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, 2015
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  x
   
   
Non-accelerated filer  ¨
   
Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO   x
As of October 31, 2015, the registrant had 43,834,890 shares of Common Stock outstanding.




PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share amounts)
   
September 30,
2015
 
December 31,
2014
ASSETS
   

 
   

CURRENT ASSETS:
   

 
   

Cash and cash equivalents
$
66,817

 
$
63,516

Marketable securities
7,031

 
16,770

Accounts receivable, net (includes amounts owed by related parties of $0 and $36, respectively)
51,977

 
294,669

Inventories
78,907

 
97,508

Prepaid expenses and other assets
50,373

 
43,135

Restricted cash

 
12,845

Total current assets
255,105

 
528,443

Property, plant and equipment, net
563,072

 
493,196

Goodwill
191,477

 
188,275

Intangible assets, net
31,230

 
28,837

Investments
10,151

 
9,736

Other assets
16,877

 
19,586

Restricted cash
104,315

 
104,815

TOTAL ASSETS
$
1,172,227

 
$
1,372,888

LIABILITIES AND EQUITY
   

 
   

CURRENT LIABILITIES:
   

 
   

Revolving lines of credit
$
22,423

 
$
16,679

Current maturities of long-term debt
4,696

 
5,746

Accounts payable (includes amounts owed to related parties of $0 and $1,101, respectively)
78,689

 
202,821

Accrued expenses and other liabilities
19,821

 
28,486

Deferred income taxes
9,031

 
14,899

Deferred revenue

 
16,680

Total current liabilities
134,660

 
285,311

Unfavorable lease obligation
17,800

 
19,170

Deferred income taxes
16,135

 
6,905

Contingent consideration for acquisitions
34,059

 
30,091

Long-term debt
252,246

 
247,183

Other liabilities
3,996

 
5,566

Total liabilities
458,896

 
594,226

COMMITMENTS AND CONTINGENCIES


 


EQUITY:
   

 
   

Common stock ($.0001 par value; 300,000,000 shares authorized; 44,283,281 and 44,422,881 shares outstanding, respectively)
4

 
4

Common stock—additional paid-in-capital
472,608

 
453,109

Retained earnings
265,300

 
321,083

Accumulated other comprehensive loss
(3,735
)
 
(11
)
Treasury stock (2,682,805 and 585,150 shares outstanding, respectively)
(24,341
)
 
(4,412
)
Total equity attributable to the Company's shareholders
709,836

 
769,773

              Non-controlling interest
3,495

 
8,889

                       Total equity
713,331

 
778,662

TOTAL LIABILITIES AND EQUITY
$
1,172,227

 
$
1,372,888

See notes to condensed consolidated financial statements.

1



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 
Three months ended
 
Nine months ended
   
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
REVENUES:
   
 
   
 
   
 
   
Biomass-based diesel sales
$
393,758

 
$
382,296

 
$
981,239

 
$
919,255

Biomass-based diesel government incentives
1,066

 
1,830

 
18,132

 
16,742

   
394,824

 
384,126

 
999,371

 
935,997

Services
32

 
132

 
165

 
219

   
394,856

 
384,258

 
999,536

 
936,216

COSTS OF GOODS SOLD:
   
 
   
 
   
 
   
Biomass-based diesel
390,424

 
351,033

 
989,999

 
854,800

Biomass-based diesel—related parties

 
10,490

 
4,542

 
31,919

Services
27

 
20

 
111

 
67

   
390,451

 
361,543

 
994,652

 
886,786

GROSS PROFIT
4,405

 
22,715

 
4,884

 
49,430

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
18,468

 
13,897

 
51,268

 
37,961

RESEARCH AND DEVELOPMENT EXPENSE
3,527

 
2,810

 
11,778

 
7,900

INCOME (LOSS) FROM OPERATIONS
(17,590
)
 
6,008

 
(58,162
)
 
3,569

OTHER INCOME (EXPENSE), NET:
   
 
   
 
   
 
   
Change in fair value of contingent consideration
(1,106
)
 
1,059

 
722

 
1,443

Other income, net
4,896

 
124

 
7,240

 
556

Interest expense
(2,921
)
 
(2,867
)
 
(8,592
)
 
(4,622
)
   
869

 
(1,684
)
 
(630
)
 
(2,623
)
INCOME (LOSS) BEFORE INCOME TAXES
(16,721
)
 
4,324

 
(58,792
)
 
946

INCOME TAX BENEFIT
1,050

 
248

 
2,654

 
12,274

NET INCOME (LOSS)
(15,671
)
 
4,572

 
(56,138
)
 
13,220

LESS—NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST
4

 

 
(355
)
 

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
(15,675
)
 
4,572

 
(55,783
)
 
13,220

PLUS—GAIN ON REDEMPTION OF PREFERRED STOCK

 

 

 
378

LESS—EFFECT OF CHANGES TO PREFERRED STOCK

 

 

 
(40
)
LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS

 
(68
)
 

 
(196
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS
$
(15,675
)
 
$
4,504

 
$
(55,783
)
 
$
13,362

NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
   
 
   
 
   
 
   
BASIC
$
(0.36
)
 
$
0.11

 
$
(1.27
)
 
$
0.33

DILUTED
$
(0.36
)
 
$
0.11

 
$
(1.27
)
 
$
0.32

WEIGHTED AVERAGE SHARES USED TO COMPUTE NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
   
 
   
 
   
 
   
BASIC
43,844,005

 
42,374,768

 
43,979,266

 
40,216,467

DILUTED
43,844,005

 
42,432,005

 
43,979,266

 
40,228,929

See notes to condensed consolidated financial statements.

2



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
(in thousands)
 
Three months ended
 
Nine months ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
Net income (loss)
$
(15,671
)
 
$
4,572

 
$
(56,138
)
 
$
13,220

Unrealized gains (losses) on marketable securities, net of taxes of $0 and $0, respectively
14

 
4

 
(1
)
 
(18
)
Foreign currency translation adjustments
(470
)
 

 
(4,346
)
 

Other comprehensive income (loss)
(456
)
 
4

 
(4,347
)
 
(18
)
Comprehensive income (loss)
(16,127
)
 
4,576

 
(60,485
)
 
13,202

Less—Comprehensive income (loss) attributable to noncontrolling interest
(53
)
 

 
(623
)
 

Comprehensive income (loss) attributable to the Company
$
(16,074
)
 
$
4,576

 
$
(59,862
)
 
$
13,202

See notes to condensed consolidated financial statements.


