10-Q 1 eva-20180331x10q.htm 10-Q eva_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

Commission file number: 001-37363

Enviva Partners, LP

(Exact name of registrant as specified in its charter)

Delaware

46-4097730

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

7200 Wisconsin Ave, Suite 1000

 

Bethesda, MD

20814

(Address of principal executive offices)

(Zip code)

 

 

(301) 657-5560

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐

Accelerated filer   ☒

Non-accelerated filer  ☐

Smaller reporting company   ☐

 

 

(Do not check if a

Emerging growth company  ☒

 

 

smaller reporting company)

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

As of April 30, 2018, 14,445,268 common units and 11,905,138 subordinated units were outstanding.

 

 


 

ENVIVA PARTNERS, LP

QUARTERLY REPORT ON FORM 10‑Q

TABLE OF CONTENTS

 

Page

CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS 

1

GLOSSARY OF TERMS 

3

PART I—FINANCIAL INFORMATION 

4

Item 1. 

Financial Statements (unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations

5

 

Condensed Consolidated Statements of Comprehensive (Loss) Income

6

 

Condensed Consolidated Statement of Changes in Partners’ Capital

7

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Condensed Consolidated Financial Statements

10

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4. 

Controls and Procedures

52

PART II—OTHER INFORMATION 

53

Item 1. 

Legal Proceedings

53

Item 1A. 

Risk Factors

53

Item 6. 

Exhibits

54

 

 

 

i


 

CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS

Certain statements and information in this Quarterly Report on Form 10‑Q (this “Quarterly Report”) may constitute “forward‑looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward‑looking statements, which are generally not historical in nature. These forward‑looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. Although management believes that these forward‑looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward‑looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward‑looking statements include, but are not limited to, those summarized below:

·

the volume and quality of products that we are able to produce or source and sell, which could be adversely affected by, among other things, operating or technical difficulties at our plants or deep-water marine terminals;

·

the prices at which we are able to sell our products;

·

failure of the Partnership’s customers, vendors and shipping partners to pay or perform their contractual obligations to the Partnership;

·

the creditworthiness of our contract counterparties;

·

the amount of low‑cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, operating or financial difficulties suffered by our suppliers;

·

changes in the price and availability of natural gas, coal or other sources of energy;

·

changes in prevailing economic conditions;

·

our inability to complete acquisitions, including acquisitions from our sponsor, or to realize the anticipated benefits of such acquisitions;

·

inclement or hazardous environmental conditions, including extreme precipitation, temperatures and flooding;

·

fires, explosions or other accidents;

·

our ability to return the Chesapeake terminal to full operations by June 30, 2018;

·

the amounts and the timing of the costs the Partnership has incurred and will incur as result of the Chesapeake Terminal Event, and the ability of the Partnership to recover such costs fully and on a timely basis, including through claims under its insurance policies and the exercise of its other contractual rights;

·

changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low‑carbon energy, the forestry products industry, the international shipping industry or power generators;

·

changes in the regulatory treatment of biomass in core and emerging markets;

·

our inability to acquire or maintain necessary permits or rights for our production, transportation or terminaling operations;

·

changes in the price and availability of transportation;

·

changes in foreign currency exchange or interest rates and the failure of our hedging arrangements to effectively

1


 

reduce our exposure to the risks related thereto;

·

risks related to our indebtedness;

·

our failure to maintain effective quality control systems at our production plants and deep‑water marine terminals, which could lead to the rejection of our products by our customers;

·

changes in the quality specifications for our products that are required by our customers;

·

labor disputes;

·

the effects of the anticipated exit of the United Kingdom (“Brexit”) from the European Union on our and our customers’ businesses; and

·

our ability to borrow funds and access capital markets.

Please read the risks described in our Annual Report on Form 10-K for the year ended December 31, 2017. All forward‑looking statements in this Quarterly Report are expressly qualified in their entirety by the foregoing cautionary statements.

Readers are cautioned not to place undue reliance on forward‑looking statements and we undertake no obligation to update or revise any such statements after the date they are made, whether as a result of new information, future events or otherwise.

2


 

 

GLOSSARY OF TERMS

biomass:  any organic biological material derived from living organisms that stores energy from the sun.

co‑fire:  the combustion of two different types of materials at the same time. For example, biomass is sometimes fired in combination with coal in existing coal plants.

cost pass‑through:  a mechanism in commercial contracts that passes costs through to the purchaser.

metric ton:  one metric ton, which is equivalent to 1,000 kilograms. One metric ton equals 1.1023 short tons.

net calorific value:  the amount of usable heat energy released when a fuel is burned completely and the heat contained in the water vapor generated by the combustion process is not recovered. The European power industry typically uses net calorific value as the means of expressing fuel energy.

off‑take contract:  an agreement between a producer of a resource and a buyer of a resource to purchase a certain volume of the producer’s future production.

stumpage:  the price paid to the underlying timber resource owner for the raw material.

utility‑grade wood pellets:  wood pellets meeting minimum requirements generally specified by industrial consumers and produced and sold in sufficient quantities to satisfy industrial‑scale consumption.

wood fiber:  cellulosic elements that are extracted from trees and used to make various materials, including paper. In North America, wood fiber is primarily extracted from hardwood (deciduous) trees and softwood (coniferous) trees.

wood pellets:  energy‑dense, low‑moisture and uniformly‑sized units of wood fuel produced from processing various wood resources or byproducts.

