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EX-32.2 - EX-32.2 - RENTECH, INC.rtk-ex322_9.htm
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EX-31.2 - EX-31.2 - RENTECH, INC.rtk-ex312_8.htm
EX-31.1 - EX-31.1 - RENTECH, INC.rtk-ex311_7.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2016

Or

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

For the transition period from                      to                     

Commission File No. 001-15795

 

RENTECH, INC.

(Exact name of registrant as specified in its charter)

 

 

Colorado

 

84-0957421

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1000 Potomac Street NW, 5th Floor

Washington, DC 20007

(Address of principal executive offices)

(202) 791-9040

(Registrant’s telephone number, including area code)

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

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      No  

The number of shares of the Registrant’s common stock outstanding as of October 31, 2016 was 23,191,502.

 

 

 

 


 

RENTECH, INC.

Form 10-Q

Table of Contents

 

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

RENTECH, INC.

Consolidated Balance Sheets

(Amounts in thousands, except per share data)

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

39,674

 

 

$

33,119

 

Accounts receivable, including unbilled revenue

 

 

8,987

 

 

 

9,495

 

Inventories

 

 

28,876

 

 

 

23,771

 

Prepaid expenses and other current assets

 

 

4,002

 

 

 

3,784

 

Other receivables

 

 

4,558

 

 

 

3,106

 

Assets of discontinued operations

 

 

5,853

 

 

 

63,854

 

Total current assets

 

 

91,950

 

 

 

137,129

 

Property, plant and equipment, net

 

 

239,420

 

 

 

240,700

 

Construction in progress

 

 

5,618

 

 

 

4,240

 

Other assets

 

 

 

 

 

 

 

 

Equity investment

 

 

54,508

 

 

 

 

Goodwill

 

 

40,255

 

 

 

40,255

 

Intangible assets

 

 

33,793

 

 

 

36,084

 

Deposits and other assets

 

 

4,512

 

 

 

4,457

 

Property held for sale

 

 

 

 

 

2,359

 

Assets of discontinued operations

 

 

 

 

 

185,067

 

Total other assets

 

 

133,068

 

 

 

268,222

 

Total assets

 

$

470,056

 

 

$

650,291

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

10,327

 

 

$

12,266

 

Accrued payroll and benefits

 

 

5,064

 

 

 

5,340

 

Accrued liabilities

 

 

22,744

 

 

 

18,675

 

Deferred revenue

 

 

1,550

 

 

 

1,401

 

Current portion of long term debt

 

 

14,039

 

 

 

18,744

 

Accrued interest

 

 

313

 

 

 

337

 

Other

 

 

1,860

 

 

 

2,554

 

Liabilities of discontinued operations

 

 

150

 

 

 

54,052

 

Total current liabilities

 

 

56,047

 

 

 

113,369

 

Long-term liabilities

 

 

 

 

 

 

 

 

Debt

 

 

111,887

 

 

 

157,268

 

Earn-out consideration

 

 

921

 

 

 

871

 

Asset retirement obligation

 

 

240

 

 

 

223

 

Deferred income taxes

 

 

18,221

 

 

 

7,301

 

Other

 

 

1,923

 

 

 

1,675

 

Liabilities of discontinued operations

 

 

 

 

 

354,164

 

Total long-term liabilities

 

 

133,192

 

 

 

521,502

 

Total liabilities

 

 

189,239

 

 

 

634,871

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Mezzanine equity

 

 

 

 

 

 

 

 

Series E convertible preferred stock: $10 par value; 4.5% dividend rate; 100 shares authorized, 0 and 100

   shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

 

 

 

 

 

95,840

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Series D junior participating preferred stock: $10 par value; 45 shares authorized; no shares issued and outstanding

 

 

 

 

 

 

Common stock: $.01 par value; 45,000 shares authorized; 23,191 and 23,033 shares issued and outstanding at

   September 30, 2016 and December 31, 2015, respectively

 

 

232

 

 

 

230

 

Additional paid-in capital

 

 

533,167

 

 

 

543,724

 

Accumulated deficit

 

 

(233,543

)

 

 

(531,971

)

Accumulated other comprehensive loss

 

 

(21,797

)

 

 

(27,204

)

Total Rentech stockholders' equity (deficit)

 

 

278,059

 

 

 

(15,221

)

Noncontrolling interests

 

 

2,758

 

 

 

(65,199

)

Total equity (deficit)

 

 

280,817

 

 

 

(80,420

)

Total liabilities and stockholders' equity (deficit)

 

$

470,056

 

 

$

650,291

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

3


 

RENTECH, INC.

Consolidated Statements of Operations

(Amounts in thousands, except per share data)

 

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

22,998

 

 

$

24,742

 

 

$

62,650

 

 

$

67,198

 

Service revenues

 

 

15,600

 

 

 

18,087

 

 

 

47,678

 

 

 

51,992

 

Total revenues

 

 

38,598

 

 

 

42,829

 

 

 

110,328

 

 

 

119,190

 

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

26,645

 

 

 

23,710

 

 

 

73,803

 

 

 

63,893

 

Service

 

 

12,748

 

 

 

13,368

 

 

 

38,868

 

 

 

40,205

 

Total cost of sales

 

 

39,393

 

 

 

37,078

 

 

 

112,671

 

 

 

104,098

 

Gross profit (loss)

 

 

(795

)

 

 

5,751

 

 

 

(2,343

)

 

 

15,092

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

 

9,338

 

 

 

12,146

 

 

 

26,194

 

 

 

37,300

 

Depreciation and amortization

 

 

732

 

 

 

903

 

 

 

2,515

 

 

 

3,537

 

Asset impairment

 

 

 

 

 

704

 

 

 

 

 

 

704

 

Other expense, net

 

 

2,221

 

 

 

6

 

 

 

3,885

 

 

 

9

 

Total operating expenses

 

 

12,291

 

 

 

13,759

 

 

 

32,594

 

 

 

41,550

 

Operating loss

 

 

(13,086

)

 

 

(8,008

)

 

 

(34,937

)

 

 

(26,458

)

Other expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,494

)

 

 

(3,725

)

 

 

(8,577

)

 

 

(7,238

)

Loss on debt repayment

 

 

 

 

 

 

 

 

(3,295

)

 

 

 

Other income (expense)

 

 

218

 

 

 

(845

)

 

 

731

 

 

 

1,143

 

Total other expenses, net

 

 

(2,276

)

 

 

(4,570

)

 

 

(11,141

)

 

 

(6,095

)

Loss from continuing operations before income taxes and equity in

   loss of investee

 

 

(15,362

)

 

 

(12,578

)

 

 

(46,078

)

 

 

(32,553

)

Income tax (benefit) expense

 

 

(6,769

)

 

 

(2,044

)

 

 

(118,660

)

 

 

177

 

Income (loss) from continuing operations before equity in loss of

   investee

 

 

(8,593

)

 

 

(10,534

)

 

 

72,582

 

 

 

(32,730

)

Equity in loss of investee

 

 

1,115

 

 

 

 

 

 

2,475

 

 

 

421

 

Income (loss) from continuing operations

 

 

(9,708

)

 

 

(10,534

)

 

 

70,107

 

 

 

(33,151

)

Income (loss) from discontinued operations, net of tax

 

 

(401

)

 

 

(22,302

)

 

 

231,813

 

 

 

(78,350

)

Net income (loss)

 

 

(10,109

)

 

 

(32,836

)

 

 

301,920

 

 

 

(111,501

)

Net (income) loss attributable to noncontrolling interests

 

 

71

 

 

 

9,812

 

 

 

(3,492

)

 

 

32,754

 

Loss on redemption of preferred stock

 

 

 

 

 

 

 

 

(11,049

)

 

 

 

Preferred stock dividends

 

 

 

 

 

(1,320

)

 

 

(1,320

)

 

 

(3,960

)

Net income (loss) attributable to Rentech common shareholders

 

$

(10,038

)

 

$

(24,344

)

 

$

286,059

 

 

$

(82,707

)

Net income (loss) per common share allocated to Rentech common

   shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.42

)

 

$

(0.51

)

 

$

2.42

 

 

$

(1.62

)

Discontinued operations

 

$

(0.01

)

 

$

(0.55

)

 

$

9.65

 

 

$

(1.98

)

Net income (loss)

 

$

(0.43

)

 

$

(1.06

)

 

$

12.07

 

 

$

(3.60

)

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.42

)

 

$

(0.51

)

 

$

2.39

 

 

$

(1.62

)

Discontinued operations

 

$

(0.01

)

 

$

(0.55

)

 

$

9.54

 

 

$

(1.98

)

Net income (loss)

 

$

(0.43

)

 

$

(1.06

)

 

$

11.93

 

 

$

(3.60

)

Weighted-average shares used to compute net income (loss) per common

   share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

23,189

 

 

 

23,005

 

 

 

23,098

 

 

 

22,969

 

Diluted

 

 

23,189

 

 

 

23,005

 

 

 

23,378

 

 

 

22,969

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

4


 

RENTECH, INC.

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands)

 

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net income (loss)

 

$

(10,109

)

 

$

(32,836

)

 

$

301,920

 

 

$

(111,501

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement plan adjustments

 

 

 

 

 

4

 

 

 

 

 

 

12

 

Foreign currency translation

 

 

(1,564

)

 

 

(9,345

)

 

 

5,690

 

 

 

(16,132

)

Other comprehensive income (loss)

 

 

(1,564

)

 

 

(9,341

)

 

 

5,690

 

 

 

(16,120

)

Comprehensive income (loss)

 

 

(11,673

)

 

 

(42,177

)

 

 

307,610

 

 

 

(127,621

)

Less: net (income) loss attributable to noncontrolling interests

 

 

71

 

 

 

9,812

 

 

 

(3,492

)

 

 

32,754

 

Less: other comprehensive income attributable to noncontrolling interests

 

 

 

 

 

(1

)

 

 

 

 

 

(5

)

Comprehensive income (loss) attributable to Rentech

 

$

(11,602

)

 

$

(32,366

)

 

$

304,118

 

 

$

(94,872

)

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

5


 

RENTECH, INC.

Consolidated Statements of Stockholders’ Equity (Deficit)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Rentech

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

Noncontrolling

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity (Deficit)

 

 

Interests

 

 

Equity (Deficit)

 

 

 

(Unaudited)

 

Balance, December 31, 2014

 

 

229,308

 

 

$

2,293

 

 

$

543,091

 

 

$

(417,349

)

 

$

(7,302

)

 

$

120,733

 

 

$

3,102

 

 

$

123,835

 

Reverse stock split

 

 

(207,040

)

 

 

(2,070

)

 

 

2,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

259

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for stock

   options exercised

 

 

255

 

 

 

2

 

 

 

27

 

 

 

 

 

 

 

 

 

29

 

 

 

 

 

 

29

 

Dividends - preferred stock

 

 

 

 

 

 

 

 

(3,960

)

 

 

 

 

 

 

 

 

(3,960

)

 

 

 

 

 

(3,960

)

Distributions to noncontrolling

   interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,361

)

 

 

(26,361

)

Equity-based compensation expense

 

 

 

 

 

 

 

 

3,167

 

 

 

 

 

 

 

 

 

3,167

 

 

 

355

 

 

 

3,522

 

Restricted stock units

 

 

229

 

 

 

2

 

 

 

(142

)

 

 

 

 

 

 

 

 

(140

)

 

 

 

 

 

(140

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(78,747

)

 

 

 

 

 

(78,747

)

 

 

(32,754

)

 

 

(111,501

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,125

)

 

 

(16,125

)

 

 

5

 

 

 

(16,120

)

Other

 

 

 

 

 

 

 

 

144

 

 

 

(1

)

 

 

 

 

 

143

 

 

 

(12

)

 

 

131

 

Balance, September 30, 2015

 

 

23,011

 

 

$

230

 

 

$

544,394

 

 

$

(496,097

)

 

$

(23,427

)

 

$

25,100

 

 

$

(55,665

)

 

$

(30,565

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

 

23,033

 

 

$

230

 

 

$

543,724

 

 

$

(531,971

)

 

$

(27,204

)

 

$

(15,221

)

 

$

(65,199

)

 

$

(80,420

)

Sale of investment in RNP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67,812

 

 

 

67,812

 

Common stock issued for services

 

 

125

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on redemption of preferred stock

 

 

 

 

 

 

 

 

(11,049

)

 

 

 

 

 

 

 

 

(11,049

)

 

 

 

 

 

(11,049

)

Dividends - preferred stock

 

 

 

 

 

 

 

 

(1,320

)

 

 

 

 

 

 

 

 

(1,320

)

 

 

 

 

 

(1,320

)

Distributions to noncontrolling

   interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,345

)

 

 

(3,345

)

Equity-based compensation expense

 

 

 

 

 

 

 

 

1,681

 

 

 

 

 

 

 

 

 

1,681

 

 

 

 

 

 

1,681

 

Restricted stock units

 

 

33

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

(31

)

Net income

 

 

 

 

 

 

 

 

 

 

 

298,428

 

 

 

 

 

 

298,428

 

 

 

3,492

 

 

 

301,920

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,690

 

 

 

5,690

 

 

 

 

 

 

5,690

 

Other

 

 

 

 

 

 

 

 

164

 

 

 

 

 

 

(283

)

 

 

(119

)

 

 

(2

)

 

 

(121

)

Balance, September 30, 2016

 

 

23,191

 

 

$

232

 

 

$

533,167

 

 

$

(233,543

)

 

$

(21,797

)

 

$

278,059

 

 

$

2,758

 

 

$

280,817

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

6


 

RENTECH, INC.

Consolidated Statements of Cash Flows

(Amounts in thousands)

 

 

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

301,920

 

 

$

(111,501

)

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

 

 

 

 

 

 

 

 

(Income) loss from discontinued operations

 

 

(231,813

)

 

 

78,350

 

Non-cash equity in loss of investee

 

 

2,429

 

 

 

 

Depreciation and amortization

 

 

16,389

 

 

 

13,950

 

Asset impairment

 

 

 

 

 

704

 

Deferred income tax (benefit) expense

 

 

10,920

 

 

 

(620

)

Utilization of spare parts

 

 

1,669

 

 

 

988

 

Write-down of inventory

 

 

16,530

 

 

 

5,635

 

Non-cash effect of tax benefit

 

 

(118,660

)

 

 

 

(Gain) loss on disposal of fixed assets

 

 

3,696

 

 

 

(1,572

)

Loss on debt repayment

 

 

3,295

 

 

 

 

Non-cash interest expense

 

 

468

 

 

 

(44

)

Equity-based compensation

 

 

1,532

 

 

 

2,641

 

Other

 

 

(712

)

 

 

137

 

Changes in operating assets and liabilities, net of amounts acquired:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

572

 

 

 

5,664

 

Other receivables

 

 

2,018

 

 

 

6,950

 

Inventories

 

 

(20,055

)

 

 

(10,368

)

Prepaid expenses and other current assets

 

 

(158

)

 

 

1,378

 

Accounts payable

 

 

(1,086

)

 

 

(355

)

Deferred revenue

 

 

149

 

 

 

80

 

Accrued interest

 

 

(31

)

 

 

21

 

Accrued liabilities, accrued payroll and other

 

 

3,239

 

 

 

487

 

Cash used in operating activities of continuing operations

 

 

(7,689

)

 

 

(7,475

)

Cash provided by (used in) operating activities of discontinued operations

 

 

(510

)

 

 

89,257

 

Net cash provided by (used in) operating activities

 

 

(8,199

)

 

 

81,782

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(15,404

)

 

 

(36,806

)

Payment for acquisition, net of cash received

 

 

 

 

 

(7,214

)

Proceeds from disposal of assets

 

 

2,490

 

 

 

 

Distributions received from equity investment

 

 

3,162

 

 

 

 

Other items

 

 

 

 

 

(1

)

Cash used in investing activities of continuing operations

 

 

(9,752

)

 

 

(44,021

)

Cash provided by (used in) investing activities of discontinued operations

 

 

18,965

 

 

 

(23,220

)

Net cash provided by (used in) investing activities

 

 

9,213

 

 

 

(67,241

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from debt and credit facilities

 

 

24,301

 

 

 

86,002

 

Payments and retirement of debt

 

 

(20,150

)

 

 

(29,912

)

Payment of debt issuance costs

 

 

 

 

 

(1,057

)

Redemption of preferred stock

 

 

(10,000

)

 

 

 

Dividends to preferred stockholders

 

 

(1,500

)

 

 

(2,250

)

Payment of earn-out consideration

 

 

 

 

 

(3,840

)

Distributions to noncontrolling interests

 

 

(3,330

)

 

 

(26,361

)

Other

 

 

 

 

 

29

 

Net cash provided by (used in) financing activities

 

 

(10,679

)

 

 

22,611

 

Effect of exchange rate on cash

 

 

398

 

 

 

(1,797

)

Increase (decrease) in cash

 

 

(9,267

)

 

 

35,355

 

Cash, beginning of period - continuing operations

 

 

33,119

 

 

 

16,167

 

Cash, beginning of period - discontinued operations

 

 

15,822

 

 

 

28,028

 

Cash, end of period

 

 

39,674

 

 

 

79,550

 

Cash from discontinued operations, end of period

 

 

 

 

 

38,151

 

Cash from continuing operations, end of period

 

$

39,674

 

 

$

41,399

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

7


 

RENTECH, INC.

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Continued from previous page)

Excluded from the consolidated statements of cash flows were the effects of certain non-cash investing and financing activities as follows:  

 

 

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

Purchase of property, plant, equipment and construction in progress in accounts payable and

   accrued liabilities

 

$

3,663

 

 

$

11,464

 

Receipt of CVR common units

 

 

202,145

 

 

 

 

Derecognition of net liabilities of RNP

 

 

(197,539

)

 

 

 

Transfer of CVR common units to repurchase preferred stock

 

 

(97,083

)

 

 

 

Transfer of CVR common units to repay debt

 

 

(45,036

)

 

 

 

Derecognition of net assets of Pasadena Facility

 

 

8,894

 

 

 

 

Fair value of assets in acquisition

 

 

 

 

 

7,241

 

Fair value of liabilities assumed in acquisition

 

 

 

 

 

27

 

Increase in QS Construction Facility obligation

 

 

19

 

 

 

6,000

 

Increase in receivable from insurance

 

 

 

 

 

2,532

 

Accrued dividends on preferred stock

 

 

 

 

 

1,500

 

Reverse stock split

 

 

 

 

 

2,070

 

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

 

8


 

RENTECH, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements of Rentech, Inc. (“Rentech”) 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 in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Neither authority requires all of the information and footnotes required by GAAP for complete financial statements. Accordingly, the accompanying financial statements 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 Company’s financial position as of September 30, 2016, and the results of operations and cash flows for the periods presented. The accompanying consolidated financial statements include the accounts of Rentech, its wholly owned subsidiaries and all subsidiaries in which Rentech directly or indirectly owns a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any other reporting period. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2016 (the “Annual Report”).

