Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.7.0.1
Acquisitions
12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
Acquisitions
ACQUISITIONS
2016 Acquisition
Sanimax Energy, LLC
On March 15, 2016, the Company acquired fixed assets and inventory from Sanimax Energy, including the 20 mmgy nameplate capacity biomass-based diesel refinery in DeForest, Wisconsin. The Company completed its initial accounting of this business combination as the valuation of the real and personal property was finalized as of September 30, 2016.
The following table summarizes the consideration paid for the acquisition from Sanimax Energy:
 
March 15, 2016
Consideration at fair value for acquisition from Sanimax:
 
Cash
$
12,541

Common stock
4,050

Contingent consideration
4,500

Total
$
21,091


The fair value of the 500,000 shares of Common Stock issued was determined using the closing market price of the Company's common shares at the date of acquisition.
The Company may pay contingent consideration of up to $5,000 (Earnout Payments) over a 7-year period after the acquisition, subject to achievement of certain milestones related to the biomass-based diesel gallons produced and sold by REG Madison. The Earnout Payments are payable in cash and cannot exceed $1,700 in any one year period beginning March 15, 2016 through 2023 and up to $5,000 in aggregate. As of December 31, 2016, the Company has recorded a contingent liability of $3,835, approximately $1,790 of which has been classified as current on the Consolidated Balance Sheets.
The following table summarizes the fair values of the assets acquired at the acquisition date.
   
March 15, 2016
Assets (liabilities) acquired from Sanimax Energy:
   
Inventory
$
1,591

Property, plant and equipment
19,500

Total identifiable assets acquired
21,091

 
 
Accrued expenses and liabilities

Net identifiable assets acquired
$
21,091



The following unaudited pro forma condensed combined results of operations assume that the Sanimax Energy acquisition was completed as of January 1, 2014 and as if the stock had been issued on the same date.
 
Year ended December 31, 2016
 
Year ended December 31, 2015
 
Year ended December 31, 2014
Revenues
$
2,049,658

 
$
1,406,580

 
$
1,282,361

Net income (loss) attributable to the Company's common stockholders
43,453

 
(157,524
)
 
83,612

Basic net income (loss) per share attributable to common stockholders
$1.06
 
$(3.54)
 
$2.03

2015 acquisitions
Imperium Renewables, Inc.
On August 19, 2015, the Company acquired substantially all the assets of Imperium Renewables, Inc. (Imperium), including the 100-mmgy nameplate biomass-based diesel refinery and deepwater port terminal at the Port of Grays Harbor, Washington. The results of Imperium's operations have been included in the consolidated financial statements since that date. The Company has finalized its accounting of this business combination during the fourth quarter of 2015.
The following table summarizes the consideration paid for Imperium:
 
August 19, 2015
Consideration at fair value for Imperium:
 
Cash
$
36,748

Common stock
15,310

Contingent consideration
5,000

Total
$
57,058


The fair value of the 1,675,000 shares of Common Stock issued to Imperium was determined using the closing market price of the Company's common shares at the date of acquisition.
Subject to achievement of certain milestones related to the biomass-based diesel gallons produced and sold by REG Grays Harbor and whether the BTC is reinstated, Imperium may receive certain contingent consideration (Earnout Payments) over a two-year period after the acquisition. The Earnout Payments will be payable in cash. As of December 31, 2016, the Company has recorded a contingent liability of $2,093, all of which has been classified as current on the Consolidated Balance Sheets.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
   
August 19, 2015
Assets (liabilities) acquired of Imperium:
   