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except number of units)

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

    

 

    

2018

    

2017

    

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,057

 

$

524

 

Accounts receivable, net of allowance for doubtful accounts of $0 as of March 31, 2018 and December 31, 2017

 

 

48,042

 

 

79,185

 

Related-party receivables

 

 

3,613

 

 

5,412

 

Inventories

 

 

34,306

 

 

23,536

 

Prepaid expenses and other current assets

 

 

1,361

 

 

1,006

 

Total current assets

 

 

92,379

 

 

109,663

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $125.8 million as of March 31, 2018 and $117.1 million as of December 31, 2017

 

 

553,093

 

 

562,330

 

Intangible assets, net of accumulated amortization of $10.5 million as of March 31, 2018 and $10.3 million as of December 31, 2017

 

 

 —

 

 

109

 

Goodwill

 

 

85,615

 

 

85,615

 

Other long-term assets

 

 

2,762

 

 

2,394

 

Total assets

 

$

733,849

 

$

760,111

 

 

 

 

 

 

 

 

 

Liabilities and Partners’ Capital

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

4,363

 

$

7,554

 

Related-party payables

 

 

19,486

 

 

26,398

 

Accrued and other current liabilities

 

 

44,098

 

 

29,363

 

Related-party accrued liabilities

 

 

1,211

 

 

 —

 

Current portion of interest payable

 

 

12,573

 

 

5,029

 

Current portion of long-term debt and capital lease obligations

 

 

7,105

 

 

6,186

 

Total current liabilities

 

 

88,836

 

 

74,530

 

Long-term debt and capital lease obligations

 

 

393,686

 

 

394,831

 

Related-party long-term payable

 

 

74,000

 

 

74,000

 

Long-term interest payable

 

 

920

 

 

890

 

Other long-term liabilities

 

 

7,148

 

 

5,491

 

Total liabilities

 

 

564,590

 

 

549,742

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

 

Limited partners:

 

 

 

 

 

 

 

Common unitholders—public (13,179,815 and 13,073,439 units issued and outstanding at March 31, 2018 and December 31, 2017, respectively)

 

 

205,969

 

 

224,027

 

Common unitholder—sponsor (1,265,453 and 1,347,161 units issued and outstanding at March 31, 2018 and December 31, 2017, respectively)

 

 

12,982

 

 

16,050

 

Subordinated unitholder—sponsor (11,905,138 units issued and outstanding at March 31, 2018 and December 31, 2017)

 

 

85,271

 

 

101,901

 

General partner (no outstanding units)

 

 

(130,596)

 

 

(128,569)

 

Accumulated other comprehensive loss

 

 

(4,367)

 

 

(3,040)

 

Total Enviva Partners, LP partners’ capital

 

 

169,259

 

 

210,369

 

Total liabilities and partners’ capital

 

$

733,849

 

$

760,111

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

4


 

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per unit amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2018

    

2017 (Recast)

 

Product sales

 

$

122,799

 

$

119,047

 

Other revenue (1)

 

 

3,002

 

 

3,396

 

Net revenue

 

 

125,801

 

 

122,443

 

Cost of goods sold, excluding depreciation and amortization (1)

 

 

121,038

 

 

96,717

 

Depreciation and amortization

 

 

9,304

 

 

9,358

 

Total cost of goods sold

 

 

130,342

 

 

106,075

 

Gross margin

 

 

(4,541)

 

 

16,368

 

General and administrative expenses (1)

 

 

6,804

 

 

8,763

 

(Loss) income from operations

 

 

(11,345)

 

 

7,605

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense

 

 

(8,645)

 

 

(7,707)

 

Other income

 

 

655

 

 

57

 

Total other expense, net

 

 

(7,990)

 

 

(7,650)

 

Net loss

 

 

(19,335)

 

 

(45)

 

Less net loss attributable to noncontrolling partners’ interests

 

 

 —

 

 

1,319

 

Net (loss) income attributable to Enviva Partners, LP

 

$

(19,335)

 

$

1,274

 

Less: Pre-acquisition loss from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner

 

 

 —

 

 

(1,261)

 

Enviva Partners, LP limited partners’ interest in net (loss) income

 

$

(19,335)

 

$

2,535

 

Net (loss) income per limited partner common unit:

 

 

 

 

 

 

 

Basic

 

$

(0.78)

 

$

0.08

 

Diluted

 

$

(0.78)

 

$

0.07

 

Net (loss) income per limited partner subordinated unit:

 

 

 

 

 

 

 

Basic

 

$

(0.78)

 

$

0.08

 

Diluted

 

$

(0.78)

 

