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Reform Act increases the regulatory authority of the Commodity Futures Trading Commission, or CFTC, regarding over-the-
counter derivatives, there is uncertainty on several issues related to market clearing, definitions of market participants,
reporting, and capital requirements. While many details remain to be addressed in CFTC rulemaking proceedings, at this time
we do not anticipate any material impact to our risk management strategy.
Critical Accounting Policies and Estimates
This disclosure is based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial statements requires that we
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we
believe are proper and reasonable under the circumstances. We continually evaluate the appropriateness of estimates and
assumptions used in the preparation of our consolidated financial statements. Actual results could differ materially from those
estimates. Key accounting policies, including but not limited to those relating to revenue recognition, property and
equipment, impairment of long-lived assets and goodwill, derivative financial instruments, and accounting for income taxes,
are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial
Revenue Recognition
We recognize revenue when all of the following criteria are satisfied: persuasive evidence of an arrangement exists; risk
of loss and title transfer to the customer; the price is fixed and determinable; and collectability is reasonably assured. For
sales of ethanol, corn oil and distillers grains, we recognize revenue when title to the product and risk of loss transfer to an
external customer.
We routinely enter into fixed-price, physical-delivery ethanol sales agreements. In certain instances, we intend to settle
the transaction by open market purchases of ethanol rather than by delivery from our own production. These transactions are
reported net as a component of revenues.
Revenue from sales of agricultural commodities, fertilizers and other similar products is recognized when title to the
product and risk of loss transfer to the customer, which is dependent on the agreed upon sales terms with the customer. These
sales terms provide for passage of title either at the time shipment is made or at the time the commodity has been delivered to
its destination and final weights, grades and settlement prices have been agreed upon with the customer. Shipping and
handling costs are recorded on a gross basis in the statements of operations with amounts billed included in revenues and also
as a component of cost of goods sold. Revenue from grain storage is recognized as services are rendered. Revenue related to
grain merchandising is recorded on a gross basis.
Revenue related to our marketing operations for third parties is recorded on a gross basis in the consolidated financial
statements, as we take title to the product and assume risk of loss. Unearned revenue is reflected on our consolidated balance
sheet for goods in transit for which we have received payment and title has not been transferred to the external customer.
Revenue from ethanol transload and splash blending services is recognized as these services are rendered.
Intercompany revenues are eliminated on a consolidated basis for reporting purposes.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation on our ethanol production
facilities, grain storage facilities, railroad track, computer equipment and software, office furniture and equipment, vehicles,
and other fixed assets has been provided on the straight-line method over the estimated useful lives of the assets, which
currently range from 3 to 40 years.
Land improvements are capitalized and depreciated. Expenditures for property betterments and renewals are capitalized.
Costs of repairs and maintenance are charged to expense as incurred.
We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated
useful life of fixed assets, which is accounted for prospectively.