10-Q 1 regi-10q_20130629.htm FORM 10-Q

   

      

      

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

      

Form 10-Q

      

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2013

OR

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35397

      

RENEWABLE ENERGY GROUP, INC.

(Exact name of registrant as specified in its charter)

      

   

 

DELAWARE

   

26-4785427

(State of other jurisdiction of
incorporation or organization)

   

(I.R.S. Employer
Identification No.)

   

   

416 South Bell Avenue Ames, Iowa

   

50010

(Address of principal executive offices)

   

(Zip code)

(515) 239-8000

(Registrant’s telephone number, including area code)

      

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

   

 

Large accelerated filer  ¨

   

Accelerated filer  ¨

   

   

Non-accelerated filer  x

   

Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO   x

As of July 29, 2013, the registrant had 33,498,060 shares of Common Stock issued and outstanding.

      

      

   

   

                       

 

   


   

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

AS OF JUNE 30, 2013 AND DECEMBER 31, 2012

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

   

 

   

June 30,

2013

   

      

December 31,

2012

   

ASSETS

   

   

   

      

   

   

   

CURRENT ASSETS:

   

   

   

      

   

   

   

Cash and cash equivalents

$

95,499

   

      

$

66,785

      

Accounts receivable, net (includes amounts owed by related parties of $ 422 and $771 as of June 30, 2013 and December 31, 2012, respectively)

   

77,135

   

      

   

18,768

      

Inventories

   

76,830

   

      

   

45,206

      

Deferred income taxes

   

5,295

   

      

   

2,512

      

Prepaid expenses and other assets

   

25,988

   

      

   

15,812

      

Total current assets

   

280,747

   

      

   

149,083

      

PROPERTY, PLANT AND EQUIPMENT, NET

   

257,405

   

      

   

242,885

      

PROPERTY, PLANT AND EQUIPMENT, NET—VARIABLE INTEREST ENTITY

   

5,291

   

      

   

5,405

      

GOODWILL

   

84,864

   

      

   

84,864

      

DEFERRED INCOME TAXES

   

—  

   

      

   

969

      

OTHER ASSETS (includes amounts owed by related parties of $ 246 and $692 as of June 30, 2013 and December 31, 2012, respectively)

   

12,456

   

      

   

12,578

      

TOTAL ASSETS

$

640,763

   

      

$

495,784

      

LIABILITIES AND EQUITY

   

   

   

      

   

   

   

CURRENT LIABILITIES:

   

   

   

      

   

   

   

Revolving line of credit

$

9,433

   

      

$

—  

      

Current maturities of notes payable

   

23,721

   

      

   

4,955

      

Current maturities of notes payable—variable interest entity

   

293

   

      

   

283

      

Accounts payable (includes amounts owed to related parties of $ 610 and $2,950 as of June 30, 2013 and December 31, 2012, respectively)

   

50,318

   

      

   

28,131

      

Accrued expenses and other liabilities

   

7,416

   

      

   

6,475

      

Accrued income taxes

   

39,316

   

   

   

—  

   

Deferred revenue

   

573

   

      

   

—  

      

Total current liabilities

   

131,070

   

      

   

39,844

      

UNFAVORABLE LEASE OBLIGATION

   

8,470

   

      

   

9,035

      

DEFERRED INCOME TAXES

   

5,270

   

      

   

—  

      

NOTES PAYABLE

   

6,123

   

      

   

27,776

      

NOTES PAYABLE—VARIABLE INTEREST ENTITY

   

3,881

   

      

   

4,030

      

OTHER LIABILITIES

   

7,060

   

      

   

7,292

      

Total liabilities

   

161,874

   

      

   

87,977

      

COMMITMENTS AND CONTINGENCIES (Note 12)

   

   

   

      

   

   

   

SERIES B PREFERRED STOCK ($.0001 par value; 3,000,000 shares authorized; 2,141,502 and 2,995,106 shares outstanding at June 30, 2013 and December 31, 2012, respectively; redemption amount $ 53,538 and $74,878 at June 30, 2013 and December 31, 2012, respectively)

   

59,372

   

      

   

83,043

      

EQUITY:

   

   

   

      

   

   

   

Company stockholders’ equity:

   

   

   

      

   

   

   

Common stock ($.0001 par value; 300,000,000 shares authorized; 32,425,828 and 30,559,935 shares outstanding at June 30, 2013 and December 31, 2012, respectively)

   

3

   

      

   

3

      

Common stock—additional paid-in-capital

   

300,957

   

      

   

273,989

      

Warrants—additional paid-in-capital

   

147

   

      

   

147

      

Retained earnings

   

121,766

   

      

   

53,823

      

Total paid-in-capital and retained earnings

   

422,873

   

      

   

327,962

      

Treasury stock (484,660 and 462,985 shares outstanding at June 30, 2013 and December 31, 2012, respectively)

   

(3,356

)

      

   

(3,198

)

Total stockholders’ equity

   

419,517

   

      

   

324,764

      

TOTAL LIABILITIES AND EQUITY

$

640,763

   

      

$

495,784

      

See notes to condensed consolidated financial statements

   

                   

.

 

 1 


   

RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

   

 

   

Three Months

Ended

June 30,

2013

   

      

Three Months

Ended

June 30,

2012

   

   

Six Months

Ended

June 30,
2013

   

      

Six Months

Ended

June 30,

2012

   

REVENUES:

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Biodiesel sales

$

340,111

   

      

$

271,035

      

   

$

529,366

   

      

$

453,815

      

Biodiesel government incentives

   

44,577

   

      

   

815

      

   

   

119,648

   

      

   

6,202

      

   

   

384,688

   

      

   

271,850

      

   

   

649,014

   

      

   

460,017

      

Services

   

47

   

      

   

77

      

   

   

89

   

      

   

157

      

   

   

384,735

   

      

   

271,927

      

   

   

649,103

   

      

   

460,174

      

COSTS OF GOODS SOLD:

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Biodiesel

   

321,074

   

      

   

228,002

      

   

   

486,957

   

      

   

381,469

      

Biodiesel—related parties

   

13,411

   

      

   

12,897

      

   

   

25,141

   

      

   

30,566

      

Services

   

69

   

      

   

79

      

   

   

129

   

      

   

156

      

   

   

334,554

   

      

   

240,978

      

   

   

512,227

   

      

   

412,191

      

GROSS PROFIT

   

50,181

   

      

   

30,949

      

   

   

136,876

   

      

   

47,983

      

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (includes related party amounts of $ 0 and $ 2 for the three and six months ended June 30, 2013, respectively, and $3 and $152 for the three and six months ended June 30, 2012, respectively)

   

11,226

   

      

   

11,014

      

   

   

20,870

   

      

   

23,976

      

INCOME FROM OPERATIONS

   

