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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549   
Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2019
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 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)    

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
REGI
NASDAQ Global Market
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 every Interactive Data File required to be submitted 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 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 July 31, 2019, the registrant had 38,958,744 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.
 
 


3



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)
   
June 30,
2019
 
December 31,
2018
ASSETS
   

 
   

CURRENT ASSETS:
   

 
   

Cash and cash equivalents
$
61,597

 
$
123,575

Marketable securities

 
50,932

Accounts receivable (net of allowance for doubtful accounts of $626 and $673, respectively)
75,207

 
74,551

Inventories
171,397

 
168,900

Prepaid expenses and other assets
40,654

 
41,169

Restricted cash
3,000

 
3,000

Current assets held for sale

 
3,250

Total current assets
351,855

 
465,377

Property, plant and equipment, net
591,710

 
590,723

Right of use assets
43,490

 

Goodwill
16,080

 
16,080

Intangible assets, net
12,802

 
13,646

Other assets
21,466

 
21,270

TOTAL ASSETS
$
1,037,403

 
$
1,107,096

LIABILITIES AND EQUITY
   

 
   

CURRENT LIABILITIES:
   

 
   

Lines of credit
$
70,854

 
$
14,250

Current maturities of long-term debt
83,324

 
149,006

Current maturities of operating lease obligations
18,580

 

Accounts payable
107,246

 
95,866

Accrued expenses and other liabilities
24,570

 
35,256

Deferred revenue
4,536

 
300

Total current liabilities
309,110

 
294,678

Unfavorable lease obligation

 
2,259

Deferred income taxes
7,879

 
8,410

Long-term debt (net of debt issuance costs of $3,063 and $3,390, respectively)
30,454

 
33,421

Long-term operating lease obligations
35,577

 

Other liabilities
1,562

 
3,075

Total liabilities
384,582

 
341,843

COMMITMENTS AND CONTINGENCIES


 


EQUITY:
   

 
   

Common stock ($.0001 par value; 300,000,000 shares authorized; 38,958,744 and 37,318,942 shares outstanding, respectively)
5

 
5

Common stock—additional paid-in-capital
444,636

 
451,427

Retained earnings
315,227

 
427,244

Accumulated other comprehensive income
(1,623
)
 
(1,656
)
Treasury stock (10,399,818 and 11,524,975 shares outstanding, respectively)
(105,424
)
 
(111,767
)
Total equity
652,821

 
765,253

TOTAL LIABILITIES AND EQUITY
$
1,037,403

 
$
1,107,096

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
 
Six months ended
   
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
REVENUES:
   
 
   
 
   
 
   
Biomass-based diesel sales
$
540,019

 
$
551,109

 
$
995,225

 
$
825,870

Separated RIN sales
19,596

 
26,186

 
42,059

 
73,365

Biomass-based diesel government incentives
530

 
915

 
998

 
366,200

   
560,145

 
578,210

 
1,038,282

 
1,265,435

Other revenue
498

 
690

 
570

 
1,467

   
560,643

 
578,900

 
1,038,852

 
1,266,902

COSTS OF GOODS SOLD:
   
 
   
 
   
 
   
Biomass-based diesel
580,133

 
510,375

 
1,064,546

 
916,184

Separated RINs
7,282

 
11,011

 
13,867

 
43,749

Other costs of goods sold

 

 
3

 

   
587,415

 
521,386

 
1,078,416

 
959,933

GROSS PROFIT (LOSS)
(26,772
)
 
57,514

 
(39,564
)
 
306,969

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
26,865

 
24,512

 
52,010

 
56,166

RESEARCH AND DEVELOPMENT EXPENSE
176

 
27

 
385

 
1,061

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
468

 

 
468

 

INCOME (LOSS) FROM OPERATIONS
(54,281
)
 
32,975

 
(92,427
)
 
249,742

OTHER INCOME (EXPENSE), NET:
   
 
   
 
   
 
   
Change in fair value of contingent consideration
(398
)
 
(30
)
 
(702
)
 
(488
)
Gain (loss) on debt extinguishment

 
2,337

 
(2
)
 
2,105

Gain on involuntary conversion

 
454

 

 
4,454

Other income, net
691

 
2,066

 
1,545

 
3,279

Interest expense
(3,737
)
 
(4,925
)
 
(7,956
)
 
(9,576
)
   
(3,444
)
 
(98
)
 
(7,115
)
 
(226
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(57,725
)
 
32,877

 
(99,542
)
 
249,516

INCOME TAX BENEFIT (EXPENSE)
90

 
(3,835
)
 
520

 
(2,632
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
(57,635
)
 
29,042

 
(99,022
)
 
246,884

NET INCOME (LOSS) ON DISCONTINUED OPERATIONS (NOTE 4)
(4,462
)
 
