10-Q 1 regi-10q_20131001.htm 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 September 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 October 30, 2013, the registrant had 36,451,262 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 SEPTEMBER 30, 2013 AND DECEMBER 31, 2012

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

   

September 30,

2013

   

      

December 31,

2012

   

ASSETS

   

   

   

      

   

   

   

CURRENT ASSETS:

   

   

   

      

   

   

   

Cash and cash equivalents

$

135,883

   

      

$

66,785

      

Accounts receivable, net (includes amounts owed by related parties of $425 and $771 as of September 30, 2013 and December 31, 2012, respectively)

   

66,621

   

      

   

18,768

      

Inventories

   

59,887

   

      

   

45,206

      

Deferred income taxes

   

—  

   

      

   

2,512

      

Prepaid expenses and other assets

   

39,985

   

      

   

15,812

      

Total current assets

   

302,376

   

      

   

149,083

      

PROPERTY, PLANT AND EQUIPMENT, NET

   

280,907

   

      

   

242,885

      

PROPERTY, PLANT AND EQUIPMENT, NET—VARIABLE INTEREST ENTITY

   

5,233

   

      

   

5,405

      

GOODWILL

   

84,864

   

      

   

84,864

      

DEFERRED INCOME TAXES

   

22

   

      

   

969

      

OTHER ASSETS (includes amounts owed by related parties of $141 and $692 as of September 30, 2013 and December 31, 2012, respectively)

   

12,392

   

      

   

12,578

      

TOTAL ASSETS

$

685,794

   

      

$

495,784

      

LIABILITIES AND EQUITY

   

   

   

      

   

   

   

CURRENT LIABILITIES:

   

   

   

      

   

   

   

Current maturities of notes payable

$

22,020

   

      

$

4,955

      

Current maturities of notes payable—variable interest entity

   

296

   

      

   

283

      

Accounts payable (includes amounts owed to related parties of $268 and $2,950 as of September 30, 2013 and December 31, 2012, respectively)

   

51,650

   

      

   

28,131

      

Accrued expenses and other liabilities

   

10,156

   

      

   

6,475

      

Deferred income taxes

   

5,413

   

   

   

—  

   

Deferred revenue

   

987

   

      

   

—  

      

Total current liabilities

   

90,522

   

      

   

39,844

      

UNFAVORABLE LEASE OBLIGATION

   

8,188

   

      

   

9,035

      

NOTES PAYABLE

   

9,366

   

      

   

27,776

      

NOTES PAYABLE—VARIABLE INTEREST ENTITY

   

3,806

   

      

   

4,030

      

OTHER LIABILITIES

   

6,945

   

      

   

7,292

      

Total liabilities

   

118,827

   

      

   

87,977

      

COMMITMENTS AND CONTINGENCIES (Note 15)

   

   

   

      

   

   

   

SERIES B PREFERRED STOCK ($.0001 par value; 3,000,000 shares authorized; 525,617 and 2,995,106 shares outstanding at September 30, 2013 and December 31, 2012, respectively; redemption amount $13,140 and $74,878 at September 30, 2013 and December 31, 2012, respectively)

   

14,564

   

      

   

83,043

      

EQUITY:

   

   

   

      

   

   

   

Company stockholders’ equity:

   

   

   

      

   

   

   

Common stock ($.0001 par value; 300,000,000 shares authorized; 35,677,946 and 30,559,935 shares outstanding at September 30, 2013 and December 31, 2012, respectively)

   

4

   

      

   

3

      

Common stock—additional paid-in-capital

   

347,397

   

      

   

273,989

      

Warrants—additional paid-in-capital

   

147

   

      

   

147

      

Retained earnings

   

208,211

   

      

   

53,823

      

Total paid-in-capital and retained earnings

   

555,759

   

      

   

327,962

      

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

   

(3,356

)

      

   

(3,198

)

Total stockholders’ equity

   

552,403

   

      

   

324,764

      

TOTAL LIABILITIES AND EQUITY

$

685,794

   

      

$

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 NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

   

Three Months

Ended

September 30,

2013

   

      

Three Months

Ended

September 30,

2012

   

   

Nine Months

Ended

September 30,
2013

   

      

Nine Months

Ended

September 30,

2012

   

REVENUES:

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Biodiesel sales

$

399,226

   

      

$

320,999

      

   

$

859,058

   

      

$

774,814

      

Biodiesel sales – related parties

   

—  

   

   

   

6

   

   

   

—  

   

   

   

6

   

Biodiesel government incentives

   

59,203

   

      

   

1,868

      

   

   

