Attached files

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8-K/A - FORM 8-K/A - East Dubuque Nitrogen Partners, L.P.d466924d8ka.htm
EX-23.1 - EX-23.1 - East Dubuque Nitrogen Partners, L.P.d466924dex231.htm
EX-99.2 - EX-99.2 - East Dubuque Nitrogen Partners, L.P.d466924dex992.htm
EX-99.3 - EX-99.3 - East Dubuque Nitrogen Partners, L.P.d466924dex993.htm

Exhibit 99.1

Agrifos Fertilizer L.L.C.

Financial Statements, as restated

December 31, 2011, 2010 and 2009

Date of Report: January 10, 2013


Agrifos Fertilizer L.L.C.

Index

December 31, 2011, 2010 and 2009

 

  

 

      Page(s)  

Financial Statements, as restated

  

Report of Independent Auditors

     1   

Statements of Financial Position

     2   

Statements of Operations

     3   

Statements of Changes in Member’s Equity and Accumulated Other Comprehensive Income (Loss)

     4   

Statements of Cash Flows

     5   

Notes to Financial Statements

     6-21   


Report of Independent Auditors

To the Board of Directors of

Agrifos Fertilizer L.L.C.

In our opinion, the accompanying statements of financial position and the related statements of operations, changes in member’s equity and accumulated other comprehensive income (loss) and cash flows present fairly, in all material respects, the financial position of Agrifos Fertilizer L.L.C. (the “Company”) at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 3, the Company has restated the 2011, 2010, and 2009 financial statements to correct errors.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California

January 14, 2013


Agrifos Fertilizer L.L.C.

Statements of Financial Position

December 31, 2011 and 2010

 

     2011     2010  
     (Restated)     (Restated)  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 5,679,742      $ 1,557,064   

Accounts receivable, trade

     891,990        8,035,733   

Other receivables, net

     197,207        5,364,749   

Inventories and other assets, net

     22,017,477        22,804,580   

Prepaid expenses and other current assets

     1,442,865        673,224   

Deferred income tax asset

     58,000        47,088   
  

 

 

   

 

 

 

Total current assets

     30,287,281        38,482,438   

Property, plant and equipment, net

     49,130,253        44,708,357   

Deferred income tax asset

     489,296        870,937   

Other assets

     824,399        558,024   
  

 

 

   

 

 

 

Total assets

   $ 80,731,229      $ 84,619,756   
  

 

 

   

 

 

 

Liabilities and Member’s Equity

    

Current liabilities

    

Accounts payable

   $ 10,721,007      $ 12,827,253   

Accrued expenses

     5,532,448        5,892,367   

Current portion of long term debt

     6,500,000        3,000,000   

Deferred revenue

     2,747,722        2,117,500   

Income tax payable

     —          106,248   
  

 

 

   

 

 

 

Total current liabilities

     25,501,177        23,943,368   

Long term debt, net of current portion

     22,500,000        —     

Asset retirement obligations

     1,622,252        1,571,189   

Accrued employee benefits and other liabilities

     1,957,343        468,403   
  

 

 

   

 

 

 

Total liabilities

     51,580,772        25,982,960   
  

 

 

   

 

 

 

Commitments and contingencies

    

Member’s equity

     30,616,770        58,963,585   

Accumulated other comprehensive loss

     (1,466,313     (326,789
  

 

 

   

 

 

 

Total member’s equity and accumulated other comprehensive loss

     29,150,457        58,636,796   
  

 

 

   

 

 

 

Total liabilities and member’s equity and accumulated other comprehensive loss

   $ 80,731,229      $ 84,619,756   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

2


Agrifos Fertilizer L.L.C.

Statements of Operations

Years Ended December 31, 2011, 2010 and 2009

 

     2011     2010     2009  
     (Restated)     (Restated)     (Restated)  

Revenues

   $ 146,897,377      $ 204,907,773      $ 159,785,710   

Operating expenses

      

Costs of products sold

     150,912,107        175,939,715        147,255,959   

Selling, general and administrative

     7,826,422        8,086,986        7,492,819   

Gain on sale of assets, net

     (159,459     —          —     
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     158,579,070        184,026,701        154,748,778   
  

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (11,681,693     20,881,072        5,036,932   

Other income (expense)

      

Interest expense, net

     (705,532     (430,181     (541,687

Loss on short term investments

     —          (117,575     (54,434

Gain on insurance settlements

     —          —          6,752,155   
  

 

 

   

 

 

   

 

 

 

Total other (expense) income, net

     (705,532     (547,756     6,156,034   
  

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (12,387,225     20,333,316        11,192,966   

Income tax benefit

     (450,410     (115,059     (22,567,957
  

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (11,936,815   $ 20,448,375      $ 33,760,923   
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

3


Agrifos Fertilizer L.L.C.

Statements of Changes in Member’s Equity and Accumulated Other

Comprehensive Income (Loss)

Years Ended December 31, 2011, 2010 and 2009

 

           Accumulated        
           Other        
     Member’s     Comprehensive        
     Equity     Loss     Total  

Balances at December 31, 2008, restated

   $ 29,854,287      $ (977,302   $ 28,876,985   

Distributions

     (18,100,000     —          (18,100,000

Other comprehensive income

      

Net income, restated

     33,760,923        —          33,760,923   

Pension adjustments

      

Actuarial gain

     —          648,415        648,415   

Amortization of actuarial loss

     —          76,799        76,799   

Amortization of prior service cost

     —          757        757   

Reversal of income taxes related to comprehensive income due to conversion from a corporation to a limited liability company

     —          (526,240     (526,240
  

 

 

   

 

 

   

 

 

 

Total comprehensive income

         33,960,654   
      

 

 

 

Balances at December 31, 2009, restated

     45,515,210        (777,571     44,737,639   

Distributions

     (7,000,000     —          (7,000,000

Other comprehensive income

      

Net income, restated

     20,448,375        —          20,448,375   

Pension adjustments

      

Actuarial gain

     —          413,385        413,385   

Amortization of actuarial loss

     —          36,640        36,640   

Amortization of prior service cost

     —          757        757   
  

 

 

   

 

 

   

 

 

 

Total comprehensive income

         20,899,157   
      

 

 

 

Balances at December 31, 2010, restated

     58,963,585        (326,789     58,636,796   

Distributions

     (8,300,000     —          (8,300,000

Receivable from owner

     (8,110,000     —          (8,110,000

Other comprehensive income

      

Net loss, restated

     (11,936,815     —          (11,936,815

Pension adjustments

      

Actuarial loss

     —          (1,088,807     (1,088,807

Amortization of actuarial loss

     —          5,592        5,592   

Amortization of prior service cost

     —          (56,309     (56,309
  

 

 

   

 

 

   

 

 

 

Total comprehensive loss

         (13,076,339
      

 

 

 

Balances at December 31, 2011, restated

   $ 30,616,770      $ (1,466,313   $ 29,150,457   
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

4


Agrifos Fertilizer L.L.C.