The preparation of consolidated 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Sale and Merger - Discontinued Operations

On March 14, 2016, Rentech Nitrogen Partners, L.P. (“RNP”), a majority owned subsidiary of which the Company owned approximately 60%, completed the sale of Rentech Nitrogen Pasadena Holdings, LLC (“Pasadena Holdings”), the owner of a fertilizer facility in Pasadena, Texas (the “Pasadena Facility”), to Interoceanic Corporation (“IOC”) (the “Pasadena Sale”). The transaction included an initial cash payment to RNP of $5.0 million, which resulted in a distribution to the Company of $2.6 million. The transaction also included a post-closing cash working capital adjustment of $5.4 million. The working capital adjustment along with insurance refunds put the total distribution to RNP unitholders at approximately $5.7 million of which the Company received $3.4 million. The estimated loss on sale of $1.2 million is recorded in discontinued operations. The purchase agreement also includes an earn-out which would be paid to former RNP unitholders as of the closing of the Merger (defined below) equal to 50% of the Pasadena Facility’s EBITDA, as defined in the purchase agreement, in excess of $8.0 million cumulatively earned over the next two years. The Company did not include the earn-out in the loss on sale calculation as it represents a gain contingency.

On April 1, 2016, RNP completed the previously announced transactions contemplated by the Agreement and Plan of Merger, dated as of August 9, 2015 (the “Merger Agreement”) under which RNP and Rentech Nitrogen GP, LLC (the “General Partner”) merged with affiliates of CVR Partners, L.P. (“CVR”), and RNP ceased to be a publicly traded company and became a wholly-owned subsidiary of CVR (the “Merger”). Pursuant to the Merger Agreement, each outstanding unit of RNP was exchanged for 1.04 common units of CVR (“CVR Common Units”) and $2.57 of cash. The Company received merger consideration of $59.8 million of cash and 24.2 million CVR Common Units. The Company used 17.0 million CVR Common Units received in the Merger and $10.0 million of cash to: (i) repurchase and retire all $100 million of the Company’s Series E Convertible Preferred Stock, par value $10.00 per share (the “Preferred Stock”) held by certain funds managed by or affiliated with GSO Capital Partners LP (the “GSO Funds”) and (ii) repay approximately $41.7 million of debt under the Company’s credit agreement with the GSO Funds (as amended from time to time, the “GSO Credit Agreement”). See Note 10 — Debt and Preferred Stock for further information regarding the Company’s transactions with the GSO Funds.  

The Company currently owns approximately 7.2 million CVR Common Units. The Company’s share of book gain on sale of RNP is $358.6 million, which is recorded in discontinued operations. The gain is comprised primarily of $59.8 million of cash proceeds and CVR Common Units valued at $202.1 million, based on CVR’s closing price on March 31, 2016 of $8.36 per unit, compared to the Company’s share of RNP’s negative net book value of $97.5 million as of March 31, 2016. See Note 3 — Investment in CVR for further information regarding the Company’s investment in CVR.  

9


 

The Company has presented its consolidated balance sheets and consolidated statements of operations for all periods presented in this report to reflect RNP as discontinued operations, excluding certain corporate expenses that the Company expects to incur on an on-going basis which were previously allocated to RNP. See Note 4 — Discontinued Operations.

 

 

 

Note 2 — Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB approved a one-year deferral of the effective date making the guidance effective for interim and annual reporting periods beginning after December 15, 2017. In addition, the FASB will continue to permit entities to early adopt the guidance for annual periods beginning on or after December 15, 2016. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosures.

In June 2014, the FASB issued guidance on accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations and disclosures.

In August 2014, the FASB issued guidance on presentation of financial statements — going concern, which applies to all companies. It requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosure.

In November 2014, the FASB issued guidance on hybrid financial instruments. The guidance does not change the current criteria for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The guidance clarifies that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations and disclosures.

In January 2015, the FASB issued guidance that eliminates the concept of extraordinary items. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company has not historically reported any extraordinary items. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations and disclosures.

In February 2015, the FASB issued guidance that changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations and disclosures.

In April 2015, the FASB issued guidance that will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The Company adopted the provisions of this guidance in the first quarter of 2016 and applied the provisions prospectively. The adoption of this guidance did not have an impact on the Company’s consolidated financial position, results of operations and disclosures.

In July 2015, the FASB issued guidance that replaces the current lower of cost or market method of measurement for inventory with a lower of cost and net realizable value measurement. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial position, results of operations or disclosures.

10


 

In September 2015, the FASB issued guidance that simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by requiring the acquirer to (i) recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined, (ii) record, in the same period, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date, and (iii) present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations and disclosures.

In February 2016, the FASB issued an update to its guidance on lease accounting. This update revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The distinction between finance and operating leases has not significantly changed and the update does not significantly change the effect of finance and operating leases on the statement of operations. The new guidance is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. The Company is currently assessing the impact of adoption of this standard on our consolidated financial statements. 

In March 2016, the FASB issued guidance that requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain conditions are met. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosure. 

In August 2016, the FASB issued guidance on eight specific cash flow issues. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosure.

 

 

Note 3 — Investment in CVR

The Company owns approximately 7.2 million CVR Common Units. The 7.2 million CVR Common Units were valued at $60.1 million, based on CVR’s closing price of $8.36 per Common Unit as of March 31, 2016. The 7.2 million CVR Common Units had a market value of $38.1 million, based on CVR’s closing price of $5.30 per Common Unit as of September 30, 2016. The investment in CVR is shown on the consolidated balance sheets under equity investment.  

The investment in CVR is accounted for under the equity method of accounting. The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses 3% to 5% or more ownership of a limited partnership. In addition, the Company’s president and chief executive officer is on the board of directors for CVR GP, LLC, the general partner of CVR. The Company’s ownership in CVR represents approximately 6% of the total CVR Common Units outstanding, which is based on total CVR Common Units outstanding at September 30, 2016 of 113,282,973.

In applying the equity method, the Company recorded the investment at fair value and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or losses and other comprehensive income of the investee. The Company records dividends or other equity distributions as reductions in the carrying value of the investment. The investment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge would only be recognized in earnings for a decline in value that is determined to be other than temporary. For the three and nine months ended September 30, 2016, the Company recorded its proportionate share of loss from its investment in CVR of $0.8 million and $1.9 million, respectively, since it received the CVR Common Units on April 1, 2016, which is shown on the consolidated statement of operations under equity in loss of investee. In addition, as of the date of the Company’s investment in CVR, basis differences between the book value of equity on CVR’s balance sheet and the amount recorded on the Company’s books was ascribed to an asset and amortized over its useful life, which resulted in an additional expense of $0.2 million for the three months ended September 30, 2016 and $0.5 million for the nine months ended September 30, 2016. During the three and nine months ended September 30, 2016, since it received the CVR Common Units on April 1, 2016, the Company received distributions from CVR of $3.2 million. The Company analyzes the dividends received on a quarter-by-quarter basis without consideration of the investee’s forecasted earnings. Since the distributions received by the Company exceeded its proportionate share of CVR’s earnings, the entire distributions of $3.2 million were considered a return of investment and classified as an investing cash inflow on the consolidated statements of cash flows.     

 

11


 

 

Note 4 — Discontinued Operations

The completed Merger represents a strategic shift that had a major effect on Rentech’s operations and financial results. As a result of the Merger Agreement and the Pasadena Sale, the Company has classified its consolidated balance sheets and consolidated statements of operations for all periods presented in this report to reflect RNP, excluding certain corporate expenses that the Company expects to continue on an on-going basis, which were previously allocated to RNP, as discontinued operations. Prior to the Merger Agreement, the Company reflected RNP in its reports as the East Dubuque business segment, the Pasadena business segment, and unallocated partnership items.  

The Company’s consolidated balance sheets and consolidated statements of operations for all periods presented in this report also reflect the Energy Technologies segment as discontinued operations. On March 18, 2016, the Company completed the sale of the property (the “PDU Property”) that housed its product demonstration unit (“PDU”) in Colorado for $3.0 million. The Company was required under a Membership Interest Purchase and Sale Agreement, dated as of February 28, 2014 (the “MIPSA”), to remit 50% of the net proceeds from the property sale to Sunshine Kaidi New Energy Group Co., Ltd. (“Kaidi”).  In 2014, Kaidi acquired the Company’s alternative energy technologies (the “Sale”), certain pieces of equipment at the PDU and a right to 50% of the proceeds from the future sale of the PDU Property, net of the Company’s carrying and transaction costs for the property. On September 9, 2016, Rentech, Kaidi and certain related parties entered into a Termination Agreement terminating the MIPSA and all ancillary documents related thereto. The Termination Agreement only affects the post-closing obligations of the parties under the MIPSA and the related ancillary agreements and not the Sale, which is completed. The Termination Agreement provides: (i) that Kaidi will pay $3.5 million to Rentech (inclusive of a $1.1 million credit for Kaidi’s share of proceeds from the sale of the PDU Property) on or before November 8, 2016; (ii) that all remaining rights and obligations of the parties under the MIPSA and the related ancillary agreements, including any rights to future payments or indemnities, shall terminate; and (iii) that the parties mutually release each other from any and all claims in connection with the MIPSA and other documents related to the Sale. For further information on the Termination Agreement, refer to the Current Report on Form 8-K filed by the Company on September 15, 2016. The Company recorded for the nine months ended September 30, 2016 $2.4 million in other income related to the Termination Agreement and $0.8 million related to the gain on sale of the PDU Property. On November 7, 2016, the Company received the payment due under the Termination Agreement.   

In the consolidated statements of cash flows, the cash flows of discontinued operations are separately classified or aggregated under operating and investing activities.

All discussions and amounts in the consolidated financial statements and related notes for all periods presented relate to continuing operations only, unless otherwise noted.

The following table summarizes the components of assets and liabilities of discontinued operations.

 

 

 

As of September 30, 2016

 

 

 

RNP

 

 

Energy Technologies

 

 

Total

 

 

 

(in thousands)

 

Other receivables

 

$

 

 

$

2,400

 

 

$

2,400

 

Prepaid expenses and other current assets

 

 

3,413

 

 

 

40

 

 

 

3,453

 

Total current assets

 

$

3,413

 

 

$

2,440

 

 

$

5,853

 

Total other assets

 

$

 

 

$

 

 

$

 

Total assets

 

$

3,413

 

 

$

2,440

 

 

$

5,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

 

$

150

 

 

$

150

 

Total current liabilities

 

$

 

 

$

150

 

 

$

150

 

Total long-term liabilities

 

$

 

 

$

 

 

$

 

Total liabilities

 

$

 

 

$

150

 

 

$

150

 

 

12


 

 

 

As of December 31, 2015

 

 

 

RNP

 

 

Energy Technologies

 

 

Total

 

 

 

(in thousands)

 

Cash

 

$

15,822

 

 

$

 

 

$

15,822

 

Accounts receivable

 

 

11,451

 

 

 

 

 

 

11,451

 

Inventories

 

 

30,354

 

 

 

 

 

 

30,354

 

Prepaid expenses and other current assets

 

 

5,747

 

 

 

106

 

 

 

5,853

 

Other receivables

 

 

374

 

 

 

 

 

 

374

 

Total current assets

 

$

63,748

 

 

$

106

 

 

$

63,854

 

Property held for sale

 

$

159,596

 

 

$

1,678

 

 

$

161,274

 

Construction in progress

 

 

23,712

 

 

 

 

 

 

23,712

 

Other assets

 

 

71

 

 

 

10

 

 

 

81

 

Total other assets

 

$

183,379

 

 

$

1,688

 

 

$

185,067

 

Total assets

 

$

247,127

 

 

$

1,794

 

 

$

248,921

 

Accounts payable

 

$

12,022

 

 

$

498

 

 

$

12,520

 

Accrued payroll and benefits

 

 

5,746

 

 

 

4

 

 

 

5,750

 

Accrued liabilities

 

 

13,694

 

 

 

455

 

 

 

14,149

 

Deferred revenues

 

 

16,983

 

 

 

 

 

 

16,983

 

Accrued interest

 

 

4,650

 

 

 

 

 

 

4,650

 

Total current liabilities

 

$

53,095

 

 

$

957

 

 

$

54,052

 

Debt

 

$

347,574

 

 

$

 

 

$

347,574

 

Asset retirement obligation

 

 

4,498

 

 

 

 

 

 

4,498

 

Other

 

 

2,092

 

 

 

 

 

 

2,092

 

Total long-term liabilities

 

$

354,164

 

 

$

 

 

$

354,164

 

Total liabilities

 

$

407,259

 

 

$

957

 

 

$

408,216

 

 

The following table summarizes the results of discontinued operations.

 

 

 

For the Three Months Ended

September 30, 2016

 

 

 

RNP

 

 

Energy Technologies

 

 

Total

 

 

 

(in thousands)

 

Revenues

 

$

 

 

$

 

 

$

 

Cost of sales

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

 

 

Operating loss, excluding gain (loss) on sale

 

 

 

 

 

(225

)

 

 

(225

)

Gain (loss) on sale

 

 

(165

)

 

 

1,331

 

 

 

1,166

 

Other income, net

 

 

 

 

 

2,400

 

 

 

2,400

 

Income (loss) before income taxes

 

 

(165

)

 

 

3,506

 

 

 

3,341

 

Income tax expense

 

 

2,412

 

 

 

1,330

 

 

 

3,742

 

Net income (loss)

 

 

(2,577

)

 

 

2,176

 

 

 

(401

)

Net loss attributable to noncontrolling interests

 

 

(174

)

 

 

 

 

 

(174

)

Net income attributable to Rentech common shareholders

 

$

(2,403

)

 

$

2,176

 

 

$

(227

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Rentech common shareholders

 

$

(2,403

)

 

$

2,176

 

 

$

(227

)

Net loss attributable to noncontrolling interests

 

 

(174

)

 

 

 

 

 

(174

)

Income (loss) from discontinued operations, net of tax

 

$

(2,577

)

 

$

2,176

 

 

$

(401

)

 

13


 

 

 

For the Three Months Ended

September 30, 2015

 

 

 

RNP

 

 

Energy Technologies

 

 

Total

 

 

 

(in thousands)

 

Revenues

 

$

84,323

 

 

$

 

 

$

84,323

 

Cost of sales

 

 

63,598

 

 

 

 

 

 

63,598

 

Gross profit

 

 

20,725

 

 

 

 

 

 

20,725

 

Operating income (loss)

 

 

(17,685

)

 

 

948

 

 

 

(16,737

)

Other expenses, net

 

 

(5,584

)

 

 

 

 

 

(5,584

)

Income (loss) before income taxes

 

 

(23,269

)

 

 

948

 

 

 

(22,321

)

Income tax (benefit) expense

 

 

(19

)

 

 

 

 

 

(19

)

Net income (loss)

 

 

(23,250

)

 

 

948

 

 

 

(22,302

)

Net loss attributable to noncontrolling interests

 

 

(9,728

)

 

 

 

 

 

(9,728

)

Net income (loss) attributable to Rentech common shareholders

 

$

(13,522

)

 

$

948

 

 

$

(12,574

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Rentech common shareholders

 

$

(13,522

)

 

$

948

 

 

$

(12,574

)

Net loss attributable to noncontrolling interests

 

 

(9,728

)

 

 

 

 

 

(9,728

)

Income (loss) from discontinued operations, net of tax

 

$

(23,250

)

 

$

948

 

 

$

(22,302

)

 

 

 

For the Nine Months Ended

September 30, 2016

 

 

 

RNP

 

 

Energy Technologies

 

 

Total

 

 

 

(in thousands)

 

Revenues

 

$

54,347

 

 

$

 

 

$

54,347

 

Cost of sales

 

 

34,696

 

 

 

 

 

 

34,696

 

Gross profit

 

 

19,651

 

 

 

 

 

 

19,651

 

Operating income, excluding gain on sale

 

 

15,056

 

 

 

658

 

 

 

15,714

 

Gain on sale

 

 

357,345

 

 

 

785

 

 

 

358,130

 

Other income (expenses), net

 

 

(5,259

)

 

 

2,358

 

 

 

(2,901

)

Income before income taxes

 

 

367,142

 

 

 

3,801

 

 

 

370,943

 

Income tax expense

 

 

137,705

 

 

 

1,425

 

 

 

139,130

 

Net income

 

 

229,437

 

 

 

2,376

 

 

 

231,813

 

Net income attributable to noncontrolling interests

 

 

3,164

 

 

 

 

 

 

3,164

 

Net income attributable to Rentech common shareholders

 

$

226,273

 

 

$

2,376

 

 

$

228,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Rentech common shareholders

 

$

226,273

 

 

$

2,376

 

 

$

228,649

 

Net income attributable to noncontrolling interests

 

 

3,164

 

 

 

 

 

 

3,164

 

Income from discontinued operations, net of tax

 

$

229,437

 

 

$

2,376

 

 

$

231,813

 

 

 

 

For the Nine Months Ended

September 30, 2015

 

 

 

RNP

 

 

Energy Technologies

 

 

Total

 

 

 

(in thousands)

 

Revenues

 

$

263,350

 

 

$

56

 

 

$

263,406

 

Cost of sales

 

 

179,116

 

 

 

50

 

 

 

179,166

 

Gross profit

 

 

84,234

 

 

 

6

 

 

 

84,240

 

Operating income (loss)

 

 

(64,141

)

 

 

569

 

 

 

(63,572

)

Other expenses, net

 

 

(14,750

)

 

 

 

 

 

(14,750

)

Income (loss) before income taxes

 

 

(78,891

)

 

 

569

 

 

 

(78,322

)

Income tax expense

 

 

28

 

 

 

 

 

 

28

 

Net income (loss)

 

 

(78,919

)

 

 

569

 

 

 

(78,350

)

Net loss attributable to noncontrolling interests

 

 

(32,775

)

 

 

 

 

 

(32,775

)

Net income (loss) attributable to Rentech common shareholders

 

$

(46,144

)

 

$

569

 

 

$

(45,575

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Rentech common shareholders

 

$

(46,144

)

 

$

569

 

 

$

(45,575

)

Net loss attributable to noncontrolling interests

 

 

(32,775

)

 

 

 

 

 

(32,775

)

Income (loss) from discontinued operations, net of tax

 

$

(78,919

)

 

$

569

 

 

$

(78,350

)

 

 

 

 

14


 

Note 5 — Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and is classified in one of the following three categories:

 

Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date.

