Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
x
Indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
¨
No
x
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files. Yes
x
No
¨
Indicate by check mark if disclosure of delinquent
filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
x
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the 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 in Rule 12b-2 of the Act). Yes
¨
No
x
The aggregate market value of
the voting and non-voting common equity held by nonaffiliates of the registrant computed by reference to the closing sale
price of such stock, was approximately $208.1 million as of June 30, 2016, the last business day of the registrant’s
most recently completed second fiscal quarter.
As of March 15, 2017, there were 39,811,296
shares of the registrant’s common stock, $0.001 par value per share, and 3,540,132 shares of the registrant’s non-voting
common stock, $0.001 par value per share, outstanding.
PART I
Business Overview
We are a leading producer and marketer of
low-carbon renewable fuels in the United States.
We operate eight strategically-located ethanol
production facilities. Four of our plants are in the Western states of California, Oregon and Idaho, and four of our plants are
located in the Midwestern states of Illinois and Nebraska. We are the sixth largest producer of ethanol in the United States based
on annualized volumes. Our plants have a combined ethanol production capacity of 515 million gallons per year. We market all the
ethanol and co-products produced at our plants as well as ethanol produced by third parties. On an annualized basis, we market
nearly 1.0 billion gallons of ethanol and over 1.5 million tons of ethanol co-products on a dry matter basis. Our business consists
of two operating segments: a production segment and a marketing segment.
Our mission is to advance our position and
significantly increase our market share as a leading producer and marketer of low-carbon renewable fuels in the United States.
We intend to accomplish this goal in part by expanding our ethanol production capacity and distribution infrastructure, accretive
acquisitions, lowering the carbon intensity of our ethanol, extending our marketing business into new regional and international
markets, and implementing new technologies to promote higher production yields and greater efficiencies.
Production Segment
We produce ethanol and co-products at our
production facilities described below. Our plants located on the West Coast are near their respective fuel and feed customers,
offering significant timing, transportation cost and logistical advantages. Our plants located in the Midwest are in the heart
of the Corn Belt, benefit from low-cost and abundant feedstock production and allow for access to many additional domestic markets.
In addition, our ability to load unit trains from our plants located in the Midwest allows for greater access to international
markets.
We wholly-own all of our plants located
on the West Coast and the two plants in Pekin, Illinois. We own approximately 74% of the two plants in Aurora, Nebraska as well
as the grain elevator adjacent to those properties and related grain handling assets, including the outer rail loop, and the real
property on which they are located, through an entity owned approximately 26% by Aurora Cooperative Elevator Company, or ACEC.
Facility Name
|
Facility Location
|
Estimated Annual
Capacity
(gallons)
|
|
|
|
Magic Valley
|
Burley, ID
|
60,000,000
|
Columbia
|
Boardman, OR
|
40,000,000
|
Stockton
|
Stockton, CA
|
60,000,000
|
Madera
|
Madera, CA
|
40,000,000
|
|
|
|
Aurora West
|
Aurora, NE
|
110,000,000
|
Aurora East
|
Aurora, NE
|
45,000,000
|
Pekin Wet
|
Pekin, IL
|
100,000,000
|
Pekin Dry
|
Pekin, IL
|
60,000,000
|
We produce ethanol co-products at our production
facilities such as wet distillers grains, or WDG, dry distillers grains with solubles, or DDGS, wet and dry corn gluten feed, condensed
distillers solubles, corn gluten meal, corn germ, corn oil, distillers yeast and CO
2
.
Marketing Segment
We market ethanol and co-products produced
by our ethanol production facilities and market ethanol produced by third parties. We have extensive customer relationships throughout
the Western and Midwestern United States. Our ethanol customers are integrated oil companies and gasoline marketers who blend ethanol
into gasoline. Our customers depend on us to provide a reliable supply of ethanol, and manage the logistics and timing of delivery
with very little effort on their part. Our customers collectively require ethanol volumes in excess of the supplies we produce
at our production facilities. We secure additional ethanol supplies from third-party plants in California and other third-party
suppliers in the Midwest where a majority of ethanol producers are located. We arrange for transportation, storage and delivery
of ethanol purchased by our customers through our agreements with third-party service providers in the Western United States as
well as in the Midwest from a variety of sources.
We market our distillers grains and other
feed co-products to dairies and feedlots, in many cases located near our ethanol plants. These customers use our feed co-products
for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry and biodiesel customers.
We do not market co-products from other ethanol producers.
See “Note 5 – Segments”
to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business
segments.
Acquisition of Grain Elevator and Related Assets
On December 12, 2016, we entered into a
contribution agreement with ACEC under which (i) we agreed to contribute to Pacific Aurora LLC, or Pacific Aurora, 100% of the
equity interests of our wholly-owned subsidiaries, Pacific Ethanol Aurora East, LLC and Pacific Ethanol Aurora West, LLC, which
own our Aurora East and Aurora West ethanol plants, respectively, to Pacific Aurora in exchange for approximately an 88% ownership
interest in Pacific Aurora, and (ii) ACEC agreed to contribute to Pacific Aurora ACEC’s grain elevator adjacent to the Aurora
East and Aurora West properties and related grain handling assets, including the outer rail loop and the real property on which
they are located, in exchange for approximately a 12% ownership interest in Pacific Aurora. On December 15, 2016, concurrently
with the closing of the contribution transaction, we sold approximately a 14% ownership interest in Pacific Aurora to ACEC for
$30.0 million in cash, resulting in our ownership of approximately 74% of Pacific Aurora and ACEC’s ownership of approximately
26% of Pacific Aurora. The transaction with ACEC was immediately accretive to our stockholders and we expect the arrangement to
reduce operating costs by over $5.0 million annually. In addition, the new arrangement fully integrates our Aurora, Nebraska plants
and the grain facilities into a more functional and better performing single facility, enabling us to optimize grain procurement;
more efficiently manage grain transfers; offer storage, drying and merchandising to local farmers; and providing us with additional
growth opportunities.
For financial reporting
purposes, we consolidate 100% of the results of Pacific Aurora and record the amount attributed to ACEC as noncontrolling interests
under the voting rights model. Since we controlled Pacific Ethanol Aurora East, LLC and Pacific Ethanol Aurora West, LLC prior
to forming Pacific Aurora, we recorded no gain or loss on the contribution and concurrent sale of a portion of our interests in
Pacific Aurora.
Company History
We are a Delaware corporation formed in
February 2005. Our common stock trades on The NASDAQ Capital Market under the symbol “PEIX.” Our Internet website address
is
http://www.pacificethanol.com
. Information contained on our website is not part of this
Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any
amendments to such reports filed with or furnished to the Securities and Exchange Commission and other Securities and Exchange
Commission filings are available free of charge through our website as soon as reasonably practicable after the reports are electronically
filed with, or furnished to, the Securities and Exchange Commission.
Business Strategy
Our primary goal is to advance our position
and significantly increase our market share as a leading producer and marketer of low-carbon renewable fuels in the United States.
The key elements of our business and growth strategy to achieve this objective include:
|
·
|
Expand ethanol production capacity and distribution infrastructure
. We believe the United States ethanol production
industry is poised for continued consolidation. We evaluate and intend to pursue opportunities to acquire additional ethanol production,
storage and distribution facilities and related infrastructure as financial resources and business prospects make these acquisitions
desirable. To this end, we are examining specific opportunities to extend our current production and marketing platform with strategic
and synergistic acquisitions. In addition, we plan to expand our distribution infrastructure by increasing our ability to provide
transportation, storage and related logistical services to our customers throughout the United States.
|
|
·
|
Lower the carbon intensity of our ethanol
. We plan to further reduce the carbon intensity of the ethanol we produce.
We are able to sell this lower carbon intensity ethanol in certain regions at premium prices compared to higher carbon intensity
ethanol. We are able to charge premium prices for this ethanol based on state laws and regulations, such as Low-Carbon Fuel Standards
enacted in California and Oregon that require blenders to use lower carbon intensity ethanol in their gasoline. When available
and cost-effective, we intend to use feedstock other than corn, including cellulosic feedstock, as the raw material used in the
production of ethanol to further reduce the carbon intensity of our ethanol.
|
|
·
|
Extend our marketing business into new regional and international markets.
We have strengthened our market position
in the Midwest through our acquisition in mid-2015 of Aventine Renewable Energy Holdings, Inc., now known as Pacific Ethanol Central,
LLC, or Aventine. We intend to pursue opportunities to extend our marketing business into new regional markets within reach from
our plants in Illinois and Nebraska. We also plan to continue to leverage our new relationships with our customers to market and
sell additional ethanol sourced from third parties. In addition, we are exploring opportunities to market and sell ethanol internationally.
|
|
·
|
Implement new technologies.
We intend to continue to evaluate and implement new equipment and technologies to increase
the production yields and efficiencies of our ethanol plants, reduce our use of carbon-based fuels, use other feedstocks and allow
us to produce advanced biofuels as financial resources and market conditions justify these investments.
|
Competitive Strengths
We believe that our competitive strengths include the following:
|
·
|
Our customer and supplier relationships
. We have extensive business relationships with customers and suppliers throughout
the United States. In addition, we have developed extensive business relationships with major and independent un-branded gasoline
suppliers who collectively control the majority of all gasoline sales in those regions.
|
|
·
|
Our ethanol distribution network
. We believe we have a competitive advantage due to our experience in marketing to customers
in major metropolitan and rural markets in the United States. We have developed an ethanol distribution network for delivery of
ethanol by truck to virtually every significant fuel terminal as well as to numerous smaller fuel terminals throughout California
and other Western states. Fuel terminals have limited storage capacity and we have successfully secured storage tanks at many of
the terminals we service. In addition, we have an extensive network of third-party delivery trucks available to deliver ethanol
throughout the Western United States. In the Midwest, we have the ability to sell and deliver products in bulk via unit trains
providing us access to western, gulf coast and international markets. Further, the additional higher valued co-products can be
sold at premium prices under fixed price, longer-term contracts (up to 12 months) thus providing a more stable source of revenue
in what can be a volatile commodity industry.
|
|
·
|
Our
s
trategic locations
. We operate our ethanol plants in markets where we believe their individual locations,
as well as our overall ethanol production and marketing platform, provide strategic advantages. Our production in both the Western
United States and in the Midwest enables us to source ethanol from two different regions, which we believe allows us to address
regional inefficiencies and other challenges such as rail congestion and other supply constraints, as well as pricing anomalies.
|
|
o
|
We operate four plants in the Western United States where we believe local characteristics create an opportunity to capture
a significant production and shipping cost advantage over competing ethanol production facilities in other regions. We believe
a combination of factors enables us to achieve this cost advantage, including:
|
|
§
|
Locations near fuel blending facilities lower our ethanol transportation costs while providing timing and logistical advantages
over competing locations that require ethanol to be shipped over much longer distances, and in many cases, require double-handling.
|
|
§
|
Locations adjacent to major rail lines allow the efficient delivery of corn in large unit trains from major corn-producing
regions and allow for the efficient delivery of ethanol in large unit trains to other markets, including markets with higher demand.
|
|
§
|
Locations near large concentrations of dairy and/or beef cattle enable delivery of WDG, over short distances without the need
for costly drying processes.
|
|
o
|
We operate four plants in the Midwest which enables us to participate in the largest regional ethanol market in the United
States as well as international markets. Our Midwest locations, coupled with our locations in the Western United States, also allow
us many advantages over locations solely on the West Coast, including:
|
|
§
|
Locations in diverse markets assist us in spreading commodity and basis price risks across markets and products, supporting
our efforts to optimize margin management.
|
|
§
|
Locations in the Midwest enhance our overall hedging opportunities with a greater correlation to the highly-liquid physical
and paper markets in Chicago.
|
|
§
|
Locations in diverse markets support heightened flexibility and alternatives in feedstock procurement for our various production
facilities.
|
|
§
|
Our Illinois facilities provide excellent logistical access via rail, truck and barge. The relatively unique wet milling process
at one of our Illinois facilities allows us to extract the highest use and value from each component of the corn kernel. As a result,
the wet milling process generates a higher level of cost recovery from corn than that produced at a dry mill.
|
|
§
|
Locations in the Midwest allow us deeper market insight and engagement in major ethanol and feed markets outside the Western
United States, thereby improving pricing opportunities.
|
|
·
|
Our low carbon-intensity ethanol.
California and Oregon have enacted Low-Carbon Fuel Standards for transportation fuels.
Under these Low-Carbon Fuel Standards, the ethanol we produce at our production facilities in the Western United States has a lower
carbon-intensity than most ethanol produced at plants by other producers. This is primarily because our plants located on the West
Coast use less energy in their production processes. The ethanol produced in California by other producers, all of which we market,
also has a lower carbon-intensity rating than either gasoline or ethanol produced in the Midwest. The lower carbon-intensity rating
of ethanol we produce at our plants located on the West Coast or otherwise resell from third-party California producers is valued
in the market by our customers and has enabled us to capture premium prices for this ethanol.
|
|
·
|
Modern technologies
. Our plants use the latest production technologies to take advantage of state-of-the-art technical
and operational efficiencies to achieve lower operating costs, higher yields and more efficient production of ethanol and its co-products
and reduce our use of carbon-based fuels.
|
|
·
|
Our experienced management
. Our senior management team has a proven track record with significant operational and financial
expertise and many years of experience in the ethanol, fuel and energy industries. Our senior executives, who average approximately
15 years of industry experience, have successfully navigated a wide variety of business and industry-specific challenges and deeply
understand of the business of successfully producing and marketing ethanol and its co-products.
|
We believe that these competitive strengths
will help us attain our goal to advance our position and significantly increase our market share as a leading producer and marketer
of low-carbon renewable fuels in the United States.
Industry Overview and Market Opportunity
Overview of Ethanol Market
The primary applications for fuel-grade ethanol in the United
States include:
|
·
|
Octane enhancer
. On average, regular unleaded gasoline has an octane rating of 87 and premium unleaded gasoline has
an octane rating of 91. In contrast, pure ethanol has an average octane rating of 113. Adding ethanol to gasoline enables refiners
to produce greater quantities of lower octane blend stock with an octane rating of less than 87 before blending. In addition, ethanol
is commonly added to finished regular grade gasoline as a means of producing higher octane mid-grade and premium gasoline.
|
|
·
|
Fuel blending
. In addition to its performance and environmental benefits, ethanol is used to extend fuel supplies. In
light of the need for transportation fuel in the United States and the dependence on foreign crude oil and refined products, the
United States is increasingly seeking domestic sources of fuel. Much of the ethanol blending throughout the United States is done
for the purpose of extending the volume of fuel sold at the gasoline pump.
|
|
·
|
Renewable fuels
. Ethanol is blended with gasoline to enable gasoline refiners to comply with a variety of governmental
programs, in particular, the national Renewable Fuel Standard, or RFS, which was enacted to promote alternatives to fossil fuels.
See “—Governmental Regulation.”
|
The United States ethanol industry is supported
by federal and state legislation and regulation. For example, the Energy Independence and Security Act of 2007, which was signed
into law in December 2007, significantly increased the prior RFS. Under the RFS, the mandated use of all renewable fuels rises
incrementally in succeeding years and peaks at 36.0 billion gallons by 2022. Under the RFS, approximately 14.0 billion gallons
in 2015 and 14.5 billion gallons in 2016 were required from conventional, or corn-based, ethanol. Under the RFS, 15.0 billion gallons
are required from conventional ethanol in 2017. The RFS allows the Environmental Protection Agency, or EPA, to adjust the annual
requirement based on certain facts.
According to the Renewable Fuels Association,
the domestic ethanol industry produced a record of approximately 15.3 billion gallons of ethanol in 2016. We believe that the ethanol
market in California alone represented approximately 10% of the national market. However, the Western United States has relatively
few ethanol facilities and local ethanol production levels are substantially below the local demand for ethanol. The balance of
ethanol is shipped via rail from the Midwest to the Western United States. Gasoline and diesel fuel that supply the major fuel
terminals are shipped in pipelines throughout portions of the Western United States. Unlike gasoline and diesel fuel, however,
ethanol is not shipped in these types of pipelines because ethanol has an affinity for mixing with water already present in the
pipelines. When mixed, water dilutes ethanol and creates significant quality control issues. Therefore, ethanol must be trucked
from rail terminals to regional fuel terminals, or blending racks.
We believe that approximately 90% of the
ethanol produced in the United States is made in the Midwest from corn. According to the Department of Energy, or DOE, ethanol
is generally blended at a rate of 10% by volume, but is also blended at a rate of up to 85% by volume for vehicles designed to
operate on 85% ethanol. The EPA has increased the allowable blend of ethanol in gasoline from 10% by volume to 15% by volume for
model year 2001 and newer automobiles, pending final approvals by certain state regulatory authorities. Some retailers have begun
blending at higher rates in states that have approved higher blend rates.
Compared to gasoline, ethanol is generally
considered to be cleaner burning and contains higher octane. We anticipate that the increasing demand for renewable transportation
fuels coupled with limited opportunities for gasoline refinery expansions and the growing importance of reducing CO
2
emissions through the use of renewable fuels will generate additional growth in the demand for ethanol.
According to the DOE, total annual gasoline
consumption in the United States is approximately 143 billion gallons and total annual ethanol consumption represented approximately
10% of this amount in 2016. The domestic ethanol industry has substantially reached this 10% blend ratio, and we believe the industry
has significant potential for growth in the event the industry can migrate to an up to 15% blend ratio, which would translate
into an annual demand of up to 20 billion gallons of ethanol.
Overview of Ethanol Production Process
Ethanol production from starch- or sugar-based
feedstock is a highly-efficient process that we believe now yields substantially more energy from ethanol and its co-products than
is required to make the products. The modern production of ethanol requires large amounts of corn, or other high-starch grains,
and water as well as chemicals, enzymes and yeast, and denaturants including unleaded gasoline or liquid natural gas, in addition
to natural gas and electricity.
Dry Milling Process
In the dry milling process, corn or other
high-starch grain is first ground into meal, then slurried with water to form a mash. Enzymes are then added to the mash to convert
the starch into the simple sugar, dextrose. Ammonia is also added for acidic (pH) control and as a nutrient for the yeast. The
mash is processed through a high temperature cooking procedure, which reduces bacteria levels prior to fermentation. The mash is
then cooled and transferred to fermenters, where yeast is added and the conversion of sugar to ethanol and CO
2
begins.
After fermentation, the resulting “beer”
is transferred to distillation, where the ethanol is separated from the residual “stillage.” The ethanol is concentrated
to 190 proof using conventional distillation methods and then is dehydrated to approximately 200 proof, representing 100% alcohol
levels, in a molecular sieve system. The resulting anhydrous ethanol is then blended with about 2.5% denaturant, which is usually
gasoline, and is then ready for shipment to market.
The residual stillage is separated into
a coarse grain portion and a liquid portion through a centrifugation process. The soluble liquid portion is concentrated to about
40% dissolved solids by an evaporation process. This intermediate state is called condensed distillers solubles, or syrup. The
coarse grain and syrup portions are then mixed to produce WDG or can be mixed and dried to produce dried distillers grain with
solubles, or DDGS. Both WDG and DDGS are high-protein animal feed products.
Wet Milling Process
In the wet milling process, corn or other
high-starch grain is first soaked or “steeped” in water for 24 – 48 hours to separate the grain into its many
components. After steeping, the corn slurry is processed first to separate the corn germ, from which the corn oil can be further
separated. The remaining fiber, gluten and starch components are further separated and sold.
The steeping liquor is concentrated in an
evaporator. The concentrated product, called heavy steep water, is co-dried with the fiber component and is then sold as corn gluten
feed. The gluten component is filtered and dried to produce corn gluten meal.
The starch and any remaining water from
the mash is then processed into ethanol or dried and processed into corn syrup. The fermentation process for ethanol at this stage
is similar to the dry milling process.
Overview of Distillers Grains Market
Distillers grains are produced as a co-product
of ethanol production and are valuable components of feed rations primarily to dairies and beef cattle markets, both nationally
and internationally. Our plants produce both WDG and DDGS. WDG is sold to customers proximate to the plants and DDGS is delivered
by truck, rail and barge to customers in domestic and international markets.
Producing WDG also allows us to use up to
one-third less process energy, thus reducing production costs and lowering the carbon footprint of these plants, thereby increasing
demand in California where premiums are paid for the low-carbon attributes.
Historically, the market price for distillers
grains has generally tracked the value of corn. We believe that the market price of WDG and DDGS is determined by a number of factors,
including the market value of corn, soybean meal and other competitive ingredients, the performance or value of WDG and DDGS in
a particular feed formulation and general market forces of supply and demand, including export markets for these co-products. The
market price of distillers grains is also often influenced by nutritional models that calculate the feed value of distillers grains
by nutritional content, as well as reliability of consistent supply.
Customers
We market and sell through our wholly-owned
subsidiary, Kinergy Marketing LLC, or Kinergy, all of the ethanol produced by our production facilities. Kinergy also markets ethanol
produced by third parties. We have extensive customer relationships throughout the Western and Midwestern United States. Our ethanol
customers are integrated oil companies and gasoline marketers who blend ethanol into gasoline. Our customers depend on us to provide
a reliable supply of ethanol, and manage the logistics and timing of delivery with very little effort on their side. Our customers
collectively require ethanol volumes in excess of the supplies we produce at our production facilities. We secure additional ethanol
supplies from third-party plants in California and other third-party suppliers in the Midwest where a majority of ethanol producers
are located. We arrange for transportation, storage and delivery of ethanol purchased by our customers through our agreements with
third-party service providers in the Western United States as well as in the Midwest from a variety of sources.
We also market all of the co-products produced
at our plants. We do not market co-products from other ethanol producers. Our co-products include WDG, DDGS, wet and dry corn gluten
feed, condensed distillers solubles, corn gluten meal, corn germ, corn oil, distillers yeast and CO
2
. We market our
distillers grains and other feed co-products to dairies and feedlots, in many cases located near our ethanol plants. These customers
use our feed co-products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to
poultry and biodiesel customers.
Our production segment generated $792.6
million, $527.7 million and $450.5 million in net sales for the years ended December 31, 2016, 2015 and 2014, respectively, from
the sale of ethanol. Our production segment generated $253.2 million, $182.5 million and $111.9 million in net sales for the years
ended December 31, 2016, 2015 and 2014, respectively, from the sale of co-products.
During 2016, 2015 and 2014, our production
segment sold an aggregate of approximately 484.1 million, 319.2 million and 183.5 million gallons of fuel-grade ethanol and 2.8
million, 2.1 million and 1.5 million tons of ethanol co-products, respectively.
Our marketing segment generated $579.0 million,
$481.0 million and $545.0 million in net sales for the years ended December 31, 2016, 2015 and 2014, respectively, from the sale
of ethanol.
During 2016, 2015 and 2014, we produced
or purchased ethanol from third parties and resold an aggregate of approximately 816 million, 594 million and 400 million gallons
of fuel-grade ethanol to approximately 81, 69 and 41 customers, respectively. Sales to our three largest customers, Chevron Products
USA, Valero Energy Corporation and Tesoro Refining and Marketing Company LLC in 2016, 2015 and 2014 represented an aggregate of
approximately 35%, 39% and 51%, of our net sales, respectively. Sales to each of our other customers represented less than 10%
of our net sales in each of 2016, 2015 and 2014.
Suppliers
Production Segment
Our ethanol production operations are dependent
upon various raw materials suppliers, including suppliers of corn, natural gas, electricity and water. The cost of corn is the
most important variable cost associated with our ethanol production. We source corn for our plants using standard contracts, including
spot purchase, forward purchase and basis contracts. When resources are available, we seek to limit the exposure of our ethanol
production operations to raw material price fluctuations by purchasing forward a portion of our corn requirements on a fixed price
basis and by purchasing corn and other raw materials futures contracts.
During 2016, 2015 and 2014, purchases of
corn from our three largest suppliers represented an aggregate of approximately 34%, 41% and 52% of our total corn purchases, respectively,
for those periods. Purchases from each of our other corn suppliers represented less than 10% of total corn purchases in each of
2016, 2015 and 2014.
Marketing Segment
Our marketing operations are dependent upon
various third-party producers of fuel-grade ethanol. In addition, we provide ethanol transportation, storage and delivery services
through third-party service providers with whom we have contracted to receive ethanol at agreed upon locations from our third-party
suppliers and to store and/or deliver the ethanol to agreed-upon locations on behalf of our customers. These contracts generally
run from year-to-year, subject to termination by either party upon advance written notice before the end of the then current annual
term.
During 2016, 2015 and 2014, we purchased
and resold from third parties an aggregate of approximately 334 million, 274 million and 217 million gallons, respectively, of
fuel-grade ethanol.
During 2016, 2015 and 2014, purchases of
fuel-grade ethanol from our three largest third-party suppliers represented an aggregate of approximately 35%, 32% and 49% of our
total third-party ethanol purchases, respectively, for those periods. Purchases from each of our other third-party ethanol suppliers
represented less than 10% of total third-party ethanol purchases in each of 2016, 2015 and 2014.
Pacific Ethanol Plants
The table below provides an overview of
our eight ethanol production facilities. Our plants have an aggregate annual production capacity of up to 515 million gallons.
All of our plants are currently operational. As market conditions change, we may increase, decrease or idle production at one or
more operational facilities or resume operations at any idled facility.
We wholly-own all of our plants located
on the West Coast and the two plants in Pekin, Illinois. We own approximately 74% of the plants in Aurora, Nebraska as well as
the grain elevator adjacent to those properties and related grain handling assets, including the outer rail loop, and the real
property on which they are located, through Pacific Aurora, an entity owned approximately 26% by ACEC.
|
|
Madera
Facility
|
|
Columbia
Facility
|
|
Magic
Valley
Facility
|
|
Stockton
Facility
|
Location
|
|
Madera, CA
|
|
Boardman, OR
|
|
Burley, ID
|
|
Stockton, CA
|
Approximate maximum annual ethanol production capacity (in millions of gallons)
|
|
40
|
|
40
|
|
60
|
|
60
|
Production milling process
|
|
Dry
|
|
Dry
|
|
Dry
|
|
Dry
|
Primary energy source
|
|
Natural Gas
|
|
Natural Gas
|
|
Natural Gas
|
|
Natural Gas
|
|
|
Pekin
Wet Facility
|
|
Pekin
Dry Facility
|
|
Aurora West
Facility
|
|
Aurora East
Facility
|
Location
|
|
Pekin, IL
|
|
Pekin, IL
|
|
Aurora, NE
|
|
Aurora, NE
|
Approximate maximum annual ethanol production capacity (in millions of gallons)
|
|
100
|
|
60
|
|
110
|
|
45
|
Production milling process
|
|
Wet
|
|
Dry
|
|
Dry
|
|
Dry
|
Primary energy source
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Natural Gas
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Natural Gas
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Natural Gas
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Natural Gas
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Commodity Risk Management
We employ various risk mitigation techniques.
