|
ITEM 1.
|
FINANCIAL STATEMENTS.
|
ALTO
INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(unaudited)
|
|
|
*
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
50,796
|
|
|
$
|
47,667
|
|
Accounts receivable, net (net of allowance for doubtful accounts of $363 and $260, respectively)
|
|
|
67,043
|
|
|
|
43,491
|
|
Inventories
|
|
|
58,251
|
|
|
|
37,925
|
|
Prepaid
inventory
|
|
|
531
|
|
|
|
891
|
|
Derivative
instruments
|
|
|
28,498
|
|
|
|
17,149
|
|
Assets held-for-sale
|
|
|
30,199
|
|
|
|
58,295
|
|
Other
current assets
|
|
|
8,932
|
|
|
|
8,628
|
|
Total
current assets
|
|
|
244,250
|
|
|
|
214,046
|
|
Property
and equipment, net
|
|
|
221,327
|
|
|
|
229,486
|
|
|
|
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
Right of
use operating lease assets, net
|
|
|
13,509
|
|
|
|
11,046
|
|
Notes receivable
|
|
|
12,775
|
|
|
|
14,337
|
|
Intangible
assets
|
|
|
2,678
|
|
|
|
2,678
|
|
Other
assets
|
|
|
4,665
|
|
|
|
5,225
|
|
Total
other assets
|
|
|
33,627
|
|
|
|
33,286
|
|
Total
Assets
|
|
$
|
499,204
|
|
|
$
|
476,818
|
|
|
*
|
Amounts
derived from the audited consolidated financial statements for the year ended December 31,
2020.
|
See accompanying notes
to consolidated financial statements.
ALTO INGREDIENTS,
INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except par value)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(unaudited)
|
|
|
*
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
Accounts
payable – trade
|
|
$
|
30,029
|
|
|
$
|
13,047
|
|
Accrued
liabilities
|
|
|
15,977
|
|
|
|
11,101
|
|
Current
portion – operating leases
|
|
|
3,171
|
|
|
|
2,180
|
|
Current
portion – long-term debt
|
|
|
23,660
|
|
|
|
25,533
|
|
Derivative
instruments
|
|
|
20,174
|
|
|
|
—
|
|
Liabilities
held-for-sale
|
|
|
10,478
|
|
|
|
19,542
|
|
Other
current liabilities
|
|
|
7,255
|
|
|
|
15,524
|
|
Total current
liabilities
|
|
|
110,744
|
|
|
|
86,927
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current portion
|
|
|
56,848
|
|
|
|
71,807
|
|
Operating
leases, net of current portion
|
|
|
10,188
|
|
|
|
8,715
|
|
Other
liabilities
|
|
|
13,405
|
|
|
|
13,134
|
|
Total
Liabilities
|
|
|
191,185
|
|
|
|
180,583
|
|
Commitments
and Contingencies (Note 7)
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Alto Ingredients,
Inc. Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000 shares authorized; Series A: 1,684 shares authorized; no shares issued and outstanding as of June 30, 2021 and December 31, 2020; Series B: 1,581 shares authorized; 927 shares issued and outstanding as of June 30, 2021 and December 31, 2020; liquidation preference of $20,290 as of June 30, 2021
|
|
|
1
|
|
|
|
1
|
|
Common stock, $0.001 par value; 300,000 shares authorized; 72,811 and 72,487 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
|
|
|
73
|
|
|
|
72
|
|
Non-voting common stock, $0.001 par value; 3,553 shares authorized; 1 share issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
|
|
|
—
|
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
1,035,980
|
|
|
|
1,036,638
|
|
Accumulated
other comprehensive loss
|
|
|
(3,878
|
)
|
|
|
(3,878
|
)
|
Accumulated
deficit
|
|
|
(724,157
|
)
|
|
|
(736,598
|
)
|
Total
Stockholders’ Equity
|
|
|
308,019
|
|
|
|
296,235
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
499,204
|
|
|
$
|
476,818
|
|
|
*
|
Amounts derived from the audited consolidated financial statements for the year ended December 31, 2020.
|
See accompanying notes
to consolidated financial statements.
ALTO INGREDIENTS,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in
thousands, except per share data)
|
|
Three
Months Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
298,110
|
|
|
$
|
212,074
|
|
|
$
|
516,844
|
|
|
$
|
523,478
|
|
Cost
of goods sold
|
|
|
282,877
|
|
|
|
180,892
|
|
|
|
487,774
|
|
|
|
505,186
|
|
Gross profit
|
|
|
15,233
|
|
|
|
31,182
|
|
|
|
29,070
|
|
|
|
18,292
|
|
Selling,
general and administrative expenses
|
|
|
7,230
|
|
|
|
8,629
|
|
|
|
14,244
|
|
|
|
18,841
|
|
Asset
impairments
|
|
|
1,900
|
|
|
|
—
|
|
|
|
3,100
|
|
|
|
—
|
|
Income (loss)
from operations
|
|
|
6,103
|
|
|
|
22,553
|
|
|
|
11,726
|
|
|
|
(549
|
)
|
Interest
expense, net
|
|
|
(1,045
|
)
|
|
|
(4,647
|
)
|
|
|
(2,930
|
)
|
|
|
(9,954
|
)
|
Income from
loan forgiveness
|
|
|
3,887
|
|
|
|
—
|
|
|
|
3,887
|
|
|
|
—
|
|
Fair value
adjustments
|
|
|
—
|
|
|
|
(1,314
|
)
|
|
|
—
|
|
|
|
(641
|
)
|
Other
income (expense), net
|
|
|
(555
|
)
|
|
|
(1,738
|
)
|
|
|
385
|
|
|
|
(1,158
|
)
|
Income (loss) before
benefit for income taxes
|
|
|
8,390
|
|
|
|
14,854
|
|
|
|
13,068
|
|
|
|
(12,302
|
)
|
Benefit
for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consolidated net
income (loss)
|
|
|
8,390
|
|
|
|
14,854
|
|
|
|
13,068
|
|
|
|
(12,302
|
)
|
Net
loss attributed to noncontrolling interests
|
|
|
—
|
|
|
|
110
|
|
|
|
—
|
|
|
|
2,166
|
|
Net
income (loss) attributed to Alto Ingredients, Inc.
|
|
$
|
8,390
|
|
|
$
|
14,964
|
|
|
$
|
13,068
|
|
|
$
|
(10,136
|
)
|
Preferred
stock dividends
|
|
$
|
(315
|
)
|
|
$
|
(315
|
)
|
|
$
|
(627
|
)
|
|
$
|
(630
|
)
|
Net
income (loss) available to common stockholders
|
|
$
|
8,075
|
|
|
$
|
14,649
|
|
|
$
|
12,441
|
|
|
$
|
(10,766
|
)
|
Net
income (loss) per share, basic
|
|
$
|
0.11
|
|
|
$
|
0.27
|
|
|
$
|
0.18
|
|
|
$
|
(0.20
|
)
|
Net
income (loss) per share, diluted
|
|
$
|
0.11
|
|
|
$
|
0.27
|
|
|
$
|
0.17
|
|
|
$
|
(0.20
|
)
|
Weighted-average
shares outstanding, basic
|
|
|
71,260
|
|
|
|
54,498
|
|
|
|
70,808
|
|
|
|
54,163
|
|
Weighted-average
shares outstanding, diluted
|
|
|
71,929
|
|
|
|
54,498
|
|
|
|
71,961
|
|
|
|
54,163
|
|
See
accompanying notes to consolidated financial statements.
ALTO INGREDIENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Operating Activities:
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
$
|
13,068
|
|
|
$
|
(12,302
|
)
|
Adjustments to reconcile consolidated net income (loss)
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
11,670
|
|
|
|
18,806
|
|
Asset impairments
|
|
|
3,100
|
|
|
|
—
|
|
Income from loan forgiveness
|
|
|
(3,887
|
)
|
|
|
—
|
|
Non-cash compensation
|
|
|
1,655
|
|
|
|
1,441
|
|
Amortization of deferred financing fees
|
|
|
701
|
|
|
|
497
|
|
Fair value adjustments
|
|
|
—
|
|
|
|
641
|
|
Interest added to debt
|
|
|
—
|
|
|
|
133
|
|
Bad debt expense
|
|
|
143
|
|
|
|
1
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(23,694
|
)
|
|
|
25,435
|
|
Inventories
|
|
|
(18,526
|
)
|
|
|
14,274
|
|
Prepaid expenses and other assets
|
|
|
8,615
|
|
|
|
(403
|
)
|
Prepaid inventory
|
|
|
361
|
|
|
|
(1,652
|
)
|
Operating leases
|
|
|
(2,069
|
)
|
|
|
(2,348
|
)
|
Assets held-for-sale
|
|
|
(2,915
|
)
|
|
|
1,012
|
|
Liabilities held-for-sale
|
|
|
1,445
|
|
|
|
9,345
|
|
Accounts payable and accrued expenses
|
|
|
11,096
|
|
|
|
(9,225
|
)
|
Net cash provided by operating activities
|
|
|
763
|
|
|
|
45,655
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from Madera Sale
|
|
|
19,500
|
|
|
|
—
|
|
Proceeds from PAL Sale
|
|
|
—
|
|
|
|
19,896
|
|
Additions to property and equipment
|
|
|
(4,192
|
)
|
|
|
(2,510
|
)
|
Net cash provided by investing activities
|
|
|
15,308
|
|
|
|
17,386
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Net proceeds from (payments on) Kinergy’s line of
credit
|
|
|
24,406
|
|
|
|
(36,897
|
)
|
Proceeds from stock option exercises
|
|
|
462
|
|
|
|
—
|
|
Principal payments on borrowings
|
|
|
(37,810
|
)
|
|
|
(25,500
|
)
|
Proceeds from issuance of common stock
|
|
|
—
|
|
|
|
282
|
|
Proceeds from borrowings
|
|
|
—
|
|
|
|
9,860
|
|
Net cash used in financing activities
|
|
|
(12,942
|
)
|
|
|
(52,255
|
)
|
Net change in cash and cash equivalents
|
|
|
3,129
|
|
|
|
10,786
|
|
Cash and cash equivalents at beginning
of period
|
|
|
47,667
|
|
|
|
18,997
|
|
Cash and cash equivalents at end
of period
|
|
$
|
50,796
|
|
|
$
|
29,783
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,723
|
|
|
$
|
9,733
|
|
Accrued preferred stock dividends
|
|
$
|
627
|
|
|
$
|
630
|
|
See accompanying notes to consolidated financial statements.
ALTO INGREDIENTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Accum. Other
Comprehensive
|
|
|
Non-Controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Total
|
|
Balances, January 1, 2021
|
|
|
927
|
|
|
$
|
1
|
|
|
|
72,487
|
|
|
$
|
72
|
|
|
$
|
1,036,638
|
|
|
$
|
(736,598
|
)
|
|
$
|
(3,878
|
)
|
|
$
|
—
|
|
|
$
|
296,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issued to employees and directors, net of cancellations and tax
|
|
|
—
|
|
|
|
—
|
|
|
|
550
|
|
|
|
1
|
|
|
|
(186
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
804
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
124
|
|
|
|
—
|
|
|
|
462
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(312
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,678
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2021
|
|
|
927
|
|
|
$
|
1
|
|
|
|
73,161
|
|
|
$
|
73
|
|
|
$
|
1,037,718
|
|
|
$
|
(732,232
|
)
|
|
$
|
(3,878
|
)
|
|
$
|
—
|
|
|
$
|
301,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issued to employees and directors, net of cancellations and tax
|
|
|
—
|
|
|
|
—
|
|
|
|
(350
|
)
|
|
|
—
|
|
|
|
(2,589
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
851
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(315
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,390
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2021
|
|
|
927
|
|
|
$
|
1
|
|
|
|
72,811
|
|
|
$
|
73
|
|
|
$
|
1,035,980
|
|
|
$
|
(724,157
|
)
|
|
$
|
(3,878
|
)
|
|
$
|
—
|
|
|
$
|
308,019
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Accum. Other
Comprehensive
|
|
|
Non-Controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Total
|
|
Balances, January 1, 2020
|
|
|
927
|
|
|
$
|
1
|
|
|
|
55,508
|
|
|
$
|
56
|
|
|
$
|
942,307
|
|
|
$
|
(720,214
|
)
|
|
$
|
(2,370
|
)
|
|
$
|
7,265
|
|
|
$
|
227,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issued to employees and directors, net of cancellations and tax
|
|
|
—
|
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
865
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
421
|
|
|
|
4
|
|
|
|
278
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(315
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,100
|
)
|
|
|
—
|
|
|
|
(2,056
|
)
|
|
|
(27,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2020
|
|
|
927
|
|
|
$
|
1
|
|
|
|
55,891
|
|
|
$
|
56
|
|
|
$
|
943,453
|
|
|
$
|
(745,629
|
)
|
|
$
|
(2,370
|
)
|
|
$
|
5,209
|
|
|
$
|
200,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issued to employees and directors, net of cancellations and tax
|
|
|
—
|
|
|
|
—
|
|
|
|
(409
|
)
|
|
|
(1
|
)
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
576
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(315
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of interests in PAL
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,099
|
)
|
|
|
(5,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,964
|
|
|
|
—
|
|
|
|
(110
|
)
|
|
|
14,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2020
|
|
|
927
|
|
|
$
|
1
|
|
|
|
55,482
|
|
|
$
|
55
|
|
|
$
|
944,035
|
|
|
$
|
(730,980
|
)
|
|
$
|
(2,370
|
)
|
|
$
|
—
|
|
|
$
|
210,741
|
|
See accompanying notes to
consolidated financial statements.
