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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549   
Form 10-Q
      
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-35397
RENEWABLE ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
   
Delaware
   
26-4785427
(State of other jurisdiction of
incorporation or organization)
   
(I.R.S. Employer
Identification No.)
   
   
416 South Bell Avenue, Ames, Iowa
   
50010
(Address of principal executive offices)
   
(Zip code)
(515) 239-8000
(Registrant’s telephone number, including area code)     
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
   
Large accelerated filer
¨
   
Accelerated filer
x
 
 
 
 
Non-accelerated filer
¨
   
Smaller reporting company
¨
 
 
 
 
 
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO   x
As of October 31, 2018, the registrant had 37,299,704 shares of Common Stock outstanding.




TABLE OF CONTENTS
 
 
Page
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
 
 
PART II
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
 
 


2



PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share amounts)
   
September 30,
2018
 
December 31,
2017
ASSETS
   

 
   

CURRENT ASSETS:
   

 
   

Cash and cash equivalents
$
156,632

 
$
77,627

Marketable securities
52,892

 

Accounts receivable, net
92,866

 
90,648

Inventories
141,151

 
135,547

Prepaid expenses and other assets
37,854

 
51,880

Restricted cash
3,000

 

Total current assets
484,395

 
355,702

Property, plant and equipment, net
592,697

 
587,397

Goodwill
16,080

 
16,080

Intangible assets, net
27,895

 
27,127

Other assets
20,171

 
19,290

TOTAL ASSETS
$
1,141,238

 
$
1,005,596

LIABILITIES AND EQUITY
   

 
   

CURRENT LIABILITIES:
   

 
   

Lines of credit
$
4,370

 
$
65,525

Current maturities of long-term debt
169,485

 
13,397

Accounts payable
99,150

 
84,608

Accrued expenses and other liabilities
35,620

 
39,187

Deferred revenue
1,472

 
2,218

Total current liabilities
310,097

 
204,935

Unfavorable lease obligation
2,541

 
3,388

Deferred income taxes
8,379

 
8,192

Long-term contingent consideration for acquisitions
259

 
8,849

Long-term debt (net of debt issuance costs of $4,126 and $6,627, respectively)
34,401

 
208,536

Other liabilities
3,466

 
4,114

Total liabilities
359,143

 
438,014

COMMITMENTS AND CONTINGENCIES


 


EQUITY:
   

 
   

Common stock ($.0001 par value; 300,000,000 shares authorized; 37,299,704 and 38,837,749 shares outstanding, respectively)
5

 
5

Common stock—additional paid-in-capital
486,618

 
515,452

Retained earnings
408,170

 
134,928

Accumulated other comprehensive income
(1,195
)
 
278

Treasury stock (11,514,218 and 9,363,166 shares outstanding, respectively)
(111,503
)
 
(83,081
)
Total equity
782,095

 
567,582

TOTAL LIABILITIES AND EQUITY
$
1,141,238

 
$
1,005,596

See notes to condensed consolidated financial statements.

1



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 
Three months ended
 
Nine months ended
   
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
REVENUES:
   
 
   
 
   
 
   
Biomass-based diesel sales
$
568,174

 
$
504,016

 
$
1,394,044

 
$
1,303,681

Separated RIN sales
26,867

 
120,389

 
100,232

 
245,062

Biomass-based diesel government incentives
944

 
741

 
367,144

 
28,503

   
595,985

 
625,146

 
1,861,420

 
1,577,246

Other revenue
1,768

 
1,837

 
5,735

 
3,733

   
597,753

 
626,983

 
1,867,155

 
1,580,979

COSTS OF GOODS SOLD:
   
 
   
 
   
 
   
Biomass-based diesel
535,376

 
505,871

 
1,451,565

 
1,328,129

Separated RINs
9,790

 
105,131

 
53,538

 
185,978

Other costs of goods sold
1,173

 
1,186

 
3,449

 
3,340

   
546,339

 
612,188

 
1,508,552

 
1,517,447

GROSS PROFIT
51,414

 
14,795

 
358,603

 
63,532

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
23,155

 
25,880

 
79,321

 
71,599

RESEARCH AND DEVELOPMENT EXPENSE
4,252

 
3,759

 
13,335

 
10,537

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

 

