Intrepid Potash, Inc. - 10-Q filing on 2016-11-02

INVENTORY AND LONG-TERM PARTS INVENTORY

9 Months Ended

Sep. 30, 2016

The following summarizes our inventory, recorded at the lower of weighted average cost or estimated net realizable value, as of September 30, 2016, and December 31, 2015 (in thousands):



	September 30, 2016		December 31, 2015
Finished goods product inventory	$	56,118	$	65,200
In-process mineral inventory	26,961		19,769
Total product inventory	83,079		84,969
Current parts inventory, net	18,819		21,562
Total current inventory, net	101,898		106,531
Long-term parts inventory, net	20,535		17,344
Total inventory, net	$	122,433	$	123,875

Parts inventories are shown net of any required allowances. At September 30, 2016, and 2015, allowances for parts inventory obsolescence were $3.3 million and $0.5 million, respectively.

During the nine months ended September 30, 2016, and 2015, we recorded charges of approximately $17.1 million and $10.1 million, respectively, as a result of routine assessments of the lower of weighted average cost or estimated net realizable value of our finished goods product inventory.

During the beginning of 2016 before the conversion of the East facility to Trio^®-only, we suspended potash production at our East facility for a total of seven days as we performed a testing run and converted the East facility to a Trio^®-only facility. As a result of the suspension of production, we determined that approximately $1.7 million of production costs at our East facility would have been allocated to additional tons produced, assuming we had been operating at normal production rates for the nine-month period ending September 30, 2016. Accordingly, these costs were excluded from our inventory values and instead expensed in the nine-month period in 2016 as period production costs.

During the third quarter of 2015, we received an order issued by MSHA relating to maintenance issues and salt build-up in the ore hoisting shaft at our West mine. Upon issuance of the order, we suspended production at the West mine for 15 days while we took corrective actions to resolve the issues. As a result, potash production from our West mine was abnormally low during this period. In addition, although production resumed in mid-September, we continued to perform incremental maintenance on the ore hoisting shaft into the fourth quarter of 2015, during which time production at the West mine was temporarily suspended. Also during the third quarter of 2015, we temporarily suspended potash production at our East facility for a total of seven days as we performed two separate Trio^®-only testing runs.

As a result of these temporary suspensions of production in 2015, we determined that approximately $4.9 million and $2.0 million of production costs at our West and East facilities, respectively, would have been allocated to additional tons produced, assuming we had been operating at normal production rates. Accordingly, these costs were excluded from our inventory values and instead expensed in the period incurred as period production costs. We compare actual production relative to what we estimated could have been produced if we had not incurred the temporary production suspensions and lower operating rates in order to determine the abnormal cost adjustment.