA proposed the 2014 and 2015
biomass-based diesel RVO at 1.28 billion gallons for each year. The EPA later issued a "notification of delay in issuing standards",
effectively withdrawing the proposal. As of the date of this filing, the RVO for 2014 and 2015 had not been proposed nor finalized.
Notwithstanding these issues, we expect RFS2 to continue to create demand for biomass-based diesel. Biomass-based diesel production, as
reported by EMTS, was flat when comparing 2013 gallons produced to the 1.75 billion gallons produced during 2014.
During 2013 and 2014, the amount of imported gallons qualifying under RFS2 has increased. Imported gallons will likely make up a
growing percentage of the RVO, as the EPA has approved a plan to allow Argentinian biodiesel made from soybean oil to qualify for RINs
generation. Under RFS2, Obligated Parties are entitled to satisfy up to 20% of their annual requirement for with prior year RINs. We saw a
decline in RIN prices in the first three quarters of 2014 as production rates exceeded the then proposed, yet delayed issuance and not yet
finalized, RVO target.
Components of Revenues and Expenses
We derive revenues in our Biomass-based diesel segment from the following sources:
•
•
•
•
•
•
sales of biodiesel and renewable hydrocarbon diesel produced at our wholly-owned facilities, including RINs, transportation,
storage and insurance costs to the extent paid for by our customers;
revenues from our sale of biomass-based diesel and RINs produced by third parties through toll manufacturing arrangements
with us;
resale of finished biomass-based diesel, RINs acquired from third parties, and raw material feedstocks acquired from
others;
revenues from our sale of petroleum-based heating oil and ultra-low sulfur diesel, or ULSD, acquired from third parties, along
with the sale of these items further blended with biodiesel produced at our wholly owned facilities;
sales of glycerin, other co-products of the biomass-based diesel production process;
and
incentive payments from federal and state governments, including the federal biodiesel mixture excise tax credit, and from the
USDA Advanced Biofuel Program.
We derive revenues in our Services segment from the following sources:
•
•
fees received from operations management services that we provide for biomass-based diesel production facilities, typically
based on production rates and profitability of the managed facility; and
amounts received for services performed by us in our role as general contractor and construction manager for biomass-based
diesel production facilities.
Cost of goods sold for our Biomass-based diesel segment includes:
• with respect to our production facilities, expenses incurred for feedstocks, catalysts and other chemicals used in the production
process, leases, utilities, depreciation, salaries and other indirect expenses related to the production process, and, when
required by our customers, transportation, storage and insurance;
• with respect to biomass-based diesel acquired from third parties produced under toll manufacturing arrangements, expenses
incurred for feedstocks, transportation, catalysts and other chemicals used in the production process and toll processing fees
paid to the facility producing the biomass-based diesel;
• with respect to finished goods and RINs acquired from third parties, the purchase price of biomass-based diesel and RINs on
the spot market or under contract, and related expenses for transportation, storage, insurance, labor and other indirect
expenses;
36
Table of Contents
•
•
•
adjustments made to reflect the lower of cost or market values of our finished goods inventory, including RINs acquired from
third parties;
expenses from the purchase of petroleum-based heating oil and ULSD acquired from third parties;
and
changes during the applicable accounting period in the market value of derivative and hedging instruments, such as exchange
traded contracts, related to feedstocks and commodity fuel products.
Cost of goods sold for our Services segment includes:
• with respect to our facility management and operations activities, primarily salary expenses for the services of management
employees for each facility and others who provide procurement, marketing and various administrative functions; and
• with respect to our construction management services activities, primarily our payments to subcontractors constructing the
production facility and providing the biomass-based diesel processing equipment, and, to a much lesser extent, salaries and
related expenses for our employees involved in the construction process.
Selling, general and administrative expense consists of expenses generally involving corporate overhead functions and operations at
our Ames, Iowa and Tulsa, Oklahoma operations, as well as research and development expenses incurred at REG Life Sciences.
Other income (expense), net is primarily comprised of the change in fair value of contingent considerations issued as part of the
acquisitions of LS9 and Syntroleum Corporation/Dynamic Fuels, LLC, interest expense including the accretion of convertible debt and
amortization of deferred financing costs, and interest income.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, equities, revenues and
expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates
on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which
provide the basis for judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources.
Because these estimates can vary depending on the situation, actual results may differ from the estimates.
We believe the following critical accounting policies affect our more significant judgments used in the preparation of our
consolidated financial statements:
Revenue recognition.
We recognize revenues from the following sources:
•
•
•
•
•
•
the sale of biomass-based diesel, including RINs, biomass-based diesel co-products and raw material feedstocks purchased by
us or produced by us at owned manufacturing facilities, leased manufacturing facilities and manufacturing facilities with
which we have tolling arrangements;
resale of finished biomass-based diesel, including RINs and raw material feedstocks acquired from
others;
fees received under toll manufacturing agreements with third
parties;
fees received from federal and state incentive programs for renewable
fuels;
fees from construction, operations and project management;
and
fees received for the marketing and sales of biomass-based diesel produced by third
parties.
Biomass-based diesel sales as well as RINs and raw material feedstock revenues are recognized when there is persuasive evidence of
an arrangement, delivery has occurred, the price has been fixed or is determinable and collectability can be reasonably assured.
Revenues associated with governmental incentive programs are recognized when the amount to be received is determinable,
collectability is reasonably assured and the sale of product giving rise to the incentive has been recognized. Our revenue from
governmental incentive programs is comprised of amounts received from the USDA Advanced Biofuel Program, or the USDA Program,
and the biodiesel tax credit. For a discussion of the biodiesel tax credit, see the section entitled “Risk factors-Loss or reductions of tax
incentives for biodiesel production or consumption would have a material adverse effect on our revenues and operating margins” and
“Factors Influencing Our Results of Operations-Governmental programs favoring biodiesel production and use.” In connection with the
biodiesel tax credit, we file a claim with the Internal Revenue Service, or
37
Table of Contents
IRS, for a refund of excise taxes each week for gallons we have blended to B99.9 and sold during the prior week. The biodiesel tax credit
provided a $1.00 refundable tax credit per gallon. On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law,
which reinstated a set of tax extender items including the retroactive reinstatement of the federal biodiesel mixture excise tax credit for
2014 and expired on December 31, 2014.
Fees for managing ongoing operations of third party plants, marketing biomass-based diesel produced by third party plants and from
other services are recognized as services are provided. We also have performance-based incentive agreements that are included as
management service revenues. These performance incentives are recognized as revenues when the amount to be received is determinable
and collectability is reasonably assured.
Impairment of Long-Lived Assets and Certain Identifiable Intangibles.
We have three partially constructed production facilities and one non-operational production facility. In 2007, the Company
commenced construction of two 60 mmgy production facilities, one near New Orleans, Louisiana and the other in Emporia, Kansas. In
2008, the Company halted construction of these facilities as a result of conditions in the biomass-based diesel industry and the credit
markets. Construction of the New Orleans facility is approximately 45% complete and construction of the Emporia facility is approximately
20% complete. In September 2010, the Company acquired a 15 mmgy production facility in Clovis, New Mexico which is approximately
50% complete. Currently, the Clovis facility is being operated as a terminal. In November 2012, the Company completed our acquisition of
Bulldog Biodiesel, LLC, a 15 mmgy production facility near Atlanta, Georgia, that was non-operational at the time the Company
purchased it and will remain idled until certain repairs or upgrades are made.
We review long-lived assets, including property, plant and equipment and definite-lived intangible assets for impairment when
circumstances dictate. Such evaluations generally are focused on our plants - regardless of whether they are operating, are under
construction or are currently on a “construction hold.” The latter assets are those that receive the most attention as their future cash flows
are subject to the most uncertainty. Asset are impaired if the undiscounted net cash flows estimated to be generated by those assets are less
than their carrying amounts. If estimated future undiscounted cash flows are not sufficient to recover the carrying value of the assets, an
impairment charge is recorded for the amount by which the carrying amount of the assets exceeds its fair value. Fair value is determined by
management estimates using discounted cash flow calculations. The estimate of cash flows arising from the future use of the asset that are
used in the impairment analysis requires judgment regarding what we would expect to recover from the future use of the asset.
Significant assumptions used by management in the undiscounted cash flow analysis include the projected demand for biomass-based
diesel based on annual renewable fuel volume obligations under RFS2, our capacity to meet that demand, the estimated market price of
biomass-based diesel and the cost of feedstock used in the manufacturing process. For facilities under construction or that are currently on
construction hold, management’s estimates also include the capital expenditures necessary to complete construction of the plant. Our
facilities under construction or on construction hold are expected to have substantially similar operating capabilities and results as our
current operating facilities. Such operating capabilities would include similar feedstock capabilities, similar access to low cost feedstocks,
similar proximity to shipping from our vendors and to our customers, and would contemplate our ability to implement best practices among
our various currently operating facilities to maximize production volumes and reduce operating costs.
We estimated the future cash flows from the facilities "under construction" or "on construction hold" utilizing the following
significant assumptions:
Costs to complete: The remaining costs to complete the plant construction are developed by management, using historical and
plant-specific knowledge and external estimates. Management’s estimate of costs included those required to finish the general structure of
each facility, as well as furnish it with the appropriate equipment necessary to produce biomass-based diesel. There has not been an
accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset
(asset group). There can be no assurance actual costs to complete or upgrade these facilities will be consistent with these estimates.
Gallons sold: We estimate the aggregate gallons to be produced and sold based upon nameplate capacity of the plants under
construction or not in use coupled with historical operating rates for our existing plants.
Gross margin per gallon: We estimate rising sales prices and costs after 2014. This annual increase is a consequence of
anticipated increased demand for biomass-based diesel, market trends expected for the energy industry and normal inflationary pressures.
biomass-based diesel sales prices are estimated using the expected prices for biomass-based diesel, RINs and co-products. When building
the estimate for future prices, we weigh historical evidence, CBOT and NYMEX future prices and industry forecasts. To develop the
estimated feedstock prices, we utilized soybean oil as a base coupled with a spread to soybean oil for all other feedstocks based on
historical experience and expected future price changes.
38
Table of Contents
Plant operation costs: We estimate plant operation costs to increase with production, until a steady cost level is reached once
the plants are operating in a stabilized manner. Plant operating costs are estimated based upon costs at currently operating plants and take
into account the size of the plants under construction and production volumes.
Period of time used in recovery analysis: To estimate the period of time utilized in the recovery analysis, we look to the
primary asset group at the plants which the asset group derives its cash-flow-generating capacity. We consider the plant assets and their
operational functionality and determined that the inner equipment of the plants, (e.g. tanks, separators, filters, heaters, etc.), is the most
significant component of the asset group. We have determined that the useful life of this equipment has a range of 10-30 years depending
on its use, with the majority of the equipment having a 20 year life. Therefore, we have selected a 20 year period from the original date the
assets are placed into service as the time period over which the cash flows would be projected.
Other Considerations - Means of financing of facilities under construction or construction on hold: In 2008, we halted
construction on our New Orleans, Louisiana and Emporia, Kansas facilities as a result of conditions in the biomass-based diesel industry
and the credit markets. We continue to pursue financing and intend to complete the facilities when industry conditions improve and
financing becomes available on terms satisfactory to us. Since construction halted at these facilities in 2008, we have continued to monitor
the construction sites and perform routine maintenance on the partially constructed assets. We also have pursued programs under which we
could obtain a government guarantee to enhance our ability to obtain financing for these facilities, but at this point have not been able to
obtain any such guarantees. We will continue to pursue such government programs in the future to the extent they arise. If available, we
would also consider using funds from operations to fund a portion of the construction at these facilities. As currently configured, the assets
can be completed as biomass-based diesel production facilities, or with alternative or additional capabilities for the manufacture of
specialty chemicals or other renewable products such as advanced biofuels and renewable chemicals. Some of the existing components
could be transported for use at our other production facility locations, or they could be sold to third parties for various uses. The Emporia
construction project can benefit from a city incentive package that continues through 2018. In addition, from time to time we have had
discussions with potential investors and commercial partners regarding these facilities. We have also invested in third party engineering
studies to revise and enhance construction completion plans on a more cost effective and profit-driven basis. We cannot be certain if or
when such facilities will be completed or any alternate transaction regarding such facilities that we may pursue will be consummated.
There were no asset impairment charges for the years ended December 31, 2014, 2013 or 2012.
Valuation of certain assets and liabilities related to acquisition of LS9. The significant estimates related to our acquisition of LS9
include the valuation of in-process research and development intangible assets, or IPR&D, and contingent consideration. We engaged an
independent external valuation specialist to provide assistance in measuring the fair values of these assets and liabilities related to the
acquisition.
The fair value of the IPR&D was determined using an income approach called the excess earnings method. Cash flows for specific
products for which the IPR&D relate were forecasted, and include estimates for costs to complete research and development activities,
projected revenues based upon market data and discussions with market participants and projected operating expenses based on experience
with smaller scale production. Appropriate returns for other identifiable assets were then calculated using generally accepted valuation
methodologies and deducted from the forecast. These residual cash flows were then discounted to their present value using a risk adjusted
discount rate of 25%. This rate reflects the developmental stage of the business and risks associated with development and
commercialization of the products. Several scenarios were considered for each IPR&D project to reflect the possible outcomes dependent
on future decisions related to production capacity, feedstock inputs and costs and decisions to discontinue development. Each scenario was
assigned a probability based on its likelihood of occurring. The estimated fair value of IPR&D was arrived at by adding the probability
weighted values of the scenarios considered.
We will pay contingent consideration of up to $21.5 million to the previous owners of LS9 if, and when, we achieve certain
development and commercialization milestones of products from LS9’s technology. Payments for achieving individual product milestones
range from $0.5 million to $2.5 million and are payable in either cash or shares of our common stock at our election. The fair value of
contingent consideration was determined using an expected probability income approach. We estimated the likelihood of achieving each
milestone for each product under development. These probabilities ranged from 0% to 88%. The anticipated time to reaching each
milestone was also considered to determine if the payment would be made within the five-year milestone consideration time frame. Both
the likelihood of achieving milestones and the related timing were estimated based on the current stage of development and the complexity
of completing development and commercialization. If the anticipated time to the milestone fell within the time frame, then the probability-
weighted earnout payment was discounted using a risk adjusted discount rate of 8%. The fair value of the contingent consideration is
estimated at the end of each reporting period with changes in fair value running through current period earnings.
39
Table of Contents
Valuation of certain assets and liabilities related to acquisition of Syntroleum/Dynamic Fuels. The significant estimates related to our
acquisition of Syntroleum and Dynamic Fuels include the valuation of intangibles and contingent consideration. We engaged an
independent external valuation specialist to provide assistance in measuring the fair value of these assets and liabilities related to the
acquisition.
The fair value of the renewable hydrocarbon diesel technology was determined using the relief from royalty method, or RFR, which
reflects the savings realized by owning the intangible assets. The premise associated with this valuation technique is that if the intangible
assets were licensed to an unrelated party, the unrelated party would pay a percentage of revenue for the use of the assets. The cost savings,
or relief from royalty, represents the value of the intangible assets. The value under RFR method is dependent upon the following factors
for an asset: royalty rate, discount rate, expected life and projected revenue.
We will pay contingent consideration to Tyson Foods, if and when, we achieve certain production volumes. The agreement calls for
periodic payments to Tyson Foods based on pre-determined payments per gallon of product sold, with a maximum of $35.0 million over a
term of eleven and a half years. The obligation with respect to these future payments is guaranteed by the Company. The initial valuation
of the contingent consideration was based on four distinct production forecasts developed to represent the range of possible production
levels for Dynamic Fuels. The base case anticipates the plant will be running at full capacity by the end of 2015, and continue to run at full
capacity thereafter. We considered there to be an 80% probability of realizing the forecasted base case. We believe that there are also
foreseeable situations in which the Dynamic Fuels facility would not run at full capacity. As a result, we estimated a 10% probability the
facility would run at two-thirds of capacity on average, and a 5% probability the facility would run at half capacity on average. The fourth
scenario, given a 5% probability, is that some operational, regulatory, environmental, or unforeseen event prohibits Dynamic Fuels from
producing renewable fuels at any significant level, leading to a shut-down with no significant contingent payments made to Tyson Foods.
The probability weighted contingent payments were discounted using a risk adjusted discount rate of 5.8%. The fair value of the contingent
consideration is estimated at the end of each reporting period with changes in fair value running through current period earnings.
Convertible Notes. In June 2014, the Company issued $143.8 million in convertible senior notes. Applicable authoritative accounting
guidance required that the liability component of the convertible senior notes be recorded at its fair value as of the issuance date and the
debt discount being recorded in equity on a net of tax basis. The fair value of the convertible senior notes was calculated as if the
convertible senior notes did not contain any conversion or capped call provisions. Therefore, a payment schedule was developed to calculate
the anticipated interest payments to be made beginning on December 15, 2014 and continuing on each subsequent June 15 and December
15 until the final interest payment and repayment of principal on June 15, 2019. The payments were discounted at an implied yield on the
note based upon a lattice model using a risk free rate adjusted for the volatility in our securities excluding the conversion provisions. The
debt discount is being amortized through interest expense until the maturity date of June 15, 2019.
In connection with the issuance of the convertible senior notes, the Company entered into capped call transactions. The capped call
transactions are expected to reduce potential dilution of earnings per share upon conversion of the convertible senior notes. The purchased
capped call transactions were recorded as a reduction to common stock-additional paid-in-capital.
Goodwill asset valuation. Over the past several years we have made a number of acquisitions. Such acquisitions have had a
significant amount of the purchase price allocated to goodwill. While goodwill is not amortized, it is subject to periodic reviews for
impairment. We review the carrying value of goodwill for impairment annually on July 31 or when we believe impairment indicators exist.
Goodwill is allocated and reviewed for impairment by reporting units. The analysis is based on a comparison of the carrying value of the
reporting unit to its fair value, determined utilizing a discounted cash flow, or DCF, methodology and consideration of a market approach.
Additionally, we review the carrying value of goodwill whenever events or changes in business circumstances indicate that the carrying
value of the assets may not be recoverable. Changes in estimates of future cash flows caused by items such as unforeseen events or
sustained unfavorable changes in market conditions could negatively affect the fair value of the reporting unit’s goodwill asset and result in
an impairment charge.
We engage an independent external valuation specialist to provide assistance in measuring the fair value of our biomass-based diesel
and services reporting units using an income approach. The income approach uses a discounted cash flow, or DCF, analysis based on cash
flow estimates prepared by us in addition to comparing other selected public guideline company information. The selected DCF method is
an invested capital method. In performing the services reporting unit goodwill impairment analysis, cash flows generated from services
provided to third parties and to the biomass-based diesel reporting unit were used to determine the reporting unit’s fair value.
We recognize the narrow difference between the fair value and the carrying value of the biomass-based diesel reporting unit. Such
difference is primarily attributable to the weighting of uncertainties around the continuance of government supports for the industry; absent
such discounting, there would be a much greater difference between fair value and carrying value.
40
Table of Contents
There were other acquisitions made during the course of 2014; we are carefully monitoring goodwill attributable to these acquisitions but,
because of the proximity of the acquisition date to the annual measurement date, such analysis was focused primarily on significant
changes since the measurement date.
The annual impairment tests as of July 31, 2014 determined that the fair value at the biomass-based diesel reporting unit exceeded its
value by approximately 7% and the services reporting unit exceeded its value by approximately 66%. We also reviewed goodwill from our
acquisitions of LS9, Syntroleum and Dynamic Fuels at July 31, 2014 and determined no impairment was needed. No impairment of
goodwill was recorded during the years 2014, 2013, and 2012. Because of our recent acquisitions, we are required to continue to reassess
our reporting units and determine whether we are required to reallocate the acquired goodwill given changes in reporting units. Such
reassessment can lead to differences in forecasted cash flows and in the amount of specific goodwill against which such forecasted cash
flows are measured. There can be no assurances that future circumstances and/or conditions will not change, which could result in an
impairment of goodwill. Such circumstances and/or conditions could include, but are not limited to, the aforementioned change in reporting
units, further decline in the price of our common stock, deterioration in our financial condition or results of operations, and/or adverse
changes in the fair value of our assets and liabilities. Management continues to monitor circumstances and conditions for events that could
result in an impairment of our goodwill.
Income taxes. We evaluate our deferred tax assets to determine if valuation allowances are required or should be adjusted. A
valuation allowance is established against our deferred tax assets based on consideration of all available evidence, both positive and
negative, using a “more likely than not” standard. This assessment considers, among other matters, the nature, frequency and severity of
recent losses, forecasts of future profitability, the duration of statutory carry-forward periods, our experience with tax attributes expiring
unused and tax planning alternatives. In making such judgments, significant weight is given to evidence that can be objectively verified.
As a result of excluding certain government incentives from taxable income in 2013, we were in a cumulative loss position for the
preceding three years which is considered significant negative evidence that is difficult to overcome on a “more likely than not” standard
through objectively verifiable data. While our long-term financial outlook remained positive, we concluded that our ability to rely on our
long-term outlook and forecasts as to future taxable income was limited due to uncertainty created by the weight of the negative evidence.
As a result, we recorded a valuation allowance offsetting our deferred tax assets.
We recognize tax benefits that are more likely than not to be sustained upon examination by tax authorities. The amount recognized
is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon. We believe there is a reasonable basis
in the tax law for all of the positions we take on the various federal and state tax returns we file. However, in recognition of the fact that
various taxing authorities may not agree with our position on certain issues, we expect to establish and maintain tax reserves. Significant
judgment is required in evaluating our tax positions, including evaluating uncertainties around the technical merits and measurement of our
tax position to exclude certain government incentives from taxable income.