For example, we may seek to mitigate our exposure to commodity price fluctuations by purchasing forward a portion of our corn and
natural gas requirements through fixed-price or variable-price contracts with our suppliers, as well as entering into derivative
contracts for ethanol, corn and natural gas. To mitigate ethanol inventory price risks, we may sell a portion of our production
forward under fixed- or index-price contracts, or both. We may hedge a portion of the price risks by selling exchange-traded futures
contracts. Proper execution of these risk mitigation strategies can reduce the volatility of our gross profit margins. However,
given the nature of our business, we cannot effectively hedge against extreme volatility or certain market conditions. For example,
ethanol prices, as reported by the Chicago Board of Trade, or CBOT, ranged from $1.31 to $1.75 per gallon during 2016, from $1.31
to $1.69 per gallon during 2015 and from $1.50 to $3.52 per gallon during 2014; and corn prices, as reported by the CBOT, ranged
from $3.02 to $4.38 per bushel during 2016, from $3.48 to $4.34 per bushel during 2015 and from $3.21 to $5.16 per bushel during
2014.
Marketing Arrangements
We market all the ethanol produced at our
production facilities. In addition, we have exclusive ethanol marketing agreements with two third-party ethanol producers, Calgren
Renewable Fuels, LLC and AE Advanced Fuels Keyes, Inc., to market and sell their entire ethanol production volumes. Calgren Renewable
Fuels, LLC owns and operates an ethanol production facility in Pixley, California with annual production capacity of 55 million
gallons. AE Advanced Fuels Keyes, Inc. owns and operates an ethanol production facility in Keyes, California with annual production
capacity of 55 million gallons. We intend to evaluate and pursue opportunities to enter into marketing arrangements with other
third-party ethanol producers as business prospects make these marketing arrangements advisable.
Competition
We are the sixth largest producer of ethanol
in the United States based on annualized volumes and operate in the highly competitive ethanol production and marketing industry.
The largest ethanol producers in the United States are Archer Daniels Midland Company, Green Plains, Inc. and Valero Energy Corporation,
collectively with approximately 30% of the total installed ethanol production capacity in the United States. In addition, there
are many mid-size producers with several plants under ownership, smaller producers with one or two plants, and several ethanol
marketers that create significant competition. Overall, we believe there are over 200 ethanol production facilities in the United
States with a total installed production capacity of approximately 16.0 billion gallons and many brokers and marketers with whom
we compete for sales of ethanol and its co-products.
We believe that our competitive strengths
include our customer and supplier relationships, our extensive ethanol distribution network, our strategic locations, our low carbon-intensity
ethanol, our use of modern technologies at our production facilities and our experienced management. We believe that these advantages
will help us to attain our goal to advance our position and significantly increase our market share as a leading producer and marketer
of low-carbon renewable fuels in the United States.
Most of the largest metropolitan areas in
the United States have fuel terminals served by rail, but other major metropolitan areas and more remote smaller cities and rural
areas do not. We believe that we have a competitive advantage in the Western United States in particular due to our experience
in marketing to the segment of customers located in major metropolitan and rural markets in the Western United States. We manage
the complicated logistics of shipping ethanol to intermediate storage locations throughout the Western United States and trucking
the ethanol from these storage locations to blending racks where the ethanol is blended with gasoline. We believe that by establishing
an efficient service for truck deliveries to these more remote locations, we have differentiated ourselves from our competitors
on the West Coast. In addition, due to our plant locations on the West Coast, we believe that we benefit from our ability to increase
spot sales of ethanol from those plants following ethanol price spikes caused from time to time by rail delays in delivering ethanol
from the Midwest to the Western United States.
Our strategic locations in the Western United
States designed to capitalize on cost efficiencies may nevertheless result in higher than expected costs as a result of more expensive
raw materials and related shipping costs, including corn, which generally must be transported from the Midwest. If the costs of
producing and shipping ethanol and its co-products over short distances are not advantageous relative to the costs of obtaining
raw materials from the Midwest, then the benefits of our strategic locations on the West Coast may not be realized.
Governmental Regulation
Our business is subject to federal, state
and local laws and regulations relating to the production of renewable fuels, the protection of the environment and in support
of the corn and ethanol industries. These laws, their underlying regulatory requirements and their enforcement, some of which are
described below, impact, or may impact, our existing and proposed business operations by imposing:
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restrictions on our existing and proposed business operations and/or the need to install enhanced or additional controls;
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the need to obtain and comply with permits and authorizations;
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liability for exceeding applicable permit limits or legal requirements, in some cases for the remediation of contaminated soil
and groundwater at our facilities, contiguous and adjacent properties and other properties owned and/or operated by third parties;
and
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specifications for the ethanol we market and produce.
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In addition, some governmental regulations
are helpful to our ethanol production and marketing business. The ethanol fuel industry is supported by federal and state mandates
and environmental regulations that favor the use of ethanol in motor fuel blends in North America. Some of the governmental regulations
applicable to our ethanol production and marketing business are briefly described below.
National Energy Legislation
The Energy Independence and Security Act
of 2007, which was signed into law in December 2007, significantly increased the prior RFS. The RFS significantly increases the
mandated use of renewable fuels, rising incrementally each year, to 36.0 billion gallons by 2022.
Under the provisions of the Energy Independence
and Security Act of 2007, the EPA has the authority to waive the mandated RFS requirements in whole or in part. To grant a waiver,
the EPA administrator must determine, in consultation with the Secretaries of Agriculture and Energy, that there is inadequate
domestic renewable fuel supply or implementation of the requirement would severely harm the economy or environment of a state,
region or the United States as a whole.
Legislation aimed at reducing or
eliminating the renewable fuel use required by the RFS has been introduced since the 115
th
United States Congress
began on January 3, 2017. On January 3, 2017, the Leave Ethanol Volumes at Existing Levels (LEVEL) Act (H.R. 119) was
introduced in the House of Representatives. The bill would freeze renewable fuel blending requirements under the RFS at 7.5
billion gallons per year, prohibit the sale of gasoline containing more than 10% ethanol, and revoke the EPA’s approval
of E15 blends. On January 31, 2017, a bill (H.R. 777) was introduced in the House of Representatives that would require the
EPA and National Academies of Sciences to conduct a study on “the implications of the use of mid-level ethanol
blends”. A mid-level ethanol blend is an ethanol gasoline blend containing 10-20% ethanol by volume, including E15 and
E20, that is intended to be used in any conventional gasoline powered motor vehicle or nonroad vehicle or engine. Also on
January 31, 2017, a bill (H.R. 776) was introduced in the House of Representatives that would limit the volume of cellulosic
biofuel required under the RFS to what is commercially available. On March 2, 2017, a bill (H.R. 1315) was introduced in the
House of Representatives that would cap the volume of ethanol in gasoline at 10%. On the same day, the
RFS Elimination
Act
(H.R. 1314) was introduced, which would fully repeal the RFS.
All of these bills were assigned to a congressional
committee, which will consider them before possibly sending any of them on to the House of Representatives as a whole. No legislation
affecting the RFS or ethanol has been introduced in the Senate so far this session.
E15 (a Blend of Gasoline and Ethanol
)
The EPA has allowed fuel and fuel-additive
manufacturers to introduce into commercial gasoline that contains greater than 10% ethanol by volume, up to 15% ethanol by volume,
or E15, for vehicles from model year 2001 and beyond. Additional changes to some states’ laws to allow for the use of E15
are still required; however, commercial sale of E15 has begun in some states. At the end of 2016, there were over 600 stations
offering E15. We anticipate E15 sales and the number of stations offering E15 fuel will double in 2017.
State Energy Legislation and Regulations
In January 2007, California’s Governor
signed an executive order directing the California Air Resources Board to implement California’s Low-Carbon Fuel Standard
for transportation fuels. California’s Low-Carbon Fuel Standard requires fuel suppliers to reduce the carbon intensity of
transportation fuels to 10% below 2010 levels by 2020. The Governor’s office estimates that the standard will have the effect
of increasing current renewable fuels use in California by three to five times by 2020.
The California Air Resources Board has engaged
in a comprehensive process to consider extending California’s Low-Carbon Fuel Standard through 2030, applying aggressive
new carbon intensity reduction targets for the final 10 years. We believe the revised program will be beneficial as we produce
among the lowest carbon intensity ethanol commercially available, and we receive a premium for the fuel we sell into the California
marketplace, which we expect will increase as the compliance curve steepens, which began in 2016.
A program similar to California’s
Low-Carbon Fuel Standard has also been adopted in Oregon and the Canadian province of British Columbia, and is under discussion
in Washington State. These regions, together with California, represent a very large segment of the overall demand for transportation
fuels in the United States.
Additional Environmental Regulations
In addition to the governmental regulations
applicable to the ethanol production and marketing industry described above, our business is subject to additional federal, state
and local environmental regulations, including regulations established by the EPA, the San Joaquin Valley Regional Water Quality
Control Board, the San Joaquin Valley Air Pollution Control District and the California Air Resources Board. We cannot predict
the manner or extent to which these regulations will harm or help our business or the ethanol production and marketing industry
in general.
Employees
As of March 15, 2017, we had approximately
500 full-time employees. We believe that our employees are highly-skilled, and our success will depend in part upon our ability
to retain our employees and attract new qualified employees, many of whom are in great demand. Approximately 140 of our employees
are presently represented by a labor union and covered by a collective bargaining agreement. We have never had a work stoppage
or strike and we consider our relations with our employees to be good.
Before
deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the
other information contained in this Report and in our other filings with the Securities and Exchange Commission, including subsequent
reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known
or unknown risks or uncertainties actually occurs with material adverse effects on Pacific Ethanol, our business, financial condition,
results of operations and/or liquidity could be seriously harmed. In that event, the market price for our common stock will likely
decline, and you may lose all or part of your investment.
Risks Related to our Business
We have incurred significant losses and negative operating
cash flow in the past and we may incur losses and negative operating cash flow in the future, which may hamper our operations and
impede us from expanding our business.
We have incurred significant losses and
negative operating cash flow in the past. For the year ended December 31, 2015, we incurred consolidated net losses of approximately
$18.9 million and incurred negative operating cash flow of $26.8 million. We may incur losses and negative operating cash flow
in the future. We expect to rely on cash on hand, cash, if any, generated from our operations, borrowing availability under our
lines of credit and proceeds from future financing activities, if any, to fund all of the cash requirements of our business. Continued
losses and negative operating cash flow may hamper our operations and impede us from expanding our business.
Our results of operations and our ability to operate at
a profit is largely dependent on managing the costs of corn and natural gas and the prices of ethanol, distillers grains and other
ethanol co-products, all of which are subject to significant volatility and uncertainty.
Our results of operations are highly impacted
by commodity prices, including the cost of corn and natural gas that we must purchase, and the prices of ethanol, distillers grains
and other ethanol co-products that we sell. Prices and supplies are subject to and determined by market and other forces over which
we have no control, such as weather, domestic and global demand, supply shortages, export prices and various governmental policies
in the United States and around the world.
As a result of price volatility of corn,
natural gas, ethanol, distillers grains and other ethanol co-products, our results of operations may fluctuate substantially. In
addition, increases in corn or natural gas prices or decreases in ethanol, distillers grains or other ethanol co-product prices
may make it unprofitable to operate. In fact, some of our marketing activities will likely be unprofitable in a market of generally
declining ethanol prices due to the nature of our business. For example, to satisfy customer demands, we maintain certain quantities
of ethanol inventory for subsequent resale. Moreover, we procure much of our inventory outside the context of a marketing arrangement
and therefore must buy ethanol at a price established at the time of purchase and sell ethanol at an index price established later
at the time of sale that is generally reflective of movements in the market price of ethanol. As a result, our margins for ethanol
sold in these transactions generally decline and may turn negative as the market price of ethanol declines.
No assurance can be given that corn or natural
gas can be purchased at, or near, current or any particular prices or that ethanol, distillers grains or other ethanol co-products
will sell at, or near, current or any particular prices. Consequently, our results of operations and financial position may be
adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol, distillers grains or
other ethanol co-products.
Over the past several years, the spread
between ethanol and corn prices has fluctuated significantly. Fluctuations are likely to continue to occur. A sustained narrow
spread, whether as a result of sustained high or increased corn prices or sustained low or decreased ethanol prices, would adversely
affect our results of operations and financial position. Further, combined revenues from sales of ethanol, distillers grains and
other ethanol co-products could decline below the marginal cost of production, which may force us to suspend production of ethanol,
distillers grains and ethanol co-products at some or all of our plants.
Increased ethanol production or higher inventory levels
may cause a decline in ethanol prices or prevent ethanol prices from rising, and may have other negative effects, adversely impacting
our results of operations, cash flows and financial condition.
We believe that the most significant factor
influencing the price of ethanol has been the substantial increase in ethanol production in recent years. According to the Renewable
Fuels Association, domestic ethanol production capacity increased from an annualized rate of 1.5 billion gallons per year in January
1999 to a record 16.0 billion gallons in 2016. In addition, if ethanol production margins improve, we anticipate that owners of
ethanol production facilities will increase production levels, thereby resulting in more abundant ethanol supplies and inventories.
Any increase in the demand for ethanol may not be commensurate with increases in the supply of ethanol, thus leading to lower ethanol
prices. Also, demand for ethanol could be impaired due to a number of factors, including regulatory developments and reduced United
States gasoline consumption. Reduced gasoline consumption has occurred in the past and could occur in the future as a result of
increased gasoline or oil prices or other factors such as increased automobile fuel efficiency. Any of these outcomes could have
a material adverse effect on our results of operations, cash flows and financial condition.
The market price of ethanol is volatile and subject to
large fluctuations, which may cause our profitability or losses to fluctuate significantly.
The market price of ethanol is volatile
and subject to large fluctuations. The market price of ethanol is dependent upon many factors, including the supply of ethanol
and the price of gasoline, which is in turn dependent upon the price of petroleum which is highly volatile and difficult to forecast.
For example, ethanol prices, as reported by the CBOT, ranged from $1.31 to $1.75 per gallon during 2016, $1.31 to $1.69 per gallon
during 2015 and $1.50 to $3.52 per gallon during 2014. Fluctuations in the market price of ethanol may cause our profitability
or losses to fluctuate significantly.
Some of our marketing activities will likely be unprofitable
in a market of generally declining ethanol prices due to the nature of our business.
Some of our marketing activities will likely
be unprofitable in a market of generally declining ethanol prices due to the nature of our business. For example, to satisfy customer
demands, we maintain certain quantities of ethanol inventory for subsequent resale. Moreover, we procure much of our inventory
outside the context of a marketing arrangement and therefore must buy ethanol at a price established at the time of purchase and
sell ethanol at an index price established later at the time of sale that is generally reflective of movements in the market price
of ethanol. As a result, our margins for ethanol sold in these transactions generally decline and may turn negative as the market
price of ethanol declines.
Disruptions in ethanol production or distribution infrastructure
may adversely affect our business, results of operations and financial condition.
Our business depends on the continuing availability
of rail, road, port, storage and distribution infrastructure. In particular, due to limited storage capacity at our plants and
other considerations related to production efficiencies, our plants depend on just-in-time delivery of corn. The production of
ethanol also requires a significant and uninterrupted supply of other raw materials and energy, primarily water, electricity and
natural gas. Local water, electricity and gas utilities may not be able to reliably supply the water, electricity and natural gas
that our plants need or may not be able to supply those resources on acceptable terms. During 2014, poor weather caused disruptions
in rail transportation, which slowed the delivery of ethanol by rail, the principle manner by which ethanol from our plants located
in the Midwest is transported to market. Disruptions in the ethanol production or distribution infrastructure, whether caused by
labor difficulties, earthquakes, storms, other natural disasters or human error or malfeasance or other reasons, could prevent
timely deliveries of corn or other raw materials and energy, and could delay transport of our ethanol to market, and may require
us to halt production at one or more plants, any of which could have a material adverse effect on our business, results of operations
and financial condition.
We may engage in hedging transactions and other risk mitigation
strategies that could harm our results of operations.
In an attempt to partially offset the effects
of volatility of ethanol prices and corn and natural gas costs, we may enter into contracts to fix the price of a portion of our
ethanol production or purchase a portion of our corn or natural gas requirements on a forward basis. In addition, we may engage
in other hedging transactions involving exchange-traded futures contracts for corn, natural gas and unleaded gasoline from time
to time. The financial statement impact of these activities is dependent upon, among other things, the prices involved and our
ability to sell sufficient products to use all of the corn and natural gas for which forward commitments have been made. Hedging
arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults
on its contract or, in the case of exchange-traded contracts, where there is a change in the expected differential between the
underlying price in the hedging agreement and the actual prices paid or received by us. As a result, our results of operations
and financial condition may be adversely affected by fluctuations in the price of corn, natural gas, ethanol and unleaded gasoline.
Operational difficulties at our plants could negatively
impact sales volumes and could cause us to incur substantial losses.
Operations at our plants are subject to
labor disruptions, unscheduled downtimes and other operational hazards inherent in the ethanol production industry, including equipment
failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters. Some
of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment
or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance
may not be adequate to fully cover the potential operational hazards described above or we may not be able to renew this insurance
on commercially reasonable terms or at all.
Moreover, our plants may not operate as
planned or expected. All of these facilities are designed to operate at or above a specified production capacity. The operation
of these facilities is and will be, however, subject to various uncertainties. As a result, these facilities may not produce ethanol
and its co-products at expected levels. In the event any of these facilities do not run at their expected capacity levels, our
business, results of operations and financial condition may be materially and adversely affected.
Future demand for ethanol is uncertain and may be affected
by changes to federal mandates, public perception, consumer acceptance and overall consumer demand for transportation fuel, any
of which could negatively affect demand for ethanol and our results of operations.
Although many trade groups, academics and
governmental agencies have supported ethanol as a fuel additive that promotes a cleaner environment, others have criticized ethanol
production as consuming considerably more energy and emitting more greenhouse gases than other biofuels and potentially depleting
water resources. Some studies have suggested that corn-based ethanol is less efficient than ethanol produced from other feedstock
and that it negatively impacts consumers by causing increased prices for dairy, meat and other food generated from livestock that
consume corn. Additionally, ethanol critics contend that corn supplies are redirected from international food markets to domestic
fuel markets. If negative views of corn-based ethanol production gain acceptance, support for existing measures promoting use and
domestic production of corn-based ethanol could decline, leading to reduction or repeal of federal mandates, which could adversely
affect the demand for ethanol. These views could also negatively impact public perception of the ethanol industry and acceptance
of ethanol as an alternative fuel.
There are limited markets for ethanol beyond
those established by federal mandates. Discretionary blending and E85 blending are important secondary markets. Discretionary blending
is often determined by the price of ethanol versus the price of gasoline. In periods when discretionary blending is financially
unattractive, the demand for ethanol may be reduced. Also, the demand for ethanol is affected by the overall demand for transportation
fuel. Demand for transportation fuel is affected by the number of miles traveled by consumers and the fuel economy of vehicles.
Market acceptance of E15 may partially offset the effects of decreases in transportation fuel demand. A reduction in the demand
for ethanol and ethanol co-products may depress the value of our products, erode our margins and reduce our ability to generate
revenue or to operate profitably. Consumer acceptance of E15 and E85 fuels is needed before ethanol can achieve any significant
growth in market share relative to other transportation fuels.
Our plant indebtedness exposes us to many risks that could
negatively impact our business, our business prospects, our liquidity and our cash flows and results of operations.
Our plants located in the Midwest have significant
indebtedness. Unlike traditional term debt, the terms of our plant loans require amortizing payments of principal over the lives
of the loans and our borrowing availability under our plant credit facilities periodically and automatically declines through the
maturity dates of those facilities. Our plant indebtedness could:
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make it more difficult to pay or refinance our debts as they become due during adverse economic and industry conditions because
any decrease in revenues could cause us to not have sufficient cash flows from operations to make our scheduled debt payments;
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limit our flexibility to pursue strategic opportunities or react to changes in our business and the industry in which we operate
and, consequently, place us at a competitive disadvantage to our competitors who have less debt;
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require a substantial portion of our cash flows from operations to be used for debt service payments, thereby reducing the
availability of our cash flows to fund working capital, capital expenditures, acquisitions, dividend payments and other general
corporate purposes; or
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Limit our ability to procure additional financing for working capital or other purposes.
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Our term loans and credit facilities also
require compliance with numerous financial and other covenants. In addition, our plant indebtedness bears interest at variable
rates. An increase in prevailing interest rates would likewise increase our debt service obligations and could materially and adversely
affect our cash flows and results of operations.
Our ability to generate sufficient cash
to make all principal and interest payments when due depends on our performance, which is subject to a variety of factors beyond
our control, including the supply of and demand for ethanol and co-products, ethanol and co-product prices, the cost of key production
inputs, and many other factors incident to the ethanol production and marketing industry. We cannot provide any assurance that
we will be able to timely satisfy such obligations. Our failure to timely satisfy our debt obligations could have a material adverse
effect on our business, business prospects, liquidity, cash flows and results of operations.
If Kinergy fails to satisfy its financial covenants under
its credit facility, it may experience a loss or reduction of that facility, which would have a material adverse effect on our
financial condition and results of operations.
We are substantially dependent on Kinergy’s
credit facility to help finance its operations. Kinergy must satisfy monthly financial covenants under its credit facility, including
fixed-charge coverage ratio covenants. Kinergy will be in default under its credit facility if it fails to satisfy any financial
covenant. A default may result in the loss or reduction of the credit facility. The loss of Kinergy’s credit facility, or
a significant reduction in Kinergy’s borrowing capacity under the facility, would result in Kinergy’s inability to
finance a significant portion of its business and would have a material adverse effect on our financial condition and results of
operations.
The United States ethanol industry is highly dependent
upon certain federal and state legislation and regulation and any changes in legislation or regulation could have a material adverse
effect on our results of operations, cash flows and financial condition.
The EPA has implemented the RFS pursuant
to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program sets annual quotas for the
quantity of renewable fuels (such as ethanol) that must be blended into motor fuels consumed in the United States. The domestic
market for ethanol is significantly impacted by federal mandates under the RFS program for volumes of renewable fuels (such as
ethanol) required to be blended with gasoline. Future demand for ethanol will be largely dependent upon incentives to blend ethanol
into motor fuels, including the relative price of gasoline versus ethanol, the relative octane value of ethanol, constraints in
the ability of vehicles to use higher ethanol blends, the RFS, and other applicable environmental requirements. Any significant
increase in production capacity above the RFS minimum requirements may have an adverse impact on ethanol prices.
Legislation aimed at reducing or eliminating
the renewable fuel use required by the RFS has been introduced in the United States Congress. On January 3, 2017, the Leave Ethanol
Volumes at Existing Levels (LEVEL) Act (H.R. 119) was introduced in the House of Representatives. The bill would freeze renewable
fuel blending requirements under the RFS at 7.5 billion gallons per year, prohibit the sale of gasoline containing more than 10%
ethanol, and revoke the EPA’s approval of E15 blends. On January 31, 2017, a bill (H.R. 777) was introduced in the House
of Representatives that would require the EPA and National Academies of Sciences to conduct a study on “the implications
of the use of mid-level ethanol blends”. A mid-level ethanol blend is an ethanol gasoline blend containing 10-20% ethanol
by volume, including E15 and E20, that is intended to be used in any conventional gasoline powered motor vehicle or nonroad vehicle
or engine. Also on January 31, 2017, a bill (H.R. 776) was introduced in the House of Representatives that would limit the volume
of cellulosic biofuel required under the RFS to what is commercially available. On March 2, 2017, a bill (H.R. 1315) was introduced
in the House of Representatives that would cap the volume of ethanol in gasoline at 10%. On the same day, the
RFS Elimination
Act
(H.R. 1314) was introduced, which would fully repeal the RFS.
All of these bills were assigned to a congressional
committee, which will consider them before possibly sending any of them on to the House of Representatives as a whole. Our operations could be adversely impacted
if any legislation is enacted that reduces or eliminates the RFS volume requirements or that reduces or eliminates corn ethanol
as qualifying as a renewable fuel under the RFS.
Under the provisions of the Clean Air Act,
as amended by the Energy Independence and Security Act of 2007, the EPA has limited authority to waive or reduce the mandated RFS
requirements, which authority is subject to consultation with the Secretaries of Agriculture and Energy, and based on a determination
that there is inadequate domestic renewable fuel supply or implementation of the applicable requirements would severely harm the
economy or environment of a state, region or the United States. Our results of operations, cash flows and financial condition could
be adversely impacted if the EPA reduces the RFS requirements from the statutory levels specified in the RFS.
The ethanol production and marketing industry is extremely
competitive. Many of our significant competitors have greater production and financial resources and one or more of these competitors
could use their greater resources to gain market share at our expense.
The ethanol production and marketing industry
is extremely competitive. Many of our significant competitors in the ethanol production and marketing industry, including Archer
Daniels Midland Company and Valero Energy Corporation, have substantially greater production and/or financial resources. As a result,
our competitors may be able to compete more aggressively and sustain that competition over a longer period of time. Successful
competition will require a continued high level of investment in marketing and customer service and support. Our limited resources
relative to many significant competitors may cause us to fail to anticipate or respond adequately to new developments and other
competitive pressures. This failure could reduce our competitiveness and cause a decline in market share, sales and profitability.
Even if sufficient funds are available, we may not be able to make the modifications and improvements necessary to compete successfully.
We also face
competition from international suppliers. Currently, international suppliers produce ethanol primarily from sugar cane and
have cost structures that are generally substantially lower than our cost structures. Any increase in domestic or foreign
competition could cause us to reduce our prices and take other steps to compete effectively, which could adversely affect our
business, financial condition and results of operations.
Our ability to utilize net operating loss carryforwards
and certain other tax attributes may be limited.
Federal and state income tax laws impose
restrictions on the utilization of net operating loss, or NOL, and tax credit carryforwards in the event that an “ownership
change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code, or Code. In general, an ownership
change occurs when stockholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other
loss carryovers) have increased their ownership of stock in such corporation by more than 50 percentage points during any three-year
period. The annual base limitation under Section 382 of the Code is calculated by multiplying the loss corporation’s value
at the time of the ownership change by the greater of the long-term tax-exempt rate determined by the Internal Revenue Service
in the month of the ownership change or the two preceding months.
As of December 31, 2016, of our $117.7 million
of federal NOLs, we had $101.4 million of federal NOLs that are limited in their annual use under Section 382 of the Code. Accordingly,
our ability to utilize these NOL carryforwards may be substantially limited. These limitations could in turn result in increased
future tax obligations, which could have a material adverse effect on our business, financial condition and results of operations.
Our business is not diversified. The high concentration
of our sales within the ethanol production and marketing industry could result in a significant reduction in sales and negatively
affect our profitability if demand for ethanol declines
.
We expect to be completely focused on the
production and marketing of ethanol and its co-products for the foreseeable future. We may be unable to shift our business focus
away from the production and marketing of ethanol to other renewable fuels or competing products. Accordingly, an industry shift
away from ethanol or the emergence of new competing products may reduce the demand for ethanol. A downturn in the demand for ethanol
would likely materially and adversely affect our sales and profitability.
We may be adversely affected by environmental, health
and safety laws, regulations and liabilities
.