4,808

 
(6,479
)
 
1,353

NET INCOME (LOSS) TO THE COMPANY
$
(62,097
)
 
$
33,850

 
$
(105,501
)
 
$
248,237

LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS ON CONTINUING OPERATIONS

 
765

 

 
6,222

NET INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS
$
(57,635
)
 
$
28,277

 
$
(99,022
)
 
$
240,662

LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS ON DISCONTINUED OPERATIONS

 
127

 

 
34

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS
$
(4,462
)
 
$
4,681

 
$
(6,479
)
 
$
1,319

Basic net income (loss) per share attributable to common stockholders:
   
 
   
 
   
 
   
Continuing operations
$
(1.52
)
 
$
0.76

 
$
(2.63
)
 
$
6.31

Discontinued operations
$
(0.12
)
 
$
0.13

 
$
(0.17
)
 
$
0.03

Net income (loss) per share
$
(1.64
)
 
$
0.88

 
$
(2.81
)
 
$
6.35

Diluted net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
Continuing operations
$
(1.52
)
 
$
0.67

 
$
(2.63
)
 
$
5.91

Discontinued operations
$
(0.12
)
 
$
0.11

 
$
(0.17
)
 
$
0.03

Net income (loss) per share
$
(1.64
)
 
$
0.78

 
$
(2.81
)
 
$
5.94

Weighted-average shares used to compute basic net income (loss) per share attributable to common stockholders:
   
 
   
 
   
 
   
Basic
37,851,735

 
37,413,387

 
37,603,921

 
38,112,531

Weighted-average shares used to compute diluted net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
Continuing operations
37,851,735

 
42,081,341

 
37,603,921

 
40,713,114

Discontinued operations
37,851,735

 
42,081,341

 
37,603,921

 
40,713,114

Net income (loss)
37,851,735

 
42,081,341

 
37,603,921

 
40,713,114

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
 
Six months ended
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Net income (loss)
$
(62,097
)
 
$
33,850

 
$
(105,501
)
 
$
248,237

Unrealized gains on marketable securities, net of taxes of $0 and $0, respectively
1

 

 

 

Foreign currency translation adjustments
394

 
(1,823
)
 
33

 
(1,104
)
Other comprehensive income (loss)
395

 
(1,823
)
 
33

 
(1,104
)
Comprehensive income (loss) attributable to the Company
$
(61,702
)
 
$
32,027

 
$
(105,468
)
 
$
247,133

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
 
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 income

 

 

 

 
(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




4



   
Company Stockholders’ Equity
   
Common
Stock
Shares
 
Common
Stock
 
Common Stock -
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury
Stock
 
Total
BALANCE, January 1, 2019
37,318,942

 
$
5

 
$
451,427

 
$
427,244

 
$
(1,656
)
 
$
(111,767
)
 
$
765,253

Conversion of restricted stock units to common stock (net of 138,012 shares of treasury stock purchased)
283,339

 

 

 

 

 
(2,760
)
 
(2,760
)
Settlement of stock appreciation rights in common stock (net of 9,888 shares of treasury stock purchased)
16,937

 

 
(12
)
 

 

 
(159
)
 
(171
)
Partial termination of capped call options
(1,087
)
 

 
30

 

 

 
(30
)
 

Convertible debt extinguishment impact

 

 
(152
)
 

 

 

 
(152
)
Stock compensation expense

 

 
1,353

 

 

 

 
1,353

Other comprehensive loss

 

 

 

 
(362
)
 

 
(362
)
Adoption of ASC Topic 842, Leases

 

 

 
(6,516
)
 

 

 
(6,516
)
Net loss

 

 

 
(43,404
)
 

 

 
(43,404
)
BALANCE, March 31, 2019
37,618,131

 
$
5

 
$
452,646

 
$
377,324

 
$
(2,018
)
 
$
(114,716
)
 
$
713,241

Conversion of restricted stock units to common stock (net of 805 shares of treasury stock purchased)
58,759

 

 

 

 

 
(518
)
 
(518
)
Settlement of stock appreciation rights in common stock (net of 2,274 shares of treasury stock purchased)
4,631

 

 
(7
)
 

 

 
(17
)
 
(24
)
Settlement of 2019 Convertible Senior Notes conversion premium
1,902,781

 

 
(18,779
)
 

 

 
18,779

 

Termination of capped call options
(625,558
)
 

 
8,952

 

 

 
(8,952
)
 

Stock compensation expense

 

 
1,824

 

 

 

 
1,824

Other comprehensive income

 

 

 

 
395

 

 
395

Net loss

 

 

 
(62,097
)
 

 

 
(62,097
)
BALANCE, June 30, 2019
38,958,744

 
$
5

 
$
444,636

 
$
315,227

 
$
(1,623
)
 
$
(105,424
)
 
$
652,821


See notes to condensed consolidated financial statements.

