Attached files
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EXCEL - IDEA: XBRL DOCUMENT - RENTECH, INC. | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - RENTECH, INC. | c20246exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - RENTECH, INC. | c20246exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - RENTECH, INC. | c20246exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - RENTECH, INC. | c20246exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
Or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from
________ to ________
Commission File No. 001-15795
RENTECH, INC.
(Exact name of registrant as specified in its charter)
Colorado | 84-0957421 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
10877 Wilshire Boulevard, Suite 600
Los Angeles, California 90024
(Address of principal executive offices)
(Address of principal executive offices)
(310) 571-9800
(Registrants telephone number, including area code)
(Registrants 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 þ No o
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
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares of the Registrants common stock outstanding as of July 29, 2011 was
223,344,420.
RENTECH, INC.
Form 10-Q
Form 10-Q
Table of Contents
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
RENTECH, INC.
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Amounts in thousands, except per share data)
As of | ||||||||
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 104,168 | $ | 54,146 | ||||
Restricted cash, short-term |
| 100 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $100 at June 30, 2011 and
September 30, 2010, respectively |
13,502 | 9,586 | ||||||
Inventories |
7,426 | 6,966 | ||||||
Deposits on gas contracts |
2,728 | 2,353 | ||||||
Prepaid expenses and other current assets |
7,798 | 5,128 | ||||||
Other receivables, net |
3,380 | 470 | ||||||
Total current assets |
139,002 | 78,749 | ||||||
Property, plant and equipment, net |
50,554 | 55,299 | ||||||
Construction in progress |
65,825 | 41,098 | ||||||
Other assets |
||||||||
Other assets and deposits |
22,826 | 17,599 | ||||||
Goodwill |
8,358 | 7,209 | ||||||
Deferred income taxes |
561 | 561 | ||||||
Total other assets |
31,745 | 25,369 | ||||||
Total assets |
$ | 287,126 | $ | 200,515 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 6,962 | $ | 6,425 | ||||
Accrued payroll and benefits |
5,956 | 5,786 | ||||||
Accrued liabilities |
17,488 | 13,515 | ||||||
Capital lease obligation |
57 | 322 | ||||||
Deferred revenue |
8,159 | 14,473 | ||||||
Accrued interest |
2,115 | 2,725 | ||||||
Deferred income taxes |
561 | 561 | ||||||
Current portion of term loan |
31,494 | 12,835 | ||||||
Total current liabilities |
72,792 | 56,642 | ||||||
Long-term liabilities |
||||||||
Term loan, net of current portion |
118,506 | 48,040 | ||||||
Long-term convertible debt to stockholders |
46,027 | 42,163 | ||||||
Advance for equity investment |
7,892 | 7,892 | ||||||
Other long-term liabilities |
525 | 425 | ||||||
Total long-term liabilities |
172,950 | 98,520 | ||||||
Total liabilities |
245,742 | 155,162 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Stockholders equity: |
||||||||
Preferred stock: $10 par value; 1,000 shares authorized; 90 series A convertible
preferred shares authorized and issued; no shares outstanding and $0 liquidation
preference |
| | ||||||
Series C participating cumulative preferred stock: $10 par value; 500 shares authorized;
no shares issued and outstanding |
| | ||||||
Common stock: $.01 par value; 450,000 shares authorized; 223,344 and 221,731 shares
issued and outstanding at June 30, 2011 and September 30, 2010, respectively |
2,233 | 2,217 | ||||||
Additional paid-in capital |
340,780 | 332,696 | ||||||
Accumulated deficit |
(302,185 | ) | (296,993 | ) | ||||
Total Rentech stockholders equity |
40,828 | 37,920 | ||||||
Noncontrolling interests |
556 | 7,433 | ||||||
Total stockholders equity |
41,384 | 45,353 | ||||||
Total liabilities and stockholders equity |
$ | 287,126 | $ | 200,515 | ||||
See Accompanying Notes to Consolidated Financial Statements.
3
Table of Contents
RENTECH, INC.
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Amounts in thousands, except per share data)
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenues |
||||||||||||||||
Product sales |
$ | 74,385 | $ | 50,111 | $ | 141,291 | $ | 96,317 | ||||||||
Service revenues |
51 | 399 | 154 | 514 | ||||||||||||
Total revenues |
74,436 | 50,510 | 141,445 | 96,831 | ||||||||||||
Cost of sales |
||||||||||||||||
Product sales |
36,958 | 34,736 | 77,535 | 79,092 | ||||||||||||
Service revenues |
50 | 587 | 150 | 693 | ||||||||||||
Total cost of sales |
37,008 | 35,323 | 77,685 | 79,785 | ||||||||||||
Gross profit |
37,428 | 15,187 | 63,760 | 17,046 | ||||||||||||
Operating expenses |
||||||||||||||||
Selling, general and administrative expense |
8,173 | 7,492 | 22,942 | 21,337 | ||||||||||||
Depreciation and amortization |
547 | 476 | 1,679 | 1,460 | ||||||||||||
Research and development |
7,976 | 5,011 | 20,440 | 13,313 | ||||||||||||
Other project costs |
| | 53 | | ||||||||||||
Gain on disposal of property, plant and equipment |
(26 | ) | (7 | ) | (70 | ) | (28 | ) | ||||||||
Total operating expenses |
16,670 | 12,972 | 45,044 | 36,082 | ||||||||||||
Operating income (loss) |
20,758 | 2,215 | 18,716 | (19,036 | ) | |||||||||||
Other income (expense), net |
||||||||||||||||
Interest and dividend income |
21 | 23 | 103 | 192 | ||||||||||||
Interest expense |
(3,844 | ) | (3,747 | ) | (11,286 | ) | (10,487 | ) | ||||||||
Loss on debt extinguishment |
(9,223 | ) | | (13,816 | ) | (2,268 | ) | |||||||||
Loss on investments |
| | | (1,231 | ) | |||||||||||
Other income (expense), net |
(16 | ) | 30 | 10 | 156 | |||||||||||
Total other expenses, net |
(13,062 | ) | (3,694 | ) | (24,989 | ) | (13,638 | ) | ||||||||
Income (loss) from continuing operations before
income taxes and equity in net loss of investee
company |
7,696 | (1,479 | ) | (6,273 | ) | (32,674 | ) | |||||||||
Income tax (benefit) expense |
| 10 | (1 | ) | 10 | |||||||||||
Income (loss) from continuing operations before
equity in net loss of investee company |
7,696 | (1,489 | ) | (6,272 | ) | (32,684 | ) | |||||||||
Equity in net loss of investee company |
| 188 | | 465 | ||||||||||||
Income (loss) from continuing operations |
7,696 | (1,677 | ) | (6,272 | ) | (33,149 | ) | |||||||||
Income from discontinued operations |
| 2 | | 8 | ||||||||||||
Net income (loss) |
7,696 | (1,675 | ) | (6,272 | ) | (33,141 | ) | |||||||||
Net loss attributable to noncontrolling interests |
192 | | 1,080 | | ||||||||||||
Net income (loss) attributable to Rentech |
$ | 7,888 | $ | (1,675 | ) | $ | (5,192 | ) | $ | (33,141 | ) | |||||
Basic net income (loss) per common share
attributable to Rentech: |
||||||||||||||||
Continuing operations |
$ | 0.04 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.15 | ) | |||||
Discontinued operations |
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Net income (loss) |
$ | 0.04 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.15 | ) | |||||
Diluted net income (loss) per common share
attributable to Rentech: |
||||||||||||||||
Continuing operations |
$ | 0.03 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.15 | ) | |||||
Discontinued operations |
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Net income (loss) |
$ | 0.03 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.15 | ) | |||||
Weighted-average shares used to compute net income
(loss) per common share: |
||||||||||||||||
Basic |
223,110 | 216,175 | 222,435 | 214,161 | ||||||||||||
Diluted |
227,905 | 216,175 | 222,435 | 214,161 | ||||||||||||
See Accompanying Notes to Consolidated Financial Statements.
4
Table of Contents
RENTECH, INC.
Consolidated Statement of Stockholders Equity
(Amounts in thousands)
(Amounts in thousands)
Additional | Total Rentech | Total | ||||||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders | Noncontrolling | Stockholders | |||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | Interests | Equity | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
Balance, September 30, 2010 |
221,731 | $ | 2,217 | $ | 332,696 | $ | (296,993 | ) | $ | 37,920 | $ | 7,433 | $ | 45,353 | ||||||||||||||
Acquisition of additional
interest in subsidiary |
| | 5,797 | | 5,797 | (5,797 | ) | | ||||||||||||||||||||
Issuance of common stock |
465 | 5 | (5 | ) | | | | | ||||||||||||||||||||
Payment of offering costs |
| | (234 | ) | | (234 | ) | | (234 | ) | ||||||||||||||||||
Stock-based compensation expense |
| | 3,222 | | 3,222 | | 3,222 | |||||||||||||||||||||
Restricted stock units |
1,148 | 11 | (696 | ) | | (685 | ) | | (685 | ) | ||||||||||||||||||
Net loss |
| | | (5,192 | ) | (5,192 | ) | (1,080 | ) | (6,272 | ) | |||||||||||||||||
Balance, June 30, 2011 |
223,344 | $ | 2,233 | $ | 340,780 | $ | (302,185 | ) | $ | 40,828 | $ | 556 | $ | 41,384 |
See Accompanying Notes to Consolidated Financial Statements.
5
Table of Contents
RENTECH, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Amounts in thousands)
For the Nine Months | ||||||||
Ended June 30, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (6,272 | ) | $ | (33,141 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
8,872 | 8,772 | ||||||
Accretion expense |
26 | 23 | ||||||
Bad debt expense |
195 | 105 | ||||||
Utilization of spare parts |
873 | 1,284 | ||||||
Gain on disposal of property, plant and equipment |
(70 | ) | (28 | ) | ||||
Write-down of inventory to market |
14 | | ||||||
Non-cash interest expense |
4,998 | 5,810 | ||||||
Loss on debt extinguishment |
13,816 | 2,268 | ||||||
Loss on investments |
| 1,231 | ||||||
Gain on sale of subsidiary |
| (8 | ) | |||||
Stock-based compensation |
3,222 | 4,094 | ||||||
Equity in net loss of investee company |
| 465 | ||||||
Payment of call premium fee |
(8,261 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(3,916 | ) | (3,009 | ) | ||||
Property insurance claim receivable |
| 1,795 | ||||||
Other receivables and receivable from related party |
(1,050 | ) | (43 | ) | ||||
Receivables from insurance related to litigation |
(2,056 | ) | | |||||
Inventories |
(323 | ) | 2,694 | |||||
Deposits on gas contracts |
(375 | ) | (873 | ) | ||||
Prepaid expenses and other current assets |
(507 | ) | 1,208 | |||||
Accounts payable |
430 | 948 | ||||||
Deferred revenue |
(6,314 | ) | (17,434 | ) | ||||
Accrued interest |
(610 | ) | (975 | ) | ||||
Litigation settlement payable |
1,954 | | ||||||
Accrued liabilities, accrued payroll and other |
111 | 291 | ||||||
Net cash provided by (used in) operating activities |
4,757 | (24,523 | ) | |||||
Cash flows from investing activities |
||||||||
Purchase of property, plant, equipment and construction in progress |
(29,074 | ) | (19,560 | ) | ||||
Proceeds from disposal of property, plant and equipment |
20 | 2,153 | ||||||
Proceeds from sale of available for sale securities |
| 4,769 | ||||||
Other items |
(650 | ) | (533 | ) | ||||
Net cash used in investing activities |
(29,704 | ) | (13,171 | ) | ||||
Cash flows from financing activities |
||||||||
Proceeds from term loan, net of original issue discount |
200,960 | 60,625 | ||||||
Retirement of term loan, including costs |
(85,383 | ) | (38,040 | ) | ||||
Payments on capital lease |
(265 | ) | | |||||
Payments on debt and notes payable |
(29,908 | ) | (3,593 | ) | ||||
Payment of debt issuance costs |
(8,754 | ) | (3,666 | ) | ||||
Payments on notes payable for financed insurance premiums |
(1,447 | ) | (1,372 | ) | ||||
Payment of offering costs |
(234 | ) | (293 | ) | ||||
Payments on line of credit on available for sale securities |
| (4,532 | ) | |||||
Proceeds from issuance of common stock |
| 6,236 | ||||||
Proceeds from options and warrants exercised |
| 1,144 | ||||||
Net cash provided by financing activities |
74,969 | 16,509 | ||||||
Increase (decrease) in cash and cash equivalents |
50,022 | (21,185 | ) | |||||
Cash and cash equivalents, beginning of period |
54,146 | 69,117 | ||||||
Cash and cash equivalents, end of period |
$ | 104,168 | $ | 47,932 | ||||
6
Table of Contents
RENTECH, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Continued from previous page)
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Continued from previous page)
Excluded from the statements of cash flows for the nine months ended June 30, 2011 and 2010
were the effects of certain non-cash investing and financing activities as follows:
For the Nine Months | ||||||||
Ended June 30, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Cashless exercise of warrants |
$ | | $ | 8 | ||||
Purchase of insurance policies financed with a note payable |
1,872 | 1,893 | ||||||
Restricted stock units surrendered for withholding taxes payable |
685 | 247 | ||||||
Capital lease on software |
| 464 | ||||||
Acquisition of additional interest in subsidiary |
5,797 | | ||||||
Acquisition of Northwest Florida Renewable Energy Center LLC (NWFREC) |
1,733 | |
See Accompanying Notes to Consolidated Financial Statements.
