UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-35397
______________________________________
RENEWABLE ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
26-4785427
(State or 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)
Registrant’s telephone number, including area code: (515) 239-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of each exchange on which registered:
Common Stock, par value $.0001 per share
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
______________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
x
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x
As of June 30, 2015, the aggregate market value of Common Stock held by non-affiliates was $468,186,000.
As of February 29, 2016, 43,837,714 shares of Common Stock of the registrant were issued and outstanding.
______________________________________
Documents Incorporated By Reference
All or a portion of Items 10 through 14 in Part III of this Form 10-K are incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A, which will be filed within 120 days after the close of the fiscal year covered by this report on Form 10-K, or if the Registrant’s Schedule 14A is not filed within such period, will be included in an amendment to this Report on Form 10-K which will be filed within such 120 day period.


Table of Contents

TABLE OF CONTENTS
 
 
Page
PART I
 
 
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
 
 
PART II
 
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
 
 
PART III
 
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
 
 
PART IV
 
ITEM 15.


Table of Contents

PART I
Cautionary Statement Regarding Forward-Looking Information
This annual report on Form 10-K contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “would,” “might,” “could,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “plan,” “seek,” “potential,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. Forward-looking statements include, but are not limited to, statements about:
our financial performance, including revenues, cost of revenues and operating expenses;
government programs, policymaking and mandates relating to renewable fuels;
the availability, future price and volatility of feedstocks;
the future price and volatility of petroleum;
our liquidity and working capital requirements;
anticipated trends and challenges in our business and competition in the markets in which we operate;
our ability to successfully implement our acquisition strategy and integration strategy;
progressing facilities currently under development to the construction and operational stages, including planned capital expenditures and our ability to obtain financing for such construction;
our ability to protect proprietary technology and trade secrets;
the development of competing alternative fuels, energy services and renewable chemicals;
our risk management activities;
product performance, in cold weather or otherwise;
seasonal fluctuations in our business;
our current products as well as products we are developing;
critical accounting policies and estimates, the impact or anticipated impact of recent accounting pronouncements, guidance or changes in accounting principles and future recognition of impairments for the fair value of assets, including goodwill, financial instruments, intangible assets and other assets acquired; and
assumptions underlying or relating to any of the foregoing.
These statements reflect current views with respect to future events and are based on assumptions and subject to risks and uncertainties. We note that a variety of factors could cause actual results and experience to differ materially from the anticipated results or expectations expressed in our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements are also subject to risks and uncertainties that could cause actual results to differ materially from those expected. These risks and uncertainties include, but are not limited to, those risks discussed in Item 1A of this report.
Forward-looking statements contained in this report present management’s views only as of the date of this report. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our 10-Q and 8-K reports filed with the Securities and Exchange Commission.
ITEM 1.
Business
General
We are a company focused on providing cleaner, lower carbon intensity products and services while also providing conventional products and services. Today, we principally generate revenue as a leading North American advanced biofuels producer and we are expanding into the development of renewable chemicals. We are currently the largest producer of biomass-based diesel in the United States. To do this, we utilize a nationwide production, distribution and logistics system as part of an

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integrated value chain model to focus on converting natural fats, oils and greases into advanced biofuels along with focusing to convert diverse feedstocks into renewable chemicals. During 2015, we sold 375 million total gallons and had total revenues of $1.4 billion.
We operate a network of ten biomass-based diesel plants, with an aggregate nameplate production capacity of 432 million gallons per year, or mmgy, and one fermentation facility. We believe our fully integrated approach, which includes acquiring feedstock, managing biorefinery facility construction and upgrades, operating biorefineries, marketing renewable products and distributing through a network of terminals, positions us to capitalize on growing demand for biomass-based diesel, renewable chemicals, other advanced biofuels along with other products and services.
We are a lower-cost biomass-based diesel producer. We primarily produce our biomass-based diesel from a wide variety of lower cost feedstocks, including inedible corn oil, used cooking oil and inedible animal fat. We also produce biomass-based diesel from virgin vegetable oils, which are more widely available and tend to be higher in price. We believe our ability to process a wide variety of feedstocks provides us with a cost advantage over many biomass-based diesel producers, particularly those that rely primarily on higher cost virgin vegetable oils, such as soybean oil or canola oil.
In 2014, we expanded into the production of renewable chemicals, additional advanced biofuels and other products through an acquisition of assets in January 2014 and the creation of REG Life Sciences, LLC. This industrial biotechnology business is a late-stage development company focusing on 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 fuel at one of our existing Northeastern 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. The facility was idle again during the last 9 months of 2015 while repairs related to the two separate plant fires that occurred in April and September 2015 and upgrades were underway.
We also expanded our business internationally by acquiring a majority interest in Petrotec AG, or Petrotec, in December 2014. During 2015, we acquired additional shares in Petrotec through cash tender offers and purchases on the open market. At December 31, 2015, we owned approximately 87% of Petrotec's outstanding shares. Petrotec is a fully-integrated company utilizing 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).
In August 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. The renamed REG Grays Harbor, LLC increased our North American nameplate production capacity by nearly one third and expanded 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 class vessels as well as possessing significant rail and truck transport capabilities. To date, the production facility's primary feedstock has been canola oil sourced nearby in the Pacific Northwest. 
Plant Network

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Our production network consists of the following owned facilities:
Property
 
Nameplate
Production
Capacity1 (mmgy)
 
Estimated Production
Capacity
for Current
Feedstock
Mix as of December 31, 2015 (mmgy)
 
REG
Operations
Commenced
 
Feedstock Capability
 
 
 
 
 
 
 
 
 
Ralston, Iowa
 
12
 
12
 
2003
 
Refined Oils and Fats
Albert Lea, Minnesota
 
30
 
30
 
2006
 
Crude, High FFA and Refined Oils and Fats
Newton, Iowa
 
30
 
26
 
2007
 
Crude, High FFA and Refined
Oils and Fats
Seabrook, Texas
 
35
 
35
 
2008
 
Refined Oils and Fats
Danville, Illinois2
 
45
 
45
 
2009
 
Crude, High FFA and Refined
Oils and Fats
Seneca, Illinois
 
60
 
60
 
2010
 
Crude, High FFA and Refined
Oils and Fats
New Boston, Texas
 
15
 
14
 
2013
 
Crude, High FFA and Refined
Oils and Fats
Ellenwood, Georgia 3
 
15
 
n/a
 
n/a
 
Refined Oils and Fats
Mason City, Iowa
 
30
 
30
 
2013
 
Crude, High FFA and Refined
Oils and Fats
Geismar, Louisiana 4
 
75
 
75
 
2014
 
Crude, High FFA and Refined
Oils and Fats
Okeechobee, Florida 5
 
n/a
 
n/a
 
2014
 
n/a
Grays Harbor, Washington6
 
100
 
60
 
2015
 
Refined Oils and Fats
Partially Constructed Facilities
 
 
 
 
 
% Complete
 
 
St. Rose, Louisiana
 
60
 
n/a
 
~45%
 
Crude, High FFA and Refined
Oils and Fats
Emporia, Kansas
 
60
 
n/a
 
~20%
 
Crude, High FFA and Refined
Oils and Fats
Clovis, New Mexico
 
15
 
n/a
 
~50%
 
Crude, High FFA and Refined
Oils and Fats
1 
The nominal nameplate capacity listed above is based on original plant design.
2 
The $31 million upgrade to this facility is in process and is expected be completed in summer 2016.
3 
Idled by prior owner at time of our purchase and remains idled pending repairs or upgrades. We have not yet set a production date.
4 
Plant acquired in June 2014 and commenced operations in October 2014, but has been shutdown since April 2015 due to two separate fires that occurred in April and September 2015.
5 
Okeechobee is a demo-scale microbial fermentation facility for the development and production of renewable chemicals, fuels and other products.
6 
Acquired in August 2015 from Imperium Renewables, Inc.

Petrotec's production network consists of the following facilities:

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Property
 
Nameplate
Production
Capacity (million gallons)
 
Estimated Production
Capacity
for Current
Feedstock
Mix as of December 31, 2015 (million gallons)
 

Operations
Commenced
 
Feedstock Capability
Completed
 
 
 
 
 
 
 
 
Emden, Germany
 
30
 
27
 
2008
 
Crude, High FFA and Refined
Oils and Fats
Oeding, Germany
 
26
 
23
 
2001
 
Crude, High FFA and Refined
Oils and Fats

In addition to the production facilities and fermentation facility listed above, we maintain a testing laboratory at our corporate headquarters in Ames, Iowa, which allows us to test various feedstocks for conversion into biomass-based diesel, as well as various manufacturing processes available in the production of biomass-based diesel. We also have a regional office in Tulsa, Oklahoma, focused on maintaining and developing advanced biofuel technologies. Our industrial biotechnology research and development activities, conducted in South San Francisco, are dedicated to the development of renewable chemicals, advanced biofuels and other products using our proprietary microbial fermentation technology.
Our Feedstocks and Other Inputs
Our ability to use a wide range of feedstocks gives us the flexibility to quickly respond to changes in feedstock pricing to maintain our feedstock cost advantage. We have the ability to rapidly change our processing techniques to accommodate different feedstocks and feedstock mixes. In 2015, approximately 85% of our total feedstock usage was lower cost inedible corn oil, used cooking oil or inedible animal fat feedstock and the remaining 15% was from refined vegetable oils, such as soybean oil or canola oil.
We procure our feedstocks from numerous vendors in small to medium quantities. There is no established futures market for lower cost feedstocks. Inedible corn oil and used cooking oil can be purchased in nearby forward positions of three to twelve months on fixed priced contracts or sometimes indexed to the New York Mercantile Exchange, or NYMEX, NY Harbor ULSD index (previously referred to as NYMEX Heating Oil). We generally purchase inedible animal fats on a freight delivered basis and purchase in one to four week forward positions. Soybean oil can be purchased on a spot or forward contract basis from a number of suppliers.
From time to time, we work with developers of next generation feedstocks, such as algae and camelina, to assist them in bringing these new feedstocks to market. We have converted several of these feedstocks, as well as other second generation feedstocks, into high quality biomass-based diesel in our laboratory and production facilities. We believe we are well positioned to incorporate these new feedstocks into our production process as they become commercially available.
We procure methanol, chemical catalysts such as sodium methylate and hydrochloric acid, under fixed-price contracts and formula-indexed contracts based upon competitive bidding. These procurement contracts typically last from three months to one year. The price of methanol is indexed to the monthly reported published price of methanol plus or minus a negotiated basis.
Distribution
We have established a national distribution system to supply biomass-based diesel throughout the United States. Each of our biodiesel facilities is equipped with an on-site rail loading system, a truck loading system, or both, and a logistics and supply chain management staff. Our Seneca biorefinery near the Illinois River has direct barge access supplying customers using the inland waterways system. Our Houston biorefinery has barge and deep-water ship loading capability. Our Grays Harbor biorefinery has deep-water capability for PANAMAX class vessels. We also manage some customers’ biomass-based diesel storage tanks and replenishment process. We lease 463 railcars for transportation and lease biomass-based diesel storage tanks in 39 terminals as of December 31, 2015. In general, the terminals where we lease our biomass-based diesel storage tanks are petroleum fuel terminals so that fuel distributors and other biomass-based diesel customers can create a biomass-based diesel blend at the terminal before further distribution. Terminal leases typically have one- to three-year terms and are generally renewable subject to certain terms and conditions. During 2015, we have sold our various products in 47 states and five provinces in Canada.
Risk Management

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The prices for feedstocks and biomass-based diesel can be volatile and are not always closely correlated. Lower cost feedstocks are particularly difficult to risk manage given that such feedstocks are not traded in any public futures market. To manage feedstock and biomass-based diesel price risks, we utilize forward contracting, hedging and other risk management strategies, including the use of futures, swaps, options and over-the-counter products.
In establishing our risk management strategies, we draw from our own in-house risk management expertise and we consult with industry experts. We utilize research conducted by outside firms to provide additional market information and risk management strategies. We believe combining these sources of knowledge, experience and expertise gives us a more sophisticated and global view of the fluctuating commodity markets for raw materials and energies, which we then can incorporate into our risk management strategies.
Seasonality
Biodiesel producers have historically experienced seasonal fluctuations in demand for biodiesel. Biodiesel demand has tended to be lower during the winter in Northern and Midwestern states due to blending concentrations being reduced to adjust for performance issues during colder weather. This seasonal fluctuation is strongest for biodiesel made from inedible animal fats and used cooking oil. Biodiesel made from those feedstocks has a higher cloud point, the point at which a fuel begins to gel, than biodiesel produced from soybean oil, canola oil or inedible corn oil, which may cause cold weather performance issues.
Renewable Identification Number, or RIN, prices may also be subject to seasonal fluctuations. The RIN is dated for the calendar year in which it is generated. Since 20% of an Obligated Party's annual Renewable Volume Obligation, or RVO, can be satisfied by prior year RINs, most RINs must come from biofuel produced or imported during the RVO year. As a result, RIN prices can be expected to increase as the calendar year progresses if the RIN market is undersupplied compared to that year's RVO and decrease if it is oversupplied. For further discussion and background on RINs, see "Government Programs Favoring Biomass-based Diesel Production and Use" below.
Competition
We face competition from producers and suppliers of petroleum-based diesel fuel, from other biomass-based diesel producers, marketers, traders and distributors. The size of the biomass-based diesel industry is small compared to the size of the petroleum-based diesel fuel industry and large petroleum companies have greater resources than we do. Our principal competitive differentiators are product quality, both biomass-based diesel and RIN quality, supply reliability and price. We also face competition in the biomass-based diesel RIN compliance market from producers of renewable hydrocarbon diesel and in the advanced biofuel RIN compliance market from producers of other advanced biofuels. In the United States and Canadian biomass-based diesel markets, we compete with large, multi-product companies that have greater resources than we do. Archer Daniels Midland Company, Cargill Incorporated, Louis Dreyfus Commodities Group and Ag Processing Inc. are major international agribusiness corporations and biodiesel producers with the financial sourcing and marketing resources to be formidable competitors in the biodiesel industry. These agribusiness competitors tend to make biodiesel from higher cost virgin vegetable oils such as soybean or canola oil, which they produce as part of their integrated agribusinesses. We are also in competition with producers of renewable hydrocarbon diesel, such as Neste Oil, which has approximately 720 million gallons of renewable hydrocarbon diesel production capacity in Asia and Europe and Diamond Green Diesel, LLC, the joint venture between Valero Energy Corp. and Darling International with approximately 160 million gallons of renewable diesel production capacity. Renewable hydrocarbon diesel can also satisfy the RFS2 biomass-based diesel requirement if the renewable hydrocarbon diesel meets the greenhouse gas reduction requirements and may satisfy Canadian renewable fuel requirements. Neste Oil and Diamond Green Diesel, LLC, have greater financial resources than we do.
In the RFS2 advanced biofuel market, we also compete with other producers and importers of advanced biofuels, such as Brazilian sugarcane ethanol producers and producers of biogas used in transportation. We face increasing competition from imported biomass-based diesel and expect this to continue. In January 2015, the EPA announced the approval of a plan submitted by CARBIO, a consortium of Argentinean renewable fuel producers, which allows for Argentinian biodiesel made from soybean oil to generate RINs. Imported biomass-based diesel that does not qualify under RFS2, also competes in jurisdictions where there are biomass-based diesel blending requirements.
We also face competition from independent biodiesel producers. Most of these competitors own only one biodiesel plant and thus, do not enjoy the benefits of scale that we do. Many of our competitors own biodiesel plants that can process only higher cost virgin vegetable oils. Furthermore, in our marketing and distribution, we face competition from biomass-based diesel traders such as US Oil, NGL, Noble, Morgan Stanley, Tenaska and Vitol. These trading companies may have greater financial resources than we do and are able to take significant biomass-based diesel positions in the marketplace. These competitors are often customers and/or suppliers of ours as well.


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Segment and Geographic Information
Prior to 2015, our business was organized into two reportable segments - the Biomass-based Diesel segment and the Services segment. As of December 31, 2015, we began reporting for a new segment, Renewable Chemicals, which was previously included in the Biomass-based Diesel segment. Financial and geographic information regarding our segments can be found in Note 20 to our consolidated financial statements included under Part II, Item 8 of this report.
Government Programs Favoring Biomass-Based Diesel Production and Use
The biomass-based diesel industry benefits from numerous federal and state government programs, the most important of which is RFS2.
Renewable Fuel Standard
On July 1, 2010, RFS2’s biomass-based diesel requirement became effective, requiring for the first time that a certain percentage of the diesel fuel consumed in the United States be made from renewable sources. The biomass-based diesel requirement can be satisfied by two primary fuels, biodiesel and renewable hydrocarbon diesel. RFS2 required the use of one billion gallons of biomass-based diesel in 2012, required 1.28 billion gallons in 2013 and at least one billion gallons each year thereafter, with such higher amounts subject to the United States Environmental Protection Agency, or EPA, proposals and the Office of Management and Budget, or OMB, approval. On November 30, 2015, the EPA issued the final 2014 through 2016 RVO rules whereby the biomass-based diesel volumes were set at 1.63 billion, 1.73 billion, 1.90 billion gallons for 2014, 2015 and 2016, respectively. In addition, for 2017, the EPA set the biomass-based diesel target at 2 billion gallons.
The biomass-based diesel requirement is one of four separate renewable fuel requirements under RFS2. The RFS2 requirements are based on two primary categories and two subcategories. The two primary categories are conventional renewable fuel, which is primarily satisfied by corn ethanol, and advanced biofuel, which is defined as a biofuel that reduces lifecycle greenhouse gas emissions by at least 50% compared to the petroleum-based fuel the biofuel is replacing. The advanced biofuel category has two subcategories, cellulosic biofuel, to be satisfied by newly developed cellulosic biofuels, such as ethanol made from woody biomass, and biomass-based diesel, which is satisfied by biodiesel and renewable hydrocarbon diesel, or RHD. RFS2’s total advanced biofuel requirement is larger than the combined cellulosic fuel and biomass-based diesel requirements, thus requiring the use of additional volumes of advanced biofuels.
The RFS2 requirement for advanced biofuels can be satisfied by any advanced biofuel, including biodiesel, renewable hydrocarbon diesel, biogas used in transportation, biobutanol, cellulosic ethanol or sugarcane-based ethanol, so long as it meets the 50% greenhouse gas reduction requirement. The advanced biofuel requirement was 2.67 billion gallons in 2014, 2.88 billion gallons in 2015 and 3.61 billion gallons in 2016.
The advanced biofuel RVO is expressed in terms of ethanol equivalent volumes, or EEV, which is based on the fuel’s renewable energy content compared to ethanol. Biodiesel has an EEV of 1.5 and RHD has an EEV of 1.5-1.7, compared to 1.0 for sugarcane-based ethanol. Accordingly, it requires less biomass-based diesel than sugarcane-based ethanol to meet the required volumes as each gallon of biomass-based diesel counts as more gallons for purposes of fulfilling the advanced biofuel RVO, providing an incentive for Obligated Parties to purchase biomass-based diesel to meet their advanced biofuel RVO.
The RFS2 volume requirements apply to petroleum refiners and petroleum fuel importers in the 48 contiguous states and Hawaii, who are defined as “Obligated Parties” in the RFS2 regulations, and requires these Obligated Parties to incorporate into their petroleum-based fuel a certain percentage of renewable fuel or purchase credits in the form of RINs from those who do. An Obligated Party’s RVO is based on the volume of petroleum-based fuel they produce or import. The largest United States petroleum refining companies, such as Valero, Phillips 66, ExxonMobil, British Petroleum, Chevron and Shell, represent the majority of the total RVO, with the remainder made up of smaller refiners and importers.
Renewable Identification Numbers
The EPA created the renewable identification number, or RIN, system to track renewable fuel production and compliance with the renewable fuel standard. EPA registered producers of renewable fuel may generate RINs for each gallon of renewable fuel they produce. In the case of biomass-based diesel, generally 1.5 to 1.7 biomass-based diesel RINs may be generated for each gallon of biomass-based diesel produced, based upon the fuel's renewable energy content. Renewable fuel, including biomass-based diesel, can then be sold with associated RINs attached. RINs may also be separated from the gallons of renewable fuel they represent and once separated they may be sold as a separate commodity. RINs are ultimately used by Obligated Parties to demonstrate compliance with the RFS2. Obligated Parties must obtain and retire the required number of RINs to satisfy their RVO during a particular compliance period. An Obligated Party can obtain RINs by buying renewable fuels with RINs attached, buying RINs that have been separated, or producing renewable fuels themselves. All RIN activity under RFS2 must

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be entered into the EPA’s moderated transaction system, which tracks RIN generation, transfer and retirement. RINs are retired when used for compliance with the RFS2 requirements.
The value of RINs is significant to the price of biomass-based diesel. During 2014, the value of RINs, as reported by OPIS, contributed to the average B100 spot price of a gallon of biomass-based, as reported by The Jacobsen, and range from a low of $0.64 per gallon, or 19%, in January to a high of $1.15 per gallon, or 34%, in December. In 2015, RIN prices as a percentage contribution to the average B100 spot price, as reported by OPIS fluctuated significantly throughout the year and range from a low of $0.58 per gallon, or 23%, in September to a high of $1.55 per gallon, or 53%, in January.
Biodiesel Tax Credit
The federal biodiesel mixture excise tax credit, or BTC, when in effect, provides a $1.00 per gallon excise tax credit to the first blender of biomass-based diesel with at least 0.1% petroleum-based diesel fuel. The biodiesel tax credit can then be credited against such biodiesel federal excise tax liability or the blender can obtain a cash refund from the United States Treasury for the value of the credit. The BTC became effective January 1, 2005 and then lapsed January 1, 2010 before being reinstated retroactively on December 17, 2010. The BTC again lapsed as of December 31, 2011 and on January 2, 2013, it was again reinstated, retroactively for 2012 and through December 31, 2013. The BTC lapsed again on December 31, 2013 and was retroactively reinstated for 2014 on December 19, 2014. On December 18, 2015, the BTC was reinstated for 2015 and will be in effect until December 31, 2016. It is uncertain whether the BTC will be reinstated thereafter and if reinstated, whether or not it would be reinstated retroactively.
State Programs
Several states have enacted legislation providing incentives for the use of biomass-based diesel, requiring the use of biomass-based diesel, or both. For example, Illinois offers an exemption from the generally applicable 6.25% sales tax on fuel for biomass-based diesel blends that incentivizes blending at 11% biomass-based diesel, or B11, through December 31, 2018. Illinois’ program has made that state the largest biomass-based diesel market in the country. Since 2006, Iowa has had in place a retailer’s incentive for blended fuel which has been modified over time. For 2013 through 2017, retailers earn $0.045 per gallon of B5. Iowa also has a biomass-based diesel production incentive that provides $0.02 per gallon of production capped after the first 25 million gallons per production plant. Iowa recently enacted an increase in its excise tax on fuel, which is three cents per gallon less for B11 or higher blends than the diesel fuel tax. In Texas, the biomass-based diesel portion of biomass-based diesel blends are exempt from state excise tax, which results in a $0.20 per gallon incentive for B100. In addition, regulatory changes in 2012 by the Texas Department of Revenue and Texas Commission on Environmental Equality have removed regulatory barriers and eliminated limitations to blending biomass-based diesel under the Texas Low Emissions Diesel program. In addition, California has adopted a low carbon fuel standard, which requires an increasing reduction in the carbon intensity of transportation fuels, which has created an incentive for the use of lower carbon intensity biomass-based diesel. In addition, Oregon and Washington state have been in the process of developing and implementing their own low carbon fuel programs. Oregon is currently engaged in the rulemaking process.
According to the U.S. Department of Energy, more than 40 states have implemented various programs that encourage the use of biomass-based diesel through blending requirements as well as various tax incentives. Currently, Minnesota law requires a B5 biodiesel blend throughout the entire year. In 2014, the law required the state to increase blends to a B10 blend in the summer months. Oregon has implemented a B5 biodiesel blend requirement. New Mexico, Pennsylvania and Washington have all adopted legislation requiring biomass-based diesel blends beginning at B2 (and B5 in New Mexico) with incremental increases, provided certain feedstock or production minimums are met. Several northeast states, including Connecticut and Vermont, have adopted legislation requiring biomass-based diesel blends in home heating oil. The City of New York has adopted legislation requiring biomass-based diesel blends at a 2% rate for heating oil and legislation increasing that requirement to B5 biodiesel has been introduced.
Although we believe that state requirements for the use of biofuels increase demand for our biomass-based diesel within such states, they may not increase overall demand in excess of RFS2 requirements. Rather, existing demand for our biofuel from Obligated Parties in connection with federal requirements may shift to states that have use requirements or tax incentive programs.
Environmental Matters
Our manufacturing facilities, like other fuel and chemical production facilities, are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground; the generation, storage, handling, use, transportation and disposal of hazardous materials; ecological and natural resources; and the health and safety of our employees, contractors and the public. These laws and regulations require us to obtain and comply with numerous environmental permits to construct and operate each facility. They can require expensive pollution control equipment

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or operational changes to limit actual or potential impacts to human health and the environment. A violation of these laws, regulations or permit conditions could result in substantial fines, natural resource damage, criminal sanctions, permit revocations and or facility shutdowns. We do not currently have any environmental proceedings either pending or threatened against our facilities that would materially affect our business or financial condition. Furthermore, we do not anticipate a material adverse effect on our business or financial condition as a result of our efforts to comply with these requirements as presently in effect.
History
Our predecessor, REG Biofuels, LLC, formerly named REG Biofuels Inc., which was formerly named Renewable Energy Group, Inc., was formed under the laws of the State of Delaware in August 2006 upon acquiring the assets and operations of the biodiesel division of West Central Cooperative, or West Central, and two of West Central’s affiliated companies, InterWest, L.C. and REG, LLC. Set forth below is a summary of the significant events of our company since June 2008.


