Clean Energy Fuels Corp. - Quarter Report: 2015 June (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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, 2015

 

Commission File Number: 001-33480

 

CLEAN ENERGY FUELS CORP.

(Exact name of registrant as specified in its charter)

 

 

4675 MacArthur Court, Suite 800, Newport Beach, CA 92660

(Address of principal executive offices, including zip code)

 

(949) 437-1000

(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 o

 

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 o

 

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes o No x

 

As of July 29, 2015, there were 90,560,410 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.

 

 

Table of Contents

 

CLEAN ENERGY FUELS CORP. AND SUBSIDIARIES

 

INDEX

 

Table of Contents

 

PART I.—FINANCIAL INFORMATION
Item 1.—Financial Statements (Unaudited)	3
Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.—Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.—Controls and Procedures	32
PART II.—OTHER INFORMATION
Item 1.—Legal Proceedings	33
Item 1A.—Risk Factors	33
Item 2.—Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.—Defaults upon Senior Securities	45
Item 4.—Mine Safety Disclosures	45
Item 5.—Other Information	45
Item 6.—Exhibits	46

 

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PART I.—FINANCIAL INFORMATION

 

Item 1.—Financial Statements (Unaudited).

 

Clean Energy Fuels Corp. and Subsidiaries

 

Condensed Consolidated Balance Sheets

 

December 31, 2014 and June 30, 2015

 

(Unaudited)

 

(In thousands, except share data)

 

		December 31, 2014			June 30, 2015
Assets
Current assets:
Cash and cash equivalents		$	92,381		$	53,296
Restricted cash		6,012			4,469
Short-term investments		122,546			128,596
Accounts receivable, net of allowance for doubtful accounts of $752 and $970 as of December 31, 2014 and June 30, 2015, respectively		81,970			78,537
Other receivables		56,223			18,656
Inventories		34,696			31,347
Prepaid expenses and other current assets		19,811			15,172
Total current assets		413,639			330,073
Land, property and equipment, net		514,269			520,424
Notes receivable and other long-term assets, net		71,904			69,362
Investments in other entities		6,510			5,961
Goodwill		98,726			95,831
Intangible assets, net		55,361			49,310
Total assets		$	1,160,409		$	1,070,961
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt and capital lease obligations		$	4,846		$	5,977
Accounts payable		43,922			28,859
Accrued liabilities		56,760			51,327
Deferred revenue		14,683			5,566
Total current liabilities		120,211			91,729
Long-term debt and capital lease obligations, less current portion		500,824			504,769
Long-term debt, related party		65,000			65,000
Other long-term liabilities		9,339			7,971
Total liabilities		695,374			669,469
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value. Authorized 1,000,000 shares; issued and outstanding no shares		—			—
Common stock, $0.0001 par value. Authorized 224,000,000 shares; issued and outstanding 90,203,344 shares and 90,527,189 shares at December 31, 2014 and June 30, 2015, respectively		9			9
Additional paid-in capital		898,106			904,058
Accumulated deficit		(457,441		)	(518,533		)
Accumulated other comprehensive loss		(3,248		)	(10,878		)
Total Clean Energy Fuels Corp. stockholders’ equity		437,426			374,656
Noncontrolling interest in subsidiary		27,609			26,836
Total stockholders’ equity		465,035			401,492
Total liabilities and stockholders’ equity		$	1,160,409		$	1,070,961

 

See accompanying notes to condensed consolidated financial statements.

 

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Clean Energy Fuels Corp. and Subsidiaries

 

Condensed Consolidated Statements of Operations

 

For the Three Months and Six Months Ended June 30, 2014 and 2015

 

(Unaudited)

 

(In thousands, except share and per share data)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2014			2015			2014			2015
Revenue:
Product revenues		$	86,473		$	75,744		$	172,262		$	145,041
Service revenues		11,660			11,124			21,146			27,675
Total revenues		98,133			86,868			193,408			172,716
Operating expenses:
Cost of sales (exclusive of depreciation and amortization shown separately below):
Product cost of sales		69,175			59,387			137,042			114,766
Service cost of sales		4,080			4,399			7,844			13,753
Derivative (gains) losses:
Series I warrant valuation		2,286			300			(2,169		)	(583		)
Selling, general and administrative		34,400			28,994			67,890			59,227
Depreciation and amortization		11,608			13,402			23,123			26,288
Total operating expenses		121,549			106,482			233,730			213,451
Operating loss		(23,416		)	(19,614		)	(40,322		)	(40,735		)
Interest expense, net		(10,130		)	(9,973		)	(19,640		)	(19,868		)
Other income (expense), net		1,121			317			(165		)	864
Loss from equity method investments		—			(345		)	—			(549		)
Loss before income taxes		(32,425		)	(29,615		)	(60,127		)	(60,288		)
Income tax expense		(147		)	(740		)	(1,109		)	(1,594		)
Net loss		(32,572		)	(30,355		)	(61,236		)	(61,882		)
Loss from noncontrolling interest		266			393			337			773
Net loss attributable to Clean Energy Fuels Corp.		$	(32,306	)	$	(29,962	)	$	(60,899	)	$	(61,109	)
Loss per share attributable to Clean Energy Fuels Corp.:
Basic		$	(0.34	)	$	(0.33	)	$	(0.64	)	$	(0.67	)
Diluted		$	(0.34	)	$	(0.33	)	$	(0.64	)	$	(0.67	)
Weighted-average common shares outstanding:
Basic		94,859,587			91,480,998			94,768,462			91,399,478
Diluted		94,859,587			91,480,998			94,768,462			91,399,478

 

See accompanying notes to condensed consolidated financial statements.

 

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Clean Energy Fuels Corp. and Subsidiaries

 

Condensed Consolidated Statements of Comprehensive Loss

 

For the Three Months and Six Months Ended June 30, 2014 and 2015

 

(Unaudited)

 

(In thousands)

 

		Clean Energy Fuels Corp.						Noncontrolling Interest						Total
		Three Months Ended June 30,						Three Months Ended June 30,						Three Months Ended June 30,
		2014			2015			2014			2015			2014			2015
Net loss		$	(32,306	)	(29,962		)	$	(266	)	$	(393	)	$	(32,572	)	$	(30,355	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(442		)	813			—			—			(442		)	813
Foreign currency adjustments on intra-entity long-term investments		3,495			535			—			—			3,495			535
Unrealized losses on available-for-sale securities		(81		)	(2		)	—			—			(81		)	(2		)
Total other comprehensive income, net of tax		2,972			1,346			—			—			2,972			1,346
Comprehensive loss		$	(29,334	)	$	(28,616	)	$	(266	)	$	(393	)	$	(29,600	)	$	(29,009	)

 

		Clean Energy Fuels Corp.						Noncontrolling Interest						Total
		Six Months Ended June 30,						Six Months Ended June 30,						Six Months Ended June 30,
		2014			2015			2014			2015			2014			2015
Net loss		$	(60,899	)	$	(61,109	)	$	(337	)	$	(773	)	$	(61,236	)	$	(61,882	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(246		)	(4,868		)	—			—			(246		)	(4,868		)
Foreign currency adjustments on intra-entity long-term investments		157			(2,776		)	—			—			157			(2,776		)
Unrealized (losses) gains on available-for-sale securities		(399		)	14			—			—			(399		)	14
Total other comprehensive loss, net of tax		(488		)	(7,630		)	—			—			(488		)	(7,630		)
Comprehensive loss		$	(61,387	)	$	(68,739	)	$	(337	)	$	(773	)	$	(61,724	)	$	(69,512	)

 

See accompanying notes to condensed consolidated financial statements.