 

 
1,341

INCOME (LOSS) FROM OPERATIONS
24,007

 
(14,844
)
 
265,947

 
(19,945
)
OTHER INCOME (EXPENSE), NET:
   
 
   
 
   
 
   
Change in fair value of contingent consideration
4,566

 
(1,433
)
 
13,235

 
(1,998
)
Change in fair value of convertible debt conversion liability

 
8,560

 

 
(24,158
)
Gain on debt extinguishment
788

 

 
2,893

 

Gain on involuntary conversion

 
942

 
4,454

 
942

Other income (loss), net
499

 
12

 
3,778

 
(278
)
Interest expense
(4,003
)
 
(4,725
)
 
(13,579
)
 
(13,740
)
   
1,850

 
3,356

 
10,781

 
(39,232
)
INCOME (LOSS) BEFORE INCOME TAXES
25,857

 
(11,488
)
 
276,728

 
(59,177
)
INCOME TAX BENEFIT (EXPENSE)
(854
)
 
115

 
(3,486
)
 
(2,919
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
25,003

 
(11,373
)
 
273,242

 
(62,096
)
LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS
660

 

 
6,999

 

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS
$
24,343

 
$
(11,373
)
 
$
266,243

 
$
(62,096
)
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
   
 
   
 
   
 
   
BASIC
$
0.65

 
$
(0.29
)
 
$
7.04

 
$
(1.61
)
DILUTED
$
0.53

 
$
(0.29
)
 
$
6.20

 
$
(1.61
)
WEIGHTED AVERAGE SHARES USED TO COMPUTE NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
   
 
   
 
   
 
   
BASIC
37,270,928

 
38,772,434

 
37,815,598

 
38,684,412

DILUTED
45,503,371

 
38,772,434

 
42,910,528

 
38,684,412

See notes to condensed consolidated financial statements.

2



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands)
 
Three months ended
 
Nine months ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Net income (loss)
$
25,003

 
$
(11,373
)
 
$
273,242

 
$
(62,096
)
Unrealized gains (losses) on marketable securities, net of taxes of $0 and $0, respectively
(31
)
 

 
(31
)
 

Foreign currency translation adjustments
(338
)
 
1,476

 
(1,441
)
 
4,657

Other comprehensive income (loss)
(369
)
 
1,476

 
(1,472
)
 
4,657

Comprehensive income (loss) attributable to the Company
$
24,634

 
$
(9,897
)
 
$
271,770

 
$
(57,439
)
See notes to condensed consolidated financial statements.


3



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(in thousands, except share amounts)
   
Company Stockholders’ Equity
 
 
 
   
   
Common
Stock
Shares
 
Common
Stock
 
Common Stock -
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury
Stock
 
Noncontrolling Interest
 
Total
BALANCE, January 1, 2017
38,553,413

 
$
5

 
$
480,906

 
$
214,007

 
$
(5,751
)
 
$
(81,824
)
 
$
2,831

 
$
610,174

Conversion of restricted stock units to common stock (net of 24,494 shares of treasury stock purchased)
40,853

 

 

 

 

 
(383
)
 

 
(383
)
Acquisition of noncontrolling interest

 

 
(271
)
 

 

 

 
(2,831
)
 
(3,102
)
Stock compensation expense

 

 
1,308

 

 

 

 

 
1,308

Other comprehensive income

 

 

 

 
551

 

 

 
551

Net loss

 

 

 
(15,914
)
 

 

 

 
(15,914
)
BALANCE, March 31, 2017
38,594,266

 
$
5

 
$
481,943

 
$
198,093

 
$
(5,200
)
 
$
(82,207
)
 
$

 
$
592,634

Conversion of restricted stock units to common stock (net of 10,948 shares of treasury stock purchased)
91,040

 

 

 

 

 
(255
)
 

 
(255
)
Stock compensation expense

 

 
1,688

 

 

 

 

 
1,688

Other comprehensive income

 

 

 