3



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND EQUITY
(unaudited)
(in thousands, except share amounts)
   
   
 
   
 
Company Stockholders’ Equity
 
 
 
   
   
Redeemable
Preferred
Stock
Shares
 
Redeemable
Preferred
Stock
 
Common
Stock
Shares
 
Common
Stock
 
Common Stock -
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury
Stock
 
Noncontrolling Interest
 
Total
BALANCE, January 1, 2014
143,313

 
$
3,963

 
36,506,221

 
$
4

 
$
359,818

 
$
238,134

 
$

 
$
(3,886
)
 
$

 
$
594,070

Issuance of common stock

 

 
49,662

 

 
582

 

 

 

 

 
582

Conversion of Series B Preferred Stock to common stock
(816
)
 
(23
)
 
1,634

 

 
23

 

 

 

 

 
23

Preferred stock redemption
(142,497
)
 
(3,940
)
 

 

 

 
378

 

 

 

 
378

Issuance of common stock in acquisition (net of issuance costs of $884)

 

 
5,724,172

 

 
60,196

 

 

 

 

 
60,196

Conversion of restricted stock units to common stock

 

 
24,906

 

 

 

 

 

 

 

Convertible notes conversion feature (net of taxes of $5,082 and net of issuance cost of $881)

 

 

 

 
19,068

 

 

 

 

 
19,068

Purchase of capped call transactions

 

 

 

 
(11,904
)
 

 

 

 

 
(11,904
)
Purchase of remaining interest in VIE (net of taxes of $300)

 

 

 

 
(524
)
 

 

 

 

 
(524
)
Stock compensation expense

 

 

 

 
4,041

 

 

 

 

 
4,041

Series B Preferred Stock dividends paid

 

 

 

 

 
(40
)
 

 

 

 
(40
)
Net change in unrealized losses on marketable securities

 

 

 

 

 

 
(18
)
 

 

 
(18
)
Net income

 

 

 

 

 
13,220

 

 

 

 
13,220

BALANCE, September 30, 2014

 
$

 
42,306,595

 
$
4

 
$
431,300

 
$
251,692

 
$
(18
)
 
$
(3,886
)
 
$

 
$
679,092

BALANCE, January 1, 2015

 
$

 
44,422,881

 
$
4

 
$
453,109

 
$
321,083

 
$
(11
)
 
$
(4,412
)
 
$
8,889

 
$
778,662

Issuance of common stock

 

 
1,712,966

 

 
15,722

 

 

 

 

 
15,722

Conversion of restricted stock units to common stock (net of 66,933 shares of treasury stock purchased)

 

 
178,156

 

 

 

 

 
(616
)
 

 
(616
)
Treasury stock purchases

 

 
(2,030,722
)
 

 

 

 

 
(19,313
)
 

 
(19,313
)
Acquisitions of noncontrolling interests

 

 

 

 

 


 

 

 
(4,416
)
 
(4,416
)
Stock compensation expense

 

 

 

 
3,427

 

 

 

 


 
3,427

Net change in unrealized losses on marketable securities

 

 

 

 

 

 
(1
)
 

 


 
(1
)
Foreign currency translation adjustment

 

 

 

 

 

 
(3,723
)
 

 
(623
)
 
(4,346
)
Net loss

 

 

 

 

 
(55,783
)
 

 

 
(355
)
 
(56,138
)
Other

 

 

 

 
350

 

 

 

 

 
350

BALANCE, September 30, 2015

 
$

 
44,283,281

 
$
4

 
$
472,608

 
$
265,300

 
$
(3,735
)
 
$
(24,341
)
 
$
3,495

 
$
713,331

See notes to condensed consolidated financial statements.

4



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Nine months ended
   
September 30, 2015
 
September 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
   
 
   
Net income (loss)
$
(56,138
)
 
$
13,220

Adjustments to reconcile net loss to net cash flows from operating activities:
   
 
   
Depreciation expense
18,008

 
9,526

Amortization expense of assets and liabilities, net
369

 
412

Accretion of convertible note discount
3,507

 
1,488

Amortization of marketable securities
183

 

Change in fair value of contingent consideration
(722
)
 
(1,443
)
Bargain purchase gain from acquisition
(5,358
)
 

Provision for doubtful accounts
(843
)
 
356

Stock compensation expense
3,427

 
4,041

Deferred tax benefit
(2,991
)
 
(12,840
)
Other operating activities
(248
)
 
437

Changes in asset and liabilities, net of effects from acquisitions:
   
 
   
Accounts receivable, net
262,499

 
47,678

Inventories
36,810

 
38,379

Prepaid expenses and other assets
(8,974
)
 
(12,358
)
Accounts payable
(124,827
)
 
967

Accrued expenses and other liabilities
(8,965
)
 
(3,105
)
Deferred revenue
(16,680
)
 
(15,404
)
Net cash flows provided by operating activities
99,057

 
71,354

CASH FLOWS FROM INVESTING ACTIVITIES:
   
 
   
Cash paid for marketable securities
(52,153
)
 
(80,973
)
Cash received from maturities of marketable securities
61,642

 
19,174

Insurance proceeds for assets impaired
6,500

 

Change in restricted cash
13,345

 
(104,815
)
Cash paid for purchase of property, plant and equipment
(61,014
)
 
(45,579
)
Cash paid for acquisitions and additional interests, net of cash acquired
(40,996
)
 
(32,892
)
Cash paid for investments
(639
)
 
(2,779
)
Other investing activities

 
72

Net cash flows used in investing activities
(73,315
)
 
(247,792
)
CASH FLOWS FROM FINANCING ACTIVITIES:
   
 
   
Net borrowings (repayments) on lines of credit
5,744

 
(10,986
)
Cash received from issuance of debt
410

 
143,750

Cash paid for capped call transactions

 
(11,904
)
Cash paid on debt
(5,084
)
 
(20,340
)
Cash paid for debt issuance costs
(383
)
 
(4,381
)
Cash paid for equity issuance costs

 
(1,527
)
Cash paid for treasury stock
(19,929
)
 
(529
)
Cash paid for preferred stock dividends

 
(40
)
Cash paid for redemption of preferred stock

 
(3,562
)
Cash paid for contingent consideration settlement
(2,106
)
 

Net cash flows provided by (used in) financing activities
(21,348
)
 
90,481

NET CHANGE IN CASH AND CASH EQUIVALENTS
4,394

 
(85,957
)
CASH AND CASH EQUIVALENTS, Beginning of period
63,516

 
153,227

Effect of exchange rate changes on cash
(1,093
)
 

CASH AND CASH EQUIVALENTS, End of period
$
66,817

 
$
67,270

(continued)

5




RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Nine months ended
 
September 30, 2015
 
September 30, 2014
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
   
 
   
Cash paid for income taxes
$
50

 
$
21

Cash paid for interest
$
4,418

 
$
2,286

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   
 
   
Amounts included in period-end accounts payable for:
   
 
   
Purchases of property, plant and equipment
$
4,043

 
$
5,905

Debt issuance cost
$
84

 
$
60

Incentive stock liability for raw material supply agreement
$
239

 
$
317

Equity issuance costs


 
$
25

Issuance of common stock for acquisitions
$
15,310

 
$
61,085

Contingent consideration for acquisitions
$
5,000

 
$
45,950

Debt assumed in acquisition
$
5,225

 
$
113,553

Gain on redemption of preferred stock


 
$
378

Accruals of insurance proceeds related to impairment of property, plant and equipment
$
11,027

 
 
(concluded)
   
See notes to condensed consolidated financial statements.