We are subject to various federal, state
and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground,
the generation, storage, handling, use, transportation and disposal of hazardous materials and wastes, and the health and safety
of our employees. In addition, some of these laws and regulations require us to operate under permits that are subject to renewal
or modification. These laws, regulations and permits can often require expensive pollution control equipment or operational changes
to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result
in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or facility shutdowns. In addition,
we have made, and expect to make, significant capital expenditures on an ongoing basis to comply with increasingly stringent environmental
laws, regulations and permits.
We may be liable for the investigation and
cleanup of environmental contamination at each of our plants and at off-site locations where we arrange for the disposal of hazardous
substances or wastes. If these substances or wastes have been or are disposed of or released at sites that undergo investigation
and/or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, or other environmental laws for all or part of the costs of investigation and/or remediation, and for damages
to natural resources. We may also be subject to related claims by private parties alleging property damage and personal injury
due to exposure to hazardous or other materials at or from those properties. Some of these matters may require us to expend significant
amounts for investigation, cleanup or other costs.
In addition, new laws, new interpretations
of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make significant
additional expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased
future investments for environmental controls at our plants. Present and future environmental laws and regulations, and interpretations
of those laws and regulations, applicable to our operations, more vigorous enforcement policies and discovery of currently unknown
conditions may require substantial expenditures that could have a material adverse effect on our results of operations and financial
condition.
The hazards and risks associated with producing
and transporting our products (including fires, natural disasters, explosions and abnormal pressures and blowouts) may also result
in personal injury claims or damage to property and third parties. As protection against operating hazards, we maintain insurance
coverage against some, but not all, potential losses. However, we could sustain losses for uninsurable or uninsured risks, or in
amounts in excess of existing insurance coverage. Events that result in significant personal injury or damage to our property or
third parties or other losses that are not fully covered by insurance could have a material adverse effect on our results of operations
and financial condition.
If we are unable to attract or retain key personnel, our
ability to operate effectively may be impaired, which could have a material adverse effect on our business, financial condition
and results of operations.
Our ability to operate our business and
implement strategies depends, in part, on the efforts of our executive officers and other key personnel. Our future success will
depend on, among other factors, our ability to retain our current key personnel and attract and retain qualified future key personnel,
particularly executive management. If we are unable to attract or retain key personnel, our ability to operate effectively may
be impaired, which could have a material adverse effect on our business, financial condition and results of operations.
We depend on a small number of customers for the majority
of our sales. A reduction in business from any of these customers could cause a significant decline in our overall sales and profitability.
The majority of our sales are generated
from a small number of customers. During 2016, 2015 and 2014, three customers accounted for an aggregate of approximately $572
million, $467 million and $569 million in net sales, representing 35%, 39% and 51% of our net sales, respectively, for those periods.
We expect that we will continue to depend for the foreseeable future upon a small number of customers for a significant portion
of our sales. Our agreements with these customers generally do not require them to purchase any specified volume or dollar value
of ethanol or co-products, or to make any purchases whatsoever. Therefore, in any future period, our sales generated from these
customers, individually or in the aggregate, may not equal or exceed historical levels. If sales to any of these customers cease
or decline, we may be unable to replace these sales with sales to either existing or new customers in a timely manner, or at all.
A cessation or reduction of sales to one or more of these customers could cause a significant decline in our overall sales and
profitability.
Our lack of long-term ethanol orders and commitments by
our customers could lead to a rapid decline in our sales and profitability.
We cannot rely on long-term ethanol orders
or commitments by our customers for protection from the negative financial effects of a decline in the demand for ethanol or a
decline in the demand for our marketing services. The limited certainty of ethanol orders can make it difficult for us to forecast
our sales and allocate our resources in a manner consistent with our actual sales. Moreover, our expense levels are based in part
on our expectations of future sales and, if our expectations regarding future sales are inaccurate, we may be unable to reduce
costs in a timely manner to adjust for sales shortfalls. Furthermore, because we depend on a small number of customers for a significant
portion of our sales, the magnitude of the ramifications of these risks is greater than if our sales were less concentrated. As
a result of our lack of long-term ethanol orders and commitments, we may experience a rapid decline in our sales and profitability.
There are limitations on our ability to receive distributions
from our subsidiaries.
We conduct most of our operations through
subsidiaries and are dependent upon dividends or other intercompany transfers of funds from our subsidiaries to generate free cash
flow. Moreover, some of our subsidiaries are limited in their ability to pay dividends or make distributions, loans or advances
to us by the terms of their financing arrangements. At December 31, 2016, we had approximately $287.2 million of net assets at
our subsidiaries that were not available to be distributed in the form of dividends, distributions, loans or advances due to restrictions
contained in their financing arrangements.
Risks Related to Ownership of our Common
Stock
Our stock price is highly volatile, which could result
in substantial losses for investors purchasing shares of our common stock and in litigation against us.
The market price of our common stock has
fluctuated significantly in the past and may continue to fluctuate significantly in the future. The market price of our common
stock may continue to fluctuate in response to one or more of the following factors, many of which are beyond our control:
|
·
|
fluctuations in the market prices of ethanol and its co-products;
|
|
·
|
the cost of key inputs to the production of ethanol, including corn and natural gas;
|
|
·
|
the volume and timing of the receipt of orders for ethanol from major customers;
|
|
·
|
competitive pricing pressures;
|
|
·
|
our ability to timely and cost-effectively produce, sell and deliver ethanol;
|
|
·
|
the announcement, introduction and market acceptance of one or more alternatives to ethanol;
|
|
·
|
changes in market valuations of companies similar to us;
|
|
·
|
stock market price and volume fluctuations generally;
|
|
·
|
regulatory developments or increased enforcement;
|
|
·
|
fluctuations in our quarterly or annual operating results;
|
|
·
|
additions or departures of key personnel;
|
|
·
|
our ability to obtain any necessary financing;
|
|
·
|
our financing activities and future sales of our common stock or other securities; and
|
|
·
|
our ability to maintain contracts that are critical to our operations.
|
Demand for ethanol could be adversely affected
by a slow-down in the overall demand for oxygenate and gasoline additive products. The levels of our ethanol production and purchases
for resale will be based upon forecasted demand. Accordingly, any inaccuracy in forecasting anticipated revenues and expenses could
adversely affect our business. The failure to receive anticipated orders or to complete delivery in any quarterly period could
adversely affect our results of operations for that period. Quarterly and annual results are not necessarily indicative of future
performance for any particular period, and we may not experience revenue growth or profitability on a quarterly or an annual basis.
The price at which you purchase shares of
our common stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your shares
of common stock at or above your purchase price, which may result in substantial losses to you and which may include the complete
loss of your investment. In the past, securities class action litigation has often been brought against a company following periods
of high stock price volatility. We may be the target of similar litigation in the future. Securities litigation could result in
substantial costs and divert management’s attention and our resources away from our business.
Any of the risks described above could have
a material adverse effect on our results of operations or the price of our common stock, or both.
Upon the conversion of our outstanding non-voting common
stock, if the resulting shares of common stock are resold into the market, or if a perception exists that a substantial number
of shares of common stock may be issued and then resold into the market, the market price of our common stock and the value of
your investment could decline significantly.
We
have non-voting common stock outstanding that may be converted into our common stock. Sales of a substantial number of shares of
our common stock underlying our non-voting common stock, or even the perception that these sales could occur, could adversely affect
the market price of our common stock. As a result, you could experience a significant decline in the value of your investment
|
Item 1B.
|
Unresolved Staff Comments.
|
We have received no
written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued
180 days or more preceding the end of our 2016 fiscal year and that remain unresolved.
Our corporate headquarters,
located in Sacramento, California, consists of a 10,000 square foot office under a lease expiring in 2018. We have plants located
in Madera, California, at a 137 acre facility; Boardman, Oregon, at a 25 acre facility; Burley, Idaho, at a 160 acre facility;
and Stockton, California, at a 30 acre facility. We own the land in Madera, California and Burley, Idaho. The land in Boardman,
Oregon and Stockton, California are leased under leases expiring in 2026 and 2022, respectively. We also have plants located in
Pekin, Illinois at a 94 acre facility and Aurora, Nebraska, at a 96 acre facility. We own the land in Pekin, Illinois and Aurora,
Nebraska, as well as the grain handling facility, loop track and the real property on which they are located in Aurora, Nebraska.
We also own an idled ethanol production facility in Canton, Illinois on a 289 acre facility, of which a significant portion is
farm land. Our production segment includes ethanol production facilities. See “Business—Production Facilities.”
|
Item 3.
|
Legal Proceedings.
|
We are subject to legal proceedings, claims
and litigation arising in the ordinary course of business. While the amounts claimed may be substantial, the ultimate liability
cannot presently be determined because of considerable uncertainties that exist. Therefore, it is possible that the outcome of
those legal proceedings, claims and litigation could adversely affect our quarterly or annual operating results or cash flows when
resolved in a future period. However, based on facts currently available, management believes such matters will not adversely affect
in any material respect our financial position, results of operations or cash flows.
Western Sugar Cooperative
Pacific Ethanol, Inc., through a subsidiary
acquired in its acquisition of Aventine, became involved in a pending lawsuit with Western Sugar Cooperative (“Western Sugar”)
that pre-dated the Aventine acquisition.
On February 27, 2015, Western Sugar filed
a complaint in the United States District Court for the District of Colorado (Case No. 1:15-cv-00415) naming Aventine Renewable
Energy, Inc. (“ARE, Inc.”), one of Aventine’s subsidiaries, as defendant. Western Sugar amended its complaint
on April 21, 2015. ARE, Inc. purchased surplus sugar through a United States Department of Agriculture program. Western Sugar was
one of the entities that warehoused this sugar for ARE, Inc. The suit alleged that ARE, Inc. 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 alleged that the penalty rates applied because ARE, Inc. failed to take timely delivery or otherwise cause timely
shipment of the sugar. Western Sugar claimed “expectation damages” in the amount of approximately $8.6 million. ARE,
Inc. filed answers to Western Sugar’s complaint and amended complaint generally denying Western Sugar’s allegations
and asserting various defenses. On December 29, 2016, Western Sugar and ARE, Inc. entered into a settlement pursuant to which ARE
Inc. paid $1.7 million and Western Sugar filed a Stipulation of Dismissal with prejudice. As a result we reduced our litigation
reserve by $1.1 million and recognized the amount as a recovery in selling, general and administrative expenses for the year ended
December 31, 2016.
|
Item 4.
|
Mine Safety Disclosures.
|
Not applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
Pacific Ethanol, Inc.
We have audited the accompanying consolidated statements
of operations, comprehensive income (loss), stockholders' equity, and cash flows for the year ended December 31, 2014 of
Pacific Ethanol, Inc. and subsidiaries (collectively,
the financial statements). These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the results of operations of
Pacific Ethanol, Inc. and subsidiaries and their cash flows for
the year ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
/s/ Hein & Associates LLP
Hein & Associates LLP
Irvine, California
March 16, 2015, except for the
2014 information in Note 5 as to which the date is March 15, 2016, and the 2014 information in Note 17 as to which the date
is March 15, 2017
PACIFIC ETHANOL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par value)
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,590
|
|
|
$
|
52,712
|
|
Accounts receivable, net of allowance for doubtful accounts of $331 and $25, respectively
|
|
|
86,275
|
|
|
|
61,346
|
|
Inventories
|
|
|
60,070
|
|
|
|
60,820
|
|
Prepaid inventory
|
|
|
9,946
|
|
|
|
5,973
|
|
Income tax receivables
|
|
|
5,730
|
|
|
|
10,654
|
|
Derivative assets
|
|
|
978
|
|
|
|
2,081
|
|
Other current assets
|
|
|
3,612
|
|
|
|
4,356
|
|
Total current assets
|
|
|
235,201
|
|
|
|
197,942
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
465,190
|
|
|
|
464,960
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
2,678
|
|
|
|
2,678
|
|
Other assets
|
|
|
5,169
|
|
|
|
9,100
|
|
Total other assets
|
|
|
7,847
|
|
|
|
11,778
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
708,238
|
|
|
$
|
674,680
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
PACIFIC ETHANOL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except shares and par value)
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
37,051
|
|
|
$
|
30,520
|
|
Accrued liabilities
|
|
|
20,280
|
|
|
|
10,072
|
|
Current portion – capital leases
|
|
|
794
|
|
|
|
4,248
|
|
Current portion – long-term debt
|
|
|
10,500
|
|
|
|
17,003
|
|
Accrued PE Op Co. purchase
|
|
|
3,828
|
|
|
|
3,828
|
|
Derivative liabilities
|
|
|
4,115
|
|
|
|
1,848
|
|
Other current liabilities
|
|
|
2,273
|
|
|
|
5,390
|
|
Total current liabilities
|
|
|
78,841
|
|
|
|
72,909
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
188,028
|
|
|
|
203,861
|
|
Capital leases, net of current portion
|
|
|
547
|
|
|
|
4,183
|
|
Warrant liabilities at fair value
|
|
|
651
|
|
|
|
273
|
|
Other liabilities
|
|
|
21,910
|
|
|
|
21,910
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
289,977
|
|
|
|
303,136
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 1, 8, 9 and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
Series A: 1,684,375 shares authorized; no shares issued and outstanding as of December 31, 2016 and 2015
|
|
|
–
|
|
|
|
–
|
|
Series B: 1,580,790 shares authorized; 926,942 shares issued and outstanding as of December 31, 2016 and 2015; liquidation preference of $18,075 as of December 31, 2016
|
|
|
1
|
|
|
|
1
|
|
Common stock, $0.001 par value; 300,000,000 shares authorized; 39,772,238 and 38,974,972 shares issued and outstanding as of December 31, 2016 and 2015, respectively
|
|
|
40
|
|
|
|
39
|
|
Non-voting common stock, $0.001 par value; 3,553,000 shares authorized; 3,540,132 shares issued and outstanding as of December 31, 2016 and 2015
|
|
|
4
|
|
|
|
4
|
|
Additional paid-in capital
|
|
|
922,698
|
|
|
|
902,843
|
|
Accumulated other comprehensive income (expense)
|
|
|
(2,620
|
)
|
|
|
1,040
|
|
Accumulated deficit
|
|
|
(532,233
|
)
|
|
|
(532,383
|
)
|
Total Pacific Ethanol, Inc. stockholders’ equity
|
|
|
387,890
|
|
|
|
371,544
|
|
Noncontrolling interests
|
|
|
30,371
|
|
|
|
–
|
|
Total stockholders’ equity
|
|
|
418,261
|
|
|
|
371,544
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
708,238
|
|
|
$
|
674,680
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
PACIFIC ETHANOL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net sales
|
|
$
|
1,624,758
|
|
|
$
|
1,191,176
|
|
|
$
|
1,107,412
|
|
Cost of goods sold
|
|
|
1,572,926
|
|
|
|
1,183,766
|
|
|
|
998,927
|
|
Gross profit
|
|
|
51,832
|
|
|
|
7,410
|
|
|
|
108,485
|
|
Selling, general and administrative expenses
|
|
|
28,323
|
|
|
|
23,412
|
|
|
|
17,108
|
|
Asset impairment
|
|
|
–
|
|
|
|
1,970
|
|
|
|
–
|
|
Income (loss) from operations
|
|
|
23,509
|
|
|
|
(17,972
|
)
|
|
|
91,377
|
|
Fair value adjustments and warrant inducements
|
|
|
(557
|
)
|
|
|
1,641
|
|
|
|
(37,532
|
)
|
Interest expense, net
|
|
|
(22,406
|
)
|
|
|
(12,594
|
)
|
|
|
(9,438
|
)
|
Loss on extinguishment of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,363
|
)
|
Other income (expense), net
|
|
|
(1
|
)
|
|
|
18
|
|
|
|
(905
|
)
|
Income (loss) before provision for income taxes
|
|
|
545
|
|
|
|
(28,907
|
)
|
|
|
41,139
|
|
Provision (benefit) for income taxes
|
|
|
(981
|
)
|
|
|
(10,034
|
)
|
|
|
15,137
|
|
Consolidated net income (loss)
|
|
|
1,526
|
|
|
|
(18,873
|
)
|
|
|
26,002
|
|
Net (income) loss attributed to noncontrolling interests
|
|
|
(107
|
)
|
|
|
87
|
|
|
|
(4,713
|
)
|
Net income (loss) attributed to Pacific Ethanol, Inc.
|
|
$
|
1,419
|
|
|
$
|
(18,786
|
)
|
|
$
|
21,289
|
|
Preferred stock dividends
|
|
|
(1,269
|
)
|
|
|
(1,265
|
)
|
|
|
(1,265
|
)
|
Income allocated to participating securities
|
|
|
(2
|
)
|
|
|
–
|
|
|
|
(585
|
)
|
Income (loss) available to common stockholders
|
|
$
|
148
|
|
|
$
|
(20,051
|
)
|
|
$
|
19,439
|
|
Income (loss) per share, basic
|
|
$
|
0.00
|
|
|
$
|
(0.60
|
)
|
|
$
|
0.93
|
|
Income (loss) per share, diluted
|
|
$
|
0.00
|
|
|
$
|
(0.60
|
)
|
|
$
|
0.86
|
|
Weighted-average shares outstanding, basic
|
|
|
42,182
|
|
|
|
33,173
|
|
|
|
20,810
|
|
Weighted-average shares outstanding, diluted
|
|
|
42,251
|
|
|
|
33,173
|
|
|
|
22,669
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
PACIFIC ETHANOL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Consolidated net income (loss)
|
|
$
|
1,526
|
|
|
$
|
(18,873
|
)
|
|
$
|
26,002
|
|
Other comprehensive income (expense) – net gain (loss) arising during the period on defined benefit pension plans
|
|
|
(3,660
|
)
|
|
|
1,040
|
|
|
|
–
|
|
Total comprehensive income (loss)
|
|
|
(2,134
|
)
|
|
|
(17,833
|
)
|
|
|
26,002
|
|
Comprehensive (income) loss attributed to noncontrolling interests
|
|
|
(107
|
)
|
|
|
87
|
|
|
|
(4,713
|
)
|
Comprehensive income (loss) attributed to Pacific Ethanol, Inc.
|
|
$
|
(2,241
|
)
|
|
$
|
(17,746
|
)
|
|
$
|
21,289
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
PACIFIC ETHANOL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
|
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated. Other Comprehensive Income
|
|
Non-Controlling Interests
|
|
Total
|
|
Balances, January 1, 2014
|
|
|
927
|
|
$
|
1
|
|
|
16,126
|
|
$
|
16
|
|
$
|
621,557
|
|
$
|
(532,356
|
)
|
$
|
–
|
|
$
|
5,683
|
|
$
|
94,901
|
|
Stock-based compensation expense – restricted stock issued to employees and directors, net of cancellations and tax
|
|
|
–
|
|
|
–
|
|
|
90
|
|
|
–
|
|
|
1,890
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,890
|
|
Issuance of common stock
|
|
|
–
|
|
|
–
|
|
|
1,750
|
|
|
2
|
|
|
26,071
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
26,073
|
|
Warrant exercises
|
|
|
–
|
|
|
–
|
|
|
6,413
|
|
|
6
|
|
|
85,156
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
85,162
|
|
Shares issued as payment of prior unpaid Series B preferred dividends
|
|
|
–
|
|
|
–
|
|
|
120
|
|
|
1
|
|
|
1,462
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,463
|
|
Purchases of interests in PE Op Co.
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(79
|
)
|
|
–
|
|
|
–
|
|
|
(5,921
|
)
|
|
(6,000
|
)
|
Tax impact of purchases of interests in PE Op Co.
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(10,244
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(10,244
|
)
|
Preferred stock dividends
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(1,265
|
)
|
|
–
|
|
|
–
|
|
|
(1,265
|
)
|
Net income
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
21,289
|
|
|
–
|
|
|
4,713
|
|
|
26,002
|
|
Balances, December 31, 2014
|
|
|
927
|
|
$
|
1
|
|
|
24,499
|
|
$
|
25
|
|
$
|
725,813
|
|
$
|
(512,332
|
)
|
$
|
–
|
|
$
|
4,475
|
|
$
|
217,982
|
|
Stock-based compensation expense – restricted stock and options to employees and directors, net of cancellations and tax
|
|
|
–
|
|
|
–
|
|
|
216
|
|
|
–
|
|
|
1,475
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,475
|
|
Warrant exercises
|
|
|
–
|
|
|
–
|
|
|
42
|
|
|
–
|
|
|
440
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
440
|
|
Shares issued in Aventine acquisition
|
|
|
–
|
|
|
–
|
|
|
17,758
|
|
|
18
|
|
|
174,555
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
174,573
|
|
Pension plan adjustment
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,040
|
|
|
–
|
|
|
1,040
|
|
Purchases of interests in PE Op Co.
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
560
|
|
|
–
|
|
|
–
|
|
|
(4,388
|
)
|
|
(3,828
|
)
|
Preferred stock dividends
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(1,265
|
)
|
|
–
|
|
|
–
|
|
|
(1,265
|
)
|
Net loss
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(18,786
|
)
|
|
–
|
|
|
(87
|
)
|
|
(18,873
|
)
|
Balances, December 31, 2015
|
|
|
927
|
|
$
|
1
|
|
|
42,515
|
|
$
|
43
|
|
$
|
902,843
|
|
$
|
(532,383
|
)
|
$
|
1,040
|
|
$
|
–
|
|
$
|
371,544
|
|
Stock-based compensation expense – restricted stock and options to employees and directors, net of cancellations and tax
|
|
|
–
|
|
|
–
|
|
|
659
|
|
|
1
|
|
|
2,281
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,282
|
|
Warrant exercises
|
|
|
–
|
|
|
–
|
|
|
138
|
|
|
–
|
|
|
1,338
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,338
|
|
ACEC contribution to form Pacific Aurora
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
5,761
|
|
|
–
|
|
|
–
|
|
|
10,739
|
|
|
16,500
|
|
Sale of Pacific Aurora interests to ACEC
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
10,475
|
|
|
–
|
|
|
–
|
|
|
19,525
|
|
|
30,000
|
|
Pension plan adjustment
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(3,660
|
)
|
|
–
|
|
|
(3,660
|
)
|
Preferred stock dividends
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(1,269
|
)
|
|
–
|
|
|
–
|
|
|
(1,269
|
)
|
Net income
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,419
|
|
|
–
|
|
|
107
|
|
|
1,526
|
|
Balances, December 31, 2016
|
|
|
927
|
|
$
|
1
|
|
|
43,312
|
|
$
|
44
|
|
$
|
922,698
|
|
$
|
(532,233
|
)
|
$
|
(2,620
|
)
|
$
|
30,371
|
|
$
|
418,261
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
PACIFIC ETHANOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
$
|
1,526
|
|
|
$
|
(18,873
|
)
|
|
$
|
26,002
|
|
Adjustments to reconcile consolidated net income (loss) to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangibles
|
|
|
35,441
|
|
|
|
23,632
|
|
|
|
13,186
|
|
Fair value adjustments
|
|
|
557
|
|
|
|
(1,641
|
)
|
|
|
35,260
|
|
Loss on extinguishment of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
2,363
|
|
Asset impairment
|
|
|
–
|
|
|
|
1,970
|
|
|
|
–
|
|
Deferred income taxes
|
|
|
(1,122
|
)
|
|
|
(2,023
|
)
|
|
|
5,129
|
|
Inventory valuation
|
|
|
–
|
|
|
|
509
|
|
|
|
970
|
|
Change in fair value on commodity derivative instruments
|
|
|
1,984
|
|
|
|
542
|
|
|
|
808
|
|
Amortization of deferred financing costs
|
|
|
137
|
|
|
|
272
|
|
|
|
1,217
|
|
Amortization of debt discounts
|
|
|
2,322
|
|
|
|
716
|
|
|
|
1,815
|
|
Noncash compensation
|
|
|
2,616
|
|
|
|
2,019
|
|
|
|
1,838
|
|
Bad debt expense (recovery)
|
|
|
306
|
|
|
|
(354
|
)
|
|
|
(42
|
)
|
Loss on disposals of assets
|
|
|
–
|
|
|
|
–
|
|
|
|
439
|
|
Interest expense added to plant term debt
|
|
|
9,451
|
|
|
|
–
|
|
|
|
–
|
|
Changes in operating assets and liabilities, net of effects from acquisition of Aventine in 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(25,235
|
)
|
|
|
(15,950
|
)
|
|
|
726
|
|
Inventories
|
|
|
750
|
|
|
|
(13,296
|
)
|
|
|
3,866
|
|
Prepaid expenses and other assets
|
|
|
6,358
|
|
|
|
58
|
|
|
|
(7,818
|
)
|
Prepaid inventory
|
|
|
(3,973
|
)
|
|
|
5,622
|
|
|
|
720
|
|
Accounts payable and accrued expenses
|
|
|
9,279
|
|
|
|
(10,045
|
)
|
|
|
1,853
|
|
Net cash provided by (used in) operating activities
|
|
$
|
40,397
|
|
|
$
|
(26,842
|
)
|
|
$
|
88,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
$
|
(19,171
|
)
|
|
$
|
(20,507
|
)
|
|
$
|
(13,259
|
)
|
Proceeds (payments) for cash collateralized letters of credit
|
|
|
4,574
|
|
|
|
(4,574
|
)
|
|
|
–
|
|
Net cash from acquisition of Aventine
|
|
|
–
|
|
|
|
18,756
|
|
|
|
–
|
|
Net cash used in investing activities
|
|
$
|
(14,597
|
)
|
|
$
|
(6,325
|
)
|
|
$
|
(13,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
PACIFIC ETHANOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from warrant exercises
|
|
$
|
1,164
|
|
|
$
|
368
|
|
|
$
|
43,676
|
|
Proceeds from Pekin and Pacific Aurora credit agreements
|
|
|
97,000
|
|
|
|
–
|
|
|
|
–
|
|
Proceeds from notes
|
|
|
53,350
|
|
|
|
–
|
|
|
|
–
|
|
Sales (purchases) of noncontrolling interests
|
|
|
30,000
|
|
|
|
–
|
|
|
|
(6,000
|
)
|
Proceeds from assessment financing
|
|
|
2,096
|
|
|
|
–
|
|
|
|
–
|
|
Net proceeds from common stock and warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
26,073
|
|
Net proceeds (payments) on Kinergy’s line of credit
|
|
|
(11,141
|
)
|
|
|
43,584
|
|
|
|
(1,512
|
)
|
Payments on plant borrowings
|
|
|
(172,073
|
)
|
|
|
(13,833
|
)
|
|
|
(39,792
|
)
|
Purchase of plant owners’ debt
|
|
|
–
|
|
|
|
–
|
|
|
|
(17,038
|
)
|
Payments on senior unsecured notes
|
|
|
–
|
|
|
|
–
|
|
|
|
(13,984
|
)
|
Debt issuance costs
|
|
|
(1,960
|
)
|
|
|
–
|
|
|
|
(438
|
)
|
Payment on related party note
|
|
|
–
|
|
|
|
–
|
|
|
|
(750
|
)
|
Preferred stock dividend payments
|
|
|
(1,269
|
)
|
|
|
(1,265
|
)
|
|
|
(3,459
|
)
|
Payments on capital leases
|
|
|
(7,089
|
)
|
|
|
(5,059
|
)
|
|
|
(4,916
|
)
|
Net cash provided by (used in) financing activities
|
|
$
|
(9,922
|
)
|
|
$
|
23,795
|
|
|
$
|
(18,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
15,878
|
|
|
|
(9,372
|
)
|
|
|
56,933
|
|
Cash and cash equivalents at beginning of period
|
|
|
52,712
|
|
|
|
62,084
|
|
|
|
5,151
|
|
Cash and cash equivalents at end of period
|
|
$
|
68,590
|
|
|
$
|
52,712
|
|
|
$
|
62,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
11,168
|
|
|
$
|
11,685
|
|
|
$
|
6,596
|
|
Income tax refunds (payments)
|
|
$
|
4,784
|
|
|
$
|
5,710
|
|
|
$
|
(17,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash financing and investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends paid in common stock
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,463
|
|
Accrued payment for ownership positions of PE Op Co.
|
|
$
|
–
|
|
|
$
|
3,828
|
|
|
$
|
–
|
|
Capital leases added to plant and equipment
|
|
$
|
–
|
|
|
$
|
1,864
|
|
|
$
|
–
|
|
Reclass of warrant liability to equity upon exercises
|
|
$
|
179
|
|
|
$
|
72
|
|
|
$
|
41,486
|
|
Contribution of property and equipment for noncontrolling interest
|
|
$
|
16,500
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Common stock issued in Aventine acquisition (see Note 2)
|
|
$
|
–
|
|
|
$
|
174,573
|
|
|
$
|
–
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
.
|
Organization and
Business
– The consolidated financial statements include, for all periods presented, the accounts of Pacific Ethanol,
Inc., a Delaware corporation (“Pacific Ethanol”), and its direct and indirect subsidiaries (collectively, the “Company”),
including its wholly-owned subsidiaries, Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”), Pacific
Ag. Products, LLC, a California limited liability company (“PAP”) and PE Op Co., a Delaware corporation (“PE
Op Co.”).