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Date
 
Events
 
Descriptions
June 2008
 
Houston facility
 
We acquired our Houston facility, which has access to deepwater ports, from U.S. Biodiesel Group, Inc., or USBG, through a transaction which included an equity investment in us by USBG.
February through April 2010
 
Danville, Newton and Seneca facilities
 
We acquired our Danville facility by merger from Blackhawk Biofuels, LLC. On March 8, 2010, we acquired our Newton Facility, through the purchase of substantially all of the assets and liabilities of Central Iowa Energy, LLC. On April 8, 2010, we closed a transaction in which we agreed to lease and operate the Seneca facility and certain related assets.

July 2010
 
Tellurian Biodiesel, Inc. and American BDF, LLC
 
We acquired certain assets of Tellurian Biodiesel, Inc., or Tellurian, and American BDF, LLC, or ABDF. Tellurian was a California-based biodiesel company and marketer. ABDF was a joint venture owned by Golden State Service Industries, Restaurant Technologies, Inc., or RTI, and Tellurian. The purchase connects RTI’s national used cooking oil collection system with our national network of biodiesel manufacturing facilities.
September 2010
 
Clovis facility
 
We acquired for stock the partially constructed Clovis facility.
July 2011
 
SoyMor
 
We acquired for stock all the assets and certain liabilities of SoyMor cooperative and SoyMor Biodiesel, LLC.
January 2012
 
REG IPO
 
We completed our initial public offering in which we sold 6.8 million shares of our Common Stock at a price to the public of $10.00 per share. Our Common Stock is currently traded publicly on the NASDAQ Global Market under the symbol “REGI.”
January 2012
 
Seneca facility
 
We exercised an option to purchase our Seneca facility, which we previously operated under lease.
October 2012
 
North Texas Bio Energy, LLC
 
We acquired substantially all the assets of North Texas Bio Energy, LLC, or NTBE.
November 2012
 
BullDog Biodiesel, LLC
 
We acquired substantially all the assets of BullDog Biodiesel, LLC, or BullDog.
July 2013
 
Soy Energy, LLC
 
We acquired substantially all of the assets of Soy Energy, LLC's, or the Soy Energy Assets. The Soy Energy Assets consisted of a 30 mmgy nameplate capacity biodiesel facility and related assets located in Mason City, Iowa. We began producing biodiesel on October 1, 2013.

2013
 
Series B Preferred Stock
 
Certain Series B Preferred Stockholders exercised their option to convert 2,333,428 shares of Series B Preferred Stock into 4,716,043 shares of Common Stock. In addition, we opted to cause 50% of the then-outstanding shares of Series B Preferred Stock to be converted as provided for in our certificate of incorporation.

January 2014
 
LS9
 
We acquired substantially all of the assets and liabilities of LS9.
March 2014
 
Series B Preferred Stock
 
We redeemed all outstanding shares of Series B Preferred Stock.
June 2014
 
Syntroleum/Dynamic Fuels
 
We acquired substantially all the assets of Syntroleum, which consisted of a 50% limited liability company membership interest in Dynamic Fuels, a 75 mmgy renewable hydrocarbon diesel production facility in Geismar, LA. Subsequently on June 6, 2014, we acquired the remaining 50% ownership interest in Dynamic Fuels from Tyson Foods. At closing, we renamed Dynamic Fuels, REG Geismar, LLC or REG Geismar.
December 2014
 
Petrotec AG
 
We acquired 69% equity ownership in Petrotec AG from its majority shareholder. We have made cash tender offers for all other Petrotec shares and as of December 31, 2015, we own approximately 87% of Petrotec's shares.
August 2015
 
Grays Harbor facility
 
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.
Employees
As of December 31, 2015, we employed 597 full-time employees. None of our employees are represented by a labor organization or under any collective bargaining agreements. We consider our relationship with our employees to be good.
Intellectual Property
We own a significant number of U.S. and international patents, trade secrets, and licenses related to our biomass-based diesel and industrial biotechnology businesses and expect that number to grow as we continue to pursue technological innovations. We have developed a patented technology that uses microbes to convert sugars to biodiesel in an one-step fermentation process similar to ethanol manufacturing. We have an estate of issued patents offering protection through 2034 and additional patent applications in prosecution that if issued will extend patent protections beyond 2034.
Customer concentration

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Our sales to one customer, Pilot Travel Centers LLC, or Pilot, were $114.0 million, $231.8 million and $243.3 million, representing approximately 8%, 18% and 16% of our total revenues for 2015, 2014, and 2013, respectively. Our revenues from Pilot generally do not include the RINs associated with the gallons of biomass-based diesel sold. The value of those RINs represented approximately an additional 13% of our total sales in 2015, based on the OPIS average RIN price for the year.
Research and development
We devote considerable resources to our research and development programs. Our biomass-based diesel research and development programs have been primarily targeted towards improving the quality and efficiency of the biomass-based diesel production process and developing applications for co-products. Our development stage industrial biotechnology business conducts research and development involving the production of renewable chemicals, additional advanced biofuels and other products from our proprietary microbial fermentation process. In January 2016, ExxonMobil, a global leader in advanced biofuels research, announced an agreement with us to study the production of biodiesel by fermenting renewable cellulosic sugars from sources such as agricultural waste. The agreement is between ExxonMobil Research and Engineering Company and REG Life Sciences. We have developed a patented technology that uses microbes to convert sugars to biodiesel in an one-step fermentation process similar to ethanol manufacturing.
We expect our research and development expense associated with these programs to increase in future periods. We incurred research and development expense of $16.9 million, $12.4 million, and $0.3 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Executive Officers of the Registrant
Daniel J. Oh, age 51, has served as our Chief Executive Officer and as a Director since September 2011 and President since April 2009. Mr. Oh served as our Chief Operating Officer from June 2007 to September 2011, our Chief Financial Officer and Executive Vice President from June 2006 to June 2007 and as Secretary from August 2006 until March 2009. From May 2004 to May 2006, Mr. Oh served at Agri Business Group, Inc., or ABG, an agribusiness management consulting firm, including as Associate Director, Director and Vice President. Prior to joining ABG, Mr. Oh served in several different positions, including Senior Financial Analyst, Financial Team Leader and Manager, in the Corporate Finance and Investment Banking area of the Corporate Strategy and Business Development Group at Eli Lilly and Company, a global pharmaceutical company, from August 2001 to May 2004. From 2000 to August 2001, Mr. Oh served as a consultant with McKinsey & Company, a leading consulting firm, where he focused on the pharmaceutical industry. From 1987 to 1998, Mr. Oh served as an officer in the United States Army, earning the rank of Major. Mr. Oh holds an M.B.A. from the University of Chicago with concentrations in finance, accounting and strategic management as well as a B.S. with a concentration in economics from the United States Military Academy. Mr. Oh serves as a director on Petrotec AG's supervisory board. Mr. Oh’s employment agreement with us provides that he will serve as a director.
Chad Stone, age 46, has served as our Chief Financial Officer since August 2009. Prior to joining us from October 2007 to May 2009, he was a Director at Protiviti Inc., a global business consulting and internal audit firm. From August 1997 to September 2007, Mr. Stone served as Director with PricewaterhouseCoopers and worked at Arthur Andersen from July 1992 to August 1997, departing as a manager. Mr. Stone has served on executive Board of the Iowa Biodiesel Board since 2011 and was named chair in September 2014. In October 2015, Mr. Stone began serving on the University of Iowa School of Management's Advisory Committee. In November 2015, Mr. Stone was elected to the Governing Board of the National Biodiesel Board. Mr. Stone has over 20 years of experience in leading financial reporting, strategy, policy and compliance. Mr. Stone holds an M.B.A. with concentrations in finance, economics and accounting from the University of Chicago, Graduate School of Business and a B.B.A in Accounting from the University of Iowa. He is also a Certified Public Accountant.
Brad Albin, age 53, has served as our Vice President, Manufacturing since February 2008. Mr. Albin also served as Vice President of Construction Services from April 2007 through February 2008. From September 2006 through April 2007, Mr. Albin served as Director, Construction. Prior to joining us, Mr. Albin served as General Manager for West Central, one of our predecessors from July 2006 through September 2006. From November 2002 to January 2006, Mr. Albin served as Executive Director of Operations for Material Sciences Corporation, where he directed multi-plant operations that served the automotive and global appliance industries. From 1996 to 2002, Mr. Albin was the Vice President of Operations for Griffin Industries. Mr. Albin has over 25 years of experience in executive operations positions in multi-feedstock biomass-based diesel, chemical, food and automotive supplier companies, such as The Monsanto Company, The NutraSweet Company and Griffin Industries. Mr. Albin was a charter member of the National Biodiesel Accreditation Committee. Mr. Albin serves on the board of the Iowa Renewable Fuels Association and was the President in 2012, as well as, Vice President in 2011. Mr. Albin serves as a director on Petrotec AG's supervisory board. In November 2014, Mr. Albin completed the Advanced Management Program from the University of Chicago Booth School of Business and he holds a B.S. in Chemistry from Eastern Illinois University.

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David Elsenbast, age 54, has served as our Vice President, Supply Chain Management since April 2009. From August 2006 to April 2009, Mr. Elsenbast served as our Vice President, Procurement. Prior to joining us, Mr. Elsenbast served in the same role for West Central, since April 2006. Mr. Elsenbast has also served on the Board of the American Fats and Oils Association since October 2009. From 1990 to March 2006, Mr. Elsenbast served in various roles for Milk Specialties Company, an animal nutrition company, including Vice President of Business Development, Vice President of Operations and Purchasing and General Manager. Mr. Elsenbast has over 30 years in agricultural business development, supply chain management, operations, and purchasing. Mr. Elsenbast holds a B.S. in agricultural business from Iowa State University.
Gary Haer, age 62, has served as our Vice President, Sales and Marketing since we commenced operations in August 2006. From October 1998 to August 2006, Mr. Haer served as the National Sales and Marketing Manager for biodiesel for West Central and was responsible for developing the marketing and distribution infrastructure for biomass-based diesel sales in the United States. Mr. Haer has over 15 years of experience in the biomass-based diesel industry. Mr. Haer currently serves on the Executive Committee of the National Biodiesel Board’s Governing Board as Past Chairman and has been elected to various officer positions during his tenure from 1998 to 2014. Mr. Haer holds a M.B.A. from Baker University and a B.S. in accounting from Northwest Missouri State University.
Available Information
Our internet address is http://www.regi.com. Through that address, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge as soon as reasonably practicable after they are filed with the United States Securities and Exchange Commission. The information contained on our website is not included in, or incorporated by reference into, this annual report on Form 10-K.

ITEM 1A.
Risk Factors
Our business, financial condition, results of operations and liquidity are subject to various risks and uncertainties, including those described below. As a result, the trading price of our common stock could decline.

RISKS RELATED TO FEDERAL AND STATE INCENTIVES
RFS2: Loss or reductions of federal governmental requirements for the use of biofuels could have a material adverse effect on our revenues and operating margins.
The biomass-based diesel industry relies substantially on federal requirements for use of biofuels. Since biomass-based diesel has been more expensive to produce than petroleum-based diesel fuel, the biomass-based diesel industry depends on governmental programs that support a market for biomass-based diesel that might not otherwise exist.
The most important of these government programs in the United States is RFS2, which requires annual consumption of specified volumes of biomass-based diesel fuel, including biodiesel and renewable hydrocarbon diesel. RFS2 became effective on July 1, 2010 and applies through 2022. Under RFS2, the EPA is required to determine the annual consumption volumes based on the EPA’s consideration of a variety of factors. The annual consumption volume requirements must be at least one billion gallons. The minimum volume requirement for 2013 was 1.28 billion gallons. On November 30, 2015, the EPA released final RFS targets for biomass based diesel of 1.63 billion gallons for 2014, 1.73 billion gallons for 2015, 1.90 billion gallons for 2016 and 2.00 billion gallons for 2017. We believe that much of the increase in demand for our biomass-based diesel since July 2010 is attributable to, and accelerated by, the existence and implementation of RFS2. In addition, we believe that biomass-based diesel prices since July 2010 have received significant support from RFS2. The United States Congress could repeal, curtail or otherwise change, and the EPA could curtail or otherwise change, the RFS2 program in a manner adverse to us. The petroleum industry is generally opposed to RFS2 and is expected to continue to press for changes that eliminate or reduce its impact. We believe that state requirements and incentives for the use of biofuels increase demand for our biomass-based diesel within such states, but do not increase overall demand for biofuels in excess of RFS2 requirements. Rather, state requirements and tax incentives influence where petroleum refiners and petroleum fuel importers choose to consume the volume requirements established by the EPA under RFS2. Any repeal or reduction in the RFS2 requirements or reinterpretation of RFS2 resulting in our biomass-based diesel failing to qualify as a required fuel would materially decrease the demand for and price of our biomass-based diesel, which would materially and adversely harm our revenues and cash flows.

Loss of or reductions in tax incentives for biomass-based diesel production or consumption may have a material adverse effect on industry revenues and operating margins.
Federal

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The biomass-based diesel industry has historically been substantially aided by federal and state tax incentives. Prior to RFS2, the biomass-based diesel industry relied principally on tax incentives to make the price of biomass-based diesel more cost competitive with the price of petroleum-based diesel fuel to the end user. The most significant tax incentive program has been the federal biodiesel mixture excise tax credit, referred to as the Biodiesel Tax Credit or BTC. The BTC provides a $1.00 refundable tax credit for each gallon of pure biomass-based fuel, or B100, blended with petroleum-based diesel fuel. The entity to first blend the fuels receives the credit. The BTC was established on January 1, 2005 and existed until it was allowed to lapse on December 31, 2009. Thereafter, the BTC was periodically reinstated by Congress both prospectively and retroactively, and then again allowed to lapse. For instance, Congress reinstated the BTC in December 2010, covering 2010 retroactively and 2011 prospectively, and allowed it to lapse at the end of 2011. On January 2, 2013, over a full year following its previous expiration, Congress again reinstated the BTC covering 2012 retroactively and 2013 prospectively. The credit lapsed a third time on December 31, 2013 and was reinstated almost one year later on December 19, 2014, covering only 2014 retroactively. Most recently, the credit was reinstated on December 18, 2015, covering 2015 retroactively and 2016 prospectively. There is no assurance that the BTC will be extended or, if it is allowed to lapse, be reinstated. In response to the regular lapsing and reinstatement of the BTC, the biomass-based diesel industry and its customers have adopted arrangements for sharing revenue generated from selling gallons of biomass-based diesel that benefit from the BTC. Unlike RFS2, the BTC has a direct effect on federal government spending and could be changed or eliminated as a result of changes in the federal budget policy. It is uncertain what action, if any, Congress may take with respect to allowing the BTC to lapse or reinstate or extend the BTC, or whether such action would apply retroactively or prospectively.
If Congress does not extend or reinstate the credit, demand for our biomass-based diesel and the price we are able to charge for our product may be significantly reduced, harming revenues and profitability. In addition, uncertainty regarding the extension or reinstatement of the BTC has caused fluctuations in our operating results. For example, we experienced a reduction in gallons sold in the first quarter of 2012 following an industry-wide acceleration of gallons produced and sold in the fourth quarter of 2011, when the BTC was scheduled to expire on December 31, 2011. We believe reduced demand in the first quarters of 2014 and 2015 also resulted from the lapsing of the BTC at the end of 2013 and 2014, respectively.
State
Several states have enacted tax incentives for the use of biodiesel and/or biomass-based diesel. For example, we derive a significant portion of our revenues from operations in the State of Illinois, which offers an exemption from the generally applicable 6.25% sales tax for biodiesel blends at 11% biodiesel, or B11. Like the BTC, the Illinois tax incentive program, and the tax incentive programs of other states, could be changed as a result of state budget considerations or otherwise. Reduction or elimination of such incentives could materially and adversely harm our revenues and profitability.

Increased industry-wide production of biomass-based diesel, including as a result of existing excess production capacity, could harm our financial results.
If the volume of excess biomass-based diesel RINs exceeds the volume mandated for use under RFS2, the demand for and price of our biomass-based diesel, and biomass-based diesel RINs may be reduced, which could harm revenues and cash flows.
According to the National Biodiesel Board, or NBB, as of September 12, 2012, 2.7 billion gallons per year of biodiesel production capacity in the United States was registered under the RFS2 program by NBB members. In addition to this amount, several hundred million more gallons of U.S. based biomass-based diesel production capacity was registered by non-NBB members and another 1.2 billion gallons of biomass-based diesel production was registered by foreign producers. Furthermore, plants under construction and expansion in the United States as of December 31 2011, if completed, could add an additional several hundred million gallons of annual biodiesel production capacity. The annual production capacity of existing plants and plants under construction far exceeds both historic consumption of biomass-based diesel in the United States and required consumption under RFS2. If this excess production capacity was fully utilized for the U.S. market, it would increase competition for our feedstocks, increase the volume of biomass-based diesel on the market and may reduce biomass-based diesel gross margins, harming our revenues and profitability.
Increased biomass-based diesel production may result in the generation of RINs in excess of the volume of RINs mandated for consumption under RFS2. RIN prices can be expected to decrease as the calendar year progresses if the RIN market is oversupplied compared to that year’s RVO. For example, in 2012, which had a RVO for biomass-based diesel of one billion gallons, biomass-based diesel RIN prices, as reported by OPIS, began to decrease in September when biomass-based diesel RIN generation neared the equivalent of 900 million gallons, as reported by EMTS. Similarly, in September of 2013 when biomass-based diesel RIN generation reached approximately 960 million gallons compared to a 2013 biomass-based diesel RVO of 1.28 billion gallons, biomass-based diesel RIN prices, as reported by OPIS, began to decline.

RISKS RELATED TO OUR BUSINESS OPERATIONS AND THE MARKETS IN WHICH WE OPERATE

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Our gross margins are dependent on the spread between biomass-based diesel prices and feedstock costs, each of which are volatile and can cause our results of operations to fluctuate substantially.
Biomass-based diesel has traditionally been marketed primarily as an additive or alternative to petroleum-based diesel fuel, and, as a result, biomass-based diesel prices have been influenced by the price of petroleum-based diesel fuel, adjusted for government incentives supporting renewable fuels, rather than biomass-based diesel production costs. A lack of close correlation between production costs and biomass-based diesel prices means that we may be unable to pass increased production costs on to our customers in the form of higher prices. Any decrease in the spread between biomass-based diesel prices and feedstock costs, whether as a result of an increase in feedstock prices or a reduction in biomass-based diesel prices, along with a reduction in the value of RINs, would adversely affect our gross margins, cash flow and results of operations.
Energy prices, particularly the market price for crude oil, significantly decreased throughout 2015. The price we sold our biomass-based diesel also significantly decreased from $3.62 per gallon in 2014 to $2.97 per gallon in 2015. Petroleum prices are volatile due to global factors, such as the impact of wars, political uprisings, new extraction technologies and techniques, OPEC production quotas, worldwide economic conditions, changes in refining capacity and natural disasters.
In addition, an element of the price of biomass-based diesel that we produce is the value of the associated RINs. There was a significant decline in RIN prices throughout 2015, with RIN prices starting the year at $0.92 per RIN, dipping below $0.40 per RIN in September 2015 and ending the year at $0.72 per RIN, as reported by Oil Price Information Service, or OPIS. There was significant volatility in RIN prices during 2014, with a decline in the second and third quarters of 2014, and subsequent increase in the fourth quarter, finishing the year at its peak at $0.77 per RIN, as reported by OPIS. In 2013, RIN prices decreased sharply from $1.09 per RIN on July 1, 2013 to $0.35 per RIN on December 31, 2013. Reductions in RIN values, such as those experienced in 2015 and prior years, may have a material adverse effect on our revenues and profits as they directly reduce the price we are able to charge for our biomass-based diesel.
A decrease in the availability or an increase in the price, of feedstocks may have a material adverse effect on our financial condition and operating results. The price and availability of feedstocks and other raw materials may be influenced by general economic, market and regulatory factors. These factors include weather conditions, farming decisions, government policies and subsidies with respect to agriculture and international trade and global supply and demand. During periods when the BTC has lapsed, biomass-based diesel producers may elect to continue purchasing feedstock and producing biomass-based diesel at negative margins under the assumption the BTC will be retroactively reinstated, and consequently, the price of feedstock may not decrease to a level proportionate to current operating margins. The development of alternative fuels and renewable chemicals also puts pressure on feedstock supply and availability to the biomass-based diesel industry. If these emerging technologies compete with biomass-based diesel for feedstocks, are more profitable or have greater governmental support than biomass-based diesel does, then the biomass-based diesel industry may have difficulty in procuring feedstocks at economical prices.
At elevated feedstock price levels, certain feedstocks may be uneconomical to use, as we may be unable to pass feedstock cost increases on to our customers. In addition, we generally are unable to enter into forward contracts at fixed prices for some of our feedstocks, such as animal fat, because markets for these feedstocks are less developed.
Historically, the spread between biomass-based diesel prices and feedstock costs has varied significantly. Although actual yields vary depending on the feedstock quality, the average monthly spread between the price per gallon of 100% pure biodiesel, or B100, as reported by The Jacobsen Publishing Company, and the price per gallon for the amount of choice white grease, a common inedible animal fat used by us to make biomass-based diesel, was $1.26 in 2012, $1.61 in 2013, $0.92 in 2014 and $1.09 in 2015, assuming eight pounds of choice white grease yields one gallon of biomass-based diesel. The average monthly spread for the amount of crude soybean oil required to produce one gallon of biomass-based, based on the nearby futures contract as reported on the Chicago Board of Trade, was $0.65 in 2012, $1.19 in 2013, $0.65 in 2014 and $0.58 in 2015, assuming 7.5 pounds of soybean oil yields one gallon of biomass-based. From 2012-2015, approximately 85% of our annual total feedstock usage was inedible corn oil, used cooking oil or inedible animal fat, and approximately 15% was virgin vegetable oils.