ALTO INGREDIENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
1.
|
ORGANIZATION AND BASIS OF PRESENTATION.
|
Organization and Business
– The consolidated financial statements include, for all periods presented,
the accounts of Alto Ingredients, Inc., a Delaware corporation (“Alto Ingredients”), and its direct and indirect subsidiaries
(collectively, the “Company”), including its wholly-owned subsidiaries, Kinergy Marketing LLC, an Oregon limited liability
company (“Kinergy”), Alto Nutrients LLC, a California limited liability company, Alto Op Co., a Delaware corporation, and
all seven of the Company’s production facilities through May 14, 2021. As discussed in Note 2, on May 14, 2021, the Company completed
the sale of its production facility located in Madera, California.
The Company is a leading producer
and marketer of specialty alcohols and essential ingredients. The Company also produces and markets fuel-grade ethanol. The Company’s
production facilities in Pekin, Illinois are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and allow
for access to many additional domestic markets. In addition, the Company’s ability to load unit trains and barges from these facilities
allows for greater access to international markets. The Company’s three production facilities in California, Oregon and Idaho, located
in close proximity to both feed and fuel-grade ethanol customers, enjoy unique advantages in efficiency, logistics and product pricing.
The Company has a combined production
capacity of 410 million gallons per year, markets, on an annualized basis, over 500 million gallons of alcohols, and produces, on an annualized
basis, nearly 1.5 million tons of essential ingredients on a dry matter basis, such as dried yeast, corn gluten meal, corn gluten feed,
and distillers grains and liquid feed used in commercial animal feed and pet foods.
The Company focuses on four
key markets: Health, Home & Beauty; Food & Beverage; Essential Ingredients; and Renewable Fuels. Products
for the Health, Home & Beauty market include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants
and cleaners. Products for the Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar as well
as corn germ used for corn oils. Products for Essential Ingredients markets include yeast, corn gluten and distillers grains used in commercial
animal feed and pet foods. Renewable Fuels includes fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel
fuel.
As of June 30, 2021, the Company
was operating at approximately 71% of its 410 million gallon annual production capacity. As market conditions change, the Company may
increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.
Basis of Presentation–Interim
Financial Statements – The accompanying unaudited consolidated financial statements and related notes have been prepared
in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Results for interim periods should not be considered indicative of results for
a full year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements
and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The accounting
policies used in preparing these consolidated financial statements are the same as those described in Note 1 to the consolidated financial
statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Accounts Receivable and Allowance for Doubtful
Accounts – Trade accounts receivable are presented at face value, net of the allowance for doubtful accounts. The Company
sells specialty alcohols to large consumer products companies, sells fuel-grade ethanol to gasoline refining and distribution companies,
sells essential ingredients to animal feed customers, including distillers grains and other feed co-products to dairy operators and animal
feedlots and corn oil to poultry and biodiesel customers generally without requiring collateral.
The Company maintains an allowance for doubtful
accounts for balances that appear to have specific collection issues. The collection process is based on the age of the invoice and requires
attempted contacts with the customer at specified intervals. If, after a specified number of days, the Company has been unsuccessful in
its collection efforts, a bad debt allowance is recorded for the balance in question. Delinquent accounts receivable are charged against
the allowance for doubtful accounts once uncollectibility has been determined. The factors considered in reaching this determination are
the apparent financial condition of the customer and the Company’s success in contacting and negotiating with the customer. If the
financial condition of the Company’s customers were to deteriorate, resulting in an impairment of ability to make payments, additional
allowances may be required.
Of the accounts receivable balance, approximately
$61,501,000 and $35,839,000 at June 30, 2021 and December 31, 2020, respectively, were used as collateral under Kinergy’s operating
line of credit. The allowance for doubtful accounts was $363,000 and $260,000 as of June 30, 2021 and December 31, 2020, respectively.
The Company recorded a bad debt expense of $52,000 and a bad debt recovery of $18,000 for the three months ended June 30, 2021 and 2020,
respectively. The Company recorded a bad debt expense of $143,000 and $1,000 for the six months ended June 30, 2021 and 2020, respectively.
The Company does not have any off-balance sheet credit exposure related to its customers.
Financial Instruments – The
carrying values of cash and cash equivalents, accounts receivable, derivative assets, accounts payable, accrued liabilities and derivative
liabilities are reasonable estimates of their fair values because of the short maturity of these items. The carrying value of the Company’s
senior secured notes are recorded at fair value and are considered Level 2 fair value measurements. The Company believes the carrying
value of its notes receivable are not considered materially different than fair value due to their recent issuances, and other long-term
debt instruments’ carrying values are not considered materially different than fair value because the interest rates on these instruments
are variable, and are considered Level 2 fair value measurements.
Estimates and Assumptions –
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are required as part of
determining the allowance for doubtful accounts, net realizable value of inventory, estimated lives of property and equipment, long-lived
asset impairments, fair value of warrants, valuation allowances on deferred income taxes and the potential outcome of future tax consequences
of events recognized in the Company’s financial statements or tax returns, and the valuation of assets acquired and liabilities
assumed as a result of business combinations. Actual results and outcomes may materially differ from management’s estimates and
assumptions.
|
2.
|
ASSETS AND LIABILITIES HELD-FOR-SALE.
|
In October 2020, the Company’s Board of
Directors approved a plan to sell the Company’s fuel-grade ethanol production facilities located in Madera and Stockton, California.
As a result, the Company determined the related long-lived asset groups should be classified as held-for-sale at December 31, 2020. During
the six months ended June 30, 2021, the Company provided for an additional impairment charge of $1.2 million based on revised fair value
estimates.
On May 14, 2021, the Company closed the sale of
its Madera facility for total consideration of $28.3 million, comprised of $19.5 million in cash and $8.8 million in assumption of liabilities,
resulting in a net loss on sale of less than $0.1 million, recorded as other income (expense), net in the Company’s consolidated
statements of operations. All of the cash proceeds were used to repay a significant portion of the Company’s term debt and accrued
interest.
The Company continues to market its Stockton
facility for sale.
In June 2021, the Company agreed to a plan to
sell certain assets of the Company’s idled facility in Canton, Illinois. As a result, the Company determined the related long-lived
asset groups should be classified as held-for-sale at June 30, 2021. During the three months ended June 30, 2021, the Company recorded
an estimated impairment charge of $1.9 million based on fair value estimates.
The Company classified the following assets and
liabilities as held-for-sale as of June 30, 2021 (in thousands):
|
|
Stockton
|
|
|
Canton
|
|
Property and equipment, net
|
|
$
|
19,535
|
|
|
$
|
1,000
|
|
Right of use operating lease assets, net
|
|
|
9,664
|
|
|
|
—
|
|
Assets held-for-sale
|
|
$
|
29,199
|
|
|
$
|
1,000
|
|
|
|
Stockton
|
|
|
Canton
|
|
Liabilities held-for-sale – operating leases
|
|
$
|
10,478
|
|
|
$
|
—
|
|
The Company classified the following assets and
liabilities as held-for-sale as of December 31, 2020 (in thousands):
|
|
Stockton
|
|
|
Madera
|
|
Property and equipment, net
|
|
$
|
19,535
|
|
|
$
|
29,013
|
|
Right of use operating lease assets, net
|
|
|
9,747
|
|
|
|
—
|
|
Assets held-for-sale
|
|
$
|
29,282
|
|
|
$
|
29,013
|
|
|
|
Stockton
|
|
|
Madera
|
|
Operating lease obligations
|
|
$
|
10,435
|
|
|
$
|
—
|
|
Assessment financing
|
|
|
—
|
|
|
|
9,107
|
|
Liabilities held-for-sale
|
|
$
|
10,435
|
|
|
$
|
9,107
|
|
For the three months ended June 30, 2021, net
sales attributed to the results of operations for Stockton and Madera were $0.4 million and less than $0.1 million, respectively. For
the three months ended June 30, 2020, net sales attributed to the results of operations for Stockton and Madera were $0.5 million and
$1.0 million, respectively. For the three months ended June 30, 2021, pre-tax loss attributed to the results of operations for Stockton
and Madera was $1.4 million and $0.2 million, respectively. For the three months ended June 30, 2020, pre-tax loss attributed to the results
of operations for Stockton and Madera was $1.2 million and $1.8 million, respectively.
For the six months ended June 30, 2021, net sales
attributed to the results of operations for Stockton and Madera were $0.6 million and less than $0.1 million, respectively. For the six
months ended June 30, 2020, net sales attributed to the results of operations for Stockton and Madera were $22.4 million and $22.5 million,
respectively. For the six months ended June 30, 2021, pre-tax loss attributed to the results of operations for Stockton and Madera was
$2.2 million and $1.8 million, respectively. For the six months ended June 30, 2020, pre-tax loss attributed to the results of operations
for Stockton and Madera was $3.5 million and $3.6 million, respectively.
The Company reports its financial and operating
performance in three segments: (1) marketing and distribution, which includes marketing and merchant trading for Company-produced alcohols
and essential ingredients on an aggregated basis, and third-party fuel-grade ethanol (2) Pekin production, which includes the production
and sale of alcohols and essential ingredients produced at the Company’s Pekin, Illinois campus (“Pekin Campus”), and
(3) Other production, which includes the production and sale of fuel-grade ethanol and essential ingredients produced at all of the Company’s
other production facilities on an aggregated basis (“Other production”), none of which are individually so significant as
to be considered a reportable segment.
