UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
For the Fiscal Year Ended December 31, 2011
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period from October 1, 2011 to December 31, 2011
Commission File No. 001-15795
RENTECH, INC.
(Exact name of registrant as specified in its charter)
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Colorado
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84-0957421
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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10877 Wilshire Boulevard, Suite 600
Los Angeles, California 90024
(Address of principal executive offices)
(310) 571-9800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Name of Each Exchange on Which Registered: NYSE Amex
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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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
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No
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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
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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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):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
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No
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The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2011, the last business day
of the registrant’s most recently completed second quarter, was approximately $198.9 million (based upon the closing price of the common stock on June 30, 2011, as reported by the NYSE Amex).
The number of shares of the registrant’s common stock outstanding as of February 29, 2012 was 225,360,551.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
2
FORWARD-LOOKING STATEMENTS
Certain information included in this report contains, and other reports or materials filed or to be filed by us with the
Securities and Exchange Commission, or SEC (as well as information included in oral statements or other written statements made or to be made by us or our management) contain or will contain, “forward-looking statements” within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, Section 27A of the Securities Act of 1933, as amended, and pursuant to the Private Securities Litigation Reform Act of 1995. The forward-looking
statements may relate to financial results and plans for future business activities, and are thus prospective. The forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially
from future results expressed or implied by the forward-looking statements. They can be identified by the use of terminology such as “may,” “will,” “expect,” “believe,” “intend,” “plan,”
“estimate,” “anticipate,” “should” and other comparable terms or the negative of them. You are cautioned that, while forward-looking statements reflect management’s good faith belief and best judgment based upon
current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties. Factors that could affect our results include the risk factors detailed in “Part I, Item 1A. Risk
Factors” and from time to time in our periodic reports and registration statements filed with the SEC. You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs,
forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed
or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.
As used in this report, the terms “we,” “our,” “us,” “the Company”
and “Rentech” mean Rentech, Inc., a Colorado corporation and its consolidated subsidiaries, unless the context indicates otherwise. References to “RNHI” refer to Rentech Nitrogen Holdings, Inc., a Delaware corporation and one of
our indirect wholly-owned subsidiaries. References to “RNP” refer to Rentech Nitrogen Partners, L.P., a publicly traded Delaware limited partnership and one of our indirectly majority owned subsidiaries. References to “the General
Partner” refer to Rentech Nitrogen GP, LLC, a Delaware limited liability company, RNP’s general partner and one of our indirect wholly-owned subsidiaries. References to “RNLLC” refer to Rentech Nitrogen, LLC, a Delaware limited
liability company that was formerly known as Rentech Energy Midwest Corporation, or REMC.
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PART I
Change
in Fiscal Year End
On February 1, 2012, our board of directors approved a change in our fiscal year
end from September 30 to December 31. As a result of this change, we are filing this Transition Report on Form 10-K for the three-month transition period ended December 31, 2011. References to any of our fiscal years mean the fiscal
year ending September 30 of that calendar year.
Company Overview
Our vision is to be a provider of clean energy solutions. We own and develop technologies that enable the production of
certified synthetic fuels and renewable power when integrated with certain other third-party technologies. Our clean energy technology portfolio includes the Rentech-SilvaGas biomass gasification technology, or the Rentech-SilvaGas Technology, and
the Rentech-ClearFuels biomass gasification technology, or the Rentech-ClearFuels Technology, which can produce synthesis gas, or syngas, from biomass and waste materials for production of renewable power and fuels. Renewable hydrogen can also
economically be separated out of the syngas produced using the Rentech-ClearFuels Technology. We also own the patented Rentech Process which is based on Fischer-Tropsch, or FT, chemistry. The Rentech Process can convert syngas from our or
others’ gasification technologies into complex hydrocarbons that then can be upgraded into fuels or chemicals using refining technology that we license.