$

0.08

 

Weighted-average number of limited partner units outstanding:

 

 

 

 

 

 

 

Common—basic

 

 

14,438

 

 

14,380

 

Common—diluted

 

 

14,438

 

 

15,228

 

Subordinated—basic and diluted

 

 

11,905

 

 

11,905

 

 

 

 

 

 

 

 

 

(1) See Note 11, Related-Party Transactions

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


 

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive (Loss) Income

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

    

 

    

2018

    

2017 (Recast)

 

Net loss

 

$

(19,335)

 

$

(45)

 

Other comprehensive loss:

 

 

 

 

 

  

 

Net unrealized losses on cash flow hedges

 

 

(1,328)

 

 

(797)

 

Reclassification of net losses realized into net (loss) income

 

 

 1

 

 

 —

 

Total other comprehensive loss

 

 

(1,327)

 

 

(797)

 

Total comprehensive loss

 

 

(20,662)

 

 

(842)

 

Less:

 

 

 

 

 

 

 

Pre-acquisition loss from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner

 

 

 —

 

 

(1,261)

 

Total comprehensive (loss) income subsequent to Enviva Port of Wilmington, LLC Drop-Down

 

 

(20,662)

 

 

419

 

Less:

 

 

 

 

 

 

 

Comprehensive loss attributable to noncontrolling partners’ interests

 

 

 —

 

 

(1,319)

 

Comprehensive (loss) income attributable to Enviva Partners, LP partners

 

$

(20,662)

 

$

1,738

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

6


 

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Partners’ Capital

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited Partners’ Capital

 

 

 

 

 

 

 

 

 

 

 

Common

 

Common

 

Subordinated

 

Accumulated

 

 

 

 

 

General

 

Units—

 

Units—

 

Units—

 

Other

 

Total

 

 

 

Partner

 

Public

 

Sponsor

 

Sponsor

 

Comprehensive

 

Partners'

 

    

    

Interest

    

Units

    

Amount

    

Units

    

Amount

    

Units

    

Amount

    

(Loss) Income

    

Capital

Partners’ capital, December 31, 2017

 

 

 

(128,569)

 

13,073

 

 

224,027

 

1,347

 

 

16,050

 

11,905

 

 

101,901

 

 

(3,040)

 

 

210,369

Distributions to unitholders, distribution equivalent and incentive distribution rights

 

 

 

(1,130)

 

 —

 

 

(8,833)

 

 —

 

 

(784)

 

 —

 

 

(7,381)

 

 

 —

 

 

(18,128)

Issuance of units through Long-Term Incentive Plan

 

 

 

(2,129)

 

99

 

 

(164)

 

(82)

 

 

(1,301)

 

 —

 

 

 —

 

 

 —

 

 

(3,594)

Issuance of common units, net

 

 

 

 —

 

 8

 

 

241

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

241

Non-cash Management Services Agreement expenses

 

 

 

102

 

 —

 

 

931

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,033

Other comprehensive loss

 

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(1,327)

 

 

(1,327)

Net income (loss)

 

 

 

1,130

 

 —

 

 

(10,233)

 

 —

 

 

(983)

 

 —

 

 

(9,249)

 

 

 —

 

 

(19,335)

Partners’ capital, March 31, 2018

 

 

$

(130,596)

 

13,180

 

$

205,969

 

1,265

 

$

12,982

 

11,905

 

$

85,271

 

$

(4,367)

 

$

169,259

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

7


 

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

 

    

March 31, 

    

 

 

 

2018

 

 

2017 (Recast)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(19,335)

 

$

(45)

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9,408

 

 

9,362

 

Amortization of debt issuance costs, debt premium and original issue discounts

 

 

272

 

 

381

 

Impairment of inventory

 

 

10,383

 

 

 —

 

Insurance recoveries

 

 

(4,891)

 

 

 —

 

General and administrative expense incurred by the First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down

 

 

 —

 

 

438

 

Loss on disposals of assets

 

 

1,130

 

 

24

 

Unit-based compensation

 

 

1,343

 

 

1,714

 

Fair value changes in derivatives

 

 

525

 

 

(759)

 

Unrealized loss on foreign currency transactions

 

 

(69)

 

 

 —

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

36,123

 

 

28,192

 

Related-party receivables

 

 

1,800

 

 

(386)

 

Prepaid expenses and other assets

 

 

(50)

 

 

(682)

 

Assets held for sale

 

 

 —

 

 

(345)

 

Inventories

 

 

(16,509)

 

 

(1,254)

 

Other long-term assets

 

 

 —

 

 

21

 

Derivatives

 

 

(601)

 

 

 —

 

Accounts payable, accrued liabilities and other current liabilities

 

 

8,677

 

 

(3,383)

 

Related-party payables

 

 

(6,501)

 

 

(2,580)

 

Accrued interest

 

 

7,574

 

 

6,421

 

Deferred revenue

 

 

 —

 

 

143

 

Other long-term liabilities

 

 

37

 

 

382

 

Net cash provided by operating activities

 

 