 

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Clean Energy Fuels Corp.

 

Condensed Consolidated Statements of Cash Flows

 

For the Six Months Ended June 30, 2014 and 2015

 

(Unaudited)

 

(In thousands)

 

		Six Months Ended June 30,
		2014			2015
Cash flows from operating activities:
Net loss		$	(61,236	)	$	(61,882	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		23,123			26,288
Provision for doubtful accounts, notes and inventory		112			1,440
Loss on disposal of assets		8			42
Derivative loss		(2,169		)	(583		)
Stock-based compensation expense		6,398			5,353
Amortization of debt issuance cost		1,527			1,534
Accretion of notes payable		138			36
Equity method investment loss		—			549
Loss on contingent consideration for acquisition		101			—
Changes in operating assets and liabilities, net of assets and liabilities acquired and disposed:
Accounts and other receivables		(7,209		)	40,636
Inventory		(5,382		)	3,293
Prepaid expenses and other assets		1,891			7,329
Accounts payable		(1,715		)	(11,570		)
Accrued expenses and other		1,126			(15,323		)
Net cash used in operating activities		(43,287		)	(2,858		)
Cash flows from investing activities:
Purchases of short-term investments		(70,868		)	(71,739		)
Maturities of short-term investments		55,144			64,861
Purchases and deposits on property and equipment		(61,840		)	(26,236		)
Loans made to customers		(2,295		)	(2,510		)
Payments on and proceeds from sales of loans receivable		2,240			892
Restricted cash		(3,846		)	1,543
Net cash used in investing activities		(81,465		)	(33,189		)
Cash flows from financing activities:
Proceeds from issuance of common stock and exercise of stock options		684			599
Proceeds from debt instruments		12,720			6
Proceeds from revolving line of credit		23,621			24
Repayment of borrowing under revolving line of credit		(17,645		)	(26		)
Repayment of capital lease obligations and debt instruments		(9,338		)	(2,509		)
Payments for debt issuance costs		(914		)	—
Net cash provided (used) by financing activities		9,128			(1,906		)
Effect of exchange rates on cash and cash equivalents		291			(1,132		)
Net decrease in cash		(115,333		)	(39,085		)
Cash, beginning of period		240,033			92,381
Cash, end of period		$	124,700		$	53,296
Supplemental disclosure of cash flow information:
Income taxes paid		$	690		$	497
Interest paid, net of approximately $1,992 and $534 capitalized, respectively		18,668			18,184

 

See accompanying notes to condensed consolidated financial statements.

 

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Clean Energy Fuels Corp. and Subsidiaries

 

Notes to Condensed Consolidated Financial Statements

 

(Unaudited)

 

(In thousands, except share and per share data)

 

Note 1—General

 

Nature of Business:  Clean Energy Fuels Corp., together with its majority and wholly owned subsidiaries (hereinafter collectively referred to as the “Company,” unless the context or the use of the term indicates otherwise) is engaged in the business of selling natural gas fueling solutions to its customers, primarily in the United States and Canada.

 

The Company designs, builds, operates and maintains fueling stations and supplies customers with compressed natural gas (“CNG”) fuel for light, medium and heavy-duty vehicles and liquefied natural gas (“LNG”) fuel for medium and heavy-duty vehicles. The Company also manufactures, sells and services non-lubricated natural gas fueling compressors and other equipment used in CNG stations and LNG stations, provides operation and maintenance (“O&M”) services to customers, offers assessment, design and modification solutions to provide operators with code-compliant service and maintenance facilities for natural gas vehicle fleets, transports and sells CNG to large industrial and institutional energy users who do not have direct access to natural gas pipelines, processes and sells renewable natural gas (“RNG”), which can be used as vehicle fuel or sold for renewable power generation, sells tradable credits generated by selling natural gas and RNG as a vehicle fuel, including credits generated under the California Low Carbon Fuel Standard (“LCFS Credits”) and Renewable Identification Numbers (“RIN Credits” or “RINs”) generated under the federal Renewable Fuel Standard Phase 2, helps customers acquire and finance natural gas vehicles and obtains local, state and federal grants and incentives.

 

Basis of Presentation:  The accompanying interim unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position, results of operations and cash flows as of and for the three and six months ended June 30, 2014 and 2015. All intercompany accounts and transactions have been eliminated in consolidation. The three and six month periods ended June 30, 2014 and 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015 or for any other interim period or for any future year.

 

Certain information and disclosures normally included in the notes to the financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), but the resultant disclosures contained herein are in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) as they apply to interim reporting. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2014 that are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2015.

 

Use of Estimates:  The preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses recorded during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include (but are not limited to) those related to revenue recognition, warranty reserves, goodwill and long-lived intangible asset valuations and impairment assessments, income tax valuations, and stock-based compensation expense.

 

Note 2— Acquisition and Divestitures

 

NG Advantage

 

On October 14, 2014, the Company entered a Common Unit Purchase Agreement (“UPA”) with NG Advantage, LLC (“NG Advantage”). NG Advantage is engaged in the business of transporting CNG in high-capacity trailers to large industrial and institutional energy users, such as hospitals, food processors, manufacturers and paper mills, which do not have direct access to natural gas pipelines. The Company viewed the acquisition as a strategic investment in the expansion of the Company’s initiative to deliver natural gas to industrial and institutional energy users. Under the terms of the UPA, the Company paid NG Advantage $37,650 for a 53.3% controlling interest in NG Advantage. $19,000 of the purchase price was paid in cash on October 14, 2014 and the remaining $18,650 of the purchase price was paid in the form of an unsecured promissory note issued by the Company (the “NG Advantage Note”). The principal amount of the NG Advantage Note was payable by the Company in two payments as follows: (i) $3,000 was paid January 13, 2015 and (ii) the remaining $15,650 was paid April 1, 2015. The NG Advantage Note did not bear interest. The fair value of the NG Advantage Note delivered to NG Advantage is excluded from the Company’s consolidated statements of cash flows as it is a non-cash investing activity. The consideration paid is accounted for as an intercompany transaction, as NG Advantage’s financial results are included in the Company’s condensed consolidated financial statements.

