Business context and reporting period
The supplied filing is Pacific Ethanol, Inc.’s Form 10-K for the fiscal year ended December 31, 2013—not an Alto Ingredients filing. It reports annual results; the filing text does not provide a clear standalone fourth-quarter income statement or cash-flow summary. Pacific Ethanol markets ethanol and co-products and operates three of its four Western U.S. plants; the fourth, Madera, was being restarted. The company owned 91% of New PE Holdco at year-end.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Net sales | $908.4 million | $816.0 million |
| Gross profit (loss); margin | $32.9 million; 3.6% | $(19.5) million; (2.4)% |
| Operating income (loss) | $18.9 million | $(31.7) million |
| Consolidated net loss | $(1.2) million | $(43.4) million |
| Net loss attributable to Pacific Ethanol, Inc. | $(0.8) million | $(19.1) million |
| Cash from (used in) operating activities | $14.2 million | $(20.8) million |
- Sales rose 11.3% even though total ethanol volume sold fell 6.1% to 413.9 million gallons. Production gallons increased 6.5% to 149.7 million, while third-party gallons decreased 12.0% to 264.2 million.
- Average sales price rose to $2.59 per gallon from $2.45; average corn cost fell to $5.72 per bushel from $6.89. Management attributed the margin recovery chiefly to lower corn costs and stronger production crush margins.
- Interest expense rose to $15.7 million from $13.0 million. The company recorded $3.0 million of debt-extinguishment losses and $1.0 million of fair-value expense, versus $2.0 million of fair-value income in 2012. Loss available to common stockholders was $2.0 million, or $0.17 per share, versus $20.3 million, or $2.81 per share.
- Year-end cash was $5.2 million. Current assets were $79.4 million and current liabilities $28.2 million, with working capital of $51.2 million and a current ratio of 2.81, down from 4.63.
- At December 31, reported consolidated debt before unamortized discount was $100.8 million; long-term debt net of discount was $98.4 million, with $0.75 million current. Capital-lease obligations were an additional $10.9 million. Plant Owners’ debt carried an approximately 13.25% rate at year-end, and its assets secured that debt. The filing reports $30.0 million of borrowing-base availability under Kinergy’s facility against $19.0 million outstanding.
- Cash used in investing was $6.3 million and cash used in financing was $10.3 million. Financing included $27.1 million used to purchase Plant Owners’ debt and $36.7 million in net proceeds from financing transactions and warrant exercises. By March 31, 2014, the company reported $13.0 million of additional payments on senior notes, $19.4 million of Plant Owners’ revolving-debt repayments, and repayment of its $0.75 million related-party note.
Material changes versus the prior comparable period
- Results improved markedly from 2012’s operating and gross losses, though the company remained loss-making and had substantial interest costs.
- Net sales increased primarily because higher production sales and higher average realized prices outweighed lower third-party sales volumes. The Front Range Energy marketing agreement expired during 2013.
- Ownership of New PE Holdco rose from 67% to 91%, increasing the share of plant results attributable to Pacific Ethanol.
- Corn-oil production began at Magic Valley and Stockton in 2013, adding a co-product revenue stream. Capital leases for corn-oil systems contributed to higher current liabilities.
- Common shares outstanding increased from 9.8 million at 2012 year-end to 16.1 million at 2013 year-end, in part from conversions of subordinated notes and shares issued for dividends and debt payments.
Outlook, risks, contingencies, and unusual items
- Management expected to restart Madera in the second quarter of 2014, subject to permits, capital, testing, and start-up. The plant’s annual capacity is 40 million gallons; three other plants bring total system capacity to 200 million gallons.
- Management said plants were profitable at then-current margins and expected balanced ethanol supply and demand and blend rates at least at then-current levels through the balance of 2014. It also highlighted efficiency improvements, feedstock diversification, lower carbon intensity, and expanded corn-oil production. These are forward-looking statements, not guarantees.
- Management believed available resources would meet anticipated working-capital and capital-expenditure needs for at least 12 months, but warned that weaker margins, cash-flow deviations, or other events could require additional financing. Kinergy’s facility includes monthly financial covenants; failure could reduce or eliminate access to the facility.
- Key exposures include volatile ethanol, corn, and natural-gas prices; inability to fully hedge extreme movements; rail and other logistics disruption; plant operating risks; dependence on renewable-fuel mandates and customer acceptance; and competition. Three customers represented 52% of 2013 net sales, and two suppliers represented 51% of ethanol and corn purchases.
- Outstanding warrants are liability-classified and remeasured at fair value. Management expected a significantly higher non-cash warrant expense in first-quarter 2014 after the share-price increase; this could materially affect reported earnings without an equivalent cash outflow.
- GS CleanTech alleged patent infringement involving corn-oil separation technology and sought injunctive relief and unspecified damages. The company and subsidiaries disputed infringement and asserted defenses; the filing does not provide a clear estimate of potential loss.
- The company had $3.7 million of accrued unpaid Series B preferred dividends, with holders’ forbearance through March 31, 2015 conditional on continued payment of future dividends. The California producer-incentive program also carries potential repayment obligations; $122,000 was recorded in 2013 toward the $2.0 million previously received.
- Management concluded disclosure controls and internal control over financial reporting were effective at a reasonable-assurance level; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Confirm the issuer and reporting period: this document is Pacific Ethanol’s 2013 annual report, not an Alto Ingredients filing or a standalone Q4 report.
- Reconcile debt figures across the year-end balance sheet, debt note, capital leases, and subsequent 2014 repayments; check maturities, rates, collateral, and covenant headroom.
- Track Madera restart timing, required permits and capital, realized plant utilization, and whether reported margins persist as commodity prices change.
- Assess customer and supplier concentration, working-capital needs, and whether cash generation can support operations, debt service, and preferred dividends.
- Monitor warrant remeasurement and potential dilution, the GS CleanTech litigation, and any changes to fuel mandates or incentive-program repayment exposure.