6



RENEWABLE ENERGY GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For The Three and Nine Months Ended September 30, 2015 and 2014
(unaudited)
(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), 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 filed on March 6, 2015. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.
As of September 30, 2015, the Company operates a network of ten operating biomass-based diesel production facilities with aggregate nameplate production capacity of 432 million gallons per year, or mmgy, which includes the addition of a 100-million gallon nameplate capacity biomass-based diesel refinery at the Port of Grays Harbor, Washington resulting from its acquisition of substantially all the assets of Imperium Renewables, Inc. in August 2015. A number of these plants are “multi-feedstock capable” which allows them to use a broad range of lower cost feedstocks, such as inedible corn oil, used cooking oil and inedible animal fats in addition to vegetable oils, such as soybean oil and canola oil.
The Company expanded its business to Europe by acquiring a majority interest in Petrotec AG (Petrotec) in December 2014. Petrotec is a fully-integrated company that produces biodiesel at its two biorefineries in Emden and Oeding, Germany to sell to the European market.
The biomass-based diesel industry and the Company’s business have benefited from the continuation of certain federal and state incentives. The federal biodiesel mixture excise tax credit (BTC) expired on December 31, 2014 and it is uncertain whether it will be reinstated. This revocation along with other amendments of any one or more of those laws, could adversely affect the financial results of the Company.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company has disclosed a summary of the Company's significant accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2014. There have been no material changes from the policies previously disclosed other than those noted below.
Restricted Cash
At September 30, 2015, current restricted cash was $0. At December 31, 2014, current restricted cash was $12,845, which was held in certificates of deposit as pledges for a letter of credit to support a subsidiary's trade activities and the Company's tender offer to acquire the remaining interest in Petrotec. Non-current restricted cash consists of $101,315 as of September 30, 2015 and December 31, 2014, respectively, which is held in a certificate of deposit and pledged to Bank of America, who issued a letter of credit on the Company's behalf to support the payments on the Company's GOZone Bonds. In addition, at September 30, 2015 and December 31, 2014, non-current restricted cash included amounts of $3,000 and $3,500, respectively, which is held in a certificate of deposit and pledged to Bank of America, who issued a letter of credit to support a subsidiary's trade activities. The Company classifies restricted cash between current and non-current assets based on the length of time of the restricted use.
Accounts Receivable
Accounts receivable are carried at invoiced amount less allowance for doubtful accounts. Management estimates the allowance for doubtful accounts based on existing economic conditions, the financial conditions of customers, and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for doubtful accounts only after reasonable collection attempts have been exhausted. At September 30, 2015, most outstanding receivable amounts related to the 2014 biodiesel mixture excise tax credit reinstatement were received.

7



Property, Plant and Equipment
Property, plant and equipment is recorded at cost less accumulated depreciation. Maintenance and repairs are expensed as incurred. Depreciation expense is computed on a straight-line method based upon estimated useful lives of the assets.
In April 2015, the Company experienced a fire at its Geismar facility, resulting in the shutdown of the facility. The Company estimated fixed assets of approximately $11,027 were impaired as a result of the fire. As of the date of this report, the Company has received partial proceeds of $6,500 from insurance for the property damage and believes it is probable that it will recover the remaining costs under its insurance policies. As such, the actual receipt was recorded as an offset to the estimated impairment loss. In addition, an amount equal to the remaining estimated impairment loss was recorded as part of accounts receivable on the Condensed Consolidated Balance Sheets at September 30, 2015 and no impact on earnings was recognized.
In addition, the Company has received approximately $2,975 as partial proceeds as of the date of this report related to the business interruption portion of the claim reimbursing a portion of lost margin during the repairs of the damages caused by the fire. These proceeds were recorded as an increase in biomass-based diesel sales in the Company's Condensed Consolidated Statements of Operations.
In September 2015, another fire occurred at the Geismar facility. The Company is still in the initial stage to estimate the losses caused by this fire. No impairment has been recorded as it cannot be reasonably estimated as of the date of this report. The Company has property damage, business interruption insurance coverages in place and that recoveries under these insurance policies are expected to be probable and as a result, the property damage with respect to this fire is not expected to have a material adverse impact on the Company's financial results.
Goodwill
Goodwill is tested for impairment annually on July 31 or when impairment indicators exist. Goodwill is allocated and tested for impairment by reporting units. The Company has determined that the reporting units subject to the 2015 goodwill impairment analysis were Biomass-based Diesel; Services; Renewable Chemicals; and Petrotec. The analysis is based on a comparison of the carrying value of the reporting unit to its fair value, determined utilizing both a discounted cash flow methodology and a market comparable methodology. The determination of whether or not the asset has become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of the Company’s reporting units. Changes in estimates of future cash flows caused by items such as unforeseen events or sustained unfavorable changes in market conditions could negatively affect the fair value of the reporting unit’s goodwill asset and result in an impairment charge. The 2015 annual impairment test determined that the fair value of the Biomass-based Diesel reporting unit exceeded its carrying value by approximately 4% and the Services reporting unit exceeded its carrying value by approximately 21% and the Renewable Chemicals reporting unit exceeded its value by approximately 14%, and the Petrotec reporting unit exceeded its value by approximately 26%. Subsequent to our 2015 impairment testing, the Company determined that triggering events have occurred due to the decline in results of operations and decline in stock price during the quarter ended September 30, 2015.  Due to the significant effort that is required to determine the implied fair value of the reporting units' goodwill, through assessing revenue growth, operating margin, discount rate assumptions, and the lack of updated market data, the Company is unable to complete a revised impairment analysis as of September 30, 2015.  The Company will complete the impairment analysis during fourth quarter and if any impairment would exist, record that during the fourth quarter 2015.
No impairment of goodwill was recorded at September 30, 2015 or during 2014.
Share Repurchase Programs
In February 2015, the Company's board of directors approved a share repurchase program of up to $30,000 of the Company's shares of Common Stock. Shares may be repurchased from time to time in open market transactions, privately negotiated transactions or by other means. The Company accounts for share repurchases using the cost method. Under this method, the cost of the share repurchase is recorded entirely in treasury stock, a contra equity account. During the three and nine months ended September 30, 2015, the Company repurchased shares of Common Stock in the amounts of $7,794 and $19,313, respectively, under this share repurchase program.
Foreign Currency Transactions and Translation
The Company’s reporting and functional currency is U.S. dollars. Monetary assets and liabilities denominated in currencies other than U.S. dollars are remeasured into their respective functional currencies at exchange rates in effect at the balance sheet date. The resulting exchange gain or loss is included in the Company’s Condensed Consolidated Statements of Operations as foreign exchange gain (loss) unless the remeasurement gain or loss relates to an intercompany transaction that is of a long-term investment nature and for which settlement is not planned or anticipated in the foreseeable future. Gains or losses arising from translation of such transactions are reported as a component of accumulated other comprehensive income (loss) in the Company’s Condensed Consolidated Balance Sheets.