29,316

 

 

37,644

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(1,999)

 

 

(9,344)

 

Net cash used in investing activities

 

 

(1,999)

 

 

(9,344)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Principal payments on debt and capital lease obligations

 

 

(1,172)

 

 

(17,158)

 

Cash paid related to debt issuance costs

 

 

 —

 

 

(209)

 

Proceeds from common unit issuance under the At-the-Market Offering Program, net

 

 

241

 

 

1,715

 

Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder

 

 

(17,847)

 

 

(14,829)

 

Payment to General Partner to purchase affiliate common units for Long-Term Incentive Plan vesting

 

 

(2,341)

 

 

 —

 

Payment to Provider for tax withholding associated with Long-Term Incentive Plan vesting

 

 

(1,665)

 

 

 —

 

Proceeds from debt issuance

 

 

 —

 

 

10,000

 

Contributions from sponsor related to Enviva Pellets Sampson, LLC Drop-Down

 

 

 —

 

 

1,651

 

Proceeds from contributions from the First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down

 

 

 —

 

 

2,915

 

Net cash used in financing activities

 

 

(22,784)

 

 

(15,915)

 

Net increase in cash, cash equivalents and restricted cash

 

 

4,533

 

 

12,385

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

524

 

 

466

 

Cash, cash equivalents and restricted cash, end of period

 

$

5,057

 

$

12,851

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

8


 

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Continued)

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

 

2018

 

 

2017 (Recast)

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

The Partnership acquired property, plant and equipment in non-cash transactions as follows:

 

 

 

 

 

 

 

Property, plant and equipment acquired included in accounts payable and accrued liabilities

 

$

1,587

 

$

13,917

 

Property, plant and equipment acquired under capital leases

 

 

674

 

 

1,124

 

Property, plant and equipment transferred from inventories

 

 

 2

 

 

260

 

Distributions included in liabilities

 

 

1,352

 

 

509

 

Depreciation capitalized to inventories

 

 

1,037

 

 

86

 

Supplemental information:

 

 

 

 

 

 

 

Interest paid

 

$

795

 

$

854

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

 

9


 

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

 

(1)  Description of Business and Basis of Presentation

Description of Business

Enviva Partners, LP (the “Partnership”) supplies utility-grade wood pellets primarily to major power generators under long-term, take-or-pay off-take contracts. The Partnership procures wood fiber and processes it into utility-grade wood pellets and loads the finished wood pellets into railcars, trucks and barges that are transported to deep-water marine terminals, where they are received, stored and ultimately loaded onto oceangoing vessels for transport to the Partnership’s principally European customers.

The Partnership owns and operates six industrial-scale wood pellet production plants located in the Mid-Atlantic and Gulf Coast regions of the United States. Wood pellets are exported from the Partnership’s wholly owned dry-bulk, deep-water marine terminal in Chesapeake, Virginia (the “Chesapeake terminal”) and terminal assets in Wilmington, North Carolina (the “Wilmington terminal”), and from third-party deep-water marine terminals in Mobile, Alabama and Panama City, Florida, under a short-term and a long-term contract, respectively.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments and accruals that are necessary for a fair presentation of the results of all periods presented herein and are of a normal recurring nature. The results reported in these statements are not necessarily indicative of the results that may be reported for the entire year. These statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.

Enviva Port of Wilmington, LLC

On October 2, 2017, pursuant to the terms of a contribution agreement (the “Wilmington Contribution Agreement”) between the Partnership and Enviva Wilmington Holdings, LLC, a joint venture between Enviva Development Holdings, LLC, a wholly owned subsidiary of Enviva Holdings, LP (the “sponsor”), Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) (the “First Hancock JV”), the Partnership acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”), which owns the Wilmington terminal assets. The purchase price, which was $130.0 million, included an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million. The initial payment was funded with borrowings from revolving credit commitments (see Note 10, Long-Term Debt and Capital Lease Obligations) and cash on hand. The acquisition (the “Wilmington Drop-Down”) included the Wilmington terminal and a long-term terminal services agreement with the Partnership’s sponsor (the “Holdings TSA”) to handle throughput volumes sourced by the sponsor from the wood pellet production plant in Greenwood, South Carolina (the “Greenwood plant”). On February 16, 2018, Enviva Pellets Greenwood, LLC (“Greenwood”), a wholly owned subsidiary of Enviva JV Development Company, LLC, a joint venture between Enviva Development Holdings, LLC, a wholly owned subsidiary of the sponsor, Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.), acquired the Greenwood plant (the “Greenwood Acquisition”). In connection with the Greenwood Acquisition, the Holdings TSA, which provides for deficiency payments to Wilmington if quarterly minimum throughput requirements are not met, was amended and assigned by the sponsor to Greenwood (see Note 11, Related-Party Transactions).

