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Just got back from a visit to Irvine, Calif. What a beautiful city.
With regards to your post I wish management would deal first with the question of buying back the balance of the factories because i believe this is stopping management from making decisions about efficiency improvements at the plant level since the owners don't have to put up any if the funds required but get to share in the benefits of such improvement.
This indirectly said something about our management to me.......and that is if Kramer was only interested in lining up his pocket he would have gone ahead and made those investments because that would only help to increase the amount the owners would demand for the outstanding 9% interest.
Cheers
Would someone who has access to their account please check if the bid has been set at 0 with the ask at $16.00.
Is trading going to be stopped tomorrow?
TIA
Hi Pavement,
I had one surprise during the interview when I asked about paying off the 9% of the ownership because It did not seem urgent to management. Mike ask why the anxiety and I responded that i thought it would be a deterrent for any company that wanted to offer to buy the company.
His response was I don't think we have thought of it in that light. I shall pass on that valid concern on to management.
That statement told me that management was not contemplating sell the company any time soon.
If the suggestion of the publishing the quarterly news letter is adopted I think we should talk to management about creating an avenue for retail investors that allows us to ask 3 questions during cc by sending these questions to IR.
Much of the cash that was in the "Treasury" was the result of sales by Kinegy most of which goes back to the plant and cannot be spent by management but may be used to pay down debt. The agreements between Holdco and management laid down some modalities which in today's operating environment do not produce optimum results. To change these rules management needs to buy back the loans owed to Holdco at a premium.
Phone conversation with Mike Kramer on June 13th. 2014
Prior to our conversation I had email mike a list of questions and topics That I would be touching on during our discussion today.
Below are the questions I sent Mike:
What is the expected cost of the 9% remaining ownership and what is this cost based on.
Why borrow money to pay for Corn Oil Extraction units, or Madera if there is so much cash in Treasury ( $26M from selling shares in April)?
How is the sales price determined?
At Daily Prices rates ( by the truck),
At the weekly rate ( contract for next week based on average of daily rates after the facts),
or at the monthly rate ( contract for next month and price set on average daily after the month)
And how far ahead was the Madera production presold?
Has Pacific Ethanol implemented the Novozymes new enzyme technology in any of its plants? Do the observed benefits justify the investment returns for Pacific Ethanol?
Does management plan to implement enzyme technology in the remaining plants as well?
For each of our 4 owned plants what is the relationship between faceplate capacity and actual production rates?
On the average how much of our output is sold at :
Bulk Truck Spot Prices (Rack):
Splash Blend Rack Prices:
Splash Blend Producer Prices:
Why is PEIX trading at such discount to its peers?
Why is our shelf registration so large?
Why was recent secondary so large in relation to the only stated purpose of paying for the 500K outstanding debt?
Why propose such a large amount of shares for insider incentives?
Presenting at conferences would help spread word about stock being undervalued and to boost institutional ownership but why is it that so far there has been no insider buying?
What do you see as the major issues in the coming 12 months now that corn is forecasted at around $4.00 per bushel?
How long do you foresee the rail transportation issues of ethanol persisting?
PEIX identifies Volatility as one of the critical factors that affects the Fair Value of the warrants. How, specifically, is the volatility calculated for each warrant issue? What are the inputs, or failing that, how would one go about estimating volatility for upcoming quarters?
2. Looking back over the Marketability Restrictions Discount over the past 5 quarters, this number has varied significantly for some of the warrant issues. For example, the 09/26/2012 issue varied significant over a 6 month period; from 53.9% (12/2012) to 75.9% (3/2013) to 48.3% (6/2013). How is the Marketability Restrictions Discount determined, and what factors would lead to a significant shift in this number?
Discount for marketability restrictions: How is this determined and based on what factors?
Would we see another negative Fair Value Adjustment if the pps closes above the $15.88 level on June 30th, 2014?
What do you estimate would be the number of warrants outstanding on the 30th of June?
Going forward would management consider publishing a monthly newsletter that among other things informs us of the outstanding number of warrants?
Reviewing the crucial importance of PEIX's basis cost for corn each quarter, we find:
Q1's $1.28 basis (+ $4.48 corn/bu) for delivered corn cost of $5.76
Q4's $1.35 basis (+ $4.35 corn/bu) for delivered corn cost of $5.70
Q3's $2.42 basis (+ $5.02 corn/bu) for delivered corn cost of $7.44
9-month avg up from Q3, 2013 was $1.68 basis (+ avg $6.22 corn/bu)
What are the factors resulting in such a wide swing from $1.28 to $2.42 in basis costs, and, if possible, what "ballpark" range might we forecast going forward for Q2, Q3 and Q4 of 2014?
