Attached files
file | filename |
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EX-3.I.1 - EXHIBIT 3(I).1 - RENTECH, INC. | c04525exv3wiw1.htm |
EX-32.2 - EXHIBIT 32.2 - RENTECH, INC. | c04525exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - RENTECH, INC. | c04525exv31w1.htm |
EX-10.1 - EXHIBIT 10.1 - RENTECH, INC. | c04525exv10w1.htm |
EX-31.2 - EXHIBIT 31.2 - RENTECH, INC. | c04525exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - RENTECH, INC. | c04525exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
Or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-15795
RENTECH, INC.
(Exact name of registrant as specified in its charter)
Colorado (State or other jurisdiction of incorporation or organization) |
84-0957421 (I.R.S. Employer Identification No.) |
10877 Wilshire Boulevard, Suite 600
Los Angeles, California 90024
(Address of principal executive offices)
Los Angeles, California 90024
(Address of principal executive offices)
(310) 571-9800
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares of the Registrants common stock outstanding as of July 30, 2010 was
221,731,479.
RENTECH, INC.
Form 10-Q
Form 10-Q
Table of Contents
3 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
8 | ||||||||
19 | ||||||||
28 | ||||||||
29 | ||||||||
29 | ||||||||
29 | ||||||||
30 | ||||||||
30 | ||||||||
31 | ||||||||
Exhibit 3(i).1 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENTECH, INC.
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Amounts in thousands, except per share data)
As of | ||||||||
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 47,932 | $ | 69,117 | ||||
Restricted cash, short-term |
150 | 150 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $100 at June 30, 2010 and $0 at
September 30, 2009 |
11,666 | 9,757 | ||||||
Inventories |
9,231 | 12,222 | ||||||
Deposits on gas contracts |
1,597 | 724 | ||||||
Prepaid expenses and other current assets |
3,642 | 3,858 | ||||||
Other receivables, net |
52 | 1,809 | ||||||
Total current assets |
74,270 | 97,637 | ||||||
Property, plant and equipment, net |
55,131 | 54,249 | ||||||
Construction in progress |
36,757 | 28,037 | ||||||
Other assets |
||||||||
Other assets and deposits |
16,058 | 14,677 | ||||||
Available for sale securities, non-current |
| 6,000 | ||||||
Total other assets |
16,058 | 20,677 | ||||||
Total assets |
$ | 182,216 | $ | 200,600 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 6,025 | $ | 5,495 | ||||
Accrued payroll and benefits |
5,249 | 6,204 | ||||||
Accrued liabilities |
14,138 | 11,801 | ||||||
Capital lease obligation |
464 | | ||||||
Line of credit on available for sale securities |
| 4,532 | ||||||
Deferred revenue |
769 | 18,203 | ||||||
Accrued interest |
1,954 | 2,930 | ||||||
Current portion of long-term debt and term loan |
30,001 | 36,440 | ||||||
Total current liabilities |
58,600 | 85,605 | ||||||
Long-term liabilities |
||||||||
Long-term debt, net of current portion |
| 907 | ||||||
Term loan, net of current portion |
28,357 | | ||||||
Long-term convertible debt to stockholders |
40,980 | 37,717 | ||||||
Advance for equity investment |
7,892 | 7,892 | ||||||
Other long-term liabilities |
358 | 243 | ||||||
Total long-term liabilities |
77,587 | 46,759 | ||||||
Total liabilities |
136,187 | 132,364 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Stockholders equity: |
||||||||
Preferred stock: $10 par value; 1,000 shares authorized; 90 series A convertible preferred shares authorized and issued; no shares outstanding and $0 liquidation preference |
| | ||||||
Series C participating cumulative preferred stock: $10 par value; 500 shares authorized;
no shares issued and outstanding |
| | ||||||
Common stock: $.01 par value; 450,000 shares authorized; 221,731 and 212,696 shares issued and outstanding at June 30, 2010 and September 30, 2009, respectively |
2,217 | 2,127 | ||||||
Additional paid-in capital |
331,778 | 320,934 | ||||||
Accumulated deficit |
(287,966 | ) | (254,825 | ) | ||||
Total stockholders equity |
46,029 | 68,236 | ||||||
Total liabilities and stockholders equity |
$ | 182,216 | $ | 200,600 | ||||
See Accompanying Notes to Consolidated Financial Statements.
3
Table of Contents
RENTECH, INC.
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Amounts in thousands, except per share data)
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
(As Restated) | (As Restated) | |||||||||||||||
Revenues |
||||||||||||||||
Product sales |
$ | 49,377 | $ | 93,262 | $ | 95,583 | $ | 160,757 | ||||||||
Service revenues |
399 | 71 | 514 | 133 | ||||||||||||
Total revenues |
49,776 | 93,333 | 96,097 | 160,890 | ||||||||||||
Cost of sales |
||||||||||||||||
Product sales |
34,002 | 42,585 | 78,358 | 107,555 | ||||||||||||
Service revenues |
587 | | 693 | | ||||||||||||
Total cost of sales |
34,589 | 42,585 | 79,051 | 107,555 | ||||||||||||
Gross profit |
15,187 | 50,748 | 17,046 | 53,335 | ||||||||||||
Operating expenses |
||||||||||||||||
Selling, general and administrative expenses |
7,492 | 6,029 | 21,337 | 18,691 | ||||||||||||
Depreciation and amortization expenses |
476 | 325 | 1,460 | 997 | ||||||||||||
Research and development expenses |
5,011 | 7,187 | 13,313 | 16,555 | ||||||||||||
Total operating expenses |
12,979 | 13,541 | 36,110 | 36,243 | ||||||||||||
Operating income (loss) |
2,208 | 37,207 | (19,064 | ) | 17,092 | |||||||||||
Other income (expense) |
||||||||||||||||
Interest and dividend income |
23 | 139 | 192 | 492 | ||||||||||||
Interest expense |
(3,747 | ) | (3,584 | ) | (10,487 | ) | (10,114 | ) | ||||||||
Loss on debt extinguishment |
| | (2,268 | ) | | |||||||||||
Realized loss, net on sale of investments |
| | (1,231 | ) | | |||||||||||
Other expense |
(151 | ) | (211 | ) | (281 | ) | (322 | ) | ||||||||
Total other expense |
(3,875 | ) | (3,656 | ) | (14,075 | ) | (9,944 | ) | ||||||||
Income (loss) from continuing operations before income taxes |
(1,667 | ) | 33,551 | (33,139 | ) | 7,148 | ||||||||||
Income tax expense |
10 | 3 | 10 | 17 | ||||||||||||
Income (loss) from continuing operations |
(1,677 | ) | 33,548 | (33,149 | ) | 7,131 | ||||||||||
Income from discontinued operations |
2 | 2 | 8 | 66 | ||||||||||||
Net income (loss) |
$ | (1,675 | ) | $ | 33,550 | $ | (33,141 | ) | $ | 7,197 | ||||||
Basic and diluted net income (loss) per common share: |
||||||||||||||||
Continuing operations |
$ | (0.01 | ) | $ | 0.20 | $ | (0.15 | ) | $ | 0.04 | ||||||
Discontinued operations |
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Net income (loss) |
$ | (0.01 | ) | $ | 0.20 | $ | (0.15 | ) | $ | 0.04 | ||||||
Weighted-average shares used to compute net income (loss) per common share: |
||||||||||||||||
Basic |
216,175 | 167,258 | 214,161 | 166,836 | ||||||||||||
Diluted |
216,175 | 167,551 | 214,161 | 167,144 | ||||||||||||
See Accompanying Notes to Consolidated Financial Statements.
4
Table of Contents
RENTECH, INC.
Consolidated Statement of Stockholders Equity
(Amounts in thousands)
(Amounts in thousands)
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Balance, September 30, 2009 (as originally reported) |
212,696 | $ | 2,127 | $ | 293,299 | $ | (246,227 | ) | $ | 49,199 | ||||||||||
Cumulative effect of accounting change (adoption of
accounting standard on convertible debt
instruments) |
| | 27,635 | (8,598 | ) | 19,037 | ||||||||||||||
Balance, September 30, 2009 (as adjusted) |
212,696 | 2,127 | 320,934 | (254,825 | ) | 68,236 | ||||||||||||||
Payment of offering costs |
| | (293 | ) | | (293 | ) | |||||||||||||
Issuance of common stock |
6,689 | 67 | 6,169 | | 6,236 | |||||||||||||||
Common stock issued for stock options exercised |
15 | | 16 | | 16 | |||||||||||||||
Common stock issued for warrants exercised |
2,080 | 20 | 1,108 | | 1,128 | |||||||||||||||
Stock-based compensation expense |
| | 4,094 | | 4,094 | |||||||||||||||
Restricted stock units |
251 | 3 | (250 | ) | | (247 | ) | |||||||||||||
Net loss |
| | | (33,141 | ) | (33,141 | ) | |||||||||||||
Balance, June 30, 2010 |
221,731 | $ | 2,217 | $ | 331,778 | $ | (287,966 | ) | $ | 46,029 | ||||||||||
See Accompanying Notes to Consolidated Financial Statements.
5
Table of Contents
RENTECH, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Amounts in thousands)
For the Nine Months | ||||||||
Ended June 30, | ||||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
(As Restated) | ||||||||
Cash flows from operating activities |
||||||||
Net income (loss) |
$ | (33,141 | ) | $ | 7,197 | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||
Depreciation and amortization |
8,772 | 7,332 | ||||||
Accretion expense |
23 | - | ||||||
Utilization of spare parts |
1,284 | 1,257 | ||||||
Bad debt expense |
105 | 5 | ||||||
Gain on disposal of property, plant and equipment |
(28 | ) | | |||||
Non-cash interest expense |
5,810 | 5,177 | ||||||
Reversal of non-cash marketing expense |
| (380 | ) | |||||
Loss on debt extinguishment |
2,268 | | ||||||
Realized loss, net on sale of investments |
1,231 | | ||||||
Gain on sale of subsidiary |
(8 | ) | (66 | ) | ||||
Stock-based compensation |
4,094 | 2,776 | ||||||
Equity in loss of investee |
465 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(3,009 | ) | 6,291 | |||||
Property insurance claim receivable |
1,795 | (1,500 | ) | |||||
Other receivables |
(43 | ) | 35 | |||||
Inventories |
2,694 | 8,154 | ||||||
Deposits on gas contracts |
(873 | ) | 16,625 | |||||
Prepaid expenses and other current assets |
1,286 | 2,189 | ||||||
Accounts payable |
948 | (1,767 | ) | |||||
Deferred revenue |
(17,434 | ) | (52,720 | ) | ||||
Accrued interest |
(975 | ) | (418 | ) | ||||
Accrued liabilities, accrued payroll and other |
291 | (655 | ) | |||||
Net cash used in operating activities |
(24,445 | ) | (468 | ) | ||||
Cash flows from investing activities |
||||||||
Purchase of property, plant, equipment and construction in progress |
(19,560 | ) | (11,247 | ) | ||||
Proceeds from disposal of property, plant and equipment |
2,153 | | ||||||
Proceeds from sale of available for sale securities |
4,769 | | ||||||
Payments for acquisition |
| (338 | ) | |||||
Other items |
(611 | ) | (550 | ) | ||||
Net cash used in investing activities |
(13,249 | ) | (12,135 | ) | ||||
Cash flows from financing activities |
||||||||
Proceeds from term loan, net of original issue discount |
60,625 | | ||||||
Retirement of term loan, including costs |
(38,040 | ) | | |||||
Payments on debt and notes payable |
(3,593 | ) | (15,904 | ) | ||||
Debt issuance costs |
(3,666 | ) | (499 | ) | ||||
Payments on notes payable for financed insurance premiums |
(1,372 | ) | (1,941 | ) | ||||
Payment of offering costs |
(293 | ) | (47 | ) | ||||
Payments on line of credit on available for sale securities |
(4,532 | ) | (192 | ) | ||||
Proceeds from issuance of common stock |
6,236 | 6,322 | ||||||
Proceeds from options and warrants exercised |
1,144 | | ||||||
Net cash provided by (used in) financing activities |
16,509 | (12,261 | ) | |||||
Decrease in cash and cash equivalents |
(21,185 | ) | (24,864 | ) | ||||
Cash and cash equivalents, beginning of period |
69,117 | 63,722 | ||||||
Cash and cash equivalents, end of period |
$ | 47,932 | $ | 38,858 | ||||
6
Table of Contents
RENTECH, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Continued from previous page)
Excluded from the statements of cash flows for the nine months ended June 30, 2010 and
2009 were the effects of certain non-cash investing and financing activities as follows:
For the Nine Months | ||||||||
Ended June 30, | ||||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Cashless exercise of warrants |
$ | 8 | $ | | ||||
Acquisition, which includes issuance of common stock |
| 8,455 | ||||||
Warrants granted in connection with amendment to term loan |
| 1,626 | ||||||
Warrants granted in connection with equity investment |
| 629 | ||||||
Purchase of insurance policies financed with a note payable |
1,893 | 2,204 | ||||||
Rescission of notes receivable on repurchase of common stock |
| 606 | ||||||
Restricted stock units surrendered for withholding taxes payable |
247 | 149 | ||||||
Purchase of common stock warrants paid through the reduction of loan fees |
| 50 | ||||||
Capital lease on software |
464 | |
See Accompanying Notes to Consolidated Financial Statements.