Statements of Cash Flows

Years Ended December 31, 2011, 2010 and 2009

 

 

     2011     2010     2009  
     (Restated)     (Restated)     (Restated)  

Cash flows from operating activities

      

Net (loss) income

   $ (11,936,815   $ 20,448,375      $ 33,760,923   

Adjustments to reconcile net (loss) income to net cash provided by operating activities

      

Depreciation

     4,579,907        6,191,556        9,245,065   

Accretion of asset retirement obligations

     51,063        49,457        47,900   

Amortization of debt issuance costs

     100,000        —          —     

Gain on sale of property, plant and equipment, net

     159,458        —          —     

Gain on sale of short-term investments

     —          117,575        54,434   

Pension amortization and adjustments

     (1,139,524     450,782        754,971   

Change in allowance for inventory obsolescence

     3,723,649        (81,399     (3,123,034

Deferred income tax, net

     370,729        216,116        (19,674,270

Amortization of deferred gain

     —          (6,232,663     (9,065,692

Changes in working capital assets and liabilities

      

Accounts receivable, trade

     7,143,743        (6,642,913     (3,697,660

Other receivables

     5,167,542        (2,563,189     6,857,623   

Inventories

     (2,936,546     (2,813,927     20,109,918   

Prepaid expenses and other current assets

     (769,641     1,023,764        (377,729

Other assets

     (266,375     (138,096     1,402,519   

Accounts payable

     (2,106,246     4,476,602        (5,795,784

Accrued expenses

     (1,167,643     239,681        (8,600,026

Income tax payable

     (106,248     102,163        (5,046,573

Deferred revenue

     630,222        65,500        2,052,000   

Other liabilities

     1,913,940        (1,668,934     (1,008,108
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     3,411,215        13,240,450        17,896,477   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

      

Purchase of property, plant and equipment

     (9,057,043     (7,621,765     (9,779,928

Insurance proceeds relating to fixed asset damages

     —          —          4,700,754   

Proceeds from disposal of property, plant and equipment

     703,506        —          —     

Purchase of short-term investments

     —          (1,000,000     (3,545,088

Sale of short-term investments

     —          1,827,991        2,545,088   

Note receivable from related party

     —          (100,000     —     
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (8,353,537     (6,893,774     (6,079,174
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

         —     

Distributions

     (8,300,000     (7,000,000     (15,042,699

Receivable from owner and/or due from related party

     (8,110,000     —          —     

Borrowings on long-term debt

     44,000,000        31,000,000        24,000,000   

Repayments on long-term debt

     (18,000,000     (29,000,000     (23,000,000

Payment of deferred financing costs

     (525,000     —          —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     9,065,000        (5,000,000     (14,042,699

Net increase in cash and cash equivalents

     4,122,678        1,346,676        (2,225,396

Cash and cash equivalents

      

Beginning of year

     1,557,064        210,388        2,435,784   
  

 

 

   

 

 

   

 

 

 

End of year

   $ 5,679,742      $ 1,557,064      $ 210,388   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosures of cash flow information

      

Cash paid for interest

   $ 814,090      $ 346,278      $ 538,335   

Cash paid for income taxes

     132,171        —          —     

Use of distribution to offset note receivable and accrued interest from related party

     —          —          (3,057,301

Change in payable for capitalized fixed assets

     1,353,564        199,908        248,212   

Proceeds used to offset note payable

     —          —          2,900,000   

Reversal of income taxes due to conversion from a corporation to a limited liability company

     —          —          (526,240

The accompanying notes are an integral part of these financial statements.

 

 

5


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

1. Description of Business

Agrifos Fertilizer Inc. was incorporated under the laws of the State of Delaware in 2003. In December 2008, Agrifos Fertilizer, Inc. was converted from a Delaware corporation to a Delaware limited liability company named Agrifos Fertilizer L.L.C. (the “Company”). The Company is owned by Agrifos Holdings Inc. (“Holdings”). The Company owns and operates a fertilizer plant located in Pasadena, Texas.

In early 2011, the Company’s operations were restructured. The Company ceased production of phosphate fertilizers, which included DAP (diammonium phosphate) and MAP (monoammonium phosphate), due to the limited remaining capacity of the Company’s primary waste disposal site related to its phosphate operations.

The Company undertook major capital and maintenance projects at the Pasadena plant, including decommissioning certain phosphate productions assets, and converting a portion of its assets to the new business model. The Company’s new business model includes the production of ammonium sulfate fertilizer and the continued production of sulfuric acid and ammonium thiosulfate.

 

2. Significant Accounting Policies

The Company’s accounting policies conform to accounting principles generally accepted in the United States of America. A summary of the significant accounting policies applied in the preparation of the accompanying financial statements is as follows:

Revenue Recognition

Revenue from the sale of fertilizers is recognized when persuasive evidence of an arrangement exists, products are shipped, the fee is fixed or determinable, and collectability is reasonably assured. As discussed in Note 3, the financial statements were restated for bill and hold transactions. The Company no longer recognizes revenue for bill and hold transactions.

Amounts billed to customers for delivery costs are classified as a component of total revenues and related delivery costs are classified as a component of cost of products sold. This approximated $1,177,000, $3,984,000 and $3,318,000 for the years ended December 31, 2011, 2010 and 2009 respectively.