We also own, through our wholly owned subsidiaries, the general partner interest and 60.8% of the common units representing limited partner interests in RNP, a publicly traded partnership. Through its
wholly owned subsidiary, RNLLC, RNP manufactures natural-gas based nitrogen fertilizer products at its facility in East Dubuque, Illinois, or the East Dubuque Facility, and sells such products to customers located in the Mid Corn Belt region of the
United States. Our ownership interest in RNP currently entitles us to 60.8% of all distributions made by RNP to its common unit holders, which distributions can be used for general corporate purposes. We intend to maintain a majority interest in
RNP. However, our ownership interest may be reduced over time if we elect to sell any of our common units or if additional common units are issued by RNP in a manner that dilutes our ownership interest in RNP. On November 9, 2011, RNP completed
an initial public offering of its common units. For further information regarding the initial public offering, see “—RNP’s Initial Public Offering.”
Alternative Energy Business Overview
We are working to advance the commercial deployment of our alternative energy technologies, in combination with third
party technologies, through licensing and project development with partners. We are pursuing investments in related and complementary technologies and businesses through joint development efforts and acquisitions.
We own SilvaGas Holding Corporation, or SilvaGas, and the Rentech-SilvaGas Technology, which can convert a wide range of
biomass and waste feedstocks, including wood, wood residues, straw, switch grass, refuse-derived fuel, energy crops and agricultural residues, into syngas. We own a 95% equity ownership interest in ClearFuels Technology, Inc., or ClearFuels.
ClearFuels is a bio-energy gasification and project development company that owns technology that can convert cellulosic biomass feedstock, such as wood waste and sugar cane bagasse, into syngas. In November 2011, we completed construction of a
demonstration-scale Rentech-ClearFuels gasifier, or the Rentech-ClearFuels Gasifier, at our Product Demonstration Unit, or the PDU, which has been partially funded by a grant from the United States Department of Energy, or the DOE.
The ultra-clean synthetic fuels produced from syngas using our FT process include military and commercial jet fuels and
ultra- low sulfur diesel fuel. Unlike some other alternative transportation fuels, such as ethanol, fuels produced through the Rentech Process are drop-in fuels, meaning that they can be transported and used in existing infrastructure, including
pipelines and engines, without blending restrictions.
The Rentech Process can produce
synthetic diesel fuels, or RenDiesel
®
fuels, that are clean burning and have lower emissions of regulated
pollutants, such as nitrogen oxides, sulfur oxides and particulate matter, than traditional petroleum-based diesel fuels. These fuels either meet or exceed all fuel and environmental standards presently applicable in North America, including the
American Society for Testing and Materials, or ASTM, D-975 standard for diesel fuel, which is the specification used for regular diesel fuel. RenDiesel fuels conform to CEN CWA 15940, the European specification for paraffinic diesel fuels from
synthesis or hydrotreatment.
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The Rentech Process can also produce synthetic jet
fuel, or RenJet
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fuel, which, when blended with conventional jet fuel, meets jet fuel specifications for
military jet fuel and commercial Jet A and Jet A-1 fuels. Synthetic jet fuel produced from the Rentech Process meets ASTM specifications for use of up to a 50% blend with traditional jet fuel in commercial aviation, and it has been certified by the
United States Air Force for use in its aircrafts. RenJet fuel conforms to DefStan 91-91 Issue 7, Annex D, the European specification for jet fuel.
We believe that fuels and power produced from biomass using our technologies will have very low
lifecycle carbon footprints, approaching zero in some cases, depending on the type and source of the feedstock. Using biomass for fuels and power production can also divert the feedstock from disposal in landfills or other uses that generally
have greater lifecycle carbon footprints. With respect to fossil feedstocks such as coal and natural gas, a DOE study of the life-cycle greenhouse gas emissions from the production of fuels from fossil feedstocks using FT chemistry concluded that,
when carbon capture and sequestration are used, the resulting emissions are lower than those generated in the traditional production of petroleum-derived fuels. Because a high percentage of the carbon dioxide, or CO
2
, produced by our processes is isolated as part of our standard plant
designs, we believe that carbon capture and sequestration could be readily achieved in coal or natural gas-to-liquids projects utilizing our technology if an economical option for sequestration can be identified.
