INVENTORIES

Our inventories primarily consist of ferrous and non-ferrous, including stainless steel, scrap metals, and are valued at the lower of average purchased cost or market based on the specific scrap commodity. Quantities of inventories are determined based on our inventory systems and are subject to periodic physical verification using estimation techniques including observation, weighing and other industry methods. We recognize inventory impairment and related adjustments when the market value, based upon current market pricing, falls below recorded value or when the estimated volume is less than the recorded volume of the inventory. We record the loss in cost of sales in the period during which we identified the loss.

Some commodities are in saleable condition at acquisition. We purchase these commodities in small amounts until we have a truckload of material available for shipment. Some commodities are not in saleable condition at acquisition. These commodities must be shredded, torched, or baled. We do not have work-in-process inventory that needs to be manufactured to become finished goods. We include processing costs in inventory for all commodities.

Inventory also includes all types of industrial waste handling equipment and machinery held for resale such as compactors, balers, and containers, which are valued based on cost. Replacement parts for internal equipment is included in inventory and depreciated over a one-year life when placed in service. These parts are generally used by us within this one-year period as these parts wear out quickly due to the high-volume and intensity of the shredder function. Other inventory includes fuel and baling wire.

Inventories as of June 30, 2014 and December 31, 2013 consist of the following:



	June 30, 2014								December 31, 2013
	Raw Materials		Finished Goods		Processing Costs		Total (unaudited)		Raw Materials		Finished Goods		Processing Costs		Total
	(in thousands)
Stainless steel, ferrous and non-ferrous materials	$	8,006	$	1,343	$	1,186	$	10,535	$	4,856	$	1,697	$	600	$	7,153
Waste equipment machinery	—		52		—		52		—		49		—		49
Other	—		43		—		43		—		30		—		30
Total inventories for sale	8,006		1,438		1,186		10,630		4,856		1,776		600		7,232
Replacement parts	1,440		—		—		1,440		1,550		—		—		1,550
Total inventories	$	9,446	$	1,438	$	1,186	$	12,070	$	6,406	$	1,776	$	600	$	8,782