Cash and Cash Equivalents

Cash on hand and highly liquid investments purchased with an original maturity of three months or less are considered to be cash and cash equivalents.

Allowance for Doubtful Accounts

The Company maintains allowances for potential credit losses which, when realized, have been within the range of management’s expectations. The allowance for doubtful accounts was $165,035 and $0 at December 31, 2011 and 2010, respectively.

Inventories, net

Inventories are stated at the lower of cost, as determined by standard costing which approximates the weighted average cost method, or market. Cost includes material, labor and manufacturing overhead. The balance sheet includes a reserve to provide for estimated losses arising from writing down inventories to market value in those situations where cost exceeded market value at December 31, 2011 and 2010 for slow moving and obsolete inventories (see Note 6).

 

6


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

Property, Plant and Equipment, net

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation for financial reporting purposes is provided using straight-line methods over the estimated useful lives of the assets. Estimated useful lives of the assets range from 1.5 to 10 years, with the majority relating to plant, machinery and equipment that range from three to 10 years. Buildings have estimated useful lives of 20 years.

Expenditures for major acquisitions and improvements are capitalized; expenditures for maintenance and repairs are charged to expense as incurred, including the cost of major maintenance expenditures. When property and equipment are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in other expense.

Long-lived assets to be held and used by the Company are reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, the Company bases its evaluation on impairment indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, the Company determines whether impairment has occurred through the use of an undiscounted cash flow analysis of the asset at the lowest level for which identifiable cash flows exist. If impairment has occurred, the Company recognizes a loss for the difference between the carrying amount and the fair value of the asset. The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, is based on an estimate of discounted cash flows. No impairment was recorded during 2011, 2010, or 2009.

Asset Retirement Obligations

The Company’s asset retirement obligations (AROs) relate to future costs associated with the removal of contaminated material upon removal of the phosphorous plant. The fair value of a liability for an ARO is recorded in the period in which it is incurred and the cost of such liability increases the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period through charges to operating expense and the capitalized cost is depreciated over the remaining useful life of the asset.

Deferred Gain

As further described in Note 4, the deferred gain relates to a vendor’s forgiveness of amounts previously due by the Company to the vendor. The deferred gain is amortized over the expected remaining term of a purchase agreement with the vendor based on actual purchases from the vendor. The deferred gain was fully amortized at December 31, 2010.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, short-term investments, trade receivables, trade payables and debt. Management considers the carrying values of cash and cash equivalents, short-term investments, trade receivables and trade payables to be representative of their respective fair values because of their short-term maturities or expected settlement dates. The carrying value of outstanding amounts under the revolving credit facility and term debt approximate fair value due to the floating interest rate.

 

7


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

Concentration of Risk

The Company sells to its customers on an uncollateralized credit basis unless past experience with the customer requires cash on delivery or other arrangements.

Cash is deposited in demand accounts in federally insured domestic institutions to minimize risk. From time to time the balances may exceed the $250,000 level of coverage provided by the Federal Depository Insurance Corporation. The Company has not incurred losses related to these deposits.

Income Taxes

Effective January 1, 2009, Holdings converted to a Subchapter “S” corporation. A Subchapter S corporation is a pass through entity for income tax purposes to the shareholders of the Company. As a result of the election, Holdings changed from a taxable entity to a nontaxable entity. Deferred tax assets and liabilities were eliminated at the date an enterprise ceased to be a taxable enterprise. Therefore, the Company reversed the majority of the deferred taxes that existed at December 31,2008 during 2009. This reversal was recorded as a reduction of income tax expense in 2009. The Company is subject to the Texas Margin Tax, therefore the deferred taxes associated with the Texas Margin Tax remain on the Company’s books and records. In addition, even though an S corporation is a flow through entity, there is an entity level tax that is assessed when the corporation sells certain built-in gain assets within the ten years subsequent to the conversion to an S corporation. During 2010, no assets with built-in gains were sold. During 2011, the company sold an asset subject to a built-in gain resulting in a current tax expense of $73,866. The built-in gain tax is suspended in 2011 due to a taxable loss limitation. The company expects to have taxable income in 2012; therefore, the built-in gain tax is expected to be paid in 2012.

The Company follows generally accepted accounting principles to account for uncertainty in income taxes. These accounting principles provide thresholds and measurements to determine whether tax benefits claimed or expected to be claimed in a tax return should be recorded in the financial statements. See Note 10 for additional information regarding uncertain tax positions.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

 

3. Restatement

The Company concluded it was required to restate its previously issued financial statements for the following items:

 

   

The Company did not meet revenue recognition criteria for bill and hold transactions as well as sales under a marketing agreement for which the price was not determinable upon shipment;

 

   

The Company determined it had a conditional asset retirement obligation for its phosphorous plant, which should have been recorded in 2005;

 

   

The Company had certain DAP inventory which was damaged during 2011, and cannot be sold; and

 

   

The Company did not appropriately record an adjustment to reduce inventory to the lower of cost or market in 2011.

 

   

The Company incorrectly reflected a cash outflow for financing costs as an operating activity.

The impact of correcting errors resulted in a $1,251,681 cumulative increase to 2008 beginning member’s equity. The impact of correcting these errors, as well as recording other immaterial corrections are as follows:

 

8


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

    2011     2010     2009  
    As
previously
reported
    Adjustment     As restated     As
previously
reported
    Adjustment     As restated     As
previously
reported
    Adjustment     As restated  

Statements of Financial Position

                 

Accounts receivable

  $ 6,731,019      $ (5,839,029   $ 891,990      $ 7,727,153      $ 308,580      $ 8,035,733         

Other receivables

    197,207        —          197,207        5,271,117        93,632        5,364,749         

Inventories, net

    14,689,805        7,327,672        22,017,477        22,156,490        648,090        22,804,580         

Total current assets

    28,798,638        1,488,643        30,287,281        37,432,136        1,050,302        38,482,438         

Property, plant and equipment, net

    49,469,889        (339,636     49,130,253        44,430,178        204,128        44,708,357         