7
Table of Contents
RENTECH, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements of Rentech, Inc. and its
consolidated subsidiaries (collectively, the Company) have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP) and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by GAAP for complete financial statements. In the opinion
of management, the unaudited consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair statement of the Companys
financial position as of June 30, 2011, and the results of operations and cash flows for the
periods presented. The accompanying consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and a subsidiary in which the Company owns a controlling
financial interest. All significant intercompany accounts and transactions have been eliminated in
consolidation. Operating results for the three and nine months ended June 30, 2011 are not
necessarily indicative of the results that may be expected for the fiscal year ending September 30,
2011. The information included in this Form 10-Q should be read in conjunction with the
consolidated financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the fiscal year ended September 30, 2010 filed with the Securities and Exchange Commission
(the SEC) on December 14, 2010 (the Annual Report).
The preparation of financial statements in conformity with GAAP 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 financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Because of their short-term nature, the amounts reported in the Companys consolidated balance
sheets for cash and cash equivalents, accounts receivable, accounts payable and current portion of
term loan approximate fair value.
Certain immaterial prior period amounts have been reclassified to conform to the fiscal year
2011 presentation.
The Company has evaluated events, if any, which occurred subsequent to June 30, 2011 through
the date these financial statements were issued, to ensure that such events have been properly
reflected in these statements.
Note 2 Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (the FASB) issued a standard
providing guidance about the information that a reporting entity provides in its financial reports
about a transfer of financial assets; the effects of a transfer on its financial position,
financial performance, and cash flows; and a transferors continuing involvement in transferred
financial assets. This standard is effective for fiscal years beginning after November 15, 2009. It
is effective for the Companys fiscal year beginning on October 1, 2010. The Company did not
transfer financial assets during the nine months ended June 30, 2011; therefore the adoption of
this standard did not have any impact on the Companys consolidated financial position, results of
operations or disclosures for the three and nine months ended June 30, 2011.
In June 2009, the FASB issued a standard amending previous guidance related to the
determination as to whether an entity is a variable interest entity (VIE), and ongoing
reassessments of whether an enterprise is the primary beneficiary of a VIE. This standard is
effective for fiscal years beginning after November 15, 2009. It is effective for the Companys
fiscal year beginning on October 1, 2010. The Company applied the previous guidance in fiscal year
2010 to determine the accounting treatment for its investment in ClearFuels Technology Inc.
(ClearFuels). The Company determined that it was the primary beneficiary of ClearFuels
operations. Therefore, the operations of ClearFuels were consolidated as of September 3, 2010. The
adoption of this standard, as amended, did not have a material impact on the Companys consolidated
financial position, results of operations or disclosures for the three and nine months ended June
30, 2011.
In May 2011, the FASB issued guidance clarifying previous guidance related to fair value
measurement. This guidance is effective during interim and annual periods beginning after December
15, 2011. It is effective for the Companys interim period beginning on January 1, 2012. Early
application is not permitted. The adoption of this guidance is not expected to have a material
impact on the Companys consolidated financial position, results of operations or disclosures.
8
Table of Contents
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
In June 2011, the FASB issued guidance on comprehensive income. Under the guidance, an entity
has the option to present the total of comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. This standard is effective for fiscal years
beginning after December 15, 2011. It is effective for the Companys fiscal year beginning on
October 1, 2012. Early adoption is permitted. There are no elements of comprehensive income
included in the Companys consolidated financial statements; therefore the adoption of this
standard did not have a material impact on the Companys consolidated financial position, results
of operations or disclosures.
Note 3 Accounts Receivable
Accounts receivable consisted of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Trade receivables from nitrogen products |
$ | 13,502 | $ | 9,578 | ||||
Trade receivables from alternative energy |
100 | 108 | ||||||
Total accounts receivable, gross |
13,602 | 9,686 | ||||||
Allowance for doubtful accounts on trade accounts receivable |
(100 | ) | (100 | ) | ||||
Total accounts receivable, net |
$ | 13,502 | $ | 9,586 | ||||
Note 4 Inventories
Inventories consisted of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Finished goods |
$ | 7,050 | $ | 6,338 | ||||
Raw materials |
376 | 628 | ||||||
Total inventory |
$ | 7,426 | $ | 6,966 | ||||
Note 5 Property, Plant and Equipment and Construction in Progress
Property, plant and equipment consisted of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Land |
$ | 1,882 | $ | 1,811 | ||||
Buildings and building improvements |
10,101 | 10,323 | ||||||
Machinery and equipment |
77,536 | 74,625 | ||||||
Furniture, fixtures and office equipment |
873 | 861 | ||||||
Computer equipment and computer software |
4,843 | 4,657 | ||||||
Vehicles |
201 | 172 | ||||||
Leasehold improvements |
73 | 73 | ||||||
Conditional asset (asbestos removal) |
210 | 210 | ||||||
95,719 | 92,732 | |||||||
Less accumulated depreciation |
(45,165 | ) | (37,433 | ) | ||||
Total property, plant and equipment, net |
$ | 50,554 | $ | 55,299 | ||||
9
Table of Contents
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Construction in progress consisted of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Construction in progress for projects under development |
$ | 44,789 | $ | 32,028 | ||||
Accumulated capitalized interest costs related to projects under development |
9,792 | 6,105 | ||||||
Construction in progress for East Dubuque Plant (as defined below) |
10,753 | 2,474 | ||||||
Software in progress (under capital lease) |
464 | 464 | ||||||
Conditional asset (asbestos removal) |
27 | 27 | ||||||
Total construction in progress |
$ | 65,825 | $ | 41,098 | ||||
The Company has a legal obligation to handle and dispose of asbestos at its plant at East
Dubuque, Illinois (the East Dubuque Plant) and at the site of its proposed project near Natchez,
Mississippi (the Natchez Project) in a special manner when conducting major or minor renovations
or when buildings at these locations are demolished, even though the timing and method of the
handling and disposal of asbestos are conditional on future events that may or may not be in its
control. As a result, the Company has a conditional obligation for this disposal. In addition, the
Company, through its normal repair and maintenance program, may encounter situations in which it is
required to remove asbestos in order to complete other work. The Company applied the expected
present value technique to calculate and record the fair value of the asset retirement obligation
for each property. In accordance with the applicable guidance, the liability is increased over time
and such increase is recorded as accretion expense. The liability at June 30, 2011 and accretion
expense for the nine months ended June 30, 2011 were $294,000 and $26,000, respectively.
Note 6 Investment in ClearFuels Technology Inc.
The Company has consolidated the operations of ClearFuels as of September 3, 2010 at which
date the Company became the primary beneficiary of ClearFuels, a VIE.
On June 23, 2009, the Company acquired 4,377,985 shares of Series B-1 Preferred Stock,
representing a 25% ownership interest in ClearFuels, and rights to license ClearFuels biomass
gasification technology, in exchange for a warrant to purchase up to five million shares of the
Companys common stock, access to the Companys Product Demonstration Unit (the PDU) in Denver,
Colorado for construction and operation of a ClearFuels biomass gasifier (the ClearFuels
Gasifier), and certain rights to license certain Rentech technologies, including the exclusive
right for projects using bagasse as a feedstock. The warrant was structured to vest in three
separate tranches with one tranche of 2 million shares vested as of the closing date, and two
tranches of 1.5 million shares each to vest on the achievement by ClearFuels of established
milestones. The exercise price for the first tranche was $0.60 per share and the exercise price
per share for the second and third tranches was to have been set at the ten-day average trading
price of the Companys common stock at the time of vesting. ClearFuels did not meet the milestone
for the second tranche of the warrant to vest and the Company now owns 95% of the equity
interests of ClearFuels. The fair value of the warrant at the date of grant was calculated using
the Black-Scholes option-pricing model at $628,815. This fair value was based on the vested
tranche of 2 million shares because the Company could not determine the probability that
ClearFuels would achieve the milestones that would trigger vesting of the second and third
tranches.
ClearFuels was a private company and a market did not exist for its common or preferred
stock. As a result, the Company determined the fair value of its investment in ClearFuels to be
equal to the fair market value of the vested warrant issued to ClearFuels. In June 2009, the
Company determined that ClearFuels was a VIE, but the Company was not its primary beneficiary.
Through September 3, 2010, the investment in ClearFuels was recorded in other assets and deposits
under the equity method of accounting. At September 3, 2010, the investment balance was $0.
ClearFuels was selected by the U.S. Department of Energy (the DOE) to receive up to
approximately $23 million as a grant to construct a ClearFuels Gasifier at Rentechs PDU. On
September 3, 2010, the Company and ClearFuels executed a project support agreement (the Project
Support Agreement) which detailed the responsibilities of both parties regarding the second
phase of construction of the ClearFuels Gasifier. Pursuant to the terms of the Project Support
Agreement, the Company provided the DOE
with a certification of its support of the ClearFuels Gasifier and it assumed operational control
and full decision making authority over the project as of October 1, 2010. The Company became
responsible for budgeted construction payments for the project after October 1, 2010, and expects
to receive reimbursement from the DOE for approximately 62% of those payments and of all costs
and expenses it has incurred to support the ClearFuels Gasifier. The Company estimates that third
party cash expenses, excluding costs and expenses incurred to operate the PDU in support of the
project, will total approximately $2 million after receipt of all DOE reimbursements.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Under accounting guidance, based on the execution of the Project Support Agreement, the
Company reconsidered whether it was the primary beneficiary of ClearFuels. The Company determined
that as of September 3, 2010 it was the primary beneficiary as it was responsible for a majority
of ClearFuels losses or entitled to receive a majority of ClearFuels residual returns through
its equity interest and as a result of the Project Support Agreement. Therefore, the operations
of ClearFuels were consolidated as of September 3, 2010. Noncontrolling interests represents the
portion of equity or results of operations in ClearFuels not attributable, directly or
indirectly, to the Company.