41
Table of Contents
Results of Operations
Fiscal years ended December 31, 2014 and December 31, 2013
Set forth below is a summary of certain financial information (dollars in thousands and gallons in millions except per gallon data) for
the periods indicated:
Gallons sold
Average B100 price per gallon
Revenues
Costs of goods sold
Gross profit
Selling, general and administrative expenses
Research and development expense
Income from operations
Other income (expense), net
Income tax expense
Net income
Less—Net income attributable to noncontrolling interests
Net income attributable to the Company
Gain on redemption of preferred stock
Distributed and undistributed dividends to preferred stockholders
Effects of participating preferred stock
Effects of participating share-based awards
Net income attributable to the Company’s common stockholders
Twelve Months Ended
December 31,
2014
287.3 million
2013
258.6 million
3.62 $
4.58
1,273,831 $
1,113,219
160,612
62,681
12,424
85,507
603
(3,572)
82,538
(73)
82,611
378
(40)
(91)
(1,238)
81,620 $
1,498,138
1,258,705
239,433
45,865
258
193,310
(2,009 )
(4,935 )
186,366
—
186,366
—
(2,055 )
(16,272 )
(2,785 )
165,254
$
$
$
Revenues. Our total revenues decreased $224.3 million, or 15%, to $1,273.8 million for the year ended December 31, 2014, from $1,498.1
million for the year ended December 31, 2013. This decrease was primarily due to the decreasing biomass-based diesel prices as a result of
the drop in crude oil prices in conjunction with reduced demand attributable to regulatory uncertainty as the EPA currently has not finalized
the RVO for 2014 or 2015.
Biomass-based diesel revenues including government incentives decreased $224.6 million, or 15%, to $1,273.4 million during the
year ended December 31, 2014, from $1,498.0 million for the year ended December 31, 2013. The 2014 revenues reflected a net benefit of
$78.8 million government incentive revenue as a result of the December19, 2014 reinstatement application of the federal biodiesel mixture
excise tax credit for 2014 and the net effect of an increase in gallons sold, but coupled with a decrease in biomass-based diesel prices. The
increase in gallons sold reflects increased throughput across our production facilities due to upgrades to our existing facilities. Due to lower
RIN and energy prices in 2014, our average B100 sales price per gallon decreased $0.96, or 21%, to $3.62 during the year ended
December 31, 2014, compared to $4.58 during the year ended December 31, 2013. The decrease in average sales price from 2013 to 2014
contributed to a $248.3 million revenue decrease when applied to the number of gallons sold during 2013. Gallons sold increased 28.7
million, or 11%, to 287.3 million during the year ended December 31, 2014, compared to 258.6 million during the year ended
December 31, 2013. The increase in gallons for the year ended December 31, 2014 accounted for a revenue increase of $103.9 million
using 2014 average sales pricing. The decrease in biomass-based diesel government incentives despite the increase in gallons sold was
mainly due to the 2013 biomass-based diesel government incentives including an amount of $57.7 million relating to 2012 activities and
that market participants were acting as if the biodiesel tax credit would be reinstated throughout the year and entered into agreements to
capture the credit when or if reinstated. Sales of separated RIN inventory were $130.2 million and $143.5 million for the years ending
December 31, 2014 and 2013, respectively.
Costs of goods sold. Our costs of goods sold decreased $145.5 million, or 12%, to $1,113.2 million for the year ended December 31, 2014,
from $1,258.7 million for the year ended December 31, 2013. Costs of goods sold as a percentage of revenues were 87% and 84% for the
years ended December 31, 2014 and 2013, respectively. The increase in costs of goods sold as a percentage of revenues in 2014 was
primarily due to the net effect of lower revenues per gallon as a direct impact of the drop in crude oil prices on biomass-based diesel prices
and slightly lower feed stock costs in 2014 as compared to 2013.
42
Table of Contents
Average lower cost feedstocks prices for the year ended December 31, 2014 was $0.34 per pound, compared to $0.39 per pound for the
year ended December 31, 2013. Soybean oil costs for the year ended December 31, 2014 was $0.38 per pound in comparison to $0.45 per
pound for the year ended December 31, 2013. Due to the significant decline in energy market prices such as crude oil and heating oil
during the fourth quarter 2014, we had gains of $61.6 million from risk management trading activity for the year ended December 31, 2014,
compared to losses of $5.7 million from risk management trading for the year ended December 31, 2013, respectively. Over the last three
years prior to 2014, risk management losses have represented an average expense of $0.02 per gallon sold. The current three-year average,
which incorporates 2014 risk management gains, represents an average income of $0.07 per gallon sold. In addition, the decrease in the
value of RINs during 2014 resulted in a $4.3 million write-down to lower of cost or market on RIN inventory held throughout the year
compared to a write-down of $2.9 million during 2013. Costs of goods sold for separated RIN inventory sales were $119.8 million and
$144.0 million for the years ending December 31, 2014 and 2013, respectively.
Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses were $62.7 million for the year
ended December 31, 2014, compared to $45.9 million for the year ended December 31, 2013. SG&A expenses increased $16.8 million, or
37%, for the year ended December 31, 2014 as compared to 2013. This increase was driven mainly by a $7.9 million increase in employee
related expenses as we increased headcount to support our growth, a $1.7 million increase in legal and professional fees, a $0.6 million
increase in depreciation expense, $1.1 million increase in bad debt expense and a $5.5 million increase in meeting and travel expenses, IT,
insurance and other expenses, the majority of which was attributable to contracted services and amortization expenses related to acquired
intangible assets.
Research and development expense. Our research and development expenses were $12.4 million for the year ended December 31, 2014,
compared to $0.3 million for the year ended December 31, 2013. The increase in research and development expenses was primarily due to
our acquisition of LS9, which was a research and development stage company primarily focused on microbial fermentation to develop and
produce renewable chemicals, fuels and other products.
Other income (expense), net. Other income was $0.6 million for the year ended December 31, 2014 compared to other expense of $2.0
million for the year ended December 31, 2013. Other income is primarily comprised of change in fair value of contingent consideration,
interest expense, interest income and other non-operating items. The increase in the overall other income of $2.6 million was mainly due to
the change in the fair value of contingent consideration of $6.6 million, which was offset by an increase in interest expense of $4.3 million,
which in turn was driven by higher debt balance in 2014 as compared to 2013.
Income tax expense. There was income tax expense recorded during the year ended December 31, 2014 of $3.6 million, compared to an
income tax expense of $4.9 million for the year ended December 31, 2013. At December 31, 2014 and 2013, we had net deferred income
tax assets of approximately $114.7 million and $70.5 million, respectively, with a valuation allowance of $136.5 million and $76.9 million,
respectively. As a result, our effective tax rate was 4.1% and 2.7% for the years ended December 31, 2014 and 2013, respectively. We have
an income tax receivable of $2.8 million and $2.2 million as of December 31, 2014 and 2013, respectively.
Gain on redemption of preferred stock. We recognized a gain of $0.4 million which represents the difference between the carrying amount
and the amount we paid to redeem all of the then outstanding Series B Preferred Stock shares in March 2014. There was no redemption
gain (loss) on preferred stock in 2013.
Distributed and changes in undistributed dividends. Distributed and undistributed preferred stock dividends were $0.0 million and $2.1
million for the years ended December 31, 2014 and 2013, respectively.
Effects of participating preferred stock. Effects of participating preferred stock was $0.1 million mainly as a result of the redemption of all
outstanding Series B Preferred Stock shares in March 2014. The effect was $16.3 million for the year ended December 31, 2013.
Effects of participating share-based awards. Effects of participating restricted stock units was $1.2 million and $2.8 million for the years
ended December 31, 2014 and 2013, respectively.
Fiscal years ended December 31, 2013 and December 31, 2012
Set forth below is a summary of certain financial information (dollars in thousands and gallons in millions except per gallon data) for
the periods indicated:
43
Table of Contents
Gallons sold
Average B100 price per gallon
Revenues
Biomass-based diesel
Services
Total
Costs of goods sold
Biomass-based diesel
Services
Total
Gross profit
Selling, general and administrative expenses
Research and development expense
Income from operations
Other income (expense), net
Income tax expense
Net income attributable to REG
Effects of recapitalization
Accretion of preferred stock to redemption value
Change in undistributed dividends allocated to preferred stockholders
Distributed dividends to preferred stockholders
Effects of participating preferred stock
Effects of participating share-based awards
Net income attributable to the Company’s common stockholders
$
$
$
Twelve Months Ended
December 31,
2013
258.6 million
2012
188.4 million
4.60
4.58 $
1,498,011 $
127
1,498,138
1,014,797
237
1,015,034
1,258,549
156
1,258,705
239,433
45,865
258
193,310
(2,009)
(4,935)
186,366
—
—
—
(2,055)
(16,272)
(2,785)
165,254 $
956,448
263
956,711
58,323
42,408
14
15,901
7,812
(1,454)
22,259
39,107
(1,808)
(823)
(3,156)
(8,952)
(3,145)
43,482
Revenues. Our total revenues increased $483.1 million, or 48%, to $1,498.1 million for the year ended December 31, 2013, from $1,015.0
million for the year ended December 31, 2012. This increase was primarily due to an increase in gallons sold and the reinstatement of the
biodiesel tax credit that was signed into law on January 2, 2013:
Biomass-based diesel. Biomass-based diesel revenues including government incentives increased $483.2 million, or 48%, to $1,498.0
million during the year ended December 31, 2013, from $1,014.8 million for the year ended December 31, 2012. This increase in biomass-
based diesel revenues was due to an increase in gallons sold and $282.1 million increase in biodiesel government incentives from 2012 to
2013. Of these increases, $57.7 million was a net benefit reflecting the retroactive application of the biodiesel tax credit for 2012. The
increase in gallons sold reflects increased throughput across our production facilities due to upgrades to our existing facilities and the
addition of REG New Boston and REG Mason City. Due to lower RIN and energy prices in 2013, our average B100 sales price per gallon
decreased $0.02, or 1%, to $4.58 during the year ended December 31, 2013, compared to $4.60 during the year ended December 31, 2012.
The decrease in average sales price from 2012 to 2013 contributed to a $3.8 million revenue decrease when applied to the number of
gallons sold during 2012. Gallons sold increased 70.2 million, or 37%, to 258.6 million during the year ended December 31, 2013,
compared to 188.4 million during the year ended December 31, 2012. The increase in gallons for the year ended December 31, 2013
accounted for a revenue increase of $322.9 million using 2013 average sales pricing. Sales of separated RIN inventory were $143.5 million
and $61.6 million for the years ending December 31, 2013 and 2012, respectively.
Services. Services revenues decreased from the prior year. Service revenues were $0.1 million and $0.2 million for the year ended
December 31, 2013 and 2012.
Costs of goods sold. Our costs of goods sold increased $302.0 million, or 32%, to $1,258.7 million for the year ended December 31, 2013,
from $956.7 million for the year ended December 31, 2012. Costs of goods sold as a percentage of revenues were 84% and 94% for the
years ended December 31, 2013 and 2012, respectively. The decrease in costs of goods
44
Table of Contents
sold as a percentage of revenues in 2013 was primarily due to higher revenues per gallon from reinstatement of the biodiesel tax credit and
lower feed stock costs:
Biodiesel. Biodiesel costs of goods sold increased $302.1 million, or 32%, to $1,258.5 million for the year ended December 31, 2013,
compared to $956.4 million for the year ended December 31, 2012. The increase in biodiesel costs of goods sold is primarily the result of
the additional gallons sold in the 2013 period partially offset by slightly lower feedstock prices in 2013 as compared to 2012. Average
lower cost feedstocks prices for the year ended December 31, 2013 was $0.39 per pound, compared to $0.43 per pound for the year ended
December 31, 2012. Soybean oil costs for the year ended December 31, 2013 was $0.45 per pound in comparison to $0.55 per pound for
the year ended December 31, 2012. We had losses of $5.7 million from risk management trading activity for the year ended December 31,
2013, compared to losses of $4.6 million from risk management trading for the year ended December 31, 2012, respectively. Biodiesel
costs of goods sold as a percentage of revenues were 84% and 94% for the years ended December 31, 2013 and 2012, respectively. The
decrease in biodiesel cost of goods sold as a percentage of revenues in 2013 was primarily due to revenues from the reinstated biodiesel tax
credit and higher biodiesel prices as well as declining feedstock prices when compared to 2012. In addition, the decrease in the value of
RINs during 2013 resulted in a $2.9 million write-down to lower of cost or market on RIN inventory held throughout the year compared to
a write-down of $19.6 million during 2012. Costs of goods sold for separated RIN inventory sales were$144.0 million and $83.1 million
for the years ending December 31, 2013 and 2012, respectively.
Services. Costs of services decreased $0.1 million to $0.2 million for the year ended December 31, 2013, from $0.3 million for the
year ended December 31, 2012.
Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses were $46.1 million for the year
ended December 31, 2013, compared to $42.4 million for the year ended December 31, 2012. SG&A expenses increased $3.7 million, or
9%, for the year ended December 31, 2013. We incurred a $1.7 million increase in professional fee expense, a $1.3 million increase in
meeting and travel, $0.4 million increase in depreciation expense and an increase of $0.6 million related to computer expenses. This
increase was offset by a $0.3 million decrease in the provision for bad debt expense and a decrease of $1.7 million in wages and benefits
expense, which is mostly made up of a decrease in non-cash stock compensation expense of $7.7 million and an increase of $4.3 million in
expense related to the annual incentive plan based upon achievement of certain operating and financial results for the respective years.
Other income (expense), net. Other expense was $2.0 million for the year ended December 31, 2013 compared to other income of $7.8
million for the year ended December 31, 2012. Other income is primarily comprised of the changes in fair value of the Series A Preferred
Stock conversion feature embedded derivative, changes in fair value of Seneca Holdco liability, interest expense, interest income and the
other non-operating items. The change in fair value of the Series A Preferred Stock conversion feature embedded derivative resulted in
$12.0 million of income for the year ended December 31, 2012. The change in fair value of the Seneca Holdco liability was $0.3 million of
revenue for the year ended December 31, 2012. Interest expense decreased $2.3 million to $2.4 million for the year ended December 31,
2013, from $4.7 million for the year ended December 31, 2012. This decrease was primarily attributable to a decrease in in term debt.
Income tax expense. There was income tax expense recorded during the year ended December 31, 2013 of $4.9 million, compared to an
income tax expense of $1.5 million for the year ended December 31, 2012. At December 31, 2013 and 2012, we had net deferred income
tax assets of approximately $70.5 million and $3.5 million, respectively, with a valuation allowance of $76.9 million and $0 million,
respectively, partially offset by an accrued liability of $1.9 million for both periods related to uncertain tax benefits. As a result, our
effective tax rate was 2.7% and 6.1% for the years ended December 31, 2013 and 2012, respectively. We have an income tax receivable of
$2.2 million and $4.7 million as of December 31, 2013 and 2012, respectively.
Effects of Recapitalization. In January 2012, we completed an initial public offering of our common stock. Due to the IPO, we recorded the
effects from recapitalization of $39.1 million. To account for the exchange of Series A Preferred Stock for the newly issued Series B
Preferred Stock and common stock, we compared the fair value of the Series B Preferred Stock and common shares issued to the carrying
amount of the Series A preferred shares that were redeemed. The excess of the carrying amount of Series A Preferred Stock that were
redeemed over the fair value of the Series B Preferred Stock and common stock that was issued was recorded as an increase to additional
paid-in capital and was added to net earnings available to common shareholders.
Preferred stock accretion. There was no preferred stock accretion during the year ended December 31, 2013, compared to $1.8 million for
the year ended December 31, 2012 associated with the Series A Preferred Stock that was terminated upon completion of the IPO. During
January 2012, as part of our IPO and the conversion of the Series A Preferred Stock to Series B Preferred Stock, the accretion of the Series
A Preferred Stock was terminated and we determined that no accretion was deemed
45
Table of Contents
necessary on the newly issued Series B Preferred Stock. See “Note 4 – Redeemable Preferred Stock” in our consolidated financial
statements for a description of the transaction.
Change in undistributed dividends. Undistributed preferred stock dividends were $0 million and $0.8 million for the years ended December
31, 2013 and 2012, respectively. During January 2012, the Series A Preferred Stock converted to Series B Preferred Stock as part of our
IPO. All previous undistributed dividends were cancelled as part of the conversion. The new Series B Preferred Stock agreement requires
us to pay dividends on a semi-annual basis.
Distributed dividends. Distributed preferred stock dividends were $2.1 million and $3.2 million for the years ended December 31, 2013 and
2012, respectively. Based upon the terms of the Series B Preferred Stockholders, we are required to pay dividends to stockholders on a
semi-annual basis. The dividends were paid in June and December of 2013 and 2012.
Effects of participating preferred stock. Effects of participating preferred stock was $16.3 and $9.0 million for the years ended December
31, 2013 and 2012, respectively.
Effects of participating share-based awards. Effects of participating restricted stock units was $2.8 and $3.1 million for the years ended
December 31, 2013 and 2012, respectively.
Adjusted EBITDA
We use earnings before interest, taxes, depreciation and amortization, adjusted for certain additional items, identified in the table
below, or Adjusted EBITDA, as a supplemental performance measure. We present Adjusted EBITDA because we believe it assists
investors in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are
indicative of our core operating performance. In addition, we use Adjusted EBITDA to evaluate, assess and benchmark our financial
performance on a consistent and a comparable basis and as a factor in determining incentive compensation for our executives.
The following table provides our Adjusted EBITDA for the periods presented, as well as a reconciliation to net income:
(In thousands)
Net income (loss)
1Q-2014 2Q-2014 3Q-2014 4Q-2014
$ (2,359 ) $ 11,007 $
4,572 $ 69,318 $
2014
1Q-2013 2Q-2013 3Q-2013 4Q-2013
2013
82,538 $ 46,403 $ 23,130 $ 86,703 $ 30,130 $
186,366
Year ended
December 31,
Year ended
December 31,
Adjustments:
Income tax (benefit)
expense
Interest expense
Other income
(expense), net
Change in fair value
of contingent
consideration
Straight-line lease
expense
Depreciation
Amortization
Other
Lease cancellation
(1)
Biodiesel tax credit
(2), (3)
Non-cash stock
compensation
(107)
551
(11,919 )
1,204
(248)
2,867
15,846
2,068
3,572
6,690
30,189
576
15,314
604
(42,051 )
577
1,483
640
(48)
(384)
(124)
(106)
(662)
(117)
(93)
(66)
(112)
—
(384)
(1,059 )
(5,188 )
(6,631 )
—
—
—
—
(163)
3,004
(185)
—
(150)
3,190
(184)
—
(142)
3,332
303
—
(184)
5,729
(150)
73
(639)
15,255
(216)
73
(159)
2,080
(199)
(863)
(162)
2,296
(191)
—
—
1,904
—
—
1,904
—
—
12,778
18,550
23,887
(55,215 )
—
(57,372 )
(373)
(163)
2,598
(181)
—
—
—
(162)
2,731
(181)
—
—
—
4,935
2,397
(388)
—
(646)
9,705
(752)
(863)
—
(57,745 )
5,416
148,425
Adjusted EBITDA
$ 14,706 $ 24,248 $ 34,780 $ 34,033 $
1,235
1,414
1,392
1,842
5,883
1,029
107,767 $ 21,894 $ 41,554 $ 48,901 $ 36,076 $
1,484
1,356
1,547
(1)
(2)
In April 2014, we bought out the remaining life of the land lease at our Danville, Illinois facility and subsequently purchased the
land. The amount represents the portion related to canceling the lease.
On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which reinstated a set of tax extender items
including the reinstatement of the federal biodiesel mixture excise tax credit for 2013 and retroactively reinstated the credit for
2012. The retroactive credit for 2012 resulted in a net benefit to us that was recognized in first quarter 2013, but because this credit
relates to the operating performance and results of 2012, it is excluded from 2013 adjusted EBITDA and allocated to the 2012
periods based upon gallons sold.
46
Table of Contents
(3)
On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law, which reinstated a set of tax extender items
including the retroactive reinstatement of the federal biodiesel mixture excise tax credit for 2014 and expired on December 31,
2014. The retroactive credit for 2014 resulted in a net benefit to us that was recognized in the fourth quarter of 2014, however
because this credit relates to the full year operating performance and results, we allocated the first three quarters of 2014,
respectively, based upon gallons sold and excluded those amounts from the fourth quarter 2014 adjusted EBITDA.
Adjusted EBITDA is a supplemental performance measure that is not required by, or presented in accordance with, generally
accepted accounting principles, or GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other
performance measure derived in accordance with GAAP, or as alternatives to cash flows from operating activities or a measure of our
liquidity or profitability. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute
for any of our results as reported under GAAP. Some of these limitations are:
•
•
•
•
•
•
Adjusted EBITDA does not reflect our cash expenditures for capital assets or the impact of certain cash clauses that we consider
not to be an indication of our ongoing operations;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital
requirements;
Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal
payments, on our indebtedness;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be
replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements;
stock-based compensation expense is an important element of our long term incentive compensation program, although we have
excluded it as an expense when evaluating our operating performance; and
other companies, including other companies in our industry, may calculate these measures differently than we do, limiting their
usefulness as a comparative measure.
