Summary of Certain Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Use of Estimates | Use of Estimates |
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Revenue Recognition | Revenue Recognition |
East Dubuque and Pasadena Policy |
Product sales revenues from the Fertilizer Facilities are recognized when customers take ownership upon shipment from the Fertilizer Facilities, the East Dubuque Facility’s leased facility or the Pasadena Facility’s distributors’ facilities and (i) customer assumes risk of loss, (ii) there are no uncertainties regarding customer acceptance, (iii) collection of the related receivable is probable, (iv) persuasive evidence of a sale arrangement exists and (v) the sales price is fixed or determinable. Management assesses the business environment, the customer’s financial condition, historical collection experience, accounts receivable aging and customer disputes to determine whether collectability is reasonably assured. If collectability is not considered reasonably assured at the time of sale, the Company does not recognize revenue until collection occurs. |
Natural gas, though not typically purchased for the purpose of resale, is occasionally sold by the East Dubuque Facility when contracted quantities received are in excess of production and storage capacities, in which case the sales price is recorded in product sales and the related cost is recorded in cost of sales. Natural gas sales were $6.1 million for the year ended December 31, 2014, $3.4 million for the year ended December 31, 2013 and $1.1 million for the year ended December 31, 2012. |
East Dubuque Contracts |
RNLLC has a distribution agreement (the “Distribution Agreement”) with Agrium U.S.A., Inc. (“Agrium”). The Distribution Agreement is for a 10 year period, subject to renewal options. Pursuant to the Distribution Agreement, Agrium is obligated to use commercially reasonable efforts to promote the sale of, and solicit and secure orders from its customers for nitrogen fertilizer products manufactured at the East Dubuque Facility, and to purchase from RNLLC nitrogen fertilizer products manufactured at the facility for prices to be negotiated in good faith from time to time. Under the Distribution Agreement, Agrium is appointed as the exclusive distributor for the sale, purchase and resale of nitrogen products manufactured at the East Dubuque Facility. Sale terms are negotiated and approved by RNLLC. Agrium bears the credit risk on products sold through Agrium pursuant to the Distribution Agreement. If an agreement is not reached on the terms and conditions of any proposed Agrium sale transaction, RNLLC has the right to sell to third parties provided the sale is on the same timetable and volumes and at a price not lower than the one proposed by Agrium. For the years ended December 31, 2014, 2013 and 2012, the Distribution Agreement accounted for 78%, 79% and 83%, respectively, of net revenues from product sales for the East Dubuque Facility. Receivables from Agrium accounted for 36% and 84% of the total accounts receivable balance of the East Dubuque Facility as of December 31, 2014 and 2013, respectively. Agrium made more timely payments in 2014 than in 2013 which accounted for the lower percentage in 2014. |
RNLLC negotiates sales with other customers and these transactions are not subject to the terms of the Distribution Agreement. |
Under the Distribution Agreement, the East Dubuque Facility pays commissions to Agrium not to exceed $5 million during each contract year on applicable gross sales during the first 10 years of the agreement. The effective commission rate for the year ended December 31, 2014 was 3.4%, 3.6% for the year ended December 31, 2013 and 2.7% for the year ended December 31, 2012. The commission expense was recorded in cost of sales for all periods. |
Pasadena Contracts |
RNPLLC sells substantially all of its products through marketing and distribution agreements. Pursuant to an exclusive marketing agreement RNPLLC has entered into with Interoceanic Corporation (“IOC”), IOC has the exclusive right and obligation to market and sell all of the Pasadena Facility’s ammonium sulfate product. Under the marketing agreement, IOC is required to use commercially reasonable efforts to market the product to obtain the most advantageous price. RNPLLC compensates IOC for transportation and storage costs relating to the ammonium sulfate product it markets through the pricing structure under the marketing agreement. The marketing agreement has a term that ends December 31, 2016, but automatically renews for subsequent one-year periods (unless either party delivers a termination notice to the other party at least 210 days prior to an automatic renewal). The marketing agreement may be terminated prior to its stated term for specified causes. During the years ended December 31, 2014, 2013 and the period beginning November 1, 2012 through December 31, 2012, the marketing agreement with IOC accounted for 100% of the Pasadena Facility’s revenues from the sale of ammonium sulfate. In addition, RNPLLC has an arrangement with IOC that permits RNPLLC to store approximately 60,000 tons of ammonium sulfate at IOC-controlled terminals, which are located near end customers of the Pasadena Facility’s ammonium sulfate. This arrangement currently is not governed by a written contract. RNPLLC also has marketing and distribution agreements to sell other products that automatically renew for successive one year periods. |
Fulghum Fibres Contracts |
Tolling and Offtake Arrangements – Fulghum has wood chip processing and wood yard operation agreements, which contain embedded leases for accounting purposes. This generally occurs when the agreement designates a specific chip mill or pellet plant in which the buyer purchases substantially all of the output and does not otherwise meet a fixed price per unit of output exception. The Company determined that these are operating leases. |