The Company’s acquisition of Aventine
Renewable Energy Holdings, Inc. (now, Pacific Ethanol Central, LLC, a Delaware limited liability company “PE Central”)
was consummated on July 1, 2015, and as a result, the Company’s consolidated financial statements include the results of
PE Central only as of and for the year ended December 31, 2016 and the six months ended December 31, 2015.
On December 15, 2016,
the Company and Aurora Cooperative Elevator Company, a Nebraska cooperative corporation (“ACEC”), closed a transaction
under a contribution agreement under which the Company contributed its Aurora, Nebraska ethanol facilities and ACEC contributed
its Aurora grain elevator and related grain handling assets to Pacific Aurora, LLC (“Pacific Aurora”) in exchange for
equity interests in Pacific Aurora. On December 15, 2016, concurrently with the closing under the contribution agreement, the Company
sold a portion of its equity interest in Pacific Aurora to ACEC. As a result, as of December 15, 2016 and through December 31,
2016, the Company owned 73.93% of Pacific Aurora and ACEC owned 26.07% of Pacific Aurora. The Company consolidates 100% of the
results of Pacific Aurora and records ACEC’s 26.07% equity interest as noncontrolling interests in the accompanying financial
statements.
The Company is a leading
producer and marketer of low-carbon renewable fuels in the United States. The Company’s four ethanol plants in the Western
United States (together with their respective holding companies, the “Pacific Ethanol West Plants”) are located in
close proximity to both feed and ethanol customers and thus enjoy unique advantages in efficiency, logistics and product pricing.
These plants produce among the lowest-carbon ethanol produced in the United States due to low energy use in production.
With the addition of
four Midwestern ethanol plants in July 2015 as a result of the Company’s acquisition of PE Central, the Company now has a
combined ethanol production capacity of 515 million gallons per year, markets, on an annualized basis, nearly 1.0 billion gallons
of ethanol, and produces, on an annualized basis, over 1.5 million tons of co-products such as wet and dry distillers grains, wet
and dry corn gluten feed, condensed distillers solubles, corn gluten meal, corn germ, distillers yeast and CO
2
. The
Company’s four ethanol plants in the Midwest (together with their respective holding companies, the “Pacific Ethanol
Central Plants”) are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production and allow
for access to many additional domestic markets. In addition, the Company’s ability to load unit trains from these facilities
in the Midwest allows for greater access to international markets.
As of December 31, 2016, all eight facilities
were operating. On April 30, 2014, the Company’s previously idled facility in Madera, California commenced producing ethanol.
As market conditions change, the Company may increase, decrease or idle production at one or more operational facilities or resume
operations at any idled facility.
Basis of Presentation
–
The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”) and include the accounts of the Company. All significant intercompany accounts and transactions
have been eliminated in consolidation.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segments
– A segment
is a component of an enterprise whose operating results are regularly reviewed by the enterprise’s chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial
information is available. The Company determines and discloses its segments in accordance with the Financial Accounting Standards
Board’s (“FASB”) Accounting Standards Codification Section 280,
Segment Reporting
(“ASC 280”),
which defines how to determine segments. The Company reports its financial and operating performance in two reportable segments:
(1) ethanol production, which includes the production and sale of ethanol and co-products, with all of the Company’s production
facilities aggregated, and (2) marketing and distribution, which includes marketing and merchant trading for Company-produced ethanol
and co-products and third-party ethanol.
Cash and Cash Equivalents
– The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance
for Doubtful Accounts
– Trade accounts receivable are presented at face value, net of the allowance for doubtful
accounts. The Company sells ethanol to gasoline refining and distribution companies, sells distillers grains and other feed co-products
to dairy operators and animal feedlots and sells corn oil to poultry and biodiesel customers generally without requiring collateral.
Due to a limited number of ethanol customers, the Company had significant concentrations of credit risk from sales of ethanol as
of December 31, 2016 and 2015, as described below.
The Company maintains an allowance for
doubtful accounts for balances that appear to have specific collection issues. The collection process is based on the age of the
invoice and requires attempted contacts with the customer at specified intervals. If, after a specified number of days, the Company
has been unsuccessful in its collection efforts, a bad debt allowance is recorded for the balance in question. Delinquent accounts
receivable are charged against the allowance for doubtful accounts once uncollectibility has been determined. The factors considered
in reaching this determination are the apparent financial condition of the customer and the Company’s success in contacting
and negotiating with the customer. If the financial condition of the Company’s customers were to deteriorate, resulting in
an impairment of ability to make payments, additional allowances may be required.
Of the accounts receivable balance, approximately
$64,853,000 and $42,049,000 at December 31, 2016 and 2015, respectively, were used as collateral under Kinergy’s operating
line of credit. The allowance for doubtful accounts was $331,000 and $25,000 as of December 31, 2016 and 2015, respectively. The
Company recorded a bad debt expense of $306,000 and a recovery of $354,000 and $42,000 for the years ended December 31, 2016, 2015
and 2014, respectively. The Company does not have any off-balance sheet credit exposure related to its customers.
Concentration Risks
–
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to
perform as contracted. Concentrations of credit risk, whether on- or off-balance sheet, that arise from financial instruments exist
for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other conditions described below. Financial instruments
that subject the Company to credit risk consist of cash balances maintained in excess of federal depository insurance limits and
accounts receivable, which have no collateral or security. The Company has not experienced any significant losses in such accounts
and believes that it is not exposed to any significant risk of loss of cash.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company sells fuel-grade ethanol to
gasoline refining and distribution companies. The Company sold ethanol to customers representing 10% or more of the Company’s
total net sales, as follows:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Customer A
|
|
|
17%
|
|
|
|
12%
|
|
|
|
20%
|
|
Customer B
|
|
|
12%
|
|
|
|
15%
|
|
|
|
20%
|
|
Customer C
|
|
|
6%
|
|
|
|
12%
|
|
|
|
11%
|
|
The Company had accounts receivable due
from these customers totaling $21,274,000 and $19,858,000, representing 24% and 32% of total accounts receivable, as of December
31, 2016 and 2015, respectively.
The Company purchases corn, its largest
cost component in producing ethanol, from its suppliers. The Company purchased corn from suppliers representing 10% or more of
the Company’s total corn purchases, as follows:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Supplier A
|
|
|
13%
|
|
|
|
19%
|
|
|
|
26%
|
|
Supplier B
|
|
|
13%
|
|
|
|
13%
|
|
|
|
11%
|
|
Supplier C
|
|
|
8%
|
|
|
|
9%
|
|
|
|
15%
|
|
Approximately 29% of the Company’s
employees are covered by a collective bargaining agreement.
Inventories
– Inventories
consisted primarily of bulk ethanol, corn, co-products, Low-Carbon Fuel Standard (“LCFS”) credits and unleaded fuel,
and are valued at the lower-of-cost-or-net realizable value, with cost determined on a first-in, first-out basis. Inventory balances
consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Finished goods
|
|
$
|
33,773
|
|
|
$
|
31,153
|
|
LCFS credits
|
|
|
10,926
|
|
|
|
6,957
|
|
Raw materials
|
|
|
6,571
|
|
|
|
9,891
|
|
Work in progress
|
|
|
7,092
|
|
|
|
11,121
|
|
Other
|
|
|
1,708
|
|
|
|
1,698
|
|
Total
|
|
$
|
60,070
|
|
|
$
|
60,820
|
|
Property and Equipment
–
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the following estimated
useful lives:
Buildings
|
40 years
|
Facilities and plant equipment
|
10 – 25 years
|
Other equipment, vehicles and furniture
|
5 – 10 years
|
The cost of normal maintenance and repairs
is charged to operations as incurred. Significant capital expenditures that increase the life of an asset are capitalized and
depreciated over the estimated remaining useful life of the asset. The cost of fixed assets sold, or otherwise disposed of, and
the related accumulated depreciation or amortization are removed from the accounts, and any resulting gains or losses are reflected
in current operations.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
–
The Company assesses indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment
may have occurred. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess. If the Company determines that an impairment charge is needed, the charge will be
recorded as an asset impairment in the consolidated statements of operations.
Deferred Financing Costs
– Deferred financing costs are costs incurred to obtain debt financing, including all related fees, and are amortized as
interest expense over the term of the related financing using the straight-line method, which approximates the interest rate method.
Amortization of deferred financing costs was $137,000, $272,000 and $779,000 for the years ended December 31, 2016, 2015 and 2014,
respectively. Unamortized deferred financing costs were approximately $1,708,000 and $462,000 as of December 31, 2016 and 2015,
respectively, and are recorded net of long-term debt in the consolidated balance sheets.
Derivative Instruments and Hedging
Activities
– Derivative transactions, which can include exchange-traded forward contracts and futures positions on
the New York Mercantile Exchange or the Chicago Board of Trade, are recorded on the balance sheet as assets and liabilities based
on the derivative’s fair value. Changes in the fair value of derivative contracts are recognized currently in income unless
specific hedge accounting criteria are met. If derivatives meet those criteria, and hedge accounting is elected, effective gains
and losses are deferred in accumulated other comprehensive income (loss) and later recorded together with the hedged item in consolidated
income (loss). For derivatives designated as a cash flow hedge, the Company formally documents the hedge and assesses the effectiveness
with associated transactions. The Company has designated and documented contracts for the physical delivery of commodity products
to and from counterparties as normal purchases and normal sales.
Revenue Recognition
–
The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable
and earned when there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable,
and collection is reasonably assured. The Company derives revenue primarily from sales of ethanol and related co-products. The
Company recognizes revenue when title transfers to its customers, which is generally upon the delivery of these products to a customer’s
designated location. These deliveries are made in accordance with sales commitments and related sales orders entered into either
verbally or in writing with customers. The sales commitments and related sales orders provide quantities, pricing and conditions
of sales. In this regard, the Company engages in three basic types of revenue generating transactions:
|
·
|
As a producer
. Sales as a producer consist of sales of the Company’s inventory produced
at its plants.
|
|
·
|
As a merchant
. Sales as a merchant consist of sales to customers through purchases from
third-party suppliers in which the Company may or may not obtain physical control of the ethanol or co-products, in which shipments
are directed from the Company’s suppliers to its terminals or direct to its customers but for which the Company accepts the
risk of loss in the transactions.
|
|
·
|
As an agent
. Sales as an agent consist of sales to customers through purchases from third-party
suppliers in which the risks and rewards of inventory ownership remain with third-party suppliers and the Company receives a predetermined
service fee under these transactions.
|
Revenue from sales of third-party ethanol
and co-products is recorded net of costs when the Company is acting as an agent between a customer and a supplier and gross when
the Company is a principal to the transaction. The Company recorded $1,604,000, $1,510,000 and $1,908,000 in net sales when acting
as an agent for the years ended December 31, 2016, 2015 and 2014, respectively. Several factors are considered to determine whether
the Company is acting as an agent or principal, most notably whether the Company is the primary obligor to the customer and whether
the Company has inventory risk and related risk of loss or whether the Company adds meaningful value to the supplier’s product
or service. Consideration is also given to whether the Company has latitude in establishing the sales price or has credit risk,
or both. When the Company acts as an agent, it recognizes revenue on a net basis or recognizes its predetermined fees and any associated
freight, based upon the amount of net revenues retained in excess of amounts paid to suppliers.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company records revenues based upon
the gross amounts billed to its customers in transactions where the Company acts as a producer or a merchant and obtains title
to ethanol and its co-products and therefore owns the product and any related, unmitigated inventory risk for the ethanol, regardless
of whether the Company actually obtains physical control of the product.
Shipping and Handling Costs
– Shipping and handling costs are classified as a component of cost of goods sold in the accompanying consolidated statements
of operations.
California Ethanol Producer Incentive
Program
– The Company participated in the California Ethanol Producer Incentive Program (“CEPIP”) through
the Pacific Ethanol West Plants located in California since the program’s inception in 2010. The CEPIP was a program to provide
funds to an eligible California facility—up to $0.25 per gallon of production—when current production corn crush spreads,
measured as the difference between specified ethanol and corn index prices, were less than prescribed levels determined by the
California Energy Commission. As of December 31, 2014, the program is no longer funded. For any month in which a payment was made
by the CEPIP, the Company would be required to reimburse the funds within the subsequent five years from each payment date, if
the corn crush spread exceeded $1.00 per gallon. In 2010 and 2011, the Company received an aggregate of $2,000,000 in CEPIP funds.
Since these funds were provided to subsidize low production costs and encourage eligible facilities to either continue production
or start up production in low margin environments, the Company recorded the proceeds as a credit to cost of goods sold in the periods
the funds were received. For the year ended December 31, 2014, the Company recorded aggregate amounts of $1,878,000 as cost of
goods sold in respect of the Company’s repayments under the CEPIP to the California Energy Commission.
Stock-Based Compensation
– The Company accounts for the cost of employee services received in exchange for the award of equity instruments based on
the fair value of the award, determined on the date of grant. The expense is to be recognized over the period during which an employee
is required to provide services in exchange for the award. The Company estimates forfeitures at the time of grant and makes revisions,
if necessary, in the second quarter of each year if actual forfeitures differ from those estimates. Based on historical experience,
the Company estimated future unvested forfeitures at 8% for the years ended December 31, 2016, 2015 and 2014. The Company recognizes
stock-based compensation expense as a component of selling, general and administrative expenses in the consolidated statements
of operations.
Impairment of Long-Lived Assets
– The Company assesses the impairment of long-lived assets, including property and equipment, internally developed software
and purchased intangibles subject to amortization, when events or changes in circumstances indicate that the fair value of assets
could be less than their net book value. In such event, the Company assesses long-lived assets for impairment by first determining
the forecasted, undiscounted cash flows the asset is expected to generate plus the net proceeds expected from the sale of the asset.
If this amount is less than the carrying value of the asset, the Company will then determine the fair value of the asset. An impairment
loss would be recognized when the fair value is less than the related asset’s net book value, and an impairment expense would
be recorded in the amount of the difference. Forecasts of future cash flows are judgments based on the Company’s experience
and knowledge of its operations and the industries in which it operates. These forecasts could be significantly affected by future
changes in market conditions, the economic environment, including inflation, and purchasing decisions of the Company’s customers.
Provision for Income Taxes
– Income taxes are accounted for under the asset and liability approach, where deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and liabilities, and are measured using enacted tax rates
and laws that are expected to be in effect when the differences reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company accounts for uncertainty in
income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the
tax position for recognition by determining whether it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount
which is more than 50% likely of being realized upon ultimate settlement. An uncertain tax position is considered effectively settled
on completion of an examination by a taxing authority if certain other conditions are satisfied. Should the Company incur interest
and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense, net and other
income (expense), net, respectively. Deferred tax assets and liabilities are classified as noncurrent in the Company’s consolidated
balance sheets.
The Company files a consolidated federal
income tax return. This return includes all wholly-owned subsidiaries as well as the Company’s pro-rata share of taxable
income from pass-through entities in which the Company owns less than 100%. State tax returns are filed on a consolidated, combined
or separate basis depending on the applicable laws relating to the Company and its subsidiaries.
Income (Loss) Per Share
–
Basic income (loss) per share is computed on the basis of the weighted-average number of shares of common stock outstanding during
the period. Preferred dividends are deducted from net income (loss) attributed to Pacific Ethanol, Inc. and are considered in the
calculation of income (loss) available to common stockholders in computing basic income (loss) per share. Common stock equivalents
to the preferred stock are considered participating securities and are also included in this calculation when dilutive.
The following tables compute basic and
diluted earnings per share (in thousands, except per share data):
|
|
Year Ended December 31, 2016
|
|
|
|
Income
Numerator
|
|
|
Shares
Denominator
|
|
|
Per-Share
Amount
|
|
Net income attributed to Pacific Ethanol
|
|
$
|
1,419
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
(1,269
|
)
|
|
|
|
|
|
|
|
|
Less: Allocated to participating securities
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
148
|
|
|
|
42,182
|
|
|
$
|
0.00
|
|
Add: Options
|
|
|
–
|
|
|
|
69
|
|
|
|
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
148
|
|
|
|
42,251
|
|
|
$
|
0.00
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
Loss
Numerator
|
|
|
Shares
Denominator
|
|
|
Per-Share
Amount
|
|
Net loss attributed to Pacific Ethanol
|
|
$
|
(18,786
|
)
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
(1,265
|
)
|
|
|
|
|
|
|
|
|
Basic and Diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders
|
|
$
|
(20,051
|
)
|
|
|
33,173
|
|
|
$
|
(0.60
|
)
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Year Ended December 31, 2014
|
|
|
|
Income
Numerator
|
|
|
Shares
Denominator
|
|
|
Per-Share
Amount
|
|
Net income attributed to Pacific Ethanol
|
|
$
|
21,289
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
(1,265
|
)
|
|
|
|
|
|
|
|
|
Less: Allocated to participating securities
|
|
|
(585
|
)
|
|
|
|
|
|
|
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
19,439
|
|
|
|
20,810
|
|
|
$
|
0.93
|
|
Add: Warrants
|
|
|
–
|
|
|
|
1,859
|
|
|
|
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
19,439
|
|
|
|
22,669
|
|
|
$
|
0.86
|
|
There were an aggregate of 704,000, 817,000
and 660,000 potentially dilutive shares from convertible securities outstanding as of December 31, 2016, 2015 and 2014, respectively.
These convertible securities were not considered in calculating diluted income (loss) per common share for the years ended December
31, 2016, 2015 and 2014 as their effect would be anti-dilutive.
Financial Instruments
–
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and accrued PE Op
Co. purchase are reasonable estimates of their fair values because of the short maturity of these items. The Company recorded its
warrant liabilities at fair value. The Company believes the carrying value of its long-term debt approximates fair value because
the interest rates on these instruments are variable, and are considered Level 2 fair value measurements.
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 management, 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.
Estimates and Assumptions
– The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant
estimates are required as part of determining the fair value of warrants, allowance for doubtful accounts, net realizable value
of inventory, estimated lives of property and equipment, long-lived asset impairments, valuation allowances on deferred income
taxes and the potential outcome of future tax consequences of events recognized in the Company’s financial statements or
tax returns, and the valuation of assets acquired and liabilities assumed as a result of business combinations. Actual results
and outcomes may materially differ from management’s estimates and assumptions.
Subsequent Events
–
Management evaluates, as of each reporting period, events or transactions that occur after the balance sheet date through the date
that the financial statements are issued for either disclosure or adjustment to the consolidated financial results.
Reclassifications
–
Certain prior year amounts have been reclassified to conform to the current presentation. Such reclassification had no effect on
the consolidated net income (loss) reported in the consolidated statements of operations.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
– In February 2016, the FASB issued new guidance on accounting for leases. Under the new guidance, lessees will be required
to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability,
which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted cash flow basis; and
(2) a “right of use” asset, which is an asset that represents the lessee’s right to use the specified asset for
the lease term. Under the new guidance, lessor accounting is largely unchanged, with some minor exceptions. Lessees will no longer
be provided with a source of off-balance sheet financing for other than short-term leases. The standard is effective for public
companies for annual reporting periods beginning after December 15, 2019, and for interim periods beginning after December 15,
2020. Early adoption is permitted. The Company has several operating leases that may be impacted by this guidance. The Company
is currently evaluating the impact of the adoption of this accounting standard on its consolidated results of operations and financial
condition.
In May 2014, the FASB issued new
guidance on the recognition of revenue. The guidance states that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The standard is effective for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period. The Company’s adoption begins with the first
fiscal quarter of fiscal year 2018. In March and April 2016, the FASB issued further revenue recognition guidance amending
principal vs. agent considerations regarding whether an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods and services. The Company is currently evaluating the impact of the adoption of this accounting
standard update on its consolidated results of operations and financial condition. The Company has not yet selected a
transition method, nor has it determined the effect of the standard on its ongoing financial reporting. The Company has begun
the process in its evaluation and believes it is following an appropriate timeline to allow for proper recognition,
presentation and disclosure effective beginning in the year ending December 31, 2018.
In April 2015, the FASB issued new guidance
on presentation of debt issuance costs. Historically, entities have presented debt issuance costs as an asset. Under the new guidance,
effective for fiscal years beginning after December 31, 2015, debt issuance costs have been reclassified as a reduction of the
carrying amount of the related debt balance. The guidance does not change any of the Company’s other debt recognition or
disclosure. On January 1, 2016, the Company adopted this guidance for all periods presented on the consolidated balance sheets.
The impact of the adoption was a reclassification of other assets to long-term debt, net of current portion, of $1,708,000 and
$462,000 as of December 31, 2016 and 2015, respectively.
In July 2015, the FASB issued new guidance
on simplifying the measurement of inventory. Under the new guidance, entities are required to measure most inventory at the lower
of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the
lower of cost or market. This guidance is effective prospectively for fiscal years beginning after December 15, 2016. Early adoption
is permitted. The Company adopted the guidance in 2015 with no material impact on its results of operations or financial condition.
In September 2015, the FASB issued new
guidance on business combinations, simplifying the accounting for measurement-period adjustments. Under the new guidance, an acquirer
must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in
which the adjustment amounts are determined. The guidance also requires acquirers to present separately on the face of the statement
of operations or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have
been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition
date. The guidance is effective for fiscal years beginning after December 31, 2015, applied prospectively. The Company will apply
the guidance to future acquisitions.
In April 2016, the FASB issued new guidance
to reduce the complexity of certain aspects of accounting for employee share-based payment transactions. Currently, accruals of
compensation costs are based on an estimated forfeiture rate. The new guidance allows an entity to make an entity-wide accounting
policy election to either continue using an estimate of forfeitures or account for forfeitures only when they occur. The guidance
is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company
is currently evaluating the impact of the guidance on its consolidated results of operations and financial condition.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
PACIFIC ETHANOL CENTRAL PLANTS.
|
PE Central
On July 1, 2015, the Company acquired 100%
of PE Central and, therefore, the Pacific Ethanol Central Plants, through a stock-for-stock merger. The Company issued an aggregate
of 17.8 million shares of common stock and non-voting common stock for 100% of the outstanding shares of common stock of PE Central.
The common stock and non-voting common stock issued as consideration had an aggregate fair value of $174.6 million, based on the
closing market price of the Company’s common stock on the acquisition date.
The Company believes the acquisition of
PE Central resulted in a number of synergies and strategic advantages. The Company believes the acquisition spread commodity and
basis price risks across diverse markets and products, assisting in its efforts to optimize margin management; improved its hedging
opportunities with a greater correlation to the liquid physical and paper markets in Chicago; and increased its flexibility and
alternatives in feedstock procurement for its Midwestern and Western production facilities. The acquisition also expanded the Company’s
marketing reach into new markets and extended its mix of co-products. The Company believes the acquisition enabled it to have deeper
market insight and engagement in major ethanol and feed markets outside the Western United States, thereby improving pricing opportunities;
allowed the Company to establish access to markets in 48 states for ethanol sales and access many markets with ethanol and co-product
sales reaching domestic and international customers; and enabled it to use its more diverse mix of co-products to generate strong
co-product returns.
The Company recognized the following allocation
of the purchase price at fair values. The Company included in the following allocation its estimated fair values for certain operating
lease agreements and open commitments. The fair-value determination of long-term debt was based on the interest rate environment
at the acquisition date. Based on the final allocation, the Company recorded an immaterial bargain purchase gain on the acquisition.
The purchase price
consideration allocation is as follows (in thousands):
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,756
|
|
Accounts receivable
|
|
|
10,430
|
|
Inventory
|
|
|
29,483
|
|
Other current assets
|
|
|
8,304
|
|
Total current assets
|
|
|
66,973
|
|
Property and equipment
|
|
|
312,781
|
|
Net deferred tax assets
|
|
|
12,159
|
|
Other assets
|
|
|
750
|
|
Total assets acquired
|
|
$
|
392,663
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
27,780
|
|
Long-term debt - revolvers
|
|
|
13,721
|
|
Long-term debt - term debt
|
|
|
142,744
|
|
Pension plan liabilities
|
|
|
8,518
|
|
Other non-current liabilities
|
|
|
25,327
|
|
Total liabilities
|
|
$
|
218,090
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
174,573
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The contractual amount due on the accounts
receivable acquired was $10.8 million, of which $0.4 million is expected to be uncollectible. In accounting for the acquisition,
the Company recorded $3.7 million in other noncurrent liabilities as a litigation contingency related to certain litigation matters
for amounts that were probable and estimable as of the acquisition date. Subsequent to the acquisition date, the Company settled
for $2.1 million certain litigation for which liabilities were recorded. Certain of these settlements were made after the measurement
period, and as such the Company recorded a gain of $1.1 million for the year ended December 31, 2016 in selling, general and administrative
expenses in the accompanying consolidated statements of operations. See Note 15 for further details.
The following table presents unaudited pro forma financial information
assuming the acquisition occurred on January 1, 2014 (in thousands except per share data).