 

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The Company accounted for this acquisition in accordance with Financial Accounting Standards Board (“FASB”) authoritative guidance for business combinations, which requires the Company to recognize the assets acquired and the liabilities assumed, measured at their fair values, as of the date of acquisition. The following table summarizes the allocation of the aggregate purchase price to the preliminary fair value of the assets acquired and liabilities assumed:

 

Current assets		$	40,558
Property, plant and equipment		20,862
Other long-term assets		5,115
Identifiable intangible assets		5,600
Goodwill		21,070
Total assets acquired		93,205
Current liabilities assumed		(9,165		)
Long-term debt including capital leases assumed, excluding current installments		(17,604		)
Other liabilities		(711		)
Non-controlling interest		(28,075		)
Total purchase price		$	37,650

 

In connection with its purchase of a controlling interest in NG Advantage, the Company assumed debt of $20,439 on a consolidated basis related to purchases of capital assets and working capital needs. Immediately after the Company’s purchase of the controlling interest, $10,361 of such debt was paid with proceeds of the Company’s investment in NG Advantage, and the related debt instruments were cancelled.

 

Management allocated approximately $5,600 of the purchase price to the identifiable intangible assets related to customer relationships and trade names that were acquired with the acquisition. The fair value of the identifiable intangible assets will be amortized on a straight-line basis over the estimated useful lives of such assets ranging from four to seven years. The excess of the purchase price over the fair value of net assets acquired was allocated to goodwill, which primarily represents additional market share available to the Company as a result of the acquisition, and is fully deductible for income tax purposes.

 

Management determined the fair value of the non-controlling interest to be $28,075 using a market approach and using inputs that included use of a comparable transaction to calculate the value of the non-controlling interest adjusted for a control premium.

 

The results of NG Advantage’s operations have been included in the Company’s consolidated financial statements since October 14, 2014. The historical results of NG Advantage’s operations were not material to the Company’s financial position or historical results of operations.

 

DCE and DCEMB

 

On September 4, 2014, Mavrix, LLC (“Mavrix”), a wholly owned subsidiary of the Company, sold to Cambrian Energy McCommas Bluff III LLC (“Cambrian”) 19% of its then-70% interest in Dallas Clean Energy, LLC (“DCE”). On December 29, 2014, Mavrix entered into a Membership Interest Purchase Agreement (the “Agreement”) with Cambrian, pursuant to which Mavrix sold to Cambrian its entire remaining 51% interest in DCE. DCE owns all of the equity interests in Dallas Clean Energy McCommas Bluff, LLC (“DCEMB”), which owns a renewable natural gas extraction and processing project at the McCommas Bluff landfill in Dallas, Texas. As consideration for the sale of DCE, the Company, through Mavrix, received $6,992 in cash in September 2014 and $40,588 in cash in December 2014 and may receive up to an additional $1,250 in cash, subject to the results of certain performance tests to be performed at the McCommas Bluff project in accordance the terms of the Agreement. The Company will continue to have the right to market and sell biomethane produced at the McCommas Bluff project under its Redeem™ renewable natural gas vehicle fuel brand. The transaction resulted in a gain of $11,998 that was recorded in the line item gain from the sale of subsidiary in the Company’s consolidated statement of operations for the year ended December 31, 2014. Included in the determination of the gain was goodwill of $7,205 that was allocated to the transaction in accordance with FASB authoritative guidance for subsequent measure of goodwill which requires the Company to allocate goodwill to the disposed business based on the relative fair values of the business disposed and the portion of the reporting unit that was retained.

 

The Company determined, in accordance with FASB authoritative guidance, that the disposal did not meet the definition of a discontinued operation as the disposal did not represent a significant disposal nor was the disposal a strategic shift in the Company’s strategy.

 

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Note 3—Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less on the date of acquisition to be cash equivalents. The Company places its cash and cash equivalents with high credit quality financial institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation (“FDIC”), Canadian Deposit Insurance Corporation (“CDIC”), and other foreign insurance limits. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. The amounts in excess of FDIC, CDIC, and other foreign insurance limits were approximately $88,740 and $50,117 as of December 31, 2014 and June 30, 2015, respectively.

 

Note 4—Restricted Cash

 

The Company classifies restricted cash as short-term and a current asset if the cash is expected to be used in operations within a year or to acquire a current asset. Otherwise, the restricted cash is classified as long-term. Restricted cash consisted of the following as of December 31, 2014 and June 30, 2015:

 

		December 31, 2014			June 30, 2015
Short-term restricted cash:
Standby letters of credit		$	1,753		$	1,753
Canton bonds — current operating costs		4,259			2,716
Total short-term restricted cash		$	6,012		$	4,469

 

Note 5—Investments

 

Available-for-sale investments are carried at fair value, inclusive of unrealized gains and losses. Net unrealized gains and losses are included in other comprehensive income (loss) net of applicable income taxes. Gains or losses on sales of available-for-sale investments are recognized on the specific identification basis. All of the Company’s short-term investments are classified as available-for-sale securities.

 

The Company reviews available-for-sale investments for other-than-temporary declines in fair value below their cost basis each quarter, and whenever events or changes in circumstances indicate that the cost basis of an asset may not be recoverable. This evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below its cost basis and adverse conditions related specifically to the security, including any changes to the credit rating of the security. As of June 30, 2015, the Company believes its carrying values for its available-for-sale investments are properly recorded.

 

Short-term investments as of December 31, 2014 are summarized as follows:

 

		Amortized Cost			Gross Unrealized Losses			Estimated Fair Value
Municipal bonds & notes		$	38,668		$	(16	)	$	38,652
Zero coupon bonds		3,308			(2		)	3,306
Corporate bonds		45,274			(41		)	45,233
Certificate of deposits		35,355			—			35,355
		$	122,605		$	(59	)	$	122,546

 

Short-term investments as of June 30, 2015 are summarized as follows:

 

		Amortized Cost			Gross Unrealized Gains/(Losses)			Estimated Fair Value
Municipal bonds & notes		$	38,825		$	(24	)	$	38,801
Zero coupon bonds		5,013			3			5,016
Corporate bonds		38,850			(24		)	38,826
Certificate of deposits		45,953			—			45,953
		$	128,641		$	(45	)	$	128,596

 

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Note 6—Other Receivables

 

Other receivables at December 31, 2014 and June 30, 2015 consisted of the following:

 

		December 31, 2014			June 30, 2015
Loans to customers to finance vehicle purchases		$	8,257		$	8,982
Accrued customer billings		10,143			5,730
Fuel tax and carbon credits		34,250			155
Other		3,573			3,789
		$	56,223		$	18,656

 

Note 7—Inventories

 

Inventory consists of work in process and finished goods and is stated at the lower of cost (first-in, first-out) or market. The Company writes down the carrying value of its inventory to net realizable value for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and its estimated realizable value based upon assumptions about future demand and market conditions, among other factors.