7
Table of Contents
RENTECH, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements of Rentech, Inc. and its
consolidated subsidiaries (collectively, the Company) have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP) and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by GAAP for complete financial statements. In the opinion
of management, the unaudited consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair statement of the Companys
financial position at June 30, 2010, and the results of operations and cash flows for the periods
presented. The accompanying consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. Operating results for the three and nine months ended June 30, 2010
are not necessarily indicative of the results that may be expected for the fiscal year ending
September 30, 2010. The information included in this Form 10-Q should be read in conjunction with
the consolidated financial statements and notes thereto included in the Companys Annual Report on
Form 10-K for the fiscal year ended September 30, 2009 filed with the Securities and Exchange
Commission (the SEC) on December 14, 2009 and the consolidated financial statements and notes
thereto for the fiscal year ended September 30, 2009 included as exhibit 99.1 in the Companys
Current Report on Form 8-K filed with the SEC on March 10, 2010 (collectively, the Annual
Report). The sole purpose of that Current Report on Form 8-K was to disclose the Companys
adoption of new accounting guidance relating to convertible debt instruments (see additional
information in this note).
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Because of their short-term nature, the amounts reported in the Companys consolidated balance
sheets for cash and cash equivalents, accounts receivable, accounts payable and current portion of
long-term debt and term loan approximate fair value.
The Company has evaluated events, if any, which occurred subsequent to June 30, 2010 through
the date these financial statements were issued, to ensure that such events have been properly
reflected in these statements.
Certain prior period amounts have been reclassified to conform to the fiscal year 2010
presentation.
In its Annual Report, the Company restated its consolidated balance sheet at September 30,
2008, and its consolidated statement of operations, its changes in stockholders equity and cash
flows for the fiscal year ended September 30, 2008. The report also presented restated selected
quarterly financial data for the quarters ended June 30, 2009, March 31, 2009 and December 31,
2008.
The amounts presented in this Form 10-Q related to the prior year have been restated to
correct previous errors and to be consistent with the Companys presentation of restatements in its
Annual Report, by reclassifying deposits on natural gas purchase contracts from inventory to
deposits, and to reverse the effects of the lower-of-cost-or-market adjustments related to those
deposits in the consolidated statements of operations, changes in stockholders equity and cash
flows. As reported in the Annual Report, these corrections materially changed the timing, but not
the total amount, of the recognition of expenses for purchases of natural gas. In periods in which
inventory impairments have been reversed, the costs of gas recognized are lower than under the
previous treatment. In periods following the inventory impairments that were recorded under the
prior treatment, the cost of goods sold are higher than the cost recognized under the previous
treatment. The correction in accounting treatment had no effect on cash flows.
8
Table of Contents
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The following table (in thousands, except per share data) presents the effects of the
restatement on total cost of sales, gross profit, write down of inventory to market, income from
continuing operations before income taxes, net income and net income per common share for the three
and nine months ended June 30, 2009, consistent with the presentation in the Annual Report.
Three Months Ended | ||||||||||||||||||||
June 30, 2009 | ||||||||||||||||||||
As | As Stated | |||||||||||||||||||
Previously | Restatement | As | in this | |||||||||||||||||
Reported | Adjustments | Restated | Adjustments | Report | ||||||||||||||||
Total cost of sales |
$ | 38,850 | $ | 1,819 | $ | 40,669 | $ | 1,916 | (1) | $ | 42,585 | |||||||||
Gross profit |
52,567 | (1,819 | ) | 50,748 | | 50,748 | ||||||||||||||
Write down of inventory to market |
116 | (116 | ) | | | | ||||||||||||||
Interest expense |
2,821 | | 2,821 | 763 | (2) | 3,584 | ||||||||||||||
Income from continuing operations before income taxes |
36,133 | (1,819 | ) | 34,314 | (763 | ) | 33,551 | |||||||||||||
Net income |
36,132 | (1,819 | ) | 34,313 | (763 | ) | 33,550 | |||||||||||||
EPS Basic |
0.22 | (0.01 | ) | 0.21 | (0.01 | ) | 0.20 | |||||||||||||
EPS Diluted |
0.22 | (0.02 | ) | 0.20 | | 0.20 |
Nine Months Ended | ||||||||||||||||||||
June 30, 2009 | ||||||||||||||||||||
As | As Stated | |||||||||||||||||||
Previously | Restatement | As | in this | |||||||||||||||||
Reported | Adjustments | Restated | Adjustments | Report | ||||||||||||||||
Total cost of sales |
$ | 99,059 | $ | 5,889 | $ | 104,948 | $ | 2,607 | (1) | $ | 107,555 | |||||||||
Gross profit |
59,224 | (5,889 | ) | 53,335 | | 53,335 | ||||||||||||||
Write down of inventory to market |
16,092 | (16,092 | ) | | | | ||||||||||||||
Interest expense |
7,930 | | 7,930 | 2,184 | (2) | 10,114 | ||||||||||||||
Income from continuing operations before income taxes |
15,221 | (5,889 | ) | 9,332 | (2,184 | ) | 7,148 | |||||||||||||
Net income |
15,270 | (5,889 | ) | 9,381 | (2,184 | ) | 7,197 | |||||||||||||
EPS Basic |
0.09 | (0.03 | ) | 0.06 | (0.02 | ) | 0.04 | |||||||||||||
EPS Diluted |
0.09 | (0.04 | ) | 0.05 | (0.01 | ) | 0.04 |
(1) | Certain prior period amounts related to sales commissions have been reclassified to
conform to the fiscal year 2010 presentation. |
|
(2) | Additional non-cash interest expense due to adoption of new accounting guidance
relating to convertible debt instruments. See additional information below. |
In May 2008, the Financial Accounting Standards Board (the FASB) issued a new accounting
standard relating to the accounting for convertible debt instruments that may be settled in cash
upon conversion (including partial cash settlement), which specifies that issuers of such
instruments shall separately account for the liability and equity components in a manner that will
reflect the entitys nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. This guidance was effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption
was not permitted. This guidance was effective for the Companys fiscal year beginning October 1,
2009. The guidance was applied retrospectively to all periods presented. The adoption of the
guidance affected the accounting for the Companys 4.00% Convertible Senior Notes. Upon adoption of
the guidance, the estimated effective interest rate on the Companys 4.00% Convertible Senior Notes
was 18.00% as of the time of issuance, which resulted in the recognition of a $30,495,000 discount
to the debt portion of these notes with an amount equal to that discount recorded to paid-in
capital at the time of issuance. Such discount is amortized as interest expense (non-cash) over the
remaining life of the 4.00% Convertible Senior Notes. As a result of the additional interest
expense, capitalized interest, which is recorded in construction in progress, also increased. In
addition, the original beneficial conversion feature of $875,000 and the related interest expense
amortization were reversed upon adoption of this guidance.
9
Table of Contents
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Amounts related to the 4.00% Convertible Senior Notes are reflected in the Companys
consolidated balance sheets as follows:
As of | ||||||||
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Convertible senior notes |
$ | 57,500 | $ | 57,500 | ||||
Less unamortized discount |
(16,520 | ) | (19,783 | ) | ||||
Long-term convertible debt to stockholders |
$ | 40,980 | $ | 37,717 | ||||
For the three and nine months ended June 30, 2010, the impact of adopting the accounting
standard is an increase in interest expense of approximately $948,000 and $2,705,000, respectively.
Note 2 Recent Accounting Pronouncements
In September 2006, the FASB issued a standard on fair value measurements that clarified the
principle that fair value shall be based on the assumptions that market participants would use when
pricing an asset or liability. Additionally, it established a fair value hierarchy that prioritizes
the information used to develop those assumptions. This standard is effective for consolidated
financial statements issued for fiscal years beginning after November 15, 2007. In February 2008,
the FASB provided a one year deferral for the implementation of this standard for non-financial
assets and liabilities recognized or disclosed at fair value on a non-recurring basis. The
provisions of this standard were effective for the Companys financial assets and liabilities for
the fiscal year beginning October 1, 2008. The provisions of this standard were effective for the
Companys non-financial assets and liabilities for the fiscal year beginning October 1, 2009. The
adoption of this standard for financial and non-financial assets and liabilities did not have a
material impact on the Companys consolidated financial position or results of operations.
In April 2009, the FASB issued a staff position on accounting for assets acquired and
liabilities assumed in a business combination that arise from contingencies. The staff position
amends the provisions of a previously issued standard for the initial recognition and measurement,
subsequent measurement and accounting, and disclosures for assets and liabilities arising from
contingencies in business combinations. This guidance eliminates the distinction between
contractual and non-contractual contingencies, including the initial recognition and measurement
criteria. It is effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. This guidance is effective for the
Companys fiscal years beginning on or after October 1, 2009. In the absence of any definitive
future business combinations, the Company does not currently expect this guidance to have a
material impact on the Companys consolidated financial condition, results of operations or
disclosures.
In June 2009, the FASB issued a standard which provides guidance about the information that a
reporting entity provides in its financial reports about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash flows; and a
transferors continuing involvement in transferred financial assets. This standard is effective for
fiscal years beginning after November 15, 2009. It is effective for the Companys fiscal years
beginning on or after October 1, 2010. The adoption of this standard is not expected to have a
material impact on the Companys consolidated financial position, results of operations or
disclosures.