Liquidity and Capital Resources
Sources of liquidity. At December 31, 2014 and 2013, the total of our cash and cash equivalents and our marketable securities was
$80.3 million and $153.2 million, respectively. At December 31, 2014, we had term debt of $252.9 million, compared to term debt of $34.2
million at December 31, 2013. This term debt is due in various tranches and the maturities are reflected in the contractual obligations table
below. We set aside a total of $117.7 million of restricted cash in form of certificates of deposits as collateral for certain term debt and
letters of credit. The debt is subject to various financial covenants. We were in compliance with all restrictive financial covenants associated
with the borrowings as of December 31, 2014.
Our term debt (in millions) is as follows:
Convertible debt
REG Geismar GOZone bonds
REG Danville term loan
REG Newton term loan
REG Mason City term loan
REG Ames term loans
Other
Total term debt
Bell, LLC promissory note
In addition, we had revolving debt (in millions) as follows:
Total revolving loans (current)
Maximum available to be borrowed under revolving line of credit
47
December 31,
2014
2013
121.4 $
100.0
1.5
19.9
4.6
4.2
1.3
252.9 $
— $
—
—
5.6
18.1
5.1
—
1.4
30.2
4.0
December 31,
2014
2013
16.7 $
20.7
11.0
29.0
$
$
$
$
Table of Contents
Wells Fargo Revolving Letter of Credit
We currently have a revolving credit agreement with the lenders thereto and Wells Fargo Capital Finance, LLC, as agent, which we
refer to as the Wells Fargo Revolver. The Wells Fargo Revolver provides for the extension of revolving loans in an aggregate principal
amount not to exceed $40.0 million, based on eligible inventory, accounts receivable, biodiesel credits of the subsidiary borrowers and the
inventory of certain affiliates. As of December 31, 2014, our available borrowing capacity under the Wells Fargo Revolver was $37.4
million of which $16.7 million was outstanding, leaving $20.7 million in availability. The Wells Fargo Revolver has a stated maturity date
of December 23, 2016.
Amounts borrowed under the Wells Fargo Revolver bear interest, in the case of LIBOR rate loans, at a per annum rate equal to the
LIBOR rate plus the LIBOR Rate Margin (as defined), which may range from 2.50 to 4.00 percent, based on the Quantity Average Excess
Availability Amount (as defined). The LIBOR Rate Margin is subject to reduction or increase depending on the amount available for
borrowing under the new revolving credit agreement.
The Wells Fargo Revolver contains various loan covenants that restrict each subsidiary borrower’s ability to take certain actions,
including restrictions on incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, repurchase or
redemption of capital stock, making certain investments, entering into certain transactions with affiliates or changing the nature of the
subsidiary’s business. In addition, the subsidiary borrowers are required to maintain a Fixed Charge Coverage Ratio (as defined in the
Wells Fargo Revolver) of at least 1.0 to 1.0 and to have Excess Availability (as defined in the Wells Fargo Revolver) of at least $4 million.
The Wells Fargo Revolver is secured by the subsidiary borrowers’ membership interests and substantially all of their assets, and the
inventory of REG Albert Lea, LLC, REG Houston, LLC, and REG New Boston, LLC, subject to a $25 million limitation.
Convertible debt
In June 2014, the Company issued $143.8 million in convertible senior notes (Convertible Notes) with a maturity date of June 15,
2019, unless earlier converted or repurchased. The Convertible Notes bear interest at a rate of 2.75% per annum, payable semi-annually in
arrears, beginning December 15, 2014.
The initial conversion rate is 75.3963 shares of Common Stock per $1 principal amount of Convertible Notes, which represents an
initial conversion price of approximately $13.26 per share. The conversion rate will be subject to adjustment in some events but will not be
adjusted for any accrued and unpaid interest. Certain corporate events that occur prior to the stated maturity date can cause the Company to
increase the conversion rate for a holder.
Prior to December 15, 2018, holders may convert all or any portion of their Convertible Notes only under certain limited
circumstances where the sale price of Common Stock for a period of time is (i) greater than or equal to 130% of the conversion price of the
Convertible Notes on each applicable trading day; (ii) less than 98% of the product of the last reported sale price of the Common Stock and
the conversion rate of the Convertible Notes on each applicable trading day; or (iii) upon the occurrence of specified corporate events. On
or after December 15, 2018 until the close of business on the second scheduled trading day immediately preceding the maturity date of the
Convertible Notes, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion,
the Company will pay or deliver, as the case may be, cash, shares of Common Stock or a combination of cash and shares of Common
Stock, at the Company’s election. The Company's current intent is to settle the principal amount of the Senior Notes in cash upon
conversion. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the
remainder of its conversion obligation in excess of the aggregate principal amount (conversion spread).
The Convertible Notes are not redeemable at the Company’s option prior to maturity.
In connection with the issuance of the Convertible Notes, the Company entered into capped call transactions (Capped Call) in private
transactions. Under the Capped Call, the Company purchased capped call options that in aggregate relate to 92.5% of the total number of
shares of the Company's Common Stock underlying the Convertible Notes, with a strike price equal to the conversion price of the
Convertible Notes and with a cap price equal to $16.02 per share. The capped calls were purchased for $11.9 million and recorded as a
reduction to common stock-additional paid-in-capital.
The purchased Capped Call allows the Company to receive shares of its Common Stock and/or cash from counterparties equal to the
amounts of Common Stock and/or cash related to the excess of the market price per share of the Common Stock, as measured under the
terms of the Capped Call over the strike price of the Capped Call during the relevant valuation period. The purchased Capped Call is
intended to reduce the potential dilution to Common Stock upon future conversion of the Convertible Notes by effectively increasing the
initial conversion price to $16.02 as well as to offset potential cash payments the Company is required to make in excess of the principal
amount of the Convertible Notes in applicable events.
48
Table of Contents
GOZone bonds
In June 2014, we acquired Dynamic Fuels, subsequently renamed REG Geismar, LLC. REG Geismar is obligated with respect to
$100.0 million aggregate principal amount of Gulf Opportunity Zone tax-exempt bonds, or GOZone Bonds, due in October 2033, through
a loan agreement with the Louisiana Public Facilities Authority.
At the time that the GOZone Bonds were originally issued, Tyson Foods, one of the former equityholders of Dynamic Fuels, obtained
an irrevocable direct-pay letter of credit, or the Old Letter of Credit, from a financial institution which was provided to the trustee for the
GOZone Bonds and drawn upon to pay the principal of and interest on the GOZone Bonds and the portion of the purchase price
attributable to principal of and interest on the GOZone Bonds in connection with any GOZone Bond repurchase obligations. At the closing
of the acquisition of Dynamic Fuels in June 2014, we entered into a reimbursement agreement with Tyson Foods whereby we agreed to
reimburse Tyson Foods for any amounts payable by Tyson Foods in the event of a draw on the Old Letter of Credit. We deposited $101.3
million into an escrow account for the benefit of Tyson Foods in connection with this reimbursement agreement, which represented the full
amount of Tyson Foods’ obligation under the Old Letter of Credit and is held as non-current restricted cash on the Consolidated Balance
Sheets.
On July 8, 2014, REG Geismar and Bank of America, N.A. entered into a Reimbursement Agreement, dated as of the same date, or
Reimbursement Agreement, and Bank of America issued a letter of credit, or Substitute Letter of Credit, to the trustee for the GOZone
Bonds in substitution for the Old Letter of Credit and our reimbursement arrangement with Tyson Foods was terminated. The Substitute
Letter of Credit is in the stated amount of $101.3 million, which represents the sum of the outstanding $100.0 million principal amount of
the GOZone Bonds plus $1.3 million of interest. The Substitute Letter of Credit expires on July 8, 2015. In the event that the expiration
date of the Substitute Letter of Credit is not extended or a new letter of credit is not issued in substitution for the Substitute Letter of Credit,
holders of the GOZone Bonds are required to tender their GOZone Bonds for repurchase and the trustee for the GOZone Bonds is required
pursuant to the terms of the indenture governing the GOZone Bonds to draw down the Substitute Letter of Credit to fund the repurchase of
the GOZone Bonds. The Substitute Letter of Credit requires that the GOZone Bonds remain in the daily or weekly interest rate mode.
Pursuant to the Reimbursement Agreement, REG Geismar must reimburse Bank of America for any and all draws on the Substitute
Letter of Credit. It is an event of default under the Reimbursement Agreement if REG Geismar fails to make any payment required under
the Reimbursement Agreement when due, fails to comply with its obligations under the financing agreements related to the GOZone
Bonds, including the Loan Agreement, or breaches certain representations, warranties or covenants in the Reimbursement Agreement
(including the failure to cause the cash collateral described above to be maintained) and in the case of certain bankruptcy events involving
REG Geismar. An event of default under the Reimbursement Agreement would also result in an event of default under the indenture
governing the Bonds, which would cause the trustee for the GOZone Bonds to accelerate payment of the GOZone Bonds and draw down
on the Substitute Letter of Credit. REG Geismar would be liable for all reimbursement obligations in connection with such a draw under
the Reimbursement Agreement.
REG Geismar’s repayment obligations under the Reimbursement Agreement are secured by a $101.3 million certificate of deposit
established by REG Capital, another wholly-owned subsidiary of ours, which was pledged by REG Capital to Bank of America. REG
Geismar’s obligations under the Reimbursement Agreement are not guaranteed by us or any of our affiliates.
To fund the $101.3 million security deposit related to the GOZone Bonds, in June 2014, we issued $143.8 million aggregate principal
amount of 2.75% convertible senior notes as discussed above. The estimated net proceeds to us from the issuance of the Convertible Notes,
after deductible underwriting fees and related expenses, were approximately $138.6 million.
REG Danville, LLC
On November 3, 2011, REG Danville, LLC entered into an Amended and Restated Loan Agreement with Fifth Third Bank, or the
Fifth Third Loan. The renewed Fifth Third Loan had a three year term with an automatic one year extension upon certain cumulative
principal payment thresholds being met. The maturity of the loan was extended to November 2015 based on REG Danville meeting certain
principal payment requirements. The loan requires monthly principal payments of $150,000 and interest to be charged using LIBOR plus
5% per annum. The Fifth Third Loan is secured by our Danville facility. The loan agreement contains various loan covenants that restrict
REG Danville’s ability to take certain actions, including prohibiting it in certain circumstances from making payments to us. The covenants
were subsequently amended to include changes upon us executing a tax sharing agreement with REG Danville. Beginning on December 31,
2011, we are required to make semi-annual principal payments in an amount equal to 50% of REG Danville's Excess Cash Flow. The Fifth
Third Loan agreement defines Excess Cash Flow as REG Danville’s EBITDA plus certain affiliate payments less principal payments,
interest expense, taxes and unfunded maintenance capital expenditures. The Excess Cash Flow payment for December 31, 2014 and 2013
was $2.3
49
Table of Contents
million and $1.4 million, respectively. As of December 31, 2014, there was $1.5 million outstanding under the Fifth Third Loan.
REG Newton, LLC
On March 8, 2010, in connection with the CIE Asset Acquisition, one of our subsidiaries, REG Newton, refinanced a $23.6 million
term loan, or the AgStar Loan, and obtained a $2.4 million line of credit, or the AgStar Line, with AgStar Financial Service, PCA, or
AgStar. This amount is secured by our Newton facility. The AgStar Loan bears interest at 3% plus the greater of (i) LIBOR or (ii) 2%.
Beginning on October 1, 2011, monthly principal payments of approximately $0.12 million and accrued interest was due based on a 12-
year amortization period.
On December 4, 2013, REG Newton, LLC entered into an Amended and Restated Master Loan Agreement, effective December 1,
2013, with AgStar Financial Services, PCA (AgStar) which replaced the existing Master Loan Agreement, dated March 8, 2010. The
Amended and Restated Agreement extends the maturity of the existing term loan by five years until December 1, 2018 and increases the
term loan by $5.0 million. The REG Newton term debt is secured by all plant assets owned by REG Newton. Interest is to be accrued based
on 30-day LIBOR plus 400 basis points. REG Newton is required to make principal and interest payments of approximately $0.3 million.
The loan agreement requires REG Newton to make an annual payment equal to 50% of its Excess Cash Flow calculated based upon the
prior year’s audited financial statements within 120 days of the fiscal year end. The AgStar Loan agreement defines Excess Cash Flow as
EBITDA, less the sum of required debt payments, interest expense, up to $0.5 million in maintenance capital expenditure and allowed
distributions. The required excess cash flow payments for 2014 and 2013 were $0.5 million and $0, respectively. As of December 31, 2014,
there was $19.9 million of principal outstanding under the term loan.
REG Mason City, LLC
On July 30, 2013, REG Mason City entered into an agreement with Soy Energy, or Soy Energy Loan. The Soy Energy Loan has a
six-year term and is secured by our Mason City facility. The loan requires interest only payments for the first eight months and monthly
principal and interest payments of approximately $0.1 million starting in April 2014. Interest is based on a fixed rate of 5%. The loan
agreement contains a covenant that restricts REG Mason City's ability to take certain actions, including prohibiting it in certain
circumstances from making payments to us. The Soy Energy Loan requires annual excess cash flow payments beginning on December 31,
2013. REG Mason City must pay Soy Energy a principal payment in the amount equal to 50% of its excess cash flow. There was no
required excess cash flow payments for 2014. As of December 31, 2014, the balance on the loan was $4.6 million.
Cash flow. The following table presents information regarding our cash flows and cash and cash equivalents for the years ended
December 31, 2014, 2013 and 2012:
Net cash flows provided from operating activities
Net cash flows used in investing activities
Net cash flows provided from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, end of period
Year Ended
December 31,
2014
2013
2012
(in thousands)
$
$
32,528 $
(217,033)
94,794
(89,711)
63,516 $
139,645 $
(54,389)
1,186
86,442
153,227 $
44,619
(14,546)
3,137
33,210
66,785
The historical cash flows shown above highlight that we have been able to consistently generate positive cash flows from operations.
The large operating cash inflow for 2013 was primarily attributable to the refresh of the biodiesel tax credit that not only touched on 2013
operations but also allowed us to recoup certain amounts from 2012. The absence of the credit until late 2014 has led to the decrease in
operating cash flows. Our investing activity has been focused in two different directions in the previous years; first, expenditures were made
to purchase new businesses and capacity; second, expenditures were made to further develop existing plant assets. Financing activities have
moved hand in hand with our investing activities as it is our general intention to use separate debt and equity raise transactions to finance
the purchase of assets and businesses. 2013 financing activities also included our initial public offering whose proceeds were used for
working capital, capital expenditures related to improvements of production processes and logistics, and acquisitions of the Seneca facility.
Capital expenditures. We have three partially constructed plants, one near New Orleans, Louisiana, one in Emporia, Kansas, one in
Clovis, New Mexico and a non-operational plant near Atlanta, Georgia. We expect additional investments of
50
Table of Contents
approximately $165 to $180 million in the aggregate, excluding working capital requirements, would be required before these plants would
be able to commence production. These facilities would add an expected 150 mmgy to our nameplate production capacity. Our Clovis plant
is currently being operated as a terminal facility. We plan to make significant capital expenditures when debt or equity financing becomes
available to complete construction of these four facilities.
During 2014, we completed a $20 million upgrade at our Mason City facility and a $13 million upgrade to our Newton facility. In
2013, we completed upgrades to our Albert Lea facility, our New Boston facility, our Mason City facility and our Seneca facility. Capital
expenditures related to these facility upgrades were approximately $22 million, $4 million and $1 million and $5 million, respectively, in
2013. We plan to undertake various upgrades at our existing facilities to further expand processing capabilities, which may include an
estimated $15 million at our Geismar facility. We may enter into additional tolling arrangements with third parties from time to time where
third parties will produce biomass-based diesel on our behalf using our feedstocks. Such arrangements may require investments of
additional working capital during the tolling periods.
We continue to be in discussions with lenders in an effort to enter into equity and debt financing arrangements to meet our projected
financial needs for facilities under construction and capital improvement projects for our operating facilities. Since these discussions are
ongoing, we are uncertain when or if financing will be available. The financing may consist of common or preferred stock, debt, project
financing or a combination of these financing techniques. Additional debt would increase our leverage and interest costs and would likely
be secured by certain of our assets. Additional equity or equity-linked financings would likely have a dilutive effect on our existing and
future stockholders. It is likely that the terms of any project financing would include customary financial and other covenants on our project
subsidiaries, including restrictions on the ability to make distributions, to guarantee indebtedness and to incur liens on the plants of such
subsidiaries.
Contractual Obligations:
The following table describes our commitments to settle contractual obligations in cash as of December 31, 2014:
Long Term Debt (1)
Contingent Considerations (2)
Operating Lease Obligations (3)
Purchase Obligations (4)
Other Obligations (5)
Total
Less Than
1 Year
Payments Due by Period
Years 1-3
(In thousands)
Years
4-5
More Than
5 Years
$
$
252,929 $
39,319
120,239
34,947
11,781
459,215 $
5,746 $
9,228
16,845
3,857
—
35,676 $
8,947 $
24,914
37,437
7,714
—
79,012 $
138,236 $
5,177
19,624
7,532
—
170,569 $
100,000
—
46,333
15,844
—
162,177
(1)
(2)
(3)
(4)
(5)
See Note 12 of Item 8 for additional detail. Includes fixed interest associated with these
obligations.
Represents contingent considerations relating to our acquisitions of LS9 and Syntroleum/Dynamic Fuels. See Note 5 of Item 8 for
additional detail.
Operating lease obligations consist of terminals, rail cars, vehicles and ground
leases.
Purchase obligations for our production facilities and partially completed
facilities.
Includes commitments, incentive compliance and other facility obligations. Represents $1.9 million of liability for unrecognized
tax benefits as the timing and amounts of cash payments are uncertain (the amounts have not been classified by period) and a
maximum $9.9 million open commitments for the tender offer to acquire the remaining interest at Petrotec.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recent Accounting Pronouncements
For a discussion of new accounting pronouncements affecting us, refer to “Note 2 – Summary of Significant Accounting Policies” to
our consolidated financial statements.
ITEM 7A. Quantitative and Qualitative Disclosures about Market
Risk
The primary objectives of our investment activity are to preserve principal, provide liquidity and maximize income without
significantly increasing risk. Some of the securities we invest in are subject to market risk. This means that a change in
51
Table of Contents
prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we maintain a portfolio of
cash equivalents in short-term investments in money market funds.
Commodity Price Risk
Over the period from January 2010 through December 2014, average diesel prices based on Platts reported pricing for Group 3
(Midwest) have ranged from a high of approximately $5.40 per gallon reported in June 2011 to a low of approximately $2.82 per gallon in
December 2014, with prices averaging $4.21 per gallon during this period. Over the period January 2010 to December 2014, soybean oil
prices (based on daily closing nearby futures prices on the CBOT for crude soybean oil) have ranged from a high of $0.5977 per pound, or
$4.60 per gallon of biodiesel in April 2011 to a low of $0.3117 per pound, or $2.40 per gallon in December 2014 assuming 7.7 pounds of
soybean oil yields one gallon of biodiesel with closing sales prices averaging $0.4644 per pound or $3.58 per gallon. Over the period from
January 2010 through December 2014, animal fat prices (based on prices from The Jacobsen Missouri River, for choice white grease) have
ranged from a high of $0.5450 per pound in June 2011 to a low of $0.2250 per pound in January 2014, with sales prices averaging $0.3730
per pound during this period. Over the period from July 2010 through December 2014, RIN prices (based on prices from OPIS) have
ranged from a high of $1.99 in September 2011 to a low of $0.24 in November 2013, with sales prices averaging $0.88 during this period.
Lower biomass-based diesel prices and lower feedstock prices but at a disproportionate decreasing rate as compared to biomass-based
diesel prices result in lower profit margins and, therefore, represent unfavorable market conditions. The availability and price of feedstocks
are subject to wide fluctuations due to unpredictable factors such as weather conditions during the growing season, rendering volumes,
carry-over from the previous crop year and current crop year yield, governmental policies with respect to agriculture and supply and
demand.
We have prepared a sensitivity analysis to estimate our exposure to market risk with respect to our sales contracts, lower cost
feedstock requirements, soybean oil requirements and the related exchange-traded contracts for 2014. Market risk is estimated as the
potential loss in fair value, resulting from a hypothetical 10% adverse change in the fair value of our lower cost feedstock and soybean oil
requirements and biomass-based diesel sales. The results of this analysis, which may differ from actual results, are as follows:
Biomass-based diesel
Lower Cost Feedstocks
Soybean Oil
2014
Volume
(in millions)
287.3
1,679.7
303.0
Units
gallons
pounds
pounds
Hypothetical
Adverse
Change in
Price
Impact on Annual
Gross
Profit (in
millions)
Percentage
Change in
Gross
Profit
10% $
10% $
10% $
98.3
56.1
11.6
(60.8)%
(34.7)%
(7.2)%
We attempt to protect operating margins by entering into risk management contracts that mitigate price volatility of our feedstocks,
such as inedible animal fat and inedible corn oil and energy prices. We create offsetting positions by using a combination of forward
physical purchases and sales contracts on feedstock and biomass-based diesel, including risk management futures contracts, swaps and
options primarily on heating oil and soybean oil; however, the extent to which we engage in risk management activities varies substantially
from time to time, and from feedstock to feedstock, depending on market conditions and other factors. A 10% adverse change in the prices
of heating oil would have a negative effect on the fair value of these instruments of $6.7 million. A 10% adverse change in the price of
soybean oil would have a negative effect on the fair value of these instruments of $0.5 million.
