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, 2018
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 every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§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 (§229.405 of this chapter) 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, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨ Accelerated filer
x Non-accelerated filer
¨
Smaller reporting company
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, 2018, the aggregate market value of Common Stock held by non-affiliates was $556,864,879.
As of February 28, 2019, 37,355,193 shares of Common Stock of the registrant were issued and outstanding.
¨ Emerging growth company
¨
______________________________________
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
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
Form 10-K Summary
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.
ITEM 16.
Page
2
10
24
24
25
25
25
26
27
46
48
84
84
85
86
86
86
86
86
87
87
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 report,
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 requirements 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;
our plan to sell the REG Life Sciences
business;
our ability to protect proprietary technology and trade
secrets;
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, including but not limited to those Risk Factors discussed in Item 1A, 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 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 after the date hereof.
1
ITEM 1.
Business
General
We focus on providing cleaner, lower carbon transportation fuels. We are North America's largest producer of advanced biofuels. We
utilize a nationwide production, distribution and logistics system as part of an integrated value chain model designed to convert natural fats,
oils and greases into advanced biofuels. During 2018, we sold 649 million total gallons of fuel (including fuel purchased from third parties
for resale) and generated revenues of $2.4 billion. We believe our fully integrated approach, which includes acquiring feedstock, managing
biorefinery facility construction and upgrades, operating biorefineries, and distributing fuel through a network of terminals, positions us to
serve the market for cleaner transportation fuels. In May 2018, we launched our latest innovation in diesel fuel, REG Ultra CleanTM Diesel.
REG Ultra CleanTM Diesel is among the lowest emission diesel fuels on the market today.
Plant Network
We own and operate a network of 14 biorefineries. Twelve biorefineries are located in the United States and two in Germany. Twelve
biorefineries produce traditional biodiesel, one produces renewable diesel (“RD”), and one is a fermentation facility. Our thirteen biomass-
based diesel production facilities have an aggregate nameplate production capacity of 520 million gallons per year ("mmgy").
We own and operate the following facilities in North America:
Property
Ralston, Iowa
Albert Lea, Minnesota
Newton, Iowa
Seabrook, Texas
Danville, Illinois
Seneca, Illinois
New Boston, Texas
Mason City, Iowa
Geismar, Louisiana
Okeechobee, Florida 3
Grays Harbor, Washington
Madison, Wisconsin
Nameplate1
Production
Capacity (mmgy)
Effective Capacity
2 (mmgy)
REG
Operations
Commenced
Feedstock Capability
30
30
30
35
45
60
15
30
75
n/a
100
20
39.9
45.6
34.7
47.8
46.5
73.4
17.3
38.5
90.3
n/a
106.7
27.2
2002
2005
2007
2008
2009
2010
2013
2013
2014
2014
2015
2016
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
Crude, High FFA and Refined
Oils and Fats
Crude, High FFA and Refined
Oils and Fats
N/A
Refined Oils and Fats
Crude, High FFA and Refined
Oils and Fats
1
2
3
The nameplate capacity listed above is based on original plant
design.
Effective capacity represents the maximum average throughput that satisfies certain defined technical
constraints.
Okeechobee is a demo-scale fermentation facility associated with our Life Sciences
business.
2
Our production network in Europe consists of the following facilities:
Property
Emden, Germany
Oeding, Germany
Nameplate
Production
Capacity1
Effective Capacity
2
REG
Operations
Commenced
27
23
29.7
23.9
2016
2016
Feedstock Capability
Crude, High FFA and Refined
Oils and Fats
Crude, High FFA and Refined
Oils and Fats
1
2
The nameplate capacity listed above is based on the output of the original plant design. In Germany, nameplate capacity can be
based on input, which is 30 mmgy for Emden and 26 mmgy for Oeding or 185,000 metric tons for these two locations.
Effective capacity represents the maximum average throughput that satisfies certain defined technical
constraints.
We maintain a testing laboratory at our corporate headquarters in Ames, Iowa, for testing various feedstocks for conversion into biomass-
based diesel and various new manufacturing processes for the production of biomass-based diesel. We also have a regional office in Tulsa,
Oklahoma, focused on maintaining and developing advanced biofuel technologies and renewable chemicals.
We produce renewable diesel at our Geismar, Louisiana facility. Renewable diesel generally carries a premium price compared to biodiesel
as a result of a variety of factors including the ability to blend it with petroleum diesel seamlessly, better cold weather performance, and
because it generates more RINs on a per gallon basis. We are evaluating long-term opportunities to further our ability to leverage our
renewable diesel technology and expand renewable diesel production to meet the growing demand for cleaner transportation fuels. For
example, in October 2018, we announced a collaboration project with Phillips 66 on the possible construction of a large-scale renewable
diesel plant in Washington state. The plant would utilize our propriety BioSynfining® technology for the production of renewable diesel
fuel. We have not reached a definitive agreement with Phillips 66 with respect to this potential joint development project and there is no
assurance that an agreement will be reached. We are also evaluating a large-scale expansion of our renewable diesel facility in Geismar,
Louisiana.
Our Feedstocks and Other Inputs
We are a lower-cost, lower carbon biomass-based diesel producer. We primarily produce our biomass-based diesel from a wide variety of
lower-cost, lower carbon feedstocks, including inedible corn oil, used cooking oil and inedible animal fat. We also produce biomass-based
diesel from virgin vegetable oils, such as soybean oil or canola oil, which tend to be higher in price. We believe our ability to process a
wide variety of feedstocks in most of our facilities provides us with a cost advantage over many biomass-based diesel producers,
particularly those that rely primarily on higher cost virgin vegetable oils.
We have the ability to adjust our processing in most of our facilities to accommodate different feedstocks and feedstock mixes. Our ability
to use a wide range of feedstocks gives us a feedstock cost advantage over many other producers because we have the flexibility to respond
to changes in feedstock pricing. In 2018, approximately 77% of our total feedstock usage was lower-cost inedible corn oil, used cooking oil
or rendered animal fat feedstock. The remaining 23% consisted of refined vegetable oils, such as soybean oil or canola oil.
We procure our feedstocks from numerous vendors in quantities ranging from truckload to railcar to water vessel to pipeline. There is no
established futures market for the lower-cost feedstocks that we utilize. Inedible corn oil is typically purchased in forward positions of one
to three months, and occasionally longer, on fixed priced contracts. We generally purchase used cooking oil and rendered animal fats on
one to four week forward positions using fixed pricing or an indexed price compared to a published index such as USDA reports or
recognized industry price reports such as The Jacobsen or Informa. Soybean and canola oils can be purchased on a spot or forward contract
basis from a number of suppliers and pricing for these vegetable oils is compared to the broadly traded Soybean Oil Index of the Chicago
Mercantile Exchange.
From time to time, 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 many new feedstocks
into our production process as they become commercially available.
We procure methanol and chemical catalysts used in our production process 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.
3
Distribution
We have established a national distribution system to supply biomass-based diesel throughout the United States. Each of our biomass-based
diesel facilities is equipped with an on-site rail loading system, a truck loading system, or both. Our Seneca biorefinery near the Illinois
River has direct barge access for supplying customers using the inland waterways system. Our Houston biorefinery has barge and deep-
water ship loading capability. Our Grays Harbor biorefinery has deep-water capability for PANAMAX class vessels. We also manage some
customers’ biomass-based diesel storage tanks and replenishment process. Our distribution performance for 2018 is depicted below.
As of December 31, 2018, we leased over 1,100 railcars for transportation and leased biomass-based diesel storage tanks in 46 terminals. 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 contracts
typically have one- to three-year terms and are generally renewable subject to certain terms and conditions. During 2018, REG sold
products in 49 states in the U.S., six Canadian Provinces, and 19 other countries around the world.
In addition to biomass-based diesel, we also sell petroleum-based heating oil and diesel fuel, which enables us to offer additional biofuel
blends to a broader customer base. We sell heating oil and ultra-low sulfur diesel ("ULSD") at terminals throughout the northeastern U.S.
We sell additional biofuel blends at terminal locations in the Midwest, West Coast and Texas. We continue to look for terminal expansion
opportunities across North America.
Government Programs Favoring Biomass-Based Diesel Production and Use
The biomass-based diesel industry benefits from numerous federal and state government programs.
4
Renewable Fuel Standard
Biomass-based diesel has historically been more expensive to produce than petroleum-based diesel. The biomass-based diesel industry's
growth has largely been the result of federal and state programs that require or incentivize production and use of biomass-based diesel,
which allows biomass-based diesel to be priced competitively with petroleum-based diesel.
The Renewable Fuel Standard’s ("RFS2") biomass-based diesel requirement became effective in 2010, 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 diesel. Required volumes under the RFS2 program, referred to as the
renewable volume obligation ("RVO"), are determined by the United States Environmental Protection Agency, or EPA. The final RVO
targets for the biomass-based diesel and advanced biofuels volumes for the years 2015 to 2020 as set by the EPA are as follows:
Biomass-based diesel
Total Advanced
biofuels
2015
1.73 billion
gallons
2016
1.90 billion
gallons
2017
2.00 billion
gallons
2018
2.10 billion
gallons
2019
2.10 billion
gallons
2020
2.43 billion
gallons
2.88 billion RINs* 3.61 billion RINs* 4.28 billion RINs* 4.29 billion RINs* 4.92 billion RINs*
N/A
(* ethanol equivalent gallons)
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 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 advanced biofuels can be satisfied by any advanced biofuel, including biodiesel, renewable diesel, biogas used in
transportation, biobutanol, cellulosic ethanol or sugarcane-based ethanol, so long as it meets the 50% greenhouse gas reduction
requirement.
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 renewable diesel typically has an EEV of 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 refiners and
importers 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. Obligated Parties are required to incorporate into their petroleum-based fuel a
certain percentage of renewable fuel or purchase credits in the form of renewable identification numbers ("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, Shell, Marathon and Citgo, represent the
majority of the total RVO, with the remainder made up of smaller refiners and importers.
Renewable Identification Numbers
The EPA created the 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 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
5
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. In 2018, RIN prices as a percentage contribution to the daily average
B100 spot price, as reported by the Oil Pricing Information System, or OPIS, fluctuated significantly throughout the year and ranged from a
low of $0.47 per gallon, or 16% of the average B100 spot price per gallon, in October to a high of $1.36 per gallon, or 43% of the average
spot price, in February.
Biodiesel Tax Credit
The federal biodiesel mixture excise tax credit, or BTC, is not currently in effect, but has historically provided a $1.00 refundable tax credit
per gallon to the first blender of biomass-based diesel with petroleum-based diesel fuel. The BTC 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 was first implemented on January 1, 2005, although on several occasions it has been allowed to lapse and then has been reinstated, in
some cases on a retroactive basis, as described in the following table:
The BTC is an incentive shared across the biofuel production and distribution chain through routine, daily trading and negotiation. In
February 2018, the BTC was retroactively reinstated for 2017, but was not reinstated for 2018. It is uncertain whether the BTC will be
reinstated for 2018 or any later years.
California Low Carbon Fuel Standard Credits
The California Low Carbon Fuel Standard, or LCFS, regulation is a rule designed to reduce greenhouse gas emissions associated with
transportation fuels used in California. The regulation quantifies lifecycle greenhouse gas emissions by assigning a “carbon intensity”
("CI") score to each transportation fuel based on that fuel’s lifecycle assessment. Each petroleum fuel provider (generally the fuel’s
producer or importer, or “regulated party”) is required to ensure that the overall CI score for its fuel pool meets the annual carbon intensity
target for a given year. A regulated party’s fuel pool can include gasoline, diesel, and their blendstocks and substitutes.
We obtain CI credits when we sell qualified biomass-based diesel into California. During 2018, California CI credits ranged from $111.00
per metric ton to $200.50 per metric ton, as reported by OPIS.
Other Government Programs
According to the U.S. Department of Energy, more than 40 states have implemented various programs that encourage the use of biomass-
based diesel through blending requirements as well as various tax incentives. The chart below summarizes some of the most significant
programs.
6
Government
Illinois
Iowa
Texas
Minnesota
Pennsylvania and
Washington
Oregon
City of New York,
Connecticut and
Vermont
Canada
Program description
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, 2023. Illinois’
program has made that state one of the largest biomass-based diesel markets in the country
Iowa has a retailer’s incentive for blended fuel which has been modified over time. For 2018 through 2024,
retailers earn $0.035 per gallon of B5 - B10 and $0.055 per gallons for B11 and above. 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.
The biomass-based diesel portion of biomass-based diesel blends are exempt from Texas state excise tax,
which results in a $0.20 per gallon incentive for B100.
Minnesota law requires a B5 biodiesel blend except during the summer months when a B20 blend is
required.
These states have all adopted legislation requiring biomass-based diesel blends beginning at B2 with
incremental increases, provided certain feedstock or production minimums are met. In addition, Washington
State is in the process of developing legislation on a low carbon fuel programs.
The Oregon Clean Fuel Program requires a 10% reduction of the average carbon intensity of Oregon’s
transportation fuels from 2015 levels by 2025. The baseline year for the program is 2015 and represents 10
percent ethanol blended with gasoline and 5 percent biodiesel blended with diesel. The Oregon Renewable
Fuels Standard requires all gasoline sold in the state to be blended with 10 percent ethanol (E10). In
addition, all diesel fuel sold in the state must be blended with at least 5 percent biodiesel (B5).
In October 2016, the City of New York adopted legislation requiring biomass-based diesel blends at a 5%
rate for heating oil starting on October 1, 2017 and the blend level then moves to 10% in 2025, 15% in 2030
and 20% in 2034. Several northeast states, including Connecticut and Vermont, have adopted legislation
requiring biomass-based diesel blends in home heating oil.
While a number of provinces in Canada have biofuel programs (British Columbia has an LCFS, Alberta has
a usage requirement, and Ontario has a usage requirement), the federal government is currently engaged in
the rulemaking process on a nationwide Clean Fuel Standard, which may incorporate a number of carbon
reducing policies.
Although we believe that other government requirements for the use of biofuels increase demand for our biomass-based diesel within such
regions, 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 regions that have use requirements or tax incentive programs.
RED Program
The Renewable Energy Directive ("RED") in the European Union ("EU") establishes a 20% target by 2020 for the use of renewable energy
in the transport sector in EU member states. Given the existing limited market presence of alternative fuels or electromobility, the majority
of the target is currently being achieved through biofuels. EU member states produce yearly renewable energy action plans indicating their
yearly national obligations for the use of renewable energy in the transport sector. These national obligations progressively increase every
year until achieving the 10% target in 2020. Biofuels produced from certain types of feedstocks, such as used cooking oil, benefit from an
extra incentive as these feedstocks count double towards the 20% target and towards the national obligations. In 2018, the EU institutions
adopted the so-called RED II, which is valid during the period from 2021 to 2030 and provides additional incentives for biofuel produced
from waste feedstocks and even opens new outlets such as marine fuels.
Competition
We face competition from producers and suppliers of petroleum-based diesel fuel, other biomass-based diesel producers, marketers, traders
and distributors. 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. Our principal competitive differentiators are biomass-based diesel and RIN
quality, supply reliability and price. In the United States and Canadian biomass-based diesel markets, we compete with independent
biomass-based diesel producers as well as 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, feedstock sourcing and marketing resources to be formidable competitors in the
biodiesel industry. These agribusiness
7
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 several large and well capitalized producers of renewable diesel. Neste
Corporation has approximately 882 million gallons of renewable diesel production capacity in Asia and Europe, a significant portion of
which is imported into the United States. It has recently announced its decision to expand its renewable products production capacity in
Singapore. Diamond Green Diesel, LLC, a joint venture between Valero Energy Corporation and Darling Ingredients Inc., operates a 275
mmgy capacity renewable diesel facility and has announced plans to expand capacity to 675 mmgy by 2021. We also face the prospect that
petroleum refiners will be increasingly competitive with us, either by converting oil refineries to produce renewable diesel or by co-
processing renewable feedstock with crude oil. Several smaller petroleum refiners in the United States have effected conversions of their
facilities from crude oil to renewables in the past year and some of the largest refiners have reportedly started co-processing renewable
feedstocks or have announced plans to do so. If refinery conversions accelerate or if co-processing expands significantly, the competition
we face could increase significantly. We also face competition in the biomass-based diesel RIN compliance market from producers of
renewable diesel and in the advanced biofuel RIN compliance market from producers of other advanced biofuels, such as Brazilian
sugarcane ethanol producers and producers of biogas used in transportation. Competition from imported biodiesel changed significantly in
2018, when the International Trade Commission and U.S. Department of Commerce imposed countervailing duties against unfairly
subsidized biodiesel exports to the U.S. from Argentina and Indonesia. According to the U.S. Energy Information Administration ("EIA")
data, biodiesel imports from Argentina decreased from 437 million gallons in 2016 to 280 million gallons in 2017 and no imports entered
the U.S. since August 2017. Biodiesel imports from Indonesia totaled 107 million gallons in 2016 and no imports have been reported since
December 2016. However, renewable diesel imports from Singapore to the U.S have maintained a steady rate . Imports from Singapore
totaled 223 million gallons in 2016, 189 million gallons in 2017, and is on pace for volume in 2018 similar to 2017 based on 11 months of
data.
In our marketing and distribution operations, besides the integrated producers, we are also faced with competition from biomass-based
diesel traders such as Lincoln Energy, NGL, BP, Shell, Vitol and others. The integrated producers and traders at times may have
advantages because of logistics, feedstock accessibility and price, geographical location to customers, blending infrastructure, financial
resources, and risk appetite for positions and/ or taking greater amounts of risk on a return of the blenders tax credit. These same 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.
Risk Management
The prices for feedstocks and biomass-based diesel, including the value associated with government incentives, 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 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 expands our view of the fluctuating commodity markets for raw
materials and energy to improve our risk management strategies.
Seasonality
Our operating results are influenced by seasonal fluctuations in the price of and demand for biodiesel. Seasonal fluctuations may be based
on both the weather and the status of both the BTC and RVO.
Demand may be higher in the quarters leading up to the expiration of the BTC as customers seek to purchase biomass-based diesel when
they can benefit from the agreed upon value sharing of the BTC with producers. This higher demand prompted by an expiring BTC has
often resulted in reduced demand for biodiesel in the following quarter. In addition, RIN prices may also be subject to seasonal
fluctuations. The RIN is dated for the calendar year in which it is generated. Since 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 increase as the calendar year progresses if the RIN market is undersupplied compared to that year's RVO and decrease if it is
oversupplied.
Seasonal fluctuation in our business also occurs in the colder months when historically there has been reduced demand for biodiesel in
northern and eastern United States markets, which are some of the primary markets in which we operate. Biodiesel typically has a higher
cloud point than petroleum-based diesel or renewable diesel. The cloud point is the temperature below which a fuel exhibits a noticeable
cloudiness and eventually gels, leading to fuel handling and performance problems for
8
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. To mitigate some of these seasonal fluctuations in demand, we
have upgraded our Newton and Danville biorefineries to produce distilled biodiesel which improves cold-weather performance.
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. West Central is now
known as Landus Cooperative.
Employees
As of December 31, 2018, we had 762 full-time employees in the U.S. and 88 international employees. None of our U.S. 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 and expect to file additional patent applications as we continue to pursue
technological innovations. We have also developed trade secrets, and have licensed intellectual property related to our biomass-based diesel
and industrial biotechnology businesses. We have developed a patented technology that uses microbes to convert sugars to biodiesel in a
one-step fermentation process similar to ethanol manufacturing. Some of the patents issued to us do not expire until 2034 and additional
patent applications in prosecution if issued will extend beyond 2034.
Customer concentration
Our sales to one customer, Pilot Travel Centers LLC, or Pilot, were $219.2 million, $182.2 million and $144.8 million, representing
approximately 9%, 8% and 8% of our total revenues for each of 2018, 2017, and 2016, respectively. Our revenues from Pilot generally do
not directly include the RINs associated with the gallons of biomass-based diesel sold. The value of those RINs represented approximately
an additional 2%, 9% and 9% of our total sales in 2018, 2017 and 2016, respectively, based on the OPIS average RIN price for the year.
Executive Officers of the Registrant
Cynthia J. Warner, age 60, has served as our President and Chief Executive Officer since January 2019. Ms. Warner was Executive Vice
President, Operations for Andeavor (formerly known as Tesoro Corporation) from August 2016 until Andeavor's acquisition by Marathon
Petroleum Corporation in October 2018. Prior to that, Ms. Warner served as Andeavor's Executive Vice President, Strategy and Business
Development, since October 2014. From 2012 to August 2014, Ms. Warner was Chairman and Chief Executive Officer of Sapphire
Energy, Inc. and she continued to serve as Chairman through February 2015. From 2009 to 2011, Ms. Warner was President of Sapphire
Energy. From 2007 to 2009, she was Group Vice President, Global Refining, at BP plc. Ms. Warner has served as a member of the Board
of Directors of IDEX Corporation (NYSE: IEX) since February 2013. She is also a member of the National Petroleum Council. Ms. Warner
has a Bachelor of Engineering degree in Chemical Engineering from Vanderbilt University and an MBA from Illinois Institute of
Technology.
Chad Stone, age 49, has served as our Chief Financial Officer since August 2009. Prior to joining REG, from October 2007 to May 2009,
he was a Director at Protiviti Inc., a global business consulting and internal audit firm. From August 1997 to September 2007, Mr. Stone
served as Director with PricewaterhouseCoopers and he worked at Arthur Andersen from July 1992 to August 1997, departing as a
manager. Mr. Stone was elected to the governing Board of the National Biodiesel Board in 2015, and has served as Vice-Chairman since
November 2018, previously having served as Secretary from November 2016 to November 2018. Mr. Stone served on the Executive
Board of the Iowa Biodiesel Board from September 2010 to September 2016, serving as Vice-Chairman from 2014-2015. Since October
2015, Mr. Stone has served on the University of Iowa School of Management's Advisory Committee. 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 56, has served as our Vice President, Manufacturing since February 2008. Mr. Albin joined REG in 2006. From 2002 to
2006, Mr. Albin served as Executive Director of Operations for Material Sciences Corporation, where he directed multi-plant operations for
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
9
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 is a current director on
two boards where REG has investments and was previously on the Board of Managers for Petrotec GmbH before REG acquired full
ownership in 2017. Mr. Albin was previously the President and Vice President of the Iowa Renewable Fuels Association from 2011-2013.
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.
Gary Haer, age 65, 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 Cooperative, now
known as Landus Cooperative, and was responsible for developing the marketing and distribution infrastructure for biodiesel sales in the
United States. Mr. Haer has over 20 years of experience in the biomass-based diesel industry. Mr. Haer previously served on the Executive
Committee of the National Biodiesel Board’s Governing Board and was Past Chairman. He held various officer positions during his tenure
from 1998 to 2017. Mr. Haer holds an M.B.A. from Baker University and a B.S. in Accounting from Northwest Missouri State University.
Eric M. Bowen, age 47, has served as our Vice President, Corporate Business Development & Legal Affairs since January 2013, and has
led the REG Life Sciences business unit since January 2014. From June 2010 to January 2013, Mr. Bowen served as our Executive
Director, Corporate Business Development and Legal Affairs. From 2005 to June 2010, Mr. Bowen was Founder, President and CEO of
Tellurian Biodiesel, Inc. (formerly San Francisco Biodiesel), which was acquired by the Company. Prior to entering the advanced biofuels
industry, Mr. Bowen practiced corporate and securities law in Silicon Valley. Mr. Bowen has been active in setting biofuels policy as a
founding member of the California Advanced Biofuels Alliance and as Chairman from 2007 to 2012. He also served as Chairman of the
San Francisco Biodiesel Taskforce and as a member of the California LCFS Advisory Panel. Mr. Bowen has served as a member of the
Board of Directors of a company in which REG has invested since November 2013. Mr. Bowen is also on the board of the California
Advanced Biofuel Alliance. Mr Bowen holds a J.D. from the University of California, Berkeley and a B.A. from the University of Oregon
Honors College.
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. As a result, the trading price of our common stock could decline.
RISKS RELATED TO FEDERAL AND STATE INCENTIVES
The Renewable Fuel Standard Program, a Federal law mandating the consumption of qualifying biofuels, could be repealed,
curtailed or otherwise changed, which might have a material adverse effect on our revenues, operating margins and financial
condition.
We and other participants in the biomass-based diesel industry rely on governmental programs requiring or incentivizing the
consumption of biofuels. Biomass-based diesel has historically been more expensive to produce than petroleum-based diesel fuel and these
governmental programs support a market for biomass-based diesel that might not otherwise exist.
One of the most important of these programs is the Renewable Fuel Standard ("RFS2"), a Federal law which requires that
transportation fuels in the United States contain a minimum amount of renewable fuel. This program is administered by the Environmental
Protection Agency ("EPA"). The EPA's authority includes setting annual minimum aggregate levels of consumption in four renewable fuel
categories, including the two primary categories in which our fuel competes (biomass-based diesel and advanced biofuel). The parties
obligated to comply with this renewable volume obligation ("RVO"), are petroleum refiners and petroleum fuel importers.
The petroleum industry is strongly opposed to the RFS2 and can be expected to continue to press for changes both in the RFS2 itself
and in the way that it is administered by the EPA. One key point of contention is the rate of growth in the annual RVO. The RVO for
biomass-based diesel was set at steadily rising levels beginning at 1.0 billion gallons in 2012 and increasing to 2.00 billion gallons in 2017.
However, growth in the RVO was constrained from 2017 through 2019, as the biomass-based diesel RVO increased by only 100,000
gallons from 2.00 billion to 2.10 billion gallons while the advanced biofuel RVO increased from 4.28 billion gallons to 4.92 billion gallons.
For 2020, the EPA set the biomass-based diesel RVO
10
at 2.43 billion gallons. The 2020 advanced biofuel RVO will be established later this year. We believe that growth in the annual RVOs
strongly influences our ability to grow our business and supports the price of our fuel through the RINs. The EPA's future decisions
regarding the RVO will significantly influence our revenues and profit margins.
The RFS2 also grants to the EPA authority to grant small refiner waivers, waiving, in whole or in part, a qualifying refiner's
obligation based on a determination that the program is causing severe economic harm to that refinery. Prior to 2016, relatively few
requests were made for waivers and roughly half of those requests were granted by the EPA. In the 2016 compliance year, the EPA
received 20 requests, granted 19, with one remaining pending today, which amounted to approximately 790 million total RINs that were
being waived through exceptions. In the 2017 and 2018 compliance years, the EPA received 37 waiver requests each year. According to
the EPA, 29 of the 2017 requests were granted with seven still pending and one withdrawn, which amounted to 1,460 million RINs or 7.6%
of the total RIN requirement that was waived. All 37 requests for 2018 remain pending. We believe that these exemptions, in addition to
other factors such as HOBO spread, impacted the demand for and price of RINs as the average price of D4 RINs fell from $0.82 to $0.55
during 2018 according to OPIS data. If the EPA continues this practice, it will harm demand for and the price of RINs and thus our
profitability.
The United States Congress could repeal, curtail or otherwise change the RFS2 program in a manner adverse to us. Similarly, the
EPA could curtail or otherwise change its administration of the RFS2 program in a manner adverse to us, including by not increasing or
even decreasing the RVO, by waiving compliance with the RVO or otherwise. In addition, while Congress specified RFS2 volume
requirements through 2022 (subject to adjustment in the rulemaking process), beginning in 2023 required volumes of renewable fuel will
be largely at the discretion of the EPA (in coordination with the Secretary of Energy and Secretary of Agriculture). We cannot predict what
changes, if any, will be instituted or the impact of any changes on our business, although adverse changes could seriously harm our
revenues, earnings and financial condition.
Loss of or reductions in Federal and State Government tax incentives for biomass-based diesel production or consumption may
have a material adverse effect on our revenues and operating margins.
Federal and State Government tax incentives have assisted the biomass-based diesel industry by making the price of biomass-based
diesel more cost competitive with the price of petroleum-based diesel fuel to the end user.
Federal Tax Incentives
The most significant tax incentive program has been the federal biodiesel mixture excise tax credit, referred to as the Biodiesel Tax
Credit ("BTC"). Under the BTC, the first person to blend pure biomass-based diesel with petroleum-based diesel fuel receives a $1.00-per-
gallon refundable tax credit.
The BTC was established on January 1, 2005 and has lapsed and been reinstated retroactively and prospectively several times. Most
recently in February 2018, the BTC was retroactively reinstated for 2017, but was not reinstated for any subsequent periods. As a result, the
BTC has not been in effect since January 1, 2018. As was the case in previous periods when the BTC was not in effect, we and many other
biomass-based diesel industry producers have adopted contractual arrangements with customers and vendors specifying the allocation and
sharing of any retroactively reinstated incentive. Whether the BTC will be reinstated for 2018 or future years will have a very significant
impact on our results of operations and financial condition. Reinstatement of the BTC for 2017 resulted in a $205 million net benefit (after
satisfaction of sharing arrangements) to our net income in the first quarter of 2018 and to our Adjusted EBITDA for 2017. We estimate that
if the BTC is reinstated for 2018 on the same terms as in 2017, the net benefits to our net income in the period in which it is reinstated and
Adjusted EBITDA for business conducted in the year ended December 31, 2018, would each increase by approximately $237 million.
Unlike the RFS2 program, the BTC has a direct effect on Federal Government spending and changes in federal budget policy could
result in its elimination or in changes to its terms that are less beneficial to us. We cannot predict what action, if any, Congress may take
with respect to the BTC. There is no assurance that the BTC will be reinstated, that it will be reinstated on the same terms or, if reinstated,
that its application will be retroactive, prospective or both. Due to the significance of this program to our business, adverse changes in the
BTC can be expected to seriously harm our results of operations and financial condition.
State Tax Incentives
Several states have enacted tax incentives for the use of biodiesel. For example, Illinois has a generally applicable 6.25% sales tax,
but offers an exemption from this tax for a blend of fuel that consists of 11% biodiesel ("B11"). In Iowa, for 2018 through 2024, retailers
earn $0.035 per gallon of B5 - B10 and $0.055 per gallon for B11 and above. 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. The biomass-based diesel portion
of biomass-based diesel blends are exempt from Texas state excise tax, which results in a $0.20 per gallon incentive for B100. Minnesota
law requires a B5 biodiesel blend except during the summer months when a B20 blend is required. State budget or other considerations
could cause the modification or elimination of tax
11
incentive programs. The curtailment or elimination of such incentives could materially and adversely affect our revenues and profitability.
We derive a significant portion of our revenues from sales of our renewable fuel in the State of California primarily as a result of
California’s Low Carbon Fuel Standard; adverse changes in this law or reductions in the value of the credits we receive under the
LCFS and sell to third parties would harm our revenues and profits.
We estimate that our revenues from the sale of renewable fuel in California and from sales of credits received under California's
Low Carbon Fuel Standard ("LCFS") were approximately $353.3 million in 2018. The LCFS is designed to reduce greenhouse gas
emissions associated with transportation fuels used in California by ensuring that the total amount of fuel consumed meets declining targets
for such emissions. The regulation quantifies lifecycle greenhouse gas emissions by assigning a “carbon intensity” ("CI") score to each
transportation fuel based on that fuel’s lifecycle assessment. Each petroleum fuel provider, generally the fuel’s producer or importer is
required to ensure that the overall CI score for its fuel pool meets the annual carbon intensity target for a given year. This obligation is
tracked through credits and deficits and credits can be traded. We receive LCFS credits when we sell qualified biomass-based diesel in
California. As a result of the trading price of LCFS credits, California has become a desirable market in which to sell our renewable fuel. In
2018, LCFS credit prices increased from $116 per credit on January 2, 2018 to $195 per credit on December 31, 2018. As a result, an
increasing percentage of our revenue and profit is related to sales to California and LCFS credit values. If the value of LCFS credits were to
materially decrease as a result of greater supply or reduced demand for qualifying renewable fuel, if the fuel we produce is deemed not to
qualify for LCFS credits or if the LCFS or the manner in which it is administered or applied were otherwise changed in a manner adverse to
us, our revenues and profits could be seriously harmed.
RISKS RELATED TO OUR BUSINESS OPERATIONS AND THE MARKETS IN WHICH WE OPERATE
Increased industry-wide production of biodiesel as a result of potential utilization of existing excess production capacity,
announced large plant expansions of renewable diesel and potential co-processing of renewable diesel by petroleum refiners, could
reduce prices for our fuel and increase the cost of feedstocks used to produce them, which would seriously harm our revenues and
results of operations.
If additional volumes of advanced biofuel RIN production come online and the EPA does not increase the RVO in accordance with
the increased production, the volume of advanced biofuel RINs generated could exceed the volume required under the RFS2. In the event
this occurs, biomass-based diesel and advanced biofuel RIN prices would be expected to decrease, potentially significantly, harming
demand for our products and our profitability.
According to the National Biodiesel Board ("NBB"), in 2017, 4.1 billion gallons per year of biomass-based diesel production
capacity in the United States was registered under the RFS2 program by NBB members. In addition to this amount, several hundred million
more gallons of U.S. based biomass-based diesel production capacity was registered by non-NBB members and another 4.5 billion gallons
of biomass-based diesel production was registered by foreign producers. These amounts far exceed both historic consumption of biomass-
based diesel in the United States and required consumption under the RFS2.
Additionally, several leading biomass-based diesel companies have announced their intention to expand their production of renewable
diesel for the U.S. market. World Energy has announced that it will expand capacity at its Los Angeles area biorefinery from its existing 45
mmgy to over 300 mmgy. Diamond Green Diesel, the largest U.S. producer of renewable diesel, has announced plans to expand its 275
million mmgy capacity by 400 mmgy. Neste, the largest global producer of renewable diesel, announced in December 2018 a 440 mmgy
expansion of its Singapore facility that exports a significant portion of its production to the U.S.West Coast.
Further, due to the economic incentives available, several petroleum refiners have started or may soon start to produce co-processed
renewable diesel, or CPRD. CPRD uses the same feedstocks we use to produce biomass-based diesel and it generates an advanced biofuel
RIN. CPRD may be more cost-effective to produce than biomass-based diesel, particularly biodiesel.
If production of competitive advanced renewable fuels increases significantly as a result of utilization of existing excess production
capacity or new capacity as described above, competition for a relatively fixed supply of feedstocks would increase significantly, harming
our margins. Furthermore if supply of advanced renewable fuels exceeds demand, prices for our renewable fuel and for RINs and other
credits may decrease significantly, harming our profitability and potentially forcing us to idle our facilities.
12
Our gross margins are dependent on the spread between biomass-based diesel prices and feedstock costs, each of which are volatile
and can cause our results of operations to fluctuate substantially.
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 heavily influenced by the price of petroleum-based diesel fuel, adjusted for government
incentives supporting renewable fuels, more so than biomass-based diesel production costs. The absence of a 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. If there is a decrease in the spread between biomass-based diesel prices and feedstock costs, whether as a result of
an increase in feedstock prices or as a result of a reduction in biomass-based diesel and credit prices, our gross margins, cash flow and
results of operations would be adversely affected.
Energy prices, particularly the market price for crude oil, are volatile. According to OPIS data, the average B100 price in the Upper
Midwest ranged from a low of $2.77 per gallon to a high of $3.19 per gallon in 2018. 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.
In addition, an element of the price of biomass-based diesel that we produce is the value of the associated credits, including RINs.
RIN prices in the biomass-based diesel category as reported by OPIS fluctuated significantly in 2018, ranging from $0.31 to $0.91 per RIN
while in 2017, RIN prices started the year at $1.05 per RIN and declined to a low of $0.79 per RIN in December. For years there has been
significant volatility in RIN prices. For example, in 2013, RIN prices decreased sharply from $1.09 per RIN on July 1, 2013 to $0.35 per
RIN on December 31, 2013. Reductions in RIN values, such as those experienced in prior years, may have a material adverse effect on our
revenues and profits as they directly reduce the value we are able to capture for our 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. 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. During periods when the BTC has lapsed, biomass-based diesel
producers may elect to continue purchasing feedstock and producing biomass-based diesel at negative margins under the assumption the
BTC will be retroactively reinstated, and consequently, the price of feedstocks may not decrease to a level proportionate to current
operating margins. Increasing production of biomass-based diesel and, particularly recent and prospective expansion of renewable diesel
capacity, the development of alternative fuels and renewable chemicals also puts pressure on feedstock supply and availability to the
biomass-based diesel industry. The biomass-based diesel industry may have difficulty in procuring feedstocks at economical prices if
competition for biomass-based diesel feedstocks increases due to newly added biodiesel capacity or alternative fuels.
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 ("B100") as
reported by The Jacobsen Publishing Company, and the price per gallon for the amount of choice white grease necessary to produce one
gallon of B100 was $1.28 in 2016, $1.20 in 2017 and $1.38 in 2018, assuming eight pounds of choice white grease yields one gallon of
biomass-based diesel. The average monthly spread for the amount of crude soybean oil required to produce one gallon of B100, based on
the nearby futures contract as reported on the Chicago Board of Trade, was $0.73 in 2016, $0.64 in 2017 and $0.76 in 2018, assuming 7.5
pounds of soybean oil yields one gallon of biomass-based diesel. For each year from 2016 to 2018, approximately 72%, 73% and 77%,
respectively, of our annual total feedstock usage was inedible corn oil, used cooking oil or inedible animal fat, and approximately 28%,
27% and 23%, respectively, was virgin vegetable oils. When the spread between biomass-based diesel prices and feedstock prices narrows,
our profitability will be harmed.
Risk management transactions could significantly increase our operating costs and may not be effective.
In an attempt to partially offset the effects of volatile feedstock costs and biomass-based diesel fuel prices, we enter into contracts
that establish market positions in feedstocks, such as inedible corn oil, used cooking oil, inedible animal fats and soybean oil, along with
related commodities, such as heating oil and ultra-low sulfur diesel ("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 as well as the cumulative sum of the
obligations we assume under these contracts.
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. Risk management arrangements 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. Changes in the value of these futures
instruments are recognized in current income and may result in margin calls. We had risk management gains of $18.4 million from our
derivative financial instrument trading activity for the year
13
ended December 31, 2018, compared to risk management losses of $23.4 million for the year ended December 31, 2017. At December 31,
2018, the net notional volumes of NY Harbor ULSD, CBOT Soybean Oil and NYMEX Natural Gas covered under the open risk
management contracts were approximately 83.3 million gallons and 218.3 million pounds and 1.3 million million British thermal units,
respectively. A 10% positive change in the prices of NYMEX NY Harbor ULSD would have a negative effect of $14.0 million on the fair
value of these instruments at December 31, 2018. A 10% adverse change in the price of CBOT Soybean Oil would have had a negative
effect of $6.1 million on the fair value of these instruments at December 31, 2018. If these adverse changes in derivative instrument fair
value were to occur in larger magnitude or simultaneously, a significant amount of liquidity would be needed to fund margin calls. In
addition, 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, ("Pilot"), the largest operator of travel centers in North America, accounted for 9%, 8%
and 8% of our revenues in each of 2018, 2017 and 2016, respectively. Our revenues from Pilot generally do not include the RINs or LCFS
credits associated with the gallons of biomass-based diesel sold to Pilot. The value of those RINs and LCFS credits represented
approximately an additional 2%, 9% and 9% of our total sales in 2018, 2017 and 2016, respectively, based on the OPIS average RIN and
LCFS price for these periods. In the event we lose Pilot as a customer or Pilot significantly reduces the volume of biomass-based diesel
purchased from us, it could be difficult to replace the lost revenues, and our profitability and cash flow could be materially harmed. We do
not have a long-term contract with Pilot that ensures a continuing level of business from Pilot.