The following tables set forth certain financial
data for the Company’s operating segments (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcohol sales, gross
|
|
$
|
86,299
|
|
|
$
|
71,117
|
|
|
$
|
143,309
|
|
|
$
|
128,623
|
|
Alcohol sales, net
|
|
|
532
|
|
|
|
307
|
|
|
|
984
|
|
|
|
736
|
|
Intersegment sales
|
|
|
2,618
|
|
|
|
1,838
|
|
|
|
4,862
|
|
|
|
6,153
|
|
Total marketing and distribution sales
|
|
|
89,449
|
|
|
|
73,262
|
|
|
|
149,155
|
|
|
|
135,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pekin Campus production, recorded as gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcohol sales
|
|
$
|
132,296
|
|
|
$
|
94,538
|
|
|
$
|
227,380
|
|
|
$
|
178,669
|
|
Essential ingredient sales
|
|
|
49,578
|
|
|
|
33,633
|
|
|
|
94,655
|
|
|
|
73,504
|
|
Intersegment sales
|
|
|
316
|
|
|
|
263
|
|
|
|
628
|
|
|
|
680
|
|
Total Pekin Campus sales
|
|
|
182,190
|
|
|
|
128,434
|
|
|
|
322,663
|
|
|
|
252,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other production, recorded as gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcohol sales
|
|
$
|
22,153
|
|
|
$
|
9,796
|
|
|
$
|
38,121
|
|
|
$
|
109,025
|
|
Essential ingredient sales
|
|
|
7,252
|
|
|
|
2,683
|
|
|
|
12,395
|
|
|
|
32,921
|
|
Intersegment sales
|
|
|
332
|
|
|
|
410
|
|
|
|
637
|
|
|
|
701
|
|
Total Other production sales
|
|
|
29,737
|
|
|
|
12,889
|
|
|
|
51,153
|
|
|
|
142,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment eliminations
|
|
|
(3,266
|
)
|
|
|
(2,511
|
)
|
|
|
(6,127
|
)
|
|
|
(7,534
|
)
|
Net sales as reported
|
|
$
|
298,110
|
|
|
$
|
212,074
|
|
|
$
|
516,844
|
|
|
$
|
523,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and distribution
|
|
$
|
85,746
|
|
|
$
|
69,101
|
|
|
$
|
139,705
|
|
|
$
|
126,240
|
|
Pekin Campus production
|
|
|
171,547
|
|
|
|
95,070
|
|
|
|
299,250
|
|
|
|
221,840
|
|
Other production
|
|
|
27,325
|
|
|
|
18,354
|
|
|
|
51,442
|
|
|
|
160,663
|
|
Intersegment eliminations
|
|
|
(1,741
|
)
|
|
|
(1,633
|
)
|
|
|
(2,623
|
)
|
|
|
(3,557
|
)
|
Cost of goods sold as reported
|
|
$
|
282,877
|
|
|
$
|
180,892
|
|
|
$
|
487,774
|
|
|
$
|
505,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before benefit for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and distribution
|
|
$
|
1,678
|
|
|
$
|
2,043
|
|
|
$
|
5,411
|
|
|
$
|
4,286
|
|
Pekin Campus production
|
|
|
10,726
|
|
|
|
27,459
|
|
|
|
20,736
|
|
|
|
19,280
|
|
Other production
|
|
|
(1,666
|
)
|
|
|
(10,252
|
)
|
|
|
(7,609
|
)
|
|
|
(33,816
|
)
|
Corporate activities
|
|
|
(2,348
|
)
|
|
|
(4,396
|
)
|
|
|
(5,470
|
)
|
|
|
(2,052
|
)
|
|
|
$
|
8,390
|
|
|
$
|
14,854
|
|
|
$
|
13,068
|
|
|
$
|
(12,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pekin Campus production
|
|
$
|
4,326
|
|
|
$
|
4,371
|
|
|
$
|
8,671
|
|
|
$
|
8,757
|
|
Other production
|
|
|
1,468
|
|
|
|
3,697
|
|
|
|
2,966
|
|
|
|
9,982
|
|
Corporate activities
|
|
|
17
|
|
|
|
33
|
|
|
|
33
|
|
|
|
67
|
|
|
|
$
|
5,811
|
|
|
$
|
8,101
|
|
|
$
|
11,670
|
|
|
$
|
18,806
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and distribution
|
|
$
|
222
|
|
|
$
|
313
|
|
|
$
|
426
|
|
|
$
|
940
|
|
Pekin Campus production
|
|
|
73
|
|
|
|
1,594
|
|
|
|
591
|
|
|
|
3,679
|
|
Other production
|
|
|
46
|
|
|
|
29
|
|
|
|
182
|
|
|
|
60
|
|
Corporate activities
|
|
|
704
|
|
|
|
2,711
|
|
|
|
1,731
|
|
|
|
5,275
|
|
|
|
$
|
1,045
|
|
|
$
|
4,647
|
|
|
$
|
2,930
|
|
|
$
|
9,954
|
|
The following table sets forth the Company’s
total assets by operating segment (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and distribution
|
|
$
|
140,204
|
|
|
$
|
89,337
|
|
Pekin Campus production
|
|
|
254,206
|
|
|
|
234,439
|
|
Other production
|
|
|
83,330
|
|
|
|
102,409
|
|
Corporate assets
|
|
|
21,464
|
|
|
|
50,633
|
|
|
|
$
|
499,204
|
|
|
$
|
476,818
|
|
Inventories consisted primarily of bulk ethanol,
specialty alcohols, corn, essential ingredients and unleaded fuel, and are valued at the lower of cost or net realizable value, with cost
determined on a first-in, first-out basis. Inventory is net of valuation adjustments of $1,800,000 and $1,033,000 as of June 30, 2021
and December 31, 2020, respectively. Inventory balances consisted of the following (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Finished goods
|
|
$
|
40,497
|
|
|
$
|
25,154
|
|
Work in progress
|
|
|
5,701
|
|
|
|
4,333
|
|
Raw materials
|
|
|
10,788
|
|
|
|
7,074
|
|
Other
|
|
|
1,265
|
|
|
|
1,364
|
|
Total
|
|
$
|
58,251
|
|
|
$
|
37,925
|
|
The business and activities of the Company expose
it to a variety of market risks, including risks related to changes in commodity prices. The Company monitors and manages these financial
exposures as an integral part of its risk management program. This program recognizes the unpredictability of financial markets and seeks
to reduce the potentially adverse effects that market volatility could have on operating results.
Commodity Risk – Cash
Flow Hedges – The Company uses derivative instruments to protect cash flows from fluctuations caused by volatility in commodity
prices for periods of up to twelve months in order to protect gross profit margins from potentially adverse effects of market and price
volatility on alcohol sales and purchase commitments where the prices are set at a future date and/or if the contracts specify a floating
or index-based price. In addition, the Company hedges anticipated sales of alcohol to minimize its exposure to the potentially adverse
effects of price volatility. These derivatives may be designated and documented as cash flow hedges and effectiveness is evaluated by
assessing the probability of the anticipated transactions and regressing commodity futures prices against the Company’s purchase
and sales prices. Ineffectiveness, which is defined as the degree to which the derivative does not offset the underlying exposure, is
recognized immediately in cost of goods sold. For the three and six months ended June 30, 2021 and 2020, the Company did not designate
any of its derivatives as cash flow hedges.
Commodity Risk – Non-Designated Hedges
– The Company uses derivative instruments to lock in prices for certain amounts of corn and alcohols by entering into exchange-traded
forward contracts or options for those commodities. These derivatives are not designated for hedge accounting treatment. The changes in
fair value of these contracts are recorded on the balance sheet and recognized immediately in cost of goods sold. The Company recognized
net gains of $8,868,000 and $0 as the change in the fair value of these contracts for the three months ended June 30, 2021 and 2020, respectively.
The Company recognized net gains of $19,411,000 and $0 as the change in the fair value of these contracts for the six months ended June
30, 2021 and 2020, respectively.
Non Designated Derivative Instruments
– The classification and amounts of the Company’s derivatives not designated as hedging instruments, and related cash collateral
balances, are as follows (in thousands):
|
|
As of June 30, 2021
|
|
|
Assets
|
|
Liabilities
|
Type of Instrument
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash collateral balance
|
|
Other current assets
|
|
$
|
3,777
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Derivative assets
|
|
$
|
28,498
|
|
|
Derivative liabilities
|
|
$
|
20,174
|
|
|
|
As of December 31, 2020
|
|
|
Assets
|
|
Liabilities
|
Type of Instrument
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash collateral balance
|
|
Other current assets
|
|
$
|
520
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Derivative assets
|
|
$
|
17,149
|
|
|
Derivative liabilities
|
|
$
|
—
|
|
The classification and amounts of the Company’s
recognized gains for its derivatives not designated as hedging instruments are as follows (in thousands):
|
|
|
|
Realized Gains
|
|
|
|
|
|
For the Three Months Ended
June 30,
|
|
Type of Instrument
|
|
Statements of Operations Location
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
18,158
|
|
|
$
|
—
|
|
|
|
|
|
$
|
18,158
|
|
|
$
|
—
|
|
|
|
|
|
Realized Gains
|
|
|
|
|
|
For the Six Months Ended
June 30,
|
|
Type of Instrument
|
|
Statements of Operations Location
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
24,343
|
|
|
$
|
—
|
|
|
|
|
|
$
|
24,343
|
|
|
$
|
—
|
|
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
For the Three Months Ended
June 30,
|
|
Type of Instrument
|
|
Statements of Operations Location
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
9,290
|
|
|
$
|
—
|
|
|
|
|
|
$
|
9,290
|
|
|
$
|
—
|
|
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
For the Six Months Ended
June 30,
|
|
Type of Instrument
|
|
Statements of Operations Location
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
4,932
|
|
|
$
|
—
|
|
|
|
|
|
$
|
4,932
|
|
|
$
|
—
|
|
Long-term
borrowings are summarized as follows (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Kinergy line of credit
|
|
$
|
56,918
|
|
|
$
|
32,512
|
|
Pekin revolving loan
|
|
|
7,580
|
|
|
|
20,580
|
|
ICP revolving loan
|
|
|
9,384
|
|
|
|
9,384
|
|
Parent notes payable
|
|
|
723
|
|
|
|
25,533
|
|
CARES Act loans
|
|
|
5,973
|
|
|
|
9,860
|
|
|
|
|
80,578
|
|
|
|
97,869
|
|
Less unamortized debt premium
|
|
|
—
|
|
|
|
230
|
|
Less unamortized debt financing costs
|
|
|
(70
|
)
|
|
|
(759
|
)
|
Less short-term portion
|
|
|
(23,660
|
)
|
|
|
(25,533
|
)
|
Long-term debt
|
|
$
|
56,848
|
|
|
$
|
71,807
|
|
Parent
Notes Payable – On May 14, 2021, with proceeds from the Company’s sale of its
Madera, California facility, the Company repaid $19.3 million of principal on its notes payable, resulting in an aggregate balance of
$0.7 million.
CARES
Act Loans – On May 4, 2020, Alto Ingredients, Inc. and Alto Pekin, LLC, or Alto
Pekin, received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),
through the Paycheck Protection Program administered by the U.S. Small Business Administration (“SBA”). Alto Ingredients,
Inc. received $6.0 million and Alto Pekin received $3.9 million in loan proceeds. Under the terms of the loans, certain amounts may be
forgiven if they are used for qualifying expenses as described in the CARES Act. In June 2021, the SBA approved Alto Pekin’s forgiveness
application for the full amount of $3.9 million, and accordingly, the Company recognized income from loan forgiveness for the three months
ended June 30, 2021. The Company has applied to the SBA for forgiveness of the Company’s
remaining loan. The SBA may audit the loan forgiveness applications and further examine eligibility for forgiveness, including the facts
and circumstances existing at the time the loans were made. The Company can provide no assurances that any loan forgiven will not require
repayment following an audit by the SBA.
Maturities
of Long-term Debt – The Company’s long-term debt matures as follows (in thousands):
December 31:
|
|
|
|
2021
|
|
$
|
723
|
|
2022
|
|
|
22,937
|
|
2023
|
|
|
56,918
|
|
|
|
$
|
80,578
|
|
Restrictions
– At June 30, 2021, there were approximately $245.7 million of net assets
at the Company’s subsidiaries that were not available for transfer to Alto Ingredients, Inc. in the form of dividends, loans or
advances due to restrictions contained in the credit facilities of the Company’s subsidiaries.
|
7.
|
COMMITMENTS
AND CONTINGENCIES.
|
Sales
Commitments – At June 30, 2021, the Company had entered into sales contracts with
its major customers to sell certain quantities of alcohol and essential ingredients. The Company had open alcohol indexed-price contracts
for 96,399,000 gallons as of June 30, 2021 and open fixed-price alcohol sales contracts totaling $223,575,000 as of June 30, 2021. The
Company had open fixed-price sales contracts for essential ingredients totaling $11,061,000 and open indexed-price sales contracts of
essential ingredients for 117,000 tons as of June 30, 2021. These sales contracts are scheduled for completion over the next twelve months.
Purchase
Commitments – At June 30, 2021, the Company had indexed-price purchase contracts to purchase 17,706,000 gallons of alcohol
and fixed-price purchase contracts to purchase $39,086,000 of alcohol from its suppliers. The Company had fixed-price purchase contracts
to purchase $77,375,000 of corn from its suppliers as of June 30, 2021. These purchase commitments are scheduled to be satisfied throughout
2021.
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, environmental regulations, 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 impact on the Company’s financial condition or results of operations.
|
8.
|
PENSION
AND RETIREMENT BENEFIT PLANS.
|
The Company sponsors a defined benefit pension plan (the “Retirement
Plan”) and a health care and life insurance plan (the “Postretirement Plan”). The Company assumed the Retirement Plan
and the Postretirement Plan as part of its acquisition of Aventine Renewable Energy Holdings, Inc. on July 1, 2015.
The
Retirement Plan is noncontributory, and covers only “grandfathered” unionized employees at the Company’s Pekin, Illinois
facility who fulfill minimum age and service requirements. Benefits are based on a prescribed formula based upon the employee’s
years of service. The Retirement Plan, which is part of a collective bargaining agreement, covers only union employees hired prior to
November 1, 2010.