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Net sales – pro forma
|
|
$
|
1,484,676
|
|
|
$
|
1,695,440
|
|
Cost of goods sold – pro forma
|
|
$
|
1,469,512
|
|
|
$
|
1,528,387
|
|
Selling, general and administrative expenses – pro forma
|
|
$
|
34,735
|
|
|
$
|
47,796
|
|
Net income (loss) – pro forma
|
|
$
|
(34,136
|
)
|
|
$
|
12,596
|
|
Diluted net income (loss) per share – pro forma
|
|
$
|
(0.81
|
)
|
|
$
|
0.31
|
|
Diluted weighted-average shares – pro forma
|
|
|
42,053
|
|
|
|
40,428
|
|
The effects of the initial step-up of inventories
and open contracts in the aggregate of $8.7 million recorded during 2015 were excluded in the above amounts for 2015 and instead
recorded for the year 2014 as if the acquisition had occurred on January 1, 2014. For the six months ended December 31, 2015, Aventine
contributed $299.0 million in net sales and $16.3 million in pre-tax loss. For the year ended December 31, 2016, Aventine contributed
$650.1 million in net sales and $2.1 million in pre-tax income. For the years ended December 31, 2015 and 2014, the Company recorded
approximately $1.4 million and $0.7 million, respectively, in costs associated with the Aventine acquisition. These costs are reflected
in selling, general and administrative expenses on the Company’s consolidated statements of operations, but were excluded
from the amounts above.
Pacific Aurora
On December 12, 2016, PE Central entered
into a contribution agreement (the “Contribution Agreement”) with ACEC under which (i) PE Central agreed to contribute
to Pacific Aurora 100% of the equity interests of its wholly-owned subsidiaries, Pacific Ethanol Aurora East, LLC (“AE”)
and Pacific Ethanol Aurora West, LLC (“AW”), which own the Company’s Aurora East and Aurora West ethanol plants,
respectively, in exchange for an 88.15% ownership interest in Pacific Aurora, and (ii) ACEC agreed to contribute to Pacific Aurora
its grain elevator adjacent to the Aurora East and Aurora West properties and related grain handling assets, including the outer
rail loop and the real property on which they are located, in exchange for an 11.85% ownership interest in Pacific Aurora.
On December 15, 2016, concurrent with the
closing of the contribution transaction, under the terms of a Unit Purchase Agreement, PE Central sold a 14.22% ownership interest
in Pacific Aurora to ACEC for $30.0 million in cash. Following the closing under the Contribution Agreement and the Unit Purchase
Agreement, PE Central owned 73.93% of Pacific Aurora and ACEC owned 26.07% of Pacific Aurora.
The Company has consolidated 100% of the
results of Pacific Aurora and recorded the amount attributed to ACEC as noncontrolling interests under the voting rights model.
Since the Company had control of AE and AW prior to forming Pacific Aurora, there was no gain or loss recorded on the contribution
and ultimate sale of a portion of the Company’s interests in Pacific Aurora. ACEC contributed $16.5 million in assets at
fair market value and paid $30.0 million in cash for its additional ownership interests. A noncontrolling interest was recognized
to reflect ACEC’s proportional ownership interest multiplied by the book value of Pacific Aurora’s net assets. As a
result, the Company recorded $16.2 million as additional paid-in capital attributed to the difference between Pacific Aurora’s
book value and the contribution and sale.
On December 15, 2016, the Company entered
into a working capital maintenance agreement with Pacific Aurora’s lender, under which the Company agreed to contribute
capital to Pacific Aurora from time to time, if needed, in an amount up to $15.0 million to ensure that Pacific Aurora maintains
the minimum working capital thresholds required in its credit agreement as further discussed in Note 9. In addition, dividends
from Pacific Aurora to its members are limited to 40% of Pacific Aurora’s annual net income.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying values and classification
of assets and liabilities of Pacific Aurora as of December 31, 2016 were as follows (in thousands):
Cash and cash equivalents
|
|
$
|
1,453
|
|
Accounts receivable
|
|
|
16,804
|
|
Inventory
|
|
|
3,837
|
|
Other current assets
|
|
|
77
|
|
Total current assets
|
|
|
22,171
|
|
Property and equipment
|
|
|
115,759
|
|
Other assets
|
|
|
1,387
|
|
Total assets
|
|
$
|
139,317
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
20,152
|
|
Other current liabilities
|
|
|
2,045
|
|
Long-term debt outstanding, net
|
|
|
621
|
|
Total liabilities
|
|
$
|
22,818
|
|
|
3.
|
PACIFIC ETHANOL WEST PLANTS.
|
Since December 31, 2013, when the Company
obtained a 91% ownership in PE Op Co, it purchased an additional 5% of the ownership interests in PE Op Co. in September 2014 for
$6,000,000 in cash and purchased the remaining 4% ownership interest in PE Op Co. in May 2015, bringing its ownership of PE Op
Co. to 100%.
Because the Company had a controlling financial
interest in PE Op Co. at the time of these purchases, it did not record any gains or losses, but instead reduced the amount of
noncontrolling interest on the consolidated balance sheets by an aggregate of $4,388,000 and $5,921,000 and recorded the difference
of $560,000 and $79,000 for the years ended December 31, 2015 and 2014, respectively, which represents the fair value of these
purchases above the price paid by the Company, to additional paid-in capital on the consolidated balance sheets. Further, in 2014,
the Company recorded a deferred tax liability related to its cumulative adjustments to additional paid-in capital of $10,244,000.
|
4.
|
INTERCOMPANY AGREEMENTS.
|
The Company, directly or through one of
its subsidiaries, has entered into the following management and marketing agreements:
Affiliate Management Agreement
– Pacific Ethanol entered into an Affiliate Management Agreement (“AMA”) with its operating subsidiaries, namely
Kinergy, PAP, the Pacific Ethanol West Plants and the Pacific Ethanol Central Plants, effective July 1, 2015, and with Pacific
Aurora, effective December 15, 2016, under which Pacific Ethanol agreed to provide operational and administrative and staff support
services. These services generally include, but are not limited to, administering the subsidiaries’ compliance with their
credit agreements and performing billing, collection, record keeping and other administrative and ministerial tasks. Pacific Ethanol
agreed to supply all labor and personnel required to perform its services under the AMA, including the labor and personnel required
to operate and maintain the production facilities and marketing activities. These services are billed at a predetermined amount
per subsidiary each month plus out of pocket costs such as employee wages and benefits.
The AMAs have an initial term of one year
and automatic successive one year renewal periods. In addition to typical conditions for a party to terminate the agreement prior
to its expiration, Pacific Ethanol may terminate the AMA, and any subsidiary may terminate the AMA, at any time by providing at
least 90 days prior notice of such termination.
Pacific Ethanol recorded
revenues of approximately $12,968,000, $9,857,000 and $12,731,000 related to the AMAs in place for the years ended December 31,
2016, 2015 and 2014, respectively. These amounts have been eliminated upon consolidation.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ethanol Marketing
Agreements
– Kinergy entered into separate ethanol marketing agreements with each of the Company’s eight plants,
which granted it the exclusive right to purchase, market and sell the ethanol produced at those facilities. Under the terms of
the ethanol marketing agreements,
within ten days after delivering ethanol
to Kinergy, an amount is paid to Kinergy equal to (i) the estimated purchase price payable by the third-party purchaser of the
ethanol, minus (ii) the estimated amount of transportation costs to be incurred, minus (iii) the estimated incentive fee payable
to Kinergy, which equals 1% of the aggregate third-party purchase price, provided that the marketing fee shall not be less than
$0.015 per gallon and not more than $0.0225 per gallon.
Each of the ethanol marketing agreements had an initial term of
one year and successive one year renewal periods at the option of the individual plant.
Kinergy recorded revenues
of approximately $8,029,000, $5,262,000 and $3,986,000 related to the ethanol marketing agreements for the years ended December
31, 2016, 2015 and 2014, respectively. These amounts have been eliminated upon consolidation.
Corn Procurement and Handling Agreements
– PAP entered into separate corn procurement and handling agreements with each of the Company’s plants, with the exception
of the Pacific Aurora facilities, which terminated its agreements with PAP on December 15, 2016. Under the terms of the corn procurement
and handling agreements, each facility appointed PAP as its exclusive agent to solicit, negotiate, enter into and administer, on
its behalf, corn supply arrangements to procure the corn necessary to operate its facility. PAP also provides grain handling services
including, but not limited to, receiving, unloading and conveying corn into the facility’s storage and, in the case of whole
corn delivered, processing and hammering the whole corn.
Under these agreements,
PAP receives a fee of $0.045 per bushel of corn delivered to each facility as consideration for its procurement and handling services,
payable monthly. Effective December 15, 2016, this fee is $0.03 per bushel of corn. Each corn procurement and handling agreement
had an initial term of one year and successive one year renewal periods at the option of the individual plant. PAP recorded revenues
of approximately $4,386,000, $2,910,000 and $2,989,000 related to the corn procurement and handling agreements for the years ended
December 31, 2016, 2015 and 2014, respectively. These amounts have been eliminated upon consolidation.
Effective December 15,
2016, each Pacific Aurora facility entered into a new grain procurement agreement with ACEC. Under this agreement, ACEC receives
a fee of $0.03 per bushel of corn delivered to each facility as consideration for its procurement and handling services, payable
monthly. The grain procurement agreement has an initial term of one year and successive one year renewal periods at the option
of the individual plant. Pacific Aurora recorded expenses of approximately $107,000 for the period from December 15, 2016 to December
31, 2016. These amounts have not been eliminated upon consolidation as they are with a related but unconsolidated third-party.
Distillers Grains
Marketing Agreements
– PAP entered into separate distillers grains marketing agreements with each of the Company’s
plants, which grant PAP the exclusive right to market, purchase and sell the various co-products produced at each facility. Under
the terms of the distillers grains marketing agreements,
within ten days
after a plant delivers co-products to PAP, the plant is paid an amount equal to (i) the estimated purchase price payable by the
third-party purchaser of the co-products, minus (ii) the estimated amount of transportation costs to be incurred, minus (iii)
the estimated amount of fees and taxes payable to governmental authorities in connection with the tonnage of the co-products produced
or marketed, minus (iv) the estimated incentive fee payable to the Company, which equals (a) 5% of the aggregate third-party purchase
price for wet corn gluten feed, wet distillers grains, corn condensed distillers solubles and distillers grains with solubles,
or (b) 1% of the aggregate third-party purchase price for corn gluten meal, dry corn gluten feed, dry distillers grains, corn
germ and corn oil.
Each distillers grains marketing agreement had an initial term of one year and successive one year renewal
periods at the option of the individual plant.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAP recorded revenues
of approximately $6,047,000, $4,438,000 and $4,788,000 related to the distillers grains marketing agreements for the years ended
December 31, 2016, 2015 and 2014, respectively. These amounts have been eliminated upon consolidation.
The Company reports its financial and operating
performance in two segments: (1) ethanol production, which includes the production and sale of ethanol and co-products, with all
of the Company’s production facilities aggregated, and (2) marketing and distribution, which includes marketing and merchant
trading for Company-produced ethanol and co-products and third-party ethanol.
Income before provision for income taxes
includes management fees charged by Pacific Ethanol to the segment. The production segment incurred $9,968,000, $5,957,000 and
$8,776,000 in management fees for the years ended December 31, 2016, 2015 and 2014, respectively. The marketing and distribution
segment incurred $3,000,000, $3,900,000 and $3,900,000 in management fees for the years ended December 31, 2016, 2015 and 2014,
respectively. Corporate activities include selling, general and administrative expenses, consisting primarily of corporate employee
compensation, professional fees and overhead costs not directly related to a specific operating segment.
During the normal course of business, the
segments do business with each other. The preponderance of this activity occurs when the Company’s marketing segment markets
ethanol produced by the production segment for a marketing fee, as discussed in Note 4. These intersegment activities are considered
arms’-length transactions. Consequently, although these transactions impact segment performance, they do not impact the Company’s
consolidated results since all revenues and corresponding costs are eliminated in consolidation.
Capital expenditures are substantially
all incurred at the Company’s production segment.
The following tables set forth certain
financial data for the Company’s operating segments (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Ethanol Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
1,045,807
|
|
|
$
|
710,201
|
|
|
$
|
562,388
|
|
Intersegment net sales
|
|
|
1,169
|
|
|
|
–
|
|
|
|
–
|
|
Total production segment net sales
|
|
|
1,046,976
|
|
|
|
710,201
|
|
|
|
562,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
|
578,951
|
|
|
|
480,975
|
|
|
|
545,024
|
|
Intersegment net sales
|
|
|
8,029
|
|
|
|
5,262
|
|
|
|
3,986
|
|
Total marketing and distribution net sales
|
|
|
586,980
|
|
|
|
486,237
|
|
|
|
549,010
|
|
Intersegment eliminations
|
|
|
(9,198
|
)
|
|
|
(5,262
|
)
|
|
|
(3,986
|
)
|
Net sales as reported
|
|
$
|
1,624,758
|
|
|
$
|
1,191,176
|
|
|
$
|
1,107,412
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
1,018,181
|
|
|
$
|
719,833
|
|
|
$
|
473,598
|
|
Marketing and distribution
|
|
|
575,921
|
|
|
|
476,410
|
|
|
|
537,010
|
|
Intersegment eliminations
|
|
|
(21,176
|
)
|
|
|
(12,477
|
)
|
|
|
(11,681
|
)
|
Cost of goods sold as reported
|
|
$
|
1,572,926
|
|
|
$
|
1,183,766
|
|
|
$
|
998,927
|
|
Income (loss) before provision for income taxes:
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
(6,882
|
)
|
|
$
|
(32,723
|
)
|
|
$
|
72,278
|
|
Marketing and distribution
|
|
|
4,517
|
|
|
|
3,200
|
|
|
|
6,068
|
|
Corporate activities
|
|
|
2,910
|
|
|
|
616
|
|
|
|
(37,207
|
)
|
|
|
$
|
545
|
|
|
$
|
(28,907
|
)
|
|
$
|
41,139
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
34,528
|
|
|
$
|
23,091
|
|
|
$
|
12,509
|
|
Marketing and distribution
|
|
|
3
|
|
|
|
151
|
|
|
|
551
|
|
Corporate activities
|
|
|
910
|
|
|
|
390
|
|
|
|
126
|
|
|
|
$
|
35,441
|
|
|
$
|
23,632
|
|
|
$
|
13,186
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
20,794
|
|
|
$
|
11,969
|
|
|
$
|
7,048
|
|
Marketing and distribution
|
|
|
1,404
|
|
|
|
625
|
|
|
|
566
|
|
Corporate activities
|
|
|
208
|
|
|
|
–
|
|
|
|
1,824
|
|
|
|
$
|
22,406
|
|
|
$
|
12,594
|
|
|
$
|
9,438
|
|
The following table sets forth the Company’s
total assets by operating segment (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
542,688
|
|
|
$
|
535,583
|
|
Marketing and distribution
|
|
|
146,356
|
|
|
|
107,499
|
|
Corporate assets
|
|
|
19,194
|
|
|
|
31,598
|
|
|
|
$
|
708,238
|
|
|
$
|
674,680
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
6.
|
PROPERTY AND EQUIPMENT.
|
Property and equipment consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Facilities and plant equipment
|
|
$
|
530,735
|
|
|
$
|
501,800
|
|
Land
|
|
|
7,771
|
|
|
|
7,541
|
|
Other equipment, vehicles and furniture
|
|
|
9,714
|
|
|
|
9,084
|
|
Construction in progress
|
|
|
29,393
|
|
|
|
23,579
|
|
|
|
|
577,613
|
|
|
|
542,004
|
|
Accumulated depreciation
|
|
|
(112,423
|
)
|
|
|
(77,044
|
)
|
|
|
$
|
465,190
|
|
|
$
|
464,960
|
|
Depreciation expense,
including idled facilities, was $35,441,000, $23,524,000 and $12,712,000 for the years ended December 31, 2016, 2015 and 2014,
respectively. One of the Pacific Ethanol West Plants was idled for four months in 2014, as to which $699,000 of depreciation expense
was recorded.
For the year ended December
31, 2015, the Company recorded an impairment charge of $1,970,000 related to the abandonment of certain accounting and information
technology systems following the integration of its PE Central facilities.
For the year ended December
31, 2016, the Company capitalized interest of $1,307,000 related to its capital investment activities. Of this amount, approximately
$640,000 related to project activity in the prior year, which the Company considered to be immaterial; therefore, this amount was
corrected on a cumulative basis in the current period.
Intangible assets consisted of the following
(in thousands):
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
Useful
Life
(Years)
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
Value
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
Value
|
|
Non-Amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kinergy tradename
|
|
|
|
|
|
$
|
2,678
|
|
|
$
|
-
|
|
|
$
|
2,678
|
|
|
$
|
2,678
|
|
|
$
|
-
|
|
|
|
2,678
|
|
Amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
10
|
|
|
|
4,741
|
|
|
|
(4,741
|
)
|
|
|
–
|
|
|
|
4,741
|
|
|
|
(4,741
|
)
|
|
|
–
|
|
Total intangible assets, net
|
|
|
|
|
|
$
|
7,419
|
|
|
$
|
(4,741
|
)
|
|
$
|
2,678
|
|
|
$
|
7,419
|
|
|
$
|
(4,741
|
)
|
|
|
2,678
|
|
Kinergy Tradename
–
The Company recorded a tradename valued at $2,678,000 in 2006 as part of its acquisition of Kinergy. The Company determined that
the Kinergy tradename has an indefinite life and therefore, rather than being amortized, will be tested annually for impairment.
The Company did not record any impairment of the Kinergy tradename for the years ended December 31, 2016, 2015 and 2014.
Customer Relationships
–
The Company recorded customer relationships valued at $4,741,000 as part of its acquisition of Kinergy. The Company established
a useful life of ten years for these customer relationships. Amortization expense associated with intangible assets totaled $0,
$108,000 and $474,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The business and activities of the Company
expose it to a variety of market risks, including risks related to changes in commodity prices. The Company monitors and manages
these financial exposures as an integral part of its risk management program. This program recognizes the unpredictability of financial
markets and seeks to reduce the potentially adverse effects that market volatility could have on operating results.
Commodity Risk
–
Cash Flow Hedges
– The Company uses derivative instruments to protect cash flows from fluctuations caused by volatility
in commodity prices for periods of up to twelve months in order to protect gross profit margins from potentially adverse effects
of market and price volatility on ethanol sale and purchase commitments where the prices are set at a future date and/or if the
contracts specify a floating or index-based price for ethanol. In addition, the Company hedges anticipated sales of ethanol to
minimize its exposure to the potentially adverse effects of price volatility. These derivatives may be designated and documented
as cash flow hedges and effectiveness is evaluated by assessing the probability of the anticipated transactions and regressing
commodity futures prices against the Company’s purchase and sales prices. Ineffectiveness, which is defined as the degree
to which the derivative does not offset the underlying exposure, is recognized immediately in cost of goods sold. For the years
ended December 31, 2016, 2015 and 2014, the Company did not designate any of its derivatives as cash flow hedges.
Commodity Risk – Non-Designated
Hedges
– The Company uses derivative instruments to lock in prices for certain amounts of corn and ethanol by entering
into exchange-traded forward contracts for those commodities. These derivatives are not designated for special hedge accounting
treatment. The changes in fair value of these contracts are recorded on the balance sheet and recognized immediately in cost of
goods sold. The Company recognized net losses of $1,984,000, $542,000 and $808,000 as the change in the fair value of these contracts
for the years ended December 31, 2016, 2015 and 2014, respectively.
Non Designated Derivative Instruments
– The classification and amounts of the Company’s derivatives not designated as hedging instruments are as follows
(in thousands):
|
|
As of December 31, 2016
|
|
|
|
Assets
|
|
|
|
|
Liabilities
|
|
|
Type of Instrument
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
Commodity contracts
|
|
Derivative assets
|
|
$
|
978
|
|
|
Derivative liabilities
|
|
$
|
4,115
|
|
|
|
|
|
$
|
978
|
|
|
|
|
$
|
4,115
|
|
|
|
As of December 31, 2015
|
|
|
|
Assets
|
|
|
|
|
Liabilities
|
|
|
Type of Instrument
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
Commodity contracts
|
|
Derivative assets
|
|
$
|
2,081
|
|
|
Derivative liabilities
|
|
$
|
1,848
|
|
|
|
|
|
$
|
2,081
|
|
|
|
|
$
|
1,848
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The classification and amounts of the Company’s
recognized gains (losses) for its derivatives not designated as hedging instruments are as follows (in thousands):
|
|
|
|
Realized Gains (Losses)
|
|
|
|
|
|
For the Years Ended December 31,
|
|
Type of Instrument
|
|
Statements of Operations Location
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
1,386
|
|
|
$
|
(338
|
)
|
|
$
|
(1,144
|
)
|
|
|
|
|
$
|
1,386
|
|
|
$
|
(338
|
)
|
|
$
|
(1,144
|
)
|
|
|
|
|
|
Unrealized Gains (Losses)
|
|
|
|
|
|
For the Years Ended December 31,
|
|
Type of Instrument
|
|
Statements of Operations Location
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
(3,370
|
)
|
|
$
|
(204
|
)
|
|
$
|
336
|
|
|
|
|
|
$
|
(3,370
|
)
|
|
$
|
(204
|
)
|
|
$
|
336
|
|
Long-term borrowings are summarized as
follows (in thousands):
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Kinergy line of credit
|
|
$
|
49,862
|
|
|
$
|
61,003
|
|
Pekin term loan
|
|
|
64,000
|
|
|
|
–
|
|
Pekin revolving loan
|
|
|
32,000
|
|
|
|
–
|
|
Pacific Aurora line of credit
|
|
|
1,000
|
|
|
|
–
|
|
Parent notes payable
|
|
|
55,000
|
|
|
|
–
|
|
PE Central term debt
|
|
|
–
|
|
|
|
162,622
|
|
|
|
|
201,862
|
|
|
|
223,625
|
|
Less unamortized debt discount
|
|
|
(1,626
|
)
|
|
|
(2,299
|
)
|
Less unamortized debt financing costs
|
|
|
(1,708
|
)
|
|
|
(462
|
)
|
Less short-term portion
|
|
|
(10,500
|
)
|
|
|
(17,003
|
)
|
Long-term debt
|
|
$
|
188,028
|
|
|
$
|
203,861
|
|
Kinergy Line of
Credit
– Kinergy has an operating line of credit for an aggregate amount of up to $85,000,000 with an “accordion”
feature to further increase the maximum credit under the credit facility to up to $100,000,000 in minimum increments of $5,000,000
each, upon Kinergy’s request, but subject to the consent of the agent and the lenders in their sole discretion. The line
of credit matures on December 31, 2020. The credit facility is based on Kinergy’s eligible accounts receivable and inventory
levels, subject to certain concentration reserves. The credit facility is subject to certain other sublimits, including inventory
loan limits. Interest accrues under the line of credit at a rate equal to (i) the three-month London Interbank Offered Rate
(“LIBOR”), plus (ii) a specified applicable margin ranging between 1.75% and 2.75%. The applicable margin was 1.75%,
for a total rate of 2.75% at December 31, 2016. The credit facility’s monthly unused line fee is an annual rate equal to
0.25% to 0.375% depending on the average daily principal balance during the immediately preceding month. Payments that may be
made by Kinergy to the Company as reimbursement for management and other services provided by the Company to Kinergy are limited
under the terms of the credit facility to $1,500,000 per fiscal quarter.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The credit facility also includes the accounts
receivable of PAP as additional collateral. Payments that may be made by PAP to the Company as reimbursement for management and
other services provided by the Company to PAP are limited under the terms of the credit facility to $500,000 per fiscal quarter.
If Kinergy and PAP’s monthly excess
borrowing availability falls below certain thresholds, they are collectively required to maintain a fixed-charge coverage ratio
(calculated as a twelve-month rolling EBITDA divided by the sum of interest expense, capital expenditures, principal payments of
indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period) of at least 2.0 and are
prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness).
Kinergy and PAP’s
obligations under the credit facility are secured by a first-priority security interest in all of their assets in favor of the
lender. Pacific Ethanol has guaranteed all of Kinergy’s obligations under the line of credit. As of December 31, 2016, Kinergy
had an available borrowing base under the credit facility of $33,473,000.
Pekin Credit Facilities
– On December 15, 2016, the Company’s wholly-owned subsidiary, Pacific Ethanol Pekin, Inc. (“Pekin”), entered
into a Credit Agreement (the “Pekin Credit Agreement”) with 1
st
Farm Credit Services, PCA and CoBank, ACB
(“CoBank”). On December 15, 2016, under the terms of the Pekin Credit Agreement, Pekin borrowed from 1
st
Farm Credit Services $64.0 million under a term loan facility that matures on August 20, 2021 (the “Pekin Term Loan”)
and $32.0 million under a revolving term loan facility that matures on February 1, 2022 (the “Pekin Revolving Loan”
and, together with the Pekin Term Loan, the “Pekin Credit Facility”). The Pekin Credit Facility is secured by a first-priority
security interest in all of Pekin’s assets under the terms of a Security Agreement, dated December 15, 2016, by and between
Pekin and CoBank (the “Pekin Security Agreement”). Interest accrues under the Pekin Credit Facility at an annual rate
equal to the 30-day LIBOR plus 3.75%, payable monthly. Pekin is required to make quarterly principal payments in the amount of
$3.5 million on the Pekin Term Loan beginning on May 20, 2017 and a principal payment of $4.5 million at maturity on August 20,
2021. Pekin is required to pay monthly in arrears a fee on any unused portion of the Pekin Revolving Loan at a rate of 0.75% per
annum. Prepayment of the Pekin Credit Facility is subject to a prepayment penalty. Under the terms of the Pekin Credit Agreement,
Pekin is required to maintain not less than $20.0 million in working capital and an annual debt coverage ratio of not less than
1.25 to 1.0. The Pekin Credit Agreement contains a variety of affirmative covenants, negative covenants and events of default which
are customary for transactions of this type.
Pacific Aurora Line of Credit
– On December 15, 2016, Pacific Aurora entered into a credit agreement (the “Pacific Aurora Credit Agreement”)
with CoBank. Under the terms of the Pacific Aurora Credit Agreement, Pacific Aurora may borrow up to $30.0 million under a revolving
term loan facility from CoBank that matures on February 1, 2022 (the “Pacific Aurora Credit Facility”). The Pacific
Aurora Credit Facility is secured by a first-priority security interest in all of Pacific Aurora’s assets under the terms
of a Security Agreement, dated December 15, 2016, by and among Pacific Aurora and CoBank (the “Pacific Aurora Security Agreement”).