We have constructed and operate the PDU, a demonstration-scale plant at our Rentech Energy Technology Center, or the
RETC, located in Commerce City, Colorado, which we believe is the only operating integrated FT synthetic transportation fuels facility in the United States. The PDU is capable of producing approximately ten barrels per day of synthetic fuels. Since
coming on-stream in 2008, we have produced thousands of gallons of ultra-clean synthetic fuels from natural gas at the PDU. Our jet and diesel fuel have been used by the United States Air Force, United Air Lines, Inc. and Audi of America, Inc.,
among others. As discussed above, we have constructed the Rentech-ClearFuels Gasifier, which has been integrated with the existing demonstration facility at the PDU. In November 2011, we completed construction on the Rentech-ClearFuels Gasifier and
we began the process of commissioning and startup. The Rentech-ClearFuels Gasifier is expected to produce syngas from biomass feedstocks, which would enable us to produce jet and diesel fuel from biomass at the PDU at demonstration scale.
We are pursuing the commercial deployment of our gasification technologies and the Rentech Process by seeking
to include our technologies in projects developed by us and/or other parties, and through licensing our technologies. We have adopted a revised project development strategy for the commercialization of our alternative energy technologies, which
includes pursuing projects that are smaller and require less capital than those previously under development by us, and seeking partners to deploy our technologies possibly in conjunction with partners’ technologies in integrated energy
projects. In both cases, our strategy is to seek project opportunities for which our investment would be within our expected liquidity. The revised strategy reflects our expectation that project finance debt or equity for large, first-of-a-kind
energy technology projects generally is not available in the market although we do believe that project capital may be more widely available if particular technologies and integrated systems have been proven at commercial scale.
Nitrogen Fertilizer Business Overview
The East Dubuque Facility, which is located in East Dubuque, Illinois, has been in operation since 1965, with infrequent
unplanned shutdowns. Through its wholly owned subsidiary, RNLLC, RNP produces primarily anhydrous ammonia, or ammonia, and urea ammonium nitrate solution, or UAN, at the East Dubuque Facility, using natural gas as its primary feedstock.
Substantially all of RNP’s products are nitrogen-based. Our operating revenues in the three months ended December 31, 2011 were derived almost exclusively from sales of products by RNLLC.
The East Dubuque Facility is located in the center of the Mid Corn Belt, the largest market in the United States for
direct application of nitrogen fertilizer products. The Mid Corn Belt includes the States of Illinois, Indiana, Iowa, Missouri, Nebraska and Ohio. We consider RNLLC’s market to be comprised of the States of Illinois, Iowa and Wisconsin.
RNLLC’s core market consists of the area located within an estimated 200-mile radius of the East Dubuque
Facility. In most instances, RNLLC’s customers purchase its nitrogen products at the East Dubuque Facility and then arrange and pay to transport them to their final destinations by truck. To the extent RNLLC’s products are picked up at the
East Dubuque Facility, it does not incur shipping costs, in contrast to nitrogen fertilizer producers located outside of its core market that must incur transportation and storage costs to transport their products to, and sell their products in, its
core market. In addition, RNLLC does not maintain a fleet of trucks and, unlike some of its major competitors, RNLLC does not maintain a fleet of rail cars because its customers generally are located close to the East Dubuque Facility and prefer to
be responsible for transportation. Having no need to maintain a fleet of trucks or rail cars lowers RNLLC’s fixed costs. The combination of RNLLC’s proximity to its customers and our storage capacity at the East Dubuque Facility also
allows for better timing of the pick-up and application of its products, as nitrogen fertilizer product shipments from more distant locations have a greater risk of missing the short periods of favorable weather conditions during which the
application of nitrogen fertilizer may occur.