Our facilities and our customers' facilities are subject to risks associated with fire, explosions, leaks, and natural disasters, which
may disrupt our business and increase 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. For example, we experienced fires at our Geismar facility in April 2015 and again in September 2015 and there
was a fire at our Madison facility in June 2017. As a result of these fires, people were injured and the affected facilities were shut down for
lengthy periods while repairs and upgrades were completed.
The operations at our facilities are also subject to the risk of natural disasters. Our Houston and Geismar facilities, due to their Gulf
Coast locations, are vulnerable to hurricanes and flooding, which may cause plant damage, injury to employees and others and interruption
of operations. For example, in August 2016 we experienced reduced operating days at our Geismar facility as a result of local area flooding
and reduced operating days at our Houston facility as a result of Hurricane Harvey in August 2017. A majority of our facilities are located
in the Midwest, and are subject to tornado activity. In addition, California has become one of our largest markets, serviced by our Geismar
and Midwest facilities. An earthquake or other natural disaster could disrupt our ability to transport, store and deliver products to the
California market.
If we experience a fire or other serious incident at our facilities or if any of our facilities is affected by a natural disaster, we may
incur significant additional costs including, among other things, loss of profits due to unplanned temporary or permanent shutdowns of our
facilities, or the means of transporting our products, cleanup costs, liability for damages or injuries, legal expenses and reconstruction
expenses, which would harm our results of operations and financial condition.
In addition to biodiesel and renewable diesel, we store and transport petroleum-based motor fuels. The dangers inherent in the
storage and transportation of fuels could cause disruptions in our operations and could expose us to potentially significant losses,
costs or liabilities.
We store fuel in aboveground storage tanks and transport fuel in our own trucks as well as with third-party carriers. Our operations
are subject to significant hazards and risks inherent in transporting and storing fuel. These hazards and risks include, but are not limited to,
traffic accidents, fires, explosions, spills, discharges, and other releases, any of which could result in distribution difficulties and
disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims, and
other damage to our properties and the properties of others. Any such event not covered by our insurance could have a material adverse
effect on our business, financial condition and results of operations.
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
14
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.
We operate in a highly competitive industry and competition in our industry would increase if new participants enter the biomass-
based diesel or advanced biofuels business.
We operate in a very competitive environment. The biomass-based diesel industry primarily comprises 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 producing renewable diesel. 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
renewable diesel production. Such petroleum refiners include Neste Corporation with approximately 882 mmgy of global renewable diesel
production capacity in Asia and Europe, and Valero Energy Corporation through its Diamond Green Diesel joint venture that operates an
approximate 275 mmgy capacity renewable diesel facility in Norco, Louisiana that is in the process of being expanded by 400 mmgy. In
addition, petroleum refiners such as Sinclair, British Petroleum and Andeavor (formerly known as Tesoro) have announced that they have
begun co-processing renewable diesel at certain of their refineries. All of these named competitors have greater financial resources than we
do and may be able to produce biomass-based diesel at a lower cost than we do due to their integrated operations or greater refining
capacity.
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, including in the form of co-
processing, 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.
We derive a substantial portion of our profitability from the production of renewable diesel at our plant located in Geismar,
Louisiana and any interruption in our operations at this facility would have a material adverse effect on our results of operations
and financial conditions.
Renewable diesel carries a premium price to biodiesel as a result of a variety of factors including the ability to blend it with
petroleum diesel seamlessly, better cold weather performance, and because it generates more RINs on a per gallon basis. We estimate that
our renewable diesel production facility in Geismar, Louisiana generated more than half of our adjusted EBITDA in 2018. We experienced
two fires at this facility in 2015 that each resulted in the plant being shut down for a lengthy period. If production at this facility were
interrupted again due to a fire or for any other reason, it would have a disproportionately significant and material adverse impact on our
results of operations and financial conditions.
Technological advances and changes in production methods in the biomass-based diesel industry and renewable chemical 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 diesel,
including CPRD, could allow our competitors to produce biomass-based diesel faster and more efficiently and at a substantially lower cost.
In addition, we currently produce biomass-based diesel to conform to or exceed standards established by the American Society for Testing
and Materials ("ASTM"). ASTM standards for biomass-based diesel and biomass-based diesel blends may be modified in response to new
technologies from the industries involved with diesel fuel.
New standards or production technologies may require us to make additional capital investments in, or modify, plant operations to
meet these standards. 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,
acquire licenses or other rights to technology and retrofit our plants in order to incorporate new technologies and remain competitive.There
is no assurance that we will be able to obtain such technologies, 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, and our ability to produce biomass-based
diesel on a competitive level may be harmed, negatively impacting our revenues and profitability.
15
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 and prevent others from using our intellectual property. Failure to obtain or
maintain adequate intellectual property protection could adversely affect our competitive business position. We rely on a combination of
intellectual property rights, including patents, copyrights, trademarks and trade secrets in the United States and in select foreign countries.
Effective patent, copyright, trademark and trade secret protection may be unavailable, limited or not applied for in some countries.
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. Despite the existence of these agreements, third parties may independently develop substantially
equivalent proprietary information and techniques.
It may be difficult for us to protect and enforce our intellectual property. Costly and time-consuming litigation could be necessary to
enforce and determine the scope of our proprietary rights. If we pursue litigation to assert our intellectual property rights, an adverse judicial
decision in any legal action 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.
A competitor could seek to enforce intellectual property claims against us. Defending intellectual property rights claims asserted
against us, regardless of 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.
Increases in our transportation costs or disruptions in our transportation services could have a material adverse effect on our
business.
Our business depends on transportation services to deliver raw materials to us and finished products to our customers. The costs of
these transportation services are affected by the volatility in fuel prices or other factors. For example, from January 2016 to mid-2018,
diesel prices increased from just over one dollar per gallon to over two dollars per gallon for the second and third quarters of 2018.
Changes in fuel prices, and thus changes in our transportation costs, can be drastic and unpredictable. Our transportation costs are
also affected by U.S. oil production in the Bakkens, which has had a significant impact on tank car availability and prices. If oil production
from this area increases, the demand for rail cars will rise and will significantly increase rail car prices. 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 price 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 other personnel whereby the loss of any of these persons could
adversely affect our results of operations.
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 are highly dependent upon key members of our relatively
small management team and employee base that possess unique technical skills for the execution of our business plan. There can be no
assurance that any individual will continue in his or her capacity for any particular period of time or that replacement personnel with
comparable skills could be found. The inability to retain our management team and employee base or attract suitably qualified replacements
and additional staff could adversely affect our business. The loss of
16
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 may encounter difficulties in effectively integrating the businesses we acquire, including our international businesses where we
have limited operating history.
We may face significant challenges in effectively integrating entities and businesses that we acquire, 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;
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.
•
•
•
•
•
•
•
•
•
•
•
•
Our ability to recognize the benefit of our acquisition of two biodiesel production facilities in Germany and associated business
operations, or any other international operations we may invest in the future, will require the attention of management and is subject to a
number of risks. Our experience operating a biorefinery and other business operations outside of the United States is limited. In addition,
while the biodiesel market in Europe benefits from regulations that encourage the use of biodiesel, 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 laws in respect of repatriating income earned in countries outside the United
States;
compliance with the U.S.'s Foreign Corrupt Practices Act and other similar anti-bribery and anti-corruption
regulations;
political, economic and social
instability;
higher costs associated with doing business internationally;
and
•
export or import regulations as well as trade and tariff
restrictions.
17
Our failure to successfully manage and integrate our acquisitions could have an adverse effect on our operating results, ability to
recognize international revenue, and our overall financial condition.
We incur significant expenses to maintain and upgrade our operating equipment and plants, and any interruption in the operation
of our facilities may harm our operating performance.
We regularly incur significant expenses to maintain and upgrade our equipment and facilities. The machines and equipment that we
use to produce our products are complex, have many parts and some are run on a continuous basis. We must perform routine maintenance
on our equipment and will have to periodically replace a variety of parts such as motors, pumps, pipes and electrical parts. In addition, our
facilities require periodic shutdowns to perform major maintenance and upgrades. These scheduled shutdowns of facilities result in
decreased sales and increased costs in the periods in which a shutdown occurs and could result in unexpected operational issues in future
periods as a result of changes to equipment and operational and mechanical processes made during the shutdown period.
Growth in the sale and distribution of biodiesel 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.
While renewable diesel has the same chemical composition as petroleum diesel and can utilize the same distribution infrastructure,
biodiesel has a different chemical composition and may require separate or additional infrastructure. Growth in the biodiesel market
depends on continued 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
often beyond our control. Also, we compete with other biofuel companies for access to some of the key infrastructure components such as
pipeline, terminal and underground storage tank capacity. As a result, increased production of biodiesel 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
biodiesel, impede delivery of our biodiesel, 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 distribution of
increasing volumes of biodiesel and any infrastructure disruptions could materially harm our business.
Our business is subject to seasonal changes based on regulatory factors and weather conditions and this seasonality could cause our
revenues and operating results to fluctuate.
Our operating results are influenced by seasonal fluctuations in the price of and demand for biomass-based diesel. Seasonal
fluctuations may be based on both the weather and the status of both the BTC and RVO.
Demand for our biomass-based diesel may be higher in the quarters leading up to the expiration of the BTC as customers seek to
purchase biomass-based diesel when they can benefit from the agreed upon value sharing of the BTC with producers. This higher demand
prompted by an expiring BTC has often resulted in reduced demand for biodiesel in the following quarter. In addition, RIN prices may also
be subject to seasonal fluctuations. The RIN is dated for the calendar year in which it is generated. Since 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 increase as the calendar year progresses if the RIN market is undersupplied compared to that year's
RVO and decrease if it is oversupplied.
Weather also impacts our business because biodiesel typically has a higher cloud point than petroleum-based or renewable diesel. The
cloud point is the temperature below which a fuel exhibits a noticeable cloudiness and eventually gels, leading to 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. 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.
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. Higher cloud point biodiesel may have other
performance problems, including the possibility of particulate formation above the cloud point which may 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.
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.
18
The biomass-based diesel industry is subject to extensive federal, state and local laws and regulations. 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, and regardless of whether current or prior
operations were conducted consistent with the accepted standards of practice. Many of our assets and plants were acquired from third
parties and we may incur costs to remediate property contamination caused by previous owners. 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.
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.
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 continuously evolving, requiring us to periodically update our
compliance systems. In 2014, the EPA issued a final rule to establish a quality assurance program and the EPA also implemented
regulations related to the generation and sale of biomass-based diesel RINs. Compliance with these or any new regulations or Obligated
Party verification procedures could require significant expenditures to attain and maintain compliance. Any violation of these regulations
by us, 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.
Renewable diesel fuel is superior to biodiesel in certain respects and if renewable diesel production capacity increases to a sufficient
extent, it could largely supplant biodiesel as the renewable fuel of choice; we may not be successful in expanding our renewable
diesel production capacity.
Renewable diesel is not as widely available as biodiesel, but it has certain characteristics that favorably distinguish it from traditional
biodiesel and as a result renewable diesel carries a price premium compared to biodiesel. For example, renewable diesel has very similar
chemical properties to petroleum-based diesel, which permits 100% renewable diesel (unlike 100% biodiesel) to flow through the same fuel
storage and distribution network as petroleum diesel. Renewable diesel can also be used in its pure form in modern engines rather than as a
blend with petroleum diesel and has similar cold weather performance as petroleum diesel. Renewable diesel and co-processed renewable
diesel may receive 1.6 or 1.7 RINs per gallon, whereas biodiesel receives 1.5 RINs per gallon. As the value of RINs increases, this RIN
advantage makes renewable diesel more cost-effective, both as a petroleum-based diesel substitute and for meeting RFS2 requirements. If
renewable diesel proves to have superior performance characteristics and is more cost-effective than biodiesel, revenues from our biodiesel
plants and our results of operations would be adversely impacted.
In view of the demand and price premium for renewable diesel, we are evaluating opportunities to expand our renewable diesel
operations. The opportunities currently under review include a potential collaboration with Phillips 66 on the possible construction of a
large-scale renewable diesel plant in Washington state. We have not reached a definitive agreement with Phillips 66 and an agreement may
never be reached. We are also evaluating a large-scale expansion of our renewable diesel facility in Geismar, Louisiana. If we elect to
undertake either or both of these projects to expand our renewable diesel capacity, we will be required to make substantial capital
expenditures, we may incur significant indebtedness and there is no assurance that the new or expanded operations will operate profitably
or profitably enough to support the investment we make.
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 could lose political support. These views could also 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 Energy Independence and Security Act of 2007 ("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
19
biodiversity, invasive species and international impacts. The only 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 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.
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. While newer diesel engines are believed to eliminate any such increase,
emissions from older vehicles 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 limit the volume of biodiesel that can be used or requires 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 diesel, which would negatively impact our ability to sell biodiesel in such states
and therefore have an adverse effect on our revenues and profitability.
We are dependent upon one supplier to provide hydrogen necessary to execute our renewable diesel production process and the
loss of this supplier could disrupt our production process.
Our Geismar facility relies on one supplier to provide hydrogen necessary to execute the production process. Any disruptions to the
hydrogen supply during production from this supplier will result in the shutdown of our Geismar plant operations. We are currently seeking
additional hydrogen suppliers for our Geismar facility.
RISKS RELATED TO OUR INDEBTEDNESS
We and certain subsidiaries have indebtedness, which subjects us to potential defaults, that 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, 2018, our total term debt before debt issuance costs was $185.8 million. This includes $75.5 million aggregate
carrying value on our $96.3 million face amount, 4.00% convertible senior notes due in June 2036, which we refer to as the "2036
Convertible Senior Notes", and $66.4 million aggregate carrying value on our $67.5 million face value, 2.75% convertible senior notes due
in June 2019, which we refer to as the "2019 Convertible Senior Notes". At December 31, 2018, our total term debt also includes
borrowings at our Danville facility of $9.0 million, at our Ralston facility of $18.9 million, at our Grays Harbor facility of $8.8 million and
at REG Capital LLC. of $7.2 million.
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, including interest rate
fluctuations, because a portion of our revolving credit facilities are and will continue to be at variable rates of interest;
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 2036
Convertible Senior Notes and 2019 Convertible Senior Notes, depends on our future financial performance, which is subject to several
factors including 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 or any future indebtedness we may incur as well as our
ability to make necessary capital expenditures. If we are unable to generate such cash
20
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 our existing or future
indebtedness will depend on the conditions in the capital markets and our financial condition prior to maturity of the indebtedness.
Despite our current indebtedness levels, we may still incur significant additional indebtedness. Incurring more indebtedness could
increase the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness, including additional secured indebtedness, in the
future. As of December 31, 2018, we had $114.9 million of undrawn availability under our lines of credit, subject to borrowing base
limitations. In addition, the indentures governing our convertible notes do not prevent us from incurring additional indebtedness or other
liabilities that constitute indebtedness. If new debt or other liabilities are added to our current debt levels, the related risks that we and our
subsidiaries now face could intensify.
We are subject to counterparty risk with respect to the capped call transactions that we entered into in connection with the
issuance of our 2019 Convertible Senior Notes.
In connection with the issuance of our 2019 Convertible Senior Notes, we entered into privately-negotiated capped call transactions
with various counterparties. 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 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 or on a repurchase date, and our future debt may contain limitations on our
ability to repurchase the convertible notes.
Holders of the 2019 or 2036 Convertible Senior Notes will have the right to require us to repurchase their 2019 or 2036 Convertible
Senior 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.
Holders of the 2036 Convertible Senior Notes will also have the right to require us to repurchase their notes on each of June 15, 2021,
June 15, 2026 and June 15, 2031 at a repurchase price generally equal to 100% of their principal amount, plus accrued and unpaid interest,
if any.
In addition, holders of the 2019 and 2036 Convertible Senior Notes have the right to convert their notes during any calendar quarter
when the last reported sale price of our common stock for 20 trading days during a period of 30 consecutive trading days ending on the last
trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price, or $16.02 in
the case of the 2019 Convertible Senior Notes and $14.01 in the case of the 2036 Convertible Senior Notes. Both series of notes became
convertible due to the trading price of our common stock.
The 2019 Convertible Senior Notes will mature on June 15, 2019 and can be converted at any time on or after December 15, 2018. In
accordance with the indenture governing the 2019 Convertible Senior Notes, we have elected to settle all conversions of each $1,000
principal amount of notes being converted on or after October 23, 2018, with $1,000 in cash and any conversion value in excess of that
amount in shares of our common stock. For the 2036 Convertible Senior Notes, our current intent is to settle conversions using cash for the
principal amount of convertible senior notes converted, with the remaining value satisfied at the Company's option in cash, stock or a
combination of cash and stock. 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 2019 or 2036 Convertible Senior Notes upon a fundamental change or to settle conversion of the 2019 or 2036
Convertible Senior Notes in cash.
In addition, our ability to repurchase the 2019 or 2036 Convertible Senior Notes may be limited by law, by regulatory authority or by
agreements governing our future indebtedness. Our failure to repurchase 2019 or 2036 Convertible Senior Notes at a time when the
repurchase is required by the indenture would constitute a default under the indenture governing the 2019 or 2036 Convertible Senior
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
21
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 2019 or 2036 Convertible Senior Notes could delay or prevent an otherwise
beneficial takeover or takeover attempt of us.
Certain provisions in the 2019 or 2036 Convertible Senior 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 2019 or 2036 Convertible
Senior Notes will have the right to require us to repurchase their 2019 or 2036 Convertible Senior 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 2019 or
2036 Convertible Senior Notes in connection with such takeover. In either case, and in other cases, our obligations under the 2019 or 2036
Convertible Senior 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 a holding company and there are limitations on our ability to receive dividends and distributions from our subsidiaries.
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.
Our debt agreements impose significant operating and financial restrictions on our subsidiaries, which may prevent us from
capitalizing on business opportunities.
Certain of our revolving and term credit agreements, including our M&L and Services Revolver, impose significant operating and
financial restrictions on certain of our subsidiaries. These restrictions limit certain of our subsidiaries’ ability, among other things, to:
•
•
•
•
•
•
incur additional indebtedness or issue certain disqualified stock and preferred stock;
place restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments to us;
engage in transactions with affiliates;
sell certain assets or merge with or into other companies;
guarantee indebtedness; and
create liens.
When (and for as long as) the availability under the M&L and Services Revolver is less than a specified amount for a certain period
of time, funds deposited into deposit accounts used for collections will be transferred on a daily basis into a blocked account with the
administrative agent and applied to prepay loans under the M&L and Services Revolver.
As a result of these covenants and restrictions, we may be limited in how we conduct our business and we may be unable to raise
additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future
indebtedness we may incur could include more restrictive covenants. There is no assurance that we will be able to maintain compliance
with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the
covenants.
There are limitations on our ability to incur the full $150.0 million of commitments under the M&L and Services Revolver.
Borrowings under our M&L and Services Revolver are limited by a specified borrowing base consisting of a percentage of eligible
accounts receivable and inventory, less customary reserves. In addition, under the M&L and Services Revolver, a monthly fixed charge
coverage ratio would become applicable if excess availability under the M&L and Services Revolver is less than 10% of the total $150
million of current revolving loan commitments, or $15 million. As of December 31, 2018, availability under the M&L and Services
Revolver was approximately $114.9 million. However, it is possible that excess availability under the Revolving Credit could fall below
the 10% threshold in a future period. If the covenant trigger were to occur, our subsidiaries who are the borrowers under the M&L and
Services Revolver would be required to satisfy and maintain on the last day of each month a fixed charge coverage ratio of at least 1.0x for
the preceding twelve month period.
As of December 31, 2018, the fixed charge coverage ratio for our M&L and Services Revolver was approximately 0.445, which was
below the minimum amount required for compliance with this ratio. However, as noted above, we are not required to comply with the
minimum fixed charge covenant of 1.0 unless availability under the M&L and Services Revolver drops below the agreed threshold. Our
ability to meet the required fixed charge coverage ratio can be affected by events beyond our
22
control, and we cannot assure you that we will meet this ratio. A breach of any of these covenants would result in a default under the M&L
and Services Revolver.
RISKS RELATED TO OUR COMMON STOCK
The market price for our common stock may be volatile.
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;
litigation;
inadequate trading
volume;
general market conditions in our
industry;
• whether our shares are included in stock market indexes such as the S&P SmallCap 600 index;
•
and
general economic and market conditions, including continued dislocations and downward pressure in the capital
markets.
In addition, stock markets experience significant price and volume fluctuations from time to time 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. Our
stockholders could suffer significant dilution, from our issuances of equity or convertible debt securities. Any new equity securities we
issue could have rights, preferences and privileges superior to those of holders of our common stock. 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.
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.
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, 2018 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.
Delaware law and our amended and restated certificate of incorporation and bylaws 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:
23
•
•
•
•
•
•
•
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 ("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.
ITEM 1B. Unresolved Staff
Comments
None.
ITEM 2.
Properties
The following tables list each of our owned North American and European production facilities and their location, use, and nameplate
production capacity. Each facility listed below is used by our Biomass-based diesel Segment, except for the Okeechobee, Florida facility.
PRODUCTION FACILITIES - NORTH AMERICA
Location
Ralston, Iowa
Seabrook, Texas
Danville, Illinois
Newton, Iowa
Seneca, Illinois
Albert Lea, Minnesota
New Boston, Texas
Mason City, Iowa
Geismar, Louisiana*
Grays Harbor, Washington
DeForest, Wisconsin
Okeechobee, Florida
Use
Biodiesel production
Biodiesel production
Biodiesel production
Biodiesel production
Biodiesel production
Biodiesel production
Biodiesel production
Biodiesel production
Renewable diesel production
Biodiesel production
Biodiesel production
Fermentation facility
Nameplate
Production
Capacity
(mmgy)
30
35
45
30
60
30
15
30
75
100
20
N/A
* This facility produces renewable diesel, naphtha, and liquid petroleum gas.
24
PRODUCTION FACILITIES - EUROPE
Location
Emden, Germany
Oeding, Germany
Use
Biodiesel production
Biodiesel production
Nameplate
Production
Capacity
(mmgy)
27
23
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 two other buildings located at 300 South Bell Avenue, Ames, Iowa 50010 and at 215 Alexander Avenue,
Ames, Iowa 50010, which have a combined 26,837 square feet of office space.
ITEM 3.
Legal
Proceedings
Neither the Company nor any subsidiary of the Company is a party to any material pending legal or governmental proceeding, nor is
any of the Company's property the subject of any material pending legal proceeding, except ordinary routine legal or governmental
proceedings arising in the ordinary course of the Company's business and incidental to the Company's business, none of which is expected
to have a material adverse impact upon the Company's business, financial position or results of operations.
ITEM 4. Mine Safety
Disclosures
None.
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 trades on the NASDAQ Global market under the ticker symbol "REGI".
Holders
As of February 28, 2019, there were approximately 1,762 holders of record of our common stock.
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.
On May 15, 2018, we were added to the S&P SmallCap 600 index by Nasdaq. The following graph shows a comparison of the
cumulative total returns for the last 5 years to December 31, 2018, for us, the Elements MLCX Biofuels ETN Index, the Russell 3000 Index
and the S&P SmallCap 600. The graph assumes that $100 was invested on January 19, 2012 in our common stock, the Elements MLCX
Biofuels ETN Index and the Russell 3000 Index, and that all dividends were reinvested.
25
01/19/2012
12/31/2014
12/31/2015
$
100.00 $
100.00
100.00
100.00
97.10 $
84.57
157.50
158.93
92.50 $
72.32
155.58
153.59
REGI
Elements MLCX Biofuels ETN
Russell 3000
S&P SmallCap 600
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
12/31/2016 12/31/2017 12/31/2018
257.00
60.37
189.89
193.19
118.00 $
67.50
204.16
214.07
97.00 $
73.77
171.77
191.60
In December 2017, the Company's board of directors approved a repurchase program (the "2017 Program") of up to $75.0 million of
the Company's 2.75% Convertible Senior Notes due 2019 and/or shares of common stock. In June 2018, the Company's board of directors
approved another repurchase program of up to $75.0 million of the Company's convertible notes and/or shares of common stock (the "2018
Program"). Under these programs, the Company may repurchase convertible notes or shares from time to time in open market transactions,
privately negotiated transactions or by other means. The timing and amount of repurchase transactions under each program are determined
by the Company's management based on its evaluation of market conditions, share price, bond price, legal requirements and other factors.
On January 29, 2019, the Company's Board of Directors authorized an additional $75.0 million to repurchase convertible notes and/or
shares of Common Stock.
The Company made no share repurchases under the 2018 Program during the quarter ended December 31, 2018.
During the quarter ended December 31, 2018, the Company used approximately $51.5 million under the 2018 Program to repurchase
$21.2 million principal amount of its 2036 Convertible Senior Notes. At December 31, 2018, the remaining amount under the 2018
Program was approximately $7.4 million.
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.
26
The selected consolidated balance sheet data as of December 31, 2018 and 2017, and the selected consolidated statements of
operations data for each year ended December 31, 2018, 2017 and 2016, 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, 2016, 2015
and 2014, and the selected consolidated statements of operations data for the years ended December 31, 2015 and 2014 have been derived
from our audited consolidated financial statements not included in this annual report.
2018 (1)
Year Ended December 31,
2015 (4)
2016 (3)
(In thousands, except per share amounts)
2017 (2)
2014 (5)
Consolidated Statements of Operations Data:
Total revenues from continuing operations
Net income (loss) from continuing operations
attributable to the company's common stockholders
Net loss from discontinued operations attributable to
the company's common stockholders
$
2,382,987 $
2,154,655 $ 2,039,232 $ 1,387,344 $ 1,273,831
295,804
(66,279)
62,204
(105,088)
82,400
(11,312)
(12,800)
(19,128)
(46,303)
(806)
Net income (loss) per share from continuing
operations attributable to common stockholders
Basic
Diluted
Net loss per share from discontinued operations
attributable to common stockholders
Basic
Diluted
Consolidated Balance Sheet Data:
Total assets
Long-term debt
$
$
$
$
$
7.85 $
6.78 $
(1.71) $
(1.71) $
1.52 $
1.52 $
(2.39) $
(2.39) $
2.02
2.01
(0.30) $
(0.30) $
(0.33) $
(0.33) $
(0.47) $
(0.47) $
(1.05) $
(1.05) $
(0.02)
(0.02)
1,107,096 $
33,421
1,005,596 $ 1,136,603 $ 1,223,620 $ 1,367,736
242,031
208,536
196,203
247,251
(1)
(2)
(3)
(4)
(5)
In the first quarter of 2018, we adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers
(Topic 606). The implementation of the new standard did not have any material impact on the measurement or recognition of
revenue of prior periods, however additional disclosures have been added as further described in Note 2 of Item 8 - Financial
Statements and Supplementary Data. The long-term debt at December 31, 2018 does not include the 2019 Convertible Senior
Notes of $66,361 that becomes due in June 2019 and the 2036 Convertible Senior Notes of $75,477 that was reclassified to current
as the early conversion event was met based on our stock price. In the fourth quarter of 2018, our Board of Directors authorized us
to pursue a plan to sell the REG Life Sciences' core assets and business, which represents a strategic shift in our business. As a
result, REG Life Sciences business, valued at selling price less estimated costs to sell, are classified as discontinued operations in
2018. All prior period disclosures below have been recast to present results on a comparable basis.
Includes the impact of the impairment of our New Orleans facility and the “H.R. 1”, formerly known as the “Tax Cuts and Jobs
Act” signed into law on December 22, 2017 as further described in Note 2 and Note 13, respectively, of Item 8 - Financial
Statements and Supplementary Data.
Includes issuance of the convertible senior notes on June 2, 2016 and impact of the impairment of our Emporia facility as further
described in Note 12 and Note 2, respectively, of Item 8 - Financial Statements and Supplementary Data.
Includes the impact of a full write-off of goodwill in the Biomass-based Diesel and Renewable Chemicals reporting
units.
Includes the issuance of the 2019 Convertible Senior Notes on June 3,
2014.
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
27
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 focus on providing cleaner, lower carbon transportation fuels. We are North America's largest producer of advanced biofuels. We
utilize a nationwide production, distribution and logistics system as part of an integrated value chain model designed to convert natural fats,
oils and greases into advanced biofuels. We believe our fully integrated approach, which includes acquiring feedstock, managing
biorefinery facility construction and upgrades, operating biorefineries, and distributing fuel through a network of terminals, positions us to
serve the market for cleaner transportation fuels. In May 2018, we launched our latest innovation in diesel fuel, REG Ultra CleanTM Diesel.
REG Ultra CleanTM Diesel is among the lowest emission diesel fuels on the market today.
We own and operate a network of 14 biorefineries. Twelve biorefineries are located in the United States and two in Germany. Twelve
biorefineries produce biodiesel, one produces renewable diesel (“RD”), and one is a fermentation facility. Our thirteen biomass-based diesel
production facilities have an aggregate nameplate production capacity of 520 million gallons per year (“mmgy”).
We are a lower-cost, lower carbon biomass-based diesel producer. We primarily produce our biomass-based diesel from a wide
variety of lower-cost, lower carbon feedstocks, including inedible corn oil, used cooking oil and inedible animal fat. We produce a portion
of our biomass-based diesel from virgin vegetable oils, such as soybean oil or canola oil, which tend to be higher in price. We believe our
ability to process a wide variety of feedstocks at most of our facilities provides us with a cost advantage over many biomass-based diesel
producers, particularly those that rely primarily on higher cost virgin vegetable oils.
We also sell petroleum-based heating oil and diesel fuel, which enables us to offer a variety of fuel products to a broader 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 these terminal locations. In 2018, we expanded our sales of biofuel blends to Midwest and West Coast terminal
locations and look to potentially expand in other areas across North America and internationally.
In October 2018, we announced that we are collaborating with Phillips 66 on the possible construction of a large-scale renewable
diesel plant in Washington state. The plant would utilize our propriety BioSynfining® technology for the production of renewable
diesel.We have not reached a definitive agreement with Phillips 66 with respect to this potential joint development project and there is no
assurance that an agreement will be reached.
During 2018, we sold 649 million gallons of fuel, which included 45 million biomass-based gallons we purchased from third parties,
45 million gallons produced by our facilities in Germany and 119 million petroleum-based diesel gallons. During 2017, we sold
587 million gallons, including 52 million gallons we purchased from third parties and resold, 38 million biomass-based diesel gallons
produced by our facilities in Germany and 83 million petroleum-based diesel gallons.
In the fourth quarter of 2018, concluding a comprehensive strategic assessment of our development-stage industrial biotechnology
business, our Board of Directors authorized us to pursue a plan to sell the core assets of REG Life Sciences, which have comprised our
Renewable Chemicals segment. As a result, the former Renewable Chemicals segment has been valued at the estimated proceeds from the
sale less costs to sell, and the operations of the Renewable Chemicals segment have been classified as discontinued operations.
Our businesses are organized into two reportable segments - the Biomass-based Diesel segment and the Services segment.
Biomass-based Diesel Segment
Our Biomass-based Diesel segment includes:
•
the operations of the following biomass-based diesel production
refineries:
•
a 30 mmgy nameplate biodiesel production facility located in Ralston,
Iowa;
a 35 mmgy nameplate biodiesel production facility located near Houston,
Texas;
a 45 mmgy nameplate biodiesel production facility located in Danville,
Illinois;
a 30 mmgy nameplate biodiesel production facility located in Newton,
Iowa;
a 60 mmgy nameplate biodiesel production facility located in Seneca,
Illinois;
a 30 mmgy nameplate biodiesel production facility located near Albert Lea,
Minnesota;
a 15 mmgy nameplate biodiesel production facility located in New Boston,
Texas;
a 30 mmgy nameplate biodiesel production facility located in Mason City,
Iowa;
•
•
•
•
•
•
•
28
•
•
•
•
•
a 75 mmgy nameplate renewable diesel production facility located in Geismar,
Louisiana;
a 27 mmgy nameplate biodiesel production facility located in Emden,
Germany;
a 23 mmgy nameplate biodiesel production facility located in Oeding,
Germany;
a 100 mmgy nameplate biodiesel production facility located in Grays Harbor, Washington;
and
a 20 mmgy nameplate biodiesel production facility located in DeForest,
Wisconsin.
•
•
•
purchases and resales of biomass-based diesel, petroleum-based diesel, RINs and LCFS credits, and raw material feedstocks
acquired from third parties;
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 co-products of the biomass-based diesel production process. In 2018 and
2017, our revenues from the sale of co-products were less than five percent of our total Biomass-based diesel segment revenues. During
2018 and 2017, 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 by our facilities or purchased from third parties, were approximately 10% and 7% of
our total revenues, respectively.
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 Renewable Fuel Standard, or 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. When we attach RINs to a sale of biomass-based diesel
gallons, 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 through the production and sale of
gallons of biomass-based diesel, may be separated by the acquirer and sold separately. We regularly obtain RINs from third parties for
resale, and the value of these RINs 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 net realizable value 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. At December 31, 2018, we had approximately 10.3 million biomass-
based diesel RINs and 3.9 million advanced biofuel RINs available to be sold, as compared to 37.8 million biomass-based diesel RINs and
1.2 million advanced biofuel RINs held for sale at December 31, 2017. According to the Oil Pricing Information System ("OPIS"), the
median closing sales price at December 31, 2018 was $0.55 and $0.51 for biomass-based diesel RINs and advanced biofuel RINs,
respectively, compared to $1.05 and $1.06, at December 31, 2017, per biomass-based diesel RIN and advanced biofuel RIN, respectively.
We believe that the decrease in RIN value during 2018 has been influenced by the relatively wider spread between biomass-based diesel
prices and feedstock prices and record levels of Smaller Refiner Exemptions from RIN compliance requirements for 2016 and 2017.
We generate Low Carbon Fuel Standard credits for our low carbon fuels or blendstocks when our qualified low carbon fuels are
imported into states that have adopted an LCFS program. As a result, a portion of the selling price for a gallon of biomass-based diesel sold
into an LCFS market is also attributable to LCFS compliance. Like RINs, LCFS credits that we generate 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 LCFS
credit when it is generated, regardless of whether the LCFS credit is transferred with the biomass-based diesel produced or held by us. At
December 31, 2018, we held for sale approximately 29,843 California and 25,891 Oregon LCFS credits, compared to 5,700 California and
0 Oregon LCFS credits at December 31, 2017. According to OPIS, the median closing price at December 31, 2018 and December 31, 2017
was $195.00 and $113.00, respectively, per California LCFS credit. According to OPIS, the median closing price at December 31, 2018
was $137.50 per Oregon LCFS credit. The increase in LCFS prices was largely attributable to growing demand for LCFS credits.
Services Segment
Our Services segment, which primarily provides services to our Biomass-based Diesel 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; and
construction management services, whereby we act as the construction management and general contractor for the
construction of biomass-based diesel production facilities.
29
During recent years, we have utilized our construction management expertise internally to upgrade our facilities, such as our facilities
located in Ralston, Albert Lea, New Boston, Mason City and Newton. In March 2018, we completed the expansion project at our Ralston
facility. In June 2017, we completed the acquisition of approximately 82 acres of land at and in close proximity to our Geismar, Louisiana
biorefinery. The purchase included the acquisition of land we previously leased for our Geismar operations and approximately 61
additional acres in parcels adjacent to and near the facility. We plan to improve and utilize the new acreage to support existing production
capacity and for future expansion opportunities using the Services segment.
Factors Influencing Our Results of Operations
The principal factors affecting our results of operations and financial conditions 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 cleaner renewable fuels.
Governmental programs favoring biomass-based diesel production and use
Biomass-based diesel has historically been more expensive to produce than petroleum-based diesel. The biomass-based diesel
industry’s growth has largely been the result of federal and state programs that require or incentivize the production and use of biomass-
based diesel, which allows biomass-based diesel to be price-competitive with petroleum-based diesel.
RFS2 was implemented in 2010, 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 diesel satisfy three categories of an Obligated
Party’s annual renewable fuel required volume obligation, or RVO—biomass-based diesel, advanced biofuel and renewable fuel. The final
RVO targets for the biomass-based diesel and advanced biofuels volumes for the years 2015 to 2020 as set by the EPA are as follows:
2015
2016
2017
2018
2019
2020
1.73 billion gallons 1.90 billion gallons 2.00 billion gallons 2.10 billion gallons 2.10 billion gallons 2.43 billion gallons
4.28 billion RINs*
4.29 billion RINs*
4.92 billion RINs*
**
Biomass-based Diesel
Total Advanced
Biofuels
*Ethanol equivalent gallons
**To be established by EPA in a rule making later in 2019
2.88 billion RINs*
3.61 billion RINs*
The federal biodiesel mixture excise tax credit, or the BTC, has historically provided a $1.00 refundable tax credit per gallon to the
first blender of biomass-based diesel with petroleum-based diesel fuel. The BTC became effective January 1, 2005, but since January 1,
2010 it has been allowed to lapse and then been reinstated a number of times. For example, the BTC lapsed on January 1, 2014, was
retroactively reinstated for 2014 on December 19, 2014 and then lapsed again on January 1, 2015. On December 18, 2015, the BTC was
retroactively reinstated for 2015 and extended for 2016. The BTC again lapsed on January 1, 2017 and was reinstated on a retroactive basis
for 2017 on February 9, 2018. It is not currently in effect for 2018 or 2019.
As a result of this history of retroactive reinstatement of the BTC, we and many other biomass-based diesel producers have adopted
contractual arrangements with customers and vendors specifying the allocation and sharing of any retroactively reinstated incentive. The
reinstatement of the 2017 BTC resulted in a $205 million net benefit to our net income for the year ended December 31, 2018 and Adjusted
EBITDA for the year ended December 31, 2017, with another $11 million related to products delivered and sales recognized in the first
quarter of 2018. It is uncertain whether the BTC will be reinstated for 2018 or later years and if reinstated, whether it will be reinstated
retroactively or on the same terms. The modification or failure to reinstate the BTC would have a material adverse effect on our financial
results. As of December 31, 2018, we estimate that if the BTC is reinstated on the same terms as in 2017, our Adjusted EBITDA for
business conducted in the year ended December 31, 2018 would increase by approximately $237 million.
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 and
the price of feedstocks used to produce biomass-based diesel.
Biomass-based diesel is a cleaner 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
30
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. The following
table shows for 2016, 2017 and 2018 the high and low average monthly contributory value of RINs, as reported by OPIS, to the average
B100 spot price of a gallon of biodiesel, as reported by The Jacobsen in terms of dollars per gallon.