Cash
$
168

Accounts receivable
8,274

Inventory
18,989

Other current assets
87

Property, plant and equipment
46,476

Intangible assets
2,900

Total identifiable assets acquired
76,894

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

Less: Bargain purchase gain
5,358

Net assets acquired
$
57,058


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

The assets were not fully utilized by the seller and that the transaction was completed with a motivated seller that appeared to have recapitalized its investments and desired to exit the facilities that no longer fit its strategy given the uncertainties in the industry.
The Company was able to complete the acquisition in an expedient manner, with a cash payment, stock issuance and without a financial contingency, which was a key attribute for the seller. The relatively small size of the transaction for the Company, the lack of required third-party financing and the Company's expertise in completing similar transactions in the past gave the seller confidence that the Company could complete the transaction quickly and without difficultly.
Due to the unique nature of the products and limited number of potential buyers for this business, the seller found it advantageous to accept the Company's purchase price based upon our demonstrated ability to operate similar businesses, and financial strength that may enable the Company to make improvement and run the business at increased production rates in the long run.
2014 acquisitions
Petrotec AG
On December 24, 2014, the Company acquired 69.08% of the outstanding common shares and voting interest of Petrotec. The results of Petrotec’s operations have been included in the consolidated financial statements since that date. During the last quarter of 2015, the Company completed its purchase accounting for this business combination. The finalization of the purchase price allocation did not result in material adjustments.
The following table summarizes the consideration paid for Petrotec:
 
December 24, 2014
Consideration at fair value for Petrotec:
 
Common stock
$
20,022


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

Accounts receivable
4,989

Inventory
9,470

Other current assets
3,583

Property, plant and equipment
25,026

Other noncurrent assets
369

Total identifiable assets acquired
56,960

 
 
Accounts payable
(8,171
)
Accrued expenses and other liabilities
(2,151
)
Debt
(16,192
)
Non-current liabilities
(1,462
)
Total liabilities assumed
(27,976
)
Net identifiable assets acquired
28,984

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


The fair value of the 30.92% noncontrolling interest in Petrotec is estimated to be $8,962 at the date of the acquisition. The fair value of the noncontrolling interest was estimated using a combination of the income approach and a market approach.
The Company recognized $1,289 of acquisition related costs that were expensed in the period the acquisition occurred.
In April 2015, Petrotec's application to de-list its shares of common stock from the Frankfurt Stock Exchange was approved. From the end of the October 8, 2015 trading day, Petrotec's shares of common stock are no longer traded on a regulated market of any stock exchange.
During 2016 and 2015, the Company acquired additional common shares of Petrotec as part of the cash tender offers and open market purchases for $149 and $4,828, respectively. At December 31, 2016 and 2015, the Company owned 90.58% and 87.49% of the outstanding common shares and voting interest of Petrotec.
In January 2017, the Company completed its acquisition of the remaining minority interest in Petrotec and now owns 100% of Petrotec's outstanding shares.

Syntroleum Corporation/Dynamic Fuels, LLC
On June 3, 2014, REG Synthetic Fuels, a wholly-owned subsidiary of the Company included in the Biomass-based diesel segment, acquired substantially all the assets of Syntroleum, which consisted of a 50% limited liability company membership interest in Dynamic Fuels, as well as intellectual property and other assets. Dynamic Fuels owns a 75 mmgy nameplate capacity renewable hydrocarbon diesel biorefinery located in Geismar, Louisiana. The following table summarizes the consideration paid for Syntroleum.
 
June 3, 2014
Consideration at fair value for Syntroleum:
 
Common stock
$
34,831


The fair value of the 3,493,613 shares of Common Stock issued to Syntroleum was determined on the basis of the closing market price of the Company's common shares at the date of acquisition.
The fair value of the Syntroleum renewable hydrocarbon diesel technology was determined using the relief from royalty method, or RFR, which reflects the savings realized by owning the intangible assets. The value under RFR method is dependent upon the following factors for an asset: royalty rate, discount rate, expected life and projected revenue.
On June 6, 2014, REG Synthetic Fuels acquired the remaining 50% ownership interest in Dynamic Fuels, from Tyson Foods. The Company renamed Dynamic Fuels to REG Geismar, LLC, which is included in the Biomass-based diesel segment. The finalization of the purchase price allocation resulted in an increase in goodwill of $3,202 relating to higher than initially estimated net operating losses prior to the acquisition of Syntroleum and Dynamic Fuels.
The following table summarizes the consideration paid to Tyson Foods for Dynamic Fuels:
 