Interest Rate Risk
We are subject to interest rate risk in connection with our $0.7 million loan from the proceeds of Variable Rate Demand Industrial
Development Revenue Bonds, or IFA Bonds, issued by the Iowa Finance Authority to finance our Ralston facility. The IFA Bonds bear
interest at a variable rate determined by the remarketing agent from time to time as the rate necessary to produce a bid for the purchase of
all of the Bonds at a price equal to the principal amount thereof plus any accrued interest at the time of determination, but not in excess of
10% per annum. The interest rate on the bonds was 0.08% for the last week of December 2014.
REG Newton is subject to interest rate risk relating to its $19.9 million term debt financing from AgStar. Interest will accrue on the
outstanding balance of the term loan at 30-day LIBOR plus 400 basis points (effective rate at December 31, 2014 of 4.16%).
52
Table of Contents
We are subject to interest risk relating to the $100.0 million GOZone bonds, which bears interest at variable rates. The interest rate on
the bonds was 0.02% for the last week of December 2014.
We are subject to interest rate risk under our Wells Fargo Revolver entered into on December 23, 2011 under which we had $16.7
million borrowed and outstanding at December 31, 2014. Amounts borrowed under the Wells Fargo Revolver bear interest, in the case of
LIBOR rate loans, at a per annum rate equal to the LIBOR rate plus the LIBOR Rate Margin (as defined in the Wells Fargo Revolver),
which may range from 2.50 to 4.00 percent, based on the Quantity Average Excess Availability Amount (as defined in the Wells Fargo
Revolver). All other amounts borrowed that are not LIBOR rate loans bear interest at a rate equal to the greatest of (i) (A) 1.75% per
annum, (B) the Federal Funds Rate plus 0.5%, (C) the LIBOR Rate (which rate shall be calculated based upon an interest period of three
months and will be determined on a daily basis), plus 1.5% points, and (D) the rate of interest announced, from time to time, within Wells
Fargo Bank, National Association at its principal office in San Francisco as its “prime rate,” plus (ii) the Base Rate Margin (as defined in
the Wells Fargo Revolver), which may range from 1.00 to 1.75 percent, based on the Quantity Average Excess Availability Amount. The
Base Rate Margin is subject to reduction or increase depending on the amount available for borrowing under the Wells Fargo Revolver. The
loan was a base rate loan as of December 31, 2014 (effective rate at December 31, 2014 of 4.00%).
Our weighted average interest rate on variable rate debt balances during 2014 was 1.15% and a hypothetical increase in interest rate of
10% would not have a material effect on our annual interest expenses and consolidated financial statements.
Inflation
To date, inflation has not significantly affected our operating results, though costs for petroleum-based diesel fuel, feedstocks,
construction, labor, taxes, repairs, maintenance and insurance are all subject to inflationary pressures. Inflationary pressure in the future
could affect our ability to sell the biomass-based diesel we produce, maintain our production facilities adequately, build new biomass-based
diesel production facilities and expand our existing facilities as well as the demand for our facility construction management and operations
management services.
53
Table of Contents
ITEM 8.
Financial Statements and Supplementary
Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Renewable Energy Group, Inc.
Ames, Iowa
We have audited the accompanying consolidated balance sheets of Renewable Energy Group, Inc. and subsidiaries (the “Company”) as of December
31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), redeemable preferred stock and equity, and
cash flows for each of the three years in the period ended December 31, 2014. We also have audited the Company's internal control over financial
reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control over Financial Reporting,
management excluded from its assessment the internal control over financial reporting at Petrotec, which was acquired on December 24, 2014, and
whose financial statements constitute 4% of total assets and less than 1% of total revenues of the consolidated financial statement amounts as of and for
the year ended December 31, 2014. Accordingly, our audit did not include the internal control over financial reporting at Petrotec. The Company's
management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and
principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override
of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Renewable Energy
Group, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Deloitte & Touche LLP
Des Moines, Iowa
March 6, 2015
54
Table of Contents
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2014 AND 2013
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Marketable securities
Accounts receivable, net (includes amounts owed by related parties of $36 and $426, respectively)
Inventories
Prepaid expenses and other assets
Restricted cash
Total current assets
Property, plant and equipment, net
Property, plant and equipment, net—variable interest entity
Goodwill
Intangible assets, net
Investments
Other assets (includes amounts owed by related party of $0 and $35, respectively)
Restricted cash
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Revolving line of credit
Current maturities of long-term debt
Current maturities of long-term debt—variable interest entity
Accounts payable (includes amounts owed to related parties of $1,101 and $552, respectively)
Accrued expenses and other liabilities
Deferred income taxes
Deferred revenue
Total current liabilities
Unfavorable lease obligation
Deferred income taxes
Contingent consideration for acquisitions
Long-term debt
Long-term debt—variable interest entity
Other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (NOTE 21)
Series B Preferred Stock ($.0001 par value; 3,000,000 shares authorized; 0 and 143,313 shares outstanding, redemption amount $0 and $3,583,
respectively)
EQUITY:
Common stock ($.0001 par value; 300,000,000 shares authorized; 44,422,881 and 36,506,221 shares outstanding, respectively)
Common stock—additional paid-in-capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock (585,150 and 530,898 shares, respectively)
Total equity attributable to the Company's shareholders
Noncontrolling interest
Total equity
TOTAL LIABILITIES AND EQUITY
See notes to consolidated financial statements.
55
2014
2013
$
63,516
$
153,227
16,770
294,669
97,508
43,135
12,845
528,443
493,196
—
188,275
28,837
9,736
19,586
104,815
—
82,911
85,814
25,568
—
347,520
286,044
5,180
84,864
4,867
7,351
5,029
—
$
1,372,888
$
740,855
$
$
16,679
5,746
—
202,821
28,486
14,899
16,680
285,311
19,170
6,905
30,091
247,183
—
5,566
594,226
10,986
6,729
300
48,727
12,305
3,687
15,503
98,237
7,905
2,691
—
23,422
3,729
6,838
142,822
—
3,963
4
453,109
321,083
(11 )
(4,412)
769,773
8,889
778,662
$
1,372,888
$
4
359,818
238,134
—
(3,886)
594,070
—
594,070
740,855
Table of Contents
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
REVENUES:
Biomass-based diesel sales
Biomass-based diesel sales—related parties
Biomass-based diesel government incentives
Services
COSTS OF GOODS SOLD:
Biomass-based diesel
Biomass-based diesel—related parties
Services
GROSS PROFIT
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (includes related party amounts
of $45, $37, and $158, respectively)
RESEARCH AND DEVELOPMENT EXPENSE
INCOME FROM OPERATIONS
OTHER INCOME (EXPENSE), NET:
Change in fair value of contingent consideration
Change in fair value of preferred stock conversion feature embedded derivatives
Other income
Interest expense (includes related party amounts of $7, $30, and $32, respectively)
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
NET INCOME
LESS—NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
NET INCOME ATTRIBUTABLE TO THE COMPANY
EFFECTS OF RECAPITALIZATION
PLUS—GAIN ON REDEMPTION OF PREFERRED STOCK
LESS—EFFECT OF CHANGES TO PREFERRED STOCK
LESS—EFFECT OF PARTICIPATING PREFERRED STOCK
LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS
NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS
Net income per share attributable to common stockholders:
Basic
Diluted
Weighted-average shares used to compute net income per share attributable to common
$
$
$
stockholders:
Basic
Diluted
See notes to consolidated financial statements.
56
2014
2013
2012
$
1,052,772 $
1,207,618 $
—
220,634
1,273,406
425
1,273,831
1,070,430
42,622
167
1,113,219
160,612
62,681
12,424
85,507
6,631
—
662
(6,690)
603
86,110
(3,572)
82,538
(73 )
82,611
—
378
(40 )
(91 )
(1,238)
81,620 $
—
290,393
1,498,011
127
1,498,138
1,209,191
49,358
156
1,258,705
239,433
45,865
258
193,310
—
—
388
(2,397)
(2,009)
191,301
(4,935)
186,366
—
186,366
—
—
(2,055)
(16,272 )
(2,785)
165,254 $
1,006,465
6
8,326
1,014,797
237
1,015,034
902,084
54,364
263
956,711
58,323
42,408
14
15,901
—
11,975
516
(4,679)
7,812
23,713
(1,454)
22,259
—
22,259
39,107
—
(5,787)
(8,952)
(3,145)
43,482
2.00 $
1.99 $
5.00 $
5.00 $
1.53
0.27
40,740,411
40,749,913
33,045,164
33,052,879
28,381,676
34,340,466
Table of Contents
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(IN THOUSANDS)
Net income
Unrealized gains (losses) on marketable securities, net of taxes of $0, $0 and $0,
respectively
Other comprehensive income (loss)
Comprehensive income
Less—Comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to the Company
2014
82,538 $
2013
186,366 $
2012
22,259
(11)
(11)
82,527 $
—
82,527 $
—
—
186,366 $
—
186,366 $
—
—
22,259
—
22,259
$
$
$
See notes to consolidated financial statements.
57
Table of Contents
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (IN THOUSANDS EXCEPT SHARE AND PER SHARE
AMOUNTS)
Redeemable
Preferred
Stock
Shares
Redeemable
Preferred
Stock
Common
Stock
Shares
Common
Stock
Company Stockholders’ Equity
Class A
Common
Stock
Shares
Class A
Common
Stock
Common
Stock-
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock
Noncontrolling
Interest
Total
13,455,522 $ 147,779
— $
— 13,962,155 $
1
$ 84,445
$ 36,528
$
— $
(398 )
— $ 120,576
(13,455,522)
(149,587 )
—
—
—
—
—
—
—
—
—
—
2,999,493
83,165
—
—
7,660,612
1
108,244
—
—
—
— 108,245
—
—
—
—
— 7,200,000
1
(342,860 )
—
—
—
900,000
—
—
318,501
—
—
—
—
59,918
3,958
4,329
—
—
—
—
—
—
—
—
—
—
59,919
—
—
3,958
4,329
— 21,598,408
2 (21,598,408)
(2 )
—
—
—
—
—
—
(4,387 )
(122 )
8,957
—
—
—
123
(1 )
—
—
—
122
—
—
—
—
—
—
852,570
—
1,808
—
—
—
—
—
—
2,995,106
83,043
30,559,935
—
—
58,501
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,119
—
—
—
(2,800 )
—
(2,800 )
—
—
—
13,119
—
(1,808 )
—
—
(3,155 )
22,259
—
—
—
—
—
—
—
—
—
(1,808 )
(3,155 )
22,259
274,136
53,823
—
(3,198 )
— 324,764
423
—
—
—
—
—
423
—
—
—
79,844
(2,851,793 )
(79,080 ) 5,763,508
1
—
—
79,843
—
—
—
—
—
124,277
—
—
—
—
—
—
143,313
3,963
36,506,221
—
—
49,662
(816 )
(23 )
1,634
(142,497 )
(3,940 )
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,416
—
—
(2,055 )
—
— 186,366
—
(688 )
—
—
—
—
—
—
—
—
(688 )
5,416
—
(2,055 )
— 186,366
—
359,818
238,134
—
(3,886 )
— 594,070
—
582
—
—
23
—
—
—
378
—
—
—
—
—
—
—
—
—
582
23
378
—
— 7,794,710
—
—
—
80,163
—
—
—
—
80,163
—
—
70,654
—
—
—
—
—
—
(526 )
—
(526 )
—
—
—
—
—
—
—
—
—
—
—
19,068
—
(11,904 )
—
—
—
—
—
—
—
19,068
—
(11,904 )
BALANCE, January 1,
2012
Derecognition of Series
A Preferred Stock
Issuance of Series B
Preferred Stock and
common stock
Issuance of common
stock in initial public
offering, net of
issuance cost of $8,892
Issuance of common
stock
Issuance of common
stock in acquisition
Conversion of Class A
common stock to
common stock
Conversion of Series B
preferred stock to
common stock
Conversion of
restricted stock units to
common stock (net of
441,949 shares of
treasury stock
purchased)
Stock compensation
expense
Accretion of Series A
Preferred Stock to
redemption value
Series B preferred stock
dividends paid
Net income
BALANCE,
December 31, 2012
Issuance of common
stock
Conversion of Series B
Preferred Stock to
common stock
Conversion of restricted
stock units to
common stock (net
of 67,913 shares of
treasury stock
purchased)
Stock compensation
expense
Series B Preferred
Stock dividends paid
Net income
BALANCE,
December 31, 2013
Issuance of common
stock
Conversion of Series B
Preferred Stock to
common stock
Preferred stock
redemption
Issuance of common
stock in acquisitions
(net of issuance costs of
$942)
Conversion of
restricted stock units to
common stock (net of
54,252 shares of
treasury stock
purchased)
Convertible notes
conversion feature (net
of taxes of $5,082 and
net of issuance cost of
$886)
Purchase of capped call
transactions
Purchase of remaining
interest in VIE (net of
taxes of $300)
Acquisition of
noncontrolling interest
Stock compensation
expense
Net change in
unrealized losses on
marketable securities
Series B Preferred
Stock dividends paid
Net income (loss)
BALANCE,
December 31, 2014
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— 44,422,881 $
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
—
—
—
(524 )
—
5,883
—
—
—
—
—
—
—
(40 )
82,611
—
—
—
(11 )
—
—
—
—
—
—
—
—
—
(524 )
8,962
8,962
—
5,883
—
—
(11 )
(40 )
(73 )
82,538
— $ — $ 453,109
$ 321,083 $
(11 )
$ (4,412 ) $
8,889
$ 778,662
See notes to consolidated financial statements.
58
Table of Contents
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation expense
Amortization expense of assets and liabilities, net
Accretion of asset retirement obligations
Accretion of convertible note discount
Accretion of marketable securities
Loss on disposal of property, plant and equipment, net
Provision for doubtful accounts
Stock compensation expense
Deferred tax expense
Change in fair value of contingent consideration
Change in fair value of preferred stock conversion feature embedded derivatives
Change in fair value of Seneca Holdco liability
Premium paid for Seneca Landlord investment
Expense settled with stock issuance
Other
Changes in asset and liabilities, net of effects from mergers and acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Net cash flows provided from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for marketable securities
Cash receipts from marketable securities
Cash paid for purchase of property, plant and equipment
Cash receipts from disposal of fixed assets
Change in restricted cash
Cash paid for investments
Cash paid for acquisitions, net of cash acquired
Other investing activities
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit
Cash received for issuance of debt
Cash paid for capped call transactions
Cash received on convertible debt
Cash paid on debt
Cash paid for debt issuance costs
Repayment of investment in Seneca Landlord
Cash received from initial public offering
Cash paid for issuance of common stock and preferred stock
Cash paid for redemption of preferred stock
Cash paid for treasury stock
Cash paid for preferred stock dividends
Net cash flows provided from financing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, Beginning of period
CASH AND CASH EQUIVALENTS, End of period
2014
2013
2012
$
82,538 $
186,366 $
22,259
15,255
541
67
2,635
553
291
1,453
5,883
3,641
(6,631 )
—
—
—
—
(42)
(207,877 )
(277)
(12,146 )
143,131
2,336
1,177
32,528
(80,974 )
63,840
(60,163 )
45
(117,660 )
(2,779 )
(19,369 )
27
(217,033 )
5,693
5,490
(11,904 )
143,750
(37,798 )
(4,719 )
—
—
(1,587 )
(3,562 )
(529)
(40)
94,794
(89,711 )
153,227
63,516 $
$
9,705
(463)
—
—
—
815
309
5,416
9,859
—
—
—
—
—
—
(64,460 )
(40,608 )
(9,984 )
22,386
4,801
15,503
139,645
—
—
(39,053 )
330
—
(4,733 )
(10,933 )
—
(54,389 )
10,986
3,000
—
—
(10,999 )
(203)
—
—
(25)
—
(282)
(1,291 )
1,186
86,442
66,785
153,227 $
8,024
(103)
—
—
—
—
563
13,119
2,986
—
(11,975 )
(249)
(7,063 )
1,898
—
32,014
(3,096 )
(394)
(4,002 )
(2,614 )
(6,748 )
44,619
—
—
(12,654 )
—
(64)
(37)
(1,791 )
—
(14,546 )
(4,035 )
—
—
—
(44,509 )
(138)
(4,000 )
63,747
(1,699 )
—
(3,074 )
(3,155 )
3,137
33,210
33,575
66,785
(continued)
59
Table of Contents
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(IN THOUSANDS)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid (received) for income taxes
Cash paid for interest
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Effects of recapitalization
Accretion of preferred stock to redemption value
Common stock repurchased included in accrued expenses and other liabilities
Amounts included in period-end accounts payable for:
Purchases of property, plant and equipment
Issuance costs
Incentive common stock liability for supply agreement
Issuance of common stock for acquisitions
Contingent consideration for acquisitions
Debt assumed in acquisition
Gain on redemption of preferred stock
Issuance of common stock per exercise of Seneca Landlord put/call option
Issuance of common stock for dividends
In-kind contribution through acquisition
Issuance of note payable for acquisition
2014
2013
2012
$
$
$
$
$
$
$
$
$
$
(1,847 ) $
4,065 $
(7,475 ) $
2,336 $
526 $
4,220 $
311 $
412 $
80,163
45,950
129,745
378
$
$
$
$
529 $
2,037 $
105 $
583 $
$
764 $
$
5,135
3,537
3,984
39,107
1,808
124
3,884
48
423
591
1
1,336
See "Note 5 - Acquisitions and Equity Transactions" for noncash items related to the acquisition transactions.
See notes to consolidated financial statements.
60
(concluded)
Table of Contents
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Three Years Ended December 31, 2014, 2013 and 2012
(In Thousands, Except Share and Per Share Amounts)
NOTE 1—ORGANIZATION, PRESENTATION, AND NATURE OF THE BUSINESS
Renewable Energy Group, Inc. (the "Company") is a leading North American biomass-based diesel producer with a nationwide
distribution and logistics system. The Company participates in each aspect of biomass-based diesel production, from acquiring feedstock,
managing construction and operating biomass-based diesel production facilities, to marketing, selling and distributing biomass-based diesel
and its co-products.
The Company operates a network of nine operating biomass-based diesel production facilities with aggregate nameplate production
capacity of 332 million gallons per year, or mmgy. A number of these plants are “multi-feedstock capable” which allows them to use a
broad range of lower cost feedstocks, such as inedible corn oil, used cooking oil and inedible animal fats in addition to vegetable oils, such
as soybean oil and canola oil.
The Company also has three partially constructed production facilities and one non-operational production facility. The Company
will need to raise additional capital to complete construction of these plants and fund working capital requirements. It is uncertain when or
if financing will be available.
We expanded our business to Europe by acquiring a majority interest in Petrotec AG (or Petrotec) in December 2014. Petrotec is a
fully-integrated company that produces biodiesel at its two biorefineries in Emden and Oeding, Germany to sell to the European market.
The biomass-based diesel industry and the Company’s business have benefited from the continuation of certain federal and state
incentives. The federal biodiesel tax credit expired on December 31, 2014 and it is uncertain whether it will be reinstated. This revocation
along with other amendments of any one or more of those laws, could adversely affect the financial results of the Company.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and entities which it
controls. All intercompany balances and transactions have been eliminated for consolidated reporting purposes.
Cash and Cash Equivalents
Cash and cash equivalents consists of money market funds and demand deposits with financial institutions. The Company considers
all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Restricted Cash
The Company segregates certain cash balances in accordance with lending arrangements and classified restricted cash between
current and non-current assets based on the length of time of the restricted use.
As of December 31, 2014, current restricted cash amounts to $12,845, which is held in certificates of deposit as pledges for letters of
credit issued to support a subsidiary's trade activities and the Company's outstanding tender offer to acquire the remaining interest at
Petrotec, see "Note 5 - Acquisitions and Equity Transactions". Non-current restricted cash consists of a $101,315 certificate of deposit,
which was pledged to Bank of America, who issued a letter of credit on the Company's behalf to support the payments on the Company's
GOZone Bonds. In addition, non-current restricted cash consists of a $3,500 certificate of deposit, which was pledged to Bank of America,
who issued a letter of credit to support a subsidiary's trade activities. There was no restricted cash balance at December 31, 2013. For
additional information, see "Note 12 - Debt".
Marketable Securities
The Company’s marketable securities are classified as available-for-sale and are reported at fair value, with unrealized gains and
losses, net of tax, recorded in accumulated other comprehensive income (loss). Realized gains or losses and declines in value judged to be
other-than-temporary, if any, on available-for-sale securities are reported in other income, net. The
61
Table of Contents
Company evaluates the investments periodically for possible other-than-temporary impairment, specifically contemplating whether a sale
of the securities is likely to occur before recovery of the entire amortized cost basis. The Company uses the specific identification method
when securities are sold or reclassified out of accumulated other comprehensive income into earnings. The Company considers marketable
securities maturing in less than one year as short-term. The Company has no current requirement or intent to sell its marketable securities as
of December 31, 2014. Gross realized gains and losses on available-for-sale securities were minimal for the years ended December 31,
2014 and 2013.
Accounts Receivable
Accounts receivable are carried at invoiced amount less allowance for doubtful accounts. Management estimates the allowance for
doubtful accounts based on existing economic conditions, the financial conditions of customers, and the amount and age of past due
accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally
written off against the allowance for doubtful accounts only after reasonable collection attempts have been exhausted. Activity regarding
the allowance for doubtful accounts was as follows:
Balance, January 1, 2012
Amount charged to selling, general and administrative expenses
Charge-offs, net of recoveries
Balance, December 31, 2012
Amount charged to selling, general and administrative expenses
Charge-offs, net of recoveries
Balance, December 31, 2013
Amount charged to selling, general and administrative expenses
Charge-offs, net of recoveries
Balance, December 31, 2014
Inventories
$
$
1,435
563
(26)
1,972
309
(157)
2,124
1,453
(1,304)
2,273
Inventories are valued at the lower of cost or market. Cost is determined based on the first-in, first-out method. Lower of cost or
market adjustments amounting to $0 were made to the inventory values reported as of December 31, 2014 and 2013.