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A tolling and offtake agreement that does not contain a lease may be classified as a derivative subject to a normal purchase and sale exception, in which case the agreement is classified as an executory contract and accounted for on an accrual basis. Tolling and offtake agreements, and components of these agreements that do not meet the above classifications, are accounted for on an accrual basis. |
For sales which are not accounted for as operating leases as described above, the Company recognizes revenue at the time the service is provided or when customers take ownership upon shipment from the facilities of the chips or bark and assumes risk of loss, collection of the related receivable is probable, persuasive evidence of a sale arrangement exists and the sales price is fixed or determinable. Revenues associated with tolling arrangements are included in service revenues and sales of product under offtake agreements are included in product sales in our consolidated statements of operations. |
Wood Pellets: Industrial |
The Company recognizes revenue at the time when customers take ownership upon shipment of the pellets and assumes risk of loss, collection of the related receivable is probable, persuasive evidence of a sale arrangement exists and the sales price is fixed or determinable. |
Wood Pellets: NEWP |
The Company recognizes revenue at the time when customers take ownership upon shipment from the facilities of the pellets and assumes risk of loss, collection of the related receivable is probable, persuasive evidence of a sale arrangement exists and the sales price is fixed or determinable. Two customers accounted for 40% of NEWP’s total sales for the year ended December 31, 2014. |
Deferred Revenue | Deferred Revenue |
A significant portion of the revenue recognized during any period may be related to prepaid contracts or products stored at distributor facilities, for which cash was collected during an earlier period, with the result that a significant portion of revenue recognized during a period may not generate cash receipts during that period. As of December 31, 2014 deferred revenue was $28.6 million and $21.6 million for the year ended December 31, 2013. At the East Dubuque Facility, the Company records a liability for deferred revenue to the extent that payment has been received under prepaid contracts, which create obligations for delivery of product within a specified period of time in the future. The terms of these prepaid contracts require payment in advance of delivery. At the Pasadena Facility, our distributor pre-pays a portion of the sales price for shipments received into its storage facilities which is recorded as deferred revenue. The Company recognizes revenue related to the prepaid contracts or products stored at distributor facilities and relieves the liability for deferred revenue when products are shipped (including shipments to end customers from distributor facilities). |
Cost of Sales | Cost of Sales |
Cost of sales are comprised of manufacturing costs related to the Company’s fertilizer products and processing costs for services. Cost of sales expenses include direct materials (such as natural gas, ammonia, sulfur and sulfuric acid), direct labor, indirect labor, employee fringe benefits, depreciation on plant machinery, electricity and other costs, including shipping and handling charges incurred to transport products sold. |
Cost of sales are also comprised of manufacturing costs related to the Company’s wood pellet products and processing costs for services. Cost of sales expenses include direct materials (such as wood and packaging materials), direct labor, indirect labor, employee fringe benefits, depreciation on plant machinery, electricity and other costs, including freight charges incurred to transport products sold related to freight revenues. |
The Company enters into short-term contracts to purchase physical supplies of natural gas in fixed quantities at both fixed and indexed prices. The Company anticipates that it will physically receive the contract quantities and use them in the production of fertilizer. The Company believes it is probable that the counterparties will fulfill their contractual obligations when executing these contracts. Natural gas purchases, including the cost of transportation to the East Dubuque Facility, are recorded at the point of delivery into the pipeline system. |
Accounting for Derivative Instruments | Accounting for Derivative Instruments |
Accounting guidance establishes accounting and reporting requirements for derivative instruments and hedging activities. This guidance requires recognition of all derivative instruments as assets or liabilities on the Company’s consolidated balance sheets and measurement of those instruments at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a derivative instrument is designated as a hedge and if so, the type of hedge. The Company currently does not designate any of its derivatives as hedges for financial accounting purposes. Gains and losses on derivative instruments not designated as hedges are currently included in earnings and reported under cash flows from operating activities. |
Cash | Cash |
The Company has checking and savings accounts with major financial institutions. At times balances with these institutions may be in excess of federally insured limits. |
Accounts and Other Receivables | Accounts and Other Receivables |
Trade receivables are recorded at net realizable value. The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. The Company reviews its allowance for doubtful accounts quarterly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. |
Inventories | Inventories |