Thank you for your help.
Jake
As you would realize most of these questions are interconnected and had to do with retail investors trying to make sense of decisions made on their behalf by management.
Here are the answers I got for some of these questions:
What is the expected cost of the 9% remaining ownership and what is this cost based on.
Answer: The remaining 9% of ownership would cost what management is able to negotiate with the Holdco members. Only the first payment which was to account for 25% the asset value was determined by the court administrator. Since the value for the remaining 75% may change subject to negotiations between the parties the actual amount paid by the parent company is subject to change. So for the remaining "9%" the parties have to negotiate the final figure.
Why borrow money to pay for Corn Oil Extraction units, or Madera if there is so much cashing Treasury ( $26M from selling shares in April)?
Answer: Because management's access to funds are determined by the track that the money moved on to get to the company. So even though the company had money sitting at the plant level because of excellent Q1 performance management little of no control over these funds.
How is the sales price determined?
At Daily Prices rates ( by the truck),
At the weekly rate ( contract for next week based on average of daily rates after the facts),
or at the monthly rate ( contract for next month and price set on average daily after the month)
Answer: The pricing strategy used by Kinergy is one that negotiates with buyers on quarterly basis with some sensitivity to general market indices. To effectively manage pricing and market risks PEIX prices its corn inputs at the point of grinding. Corn is brought in by unit train load quantities, stored and priced when used. This limits the company's input cost risks. The company also holds a finished goods inventory that allows it to smooth out production and delivery fluctuations.
Why is PEIX trading at such discount to its peers?
Why is our shelf registration so large?
Why was recent secondary so large in relation to the only stated purpose of paying for the 500K outstanding debt?
Why propose such a large amount of shares for insider incentives?
Presenting at conferences would help spread word about stock being undervalued and to boost institutional ownership but why is it that so far there has been no insider buying?
Answer: Management is aware of the large discount between PEIX and its peers. To help close that gap, management has embarked on ambitious outreach program to provide visibility to institutional investors. In order to succeed at this the company's balance sheet needs to be brought to industry standards. Recent moves by management to buy back and pay off loans are aimed at strategies to clean up the balance sheet. With regards to the number of shares in the recent shelf filings I got the standard management answer - the fact that these shares have been registered does not mean they are going to be used anytime soon. It is efficient to have these shares already registered before the need to use then arise.
And how far ahead was the Madera production presold?
Has Pacific Ethanol implemented the Novozymes new enzyme technology in any of its plants? Do the observed benefits justify the investment returns for Pacific Ethanol?
Does management plan to implement enzyme technology in the remaining plants as well?
For each of our 4 owned plants what is the relationship between faceplate capacity and actual production rates?
On the average how much of our output is sold at :
Bulk Truck Spot Prices (Rack):
Splash Blend Rack Prices:
Splash Blend Producer Prices:
Answer: Only 2 of the 4 plants have name plate data.
And only 2 plants have corn oil extraction processes. Because of the complicated relationship revenue streams have on managements ability to access those funds it does not make much sense currently to install corn oil machineries in the other 2 plants.
The remainder of the questions were not answered and can be viewed as
1. Being beyond management's control
2. GAAP/SEC rules make it prudent to not answer some questions and
3. Answers to some of these questions have sensitive and proprietary information critical to the operational success of the company.
Finally, the suggestion to consider the publication of a quarterly news letter was well received. If as a news letter was published before quarterly results it could be used as a teaching tool to make management decisions a lot more transparent to investors.
Cheers
Yes you did Supermoney.
I was wrong. I never thought with all the improvements that could be made to the plants to increase plant efficiencies management would choose to pay such a high premium in order to reduce debt.
Maybe the institutional investors were insisting on this before investing in the company.
It makes very little sense to me.
Great work Rule.
I shall review this tomorrow.
How do you feel about making the call on Friday?
Let me know
Added! Very good question.
Here are some of the questions I have received so far:
What is the expected cost of the 9% remaining ownership and what is this cost based on.
Why borrow Money to pay for Corn Oil Extraction units, or Madera if there is So much CASH in Treasury ( $26M from selling shares in April) ?