 

Inventories consisted of the following as of December 31, 2014 and June 30, 2015:

 

		December 31, 2014			June 30, 2015
Raw materials and spare parts		$	31,389		$	28,080
Work in process		3,292			1,879
Finished goods		15			1,388
		$	34,696		$	31,347

 

Note 8—Land, Property and Equipment

 

Land, property and equipment at December 31, 2014 and June 30, 2015 are summarized as follows:

 

		December 31, 2014			June 30, 2015
Land		$	2,858		$	2,858
LNG liquefaction plants		94,636			94,636
RNG plants		45,359			45,451
Station equipment		265,086			293,851
Trailers		40,067			50,355
Other equipment		74,796			79,929
Construction in progress		163,737			146,431
		686,539			713,511
Less: accumulated depreciation		(172,270		)	(193,087		)
		$	514,269		$	520,424

 

Included in land, property and equipment are capitalized software costs of $21,004 and $21,558 as of December 31, 2014 and June 30, 2015, respectively. The accumulated amortization on the capitalized software costs is $10,740 and $12,287 as of December 31, 2014 and June 30, 2015, respectively. The Company recorded $843 and $831 of amortization expense related to the capitalized software costs during the three months ended June 30, 2014 and June 30, 2015, respectively. For the six month periods ended June 30, 2014 and 2015, the Company recorded $1,611 and $1,547 of amortization expense related to the capitalized software costs respectively.

 

As of June 30, 2014 and June 30, 2015, $16,360 and $9,720, respectively are included in accounts payable and accrued liabilities balances, which amounts are related to purchases of property and equipment. These amounts are excluded from the condensed consolidated statements of cash flows as they are non-cash investing activities.

 

Note 9—Investments in Other Entities

 

On September 16, 2014, the Company formed a joint venture with Mansfield Ventures LLC (“Mansfield”) called Mansfield Clean Energy Partners LLC (“MCEP”), which is designed to provide natural gas fueling solutions to bulk fuel haulers in the U.S. The Company and Mansfield each have a 50% ownership interest in MCEP. The Company accounts for its interest using the equity method of accounting, as the Company has the ability to exercise significant influence over MCEP’s operations. The Company recorded a loss from this investment of $345 and $549 for the three and six months ended June 30, 2015, respectively and has an investment balance of $4,961 at June 30, 2015.

 

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Note 10—Accrued Liabilities

 

Accrued liabilities at December 31, 2014 and June 30, 2015 consisted of the following:

 

		December 31, 2014			June 30, 2015
Salaries and wages		$	9,041		$	8,206
Accrued gas and equipment purchases		12,340			15,904
Accrued property and other taxes		5,178			7,199
Accrued professional fees		1,084			742
Accrued employee benefits		3,208			4,125
Accrued warranty liability		2,302			2,423
Accrued interest		3,748			3,721
Other		19,859			9,007
		$	56,760		$	51,327

 

Note 11—Warranty Liability

 

The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under its standard warranty. Changes in the warranty liability are presented in the following table:

 

		June 30, 2014			June 30, 2015
Warranty liability at beginning of year		$	2,545		$	2,302
Costs accrued for new warranty contracts and changes in estimates for pre-existing warranties		2,455			1,220
Service obligations honored		(1,685		)	(1,099		)
Warranty liability at end of period		$	3,315		$	2,423

 

Note 12—Long-Term Debt

 

7.5% Notes

 

On July 11, 2011, the Company entered into a loan agreement (the “CHK Agreement”) with Chesapeake NG Ventures Corporation (“Chesapeake”), an indirect wholly owned subsidiary of Chesapeake Energy Corporation, whereby Chesapeake agreed to purchase from the Company up to $150,000 of debt securities (the “CHK Financing”) pursuant to the issuance of three convertible promissory notes, each having a principal amount of $50,000 (each a “CHK Note” and collectively the “CHK Notes” and, together with the CHK Agreement and other transaction documents, the “CHK Loan Documents”). The first CHK Note was issued on July 11, 2011 and the second CHK Note was issued on July 10, 2012.

 

On June 14, 2013 (the “Transfer Date”), Boone Pickens and Green Energy Investment Holdings, LLC, an affiliate of Leonard Green & Partners, L.P. (collectively, the “Buyers”), and Chesapeake entered into a note purchase agreement (“Note Purchase Agreement”) pursuant to which Chesapeake sold the outstanding CHK Notes (the “Sale”) to the Buyers. Chesapeake assigned to the Buyers all of its right, title and interest under the CHK Loan Documents (the “Assignment”), and each Buyer severally assumed all of the obligations of Chesapeake under the CHK Loan Documents arising after the Sale and the Assignment including, without limitation, the obligation to advance an additional $50,000 to the Company in June 2013 (the “Assumption”). The Company also entered into the Note Purchase Agreement for the purpose of consenting to the Sale, the Assignment and the Assumption.

 

Contemporaneously with the execution of the Note Purchase Agreement, the Company entered into a loan agreement with each Buyer (collectively, the “Amended Agreements”). The Amended Agreements have the same terms as the CHK Agreement, other than changes to reflect the change in ownership of the CHK Notes. Immediately following execution of the Amended Agreements, the Buyers delivered $50,000 to the Company in satisfaction of the funding requirement they had assumed from Chesapeake (the “June Advance”). In addition, the Company cancelled the existing CHK Notes and re-issued replacement notes, and the Company also issued notes to the Buyers in exchange for the June Advance (the re-issued replacement notes and the notes issued in exchange for the June Advance are referred to herein as the “7.5% Notes”).

 

The 7.5% Notes have the same terms as the original CHK Notes, other than the changes to reflect their different holders. They bear interest at the rate of 7.5% per annum and are convertible at the option of the holder into shares of the Company’s common stock at a conversion price of $15.80 per share (the “7.5% Notes Conversion Price”). Upon written notice to the Company, the holders of the 7.5% Notes have the right to exchange all or a portion of the principal and accrued and unpaid interest under each such note for shares of the Company’s common stock at the 7.5% Notes Conversion Price. Additionally, subject to certain restrictions, the Company can force conversion of each 7.5% Note into shares of the its common stock if, following the second anniversary of the issuance of a

 

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7.5% Note, such shares trade at a 40% premium to the 7.5% Notes Conversion Price for at least 20 trading days in any consecutive 30 trading day period. The entire principal balance of each 7.5% Note is due and payable seven years following its issuance and the Company may repay each 7.5% Note in shares of its common stock or cash. All of the shares issuable upon exercise of the 7.5% Notes have been registered for resale by their holders pursuant to a registration statement that has been filed with and declared effective by the Securities and Exchange Commission. The Amended Agreements restrict the use of the proceeds of the 7.5% Notes to financing the development, construction and operation of LNG stations and payment of certain related expenses. The Amended Agreements also provide for customary events of default which, if any of them occurs, would permit or require the principal of, and accrued interest on, the 7.5% Notes to become, or to be declared, due and payable. No events of default under the 7.5% Notes had occurred as of June 30, 2015.

 

On August 27, 2013, Green Energy Investment Holdings, LLC transferred $5,000 in principal amount of the 7.5% Notes to certain third parties.