 

Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

 

Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.

Fair values of cash, receivables, deposits, other current assets, accounts payable, accrued liabilities and other current liabilities were assumed to approximate carrying value since they are short term and can be settled on demand.

The following table presents the financial instruments that were accounted for at fair value by level as of September 30, 2016 and December 31, 2015.

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Earn-out consideration - September 30, 2016

 

$

 

 

$

 

 

$

921

 

Earn-out consideration - December 31, 2015

 

 

 

 

 

 

 

 

871

 

 

The following table presents the fair value and carrying value of the Company’s borrowings as of September 30, 2016.

 

 

 

Fair Value

 

 

Carrying

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Value

 

 

 

(in thousands)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum debt

 

$

 

 

$

39,971

 

 

$

 

 

$

39,321

 

NEWP debt

 

 

 

 

 

16,378

 

 

 

 

 

 

16,319

 

GSO Credit Agreement

 

 

 

 

 

52,250

 

 

 

 

 

 

49,777

 

 

The following table presents the fair value and carrying value of the Company’s borrowings as of December 31, 2015.

 

 

 

Fair Value

 

 

Carrying

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Value

 

 

 

(in thousands)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum debt

 

$

 

 

$

46,840

 

 

$

 

 

$

48,150

 

NEWP debt

 

 

 

 

 

15,964

 

 

 

 

 

 

16,203

 

GSO Credit Agreement

 

 

 

 

 

95,000

 

 

 

 

 

 

91,733

 

 

Earn-out Consideration

At September 30, 2016, the earn-out consideration was $0.9 million relating to the Atikokan Facility, as defined in “Note 8 — Property, Plant and Equipment”. This consideration is deemed to be a Level 3 financial instrument because the measurement is based on unobservable inputs. The fair value of earn-out consideration was determined based on the Company’s analysis of various scenarios involving the achievement of certain levels of EBITDA, as defined in the asset purchase agreement related to the Atikokan Facility, over a ten-year period. The scenarios, which included a weighted probability factor, involved assumptions relating to product profitability and production levels. The earn-out consideration will be measured at each reporting date with changes in its fair value recognized in the consolidated statements of operations. Assuming the minimum required EBITDA level is achieved, an increase or decrease of $1.0 million in EBITDA would result in an increase or decrease in earn-out consideration of $0.1 million. The Company provided a loan to the sellers in the Atikokan Facility of $0.7 million, which will be repayable from any earn-out consideration. The collectability of the loan is tied to the amount of earn-out consideration the sellers receive from the Company.

15


 

A reconciliation of the change in the carrying value of the earn-out consideration during the nine months ended September 30, 2016 is as follows:

 

 

 

Atikokan

 

 

 

(in thousands)

 

Balance at December 31, 2015

 

$

871

 

Add: Unrealized loss on foreign currency translation

 

 

50

 

Balance at September 30, 2016

 

$

921

 

 

A reconciliation of the change in the carrying value of the earn-out consideration during the nine months ended September 30, 2015 is as follows:

 

 

 

Atikokan

 

 

NEWP

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2014

 

$

1,295

 

 

$

5,000

 

 

$

6,295

 

Less: Earn-out consideration payment

 

 

 

 

 

(5,000

)

 

 

(5,000

)

Less: Unrealized gain

 

 

(495

)

 

 

 

 

 

(495

)

Less: Unrealized gain on foreign currency translation

 

 

(142

)

 

 

 

 

 

(142

)

Balance at September 30, 2015

 

$

658

 

 

$

 

 

$

658

 

 

Debt Valuation

The Fulghum Fibres, Inc. (“Fulghum”) debt and New England Wood Pellet, LLC (“NEWP”) debt are deemed to be Level 2 financial instruments because the measurements are based on observable market data. The Company’s valuation reflects discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, weighted average lives and maturity dates.

The GSO Credit Agreement is deemed to be a Level 2 financial instrument because the measurement is based on observable market data. The Company concluded that the carrying value, before the discount, of the GSO Credit Agreement approximated the fair value of such loan as of September 30, 2016 and December 31, 2015 based on its floating interest rate and the Company’s assessment that the fixed-rate margins are still at market.

The levels within the fair value hierarchy at which the Company’s financial instruments have been evaluated have not changed for any of the Company’s financial instruments during the three and nine months ended September 30, 2016 and 2015.

 

 

Note 6 — Derivative Instruments

Accounting guidance establishes accounting and reporting requirements for derivative instruments and hedging activities. This guidance requires recognition of all derivative instruments as assets or liabilities on the Company’s consolidated balance sheets and measurement of those instruments at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a derivative instrument is designated as a hedge and if so, the type of hedge. The Company currently does not designate any of its derivatives as hedges for financial accounting purposes. Gains and losses on derivative instruments not designated as hedges are included in earnings in other income (expense) and reported under cash flows from operating activities.

Interest Rate and Currency Swaps

The Company’s wholly owned subsidiary, NEWP, entered into three interest rate swaps in notional amounts that cover the borrowings under its two industrial revenue bonds and a real estate mortgage loan.

Under the interest rate swaps, NEWP pays interest at a fixed rate of 5.29% on the outstanding balance of one of the industrial revenue bonds, 5.05% on the outstanding balance of the other industrial revenue bond and 7.95% on the outstanding balance of the real estate mortgage loan. NEWP receives interest at the variable interest rates specified in the various swap agreements. The interest rate swap on the real estate mortgage loan was terminated in July 2016.

The Company’s wholly owned subsidiary, Fulghum, has entered into two interest rate swaps in notional amounts that cover the borrowings under two of its long-term loans. Under the interest rate swaps, Fulghum pays interest at a fixed rate of 6.83% on the outstanding balance of one of the loans and 5.15% on the outstanding balance of the other loan. Fulghum receives interest at the variable interest rates specified in the various swap agreements. The 5.15% interest rate swap was terminated in July 2015.

16


 

Through the interest rate swaps, the Company is essentially fixing the variable interest rate to be paid on these borrowings.

The interest rate swaps are accounted for as derivatives for accounting purposes. The interest rate swaps are deemed to be Level 2 financial instruments because the measurements are based on observable market data. The Company used a standard swap contract valuation method to value its interest rate derivatives, and the inputs it uses for present value discounting included forward one-month LIBOR rates, risk-free interest rates and an estimate of credit risk. The fair value of the interest rate swaps at September 30, 2016 represents the unrealized loss of $0.5 million. Any adjustments to the fair value of the interest rate swaps are recorded in other income (expense) on the consolidated statements of operations.

Net gain (loss) on interest rate swaps:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

 

(in thousands)

 

Realized loss

 

$

 

 

$

(72

)

 

$

 

 

$

(72

)

Unrealized gain

 

 

96

 

 

 

40

 

 

 

90

 

 

 

163

 

Total net gain (loss) on interest rate swaps

 

$

96

 

 

$

(32

)

 

$

90

 

 

$

91

 

 

Fulghum’s subsidiary in Chile uses foreign currency economic hedges to offset the earnings impact that fluctuations in foreign currency exchange rates have on certain monetary liabilities (in this case, four loans) denominated in nonfunctional currencies. The changes in fair value of economic hedges used to offset the monetary liabilities are recognized into earnings in the line item other income - net in our consolidated statements of operations. In addition, Fulghum uses foreign currency economic hedges to minimize the variability in cash flows associated with changes in foreign currency exchange rates. The total notional values of derivatives related to our foreign currency economic hedges were $11.1 million and $9.5 million as of September 30, 2016 and December 31, 2015, respectively.

The currency swaps are accounted for as derivatives for accounting purposes. The currency swaps are deemed to be Level 2 financial instruments because the measurements are based on observable market data. The fair value of the currency derivatives is the difference between the contract values and the exchange rates at the end of the period. The fair value of the currency swaps at September 30, 2016 and December 31, 2015 represents the unrealized loss.

Net gain (loss) on currency swaps:

 

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

 

(in thousands)

 

Realized loss

 

$

 

 

$

 

 

$

 

 

$

 

Unrealized gain (loss)

 

 

233

 

 

 

(1,130

)

 

 

585

 

 

 

(1,222

)

Total net gain (loss) on currency swaps

 

$

233

 

 

$

(1,130

)

 

$

585

 

 

$

(1,222

)

 

The interest rate swaps are recorded in other current liabilities on the consolidated balance sheets.

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(in thousands)

 

Interest rate swaps recorded in current liabilities:

 

 

 

 

 

 

 

 

Gross amounts recognized

 

$

(465

)

 

$

(555

)

Gross amounts offset in consolidated balance sheets

 

 

 

 

 

 

Net amounts presented in the consolidated balance sheets

 

$

(465

)

 

$

(555

)

 

17


 

The currency swaps are recorded in other current liabilities on the consolidated balance sheets.

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(in thousands)

 

Currency swaps recorded in current liabilities:

 

 

 

 

 

 

 

 

Gross amounts recognized

 

$

(951

)

 

$

(1,536

)

Gross amounts offset in consolidated balance sheets

 

 

 

 

 

 

Net amounts presented in the consolidated balance sheets

 

$

(951

)

 

$

(1,536

)

 

The following table presents the financial instruments that were accounted for at fair value by level as of September 30, 2016:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

 

 

 

465

 

 

 

 

Currency swaps

 

 

 

 

 

951

 

 

 

 

 

The following table presents the financial instruments that were accounted for at fair value by level as of December 31, 2015:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

 

 

 

555

 

 

 

 

Currency swaps

 

 

 

 

 

1,536

 

 

 

 

 

 

Note 7 — Inventories

Inventories consisted of the following:

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(in thousands)

 

Finished goods

 

$

20,768

 

 

$

12,970

 

Raw materials

 

 

8,108

 

 

 

10,801

 

Total inventory

 

$

28,876

 

 

$

23,771

 

 

At September 30, 2016, the Company wrote down the value of its wood pellet inventory by $6.2 million to estimated net realizable value within its Wood Pellets: Industrial segment. At September 30, 2015, the Company wrote down the value of its wood pellet inventory by $3.1 million to net realizable value within its Wood Pellets: Industrial segment. For the nine months ended September 30, 2016, the Company’s consolidated statements of operations include inventory write-downs that total $16.5 million. For the nine months ended September 30, 2015, the Company’s consolidated statements of operations include inventory write-downs that total $5.6 million. The write-downs were necessary to record its wood pellet inventory at estimated net realizable value within its Wood Pellets: Industrial segment. The write-downs were reflected in cost of goods sold.

 

 

18


 

Note 8 — Property, Plant and Equipment

Property, plant and equipment consisted of the following:

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(in thousands)

 

Land and land improvements

 

$

7,510

 

 

$

6,850

 

Buildings and building improvements

 

 

16,636

 

 

 

16,078

 

Machinery and equipment

 

 

245,981

 

 

 

233,560

 

Furniture, fixtures and office equipment

 

 

425

 

 

 

1,293

 

Computer equipment and computer software

 

 

3,116

 

 

 

5,732

 

Vehicles

 

 

8,309

 

 

 

7,120

 

Leasehold improvements

 

 

2,512

 

 

 

2,712

 

 

 

 

284,489

 

 

 

273,345

 

Less: Accumulated depreciation

 

 

(45,069

)

 

 

(32,645

)

Total property, plant and equipment, net

 

$

239,420

 

 

$

240,700

 

 

Construction in progress consisted of the following:

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(in thousands)

 

Fulghum Fibres

 

$

802

 

 

$

607

 

Atikokan Facility

 

 

1,691

 

 

 

215

 

Wawa Facility

 

 

2,888

 

 

 

2,170

 

Other

 

 

237

 

 

 

1,248

 

Total construction in progress

 

$

5,618

 

 

$

4,240

 

 

The construction in progress balance includes no capitalized interest costs at September 30, 2016.

Fulghum Fibres

On April 8, 2016, Fulghum completed the sale of one of its mills in the United States and the customer took over operations of the mill. The mill was classified as property held for sale on the Company’s consolidated balance sheet as of December 31, 2015. Since the carrying value was written down in 2015, an immaterial amount of loss was recognized upon the sale in 2016.

Atikokan and Wawa

The Company’s wood pellet facility in Atikokan, Ontario, Canada (the “Atikokan Facility”) is expected to produce 110,000 metric tons of wood pellets annually at full capacity. During ramp-up of the Atikokan Facility, the Company discovered the need to modify or replace a portion of the plant’s conveyance systems. The first group of the faulty conveyors at the Atikokan Facility was modified at the end of 2015. A second group of three conveyors was modified in September 2016, during which time the facility was down for one week. The facility is now averaging daily operating rates of approximately 90% of production capacity for an annualized rate of approximately 100,000 metric tons of wood pellets. The Company considers this facility to be fully operational and expects it to continue to operate at approximately 90% of production capacity. The Company is holding back approximately $3.5 million of capital expenditures budgeted for conveyance modifications at the Atikokan Facility. These expenditures along with any additional investments deemed necessary to help the facility reach full capacity will continue to be considered and evaluated for economic justification by the Company.

The Company’s wood pellet facility in Wawa, Ontario, Canada (the “Wawa Facility”) is expected to be able to produce between 400,000 and 450,000 metric tons of wood pellets annually. During the ramp-up of the Wawa Facility, the Company discovered the need to modify or replace a significant portion of the plant’s conveyance systems. The first phase of modifications of the plant’s conveyance systems was completed in late 2015. A second group of conveyors was replaced during the first quarter of 2016. The remaining work to the conveyance systems was completed in the third quarter of 2016, during which time the facility was down for approximately five and a half weeks to replace the conveyors and to perform other maintenance work and repairs. As the Wawa Facility ramps up out of the latest shutdown, the Company will continue to investigate whether there are potential design and equipment shortcomings and the potential impact, if any, on  achievable uptime and operating efficiency rates that will ultimately

19


 

determine the exact capacity of the facility. The Company’s discussions with other pellet producers and engineering firms over the past year have shown that there is a wide disparity of these rates across established industrial pellet manufacturing plants in North America. If the Company applies a range of assumed operating efficiencies typical for the industry, the plant’s annual production capacity would be in a range between 400,000 and 450,000 metric tons. We have also observed that historically within the wood pellet industry that ramping up to full design capacity takes considerable time, several years in most cases. Coming out of the recent shutdown the conveyance systems appear to be operating as expected, but we have experienced other challenges in ramping up production. The Wawa Facility is averaging weekly operating rates that annualize to produce approximately 150,000 metric tons of wood pellets and the Company is working to resolve the remaining equipment and operating challenges to incrementally increase production over the next several quarters. The Company does not expect the Wawa Facility to reach the annual production capacity range described above until late 2017. At a production capacity of 400,000 metric tons, the Company believes it would be able to fulfill the annual obligations under its contract with Drax Power Limited (“Drax”) and to generate positive cash flow. However, operating costs at the Wawa Facility have been higher than originally expected, and may continue to be so going forward, which negatively impacts profitability under the contract with Drax. In addition, oil prices, which drive indexation of prices in our Drax contract, have declined more than Canadian diesel prices, a material component of our fibre supply costs, which is negatively impacting margins on deliveries to Drax.

At September 30, 2016, remaining cash expenditures to complete the modifications to the Atikokan and Wawa Facilities are expected to be approximately $14.5 million, which includes approximately $5.0 million for potential additional conveyor replacements at the Atikokan Facility and other potential improvements that are on hold by the Company. Of the $14.5 million, $6.6 million is recorded in accounts payable and accrued liabilities as of September 30, 2016. The Company expects that cash on hand will be sufficient to fund the Atikokan and Wawa Facilities until they begin to generate positive cash flow on a combined basis.

Corporate

During the nine months ended September 30, 2016, the Company wrote off computer software of $1.6 million and leasehold improvements, furniture and office equipment totaling $0.4 million.

 

 

Note 9 - Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. The Company tests goodwill for impairment annually on July 1, or more often if an event or circumstance indicates that an impairment may have occurred. The analysis of the potential impairment of goodwill is a two-step process. Step one of the impairment test consists of comparing the fair value of the reporting unit with the aggregate carrying value, including goodwill. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, step two must be performed to determine the amount, if any, of the goodwill impairment.

There are significant assumptions involved in performing a goodwill impairment test, which include but are not limited to discount rates, terminal growth rates, future production levels, future sales prices of end products, raw material costs, and sales volumes. The various valuation methods used (income approach, replacement cost and market approach) are weighted in determining fair value. Changes to any of these assumptions could increase or decrease the fair value of the Fulghum and NEWP reporting units.

The Company completed its annual goodwill impairment test as of July 1 and determined that no adjustment to goodwill was necessary. Fair values of both reporting units exceeded their respective carrying values.

The estimate of fair value requires significant judgment. We based our fair value estimates on assumptions that we believe to be reasonable but that are unpredictable and inherently uncertain, including but not limited to estimates of future growth rates, future production levels, product pricing, raw material and operating costs, and other assumptions about the overall economic and market conditions for our business units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill testing as of the time of testing will prove to be accurate predictions of the future. If our assumptions regarding business plans, market conditions or anticipated growth rates or other changes in prior assumptions or estimates are not correct or if our market capitalization declines, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment testing or earlier, if an indicator of an impairment is present before our next annual evaluation.

 

 

20


 

Note 10 — Debt and Preferred Stock

Other than with respect to the NEWP Debt, as further described below, the Company was in compliance with its debt covenants. Total debt consisted of the following:

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(in thousands)

 

QS Construction Facility(1)

 

$

20,509

 

 

$

19,926

 

Fulghum debt

 

 

38,536

 

 

 

47,049

 

GSO Credit Agreement

 

 

52,250

 

 

 

95,000

 

NEWP debt

 

 

16,278

 

 

 

16,107

 

Total debt

 

$

127,573

 

 

$

178,082

 

Less: Debt issuance costs

 

 

(1,504

)

 

 

(2,002

)

Plus: Unamortized net discount

 

 

(143

)

 

 

(68

)

Less: Current portion

 

 

(13,832

)

 

 

(18,307

)

Less: Current portion unamortized net premium

 

 

(238

)

 

 

(468

)

Plus: Current portion debt issuance costs

 

 

31

 

 

 

31

 

Long-term debt

 

$

111,887

 

 

$

157,268

 

 

 

(1)

The amount that the Company owes under the obligation is $14.0 million.

On April 1, 2016, the Company acquired and cancelled all of the outstanding shares of Preferred Stock. See Note 1 — Basis of Presentation. The Preferred Stock was accounted for as mezzanine equity in the consolidated balance sheets. Dividends were recorded in the consolidated statements of stockholders’ equity and consisted of the 4.5% dividend plus the amortization of issuance costs and accretion of discount.

