UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) |
July 1, 2015 |
PACIFIC ETHANOL, INC. |
(Exact name of registrant as specified in its charter) |
Delaware
(State or other jurisdiction
of incorporation) |
000-21467
(Commission File Number) |
41-2170618
(IRS Employer
Identification No.) |
400 Capitol Mall, Suite 2060, Sacramento, CA |
95814 |
(Address of principal executive offices) |
(Zip Code) |
|
|
Registrant’s telephone number, including area code: |
(916) 403-2123 |
|
(Former name or former address, if changed since last report) |
Check the appropriate box below if the Form
8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions
(see General Instruction A.2. below):
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EXPLANATORY NOTE
As reported in the Current
Report on Form 8-K filed by Pacific Ethanol, Inc. (the “Company”) on July 6, 2015 (the “Initial Form 8-K”),
effective July 1, 2015, the Company completed its previously announced acquisition of Aventine Renewable Energy Holdings, Inc.
(“Aventine”). The Company is filing this Amendment No. 1 to the Initial Form 8-K (“Amendment No. 1”)
to amend and restate in its entirety Item 9.01 in the Initial Form 8-K to provide the financial statements and pro forma information
required by Item 9.01 of Form 8-K that were omitted from the Initial Form 8-K as permitted.
Item 9.01 Financial
Statements and Exhibits.
(a) Financial Statements of Businesses
Acquired.
The audited consolidated balance
sheets of Aventine and its subsidiaries as of December 31, 2014 and December 31, 2013, the related audited consolidated statements
of operations, comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2014,
the related notes to such audited consolidated financial statements and the related independent auditors’ reports are incorporated
by reference to the Index to Financial Statements in the Company’s Amendment No. 3 to its Registration Statement on Form
S-4 filed with the Securities and Exchange Commission on May 4, 2015, Commission File No. 333-201879.
The unaudited condensed consolidated
balance sheet of Aventine and its subsidiaries as of March 31, 2015, and the related unaudited condensed consolidated statements
of operations, comprehensive loss, and cash flows for the three months ended March 31, 2015 and 2014, and the notes thereto are
attached as Exhibit 99.2 to this Amendment No. 1.
(b) Pro Forma Financial Information.
The following pro forma financial
information is attached as Exhibit 99.3 to this Amendment No. 1:
| · | Unaudited Pro Forma Combined Condensed Balance Sheets as of March 31, 2015 and December 31, 2014; |
| · | Unaudited Pro Forma Combined Condensed Statement of Operations for the three months ended March 31,
2015; and |
| · | Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended December 31,
2014. |
(d) Exhibits.
| Number | Description (#) |
| | |
| 2.1 | Agreement and Plan of Merger dated December 30, 2014 by and among Pacific Ethanol, Inc., Aventine
Renewable Energy Holdings, Inc. and AVR Merger Sub, Inc. (1) |
| 2.2 | Amendment No. 1 to Agreement and Plan of Merger dated March 31, 2015 by and among Pacific Ethanol,
Inc., Aventine Renewable Energy Holdings, Inc. and AVR Merger Sub, Inc. (2) |
| 10.1 | Amendment No. 3 to Amended and Restated Loan and Security Agreement dated July 1, 2015 by and among
Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC (3) |
| 10.2 | Amendment No. 2 to Amended and Restated Loan and Security Agreement dated December 29, 2014 by and
among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC (3) |
| 10.3 | Amendment No. 1 to Amended and Restated Loan and Security Agreement dated December 4, 2013 by and
among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC (3) |
| 14.1 | Code of Ethics effective July 1, 2015 (3) |
| 16.1 | Letter of Hein & Associates LLP dated July 6, 2015 (3) |
| 23.1 | Consent of McGladrey LLP, independent auditors for Aventine Renewable Energy Holdings, Inc. (*) |
| 23.2 | Consent of Ernst & Young LLP, independent auditors for Aventine Renewable Energy Holdings, Inc.
(*) |
| 99.1 | Press Release dated July 1, 2015 (3) |
| 99.2 | Unaudited condensed consolidated balance sheet of Aventine and its subsidiaries as of March 31, 2015,
and the related unaudited condensed consolidated statements of operations, comprehensive loss, and cash flows for the three months
ended March 31, 2015 and 2014 and the notes thereto (*) |
| 99.3 | Pro Forma Financial Information listed in Item 9.01(b) (*) |
________________
| (*) | Filed herewith. |
| (#) | All of the agreements filed as exhibits to this report contain representations and warranties made
by the parties thereto. The assertions embodied in such representations and warranties are not necessarily assertions of fact,
but a mechanism for the parties to allocate risk. Accordingly, investors should not rely on the representations and warranties
as characterizations of the actual state of facts or for any other purpose at the time they were made or otherwise. |
| (1) | Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on December 31, 2014 and incorporated herein by reference. The Agreement and Plan of Merger filed as Exhibit
2.1 omits certain exhibits and the disclosure schedules to the Merger Agreement pursuant to Item 601(b)(2) of Regulation S-K promulgated
by the Securities and Exchange Commission. The Company agrees to furnish on a supplemental basis a copy of the omitted exhibits
and schedules to the Securities and Exchange Commission upon request. |
| (2) | Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on April 2, 2015 and incorporated herein by reference. |
| (3) | Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 6, 2015. |
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
|
PACIFIC ETHANOL, INC. |
|
|
Date: August 5,
2015 |
By: |
/S/ CHRISTOPHER W. WRIGHT |
|
|
Christopher W. Wright Vice President, General Counsel &
Secretary |
EXHIBITS FILED
WITH THIS REPORT
| 23.1 | Consent of McGladrey LLP, independent auditors for Aventine Renewable Energy Holdings, Inc. |
| 23.2 | Consent of Ernst & Young LLP, independent auditors for Aventine Renewable Energy Holdings, Inc. |
| 99.2 | Unaudited condensed consolidated balance sheet of Aventine and its subsidiaries as of March 31, 2015,
and the related unaudited condensed consolidated statements of operations, comprehensive loss, and cash flows for the three months
ended March 31, 2015 and 2014 and the notes thereto |
| 99.3 | Pro Forma Financial Information listed in Item 9.01(b) |
Exhibit 23.1
Consent of Independent Auditor
We consent to the incorporation by reference in Registration Statements
(No. 333-123538, 333-137663, 333-169002, 333-176540, 333-185884, 333-189478 and 333-196876) on Form S-8 and (No. 333-178685,
333-180731 and 333-195364) on Form S-3 and (No. 333-201879) on Form S-4 of Pacific Ethanol, Inc. of our report dated March 4,
2015, relating to our audits of the consolidated financial statements of Aventine Renewable Energy Holdings, Inc. as of and for
the years ended December 31, 2014 and 2013, incorporated by reference in this Current Report on Form 8-K/A from Registration Statement
(No. 333-201879) on Form S-4 of Pacific Ethanol, Inc.
/s/ McGladrey LLP
Des Moines, Iowa
August 5, 2015
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the following
Registration Statements:
(1) Registration Statement (Form
S-3 Nos. 333-178685, 333-180731 and 333-195364) of Pacific Ethanol, Inc.,
(2) Registration Statement (Form S-4
No. 333-201879) of Pacific Ethanol, Inc., and
(3) Registration Statement (Form
S-8 Nos. 333-137663, 333-123538, 333-169002, 333-176540, 333-185884, 333-189478 and 333-196876) of Pacific Ethanol, Inc.,
of our report dated June 27, 2013, except Note 2, as to which
the date is February 2, 2015, with respect to the consolidated financial statements of Aventine Renewable Energy Holdings, Inc.
as of and for the period ended December 31, 2012, incorporated by reference in this Amendment No. 1 to Current Report (Form 8-K/A)
of Pacific Ethanol, Inc.
/s/ Ernst & Young LLP
St. Louis, Missouri
August 5, 2015
Exhibit 99.2
Aventine Renewable Energy Holdings, Inc.