38,955

   

      

   

19,935

      

   

   

116,006

   

      

   

24,007

      

OTHER INCOME (EXPENSE), NET:

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Change in fair value of preferred stock conversion embedded derivative

   

—  

   

      

   

—  

      

   

   

—  

   

      

   

11,975

      

Change in fair value of Seneca Holdco liability

   

—  

   

      

   

—  

      

   

   

—  

   

      

   

349

      

Other income

   

93

   

      

   

28

      

   

   

210

   

      

   

65

      

Interest expense (includes related party amounts of $ 8 and $ 28 for the three and six months ended June 30, 2013, respectively, and $4 and $21 for the three and six months ended June 30, 2012, respectively)

   

(604

)

      

   

(1,059

   

   

(1,180

)

      

   

(2,112

   

   

(511

)

      

   

(1,031

   

   

(970

)

      

   

10,277

      

INCOME BEFORE INCOME TAXES

   

38,444

   

      

   

18,904

      

   

   

115,036

   

      

   

34,284

      

INCOME TAX EXPENSE

   

(15,314

)

      

   

(4,471

   

   

(45,503

)

      

   

(5,834

NET INCOME

   

23,130

   

      

   

14,433

      

   

   

69,533

   

      

   

28,450

      

EFFECTS OF RECAPITALIZATION

   

—  

   

      

   

—  

      

   

   

—  

   

      

   

39,107

      

LESS—ACCRETION OF SERIES A PREFERRED STOCK TO REDEMPTION VALUE

   

—  

   

      

   

—  

      

   

   

—  

   

      

   

(1,808

LESS—CHANGE IN UNDISTRIBUTED DIVIDENDS ALLOCATED TO PREFERRED STOCKHOLDERS

   

839

   

      

   

628

      

   

   

—  

   

      

   

(823

LESS—DISTRIBUTED DIVIDENDS TO PREFERRED STOCKHOLDERS

   

(1,590

)

   

   

(1,470

)

   

   

(1,590

)

   

   

(1,470

)

LESS—EFFECT OF PARTICIPATING PREFERRED STOCK

   

(2,491

)

      

   

(1,337

   

   

(9,001

)

      

   

(8,952

LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS

   

(315

)

      

   

(944

   

   

(935

)

      

   

(3,145

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS

$

19,573

   

      

$

11,310

      

   

$

58,007

   

      

$

51,359

      

NET INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

BASIC

$

0.63

   

      

$

0.39

      

   

$

1.87

   

      

$

1.91

      

DILUTED

$

0.62

   

      

$

0.39

      

   

$

1.87

   

      

$

0.47

      

WEIGHTED AVERAGE SHARES USED TO COMPUTE NET INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

BASIC

   

31,292,910

   

      

   

28,822,486

      

   

   

30,967,903

   

      

   

26,948,340

      

DILUTED

   

36,683,764

   

      

   

28,822,486

      

   

   

36,655,958

   

      

   

32,869,382

      

See notes to condensed consolidated financial statements.

   

   

 

 2 


   

RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND EQUITY (Unaudited)

FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

   

 

   

   

   

   

   

   

   

Company Stockholders’ Equity

   

   

   

   

   

Redeemable

Preferred

Stock

Shares

   

      

Redeemable

Preferred

Stock

   

      

Common

Stock

Shares

   

      

Common

Stock

   

      

Class A

Common Stock

Shares

   

      

Class A

Common

Stock

   

      

Common Stock -

Additional

Paid-in

Capital

   

      

Warrants -
Additional

Paid-in

Capital

   

      

Retained
Earnings

   

      

Cost of

Treasury

Stock

   

   

Total

   

BALANCE, January 1, 2012

   

13,455,522

   

      

$

147,779

   

      

   

—  

   

      

$

—  

   

      

   

13,962,155

   

      

$

1

   

      

$

80,747

   

      

$

3,698

   

      

$

36,528

   

      

$

(398

)

   

$

120,576

   

Derecognition of Series A Preferred Stock

   

(13,455,522

)

      

   

(149,587

)

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

   

   

—  

      

Issuance of Series B Preferred Stock and common stock

   

2,999,493

      

      

   

83,165

      

      

   

—  

      

      

   

—  

      

      

   

7,660,612

      

      

   

1

      

      

   

111,795

      

      

   

(3,551

)

      

   

—  

      

      

   

—  

      

   

   

108,245

      

Issuance of common stock in initial public offering, net of issue cost of $ 8,780

   

—  

      

      

   

—  

      

   

   

7,200,000

      

      

   

1

      

      

   

(342,860

)

      

   

—  

      

      

   

59,918

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

   

   

59,919

      

Issuance of common stock

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

319,301

   

      

   

—  

   

      

   

3,958

   

      

   

—  

   

      

   

—  

   

      

   

—  

      

   

   

3,958

   

Stock compensation expense

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

9,722

   

      

   

—  

   

      

   

—  

   

      

   

—  

      

   

   

9.722

   

Accretion of Series A Preferred Stock to redemption value

   

—  

      

      

   

1,808

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

(1,808

)

      

   

—  

      

   

   

(1,808

)

Series B Preferred Stock dividends paid

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(1,470

)

   

   

—  

   

   

   

(1,470

)

Net income

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

28,450

   

      

   

—  

      

   

   

28,450

   

BALANCE, June 30, 2012

   

2,999,493

      

      

$

83,165

      

      

   

7,200,000

      

      

$

1

      

      

   

21,599,208

      

      

$

2

      

      

$

266,140

      

      

$

147

      

      

$

61,700

      

      

$

(398

)

   

$

327,592

      

BALANCE, January 1, 2013

   

2,995,106

   

      

$

83,043

   

   

   

30,559,935

   

      

$

3

   

      

   

—  

   

      

$

—  

   

      

$

273,989

   

      

$

147

   

      

$

53,823

   

      

$

(3,198

)

   

$

324,764

   

Issuance of common stock

   

—  

   

      

   

—  

   

   

   

58,501

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

423

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

   

   

423

   

Conversion of Series B Preferred Stock to common stock

   

(853,604

)

      

   

(23,671

)

      

   

1,736,877

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

24,055

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

   

   

24,055

   

Conversion of restricted stock units to common stock (net of 21,675 shares of treasury stock purchased)

   

—  

   

      

   

—  

   

      

   

70,515

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

(158

)

   

   

(158

)

Stock compensation expense

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

2,385

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

   

   

2,385

   

Series B Preferred Stock dividends paid

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(1,590

)

   

   

—  

   

   

   

(1,590

)

Excess tax benefit over book expense from restricted stock unit conversions

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

105

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

105

   

Net income

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

69,533

   

      

   

—  

   

   

   

69,533

   

BALANCE, June 30, 2013

      

2,141,502

   

      

$

59,372

   

   

   

32,425,828

   

      

$

3

   

      

   

—  

   

      

$

—  

   

      

$

300,957

   

      

$

147

   

      

$

121,766

   

      

$

(3,356

)

   

$

419,517

   

See notes to condensed consolidated financial statements.