Mezzanine equity consisted of the following:

 

 

 

As of

 

 

 

December 31,

2015

 

 

 

(in thousands)

 

Original issue price of Preferred Stock

 

$

100,000

 

Less: Issuance costs

 

 

(2,648

)

Less: Unamortized discount

 

 

(1,512

)

Total mezzanine equity

 

$

95,840

 

 

Redemption of Preferred Stock and Reduction of Indebtedness (In Connection with the Merger)  

In connection with the consummation of the Merger, on April 1, 2016, the parties amended the GSO Credit Agreement pursuant to which Rentech Nitrogen Holdings, Inc. (“RNHI”), an indirect wholly-owned subsidiary of the Company, entered into the Second Amended and Restated Term Loan Credit Agreement among RNHI, certain funds managed by or affiliated with GSO Capital Partners LP, as lenders, and Credit Suisse AG, Cayman Islands Branch, as administrative agent (the “Agent”) and repaid approximately $41.7 million of term debt under the GSO Credit Agreement in exchange for approximately 5.4 million CVR Common Units received from the Merger valued at $45.0 million, based on the closing price of the CVR Common Units of $8.36 as of March 31, 2016. The difference between the fair value of the consideration transferred of $45.0 million and the repayment of principal of $41.7 million resulted in a loss on debt repayment of $3.3 million. Further, in connection with a waiver to the GSO Credit Agreement, in May 2016 the Company made a $1.0 million principal prepayment to the lenders under the GSO Credit Agreement, which permitted NEWP, a loan party, to increase the capacity of its revolving credit facility (as described below). The GSO Credit Agreement currently consists of a $52,250,000 term loan facility, which matures on April 9, 2019 and bears interest at a rate equal to the greater of (i) LIBOR plus 7.00% and (ii) 8.00% per annum (the “Loans”).

RNHI’s obligations under the GSO Credit Agreement are guaranteed by the Company and the Company’s direct and indirect subsidiaries other than certain excluded subsidiaries (such subsidiaries guaranteeing obligations under the GSO Credit Agreement, the “Subsidiary Guarantors,” and together with the Company and RNHI, the “Loan Parties”). On April 1, 2016, the Company and the Subsidiary Guarantors entered into a Second Amended and Restated Guaranty Agreement (the “Guaranty Agreement”) in favor of the Agent. The Guaranty Agreement contains customary affirmative and negative covenants for the Company, the Subsidiary Guarantors and their respective subsidiaries, including, among others, certain reporting requirements to the Agent, payment of material

21


 

obligations, compliance with laws, use of proceeds and limitations on the incurrence of indebtedness and liens, the sale of assets and the making of restricted payments by the Company and the Subsidiary Guarantors. Furthermore, the obligations under the GSO Credit Agreement and the guarantees are secured by a lien on substantially all of the Loan Parties’ tangible and intangible property, and by a pledge of all of the shares of stock and limited liability company interests owned by the Loan Parties, of which the Loan Parties now own or later acquire more than a 50% interest, subject to certain exceptions.

The GSO Credit Agreement contains customary affirmative and negative covenants and events of default relating to the Loan Parties. The covenants and events of default include, among other things, a provision with respect to a change of control and limitations on the incurrence of indebtedness and liens, the sale of assets, and the making of restricted payments by the Loan Parties. In addition, upon the occurrence of an initial public offering of the wood pellets or wood fibre operations of the Company, the Company must make an offer to prepay the entire outstanding principal amount of the facility.

The obligations of RNHI under the GSO Credit Agreement are also secured by 7,179,996 CVR Common Units owned by RNHI.

Also in connection with the consummation of the Merger, on April 1, 2016, the Company and DSHC, LLC, a wholly owned subsidiary of  the Company (“DSHC”), entered into the Preferred Equity Exchange and Discharge Agreement (the “Exchange Agreement”) with the GSO Funds and GSO Capital Partners LP, as the Holders’ Representative under the Exchange Agreement, pursuant to which the Company acquired and cancelled all 100,000 shares of Preferred Stock, from the GSO Funds in exchange for approximately 11.6 million CVR Common Units valued at $97.1 million, based on the closing price of the CVR Common Units of $8.36 as of March 31, 2016, $10.0 million in cash and the payment of all unpaid accrued and accumulated dividends of $1.5 million on the Preferred Stock through April 1, 2016. The difference between the fair value of the consideration transferred of $107.1 million and the carrying value of the Preferred Stock redeemed of $96.0 million resulted in a reduction to additional paid-in capital of $11.1 million, which is reflected in loss on redemption of preferred stock on the consolidated statement of operations.

NEWP Debt

During the quarter ended September 30, 2016, NEWP received a covenant waiver from its lender with respect to NEWP’s compliance with the financial covenants under the NEWP debt. For the twelve months ended September 30, 2016, NEWP would not have been able to satisfy either of its quarterly financial covenants due to significantly lower than historical sales volumes, as a result of abnormally warm temperatures along with a change in trend of consumer buying, and a distribution of cash from NEWP to the Company during the fourth quarter of 2015. The lower sales volumes and distribution negatively affected NEWP’s calculation of funds available for debt service coverage, which is a key component of both of the quarterly financial covenants.

 

 

 

Note 11 — Commitments and Contingencies

Contractual Obligations

Wood Pellets

On May 1, 2013, Rentech’s subsidiary that owns the Wawa Facility (the “Wawa Company”) entered into a ten-year take-or-pay contract (the “Drax Contract”) with Drax. Under the Drax Contract, the Wawa Company is required to sell to Drax the first 400,000 metric tons of wood pellets per year produced from the Wawa Facility. In the event that it does not deliver wood pellets as required under the Drax Contract, the Wawa Company is required to pay Drax an amount equal to the positive difference, if any, between the contract price for the wood pellets and the price of any wood pellets Drax purchases in replacement. Rentech has guaranteed the Wawa Company’s obligation in an amount not to exceed $20.0 million until May 1, 2018, and thereafter through the term of the Drax Contract for an amount not to exceed $11.0 million.

The Drax Contract has been amended in order to adjust required delivery schedules and annual delivery amounts to reflect expected delays in production at the Wawa Facility. The amendments resulted in certain contract adjustments, including cash payments to Drax, credits on deliveries in early 2016, and adding 36,000 metric tons of contracted deliveries in each of 2018 and 2019 at pricing levels contracted for 2015, which would be lower than the pricing levels for 2018-19 in the original contract.

22


 

The Company revised its delivery schedule in October with Drax for 2016 to be consistent with its ramp-up expectations for the Wawa Facility at that time. The Company agreed to deliver approximately 188,000 metric tons to Drax in 2016, which includes 95,000 metric tons delivered through September 30, 2016 and approximately 93,000 metric tons to be delivered in the remainder of 2016.  The Company has also revised the delivery schedule with Drax for 2017. The revised schedule calls for deliveries of approximately 336,000 metric tons of wood pellets in the 2017 calendar year. The Company will not incur any make-whole payments or other penalties to Drax if it meets these revised 2016 and 2017 delivery schedules. The revised schedules for 2016 and 2017 could be subject to further change, including penalties, if the Wawa facility does not ramp up as expected.

Rentech’s subsidiary that owns the Atikokan Facility entered into a ten-year take-or-pay contract (the “OPG Contract”) with Ontario Power Generation (“OPG”) under which such subsidiary is required to deliver 45,000 metric tons of wood pellets annually. OPG has the option to increase required delivery of wood pellets from the Atikokan Facility to up to 90,000 metric tons annually. The Company has included wood pellets produced at the Atikokan Facility in excess of OPG’s requirements in deliveries to Drax.

A Rentech subsidiary has contracted with Canadian National Railway Company (the “Canadian National Contract”) for all rail transportation of wood pellets from the Atikokan Facility and the Wawa Facility to the Port of Quebec. The Atikokan Facility is located 1,300 track miles and the Wawa Facility is located 1,100 track miles from the Port of Quebec. Under the Canadian National Contract, such subsidiary has committed to transport a minimum of 3,600 rail carloads annually for the duration of the long-term contract. Delivery shortfalls would result in a penalty of $1,000 Canadian dollars per rail car. Due to issues discovered at the Wawa Facility, the Company did not fully meet its 2015 commitment under the Canadian National Contract. The resulting cash penalties are approximately $3.3 million (subject to adjustment based on Canadian currency exchange rates), which are to be paid in 2016 and 2017. In addition, the Company expects to incur additional carload shortfall penalties for 2016 under the Canadian National Contract as a result of the continued delays in ramping up the Wawa Facility and the revised 2016 delivery scheduled to Drax.

Litigation

The Company is party to litigation from time to time in the normal course of business. The Company accrues liabilities related to litigation only when it concludes that it is probable that it will incur costs related to such litigation, and can reasonably estimate the amount of such costs. In cases where the Company determines that it is not probable, but reasonably possible that it has a material obligation, it discloses such obligations and the possible loss or range of loss, if such estimate can be made. The outcome of the Company’s current litigation matters is not estimable or probable. The Company maintains insurance to cover certain actions and believes that resolution of its current litigation matters will not have a material adverse effect on the Company’s financial statements.

Litigation Relating to the Atikokan and Wawa Facilities

In June of 2015, RDR Industrial Contractors, Inc. (“RDR”) recorded liens against both the Atikokan Facility and Wawa Facility. RDR performed work at both of the facilities as a subcontractor to Agrirecycle, Inc. (“Agrirecycle”) and asserted that Agrirecycle had failed to pay RDR according to the terms of its subcontract. In September of 2015, EAD Control Systems, Inc. (“EAD Controls”) similarly filed liens against both pellet facilities alleging Agrirecycle’s failure to pay EAD Controls for work performed at both facilities as a subcontractor to Agrirecycle. In October of 2015, Agrirecycle filed liens against both facilities asserting that (i) it had not been paid for services performed as subcontractor for EAD Engineering, Inc. (“EAD Engineering”) and (ii) it had not been paid for work performed under direct contracts with certain wholly owned subsidiaries of the Company (the “RTK Parties”).  

In order to perfect their liens, RDR, EAD Controls and Agrirecycle commenced separate causes of action in Ontario Superior Court naming the RTK Parties and the Company as defendants and seeking to recover over $5.1 million in the aggregate. Of this amount, approximately $2.9 million is attributable to claims for amounts allegedly due under contracts with the RTK Parties, whereas the remainder is attributable to amounts claimed by subcontractors against our direct contractors.

In December of 2015 and January of 2016, the RTK Parties filed statements of defense denying the allegations set forth by RDR, EAD Controls and Agrirecycle and seeking over $40.2 million in the aggregate by way of counterclaims and cross-claims against EAD Engineering, EAD Controls, Agrirecycle and RDR for damages incurred due to defective engineering, design, equipment supply and construction at our pellet facilities, including the cost to remedy and replace defective work as well as penalties, schedule delays and lost profits.

In late August of 2016, EAD Engineering filed crossclaims totaling approximately $1.9 million against the RTK Parties, within Agrirecycle’s lien actions for amounts allegedly owing by the RTK Parties to EAD Engineering. Specifically, EAD Engineering alleges that it is owed unpaid contract amounts and amounts for extra work completed at both pellet facilities for the RTK Parties. EAD Engineering did not register any liens against the facilities for these amounts it now claims are allegedly owing.

23


 

The Company will continue to vigorously defend itself against the allegations made by EAD Engineering, EAD Controls, Agrirecycle and RDR and vigorously pursue recovery from EAD Engineering, EAD Controls, Agrirecycle and RDR. Given that this litigation is in the pleadings stage and discovery has yet to begin, the Company is unable to estimate at this time the likelihood or the amount of any judgments which may be rendered either in favor of or against it or the RTK Parties.

Regulation

The Company’s business is subject to extensive and frequently changing federal, provincial, state and local, environmental, health and safety regulations governing a wide range of matters, including the emission of air pollutants, the release of hazardous substances into the environment, the treatment and discharge of waste water and the storage, handling, use and transportation of the Company’s products, wood fibre feedstock, and other substances that are part of our operations. These laws include the Clean Air Act (the “CAA”), the federal Water Pollution Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, and various other federal, provincial, state and local laws and regulations. The laws and regulations to which the Company is subject are complex, change frequently and have tended to become more stringent over time. The ultimate impact on the Company’s business of complying with existing laws and regulations is not always clearly known or determinable due in part to the fact that the Company’s operations may change over time and certain implementing regulations for laws, such as the CAA, have not yet been finalized, are under governmental or judicial review or are being revised. These laws and regulations could result in increased capital, operating and compliance costs.

 

 

Note 12 — Income Taxes

For the three months ended September 30, 2016, the Company recorded an income tax benefit of $3.1 million, consisting of a $6.8 million income tax benefit in continuing operations and a $3.7 million income tax expense in discontinued operations. For the nine months ended September 30, 2016, the Company recorded an income tax expense of $20.4 million, consisting of a $118.7 million income tax benefit in continuing operations and a $139.1 million income tax expense in discontinued operations. The allocation to discontinued operations was determined using the incremental method by subtracting the benefit that was generated from continuing operations from the provision for the Company as a whole. The Company’s effective income tax rate (income tax benefit as a percentage of loss from continuing operations before income taxes) was 244% for the nine months ended September 30, 2016. The difference between the United States federal statutory rate of 35% and the effective rate primarily was attributable to differences between GAAP income and income reported on tax returns, outside basis difference in foreign subsidiaries, impact of foreign earnings, impact of state taxes, utilization of net operating loss (“NOL”) carryforwards, research and development (“R&D”) credits and alternative minimum tax (“AMT”) credits.  

Due to the gain on sale of RNP during the nine months ended September 30, 2016, the Company utilized all of the federal NOL carryforwards and a portion of the R&D credits. The Company released $79.5 million of valuation allowance and this resulted in a tax benefit for continuing operations. For state tax purposes, there are remaining deferred tax assets of $1.9 million for which the Company has considered results of operations and concluded that it is more likely than not that the state deferred tax assets will not be realized.

For the three months ended September 30, 2015, the Company recorded an income tax benefit of $2.1 million, consisting primarily of a $2.1 million income tax benefit in continuing operations. For the nine months ended September 30, 2015, the Company recorded an income tax expense of $0.2 million, consisting primarily of a $0.2 million income tax expense in continuing operations. The Company’s effective income tax rate (income tax expense as a percentage of loss from continuing operations before income taxes) was -1% for the nine months ended September 30, 2015. The difference between the United States federal statutory rate of 35% and the effective rate primarily was attributable to differences between GAAP income and income reported on tax returns, outside basis difference in foreign subsidiaries, impact of foreign earnings and impact of state taxes.

Previously Reported Income Tax Benefit and Income from Discontinued Operations, Net of Tax

In the Consolidated Statements of Operations included in Form 10-Q for the quarterly period ended June 30, 2016, the Company incorrectly reported income tax expense between continuing and discontinued operations for the three and six months ended June 30, 2016. Income tax benefit included in income from continuing operations, net of tax was understated by $2.5 million and income tax expense included in income from discontinued operations, net of tax, was understated by $2.5 million. The total tax expense for the three and six months ended June 30, 2016 was correctly reported. There was no impact on gross profit, operating income, net income, cash flows or the balance sheet. Management does not believe the impact of these errors was material for the second quarter of 2016 or the previously issued Form 10-Q. The Company has corrected the income tax (benefit) expense between continuing and discontinued operations in the three months ended September 30, 2016, which had no impact on gross profit, operating income, net income, cash flows or the balance sheet.

 

24


 

 

Note 13 — Segment Information

The Company operates in three business segments, as described below. Results of the East Dubuque, Pasadena and the energy technologies segments are accounted for as discontinued operations for all periods presented. As of September 30, 2016, the Company’s three business segments are:

 

Fulghum Fibres — The operations of Fulghum, which provides wood yard operations services and wood fibre processing services, sells wood chips to the pulp, paper and packaging industry, and owns and manages forestland and sells bark to industrial consumers in South America.

 

Wood Pellets: Industrial — The operations of this segment include the Atikokan and Wawa Facilities, corporate allocations, and wood pellet development activities. The wood pellet development activities represent the Company’s personnel costs for employees dedicated to the wood pellet business infrastructure and administration costs, corporate allocations, expenses associated with the Company’s joint venture with Graanul Invest AS and third party costs.

 

Wood Pellets: NEWP — The operations of NEWP, which produces wood pellets for the residential and commercial heating markets. The segment includes Allegheny Pellet Corporation’s (“Allegheny”) operations from the closing date of its acquisition on January 23, 2015.