Condensed Consolidated Balance Sheets
March 31, 2015 and December 31, 2014 (in 000's, except share amounts)
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(unaudited) | | |
| |
Assets | |
| | | |
| | |
| |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 21,743 | | |
$ | 33,250 | |
Accounts receivable, net of allowance for doubtful accounts of $709 in 2015
and $698 in 2014 | |
| 10,997 | | |
| 20,353 | |
Inventories | |
| 31,983 | | |
| 24,612 | |
Derivative financial instruments | |
| 381 | | |
| 286 | |
Prepaid expenses and other current assets | |
| 6,786 | | |
| 9,195 | |
Current assets held for sale | |
| 4,927 | | |
| 4,927 | |
Total Current Assets | |
| 76,817 | | |
| 92,623 | |
| |
| | | |
| | |
Property, Plant and Equipment, net | |
| 220,434 | | |
| 217,830 | |
| |
| | | |
| | |
Other Long-Term Assets | |
| 3,453 | | |
| 3,724 | |
| |
| | | |
| | |
Total Assets | |
$ | 300,704 | | |
$ | 314,177 | |
| |
| | | |
| | |
Liabilities and Stockholders' Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Current maturities of long-term debt (stated principal amount of $1,133 and
$1,657 at 2015 and 2014) | |
$ | 1,133 | | |
$ | 1,657 | |
Accounts payable | |
| 20,741 | | |
| 19,533 | |
Accrued liabilities | |
| 3,157 | | |
| 4,643 | |
Other current liabilities | |
| 9,739 | | |
| 6,883 | |
Total Current Liabilities | |
| 34,770 | | |
| 32,716 | |
| |
| | | |
| | |
Long-term debt (stated principal amount of $157,484 and $159,397 at 2015 and
2014) | |
| 216,972 | | |
| 222,053 | |
Deferred tax liabilities | |
| 2,078 | | |
| 2,078 | |
Other noncurrent liabilities | |
| 8,047 | | |
| 8,014 | |
Total Liabilities | |
| 261,867 | | |
| 264,861 | |
| |
| | | |
| | |
Stockholders' Equity | |
| | | |
| | |
Common stock, par value $0.001 per share; 15,000,000 shares authorized; 14,204,240 shares
outstanding, net of 1,497 shares held in treasury at both 2015 and 2014 | |
| 14 | | |
| 14 | |
Preferred stock; 5,000,000 shares authorized; no shares issued or
outstanding | |
| – | | |
| – | |
Additional paid-in capital | |
| 258,424 | | |
| 258,424 | |
Accumulated deficit | |
| (214,077 | ) | |
| (203,493 | ) |
Accumulated other comprehensive loss, net | |
| (5,524 | ) | |
| (5,629 | ) |
Total Stockholders' Equity | |
| 38,837 | | |
| 49,316 | |
| |
| | | |
| | |
Total Liabilities and Stockholders' Equity | |
$ | 300,704 | | |
$ | 314,177 | |
See
Notes to Condensed Consolidated Financial Statements.
Aventine Renewable Energy Holdings, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Three
Months Ended March 31, 2015 and 2014 (in 000's)
| |
March
31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Net sales | |
$ | 130,937 | | |
$ | 117,333 | |
Cost of goods sold | |
| 134,214 | | |
| 101,799 | |
Gross profit (loss) | |
| (3,277 | ) | |
| 15,534 | |
| |
| | | |
| | |
Selling, general and administrative expenses | |
| 5,960 | | |
| 3,488 | |
Other expenses (income) | |
| (96 | ) | |
| (64 | ) |
Loss on derivative transactions, net | |
| 444 | | |
| 13,595 | |
| |
| 6,308 | | |
| 17,019 | |
| |
| | | |
| | |
Operating (loss) | |
| (9,585 | ) | |
| (1,485 | ) |
| |
| | | |
| | |
Nonoperating income (expense): | |
| | | |
| | |
Interest expense, net | |
| (816 | ) | |
| (4,776 | ) |
Other nonoperating income (expense) | |
| (47 | ) | |
| – | |
| |
| (863 | ) | |
| (4,776 | ) |
| |
| | | |
| | |
| |
| | | |
| | |
(Loss) from
continuing operations before income taxes | |
| (10,448 | ) | |
| (6,261 | ) |
| |
| | | |
| | |
Income tax expense | |
| – | | |
| – | |
| |
| | | |
| | |
(Loss) from continuing operations | |
| (10,448 | ) | |
| (6,261 | ) |
| |
| | | |
| | |
Discontinued operations: | |
| | | |
| | |
Net (loss) from discontinued operations | |
| (136 | ) | |
| (27 | ) |
| |
| | | |
| | |
Net (loss) | |
$ | (10,584 | ) | |
$ | (6,288 | ) |
See
Notes to Condensed Consolidated Financial Statements.
Aventine Renewable Energy Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
Three Months Ended March 31, 2015 and 2014 (in 000's)
| |
March
31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Net loss | |
$ | (10,584 | ) | |
$ | (6,288 | ) |
Other comprehensive loss, net of tax | |
| | | |
| | |
Pension and postretirement liability adjustment | |
| 105 | | |
| (67 | ) |
Total comprehensive loss, net of tax | |
$ | (10,479 | ) | |
$ | (6,355 | ) |
See Notes to Condensed Consolidated Financial Statements.
Aventine Renewable Energy Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three
Months Ended March 31, 2015 and 2014 (in 000's)
| |
March
31, | |
| |
2015 | | |
2014 | |
Cash Flows from Operating Activities | |
| | | |
| | |
Net (loss) | |
$ | (10,584 | ) | |
$ | (6,288 | ) |
Adjustments to reconcile net (loss) to net cash (used in) operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 3,669 | | |
| 2,606 | |
Amortization of additional carrying value of debt | |
| (3,168 | ) | |
| (3,811 | ) |
Amortization of deferred financing costs | |
| 271 | | |
| 540 | |
Accumulated PIK Interest | |
| – | | |
| 4,690 | |
Changes in working capital components: | |
| | | |
| | |
Accounts receivable, net | |
| 9,356 | | |
| (1,232 | ) |
Inventories | |
| (7,371 | ) | |
| (2,423 | ) |
Prepaid expenses and other current assets | |
| 2,314 | | |
| 422 | |
Accounts payable | |
| 1,208 | | |
| 1,328 | |
Other liabilities | |
| 1,508 | | |
| 268 | |
Net cash (used in) operating activities | |
| (2,797 | ) | |
| (3,900 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Proceeds from the sale of assets | |
| – | | |
| 34,744 | |
Purchase of property, plant and equipment | |
| (6,273 | ) | |
| (2,805 | ) |
Net cash provided by (used in) investing activities | |
| (6,273 | ) | |
| 31,939 | |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from issuance of long-term debt | |
| 1,026 | | |
| – | |
Payments on long-term debt | |
| (3,463 | ) | |
| (21,497 | ) |
Net cash (used in) financing activities | |
| (2,437 | ) | |
| (21,497 | ) |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| (11,507 | ) | |
| 6,542 | |
| |
| | | |
| | |
Cash and Cash Equivalents | |
| | | |
| | |
Beginning of period | |
| 33,250 | | |
| 40,456 | |
| |
| | | |
| | |
End of period | |
$ | 21,743 | | |
$ | 46,998 | |
See Notes to Condensed Consolidated Financial Statements.
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
Note 1. | Nature of Business, Basis of Presentation and Significant Accounting
Policies |
Aventine Renewable Energy Holdings, Inc. (collectively referred
to as Aventine, the Company or we) and its subsidiaries produces and markets ethanol. In addition to producing ethanol, Aventine's
facilities also produce several co-products, including corn gluten feed and meal, corn germ, condensed corn distillers solubles,
dried distillers grain, wet distillers grain, carbon dioxide, and grain distillers dried yeast.
Basis of presentation: The accompanying condensed
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
The accompanying consolidated financial statements are prepared
in conformity with GAAP. Certain information and footnote disclosures normally included in statements prepared in accordance with
GAAP have been omitted pursuant to such rules and regulations, although it is Aventine's belief that the disclosures are adequate
to make the information presented not misleading. These financial statements should be read in conjunction with Aventine's audited
financial statements and notes for the year ended December 31, 2014.
The ethanol facilities included in continuing operations on the
condensed statements of operations are located in Pekin, Illinois and Aurora, Nebraska. The ethanol facilities located in Mount
Vernon, Indiana (Mount Vernon) and Canton, Illinois (Canton), are classified as held for sale on the condensed consolidated balance
sheets in accordance with Accounting Standard Codification as discontinued operations on the condensed consolidated statement
of operations in accordance with ASC Topic 205-20, Discontinued Operations.
The preparation of the condensed consolidated financial
statements in conformity with GAAP requires Aventine to make estimates and assumptions that affect the amounts reported in the
condensed consolidated financial statements and accompanying notes. These estimates are based on Aventine's management team's
knowledge of current events and actions that Aventine may take in the future. Estimates, by their nature, are based on judgment
and available information. Actual results could differ from those estimates.