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

In addition, the Wilmington Contribution Agreement contemplates that Wilmington will enter into a long-term terminal services agreement (the “Wilmington Hamlet TSA”) with the First Hancock JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and load wood pellets from the First Hancock JV’s proposed production plant in Hamlet, North Carolina (the “Hamlet plant”) when the First Hancock JV completes construction of the Hamlet plant. The Wilmington Hamlet TSA also provides for deficiency payments to Wilmington if minimum throughput requirements are not met. Pursuant to the Wilmington Contribution Agreement, following notice of the anticipated first delivery of wood pellets to the Wilmington terminal from the Hamlet plant, Wilmington, Hamlet, and the First Hancock JV will enter into the Wilmington Hamlet TSA and the Partnership will make a final payment of $74.0 million in cash or common units to the First Hancock JV, subject to certain conditions, as deferred consideration for the Wilmington Drop-Down. At March 31, 2018 and December 31, 2017, the $74.0 million is included in related-party long-term payable on the condensed consolidated balance sheets.

Wilmington also entered into a throughput option agreement with the sponsor granting the sponsor, subject to certain conditions, the option to obtain terminal services at the Wilmington terminal at marginal cost throughput rates for wood pellets produced by one of the sponsor’s potential future wood pellet production plants.

The Partnership accounted for the Wilmington Drop-Down as a combination of entities under common control at historical cost in a manner similar to a pooling of interests. Accordingly, the unaudited interim condensed consolidated financial statements for the periods prior to the three months ended March 31, 2018 were retrospectively recast to reflect the acquisition of the First Hancock JV’s interests in Wilmington as if it had occurred on May 15, 2013, the date Wilmington was originally organized (see Note 3, Transactions Between Entities Under Common Control).

(2)  Significant Accounting Policies

During interim periods, the Partnership follows the accounting policies disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017 except for the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 606 , Revenue from Contracts with Customers (“ASC 606”). The adoption changed the Partnership’s accounting policies for revenue recognition and cost of goods sold.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the Partnership’s unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Revenue Recognition

The Partnership primarily earns revenue by supplying wood pellets to its customers under off-take contracts, the majority of the commitments under which are long-term in nature. The Partnership refers to the structure of its off-take contracts as “take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that ensure the Partnership will be compensated in the case of a customer’s failure to accept all or a part of the contracted volumes or termination of a contract by a customer. The Partnership’s long-term off-take contracts define the annual volume of wood pellets that a customer is required to purchase and the Partnership is required to sell, the fixed price per metric ton for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, subject to annual inflation-based adjustments and price escalators, as well as, in some instances, price adjustments for product specifications and changes in underlying indicies. In addition to sales of the Partnership’s product under these long-term off-take contracts, the Partnership routinely sells wood pellets under shorter-term contracts, which range in volume and tenor and, in some cases, may include only one specific shipment. Because each of the Partnership’s off-take contracts is a bilaterally negotiated agreement, the Partnership’s revenue over

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

the duration of such contracts does not generally follow observable current market pricing trends. The Partnership’s performance obligation under these contracts include the delivery of wood pellets, and are aggregated into metric tons. The Partnership accounts for each metric ton as a single performance obligation. The Partnership’s revenue from the sales of wood pellets it produces is recognized as “Product sales” upon satisfaction of the Partnership’s performance obligation when control transfers to the customer at the time of loading wood pellets onto a ship.

Depending on the specific off‑take contract, shipping terms are either Cost, Insurance and Freight (“CIF”) or Cost and Freight (“CFR”) or Free on Board (“FOB”). Under a CIF contract, the Partnership procures and pays for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, the Partnership procures and pays for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping under CIF and CFR contracts after control has passed to the customer is considered a fulfillment activity rather than a performance obligation and associated expenses are included in the price to the customer. Under FOB contracts, the customer is directly responsible for shipping costs.

In some cases, the Partnership may purchase shipments of product from third-party suppliers and resell them in back-to-back transactions (“purchase and sale transactions”). The Partnership has determined that it is the principal in these transactions because it controls the pellets prior to transferring them to the customer and therefore recognizes related revenue on a gross basis in “Product sales.”

In instances in which a customer requests the cancellation, deferral or acceleration of a shipment, the customer may pay a fee, which is included in “Other revenue.”

The Partnership recognizes third- and related-party terminal services revenue ratably over the contract term at its ports, which is included in “Other revenue.” Terminal services are performance obligations that are satisfied over time, as customers simultaneously receive and consume the benefits of the terminal services performed by the Partnership. The consideration is generally fixed for minimum quantities and above the minimum are generally billed based on a per-ton rate.

The Partnership expects to recognize approximately $5.9 billion in revenue from its remaining performance obligations related to “Product sales” and “Other revenue” with fixed consideration. Most of the Partnership’s off-take contracts expire by 2027, and two contracts expire in 2034. The Partnership’s terminal services contracts extend to 2026. Remaining performance obligations are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

Period from April 1, 2018 to December 31, 2018

 

2019

 

Thereafter

 

Total

Product sales

 

$

505,344

 

$

600,003

 

$

4,836,670

 

$

5,942,017

Other revenue

 

 

531

 

 

708

 

 

1,180

 

 

2,419

Total revenue

 

$

505,875

 

$

600,711

 

$

4,837,850

 

$

5,944,436

Variable consideration for off-take contracts arises from several pricing features outlined in the Partnership’s off-take contracts, pursuant to which such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain contractual quality specifications of the wood pellets as measured both when the wood pellets are loaded onto ships and unloaded at the discharge port as well as certain other contractual adjustments.