The
Company uses a December 31 measurement date for its Retirement Plan. The Company’s funding policy is to make the minimum annual
contribution required by applicable regulations. As of December 31, 2020, the Retirement Plan’s accumulated projected benefit obligation
was $24.6 million, with a fair value of plan assets of $17.6 million. The underfunded amount of $7.0 million is recorded on the Company’s
consolidated balance sheet in other liabilities.
For
the three months ended June 30, 2021, the Retirement Plan’s net periodic expense was $22,000, comprised of $151,000 in interest
cost and $109,000 in service cost, partially offset by $238,000 of expected return on plan assets. For the three months ended June 30,
2020, the Retirement Plan’s net periodic expense was $48,000, comprised of $173,000 in interest cost and $101,000 in service cost,
partially offset by $226,000 of expected return on plan assets. For the six months ended June 30, 2021, the Retirement Plan’s net
periodic expense was $44,000, comprised of $302,000 in interest cost and $218,000 in service cost, partially offset by $476,000 of expected
return on plan assets. For the six months ended June 30, 2020, the Retirement Plan’s net periodic expense was $96,000, comprised
of $346,000 in interest cost and $202,000 in service cost, partially offset by $452,000 of expected return on plan assets.
The
Postretirement Plan provides postretirement medical benefits and life insurance to certain “grandfathered” unionized employees.
Employees hired after December 31, 2000 are not eligible to participate in the Postretirement Plan. The Postretirement Plan is contributory,
with contributions required at the same rate as active employees. Benefit eligibility under the plan declines at age 65 from a defined
benefit to a defined dollar cap based upon years of service. As of December 31, 2020, the Postretirement Plan’s accumulated projected
benefit obligation was $5.3 million and is recorded on the Company’s consolidated balance sheet in other liabilities. The Company’s
funding policy is to make the minimum annual contribution required by applicable regulations.
For
the three months ended June 30, 2021, the Postretirement Plan’s net periodic expense was $42,000, comprised of $10,000 of interest
cost, $26,000 of service cost and $6,000 of amortization expense. For the three months ended June 30, 2020, the Postretirement Plan’s
net periodic expense was $59,000, comprised of $38,000 of interest cost, $14,000 of service cost and $7,000 of amortization expense.
For
the six months ended June 30, 2021, the Postretirement Plan’s net periodic expense was $84,000, comprised of $20,000 of interest
cost, $52,000 of service cost and $12,000 of amortization expense. For the six months ended June 30, 2020, the Postretirement Plan’s
net periodic expense was $118,000, comprised of $76,000 of interest cost, $28,000 of service cost and $14,000 of amortization expense.
|
9.
|
FAIR
VALUE MEASUREMENTS.
|
The
fair value hierarchy prioritizes the inputs used in valuation techniques into three levels, as follows:
|
●
|
Level
1 – Observable inputs – unadjusted quoted prices in active markets for identical
assets and liabilities;
|
|
●
|
Level
2 – Observable inputs other than quoted prices included in Level 1 that are observable
for the asset or liability through corroboration with market data; and
|
|
●
|
Level
3 – Unobservable inputs – includes amounts derived from valuation models where
one or more significant inputs are unobservable. For fair value measurements using significant
unobservable inputs, a description of the inputs and the information used to develop the
inputs is required along with a reconciliation of Level 3 values from the prior reporting
period.
|
Pooled
separate accounts – Pooled separate accounts invest primarily in domestic and international stocks, commercial paper or
single mutual funds. The net asset value is used as a practical expedient to determine fair value for these accounts. Each pooled separate
account provides for redemptions by the Retirement Plan at reported net asset values per share, with little to no advance notice requirement,
therefore these funds are classified within Level 2 of the valuation hierarchy.
Long-Lived
Assets Held-for-Sale – The Company recorded its long-lived assets associated with its property and equipment held-for-sale
at fair value at June 30, 2021 and December 31, 2020 of $20,535,000 and $48,548,000, respectively. The fair values of these assets are
based on observable values for the assets through corroboration with market data and are designated as Level 3 inputs.
Other
Derivative Instruments – The Company’s other derivative instruments consist of commodity positions. The fair values
of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1 inputs.
The
following table summarizes recurring and nonrecurring fair value measurements by level at June 30, 2021 (in thousands):
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
28,498
|
|
|
$
|
28,498
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Long-lived assets held-for-sale
|
|
|
30,199
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,199
|
|
|
|
$
|
58,697
|
|
|
$
|
28,498
|
|
|
$
|
—
|
|
|
$
|
30,199
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
(20,174
|
)
|
|
$
|
(20,174
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
(20,174
|
)
|
|
$
|
(20,174
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
The
following table summarizes recurring and nonrecurring fair value measurements by level at December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Plan
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Allocation
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
17,149
|
|
|
$
|
17,149
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Long-lived assets held-for-sale
|
|
|
58,295
|
|
|
|
—
|
|
|
|
—
|
|
|
|
58,295
|
|
|
|
|
|
Defined benefit plan assets(1) (pooled separate accounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large U.S. Equity(2)
|
|
|
5,470
|
|
|
|
—
|
|
|
|
5,470
|
|
|
|
—
|
|
|
|
31
|
%
|
Small/Mid U.S. Equity(3)
|
|
|
2,605
|
|
|
|
—
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
15
|
%
|
International Equity(4)
|
|
|
2,921
|
|
|
|
—
|
|
|
|
2,921
|
|
|
|
—
|
|
|
|
17
|
%
|
Fixed Income(5)
|
|
|
6,592
|
|
|
|
—
|
|
|
|
6,592
|
|
|
|
—
|
|
|
|
37
|
%
|
|
|
$
|
93,032
|
|
|
$
|
17,149
|
|
|
$
|
17,588
|
|
|
$
|
58,295
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
(1)
|
Included
in other assets in the consolidated balance sheets.
|
(2)
|
This
category includes investments in funds comprised of equity securities of large U.S. companies.
The funds are valued using the net asset value method in which an average of the market prices
for the underlying investments is used to value the fund.
|
(3)
|
This
category includes investments in funds comprised of equity securities of small- and medium-sized
U.S. companies. The funds are valued using the net asset value method in which an average
of the market prices for the underlying investments is used to value the fund.
|
(4)
|
This
category includes investments in funds comprised of equity securities of foreign companies
including emerging markets. The funds are valued using the net asset value method in which
an average of the market prices for the underlying investments is used to value the fund.
|
(5)
|
This
category includes investments in funds comprised of U.S. and foreign investment-grade fixed
income securities, high-yield fixed income securities that are rated below investment-grade,
U.S. treasury securities, mortgage-backed securities, and other asset-backed securities.
The funds are valued using the net asset value method in which an average of the market prices
for the underlying investments is used to value the fund.
|
The
following tables compute basic and diluted earnings per share (in thousands, except per share data):
|
|
Three Months Ended June 30, 2021
|
|
|
|
Income
Numerator
|
|
|
Shares
Denominator
|
|
|
Per-Share
Amount
|
|
Net income attributed to Alto Ingredients, Inc.
|
|
$
|
8,390
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
8,075
|
|
|
|
71,260
|
|
|
$
|
0.11
|
|
Add: Dilutive instruments
|
|
|
—
|
|
|
|
669
|
|
|
|
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
8,075
|
|
|
|
71,929
|
|
|
$
|
0.11
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
Income
Numerator
|
|
|
Shares
Denominator
|
|
|
Per-Share
Amount
|
|
Net income attributed to Alto Ingredients, Inc.
|
|
$
|
14,964
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
Basic and diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
14,649
|
|
|
|
54,498
|
|
|
$
|
0.27
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
Income
Numerator
|
|
|
Shares
Denominator
|
|
|
Per-Share
Amount
|
|
Net income attributed to Alto Ingredients, Inc.
|
|
$
|
13,068
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
(627
|
)
|
|
|
|
|
|
|
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
12,441
|
|
|
|
70,808
|
|
|
$
|
0.18
|
|
Add: Dilutive instruments
|
|
|
—
|
|
|
|
1,153
|
|
|
|
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
12,441
|
|
|
|
71,961
|
|
|
$
|
0.17
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Loss
Numerator
|
|
|
Shares
Denominator
|
|
|
Per-Share
Amount
|
|
Net loss attributed to Alto Ingredients, Inc.
|
|
$
|
(10,136
|
)
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
(630
|
)
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders
|
|
$
|
(10,766
|
)
|
|
|
54,163
|
|
|
$
|
(0.20
|
)
|
There
were an additional aggregate potentially dilutive weighted-average shares of 964,000 from convertible securities outstanding for the
three and six months ended June 30, 2021 and 2020. These securities were not considered in calculating diluted net income (loss) per
share for the three and six months ended June 30, 2021 and 2020, as their effect would have been anti-dilutive.
|
11.
|
PARENT
COMPANY FINANCIALS.
|
Restricted
Net Assets – At June 30, 2021, the Company had approximately $245.7 million of net
assets at its subsidiaries that were not available for transfer to Alto Ingredients in the form of dividends, distributions, loans or
advances due to restrictions contained in the credit facilities of these subsidiaries.
Parent
company financial statements for the periods covered in this report are set forth below (in thousands):
|
|
June
30,
2021
|
|
|
December 31,
2020
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,128
|
|
|
$
|
25,632
|
|
Receivables from subsidiaries
|
|
|
13,460
|
|
|
|
15,548
|
|
Other current assets
|
|
|
2,588
|
|
|
|
1,836
|
|
Total current assets
|
|
|
31,176
|
|
|
|
43,016
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
108
|
|
|
|
142
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Investments in subsidiaries
|
|
|
264,645
|
|
|
|
246,518
|
|
Alto West, LLC receivable
|
|
|
27,592
|
|
|
|
42,649
|
|
Right of use operating lease assets, net
|
|
|
2,844
|
|
|
|
2,985
|
|
Other assets
|
|
|
796
|
|
|
|
1,088
|
|
Total other assets
|
|
|
295,877
|
|
|
|
293,240
|
|
Total Assets
|
|
$
|
327,161
|
|
|
$
|
336,398
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
5,439
|
|
|
$
|
2,001
|
|
Accrued Alto Op Co. purchase
|
|
|
3,829
|
|
|
|
3,829
|
|
Current portion of long-term debt
|
|
|
6,696
|
|
|
|
25,533
|
|
Other current liabilities
|
|
|
329
|
|
|
|
473
|
|
Total current liabilities
|
|
|
16,293
|
|
|
|
31,836
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
—
|
|
|
|
5,564
|
|
Other liabilities
|
|
|
2,849
|
|
|
|
2,763
|
|
Total Liabilities
|
|
|
19,142
|
|
|
|
40,163
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
1
|
|
|
|
1
|
|
Common and non-voting common stock
|
|
|
73
|
|
|
|
72
|
|
Additional paid-in capital
|
|
|
1,035,980
|
|
|
|
1,036,638
|
|
Accumulated other comprehensive loss
|
|
|
(3,878
|
)
|
|
|
(3,878
|
)
|
Accumulated deficit
|
|
|
(724,157
|
)
|
|
|
(736,598
|
)
|
Total Alto Ingredients, Inc. stockholders’ equity
|
|
|
308,019
|
|
|
|
296,235
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
327,161
|
|
|
$
|
336,398
|
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees from subsidiaries
|
|
$
|
2,486
|
|
|
$
|
2,873
|
|
|
$
|
5,012
|
|
|
$
|
6,126
|
|
Selling, general and administrative expenses
|
|
|
4,393
|
|
|
|
4,308
|
|
|
|
9,044
|
|
|
|
9,685
|
|
Income (loss) from operations
|
|
|
(1,907
|
)
|
|
|
(1,435
|
)
|
|
|
(4,032
|
)
|
|
|
(3,559
|
)
|
Fair value adjustments
|
|
|
—
|
|
|
|
(1,314
|
)
|
|
|
—
|
|
|
|
(641
|
)
|
Interest expense, net
|
|
|
(704
|
)
|
|
|
(1,721
|
)
|
|
|
(1,731
|
)
|
|
|
(3,297
|
)
|
Other income (expense)
|
|
|
410
|
|
|
|
(140
|
)
|
|
|
1,218
|
|
|
|
(162
|
)
|
Loss before benefit for income taxes
|
|
|
(2,201
|
)
|
|
|
(4,610
|
)
|
|
|
(4,545
|
)
|
|
|
(7,659
|
)
|
Benefit for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(2,201
|
)
|
|
|
(4,610
|
)
|
|
|
(4,545
|
)
|
|
|
(7,659
|
)
|
Equity in income (losses) of subsidiaries
|
|
|
10,591
|
|
|
|
19,574
|
|
|
|
17,613
|
|
|
|
(2,477
|
)
|
Net income (loss) attributed to Alto Ingredients, Inc.