Value of RINs acquired from third parties and held in inventory were volatile in 2018 and resulted in a $7.0 million write-down to the
lower of cost or net realizable value for the year ended December 31, 2018. The fluctuations in the value of RINs during 2017 and 2016
resulted in write-downs of $4.5 million and $19.4 million, respectively, on RIN inventory acquired from third parties. At December 31,
2018, the write-down to lower of cost or net realizable value of RINs was $0.6 million. 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.
During 2018, feedstock expense accounted for 78% of our direct 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 oil, used cooking oil, inedible animal fat, canola oil 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. There are a number of factors that influence the supply and price of our feedstocks, such as the following:
biomass-based diesel demand; export demand; government policies and subsidies; weather conditions; ethanol production; cooking habits
and eating habits; number of restaurants near collection facilities; hog/beef/poultry supply and demand; palm oil supply; soybean meal
demand and/or production, and crop production both in the U.S. and South America.
During 2018 and 2017, 77% and 73% of the feedstocks used in our operations, respectively, were comprised of inedible corn oil, used
cooking oil and inedible animal fats with the remainder coming from virgin vegetable oils.
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 the specified lower-cost feedstock for the period January 2016 to December 2018. 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.
31
(1)
(2)
(3)
(4)
Used cooking oil prices ("UCO") 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 ("ICO") 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 ("CWG") 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).
Soybean oil (crude) ("SBO") 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 7.5 pounds per gallons).
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 for choice white grease and soybean oil on a per
gallon basis compared to the per gallon sale price data for biodiesel, and the spread between biodiesel and each of soybean oil and choice
white grease from January 2016 to December 2018.
32
(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 7.5 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.
During 2018, NY Harbor ULSD prices ranged from a low of $1.66 per gallon in late December to a high of $2.44 per gallon in early
October with an average price for the year of $2.10 per gallon. Energy prices decreased in February but increased at a steady pace until the
early part of the last quarter. Prices decreased precipitously during mid to late November and this trend continued through the end of the
year. During the first three quarters of 2018, there was consistently strong demand for diesel fuel and OPEC's crude oil production quotas
contributed to price increases until the fourth quarter. In the fourth quarter the ULSD market responded to oversupply of crude oil in the
global market as well as fears of global economic slowdown in 2019 and regional trade tension.
Animal fat and vegetable oil production have both increased in 2018, which contributed to lower feedstock prices during the year.
Soybean oil prices ranged from a high of $0.3376 per pound in January to a low of $0.2696 per pound in November with an average price
for the year of $0.2987 per pound. The soybean oil market responded to a near-record crush in the United States and significantly lower
soybean exports, and it trended upward at the end of the fourth quarter of 2018 based on increased optimism about trade negotiations
between the United States and China. Choice white grease prices ranged from a low of $0.1600 in February to a high of $0.2575 per pound
in June with an average price for the year of $0.2024 per pound. Relatively low priced feed cost along with continued strong demand for
pork and beef has continued to lead to expansions in the U.S. hog and cattle industries. Both hog and cattle production numbers in 2018
were higher than the prior year resulting in lower prices for animal fats.
Risk Management
The profitability of producing biomass-based diesel largely depends on the spread between prices for feedstocks and biomass-based
diesel, including incentives, each of which is subject to fluctuations due to market factors and each of which is not significantly correlated.
Adverse price movements for these commodities directly affect our operating results. We attempt to protect cash margins for our own
production and our third-party trading activity by entering into risk management contracts that mitigate the impact on our margins from
price volatility in feedstocks and biomass-based diesel. We create offsetting positions by using a combination of forward fixed-price
physical purchases and sales contracts on feedstock and biomass-based diesel and risk management futures contracts, swaps and options
primarily on the New York Mercantile Exchange NY Harbor ULSD and CBOT 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 in addition to our internal research and analysis.
Inedible corn oil, used cooking oil, inedible animal fat, canola oil and soybean oil are the primary feedstocks we used to produce
biomass-based diesel in 2016, 2017 and 2018. 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 efforts to risk manage against changing prices for inedible corn oil, used cooking oil and inedible animal fat
have involved entering into futures contracts, swaps or options on other commodity products, such as CBOT soybean oil and New York
Mercantile Exchange NY Harbor ULSD. 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. The purchase price for soybean oil under
these contracts may be indexed to prevailing 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 feedstock requirements generally for varying periods up to
one year.
Our ability to mitigate our risk of falling biomass-based diesel 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 derivative market for
biomass-based diesel 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
33
fuel and New York Mercantile Exchange NY Harbor ULSD. 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 effective established futures market for biomass-based diesel 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, however, pricing under those forward contracts generally has been indexed to
prevailing market prices as fixed price contracts for long periods have generally not been available.
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 which may be in the same or later periods. 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 but 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 had risk management gains of $18.4 million from our derivative financial instrument trading activity for the year ended
December 31, 2018, compared to risk management losses of $23.4 million for the year ended December 31, 2017. Changes in the value of
these futures or swap instruments are reflected in current income or loss, generally within our cost of goods sold. In 2018 and 2017, risk
management gains (losses) resulted mostly from the significant volatility in the energy market and accounted for a gain of $0.03 and a loss
of $0.04 per gallon sold, respectively. In general, these gains (losses) were largely off-set with physical product sales that benefit from the
higher energy prices which drove the risk management gain (losses).
Increasing importance of renewable diesel
Renewable diesel has become an increasingly significant part of our business. Renewable diesel carries a premium price to biodiesel
as a result of a variety of factors including the ability to blend it with petroleum diesel seamlessly, better cold weather performance, and
because it generates more RINs on a per gallon basis. We estimate that our renewable diesel production facility in Geismar, Louisiana
generated more than half of our adjusted EBITDA in 2018. We experienced two fires at this facility in 2015 that each resulted in the plant
being shut down for a lengthy period. If production at this facility were interrupted again due to a fire or for any other reason, it would have
a disproportionately significant and material adverse impact on our results of operations and financial conditions.
Seasonality
Our operating results are influenced by seasonal fluctuations in the demand for biomass-based diesel. Our biodiesel sales tend to
decrease during the winter season due to reduced blending concentrations 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, renewable 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 biodiesel. In addition, most of our biodiesel production facilities are located in colder Midwestern states in proximity
to feedstock origination, and our costs of shipping can increase as more biodiesel is transported to warmer climate geographies during
winter. To mitigate some of these seasonal fluctuations, we have upgraded our Newton and Danville biorefineries to produce distilled
biodiesel from low-cost feedstocks, which has improved cold-weather performance.
RIN prices may also be subject to seasonal fluctuations. The RIN is dated for the calendar year in which it is generated, commonly
referred to as the RIN vintage. Since 20% of the annual RVO of an Obligated Party 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 the market is undersupplied. See chart below for
comparison between actual RIN generation and RVO level for biomass-based diesel as set by the EPA.
34
Year
2016
2017
2018
RIN Generation (D4
Biomass-based Diesel)
Finalized RVO level for D4
Biomass-based Diesel
2.60 billion gallons
2.50 billion gallons
2.50 billion gallons
1.90 billion gallons
2.00 billion gallons
2.10 billion gallons
Industry capacity, production and imports
Our operating results are influenced by our industry's capacity and production, including in relation to RFS2 production requirements.
Under RFS2, Obligated Parties are entitled to satisfy up to 20% of their annual requirement with prior year RINs. Biomass-based diesel
production and/or imports, as reported by EMTS, were 2.60 billion gallons for 2016, 790 million gallons higher than 2015. The amount of
biomass-based diesel produced and/or imported into the U.S. in 2017 was 2.50 billion gallons. In 2018, according to EMTS data, 2.50
billion gallons of biomass-based diesel were produced and/or imported into the U.S.
The amount of imported biodiesel gallons qualifying under RFS2 has decreased from 692.9 million gallons in 2016 to approximately
576.3 million gallons in 2017. The amount of imported biodiesel decreased further to 306.5 million gallons in the first 11 months of 2018,
according to the EIA. This significant decrease in 2018 is a result of the anti-dumping and countervailing duty trade case mentioned
previously, which eliminated the imports of biodiesel from Argentina and Indonesia in 2018.
Components of Revenues and Expenses
Continuing Operations:
We derive revenues in our Biomass-based diesel segment from the following sources:
•
•
•
•
•
•
sales of biodiesel and renewable diesel produced at our facilities, including RINs and LCFS credits, 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 and LCFS credits 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 petroleum-based products further blended with biomass-based diesel;
sales of glycerin, other co-products of the biomass-based diesel production process;
and
incentive payments from federal and state governments, including the BTC, and from the USDA Advanced Biofuel
Program.
We derive revenues in our Services segment from the following sources - primarily internally generally:
•
•
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 upgrades and
repairs to our 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 fuel 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;
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
•
35
•
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, international operations and regional offices.
Impairment of property, plant and equipment represents non-cash impairment charges of certain property, plant and equipment items.
Other income (expense), net is primarily comprised of the change in fair value of contingent considerations, gain on debt
extinguishment, changes in fair value of convertible debt conversion liability, interest expense including the accretion of convertible debt
and amortization of deferred financing costs, interest income and gain on involuntary conversion, which represents the amount of insurance
proceeds in excess of the net book value of the property damage recorded by us related to the June 2017 fire at our Madison facility.
Discontinued Operations:
Loss from Discontinued Operations was related to the research and development activities of REG Life Sciences, aimed to bring
industrial biotechnology products to market and loss on classification of the REG Life Sciences as assets available for sale.
36
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
form 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:
Income Taxes
Our income tax provision, deferred income tax assets and liabilities, and liabilities for unrecognized tax benefits represent the
Company’s best estimate of current and future income taxes to be paid. Our annual effective tax rate is based on income tax laws, statutory
tax rates, taxable income levels and tax planning opportunities available in various jurisdictions where we operate. These tax laws are
complex and require significant judgment to determine the consolidated provision for income taxes. Changes in tax laws, statutory tax
rates, and estimates of our future taxable income levels could result in actual realization of deferred taxes being materially different from
amounts provided for in the consolidated financial statements.
Deferred income taxes represent temporary differences between the tax and the financial reporting basis of assets and liabilities,
which will result in taxable or deductible amounts in the future. Deferred tax assets also include loss carryforwards and tax credits. These
assets are regularly assessed for the likelihood of recoverability from estimated future taxable income, reversal of deferred tax liabilities
and tax planning strategies. To the extent we determine that it is more likely than not a deferred income tax asset will not be realized, a
valuation allowance is established. The recoverability analysis of the deferred income tax assets and the related valuation allowances
requires significant judgment and relies on estimates.
On December 22, 2017, President Donald Trump signed into law “H.R. 1”, formerly known as the “Tax Cuts and Jobs Act” (the “Tax
Legislation”). The Tax Legislation, which was effective on January 1, 2018, significantly revises the U.S. tax code by, among other things,
lowering the corporate income tax rate from 35% to 21%, and implementing a hybrid-territorial tax system imposing a repatriation tax on
deemed repatriated earnings of foreign subsidiaries (“transition tax”). We are required to recognize the effect of the tax law changes in the
period of enactment.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts
and Jobs Act (“SAB 118”), which allows for the recording of provisional amounts during a measurement period not to extend beyond one
year of the enactment date. Although the Tax Legislation was passed late in the fourth quarter of 2017, we consider the accounting for the
transition tax to be final, along with the impact of the reduction in the corporate tax rate. As a result, the provisional tax benefit of $13.7
million recorded in the fourth quarter of 2017 has not changed.
The indefinite reinvestment in the earnings of non-US subsidiaries assertion is determined by management’s judgment about and
intentions concerning future investment in operations. Management’s judgment is that we are not indefinitely reinvested in the undistributed
earnings of our non-US subsidiaries at December 31, 2018. The assertion regarding undistributed non-US earnings does not have a material
impact on our consolidated financial statements.
Revenue Recognition
In the first quarter of 2018, we adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers
(Topic 606). Under the ASU, revenue is recognized when a customer obtains control of promised goods or services in an amount that
reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure
of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We applied the five-step
method outlined in the ASU to all contracts with customers and elected the modified retrospective implementation method. We have
generally a single performance obligation in our arrangements with customers. We believe for most of our contracts with customers,
control is transferred at a point in time, typically upon delivery to the customers. When we perform shipping and handling activities after
the transfer of control to the customers (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and
accordingly, the costs are accrued for when the related revenue is recognized. Taxes collected from customers relating to product sales and
remitted to governmental authorities are excluded from revenues. We generally expense sales commissions when incurred because the
amortization period would have been less than one year. We record these costs within selling, general and administrative expenses. The
implementation of
37
the new standard did not have any material impact on the measurement or recognition of revenue of prior periods, however additional
disclosures have been added in accordance with the ASU.
Results of Operations
Fiscal years ended December 31, 2018 and December 31, 2017
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:
Twelve Months Ended
December 31,
2018
2017
Gallons sold
Average biomass-based diesel price per gallon (BTC net benefit adjusted ASP of
$3.03 for the year ended December 31, 2018)
Revenues from continuing operations
Costs of goods sold from continuing operations
Gross profit from continuing operations
Selling, general and administrative expenses
Research and development expense
Impairment of property, plant and equipment
Income (loss) from operations
Other expense, net
Income tax benefit (expense)
Net income (loss) from continuing operations attributable to the Company
Net loss from discontinued operations attributable to the Company
Net income (loss) to the Company
Effects of participating share-based awards on continuing operations
Net income (loss) from continuing operations attributable to the Company’s
common stockholders
Net loss from discontinued operations attributable to the Company's common
stockholders
Continuing Operations:
$
$
$
$
649.2
3.43 $
2,382,987 $
1,962,996
419,991
104,702
2,037
879
312,373
(2,874)
(5,871)
303,628
(11,312)
292,316
(7,824)
295,804 $
(11,312) $
586.7
3.06
2,154,655
2,070,301
84,354
93,425
2,418
49,873
(61,362 )
(35,407 )
30,490
(66,279 )
(12,800 )
(79,079 )
—
(66,279 )
(12,800 )
Revenues. Our total revenues increased $228.3 million, or 11%, to $2,383.0 million for the year ended December 31, 2018, from $2,154.7
million for the year ended December 31, 2017. This increase was primarily due to the 2017 BTC that was earned during 2017 yet
recognized in the first quarter of 2018 when it was retroactively reinstated, coupled with a 11% increase in gallons sold, offset by lower
average selling price without the impact of the 2017 BTC. The increase in the total revenues was also negatively impacted by a significant
reduction in revenues from sales of separate RINs.
Biomass-based diesel revenues including government incentives increased $227.2 million, or 11%, to $2,380.7 million during the
year ended December 31, 2018, from $2,153.5 million for the year ended December 31, 2017. Gallons sold increased 62.5 million, or 11%,
to 649.2 million during the year ended December 31, 2018, compared to 586.7 million during the year ended December 31, 2017. The
increase in gallons sold for the year ended December 31, 2018 accounted for a revenue increase of $189.4 million using 2018 average sales
pricing. The increase in revenues was also attributable to a $338.8 million increase in government incentives revenues in 2018 as the 2017
BTC was not reinstated until February 9, 2018 and was recognized in revenues in the first quarter of 2018. Our average biomass-based
diesel sales price per gallon including the 2017 BTC net benefit increased $0.37, or 12%, to $3.43 during the year ended December 31,
2018, but decreased $0.03, or 1% excluding the 2017 BTC net benefit, compared to $3.06 during the year ended December 31, 2017. This
decrease was mainly due to the lower energy prices in 2018. The decrease in average sales price excluding the 2017 BTC net benefit from
2017 to 2018 contributed to a $17.6 million revenue decrease when applied to the number of gallons sold during 2017. The net 2017 BTC
benefits contributed to an increase in revenues of $208.9 million. Sales of separated RIN inventory were $137.9 million and $337.5 million
for the years ended December 31, 2018 and 2017, respectively, reducing the overall increase in biomass-based diesel revenues in 2018. RIN
value decreased significantly in 2018 - RIN prices declined almost 60% year over year and we believe RIN prices have been inversely
correlated to the HOBO spread.
38
Costs of goods sold. Our costs of goods sold decreased $107.3 million, or 5%, to $1,963.0 million for the year ended December 31, 2018,
from $2,070.3 million for the year ended December 31, 2017. Costs of goods sold as a percentage of revenues were 82% and 96% for the
years ended December 31, 2018 and 2017, respectively. The significant drop in costs of goods sold as a percentage of revenues is largely
due to the recognition of the 2017 BTC in full as revenues in the first quarter of 2018 and lower feedstock costs as discussed below,
coupled with risk management gains in 2018 as compared to losses in 2017.
Biomass-based diesel costs of goods sold decreased in 2018 despite a 11% increase in gallons sold, largely driven by lower feedstock
costs and gains from risk management activity. Average lower cost feedstocks prices for the year ended December 31, 2018 were $0.25 per
pound, compared to $0.29 per pound for the year ended December 31, 2017. Average soybean oil costs for the years ended December 31,
2018 and December 31, 2017 were $0.31 and $0.33 per pound, respectively. We recorded risk management gains of $18.4 million from our
derivative financial instrument activity in 2018, compared to risk management losses of $23.4 million for 2017. This fluctuation in risk
management gains and losses was mainly due to the volatility in the energy and commodities market. Costs of goods sold for separated RIN
inventory sales were $75.7 million and $264.8 million for the years ending December 31, 2018 and 2017, respectively.
Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses were $104.7 million for the year
ended December 31, 2018, compared to $93.4 million for the year ended December 31, 2017. SG&A expenses increased $11.3 million, or
12%, for the year ended December 31, 2018 as compared to the year ended December 31, 2017. As a percentage of revenues, our SG&A
expenses were 4.4% and 4.3% for 2018 and 2017, respectively. The increase in 2018 year over year was driven largely by higher employee
related compensation, arising from the Company's strong financial performance in 2017.
Impairment of property, plant and equipment. The amount of property, plant and equipment impairment recorded in 2018 was
approximately $0.9 million mainly due to the impairment charges related to certain identified plant property, plant and equipment at our
current facilities as the carrying amounts of those assets were deemed not recoverable. During the fourth quarter of 2017, we recorded
impairment charges of $44.6 million against property, plant and equipment assets at our partially completed facility in New Orleans,
Louisiana. The impairment charge resulted from the probability that the project would not be completed in the near term as a result of other
strategic investment priorities, such as potential expansion of our renewable diesel facility at Geismar, coupled with limited financing
availability and construction cost requirements. In addition, during 2017, we recorded impairment charges of $5.3 million against certain
identified plant property, plant and equipment at our other facilities as the carrying amounts of those assets were deemed not recoverable.
Other income (expense), net. Other expense was $2.9 million for the year ended December 31, 2018, compared to other expense of $35.4
million for the year ended December 31, 2017. Other income (expense) is primarily comprised of change in fair value of contingent
consideration, gain on debt extinguishment, gain on involuntary conversion, change in fair value of convertible debt conversion liability,
interest expense, interest income and other non-operating items. On December 8, 2017, at the special meeting of stockholders, we obtained
approval from our stockholders to remove the common stock issuance restrictions in connection with conversions of the 2036 Convertible
Senior Notes. Accordingly, the embedded conversion option was reclassified into Additional Paid-in Capital at December 8, 2017,
resulting in a $18.8 million expense in 2017 related to the fair value adjustment on the convertible debt conversion liability. There was no
such expense in 2018. The other expense in 2018 was offset by debt extinguishment gains related to our buyback of the 2036 Convertible
Senior Notes.
Income tax benefit (expense). Income tax expense recorded during the year ended December 31, 2018 was $5.9 million, compared to
income tax benefit of $30.5 million for the year ended December 31, 2017. The primary difference resulted from the enactment of the Tax
Cuts and Jobs Act in the fourth quarter of 2017, which reduced the U.S. corporate income tax rate from 35% to 21%, causing a re-
measurement of deferred tax liabilities, and the release of valuation allowance due to the reclassification of the 2036 Convertible Senior
Notes to Additional Paid-in Capital. At December 31, 2018 and 2017, we had net deferred income tax assets of approximately $275.2
million and $257.2 million, respectively, with a valuation allowance of $283.6 million and $265.4 million, respectively. As a result, our
effective tax rate was 2.0% and 27.8% for the years ended December 31, 2018 and 2017, respectively.
Effects of participating share-based awards. Effects of participating restricted stock units was $7.8 and $0.0 million for the years ended
December 31, 2018 and 2017, respectively.
39
Discontinued Operations:
In the fourth quarter of 2018, our Board of Directors authorized us to pursue a plan to sell the core assets and business of REG Life
Sciences, the main component of our Renewable Chemicals segment. This represents a strategic shift in our business. As a result, REG Life
Sciences business is classified as discontinued operations. Net loss from discontinued operations included an impairment loss, net of tax, of
$11.2 million reflecting the fair value of the estimated proceeds from a sale, net of costs to sell. Net loss from discontinued operations for
the year ended December 31, 2018 also included a loss of $14.0 million primarily related to the research and development activities of
REG Life Sciences, which was offset by a change in value of contingent consideration of $13.9 million as a result of shortened duration to
the final earnout determination date and reduced commercialization probability. For the year ended December 31, 2017, the net loss was
$12.8 million. The net loss in both years were related to research and development expenses to bring industrial biotechnology products to
market.
Fiscal years ended December 31, 2017 and December 31, 2016
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 biomass-based diesel price per gallon
Revenues from continuing operations
Costs of goods sold from continuing operations
Gross profit from continuing operations
Selling, general and administrative expenses
Research and development expense
Impairment of property, plant and equipment
Income (loss) from operations
Other income (expense), net
Income tax benefit (expense)
Net income (loss) from continuing operations
Less---Net income attributable to noncontrolling interest
Net income (loss) from continuing operations attributable to the Company
Net loss from discontinued operations attributable to the Company
Net income (loss) to the Company
$
$
Twelve Months Ended
December 31,
2017
2016
586.7
3.06 $
567.1
3.17
2,154,655 $
2,070,301
84,354
93,425
2,418
49,873
(61,362)
(35,407)
30,490
(66,279)
—
(66,279)
(12,800)
(79,079)
2,039,232
1,867,847
171,385
88,285
4,890
17,893
60,317
7,792
(4,268)
63,841
386
63,455
(19,128)
44,327
Effects of participating share-based awards on continuing operations
Net income (loss) from continuing operations attributable to the Company’s common
stockholders
Net loss from discontinued operations attributable to the Company's common stockholders
—
(1,251)
$
$
(66,279) $
(12,800) $
62,204
(19,128)
Continuing Operations:
Revenues. Our total revenues increased $115.4 million, or 6%, to $2,154.7 million for the year ended December 31, 2017, from $2,039.2
million for the year ended December 31, 2016. This increase was primarily due to a 3% increase in gallons sold, offset by a significant drop
in government incentives revenues due to the BTC lapsing through 2017 and lower average selling price. The majority of the increase in the
gallons sold consisted of renewable diesel gallons produced at our Geismar facility, which operated at higher utilization rates throughout
2017 compared to 2016.
Biomass-based diesel revenues including government incentives increased $114.5 million, or 6%, to $2,153.5 million during the year
ended December 31, 2017, from $2,039.1 million for the year ended December 31, 2016. Gallons sold increased 19.6 million, or 3%, to
586.7 million during the year ended December 31, 2017, compared to 567.1 million during the year ended December 31, 2016. The
increase in gallons sold for the year ended December 31, 2017 accounted for a revenue increase of $60.0 million using 2017 average sales
pricing. The increase in revenues was offset by a $317.9 million decrease in government incentives revenues in 2017 as the 2017 BTC was
not reinstated until February 9, 2018. Our average biomass-
40
based diesel sales price per gallon decreased $0.11, or 3%, to $3.06 during the year ended December 31, 2017, compared to $3.17 during
the year ended December 31, 2016, mainly due to the impact of the lapsing of the BTC during 2017. The decrease in average sales price
from 2016 to 2017 contributed to a $62.4 million revenue decrease when applied to the number of gallons sold during 2016. Sales of
separated RIN inventory were $337.5 million and $274.8 million for the years ended December 31, 2017 and 2016, respectively,
contributing to the overall increase in biomass-based diesel revenues.
Costs of goods sold. Our costs of goods sold increased $202.5 million, or 11%, to $2,070.3 million for the year ended December 31, 2017,
from $1,867.8 million for the year ended December 31, 2016. Costs of goods sold as a percentage of revenues were 96% and 92% for the
years ended December 31, 2017 and 2016, respectively. The increase in costs of goods sold as a percentage of revenues is largely due to the
reduction in government incentives revenue for 2017 as the BTC was not reinstated for 2017 until February 9, 2018.
Biomass-based diesel costs of goods sold increased in 2017 mainly due to a 3% increase in gallons sold. Average lower- cost
feedstocks prices for the year ended December 31, 2017 were $0.29 per pound, compared to $0.28 per pound for the year ended
December 31, 2016. Average soybean oil costs for the years ended December 31, 2017 and December 31, 2016 were both $0.33 per pound.
We recorded risk management losses of $23.4 million from our derivative financial instrument activity in 2017, compared to risk
management losses of $35.4 million for 2016. This fluctuation in risk management gains and losses was mainly due to the volatility in the
commodities market. In addition, the movements in the value of RINs during 2017 resulted in a $4.5 million write-down to lower of cost or
net realizable value, which was mainly based on the future contracted RIN prices, on RIN inventory held throughout the year compared to
a write-down of $19.4 million during 2016. Costs of goods sold for separated RIN inventory sales excluding lower of cost write-downs
were $260.3 million and $231.4 million for the years ending December 31, 2017 and 2016, respectively.
Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses were $93.4 million for the year
ended December 31, 2017, compared to $88.3 million for the year ended December 31, 2016. SG&A expenses increased $5.1 million, or
6%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016. As a percentage of revenues, our SG&A
expenses were 4.3% for 2017 and 4.3% for 2016. The increase year over year in SG&A expenses was primarily due to executive severance
costs and increases in costs related to the Company's efforts on regulatory activities and an ITC trade case.
Impairment of property, plant and equipment. During the fourth quarter of 2017, we recorded impairment charges of $44.6 million against
property, plant and equipment assets at our partially completed facility in New Orleans, Louisiana. The impairment charge resulted from
the probability that the project would not be completed in the near term as a result of other strategic investment priorities, such as potential
expansion of our renewable diesel facility at Geismar, coupled with limited financing availability and construction cost requirements. In
addition during 2017, we recorded impairment charges of $5.2 million against certain identified plant property, plant and equipment at our
other facilities as the carrying amounts of those assets were deemed not recoverable. The amount of property, plant and equipment
impairment recorded in 2016 was approximately $17.9 million mainly due to the impairment charges related to our partially completed
facility in Emporia, Kansas.
Other income (expense), net. Other expense was $35.4 million for the year ended December 31, 2017, compared to other income of $7.8
million for the year ended December 31, 2016. Other income (expense) 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 expense of $43.2 million
was mainly due to a loss in fair value of convertible debt conversion liability of $18.8 million for the year ended December 31, 2017,
compared to a gain in fair value of $13.0 million for the year ended December 31, 2016 related to our 2036 Convertible Senior Notes. In
addition, the increase in the overall other expense was also attributable to a reduced gain in involuntary conversion of $4.6 million and an
increase of $2.8 million in interest expense.
Income tax expense. There was an income tax benefit recorded during the year ended December 31, 2017 of $30.5 million, compared to an
income tax expense of $4.3 million for the year ended December 31, 2016. The primary difference resulted from changes due to the Tax
Cuts and Jobs Act where we saw a reduction in U.S. corporate income tax rate from 35% to 21%, including a remeasurement of deferred tax
liabilities and the release of valuation allowance due to the reclassification of the 2036 Convertible Senior Notes to Additional Paid-in
Capital. At December 31, 2017 and 2016, we had net deferred income tax assets of approximately $257.2 million and $344.8 million,
respectively, with a valuation allowance of $265.4 million and $365.0 million, respectively. As a result, our effective tax rate was 27.8%
and 8.7% for the years ended December 31, 2017 and 2016, respectively.
Effects of participating share-based awards. Effects of participating restricted stock units was $0.0 million and $1.3 million for the years
ended December 31, 2017 and 2016, respectively.
Discontinued Operations:
41
Net loss from discontinued operations was attributable to the research and development activities at the REG Life Sciences business.
The decrease in the net loss compared to 2016 was attributable to management's cost containment efforts and an increase in joint
development agreement revenues.
Non - GAAP Financial Measures
Adjusted EBITDA
Earnings before interest, taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA are not measures of financial
performance under GAAP. We use EBITDA and EBITDA adjusted for certain additional items, identified in the table below, or Adjusted
EBITDA, as a supplemental performance measure. We present EBITDA and Adjusted EBITDA because we believe they assist 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.
42
The following table provides our EBITDA and Adjusted EBITDA for the periods presented, as well as a reconciliation to net income
(loss):
(In thousands)
Net income (loss)
attributable to the
Company
Adjustments:
Interest expense
Income tax
(benefit)
expense
Depreciation from
continuing and
discontinued
operations
Amortization from
continuing and
discontinued
operations
EBITDA
Gain on
involuntary
conversion
Gain on sale of
assets
Change in fair
value of
convertible debt
conversion
liability
Change in fair
value of
contingent
consideration
from continuing
and
discontinued
operations
Gain (loss) on debt
extinguishment
Other income
(expense), net
Impairment of
assets
Impairment loss on
assets classified
as held for sale
Loss on the
Geismar lease
termination
Straight-line lease
expense
Executive
1Q-2018
2Q-2018
3Q-2018
4Q-2018
2018
1Q-2017 2Q-2017 3Q-2017 4Q-2017
2017
Year ended
December 31,
Year ended
December 31,
$ 214,389 $
33,850
$
25,003
$
19,074
$
292,316 $ (15,914 ) $ (34,809 ) $ (11,373 ) $ (16,983 ) $
(79,079 )
4,651
4,925
4,003
3,955
17,534
4,536
4,479
4,725
5,015
18,755
(1,203)
3,835
854
2,385
5,871
1,075
1,960
(115)
(33,410 )
(30,490 )
8,859
9,124
9,097
9,724
36,804
8,423
8,523
8,639
8,698
34,283
308
227,004
310
318
311
52,044
39,275
35,449
1,247
353,772
127
(1,753)
149
(19,698 )
307
2,183
305
(36,375 )
(4,000)
(454)
(990)
—
—
(13 )
(3)
(2)
(4,457)
(1,005)
—
—
—
—
(942)
(4,387)
—
—
888
(55,643 )
(5,329)
—
—
—
—
—
—
172
32,546
(8,560)
(5,325)
18,833
(1,540)
(7,129)
(4,566)
444
(12,791 )
589
(24 )
1,433
486
232
(2,337)
(788)
(3,404)
(6,297)
—
(222)
(2,066)
(486)
(1,243)
(4,017)
320
—
(32 )
—
(12 )
—
742
2,484
—
1,018
—
—
—
879
879
—
1,341
—
48,532
49,873
—
—
—
11,226
11,226
—
—
—
—
—
—
(33 )
—
(3)
50
—
(61 )
—
—
(31 )
—
—
—
3,967
(128)
215
(32 )
—
—
(85 )
—
(35 )
(85 )
—
2,420
991
2,203
1,227
1,188
6,412
1,308
1,688
2,023
1,890
3,967
(237)
3,411
6,909
165
severance
Non-cash stock
compensation
Adjusted EBITDA
excluding 2017
BTC allocation $ 222,410 $
1,794
42,308
$
34,588
$
44,503
$
343,809 $
604 $ 19,703 $
(1,540) $
6,519 $
25,286
Biodiesel tax
credit (1)
Adjusted EBITDA
(204,936)
17,474
$
$
—
—
—
42,308
$
34,588
$
44,503
$
(204,936)
59,365
138,873 $ 37,332 $ 79,068 $ 54,965 $ 58,857 $
56,505
52,338
36,728
204,936
230,222
(1) On February 9, 2018, the Biodiesel Mixture Excise Tax Credit ("BTC") was retroactively reinstated for the 2017 calendar year.
The retroactive credit for 2017 resulted in a net benefit to us that was recognized in the first quarter of 2018 for GAAP purposes.
Because this credit relates to the 2017 full year operating performance and results, we removed the net benefit of the 2017 BTC
from our 2018 results and allocated a portion of the net benefit of the tax credit to each of the four quarters of 2017 based upon
gallons sold.
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
43
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 or the impact of certain cash charges 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, 2018 and 2017, the total of our cash and cash equivalents and marketable securities was $174.5
million and $77.6 million, respectively. At December 31, 2018, we had total assets of $1,107.1 million, compared to $1,005.6 million at
December 31, 2017. At December 31, 2018, we had term debt before debt issuance costs of $185.8 million, compared to term debt before
debt issuance costs of $228.6 million at December 31, 2017. Our debt is subject to various financial covenants. We were in compliance
with all financial covenants associated with the borrowings as of December 31, 2018.
Our term debt (in thousands) is as follows:
December 31,
2018
2017
4.00% Convertible Senior Notes, $96,300 face amount, due in June 2036
2.75% Convertible Senior Notes, $67,527 face amount, due in June 2019
REG Danville term loan, secured, variable interest rate of LIBOR plus 4%, due in July 2022
REG Newton term loan, secured, variable interest rate of LIBOR plus 4%, due in December 2018
REG Ralston term loan, variable interest rate of LIBOR plus 2.25%, due in October 2025
REG Grays Harbor term loan, variable interest of minimum 3.5% or Prime Rate plus 0.25%, due in
May 2022
REG Capital term loan, fixed interest rate of 3.99%, due in January 2028
Other
Total debt before debt issuance costs
$
75,477 $
66,361
8,964
—
18,948
8,828
7,185
54
$
185,817 $
116,255
69,859
11,460
8,189
6,183
7,882
7,400
1,332
228,560
In addition, we had revolving debt (in thousands) as follows:
Amount outstanding under lines of credit
Maximum available to be borrowed under lines of credit
2019 Convertible Senior Notes
December 31,
2018
2017
$
$
14,250 $
114,889 $
65,525
60,839
In June 2014, we issued $143.8 million in convertible senior notes (the “2019 Convertible Senior Notes”) with a maturity date of June
15, 2019, unless earlier converted or repurchased. The 2019 Convertible Senior 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 $1,000
principal amount of 2019 Convertible Senior Notes, which represents an initial conversion price of approximately $13.26 per share.
During 2018, we bought back $6.3 million of principal of the 2019 Convertible Senior Notes. These Notes will be converted on and
after December 15, 2018 until maturity. In accordance with the indenture governing such Notes, we have
44
elected to settle all conversions of each $1,000 principal amount of Notes being converted on or after October 23, 2018, with $1,000 in cash
and any conversion value in excess of that amount in shares of our common stock.
2036 Convertible Senior Notes
In June 2016, we issued $152.0 million aggregate principal amount of 4.00% Convertible Senior Notes due 2036 (the “2036
Convertible Senior Notes”) in a private offering to qualified institutional buyers. The 2036 Convertible Senior Notes bear interest at a rate
of 4.00% per year payable semi-annually in arrears on June 15 and December 15 of each year, beginning December 15, 2016. The notes
will mature on June 15, 2036, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The initial
conversion rate is 92.8074 common shares per $1,000 principal amount of 2036 Convertible Senior Notes (equivalent to an initial
conversion price of approximately $10.78 per common share).
During 2018, we used $110.8 million under the 2017 and 2018 Programs to buy back the $55.7 million of principal of the 2036
Convertible Senior Notes, reflecting conversion premium, after tax impact, of $70.0 million and gains on debt extinguishment of $6.4
million.
We may not redeem the 2036 Convertible Senior Notes prior to June 15, 2021. Holders of the 2036 Convertible Senior Notes will
have the right to require us to repurchase for cash all or some of their notes at 100% of their principal, plus any accrued and unpaid interest
on each of June 15, 2021, June 15, 2026 and June 15, 2031. Holders of the 2036 Convertible Senior Notes will have the right to require us
to repurchase for cash all or some of their notes at 100% of their principal, plus any accrued and unpaid interest upon the occurrence of
certain fundamental changes.
The 2036 Convertible Senior Notes will become convertible in the subsequent quarter if the closing price of our common stock
exceeds $14.01, 130% of the Convertible Senior Notes' initial conversion price, for at least 20 trading days during the 30 consecutive
trading days prior to each quarter-end date. If the 2036 Convertible Senior Notes become convertible and should the holders elect to
convert, our current intent and policy is to settle the principal amount the 2036 Convertible Senior Notes in cash, with the remaining value
satisfied at our option in cash, stock or a combination of cash and stock. As of December 31, 2018, the early conversion event was met
based on the our stock price and as a result, the 2036 Convertible Senior Notes have been classified as a current liability on our
Consolidated Balance Sheets at December 31, 2018.
Cash flow. The following table presents information regarding our cash flows and cash, cash equivalents and restricted cash for the
years ended December 31, 2018, 2017 and 2016:
Cash provided from operations
Cash used in investing activities
Cash provided from (used in) financing activities
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash end of period
Year Ended
December 31,
2018
2017
2016
(in thousands)
$
$
365,534 $
(97,197)
(219,205)
49,132
126,575 $
29,796 $
(63,869)
(10,158)
(44,231)
77,627 $
87,851
(65,723)
45,624
67,752
120,210
The historical cash flows shown above illustrate that we have consistently generated positive cash flows from operations. In 2018, we
generated $365.5 million of cash from operating activities, a significant increase from 2017 and 2016, largely driven by the net income of
$292.3 million, compared to net loss of $79.1 million in 2017 and net income of $44.7 million in 2016. The primary impact on net income
for the year ended December 31, 2018 was related to the reinstatement of the 2017 BTC and improved margins primarily related to lower
feedstock costs during 2018. During 2018, we received approximately $381.8 million related to the reinstatement of the 2017 BTC related
to continuing operations. Of this amount received, we paid $150.8 million to our vendors and customers. The increase in net cash flows
used in investing activity was primarily impacted by the net investment in marketable securities of $50.7 million, compared to no
investments in marketable securities in 2017 and 2016. This increase was partially offset by a reduction in cash paid for property, plant and
equipment of $46.5 million, compared to $67.6 million and $60.4 million in 2017 and 2016, respectively. The primary change in financing
activities for 2018 included $25.0 million used to buy back shares of our common stock, $6.7 million used to buy back $6.3 million
principal amount of the 2019 Convertible Senior Notes and $110.8 million used to buy back $55.7 million principal amount of the 2036
Convertible Senior Notes. Also impacting financing activities were net repayments on revolving lines of credit of $48.2 million for the year
ended December 31, 2018, compared to net borrowings of $8.0 million in 2017 and $26.4 million in 2016.