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The East Dubuque Facility can produce up to approximately 830 tons of
ammonia per day, with the capacity to upgrade up to approximately 450 tons of ammonia to produce up to approximately 1,100 tons of UAN per day. During the three months ended December 31, 2011 and the fiscal years ended September 30, 2011
and 2010, RNLLC produced approximately 63,000, 273,000 tons and 267,000 tons, respectively, of ammonia, and approximately 68,000, 312,000 tons and 287,000 tons, respectively, of UAN. For the three months ended December 31, 2011 and the fiscal
years ended September 30, 2011 and 2010, ammonia and UAN combined accounted for approximately 96%, 91% and 89%, respectively, of RNLLC’s total gross profit. The East Dubuque Facility has the flexibility to vary its product mix
significantly, which permits it to upgrade its ammonia production into varying amounts of UAN, nitric acid and liquid and granular urea each season, depending on market demand, pricing and storage availability.
RNP’s Initial Public Offering
On November 9, 2011, RNP completed its initial public offering, or the Offering, of 15,000,000 common units
representing limited partner interests at a public offering price of $20.00 per common unit. The public currently owns 39.2% of RNP’s outstanding common units and RNHI owns the remaining 60.8% of our common units. The General Partner owns 100%
of the general partner interest in RNP, and does not own an economic interest in RNP. At the closing of the Offering, RNHI contributed its member interests in RNLLC to RNP, and RNLLC, which was formerly known as REMC, converted into a limited
liability company organized under the laws of the State of Delaware named Rentech Nitrogen, LLC. Prior to the closing of the Offering, RNLLC was our indirectly wholly owned subsidiary.
Acquisitions
We are pursuing acquisitions of assets, technologies and businesses related to our two business segments. In our alternative energy business, we intend to consider acquisitions that provide cash flow,
enable the commercial deployment of our technologies or employ related and complementary technologies. In our fertilizer business, we intend to consider acquisitions related to our assets and expertise that may benefit from the partnership structure
of our subsidiary, RNP. We believe that our liquidity currently gives us significant leverage in negotiating transactions, and that undervalued assets may be available for acquisition. Our objective in any acquisition is to achieve returns on
investment at least commensurate with the risk of such investment. Acquisitions may be for stock, cash, or other consideration. However, acquisitions involve numerous risks and uncertainties, including the potential unavailability of financing, if
needed, difficulties in completing any transaction on sufficiently favorable terms and the possibility that any expected benefits of the acquisition may not be realized. As a result, there can be no assurance that we will be able to complete any
acquisitions on a timely basis or at all.
Our Alternative Energy Business
Alternative Energy Strategy
We own and develop technologies that enable the production of certified synthetic fuels, other renewable fuels, and
renewable power when integrated with certain other third-party technologies. Our clean energy technology portfolio includes the Rentech-SilvaGas Technology and the Rentech-ClearFuels Technology, which can produce syngas from biomass and waste
materials for production of renewable power and fuels. Renewable hydrogen can also economically be separated out of the syngas produced using the Rentech-ClearFuels Technology. We also own the patented Rentech Process which is based on FT chemistry.
The Rentech Process can convert syngas produced by our or others’ gasification technologies into complex hydrocarbons that can subsequently be upgraded into fuels or chemicals using refining technology that we license.
Our strategy in alternative energy is focused on the commercial deployment of our technologies into projects that have
(i) equity partners to share the development funding, (ii) defined and probable financing options and (iii) markets for our products with strong fundamentals that are expected to provide attractive growth prospects. We intend to
explore opportunities to combine our proprietary technologies with those of third parties and to pursue projects that are consistent with our development strategy. In addition to partnering with other technology providers, we also intend to explore
opportunities to acquire complementary businesses and technologies, and to pursue the licensing of our technologies to third parties who are developing projects.