The accompanying condensed consolidated financial statements
presented herewith reflect all adjustments (consisting of only normal and recurring adjustments unless otherwise disclosed) which,
in the opinion of Aventine's management team, are necessary for a fair presentation of the results of operations for the three
months ended March 31, 2015 and 2014. The results of operations for interim periods are not necessarily indicative of results
to be expected for an entire year.
Summary of Significant Accounting Policies:
Revenue recognition: Revenue is recognized when title transfers
to an unaffiliated customer, the sales price is fixed or determinable and collectability is reasonably assured. For the majority
of Aventine's sales, transfer of title occurs after the product has been delivered to its designated shipping point. Aventine's
ethanol indexed sales are invoiced based upon a provisional price and are adjusted to a final price in the same month using the
monthly average of spot market prices. Other sales are invoiced at the final per unit price, which may be the contracted fixed
price or a market price at the time of shipment. Sales are made under normal terms and do not require collateral.
The majority of sales are reported gross, inclusive of freight costs
being paid by Aventine. Aventine recognizes such freight costs in cost of goods sold in the financial statements. When freight
costs are paid by the buyer, Aventine excludes these costs from its financial statements.
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
Fair value of financial instruments: Financial instruments
include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, long-term debt and derivative instruments.
Management believes the fair value of each of these instruments approximates their carrying value. The fair value of derivative
instruments is based on quoted market prices. The fair value of financial instruments classified as current assets and liabilities
are estimated to approximate carrying values due to the short-term nature of these instruments. The fair values of the term loans
are estimated to approximate the stated principal value.
Cash and cash equivalents: Aventine considers all highly
liquid short-term investments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are carried
at cost, which approximates fair value. Aventine's cash balances are maintained in bank deposit accounts which at times may exceed
federally insured limits. Aventine has not experienced any losses in such accounts.
Accounts receivable: Accounts receivable are recorded on
a gross basis, without discounting, less an allowance for doubtful accounts. Trade receivables arise in the ordinary course of
business from sales of finished product to Aventine's customers. Aventine's management team estimates the allowance for doubtful
accounts based on existing economic conditions, the financial conditions of the customers, and the amount and age of past-due accounts.
Aventine writes off specific accounts receivable when collection efforts are exhausted and the amounts are deemed unrecoverable.
Inventories: Inventories are stated at the lower of cost
or market. Cost is determined using a weighted-average method. Inventory costs include expenditures incurred to bring inventory
to its existing condition and location. Inventories primarily consist of agricultural and energy-related commodities, including
corn, sugar, ethanol, and coal.
Derivative financial instruments and hedging activities: Derivatives
are accounted for in accordance with ASC 815, Derivatives and Hedging, and primarily consist of Aventine's commodity futures
contracts. These instruments are not designated as hedges and, therefore, are marked to market each period. Accordingly, any realized
or unrealized gain or loss related to the derivative instrument is recorded in the statements of operations as operating income.
Aventine reports all contracts with the same counter party on a net basis at fair value on Aventine's consolidated balance sheets.
Under ASC 815, companies are required to evaluate contracts to determine
whether such contracts are derivatives. Certain contracts that meet the definition of a derivative under ASC 815 may be exempted
from the accounting and reporting requirements of ASC 815 as normal purchases or normal sales. Aventine has elected to designate
its forward purchases of corn and natural gas and forward sales of ethanol as normal purchases and normal sales under ASC 815.
Accordingly, these forward commodity contracts are not reflected in the consolidated financial statements at fair value.
Property, plant and equipment: Newly acquired land,
buildings, and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the estimated useful
lives of the assets, generally on the straight-line basis for financial reporting purposes (furniture and fixtures, 5-15 years;
machinery and equipment, 3-20 years; storage tanks, 15-25 years; and buildings and leasehold improvements, 4-40 years). Maintenance
and repairs are charged to expense as incurred.
Impairment of long-lived assets: Long-lived assets are evaluated
for impairment under the provisions of ASC 360, Property, Plant and Equipment. When facts and circumstances indicate that
long-lived assets used in operations may be impaired, and the undiscounted cash flows estimated to be generated from those assets
are less than their carrying values, an impairment charge is recorded equal to the excess of the carrying value of fair value.
No impairment was recognized during the three months ended March 31, 2015 and 2014 on assets used in continuing operations.
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
Employment-related benefits: Employment-related benefits
associated with pensions and postretirement health care are expensed based on actuarial analysis. The recognition of expense is
affected by estimates made by Aventine's management team, such as discount rates used to value certain liabilities, investment
rates of return on plan assets, increases in future wage amounts, and future health care costs.
Discount rates are determined based on a spot yield curve that
includes bonds with maturities that match expected benefit payments under the plan.
Income taxes: Deferred tax liabilities and assets are recorded
for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Deferred
income taxes also include net operating loss and capital loss carryforwards. Aventine establishes valuation allowances to reduce
deferred tax assets to amounts it believes are realizable. These valuation allowances and contingency reserves are adjusted based
upon changing facts and circumstances. Aventine has fully reserved for its deferred tax assets to the amount management believes
is more likely than not to be realized. As such, Aventine has not recorded any tax expense or benefit for the three month period
ending March 31, 2015 and 2014.
On February 27, 2014, the IRS notified Aventine that its 2012 consolidated
federal tax return would be subject to IRS audit. The audit process is ongoing, but based on the size of Aventine's 2012 loss,
its loss carry-forwards, valuation allowance and reserves, Aventine does not expect the outcome of the audit to generate additional
cash tax obligations.
Accumulated other comprehensive loss: Comprehensive loss
is the total of net loss and other comprehensive income (loss). Other comprehensive income (loss) is comprised of unrecognized
pension costs.
Discontinued operations: Aventine classified the results
of operations of the ethanol facilities located in Mount Vernon and Canton as discontinued operations. As a result, the operating
results from these locations have been removed from continuing operations for all periods presented.
Major customers: Aventine sells ethanol to most of the major
integrated oil companies, as well as to a significant number of large, independent refiners and petroleum wholesalers. Trade receivables
result primarily from ethanol marketing operations. As a general policy, collateral is not required for receivables, but customers'
financial condition and creditworthiness are evaluated regularly.
Subsequent events: Aventine has evaluated subsequent events
through August 5, 2015, the date Aventine's condensed consolidated financial statements were made available.
Note 2. | Discontinued Operations |
As part of a strategic repositioning and refocusing on Aventine's
core competitive advantages, Aventine made the decision to sell its Mount Vernon and Canton facilities in 2013. Proceeds generated
by the sale of these idled assets will be used to reduce Aventine's debt and other long-term obligations.
On March 21, 2014, Aventine sold its Mount Vernon facility
to an independent third party. Under the terms of the agreement, Aventine received approximately $34.0 million in cash consideration
and a full release of all of its contractual obligations related to the site lease and utility contracts. After transaction fees,
closing adjustments and working capital reserves, net sale proceeds of $24.3 million were used to repay Aventine's senior secured
term loan debt.
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
The sale process for Canton continued into 2015. Aventine
is in the process of assessing and analyzing all of its disposal options, and expects a final determination for Canton to occur
in 2015. At March 31, 2015, the assets related to the Canton facility assets have been classified as current assets held for sale
on the consolidated condensed financial statements. The amount of revenue and pretax loss for each disposal group included in
discontinued operations is as follows for the three months ended March 31, 2015 and 2014 (in 000’s):
| |
2015 | | |
2014 | |
| |
Mount | | |
| | | |
| | | |
Mount | | |
| | | |
| | |
| |
Vernon | | |
Canton | | |
Total | | |
Vernon | | |
Canton | | |
Total | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Revenue | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
Net income (loss) | |
| – | | |
| (136 | ) | |
| (136 | ) | |
| 77 | | |
| (104 | ) | |
| (27 | ) |
Inventories primarily consist of agricultural and energy-related
commodities, including corn, ethanol, and coal, and were as follows at March 31, 2015 and December 31, 2014 (in 000’s):
| |
2015 | | |
2014 | |
Raw materials | |
$ | 5,772 | | |
$ | 7,566 | |
Work in process | |
| 3,756 | | |
| 3,351 | |
Finished products | |
| 22,455 | | |
| 13,695 | |
| |
$ | 31,983 | | |
$ | 24,612 | |
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
Note 4. | Fair Value Measurements |
Aventine categorizes its investments and certain other assets
and liabilities recorded at fair value into a three-level fair value hierarchy as follows:
Level 1: Unadjusted quoted prices in active markets that
are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active,
or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require
inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Derivative financial instruments: Exchange-traded
futures and options and over-the-counter swaps and option contracts are reported at fair value utilizing Level 1 inputs.