Risk management transactions could significantly increase our operating costs and may not be effective.
In an attempt to partially offset the effects of volatile feedstock costs and biomass-based diesel fuel prices, we enter into contracts that establish market positions in feedstocks, such as inedible corn oil, used cooking oil, inedible animal fats and soybean oil, along with related commodities, such as heating oil and ultra-low sulfur diesel, or ULSD. The financial impact of such market positions depends on commodity prices at the time that we are required to perform our obligations under these contracts as well as the cumulative sum of the obligations we assume under these contracts.
Risk management activities can themselves result in losses when a position is purchased in a declining market or a position is sold in a rising market. Risk management arrangements expose us to the risk of financial loss in situations where

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the counterparty defaults on its contract or, in the case of exchange-traded or over-the-counter futures or options contracts, where there is a change in the expected differential between the underlying price in the contract and the actual prices paid or received by us. Changes in the value of these futures instruments are recognized in current income and may result in margin calls. We may also vary the amount of risk management strategies we undertake, or we may choose not to engage in risk management transactions at all. Our results of operation may be negatively impacted if we are not able to manage our risk management strategy effectively.

Our facilities and our customer’s facilities are subject to risks associated with fire, explosions and leaks, and other natural disasters which may disrupt our business and increase costs and liabilities.

Because biomass-based diesel and some of its inputs and outputs are combustible and/or flammable, a leak, fire or explosion may occur at a plant or customer’s facility which could result in damage to the plant and nearby properties, injury to employees and others, and interruption of operations. For example, in April 2015 and again in September 2015, we experienced fires at our Geismar facility. In both fires, employees and contractors were injured. We may be subject to litigation as a result of these injuries. In addition, on March 3, 2016 the Occupational Safety and Health Administration, or OSHA, issued a citation and notification of penalty regarding the September 2015 incident, citing three “willful” safety violations.
As a result of the fires, our Geismar facility was shut down from April 2015 through February 2016 while repairs and upgrades were completed. As of the date of this filing, our Geismar facility is going through start-up operations. We expect that the plant will not initially commence full capacity operation as we expect it to take time to resume full operations at the plant. While we expect a significant portion of the costs associated with the Geismar fires will be covered by insurance, our insurance company may dispute coverage. In addition, there can be no assurance that our customers at the Geismar facility will return once production begins again. If any of the foregoing were to occur, we may incur significant additional costs, including liability for damages or injuries, legal expenses and loss of profit, which could seriously harm our results of operations and financial condition.
A majority of our facilities are also located in the Midwest, which is subject to tornado activity. Furthermore, REG Life Sciences' research and development center is in South San Francisco, California, which is subject to earthquakes. In addition, our Houston and Geismar facilities, due to their Gulf Coast location, are vulnerable to hurricanes, which may cause plant damage, injury to employees and others and interruption of operations. Every one of our plants could incur damage from other natural disasters as well. If any of the foregoing events occur, we may incur significant additional costs including, among other things, loss of profits due to unplanned temporary or permanent shutdowns of our facilities, cleanup costs, liability for damages or injuries, legal expenses and reconstruction expenses, which would seriously harm our results of operations and financial condition.
Our insurance may not protect us against our business and operating risks.
We maintain insurance for some, but not all, of the potential risks and liabilities associated with our business. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance policies may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Although we intend to maintain insurance at levels we believe are appropriate for our business and consistent with industry practice, we will not be fully insured against all risks. In addition, pollution, environmental risks and the risk of natural disasters generally are not fully insurable. Losses and liabilities from uninsured and underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our financial condition and results of operations.

One customer accounted for a meaningful percentage of revenues and a loss of this customer could have an adverse impact on our total revenues.
One customer, Pilot Travel Centers LLC, or Pilot, accounted for 8%, 18% and 16% of our revenues in 2015, 2014 and 2013, respectively. Our revenues from Pilot generally do not include the RINs associated with the gallons of biomass-based diesel sold to Pilot. The value of those RINs represented approximately an additional 13% of our total sales in 2015, based on the OPIS average RIN price for the year. In the event we lose Pilot as a customer or Pilot significantly reduces the volume of biomass-based diesel bought from us, it could be difficult to replace the lost revenues from biomass-based diesel and RINs, and our profitability and cash flow could be materially harmed. We do not have a long term contract with Pilot that ensures a continuing level of business from Pilot.

Our business is primarily dependent upon two similar products. As a consequence, we may not be able to adapt to changing market conditions or endure any decline in the biomass-based diesel industry.

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Our revenues are currently generated almost entirely from the production and sale of biodiesel and renewable hydrocarbon diesel, collectively referred to as biomass-based diesel. Our reliance on biomass-based diesel means that we may not be able to adapt to changing market conditions or to withstand any significant decline in the size or profitability of the biomass-based diesel industry. In the beginning of 2015, we were required to periodically idle our plants due to insufficient demand at profitable price points. If we are required to idle our plants in the future or are unable to adapt to changing market conditions, our revenues and results of operations may be materially harmed.

Technological advances and changes in production methods in the biomass-based diesel industry and renewable chemical industry could render our plants obsolete and adversely affect our ability to compete.
It is expected that technological advances in biomass-based diesel production methods will continue to occur and new technologies for biomass-based diesel production may develop. Advances in the process of converting oils and fats into biodiesel and renewable hydrocarbon diesel could allow our competitors to produce biomass-based diesel faster and more efficiently and at a substantially lower cost. Additionally, we currently produce biomass-based diesel to conform to or exceed standards established by the American Society for Testing and Materials (ASTM). ASTM standards for biomass-based diesel and biomass-based diesel blends may be modified in response to new technologies from the industries involved with diesel fuel.
New standards or production technologies may require us to make additional capital investments in, or modify, plant operations to meet these standards. If we are unable to adapt or incorporate technological advances into our operations, our production facilities could become less competitive or obsolete. Further, it may be necessary for us to make significant expenditures to acquire any new technology and retrofit our plants in order to incorporate new technologies and remain competitive. In order to execute our strategy to expand into the production of renewable chemicals, additional advanced biofuels, next generation feedstocks and related renewable products, we may need to acquire licenses or other rights to technology from third parties. We can provide no assurance that we will be able to obtain such licenses or rights on favorable terms. If we are unable to obtain, implement or finance new technologies, our production facilities could be less efficient than our competitors, and our ability to sell biomass-based diesel may be harmed, negatively impacting our revenues and profitability.

Our intellectual property is integral to our business. If we are unable to protect our intellectual property, or others assert that our operations violate their intellectual property, our business could be adversely affected.
Our success depends in part upon our ability to protect and prevent others from using our intellectual property. Failure to obtain or maintain adequate intellectual property protection could adversely affect our competitive business position. We rely on a combination of intellectual property rights, including patents, copyrights, trademarks and trade secrets in the United States and in select foreign countries. Effective patent, copyright, trademark and trade secret protection may be unavailable, limited or not applied for in some countries.
We rely in part on trade secret protection to protect our confidential and proprietary information and processes. However, trade secrets are difficult to protect. We have taken measures to protect our trade secrets and proprietary information, but these measures may not be effective. For example, we require new employees and consultants to execute confidentiality agreements upon the commencement of their employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that knowhow and inventions conceived by the individual in the course of rendering services to us are our exclusive property. Nevertheless, these agreements may be breached, or may not be enforceable, and our proprietary information may be disclosed. Despite the existence of these agreements, third parties may independently develop substantially equivalent proprietary information and techniques.
It may be difficult for us to protect and enforce our intellectual property. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. If we pursue litigation to assert our intellectual property rights, an adverse judicial decision in any legal action could limit our ability to assert our intellectual property rights, limit our ability to develop new products, limit the value of our technology or otherwise negatively impact our business, financial condition and results of operations.
A competitor could seek to enforce intellectual property claims against us. Defending intellectual property rights claims asserted against us, regardless of merit, could be time-consuming, expensive to litigate or settle, divert management resources and attention and force us to acquire intellectual property rights and licenses, which may involve substantial royalty payments. Further, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages.


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Increases in our transportation costs or disruptions in our transportation services could have a material adverse effect on our business.
Our business depends on transportation services to deliver raw materials to us and finished products to our customers. The costs of these transportation services are affected by the volatility in fuel prices or other factors. For example, in 2012, the market rates of leasing new rail cars nearly doubled as a result of increased demand to move domestically drilled crude oil from new supply fields in the upper Midwest to various refineries. We have not been able in the past, and may not be able in the future, to pass along part or all of any of these price increases to customers. If we continue to be unable to increase our prices as a result of increased fuel costs charged to us by transportation providers, our gross margins may be materially adversely affected.
If any transportation providers fail to deliver raw materials to us in a timely manner, we may be unable to manufacture products on a timely basis. Shipments of products and raw materials may be delayed due to weather conditions, strikes or other events. Any failure of a third-party transportation provider to deliver raw materials or products in a timely manner could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our business, financial condition and results of operations.

We are dependent upon our key management personnel and other personnel whereby the loss of any of these persons could adversely affect our results of operations.
Our success depends on the abilities, expertise, judgment, discretion, integrity and good faith of our management and employees to manage the business and respond to economic, market and other conditions. We are highly dependent upon key members of our relatively small management team and employee base that possess unique technical skills for the execution of our business plan. There can be no assurance that any individual will continue in his or her capacity for any particular period of time or that replacement personnel with comparable skills could be found. The inability to retain our management team and employee base or attract suitably qualified replacements and additional staff could adversely affect our business. The loss of employees could delay or prevent the achievement of our business objectives and have a material adverse effect upon our results of operations and financial position.

We have not generated any revenue from sales of renewable chemicals to date and we expect to incur additional costs and face significant challenges to develop this business.
In January 2014 we entered the market for renewable chemicals. To date, we have incurred significant costs and have not generated any revenues from this business which is still at a pre-commercial stage. In order to generate revenue from our renewable chemicals, we must be able to produce sufficient quantities of our products, which we have not done to date and would not be able to do on our own without incurring significant capital expenditure to build a commercial scale production facility. There are multiple options for how we may pursue generating revenue from our renewable chemicals business. Some options may require additional capital expenditures prior to generating revenue.
In entering this market, we intend to sell renewable chemicals as an alternative to chemicals currently in use, and in some cases the chemicals that we seek to replace have been used for many years. The potential customers for our renewable chemical products generally have well developed manufacturing processes and arrangements with suppliers of the chemical components of their products and may resist changing these processes and components. These potential customers frequently impose lengthy and complex product qualification procedures on their suppliers. Factors that these potential customers consider during the product qualification process include consumer preference, manufacturing considerations such as process changes and capital, other costs associated with transitioning to alternative components, supplier operating history, regulatory issues, product liability and other factors, many of which are unknown to, or not well understood by, us. Some of our products may also require regulatory registrations and approvals from governmental authorities. The requirements for obtaining regulatory registrations and approvals may change or may take longer than we anticipate. Satisfying these processes may take many months or years.
If we are unable to convince these potential customers that our products are comparable to the chemicals that they currently use, or that the use of our products produce benefits to them, we will not be successful in these markets and our business will be adversely affected. Additionally, in contrast to the tax incentives relating to biofuels, tax credits and subsidies are not currently available in the United States for consumer products or chemical companies who use renewable chemical products. We do not expect meaningful revenue from our sale of renewable chemicals in the near term.

We may encounter difficulties in effectively integrating the businesses we acquire, including our international businesses where we have limited operating history.

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We may face significant challenges in effectively integrating entities and businesses that we acquire, including our acquisition of the majority interest in Petrotec, a German biodiesel producer, in December 2014 along with our acquisition of substantially all the assets of Imperium in August 2015. We may not realize the benefits anticipated from such acquisitions.  Achieving the anticipated benefits of our acquired businesses will depend in part upon whether we can integrate our businesses in an efficient and effective manner.  Our integration of acquired businesses involves a number of risks, including:
difficulty in integrating the operations and personnel of the acquired company;
difficulty in effectively integrating the acquired technologies, products or services with our current technologies, products or services;
demands on management related to the increase in our size after the acquisition;
the diversion of management’s attention from daily operations to the integration of acquired businesses and personnel;
failure to achieve expected synergies and costs savings;
difficulties in the assimilation and retention of employees;
difficulties in the assimilation of different cultures and practices, as well as in the assimilation of broad and geographically dispersed personnel and operations;
difficulties in the integration of departments, systems, including accounting systems, technologies, books and records and procedures, as well as in maintaining uniform standards and controls, including internal control over financial reporting, and related procedures and policies;
incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;
the need to fund significant working capital requirements of any acquired production facilities;
potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquired company or technology, including but not limited to, issues with the acquired company’s intellectual property, product quality, environmental liabilities, data back-up and security, revenue recognition or other accounting practices, employee, customer or partner issues or legal and financial contingencies;
exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, including but not limited to, claims from terminated employees, customers, former stockholders or other third parties;
incurring significant exit charges if products or services acquired in business combinations are unsuccessful; and
if we are unable to complete the tender offer, our ability to control the operations of Petrotec may be limited.
Our ability to recognize the benefit of our investment in Petrotec, or any other international operations we invest in, will require the attention of management and is subject to a number of risks. We have no experience operating a biorefinery outside of the United States. The biodiesel market in Europe benefits from regulations that encourage the use of biodiesel. These regulations are subject to political and public opinion and may be changed. In addition, expanding our operations internationally subjects us to the following risks:
recruiting and retaining talented and capable management and employees in foreign countries;
challenges caused by distance, language and cultural differences;
protecting and enforcing our intellectual property rights;
difficulties in the assimilation and retention of employees;
the inability to extend proprietary rights in our technology into new jurisdictions;
currency exchange rate fluctuations;
general economic and political conditions in foreign jurisdictions;
foreign tax consequences;
foreign exchange controls or U.S. tax restrictions that might restrict or prevent us from repatriating income earned in countries outside the United States;
political, economic and social instability;
higher costs associated with doing business internationally; and
export or import regulations as well as trade and tariff restrictions.
Our failure to successfully manage and integrate our acquisitions could have an adverse effect on our operating results, ability to recognize international revenue, and our overall financial condition.

We may not successfully identify acquisitions, investment opportunities and other strategic relationships on favorable terms or be able to secure capital to pursue such opportunities.
We regularly review investment opportunities, including domestic and international acquisitions of biofuel production facilities, opportunities to develop our renewable chemicals business, expand, complete or enhance our biomass-based

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operations or acquire complementary businesses and technologies. We have acquired most of our facilities from third parties. However, we may be unable to identify suitable acquisition candidates in the future. Even if we identify appropriate acquisition candidates, we may be unable to complete such acquisitions on favorable terms, if at all.
We have three partially constructed plants, one near New Orleans, Louisiana, one in Emporia, Kansas and one in Clovis, New Mexico. There is also one non-operational plant near Atlanta, Georgia. The biomass-based facility near Atlanta, Georgia, which had been idled prior to our acquisition will remain so pending certain repairs and upgrades. Our Clovis plant is currently being operated as a terminal facility.
While we intend to finance certain upgrades to our existing facilities from our cash flow from operations, we will need to raise significant capital to pursue investment opportunities, complete construction of the three partially constructed or non-operational facilities and to fund related working capital requirements. Accordingly, we may need to engage in equity or debt financing to secure additional funds. Any debt financing could involve restrictive covenants, which may restrict our flexibility in operating our business, including restrictions on the ability to make distributions, to guarantee indebtedness and to incur liens on the plants of such subsidiaries, thereby, making it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our business, operating results, financial condition and prospects could be adversely affected.

We incur significant expenses to maintain and upgrade our operating equipment and plants, and any interruption in the operation of our facilities may harm our operating performance.
We regularly incur significant expenses to maintain and upgrade our equipment and facilities. The machines and equipment that we use to produce our products are complex, have many parts and some are run on a continuous basis. We must perform routine maintenance on our equipment and will have to periodically replace a variety of parts such as motors, pumps, pipes and electrical parts. In addition, our facilities require periodic shutdowns to perform major maintenance and upgrades. These scheduled shutdowns of facilities result in decreased sales and increased costs in the periods in which a shutdown occurs and could result in unexpected operational issues in future periods as a result of changes to equipment and operational and mechanical processes made during the shutdown period.

Growth in the sale and distribution of biomass-based diesel is dependent on the expansion of related infrastructure which may not occur on a timely basis, if at all, and our operations could be adversely affected by infrastructure limitations or disruptions.
Growth in the biomass-based diesel industry depends on substantial development of infrastructure for the distribution of biodiesel. Substantial investment required for these infrastructure changes and expansions may not be made on a timely basis or at all. The scope and timing of any infrastructure expansion are generally beyond our control. Also, we compete with other biofuel companies for access to some of the key infrastructure components such as pipeline and terminal capacity. As a result, increased production of biomass-based diesel will increase the demand and competition for necessary infrastructure. Any delay or failure in expanding distribution infrastructure could hurt the demand for or prices of biomass-based diesel, impede delivery of our biomass-based diesel, and impose additional costs, each of which would have a material adverse effect on our results of operations and financial condition. Our business will be dependent on the continuing availability of infrastructure for the distribution of increasing volumes of biomass-based diesel and any infrastructure disruptions could materially harm our business.

We operate in a highly competitive industry and competition in our industry would increase if new participants enter the biomass-based diesel business.
We operate in a very competitive environment. The biomass-based diesel industry is primarily comprised of smaller entities that engage exclusively in biodiesel production, large integrated agribusiness companies that produce biodiesel along with their soybean crush businesses and increasingly, integrated petroleum companies. We face competition for capital, labor, feedstocks and other resources from these companies. In the United States, we compete with soybean processors and refiners, including Archer-Daniels-Midland Company, Cargill, and Louis Dreyfus Commodities. In addition, petroleum refiners are increasingly entering into biomass-based diesel production. Such petroleum refiners includes Neste Oil with approximately 720 million gallons of global renewable hydrocarbon diesel production capacity in Asia and Europe and Valero Energy Corporation with its Diamond Green joint venture in an approximate 160 million gallon renewable hydrocarbon diesel plant. These and other competitors that are divisions of larger enterprises may have greater financial resources than we do.
Petroleum companies and diesel retailers form the primary distribution networks for marketing biomass-based diesel through blended petroleum-based diesel. If these companies increase their direct or indirect biomass-based diesel production,

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there will be less need to purchase biomass-based diesel from independent biomass-based diesel producers like us. Such a shift in the market would materially harm our operations, cash flows and financial position.
A volatile regulatory environment, lack of debt or equity investments and volatile biofuel prices and feedstock costs have likely contributed to the necessity of bankruptcy filings by biofuel producers. We may encounter new competition from buyers of distressed biodiesel properties that enter the industry at a lower cost than original plant investors or from competitors consolidating or otherwise growing. Our business has been, and in the future may be, negatively impacted by the industry conditions that influenced the bankruptcy proceedings of other biofuel producers. Our business and prospects may be significantly and adversely affected if we are unable to similarly increase our scale.

We face competition from imported biodiesel and renewable hydrocarbon diesel, which may reduce demand for biomass-based diesel produced by us and cause our revenues and profits to decline.
Biodiesel and renewable hydrocarbon diesel imports into the United States have increased significantly and compete with biodiesel produced in the United States. The imported fuels may benefit from production incentives or other financial incentives in foreign countries that offset some of their production costs and enable importers to profitably sell biodiesel or renewable hydrocarbon diesel in the United States at lower prices than United States-based biodiesel producers. Under RFS2, imported biodiesel and renewable hydrocarbon diesel is eligible and, therefore, competes to meet the volumetric requirements for biomass-based diesel and advanced biofuels. If imports continue to increase, this could make it more challenging for us to market or sell biomass-based diesel in the United States, which would have a material adverse effect on our revenues. In January 2015, the EPA announced the approval for Argentinian biodiesel made from soybean oil to generate RINs. Imported biomass-based diesel that does not qualify under RFS2, also competes in jurisdictions where there are biomass-based diesel blending requirements.

Our business is subject to seasonal fluctuations, which are likely to cause our revenues and operating results to fluctuate.
Our operating results are influenced by seasonal fluctuations in the price of and demand for biodiesel. Seasonal fluctuations may be based on both the weather and the status of both the BTC and RVO obligations. Demand may be higher in the quarters leading up to the expiration of the BTC as customers seek to purchase biodiesel when they can benefit from the agreed upon value sharing of the BTC with producers of biodiesel. Seasonal fluctuation also occurs in the colder months when historically there has been reduced demand for biodiesel in northern and eastern United States markets, which are the primary markets in which we currently operate.
Biodiesel typically has a higher cloud point than petroleum-based diesel. The cloud point is the temperature below which a fuel exhibits a noticeable cloudiness and eventually gels, leading to fuel handling and performance problems for customers and suppliers. Reduced demand in the winter for our higher cloud point biodiesel may result in excess supply of such higher cloud point biodiesel and lower prices for such higher cloud point biodiesel. Most of our production facilities are located in colder Midwestern states and our costs of shipping biodiesel to warmer climates generally increase in cold weather months.
The tendency of biodiesel to gel in colder weather may also result in long-term storage problems. In cold climates, fuel may need to be stored in a heated building or heated storage tanks, which result in higher storage costs. Higher cloud point biodiesel may have other performance problems, including the possibility of particulate formation above the cloud point which may result in increased expenses as we try to remedy these performance problems, including the costs of extra cold weather treatment additives. Remedying these performance problems may result in decreased yields, lower process throughput or both, as well as substantial capital costs. Any reduction in the demand for our biodiesel product, or the production capacity of our facilities will reduce our revenues and have an adverse effect on our cash flows and results of operations.