 

As a result of the foregoing transactions, (i) Mr. Pickens holds 7.5% Notes in the aggregate principal amount of $65,000, which 7.5% Notes are convertible into approximately 4,113,924 shares of the Company’s common stock, and (ii) Green Energy Investment Holdings, LLC holds 7.5% Notes in the aggregate principal amount of $80,000, which 7.5% Notes are convertible into approximately 5,063,291 shares of the Company’s common stock.

 

At June 30, 2015, none of the proceeds from the 7.5% Notes were included in restricted cash as the Company had used the funds primarily to build LNG fueling stations.

 

SLG Notes

 

On August 24, 2011, the Company entered into convertible note purchase agreements (each, an “SLG Agreement” and collectively the “SLG Agreements”) with each of Springleaf Investments Pte. Ltd., a wholly-owned subsidiary of Temasek Holdings Pte. Ltd., Lionfish Investments Pte. Ltd., an investment vehicle managed by Seatown Holdings International Pte. Ltd., and Greenwich Asset Holding Ltd., a wholly-owned subsidiary of RRJ Capital Master Fund I, L.P. (each, a “Purchaser” and collectively, the “Purchasers”), whereby the Purchasers agreed to purchase from the Company $150,000 of 7.5% convertible notes due in August 2016 (each a “SLG Note” and collectively the “SLG Notes”). The transaction closed and the SLG Notes were issued on August 30, 2011. On March 1, 2012, Springleaf Investments Pte. LTD transferred $24,000 principal amount of the SLG Notes to Baytree Investments (Mauritius) Pte. Ltd.

 

The SLG Notes bear interest at the rate of 7.5% per annum and are convertible at each Purchaser’s option into shares of the Company’s common stock at a conversion price of $15.00 per share (the “SLG Conversion Price”). Upon written notice to the Company, the holders of the SLG Notes have the right to exchange all or any portion of the principal and accrued and unpaid interest under each such note for shares of the Company’s common stock at the SLG Conversion Price. Additionally, subject to certain restrictions, the Company can force conversion of each SLG Note into shares of its common stock if, following the second anniversary of the issuance of the SLG Notes, such shares trade at a 40% premium to the SLG Conversion Price for at least 20 trading days in any consecutive 30 trading day period. The entire principal balance of each SLG Note is due and payable five years following its issuance, and the Company may repay the principal balance of each SLG Note in shares of its common stock or cash. All of the shares issuable upon exercise of the SLG Notes have been registered for resale by their holders pursuant to a registration statement that has been filed with and declared effective by the Securities and Exchange Commission. The SLG Agreements provide for customary events of default which, if any of them occurs, would permit or require the principal of, and accrued interest on, the SLG Notes to become, or to be declared, due and payable. No events of default under the SLG Notes had occurred as of June 30, 2015.

 

In April 2012, $1,003 of principal and accrued interest under an SLG Note was converted by the holder thereof into 66,888 shares of the Company’s common stock. In January and February 2013, $4,030 of principal and accrued interest under an SLG Note was converted by the holder thereof into 268,664 shares of the Company’s common stock.

 

GE Loans

 

On November 7, 2012, the Company, through two wholly owned subsidiaries (the “Borrowers”), entered into a credit agreement (“Credit Agreement”) with General Electric Capital Corporation (“GE”). Pursuant to the Credit Agreement, GE agreed to loan to the Borrowers up to an aggregate of $200,000 to finance the development, construction and operation of two LNG plants (individually a “Project” and together the “Projects”).

 

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On December 29, 2014, the Borrowers and GE entered into an amendment to the Credit Agreement providing, among other things, that (i) the Credit Agreement will terminate if the initial loans under the Credit Agreement (collectively, “Loans” and, with respect to each Project “Tranche A Loans” and “Tranche B Loans”) for the Projects are not made prior to December 31, 2016 (rather than December 31, 2014, as the Credit Agreement originally provided), (ii) each Project must be completed by the earlier of (a) the date that is thirty months after the funding of the initial Loans with respect to such Project and (b) December 31, 2018 (rather than December 31, 2016, as the Credit Agreement originally provided) (with respect to each Project, the “Date Certain”), and (iii) prior to the funding of the Loans, the Borrowers will be required to enter into agreements with GE Oil & Gas, Inc. relating to the purchase of equipment for the Projects.

 

The Borrowers’ ability to obtain the Loans under the Credit Agreement is subject to the satisfaction of certain conditions, including each of the (i) acquisition of title to, or leasehold interests in, the sites upon which the Projects will be constructed, (ii) receipt of all governmental approvals necessary in connection with the design, development, ownership, construction, installation, operation and maintenance of the Projects, and (iii) commitment of all utility services necessary for the construction and operation of the Projects.

 

The Credit Agreement further provides that (i) the then existing Loans with respect to each Project must be converted into term loans with eight year amortization schedules (“Term Loans”) on or before the Date Certain with respect to such Project (the date of such conversion with respect to each Project, the “Conversion Date”), provided that if such Loans are not converted into Term Loans by the applicable Date Certain, such Loans must be repaid by the applicable Date Certain, (ii) each Term Loan will be due and payable on the eighth anniversary of the Conversion Date with respect to such Term Loan, and (iii) at any time prior to the applicable Conversion Date, the Loans may be prepaid in whole, and at any time after the applicable Conversion Date, the Loans may be prepaid in whole or in part. The Company expects the Loans to bear interest at an annual rate equal to the then- current LIBOR rate plus 7.00%, provided that for purposes of the Credit Agreement, the then-current LIBOR rate will always be at least 1.00%. The Credit Agreement includes various customary covenants, including debt service coverage ratios and a commitment fee on the unutilized loan amounts of 0.5% per annum, and also provides for customary events of default which, if such events occur, would permit or require the Loans to become or to be declared due and payable. As of June 30, 2015, the Company has not drawn any money under the Credit Agreement and was in compliance with the financial covenants. The commitment fee, which is charged to interest expense in the condensed consolidated statements of operations, was $253 for each of the three months ended June 30, 2014 and 2015, respectively. For the six month periods ended June 30, 2014 and 2015, the Company recorded $503 of interest expense for each period related to the commitment fee.

 

The Loans are secured by (i) a first priority security interest in all of the Borrowers’ assets, including the Projects, and (ii) a pledge of the Borrowers’ outstanding ownership interests. In addition, the Company has executed a guaranty in favor of GE (“Guaranty”), pursuant to which the Company has guaranteed all of the Borrowers’ obligations under the Credit Agreement, including repayment of all Loans.

 

The Company and GE also entered an equity contribution agreement (the “EC Agreement”) pursuant to which the Company agreed to pay at least 25% of the budgeted cost of the Projects and all additional costs that exceed such expected budgeted costs, in each case, in the form of equity contributions to the Borrowers (“Equity Contributions”). The EC Agreement also requires the Company to provide, concurrent with GE’s extension of the initial Loans under the Credit Agreement, letter(s) of credit in an amount equal to the Company’s then-current unfunded Equity Contributions.