The following tables summarize the valuation
of Aventine's financial instruments that are measured at fair value on a recurring basis as of March 31, 2015 and December 31,
2014 (in 000’s):
| |
March 31, 2015 | |
| |
Fair | | |
| | | |
| | | |
| | |
| |
Value
| | |
Level
1 | | |
Level
2 | | |
Level
3 | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Derivative financial
instruments | |
$ | 920 | | |
$ | 920 | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative financial instruments | |
$ | (938 | ) | |
$ | (938 | ) | |
$ | – | | |
$ | – | |
| |
December 31, 2014 | |
| |
Fair | | |
| | | |
| | | |
| | |
| |
Value
| | |
Level
1 | | |
Level
2 | | |
Level
3 | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Derivative financial
instruments | |
$ | 2,634 | | |
$ | 2,634 | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative financial instruments | |
$ | (981 | ) | |
$ | (981 | ) | |
$ | – | | |
$ | – | |
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
Note 5. | Derivative Instruments and Hedging |
Aventine's operating activities expose it to a variety of
market risks, including the effects of changes in commodity prices. Commodity price risk is monitored and managed by Aventine
as part of its overall risk management program that seeks ways to reduce the potentially adverse effects market volatility may
have on its operating results. Aventine generally follows a policy of entering into forward contracts for the physical purchase
of corn and the physical sale of ethanol and co-products in order to fix the price of these commodities and lock in operating
margins. These forward contracts have been designated as normal purchases and normal sales. Any unrealized gains or losses on
these contracts are not included in Aventine's consolidated financial statements. When forward contracts are not available at
competitive prices, Aventine may enter into over-the-counter or exchange-traded futures, swaps and options contracts to reduce
its exposure to commodity market volatility. The fair value of these commodity derivative contracts is recorded on Aventine's
consolidated balance sheets. Changes in the fair value of commodity derivatives are recorded in non-operating income as gain (loss)
on derivative transactions.
The following table provides information about the fair
values of Aventine's derivative financial instruments and the line items on the consolidated balance sheets in which the fair
values are reflected as of March 31, 2015 and 2014 (in 000’s):
Type | |
Balance Sheet Classification | |
2015 | | |
2014 | |
| |
| |
| | | |
| | |
Corn future contracts - gain | |
Derivative financial instruments | |
$ | 789 | | |
$ | 2,458 | |
Corn future contracts - loss | |
Derivative financial instruments | |
| (853 | ) | |
| (656 | ) |
Ethanol future contracts - gain | |
Derivative financial instruments | |
| 131 | | |
| 176 | |
Ethanol future contracts - loss | |
Derivative financial instruments | |
| (85 | ) | |
| (325 | ) |
Cash held by (due to) broker | |
Derivative financial instruments | |
| 399 | | |
| (1,367 | ) |
| |
| |
$ | 381 | | |
$ | 286 | |
The realized and unrealized effect on Aventine's condensed consolidated
statements of operations for derivatives not designated as hedging instruments for the three months ended March 31, 2015 and 2014
were as follows (in 000’s):
| |
| |
Realized Gain (Loss) | |
| |
| |
Three Months ended | |
| |
| |
March 31, | |
Type | |
Statement of Operations Classification | |
2015 | | |
2014 | |
| |
| |
| | | |
| | |
Commodity contracts | |
Gain (loss) on derivative transactions | |
$ | 1,228 | | |
$ | (657 | ) |
| |
| |
Unrealized Loss | |
| |
| |
Three Months ended | |
| |
| |
March 31, | |
Type | |
Statement of Operations Classification | |
2015 | | |
2014 | |
| |
| |
| | | |
| | |
Commodity contracts | |
(Loss) on derivative transactions | |
$ | (1,672 | ) | |
$ | (12,938 | ) |
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
Note 6. | Debt and Pledged Assets |
The following table summarizes Aventine's outstanding long-term
debt as of March 31, 2015 and 2014 (in 000’s):
| |
2015 | | |
2014 | |
| |
| | | |
| | |
Senior debt | |
$ | 199,788 | | |
$ | 202,956 | |
Loan and security agreement | |
| 17,162 | | |
| 19,060 | |
Other | |
| 1,155 | | |
| 1,694 | |
| |
| 218,105 | | |
| 223,710 | |
Less: current maturities of long-term debt | |
| (1,133 | ) | |
| (1,657 | ) |
Total
long-term debt | |
$ | 216,972 | | |
$ | 222,053 | |
Aventine's long-term debt matures over the next two years as follows:
$1,133 in 2016, $157,484 in 2017. The actual debt pay-off amount is $59,488 lower than the carrying value of Aventine's debt at
March 31, 2015 due to the troubled debt restructuring transaction that occurred in 2012, which required the Company to account
for the impact of its debt forgiveness prospectively instead of taking an immediate write-down.
Senior Secured Term Loan Credit Agreement
On December 22, 2010, Aventine entered into a Term Loan Agreement
with its lenders to provide Aventine with a $200 million term loan facility (the Term Loan Facility). Aventine provided a first
lien priority security interest on substantially all of Aventine's fixed assets as collateral under the Term Loan Facility.
On September 24, 2012, Aventine restructured its Term Loan
Facility. As a result of the restructuring, Aventine converted $132.3 million of outstanding debt into 2,186,298 shares of common
stock of Aventine. After the exchange, the remaining $100 million of debt was converted into a Term Loan B Facility (Term Loan
B) and continued to be secured with substantially all Aventine's fixed assets. Interest on Term Loan B may be paid in cash at a
10.5% rate or paid-in-kind at a 15% interest rate. If Aventine elects paid-in-kind interest, the interest is capitalized at the
end of each quarter. The maturity date for Term Loan B is September 24, 2017.
The September 24, 2012 debt restructuring qualified as a
troubled debt restructuring under ASC 470-60, Debt — Troubled Debt Restructurings by Debtors. Accordingly in 2012, Aventine
reduced its aggregate debt balance of $232.3 million under the Term Loan Facility million by $26.8 million to account for the fair
value of the equity interest granted in exchange for $132.3 million of debt forgiveness. No gain or loss on debt forgiveness was
recognized as the future maximum cash outflows on the restructured debt exceeded the amount of the Term Loan Facility. The additional
carrying value of the Term Loan Facility is $59,488 and $62,656 at March 31, 2015 and December 31, 2014, respectively.
Loan and Security Agreement
On September 17, 2014, Aventine entered into a $40.0 million
loan and security agreement (LSA) with two co-lenders. The LSA was secured by Aventine's accounts receivable and inventory, and
a second priority lien interest on substantially all of Aventine's assets. Advances under the LSA were charged interest at a rate
of LIBOR plus 6.0%. The LSA contained customary affirmative and negative covenants including but not limited to, meeting certain
financial covenants. The LSA expired in July 2017 when all unpaid principal and interest was to become due. At March 31, 2015,
the Company had approximately $17.2 million of loan advances and $5.6 million in letters of credit outstanding under the LSA.
As discussed in Note 9, the LSA was paid in full and closed on July 1, 2015.
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
Note 7. | Commitments and Contingencies |
Operating Leases: Aventine leases certain assets
such as rail cars, barges, buildings, and equipment from unaffiliated parties under noncancelable operating leases. Terms of the
leases, including renewals, vary by lease. Rental expense for operating leases for the three months ended March 31, 2015 and 2014,
was $4.9 million and $1.8 million, respectively.
At March 31, 2015, minimum rental commitments under noncancelable
operating lease terms in excess of one year are as follows (in 000’s):
Years Ending
December 31: | |
| |
| |
| | |
2015 | |
$ | 13,266 | (1) |
2016 | |
| 11,578 | |
2017 | |
| 8,052 | |
2018 | |
| 5,167 | |
2019 | |
| 1,811 | |
Thereafter | |
| 215 | |
Total minimum lease payments | |
$ | 40,089 | |
(1)
Prorata for the remainder of 2015
Commodity Commitments
Purchase commitments: At March 31, 2015, Aventine had contracted
for future fixed price corn deliveries valued at $14.5 million. Sales commitments: At March 31, 2015, Aventine had sold fixed price
ethanol contracts valued at $3.0 million.
Environmental Remediation and Contingencies
Aventine is subject to federal, state and local environmental
laws and regulations. These laws and regulations, among other things, require Aventine to maintain or make operational changes
that limit adverse impacts to the environment. Violations of regulations can result in fines. In addition, environmental laws and
regulations can change over time, and any such changes may require additional compliance efforts.