5



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Six months ended
   
June 30, 2019
 
June 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
   
 
   
Net income (loss)
$
(105,501
)
 
$
248,237

Net income (loss) from discontinuing operations
(6,479
)
 
1,353

Net income (loss) from continuing operations
(99,022
)
 
246,884

Adjustments to reconcile net income (loss) to net cash flows from operating activities:
   
 
   
Depreciation expense
18,241

 
17,743

Amortization expense of assets and liabilities, net
10,316

 
596

Gain on involuntary conversion

 
(4,454
)
Accretion of convertible note discount
2,092

 
2,651

Amortization of marketable securities
(146
)
 

Change in fair value of contingent consideration
702

 
488

Gain on sale of assets

 
(977
)
(Gain) loss on debt extinguishment
2

 
(2,105
)
Provision (benefit) for doubtful accounts
(120
)
 
144

Impairment of property, plant and equipment
468

 

Stock compensation expense
3,177

 
3,997

Deferred tax expense
(530
)
 
2,584

Other operating activities
76

 
(359
)
Changes in assets and liabilities:
   
 
   
Accounts receivable, net
(1,798
)
 
(1,085
)
Inventories
(2,645
)
 
(6,625
)
Prepaid expenses and other assets
3,997

 
30,498

Accounts payable
7,178

 
42,267

Accrued expenses and other liabilities
(4,131
)
 
(17,032
)
Operating lease obligations
(8,231
)
 

Deferred revenue
4,236

 
(2,058
)
Net cash flows (used in) provided by operating activities - continuing operations
(66,138
)
 
313,157

Net cash flows used in operating activities - discontinuing operations
(6,794
)
 
(1,619
)
Cash (used in) provided by operating activities
(72,932
)
 
311,538

CASH FLOWS FROM INVESTING ACTIVITIES:
   
 
   
Cash paid for marketable securities
(3,478
)
 

Cash received from maturities of marketable securities
54,584

 

Cash receipts for involuntary conversion

 
4,454

Cash paid for purchase of property, plant and equipment
(18,032
)
 
(28,845
)
Cash receipts for sale of assets

 
1,599

Cash paid for investments
(1,203
)
 

Net cash flows provided by (used in) investing activities - continuing operations
31,871

 
(22,792
)
Net cash flows provided by (used in) investing activities - discontinuing operations
3,100

 
(335
)
Cash provided by (used in) investing activities
34,971

 
(23,127
)
CASH FLOWS FROM FINANCING ACTIVITIES:
   
 
   
Net borrowings (repayments) on revolving line of credit
54,490

 
(57,288
)
Borrowings on other lines of credit
36,925

 
28,477

Repayments on other lines of credit
(34,728
)
 
(28,712
)
Cash received from notes payable

 
10,933

Cash paid on notes payable
(71,068
)
 
(63,613
)
Cash paid for debt issuance costs
(58
)
 
(249
)
Cash paid for treasury stock

 
(25,048
)
Cash paid for contingent consideration settlement
(6,128
)
 
(5,659
)
Cash received on partial termination of capped call options

 
85

Cash paid for conversion of restricted stock units and stock appreciation rights
(3,473
)
 
(2,889
)
Net cash flows used in financing activities - continuing operations
(24,040
)
 
(143,963
)
Net cash flows used in financing activities - discontinuing operations

 

Cash used in financing activities
(24,040
)
 
(143,963
)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(62,001
)
 
144,448

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, Beginning of period
126,575

 
77,627

Effect of exchange rate changes on cash
23

 
(300
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, End of period
$
64,597

 
$
221,775

(continued)

6




RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Six months ended
 
June 30, 2019
 
June 30, 2018
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
   
 
   
Cash paid for income taxes
$
1,259

 
$
613

Cash paid for interest
$
4,734

 
$
6,694

Leased assets obtained in exchange for new operating lease liabilities
$
8,528

 
$

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   
 
   
Amounts included in period-end accounts payable for:
   
 
   
Purchases of property, plant and equipment
$
5,446

 
$
1,511

Issuance of treasury stock to settle 2019 Convertible Senior Notes conversion premium
$
(18,779
)
 
$

Receipt in treasury stock for settlement of capped call options
$
8,952

 
$

(concluded)
   
See notes to condensed consolidated financial statements.



7



RENEWABLE ENERGY GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For The Three and Six Months Ended June 30, 2019 and 2018
(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 7, 2019. 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 June 30, 2019, the Company owns and 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. 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. In July 2019, the Company announced the closure of the New Boston, Texas biorefinery. The plant's nameplate capacity is 15 mmgy which will reduce the Company's overall nameplate capacity to 505 mmgy.
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 has not been reinstated for 2018 or 2019 as of the date of this report. 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, 2018.