Renewable Identification Numbers (RINs)
When the Company produces and sells a gallon of biomass-based diesel, 1.5 to1.7 RINs per gallon are generated. RINs are used to
track compliance with Renewable Fuel Standards (RFS2). RFS2 allows the Company to attach between zero and 2.5 RINs to any gallon of
biomass-based diesel. As a result, a portion of the selling price for a gallon of biomass-based diesel is generally attributable to RFS2
compliance. However, RINs that the Company generates are a form of government incentive and not a result of the physical attributes of
the biomass-based diesel production. Therefore, no cost is allocated to the RIN when it is generated, regardless of whether the RIN is
transferred with the biomass-based diesel produced or held by the Company pending attachment to other biomass-based diesel production
sales.
In addition, the Company also obtains RINs from third parties who have separated the RINs from gallons of biomass-based diesel.
From time to time, the Company holds varying amounts of these separated RINs for resale. RINs obtained from third parties are initially
recorded at their cost and are subsequently revalued at the lower of cost or market as of the last day of each accounting period and the
resulting adjustments are reflected in costs of goods sold for the period. The value of RINs obtained from third parties is reflected in
“Prepaid expenses and other assets” on the consolidated balance sheet. The cost of goods sold related to the sale of these RINs is
determined using the average cost method, while market prices are determined by RIN values, as reported by the Oil Price Information
Service (OPIS).
The Company records assets acquired and liabilities assumed through the exchange of non-monetary assets based on the fair value of
the assets and liabilities acquired or the fair value of the consideration exchanged, whichever is more readily determinable.
Derivative Instruments
Derivatives are recorded on the balance sheet at fair value with changes in fair value recognized in current period earnings. The
Company did not elect to use hedge accounting for all periods presented.
62
Table of Contents
Property, Plant and Equipment
Property, plant and equipment is recorded at cost less accumulated depreciation. Maintenance and repairs are expensed as incurred.
Depreciation expense is computed on a straight-line method based upon estimated useful lives of the assets. Estimated useful lives are as
follows:
Automobiles and trucks
Computers and office equipment
Office furniture and fixtures
Machinery and equipment
Leasehold improvements
Buildings and improvements
5 years
5 years
7 years
5-30 years
the lesser of the lease term or 30 years
30-40 years
As of December 31, 2014, 2013 and 2012, the Company capitalized interest incurred on debt during the construction of assets of
$1,345, $335 and $33, respectively.
Goodwill
Goodwill is tested for impairment annually on July 31 or when impairment indicators exist. Goodwill is allocated and tested for
impairment by reporting units. The analysis is based on a comparison of the carrying value of the reporting unit to its fair value, determined
utilizing both a discounted cash flow methodology and a market comparable methodology. The determination of whether or not the asset
has become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of
the Company’s reporting units. Changes in estimates of future cash flows caused by items such as unforeseen events or sustained
unfavorable changes in market conditions could negatively affect the fair value of the reporting unit’s goodwill asset and result in an
impairment charge. The annual impairment test determined that the fair value of the biomass-based diesel reporting unit exceeded its
carrying value by approximately 7% and the services reporting unit exceeded its carrying value by approximately 66%. The Company also
reviewed goodwill recorded from the acquisitions of LS9, Inc, Syntroleum Corporation and Dynamic Fuels, LLC during the annual
impairment testing. There have been no impairment indicators subsequent to the July 31, 2014 measurement date that would indicate that
an additional assessment needs be taken.
The following table summarizes goodwill for the Company’s reportable segments:
Beginning balance - January 1, 2013
Acquisitions
Ending balance - December 31, 2013
Acquisitions
Ending balance - December 31, 2014
Contingent Consideration for Acquisitions
Biomass-based Diesel
$
68,784 $
—
68,784
103,411
172,195 $
Services
Total
16,080 $
—
16,080
—
16,080 $
84,864
—
84,864
103,411
188,275
$
Contingent considerations in a purchase business combination are established at the time of the acquisition (See "Note 5 -
Acquisitions and Equity Transactions"). The contingent consideration is adjusted to fair value at each reporting period. The change in fair
value is included in change in fair value of contingent consideration on the Consolidated Statements of Operations.
Impairment of Assets
The Company tests its long-lived assets for recoverability when events or circumstances indicate that its carrying amount may not be
recoverable. Significant assumptions used in the undiscounted cash flow analysis, when it is required, include the projected demand for
biomass-based diesel based on annual renewable fuel volume obligations under the Renewable Fuel Standards (RFS2), the Company's
capacity to meet that demand, the market price of biomass-based diesel and the cost of feedstock used in the manufacturing process. For
facilities under construction, estimates also include the capital expenditures necessary to complete construction of the plant and the
projected costs of financing. There were no asset impairment charges for the years ended December 31, 2014, 2013 and 2012.
63
Table of Contents
Investments
The Company has made investments in several biofuels businesses. These investments are recorded at cost and assessed for
impairment at each reporting period. There were no impairment charges for the years ended December 31, 2014, 2013 and 2012.
Unfavorable Lease Obligation
The Company assumed ground and fixture leases as part of certain acquisitions which required the Company to pay above market
rentals through the remainder of the lease terms. The unfavorable lease obligation is amortized over the contractual periods the Company is
required to make rental payments under the leases. The amount expected to be amortized each year for the remainder of the contracts is
$1,828.
Convertible Debt
In June 2014, the Company issued $143,750 in convertible senior notes. Applicable authoritative accounting guidance requires that
the conversion feature be assigned a fair value and that that feature reduce the initial recorded value of the liability component of the
convertible senior notes. This conversion feature is recorded in equity on a net of tax basis. The discount on the liability component is being
amortized through interest expense until the maturity date of June 15, 2019. See "Note 12 - Debt" for further descriptions of the transaction.
Capped Call Transaction
In connection with the issuance of the convertible senior notes, the Company entered into capped call transactions. The purchased
capped call transactions were recorded as a reduction to common stock-additional paid-in-capital. Because this was considered to be an
equity transaction and qualifies for the derivative scope exception, no future changes in the fair value of the capped call will be recorded by
the Company.
Revenue Recognition
The Company recognizes revenues from the following sources:
•
•
•
•
•
the sale of biomass-based diesel and its co-products, as well as Renewable Identification Numbers (RINs) and raw material
feedstocks, purchased or produced by the Company at owned manufacturing facilities and manufacturing facilities with which
the Company has tolling arrangements;
the resale of biomass-based diesel, RINs and raw material feedstocks acquired from third
parties;
the sale of petroleum-based heating oil and diesel fuel acquired from third parties, along with the sale of these items further
blended with biodiesel produced at wholly owned facilities;
incentives received from federal and state programs for renewable fuels;
and
fees received for the marketing and sales of biomass-based diesel produced by third parties and from managing operations of
third party facilities.
Biomass-based diesel, including RINs, and raw material feedstock revenues are recognized where there is persuasive evidence of an
arrangement, delivery has occurred, the price has been fixed or is determinable and collectability can be reasonably assured.
Fees received under toll manufacturing agreements with third parties are generally established as an agreed upon amount per gallon
of biomass-based diesel produced. The fees are recognized where there is persuasive evidence of an arrangement, delivery has occurred,
the price has been fixed or is determinable and collectability can be reasonably assured.
Revenues associated with the governmental incentive programs are recognized when the amount to be received is determinable,
collectability is reasonably assured and the sale of product giving rise to the incentive has been recognized. The Company received funds
from the United States Department of Agriculture (USDA) in the amount of $600, $2,813 and $1,161 for the years ended December 31,
2014, 2013 and 2012, respectively. The Company records amounts when it has received notification of a payment from the USDA or is in
receipt of the funds and records the awards under the Program in "Biodiesel government incentives" as they are closely associated with the
Company's biomass-based diesel production activities.
While in general the Company has not historically offered sales incentives to customers, the uncertainty around the reinstatement of
the federal biodiesel tax credit led to the Company and other market participants acting as if the federal biodiesel tax credit would be
reinstated throughout the year and entering into agreements to capture the credit when or if
64
Table of Contents
reinstated. The federal biodiesel tax credit was reinstated on December 19, 2014 and the Company recognized a net benefit of $78,781 for
2014.
Freight
Amounts billed to customers for freight are included in biomass-based diesel sales. Costs incurred for freight are included in costs of
goods sold.
Advertising Costs
Advertising costs are charged to expense as they are incurred. Advertising and promotional expenses were $755, $648 and $485 for
the years ended December 31, 2014, 2013 and 2012, respectively.
Research and Development
Research and development (R&D) costs are charged to expense as incurred. In process research and development (IPR&D) assets
acquired in connection with acquisitions are recorded on the Consolidated Balance Sheets as intangible assets. Acquired IPR&D is initially
assigned an indefinite life and is subject to impairment testing until the completion or abandonment of the associated R&D efforts. If
abandoned, the carrying value of the IPR&D asset is expensed. Once the associated R&D efforts are completed, the carrying value of the
IPR&D is reclassified as a finite-lived asset and is amortized over its useful life.
Employee Benefits Plan
The Company sponsors an employee savings plan under Section 401(k) of the Internal Revenue Code. The Company makes
matching contributions equal to 50% of the participant’s pre-tax contribution up to a maximum of 6% of the participant’s eligible earnings.
Total expense related to the Company’s defined contribution plan was approximately $855, $533 and $456 for the years ended
December 31, 2014, 2013 and 2012, respectively.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant-date fair value of the award and recognized as compensation expense
over the vesting period.
Income Taxes
The Company uses the asset and liability method to account for income taxes. Accordingly, deferred income taxes are recognized for
differences between the financial statement and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in
which differences are expected to reverse. Changes in tax rates are recognized directly to the income statement as they arise. Consideration
is given to positive and negative evidence related to the realization of the deferred tax assets and valuation allowances are established to
reduce deferred tax assets to the amounts expected to be realized. Significant judgment is required in making this assessment.
For uncertain tax positions, the Company recognizes tax benefits that are more likely than not to be sustained upon examination by
tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized.
With regard to non-US subsidiaries, the company does not have any undistributed earnings and the company has not yet decided to
indefinitely invest any future earnings outside of the United States.
Concentrations
Certain customers represented greater than 10% of the total consolidated revenues of the Company for the three years ended
December 31, 2014, 2013 and 2012. All customer amounts disclosed in the table are related to biomass-based diesel sales:
Customer A
2014
2013
2012
$
231,780 $
243,258 $
363,372
The Company maintains cash balances at financial institutions, which may at times exceed the $250 coverage by the U.S. Federal
Deposit Insurance Company.
Use of Estimates
65
Table of Contents
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the dates of the financial statements and reported amounts of revenues and expenses during the reporting
periods. These estimates are based on information that is currently available to management and on various assumptions that the Company
believes to be reasonable under the circumstances. Actual results could differ from those estimates.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: Summary and Amendments that Create
Revenue from Contracts with Customers and Other Assets and Deferred Costs—Contracts with Customers. The guidance in this update
supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout
the industry topics of the codification. For public companies, this update will be effective for interim and annual periods beginning after
December 15, 2016. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.
NOTE 3—STOCKHOLDERS’ EQUITY OF THE COMPANY
Common Stock
The Company has authorized capital stock consisting of 450,000,000 shares, all with a par value of $.0001 per share, which includes
300,000,000 shares of Common Stock (the class of common stock offered in the IPO), 140,000,000 shares of Common Stock A and
10,000,000 shares of Preferred Stock including 3,000,000 shares of Series B Preferred Stock.
Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of
stockholders. Subject to preferences that may apply to shares of previously outstanding Series A Preferred Stock and currently outstanding
Series B Preferred Stock as outlined below, the holders of outstanding shares of Common Stock are entitled to receive dividends. After the
payment of all preferential amounts required to the holders of Series B Preferred Stock, all of the remaining assets of the Company
available for distribution shall be distributed ratably among the holders of Common Stock.
On January 24, 2012, the Company completed an IPO of shares of Common Stock in which it sold 7,200,000 shares at a price to the
public of $10 per share, which included 342,860 shares of Common Stock from selling shareholders. The IPO raised approximately
$59,919 net of underwriting fees and offering costs. In connection with the Company’s IPO on January 24, 2012, the Company gave effect
to the one-time conversion of Series A Preferred Stock and certain common stock warrants into 7,660,612 shares of newly issued Class A
Common Stock and 2,999,493 shares of $74,987 aggregate liquidation preference Series B Preferred Stock with cumulative dividends of
4.50% per annum.
Common Stock Warrants
Under the Company’s outstanding warrants, the holder may purchase the number of shares of Common Stock underlying each
warrant held for a purchase price of $11.16 per share. The warrant holder may “net exercise” the warrants and use the common shares
received upon exercise of the warrants outstanding as the consideration for payment of the exercise price.
The warrant holders are generally protected from anti-dilution by adjustments for any stock dividends, stock split, combination, or
other recapitalization.
On January 24, 2012, certain common stock warrant holders were converted to Class A Common Stock as part of the stock
recapitalization. Warrant holders converted 287,561 common stock warrants to 134,181 shares of Common Stock.
The following table summarizes the number of shares reserved for the exercise of common stock purchase warrants as of
December 31:
Issued to
Blackhawk warrant holders
Issuance Date
February 26, 2010
Expiration Date
Exercise
Price Per
Share
Warrants
Outstanding
2014
Warrants
Outstanding
2013
February 25, 2015 $
11.16
17,916
17,916
No common stock warrants were issued during 2014 or 2013.
Stock Issuance Costs
66
Table of Contents
In addition to the warrants, other direct costs of obtaining capital by issuing the common and preferred stock were deducted from
related proceeds with the net amount recorded as preferred stock or stockholders’ equity. Direct costs incurred for the years ended
December 31, 2014, 2013 and 2012 were $1,587, $114 and $700, respectively.
NOTE 4—REDEEMABLE PREFERRED STOCK
In connection with the Company’s IPO on January 24, 2012, the Company gave effect to the one-time conversion of Series A
Preferred Stock and certain common stock warrants into 7,660,612 shares of newly-issued Common Stock and 2,999,493 shares of $74,987
aggregate liquidation preference Series B Preferred Stock with cumulative dividends of 4.5% per annum. Prior to conversion, Series A
Preferred Stock accrued dividends at the rate of $0.88 per share per annum, was entitled to voting rights on an as converted basis, had
liquidation preference over common stock, and had certain redemption rights. All Series A Preferred Stock was converted and no Series A
Preferred Stock remains outstanding.
During the third quarter 2013, the Company's closing sale price of its Common Stock exceeded $15.00 for at least 20 days in a 30
consecutive trading day period with the average daily trading volume exceeding 200,000 shares. Therefore, the Company opted to cause
50% of the then-outstanding shares of Series B Preferred Stock to be converted as provided for in the preferred stock shareholder
agreement. The Company converted 518,365 shares of Series B Preferred Stock into 1,047,465 shares of Common Stock.
In March 2014, the Company redeemed all outstanding shares of Series B Preferred Stock. No shares of Series B Preferred Stock
remain outstanding at December 31, 2014.
NOTE 5—ACQUISITIONS AND EQUITY TRANSACTIONS
LS9, Inc.
On January 22, 2014, REG Life Sciences, a wholly-owned subsidiary of the Company, acquired substantially all of the assets and
certain liabilities of LS9. The Company completed its accounting for this business combination in the second quarter of 2014 when the
valuation of the contingent consideration, in-process research & development intangible assets and goodwill acquired was finalized. The
following table summarizes the consideration paid for LS9 and the amounts of assets acquired and liabilities assumed at the acquisition
date:
Consideration at fair value:
Cash
Common stock
Contingent consideration
Total
Assets (liabilities) acquired:
Property, plant and equipment
In-process research & development intangible assets
Goodwill
Other noncurrent liabilities
Total
January 22, 2014
15,275
26,254
17,050
58,579
January 22, 2014
8,215
15,956
34,846
(438 )
58,579
$
$
$
$
The fair value of the 2,230,559 shares of Common Stock issued as part of the consideration paid for LS9 was determined on the basis
of the closing market price of the Company's common shares at the date of acquisition.
Subject to achievement of certain milestones related to the development and commercialization of products from LS9’s technology,
LS9 may receive contingent consideration of up to $21,500 (Earnout Payments) over a five-year period after the acquisition. The Earnout
Payments will be payable in cash, the Company's stock or a combination of cash and stock at the Company's election. As of December 31,
2014, the Company has recorded a contingent liability of $8,624, all of which has been classified as non-current on the Consolidated
Balance Sheets.
67
Table of Contents
The goodwill acquired was included in the Biomass-based diesel segment, a portion of which is expected to be deductible for tax
purposes.
The acquired business had no revenues during 2014. The net loss it incurred during 2014 included in the Consolidated Statements of
Operations was $11,747.
Syntroleum Corporation/Dynamic Fuels, LLC
On June 3, 2014, REG Synthetic Fuels, a wholly-owned subsidiary of the Company included in the Biomass-based diesel segment,
acquired substantially all the assets of Syntroleum, which consisted of a 50% limited liability company membership interest in Dynamic
Fuels, as well as intellectual property and other assets. Dynamic Fuels owns a 75 million gallon per year nameplate capacity renewable
hydrocarbon diesel biorefinery located in Geismar, Louisiana. The Company has not completed its initial accounting for this business
combination as the valuation of the intangible assets and goodwill acquired has not been finalized. The following table summarizes the
consideration paid for Syntroleum.
Consideration at fair value for Syntroleum:
Common stock
June 3, 2014
$
34,831
The fair value of the 3,493,613 shares of Common Stock issued to Syntroleum was determined on the basis of the closing market
price of the Company's common shares at the date of acquisition.
The fair value of the Syntroleum renewable hydrocarbon diesel technology was determined using the relief from royalty method, or
RFR, which reflects the savings realized by owning the intangible assets. The value under RFR method is dependent upon the following
factors for an asset: royalty rate, discount rate, expected life and projected revenue.
On June 6, 2014, REG Synthetic Fuels acquired the remaining 50% ownership interest in Dynamic Fuels, from Tyson Foods. The
Company renamed Dynamic Fuels to REG Geismar, LLC, which is included in the Biomass-based diesel segment. The Company has not
completed its initial accounting for this business combination as the valuation of the real and personal property, contingent consideration,
intangible assets and goodwill acquired has not been finalized.
The following table summarizes the consideration paid to Tyson Foods for Dynamic Fuels:
Consideration at fair value for Dynamic Fuels:
Cash
Contingent consideration
Total
June 6, 2014
$
$
16,447
28,900
45,347
The following table summarizes the amount of assets acquired and liabilities assumed at the acquisition date for the combined
acquisition of Syntroleum and Dynamic Fuels:
68
Table of Contents
Assets (liabilities) acquired of Syntroleum and Dynamic Fuels:
Cash
Other current assets
Property, plant and equipment
Goodwill
Intangible assets
Other noncurrent assets
Other current liabilities
Deferred tax liabilities
Debt
Other noncurrent liabilities
Total
June 6, 2014
253
4,666
121,567
68,196
8,900
10,281
(1,024 )
(5,108 )
(113,553 )
(14,000 )
80,178
$
$
Subsequent to the closing of the Tyson Foods transaction, REG Geismar paid off the debt owed to Tyson Foods in the amount of
$13,553.
Subject to achievements related to the sale of renewable hydrocarbon diesel at the REG Geismar production facility, Tyson Foods
may receive contingent consideration of up to $35,000. The Company will pay contingent consideration, if and when, the Company
achieves certain sales volumes. The agreement calls for periodic payments based on pre-determined payments per gallon of product sold.
The probability weighted contingent payments were discounted using a risk adjusted discount rate of 5.8%. The contingent payments will
be payable in cash. As of December 31, 2014, the Company has recorded a contingent liability of $30,695, of which $9,228 has been
classified in accrued expenses and other liabilities on the Consolidated Balance Sheets.
The goodwill acquired is included in the Biomass-based diesel segment, a portion of which is expected to be deductible for tax
purposes.
REG Synthetic Fuels, including its wholly-owned subsidiary REG Geismar, had $38,064 in revenues for the year ended December 31,
2014. The net loss incurred by REG Synthetic Fuels for the year ended December 31, 2014 included in the Consolidated Statement of
Operations was $3,609, respectively, which includes $2,851 of income tax expense for the year ended December 31, 2014, resulting from
the recording of a valuation allowance offsetting their deferred tax assets.
416 S. Bell, LLC
Prior to July 25, 2014, the Company had a 50% ownership in 416 S Bell, LLC (Bell, LLC), a variable interest entity (VIE) joint
venture that owned and leased to the Company its corporate office building in Ames, Iowa. Commencing January 1, 2011, the Company
had the right to execute a call option with the joint venture member, Dayton Park, LLC (Dayton Park), to purchase Bell, LLC and
commencing on January 1, 2013, Dayton Park had the right to execute a put option with the Company to sell Bell, LLC. The Company
determined it was the primary beneficiary of Bell, LLC and had consolidated Bell, LLC into the Company’s financial statements since
January 1, 2011.
On July 25, 2014, the Company completed the acquisition of the remaining 50% interest in Bell, LLC in exchange for $1,423 cash.
The Company determined that this transaction did not result in a change of control and as such has accounted for it as an equity transaction.