Do they sell at Daily Prices rates ( by the truck),
or by the week ( contract for next week based on average of daily rates after the facts),
or by the month ( contract for next month and price set on average daily after the month)
And how did far ahead was the Madera production presold?
It would be interesting to ask whether Pacific Ethanol has implemented Novozymes new enzyme technology in any of its plants? Do the observed benefits justify the investment returns for Pacific?
Does management plan to implement this enzyme technology in the remaining plants as well?
For each of our 4 owned plants what is the relationship between faceplate capacity and actual production rates?
On the average how much of our output is sold at :
Bulk Truck Spot Prices (Rack):
Splash Blend Rack Prices:
Splash Blend Producer Prices:
Why is PEIX trading at such discount to peers?
Why is our shelf registration so large?
Why was recent secondary so large in relation to the only stated purpose of paying for the 500K outstanding debt?
Why proposing such a large amount of shares for insider incentives?
Presenting at conferences would help spread word about stock being undervalued and to boost institutional ownership but why is it that so far there has been no insider buying?
What do you see as the major issues in the coming 12 months now that corn is forecasted at around $4.00 per bushel.
Do you foresee the rail transportation issues to persist over the rest 12 months?
How specifically is the volatility calculated on for each warrant issue and over what period of time, and what are the actual inputs (daily? weekly? quarterly)?
Discount for marketability restrictions: How is this determined and on what factors?
Would we see another negative Fair Value Adjustment if the pps closes above the $15.88 level on June 30th.
What do you estimate would be the number of warrants outstanding on the 30th of June?
Going forward would management consider publishing a monthly newsletter that among other things informs us of the outstanding number of warrants?
Hi Rule,
What numbers did you plug to the algorithm and where did you obtain these?
Strike price:
Volatility: %
Underlying asset price:
Interest rate: %
Days to expiration:
Warrants/share
Dividend: Enter an amount ($.cc) for discrete dividend,
or an annual yield (eg 3.5 = 3.5% pa)
Kelley,
Let me have any questions you would like answered.
Rule,
It is part of my understanding with him to submit a list of questions to him. I also told that while I do not know your real name I shall try to see if you would be willing to make the call instead of me.
What do you think about that idea?
Rule you are quite with about the need to avoid the appearance of seeking information that might be considered proprietary or inside information.
I am more interested in in what is used to calculate costs of wip lifo or fifo?
days outstanding for acct payables and receivables. Stuff like that .
We could then use those assumptions when we perform our stunk works.
Re Volatility,
Please let me know what variables/data you need in order to get your numbers close to those published by the company.
Questions, noted.
Even though I believe many would not be answered.
Excuse? Not at liberty to say.
Phone call with Mike:
I was able to get hold of Mike at the IR dept this morning.
We arranged to talk again next Friday.
In order to make the best use of his time,I would like to receive a list of questions that you would like me to put to him regarding the assumptions and methods that form the basis of the quarterly performance of the company.
Mike has promised to answer such non- proprietary/non insider type of questions.
I would like to solicit from you any general questions that would help us get answers to some of questions we run into when trying to forecast quarterly performance.
Maybe Kelly would volunteer to design the format for the question sheet and collate your questions.(Be kind Kelly)
Cheers
Hi Rule,
I hope to make contact with Mike tomorrow.
What I just want to do is to get him to open an avenue on his side for someone other than himself to liaise with you. Someone hopefully who has experience in the preparation of the financial statement. A back office kind of person. We can then ask you the questions and you can put those questions in a form she/he would be able and willing to answer.
Questions that would help you improve the predictive powers of your model. We want on thing proprietary in nature from the contact.
Hi Rule,
I had called Mike Kramer to find out the basis of the FVA. I wasn't in when he called back. So I called and left a massage for him to try again. If he does call back would it be okay if I suggest to him that you would get in touch with him so that with his help you would put together an information sheet that help educate the retail investor on such variables that affect GAAT restatement of the company's performance?
Please let me know.
Our assumptions of the sales arrangements Pacific has with its suppliers may be all wrong!
Pacific as we know it is really a production operator with its subsidary Kinergy acting as its sales agent.
investorshub.advfn.com/boards/post_reply.aspx?message_id=102746327
ARTICLE II
PAYMENTS
2.1 Pool Price, Fees and Payments.
(a) The per gallon sale price AEAFK shall receive for the Ethanol sold to Kinergy under this Agreement shall be the Net Pool Price (as defined below), as it may be adjusted each month by the Pool True-Up.