 

Concurrently with the execution of the Credit Agreement, the Company issued to GE a warrant to purchase up to five million shares of its common stock (see note 13).

 

5.25% Notes

 

In September 2013, the Company completed a private offering of 5.25% Convertible Senior Notes due 2018 (the “5.25% Notes”) and entered into an indenture governing the 5.25% Notes (the “Indenture”).

 

The net proceeds from the sale of the 5.25% Notes after the payment of certain debt issuance costs of $7,805 were $242,195. The Company has used, and intends to continue to use, the net proceeds from the sale of the 5.25% Notes to fund capital expenditures and for general corporate purposes.

 

The 5.25% Notes bear interest at a rate of 5.25% per annum, payable semi-annually in arrears on October 1 and April 1 of each year, beginning on April 1, 2014. The 5.25% Notes will mature on October 1, 2018, unless purchased, redeemed or converted prior to such date in accordance with their terms and the terms of the Indenture.

 

Holders may convert their 5.25% Notes, at their option, at any time prior to the close of business on the business day immediately preceding the maturity date of the 5.25% Notes. Upon conversion, the Company will deliver a number of shares of its common stock, per $1 principal amount of 5.25% Notes, equal to the conversion rate then in effect (together with a cash payment in lieu of any fractional shares). The initial conversion rate for the 5.25% Notes is 64.1026 shares of the Company’s common stock per $1 principal amount of Notes (which is equivalent to an initial conversion price of approximately $15.60 per share of the Company’s common stock). The conversion rate is subject to adjustment upon the occurrence of certain specified events as described in the Indenture.

 

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Upon the occurrence of certain corporate events prior to the maturity date of the 5.25% Notes, the Company will, in certain circumstances, in addition to delivering the number of shares of the Company’s common stock deliverable upon conversion of the 5.25% Notes based on the conversion rate then in effect (together with a cash payment in lieu of any fractional shares), pay holders that convert their 5.25% Notes a cash make-whole payment in an amount as described in the Indenture. The Company may, at its option, irrevocably elect to settle its obligation to pay any such make-whole payment in shares of its common stock instead of in cash. The amount of any make-whole payment, whether it is settled in cash or in shares of the Company’s common stock upon the Company’s election, will be determined based on the date on which the corporate event occurs or becomes effective and the stock price paid (or deemed to be paid) per share of the Company’s common stock in the corporate event, as described in the Indenture.

 

The Company may not redeem the 5.25% Notes prior to October 5, 2016. On or after October 5, 2016, the Company may, at its option, redeem for cash all or any portion of the 5.25% Notes if the closing sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which notice of redemption is provided, exceeds 160% of the conversion price on each applicable trading day. In the event of the Company’s redemption of the 5.25% Notes, the redemption price will equal 100% of the principal amount of the 5.25% Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for in the 5.25% Notes.

 

If the Company undergoes a fundamental change (as defined in the Indenture) prior to the maturity date of the 5.25% Notes, subject to certain conditions as described in the Indenture, holders may require the Company to purchase, for cash, all or any portion of their 5.25% Notes at a repurchase price equal to 100% of the principal amount of the 5.25% Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date.

 

The Indenture contains customary events of default with customary cure periods, including, without limitation, failure to make required payments or deliveries of shares of the Company’s common stock when due under the Indenture, failure to comply with certain covenants under the Indenture, failure to pay when due or acceleration of certain other indebtedness of the Company or certain of its subsidiaries, and certain events of bankruptcy and insolvency of the Company or certain of its subsidiaries. The occurrence of an event of default under the Indenture will allow either the trustee or the holders of at least 25% in principal amount of the then-outstanding 5.25% Notes to accelerate, or upon an event of default arising from certain events of bankruptcy or insolvency of the Company, will automatically cause the acceleration of, all amounts due under the 5.25% Notes. No events of default under the 5.25% Notes had occurred as of June 30, 2015.

 

The 5.25% Notes are senior unsecured obligations of the Company and rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 5.25% Notes; equal in right of payment to the Company’s unsecured indebtedness that is not so subordinated; effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness (including trade payables) of the Company’s subsidiaries.

 

Canton Bonds

 

On March 19, 2014, Canton Renewables, LLC (“Canton”), a wholly owned subsidiary of the Company, completed the issuance of Solid Waste Facility Limited Obligation Revenue Bonds (Canton Renewables, LLC — Sauk Trail Hills Project) Series 2014 in the aggregate principal amount of $12,400 (the “Bonds”).

 

The Bonds were issued by the Michigan Strategic Fund (the “Issuer”) and the proceeds of such issuance were loaned by the Issuer to Canton pursuant to a loan agreement that became effective on March 19, 2014 (the “Loan Agreement”). The Bonds are expected to be repaid from revenue generated by Canton from the sale of RNG and are secured by the revenue and assets of Canton. The Bond repayments will be amortized through July 1, 2022, the average coupon interest rate on the Bonds is 6.6%, and all but $1,000 of the principal amount of the Bonds is non-recourse to Canton’s parent companies, including the Company.

 

Canton used the Bond proceeds primarily to (i) refinance the cost of constructing and equipping its RNG extraction and production project in Canton, Michigan and (ii) pay a portion of the costs associated with the issuance of the Bonds. The refinancing described in the prior sentence was accomplished through distributions to the Borrower’s direct and indirect parent companies who provided the financing for the RNG production facility, and such companies have used such distributions to finance construction of additional RNG extraction and processing projects and for working capital purposes.

 

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The Loan Agreement contains customary events of default, with customary cure periods, including without limitation, failure to make required payments when due under the Loan Agreement, failure to comply with certain covenants under the Loan Agreement, certain events of bankruptcy and insolvency of Canton, and the existence of an event of default under the indenture governing the Bonds that was entered between the Issuer and The Bank of New York Mellon Trust Company, N.A., as trustee. The occurrence of an event of default under the Loan Agreement will allow the Issuer or the trustee to accelerate all amounts due under the Loan Agreement. No events of default under the Loan Agreement had occurred as of June 30, 2015.

 

Other Debt

 

The Company has other debt due at various dates through 2020 bearing interest at rates up to 15.49% and with a weighted average interest rate of 6.80% and 6.67% as of December 31, 2014 and June 30, 2015, respectively.