Failure to comply with governmental regulations, including EPA requirements relating to RFS2 and FDA requirements relating to the Food Safety Modernization Act, could result in the imposition of penalties, fines, or restrictions on our operations and remedial liabilities.
The biomass-based diesel industry is subject to extensive federal, state and local laws and regulations. Under certain environmental laws and regulations, we could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release or contamination, and regardless of whether current or prior operations were conducted consistent with accepted standards of practice. Many of our assets and plants were acquired from third parties and we may incur costs to remediate property contamination caused by previous owners. Compliance with these laws, regulations and obligations could require substantial capital expenditures. Failure to comply could result in the imposition of penalties, fines or restrictions on operations and remedial liabilities.
Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to attain

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and maintain compliance and may otherwise have a material adverse effect on our business in general and on our results of operations, competitive position or financial condition. We are unable to predict the effect of additional environmental laws and regulations which may be adopted in the future, including whether any such laws or regulations would significantly increase our cost of doing business or affect our operations in any area.
We are subject to various laws and regulations related to RFS2, most significantly regulations related to the generation and dissemination of RINs. These regulations are highly complex and continuously evolving, requiring us to periodically update our compliance systems. Recently, the EPA implemented a quality assurance program and regulations related to the generation and sale of biomass-based diesel RINs. Compliance with these or any new regulations or Obligated Party verification procedures could require significant expenditures to attain and maintain compliance. Any violation of these regulations by us, could result in significant fines and harm our customers’ confidence in the RINs we issue, either of which could have a material adverse effect on our business.

The development of alternative fuels and energy sources may reduce the demand for biodiesel, resulting in a reduction in our revenues and profitability.
The development of alternative fuels, including a variety of energy alternatives to biodiesel has attracted significant attention and investment. Neste Oil operates four renewable hydrocarbon diesel plants: a 300 million gallon per year plant in Singapore, a 300 million gallon per year plant in Rotterdam, Netherlands, and two 60 million gallon per year plants in Porvoo, Finland. In the United States, Diamond Green Diesel, LLC operates a 160 million gallon per year renewable hydrocarbon diesel plant in Norco, Louisiana in 2013. Under RFS2, renewable hydrocarbon diesel made from biomass meets the definition of biomass-based diesel and thus is eligible, along with biodiesel, to satisfy the RFS2 biomass-based diesel requirements. Furthermore, under RFS2, renewable hydrocarbon diesel may receive up to 1.7 RINs per gallon, whereas biodiesel currently receives 1.5 RINs per gallon. As the value of RINs increases, this 0.2 RIN advantage may make renewable hydrocarbon diesel more cost-effective, both as a petroleum-based diesel substitute and for meeting RFS2 requirements. If renewable hydrocarbon diesel proves to be more cost-effective than biodiesel, revenues from our biodiesel plants and our results of operations would be adversely impacted.
In addition, the EPA may allow other fuels to satisfy the RFS2 requirements and allow RINs to be generated upon the production of these fuels. The EPA recently adopted regulations to amend the definition of “Home Heating Oil” under RFS2, which expands the scope of fuels eligible to generate RINs.
The biomass-based diesel industry will also face increased competition resulting from the advancement of technology by automotive, industrial and power generation manufacturers which are developing more efficient engines, hybrid engines and alternative clean power systems. Improved engines and alternative clean power systems offer a technological solution to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. If and when these clean power systems are able to offer significant efficiency and environmental benefits and become widely available, the biomass-based diesel industry may not be able to compete effectively with these technologies and government requirements for the use of biofuels may be discontinued.

If automobile manufacturers and other industry groups express reservations regarding the use of biodiesel, our ability to sell biodiesel will be negatively impacted.
Because it is a relatively new product compared with petroleum diesel, research on biodiesel use in automobiles is ongoing. While most heavy duty automobile manufacturers have approved blends of up to 20% biodiesel, some industry groups have recommended that blends of no more than 5% biodiesel be used for automobile fuel due to concerns about fuel quality, engine performance problems and possible detrimental effects of biodiesel on rubber components and other engine parts. Although some manufacturers have encouraged use of biodiesel fuel in their vehicles, cautionary pronouncements by other manufacturers or industry groups may impact our ability to market our biodiesel.

Perception about “food vs. fuel” could impact public policy which could impair our ability to operate at a profit and substantially harm our revenues and operating margins.
Some people believe that biomass-based diesel may increase the cost of food, as some feedstocks such as soybean oil used to make biomass-based diesel can also be used for food products. This debate is often referred to as “food vs. fuel.” This is a concern to the biomass-based diesel industry because biomass-based diesel demand is heavily influenced by government policy and if public opinion were to erode, it is possible that these policies would lose political support. These views could also negatively impact public perception of biomass-based diesel. Such claims have led some, including members of Congress, to urge the modification of current government policies which affect the production and sale of biofuels in the United States.


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Concerns regarding the environmental impact of biomass-based diesel production could affect public policy which could impair our ability to operate at a profit and substantially harm our revenues and operating margins.
Under the Energy Independence and Security Act of 2017, (the EISA), the EPA is required to produce a study every three years of the environmental impacts associated with current and future biofuel production and use, including effects on air and water quality, soil quality and conservation, water availability, energy recovery from secondary materials, ecosystem health and biodiversity, invasive species and international impacts. The first such triennial report was released in February 2012. The 2012 report concludes that (1) the extent of negative impacts to date are limited in magnitude and are primarily associated with the intensification of corn production; (2) whether future impacts are positive or negative will be determined by the choice of feedstock, land use change, cultivation and conservation practices; and (3) realizing potential benefits will require implementation and monitoring of conservation and best management practices, improvements in production efficiency, and implementation of innovative technologies at commercial scales. Should future EPA triennial studies, or other analyses find that biofuel production and use has resulted in, or could in the future result in, adverse environmental impacts, such findings could also negatively impact public perception and acceptance of biofuel as an alternative fuel, which also could result in the loss of political support. To the extent that state or federal laws are modified or public perception turns against biomass-based diesel, use requirements such as RFS2 and state tax incentives may not continue, which could materially harm our ability to operate profitably.

Nitrogen oxide emissions from biodiesel may harm its appeal as a renewable fuel and increase costs.
In some instances, biodiesel may increase emissions of nitrogen oxide as compared to petroleum-based diesel fuel, which could harm air quality. Nitrogen oxide is a contributor to ozone and smog. New technology diesel engines eliminate any such increase. Emissions from older vehicles while the fleet turns over may decrease the appeal of biodiesel to environmental groups and agencies who have been historic supporters of the biodiesel industry, potentially harming our ability to market our biodiesel.
In addition, several states may act to regulate potential nitrogen oxide emissions from biodiesel. California recently adopted regulations that may limit the volume of biodiesel that can be used or require an additive to reduce potential emissions. In states where such an additive is required to sell biodiesel, the additional cost of the additive may make biodiesel less profitable or make biodiesel less cost competitive against petroleum-based diesel or renewable hydrocarbon diesel, which would negatively impact our ability to sell our products in such states and therefore have an adverse effect on our revenues and profitability.

RISKS RELATED TO OUR INDEBTEDNESS

We and certain subsidiaries have indebtedness, which subjects us to potential defaults, that could adversely affect our ability to raise additional capital to fund our operations and limits our ability to react to changes in the economy or the biomass-based diesel industry.
At December 31, 2015, our total term debt before debt issuance costs was $256.6 million. This includes $126.1 million aggregate carrying value on our $143.7 million, 2.75% convertible senior notes due in June 2019 that we issued in June 2014, or the Convertible Notes, and $100.0 million of GOZone Bonds for which our subsidiary, REG Geismar, is obligated. Our obligation with respect to the GOZone Bonds is secured by the deposit of $101.3 million with the financial institution whose letter of credit supports payments on the bonds. We also have short-term debt obligations under a revolving credit agreement provided by a bank group. At December 31, 2015, there were borrowings made under our revolving line of credit, all of which we guarantee. See "Note 12 - Debt" to our Consolidated Financial Statements for a description of our indebtedness.
Our indebtedness could:
require us to dedicate a substantial portion of our cash flow from operations to payments of principal, interest on, and other fees related to such indebtedness, thereby reducing the availability of our cash flow to fund working capital and capital expenditures, and for other general corporate purposes;
increase our vulnerability to general adverse economic and biomass-based diesel industry conditions;
limit our flexibility in planning for, or reacting to, changes in our business and the biomass-based diesel industry, which may place us at a competitive disadvantage compared to our competitors that have less debt; and
limit among other things, our ability to borrow additional funds.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Convertible Notes, depends on our future performance, which is subject to several factors including economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to satisfy our obligations under our indebtedness or any future indebtedness we may incur as well as our ability to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more

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alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional capital on terms that may be onerous or highly dilutive. Our ability to refinance the Convertible Notes, the GOZone Bonds, our other existing indebtedness or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our current or future indebtedness.

We are subject to counterparty risk with respect to the capped call transactions that we entered into in connection with the issuance of our Convertible Notes.
In connection with the issuance of our Convertible Notes, we entered into privately-negotiated capped call transactions with various counterparties. The counterparties to the capped call transactions are financial institutions, and we will be subject to the risk that they might default under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Recent global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If any option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim equal to our exposure at that time under our transactions with such option counterparty. Our exposure will depend on many factors, but generally, an increase in our exposure will be correlated to an increase in the market price and volatility of shares of our common stock. In addition, upon a default by any option counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.

We may not have the ability to raise the funds necessary to settle conversions of our Convertible Notes in cash or to repurchase the Convertible Notes for cash upon a fundamental change, and our future debt may contain limitations on our ability to repurchase the Convertible Notes.
Holders of the Convertible Notes will have the right to require us to repurchase their Convertible Notes upon the occurrence of a fundamental change at a repurchase price generally equal to 100% of their principal amount, plus accrued and unpaid interest, if any. In addition, upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the Convertible Notes upon a fundamental change or to settle conversion of the Convertible Notes in cash.
In addition, our ability to repurchase the Convertible Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Convertible Notes at a time when the repurchase is required by the indenture would constitute a default under the indenture governing the Convertible Notes. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Notes.

Certain provisions in the indenture governing the Convertible Notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
Certain provisions in the Convertible Notes and the indenture could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover would constitute a fundamental change, holders of the notes will have the right to require us to repurchase their notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their notes in connection with such takeover. In either case, and in other cases, our obligations under the notes and the indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.

We are a holding company and there are limitations on our ability to receive dividends and distributions from our subsidiaries.
All of our principal assets, including our biomass-based diesel production facilities, are owned by subsidiaries and some of these subsidiaries are subject to loan covenants that generally restrict them from paying dividends, making distributions or making loans to us or to any other subsidiary. These limitations will restrict our ability to repay indebtedness, finance capital projects or pay dividends to stockholders from our subsidiaries’ cash flows from operations.

RISKS RELATED TO OUR COMMON STOCK


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The market price for our common stock may be volatile.
Although there is currently an active and liquid trading market for our common stock, the market price for our common stock is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:
actual or anticipated fluctuations in our financial condition and operating results;
changes in the performance or market valuations of other companies engaged in our industry;
issuance of new or updated research reports by securities or industry analysts;
changes in financial estimates by us or of securities or industry analysts;
investors’ general perception of us and the industry in which we operate;
changes in the political climate in the industry in which we operate, existing laws, regulations and policies applicable to our business and products, including RFS2, and the continuation or adoption or failure to continue or adopt renewable energy requirements and incentives, including the BTC;
other regulatory developments in our industry affecting us, our customers or our competitors;
announcements of technological innovations by us or our competitors;
announcement or expectation of additional financing efforts, including sales or expected sales of additional common stock;
additions or departures of key management or other personnel;
litigation;
inadequate trading volume;
general market conditions in our industry; and
general economic and market conditions, including continued dislocations and downward pressure in the capital markets.
In addition, stock markets experience significant price and volume fluctuations from time to time that are not related to the operating performance of particular companies. These market fluctuations may have material adverse effect on the market price of our common stock.

We may issue additional common stock as consideration for future investments or acquisitions.
We have issued in the past, and may issue in the future, our securities in connection with investments and acquisitions. Our stockholders could suffer significant dilution, from our issuances of equity or convertible debt securities. Any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. The amount of our common stock or securities convertible into or exchangeable for our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding common stock.

If we fail to maintain effective internal control over financial reporting, we might not be able to report our financial results accurately or prevent fraud. In that case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the value of our stock.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. The process of maintaining our internal controls may be expensive and time consuming and may require significant attention from management. Although we have concluded as of December 31, 2015 that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness, the disclosure of that fact could harm the value of our stock and our business.

We have never paid dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future.
We have paid no cash dividends on our common stock to date, have contractual restrictions against paying cash dividends and currently intend to retain our future earnings to fund the development and growth of our business. As a result, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur. Investors seeking cash dividends should not invest in our common stock.

Delaware law and our amended and restated certificate of incorporation and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.
Provisions in our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

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the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;
the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;
the ability of the board of directors to alter our bylaws without obtaining stockholder approval;
the ability of the board of directors to issue, without stockholder approval, up to 10,000,000 shares of preferred stock with rights set by the board of directors, which rights could be senior to those of common stock;
a classified board;
the required approval of holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or amend or repeal the provisions of our amended and restated certificate of incorporation regarding the classified board, the election and removal of directors and the ability of stockholders to take action by written consent; and
the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written consent.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL. These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our amended and restated certificate of incorporation and bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in our market price being lower than it would without these provisions.
ITEM 1B.
Unresolved Staff Comments
None.
ITEM 2.
Properties
The following table lists each of our owned production facilities and their location, use, and nameplate production capacity. Each facility listed below is used by our Biomass-based diesel Segment, except for Okeechobee, which is used by our Renewable Chemicals segment.
PRODUCTION FACILITIES
Location
 
Use
 
Nameplate
Production
Capacity
(mmgy)
Ralston, Iowa
 
Biomass-based diesel production
 
12
Seabrook, Texas
 
Biomass-based diesel production
 
35
Danville, Illinois
 
Biomass-based diesel production
 
45
Newton, Iowa
 
Biomass-based diesel production
 
30
Seneca, Illinois
 
Biomass-based diesel production
 
60
Albert Lea, Minnesota
 
Biomass-based diesel production
 
30
New Boston, Texas
 
Biomass-based diesel production
 
15
Ellenwood, Georgia
 
Biomass-based diesel production
 
15
Mason City, Iowa
 
Biomass-based diesel production
 
30
Geismar, Louisiana*
 
Biomass-based diesel production
 
75
Grays Harbor, Washington
 
Biomass-based diesel production
 
100
Okeechobee, Florida
 
Fermentation facility
 
N/A
* This facility produces renewable hydrocarbon diesel, naphtha, and liquid petroleum gas.
Our Ellenwood facility was idled by the previous owners prior to our acquisition and will remain so until repairs or upgrades are made where the facility meets our standards. We have not yet set a production date for our Ellenwood facility.
PETROTEC'S PRODUCTION FACILITIES

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Location
 
Use
 
Nameplate
Production
Capacity
(mmgy)
Emden, Germany
 
Biomass-based diesel production
 
30
Oeding, Germany
 
Biomass-based diesel production
 
26
The following table lists our partially constructed or idled biomass-based diesel production facilities, the planned nameplate capacity and the approximate level of completion.
PARTIALLY CONSTRUCTED FACILITIES
Location
 
Use
 
Nameplate Production
Capacity
(mmgy)
 
Approximate
Completion
Level
St. Rose, Louisiana
 
Biomass-based diesel production
 
60
 
45%
Emporia, Kansas
 
Biomass-based diesel production
 
60
 
20%
Clovis, New Mexico
 
Biomass-based diesel production
 
15
 
50%
We own our corporate headquarters located at 416 South Bell Avenue, Ames, Iowa 50010, comprised of 60,480 square feet of office and laboratory space; as well as another building located at 215 Alexander Avenue, Ames, Iowa 50010 which is comprised of 12,000 square feet of office space.
ITEM 3.
Legal Proceedings
We are not a party to any material pending legal proceeding, nor is any of our property the subject of any material pending legal proceeding, except ordinary routine litigation arising in the ordinary course of our business and incidental to our business, none of which is expected to have a material adverse impact upon our business, financial position or results of operations.
ITEM 4.
Mine Safety Disclosures
None.

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PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market For Our Common Equity
Our common stock began trading on the NASDAQ Global market on January 19, 2012. Prior to that time, there was no public market for our stock. The table below sets forth the high and low sales price of our common stock.
2015
High
 
Low
Fourth Quarter
$
9.76

 
$
7.06

Third Quarter
$
11.96

 
$
7.25

Second Quarter
$
12.80

 
$
8.10

First Quarter
$
9.93

 
$
8.30

 
 
 
 
2014
High
 
Low
Fourth Quarter
$
10.97

 
$
8.67

Third Quarter
$
12.30

 
$
9.98

Second Quarter
$
12.66

 
$
9.75

First Quarter
$
12.89

 
$
9.61

Holders
As of February 29, 2016, there were approximately 2,460 holders of record of our common stock.
Dividends
We have never paid, and do not intend to pay in the future, a cash dividend on our common stock. In addition, we have entered into agreements that contractually restrict certain of our subsidiaries from paying dividends, making distributions or making loans to our parent company or to any other subsidiaries.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides certain information as of December 31, 2015, with respect to our equity compensation plans:
PLAN CATEGORY
NUMBER OF
SECURITIES
TO BE ISSUED
UPON
EXERCISE OF
OUTSTANDING
OPTIONS,
WARRANTS
AND RIGHTS
 
 
WEIGHTED
AVERAGE
EXERCISE
PRICE OF
OUTSTANDING
OPTIONS,
WARRANTS
AND RIGHTS
 
 
NUMBER OF
SECURITIES
REMAINING
AVAILABLE
FOR FUTURE
ISSUANCE
UNDER EQUITY
COMPENSATION
PLANS
Equity compensation plans approved by stockholders
3,121,050

1 
 
$
10.80

2 
 
844,616

Equity compensation plans not approved by stockholders

 
 

 
 

Total
3,121,050

 
 
$
10.80

 
 
844,616

1
Includes 87,026 shares underlying outstanding stock options, 637,898 shares underlying outstanding restricted stock units and 2,396,126 shares underlying outstanding stock appreciation rights.
2
Restricted stock units do not have an exercise price and therefore have not been included in the calculation of weighted average exercise price.
Performance Graph
The following performance graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, respectively.

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The following graph shows a comparison of the cumulative total returns from January 19, 2012 to December 31, 2015, for us, the Elements MLCX Biofuels ETN Index and the Russell 3000 Index. The graph assumes that $100 was invested on January 19, 2012 in our common stock, the Elements MLCX Biofuels ETN Index and the Russell 3000 Index, and that all dividends were reinvested.
 
01/19/2012

 
12/31/2012

 
12/31/2013

 
12/31/2014

 
12/31/2015

REGI
$
100.00

 
$
58.60

 
$
114.60

 
$
97.10

 
$
92.50

Elements MLCX Biofuels ETN
100.00

 
108.00

 
93.44

 
84.57

 
72.32

Russell 3000
100.00

 
109.17

 
142.96

 
157.50

 
155.58

Sales of Unregistered Securities
On February 27, 2015, we issued 37,966 shares of our common stock with respect to the intangible supply agreement in connection with the purchase of substantially all Tellurian Biodiesel, Inc. and American BDF, LLC assets.
Issuer Purchases of Equity Securities
On February 19, 2015, the Company's board of directors approved a share repurchase program of up to $30 million of the Company's shares of common stock. Under the program, which is in effect through October 31, 2016, REG may repurchase shares from time to time in open market transactions, privately negotiated transactions or by other means. The timing and amount of repurchase transactions will be determined by the Company's management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice. At December 31, 2015, there was approximately $6.7 million remaining under this program for future share repurchases. During the three months ended December 31, 2015, we repurchased 448,391 shares of our common stock under this program as follows:

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Period
Total Number of Shares Purchased
Average Price per Share
Total Number of Shares Purchased as Part of Publicly Announced Plan
Approximate Dollar Value of Shares that May Yet Be Purchased
October 2015 (from October 1, 2015 to October 15, 2015)
448,391

$
8.92

2,479,113

$
6,700,000

November 2015 (from November 1, 2015 to November 30, 2015)
None

N/A

2,479,113

$
6,700,000

December 2015 (From December 1, 2015 to December 31, 2015)
None

N/A

2,479,113

$
6,700,000

On March 5, 2016, the Company's board of directors approved a repurchase program of up to $50 million of the Company's shares of common stock and/or convertible notes, in effect through March 5, 2018. Under the program, REG may repurchase shares or bonds from time to time in open market transactions, privately negotiated transactions or by other means. The timing and amount of repurchase transactions will be determined by the Company's management based on its evaluation of market conditions, share price, bond price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice.



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ITEM 6.
Selected Financial Data
The following selected consolidated financial data should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this annual report.
The selected consolidated balance sheet data as of December 31, 2015 and 2014, and the selected consolidated statements of operations data for each year ended December 31, 2015, 2014 and 2013, have been derived from our audited consolidated financial statements which are included elsewhere in this annual report. The selected consolidated balance sheet data as of December 31, 2013, 2012 and 2011, and the selected consolidated statements of operations data for the years ended December 31, 2012 and 2011 have been derived from our audited consolidated financial statements not included in this annual report.
 
