Quarterly report pursuant to Section 13 or 15(d)

11. Subsequent Events

11. Subsequent Events
6 Months Ended
Jun. 30, 2017
Subsequent Events [Abstract]  
Subsequent Events

Acquisition of Illinois Corn Processing LLC


On June 26, 2017, the Company, through its wholly-owned direct and indirect subsidiaries PE Central, and ICP Merger Sub, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of PE Central (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ICP, Illinois Corn Processing Holdings Inc. (“ICPH”) and MGPI Processing, Inc. (“MGPI”, and together with ICPH, the “Sellers”) to acquire 100% of the equity interests of ICP. The acquisition of ICP under the Merger Agreement was closed on July 3, 2017. At the closing, Merger Sub merged with and into ICP (the “Merger”), and ICP continues as the surviving corporation of the Merger and as a wholly-owned direct subsidiary of PE Central and a wholly-owned indirect subsidiary of the Company.


Upon closing and under the terms of the Merger Agreement, Merger Sub (i) paid to the Sellers $30,000,000 in cash (the “Cash Consideration Amount”) and (ii) issued to the Sellers secured promissory notes in the aggregate principal amount of approximately $46,926,000 (the “Seller Notes”). The Seller Notes are secured by a first priority lien on the assets of ICP and a pledge of the membership interests of ICP.


ICP is a 90 million gallon per year fuel and industrial alcohol manufacturing, storage and distribution facility adjacent to the Pacific Ethanol Pekin facility and is located on the Illinois River. ICP produces fuel-grade ethanol, beverage and industrial-grade alcohol, dry distillers grain (DDG) and corn oil. The facility has direct access to end-markets via barge, rail, and truck, and expands Pacific Ethanol’s domestic and international distribution channels.


The following allocation of the preliminary estimated purchase price assumes, with the exception of property and equipment, 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 on a preliminary valuation under review by management 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 the facility based on market conditions and future operational assumptions and capital expenditures plans. Preliminarily, no intangible assets or liabilities have been estimated due to ICP’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. Based upon these assumptions, the preliminary purchase price consideration allocation is as follows (in thousands):


Cash and equivalents   $ 1,078  
Accounts receivable     11,636  
Inventories     9,858  
Other current assets     1,235  
Total current assets     23,807  
Property and equipment     60,497  
Other assets      
Total assets acquired   $ 84,304  
Accounts payable, trade   $ 2,752  
Other current liabilities     4,572  
Total current liabilities     7,324  
Other non-current liabilities     54  
Total liabilities assumed   $ 7,378  
Net assets acquired   $ 76,926  
Estimated goodwill   $  
Total purchase price   $ 76,926  


The actual determination of the purchase price allocation on the closing date will be based on the final net tangible and intangible assets of ICP on July 3, 2017 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 following table presents unaudited pro forma combined financial information assuming the acquisition occurred on January 1, 2016.


    Three Months Ended June 30,     Six Months Ended June 30,  
    2017     2016     2017     2016  
Revenues – pro forma   $ 444,878     $ 463,436     $ 869,604     $ 855,418  
Net income (loss) – pro forma   $ (13,569 )   $ 6,688     $ (26,624 )   $ (6,809 )
Diluted net income (loss) per share – pro forma   $ (0.32 )   $ 0.16     $ (0.63 )   $ (0.16 )
Diluted weighted-average shares – pro forma     42,295       42,229       42,334       42,121  


For the three and six months ended June 30, 2017, the Company recorded approximately $0.3 million in costs associated with the ICP acquisition. These costs are reflected in selling, general and administrative expenses on the Company’s consolidated statements of operations.


Increase in Kinergy Line of Credit


On August 2, 2017, Kinergy increased its revolving line of credit from $85 million to $100 million.


Changes to Pekin Credit Facilities


As of June 30, 2017, PE Pekin did not maintain the required working capital under its credit agreements of at least $20.0 million. On August 7, 2017, PE Pekin obtained from its lender a waiver effective as of June 30, 2017, of this covenant violation and is now in compliance with the terms of its loans.


On August 7, 2017, PE Pekin amended its term and revolving credit facilities by agreeing to increase the interest rate under the facilities by 25 basis points to an annual rate equal to the 30-day LIBOR plus 4.00%. PE Pekin and its lender also agreed that PE Pekin is required to maintain working capital of not less than $17.5 million from August 31, 2017 through December 31, 2017 and working capital of not less than $20.0 million from January 1, 2018 and continuing at all times thereafter.