In June 2009, the FASB issued a standard which amends guidance issued in an interpretation as
it relates to determining whether an entity is a variable interest entity and ongoing reassessments
of whether an enterprise is the primary beneficiary of a variable interest entity. This standard is
effective for fiscal years beginning after November 15, 2009. It is effective for the Companys
fiscal years beginning on or after October 1, 2010. The Company is assessing the impact this
guidance may have on its consolidated financial statements.
Note 3 Available for Sale Securities
The Companys available for sale securities were primarily auction rate securities which
invested in long-term investment grade obligations purchased at par. Prior to fiscal 2008, these
investments were classified as short-term investments and the trading of auction rate securities
took place through a descending price auction occurring in 7, 28 and 35 day cycles with the
interest rate reset at the beginning of each holding period. At the end of each holding period the
interest was paid to the investor. The Company recorded the interest when earned as interest
income.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
During fiscal 2008, conditions in the global credit markets prevented the Company and other
investors from liquidating holdings of auction rate securities because the amount of securities
submitted for sale at auction exceeded the amount of purchase orders for such securities. As a
consequence of the failed auctions, the investments were not readily convertible to cash until a
future auction of these investments occurred, the underlying securities were redeemed by the issuer
or the underlying securities matured. During the second quarter of fiscal 2008, the Company
reclassified its available for sale securities from current assets to noncurrent assets because the
Company was unable to readily redeem these securities into cash for current operations.
In May 2008, the Company executed a line of credit with the custodian of its available for
sale securities. In September 2008, the line of credit was assumed by Barclays Capital, Inc.
(Barclays). The line of credit provided for aggregate borrowings up to $5,000,000 and such loans
were collateralized by the Companys available for sale securities. Borrowings under the line of
credit accrued interest at the rate of LIBOR plus 1.50%. The line of credit was paid off during the
nine months ended June 30, 2010 as a
result of the sale through a tender offer of a portion of the securities and various sales of
the remaining securities, which resulted in proceeds of approximately $4.8 million and a net
realized loss on sale of investments of approximately $1.2 million.
Due to the absence of market activity and other observable pricing as of the measurement date,
estimates that are not observable (Level 3 inputs) were used in determining the fair value which is
in accordance with applicable guidance. The following table shows a reconciliation of the Companys
available for sale securities which were measured at fair value on a recurring basis using Level 3
inputs as the dates of the consolidated balance sheets (in thousands).
Balance at September 30, 2009 |
$ | 6,000 | ||
Net purchases and sales |
(6,000 | ) | ||
Balance at June 30, 2010 |
$ | | ||
Note 4 Accounts Receivable
Accounts receivable consisted of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Trade receivables from nitrogen products |
$ | 11,641 | $ | 8,717 | ||||
Trade receivables from alternative energy |
125 | 1,040 | ||||||
Total accounts receivable, gross |
11,766 | 9,757 | ||||||
Allowance for doubtful accounts on trade accounts receivable |
(100 | ) | | |||||
Total accounts receivable, net |
$ | 11,666 | $ | 9,757 | ||||
Note 5 Inventories
Inventories consisted of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Finished goods |
$ | 8,661 | $ | 11,834 | ||||
Raw materials |
570 | 388 | ||||||
Total inventory |
$ | 9,231 | $ | 12,222 | ||||
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 6 Property, Plant and Equipment and Construction in Progress
Property, plant and equipment consisted of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Land and land improvements |
$ | 1,811 | $ | 1,933 | ||||
Buildings and building improvements |
9,966 | 11,017 | ||||||
Machinery and equipment |
72,836 | 64,697 | ||||||
Furniture, fixtures and office equipment |
977 | 882 | ||||||
Computer equipment and computer software |
4,509 | 4,073 | ||||||
Vehicles |
172 | 172 | ||||||
Leasehold improvements |
66 | 441 | ||||||
Conditional asset (asbestos removal) |
210 | 210 | ||||||
90,547 | 83,425 | |||||||
Less accumulated depreciation |
(35,416 | ) | (29,176 | ) | ||||
Total depreciable property, plant and equipment, net |
$ | 55,131 | $ | 54,249 | ||||
Construction in progress consisted of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Construction in progress for projects under development |
$ | 25,830 | $ | 17,931 | ||||
Accumulated capitalized interest costs related to projects under development |
5,217 | 3,197 | ||||||
Construction in progress for machinery and equipment |
5,219 | 6,882 | ||||||
Software in progress (under capital lease) |
464 | | ||||||
Conditional asset (asbestos removal) |
27 | 27 | ||||||
Total construction in progress |
$ | 36,757 | $ | 28,037 | ||||
The Company has a legal obligation to handle and dispose of asbestos at its plant
at East Dubuque, Illinois (the East Dubuque Plant) and at the site of its proposed project near
Natchez, Mississippi (the Natchez Project) in a special manner when undergoing major or minor
renovations or when buildings at these locations are demolished, even though the timing and method
of settlement are conditional on future events that may or may not be in its control. As a result,
the Company has a conditional obligation for this disposal. In addition, the Company, through its
normal repair and maintenance program, may encounter situations in which it is required to remove
asbestos in order to complete other work. The Company applied the expected present value technique
to calculate and record the fair value of the asset retirement obligation for each property. In
accordance with the applicable guidance, the liability is increased over time and such increase is
recorded as accretion expense. The liability at June 30, 2010 and accretion expense for the nine
months ended June 30, 2010 were $260,000 and $23,000, respectively.
Note 7 Investment in ClearFuels Technology Inc.
On June 23, 2009, the Company acquired 4,377,985 shares of Series B-1 Preferred Stock,
representing a 25% ownership interest in ClearFuels Technology Inc. (ClearFuels), and rights to
license ClearFuels biomass gasification technology, in exchange for a warrant to purchase up to 5
million shares of the Companys common stock, access to the Companys Product Demonstration Unit
(PDU) in Colorado for construction and operation of a ClearFuels gasifier, and certain rights to
license the Rentech Process, including the exclusive right for projects using bagasse as a
feedstock. The warrant vests in three separate tranches with one tranche of 2 million shares vested
as of the closing date, and two tranches of 1.5 million shares each to vest on the achievement by
ClearFuels of established milestones. The exercise price for the first tranche is $0.60 per share
and the exercise price per share for the second and third tranches will be set at the ten-day
average trading price of the Companys common stock at the time of vesting. The fair value of the
warrant was calculated using the Black-Scholes option-pricing model at $628,815. This fair value
was based on the vested tranche of 2 million shares because the Company cannot currently determine
the probability that ClearFuels will achieve the milestones that would trigger vesting of the
second and third tranches.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
During the nine months ended June 30, 2010, pursuant to the warrant agreement, ClearFuels
acquired 832,390 shares of Company common stock through the cashless exercise of warrants
representing 1,500,000 shares.
ClearFuels is a private company and a market does not exist for its preferred stock. As a
result the Company determined the fair value of its investment in ClearFuels to be equal to the
fair market value of the vested warrant issued to ClearFuels at the closing. The investment in
ClearFuels is recorded in other assets and deposits under the equity method of accounting. At June
30, 2010, the investment balance was $79,000 and the Companys share of ClearFuels loss for the
three and nine months ended June 30, 2010 was $188,000 and $465,000, respectively, which is
included in other income (expense) on the consolidated statements of operations.
Note 8 Debt
On June 13, 2008, the Company and its wholly-owned subsidiary, Rentech Energy Midwest
Corporation (REMC), executed a $53,000,000 amended and restated credit agreement (the Credit
Agreement) by and among REMC as the borrower, the Company as a guarantor, Credit Suisse, Cayman
Islands Branch (Credit Suisse), as administrative agent and collateral agent and the lenders
party thereto.
On
January 29, 2010, the Company and REMC replaced the Credit
Agreement with a collateralized term
loan facility with a four and one-half-year maturity, pursuant to a credit agreement (the New
Credit Agreement) with Credit Suisse, as administrative agent and collateral agent, and the
lenders party thereto. REMC borrowed $62.5 million under the New Credit Agreement in the form of
new collateralized term loans (the New Term Loans), the proceeds of which were used to repay its
prior term loan facility (the principal amount of which had already been reduced from the original
$53 million to approximately $37 million), to make a loan to the Company in the amount of
approximately $18 million and to pay related fees and expenses. The payoff of the prior term loan
is considered an early extinguishment of debt. As a result, for the nine months ended June 30,
2010, loss on debt extinguishment of $2.3 million is recorded in the consolidated statements of
operations. The New Term Loans are guaranteed by the Company and certain of its subsidiaries and
contain restrictions on the amount of cash that can be transferred from REMC to the Company or its
non-REMC
subsidiaries after the initial transfer to the Company on the closing date of the New Credit
Agreement. The New Credit Agreement also includes an uncommitted incremental term loan facility
under which REMC may request up to $15 million in incremental term loans (which amount was
increased to $35 million pursuant to the First Amendment described below), subject to the
satisfaction of conditions, including the condition that, after giving effect to the incurrence of
the incremental term loans, the total outstanding principal amount of all term loans under the New
Credit Agreement may not exceed $50 million (which condition was waived pursuant to the First
Amendment in connection with the First Incremental Loans, as described below). The New Term Loans
were issued with original issue discount of 3%, and bear interest, at the election of REMC, at
either (a)(i) the greater of LIBOR or 2.5%, plus (ii) 10.0% or (b)(i) the greatest of (w) the prime
rate, as determined by Credit Suisse, (x) 0.5% in excess of the federal funds effective rate, (y)
LIBOR plus 1.0% or (z) 3.5% plus (ii) 9.0%. Interest payments are generally made on a quarterly
basis. The New Term Loans mature on July 29, 2014 and are subject to annual amortization, payable
quarterly, of 7.5% of the original principal amount in calendar years 2010 and 2011, 15.0% of the
original principal amount in calendar years 2012 and 2013, and the remainder payable in the last
six months prior to maturity. The New Term Loans are subject to mandatory prepayment and reduction
under certain circumstances, with customary exceptions, from the proceeds of the sale of assets and
the sale or issuance of certain indebtedness, and from certain insurance and condemnation proceeds.
The New Credit Agreement also requires that a certain percentage of excess cash flow from REMC, as
defined in the New Credit Agreement, be applied to repay the New Term Loans and any incremental
term loans under the New Credit Agreement. The percentage of REMCs excess cash flow required to be
applied as a prepayment will depend on REMCs leverage ratio as of the relevant calculation date
and the aggregate outstanding principal amount of loans under the New Credit Agreement on such
date. If the leverage ratio is greater than or equal to 1.00:1.00, then 100% of the excess cash
flow will be required to be applied as a prepayment. If the leverage ratio is less than 1.00:1.00
and the aggregate outstanding principal amount of loans under the New Credit Agreement is (a)
greater than or equal to $50 million, then 100% of excess cash flow will be required to be applied
as a prepayment to such loans, (b) greater than or equal to $40 million but less than $50 million,
then 75% of excess cash flow will be required to be applied as a prepayment to such loans or (c)
less than $40 million, then 50% of excess cash flow will be required to be applied as a prepayment
to such loans.
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
On July 21, 2010, REMC and Rentech entered into an amendment to credit agreement, waiver and
collateral agent consent to the New Credit Agreement (the First Amendment). The First Amendment,
among other things, modified the excess cash flow calculation, the prepayment premium schedule, the
interest coverage financial covenant and the maximum leverage financial covenant; waived the EBITDA
(as defined in the New Credit Agreement) and maximum principal requirements in connection with the
First Incremental Loan (as described below); and increased the maximum aggregate incremental term
loan amount to $35 million. The First Amendment also included an early prepayment of $15 million
of principal of the New Term Loans outstanding under the New Credit Agreement made from cash at
REMC that had been held for such purpose. The $15 million prepayment will be deducted from the
mandatory excess cash flow prepayment for fiscal year 2010, if any, pursuant to the terms of the
New Credit Agreement.