   

   

 

 3 


   

RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(IN THOUSANDS)

   

 

   

Six Months

Ended

June 30,

2013

   

      

Six Months

Ended

June 30,

2012

   

CASH FLOWS FROM OPERATING ACTIVITIES:

   

   

   

   

   

   

   

Net income

$

69,533

   

   

$

28,450

   

Adjustments to reconcile net income to net cash flows from operating activities:

   

   

   

   

   

   

   

Depreciation expense

   

4,376

   

   

   

4,095

   

Amortization expense of assets and liabilities, net

   

(253

)

   

   

(174

)

Gain on disposal of property, plant and equipment

   

(67

)

   

   

—  

   

Provision (benefit) for doubtful accounts

   

(117

)

   

   

338

   

Stock compensation expense

   

2,385

   

   

   

9,722

   

Deferred tax expense

   

3,456

   

   

   

3,083

   

Change in fair value of preferred stock conversion feature embedded derivatives

   

—  

   

   

   

(11,975

)

Change in fair value of Seneca Holdco liability

   

—  

   

   

   

(249

)

Premium paid for Seneca Landlord investment

   

—  

   

   

   

(7,063

)

Expense settled with stock issuance

   

—  

   

   

   

1,898

   

Changes in asset and liabilities:

   

   

   

   

   

   

   

Accounts receivable, net

   

(58,250

)

   

   

22,643

   

Inventories

   

(31,624

)

   

   

(16,522

)

Prepaid expenses and other assets

   

(9,940

)

   

   

(27,037

)

Accounts payable

   

23,660

   

   

   

13,203

   

Accrued expenses and other liabilities

   

40,332

   

   

   

(3,230

)

Deferred revenue

   

573

   

   

   

(6,319

)

Net cash flows provided by operating activities

   

44,064

   

   

   

10,863

   

CASH FLOWS FROM INVESTING ACTIVITIES:

   

   

   

   

   

   

   

Cash paid for purchase of property, plant and equipment

   

(20,057

)

   

   

(4,392

)

Cash proceeds from involuntary disposal of fixed assets

   

330

   

   

   

—  

   

Change in restricted cash

   

—  

   

   

   

(64

)

Cash paid for investments

   

(58

)

   

   

—  

   

Cash paid for issuance of note receivable

   

(519

)

   

   

—  

   

Net cash flows used in investing activities

   

(20,304

)

   

   

(4,456

)

CASH FLOWS FROM FINANCING ACTIVITIES:

   

   

   

   

   

   

   

Borrowings on line of credit

   

643,148

   

   

   

686,665

   

Repayments on line of credit

   

(633,715

)

   

   

(690,178

)

Cash received from issuance of note payable

   

3,000

   

   

   

—  

   

Cash paid on note payable

   

(6,025

)

   

   

(5,462

)

Cash paid for debt issuance costs

   

(47

)

   

   

(137

)

Repayment of investment in Seneca Landlord

   

—  

   

   

   

(4,000

)

Cash received from initial public offering

   

—  

   

   

   

63,747

   

Cash paid for issuance of common stock and preferred stock

   

(25

)

   

   

(1,699

)

Cash paid for treasury stock

   

(282

)

   

   

(398

)

Cash paid for preferred stock dividends

   

(1,205

)

   

   

(1,470

)

Excess tax benefit over book expense from restricted stock unit conversions

   

105

   

   

   

—  

   

Net cash flows provided from financing activities

   

4,954

   

   

   

47,068

   

NET CHANGE IN CASH AND CASH EQUIVALENTS

   

28,714

   

   

   

53,475

   

CASH AND CASH EQUIVALENTS, Beginning of period

   

66,785

   

   

   

33,575

   

CASH AND CASH EQUIVALENTS, End of period

$

95,499

   

   

$

87,050

   

(continued)

   

   

 

 4 


   

RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(IN THOUSANDS)

   

 

      

Six Months

Ended

June 30,

2013

   

      

Six Months

Ended

June 30,

2012

   

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:

   

   

   

      

   

   

   

Cash paid (received) for income taxes

$

(2,111

)

      

$

3,282

   

Cash paid for interest

$

940

   

      

$

1,991

   

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

   

   

   

      

   

   

   

Effects of recapitalization

   

   

   

      

$

39,107

   

Accretion of preferred stock to redemption value

   

   

   

      

$

1,808

   

Amounts included in period-end accounts payable for:

   

   

   

      

   

   

   

Purchases of property, plant and equipment

$

2,459

   

      

$

447

   

Incentive stock liability for raw material supply agreement

$

239

   

      

$

271

   

Issuance of common stock for Seneca Landlord put/call option

   

   

   

      

$

591

   

Issuance of common stock for dividends

$

385

   

   

   

   

   

(concluded)

   

See notes to condensed consolidated financial statements.

   

   

 

 5 


   

RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

For The Three and Six Months Ended June 30, 2013 and 2012

(In Thousands, Except Share and Per Share Amounts)

   

NOTE 1 — BASIS OF PRESENTATION AND NATURE OF THE BUSINESS

The condensed consolidated financial statements have been prepared by Renewable Energy Group, Inc. and its subsidiaries (the Company), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

On January 3, 2012, the Company filed its Second Amended and Restated Certificate of Incorporation which executed a one-for-2.5 reverse stock split of the issued and outstanding shares of its common stock. All numbers of common shares and per share data in the accompanying condensed consolidated financial statements and related notes have been retroactively adjusted. On January 24, 2012, in connection with the IPO, the Series A Preferred Stock was converted into a combination of shares of Series B Preferred Stock and Class A Common Stock. On January 24, 2012, the Company completed an initial public offering (IPO) of shares of Common Stock in which it sold 7,200,000 shares at a price to the public of $10 per share, which included 342,860 shares of Common Stock from selling shareholders. The IPO raised approximately $59,919 net of underwriting fees and offering costs. On January 24, 2012, the Company acquired the Seneca Facility pursuant to the exercise of its option under the Funding, Investor Fee and Put/Call Agreement, by and among the Company, Seneca Landlord, LLC (Seneca Landlord) and certain subsidiaries of the Company. See “Note 3 – Stockholders’ Equity of the Company” for a further description of the IPO.