248,385

   

      

   

8,070

      

   

   

458,429

   

      

   

322,873

      

   

   

1,107,443

   

      

   

782,890

      

Services

   

15

   

      

   

39

      

   

   

104

   

      

   

196

      

   

   

458,444

   

      

   

322,912

      

   

   

1,107,547

   

      

   

783,086

      

COSTS OF GOODS SOLD:

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Biodiesel

   

388,518

   

      

   

308,445

      

   

   

875,475

   

      

   

689,914

      

Biodiesel—related parties

   

12,057

   

      

   

11,633

      

   

   

37,198

   

      

   

42,199

      

Services

   

20

   

      

   

43

      

   

   

149

   

      

   

199

      

   

   

400,595

   

      

   

320,121

      

   

   

912,822

   

      

   

732,312

      

GROSS PROFIT

   

57,849

   

      

   

2,791

      

   

   

194,725

   

      

   

50,774

      

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (includes related party amounts of $0 and $2 for the three and nine months ended September 30, 2013, respectively, and $2 and $154 for the three and nine months ended September 30, 2012, respectively)

   

12,686

   

      

   

9,902

      

   

   

33,556

   

      

   

33,878

      

INCOME (LOSS) FROM OPERATIONS

   

45,163

   

      

   

(7,111

)  

   

   

161,169

   

      

   

16,896

      

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

   

66

   

      

   

56

      

   

   

276

   

      

   

121

      

Interest expense (includes related party amounts of $2 and $30 for the three and nine months ended September 30, 2013, respectively, and $1 and $22 for the three and nine months ended September 30, 2012, respectively)

   

(577

)

      

   

(1,150

   

   

(1,757

)

      

   

(3,262

   

   

(511

)

      

   

(1,094

   

   

(1,481

)

      

   

9,183

      

INCOME (LOSS) BEFORE INCOME TAXES

   

44,652

   

      

   

(8,205

)  

   

   

159,688

   

      

   

26,079

      

INCOME TAX BENEFIT (EXPENSE)

   

42,051

   

      

   

2,165

   

   

   

(3,452

)

      

   

(3,669

NET INCOME (LOSS)

   

86,703

   

      

   

(6,040

)  

   

   

156,236

   

      

   

22,410

      

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

   

(147

)

      

   

(862

)  

   

   

(147

)

      

   

(1,685

LESS—DISTRIBUTED DIVIDENDS TO PREFERRED STOCKHOLDERS

   

(258

)

   

   

—  

   

   

   

(1,848

)

   

   

(1,470

)

LESS—EFFECT OF PARTICIPATING PREFERRED STOCK

   

(6,455

)

      

   

—  

   

   

   

(18,010

)

      

   

(8,952

LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS

   

(1,381

)

      

   

—  

   

   

   

(2,273

)

      

   

(3,145

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS

$

78,462

   

      

$

(6,902

)  

   

$

133,958

   

      

$

44,457

      

NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

BASIC

$

2.32

   

      

$

(0.24

)  

   

$

4.20

   

      

$

1.60

      

DILUTED

$

2.31

   

      

$

(0.24

)  

   

$

4.20

   

      

$

0.28

      

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

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

BASIC

   

33,790,034

   

      

   

29,292,349

      

   

   

31,918,951

   

      

   

27,729,676

      

DILUTED

   

34,016,476

   

      

   

29,292,349

      

   

   

31,924,197

   

      

   

33,676,699

      

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 NINE MONTHS ENDED SEPTEMBER 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

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

318,501

   

      

   

—  

   

      

   

3,958

   

      

   

—  

   

      

   

—  

   

      

   

—  

      

   

   

3,958

   

Conversion of Class A common stock to common stock

   

—  

   

   

   

—  

   

   

   

21,598,408

   

   

   

2

   

   

   

(21,598,408

)

   

   

(2

)

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

Conversion of restricted stock units to common stock (net of 420,724 shares of treasury stock purchased)

   

—  

   

   

   

—  

   

   

   

823,795

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(2,676

)

   

   

(2,676

)

Stock compensation expense

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

12,687

   

      

   

—  

   

      

   

—  

   

      

   

—  

      

   

   

12,687

   

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

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

22,410

   

      

   

—  

      

   

   

22,410

   

BALANCE, September 30, 2012

   

2,999,493

   

      

$

83,165

   

   

   

29,622,203

   

      

$

3

   

      

   

—  

   

      

$

—  

   

      

$

269,105

   

      

$

147

   

      

$

55,660

   

      

$

(3,074

)

   

$

321,841

   

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

   