The Company recorded total assets, net assets, revenue and net loss of $9.4 million, $9.3
million, $0 and $0.3 million, respectively, in its consolidated financial statements as of and
for the fiscal year ended September 30, 2010 from the consolidation of ClearFuels. In accordance
with the guidance for accounting for business combinations, the assets, liabilities and amounts
attributed to noncontrolling interests have been recorded at fair value on the date of
consolidation. In the nine months ended June 30, 2011, the Company made retrospective
adjustments to notes receivable, prepaid expenses and goodwill in the opening balance sheet of
ClearFuels as of September 3, 2010 due to working capital adjustments.
The following items were recorded on the consolidated balance sheets as of September 30, 2010
(in thousands):
Purchase | ||||||||||||
Price | ||||||||||||
September 30, 2010 | Allocation | September 30, | ||||||||||
(previously reported) | Adjustment | 2010 (adjusted) | ||||||||||
Cash |
$ | 747 | $ | 0 | $ | 747 | ||||||
Notes receivable and accrued interest on notes
receivable(1) |
250 | 22 | 272 | |||||||||
Prepaid expenses |
1,710 | (571 | ) | 1,139 | ||||||||
Goodwill |
6,660 | 549 | 7,209 | |||||||||
Fixed assets |
8 | 0 | 8 | |||||||||
Other assets |
5 | 0 | 5 | |||||||||
Accounts payable |
63 | 0 | 63 |
(1) | Recorded in Other Receivables on the Consolidated Balance Sheet |
The fair value of the Companys interest in ClearFuels was determined to be approximately
$1,909,000. The difference between the fair value and the investment balance, which was $0 at
September 3, 2010, was recorded in the fourth quarter of fiscal year 2010 as a gain on equity
method investment in the consolidated statements of operations in the amount of $1,909,000. The
Company has not pledged any of the consolidated assets as collateral for any obligation of
ClearFuels.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
On April 14, 2011, the Company exercised an option to acquire substantially all the remaining
equity of ClearFuels, which became exercisable because ClearFuels had not closed a financing with
proceeds of at least $25,000,000 by March 31, 2011. On April 19, 2011, ClearFuels received from the
Company $160,000 under a promissory note executed on that date by both parties. The note was
intended to provide temporary funding for ClearFuels until the closing pursuant to the option
exercise was completed. On May 13, 2011, the Company acquired a substantial majority of the equity
of ClearFuels (the Merger). The Companys equity ownership interest increased to 95%, with
existing ClearFuels investors retaining a 5% equity interest. The acquisition was accomplished
through the merger of a subsidiary of the Company into ClearFuels, with ClearFuels continuing as
the surviving company in the Merger. Consideration for the Merger consisted of the obligations
assumed by the Company in the Project Support Agreement to support the construction of the
ClearFuels Gasifier. The Company also issued a warrant to purchase 1,980,463 shares of Company
common stock at an exercise price of $0.99 per share to Ohana Holdings LLC, a shareholder in
ClearFuels, and agreed to provide the minority shareholders in ClearFuels with a carried interest
in a potential project in Hawaii, which is currently being developed by ClearFuels. The fair value
of the warrant was calculated using the Black-Scholes option-pricing model at $1,276,940. Under
accounting guidance, the fair value of the warrant and the loan for $160,000 was the consideration
for the Merger, resulting in total consideration of $1.4 million. The difference between the fair
value of the noncontrolling interest transferred and the total consideration is the additional
capital contributed from the acquisition of $4.5 million.
The schedule below shows the effects of changes in the Companys ownership interest in
ClearFuels on the Companys equity (in thousands).
Net Income (Loss) Attributable to Rentech and
Transfers from the Noncontrolling Interests
For the Three | For the Three | For the Nine | For the Nine | |||||||||||||
Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
June 30, 2011 | June 30, 2010 | June 30, 2011 | June 30, 2010 | |||||||||||||
Net income (loss) attributable to Rentech |
$ | 7,888 | $ | (1,675 | ) | $ | (5,192 | ) | $ | (33,141 | ) | |||||
Transfers from noncontrolling interests: |
||||||||||||||||
Increase in equity for acquisition of additional interest |
4,520 | | 4,520 | | ||||||||||||
Net transfers from noncontrolling interests |
4,520 | | 4,520 | | ||||||||||||
Change from income (loss) attributable to Rentech and
transfers from noncontrolling interests |
$ | 12,408 | $ | (1,675 | ) | $ | (672 | ) | $ | (33,141 | ) | |||||
Note 7 Acquisition of Northwest Florida Renewable Energy Center LLC
On April 12, 2011, GCSEC Holdings, LLC (GCSEC), a wholly-owned subsidiary of the Company,
entered into a Membership Interest Purchase Agreement (the Purchase Agreement) with Biomass
Energy Holdings LLC (Seller), and acquired 100% of the membership interests of NWFREC.
NWFREC is developing the Port St. Joe Renewable Energy Center (the Port St. Joe Project)
located in Port St. Joe, Florida. The Port St. Joe Project is designed to use a Rentech-SilvaGas
biomass gasifier to provide synthesis gas to a combined-cycle power plant to produce renewable
power from woody biomass. The Company has signed a term sheet with White Construction, Inc. to
serve as the basis for an engineering, procurement and construction contract for construction of
the Port St. Joe Project (the EPC Contract).
The consideration for the purchase of NWFREC has been deferred and may be paid in part at the
closing of construction financing from proceeds of that financing, and in part from available
operating cash flow of the Port St. Joe Project following commencement of commercial operation.
Subject to adjustments set forth in the Purchase Agreement, the maximum consideration to be paid
for the Port St. Joe Project is $6 million, consisting of approximately $4.9 million of cash
payments and $1.1 million of equity in NWFREC. The cash portion represents development costs to
date paid by Seller plus 10% of such costs. The cash consideration may be paid 30% at the closing
of construction financing, and 70% from available cash flows of the Port St. Joe Project, both
subject to approval of any lenders to, or new equity investors in, the Port St. Joe Project. The
purchase price can be decreased in certain instances, including in
the event that the lump sum turnkey price in the EPC Contract exceeds an agreed-upon maximum
price. Under accounting guidance, the Company is required to recognize the acquisition date fair
value of the contingent consideration as part of the consideration transferred in exchange for
NWFREC. The Company calculated the fair value of the contingent consideration using the present
value technique based on probability-weighted outcomes. The fair value of the contingent
consideration is classified as a liability. As of June 30, 2011, the Company recorded on the
consolidated balance sheet goodwill of $1.1 million, accounts payable of $0.1 million and other
liability of $1.0 million.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
GCSEC has agreed in the Purchase Agreement to continue to develop the Port St. Joe Project
through the fall of 2011 in accordance with a development budget. In the event that the Company
fails to fund development activities in accordance with the budget, other than for good cause (as
defined in the Purchase Agreement, which includes not obtaining from the DOE a loan guarantee under
the Section 1705 Title XVII Loan Guarantee Program), the Company would be obligated to pay Seller a
$1 million break-up fee and Seller may, at its option, require GCSEC to re-convey NWFREC back to
Seller for a potential deferred purchase price. If the Port St. Joe Project achieves financial
close within five years of a re-conveyance, then the Company would be reimbursed for its
development costs and any break-up fee and it would receive an equity interest in NWFREC on terms
substantially similar to those described above for deferred payments and equity for Seller.
Note 8 Debt
On November 24, 2010, the Company and Rentech Energy Midwest Corporation, a wholly-owned
subsidiary of the Company (REMC), entered into a Second Amendment to Credit Agreement, Waiver and
Collateral Agent Consent (the Second Amendment) to the 2010 Credit Agreement (as defined below)
among REMC, the Company, certain subsidiaries of the Company, certain lenders party thereto and
Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent (Credit
Suisse). The Second Amendment further amends and waives certain provisions of a senior
collateralized credit agreement entered into by the Company, REMC, Credit Suisse and the lenders
party thereto on January 29, 2010, as initially amended on July 21, 2010 (the First Amendment)
(such credit agreement with the First Amendment and Second Amendment the 2010 Credit Agreement).
In connection with the Second Amendment, REMC prepaid $20 million of outstanding principal
from cash on hand that REMC had reserved for such purpose. Approximately $8.685 million of the $20
million prepayment was deducted from the mandatory excess cash flow prepayment requirement for
fiscal year 2010, leaving REMC with no additional prepayment requirement for fiscal year 2010. In
addition, the Second Amendment, among other things permitted a special distribution of up to $5
million by REMC to the Company upon the satisfaction of certain conditions, and on March 11, 2011
REMC made the $5 million dividend to the Company. Simultaneously with this distribution, REMC made
a mandatory early prepayment of the term loan of $5 million.
Concurrently with entering into the Second Amendment, REMC and the Company entered into a
second incremental loan assumption agreement (the Second Incremental Loan Agreement) to borrow an
additional $52.0 million incremental term loan (the Second Incremental Loan). The Second
Incremental Loan was issued with an original issue discount of 2%. Net proceeds of approximately
$50.85 million from the Second Incremental Loan were distributed to the Company in the form of a
dividend from REMC.
All outstanding term loans under the 2010 Credit Agreement incurred interest, at the election
of REMC, at either (a)(i) the greater of LIBOR or 2.5%, plus (ii) 10.0% or (b)(i) the greatest of
(w) the prime rate, as determined by Credit Suisse, (x) 0.5% in excess of the federal funds
effective rate, (y) LIBOR plus 1.0% or (z) 3.5% plus (ii) 9.0%. Interest payments were made on a
quarterly basis and were subject to annual amortization, payable quarterly, of 7.5% of the
outstanding principal amount in calendar years 2010 and 2011.
On June 10, 2011, the Company and REMC entered into a five-year $150.0 million collateralized
term loan facility pursuant to a credit agreement (the 2011 Credit Agreement) among REMC, the
Company, certain subsidiaries of the Company, certain lenders party thereto and Credit Suisse. The
2011 Credit Agreement includes an uncommitted incremental term loan facility under which the
Company may request up to $25.0 million in incremental term loans that may be used only for an
expansion project, subject to the satisfaction of conditions, including the condition that, after
giving effect to the incurrence of any incremental term loans, the total outstanding principal
amount of all term loans under the 2011 Credit Agreement may not exceed $120.0 million. Under the
2011 Credit Agreement, an expansion project generally includes a capital project, not including a
turnaround or other routine maintenance, that will increase the production capacity of fertilizer
products at REMCs facility. The Company paid upfront fees to the lenders under the 2011 Credit
Agreement equal to 2.0% of the aggregate principal amount of the term loans. The term loans bear
interest,
upon the Companys election, at either (a)(i) the greater of LIBOR and 1.5%, plus (ii) 8.5% or
(b)(i) the greatest of (w) the prime rate, as determined by Credit Suisse, (x) 0.5% in excess of
the federal funds effective rate, (y) LIBOR plus 1.0% and (z) 2.5% plus (ii) 7.5%. Interest
payments are generally required to be made on a quarterly basis. The term loans are subject to
amortization, payable quarterly, of 2.5% of the original principal amount until March 31, 2016. The
remaining unpaid principal balance is payable on June 10, 2016, the maturity date. The term loans
may be prepaid voluntarily at any time. In the first year, voluntary prepayments of the term loans
may be made subject to a prepayment fee of 2.0% of the amount prepaid, and if prepaid in the second
year, 1.0% of the amount prepaid. Voluntary prepayments made after the second anniversary of the
closing date of the loan may be prepaid without any prepayment fee. REMC used a portion of the net
proceeds of this offering to repay its credit facility under the 2010 Credit Agreement in full, and
to pay related fees and expenses.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The 2011 Credit Agreement also requires that a certain percentage of excess cash flow from
REMC, as defined in the 2011 Credit Agreement, be applied to repay outstanding principal. The
percentage of REMCs excess cash flow required to be applied as a prepayment will depend on REMCs
leverage ratio as of the relevant calculation date and the aggregate outstanding principal amount
of loans under the 2011 Credit Agreement on such date. If the leverage ratio is less than
3.00:1.00, and the aggregate outstanding principal amount of loans under the 2011 Credit Agreement
is less than $120 million, then 75% of excess cash flow will be required to be applied as a
prepayment to such loans. If the leverage ratio is less than 1.75:1.00, and the aggregate
outstanding principal amount of loans under the 2011 Credit Agreement is less than $90 million,
then 50% of excess cash flow will be required to be applied as a prepayment to such loans.