25


 

The Company’s reportable operating segments have been determined in accordance with the Company’s 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

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

26,296

 

 

$

23,446

 

 

$

74,561

 

 

$

71,823

 

Wood Pellets: Industrial

 

 

2,867

 

 

 

1,772

 

 

 

19,266

 

 

 

5,980

 

Wood Pellets: NEWP

 

 

9,435

 

 

 

17,611

 

 

 

16,501

 

 

 

41,387

 

Total revenues

 

$

38,598

 

 

$

42,829

 

 

$

110,328

 

 

$

119,190

 

Gross profit (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

3,850

 

 

$

4,959

 

 

$

11,455

 

 

$

12,944

 

Wood Pellets: Industrial

 

 

(6,137

)

 

 

(3,265

)

 

 

(16,304

)

 

 

(6,727

)

Wood Pellets: NEWP

 

 

1,492

 

 

 

4,057

 

 

 

2,506

 

 

 

8,875

 

Total gross profit (loss)

 

$

(795

)

 

$

5,751

 

 

$

(2,343

)

 

$

15,092

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

1,168

 

 

$

1,241

 

 

$

3,544

 

 

$

3,870

 

Wood Pellets: Industrial

 

 

3,240

 

 

 

4,589

 

 

 

5,894

 

 

 

15,713

 

Wood Pellets: NEWP

 

 

514

 

 

 

587

 

 

 

1,574

 

 

 

2,009

 

Total segment selling, general and administrative expenses

 

$

4,922

 

 

$

6,417

 

 

$

11,012

 

 

$

21,592

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

288

 

 

$

427

 

 

$

1,118

 

 

$

2,107

 

Wood Pellets: Industrial

 

 

61

 

 

 

45

 

 

 

161

 

 

 

127

 

Wood Pellets: NEWP

 

 

303

 

 

 

295

 

 

 

900

 

 

 

885

 

Total segment depreciation and amortization recorded in operating

   expenses

 

 

652

 

 

 

767

 

 

 

2,179

 

 

 

3,119

 

Fulghum Fibres

 

 

1,933

 

 

 

2,168

 

 

 

5,755

 

 

 

6,327

 

Wood Pellets: Industrial

 

 

1,696

 

 

 

575

 

 

 

6,806

 

 

 

1,578

 

Wood Pellets: NEWP

 

 

689

 

 

 

963

 

 

 

1,147

 

 

 

2,370

 

Total depreciation and amortization recorded in cost of sales

 

 

4,318

 

 

 

3,706

 

 

 

13,708

 

 

 

10,275

 

Total segment depreciation and amortization

 

$

4,970

 

 

$

4,473

 

 

$

15,887

 

 

$

13,394

 

Other operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

48

 

 

$

713

 

 

 

277

 

 

$

716

 

Wood Pellets: Industrial

 

 

1,639

 

 

 

 

 

 

1,639

 

 

 

 

Wood Pellets: NEWP

 

 

(6

)

 

 

(3

)

 

 

6

 

 

 

(3

)

Total segment other operating expenses

 

$

1,681

 

 

$

710

 

 

$

1,922

 

 

$

713

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

2,347

 

 

$

2,579

 

 

$

6,517

 

 

$

6,252

 

Wood Pellets: Industrial

 

 

(11,079

)

 

 

(7,899

)

 

 

(23,999

)

 

 

(22,567

)

Wood Pellets: NEWP

 

 

681

 

 

 

3,178

 

 

 

26

 

 

 

5,984

 

Total segment operating loss

 

$

(8,051

)

 

$

(2,142

)

 

$

(17,456

)

 

$

(10,331

)

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

580

 

 

$

692

 

 

$

1,727

 

 

$

1,811

 

Wood Pellets: Industrial

 

 

405

 

 

 

471

 

 

 

1,250

 

 

 

987

 

Wood Pellets: NEWP

 

 

169

 

 

 

143

 

 

 

461

 

 

 

433

 

Total segment interest expense

 

$

1,154

 

 

$

1,306

 

 

$

3,438

 

 

$

3,231

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

1,369

 

 

$

3,012

 

 

$

3,543

 

 

$

4,977

 

Wood Pellets: Industrial

 

 

(11,498

)

 

 

(8,382

)

 

 

(25,251

)

 

 

(23,760

)

Wood Pellets: NEWP

 

 

605

 

 

 

3,106

 

 

 

(263

)

 

 

5,786

 

Total segment net loss

 

$

(9,524

)

 

$

(2,264

)

 

$

(21,971

)

 

$

(12,997

)

Reconciliation of segment net loss to consolidated net income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net loss

 

$

(9,524

)

 

$

(2,264

)

 

$

(21,971

)

 

$

(12,997

)

Corporate and unallocated expenses recorded as selling, general and

   administrative expenses

 

 

(4,413

)

 

 

(5,730

)

 

 

(15,178

)

 

 

(15,709

)

Corporate and unallocated depreciation and amortization expense

 

 

(80

)

 

 

(136

)

 

 

(336

)

 

 

(418

)

Corporate and unallocated income (expenses) recorded as other income

   (expense)

 

 

(542

)

 

 

3

 

 

 

(5,265

)

 

 

6

 

Corporate and unallocated interest expense

 

 

(1,342

)

 

 

(2,419

)

 

 

(5,140

)

 

 

(4,007

)

Corporate income tax benefit (expense)

 

 

7,293

 

 

 

12

 

 

 

120,426

 

 

 

(26

)

Equity in loss of CVR(1)

 

 

(1,100

)

 

 

 

 

 

(2,429

)

 

 

 

Income (loss) from discontinued operations, net of tax(2)

 

 

(401

)

 

 

(22,302

)

 

 

231,813

 

 

 

(78,350

)

Consolidated net income (loss)

 

$

(10,109

)

 

$

(32,836

)

 

$

301,920

 

 

$

(111,501

)

26


 

 

 

(1)

For the three months ended September 30, 2016, equity in loss of investee includes $1.1 million, which includes the Company’s proportionate share of loss from its investment in CVR and amortization of the basis differences. For the nine months ended September 30, 2016, equity in loss of investee includes $2.4 million, which includes the Company’s proportionate share of loss from its investment in CVR and amortization of the basis differences.

 

(2)

For the nine months ended September 30, 2016, income from discontinued operations, net of tax includes $358.6 million, which is the Company’s proportionate share of the book gain on sale of RNP.

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(in thousands)

 

Total assets

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

169,685

 

 

$

179,327

 

Wood Pellets: Industrial

 

 

148,680

 

 

 

142,887

 

Wood Pellets: NEWP

 

 

63,725

 

 

 

62,709

 

Total segment assets

 

$

382,090

 

 

$

384,923

 

Reconciliation of segment total assets to consolidated total assets:

 

 

 

 

 

 

 

 

Segment total assets

 

$

382,090

 

 

$

384,923

 

Corporate and other

 

 

82,113

 

 

 

16,447

 

Discontinued operations

 

 

5,853

 

 

 

248,921

 

Consolidated total assets

 

$

470,056

 

 

$

650,291

 

 

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(in thousands)

 

Total goodwill

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

29,932

 

 

$

29,932

 

Wood Pellets: NEWP

 

 

10,323

 

 

 

10,323

 

Total goodwill

 

$

40,255

 

 

$

40,255

 

 

 

 

 

For the Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Capital expenditures

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

5,193

 

 

$

7,986

 

Wood Pellets: Industrial

 

 

9,006

 

 

 

26,691

 

Wood Pellets: NEWP

 

 

462

 

 

 

1,204

 

Corporate and other

 

 

743

 

 

 

925

 

Discontinued operations

 

 

11,075

 

 

 

25,077

 

Total capital expenditures

 

$

26,479

 

 

$

61,883

 

 

The Company’s revenues by geographic area, based on where the customer takes title to the product, were as follows:

 

 

 

For the Three Months

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

United States

 

$

22,661

 

 

$

33,233

 

 

$

55,811

 

 

$

85,297

 

Canada

 

 

2,867

 

 

 

1,772

 

 

 

19,266

 

 

 

5,980

 

Other

 

 

13,070

 

 

 

7,824

 

 

 

35,251

 

 

 

27,913

 

Total revenues

 

$

38,598

 

 

$

42,829

 

 

$

110,328

 

 

$

119,190

 

 

27


 

The following table sets forth assets by geographic area:

 

 

 

As of

 

 

 

September 30,

2016

 

 

December 31,

2015

 

 

 

(in thousands)

 

United States - Continuing Operations

 

$

275,608

 

 

$

216,472

 

Canada

 

 

148,667

 

 

 

142,866

 

Other

 

 

39,928

 

 

 

42,032

 

Total assets - Continuing Operations

 

 

464,203

 

 

 

401,370

 

United States - Discontinued Operations

 

 

5,853

 

 

 

248,921

 

Total assets

 

$

470,056

 

 

$

650,291

 

 

 

 

 

Note 14 — Net Income (Loss) Per Common Share Allocated to Rentech

Basic income (loss) per common share allocated to Rentech is calculated by dividing net income (loss) allocated to Rentech by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share allocated to Rentech is calculated by dividing net income (loss) allocated to Rentech by the weighted average number of common shares outstanding plus the dilutive effect, calculated using (i) the “treasury stock” method for the unvested restricted stock units, outstanding stock options and warrants and (ii) the “if converted” method for the preferred stock if its inclusion would not have been anti-dilutive.

28


 

The Company's policy is to only allocate earnings to participating securities, i.e., restricted stock, for continuing operations, discontinued operations and in total during periods in which income is reported.

 

 

 

 

For the Three Months

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands, except for per share data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(9,708

)

 

$

(10,534

)

 

$

70,107

 

 

$

(33,151

)

Less: Loss on redemption of preferred stock

 

 

 

 

 

 

 

 

(11,049

)

 

 

 

Less: Preferred stock dividends

 

 

 

 

 

(1,320

)

 

 

(1,320

)

 

 

(3,960

)

Less: (Income) loss from continuing operations attributable to

   noncontrolling interests

 

 

(103

)

 

 

84

 

 

 

(328

)

 

 

(21

)

Less: Income from continuing operations allocated to

   participating securities

 

 

 

 

 

 

 

 

(1,443

)

 

 

 

Income (loss) from continuing operations allocated to common

   shareholders

 

$

(9,811

)

 

$

(11,770

)

 

$

55,967

 

 

$

(37,132

)

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

$

(401

)

 

$

(22,302

)

 

$

231,813

 

 

$

(78,350

)

Less: (Income) loss from discontinued operations attributable

   to noncontrolling interests

 

 

174

 

 

 

9,728

 

 

 

(3,164

)

 

 

32,775

 

Less: Income from discontinued operations allocated to

   participating securities

 

 

 

 

 

 

 

 

(5,748

)

 

 

 

Income (loss) from discontinued operations allocated to

   common shareholders

 

$

(227

)

 

$

(12,574

)

 

$

222,901

 

 

$

(45,575

)

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Rentech common shareholders

 

$

(10,038

)

 

$

(24,344

)

 

$

286,059

 

 

$

(82,707

)

Less: Income allocated to participating securities

 

 

 

 

 

 

 

 

(7,191

)

 

 

 

Net income (loss) allocated to common shareholders

 

$

(10,038

)

 

$

(24,344

)

 

$

278,868

 

 

$

(82,707

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

23,189

 

 

 

23,005

 

 

 

23,098

 

 

 

22,969

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

 

 

 

 

 

 

 

 

 

 

 

Common stock options

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock

 

 

 

 

 

 

 

 

280

 

 

 

 

Diluted shares outstanding

 

 

23,189

 

 

 

23,005

 

 

 

23,378

 

 

 

22,969

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.42

)

 

$

(0.51

)

 

$

2.42

 

 

$

(1.62

)

Discontinued operations

 

$

(0.01

)

 

$

(0.55

)

 

$

9.65

 

 

$

(1.98

)

Net income (loss) per common share

 

$

(0.43

)

 

$

(1.06

)

 

$

12.07

 

 

$

(3.60

)

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.42

)

 

$

(0.51

)

 

$

2.39

 

 

$

(1.62

)

Discontinued operations

 

$

(0.01

)

 

$

(0.55

)

 

$

9.54

 

 

$

(1.98

)

Net income (loss) per common share

 

$

(0.43

)

 

$

(1.06

)

 

$

11.93

 

 

$

(3.60

)

 

For the three and nine months ended September 30, 2016, 1.7 million shares and 1.2 million shares, respectively, of Common Stock issuable pursuant to stock options, stock warrants and restricted stock units were excluded from the calculation of diluted income per share because their inclusion would have been anti-dilutive. For the three and nine months ended September 30, 2015, 5.8 million shares of Common Stock issuable pursuant to stock options, stock warrants, restricted stock units and preferred stock were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.

 

 

29


 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition, results of operations and cash flows in conjunction with our consolidated financial statements and the related notes presented in this report and in our Annual Report.

FORWARD-LOOKING STATEMENTS

Certain information included in this report contains, and other reports or materials filed or to be filed by us with the SEC (as well as information included in oral statements or other written statements made or to be made by us or our management) contain or will contain, “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, 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 management’s 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 our results include the risk factors detailed in “Part I—Item 1A. Risk Factors” in the Annual Report and “Part II—Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016 and from time to time in our other periodic reports and registration statements filed with the SEC. Such risks and uncertainties include, among other things:

 

our ability to successfully execute our strategy, and mitigate the risks, with our wood fibre processing business;

 

our ability to realize the benefits of the acquisitions of Fulghum, NEWP, Allegheny and the Atikokan and Wawa Facilities;

 

additional costs for unforeseen engineering problems, problems with the performance of installed equipment, unavailability or failure of necessary equipment, or plant enhancements needed, but currently unknown, or other unforeseen events, at the Atikokan and Wawa Facilities;

 

our ability to complete necessary modifications and replacements of equipment at the Atikokan and Wawa Facilities and ramp up production to full capacity at the Atikokan and Wawa Facilities on the schedule and budget we currently anticipate;

 

our ability to effectively operate our Atikokan and Wawa Facilities and increase their production rates to achieve their design capacities on a consistent basis;

 

higher than expected operating costs and lower than expected margins at the Wawa Facility, which are negatively impacting profitability of the facility;

 

our ability to successfully implement our reorganization plan and to achieve the cost savings we expect from the plan on the schedule we expect;

 

our ability to recover the costs of our wood fibre feedstock through sales of products made from such wood fibre feedstock, considering the volatility in the prices of our products and wood fibre feedstock;

 

adverse weather conditions, which can affect demand for, and delivery and production of, and wood pellet products;

 

our dependence on our customers to purchase and transport goods purchased from us;

 

our ability to identify and consummate acquisitions in related businesses and the risk that any such acquisitions do not perform as anticipated;

 

planned or unplanned shutdowns, or any operational difficulties, at our facilities;

 

potential operating hazards from accidents, fire, severe weather, floods or other natural disasters;

 

our ability and the associated cost to comply with laws and regulations regarding employee and process safety;

 

intense competition from other wood fibre processors;

 

risks arising from changes in existing laws or regulations, or their interpretation, or the imposition of new restrictions relating to emissions of greenhouse gases, carbon dioxide or energy production;

 

risks arising from ongoing reversals of tax exemptions and withdrawals of government subsidies and funding relating to energy projects by the UK government as a result of policy shifts;

30


 

 

risks associated with projects located in rural areas or outside of the United States; and

 

risks associated with doing business outside of the United States, including foreign currency exposure and economic conditions in other countries impacting the demand for our products and our customers’ ability to pay us.

You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs, forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.

As used in this report, references to “Rentech” refer to Rentech, Inc., a Colorado corporation, and the terms “we,” “our,” “us” and “the Company” mean Rentech and its consolidated subsidiaries, unless the context indicates otherwise.

OVERVIEW OF OUR BUSINESS

We are a leading provider of wood fibre processing services, high-quality wood chips and wood pellets. Our wood fibre processing business includes Fulghum, which operates 32 wood chipping mills in the United States and South America. Fulghum provides wood yard operations services and wood fibre processing services, and sells wood chips to the pulp, paper and packaging industry. Fulghum also owns and manages forestland and sells bark to industrial consumers in South America. Our wood pellet business includes our Atikokan and Wawa Facilities and NEWP. The Atikokan and Wawa Facilities are expected to have a maximum combined annual production capacity of 560,000 metric tons, and NEWP’s annual production capacity is 300,000 tons. Wood pellets produced at the Atikokan Facility are being used primarily for utility power generation in Canada and pellets produced at the Wawa Facility are being used primarily for utility power generation in the United Kingdom. The Atikokan Facility is fully operational and it is now averaging daily operating rates of approximately 90% of production capacity. The Wawa Facility has been commissioned and the plant has been producing wood pellets, though not at the expected production rate. Coming out of the recent shutdown the conveyance systems appear to be operating as expected, but we have experienced other challenges in ramping up production. The Wawa Facility is averaging weekly operating rates that annualize to produce approximately 150,000 metric tons of wood pellets and we are working to resolve the remaining equipment and operating challenges to incrementally  increase production over the next several quarters. Operating costs at the Wawa Facility have been higher than originally expected, and may continue to be so going forward, which negatively impacts profitability under the contract with Drax. In addition, oil prices, which drive indexation of prices in our Drax contract, have declined more than Canadian diesel prices, a material component of our fibre supply costs, which is negatively impacting margins on deliveries to Drax. For additional updates on the Atikokan and Wawa Facilities, see “Note 8 — Property, Plant and Equipment” to the consolidated financial statements included in this report. NEWP is one of the largest producers of wood pellets for the United States residential and commercial heating markets, operating four wood pellet facilities in the Northeast. The facilities are located in Jaffrey, New Hampshire; Deposit, New York; Schuyler, New York; and Youngsville, Pennsylvania.

We are a pure play wood fibre processing company with three core businesses: contract wood handling and chipping services, the manufacture and sale of wood pellets for the U.S. heating market and the manufacture, aggregation and sale of wood pellets for the utility and industrial power generation market.

31


 

Overview of our Results of Operations

Our operating segments have been affected in different ways by various negative and positive factors in 2016. The results and outlook for our Wood Pellets: Industrial segment depend primarily on operating results from the Atikokan and Wawa Facilities. During the nine months ended September 30, 2016, we shipped three vessels containing a combined approximately 95,000 metric tons of wood pellets from the Port of Quebec, which were delivered to and accepted by Drax. The Atikokan Facility shipped approximately 41,000 metric tons of wood pellets to OPG during the nine months ended September 30, 2016. However, we have had inventory write downs of $16.5 million through September 30, 2016 as a result of a high level of fixed operating costs allocated to relatively low volumes produced at the Atikokan and Wawa Facilities during this period of ramp-up at both facilities. Results at NEWP this year have been impacted by the abnormally warm temperatures in the Northeast during the most recent winter along with a major change in the trend we had seen over the last few years of consumers buying earlier into the spring and summer for upcoming heating seasons. This trend of consumers buying earlier in the spring and summer has reverted back to a more seasonal purchase pattern of most consumers waiting to make their purchases in the fall and winter. In addition, depressed prices for competitive heating fuels such as heating oil and propane have negatively affected consumer demand for NEWP’s products. As a result, NEWP’s sales volumes were significantly lower than historical levels. NEWP’s revenue decreased from $41.4 million for the nine months ended September 30, 2015 to $16.5 million for the nine months ended September 30, 2016. NEWP’s gross profit decreased from $8.9 million for the nine months ended September 30, 2015 to $2.5 million for the nine months ended September 30, 2016. In response to market conditions, NEWP has temporarily scaled back production since February 2016. With respect to Fulghum, revenue was $74.6 million for the nine months ended September 30, 2016, compared to $71.8 million for the nine months ended September 30, 2015. Fulghum’s gross profit was $11.5 million for the nine months ended September 30, 2016, compared to $12.9 million for the nine months ended September 30, 2015.

Because of the Merger completed on April 1, 2016, we were able to pay down our debt to the GSO Funds and repurchase our Preferred Stock, reducing interest payments, eliminating dividend payments, and providing us with liquidity and a strengthened balance sheet.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s 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. Preparing 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, valuation of long-lived assets and finite-lived intangible assets, recoverability of goodwill, accounting for major maintenance and the acquisition method of accounting. Actual amounts could differ significantly from these estimates. No material change has occurred to our critical accounting policies and estimates from the information provided in the Annual Report.

FACTORS AFFECTING COMPARABILITY OF FINANCIAL INFORMATION

Our historical results of operations for the periods presented may not be comparable with our results of operations for the subsequent periods for the reasons discussed below.