Neither goodwill nor a gain/loss was recognized in conjunction with the acquisition.
Petrotec AG
On December 24, 2014, the Company acquired 69.08% of the outstanding common shares and voting interest of Petrotec. The results
of Petrotec’s operations have been included in the consolidated financial statements since that date. The Company has not completed its
initial accounting for this business combination as the valuation of the assets acquired and liabilities assumed has not been finalized.
The following table summarizes the consideration paid for Petrotec:
69
Table of Contents
Consideration at fair value for Petrotec:
Common stock
December 24, 2014
$
20,022
The fair value of the 2,070,538 common shares issued to Petrotec was determined on the basis of the closing market price of the
Company's common shares at the date of acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
December 24, 2014
Assets (liabilities) acquired of Petrotec:
Cash
Accounts receivable
Inventory
Other current assets
Property, plant and equipment
Total identifiable assets acquired
Accounts payable
Accrued expenses and other liabilities
Debt
Non-current liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Non-controlling interest
Net assets acquired
$
$
13,523
4,989
9,470
3,583
25,026
56,591
(8,171 )
(2,151 )
(16,192 )
(1,462 )
(27,976 )
28,615
369
(8,962 )
20,022
The $369 of goodwill was assigned to the Biomass-based diesel segment, all of which is expected to be deductible for income tax
purposes.
The fair value of the 30.92% noncontrolling interest in Petrotec is estimated to be $8,962. The fair value of the noncontrolling interest
was estimated using a combination of the income approach and a market approach.
The Company recognized $1,289 of acquisition related costs that were expensed in the current period.
The following pro forma condensed combined results of operations assume that LS9, Syntroleum and Dynamic Fuels, and Petrotec
acquisitions were completed as of January 1, 2012:
Revenues
Net income (loss)
Basic net income (loss) per share
Soy Energy, LLC
Year ended December
31, 2014
Year ended December
31, 2013
Year ended December
31, 2012
$
1,493,026 $
54,158
1.33
$
1,783,518
156,029
4.17
1,389,942
1,685
0.06
On July 30, 2013, the Company and REG Mason City, LLC (REG Mason City), a subsidiary of the Company, completed the
acquisition of substantially all the assets of Soy Energy, LLC's (Soy Energy) assets in exchange for $10,933 cash and the issuance of a
$5,135 promissory note to Soy Energy. The assets of Soy Energy consisted of a 30 mmgy nameplate capacity biomass-based diesel facility
and related assets, located in Mason City, Iowa.
70
Table of Contents
The Company determined that the Soy Energy assets were not a business as defined under ASC Topic 805, on the basis that the assets
were not an integrated set of activities or assets that were capable of being conducted or managed in a manner that would provide any
economic benefit to the Company. As a result, the Company accounted for the Soy Energy assets as an asset acquisition. Neither goodwill
nor a gain from a bargain purchase was recognized in conjunction with the acquisition. The final purchase price allocation resulted in
$16,085 of property, plant and equipment and $17 of other current liabilities.
BullDog Biodiesel, LLC
On November 16, 2012, the Company and REG Atlanta, LLC (Atlanta), a subsidiary of the Company, completed its acquisition of
BullDog Biodiesel, LLC. Pursuant to the Asset Purchase Agreement, the Company acquired substantially all of the assets of BullDog in
exchange for $1,323 in cash and $1,336 of in-kind contribution. The assets of BullDog consisted of an idled 15 mmgy nameplate capacity
biomass-based diesel facility and related assets, located near Atlanta, Georgia. The facility had been idled prior to our acquisition and will
remain so until certain repairs or upgrades are made.
The Company determined that the BullDog assets were not a business as defined under ASC Topic 805 on the basis that the BullDog
assets were not an integrated set of activities or assets that were capable of being conducted or managed in a manner that would provide any
economic benefit or return to the Company. As a result, the Company accounted for the BullDog assets as an asset acquisition. Neither
goodwill nor a gain from a bargain purchase was recognized in conjunction with the acquisition, and no significant contingent assets or
liabilities were acquired or assumed in the acquisition. The final purchase price allocation resulted in $13 of other current assets and $2,646
of property, plant and equipment.
North Texas Bio Energy, LLC
On October 26, 2012, the Company and REG New Boston, LLC (New Boston), a subsidiary of the Company, completed its
acquisition of North Texas Bio Energy, LLC (NTBE). Pursuant to the Asset Purchase Agreement, the Company acquired substantially all
of the assets of NTBE in exchange for 900,000 shares or $4,329 of the Company’s common stock and $324 in cash. The assets of NTBE
consisted of an idled 15 mmgy nameplate capacity biomass-based diesel facility and related assets, located in New Boston, Texas.
The Company determined that the NTBE assets did not constitute a business as defined under ASC Topic 805 on the basis that the
NTBE assets were not an integrated set of activities or assets that were capable of being conducted or managed in a manner that would
provide any economic benefit or return to the Company. As a result, the Company accounted for the NTBE assets as an asset acquisition.
Neither goodwill nor a gain from a bargain purchase was recognized in conjunction with the acquisition, and no significant contingent
assets or liabilities were acquired or assumed in the acquisition. The final purchase price allocation resulted in $17 of other current assets
and $4,636 of property, plant and equipment.
Seneca Landlord, LLC
On January 24, 2012, the Company acquired the Seneca Facility pursuant to the exercise of its option under the Funding, Investor Fee
and Put/Call Agreement (Put/Call Agreement). Pursuant to the Put/Call Agreement, the Company acquired all of the equity interest of
Seneca Landlord, which owned the Seneca Facility, for approximately $11,063 in cash and $591 in the Company’s Class A Common
Stock.
Seneca Landlord was determined to be a consolidated variable interest entity (VIE) prior to the exercise of the option available under
the Put/Call Agreement, thus the basis of the assets recorded were not impacted by its exercise.
NOTE 6 — MARKETABLE SECURITIES
The Company's investments in marketable securities are stated at fair value and are available-for-sale. The following table
summarizes the Company's marketable securities:
Corporate bonds
Certificates of deposit
Total
Maturity
Within one year
Within one year
As of December 31, 2014
Gross Amortized
Cost
Total
Unrealized
Gains
Total
Unrealized
Losses
6,781 $
10,000
16,781 $
— $
—
— $
$
$
71
Fair Value
6,775
9,995
16,770
(6) $
(5)
(11) $
Table of Contents
NOTE 7—INVENTORIES
Inventories consist of the following at December 31:
Raw materials
Work in process
Finished goods
Total
NOTE 8—PROPERTY, PLANT AND EQUIPMENT
Company owned property, plant and equipment consists of the following at December 31:
Land
Building and improvements
Leasehold improvements
Machinery and equipment
Accumulated depreciation
Construction in process
Total
Property, plant and equipment of consolidated VIE consists of the following at December 31:
Land
Building and improvements
Accumulated depreciation
Total
2014
2013
23,117 $
2,879
71,512
97,508 $
13,393
1,456
70,965
85,814
2014
2013
3,437 $
96,298
10,023
355,332
465,090
(53,889)
411,201
81,995
493,196 $
2,442
72,453
6,887
166,552
248,334
(37,362)
210,972
75,072
286,044
2014
2013
— $
—
—
—
— $
404
6,290
6,694
(1,514)
5,180
$
$
$
$
$
$
NOTE 9—INTANGIBLE ASSETS
Amortizing intangible assets consist of the following at December 31:
Raw material supply agreement
Renewable hydrocarbon diesel technology
Trademarks
Ground lease
Total amortizing intangibles
In-process research and development, indefinite lives
Total intangible assets
$
$
December 31, 2014
Accumulated
Amortization
Net
Weighted Average
Remaining Life
(1,113) $
(323)
(600)
(97)
(2,133)
—
(2,133) $
4,801
7,977
—
103
12,881
15,956
28,837
11.0 years
14.5 years
0.0 years
6.9 years
Cost
5,914 $
8,300
600
200
15,014
15,956
30,970 $
72
Table of Contents
Raw material supply agreement
Ground lease
Total amortizing intangibles
December 31, 2013
Cost
Accumulated
Amortization
$
5,502 $
200
5,702
(753) $
(82)
(835)
Net
4,749
118
4,867
Weighted Average
Remaining Life
12.0 years
7.9 years
The raw material supply agreement acquired is amortized over its 15 year term based on actual usage under the agreement and expires
in 2025. The Company determined the estimated amount of raw materials to be purchased over the life of the agreement to calculate a per
pound rate of consumption. The rate is then multiplied by the actual usage each period for expense reporting purposes.
Amortization expense of $1,298, $325 and $252 for intangible assets was recorded for the years ended December 31, 2014, 2013 and
2012, respectively.
Estimated amortization expense for fiscal years ended December 31 is as follows:
2015
2016
2017
2018
2019
Thereafter
Total
NOTE 10—OTHER ASSETS
Prepaid expenses and other current assets consist of the following at December 31:
Commodity derivatives and related collateral, net
Prepaid expenses
Deposits
RIN inventory
Taxes receivable
Other
Total
$
$
1,021
1,034
1,048
1,063
1,077
7,638
12,881
2014
2013
12,938 $
7,901
4,481
10,795
2,843
4,177
43,135 $
13,675
2,414
293
6,455
2,197
534
25,568
$
$
RIN inventory is valued at the lower of cost or market and consists of (i) RINs the Company generates in connection with its
production of biomass-based diesel and (ii) RINs acquired from third parties. RINs generated by the Company are recorded at no cost, as
these RINs are government incentives and not a tangible output from its biomass-based diesel production. The cost of RINs acquired from
third parties is determined using the average cost method. RIN market value is based upon pricing as reported by the Oil Price Information
Service (OPIS). Since RINs generated by the Company have zero cost associated to them, the lower of cost or market adjustment in RIN
inventory reflects only the value of RINs obtained from third parties. RIN inventory values were adjusted in the amount of $1,042 and
$1,277 at December 31, 2014 and 2013, respectively, to reflect the lower of cost or market.
Other noncurrent assets consist of the following at December 31:
Debt issuance costs (net of accumulated amortization of $1,474 and $715, respectively)
Spare parts inventory
Deposits
Other
Total
73
2014
2013
$
$
5,152 $
3,440
4,370
6,624
19,586 $
832
3,671
—
526
5,029
Table of Contents
NOTE 11—ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at December 31:
Accrued property taxes
Accrued employee compensation
Accrued interest
Deferred grant revenue
Contingent consideration, current portion
Unfavorable lease obligation, current portion
Other
Total
Other noncurrent liabilities consist of the following at December 31:
Liability for unrecognized tax benefits
Deferred grant revenue
Straight-line lease liability
Asset retirement obligations
Bell, LLC member investment on consolidation
Other
Total
NOTE 12—DEBT
The Company’s term debt at December 31 is as follows:
2.75% Convertible debt, $143,750 face amount, due in June 2019
REG Geismar GOZone bonds, secured, variable interest rate, due in October 2033
REG Danville term loan, secured, variable interest rate of LIBOR plus 5%, due in November 2015
REG Newton term loan, secured, variable interest rate of LIBOR plus 4%, due in December 2018
REG Mason City term loan, fixed interest rate of 5%, due in July 2019
REG Ames term loans, secured, fixed interest rates of 3.5% and 4.25%, due in January 2018 and
December 2019, respectively
Other
Total debt
Bell, LLC promissory note - variable interest entity
Convertible Debt
2014
2013
1,412 $
10,639
683
745
9,228
1,828
3,951
28,486 $
1,271
8,138
109
—
—
1,129
1,658
12,305
2014
2013
— $
—
3,111
990
—
1,465
5,566 $
1,900
745
3,581
—
593
19
6,838
2014
2013
121,354 $
100,000
1,513
19,868
4,566
4,226
1,402
252,929 $
— $
—
—
5,626
18,143
5,135
—
1,247
30,151
4,029
$
$
$
$
$
$
$
In June 2014, the Company issued $143,750 in convertible senior notes (Convertible Notes) with a maturity date of June 15, 2019,
unless earlier converted or repurchased. The initial conversion rate is 75.3963 shares of Common Stock per $1 principal amount of
Convertible Notes, which represents an initial conversion price of approximately $13.26 per share. The conversion rate will be subject to
adjustment in some events but will not be adjusted for any accrued and unpaid interest. Certain corporate events that occur prior to the
stated maturity date can cause the Company to increase the conversion rate for a holder.
Prior to December 15, 2018, holders may convert all or any portion of their Convertible Notes only under certain limited
circumstances where the sale price of Common Stock for a period of time is (i) greater than or equal to 130% of the conversion price of the
Convertible Notes on each applicable trading day; (ii) less than 98% of the product of the last reported sale price of
74
Table of Contents
the Common Stock and the conversion rate of the Convertible Notes on each applicable trading day; or (iii) upon the occurrence of
specified corporate events. On or after December 15, 2018 until the close of business on the second scheduled trading day immediately
preceding the maturity date of the Convertible Notes, holders may convert their Convertible Notes at any time, regardless of the foregoing
circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Common Stock or a combination of
cash and shares of Common Stock, at the Company’s election. The Company's current intent is to settle the principal amount of the Senior
Notes in cash upon conversion. If the conversion value exceeds the principal amount, the Company would deliver shares of its common
stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (conversion spread).
The Convertible Notes are not redeemable at the Company’s option prior to maturity.
In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity
components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that
does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was
determined by deducting the fair value of the liability component from the face value of the Convertible Notes as a whole. The excess of
the face amount of the liability component over its carrying amount is amortized to interest expense over the term of the Convertible Notes
using the effective interest method with an effective interest rate of 3.80% per annum. The gross proceeds of $143,750 were accordingly
allocated between long-term debt for $118,719 and stockholders' equity $25,031. Issuance costs of $4,563 were paid, which were allocated
between deferred financing costs and equity.
In connection with the issuance of the Convertible Notes, the Company entered into capped call transactions (Capped Call) in private
transactions. Under the Capped Call, the Company purchased capped call options that in aggregate relate to 92.5% of the total number of
shares of the Company's Common Stock underlying the Convertible Notes, with a strike price equal to the conversion price of the
Convertible Notes and with a cap price equal to $16.02 per share. The capped calls were purchased for $11,904 and recorded as a reduction
to common stock-additional paid-in-capital.
The purchased Capped Call allows the Company to receive shares of its Common Stock and/or cash from counterparties equal to the
amounts of Common Stock and/or cash related to the excess of the market price per share of the Common Stock, as measured under the
terms of the Capped Call over the strike price of the Capped Call during the relevant valuation period. The purchased Capped Call is
intended to reduce the potential dilution to Common Stock upon future conversion of the Convertible Notes by effectively increasing the
initial conversion price to $16.02 as well as to offset potential cash payments the Company is required to make in excess of the principal
amount of the Convertible Notes in applicable events.
The Capped Call is a separate transaction entered into by the Company with the Option Counterparties, are not part of the terms of
the Convertible Notes and will not change the holders' rights under the Convertible Notes.
REG Geismar, LLC's GOZone Bonds
The Company assumed Dynamic Fuels’ GOZone bond obligation at the time of the purchase of Dynamic Fuels (see "Note 5 -
Acquisitions and Equity Transactions"). In connection with the acquisition from Tyson Foods, the Company agreed to reimburse Tyson
Foods for any amounts payable by Tyson relating to an irrevocable direct-pay letter of credit (Old Letter of Credit), which was obtained by
Tyson to pay for the principal and interest on Dynamic Fuels' GOZone Bonds. Tyson's total obligation under the Old Letter of Credit
amounted to $101,315, which represents the sum of the outstanding $100,000 principal amount of the GOZone Bonds plus $1,315 of
interest at the date of the acquisition.
On July 8, 2014, REG Geismar and Bank of America entered into a Reimbursement Agreement, dated as of the same date
(Reimbursement Agreement), and Bank of America issued a letter of credit (Substitute Letter of Credit) to the trustee for the GOZone
Bonds, in substitution for the irrevocable direct-pay letter of credit (Old Letter of Credit) held by Tyson Foods. The Substitute Letter of
Credit is in the stated amount of $101,315. REG Geismar’s repayment obligations under the Reimbursement Agreement are secured by a
$101,315 certificate of deposit established by REG Capital, LLC, or REG Capital, which was pledged by REG Capital to Bank of America.
This certificate of deposit is recorded as restricted cash in non-current assets of the Consolidated Balance Sheets. The Substitute Letter of
Credit expires on July 8, 2015. In the event that the expiration date of the Substitute Letter of Credit is not extended or a new letter of credit
is not issued in substitution for the Substitute Letter of Credit, holders of the Bonds are required to tender their Bonds for repurchase and
the trustee for the Bonds is required pursuant to the terms of the indenture governing the Bonds to draw down the Substitute Letter of
Credit to fund the repurchase of the Bonds. The Substitute Letter of Credit requires that the Bonds remain in the daily or weekly interest
rate mode.
REG Marketing & Logistics Group, LLC & REG Services Group, LLC
The Company’s revolving debt at December 31 are as follows:
75
Table of Contents
Total revolving loans (current)
Maximum available to be borrowed under revolving line of credit
2014
2013
$
$
16,679 $
20,719 $
10,986
29,014
We currently have a revolving credit agreement with the lenders thereto and Wells Fargo Capital Finance, LLC, as agent, which we
refer to as the Wells Fargo Revolver. The Wells Fargo Revolver provides for the extension of revolving loans in an aggregate principal
amount not to exceed $40,000, based on eligible inventory, accounts receivable, biodiesel tax credits of the subsidiary borrowers and the
inventory of certain affiliates. As of December 31, 2014, our available borrowing capacity under the Wells Fargo Revolver was $37,398 of
which $16,679 was outstanding, leaving $20,719 in availability. While the Wells Fargo Revolver has a stated maturity date of December
23, 2016, the Company has presented amounts outstanding under the Wells Fargo Revolver as current liabilities due to the contractual
requirement for daily net settlement through a sweep from the Company’s cash account. Also, because of this cash sweep feature, the
Company revised the prior years’ presentation of Revolver activity in the financing section of the Consolidated Statement of Cash Flows to
a net rather than gross format.
Amounts borrowed under the Wells Fargo Revolver bear interest, in the case of LIBOR rate loans, at a per annum rate equal to the
LIBOR rate plus the LIBOR Rate Margin (as defined), which may range from 2.50 to 4.00 percent, based on the Quantity Average Excess
Availability Amount (as defined). The LIBOR Rate Margin is subject to reduction or increase depending on the amount available for
borrowing under the new revolving credit agreement.
The Wells Fargo Revolver contains various loan covenants that restrict each subsidiary borrower’s ability to take certain actions,
including restrictions on incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, repurchase or
redemption of capital stock, making certain investments, entering into certain transactions with affiliates or changing the nature of the
subsidiary’s business. In addition, the subsidiary borrowers are required to maintain a Fixed Charge Coverage Ratio (as defined in the
Wells Fargo Revolver) of at least 1.0 to 1.0 and to have Excess Availability (as defined in the Wells Fargo Revolver) of at least $4,000. The
Wells Fargo Revolver is secured by the subsidiary borrowers’ membership interests and substantially all of their assets, and the inventory
of REG Albert Lea, LLC, REG Houston, LLC, and REG New Boston, LLC, subject to a $25,000 limitation.
As of December 31, 2014, the Company was in compliance with all restrictive financial covenants associated with its debt.
Maturities of the term debt, including the convertible debt, are as follows for the years ending December 31:
2015
2016
2017
2018
2019
Thereafter
Total
Less: current portion
76
$
$
5,746
4,579
4,368
15,739
122,497
100,000
252,929
(5,746)
247,183
Table of Contents
NOTE 13—INCOME TAXES
Income tax benefit (expense) for the years ended December 31 is as follows:
Current income tax benefit (expense)
Federal
State
Deferred income tax benefit (expense)
Federal
State
Foreign
Net operating loss carryforwards created (utilized)
Income tax benefit (expense) before valuation allowances
Deferred tax valuation allowances
Income tax expense
2014
2013
2012
$
$
— $
—
—
(14,112)
1,420
9
61,640
48,957
48,957
(52,529)
(3,572) $
2,432 $
2,492
4,924
15,297
3,736
—
48,024
67,057
71,981
(76,916)
(4,935) $
(912)
(588)
(1,500)
(9,857)
(1,187)
—
3,753
(7,291)
(8,791)
7,337
(1,454)
A reconciliation of the reported amount of income tax expense to the amount computed by applying the statutory federal income tax
rate to earnings from continuing operations before income taxes is as follows:
U.S. Federal income tax expense at a statutory rate of 35 percent
State taxes, net of federal income tax benefit
Tax position on government incentives
Loss on embedded derivative
Reduction in stock-based compensation deferred tax asset
Seneca Landlord
Unrecognized tax benefits
Other
Total (expense) benefits for income taxes before valuation allowances
Valuation allowances
Total expense for income taxes
2014
2013
2012
$
$
(30,139) $
5,119
76,662
—
—
—
—
(2,685)
48,957
(52,529)
(3,572) $
(66,955) $
6,905
131,829
—
—
—
—
202
71,981
(76,916)
(4,935) $
(8,256)
(684)
—
4,191
(3,686)
200
(400)
(156)
(8,791)
7,337
(1,454)
The Company had historically included revenue from certain government incentive payments in taxable income on its federal and
state income tax returns. In connection with the U.S. Internal Revenue Service audits of the 2011 and 2010 years, the Company proposed
that these government incentive payments should be excluded from taxable income. The U.S. Internal Revenue Service accepted this
position and on August 1, 2013, the Company received notification from the congressional Joint Committee on Taxation approving the
audit results and associated refund claim. Therefore, based on information obtained in connection with these audits, the Company changed
its position related to these government incentive payments to exclude them from taxable income for years 2008 through the current year.