Restricted Cash
The Company segregates certain cash balances as restricted cash that represent those funds required to be set aside by a contractual agreement. The Company classifies restricted cash between current and non-current assets based on the length of time of the restricted use.
As of June 30, 2019 and 2018, current restricted cash amounted to $3,000 and $0, respectively, which was held as pledges for letters of credit issued to support our operations. See the table below for reconciliation of "Cash, Cash Equivalents and Restricted Cash" in regards to the Condensed Consolidated Statements of Cash Flows:
 
June 30, 2019
 
June 30, 2018
Cash and cash equivalents
$
61,597

 
$
221,775

Restricted cash
3,000

 

Total cash, cash equivalents and restricted cash in the Condensed Statements of Cash Flows
$
64,597

 
$
221,775



Marketable Securities
The Company’s marketable securities were classified as available-for-sale and were 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

8



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. There were no marketable securities as of June 30, 2019 as the balance has been utilized to settle the 2019 Senior Convertible Notes that matured on June 15, 2019. Refer to "Note 7 - Debt" for further detail.
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 June 30, 2019 and December 31, 2018, 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.

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"). See "Note 7 - Debt" for a further description of the 2036 Convertible Senior Notes. During the three and six months ended June 30, 2019 the Company made no repurchases of the 2036 Convertible Senior Notes. For the three and six months ended June 30, 2018, the Company used $41,763 to repurchase $24,500 principal amount of the 2036 Convertible Senior Notes. See "Security Repurchase Programs" below.
In June 2014, the Company issued $143,800 aggregate principal amount of 2.75% convertible senior notes due in 2019 (the "2019 Convertible Senior Notes"). During the six months ended June 30, 2018, the Company used $6,689 under the 2017 Program (defined below in "Security Repurchase Programs") to repurchase $6,311 principal amount of the 2019 Convertible Senior Notes. During the three months ended June 30, 2019, the 2019 Convertible Senior Notes matured. The Company

9



elected to settle the principal balance with cash and the excess conversion amount was satisfied by the Company issuing shares from treasury stock. 1,902,781 shares of treasury stock were issued at settlement.
Capped Call Transaction
In connection with the issuance of the 2019 Convertible Senior Notes, the Company entered into capped call transactions ("Capped Call"). 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. As part of the settlement of the 2019 Convertible Senior Notes, the Company settled all related capped call options in June 2019 and received 625,558 shares of common stock. The impact of these transactions, net of tax, was reflected as an addition to Additional Paid-in Capital as presented in the Condensed Consolidated Statements of Stockholders' Equity.
Security Repurchase Programs
In December 2017, June 2018 and January 2019, the Company's Board of Directors approved a repurchase program, each of up to $75,000 of the Company's convertible notes and/or shares of common stock (the "2017 Program","2018 Program", and "2019 Program", respectively). 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 Company made no repurchases of shares of common stock or convertible notes during the three and six months ended June 30, 2019.
The table below sets out the information regarding the activities under the 2017 Program and 2018 Program during the three and six months ended June 30, 2018:
 
Three months ended June 30, 2018
 
Six months ended June 30, 2018
 
Number of shares/ Principal amount in 000's
 
December 2017 Program
 
June 2018 Program
 
Both Programs
 
Number of shares/Principal amount in 000's
 
December 2017 Program
 
June 2018 Program
 
Both Programs
Repurchases of shares of common stock
1,296,243

 
$
17,220

 
$

 
$
17,220

 
1,937,844

 
$
25,048

 
$

 
$
25,048

2019 Senior Convertible Notes Repurchases
$

 
$

 
$

 
$

 
$
6,311

 
$
6,689

 
$

 
$
6,689

2036 Senior Convertible Notes Repurchases
$
24,500

 
$
41,763

 
$

 
$
41,763

 
$
24,500

 
$
41,763

 
$

 
$
41,763


Revenue Recognition
The Company generally has 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 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 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 and acquired from third parties, including RINs and LCFS credits;
resale of petroleum acquired from third parties, along with the sale of petroleum-based products further blended with biodiesel produced at our wholly owned facilities or acquired from third parties;

10



sales of raw materials, glycerin, and other co-products of the biomass-based diesel production process;
other revenue, including biomass-based diesel facility management and operational services; and
incentive payments from federal and state governments, including the BTC, and from the USDA Advanced Biofuel Program.

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 Segments
Three months ended June 30, 2019
Biomass-based
Diesel
 
Services
 
Corporate
and other
 
Intersegment
Revenues