8



The Company translates the assets and liabilities of its foreign subsidiaries from their respective functional currencies to U.S. dollars at the appropriate spot rates as of the balance sheet date. Generally, our foreign subsidiaries use the local currency as their functional currency. Changes in the carrying value of these assets and liabilities attributable to fluctuations in spot rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive income (loss) in the Company’s Condensed Consolidated Balance Sheets.
Income Taxes
The Company uses the asset and liability method to account for income taxes. Accordingly, deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which differences are expected to reverse. Changes in tax rates are recognized directly to the income statement as they arise. Consideration is given to positive and negative evidence related to the realization of the deferred tax assets and valuation allowances are established to reduce deferred tax assets to the amounts expected to be realized. Significant judgment is required in making this assessment.
For uncertain tax positions, the Company recognizes tax benefits that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized.
With regard to non-US subsidiaries, the Company will indefinitely reinvest any future earnings outside of the U.S. and currently does not have any undistributed earnings. 
New Accounting Standards
In July 2015, the FASB decided to defer by one year the effective dates of the new revenue recognition standard as provided by the ASU 2014-09, Revenue from Contracts with Customers: Summary and Amendments that Create Revenue from Contracts with Customers and Other Assets and Deferred Costs—Contracts with Customers. Early adoption is permitted for all entities, but not before the original public entity effective date. For public companies, the update will now be effective for interim and annual periods beginning after December 15, 2017. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting Measurement-Period Adjustments that eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, a measurement-period adjustment will be recognized in the period in which it determines the amount of the adjustment. The guidance is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company is evaluating the impact this guidance will have on its consolidated financial statements.
NOTE 3 — ACQUISITIONS AND EQUITY TRANSACTIONS
Imperium Renewables, Inc.
On August 19, 2015, the Company acquired substantially all the assets of Imperium Renewables, Inc. (Imperium), including the 100-million gallon nameplate biomass-based diesel refinery and deepwater port terminal at the Port of Grays Harbor, Washington. The results of Imperium's operations have been included in the consolidated financial statements since that date. The Company has not completed its initial accounting of this business combination as the valuation of real and personal property,intangible assets and deferred tax assets and liabilities has not been finalized.
The following table summarizes the consideration paid for Imperium:

August 19, 2015
Consideration at fair value for Imperium:

Cash
$
36,748

Common stock
15,310

Contingent consideration
5,000

Total
$
57,058

The fair value of the 1,675,000 shares of Common Stock issued to Imperium was determined using the closing market price of the Company's common shares at the date of acquisition.
Subject to achievement of certain milestones related to the biomass-based diesel gallons produced and sold by REG Grays Harbor and whether the BTC is reinstated, Imperium may receive contingent consideration of up to $5,000 (Earnout

9



Payments) over a two-year period after the acquisition. The Earnout Payments will be payable in cash. As of September 30, 2015, the Company has recorded a contingent liability of $5,000, approximately $2,167 of which has been classified as current on the Condensed Consolidated Balance Sheets.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
   
August 19, 2015
Assets (liabilities) acquired of Imperium:
   
Cash
$
168

Accounts receivable
8,274

Inventory
18,989

Other current assets
87

Property, plant and equipment
46,476

Intangible assets
2,900

Total identifiable assets acquired
76,894



Accounts payable
(4,828
)
Accrued expenses and other liabilities
(942
)
Debt
(5,225
)
Deferred tax liabilities
(3,483
)
Total liabilities assumed
(14,478
)
Net identifiable assets acquired
62,416

Less: Bargain purchase gain
5,358

Net assets acquired
$
57,058

Imperium was acquired at a price less than fair value of the net identifiable assets, and the Company recorded a provisional net of tax bargain purchase gain of $5,358, which may be subject for future adjustments. The bargain purchase gain is reported in the "Other Income, Net" line on the Condensed Consolidated Statements of Operations. Prior to recognizing a bargain purchase gain, the Company reassessed whether all assets acquired and liabilities assumed had been correctly identified as well as the key valuation assumptions and business combination accounting procedures for this acquisition. After careful consideration and review, the Company concluded that the recognition of a bargain purchase gain, while still provisional at the date of this report, was appropriate for this acquisition. Factors that contributed to the bargain purchase price were:

The assets were not fully utilized by the seller and that the transaction was completed with a motivated seller that appeared to have recapitalized its investments and desired to exit the facilities that no longer fit its strategy given the uncertainties in the industry.
The Company was able to complete the acquisition in an expedient manner, with a cash payment, stock issuance and without a financial contingency, which was a key attribute for the seller. The relatively small size of the transaction for the Company, the lack of required third-party financing and the Company's expertise in completing similar transactions in the past gave the seller confidence that the Company could complete the transaction quickly and without difficultly.
Due to the unique nature of the products and limited number of potential buyers for this business, the seller found it advantageous to accept the Company's purchase price based upon our demonstrated ability to operate similar businesses, and financial strength that may enable the Company to make improvement and run the business at increased production rates in the long run.
The following pro forma condensed combined results of operations assume that the Imperium acquisition was completed as of January 1, 2014.

10



 
Three Months 
 Ended 
 September 30, 
 2015
 
Three Months 
 Ended 
 September 30, 
 2014
 
Nine Months 
 Ended 
 September 30, 
 2015
 
Nine Months 
 Ended 
 September 30, 
 2014
Revenues
$
420,336

 
$
443,677

 
$
1,117,705

 
$
1,058,854

Net income (loss)
(16,211
)
 
7,929

 
(58,259
)
 
12,038

Basic net income (loss) per share
$
(0.36
)
 
$
0.18

 
$
(1.28
)
 
$
0.29

Petrotec AG
On December 24, 2014, the Company acquired 69.08% of the outstanding common shares and voting interest of Petrotec. The results of Petrotec’s operations have been included in the consolidated financial statements since that date. The Company has not completed its initial accounting for this business combination as the valuation of the real and personal property and goodwill has not been finalized.
The following table summarizes the consideration paid for Petrotec:
 
December 24, 2014
Consideration at fair value for Petrotec:
 
Common stock
$
20,022

The fair value of the 2,070,538 shares of the Company's Common Stock issued for the acquisition was determined on the basis of the closing market price of the Company's Common Stock at the date of acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
   
December 24, 2014
Assets (liabilities) acquired of Petrotec:
   
Cash
$
13,523

Accounts receivable
4,989

Inventory
9,470

Other current assets
3,583

Property, plant and equipment
25,026

Total identifiable assets acquired
56,591

 
 
Accounts payable
(8,171
)
Accrued expenses and other liabilities
(2,151
)
Debt
(16,192
)
Non-current liabilities
(1,462
)
Total liabilities assumed
(27,976
)
Net identifiable assets acquired
28,615

Goodwill
369

Non-controlling interest
(8,962
)
Net assets acquired
$
20,022

The $369 of goodwill was assigned to the Biomass-based diesel segment, all of which is expected to be deductible for income tax purposes.
At December 24, 2014, the fair value of the 30.92% noncontrolling interest in Petrotec was estimated to be $8,962. The fair value of the noncontrolling interest was estimated using a combination of the income approach and a market approach.
The Company recognized $1,289 of acquisition-related costs that were expensed in the last quarter of 2014. In addition, during the nine months ended September 30, 2015, the Company acquired additional common shares of Petrotec as part of the cash tender offer and open market purchases for $4,416. At September 30, 2015, the Company owned 85.93% of the outstanding common shares and voting interest of Petrotec.