 
2,630

 

 

 
2,630

Net loss

 

 

 
(34,809
)
 

 

 

 
(34,809
)
BALANCE, June 30, 2017
38,685,306

 
$
5

 
$
483,631

 
$
163,284

 
$
(2,570
)
 
$
(82,462
)
 
$

 
$
561,888

Conversion of restricted stock units to common stock (net of 43,962 shares of treasury stock purchased)
74,726

 

 

 

 

 
(214
)
 

 
(214
)
Settlement of stock appreciation rights in common stock (net of 35,378 shares of treasury stock purchased)
72,573

 

 

 

 

 
(329
)
 

 
(329
)
Stock compensation expense

 


 
2,023

 

 

 

 

 
2,023

Other comprehensive income

 

 

 

 
1,476

 

 

 
1,476

Net loss

 

 

 
(11,373
)
 

 

 

 
(11,373
)
BALANCE, September 30, 2017
38,832,605

 
$
5

 
$
485,654

 
$
151,911

 
$
(1,094
)
 
$
(83,005
)
 
$

 
$
553,471


4



   
Company Stockholders’ Equity
 
 
 
   
   
Common
Stock
Shares
 
Common
Stock
 
Common Stock -
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury
Stock
 
Noncontrolling Interest
 
Total
BALANCE, January 1, 2018
38,837,749

 
$
5

 
$
515,452

 
$
134,928

 
$
278

 
$
(83,081
)
 
$

 
$
567,582

Conversion of restricted stock units to common stock (net of 51,995 shares of treasury stock purchased)
127,470

 

 

 

 

 
(621
)
 

 
(621
)
Settlement of stock appreciation rights in common stock (net of 14,558 shares of treasury stock purchased)
33,463

 

 

 

 

 
(172
)
 

 
(172
)
Partial termination of capped call options
(15,012
)
 

 
252

 

 

 
(167
)
 

 
85

Convertible debt extinguishment impact (net of tax impact of $68)

 

 
(440
)
 

 

 

 

 
(440
)
Treasury stock purchases
(641,601
)
 

 

 

 

 
(7,828
)
 

 
(7,828
)
Stock compensation expense

 

 
1,794

 

 

 

 

 
1,794

Other comprehensive income

 

 

 

 
719

 

 

 
719

Net income

 

 

 
214,389

 

 

 

 
214,389

BALANCE, March 31, 2018
38,342,069

 
$
5

 
$
517,058

 
$
349,317

 
$
997

 
$
(91,869
)
 
$

 
$
775,508

Conversion of restricted stock units to common stock (net of 88,651 shares of treasury stock purchased)
149,362

 

 

 

 

 
(1,516
)
 

 
(1,516
)
Settlement of stock appreciation rights in common stock (net of 28,036 shares of treasury stock purchased)
63,549

 

 
(95
)
 

 

 
(485
)
 

 
(580
)
Convertible debt extinguishment impact (net of tax impact of $2,267)

 

 
(23,634
)
 

 

 

 

 
(23,634
)
Treasury stock purchases
(1,296,243
)
 

 

 

 

 
(17,220
)
 

 
(17,220
)
Stock compensation expense

 

 
2,203

 

 

 

 

 
2,203

Other comprehensive loss

 

 

 

 
(1,823
)
 

 

 
(1,823
)
Net income

 

 
 
 
33,850

 

 

 

 
33,850

BALANCE, June 30, 2018
37,258,737

 
$
5

 
$
495,532

 
$
383,167

 
$
(826
)
 
$
(111,090
)
 
$

 
$
766,788

Conversion of restricted stock units to common stock (net of 1,805 shares of treasury stock purchased)
13,301

 

 

 

 

 
(88
)
 

 
(88
)
Settlement of stock appreciation rights in common stock (net of 577 shares of treasury stock purchased)
27,666

 

 
(109
)
 

 

 
(325
)
 

 
(434
)
Convertible debt extinguishment impact (net of tax impact of $875)

 

 
(10,032
)
 

 

 

 

 
(10,032
)
Stock compensation expense

 

 
1,227

 

 

 

 

 
1,227

Other comprehensive loss

 

 

 

 
(369
)
 

 

 
(369
)
Net income

 

 

 
25,003

 

 

 

 
25,003

BALANCE, September 30, 2018
37,299,704

 
$
5

 
$
486,618

 
$
408,170

 
$
(1,195
)
 
$
(111,503
)
 
$

 
$
782,095


See notes to condensed consolidated financial statements.