Federal and state environmental authorities have investigated
alleged excess volatile organic compounds emissions and other air emissions from many U.S. ethanol plants, including Aventine's
facilities located in Illinois. The investigation relating to the Illinois wet mill facility is still pending, and Aventine could
be required to install additional air pollution control equipment or take other measures to control air pollutant emissions at
that facility. In addition, if the authorities determine that Aventine's emissions are in violation of applicable law, Aventine
would likely be required to pay fines. Aventine has installed natural gas fired boilers to comply with the 2016 air emission standards.
Aventine has made, and will continue to make capital expenditures
on an ongoing basis to comply with the EPA National Emissions Standard for Hazardous Air Pollutants (NESHAP). This NESHAP was originally
issued but subsequently vacated in 2007. The vacated version of the rule required Aventine to implement maximum achievable control
technology at its Illinois wet mill facility to reduce hazardous air pollutant emissions from its boilers. The EPA issued a new
Boiler MACT rule on December 22, 2012. The rule became final on January 31, 2013. Aventine will have three years from the date
of the final rule to meet the new emission limits and has installed natural gas fired boilers to comply with the new 2016 emission
standards.
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
Litigation Matters
Aventine is subject to various claims and contingencies in
the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and
others. When Aventine is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable
that a loss will result and the amount of the loss can be reasonably estimated, Aventine will record a liability for the loss.
If the loss is not probable or the amount of the loss cannot be reasonably estimated, Aventine discloses the claim if the likelihood
of a potential loss is reasonably possible and the amount involved could be material.
Aurora Cooperative Elevator Company
On May 29, 2012, the Company filed suit against Aurora Cooperative
Elevator Company (Aurora) seeking declaratory relief. The suit alleged Aurora had improperly threatened to invoke a purported option
to acquire the land upon which the Company’s Aurora West facility is located. On June 21, 2012, Aurora filed claims against
the Company which were removed to the United States District Court for the District of Nebraska (Case No. 4:12-cv-0230), naming
the Company and Aventine Renewable Energy – Aurora West, LLC (AWLLC), one of the Company’s subsidiaries, as defendants.
The suit alleged that the Company failed to complete construction and operate the Aurora West facility by a contractual deadline,
thereby allowing Aurora to exercise an option to repurchase 74 acres of land upon which the Aurora West facility is located, together
with the Aurora West facility and all related improvements, for a purchase price of $16,500 per acre. Aurora asserted that its
contractual right to exercise this option arose on July 1, 2012 due to the Company’s alleged failure to complete construction
of the Aurora West facility as of that date. Aurora also sought a judicial order imposing a constructive trust and requiring the
Company to account for and pay to Aurora the greater of the profits which the Company received or may have received in the exercise
of reasonable care in the operation of the Aurora West facility after July 1, 2012 to compensate Aurora for damages it allegedly
suffered as a result of the Company’s purported delay in conveying title to the Aurora West facility and the land upon which
it is located. The Company answered the suit, arguing that the contract only required the Company to diligently pursue construction,
that construction was complete, and that there was no contractual ethanol production requirement. As discussed in Note 9, on July
26, 2015, the Company settled this matter with Aurora.
On September 20, 2012, Aurora filed suit in the United States
District Court for the District of Nebraska (Case No. 4:12-cv-03200), naming the Company, Aventine Renewable Energy, Inc., one
of the Company’s subsidiaries, and AWLLC as defendants. The suit alleged that Aurora acquired grain on the Company’s
behalf for which the Company had not paid and of which the Company had not accepted delivery. The suit sought approximately $1.8
million in damages. The Company denied that the grain belonged to it or any of its subsidiaries and counterclaimed for amounts
Aurora owed to the Company, which Aurora had set off against amounts allegedly owed by the Company and its subsidiaries. The dispute
was referred to the National Grain and Feed Association (NGFA Case No. 2651) for arbitration in which the Company prevailed. Thereafter,
Aurora sought to recast its claims in the federal suit to include breach of contract damages and other remedies. As discussed in
Note 9, on July 26, 2015, the Company settled this matter with Aurora.
On November 8, 2013, Nebraska Energy, L.L.C. (NELLC), one
of the Company’s subsidiaries, filed suit in the United States District Court for the District of Nebraska (Case No. 4:13-cv-03190),
naming Aurora as defendant. NELLC and Aurora entered into a grain supply agreement that required NELLC to purchase all grain from
Aurora under an actual cost-plus fixed-fee price formula. The suit alleged breach of contract for failure to permit an audit of
transactions between the parties and an unspecified amount of damages resulting from Aurora’s failure to properly charge
NELLC under the price formula. Aurora counterclaimed for breach of certain grain supply and marketing agreements between the parties.
As discussed in Note 9, on July 26, 2015, the Company settled this matter with Aurora.
Aventine Renewable Energy Holdings,
Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
On February 4, 2014, Aurora filed suit in the United States
District Court for the District of Nebraska (Case No. 4:14-cv-3032), naming the Company and AWLLC as defendants. The suit was for
declaratory judgment concerning Aurora’s rights as to certain disputed rail access matters. The Company counterclaimed seeking
damages for denial of rail access, including access over rail equipment for which it shared the costs of construction. As discussed
in Note 9, on July 26, 2015, the Company settled this matter with Aurora.
On September 11, 2014, AWLLC filed suit with the Nebraska
Public Service Commission naming Aurora as defendant. The suit was for declaratory judgment on and an unspecified amount of damages
as to Aurora’s denial of rail access and AWLLC’s costs related to the construction of various infrastructures to work
around that denial of access. The Company claimed that Aurora’s actions in locking out access violated public policy and
state law. As discussed in Note 9, on July 26, 2015, the Company settled this matter with Aurora.
Western Sugar Cooperative
On February 27, 2015, Western Sugar Cooperative (Western
Sugar) filed a Complaint in the United States District Court for the District of Colorado naming the Company as defendant. Western
Sugar amended its Complaint on April 21, 2015. The Company purchased surplus sugar through a United States Department of Agriculture
program. Western Sugar was one of the entities that warehoused this sugar for the Company. The suit alleges that the Company breached
its contract with Western Sugar by failing to pay certain penalty rates for the storage of its sugar or alternatively failing to
pay a premium rate for storage. Western Sugar alleges that the penalty rates apply because the Company failed to take timely delivery
or otherwise cause timely shipment of the sugar. Western Sugar claims “expectation damages” in the amount of approximately
$8.6 million. The Company filed Answers to Western Sugar’s Complaint and amended Complaint generally denying Western Sugar’s
allegations and asserting various defenses. The case is currently in its discovery phase. The Company believes the claims by Western
Sugar are without merit and intends to vigorously defend against them. At this time, the Company is unable to determine the impact
such litigation will have on its business, operating results, financial condition, and cash flows.
Note 8. | Retirement and Pension Plans |
Aventine previously disclosed in its financial statements
for the year ended December 31, 2014, that it did not expect to contribute to its pension plan in 2015. As of March 31, 2015, no
contributions have been made.
The Company
entered into a definitive merger agreement with Pacific Ethanol, Inc. (Pacific), a western U.S. ethanol producer and marketer on
December 30, 2014, which was subsequently amended on March 31, 2015. On July 1, 2015, the merger was completed with Pacific issuing
17,759,000 shares of its common stock in exchange for 100% of the Company’s outstanding common stock.
On July
1, 2015, Pacific paid off and retired the Company’s LSA.
On July 26, 2015, the Company settled all outstanding litigation
with Aurora. The Company and Aurora agreed to dismiss all lawsuits with prejudice with no admission of fault or liability by the
parties, and to release the alleged option held by Aurora to repurchase the land upon which the 110 million gallon ethanol production
facility in Aurora, Nebraska is located. In addition, the parties agreed to terminate the grain supply, marketing and various
other agreements between them or their subsidiaries. Under the terms of the settlement, the Company and Aurora will each bear
its own costs and fees associated with the lawsuits and the settlement. The Company and Aurora agreed to continue to work together
to amend or replace certain real property easements currently in place to ensure continued mutual access by both parties to a
system of rails, rail switches, roads, electrical improvements, and utilities already constructed near the facility in Aurora,
Nebraska.
Exhibit 99.3
UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed balance
sheet as of March 31, 2015 is presented as if the merger had occurred as of March 31, 2015. The unaudited pro forma combined condensed
statements of operations for the three months ended March 31, 2015 and year ended December 31, 2014 are presented as if the merger
had occurred on January 1, 2014. The pro forma consolidated financial statements of Pacific Ethanol and Aventine have been
adjusted to reflect certain reclassifications in order to conform Aventine’s historical financial statement presentation
to Pacific Ethanol’s financial statement presentation for the combined company.