|
|
$
|
8,390
|
|
|
$
|
14,964
|
|
|
$
|
13,068
|
|
|
$
|
(10,136
|
)
|
|
|
For
the Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Operating Activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
13,068
|
|
|
$
|
(10,136
|
)
|
Adjustments to reconcile net income (loss) to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Equity in (income) losses of subsidiaries
|
|
|
(17,613
|
)
|
|
|
2,477
|
|
Fair value adjustments
|
|
|
—
|
|
|
|
(641
|
)
|
Depreciation
|
|
|
33
|
|
|
|
67
|
|
Amortization of debt (premiums) discounts
|
|
|
409
|
|
|
|
(115
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,088
|
|
|
|
(1,207
|
)
|
Other assets
|
|
|
(319
|
)
|
|
|
714
|
|
Accounts payable and accrued expenses
|
|
|
(2,416
|
)
|
|
|
—
|
|
Accounts payable with subsidiaries
|
|
|
37
|
|
|
|
475
|
|
Net cash used in operating activities
|
|
|
(4,713
|
)
|
|
|
(8,366
|
)
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
—
|
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuances of common stock
|
|
|
462
|
|
|
|
282
|
|
Proceeds from plant receivables
|
|
|
15,057
|
|
|
|
5,813
|
|
Proceeds from long-term debt
|
|
|
—
|
|
|
|
5,973
|
|
Payments on senior notes
|
|
|
(24,810
|
)
|
|
|
—
|
|
Dividend from subsidiary
|
|
|
3,500
|
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
|
(5,791
|
)
|
|
|
12,068
|
|
Net change in cash and cash equivalents
|
|
|
(10,504
|
)
|
|
|
3,702
|
|
Cash and cash equivalents at beginning of period
|
|
|
25,632
|
|
|
|
4,985
|
|
Cash and cash equivalents at end of period
|
|
$
|
15,128
|
|
|
$
|
8,687
|
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and
analysis should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included
elsewhere in this report. This report and our consolidated financial statements and notes to consolidated financial statements contain
forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and
objectives relating to our future economic performance and our current beliefs regarding revenues we might generate and profits we might
earn if we are successful in implementing our business and growth strategies. The forward-looking statements and associated risks may
include, relate to or be qualified by other important factors, including:
|
●
|
fluctuations in the market prices of alcohols and essential ingredients;
|
|
●
|
fluctuations in the costs of key production input commodities such as corn and natural gas;
|
|
●
|
the projected growth or contraction in the alcohol and essential ingredients markets in which we operate;
|
|
●
|
our strategies for expanding, maintaining or contracting our presence in these markets;
|
|
●
|
anticipated trends in our financial condition and results of operations; and
|
|
●
|
our ability to distinguish ourselves from our current and future competitors.
|
You are cautioned not to place
undue reliance on any forward-looking statements, which speak only as of the date of this report, or in the case of a document incorporated
by reference, as of the date of that document. We do not undertake to update, revise or correct any forward-looking statements, except
as required by law.
Any of the factors described
immediately above, or referenced from time to time in our filings with the Securities and Exchange Commission or in the “Risk Factors”
section below could cause our financial results, including our net income or loss or growth in net income or loss to differ materially
from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially.
Overview
We are a leading producer and marketer of specialty
alcohols and essential ingredients, and the largest producer of specialty alcohols in the United States based on annualized volumes.
We operate six alcohol production
facilities. Three of our production facilities are located in the Midwestern state of Illinois and three of our facilities are located
in the Western states of California, Oregon and Idaho. We are in the process of marketing our Stockton, California facility for sale.
We have an annual alcohol production capacity of 410 million gallons. We market all of the alcohols produced at our facilities as well
as fuel-grade ethanol produced by third parties. In 2020, we marketed over 500 million gallons combined of our own alcohols as well as
fuel-grade ethanol produced by third parties, and nearly 1.5 million tons of essential ingredients on a dry matter basis.
We report our financial and operating performance
in three segments: (1) marketing and distribution, which includes marketing and merchant trading for Company-produced alcohols and essential
ingredients on an aggregated basis, and third party fuel-grade ethanol (2) Pekin production, which includes the production and sale of
alcohols and essential ingredients produced at our Pekin, Illinois campus, or Pekin Campus, and (3) Other production, which includes the
production and sale of fuel-grade ethanol and essential ingredients produced at all of our other production facilities on an aggregate
basis, none of which are individually so significant as to be considered a reportable segment.
Our mission is to expand our business as a leading
producer and marketer of specialty alcohols and essential ingredients. We intend to accomplish this goal in part by investing in our specialized
and higher value specialty alcohol production and distribution infrastructure, expanding production in high-demand essential ingredients,
expanding and extending the sale of our products into new regional and international markets, building efficiencies and economies of scale
and by capturing a greater portion of the value stream.
Production Segments
We produce specialty alcohols, fuel-grade ethanol
and essential ingredients, focusing on four key markets: Health, Home & Beauty; Food & Beverage; Essential Ingredients;
and Renewable Fuels. Products for the Health, Home & Beauty market include specialty alcohols used in mouthwash, cosmetics,
pharmaceuticals, hand sanitizers, disinfectants and cleaners. Products for the Food & Beverage markets include grain neutral spirits
used in alcoholic beverages and vinegar as well as corn germ used for corn oils. Products for Essential Ingredients markets include yeast,
corn gluten and distillers grains used in commercial animal feed and pet foods. Our Renewable Fuels products include fuel-grade ethanol
and distillers corn oil used as a feedstock for renewable diesel fuel.
We produce our alcohols and essential ingredients
at our production facilities described below. Our production facilities located in the Midwest are in the heart of the Corn Belt, benefit
from low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international
markets via truck, rail or barge. Our production facilities located on the West Coast are near their respective fuel and feed customers,
offering significant timing, transportation cost and logistical advantages.
We are currently operating at approximately 71%
of our estimated maximum annual production capacity. Our Magic Valley and Stockton facilities are currently idled. As market conditions
change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.
|
|
|
|
Annual Production Capacity
(estimated, in gallons)
|
|
Production Facility
|
|
Location
|
|
Fuel-Grade Ethanol
|
|
|
Specialty Alcohol
|
|
Pekin Campus
|
|
Pekin, IL
|
|
|
110,000,000
|
|
|
|
140,000,000
|
|
Magic Valley
|
|
Burley, ID
|
|
|
60,000,000
|
|
|
|
—
|
|
Columbia
|
|
Boardman, OR
|
|
|
40,000,000
|
|
|
|
—
|
|
Stockton
|
|
Stockton, CA
|
|
|
60,000,000
|
|
|
|
—
|
|
Marketing Segment
We market all of the alcohols and essential ingredients
we produce at our facilities. We also market fuel-grade ethanol produced by third parties.
We have extensive and long-standing customer relationships,
both domestic and international, for our specialty alcohols and essential ingredients. These customers include producers and distributors
of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of
personal health/consumer health and personal care hygiene products, and global trading firms.
Our fuel-grade ethanol customers are located throughout
the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol into
gasoline. Our customers depend on us to provide a reliable supply of fuel-grade ethanol and manage the logistics and timing of delivery
with very little effort on their part. Our customers collectively require fuel-grade ethanol volumes in excess of the supplies we produce
at our facilities. We secure additional fuel-grade ethanol supplies from third-party fuel-grade ethanol plants in California and other
third-party suppliers in the Midwest where a majority of fuel-grade ethanol producers are located. We arrange for transportation, storage
and delivery of fuel-grade ethanol purchased by our customers through our agreements with third-party service providers in the Western
United States as well as in the Midwest from a variety of sources.
We market our essential ingredient feed products
to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as
a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry and biodiesel customers. We do not market
essential ingredients from other producers.
See “Note 3 – Segments” to our
Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments.
Current Initiatives and Outlook
We achieved our fifth consecutive quarter of gross
profit and continue to reap the benefits of our new business focus on specialty alcohols and essential ingredients. As part of our business
transformation, we continue to improve our balance sheet, invest in our production infrastructure, expand our product offerings and pursue
new long-term accretive growth opportunities.
We are expanding, deepening and strengthening our
relationships with key customers as a leading certified producer of a growing variety of specialty alcohols used in common everyday consumer
goods such as vinegars, spirits, mouthwash, cosmetics and cleaning products. Through our integrated production and operations at our Pekin,
Illinois campus along with our enhanced certifications, we can provide surety of quality, supply and redundancy, all of which are material
differentiators among our growing base of product offerings. We are well positioned through these and other distinctions as we begin the
contracting process for specialty alcohol volumes for 2022 and beyond. We believe that we will improve utilization over time of our expanded
specialty alcohol production capacity.
We remain on track to
generate a minimum of $60 million in gross profit in 2021 from the sale of specialty alcohols under fixed-price contracts. Many
variables could materially impact this projected amount and our overall results, including export conditions, the ability of our customers to take all of their
contracted volumes for 2021, market demand for sanitizers and disinfectants, our ability to timely sell our Stockton, California
production facility, and fuel-grade ethanol crush margins.
In the second quarter, we closed the sale of our
fuel-grade ethanol facility in Madera, California. As we continue our business transformation to further focus on specialty alcohols and
essential ingredients, our asset sale initiatives are now targeting our fuel-grade ethanol facility in Stockton, California and the remaining
assets of our non-operating facility in Canton, Illinois.
Our capital improvement projects are on-track and
directed at expanding revenue and increasing efficiencies and plant reliability. Our yeast facility expansion and Pekin campus upgrade
projects are scheduled for completion and full operation by the third quarter with an expected payback in less than two years, or approximately
$5.0 million in additional annual earnings before interest, taxes, depreciation and amortization, or EBITDA. We are also expanding our
annual corn oil production capacity at our Pekin campus by approximately 4,000 tons, which we estimate will contribute an additional $4.5
million in EBITDA annually. This project is on-track for completion before year-end.
We have scheduled a mid-August repair and maintenance
shutdown of our Pekin campus wet mill. This project is scheduled to occur during a period of choppy market conditions resulting from low
pre-harvest corn inventories and tight fuel-grade ethanol margins. Lower revenues and higher repair and maintenance expenses resulting
from this project are expected to impact only the third quarter. We do not anticipate any impact on our ability to meet our contractual
supply obligations for specialty alcohols or essential ingredients. The net effect of this project will be improved efficiency and reliability
of our Pekin campus wet mill and better alignment of our production with market demand.
Looking ahead, among many other projects under
development is our plan to expand protein production at our dry-mill facilities, which collectively represent 250 million gallons of annual
production capacity. We believe the economics of expanded protein production are compelling and would expect to achieve growth and greater
diversity in revenue as well as growth and higher quality of earnings.
Our Pekin Campus sits on the Mt. Simon sandstone
formation, considered one of the most significant potential carbon storage resources in the United States. As a member of the Carbon Capture
Coalition, we are actively engaged in discussions to develop a carbon capture and sequestration program at our Pekin site, which generates
over 600,000 tons of CO2 annually, and expect to be an active player in the carbon capture space.
Over the past year, we have improved operations
and our production footprint to focus on our most profitable and strategic operations. We have also repaired our balance sheet. We are
now pursuing opportunities to expand our business through enhanced service and product offerings and accretive vertical integration.
Critical Accounting Policies
The preparation of our financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, requires
us to make judgments and estimates that may have a significant impact upon the portrayal of our financial condition and results of operations.
We believe that of our significant accounting policies, the following require estimates and assumptions that require complex, subjective
judgments by management that can materially impact the portrayal of our financial condition and results of operations: revenue recognition;
impairment of long-lived assets and held-for-sale classification; valuation of allowance for deferred taxes and derivative instruments.
These significant accounting principles are more fully described in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31,
2020.
Results of Operations
The following selected financial
information should be read in conjunction with our consolidated financial statements and notes to our consolidated financial statements
included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” contained in this report.