Year Ended December 31,
 
2015(1)
 
2014 (2)
 
2013 (3)
 
2012 (4)
 
2011(5)
 
(In thousands, except per share amounts)
Consolidated Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Total revenues
$
1,387,344

 
$
1,273,831

 
$
1,498,138

 
$
1,015,034

 
$
824,031

Net income (loss) attributable to the company's common stockholders
(151,392
)
 
81,620

 
165,254

 
43,482

 
42,753

Net income (loss) per share attributable to common stockholders
 
 
 
 
 
 
 
 
 
Basic
(3.44
)
 
2.00

 
5.00

 
1.53

 
3.14

Diluted
(3.44
)
 
1.99

 
5.00

 
0.27

 
3.14

 
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheet Data:
 
Total assets
$
1,223,620

 
$
1,367,736

 
$
740,855

 
$
495,784

 
$
484,447

Long-term debt
247,251

 
242,031

 
27,151

 
31,806

 
73,079

Redeemable preferred stock

 

 
3,963

 
83,043

 
147,779

(1)
Reflects the acquisition of Imperium Renewables, Inc. on August 19, 2015 and the impact of goodwill impairment as further described in Note 5 and Note 2 of Item 8 - Financial Statements and Supplementary Data, respectively.
(2)
Reflects the acquisitions of LS9 as of January 22, 2014, Syntroleum and Dynamic Fuels on June 3, 2014 and June 6, 2014, respectively, and the majority interest in Petrotec as of December 24, 2014 as further described in Note 5 of Item 8 - Financial Statements and Supplementary Data. In addition, the results reflect the issuance of the convertible senior notes on June 3, 2014 as further described in Note 12 of Item 8 - Financial Statements and Supplementary Data.
(3)
Reflects the acquisition of Soy Energy as of July 30, 2013 as further described in Note 5 of Item 8 - Financial Statements and Supplementary Data.
(4)
Reflects the acquisition of North Texas Bio Energy as of October 26, 2012 and BullDog Biodiesel on November 16, 2012.
(5)
Reflects the acquisition of SoyMor as of July 12, 2011.
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto that appear elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those set forth in the section entitled “Risk Factors” and elsewhere in this report.
Overview
We are a company focused on providing cleaner, lower carbon intensity products and services while also providing conventional products and services. Today, we principally generate revenue as a leading North American advanced biofuels producer and we are expanding into the development of renewable chemicals. We have been a leader in the biomass-based diesel industry since 1996. To do this, 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

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feedstocks into renewable chemicals. We own and operate ten biomass-based diesel production facilities with aggregate nameplate production capacity of 432 million gallons per year, or mmgy, as well as one fermentation facility. We are expanding into the production of renewable chemicals, additional advanced biofuels and other products through our REG Life Sciences, LLC subsidiary. This industrial biotechnology business is a late-stage development company focusing on harnessing the power of microbial fermentation to develop and produce renewable chemicals, fuels and other products. The assets we acquired consist mainly of in-process research and development, fixed assets and goodwill.
In 2014, we began selling 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 are expanding our sales of additional biofuel blends to Minnesota and Iowa terminal locations and potentially in other areas across North America.
We acquired a 75 mmgy nameplate capacity renewable hydrocarbon diesel biorefinery located in Geismar, Louisiana in June 2014. Our Geismar facility had been idled by its previous owner, began operating again by us in October 2014 and has been shutdown since April 2015 due to two separate fires that occurred in April and September 2015.
In December 2014, we expanded our business internationally by acquiring a majority interest in Petrotec AG and as of December 31, 2015, we owned approximately 87% of Petrotec's shares. We have made a cash tender offer for the remaining Petrotec shares, which had not closed as of the date of this filing. Petrotec is a fully-integrated company utilizing 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.
To strengthen our position as a leader in the biomass-based diesel industry, in August 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. The renamed REG Grays Harbor, LLC increased our North American nameplate production capacity by nearly one third and expanded 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 class vessels as well as possessing significant rail and truck transport capabilities. To date, the production facility's primary feedstock has been canola oil sourced nearby in the Pacific Northwest.
During 2015, we sold 375 million total gallons, including 40 million gallons we purchased from third parties and resold, 40 million international biomass-based diesel gallons from our majority-owned investment in Petrotec and 30 million petroleum-based diesel gallons. During 2014, we sold 287 million total gallons, including 42 million gallons we purchased from third parties and resold and four million petroleum-based diesel gallons.
Prior to 2015, our businesses were organized into two reportable segments - the Biomass-based Diesel segment and the Services segment. As the activities surrounding our renewable chemicals business increase, we began reporting in 2015 a new segment - Renewable Chemicals, which was previously included in the Biomass-based Diesel segment. Through December 31, 2015, we derived revenues only in the Biomass-based Diesel segment and Services segment, and derived no revenues in the Renewable Chemicals segment.
Biomass-based diesel Segment
Our Biomass-based diesel segment, as reported herein, includes:
the operations of the following biomass-based diesel production facilities:
a 12 mmgy nameplate biomass-based diesel production facility located in Ralston, Iowa;
a 35 mmgy nameplate biomass-based diesel production facility located near Houston, Texas;
a 45 mmgy nameplate biomass-based diesel production facility located in Danville, Illinois;
a 30 mmgy nameplate biomass-based diesel production facility located in Newton, Iowa;
a 60 mmgy nameplate biomass-based diesel production facility located in Seneca, Illinois;
a 30 mmgy nameplate biomass-based diesel production facility located near Albert Lea, Minnesota;
a 15 mmgy nameplate biomass-based diesel production facility located in New Boston, Texas;
a 30 mmgy nameplate biomass-based diesel production facility located in Mason City, Iowa;
a 75 mmgy nameplate renewable hydrocarbon diesel production facility located in Geismar, Louisiana;
a 30 mmgy nameplate biomass-based diesel production facility located in Emden, Germany;
a 26 mmgy nameplate biomass-based diesel production facility located in Oeding, Germany; and;
a 100 mmgy nameplate biomass-based diesel production facility located in Grays Harbor, Washington, since its acquisition in August 2015.

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purchases and resale of biomass-based diesel, petroleum-based diesel, Renewable Identification Numbers, or RINs, and raw material feedstocks acquired from third parties;
sales of biomass-based diesel produced under toll manufacturing arrangements with third party facilities using our feedstocks; and
incentives received from federal and state programs for renewable fuels.
We derive a small portion of our revenues from the sale of glycerin, free fatty acids, naphtha and other co-products of the biomass-based diesel production process. In 2015 and 2014, our revenues from the sale of co-products were less than five percent of our total Biomass-based diesel segment revenues. During 2015, revenues from the sale of petroleum-based heating oil and diesel fuel acquired from third parties, along with the sale of these items further blended with biodiesel produced at wholly owned facilities or purchased from third parties, were less than 5% of our total revenues.
In accordance with EPA regulations, we generate 1.5 to 1.7 RINS, for each gallon of biomass-based diesel we produce. RINs are used to track compliance with RFS2 using the EPA moderated transaction system, or EMTS. RFS2 allows us to attach between zero and 2.5 RINs to any gallon of biomass-based diesel we sell. We generally attach 1.5 to 1.7 RINs when we sell a gallon of biomass-based diesel. As a result, a portion of our selling price for a gallon of biomass-based diesel is generally attributable to RFS2 compliance, but no cost is allocated to the RINs generated by our biomass-based diesel production because RINs are a form of government incentive and not a result of the physical attributes of the biomass-based diesel production. In addition, RINs, once obtained with gallons of biomass-based diesel, may be separated by the acquirer and sold separately. Regularly, we obtain RINs from third parties for resale. The value of these RINs obtained from third parties is reflected in “Prepaid expenses and other assets” on our consolidated balance sheet. At each balance sheet date, this RIN inventory is valued at the lower of cost or market and resulting adjustments are reflected in our cost of goods sold for the period. The cost of RINs obtained from third parties is determined using the average cost method. Because we do not allocate costs to RINs generated by our biomass-based diesel production, fluctuations in the value of our RIN inventory represent fluctuations in the value of RINs we have obtained from third parties.
Services Segment
Our Services segment includes:
biomass-based diesel facility management and operational services, whereby we provide day-to-day management and operational services to biomass-based diesel production facilities as well as other clean-tech companies; and
construction management services, whereby we act as the construction management and general contractor for the construction of biomass-based diesel production facilities.
We have utilized our construction management expertise internally to upgrade our facilities. During 2015, we began construction on a planned $31 million upgrade to our Danville facility and spent over $37 million related to repairs and upgrade projects at our Geismar facility, most of which was due to damages from fires in April and September that we have casualty insurance coverage to offset some of the repair costs. In October 2014, we completed a $20 million upgrade to our Mason City facility, enabling the plant to run on lower cost feedstocks in addition to the refined vegetable oils the plant was originally designed to process. In December 2014, we completed a $15.8 million upgrade and storage expansion to our Newton facility. In 2013, we completed a $22 million upgrade to our Albert Lea facility and spent $4 million and $1 million to repair our New Boston and Mason City facilities, respectively. We anticipate external revenues derived from construction management services will be minimal in future periods. Demand for our construction management and facility management and operational services depend on capital spending by potential customers and existing customers, which is directly affected by trends in the biomass-based diesel industry. We have not received any orders or provided services to outside parties for new facility construction services since 2009.
Renewable Chemicals Segment
Our Renewable Chemicals segment includes:
research and development activities focusing on microbial fermentation to develop and produce renewable chemicals, fuels and other products
the operations of a demonstration scale facility located in Okeechobee, Florida.
We did not recognize any revenue from our Renewable Chemical segment during 2015 or 2014. Our Renewable Chemical segment conducts research and development involving the production of renewable chemicals, additional advanced biofuels and other products from our proprietary microbial fermentation process. In January 2016, ExxonMobil, a global leader in advanced biofuels research, announced an agreement with us to study the production of biodiesel by fermenting renewable cellulosic sugars from sources such as agricultural waste. The agreement is between ExxonMobil Research and Engineering Company and REG Life Sciences. We have developed a patented technology that uses microbes to convert sugars

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to biodiesel in an on-step fermentation process similar to ethanol manufacturing. We expect our research and development expense associated with these programs to increase in future periods.
Factors Influencing Our Results of Operations
The principal factors affecting our results of operations and financial conditions are the market prices for biomass-based diesel and the feedstocks used to produce biomass-based diesel, as well as governmental programs designed to create incentives for the production and use of biomass-based diesel.
Governmental programs favoring biomass-based diesel production and use
Biomass-based diesel has historically been more expensive to produce than petroleum-based diesel. The biomass-based diesel industry’s growth has largely been the result of federal and state programs that require or incentivize the production and use of biomass-based diesel, which allows biomass-based diesel to compete with petroleum-based diesel on price.
On July 1, 2010, RFS2 was implemented, stipulating volume requirements for the amount of biomass-based diesel and other advanced biofuels that must be utilized in the United States each year. Under RFS2, Obligated Parties, including petroleum refiners and fuel importers, must show compliance with these standards. Currently, biodiesel and renewable hydrocarbon diesel production meets three categories of an Obligated Party’s annual renewable fuel required volume obligation, or RVO—biomass-based diesel, undifferentiated advanced biofuel and renewable fuel. On November 30, 2015, the EPA issued the final 2014-2016 RVO targets whereby the biomass-based diesel volumes were set at 1.63 billion, 1.73 billion, 1.90 billion gallons for 2014, 2015 and 2016, respectively. In addition, for 2017, the EPA set the biomass-based diesel target at 2 billion gallons.  Our sales volumes and revenues have benefited from our increased production capacity, as well as demand from the implementation of RFS2.
Volumes of biomass-based diesel produced increased from 2010 to 2013. From 2013 through 2014 volumes of biomass-based diesel were flat. According to EMTS data, 1.78 billion gallons of biomass-based diesel was produced or imported into the U.S. in 2013. Notwithstanding the lack of a finalized 2014 RVO, according to EMTS data, 1.75 billion gallons of biomass-based diesel was produced and/or imported into the U.S. in 2014. In 2015, according to EMTS data, 1.81 billion gallons of biomass-based diesel was produced or imported into the U.S.
The federal biodiesel mixture excise tax credit, or the BTC, has generally provided a $1.00 refundable tax credit per gallon to the first blender of biomass-based diesel with petroleum-based diesel fuel. The BTC became effective January 1, 2005 and then lapsed January 1, 2010 before being reinstated retroactively on December 17, 2010. The BTC again lapsed as of December 31, 2011 and on January 2, 2013, it was again reinstated, retroactively for 2012 and through December 31, 2013. The BTC lapsed again on December 31, 2013 and was retroactively reinstated for 2014 on December 19, 2014 and lapsed on December 31, 2014. On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 was signed into law, which reinstated and extended a set of tax provisions, including the retroactive reinstatement for 2015 and extension for 2016 of the BTC. We recognized the related BTC revenue in our "Biomass-based diesel government incentives" on the Consolidated Statements of Operations. While in general the Company has not historically offered sales incentives to customers, the uncertainty around the reinstatement of the federal biodiesel tax credit led to the Company and other market participants acting as if the federal biodiesel tax credit would be reinstated throughout the year and entering into agreements with both customers and vendors throughout the year to capture the credit when or if reinstated. The impacts of the agreements with customers are recorded net as adjustments to Biomass-based diesel sales, whereas agreements with vendors are recorded net as adjustments to Biomass-based diesel costs of goods sold on the Consolidated Statements of Operations. As a result of the reinstatement of the BTC, on combination with these agreements, we recognized a net benefit of $95.0 million in 2015. It is uncertain whether the BTC will be reinstated after 2016 and if reinstated, whether it would be reinstated retroactively. The lapsing or modification of the BTC along with any amendments that may be made if the BTC is reinstated or a similar credit is enacted, could adversely affect our future financial results.
Biomass-based diesel and feedstock price fluctuations
Our operating results generally reflect the relationship between the price of biomass-based diesel, including credits and incentives and the price of feedstocks used to produce biomass-based diesel.
Biomass-based diesel is a low carbon, renewable alternative to petroleum-based diesel fuel and is primarily sold to the end user after it has been blended with petroleum-based diesel fuel. Biomass-based diesel prices have historically been heavily influenced by petroleum-based diesel fuel prices. Accordingly, biomass-based diesel prices have generally been impacted by the same factors that affect petroleum prices, such as crude oil supply and demand balance, worldwide economic conditions, wars and other political events, OPEC production quotas, changes in refining capacity and natural disasters.

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Regulatory and legislative factors also influence the price of biomass-based diesel. Biomass-based diesel RIN pricing, a value component that was introduced via RFS2 in July 2010, has had a significant impact on our biomass-based diesel pricing. During 2013, the value of RINs, as reported by OPIS, have contributed to the average B100 spot price of a gallon of biomass-based diesel, as reported by The Jacobsen, and range from a low of $0.35 per gallon, or 9%, in October to a high of $2.20, or 43% per gallon in January. During 2014, the value of RINs, as reported by OPIS, have contributed to the average B100 spot price of a gallon of biomass-based diesel, as reported by The Jacobsen, from a low of $0.64 per gallon, or 19%, in January to a high of $1.15, or 34%, per gallon in December. During 2015, the value of RINs, as reported by OPIS, have contributed to the average B100 spot price of a gallon of biomass-based diesel, as reported by The Jacobsen, from a low of $0.58 per gallon, or 23%, in September to a high of $1.55, or 53%, per gallon in January. On November 30, 2015, the EPA issued the final 2014-2016 RFS rule whereby the biomass-based diesel volumes were set at 1.63 billion, 1.73 billion, 1.90 billion gallons for 2014 to 2016, respectively. In addition, for 2017, the EPA set the biomass-based diesel target at 2 billion gallons.
This decrease in the value of RINs during 2015 and 2014 resulted in write-downs of $9.0 million and $4.3 million, respectively, on RIN inventory acquired from third parties. See “Note 10 – Other Assets” to our consolidated financial statements. We enter into forward contracts to sell RINs and we use risk management position limits to manage RIN exposure. Because of EPA rules limiting the amount of assigned RINs we can hold at any one time, the value of these assigned RINs held in inventory does not have a material effect on margins from period to period.
During 2015, feedstock expense accounted for 78% of our production cost, while methanol and chemical catalysts expense accounted for 5% and 4% of our costs of goods sold, respectively.
Feedstocks for biomass-based diesel production, such as inedible corn oil, used cooking oil, inedible animal fat and soybean oil are commodities and market prices for them will be affected by a wide range of factors unrelated to the price of biomass-based diesel and petroleum-based diesel fuels. The following table outlines some of the factors influencing supply and price for each feedstock:

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Feedstock
      
Factors Influencing Supply and Price
Inedible Corn Oil
      
Demand for inedible corn oil from renewable fuel and other markets
 
 
Ethanol production
   
      
Export demand
   
      
Extraction system yield
 
 
Implementation of inedible corn oil separation systems into existing and new ethanol facilities
 
 
Implementation of co-located biodiesel/renewable diesel plants with ethanol facilities
 
 
Feed demand
 
 
New or expected biodiesel capacity
Used Cooking Oil
      
Biomass-based diesel demand
 
 
Feed demand
 
 
Export demand
   
      
Population
   
      
Number of restaurants in the vicinity of collection facilities and terminals which is dependent on population density
   
      
Cooking methods and eating habits, which can be impacted by the economy
Inedible Animal Fat
 
Feed demand
 
      
Export demand
   
      
Number of slaughter kills in the United States
   
      
Demand for inedible animal fat from other markets
Canola Oil
 
Export demand
 
 
Demand for canola oil for food use
 
 
Canola crush margin
 
 
Weather conditions
 
 
Biomass-based diesel demand
 
 
Canola meal demand
Soybean Oil
 
Export demand
 
 
Weather conditions
 
 
Soybean meal demand
 
 
South American crop production
 
 
Palm oil supply
 
 
Farmer planting decisions
 
 
Government policies and subsidies
 
 
Crop disease
 
 
Biomass-based diesel demand
During both 2015 and 2014, 85% of our feedstocks were comprised of inedible corn oil, used cooking oil and inedible animal fats with the remainder coming from virgin vegetable oil.
The graph below illustrates the spread between the cost of producing one gallon of biodiesel made from soybean oil to the cost of producing one gallon of biodiesel made from a lower cost feedstock for the period December 2011 through December 2015. The results were derived using assumed conversion factors for the yield of each feedstock and subtracting the cost of producing one gallon of biodiesel made from each respective lower cost feedstock from the cost of producing one gallon of biodiesel made from soybean oil.

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(1)
Used cooking oil prices are based on the monthly average of the daily low sales price of Missouri River yellow grease as reported by The Jacobsen (based on 8.5 pounds per gallon).
(2)
Inedible corn oil prices are reported as the monthly average of the daily distillers’ corn oil market values delivered to Illinois as reported by The Jacobsen (based on 8.2 pounds per gallon).
(3)
Choice white grease prices are based on the monthly average of the daily low prices of Missouri River choice white grease as reported by The Jacobsen (based on 8.0 pounds per gallon).
(4)
Soybean oil (crude) prices are based on the monthly average of the daily closing sale price of the nearby soybean oil contract as reported by CBOT (based on 7.5 pounds per gallons).
Our results of operations generally will benefit when the spread between biomass-based diesel prices and feedstock prices widens and will be harmed when this spread narrows. The following graph shows feedstock cost data of choice white grease and soybean oil on a per gallon basis compared to the sale price data for biodiesel, and the spread between the two, from December 2011 to December 2015.

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(1)
Biodiesel prices are based on the monthly average of the midpoint of the high and low prices of B100 (Upper Midwest) as reported by The Jacobsen.
(2)
Soybean oil (crude) prices are based on the monthly average of the daily closing sale price of the nearby soybean oil contract as reported by CBOT (based on 7.5 pounds per gallon).
(3)
Choice white grease prices are based on the monthly average of the daily low price of Missouri River choice white grease as reported by The Jacobsen (based on 8.0 pounds per gallon).
(4)
Spread between biodiesel price and choice white grease price.
(5)
Spread between biodiesel price and soybean oil (crude) price.
Energy prices continued to decline throughout 2015 mainly driven by a steady decline in the crude oil prices, which were at historically low levels toward the end of the year. Feedstock prices also decreased throughout 2015, although at a slower pace as compared to energy prices. US cattle slaughter numbers continued at a historically low rate as a result of the two year drought in the southern plains. Hog slaughter increased year over year. Feedstock price declines were offset by a sharp decrease in energy prices on a per gallon basis.
Risk Management
The profitability of the biomass-based diesel production business largely depends on the spread between prices for feedstocks and biomass-based diesel, including RINs and BTC, each of which is subject to fluctuations due to market and policy factors and each of which is not significantly correlated. Adverse price movements for these commodities directly affect our operating results. We attempt to protect operating margins by entering into risk management contracts that mitigate price volatility of our feedstocks, such as inedible corn oil, used cooking oil, inedible animal fat and energy prices. We create offsetting positions by using a combination of forward fixed-price physical purchases and sales contracts on feedstock and biomass-based diesel, including risk management futures contracts, swaps and options primarily on heating oil and soybean oil; however, the extent to which we engage in risk management activities varies substantially from time to time, and from feedstock to feedstock, depending on market conditions and other factors. In making risk management decisions, we utilize research conducted by outside firms to provide additional market information.
Inedible corn oil, used cooking oil and inedible animal fat are the primary feedstocks we used to produce biomass-based diesel in 2013, 2014 and 2015. We utilize several varieties of inedible animal fat, such as beef tallow, choice white grease and poultry fat derived from livestock. There is no established futures market for these lower cost feedstocks. The purchase prices for lower cost feedstocks are generally set on a negotiated flat price basis or spread to a prevailing market price reported by the USDA price sheet or The Jacobsen. Our efforts to risk manage against changing inedible corn oil, used cooking oil and inedible animal fat prices have involved entering into futures contracts, swaps or options on other commodity products, such as soybean oil or heating oil. However, these products do not always experience the same price movements as lower cost feedstocks,

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making risk management for these feedstocks challenging. We manage feedstock supply risks related to biomass-based diesel production in a number of ways, including, where available, through long-term supply contracts. For example, most of the feedstock requirements for our Ralston facility were supplied under an agreement with West Central which expired on January 31, 2015 and automatically renewed for one additional year. The purchase price for soybean oil under these contracts may be indexed to prevailing Chicago Board of Trade, or CBOT, soybean oil market prices with a negotiated market basis. We utilize futures contracts, swaps and options to risk manage, or lock in, the cost of portions of our future soybean oil requirements generally for varying periods up to one year.
Our ability to mitigate our risk of falling biomass-based diesel and RIN prices is limited. We have entered into forward contracts to supply biomass-based diesel. However, pricing under these forward sales contracts generally has been indexed to prevailing market prices, as fixed price contracts for long periods on acceptable terms have generally not been available. There is no established market for biomass-based diesel futures in the United States. Our efforts to hedge against falling biomass-based diesel prices generally involve entering into futures contracts, swaps and options on other commodity products, such as diesel fuel and heating oil. However, price movements on these products are not highly correlated to price movements of biomass-based diesel.
We generate 1.5 to 1.7 biomass-based diesel RINs for each gallon of biomass-based diesel we produce and sell. We also obtain RINs from third party transactions which we hold for resale. There is no effective established futures market for RINs, which severely limits the ability to risk manage the price of RINs. We enter into forward contracts to sell RINs and we use risk management position limits to manage RIN exposure.
As a result of our strategy, we frequently have gains or losses on derivative financial instruments that are conversely offset by losses or gains on forward fixed-price physical contracts on feedstocks and biomass-based diesel or inventories. Gains and losses on derivative financial instruments are recognized each period in operating results while corresponding gains and losses on physical contracts are generally not recognized until quantities are delivered or title transfers. Our results of operations are impacted when there is a period mismatch of recognized gains or losses associated with the change in fair value of derivative instruments used for risk management purposes at the end of the reporting period when the purchase or sale of feedstocks or biomass-based diesel has not yet occurred and thus the offsetting gain or loss will be recognized in a later accounting period.
We had risk management gains of $36.0 million from our derivative financial instrument trading activity for the year ended December 31, 2015, compared to risk management gains of $61.6 million for the year ended December 31, 2014. Changes in the value of these futures or swap instruments are reflected in current income or loss, generally within our cost of goods sold. Over 2015, risk management gains were impacted mostly from the significant decline in energy market prices, specifically the decline of crude oil and heating oil throughout the year, but in particular in towards the end of the third quarter. The 2015 risk management gains resulted in income of $0.10 per gallon sold. Over the last three years prior to 2015, risk management gains have represented an average income of $0.07 per gallon sold. The current three-year average, which incorporates 2015 risk management gains, reflects an average income of $0.10 per gallon sold. In general, over the course of a twelve month period or more, we expect to incur a slight risk management loss when commodities are stable to compensate for the value of risk management protection from market volatility.
Seasonality
Our operating results are influenced by seasonal fluctuations in the demand for biodiesel. Our sales tend to decrease during the winter season due to blending concentrations being reduced to adjust for performance during colder weather. Colder seasonal temperatures can cause the higher cloud point biodiesel we make from inedible animal fats to become cloudy and eventually gel at a higher temperature than petroleum-based diesel or lower cloud point biodiesel made from soybean oil, canola oil or inedible corn oil. Such gelling can lead to plugged fuel filters and other fuel handling and performance problems for customers and suppliers. Reduced demand in the winter for our higher cloud point biodiesel can result in excess supply of such higher cloud point biodiesel and lower prices for such higher cloud point biodiesel. In addition, most of our production facilities are located in colder Midwestern states and our costs of shipping increases as more biodiesel is transported to warmer climate states during winter.
RIN prices may also be subject to seasonal fluctuations. The RIN is dated for the calendar year in which it is generated, commonly referred to as the RIN vintage. Since 20% of an Obligated Party's annual RVO can be satisfied by prior year RINs, most RINs must come from biofuel produced or imported during the RVO year. As a result, RIN prices can be expected to decrease as the calendar year progresses if the RIN market is oversupplied compared to that year's RVO and increase if it is undersupplied. Similar to prior years, during 2013, biomass-based diesel RIN generation was 1.78 billion gallons when the RVO for biomass-based diesel was 1.28 billion gallons and RIN prices declined during the third and fourth quarters as production rates exceeded the RVO. For 2014, biomass-based diesel RIN generation was 1.75 billion gallons while the RVO