Inventories consist of raw materials and finished goods. The primary raw material used by the East Dubuque Facility in the production of its nitrogen products is natural gas. The primary raw materials used by the Pasadena Facility in the production of its products are ammonia and sulfur. Raw materials also include certain chemicals used in the manufacturing process. Fulghum Fibres’ raw materials inventory consists of purchased roundwood to be chipped at its South American mills. Finished goods include the products stored at the Fertilizer Facilities that are ready for shipment along with any inventory that may be stored at remote facilities, and Fulghum Fibres’ processed wood chips. Raw materials at the wood pellet facilities primarily consist of wood fibre. Raw materials at NEWP primarily consist of wood chips and sawdust procured from third parties, and packaging materials. Inventories on the consolidated balance sheets included depreciation in the amount of $2.1 million at December 31, 2014 and $1.2 million at December 31, 2013. |
Inventories are stated at the lower of cost or estimated net realizable value. The cost of inventories is determined using the first-in first-out method. The estimated net realizable value is based on customer orders, market trends and historical pricing. On at least a quarterly basis, the Company performs an analysis of its inventory balances to determine if the carrying amount of inventories exceeds its net realizable value. If the carrying amount exceeds the estimated net realizable value, the carrying amount is reduced to the estimated net realizable value. During turnarounds at the East Dubuque and Pasadena Facilities, the Company allocates fixed production overhead costs to inventory based on the normal capacity of its production facilities and unallocated overhead costs are recognized as expense in the period incurred. |
Property, Plant and Equipment | Property, Plant and Equipment |
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation expense is generally calculated using the straight-line method over the estimated useful lives of the assets as follows: |
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Type of Asset | | Estimated Useful Life | | | | | | | | | | |
Land improvements | | 5-20 years | | | | | | | | | | |
Building and building improvements | | 4-40 years | | | | | | | | | | |
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Machinery and equipment | | 7-22 years | | | | | | | | | | |
Furniture, fixtures and office equipment | | 3-10 years | | | | | | | | | | |
Computer equipment and software | | 2-5 years | | | | | | | | | | |
Vehicles | | 2-15 years | | | | | | | | | | |
Leasehold improvements | | Useful life or remaining lease term whichever is shorter | | | | | | | | | | |
Expenditures during turnarounds or at other times for improving, replacing or adding to RNP’s assets are capitalized. Expenditures for the acquisition, construction or development of new assets to maintain operating capacity, or to comply with environmental, health, safety or other regulations, are also capitalized. Costs of general maintenance and repairs are expensed. |
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When property, plant and equipment is retired or otherwise disposed of, the asset and accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in operating expenses. |
Spare parts are maintained by the facilities to reduce the length of possible interruptions in plant operations from an infrastructure breakdown at the facilities. The spare parts may be held for use for years before the spare parts are used. As a result, they are capitalized as a fixed asset at cost. When spare parts are utilized, the book values of the assets are charged to earnings as a cost of production. Periodically, the spare parts are evaluated for obsolescence and impairment and if the value of the spare parts is impaired, it is charged against earnings. |
Long-lived assets, construction in progress and identifiable intangible assets are reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the asset’s fair value. |
The Company capitalizes certain direct development costs associated with internal-use software, including external direct costs of material and services, and payroll costs for employees devoting time to software implementation projects. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred. |
Asset Retirement Obligations: |
The Company has recorded asset retirement obligations (“AROs”) related to future costs associated with (i) the removal of contaminated material at the former phosphorous plant at the Pasadena Facility, (ii) disposal of asbestos at the East Dubuque Facility and (iii) removal of machinery and equipment at Fulghum mills on leased property. The fair value of a liability for an ARO is recorded in the period in which it is incurred and the cost of such liability increases the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period through charges to operating expense and the capitalized cost is depreciated over the remaining useful life of the asset. The liability was $4.4 million at December 31, 2014 and $3.0 million at December 31, 2013. |
A reconciliation of the change in the carrying value of the AROs is as follows: |
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Balance at December 31, 2013 | | $ | 3,014 | | | | | | | | | |
Accretion expense | | | 125 | | | | | | | | | |
Revisions in the estimated cash flows | | | 1,265 | | | | | | | | | |
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Balance at December 31, 2014 | | $ | 4,404 | | | | | | | | | |
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Construction in Progress | Construction in Progress |