5



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Nine months ended
   
September 30, 2018
 
September 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
   
 
   
Net income (loss)
$
273,242

 
$
(62,096
)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
   
 
   
Depreciation expense
27,080

 
25,585

Amortization expense of assets and liabilities, net
1,756

 
1,455

Gain on involuntary conversion
(4,454
)
 
(942
)
Accretion of convertible note discount
3,846

 
4,044

Amortization of marketable securities
(45
)
 

Change in fair value of contingent consideration
(13,235
)
 
1,998

Change in fair value of convertible debt conversion liability

 
24,158

Gain on sale of assets
(964
)
 

Gain on debt extinguishment
(2,893
)
 

Provision for doubtful accounts
224

 
(57
)
Impairment of long-lived assets

 
1,341

Stock compensation expense
5,224

 
5,019

Deferred tax expense
3,431

 
2,292

Other operating activities
606

 
35

Changes in assets and liabilities:
   
 
   
Accounts receivable, net
(210
)
 
77,534

Inventories
(6,119
)
 
21,683

Prepaid expenses and other assets
15,207

 
(27,244
)
Accounts payable
18,240

 
(19,544
)
Accrued expenses and other liabilities
8,360

 
(13,574
)
Deferred revenue
(745
)
 
(27,025
)
Net cash flows provided by operating activities
328,551

 
14,662

CASH FLOWS FROM INVESTING ACTIVITIES:
   
 
   
Cash paid for marketable securities
(52,878
)
 

Cash receipts for involuntary conversion
4,454

 
3,000

Transfer into restricted cash
(3,000
)
 

Cash receipts of restricted cash

 
4,000

Cash paid for purchase of property, plant and equipment
(37,916
)
 
(48,556
)
Cash receipts for sale of assets
1,625

 

Cash paid for acquisitions and additional interests, net of cash acquired
(4,801
)
 
(3,639
)
Cash paid for investments

 
(816
)
Net cash flows used in investing activities
(92,516
)
 
(46,011
)
CASH FLOWS FROM FINANCING ACTIVITIES:
   
 
   
Net borrowings (repayments) on revolving line of credit
(57,646
)
 
38,862

Borrowings on other lines of credit
491

 
3,873

Repayments on other lines of credit
(1,251
)
 
(3,000
)
Cash received from notes payable
14,033

 
6,363

Cash paid on notes payable
(74,788
)
 
(7,874
)
Cash paid for debt issuance costs
(532
)
 
(892
)
Cash paid for treasury stock
(25,048
)
 

Cash paid for contingent consideration settlement
(8,745
)
 
(10,978
)
Cash received on partial termination of capped call options
85

 

Cash paid for conversion of restricted stock units and stock appreciation rights
(3,411
)
 
(1,181
)
Net cash flows provided by (used in) financing activities
(156,812
)
 
25,173

NET CHANGE IN CASH AND CASH EQUIVALENTS
79,223

 
(6,176
)
CASH AND CASH EQUIVALENTS, Beginning of period
77,627

 
116,210

Effect of exchange rate changes on cash
(218
)
 
2,208

CASH AND CASH EQUIVALENTS, End of period
$
156,632

 
$
112,242

(continued)

6




RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Nine months ended
 
September 30, 2018
 
September 30, 2017
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
   
 
   
Cash paid for income taxes
$
612

 
$
238

Cash paid for interest
$
7,500

 
$
6,603

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   
 
   
Amounts included in period-end accounts payable for:
   
 
   
Purchases of property, plant and equipment
$
2,117

 
$
3,174

Debt issuance cost
$

 
$
73

Contingent consideration for acquisitions
$
482

 
$

 
 
 
 
(concluded)
   
See notes to condensed consolidated financial statements.