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was finalized at 1.63 billion for 2014. In 2015, biomass-based diesel RIN generation was 1.81 billion gallons versus a finalized RVO volume set at 1.73 billion.
Industry capacity and production
Our operating results are influenced by our industry’s capacity and production, including in relation to RFS2 production requirements. According to EMTS data, approximately 1.1 billion gallons of biomass-based diesel was produced in the United States in 2011, primarily reflecting the recommencement of, or increase in, operations at underutilized facilities in response to RFS2 requirements. Such production was in excess of the 800 million gallon RFS2 requirement for 2011. During 2012, according to EMTS data, approximately 1.1 billion gallons of biomass-based diesel was produced, which also was above RFS2 required volumes of 1 billion gallons of biomass-based diesel for 2012. Production in 2011, 2012 and 2013 was in excess of continued expanding RFS2 volume requirements. As reported by EMTS, the biomass-based diesel RIN generation was 1.78 billion gallons in 2013 when the RVO for biomass-based diesel was 1.28 billion. Biomass-based diesel production, as reported by EMTS was 1.81 billion gallons for 2015, 600 million gallons higher than 2014.
During 2014 and 2015, the amount of imported biodiesel gallons qualifying under RFS2 has increased from 192.2 million gallons in 2014 to approximately 334.2 million gallons in 2015, based on the information from the EIA. Imported gallons will likely make up a growing percentage of the RVO, as the EPA has approved a plan to allow Argentinian biodiesel made from soybean oil to qualify for RINs generation. Under RFS2, Obligated Parties are entitled to satisfy up to 20% of their annual requirement with prior year RINs. We saw a decline in RIN prices in the first three quarters of 2015 as production rates exceeded the then proposed, yet not finalized, RVO target. The final RVO target was only released in end of November.
Components of Revenues and Expenses
We derive revenues in our Biomass-based diesel segment from the following sources:
sales of biodiesel and renewable hydrocarbon diesel produced at our facilities, including RINs, transportation, storage and insurance costs to the extent paid for by our customers;
revenues from our sale of biomass-based diesel and RINs produced by third parties through toll manufacturing arrangements with us;
resale of finished biomass-based diesel, RINs acquired from third parties, and raw material feedstocks acquired from others;
revenues from our sale of petroleum-based heating oil and ultra-low sulfur diesel, or ULSD, acquired from third parties, along with the sale of these items further blended with biodiesel produced at our wholly owned facilities;
sales of glycerin, other co-products of the biomass-based diesel production process; and
incentive payments from federal and state governments, including the federal biodiesel mixture excise tax credit, and from the USDA Advanced Biofuel Program.
We derive revenues in our Services segment from the following sources:
fees received from operations management services that we provide for biomass-based diesel production facilities, typically based on production rates and profitability of the managed facility; and
amounts received for services performed by us in our role as general contractor and construction manager for biomass-based diesel production facilities.
Our Renewable Chemicals segment is still in a development stage focusing on using microbial fermentation to develop and produce renewable chemicals, fuels and other products from diverse feedstocks. No revenues have been earned in this segment.
Cost of goods sold for our Biomass-based diesel segment includes:
with respect to our production facilities, expenses incurred for feedstocks, catalysts and other chemicals used in the production process, leases, utilities, depreciation, salaries and other indirect expenses related to the production process, and, when required by our customers, transportation, storage and insurance;
with respect to biomass-based diesel acquired from third parties produced under toll manufacturing arrangements, expenses incurred for feedstocks, transportation, catalysts and other chemicals used in the production process and toll processing fees paid to the facility producing the biomass-based diesel;
with respect to finished goods and RINs acquired from third parties, the purchase price of biomass-based diesel and RINs on the spot market or under contract, and related expenses for transportation, storage, insurance, labor and other indirect expenses;

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adjustments made to reflect the lower of cost or market values of our finished goods inventory, including RINs acquired from third parties;
expenses from the purchase of petroleum-based heating oil and ULSD acquired from third parties; and
changes during the applicable accounting period in the market value of derivative and hedging instruments, such as exchange traded contracts, related to feedstocks and commodity fuel products.
Cost of goods sold for our Services segment includes:
with respect to our facility management and operations activities, primarily salary expenses for the services of management employees for each facility and others who provide procurement, marketing and various administrative functions; and
with respect to our construction management services activities, primarily our payments to subcontractors constructing the production facility and providing the biomass-based diesel processing equipment, and, to a much lesser extent, salaries and related expenses for our employees involved in the construction process.
Selling, general and administrative expense consists of expenses generally involving corporate overhead functions and operations at our Ames, Iowa and Tulsa, Oklahoma operations, as well as research and development expenses incurred in our Renewable Chemicals segment.
Impairment of goodwill represents a non cash write-off of goodwill at our Biomass-based Diesel and Renewable Chemicals segments.
Other income (expense), net is primarily comprised of the change in fair value of contingent considerations issued as part of the acquisitions of LS9 and Syntroleum Corporation/Dynamic Fuels, LLC, bargain purchase gains from the acquisition of Imperium, interest expense including the accretion of convertible debt and amortization of deferred financing costs, and interest income.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, equities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which provide the basis for judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from the estimates.
We believe the following critical accounting policies affect our more significant judgments used in the preparation of our consolidated financial statements:
Revenue recognition.
We recognize revenues from the following sources:
the sale of biomass-based diesel, including RINs, biomass-based diesel co-products and raw material feedstocks purchased by us or produced by us at owned manufacturing facilities, leased manufacturing facilities and manufacturing facilities with which we have tolling arrangements;
resale of finished biomass-based diesel, including RINs and raw material feedstocks acquired from others;
revenues from our sale of petroleum-based heating oil and ultra-low sulfur diesel, or ULSD, acquired from third parties, along with the sale of these items further blended with biodiesel produced at our wholly owned facilities or purchased from third parties;
fees received under toll manufacturing agreements with third parties;
fees received from federal and state incentive programs for renewable fuels;
fees from construction, operations and project management; and
fees received for the marketing and sales of biomass-based diesel produced by third parties.
Biomass-based diesel sales as well as RINs and raw material feedstock revenues are recognized when there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed or is determinable and collectability can be reasonably assured.

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Revenues associated with governmental incentive programs are recognized when the amount to be received is determinable, collectability is reasonably assured and the sale of product giving rise to the incentive has been recognized. Our revenue from governmental incentive programs is generally comprised of amounts received from the USDA Advanced Biofuel Program, or the USDA Program, and the biodiesel tax credit. For a discussion of the biodiesel tax credit, see the section entitled “Risk factors-Loss of or reductions in tax incentives for biomass-based diesel production or consumption may have a material adverse effect on industry revenues and operating margins” and “Factors Influencing Our Results of Operations-Governmental programs favoring biomass-based diesel production and use.” In connection with the biodiesel tax credit, we file a claim with the Internal Revenue Service, or IRS, for a refund of excise taxes each week for gallons we have blended to B99.9 and sold during the prior week. The biodiesel tax credit provided a $1.00 refundable tax credit per gallon. On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 was signed into law, which reinstated and extended a set of tax provisions, including the retroactive reinstatement for 2015 and extension for 2016 of the federal biodiesel mixture excise tax credit.
Fees for managing ongoing operations of third party plants, marketing biomass-based diesel produced by third party plants and from other services are recognized as services are provided. We also have performance-based incentive agreements that are included as management service revenues. These performance incentives are recognized as revenues when the amount to be received is determinable and collectability is reasonably assured.
Goodwill asset valuation.
Over the past several years we have made a number of acquisitions. Such acquisitions have had a significant amount of the purchase price allocated to goodwill. While goodwill is not amortized, it is subject to periodic reviews for impairment. We review the carrying value of goodwill for impairment annually on July 31 or when we believe impairment indicators exist. Goodwill is allocated and reviewed for impairment by reporting units.
The impairment test for goodwill is a two-step process. If the carrying value of the reporting unit exceeds its fair value, the goodwill is potentially impaired and the implied fair value of goodwill must be determined by estimating the fair value of the reporting units and allocating such value to the tangible and identifiable intangible assets of each reporting unit. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized equal to the excess of the carrying amount of goodwill over its implied fair value.
The impairment analysis is based on a comparison of the carrying value of the reporting unit to its fair value, determined utilizing a discounted cash flow, or DCF, methodology and consideration of a market approach. We make various assumptions, including assumptions regarding future cash flows, market multiples, growth rates and discount rates, in our assessment of goodwill for impairment. The assumptions about future cash flows and growth rates are based on the current business plans of the reporting unit. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the reporting unit. These assumptions and estimates are complex and often subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Additionally, we review the carrying value of goodwill whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Changes in estimates of future cash flows caused by items such as unforeseen events or sustained unfavorable changes in market conditions could negatively affect the fair value of the reporting unit’s goodwill asset and result in an impairment charge.
We engage an independent external valuation specialist to provide assistance in measuring the fair value of our reporting units using an income approach.
We determined that the reporting units subject to the 2015 goodwill impairment analysis were Biomass-based Diesel; Services; and Renewable Chemicals. The annual impairment tests as of July 31, 2015 determined that the fair value at the Biomass-based Diesel reporting unit exceeded its value by approximately 5%, the Services reporting unit exceeded its value by approximately 21%, and the Renewable Chemicals reporting unit exceeded its carrying value by 12%.
Subsequent to our 2015 annual impairment testing, certain triggering events had occurred. Our common stock price declined significantly during the third quarter and into October, reaching a twelve-month low of $7.06 on November 4, 2015. During the three months ended October 31, 2015, our common stock traded between $7.25 and $11.18. The $8.57 average closing common stock price during the three months ended October 31, 2015 compared to an average common stock price of $10.84 during the three months ended July 31, 2015. A sustained decline in our common stock price and the resulting impact on our market capitalization is one of several qualitative factors we consider each quarter when evaluating whether events or changes in circumstances indicate it is more likely than not that a potential goodwill impairment exists. We concluded that the decline in common stock price observed during the third and fourth quarter did represent a sustained decline and that triggering events occurred during this period requiring an interim goodwill impairment test as of October 31, 2015. As such, we performed another step-one impairment test of our goodwill assets at October 31, 2015. The result of the step one evaluation

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was that the fair value of the Services reporting unit again exceeded its carrying value. However, the fair value of the Biomass-based Diesel and Renewable Chemicals reporting units was lower than their carrying values, primarily due to changes in the weighted average cost of capital.
In step-two of the goodwill impairment test, the implied fair value of goodwill is determined by assigning the fair value of a reporting unit to all the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized for that excess. The inputs used to estimate the fair value of the Company’s reporting units are considered Level 3 inputs of the fair value hierarchy and included the following: (1) The Company’s financial projections for its reporting units were based on its analysis of various factors which include, among other things, demand, margins, capital expenditures and economic conditions. Such estimates are consistent with those used in the Company’s budgeting and capital investment reviews, incorporating current market information, historical factors and the regulatory environment; (2) The long-term growth rates assumed for the Company’s reporting units was based on a comparison to similar publicly traded companies, supported by market information obtained from external sources; and (3) The discount rate used to measure the present value of the projected future cash flows was determined by separately estimating borrowing cost of capital, equity cost of capital, and entity structure. Upon completion of step-two of our goodwill impairment test, we recorded a non-cash impairment charge of $175.0 million. This impairment charge represents a full write-off of goodwill in the Biomass-based Diesel and Renewable Chemicals reporting units.
Impairment of Long-Lived Assets and Certain Identifiable Intangibles.
We have three partially constructed production facilities and one non-operational production facility. In 2007, the Company commenced construction of two 60 mmgy production facilities, one near New Orleans, Louisiana and the other in Emporia, Kansas. In 2008, the Company halted construction of these facilities as a result of conditions in the biomass-based diesel industry and the credit markets. Construction of the New Orleans facility is approximately 45% complete and construction of the Emporia facility is approximately 20% complete. In September 2010, the Company acquired a 15 mmgy production facility in Clovis, New Mexico which is approximately 50% complete. Currently, the Clovis facility is being operated as a terminal. In November 2012, the Company completed our acquisition of Bulldog Biodiesel, LLC, a 15 mmgy production facility near Atlanta, Georgia, that was non-operational at the time the Company purchased it and will remain idled until certain repairs or upgrades are made.
We review long-lived assets, including property, plant and equipment and definite-lived intangible assets for impairment when circumstances dictate. Such evaluations generally are focused on our plants - regardless of whether they are operating, are under construction or are currently on a “construction hold.” The latter assets are those that receive the most attention as their future cash flows are subject to the most uncertainty. Asset are impaired if the undiscounted net cash flows estimated to be generated by those assets are less than their carrying amounts. If estimated future undiscounted cash flows are not sufficient to recover the carrying value of the assets, an impairment charge is recorded for the amount by which the carrying amount of the assets exceeds its fair value. Fair value is determined by management estimates using discounted cash flow calculations. The estimate of cash flows arising from the future use of the asset that are used in the impairment analysis requires judgment regarding what we would expect to recover from the future use of the asset.
Significant assumptions used by management in the undiscounted cash flow analysis include the projected demand for biomass-based diesel based on annual renewable fuel volume obligations under RFS2, our capacity to meet that demand, the estimated market price of biomass-based diesel and the cost of feedstock used in the manufacturing process. For facilities under construction or that are currently on construction hold, management’s estimates also include the capital expenditures necessary to complete construction of the plant. Our facilities under construction or on construction hold are expected to have substantially similar operating capabilities and results as our current operating facilities. Such operating capabilities would include similar feedstock capabilities, similar access to low cost feedstocks, similar proximity to shipping from our vendors and to our customers, and would contemplate our ability to implement best practices among our various currently operating facilities to maximize production volumes and reduce operating costs.
We estimated the future cash flows from the facilities "under construction" or "on construction hold" utilizing the following significant assumptions:
Costs to complete: The remaining costs to complete the plant construction are developed by management, using historical and plant-specific knowledge and external estimates. Management’s estimate of costs included those required to finish the general structure of each facility, as well as furnish it with the appropriate equipment necessary to produce biomass-based diesel. There has not been an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group). There can be no assurance actual costs to complete or upgrade these facilities will be consistent with these estimates.

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Gallons sold: We estimate the aggregate gallons to be produced and sold based upon nameplate capacity of the plants under construction or not in use coupled with historical operating rates for our existing plants.
Gross margin per gallon: We estimate rising sales prices and costs after 2015. This annual increase is a consequence of anticipated increased demand for biomass-based diesel, market trends expected for the energy industry and normal inflationary pressures. Biomass-based diesel sales prices are estimated using the expected prices for biomass-based diesel, RINs and co-products. When building the estimate for future prices, we weigh historical evidence, CBOT and NYMEX future prices and industry forecasts. To develop the estimated feedstock prices, we utilized soybean oil as a base coupled with a spread to soybean oil for all other feedstocks based on historical experience and expected future price changes.
Plant operation costs: We estimate plant operation costs to increase with production, until a steady cost level is reached once the plants are operating in a stabilized manner. Plant operating costs are estimated based upon costs at currently operating plants and take into account the size of the plants under construction and production volumes.
Period of time used in recovery analysis: To estimate the period of time utilized in the recovery analysis, we look to the primary asset group at the plants which the asset group derives its cash-flow-generating capacity. We consider the plant assets and their operational functionality and determined that the inner equipment of the plants (e.g. tanks, separators, filters, heaters, etc.), is the most significant component of the asset group. We have determined that the useful life of this equipment has a range of 10-30 years depending on its use, with the majority of the equipment having a 20 year life. Therefore, we have selected a 20 year period from the original date the assets are placed into service as the time period over which the cash flows would be projected.
Other Considerations - Means of financing of facilities under construction or construction on hold: In 2008, we halted construction on our New Orleans, Louisiana and Emporia, Kansas facilities as a result of conditions in the biomass-based diesel industry and the credit markets. We continue to pursue financing and intend to complete the facilities when industry conditions improve and financing becomes available on terms satisfactory to us. Since construction halted at these facilities in 2008, we have continued to monitor the construction sites and perform routine maintenance on the partially constructed assets. We also have pursued programs under which we could obtain a government guarantee to enhance our ability to obtain financing for these facilities, but at this point have not been able to obtain any such guarantees. We will continue to pursue such government programs in the future to the extent they arise. If available, we would also consider using funds from operations to fund a portion of the construction at these facilities. As currently configured, the assets can be completed as biomass-based diesel production facilities, or with alternative or additional capabilities for the manufacture of specialty chemicals or other renewable products such as advanced biofuels and renewable chemicals. Some of the existing components could be transported for use at our other production facility locations, or they could be sold to third parties for various uses. The Emporia construction project can benefit from a city incentive package that continues through 2018. In addition, from time to time we have had discussions with potential investors and commercial partners regarding these facilities. We have also invested in third party engineering studies to revise and enhance construction completion plans on a more cost effective and profit-driven basis. We cannot be certain if or when such facilities will be completed or any alternate transaction regarding such facilities that we may pursue will be consummated.
Except for the assets impaired at our Geismar facility due to the April and September 2015 fires amounting to $12.4 million, which were fully offset by our insurance receipts and/or coverage, there were no other asset impairment charges for the years ended December 31, 2015, 2014 or 2013. Refer to “Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements.
Valuation of certain assets and liabilities related to acquisition of Imperium.
The significant estimates related to our acquisition of Imperium include the valuation of contingent consideration and the determination of bargain purchase gain. We engaged an independent external valuation specialist to provide assistance in measuring the fair values of these liabilities and assessing the bargain purchase gains related to the acquisition.
We will pay certain contingent consideration to the previous owners of Imperium over a two year period after the acquisition if, and when, we achieve certain production and sales volume and whether BTC is reinstated. The fair value of the contingent consideration was estimated based on an income approach. Three production scenarios were considered in each period of the earnout period. The base case of production was based on historical actual capacity, but also factored in efficiency improvements following the acquisition. The high and low production cases presented an increase and decrease of 10% of base case production, respectively. The base case was estimated to have a 50% probability, and the high and low cases were estimated to have 25% probability. Probabilities of the BTC being reinstated prospectively or retroactively at the end of a given year were estimated based on analysis of historical outcomes and industry expectations. The probability-weighted earnout payments were calculated based on the assigned probabilities of BTC reinstatement and production levels in each period. These aggregate probability-weighted payments were then discounted to present value at the industry-adjusted cost of

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equity, calculated as the risk-free rate plus the equity risk premium multiplied by the selected beta. The industry-adjusted cost of equity was used as the earn-out payments were considered to be more risky than our cost of debt, but less risky than our cost of equity, given the application of probability-weighting to multiple scenarios. The fair value of the contingent consideration is estimated at the end of each reporting period with changes in fair value running through current period earnings.
Imperium was acquired at a price less than fair value of the net identifiable assets, and we recorded a bargain purchase gain of $5.4 million (net of tax), which may be subject to future adjustments. Prior to recognizing a bargain purchase gain, we 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, it was concluded that the recognition of a bargain purchase gain was appropriate for this acquisition.
Income taxes.
We evaluate our deferred tax assets to determine if valuation allowances are required or should be adjusted. A valuation allowance is established against our deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry-forward periods, our experience with tax attributes expiring unused and tax planning alternatives. In making such judgments, significant weight is given to evidence that can be objectively verified.
As a result of excluding certain government incentives from taxable income in 2013, we were in a cumulative loss position for the preceding three years which is considered significant negative evidence that is difficult to overcome on a “more likely than not” standard through objectively verifiable data. While our long-term financial outlook remained positive, we concluded that our ability to rely on our long-term outlook and forecasts as to future taxable income was limited due to uncertainty created by the weight of the negative evidence. As a result, we recorded a valuation allowance offsetting our deferred tax assets.
We recognize tax benefits that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized. We believe there is a reasonable basis in the tax law for all of the positions we take on the various federal and state tax returns we file. However, in recognition of the fact that various taxing authorities may not agree with our position on certain issues, we expect to establish and maintain tax reserves. Significant judgment is required in evaluating our tax positions, including evaluating uncertainties around the technical merits and measurement of our tax position to exclude certain government incentives from taxable income.