The unaudited pro forma combined condensed financial
statements give effect to the merger under the acquisition method of accounting in accordance with Financial Accounting Standards
Board Accounting Standard Topic 805, Business Combinations, which we refer to as ASC 805, with Pacific Ethanol
treated as the acquirer. As of the date of this filing, Pacific Ethanol has not completed the detailed valuation work necessary
to arrive at the required estimates of the fair value of the Aventine assets to be acquired and the liabilities to be assumed and
the related allocation of purchase price, nor has it identified all adjustments necessary to conform Aventine’s accounting
policies to Pacific Ethanol’s accounting policies. A final determination of the fair value of Aventine’s assets and
liabilities, including intangible assets with both indefinite or finite lives, will be based on the actual net tangible and intangible
assets and liabilities of Aventine that exist as of the closing date of the merger on July 1, 2015. The value of the consideration
paid by Pacific Ethanol, however, has been based on the closing price per share of Pacific Ethanol’s common stock on the
closing date of the merger. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as
additional information becomes available and as additional analyses are performed. The preliminary pro forma adjustments have been
made solely for the purpose of presenting the unaudited pro forma combined condensed financial statements. Pacific Ethanol estimated
the fair values of Aventine’s assets and liabilities as of March 31, 2015 which are based on preliminary valuation studies
and due diligence. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation
presented herein, and this difference may be material.
Assumptions and estimates underlying the unaudited
adjustments to the pro forma combined condensed financial statements are described in the accompanying notes, which should be read
in conjunction with the unaudited pro forma combined condensed financial statements. The historical consolidated financial statements
have been adjusted in the unaudited pro forma combined condensed financial statements to give effect to pro forma events that are:
(1) directly attributable to the merger; (2) factually supportable; and (3) with respect to the unaudited pro forma
combined condensed statements of operations, expected to have a continuing impact on the combined results of Pacific Ethanol and
Aventine following the merger.
In connection with the plan to integrate the
operations of Pacific Ethanol and Aventine, Pacific Ethanol anticipates that non-recurring charges, such as costs associated with
systems implementation, relocation expenses, severance and other costs related to closing the transaction, will be incurred. Pacific
Ethanol is not able to determine the timing, nature and amount of these charges as of the date of this filing. However, these charges
could affect the combined results of operations of Pacific Ethanol and Aventine, as well as those of the combined company following
the merger, in the period in which they are recorded. The unaudited pro forma combined condensed financial statements do not include
the effects of the costs associated with any restructuring or integration activities resulting from the transaction, as they are
non-recurring in nature and not factually supportable at the time that the unaudited pro forma combined condensed financial statements
were prepared. Additionally, these adjustments do not give effect to any synergies that may be realized as a result of the merger,
nor do they give effect to any nonrecurring or unusual restructuring charges that may be incurred as a result of the integration
of the two companies.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE
SHEETS
OF PACIFIC ETHANOL AND AVENTINE
As of March 31, 2015
(in thousands)
|
Historical |
|
|
Historical |
|
|
Pro Forma |
|
|
Pro Forma |
|
|
Pacific Ethanol |
|
|
Aventine |
|
|
Adjustments |
|
Notes |
Amounts |
|
Cash and equivalents |
$ |
42,274 |
|
|
$ |
21,743 |
|
|
$ |
– |
|
|
$ |
64,017 |
|
Accounts receivable, net |
|
27,342 |
|
|
|
10,997 |
|
|
|
– |
|
|
|
38,339 |
|
Inventories |
|
17,840 |
|
|
|
31,983 |
|
|
|
– |
|
|
|
49,823 |
|
Prepaid inventory |
|
8,431 |
|
|
|
– |
|
|
|
– |
|
|
|
8,431 |
|
Other current assets |
|
14,678 |
|
|
|
12,094 |
|
|
|
– |
|
|
|
26,772 |
|
Total current assets |
|
110,565 |
|
|
|
76,817 |
|
|
|
– |
|
|
|
187,382 |
|
Property and Equipment, net |
|
160,179 |
|
|
|
220,434 |
|
|
|
86,366 |
|
(a) |
|
466,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
– |
|
|
|
– |
|
|
|
23,310 |
|
(b) |
|
23,310 |
|
Intangible assets |
|
2,678 |
|
|
|
– |
|
|
|
– |
|
|
|
2,678 |
|
Other assets |
|
1,803 |
|
|
|
3,453 |
|
|
|
– |
|
|
|
5,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other Assets |
|
4,481 |
|
|
|
3,453 |
|
|
|
23,310 |
|
|
|
31,244 |
|
Total Assets |
$ |
275,225 |
|
|
$ |
300,704 |
|
|
$ |
109,676 |
|
|
$ |
685,605 |
|
Accounts payable, trade |
$ |
14,823 |
|
|
$ |
20,741 |
|
|
$ |
– |
|
|
$ |
35,564 |
|
Accrued liabilities |
|
4,230 |
|
|
|
3,157 |
|
|
|
4,700 |
|
(c) |
|
12,087 |
|
Current portion of capital leases and debt |
|
2,986 |
|
|
|
1,133 |
|
|
|
– |
|
|
|
4,119 |
|
Other current liabilities |
|
800 |
|
|
|
9,739 |
|
|
|
– |
|
|
|
10,539 |
|
Total current liabilities |
|
22,839 |
|
|
|
34,770 |
|
|
|
4,700 |
|
|
|
62,309 |
|
Long-term debt-revolvers |
|
– |
|
|
|
17,162 |
|
|
|
– |
|
|
|
17,162 |
|
Long-term debt-term debt |
|
17,003 |
|
|
|
199,810 |
|
|
|
(59,488 |
) |
(d) |
|
157,325 |
|
Warrant liabilities, at fair value |
|
2,120 |
|
|
|
– |
|
|
|
– |
|
|
|
2,120 |
|
Capital leases-net of current portion |
|
1,883 |
|
|
|
– |
|
|
|
– |
|
|
|
1,883 |
|
Deferred tax liabilities |
|
17,040 |
|
|
|
2,078 |
|
|
|
30,228 |
|
(e) |
|
49,346 |
|
Other liabilities |
|
443 |
|
|
|
8,047 |
|
|
|
– |
|
|
|
8,490 |
|
Total Liabilities |
|
61,328 |
|
|
|
261,867 |
|
|
|
(24,560 |
) |
|
|
298,635 |
|
Preferred stock |
|
1 |
|
|
|
– |
|
|
|
– |
|
|
|
1 |
|
Common stock |
|
25 |
|
|
|
14 |
|
|
|
4 |
|
(f) |
|
43 |
|
Additional paid-in capital |
|
726,549 |
|
|
|
258,424 |
|
|
|
(83,869 |
) |
(f) |
|
901,104 |
|
Accumulated other comprehensive income |
|
– |
|
|
|
(5,524 |
) |
|
|
5,524 |
|
(f) |
|
– |
|
Accumulated deficit |
|
(517,024 |
) |
|
|
(214,077 |
) |
|
|
212,577 |
|
(f) |
|
(518,524 |
) |
Total Pacific Ethanol equity |
|
209,551 |
|
|
|
38,837 |
|
|
|
134,236 |
|
|
|
382,624 |
|
Non-controlling interest equity |
|
4,346 |
|
|
|
– |
|
|
|
– |
|
|
|
4,346 |
|
Total Stockholders' Equity |
|
213,897 |
|
|
|
38,837 |
|
|
|
134,236 |
|
|
|
386,970 |
|
Total Liabilities and Stockholders' Equity |
$ |
275,225 |
|
|
$ |
300,704 |
|
|
$ |
109,676 |
|
|
$ |
685,605 |
|
The accompanying notes
are an integral part of these pro forma combined condensed financial statements
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF OPERATIONS OF PACIFIC ETHANOL AND AVENTINE
For the three months ended March 31, 2015
(in thousands, except per share amounts)
|
|
Historical |
|
|
Historical |
|
|
Pro Forma |
|
|
|
Pro Forma |
|
|
|
Pacific Ethanol |
|
|
Aventine |
|
|
Adjustments |
|
Notes |
|
Amounts |
|