Total assets

    79,582,222        1,149,007        80,731,229        83,291,275        1,328,481        84,619,756         

Accrued expenses

    5,532,448        —          5,532,448        5,892,367        —          5,892,367         

Deferred revenue

    —          2,747,722        2,747,722        —          2,117,500        2,117,500         

Total current liabilities

    22,753,455        2,747,722        25,501,177        21,825,868        2,117,500        23,943,368         

Accrued employee benefits and other

    2,144,732        (187,389     1,957,343        909,064        (440,661     468,403         

Asset retirement obligation

    —          1,622,252        1,622,252        —          1,571,189        1,571,189         

Total liabilities

    47,398,187        4,182,585        51,580,772        22,734,932        3,248,028        25,982,960         

Member’s equity

    33,837,737        (3,220,968     30,616,770        61,323,793        (2,360,208     58,963,585         

Accumulated other comprehensive loss

    (1,653,702     187,389        (1,466,313     (767,450     440,661        (326,789      

Total member’s equity and accumulated other comprehensive loss

    32,184,035        (3,033,579     29,150,456        60,556,343        (1,919,547     58,636,796         

Total liabilities and member’s equity and AOCL

    79,582,222        1,149,007        80,731,229        83,291,275        1,328,481        84,619,756         

Statements of Operations

                 

Revenues

    152,888,812        (5,991,435     146,897,377        205,900,332        (992,559     204,907,773        161,757,519        (1,971,809     159,785,710   

Costs of products sold

    156,042,782        (5,130,675     150,912,107        176,803,180        (863,465     175,939,715        148,248,335        (992,376     147,255,959   

Selling, general, administrative

    7,826,422        —          7,826,422        8,281,363        (194,377     8,086,986        7,298,442        194,377        7,492,819   

Total operating expenses

    163,709,746        (5,130,675     158,579,071        185,084,543        (1,057,842     184,026,701        155,546,777        (797,999     154,748,778   

Operating income (loss)

    (10,820,934     (860,759     (11,681,693     20,815,789        65,283        20,881,072        6,210,742        (1,173,810     5,036,932   

(Loss) income before income taxes

    (11,526,466     (860,759     (12,387,225     20,268,033        65,283        20,333,316        12,366,776        (1,173,810     11,192,966   

Net income (loss)

    (11,076,056     (860,759     (11,936,815     20,383,092        65,283        20,448,375        34,934,733        (1,173,810     33,760,923   

Statements of Cash Flows

                 

Cash flows from operating activities:

                 

Net income (loss)

    (11,076,056     (860,759     (11,936,815     20,383,092        65,283        20,448,375        34,934,733        (1,173,810     33,760,923   

Depreciation

    4,308,025        271,882        4,579,907        6,247,582        (56,026     6,191,556        9,103,260        141,805        9,245,065   

Accretion of asset retirement obligations

    —          51,063        51,063        —          49,457        49,457        —          47,900        47,900   

Amortization of debt issuance costs

    —          100,000        100,000        —          —          —          —          —          —     

Pension amortization and adjustments

    (886,252     (253,272     (1,139,524     48,121        402,661        450,782        687,971        67,000        754,971   

Change in allowance for inventory obsolescence

    1,371,412        2,352,237        3,723,649        (81,399     —          (81,399     (3,123,034     —          (3,123,034

Changes in working capital assets and liabilities:

                 

Accounts receivable, trade

    996,134        6,147,609        7,143,743        (6,334,333     (308,580     (6,642,913     (3,697,660     —          (3,697,660

Other receivables

    5,073,910        93,632        5,167,542        (2,549,748     (13,441     (2,563,189     6,937,814        (80,191     6,857,623   

Inventories

    6,095,273        (9,031,819     (2,936,546     (3,414,917     600,990        (2,813,927     21,358,998        (1,249,080     20,109,918   

Prepaid expenses and other current assets

    (769,640     (1     (769,641     1,023,764        —          1,023,764        (377,729     —          (377,729

Accounts payable

    (2,106,246     —          (2,106,246     4,524,906        (48,304     4,476,602        (5,795,784     —          (5,795,784

Accrued expenses

    (1,513,575     345,932        (1,167,643     434,058        (194,377     239,681        (8,794,403     194,377        (8,600,026

Deferred revenue

    —          630,222        630,222        —          65,500        65,500        —          2,052,000        2,052,000   

Other liabilities

    1,235,667        678,273        1,913,940        (1,199,272     (469,661     (1,668,933     (1,008,108     —          (1,008,108

Net cash provided by operating activities

    2,886,216        524,999        3,411,215        13,146,949        93,501        13,240,450        17,896,477        —          17,896,477   

Cash flows from investing activities:

                 

Purchase of property, plant and equipment

    (9,057,044     —          (9,057,043     (7,528,264     (93,501     (7,621,765     (9,779,928     —          (9,779,928

Net cash used in investing activities

    (8,353,537     —          (8,353,537     (6,800,273     (93,501     (6,893,774     (6,079,174     —          (6,079,174

Cash flows from financing activities:

    —          —          —          —          —          —          —          —          —     

Payment of deferred financing costs

    —          (525,000     (525,000     —          —          —          —          —          —     

Net cash provided by (used in) financing activities

    9,590,000        (525,000     9,065,000        (5,000,000     —          (5,000,000     (14,042,699     —          (14,042,699

 

9


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

4. Deferred Gain, net

The deferred gain resulted from a vendor who forgave $28,185,829 due from the Company. In connection with the debt forgiveness, the Company and the vendor agreed to amend their long term purchase agreement whereby the Company would pay more for raw material purchases in the future. The gain was deferred and amortized over the remaining term of the agreement with the vendor. Amortization of the deferred gain was $6,232,663 and $9,065,692 for 2010 and 2009 respectfully.