(b) The “Net Pool Price” shall be, with respect to any month:
(i) the weighted average gross price per gallon received by Kinergy for all Ethanol that was sold by Kinergy during such month and delivered to Third Parties within the Pool Area (as defined below), whether produced by Affiliates of Kinergy or imported into the Pool Area from producers outside the Pool Area (“Gross Pool Price”); minus
(ii) the weighted average of all costs (on a per gallon basis) incurred by Kinergy in conjunction with the handling, movement and sale of Ethanol for Pool Producers (as defined below) during such month (“Pool Expenses”), including but not limited to terminal lease charges, throughput charges, terminal shrinkage costs, freight charges, tariffs, costs of leasing railcars and trucks, government taxes and assessments (other than taxes on net income, business taxes paid by Kinergy, or tax on the sale of Ethanol (such sales taxes to be paid directly by AEAFK for Ethanol from the Facility), but including all other taxes and governmental charges and assessments), costs to cover of the type described in Section 1.2(c) and any other similar costs; minus
(iii) a marketing fee (the “Marketing Fee”) equal to one percent (1%) of the product of the number of gallons of Ethanol sold to Kinergy multiplied by (i) the Gross Pool Price, less (ii) the Pool Expenses.
(c) The “Pool Area” shall be defined by the set of Ethanol delivery points set forth in Exhibit C, all of which are located in that portion of the Central Valley of California extending north from Grapevine (south of Bakersfield, California). A “Pool Producer” shall be any Ethanol producers located within the Pool Area with whom Kinergy has a marketing agreement, including specifically Calgren Renewables, Pacific Ethanol Madera, LLC; Pacific Ethanol Stockton, LLC, and AE Advanced Fuels Keyes, Inc.
(d) In the event that the actual Net Pool Price for a given month is different from the estimated Net Pool Price used in calculating payments under Section 2.1(f), then an adjustment to the Net Pool Price in a later month shall be made by as provided in Section 2.1(f). Such adjustment is the “Pool True-Up.”
(e) For all quantities of Ethanol purchased by Kinergy within the first thirty days of production from AEAFK and shipped from the Facility, Kinergy shall pay an estimated Net Pool Price to AEAFK by ACH or wire no later than one (1) business day following delivery to Kinergy. For all quantities purchased and shipped from the Facility thereafter, Kinergy shall pay an estimated Net Pool Price to AEAFK by ACH or wire no later than three (3) business days following delivery to Kinergy. If at calendar month’s end, the actual Net Pool Price for that month’s deliveries exceeds the estimated Net Pool Price for that month’s deliveries, Kinergy shall pay AEAFK on or before the 15th business day of the following calendar month an amount equal to the product of (x) the difference between the actual and estimated Net Pool Price and (y) the aggregate quantity of Ethanol purchased by Kinergy from AEAFK and shipped from the Facility under this Agreement during the prior calendar month. If the actual Net Pool Price for that month’s deliveries is less than the estimated Net Pool Price for that month’s deliveries, AEAFK shall pay Kinergy and Kinergy shall have the right to withhold and set off from future payments to AEAFK on the 15th business day of the following calendar month, an amount equal to the product of (x) the difference between the actual and estimated Net Pool Price and (y) the aggregate quantity of Ethanol purchased by Kinergy from AEAFK and shipped from the Facility under this Agreement during such month. Kinergy shall provide AEAFK a parent guaranty of Kinergy’s payment obligations hereunder
Some pricing definitions:
Bulk Truck Spot Prices (Rack): These are the
prices for truck quantities of pure ethanol at storage
points in the given market. These prices are not
posted – they are offered to buyers given supply
and demand dynamics at prices discovered and
published by OPIS.
Splash Blend Rack Prices: These are the average
of the Thursday closing price that producers and
resellers are posting at various rack locations.
Typically prices are for small quantities that marketers
pull to blend into gasoline to create and deliver
ethanol-blended gasoline to accounts.
Splash Blend Producer Prices: These are the
average of the Thursday closing price that producers
(not resellers) are posting at various rack locations.
Typically prices are for small quantities that marketers
pull to blend into gasoline to create and deliver
ethanol-blended gasoline to accounts.
Neil should learn that once you break trust with retail investors, your management team is done because the vultures dive in and they take no prisoners.
Rule,
A few weeks ago houtherman was me.