Borrowing availability under the Pacific Aurora Credit Facility automatically declines by $2.5 million on the first day of each
June and December beginning on June 1, 2017 through and including December 1, 2020. Interest accrues under the Pacific Aurora
Credit Facility at an annual rate equal to the 30-day LIBOR plus 4.0%, payable monthly. Pacific Aurora is required to pay monthly
in arrears a fee on any unused portion of the Pacific Aurora Credit Facility at a rate of 0.75% per annum. Prepayment of the Pacific
Aurora Credit Facility is subject to a prepayment penalty. Under the terms of the Pacific Aurora Credit Agreement, Pacific Aurora
is required to maintain not less than $22.5 million in working capital through June 30, 2017, not less than $24.0 million in working
capital after June 30, 2017, and an annual debt coverage ratio of not less than 1.5 to 1.0. At December 31, 2016, Pacific Aurora
had $1,000,000 outstanding under the credit facility and $29,000,000 available for borrowing under the facility.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pacific Ethanol, Inc. Notes Payable
– On December 12, 2016, Pacific Ethanol entered into a Note Purchase Agreement (the “Note Purchase Agreement”)
with five accredited investors (the “Investors”). On December 15, 2016, under the terms of the Note Purchase Agreement,
Pacific Ethanol sold $55.0 million in aggregate principal amount of its senior secured notes (the “Notes”) to the Investors
in a private offering (the “Note Transaction”) for aggregate gross proceeds of 97% of the principal amount of the Notes
sold. The Notes mature on December 15, 2019 (the “Maturity Date”). Interest on the Notes accrues at a rate equal to
(i) the greater of 1% and the three-month LIBOR, plus 7.0% from the closing through December 14, 2017, (ii) the greater of 1% and
LIBOR, plus 9% between December 15, 2017 and December 14, 2018, and (iii) the greater of 1% and LIBOR plus 11% between December
15, 2018 and the Maturity Date. The interest rate increases by an additional 2% per annum above the interest rate otherwise applicable
upon the occurrence and during the continuance of an event of default until such event of default has been cured. Interest is payable
in cash in arrears on the 15th calendar day of each March, June, September and December beginning on March 15, 2017. Pacific Ethanol
is required to pay all outstanding principal and any accrued and unpaid interest on the Notes on the Maturity Date. Pacific Ethanol
may, at its option, prepay the outstanding principal amount of the Notes at any time without premium or penalty. The Notes contain
a variety of events of default which are typical for transactions of this type. The payments due under the Notes will rank senior
to all other indebtedness of Pacific Ethanol, other than permitted senior indebtedness. The Notes contain a variety of obligations
on the part of Pacific Ethanol not to engage in certain activities, which are typical for transactions of this type, including
that (i) Pacific Ethanol and certain of its subsidiaries will not incur other indebtedness, except for certain permitted indebtedness,
(ii) Pacific Ethanol and certain of its subsidiaries will not redeem, repurchase or pay any dividend or distribution on their respective
capital stock without the prior consent of the holders of the Notes holding 66-2/3% of the aggregate principal amount of the Notes,
other than certain permitted distributions, (iii) Pacific Ethanol and certain of its subsidiaries will not sell, lease, assign,
transfer or otherwise dispose of any assets of Pacific Ethanol or any such subsidiary, except for certain permitted dispositions
(including the sales of inventory or receivables in the ordinary course of business), and (iv) Pacific Ethanol and certain of its
subsidiaries will not issue any capital stock or membership interests for any purpose other than to pay down a portion of all of
the amounts owed under the Notes and in connection with Pacific Ethanol’s stock incentive plans. The Notes are secured by
a first-priority security interest in the equity interest held by Pacific Ethanol in its wholly-owned subsidiary, PE Op. Co., which
indirectly owns the Company’s plants located on the West Coast.
Pacific Ethanol
West Plants’ Term Debt
– The Pacific Ethanol West Plants’ debt as of December 31, 2015 consisted of a
$17,003,000 tranche A-1 term loan which was to mature in June 2016. On February 26, 2016, the Company retired the $17,003,000 outstanding
balance by purchasing the lender’s position for cash at par without any prepayment penalty. The purchase increased the amount
of the term debt held by Pacific Ethanol from $41,763,000 at December 31, 2015 to $58,766,000 at December 31, 2016, which is eliminated
upon consolidation, as the Company has no continuing obligations to any third-party lender under the credit agreements associated
with this term debt.
Pacific Ethanol
Central Plants’ Term Debt
–On July 1, 2015, upon effectiveness of the PE Central acquisition, PE Central became
a wholly-owned subsidiary of the Company and, on a consolidated basis, the combined company became obligated with respect to the
Pacific Ethanol Central Plants’ term loan and revolving credit facilities. In connection with the Company’s allocation
of purchase price, the debt was recorded at $142,744,000, net of a discount of $2,875,000. The term loan facility was to mature
on September 24, 2017. The term loan facility was secured through a first-priority lien on substantially all of the Pacific Ethanol
Central Plants’ assets and contained customary financial covenants, including the requirement that PE Central maintain a
cash balance of at least $2,000,000. As of December 31, 2015, the Pacific Ethanol Central Plants’ term debt had an outstanding
balance of $145,619,000.
Interest on the term
loan facility accrued and could either be paid in cash at a rate of 10.5% per annum or paid in-kind at a rate of 15.0% per annum
by adding such interest to the outstanding principal balance. The Company paid interest in cash for the period from July 1, 2015,
the effective date of the PE Central acquisition, through December 31, 2015. During the year ended December 31, 2016, the Company
elected to pay in-kind an aggregate of $9,451,000 of interest, which was added to the principal balance. As of December 15, 2016,
the principal balance was $155,070,205. On December 15, 2016, the Company paid in full the outstanding principal balance and all
accrued and unpaid interest. The Company did not pay any prepayment penalties. The Company fully amortized the remaining unamortized
debt discount of $1,152,000 and recorded the amount in interest expense, net for the year ended December 31, 2016.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of Long-term Debt
– The Company’s long-term debt matures as follows (in thousands):
December 31:
|
|
|
|
|
|
|
|
2017
|
|
$
|
10,500
|
|
2018
|
|
|
14,000
|
|
2019
|
|
|
69,000
|
|
2020
|
|
|
63,862
|
|
2021
|
|
|
11,500
|
|
2022
|
|
|
33,000
|
|
|
|
$
|
201,862
|
|
At December 31, 2016, there were approximately
$287,200,000 of net assets of the Company’s subsidiaries that were not available to be transferred to Pacific Ethanol in
the form of dividends, distributions, loans or advances due to restrictions contained in the credit facilities maintained by these
subsidiaries.
Retirement Plan
-
The Company
sponsors a defined benefit pension plan (the “Retirement Plan”) that is noncontributory, and covers only “grandfathered”
unionized employees at its Pekin, Illinois, facility. The Company assumed the Retirement Plan as part of its acquisition of PE
Central on July 1, 2015. Benefits are based on a prescribed formula based upon the employee's years of service. On October 31,
2015, the Union ratified a new collective bargaining agreement with the Company for its hourly production workers in Pekin, Illinois.
This new agreement was effective November 1, 2015. The revised amended agreement states that, among other things, employees hired
after November 1, 2010, will not be eligible to participate in the Retirement Plan. The Company uses a December 31 measurement
date for its Retirement Plan. The Company's funding policy is to make the minimum annual contribution required by applicable regulations.
Information related to the Retirement Plan
as of and for the years ended December 31, 2016 and 2015 is presented below (dollars in thousands):
|
|
2016
|
|
|
2015
|
|
Changes in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning
|
|
$
|
12,567
|
|
|
$
|
13,180
|
|
Actual gain (loss)
|
|
|
523
|
|
|
|
(298
|
)
|
Benefits paid
|
|
|
(667
|
)
|
|
|
(315
|
)
|
Company contributions
|
|
|
–
|
|
|
|
–
|
|
Participant contributions
|
|
|
–
|
|
|
|
–
|
|
Fair value of plan assets, ending
|
|
$
|
12,423
|
|
|
$
|
12,567
|
|
Less: accumulated/projected benefit obligation
|
|
$
|
18,455
|
|
|
$
|
16,552
|
|
Funded status, (underfunded)/overfunded
|
|
$
|
(6,032
|
)
|
|
$
|
(3,985
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
(6,032
|
)
|
|
$
|
(3,985
|
)
|
Accumulated other comprehensive loss (income)
|
|
$
|
1,047
|
|
|
$
|
(885
|
)
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit costs are as follows:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
223
|
|
|
$
|
211
|
|
Interest cost
|
|
|
686
|
|
|
|
338
|
|
Expected return on plan assets
|
|
|
(794
|
)
|
|
|
(500
|
)
|
Net periodic benefit cost
|
|
$
|
115
|
|
|
$
|
49
|
|
Loss (gain) recognized in other comprehensive income (expense)
|
|
$
|
1,932
|
|
|
$
|
(885
|
)
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assumptions used in computation benefit obligations:
|
|
|
|
|
|
|
Discount rate
|
|
|
4.15%
|
|
|
|
4.23%
|
|
Expected long-term return on plan assets
|
|
|
6.75%
|
|
|
|
7.75%
|
|
Rate of compensation increase
|
|
|
–
|
|
|
|
–
|
|
The Company is not expected to make contributions
in the year ending December 31, 2017. Expected net periodic benefit cost for 2017 is estimated at approximately $0.5 million.
The following table summarizes the expected
benefit payments for the Company's plan for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter
(in thousands):
December 31:
|
|
|
|
|
|
|
|
2017
|
|
$
|
750
|
|
2018
|
|
|
780
|
|
2019
|
|
|
790
|
|
2020
|
|
|
820
|
|
2021
|
|
|
830
|
|
2022-26
|
|
|
4,860
|
|
|
|
$
|
8,830
|
|
See Note 16 for discussion of the plan’s fair value disclosures.
Historical and future expected returns
of multiple asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class. The
overall rate for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return,
and the associated risk premium. A weighted average rate was developed based on those overall rates and the target asset allocation
of the plan.
The Company's pension committee is responsible
for overseeing the investment of pension plan assets. The pension committee is responsible for determining and monitoring the appropriate
asset allocations and for selecting or replacing investment managers, trustees, and custodians. The pension plan's current investment
target allocations are 50% equities and 50% debt. The pension committee reviews the actual asset allocation in light of these targets
periodically and rebalances investments as necessary. The pension committee also evaluates the performance of investment managers
as compared to the performance of specified benchmarks and peers and monitors the investment managers to ensure adherence to their
stated investment style and to the plan's investment guidelines.
Postretirement Plan
-
The
Company also sponsors a health care plan and life insurance plan (the “Postretirement Plan”) that provides postretirement
medical benefits and life insurance to certain “grandfathered” unionized employees. The Company assumed the Postretirement
Plan as part of its acquisition of PE Central on July 1, 2015. Employees hired after December 31, 2000, are not eligible to participate
in the Postretirement Plan. The plan is contributory, with contributions required at the same rate as active employees. Benefit
eligibility under the plan reduces at age 65 from a defined benefit to a defined dollar cap based upon years of service.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information related to the Postretirement Plan as of and for
the years ended December 31, 2016 and 2015 are presented below (dollars in thousands):
|
|
2016
|
|
|
2015
|
|
Amounts at the end of the year:
|
|
|
|
|
|
|
|
|
Accumulated/projected benefit obligation
|
|
$
|
5,371
|
|
|
$
|
3,619
|
|
Fair value of plan assets
|
|
|
–
|
|
|
|
–
|
|
Funded status, (underfunded)/overfunded
|
|
$
|
(5,371
|
)
|
|
$
|
(3,619
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
(310
|
)
|
|
$
|
(214
|
)
|
Other liabilities
|
|
$
|
(5,061
|
)
|
|
$
|
(3,405
|
)
|
Accumulated other comprehensive loss (expense)
|
|
$
|
1,573
|
|
|
$
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the plan for the year:
|
|
|
|
|
|
|
|
|
Company contributions
|
|
$
|
163
|
|
|
$
|
20
|
|
Participant contributions
|
|
$
|
22
|
|
|
$
|
15
|
|
Benefits paid
|
|
$
|
(184
|
)
|
|
$
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit costs are as follows:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
48
|
|
|
$
|
32
|
|
Interest cost
|
|
|
139
|
|
|
|
65
|
|
Net periodic benefit cost
|
|
$
|
187
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) recognized in other comprehensive income
|
|
$
|
1,728
|
|
|
$
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
Assumptions used in computation benefit obligations:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.95%
|
|
|
|
3.67%
|
|
The Company does not expect to recognize
any amortization of net actuarial loss during the year ended December 31, 2017.
The following table summarizes the expected
benefit payments for the Company's plan for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter
(in thousands):
December 31:
|
|
|
|
|
|
|
|
2017
|
|
$
|
310
|
|
2018
|
|
|
290
|
|
2019
|
|
|
320
|
|
2020
|
|
|
300
|
|
2021
|
|
|
320
|
|
2022-26
|
|
|
1,890
|
|
|
|
$
|
3,430
|
|
For purposes of determining the cost and
obligation for pre-Medicare postretirement medical benefits, a 7.0% annual rate of increase in the per capita cost of covered benefits
(i.e., health care trend rate) was assumed for the plan in 2017, adjusting to a rate of 4.5% in 2025. Assumed health care cost
trend rates have a significant effect on the amounts reported for health care plans.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded a provision (benefit)
for income taxes as follows (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current provision (benefit)
|
|
$
|
141
|
|
|
$
|
(8,011
|
)
|
|
$
|
11,040
|
|
Deferred provision (benefit)
|
|
|
(1,122
|
)
|
|
|
(2,023
|
)
|
|
|
4,097
|
|
Total
|
|
$
|
(981
|
)
|
|
$
|
(10,034
|
)
|
|
$
|
15,137
|
|
A reconciliation of the differences between
the United States statutory federal income tax rate and the effective tax rate as provided in the consolidated statements of operations
is as follows:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
6.4
|
|
|
|
9.2
|
|
|
|
10.0
|
|
Change in valuation allowance
|
|
|
(298.8
|
)
|
|
|
(4.2
|
)
|
|
|
(11.5
|
)
|
Fair value adjustments and warrant inducements
|
|
|
37.2
|
|
|
|
2.0
|
|
|
|
31.8
|
|
Domestic production gross receipts deduction
|
|
|
–
|
|
|
|
(2.9
|
)
|
|
|
(2.0
|
)
|
Section 382 reduction to loss carryover
|
|
|
–
|
|
|
|
0.1
|
|
|
|
(24.2
|
)
|
Stock compensation
|
|
|
58.8
|
|
|
|
(0.8
|
)
|
|
|
–
|
|
Non-deductible items
|
|
|
8.9
|
|
|
|
(0.5
|
)
|
|
|
0.6
|
|
Change in tax status of subsidiary
|
|
|
–
|
|
|
|
–
|
|
|
|
(1.6
|
)
|
Other
|
|
|
(27.5
|
)
|
|
|
(3.2
|
)
|
|
|
(1.3
|
)
|
Effective rate
|
|
|
(180.0
|
)%
|
|
|
34.7
|
%
|
|
|
36.8
|
%
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes are provided using
the asset and liability method to reflect temporary differences between the financial statement carrying amounts and the tax bases
of assets and liabilities using presently enacted tax rates and laws. The components of deferred income taxes included in the consolidated
balance sheets were as follows (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
45,709
|
|
|
$
|
53,867
|
|
Railcar contracts
|
|
|
3,348
|
|
|
|
5,143
|
|
Pension liability
|
|
|
2,204
|
|
|
|
2,647
|
|
R&D and AMT credits
|
|
|
2,465
|
|
|
|
2,303
|
|
Derivatives
|
|
|
1,228
|
|
|
|
–
|
|
Litigation accrual
|
|
|
–
|
|
|
|
1,290
|
|
Capital leases
|
|
|
–
|
|
|
|
1,021
|
|
Stock-based compensation
|
|
|
946
|
|
|
|
724
|
|
Allowance for doubtful accounts and other assets
|
|
|
856
|
|
|
|
–
|
|
Other
|
|
|
4,316
|
|
|
|
5,367
|
|
Total deferred tax assets
|
|
|
61,072
|
|
|
|
72,362
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(45,757
|
)
|
|
|
(30,272
|
)
|
Intangibles
|
|
|
(1,091
|
)
|
|
|
(1,091
|
)
|
Debt basis
|
|
|
–
|
|
|
|
(912
|
)
|
Other
|
|
|
(1,593
|
)
|
|
|
(1,423
|
)
|
Total deferred tax liabilities
|
|
|
(48,441
|
)
|
|
|
(33,698
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(12,683
|
)
|
|
|
(39,838
|
)
|
Net deferred tax liabilities
|
|
$
|
(52
|
)
|
|
$
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
Classified in balance sheet as:
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
(52
|
)
|
|
$
|
(1,174
|
)
|
A portion of the Company’s net operating
loss carryforwards will be subject to provisions of the tax law that limit the use of losses incurred by a company prior to the
date certain ownership changes occur. Due to the limitation, a significant portion of these net operating loss carryforwards will
expire regardless of whether the Company generates future taxable income. After reducing these net operating loss carryforwards
for the amount which will expire due to this limitation, the Company had remaining federal net operating loss carryforwards of
approximately $117,683,000 and state net operating loss carryforwards of approximately $101,838,000 at December 31, 2016. These
net operating loss carryforwards expire as follows (in thousands):
Tax Years
|
|
Federal
|
|
|
State
|
|
2017–2021
|
|
$
|
–
|
|
|
$
|
22,425
|
|
2022–2026
|
|
|
3,781
|
|
|
|
4,109
|
|
2027–2031
|
|
|
1,654
|
|
|
|
30,102
|
|
2032–2036
|
|
|
112,248
|
|
|
|
45,202
|
|
|
|
$
|
117,683
|
|
|
$
|
101,838
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain of these net operating losses
are not immediately available, but become available to be utilized in each of the years ended December 31, as follows (in thousands):
Year
|
|
Federal
|
|
|
State
|
|
2017
|
|
$
|
16,328
|
|
|
$
|
40,037
|
|
2018
|
|
|
6,441
|
|
|
|
4,809
|
|
2019
|
|
|
6,441
|
|
|
|
4,809
|
|
2020
|
|
|
6,374
|
|
|
|
4,781
|
|
2021
|
|
|
6,308
|
|
|
|
4,754
|
|
Thereafter
|
|
|
75,791
|
|
|
|
42,648
|
|
|
|
$
|
117,683
|
|
|
$
|
101,838
|
|
To the extent amounts are not utilized
in any year, they may be carried forward to the next year until expiration. These amounts may change if there are future additional
limitations on their utilization.
In assessing whether the deferred tax assets
are realizable, a more likely than not standard is applied. If it is determined that it is more likely than not that deferred tax
assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary
differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment.
A valuation allowance was established in
the amount of $12,683,000, $39,838,000 and $4,147,000 at December 31, 2016, 2015 and 2014, respectively, based on the Company’s
assessment of the future realizability of certain deferred tax assets. For the year ended December 31, 2015, the Company recorded
an increase in the valuation allowance of $35,691,000, including $34,469,000 related to the acquisition of PE Central. For the
year ended December 31, 2016, the Company recorded a decrease in the valuation allowance of $27,155,000, including approximately
$13,500,000 related to finalization of the deferred tax attributes of PE Central at the date of acquisition, and approximately
$11,500,000 related to the sale of a noncontrolling interest in Pacific Aurora. During the year ended December 31, 2015, the Company
recognized $1,500,000 in tax benefit related to adjustments to its tax asset valuation allowance from a prior year. The valuation
allowance on deferred tax assets is related to future deductible temporary differences and net operating loss carryforwards (exclusive
of net operating losses associated with items recorded directly to equity) for which the Company has concluded it is more likely
than not that these items will not be realized in the ordinary course of operations.
At December 31, 2016,
the Company had no increase or decrease in unrecognized income tax benefits for the year as a result of uncertain tax positions
taken in a prior or current period. There was no accrued interest or penalties relating to tax uncertainties at December 31, 2016.
Unrecognized tax benefits are not expected to increase or decrease within the next twelve months.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is subject
to income tax in the United States federal jurisdiction and various state jurisdictions and has identified its federal tax return
and tax returns in state jurisdictions below as “major” tax filings. These jurisdictions, along with the years still
open to audit under the applicable statutes of limitation, are as follows:
Jurisdiction
|
Tax Years
|
Federal
|
2013 – 2015
|
Arizona
|
2013 – 2015
|
California
|
2012 – 2015
|
Colorado
|
2012 – 2015
|
Idaho
|
2013 – 2015
|
Illinois
|
2013 – 2015
|
Indiana
|
2013 – 2015
|
Iowa
|
2013 – 2015
|
Kansas
|
2014 – 2015
|
Minnesota
|
2014 – 2015
|
Missouri
|
2014 – 2015
|
Nebraska
|
2013 – 2015
|
Oklahoma
|
2014 – 2015
|
Oregon
|
2013 – 2015
|
Texas
|
2012 – 2015
|
However, because the Company had net operating
losses and credits carried forward in several of the jurisdictions, including the United States federal and California jurisdictions,
certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment
to tax attributes carried forward to open years.
The Company has 6,734,835 undesignated
shares of authorized and unissued preferred stock, which may be designated and issued in the future on the authority of the Company’s
Board of Directors. As of December 31, 2016, the Company had the following designated preferred stock:
Series A Preferred Stock
– The Company has authorized 1,684,375 shares of Series A Cumulative Redeemable Convertible Preferred Stock (“Series
A Preferred Stock”), with none outstanding at December 31, 2016 and 2015. Shares of Series A Preferred Stock that are converted
into shares of the Company’s common stock revert to undesignated shares of authorized and unissued preferred stock.
Upon any issuance, the Series A Preferred
Stock would rank senior in liquidation and dividend preferences to the Company’s common stock. Holders of Series A Preferred
Stock would be entitled to quarterly cumulative dividends payable in arrears in cash in an amount equal to 5% per annum of the
purchase price per share of the Series A Preferred Stock. The holders of the Series A Preferred Stock would have conversion rights
initially equivalent to two shares of common stock for each share of Series A Preferred Stock, subject to customary antidilution
adjustments. Certain specified issuances will not result in antidilution adjustments. The shares of Series A Preferred Stock would
also be subject to forced conversion upon the occurrence of a transaction that would result in an internal rate of return to the
holders of the Series A Preferred Stock of 25% or more. Accrued but unpaid dividends on the Series A Preferred Stock are to be
paid in cash upon any conversion of the Series A Preferred Stock.
The holders of Series A Preferred Stock
would have a liquidation preference over the holders of the Company’s common stock equivalent to the purchase price per
share of the Series A Preferred Stock plus any accrued and unpaid dividends on the Series A Preferred Stock. A liquidation would
be deemed to occur upon the happening of customary events, including transfer of all or substantially all of the Company’s
capital stock or assets or a merger, consolidation, share exchange, reorganization or other transaction or series of related transactions,
unless holders of 66 2/3% of the Series A Preferred Stock vote affirmatively in favor of or otherwise consent to such transaction.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series B Preferred Stock
– The Company has authorized 1,580,790 shares of Series B Cumulative Convertible Preferred Stock (“Series B Preferred
Stock”), with 926,942 shares outstanding at December 31, 2016 and 2015. Shares of Series B Preferred Stock that are converted
into shares of the Company’s common stock revert to undesignated shares of authorized and unissued preferred stock.
The Series B Preferred
Stock ranks senior in liquidation and dividend preferences to the Company’s common stock. Holders of Series B Preferred Stock
are entitled to quarterly cumulative dividends payable in arrears in cash in an amount equal to 7.00% per annum of the purchase
price per share of the Series B Preferred Stock; however, subject to the provisions of the Letter Agreement described below, such
dividends may, at the option of the Company, be paid in additional shares of Series B Preferred Stock based initially on the liquidation
value of the Series B Preferred Stock. In addition to the quarterly cumulative dividends, holders of the Series B Preferred Stock
are entitled to participate in any common stock dividends declared by the Company to its common stockholders. The holders of Series
B Preferred Stock have a liquidation preference over the holders of the Company’s common stock initially equivalent to $19.50
per share of the Series B Preferred Stock plus any accrued and unpaid dividends on the Series B Preferred Stock. A liquidation
will be deemed to occur upon the happening of customary events, including the transfer of all or substantially all of the capital
stock or assets of the Company or a merger, consolidation, share exchange, reorganization or other transaction or series of related
transaction, unless holders of 66 2/3% of the Series B Preferred Stock vote affirmatively in favor of or otherwise consent that
such transaction shall not be treated as a liquidation. The Company believes that such liquidation events are within its control
and therefore has classified the Series B Preferred Stock in stockholders’ equity
.
As of December 31, 2016,
the Series B Preferred Stock was convertible into 634,641 shares of the Company’s common stock. The conversion ratio is subject
to customary antidilution adjustments. In addition, antidilution adjustments are to occur in the event that the Company issues
equity securities, including derivative securities convertible into equity securities (on an as-converted or as-exercised basis),
at a price less than the conversion price then in effect. The shares of Series B Preferred Stock are also subject to forced conversion
upon the occurrence of a transaction that would result in an internal rate of return to the holders of the Series B Preferred Stock
of 25% or more. The forced conversion is to be based upon the conversion ratio as last adjusted. Accrued but unpaid dividends on
the Series B Preferred Stock are to be paid in cash upon any conversion of the Series B Preferred Stock.
The holders of Series
B Preferred Stock vote together as a single class with the holders of the Company’s common stock on all actions to be taken
by the Company’s stockholders. Each share of Series B Preferred Stock entitles the holder to approximately 0.03 votes per
share on all matters to be voted on by the stockholders of the Company. Notwithstanding the foregoing, the holders of Series B
Preferred Stock are afforded numerous customary protective provisions with respect to certain actions that may only be approved
by holders of a majority of the shares of Series B Preferred Stock.
In 2008, the Company
entered into Letter Agreements with Lyles United LLC (“Lyles United”) and other purchasers under which the Company
expressly waived its rights under the Certificate of Designations relating to the Series B Preferred Stock to make dividend payments
in additional shares of Series B Preferred Stock in lieu of cash dividend payments without the prior written consent of Lyles United
and the other purchasers.
Registration Rights
Agreement
– In connection with the sale of its Series B Preferred Stock, the Company entered into a registration
rights agreement with Lyles United. The registration rights agreement is to be effective until the holders of the Series B Preferred
Stock, and their affiliates, as a group, own less than 10% for each of the series issued, including common stock into which such
Series B Preferred Stock has been converted. The registration rights agreement provides that holders of a majority of the Series
B Preferred Stock, including common stock into which such Series B Preferred Stock has been converted, may demand and cause the
Company to register on their behalf the shares of common stock issued, issuable or that may be issuable upon conversion of the
Preferred Stock and as payment of dividends thereon, and upon exercise of the related warrants (collectively, the “Registrable
Securities”). The Company is required to keep such registration statement effective until such time as all of the Registrable
Securities are sold or until such holders may avail themselves of Rule 144 for sales of Registrable Securities without registration
under the Securities Act of 1933, as amended. The holders are entitled to two demand registrations on Form S-1 and unlimited demand
registrations on Form S-3; provided, however, that the Company is not obligated to effect more than one demand registration on
Form S-3 in any calendar year. In addition to the demand registration rights afforded the holders under the registration rights
agreement, the holders are entitled to unlimited “piggyback” registration rights. These rights entitle the holders
who so elect to be included in registration statements to be filed by the Company with respect to other registrations of equity
securities. The Company is responsible for all costs of registration, plus reasonable fees of one legal counsel for the holders,
which fees are not to exceed $25,000 per registration. The registration rights agreement includes customary representations and
warranties on the part of both the Company and the holders and other customary terms and conditions.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company accrued and paid in cash preferred
stock dividends of $1,269,000, $1,265,000 and $1,265,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
For the years ended December 31, 2011,
2010 and 2009, the Company accrued but did not pay any preferred stock dividends. Beginning in 2012, the Company entered into a
series of agreements with the parties to whom unpaid dividends were owed under which the Company issued shares of its common stock
in satisfaction of a portion of the accrued and unpaid dividends. In connection with each payment of accrued and unpaid dividends,
the payees agreed to forebear for a term from exercising any rights they may have with the respect to accrued and unpaid dividends.