The Company tracks project development costs and capitalizes those costs after a project has completed the scoping phase and enters the feasibility phase. The most significant projects under construction are the Atikokan and Wawa Facilities at December 31, 2014. The Company also capitalizes costs for improvements to the existing machinery and equipment at the Fertilizer Facilities and certain costs associated with the Company’s information technology initiatives. Interest incurred on development and construction projects is capitalized until construction is complete. The Company does not depreciate construction in progress costs until the underlying assets are placed into service. |
Acquisition Method of Accounting | Acquisition Method of Accounting |
The Company accounts for business combinations using the acquisition method of accounting, which requires, among other things, that assets acquired, liabilities assumed and earn-out consideration be recognized at their fair values as of the acquisition date. The Company has recognized goodwill and intangibles related to its acquisitions as described in “Note 3 — NEWP Acquisition” and “Note 4 — Fulghum Acquisition”. The earn-out consideration will be measured at each reporting date with changes in its fair value recognized in the consolidated statements of operations. |
Goodwill | Goodwill |
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. The Company tests goodwill for impairment annually, or more often if an event or circumstance indicates that an impairment may have occurred. The analysis of the potential impairment of goodwill is a two-step process. Step one of the impairment test consists of comparing the fair value of the reporting unit with the aggregate carrying value, including goodwill. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, step two must be performed to determine the amount, if any, of the goodwill impairment. |
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There are significant assumptions involved in performing a goodwill impairment test, which include discount rates, terminal growth rates, future sales prices of end products, raw material costs, and sales volumes. The various valuation methods used (income approach, replacement cost and market approach) are weighted in determining fair value. Changes to any of these assumptions could increase or decrease the fair value of the Fulghum and NEWP reporting units. See Note 12 — Goodwill. |
Intangible Assets | Intangible Assets |
Intangible assets arose in conjunction with the NEWP Acquisition, Fulghum Acquisition and Agrifos Acquisition (See “Note 3 — NEWP Acquisition” and “Note 4 — Fulghum Acquisition” and Note 5 — Agrifos Acquisition). NEWP’s intangible assets consist of trade names, customer relationships and non-compete agreements. Fulghum’s intangible assets consist of trade names and processing agreements to provide services to its customers. Acquired trade names related to Fulghum were assessed as indefinite lived assets because there is no foreseeable limit on the period of time over which they are expected to contribute cash flows. Acquired trade names with indefinite lives are not amortized but are subject to an annual test for impairment and in between annual tests when events or circumstances indicate that the carrying value may not be recoverable. Acquired trade names related to NEWP are amortized over 20 years. |
Intangible assets consist of the following at December 31, 2014 and 2013: |
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| | 2014 | | | 2013 | | | Average Life | |
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Trade names | | $ | 10,496 | | | $ | 5,496 | | | | 20 / Indefinite | |
Wood chip processing agreements | | | 29,765 | | | | 29,765 | | | | 17-Jan | |
Off-take contract | | | 2,577 | | | | 2,811 | | | | 10 | |
Technologies to produce fertilizers | | | 23,680 | | | | 23,680 | | | | 20 | |
Fertilizer marketing agreements | | | 3,088 | | | | 3,088 | | | | 1.5 | |
Customer relationships | | | 1,900 | | | | — | | | | 13 | |
Non-competition agreements | | | 200 | | | | — | | | | 3 | |
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Intangibles, gross | | $ | 71,706 | | | $ | 64,840 | | | | | |
Less: accumulated amortization | | | (9,902 | ) | | | (5,110 | ) | | | | |
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Intangibles, net | | $ | 61,804 | | | $ | 59,730 | | | | | |
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At December 31, 2014, accumulated amortization for trade names, processing agreements, technologies, marketing agreements and customer relationships was $0.4 million, $4.2 million, $2.6 million, $3.1 million, and $(0.4) million, respectively. The amortization of the assets in 2015, 2016, 2017, 2018 and 2019 will result in amortization expense of $5.5 million, $4.3 million, $3.3 million, $3.2 million and $3.1 million, respectively. |
We also have unfavorable processing agreements in the amount of $2.5 million related to Fulghum Acquisition, which are included in other liabilities both current and long term. These agreements along with processing agreements recorded in intangible assets are amortized over the economic life. |
Technologies to produce fertilizers consist of certain proprietary technological processes, technological functions, intellectual property, formulations, and trade secrets to produce commercial volumes of synthetic ammonium sulfate fertilizer. |
Income Taxes | Income Taxes |
The Company accounts for income taxes under the liability method, which requires an entity to recognize deferred tax assets and liabilities for temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. An income tax valuation allowance has been established to reduce the Company’s deferred tax asset to the amount that is expected to be realized in the future. |
The Company recognizes in its consolidated financial statements only those tax positions that are “more-likely-than-not” of being sustained, based on the technical merits of the position. The Company performs a comprehensive review of its material tax positions in accordance with the applicable guidance. |