45
Capital expenditures: During 2018, our capital expenditures were $46.5 million involving various projects, the majority of which
were at the Madison, Ralston, Grays Harbor and Geismar facilities. During 2017, our capital expenditures were $67.6 million involving
various projects, the majority of which were upgrades to our facilities in New Boston, Madison, Seneca, Geismar, Germany and Ralston
facilities. In June 2017, we completed an acquisition for $20 million of approximately 82 acres of land in Geismar, Louisiana, which
includes the land our Geismar biorefinery previously leased for its operations, as well as more than 61 adjacent acres, which we plan to
improve and utilize to support existing production capacity and future expansion opportunities. During 2016, our capital expenditures were
$60.7 million, including $13.9 million towards the $34.5 million upgrade to our Danville facility and $9.1 million in repairs and upgrades
to bring our Geismar facility back on-line in March 2016. Our budgeted capital expenditures for 2019 are between $75.0 million to $85.0
million, which includes investments in plant optimization projects, environmental, health and safety projects and plant maintenance across a
variety of facilities. This budgeted amount does not include potential investments under evaluation in a potential joint venture with Phillips
66 to construct a renewable diesel production facility in Washington state or in the possible expansion of production capacity at our
renewable diesel facility in Geismar, Louisiana.
Contractual Obligations:
The following table describes our commitments to settle contractual obligations in cash as of December 31, 2018:
Long-Term Debt (1)
Contingent Consideration (2)
Operating Lease Obligations (3)
Purchase Obligations (4)
Total
Less Than
1 Year
Payments Due by Period
Years 1-3
(In thousands)
Years
4-5
More Than
5 Years
$
$
210,871 $
9,861
64,336
16,837
301,905 $
152,678 $
9,861
20,326
3,748
186,613 $
26,837 $
—
27,868
6,274
60,979 $
5,823 $
—
4,351
5,952
16,126 $
25,533
—
11,791
863
38,187
(1)
(2)
(3)
(4)
See Note 12 of Item 8 for additional detail. Includes fixed interest associated with these obligations. The 2036 convertible senior
notes, although not contractually mature in 2019 are convertible at the option of the holder and therefore represented as a
contractual obligation in 2019.
Largely represents contingent consideration relating to our acquisition of Syntroleum/Dynamic Fuels and
Madison.
Operating lease obligations consist of leases of distribution terminals, biomass-based diesel storage facilities, railcars and
vehicles.
Purchase obligations for our production
facilities.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
is material to investors other than certain land and equipment operating leases. Upon adoption of ASU 842, based on our lease portfolio as
of December 31, 2018, an initial balance of lease liabilities of approximately $52 million, right-of-use assets of approximately $42 million,
net of a reclassification of unfavorable lease obligations of $3 million, and an approximate negative impact on beginning retained earnings
of $6 million primarily related to the impairment of a right-of-use asset will be recorded on our balance sheet.
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 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
46
Over the period from January 2014 through December 2018, average diesel prices based on Platts reported pricing for Group 3
(Midwest) have ranged from a high of approximately $3.21 per gallon reported in November 2014 to a low of approximately $0.85 per
gallon in January 2016, with prices averaging $1.90 per gallon during this period. Over the period January 2014 to December 2018, soybean
oil prices (based on daily closing nearby futures prices on the Chicago Board Of Trade for crude soybean oil) have ranged from a high of
$0.44 per pound, or $3.32 per gallon of biodiesel, in March 2014 to a low of $0.26 per pound, or $1.95 per gallon of biodiesel, in September
2015 assuming 7.5 pounds of soybean oil yields one gallon of biodiesel with closing sales prices averaging $0.33 per pound, or $2.45 per
gallon. Over the period from January 2014 through December 2018, animal fat prices (based on prices from The Jacobsen Missouri River,
for choice white grease) have ranged from a high of $0.41 per pound in May 2014 to a low of $0.16 per pound in December 2015, with
sales prices averaging $0.24 per pound during this period. Over the period from January 2014 through December 2018, RIN prices (based
on prices from OPIS) have ranged from a high of $1.26 in December 2016 to a low of $0.31 in October 2018, with sales prices averaging
$0.75 during this period.
Adverse fluctuations in feedstock prices 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 2018. 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:
Total Biomass-based Diesel
Total Lower-Cost Feedstocks
Total Canola Oil
Total Soy Oil
2018
Volume
(in millions)
649.2
3,024.4
525.2
346.2
Units
gallons
pounds
pounds
pounds
Hypothetical
Adverse
Change in
Price
Impact on Annual
Gross
Profit (in
millions)
Percentage
Change in
Gross
Profit
10% $
10% $
10% $
10% $
(196.7)
(76.1)
(18.4)
(10.8)
(46.8)%
(18.1)%
(4.4)%
(2.6)%
We attempt to protect operating margins by entering into risk management contracts that reduce the risk of price volatility related to
anticipated purchases of 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 NYMEX NY Harbor ULSD and CBOT 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 NYMEX NY Harbor ULSD would have a positive effect of $14.0
million on the fair value of these instruments at December 31, 2018. A 10% adverse change in the price of CBOT Soybean Oil would have
had a negative effect of $6.1 million on the fair value of these instruments December 31, 2018. A 10% adverse change in the price of
NYMEX Natural Gas would have had an immaterial impact on our gross margin at December 31, 2018.
Interest Rate Risk
Our weighted average interest rate on variable rate debt balances during 2018 was 5.12% and a hypothetical increase in interest rate of
10% would not have a material effect on our annual interest expenses or 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.
47
ITEM 8.
Financial Statements and Supplementary
Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and Board of Directors of
Renewable Energy Group, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Renewable Energy Group, Inc. and subsidiaries (the “Company”) as of
December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity,
and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the
"financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2018, 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, 2018, based on the criteria
established in Internal Control - Integrated Framework (2013) issued by COSO.
Basis for Opinions
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 are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
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, and 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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.
48
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Des Moines, Iowa
March 7, 2019
We have served as the Company's auditor since 2006.
49
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2018 AND 2017
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Marketable securities
Accounts receivable (net of allowance for doubtful accounts of $673 and $1,235, respectively)
Inventories
Prepaid expenses and other assets
Restricted cash
Current assets held for sale
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other assets
Non-current assets held for sale
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Revolving lines of credit
Current maturities of long-term debt
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Current liabilities held for sale
Total current liabilities
Unfavorable lease obligation
Deferred income taxes
Long-term contingent consideration for acquisitions
Long-term debt (net of debt issuance costs of $3,390 and $6,627, respectively)
Other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (NOTE 20)
EQUITY:
Common stock ($.0001 par value; 300,000,000 shares authorized; 37,318,942 and 38,837,749 shares outstanding, respectively)
Common stock—additional paid-in-capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock (11,524,975 and 9,363,166 shares, respectively)
Total equity attributable to the Company's shareholders
TOTAL LIABILITIES AND EQUITY
See notes to consolidated financial statements.
50
2018
2017
$
123,575 $
50,932
74,551
168,900
41,169
3,000
3,250
465,377
590,723
16,080
13,646
21,270
—
77,627
—
90,648
135,547
51,880
—
—
355,702
586,361
16,080
12,412
19,290
15,751
$
1,107,096
$
1,005,596
$
$
14,250
149,006
95,866
35,256
300
—
294,678
2,259
8,410
—
33,421
3,075
341,843
5
451,427
427,244
(1,656)
(111,767)
765,253
65,525
13,397
84,608
25,279
2,218
13,908
204,935
3,388
8,192
8,849
208,536
4,114
438,014
5
515,452
134,928
278
(83,081 )
567,582
$
1,107,096
$
1,005,596
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
REVENUES:
Biomass-based diesel sales
Separated RIN sales
Biomass-based diesel government incentives
Other revenues
COSTS OF GOODS SOLD:
Biomass-based diesel
Separated RINs
Other costs of goods sold
GROSS PROFIT
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
RESEARCH AND DEVELOPMENT EXPENSE
IMPAIRMENT OF PROPERTY, PLANT, AND EQUIPMENT
INCOME (LOSS) FROM OPERATIONS
OTHER INCOME (EXPENSE), NET:
Change in fair value of contingent consideration
Change in fair value of convertible debt conversion liability
Gain on debt extinguishment
Gain on involuntary conversion
Other income (expense)
Interest expense
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
INCOME TAX BENEFIT (EXPENSE)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE NONCONTROLLING INTEREST
LESS—NET INCOME FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NONCONTROLLING INTEREST
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
DISCONTINUED OPERATIONS (NOTE 7):
Loss on operations of discontinued operations
Impairment loss on assets classified as held for sale
Income tax expense
NET LOSS ON DISCONTINUED OPERATIONS
NET INCOME (LOSS) TO THE COMPANY
LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS ON CONTINUING OPERATIONS
NET INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS
NET LOSS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS
Net income (loss) per share from continuing operations attributable to common stockholders:
Basic
Diluted
Net loss per share from discontinued operations attributable to common stockholders:
Basic
Diluted
2018
2017
2016
$
1,875,316
$
1,787,308
$
1,417,595
137,895
367,490
337,501
28,728
274,800
346,672
2,380,701
2,153,537
2,039,067
2,286
1,118
165
2,382,987
2,154,655
2,039,232
1,887,292
1,805,408
75,704
264,765
—
128
1,962,996
2,070,301
419,991
104,702
2,037
879
312,373
(1,117 )
—
6,297
4,457
5,023
(17,534 )
(2,874 )
309,499
(5,871 )
303,628
—
303,628
(86 )
(11,226 )
—
(11,312 )
292,316
84,354
93,425
2,418
49,873
(61,362 )
(2,151 )
(18,833 )
—
5,329
(997 )
(18,755 )
(35,407 )
(96,769 )
30,490
(66,279 )
—
(66,279 )
(12,800 )
—
—
(12,800 )
(79,079 )
(7,824 )
$
295,804
(11,312 ) $
—
(66,279 ) $
(12,800 ) $
7.85
6.78
$
$
(1.71 ) $
(1.71 ) $
(0.30 ) $
(0.30 ) $
(0.33 ) $
(0.33 ) $
$
$
$
$
$
$
1,616,989
250,809
49
1,867,847
171,385
88,285
4,890
17,893
60,317
(1,919 )
13,045
2,331
9,894
428
(15,987 )
7,792
68,109
(4,268 )
63,841
386
63,455
(19,128 )
—
—
(19,128 )
44,327
(1,251 )
62,204
(19,128 )
1.52
1.52
(0.47 )
(0.47 )
Weighted-average shares used to compute net income (loss) per share from continuing operations attributable to common stockholders:
Basic
Diluted
Weighted-average shares used to compute net loss per share from discontinued operations attributable to common stockholders:
Basic
Diluted
37,687,552
38,731,015
40,897,549
43,653,720
38,731,015
40,902,860
37,687,552
38,731,015
40,897,549
37,687,552
38,731,015
40,897,549
See notes to consolidated financial statements.
51
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(IN THOUSANDS)
Net income (loss) before noncontrolling interest
Unrealized losses on marketable securities, net of taxes of $0, $0 and $0,
respectively
Foreign currency translation adjustments
Other comprehensive income (loss)
Comprehensive income (loss)
Less—Comprehensive loss attributable to noncontrolling interest
Comprehensive income (loss) attributable to the Company
2018
292,316 $
2017
(79,079) $
2016
44,713
$
(28)
(1,906)
(1,934)
290,382
—
—
6,029
6,029
(73,050)
—
$
290,382 $
(73,050) $
—
(1,848)
(1,848)
42,865
(106)
42,971
See notes to consolidated financial statements.
52
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016 (IN THOUSANDS EXCEPT SHARE AND PER SHARE
AMOUNTS)
Company Stockholders’ Equity
BALANCE, January 1, 2016
Issuance of common stock
Issuance of common stock in acquisitions
Conversion of restricted stock units to
common stock (net of 69,307 shares of
treasury stock purchased)
Partial termination of capped call options
(inclusive of tax impact of $116)
Convertible debt extinguishment impact (net
of tax impact of $2,144)
Treasury stock activity
Acquisition of noncontrolling interest
Stock compensation expense
Foreign currency translation and other
adjustment
Net income
BALANCE, December 31, 2016
Conversion of restricted stock units to
common stock (net of 71,112 shares of
treasury stock purchased)
Settlement of stock appreciation rights in
common stock (net of 35,955 shares of
treasury stock purchased)
Acquisition of noncontrolling interest
Impact of 2036 Senior Notes conversion
liability reclassification (net of tax impact of
$18,025)
Stock compensation expense
Foreign currency translation adjustment
Net loss
BALANCE, December 31, 2017
Conversion of restricted stock units to
common stock (net of 146,999 shares of
treasury stock purchased)
Settlement of stock appreciation rights in
common stock (net of 62,866 shares of
treasury stock purchased)
Convertible debt extinguishment impact (net
of tax of $5,498)
Treasury stock activity
Partial termination of capped call options
Stock compensation expense
Foreign currency translation adjustment
Net change in unrealized losses on marketable
securities
Net income
Common
Stock
Shares
Common
Stock
Common
Stock-
Additional
Paid-in
Capital
474,367 $169,680 $
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
43,837,714 $
33,973
500,000
180,049
—
—
(5,998,323 )
—
—
—
—
38,553,413
4 $
—
1
—
—
—
—
—
—
—
—
5
316
4,050
—
1,863
(5,560 )
—
—
5,896
—
—
—
—
—
—
—
—
Treasury
Stock
Noncontrolling
Interest
(4,009 ) $ (28,762 ) $
2,730
—
—
—
—
Total
$614,010
316
4,051
—
—
—
(767 )
—
(767 )
—
—
—
—
—
—
—
1,863
—
(52,295 )
—
—
—
—
(179 )
—
(5,560 )
(52,295 )
(179 )
5,896
(26 )
—
—
44,327
480,906 214,007
(1,742 )
—
(5,751 )
—
—
(81,824 )
(106 )
386
2,831
(1,874 )
44,713
610,174
210,611
—
—
—
—
(872 )
—
(872 )
73,725
—
—
—
—
—
38,837,749
—
—
—
—
—
—
5
—
(271 )
—
—
—
—
(385 )
—
—
(2,831 )
(385 )
(3,102 )
27,908
6,909
—
—
—
—
—
(79,079 )
515,452 134,928
—
—
6,029
—
278
—
—
—
—
(83,081 )
6,909
27,908
—
—
—
—
(79,079 )
— 567,582
6,029
293,717
—
—
—
—
(2,280 )
—
(2,280 )
140,332
—
(1,937,844 )
(15,012 )
—
—
—
—
—
(70,689 )
—
252
6,412
—
—
—
—
—
—
—
—
—
— 292,316
—
—
—
—
—
—
—
—
5 $
See notes to consolidated financial statements.
53
—
(1,191 )
—
(1,191 )
—
—
—
—
(1,906 )
(28 )
—
—
(25,048 )
(167 )
—
—
—
—
—
—
—
—
—
(70,689 )
(25,048 )
85
6,412
(1,906 )
—
(28 )
— 292,316
— $765,253
BALANCE, December 31, 2018
37,318,942 $
451,427 $427,244 $
(1,656 ) $(111,767) $
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
2018
2017
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) including noncontrolling interest
Net loss from discontinuing operations
Net income (loss) from continuing operations
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
$
$
292,316
(11,312 )
303,628
(79,079 ) $
(12,800 )
(66,279 )
Depreciation expense
Amortization expense of assets and liabilities, net
Accretion of asset retirement obligations
Accretion of convertible note discount
Accretion of marketable securities
Impairment of property, plant and equipment, net
Provision (benefit) for doubtful accounts
Stock compensation expense
Deferred tax expense (benefits)
Change in fair value of contingent consideration
Gain on involuntary conversion
Gain on sales of assets
Change in fair value of convertible debt conversion liability
Gain on debt extinguishment
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 - continuing operations
Net cash flows used in operating activities - discontinued operations
Cash provided from operations
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for marketable securities
Maturities of marketable securities
Cash paid for purchase of property, plant and equipment
Insurance proceeds for asset impairments
Cash receipts from disposal of fixed assets
Cash paid for investments
Cash paid for acquisitions and additional interests, net of cash acquired
Net cash flows used in investing activities - continuing operations
Net cash flows used in investing activities - discontinued operations
Cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on line of credit
Borrowing on other lines of credit
Repayments on other lines of credits
Cash received for issuance of debt
Cash received on convertible debt
Cash paid on debt
Cash paid for debt issuance costs
Cash received on partial termination of capped call options
Cash paid for treasury stock
Cash paid for contingent consideration
Cash paid for conversion of restricted stock units and stock appreciation rights
Net cash flows provided from (used in) financing activities - continuing operations
Net cash flows provided from financing activities - discontinuing operations
Cash provided from (used in) financing activities
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
36,246
996
47
5,014
(215 )
879
(273 )
6,412
4,850
1,117
(4,457 )
(974 )
—
(6,297 )
593
19,662
(34,066 )
41,250
14,221
(7,259 )
(1,918 )
379,456
(13,922 )
365,534
(70,745 )
20,000
(46,453 )
4,464
1,647
(974 )
(4,801 )
(96,862 )
(335 )
(97,197 )
(48,187 )
2,014
(2,196 )
14,034
—
(143,516 )
(697 )
85
(25,048 )
(12,223 )
(3,471 )
(219,205 )
—
(219,205 )
49,132
33,779
1,589
62
5,413
—
49,873
139
6,909
(30,088 )
2,151
(5,329 )
—
18,833
—
246
74,974
12,029
2,491
(20,220 )
(18,802 )
(25,028 )
42,742
(12,946 )
29,796
—
—
(67,557 )
8,000
—
(816 )
(3,482 )
(63,855 )
(14 )
(63,869 )
8,025
8,812
(4,442 )
23,575
—
(14,659 )
(1,062 )
—
—
(29,150 )
(1,257 )
(10,158 )
—
(10,158 )
(44,231 )
44,713
(19,128 )
63,841
31,363
875
78
5,147
—
17,893
630
5,896
3,009
1,919
(9,894 )
—
(13,045 )
(2,331 )
(71 )
145,235
(58,551 )
7,392
(133,461 )
6,985
26,913
99,823
(11,972 )
87,851
—
—
(60,384 )
10,949
—
(3,249 )
(12,720 )
(65,404 )
(319 )
(65,723 )
26,445
10,185
(2,437 )
11,775
152,000
(87,112 )
(6,369 )
159
(51,474 )
(7,548 )
—
45,624
—
45,624
67,752
CASH, CASH EQUIVALENTS AND RESTRICTED CASH at Beginning of period
Effect of exchange rate changes on cash
CASH, CASH EQUIVALENTS AND RESTRICTED CASH at End of period
$
77,627
(184 )
126,575
$
120,210
1,648
77,627
$
$
53,041
(583 )
120,210
(continued)
54
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(IN THOUSANDS)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for income taxes
Cash paid for interest
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Amounts included in period-end accounts payable for:
Purchases of property, plant and equipment
Issuance costs
Issuance of common stock for acquisitions
Contingent consideration for acquisitions
Release of restricted cash to pay off the GOZone Bonds
Repayment of GOZone Bonds
Non-cash transfer of line of credit to long-term debt
Non-cash allocation of proceeds from the 2036 Convertible Notes issuance to convertible
debt conversion liability
Non-cash allocation of purchase price between debt and equity related to the repurchase
of the 2019 Convertible Notes
Non-cash reclassification of the 2036 Convertible Notes conversion liability to additional
paid in capital, net of tax impact
Non-cash share repurchases from partial capped call termination
Accruals of insurance proceeds related to impairment of property, plant and equipment
See "Note 4 - Acquisitions" for noncash items related to the acquisition transactions.
2018
2017
2016
910 $
11,453 $
252 $
11,637 $
410
9,920
3,459 $
37 $
— $
482 $
— $
— $
— $
— $
— $
— $
— $
— $
7,688 $
29 $
— $
— $
— $
— $
— $
— $
— $
27,908 $
— $
— $
3,833
250
4,050
4,500
101,315
100,000
4,498
40,145
7,387
—
1,588
313
$
$
$
$
$
$
$
$
$
$
$
$
$
$
See notes to consolidated financial statements.
55
(concluded)
RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For The Three Years Ended December 31, 2018, 2017 and 2016
(In Thousands, Except Share and Per Share Amounts)
NOTE 1—ORGANIZATION, PRESENTATION, AND NATURE OF THE BUSINESS
Renewable Energy Group, Inc. (the "Company" or "REG") is a company focused on providing cleaner, lower carbon transportation
fuels. Today, the Company principally generates revenue as the leading North American advanced biofuels 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. To do this, REG utilizes this 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.
As of December 31, 2018, the Company owns and operates fourteen biorefineries, with twelve locations in North America and two
locations in Europe, which includes thirteen operating biomass-based diesel production facilities with aggregate nameplate production
capacity of 520 million gallons per year ("mmgy") and one fermentation facility. Ten 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 biomass-based diesel industry and the Company’s business have benefited from certain federal and state incentives. The federal
biodiesel mixture excise tax credit (the "BTC") was retroactively reinstated on February 9, 2018 for the fiscal year 2017, but has not been
reinstated for 2018 or 2019 as of the date of this report. The expiration or modification of any one or more of those incentives, would
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 as restricted cash that represent those funds required to be set aside by a contractual
agreement. The Company classifies restricted cash between current and non-current assets based on the length of time of the restricted use.
As of December 31, 2018 and 2017, current restricted cash amounted to $3,000 and $0, respectively, which was held as pledges for
letters of credit issued to support our operations. See the table below for reconciliation of Cash and cash equivalents and restricted cash in
regards to the Consolidated Statements of Cash Flows:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash shown in the statement of
cash flow
$
$
December 31,
2018
December 31,
2017
December 31,
2016
123,575 $
3,000
77,627 $
—
116,210
4,000
126,575 $
77,627 $
120,210
56
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 (expense), net". The Company evaluates
such investments periodically for possible other-than-temporary impairment. A decline of fair value below amortized costs of debt
securities is considered an other-than-temporary impairment if the Company has the intent to sell the security or if it is more likely than not
that the Company will be required to sell the security before recovery of the entire amortized cost basis. In those instances, an impairment
charge equal to the difference between the fair value and the amortized cost basis is recognized in earnings. Regardless of the Company's
intent or requirement to sell a debt security, an impairment is considered other-than-temporary if the Company does not expect to recover
the entire amortized cost basis; in those instances, a credit loss equal to the difference between the present value of the cash flows expected
to be collected based on credit risk and the amortized cost basis of the debt security is recognized in earnings. The Company has no current
requirement or intent to sell a material portion of marketable securities as of December 31, 2018. The Company expects to recover up to (or
beyond) the initial cost of the investment for securities held. In computing realized gains and losses on available-for-sale securities, the
Company determines cost based on amounts paid, including direct costs such as commissions to acquire the security, using the specific
identification method.
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.
In the first quarter of 2018, the Company recognized receivables of $365,155 from the federal government and $16,688 from
customers related to the 2017 biodiesel mixture excise tax credit. Through December 31, 2018, the Company has collected all of these
receivables.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined based on the first-in, first-out method. There
were no lower of cost or market adjustments made to the inventory values reported as of December 31, 2018 and 2017.
Renewable Identification Numbers (RINs)
When the Company produces and sells a gallon of biomass-based diesel, 1.5 to 1.7 RINs per gallon are generated. RINs are used to
track compliance with the Renewable Fuel Standard ("RFS2"). RFS2 allows the Company to attach between zero and 2.5 RINs to a 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.
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 net realizable as of the last day of each accounting period. The
resulting adjustments are reflected in costs of goods sold for the period. The value of these RINs is reflected in “Prepaid expenses and other
assets” on the Consolidated Balance Sheets. 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").
57
Low Carbon Fuel Standard
The Company generates Low Carbon Fuel Standard ("LCFS") credits for its low carbon fuels or blendstocks when its qualified low
carbon fuels are transported into an LCFS market. LCFS credits are used to track compliance with LCFS. As a result, a portion of the
selling price for a gallon of biomass-based diesel sold into an LCFS market is also attributable to LCFS compliance. However, LCFS
credits 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 LCFS credit when it is generated, regardless of whether the LCFS credit is
transferred with the biomass-based diesel produced or held by the Company.
In addition, the Company also obtains LCFS credits from third party trading activities. From time to time, the Company holds
varying amounts of these third party LCFS credits for resale. LCFS credits obtained from third parties are initially recorded at their cost
and are subsequently revalued at the lower of cost or net realizable value 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 LCFS credits obtained from third parties is reflected in
“Prepaid expenses and other assets” on the Consolidated Balance Sheets. The cost of goods sold related to the sale of these LCFS credits is
determined using the average cost method, while market prices are determined by LCFS values, as reported by the OPIS. At December 31,
2018 and 2017, the Company held no LCFS credits purchased from third parties.
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 during the periods presented.
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
In June 2017, the Company experienced a fire at its Madison facility, resulting in the shutdown of the facility. In 2017, the Company
impaired fixed assets with a total net book value of approximately $2,671 as a result of the fire in June 2017. The Company received
payments in the amounts of $12,454 and $9,484 to cover initial costs incurred for property losses and business interruption, respectively.
The Company recognized gain on involuntary conversion related to the fire of $4,454 and $5,329 for the years ended December 31, 2018
and 2017, respectively.
During the years ended December 31, 2018, 2017 and 2016, the Company capitalized interest incurred on debt during the
construction of assets of $360, $301 and $537, 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. At December 31, 2018 and 2017, the Company had goodwill in the Services reporting unit. The annual
impairment test at July 31, 2018 determined that the fair value of the Services reporting unit exceeded its carrying value by approximately
45%. No impairment of goodwill was recorded during the years ended December 31, 2018 and 2017.
58
Impairment of Long-lived 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.
In 2018, impairment charges on continuing operations amounting $879 were recorded related to certain identified plant property,
plant and equipment at our current facilities as the carrying amounts of those assets were deemed not recoverable. Refer to "Note 7 -
Discontinued Operations" for details on asset impairments related to discontinued operations. In 2017, impairment charges amounting
$44,649 and $5,224 were recorded related to the Company's New Orleans facility's property, plant and equipment assets and certain other
plant, property and equipment. In 2016, impairment charges amounting to $15,593 and $2,300 were recorded related to the Company's
Emporia facility's property, plant and equipment assets and certain other plant, property and equipment, respectively.
Convertible Debt
In June 2016, the Company issued $152,000 aggregate principal amount of 4% convertible senior notes due in 2036 (the "2036
Convertible Senior Notes"). The embedded conversion option was initially accounted for as an embedded derivative liability as the
Company could not elect to issue shares of common stock upon conversion of the 2036 Convertible Senior Notes to the extent such
election would result in the issuance of more than 19.99% of the common stock outstanding immediately before the issuance of the 2036
Convertible Senior Notes unless the Company received stockholder approval for such issuance. On December 8, 2017, at the special
meeting of stockholders, the Company obtained the approval from its stockholders to remove the common stock issuance restrictions in
connection with conversions of the 2036 Convertible Senior Notes. Accordingly, the embedded conversion option after being fair valued at
$45,933, net of tax of $18,025, has been reclassified into "Common Stock-Additional Paid-in Capital" at December 8, 2017. See "Note 12 -
Debt" for a further description of the 2036 Convertible Senior Notes. During the year ended December 31, 2018, the Company used
$110,828 to repurchase $55,700 principal amount of the 2036 Convertible Senior Notes. See "Security Repurchase Programs" below.
Capped Call Transaction
In connection with the issuance of the 2019 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. During 2016, in connection with the issuance of the 2036 Convertible Senior Notes, certain call options covered
by the original capped call transaction were rebalanced and reset to cover 100% of the total number of shares of the Company's Common
Stock underlying the remaining principal of the 2019 Convertible Senior Notes. The impact of these transactions, net of tax, was reflected
as an addition/reduction to "Common Stock-Additional Paid-In Capital" as presented in the Consolidated Statements of Stockholders'
Equity.
Security Repurchase Programs and Subsequent Event
In December 2017, the Company's board of directors approved a repurchase program of up to $75,000 of the Company's convertible
notes and/or shares of common stock (the "2017 Program"). In June 2018, the Company's board of directors approved another repurchase
program of up to an additional $75,000 of the Company's convertible notes and/or shares of common stock (the "2018 Program"). In
January 2019, the Company's board of directors approved a repurchase program of up to an additional $75,000 of the Company's
convertible notes and/or shares of common stock (the "2019 Program"). Under these programs, the Company may repurchase convertible
notes or shares from time to time in open market transactions, privately negotiated transactions or by other means. The timing and amount
of repurchase transactions under each program are determined by the Company's management based on its evaluation of market conditions,
share price, bond price, legal requirements and other factors. The table below sets out the information regarding the activities under the
2017 Program and the 2018 Program during 2018:
59
For the year ended December 31, 2018
Number of
shares/Principal amount
in $'000
December 2017
Program
June 2018
Program
Repurchases of shares of common stock
2019 Convertible Senior Notes Repurchases
2036 Convertible Senior Notes Repurchases
$
$
1,937,844 $
6,311 $
55,700 $
25,048 $
6,689 $
43,263 $
Both Programs
25,048
6,689
110,828
— $
— $
67,565 $
As illustrated in the above table, the Company used $110,828 under the 2017 and 2018 Programs to buy back $55,700 of principal
amount of the 2036 Convertible Senior Notes, reflecting conversion premium, after tax impact, of $70,011 as a reduction of Additional
Paid-in Capital and gains on debt extinguishment of $6,065 in the Consolidated Statements of Operations for the year ended December 31,
2018.
Foreign Currency Transactions and Translation
The Company’s reporting and functional currency is U.S. dollars. Monetary assets and liabilities denominated in currencies other than
U.S. dollars are remeasured into their respective functional currencies at exchange rates in effect at the balance sheet date. The resulting
exchange gain or loss is included in the Company’s Consolidated Statements of Operations as foreign exchange gain (loss) unless the
remeasurement gain or loss relates to an intercompany transaction that is of a long-term investment nature and for which settlement is not
planned or anticipated in the foreseeable future. Gains or losses arising from translation of such transactions are reported as a component of
accumulated other comprehensive income (loss) in the Company’s Consolidated Balance Sheets.
The Company translates the assets and liabilities of its foreign subsidiaries from their respective functional currencies to U.S. dollars
at the appropriate spot rates as of the balance sheet date. Generally, the Company's foreign subsidiaries use the local currency as their
functional currency. Changes in the carrying value of these assets and liabilities attributable to fluctuations in spot rates are recognized in
foreign currency translation adjustment, a component of accumulated other comprehensive income (loss) in the Company’s Consolidated
Balance Sheets.
The other comprehensive loss amounts presented in the Company's Consolidated Statements of Comprehensive Income (Loss) and
Consolidated Statements of Stockholders' Equity mainly include the foreign currency translation adjustment resulting from translating the
financial statements of certain subsidiaries from Euros to US Dollars, the Company's functional currency.
Revenue Recognition
In the first quarter of 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with
Customers (Topic 606). Under the ASU, revenue is recognized when a customer obtains control of promised goods or services in an
amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard
requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The
Company applied the five-step method outlined in the ASU to all contracts with customers and elected the modified retrospective
implementation method. The Company has generally a single performance obligation in its arrangements with customers. The Company
believes for most of its contracts with customers, control is transferred at a point in time, typically upon delivery to the customers. When
the Company performs shipping and handling activities after the transfer of control to the customers (e.g., when control transfers prior to
delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized.
Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The
Company generally expenses sales commissions when incurred because the amortization period would have been less than one year. The
Company records these costs within selling, general and administrative expenses. The implementation of the new standard did not have any
material impact on the measurement or recognition of revenue of prior periods, however additional disclosures have been added in
accordance with the ASU.
The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are
recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration
that we expect to receive in exchange for those goods or services.:
•
•
sales of biodiesel and renewable diesel produced at our facilities, including RINs and LCFS
credits;
resale of finished biomass-based diesel, RINs and LCFS credits acquired from third parties, and raw material feedstocks
acquired from others;
60
•
•
•
•
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 petroleum-based products further blended with biodiesel produced at our wholly owned facilities;
sales of glycerin, other co-products of the biomass-based diesel production
process;
incentive payments from federal and state governments, including the BTC, and from the USDA Advanced Biofuel Program;
and
other
revenue:
◦
sales of chemical products and lab
services.
Disaggregation of revenue:
All revenue related to continuing operations recognized on the income statement, except for Biomass-based diesel Government
Incentives, is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according
to product line and segment:
Year ended December 31, 2018
Biomass-based diesel sales, net of BTC
related amount due to customers of $144,944
Petroleum and blended petroleum diesel sales
Other biomass-based diesel revenue
Separated RIN sales
Other revenues
Total revenues from contracts with
customers
Biomass-based diesel government incentives
Total revenues
Biomass-based
Diesel
Services
Reportable Segments
Corporate
and other
Intersegment
Revenues
Consolidated
Total
$
1,474,459 $
—
178,053
137,895
—
— $
—
—
—
93,347
9,682 $
(26,348) $
239,470
—
—
—
—
—
—
(91,061)
$
$
1,790,407 $
367,490
2,157,897 $
93,347 $
249,152 $
(117,409) $
—
93,347 $
—
—
249,152 $
(117,409) $
1,457,793
239,470
178,053
137,895
2,286
2,015,497
367,490
2,382,987
Contract balances
The following table provides information about receivables and contract liabilities from contracts with customers:
Accounts receivable
Short-term contract liabilities (deferred revenue)
December 31, 2018
$
$
74,551
(300 )
The Company receives payments from customers based upon contractual billing schedules; accounts receivables are recorded when the
right to consideration becomes unconditional. Contract liabilities include payments received in advance of performance under the contract,
and are realized with the associated revenue recognized under the contract. 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 with both
customers and vendors throughout the year to capture the credit when or if reinstated. When or if the federal biodiesel tax credit is
reinstated, the impacts of the agreements with customers are recorded as contract liabilities in accounts payable and as adjustments to
Biomass-based diesel sales, whereas agreements with vendors are recorded net as adjustments to Biomass-based diesel costs of goods sold
on the Consolidated Statements of Operations.
61
Significant changes to the contract liabilities during the year are as follows:
January 1, 2018
Cash receipts
(Payments)
Less: Impact on
Revenue
Other
December 31, 2018
Deferred revenue
Payables to customers related
to BTC
$
$
2,218 $
27,264 $
29,179 $
(3) $
—
2,218 $
(150,776)
(123,512) $
(144,944)
(115,765) $
5,832
5,829 $
300
—
300
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 $1,989, $2,140 and $1,746
for the years ended December 31, 2018, 2017 and 2016, respectively.
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 $1,588, $1,367 and $1,168 for the years ended December 31, 2018,
2017 and 2016, respectively.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant-date fair value of the awards and recognized as compensation expense
over the vesting period.
Income Taxes
The Company’s income tax provision, deferred income tax assets and liabilities, and liabilities for unrecognized tax benefits represent
the Company’s best estimate of current and future income taxes to be paid. The annual effective tax rate is based on income tax laws,
statutory tax rates, taxable income levels and tax planning opportunities available in various jurisdictions where the Company operates.
These tax laws are complex and require significant judgment to determine the consolidated provision for income taxes. Changes in tax
laws, statutory tax rates and estimates of the Company’s future taxable income levels could result in actual realization of deferred taxes
being materially different from amounts provided for in the consolidated financial statements.
The indefinite reinvestment in the earnings of non-US subsidiaries assertion is determined by management’s judgment about and
intentions concerning future investment in operations. As of December 31, 2018, the Company is not indefinitely reinvested in the earnings
of non-US subsidiaries.
Discontinued Operations
Loss on discontinued operations was mainly related to the research and development activities of REG Life Sciences, aimed to bring
industrial biotechnology products to market and impairment loss on classification of the REG Life Sciences as assets available for sale. See
"Note 7 - Discontinued Operations" for further details.
Concentrations
One customer represented slightly less than 10% of the total consolidated revenues of the Company for the years ended
December 31, 2018, 2017 and 2016. All customer amounts disclosed in the table are related to biomass-based diesel sales:
Customer A
2018
2017
2016
$
219,202 $
182,236 $
144,849
The Company maintains cash balances at financial institutions, which may at times exceed the $250 coverage by the U.S. Federal
Deposit Insurance Company. The Company has experienced no losses in such accounts.
62
Use of Estimates
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
On February 25, 2016, the FASB issued ASU 2016-02, which introduces a lessee model that brings most leases on the balance sheet.
The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue
recognition standard (e.g., those related to evaluating when profit can be recognized). Furthermore, the ASU addresses other concerns
related to the current leases model. The ASU is effective for annual periods beginning after December 15, 2018 and interim periods therein.
On July 19, 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which addresses certain aspects
of the new leases standard, including the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of
lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain
transition adjustments, among other things. On July, 31, 2018, the FASB issued ASU 2018-11, Codification Improvements to Topic 842,
Leases, which provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new
transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative effect adjustment to
the opening balance of retained earnings in the period of adoption. These amendments have the same effective date and transition
requirements as ASU 2016-02.
All of the ASU's related to ASC 842 will be adopted by the Company effective January 1, 2019. The Company plans to apply a
modified retrospective transition approach. The Company also plans to elect the hindsight practical expedient to determine the reasonably
certain lease term for existing leases. While lease classification will remain unchanged, hindsight will result in generally shorter accounting
lease terms and useful lives of the corresponding leasehold improvements. Additionally, the Company will make an accounting policy
election that will keep leases with an initial term of 12 months or less off of the balance sheet and will result in recognizing those lease
payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. Based on the Company's lease portfolio
as of December 31, 2018, the Company will record an initial balance of lease liabilities of approximately $52,000, right-of-use assets of
approximately $42,000, net of a reclassification of unfavorable lease obligations of $3,000, and an approximate negative impact on
beginning retained earnings of $6,000, related to the impairment of a right of use asset at the company's New Orleans facility.
The FASB issued ASU 2016-18 on November 17, 2016 to add or clarify guidance on the classification and presentation of restricted
cash in the statement of cash flows. For public companies, the guidance is effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The Company has adopted this ASU in its consolidated financial statements. See
"Consolidated Statements of Cash Flows" for further details.
On February 28, 2018, the FASB issued ASU 2018-03, which makes technical corrections to certain aspects of ASU 2016-16 (on
recognition of financial assets and financial liabilities), including equity securities without a readily determinable fair value
(discontinuation and adjustment ); forward contracts and purchased options; presentation requirements for certain fair value option
liabilities; fair value option liabilities denominated in a foreign currency and transition guidance for equity securities without a readily
determinable fair value. For public business entities, the amendments in ASU 2018-03 are effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. The Company has adopted this ASU in its
consolidated financial statements. The adoption did not have a material impact.
On August 28, 2017, the FASB issued ASU 2017-12, which amends the hedge accounting recognition and presentation requirements
in ASC 815 to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity's
risk management activities by better aligning the entity's financial reporting for hedging relationships with those risk management activities
and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. For public business entities, the
amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
The Company anticipates that the ASU will allow more of its derivative contracts to qualify for hedge accounting elections. Upon the
adoption ASU 2017-12, changes in fair value of derivatives will continue to be recognized in current period earnings.
On November 7, 2018, the FASB issued ASU 2018-16, which permits entities to use the Overnight Index Swap ("OIS") Rate based
on Secured Overnight Financing Rate ("SOFR") as an eligible benchmark interest rate during the early stages of the transition from LIBOR
to SOFR. For public business entities, the amendments in this Update are effective for fiscal years
63
beginning after December 15, 2018, and interim periods within those fiscal years. The Company is evaluating the impact of this guidance
on its consolidated financial statements, but does not expect the impact to be significant.