The majority of this reduction increased the Company's net operating loss carry forwards available to offset future taxable income rather
than resulting in a refund of taxes previously paid. As a result of excluding these government incentive payments, the Company currently
has cumulative losses in recent years and initially established a valuation allowance in 2013 to reduce its total deferred tax assets to the
amount more-likely-than-not to be realized.
The tax effects of temporary differences that give rise to the Company’s deferred tax assets and liabilities at December 31 are as
follows:
77
Table of Contents
Deferred Tax Assets:
Goodwill
Net operating loss carryforwards
Tax credit carryforwards
Start-up costs
Stock-based compensation
Terminal leases
Capitalized research and development
Accrued compensation
Inventory capitalization
Allowance for doubtful accounts
Other
Deferred tax assets
Deferred Tax Liabilities:
Prepaid expenses
Property, plant and equipment
Intangibles
Deferred revenue
Convertible debt
Unrealized gain (loss) on available for sale investments
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)
Valuation allowance
Net deferred taxes
2014
2013
Current
Noncurrent
Current
Noncurrent
$
$
— $
—
—
—
—
—
—
3,422
1,600
931
56
6,009
(1,239)
—
—
(4,443)
(4,599)
(5,767)
(527)
(16,575)
(10,566)
(4,333)
(14,899) $
13,716 $
154,020
1,597
1,111
3,469
4,229
3,711
—
—
—
1,474
183,327
—
(53,133)
(3,018)
—
—
—
(1,867)
(58,018)
125,309
(132,214)
(6,905) $
— $
—
—
—
—
—
—
2,908
1,053
866
150
4,977
(949)
—
—
(4,127)
—
—
(8)
(5,084)
(107)
(3,580)
(3,687) $
10,791
81,761
3,068
1,231
2,137
1,892
—
—
—
—
1,064
101,944
—
(30,568)
—
—
—
—
(731)
(31,299)
70,645
(73,336)
(2,691)
At December 31, 2014, the Company has recorded a deferred tax asset of $154,020 reflecting the benefit of federal and state net
operating loss carry-forwards. Federal net operating losses total $365,200 and will begin to expire in 2028, while the amount and expiration
dates of state net operating losses vary by jurisdiction. Changes in ownership of the Company, as defined by Section 382 of the Internal
Revenue Code of 1986, as amended, may limit the utilization of federal and state net operating losses and credit carry forwards in any one
year. The Company has performed a study to determine the impact of changes in ownership on utilization of carry forward attributes, the
results of which have been incorporated into our financial statements.
At December 31, 2014, the Company had federal small agri-biodiesel producer tax credit carry-forwards of approximately $1,597. If
not utilized, these small agri-biodiesel producer tax credits will expire at various times between 2026 and 2028.
As discussed above, in evaluating available evidence around the recoverability of net deferred tax assets, the Company considers,
among other factors, historical financial performance, expectation of future earnings, length of statutory carry forward periods and ability
to carry back losses to prior periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning
strategies and timing for the of reversals of temporary differences. In evaluating losses, management considers the nature, frequency and
severity of losses in light of the conditions giving rise to those losses. As a result of the above described tax policy of excluding
government incentive payments from taxable income, the Company currently has cumulative losses in recent years and has established a
valuation allowance to reduce its total deferred tax assets to the amount more-likely-than-not to be realized. Activity regarding the
valuation allowance for deferred tax assets was as follows:
78
Table of Contents
Beginning of year balance
Changes in valuation allowance charged to income
Acquisition
End of year balance
2014
2013
2012
$
$
76,916 $
52,529
7,102
136,547 $
— $
76,916
—
76,916 $
7,337
(7,337)
—
—
The Company periodically reviews its portfolio of uncertain tax positions. An uncertain tax position represents the Company’s
expected treatment of a tax position taken in a filed tax return, or planned to be taken in a tax return not yet filed, that has not been reflected
in measuring income tax expense for financial reporting purposes. The Company does not recognize income tax benefits associated with
uncertain tax positions where it is determined that it is not more-likely-than-not, based on the technical merits, that the position will be
sustained upon examination.
A reconciliation of the total amounts of unrecognized tax benefits at December 31 is as follows:
Beginning of year balance
Increases to tax positions expected to be taken
Increases to tax positions taken during prior years
Decreases to tax positions taken during prior years
Decreases due to lapse of statute of limitations
End of year balance
$
$
2012
2014
2013
1,900 $ 1,900 $ 1,500
—
400
—
—
1,900 $ 1,900 $ 1,900
—
—
—
—
—
—
—
—
The amount of unrecognized tax benefits that would affect the effective tax rate if the tax benefits were recognized was $0, $1,428
and $1,041 at December 31, 2014, 2013 and 2012, respectively. The remaining liability for unrecognized tax benefits is related to tax
positions for which there is a related deferred tax asset. The Company does not believe it is reasonably possible that the amounts of
unrecognized tax benefits existing as of December 31, 2014 will significantly increase or decrease over the next twelve months. Interest
and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. The Company has not recorded
any such amounts in the periods presented.
The U.S. Internal Revenue Service has examined the Company's federal income tax returns through 2008, as well as 2010 and 2011.
All other years are subject to examination, while various state income tax returns also remain subject to examination by state taxing
authorities.
NOTE 14—STOCK-BASED COMPENSATION
On October 26, 2011, the stockholders approved the 2009 Stock Incentive Plan (the 2009 Plan) which authorizes up to 4,160,000
shares of Company Common Stock to be issued for the award of restricted stock, restricted stock units (RSU’s) and stock appreciation
rights (SAR’s) at the discretion of the Company Board as compensation to employees, consultants of the Company and to non-employee
directors. Under the 2009 Plan, an additional 1,800,000 shares, or 5,960,000 shares in total, are reserved for issuance as approved by
shareholders on May 15, 2014. The expense is measured at the grant-date fair value of the award and recognized as compensation expense
on a straight-line basis over the service period, which is the vesting period. There was no cash flow impact resulting from the grants of
these awards. The 2009 Plan is generally protected from anti-dilution via adjustments for any stock dividends, stock split, combination or
other recapitalization.
The Company recorded stock-based compensation expense of $5,883, $5,416 and $13,119 for the years ended December 31, 2014,
2013 and 2012, respectively. The stock-based compensation costs were included as a component of selling, general and administrative
expenses. At December 31, 2014, there was $6,389 of unrecognized compensation expense related to unvested awards, which is expected
to be recognized over a period of approximately 3.7 years.
Restricted Stock Units
The following table summarizes information about the Company’s Common Stock RSU’s granted, vested, exercised and forfeited:
79
Table of Contents
Awards outstanding - January 1, 2012
Issued
Vested and restriction lapsed
Forfeited
Awards outstanding - December 31, 2012
Issued
Vested and restriction lapsed
Forfeited
Awards outstanding - December 31, 2013
Issued
Vested and restriction lapsed
Forfeited
Awards outstanding - December 31, 2014
Number of
Awards
Weighted
Average Issue
Price
1,396,719
411,456
(1,294,519)
(8,040)
505,616
204,183
(192,190)
(16,681)
500,928
257,030
(124,906)
(16,658)
616,394
$16.29
$8.93
$13.65
$10.51
$17.14
$11.96
$15.72
$9.98
$15.81
$10.97
$10.42
$10.95
$15.00
The RSU’s convert into one share of common stock upon vesting. RSU’s cliff vest at the earlier of expressly provided service or
performance conditions. The service period for these RSU awards, excluding those issued to the Company’s Board of Directors (one year)
and certain executive management (four year), is a three year period from the grant date. The performance conditions provide for
accelerated vesting upon various conditions including a change in control or other common stock liquidity events. As a result of the
Company’s IPO on January 24, 2012 (see “Note 3— Stockholders’ Equity of the Company”) a common stock liquidity-related
performance condition was satisfied and 1,294,519 shares vested in relation to this event during 2012.
Stock Appreciation Rights
The following table summarizes information about SAR’s granted, forfeited, vested and exercisable:
SAR's outstanding - January 1, 2012
Granted
Exercised
Forfeited
SAR's outstanding - December 31, 2012
Granted
Exercised
Forfeited
SAR's outstanding - December 31, 2013
Granted
Exercised
Forfeited
SAR's outstanding - December 31, 2014
SAR's exercisable - December 31, 2014
SAR's expected to vest - December 31, 2014
Number of
SAR’s
Weighted
Average
Exercise
Price
Weighted
Average
Contractual
Term
—
1,055,805
—
(1,960)
1,053,845
335,057
(5,106)
(10,727)
1,373,069
449,225
(435)
(12,557)
1,809,302
520,903
1,231,620
$—
$9.47
$—
$9.19
$9.47
$12.85
$8.92
$10.85
$10.28
$11.73
$7.37
$11.57
$10.63
$11.47
$10.97
9.3 years
8.6 years
8.1 years
8.1 years
8.1 years
The SAR’s vest 25% annually on each of the four anniversary dates following the grant date and expire after ten years. The fair value
of each SAR grant is estimated using the Black-Scholes option-pricing model as set forth in the table below:
80
Table of Contents
The weighted average fair value of stock appreciation rights issued (per unit)
Dividend yield
Weighted average risk-free interest rate
Weighted average expected volatility
Expected life in years
Stock Options
2014
$4.18 - $4.93
—%
2013
$2.54 - $6.51
—%
2012
$2.73 - $3.99
—%
1.5% - 1.8%
0.7% - 1.8% 0.7% - 0.9%
40%
6.25
40%
6.25
40%
6.25
The following table summarizes information about Common Stock options granted, exercised, forfeited, vested and exercisable:
Options outstanding - January 1, 2012
Granted
Exercised
Forfeited
Options outstanding - December 31, 2012
Granted
Exercised
Forfeited
Options outstanding - December 31, 2013
Granted
Exercised
Forfeited
Options outstanding - December 31, 2014
Options exercisable - December 31, 2014
Number
of Options
Weighted Average
Exercise
Price
87,026
—
—
—
87,026
—
—
—
87,026
—
—
—
87,026
87,026
$23.75
$—
$—
$—
$23.75
$—
$—
$—
$23.75
$—
$—
$—
$23.75
$23.75
Weighted
Average
Contractual
Term
4.6 years
3.6 years
2.6 years
1.6 years
1.6 years
All stock options that remain outstanding are fully vested and exercisable. There was no intrinsic value of options granted, exercised
or outstanding during the periods presented.
NOTE 15—RELATED PARTY TRANSACTIONS
Related parties include certain investors as well as entities in which the Company has an equity method investment or an investment
combined with a management and operational services agreement (or MOSA) or board seat. Investors defined as related parties include
(i) the investor having ten percent or more ownership, including convertible preferred stock, in the Company or (ii) the investor holding a
board seat on the Company Board. After the IPO, the number of related parties decreased due to the dilution of ownership of prior investors
as well as the reduction of the number of board seats on the Company Board held by related party investors. The Company will report
related party transactions before and after the IPO
81
Table of Contents
based on the related party characteristics mentioned above.
Summary of Related Party Transactions - Consolidated Statements of Operations
2013
2014
Revenues - Biomass-based diesel sales (a)
Cost of goods sold - Biomass-based diesel (b)
Selling, general and administrative expenses (c)
Interest expense (d)
(a) Represents transactions with West Central:
(b) Represents transactions with related parties as follows:
West Central
Bunge
(c) Represents transactions with related parties as follows:
West Central
Bunge
(d) Represents transactions with related parties as follows:
West Central
Bunge
$
$
$
$
$
$
$
$
$
$
$
— $
42,622 $
45 $
7 $
— $
49,358 $
37 $
30 $
2012
6
54,364
158
32
— $
— $
6
42,622 $
—
42,622 $
49,358 $
—
49,358 $
50,415
3,949
54,364
45 $
—
45 $
7 $
—
7 $
37 $
—
37 $
30 $
—
30 $
45
113
158
23
9
32
426
35
552
Summary of Related Party Balances - Consolidated Balance Sheets
Accounts receivable (a)
Other assets (a)
Accounts payable (a)
(a) Represents balances with West Central
West Central Cooperative
2014
2013
$
$
$
36
—
1,101
$
$
$
The Company purchases once-refined soybean oil from West Central Cooperative (West Central) and is required to pay interest for
amounts owed on extended trade terms. The Company also had biomass-based diesel and co-product sales to West Central.
West Central leases the land under the Company’s production facility at Ralston, Iowa to the Company at an annual cost of one
dollar. The Company is responsible for the property taxes, insurance, utilities and repairs for the facility relating to this lease. The lease has
an initial term of twenty years and the Company has options to renew the lease for an additional thirty years.
In 2006, the Company executed an asset use agreement with West Central to provide for the use of certain assets, such as office
space, maintenance equipment and utilities. The agreement requires the Company to pay West Central its proportionate share of certain
costs incurred by West Central. This agreement has the same term as the land lease. During February 2012, the Company renegotiated the
asset use agreement. The new agreement provides for the use of certain assets, such as buildings, equipment and utilities, which will be
charged to the Company based on fixed and variable components.
At the time of the signing of the contribution agreement, the Company entered into a contract for services with West Central, to
provide certain corporate and administrative services such as human resources, information technology and accounting. The agreement
requires the Company to pay West Central the proportionate share of the costs associated with the
82
Table of Contents
provision of services, plus a 15% margin. The agreement had an initial one-year term and is cancellable thereafter upon six months’ notice
by either party. As part of the renegotiated asset usage agreement, the services agreement was cancelled in February 2012.
In connection with the SoyMor acquisition, REG Albert Lea, LLC (REG Albert Lea) assumed a loan with West Central. REG Albert
Lea was required to make monthly interest payments. The loan was paid off in May 2012.
Bunge North America
Prior to 2012, the Company purchased feedstocks from Bunge North America, Inc. (Bunge) for the production of biomass-based
diesel. The costs associated with the purchased feedstocks were reflected in costs of goods sold – biomass-based diesel when sold to the
end customer. The Company also made sales of biomass-based diesel and raw materials to Bunge.
The Company entered into an agreement for Bunge to provide services related to the procurement of raw materials and the purchase
and resale of biomass-based diesel produced by the Company. The Company was required to pay interest for the aggregate outstanding
amounts owed to Bunge. Also, as part of the agreement, the Company was required to pay an incentive fee to Bunge for meeting certain
hedging goals utilizing Bunge’s advice. On November 8, 2011, the Company gave notice of termination to Bunge in accordance with the
agreement. The agreement expired May 2012.
NOTE 16—OPERATING LEASES
The Company leases certain land and equipment under operating leases. Total rent expense under operating leases was $17,498,
$12,549 and $11,114 for the years ended December 31, 2014, 2013 and 2012, respectively. For each of the next five calendar years and
thereafter, future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one
year are as follows:
2015
2016
2017
2018
2019
Thereafter
Total minimum payments
Total
Payments
16,845
14,498
11,799
11,140
10,215
55,742
120,239
$
$
The Company's leases consist primarily of access to distribution terminals, biomass-based diesel storage facilities, railcars and
vehicles. At the end of the lease term the Company, generally, has the option to (a) return the leased equipment to the lessor, (b) purchase
the property at its then fair value or (c) renew its lease at the then fair rental value on a year-to-year basis or for an agreed upon term.
Certain leases allow for adjustment to minimum rentals in future periods as determined by the Consumer Price Index.
NOTE 17 — DERIVATIVE INSTRUMENTS
The Company has entered into heating oil and soybean oil futures, swaps and options (commodity derivative contracts) to hedge its
exposure to price risk related to anticipated purchases of feedstock raw materials and to protect gross profit margins from potentially
adverse effects of price volatility on biomass-based diesel sales where prices are set at a future date. All of the Company’s derivatives are
designated as non-hedge derivatives and are recorded at fair value on the Consolidated Balance Sheets. Unrealized gains and losses on
commodity futures, swaps and options contracts used to hedge feedstock purchases or biomass-based diesel inventory are recognized as a
component of biomass-based diesel costs of goods sold reflected in current results of operations. Commodity hedge gains and losses are
generally offset by other corresponding changes in gross margin through changes in either biomass-based diesel sales price and/or
feedstock price. All derivative financial instruments are recorded on the balance sheet at fair value.
At December 31, 2014, the Company had 1,312 open commodity futures and swap contracts.
The Company offsets the fair value amounts recognized for its commodity derivative contracts with cash collateral with the same
counterparty under a master netting agreement. The net position is presented within Prepaid expenses and other assets
83
Table of Contents
in the Consolidated Balance Sheets, see "Note 10 – Other Assets". As of December 31, 2014, the Company posted $1,758 of margin
associated with its commodity-based derivatives with a net asset position of $12,938.
The following tables provide details regarding the Company’s derivative financial instruments:
Gross amounts of commodity derivative
contracts recognized at fair value
Cash collateral
Total gross amount recognized
Gross amounts offset
Net amount reported in the Consolidated
Balance Sheets
$
$
December 31, 2014
December 31, 2013
Assets
Liabilities
Assets
Liabilities
14,901 $
2,870
17,771
(4,833)
12,938 $
205 $
4,628
4,833
(4,833 )
325 $
13,896
14,221
(546)
— $
13,675 $
546
—
546
(546 )
—
The following table sets forth the pre-tax gains (losses) included in the Consolidated Statements of Operations:
Embedded derivative
Commodity derivatives
Total
Location of Gain (Loss)
Recognized in income
Change in fair value of preferred
stock conversion feature
embedded derivatives
Cost of goods sold – Biomass-
based diesel
$
$
2014
2013
2012
— $
— $
11,975
61,631
61,631 $
(5,656)
(5,656) $
(4,622)
7,353
NOTE 18—FAIR VALUE MEASUREMENT
The fair value hierarchy prioritizes the inputs used in measuring fair value as follows:
•
•
•
Level 1—Quoted prices for identical instruments in active
markets.
Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active and model-derived valuations, in which all significant inputs are observable in active markets.
Level 3—Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own
assumptions.
A summary of assets (liabilities) measured at fair value is as follows:
Total
Level 1
Level 2
Level 3
As of December 31, 2014
Money market funds
Certificates of deposit
Commercial notes/bonds
Commodity contract derivatives
Contingent consideration for LS9
acquisition
Contingent consideration for Dynamic
Fuels acquisition
$
$
$
$
$
$
$
302 $
9,995
6,775
14,696
(8,624)
(30,695)
(7,551) $
84
302 $
—
—
6,885
—
—
7,187 $
— $
9,995
6,775
7,811
—
—
24,581 $
—
—
—
—
(8,624 )
(30,695 )
(39,319)
Table of Contents
Commodity contract derivatives
$
(221) $
— $
(221) $
—
Total
Level 1
Level 2
Level 3
As of December 31, 2013
The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) during the years ended as follows:
Preferred
Stock
Embedded
Derivatives
Seneca
Holdco
Liability
Contingent
Consideration for LS9
Acquisition
Contingent
Consideration for
Dynamic Fuels
Acquisition
Balance at January 1, 2012
Total realized gains
Purchases
Settlements
Balance at December 31, 2012 and December
31, 2013
Issuance of contingent consideration for
acquisitions
Total unrealized (gains)/losses/Change in
estimates included in earnings
Purchases
Settlements
Ending balance - December 31, 2014
$
$
53,822 $
(11,975)
—
(41,847)
11,903 $
(349)
—
(11,554)
—
—
—
—
—
— $
—
—
—
—
—
— $
— $
—
—
—
—
17,050
(8,426 )
—
—
8,624
$
—
—
—
—
—
28,900
1,795
—
—
30,695
The Company used the following methods and assumptions to estimate fair value of its financial instruments:
Marketable securities: The fair value of marketable securities, which include certificates of deposit and commercial
notes/bonds are obtained using quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in
markets that are not active; and inputs other than quoted prices, e.g., interest rates and yield curves. The Company utilizes a pricing service
to assist in obtaining fair value pricing for the majority of this investment portfolio.
Commodity contract derivatives: The instruments held by the Company consist primarily of futures contracts, swap
agreements, purchased put options and written call options. The fair value of contracts based on quoted prices of identical assets in an
active exchange-traded market is reflected in Level 1. Contract fair value is determined based on quoted prices of similar contracts in over-
the-counter markets and are reflected in Level 2.
Contingent consideration for acquisitions: The fair value of the LS9 contingent consideration is determined using an expected
present value technique. Expected cash flows are determined using the probability weighted-average of possible outcomes that would
occur should achievement of certain milestones related to the development and commercialization of products from LS9’s technology
occur. There is no observable market data available to use in valuing the contingent consideration; therefore, the Company developed its
own assumptions related to the expected future delivery of product enhancements to estimate the fair value of these liabilities. An 8.0%
discount rate is used to estimate the fair value of the expected payments.
The fair value of the Dynamic Fuels contingent consideration is determined using an expected present value technique.
Expected cash flows are determined using the probability weighted-average of possible outcomes that would occur should the achievement
of certain milestones related to the sale of renewable hydrocarbon diesel at the REG Geismar's production facility. A 5.8% discount rate is
used to estimate the fair value of the expected payments.
Preferred Stock embedded derivatives : The estimated fair value of the derivative instruments embedded in the Company’s
outstanding preferred stock was determined using the option pricing method to allocate the fair value of the underlying stock to the various
components comprising the security, including the embedded derivative. The allocation was performed based on each class of preferred
stock’s liquidation preference and relative seniority. Derivative liabilities are adjusted to reflect fair value at each period end. The effects of
interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments.