Otherwise, 100% of excess cash flow will be required to be applied as a prepayment to such loans.
The obligations under the 2011 Credit Agreement are collateralized by substantially all of the
Companys assets and the assets of most of the Companys subsidiaries, including a pledge of the
equity interests in many of the Companys subsidiaries. In addition, REMC granted the lenders a
mortgage on its real property to collateralize its obligations under the 2011 Credit Agreement and
related loan documents. The obligations under the 2011 Credit Agreement are also guaranteed by the
Company and certain of its subsidiaries. The 2011 Credit Agreement contains restrictions on the
amount of cash that can be transferred from REMC to the Company or its non-REMC subsidiaries. The
2011 Credit Agreement includes restrictive covenants that limit, among other things, the Company
and certain subsidiaries ability to dispose of assets, pay cash dividends and repurchase stock.
The Second Amendment was accounted for as an extinguishment of debt, taking into consideration
the change in future cash flows after this amendment and amendments in the preceding 12 months. As
a result, for the nine months ended June 30, 2011, a loss on extinguishment of debt, related to the
Second Amendment, of $4.6 million was recorded in the consolidated statements of operations. The
2011 Credit Agreement was also accounted for as an extinguishment of debt. As a result, for the
nine months ended June 30, 2011, a loss on extinguishment of debt, related to the entry into the
2011 Credit Agreement and repayment of the 2010 Credit Agreement, of $9.2 million was recorded in
the statements of operations, resulting in a total loss on debt extinguishment, related to the
Second Amendment and the 2011 Credit Agreement, of $13.8 million.
Long-term debt consists of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Face value of term loan under the credit agreements |
$ | 150,000 | $ | 63,291 | ||||
Less unamortized discount |
| (2,416 | ) | |||||
Book value of term loan under the credit agreements |
150,000 | 60,875 | ||||||
Less current portion |
(31,494 | ) | (12,835 | ) | ||||
Term loan, long-term portion |
$ | 118,506 | $ | 48,040 | ||||
Note 9 Convertible Debt
In April 2006, the Company issued $57,500,000 in aggregate principal amount of 4.00%
Convertible Senior Notes due 2013 (the Notes) with net proceeds to the Company of $53,700,000
after deducting $3,800,000 of underwriting discounts, commissions, fees and other expenses. The
Company recognized these deductions as prepaid debt issuance costs which is a component of other
assets and deposits on the consolidated balance sheets.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Upon achievement of the conversion criteria, the Notes may be converted into 14,332,002 shares
of common stock, subject to adjustment.
As of June 30, 2011, the estimated fair value, based on market prices, of the Notes was
approximately $50.1 million compared to the net carrying value in the consolidated balance sheets
of approximately $46.0 million.
Note 10 Commitments and Contingencies
Natural Gas Agreements
The Companys policy and practice are to enter into fixed-price forward purchase contracts for
natural gas in conjunction with contracted product sales in order to substantially fix gross margin
on those product sales contracts. The Company may enter into a limited amount of additional
fixed-price forward purchase contracts for natural gas in order to minimize monthly and seasonal
gas price volatility. The Company has entered into multiple natural gas forward purchase contracts
for various delivery dates through November 30, 2011. Commitments for natural gas purchases consist
of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands, except | ||||||||
weighted average rate) | ||||||||
MMBtus under fixed-price forward purchase contracts |
1,867 | 3,465 | ||||||
MMBtus under index-price forward purchase contracts |
| 403 | ||||||
Total MMBtus under contracts |
1,867 | 3,868 | ||||||
Commitments to purchase natural gas |
$ | 8,322 | $ | 15,294 | ||||
Weighted average rate per MMBtu based on the fixed
rates and the indexes applicable to each contract |
$ | 4.46 | $ | 3.95 |
The Company is required to make additional prepayments under these purchase contracts in the
event that market prices fall below the purchase prices in the contracts.
Litigation
The Company is party to litigation from time to time in the normal course of business. The
Company maintains insurance to cover certain actions and believes that resolution of its current
litigation will not have a material adverse effect on the Company.
In October 2009, the United States Environmental Protection Agency (the EPA) Region 5 issued
a Notice and Finding of Violation pursuant to the Clean Air Act (CAA) related to the number 1
nitric acid plant at the East Dubuque Plant. The notice alleges violations of the CAAs New Source
Performance Standard for nitric acid plants, Prevention of Significant Deterioration requirements
and Title V Permit Program requirements. The notice appears to be part of the EPAs Clean Air Act
National Enforcement Priority for New Source Review/Prevention of Significant Deterioration related
to acid plants, which seeks to reduce emissions from acid plants through proceedings that result in
the installation of new pollution control technology. The Company has negotiated an agreement in
principle with the EPA for the terms of a consent decree to resolve the alleged violations.
Although the consent decree is not final, the Company does not believe that the resolution of this
matter with the EPA will have a material adverse effect on the Company.
Between December 29, 2009 and January 6, 2010, three purported class action shareholder
lawsuits were filed against the Company and certain of its current and former directors and
officers in the United States District Court for the Central District of California (C.D. Cal.)
alleging that the Company and the named current and former directors and officers made false or
misleading statements regarding the Companys financial performance in connection with its
financial statements for fiscal year 2008 and the first three quarters of fiscal year 2009.
Plaintiffs in the actions purport to bring claims on behalf of all persons who purchased the
Companys securities between May 9, 2008 and December 14, 2009 and seek unspecified damages,
interest, and attorneys fees and costs. The cases were consolidated as Michael Silbergleid v.
Rentech, Inc., et al. (In re Rentech Securities Litigation), Lead Case No. 2:09-cv-
09495-GHK-PJW (C.D. Cal.) (the Securities Action), and a lead plaintiff was appointed on
April 5, 2010. The lead plaintiff filed a consolidated complaint on May 20, 2010, and the Company
filed a motion to dismiss the action on October 15, 2010. The Company announced on March 23, 2011
that it has reached an agreement to settle these matters with a settlement fund provided by its
insurance carrier of approximately $1.8 million, subject to court approval of the settlement. A
settlement hearing will be held in Los Angeles on September 26, 2011 before the United States
District Court for the Central District of California to determine whether the terms of the
settlements should be approved.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Between January 22, 2010 and February 10, 2010, five shareholder derivative lawsuits were
filed against certain of the Companys current and former officers and directors in the United
States District Court for the Central District of California and the Superior Court of the State of
California for the County of Los Angeles (LASC). The initial complaints allege that the named
current and former directors and officers caused the Company to make false or misleading statements
regarding the Companys financial performance in connection with its financial statements for
fiscal year 2008 and the first three quarters of fiscal year 2009. The plaintiffs, who purport to
assert claims on behalf of the Company, seek various equitable and/or injunctive relief,
unspecified restitution to the Company, interest, and attorneys fees and costs. The cases before
the United States District Court are consolidated as John Cobb v. D. Hunt Ramsbottom, et al. (In re
Rentech Derivative Litigation), Lead Case No. 2:10-cv-0485-GHK-PJW (C.D. Cal.), and the cases
before the Superior Court are consolidated as Andrew L. Tarr v. Dennis L. Yakobson, et al., LASC
Master File No. BC430553. The Company announced on March 23, 2011 that it has agreed to settle
these matters by adopting certain corporate governance practices and paying, or causing its
insurance carrier to pay, plaintiffs attorneys fees and expenses of approximately $300,000,
subject to court approval of the settlements. The Superior Court of the State of California in Los
Angeles approved the settlements at a hearing on July 21, 2011.
Note 11 Stockholders Equity
On May 11, 2011 the shareholders of the Company adopted the Amended and Restated 2009 Incentive Award Plan (the
Amended Plan) at its Annual Meeting of Shareholders. The Amended Plan amends the 2009 Incentive Award Plan, as
amended (the Original Plan), in the following respects:
| Increases the maximum number of shares of common stock which may be issued or awarded
under the Original Plan by 15,000,000 shares to a total of 24,500,000; |
||
| Revises the eligibility provision so that individuals eligible to participate in the
Amended Plan include all employees, consultants, and independent directors of the Company; |
||
| Provides that full value awards (which are awards other than stock options and stock
appreciation rights, such as restricted stock, restricted stock units and similar awards)
will count against the Amended Plans share limit as 1.5 shares for each share of stock
delivered in settlement of a full-value award granted on or after the Amendment Date, as
defined in the Amended Plan, (and correspondingly, that full value awards that are
terminated, expired, forfeited or settled in cash on or after the Amendment Date will be
added back to the Amended Plans share limit as 1.5 shares); |
||
| Removes certain vesting limitations applicable to full value awards; and |
||
| Clarifies certain limitations on the transferability of awards and their underlying shares. |
Note 12 Income Taxes
The provision for income taxes is based on earnings reported in the consolidated financial
statements. A deferred income tax asset or liability is determined by applying currently enacted
tax laws and relates to the expected reversal of the cumulative temporary differences between the
carrying value of the assets and liabilities for financial statement and income tax purposes.
Deferred income tax expense is measured by the change in the deferred income tax asset or liability
during the year. Due to historical operating losses, the Company has recorded a full valuation
allowance against its deferred tax assets to reflect the uncertainty of realization.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13 Segment Information
The Company operates in two business segments as follows:
| Nitrogen products manufacturing: The Company manufactures a variety of nitrogen
fertilizer and industrial products. |
||
| Alternative energy: The Company develops and markets processes for conversion of
low-value, carbon-bearing solids or gases into valuable hydrocarbons and electric power, and
is developing projects that would employ these processes. |
The Companys reportable operating segments have been determined in accordance with the
Companys internal management structure, which is organized based on operating activities. The
Company evaluates performance based upon several factors, of which the primary financial measure is
segment operating income.
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Revenues |
||||||||||||||||
Nitrogen products manufacturing |
$ | 74,385 | $ | 50,111 | $ | 141,291 | $ | 96,317 | ||||||||
Alternative energy |
51 | 399 | 154 | 514 | ||||||||||||
Total revenues |
$ | 74,436 | $ | 50,510 | $ | 141,445 | $ | 96,831 | ||||||||
Operating income (loss) |
||||||||||||||||
Nitrogen products manufacturing |
$ | 36,316 | $ | 14,621 | $ | 60,739 | $ | 15,040 | ||||||||
Alternative energy |
(15,558 | ) | (12,406 | ) | (42,023 | ) | (34,076 | ) | ||||||||
Total operating income (loss) |
$ | 20,758 | $ | 2,215 | $ | 18,716 | $ | (19,036 | ) | |||||||
Income (loss) from continuing operations |
||||||||||||||||
Nitrogen products manufacturing |
$ | 23,811 | $ | 11,929 | $ | 37,737 | $ | 6,389 | ||||||||
Alternative energy |
(16,115 | ) | (13,606 | ) | (44,009 | ) | (39,538 | ) | ||||||||
Total income (loss) from continuing operations |
$ | 7,696 | $ | (1,677 | ) | $ | (6,272 | ) | $ | (33,149 | ) | |||||
As of | ||||||||
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Total assets |
||||||||
Nitrogen products manufacturing |
$ | 110,821 | $ | 108,220 | ||||
Alternative energy |
176,305 | 92,295 | ||||||
Total assets |
$ | 287,126 | $ | 200,515 | ||||
Note 14 Net Income (Loss) Per Common Share Attributable to the Company
Basic income (loss) per common share attributable to the Company is calculated by dividing net
income (loss) attributable to the Company by the weighted average number of common shares
outstanding for the period. Diluted net income (loss) per common share attributable to the Company
is calculated by dividing net income (loss) attributable to the Company by the weighted average
number of common shares outstanding plus the dilutive effect of unvested restricted stock units,
outstanding stock options and warrants, and convertible debt using the treasury stock method.