Certain performance metrics
that we believe are important indicators of our results of operations include:
|
|
Three
Months Ended
June
30,
|
|
|
Percentage
|
|
|
Six
Months Ended
June
30,
|
|
|
Percentage
|
|
|
|
2021
|
|
|
2020
|
|
|
Variance
|
|
|
2021
|
|
|
2020
|
|
|
Variance
|
|
Fuel-grade ethanol production gallons sold (in millions)
|
|
|
41.4
|
|
|
|
27.0
|
|
|
|
53.3
|
%
|
|
|
80.4
|
|
|
|
127.2
|
|
|
|
(36.8
|
)%
|
Specialty alcohol production gallons sold (in millions)
|
|
|
24.3
|
|
|
|
29.9
|
|
|
|
(18.7
|
)%
|
|
|
43.3
|
|
|
|
52.2
|
|
|
|
(17.0
|
)%
|
Third party fuel-grade ethanol gallons sold (in millions)
|
|
|
59.3
|
|
|
|
73.9
|
|
|
|
(19.8
|
)%
|
|
|
113.3
|
|
|
|
136.3
|
|
|
|
(16.9
|
)%
|
Total gallons sold (in millions)
|
|
|
125.0
|
|
|
|
130.8
|
|
|
|
(4.4
|
)%
|
|
|
237.0
|
|
|
|
315.7
|
|
|
|
(24.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gallons produced (in millions)
|
|
|
63.6
|
|
|
|
47.6
|
|
|
|
33.6
|
%
|
|
|
121.5
|
|
|
|
163.9
|
|
|
|
(25.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production capacity utilization
|
|
|
59
|
%
|
|
|
40
|
%
|
|
|
47.5
|
%
|
|
|
56
|
%
|
|
|
60
|
%
|
|
|
(6.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average sales price per gallon
|
|
$
|
2.41
|
|
|
$
|
1.59
|
|
|
|
51.6
|
%
|
|
$
|
2.17
|
|
|
$
|
1.55
|
|
|
|
40.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn cost per bushel – CBOT equivalent
|
|
$
|
6.05
|
|
|
$
|
3.39
|
|
|
|
78.5
|
%
|
|
$
|
5.51
|
|
|
$
|
3.59
|
|
|
|
53.5
|
%
|
Average basis (1)
|
|
$
|
0.41
|
|
|
$
|
0.20
|
|
|
|
105.0
|
%
|
|
$
|
0.36
|
|
|
$
|
0.32
|
|
|
|
12.5
|
%
|
Delivered cost of corn
|
|
$
|
6.46
|
|
|
$
|
3.59
|
|
|
|
79.9
|
%
|
|
$
|
5.87
|
|
|
$
|
3.91
|
|
|
|
50.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total essential ingredients tons sold (in thousands)
|
|
|
304.0
|
|
|
|
250.1
|
|
|
|
21.6
|
%
|
|
|
580.9
|
|
|
|
922.0
|
|
|
|
(37.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Essential ingredients revenues as % of delivered cost of corn(2)
|
|
|
32.2
|
%
|
|
|
46.5
|
%
|
|
|
(30.8
|
)%
|
|
|
35.9
|
%
|
|
|
41.8
|
%
|
|
|
(14.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average CBOT ethanol price per gallon
|
|
$
|
2.30
|
|
|
$
|
1.08
|
|
|
|
113.0
|
%
|
|
$
|
2.00
|
|
|
$
|
1.16
|
|
|
|
72.4
|
%
|
Average CBOT corn price per bushel
|
|
$
|
6.62
|
|
|
$
|
3.23
|
|
|
|
105.0
|
%
|
|
$
|
6.01
|
|
|
$
|
3.59
|
|
|
|
67.4
|
%
|
(1)
|
Corn basis represents the difference between the immediate cash price of delivered corn and the future price
of corn for Chicago delivery.
|
(2)
|
Essential ingredients revenues as a percentage of delivered cost of corn shows our yield based on sales of
essential ingredients, including wet distillers grains and corn oil, generated from alcohol we produced.
|
Net Sales, Cost of
Goods Sold and Gross Profit
The following table presents
our net sales, cost of goods sold and gross profit in dollars and gross profit as a percentage of net sales (in thousands, except percentages):
|
|
Three Months Ended
June 30,
|
|
|
Variance in
|
|
|
Six Months Ended
June 30,
|
|
|
Variance in
|
|
|
|
2021
|
|
|
2020
|
|
|
Dollars
|
|
|
Percent
|
|
|
2021
|
|
|
2020
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
298,110
|
|
|
$
|
212,074
|
|
|
$
|
86,036
|
|
|
|
40.6
|
%
|
|
$
|
516,844
|
|
|
$
|
523,478
|
|
|
$
|
(6,634
|
)
|
|
|
(1.3
|
)%
|
Cost of goods sold
|
|
|
282,877
|
|
|
|
180,892
|
|
|
|
101,985
|
|
|
|
56.4
|
%
|
|
|
487,774
|
|
|
|
505,186
|
|
|
|
(17,412
|
)
|
|
|
(3.4
|
)%
|
Gross profit
|
|
$
|
15,233
|
|
|
$
|
31,182
|
|
|
$
|
(15,949
|
)
|
|
|
(51.1
|
)%
|
|
$
|
29,070
|
|
|
$
|
18,292
|
|
|
$
|
10,778
|
|
|
|
58.9
|
%
|
Percentage of net sales
|
|
|
5.1
|
%
|
|
|
14.7
|
%
|
|
|
|
|
|
|
|
|
|
|
5.6
|
%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
Net Sales
The increase in our consolidated
net sales for the three months ended June 30, 2021 as compared to the same period in 2020 was primarily due to an increase in our average
sales price per gallon, partially offset by a decrease in our total gallons sold.
Our production gallons
sold and our volume of essential ingredients sold increased for the three months ended June 30, 2021 as compared to the same period
in 2020 primarily due to the operation of our Pekin dry mill in the second quarter of 2021 which was idled during the second quarter
of 2020 because of the Illinois River closure. Our third-party gallons sold declined as compared to the same period in 2020 because
we focused our efforts on selling our own fuel-grade ethanol production.
The decline in our consolidated
net sales for the six months ended June 30, 2021 as compared to the same period in 2020 was primarily due to a reduction in our total
gallons sold and lower sales of essential ingredients, partially offset by an increase in our average sales price per gallon.
Our production gallons, our
third-party gallons and our volume of essential ingredients sold declined for the six months ended June 30, 2021 as compared to the same
period in 2020 due to an intentional reduction in our production of fuel-grade ethanol in the first quarter of 2020 because of adverse
market conditions. In addition, the prior year period includes gallons associated with our production facilities that have since been
idled and/or sold.
Three Months Ended June
30, 2021 and 2020
On a consolidated basis,
our average sales price per gallon increased by 52% to $2.41 for the three months ended June 30, 2021 as compared to $1.59 for the
same period in 2020. The average Chicago Board of Trade, or CBOT, fuel-grade ethanol price per gallon, increased 113% to $2.30 for
the three months ended June 30, 2021 as compared to $1.08 for the same period in 2020.
Marketing Segment
Net sales of fuel-grade ethanol from our marketing
segment reported gross, excluding intersegment sales, increased by $15.4 million, or 22%, to $86.8 million for the three months ended
June 30, 2021 as compared to $71.4 million for the same period in 2020.
Our volume of third party fuel-grade ethanol gallons
sold reported gross by our marketing segment declined by 20.1 million gallons, or 38%, to 33.4 million gallons for the three months ended
June 30, 2021 as compared to 53.5 million gallons for the same period in 2020. At our marketing segment’s average sales price per
gallon of $2.58 for the three months ended June 30, 2021, we generated $51.9 million less in net sales from our marketing segment from
the 20.1 million fewer gallons of third-party fuel-grade ethanol sold gross in the three months ended June 30, 2021 as compared to the
same period in 2020.
The $1.25 per gallon, or 94%, increase in our marketing
segment’s average sales price per gallon for the three months ended June 30, 2021 as compared to the same period in 2020 resulted
in a $67.1 million increase in our net sales from third-party fuel-grade ethanol sold reported gross by our marketing segment.
Our volume of third
party fuel-grade ethanol gallons sold reported net by our marketing segment increased by 5.5 million gallons, or 27%, to 25.9
million gallons for the three months ended June 30, 2021 as compared to 20.4 million gallons for the same period in 2020. The
increase in third-party fuel-grade ethanol gallons sold reported net increased net sales by $0.2 million.
Pekin Campus Production Segment
Net sales of alcohol from our
Pekin Campus production segment increased by $37.8 million, or 40%, to $132.3 million for the three months ended June 30, 2021 as compared
to $94.5 million for the same period in 2020. Our total volume of production gallons sold increased by 7.2 million gallons, or 14%, to
57.5 million gallons for the three months ended June 30, 2021 as compared to 50.3 million gallons for the same period in 2020. At our
Pekin Campus production segment’s average sales price per gallon of $2.30 for the three months ended June 30, 2021, we generated
$16.6 million in additional net sales from our Pekin Campus production segment from the 7.2 million additional gallons of alcohol sold
in the three months ended June 30, 2021 as compared to the same period in 2020. The increase of $0.42, or 22%, in our Pekin Campus production
segment’s average sales price per gallon in the three months ended June 30, 2021 as compared to the same period in 2020 improved
our net sales from our Pekin Campus production segment by $21.2 million.
Net sales of essential
ingredients increased by $16.0 million, or 48%, to $49.6 million for the three months ended June 30, 2021 as compared to $33.6
million for the same period in 2020. Our total volume of essential ingredients sold increased by 17,800 tons, or 9%, to 222,200 tons
for the three months ended June 30, 2021 from 204,400 tons for the same period in 2020. At our average sales price per ton of
$223.12 for the three months ended June 30, 2021, we generated an additional $4.0 million in net sales from the 17,800
additional tons of essential ingredients sold in the three months ended June 30, 2021 as compared to the same period in 2020. The
increase of $58.58, or 36%, in our average sales price per ton for the three months ended June 30, 2021 as compared to the same
period in 2020 increased our net sales from our Pekin Campus production segment by $12.0 million.
Other Production Segment
Net sales of alcohol
from our other production segment increased by $12.4 million, or 127%, to $22.2 million for the three months ended June 30, 2021 as
compared to $9.8 million for the same period in 2020. Our total volume of gallons sold increased by 1.6 million gallons, or 24%, to
8.2 million gallons for the three months ended June 30, 2021 as compared to 6.6 million gallons for the same period in 2020. At our
other production segment’s average sales price per gallon of $2.70 for the three months ended June 30, 2021, we generated an
additional $4.4 million in net sales from our other production segment from the 1.6 million additional gallons of alcohol
sold in the three months ended June 30, 2021 as compared to the same period in 2020. The increase of $1.22, or 82%, in our other
production segment’s average sales price per gallon for the three months ended June 30, 2021 as compared to the same period in
2020 improved our net sales from our other production segment by $8.0 million.
Net sales of essential
ingredients increased by $4.6 million, or 170%, to $7.3 million for the three months ended June 30, 2021 as compared to $2.7 million
for the same period in 2020. Our total volume of essential ingredients sold increased by 36,100 tons, or 79%, to 81,800 tons for the
three months ended June 30, 2021 from 45,700 tons for the same period in 2020. At our average sales price per ton of $88.66 for the
three months ended June 30, 2021, we generated an additional $3.2 million in net sales from the 36,100 additional tons of essential
ingredients sold in the three months ended June 30, 2021 as compared to the same period in 2020. The increase of $29.95, or 51%, in
our average sales price per ton for the three months ended June 30, 2021 as compared to the same period in 2020 increased our net
sales from our other production segment by $1.4 million.
Six Months Ended June
30, 2021 and 2020
On a consolidated basis,
our average sales price per gallon increased by 40% to $2.17 for the six months ended June 30, 2021 as compared to $1.55 for the
same period in 2020. The average CBOT fuel-grade ethanol price per gallon, increased by 72% to $2.00 for the six months ended June
30, 2021 as compared to $1.16 for the same period in 2020.
Marketing Segment
Net sales of fuel-grade
ethanol from our marketing segment reported gross, excluding intersegment sales, increased by $14.9 million, or 12%, to $144.3
million for the six months ended June 30, 2021 as compared to $129.4 million for the same period in 2020.
Our volume of third party fuel-grade ethanol gallons
sold reported gross by our marketing segment declined by 27.3 million gallons, or 31%, to 60.1 million gallons for the six months ended
June 30, 2021 as compared to 87.4 million gallons for the same period in 2020. At our marketing segment’s average sales price per
gallon of $2.38 for the six months ended June 30, 2021, we generated $65.1 million less in net sales from our marketing segment from the
27.3 million fewer gallons of third-party fuel-grade ethanol sold gross in the six months ended June 30, 2021 as compared to the same
period in 2020.