Variable consideration from terminal services contracts arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services, which were not material for the three months ended March 31, 2018.

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The Partnership allocates variable consideration under its off-take and terminal services contracts entirely to each performance obligation to which variable consideration relates. The estimate of variable consideration represents the amount that is not more likely than not to be recovered. For the three months ended March 31, 2018, the Partnership recognized an insignificant amount of revenue related to performance obligations satisfied during fiscal year ended December 31, 2017.

Under the Partnership’s off-take contracts, customers are obligated to pay the majority of the purchase price prior to the arrival of the ship at the customers’ discharge port. The remaining portion is paid after the wood pellets are unloaded at the discharge port. The Partnership generally recognizes revenue prior to the issuance of an invoice to the customer. Accounts receivable related to “Product sales” as of March 31, 2018 and December 31, 2017 was $42.5 million and $78.0 million, respectively.

Cost of Goods Sold

Cost of goods sold includes the cost to produce and deliver wood pellets to customers, reimbursable shipping related costs associated with specific off-take contracts with CIF and CFR shipping terms, and costs associated with purchase and sale transactions. Raw material, production and distribution costs associated with delivering wood pellets to our owned and leased marine terminals and third‑ and related-party wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the related depreciation expense, is allocated to inventory based on the normal capacity of the production plants. These costs are reflected in cost of goods sold when inventory is sold. Distribution costs associated with shipping wood pellets to customers and amortization of favorable acquired customer contracts are expensed as incurred. Inventory is recorded using the first-in, first-out method (“FIFO”), which requires the use of judgment and estimates. Given the nature of the inventory, the calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer.

Recently Adopted Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. ASU 2014-09 and subsequent amendments were codified as ASC 606. ASC 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Partnership recognizes revenue under ASC 606 and all related amendments, which it adopted on January 1, 2018, using the modified retrospective transition method.

The Partnership determined that, upon adoption of the ASC 606, its off-take contracts will continue to be classified as “Product sales.” Revenue is recognized at the point in time at which control of the wood pellets passes to the customer as the wood pellets are loaded onto shipping vessels, which is consistent with the timing of revenue recognition under the Partnership’s legacy accounting policy. However, the adoption of ASC 606 impacted the basis of presentation for purchase and sale transactions. Prior to the adoption of ASC 606, the Partnership reported revenue from purchase and sale transactions net of costs paid to third-party suppliers, which was classified as “Other revenue.” Subsequent to the adoption of ASC 606, the Partnership recognizes revenue on a gross basis in “Products sales” when it determines that it acts as a principal and controls the wood pellets before they are transferred to the customer.  The decision as to whether to recognize revenue on a gross or net basis requires significant judgment.

Recoveries from customers for certain costs incurred at the discharge port under the Partnership’s off-take contracts were reported in “Product sales” prior to the adoption of ASC 606. Under ASC 606, these recoveries are not considered a

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ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

part of the transaction price, and therefore are excluded from “Product sales” and included as an offset to “Cost of goods sold.”

The Partnership disaggregates its revenue into two categories: “Product sales” and “Other revenue”. These categories best reflect the nature, amount, timing and uncertainty of the Partnership’s revenue and cash flows.

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, whereas prior comparative reporting periods have not been adjusted and continue to be reported under the accounting standards in effect for such periods. The Partnership did not have a transition adjustment as a result of adopting ASC 606.

The table below indicates the impact of the adoption of ASC 606 on revenue and cost of goods sold for the three months ended March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

    

As Reported

    

Adoption of ASC 606

 

Without Adoption of ASC 606

Product sales

 

$

122,799

 

$

(6,221)

 

$

116,578

Other revenue

 

 

3,002

 

 

(53)

 

 

2,949

Cost of goods sold

 

 

130,342

 

 

(6,274)

 

 

124,068

Gross margin

 

$

(4,541)

 

$

 —

 

$

(4,541)

 

In January 2017, the FASB issued ASU 2017‑01, Business Combinations (Topic 805): Clarifying the Definition of a Business, to provide guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the assets acquired (or disposed of) are not considered a business. The Partnership adopted ASU 2017-01 as of January 1, 2018 which may have an impact on the accounting for future acquisitions.

In November 2016, the FASB issued ASU 2016‑18, Statement of Cash Flows (Topic 230)—Restricted Cash: A Consensus of the FASB Emerging Issues Task Force, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance addresses the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. The Partnership adopted ASU 2016-18 as of January 1, 2018, which resulted in an increase of $0.9 million in “Net cash provided by operating activities” and an increase of $0.9 million in “Cash, cash equivalents and restricted cash, end of period” in the Partnership’s condensed consolidated statements of cash flows for the three months ended March 31, 2017. As of March 31, 2017, $0.9 million was designated as restricted cash due to restrictions on its withdrawal and use pursuant to a security agreement.