The FVA was just noise and was not going to have an effect on pps because investors were too smart to be blind sided by this bookkeeping entry. Well, I lost $42000.00 in call options because of that assumption.
Now on more interesting subject, I would like to suggest posters to take a look at a company with the symbol ANDE......why? Because it combines the manufacture of ethanol with the refurbishment of tanker cars oil as well as ethanol types certified to meet new proposed tanker standards.
hi Value,
Just imagine ethanol being marketed an additive to help reduce green house gases? What a beautiful world that would be.
Rule, this is why you are number 1 in our books.
Please continue your good works. The best PEIX investor is an educated investor. The mushroom hypothesis got us where we are today. random walk and efficient theories are fine at the limits and as Keynes succinctly put it in the long run we are all dead.
I am surprised that houtherman would invest in options with his form of investment philosophy.
Keep up the good work.
Hi Super,
Don't you wish management would be sloppy with their pr when they release the second quarter results as they were releasing the first quarter?
With a headline saying profits for Q2 were $1.11!!!
Kel,
Thank you for your post. I shall keep the board posted if anything develops. Meanwhile I am waiting to hear from board posters who would like to see us become more active.
Agreed.
How do we move forward to limit such future actions?
Fellow posters,
For the last 2-3 quarters,we have not been very happy about the level of management's communications with us - retail share holders.
This has led to alienation of the retail shareholders and a significant drop in the companies share price. The lack of heads up on the GAAP required adjustment interim updates on quarterly performance are some of the sources of shareholders dissatisfaction with management.
Normally, retail shareholders have had very few avenues for having their voices heard .....usually in the form of venting off on boards such as this one.
I would like us to reconsider this crude and ineffective method of expressing our grievances to management.
Would posters be willing to consider putting our minds, efforts and resources together to find like minded institutional investors to help promote changes in company governance polices that would bring more transparency to management's actions?
A review of posters on this board clearly indicated to me that we have members with legal, accounting, research abilities and goodwill to put together a team that would draft a short letter to management demanding a meeting in order to set up communication standards aimed at regularly and honestly informing ordinary shareholders of the companies performance.
Secondly we should task a group to make contact with institutional investors to help leverage our holdings so that it has a positive effect on decisions by management.
I for one I am tired of having taken this company to dance at great cost and sacrifice only to be told that I am ignorant.
If you really care about the future of this company think about the ideas in this post and contribute to help make this a reality.
Cheers,
In this presentation
http://wsw.com/webcast/wedbush27/PEIX/
management seems to believe that the recent fall in pps was due to ignorant retail investors not understanding GAAT.
I wonder what the pps would be today if management had shown leadership by issuing a newsletter explaining the effect of GAAP reporting on earnings prior the release of the 1Q results. Management should remember that it was retail investors who took PEIX to the dance.......PEIX management has no cause to diss them.
Hi Rule,
Any idea of cc date for 2Q results?
Hi Rule,
Thanks for taking the time to review this subject of adjustment due to exercising of outstanding warrants.
From your table I would have assumed that the beginning balance of June 2013 would be same as the ending balance of March 2013. Instead we have 10853 vrs 10496. Is this discrepancy to to rounding off error?
Am I correct in presuming that until the close of each quarter the final number for the adjustment value cannot be predetermined?
Is it possible for forecast purposes to give us the basic formula
for the calculation of quarterly and ytd adjustments?
Thanks for your work.
May underpin demand for ethanol.
http://www.cnbc.com/id/101645010
Could such an article be the reason why the pps is down?
http://reason.com/archives/2014/05/06/the-ethanol-disaster
I hope new investors see the opportunity in investing in this company at these prices as much as we do because the market has no memory. Hope is a great motivator.
Hi Value,
Sorry to tell you this but I have bad news for you.
The market has NO memory. It does not remember anything. It only lives in the present. So if prices stay low and we transferred the warrant valuation accrual back as profit, it does not mean that pps would revert to what it was before the Q1 earnings were announced. Especially not for a stock so controlled by HF investors.
What we need is an activist investor or a multiple takeover bids situation.
Sorry for being the bearer of bad news.
For those of you interested SZYM released their Q1 yesterday today.They are faced with the reevaluation of warrants as we are. But their report is more transparent so you get to see the different effect on performance between GAAP and non GAAP reporting.
http://seekingalpha.com/pr/9801673-solazyme-reports-first-quarter-2014-results
Thanks for the information.