Simultaneously upon entering into the First Amendment, REMC and Rentech entered into an
incremental loan assumption agreement to borrow an additional $20 million (the First Incremental
Loan), with proceeds of approximately $18.5 million transferred to Rentech in the form of an
intercompany loan. The First Incremental Loan was issued with original issue discount of 6%, and is
subject to annual amortization, payable quarterly, of 3.75% of the original principal amount for
the remainder of calendar year 2010, 7.5% of the original principal amount for calendar year 2011,
15.0% of the original principal amount for calendar years 2012 and 2013, and the remainder payable
in the last six months prior to maturity. The other terms of the First Incremental Loan, including
without limitation, the maturity date, interest rate and collateral security, are the same as the
New Term Loans.
Long-term debt consists of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Face value of term loan under the credit agreements |
$ | 59,838 | $ | 37,112 | ||||
Less unamortized discount |
(1,480 | ) | (696 | ) | ||||
Book value of term loan under the credit agreements |
58,358 | 36,416 | ||||||
Less current portion |
(30,001 | ) | (36,416 | ) | ||||
Term loan, long-term portion |
$ | 28,357 | $ | | ||||
Mortgage dated February 8, 1999; monthly principal and interest payments of $7,000 with interest at 6.5%; unpaid principal and accrued interest originally due March 1, 2029; collateralized by land and building |
$ | | $ | 931 | ||||
Less current portion |
| (24 | ) | |||||
Mortgage debt, long-term portion |
$ | | $ | 907 | ||||
The mortgage was paid off in April 2010 when the property was sold.
Note 9 Convertible Debt
In April 2006, the Company issued $57,500,000 in aggregate principal amount of 4.00%
Convertible Senior Notes due 2013 with net proceeds to the Company of $53,700,000 after deducting
$3,800,000 of underwriting discounts, commissions, fees and other expenses. The Company recognized
these deductions as prepaid debt issuance costs which is a component of other assets and deposits
on the consolidated balance sheets. An over-allotment option was exercised and the issuance of the
notes from the over-allotment resulted in a beneficial conversion feature of $875,000, which was
recognized as debt discount and was to be amortized to interest expense over the seven-year term of
the notes. Upon adoption of the new accounting standard on convertible debt instruments, the beneficial conversion feature and the
related interest expense amortization were reversed. See Note 1 regarding the change in value of
the convertible debt as a result of adopting the accounting standard
on convertible debt instruments.
Upon achievement of the conversion criteria, the notes may be converted into 14,332,002 shares
of common stock, subject to adjustment.
Based on the market prices, the estimated fair value of the 4.00% Convertible Senior Notes was
approximately $39 million as of June 30, 2010.
14
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 10 Commitments and Contingencies
Natural Gas Agreements
The Companys policy and practice is to enter into fixed-price purchase contracts for natural
gas to minimize monthly and seasonal gas price volatility and in conjunction with contracted
product sales in order to substantially fix gross margin on those product sales contracts. The
Company has entered into multiple natural gas supply contracts, including both fixed- and
indexed-price contracts, for various delivery dates through September 30, 2010. Commitments for
natural gas purchases consist of the following:
As of | ||||||||
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
(in thousands, except weighted average rate) |
||||||||
MMBTUs under fixed-price contracts |
686 | 1,398 | ||||||
MMBTUs under index-price contracts |
209 | | ||||||
Total MMBTUs under contracts |
895 | 1,398 | ||||||
Commitments to purchase natural gas |
$ | 3,934 | $ | 6,615 | ||||
Weighted average rate per MMBTU based on the fixed rates and the indexes applicable to each contract |
$ | 4.40 | $ | 4.73 |
The Company is required to make additional prepayments under these purchase contracts in
the event that market prices fall below the purchase prices in the contracts.
Litigation
The Company is party to litigation from time to time in the normal course of business. While
the outcome of the Companys current matters cannot be predicted with certainty, the Company
maintains insurance to cover certain actions and believes that resolution of its current litigation
will not have a material adverse effect on the Company.
In October 2009, the United States Environmental Protection Agency (the EPA) Region 5 issued
a Notice and Finding of Violation pursuant to the Clean Air Act (CAA) related to the #1 nitric
acid plant at the East Dubuque Plant. The notice alleges violations of the CAAs New Source
Performance Standard for nitric acid plants, Prevention of Significant Deterioration requirements
and Title V Permit Program requirements. The notice appears to be part of the EPAs Clean Air Act
National Enforcement Priority for New Source Review/Prevention of Significant Deterioration related
to nitric acid plants, which seeks to reduce emissions from nitric acid plants through proceedings
that result in the installation of new pollution control technology. The Company continues to
engage in dialogue with the EPA regarding the Companys defenses to the alleged violations and has
had a preliminary technical meeting with the EPA to discuss technical issues associated with the
installation of any new pollution control technology to resolve the EPAs alleged violations. The
EPA has informed the Company that it has referred this matter to the United States Department of
Justice. The Company cannot at this time estimate the cost to resolve this matter, but it does not
believe that the matter will have a material adverse effect on the Company.
Between December 29, 2009 and January 6, 2010, three purported class action shareholder
lawsuits were filed against the Company and certain of its current and former directors and
officers in the United States District Court for the Central District of California (C.D. Cal.)
alleging that the Company and the named current and former directors and officers made false or
misleading statements regarding the Companys financial performance in connection with its
financial statements for fiscal year 2008 and the first three quarters of fiscal year 2009.
Plaintiffs in the actions purport to bring claims on behalf of all persons who purchased Rentech
securities between May 9, 2008 and December 14, 2009 and seek unspecified damages, interest, and
attorneys fees and costs. The cases were consolidated as Michael Silbergleid v. Rentech, Inc., et
al. (In re Rentech Securities Litigation), Lead Case No. 2:09-cv-09495-GHK-PJW (C.D. Cal.) (the
Securities Action), and a lead plaintiff was appointed on April 5, 2010. Lead plaintiff filed a
consolidated complaint on May 20, 2010, and the Companys response is due on October 15, 2010. The
Company intends to vigorously defend this action. The Company cannot at this time estimate the cost
to resolve these matters, but it does not believe that these matters will have a material adverse
effect on the Company.
15
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Between January 22, 2010 and February 10, 2010, five shareholder derivative lawsuits were
filed against certain of the Companys current and former officers and directors in the United
States District Court for the Central District of California and the Superior Court of the State of
California for the County of Los Angeles (LASC). The initial complaints allege that the named
current and former directors and officers caused the Company to make false or misleading statements
regarding the Companys financial performance in connection with its financial statements for
fiscal year 2008 and the first three quarters of fiscal year 2009. The plaintiffs, who purport to
assert claims on behalf of the Company, seek various equitable and/or injunctive relief,
unspecified restitution to the Company, interest, and attorneys fees and costs. The cases before
the United States District Court are consolidated as John Cobb v. D. Hunt Ramsbottom, et al. (In re
Rentech Derivative Litigation), Lead Case No. 2:10-cv-0485-GHK-PJW (C.D. Cal.), and the cases
before the Superior Court are consolidated as Andrew L. Tarr v. Dennis L. Yakobson, et al., LASC
Master File No. BC430553. Consolidated complaints have not yet been filed in either action, as they
have been stayed pending resolution of motions to dismiss the Securities Action. Accordingly, the
Company has not yet filed a response to the complaints but intends to vigorously defend these
actions. The Company cannot at this time estimate the cost to resolve these matters, but it does
not believe that these matters will have a material adverse effect on the Company.
Note 11 Stockholders Equity
During February 2008, the Company sold 400,000 shares of restricted common stock to an
individual professional services provider for cash of $2,000 and notes receivable of $606,000. The
stock was subject to transfer restrictions and repurchase by the Company at the original issuance
price if specified performance milestones were not accomplished by December 31, 2008. During fiscal
year 2008, the Company recognized $380,000 as marketing expense with a corresponding accrued
liability under restricted stock awards. The notes receivable were recorded as a contra-equity
since the notes are non-recourse, other than with respect to the shares. During the first quarter
of fiscal year 2009, the service provider informed the Company that the specified performance
milestones would not be achieved. In December 2008, the Company repurchased all 400,000 shares for
the price at which the shares had been sold. The repurchase resulted in the reversal of $380,000 of
previously recognized marketing expense, a corresponding reversal of the accrued liability under
restricted stock awards, the reversal of the contra-equity notes receivable and the reversal of
associated common stock and additional paid-in capital.
In February 2010, the Company entered into an Equity Distribution Agreement (the Distribution
Agreement), which permits the Company to sell up to $50 million aggregate gross sales price of
common stock over a period of six months. Sales of shares may be made by means of ordinary brokers
transactions on the NYSE Amex at market prices or as otherwise agreed by the Company and its sales
agent. The sales agent will receive a commission of 1.5% based on the gross sales price per share.
On a daily basis, the Company may sell a number of shares of its common stock up to twenty-five
percent of the average daily trading volume of the Companys common stock for the thirty trading
days preceding the date of the sale. The net proceeds from any sales under the Distribution
Agreement are expected to be used for general corporate purposes. For the period from March 1, 2010
through June 30, 2010, the Company sold a total of approximately 6,172,000 shares of common stock
which resulted in aggregate net proceeds of approximately $6.2 million after sales commissions of
approximately $95,000. In August 2010, the Distribution Agreement was extended for an additional
six month period, which will end February 2, 2011. Pursuant to the Distribution Agreement, as
amended, we may sell up to approximately $43.7 million of remaining aggregate gross sales price of
common stock until February 2, 2011.
On April 1, 2010, the SEC declared effective a shelf registration statement filed by the
Company, which permits it to issue up to $99,297,330 of common stock, preferred stock, debt
securities and other securities from time to time. As of June 30, 2010, approximately $94.3 million
aggregate offering price of securities was available to be sold under the shelf registration
statement. This report shall not constitute an offer to sell or the solicitation of an offer to
buy, nor shall there be any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful under the securities laws of such jurisdiction.
On April 30, 2010, Credit Suisse exercised warrants to purchase 624,172 shares of Company
common stock that were scheduled to expire in May 2010 for total consideration to the Company of
$575,000. On May 28, 2010, SOLA LTD and Solus Core Opportunities Master Fund Ltd. exercised
warrants to purchase 529,957 and 94,215 shares of Company common stock, respectively, that were
scheduled to expire in May 2010 for total consideration to the Company of $575,000.
16
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RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
On May 11, 2010, the Companys shareholders approved an amendment to the Companys Amended and
Restated Articles of Incorporation, as amended, to increase the authorized common stock of the
Company from 350,000,000 shares to 450,000,000 shares.
See Note 1 regarding the change in additional paid-in-capital as a result of adopting the
accounting standard on convertible debt instruments.
Note 12 Income Taxes
The provision for income taxes is based on earnings reported in the consolidated financial
statements. A deferred income tax asset or liability is determined by applying currently enacted
tax laws and relates to the expected reversal of the cumulative temporary differences between the
carrying value of the assets and liabilities for financial statement and income tax purposes.
Deferred income tax expense is measured by the change in the deferred income tax asset or liability
during the year. The Company has recorded a full valuation allowance against its deferred tax
assets.