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Results of Operations
Fiscal years ended December 31, 2015 and December 31, 2014
Set forth below is a summary of certain financial information (dollars in thousands and gallons in millions except per gallon data) for the periods indicated:
 
Twelve Months Ended
December 31,
 
2015
 
2014
Gallons sold
374.7

 
287.3

Average B100 price per gallon
$
2.97

 
$
3.62

 
 
 
 
Revenues
$
1,387,344

 
$
1,273,831

Costs of goods sold
1,276,801

 
1,113,219

Gross profit
110,543

 
160,612

Selling, general and administrative expenses
73,397

 
62,681

Research and development expense
16,851

 
12,424

Impairment of goodwill
175,028

 

Income (loss) from operations
(154,733
)
 
85,507

Other income (expense), net
(5,678
)
 
603

Income tax benefit (expense)
8,701

 
(3,572
)
Net income (loss)
(151,710
)
 
82,538

Less—Net loss attributable to noncontrolling interests
(318
)
 
(73
)
Net income (loss) attributable to the Company
(151,392
)
 
82,611

Gain on redemption of preferred stock

 
378

Distributed and undistributed dividends to preferred stockholders

 
(40
)
Effects of participating preferred stock

 
(91
)
Effects of participating share-based awards

 
(1,238
)
Net income (loss) attributable to the Company’s common stockholders
$
(151,392
)
 
$
81,620

Revenues. Our total revenues increased $113.5 million, or 9%, to $1,387.3 million for the year ended December 31, 2015, from $1,273.8 million for the year ended December 31, 2014. This increase was primarily attributable to the volume increases in 2015 as compared to 2014 as a result of our international expansion and increased domestic sales. The increase was offset by the decline of biomass-based diesel pricing as a result of the drop in energy prices, such as crude oil and heating oil, in conjunction with lost revenues due to our Geismar facility being shut down for repairs from the April and September fires.
Biomass-based diesel revenues including government incentives increased $113.7 million, or 9%, to $1,387.1 million during the year ended December 31, 2015, from $1,273.4 million for the year ended December 31, 2014. The 2015 revenues reflected a net benefit of $95.0 million government incentive revenue as a result of the December 18, 2015 reinstatement application of the federal biodiesel mixture excise tax credit for 2015 and the net effect of an increase in gallons sold, but coupled with a decrease in biomass-based diesel prices. The increase in gallons sold reflects a full-year inclusion of our majority-owned international sales activity in addition to increased throughput across our production facilities. Due to lower RIN and energy prices in 2015, our average B100 sales price per gallon decreased $0.65, or 18%, to $2.97 during the year ended December 31, 2015, compared to $3.62 during the year ended December 31, 2014. The decrease in average sales price from 2014 to 2015 contributed to a $186.7 million revenue decrease when applied to the number of gallons sold during 2014. Gallons sold increased 87.4 million, or 30%, to 374.7 million during the year ended December 31, 2015, compared to 287.3 million during the year ended December 31, 2014. The increase in gallons for the year ended December 31, 2015 accounted for a revenue increase of $259.6 million using 2015 average sales pricing. The increase in biomass-based diesel government incentives was mainly due to the increase in gallons sold and that market participants were acting as if the biodiesel tax credit would be reinstated throughout the year. Sales of separated RIN inventory were $186.5 million and $130.2 million for the years ending December 31, 2015 and 2014, respectively.
Costs of goods sold. Our costs of goods sold increased $163.6 million, or 15%, to $1,276.8 million for the year ended December 31, 2015, from $1,113.2 million for the year ended December 31, 2014. Costs of goods sold as a percentage of revenues were 92% and 87% for the years ended December 31, 2015 and 2014, respectively. The increase in costs of goods sold as a percentage of revenues in 2015 was primarily due to the net effect of lower revenues per gallon, which was a direct impact

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of the drop in crude oil prices on biomass-based diesel prices and slightly offset by lower feed stock costs in 2015 as compared to 2014. Average lower cost feedstocks prices for the year ended December 31, 2015 was $0.27 per pound, compared to $0.33 per pound for the year ended December 31, 2014. Average soybean oil costs for the year ended December 31, 2015 was $0.32 per pound in comparison to $0.38 per pound for the year ended December 31, 2014. Due to the significant decline in energy market prices such as crude oil and heating oil throughout 2015, we had gains of $36.0 million from risk management trading activity for the year ended December 31, 2015, compared to gains of $61.6 million from risk management trading for the year ended December 31, 2014, respectively. Over the last three years prior to 2015, risk management gains have represented an average income of $0.07 per gallon sold. The current three-year average, which incorporates 2015 risk management gains, represents an average income of $0.10 per gallon sold. In addition, the decrease in the value of RINs during 2015 resulted in a $9.0 million write-down to lower of cost or market on RIN inventory held throughout the year compared to a write-down of $4.3 million during 2014. Costs of goods sold for separated RIN inventory sales were $182.7 million and $119.8 million for the years ending December 31, 2015 and 2014, respectively.
Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses were $73.4 million for the year ended December 31, 2015, compared to $62.7 million for the year ended December 31, 2014. SG&A expenses increased $10.7 million, or 17%, for the year ended December 31, 2015 as compared to the year ended December 31, 2014. This increase was driven mainly from a $7.5 million increase due to international expansion as we included twelve month operating results of Petrotec, a $1.5 million increase in legal and professional fees incurred to support our growth and international expansion, a $0.8 million increase in depreciation expense, $1.8 million increase in information technology and insurance expenses. These increases were offset by a decrease in bad debt expense of approximately $2.9 million.
Research and development expense. Our research and development expenses were $16.9 million for the year ended December 31, 2015, compared to $12.4 million for the year ended December 31, 2014. The increase in research and development expenses was primarily due to the increased research and development activities to bring products to market and drive growth, mainly in regards to our REG Life Sciences business focusing on microbial fermentation to develop and produce renewable chemicals, fuels and other products.
Impairment of goodwill. We recorded a non-cash impairment charge of $175.0 million of goodwill for the year ended December 31, 2015. There were no impairments recorded during 2014. This impairment charge represents a complete write-off of goodwill in the Biomass-based Diesel and Renewable Chemicals reporting units. The impairment charge was as a result of our second goodwill impairment test, as we determined that triggering events had occurred subsequent to our annual goodwill impairment testing at July 31, 2015 due to the continued decline in our results of operations and the decrease in our common stock price and market capitalization.
Other income (expense), net. Other expenses was $5.7 million for the year ended December 31, 2015 compared to other income of $0.6 million for the year ended December 31, 2014. Other income (expense) is primarily comprised of change in fair value of contingent consideration, interest expense, interest income, bargain purchase gain and other non-operating items. The decrease in the overall other income (expense) of $6.3 million was mainly due to the bargain purchase gain of $5.4 million, which was offset by an increase in interest expense of $5.2 million as a full-year interest expense was recorded in 2015 on our Convertible Notes and losses due to change in fair value of contingent consideration of $0.4 million compared to a gain of $6.6 million in 2014.
Income tax expense. There was an income tax benefit recorded during the year ended December 31, 2015 of $8.7 million, compared to an income tax expense of $3.6 million for the year ended December 31, 2014. At December 31, 2015 and 2014, we had net deferred income tax assets of approximately $231.0 million and $114.7 million, respectively, with a valuation allowance of $250.2 million and $136.5 million, respectively. As a result, our effective tax rate was 5.4% and 4.1% for the years ended December 31, 2015 and 2014, respectively. We have an income tax receivable of $1.8 million and $2.8 million as of December 31, 2015 and 2014, respectively.
Gain on redemption of preferred stock. We recognized a gain of $0.4 million which represents the difference between the carrying amount and the amount we paid to redeem all of the then outstanding Series B Preferred Stock shares in March 2014. There was no redemption gain (loss) on preferred stock in 2015.
Effects of participating preferred stock. There was no effect from participating preferred stock in 2015. The effect was $0.1 million for the year ended December 31, 2014.
Effects of participating share-based awards. Effects of participating restricted stock units was $0.0 million and $1.2 million for the years ended December 31, 2015 and 2014, respectively.
Fiscal years ended December 31, 2014 and December 31, 2013

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Set forth below is a summary of certain financial information (dollars in thousands and gallons in millions except per gallon data) for the periods indicated:
 
Twelve Months Ended
December 31,
 
2014
 
2013
Gallons sold
287.3

 
258.6

Average B100 price per gallon
$
3.62

 
$
4.58

 
 
 
 
Revenues
$
1,273,831

 
$
1,498,138

Costs of goods sold
1,113,219

 
1,258,705

Gross profit
160,612

 
239,433

Selling, general and administrative expenses
62,681

 
45,865

Research and development expense
12,424

 
258

Income from operations
85,507

 
193,310

Other income (expense), net
603

 
(2,009
)
Income tax expense
(3,572
)
 
(4,935
)
Net income
82,538

 
186,366

Less---Net income attributable to noncontrolling interest
(73
)
 

Net income attributable to the Company
82,611

 
186,366

Change in undistributed dividends allocated to preferred stockholders
378

 

Distributed dividends to preferred stockholders
(40
)
 
(2,055
)
Effects of participating preferred stock
(91
)
 
(16,272
)
Effects of participating share-based awards
(1,238
)
 
(2,785
)
Net income attributable to the Company’s common stockholders
$
81,620

 
$
165,254


Revenues. Our total revenues decreased $224.3 million, or 15%, to $1,273.8 million for the year ended December 31, 2014, from $1,498.1 million for the year ended December 31, 2013. This decrease was primarily due to the decreasing biomass-based diesel prices as a result of the drop in crude oil prices in conjunction with reduced demand attributable to regulatory uncertainty as the EPA currently has not finalized the RVO for 2014 or 2015.
Biomass-based diesel revenues including government incentives decreased $224.6 million, or 15%, to $1,273.4 million during the year ended December 31, 2014, from $1,498.0 million for the year ended December 31, 2013. The 2014 revenues reflected a net benefit of $78.8 million government incentive revenue as a result of the December19, 2014 reinstatement application of the federal biodiesel mixture excise tax credit for 2014 and the net effect of an increase in gallons sold, but coupled with a decrease in biomass-based diesel prices. The increase in gallons sold reflects increased throughput across our production facilities due to upgrades to our existing facilities. Due to lower RIN and energy prices in 2014, our average B100 sales price per gallon decreased $0.96, or 21%, to $3.62 during the year ended December 31, 2014, compared to $4.58 during the year ended December 31, 2013. The decrease in average sales price from 2013 to 2014 contributed to a $248.3 million revenue decrease when applied to the number of gallons sold during 2013. Gallons sold increased 28.7 million, or 11%, to 287.3 million during the year ended December 31, 2014, compared to 258.6 million during the year ended December 31, 2013. The increase in gallons for the year ended December 31, 2014 accounted for a revenue increase of $103.9 million using 2014 average sales pricing. The decrease in biomass-based diesel government incentives despite the increase in gallons sold was mainly due to the 2013 biomass-based diesel government incentives including an amount of $57.7 million relating to 2012 activities and that market participants were acting as if the biodiesel tax credit would be reinstated throughout the year and entered into agreements to capture the credit when or if reinstated. Sales of separated RIN inventory were $130.2 million and $143.5 million for the years ending December 31, 2014 and 2013, respectively.
Costs of goods sold. Our costs of goods sold decreased $145.5 million, or 12%, to $1,113.2 million for the year ended December 31, 2014, from $1,258.7 million for the year ended December 31, 2013. Costs of goods sold as a percentage of revenues were 87% and 84% for the years ended December 31, 2014 and 2013, respectively. The increase in costs of goods sold as a percentage of revenues in 2014 was primarily due to the net effect of lower revenues per gallon as a direct impact of the drop in crude oil prices on biomass-based diesel prices and slightly lower feed stock costs in 2014 as compared to 2013. Average lower cost feedstocks prices for the year ended December 31, 2014 was $0.34 per pound, compared to $0.39 per pound

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for the year ended December 31, 2013. Soybean oil costs for the year ended December 31, 2014 was $0.38 per pound in comparison to $0.45 per pound for the year ended December 31, 2013. Due to the significant decline in energy market prices such as crude oil and heating oil during the fourth quarter 2014, we had gains of $61.6 million from risk management trading activity for the year ended December 31, 2014, compared to losses of $5.7 million from risk management trading for the year ended December 31, 2013, respectively. Over the last three years prior to 2014, risk management losses have represented an average expense of $0.02 per gallon sold. The current three-year average, which incorporates 2014 risk management gains, represents an average income of $0.07 per gallon sold. In addition, the decrease in the value of RINs during 2014 resulted in a $4.3 million write-down to lower of cost or market on RIN inventory held throughout the year compared to a write-down of $2.9 million during 2013. Costs of goods sold for separated RIN inventory sales were $119.8 million and $144.0 million for the years ending December 31, 2014 and 2013, respectively.
Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses were $62.7 million for the year ended December 31, 2014, compared to $45.9 million for the year ended December 31, 2013. SG&A expenses increased $16.8 million, or 37%, for the year ended December 31, 2014 as compared to 2013. This increase was driven mainly by a $7.9 million increase in employee related expenses as we increased headcount to support our growth, a $1.7 million increase in legal and professional fees, a $0.6 million increase in depreciation expense, $1.1 million increase in bad debt expense and a $5.5 million increase in meeting and travel expenses, IT, insurance and other expenses, the majority of which was attributable to contracted services and amortization expenses related to acquired intangible assets.
Research and development expense. Our research and development expenses were $12.4 million for the year ended December 31, 2014, compared to $0.3 million for the year ended December 31, 2013. The increase in research and development expenses was primarily due to our acquisition of LS9, which was a late-stage research and development company primarily focused on microbial fermentation to develop and produce renewable chemicals, fuels and other products.
Other income (expense), net. Other income was $0.6 million for the year ended December 31, 2014 compared to other expense of $2.0 million for the year ended December 31, 2013. Other income is primarily comprised of change in fair value of contingent consideration, interest expense, interest income and other non-operating items. The increase in the overall other income of $2.6 million was mainly due to the change in the fair value of contingent consideration of $6.6 million, which was offset by an increase in interest expense of $4.3 million, which in turn was driven by higher debt balance in 2014 as compared to 2013.
Income tax expense. There was income tax expense recorded during the year ended December 31, 2014 of $3.6 million, compared to an income tax expense of $4.9 million for the year ended December 31, 2013. At December 31, 2014 and 2013, we had net deferred income tax assets of approximately $114.7 million and $70.5 million, respectively, with a valuation allowance of $136.5 million and $76.9 million, respectively. As a result, our effective tax rate was 4.1% and 2.7% for the years ended December 31, 2014 and 2013, respectively. We have an income tax receivable of $2.8 million and $2.2 million as of December 31, 2014 and 2013, respectively.
Gain on redemption of preferred stock. We recognized a gain of $0.4 million which represents the difference between the carrying amount and the amount we paid to redeem all of the then outstanding Series B Preferred Stock shares in March 2014. There was no redemption gain (loss) on preferred stock in 2013.
Distributed and changes in undistributed dividends. Distributed and undistributed preferred stock dividends were $0.0 million and $2.1 million for the years ended December 31, 2014 and 2013, respectively.
Effects of participating preferred stock. Effects of participating preferred stock was $0.1 million mainly as a result of the redemption of all outstanding Series B Preferred Stock shares in March 2014. The effect was $16.3 million for the year ended December 31, 2013.
Effects of participating share-based awards. Effects of participating restricted stock units was $1.2 million and $2.8 million for the years ended December 31, 2014 and 2013, respectively.
Adjusted EBITDA
We use earnings before interest, taxes, depreciation and amortization, adjusted for certain additional items, identified in the table below, or Adjusted EBITDA, as a supplemental performance measure. We present Adjusted EBITDA because we believe it assists investors in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA to evaluate, assess and benchmark our financial performance on a consistent and a comparable basis and as a factor in determining incentive compensation for our executives.

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The following table provides our Adjusted EBITDA for the periods presented, as well as a reconciliation to net income:
 
 
 
 
 
 
 
 
 
Year ended
December 31,
 
 
 
 
 
 
 
 
 
Year ended
December 31,
(In thousands)
1Q-2015
 
2Q-2015
 
3Q-2015
 
4Q-2015
 
2015
 
1Q-2014
 
2Q-2014
 
3Q-2014
 
4Q-2014
 
2014
Net income (loss)
$
(38,304
)
 
$
(2,163
)
 
$
(15,671
)
 
$
(95,572
)
 
$
(151,710
)
 
$
(2,359
)
 
$
11,007

 
$
4,572

 
$
69,318

 
$
82,538

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax (benefit) expense
(897
)
 
(707
)
 
(1,050
)
 
(6,047
)
 
(8,701
)
 
(107
)
 
(11,919
)
 
(248
)
 
15,846

 
3,572

Interest expense
2,743

 
2,928

 
2,921

 
3,275

 
11,867

 
551

 
1,204

 
2,867

 
2,068

 
6,690

Other income (expense), net
(565
)
 
(1,779
)
 
462

 
1,410

 
(472
)
 
(48
)
 
(384
)
 
(124
)
 
(106
)
 
(662
)
Change in fair value of contingent consideration
293

 
(2,121
)
 
1,106

 
363

 
(359
)
 

 
(384
)
 
(1,059
)
 
(5,188
)
 
(6,631
)
Gain on bargain purchase

 

 
(5,358
)
 

 
(5,358
)
 

 

 

 

 

Impairment of goodwill

 

 

 
175,028

 
175,028

 

 

 

 

 

Straight-line lease expense
(158
)
 
(145
)
 
(19
)
 
(94
)
 
(416
)
 
(163
)
 
(150
)
 
(142
)
 
(184
)
 
(639
)
Depreciation
5,613

 
6,134

 
6,261

 
6,989

 
24,997

 
3,004

 
3,190

 
3,332

 
5,729

 
15,255

Amortization
(219
)
 
(206
)
 
(199
)
 
(91
)
 
(715
)
 
(185
)
 
(184
)
 
303

 
(150
)
 
(216
)
Other
197

 
162

 
(4
)
 
486

 
841

 

 

 

 
73

 
73

Lease cancellation (1)

 

 

 

 

 

 
1,904

 

 

 
1,904

Biodiesel tax credit (2), (3)
15,745

 
22,883

 
27,264

 
(65,892
)
 

 
12,778

 
18,550

 
23,887

 
(55,215
)
 

Non-cash stock compensation
1,080

 
1,156

 
1,191

 
1,734

 
5,161

 
1,235

 
1,414

 
1,392

 
1,842

 
5,883

Adjusted EBITDA
$
(14,472
)
 
$
26,142

 
$
16,904

 
$
21,589

 
$
50,163

 
$
14,706

 
$
24,248

 
$
34,780

 
$
34,033

 
$
107,767

(1)
In April 2014, we bought out the remaining life of the land lease at our Danville, Illinois facility and subsequently purchased the land. The amount represents the portion related to canceling the lease.
(2)
On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law, which reinstated a set of tax extender items including the retroactive reinstatement of the federal biodiesel mixture excise tax credit for 2014 and lapsed on December 31, 2014. The retroactive credit for 2014 resulted in a net benefit to us that was recognized in the fourth quarter of 2014, however because this credit relates to the full year operating performance and results, we allocated the first three quarters of 2014, respectively, based upon gallons sold and excluded those amounts from the fourth quarter 2014 Adjusted EBITDA.
(3)
On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 was signed into law, which reinstated and extended a set of tax provisions, including the retroactive reinstatement for 2015 and extension for 2016 of the federal biodiesel mixture excise tax credit. The retroactive credit for 2015 resulted in a net benefit to us that was recognized in the fourth quarter of 2015, however because this credit relates to the full year operating performance and results, we allocated the first three quarters of 2015, respectively, based upon gallons sold and excluded those amounts from the fourth quarter 2015 Adjusted EBITDA.
Adjusted EBITDA is a supplemental performance measure that is not required by, or presented in accordance with, generally accepted accounting principles, or GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as alternatives to cash flows from operating activities or a measure of our liquidity or profitability. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for any of our results as reported under GAAP. Some of these limitations are:
Adjusted EBITDA does not reflect our cash expenditures for capital assets or the impact of certain cash clauses that we consider not to be an indication of our ongoing operations;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital requirements;
Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements;

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stock-based compensation expense is an important element of our long term incentive compensation program, although we have excluded it as an expense when evaluating our operating performance; and
other companies, including other companies in our industry, may calculate these measures differently than we do, limiting their usefulness as a comparative measure.
Liquidity and Capital Resources
Sources of liquidity. At December 31, 2015 and 2014, the total of our cash and cash equivalents and our marketable securities was $47.1 million and $80.3 million, respectively. At December 31, 2015, we had term debt before debt issuance costs of $256.6 million, compared to term debt before debt issuance costs of $252.9 million at December 31, 2014. This term debt is due in various tranches and the maturities are reflected in the contractual obligations table below. We set aside a total of $105.8 million of restricted cash in form of certificates of deposits as collateral for certain term debt and letters of credit. The debt is subject to various financial covenants. We were in compliance with the restrictive financial covenants associated with the borrowings as of December 31, 2015.
Our term debt before debt issuance costs (in millions) is as follows (total balance may not foot due to rounding):
 
December 31,
 
2015
 
2014
Convertible debt
$
126.1

 
121.4

REG Geismar GOZone bonds
100.0

 
100.0

REG Danville term loan

 
1.5

REG Newton term loan
16.8

 
19.9

REG Mason City term loan
3.7

 
4.6

REG Ames term loans
3.9

 
4.2

REG Grays Harbor term loan
5.2

 

Other
0.9

 
1.4

Total term debt before debt issuance costs
$
256.6

 
$
252.9

In addition, we had revolving debt (in millions) as follows:
 
December 31,
 
2015
 
2014
Total revolving loans (current)
$
23.1

 
$
16.7

Maximum remaining available to be borrowed under revolving line of credit
$
23.1

 
$
20.7

Wells Fargo Revolving Credit Agreement
We currently have a revolving credit agreement with the lenders thereto and Wells Fargo Capital Finance, LLC, as agent, which we refer to as the Wells Fargo Revolver. The Wells Fargo Revolver provides for the extension of revolving loans in an aggregate principal amount not to exceed $60.0 million, based on eligible inventory, accounts receivable, biodiesel credits of the subsidiary borrowers and the inventory of certain affiliates. As of December 31, 2015, our available borrowing capacity under the Wells Fargo Revolver was $46.2 million of which $23.1 million was outstanding, leaving $23.1 million in availability. The Wells Fargo Revolver has a stated maturity date of December 23, 2016.
Amounts borrowed under the Wells Fargo Revolver bear interest, in the case of LIBOR rate loans, at a per annum rate equal to the LIBOR rate plus the LIBOR Rate Margin (as defined), which may range from 2.50 to 4.25 percent, based on the Quantity Average Excess Availability Amount (as defined). The LIBOR Rate Margin is subject to reduction or increase depending on the amount available for borrowing under the new revolving credit agreement.
The Wells Fargo Revolver contains various loan covenants that restrict each subsidiary borrower’s ability to take certain actions, including restrictions on incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, repurchase or redemption of capital stock, making certain investments, entering into certain transactions with affiliates or changing the nature of the subsidiary’s business. In addition, the subsidiary borrowers are required to maintain a Fixed Charge Coverage Ratio (as defined in the Wells Fargo Revolver) of at least 1.0 to 1.0 and to have Excess Availability (as defined in the