The Company has been in the biodiesel industry since 1996. The Company owns eight active biodiesel production facilities with aggregate nameplate production capacity of 257 million gallons per year (mmgy). The Company primarily produces biodiesel from lower cost feedstocks, such as inedible corn oil, used cooking oil and inedible animal fat. A small portion of the Company’s biodiesel is produced using higher cost virgin vegetable oils, such as soybean oil and canola oil. The seven active biodiesel production facilities with nameplate capacities are: a 12 mmgy facility in Ralston, Iowa; a 35 mmgy facility near Houston, Texas; a 45 mmgy facility in Danville, Illinois; a 30 mmgy facility in Newton, Iowa; a 30 mmgy biodiesel production facility in Albert Lea, Minnesota; a 60 mmgy facility in Seneca, Illinois; a 15 mmgy facility in New Boston, Texas; and a 30 mmgy facility in Mason City, Iowa which was idle at the time the Company purchased it. See “Note 13 – Subsequent Events” for a further description of the Company’s acquisition of the Mason City biorefinery. The Company completed repairs to the New Boston facility and started producing biodiesel at this facility in late June 2013. In November 2012, the Company completed the acquisition of BullDog Biodiesel, LLC, a 15 mmgy facility near Atlanta, Georgia, that was idle when purchased and it will remain idled until certain repairs or upgrades are made.

The biodiesel industry and the Company’s business have benefited from certain federal and state incentives. On January 2, 2013, the federal blenders tax credit, which expired on December 31, 2011, was retroactively reinstated to January 1, 2012 through December 31, 2013. Revenues associated with governmental incentive programs are recognized when the amount to be received is determinable, collectability is reasonably assured and the sale of product giving rise to the incentive has been recognized. During the three and six months ended June 30, 2013, the Company earned biodiesel government incentive revenues in the amount of $44,577 and $119,648, respectively, and $815 and $6,202 for the three and six months ended June 30, 2012, respectively. The 2012 federal blenders tax credit portion recognized during the first quarter of 2013 increased biodiesel government incentive revenues along with cost of goods sold.

During the second quarter of 2013, the Company revised the presentation of biodiesel government incentives revenue and biodiesel cost of goods sold from amounts previously reported in the first quarter of 2013 to reflect the blenders tax credit amount refunded to customers of $69,534 as a reduction of biodiesel government incentives revenue versus biodiesel cost of goods sold. In addition, biodiesel cost of goods sold was revised from amounts previously reported in the first quarter of 2013 to reflect the blenders tax credit amount received from vendors of $5,382 as a reduction of biodiesel cost of goods sold versus biodiesel government incentives revenue. Previously these cash payments were reported on a gross basis.  These revisions relate to the first quarter of 2013 and have no impact on any other previously reported historical period.  The

 

 6 


   

Company believes the revised presentation is not material to its previously reported historical condensed consolidated statements of operations.  Additionally, this revision had no impact on gross profit, net income, earnings per share, the condensed consolidated balance sheets, the condensed consolidated statements of redeemable preferred stock and equity, or the condensed consolidated statements of cash flows in any previously reported historical period.  

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company, consolidated with the accounts of all of its subsidiaries and affiliates in which the Company holds a controlling financial interest as of the financial statement date. Normally, a controlling financial interest reflects ownership of a majority of the voting interests. Other factors considered in determining whether a controlling financial interest is held include whether the Company possesses the authority to purchase or sell assets or make other operating decisions that significantly affect the entity’s results of operations and whether the Company is the primary beneficiary of the economic benefits and financial risks of the entity. Intercompany accounts and transactions have been eliminated.

Inventories

Inventories consist of raw materials, work in process and finished goods and are valued at the lower of cost or market. As of June 30, 2013 and December 31, 2012, there were no adjustments to reduce inventory to the lower of cost or market. Cost is determined based on the first-in, first-out method.

In addition to the inventories noted above, Renewable Identification Number (RIN) inventory is valued at the lower of cost or market. RIN market value is based upon pricing as reported by the Oil Price Information Service (OPIS). RIN inventory values were adjusted in the amount of $0 and $21 at June 30, 2013 and December 31, 2012, respectively, to reflect the lower of cost or market. The Company held $8,253 and $99 in RIN inventory as of June 30, 2013 and December 31, 2012, respectively, which is reported in prepaid expenses and other assets on the condensed consolidated balance sheets.

Preferred Stock Accretion

On January 24, 2012, in connection with the IPO, the Series A Preferred Stock was converted into a combination of shares of Series B Preferred Stock and Class A Common Stock. Accretion of the Series A Preferred Stock was terminated at the time of the conversion. The Company recorded the Series B Preferred Stock at fair value, which was a premium over its redemption value; therefore no accretion is recorded for the Series B Preferred Stock (ASC Topic 480-10-S99).

Accretion of $0 for the three and six months ended June 30, 2013 and $0 and $1,808 for the three and six months ended June 30, 2012, respectively, has been recognized as a reduction to income available to common stockholders in accordance with paragraph 15 of ASC Topic 480-10-S99, Classification and Measurement of Redeemable Securities (ASC Topic 480-10-S99).

Goodwill

The Company accounts for goodwill in accordance with ASC Topic 350, Intangibles – Goodwill and Other. The Company reviews the carrying value of goodwill for impairment annually on July 31 or when impairment indicators exist. Goodwill is allocated and reviewed for impairment by reporting units. The Company’s reporting units consist of its two operating segments, the biodiesel operating segment and services operating segment. The analysis is based on a comparison of the carrying value of the reporting unit to its fair value, determined utilizing a discounted cash flow methodology. Additionally, the Company reviews the carrying value of goodwill whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Changes in estimates of future cash flows caused by items such as unforeseen events or sustained unfavorable changes in market conditions could negatively affect the fair value of the reporting unit’s goodwill asset and result in an impairment charge. The annual impairment test determined that the fair value of each of the reporting units exceeded its carrying value by approximately 45%. There was no impairment of goodwill recorded in the periods presented.

Stock-Based Compensation

On August 31, 2011, the Company’s Board of Directors (Company Board) approved the Amended and Restated 2009 Stock Incentive Plan, which was then approved by the Company’s shareholders on October 26, 2011. Eligible award recipients are employees, non-employee directors and advisors who provide service to the Company. The Company accounts for stock-based compensation in accordance with ASC Topic 718, Stock Compensation (ASC Topic 718). Compensation expense is measured at the grant-date fair value of the award and recognized as compensation expense over the vesting period. Compensation expense of $1,029 and $2,385 for the three and six months ended June 30, 2013, respectively, and

 

 7 


   

$4,758 and $9,722 for the three and six months ended June 30, 2012, respectively, was recorded for restricted stock units and stock appreciation rights awarded to employees and non-employee directors in return for services. During January 2013, the Company granted 20,000 shares of stock appreciation rights to an employee for services with a vesting period of four years. During February 2013, the Company granted 50,000 shares of restricted stock units to an employee that vested and converted to common stock immediately based upon meeting certain performance requirements. During May 2013, the Company granted 84,921 shares of restricted stock units and 313,482 shares of stock appreciation rights to employees with vesting periods of three and four years, respectively.   

