Inventory Impairment and Asset Disposal

3 Months Ended

Mar. 31, 2018

Inventory Impairment and Assets Disposal

(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.