(2,469,489

)

      

   

(68,479

)

      

   

4,988,995

   

      

   

1

   

      

   

—  

   

      

   

—  

   

      

   

69,116

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

   

   

69,117

   

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

   

—  

   

      

   

—  

   

      

   

70,515

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

(158

)

   

   

(158

)

Stock compensation expense

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

3,869

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

   

   

3,869

   

Series B Preferred Stock dividends paid

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

(1,848

)

   

   

—  

   

   

   

(1,848

)

Net income

   

—  

   

      

   

—  

   

   

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

—  

   

      

   

156,236

   

      

   

—  

   

   

   

156,236

   

BALANCE, September 30, 2013

   

525,617

   

      

$

14,564

   

   

   

35,677,946

   

      

$

4

   

      

   

—  

   

      

$

—  

   

      

$

347,397

   

      

$

147

   

      

$

208,211

   

      

$

(3,356

)

   

$

552,403

   

See notes to condensed consolidated financial statements.

   

 

 

 3 


RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(IN THOUSANDS)

 

   

Nine Months

Ended

September 30,

2013

   

      

Nine Months

Ended

September 30,

2012

   

CASH FLOWS FROM OPERATING ACTIVITIES:

   

   

   

   

   

   

   

Net income

$

156,236

   

   

$

22,410

   

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

   

   

   

   

   

   

   

Depreciation expense

   

6,974

   

   

   

6,192

   

Amortization expense of assets and liabilities, net

   

(365

)

   

   

(291

)

Gain on disposal of property, plant and equipment

   

(67

)

   

   

—  

   

Provision for doubtful accounts

   

99

   

   

   

707

   

Stock compensation expense

   

3,869

   

   

   

12,687

   

Deferred tax expense

   

8,872

   

   

   

3,008

   

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

   

(47,959

)

   

   

12,004

   

Inventories

   

(14,681

)

   

   

2,745

   

Prepaid expenses and other assets

   

(24,441

)

   

   

(18,631

)

Accounts payable

   

23,843

   

   

   

4,305

   

Accrued expenses and other liabilities

   

3,432

   

   

   

(3,968

)

Deferred revenue

   

987

   

   

   

(6,748

)

Net cash flows provided by operating activities

   

116,799

   

   

   

17,031

   

CASH FLOWS FROM INVESTING ACTIVITIES:

   

   

   

   

   

   

   

Cash paid for purchase of property, plant and equipment

   

(28,785

)

   

   

(6,399

)

Cash proceeds from involuntary disposal of fixed assets

   

330

   

   

   

—  

   

Change in restricted cash

   

—  

   

   

   

(64

)

Cash paid for investments

   

(58

)

   

   

(4

)

Cash paid for Soy Energy asset acquisition

   

(10,933

)

   

   

—  

   

Net cash flows used in investing activities

   

(39,446

)

   

   

(6,467

)

CASH FLOWS FROM FINANCING ACTIVITIES:

   

   

   

   

   

   

   

Borrowings on line of credit

   

1,103,568

   

   

   

1,074,905

   

Repayments on line of credit

   

(1,103,568

)

   

   

(1,076,079

)

Cash received from issuance of note payable

   

3,000

   

   

   

—  

   

Cash paid on note payable

   

(9,690

)

   

   

(8,050

)

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

)

   

   

(3,074

)

Cash paid for preferred stock dividends

   

(1,205

)

   

   

(1,470

)

Cash paid for fractional common stock shares

   

(6

)

   

   

—  

   

Net cash flows provided from (used in) financing activities

   

(8,255

)

   

   

44,143

   

NET CHANGE IN CASH AND CASH EQUIVALENTS

   

69,098

   

   

   

54,707

   

CASH AND CASH EQUIVALENTS, Beginning of period

   

66,785

   

   

   

33,575

   

CASH AND CASH EQUIVALENTS, End of period

$

135,883

   

   

$

88,282

   

(continued)

   

   

 

 

 4 


RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(IN THOUSANDS)

 

      

Nine Months

Ended

September 30,

2013

   

      

Nine Months

Ended

September 30,

2012

   

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:

   

   

   

   

   

   

   

Cash paid (received) for income taxes

$

(6,538

)

   

$

3,435

   

Cash paid for interest

$

1,496

   

   

$

3,048

   

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

$

3,608

   

   

$

2,514

   

Incentive stock liability for raw material supply agreement

$

439

   

   

$

362

   

Issuance of common stock for Seneca Landlord put/call option

   

   

   

   

$

591

   

Issuance of common stock for dividends

$

643

   

   

   

   

   

Issuance of note payable for acquisition

$

5,135

   

   

   

   

   

   

   

   

   

   

   

   

   

(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 Nine Months Ended September 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.