Income Taxes

The Company accounts for income taxes during interim periods based on its best estimate of the annual effective tax rate in accordance with ASC Topic 740, Income Taxes (ASC Topic 740), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Further, during interim periods, certain items are given discrete period treatment and, as a result, the tax effects of such items are reported in full in the relevant interim period.

In addition, ASC Topic 740 requires that deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. If it is more-likely-than-not that all or a portion of the Company’s deferred tax assets will not be realized, based on all available evidence, a deferred tax valuation allowance would be established. Consideration is given to positive and negative evidence related to the realization of the deferred tax assets. Significant judgment is required in making this assessment. In evaluating the available evidence, the Company considers, among other factors, historical financial performance, expectation of future earnings, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. During the six months ended June 30, 2013, the Company estimated that it will incur a tax liability for the annual period ending December 31, 2013 and that its net deferred tax assets will be utilized as a result. As of June 30, 2013 and December 31, 2012, the Company had net deferred income tax assets of $25 and $3,481, respectively. There was no offsetting valuation allowance recorded as of June 30, 2013 or December 31, 2012. The net deferred income tax asset amount is offset by an accrued liability for unrecognized tax benefits in the amount of $1,900 and $1,900 as of June 30, 2013 and December 31, 2012, respectively.

Uncertain tax positions are evaluated and amounts are recorded when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Judgment is required in evaluating each uncertain tax position to determine whether the more likely than not recognition threshold has been met.

Income tax expense for the three and six months ended June 30, 2013 was $15,314 and $45,503, respectively, compared to $4,471 and $5,834 for the three and six months ended June 30, 2012, respectively. The effective tax rate was approximately 39% and 40% for the three and six months ended June 30, 2013, respectively, and 24% and 17% for the three and six months ended June 30, 2012, respectively. The difference between the effective tax rate and the federal statutory rate (35%) for the first six months of 2013 is primarily a result of state income taxes (net of federal income tax effects), the domestic production activities deduction, limitation on the deductibility of certain executive compensation, various disallowed deductions and discrete items that occur during the period. The difference between the effective tax rate and the federal statutory rate (35%) for the first six months of 2012 was primarily a result of state income taxes (net of federal income tax effects), reversal of the valuation allowance offsetting deferred tax assets, income or loss from the change in fair value of the embedded conversion feature of preferred stock, the domestic production activities deduction, tax consequences of Seneca Landlord, various disallowed deductions and discrete items that occur during the period.

The 2013 estimated annual effective tax rate is affected by variances among the estimates of full-year sources of taxable income, the realization of net operating losses and tax credits, full year estimates of permanent differences and the Company’s assessment of its liability for unrecognized tax benefits.

Net Income Per Share

Basic and diluted net income per common share are presented in conformity with the two-class method required for participating securities. The two-class method includes an earnings allocation formula that determines earnings for each class of common stock according to dividends declared and undistributed earnings for the period.

The holders of the Series B Preferred Stock accrue dividends at a rate of $1.125 per share per annum. Dividends are cumulative, accrue on a daily basis from the date of issuance and compound annually from the date of issuance. If dividends on the Series B Preferred Stock have not been paid or declared, the deficiency shall be paid or declared before any dividend is

 

 8 


   

declared for Common Stock. Dividends in arrears do not bear interest. Holders of the Series B Preferred Stock are allowed to participate in the dividends to common stockholders in the event that dividends on Common Stock exceed that of the Series B Preferred Stock as if the Series B Preferred Stock had been converted to Common Stock at the beginning of the year.

The Company calculates the effects of the Series B Preferred Stock on diluted EPS under the “if-converted” method unless the conversion of the convertible preferred stock is anti-dilutive to basic EPS. The effects of Common Stock options, warrants, restricted stock units and stock appreciation rights on diluted EPS are calculated using the treasury stock method unless the effects are anti-dilutive to EPS.

The following potentially dilutive weighted average securities were excluded from the calculation of diluted net income per share attributable to common stockholders during the periods presented as the effect was anti-dilutive:

   

 

   

Three Months

Ended

June 30,

2013

   

Three Months

Ended

June 30,

2012

   

Six Months

Ended

June 30,

2013

   

Six Months

Ended

June 30,

2012

   

Options to purchase common stock

   

87,026

   

   

   

87,026

   

   

   

87,026

   

   

   

87,026

   

Restricted stock units

   

524,417

   

   

   

1,698,661

   

   

   

514,596

   

   

   

1,548,790

   

Stock appreciation rights

   

1,225,528

   

   

   

901,747

   

   

   

1,149,877

   

   

   

459,665

   

Warrants to purchase common stock

   

—  

   

   

   

17,916

   

   

   

17,916

   

   

   

54,256

   

Redeemable preferred shares

   

—  

   

   

   

5,998,986

   

   

   

—  

   

   

   

—  

   

Total

   

1,836,971

   

   

   

8,704,336

   

   

   

1,769,415

   

   

   

2,149,737

   

The following table presents the calculation of diluted net income per share for the three and six months ended June 30, 2013 and for the six months ended June 30 2012. For the three months ended June 30, 2012, the effect from all convertible securities was anti-dilutive (in thousands, except share and per share data):

   

 

   

   

Three Months

Ended

June 30,

2013

      

      

   

Six Months

Ended

June 30,

2013

      

      

   

Six Months

Ended

June 30,

2012

      

Net income attributable to the Company’s common stockholders

$

19,573

   

      

$

58,007

   

      

$

51,359

      

Less: effects of recapitalization

   

—  

   

      

   

—  

   

      

   

(39,107

Plus: change in undistributed dividends allocated to preferred stockholders

   

(839

)

      

   

—  

   

      

   

823

      

Plus: distributed dividends to Preferred Stockholders

   

1,590

   

      

   

1,590

   

      

   

1,470

      

Plus: accretion of Series A Preferred Stock to redemption value

   

—  

   

      

   

—  

   

      

   

1,808

      

Plus: (gain) loss due to change in fair value of Series A Preferred Stock conversion feature embedded derivatives

   

—  

   

      

   

—  

   

      

   

(11,975

Plus: effect of participating dividends

   

2,806

   

      

   

9,936

   

      

   

12,097

      

Adjusted net income available to common stockholders

   

23,130

   

      

   

69,533

   

      

   

16,475

      

Less: effect of participating share-based awards

   

(326

)

      

   

(957

)

      

   

(1,108

Net income attributable to the Company’s common stockholders after dilutive effects

$

22,804

   

      

$

68,576

   

      

$

15,367

      

   

   

   

   

      

   

   

   

      

   

   

   

Shares:

   

   

   

      

   

   

   

      

   

   

   

Weighted-average shares used to compute basic net income per share

   

31,292,910

   

      

   

30,967,903

   

      

   

26,948,340

      

Adjustment to reflect conversion of preferred stock

   

5,390,042

   

      

   

5,688,055

   

      

   

5,921,042

      

Adjustment to reflect warrants to purchase common stock

   

812

   

   

   

—  

   

   

   

—  

   

Weighted-average shares used to compute diluted net income per share

   

36,683,764

   

      

   

36,655,958

   

      

   

32,869,382

      

Net income per share attributable to common stockholders

   

   

   

      

   

   

   

      

   

   

   

Diluted

$

0.62

   

      

$

1.87

   

      

$

0.47

      

Variable Interest Entities

The Company uses both quantitative and qualitative analysis when evaluating its variable interest entities (VIE) and determining the primary beneficiary (PB) of a VIE. The Company consolidates a VIE if it has both (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

 

 9 


   

New Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-10, Derecognition of in Substance Real Estate – a Scope Clarification a consensus of the FASB Emerging Issues Task Force (Topic 360). The amendments in this update are intended to resolve the diversity in practice about whether the guidance in Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, applies to a parent that ceases to have a controlling financial interest (as described in Subtopic 810-10, Consolidation—Overall) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. This update does not address whether the guidance in Subtopic 360-20 would apply to other circumstances when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. The Company adopted this statement effective January 1, 2013. The adoption of this guidance did not have a material effect on the Company’s financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities (Topic 210). The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required by the amendments are required to be applied retrospectively for all comparative periods presented. The Company adopted this statement effective January 1, 2013. The adoption of this guidance did not have a material effect on the Company’s financial statements.

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (Topic 740). The amendments in ASU 2013-11 provide guidance on the financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 is effective for fiscal years, an interim periods within those years, beginning after December 15, 2013. The Company will reflect the impact of these amendments beginning with the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2014. The Company does not anticipate a material impact to the Company’s financial position, results of operations or cash flows as a result of this change.

NOTE 3 — STOCKHOLDERS’ EQUITY OF THE COMPANY

Common Stock

On January 3, 2012, the Company filed its Second Amended and Restated Certificate of Incorporation which affected a one-for-2.5 reverse stock split on the shares issued and outstanding. The Amended and Restated Certificate of Incorporation authorized capital stock consisting of 450,000,000 shares, all with a par value of $.0001 per share which includes 300,000,000 shares of Common Stock (the class of common stock offered in the IPO), 140,000,000 shares of Class A Common Stock 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 outstanding Series B Preferred Stock as outlined below, the holders of outstanding shares of Common Stock are entitled to receive dividends. After the payment of all preferential amounts required to the holders of Series B Preferred Stock, all of the remaining assets of the Company available for distribution shall be distributed ratably among the holders of Common Stock.

On January 24, 2012, the Company completed an IPO of shares of Common Stock in which it sold 7,200,000 shares at a price to the public of $10 per share, which included 342,860 shares of Class A Common Stock from selling shareholders. The IPO raised approximately $59,919 net of underwriting fees and offering costs. In connection with the Company’s IPO on January 24, 2012, the Company gave effect to the one-time conversion of Series A Preferred Stock and certain common stock warrants into 7,660,612 shares of newly-issued Class A Common Stock and 2,999,493 shares of $74,987 aggregate liquidation preference Series B Preferred Stock with cumulative dividends of 4.50% per annum. On June 30, 2015, each holder of Series B Preferred Stock will have the right to require the Company to redeem its shares at the redemption price of $25.00 per share plus an amount equal to any accumulated and unpaid dividends (Redemption Price). The holder of any shares of Series B Preferred Stock will have the right to convert such shares, together with accumulated and unpaid dividends (whether or not declared) into shares of Common Stock at the conversion rate in effect at such time. If the closing sale price of the Common Stock exceeds certain pricing thresholds, then the Company may, at its option, cause up to all of the then outstanding shares of Series B Preferred Stock (and corresponding accumulated and unpaid dividends) to be converted into shares of the Company’s Common Stock at the then-applicable conversion rate.

 

 10 


   

Common Stock Issued During 2013

On February 15, 2013, the Company had 50,000 restricted stock units vest into 28,325 shares of Common Stock, net of 21,675 shares of treasury stock.

On March 18, 2013, the Company issued 58,501 shares of Common Stock with respect to the intangible supply agreement in connection with the purchase of substantially all Tellurian Biodiesel, Inc. and American BDF, LLC assets.

During the first quarter 2013, certain Series B Preferred Stockholders converted 1,140 shares of preferred stock into 2,300 shares of Common Stock as per the preferred stock shareholder agreement.

On May 23, 2013, the Company had 42,190 restricted stock units vest into 42,190 shares of Common Stock.

During the second quarter 2013, certain Series B Preferred Stockholders converted 852,464 shares of preferred stock into 1,734,577 shares of Common Stock as per the preferred stock shareholder agreement.

Common Stock Warrants

Under the Company’s outstanding warrants, the holder may purchase the number of shares of Common Stock underlying each warrant held for a purchase price of $11.16 per share. The warrant holder may “net exercise” the warrants and use the common shares received upon exercise of the warrants outstanding as the consideration for payment of the exercise price.

The warrant holders are generally protected from anti-dilution by adjustments for any stock dividends, stock split, combination or other recapitalization.

Stock Issuance Costs

In addition to the warrants, other direct costs of obtaining capital by issuing the common and preferred stock were deducted from related proceeds with the net amount recorded as preferred stock or stockholders’ equity. Direct costs incurred for the three and six months ended June 30, 2013 were $4 and $25, respectively, and $0 and $700 for the three and six months ended June 30, 2012, respectively.

NOTE 4 — REDEEMABLE PREFERRED STOCK

The Company’s restated certificate of incorporation filed on February 26, 2010 authorized 60,000,000 shares of preferred stock, including 14,000,000 shares of Series A Preferred Stock, with a par value of $.0001. The Company’s Board of Directors had discretion, subject to the approval of certain shareholders, as to the designation of voting rights, dividend rights, redemption price, liquidation preference and other provisions of each issuance.

On July 15, 2011, holders of the Company’s Series A Preferred Stock approved a second amended and restated certificate of incorporation, to be effective prior to the completion of the Company’s initial public offering, to, among other things, convert and redeem the Company’s outstanding Series A Preferred Stock for a combination of Class A Common Stock and Series B Preferred Stock. This was approved by the Company’s common stockholders during the Company’s annual stockholder meeting on October 26, 2011.