 

5. Other Receivables, net

Other receivables consist of the following at December 31:

 

           2010  
     2011     (Restated)  

Gypsum project receivable

   $ —        $ 1,919,548   

Other

     362,242        3,445,201   

Allowance for doubtful accounts

     (165,035     —     
  

 

 

   

 

 

 

Total Other Receivables, net

   $ 197,207      $ 5,364,749   
  

 

 

   

 

 

 

Other receivables at December 31, 2011 relate primarily to costs owed by a related party for services provided. The gypsum receivable, at December 31, 2010, was repaid in full during 2011 by ExxonMobil for remediation costs associated with the EPA order of consent (Note 14).

 

6. Inventories, net

The Company recorded an adjustment of $692,584, $0 and $0 for the years ended December 31, 2011, 2010 and 2009, respectively, to reduce inventory to the lower of cost or market. Inventories, which include materials, labor and manufacturing, overhead costs, consist of the following at December 31:

 

     2011     2010  
     (Restated)     (Restated)  

Raw materials

   $ 6,841,129      $ 14,031,524   

Finished products

     12,751,761        4,050,847   

Replacement parts and supplies

     6,395,160        5,661,717   
  

 

 

   

 

 

 
     25,988,050        23,744,088   

Allowance for obsolescence

     (3,970,573     (939,508
  

 

 

   

 

 

 

Inventories, net

   $ 22,017,477      $ 22,804,580   
  

 

 

   

 

 

 

As discussed in Note 1, the Company ceased production of phosphate fertilizers in early 2011. At December 31, 2011, the Company recorded an allowance for obsolescence of $1,654,653 related to the remaining phosphate fertilizer which was damaged in 2011 and cannot be sold. The remaining allowance for obsolescence at December 31, 2011 and 2010 relates to replacement parts and supplies.

 

10


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

7. Property, Plant and Equipment, net

Property, plant and equipment consist of the following at December 31:

 

     2011     2010  
     (Restated)     (Restated)  

Land

   $ 10,515,749      $ 10,515,749   

Plant improvements

     7,752,807        7,535,674   

Buildings

     13,174,645        4,458,042   

Machinery and equipment

     56,777,308        49,632,282   

Computer equipment

     2,832,323        2,391,415   

Construction in progress

     3,221,427        10,778,380   
  

 

 

   

 

 

 
     94,274,259        85,311,542   

Less: Accumulated depreciation

     (45,144,006     (40,603,185
  

 

 

   

 

 

 

Property, plant and equipment, net

   $ 49,130,253      $ 44,708,357   
  

 

 

   

 

 

 

Depreciation expense totaled $4,579,907, $6,191,556 and $9,245,065 for the years ended December 31, 2011, 2010 and 2009, respectively.

 

8. Accrued Expenses

Accrued expenses consist of the following at December 31:

 

     2011      2010  

Accrued payroll and related expenses

   $ 1,009,082       $ 1,590,245   

Legal reserves

     1,080,000         1,300,000   

Sales and use taxes

     1,800,000         1,264,153   

Uncertain tax positions

     —           1,187,671   

Property taxes

     102,458         147,198   

Accrued property, plant and equipment

     1,353,564         199,908   

Other

     187,344         203,192   
  

 

 

    

 

 

 

Accrued expenses

   $ 5,532,448       $ 5,892,367   
  

 

 

    

 

 

 

 

9. Debt

Debt consists of the following at December 31:

 

     2011     2010  
            Interest            Interest  
     Balance      Rate     Balance      Rate  

Term Loan, maturing March 31, 2016

   $ 25,000,000         3.28   $ —           —     

Revolving Note, maturing March 31, 2014

     4,000,000         3.30     —           —     

Revolving credit facility, expiring March 31, 2011

     —           —          3,000,000         5.75
  

 

 

      

 

 

    

Total Debt

     29,000,000           3,000,000      

Less current portion

     6,500,000           3,000,000      
  

 

 

      

 

 

    

Long term debt

   $ 22,500,000         $ —        
  

 

 

      

 

 

    

 

11


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

On March 9, 2011, the Company entered into a five year credit agreement (“Credit Agreement”) with a financial institution. The Credit Agreement is comprised of a revolving note of $15 million, with a maturity date of March 31, 2014, and a term loan of $25 million, with a maturity date of March 31, 2016. The interest rate per year is the Adjusted One Month LIBOR plus 3.00%. Payments for the term loan are to be repaid in quarterly installments beginning in February 2012 in an amount equal to 2.50%, 3.75% and 5.00% of the unpaid principal balance for years ending 2012, 2013 and thereafter.

The Credit Agreement requires that the Company maintain certain financial covenants. These covenants include a fixed charge coverage ratio, a leverage ratio and a balance sheet ratio. The Company used a portion of the borrowings to repay borrowings under the revolving credit facility.

The Company recorded $600,000 in debt issuance costs incurred to obtain the Credit Agreement, which are accounted for as deferred charges and amortized using the straight line method which approximates the interest method over the term of the Credit Agreement, of $100,000 each year until 2016. Amortization of debt issuance costs totaling $100,000 is included in interest expense in the statements of operations for the year ended December 31, 2011.

At December 31, 2010, the Company had a revolving credit facility with a bank of $15 million that expired on March 31, 2011. At December 31, 2011 and 2010 the revolving credit facility had an outstanding balance of $0 and $3,000,000, respectively.

 

10. Income Taxes

The provision for income tax expense consists of the following for the years ended December 31:

 

     2011     2010     2009  

Current income tax benefit

   $ (821,139   $ (331,175   $ (3,419,927

Deferred income tax expense

     370,729        216,116        (19,148,030
  

 

 

   

 

 

   

 

 

 

Income tax benefit

   $ (450,410   $ (115,059   $ (22,567,957
  

 

 

   

 

 

   

 

 

 

As discussed in Note 2, effective January 1, 2009 the Company converted to a sub chapter S corporation for federal income tax reporting. The Company is subject to the Texas Margin Tax. Therefore, the deferred taxes that remain on the Company’s books at December 31, 2011 and 2010 relate to Texas deferred taxes.