7



RENEWABLE ENERGY GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For The Three and Nine Months Ended September 30, 2018 and 2017
(unaudited)
(in thousands, except share and per share amounts)
NOTE 1 — BASIS OF PRESENTATION AND NATURE OF THE BUSINESS
The condensed consolidated financial statements have been prepared by Renewable Energy Group, Inc. and its subsidiaries (the "Company" or "REG"), pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K filed on March 9, 2018. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.
As of September 30, 2018, the Company operates a network of fourteen biorefineries, with twelve locations in North America and two locations in Europe, which includes thirteen operating biomass-based diesel production facilities with aggregate nameplate production capacity of 520 million gallons per year ("mmgy") and one fermentation facility. REG also has one feedstock processing facility. Ten of these plants are “multi-feedstock capable” which allows them to use a broad range of lower-cost feedstocks, such as inedible corn oil, used cooking oil and inedible animal fats in addition to vegetable oils, such as soybean oil and canola oil.
The biomass-based diesel industry and the Company’s business have benefited from certain federal and state incentives. The federal biodiesel mixture excise tax credit (the "BTC") was retroactively reinstated on February 9, 2018 for the fiscal year 2017, but was not reinstated for 2018 and accordingly we are currently operating without the benefit of the BTC. It is uncertain whether the BTC will be reinstated to apply to 2018. The expiration or modification of any one or more of those incentives, could adversely affect the financial results of the Company.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies should be read in conjunction with a summary of the significant accounting policies the Company has disclosed in its Annual Report on Form 10-K for the year ended December 31, 2017.

Marketable Securities
The Company’s marketable securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). Realized gains or losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are reported in other income, net. The Company evaluates such investments periodically for possible other-than-temporary impairment. A decline of fair value below amortized costs of debt securities is considered an other-than-temporary impairment if the Company has the intent to sell the security or if it is more likely than not that the Company will be required to sell the security before recovery of the entire amortized cost basis. In those instances, an impairment charge equal to the difference between the fair value and the amortized
cost basis is recognized in earnings. Regardless of the Company’s intent or requirement to sell a debt security, an impairment is considered other-than-temporary if the Company does not expect to recover the entire amortized cost basis; in those instances, a credit loss equal to the difference between the present value of the cash flows expected to be collected based on credit risk and the amortized cost basis of the debt security is recognized in earnings. The Company has no current requirement or intent to sell a material portion of marketable securities as of September 30, 2018. The Company expects to recover up to (or beyond) the initial cost of investment for securities held. In computing realized gains and losses on available-for-sale securities, the Company determines cost based on amounts paid, including direct costs such as commissions to acquire the security, using the specific identification method.
Accounts Receivable
Accounts receivable are carried at invoiced amount less allowance for doubtful accounts. Management estimates the allowance for doubtful accounts based on existing economic conditions, the financial conditions of customers, and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date.

8



Past due accounts are generally written off against the allowance for doubtful accounts only after reasonable collection attempts have been exhausted. For the nine months ended September 30, 2018, the Company has recognized receivables of $365,155 from the federal government and of $16,688 from customers related to the 2017 biodiesel mixture excise tax credit. Through September 30, 2018, the Company has received approximately $364,989 of the $365,155 receivable from the federal government and $16,480 from customers related to the 2017 biodiesel mixture excise tax credit.
Renewable Identification Numbers ("RINs")
When the Company produces and sells a gallon of biomass-based diesel, 1.5 to 1.7 RINs per gallon are generated. RINs are used to track compliance with the Renewable Fuel Standard ("RFS2"). RFS2 allows the Company to attach between zero and 2.5 RINs to any gallon of biomass-based diesel. As a result, a portion of the selling price for a gallon of biomass-based diesel is generally attributable to RFS2 compliance. However, RINs that the Company generates are a form of government incentive and not a result of the physical attributes of the biomass-based diesel production. Therefore, no cost is allocated to the RIN when it is generated, regardless of whether the RIN is transferred with the biomass-based diesel produced or held by the Company pending attachment to other biomass-based diesel production sales.
In addition, the Company also obtains RINs from third parties who have separated the RINs from gallons of biomass-based diesel. From time to time, the Company holds varying amounts of these separated RINs for resale. RINs obtained from third parties are initially recorded at their cost and are subsequently revalued at the lower of cost or net realizable value as of the last day of each accounting period. The resulting adjustments are reflected in costs of goods sold for the period. The value of these RINs is reflected in “Prepaid expenses and other assets” on the Condensed Consolidated Balance Sheets. The cost of goods sold related to the sale of these RINs is determined using the average cost method, while market prices are determined by RIN values, as reported by the Oil Price Information Service ("OPIS").