On January 3, 2012, the Company filed its Second Amended and Restated Certificate of Incorporation which affected a one-for-2.5 reverse stock split of the issued and outstanding shares of Common Stock. The Second Amended and Restated Certificate of Incorporation authorized capital stock consisting of 450,000,000 shares, all with a par value of $.0001 per share which includes 300,000,000 shares of Common Stock (the class of common stock offered in the IPO), 140,000,000 shares of Class A Common Stock and 10,000,000 shares of preferred stock including 3,000,000 shares of Series B Preferred Stock.

In connection with the Company’s IPO on January 24, 2012, the Company gave effect to the one-time conversion of Series A Preferred Stock and certain common stock warrants into 7,660,612 shares of newly-issued Common Stock and 2,999,493 shares of $74,987 aggregate liquidation preference Series B Preferred Stock with cumulative dividends of 4.5% per annum. All Series A Preferred Stock was converted and no Series A Preferred Stock remains outstanding.

The rights, preferences, privileges and restrictions granted to and imposed on the Preferred Stock are set forth below. The holders of Preferred Stock are generally protected from anti-dilution by adjustments for any stock dividends, stock split, combination or other recapitalization.

Series B Preferred Stock

Dividend Provisions

The holders of the Series B Preferred Stock are entitled to receive, when, as and if declared by the board of directors, cumulative dividends on each outstanding share of Series B Preferred Stock at the annual rate of 4.50% of the stated value.

 

 11 


   

Dividends are payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2012. The Company may, at its option, defer a regularly scheduled dividend payment and instead pay accumulated and unpaid dividends on the following dividend payment date. The Company can only defer two such dividend payments and may not defer consecutive dividend payments. The Company will pay any dividend in cash, by delivering shares of Common Stock or through any combination of cash and shares of Common Stock.

Liquidation Rights

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company’s affairs, a holder of Series B Preferred Stock will be entitled to be paid, before any distribution or payment may be made to any holders of junior stock, an amount per share of Series B Preferred Stock, referred to as the Liquidation Preference, equal to the sum of the stated value of a share of Series B Preferred Stock of $25.00, referred to as the Stated Value, plus the amount of any accumulated and unpaid dividends, whether or not declared, to, but excluding, the date of payment.

If upon any liquidation or dissolution, the remaining net assets of the Company are insufficient to pay the amount that the Series B Preferred Stock holders are due as indicated above, the holders of Series B Preferred Stock will share ratably in any distribution of the remaining assets of the Company.

Conversion Rights

At any time following the lock-up expiration date, the holder of any shares of Series B Preferred Stock will have the right to convert such shares, together with accumulated and unpaid dividends (whether or not declared) into shares of Common Stock at a conversion rate in effect at such time. The initial conversion rate for each $25.00 of Liquidation Preference will be equal to $25.00 divided by a price that is 125% of the public offering price in the IPO.

If, at any time following the lock-up expiration date, the closing sale price of the Common Stock exceeds $15.00 for at least 20 trading days in any 30 consecutive trading day period and the average daily trading volume of the Common Stock for at least 20 trading days in such period exceeds 200,000 shares or $2,500, then the Company may, at its option, cause up to 50% of the then-outstanding shares of Series B Preferred Stock, and corresponding accumulated and unpaid dividends, to be converted into shares of Common Stock at the then-applicable conversion rate. If at any time following the lock-up expiration date, the closing sale price of the Common Stock exceeds $16.00 for at least 20 trading days in any 30 consecutive trading day period and the average daily trading volume of the Common Stock for at least 20 trading days in such period exceeds 200,000 shares or $2,500, the Company may, at its option, cause up to all of the then-outstanding shares of Series B Preferred Stock, and corresponding accumulated and unpaid dividends, to be converted into shares of Common Stock at the then-applicable conversion rate.

Voting Rights

Each holder of the Series B Preferred Stock is entitled to vote their share of Series B Preferred Stock on an as-converted basis on any matters presented to holders of Common Stock for their consideration. Except as required by law, holders of Series B Preferred Stock will vote on an as-converted basis together with the holders of Common Stock and with the holders of any other class or series of the Company’s capital stock entitled to vote with the Common Stock, as a single class.

The vote or consent of at least 75% of the shares of the Series B Preferred Stock at the time outstanding, voting as a separate class, shall be necessary to amend, alter or repeal the terms of the Series B Preferred Stock so as to adversely affect the powers, preferences or rights of the Series B Preferred Stock.

Redemption Rights

Except as set forth below, the Company may not redeem the Series B Preferred Stock prior to the date, referred to as the Initial Optional Redemption Date, which is 18 months following the lock-up expiration date. On or after the Initial Optional Redemption Date, the Series B Preferred Stock may be redeemed at the Company’s option, in whole or in part, for cash at a price per share equal to the Stated Value, plus any accumulated and unpaid dividends, which the Company refers to as the Redemption Price. If a change of control transaction occurs any time before the Initial Optional Redemption Date, then the Company may elect to redeem all, but not part, of the outstanding shares of Series B Preferred Stock for cash at the Redemption Price plus a “make-whole” payment for each share of Series B Preferred Stock equal to $2.25 less the amount of any dividends paid on such share since the original issuance date of the Series B Preferred Stock.

If before March 31, 2015, the Company conducts an equity offering or offerings for cash that results in aggregate net proceeds in excess of $20,000, then, subject to the Company having legally available funds, the Company will offer to purchase or redeem the maximum number of shares of Series B Preferred Stock at a price equal to the Stated Value plus the amount of any accumulated and unpaid dividends to, but excluding, the purchase date that may be purchased or redeemed using 25% of those net proceeds. Before the Initial Optional Redemption Date, the Company will use those net proceeds to

 

 12 


   

offer to purchase, in a tender offer, Series B Preferred Stock, and after the Initial Optional Redemption Date, the Company will use those net proceeds to redeem Series B Preferred Stock.

On June 30, 2015, each holder of Series B Preferred Stock will have the right to require the Company to redeem its shares at the Redemption Price, subject to the Company having legally available funds. If at any time dividends on any shares of Series B Preferred Stock are unpaid as of the specific dividend payment date and the non-payment continues for a period of 30 days, then the holders of not less than 25% of the then-outstanding Series B Preferred Stock may require the Company, subject to the Company having legally available funds, to redeem all outstanding shares of Series B Preferred Stock at the Redemption Price.

NOTE 5 — VARIABLE INTEREST ENTITIES

The Company has a 50% ownership in 416 S. Bell, LLC (Bell, LLC), a VIE joint venture that owns and leases to the Company its corporate office building in Ames, Iowa. Commencing January 1, 2011, the Company has the right to execute a call option with the joint venture member, Dayton Park, LLC (Dayton Park), to purchase Bell, LLC and commencing on January 1, 2013, Dayton Park has the right to execute a put option with the Company to sell Bell, LLC. The Company determined it was the primary beneficiary of Bell, LLC and has consolidated Bell, LLC into the Company’s financial statements since January 1, 2011. The Company is the primary beneficiary due to its ownership interest and having an exercisable call option that allows the Company to direct the activities that most significantly impact Bell, LLC’s economic performance and gives the Company the majority of the benefit from the use of Bell, LLC’s assets. During February 2013, the note was amended to reflect the current interest rate of 3.5% per annum and a maturity date of January 14, 2018. The note is secured by a mortgage interest in the office building.