As of September 30, 2013, the Company owned biodiesel production facilities with an aggregate nameplate production capacity of 257 million gallons per year (mmgy).  

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 nine months ended September 30, 2013, the Company earned biodiesel government incentive revenues in the amount of $59,203 and $248,385, respectively, and $1,868 and $8,070 for the three and nine months ended September 30, 2012, respectively. The 2012 federal blenders tax credit portion recognized during the first quarter of 2013 increased biodiesel government incentive revenues.

During the third quarter of 2013, the Company revised the presentation of biodiesel sales and biodiesel government incentives revenue reported for the six months ended June 30, 2013 and the three months ended March 31, 2013 to reflect the blenders tax credit amount paid to customers of $69,534 as a reduction of biodiesel sales versus biodiesel government incentives revenue. The revision corrects the presentation of the blenders tax credits passed through to customers as a reduction of biodiesel sales in accordance with the guidance provided by ASC Subtopic 605-50, Revenue Recognition – Customer Payments and Incentives. Specifically, the Company determined that the cash amount of blender tax credits passed through to customers is analogous to consideration given by a vendor to a customer. This revision has no impact on any other previously reported historical period. The 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 total revenue, gross profit, net income, earnings per share, the condensed consolidated balance sheets, the condensed consolidated statement 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

 

 

 6 


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 September 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.

Renewable Identification Numbers (RINs)

When the Company produces a gallon of biodiesel, 1.5 RINs per gallon are generated.  RINs are used to track compliance with Renewable Fuel Standards (RFS2). RFS2 allows the Company to attach between zero and 2.5 RINs to any gallon of biodiesel. When the Company sells a gallon of biodiesel, 1.5 RINs are generally attached. As a result, a portion of the selling price for a gallon of biodiesel 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 biodiesel production.  Therefore, no cost is allocated to the RIN when it is generated, regardless whether the RIN is transferred with the biodiesel produced or held by the Company pending attachment to other biodiesel production sales.  In addition, the Company also obtains RINs from third parties who have separated the RINs from gallons of biomass-based diesel by blending the biomass-based diesel with at least 80% petroleum diesel fuel. 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 at the time we acquire them and are subsequently revalued at the lower of cost or market as of the last day of each accounting period and the resulting adjustments are reflected in costs of goods sold for the period. The value of RINs obtained from third parties is reflected in “Prepaid expenses and other assets” on the consolidated balance sheet.  The cost of goods sold related to the sale of these RINs is determined using the average cost method, while market prices are determined by RIN values, as reported by the Oil Price Information Service (OPIS).

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 nine months ended September 30, 2013 and $0 and $1,808 for the three and nine months ended September 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 the biodiesel operating segment exceeded its carrying value by approximately 43% and the services operating segment exceeded its carrying value by approximately 20%. There was no impairment of goodwill recorded in the periods presented.

Revenue Recognition

The Company recognizes revenues from the following sources:

 

   

   

the sale of biodiesel and its co-products, as well as Renewable Identification Numbers (RINs) and raw material feedstocks, purchased or produced by the Company at owned and leased manufacturing facilities and manufacturing facilities with which the Company has tolling arrangements;

   

 

   

   

the resale of biodiesel, RINs and raw material feedstocks acquired from third parties;

   

 

 

 7 


   

 

   

fees received under toll manufacturing agreements with third parties;

   

 

   

   

incentives received from federal and state programs for renewable fuels; and

   

 

   

   

fees received for the marketing and sales of biodiesel produced by third parties and from managing operations of third party facilities.

Biodiesel, including RINs, and raw material feedstock revenues are recognized where there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed or is determinable and collectability can be reasonably assured.

Fees received under toll manufacturing agreements with third parties are generally established as an agreed upon amount per gallon of biodiesel produced. The fees are recognized where there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed or is determinable and collectability can be reasonably assured.

Revenues associated with the governmental incentive programs are recognized when the amount to be received is determinable, collectability is reasonably assured, and the sale of product giving rise to the incentive has been recognized.

While in general the Company has not historically offered sales incentives to customers, the uncertainty around the reinstatement of the federal blenders’ tax credit led to the introduction of such an incentive during 2012.  Specifically, during 2012 the Company negotiated contracts with certain customers to allow such customers to share in the value of federal blenders tax payments if the law were to be reinstated. The federal blenders tax credit was reinstated on January 2, 2013 and the Company recognized $69,534 of cash payments owed to customers as a reduction of Biodiesel sales revenue. Before 2012, the Company did not have similar contracts and none of its sales subsequent to December 31, 2012 contain such provisions.