Net revenues |
|
$ |
206,176 |
|
|
$ |
130,937 |
|
|
$ |
– |
|
|
|
$ |
337,113 |
|
Cost of goods sold |
|
|
207,163 |
|
|
|
134,214 |
|
|
|
1,524 |
|
(g,i) |
|
|
342,901 |
|
Gross loss |
|
|
(987 |
) |
|
|
(3,277 |
) |
|
|
(1,524 |
) |
|
|
|
(5,788 |
) |
Selling, general and administrative expenses |
|
|
4,905 |
|
|
|
5,960 |
|
|
|
– |
|
|
|
|
10,865 |
|
Gain (loss) on derivative transactions |
|
|
– |
|
|
|
444 |
|
|
|
(444 |
) |
(g) |
|
|
– |
|
Other expense |
|
|
– |
|
|
|
(96 |
) |
|
|
– |
|
|
|
|
(96 |
) |
Operating loss |
|
|
(5,892 |
) |
|
|
(9,585 |
) |
|
|
(1,080 |
) |
|
|
|
(16,557 |
) |
Fair value adjustments |
|
|
(173 |
) |
|
|
– |
|
|
|
– |
|
|
|
|
(173 |
) |
Interest expense, net |
|
|
(1,015 |
) |
|
|
(816 |
) |
|
|
(3,168 |
) |
(j) |
|
|
(4,999 |
) |
Other expense, net |
|
|
(129 |
) |
|
|
(47 |
) |
|
|
– |
|
|
|
|
(176 |
) |
Loss before provision for income taxes and discontinued operations |
|
|
(7,209 |
) |
|
|
(10,448 |
) |
|
|
(4,248 |
) |
|
|
|
(21,905 |
) |
Benefit for income taxes |
|
|
2,700 |
|
|
|
– |
|
|
|
– |
|
|
|
|
2,700 |
|
Net loss before discontinued operations |
|
|
(4,509 |
) |
|
|
(10,448 |
) |
|
|
(4,248 |
) |
|
|
|
(19,205 |
) |
Loss from discontinued operations |
|
|
– |
|
|
|
(136 |
) |
|
|
136 |
|
(k) |
|
|
– |
|
Net loss attributed to noncontrolling interests |
|
|
129 |
|
|
|
– |
|
|
|
– |
|
|
|
|
129 |
|
Net loss attributed to Pacific Ethanol |
|
|
(4,380 |
) |
|
|
(10,584 |
) |
|
|
(4,112 |
) |
|
|
|
(19,076 |
) |
Preferred dividends |
|
|
(312 |
) |
|
|
– |
|
|
|
– |
|
|
|
|
(312 |
) |
Net loss available to common stockholders |
|
$ |
(4,692 |
) |
|
$ |
(10,584 |
) |
|
$ |
(4,112 |
) |
|
|
$ |
(19,388 |
) |
Net loss per share, basic and diluted |
|
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(0.46 |
) |
Weighted-average shares basic and diluted |
|
|
24,104 |
|
|
|
|
|
|
|
|
|
|
|
|
41,863 |
|
The accompanying notes are an integral part
of these pro forma combined condensed financial statements
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF OPERATIONS OF PACIFIC ETHANOL AND AVENTINE
For the year ended December 31, 2014
(in thousands, except per share amounts)
| |
Historical Pacific Ethanol | | |
Historical Aventine | | |
Pro Forma Adjustments | |
Notes | |
Pro Forma Amounts | |
Net revenues | |
$ | 1,107,412 | | |
$ | 588,028 | | |
$ | – | |
| | |
$ | 1,695,440 | |
Cost of goods sold | |
| 998,927 | | |
| 511,303 | | |
| 15,484 | |
(g,i)
| |
| 1,525,714 | |
Gross profit | |
| 108,485 | | |
| 76,725 | | |
| (15,484 | ) |
| | |
| 169,726 | |
Selling, general and administrative expenses | |
| 17,108 | | |
| 31,388 | | |
| 1,034 | |
(h) | |
| 49,530 | |
Loss on derivative transactions | |
| – | | |
| 11,166 | | |
| (11,166 | ) |
(g) | |
| – | |
Other expense | |
| – | | |
| 2,634 | | |
| (2,634 | ) |
(h) | |
| – | |
Operating income | |
| 91,377 | | |
| 31,537 | | |
| (2,718 | ) |
| | |
| 120,196 | |
Fair value adjustments | |
| (37,532 | ) | |
| – | | |
| – | |
| | |
| (37,532 | ) |
Interest expense, net | |
| (9,438 | ) | |
| (14,233 | ) | |
| (17,280 | ) |
(h,j) | |
| (40,951 | ) |
Loss on extinguishment of debt | |
| (2,363 | ) | |
| – | | |
| – | |
| | |
| (2,363 | ) |
Other expense, net | |
| (905 | ) | |
| (9 | ) | |
| – | |
| | |
| (914 | ) |
Income before provision for income taxes and discontinued operations | |
| 41,139 | | |
| 17,295 | | |
| (19,998 | ) |
| | |
| 38,436 | |
Provision for income taxes | |
| (15,137 | ) | |
| – | | |
| – | |
| | |
| (15,137 | ) |
Net income before discontinued operations | |
| 26,002 | | |
| 17,295 | | |
| (19,998 | ) |
| | |
| 23,299 | |
Loss from discontinued operations | |
| – | | |
| (731 | ) | |
| 731 | |
(k) | |
| – | |
Net income attributed to noncontrolling interests | |
| (4,713 | ) | |
| – | | |
| – | |
| | |
| (4,713 | ) |
Net income attributed to Pacific Ethanol | |
| 21,289 | | |
| 16,564 | | |
| (19,267 | ) |
| | |
| 18,586 | |
Preferred dividends | |
| (1,265 | ) | |
| – | | |
| – | |
| | |
| (1,265 | ) |
Net income available to common stockholders | |
$ | 20,024 | | |
$ | 16,564 | | |
$ | (19,267 | ) |
| | |
$ | 17,321 | |
Net income per share, basic | |
$ | 0.96 | | |
| | | |
| | |
| | |
$ | 0.45 | |
Net income per share, diluted | |
$ | 0.88 | | |
| | | |
| | |
| | |
$ | 0.43 | |
Weighted-average shares outstanding, basic | |
| 20,810 | | |
| | | |
| | |
| | |
| 38,569 | |
Weighted-average shares outstanding, diluted | |
| 22,669 | | |
| | | |
| | |
| | |
| 40,428 | |
The accompanying notes are an integral part
of these pro forma combined condensed financial statements
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma combined condensed financial
statements are prepared under the acquisition accounting method in accordance with ASC 805, with Pacific Ethanol treated as the
acquirer. Under the acquisition accounting method, the total estimated purchase price allocation is calculated as described in
Note 3. In accordance with ASC 805, the assets acquired and the liabilities assumed have been measured at fair value based on various
preliminary estimates, and these estimates are subject to change pending further review of the fair value of assets acquired and
liabilities assumed. The final amounts recorded for the merger may differ materially from the information presented herein.
The unaudited pro forma combined condensed financial
statements were prepared in accordance with GAAP and pursuant to Securities and Exchange Commission Regulation S-X, Article 11,
and present the pro forma financial position and results of operations of the combined companies based upon the historical information
after giving effect to the merger and adjustments described in these Notes to the unaudited pro forma combined condensed financial
statements. The unaudited pro forma combined condensed balance sheet is presented as if the merger had occurred on March 31, 2015;
and the unaudited pro forma combined condensed statements of operations for the three months ended March 31, 2015 and year ended
December 31, 2014 are presented as if the merger had occurred on January 1, 2014.
Certain reclassifications have been made relative
to Aventine’s historical financial statements to conform to the financial statement presentation of Pacific Ethanol. Such
reclassifications are described in further detail in Note 4 to the unaudited pro forma combined condensed financial statements.
2. Preliminary Estimated Purchase
Price Consideration
On July 1, 2015, Pacific Ethanol issued
17.8 million of its common stock to effect the merger. On July 1, 2015, Pacific Ethanol’s closing stock price was $9.83,
resulting an estimated total purchase price of $174.6 million.
For purposes of these unaudited pro forma combined
condensed financial statements, the estimated total purchase price has been allocated among Aventine’s tangible and intangible
assets and liabilities based on their estimated fair values as of March 31, 2015. Based on a preliminary analysis, and after considering
potential intangibles related to Aventine’s customer base, no material identifiable intangible assets or liabilities have
been determined and as such, none have been included in the allocation of the preliminary estimated purchase price.