On June 16, 2016, the FASB issued ASU 2016-13, which amends the Board’s guidance on the impairment of financial instruments.
The ASU adds to U.S. GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected
losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. For
public companies, the ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal
years. The Company is evaluating the impact of this guidance, but does not expect it to have any material impact on its consolidated
financial statements.
On August 28,2018, the FASB issued ASU 2018-13, which changes the fair value measurement disclosure requirements of ASC 820.
ASU 2018-13 eliminates or modifies certain disclosure requirements of ASC 820 and requires new disclosures relating to changes in
unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the
applicable reporting period. ASU 2018-13 also explicitly requires entities to disclose the range and weighted average used to develop
significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for all entities for fiscal years beginning
after December 15, 2019, including interim periods therein. The Company is evaluating the impact of this guidance on its consolidated
financial statements, but does not expect the impact to be significant.
NOTE 3—STOCKHOLDERS’ EQUITY OF THE COMPANY AND SUBSEQUENT EVENT
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, 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 March 1, 2019, the Company filed with the Secretary of State of the State of Delaware two Certificates of Retirement and
Cancellation to eliminate all references to Class A Common Stock and Series B Preferred Stock in the Company’s certificate of
incorporation. All such authorized shares of Class A Common Stock and Series B Preferred Stock were previously issued but were no
longer outstanding and were retired by the board of directors of the Company.
NOTE 4—ACQUISITIONS
2016 Acquisition
Sanimax Energy, LLC
On March 15, 2016, the Company acquired fixed assets and inventory from Sanimax Energy, including the 20 mmgy nameplate
capacity biomass-based diesel refinery in DeForest, Wisconsin. The Company completed its initial accounting of this business combination
as the valuation of the real and personal property was finalized as of September 30, 2016.
The following table summarizes the consideration paid for the acquisition from Sanimax Energy:
Consideration at fair value for acquisition from Sanimax:
Cash
Common stock
Contingent consideration
Total
64
March 15, 2016
$
$
12,541
4,050
4,500
21,091
The fair value of the 500,000 shares of Common Stock issued was determined using the closing market price of the Company's
common shares at the date of acquisition.
The Company may pay contingent consideration of up to $5,000 (Earnout Payments) over a 7-year period after the acquisition,
subject to achievement of certain milestones related to the biomass-based diesel gallons produced and sold by REG Madison. The Earnout
Payments are payable in cash and cannot exceed $1,700 in any one year period beginning March 15, 2016 through 2023 and up to $5,000 in
aggregate. As of December 31, 2018, the Company has recorded a contingent liability of $1,443, which has been classified as current on
the Consolidated Balance Sheets.
The following table summarizes the fair values of the assets acquired at the acquisition date.
Assets (liabilities) acquired from Sanimax Energy:
Inventory
Property, plant and equipment
Total identifiable assets acquired
Accrued expenses and liabilities
Net identifiable assets acquired
NOTE 5 --- MARKETABLE SECURITIES
March 15, 2016
1,591
19,500
21,091
—
21,091
$
$
The Company's investments in marketable securities are stated at fair value and are available-for-sale. The following table
summarizes the Company's investments in marketable securities:
Commercial paper
Corporate bonds
Total
Maturity
Within one year
Within one year
$
Gross Amortized Cost
$
22,886 $
28,074
50,960 $
NOTE 6—INVENTORIES
Inventories consist of the following at December 31:
Raw materials
Work in process
Finished goods
Total
December 31, 2018
Total Unrealized
Gains
Total Unrealized
Losses
Fair Value
— $
—
— $
(14)
(14 )
(28)
$
$
22,872
28,060
50,932
2018
2017
40,348 $
3,840
124,712
168,900 $
39,975
3,523
92,049
135,547
$
$
NOTE 7—DISCONTINUED OPERATIONS
In the fourth quarter of 2018, concluding a comprehensive strategic assessment of the Company's development-stage industrial
biotechnology business, REG Life Sciences, the Company's Board of Directors authorized it to pursue a plan to sell the REG Life Sciences
core assets and business. The Company has recorded an impairment loss, net of tax, of $11,226 on classifying the REG Life Sciences
assets as held for sale reflecting the fair value of the estimated proceeds from the sale, net of costs to sell. This valuation technique is
considered as Level 3 pricing category.
REG Life Sciences' results for all periods prior to December 31, 2018, fair value of assets held for sale and estimated costs to sell are
classified as discontinued operations. There is no income tax impact from discontinued operations for all periods.
65
Loss on Discontinued Operations:
Discontinued Operations
For the years ended December 31,
2017
2018
2016
Other revenues
Other costs of goods sold
Research and development expense
Other income (expense), net
Pre-tax loss from discontinued operations
Pre-tax impairment loss on assets classified as held for sale
Income tax expense
Loss on discontinued operations
$
$
5,856 $
(4,697 )
(15,152 )
13,907
(86 )
(11,226 )
—
(11,312) $
3,588 $
(4,360 )
(11,673 )
(355 )
(12,800 )
—
—
(12,800) $
2,000
(1,870 )
(13,273 )
(5,985 )
(19,128 )
—
—
(19,128)
Reconciliation of the Carrying Amounts of Major Classes of Assets and Liabilities Included in Assets and Liabilities Held for
Sale:
Machinery and equipment, net
In-process research and development
Impairment loss recognized on assets classified as held for sale
Total assets classified as held for sale
Contingent consideration
Current liabilities classified as held for sale
2018
2017
$
$
$
824 $
13,652
(11,226 )
3,250 $
—
— $
1,036
14,715
—
15,751
13,908
13,908
NOTE 8—PROPERTY, PLANT AND EQUIPMENT
Company's 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
2018
2017
10,649 $
148,055
11,364
584,490
754,558
(205,537)
549,021
41,702
590,723 $
10,480
140,261
10,806
532,592
694,139
(173,971)
520,168
66,193
586,361
$
$
During 2017, the Company recorded impairment charges of $44,649 related to its New Orleans facility's property, plant and
equipment assets. Refer to Note 2 for further details.
NOTE 9—INTANGIBLE ASSETS
Amortizing intangible assets consist of the following at December 31:
66
Raw material supply agreement
Renewable diesel technology
Acquired customer relationships
Trademarks
Ground lease
Total intangible assets
Raw material supply agreement
Renewable diesel technology
Acquired customer relationships
Ground lease
Total intangible assets
December 31, 2018
Accumulated
Amortization
Cost
6,230 $
8,300
4,747
704
200
20,181 $
(2,866) $
(2,536)
(976)
—
(157)
(6,535) $
December 31, 2017
Accumulated
Amortization
Cost
6,230 $
8,300
2,900
200
17,630 $
(2,408) $
(1,983)
(686)
(141)
(5,218) $
$
$
$
$
Net
3,364
5,764
3,771
704
43
13,646
Net
3,822
6,317
2,214
59
12,412
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 $1,317, $1,280 and $1,294 for intangible assets was recorded for the years ended December 31, 2018, 2017
and 2016, respectively.
Estimated amortization expense for fiscal years ended December 31 is as follows:
2019
2020
2021
2022
2023
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
$
$
1,682
1,689
1,695
1,688
1,695
5,197
13,646
2018
2017
13,799 $
17,187
2,123
2,000
2,991
3,069
41,169 $
1,610
11,733
2,899
27,028
6,356
2,254
51,880
$
$
RIN inventory is valued at the lower of cost or net realizable value 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
67
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 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 $630 and $2,629 at December 31, 2018 and 2017, respectively, to reflect the lower of cost or market.
Other noncurrent assets consist of the following at December 31:
Investments
Spare parts inventory
Catalysts
Deposits
Other
Total
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
Contingent consideration, current portion
Unfavorable lease obligation, current portion
Tax payable
Other
Total
Other noncurrent liabilities consist of the following at December 31:
Severance payable
Straight-line lease liability
Asset retirement obligations
Other
Total
NOTE 12—DEBT
Term debt
The Company’s term debt at December 31 is as follows:
68
2018
2017
13,053 $
2,680
1,989
381
3,167
21,270 $
12,250
2,764
2,962
381
933
19,290
2018
2017
1,534 $
17,226
383
9,861
1,129
4,473
650
35,256 $
1,353
8,172
590
11,637
1,129
1,501
897
25,279
2018
2017
— $
1,439
640
996
3,075 $
603
1,801
593
1,117
4,114
$
$
$
$
$
$
4.00% Convertible Senior Notes, $96,300 face amount, due in June 2036
2.75% Convertible Senior Notes, $67,527 face amount, due in June 2019
REG Danville term loan, secured, variable interest rate of LIBOR plus 4%, due in July 2022
REG Newton term loan, secured, variable interest rate of LIBOR plus 4%, due in December 2018
REG Ralston term loan, variable interest rate of LIBOR plus 2.25%, due in October 2025
REG Grays Harbor term loan, variable interest of minimum 3.5% or Prime Rate plus 0.25%, due in
May 2022
REG Capital term loan, fixed interest rate of 3.99%, due in January 2028
Other
Total debt before debt issuance costs
Less: Current portion of long-term debt
Less: Debt issuance costs (net of accumulated amortization of $3,873 and $3,510, respectively)
Total long-term debt
Convertible Senior Notes
2018
2017
75,477 $
66,361
8,964
—
18,948
8,828
7,185
54
185,817
149,006
3,390
33,421 $
116,255
69,859
11,460
8,189
6,183
7,882
7,400
1,332
228,560
13,397
6,627
208,536
$
$
On June 2, 2016, the Company issued $152,000 aggregate principal amount of the 2036 Convertible Senior Notes in a private offering
to qualified institutional buyers. The 2036 Convertible Senior Notes bear interest at a rate of 4.00% per year payable semi-annually in
arrears on June 15 and December 15 of each year, beginning December 15, 2016. The notes will mature on June 15, 2036, unless
repurchased, redeemed or converted in accordance with their terms prior to such date.
Prior to December 15, 2035, the 2036 Convertible Senior Notes will be convertible only upon satisfaction of certain conditions and
during certain periods as stipulated in the indenture. On or after December 15, 2035 until the close of business on the second scheduled
trading day immediately preceding the maturity date, holders of the 2036 Convertible Senior Notes may convert their notes at any time.
The 2036 Convertible Senior Notes may be settled in cash, the Company’s common shares or a combination of cash and the Company’s
common shares, at the Company’s election. The Company may not redeem the 2036 Convertible Senior Notes prior to June 15, 2021.
Holders of the 2036 Convertible Senior Notes will have the right to require the Company to repurchase for cash all or some of their notes at
100% of their principal, plus any accrued and unpaid interest on each of June 15, 2021, June 15, 2026 and June 15, 2031. Holders of the
2036 Convertible Senior Notes will have the right to require the Company to repurchase for cash all or some of their notes at 100% of their
principal, plus any accrued and unpaid interest upon the occurrence of certain fundamental changes. The initial conversion rate is 92.8074
common shares per $1,000 (one thousand) principal amount of 2036 Convertible Senior Notes (equivalent to an initial conversion price of
approximately $10.78 per common share).
In addition, the 2036 Convertible Senior Notes becomes convertible in the subsequent quarter if the closing price of the Company’s
common stock exceeds $14.01, 130% of the Convertible Senior Notes’ initial conversion price, for at least 20 trading days during the 30
consecutive trading days prior to each quarter-end date. If the 2036 Convertible Senior Notes becomes convertible and should the holders
elect to convert, the Company’s current intent and policy is to settle the principal amount the 2036 Convertible Senior Notes in cash, with
the remaining value satisfied at the Company’s option in cash, stock or a combination of cash and stock. As of December 31, 2018, the
early conversion event was met based on the Company's stock price and as a result, the 2036 Convertible Senior Notes have been classified
as a current liability on the Company's Consolidated Balance Sheets at December 31, 2018.
The net proceeds from the offering of the 2036 Convertible Senior Notes were approximately $147,118, after deducting fees and
offering expenses of $4,882, which was capitalized as debt issuance costs and is being amortized through June 2036.
The Company evaluated the terms of the conversion features under the applicable accounting literature, including Derivatives and
Hedging, ASC 815, and determined that a certain feature required separate accounting as a derivative. The fair value of the convertible debt
conversion liability at issuance was $40,145. On December 8, 2017, at the Company's Special Meeting of Stockholders, the Company
obtained the approval from its stockholders to remove the common stock issuance restrictions in connection with conversions of the 2036
Convertible Senior Notes. Accordingly, on December 8, 2017, the Convertible Debt Conversion Liability was remeasured at fair value at
$45,933 and was then reclassified into equity. The debt
69
liability component of 2036 Convertible Senior Notes was determined to be $111,855 at issuance, reflecting a debt discount of $40,145.
The debt discount is to be amortized through June 2036. The effective interest rate on the debt liability component was 2.45%.
At December 31, 2018, there was outstanding $67,527 aggregate principal amount of our 2.75% Convertible Senior Notes due June 15,
2019. In accordance with the indenture governing such Notes, we have elected to settle all conversions of each $1,000 principal amount of
Notes being converted on or after October 23, 2018, with $1,000 in cash and any conversion value in excess of that amount in shares of our
common stock.
REG Ralston
In April 2017, REG Ralston, LLC ("REG Ralston") entered into a construction loan agreement ("Construction Loan Agreement") with
First Midwest Bank. The Construction Loan Agreement allowed REG Ralston to borrow up to $20,000 during the construction period at
REG Ralston. On October 19, 2018, REG Ralston entered into an amended loan agreement with First Midwest bank to convert the
Construction Loan Agreement into a term loan ("Ralston Term Loan") for a principal amount of $19,177, due on October 19, 2025. The
Ralston Term Loan will bear floating interest using a LIBOR rate plus 2.25% per annum. The loan agreement contains various loan
covenants. At December 31, 2018, the effective interest rate on the amount borrowed under this Loan Agreement was 4.60% per annum.
REG Danville
In July 2017, REG Danville, LLC ("REG Danville") entered into an amended loan agreement ("Loan Agreement") with Fifth Third
Bank. The Loan Agreement allowed REG Danville to borrow $12,500 maturing in July 2022. The loan requires monthly principal
payments and bears LIBOR-based variable interest rates. The loan agreement contains various loan covenants. At December 31, 2018, the
effective interest rate on the amount borrowed under this Loan Agreement was 6.38% per annum.
REG Capital
In December 2017, REG Capital, LLC ("REG Capital") entered into a mortgage refinancing loan agreement ("Mortgage Refinancing
Loan Agreement") with First National Bank to refinance existing mortgages on our office buildings in Ames, IA. The outstanding principal
under the Mortgage Refinancing Loan Agreement is $7.4 million with a maturity date of January 3, 2028. The loan requires monthly
principal payments and bears a fixed interest rate of 3.99% per annum.
Lines of Credit
The following table shows the Company's lines of credit:
Total revolving loans (current)
Maximum remaining available to be borrowed under revolving lines of credit
2018
2017
$
$
14,250 $
114,889 $
65,525
60,839
The Company's wholly-owned subsidiaries, REG Services Group, LLC and REG Marketing & Logistics Group, LLC, are borrowers
under a Credit Agreement dated December 23, 2011 with the lenders party thereto (“Lenders”) and Wells Fargo Capital Finance, LLC, as
the agent, (as amended, the “M&L and Services Revolver”). The maximum commitment of the Lenders under the M&L and Services
Revolver to make revolving loans is $150,000, subject to an accordion feature, which allows the borrowers to request commitments for
additional revolving loans in aggregate amount not to exceed to $50,000, the making of which is subject to customary conditions, including
the consent of Lenders providing such additional commitments.
The maturity date of the M&L and Services Revolver is September 30, 2021. Loans advanced under the M&L and Services Revolver
bear interest based on a one-month LIBOR rate (which shall not be less than zero), plus a margin based on Quarterly Average Excess
Availability (as defined in the Revolving Credit Agreement), which may range from 1.75% per annum to 2.25% per annum.
The M&L and Services 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, making distributions to the Company unless certain conditions are satisfied,
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 of at least 1.0 to 1.0 if excess availability under the M&L and Services Revolver is
less than 10% of the total $150,000 of current revolving loan
70
commitments, or $15,000 currently. The M&L and Services Revolver is secured by the subsidiary borrowers’ membership interests and
substantially all of their assets. In addition, the M&L and Services Revolver is secured by the accounts receivable and inventory of REG
Albert Lea, LLC, REG Houston, LLC, REG New Boston, LLC, and REG Geismar, LLC (collectively, the "Plant Loan Parties") subject to
a $40,000 limitation with respect to each of the Plant Loan Parties.
In March 2018, REG Energy Services, LLC ("REG Energy Services") amended its operating and revolving line of credit agreement
with Bankers Trust Company ("Bankers Trust") that was entered in March 2016. As amended, this operating and revolving line of credit
("the Energy Services Line of Credit") was decreased to $15,000 subject to customary borrowing base limitations and the maturity was
extended to September 2018. On August 30, 2018, the Energy Services Line of Credit was terminated and all outstanding amounts
thereunder were repaid.
REG Germany has a trade finance facility agreement ("Uncommitted Credit Facility Agreement") with BNP Paribas in Europe, which
allows it to borrow up to $25,000 for funding the purchase of goods and services. Amounts outstanding under the Uncommitted Credit
Facility Agreement bear variable interest and are payable as stipulated in the agreement. The amount that can be borrowed under the
agreement can be amended, cancelled or restricted at BNP Paribas's sole discretion and therefore is not included in the maximum available
to be borrowed under lines of credit above. The Uncommitted Credit Facility Agreement contains various loan covenants that require REG
Germany to maintain certain financial measures. At December 31, 2018, the nominal interest rates ranged from 1.50% to 2.00% per annum.
Maturities of the term debt, including the convertible notes, are as follows for the years ending December 31:
2019
2020
2021
2022
2023
Thereafter
Total term debt
Less: current portion
Total long-term debt before debt issuance costs
$
$
149,006
7,477
7,545
6,198
4,545
11,046
185,817
149,006
36,811
NOTE 13—INCOME TAXES ON CONTINUING OPERATIONS
On December 22, 2017, President Donald Trump signed into law “H.R. 1”, formerly known as the “Tax Cuts and Jobs Act” (the “Tax
Legislation”). The Tax Legislation, which was effective on January 1, 2018, significantly revises the U.S. tax code by, among other things,
lowering the corporate income tax rate from 35% to 21%, limiting deductibility of interest expense, implementing a hybrid-territorial tax
system imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries (the “transition tax”), and enacted additional
international tax provisions, including a minimum tax on global intangible low-taxed income (“GILTI”) and a new base erosion anti-abuse
tax (“BEAT”). The Company recorded a provisional non-cash tax benefit of $13,712 in the fourth quarter of 2017. The Company finalized
its accounting for the transition tax during the quarter ended March 31, 2018, and has incorporated the impact of the other Tax Legislation
provisions effective for 2018 and beyond within the financial statements.
Income tax benefit (expense) related to continuing operations for the years ended December 31 is as follows:
71
Current income tax benefit (expense)
State
Foreign
Deferred income tax benefit (expense)
Federal
State
Foreign
Change in enacted tax rates
Net operating loss carryforwards created
Income tax benefit (expense) before valuation allowances
Deferred tax valuation allowances
Income tax benefit (expense)
2018
2017
2016
$
$
(118) $
(292)
(410)
(12,878)
(2,851)
2,914
—
26,058
13,243
12,833
(18,704)
(5,871) $
(45) $
421
376
22,619
10,282
2,674
(123,289)
17,466
(70,248)
(69,872)
100,362
30,490 $
94
(1,036)
(942)
2,113
6,936
(2,560)
—
105,165
111,654
110,712
(114,980)
(4,268)
A reconciliation of the reported amount of income tax expense to the amount computed by applying the statutory federal income tax
rate to earnings before income taxes is as follows:
U.S. Federal income tax expense at statutory rates of 21, 35 and 35 percents,
respectively
State taxes, net of federal income tax benefit
Tax position on government incentives
Change in enacted tax rates
Goodwill impairment tax impact
Foreign net operating loss expiration
Unrecognized tax benefits
Other
Total benefit (expense) for income taxes before valuation allowances
Valuation allowances
Total benefit (expense) for income taxes
$
$
2018
2017
2016
(62,619) $
1,618
72,244
—
—
—
(272)
1,862
12,833
(18,704)
(5,871) $
38,349 $
8,160
9,402
(123,289)
—
—
—
(2,494)
(69,872)
100,362
30,490 $
(17,143)
11,442
117,630
—
2,876
(2,383)
—
(1,710)
110,712
(114,980)
(4,268)
The Company receives government incentive payments and excludes this revenue from federal and state taxable income. This tax
position of excluding government incentives from taxable income has been accepted by the Internal Revenue Service for the audit cycle
2010-2011, the results of which were approved by the Joint Committee on Taxation. 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:
72
Deferred Tax Assets:
Net operating loss carryforwards
Goodwill
Capitalized research and development
Stock-based compensation
Risk management unrealized gain (loss)
Tax credit carryforwards
Accrued compensation
Inventory capitalization
Other
Deferred tax assets
Deferred Tax Liabilities:
Property, plant and equipment
Convertible debt
Risk management unrealized loss
Intangibles
Prepaid expenses
Deferred revenue
Other
Deferred tax liabilities
Net deferred tax assets
Valuation allowance
Net deferred tax liabilities
2018
2017
278,867 $
20,067
8,650
3,447
2,940
1,597
3,318
1,921
3,133
323,940
(38,324 )
(5,648 )
(2,649 )
949
(1,688 )
(583 )
(773 )
(48,716 )
275,224
(283,634 )
(8,410 ) $
249,371
26,448
9,788
3,924
1,879
1,597
1,062
1,491
2,945
298,505
(27,314 )
(9,889 )
—
(2,195 )
(1,393 )
—
(544 )
(41,335 )
257,170
(265,362 )
(8,192 )
$
$
At December 31, 2018, the Company has recorded a net deferred tax asset before valuation allowance of $278,867 related to the
benefit of federal, state and foreign net operating loss carry-forwards. Federal net operating loss carry-forward totals $1,032,962 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, in any one year may limit the utilization of
federal and state net operating losses and credit carry-forwards. The Company has performed an ownership change analysis in 2018 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.
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 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 position 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:
Beginning of year balance
Changes in valuation allowance charged to income
Change in enacted tax rates
Foreign currency translation
Change in valuation allowance charged to OCI
End of year balance
2018
2017
2016
265,362 $
18,704
—
(440)
8
283,634 $
365,035 $
36,639
(137,001)
689
—
265,362 $
250,164
114,980
—
(109)
—
365,035
$
$
73
The Company analyzes filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax
returns, and all open tax years in these jurisdictions to determine if it has any uncertain tax positions on any of its income tax returns. An
uncertain tax position represents 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 taken during prior years
Decreases to tax positions taken during prior years
Foreign currency translation
End of year balance
$
$
2016
2018
2017
1,771 $ 1,900 $ 1,900
—
—
—
2,028 $ 1,771 $ 1,900
—
(129)
—
272
—
(15)
The Company recorded an unrecognized tax benefit liability associated with a filing position for a prior year foreign tax return. The
amount of unrecognized tax benefits that would affect the effective tax rate if the tax benefits were recognized was $257 at December 31,
2018, and $0 at December 31, 2017 and 2016. 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, 2018 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 Company is subject to tax in the U.S. and various state and foreign jurisdictions. The U.S. Internal Revenue Service has
examined the Company's federal income tax returns through 2008, as well as 2010 and 2011, while the tax authorities in Germany have
examined the Company's corporate income tax returns through 2014. All other years in the U.S. and Germany are subject to examination,
while various state and other foreign income tax returns also remain subject to examination by taxing authorities.
Although not considered indefinitely reinvested, the Company has not made a provision for U.S. or additional foreign withholding
taxes due to provisional accumulated tax deficits outside the U.S. The Company has not recorded a deferred tax asset for the outside basis
difference related to investments in its foreign subsidiaries as the investment is essentially permanent in duration.
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 ("RSUs"), performance restricted
stock units ("PRSUs") and stock appreciation rights ("SARs") 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 2,350,000 shares, or 6,510,000 shares in
total, are reserved for issuance as approved by shareholders on May 15, 2014 and May 8, 2017. 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 $6,412, $6,909 and $5,896 for the years ended December 31, 2018,
2017 and 2016, respectively. The stock-based compensation costs were included as a component of selling, general and administrative
expenses. At December 31, 2018, there was $6,436 of unrecognized compensation expense related to unvested awards, which is expected
to be recognized over a period of approximately 2.8 years.
Restricted Stock Units
The following table summarizes information about the Company’s Common Stock RSU’s granted, vested, exercised and forfeited:
74
Awards outstanding - January 1, 2016
Issued
Vested and restriction lapsed
Forfeited
Awards outstanding - December 31, 2016
Issued
Vested and restriction lapsed
Forfeited
Awards outstanding - December 31, 2017
Issued
Vested and restriction lapsed
Forfeited
Awards outstanding - December 31, 2018
Number of
Awards
Weighted
Average Issue
Price
637,898 $
504,647 $
(249,356) $
(33,938) $
859,251 $
360,741 $
(204,198) $
(127,403) $
888,391 $
425,150 $
(225,339) $
(65,928) $
1,022,274 $
12.87
9.07
9.77
8.15
11.73
11.91
11.05
10.04
12.12
13.23
10.52
10.52
13.04
The RSUs 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 (three to four years), 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.
Performance Restricted Stock Units
The following table summarizes information about the Company’s Common Stock RSU’s granted, vested, exercised and forfeited:
Awards outstanding -January 1, 2016
Issued
Vested and restriction lapsed
Forfeited
Awards outstanding - December 31, 2016
Issued
Vested and restriction lapsed
Forfeited
Awards outstanding - December 31, 2017
Issued
Vested and restriction lapsed
Forfeited
Awards outstanding - December 31, 2018
Number of
Awards
Weighted
Average Issue
Price
59,623 $
175,217 $
— $
— $
234,840 $
270,765 $
(87,622) $
(62,865) $
355,118 $
171,580 $
(292,963) $
(25,650) $
208,085 $
9.40
9.06
—
—
9.15
11.79
11.75
9.48
10.46
9.63
8.45
9.83
12.68
The PRSUs convert into one share of common stock upon vesting. PRSUs vest in different tranches upon meeting certain
performance conditions, which are generally based on the Company's stock price performance and expressly provided service. These
PRSUs are fair valued at grant date based on Monte Carlo simulations or at a percentage of the stock price at grant date. The derived
service period for these PRSU awards as a result of the Monte Carlo simulation, is an approximately two 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.
75
Stock Appreciation Rights
The following table summarizes information about SARs granted, forfeited, vested and exercisable:
SAR's outstanding - January 1, 2016
Granted
Exercised
Forfeited
SAR's outstanding - December 31, 2016
Granted
Exercised
Forfeited
SAR's outstanding - December 31, 2017
Granted
Exercised
Forfeited
SAR's outstanding - December 31, 2018
SAR's exercisable - December 31, 2018
SAR's expected to vest - December 31, 2018
Number of
SAR’s
2,396,126 $
176,824 $
(8,003) $
(56,932) $
2,508,015 $
— $
(700,765) $
(105,981) $
1,701,269 $
— $
(610,541) $
(54,051) $
1,036,677 $
824,685 $
211,992 $
Weighted
Average
Exercise
Price
Weighted
Average
Contractual
Term
10.33
8.80
8.57
10.75
10.22
—
10.36
9.66
10.20
—
10.13
11.08
10.19
10.44
9.24
6.7 years
5.7 years
4.7 years
4.7 years
4.7 years
The SARs 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:
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
2018
$2.79 - $3.74
—%
2017
$2.79 - $3.74
—%
2016
$2.79 - $3.74
—%
1.1% - 1.4%
1.1% - 1.4% 1.1% - 1.4%
40%
6.25
40%
6.25
40%
6.25
There were no outstanding stock options at December 31, 2018, 2017 and 2016. There was no intrinsic value of options granted,
exercised or outstanding during the periods presented.
NOTE 15—OPERATING LEASES
The Company leases certain land and equipment under operating leases. Total rent expense under operating leases was $19,938,
$20,013 and $22,487 for the years ended December 31, 2018, 2017 and 2016, 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:
76
2019
2020
2021
2022
2023
Thereafter
Total minimum payments
Total
Payments
20,326
14,063
10,643
3,162
2,406
13,736
64,336
$
$
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. Refer to Note 2 for
further discussion of the Company's adoption plan for ASC 842, effective January 1, 2019.
NOTE 16 — DERIVATIVE INSTRUMENTS
The Company enters into New York Mercantile Exchange NY Harbor ULSD ("NY Harbor ULSD" or previously referred to as
heating oil), CBOT Soybean Oil (previously referred to as soybean oil) and New York Mercantile Exchange Natural Gas futures, swaps and
options ("commodity contract derivatives") to reduce the risk of price volatility related to anticipated purchases of feedstock raw materials
and to protect cash 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 commodity contract derivatives are not hedge accounting designated derivatives and recorded at fair value on
the Consolidated Balance Sheets. Unrealized gains and losses are recognized as a component of biomass-based diesel costs of goods sold
reflected in current results of operations. At December 31, 2018, the net notional volumes of NY Harbor ULSD, CBOT Soybean Oil and
NYMEX Natural Gas covered under the open commodity derivative contracts were approximately 83.3 million gallons and 218.3 million
pounds and 1.3 million million British thermal units, respectively.
The Company offsets the fair value amounts recognized for its commodity contract derivatives with cash collateral with the same
counterparty under a master netting agreement. The net position is presented within Prepaid and other assets in the Consolidated Balance
Sheets, see "Note 10 – Other Assets". As of December 31, 2018, the Company posted $3,755 of collateral associated with its commodity-
based derivatives with a net asset position of $10,044.
The following table sets forth the fair value of the Company's commodity contract derivatives and amounts that offset within the
Consolidated Balance Sheets;
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, 2018
December 31, 2017
Assets
Liabilities
Assets
Liabilities
11,843 $
3,755
15,598
(1,799)
13,799 $
1,799 $
—
1,799
(1,799)
812 $
8,799
9,611
(8,001)
— $
1,610 $
8,001
—
8,001
(8,001)
—
The following table sets forth the commodity contract derivatives gains and (losses) included in the Consolidated Statements of
Operations:
Commodity derivatives
Location of Gain (Loss)
Recognized in income
Cost of goods sold – Biomass-
based diesel
$
2018
2017
2016
18,399 $
(23,437) $
(35,386)
77
NOTE 17—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, excluding assets held for sale, is as follows:
Commercial paper
Corporate bonds
Commodity contract derivatives
Contingent consideration for
acquisitions
Commodity contract derivatives
Contingent consideration for
acquisitions
$
$
$
$
$
$
$
$
Total
Level 1
Level 2
Level 3
As of December 31, 2018
22,872 $
28,060
10,044
(9,861)
51,115 $
— $
—
499
—
499 $
22,872 $
28,060
9,545
—
60,477 $
—
—
—
(9,861 )
(9,861)
As of December 31, 2017
Total
Level 1
Level 2
Level 3
(7,189) $
(3,742) $
(3,447) $
—
(20,485)
(27,674) $
—
(3,742) $
—
(3,447) $
(20,485 )
(20,485)
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):
Balance at beginning of period, January 1
Fair value of contingent consideration at measurement date
Change in estimates included in earnings
Settlements
Balance at end of period, December 31
Contingent Consideration for Acquisitions
2018
2017
$
$
20,485 $
482
1,117
(12,223)
9,861 $
32,993
—
2,151
(14,659 )
20,485
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate their fair values. Money market funds are included in cash and cash equivalents on the
Consolidated Balance Sheets.
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 commercial papers and corporate notes/bonds is
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.
Commodity 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.
78
Contingent consideration for acquisitions: The fair value of 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 production and/or sale of biomass-based diesel at the specific production
facility. A discount rate ranging from 5.8% to 12.5% is used to estimate the fair value of the expected payments.
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:
2018
2017
Asset (Liability)
Carrying Amount
Estimated
Fair Value
Asset (Liability)
Carrying Amount
Estimated
Fair Value
Debt and lines of credit
$
(200,067) $
(410,564) $
(294,085) $
(273,983)
NOTE 18—NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is presented in conformity with the two-class method required for participating securities.
Participating securities include restricted stock units.
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.
For the 2036 Convertible Senior Notes, the Company's current intent is to settle conversions using cash for the principal amount of
convertible senior notes converted, with the remaining value satisfied at the Company's option in cash, stock or a combination of cash and
stock. For the 2019 Convertible Senior Notes, the Company has elected to settle the principal amount of convertible notes converted with
cash and any conversion value in excess of that amount in shares of the Company's common stock. Therefore, the dilutive effect of the
convertible senior notes is limited to the conversion premium.
The following potentially dilutive weighted average securities were excluded from the calculation of diluted net income (loss) per
share attributable to common stockholders during the periods presented, as the effect was anti-dilutive:
Options to purchase common stock
Stock appreciation rights
2019 Convertible Senior Notes
2036 Convertible Senior Notes
Total
Year Ended December 31,
2017
2018
—
—
—
—
—
—
622,633
5,567,112
14,106,725
20,296,470
2016
43,513
2,422,716
7,895,675
8,209,651
18,571,555
79
The following table presents the calculation of diluted net income (loss) from continuing operations per share:
Net income (loss) from continuing operations attributable to the Company's
common stockholders - Basic
Plus (less): effect of participating securities
Net income (loss) attributable to common stockholders
Less: effect of participating securities
Net income (loss) from continuing operations attributable to the Company's
common stockholders - Diluted
Shares:
Weighted-average shares used to compute basic net income (loss) from
continuing operations per share
Adjustment to reflect conversion of convertible notes
Adjustment to reflect stock appreciation right conversions
Weighted-average shares used to compute diluted net income (loss) from
continuing operations per share
Net income (loss) from continuing operations per share attributable to
common stockholders - Diluted
Diluted
2018
2017
2016
$
$
295,804 $
7,824
303,628
(7,824)
(66,279) $
—
(66,279)
—
62,204
1,251
63,455
(1,251)
295,804 $
(66,279) $
62,204
37,687,552
5,416,043
550,125
38,731,015
—
—
40,897,549
—
5,311
43,653,720
38,731,015
40,902,860
$
6.78 $
(1.71) $
1.52
The basic net loss per share equals the diluted net loss per share from discontinued operations and was $0.30, $0.33 and $0.47 for the
year ended December 31, 2018, 2017 and 2016, respectively.
NOTE 19—REPORTABLE SEGMENTS AND GEOGRAPHIC INFORMATION
The Company reports its reportable segments based on products and services provided to customers. The Company re-assesses its
reportable segment on an annual basis. The Company's reportable segments generally align the Company's external financial reporting
segments with its internal operating segments, which are based on its internal organizational structure, operating decisions and performance
assessment. In the fourth quarter of 2018, concluding a comprehensive strategic assessment of the Company's Life Sciences business,
which primarily represented the Renewable Chemicals reportable segment, the Company's Board of Directors authorized it to pursue a plan
to sell REG Life Sciences. This has no impact on the Company's segment reporting other than that at December 31, 2018, the Company's
reportable segments include 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. All prior period disclosures below have been recast to
present results on a comparable basis.
The Biomass-based diesel segment processes waste vegetable oils, animal fats, virgin vegetable oils and other feedstocks 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, in
the U.S. and internationally.
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. Revenues from services provided to other segments are recorded by
the Services segment at cost.
The Corporate and Other segment includes trading activities related to petroleum-based heating oil and diesel fuel, the operations of a
fermentation facility located in Okeechobee, Florida as well as corporate activities, which consist of corporate office expenses such as
compensation, benefits, occupancy and other administrative costs, including management service expenses. Corporate and other also
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. In addition, Corporate and Other
includes cash and other assets not associated with the reportable segments, including investments. Intersegment revenues are reported by
the Services and Corporate and Other segments.
80
The following table represents the significant items by reportable segment:
Net sales from continuing operations:
Biomass-based Diesel (includes REG Germany's net sales of $172,866,
$171,175, and $171,358, respectively)
Services
Corporate and other
Intersegment revenues
Income (loss) from continuing operations before income taxes
Biomass-based diesel (includes REG Germany's income (loss) of ($7,110),
($7,544), and $5,007, respectively)
Services
Corporate and other
Depreciation and amortization expense, net:
Biomass-based diesel (includes REG Germany's amounts of $2,378,
$2,990, and $2,849, respectively)
Services
Corporate and other
Cash paid for purchases of property, plant and equipment:
Biomass-based diesel (includes REG Germany's amounts of $2,611,
$3,241, and $1,353, respectively)
Services
Corporate and other
2018
2017
2016
2,157,897 $
93,347
249,152
(117,409)
2,382,987 $
2,039,982 $
103,215
213,500
(202,042)
2,154,655 $
1,952,361
87,014
106,637
(106,780)
2,039,232
314,727 $
4,863
(10,091)
309,499 $
(63,925) $
2,899
(35,743)
(96,769) $
32,558 $
1,658
3,026
37,242 $
41,906 $
4,300
247
46,453 $
31,011 $
1,092
3,265
35,368 $
60,734 $
3,826
2,997
67,557 $
64,814
2,970
325
68,109
29,018
613
2,607
32,238
52,952
4,731
2,701
60,384
$
$
$
$
$
$
$
$
Goodwill:
Services
Assets:
Biomass-based diesel (including REG Germany's assets of $52,119 and $55,761)
Services
Corporate and other
Intersegment eliminations
Assets held for sale
2018
2017
16,080 $
16,080
914,843 $
63,720
379,658
(254,375)
3,250
1,107,096 $
898,180
55,581
392,007
(355,923)
15,751
1,005,596
$
$
$
Geographic Information:
The following geographic data include net sales attributed to the countries based on the location of the subsidiaries making the sale
and long-lived assets based on physical location. Long-lived assets represent the net book value of property, plant and equipment.
81
Net sales:
United States
Germany
Other Foreign
Total Foreign
Long-lived assets:
United States
Germany
Other Foreign
Total Foreign
$
$
2018
2017
2016
2,207,286 $ 1,957,715 $ 1,867,875
171,357
—
171,357
2,382,987 $ 2,154,655 $ 2,039,232
172,866
2,835
175,701
171,175
25,765
196,940
2018
2017
$
$
571,045 $
18,972
706
19,678
590,723 $
564,992
20,689
680
21,369
586,361
NOTE 20—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. The
following table outlines the minimum take or pay requirement related to the purchase of hydrogen, nitrogen, and utilities.