Fees for managing ongoing operations of third party plants, marketing biodiesel produced by third party plants and from other services are recognized as services are provided. The Company also has performance-based incentive agreements that are included as management service revenues. These performance incentives are recognized as revenues when the amount to be received is determinable and collectability is reasonably assured.

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 $1,483 and $3,869 for the three and nine months ended September 30, 2013, respectively, and $2,965 and $12,687 for the three and nine months ended September 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. During the third quarter 2013, the Company granted 50,000 shares of restricted stock units which will vest on December 31, 2013 and 19,262 shares of restricted stock units which will cliff vest in three to four years. Also during the third quarter 2013, the Company grated 1,575 shares of stock appreciation rights to various employees which have a vesting period of four years.  

Recapitalization

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 Company recorded the effects from the exchange of Series A Preferred Stock for Series B Preferred Stock and Common Stock as an extinguishment in accordance with ASC 260-10-S99-2.

Accordingly, the Company recognized an addition to the income available to common shareholders in the amount of $39,107. This amount was determined by comparing the fair value of the Series B Preferred Stock and Common Stock issued of $152,327 to the carrying amount of the Series A preferred shares that were redeemed of $191,434. The excess of the carrying amount of Series A Preferred Stock that were redeemed over the fair value of the Series B Preferred Stock and Common Stock that were issued was recorded as an increase to additional paid-in capital and was added to net earnings

 

 

 8 


available to common shareholders of $39,107. The Series B Preferred Stock fair value was determined using Monte Carlo simulation methodology with the assistance of external third-party experts to calculate the fair-value using the Company’s common stock at time of conversion. The significant assumptions included the volatility rate and risk-free rate based upon the yield of the U.S. Industrials B curve.

Net Income (Loss) Per Share

Basic and diluted net income (loss) 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 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 (loss) per share attributable to common stockholders during the periods presented as the effect was anti-dilutive:

 

   

Three Months

Ended

September 30,

2013

   

   

Three Months

Ended

September 30,

2012

   

   

Nine Months

Ended

September 30,

2013

   

   

Nine Months

Ended

September 30,

2012

   

Options to purchase common stock

   

87,026

   

   

   

87,026

   

   

   

87,026

   

   

   

87,026

   

Restricted stock units

   

—  

   

   

   

1,134,421

   

   

   

—  

   

   

   

1,409,659

   

Stock appreciation rights

   

314,036

   

   

   

1,043,693

   

   

   

1,194,477

   

   

   

655,762

   

Warrants to purchase common stock

   

—  

   

   

   

17,916

   

   

   

—  

   

   

   

42,054

   

Redeemable preferred shares

   

—  

   

   

   

5,998,986

   

   

   

—  

   

   

   

—  

   

Total

   

401,062

   

   

   

8,282,042

   

   

   

1,281,503

   

   

   

2,194,501

   

 

 

 9 


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

 

   

   

Three Months

Ended

September 30,

2013

      

      

   

Nine Months

Ended

September 30,

2013

      

      

   

Nine Months

Ended

September 30,

2012

      

Net income attributable to the Company’s common stockholders

$

78,462

   

      

$

133,958

   

      

$

44,457

      

Less: effects of recapitalization

   

—  

   

      

   

—  

   

      

   

(39,107

Plus: change in undistributed dividends allocated to preferred stockholders

   

147

   

      

   

147

   

      

   

1,685

      

Plus: distributed dividends to Preferred Stockholders

   

258

   

      

   

1,848

   

      

   

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 securities

   

7,836

   

      

   

20,283

   

      

   

12,097

      

Net income available to common stockholders

   

86,703

   

      

   

156,236

   

      

   

10,435

      

Less: effect of participating securities

   

(8,191

)

      

   

(22,275

)

      

   

(1,108

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

$

78,512

   

      

$

133,961

   

      

$

9,327

      

   

   

   

   

      

   

   

   

      

   

   

   

Shares:

   

   

   

      

   

   

   

      

   

   

   

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

   

33,790,034

   

      

   

31,918,951

   

      

   

27,729,676

      

Adjustment to reflect conversion of preferred stock

   

—  

   

      

   

—  

   

      

   

5,947,023

      

Adjustment to reflect stock appreciation right conversions

   

221,909

   

   

   

4,977

   

   

   

—  

   

Adjustment to reflect warrants to purchase common stock

   

4,533