5. SEGMENTS

12 Months Ended

Dec. 31, 2016

Segment Reporting [Abstract]

SEGMENTS

The Company reports its financial and operating performance in two segments: (1) ethanol production, which includes the production and sale of ethanol and co-products, with all of the Company’s production facilities aggregated, and (2) marketing and distribution, which includes marketing and merchant trading for Company-produced ethanol and co-products and third-party ethanol.

Income before provision for income taxes includes management fees charged by Pacific Ethanol to the segment. The production segment incurred $9,968,000, $5,957,000 and $8,776,000 in management fees for the years ended December 31, 2016, 2015 and 2014, respectively. The marketing and distribution segment incurred $3,000,000, $3,900,000 and $3,900,000 in management fees for the years ended December 31, 2016, 2015 and 2014, respectively. Corporate activities include selling, general and administrative expenses, consisting primarily of corporate employee compensation, professional fees and overhead costs not directly related to a specific operating segment.

During the normal course of business, the segments do business with each other. The preponderance of this activity occurs when the Company’s marketing segment markets ethanol produced by the production segment for a marketing fee, as discussed in Note 4. These intersegment activities are considered arms’-length transactions. Consequently, although these transactions impact segment performance, they do not impact the Company’s consolidated results since all revenues and corresponding costs are eliminated in consolidation.

Capital expenditures are substantially all incurred at the Company’s production segment.

The following tables set forth certain financial data for the Company’s operating segments (in thousands):

	Years Ended December 31,
	2016			2015			2014
Net Sales
Ethanol Production:
Net sales to external customers	$	1,045,807		$	710,201		$	562,388
Intersegment net sales		1,169			–			–
Total production segment net sales		1,046,976			710,201			562,388
Marketing and distribution:
Net sales to external customers		578,951			480,975			545,024
Intersegment net sales		8,029			5,262			3,986
Total marketing and distribution net sales		586,980			486,237			549,010
Intersegment eliminations		(9,198	)		(5,262	)		(3,986	)
Net sales as reported	$	1,624,758		$	1,191,176		$	1,107,412

Cost of goods sold:
Ethanol production	$	1,018,181		$	719,833		$	473,598
Marketing and distribution		575,921			476,410			537,010
Intersegment eliminations		(21,176	)		(12,477	)		(11,681	)
Cost of goods sold as reported	$	1,572,926		$	1,183,766		$	998,927

Income (loss) before provision for income taxes:
Ethanol production	$	(6,882	)	$	(32,723	)	$	72,278
Marketing and distribution		4,517			3,200			6,068
Corporate activities		2,910			616			(37,207	)
	$	545		$	(28,907	)	$	41,139
Depreciation and amortization:
Ethanol production	$	34,528		$	23,091		$	12,509
Marketing and distribution		3			151			551
Corporate activities		910			390			126
	$	35,441		$	23,632		$	13,186

Interest expense:
Ethanol production	$	20,794	$	11,969	$	7,048
Marketing and distribution		1,404		625		566
Corporate activities		208		–		1,824
	$	22,406	$	12,594	$	9,438

The following table sets forth the Company’s total assets by operating segment (in thousands):

	December 31,
	2016		2015
Total assets:
Ethanol production	$	542,688	$	535,583
Marketing and distribution		146,356		107,499
Corporate assets		19,194		31,598
	$	708,238	$	674,680