2019
2020
2021
2022
2023
Thereafter
Total
$
$
3,748
3,298
2,976
2,976
2,976
863
16,837
As of December 31, 2018, REG Geismar relies on one supplier to provide hydrogen necessary to execute the production process. Any
disruptions to the hydrogen supply during production 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 21—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,
2018 and 2017:
82
Revenues from continuing operations
Gross profit from continuing operations
Selling, general, and administrative expenses
including research and development expense
Impairment of property, plant and equipment
Income from operations
Other income (expense), net
Net income from continuing operations attributable
to the Company
Net income (loss) from discontinued operations
attributable to the Company
Net income attributable to the Company
Net income from continuing operations
attributable to common stockholders
Net income (loss) from discontinued operations
attributable to common stockholders
Net income per share from continuing operations
attributable to common stockholders - basic
Net income per share from continuing operations
attributable to common stockholders - diluted
Net income (loss) per share from discontinued
operations attributable to common stockholders -
basic
Net income (loss) per share from discontinued
operations attributable to common stockholders -
diluted
Three Months
Ended
March 31,
2018
Three Months
Ended
June 30,
2018
Three Months
Ended
September 30,
2018
Three Months
Ended
December 31,
2018
$
688,002 $
249,455
578,900 $
57,514
596,324 $
51,159
519,761
61,863
32,688
—
216,767
(128)
24,539
—
32,975
(96)
21,933
—
29,226
(2,900)
217,844
29,042
25,472
27,579
879
33,405
250
31,270
(3,455)
214,389
4,808
33,850
(469)
25,003
(12,196)
19,074
212,608
28,277
24,799
30,448
(3,455)
4,681
(469)
(12,197)
5.48
5.38
0.76
0.67
0.67
0.55
0.82
0.66
(0.09)
0.13
(0.01)
(0.33)
$
(0.09) $
0.11 $
(0.01) $
(0.33)
83
Revenues from continuing operations
Gross profit loss from continuing operations
Selling, general, and administrative expenses
including research and development expense
Impairment of property, plant and equipment
Net operating income (loss) from continuing
operations
Other income (expense), net
Net loss from continuing operations attributable to
the Company
Net loss from discontinued operations attributable to
the Company
Net loss attributable to the Company
Net loss from continuing operations attributable
to common stockholders
Net loss from discontinued operations attributable
to common stockholders
Net loss per share from continuing operations
attributable to common stockholders - basic
Net loss per share from continuing operations
attributable to common stockholders - diluted
Net loss per share from discontinued operations
attributable to common stockholders - basic
Net loss per share from discontinued operations
attributable to common stockholders - diluted
Three Months
Ended
March 31,
2017
Three Months
Ended
June 30,
2017
Three Months
Ended
September 30,
2017
Three Months
Ended
December 31,
2017
$
418,361 $
17,833
534,602 $
31,956
625,732 $
14,681
23,535
—
(5,702)
(5,328)
23,115
1,341
7,500
(37,425)
26,829
—
(12,148)
3,618
575,960
19,884
22,364
48,532
(51,012)
3,728
(12,106)
(31,884)
(8,413)
(13,876)
(3,808)
(15,914)
(2,925)
(34,809)
(2,960)
(11,373)
(3,107)
(16,983)
(12,106)
(31,884)
(8,413)
(13,876)
(3,808)
(2,925)
(2,960)
(3,107)
(0.31)
(0.31)
(0.09)
(0.82)
(0.82)
(0.08)
(0.22)
(0.22)
(0.08)
$
(0.09) $
(0.08) $
(0.08) $
(0.36)
(0.36)
(0.08)
(0.08)
The results of operations for the three months ended December 31, 2017 reflect an asset impairment of $44,649 (before tax) related to the
Company's New Orleans facility as further described in Note 2 and the impact of the “H.R. 1”, formerly known as the “Tax Cuts and Jobs
Act” as signed into law on December 22, 2017. Refer to Note 13 for more details.
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
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s reports we file
or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including
our Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, under the supervision of and with the participation of the CEO and CFO performed an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15-d-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, 2018. 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, 2018.
Management’s Report on Internal Control over Financial Reporting
84
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, 2018. 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, 2018 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, 2018 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
On March 1, 2019, the Company filed with the Secretary of State of the State of Delaware two Certificates of Retirement and
Cancellation to eliminate all references to Class A Common Stock and Series B Preferred Stock in the Company’s certificate of
incorporation. All such authorized shares of Class A Common Stock and Series B Preferred Stock were previously issued but were no
longer outstanding and were retired by the board of directors of the Company. Following the filing of such certificates, the Company filed
with the Secretary of State of the State of Delaware a Restated Certificate of Incorporation reflecting the elimination of all references to
Class A Common Stock and Series B Preferred Stock. The Company’s Restated Certificate filed as Exhibit Number 3.1 to this Form 10-K.
.
85
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
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides certain information as of December 31, 2018, with respect to our equity compensation plans:
PLAN CATEGORY
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
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
2,267,036 1 $
—
2,267,036
$
10.19 2
—
10.19
1,872,450
—
1,872,450
1
2
Includes 1,022,274 shares underlying outstanding restricted stock units, 208,085 shares underlying outstanding performance
restricted stock units, and 1,036,677 shares underlying outstanding stock appreciation rights.
Restricted stock units and performance restricted stock units do not have an exercise price and therefore have not been included in
the calculation of weighted average exercise price.
The remainder of 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.
86
PART IV
ITEM 15. Exhibits, Financial Statement
Schedules
(a) Financial
Statements
(i) Consolidated Balance Sheets as of December 31, 2018 and
2017
(ii) Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and
2016
(iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and
2016
(iv) Consolidated Statements of Stockholders' Equity for the years ended December 31, 2018, 2017 and
2016
(v) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and
2016
(vi) Notes to the Consolidated Financial Statements for the years ended December 31, 2018, 2017 and
2016
(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.
(c) Financial Statement
Schedules
All schedules are omitted because of the absence of the conditions under which they are required or because the information required is
shown in the consolidated financial statements or the notes thereto.
ITEM 16. Form 10-K Summary
Not applicable.
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
EXHIBIT INDEX
Description
Restated Certificate of Incorporation of Renewable Energy Group, Inc. (the "Company").
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed September 12, 2013).
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) (File Number 333-175627).
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 filed June 3, 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
June 3, 2014).
Form of Note (included in Exhibit 4.2).
Indenture dated as of June 2, 2016, between the Company and Wilmington Trust, National Association, as trustee
(including form of Note) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated
June 2, 2016).
Amended and Restated 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed May 10, 2017).*
Renewable Energy Group Annual Incentive Plan for Executive Officers (incorporated by reference to Appendix A to the
Company’s Proxy Statement for the Annual Meeting of Stockholders of April 4, 2013, filed on April 4,2013).*
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K filed March 14, 2016).*
Form of Stock Appreciation Right Award Agreement (incorporated by reference to Exhibit 10.5 to the Company’s
Annual Report on Form 10-K filed March 14, 2016).*
87
Exhibit
Number
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Form of Performance Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed November 7, 2016).*
Description
Form of Performance Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed August 4, 2017).*
Form of Performance Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q filed May 4, 2018).*
Employment Agreement, effective January 1, 2015, between the Company and Daniel J. Oh (incorporated by reference to
Exhibit 10.24 to the Company’s Current Report on Form 8-K filed December 24, 2014).*
Employment Agreement, dated as of August 15, 2017, between the Company and Randolph L. Howard (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 18, 2017).*
Employment Agreement, dated as of September 29, 2017, between the Company and Brad Albin (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 5, 2017).*
Employment Agreement, dated as of September 29, 2017, between the Company and Chad Stone (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed October 5, 2017).*
Employment Agreement, dated as of June 11, 2018, between the Company and Gary Haer (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 15, 2018).*
Employment Agreement, dated as of June 11, 2018, between the Company and Eric Bowen (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K filed on June 15, 2018).*
10.14
Employment Agreement, dated as of November 30, 2018, between the Company and Cynthia J. Warner.*
10.15
Restricted Stock Unit Award Agreement, dated as of November 30, 2018, between the Company and Cynthia J. Warner.*
10.16
Form of Indemnification Agreement for Directors and Executive Officers.*
10.17
10.18
10.19
10.20
10.21
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)
(File Number 000-54374).
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).
Amendment No. 1 to Credit Agreement, dated as of January 31, 2012, 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 10.9 to the Company’s Annual Report on Form 10-K filed March 14,
2016).
Amendment No. 2 to Credit Agreement, dated as of February 29, 2012, 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 10.10 to the Company’s Annual Report on Form 10-K filed March 14,
2016).
Amendment No. 3 to Credit Agreement, dated as of May 1, 2012, 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 10.11 to the Company’s Annual Report on Form 10-K filed March 14, 2016).
88
Exhibit
Number
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
Description
Amendment No. 4 to Credit Agreement, dated as of January 9, 2013, 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 10.12 to the Company’s Annual Report on Form 10-K filed March 14, 2016).
Amendment No. 5 to Credit Agreement, dated as of August 9, 2013, 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 10.13 to the Company’s Annual Report on Form 10-K filed March 14, 2016).
Consent and Amendment No. 6 to Credit Agreement, dated as of December 23, 2013, 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 10.14 to the Company’s Annual Report on Form 10-K filed
March 14, 2016).
Amendment No. 7 to Credit Agreement, dated as of May 19, 2014, 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 10.15 to the Company’s Annual Report on Form 10-K filed March 14, 2016).
Amendment No. 8 to Credit Agreement, dated as of February 20, 2015, 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 10.16 to the Company’s Annual Report on Form 10-K filed March 14,
2016).
Amendment No. 9 to Credit Agreement, dated as of July 16, 2015, 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 July 22, 2015).
Amendment No. 10 to Credit Agreement, dated as of December 8, 2015, 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 10.22 to the Company's Annual Report on Form 10-K filed March 9,
2018).
Joinder and Amendment No. 11 to Credit Agreement, dated as of September 30, 2016, by and among the lenders
identified on the signature pages thereto, Wells Fargo Capital Finance, LLC, Fifth Third Bank, 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 on October 4, 2016).
Amendment No. 12 to Credit Agreement, dated as of December 22, 2017, 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 10.24 to the Company's Annual Report on Form 10-K filed March 9,
2018).
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).
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 filed June 3, 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 filed June 3, 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 filed June 3, 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 filed June 3, 2014).
21.1
List of Subsidiaries.
89
Exhibit
Number
23.1
24.1
31.1
31.2
32.1
32.2
101.1
Description
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
Power of Attorney (included in the signature page to this report).
Certification of Cynthia J. Warner pursuant to Section 302 of the Sarbanes-Oxley 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.
* Management contract or compensatory plan, contract or arrangement.
The following financial information of the Company and its subsidiaries for the fiscal year ended December 31, 2018, is
formatted in XBRL interactive data files: (i)Consolidated Balance Sheets, (ii) Consolidated Statements of Operations;
(iii) Consolidated Statements of Stockholders' 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.
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/ Cynthia J. Warner
Cynthia J. Warner
President and Chief Executive Officer
Date: March 7, 2019
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 or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her
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.
90
/s/ Cynthia J. Warner
Cynthia J. Warner
/s/ Chad Stone
Chad Stone
/s/ Todd M. Samuels
Todd M. Samuels
/s/ Jeffrey Stroburg
Jeffrey Stroburg
/s/ Randolph L. Howard
Randolph L. Howard
/s/ Delbert Christensen
Delbert Christensen
/s/ Peter J.M.Harding
Peter J. M. Harding
/s/ Debora M. Frodl
Debora M. Frodl
/s/ Michael Scharf
Michael Scharf
/s/ Christopher Sorrells
Christopher Sorrells
/s/ James C. Borel
James C. Borel
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Director (Chairman)
Director (Vice Chairman)
Director
Director
Director
Director
Director
Director
91
Date
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
State of Delaware
Secretary of State
Division of
Corporations
Delivered 12:33 PM
03/05/2019 FILED 12:33
PM 03/05/2019
SR 20191758138 - FileNumber
4682119
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION OF
RENEWABLE ENERGY GROUP, INC.
(originally incorporated on April 29, 2009 under the name "REG Newco, Inc.")
Renewable Energy Group, Inc. (the "Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "DGCL"), hereby certifies that the Corporation's Certificate of
Incorporation is hereby restated to read in its entirety as follows:
The name of the Corporation is Renewable Energy Group, Inc.
ARTICLE I
ARTICLE II
The address of the registered office of the Corporation in the State of Delaware is 850 New Burton Road, Suite
201, City of Dover, County of Kent, 19904. The name of its registered agent at such address is Cogency Global Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be
organized under the DGCL.
ARTICLE IV
A.
Classes of Stock. The total number of shares of all classes of classes of capital stock that the
Corporation shall have authority to issue is three hundred ten million (310,000,000), consisting of three hundred million
(300,000,000) shares of Common Stock, par value $.0001 per share (the "Common Stock"), and ten million
(10,000,000) shares of Preferred Stock, par value $.0001 per share (the "Preferred Stock"). The number of authorized
shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the then outstanding shares of Common Stock
without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such Preferred Stock
holders is required by the certificate of incorporation of the Corporation (including any applicable certificate of
designations), and if such holders of such Preferred Stock are so entitled to vote thereon, then, except as may otherwise be
set forth in the certificate of incorporation of the Corporation (including any applicable certificate of designations), the
only stockholder approval required shall be the affirmative vote of a majority of the voting power of the Common Stock
and the Preferred Stock so entitled to vote, voting together as a single class.
B.
Common Stock. Except as otherwise required by law or the certificate of incorporation of the
Corporation, each holder of Common Stock shall be entitled to one vote in respect of each share of Common Stock held
by such holder of record on the books of the Corporation for the election of directors and on all matters submitted to a vote
of stockholders of the Corporation and shall otherwise have the rights conferred by applicable law in respect of such
shares.
1
C.
Preferred Stock. The Preferred Stock may be issued from time to time in one or more series, as
determined by the Board of Directors. The Board of Directors is expressly authorized to provide for the issue, in
one or more series, of all or any of the shares of Preferred Stock and, in the resolution or resolutions providing for
such issue, to establish for each such series the number of its shares, the voting powers, full or limited, of the
shares of such series, or that such shares shall have no voting powers, and the designations, preferences and
relative, participating, optional or other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof. The Board of Directors is also expressly authorized (unless forbidden in the
resolution or resolutions providing for such issue) to increase or decrease (but not below the number of shares of
such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that
series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware:
A.
The Board of Directors is expressly authorized to adopt, amend or repeal the bylaws of the
Corporation, without any action on the part of the stockholders, by the vote of at least a majority of the directors
of the Corporation then in office; which shall include the affirmative vote of at least one director from each class
of the Board of Directors if the Board of Directors shall then be divided into classes. In addition to any vote of
the holders of any class or series of stock of the Corporation required by law or the certificate of incorporation of
the Corporation, the bylaws may also be adopted, amended or repealed by the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66-2/3%) of the voting power of the shares of the capital stock of the
Corporation entitled to vote in the election of directors, voting as one class; provided, however, that the
affirmative vote of the holders representing only a majority of the voting power of the shares of the capital stock
of the Corporation entitled to vote in the election of directors, voting as one class, shall be required if such
adoption, amendment or repeal of the bylaws has been previously approved by the affirmative vote of at least
two-thirds (2/3) of the directors of the Corporation then in office.
Elections of directors need not be by written ballot unless the bylaws of the Corporation shall
The books of the Corporation may be kept at such place within or without the State of
Delaware as the bylaws of the Corporation may provide or as may be designated from time to time by the Board
of Directors.
B.
so provide.
C.
2
ARTICLE VI
A.
The business and affairs of the Corporation shall be managed by a Board of Directors
consisting of not less than five (5) nor more than fifteen (15) persons. The exact number of directors within the
minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the
Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the directors of the
Corporation then in office. The Board of Directors, other than those directors elected by the holders of any series
of Preferred Stock as provided for or fixed pursuant to the provisions of Article IV hereof, shall be divided into
three classes, designated Class I, Class II and Class III, as nearly equal in number as possible, and the term of
office of directors of one class shall expire at each annual meeting of stockholders, and in all cases as to each
director until his successor shall be duly elected and qualified or until his earlier resignation, removal from office,
death or incapacity. Upon the effectiveness of the Restated Certificate of Incorporation first inserting this
sentence, the Board of Directors shall assign all members of the Board of Directors then in office to a class and
those directors assigned to Class I shall hold office for a term expiring at the first regularly scheduled annual
meeting of stockholders following the effectiveness of the Restated Certificate of Incorporation first inserting this
sentence (the “Effective Time”), those directors assigned to Class II shall hold office for a term expiring at the
second annual meeting of stockholders following the Effective Time, and those directors assigned to Class III
shall hold office for a term expiring at the third annual meeting of stockholders following the Effective Time. At
each succeeding annual meeting of stockholders, a number of directors equal to the number of directors whose
term expires at the time of such meeting (or, if less, the number of directors properly nominated and qualified for
election) shall be elected to hold office until the third succeeding annual meeting of stockholders after their
election.
B.
Subject to the rights of the holders of any series of preferred stock then outstanding, newly
created directorships resulting from any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other
cause shall be filled solely by a majority vote of the directors then in office, although less than a quorum, or by a
sole remaining director. If there are no directors in office, then an election of directors may be held in the manner
provided by statute. Directors chosen pursuant to any of the foregoing provisions shall hold office for a term
expiring at the Annual Meeting of Stockholders at which the term of the class to which they have been elected
expires and until their successors are duly elected and have qualified or until their earlier resignation or removal.
Additional directorships resulting from an increase in the number of directors pursuant to paragraph A of this
Article VI shall be apportioned among the three classes as equally as possible. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any incumbent director. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, or by the
certificate of incorporation or the bylaws of the Corporation, may exercise the powers of the full board until the
vacancy is filled.
C.
Any director or the entire Board of Directors may be removed only for cause.
3
A.
No action required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting and the power of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.
ARTICLE VII
B.
Special meetings of the stockholders of the Corporation may be called only by the Chairman of
the Board or the Chief Executive Officer of the Corporation or by a resolution adopted by the affirmative vote of
a majority of the Board of Directors, and any power of stockholders to call a special meeting of stockholders is
specifically denied.
C.
Advance notice of stockholder nominations for the election of directors and of business to be
brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner
and to the extent provided in the bylaws of the Corporation.
ARTICLE VIII
A.
Limitation on Liability. To the fullest extent permitted by the DGCL, as the same exists or as
may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
B.
Indemnification. Each person who is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or agent of another Corporation or of a
partnership, joint venture, trust, employee benefit plan or other enterprise (including the heirs, executors,
administrators or estate of such person), shall be indemnified and advanced expenses by the Corporation, in
accordance with the bylaws of the Corporation, to the fullest extent authorized by the DGCL, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment) or any other applicable laws as presently or hereinafter in effect. The right to
indemnification and advancement of expenses hereunder shall not be exclusive of any other right that any person
may have or hereafter acquire under any statute, provision of the certificate of incorporation or bylaws of the
Corporation, agreement, vote of stockholders or disinterested directors or otherwise.
C.
Insurance. The Corporation may, to the fullest extent permitted by law, purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any
expense, liability or loss incurred by such person in any such capacity or arising out of such person’s status as
such, whether or not the Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
D.
Repeal and Modification. Any repeal or modification of the foregoing provisions of this
Article VIII shall not adversely affect any right or protection existing hereunder immediately prior to such repeal
or modification.
4
ARTICLE IX
The affirmative vote of the holders of at least sixty-six and two-thirds percent (66- 2/3%) of the voting
power of the shares of the capital stock of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to amend in any respect or repeal this Article IX, Paragraph A
of Article V, and Articles VI, VII and VIII.
* * *
5
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which only restates and
integrates and does not further amend the provisions of the Certificate of Incorporation of this Corporation as
heretofore amended or supplemented, there being no discrepancies between those provisions and the provisions
of this Restated Certificate of Incorporation, and it having been duly adopted by the Corporation’s Board of
Directors in accordance with Section 245 of the DGCL, has been executed by its duly authorized officer on the
date set forth below.
RENEWABLE ENERGY GROUP, INC.
By: /s/ Chad Stone
Name: Chad Stone
Title: Chief Financial Officer
Date: March 5, 2019
6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated this November 30, 2018, by and between Renewable
Energy Group, Inc., a Delaware corporation (the “Company”), and Cynthia Warner (“Executive”).
WHEREAS, the Company desires to employ Executive, and Executive desires to be employed by the Company, on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, and for other good and
valuable consideration, it is hereby covenanted and agreed by the Company and Executive as follows:
1.
Term and Duties.
1.1
Term. The Company hereby employs Executive for a term (as the same may be extended, the “Term”)
commencing as of January 14, 2019 and continuing until January 14, 2022, unless terminated earlier in accordance with the
provisions of Section 7. On January 14, 2022, the Term shall automatically be extended for successive one-year periods in
accordance with the terms of this Agreement (subject to termination as aforesaid) unless either party notifies the other party of
non-renewal in writing, in accordance with Section 12, at least 90 days prior to the expiration of the initial period or any
subsequent renewal period.
1.2
Duties. During the Term, Executive shall be employed by the Company as the President and Chief
Executive Officer of the Company, and, as such, Executive shall faithfully perform for the Company the duties of said office and
shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from
time to time by the Board of Directors (the “Board”) of the Company. Executive shall report to the Board. Executive shall devote
substantially all of her business time and effort to the performance of her duties hereunder, except that Executive may devote
reasonable time and attention to civic, charitable, business or social activities, so long as such activities do not interfere with
Executive’s employment duties. Executive shall comply with the policies, standards, and regulations established from time to
time by the Company. In addition, during the Term, Executive shall serve as a member of the Board and the Company shall
nominate Executive for re-election to the Board at such times as shall be necessary for Executive to remain as a member of the
Board throughout the Term. During the Term, Executive shall not receive any compensation in any form in her capacity as a
member of the Board.
2.
Location. During the Term, Executive shall perform her duties under this Agreement at the Company’s
headquarters, subject to travel required by Executive’s position and consistent with the reasonable business needs of the
Company.
3.
Office Space and Administrative Support. During the Term, the Company shall furnish Executive with office
space, equipment, supplies and such other facilities and personnel at the Company’s headquarters commensurate with
Executive’s position.
4.
Compensation.
$800,000 per annum, in accordance with the customary payroll practices of the Company applicable
4.1
Annual Salary. During the Term, the Company shall pay Executive a base salary at the rate of
-1-
to senior executives, but not less frequently than monthly. The Compensation Committee (the “Compensation Committee”) of
the Board shall review Executive’s base salary during the Term and may increase such amount as it may deem advisable (such
salary, as the same may be increased, the “Annual Salary”). The Annual Salary shall be prorated for any partial calendar year
during the Term.
incentive compensation programs as follows:
4.2
Bonus and Incentive Compensation. Executive shall be entitled to participate in the Company’s
(a)
Annual Bonus Compensation. During the Term, Executive shall be eligible to receive an annual bonus
(the “Annual Bonus”) pursuant to the terms and conditions of the Company’s annual incentive plan for executive officers (or any
successor thereto). Based upon attainment of performance goals predetermined by the Compensation Committee, Executive shall
be entitled to an Annual Bonus payment at a target level of 100% of Executive’s Annual Salary. The Compensation Committee
shall review the target annual bonus percentage during the Term and may increase such percentage as it may deem advisable
(such target annual bonus, as the same may be increased, the “Target Annual Bonus”).
(b)
Equity Incentive Compensation - In General. During the Term, Executive shall be eligible to
participate in the Company’s equity incentive plans pursuant to the Company’s Amended and Restated 2009 Stock Incentive
Plan (the “Plan”) (or any successor thereto) or such other plans or programs as the Compensation Committee shall determine. In
the event that the vesting terms of the applicable award agreements governing Executive’s equity-based incentive awards differ
from or are in conflict with the vesting terms set forth in Section 7 of this Agreement, the terms of this Agreement shall govern
and control.
Equity Incentive Compensation - Specific Grants. Each award set forth below shall be granted under
the Plan and shall be evidenced by, and subject to the terms of, a restricted stock unit award agreement or a performance-based
restricted stock unit award agreement, as applicable, in the form generally used by the Company under the Plan.
(c)
(i)
(ii)
As soon as practicable following January 14, 2019, the Company shall grant Executive a one-
time award in the form of restricted stock units (“Sign-On RSUs”) covering shares of the
Company’s common stock, par value $.0001 per share (“ Common Stock”), having a total Fair
Market Value (as defined in the Plan) on the date of grant of $1,000,000. The Sign-On RSUs
shall fully vest on the third anniversary of the date of grant, subject to Executive’s continued
employment with the Company or one of its affiliates through such date, except as set forth in
the applicable award agreement for the Sign-On RSUs, which shall incorporate the provisions
of Section 7.1(d), Section 7.3(a)(i)(G) and Section 7.4(b)(i)(F), below).
For each fiscal year during the Term, the Company shall grant Executive annual long-term
incentive compensation awards having a target value of 237.5% of Executive’s Annual Salary,
based on the Fair Market Value (as defined in the Plan) of the target number of shares of
Common Stock underlying such awards as of the date of grant. For fiscal year 2019, 25% of
such annual awards shall be in the form of restricted stock units (the “Annual RSUs”), and
75% of such annual awards shall be in the form of performance-based restricted stock units
(the “Annual PBRSUs”). For fiscal year 2020 and thereafter, the mix of Annual RSUs and
Annual PBRSUs shall be determined by the Committee in its discretion. The Annual RSUs
shall fully vest on the third anniversary of the date of grant subject to Executive’s continued
employment with the Company or one of its affiliates through such date (except as set forth in
the applicable award
-2-
agreement), and the Annual PBRSUs shall vest based on attainment of performance conditions
selected by the Compensation Committee which such conditions shall be consistent with the
performance conditions established for the other senior executive officers of the Company.
4.3
Benefits - In General. During the Term, Executive shall be permitted to participate in any group
health, dental, vision, disability and life insurance benefit plans and programs, retirement plans, fringe benefit programs, paid
time-off policies and similar benefits that may be available to other senior executives of the Company generally, on the same
terms as such other executives, in each case to the extent that Executive is eligible under the terms of such plans or programs.
The Company reserves the right to modify, suspend or discontinue any of its health or welfare benefit, retirement, fringe benefit,
paid time-off (“PTO”) and other plans, practices, policies or programs at any time without recourse by Executive; provided,
Executive’s PTO benefit shall include 30 days’ vacation per calendar year.
4.4
Relocation Benefits. Executive shall relocate her principal residence to metropolitan Des Moines
(which for this purpose shall include but not be limited to the Ames, Iowa area) no later than June 17, 2019. The Company shall
provide Executive with the following relocation benefits through payment or reimbursement of reasonable costs relating to (i)
packing and moving Executive’s personal effects and vehicles from her current residence to a residence in metropolitan Des
Moines, (ii) closing costs on the sale of Executive’s current residence and the purchase of a residence in metropolitan Des
Moines (in each case, including brokers’ commissions, title charges, attorneys fees, and transfer taxes) and (iii) a miscellaneous
nonitemized cash allowance in the amount of $20,000. In addition, prior to Executive’s relocation of her principal residence, the
Company shall pay Executive an allowance to cover her actual temporary housing costs in metropolitan Des Moines in an
amount up to $5,000 per month. All payments or reimbursements under this Section 4.4 that are taxable to Executive shall be
fully grossed up for all taxes incurred by Executive on such payments.
Legal Fees. The Company shall pay Executive’s reasonable legal fees and expenses incurred by
Executive in connection with the review, negotiation and preparation of this Agreement and any documents ancillary thereto in
an amount not to exceed $10,000.
4.5
4.6
Expenses. The Company shall pay or reimburse Executive for all ordinary and reasonable out-of-
pocket expenses incurred by Executive during the Term in the performance of Executive’s services under this Agreement;
provided that such expenses are incurred and accounted for by Executive in accordance with the policies and procedures
established from time to time by the Company.
5.
Clawback. Notwithstanding anything in this Agreement to the contrary, Executive acknowledges that the
Company may be entitled or required by law, the Company’s policy (the “Clawback Policy”) or the requirements of an exchange
on which the Company’s shares are listed for trading, to recoup cash, equity or other compensation paid or provided to Executive
pursuant to this Agreement or otherwise, and Executive agrees to comply with any Company request or demand for recoupment
pursuant to such law or policy. Executive acknowledges that the Clawback Policy may be modified from time to time in the sole
discretion of the Company and without the consent of Executive, and that such modification shall be deemed to amend this
Agreement.
6.
Indemnification. The Company shall, at all times during which Executive may be subject to liability for her acts
and omissions to act occurring while serving as an officer or a member of the Board, indemnify Executive and hold her harmless
(including advances of attorneys fees and expenses) to the maximum extent permitted under the Company’s certificate of
incorporation, by-laws and applicable law (including the Delaware General Corporation Law). Executive shall be covered as an
insured under any contract of directors and officers liability insurance that insures members of the Board. This Section 6 shall
survive a termination of Executive’s employment and service as a member of the Board and any termination
-3-
of this Agreement.
7.
Termination of Employment.
7.1
Termination upon Death or Disability. If Executive dies during the Term, the obligations of the
Company to or with respect to Executive shall terminate in their entirety except as otherwise provided under this Section 7.1. If
Executive becomes eligible for disability benefit payments under the Company’s long-term disability plans and arrangements
(or, if none, if Executive by virtue of ill health or other disability is unable to perform substantially and continuously the duties
assigned to her for at least 120 consecutive or non-consecutive days out of any consecutive 12-month period), the Company
shall have the right, to the extent permitted by law, to terminate the employment of Executive upon notice in writing to
Executive; provided that the Company shall have no right to terminate Executive’s employment if, in the reasonable opinion of a
qualified physician acceptable to the Company, it is substantially certain that Executive shall be able to resume Executive’s
duties on a regular full-time basis within 30 days of the date Executive receives notice of such termination. Upon death or other
termination of employment by virtue of disability in accordance with this Section 7.1, Executive (or Executive’s estate or
beneficiaries in the case of the death of Executive) shall have no right to receive any compensation or benefits hereunder on and
after the effective date of the termination of employment other than
(a) Executive’s Annual Salary, PTO and other benefits earned and accrued under this Agreement prior to the
date of termination (and reimbursement under this Agreement for expenses incurred prior to the date of
termination);
(b) any unpaid Annual bonus earned for a year preceding the year in which such termination occurs, payable
when annual bonuses are paid to other executives for such preceding year (“Prior Year Bonus”);
(c) a lump sum cash payment equal to the Annual Bonus for the calendar year in which Executive’s employment
hereunder terminates, prorated based on the number of days during the period beginning on January 1 and
ending on the date on which Executive’s employment is terminated pursuant to this Section 7.1, and calculated
based on actual performance through the end of the applicable performance year (but in no event shall the
amount of the bonus payable to Executive be greater than the prorated portion of Executive’s Target Annual
Bonus for such year in the event of Executive’s termination within the first 180 days of such year), payable at
the same time as annual bonuses of other senior executives of the Company, but in no event later than March 15
of the year following the year with respect to which such Annual Bonus is payable; and (d) any unvested Sign-
On RSUs shall become fully vested and settled promptly after such termination.
7.2
Termination by the Company for Cause; Termination by Executive
without
Good Reason.
(a)
For purposes of this Agreement, “Cause” shall mean
Executive’s:
(i)
(ii)
(iii)
(iv)
willful failure to perform her material employment duties
hereunder;
having been convicted of, or entered a plea of nolo contendere to, a crime that constitutes a
felony;
commission of any crime (other than traffic or other petty offenses) relating to Executive’s
employment with the Company or any of its subsidiaries or affiliates;
material violation of any federal, state or
administrative
local
law or
-4-
regulation related to the business of the Company or any of its subsidiaries or affiliates;
(v)
(vi)
(vii)
willful conduct that could result in unfavorable publicity about the Company or any of its
subsidiaries or affiliates;
willful failure to comply in any material respect with the material policies of the Company or
any of its subsidiaries or affiliates; or
material breach of the terms of this Agreement or the Non- Competition and Confidentiality
Agreement;
provided, that the Company shall not be permitted to terminate Executive for Cause except on written notice given to Executive
at any time following the occurrence of any of the events described above. No act or omission to act shall be “willful” if
conducted in good faith or with a reasonable belief that such conduct was in the best interests of the Company. Notwithstanding
the foregoing, Executive shall not be deemed to have been terminated for Cause under clause (i), (v), (vi), (vii) or (viii) above
unless the Company provided written notice to Executive setting forth in reasonable detail the reasons for the Company’s
intention to terminate for Cause and Executive failed within 30 days to cure the event or deficiency set forth in the written notice.
Executive:
(a)
For purposes of this Agreement, “Good Reason” shall mean, unless otherwise consented to by
(i)
(ii)
(iii)
(iv)
(v)
a material reduction of Executive’s Annual Salary or Target Annual Bonus opportunity
(except for an across-the-board annual base salary reduction of like proportion affecting all
senior executives of the Company);
a material breach of the terms of this Agreement by the
Company;
a material diminution of Executive’s title, duties or responsibilities (including reporting
responsibilities);
a relocation of Executive’s offices to more than 50 miles from the Company’s principal
place of business in Ames, Iowa; or
any failure of the Company to assign this Agreement to any successor to the assets and
business of the Company, or a failure of any such successor to assume the Company’s
obligations under this Agreement.
Notwithstanding the foregoing, Good Reason shall not be deemed to exist unless notice of termination on account thereof
(specifying a termination date no earlier than 30 days from the date of such notice) is given by Executive to the Company no later
than 30 days after the time at which Executive first becomes or should have become aware of the event or condition purportedly
giving rise to Good Reason; and, in such event, the Company shall have 30 days from the date notice of such a termination is
given to cure such event or condition and, if the Company does so, such event or condition shall not constitute Good Reason
hereunder, but, if the Company does not cure such event within the 30-day period, Executive must terminate her employment not
later than 45 days after the end of such 30-day period in order for Good Reason to exist.
her employment at any time other than for either Good Reason or Retirement, then (i)
(b)
If the Company terminates Executive’s employment hereunder for Cause or if Executive terminates
-5-
Executive shall receive Executive’s Annual Salary, PTO and other benefits (but, in all events, and without increasing
Executive’s rights under any other provision hereof, excluding any Annual Bonus not yet paid) earned and accrued under this
Agreement prior to Executive’s termination of employment (and reimbursement under this Agreement for expenses incurred
prior to the termination of employment), and (ii) Executive shall have no further rights to any other compensation or benefits
hereunder on or after the termination of employment, or any other rights hereunder.
7.3
Termination by the Company without Cause; Termination by Executive for Good
Reason.
(a)
If the Company terminates Executive’s employment without Cause or
if
Executive terminates Executive’s employment with the Company for Good Reason, then:
(i)
Executive shall (subject, in the case of the following clauses (C), (D), (F), (G) and (H), to
Executive’s delivery of a general release substantially in a form attached hereto as Exhibit A
reasonably acceptable to the Company which shall have become irrevocable and Executive’s
compliance with the covenants set forth in the Non- Competition and Confidentiality
Agreement) be entitled to:
(A)
(B)
(C)
(D)
(E)
(F)
any accrued but unpaid Annual Salary and PTO due to Executive as of the
termination of employment;
reimbursement under this Agreement for expenses incurred but unpaid prior to the
termination of employment;
a cash payment equal to 150% of the sum of Executive’s Annual Salary plus her
Target Annual Bonus, payable in equal installments over an 18-month period in
accordance with the Company’s usual and customary payroll practices;
a lump sum cash payment equal to the Target Annual Bonus for the calendar year in
which Executive’s employment hereunder terminates, prorated based on the number
of days during the period beginning on January 1 and ending on the date on which
Executive’s employment is terminated pursuant to this Section 7.3;
any unpaid Prior Year
Bonus;
for a period of 18 months after termination, such health benefits under the Company’s
health plans and programs applicable to senior executives of the Company generally
(if and as in effect from time to time) as Executive would have received under this
Agreement (and at such costs to Executive as would have applied in the absence of
such termination); provided, however, that the Company shall in no event be required
to provide any benefits otherwise required by this clause (F) after such time as
Executive becomes entitled to receive benefits of the same type from another
employer or recipient of Executive’s services (such entitlement being determined
without regard to any individual waivers or
-6-
(G)
(H)
other similar arrangements);
any unvested Sign-On RSUs shall become fully vested and settled promptly after
such termination; and
any unvested Annual RSUs, Annual PBRSUs and other equity grants shall become
immediately vested on the date of termination (and settled within 30 days thereafter)
pro rata based on the ratio of (x) the number of days elapsed from the first day of the
vesting period set forth in the grant agreement through the date on which Executive’s
employment is terminated pursuant to this Section 7.3 to (y) the total number of days
in the vesting period (and if such awards vest on an annual basis, then such proration
shall be based on the ratio of (p) the total number of days from the vesting date
immediately preceding the termination date (or, if none, from the first day of the
vesting period set forth in the grant agreement) through the date on which
Executive’s employment is terminated pursuant to this Section 7.3 to (q) the total
number of days from such immediately preceding vesting date (or, if none, from the
first day of the vesting period set forth in the grant agreement) to the next succeeding
vesting date following the employment termination date; provided, any unvested
Annual PBRSUs and other equity grants subject to performance-based vesting will
remain subject to achievement of the applicable performance requirements and will
be settled at the same time as Annual PBRSUs or and other equity grants subject to
performance-based vesting are settled for other executive grantees after completion of
the performance period.
(ii)
The timing of the payments provided under Section 7.3(a)(i) shall be as follows, except as
provided in Section 7.6:
(A)
(B)
(C)
Amounts payable pursuant to clauses (A), (B) and (E) of Section 7.3(a)(i) shall be
paid in the normal course or in accordance with applicable law and in no event later
than 30 days following Executive’s separation from service;
Amounts payable pursuant to clauses (C) and (D) of Section 7.3(a)(i) shall commence
or be paid, as applicable, on the 60th day following the separation from service,
provided Executive has delivered the release referenced i n Section 7.3(a)(i) to the
Company and such release has become irrevocable; and
Amounts payable for the health benefits provided pursuant to clause (F) of Section
7.3(a)(i) shall commence at the date following Executive’s separation from service
that is required under the relevant health plans and programs to provide such benefits.
(iii)
Executive shall have no further rights to any other compensation or benefits hereunder on or
after the termination of employment, or any other rights
-7-
hereunder.
7.4
a Change in Control.
Termination by the Company without Cause or Termination by Executive for Good Reason Following
(a)
For purposes of this Agreement, “Change in Control” means:
(i)
(ii)
(iii)
(iv)
any person (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”) but excluding (x) a trustee or other fiduciary holding
securities under an employee benefit plan maintained by the Company or a parent or
subsidiary and (y) a corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of the common stock of the
Company, par value
$0.0001 per share (the “Common Stock”)) becomes the beneficial owner (as such term is
defined in Rule 13d-3 under the Exchange Act) of 50% or more of the Common Stock or of the
securities of the Company that are entitled to vote generally in the election of directors of the
Company (“Voting Securities”) representing 50% or more of the combined voting power of all
Voting Securities of the Company;
the Incumbent Directors cease for any reason to constitute at least 60% of the
Board;
the restructuring of the Company as a result of the consummation of a merger, reorganization,
consolidation, or similar transaction which shall result in the Company’s stockholders
immediately prior to such transaction not holding more than 50% of the voting power of each
of (A) the Company (or its successor) and (B) any direct or indirect parent corporation of the
Company (or its successor) (any of the foregoing, a “Reorganization Transaction”); or
the consummation of a plan or agreement that has been approved by the shareholders of the
Company for the sale or other disposition of all or substantially all of the consolidated assets of
the Company or a plan of liquidation of the Company.