11



In April 2015, Petrotec's application to de-list its shares of common stock from the Frankfurt Stock Exchange was approved. From the end of the October 8, 2015 trading day, Petrotec's shares of common stock are no longer traded on any regulated market of any stock exchange.
NOTE 4 — MARKETABLE SECURITIES
The Company's investments in marketable securities are stated at fair value and are available-for-sale. The following table summarizes the Company's marketable securities:
 
As of September 30, 2015
 
Maturity
 
Gross Amortized Cost
 
Total Unrealized Gains
 
Total Unrealized Losses
 
Fair Value
Commercial paper
Within one year
 
$
2,996

 
$
2

 
$

 
$
2,998

Corporate bonds
Within one year
 
4,036

 

 
(3
)
 
4,033

Total

 
$
7,032

 
$
2

 
$
(3
)
 
$
7,031

 
As of December 31, 2014
 
Maturity
 
Gross Amortized Cost
 
Total Unrealized Gains
 
Total Unrealized Losses
 
Fair Value
Corporate bonds
Within one year
 
$
6,781

 
$

 
$
(6
)
 
$
6,775

Certificates of deposit
Within one year
 
10,000

 

 
(5
)
 
9,995

Total
 
 
$
16,781

 
$

 
$
(11
)
 
$
16,770


NOTE 5 — INVENTORIES
Inventories consist of the following:
   
September 30, 2015
 
December 31, 2014
Raw materials
$
36,842

 
$
23,117

Work in process
3,232

 
2,879

Finished goods
38,833

 
71,512

Total
$
78,907

 
$
97,508

NOTE 6 — PREPAID EXPENSES AND OTHER ASSETS
Prepaid expense and other assets consist of the following:
   
September 30, 2015
 
December 31, 2014
Commodity derivatives and related collateral, net
$
6,136

 
$
12,938

Prepaid expenses
23,089

 
7,901

Deposits
3,949

 
4,481

RIN inventory
12,657

 
10,795

Taxes receivable
2,040

 
2,843

Other
2,502

 
4,177

Total
$
50,373

 
$
43,135

RIN inventory values were adjusted in the amounts of $283 and $1,042 at September 30, 2015 and December 31, 2014, respectively, to reflect the lower of cost or market.
Other noncurrent assets consist of the following:

12



 
September 30, 2015
 
December 31, 2014
Debt issuance costs (net of accumulated amortization of $2,009 and $1,474, respectively)
$
4,119

 
$
5,152

Spare parts inventory
3,410

 
3,440

Deposits
3,370

 
4,370

Other
5,978

 
6,624

Total
$
16,877

 
$
19,586

NOTE 7 — GOODWILL
The following table shows the carrying amount of goodwill by reportable unit as of December 31, 2014 and the changes in goodwill for the nine months ended September 30, 2015:
 
Biomass-based Diesel
 
Services
 
Renewable Chemicals
 
Total
Balance, December 31, 2014
$
137,348

 
$
16,080

 
$
34,847

 
$
188,275

Finalization of purchase accounting
3,202

 

 

 
3,202

Balance, September 30, 2015
$
140,550

 
$
16,080

 
$
34,847

 
$
191,477

NOTE 8 — INTANGIBLE ASSETS
Intangible assets consist of the following:
 
September 30, 2015
 
Cost
 
Accumulated Amortization
 
Net
 
Weighted Average Remaining Life
Raw material supply agreement
$
6,152

 
$
(1,432
)
 
$
4,720

 
10.3 years
Renewable hydrocarbon diesel technology
8,300

 
(738
)
 
7,562

 
13.8 years
Ground lease
200

 
(108
)
 
92

 
6.3 years
Acquired customer relationships
2,900

 

 
2,900

 
10.0 years
Total amortizing intangibles
17,552

 
(2,278
)
 
15,274

 
 
In-process research and development, indefinite lives
15,956

 

 
15,956

 
 
Total intangible assets
$
33,508

 
$
(2,278
)
 
$
31,230

 
 
 
December 31, 2014
 
Cost
 
Accumulated Amortization
 
Net
 
Weighted Average Remaining Life
Raw material supply agreement
$
5,914

 
$
(1,113
)
 
$
4,801

 
11.0 years
Renewable hydrocarbon diesel technology
8,300

 
(323
)
 
7,977

 
14.5 years
Ground lease
200

 
(97
)
 
103

 
6.9 years
Total amortizing intangibles
14,414

 
(1,533
)
 
12,881

 
 
In-process research and development, indefinite lives
15,956

 

 
15,956

 
 
Total intangible assets
$
30,370

 
$
(1,533
)
 
$
28,837

 
 
The Company recorded intangible amortization expense of $257 and $745 for the three and nine months ended September 30, 2015, respectively, and $583 and $760 for the three and nine months ended September 30, 2014, respectively.
The estimated intangible asset amortization expense for fiscal year 2015 through fiscal year 2021 and thereafter is as follows:

13



October 1, 2015 through December 31, 2015
$
329

2016
1,330

2017
1,344

2018
1,358

2019
1,373

2020
1,389

2021 and thereafter
8,151

Total
$
15,274

NOTE 9 — DEBT
The Company’s debt is as follows:
   
September 30, 2015
 
December 31, 2014
2.75% Convertible Senior Notes, $143,750 face amount, due in June 2019
$
124,861

 
$
121,354

REG Geismar GOZone bonds, secured, variable interest rate of daily LIBOR, due in October 2033
100,000

 
100,000

REG Danville term loan, secured, variable interest rate of LIBOR plus 5%, due in December 2017
313

 
1,513

REG Newton term loan, secured, variable interest rate of LIBOR plus 4%, due in December 2018
17,487

 
19,868

REG Mason City term loan, fixed interest rate of 5%, due in July 2019
3,902

 
4,566

REG Ames term loans, secured, fixed interest rates of 3.5% and 4.25%, due in January 2018 and December 2019, respectively
3,984

 
4,226

REG Grays Harbor term loan, variable interest of minimum of 3.5% or Prime Rate plus 0.25%, due in May 2022
5,225

 