85
Table of Contents
Seneca Holdco liability: The fair value of the Seneca Holdco Liability was determined by probability weighting the present
value of gains or losses realized under each option in the Put/Call Agreement. The Put/Call Agreement had a term of seven years and was
exercisable by either party at a price based on a pre-defined formula. The valuation required the development and use of highly subjective
assumptions including (i) the value of the Landlord’s equity, (ii) expectations regarding future changes in the value of the Landlord’s
equity, (iii) expectations about the probability of either option being exercised, including the Company’s ability to list its securities on an
exchange or complete a public offering and (iv) an appropriate risk-free rate. Company management considered current public equity
markets, relevant regulatory issues, industry conditions and the Company’s position within the industry when estimating the probability
that the Company would raise additional capital.
The liability represents the combination of the Call Option and the Put Option related to the purchase of membership interest of
Seneca Landlord. The fair value of the Seneca Holdco liability was determined using an option pricing model and represents the
probability weighted present value of the gain that is realized upon exercise of each option.
Debt and lines of credit: The fair value of long-term debt and lines of credit was established using discounted cash flow
calculations and current market rates reflecting Level 2 inputs.
The estimated fair values of the Company’s financial instruments, which are not recorded at fair value are as follows as of
December 31:
Financial Liabilities:
2014
2013
Asset (Liability)
Carrying Amount
Estimated
Fair Value
Asset (Liability)
Carrying Amount
Estimated
Fair Value
Debt and lines of credit
$
(269,608) $
(270,331) $
(45,166) $
(45,094)
NOTE 19—NET INCOME PER SHARE
Basic net income per common share is presented in conformity with the two-class method required for participating securities.
Participating securities include, or have included, Series A Preferred Stock, Series B Preferred Stock and RSU's.
Under the two-class method, net income is reduced for distributed and undistributed dividends earned in the current period. The
remaining earnings are then allocated to Common Stock and the participating securities. The Company calculates the effects of
participating securities on diluted earnings per share (EPS) using both the “if-converted or treasury stock” and "two-class" methods and
discloses the method which results in a more dilutive effect. The effects of Common Stock options, warrants, stock appreciation rights and
convertible notes on diluted EPS are calculated using the treasury stock method unless the effects are anti-dilutive to EPS.
The following potentially dilutive weighted average securities were excluded from the calculation of diluted net income per share
attributable to common stockholders during the periods presented as the effect was anti-dilutive:
Options to purchase common stock
Restricted stock units
Stock appreciation rights
Warrants to purchase common stock
Convertible notes
Total
Year Ended December 31,
2013
2014
87,026
—
1,400,824
17,916
6,295,075
7,800,841
87,026
—
1,030,926
—
—
1,117,952
2012
87,026
754,359
1,196,975
35,987
—
2,074,347
The following table presents the calculation of diluted net income per share for the years ended December 31, 2014 and 2013 (in
thousands, except share and per share data):
86
Table of Contents
Net income attributable to the Company's common stockholders - Basic
Less: effects of recapitalization
Plus: change in undistributed dividends allocated to preferred stockholders
Plus: distributed dividends to Preferred Stockholders
Plus: accretion of Series A Preferred Stock to redemption value
Plus: (gain) loss due to change in fair value of Series A Preferred Stock
conversion feature embedded derivatives
Plus (less): effect of participating securities
Net income attributable to the Company's common stockholders - Diluted
Shares:
Weighted-average shares outstanding - Basic
Adjustment to reflect conversion of preferred stock
Adjustment to reflect stock appreciation right conversions
Adjustment to reflect warrants to purchase common stock
Weighted-average shares outstanding - Diluted
2014
2013
2012
$
$
81,620 $
—
—
40
—
—
(418)
81,242 $
165,254 $
—
—
2,055
—
—
(2,051)
165,258 $
43,482
(39,107)
823
3,156
1,808
(11,975)
10,989
9,176
40,740,411
—
9,502
—
40,749,913
33,045,164
—
7,065
650
33,052,879
28,381,676
5,958,790
—
—
34,340,466
Net income per share attributable to common stockholders - Diluted
$
1.99 $
5.00 $
0.27
NOTE 20—REPORTABLE SEGMENTS AND GEOGRAPHIC INFORMATION
The Company reports its reportable segments based on services provided to customers, which includes Biomass-based diesel,
Services and Corporate and other activities. The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. The Company has chosen to differentiate the reportable segments based on the products and services each
segment offers.
The Biomass-based diesel segment processes waste vegetable oils, animal fats, virgin vegetable oils and other feedstocks and
methanol into biomass-based diesel. The Biomass-based diesel segment also includes the Company’s purchases and resale of biomass-
based diesel produced by third parties. Revenue is derived from the purchases and sales of biomass-based diesel, RINs and raw material
feedstocks acquired from third parties, sales of biomass-based diesel produced under toll manufacturing arrangements with third party
facilities, sales of processed biomass-based diesel from Company facilities, related by-products and renewable energy government incentive
payments. The Services segment offers services for managing the construction of biomass-based diesel production facilities and managing
ongoing operations of third party plants and collects fees related to the services provided. The Company does not allocate items that are of
a non-operating nature or corporate expenses to the business segments. Intersegment revenues are reported by the Services segment, which
manages the construction and operations of facilities included in the Biomass-based diesel segment. Revenues are recorded by the Services
segment at cost. Corporate expenses consist of corporate office expenses including compensation, benefits, occupancy and other
administrative costs, including management service expenses.
The following table represents the significant items by reportable segment for the results of operations for the years ended
December 31, 2014, 2013 and 2012:
87
Table of Contents
Net sales:
Biomass-based diesel
Services
Intersegment revenues
Income before income taxes and income from equity investments:
Biomass-based diesel
Services
Corporate and other (a)
Depreciation and amortization expense, net:
Biomass-based diesel
Services
Corporate and other (a)
Cash paid for purchases of property, plant and equipment:
Biomass-based diesel
Services
Corporate and other (a)
Goodwill:
Biomass-based diesel
Services
Assets:
Biomass-based diesel
Services
Corporate and other (b)
2014
2013
2012
1,273,406 $
96,371
(95,946)
1,273,831 $
1,498,011 $
63,980
(63,853)
1,498,138 $
1,014,797
38,031
(37,794)
1,015,034
148,516 $
258
(62,664)
86,110 $
239,462 $
(29)
(48,132)
191,301 $
58,349
(26)
(34,610)
23,713
14,372 $
204
1,220
15,796 $
53,378 $
643
6,142
60,163 $
8,199 $
120
923
9,242 $
36,770 $
504
1,779
39,053 $
7,111
38
772
7,921
11,409
396
849
12,654
2014
2013
2012
172,195 $
16,080
188,275 $
899,211 $
20,750
452,927
1,372,888 $
68,784 $
16,080
84,864 $
444,945 $
20,542
275,368
740,855 $
68,784
16,080
84,864
357,305
20,033
118,446
495,784
$
$
$
$
$
$
$
$
$
$
$
$
(a)
(b)
Corporate and other includes income/(expense) not associated with the reportable segments, such as corporate general and
administrative expenses, shared service expenses, interest expense and interest income, all reflected on an accrual basis of
accounting.
Corporate and other includes cash and other assets not associated with the reportable segments, including
investments.
Geographic Information:
The following geographic data include net sales attributed to the countries based on the location of the subsidiary making the sale and
long-lived assets based on physical location. Long-lived assets represent the net book value of property, plant and equipment.
88
Table of Contents
Net sales:
United States
Long-lived assets:
United States
Foreign
2014
2013
2012
1,273,831 $
1,498,138 $
1,015,034
468,170 $
25,026
493,196 $
286,044 $
—
286,044 $
242,885
—
242,885
$
$
$
NOTE 21—COMMITMENTS AND CONTINGENCIES
The Company is involved in legal proceedings in the normal course of business. The Company currently believes that any ultimate
liability arising out of such proceedings will not have a material adverse effect on the Company’s financial position, results of operations or
cash flows.
The Company has entered into contracts for supplies of hydrogen, nitrogen and utilities for the REG Geismar production facility and
natural gas for REG Albert Lea. The following table outlines the minimum take or pay requirement related to the purchase of hydrogen,
nitrogen, utilities and natural gas.
2015
2016
2017
2018
2019
Thereafter
Total
$
$
3,857
3,857
3,857
3,784
3,748
15,844
34,947
As of December 31, 2014, REG Geismar relies on one supplier to provide hydrogen necessary to execute the production process. Any
disruptions to the hydrogen supply from this supplier will result in the shutdown of the REG Geismar plant operations. The Company is
currently seeking additional hydrogen suppliers for the REG Geismar facility.
NOTE 22—SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)
The following table represents the significant items for the results of operations on a quarterly basis for the years ended December 31,
2014 and 2013:
Revenues
Gross profit
Selling, general, and administrative expenses
including research and development expense
Income (loss) from operations
Other income (expense), net
Net income (loss) attributable to the Company
Net income (loss) per share attributable to common
stockholders - basic
Net income (loss) per share attributable to common
stockholders - diluted
Three Months
Ended
March 31,
2014
Three Months
Ended
June 30,
2014
Three Months
Ended
September 30,
2014
Three Months
Ended
December 31,
2014
$
219,040 $
11,564
332,918 $
15,151
384,258 $
22,715
13,527
(1,963)
(503)
(2,359)
(0.05)
15,627
(476)
(436)
11,007
0.27
16,707
6,008
(1,684)
4,572
0.11
337,615
111,182
29,244
81,938
3,226
69,391
1.61
(0.06)
0.27
0.11
1.61
89
Table of Contents
Revenues
Gross profit
Selling, general, and administrative expenses
including research and development expense
Income from operations
Other income (expense), net
Net income attributable to the Company
Net income per share attributable to common
stockholders - basic
Net income per share attributable to common
stockholders - diluted
NOTE 23—SUBSEQUENT EVENTS
Three Months
Ended
March 31,
2013
Three Months
Ended
June 30,
2013
Three Months
Ended
September 30,
2013
Three Months
Ended
December 31,
2013
$
264,368 $
86,695
384,735 $
50,181
458,444 $
57,849
390,591
44,708
9,644
77,051
(459)
46,403
1.25
1.25
11,226
38,955
(511)
23,130
0.63
0.62
12,686
45,163
(511)
86,703
2.32
2.31
12,567
32,141
(528)
30,130
0.81
0.80
On February 19, 2015, the Company's board of directors approved a share repurchase program of up to $30,000 of the Company's
shares of common stock. Under the program, REG may repurchase shares from time to time in open market transactions, privately
negotiated transactions or by other means. The timing and amount of repurchase transactions will be determined by the Company's
management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be
suspended, modified or discontinued at any time without prior notice.
* * * * * *
90
Table of Contents
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
ITEM 9A. Controls and
Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer
performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report, December 31, 2014. In
connection with our evaluation of disclosure controls and procedures, we have concluded that our disclosure controls and procedures are
effective as of December 31, 2014.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2014.
On December 24, 2014, the Company acquired 69.08% of the outstanding common shares and voting interest of Petrotec and
management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of December
31, 2014, Petrotec's internal control over financial reporting. Petrotec represented approximately 4% of our total assets at December 31,
2014 and less than 1% of our revenues for the year ended December 31, 2014. This exclusion is in accordance with the SEC's general
guidance that an assessment of a recently acquired business may be omitted from our scope in the year of acquisition.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Deloitte & Touche LLP has audited our internal control over financial reporting as of December 31, 2014 and has issued an attestation
report regarding its assessment included herein.
Changes in Internal Control over Financial Reporting
There have been no changes during our quarter ended December 31, 2014 in our internal control over financial reporting (as defined
in Rules 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. Other
Information
None.
91
Table of Contents
ITEM 10. Directors, Executive Officers and Corporate
Governance
PART III
This Item is incorporated by reference to our definitive proxy statement on Schedule 14A, which will be filed within 120 days after the
close of the fiscal year covered by this report on Form 10-K, or if our proxy statement is not filed by that date, will be included in an
amendment to this Report on Form 10-K.
ITEM 11. Executive
Compensation
This Item is incorporated by reference to our definitive proxy statement on Schedule 14A, which will be filed within 120 days after the
close of the fiscal year covered by this report on Form 10-K, or if our proxy statement is not filed by that date, will be included in an
amendment to this Report on Form 10-K.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
This Item is incorporated by reference to our definitive proxy statement on Schedule 14A, which will be filed within 120 days after the
close of the fiscal year covered by this report on Form 10-K, or if our proxy statement is not filed by that date, will be included in an
amendment to this Report on Form 10-K.
ITEM 13. Certain Relationships and Related Transactions, and Director
Independence
This Item is incorporated by reference to our definitive proxy statement on Schedule 14A, which will be filed within 120 days after the
close of the fiscal year covered by this report on Form 10-K, or if our proxy statement is not filed by that date, will be included in an
amendment to this Report on Form 10-K.
ITEM 14. Principal Accounting Fees and
Services
This Item is incorporated by reference to our definitive proxy statement on Schedule 14A, which will be filed within 120 days after the
close of the fiscal year covered by this report on Form 10-K, or if our proxy statement is not filed by that date, will be included in an
amendment to this Report on Form 10-K.
92
Table of Contents
PART IV
ITEM 15. Exhibits, Financial Statement
Schedules
(a) Financial
Statements
(i) Consolidated Balance Sheets as of December 31, 2014 and
2013
(ii) Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and
2012
(iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014, 2013,
2012
(iv) Consolidated Statements of Redeemable Preferred Stock and Equity for the years ended December 31, 2014, 2013 and
2012
(v) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and
2012
(vi) Notes to the Consolidated Financial Statements for the years ended December 31, 2014, 2013 and
2012
(b) Exhibits
The Exhibits filed as part of this Annual Report on Form 10-K, or incorporated by reference, are listed on the Exhibit Index immediately
preceding such Exhibits, which Exhibit Index is incorporated herein by reference.
93
Table of Contents
(c) Financial Statement
Schedules
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
RENEWABLE ENERGY GROUP, INC.
By:
/s/ Daniel J. Oh
Daniel J. Oh
President and Chief Executive Officer
Date: March 6, 2015
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Chad
Stone and Chad A. Baker, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and
all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact
or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
/s/ Daniel J. Oh
Daniel J. Oh
/s/ Chad Stone
Chad Stone
/s/ Chad A. Baker
Chad A. Baker
/s/ Jeffrey Stroburg
Jeffrey Stroburg
/s/ Delbert Christensen
Delbert Christensen
/s/ Randolph L. Howard
Randolph L. Howard
/s/ Michael A. Jackson
Michael A. Jackson
/s/ Michael Scharf
Michael Scharf
/s/ Christopher Sorrells
Christopher Sorrells
/s/ Peter Harding
Peter J. M. Harding
/s/ Theodore Crosbie
Dr. Theodore M. Crosbie
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Controller and Chief Accounting Officer
(Principal Accounting Officer)
Director (Chairman)
Director
Director
Director
Director
Director
Director
Director
94
Date
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
March 6, 2015
Table of Contents
Exhibit
Number
EXHIBIT INDEX
Description
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
Third Amended and Restated Certificate of Incorporation of Renewable Energy Group, Inc. (the “Company”), effective
as of January 24, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1/A
filed September 8, 2011)
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Registration
Statement on Form S-1/A filed November 18, 2011)
Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to the Company’s
Registration Statement on Form S-1/A filed November 18, 2011)
Indenture, dated as of June 3, 2014, between the Company and Wilmington Trust, National Association, as trustee.
(Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 29, 2014)
First Supplemental Indenture, dated as of June 3, 2014, between the Company and Wilmington Trust, National
Association, as trustee. (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated
May 29, 2014)
Form of Note (included in Exhibit 4.2).
Ground Lease by and between West Central Cooperative and the Company dated July 31, 2006 (incorporated by
reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-4/A filed October 5, 2009)
2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
for the three months ended June 30, 2010)
Amended and Restated Loan Agreement dated November 3, 2011 by and between REG Danville, LLC and Fifth Third
Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 9, 2011)
Asset Purchase Agreement, by and among, Soymor Cooperative, Soymor Biodiesel, LLC, REG Albert Lea, LLC, and the
Company, dated June 8, 2011 (incorporated by reference to Exhibit 10.48 to the Company’s Registration Statement on
Form S-1/A filed November 28, 2011)
Credit Agreement dated as of December 23, 2011 by and among the lenders identified on the signature pages thereto,
Wells Fargo Capital Finance, LLC, REG Services Group, LLC and REG Marketing & Logistics Group, LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 29, 2011)
General Continuing Guaranty dated as of December 23, 2011 in favor of Wells Fargo Capital Finance, LLC, as agent
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 29, 2011)
Membership Interest Purchase Agreement, dated as of May 20, 2014, by and among Renewable Energy Group, Inc., REG
Synthetic Fuels, LLC and Tyson Foods, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K dated
May 20, 2014)+
10.8
Biodiesel purchase agreement by and between the Company and Pilot Travel Center LLC (incorporated by reference to
Exhibit 10.1 to the Company’s Form 10-Q for the three months ended March 31, 2014)+
10.9
10.10
10.11
10.12
Capped Call Confirmation, dated May 29, 2014, between of Bank of America, N.A. and the Company. (Incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 29, 2014)
Capped Call Confirmation, dated May 29, 2014, between of Wells Fargo Bank, National Association, and the Company.
(Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 29, 2014)
Additional Capped Call Confirmation, dated May 30, 2014, between of Bank of America, N.A. and the Company.
(Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 29, 2014)
Additional Capped Call Confirmation, dated May 30, 2014, between of Wells Fargo Bank, National Association, and the
Company. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated May 29,
2014)
95
Table of Contents
Exhibit
Number
10.13
10.14
Description
Reimbursement Agreement, dated as of July 8, 2014, between REG Geismar, LLC and Bank of America, N.A.
(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 8, 2014)
Security Agreement (Deposit Account/Certificate of Deposit), dated as of July 8, 2014, by REG Capital, LLC in favor of
Bank of America, N.A. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated
July 8, 2014)
10.15
Employment Agreement, effective January 1, 2015, between Renewable Energy Group, Inc. and Daniel J. Oh.
(Incorporated by reference to Exhibit 10.24 to the Company’s Current Report on Form 8-K dated December 22, 2014)
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101.1
List of Subsidiaries
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
Power of Attorney (included in the signature page to this report)
Certification of Daniel J. Oh pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chad Stone pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 –
Chief Executive Officer.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 –
Financial Officer.
+ Confidential treatment requested
The following financial information of the Company and its subsidiaries for the fiscal year ended December 31, 2014, is
formatted in XBRL interactive data files: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations;
(iii) Consolidated Statements of Redeemable Preferred Stock and Equity; (iii) Consolidated Statements of Cash Flows;
and (v) Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this information is
furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not otherwise subject to
liability under those sections.
96
RENEWABLE ENERGY GROUP, INC. SUBSIDIARIES
Exhibit 21.1
REG Biofuels, LLC
REG Marketing & Logistics Group, LLC
REG Services Group, LLC
REG Energy Services, LLC
REG Capital, LLC
REG Synthetic Fuels, LLC
REG Life Sciences, LLC
REG Canada Holdings Inc.
REG European Holdings B.V.
REG Construction & Technology Group, LLC
REG Ventures, LLC
REG Venture Services, LLC
REG Real Estate Holdings, LLC
REG Ralston, LLC
REG Ames, LLC
REG Houston, LLC
REG Danville, LLC
REG Albert Lea, LLC
REG Newton, LLC
REG Seneca, LLC
REG New Orleans, LLC
REG New Boston, LLC
REG Mason City, LLC
REG Emporia, LLC
REG Clovis, LLC
REG Atlanta, LLC
REG Okeechobee, LLC
REG Geismar, LLC
REG Processing Systems, LLC
REG Chemicals, LLC
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
British Columbia
Netherlands
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Texas
Delaware
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Delaware
Iowa
Iowa
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-161187 on Form S-8 and Registration Statement
No. 333-186822 on Form S-3 of our report dated March 6, 2015 relating to the consolidated financial statements and financial
statement schedule of Renewable Energy Group, Inc. and subsidiaries, and the effectiveness of Renewable Energy Group, Inc.
and subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of Renewable Energy
Group, Inc. for the year ended December 31, 2014.
/s/ Deloitte & Touche LLP
Des Moines, Iowa
March 6, 2015
Exhibit 31.1
I, Daniel J. Oh, certify that:
1. I have reviewed this annual report on Form 10-K of Renewable Energy Group, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Dated: March 6, 2015
/s/ Daniel J. Oh
Daniel J. Oh
Chief Executive Officer
Exhibit 31.2
I, Chad Stone, certify that:
1. I have reviewed this annual report on Form 10-K of Renewable Energy Group, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Dated: March 6, 2015
/s/ Chad Stone
Chad Stone
Chief Financial Officer
SECTION 1350 CERTIFICATIONS
Exhibit 32.2
I, Chad Stone, Chief Financial Officer of Renewable Energy Group, Inc. (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge the Annual Report on Form 10-K of the Company (the
“Report”), which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, and all information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: March 6, 2015
/s/ Chad Stone
Chad Stone
Chief Financial Officer
SECTION 1350 CERTIFICATIONS
Exhibit 32.1
I, Daniel J. Oh, Chief Executive Officer of Renewable Energy Group, Inc. (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge the Annual Report on Form 10-K of the Company (the
“Report”), which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, and all information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: March 6, 2015
/s/ Daniel J. Oh
Daniel J. Oh
Chief Executive Officer