17
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The following table sets forth the computation of basic and diluted net income (loss) per
common share attributable to the Company (in thousands, except per share data).
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic net income (loss) per common share
attributable to Rentech: |
||||||||||||||||
Numerator: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 7,888 | $ | (1,677 | ) | $ | (5,192 | ) | $ | (33,149 | ) | |||||
Income from discontinued operations |
| 2 | | 8 | ||||||||||||
Net income (loss) |
$ | 7,888 | $ | (1,675 | ) | $ | (5,192 | ) | $ | (33,141 | ) | |||||
Denominator: |
||||||||||||||||
Weighted average common shares outstanding |
223,110 | 216,175 | 222,435 | 214,161 | ||||||||||||
Continuing operations |
$ | 0.04 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.15 | ) | |||||
Discontinued operations |
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Basic net income (loss) per common share |
$ | 0.04 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.15 | ) | |||||
Diluted net income (loss) per common share
attributable to Rentech: |
||||||||||||||||
Numerator: |
||||||||||||||||
Income (loss) from continuing operations |
$ | 7,888 | $ | (1,677 | ) | $ | (5,192 | ) | $ | (33,149 | ) | |||||
Income from discontinued operations |
| 2 | | 8 | ||||||||||||
Net income (loss) |
$ | 7,888 | $ | (1,675 | ) | $ | (5,192 | ) | $ | (33,141 | ) | |||||
Denominator: |
||||||||||||||||
Weighted average common shares outstanding |
223,110 | 216,175 | 222,435 | 214,161 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Warrants |
748 | | | | ||||||||||||
Common stock options |
60 | | | | ||||||||||||
Restricted stock |
3,987 | | | | ||||||||||||
Diluted shares outstanding |
227,905 | 216,175 | 222,435 | 214,161 | ||||||||||||
Continuing operations |
$ | 0.03 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.15 | ) | |||||
Discontinued operations |
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Diluted net income (loss) per common share |
$ | 0.03 | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.15 | ) | |||||
For the three months ended June 30, 2011 and 2010, approximately 26.2 million shares and 36.9
million shares, respectively, of the Companys common stock issuable pursuant to stock options,
stock warrants, restricted stock units and convertible debt were excluded from the calculation of
diluted earnings (loss) per share because their inclusion would have been anti-dilutive. For the
nine months ended June 30, 2011 and 2010, approximately 39.7 million shares and 36.9 million
shares, respectively, of the Companys common stock issuable pursuant to stock options, stock
warrants, restricted stock units and convertible debt were excluded from the calculation of diluted
earnings (loss) per share because their inclusion would have been anti-dilutive.
Note 15 Subsequent Events
On August 5, 2011, Rentech Nitrogen Partners, L.P., a wholly owned subsidiary of the Company
(RNP), filed with the SEC a registration statement on Form S-1 for the proposed initial public
offering of common units representing limited partnership interests. The number of common units to
be offered and the price range for the offering have not yet been determined. Upon completion of
the offering, RNPs assets will consist of all of the equity interests of REMC, which owns the East
Dubuque Plant. At the date of this report, the registration statement is not effective. The
completion of the offering is subject to numerous factors, including market
conditions, and we can provide no assurance that it will be successfully completed. This
report shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would
be unlawful under the securities laws of such jurisdiction.
18
Table of Contents
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
FORWARD-LOOKING STATEMENTS
Certain information included in this report and other reports or materials filed or to be
filed by the Company with the SEC (as well as information included in oral statements or other
written statements made or to be made by the Company or its management) contain or will contain
forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, Section 27A of the Securities Act of 1933, as amended, and pursuant to the
Private Securities Litigation Reform Act of 1995. The forward-looking statements may relate to
financial results and plans for future business activities, and are thus prospective. The
forward-looking statements are subject to risks, uncertainties and other factors that could cause
actual results to differ materially from future results expressed or implied by the forward-looking
statements. They can be identified by the use of terminology such as may, will, expect,
believe, intend, plan, estimate, anticipate, should and other comparable terms or the
negative of them. You are cautioned that, while forward-looking statements reflect our good faith
belief and best judgment based upon current information, they are not guarantees of future
performance and are subject to known and unknown risks and uncertainties. Factors that could affect
the Companys results include the risk factors detailed in Part I. Item 1A. Risk Factors in the
Annual Report and from time to time in the Companys other periodic reports and registration
statements filed with the SEC. Any forward-looking statements are made pursuant to the Private
Securities Litigation Reform Act of 1995, and thus are current only as of the date made. We
undertake no responsibility to update any of the forward-looking statements after the date of this
report to conform them to actual results.
As used in this Quarterly Report on Form 10-Q, the terms we, our, us, Rentech and the
Company mean Rentech, Inc., a Colorado corporation and its consolidated subsidiaries, unless the
context indicates otherwise.
OVERVIEW OF OUR BUSINESSES
Rentech, Inc., incorporated in 1981, provides alternative and clean energy solutions and
manufactures and sells nitrogen fertilizer products. The Companys Rentech-SilvaGas and
Rentech-ClearFuels biomass gasification processes can convert multiple biomass feedstocks into
synthesis gas (syngas) for production of renewable fuels and power. Combining the gasification
processes with the Companys unique application of syngas conditioning and clean-up technology and
the patented Rentech Process based on Fischer-Tropsch chemistry, the Company offers integrated
solutions for production of synthetic fuels from biomass. The Rentech Process can also convert
syngas produced from fossil resources using other technologies into ultra-clean synthetic jet and
diesel fuels, specialty waxes and chemicals. Final product upgrading and acid gas removal
technologies are provided under an alliance with UOP, a Honeywell company. The Company develops
projects and licenses these technologies for application in synthetic fuels and power facilities
worldwide. REMC, the Companys wholly-owned subsidiary, manufactures and sells nitrogen fertilizer
products including ammonia, urea ammonia nitrate solution, liquid and granular urea and nitric acid
in the mid corn-belt region of the central United States.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Managements Discussion and Analysis of Financial Condition and Results of Operations are
based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
The preparation of our consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and
related disclosure of contingent assets and liabilities. The most significant estimates and
judgments relate to: revenue recognition, inventories, construction in progress, the valuation of
financial instruments, long-lived assets and intangible assets, stock-based compensation and the
realization of deferred income taxes. Actual amounts could differ significantly from these
estimates. There has been no material change to our critical accounting policies and estimates from
the information provided in our Annual Report.
RESULTS OF OPERATIONS
More detailed information about our consolidated financial statements is provided in the
following portions of this section. The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto as presented in this report and in our
Annual Report.
Seasonality
Results of operations for the interim periods are not necessarily indicative of results to be
expected for the year primarily due to the impact of seasonality on the sales at REMC. Our nitrogen
products manufacturing segment and our customers businesses are seasonal, based on planting,
growing and harvesting cycles. The following table shows product tonnage shipped by quarter for the
last three fiscal years and the nine months ended June 30, 2011.
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Table of Contents
For the Fiscal Years Ended September 30, | ||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||
(in thousands of tons) | ||||||||||||||||
First Quarter |
167 | 124 | 115 | 171 | ||||||||||||
Second Quarter |
89 | 86 | 65 | 103 | ||||||||||||
Third Quarter |
212 | 206 | 203 | 170 | ||||||||||||
Fourth Quarter |
n/a | 181 | 150 | 199 | ||||||||||||
Total Tons Shipped for Fiscal Year |
468 | 597 | 533 | 643 | ||||||||||||
The highest volume of tons shipped is typically during the spring planting season during the
third fiscal quarter and the next highest volume of tons shipped is typically after the fall
harvest during the first fiscal quarter, although, as reflected in the table above, sales volumes
may fluctuate due to various circumstances. These seasonal increases and decreases in demand can
also cause sales prices to fluctuate accordingly.
As a result of the seasonality of shipments and sales, we experience significant fluctuations
in our revenues, income and net working capital levels from quarter to quarter. Weather conditions
can significantly impact quarterly results by affecting the timing and amount of product
deliveries. Our receivables and deferred revenues are seasonal and relatively unpredictable.
Significant amounts of our products are typically sold for later shipment under product prepayment
contracts, and the timing of these sales and the amount of down payments as a percentage of the
total contract price may vary with market conditions. The variation in the timing of these sales
and of these contract terms may add to the seasonality of our cash flows and working capital.
THREE AND NINE MONTHS ENDED JUNE 30, 2011 COMPARED TO THREE AND NINE MONTHS ENDED JUNE 30, 2010:
Continuing Operations
Revenues
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Revenues: |
||||||||||||||||
Product shipments |
$ | 74,385 | $ | 49,958 | $ | 141,291 | $ | 94,313 | ||||||||
Natural gas sales of excess inventory |
| 153 | | 2,004 | ||||||||||||
Total nitrogen products manufacturing |
74,385 | 50,111 | 141,291 | 96,317 | ||||||||||||
Alternative energy |
51 | 399 | 154 | 514 | ||||||||||||
Total revenues |
$ | 74,436 | $ | 50,510 | $ | 141,445 | $ | 96,831 | ||||||||
For the Three Months | For the Three Months | |||||||||||||||
Ended June 30, 2011 | Ended June 30, 2010 | |||||||||||||||
Tons | Revenue | Tons | Revenue | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Product shipments: |
||||||||||||||||
Ammonia |
42 | $ | 26,969 | 51 | $ | 21,106 | ||||||||||
Urea ammonium nitrate solution |
129 | 40,259 | 112 | 23,567 | ||||||||||||
Urea (liquid and granular) |
11 | 5,040 | 9 | 3,738 | ||||||||||||
Carbon dioxide |
26 | 724 | 31 | 816 | ||||||||||||
Nitric acid |
4 | 1,393 | 3 | 731 | ||||||||||||
Total |
212 | $ | 74,385 | 206 | $ | 49,958 | ||||||||||
For the Nine Months | For the Nine Months | |||||||||||||||
Ended June 30, 2011 | Ended June 30, 2010 | |||||||||||||||
Tons | Revenue | Tons | Revenue | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Product shipments: |
||||||||||||||||
Ammonia |
106 | $ | 61,765 | 118 | $ | 43,989 | ||||||||||
Urea ammonium nitrate solution |
238 | 61,713 | 195 | 36,091 | ||||||||||||
Urea (liquid and granular) |
26 | 12,167 | 25 | 10,188 | ||||||||||||
Carbon dioxide |
87 | 2,233 | 71 | 1,887 | ||||||||||||
Nitric acid |
11 | 3,413 | 7 | 2,158 | ||||||||||||
Total |
468 | $ | 141,291 | 416 | $ | 94,313 | ||||||||||
20
Table of Contents
Nitrogen products manufacturing. Our nitrogen products manufacturing segment provides revenue
from sales of various nitrogen fertilizer products manufactured at our East Dubuque Plant and used
primarily in corn production. The East Dubuque Plant is designed to produce ammonia, urea ammonium
nitrate solution, liquid and granular urea, nitric acid and carbon dioxide using natural gas as a
feedstock. Revenues are seasonal based on the planting, growing, and harvesting cycles of customers
utilizing nitrogen fertilizer.