 

Long-term debt and capital lease obligations at December 31, 2014 and June 30, 2015 consisted of the following:

 

		December 31, 2014			June 30, 2015
7.5% Notes		$	150,000		$	150,000
SLG Notes		145,000			145,000
5.25% Notes		250,000			250,000
Canton Bonds ($11,400 non-recourse to the Company)		12,150			11,600
Capital lease obligations		2,692			7,754
Other debt		10,828			11,392
Total debt and capital lease obligations		570,670			575,746
Less amounts due within one year		(4,846		)	(5,977		)
Total long-term debt and capital lease obligations		$	565,824		$	569,769

 

Note 13—Net Loss Per Share

 

Basic net loss per share is based upon the weighted-average number of shares outstanding and issuable for little or no cash consideration during each period. Diluted net loss per share reflects the impact of the assumed exercise of dilutive stock options and warrants. On September 11, 2014, the Company determined it no longer met certain conditions required to include in its weighted average share calculations 4,000,000 of the 5,000,000 shares of common stock issuable upon exercise of a warrant issued to GE concurrently with the execution of the Credit Agreement (the “GE Warrant”).  As a result, since September 11, 2014, the Company has (i) excluded 4,000,000 shares of common stock issuable upon exercise of  the GE Warrant from the weighted average number of shares outstanding in the basic and diluted earnings per share calculations, and (ii) included the remaining 1,000,000 shares of common stock issuable upon exercise of the GE Warrant in the basic and diluted earnings per share calculations, as 500,000 shares issuable upon exercise of the GE Warrant were exercisable as of the execution of the Credit Agreement and an additional 500,000 shares issuable upon exercise of the GE Warrant became exercisable on December 31, 2014. The information required to compute basic and diluted earnings per share is as follows:

 

		Three Months Ended June 30,				Six Months Ended June 30,
		2014		2015		2014		2015
Basic and diluted:
Weighted average number of common shares outstanding		94,859,587		91,480,998		94,768,462		91,399,478

 

Certain securities were excluded from the diluted earnings per share calculations for the three and six months ended June 30, 2014 and 2015, respectively, as the inclusion of the securities would be anti-dilutive to the calculations. The amounts of these securities that were outstanding as of June 30, 2014 and 2015 for these instruments are as follows:

 

		June 30,
		2014		2015
Options		11,858,681		10,782,668
Warrants		2,130,682		6,130,682
Convertible Notes		35,185,979		35,185,979
Restricted Stock Units		2,080,336		2,972,252

 

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Note 14—Stock-Based Compensation

 

The following table summarizes the compensation expense and related income tax benefit related to the stock-based compensation expense recognized during the periods:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2014			2015			2014			2015
Stock-based compensation expense		$	2,978		$	2,663		$	6,398		$	5,353
Stock-based compensation expense, net of tax		$	2,978		$	2,663		$	6,398		$	5,353

 

Stock Options

 

The following table summarizes the Company’s stock option activity during the six months ended June 30, 2015:

 

		Number of Shares		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding, December 31, 2014		11,486,301		$	11.91
Options granted		465,000		6.15
Options exercised		(607,500	)	2.96
Options forfeited		(561,133	)	14.13
Outstanding, June 30, 2015		10,782,668		$	12.05		5.01		$	—
Exercisable, June 30, 2015		9,340,463		$	12.48		4.43		$	—

 

As of June 30, 2015, there was $4,979 of total unrecognized compensation cost related to non-vested shares underlying outstanding stock options. That cost is expected to be recognized over a weighted average period of 1.6 years. The total fair value of shares vested during the six months ended June 30, 2015 was $4,314.

 

The Company is obligated to issue shares of its common stock upon the exercise of outstanding stock options. The intrinsic value of all stock options exercised during the six months ended June 30, 2014 and 2015 was $1,419 and $2,196, respectively.

 

The fair value of each stock option granted during the six months ended June 30, 2015 was estimated as of the date of grant using the Black-Scholes option pricing model and the following assumptions:

 

		Six Months Ended June 30, 2015
Dividend yield		0.00%
Expected volatility		59.2% to 61.5%
Risk-free interest rate		1.7% to 1.8%
Expected life in years		6.0

 

The weighted-average grant date fair values of stock options granted during the six months ended June 30, 2014 and 2015 was $5.99 and $3.42, respectively. The volatility amounts used during these periods were estimated based on the Company’s historical volatility and the Company’s implied volatility of its traded options for such periods. The expected lives used during the periods were based on historical exercise periods and the Company’s anticipated exercise periods for its outstanding stock options. The risk free rates used during the periods were based on the U.S. Treasury yield curve for the expected life of the stock options at the time of grant. The Company recorded $3,819 and $2,843 of stock option expense during the six months ended June 30, 2014 and 2015, respectively. The Company has not recorded any tax benefit related to its stock option expense.

 

Market-Based Restricted Stock Units

 

The Company issued market-based restricted stock units (“Market-Based RSUs”) to certain key employees during 2012 and 2014.  A holder of Market-Based RSUs will receive one share of the Company’s common stock for each Market-Based RSU held if (i) between two years and four years from the date of grant of the Market-Based RSU, the closing price of the Company’s common stock equals or exceeds, for twenty consecutive trading days, 135% of the closing price of the Company’s common stock on the Market-Based RSU grant date (the “Stock Price Condition”) and (ii) the holder is employed by the Company at the time the Stock Price Condition is satisfied. If the Stock Price Condition is not satisfied prior to four years from the date of grant, the Market-Based RSUs will be automatically forfeited. The Market-Based RSUs are subject to the terms and conditions of the Company’s Amended and Restated 2006 Equity Incentive Plan (the “2006 Plan”) and a Notice of Grant of Restricted Stock Unit and Restricted Stock Unit Agreement.

 

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The following table summarizes the Company’s Market-Based RSU activity during the six months ended June 30, 2015:

 

		Number of Shares		Weighted Average Fair Value at Grant Date			Weighted Average Remaining Contractual Term (in years)
Outstanding, December 31, 2014		1,769,000		$	10.67
RSUs granted		—		—
Outstanding and non-vested, June 30, 2015		1,769,000		$	10.67		1.1

 

As of June 30, 2015, there was $1,180 of total unrecognized compensation cost related to non-vested shares underlying outstanding Market-Based RSUs. That cost is expected to be recognized over a weighted average period of 0.6 year.

 

The Company recorded $1,775 and $885 of expense during the six months ended June 30, 2014 and 2015, respectively, related to the Market-Based RSUs. The Company has not recorded any tax benefit related to its Market-Based RSU expense.

 

Service-Based Restricted Stock Units

 

The Company has issued service-based restricted stock units (“Service-Based RSUs”) to certain employees that vest annually over the three years following the date of issuance at a rate of 34%, 33% and 33%, respectively, if the holder is in service to the Company at each vesting date. The Service- Based RSUs are subject to the terms and conditions of the Company’s 2006 Plan and a Notice of Grant of Restricted Stock Unit and Restricted Stock Unit Agreement.

 

The following table summarizes the Company’s Service-Based RSU activity during the six months ended June 30, 2015:

 

		Number of Shares		Weighted Average Fair Value at Grant Date			Weighted Average Remaining Contractual Term (in years)
Non-vested at December 31, 2014		822,752		$	5.82
RSUs granted		419,500		6.05
RSUs vested		—		—
RSUs forfeited		(39,000	)	5.58
Outstanding and non-vested at June 30, 2015		1,203,252		$	5.91		2.5

 

As of June 30, 2015, there was $5,643 of total unrecognized compensation cost related to non-vested shares underlying outstanding Service-Based RSUs. That cost is expected to be recognized evenly over a period of 2.4 years.

