Alto Ingredients, Inc. — Filing summary
Entity and period note: The supplied filing is Pacific Ethanol, Inc.’s Form 10-K for the fiscal year ended December 31, 2012—not a filing under the name Alto Ingredients, Inc., and not a standalone 2012 fourth-quarter report. The company traded as PEIX. Figures below are for Pacific Ethanol and its consolidated subsidiaries.
Business context
Pacific Ethanol marketed ethanol produced by its plants and third parties, and provided transportation, storage and delivery logistics in the Western United States. It also marketed wet distillers grains and managed ethanol production facilities. Its four plants had aggregate annual capacity of up to 200 million gallons; three operated and the 40-million-gallon Madera facility was idled at year-end.
Financial performance and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | $816.0 million | $901.2 million |
| Gross profit (loss) | $(19.5) million; margin (2.4)% | $19.4 million; margin 2.2% |
| Operating income (loss) | $(31.7) million | $4.0 million |
| Consolidated net income (loss) | $(43.4) million | $(4.0) million |
| Net income (loss) attributable to Pacific Ethanol | $(19.1) million | $3.1 million |
| Loss available to common stockholders | $(20.3) million; $(0.19) per share | $1.8 million; $0.05 per share |
| Cash from (used in) operating activities | $(20.8) million | $(4.0) million |
| Cash and cash equivalents at year-end | $7.6 million | $8.9 million |
| Working capital | $45.0 million | $50.1 million |
Total gallons sold rose 3.9% to 440.8 million, but production gallons sold fell 6.8% to 140.6 million while third-party gallons rose 9.8% to 300.2 million. Average sales price per gallon fell 12.2% to $2.45. The filing attributes the deterioration in gross margin chiefly to weak ethanol-versus-corn and energy margins and reduced production in response to industry conditions. SG&A decreased $3.3 million to $12.1 million; net interest expense was $13.0 million.
At December 31, 2012, total assets were $215.0 million and total liabilities were $142.1 million. Long-term debt, including current maturities, was $121.3 million; this included $101.0 million of Plant Owners’ debt, whose creditors had no recourse to Pacific Ethanol’s general credit. Kinergy’s credit line had $19.7 million outstanding and $27.0 million of borrowing-base availability. Year-end working capital ratio was 4.63.
Cash used in investing was $12.3 million, including $10.0 million paid toward New PE Holdco ownership and $2.3 million in capital additions. Financing provided $31.8 million, including $24.0 million of Plant Owners’ borrowings and $20.9 million net proceeds from stock and warrant issuance.
Material changes, outlook and significant risks
- Sales declined 9.4% year over year, while gross margin swung from positive 2.2% to negative 2.4% and attributable results moved from profit to loss. Management cited lower ethanol prices, higher corn costs, weaker demand and reduced plant crush margins.
- Pacific Ethanol owned 67% of New PE Holdco at December 31, 2012; it reported increasing that interest to 83% in the first quarter of 2013. Consolidation means reported results include the plant owners’ financials and noncontrolling interests.
- Near-term debt risk: As of the filing, up to $4.0 million of Plant Owners’ debt was due June 25, 2013. Failure to extend, restructure or repay it could trigger cross-defaults and acceleration of other Plant Owners’ debt. Management said it was pursuing financing and believed resources would cover the next 12 months subject to closing financing agreements and required stockholder approval; it gave no assurance the debt would be resolved on acceptable terms.
- Subsequent to year-end, the company issued $22.2 million of senior unsecured notes in January 2013 and $6.0 million of subordinated convertible notes in March 2013, with substantial accompanying warrants. It used proceeds in part to acquire or retire Plant Owners’ debt and increase its New PE Holdco interest. These securities, warrant terms and resulting potential dilution merit review.
- Management identified volatile ethanol, corn, natural gas and co-product prices, negative operating cash flow, financing needs, customer and supplier concentration, production disruptions, regulatory dependence and environmental liabilities as material risks. Three customers generated about 49% of 2012 net sales; two suppliers accounted for about 54% of ethanol and corn purchases.
- The company had received a Nasdaq minimum-bid-price deficiency notice, with an extended compliance deadline of June 3, 2013. It was seeking stockholder approval for a reverse split; delisting remained a risk. Management also reported that disclosure controls and internal control over financial reporting were effective at a reasonable-assurance level.
- No earnings guidance or specific numerical forecast is provided. The California Ethanol Producer Incentive Program was not funded in 2012; the company recorded no program benefit that year.
Most important facts to verify
- Confirm the issuer identity and reporting period: the source is Pacific Ethanol’s FY2012 10-K, not Alto Ingredients’ filing or a quarterly report.
- Verify the status and terms of the June 25, 2013 Plant Owners’ debt maturity, related cross-default exposure, and financing approvals.
- Reconcile reported debt and liquidity between Pacific Ethanol and the consolidated Plant Owners, including the nonrecourse nature of Plant Owners’ obligations and any guarantees.
- Review post-year-end note and warrant terms, stockholder approvals, share-count impact, and potential dilution; year-end common shares were 146.8 million, while 157.4 million were outstanding March 29, 2013.
- Check Nasdaq compliance outcome, reverse-split approval, and the company’s subsequent cash, operating performance and access to credit.