The increase in revenue for the three and nine months ended June 30, 2011 compared to the
three and nine months ended June 30, 2010 was primarily due to increased sales prices for all
nitrogen products and sales volume for urea ammonium nitrate solution, partially offset by lower
sales volume for ammonia. Sales volume increased for urea ammonium nitrate solution due to a higher
availability of product in the current year, as compared to the previous year during which the
plant turnaround, in October 2009, and subsequent equipment failures resulted in less production of
urea ammonium nitrate solution.
The average sales price per ton in the third quarter of the current fiscal year as compared
with that of the prior fiscal year increased by 55% for ammonia and by 48% for urea ammonium
nitrate solution. These two products comprised approximately 90% and 89% of the product sales for
the three months ended June 30, 2011 and 2010, respectively. The average sales price per ton in the
nine months ended June 30, 2011 as compared with the nine months ended June 30, 2010 increased by
56% for ammonia and by 40% for urea ammonium nitrate solution. These two products comprised
approximately 87% and 85% of the product sales for the nine months ended June 30, 2011 and 2010,
respectively. Average sales prices per ton increased due to higher demand caused by a combination
of low levels of corn and fertilizer inventories and expectations of higher corn acreage in 2011.
Alternative Energy. This segment generates revenues for technical services and licensing
activities related to the Companys technologies. The Company enters into technical services
contracts from time-to-time on a non-recurring basis which causes fluctuations in revenue from this
segment.
Cost of Sales
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Cost of sales: |
||||||||||||||||
Product shipments |
$ | 36,933 | $ | 34,598 | $ | 77,510 | $ | 72,781 | ||||||||
Turnaround expenses |
25 | | 25 | 3,995 | ||||||||||||
Natural gas sales of excess inventory |
| 138 | | 2,259 | ||||||||||||
Natural gas sales with simultaneous purchase |
| | | 57 | ||||||||||||
Total nitrogen products manufacturing |
36,958 | 34,736 | 77,535 | 79,092 | ||||||||||||
Alternative energy |
50 | 587 | 150 | 693 | ||||||||||||
Total cost of sales |
$ | 37,008 | $ | 35,323 | $ | 77,685 | $ | 79,785 | ||||||||
Nitrogen Products Manufacturing. The cost of sales for product shipments for the three and
nine months ended June 30, 2011 increased from the prior comparable period primarily due to higher
sales volume of urea ammonium nitrate solution, partially offset by lower sales volume for ammonia.
In addition, during the three months ended June 30, 2011, a portion of the ammonia we sold was
purchased product as opposed to ammonia produced by us. This increased the cost per ton of ammonia
in cost of sales, but since it was sold at a price above our cost still resulted in a profit on the
sale of the purchased ammonia. These higher costs of sales were partially offset by lower natural
gas prices. Natural gas and labor costs comprised approximately 46% and 11%, respectively, of cost
of sales on product shipments for the three months ended June 30, 2011 and 56% and 12%,
respectively, of cost of sales on product shipments for the three months ended June 30, 2010.
Natural gas and labor costs comprised approximately 50% and 12%, respectively, of cost of sales on
product shipments for the nine months ended June 30, 2011 and 54% and 12%, respectively, of cost of
sales on product shipments for the nine months ended June 30, 2010.
Turnaround expenses represent the cost of planned maintenance during turnarounds, which occur
approximately every two years. A plant turnaround occurred in October 2009. As a result, during the
nine months ended June 30, 2010, the Company incurred turnaround expenses of $3,995,000. Spending
occurred during the three months ended June 30, 2011 for the turnaround scheduled in September
2011.
Natural gas, though not purchased for the purpose of resale, is occasionally sold under
certain circumstances, such as when contracted quantities received are in excess of production
requirements and storage capacities. In that case, the sales proceeds are recorded as revenue and
the related cost is recorded as a cost of sales. Natural gas may also be sold to a third party with
a simultaneous purchase of gas by the Company of the same quantity at a lower price in order to
realize a reduction of raw material cost.
In this case, no revenue is recorded for the sale of gas, and the difference between the cost
of the natural gas that was sold and the cost of natural gas that was simultaneously purchased is
recorded directly to cost of sales.
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Table of Contents
Depreciation expense included in cost of sales from our nitrogen products manufacturing
segment was $3,339,000 and $3,194,000 for the three months ended June 30, 2011 and 2010,
respectively, and $7,193,000 and $7,312,000 for the nine months ended June 30, 2011 and 2010,
respectively.
Alternative Energy. The cost of sales for our alternative energy segment was for costs
incurred for work performed under technical services contracts.
Gross Profit (Loss)
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Gross profit (loss): |
||||||||||||||||
Product shipments |
$ | 37,452 | $ | 15,360 | $ | 63,781 | $ | 21,532 | ||||||||
Turnaround expenses |
(25 | ) | | (25 | ) | (3,995 | ) | |||||||||
Natural gas sales of excess inventory |
| 15 | | (255 | ) | |||||||||||
Natural gas sales with simultaneous purchase |
| | | (57 | ) | |||||||||||
Total nitrogen products manufacturing |
37,427 | 15,375 | 63,756 | 17,225 | ||||||||||||
Alternative energy |
1 | (188 | ) | 4 | (179 | ) | ||||||||||
Total gross profit (loss) |
$ | 37,428 | $ | 15,187 | $ | 63,760 | $ | 17,046 | ||||||||
Nitrogen Products Manufacturing. The gross profit for product shipments for the three and nine
months ended June 30, 2011 increased compared to the prior comparable periods primarily due to
higher sales prices and sales volume and lower natural gas prices, partially offset by higher cost
of sales from purchased product that we sold. The purchased product was sold at a higher price than
its cost, so we earned a profit on the purchased ammonia.
Operating Expenses
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative |
$ | 8,173 | $ | 7,492 | $ | 22,942 | $ | 21,337 | ||||||||
Depreciation and amortization |
547 | 476 | 1,679 | 1,460 | ||||||||||||
Research and development |
7,976 | 5,011 | 20,440 | 13,313 | ||||||||||||
Other project costs |
| | 53 | | ||||||||||||
Gain on disposal of property, plant and equipment |
(26 | ) | (7 | ) | (70 | ) | (28 | ) | ||||||||
Total operating expenses |
$ | 16,670 | $ | 12,972 | $ | 45,044 | $ | 36,082 | ||||||||
Selling, General and Administrative Expenses. During the three months ended June 30, 2011, as
compared to the three months ended June 30, 2010, selling, general and administrative expenses
increased by $681,000 or 9%. During the nine months ended June 30, 2011, as compared to the nine
months ended June 30, 2010, selling, general and administrative expenses increased by $1,605,000 or
8%. The increase for the three months ended June 30, 2011 was primarily due to an increase in
salaries as a result of additional headcount in the alternative energy segment and sales-based
incentive bonuses at REMC, an increase in computer services and support and increases in
professional services and legal expense, partially offset by a decrease in stock-based
compensation. The increase for the nine months ended June 30, 2011 was primarily due to an increase
in salaries as a result of additional headcount in the alternative energy segment and sales-based
incentive bonuses at REMC, an increase in computer services and support and increases in
professional services, partially offset by a decrease in stock-based compensation and legal
expense.
Depreciation and Amortization. A portion of depreciation and amortization expense is
associated with assets that support general and administrative functions and that expense is
recorded in operating expense. The amount of depreciation and amortization expense within operating
expenses increased by $71,000 and $219,000 for the three and nine months ended June 30, 2011,
respectively, which was primarily attributable to increased amortization of intellectual property
as a result of revisions to the amortization period of the Companys patents.
The majority of depreciation originates at our nitrogen products manufacturing segment and, as
a manufacturing cost, is distributed between cost of sales and finished goods inventory, based on
product volumes.
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Table of Contents
Research and Development. We incur research and development expenses at our technology center
in Commerce City, Colorado, where we actively conduct work to further improve our technologies and
to perform services for our customers. These expenses are included in our alternative energy
segment. Research and development expenses increased by $2,965,000 during the three months ended
June 30, 2011, compared to the three months ended June 30, 2010. The increase in research and
development expense primarily resulted from increased expenses at the PDU for plant modifications
and repairs and the construction of the ClearFuels Gasifier and an increase of $535,000 of expense
due to the consolidation of ClearFuels. Research and development expenses increased by $7,127,000
during the nine months ended June 30, 2011, compared to the nine months ended June 30, 2010. The
increase in research and development expense primarily resulted from increased expenses at the PDU
for plant modifications and repairs and the construction of the ClearFuels Gasifier; expenses to
support a higher number of operating days; and an increase of $1,434,000 of expense due to the
consolidation of ClearFuels.
Operating Income (Loss)
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Income (loss) from operations: |
||||||||||||||||
Product shipments |
$ | 36,341 | $ | 14,606 3 | $ | 60,764 | $ | 19,347 3 | ||||||||
Turnaround expenses |
(25 | ) | | (25 | ) | (3,995 | ) | |||||||||
Natural gas sales of excess inventory |
| 15 | | (255 | ) | |||||||||||
Natural gas sales with simultaneous purchase |
| | | (57 | ) | |||||||||||
Total nitrogen products manufacturing |
36,316 | 14,621 | 60,739 | 15,040 | ||||||||||||
Alternative energy |
(15,558 | ) | (12,406 | ) | (42,023 | ) | (34,076 | ) | ||||||||
Total income (loss) from operations |
$ | 20,758 | $ | 2,215 | $ | 18,716 | $ | (19,036 | ) | |||||||
Nitrogen Products Manufacturing. The increase in income from operations for product shipments
for the three and nine months ended June 30, 2011, as compared to the prior comparable periods, was
primarily due to higher sales prices and sales volume and lower gas prices, partially offset by
higher cost of sales from purchased product sold.
Alternative Energy. Loss from operations primarily consists of operating expenses, such as
selling, general and administrative, depreciation and amortization, and research and development.
ANALYSIS OF CASH FLOW
The following table summarizes our Consolidated Statements of Cash Flows:
For the Nine Months | ||||||||
Ended June 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Net cash provided by (used in): |
||||||||
Operating activities |
$ | 4,757 | $ | (24,523 | ) | |||
Investing activities |
(29,704 | ) | (13,171 | ) | ||||
Financing activities |
74,969 | 16,509 | ||||||
Net increase in cash and cash equivalents |
$ | 50,022 | $ | (21,185 | ) | |||
Cash Flows from Operating Activities
Net Loss. The Company had net losses of $6,272,000 and $33,141,000 for the nine months ended
June 30, 2011 and 2010, respectively. The cash flows provided by or used in operations during
these periods primarily resulted from the following operating activities:
Loss on debt extinguishment. In November 2010, REMC entered into the Second Amendment; the
transaction was accounted for as an extinguishment of debt. As a result, a loss on debt
extinguishment was recorded for $4,593,000. In June 2011, REMC entered into the 2011 Credit
Agreement; the transaction was accounted for as an extinguishment of debt. As a result, a loss on
debt extinguishment was recorded for $9,223,000. During the nine months ended June 30, 2011, as a
result of the above two transactions, a total loss on debt extinguishment was recorded for
$13,816,000. During the nine months ended June 30, 2010, REMC entered into the 2010 Credit
Agreement; the transaction was accounted for as an extinguishment of debt. As a result, a loss on
debt extinguishment was recorded for $2,268,000.