Note 13 Segment Information
The Company operates in two business segments as follows:
| Nitrogen products manufacturing: The Company manufactures a variety of nitrogen
fertilizer and industrial products. |
||
| Alternative energy: The Company develops and markets processes for conversion of
low-value, carbon-bearing solids or gases into valuable hydrocarbons and electric power. |
The Companys reportable operating segments have been determined in accordance with the
Companys internal management structure, which is organized based on operating activities. The
Company evaluates performance based upon several factors, of which the primary financial measure is
segment operating income.
The Company generally considers its short-term liquidity
requirements to consist of those items that are expected to be incurred within the next 12 months.
The Company will require additional capital to fund its planned non-REMC activities during the next
twelve months. The Company expects its principal non-REMC liquidity needs to include costs to fund
the current development phases of its renewable energy project in Rialto, California (the Rialto
Project) (including FEED), the Natchez Project and other projects, operation of the PDU, continued
research and development of its technologies and general working
capital and administrative needs. In the event
that such capital were not available, the Company would not be able to continue these corporate and
development activities. Pre-FEED development activities for its projects require relatively low
levels of spending. However, if the Company elects to enter additional phases of development on
those projects, such as FEED, or procurement of equipment, it will need significantly more capital
in order to fund those activities. In the event that the Company needs additional capital for these
projects, depending on the availability of such capital, it expects to obtain it through various
combinations of project debt and equity, corporate equity, asset
sales, equity from strategic partners and
suppliers, and various forms of government support.
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Revenues |
||||||||||||||||
Nitrogen products manufacturing |
$ | 49,377 | $ | 93,262 | $ | 95,583 | $ | 160,757 | ||||||||
Alternative energy |
399 | 71 | 514 | 133 | ||||||||||||
Total revenues |
$ | 49,776 | $ | 93,333 | $ | 96,097 | $ | 160,890 | ||||||||
Operating income (loss) |
||||||||||||||||
Nitrogen products manufacturing |
$ | 14,612 | $ | 50,012 | $ | 14,997 | $ | 50,377 | ||||||||
Alternative energy |
(12,404 | ) | (12,805 | ) | (34,061 | ) | (33,285 | ) | ||||||||
Total operating income (loss) |
$ | 2,208 | $ | 37,207 | $ | (19,064 | ) | $ | 17,092 | |||||||
Income (loss) from continuing operations |
||||||||||||||||
Nitrogen products manufacturing |
$ | 11,929 | $ | 48,002 | $ | 6,389 | $ | 44,388 | ||||||||
Alternative energy |
(13,606 | ) | (14,454 | ) | (39,538 | ) | (37,257 | ) | ||||||||
Total income (loss) from continuing operations |
$ | (1,677 | ) | $ | 33,548 | $ | (33,149 | ) | $ | 7,131 | ||||||
As of | ||||||||
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Total assets |
||||||||
Nitrogen products manufacturing |
$ | 110,374 | $ | 115,030 | ||||
Alternative energy |
71,842 | 85,570 | ||||||
Total assets |
$ | 182,216 | $ | 200,600 | ||||
17
Table of Contents
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14 Net Income (Loss) Per Common Share
Basic income (loss) per common share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted net income (loss) per
common share is calculated by dividing net income (loss) by the weighted average number of common
shares outstanding plus the dilutive effect of unvested restricted stock, outstanding stock options
and warrants, and convertible debt using the treasury stock method.
The following table sets forth the computation of basic and diluted net income (loss) per
common share (in thousands, except per share data).
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic net income (loss) per common share: |
||||||||||||||||
Numerator: |
||||||||||||||||
Income (loss) from continuing operations |
$ | (1,677 | ) | $ | 33,548 | $ | (33,149 | ) | $ | 7,131 | ||||||
Income from discontinued operations |
2 | 2 | 8 | 66 | ||||||||||||
Net income (loss) |
$ | (1,675 | ) | $ | 33,550 | $ | (33,141 | ) | $ | 7,197 | ||||||
Denominator: |
||||||||||||||||
Weighted average common shares outstanding |
216,175 | 167,258 | 214,161 | 166,836 | ||||||||||||
Continuing operations |
$ | (0.01 | ) | $ | 0.20 | $ | (0.15 | ) | $ | 0.04 | ||||||
Discontinued operations |
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Basic net income (loss) per common share |
$ | (0.01 | ) | $ | 0.20 | $ | (0.15 | ) | $ | 0.04 | ||||||
Diluted net income (loss) per common share: |
||||||||||||||||
Numerator: |
||||||||||||||||
Income (loss) from continuing operations |
$ | (1,677 | ) | $ | 33,548 | $ | (33,149 | ) | $ | 7,131 | ||||||
Income from discontinued operations |
2 | 2 | 8 | 66 | ||||||||||||
Net income (loss) |
$ | (1,675 | ) | $ | 33,550 | $ | (33,141 | ) | $ | 7,197 | ||||||
Denominator: |
||||||||||||||||
Weighted average common shares outstanding |
216,175 | 167,258 | 214,161 | 166,836 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Warrants |
| 89 | | 160 | ||||||||||||
Common stock options |
| 1 | | 1 | ||||||||||||
Restricted stock |
| 203 | | 147 | ||||||||||||
Diluted shares outstanding |
216,175 | 167,551 | 214,161 | 167,144 | ||||||||||||
Continuing operations |
$ | (0.01 | ) | $ | 0.20 | $ | (0.15 | ) | $ | 0.04 | ||||||
Discontinued operations |
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Diluted net income (loss) per common share |
$ | (0.01 | ) | $ | 0.20 | $ | (0.15 | ) | $ | 0.04 | ||||||
For the three and nine months ended June 30, 2010, approximately 36.9 million shares and
for the three and nine months ended June 30, 2009, approximately 34.6 million shares of the
Companys common stock issuable pursuant to stock options, stock warrants, restricted stock, and
convertible debt were excluded from the calculation of diluted earnings (loss) per share because
their inclusion would have been anti-dilutive.
Note 15 Subsequent Events
On July 21, 2010, REMC and Rentech entered into the First Amendment to the New Credit
Agreement; see Note 8 Debt. In August 2010, the Distribution Agreement was extended for an
additional six month period; see Note 11 Stockholders Equity.
18
Table of Contents
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain information included in this report and other reports or materials filed or to be
filed by the Company with the Securities and Exchange Commission (as well as information included
in oral statements or other written statements made or to be made by the Company or its management)
contain or will contain forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, Section 27A of the Securities Act of 1933, as amended,
and pursuant to the Private Securities Litigation Reform Act of 1995. The forward-looking
statements may relate to financial results and plans for future business activities, and are thus
prospective. The forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from future results expressed or implied by
the forward-looking statements. They can be identified by the use of terminology such as may,
will, expect, believe, intend, plan, estimate, anticipate, should and other
comparable terms or the negative of them. You are cautioned that, while forward-looking statements
reflect our good faith belief and best judgment based upon current information, they are not
guarantees of future performance and are subject to known and unknown risks and uncertainties.
Factors that could affect Rentechs results include the risk factors detailed in Part II. Other
Information-Item 1A. Risk Factors below, Part I, Item 1A, Risk Factors in the Annual Report
and from time to time in the Companys other periodic reports and registration statements filed
with the Securities and Exchange Commission. Any forward-looking statements are made pursuant to
the Private Securities Litigation Reform Act of 1995, and thus are current only as of the date
made. We undertake no responsibility to update any of the forward-looking statements after the date
of this report to conform them to actual results.
As used in this Quarterly Report on Form 10-Q, the terms we, our, us and the Company
mean Rentech, Inc., a Colorado corporation and its consolidated subsidiaries, unless the context
indicates otherwise.
In its Annual Report, the Company restated its consolidated balance sheet at September 30,
2008, and its consolidated statement of operations, its changes in stockholders equity and cash
flows for the fiscal year ended September 30, 2008. For additional information regarding the
restatement, see Note 1 to the consolidated financial statements in this report.
OVERVIEW OF OUR BUSINESSES
Rentech, incorporated in 1981, provides clean energy solutions. The Companys Rentech-SilvaGas
biomass gasification process can convert multiple biomass feedstocks into synthesis gas (syngas)
for production of renewable fuels and power. Combining the gasification process with Rentechs
unique application of proven syngas conditioning and clean-up technology and the patented Rentech
Process based on Fischer-Tropsch chemistry, Rentech offers an integrated solution for production of
synthetic fuels from biomass. The Rentech Process can also convert syngas from fossil resources
into ultra-clean synthetic jet and diesel fuels, specialty waxes and chemicals. Pursuant to an
alliance agreement with us, UOP, a Honeywell company, has agreed to provide technologies for final
product upgrading and acid gas removal to us or our licensees. Rentech Energy Midwest Corporation,
a wholly-owned subsidiary of the Company, manufactures and sells nitrogen fertilizer products
including ammonia, urea ammonia nitrate, urea granule, and urea solution in the corn-belt region of
the central United States.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Managements Discussion and Analysis of Financial Condition and Results of Operations is based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of our consolidated
financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and
liabilities. The most significant estimates and judgments relate to: revenue recognition,
inventories, construction in progress, the valuation of financial instruments, long-lived assets
and intangible assets, stock-based compensation and the realization of deferred income taxes.
Actual amounts could differ significantly from these estimates. There has been no material change
to our critical accounting policies and estimates from the information provided in our Annual
Report.
RESULTS OF OPERATIONS
More detailed information about our consolidated financial statements is provided in the
following portions of this section. The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto as presented in this report and in the
Annual Report.
19
Table of Contents
Seasonality
Results of operations for the interim periods are not necessarily indicative of results to be
expected for the year primarily due to the impact of seasonality on the sales at REMC. Our nitrogen
products manufacturing segment and our customers businesses are seasonal, based on planting,
growing and harvesting cycles. The following table shows product tonnage shipped by quarter for the
last three fiscal years and the nine months ended June 30, 2010.
For the Fiscal Years Ended September 30, | ||||||||||||||||
2010 | 2009 | 2008 | 2007 | |||||||||||||
(in thousands of tons) | ||||||||||||||||
First Quarter |
124 | 115 | 171 | 160 | ||||||||||||
Second Quarter |
86 | 65 | 103 | 77 | ||||||||||||
Third Quarter |
206 | 203 | 170 | 209 | ||||||||||||
Fourth Quarter |
n/a | 150 | 199 | 125 | ||||||||||||
Total Tons Shipped for Fiscal Year |
416 | 533 | 643 | 571 | ||||||||||||
The highest volume of tons shipped is typically during the spring planting season during
the third fiscal quarter and the next highest volume of tons shipped is typically after the fall
harvest during the first fiscal quarter, although, as reflected in the table above, sales volumes
may fluctuate due to various circumstances. These seasonal increases and decreases in demand can
also cause sales prices to fluctuate accordingly.
As a result of the seasonality of shipments and sales, we experience significant fluctuations
in our revenues, income and net working capital levels from quarter to quarter. Weather conditions
can significantly affect quarterly results. Our receivables and deferred revenues are seasonal and
relatively unpredictable. Significant amounts of our products are typically pre-sold for later
shipment, and the timing of these pre-sales and the amount of down payments as a percentage of the
total contract price may vary with market conditions. The variation in the timing of these
pre-sales and of these contract terms may add to the seasonality of our cash flows and working
capital.