The components of federal and state income tax expense for the years ended December 31, 2011, 2010 and 2009, respectively is as follows:

 

     2011     2010     2009  

Federal tax - built-in gain tax

   $ 73,866      $ —        $ —     

Reversal of income tax related to tax status conversion

     —          —          (22,339,402

State tax (benefit) expense

     401,500        322,118        (281,436

Federal tax refund due to IRS audit

     —          (506,768     —     

Uncertain tax positions

     (1,029,829     69,345        52,881   

Valuation allowance

     97,044        —          —     

Other

     7,009        246        —     
  

 

 

   

 

 

   

 

 

 

Income tax benefit

   $ (450,410   $ (115,059   $ (22,567,957
  

 

 

   

 

 

   

 

 

 

 

12


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

Significant components of the Company’s deferred tax assets and (liabilities) consist of the following at December 31:

 

     2011     2010  
     Current     Noncurrent     Current     Noncurrent  

Deferred tax assets

        

Texas franchise tax temporary credit

   $ 41,005      $ 1,576,403      $ 41,005      $ 1,617,407   

Inventories

     13,338        12,630        3,563        6,268   

Other assets

     —          6,077        —          —     

Accrued expenses

     5,159        —          4,505        —     

Valuation allowance

     —          (706,192     —          (609,148
  

 

 

   

 

 

   

 

 

   

 

 

 

Total deferred tax assets

     59,502        888,918        49,073        1,014,527   
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax liabilities

        

Property, plant and equipment

     —          (329,480     —          (143,590

Other assets

     (1,502     —          (1,985     —     

Deferred insurance proceeds

     —          (70,142     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total deferred tax liabilities

     (1,502     (399,622     (1,985     (143,590
  

 

 

   

 

 

   

 

 

   

 

 

 

Net deferred taxes

   $ 58,000      $ 489,296      $ 47,088      $ 870,937   
  

 

 

   

 

 

   

 

 

   

 

 

 

As of January 1, 2008, the former Texas franchise tax on taxable capital and earned surplus was replaced by the Texas Margin Tax, a revised tax on modified gross revenue. At the time of the change, taxpayers were permitted to take a temporary credit for business loss carryforwards that were available as of December 31, 2007 (“Texas Preservation Credit”). For franchise tax reports due after January 1, 2008, the taxpayer may utilize the Texas Preservation Credit against the tax liability reflected on the Texas Margin Tax return.

As of December 31, 2011 and 2010, the Company had available $1,617,408 and $1,658,412, respectively, of gross Texas Preservation credits remaining. The Company has established a valuation allowance on the Texas Preservation Credit to the extent that the Company believes it is more likely than not that the credit will not be utilized, which was $706,192 and $609,148 at December 31, 2011 and 2010, respectively.

The Company is subject to tax examinations in various jurisdictions and accordingly records incremental tax expense based upon the more-likely-than-not outcomes of any uncertain tax positions. In addition, when applicable, the Company adjusts the previously recorded tax expense to reflect examination results when the position is effectively settled. The Company’s ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can increase or decrease the Company’s effective tax rate, as well as impact operating results. The specific timing of when the resolution of each tax position will be reached is uncertain. The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of its provision for income taxes. The total amount of accrued interest and penalties at December 31, 2011 and 2010 was $0 and $69,345, respectively.

Reconciliations of the beginning and ending balance of uncertain tax positions for the years 2011, 2010 and 2009 are as follows:

 

13


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

     2011     2010  

Beginning balance

   $ 1,187,671      $ 1,118,326   

Additions based on tax positions related to the current year

     —          —     

Additions for tax positions of prior years

     —          69,345   

Reductions for tax positions due to lapse of statutes of limitations

     (1,187,671     —     

Settlements

     —          —     
  

 

 

   

 

 

 

Balance at December 31

   $ —        $ 1,187,671   
  

 

 

   

 

 

 

 

11. Employee Benefit Plans

Pension Plans

Reporting and disclosures related to pension and other postretirement benefit plans requires that companies include an additional asset or liability on the balance sheet to reflect the funded status of retirement and other postretirement benefit plans, and a corresponding after-tax adjustment to accumulated other comprehensive income with member’s equity.

The Company has two noncontributory pension plans (the “Plans”), which cover either hourly paid employees represented by collective bargaining agreements in effect at the Company’s location or hourly employees who have 1,000 hours of service during a year of employment.

Postretirement Benefits

The Company established a postretirement benefit plan for certain of its employees in 2006. The plan provides a fixed dollar amount to supplement payment of eligible medical expenses. The amount of the supplement under the plan is based on years of service and the type of coverage elected (single or family members and spouses). Participants are eligible for supplements at retirement after age 55 with at least 20 years of service to be paid until the attainment of age 65 or another disqualifying event, if earlier.

The following tables summarize changes in the projected benefit obligation, the Plans’ assets and the funded status of the Plans as well as the components of net periodic benefit costs, including key assumptions at December 31:

 

14


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

     2011     2010     2009  
     Pension     Post-
retirement
(Restated)
    Pension     Post-
retirement
(Restated)
    Pension     Post-
retirement
(Restated)
 

Service cost

   $ 160,055      $ 15,072      $ 167,952      $ 15,072      $ 180,116      $ 15,072   

Interest cost

     197,369        —          185,370        —          171,142        —     

Expected return on plan assets

     (229,854     —          (204,552     —          (147,112     —     

Amortization of prior service cost

     757        —          757        —          757        —     

Recognized loss due to curtailments

     536        —          —          —          —          —     

Amortization of net actuarial loss

     15,028        (9,436     14,982        21,658        54,936        21,863   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension costs

   $ 143,891      $ 5,636      $ 164,509      $ 36,730      $ 259,839      $ 36,935   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other changes in plan assets and benefit obligations recognized in other comprehensive income (OCI)

            

Net (gain) loss

   $ 1,009,609      $ 79,198      $ 478,304      $ (64,919   $ (648,415   $ —     

Amortization of prior service costs

     56,309        —          (757     —          (757     —     

Amortization of net actuarial loss

     (15,028     9,436        (14,982     (21,658     (54,936     (21,863
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recognized in OCI

   $ 1,050,890      $ 88,634      $ 462,565      $ (86,577   $ (704,108   $ (21,863
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recognized in net periodic cost and other comprehensive loss

   $ 1,194,781      $ 94,270      $ 627,074      $ (49,847   $ (444,269   $ 15,072   

The expected portion of the accumulated other comprehensive loss expected to be recognized as a component of net periodic benefit cost in 2012, 2011 and 2010 are $64,648, $55,302 and $14,990, respectively.