In August 2016, the FASB issued ASU 2016‑15, Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows with the objective of reducing the existing diversity in practice. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. An entity will first apply any relevant guidance. If there is no

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

guidance that addresses those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source of use. The Partnership adopted ASU 2016-18 as of January 1, 2018 and there was no material effect on how cash receipts and cash payments are presented and classified in the condensed consolidated statement of cash flows occurred.

Recently Issued Accounting Standards not yet Adopted

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815)-Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 requires a modified retrospective transition method which requires the recognition of the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Partnership is in the process of evaluating the impact of the adoption of ASU 2017-12 on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other. ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the new standard, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This standard will be implemented prospectively in 2020 for all future goodwill impairment tests and will simplify such evaluations.

In February 2016, the FASB issued ASU 2016-02, Leases. Under the new pronouncement, an entity is required to recognize right-of-use (“ROU”) assets and lease liabilities arising from a lease for all non-cancellable leases. The Partnership is expected to apply this guidance to all non-cancellable leases with a term of more than 12 months. The new guidance is effective for public entities for fiscal year and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted. Upon adoption, a lessee and a lessor would recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Partnership is in the process of preparing the implementation plan and is evaluating the impact of adoption on its business processes and accounting and information systems. A multi-discipline implementation team has gained an understanding of the standard’s accounting and disclosure provisions and is working to evaluate the impact of adoption on the Partnership’s consolidated financial statements. The Partnership currently expects changes related to the recognition of new ROU assets and lease liabilities on its balance sheet for its real estate and machinery and equipment operating leases. The Partnership is currently evaluating whether its long-term wood pellet supply arrangements, throughput agreements to receive terminal services, and certain fixed-price long-term logistics arrangements contain leases. The Partnership does

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

not expect a significant change in its leasing activity prior to adoption of the ASU. The Partnership is in the process of evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.

 

(3)  Transactions Between Entities Under Common Control

Recast of Historical Financial Statements

The financial statements for the three months ended March 31, 2017 have been recast to reflect the Wilmington Drop-Down as if it had occurred on May 15, 2013, the date Wilmington was originally organized. The historical net equity amounts of Wilmington prior to the date of the Wilmington Drop-Down were attributed to Enviva Partners GP, LLC, the general partner of the Partnership (the “General Partner”) and any non-controlling interest.

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated balance sheet as of March 31, 2017 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended March 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2017

 

 

    

As

    

Enviva Port of

    

 

    

 

 

Reported

 

Wilmington, LLC

 

Total (Recast)

 

Cash and cash equivalents

 

$

11,913

 

$

 —

 

$

11,913

 

Restricted cash

 

 

938

 

 

 —

 

 

938

 

Accounts receivable, net

 

 

49,676

 

 

 —

 

 

49,676

 

Related-party receivables

 

 

6,902

 

 

(111)

 

 

6,791

 

Inventories

 

 

30,780

 

 

64

 

 

30,844

 

Prepaid expenses and other current assets

 

 

5,969

 

 

(115)

 

 

5,854

 

Total current assets

 

 

106,178

 

 

(162)

 

 

106,016

 

Property, plant and equipment, net of accumulated depreciation

 

 

511,907

 

 

75,773

 

 

587,680

 

Goodwill

 

 

85,615

 

 

 —

 

 

85,615

 

Other long-term assets

 

 

3,795

 

 

69

 

 

3,864

 

Total assets

 

$

707,495

 

$

75,680

 

$

783,175

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,009

 

$

370

 

$

3,379

 

Related-party payables

 

 

7,893

 

 

899

 

 

8,792

 

Accrued and other current liabilities

 

 

54,417

 

 

4,653

 

 

59,070

 

Long-term debt and capital lease obligations

 

 

340,402

 

 

223

 

 

340,625

 

Other long-term liabilities

 

 

2,081

 

 

1,384

 

 

3,465

 

Total liabilities

 

 

407,802

 

 

7,529

 

 

415,331

 

Total partners’ capital

 

 

299,693

 

 

68,151

 

 

367,844

 

Total liabilities and partners’ capital

 

$

707,495

 

$

75,680

 

$

783,175

 

 

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated statements of income for the three months ended March 31, 2017 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended March 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2017

 

 

    

As

    

Enviva Port of

    

Total

    

 

 

Reported

 

Wilmington

 

(Recast)

 

Net revenue

 

$

122,123

 

$

320

 

$

122,443

 

Total cost of goods sold

 

 

103,647

 

 

2,428

 

 

106,075

 

Gross margin

 

 

18,476

 

 

(2,108)

 

 

16,368

 

Net income (loss)

 

 

2,502

 

 

(2,547)

 

 

(45)

 

Less net loss attributable to noncontrolling partners’ interests

 

 

33

 

 

1,286

 

 

1,319

 

Net income (loss) attributable to Enviva Partners, LP

 

 

