Illinois Corn Processing

On July 3, 2017, the Company purchased 100% of the equity interests of ICP from ICP’s owners, Illinois Corn Processing Holdings Inc. (“ICPH”) and MGPI Processing, Inc. (together with ICPH, the “Sellers”). At the closing, ICP became an indirect wholly-owned subsidiary of the Company.

Upon closing, the Company (i) paid to the Sellers $30.0 million in cash, and (ii) issued to the Sellers secured promissory notes in the aggregate principal amount of approximately $46.9 million (the “Seller Notes”). The Seller Notes were secured by a first priority lien on ICP’s assets 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 Company’s facility in Pekin, Illinois and is located on the Illinois River. ICP produces fuel-grade ethanol, beverage and industrial-grade alcohol, dry distillers grain and corn oil. The facility has direct access to end-markets via barge, rail and truck, and expands the Company’s domestic and international distribution channels. ICP is reflected in the results of the Company’s production segment.

The Company has recognized the following allocation of the purchase price at fair values. No intangible assets or liabilities have been recognized due to ICP’s contracts being materially close to market prices. The Company’s purchase price consideration allocation is as follows (in thousands):

The contractual amount due on the accounts receivable acquired was $11.6 million, all of which is expected to be collectible. 

The following table presents unaudited pro forma combined financial information assuming the acquisition of ICP occurred on January 1, 2016.

For the year ended December 31, 2017, ICP contributed $75.9 million in net revenues and $3.7 million in pre-tax income. For the year ended December 31, 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.

 PE Central 

On July 1, 2015, the Company acquired 100% of PE Central and its 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):

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 14 for further details. 

The following table presents unaudited pro forma financial information for the year ended December 31, 2015, assuming the acquisition occurred on January 1, 2014 (in thousands except per share data). 

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 as if the acquisition had occurred on January 1, 2014. For the six months ended December 31, 2015, PE Central contributed $299.0 million in net sales and $16.3 million in pre-tax loss. For the year ended December 31, 2017, PE Central contributed $610.5 million in net sales and $8.4 million in pre-tax loss. For the year ended December 31, 2016, PE Central contributed $650.1 million in net sales and $2.1 million in pre-tax income. For the year ended December 31, 2015, the Company recorded approximately $1.4 million in costs associated with the PE Central 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 15, 2016, PE Central closed on an agreement with ACEC under which (i) PE Central contributed 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 owned 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 contributed 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, PE Central sold a 14.22% ownership interest in Pacific Aurora to ACEC for $30.0 million in cash. 

Following the closing of these transactions, 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. 

The carrying values and classification of assets and liabilities of Pacific Aurora as of December 31, 2016 were as follows (in thousands): 

 PE OP Co.

Prior to May 2015, the Company held a 96% ownership in PE Op Co. In May 2015, it purchased the remaining 4% ownership interest in PE Op Co. for $6.0 million in cash, 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 this purchase, 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 $4.4 million and recorded the difference of $0.6 million and for the year ended December 31, 2015, which represented the fair value of this purchase above the price paid by the Company, to additional paid-in capital on the consolidated balance sheet.