THREE AND NINE MONTHS ENDED JUNE 30, 2010 COMPARED TO THREE AND NINE MONTHS ENDED JUNE 30, 2009:
Continuing Operations
Revenues
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Revenues: |
||||||||||||||||
Product shipments |
$ | 49,224 | $ | 93,018 | $ | 93,579 | $ | 158,828 | ||||||||
Natural gas sales of excess inventory |
153 | 244 | 2,004 | 1,929 | ||||||||||||
Total nitrogen products manufacturing |
$ | 49,377 | $ | 93,262 | $ | 95,583 | $ | 160,757 | ||||||||
Alternative energy |
399 | 71 | 514 | 133 | ||||||||||||
Total revenues |
$ | 49,776 | $ | 93,333 | $ | 96,097 | $ | 160,890 | ||||||||
For the Three Months | For the Three Months | |||||||||||||||
Ended June 30, 2010 | Ended June 30, 2009 | |||||||||||||||
Tons | Revenue | Tons | Revenue | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Product Shipments: |
||||||||||||||||
Ammonia |
51 | $ | 20,813 | 67 | $ | 55,353 | ||||||||||
Urea Ammonium Nitrate |
112 | 23,198 | 93 | 30,734 | ||||||||||||
Urea (liquid and granular) |
9 | 3,681 | 13 | 5,452 | ||||||||||||
Carbon Dioxide |
31 | 816 | 28 | 779 | ||||||||||||
Nitric Acid |
3 | 716 | 2 | 700 | ||||||||||||
Total |
206 | $ | 49,224 | 203 | $ | 93,018 | ||||||||||
20
Table of Contents
For the Nine Months | For the Nine Months | |||||||||||||||
Ended June 30, 2010 | Ended June 30, 2009 | |||||||||||||||
Tons | Revenue | Tons | Revenue | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Product Shipments: |
||||||||||||||||
Ammonia |
118 | $ | 43,695 | 115 | $ | 87,536 | ||||||||||
Urea Ammonium Nitrate |
195 | 35,722 | 163 | 53,346 | ||||||||||||
Urea (liquid and granular) |
25 | 10,131 | 30 | 13,678 | ||||||||||||
Carbon Dioxide |
71 | 1,888 | 68 | 1,947 | ||||||||||||
Nitric Acid |
7 | 2,143 | 7 | 2,321 | ||||||||||||
Total |
416 | $ | 93,579 | 383 | $ | 158,828 | ||||||||||
Nitrogen products manufacturing. Our nitrogen products manufacturing segment provides
revenue from sales of various nitrogen fertilizer products manufactured at our East Dubuque Plant,
primarily utilized in corn production. The East Dubuque Plant is designed to produce anhydrous
ammonia, nitric acid, urea liquor, ammonium nitrate solutions, granular urea and carbon dioxide
using natural gas as a feedstock. Revenues are seasonal based on the planting, growing, and
harvesting cycles of customers utilizing nitrogen fertilizer.
The decrease in revenues for the three and nine months ended June 30, 2010 compared to the
three and nine months ended June 30, 2009 was primarily due to decreased sales prices for all
products which was partially offset by an increase in urea ammonium nitrate sales volume.
The average sales price per ton in the third quarter of the current fiscal year as compared
with that of the prior fiscal year decreased by 51% for anhydrous ammonia and by 37% for urea
ammonium nitrate solutions. These two products comprised approximately 89% and 93% of the product
sales for the three months ended June 30, 2010 and 2009, respectively. The average sales price per
ton in the nine months ended June 30, 2010 as compared with the nine months ended June 30, 2009
decreased by 51% for anhydrous ammonia and by 44% for urea ammonium nitrate solutions. These two
products comprised approximately 85% and 89% of the product sales for the nine months ended June
30, 2010 and 2009, respectively. Average sales prices per ton decreased because the prices for a
majority of the previous periods shipments had been determined in pre-sale contracts that were
signed when fertilizer prices were at peak levels in 2008. Management believes that the significant
decline in prices for nitrogen fertilizer that occurred between calendar 2008 and the end of
calendar 2009 were due to, among other things, a substantial drop in the price of natural gas, a
key input, and weak economic conditions.
Alternative Energy. This segment generates revenues for technical services and licensing
activities related to Rentechs technologies, and previously generated revenues from rental income
for leasing part of a building we owned. This rental income was included in our alternative energy
segment because the rental income was generated from a building, which was sold in April 2010, used
in the past by some of our research and development employees. The revenue earned in this segment
during fiscal 2010 was technical service revenue. The revenue earned during fiscal 2009 included
both technical service revenue of $40,000 and rental revenue of $93,000.
Cost of Sales
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
(As Restated) | (As Restated) | |||||||||||||||
Cost of sales: |
||||||||||||||||
Product shipments |
$ | 33,864 | $ | 42,245 | $ | 72,047 | $ | 81,282 | ||||||||
Turnaround expenses |
| | 3,995 | | ||||||||||||
Natural gas sales of excess inventory |
138 | 257 | 2,259 | 3,497 | ||||||||||||
Natural gas sales with simultaneous purchase |
| 83 | 57 | 22,776 | ||||||||||||
Total nitrogen products manufacturing |
$ | 34,002 | $ | 42,585 | $ | 78,358 | $ | 107,555 | ||||||||
Alternative energy |
587 | | 693 | | ||||||||||||
Total cost of sales |
$ | 34,589 | $ | 42,585 | $ | 79,051 | $ | 107,555 | ||||||||
Nitrogen Products Manufacturing. The cost of sales for product shipments for the three
and nine months ended June 30, 2010 decreased from the prior comparable periods primarily due to a
large decrease in natural gas prices which was partially offset by the higher volume of sales of
urea ammonium nitrate. Natural gas and labor and benefit costs comprised approximately 61% and 13%,
respectively, of cost of sales on product shipments for the three months ended June 30, 2010.
Natural gas and labor and benefit costs comprised approximately 59% and 13%, respectively, of cost
of sales on product shipments for the nine months ended June 30, 2010.
21
Table of Contents
Turnaround expenses represent the cost of shutting down the plant for scheduled maintenance,
which is done approximately every two years. A plant turnaround occurred in October 2009. As a
result, during the nine months ended June 30, 2010, the Company incurred turnaround expenses of
$3,995,000. There was no plant turnaround during the nine months ended June 30, 2009.
Natural gas, though not purchased for the purpose of resale, is occasionally sold under
certain circumstances. Natural gas is sold when contracted quantities received are in excess of
production requirements and storage capacities, in which case the sales proceeds are recorded as
revenue and the related cost is recorded as a cost of sales. Natural gas may also be sold to a
third party with a simultaneous purchase of gas by the Company of the same quantity at a lower
price in order to realize a reduction of raw material cost. In this case, no revenue is recorded
for the sale of gas, and the difference between the cost of the gas that was sold and the cost of
gas that was simultaneously purchased is recorded directly to cost of sales.
Depreciation expense included in cost of sales from our nitrogen products manufacturing
segment was $3,194,000 and $3,621,000 for the three months ended June 30, 2010 and 2009,
respectively. Depreciation expense included in cost of sales from our nitrogen products
manufacturing segment was $7,312,000 and $6,335,000 for the nine months ended June 30, 2010 and
2009, respectively.
Alternative Energy. The cost of sales for our alternative energy segment during the three and
nine months ended June 30, 2010 was for costs incurred for work performed under technical services
contracts.
Gross Profit (Loss)
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
(As Restated) | (As Restated) | |||||||||||||||
Gross profit (loss): |
||||||||||||||||
Product shipments |
$ | 15,360 | $ | 50,773 | $ | 21,532 | $ | 77,546 | ||||||||
Turnaround expenses |
| | (3,995 | ) | | |||||||||||
Natural gas sales of excess inventory |
15 | (13 | ) | (255 | ) | (1,568 | ) | |||||||||
Natural gas sales with simultaneous purchase |
| (83 | ) | (57 | ) | (22,776 | ) | |||||||||
Total nitrogen products manufacturing |
$ | 15,375 | $ | 50,677 | $ | 17,225 | $ | 53,202 | ||||||||
Alternative energy |
(188 | ) | 71 | (179 | ) | 133 | ||||||||||
Total gross profit |
$ | 15,187 | $ | 50,748 | $ | 17,046 | $ | 53,335 | ||||||||
Nitrogen Products Manufacturing. The gross profit for product shipments for the three
and nine months ended June 30, 2010 decreased compared to the prior comparable periods primarily
due to lower sales prices which was partially offset by an increase in urea ammonium nitrate sales
volume and lower gas prices. The gross loss for natural gas sales with simultaneous purchase for
the nine months ended June 30, 2010 decreased compared to the prior comparable period primarily due
to gas prices being more volatile during the nine months ended June 30, 2009.
Operating Expenses
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative |
$ | 7,492 | $ | 6,029 | $ | 21,337 | $ | 18,691 | ||||||||
Depreciation and amortization |
476 | 325 | 1,460 | 997 | ||||||||||||
Research and development |
5,011 | 7,187 | 13,313 | 16,555 | ||||||||||||
Total operating expenses |
$ | 12,979 | $ | 13,541 | $ | 36,110 | $ | 36,243 | ||||||||
22
Table of Contents
Selling, General and Administrative Expenses. During the three months ended June 30, 2010
as compared to the three months ended June 30, 2009, selling, general and administrative expenses
increased by $1,463,000 or 24%. Salaries and benefits increased by $561,000 as a result of an
accrual for severance payments owed to an officer of the Company; the acquisition of SilvaGas
Holdings Corporation (SilvaGas), which occurred on June 30, 2009, and the retention of its key
employees; annual salary increases; and an increase in headcount. Stock-based compensation
increased by $551,000 due to new grants of restricted stock to members of management. During the
nine months ended June 30, 2010 as compared to the nine months ended June 30, 2009, selling,
general and administrative expenses increased by $2,646,000 or 14%. Stock-based compensation
increased by $1,119,000 due to new grants of restricted stock. Salaries and benefits increased by
$822,000 as a result of an accrual for severance payments owed to an officer of the Company, the
acquisition of SilvaGas and the retention of its key employees, annual salary increases and an
increase in headcount. Consulting expenses increased by $757,000 primarily due to an equity grant
to a consultant and increases in consulting expenses related to renewable energy.
Depreciation and Amortization. A portion of depreciation and amortization expense is
associated with assets that support general and administrative functions and that expense is
recorded in operating expense. The amount of depreciation and amortization expense within operating
expenses increased by $151,000 and $463,000 for the three and nine months ended June 30, 2010,
respectively, which was primarily attributable to amortization of intellectual property acquired in
the purchase of SilvaGas biomass gasification technology.
The majority of depreciation originates at our nitrogen products manufacturing segment and, as
a manufacturing cost, is distributed between cost of sales and finished goods inventory, based on
product volumes.
Research and Development. We incur research and development expenses in our testing laboratory
in Commerce City, Colorado, where we actively conduct work to further improve our technology and to
perform services for our customers. These expenses are included in our alternative energy segment.
Research and development expenses decreased by $2,176,000 during the three months ended June 30,
2010 compared to the three months ended June 30, 2009. Recorded in the three months ended June 30,
2009, was an accrual in the amount of $2,945,000 for sales and use taxes related to the
construction of the PDU. Research and development expenses decreased by $3,242,000 during the nine
months ended June 30, 2010 compared to the nine months ended June 30, 2009. Recorded in the nine
months ended June 30, 2009, was an accrual in the amount of $2,945,000 for sales and use taxes
related to the construction of the PDU.