Low Carbon Fuel Standard
The Company generates Low Carbon Fuel Standard ("LCFS") credits for its low carbon fuels or blendstocks when its qualified low carbon fuels are transported into an LCFS market. LCFS credits are used to track compliance with the LCFS. As a result, a portion of the selling price for a gallon of biomass-based diesel sold into an LCFS market is also attributable to LCFS compliance. However, LCFS credits that the Company generates are a form of government incentive and not a result of the physical attributes of the biomass-based diesel production. Therefore, no cost is allocated to the LCFS credit when it is generated, regardless of whether the LCFS credit is transferred with the biomass-based diesel produced or held by the Company.
In addition, the Company also obtains LCFS credits from third-party trading activities. From time to time, the Company holds varying amounts of these third-party LCFS credits for resale. LCFS credits obtained from third parties are initially recorded at their cost and are subsequently revalued at the lower of cost or net realizable value as of the last day of each accounting period, and the resulting adjustments are reflected in costs of goods sold for the period. The value of LCFS credits obtained from third parties is reflected in “Prepaid expenses and other assets” on the Condensed Consolidated Balance Sheet. The cost of goods sold related to the sale of these LCFS credits is determined using the average cost method, while market prices are determined by LCFS values, as reported by the OPIS. At September 30, 2018 and December 31, 2017, the Company held no LCFS credits purchased from third parties.
The Company records assets acquired and liabilities assumed through the exchange of non-monetary assets based on the fair value of the assets and liabilities acquired or the fair value of the consideration exchanged, whichever is more readily determinable.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost less accumulated depreciation. Maintenance and repairs are expensed as incurred. Depreciation expense is computed on a straight-line method based upon estimated useful lives of the assets.
In June 2017, the Company experienced a fire at its Madison facility, resulting in the shutdown of the facility. In 2017, the Company impaired fixed assets with a total net book value of approximately $2,671 as a result of the fire in June 2017. To date, the Company received payments in the amounts of $12,454 and $9,484 to cover costs incurred for property losses and business interruption, respectively.
Convertible Debt
In June 2016, the Company issued $152,000 aggregate principal amount of 4% convertible senior notes due in 2036 (the "2036 Convertible Senior Notes"). The embedded conversion option was initially accounted for as an embedded derivative liability as the Company could not elect to issue shares of common stock upon conversion of the 2036 Convertible Senior Notes to the extent such election would result in the issuance of more than 19.99% of the common stock outstanding

