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Impairment of Long-Lived Assets and Goodwill
Our long-lived assets consist of property and equipment. We review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. We measure
recoverability of assets to be held and used by comparing the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, we record an impairment charge in the amount by which the carrying amount of the asset exceeds the fair value of the
asset. No impairment charges have been recorded during the periods presented.
Our goodwill consists of amounts relating to our acquisitions of Green Plains Ord, Green Plains Central City, Green
Plains Holdings II, Green Plains Otter Tail and BlendStar. We review goodwill at an individual plant or subsidiary level for
impairment at least annually, as of October 1, or more frequently whenever events or changes in circumstances indicate that
impairment may have occurred. We perform a two-step impairment test to evaluate goodwill. Under the first step, we
compare the estimated fair value of the reporting unit with its carrying value (including goodwill). If the estimated fair value
of the reporting unit is less than its carrying value, we complete a second step to determine the amount of the goodwill
impairment that we should record. In the second step, we determine an implied fair value of the reporting unit’s goodwill by
allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill. We compare the resulting
implied fair value of the goodwill to the carrying amount and record an impairment charge for the difference. As of our most
recent annual review of goodwill, we have determined that the estimated fair value of each reporting unit substantially
exceeds each of their respective carrying values.
The reviews of long-lived assets and goodwill require making estimates regarding amount and timing of projected cash
flows to be generated by an asset or asset group over an extended period of time. Management judgment regarding the
existence of circumstances that indicate impairment is based on numerous potential factors including, but not limited to, a
decline in our future projected cash flows, a decision to suspend operations at a plant for an extended period of time, a
sustained decline in our market capitalization, a sustained decline in market prices for similar assets or businesses, or a
significant adverse change in legal or regulatory factors or the business climate. Significant management judgment is
required in determining the fair value of our long-lived assets and goodwill to measure impairment, including projections of
future cash flows. Fair value is determined through various valuation techniques including discounted cash flow models,
market values and third-party independent appraisals, as considered necessary. Changes in estimates of fair value could result
in a write-down of the asset in a future period. Given the current economic and regulatory environment and uncertainties
regarding the impact on our business, there are no assurances that our estimates and assumptions will prove to be an accurate
prediction of the future.
Derivative Financial Instruments
We use various financial instruments, including derivatives, to minimize the effects of the volatility of commodity price
changes primarily related to corn, natural gas and ethanol. We monitor and manage this exposure as part of our overall risk
management policy. As such, we seek to reduce the potentially adverse effects that the volatility of these markets may have
on our operating results. We may take hedging positions in these commodities as one way to mitigate risk. We have put in
place commodity price risk management strategies that seek to reduce significant, unanticipated earnings fluctuations that
may arise from volatility in commodity prices, principally through the use of derivative instruments. While we attempt to link
our hedging activities to our purchase and sales activities, there are situations where these hedging activities can themselves
result in losses.
By using derivatives to hedge exposures to changes in commodity prices, we have exposures on these derivatives to
credit and market risk. We are exposed to credit risk that the counterparty might fail to fulfill its performance obligations
under the terms of the derivative contract. We minimize our credit risk by entering into transactions with high quality
counterparties, limiting the amount of financial exposure we have with each counterparty and monitoring the financial
condition of our counterparties. Market risk is the risk that the value of the financial instrument might be adversely affected
by a change in commodity prices or interest rates. We manage market risk by incorporating monitoring parameters within our
risk management strategy that limit the types of derivative instruments and derivative strategies we use, and the degree of
market risk that may be undertaken by the use of derivative instruments.
We evaluate our contracts to determine whether the contracts are derivatives as certain derivative contracts that involve
physical delivery may qualify for the normal purchases or normal sales exemption as they will be expected to be used or sold
over a reasonable period in the normal course of business. Any derivative contracts that do not meet the normal purchase or