Operating Income (Loss)
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
(As Restated) | (As Restated) | |||||||||||||||
Income (loss) from operations: |
||||||||||||||||
Product shipments |
$ | 14,597 | $ | 50,108 | $ | 19,304 | $ | 74,721 | ||||||||
Turnaround expenses |
| | (3,995 | ) | | |||||||||||
Natural gas sales of excess inventory |
15 | (13 | ) | (255 | ) | (1,568 | ) | |||||||||
Natural gas sales with simultaneous purchase |
| (83 | ) | (57 | ) | (22,776 | ) | |||||||||
Total nitrogen products manufacturing |
$ | 14,612 | $ | 50,012 | $ | 14,997 | $ | 50,377 | ||||||||
Alternative energy |
(12,404 | ) | (12,805 | ) | (34,061 | ) | (33,285 | ) | ||||||||
Total income (loss) from operations |
$ | 2,208 | $ | 37,207 | $ | (19,064 | ) | $ | 17,092 | |||||||
Nitrogen Products Manufacturing. The reduction in income from operations for product
shipments for the three and nine months ended June 30, 2010 as compared to the prior comparable
periods was primarily due to lower sales prices, partially offset by increased sales volume of urea
ammonium nitrate and lower natural gas prices.
Alternative Energy. Loss from operations primarily consists of operating expenses, such as
selling, general and administrative; depreciation and amortization; and research and development.
23
Table of Contents
Other Income (Expense)
For the Three Months | For the Nine Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
(As Restated) | (As Restated) | |||||||||||||||
Other Income (Expense): |
||||||||||||||||
Interest and dividend income |
$ | 23 | $ | 139 3 | $ | 192 | $ | 492 | ||||||||
Interest expense |
(3,747 | ) | (3,584 | ) | (10,487 | ) | (10,114 | ) | ||||||||
Loss on debt extinguishment |
| | (2,268 | ) | | |||||||||||
Realized loss, net on sale of investments |
| | (1,231 | ) | | |||||||||||
Other expense |
(151 | ) | (211 | ) | (281 | ) | (322 | ) | ||||||||
Total other expense |
$ | (3,875 | ) | $ | (3,656 | ) | $ | (14,075 | ) | $ | (9,944 | ) | ||||
The increase in other expense for the nine months ended June 30, 2010 as compared to
the nine months ended June 30, 2009 is primarily due to the loss on debt extinguishment related to
paying off the Credit Agreement and the net realized loss on the sale of available for sale
securities.
ANALYSIS OF CASH FLOW
The following table summarizes our Consolidated Statements of Cash Flows:
For the Nine Months | ||||||||
Ended June 30, | ||||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Net Cash Provided by (Used in): |
||||||||
Operating activities |
$ | (24,445 | ) | $ | (468 | ) | ||
Investing activities |
(13,249 | ) | (12,135 | ) | ||||
Financing activities |
16,509 | (12,261 | ) | |||||
Net decrease in cash and cash equivalents |
$ | (21,185 | ) | $ | (24,864 | ) | ||
Cash Flows from Operating Activities
Net Income (Loss). The Company had a net loss of $33,141,000 for the nine months ended June 30,
2010, as compared to net income of $7,197,000 for the nine months ended June 30, 2009. The cash
flows used in operations during these periods primarily resulted from the following operating
activities:
Accounts Receivable. During the first nine months of fiscal 2010, accounts receivable increased
by $3,009,000 due to rising prices during that time period, whereas, during the first nine months
of fiscal 2009, prices were significantly declining, causing a decrease in accounts receivable of
$6,291,000.
Property Insurance Claim Receivable. During fiscal year 2009, we recorded a property insurance
claim receivable for insured property losses related to a weather-related shutdown of REMC in
January 2009. During the nine months ended June 30, 2010, the Company collected the outstanding
balance of $1,795,000.
Inventories. Inventories decreased during the nine months ended June 30, 2010 by $2,694,000 due
to a combination of inventory levels having been high leading into the current fiscal year due to
seasonal build-up of inventory prior to the fall ammonia application season and reduction of
inventories due to product deliveries during the completion of the spring planting season this
quarter. This was partially offset by higher costs of natural gas, our primary raw material,
associated with product held in inventory. Seasonality had the same impact during the nine months
ended June 30, 2009, but natural gas prices declined significantly during that period, causing a
larger reduction in inventories of $8,154,000.
Deposits on Gas Contracts. Deposits on gas contracts increased by $873,000 during the nine months
ended June 30, 2010 compared to a decrease of $16,625,000 during the same period in the prior
year. The large decrease in the prior year was caused
by an unusually large amount of deposits required as of September 30, 2008 to prepay for gas at
historically high prices for contracts that extended through March 2009, whereas at September 30,
2009, we had entered into a smaller number of lower-price contracts that extended only through
December 2009.
Deferred Revenue. We record deferred revenue on product pre-sale contracts to the extent we
receive cash payments for those contracts. Deferred revenue decreased $17,434,000 during the nine
months ended June 30, 2010, versus a decrease of $52,720,000 during this same period in fiscal
2009. The decrease was larger in the year-ago period due to both higher prepaid sales prices and
a higher volume of tons presold.
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Cash Flows from Investing Activities
Proceeds from Sale of Available for Sale Securities. During the nine months ended June 30, 2010,
the Company sold, through a tender offer and various sales, its entire holdings of available for
sale securities for approximately $4,769,000, which resulted in a net realized loss on sale of
investments of approximately $1,231,000. For the nine months ended June 30, 2009, there were no
such sales.
Purchase of Property, Plant, Equipment and Construction in Progress. The increase in net
additions of $8,313,000 for the nine months ended June 30, 2010 compared to the nine months ended
June 30, 2009 was primarily due to increased additions at REMC during the scheduled plant
shutdown, and the capitalization of development activities at the Rialto Project.
Cash Flows from Financing Activities
Proceeds from and Retirement of Term Loan. During the nine months ended June 30, 2010, the
Company replaced the Credit Agreement, which had an outstanding balance of $37,112,000, with a
New Credit Agreement in the amount of $62,500,000. The New Credit Agreement included an original
issue discount of $1,875,000.
Debt Issuance Costs. During the nine months ended June 30, 2010, the Company incurred
approximately $3,666,000 of costs related to the New Credit Agreement compared to $499,000 of
costs during the nine months ended June 30, 2009 related to the Credit Agreement.
Payments on Line of Credit on Available for Sale Securities. During the nine months ended June
30, 2010, we paid off the line of credit with the net proceeds from the various sales of
available for sale securities. For the nine months ended June 30, 2009, there were no such
sales.
LIQUIDITY AND CAPITAL RESOURCES
We will require additional capital to supplement the cash we have in order to fund Rentechs
planned non-REMC activities during the next twelve months. Such capital may be from external
financing sources, including from offerings of equity or debt
securities, asset sales or from restructuring
REMCs existing financing. In the event that such capital is not available, we would not be able to
continue some or all of our non-REMC activities described below. We expect that REMCs activities can be funded
from cash on hand at REMC and from REMCs operating cash flows at least through fiscal year 2011. In the event
that the amount of cash flow generated by REMCs operations were to be significantly less than
expected, REMC could require external sources of financing.
Sources of Liquidity
At June 30, 2010, and without giving effect to the First Incremental Loan, our current assets
totaled $74,270,000, including cash and cash equivalents of
$47,932,000, of which $31,692,000 was held at REMC and subject to the restrictions imposed by the New Credit Agreement, and accounts receivable of $11,666,000. Our current liabilities were $58,600,000. We had
long-term liabilities of $77,587,000, most of which related to our long-term convertible senior
notes and debt under our New Credit Agreement. REMCs income from continuing operations for the
nine months ended June 30, 2010 and 2009 was $6,389,000 and $44,388,000, respectively. The
Companys loss from continuing operations for the nine months ended June 30, 2010 was $33,149,000
compared to income from continuing operations for the nine months ended June 30, 2009 of
$7,131,000.
On July 21, 2010, REMC and Rentech entered into the First Amendment to the New Credit
Agreement. The First Amendment, among other things, modified the excess cash flow calculation,
the prepayment premium schedule, the interest coverage financial
covenant and the maximum leverage financial covenant; waived the EBITDA and maximum principal
requirements in connection with the First Incremental Loan; and increased the maximum aggregate
incremental term loan amount to $35 million. The First Amendment also included an early prepayment
of $15 million of principal of the New Term Loans outstanding under the New Credit Agreement made
from cash at REMC that had been held for such purpose. The $15 million prepayment will be deducted
from the mandatory excess cash flow prepayment for fiscal year 2010, if any, pursuant to the terms
of the New Credit Agreement. Simultaneously upon entering into the First Amendment, REMC and
Rentech entered into the First Incremental Loan of $20 million,
resulting in a net increase in the
outstanding balance under the New Credit Agreement of $5 million to $64,838,000. Net proceeds from the First Incremental Loan of approximately $18.5 million were
transferred to Rentech in the form of an intercompany loan. The New Credit Agreement prohibits
distributions of cash from REMC to Rentech until the loan balance is reduced to $50 million and
certain leverage tests are met.
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Pursuant to the Distribution Agreement, as amended, we may sell up to approximately $43.7
million of remaining aggregate gross sales price of common stock until February 2, 2011. In
addition to liquidity available from the Distribution Agreement, depending on capital market
conditions, other sources of liquidity for corporate activities during fiscal years 2010 and 2011
could include the issuance of equity or equity-linked securities, project debt and project equity,
and various forms of financing for REMC.
As of June 30, 2010, approximately $94.3 million aggregate offering price of securities was
available to be sold under our shelf registration statement (including up to $43.7 million of
common stock that may be sold under the Distribution Agreement). This report shall not constitute
an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
jurisdiction. Any such offering will be made solely by prospectus.
The Company may also consider sales of non-core assets as a source of non-dilutive
capital to fund the Company's non-REMC activities. We are currently considering
our course of action with respect to recent inquiries regarding the sale of a
portion or all of the Company's interest in REMC. We cannot assure you that
we will implement any such transaction or the terms or conditions thereof.
Capital markets have experienced periods of extreme uncertainty over the past two years, and
access to those markets has been difficult. Our failure to raise additional capital would have a
material adverse effect on our business, financial condition and results of operations and
liquidity.
Liquidity Requirements
Short-Term Liquidity Requirements. We generally consider our short-term liquidity
requirements to consist of those items that are expected to be incurred within the next 12 months.
We will require additional capital to fund Rentechs planned non-REMC activities during the next
twelve months. We expect our principal non-REMC liquidity needs to include costs to fund the
current development phases of the Rialto Project (including FEED), the Natchez Project and other
projects, operation of the PDU, continued research and development of Rentechs technologies and
general working capital and administrative needs. In the event that
such capital were not available, we would not be
able to continue these corporate and development activities. Pre-FEED development activities for
our projects require relatively low levels of spending. However, if we elect to enter additional
phases of development on those projects, such as FEED, or procurement of equipment, we will need
significantly more capital in order to fund those activities. In the event that we need additional
capital for these projects, depending on the availability of such capital, we expect to obtain it
through various combinations of project debt and equity, corporate
equity, asset sales, equity from strategic
partners and suppliers, and various forms of government support.
During the next 12 months, we expect REMCs principal liquidity needs, which include costs to
operate the East Dubuque Plant, such as its ordinary course needs for working capital and capital
expenditures, to be met from cash on hand at REMC and cash forecasted to be generated by REMCs operations.