Other
1,170

 
1,402

Total debt
$
256,942

 
$
252,929


Revolving Lines of Credit
 
September 30, 2015
 
December 31, 2014
Amount outstanding under revolving lines of credit
$
22,423

 
$
16,679

Maximum available to be borrowed under revolving lines of credit
$
37,544

 
$
20,719


NOTE 10 — RELATED PARTY TRANSACTIONS
The Company reassesses its related parties at reporting dates and has determined that West Central Cooperative (West Central) is no longer a related party as West Central no longer holds ten percent or more of the Company’s outstanding Common Stock nor a board seat on the Company board.
Summary of Related Party Balances - Condensed Consolidated Statements of Operations
   
Three Months 
 Ended 
 September 30, 
 2015
 
Three Months 
 Ended 
 September 30, 
 2014
 
Nine Months 
 Ended 
 September 30, 
 2015
 
Nine Months 
 Ended 
 September 30, 
 2014
Cost of goods sold – Biomass-based diesel
$


$
10,490


$
4,542

 
$
31,919

Selling, general and administrative expenses
$


$
4


$

 
$
43


14



Summary of Related Party Balances - Condensed Consolidated Balance Sheets
   
As of
September 30, 2015
 
As of
December 31, 2014
Accounts receivable
$

 
$
36

Accounts payable
$

 
$
1,101

NOTE 11 — DERIVATIVE INSTRUMENTS
The Company enters into heating oil and soybean oil futures, swaps and options (commodity contract derivatives) to reduce the risk of price volatility related to anticipated purchases of feedstock raw materials and to protect gross profit margins from potentially adverse effects of price volatility on biomass-based diesel sales where prices are set at a future date. All of the Company’s commodity contract derivatives are designated as non-hedge derivatives and recorded at fair value on the Condensed Consolidated Balance Sheets. Unrealized gains and losses are recognized as a component of biomass-based diesel costs of goods sold reflected in current results of operations. As of September 30, 2015, the Company had 2,967 open commodity contracts.
The Company offsets the fair value amounts recognized for its commodity contract derivatives with cash collateral with the same counterparty under a master netting agreement. The net position is presented within prepaid and other assets in the Condensed Consolidated Balance Sheets. The following table sets forth the fair value of the Company's commodity contract derivatives and amounts that offset within the Condensed Consolidated Balance Sheets:
   
September 30, 2015
 
December 31, 2014
   
Assets
 
Liabilities
 
Assets
 
Liabilities
Gross amounts of derivatives recognized at fair value
$
2,999

 
$
(680
)
 
$
14,901

 
$
205

Cash collateral
3,817

 

 
2,870

 
4,628

Total gross amount recognized
6,816

 
(680
)
 
17,771

 
4,833

Gross amounts offset
(680
)
 
680

 
(4,833
)
 
(4,833
)
Net amount reported in the condensed consolidated balance sheet
$
6,136

 
$

 
$
12,938

 
$

The following table sets forth the commodity contract derivatives gains (losses) included in the Condensed Consolidated Statements of Operations:
   
Location of Gain (Loss)
Recognized in income
 
Three Months 
 Ended 
 September 30, 
 2015
 
Three Months 
 Ended 
 September 30, 
 2014
 
Nine Months 
 Ended 
 September 30, 
 2015
 
Nine Months 
 Ended 
 September 30, 
 2014
Commodity derivatives
Cost of goods sold – Biomass-based diesel
 
$
23,349

 
$
19,249

 
$
19,358

 
$
15,811

NOTE 12 — FAIR VALUE MEASUREMENT
The fair value hierarchy prioritizes the inputs used in measuring fair value as follows:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.
Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
A summary of assets (liabilities) measured at fair value is as follows:

15



   
As of September 30, 2015
   
Total
 
Level 1
 
Level 2
 
Level 3
Money market funds
$
5,002

 
$
5,002

 
$

 
$

Commercial paper
2,998

 

 
2,998

 

Commercial notes/bonds
4,033

 

 
4,033

 

Commodity contract derivatives
2,319

 
441

 
1,878

 

Contingent consideration for LS9 acquisition
(7,258
)
 

 

 
(7,258
)
Contingent consideration for Dynamic Fuels acquisition
(29,233
)
 

 

 
(29,233
)
Contingent consideration for Imperium Renewables, Inc. acquisition
(5,000
)
 

 

 
(5,000
)
 
$
(27,139
)
 
$
5,443

 
$
8,909

 
$
(41,491
)
   
As of December 31, 2014
   
Total
 
Level 1
 
Level 2
 
Level 3
Money market funds
$
302

 
$
302

 
$

 
$

Certificates of deposit
9,995

 

 
9,995

 

Commercial notes/bond
6,775

 

 
6,775

 

Commodity contract derivatives
14,696

 
6,885

 
7,811

 

Contingent consideration for LS9 acquisition
(8,624
)
 

 

 
(8,624
)
Contingent consideration of Dynamic Fuels acquisition
(30,695
)
 

 

 
(30,695
)
   
$
(7,551
)
 
$
7,187

 
$
24,581

 
$
(39,319
)
The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
 
Contingent Consideration for LS9 Acquisition
 
Contingent Consideration for Dynamic Fuels Acquisition
 
Contingent Consideration for Imperium Acquisition
Balance at beginning of period, January 1, 2015
$
8,624

 
$
30,695

 
$

Change in estimates included in earnings
(31
)
 
324

 

Settlements

 
(1,052
)
 

Balance at end of period, March 31, 2015
8,593

 
29,967

 

Change in estimates included in earnings
(2,434
)
 
313

 

Settlements

 
(943
)
 

Balance at end of period, June 30, 2015
6,159

 
29,337

 

Fair value of contingent consideration at measurement date

 

 
5,000

Change in estimates included in earnings
1,099

 
7

 

Settlements

 
(111
)
 

Balance at end of period, September 30, 2015
$
7,258

 
$
29,233

 
$
5,000


16



 
Contingent Consideration for LS9 Acquisition
 
Contingent Consideration for Dynamic Fuels Acquisition
Balance at beginning of period, January 1, 2014
$

 
$

Fair value of contingent consideration at measurement date
17,050

 

Balance at end of period, March 31, 2014
17,050

 

Fair value of contingent consideration at measurement date

 
28,900

Change in estimates included in earnings
(384
)
 

Settlements

 

Balance at end of period, June 30, 2014
16,666

 
28,900

Change in estimates included in earnings
(1,192
)
 
133

Settlements

 

Balance at end of period, September 30, 2014
$
15,474

 
$
29,033

The estimated fair values of the Company’s financial instruments, which are not recorded at fair value, are as follows:
   
As of September 30, 2015
 
As of December 31, 2014
   
Asset (Liability)
Carrying
Amount
 
Fair Value
 
Asset (Liability)
Carrying
Amount
 
Fair Value
Financial liabilities:
   
 
   
 
   
 
   
Debt and lines of credit
$
(279,365
)
 
$
(277,059
)
 
$
(269,608
)
 