23
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Payment of call premium fee. During the nine months ended June 30, 2011, in connection with the 2011
Credit Agreement, proceeds of $8,261,000 were used to pay the call premium fee on early payment
premium related to the pay off of the term loans under the 2010 Credit Agreement.
Accounts Receivable. During the first nine months of fiscal 2011 and fiscal 2010, accounts
receivable increased by $3,916,000 and $3,009,000, respectively, due to the effect of seasonality
on our business. Sales are higher during the spring planting season than they are in the summer
causing the June 30 balances to exceed the September 30 balances.
Property Insurance Claim Receivable. During fiscal 2009, we recorded a property insurance
claim receivable for insured property losses related to a weather-related shutdown of REMC in
January 2009. During the nine months ended June 30, 2010, the Company collected the outstanding
balance of $1,795,000.
Receivables from Insurance / Litigation Settlement Payable. During the nine months ended
June 30, 2011, we recorded insurance claim receivables of $2,056,000 relating to the class action
shareholder lawsuits and the shareholder derivative lawsuits described in Note 10 to the
consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q.
During the same period, we also recorded an accrual of $1,954,000 for the related litigation
settlements. Accounting guidance does not allow for the offset of these items in the consolidated
balance sheets.
Inventories. During the first nine months of fiscal 2011 and fiscal 2010, inventories
increased by $323,000 and decreased by $2,694,000, respectively. As was the case in the nine
months ended June 30, 2010, inventories often decrease during this time due to the seasonal
build-up of inventory prior to the fall ammonia application season and reduction of inventories
due to product shipments during the spring planting season this quarter. However, inventories
increased during the nine months ended June 30, 2011 due to inventory levels being unusually low
leading into fiscal 2011 due to a high summer 2010 sales volume, mainly due to some large
shipments by barge.
Deferred Revenue. We record deferred revenue on product prepayment contracts prior to
delivery of the product to the extent we receive cash payments under those contracts. During the
nine months ended June 30, 2011 and 2010, deferred revenue decreased $6,314,000 and $17,434,000,
respectively. The decrease in both fiscal years is due to seasonal movement of sales tonnage on
product prepayment contracts during the spring planting season. The decrease is less during the
nine months ended June 30, 2011 due to a substantial amount of cash received for product
prepayment contracts for product shipments in the summer and fall of 2011.
Cash Flows from Investing Activities
Proceeds from Sale of Available for Sale Securities. During the nine months ended June 30,
2010, the Company sold, through a tender offer and various sales, its entire holdings of
available for sale securities for approximately $4,769,000, which resulted in a net loss on sale
of investments of approximately $1,231,000. For the nine months ended June 30, 2011, there were
no such sales.
Purchase of Property, Plant, Equipment and Construction in Progress. The increase in net
additions of $9,514,000 for the nine months ended June 30, 2011 compared to the nine months ended
June 30, 2010 was primarily due to an increase in spending for development activities at the
Companys proposed project in Rialto, California (the Rialto Project) that was capitalized;
spending for development activities at the Port St. Joe Project due to the acquisition in April
2011 of NWFREC; and an increase in capital spending at REMC due to purchasing of long-lead time
materials and equipment for capital projects to be completed during the turnaround scheduled for
October 2011.
Cash Flows from Financing Activities
Proceeds from term loan, net of original issue discount, and retirement of term loan,
including costs. During the nine months ended June 30, 2011, concurrently with entering into
the Second Amendment, the Company and REMC entered into a second incremental loan assumption
agreement to borrow an additional $52,000,000, with an original issue discount of $1,040,000.
Also during the nine months ended June 30, 2011, the Company entered into the 2011 Credit
Agreement in which it borrowed $150,000,000. In connection with the 2011 Credit Agreement,
proceeds of $85,383,000 were used to pay off the outstanding principal balance under the 2010
Credit Agreement. During the nine months ended June 30, 2010, the Company replaced its
then-existing credit agreement, which had an outstanding balance of $37,112,000, with the 2010
Credit Agreement with an initial principal amount of $62,500,000 and an original issue discount
of $1,875,000.
Payments on debt and notes payable. During the nine months ended June 30, 2011, in
addition to $4,908,000 of scheduled principal payments, REMC prepaid $20,000,000 of outstanding
principal in connection with the Second Amendment to the 2010
Credit Agreement, from cash on hand that REMC had reserved for such purpose and $5,000,000 as a
mandatory prepayment in connection with the $5,000,000 dividend paid by REMC to Rentech, Inc.
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Payments on Line of Credit on Available for Sale Securities. During the nine months ended
June 30, 2010, we paid off the line of credit with the net proceeds from the various sales of
available for sale securities. For the nine months ended June 30, 2011, there were no such
sales.
Proceeds from Issuance of Common Stock. During the nine months ended June 30, 2010, we
sold a total of approximately 6,172,000 shares of common stock which resulted in aggregate net
proceeds of approximately $6.2 million after sales commissions of approximately $95,000. For
the nine months ended June 30, 2011, there were no such sales.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
At June 30, 2011, our current assets totaled $139,002,000, including cash and cash equivalents
of $104,168,000, of which $21,444,000 was held at REMC and was subject to restrictions imposed by
the 2011 Credit Agreement, and accounts receivable of $13,502,000. Our current liabilities were
$72,792,000. We had long-term liabilities of $172,950,000, comprised primarily of long-term
convertible senior notes and term loan debt under our 2011 Credit Agreement. REMCs income from
continuing operations for the nine months ended June 30, 2011 was $37,737,000 compared to income
from continuing operations of $6,389,000 for the nine months ended June 30, 2010. The Companys
loss from continuing operations for the nine months ended June 30, 2011 and 2010 was $6,272,000 and
$33,149,000, respectively.
Pursuant to an Equity Distribution Agreement, as amended, we may sell up to approximately
$43,700,000 in aggregate gross sales price of common stock until February 9, 2012, subject to
certain restrictions, including those related to the trading volume of our common stock and
limitations on selling securities outside of the trading windows under the Companys insider
trading policy. In addition to liquidity, if any, available under the Equity Distribution
Agreement, depending on capital market conditions, other sources of liquidity for corporate
activities during fiscal years 2011 and 2012 could include the issuance of equity or equity-linked
securities, project debt and project equity, and various forms of financing in connection with
REMC, including restructuring the 2011 Credit Agreement.
As of June 30, 2011 approximately $94,300,000 aggregate offering price of securities was
available to be sold under our shelf registration statement (including up to $43,700,000 of common
stock that may be sold under the Equity Distribution Agreement). This report shall not constitute
an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such jurisdiction.
Capital markets have experienced periods of extreme uncertainty over the past few years, and
access to those markets has been difficult. If we need to access capital markets, there can be no
assurances that we will be able to do so on acceptable terms, or at all. Our failure to raise
additional capital when needed would have a material adverse effect on our business, financial
condition, results of operations and liquidity.
Liquidity Requirements
Short-Term Liquidity Requirements. We generally consider our short-term liquidity
requirements to consist of those items that are expected to need funding within the next 12 months.
We believe we have sufficient liquidity for our budgeted funding requirements through the end of
our fiscal year, September 30, 2011. For the alternative energy segment, these budgeted
requirements include i) development costs to bring the Port St. Joe Project to the point where
construction financing becomes possible, ii) costs related to completing the front-end engineering
and design (FEED) for the Rialto Project, iii) continued development costs of the Natchez Project
as well as other projects, iv) operating costs of our PDU, v) construction costs of the ClearFuels
Gasifier at the PDU, vi) continued research and development of the Companys technologies, vii)
debt service requirements coming due within the next year, and viii) general operating and working
capital uses. Further, we do not expect to require additional capital during the next twelve months
to continue these activities at levels similar to those budgeted for fiscal year 2011.
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Additional capital would be required to begin the construction phase of an alternative energy
project, including the Port St. Joe Project. The Port St. Joe Project has an estimated total
project cost of approximately $225.0 million, based on feasibility engineering studies. The Company
has received notice from the DOE that the Companys loan guarantee application under the Section
1705 Title XVII Loan Guarantee Program has been placed on hold. The DOE also indicated in its
notice that the Port St. Joe Project may be
eligible for a loan guarantee under the Section 1703 program and that the projects loan guarantee
application would continue to be evaluated subject to sufficient budget resources in the DOE Loan
Programs Office. We are still assessing our possible next steps for developing and financing the
Port St. Joe Project, but we would expect to pursue financing in the form of project debt from
third party investors, equity from partners in the project or institutional investors, and may
contribute equity directly into the project, depending on the availability of project financing
from third parties. Any additional equity investment we make could be raised through new or
restructured financings at REMC or the issuance of equity or debt securities by the Company. There
can be no assurances that debt or equity funding for the Port St. Joe Project will be available on
acceptable terms, or at all. In the event that the Company does not receive the required capital to
fund construction costs on a timely basis, then the Port St. Joe Project may not be completed.
We would also need additional capital during the next 12 months if we elected to pursue other
significant development activities, such as funding the development of certain new technologies,
continuing the development of the Rialto Project beyond the FEED phase, or pursuing any of our
other projects beyond their early development stages. Pre-FEED development activities for our
projects require relatively low levels of capital, but in the event that funding is not available,
we would not be able to advance the Rialto Project beyond FEED or advance other projects into the
feasibility or FEED stages. We would expect to obtain additional capital for these projects and
activities through some combination of project debt and equity, debt or equity incurred or issued
by the Company, equity from strategic partners or suppliers, debt or equity issued by REMC, other
new financings at REMC, and various forms of government support, but there is no assurance that
these sources of capital will be available to us.
During the next 12 months, we expect REMCs principal liquidity needs, which include costs to
operate and maintain the East Dubuque Plant, such as its ordinary course needs for working capital,
debt service requirements coming due within the next year and capital expenditures, to be met from
cash on hand at REMC and cash forecasted to be generated by REMCs operations. In response to
increased consumption of ammonia in REMCs market over the last 10 years, we have commenced an
expansion project at the East Dubuque Plant that is designed to increase ammonia production
capacity and ammonia available for sale at the East Dubuque Plant. We have obtained the
construction permit for this project and commenced work on certain long lead-time items. We will
continue to evaluate the market to determine the benefits of the expansion project. The completion
of this project will require the finalization of ongoing engineering work and the ongoing funding
of the project. Although the budget for the expansion project has not been finalized, we will
require additional capital to complete this project.
REMCs fertilizer business is seasonal, based upon the planting, growing and harvesting
cycles. Inventories must be accumulated to allow for customer shipments during the spring and fall
fertilizer application seasons. The accumulation of inventory to be available for seasonal sales
requires that working capital be available at REMC. Our practice of selling substantial amounts of
our fertilizer products through prepayment contracts also contributes to our significant working
capital changes at REMC. Working capital available at REMC is also affected by changes in commodity
prices for natural gas and nitrogen fertilizers, which are the East Dubuque Plants principal
feedstock and products.
All outstanding loans under the 2011 Credit Agreement are subject to annual amortization and
require cash payments of interest. The term loans are subject to amortization, payable quarterly,
of 2.5% of the original principal amount until March 31, 2016. The remaining principal is payable
on June 10, 2016, the maturity date.