The final determination of the allocation of
the estimated total purchase price will be based on the fair value of such assets and liabilities as of the date of closing of
the merger. Such final determination of the purchase price allocation may be significantly different from the preliminary estimates
used in these unaudited pro forma combined condensed financial statements.
3. Preliminary Estimated Purchase
Price Allocation
The following allocation of the preliminary
estimated purchase price assumes, with the exception of property and equipment and long-term debt, carrying values approximate
fair value. Fair value of property and equipment is based on a preliminary valuation of similar historical transactions available.
Fair value of long-term debt was based on the amount outstanding. Based upon these assumptions, the total purchase price consideration
was allocated to Aventine’s assets and liabilities, as of March 31, 2015, as follows (in thousands):
| |
Estimated Fair Value | |
Cash and Equivalents | |
$ | 21,743 | |
Accounts Receivable, net | |
| 10,997 | |
Inventories | |
| 31,983 | |
Other current assets | |
| 12,094 | |
Total Current Assets | |
| 76,817 | |
| |
| | |
Property and Equipment, net | |
| 306,800 | |
| |
| | |
Other assets | |
| 3,453 | |
Total Assets Acquired | |
$ | 387,070 | |
| |
| | |
Accounts Payable, trade | |
$ | 20,741 | |
Accrued Liabilities | |
| 6,357 | |
Other current liabilities | |
| 10,872 | |
Total Current Liabilities | |
| 37,970 | |
| |
| | |
Long-term debt - Revolvers | |
| 17,162 | |
Long-term debt - Term debt | |
| 140,322 | |
Deferred tax liabilities | |
| 32,306 | |
Other Liabilities | |
| 8,047 | |
Total Liabilities Assumed | |
$ | 235,807 | |
| |
| | |
Net Assets Acquired | |
$ | 151,263 | |
Goodwill | |
$ | 23,310 | |
Total Estimated Purchase Price | |
$ | 174,573 | |
The actual determination of the purchase price
allocation on the closing date will be based on the actual net tangible and intangible assets of Aventine that will exist on the
date of the merger and completion of the valuation of the fair value of such net assets.
Assets and liabilities for which initial accounting is incomplete
The preliminary property and equipment fair
value estimate above is based primarily on a high-level review of similar recent market transactions and is subject to change.
A final valuation will be more detailed in its analysis including a further review of recent market transactions with comparable
assets and a discounted cash flow analysis of each facility based on market conditions and future operational assumptions and capital
expenditures plans. Preliminarily, no intangible assets or liabilities have been estimated due to Aventine’s contracts materially
close to market prices. A final valuation may include either an asset or liability associated with any material out-of-market contract
positions. Given that many of these contracts are short-term in nature (less than 6 months) and duration, an assessment at this
time would likely not be indicative of terms and purchase price allocation at the time of the merger close.
The preliminary long-term debt fair value
is based on the current interest rate and financing markets. A final valuation will consider interest rate and financing market
factors and may increase or decrease the amount estimated on the long-term debt. Further, subsequent cash payments and/or payment-in-kind
accruals will change the amount of Aventine debt outstanding at the closing, and as a result, the fair value of such long-term
debt.
Pacific Ethanol anticipates that the ultimate
purchase price allocation of balance sheet amounts such as current assets and liabilities, property and equipment, intangible assets
and long-term assets and liabilities will differ from the preliminary assessment outlined above. Any changes to the initial estimates
of the fair value of the acquired assets and assumed liabilities will be recorded as adjustments to those assets and liabilities
and residual amounts will be allocated to goodwill if net assets acquired are less than purchase price. If net assets acquired
exceed purchase price, residual amount will result in bargain purchase gain.
4. Preliminary Pro Forma Financial
Statement Adjustments
Adjustments included in the column under the
heading “Pro Forma Adjustments” represent the following:
Unaudited Pro Forma Combined Condensed Balance Sheet
(a) To record the
difference in book value and fair value of property and equipment acquired. The step up in property and equipment relates primarily
to the ethanol production facilities, which have a current estimated weighted average useful life of 20 years that will be depreciated
on a straight-line basis. The amount of purchase price allocated to tangible assets, as well as the associated useful lives, may
increase or decrease and could materially affect the amount of pro forma depreciation expense to be recorded in the pro forma combined
condensed statements of operations.
(b) Net assets
acquired are less than total estimated purchase price, creating goodwill. If net assets acquired exceed purchase price, residual
amount will result in bargain purchase gain.
(c) Reflects the
pro forma adjustments to accrue transaction costs of Aventine of $3.2 million as part of the purchase price allocation and $1.5
million attributed to Pacific Ethanol’s estimated transaction costs, all of which are not included in the historical balance
sheets at March 31, 2015.
(d) Reflects the
pro forma adjustments to long-term debt – term debt to amount outstanding. See Note (j) for more information.
(e) Represents
deferred income taxes on step up in fair value of plant and equipment at 35% statutory tax rate.
(f) Represents
the elimination of Aventine’s historical stockholders’ equity and the issuance of Pacific Ethanol’s common stock.
The amounts adjusting APIC and Accumulated Deficit are as follows (in thousands):
|
|
APIC |
|
|
Accumulated Deficit |
|
Eliminate Aventine Historical Balance |
|
$ |
(258,424 |
) |
|
$ |
214,077 |
|
Issuance of Pacific Ethanol common stock less par |
|
$ |
174,555 |
|
|
|
– |
|
Transaction cost attributed to Pacific Ethanol |
|
|
– |
|
|
$ |
(1,500 |
) |
Net Pro forma adjustment |
|
$ |
(83,869 |
) |
|
$ |
212,577 |
|
Unaudited Pro Forma Combined Condensed Statements of Operations
Conforming Reclassifications Between Pacific Ethanol and Aventine:
The following reclassifications have been made
to the presentation of Aventine’s historical consolidated financial statements to conform to Pacific Ethanol’s presentation:
(g) Loss on derivative
transactions is recorded in cost of goods sold for Pacific Ethanol and is being reclassed with respect to Aventine’s reported
amounts, which was presented as a separate line within operating income (loss) in Aventine’s historical financial statements.
(h) Other expense
represents write-off of disposed assets. Historical Aventine selling, general and administrative expenses for the year ended December
31, 2014 includes a one-time payment of $10.5 million related to restricted stock units resulting in a change of control that
occurred on November 25, 2014.
Pro Forma Adjustments
(i) Reflects pro
forma adjustments to depreciation of property and equipment assuming the preliminary estimates of the fair value and estimated
useful life of the asset as described in Note (a) and conforming classifications.
(j) Reflects adjustments
to eliminate the impact of Aventine’s troubled debt restructuring accounting under ASC 470-60, Debt – Troubled Debt
Restructurings by Debtors. Aventine restructured its debt in 2012. All gains related to the forgiveness of Aventine’s
debt were deferred as the future cash outflows of the new debt exceeded the carrying amount of Aventine’s existing debt at
that time. As payments were made interest expense was reduced.
(k) Adjustment
to present pro forma financials to income (loss) from continuing operations.
5. Pro Forma Combined Net Loss Per
Share
The pro forma basic and diluted net loss per
share presented in the unaudited pro forma combined condensed statements of operations is computed based on the weighted-average
number of shares outstanding (in thousands except per share data):
| |
Three Months Ended March 31, 2015 | |
Pro Forma net loss available to common stockholders, as combined | |
$ | (19,388 | ) |
| |
| | |
Pacific Ethanol’s historical weighted-average shares, Basic | |
| 24,104 | |
Shares expected to be issued in merger | |
| 17,759 | |
Pro Forma weighted-average shares, Basic | |
| 41,863 | |
| |
| | |
Pro Forma net loss per share, Basic and Diluted | |
$ | (0.46 | ) |
| |
Year Ended December 31, 2014 | |
Pro Forma net income available to common stockholders, as combined | |
$ | 17,321 | |
| |
| | |
Pacific Ethanol’s historical weighted-average shares, Basic | |
| 20,810 | |
Shares expected to be issued in merger | |
| 17,759 | |
Pro Forma weighted-average shares, Basic | |
| 38,569 | |
| |
| | |
Pro Forma net loss per share, Basic | |
$ | 0.45 | |
Pro Forma net income available to common stockholders, as combined | |
$ | 17,321 | |
| |
| | |
Pacific Ethanol’s historical weighted-average shares, Diluted | |
| 22,669 | |
Shares expected to be issued in merger | |
| 17,759 | |
Pro Forma weighted-average shares, Diluted | |
| 40,428 | |
| |
| | |
Pro Forma net income per share, Diluted | |
$ | 0.43 | |
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