The $0.91 per gallon, or 62%, increase in our marketing
segment’s average sales price per gallon for the six months ended June 30, 2021 as compared to the same period in 2020 resulted
in a $79.8 million increase in our net sales from third-party fuel-grade ethanol sold reported gross by our marketing segment.
Our volume of third
party fuel-grade ethanol gallons sold reported net by our marketing segment increased by 4.3 million gallons, or 9%, to 53.2 million
gallons for the six months ended June 30, 2021 as compared to 48.9 million gallons for the same period in 2020. The increase in
third-party fuel-grade ethanol gallons sold reported net increased net sales by $0.2 million.
Pekin Campus Production Segment
Net sales of alcohol from our
Pekin Campus production segment increased by $48.7 million, or 27%, to $227.4 million for the six months ended June 30, 2021 as compared
to $178.7 million for the same period in 2020. Our total volume of production gallons sold declined by 23.7 million gallons, or 18%, to
108.1 million gallons for the six months ended June 30, 2021 as compared to 131.8 million gallons for the same period in 2020. At our
Pekin Campus production segment’s average sales price per gallon of $2.10 for the six months ended June 30, 2021, we generated $49.9
million less in net sales from our Pekin Campus production segment from the 23.7 million fewer gallons of alcohol sold in the six months
ended June 30, 2021 as compared to the same period in 2020. The increase of $0.75, or 55%, in our Pekin Campus production segment’s
average sales price per gallon in the six months ended June 30, 2021 as compared to the same period in 2020 improved our net sales from
our Pekin Campus production segment by $98.6 million.
Net sales of essential ingredients
increased by $21.2 million, or 29%, to $94.7 million for the six months ended June 30, 2021 as compared to $73.5 million for the same
period in 2020. Our total volume of essential ingredients sold declined by 21,900 tons, or 5%, to 433,700 tons for the six months ended
June 30, 2021 from 455,600 tons for the same period in 2020. At our average sales price per ton of $218.25 for the six months ended June
30, 2021, we generated $4.8 million less in net sales from the 21,900 fewer tons of essential ingredients sold in the six months ended
June 30, 2021 as compared to the same period in 2020. The increase of $56.92, or 35%, in our average sales price per ton for the six months
ended June 30, 2021 as compared to the same period in 2020 increased our net sales from our Pekin Campus production segment by $26.0 million.
Other Production Segment
Net sales of alcohol from our
other production segment declined by $70.9 million, or 65%, to $38.1 million for the six months ended June 30, 2021 as compared to $109.0
million for the same period in 2020. Our total volume of gallons sold declined by 32.0 million gallons, or 67%, to 15.6 million gallons
for the six months ended June 30, 2021 as compared to 47.6 million gallons for the same period in 2020. At our other production segment’s
average sales price per gallon of $2.44 for the six months ended June 30, 2021, we generated $78.2 million less in net sales from the
32.0 million fewer gallons of alcohol sold in the six months ended June 30, 2021 as compared to the same period in 2020. The increase
of $0.15, or 7%, in our other production segment’s average sales price per gallon for the six months ended June 30, 2021 as compared
to the same period in 2020 improved our net sales from our other production segment by $7.3 million.
Net sales of essential
ingredients declined by $20.5 million, or 62%, to $12.4 million for the six months ended June 30, 2021 as compared to $32.9 million
for the same period in 2020. Our total volume of essential ingredients sold declined by 319,200 tons, or 68%, to 147,200 tons
for the six months ended June 30, 2021 from 466,400 tons for the same period in 2020. At our average sales price per ton of $84.21
for the six months ended June 30, 2021, we generated $26.9 million less in net sales from the 319,200 fewer tons of
essential ingredients sold in the six months ended June 30, 2021 as compared to the same period in 2020. The increase of $13.62, or
19%, in our average sales price per ton for the six months ended June 30, 2021 as compared to the same period in 2020 increased our
net sales from our other production segment by $6.4 million.
Cost of Goods Sold and Gross Profit
Our consolidated gross profit declined to $15.2
million, representing a gross profit margin of 5.1%, for the three months ended June 30, 2021 compared to $31.2 million, representing
a gross profit margin of 14.7%, for the same period in 2020. Our gross profit and gross profit margin declined primarily due to significantly
higher margins during the three months ended June 30, 2020 from spot sales of our high quality alcohol used in sanitizers and disinfectants
which experienced unprecedented demand in the quarter.
Our consolidated gross
profit improved to $29.1 million, representing a gross profit margin of 5.6%, for the six months ended June 30, 2021 compared to
$18.3 million, representing a gross profit margin of 3.5%, for the same period in 2020. Our gross profit and gross profit margin
improved primarily due to a greater proportion of higher margin fixed-price contract sales of our high quality alcohol for the six
months ended June 30, 2021 as compared to the first six months of 2020 during which we experienced an extreme negative margin
environment for fuel-grade ethanol.
Three Months Ended June
30, 2021 and 2020
Marketing Segment
Our marketing segment’s gross profit declined
by $1.4 million to $1.4 million for the three months ended June 30, 2021 as compared to $2.8 million for the same period in 2020. Of this
reduction, $0.9 million is attributable to lower marketing volumes of third-party fuel-grade ethanol and $0.5 million is attributable
to lower margins from sales of third-party fuel-grade ethanol for the three months ended June 30, 2021 as compared to the same period
in 2020.
Pekin Campus Production Segment
Our Pekin Campus
production segment’s gross profit declined by $22.6 million to a gross profit of $11.6 million for the three months ended June
30, 2021 as compared to $34.2 million for the same period in 2020. Of this decline, $24.0 million is attributable to lower margins
from our specialty alcohols, partially offset by $1.4 million in additional gross profit attributable to increased sales volumes in
the three months ended June 30, 2021 as compared to the same period in 2020.
Other Production Segment
Our other production
segment’s gross profit improved by $8.0 million to a gross profit of $2.2 million for the three months ended June 30, 2021 as
compared to a gross loss of $5.8 million for the same period in 2020. Of this improvement, $7.6 million is attributable to higher
margins for fuel-grade ethanol and $0.4 million is attributable to increased volumes of fuel-grade ethanol for the three months
ended June 30, 2021 as compared to the same period in 2020.
Six Months Ended June
30, 2021 and 2020
Marketing Segment
Our marketing segment’s gross profit improved
by $1.4 million to $5.3 million for the six months ended June 30, 2021 as compared to $3.9 million for the same period in 2020. Of this
improvement, $3.8 million is attributable to higher margins from sales of third-party fuel-grade ethanol, partially offset by $2.4 million
less in gross profit attributable to lower marketing volumes of third-party fuel-grade ethanol for the six months ended June 30, 2021
as compared to the same period in 2020.
Pekin Campus Production Segment
Our Pekin Campus production segment’s gross profit declined by
$8.1 million to a gross profit of $24.6 million for the six months ended June 30, 2021 as compared to $32.7 million for the same period
in 2020. Of this decline, $5.4 million is attributable to lower sales volumes and $2.7 million is attributed to lower margins from our
specialty alcohols in the six months ended June 30, 2021 as compared to the same period in 2020.
Other Production Segment
Our other production segment’s gross profit improved by $17.5
million to a gross loss of $0.8 million for the six months ended June 30, 2021 as compared to a gross loss of $18.3 million for the same
period in 2020. Of this improvement, $15.9 million is attributable to higher margins and $1.6 million is attributable to lower sales volumes
at negative margins for the six months ended June 30, 2021 as compared to the same period in 2020.
Selling, General and
Administrative Expenses
The following table presents
our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net sales (in thousands, except percentages):
|
|
Three Months Ended
June 30,
|
|
|
Variance in
|
|
|
Six Months Ended
June 30,
|
|
|
Variance in
|
|
|
|
2021
|
|
|
2020
|
|
|
Dollars
|
|
|
Percent
|
|
|
2021
|
|
|
2020
|
|
|
Dollars
|
|
|
Percent
|
|
Selling, general and administrative expenses
|
|
$
|
7,230
|
|
|
$
|
8,629
|
|
|
$
|
(1,399
|
)
|
|
|
(16.2
|
)%
|
|
$
|
14,244
|
|
|
$
|
18,841
|
|
|
$
|
(4,597
|
)
|
|
|
(24.4
|
)%
|
Percentage of net sales
|
|
|
2.4
|
%
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
2.8
|
%
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
Our SG&A expenses
declined for the three and six months ended June 30, 2021 as compared to the same period in 2020. The period over period declines in
SG&A expenses are primarily due to lower professional fees incurred in 2021, as compared to 2020 during which we were working
extensively on our debt restructuring and asset sales efforts. We anticipate SG&A expenses of $27.0 million to $30.0 million for
all of 2021.
Interest Expense, net
The following table presents
our interest expense, net in dollars and as a percentage of net sales (in thousands, except percentages):
|
|
Three Months Ended
June 30,
|
|
|
Variance in
|
|
|
Six Months Ended
June 30,
|
|
|
Variance in
|
|
|
|
2021
|
|
|
2020
|
|
|
Dollars
|
|
|
Percent
|
|
|
2021
|
|
|
2020
|
|
|
Dollars
|
|
|
Percent
|
|
Interest Expense, net
|
|
$
|
1,045
|
|
|
$
|
4,647
|
|
|
$
|
(3,602
|
)
|
|
|
(77.5
|
)%
|
|
$
|
2,930
|
|
|
$
|
9,954
|
|
|
$
|
(7,024
|
)
|
|
|
(70.6
|
)%
|
Percentage of net sales
|
|
|
0.4
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
0.6
|
%
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
Our interest expense declined for the three and
six months ended June 30, 2021 as compared to the same period in 2020. The declines are primarily due to lower debt balances for 2021
as compared to 2020 as we paid down high interest rate debt in the second half of 2020
and continuing into 2021.
Net Income (Loss) Available
to Common Stockholders
The following table presents
our net income (loss) available to common stockholders in dollars and as a percentage of net sales (in thousands, except percentages):
|
|
Three Months Ended
June 30,
|
|
|
Variance in
|
|
|
Six Months Ended
June 30,
|
|
|
Variance in
|
|
|
|
2021
|
|
|
2020
|
|
|
Dollars
|
|
|
Percent
|
|
|
2021
|
|
|
2020
|
|
|
Dollars
|
|
|
Percent
|
|
Net income (loss) available to common stockholders
|
|
$
|
8,075
|
|
|
$
|
14,649
|
|
|
$
|
(6,574
|
)
|
|
|
(44.9
|
)%
|
|
$
|
12,441
|
|
|
$
|
(10,766
|
)
|
|
$
|
23,207
|
|
|
|
NM
|
|
Percentage of net sales
|
|
|
2.7
|
%
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
2.4
|
%
|
|
|
(2.1
|
)%
|
|
|
|
|
|
|
|
|
The decline in
net income available to common stockholders for the three months ended June 30, 2021 as compared to the same period in 2020 is primarily
due to significantly higher spot margins from sales of our high quality alcohol in the prior year period compared to predominately fixed-price
sales in the current year period. The increase in net income available to common stockholders for the six months ended June 30, 2021 as
compared to the same period in 2020 is primarily due to significantly higher margins from sales of our high quality alcohol in the first
quarter of 2021 as compared to the same period in 2020. The first quarter of 2020 also included substantial sales of low- or negative-margin
fuel-grade ethanol.
Liquidity and Capital Resources
During the six months ended June 30, 2021, we funded
our operations primarily from cash generated by our operations, proceeds from the sale of our Madera facility, proceeds from lines of
credit and cash on hand. These funds were also used to make payments on our term debt and our other credit facilities and for capital
expenditures. As of June 30, 2021, we had $50.8 million in cash and cash equivalents and $15.0 million available for borrowing under Kinergy’s
operating line of credit. We believe we have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity
needs for the next twelve months from the date of this report.
Quantitative Period-End Liquidity
Status
We believe that the following
amounts provide insight into our liquidity and capital resources. The following selected financial information should be read in conjunction
with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report, and the other
sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this
report (dollars in thousands).
