Quarterly report pursuant to Section 13 or 15(d)


6 Months Ended
Jun. 30, 2015
Business Combinations [Abstract]  

On December 30, 2014, the Company entered into a definitive merger agreement with Aventine, a Midwest ethanol producer, under which the Company agreed to acquire Aventine through a stock-for-stock merger. The merger agreement was amended effective March 31, 2015 to address certain conditions to closing and other matters. The acquisition closed on July 1, 2015 and the Company issued an aggregate of 17,759,193 shares of common stock and non-voting common stock for 100% of the outstanding shares of common stock of Aventine. The common stock issued as consideration had a fair value of $174.6 million on the acquisition date.


The Company believes the Aventine acquisition will result in a number of synergies and strategic advantages. The Company believes the acquisition will spread commodity and basis price risks across diverse markets and products, assisting in its efforts to optimize margin management; improve its hedging opportunities with a greater correlation to the liquid physical and paper markets in Chicago; and increase its flexibility and alternatives in feedstock procurement for its Midwest and Western production facilities. The acquisition also expands the Company’s marketing reach into new markets and extends its mix of co-products. The Company believes the acquisition will enable it to have deeper market insight and engagement in major ethanol and feed markets outside the Western United States, thereby improving pricing opportunities; allows 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 enable it to use its more diverse mix of co-products to generate strong co-product returns. In addition, the acquisition also increases the Company’s combined annual ethanol production capacity to 515 million gallons per year and annualized ethanol marketing volume to over 800 million gallons, including Aventine’s historical volumes.



The following allocation of the preliminary estimated purchase price assumes, with the exception of property and equipment and long-term debt, carrying values approximate fair value. Estimates of uncollectible accounts receivable are not considered material due to the short-term nature and customer collection history. The preliminary property and equipment fair value estimate is based primarily on a high-level review of similar recent market transactions and is subject to change. A final valuation will be more detailed in its analysis including a further review of recent market transactions with comparable assets and a discounted cash flow analysis of each facility based on market conditions and future operational assumptions and capital expenditures plans. Preliminarily, no intangible assets or liabilities have been estimated due to Aventine’s contracts being materially close to market prices. A final valuation may include either an asset or liability associated with any material out-of-market contract positions. Given that many of these contracts are short-term in nature and duration (less than 6 months), an assessment at this time would likely not be indicative of terms and purchase price allocation at the time the acquisition was closed. The preliminary fair-value determination of long-term debt is based on the current interest rate and financing markets. A final valuation will consider interest rate and financing market factors and may increase or decrease the amount estimated on the long-term debt.


Based upon these assumptions, the preliminary purchase price consideration allocation is as follows (in thousands):


Cash and equivalents   $ 18,800  
Accounts receivables     10,100  
Other current assets     30,800  
Total current assets     59,700  
Property and equipment     306,800  
Other assets     800  
Total assets acquired   $ 367,300  
Accounts payable, trade   $ 19,900  
Other current liabilities     9,800  
Total current liabilities     29,700  
Long-term debt - revolvers     13,700  
Long-term debt - term debt     145,600  
Other non-current liabilities     41,000  
Total liabilities assumed   $ 230,000  
Net assets acquired   $ 137,300  
Estimated goodwill   $ 37,300  
Total purchase price   $ 174,600  


The actual determination of the purchase price allocation on the closing date will be based on the final net tangible and intangible assets of Aventine on July 1, 2015 based on completion of the valuation of the fair value of such net assets. The Company anticipates that the ultimate purchase price allocation of balance sheet amounts such as current assets and liabilities, property and equipment, intangible assets and long-term assets and liabilities will differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the acquired assets and assumed liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill if net assets acquired are less than the purchase price. If net assets acquired exceed the purchase price, the residual amount will result in a bargain purchase gain. The estimated goodwill recognized results from benefits the Company believes it will achieve in both market growth opportunities discussed above and financial and operational synergies discussed below. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Current Initiatives and Outlook”.



The following table presents unaudited pro forma financial information assuming the acquisition occurred on January 1, 2014.


    Three Months Ended June 30,     Six Months Ended June 30,  
    2015     2014     2015     2014  
Revenues – pro forma   $ 390,224     $ 466,599     $ 727,337     $ 838,475  
Net income (loss) – pro forma   $ (9,428 )   $ 26,153     $ (28,768 )   $


Diluted net income (loss) per share – pro forma   $ (0.22 )   $ 0.65     $ (0.68 )   $ 0.13  
Diluted weighted-average shares – pro forma     42,596       40,035       42,348       38,273  


The Company is currently evaluating contingencies associated with the acquisition of Aventine, including its outstanding litigation with the Western Sugar Cooperative relating to a prior surplus sugar contract dispute and its environmental remediation costs. These costs are not included in the above pro forma disclosure as the Company is currently evaluating their fair values. For the three and six months ended June 30, 2015, the Company recorded approximately $0.3 million and $1.2 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.