2,535

 

 

(1,261)

 

 

1,274

 

Net loss attributable to general partner

 

 

 —

 

 

(1,261)

 

 

(1,261)

 

Net income attributable to Enviva Partners, LP limited partners’ interest in net income

 

 

2,535

 

 

 —

 

 

2,535

 

 

The following table presents the changes to previously reported amounts in the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2017 included in the Partnership’s quarterly report on Form 10-Q for the quarter ended March 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2017

 

 

    

As

    

Enviva Port of

    

Total

    

 

    

Reported

 

Wilmington

 

(Recast)

    

Net cash provided by operating activities (1)

 

$

36,866

 

$

778

 

$

37,644

 

Net cash used in investing activities

 

 

(5,656)

 

 

(3,688)

 

 

(9,344)

 

Net cash (used in) provided by financing activities

 

 

(18,825)

 

 

2,910

 

 

(15,915)

 

Net increase in cash, cash equivalents and restricted cash (1)

 

$

12,385

 

$

 —

 

$

12,385

 

(1) Adjusted for the adoption of ASU 2016-18, see Note 2, Significant Accounting Policies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)  Significant Risks and Uncertainties Including Business and Credit Concentrations

The Partnership’s business is significantly impacted by greenhouse gas emission and renewable energy legislation and regulations in the European Union as well as its member states. If the European Union or its member states significantly modify such legislation or regulations, then the Partnership’s ability to enter into new contracts as the current contracts expire may be materially affected.

The Partnership’s primary industrial customers are located in the United Kingdom, Denmark and Belgium. Three customers accounted for 79% of the Partnership’s product sales during the three months ended March 31, 2018. Three customers accounted for 97% of the Partnership’s product sales during the three months ended March 31, 2017. The

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Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

following table shows product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales for each of the three months ended:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

    

 

 

March 31, 

 

    

 

    

2018

 

2017 (Recast)

 

Customer A

 

38

%  

62

%

 

Customer B

 

 7

%  

19

%

 

Customer C

 

34

%  

16

%

 

 

The Partnership’s cash and cash equivalents are placed in or with various financial institutions. The Partnership has not experienced any losses on such accounts.

(5) Inventory Impairment and Asset Disposal

On February 27, 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and approximately 43,000 metric tons (“MT”) of wood pellets (the “Chesapeake Terminal Event”). As part of its risk management process, the Partnership maintains certain insurance policies, which are subject to deductibles and sublimits for each covered event. The Partnership believes that substantially all of the costs resulting from the Chesapeake Terminal Event are recoverable through its insurance policies and other contractual rights. The Partnership has commissioned temporary storage and shiploading operations at various locations, including a nearby terminal in Norfolk, Virginia, and is utilizing its Wilmington terminal to ship product from its wood pellet production plants in the Mid-Atlantic region. The Partnership believes that all of its contractual obligations to its off-take customers will be met during 2018 and expects the Chesapeake terminal to return to full operation by June 30, 2018.

During the three months ended March 31, 2018, the Partnership recorded a $1.1 million impairment of terminal assets and a $10.7 million write-off of product, inclusive of disposal costs, which are included in cost of goods sold. Additionally, costs included in cost of goods sold of $16.6 million were incurred during the three months ended March 31, 2018 and consist primarily of costs related to emergency response and temporary storage, handling and shiploading operations.

As of March 31, 2018, the Partnership has received $4.0 million of insurance recoveries and has recorded $4.9 million of additional insurance recoveries in accounts receivable reflecting the insurance proceeds that are probable of receipt up to the amount of the loss recorded. The Partnership recorded $7.8 million of insurance recoveries in cost of goods sold and recognized $1.1 million of insurance recoveries in other income related to lost profit on the sale of the damaged product during the three months ended March 31, 2018.

18


 

Table of Contents

ENVIVA PARTNERS, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(In thousands, except number of units, per unit amounts and unless otherwise noted)

(Unaudited)

(6)  Property, Plant and Equipment

Property, plant and equipment consisted of the following at:

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

    

 

    

2018

    

2017

    

Land

 

$

13,492

 

$

13,492

 

Land improvements

 

 

42,962

 

 

42,962

 

Buildings

 

 

196,155

 

 

196,153

 

Machinery and equipment

 

 

412,652

 

 

413,349

 

Vehicles

 

 

635

 

 

635

 

Furniture and office equipment

 

 

6,023

 

 

5,970

 

Leasehold improvements

 

 

987

 

 

987

 

 

 

 

672,906

 

 

673,548

 

Less accumulated depreciation

 

 

(125,834)

 

 

(117,067)

 

 

 

 

547,072

 

 

556,481

 

Construction in progress

 

 

6,021

 

 

5,849

 

Total property, plant and equipment, net

 

$

553,093

 

$

562,330

 

Total depreciation expense was $9.3 million for the three months ended March 31, 2018 and 2017.  

(7)  Inventories

Inventories consisted of the following at:

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

    

 

    

2018

    

2017

    

Raw materials and work-in-process

 

$

6,598