49

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Wells Fargo Revolver) of at least $6 million. The Wells Fargo Revolver is secured by the subsidiary borrowers’ membership interests and substantially all of their assets, and the inventory of REG Albert Lea, LLC, REG Houston, LLC, REG New Boston, LLC, and REG Geismar, LLC subject to a $25 million limitation.
Convertible debt
In June 2014, the Company issued $143.8 million in convertible senior notes (Convertible Notes) with a maturity date of June 15, 2019, unless earlier converted or repurchased. The Convertible Notes bear interest at a rate of 2.75% per annum, payable semi-annually in arrears, beginning December 15, 2014.
The initial conversion rate is 75.3963 shares of Common Stock per $1 principal amount of Convertible Notes, which represents an initial conversion price of approximately $13.26 per share. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. Certain corporate events that occur prior to the stated maturity date can cause the Company to increase the conversion rate for a holder.
Prior to December 15, 2018, holders may convert all or any portion of their Convertible Notes only under certain limited circumstances where the sale price of Common Stock for a period of time is (i) greater than or equal to 130% of the conversion price of the Convertible Notes on each applicable trading day; (ii) less than 98% of the product of the last reported sale price of the Common Stock and the conversion rate of the Convertible Notes on each applicable trading day; or (iii) upon the occurrence of specified corporate events. On or after December 15, 2018 until the close of business on the second scheduled trading day immediately preceding the maturity date of the Convertible Notes, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Common Stock or a combination of cash and shares of Common Stock, at the Company’s election. The Company's current intent is to settle the principal amount of the Senior Notes in cash upon conversion. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (conversion spread).
The Convertible Notes are not redeemable at the Company’s option prior to maturity.
We may, from time to time, depending on market conditions and other factors, repurchase our outstanding indebtedness, including our Convertible Notes, whether or not such indebtedness trades above or below its face amount, for cash and/or in exchange for other securities or other consideration, in each case in open market purchases and/or privately negotiated transactions.
GOZone bonds
In June 2014, we acquired Dynamic Fuels, subsequently renamed REG Geismar, LLC. REG Geismar is obligated with respect to $100.0 million aggregate principal amount of Gulf Opportunity Zone tax-exempt bonds, or GOZone Bonds, due in October 2033, through a loan agreement with the Louisiana Public Facilities Authority.
At the time that the GOZone Bonds were originally issued, Tyson Foods, one of the former equityholders of Dynamic Fuels, obtained an irrevocable direct-pay letter of credit, or the Old Letter of Credit, from a financial institution which was provided to the trustee for the GOZone Bonds and drawn upon to pay the principal of and interest on the GOZone Bonds and the portion of the purchase price attributable to principal of and interest on the GOZone Bonds in connection with any GOZone Bond repurchase obligations. At the closing of the acquisition of Dynamic Fuels in June 2014, we entered into a reimbursement agreement with Tyson Foods whereby we agreed to reimburse Tyson Foods for any amounts payable by Tyson Foods in the event of a draw on the Old Letter of Credit. We deposited $101.3 million into an escrow account for the benefit of Tyson Foods in connection with this reimbursement agreement, which represented the full amount of Tyson Foods’ obligation under the Old Letter of Credit and is held as non-current restricted cash on the Consolidated Balance Sheets.
On July 8, 2014, REG Geismar and Bank of America, N.A. entered into a Reimbursement Agreement, dated as of the same date, or Reimbursement Agreement, and Bank of America issued a letter of credit, or Substitute Letter of Credit, to the trustee for the GOZone Bonds in substitution for the Old Letter of Credit and our reimbursement arrangement with Tyson Foods was terminated. The Substitute Letter of Credit is in the stated amount of $101.3 million, which represents the sum of the outstanding $100.0 million principal amount of the GOZone Bonds plus $1.3 million of interest. The Substitute Letter of Credit expired on July 8, 2015 and was extended to July 8, 2016. In the event that the expiration date of the Substitute Letter of Credit is not extended or a new letter of credit is not issued in substitution for the Substitute Letter of Credit, holders of the GOZone Bonds are required to tender their GOZone Bonds for repurchase and the trustee for the GOZone Bonds is required pursuant to the terms of the indenture governing the GOZone Bonds to draw down the Substitute Letter of Credit to fund the repurchase of

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the GOZone Bonds. The Substitute Letter of Credit requires that the GOZone Bonds remain in the daily or weekly interest rate mode.
Pursuant to the Reimbursement Agreement, REG Geismar must reimburse Bank of America for any and all draws on the Substitute Letter of Credit. It is an event of default under the Reimbursement Agreement if REG Geismar fails to make any payment required under the Reimbursement Agreement when due, fails to comply with its obligations under the financing agreements related to the GOZone Bonds, including the Loan Agreement, or breaches certain representations, warranties or covenants in the Reimbursement Agreement (including the failure to cause the cash collateral described above to be maintained) and in the case of certain bankruptcy events involving REG Geismar. An event of default under the Reimbursement Agreement would also result in an event of default under the indenture governing the Bonds, which would cause the trustee for the GOZone Bonds to accelerate payment of the GOZone Bonds and draw down on the Substitute Letter of Credit. REG Geismar would be liable for all reimbursement obligations in connection with such a draw under the Reimbursement Agreement.
REG Geismar’s repayment obligations under the Reimbursement Agreement are secured by a $101.3 million certificate of deposit established by REG Capital LLC, a REG's wholly-owned subsidiary, which was pledged by REG Capital to Bank of America. REG Geismar’s obligations under the Reimbursement Agreement are not guaranteed by us or any of our affiliates.
To fund the $101.3 million security deposit related to the GOZone Bonds, in June 2014, we issued $143.8 million aggregate principal amount of 2.75% convertible senior notes as discussed above. The estimated net proceeds to us from the issuance of the Convertible Notes, after deductible underwriting fees and related expenses, were approximately $138.6 million.
REG Newton, LLC
On March 8, 2010, in connection with the CIE Asset Acquisition, one of our subsidiaries, REG Newton, refinanced a $23.6 million term loan, or the AgStar Loan, and obtained a $2.4 million line of credit, or the AgStar Line, with AgStar Financial Service, PCA, or AgStar. This amount is secured by our Newton facility. The AgStar Loan bears interest at 3% plus the greater of (i) LIBOR or (ii) 2%. Beginning on October 1, 2011, monthly principal payments of approximately $0.12 million and accrued interest was due based on a 12-year amortization period.
On December 4, 2013, REG Newton, LLC entered into an Amended and Restated Master Loan Agreement, effective December 1, 2013, with AgStar Financial Services, PCA (AgStar) which replaced the existing Master Loan Agreement, dated March 8, 2010. The Amended and Restated Agreement extends the maturity of the existing term loan by five years until December 1, 2018 and increases the term loan by $5.0 million. The REG Newton term debt is secured by all plant assets owned by REG Newton. Interest is to be accrued based on 30-day LIBOR plus 400 basis points. REG Newton is required to make principal and interest payments of approximately $0.3 million. The loan agreement requires REG Newton to make an annual payment equal to 50% of its Excess Cash Flow calculated based upon the prior year’s audited financial statements within 120 days of the fiscal year end. The AgStar Loan agreement defines Excess Cash Flow as EBITDA, less the sum of required debt payments, interest expense, up to $0.5 million in maintenance capital expenditure and allowed distributions. The required excess cash flow payments for 2015 and 2014 were $0.6 million and $0.5, respectively. As of December 31, 2015, there was $16.8 million of principal outstanding under the term loan.
REG Mason City, LLC
On July 30, 2013, REG Mason City entered into an agreement with Soy Energy, or Soy Energy Loan. The Soy Energy Loan has a six-year term and is secured by our Mason City facility. The loan requires interest only payments for the first eight months and monthly principal and interest payments of approximately $0.1 million starting in April 2014. Interest is based on a fixed rate of 5%. The loan agreement contains a covenant that restricts REG Mason City's ability to take certain actions, including prohibiting it in certain circumstances from making payments to us. The Soy Energy Loan requires annual excess cash flow payments beginning on December 31, 2013. REG Mason City must pay Soy Energy a principal payment in the amount equal to 50% of its excess cash flow. There was no required excess cash flow payments for 2015. As of December 31, 2015, the balance on the loan was $3.7 million.
REG Grays Harbor, LLC

Following the acquisition of Imperium, REG Grays Harbor entered into a credit agreement with Umpqua Bank,
or Umpqua Credit Agreement, whereby it can borrow up to $10.0 million for capital expenditure projects. Amounts borrowed under the Umpqua Credit Agreement bear interest at a per annum rate at of minimum of 3.50% or Prime Rate plus 0.25%. The nominal rate at December 31, 2015 was 3.75% and the balance on the loan was $5.2 million.

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Cash flow. The following table presents information regarding our cash flows and cash and cash equivalents for the years ended December 31, 2015, 2014 and 2013:
 
Year Ended
December 31,
 
2015
 
2014
 
2013
 
 
 
(in thousands)
 
 
Net cash flows provided from operating activities
$
80,160

 
$
32,528

 
$
139,645

Net cash flows used in investing activities
(67,922
)
 
(217,033
)
 
(54,389
)
Net cash flows (used in) provided from financing activities
(27,274
)
 
94,794

 
1,186

Net change in cash and cash equivalents
(15,036
)
 
(89,711
)
 
86,442

Cash and cash equivalents, end of period
$
47,081

 
$
63,516

 
$
153,227

The historical cash flows shown above highlight that we have been able to consistently generate positive cash flows from operations. The large operating cash inflow for 2013 was primarily attributable to the refresh of the biodiesel tax credit that not only touched on 2013 operations but also allowed us to recoup certain amounts from 2012. The absence of the credit until late 2014 and 2015, respectively, has led to the decrease in operating cash flows. Our investing activity has been focused in two different directions in the previous years; first, expenditures were made to purchase new businesses and capacity; second, expenditures were made to further develop existing plant assets. Only one acquisition was made in 2015 while there were three significant acquisitions in 2014. Financing activities have moved hand in hand with our investing activities as it is our general intention to use separate debt and equity raise transactions to finance the purchase of assets and businesses. 2014 financing activities reflected the Convertible Notes we issued in the middle of the year to finance the Dynamic Fuels and Syntroleum acquisitions. In 2015, there was no significant debt obtained while we spent approximately $23.3 million on our share repurchase program.
Capital expenditures. We have three partially constructed plants, one near New Orleans, Louisiana, one in Emporia, Kansas, one in Clovis, New Mexico and a non-operational plant near Atlanta, Georgia. We expect additional investments of approximately $165 to $180 million in the aggregate, excluding working capital requirements, would be required before these plants would be able to commence production. These facilities would add an expected 150 mmgy to our nameplate production capacity. Our Clovis plant is currently being operated as a terminal facility. We plan to make significant capital expenditures when debt or equity financing becomes available to complete construction of these four facilities.
During 2015, we were working on a $31 million upgrade to our Danville facility as well as fixing and upgrades to bring our Geismar facility back on-line. In 2014, completed a $20 million upgrade at our Mason City facility and a $13 million upgrade to our Newton facility. We plan to undertake various upgrades at our existing facilities to further expand processing capabilities. Our budgeted capital expenditures for 2016 is approximately $55 to $60 million. We may enter into additional tolling arrangements with third parties from time to time where third parties will produce biomass-based diesel on our behalf using our feedstocks. Such arrangements may require investments of additional working capital during the tolling periods.
We continue to be in discussions with lenders in an effort to enter into equity and debt financing arrangements to meet our projected financial needs for facilities under construction and capital improvement projects for our operating facilities. Since these discussions are ongoing, we are uncertain when or if financing will be available. The financing may consist of common or preferred stock, debt, project financing or a combination of these financing techniques. Additional debt would increase our leverage and interest costs and would likely be secured by certain of our assets. Additional equity or equity-linked financings would likely have a dilutive effect on our existing and future stockholders. It is likely that the terms of any project financing would include customary financial and other covenants on our project subsidiaries, including restrictions on the ability to make distributions, to guarantee indebtedness and to incur liens on the plants of such subsidiaries.
Contractual Obligations:
The following table describes our commitments to settle contractual obligations in cash as of December 31, 2015:

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Payments Due by Period
 
Total
 
Less Than
1 Year
 
Years 1-3
 
Years
4-5
 
More Than
5 Years
 
(In thousands)
Long Term Debt (1)
$
277,040

 
$
11,113

 
$
163,595

 
$
961

 
$
101,371

Contingent Considerations (2)
41,712

 
14,762

 
19,894

 
7,056

 

Operating Lease Obligations (3)
119,435

 
18,339

 
39,898

 
21,120

 
40,078

Purchase Obligations (4)
31,276

 
3,857

 
7,641

 
7,045

 
12,733

Other Obligations (5)
1,900

 

 

 

 

 
$
471,363

 
$
48,071

 
$
231,028

 
$
36,182

 
$
154,182

(1)
See Note 12 of Item 8 for additional detail. Includes fixed interest associated with these obligations.
(2)
Represents contingent considerations relating to our acquisitions of LS9, Syntroleum/Dynamic Fuels and Imperium. See Note 5 of Item 8 for additional detail.
(3)
Operating lease obligations consist of terminals, rail cars, vehicles and ground leases.
(4)
Purchase obligations for our production facilities.
(5)
Includes commitments, incentive compliance and other facility obligations. Represents $1.9 million of liability for unrecognized tax benefits as the timing and amounts of cash payments are uncertain (the amounts have not been classified by period).
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Recent Accounting Pronouncements
For a discussion of new accounting pronouncements affecting us, refer to “Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements.
ITEM 7A.
Quantitative and Qualitative Disclosures about Market Risk
The primary objectives of our investment activity are to preserve principal, provide liquidity and maximize income without significantly increasing risk. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we maintain a portfolio of cash equivalents in short-term investments in money market funds.
Commodity Price Risk
Over the period from January 2010 through December 2015, average diesel prices based on Platts reported pricing for Group 3 (Midwest) have ranged from a high of approximately $3.64 per gallon reported in October 2012 to a low of approximately $1.03 per gallon in December 2015, with prices averaging $2.61 per gallon during this period. Over the period January 2010 to December 2015, soybean oil prices (based on daily closing nearby futures prices on the CBOT for crude soybean oil) have ranged from a high of $0.5977 per pound, or $4.60 per gallon of biodiesel in April 2011 to a low of $0.2605 per pound, or $1.95 per gallon in September 2015 assuming 7.5 pounds of soybean oil yields one gallon of biodiesel with closing sales prices averaging $0.4381 per pound or $3.26 per gallon. Over the period from January 2010 through December 2015, animal fat prices (based on prices from The Jacobsen Missouri River, for choice white grease) have ranged from a high of $0.5450 per pound in June 2011 to a low of $0.1600 per pound in December 2015, with sales prices averaging $0.3547 per pound during this period. Over the period from July 2010 through December 2015, RIN prices (based on prices from OPIS) have ranged from a high of $1.99 in September 2011 to a low of $0.24 in November 2013, with sales prices averaging $0.86 during this period.
Lower biomass-based diesel prices and lower feedstock prices but at a disproportionate decreasing rate as compared to biomass-based diesel prices result in lower profit margins and, therefore, represent unfavorable market conditions. The availability and price of feedstocks are subject to wide fluctuations due to unpredictable factors such as weather conditions during the growing season, rendering volumes, carry-over from the previous crop year and current crop year yield, governmental policies with respect to agriculture and supply and demand.

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We have prepared a sensitivity analysis to estimate our exposure to market risk with respect to our sales contracts, lower cost feedstock requirements, soybean oil requirements and the related exchange-traded contracts for 2015. Market risk is estimated as the potential loss in fair value, resulting from a hypothetical 10% adverse change in the fair value of our lower cost feedstock and soybean oil requirements and biomass-based diesel sales. The results of this analysis, which may differ from actual results, are as follows:
 
2015
Volume
(in millions)
 
Units
 
Hypothetical
Adverse
Change in
Price
 
Impact on Annual
Gross
Profit (in
millions)
 
Percentage
Change in
Gross
Profit
Biomass-based diesel
374.7

 
gallons
 
10
%
 
$
(111.3
)
 
(99.9
)%
Lower Cost Feedstocks
1,745.2

 
pounds
 
10
%
 
$
(44.6
)
 
(40.4
)%
Soybean Oil
302.6

 
pounds
 
10
%
 
$
(9.5
)
 
(8.6
)%
We attempt to protect operating margins by entering into risk management contracts that mitigate price volatility of our feedstocks, such as inedible animal fat and inedible corn oil and energy prices. We create offsetting positions by using a combination of forward physical purchases and sales contracts on feedstock and biomass-based diesel, including risk management futures contracts, swaps and options primarily on heating oil and soybean oil; however, the extent to which we engage in risk management activities varies substantially from time to time, and from feedstock to feedstock, depending on market conditions and other factors. A 10% adverse change in the price of NYMEX NY Harbor ULSD would have a negative effect on the fair value of these instruments of $5.4 million. A 10% adverse change in the price of CBOT Soybean Oil would have a negative effect on the fair value of these instruments of $1.2 million.
Interest Rate Risk
We are subject to interest rate risk in connection with our $0.3 million loan from the proceeds of Variable Rate Demand Industrial Development Revenue Bonds, or IFA Bonds, issued by the Iowa Finance Authority to finance our Ralston facility. The IFA Bonds bear interest at a variable rate determined by the remarketing agent from time to time as the rate necessary to produce a bid for the purchase of all of the Bonds at a price equal to the principal amount thereof plus any accrued interest at the time of determination, but not in excess of 10% per annum. The interest rate on the bonds was 0.04% for the last week of December 2015.
REG Newton is subject to interest rate risk relating to its $16.8 million term debt financing from AgStar. Interest will accrue on the outstanding balance of the term loan at 30-day LIBOR plus 400 basis points (effective rate at December 31, 2015 of 4.20%).
We are subject to interest risk relating to the $100.0 million GOZone bonds, which bears interest at variable rates. The interest rate on the bonds was 0.01% for the last week of December 2015.
We are subject to interest rate risk under our Wells Fargo Revolver entered into on December 23, 2011 under which we had $23.1 million borrowed and outstanding at December 31, 2015. Amounts borrowed under the Wells Fargo Revolver bear interest, in the case of LIBOR rate loans, at a per annum rate equal to the LIBOR rate plus the LIBOR Rate Margin (as defined in the Wells Fargo Revolver), which may range from 2.50 to 4.25 percent, based on the Quantity Average Excess Availability Amount (as defined in the Wells Fargo Revolver). All other amounts borrowed that are not LIBOR rate loans bear interest at a rate equal to the greatest of (i) (A) 1.75% per annum, (B) the Federal Funds Rate plus 0.5%, (C) the LIBOR Rate (which rate shall be calculated based upon an interest period of three months and will be determined on a daily basis), plus 1.5% points, and (D) the rate of interest announced, from time to time, within Wells Fargo Bank, National Association at its principal office in San Francisco as its “prime rate,” plus (ii) the Base Rate Margin (as defined in the Wells Fargo Revolver), which may range from 1.00 to 1.75 percent, based on the Quantity Average Excess Availability Amount. The Base Rate Margin is subject to reduction or increase depending on the amount available for borrowing under the Wells Fargo Revolver. The loan was a base rate loan as of December 31, 2015 (effective rate at December 31, 2015 of 4.25%).
Following the acquisition of Imperium, we are subject to interest rate risk under a credit agreement with Umpqua Bank,
or Umpqua Credit Agreement, whereby our wholly owned subsidiary, REG Grays Harbor, can borrow up to $10.0 million for
working capital. Amounts borrowed under the Umpqua Credit Agreement bear interest at a per annum rate at of minimum of 3.50% or Prime Rate plus 0.25%. The nominal rate at December 31, 2015 was 3.75%.
Our weighted average interest rate on variable rate debt balances during 2015 was 1.30% and a hypothetical increase in interest rate of 10% would not have a material effect on our annual interest expenses and consolidated financial statements.

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Inflation
To date, inflation has not significantly affected our operating results, though costs for petroleum-based diesel fuel, feedstocks, construction, labor, taxes, repairs, maintenance and insurance are all subject to inflationary pressures. Inflationary pressure in the future could affect our ability to sell the biomass-based diesel we produce, maintain our production facilities adequately, build new biomass-based diesel production facilities and expand our existing facilities as well as the demand for our facility construction management and operations management services.

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ITEM 8.
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Renewable Energy Group, Inc.
Ames, Iowa

We have audited the accompanying consolidated balance sheets of Renewable Energy Group, Inc. and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), redeemable preferred stock and equity, and cash flows for each of the three years in the period ended December 31, 2015. We also have audited the Company's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Renewable Energy Group, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Deloitte & Touche LLP

Des Moines, Iowa
March 14, 2016

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RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2015 AND 2014
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
2015
 
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
47,081

 
$
63,516

Marketable securities

 
16,770

Accounts receivable, net (includes amounts owed by related parties of $0 and $36, respectively)
310,731

 
294,669

Inventories
85,890

 
97,508

Prepaid expenses and other assets
31,882

 
43,135

Restricted cash

 
12,845

Total current assets
475,584

 
528,443

Property, plant and equipment, net
574,584

 
493,196

Goodwill
16,080

 
188,275

Intangible assets, net
30,941

 
28,837

Investments
8,797

 
9,736

Other assets
11,819

 
14,434

Restricted cash
105,815

 
104,815

TOTAL ASSETS
$
1,223,620

 
$
1,367,736

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Revolving line of credit
$
23,149

 
$
16,679

Current maturities of long-term debt
5,206

 
5,746

Accounts payable (includes amounts owed to related parties of $0 and $1,101 respectively)
236,817

 
202,821

Accrued expenses and other liabilities
28,466

 
28,486

Deferred income taxes

 
14,899

Deferred revenue
333

 
16,680

Total current liabilities
293,971

 
285,311

Unfavorable lease obligation
17,343

 
19,170

Deferred income taxes
19,186

 
6,905

Contingent consideration for acquisitions
26,949

 
30,091

Long-term debt (net of debt issuance costs of $4,105 and $5,152, respectively)
247,251

 
242,031

Other liabilities
4,910

 
5,566

Total liabilities
609,610

 
589,074

COMMITMENTS AND CONTINGENCIES (NOTE 21)

 

EQUITY:
 
 
 
Common stock ($.0001 par value; 300,000,000 shares authorized; 43,837,714 and 44,422,881 shares outstanding, respectively)
4

 
4

Common stock—additional paid-in-capital
474,367

 
453,109

Retained earnings
169,680

 
321,083

Accumulated other comprehensive loss
(4,009
)
 
(11
)
Treasury stock (3,178,372 and 585,150 shares, respectively)
(28,762
)
 
(4,412
)
Total equity attributable to the Company's shareholders
611,280

 
769,773

Noncontrolling interest
2,730

 
8,889

Total equity
614,010

 
778,662

TOTAL LIABILITIES AND EQUITY
$
1,223,620

 
$
1,367,736

See notes to consolidated financial statements.

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RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
2015
 
2014
 
2013
REVENUES:
 
 
 
 
 
Biomass-based diesel sales
$
1,141,281

 
$
1,052,772

 
$
1,207,618

Biomass-based diesel government incentives
245,868

 
220,634

 
290,393

 
1,387,149

 
1,273,406

 
1,498,011

Services
195

 
425

 
127

 
1,387,344

 
1,273,831

 
1,498,138

COSTS OF GOODS SOLD:
 
 
 
 
 
Biomass-based diesel
1,272,125

 
1,070,430

 
1,209,191

Biomass-based diesel—related parties
4,542

 
42,622

 
49,358

Services
134

 
167

 
156

 
1,276,801

 
1,113,219

 
1,258,705

GROSS PROFIT
110,543

 
160,612

 
239,433

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (includes related party amounts of $0, $45, and $37, respectively)
73,397

 
62,681

 
45,865

RESEARCH AND DEVELOPMENT EXPENSE
16,851

 
12,424

 
258

IMPAIRMENT OF GOODWILL
175,028

 

 

INCOME (LOSS) FROM OPERATIONS
(154,733
)
 
85,507

 
193,310

OTHER INCOME (EXPENSE), NET:
 
 
 
 </