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ethanol and distillers grains and is marketing products for third parties, which may result in concentrations of credit risk from
a variety of customers, including major integrated oil companies, large independent refiners, petroleum wholesalers, other
marketers and jobbers. The Company is also exposed to credit risk resulting from sales of grain to large commercial buyers,
including other ethanol plants, which it continually monitors. Although payments are typically received within fifteen days of
sale for ethanol and distillers grains, the Company continually monitors this credit risk exposure. In addition, the Company
may prepay for or make deposits on undelivered inventories. Concentrations of credit risk with respect to inventory advances
are primarily with a few major suppliers of petroleum products and agricultural inputs.
Inventories
Corn to be used in ethanol production, ethanol and distillers grains inventories are stated at the lower of average cost or
market.
Other grain inventories include readily-marketable physical quantities of grain, forward contracts to buy and sell grain,
and exchange traded futures and option contracts (all stated at market value). The futures and options contracts, which are
used to hedge the value of both owned grain and forward contracts, are considered derivatives. All agribusiness segment
grain inventories are marked to the market price with changes reflected in cost of goods sold. The forward contracts require
performance in future periods. Contracts to purchase grain from producers generally relate to the current or future crop years
for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of grain to processors or other
consumers generally do not extend beyond one year. The terms of contracts for the purchase and sale of grain are consistent
with industry standards.
Fertilizer inventories are valued at the lower of cost (weighted average) or market.
Finished goods inventory consists of denatured ethanol and its related co-products and is valued at the lower of cost
(first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation of these assets is generally
computed using the straight-line method over the following estimated useful lives of the assets:
Years
Plant, buildings and improvements
10-40
Ethanol production equipment
15-40
Other machinery and equipment
5-7
Land improvements
20
Railroad track and equipment
20
Computer and software
3-5
Office furniture and equipment
5-7
Property and equipment is capitalized at cost. 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.
The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the
estimated useful life of its fixed assets.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, currently consisting of property and equipment, for impairment whenever
events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.
Recoverability of assets to be held and used is measured by comparison of the car rying amount of an asset to 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, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Significant management judgment is required in determining the fair value of long-lived assets to
measure impairment, including projections of future discounted cash flows. No impairment charges were recorded for the
periods reported.