Net Income (Loss) Per Common Share Allocated To Rentech | Net Income (Loss) Per Common Share Allocated To Rentech |
Basic net income (loss) per common share allocated to Rentech is calculated by dividing net income (loss) allocated to Rentech by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share allocated to Rentech is calculated by dividing net income (loss) allocated to Rentech by the weighted average number of common shares outstanding plus the dilutive effect, calculated using (i) the “treasury stock” method for the unvested restricted stock units, outstanding stock options and warrants and (ii) the “if converted” method for the preferred stock and convertible debt if their inclusion would not have been anti-dilutive. |
Foreign Currency Translation | Foreign Currency Translation |
Assets and liabilities have been translated to the reporting currency using the exchange rates in effect on the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year which is the result of the income statement translation process. A portion of the intercompany balances between the Parent and certain foreign subsidiaries are classified as a long term investment because the Company does not intend to settle such accounts in the foreseeable future. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive loss in the accompanying consolidated statements of stockholders’ equity. |
Comprehensive Income (Loss) | Comprehensive Income (Loss) |
Comprehensive income (loss) includes all changes in consolidated stockholders’ equity during the period from non-owner sources. To date, accumulated other comprehensive income (loss) is primarily comprised of adjustments to the defined benefit pension plans and the postretirement benefit plans and foreign currency translation. |
Accumulated other comprehensive loss is $7.3 million and $0.1 million at December 31, 2014 and 2013, respectively. The balance at December 31, 2014 is comprised of foreign currency transaction adjustments of $(7.3) million and pension and post-retirement plan adjustments of $4,000. The balance at December 31, 2013 is comprised of foreign currency translation adjustments of $(0.9) million and pension and post-retirement plan adjustments of $0.8 million. Activity for the years ending December 31, 2014 and 2013 are reflected in the Consolidated Statement of Comprehensive Income (Loss). The balance of the components as of December 31, 2012 are not material. There were no material amounts reclassified from accumulated other comprehensive income in any of the three years ending December 31, 2014. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements |
In July 2013, the Financial Accounting Standards Board (the “FASB”) issued guidance as to when an unrecognized tax benefit should be classified as a reduction of a deferred tax asset or when it should be classified as a liability in the consolidated balance sheets. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and thus became effective for the Company’s interim period beginning on January 1, 2014. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations or disclosures. |
In April 2014, the FASB issued guidance that provides a narrower definition of discontinued operations than under previous guidance. It requires that only disposals of components of an entity (or groups of components) that represent a strategic shift that has or will have a major effect on the reporting entity’s operations are to be reported in the financial statements as discontinued operations. It also provides guidance on the financial statement presentations and disclosures of discontinued operations. This guidance is effective prospectively for disposals (or classifications of held-for-sale) of components of an entity that occur in annual or interim periods beginning after December 15, 2014. The impact of this guidance is dependent on whether or not future disposals occur. |
In May 2014, the FASB issued guidance that will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early application is not permitted. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosures. |
In June 2014, the FASB issued guidance on accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosures. |
In August 2014, the FASB issued guidance on presentation of financial statements – going concern, which applies to all companies. It requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosures. |
In November 2014, the FASB issued guidance on hybrid financial instruments. The guidance does not change the current criteria for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The guidance clarifies that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosures. |
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In January 2015, the FASB issued guidance, which eliminates the concept of extraordinary items. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosures. |
Fair value measurement | Accounting guidance provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment in considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Company classifies fair value balances based on the fair value hierarchy, defined as follows: |
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| • | | Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. | | | | | | | | | |
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| • | | Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. | | | | | | | | | |
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| • | | Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints. | | | | | | | | | |
Fair values of cash, receivables, deposits, other current assets, accounts payable, accrued liabilities and other current liabilities were assumed to approximate carrying value since they are short term and can be settled on demand. |
Wood Pellets NEWP [Member] | |
Acquisition Method of Accounting | This business combination has been accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. |