 

The Company recorded $153 and $1,050 of expense during the six months ended June 30, 2014 and 2015, respectively related to the Service-Based RSUs. The Company has not recorded any tax benefit related to its Service-Based RSU expense.

 

The fair value of each Service-Based RSU granted during the three months ended June 30, 2015 was estimated using the closing stock price of the Company’s common stock on the date of grant.

 

Employee Stock Purchase Plan

 

On May 7, 2013, the Company adopted an employee stock purchase plan (the “ESPP”), pursuant to which eligible employees may purchase shares of the Company’s common stock at 85% of the fair market value of the common stock on the last trading day of two consecutive, non-concurrent offering periods each year. The Company has reserved 2,500,000 shares of its common stock for issuance under the ESPP.

 

The Company recorded $37 and $25 of expense related to the ESPP during the six months ended June 30, 2014 and 2015, respectively. The Company has not recorded any tax benefits related to its ESPP expense. At June 30, 2015, the Company had sold an aggregate of 105,257 shares pursuant to the ESPP.

 

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Non-Qualified Non-Public Subsidiary Unit Options

 

In September 2013, the Company’s wholly owned subsidiary, Clean Energy Renewable Fuels, LLC (“Clean Energy Renewables”, formerly known as CERF), adopted the Clean Energy Renewable Fuels, LLC 2013 Unit Option Plan (the “Clean Energy Renewables Plan”). 150,000 Class B units representing membership interests in Clean Energy Renewables were initially reserved for issuance under the Clean Energy Renewables Plan.

 

The following table summarizes Clean Energy Renewables’ unit option activity during the six months ended June 30, 2015:

 

		Number of Units		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding, December 31, 2014		115,000		$	40.80
Options granted		—		—
Options exercised		—		—
Options forfeited		(7,000	)	40.80
Outstanding and non-vested, June 30, 2015		108,000		$	40.80		8.22		$	—

 

As of June 30, 2015, there was $1,384 of total unrecognized compensation cost related to non-vested units underlying outstanding options issued pursuant to the Clean Energy Renewables Plan. That cost is expected to be recognized over a weighted average period of 0.9 years.

 

Clean Energy Renewables recorded a total of $614 and $538 of unit option expense during the six months ended June 30, 2014 and 2015, respectively. Clean Energy Renewables has not recorded any tax benefit related to its unit option expense.

 

In March 2013, NG Advantage, adopted the NG Advantage LLC 2013 Unit Option Plan (the “NG Advantage Plan”). NG Advantage recorded a total of $12 of unit option expense during the six months ended June 30, 2015.

 

Note 15—Environmental Matters, Litigation, Claims, Commitments and Contingencies

 

The Company is subject to federal, state, local, and foreign environmental laws and regulations. The Company does not anticipate any expenditures to comply with such laws and regulations which would have a material impact on the Company’s condensed consolidated financial position, results of operations, or liquidity. The Company believes that its operations comply, in all material respects, with applicable federal, state, local and foreign environmental laws and regulations.

 

The Company may become party to various legal actions that arise in the ordinary course of its business. During the course of its operations, the Company is also subject to audit by tax authorities for varying periods in various federal, state, local and foreign tax jurisdictions. Disputes may arise during the course of such audits as to facts and matters of law. It is impossible to determine the ultimate liabilities that the Company may incur resulting from any such lawsuits, claims and proceedings, audits, commitments, contingencies and related matters or the timing of these liabilities, if any. If these matters were to ultimately be resolved unfavorably, an outcome not currently anticipated, it is possible that such outcome could have a material adverse effect upon the Company’s consolidated financial position, results of operations, or liquidity. However, the Company believes that the ultimate resolution of such matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

 

Note 16—Income Taxes

 

The Company’s income tax provision for the three and six months ended June 30, 2015 was $740 and $1,594, respectively.  The tax expense for the three and six months ended June 30, 2014 was $147 and $1,109 respectively.  Tax expense for all periods was comprised of taxes due on the Company’s U.S. and foreign operations.  The increase in the Company’s income tax provision for the six months ended June 30, 2015 as compared to the tax provision for the six months ended June 30, 2014 was primarily attributed to increase in the earnings of foreign subsidiaries. The effective tax rate for the three months and six months ended June 30, 2014 and 2015 are different from the federal statutory tax rate primarily as a result of losses for which no tax benefit has been recognized.

 

The Company did not record a change in its liability for unrecognized tax benefits or penalties in the three and six months ended June 30, 2014 or June 30, 2015, and the net interest incurred was immaterial for such periods.

 

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Note 17—Fair Value Measurements

 

The Company follows the authoritative guidance for fair value measurements with respect to assets and liabilities that are measured at fair value on a recurring basis and nonrecurring basis. Under the standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy consists of the following three levels: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly; Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

During the six months ended June 30, 2015, the Company’s financial instruments consisted of available-for-sale securities, debt instruments, and its Series I warrants. For available-for-sale securities, the fair values are determined by the most recent quoted prices for identical assets in markets that are not active and quoted prices for similar assets in active markets, and thus represent Level 2 fair value measurements. The fair values of the Company’s debt instruments approximated their carrying values at December 31, 2014 and June 30, 2015. The Company uses the Black-Scholes model to value the Series I warrants. The Company believes the best method to approximate a market participant’s view of the volatility of its Series I warrants has been to use the implied volatilities of its short-term (i.e. 3 to 9 month) traded options and extrapolate the data over the remaining term of the Series I warrants, which was approximately 0.8 years as of June 30, 2015. This method has been utilized consistently in the periods presented. Given that the extrapolation beyond the term of the short-term exchange traded options is not based on observable market inputs for a significant portion of the remaining term of the warrants, the Series I warrants have been classified as a Level 3 fair value measurement.

 

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2014 and June 30, 2015, respectively:

 

Description		Balance at December 31, 2014			Level 1			Level 2			Level 3
Assets:
Available-for-sale securities(1):
Certificate of deposits		$	35,355		$	—		$	35,355		$	—
Municipal bonds and notes		38,652			—			38,652			—
Zero coupon bonds		3,306						3,306
Corporate bonds		45,233			—			45,233			—
Liabilities:
Series I warrants(2)		1,416			—			—			1,416

 

Description		Balance at June 30, 2015			Level 1			Level 2			Level 3
Assets:
Available-for-sale securities(1):
Certificate of deposits		$	45,953		$	—		$	45,953		$	—
Municipal bonds and notes		38,801			—			38,801			—
Zero coupon bonds		5,016						5,016
Corporate bonds		38,826			—			38,826			—
Liabilities:
Series I warrants(2)		833			—			—			833

 

(1) Included in short-term investments in the condensed consolidated balance sheets. See note 5 for further information.

(2) Included in accrued liabilities in the condensed consolidated balance sheets.

 

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