1. ORGANIZATION AND BASIS OF PRESENTATION. |
9 Months Ended | ||
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Sep. 30, 2011 | |||
| Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
Organization
and Business – The consolidated financial
statements include the accounts of Pacific Ethanol, Inc., a
Delaware corporation (“Pacific Ethanol”), and its
wholly-owned subsidiaries, including Pacific Ethanol
California, Inc., a California corporation
(“PECA”), Kinergy Marketing LLC, an Oregon
limited liability company (“Kinergy”) and Pacific
Ag. Products, LLC, a California limited liability company
(“PAP”) for all periods presented, and for the
periods specified below, the Plant Owners (as defined below)
(collectively, the “Company”).
The
Company is the leading marketer and producer of low-carbon
renewable fuels in the Western United States. The Company
also sells ethanol co-products, including wet distillers
grain and syrup (“WDG”), and provides
transportation, storage and delivery of ethanol through
third-party service providers in the Western United States,
primarily in California, Nevada, Arizona, Oregon, Colorado,
Idaho and Washington. The Company sells ethanol produced by
the Pacific Ethanol Plants (as defined below) and unrelated
third parties to gasoline refining and distribution companies
and sells its WDG to dairy operators and animal feed
distributors.
On
May 17, 2009, five indirect wholly-owned subsidiaries of
Pacific Ethanol, namely, Pacific Ethanol Madera LLC, Pacific
Ethanol Columbia, LLC, Pacific Ethanol Stockton, LLC and
Pacific Ethanol Magic Valley, LLC (collectively, the
“Pacific Ethanol Plants”) and Pacific Ethanol
Holding Co. LLC (together with the Pacific Ethanol Plants,
the “Plant Owners”) each filed voluntary
petitions for relief under chapter 11 of Title 11 of the
United States Code (the “Bankruptcy Code”) in the
United States Bankruptcy Court for the District of Delaware
(the “Bankruptcy Court”) in an effort to
restructure their indebtedness (the “Chapter 11
Filings”). The Plant Owners continued to operate their
businesses and manage their properties as debtors and
debtors-in-possession during the pendency of the bankruptcy
proceedings.
On
June 29, 2010 (the “Effective Date”), the Plant
Owners declared effective their amended joint plan of
reorganization (the “Plan”) with the Bankruptcy
Court, which was structured in cooperation with certain of
the Plant Owners’ secured lenders. Under the Plan, on
the Effective Date, 100% of the ownership interests in the
Plant Owners were transferred from Pacific Ethanol to a
newly-formed limited liability company, New PE Holdco, LLC
(“New PE Holdco”) which is wholly-owned by
certain prepetition lenders, resulting in each of the Plant
Owners becoming wholly-owned subsidiaries of New PE
Holdco.
Under
an asset management agreement, the Company manages the
production and operation of the Pacific Ethanol Plants. These
four facilities have an aggregate annual production capacity
of up to 200 million gallons. As of September 30, 2011, three
of the facilities were operating and one of the facilities
was idled. If market conditions continue to improve, the
Company may resume operations at the Madera, California
facility, subject to the approval of New PE Holdco.
On
October 6, 2010, the Company purchased a 20% ownership
interest in New PE Holdco, a variable interest entity, from a
number of New PE Holdco’s existing owners. At that
time, the Company determined it was the primary beneficiary
of New PE Holdco, and as such, has consolidated the results
of New PE Holdco since then (see Note 2).
Sale
of Front Range – On September 27, 2010, PECA
entered into an agreement with Daniel A. Sanders under which
PECA agreed to sell its entire interest in Front Range Energy
LLC (“Front Range”) to Mr. Sanders for
$18,500,000 in cash. The Company’s carrying value of
its investment in Front Range prior to the sale was
$30,646,000. As a result of the sale, the Company reduced its
carrying value of its investment in Front Range to fair
value, resulting in a charge of $12,146,000 to record a
carrying value equal to the $18,500,000 sale price. The
Company closed the sale of its interest in Front Range on
October 6, 2010.
Reverse
Stock Split – On June 8, 2011, the Company
effected a one-for-seven reverse stock split. All share and
per share information has been restated to retroactively show
the effect of this stock split.
Liquidity
– The Company believes that current and future
available capital resources, revenues generated from
operations, and other existing sources of liquidity,
including its credit facilities, will be adequate to meet its
anticipated working capital and capital expenditure
requirements for at least the next twelve months. If,
however, the Company’s capital requirements or cash
flow vary materially from its current projections, if
unforeseen circumstances occur, or if the Company requires a
significant amount of cash to fund future acquisitions, the
Company may require additional financing. The Company’s
failure to raise capital, if needed, could restrict its
growth, or hinder its ability to compete.
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
ethanol to gasoline refining and distribution companies and
sells WDG to dairy operators and animal feed distributors
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 $23,311,000
and $20,977,000 at September 30, 2011 and December 31, 2010,
respectively, were used as collateral under Kinergy’s
working capital line of credit. The allowance for doubtful
accounts was $57,000 and $287,000 as of September 30, 2011
and December 31, 2010, respectively. The Company recorded net
bad debt recoveries of $45,000 and bad debt expense of
$49,000 for the three months ended September 30, 2011 and
2010, respectively. The Company recorded net bad debt
recoveries of $185,000 and $165,000 for the nine months ended
September 30, 2011 and 2010, respectively.
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, 2010, filed with the Securities and
Exchange Commission on March 31, 2011. 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,
2010. 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.
The
preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in
the United States 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 fair value of convertible debt and warrants,
allowance for doubtful accounts, estimated lives of property
and equipment and intangibles, long-lived asset impairments,
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. Actual results and outcomes may materially differ
from management’s estimates and assumptions.
Reclassifications
of prior year’s data have been made to conform to 2011
classifications. Such classifications had no effect on net
income (loss) reported in the consolidated statements of
operations.
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