$
(270,331
)
The carrying amounts reported in the Condensed Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values. Money market funds are included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.
The Company used the following methods and assumptions to estimate fair value of its financial instruments:
Marketable securities: The fair value of marketable securities, which include certificates of deposit, commercial papers and commercial notes/bonds are obtained using quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices, e.g., interest rates and yield curves. The Company utilizes a pricing service to assist in obtaining fair value pricing for the majority of this investment portfolio.
Commodity derivatives: The instruments held by the Company consist primarily of futures contracts, swap agreements, purchased put options and written call options. The fair value of contracts based on quoted prices of identical assets in an active exchange-traded market is reflected in Level 1. Contract fair value that is determined based on quoted prices of similar contracts in over-the-counter markets is reflected in Level 2.
Contingent consideration for acquisitions: The fair value of the LS9 contingent consideration is determined using an expected present value technique. Expected cash flows are determined using the probability weighted-average of possible outcomes that would occur should achievement of certain milestones related to the development and commercialization of products from LS9’s technology occur. There is no observable market data available to use in valuing the contingent consideration; therefore, the Company developed its own assumptions related to the expected future delivery of product enhancements to estimate the fair value of these liabilities. An 8.0% discount rate is used to estimate the fair value of the expected payments.
The fair value of the Dynamic Fuels contingent consideration is determined using an expected present value technique. Expected cash flows are determined using the probability weighted-average of possible outcomes that would occur should the achievement of certain milestones related to the sale of renewable hydrocarbon diesel at the REG Geismar's production facility. A 5.8% discount rate is used to estimate the fair value of the expected payments.
The fair value of the Imperium contingent consideration is determined using the discrete probability technique. Expected earnouts are determined as total present value of the possible outcomes at a discount rate of 10% should the achievement of the production and sales volume at the REG Grays Harbor facility occur post acquisition as well as whether the biodiesel mixture excise tax credit is reinstated.
Debt and lines of credit: The fair value of long-term debt and lines of credit was established using discounted cash flow calculations and current market rates reflecting Level 2 inputs.

17



NOTE 13 — NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is presented in conformity with the two-class method required for participating securities. Participating securities include, or have included, Series B Preferred Stock and restricted stock units (RSUs).
Under the two-class method, net income is reduced for distributed and undistributed dividends earned in the current period. The remaining earnings are then allocated to Common Stock and the participating securities. The Company calculates the effects of participating securities on diluted earnings per share (EPS) using both the “if-converted or treasury stock” and "two-class" methods and discloses the method which results in a more dilutive effect. The effects of Common Stock options, warrants, stock appreciation rights and convertible notes on diluted EPS are calculated using the treasury stock method unless the effects are anti-dilutive to EPS.
The following potentially dilutive weighted average securities were excluded from the calculation of diluted net income (loss) per share attributable to common stockholders during the periods presented as the effect was anti-dilutive:
   
Three Months 
 Ended 
 September 30, 
 2015
 
Three Months 
 Ended 
 September 30, 
 2014
 
Nine Months 
 Ended 
 September 30, 
 2015
 
Nine Months 
 Ended 
 September 30, 
 2014
Options to purchase common stock
87,026

 
87,026

 
87,026

 
87,026

Restricted stock units
709

 

 
709

 

Stock appreciation rights
2,430,414

 
1,137,743

 
2,120,550

 
1,401,144

Warrants to purchase common stock

 

 

 
17,916

Convertible notes
10,838,218

 
10,838,218

 
10,838,218

 
4,764,052

Total
13,356,367

 
12,062,987

 
13,046,503

 
6,270,138

The following table presents the calculation of diluted net loss per share:
   
Three Months 
 Ended 
 September 30, 
 2015
 
Three Months 
 Ended 
 September 30, 
 2014
 
Nine Months 
 Ended 
 September 30, 
 2015
 
Nine Months 
 Ended 
 September 30, 
 2014
Net income (loss) attributable to the Company’s common stockholders - Basic
$
(15,675
)
 
$
4,504

 
$
(55,783
)
 
$
13,362

Plus: distributed dividends to Preferred Stockholders

 

 

 
40

Less: effect of participating securities

 

 

 
(406
)
Net income (loss) attributable to common stockholders - Dilutive
$
(15,675
)
 
$
4,504

 
$
(55,783
)
 
$
12,996

Shares:

 
 
 

 

Weighted-average shares used to compute basic net income (loss) per share
43,844,005

 
42,374,768

 
43,979,266

 
40,216,467

Adjustment to reflect warrants to purchase common stock

 
17,916

 

 

Adjustment to reflect stock appreciation right conversions

 
39,321

 

 
12,462

Weighted-average shares used to compute diluted net income (loss) per share
43,844,005

 
42,432,005

 
43,979,266

 
40,228,929

Net income (loss) per share attributable to common stockholders:

 
 
 

 

Diluted
$
(0.36
)
 
$
0.11

 
$
(1.27
)
 
$
0.32

NOTE 14 — REPORTABLE SEGMENTS
The Company reports its reportable segments based on products and services provided to customers, which include Biomass-based diesel, Services and Corporate and other. The Company re-assesses its reportable segments on an annual basis. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company has chosen to differentiate the reportable segments based on the products and services each segment offers.
The Biomass-based diesel segment processes waste vegetable oils, animal fats, virgin vegetable oils and other feedstocks and methanol into biomass-based diesel. The Biomass-based diesel segment also includes the Company’s purchases and resale of biomass-based diesel produced by third parties. Revenues are derived from the purchases and sales of biomass-based diesel

18



and raw material feedstocks acquired from third parties, sales of biomass-based diesel produced under toll manufacturing arrangements with third party facilities, sales of processed biomass-based diesel from Company facilities, sales of RINs, related by-products and renewable energy government incentive payments. The Services segment offers services for managing the construction of biomass-based diesel production facilities and managing ongoing operations of internal and third party plants and collects fees related to the services provided. The Company does not allocate items that are of a non-operating nature or corporate expenses to the business segments. Intersegment revenues are reported by the Services segment, which manages the construction and operations of facilities included in the Biomass-based diesel segment. Revenues are recorded by the Services segment at cost. Corporate expenses consist of corporate office expenses including compensation, benefits, occupancy and other administrative costs, including management service expenses.
The following table represents the significant items by reportable segment:
   
Three Months 
 Ended 
 September 30, 
 2015
 
Three Months 
 Ended 
 September 30, 
 2014
 
Nine Months 
 Ended 
 September 30, 
 2015
 
Nine Months 
 Ended 
 September 30, 
 2014
Net revenues:
   
 
   
 
   
 
   
Biomass-based diesel
$
394,824

 
$
384,126

 
$
999,371

 
$
935,997

Services
31,161

 
25,422

 
81,625

 
72,012

Intersegment revenues
(31,129
)
 
(25,290
)
 
(81,460
)
 
(71,793
)
   
$
394,856

 
$
384,258

 
$
999,536

 
$
936,216

Income (loss) before income taxes:
   
 
   
 
   
 
   
Biomass-based diesel
$
873

 
$
22,603

 
$
(6,948
)
 
$
49,278

Services
5

 
112

 
54

 
152

Corporate and other (a)
(17,599
)
 