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Change
|
|
Cash and cash equivalents
|
|
$
|
50,796
|
|
|
$
|
47,667
|
|
|
|
6.6
|
%
|
Current assets
|
|
$
|
244,250
|
|
|
$
|
214,046
|
|
|
|
14.1
|
%
|
Property and equipment, net
|
|
$
|
221,327
|
|
|
$
|
229,486
|
|
|
|
(3.6
|
)%
|
Current liabilities
|
|
$
|
110,744
|
|
|
$
|
86,927
|
|
|
|
27.4
|
%
|
Long-term debt, noncurrent portion
|
|
$
|
56,848
|
|
|
$
|
71,807
|
|
|
|
(20.8
|
)%
|
Working capital
|
|
$
|
133,506
|
|
|
$
|
127,119
|
|
|
|
5.0
|
%
|
Working capital ratio
|
|
|
2.21
|
|
|
|
2.46
|
|
|
|
(10.2
|
)%
|
Restricted Net Assets
At June 30, 2021, we had approximately $245.7 million
of net assets at our subsidiaries that were not available for transfer to Alto Ingredients, Inc. in the form of dividends, distributions,
loans or advances due to restrictions contained in the credit facilities of the subsidiaries.
Changes in Working Capital and Cash Flows
Working capital improved to $133.5 million at June
30, 2021 from $127.1 million at December 31, 2020 as a result of an increase of $30.2 million in current assets, partially offset by an
increase of $23.8 million in current liabilities.
Current assets increased primarily due to an increase
in accounts receivable and higher inventory values due to increased commodity prices for both alcohol and corn from the prior period,
partially offset by a reduction in assets held-for-sale as we completed the sale of our Madera facility.
Our current liabilities increased primarily due
to an increase in accounts payable due to the timing of payments and an increase in derivative instruments, partially offset by a reduction
in liabilities held-for-sale as we completed the sale of our Madera facility.
Our cash and cash equivalents increased by $3.1
million primarily due to $0.8 million in cash provided by our operating activities and $15.3 million in cash provided by our investing
activities, partially offset by $13.0 million in cash used in our financing activities.
Cash provided by our Operating Activities
We generated $0.8 million in cash from our operating
activities during the six months ended June 30, 2021, as compared to $45.7 million for the same period in 2020. Specific factors that
contributed to the change in cash from our operating activities include:
|
●
|
a decrease of $49.1 million related to higher accounts receivable balances due to the timing of payments and higher commodity sales
prices;
|
|
|
|
|
●
|
a decrease of $32.8 million related to higher inventories due to increased commodity prices; and
|
|
|
|
|
●
|
a net decrease of $11.8 million of held-for-sale assets and liabilities as we completed the sale of our Madera facility.
|
These amounts were partially offset by:
|
●
|
an increase of $25.4 million in our consolidated net income due to higher margins from our sales of specialty alcohols;
|
|
|
|
|
●
|
an increase of $20.3 million related to accounts payable due to the timing of payments; and
|
|
|
|
|
●
|
an increase in prepaid expenses of $9.0 million related to operating activities.
|
Cash provided by our Investing Activities
We generated $15.3 million of cash from our investing
activities for the six months ended June 30, 2021, of which $19.5 million in cash was generated from the sale of our Madera facility,
partially offset by $4.2 million for additions to property and equipment resulting from our capital expenditure projects.
Cash used in our Financing Activities
Cash used in our financing activities was $13.0
million for the six months ended June 30, 2021, which reflected net payments on term debt of $37.8 million, partially offset by proceeds
of $24.4 million from Kinergy’s operating line of credit and $0.5 million in stock option exercises.
Kinergy’s Operating Line of Credit
Kinergy maintains an operating line of credit for
an aggregate amount of up to $100.0 million. The credit facility matures on August 8, 2023. Interest accrues under the credit facility
at a rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging from 1.75% to
2.25%. The credit facility’s monthly unused line fee is 0.25% to 0.375% of the amount by which the maximum credit under the facility
exceeds the average daily principal balance during the immediately preceding month. Payments that may be made by Kinergy to Alto Ingredients,
Inc. as reimbursement for management and other services provided by Alto Ingredients, Inc. to Kinergy are limited under the terms of the
credit facility to $1.5 million per fiscal quarter. The credit facility also includes the accounts receivable of our wholly-owned subsidiary,
Alto Nutrients, LLC, or Alto Nutrients, as additional collateral. Payments that may be made by Alto Nutrients to Alto Ingredients, Inc.
as reimbursement for management and other services provided by Alto Ingredients, Inc. to Alto Nutrients are limited under the terms of
the credit facility to $0.5 million per fiscal quarter. Alto Nutrients, one of our indirect wholly-owned subsidiaries, markets our essential
ingredients and also provides raw material procurement services to our subsidiaries.
For all monthly periods in which excess borrowing
availability falls below a specified level, Kinergy and Alto Nutrients must collectively maintain a fixed-charge coverage ratio (calculated
as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by the sum of interest expense, capital
expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period)
of at least 2.0 and are prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness). The
obligations of Kinergy and Alto Nutrients under the credit facility are secured by a first-priority security interest in all of their
respective assets in favor of the lender.
We believe Kinergy and Alto Nutrients are in compliance
with the fixed-charge coverage ratio covenant as of the filing of this report. The following table sets forth the fixed-charge coverage
ratio financial covenant and the actual results for the periods presented:
|
|
Three Months Ended
June 30,
|
|
|
Years Ended
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
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Fixed-Charge Coverage Ratio Requirement
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2.00
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2.00
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2.00
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2.00
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Actual
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7.92
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4.84
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5.35
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5.71
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Excess
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5.92
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2.84
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3.35
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3.71
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Alto Ingredients, Inc. has
guaranteed all of Kinergy’s obligations under the credit facility. As of June 30, 2021, Kinergy had an outstanding balance of $56.9
million and $15.0 million of unused borrowing availability under the credit facility.
Alto Pekin Credit Facilities
On December 15, 2016, Alto Pekin,
LLC, or Alto Pekin, one of our indirect wholly-owned subsidiaries and the entity that holds two of our production facilities in Pekin,
Illinois, entered into a Credit Agreement, or the Pekin Credit Agreement, with 1st Farm Credit Services, PCA and CoBank, ACB,
or CoBank. Under the terms of the Pekin Credit Agreement, Alto Pekin borrowed from 1st Farm Credit Services $64.0 million under
a term loan facility that matures on August 20, 2021, or the Pekin Term Loan, and up to $32.0 million under a revolving term loan facility
that matures on February 1, 2022, or the Pekin Revolving Loan, and together with the Pekin Term Loan, the Pekin Credit Facility. The Pekin
Credit Facility is secured by a first-priority security interest in all of Alto Pekin’s assets.
The Pekin Credit Facility and
related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments
and waivers among Alto Pekin, its lenders and their agent, certain terms of the agreements are as follows:
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Interest accrues under the Pekin Credit Facility at an annual rate equal to the 30-day London Interbank Offered
Rate, or LIBOR, plus 5.00%.
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Alto Pekin is required to pay a monthly fee on any unused portion of the Pekin Revolving Loan at a rate of
0.75% per annum.
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Alto Pekin and Alto ICP, LLC, or ICP, one of our indirect wholly-owned subsidiaries and the entity that holds
one of our production facilities in Pekin, Illinois, are collectively required to maintain working capital of not less than 50% of the
combined outstanding revolving lines of credit, which was $17.0 million at June 30, 2021; and an annual debt service coverage ratio of
not less than 1.25 to 1.00, in addition to various other affirmative and negative covenants.
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Net proceeds arising from a
sale of any of our midwestern production facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders,
collectively, our senior secured noteholders, and us, respectively. Net proceeds arising from the sale of any of our western production
facility assets will be allocated first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among Alto
Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively.
As of the filing of this report,
we believe we are in compliance with the terms and conditions of our Pekin Credit Facility.
ICP Credit Facilities
On September 15, 2017, ICP, Compeer Financial,
PCA, or Compeer, and CoBank as agent, entered into a Credit Agreement, or the ICP Credit Agreement. Under the terms of the ICP Credit
Agreement, ICP borrowed from Compeer $24.0 million under a term loan facility that matures on September 20, 2021, or the ICP Term Loan,
and up to $18.0 million under a revolving term loan facility that matures on September 1, 2022, or the ICP Revolving Loan, and together
with the ICP Term Loan, the ICP Credit Facility. The ICP Credit Facility is secured by a first-priority security interest in all of ICP’s
assets.
The ICP Credit Facility and
related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments
and waivers among ICP, its lenders and their agent, certain terms of the agreements are as follows:
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Interest accrues under the ICP Credit Facility at an annual rate equal to the 30-day LIBOR plus 3.75%.
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ICP is required to pay an annual nonrefundable commitment fee, calculated as 0.75% multiplied by the average
daily positive difference between (i) the ICP Revolving Loan commitment (which may be reduced by ICP from time to time in increments of
$0.5 million), minus (ii) the aggregate principal amounts outstanding under the ICP Revolving Loan.
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ICP and Alto Pekin are collectively required to maintain working capital of not less than 50% of the combined
outstanding revolving lines of credit, which was $17.0 million at June 30, 2021; and an annual debt service coverage ratio of not less
than 1.50 to 1.00, in addition to various other affirmative and negative covenants.
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Net proceeds arising from the
sale of any of our midwestern production facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders,
collectively, our senior secured noteholders, and us, respectively. Net proceeds arising from the sale of any of our western production
facility assets will be allocated first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among Alto
Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively.
As of the filing of this report,
we believe we are in compliance with the terms and conditions of our ICP Credit Facility.
Senior Secured Notes
On December 12, 2016, we entered into a Note Purchase
Agreement with five accredited investors and sold $55.0 million in aggregate principal amount of senior secured notes to the investors
in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold. On June 26, 2017, we entered into
a second Note Purchase Agreement with five accredited investors and sold an additional $13.9 million in aggregate principal amount of
senior secured notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold,
and collectively with the notes previously sold, the Notes. The Notes are secured by a first-priority security interest in all of our
equity interests in Alto Op Co., our subsidiary that indirectly holds our West Coast production assets.
The Notes and related agreements
contain a variety of representations, warranties, covenants and events of default. Following a series of amendments and waivers with the
holders of our Notes, or the senior secured noteholders, and their agent, certain terms of the agreements are as follows:
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The Notes mature on December 15, 2021.
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Payments due under the Notes rank senior to all other indebtedness of Alto Ingredients, Inc. other than permitted senior indebtedness.
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Interest on the Notes accrues at a rate of 15% per annum.
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Any voluntary prepayments must be made at 102% of the principal amount prepaid.
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The Notes also contain a variety of limitations,
including a prohibition on parent company indebtedness; restrictions on redemption, repurchase or payment of any dividend or distribution
in respect of our or our subsidiaries’ equity interests; restrictions on asset sales and other dispositions; and restrictions on
our or our subsidiaries’ ability to issue equity for purposes other than to pay down a portion of the outstanding balance of the
Notes.
In March 2020, ICP granted to the senior secured
noteholders a security interest in certain of its personal property. In addition, Alto Central, LLC, or Alto Central, our subsidiary that
indirectly holds our Pekin Campus assets, granted to the senior secured noteholders a security interest in certain of its personal property.
Alto Central also pledged its equity interests in Alto Pekin and ICP in favor of the senior secured noteholders as additional collateral
securing our obligations to the senior secured noteholders. Alto Op. Co also granted to the senior secured noteholders a security interest
in certain of its personal property. We and certain subsidiaries also entered into intercreditor agreements with the ICP’s and Alto
Pekin’s lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds
from asset sales.
On May 14, 2021, in connection with the sale of our Madera, California
fuel-grade ethanol production facility, we repaid $19.3 million in principal on these Notes. As of the filing of this report, a balance
of approximately $0.7 million remains on the Notes and we believe we are in compliance with the terms and conditions of the Notes.
CARES Act Loans
On May 4, 2020, Alto Ingredients, Inc. and Alto
Pekin received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act,
through the Paycheck Protection Program administered by the U.S. Small Business Administration, or SBA. Alto Ingredients, Inc. received
$6.0 million and Alto Pekin received $3.9 million in loan proceeds. The loans were to mature in two years and bear interest at a rate
of 1.00% per annum. Under the terms of the loans, certain amounts may be forgiven if they are used for qualifying expenses as described
in the CARES Act. We have applied for loan forgiveness for both loans. In June 2021, the SBA approved Alto Pekin’s forgiveness application
for the full amount of $3.9 million. We can provide no assurance that we will be able to obtain forgiveness of all or any portion of the
remaining loan.
Effects of Inflation
The impact of inflation was
not significant to our financial condition or results of operations for the three and six months ended June 30, 2021 and 2020.