 

Seasonality

Our Wood Fibre Processing Business

Wood Chipping Business — Fulghum Fibres

Our wood chipping mills typically operate throughout the year; however, there may be quarter-to-quarter fluctuations in processing revenue at individual mills. These fluctuations are usually due to variations in customer-controlled deliveries of logs, production levels at customers’ mills, maintenance requirements, and/or weather-related events. Our customer contracts typically stipulate minimum volume requirements and shortfall fees. Such fees partially mitigate volatility in revenues of our United States mills. When seasonal precipitation is expected to prevent deliveries or make deliveries of logs to the mills difficult, our customers frequently coordinate delivery schedules to build log inventories in advance of such conditions. Building sufficient inventory of logs at our mills enables Fulghum to process logs with few interruptions during the rainy season. Based on our customers’ expected relatively continuous wood chip requirements, the terms of our processing agreements and our customers’ focus on maintaining proper log inventories, we do not expect to experience material seasonality in Fulghum’s United States or Uruguayan operations. However, one of our mills in Chile typically ceases wood chip processing operations for one to two months during its winter season due to the customer’s inability to harvest and deliver logs to the facility. Since a significant portion of the revenue in Fulghum’s South American operations is derived from the sale of wood chips, primarily for export from Chile, an interruption in the supply of logs could adversely affect revenue and profitability. The export portion of Fulghum’s revenues, and the associated profits, may be more variable than the revenue and profits derived from processing fees pursuant to long-term contracts.

32


 

Wood Pellet Business — Industrial

We do not expect significant seasonality in our revenue from our Atikokan and Wawa Facilities, although we do expect to recognize revenue and receive cash in large increments with each shipment by vessel for exported pellets. We expect each vessel to contain approximately 48,000 metric tons. We have entered into long-term off-take contracts with Drax and OPG, which are utility companies that operate throughout the year subject to maintenance shutdowns. We have been producing wood pellets from our facilities year-round to meet these contractual requirements. Ground conditions during the wet season referred to as “spring break-up” or “snow melt”, may prevent or curtail the harvesting of wood limiting the supply of fibre for wood pellet production. We expect that our wood pellet mills will build sufficient wood inventory on site through the autumn and winter months to mitigate this potential interruption of wood supply. This inventory build-up may increase our working capital requirements. The Port of Quebec typically remains ice-free during the winter months, which we expect will reduce the risk of interruptions in shipments to Drax. Because shipments to Drax will occur in large vessels, quarterly or annual revenues and profits could fluctuate depending on the timing and number of shipments in each period, particularly until we reach full production capacity at the Wawa Facility.

Wood Pellet Business — NEWP

Since NEWP’s wood pellets are used for heating, its sales are seasonal. We typically ship the highest volume of wood pellets from our NEWP facilities during the third and fourth quarters of each year. During the last two calendar years, approximately 56% of NEWP’s total annual volumes were shipped in the second half of the year. As a result of the seasonality of shipments and sales, we expect to experience significant fluctuations in NEWP’s 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 demand and deliveries. To accommodate NEWP’s seasonal sales, we typically build up NEWP’s finished goods inventory from March through August of each year. This inventory build-up typically increases our working capital requirements.

The abnormally warm temperatures during the most recent winter have disrupted seasonal buying patterns of the last couple of years. In addition to unusually low sales volumes during the first quarter in the year, customers who have historically bought wood pellets in the spring and summer for the upcoming winter season are now waiting until the fall and winter to make their purchases. As a result, we expect a significantly higher percentage of our sales to be in the last half of this year than has been in past years.

33


 

Business Segments

We operate in three business segments, which are  Fulghum Fibres, Wood Pellets: Industrial, and Wood Pellets: NEWP. See “Note 13 — Segment Information” in “Part I—Item 1. Financial Statements” to the consolidated financial statements included in this report for more information on the description of the segments. Allegheny’s operations are included only from the closing date of the Allegheny acquisition, which was January 23, 2015. Results of the East Dubuque, Pasadena and the energy technologies segments are accounted for as discontinued operations for all periods presented.

 

 

 

For the Three Months

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

26,296

 

 

$

23,446

 

 

 

74,561

 

 

 

71,823

 

Wood Pellets: Industrial

 

 

2,867

 

 

 

1,772

 

 

 

19,266

 

 

 

5,980

 

Wood Pellets: NEWP

 

 

9,435

 

 

 

17,611

 

 

 

16,501

 

 

 

41,387

 

Total revenues

 

$

38,598

 

 

$

42,829

 

 

$

110,328

 

 

$

119,190

 

Gross profit (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

3,850

 

 

$

4,959

 

 

 

11,455

 

 

 

12,944

 

Wood Pellets: Industrial

 

 

(6,137

)

 

 

(3,265

)

 

 

(16,304

)

 

 

(6,727

)

Wood Pellets: NEWP

 

 

1,492

 

 

 

4,057

 

 

 

2,506

 

 

 

8,875

 

Total gross profit (loss)

 

$

(795

)

 

$

5,751

 

 

$

(2,343

)

 

$

15,092

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

1,168

 

 

$

1,241

 

 

$

3,544

 

 

$

3,870

 

Wood Pellets: Industrial

 

 

3,240

 

 

 

4,589

 

 

 

5,894

 

 

 

15,713

 

Wood Pellets: NEWP

 

 

514

 

 

 

587

 

 

 

1,574

 

 

 

2,009

 

Total segment selling, general and administrative expenses

 

$

4,922

 

 

$

6,417

 

 

$

11,012

 

 

$

21,592

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

2,347

 

 

$

2,579

 

 

 

6,517

 

 

 

6,252

 

Wood Pellets: Industrial

 

 

(11,079

)

 

 

(7,899

)

 

 

(23,999

)

 

 

(22,567

)

Wood Pellets: NEWP

 

 

681

 

 

 

3,178

 

 

 

26

 

 

 

5,984

 

Total segment operating loss

 

$

(8,051

)

 

$

(2,142

)

 

$

(17,456

)

 

$

(10,331

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

1,369

 

 

$

3,012

 

 

 

3,543

 

 

 

4,977

 

Wood Pellets: Industrial

 

 

(11,498

)

 

 

(8,382

)

 

 

(25,251

)

 

 

(23,760

)

Wood Pellets: NEWP

 

 

605

 

 

 

3,106

 

 

 

(263

)

 

 

5,786

 

Total segment net loss

 

$

(9,524

)

 

$

(2,264

)

 

$

(21,971

)

 

$

(12,997

)

Reconciliation of segment net loss to consolidated net income

   (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net loss

 

$

(9,524

)

 

$

(2,264

)

 

$

(21,971

)

 

$

(12,997

)

Corporate and unallocated expenses recorded as selling,

   general and administrative expenses

 

 

(4,413

)

 

 

(5,730

)

 

 

(15,178

)

 

 

(15,709

)

Corporate and unallocated depreciation and amortization

   expense

 

 

(80

)

 

 

(136

)

 

 

(336

)

 

 

(418

)

Corporate and unallocated income (expenses) recorded as

   other income (expense)

 

 

(542

)

 

 

3

 

 

 

(5,265

)

 

 

6

 

Corporate and unallocated interest expense

 

 

(1,342

)

 

 

(2,419

)

 

 

(5,140

)

 

 

(4,007

)

Corporate income tax benefit (expense)

 

 

7,293

 

 

 

12

 

 

 

120,426

 

 

 

(26

)

Equity in loss of CVR(1)

 

 

(1,100

)

 

 

 

 

 

(2,429

)

 

 

 

Income (loss) from discontinued operations, net of tax(2)

 

 

(401

)

 

 

(22,302

)

 

 

231,813

 

 

 

(78,350

)

Consolidated net income (loss)

 

$

(10,109

)

 

$

(32,836

)

 

$

301,920

 

 

$

(111,501

)

 

 

(1)

For the three months ended September 30, 2016, equity in loss of investee includes $1.1 million, which includes our proportionate share of loss from our investment in CVR and amortization of the basis differences. For the nine months ended September 30, 2016, equity in loss of investee includes $2.4 million, which includes our proportionate share of loss from our investment in CVR and amortization of the basis differences.

 

(2)

For the nine months ended September 30, 2016, income from discontinued operations, net of tax includes $358.6 million, which is our proportionate share of the book gain on sale of RNP.

 

34


 

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015:

Continuing Operations

Revenues

 

 

 

For the Three Months

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

26,296

 

 

$

23,446

 

 

$

74,561

 

 

$

71,823

 

Wood Pellets: Industrial

 

 

2,867

 

 

 

1,772

 

 

 

19,266

 

 

 

5,980

 

Wood Pellets: NEWP

 

 

9,435

 

 

 

17,611

 

 

 

16,501

 

 

 

41,387

 

Total revenues

 

$

38,598

 

 

$

42,829

 

 

$

110,328

 

 

$

119,190

 

 

Fulghum Fibres

 

 

 

For the Three Months

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

15,599

 

 

$

18,087

 

 

$

47,678

 

 

$

51,992

 

Product

 

 

10,697

 

 

 

5,359

 

 

 

26,883

 

 

 

19,831

 

Total revenues - Fulghum

 

$

26,296

 

 

$

23,446

 

 

$

74,561

 

 

$

71,823

 

 

We generate revenues at Fulghum Fibres from providing wood yard operation and wood fibre processing services, and selling wood chips to the pulp, paper and packaging industry. Fulghum also owns and manages forestland and sells bark to industrial consumers in South America. Service revenues are those earned under agreements for wood yard operations services and wood fibre processing services in the United States and South America. Product revenues are those earned by our Chilean operations from the sale of wood chips and bark.

Revenues were $26.3 million for the three months ended September 30, 2016, compared to $23.4 million for the same period last year. Revenues from operations in the United States were $13.2 million for the third quarter of 2016, as compared to $15.6 million in the prior year period. Revenues from operations in South America were $13.1 million for the third quarter of 2016, as compared to $7.8 million in the prior year period. The decrease in revenues from the United States operations is primarily due to the previously announced sale of a mill in April 2016 and an unplanned prolonged outage at one of our customer’s paper mills during the three months ended September 30, 2016, which reduced demand for wood chips from one of Fulghum’s mills. The increase in South America revenues was primarily due to higher biomass product sales in South America and chip sales to Asia in 2016 as compared to 2015. For the three months ended September 30, 2016, our mills in the United States processed 2.8 million green metric tons, or GMT, of logs into wood chips and residual fuels; our mills in South America processed 0.8 million GMT of logs. For the three months ended September 30, 2015, our mills in the United States processed 3.3 million GMT of logs into wood chips and residual fuels; our mills in South America processed 0.5 million GMT of logs.

Revenues were $74.6 million for the nine months ended September 30, 2016, compared to $71.8 million for the same period last year. Revenues from operations in the United States were $39.3 million during the nine months ended September 30, 2016, as compared to $43.9 million in the prior year period. Revenues from operations in South America were $35.3 million during the nine months ended September 30, 2016, as compared to $27.9 million in the prior year period. The decrease in revenues from the United States operations is primarily due to the sale of a mill in April 2016, an unplanned prolonged outage at one of our customer’s paper mills and regional flooding impacting two paper mill facilities of our customers, reducing demand for wood chips from Fulghum’s mills. The increase in South America revenues was primarily due to higher biomass product sales in South America and chip sales to Asia in 2016 as compared to 2015. For the nine months ended September 30, 2016, our mills in the United States processed 8.6 million GMT of logs into wood chips and residual fuels; our mills in South America processed 2.2 million GMT of logs. For the nine months ended September 30, 2015, our mills in the United States processed 9.3 million GMT of logs into wood chips and residual fuels; our mills in South America processed 1.8 million GMT of logs.

35


 

Wood Pellets: Industrial

We generate revenues from sales of wood pellets to industrial customers, specifically electric utilities generating electricity. We began producing wood pellets at the Atikokan Facility in February 2015 and at the Wawa Facility in May 2015. Revenues were $2.9 million for the three months ended September 30, 2016, earned by delivering approximately 16,000 metric tons of wood pellets. Revenues were $1.8 million for the three months ended September 30, 2015, earned by delivering approximately 9,800 metric tons of wood pellets.

Revenues were $19.3 million for the nine months ended September 30, 2016, earned by delivering approximately 136,000 metric tons of wood pellets. Revenues were $6.0 million for the nine months ended September 30, 2015, earned by delivering approximately 32,500 metric tons of wood pellets.

We revised the delivery schedule in October with Drax for 2016 to be consistent with our ramp-up expectations for the Wawa Facility at that time. We agreed to deliver approximately 188,000 metric tons to Drax in 2016, which includes 95,000 metric tons delivered through September 30, 2016 and approximately 93,000 metric tons to be delivered in the remainder of 2016.  We have also revised the delivery schedule with Drax for 2017. The revised schedule calls for deliveries of approximately 336,000 metric tons of wood pellets in the 2017 calendar year. We will not incur any make-whole payments or other penalties to Drax if we meet these revised 2016 and 2017 delivery schedules. The revised schedules for 2016 and 2017 could be subject to further change, including penalties, if the Wawa facility does not ramp up as expected.

During the third quarter of 2016, we had a scheduled outage at the Wawa Facility to complete the remaining work on the conveyance systems and to perform other maintenance activities, during which time the facility was down for approximately five and a half weeks. In September 2016, we had a scheduled outage at the Atikokan Facility for the next phase of conveyor replacements, during which time the facility was down for one week.

Wood Pellets: NEWP

We generate revenues at NEWP from sales of wood pellets for the United States residential and commercial heating markets. Revenues were $9.4 million for the three months ended September 30, 2016 on deliveries of 49,000 tons of wood pellets. Revenues were $17.6 million for the three months ended September 30, 2015 on deliveries of 88,000 tons of wood pellets.

Revenues were $16.5 million for the nine months ended September 30, 2016 on deliveries of 87,000 tons of wood pellets. Revenues were $41.4 million for the nine months ended September 30, 2015 on deliveries of 208,000 tons of wood pellets.  

Results at NEWP this year have been impacted by the abnormally warm temperatures in the Northeast during the most recent winter along with a major change in the trend we had seen over the last few years of consumers buying earlier into the spring and summer for upcoming heating seasons. This trend of consumers buying earlier in the spring and summer has reverted back to a more seasonal purchase pattern of most consumers waiting to make their purchases in the fall and winter. In addition, depressed prices for competitive heating fuels such as heating oil and propane have negatively affected consumer demand for our products. In response to market conditions, NEWP has temporarily scaled back production since February 2016.

Cost of Sales

 

 

 

For the Three Months

Ended September 30,

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

2016

 

 

2015

 

 

 

(in thousands)

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

22,446

 

 

$

18,487

 

 

63,106

 

 

 

58,879

 

Wood Pellets: Industrial

 

 

9,004

 

 

 

5,037

 

 

35,570

 

 

 

12,707

 

Wood Pellets: NEWP

 

 

7,943

 

 

 

13,554

 

 

13,995

 

 

 

32,512

 

Total cost of sales

 

$

39,393

 

 

$

37,078

 

$

112,671

 

 

$

104,098

 

 

Fulghum Fibres

Costs of sales include (i) service costs for our wood chipping mill operations, which primarily consist of costs for labor, repairs and maintenance, depreciation and utilities, and (ii) product costs relating to our sale of wood chips and bark in South America, which consist of costs to purchase, process and export wood fibre products.

36


 

Cost of sales for the three months ended September 30, 2016 was $22.4 million. Wood fibre feedstock, labor, repairs and maintenance, and utilities comprised 86% of our cost of sales for the three months ended September 30, 2016. Depreciation expense included in cost of sales was $1.9 million during the three-month period ended September 30, 2016.

Cost of sales for the three months ended September 30, 2015 was $18.5 million. Wood fibre feedstock, labor, repairs and maintenance, and utilities comprised 81% of our cost of sales for the three months ended September 30, 2015. Depreciation expense included in cost of sales was $2.2 million during the three-month period ended September 30, 2015.

Cost of sales for the nine months ended September 30, 2016 was $63.1 million. Wood fibre feedstock, labor, repairs and maintenance, and utilities comprised 85% of our cost of sales for the nine months ended September 30, 2016. Depreciation expense included in cost of sales was $5.8 million during the nine-month period ended September 30, 2016.

Cost of sales for the nine months ended September 30, 2015 was $58.9 million. Wood fibre feedstock, labor, repairs and maintenance, and utilities comprised 82% of our cost of sales for the nine months ended September 30, 2015. Depreciation expense included in cost of sales was $6.3 million during the nine-month period ended September 30, 2015.

The increase in cost of sales between the periods in 2015 and the corresponding periods in 2016 is primarily due to the increase in biomass and chip sales by our operations in South America between periods, which resulted in an increase in product costs for operations in South America, partially offset by the decrease in processing volumes at our mills in the United States, which resulted in a decrease in cost of sales for operations in the United States, and the decrease in depreciation expense due to the sale of a mill in April 2016.

Wood Pellets: Industrial

We began producing wood pellets at the Atikokan Facility in February 2015 and at the Wawa Facility in May 2015. Cost of sales primarily consists of wood fibre feedstock, labor, repairs and maintenance, transportation, electricity and depreciation.

Cost of sales for the three months ended September 30, 2016 was $9.0 million. At September 30, 2016, we wrote down our wood pellet inventory by $6.2 million as a result of a high level of fixed operating costs and repairs and maintenance expenses incurred during the outages at the Atikokan and Wawa Facilities allocated to relatively low volumes produced during this period of ramp-up. Wood fibre feedstock, labor, repairs and maintenance, transportation and electricity comprised 76% of cost of sales for the three months ended September 30, 2016. Depreciation expense included in the cost of sales was $1.7 million for three months ended September 30, 2016, of which $1.2 million was included in the inventory write-down.

Cost of sales for the three months ended September 30, 2015 was $5.0 million. At September 30, 2015, we wrote down our wood pellet inventory by $3.1 million as a result of a high level of fixed operating costs allocated to relatively low volumes produced at the Atikokan and Wawa Facilities during the commissioning period. Wood fibre feedstock, labor, repairs and maintenance, transportation and electricity comprised 53% of cost of sales for the three months ended September 30, 2015. Depreciation expense included in the cost of sales was $0.6 million for three months ended September 30, 2015.

Cost of sales for the nine months ended September 30, 2016 was $35.6 million. For the nine months ended September 30, 2016, our consolidated statements of operations include various inventory write-downs that total $16.5 million. Wood fibre feedstock, labor, repairs and maintenance, transportation and electricity comprised 74% of cost of sales for the nine months ended September 30, 2016. Depreciation expense included in the cost of sales was $6.8 million for nine months ended September 30, 2016, of which $3.0 million was included in the inventory write-downs.