9



immediately before the issuance of the 2036 Convertible Senior Notes unless the Company received stockholder approval for such issuance. On December 8, 2017, at the special meeting of stockholders, the Company obtained approval from its stockholders to remove the common stock issuance restrictions in connection with conversions of the 2036 Convertible Senior Notes. Accordingly, the embedded conversion option, valued at $45,933 and net of tax of $18,025, was reclassified into Additional Paid-in Capital at December 8, 2017. See "Note 8 - Debt" for a further description of the 2036 Convertible Senior Notes. During the three and nine months ended September 30, 2018, the Company used $17,583 and $59,346 to repurchase $10,000 and $34,500 principal amounts of the 2036 Convertible Senior Notes, respectively. See "Security Repurchase Programs" below.
Capped Call Transaction
In connection with the issuance of the 2019 Convertible Senior Notes, the Company entered into capped call transactions. The purchased capped call transactions were recorded as a reduction to common stock-additional paid-in-capital. Because this was considered to be an equity transaction and qualifies for the derivative scope exception, no future changes in the fair value of the capped call will be recorded by the Company. During 2016, in connection with the issuance of the 2036 Convertible Senior Notes, certain call options covered by the original capped call transaction were rebalanced and reset to cover 100% of the total number of shares of the Company's Common Stock underlying the remaining principal of the 2019 Convertible Senior Notes. The impact of these transactions, net of tax, was reflected as an addition/reduction to Additional Paid-in Capital as presented in the Consolidated Statements of Stockholders' Equity.
Security Repurchase Programs
In December 2017, the Company's board of directors approved a repurchase program of up to $75,000 of the Company's convertible notes and/or shares of common stock (the "2017 Program"). In June 2018, the Company's board of directors approved another repurchase program of up to $75,000 of the Company's convertible notes and/or shares of common stock (the "2018 Program"). Under these programs, the Company may repurchase convertible notes or shares from time to time in open market transactions, privately negotiated transactions or by other means. The timing and amount of repurchase transactions under each program are determined by the Company's management based on its evaluation of market conditions, share price, bond price, legal requirements and other factors.
The table below sets out the information regarding the activities under the 2017 Program and the 2018 Program during 2018:
 
Three months ended September 30, 2018
 
Nine months ended September 30, 3018
 
Number of shares/Principal amount in $'000
 
December 2017 Program
 
June 2018 Program
 
Both Programs
 
Number of shares/Principal amount in $'000
 
December 2017 Program
 
June 2018 Program
 
Both Programs
Repurchases of shares of common stock

 
$

 
$

 
$

 
1,937,844

 
$25,048
 
$

 
$25,048
2019 Senior Convertible Notes Repurchases
$

 
$

 
$

 
$

 
$
6,311

 
$6,689
 
$

 
$6,689
2036 Senior Convertible Notes Repurchases
$
10,000

 
$1,500
 
$16,083
 
$17,583
 
$
34,500

 
$43,263
 
$16,083
 
$59,346


Research and Development
Research and development ("R&D") costs are charged to expense as incurred. In process research and development ("IPR&D") assets acquired in connection with acquisitions are recorded on the Condensed Consolidated Balance Sheets as intangible assets.
Revenue Recognition
In the first quarter of 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). Under the ASU, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company applied the five-step method outlined in the ASU to all contracts with customers and elected the modified retrospective implementation method. The Company has generally a single performance obligation in its arrangements with customers. The Company believes for most of its contracts with customers, control is transferred at a point in time, typically upon delivery to the customers. When the Company performs shipping and handling

10



activities after the transfer of control to the customers (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The Company generally expenses sales commissions when incurred because the amortization period would have been less than one year. The Company records these costs within selling, general and administrative expenses. The implementation of the new standard did not have any material impact on the measurement or recognition of revenue of prior periods, however additional disclosures have been added in accordance with the ASU.
The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.
sales of biodiesel and renewable diesel produced at our facilities, including RINs and LCFS credits;
resale of finished biomass-based diesel, RINs and LCFS credits acquired from third parties, and raw material feedstocks acquired from others;
revenues from our sale of petroleum-based heating oil and ultra-low sulfur diesel, or ULSD, acquired from third parties, along with the sale of these petroleum-based products further blended with biodiesel produced at our wholly owned facilities;
sales of glycerin, other co-products of the biomass-based diesel production process;
incentive payments from federal and state governments, including the BTC, and from the USDA Advanced Biofuel Program; and
other revenue:
collaborative research and development and other service revenue for research and development activities to continue to build out the technology platform; and
sales of renewable chemical products.

Disaggregation of revenue:
All revenue recognized in the income statement, except for Biomass-based diesel Government Incentives, is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to product line and segment:
 
Reportable Segment
Three months ended September 30, 2018
Biomass-based
Diesel
 
Services
 
Renewable
Chemicals
 
Corporate
and other
 
Intersegment
Revenues
 
Consolidated
Total
Biomass-based diesel sales, net of BTC related amount due to customers of $0
$
635,409

 
$

 
$

 
$

 
$
(158,644
)
 
$