The carrying values and maximum exposure for all unconsolidated VIE’s are as follows:

   

 

   

June 30, 2013

   

      

December 31, 2012

Investment:

Investments

   

      

Maximum

Exposure

   

      

Investments

   

      

Maximum

Exposure

Western Iowa Energy LLC

$

671

   

      

$

671

   

   

$

613

      

   

$

613

Western Dubuque Biodiesel LLC

   

2,005

   

      

   

2,005

   

   

   

2,005

      

   

   

2,005

   

$

2,676

   

      

$

2,676

   

   

$

2,618

      

   

$

2,618

   

NOTE 6 — INVENTORIES

Inventories consist of the following:

   

 

   

June 30,

2013

   

      

December 31,

2012

Raw materials

$

21,975

   

      

$

9,835

Work in process

   

1,268

   

      

   

448

Finished goods

   

53,587

   

      

   

34,923

Total

$

76,830

   

      

$

45,206

   

NOTE 7 — BORROWINGS

The Company’s term borrowings are as follows:

   

 

   

June 30,

2013

   

      

December 31,

2012

REG Danville term loan

$

7,854

   

      

$

10,060

REG Newton term loan

   

20,386

   

      

   

21,175

Other

   

1,604

   

      

   

1,496

Total notes payable

$

29,844

   

      

$

32,731

   

   

   

   

   

   

   

Bell, LLC promissory note—variable interest entity

$

4,174

   

      

$

4,313

On November 3, 2011, REG Danville, LLC (REG Danville) entered into an Amended and Restated Loan Agreement with Fifth Third Bank (Fifth Third Loan). The renewed Fifth Third Loan has a three year term with an automatic one year extension upon certain cumulative principal payment thresholds being met. The loan requires monthly principal payments of

 

 13 


   

$150 and interest based on a rate of LIBOR plus 5% per annum. The effective rate is 5.19% at June 30, 2013. The loan is secured by our Danville facility. The loan agreement contains various loan covenants that restrict REG Danville’s ability to take certain actions, including prohibiting it in certain circumstances from making payments to the Company. The Fifth Third Loan requires semi-annual excess cash flow payments beginning on December 31, 2011. REG Danville must pay Fifth Third a principal payment in the amount equal to 50% of its Excess Cash Flow. The Fifth Third Loan agreement defines excess cash flow as REG Danville’s EBITDA plus certain affiliate payments less principal payments, interest expense, taxes and unfunded maintenance capital expenditures. The excess cash flow payment required for the second half of 2012 was $1,458 and was paid in April 2013. The Company recorded an estimated excess cash flow payment of $1,178 for the first half of 2013 which will be paid in the third quarter of 2013.

On March 4, 2013, REG Danville entered into the First Amendment to the Amended and Restated Loan Agreement (First Amendment) with Fifth Third Loan. The First Amendment includes changes to the debt covenants based upon the Company executing a tax sharing agreement with REG Danville. The tax sharing agreement provides that REG Danville will share the liability for income taxes via an allocation based upon a separate-return approach. Although the Company is not directly compensated for the use of carry-forward attributes, the tax sharing agreement allows each affiliate to benefit from net operating losses and tax credits that each generates.

On December 20, 2012, REG Newton and AgStar Financial Services, PCA (AgStar) extended the term of the AgStar Loan. The maturity date of the AgStar Loan is March 8, 2014.

The Company was in compliance with all restrictive covenants associated with its borrowings as of June 30, 2013.

NOTE 8 — RELATED PARTY TRANSACTIONS

Related parties include certain investors as well as entities in which the Company has an equity method investment or an investment combined with a management and operational services agreement (MOSA) or board seat. Investors defined as related parties include (i) the investor having ten percent or more ownership, including convertible preferred stock, in the Company or (ii) the investor holding a board seat on the Company’s Board of Directors. After the IPO, the number of related parties decreased due to the dilution of ownership of prior investors as well as the reduction of the number of board seats on the Company’s board held by related party investors.

 

 14 


   

   

   

 

Summary of Related Party Transactions

   

   

   

   

      

   

Three Months

Ended

June 30,

2013

   

   

Three Months

Ended

June 30,

2012

   

   

Six Months

Ended

June 30,

2013

   

      

Six Months

Ended

June 30,

2012

   

   

      

Cost of goods sold – Biodiesel

$

13,411

(a) 

   

$

12,897

(a) 

   

$

25,141

(a) 

      

$

30,566

(a) 

   

      

Selling, general, and administrative expenses

$

—  

(b) 

   

$

3

(b) 

   

$

2

(b)

      

$

152

(b) 

   

      

Interest expense

$

8

(c) 

   

$

4

(c) 

   

$

28

(c)

      

$

21

(c) 

   

      

   

   

   

   

   

   

   

   

   

   

   

   

      

   

   

   

(a)

      

Represents transactions with related parties as follows:

   

   

   

   

   

   

   

   

   

   

   

      

   

   

   

   

      

   

   

   

   

   

   

   

   

   

   

   

   

      

   

   

   

   

      

West Central

$

13,411

      

   

$

12,897

      

   

$

25,141

      

      

$

26,617

      

   

      

Bunge

   

—  

      

   

   

—  

      

   

   

—  

      

      

   

3,949

      

   

      

   

$

13,411

      

   

$

12,897

      

   

$

25,141

      

      

$

30,566

      

   

      

   

   

   

   

   

   

   

   

   

   

   

   

      

   

   

   

(b)

      

Represents transactions with related parties as follows:

   

   

   

   

   

   

   

   

   

   

   

      

   

   

   

   

      

   

   

   

   

   

   

   

   

   

   

   

   

      

   

   

   

   

      

West Central

$

—  

      

   

$

3

      

   

$

2

      

      

$

39

      

   

      

Bunge

   

—  

      

   

   

—  

      

   

   

—  

      

      

   

113

      

   

      

   

—  

      

   

$

3

      

   

$

2

      

      

$

152

      

   

      

   

   

   

   

   

   

   

   

   

   

   

   

      

   

   

   

(c)

      

Represents transactions with related parties as follows:

   

   

   

   

   

   

   

   

   

   

   

      

   

   

   

   

      

   

   

   

   

   

   

   

   

   

   

   

   

      

   

   

   

   

      

West Central

$

8

      

   

$

4