As the plan provides a fixed dollar amount to participants, increasing or decreasing the health care cost trend rate by 1% would not have any impact on the December 31, 2011, 2010 and 2009 obligation.

 

15


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

     2011     2010  
           Post-           Post-  
           retirement           retirement  
     Pension     (Restated)     Pension     (Restated)  

Changes in projected benefit obligation (PBO)

        

Benefit obligation at beginning of year

   $ 3,652,927      $ 540,037      $ 3,138,727      $ 1,096,275   

Service cost

     160,055        15,072        167,952        15,072   

Interest cost

     197,369        —          185,370        —     

Amendment

     57,602        —          —          —     

Actuarial (gain) loss

     613,159        916,448        245,086        (494,044

Curtailments

     (53,194     —          —          —     

Actual benefit paid

     (129,058     (77,266     (84,208     (77,266
  

 

 

   

 

 

   

 

 

   

 

 

 

Benefit obligation at end of year

     4,498,860        1,394,291        3,652,927        540,037   

Changes in plan assets

        

Fair value of plan assets at beginning of year

     3,829,926        —          3,375,130        —     

Actual return on plan assets

     33,482        —          395,443        —     

Employer contributions

     129,824        —          143,561        —     

Actual benefit payments

     (129,058     —          (84,208     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Fair value of plan assets at end of year

     3,864,174        —          3,829,926        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Funded status at end of year

   $ (634,686   $ (1,394,291   $ 176,999      $ (540,037
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in statement of financial position

        

Current liabilities

   $ —        $ (71,634   $ —        $ (71,634

Noncurrent assets (liabilities)

     (634,686     (1,322,657     176,999        (468,403
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (634,686   $ (1,394,291   $ 176,999      $ (540,037
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in accumulated other comprehensive loss (AOCI)

        

Net (gain) loss

   $ 1,202,905      $ 189,001      $ 208,324      $ 100,367   

Prior service costs

     59,335        15,072        3,026        15,072   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,262,240      $ 204,073      $ 211,350      $ 115,439   
  

 

 

   

 

 

   

 

 

   

 

 

 

The above measures of the net periodic benefit cost and projected benefit obligation are based upon the following assumptions at December 31:

 

     2011     2010     2009  

Weighted average discount rate (projected benefit obligation)

     4.50     5.50     6.00

Weighted average discount rate (net periodic benefit cost)

     5.50        5.50        6.00   

Weighted average expected long-term rate of return on assets

     6.00        6.00        6.00   

The average discount rate used was determined to be within 25 basis points of the spot rate of the Citigroup Pension Liability Index (the “Index”). The expected cash flows were discounted using the Citigroup Pension Discount Curve to confirm that the methodology utilized in selecting the average discount rate did not produce a different result.

 

16


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

     2011     2010  
    

Target

Allocation

as of

December 31,

2011

   

Percentage of

Pension

Plan Assets

2011

   

Target

Allocation

as of

December 31,

2010

   

Percentage of

Pension

Plan Assets

2010

 

Asset Category

        

Equity securities

     50     52     50     53

Debt securities

     50        48        50        47   

Cash and other

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 
     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

Over time, the investment policy is to allocate 50%, 40% and 10% to equity securities, debt securities and cash and other, respectively. This strategy is expected to produce a reasonable rate of investment return over the long-term commensurate with an acceptable level of risk.

Cash Flows

The Company expects to contribute approximately $135,000 to its Plans in 2012. Actual postretirement benefit plan contributions were $129,824 and $143,561 in 2011 and 2010, respectively.

Estimated Future Benefit Payments

 

     Pension      Postretirement  

2012

   $ 158,517       $ 62,717   

2013

     182,891         103,596   

2014

     196,520         123,736   

2015

     224,724         40,505   

2016

     236,157         15,386   

2017-2021

     1,284,912         406,812   

Savings and Profit Sharing Plan

Additionally, the Company has a savings and profit sharing plan for the benefit of qualified employees. The plan cost for the years ended December 31, 2011, 2010 and 2009 were approximately $160,000, $180,000 and $190,000, respectively.

 

12. Asset Retirement Obligations

The following table summarizes the activity for the Company’s abandonment obligations:

 

     2011      2010  
     (Restated)      (Restated)  

Beginning balance

   $ 1,571,189       $ 1,521,732   

Accretion expense

     51,063         49,457   
  

 

 

    

 

 

 

Balance at December 31

   $ 1,622,252       $ 1,571,189   
  

 

 

    

 

 

 

 

17


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

AROs reflect the estimated present value of the amount of dismantlement, removal, site reclamation and similar activities associated with the Company’s phosphorous plant. Inherent in the fair value calculation of the ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the asset balance.

 

13. Equity

Member’s Equity

All member’s equity is owned by Holdings. All of the Company’s profits and losses are allocated to Holdings.

Receivables from owners

All receivables from owners of the Company parent (Holdings) have been recorded as a reduction in member’s equity.

 

14. Commitments and Contingencies

Operating Leases

The Company leases certain equipment under noncancelable operating leases having terms in excess of one year. Future minimum lease rental payments are as follows:

 

Year Ending

December 31,

      

2012

   $ 54,144   

2013

     20,818   

2014

     17,840   

2015

     1,968   
  

 

 

 
   $ 94,770   
  

 

 

 

Operating lease expense for the years ended December 31, 2011, 2010 and 2009 were $640,909, $1,611,465 and $1,293,188, respectively.

Litigation

The Company, in the normal course of business, is subject to claims and litigation with respect to operations. The Company records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Claims and proceedings are reviewed at least annually and provisions are taken or adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information pertinent to a particular matter. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of such matters. While the Company will continue to defend itself vigorously, it is possible that the Company’s business, financial condition, results of operations or cash flows could be affected in any particular period by the resolution of one or more of these matters.