June 6, 2014
Consideration at fair value for Dynamic Fuels:
 
Cash
$
16,447

Contingent consideration
28,900

Total
$
45,347


The following table summarizes the amount of assets acquired and liabilities assumed at the acquisition date for the combined acquisition of Syntroleum and Dynamic Fuels:
   
June 6, 2014
Assets (liabilities) acquired of Syntroleum and Dynamic Fuels:
   
Cash
$
253

Other current assets
4,666

Property, plant and equipment
121,567

Goodwill
71,398

Intangible assets
8,900

Other noncurrent assets
10,281

Other current liabilities
(1,024
)
Deferred tax liabilities
(8,310
)
Debt
(113,553
)
Other noncurrent liabilities
(14,000
)
Total
$
80,178


Subsequent to the closing of the Tyson Foods transaction, REG Geismar paid off the debt owed to Tyson Foods in the amount of $13,553.
Subject to achievements related to the sale of renewable hydrocarbon diesel at the REG Geismar production facility, Tyson Foods may receive contingent consideration of up to $35,000. The Company will pay contingent consideration, if and when, the Company achieves certain sales volumes. The agreement calls for periodic payments based on pre-determined payments per gallon of product sold. The probability weighted contingent payments were discounted using a risk adjusted discount rate of 5.8%. The contingent payments will be payable in cash. As of December 31, 2016, the Company has recorded a contingent liability of $27,065, of which $9,589 has been classified in accrued expenses and other liabilities on the Consolidated Balance Sheets.
LS9, Inc.
On January 22, 2014, REG Life Sciences, a wholly-owned subsidiary of the Company, acquired substantially all of the assets and certain liabilities of LS9. This acquisition's finalized purchase price allocation did not result in material adjustments. The following table summarizes the consideration paid and the amounts of assets acquired and liabilities assumed at the acquisition date:
   
January 22, 2014
Consideration at fair value:
   

Cash
$
15,275

Common stock
26,254

Contingent consideration
17,050

Total
$
58,579



   
January 22, 2014
Assets (liabilities) acquired:
   

Property, plant and equipment
$
8,215

In-process research & development intangible assets
15,956

Goodwill
34,846

Other noncurrent liabilities
(438
)
Total
$
58,579


The fair value of the 2,230,559 shares of Common Stock issued as part of the consideration paid for LS9 was determined on the basis of the closing market price of the Company's common shares at the date of acquisition.
Subject to achievement of certain milestones related to the development and commercialization of products from LS9’s technology, LS9 may receive contingent consideration of up to $21,500 (Earnout Payments) over a five-year period after the acquisition. The Earnout Payments will be payable in cash, the Company's stock or a combination of cash and stock at the Company's election. As of December 31, 2016 and 2015, the Company has recorded a contingent liability of $13,575 and $7,590, respectively, $4,165 and $3,958, respective of which has been classified as current on the Consolidated Balance Sheets.
416 S. Bell, LLC
Prior to July 25, 2014, the Company had a 50% ownership in 416 S Bell, LLC (Bell, LLC), a variable interest entity (VIE) joint venture that owned and leased to the Company its corporate office building in Ames, Iowa. Commencing January 1, 2011, the Company had the right to execute a call option with the joint venture member, Dayton Park, LLC (Dayton Park), to purchase Bell, LLC and commencing on January 1, 2013, Dayton Park had the right to execute a put option with the Company to sell Bell, LLC. The Company determined it was the primary beneficiary of Bell, LLC and had consolidated Bell, LLC into the Company’s financial statements since January 1, 2011.
On July 25, 2014, the Company completed the acquisition of the remaining 50% interest in Bell, LLC in exchange for $1,423 cash. The Company determined that this transaction did not result in a change of control and as such has accounted for it as an equity transaction. Neither goodwill nor a gain/loss was recognized in conjunction with the acquisition.