In 2014, the Company paid the last two installments in cash. The following table summarizes the details of the Company’s
payments to the holders of its Series B Preferred Stock:
Agreement/Payment
Date
|
|
Amount of
Dividends Paid
|
|
|
Shares of
Common Stock
Issued
|
|
|
Extended
Forbearance
Date
|
August 12, 2012
|
|
$
|
732,000
|
|
|
|
157,000
|
|
|
January 1, 2014
|
December 26, 2012
|
|
|
732,000
|
|
|
|
144,500
|
|
|
June 30, 2014
|
March 27, 2013
|
|
|
732,000
|
|
|
|
139,000
|
|
|
September 30, 2014
|
July 26, 2013
|
|
|
731,000
|
|
|
|
175,000
|
|
|
December 31, 2014
|
September 17, 2013
|
|
|
731,000
|
|
|
|
197,000
|
|
|
March 31, 2015
|
May 23, 2014
|
|
|
1,463,000
|
|
|
|
120,000
|
|
|
November 30, 2015
|
November 24, 2014
|
|
|
1,000,000
|
|
|
|
–
|
|
|
|
December 23, 2014
|
|
|
1,194,000
|
|
|
|
–
|
|
|
|
Total
|
|
$
|
7,315,000
|
|
|
|
932,500
|
|
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
13.
|
COMMON STOCK AND WARRANTS.
|
The following table summarizes warrant
activity for the years ended December 31, 2015, 2014 and 2013 (number of shares in thousands):
|
|
Number of
Shares
|
|
|
Price per
Share
|
|
Weighted
Average
Exercise Price
|
|
Balance at December 31, 2013
|
|
|
8,275
|
|
|
$5.47 – $735.00
|
|
$
|
10.04
|
|
Warrants exercised
|
|
|
(6,615
|
)
|
|
$6.09 – $8.85
|
|
$
|
7.17
|
|
Warrants expired
|
|
|
(804
|
)
|
|
$5.47
|
|
$
|
5.47
|
|
Balance at December 31, 2014
|
|
|
856
|
|
|
$6.09 – $735.00
|
|
$
|
36.55
|
|
Warrants exercised
|
|
|
(42
|
)
|
|
$8.85
|
|
$
|
8.85
|
|
Warrants expired
|
|
|
(432
|
)
|
|
$8.85
|
|
$
|
8.85
|
|
Balance at December 31, 2015
|
|
|
382
|
|
|
$6.09 – $735.00
|
|
$
|
70.87
|
|
Warrants exercised
|
|
|
(138
|
)
|
|
$8.43
|
|
$
|
8.43
|
|
Balance at December 31, 2016
|
|
|
244
|
|
|
$6.09 – $735.00
|
|
$
|
106.22
|
|
July 2012 Public
Offering
– On July 3, 2012, the Company raised $10,903,000, net of $1,137,000 of underwriting fees and issuance costs,
through a public offering of units consisting of an aggregate of 1,867,000 shares of common stock, warrants immediately exercisable
to purchase an aggregate of 1,867,000 shares of common stock at an exercise price of $9.45 per share and which expire in 2017 (“Series
I Warrants”) and warrants immediately exercisable to purchase an aggregate of 933,000 shares of common stock at an exercise
price of $7.95 per share and which expired in 2014 (“Series II Warrants”). The Series I Warrants are, and the Series
II Warrants were, subject to “weighted-average” anti-dilution adjustments if the Company issues or is deemed to have
issued securities at a price lower than their then applicable exercise prices. Due to subsequent transactions, the exercise price
of the Series I Warrants was reduced to $6.09 per share and the exercise price of the Series II Warrants was reduced to $5.47 per
share. The Company accounted for the net proceeds of the offering by first allocating the $3,380,000 fair value of the warrants
to liabilities and then allocating the remaining amount to equity. The Series II Warrants expired unexercised. As of December 31,
2016, Series I Warrants to purchase 211,000 shares of common stock remained outstanding.
Warrant Inducements
– During 2014, certain holders exercised warrants and received payments from the Company in the aggregate amounts of $2,271,000
in cash as an inducement for these exercises, which were recorded as an expense. There were no warrant inducements in 2016 and
2015.
Warrant Terms
– The
exercise prices of the outstanding warrants described above are subject to adjustment for stock splits, combinations or similar
events, and, in such event, the number of shares issuable upon the exercise of the warrants will also be adjusted so that the
aggregate exercise price shall be the same immediately before and immediately after the adjustment. The warrants generally require
payments to be made by the Company for failure to deliver the shares of common stock issuable upon exercise. The warrants may
not be exercised if, after giving effect to the exercise, the investor together with its affiliates would beneficially own in
excess of 4.99% of the Company’s outstanding shares of common stock. The blocker applicable to the exercise of the warrants
may be raised or lowered to any other percentage not in excess of 9.99%, except that any increase will only be effective upon
61-days’ prior notice to the Company. If the Company issues options, convertible securities, warrants, stock, or similar
securities to holders of its common stock generally, each holder of certain warrants has the right to acquire the same securities
as if the holder had exercised its warrants. The warrants prohibit the Company from entering into specified transactions involving
a change of control, unless the successor entity assumes all of the Company’s obligations under the warrants under a written
agreement before the transaction is completed. When there is a transaction involving a permitted change of control, a holder of
a warrant will have the right to force the Company to repurchase the holder’s warrant for a purchase price in cash equal
to the Black-Scholes value (as calculated under the individual warrant agreements) of the then unexercised portion of the warrant.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Warrants
–
The Company has determined that the warrants issued in the above transaction did not meet the conditions for classification in
stockholders’ equity and as such, the Company has recorded them as a liability at fair value. The Company will revalue them
at each reporting period. Further, as noted above, certain of the exercise prices declined as a result of the anti-dilution adjustments
due to subsequent transactions. Accordingly, the Company recorded fair value adjustments quarterly, with total fair value adjustments
of $1,641,000 of income for the year ended December 31, 2015 and $557,000 and $35,260,000 of expense for the years ended December
31, 2016 and 2014, respectively, which is largely attributed to adjustment, if any, to their exercise prices, term shortening and
changes in the market value of the Company’s common stock. See Note 16 for the Company’s fair value assumptions.
Registration Rights Agreements
– In connection with the above issuance, the Company entered into a registration rights agreements with all of the investors
to file registration statements on Form S-1 or S-3 with the Securities and Exchange Commission by certain dates for the resale
by the purchasers of the shares of common stock issued and the shares of common stock issuable upon exercise of the warrants. Subject
to customary grace periods, the Company is required to keep the registration statements (and the accompanying prospectuses) available
for use for resale by the investors on a delayed or continuous basis at then-prevailing market prices at all times until the earlier
of (i) the date as of which all of the investors may sell all of the shares of common stock required to be covered by the registration
statement without restriction under Rule 144 under the Securities Act of 1933, as amended (including volume restrictions) and without
the need for current public information required by Rule 144(c)(1), if applicable) or (ii) the date on which the investors have
sold all of the shares of common stock covered by the registration statement. The Company must pay registration delay payments
of up to 2% of each investor’s initial investment per month if the registration statement ceases to be effective prior to
the expiration of deadlines provided for in the registration rights agreement. The initial registration statements became effective
by the stated deadlines and the Company did not record any liability associated with any registration delay payments under the
registration rights agreements.
|
14.
|
STOCK-BASED COMPENSATION.
|
The Company has two equity incentive compensation
plans: a 2006 Stock Incentive Plan and a 2016 Stock Incentive Plan.
2006 Stock Incentive Plan
– The 2006 Stock Incentive Plan authorized the issuance of incentive stock options (“ISOs”) and non-qualified
stock options (“NQOs”), restricted stock, restricted stock units, stock appreciation rights, direct stock issuances
and other stock-based awards to the Company’s officers, directors or key employees or to consultants that do business with
the Company for up to an aggregate of 1,715,000 shares of common stock. In June 2016, this plan was terminated, except to the extent
of issued and outstanding unvested stock awards and options.
2016 Stock Incentive Plan
– On June 16, 2016, the Company’s shareholders approved the 2016 Stock Incentive Plan, which authorizes the issuance
of ISOs, NQOs, restricted stock, restricted stock units, stock appreciation rights, direct stock issuances and other stock-based
awards to the Company’s officers, directors or key employees or to consultants that do business with the Company for up to
an aggregate of 1,150,000 shares of common stock.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
– Summaries
of the status of Company’s stock option plans as of December 31, 2016 and 2015 and of changes in options outstanding under
the Company’s plans during those years are as follows (number of shares in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of year
|
|
|
240
|
|
|
$
|
4.18
|
|
|
|
241
|
|
|
$
|
6.91
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
(1
|
)
|
|
|
867.24
|
|
Outstanding at end of year
|
|
|
240
|
|
|
$
|
4.18
|
|
|
|
240
|
|
|
$
|
4.18
|
|
Options exercisable at end of year
|
|
|
240
|
|
|
$
|
4.18
|
|
|
|
164
|
|
|
$
|
4.18
|
|
Stock options outstanding as of December 31,
2016 were as follows (number of shares in thousands):
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (yrs.)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
$3.74
|
|
229
|
|
6.47
|
|
$3.74
|
|
229
|
|
$3.74
|
$12.90
|
|
11
|
|
4.59
|
|
$12.90
|
|
11
|
|
$12.90
|
The options outstanding at December 31,
2016 and 2015 had intrinsic values of $1,319,000 and $238,000, respectively.
Restricted Stock
– The Company granted to certain employees and directors shares of restricted stock under its 2006 and 2016 Stock Incentive
Plans. A summary of unvested restricted stock activity is as follows (shares in thousands):
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
Per Share
|
|
Unvested at December 31, 2013
|
|
|
472
|
|
|
$
|
5.07
|
|
Issued
|
|
|
155
|
|
|
$
|
15.23
|
|
Vested
|
|
|
(227
|
)
|
|
$
|
5.79
|
|
Canceled
|
|
|
(10
|
)
|
|
$
|
4.30
|
|
Unvested at December 31, 2014
|
|
|
390
|
|
|
$
|
8.71
|
|
Issued
|
|
|
307
|
|
|
$
|
10.16
|
|
Vested
|
|
|
(220
|
)
|
|
$
|
7.94
|
|
Canceled
|
|
|
(14
|
)
|
|
$
|
10.08
|
|
Unvested at December 31, 2015
|
|
|
463
|
|
|
$
|
10.00
|
|
Issued
|
|
|
742
|
|
|
$
|
5.24
|
|
Vested
|
|
|
(250
|
)
|
|
$
|
9.01
|
|
Canceled
|
|
|
(25
|
)
|
|
$
|
6.24
|
|
Unvested at December 31, 2016
|
|
|
930
|
|
|
$
|
6.57
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the common stock at vesting
aggregated $1,142,000, $2,603,000 and $3,858,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Stock-based
compensation expense related to employee and non-employee restricted stock and option grants recognized in selling, general and
administrative expenses, were as follows (in thousands):
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Employees
|
|
$
|
2,173
|
|
|
$
|
1,694
|
|
|
$
|
1,493
|
|
Non-employees
|
|
|
443
|
|
|
|
325
|
|
|
|
345
|
|
Total stock-based compensation expense
|
|
$
|
2,616
|
|
|
$
|
2,019
|
|
|
$
|
1,838
|
|
At December 31, 2016, the total compensation
cost related to unvested awards which had not been recognized was $6,112,000 and the associated weighted-average period over which
the compensation cost attributable to those unvested awards would be recognized was approximately 1.75 years.
|
15.
|
COMMITMENTS AND CONTINGENCIES.
|
Commitments
– The following
is a description of significant commitments at December 31, 2016:
Leases –
Future minimum lease
payments required by non-cancelable leases in effect at December 31, 2016 were as follows (in thousands):
Years Ended December 31,
|
|
Capital Leases
|
|
|
Operating Leases
|
|
2017
|
|
$
|
930
|
|
|
$
|
14,011
|
|
2018
|
|
|
588
|
|
|
|
11,822
|
|
2019
|
|
|
–
|
|
|
|
8,929
|
|
2020
|
|
|
–
|
|
|
|
4,942
|
|
2021
|
|
|
–
|
|
|
|
1,991
|
|
Thereafter
|
|
|
–
|
|
|
|
2,812
|
|
Total minimum payments
|
|
|
1,518
|
|
|
$
|
44,507
|
|
Amount representing interest
|
|
|
(177
|
)
|
|
|
|
|
Obligations under capital leases
|
|
|
1,341
|
|
|
|
|
|
Obligations due within one year
|
|
|
(794
|
)
|
|
|
|
|
Long-term obligations under capital leases
|
|
$
|
547
|
|
|
|
|
|
Total rent expense during the years ended
December 31, 2016, 2015 and 2014 was $13,644,000, $9,528,000 and $2,417,000, respectively.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales Commitments
– At December
31, 2016, the Company had entered into sales contracts with its major customers to sell certain quantities of ethanol and co-products.
The Company had open ethanol indexed-price contracts for 336,895,000 gallons of ethanol as of December 31, 2016 and open fixed-price
ethanol sales contracts totaling $21,780,000 as of December 31, 2016. The Company had open fixed-price co-product sales contracts
totaling $23,200,000 and open indexed-price co-product sales contracts for 92,000 tons as of December 31, 2016. These sales contracts
are scheduled to be completed throughout 2017.
Purchase Commitments
– At
December 31, 2016, the Company had indexed-price purchase contracts to purchase 39,257,000 gallons of ethanol and fixed-price purchase
contracts to purchase $14,200,000 of ethanol from its suppliers. The Company had fixed-price purchase contracts to purchase $18,947,000
of corn from its suppliers. These purchase commitments are scheduled to be satisfied throughout 2017. In addition, in September
2016, the Company signed an agreement to finance and construct a 5 megawatt solar project at its Madera facility. The amount financed
is up to $10.0 million, to be amortized over twenty years as part of the facility’s property tax assessments. As of December
31, 2016, the Company had incurred $2.1 million in project costs, which is recorded in other liabilities in the accompanying consolidated
balance sheets.
Other Commitments
– At December 31, 2016, the Company
had firm commitments for various capital and process improvement projects at the Company’s plants of approximately $4,710,000,
which are expected to be completed in 2017.
Contingencies
– The
following is a description of significant contingencies at December 31, 2016:
Litigation
–
The Company
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 the Company 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, the
Company will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated,
the Company discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material.
While there can be no assurances, the Company does not expect that any of its pending legal proceedings will have a material financial
impact on the Company’s operating results.
The Company assumed certain legal matters
which were ongoing at the date of its acquisition of Aventine Renewable Energy. Among them was a lawsuit between Aventine Renewable
Energy, Inc. (now known as Pacific Ethanol Pekin, LLC, or “PE Pekin”) and Glacial Lakes Energy and Aberdeen Energy,
together, the “Defendants,” in which PE Pekin sought damages for breach of termination agreements that wound down ethanol
marketing arrangements between PE Pekin and the Defendants. In February 2017, the Company and the Defendants executed a settlement
agreement, and the Defendants paid in cash to the Company $3.5 million in final resolution of these matters. The Company did not
assign any value to the claim in the accounting for the Aventine acquisition. The Company recorded a gain, net of legal fees,
of $3.2 million, upon receipt of the cash settlement. That payment having been received in February 2017, the Company expects
to recognize the gain in the first quarter of 2017.
Pacific Ethanol, Inc., through a subsidiary
acquired in its acquisition of Aventine, became involved in a pending lawsuit with Western Sugar Cooperative (“Western Sugar”)
that pre-dated the Aventine acquisition.
On February 27, 2015, Western Sugar filed
a complaint in the United States District Court for the District of Colorado (Case No. 1:15-cv-00415) naming Aventine Renewable
Energy, Inc. (“ARE, Inc.”), one of Aventine’s subsidiaries, as defendant. Western Sugar amended its complaint
on April 21, 2015. ARE, Inc. purchased surplus sugar through a United States Department of Agriculture program. Western Sugar was
one of the entities that warehoused this sugar for ARE, Inc. The suit alleged that ARE, Inc. 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 alleged that the penalty rates applied because ARE, Inc. failed to take timely delivery or otherwise cause timely
shipment of the sugar. Western Sugar claimed “expectation damages” in the amount of approximately $8.6 million. On
December 29, 2016, Western Sugar and ARE, Inc. entered into a settlement pursuant to which ARE Inc. paid $1.7 million and Western
Sugar filed a Stipulation of Dismissal with prejudice. As a result, the Company reduced its litigation reserve of $2.8 million
and recognized the recovery of $1.1 million in selling, general and administrative expenses for the year ended December 31, 2016.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company, through subsidiaries acquired
in its acquisition of Aventine, became involved in various pending lawsuits with ACEC that pre-dated the Aventine acquisition.
On July 26, 2015, the Company settled all
outstanding litigation with ACEC. The Company and ACEC 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 ACEC to repurchase the land upon which the Company’s
110 million gallon ethanol production facility in Aurora, Nebraska is located (the “Aurora West Facility”). 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 ACEC will each bear its own costs and fees associated with the lawsuits and the settlement.
The Company and ACEC 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 Aurora West Facility.
On May 24, 2013, GS CleanTech Corporation
(“GS CleanTech”), filed a suit in the United States District Court for the Eastern District of California, Sacramento
Division (Case No.: 2:13-CV-01042-JAM-AC), naming Pacific Ethanol, Inc. as a defendant. On August 29, 2013, the case was transferred
to the United States District Court for the Southern District of Indiana and made part of the pre-existing multi-district litigation
involving GS CleanTech and multiple defendants. The suit alleged infringement of a patent assigned to GS CleanTech by virtue of
certain corn oil separation technology in use at one or more of the ethanol production facilities in which the Company has an interest,
including Pacific Ethanol Stockton LLC (“PE Stockton”), located in Stockton, California. The complaint sought preliminary
and permanent injunctions against the Company, prohibiting future infringement on the patent owned by GS CleanTech and damages
in an unspecified amount adequate to compensate GS CleanTech for the alleged patent infringement, but in any event no less than
a reasonable royalty for the use made of the inventions of the patent, plus attorneys’ fees. The Company answered the complaint,
counterclaimed that the patent claims at issue, as well as the claims in several related patents, are invalid and unenforceable
and that the Company is not infringing. Pacific Ethanol, Inc. does not itself use any corn oil separation technology and may seek
a dismissal on those grounds.
On March 17 and March 18, 2014, GS CleanTech
filed suit naming as defendants two Company subsidiaries: PE Stockton and Pacific Ethanol Magic Valley, LLC (“PE Magic Valley”).
The claims were similar to those filed against Pacific Ethanol, Inc. in May 2013. These two cases were transferred to the multi-district
litigation division in United States District Court for the Southern District of Indiana, where the case against Pacific Ethanol,
Inc. was pending. Although PE Stockton and PE Magic Valley do separate and market corn oil, Pacific Ethanol, Inc., PE Stockton
and PE Magic Valley strongly disagree that either of the subsidiaries use corn oil separation technology that infringes the patent
owned by GS CleanTech. In a January 16, 2015 decision, the District Court for the Southern District of Indiana ruled in favor of
a stipulated motion for partial summary judgment for Pacific Ethanol, Inc., PE Stockton and PE Magic Valley finding that all of
the GS CleanTech patents in the suit were invalid and, therefore, not infringed. GS CleanTech has said it will appeal this decision
when the remaining claim in the suit has been decided. The only remaining claim alleged that GS CleanTech inequitably conducted
itself before the United States Patent Office when obtaining the patents at issue.
A trial in the District Court for the Southern
District of Indiana was conducted in October 2015 on that single issue as well as whether GS CleanTech’s behavior during
prosecution of the patents rendered this an “exceptional case” which would allow the District Court to award the Defendants
reimbursement of their attorneys’ fees expended for defense of the case.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 15, 2016, the District Court
issued an Order finding that GS CleanTech, the inventors and GS CleanTech’s counsel committed inequitable conduct in the
prosecution of the GS CleanTech patents before the United States Patent and Trademark Office. As a result, the District Court issued
a Final Judgment on September 15, 2016 dismissing with prejudice all of GS CleanTech’s cases against the Defendants, including
Pacific Ethanol, Inc., PE Stockton and PE Magic Valley. The District Court’s ruling of inequitable conduct results in
the unenforceability of the GS CleanTech patents against third parties, and also enables the Defendants to pursue reimbursement
of their costs and attorneys’ fees from GS CleanTech and its counsel. GS Cleantech has asked the Court to reconsider its
inequitable conduct decision, citing the existence of a recently issued patent which the patent examiner allowed despite the Court’s
findings and the allowance of which the Court did not consider when making its decision of inequitable conduct. GS Cleantech has
indicated it will eventually appeal the current rulings on inequitable conduct and/or invalidity if the Court’s reconsideration
does not result in a change in its findings. The Court’s reconsideration has been stayed until April 10, 2017.
The Company has evaluated the above cases
as well as other pending cases. The Company currently has not recorded a litigation contingency liability with respect to these
cases.
16. FAIR
VALUE MEASUREMENTS.
The fair value hierarchy prioritizes the
inputs used in valuation techniques into three levels, as follows:
|
·
|
Level 1 – Observable inputs – unadjusted quoted prices in active markets for identical
assets and liabilities;
|
|
·
|
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable
for the asset or liability through corroboration with market data; and
|
|
·
|
Level 3 – Unobservable inputs – includes amounts derived from valuation models where
one or more significant inputs are unobservable. For fair value measurements using significant unobservable inputs, a description
of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the
prior reporting period.
|
Pooled separate accounts
– Pooled separate accounts invest primarily in domestic and international stocks, commercial paper or single mutual funds.
The net asset value is used as a practical expedient to determine fair value for these accounts. Each pooled separate account provides
for redemptions by the Retirement Plan at reported net asset values per share, with little to no advance notice requirement, therefore
these funds are classified within Level 2 of the valuation hierarchy.
Warrants
– The Company’s
warrants were valued using a Monte Carlo Binomial Lattice-Based valuation methodology, adjusted for marketability restrictions.
The Company recorded its warrants issued from 2011 through 2012 at fair value and designated them as Level 3 on their issuance
dates.
Significant assumptions used and related fair values for the
warrants as of December 31, 2016 were as follows:
Original Issuance
|
|
Exercise
Price
|
|
Volatility
|
|
|
Risk Free
Interest
Rate
|
|
|
Term
(years)
|
|
|
Market
Discount
|
|
|
Warrants
Outstanding
|
|
|
Fair
Value
|
|
07/03/2012
|
|
$6.09
|
|
|
40.9%
|
|
|
|
0.62%
|
|
|
|
0.50
|
|
|
|
11.3%
|
|
|
|
211,000
|
|
|
$
|
651,000
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant assumptions used and related
fair values for the warrants as of December 31, 2015 were as follows:
Original Issuance
|
|
Exercise
Price
|
|
Volatility
|
|
|
Risk Free
Interest
Rate
|
|
|
Term
(years)
|
|
|
Market
Discount
|
|
|
Warrants
Outstanding
|
|
|
Fair
Value
|
|
07/03/2012
|
|
$6.09
|
|
|
49.1%
|
|
|
|
0.86%
|
|
|
|
1.51
|
|
|
|
22.9%
|
|
|
|
211,000
|
|
|
$
|
200,000
|
|
12/13/2011
|
|
$8.43
|
|
|
48.4%
|
|
|
|
0.65%
|
|
|
|
0.95
|
|
|
|
18.3%
|
|
|
|
138,000
|
|
|
|
73,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
273,000
|
|
The estimated fair value of the warrants is affected by the
above underlying inputs. Observable inputs include the values of exercise price, stock price, term and risk-free interest rate.
As separate inputs, an increase (decrease) in either the term or risk free interest rate will result in an increase (decrease)
in the estimated fair value of the warrant.
Unobservable inputs include volatility and market discount.
An increase (decrease) in volatility will result in an increase (decrease) in the estimated warrant value and an increase (decrease)
in the market discount will result in a decrease (increase) in the estimated warrant fair value.
The volatility utilized was a blended average of the Company’s
historical volatility and implied volatilities derived from a selected peer group. The implied volatility component has remained
relatively constant over time given that implied volatility is a forward-looking assumption based on observable trades in public
option markets. Should the Company’s historical volatility increase (decrease) on a go-forward basis, the resulting value
of the warrants would increase (decrease).
The market discount, or a discount for lack of marketability,
is quantified using a Black-Scholes option pricing model, with a primary model input of assumed holding period restriction. As
the assumed holding period increases (decreases), the market discount increases (decreases), conversely impacting the fair value
of the warrants.