REMCs fertilizer business is seasonal, based upon the planting, growing and harvesting cycles.
Inventories must be accumulated to allow for customer shipments during the spring and fall
fertilizer application seasons. The accumulation of inventory to be available for seasonal sales
requires that working capital be available at REMC. Our practice of selling substantial amounts of
our fertilizer products through prepayment contracts also significantly affects working capital
needs at REMC. Working capital available at REMC is also affected by changes in commodity prices
for natural gas and nitrogen fertilizers, which are the East Dubuque Plants principal feedstock
and products.
As discussed above, Rentech and REMC have entered into the First Amendment. The New Term
Loans and the First Incremental Loans under the New Credit Agreement are subject to annual
amortization. This amortization provision will require us to make payments of 7.5% of the original
principal amount in calendar years 2010 and 2011 (or, with respect to the First Incremental Loans,
payments of 3.75% for the remainder of calendar year 2010), 15.0% of the entire principal amount in
calendar years 2012 and 2013, and the remainder payable in the last six months prior to maturity.
Long-Term Liquidity Requirements. We generally consider our long-term liquidity requirements
to consist of those items that are
expected to be incurred beyond the next 12 months. Our principal long-term needs for liquidity
are to fund development, detailed engineering, procurement, construction and operation of
commercial projects as well as our ongoing research and development expenses, including operation
of the PDU, and corporate administrative expenses. The two commercial projects that are the
furthest along in their development are the Rialto Project and the Natchez Project, and we have
begun early stage development of additional projects. We will require substantial amounts of
capital that we do not now have to fund our long-term liquidity requirements and develop commercial
projects, for which we anticipate that the construction costs will range from hundreds of millions
of dollars to multiple billions of dollars depending upon their size and scope. Depending on the
availability of such capital, we expect these projects to be funded by various combinations of
project debt and equity, asset sales, corporate debt and equity, equity from strategic partners and suppliers,
and various forms of government support.
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The New Term Loans and the First Incremental Loans under the New Credit Agreement mature on
July 29, 2014. However, the New Credit Agreement requires us to meet the following financial
covenants (and failure to meet such covenants could result in acceleration of the New Term Loans
and the First Incremental Loans):
| REMC and its subsidiaries cannot spend more than a specified maximum amount of capital
expenditures in each fiscal year. From January 1, 2010 through the end of fiscal year
2010, the aggregate limit on capital expenditures is $6 million, and such limit varies
each succeeding fiscal year. For the six months ended June 30, 2010, REMC incurred $4.9
million of capital expenditures. If REMC and its subsidiaries do not expend the maximum
amount of capital expenditures permitted for any fiscal year, then the unused amount may
be carried forward to the subsequent fiscal year; |
||
| REMC and its subsidiaries must maintain a minimum interest coverage ratio for any
period of four consecutive fiscal quarters. For fiscal year 2010, the minimum interest
coverage ratio requirement ranges from 3.15:1.00 to 2.60:1.00 for the applicable
measurement periods. At June 30, 2010, our actual interest coverage ratio was 4.28:1.00; |
||
| REMC and its subsidiaries cannot exceed a maximum leverage ratio as of the last day of
any period of four consecutive fiscal quarters. For fiscal year 2010, the maximum
leverage coverage ratio requirement ranges from 2.45:1.00 to 2.90:1.00 for the applicable
measurement periods. At June 30, 2010, our actual leverage coverage ratio was 1.91:1.00;
and |
||
| REMC must maintain at least $7.5 million of unrestricted cash and permitted
investments. At June 30, 2010, REMC had $31.7 million of unrestricted cash and permitted
investments. |
CONTRACTUAL OBLIGATIONS
We have entered into various contractual obligations as detailed in our Annual Report. During
the normal course of business in the nine months ended June 30, 2010, the amount of our contractual
obligations changed as scheduled payments were made and new contracts were executed. During the
nine months ended June 30, 2010, the following significant changes occurred to our contractual
obligations:
| During the nine months ended June 30, 2010, the Company and REMC replaced the Credit
Agreement with the New Credit Agreement, which initially had a principal amount outstanding
of $62,500,000 and a maturity of four and one-half years. As of June 30, 2010, the balance
of the term loan under the New Credit Agreement was $59,838,000. As of July 21, 2010, after
giving effect to the First Amendment to the New Credit Agreement, the balance of the term
loan was $64,838,000. |
||
| Natural gas purchase contracts committed decreased by $2,681,000 to $3,934,000. We are
required to make additional prepayments under these purchase contracts in the event that
market prices fall further below the purchase prices in the contracts. As of June 30, 2010,
the natural gas purchase contracts included delivery dates through September 30, 2010.
Subsequent to June 30, 2010, we entered into additional fixed quantity natural gas supply
contracts at fixed and indexed prices for various delivery dates through December 31, 2010.
The total MMBTUs associated with these additional contracts was 3,065,000 and the total
amount of the purchase commitments was $14,088,000, resulting in a weighted average rate per
MMBTU of $4.60. |
||
| Purchase obligations increased by $11,178,000 to $19,601,000 as measured by the total
amount of open purchase orders. The majority of the open purchase orders relate to REMC
operations along with commitments for materials to operate the PDU and develop the Rialto
Project. |
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 2 to the consolidated financial statements, Recent Accounting Pronouncements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. We are exposed to interest rate risk related to our borrowings under the
New Credit Agreement. Borrowings under the New Credit Agreement bear interest at a variable rate
based upon either LIBOR or the lenders alternative base rate, plus in each case an applicable
margin. At June 30, 2010, LIBOR was approximately 0.54%. As of June 30, 2010, we had outstanding
borrowings under the New Credit Agreement of $59.8 million. Based upon the outstanding balances of
our variable-interest rate debt at June 30, 2010, and assuming market interest rates increase or
decrease by 100 basis points, the potential annual increase or decrease in annual interest expense
is approximately $598,000. Under its current policies, the Company does not use interest rate
derivative instruments to manage exposure to interest rate changes.
Commodity Price Risk. We are exposed to significant market risk due to potential changes in
prices for fertilizer products and natural gas. Natural gas is the primary raw material used in the
production of various nitrogen-based products manufactured at the East Dubuque Plant. Market prices
of nitrogen-based products are affected by changes in natural gas prices as well as by supply and
demand and other factors. In the normal course of business, REMC currently produces nitrogen-based
fertilizer products throughout the year to supply the needs of its customers during the
high-delivery-volume spring and fall seasons. Fertilizer product inventory is subject to market
risk due to fluctuations in the relevant commodity prices. Currently, REMC purchases natural gas
for use in its East Dubuque Plant on the spot market, and through short-term, fixed supply, fixed
price and index price purchase contracts. Natural gas prices have fluctuated during the last
several years, increasing in 2008 and declining to lower levels in 2009 and 2010. A hypothetical
increase of $0.10 per MMBTU of natural gas would increase the cost to produce one ton of ammonia by
approximately $3.50. REMC has experienced no difficulties in securing supplies of natural gas,
however, natural gas is purchased at market prices and such purchases are subject to price
volatility.
Alternative Energy. The future success of our alternative energy business depends to a great
extent on the levels and volatility of certain commodities such as petroleum-based fuels, natural
gas and electricity. It may also depend on the level and volatility of prices or taxes placed on
emissions of carbon or other pollutants. The cost of feedstocks for our projects could also
materially affect prospective profitability of those projects. We expect that our projects will be
designed to produce fuels and power that may compete with conventional fuels and power as well as
with fuels and power produced from non-traditional sources. The prices of our products may be
influenced by the prices of those traditional or alternative fuels and power. Fluctuations in the
price of construction commodities such as concrete, steel and other materials could have a material
effect on the construction cost, and therefore of the projected returns to investors, on such
projects. Significant fluctuations in such prices may materially affect the business prospects of
our alternative energy business.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. We have established and currently maintain
disclosure controls and procedures designed to ensure that information required to be disclosed by
us in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the
Exchange Act) is recorded, processed, summarized and reported within the time periods specified
by the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including the Chief Executive Officer and
the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures were not effective as of June
30, 2010 due to the material weakness in our internal control over financial reporting identified
by management as of September 30, 2009. As discussed in Item 9A of our Annual Report on Form 10-K
for the fiscal year ended September 30, 2009, the material weakness related to our failure to
maintain effective controls over the selection and application of GAAP.
Notwithstanding the existence of the material weakness, our management has performed
additional review and analysis of our significant accounting policies to ensure applications are in
accordance with GAAP. Accordingly, management has concluded that our consolidated financial
statements contained in this report fairly present, in all material respects, our financial
condition, results of operations, and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting. There were no changes in our internal
control over financial reporting during the quarter ended June 30, 2010 that materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Managements Plan for Remediation of the Material Weakness. During the latter part of the
quarter ended December 31, 2009, we began taking the following steps to remediate the material
weakness: (a) establishing and distributing enhanced policies and procedures to ensure appropriate,
timely review of significant existing and new accounting policies by the members of management with
the requisite level of knowledge, experience and training to appropriately apply GAAP; (b)
implementing additional review processes to ensure all new and updated significant accounting
policies are implemented and applied properly on a consistent basis throughout the Company and (c)
implementing additional review processes to ensure all significant transactions are properly
recorded.
The implementation of the aforementioned processes and controls is ongoing. We believe the
measures described above will remediate the identified material weakness and strengthen our
internal control over financial reporting. As we continue to evaluate and work to enhance our
internal control over financial reporting, it may be determined that additional measures must be
taken to address the material weakness or it may be determined that we need to modify or otherwise
adjust the remediation measures described above.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A description of the legal proceedings to which the Company and its subsidiaries are a party
is contained in Note 10 to the consolidated financial statements included in Part I of this
Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
Risk factors were disclosed in Part I, Item 1A. Risk Factors in the Annual Report and Part II,
Item 1A. Risk Factors in the Companys Quarterly Report on Form 10-Q for the quarter ended December
31, 2009. Those risk factors should be read in conjunction with this report. During the six months
ended June 30, 2010, the Company did not identify any material additions or changes to the risk
factors disclosed in the Annual Report or Quarterly Report on Form 10-Q for the quarter ended
December 31, 2009. However, those risks are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial may materially
adversely affect our business, financial condition, results of operations or liquidity.
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ITEM 5. OTHER INFORMATION
In August 2010, the Distribution Agreement was extended for an additional six months until
February 2, 2011. Pursuant to the Distribution Agreement, as amended, the Company may sell up to
approximately $43.7 million of remaining aggregate gross sales price of common stock until February
2, 2011.
ITEM 6. EXHIBITS.
Exhibit Index
3(i).1 | Articles
of Amendment to Amended and Restated Articles of Incorporation of
Rentech, Inc., as amended. |
|||
10.1 | Amendment to Equity Distribution Agreement dated August 9, 2010, between Rentech, Inc. and
Knight Capital Markets LLC. |
|||
31.1 | Certification of President and Chief Executive Officer pursuant to Rule 13a-14 or Rule 15d-14(a). |
|||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14 or Rule 15d-14(a). |
|||
32.1 | Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
|||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
RENTECH, INC. |
||||
Dated: August 9, 2010 | /s/ D. Hunt Ramsbottom | |||
D. Hunt Ramsbottom, | ||||
President and Chief Executive Officer | ||||
Dated: August 9, 2010 | /s/ Dan J. Cohrs | |||
Dan J. Cohrs | ||||
Chief Financial Officer |
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