Cost of sales for the nine months ended September 30, 2015 was $12.7 million. At September 30, 2015, we wrote down our wood pellet inventory by $5.6 million as a result of a high level of fixed operating costs allocated to relatively low volumes produced at the Atikokan and Wawa Facilities during the commissioning period. Wood fibre feedstock, labor, repairs and maintenance, transportation and electricity comprised 52% of cost of sales for the nine months ended September 30, 2015. Depreciation expense included in the cost of sales was $1.6 million for nine months ended September 30, 2015.

The increase in cost of sales between the three months ended September 30, 2015 and the three months ended September 30, 2016 is due to the increase in sales volumes between periods. Cost of sales for the third quarter of 2016 were also higher because of a $6.2 million inventory adjustment on wood pellets that were produced during the ramp up phase at the Atikokan and Wawa Facilities at costs, including costs from the third quarter 2016 outages, per ton that were higher than expected sales prices. The inventory write-off for the three months ended September 30, 2015 was $3.1 million.

37


 

The increase in cost of sales between the nine months ended September 30, 2015 and the nine months ended September 30, 2016 is primarily due to the increase in sales volumes between periods. Cost of sales for 2016 were also higher because of $16.5 million in inventory adjustments on wood pellets that were produced during the ramp up phase at the Atikokan and Wawa Facilities at costs, including costs from the third quarter 2016 outages, per ton that were higher than expected sales prices. The inventory write-off for the nine months ended September 30, 2015 was $5.6 million. In addition, depreciation expense is considerably higher for 2016 because assets at the Atikokan and Wawa Facilities were in service for the full period in contrast with 2015. Atikokan Facility assets were put into service in February 2015 and Wawa Facility assets were put into service in May 2015.

Wood Pellets: NEWP

Cost of sales primarily consists of expenses for wood fibre feedstock, packaging, labor, electricity, freight and depreciation. Cost of sales for the three months ended September 30, 2016 was $7.9 million. For the three months ended September 30, 2016, wood fibre feedstock, packaging, labor and electricity comprised 73% of cost of sales. Depreciation expense included in the cost of sales was $0.7 million for three months ended September 30, 2016.

Cost of sales for the three months ended September 30, 2015 was $13.6 million. For the three months ended September 30, 2015, wood fibre feedstock, packaging, labor and electricity comprised 76% of cost of sales. Depreciation expense included in the cost of sales was $1.0 million for three months ended September 30, 2015.

Cost of sales for the nine months ended September 30, 2016 was $14.0 million. For the nine months ended September 30, 2016, wood fibre feedstock, packaging, labor and electricity comprised 74% of cost of sales. Depreciation expense included in the cost of sales was $1.1 million for nine months ended September 30, 2016.

Cost of sales for the nine months ended September 30, 2015 was $32.5 million. For the nine months ended September 30, 2015, wood fibre feedstock, packaging, labor and electricity comprised 76% of cost of sales. Depreciation expense included in the cost of sales was $2.4 million for nine months ended September 30, 2015.

The decreases in cost of sales between the periods in 2015 and the corresponding periods in 2016 are primarily due to the decreases in sales volumes between periods.

Gross Profit (Loss)

 

 

 

For the Three Months

Ended September 30,

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

2016

 

 

2015

 

 

 

(in thousands)

 

Gross Profit (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

3,850

 

 

$

4,959

 

 

11,455

 

 

 

12,944

 

Wood Pellets: Industrial

 

 

(6,137

)

 

 

(3,265

)

 

(16,304

)

 

 

(6,727

)

Wood Pellets: NEWP

 

 

1,492

 

 

 

4,057

 

 

2,506

 

 

 

8,875

 

Total gross profit (loss)

 

$

(795

)

 

$

5,751

 

$

(2,343

)

 

$

15,092

 

 

Fulghum Fibres

Gross profit was $3.9 million for the three months ended September 30, 2016, compared to $5.0 million for the same period last year. Gross profit margin for the three months ended September 30, 2016 was 15%, compared to 21% for the same period in the prior year. The decreases in gross profit and gross margin were due primarily to lower revenues as a result of the sale of a mill in the United States, partially offset by an increase in biomass product sales in South America and chip sales to Asia, as discussed above. In addition, the increase in product sales, which have lower gross profit margins than our wood fibre processing services, contributed to the decrease in gross margin.

Gross profit was $11.5 million for the nine months ended September 30, 2016, compared to $12.9 million for the same period last year. Gross profit margin for the nine months ended September 30, 2016 was 15%, compared to 18% for the same period in the prior year. The decreases in gross profit and gross margin were due primarily to lower revenues as a result of the sale of a mill in the United States, partially offset by an increase in biomass product sales in South America and chip sales to Asia, as discussed above. In addition, the increase in product sales, which have lower gross profit margins than our wood fibre processing services, contributed to the decrease in gross margin.

38


 

Wood Pellets: Industrial

Gross loss for the three months ended September 30, 2016 was $6.1 million, compared to $3.3 million for the same period in the prior year. Gross loss margin was 214% for the three months ended September 30, 2016, compared to 184% for the same period in the prior year. The increased gross loss and gross loss margins in 2016 were due to higher sales volumes at inventory costs that exceed sales prices as the Atikokan and Wawa Facilities were ramping up, including the related write down of inventory by $6.2 million during the three months ended September 30, 2016. Gross loss margins were higher also due to lower average sales prices for the three months ended September 30, 2016.

Gross loss for the nine months ended September 30, 2016 was $16.3 million, compared to $6.7 million for the same period in the prior year. Gross loss margin was 85% for the nine months ended September 30, 2016, compared to 112% for the same period in the prior year. The increased gross loss in 2016 was due to higher sales volumes at inventory costs that exceeded sales prices as the Atikokan and Wawa Facilities are ramping up, including the related write down of inventory by $16.5 million during the nine months ended September 30, 2016 and considerably higher depreciation expense in the first nine months of 2016 than in the first nine months of 2015. Further, certain expenses were recorded as operating expenses during the nine months ended September 30, 2015 before assets were placed into service. These expenses were capitalized to product inventory and included in cost of sales during the nine months ended September 30, 2016 as both the Atikokan and Wawa Facilities were in service during the entire nine months ended September 30, 2016. The improvement in gross loss margin between periods was due to improvements in inventory costs and increased revenues as a result of the higher volumes shipped during the nine months ended September 30, 2016 as compared to the same period last year, partially offset by lower average sales prices.

Operating costs at Wawa have been higher than originally expected, and may continue to be so going forward, which negatively impacts profitability under the contract with Drax. In addition, oil prices, which drive indexation of prices in our Drax contract, have declined more than Canadian diesel prices, a material component of our fibre supply costs, which is negatively impacting margins on deliveries to Drax.

Wood Pellets: NEWP

Gross profit for the three months ended September 30, 2016 was $1.5 million, compared to $4.1 million for the same period in the prior year. Gross profit margin was 16% for the three months ended September 30, 2016, compared to 23% for the same period in the prior year. Gross profit and gross profit margin were lower because of lower sales volumes and sales prices during the three months ended September 30, 2016.

Gross profit for the nine months ended September 30, 2016 was $2.5 million, compared to $8.9 million for the same period in the prior year. Gross profit margin was 15% for the nine months ended September 30, 2016, compared to 21% for the same period in the prior year. Gross profit and gross profit margin were lower because of lower sales volumes and sales prices during the nine months ended September 30, 2016.

Operating Expenses

 

 

 

For the Three Months

Ended September 30,

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

2016

 

 

2015

 

 

 

(in thousands)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

1,503

 

 

$

2,380

 

 

4,938

 

 

 

6,692

 

Wood Pellets: Industrial

 

 

4,942

 

 

 

4,634

 

 

7,695

 

 

 

15,840

 

Wood Pellets: NEWP

 

 

811

 

 

 

879

 

 

2,480

 

 

 

2,891

 

Corporate and unallocated expenses

 

 

5,035

 

 

 

5,866

 

 

17,481

 

 

 

16,127

 

Total operating expenses

 

$

12,291

 

 

$

13,759

 

$

32,594

 

 

$

41,550

 

 

Fulghum Fibres

Operating expenses were comprised primarily of selling, general and administrative expenses, which include personnel, professional and office costs, and depreciation and amortization expense related to non-wood chip processing assets.

Selling, general and administrative expenses for each of the three months ended September 30, 2016 and 2015 were $1.2 million.

39


 

Selling, general and administrative expenses for the nine months ended September 30, 2016 were $3.5 million, compared to $3.9 million for the same period in the prior year. The decrease was primarily due to a decrease in personnel costs of $0.2 million. Depreciation and amortization expense included in operating expense for the nine months ended September 30, 2016 was $1.1 million, compared to $2.1 million for the same period last year. The decrease in depreciation and amortization expense was due to lower amortization of processing agreement intangible assets. The majority of Fulghum’s depreciation expense relates to wood chip processing assets and was recorded in cost of sales.

Other operating expenses for the three and nine months ended September 30, 2015 include an asset impairment charge of $0.7 million.

Wood Pellets: Industrial

Operating expenses were primarily comprised of selling, general and administrative expenses, which include personnel costs, travel, acquisition-related and development costs associated with the Atikokan and Wawa Facilities, and other business development costs.

Selling, general and administrative expenses were $3.2 million for the three months ended September 30, 2016, compared to $4.6 million for the same period in the prior year. The decrease was primarily due to a decrease in personnel costs of $0.7 million and rail car delivery lease expense of $0.6 million.

Selling, general and administrative expenses were $5.9 million for the nine months ended September 30, 2016, compared to $15.7 million for the same period in the prior year. The decrease was primarily due to certain expenses recorded as operating expenses during the nine months ended September 30, 2015 before assets were placed into service. These expenses were capitalized to product inventory and included in cost of sales during the nine months ended September 30, 2016 because the Atikokan and Wawa Facilities were in service during the entire nine months ended September 30, 2016. In addition, selling, general and administrative expenses for the nine months ended September 30, 2015 included contractual penalties to Drax of $2.6 million.

Other operating expenses for the three and nine months ended September 30, 2016 include losses on disposal of fixed assets of $1.6 million. $1.5 million of this amount relates to work done at the Wawa Facility. During the work on the conveyance systems, some original equipment was replaced resulting in us recognizing a loss on disposal of fixed assets.

In addition, we expect to incur additional carload shortfall penalties for 2016 under the Canadian National Contract as a result of the continued delays in ramping up the Wawa Facility and the revised 2016 delivery scheduled to Drax.

Wood Pellets: NEWP

Operating expenses consist primarily of selling, general and administrative expenses, which include personnel, professional and office costs, and depreciation and amortization expense.

Selling, general and administrative expenses for the three months ended September 30, 2016 was $0.5 million, compared to $0.6 million for the same period in the prior year. Depreciation and amortization expense included in operating expense was $0.3 million in each of the three months ended September 30, 2016 and 2015. Depreciation expense relating to wood pellet processing assets was recorded in cost of sales.

Selling, general and administrative expenses for each of the nine-month periods ended September 30, 2016 and 2015 were $1.6 million and $2.0 million, respectively. The decrease was primarily due to a decrease in personnel costs, including bonus accruals, of $0.3 million. Depreciation and amortization expense included in operating expense was $0.9 million in each of the nine months ended September 30, 2016 and 2015. Depreciation expense relating to wood pellet processing assets was recorded in cost of sales.

Corporate and Unallocated Expenses

Operating expenses consist of selling, general and administrative expenses and depreciation and amortization expense. Selling, general and administrative expenses include cash and non-cash personnel costs, transaction-related expenses, insurance costs, facilities expenses, information technology costs and professional services fees for legal, audit, tax and investor relations activities.

40


 

Selling, general and administrative expenses were $4.4 million for the three-month period ended September 30, 2016 compared to $5.7 million for the same period last year. The decrease was a result of the Company’s cost saving efforts, including a decrease in consulting and professional services fees of $0.9 million, salary expense of $0.6 million, computer software-related costs of $0.3 million and non-cash equity-based compensation of $0.3 million, partially offset by increases in lease expense of $0.7 million and bonus expense of $0.3 million. Non-cash equity-based compensation expense was $0.4 million for the three months ended September 30, 2016, compared to $0.7 million for the same period in the prior year. During the three months ended September 30, 2016, we recorded a loss of $0.9 million on the sublease of our previous corporate office located in Los Angeles, California. The loss represents the present value of the remaining minimum lease payments due under the original lease reduced by the present value of the minimum lease payments to be received under the sublease and the amount of deferred rent recorded on our books relating to the original lease. Selling, general and administrative expenses for the three months ended September 30, 2016 included severance and exit costs related to personnel of $0.1 million.

Selling, general and administrative expenses were $15.2 million for the nine-month period ended September 30, 2016 compared to $15.7 million for the same period last year. The decrease was primarily due to decreases in consulting and professional services fees of $1.3 million, non-cash equity-based compensation of $0.9 million and computer software-related expenses of $0.6 million, partially offset by increases in lease expense of $0.9 million, bonus expense of $0.8 million and transaction costs of $0.8 million. Non-cash equity-based compensation expense was $1.1 million for the nine months ended September 30, 2016, compared to $2.0 million for the same period in the prior year. Selling, general and administrative expenses for the nine months ended September 30, 2016 included severance and exit costs related to personnel of $0.9 million.

Other operating expenses for the three months ended September 30, 2016 include a write-off for computer software of $0.5 million. Other operating expenses for the nine months ended September 30, 2016 include write-offs for computer software of $1.6 million and leasehold improvements, furniture and office equipment totaling $0.4 million.

Operating Income (Loss)

 

 

 

For the Three Months

Ended September 30,

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

2016

 

 

2015

 

 

 

(in thousands)

 

Operating Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fulghum Fibres

 

$

2,347

 

 

$

2,579

 

 

6,517

 

 

 

6,252

 

Wood Pellets: Industrial

 

 

(11,079

)

 

 

(7,899

)

 

(23,999

)

 

 

(22,567

)

Wood Pellets: NEWP

 

 

681

 

 

 

3,178

 

 

26

 

 

 

5,984

 

Corporate and unallocated expenses

 

 

(5,035

)

 

 

(5,866

)

 

(17,481

)

 

 

(16,127

)

Total operating loss

 

$

(13,086

)

 

$

(8,008

)

$

(34,937

)

 

$

(26,458

)

 

Fulghum Fibres

Operating income was $2.3 million for the three months ended September 30, 2016, compared to $2.6 million for the same period last year. The decrease in operating income was primarily due to lower revenues due to the sale of a mill in the United States, partially offset by an increase in biomass product sales in South America and chip sales to Asia and a decrease in operating expenses, as discussed above.

Operating income was $6.5 million for the nine months ended September 30, 2016, compared to $6.3 million for the same period last year. The increase in operating income was primarily due to an increase in biomass product sales in South America and chip sales to Asia and a decrease in operating expenses, partially offset by lower revenues due to the sale of a mill in the United States, as discussed above.

Wood Pellets: Industrial

Operating loss was $11.1 million for the three months ended September 30, 2016, compared to $7.9 million for the same period last year. The increase in operating loss was due to higher sales volumes at inventory costs that exceeded sales prices as the Atikokan and Wawa Facilities were ramping up, including the related write down of inventory by $6.2 million during the three months ended September 30, 2016, and an increase in operating expenses, as discussed above. In addition, average sales prices were lower during the three months ended September 30, 2016 than in the comparable period last year.

41


 

Operating loss was $24.0 million for the nine months ended September 30, 2016, compared to $22.6 million for the same period last year. The increase in operating loss was due to higher sales volumes at inventory costs that exceeded sales prices as the Atikokan and Wawa Facilities were ramping up, including the related write down of inventory by $16.5 million during the nine months ended September 30, 2016, partially offset by a decrease in operating expenses, as discussed above. In addition, average sales prices were lower during the nine months ended September 30, 2016 than in the comparable period last year.

Wood Pellets: NEWP

Operating income was $0.7 million for the three months ended September 30, 2016, compared to $3.2 million for the three months ended September 30, 2015. The decrease in operating income was due to lower sales volumes and sales prices, as discussed above.

Operating income was $26,000 for the nine months ended September 30, 2016 compared to $6.0 million for the nine months ended September 30, 2015. The decrease in operating income was due to lower sales volumes and sales prices, as discussed above.

Corporate and Unallocated Expenses

Operating loss was $5.0 million for the three months ended September 30, 2016, compared to $5.9 million for the same period last year. The decrease in operating loss was primarily due to savings from the Company’s cost reduction efforts, as described above.

Operating loss was $17.5 million for the nine months ended September 30, 2016, compared to $16.1 million for the same period last year. The increase in operating loss was primarily due to an increase in severance costs, and the write-off of assets, partially offset by a decrease in personnel costs and non-cash equity-based compensation, as described above.

Discontinued Operations

Results of RNP and the Energy Technologies segment are accounted for as discontinued operations for all periods presented. See “Note 4 — Discontinued Operations” to the consolidated financial statements included in this report.

ADJUSTED EBITDA

Adjusted EBITDA, which is a non-GAAP financial measure, is defined as net income (loss) from continuing operations plus net interest expense and other financing costs, income tax (benefit) expense, depreciation and amortization and unusual items, like impairment and debt extinguishment charges and fair value adjustments to earn-out consideration. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our consolidated financial statements, such as investors and commercial banks, to assess:

 

the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; and

 

our operating performance and return on invested capital compared to those of other public companies, without regard to financing methods and capital structure.

Adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. In addition, Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.

42


 

The table below reconciles Fulghum’s Adjusted EBITDA, which is a non-GAAP financial measure, to segment net income for Fulghum.

 

 

 

For the Three Months

Ended September 30,

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

2016

 

 

2015

 

 

 

(in thousands)

 

Fulghum net income per segment disclosure

 

$

1,369

 

 

$

3,012

 

$

3,543

 

 

$

4,977

 

Add Fulghum items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest expense

 

 

577

 

 

 

691

 

 

1,721

 

 

 

1,808

 

Asset impairment

 

 

 

 

 

704

 

 

 

 

 

704

 

Income tax (benefit) expense

 

 

511

 

 

 

(2,036

)

 

1,718

 

 

 

89

 

Depreciation and amortization

 

 

2,221

 

 

 

2,595

 

 

6,873

 

 

 

8,434

 

Other(1)

 

 

(109

)

 

 

912

 

 

(465

)

 

 

(622

)

Fulghum's Adjusted  EBITDA

 

$

4,569

 

 

$

5,878

 

$

13,390

 

 

$

15,390

 

 

 

(1)

The amount for the nine months ended September 30, 2015 includes a gain of $1.6 million relating to an insurance settlement.

The table below reconciles NEWP’s Adjusted EBITDA, which is a non-GAAP financial measure, to segment net income (loss) for NEWP.