Other Derivative Instruments
– The Company’s other derivative instruments consist of commodity positions. The fair values of the commodity positions
are based on quoted prices on the commodity exchanges and are designated as Level 1 inputs.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes recurring
fair value measurements by level at December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Plan
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Allocation
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
(1)
|
|
$
|
978
|
|
|
$
|
978
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
Defined benefit plan assets
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(pooled separate accounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large U.S. Equity
(3)
|
|
|
3,134
|
|
|
|
–
|
|
|
|
3,134
|
|
|
|
–
|
|
|
25%
|
|
Small/Mid U.S. Equity
(4)
|
|
|
1,802
|
|
|
|
–
|
|
|
|
1,802
|
|
|
|
–
|
|
|
15%
|
|
International Equity
(5)
|
|
|
2,006
|
|
|
|
–
|
|
|
|
2,006
|
|
|
|
–
|
|
|
16%
|
|
Fixed Income
(6)
|
|
|
5,481
|
|
|
|
–
|
|
|
|
5,481
|
|
|
|
–
|
|
|
44%
|
|
|
|
$
|
13,401
|
|
|
$
|
978
|
|
|
$
|
12,423
|
|
|
$
|
–
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
(7)
|
|
$
|
(651
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
(651
|
)
|
|
|
|
|
Derivative financial instruments
(8)
|
|
|
(4,115
|
)
|
|
|
(4,115
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
$
|
(4,766
|
)
|
|
$
|
(4,115
|
)
|
|
$
|
–
|
|
|
$
|
(651
|
)
|
|
|
|
|
The following table summarizes recurring fair value measurements
by level at December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Plan
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Allocation
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
(1)
|
|
$
|
2,081
|
|
|
$
|
2,081
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
Defined benefit plan assets
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(pooled separate accounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large U.S. Equity
(3)
|
|
|
3,662
|
|
|
|
–
|
|
|
|
3,662
|
|
|
|
–
|
|
|
29%
|
|
Small/Mid U.S. Equity
(4)
|
|
|
1,099
|
|
|
|
–
|
|
|
|
1,099
|
|
|
|
–
|
|
|
9%
|
|
International Equity
(5)
|
|
|
1,525
|
|
|
|
–
|
|
|
|
1,525
|
|
|
|
–
|
|
|
12%
|
|
Fixed Income
(6)
|
|
|
6,281
|
|
|
|
–
|
|
|
|
6,281
|
|
|
|
–
|
|
|
50%
|
|
|
|
$
|
14,648
|
|
|
$
|
2,081
|
|
|
$
|
12,567
|
|
|
$
|
–
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
(7)
|
|
$
|
(273
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
(273
|
)
|
|
|
|
|
Derivative financial instruments
(8)
|
|
|
(1,848
|
)
|
|
|
(1,848
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
$
|
(2,121
|
)
|
|
$
|
(1,848
|
)
|
|
$
|
–
|
|
|
$
|
(273
|
)
|
|
|
|
|
__________
(1)
|
|
Included in derivative assets in the consolidated balance sheets.
|
(2)
|
|
See Note 10 for accounting discussion.
|
(3)
|
|
This category includes investments in funds comprised of equity securities of large
U.S. companies. The funds are valued using the net asset value method in which an average of the market prices for the underlying
investments is used to value the fund.
|
(4)
|
|
This category includes investments in funds comprised of equity securities of small-
and medium-sized U.S. companies. The funds are valued using the net asset value method in which an average of the market prices
for the underlying investments is used to value the fund.
|
(5)
|
|
This category includes investments in funds comprised of equity securities of foreign
companies including emerging markets. The funds are valued using the net asset value method in which an average of the market
prices for the underlying investments is used to value the fund.
|
(6)
|
|
This category includes investments in funds comprised of U.S. and foreign investment-grade
fixed income securities, high-yield fixed income securities that are rated below investment-grade, U.S. treasury securities, mortgage-backed
securities, and other asset-backed securities. The funds are valued using the net asset value method in which an average of the
market prices for the underlying investments is used to value the fund.
|
(7)
|
|
Included in warrant liabilities at fair value in the consolidated balance sheets.
|
(8)
|
|
Included in derivative liabilities in the consolidated balance sheets.
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in the Company’s fair
value of its Level 3 inputs with respect to its warrants were as follows (in thousands):
|
|
Warrants
|
|
Balance, December 31, 2013
|
|
$
|
8,215
|
|
Exercises of warrants
|
|
|
(41,486
|
)
|
Expiration of warrants
|
|
|
(3
|
)
|
Adjustments to fair value for the period
|
|
|
35,260
|
|
Balance, December 31, 2014
|
|
$
|
1,986
|
|
Exercises of warrants
|
|
|
(72
|
)
|
Expiration of warrants
|
|
|
(527
|
)
|
Adjustments to fair value for the period
|
|
|
(1,114
|
)
|
Balance, December 31, 2015
|
|
$
|
273
|
|
Exercises of warrants
|
|
|
(179
|
)
|
Adjustments to fair value for the period
|
|
|
557
|
|
Balance, December 31, 2016
|
|
$
|
651
|
|
|
17.
|
PARENT COMPANY FINANCIALS.
|
Restricted Net Assets
–
At December 31,
2016, the Company had approximately $287,200,000 of net assets at its subsidiaries that were not available to be transferred to
Pacific Ethanol in the form of dividends, distributions, loans or advances due to restrictions contained in the credit facilities
of these subsidiaries.
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parent company financial statements for the periods covered
in this report are set forth below.
Pacific Ethanol,
Inc.
Condensed Financial
Information of the Registrant
Balance Sheets -
Parent Company Only
(in thousands)
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash and cash equivalents
|
|
$
|
11,060
|
|
|
$
|
20,618
|
|
Receivables from subsidiaries
|
|
|
7,203
|
|
|
|
14,505
|
|
Other current assets
|
|
|
6,442
|
|
|
|
11,361
|
|
Total current assets
|
|
|
24,705
|
|
|
|
46,484
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,433
|
|
|
|
1,695
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries
|
|
|
363,401
|
|
|
|
301,416
|
|
Pacific Ethanol West plant receivable
|
|
|
58,766
|
|
|
|
41,763
|
|
Other assets
|
|
|
1,110
|
|
|
|
838
|
|
Total other assets
|
|
|
423,277
|
|
|
|
344,017
|
|
Total Assets
|
|
$
|
449,415
|
|
|
$
|
392,196
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,758
|
|
|
$
|
1,963
|
|
Payables to subsidiaries
|
|
|
1,568
|
|
|
|
13,230
|
|
Accrued PE Op Co. purchase
|
|
|
3,829
|
|
|
|
3,828
|
|
Other current liabilities
|
|
|
183
|
|
|
|
–
|
|
Total current liabilities
|
|
|
7,338
|
|
|
|
19,021
|
|
|
|
|
|
|
|
|
|
|
Long Term debt, net
|
|
|
53,360
|
|
|
|
–
|
|
Warrant liabilities at fair value
|
|
|
651
|
|
|
|
273
|
|
Deferred tax liabilities
|
|
|
52
|
|
|
|
1,174
|
|
Other liabilities
|
|
|
124
|
|
|
|
184
|
|
Total Liabilities
|
|
|
61,525
|
|
|
|
20,652
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
1
|
|
|
|
1
|
|
Common stock
|
|
|
40
|
|
|
|
39
|
|
Non-voting common stock
|
|
|
4
|
|
|
|
4
|
|
Additional paid-in capital
|
|
|
922,698
|
|
|
|
902,843
|
|
Accumulated other comprehensive income (expense)
|
|
|
(2,620
|
)
|
|
|
1,040
|
|
Accumulated deficit
|
|
|
(532,233
|
)
|
|
|
(532,383
|
)
|
Total Pacific Ethanol, Inc. stockholders' equity
|
|
|
387,890
|
|
|
|
371,544
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
449,415
|
|
|
$
|
392,196
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pacific Ethanol,
Inc.
Condensed Financial
Information of the Registrant
Statements of Operations
- Parent Company Only
(in thousands)
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Management fees from subsidiaries
|
|
$
|
12,968
|
|
|
$
|
9,857
|
|
|
$
|
12,731
|
|
Selling, general and administrative expenses
|
|
|
14,491
|
|
|
|
14,336
|
|
|
|
12,779
|
|
Asset impairment
|
|
|
–
|
|
|
|
1,970
|
|
|
|
–
|
|
Loss from operations
|
|
|
(1,523
|
)
|
|
|
(6,449
|
)
|
|
|
(48
|
)
|
Fair value adjustments and warrant inducements
|
|
|
(557
|
)
|
|
|
1,641
|
|
|
|
(37,532
|
)
|
Interest income
|
|
|
5,964
|
|
|
|
5,739
|
|
|
|
4,753
|
|
Interest expense
|
|
|
(240
|
)
|
|
|
(27
|
)
|
|
|
(1,813
|
)
|
Loss on extinguishments of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,363
|
)
|
Other income
|
|
|
1,931
|
|
|
|
–
|
|
|
|
–
|
|
Income (loss) before provision for income taxes
|
|
|
5,575
|
|
|
|
904
|
|
|
|
(37,003
|
)
|
Provision (benefit) for income taxes
|
|
|
(981
|
)
|
|
|
(10,034
|
)
|
|
|
15,137
|
|
Income (loss) before equity in
earnings of subsidiaries
|
|
|
6,556
|
|
|
|
10,938
|
|
|
|
(52,140
|
)
|
Equity in earnings (losses) of
subsidiaries
|
|
|
(5,137
|
)
|
|
|
(29,724
|
)
|
|
|
73,429
|
|
Consolidated net income (loss)
|
|
$
|
1,419
|
|
|
$
|
(18,786
|
)
|
|
$
|
21,289
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pacific Ethanol, Inc.
Condensed Financial
Information of the Registrant
Statements of Cash
Flows - Parent Company Only
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,419
|
|
|
$
|
(18,786
|
)
|
|
$
|
21,289
|
|
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (losses) of subsidiaries
|
|
|
5,137
|
|
|
|
29,724
|
|
|
|
(73,429
|
)
|
Depreciation and amortization
|
|
|
727
|
|
|
|
390
|
|
|
|
126
|
|
Fair value adjustments
|
|
|
557
|
|
|
|
(1,641
|
)
|
|
|
35,260
|
|
Loss on extinguishments of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
2,363
|
|
Asset impairment
|
|
|
–
|
|
|
|
1,970
|
|
|
|
–
|
|
Deferred income taxes
|
|
|
(1,122
|
)
|
|
|
(14,260
|
)
|
|
|
5,128
|
|
Amortization of debt discount
|
|
|
10
|
|
|
|
–
|
|
|
|
1,674
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
|
7,302
|
|
|
|
(5,958
|
)
|
|
|
(7,001
|
)
|
Other assets
|
|
|
4,647
|
|
|
|
(4,139
|
)
|
|
|
1,365
|
|
AP and accruals
|
|
|
(3,741
|
)
|
|
|
604
|
|
|
|
(587
|
)
|
Accounts payable with subsidiaries
|
|
|
(9,385
|
)
|
|
|
11,179
|
|
|
|
5,846
|
|
Net cash provided by (used in)
provided by operating activities
|
|
$
|
5,551
|
|
|
$
|
(917
|
)
|
|
$
|
(7,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
$
|
(465
|
)
|
|
$
|
(1,483
|
)
|
|
$
|
(455
|
)
|
Purchases of investments in subsidiaries
|
|
|
–
|
|
|
|
–
|
|
|
|
(6,000
|
)
|
Investments in subsidiaries
|
|
|
(50,886
|
)
|
|
|
–
|
|
|
|
–
|
|
Purchase of PE OP Co. debt
|
|
|
(17,003
|
)
|
|
|
–
|
|
|
|
(17,038
|
)
|
Net cash used in investing activities
|
|
$
|
(68,354
|
)
|
|
$
|
(1,483
|
)
|
|
$
|
(23,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
$
|
53,350
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Proceeds from exercise of warrants
|
|
|
1,164
|
|
|
|
368
|
|
|
|
43,676
|
|
Preferred stock dividends
|
|
|
(1,269
|
)
|
|
|
(1,265
|
)
|
|
|
(3,459
|
)
|
Proceeds from equity raise
|
|
|
–
|
|
|
|
–
|
|
|
|
26,073
|
|
Payment on related party note
|
|
|
–
|
|
|
|
–
|
|
|
|
(750
|
)
|
Payments on senior notes
|
|
|
–
|
|
|
|
–
|
|
|
|
(13,984
|
)
|
Net cash provided by (used in) financing activities
|
|
$
|
53,245
|
|
|
$
|
(897
|
)
|
|
$
|
51,556
|
|
Net increase (decrease) increase in
cash and equivalents
|
|
|
(9,558
|
)
|
|
|
(3,297
|
)
|
|
|
20,097
|
|
Cash and equivalents at beginning of period
|
|
|
20,618
|
|
|
|
23,915
|
|
|
|
3,818
|
|
Cash and equivalents at ending of period
|
|
$
|
11,060
|
|
|
$
|
20,618
|
|
|
$
|
23,915
|
|
PACIFIC ETHANOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
18.
|
QUARTERLY FINANCIAL DATA (UNAUDITED).
|
The Company’s quarterly results of
operations for the years ended December 31, 2016 and 2015 are as follows (in thousands). Certain of these calculations have been
revised from the calculations previously reported to reflect the participating securities.
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
342,373
|
|
|
$
|
422,860
|
|
|
$
|
417,806
|
|
|
$
|
441,719
|
|
Gross profit
|
|
$
|
1,069
|
|
|
$
|
17,704
|
|
|
$
|
6,364
|
|
|
$
|
26,695
|
|
Income (loss) from operations
|
|
$
|
(7,248
|
)
|
|
$
|
11,556
|
|
|
$
|
393
|
|
|
$
|
18,808
|
|
Net income (loss) attributed to Pacific Ethanol, Inc.
|
|
$
|
(13,226
|
)
|
|
$
|
5,086
|
|
|
$
|
(3,518
|
)
|
|
$
|
13,077
|
|
Preferred stock dividends
|
|
$
|
(315
|
)
|
|
$
|
(315
|
)
|
|
$
|
(319
|
)
|
|
$
|
(320
|
)
|
Income allocated to participating securities
|
|
$
|
–
|
|
|
$
|
(71
|
)
|
|
$
|
–
|
|
|
$
|
(189
|
)
|
Net income (loss) available to common stockholders
|
|
$
|
(13,541
|
)
|
|
$
|
4,700
|
|
|
$
|
(3,837
|
)
|
|
$
|
12,569
|
|
Income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.32
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.30
|
|
Diluted
|
|
$
|
(0.32
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.30
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
206,176
|
|
|
$
|
227,621
|
|
|
$
|
380,622
|
|
|
$
|
376,757
|
|
Gross profit (loss)
|
|
$
|
(987
|
)
|
|
$
|
6,254
|
|
|
$
|
(7,380
|
)
|
|
$
|
9,523
|
|
Income (loss) from operations
|
|
$
|
(5,892
|
)
|
|
$
|
2,261
|
|
|
$
|
(14,826
|
)
|
|
$
|
485
|
|
Net income (loss) attributed to Pacific Ethanol, Inc.
|
|
$
|
(4,380
|
)
|
|
$
|
1,010
|
|
|
$
|
(14,663
|
)
|
|
$
|
(753
|
)
|
Preferred stock dividends
|
|
$
|
(312
|
)
|
|
$
|
(315
|
)
|
|
$
|
(319
|
)
|
|
$
|
(319
|
)
|
Income allocated to participating securities
|
|
$
|
–
|
|
|
$
|
(18
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
Net income (loss) available to common stockholders
|
|
$
|
(4,692
|
)
|
|
$
|
677
|
|
|
$
|
(14,982
|
)
|
|
$
|
(1,072
|
)
|
Income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.19
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.36
|
)
|
|
$
|
(0.03
|
)
|
Diluted
|
|
$
|
(0.19
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.36
|
)
|
|
$
|
(0.03
|
)
|
|
|
Where Located
|
Exhibit
Number
|
Description*
|
Form
|
File
Number
|
Exhibit
Number
|
Filing
Date
|
Filed
Herewith
|
2.1
|
Agreement and Plan of Merger dated as of December 30, 2014 by and among Pacific Ethanol, Inc., AVR Merger Sub, Inc. and Aventine Renewable Energy Holdings, Inc.
|
8-K
|
000-21467
|
2.1
|
12/31/2014
|
|
2.2
|
Amendment No. 1 to Agreement and Plan of Merger dated as of March 31, 2015 by and among Pacific Ethanol, Inc., AVR Merger Sub, Inc. and Aventine Renewable Energy Holdings, Inc.
|
8-K
|
000-21467
|
2.1
|
04/02/2015
|
|
3.1
|
Certificate of Incorporation
|
10-Q
|
000-21467
|
3.1
|
11/06/2015
|
|
3.2
|
Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Redeemable Convertible Preferred Stock
|
10-Q
|
000-21467
|
3.2
|
11/06/2015
|
|
3.3
|
Certificate of Designations, Powers, Preferences and Rights of the Series B Cumulative Convertible Preferred Stock
|
10-Q
|
000-21467
|
3.3
|
11/06/2015
|
|
3.4
|
Certificate of Amendment to Certificate of Incorporation dated June 3, 2010
|
10-Q
|
000-21467
|
3.4
|
11/06/2015
|
|
3.5
|
Certificate of Amendment to Certificate of Incorporation effective June 8, 2011
|
10-Q
|
000-21467
|
3.5
|
11/06/2015
|
|
3.6
|
Certificate of Amendment to Certificate of Incorporation effective May 14, 2013
|
10-Q
|
000-21467
|
3.6
|
11/06/2015
|
|
3.7
|
Certificate of Amendment to Certificate of Incorporation effective July 1, 2015
|
10-Q
|
000-21467
|
3.7
|
11/06/2015
|
|
3.8
|
Amended and Restated Bylaws
|
10-Q
|
000-21467
|
3.1
|
11/12/2014
|
|
10.1
|
2006 Stock Incentive Plan, as amended#
|
S-8
|
333-196876
|
4.1
|
06/18/2014
|
|
10.2
|
Form of Employee Restricted Stock Agreement under 2006 Stock Incentive Plan#
|
8-K
|
000-21467
|
10.2
|
10/10/2006
|
|
10.3
|
Form of Non-Employee Director Restricted Stock Agreement under 2006 Stock Incentive Plan#
|
8-K
|
000-21467
|
10.3
|
10/10/2006
|
|
10.4
|
2016 Stock Incentive Plan#
|
S-8
|
333-212070
|
4.1
|
06/16/2016
|
|
10.5
|
Form of Employee Restricted Stock Agreement under 2016 Stock Incentive Plan#
|
|
|
|
|
X
|
10.6
|
Form of Non-Employee Director Restricted Stock Agreement under 2016 Stock Incentive Plan#
|
|
|
|
|
X
|
|
|
Where Located
|
Exhibit
Number
|
Description*
|
Form
|
File
Number
|
Exhibit
Number
|
Filing
Date
|
Filed
Herewith
|
10.7
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Neil M. Koehler#
|
|
|
|
|
X
|
10.8
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Christopher W. Wright#
|
|
|
|
|
X
|
10.9
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Bryon T. McGregor#
|
|
|
|
|
X
|
10.10
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Michael D. Kandris#
|
|
|
|
|
X
|
10.11
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Paul P. Kohler#
|
|
|
|
|
X
|
10.12
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and James R. Sneed#
|
|
|
|
|
X
|
10.13
|
Pacific Ethanol, Inc. 2016 Short-Term Incentive Plan Description#
|
|
|
|
|
X
|
10.14
|
Form of Indemnity Agreement between the Registrant and each of its Executive Officers and Directors#
|
10-K
|
000-21467
|
10.46
|
03/31/2010
|
|
10.15
|
Warrant dated March 27, 2008 issued by the Registrant to Lyles United, LLC
|
8-K
|
000-21467
|
10.3
|
03/27/2008
|
|
10.16
|
Registration Rights Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC
|
8-K
|
000-21467
|
10.4
|
03/27/2008
|
|
10.17
|
Letter Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC
|
8-K
|
000-21467
|
10.5
|
03/27/2008
|
|
10.18
|
Letter Agreement dated May 22, 2008 among the Registrant, Neil M. Koehler, Bill Jones, Paul P. Koehler and Thomas D. Koehler#
|
8-K
|
000-21467
|
10.3
|
05/23/2008
|
|
10.19
|
Form of Warrant dated May 23, 2008 issued by the Registrant to each of Neil M. Koehler, Bill Jones, Paul P. Koehler and Thomas D. Koehler#
|
8-K
|
000-21467
|
10.2
|
05/23/2008
|
|
10.20
|
Amended and Restated Loan and Security Agreement dated May 4, 2012 among Kinergy Marketing LLC, Pacific Ag. Products, LLC, the parties thereto from time to time as Lenders, Wells Fargo Bank, National Association and Wells Fargo Capital Finance, LLC
|
8-K
|
000-21467
|
10.1
|
05/08/2012
|
|
|
|
Where Located
|
Exhibit
Number
|
Description*
|
Form
|
File
Number
|
Exhibit
Number
|
Filing
Date
|
Filed
Herewith
|
10.21
|
Amendment No. 1 to Amended and Restated Loan and Security Agreement dated December 4, 2013 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
8-K
|
000-21467
|
10.3
|
07/06/2015
|
|
10.22
|
Amendment No. 2 to Amended and Restated Loan and Security Agreement dated December 29, 2014 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
8-K
|
000-21467
|
10.2
|
07/06/2015
|
|
10.23
|
Amendment No. 3 to Amended and Restated Loan and Security Agreement dated July 1, 2015 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
8-K
|
000-21467
|
10.1
|
07/06/2015
|
|
10.24
|
Amendment No. 4 to Amended and Restated Loan and Security Agreement dated December 11, 2015 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
10-K
|
000-21467
|
10.21
|
03/15/2016
|
|
10.25
|
Amendment No. 5 to Amended and Restated Loan and Security Agreement dated December 28, 2015 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
10-K
|
000-21467
|
10.22
|
03/15/2016
|
|
10.26
|
Amendment No. 6 to Amended and Restated Loan and Security Agreement dated May 23, 2016 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
|
|
|
|
X
|
10.27
|
Amendment No. 7 to Amended and Restated Loan and Security Agreement dated July 21, 2016 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
|
|
|
|
X
|
10.28
|
Amendment No. 8 to Amended and Restated Loan and Security Agreement dated December 15, 2016 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
|
|
|
|
X
|
10.29
|
Amended and Restated Guarantee dated May 4, 2012 by the Registrant in favor of Wells Fargo Capital Finance, LLC for and on behalf of Lenders
|
8-K
|
000-21467
|
10.2
|
05/08/2012
|
|
10.30
|
Form of Series I Warrants issued by the Registrant on July 3, 2012
|
8-K
|
000-21467
|
10.1
|
06/28/2012
|
|
|
|
Where Located
|
Exhibit
Number
|
Description*
|
Form
|
File
Number
|
Exhibit
Number
|
Filing
Date
|
Filed
Herewith
|
10.31
|
Contribution Agreement dated December 12, 2016 among Pacific Ethanol Central, LLC, Aurora Cooperative Elevator Company and Pacific Aurora, LLC
|
8-K
|
000-21467
|
10.1
|
12/12/2016
|
|
10.32
|
Note Purchase Agreement dated December 12, 2016 among Pacific Ethanol, Inc. and the investors listed on the schedule of investors attached thereto
|
8-K
|
000-21467
|
10.2
|
12/12/2016
|
|
10.33
|
Form of Senior Secured Note for an aggregate principal amount of $55 million issued on December 15, 2016 pursuant to the Note Purchase Agreement dated December 12, 2016 among Pacific Ethanol, Inc. and the investors party thereto
|
8-K
|
000-21467
|
10.3
|
12/20/2016
|
|
10.34
|
Security Agreement dated December 15, 2016 among Pacific Ethanol, Inc., Cortland Capital Market Services LLC and the holders of Pacific Ethanol, Inc.’s Senior Secured Notes
|
8-K
|
000-21467
|
10.4
|
12/20/2016
|
|
10.35
|
Credit Agreement dated December 15, 2016 among Pacific Ethanol Pekin, Inc., 1
st
Farm Credit Services, PCA and CoBank, ACB
|
8-K
|
000-21467
|
10.5
|
12/20/2016
|
|
10.36
|
Security Agreement dated December 15, 2016 between Pacific Ethanol Pekin, Inc. and CoBank, ACB
|
8-K
|
000-21467
|
10.6
|
12/20/2016
|
|
10.37
|
Credit Agreement dated December 15, 2016 among Pacific Aurora, LLC, Pacific Ethanol Aurora West, LLC, Pacific Ethanol Aurora East, LLC and CoBank, ACB
|
8-K
|
000-21467
|
10.7
|
12/20/2016
|
|
10.38
|
Security Agreement dated December 15, 2016 among Pacific Aurora, LLC, Pacific Ethanol Aurora West, LLC, Pacific Ethanol Aurora East, LLC and CoBank, ACB
|
8-K
|
000-21467
|
10.8
|
12/20/2016
|
|
10.39
|
Working Capital Maintenance Agreement dated December 15, 2016 between Pacific Ethanol, Inc. and CoBank, ACB
|
8-K
|
000-21467
|
10.9
|
12/20/2016
|
|
14.1
|
Code of Ethics
|
8-K
|
000-21467
|
14.1
|
07/06/2015
|
|
21.1
|
Subsidiaries of the Registrant
|
|
|
|
|
X
|
23.1
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
X
|
23.2
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
X
|
|
|
Where Located
|
Exhibit
Number
|
Description*
|
Form
|
File
Number
|
Exhibit
Number
|
Filing
Date
|
Filed
Herewith
|
31.1
|
Certification Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
31.2
|
Certification Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
32.1
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
X
|
101.INS
|
XBRL Instance Document
|
|
|
|
|
X
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
X
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
|
X
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
|
X
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
|
X
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
|
|
|
X
|
|
(#)
|
A contract, compensatory plan or arrangement to which a director or executive officer is a party or in which one or more directors
or executive officers are eligible to participate.
|
|
(*)
|
Certain of the agreements filed as exhibits 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.
|
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on this 15th day of March, 2017.
PACIFIC ETHANOL, INC.
|
|
/s/ NEIL M. KOEHLER
|
Neil M. Koehler
President and Chief Executive
Officer
|
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
/s/
WILLIAM L. JONES
William L. Jones
|
Chairman of the Board and Director
|
March 15, 2017
|
/s/
NEIL M. KOEHLER
Neil M. Koehler
|
President, Chief Executive Officer (Principal Executive Officer) and Director
|
March 15, 2017
|
/s/
BRYON T. MCGREGOR
Bryon T. McGregor
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|
March 15, 2017
|
/s/
MICHAEL D. KANDRIS
Michael D. Kandris
|
Chief Operating Officer and Director
|
March 15, 2017
|
/s/
TERRY L. STONE
Terry L. Stone
|
Director
|
March 15, 2017
|
/s/
JOHN L. PRINCE
John L. Prince
|
Director
|
March 15, 2017
|
/s/
DOUGLAS L. KIETA
Douglas L. Kieta
|
Director
|
March 15, 2017
|
/s/
LARRY D. LAYNE
Larry D. Layne
|
Director
|
March 15, 2017
|
EXHIBITS FILED WITH THIS REPORT
Exhibit
Number
|
Description*
|
10.5
|
Form of Employee Restricted Stock Agreement under 2016 Stock Incentive Plan
|
10.6
|
Form of Non-Employee Director Restricted Stock Agreement under 2016 Stock Incentive Plan
|
10.7
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Neil M. Koehler
|
10.8
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Christopher W. Wright
|
10.9
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Bryon T. McGregor
|
10.10
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Michael D. Kandris
|
10.11
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Paul P. Kohler
|
10.12
|
Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and James R. Sneed
|
10.13
|
Pacific Ethanol, Inc. 2016 Short-Term Incentive Plan Description
|
10.26
|
Amendment No. 6 to Amended and Restated Loan and Security Agreement dated May 23, 2016 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
10.27
|
Amendment No. 7 to Amended and Restated Loan and Security Agreement dated July 21, 2016 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
10.28
|
Amendment No. 8 to Amended and Restated Loan and Security Agreement dated December 15, 2016 among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Capital Finance, LLC
|
21.1
|
Subsidiaries of the Registrant
|
23.1
|
Consent of Independent Registered Public Accounting Firm
|
23.2
|
Consent of Independent Registered Public Accounting Firm
|
31.1
|
Certification Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
Certification Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
(*)
|
Certain of the agreements filed as exhibits 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.
|
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