Sales Commitments – At September 30, 2014, the Company had entered into sales contracts with its major customers to sell certain quantities of ethanol, WDG, syrup and corn oil. The Company had open ethanol indexed-price contracts for 134,896,000 gallons of ethanol as of September 30, 2014. The Company had open WDG, syrup and corn oil fixed-price sales contracts valued at $814,000 and open indexed-price sales contracts for 164,000 tons of WDG and syrup as of September 30, 2014. These sales contracts are expected to be completed over the next twelve months.

Purchase Commitments – At September 30, 2014, the Company had fixed-price purchase contracts with its suppliers to purchase $11,462,000 of ethanol and index-price purchase contracts for 19,318,000 gallons of ethanol. These contracts are expected to be satisfied over the next twelve months. 

Litigation – General – The Company is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and others. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. While there can be no assurances, the Company does not expect that any of its pending legal proceedings will have a material financial impact on the Company’s operating results.

On May 24, 2013, GS CleanTech Corporation (“GS CleanTech”), filed a suit in the United States District Court for the Eastern District of California, Sacramento Division (Case No.: 2:13-CV-01042-JAM-AC), naming Pacific Ethanol, Inc. as a defendant. The suit alleges infringement of a patent assigned to GS CleanTech by virtue of certain corn oil separation technology in use at one or more of the ethanol production facilities in which the Company has an interest, including Pacific Ethanol Stockton LLC (“PE Stockton”), located in Stockton, California. The complaint seeks preliminary and permanent injunctions against the Company, prohibiting future infringement on the patent owned by GS CleanTech and damages in an unspecified amount adequate to compensate GS CleanTech for the alleged patent infringement, but in any event no less than a reasonable royalty for the use made of the inventions of the patent, plus attorney’s fees.

On March 17 and March 18, 2014, GS CleanTech filed suit naming as defendants two Company subsidiaries: PE Stockton and Pacific Ethanol Magic Valley, LLC (“PE Magic Valley”). The claims are similar to those filed against Pacific Ethanol, Inc. in May 2013.

The three cases (against the Company, PE Stockton and PE Magic Valley) were subsequently transferred to the United States District Court for the Southern District of Indiana and made part of the pre-existing multi-district litigation involving GS CleanTech and multiple defendants (the “Pre-existing Cases”). The three Pacific Ethanol cases, along with several other lawsuits brought by GS CleanTech containing substantially the same allegations of infringement, have thus been attached to the Pre-existing Cases as “Tag-along Cases.”

The Company, PE Stockton and PE Magic Valley have answered the complaints and counterclaimed that the patent claims at issue, as well as the claims in several related patents, are invalid and unenforceable and that the defendants are not infringing.

On October 23, 2014, the United States District Court for the Southern District of Indiana issued a sealed order holding all asserted GS CleanTech's corn oil separation patents invalid and not infringed. While the Court's order currently applies only to the Pre-existing Cases, the Company believes the ruling will also be dispositive of the Tag-along Cases, and intends to file a motion to dismiss the cases against the Company, PE Stockton and PE Magic Valley.