 

 

 

For the Three Months

Ended September 30,

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

2016

 

 

2015

 

 

 

(in thousands)

 

NEWP net income (loss) per segment disclosure

 

$

605

 

 

$

3,106

 

$

(263

)

 

$

5,786

 

Add NEWP items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest expense

 

 

169

 

 

 

142

 

 

460

 

 

 

430

 

Income tax expense

 

 

14

 

 

 

1

 

 

49

 

 

 

58

 

Depreciation and amortization

 

 

992

 

 

 

1,258

 

 

2,047

 

 

 

3,255

 

Other

 

 

(106

)

 

 

(72

)

 

(220

)

 

 

(290

)

NEWP's Adjusted EBITDA

 

$

1,674

 

 

$

4,435

 

$

2,073

 

 

$

9,239

 

 

The table below reconciles Wood Pellet - Industrial’s Adjusted EBITDA, which is a non-GAAP financial measure, to segment net loss for Wood Pellet - Industrial.

 

 

 

For the Three Months

Ended September 30,

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

2016

 

 

2015

 

 

 

(in thousands)

 

Wood Pellets: Industrial net loss per segment disclosure

 

$

(11,498

)

 

$

(8,382

)

$

(25,251

)

 

$

(23,760

)

Add Wood Pellets: Industrial items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest expense

 

 

405

 

 

 

569

 

 

1,223

 

 

 

1,067

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

4

 

Depreciation and amortization

 

 

1,757

 

 

 

620

 

 

6,967

 

 

 

1,705

 

Other

 

 

13

 

 

 

(87

)

 

29

 

 

 

122

 

Wood Pellets: Industrial Adjusted EBITDA

 

$

(9,323

)

 

$

(7,280

)

$

(17,032

)

 

$

(20,862

)

 

43


 

The table below reconciles Consolidated Adjusted EBITDA (excluding equity in loss of CVR and discontinued operations), which is a non-GAAP financial measure, to income (loss) from continuing operations.

 

 

 

For the Three Months

Ended September 30,

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

2016

 

 

2015

 

 

 

(in thousands)

 

Income (loss) from continuing operations

 

$

(9,708

)

 

$

(10,534

)

$

70,107

 

 

$

(33,151

)

Add items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest expense

 

 

2,493

 

 

 

3,821

 

 

8,544

 

 

 

7,312

 

Asset impairment

 

 

 

 

 

704

 

 

 

 

 

704

 

Loss on debt repayment

 

 

 

 

 

 

 

3,295

 

 

 

 

Income tax (benefit) expense

 

 

(6,768

)

 

 

(2,047

)

 

(118,659

)

 

 

177

 

Depreciation and amortization

 

 

5,050

 

 

 

4,609

 

 

16,223

 

 

 

13,812

 

Equity in loss of CVR

 

 

1,100

 

 

 

 

 

2,429

 

 

 

 

Other(1)

 

 

337

 

 

 

750

 

 

1,307

 

 

 

(796

)

Consolidated Adjusted EBITDA, excluding equity in loss of CVR

   and discontinued operations

 

$

(7,496

)

 

$

(2,697

)

$

(16,754

)

 

$

(11,942

)

 

 

(1)

The amount for the three months ended September 30, 2016 includes a write-off for computer software of $0.5 million. The amount for the nine months ended September 30, 2016 includes write-offs for computer software, leasehold improvements, furniture and office equipment totaling $2.0 million. The amount for the nine months ended September 30, 2015 includes a gain of $1.6 million relating to an insurance settlement.

 

CASH FLOWS  

The following table summarizes our consolidated statements of cash flows:

 

 

 

For the Nine Months

Ended September 30,

 

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

Operating activities - continuing operations

 

$

(7,689

)

 

$

(7,475

)

Operating activities - discontinued operations

 

 

(510

)

 

 

89,257

 

Investing activities - continuing operations

 

 

(9,752

)

 

 

(44,021

)

Investing activities - discontinued operations

 

 

18,965

 

 

 

(23,220

)

Financing activities

 

 

(10,679

)

 

 

22,611

 

Effect of exchange rate on cash

 

 

398

 

 

 

(1,797

)

Increase (decrease) in cash

 

$

(9,267

)

 

$

35,355

 

 

Operating Activities

Revenues were $110.3 million for the nine months ended September 30, 2016, compared to $119.2 million for the same period in the prior year. The decrease in revenues was primarily due to the decrease in sales volumes and sales prices at NEWP, partially offset by increases in sales volumes at the Atikokan Facility, the Wawa Facility and Fulghum’s South American operations.

Net cash used in operating activities – continuing operations for the nine months ended September 30, 2016 was $7.7 million. We had net income from continuing operations of $70.1 million for the nine months ended September 30, 2016, which included $16.4 million of depreciation and amortization expense and a $16.5 million write-down of inventory. Inventories, before write-downs, increased by $20.1 million during the nine months ended September 30, 2016 primarily due to an increase in inventory at NEWP because of the abnormally warm temperatures in the Northeast during the most recent winter that resulted in lower sales, partially offset by a decrease in inventory at Fulghum due to timing of sales.  

Net cash used in operating activities – continuing operations for the nine months ended September 30, 2015 was $7.5 million. We had net loss from continuing operations of $33.2 million for the nine months ended September 30, 2015, which included $14.0 million of depreciation and amortization expense. Inventories, before write-downs, increased by $10.4 million during the nine months ended September 30, 2015 primarily due to the normal seasonality of our business. Accounts receivable decreased by $5.7 million due primarily to timing of collections.

44


 

Net cash used in operating activities – discontinued operations for the nine months ended September 30, 2016 was $0.5 million. We had net income – discontinued operations of $231.8 million for the nine months ended September 30, 2016, which includes $358.6 million for our share of the book gain on sale of RNP, and was partially offset by income tax expense of $139.1 million.

Net cash provided by operating activities – discontinued operations for the nine months ended September 30, 2015 was $89.3 million. We had net loss – discontinued operations of $78.4 million for the nine months ended September 30, 2015.

Investing Activities

Net cash used in investing activities – continuing operations was $9.8 million for the nine months ended September 30, 2016, compared to $44.0 million for the same period in the prior year. Net cash used in investing activities for the nine months ended September 30, 2016 was primarily related to capital expenditures at the Atikokan and Wawa Facilities and some of Fulghum’s mills, partially offset by proceeds from disposals of assets and distributions received from our equity investment in CVR. Net cash used in investing activities for the nine months ended September 30, 2015 was primarily related to the capital expenditures for the construction of the Atikokan and Wawa Facilities. During the nine months ended September 30, 2015, we also completed the Allegheny acquisition.

Net cash provided by investing activities – discontinued operations was $19.0 million, compared to net cash used in investing activities – discontinued operations of $23.2 million for the same period in the prior year.

Financing Activities

Net cash used in financing activities was $10.7 million for the nine months ended September 30, 2016, compared to net cash provided by financing activities of $22.6 million for the same period in the prior year. During the nine months ended September 30, 2016, we borrowed $24.3 million under various credit agreements. During the period, we made debt payments of $20.2 million, and RNP made cash distributions to holders of noncontrolling interests of $3.3 million. We also used $10.0 million, along with CVR Common Units valued at $97.1 million, to repurchase the Preferred Stock. CVR Common Units valued at $45.0 million were used to pay down $41.7 million under the GSO Credit Agreement. During the nine months ended September 30, 2015, we borrowed an additional $45.0 million under the GSO Credit Agreement and an additional $11.5 million under RNP’s credit agreement. We also entered into an $8.0 million term loan in connection with the Allegheny acquisition. During the period, we made debt payments of $29.9 million, and RNP made cash distributions to holders of noncontrolling interests of $26.4 million. We also made an earn-out consideration payment of $5.0 million, which includes the $3.8 million value of the initial earn-out consideration at the closing of the NEWP acquisition. The payment also includes $1.2 million of the earn-out consideration that was recorded in the consolidated statements of operations and which was reflected in the changes in operating assets and liabilities in the consolidated statements of cash flows.

 

 

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2016, our current assets and current liabilities, excluding those of discontinued operations, consisted of the following (in thousands):

 

Cash

 

$

39,674

 

Accounts receivable

 

 

8,987

 

Inventories

 

 

28,876

 

Other current assets

 

 

8,560

 

Total current assets

 

$

86,097

 

Accounts payable

 

$

10,327

 

Accrued liabilities

 

 

22,744

 

Debt

 

 

14,039

 

Other current liabilities

 

 

8,787

 

Total current liabilities

 

$

55,897

 

 

45


 

At September 30, 2016, our debt consisted of the following (in thousands):

 

GSO Credit Agreement

 

$

52,250

 

Fulghum debt(1)

 

 

38,536

 

NEWP debt(2)

 

 

16,278

 

QS Construction Facility(3)

 

 

20,509

 

Total debt

 

$

127,573

 

 

(1)

The Fulghum debt consists primarily of 13 term loans and three short term lines of credit with various financial institutions with each loan secured by specific property and equipment.

(2)

The NEWP debt consists primarily of four term loans with each term loan secured by specific property and equipment.

(3)

The amount that we owe under the obligation is $14.0 million.

Sources and Uses of Capital

During the nine months ended September 30, 2016, we funded development activities, operations and investments in our wood fibre processing business and corporate activities primarily through cash on hand, cash from the sale of RNP, and distributions from RNP and CVR. We expect to be able to fund our operating needs, including working capital and capital expenditures remaining on the Atikokan and Wawa Facilities, from our operating cash flow, cash on hand and distributions from CVR, for at least the next 12 months.  

Debt Facilities

Our debt facilities used to support our wood fibre processing business and corporate activities are the Fulghum debt, the NEWP debt, the QS Construction Facility, the credit agreement with Bank of Montreal, or the BMO Credit Agreement, and the GSO Credit Agreement. We expect Fulghum and NEWP to cover their respective debt service during the next 12 months with their cash from operations. We expect debt service related to the remaining debt during the next 12 months to be funded with cash on hand and distributions from CVR. For a description of the terms of our various debt instruments, see “Note 15 — Debt” to the consolidated financial statements included in “Part II—Item 8. Financial Statements and Supplementary Data” in the Annual Report. On April 1, 2016, we entered into the GSO Credit Agreement, which currently consists of a $52.2 million term loan facility. During the quarter ended September 30, 2016, NEWP received a covenant waiver from its lender. For a description of the terms of the GSO Credit Agreement and an explanation for the waiver, see “Note 10 — Debt and Preferred Stock” to the consolidated financial statements included in this report. In May 2016, NEWP amended its revolving credit facility to increase available borrowings from $2.5 million to $6.0 million. In connection with the amendment to the NEWP credit facility, NEWP now must receive the lender’s prior approval before making any cash distributions to Rentech. In the event that the lender does not provide such approval, we may need to access other sources of liquidity to fund Rentech’s operations.

2016 Transactions

On March 14, 2016, RNP completed the sale of Pasadena Holdings to IOC. The transaction included an initial cash payment to RNP of $5.0 million, which resulted in a distribution to us of $2.6 million. The transaction also included a post-closing cash working capital adjustment of $5.4 million. The working capital adjustment along with insurance refunds put the total distribution to RNP unitholders at approximately $5.7 million, of which we received $3.4 million.  

On April 1, 2016, RNP completed the Merger with CVR. We received merger consideration of $59.8 million of cash and 24.2 million CVR Common Units. We used 17.0 million CVR Common Units and $10.0 million of cash to: (i) repurchase and retire all $100 million of our Preferred Stock held by the GSO Funds and (ii) repay approximately $41.7 million of debt under the GSO Credit Agreement.

Due to the gain on sale of RNP upon completion of the Merger, we expect to utilize all of our federal NOL carryforwards, R&D credits and AMT credit carryforwards. During the three months ended September 30, 2016, we paid estimated tax payments totaling $4.4 million. We expect to make additional estimated tax payments during the three months ended December 31, 2016 totaling between $1.0 million and $2.0 million.

On September 9, 2016, we entered into a Termination Agreement with Kaidi and certain related parties pursuant to which Kaidi would pay $3.5 million to us (inclusive of a $1.1 million credit for Kaidi’s share of proceeds from the sale of the PDU equipment and property) on or before November 8, 2016. On November 7, 2016, we received the payment due under the Termination Agreement. For further information on the Termination Agreement, refer to the Current Report on Form 8-K filed by us on September 15, 2016.

46


 

Cash Distributions

We expect quarterly distributions from CVR, if made, to be a source of liquidity for our wood fibre processing and corporate activities. Cash distributions from CVR may vary significantly from quarter to quarter and from year to year, and could be as low as zero for any quarter. We own approximately 7.2 million CVR Common Units. Assuming we continue to hold the CVR Common Units, we would receive quarterly distributions if made by CVR. However, our ownership interest in CVR may be reduced over time if we elect to sell any of our CVR Common Units or if additional common units were to be issued by CVR, as the case may be. While CVR paid a cash distribution to its common unitholders for the second quarter of 2016 of $0.17 per unit, CVR announced it would not pay a cash distribution for the third quarter of 2016.

Capital Expenditures

We estimate the total cost to acquire and convert the Atikokan and Wawa Facilities, including the costs of required modifications to the material-handling systems, will be approximately $145 million. This total cost includes working capital, commissioning costs, and contingency on the planned repairs and modifications to material handling systems. Our projection for capital expenditures does not include contingencies to address any other unforeseen issues that may arise during ramp-up of the facilities. For the nine months ended September 30, 2016, total combined expenditures, including construction, working capital and costs to commission, for the Atikokan and Wawa Facilities were approximately $6.8 million. As of September 30, 2016, remaining cash expenditures to complete the modifications to the Atikokan and Wawa Facilities are expected to be approximately $14.5 million, which includes approximately $5.0 million for potential additional conveyor replacements at the Atikokan Facility and other potential improvements that are on hold until such time that the investment can be justified by us. Of the $14.5 million, $6.6 million is recorded in accounts payable and accrued liabilities as of September 30, 2016.  

CONTRACTUAL OBLIGATIONS

Our contractual obligations from continuing operations as of September 30, 2016 are not materially different from those disclosed in “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations” in our Annual Report.

OFF-BALANCE SHEET ARRANGEMENTS

We did not have any material off-balance sheet arrangements as of September 30, 2016.

RECENTLY ISSUED ACCOUNTING STANDARDS

Refer to “Note 2 — Recent Accounting Pronouncements” to the consolidated financial statements, included in “Part I — Item 1. Financial Statements” of this report.

 

 

ITEM  3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a quantitative and qualitative discussion about market risk relating to continuing operations, see “Part II — Item 7A. Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report. As of September 30, 2016, no material changes have occurred in the types or nature of market risk described in our Annual Report.

ITEM  4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, or DCP, that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer, or Chief Executive Officer, and principal financial officer, or Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating DCP, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

47


 

The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s DCP as of the end of the period covered by this report. Management has identified material weaknesses in internal control over financial reporting, or ICFR, as described below. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our DCP were not effective at the reasonable assurance level as of September 30, 2016.

Material Weaknesses in Internal Control over Financial Reporting

As we reported in 2015, we identified a material weakness which continues to exist as of September 30, 2016. We did not design and maintain effective internal controls over the review of the cash flow forecasts used in the accounting for long-lived asset impairment and recoverability. Specifically, we did not design and maintain effective internal controls related to documenting management’s review of assumptions used in our cash flow forecasts for long-lived asset impairment and recoverability. For more information, see “Part II—Item 9A. Controls and Procedures—Management’s Annual Report on Internal Control Over Financial Reporting” in the Annual Report.  

Additionally, as we reported for the quarter ended June 30, 2016, we identified a material weakness which continues to exist as of September 30, 2016. We determined that we did not maintain effective internal controls over the allocation of GAAP income tax expense between continuing and discontinued operations. Specifically, we did not perform certain procedures over the allocation of the GAAP tax provision between continuing and discontinued operations in the second quarter in accordance with our designed controls. This material weakness resulted in a material adjustment prior to finalizing the Company’s presentation of GAAP income tax expense between continuing and discontinued operations in its recasted 2015 consolidated financial statements for the three-month and six-month periods ended June 30, 2015.

A material weakness is a deficiency, or combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. These control deficiencies did not result in a material misstatement to our consolidated financial statements for the quarter ended September 30, 2016. However, these control deficiencies, if unremediated, could result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected by our internal controls. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.

Plan for Remediation of the Material Weaknesses

During the fourth quarter of 2015, we designed a number of measures to address the material weakness relating to cash flow forecasts identified above. Specifically, we designed additional controls over documentation and review of the inputs and results of our cash flow forecasts used in the impairment testing for our Wawa and Atikokan Facilities. These controls included the implementation of additional review activities by qualified personnel and additional documentation and support of conclusions with regard to accounting for long-lived asset recoverability and impairment. In addition, we plan to reinforce our control requirements to ensure controls designed to review the allocation of GAAP income tax expense between continuing and discontinued operations are performed at a level of consistency and precision which will prevent or detect material misstatements in the financial statements. We are in the process of implementing our remediation plan, and expect the control weaknesses to be remediated in the coming reporting periods. However, we are unable at this time to estimate when the remediation will be completed.

The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our ICFR, we may determine to take additional actions to address control deficiencies or determine to modify certain of the remediation measures described above. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.

Changes in Internal Control over Financial Reporting

As described in the Material Weaknesses in Internal Control over Financial Reporting and Plan for Remediation of the Material Weaknesses sections above, there were changes in our ICFR during the quarter ended September 30, 2016 that materially affected, or are reasonably likely to materially affect, our ICFR.

48


 

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 11 — Commitments and Contingencies — Litigation” to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

ITEM 6.

EXHIBITS.

Exhibit Index

 

2.1

Termination Agreement dated as of September 9, 2016, by and among Rentech Inc., Rentech Energy Technology Center, LLC, Sunshine Kaidi New Energy Group Co., Ltd., RES USA, LLC, Harvest International New Energy Co., Ltd. and Wuhan Kaidi Engineering Technology Research Institute Co., LTD. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed by Rentech, Inc. on September 15, 2016).

 

 

31.1

Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act.

 

 

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act.

 

 

32.1

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

 

 

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

 

 

101

The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 formatted in Extensible Business Reporting Language (“XBRL”) includes: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders’ Equity (Deficit), (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements (Unaudited), detailed tagged.

 

 

 

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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: November 9, 2016

 

/s/ Keith B. Forman

 

 

Keith B. Forman,

 

 

President and Chief Executive Officer

 

 

 

Dated: November 9, 2016

 

/s/ Jeffrey R. Spain

 

 

Jeffrey R. Spain,

 

 

Chief Financial Officer

 

 

50