(18,391
)
 
(51,898
)
 
(48,484
)
   
$
(16,721
)
 
$
4,324

 
$
(58,792
)
 
$
946

Depreciation and amortization expense, net:
   
 
   
 
   
 
   
Biomass-based diesel
$
5,685

 
$
3,509

 
$
16,187

 
$
8,934

Services
79

 
55

 
217

 
148

Corporate and other (a)
653

 
335

 
1,973

 
856

   
$
6,417

 
$
3,899

 
$
18,377

 
$
9,938

Cash paid for purchases of property, plant and equipment:
   
 
   
 
   
 
   
Biomass-based diesel
$
31,953

 
$
9,749

 
$
57,498

 
$
40,655

Services
230

 
12

 
1,355

 
643

Corporate and other (a)
1,124

 
3,508

 
2,161

 
4,281

   
$
33,307

 
$
13,269

 
$
61,014

 
$
45,579


   
As of
September 30, 2015
 
As of
December 31, 2014
Assets:
   
 
   
Biomass-based diesel
$
951,207

 
$
899,211

Services
21,940

 
20,750

Corporate and other (b)
199,080

 
452,927

   
$
1,172,227

 
$
1,372,888

(a)
Corporate and other includes income/(expense) not associated with the reportable segments, such as corporate general and administrative expenses, shared service expenses, interest expense and interest income.
(b)
Corporate and other includes cash and other assets not associated with the reportable segments, including investments.

Geographic Information:

19



The following geographic data include net sales attributed to the countries based on the location of the subsidiary making the sale and long-lived assets based on physical location. Long-lived assets represent the net book value of property, plant and equipment.
   
Three Months 
 Ended 
 September 30, 
 2015
 
Three Months 
 Ended 
 September 30, 
 2014
 
Nine Months 
 Ended 
 September 30, 
 2015
 
Nine Months 
 Ended 
 September 30, 
 2014
Net revenues:
   
 
   
 
   
 
   
United States
$
354,079

 
$
384,258

 
$
890,685

 
$
936,216

Foreign
40,777

 

 
108,851

 

 
$
394,856

 
$
384,258

 
$
999,536

 
$
936,216

   
As of As of, September 30, 2015
 
As of As of, December 31, 2014
Long-lived assets:
   
 
   
United States
$
541,297

 
$
468,170

Foreign
21,775

 
25,026

 
$
563,072

 
$
493,196

NOTE 15 — COMMITMENTS AND CONTINGENCIES
The Company is involved in legal proceedings in the normal course of business. The Company currently believes that any ultimate liability arising out of such proceedings will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements regarding Renewable Energy Group, Inc., or “we,” “our” or “the Company” that involve risks and uncertainties such as anticipated financial performance, business prospects, technological developments, products, possible strategic initiatives and similar matters. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” or the negative of these terms, and similar expressions intended to identify forward-looking statements.  
These forward-looking statements include, but are not limited to, statements about facilities currently under development progressing to the construction and operational stages, including planned capital expenditures and our ability to obtain financing for such construction; existing or proposed legislation affecting the biomass-based diesel industry, including governmental incentives and tax credits; our utilization of forward contracting and hedging strategies to minimize feedstock and other input price risk; anticipated future revenue sources from our operational management and facility construction services; the expected effect of current and future environmental laws and regulations on our business and financial condition; our ability to renew existing and expired contracts at similar or more favorable terms; expected technological advances in biomass-based diesel production methods; our competitive advantage relating to input costs relative to our competitors; the market for biomass-based diesel and potential biomass-based diesel consumers; our ability to further develop our financial, managerial and other internal controls and reporting systems to accommodate future growth; expectations regarding the realization of deferred tax assets and the establishment and maintenance of tax reserves and anticipated trends; expectations regarding our expenses and sales; anticipated cash needs and estimates regarding capital requirements and needs for additional financing; and challenges in our business and the biomass-based diesel market.
These forward-looking statements are based on management’s current expectations, estimates, assumptions and projections, which are subject to risks and uncertainties. These risks and uncertainties could cause actual results to differ materially from those expected. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Risks and uncertainties include, but are not limited to, those risks discussed in Item 1A Part II in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2015. We encourage you to read this Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying condensed

20



consolidated financial statements and related notes. Forward-looking statements contained in this report present management’s views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of management’s views to reflect events or circumstances occurring after the date of this report.
Overview
We are a leading advanced biofuels producer and are expanding into the development of renewable chemicals. We have been a leader in the biomass-based diesel industry since 1996. We utilize a nationwide production, distribution and logistics system as part of an integrated value chain model to focus on converting natural fats, oils and greases into advanced biofuels and converting diverse feedstocks into renewable chemicals. We own and operate ten biomass-based diesel, or biodiesel and renewable hydrocarbon diesel, production facilities with aggregate nameplate production capacity of 432 million gallons per year, or mmgy, as well as one fermentation facility.
We expanded into the production of renewable chemicals, additional advanced biofuels and other products through our acquisition of LS9, Inc.'s assets in January 2014 and the creation of REG Life Sciences, LLC. This industrial biotechnology business is a development stage company focusing on harnessing the power of microbial fermentation to develop and produce renewable chemicals, fuels and other products.
We sell petroleum-based heating oil and diesel fuel, which enables us to offer additional biofuel blends, while expanding our customer base. We sell heating oil and ultra-low sulfur diesel, or ULSD, at terminals throughout the northeastern U.S. as well as BioHeat® blended heating fuel at one of our existing Northeast terminal locations. We expanded our sales of additional biofuel blends to Midwest terminal locations and look to potentially expand to other areas across North America.
We acquired a 75 mmgy nameplate capacity renewable hydrocarbon diesel biorefinery located in Geismar, Louisiana in June 2014. Our Geismar facility had been idled by its previous owner and began operating again by us in October 2014 after our completion of certain upgrades. Our Geismar facility is currently idle while repairs related to a fire in September 2015 are underway.
We also expanded our business internationally by acquiring a majority interest in Petrotec AG, or Petrotec, in December 2014. During the first quarter 2015, we acquired additional shares in Petrotec through a cash tender offer. During the second quarter 2015, we acquired additional shares in Petrotec on the open market. Petrotec is a fully-integrated company utilizing more than 15,000 collection points to gather used cooking oil and other waste feedstocks to produce biomass-based diesel at its two biorefineries in Emden and Oeding, Germany.  Petrotec’s nameplate production capacity is approximately 56 mmgy (185,000 metric tons or MT).
On August 19, 2015, we acquired substantially all of the assets of Imperium Renewables, Inc., or Imperium, including a 100 mmgy nameplate biorefinery and terminal at the Port of Grays Harbor, Washington in August 2015. The renamed REG Grays Harbor, LLC increases our North American nameplate production capacity by nearly one third and expands our production fleet to the west coast of the United States. The Grays Harbor location includes 18 million gallons of storage capacity and a terminal that can accommodate feedstock intake and fuel delivery on deep-water PANAMAX