 

18


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

EPA Order of Consent

During 2007, heavy rainfall caused a release of process water into the Houston Ship Channel. As a result, on September 17, 2007, the United States Environmental Protection Agency (“EPA”) issued a First Amended Unilateral Administrative Order to the Company and ExxonMobil Corporation (the “UAO”). Subsequently, an Administrative Order on Consent (the “AOC”) was issued by the EPA which superseded and replaced the UAO in its entirety regarding the 2007 release of process water. As of December 31, 2010, substantially all of the costs necessary to comply with provisions of the AOC have been incurred and expensed in the financial statements.

In 2005, the EPA initiated an enforcement action against the entire United States phosphoric acid industry to enforce compliance with (i) RCRA and the applicable Bevill Amendment exclusion from RCRA and (ii) the HF MACT regulations set forth in the Clean Air Act. On December 7, 2011, the Company settled the enforcement action pursuant to a Consent Agreement and Final Order with the EPA, agreeing to pay $1,800,000 in installments over a two-year period and to complete a supplemental environmental project involving the construction of a containing wall around the granulation unit by June 2012. The total $1,800,000 was accrued as of December 31, 2011. Of this, approximately $1,080,000 is recorded in accrued expenses and $720,000 on other long-term liabilities.

State of Texas Sales and Use Tax Audit

During 2007, the State of Texas completed a sales and use tax audit of the Company for years 2003 to 2005 and, as a result, the Company received a Texas Notification of Audit Results which assessed the Company additional taxes of $1,300,000 and corresponding penalties and interest of $500,000. In February 2012, the Company reached a settlement with the State of Texas on a sales and use tax audit for years 2003 to 2005. The Company agreed to pay $1,300,000 in full settlement of this matter and that payment was made February 29, 2012. The Company has recorded a $1,300,000 liability as of December 31, 2011, an increase of $300,000 recognized during 2011, which is included in accrued expenses on the statements of financial position.

During 2011, the State of Texas completed a sales and use tax audit of the Company for years 2005 to 2008 and, as a result, the Company received a Texas Notification of Audit Results which assessed the Company additional taxes of $1,400,000 and corresponding penalties and interest of $400,000. Although the Company is disputing the tax assessment, based on management’s estimates of the ultimate liability, the Company has recorded a $500,000 liability as of December 31, 2011, which is included in accrued expenses on the statements of financial position.

 

15. Significant Customers and Suppliers

Significant Customers

The Company sells its fertilizers and sulfuric acid under short-term marketing agreements to a select number of customers. The Company’s four largest customers accounted for approximately 66%, 65% and 58% of revenue for the years ended December 31, 2011, 2010 and 2009, respectively.

For the year ended December 31, 2011, two customers accounted for approximately 99% of the Company’s trade accounts receivable as of December 31, 2011. For the year ended December 31, 2010, three customers accounted for approximately 96% of the Company’s trade accounts receivable as of December 31, 2010. For the year ended December 31, 2009, three customers accounted for 88% of the Company’s trade accounts receivable.

The loss of a significant customer would have a material adverse effect on the Company’s operations.

 

19


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

Significant Suppliers

Ammonia purchased from a certain supplier accounted for approximately 46%, 21% and 36% of the Company’s inventory purchases in 2011, 2010 and 2009, respectively. Sulfur purchased from a certain supplier accounted for approximately 19% of the Company’s inventory purchases in 2011.

Management believes there are alternative vendors in the industry that would be able to supply sufficient quantities of a majority of its raw material needs but there is no certainty that such supply can be provided under favorable terms.

 

16. Risks and Uncertainties

The Company relies on its current credit facilities to fund short-term liquidity needs if internal funds are not available from the Company’s operations. Disruptions in the capital and credit markets could adversely affect the Company’s ability to draw on its bank revolving credit facilities.

 

17. Fair Value Measurements

The fair value guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The fair value guidance requires disclosures that categorize financial assets and financial liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants. The Company classifies assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s methodology for categorizing assets and liabilities that are measured at fair value pursuant to this hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest level to unobservable inputs.

Pension and postretirement plan assets are accounted for as a component of the pension and postretirement liability on the statement of financial position. The following table summarizes trading securities and pension and postretirement plan assets measured at fair value as of December 31, 2011, 2010 and 2009:

 

20


Agrifos Fertilizer L.L.C.

Notes to Financial Statements

Years Ended December 31, 2011, 2010 and 2009

 

    

Fair Value as of

December 31,

2011

    

Quoted Prices

in Active Markets

for Identical

Assets

(Level 1)

    

Significant Other

Observable

Inputs

(Level 2)

    

Significant

Unobservable

Inputs

(Level 3)

 

Pension and postretirement plan assets (see note 11)

           

Equity securities

   $ 2,019,595       $ 2,019,595       $ —         $ —     

Debt securities

     1,844,579         1,844,579         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,864,174       $ 3,864,174       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

    

Fair Value as of

December 31,

2010

    

Quoted Prices

in Active Markets

for Identical

Assets

(Level 1)

    

Significant Other

Observable

Inputs

(Level 2)

    

Significant

Unobservable

Inputs

(Level 3)

 

Pension and postretirement plan assets (see note 11)

           

Equity securities

   $ 2,022,504       $ 2,022,504       $ —         $ —     

Debt securities

     1,807,422         1,807,422         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,829,926       $ 3,829,926       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

18. Gain on Insurance Settlements

The Company recorded a gain of $6,752,155 from an insurance settlement during the year ended December 31, 2009, for proceeds in excess of the net book value of inventory and fixed assets destroyed or damaged in connection with Hurricane Ike.

 

19. Subsequent Events

On November 1, 2012, Agrifos Holdings Inc. sold its subsidiary, Agrifos L.L.C., which includes Agrifos Fertilizer L.L.C., to Rentech Nitrogen Partners, L.P., a majority owned subsidiary of Rentech, Inc. In conjunction with the sale, the Company changed its name to Rentech Nitrogen Pasadena, LLC.

Events occurring after December 31, 2011 were evaluated as of the date of this report to ensure any subsequent events that meet the criteria for recognition and/or disclosure and have been included in this report.

 

21