Long-Term Liquidity Requirements. We generally consider our long-term liquidity requirements
to consist of those items that are expected to need funding beyond the next 12 months. Our
principal long-term needs for liquidity are to fund the completion of REMCs ammonia expansion
project, project development, detailed engineering, procurement, construction and operation of
commercial projects as well as our ongoing research and development expenses, including operation
of the PDU, and corporate administrative expenses. The continued development of existing and future
projects beyond the next 12 months will require substantial amounts of additional new capital. We
anticipate that the construction costs of our projects will range from hundreds of millions of
dollars to multiple billions of dollars depending upon their size and scope. We would expect to
meet the long-term liquidity requirements of these projects through various combinations of project
debt and equity, debt and equity incurred or issued by the Company or REMC, equity from strategic
partners and suppliers, and various forms of government support.
The outstanding loans under the 2011 Credit Agreement mature on June 10, 2016. However, the
2011 Credit Agreement requires us to meet the following financial covenants, and failure to meet
such covenants could result in acceleration of the term loans under the 2011 Credit Agreement:
| REMC and its subsidiaries cannot spend more than a specified maximum amount of capital
expenditures in each fiscal year. From June 10, 2011 through September 30, 2012, the
aggregate limit on capital expenditures is $30 million, and such limit varies each
succeeding fiscal year. For the 20-day period ended June 30, 2011, REMC incurred $1.5
million of capital expenditures. If REMC and its subsidiaries do not expend the maximum
amount of capital expenditures permitted for any period, then the unused amount from that
period, subject to a $9.0 million maximum carry forward amount for the period from June 10,
2011 to September 30, 2012, may be carried forward to the subsequent period;
|
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| REMC and its subsidiaries must maintain a minimum interest coverage ratio for any period
of four consecutive fiscal quarters. For fiscal year 2011, the minimum interest coverage
ratio requirement is 3.50:1.00. For the twelve months ended June 30, 2011, our actual
interest coverage ratio was 6.50:1.00; |
||
| REMC and its subsidiaries cannot exceed a maximum leverage ratio as of the last day of
any period of four consecutive fiscal quarters. The maximum leverage ratio is calculated by
dividing the outstanding principal amount of the loans under the 2011 Credit Agreement by
EBITDA, as defined in the 2011 Credit Agreement. For fiscal year 2011, the maximum leverage
ratio requirement is 2.75:1.00. For the twelve months ended June 30, 2011, our actual
leverage ratio was 1.92:1.00; and |
||
| During the months of April through December of any fiscal year, REMC and its
subsidiaries must maintain at least $7.5 million of unrestricted cash and permitted
investments and during the months of January through March of any fiscal year maintain at
least $5.0 million of unrestricted cash and permitted investments. At June 30, 2011, REMC
had $21.4 million of unrestricted cash and permitted investments. |
The full $57.5 million principal amount of the Notes is due in April 2013. During the
remainder of the term of the Notes, the required annual cash interest payments are $2.3 million. At
any time, we may redeem the Notes, in whole or in part, at a redemption price payable in cash equal
to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest
to, but not including, the redemption date. On or before the maturity date, we expect to either
exchange the Notes for new debt or equity securities, or pay off the Notes through some combination
of cash holdings, proceeds from debt or equity incurred or issued by the Company, asset sales and
new financings at REMC. Such exchanges and capital raising transactions, if any, will depend on prevailing market conditions and other factors.
There is no assurance that such exchanges can be completed or that capital will be available to us in amounts sufficient to pay the principal amount of the
Notes.
CONTRACTUAL OBLIGATIONS
We have entered into various contractual obligations as detailed in our Annual Report. During
the normal course of business in the nine months ended June 30, 2011, the amount of our contractual
obligations changed as scheduled payments were made and new contracts were executed. During the
nine months ended June 30, 2011, the following significant changes occurred to our contractual
obligations:
| The Company and REMC entered into the 2011 Credit Agreement. REMC used a portion of the
net proceeds from the 2011 Credit Agreement to repay its credit facility under the 2010
Credit Agreement in full, and to pay related fees and expenses. As of June 30, 2011, the
balance of the 2011 Credit Agreement was $150.0 million. |
||
| Natural gas forward purchase contracts committed decreased by $6,972,000 to $8,322,000.
We are required to make additional prepayments under these forward purchase contracts in the
event that market prices fall further below the purchase prices in the contracts. As of June
30, 2011, the natural gas forward purchase contracts included delivery dates through
November 30, 2011. Subsequent to June 30, 2011, we entered into additional fixed quantity
natural gas forward purchase contracts at fixed prices for various delivery dates through
December 31, 2011. The total MMBtus associated with these additional contracts was 905,000
and the total amount of the commitments under contract was $4,252,000, resulting in a
weighted average rate per MMBtu of $4.70. |
||
| Purchase obligations increased by $4,063,000 to $23,822,000 as measured by the total
amount of open purchase orders. The increase is primarily due to the inclusion of open
purchase orders for the Port St. Joe Project, construction of ClearFuels Gasifier and
scheduled turnaround at REMC, partially offset by decrease in open purchase orders for the
Rialto Project. |
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 2 to the consolidated financial statements, Recent Accounting Pronouncements.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk. We are exposed to interest rate risk related to our borrowings under the
2011 Credit Agreement. Borrowings under the 2011 Credit Agreement bear interest at a variable rate
based upon either Adjusted LIBOR (as defined in the credit agreement), or the lenders Alternative
Base Rate (as defined in the credit agreement), plus, in each case, an applicable margin. At June
30, 2011, three month LIBOR was approximately 0.246%, which is below the minimum of 1.5% in the
2011 Credit Agreement. As of June 30, 2011, we had outstanding borrowings under the 2011 Credit
Agreement of $150.0 million. Based upon the outstanding balances of our variable-interest rate debt
at June 30, 2011, and assuming interest rates are above the applicable minimum, and increase or
decrease by 100 basis points, the potential annual increase or decrease in annual interest expense
is approximately $1.5 million. Under its current policies, the Company does not use interest rate
derivative instruments to manage exposure to interest rate changes.
Commodity Price Risk. We are exposed to significant market risk due to potential changes in
prices for fertilizer products and natural gas. Natural gas is the primary raw material used in the
production of various nitrogen-based products manufactured at the East Dubuque Plant. Market prices
of nitrogen-based products are affected by changes in natural gas prices as well as by supply and
demand and other factors. Currently, REMC purchases natural gas for use in its East Dubuque Plant
on the spot market, and through short-term, fixed supply, fixed price and index price purchase
contracts. Natural gas prices have fluctuated during the last several years, increasing in 2008 and
subsequently declining to the current levels. A hypothetical increase of $0.10 per MMBtu of natural
gas would increase the cost to produce one ton of ammonia by approximately $3.50. REMC has
experienced no difficulties in securing supplies of natural gas, however, natural gas is purchased
at market prices and such purchases are subject to price volatility. In the normal course of
business, we currently produce nitrogen-based fertilizer products throughout the year to supply the
needs of our customers during the high-delivery-volume spring and fall seasons. Fertilizer product
inventory is subject to market risk due to fluctuations in the relevant commodity prices.
We enter into product prepayment contracts committing our customers to purchase our nitrogen
fertilizer products at a later date. By using fixed-price forward contracts, we purchase
approximately enough natural gas to manufacture the products that have been sold under product
prepayment contracts for later delivery. We believe that entering into such fixed-price forward
contracts and product prepayment contracts effectively allows us to fix most of the gross margin on
pre-sold product and mitigate risk of increasing market prices of natural gas or decreasing market
prices of nitrogen products. However, this practice also subjects us to the risk of decreasing
natural gas prices and increasing nitrogen fertilizer commodity prices after we have entered into
the relevant fix-priced forward and product prepayment contracts. In addition, we occasionally make
forward purchases of natural gas that are not directly linked to specific product prepayment
contracts. To the extent we make such purchases, we also are exposed to fluctuations in natural gas
prices.
Alternative Energy. The future success of our alternative energy business depends to a great
extent on the levels and volatility of certain commodities such as petroleum-based fuels and
electricity, as well as the cost of potential feedstocks such as biomass, natural gas or other
feedstocks. It may also depend on the level and volatility of prices or taxes placed on emissions
of carbon or other pollutants. The cost of feedstocks for our projects could also materially affect
prospective profitability of those projects. We expect that our projects will be designed to
produce fuels and power that may compete with conventional fuels and power as well as with fuels
and power produced from non-traditional sources. The prices of our products may be influenced by
the prices of those traditional or alternative fuels and power. Fluctuations in the price of
construction commodities such as concrete, steel and other materials could have a material effect
on the construction cost, and therefore of the projected returns to investors, on such projects.
Significant fluctuations in such prices may materially affect the business prospects of our
alternative energy business.
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ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures. We have established and currently maintain
disclosure controls and procedures designed to ensure that information required to be disclosed by
us in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the
Exchange Act) is recorded, processed, summarized and reported within the time periods specified
by the SECs rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including the Chief Executive Officer and
the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures were effective as of June 30,
2011. Accordingly, management has concluded that our consolidated financial statements contained in
this report fairly present, in all material respects, our financial condition, results of
operations, and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting. There were no changes in our internal
control over financial reporting during the quarter ended June 30, 2011 that materially affect, or
are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
A description of the legal proceedings to which the Company and its subsidiaries are a party
is contained in Note 10 to the consolidated financial statements included in Part I of this
Quarterly Report on Form 10-Q.
ITEM 1A. | RISK FACTORS |
See Item 1ARisk Factors in our Annual
Report on Form 10-K for the year ended September 30, 2010 for a detailed discussion of risk factors affecting the
Company. Those risk factors should also be read in conjunction with Exhibit 99.3 to our Current Report on Form 8-K
filed on August 5, 2011, which updates and supplements the risk factors included in our Annual Report.
ITEM 6. | EXHIBITS. |
Exhibit Index
2.1 | Membership Interest Purchase Agreement, dated April 12, 2011 by and between
Biomass Energy Holdings LLC and GCSEC Holdings, LLC (incorporated by reference to Exhibit 2.1 to the Companys Current
Report on Form 8-K filed on April 15, 2011). |
||
10.1 | Credit Agreement, dated June 10, 2011, by and among Rentech Energy Midwest
Corporation, as the borrower, Rentech, Inc., the lenders party thereto, Credit Suisse AG, Cayman Islands Branch,
individually and as Administrative Agent and Collateral Agent and Credit Suisse Securities (USA) LLC as Sole Bookrunner,
Sole Syndication Agent and Sole Lead Arranger (incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on June 14, 2011). |
||
10.2 | Guarantee and Collateral Agreement, dated June 10, 2011, by and among
Rentech Energy Midwest Corporation, Rentech, Inc., the subsidiaries of Rentech, Inc. listed therein and Credit Suisse AG,
Cayman Islands Branch, as Collateral Agent (incorporated by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed on June 14, 2011).
|
||
10.3 | Real Estate Mortgage, Assignment of Rents, Security Agreement and UCC Fixture
Filing, dated June 10, 2011, by and among Rentech Energy Midwest Corporation, Rentech, Inc. and Credit Suisse AG, Cayman
Islands Branch, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on June 14, 2011).
|
||
31.1 | Certification of President and Chief Executive Officer pursuant to Rule 13a-14 or Rule 15d-14(a). |
||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14 or Rule 15d-14(a). |
||
32.1 | Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
||
101 | The following financial information from the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2011 formatted in Extensible Business Reporting Language (XBRL)
includes: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations,
(iii) the Consolidated Statement of Stockholders Equity, (iv) the Consolidated Statements of
Cash Flows and (v) the Notes to Consolidated Financial Statements. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
RENTECH, INC. |
||||
Dated: August 9, 2011 | /s/ D. Hunt Ramsbottom | |||
D. Hunt Ramsbottom, | ||||
President and Chief Executive Officer | ||||
Dated: August 9, 2011 | /s/ Dan J. Cohrs | |||
Dan J. Cohrs | ||||
Chief Financial Officer |
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