For purposes of the foregoing, “Incumbent Directors” means, as of any date, the individuals then serving as members of the
Board who were also members of the Board as of the date two years prior to the date of determination; provided that any
member appointed or elected as a member of the Board after such prior date, but whose election, or nomination for election, was
approved by a vote or written consent of at least a majority of the directors then comprising the Incumbent Directors shall also
be considered an Incumbent Director unless such person’s election, or nominated for election, to the Board was as a result of, or
in connection with, a proxy contest or a Reorganization Transaction.
If the Company terminates Executive’s employment without Cause or if Executive terminates
Executive’s employment with the Company for Good Reason, in each case, within two years following the consummation of a
Change in Control, then:
(b)
(i)
Executive shall (subject, in the case of the following clauses (C), (D), (F), and (G), to
Executive’s delivery of a general release reasonably acceptable
-8-
to the Company which shall have become irrevocable and Executive’s compliance with the
covenants set forth in the Non-Competition and Confidentiality Agreement) be entitled to:
(A)
(B)
(C)
(D)
(E)
(F)
(G)
any accrued but unpaid Annual Salary and PTO due to Executive as of the termination
of employment;
reimbursement under this Agreement for expenses incurred but unpaid prior to the
termination of employment;
a lump sum cash payment equal to 200% of the sum of Executive’s Annual Salary
plus her Target Annual Bonus;
a lump sum cash payment equal to the Target Annual Bonus for the calendar year in
which Executive’s employment hereunder terminates, prorated based on the number
of days during the period beginning on January 1 and ending on the date on which
Executive’s employment is terminated pursuant to this Section 7.4;
any unpaid Prior Year
Bonus;
(1) full acceleration of the vesting and settlement of any unvested Sign-On RSUs,
Annual RSUs or other time-based equity awards in the Company, (2) for performance-
based equity awards for which a target is not specified in the applicable award
agreement, vesting of a number of shares of Common Stock equal to the number of
shares of Common Stock set forth in the applicable award agreement and (3) for
performance-based awards for which a target is set forth in the applicable award
agreement, vesting of a number of shares of Common Stock determined using “target”
level of performance; and
for a period of 18 months after termination, such health benefits under the Company’s
health plans and programs applicable to senior executives of the Company generally
(if and as in effect from time to time) as Executive would have received under this
Agreement (and at such costs to Executive as would have applied in the absence of
such termination); provided, however, that the Company shall in no event be required
to provide any benefits otherwise required by this clause (G) after such time as
Executive becomes entitled to receive benefits of the same type from another employer
or recipient of Executive’s services (such entitlement being determined without regard
to any individual waivers or other similar arrangements).
(ii)
The timing of the payments provided under Section 7.4(b)(i) shall be as follows, except as
provided in Section 7.6:
(A)
Amounts payable pursuant to clauses (A), (B) and (E) of Section 7.4(b)(i) shall be
paid in the normal course or in accordance with applicable law and in no event later
than 30 days following Executive’s separation from service;
-9-
(B)
(C)
Amounts payable pursuant to clauses (C) and (D) of Section 7.4(b)(i) shall be paid on
the 60th day following the separation from service, provided Executive has delivered
the release referenced in Section 7.4(b)(i) to the Company and such release has
become irrevocable; and
Amounts payable for the health benefits provided pursuant to clause (G) of Section
7.4(b)(i) shall commence at the date following Executive’s separation from service
that is required under the relevant health plans and programs to provide such benefits.
(iii)
Executive shall have no further rights to any other compensation or benefits hereunder on or
after the termination of employment, or any other rights hereunder.
7.5
Retirement. Executive may terminate her employment (other than for Good Reason) at any time on or
after attainment of age 64 and five years of service with the Company, provided that Executive has given the Company not less
than 90 days’ notice (“Retirement”). If the Company gives notice to Executive pursuant to Section 1.1 that the Term will not be
renewed, any termination of Executive’s employment by the Company (except if for Cause) or by Executive occurring on or after
expiration of the Term shall be treated as a Retirement.
(a)
Upon
Retirement:
(i)
Executive shall (subject, in the case of the following clauses (D), and (E), to Executive’s delivery
of a general release substantially in a form attached hereto as Exhibit A reasonably acceptable to
the Company which shall have become irrevocable and Executive’s compliance with the covenants
set forth in the Non-Competition and Confidentiality Agreement) be entitled to:
(A)
(B)
(C)
(D)
(E)
any accrued but unpaid Annual Salary and PTO due to Executive as of the termination of
employment;
reimbursement under this Agreement for expenses incurred but unpaid prior to the
termination of employment;
any unpaid Prior Year
Bonus;
an Annual Bonus, for the year in which such termination occurs, prorated based on the
number of days during the period beginning on January 1 and ending on the date on which
Executive’s employment terminated pursuant to this Section 7.5, determined subject to
attainment of applicable Company performance requirements (and any individual
performance requirement shall be deemed fully satisfied); and
any unvested Annual RSUs, Annual PBRSUs and other equity grants shall become
immediately vested on the date of termination (and settled within 30 days thereafter) pro
rata based on the ratio of (x) the number of days elapsed from the first day of the vesting
period set forth in the grant agreement through the date of employment termination to (y)
the
-10-
total number of days in the vesting period (and if such awards vest on an annual basis, then
such proration shall be based on the ratio of (p) the total number of days from the vesting
date immediately preceding the termination date (or, if none, from the first day of the
vesting period set forth in the grant agreement) through the date of employment termination
to
(q) the total number of days from such immediately preceding vesting date (or, if none,
from the first day of the vesting period set forth in the grant agreement) to the next
succeeding vesting date following the employment termination date; provided, any unvested
Annual PBRSUs and other equity grants subject to performance-based vesting will remain
subject to achievement of the applicable performance requirements and will be settled at the
same time as Annual PBRSUs or other equity grants subject to performance-based vesting
are settled for other executive grantees after completion of the performance period.
The timing of the payments provided under Section 7.5(a)(i) shall be as follows, except as
provided in Section 7.6:
(ii)
(A)
(B)
Amounts payable pursuant to clauses (A), (B) and (C) of Section 7.5(a)(i) shall be
paid in the normal course or in accordance with applicable law and in no event later
than 30 days following Executive’s separation from service; and
Amounts payable pursuant to clause (D) of Section 7.5(a)(i) shall be paid at the same
time as annual bonuses of other senior executives of the Company, but in no event
later than March 15 of the year following the year with respect to which such Annual
Bonus is payable, provided Executive has delivered the release referenced in Section
7.5(a)(i) to the Company and such release has become irrevocable.
7.6
Delay in Payment to a Specified Employee. If Executive is a “specified employee” within the meaning
of Treasury Regulation Section 1.409A-1(i) as of the date of Executive’s separation from service, the provisions of this Section
7.6 shall apply but only if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations and interpretive guidance
promulgated thereunder (collectively, “Section 409A”). No distribution shall be made to Executive under Section 7.1, 7.3, 7.4 or
7.5 of this Agreement before the date that is six months after her separation from service or, if earlier, the date of Executive’s
death. Any amounts otherwise payable to Executive upon or in the six month period following Executive’s separation from
service that are not so paid by reason of this Section 7.6 shall be paid (without interest) as soon as practicable (and in all events
within 10 days) after the date that is six months after Executive’s separation from service (or, if earlier, as soon as practicable,
and in all events within 10 days, after the date of Executive’s death).
8.
Limitation on Payments.
1.1
General. In the event that the payments and benefits (the “Payments”) paid or provided to Executive
under this Agreement or otherwise (a) constitute “parachute payments” within the meaning of Section 280G of the Code
(“Section 280G”), and (b) but for this Section 8, would be subject to the excise tax imposed by Section 4999 of the Code
(“Section 4999”), then the Payments shall be either (x) delivered in full, or (y) delivered as to such lesser extent which would
result in no portion of the Payments
-11-
being subject to excise tax under Section 4999, whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Executive on an after-tax basis,
of the greatest amount of the Payments, notwithstanding that all or some portion of the Payments may be taxable under Section
4999. The provisions of this Section 8 shall apply if, at the time of any change in ownership or control of the Company (within
the meaning of Section 280G), the Company is an entity whose stock is readily tradable on an established securities market (or
otherwise), within the meaning of Section 280G.
1.2
Accountants’ Determinations. Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8 shall be made in writing by the Company’s independent public accountants
immediately prior to the Change of Control (the “Accountants”), whose determination shall be conclusive and binding upon
Executive and the Company for all purposes. For purposes of making the calculations required by this Section 8, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Section 280G and Section 4999. The Company and Executive shall furnish to the
Accountants such information and documents as the Accountants may reasonably request in order to make a determination under
this Section 8. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations
contemplated by this Section 8. If a reduction in the Payments constituting “parachute payments” as defined in Section 280G is
necessary so that benefits are delivered to a lesser extent, reduction shall occur in the following order: (a) reduction of the cash
severance payments; (b) cancellation of accelerated vesting of equity awards that do not qualify for special valuation under Q&A
24(c) of the regulations under Section 280G; (c) cancellation of other equity awards; and (d) reduction of continued employee
benefits. In the event that the accelerated vesting of equity awards is to be cancelled, such vesting acceleration shall be cancelled
in the reverse chronological order of Executive’s equity awards’ grant dates.
9.
Restrictive Covenants. Simultaneously with the execution of this Agreement, Executive shall execute the
Employee Non-Competition and Confidentiality Agreement attached hereto as Exhibit B (the “Non-Competition and
Confidentiality Agreement”).
10.
Arbitration. All disputes between the parties or any claims concerning the performance, breach, construction
or interpretation of this Agreement, or in any manner arising out of this Agreement, shall be submitted to binding arbitration in
accordance with the Commercial Arbitration Rules, as amended from time to time, of the American Arbitration Association (the
“AAA”), which arbitration shall be carried out in the manner set forth below:
(i)
(ii)
Within 15 days after written notice by one party to the other party of its demand for arbitration,
which demand shall set forth the name and address of its designated arbitrator, the other party
shall appoint its designated arbitrator and so notify the demanding party. Within 15 days
thereafter, the two arbitrators so appointed shall appoint the third arbitrator. If the two
appointed arbitrators cannot agree on the third arbitrator, then the AAA shall appoint an
independent arbitrator as the third arbitrator. The dispute shall be heard by the arbitrators
within 90 days after appointment of the third arbitrator. The decision of any two or all three of
the arbitrators shall be binding upon the parties without any right of appeal. The decision of
the arbitrators shall be final and binding upon the Company, its successors and assigns, and
upon Executive, her heirs, personal representatives, and legal representatives.
The arbitration proceedings shall take place in Des Moines, Iowa, and the judgment and
determination of such proceedings shall be binding on all parties. Judgment upon any award
rendered by the arbitrators may be
-12-
entered into any court having competent jurisdiction without any right of appeal.
(iii)
The Company shall pay all expenses of the arbitration, and the expenses of the arbitrators and
the arbitration proceeding. However, if in the opinion of a majority of the arbitrators, any claim
or defense of Executive was unreasonable, the arbitrators may assess Executive, as part of any
award to the Company, all or any part of expenses of the arbitrators and the arbitration
proceeding otherwise payable by the Company.
11.
Severability. As the provisions of this Agreement are independent of and severable from each other, the
Company and Executive agree that if, in any action before any court or agency legally empowered to enforce this Agreement,
any term, restriction, covenant, or promise hereof is found to be unreasonable or otherwise unenforceable, then such decision
shall not affect the validity of the other provisions of this Agreement, and such invalid term, restriction, covenant, or promise
shall also be deemed modified to the extent necessary to make it enforceable.
12.
Notice. For purposes of this Agreement, notices, demands and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when received if delivered in person, the next
business day if delivered by overnight commercial courier (e.g., Federal Express), or the third business day if mailed by United
States certified mail, return receipt requested, postage prepaid, to the following addresses:
(a)
If to the Company,
to:
Renewable Energy Group, Inc. 416 S. Bell Avenue
Ames, Iowa 50010
Attn: Chairman of the Board
with a copy to:
Pillsbury Winthrop Shaw Pittman LLP Four Embarcadero Center
22nd Floor
San Francisco, CA 94111 Attn: Blair W. White, Esq.
(b)
If to Executive,
to:
the address set forth in the Company’s records
Either party may change its address for notices in accordance with this Section 12 by providing written notice of such change to
the other party.
13.
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State
of Iowa (except under Section 6, in which case Delaware law shall apply) without regard to the choice of law rules thereof.
14.
Benefits; Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective heirs, personal representatives, legal representatives, successors and permitted assigns. Executive
shall not assign this Agreement. However, the Company is expressly
-13-
authorized to assign this Agreement to any of its current or future subsidiaries or affiliates upon written notice to Executive,
provided that (a) the assignee assumes all of the obligations of the Company under this Agreement, (b) Executive’s role when
viewed from the perspective of the Company’s current or future subsidiaries or affiliates in the aggregate is comparable to such
role immediately before the assignment, and (c) the Company, for so long as an affiliate of the assignee, remains secondarily
liable for the financial obligations hereunder.
15.
Entire Agreement . This Agreement (together with Exhibit A and Exhibit B) constitutes the entire agreement
between the parties, and all prior understandings, agreements or undertakings between the parties concerning Executive’s
employment or the other subject matters of this Agreement (including without limitation any term sheets) are superseded in their
entirety by this Agreement. In the event of any inconsistency between this Agreement and any other plan, program or practice of
the Company in which Executive is a participant or a party, this Agreement shall control unless Executive otherwise agrees in
writing and such other plan, program or practice specifically refers to this Agreement as not so controlling.
16.
Waivers; Amendments. This Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single or partial exercise of
any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or
privilege.
17.
Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original,
but which together shall be one and the same instrument.
18.
Executive Acknowledgment. Executive confirms and represents to the Company that she has had the
opportunity to obtain the advice of legal counsel, financial and tax advisers, and such other professionals as she deems necessary
for entering into this Agreement, and she has not relied upon the advice of the Company or the Company’s officers, directors, or
employees.
19.
Interpretation. As both parties having had the opportunity to consult with legal counsel, no provision of this
Agreement shall be construed against or interpreted to the disadvantage of any party by reason of such party having, or being
deemed to have, drafted, devised, or imposed such provision.
20.
Withholding. Any payments made to Executive under this Agreement shall be reduced by any applicable
withholding taxes or other amounts required to be withheld by law or contract.
21.
Section 409A. This Agreement is intended to meet, or be exempt from, the requirements of Section 409A, with
respect to amounts subject thereto, and shall be interpreted and construed consistent with that intent. No expenses eligible for
reimbursement, or in-kind benefits to be provided, during any calendar year shall affect the amounts eligible for reimbursement
in any other calendar year, to the extent subject to the requirements of Section 409A, and no such right to reimbursement or right
to in-kind benefits shall be subject to liquidation or exchange for any other benefit. For purposes of Section 409A, each payment
in a series of installment payments provided under this Agreement shall be treated as a separate payment. Any payments to be
made under this Agreement upon a termination of employment shall only be made upon a “separation from service” under
Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided
under this Agreement comply with Section 409A or any exemption therefrom, and in no event shall the Company be liable for all
or any portion of any taxes, penalties, interest or other expenses that may be incurred by Executive on account of non-
compliance with Section 409A.
22.
Survivability. Those provisions and obligations of this Agreement which are intended to
-14-
survive shall survive notwithstanding termination of Executive’s employment with the Company.
23.
Set-off/No Mitigation. The Company’s obligation to pay Executive the amounts provided and to make the
arrangements provided hereunder shall be subject to set-off, counterclaim or recoupment of undisputed amounts owed by
Executive to the Company or its affiliates. The Company agrees that, if Executive’s employment is terminated hereunder,
Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the
Company’s obligations to make the payments and arrangements required to be made under this Agreement.
24.
Cooperation. Executive shall make herself reasonably available, taking into account her other business and
personal commitments, to cooperate with the Company, its subsidiaries and affiliates and any of their respective officers,
directors, shareholders, employees or agents in connection with any investigation, inquiry, administrative proceeding or litigation
relating to any matter in which Executive becomes involved or of which Executive has knowledge as a result of Executive’s
service with the Company or any of its subsidiaries or affiliates.
-15-
IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.
RENEWABLE ENERGY GROUP, INC.
By: /s/ Jeffrey Stroburg
Name: Jeffrey Stroburg
Title: Chairman
Employee
By: /s/ Cynthia J. Warner
Name: Cynthia J. Warner
-16-
General Release of Claims
EXHIBIT A
AGREEMENT AND RELEASE
This AGREEMENT is made and entered into by and between Renewable Energy Group, Inc. and its affiliates (herein
“Employer”) and Cynthia Warner (herein “Employee”) effective as of the last date set forth on the signature page below.
Pursuant to the Employment Agreement dated November 30, 2018 between Employer and Employee (the “Employment
Agreement”), Employee is entitled to receive certain benefits if Employer terminates her employment without “Cause” or
Employee terminates her employment for “Good Reason” (as such terms are defined in the Employment Agreement). Such
benefits are provided under Section 7.3 of the Employment Agreement or, if the termination occurs within two years following
the consummation of a “Change in Control” (as such term is defined in the Employment Agreement), under Section 7.4 of the
Employment Agreement. In either case, Employee’s entitlement to certain of the benefits described in Sections 7.3 and 7.4 of the
Employment Agreement is subject to Employee’s delivery of a general release in the form of this Agreement and such release
having become irrevocable.
In consideration of the mutual promises contained in this Agreement and the Employment Agreement, Employer and
Employee have reached the following agreement:
1.
Separation. Employee acknowledges that her employment with Employer ends effective [DATE].
2.
Payment of Separation Benefits. In consideration of Employee’s service to Employer and her further
agreements as set out herein and in the Employment Agreement, and in exchange for, and contingent upon, Employee signing
this Agreement and Release, Employer agrees to pay Employee the amounts described in [Section 7.3(a)(i)(C), (D) and (E)] of
the Employment Agreement, at the time or times provided under [Section 7.3(a)(ii)] of the Employment Agreement. 1 Such
payment will be subject to applicable withholdings and deductions and will be paid in accordance with Employer’s customary
payroll practices.
3.
Full Compensation. Employee acknowledges that separation benefits are not normally paid by Employer, and
that the payments set forth in paragraph 2 exceed the amounts that Employer is required to pay or provide under its otherwise
applicable policies and procedures. The payments set forth above, together with such other amounts as may be payable pursuant
to the Employment Agreement, shall constitute full compensation to Employee for any and all sums owing her by Employer,
from any source whatsoever with the exception of amounts that may come due and payable to Employee by virtue of her
participation in Employer’s retirement plan and other benefit plans according to the terms and eligibility as set forth in
appropriate plan documents in existence on Employee’s last date of employment.
4.
No Admission of Liability. This Agreement is not and shall not in any way be construed as an admission of
any wrongful acts by either party against each other or any of Employer's officers, directors, employees, agents, affiliates, or
representatives.
______________________
1 If termination occurs within two years following the consummation of a Change in Control, replace bracketed references with
Section 7.4(b)(i)(C), (D), (E) and (F) and Section 7.4(b)(ii), respectively.
A-1
5.
Release of Liability. In consideration of the payments set out herein, Employee, on her own behalf and on
behalf of anyone else who may make a claim for such payments, hereby irrevocably and unconditionally voluntarily promises,
releases, and forever discharges Employer, its officers, directors, employees, agents, representatives, or affiliates (herein the
“Persons Released”) from any causes of action, complaints, claims, obligations, damages, and expenses of any nature
whatsoever, in law or in equity, which she ever had, now has, or hereinafter may have up to and including the date of this
Agreement. This release includes all claims that Employee may have now under any federal, state, or local law, regulation or
ordinance, whether now known or unknown or whichever existed or now exist, including, without limitation, all liabilities, rights
or claims arising from or in connection with Employee’s employment with Employer and her separation from Employer. This
Release includes, but is not limited to, a release of any rights or claims that Employee may have under the Employee Retirement
Income Security Act of 1974, as amended; Age Discrimination and Employment Act; the Older Workers Benefit Protection Act;
the Americans with Disabilities Act; the Rehabilitation Act of 1973; Title VII of the Federal Civil Rights Act, the Iowa Civil
Rights Act; the Family and Medical Leave Act; any applicable wage payment law; any express or implied contract right; any
other regulation or executive order prohibiting employment discrimination; and any other common law or statutory claim not
identified above. Employee agrees that this instrument shall be a complete defense to any action or proceedings that may be
brought, instituted, or taken against those released with regard to any matter herein released and shall forever be a complete bar
to the commencement or prosecution of any action or proceeding whatsoever against those released. Anything herein to the
contrary notwithstanding, Employee does not release or waive (i) any claim for indemnification pursuant to Section 6 of the
Employment Agreement or otherwise pursuant to applicable law and any claim under directors and officers liability insurance
coverage, (ii) Employee’s rights as a stockholder of Employer, (iii) any claims based on grounds arising after the date hereof or
(iv) any claim for accrued and vested benefits under any employee benefit plan of Employer or any affiliate in which Employee
is a participant.
6.
Legal Action. Employee further agrees, promises and covenants to the extent allowed by law, that neither she,
nor any person, organization or any other entity acting on her behalf will file, charge, claim, sue or cause or permit to be filed,
charged or claimed, any action for damages or other relief (including injunctive, declaratory, monetary relief or other) against
Employer in any court or administrative agency involving her employment with Employer, or any matter which occurred in the
past up to the date of this Agreement, or otherwise involving any claims, demands, causes of action, obligations, damages or
liabilities which are the subject of this Agreement; provided, however, that nothing in this Agreement shall waive Employee’s
right to file an application for an award for original information submitted pursuant to Section 21F of the Securities Exchange
Act of 1934.
7.
Reliance. Employee represents and certifies that she has carefully read and fully understands all of the
provisions and effects of this Agreement and that she has voluntarily entered into this Agreement in reliance upon her own
knowledge, belief, and judgment and that neither Employer nor its agents, representatives, or attorney have made any
representations concerning the terms or effects of this Agreement other than contained herein.
8.
Separate Prior Agreement. Employee agrees to abide by the agreement that she signed as an employee of
Employer dated November 30, 2018 (“Employee Non-Competition and Confidentiality Agreement”) governing promises
relating to confidentiality, non-solicitation of customers and non-competition with Employer and agrees that this promise is a
material term of this Agreement. A copy of the Non-Competition and Confidentiality Agreement is attached and incorporated to
this Agreement. Employee will destroy or return to Employer all Confidential Information (as defined in the Non-Competition
and Confidentiality Agreement) and return all other property belonging to Employer.
9.
Terms Confidential. For so long as Employer has not publicly disclosed this Agreement, Employee agrees not
to disclose the terms of this Agreement to any person or entity for any reason at any time without the prior written consent of
Employer, except for disclosures to her immediate family, her attorneys, for tax purposes to her accountant or tax consultant,
state and federal authorities, or as required by law. All such persons to whom Employee discloses such information shall be
informed of the confidential nature of the information and shall agree to keep such information confidential.
-2-
10.
Heirs and Successors Bound by Agreement. This Agreement shall be binding upon Employee and upon
Employee’s spouse, heirs, representatives, successors, and assigns, and shall inure to the benefit of Employer and the other
Persons Released.
11.
Iowa Law Governs. This Agreement is made and entered into in the state of Iowa, and shall in all respects be
interpreted, enforced and governed under the laws of the state of Iowa.
12.
Severability. Should any provision of this Agreement be declared or be determined by any Court to be to be
illegal or invalid, the validity of the remaining parts, terms, or provisions shall not be affected thereby.
13.
Entire Agreement. This Agreement sets forth the entire agreement between the parties hereto, and fully
supersedes any and all prior agreements or understandings between the parties hereto pertaining to the subject matter hereof.
14.
Time Periods. Employee has twenty-one (21) days from the date of receiving this document to consider
whether or not to execute this Agreement. In the event of such execution, Employee has a further period of seven (7) days from
the date of execution in which to revoke such execution, in which case this Agreement shall become null and void and neither
party shall have any obligation under this Agreement. This Agreement shall not become effective or enforceable prior to the
expiration of such seven (7) day period.
15.
Miscellaneous. Employee has read this Agreement and understands its terms and effects. Employee is signing
this Agreement knowingly and voluntarily and with the intention of releasing all causes of action, liabilities, rights and claims
described above and acknowledges she has been advised in writing to consult, and has had the time and opportunity to consult
with competent legal counsel of her selection.
Intending to be bound according to its terms, Employee and Employer have signed this Agreement as of the dates stated
below.
-3-
RENEWABLE ENERGY GROUP, INC.
By: /s/ Jeffrey Stroburg
Name: Jeffrey Stroburg
Title: Chairman
Employee
By: /s/ Cynthia J. Warner
Name: Cynthia J. Warner
Attachment: Employee Non-Competition and Confidentiality Agreement
-4-
Employee Non-Competition and Confidentiality Agreement
B-1
EXHIBIT B
EMPLOYEE NON-COMPETITION AND CONFIDENTIALITY AGREEMENT
This Employee Non-Competition and Confidentiality Agreement (this “Agreement”) is made between RENEWABLE
ENERGY GROUP, INC., a Delaware corporation (the “Employer”), and Cynthia Warner (“Employee”).
RECITALS:
A.
The Employer and Employee are entering into an “at will” employment relationship, and concurrently with the
execution of this Agreement, the Employer and Employee are entering into an employment agreement.
B.
The parties wish to set out certain terms and conditions of Employee’s employment with Employer (the
Employer and its Affiliates (as hereinafter defined) herein collectively the “Company”), the parties recognizing that Employee
may at times be employed by an Affiliate of Employer.
C.
The Company’s special knowledge base, skills and competence in the biofuels and renewable chemicals
industries are critical to its growth.
D.
The Company’s growth and competitiveness in the biofuels and renewable chemicals industries depend on its
exclusive possession of, and the non-public nature of, its “Confidential Information” (as hereinafter defined).
E.
The Company is engaged in research, development, procurement, sales, marketing, transportation and
production of biofuels and renewable chemicals, feedstocks therefore and by- products thereof, and the ownership, lease,
acquisition, financing, construction and operation of biofuels and renewable chemicals facilities, both nationally and
internationally.
NOW, THEREFORE, in consideration of such employment relationship, and the agreements contained herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed follows:
Covenant Not To Compete. Employee shall not, during Employee’s employment with the Company and for twelve
1.
(12) months thereafter, without the prior written consent of the Company, directly or indirectly, own (other than passive
investments in publicly traded companies where such investment does not exceed more than one percent (1%) of the total
outstanding shares or other equity interests of such company), manage, operate, control, be employed by, participate in, advise
or be connected in any manner with the ownership, management, operation or control of a Competing Business. The covenants
of Employee contained in this paragraph 1 shall apply to each State and Country in which the Company, either directly or
indirectly through Employer or an Affiliate of Employer, conducted its business or otherwise offered any goods, products or
services related to its business, which shall include all States in the United States of America, which Employee represents and
warrants is the minimum geographical area in which the Company is presently operating and intending to operate.
“Competing Business” is defined as a business engaged in the manufacture, development, sale, or marketing of biodiesel or
renewable diesel or any other product or service (a) actively manufactured, developed, sold, or marketed by the Company during
Employee’s employment period, so long as it remains so manufactured, developed, sold, or marketed by the Company or (b)
which the Company has taken, and continues to take, substantial steps to prepare to test, manufacture, research, develop, fund,
sell, market or otherwise target or pursue as a special project or initiative in which Employee had direct or indirect managerial or
supervisory responsibility, as of Employee’s termination date. For the avoidance of doubt, employment with, or other provision
of services to, an entity or other person that engages in a Competing Business shall not constitute the engagement by Employee
in a Competing Business so long as Employee is not involved in activities constituting, and does not in any way assist or advise,
directly or indirectly, a Competing Business.
-2-
2.
Employees, Customers, Suppliers, Etc. Employee shall not, during Employee’s employment with the Company and
the period of twelve (12) months following the termination of Employee’s employment, in any manner, directly or indirectly,
solicit on behalf of any employer other than the Company the services or employment, or cause any employer other than the
Company to engage the services or employ anyone who is then (or who was within the six (6) months prior thereto) an
employee, or to induce an independent contractor of the Company to reduce or terminate such independent contractor’s services
to the Company or, in connection with a Competing Business, contact or solicit any of the Company’s then past, present or
identified potential customers, suppliers or strategic partners or any such customer, supplier, or strategic partner of any facility
managed by the Company.
3.
Non-Disparagement. Subject to paragraph 5, Employee agrees to refrain from making, directly or indirectly, now or at
any time in the future, whether in writing, orally or electronically any comment that Employee knows or reasonably should
know is critical in any material respect of the Company or any of its directors or officers or is otherwise detrimental in any
material respect to the business or financial prospects or reputation of the Company. Subject to paragraph 5, the Company (via
any authorized public statement) shall not make, directly or indirectly, now or at any time in the future, whether in writing,
orally or electronically any comment that it knows or reasonably should know is critical in any material respect of Employee or
is otherwise detrimental in any material respect to Employee’s reputation. Nothing in the foregoing shall preclude any of the
parties covered by this paragraph 3 from providing truthful disclosures required by applicable law or legal process.
4.
Confidential Information. Subject to paragraph 5, Employee shall not during or after Employee’s employment with the
Company, in any manner, directly or indirectly, use or disclose to any third party any Confidential Information except as
required in the course of performance of Employee’s employment with the Company and as authorized by the Company in
writing. For purposes of this Agreement, the term “Confidential Information” shall be deemed to include, but not limited to,
trade secrets, proprietary information, information which derives independent economic value from not being generally known
outside the Company and research and data, operating and marketing information, techniques and procedures, customer lists,
employee lists, supplier lists, training manuals and procedures, business plans, projections and strategies, pricing information
and financial reports of the Company or any of its predecessors, West Central Cooperative, REG, LLC (fka Renewable Energy
Group, LLC) and InterWest, L.C. (the “Predecessors”), in any form, which are not generally known to the public.
5.
Confidential Disclosure in Reporting Violations of Law or in Court Filings. The parties acknowledge and agree that
Employee, and the Company for purposes of paragraph 3, may disclose Confidential Information in confidence, directly or
indirectly, to federal, state, or local government officials, including but not limited to the Department of Justice, the Securities
and Exchange Commission, the Congress, and any agency Inspector General or to an attorney, for the sole purpose of reporting
or investigating a suspected violation of law or regulation or making other disclosures that are protected under the whistleblower
provisions of state or federal laws or regulations. Employee, and the Company for purposes of paragraph 3, may also disclose
Confidential Information in a document filed in a lawsuit or other proceeding, but only if the filing is made under seal. Nothing
in this Agreement is intended to conflict with federal law protecting confidential disclosures of a trade secret to the government
or in a court filing, 18 U.SC. § 1833(b), or to create liability for disclosures of Confidential Information that are expressly
allowed by 18 U.S.C. § 1833(b).
6.
Creations. Employee acknowledges that Employee may conceive of or otherwise create ideas, inventions, original
works of authorship, product designs, logos, brand names, trade or service marks, and/or other similar or related items during the
course of Employee’s employment (“Creations”). To the extent that any such Creations relate to the Company’s or Predecessors’
business or their customers or customer’s business, Employee hereby assigns to the Company all rights, titles and interests in
any such Creations, including, without limitation, all patent, trade secret, trademark, service mark, trade dress, copyright and
other intellectual property and similar or related rights.
During the term of Employee’s employment by the Company and for the period of one
-3-
(1) year following termination of employment by Employer and any of its Affiliates with or without cause, employee shall
promptly disclose in writing to the Company all such intellectual property and other similar or related rights conceived or made
by Employee, either solely or in concert with others.
Employee shall, at the Company’s request and expense, execute specific assignments to any and all such intellectual
property and other similar or related rights and execute, acknowledge and deliver such other documents and take all such further
action as may be requested by the Company, at any time during or subsequent to the period of Employee’s employment with the
Company, to obtain, procure, prosecute, transfer, assign, enforce, or defend any and all national or international intellectual
property and/or other similar or related rights assigned hereby to the Company.
Without diminishing in any way the rights granted to the Company, where lawful, if a Creation is described in a patent
application or is disclosed to a third party by Employee within six
(6) months after Employee’s termination of employment with the Company, Employee agrees that it is to be presumed that the
Creation was conceived, made, developed, acquired or created by Employee during the period of employment by the Company,
unless Employee can prove otherwise.
7.
Return of Property. All files, records, documents, manuals, books, forms, reports, memoranda, studies, data,
calculations, recordings, or correspondence, whether visually perceptible, machine-readable or otherwise, in whatever form they
may exist, and all copies, abstracts and summaries of the foregoing, and all physical items related to the business of the
Company, whether of a public nature or not, and whether prepared by Employee or not, are and shall remain the exclusive
property of the Company, and shall not be removed from its premises, except as required in the course of Employee’s
employment by the Company, without the prior written consent of the Company. Such items, including any copies or other
reproductions thereof, shall be promptly returned by Employee to the Company at any time upon the written request of the
Company (or, if requested by the Company, destroyed by Employee).
8.
Scope; Injunction. Employee agrees that the covenants contained in this Agreement are reasonable in scope, area and
duration and are necessary in furtherance of the legitimate interests of the Company in protecting its business. Employee
represents and warrants that Employee has available to Employee sufficient other means of support and that observance of the
covenants contained in this paragraph will not deprive Employee of the ability to earn a livelihood or to support Employee’s
dependents. Employee acknowledges and agrees that the services rendered by Employee to the Company, and the information
disclosed to Employee during and by virtue of Employee’s employment, are of a special, unique and extraordinary character. In
the event of the breach of this Agreement, Employee acknowledges and agrees that irreparable injury will result to the Company
and that injunctive relief to restrain the violation of this Agreement is appropriate in addition to any other remedies to which the
Company may be entitled at law or in equity, all remedies being cumulative and not exclusive. In addition, Employee shall
defend, indemnify and hold the Company and its directors, officers, shareholders, employees and agents, harmless from and
against any claim, demand, proceeding, loss, liability, damage, cost or expense, including court costs and attorneys’ fees, arising
in connection with or resulting from any willful material breach of warranty, misrepresentation or nonfulfillment of any
agreement on the part of Employee under this Agreement whether that claim, demand or proceeding is brought by the Employer,
an Affiliate of Employer or a third party.
9.
No Guarantee of Employment. This Agreement does not confer upon Employee any rights to continue in the employ
or service of the Company. Except as may be provided in a separate written agreement, Employee’s employment with or service
for the Company is “at will” and Company or Employee may terminate Employee’s employment at any time, for any reason or
no reason, with or without cause or notice.
10.
Change of Employer. Employee acknowledges that in the event Employee’s employment changes from Employer to
an Affiliate of Employer, that such change of employment shall be considered to be an assignment of this Agreement to such
new employer, consented to by Employee without further action on Employee’s part. Employee acknowledges that the
Employer and any Affiliate of Employer subsequently employing Employee shall have the right to enforce any rights hereunder.
Actions which may be taken by the Company hereunder may be
-4-
exercised by the President of the Employer (or of any Affiliate of Employer subsequently employing Employee) or the Board of
the Employer (if Employee serves as the President of the Employer).
11.
Miscellaneous. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject
matters hereof, and supersedes all negotiations, preliminary agreements and all prior and contemporaneous discussions and
understandings of the parties in connection with the subject matters hereof. No amendment, waiver, change or modification of
any of the terms, provisions or conditions of this Agreement shall be effective unless made in writing and signed or initialed by
each of the parties hereto. Waiver of any provision of this Agreement shall not be deemed a waiver of future compliance
therewith and such provision shall remain in full force and effect. In the event any provision of this Agreement is held invalid,
illegal or unenforceable, in whole or in part, the remaining provisions of this Agreement shall not be affected thereby and shall
continue to be valid and enforceable. If, for any reason, a court finds that any provision of this Agreement is invalid, illegal or
unenforceable as written, but that by limiting such provision it would become valid, legal and enforceable, then such provision
shall be deemed to be written and shall be construed and enforced as so limited. In addition, in the event a court determines any
provision of this Agreement unenforceable under the laws of its jurisdiction, this Agreement shall not be deemed unenforceable
under the laws and regulations of any other jurisdiction. This Agreement shall be governed by and construed in accordance with
the laws of the state of Iowa without regard to conflicts of laws principles. Each of the parties hereby irrevocably submits to the
exclusive jurisdiction of any United States Federal court sitting in Iowa in any action or proceeding arising out of or relating to
this Agreement or any agreement, document or instrument contemplated hereby, and each party hereby irrevocably agrees that
all claims and counterclaims in respect of such action or proceeding may be heard and determined in any such United States
Federal court. Each of the parties irrevocably waives any objection, including without limitation, any objection to the laying of
venue or based on the grounds of forum non convenience, which it may now or hereafter have to the bringing of any such action
or proceeding in such respective jurisdictions. Each of the parties irrevocably consents to the service of any and all process in any
such action or proceeding brought in any court in or of the State of Iowa by the delivery of copies of such process to each party at
its address specified herein or by certified mail directed to such address. Words and phrases herein shall be construed as in the
singular or plural number and as masculine, feminine or neuter gender, according to the context. The titles or captions of
paragraphs of this Agreement are provided for convenience of reference only and shall not be considered a part hereof for
purposes of interpreting or applying this Agreement and such titles or captions do not define, limit, extend, explain or describe
the meaning, scope or extent of this Agreement or any of its terms or conditions. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than Employee, Employer and Employer’s Affiliates
who may subsequently employ Employee (and their respective heirs, legal representatives, successors and assigns), any rights,
remedies, obligations or liabilities under or by reason of this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument,
and in making proof hereof, it shall not be necessary to produce or account for more than one such counterpart. Those provisions
and obligations of this Agreement which are intended to survive shall survive notwithstanding termination of Employee’s
employment with the Company.
“Affiliate” means, for purposes of this Agreement, Renewable Energy Group, Inc. (if not the Employer), and any
corporation, limited liability company or other entity directly or indirectly controlled by, or under common control with,
Renewable Energy Group, Inc. as of the date on which, or at any time during the period for which, the determination of
affiliation is being made. For purposes of this definition, the term “control” (including the correlative meanings of the terms
“controlled by” and “under common control with”), as used with respect to any entity, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management policies of such entity, whether through the ownership
of voting securities or by contract or otherwise.
-5-
[Signature Page to Warner Employee Non-Competition and Confidentiality Agreement]
IN WITNESS WHEREOF, the Employer and Employee have executed this Agreement on the dates set forth below their
respective signatures.
RENEWABLE ENERGY GROUP, INC.
By: /s/ Jeffrey Stroburg
Name: Jeffrey Stroburg
Title: Chairman
Employee
By: /s/ Cynthia J. Warner
Name: Cynthia J. Warner
-6-
RESTRICTED STOCK UNIT AWARD AGREEMENT
This Restricted Stock Unit Award Agreement ("Agreement") is entered into effective as of January 14, 2019
(the "Grant Date"), by and between Renewable Energy Group, Inc., a Delaware corporation (the "Company"), and
Cynthia J. Warner ("Employee"), pursuant to the Renewable Energy Group, Inc. Amended and Restated 2009 Stock
Incentive Plan (the "Plan"). Employee and the Company agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this Agreement.
1.
Award. In consideration of Employee's services for the Company, and Employee's entering into an
Employment Agreement with the Company dated November 30, 2018 (the "Employment Agreement") and an
Employee Non-Competition and Confidentiality Agreement with the Company dated November 30, 2018, the
Company hereby grants to Employee 38,139 Restricted Stock Units. Restricted Stock Units are notational units of
measurement denominated in shares of common stock of Renewable Energy Group, Inc., $.0001 par value ("Common
Stock"). Each Restricted Stock Unit represents a hypothetical share of Common Stock, subject to the conditions and
restrictions on transferability set forth below and in the Plan. The Restricted Stock Units will be credited to Employee in
an unfunded bookkeeping account established for Employee.
2.
Vesting of Restricted Stock Units. The period of time between the Grant Date and the vesting of
Restricted Stock Units (and the termination of restrictions thereon) will be referred to herein as the "Restricted Period."
(a)
Vesting Period. Unless earlier vested under subsection (b) below, or forfeited pursuant to this
Agreement, the Restricted Stock Units will vest 100% on January 14, 2022, subject to Employee's continued service as
an Employee on such vesting date. Upon vesting, each Restricted Stock Unit will be converted into one share of
Common Stock and Employee will be issued shares of Common Stock equal to the number of vested Restricted Stock
Units held.
(b)
Accelerated Vesting of Restricted Stock Units.
(i)
Death or disability. The Restricted Stock Units shall fully vest upon Employee's termination of
employment by reason of death or disability, in each case dete1mined in accordance with Section 7.1 of the
Employment Agreement.
(ii)
Termination by the Company without Cause; te1mination by Employee for Good Reason. The
Restricted Stock Units shall fully vest upon the Company's termination of Employee's employment without
"Cause," or upon Employee's te1mination of her employment with the Company for "Good Reason," in each
case determined in accordance with Section 7.3 or Section 7.4, as applicable, of the Employment Agreement.
(iii)
Change of Control. Without limiting the foregoing, the Restricted Stock Units are subject to
accelerated vesting upon the consummation of a Change of Control in accordance with Section l0(a) of the Plan
to the extent the Restricted Stock Units are not honored or assumed, or new rights substituted therefor, in the
manner prescribed by Section 10(b) of the Plan.
3.
Forfeitures of Restricted Stock Units. Upon termination of service as an Employee prior to the
expiration of the Restricted Period and for any reason other than as described in Section 2(b), Employee shall
immediately forfeit all Restricted Stock Units, without the payment
- 1 -
of any consideration or further consideration by the Company. Upon forfeiture, neither Employee nor any successors,
heirs, assigns, or legal representatives of Employee shall thereafter have any further rights or interest in the unvested
Restricted Stock Units or certificates therefore.
4.
(a)
Restrictions on Transfer Before Vesting.
Absent prior written consent of the Committee, the Restricted Stock Units granted hereunder to
Employee may not be sold, assigned, transferred, pledged or otherwise encumbered, whether voluntarily or
involuntarily, by operation of law or otherwise, from the Grant Date until such Restricted Stock Units have become
vested and shares of Common Stock issued in conjunction with such vesting.
(b)
Consistent with the foregoing, except as contemplated by Section 9, no right or benefit under this
Agreement shall be subject to transfer, anticipation, alienation, sale, assignment, pledge, encumbrance or charge,
whether voluntary, involuntary, by operation oflaw or otherwise, and any attempt to transfer, anticipate, alienate, sell,
assign, pledge, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable
for or subject to any debts, contracts, liabilities or torts of the person entitled to such benefits. If Employee or his
Beneficiary hereunder shall attempt to transfer, anticipate, alienate, assign, sell, pledge, encumber or charge any right or
benefit hereunder, other than as contemplated by Section 9, or if any creditor shall attempt to subject the same to a writ
of garnishment, attachment, execution, sequestration, or any other form of process or involuntary lien or seizure, then
such attempt shall have no effect and shall be void.
5.
Rights as a Stockholder. Employee will have no rights as a stockholder with regard to the Restricted
Stock Units prior to vesting. However, the Company will pay Employee dividend equivalents on unvested (and vested
but unpaid) Restricted Stock Units in the form of additional Restricted Stock Units having a value equal to the cash
amount of such dividend at the Fair Market Value of Common Stock on the respective dates dividends are paid to
stockholders, which shall be payable to Employee at such time as the Restricted Stock Units, underlying such dividend
equivalents, become vested and nonforfeitable in accordance with the terms of this Agreement.
6.
Taxes. To the extent that the vesting of the Restricted Stock Units or the receipt of Common Stock or
dividend equivalents results in income to Employee for federal or state tax purposes, Employee shall deliver to the
Company at the time of such vesting or receipt, as the case may be, such amount of money as the Company may
require, or make other adequate arrangements satisfactory to the Company, at its discretion, to meet the Company's
obligations under applicable tax withholding laws or regulations. Employee also authorizes the Company to satisfy all
tax withholding obligations of the Company from his or her wages or other cash compensation payable to Employee by
the Company. Subject to the following sentence, the Company, in its sole discretion, may also provide for the
withholding of applicable taxes from the proceeds of the sale of shares acquired upon vesting of the Restricted Stock
Units, either through a voluntary sale or through a mandatory sale arranged by the Company (on Employee's behalf
pursuant to this authorization). Notwithstanding the foregoing, if requested by Employee, the Company shall withhold
shares of Common Stock that would otherwise be issued upon vesting of the Restricted Stock Units to cover applicable
withholding taxes, equal to the greatest number of whole shares having a Fair Market Value on the date immediately
preceding the date on which the applicable tax liability is dete1mined not in excess of the minimum amount required to
satisfy the
statutory withholding tax obligations with respect to the award. The Company may refuse to issue or deliver the shares
of Common Stock unless all withholding taxes that may be due as a result of this award have been paid.
- 2 -
7.
Changes in Capital Structure. If the outstanding shares of Common Stock or other securities of the
Company, or both, shall at any time be changed or exchanged by declaration of a stock dividend, stock split,
combination of shares, or recapitalization, the number and kind of Restricted Stock Units shall be appropriately and
equitably adjusted so as to maintain the proportionate number of shares.
8.
Compliance With Securities Laws. The Company will not be required to deliver any shares of Common
Stock pursuant to this Agreement if, in the opinion of counsel for the Company, such issuance would violate the
Securities Act of 1933 or any other applicable federal or state securities laws or regulations. Prior to the issuance of any
shares pursuant to this Agreement, the Company may require that Employee (or Employee's legal representative upon
Employee's death or disability) enter into such written representations, warranties and agreements as the Company may
reasonably request in order to comply with applicable securities laws or with this Agreement.
9.
Assignment. The Restricted Stock Units are not transferable (either voluntarily or involuntarily), other
than pursuant to a domestic relations order. Employee may designate a beneficiary or beneficiaries (the "Beneficiary")
to whom the Restricted Stock Units will pass upon Employee's death and may change such designation from time to
time by filing a written designation of Beneficiary on such form as may be prescribed by the Company; provided that no
such designation shall be effective until filed with the Company. Employee may change her Beneficiary without the
consent of any prior Beneficiary by filing a new designation with the Company; provided that no such designation shall
be effective prior to receipt by the Company. Following Employee's death, the Restricted Stock Units will pass to the
designated Beneficiary and such person will be deemed Employee for purposes of any applicable provisions of this
Agreement. If no such designation is made or if the designated Beneficiary does not survive Employee's death, the
Restricted Stock Units shall pass by will or, if none, then by the laws of descent and distribution.
10.
Successors and Assigns. This Agreement shall bind and inure to the benefit of and be enforceable by
Employee, the Company and their respective permitted successors or assigns (including personal representatives, heirs
and legatees), except that Employee may not assign any rights or obligations under this Agreement except to the extent,
and in the manner, expressly permitted herein.
11.
(a)
Limitation of Rights. Nothing in this Agreement or the Plan may be construed to:
give Employee any right to be awarded any fmther Restricted Stock Units (or other form of stock
incentive awards) other than in the sole discretion of the Committee;
(b)
give Employee or any other person any interest in any fund or in any specified asset or assets of the
Company or affiliate thereof (other than the Restricted Stock Units and applicable Common Stock following the
vesting of such Restricted Stock Units); or
(c)
Employee.
confer upon Employee the right to continue in the service of the Company or affiliate thereof as
12.
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of
the State of Iowa, without reference to principles of conflict of laws.
13.
Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
- 3 -
14.
No Waiver. The failure of Employee or the Company to insist upon strict compliance with any
provision of this Agreement or the failure to assert any right Employee or the Company may have under this Agreement
shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
15.
Definitions. Capitalized terms used in this Agreement and not otherwise defined herein shall have the
meanings set forth in the Plan. Ce1tain other terms used herein have definitions given to them in the first place in which
they are used.
16.
Section 409A.
To the fullest extent applicable, this Agreement and the benefits payable hereunder are intended to be exempt
from the definition of "nonqualified defe1Ted compensation" under Section 409A of the Code in accordance with the
"short-term defeITal" exception available under the regulations promulgated under Section 409A. In that regard,
Common Stock shall be issued to Employee no later than March 15 following the calendar year in which Employee's
right to receive the Common Stock pursuant to this Agreement is no longer subject to a substantial risk of forfeiture
within the meaning of Section 409A and the regulations thereunder. To the extent that any such benefit is or becomes
subject to Section 409A due to a failure to qualify for an exemption from the definition of nonqualified defened
compensation in accordance with such regulations, this Agreement is intended to comply with the applicable
requirements of Section 409A with respect to such benefits. This Agreement shall be interpreted and administered to the
extent possible in a manner consistent with the foregoing statement of intent, and any ambiguity as to its compliance
with Section 409A will be read in such a manner so that all payments hereunder comply with Section 409A of the Code.
17.
Entire Agreement.
(a)
Employee hereby acknowledges that she has received, reviewed and accepted the terms and conditions
applicable to this Agreement. Employee hereby accepts such terms and conditions, subject to the provisions of the Plan
and administrative interpretations thereof. Employee further agrees that the provisions of this Agreement, together with
the Plan, constitute the entire and complete understanding and agreement between the parties with respect to the
subject matter hereof, and supersede all prior and contemporaneous oral and written agreements, term sheets,
representations and understandings of the parties, which are hereby te1minated.
(b)
Employee hereby acknowledges that she is to consult with and rely upon only Employee's own
tax legal and financial advisors regarding the consequences and risks of this Agreement and the award of
Restricted Stock Units.
(c)
This Agreement may not be amended or modified except by a written agreement executed by
the parties hereto or their respective successors and legal representatives. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect.
18.
Counterparts. This Agreement may be executed in counterparts, which together shall constitute
one and the same original.
- 4 -
IN WITNESS WHEREOF, Renewable Energy Group, Inc. has caused this Agreement to be duly
executed by one of its officers thereunto duly authorized, which execution may be facsimile, engraved or
printed, which shall be deemed an original, and Employee has executed this Agreement, effective as of the day
and year first above written.
RENEWABLE ENERGY GROUP, INC.
By: /s/ Jeffrey Stroburg
Name: Jeffrey Stroburg
Title: Chairman
Employee
By: /s/ Cynthia J. Warner
Name: Cynthia J. Warner
- 5 -
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the “Agreement”), is dated as of [insert date] between Renewable Energy
Group, Inc., a Delaware corporation (the “Corporation”), and [insert name] (“Indemnitee”).
W I T N E S S E T H:
WHEREAS, Indemnitee is either a member of the board of directors of the Corporation (the “Board of
Directors”), a member of the Board of Managers of a wholly-owned subsidiary of the Corporation, an officer of
the Corporation or an officer of a wholly-owned subsidiary of the Corporation, or one or more of such positions,
and in such capacity or capacities, or otherwise as an Agent (as hereinafter defined) of the Corporation, is
performing a valuable service for the Corporation; and
WHEREAS, the Corporation is aware that competent and experienced persons are increasingly reluctant to
serve as directors or officers of corporations or other business entities unless they are protected by comprehensive
indemnification and liability insurance, due to increased exposure to litigation costs and risks resulting from their
service to such entities, and because the exposure frequently bears no reasonable relationship to the compensation
of such directors and officers; and
WHEREAS, the Board of Directors of the Corporation has concluded that, to retain and attract talented and
experienced individuals to serve or continue to serve as officers, directors or managers of the Corporation or its
subsidiaries, and to encourage such individuals to take the business risks necessary for the success of the
Corporation, it is necessary for the Corporation contractually to indemnify directors and officers and to assume for
itself to the fullest extent permitted by law expenses and damages in connection with claims against such officers,
directors or managers in connection with their service to the Corporation; and
WHEREAS, Section 145 of the General Corporation Law of Delaware, under which the Corporation is
organized (the “DGCL”), empowers the Corporation to indemnify by agreement its officers, directors, employees
and agents, and persons who serve, at the request of the Corporation, as directors, officers, employees or agents of
other corporations or enterprises, and expressly provides that the indemnification provided by the DGCL is not
exclusive; and
WHEREAS, the Corporation desires and has requested the Indemnitee to serve or continue to serve as a
director, officer or agent of the Corporation or one or more of its subsidiaries free from undue concern for claims
for damages arising out of or related to such services to the Corporation; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on
behalf of the Corporation on the condition that he or she be indemnified as herein provided; and
WHEREAS, it is intended that Indemnitee shall be paid promptly by the Corporation all amounts necessary
to effectuate in full the indemnity provided herein.
- 1 -
NOW, THEREFORE, in consideration of the premises and the covenants in this Agreement, and of
Indemnitee serving or continuing to serve the Corporation or one or more of its subsidiaries as an Agent and
intending to be legally bound hereby, the parties hereto agree as follows:
1.
Services by Indemnitee. Indemnitee agrees to serve or continue to serve (a) as a director or an officer of
the Corporation, or as a manager, director or officer of a wholly-owned subsidiary of the Corporation, or one or
more of such positions, so long as Indemnitee is duly appointed or elected and qualified in accordance with the
applicable provisions of the Certificate of Incorporation and bylaws of the Corporation, and until such time as
Indemnitee resigns or fails to stand for election or is removed from Indemnitee’s position, or (b) otherwise as an
Agent of the Corporation. Indemnitee may from time to time also perform other services at the request or for the
convenience of, or otherwise benefiting the Corporation or one or more of its subsidiaries. Indemnitee may at any
time and for any reason resign or be removed from such position (subject to any other contractual obligation or
other obligation imposed by operation of law), in which event the Corporation shall have no obligation under this
Agreement to continue Indemnitee in any such position.
2.
Indemnification of Indemnitee. Subject to the limitations set forth herein and particularly in Section 6
hereof, the Corporation hereby agrees to indemnify Indemnitee as follows:
(a)
(b)
The Corporation shall, with respect to any Proceeding (as hereinafter defined) associated with
Indemnitee’s being an Agent of the Corporation, indemnify Indemnitee to the fullest extent
permitted by applicable law or as such law may from time to time be amended (but, in the case of
any such amendment, only to the extent such amendment permits the Corporation to provide
broader indemnification rights than the law permitted the Corporation to provide before such
amendment). The right to indemnification conferred herein shall be presumed to have been relied
upon by Indemnitee in serving or continuing to serve the Corporation as an Agent and shall be
enforceable as a contract right. Without in any way diminishing the scope of the indemnification
provided by this Section 2(a), the rights of indemnification of Indemnitee shall include but shall
not be limited to those rights hereinafter set forth.
The Corporation shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be
made a party to any threatened, pending or completed Proceeding (other than an action by or in the
right of the Corporation) by reason of the fact that Indemnitee is or was an Agent of the
Corporation, or any subsidiary of the Corporation, or by reason of the fact that Indemnitee is or
was serving at the request of the Corporation as an Agent of another corporation, partnership, joint
venture, trust or other enterprise, against Expenses (as hereinafter defined) or Liabilities (as
hereinafter defined), actually and reasonably incurred by Indemnitee in connection with such
Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful.
- 2 -
(c)
The Corporation shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be
made a party to any threatened, pending or completed Proceeding by or in the right of the
Corporation or any subsidiary of the Corporation to procure a judgment in its favor by reason of
the fact that Indemnitee is or was an Agent of the Corporation, or any subsidiary of the
Corporation, or by reason of the fact that Indemnitee is or was serving at the request of the
Corporation as an Agent of another corporation, partnership, joint venture, trust or other enterprise,
against Expenses and, to the fullest extent permitted by law, Liabilities if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests
of the Corporation, except that no indemnification shall be made in respect of any claim, issue or
matter as to which Indemnitee shall have been adjudged to be liable to the Corporation unless and
only to the extent that the Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or
such other court shall deem proper.
3.
Advancement of Expenses . All reasonable Expenses incurred by or on behalf of Indemnitee (including
costs of enforcement of this Agreement) shall be advanced from time to time by the Corporation to Indemnitee
within thirty (30) days after the receipt by the Corporation of a written request for an advance of Expenses,
whether prior to or after final disposition of a Proceeding (except to the extent that there has been a Final Adverse
Determination (as hereinafter defined) that Indemnitee is not entitled to be indemnified for such Expenses),
including without limitation any Proceeding brought by or in the right of the Corporation. The written request for
an advancement of any and all Expenses under this paragraph shall contain reasonable detail of the Expenses
incurred by Indemnitee. In the event that such written request shall be accompanied by an affidavit of counsel to
Indemnitee to the effect that such counsel has reviewed such Expenses and that such Expenses are reasonable in
such counsel’s view, then such expenses shall be deemed reasonable in the absence of clear and convincing
evidence to the contrary. By execution of this Agreement, Indemnitee shall be deemed to have made whatever
undertaking as may be required by law at the time of any advancement of Expenses with respect to repayment to
the Corporation of such Expenses. In the event that the Corporation shall breach its obligation to advance Expenses
under this Section 3, the parties hereto agree that Indemnitee’s remedies available at law would not be adequate
and that Indemnitee would be entitled to specific performance.
4.
Presumptions and Effect of Certain Proceedings . Upon making a request for indemnification,
Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Corporation shall
have the burden of proof to overcome that presumption in reaching any contrary determination. The termination of
any Proceeding by judgment, order, settlement, arbitration award or conviction, or upon a plea of nolo contendere
or its equivalent shall not affect this presumption or, except as determined by a judgment or other final adjudication
adverse to Indemnitee, establish a presumption with regard to any factual matter relevant to determining
Indemnitee’s rights to indemnification hereunder. If the person or persons so empowered to make a determination
pursuant to Section 5 hereof shall have failed to make the requested determination within sixty (60) days after any
judgment, order, settlement, dismissal,
- 3 -
arbitration award, conviction, acceptance of a plea of nolo contendere or its equivalent, or other disposition or
partial disposition of any Proceeding or any other event that could enable the Corporation to determine
Indemnitee’s entitlement to indemnification, the requisite determination that Indemnitee is entitled to
indemnification shall be deemed to have been made.
5.
Procedure for Determination of Entitlement to Indemnification .
(a)
Whenever Indemnitee believes that Indemnitee is entitled to indemnification pursuant to this
Agreement, Indemnitee shall submit a written request for indemnification to the Corporation. Any
request for indemnification shall include sufficient documentation or information reasonably
available to Indemnitee for the determination of entitlement to indemnification. In any event,
Indemnitee shall submit Indemnitee’s claim for indemnification within a reasonable time, not to
exceed five (5) years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, or final determination,
whichever is the later date for which Indemnitee requests indemnification. The Secretary or other
appropriate officer shall, promptly upon receipt of Indemnitee’s request for indemnification,
advise the Board of Directors in writing that Indemnitee has made such request. Determination of
Indemnitee’s entitlement to indemnification shall be made not later than sixty (60) days after the
Corporation’s receipt of Indemnitee’s written request for such indemnification, provided that any
request for indemnification for Liabilities, other than amounts paid in settlement, shall have been
made after a determination thereof in a Proceeding. If it is so determined that the Indemnitee is
entitled to indemnification, payment to the Indemnitee shall be made within ten (10) days after
such determination.
(b)
The Corporation shall be entitled to select the forum in which Indemnitee’s entitlement to
indemnification will be heard; provided, however, that if there is a Change in Control of the
Corporation, Independent Legal Counsel (as hereinafter defined) shall determine whether
Indemnitee is entitled to indemnification. The forum shall be any one of the following:
(i)
(ii)
(iii)
(iv)
a majority vote of Disinterested Directors (as hereinafter defined), even though less than a
quorum;
by a committee of Disinterested Directors designated by majority vote of Disinterested
Directors, even though less than a quorum;
Independent Legal Counsel, whose determination shall be made in a written opinion; or
The
Corporation.
stockholders
of
the
6.
Specific Limitations on Indemnification. Notwithstanding anything in this Agreement to the
contrary, the Corporation shall not be obligated under this Agreement to make any payment to Indemnitee with
respect to any Proceeding:
- 4 -
(a)
(b)
(c)
(d)
(e)
To the extent that payment is actually made to Indemnitee under any insurance policy, or is made
to Indemnitee by the Corporation or an affiliate otherwise than pursuant to this Agreement.
Notwithstanding the availability of such insurance, Indemnitee also may claim indemnification
from the Corporation pursuant to this Agreement by assigning to the Corporation any claims under
such insurance to the extent Indemnitee is paid by the Corporation;
Provided there has been no Change in Control, for Liabilities in connection with Proceedings
settled without the Corporation’s consent, which consent, however, shall not be unreasonably
withheld;
For an accounting of profits made from the purchase or sale by Indemnitee of securities of the
Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), or similar provisions of any state statutory or common law;
To the extent it would be otherwise prohibited by law, if so established by a judgment or other
final adjudication adverse to Indemnitee; or
In connection with a Proceeding commenced by Indemnitee (other than a Proceeding commenced
by Indemnitee to enforce Indemnitee’s rights under this Agreement) unless the commencement of
such Proceeding was authorized by the Board of Directors.
7.
Fees and Expenses of Independent Legal Counsel or Arbitrators . The Corporation agrees to pay the
reasonable fees and expenses of Independent Legal Counsel should such Independent Legal Counsel be retained to
make a determination of Indemnitee’s entitlement to indemnification pursuant to Section 5(b) of this Agreement,
and to fully indemnify such Independent Legal Counsel against any and all expenses and losses incurred by any of
them arising out of or relating to this Agreement or their engagement pursuant hereto.
8.
Remedies of Indemnitee.
(a)
In the event that (i) a determination pursuant to Section 5 hereof is made that Indemnitee is not
entitled to indemnification, (ii) advances of Expenses are not made pursuant to this Agreement,
(iii) payment has not been timely made following a determination of entitlement to indemnification
pursuant to this Agreement, or (iv) Indemnitee otherwise seeks enforcement of this Agreement,
Indemnitee shall be entitled to a final adjudication in the Court of Chancery of the State of
Delaware of the remedy sought. Alternatively, unless court approval is required by law for the
indemnification sought by Indemnitee, Indemnitee at Indemnitee’s option may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the commercial arbitration rules of
the American Arbitration Association now in effect, which award is to be made within ninety (90)
days following the filing of the demand for arbitration. The Corporation shall not oppose
Indemnitee’s right to seek any such adjudication or arbitration award. In any such proceeding or
- 5 -
(b)
(c)
(d)
(e)
arbitration Indemnitee shall be presumed to be entitled to indemnification and advancement of
Expenses under this Agreement and the Corporation shall have the burden of proof to overcome
that presumption.
In the event that a determination that Indemnitee is not entitled to indemnification, in whole or in
part, has been made pursuant to Section 5 hereof, the decision in the judicial proceeding or
arbitration provided in paragraph (a) of this Section 8 shall be made de novo and Indemnitee shall
not be prejudiced by reason of a determination that Indemnitee is not entitled to indemnification.
If a determination that Indemnitee is entitled to indemnification has been made pursuant to
Section 5 hereof, or is deemed to have been made pursuant to Section 4 hereof or otherwise
pursuant to the terms of this Agreement, the Corporation shall be bound by such determination.
The Corporation shall be precluded from asserting that the procedures and presumptions of this
Agreement are not valid, binding and enforceable. The Corporation shall stipulate in any such
court or before any such arbitrator that the Corporation is bound by all the provisions of this
Agreement and is precluded from making any assertion to the contrary.
Expenses reasonably incurred by Indemnitee in connection with Indemnitee’s request for
indemnification under, seeking enforcement of or to recover damages for breach of this Agreement
shall be borne by the Corporation when and as incurred by Indemnitee irrespective of any Final
Adverse Determination that Indemnitee is not entitled to indemnification.
9.
Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for
in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Corporation, in lieu of indemnifying
Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise
taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the
circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Corporation and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative
fault of the Corporation (and its directors, officers, employees and agents) and Indemnitee in connection with such
event(s) and/or transaction(s).
10.
Maintenance of Insurance. The Corporation represents that it presently has in place certain
directors’ and officers’ liability insurance policies covering the directors and officers of the Corporation and the
directors, managers and officers of the wholly-owned subsidiaries of the Corporation. Subject only to the
provisions within this Section 10, the Corporation agrees that so long as Indemnitee shall have consented to serve
or shall continue to serve as a director or officer of the Corporation as a director, manager or officer of a wholly-
owned subsidiary of the Corporation, or one or more of such positions, or as an Agent of the Corporation, and
thereafter so long as Indemnitee shall be subject to any possible Proceeding (such periods being hereinafter
sometimes referred to as the “Indemnification Period”), the Corporation will use all reasonable
- 6 -
efforts to maintain in effect for the benefit of Indemnitee one or more valid, binding and enforceable policies of
directors’ and officers’ liability insurance from established and reputable insurers, providing, in all respects,
coverage both in scope and amount which is no less favorable than that presently provided or, following the
Corporation’s initial public offering, than that provided as of the time of such initial public offering.
Notwithstanding the foregoing, the Corporation shall not be required to maintain said policies of directors’ and
officers’ liability insurance during any time period if during such period such insurance is not reasonably available
or if it is determined in good faith by the then directors of the Corporation either that:
(a)
(b)
The premium cost of maintaining such insurance is substantially disproportionate to the amount of
coverage provided thereunder; or
The protection provided by such insurance is so limited by exclusions, deductions or otherwise
that there is insufficient benefit to warrant the cost of maintaining such insurance.
Anything in this Agreement to the contrary notwithstanding, to the extent that and for so long as the
Corporation shall choose to continue to maintain any policies of directors’ and officers’ liability insurance during
the Indemnification Period, the Corporation shall maintain similar and equivalent insurance for the benefit of
Indemnitee during the Indemnification Period (unless such insurance shall be less favorable to Indemnitee than the
Corporation’s existing policies).
11.
Modification, Waiver, Termination and Cancellation . No supplement, modification, termination,
cancellation or amendment of this Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.
12.
Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated
to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required
and shall do everything that may be necessary to secure such rights, including the execution of such documents
necessary to enable the Corporation effectively to bring suit to enforce such rights.
13.
Notice by Indemnitee and Defense of Claim . Indemnitee shall promptly notify the Corporation in
writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other
document relating to any matter, whether civil, criminal, administrative or investigative, but the omission so to
notify the Corporation will not relieve it from any liability that it may have to Indemnitee if such omission does not
prejudice the Corporation’s rights. If such omission does prejudice the Corporation’s rights, the Corporation will
be relieved from liability only to the extent of such prejudice. Notwithstanding the foregoing, such omission will
not relieve the Corporation from any liability that it may have to Indemnitee otherwise than under this Agreement.
With respect to any Proceeding as to which Indemnitee notifies the Corporation of the commencement thereof:
(a)
The Corporation will be entitled to participate therein at its own expense; and
- 7 -
(b)
The Corporation jointly with any other indemnifying party similarly notified will be entitled to
assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided,
however, that the Corporation shall not be entitled to assume the defense of any Proceeding if there
has been a Change in Control or if Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Corporation and Indemnitee with respect to such Proceeding. After
notice from the Corporation to Indemnitee of its election to assume the defense thereof, the
Corporation will not be liable to Indemnitee under this Agreement for any Expenses subsequently
incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the right to employ
Indemnitee’s own counsel in such Proceeding, but the fees and expenses of such counsel incurred
after notice from the Corporation of its assumption of the defense thereof shall be at the expense
of Indemnitee unless:
(i)
(ii)
(iii)
the employment of counsel by Indemnitee has been authorized by the Corporation;
Indemnitee shall have reasonably concluded that counsel engaged by the Corporation may
not adequately represent Indemnitee due to, among other things, actual or potential
differing interests; or
The Corporation shall not in fact have employed counsel to assume the defense in such
Proceeding or shall not in fact have assumed such defense and be acting in connection
therewith with reasonable diligence; in each of which cases the fees and expenses of such
counsel shall be at the expense of the Corporation.
(c)
The Corporation shall not settle any Proceeding in any manner that would impose any penalty or
limitation on Indemnitee without Indemnitee’s written consent; provided, however, that Indemnitee
will not unreasonably withhold his or her consent to any proposed settlement.
14.
Notices. All notices, requests, demands and other communications hereunder shall be in writing
and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:
(a)
If to Indemnitee, to:
- 8 -
(b)
If to the Corporation, to: Renewable Energy Group,
Inc.
Attn: Secretary
PO Box 888
416 South Bell Avenue
Ames, IA 50010
or to such other address as may have been furnished to Indemnitee by the Corporation or to the Corporation by
Indemnitee, as the case may be.
15.
Nonexclusivity. The rights of Indemnitee hereunder shall not be deemed exclusive of any other
rights to which Indemnitee may be entitled under applicable law, the Corporation’s Certificate of Incorporation or
bylaws, or any agreements, vote of stockholders, resolution of the Board of Directors or otherwise, and to the
extent that during the Indemnification Period the rights of the then existing directors and officers are more
favorable to such directors or officers than the rights currently provided to Indemnitee thereunder or under this
Agreement, Indemnitee shall be entitled to the full benefits of such more favorable rights.
Notwithstanding any other provision of this Agreement to the contrary, (i) Indemnitee shall have no
obligation to reduce, offset, allocate, pursue or apportion any indemnification, hold harmless, exoneration,
advancement, contribution or insurance coverage among multiple parties possessing such duties to Indemnitee
prior to the Corporation’s satisfaction and performance of all its obligations under this Agreement, and (ii) the
Corporation shall perform fully its obligations under this Agreement without regard to whether Indemnitee holds,
may pursue or has pursued any indemnification, advancement, hold harmless, exoneration, contribution or
insurance coverage rights against any person or entity other than the Corporation.
16.
(a)
Certain Definitions.
“Agent” shall mean any person who is or was, or who has consented to serve as, a director, officer,
employee, agent, fiduciary, joint venturer, partner, manager or other official of the Corporation or
a subsidiary or an affiliate of the Corporation, or any other entity (including without limitation, an
employee benefit plan) either at the request of, for the convenience of, or otherwise to benefit the
Corporation or a subsidiary of the Corporation. Any person who is or was serving as a manager,
director, officer, employee or agent of a subsidiary of the Corporation shall be deemed to be
serving, or have served, at the request of the Corporation.
(b)
“Change in Control ” shall mean the occurrence, after the Corporation’s initial public offering, of
any of the following:
(i)
Both (A) any “person” (as defined below) is or becomes the “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Corporation representing at least twenty percent (20%) of the total voting power
represented by the Corporation’s then outstanding voting securities and (B) the beneficial
ownership by such person of securities representing such percentage is not approved by a
majority of the “continuing directors” (as defined below);
- 9 -
(ii)
(iii)
(iv)
Any “person” is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation representing at least
fifty percent (50%) of the total voting power represented by the Corporation’s then
outstanding voting securities;
A change in the composition of the Board of Directors occurs, as a result of which fewer
than two‑thirds of the incumbent directors are directors who either (A) had been directors
of the Corporation on the “look-back date” (as defined below) (the “Original Directors”) or
(B) were elected, or nominated for election, to the Board of Directors with the affirmative
votes of at least a majority in the aggregate of the Original Directors who were still in
office at the time of the election or nomination and directors whose election or nomination
was previously so approved (the “continuing directors”);
The stockholders of the Corporation approve a merger or consolidation of the Corporation
with any other corporation, if such merger or consolidation would result in the voting
securities of the Corporation outstanding immediately prior thereto representing (either by
remaining outstanding or by being converted into voting securities of the surviving entity)
50% or less of the total voting power represented by the voting securities of the
Corporation or such surviving entity outstanding immediately after such merger or
consolidation; or
(v)
The stockholders of the Corporation approve (A) a plan of complete liquidation of the
Corporation or (B) an agreement for the sale or disposition by the Corporation of all or
substantially all of the Corporation’s assets.
For purposes of Subsections (i) and (ii) above, the term “person” shall have the same meaning as when
used in Sections 13(d) and 14(d) of the Exchange Act, but shall exclude (x) a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation or of a parent or subsidiary of the Corporation or (y) a
corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of the common stock of the Corporation.
For purposes of Subsection (iii) above, the term “look-back date” shall mean the later of (x) the date first
written above in the preamble to this Agreement or (y) the date 24 months prior to the date of the event that may
constitute a “Change in Control.”
Any other provision of this Section 16(b) notwithstanding, the term “Change in Control” shall not include a
transaction, if undertaken at the election of the Corporation, the result of which is to sell all or substantially all of
the assets of the Corporation to another corporation (the “surviving corporation”); provided that the surviving
corporation is owned directly or indirectly by the stockholders of the Corporation immediately following such
transaction in substantially the same proportions as their ownership of the Corporation’s common stock
immediately
- 10 -
preceding such transaction; and provided, further, that the surviving corporation expressly assumes this Agreement.
(c)
(d)
(e)
(f)
“Disinterested Director” shall mean a director of the Corporation who is not or was not a party to
the Proceeding in respect of which indemnification is being sought by Indemnitee.
“Expenses” shall include all direct and indirect costs (including, without limitation, attorneys’ fees,
retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees, all other
disbursements or out-of-pocket expenses and reasonable compensation for time spent by
Indemnitee for which Indemnitee is otherwise not compensated by the Corporation or any third
party) actually and reasonably incurred in connection with either the investigation, defense,
settlement or appeal of a Proceeding or establishing or enforcing a right to indemnification under
this Agreement, applicable law or otherwise; provided, however, that “Expenses” shall not include
any Liabilities.
“Final Adverse Determination ” shall mean that a determination that Indemnitee is not entitled to
indemnification shall have been made pursuant to Section 5 hereof and either (1) a final
adjudication in the Court of Chancery of the State of Delaware or decision of an arbitrator pursuant
to Section 8(a) hereof shall have denied Indemnitee’s right to indemnification hereunder, or
(2) Indemnitee shall have failed to file a complaint in a Delaware court or seek an arbitrator’s
award pursuant to Section 8(a) for a period of one hundred twenty (120) days after the
determination made pursuant to Section 5 hereof.
“Independent Legal Counsel” shall mean a law firm or a member of a firm selected by the
Corporation and approved by Indemnitee (which approval shall not be unreasonably withheld) or,
if there has been a Change in Control, selected by Indemnitee and approved by the Corporation
(which approval shall not be unreasonably withheld), that neither is presently nor in the past five
(5) years has been retained to represent: (i) the Corporation or any of its subsidiaries or affiliates,
or Indemnitee or any corporation of which Indemnitee was or is a director, officer, employee or
agent, or any subsidiary or affiliate of such a corporation, in any material matter, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term “Independent Legal Counsel” shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an action to determine Indemnitee’s right to
indemnification under this Agreement.
(g)
“Liabilities” shall mean liabilities of any type whatsoever including, but not limited to, any
judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid in settlement
(including all interest assessments and other charges paid or payable in connection with or in
respect of such judgments, fines, penalties or amounts paid in settlement) of any Proceeding.
- 11 -
(h)
“Proceeding” shall mean any threatened, pending or completed action, claim, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, that is associated with
Indemnitee’s being an Agent of the Corporation.
17.
Binding Effect; Duration and Scope of Agreement . This Agreement shall be binding upon the
parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business or assets of the Corporation), spouses,
heirs and personal and legal representatives. This Agreement shall be deemed to be effective as of the
commencement date of the Indemnitee’s service as an officer or director of the Corporation and shall continue in
effect during the Indemnification Period, regardless of whether Indemnitee continues to serve as an Agent.
18.
Severability. If any provision or provisions of this Agreement (or any portion thereof) shall be
held to be invalid, illegal or unenforceable for any reason whatsoever:
(a)
(b)
the validity, legality and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby; and
to the fullest extent legally possible, the provisions of this Agreement shall be construed so as to
give effect to the intent of any provision held invalid, illegal or unenforceable.
19.
Governing Law. This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be
performed entirely within the State of Delaware, without regard to conflict of laws rules.
20.
Consent to Jurisdiction. The Corporation and Indemnitee each irrevocably consent to the
jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding that
arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought
only in the state courts of the State of Delaware.
21.
Entire Agreement. This Agreement represents the entire agreement between the parties hereto,
and there are no other agreements, contracts or understandings between the parties hereto with respect to the
subject matter of this Agreement, except as specifically referred to herein or as provided in Section 15 hereof.
Counterparts. This Agreement may be executed in one or more counterparts, each of which shall
for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.
22.
- 12 -
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by a duly authorized
officer and Indemnitee has executed this Agreement as of the date first above written.
RENEWABLE ENERGY GROUP, INC., INDEMNITEE
a Delaware corporation
By
Its
- 13 -
RENEWABLE ENERGY GROUP, INC. SUBSIDIARIES
REG Biofuels, LLC
REG Marketing & Logistics Group, LLC
REG Services Group, LLC
REG Capital, LLC
REG Synthetic Fuels, LLC
REG Life Sciences, LLC
REG Canada Holdings Inc.
REG Construction & Technology Group, LLC
REG Ventures, LLC
REG Ralston, 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 Grays Harbor, LLC
REG Madison, LLC
REG Bioproducts, LLC
REG Feedstock, LLC
REG Overseas Holdings B.V.
REG International Trading & Commodities B.V.
REG Germany GmbH
Exhibit 21.1
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
British Columbia
Iowa
Iowa
Iowa
Texas
Delaware
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Iowa
Delaware
Washington
Wisconsin
Iowa
Iowa
Netherlands
Netherlands
Germany
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-168374, No. 333-203763 and No. 333-220518
on Form S-8 of our report dated March 7, 2019, relating to the consolidated financial statements 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,
2018.
/s/ DELOITTE & TOUCHE LLP
Des Moines, Iowa
March 7, 2019
Exhibit 31.1
I, Cynthia J. Warner, 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.
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 7, 2019
/s/ Cynthia J. Warner
Cynthia J. Warner
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.
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 7, 2019
/s/ Chad Stone
Chad Stone
Chief Financial Officer
SECTION 1350 CERTIFICATIONS
Exhibit 32.1
I, Cynthia J. Warner, 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 7, 2019
/s/ Cynthia J. Warner
Cynthia J. Warner
Chief Executive 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 7, 2019
/s/ Chad Stone
Chad Stone
Chief Financial Officer