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In the near term, we intend to focus on commercial deployment of our
biomass gasification technologies into projects that have defined and probable financing options and commercially acceptable terms and expected financial returns. These opportunities could include the sale of gasifiers, licensing of our
technologies, revenues from engineering services and/or capital investments. Any investment we make into a project or business must meet our investment criteria, including having acceptable projected returns on capital that are commensurate with the
risk of the investment. Some projects in which we would seek to invest would be designed to combine our biomass gasification technologies with third-party technologies for the production of renewable fuels or power. We intend to seek projects that
have relatively high product yields, commercially attractive financial returns and significant funding from equity sponsors and other financing sources. We expect these projects to be smaller in scale than projects we have contemplated in the past,
and we intend to limit the number of projects we pursue at any one time.
If we successfully commercialize our
technologies as described above, we expect to develop a roll-out strategy that would include multiple renewable energy projects utilizing integrated technologies with plans to increase output, reduce capital requirements per unit of product and
improve yields. If we successfully commercialize our technologies as described above, we also expect to pursue larger scale projects with commercially attractive rates of return that we intend to finance through commercial sources. The design of
these larger scale projects could include any one or a combination of our technologies, possibly in combination with proven third-party technologies. We expect to develop projects of this scale with partners who would co-fund the project development
costs with us throughout the course of the project, and we may or may not be the lead developer of these projects. We do not expect to commit significant capital to these projects until the total financing required for the projects has been secured.
Our long-term strategy also includes licensing of our technologies.
Research and Development Program
We intend to continue to develop and enhance our technologies while also reducing our level of spending on research and
development. Our research and development activities are headquartered at the RETC, where we recently integrated the Rentech-ClearFuels Gasifier with the PDU and where we have skilled technical, engineering and operating teams that work at our
laboratories and demonstration-scale plants. Our laboratories contain equipment and facilities that support the continued development and testing of our technologies, as well as complementary technologies. The facilities allow us to conduct online
analysis of feedstock and products. We are actively pursuing funding from governmental and strategic research partners, both to reduce our spending on research and development and to participate in the development of conversion technologies that may
enable commercialization of our energy business. The $23 million grant from the DOE for our integrated bio-refinery is an example of such funding.
Our principal research and development activities are currently the demonstration of the Rentech-ClearFuels Gasifier’s production of synthetic fuels from biomass using the Rentech Process. We
completed the installation of the Rentech-ClearFuels Gasifier, partially funded by a grant from the DOE, to supply syngas to the PDU in order to show, at demonstration scale, a gasification technology that would complement the Rentech-SilvaGas
Technology. We intend to continue to develop technology and processes that clean and condition syngas produced from biomass and that may enable significantly increased yields of syngas, an input for the Rentech Process and other conversion
processes. We believe that the PDU and the integrated Rentech-ClearFuels Gasifier are important to our research and development activities and to those of our potential partners, and it provides samples of our products to potential customers.
Research efforts at our laboratory are focused on optimizing the efficiency and operating costs of our
technologies, and on the development of next-generation technology to further improve the economics of producing fuel and electricity from various forms of renewable and fossil feedstock.
Our Proprietary Rentech Process
The Rentech Process is a
significant enhancement of the FT technology originally developed in the 1920s. Prior to application of the Rentech Process, hydrocarbon-bearing feedstocks are reformed or gasified into syngas by various commercially available processes, including
the Rentech-SilvaGas Technology and the Rentech-ClearFuels Technology. The syngas is then converted through the Rentech Process into differentiated hydrocarbon products in a reactor vessel containing our patented and proprietary catalyst, and then
upgraded with commercially available refining processes. Feedstocks for this process can include fossil resources, such as coal, petroleum coke or natural gas; biomass resources, such as wood, energy crops, forestry waste or agricultural waste; and
municipal solid waste.
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We have successfully produced synthetic fuels from natural gas at the PDU
in Commerce City, Colorado in a series of campaigns since August 2008. We expect to begin producing synthetic fuels from biomass during the first half of calendar year 2012 through the operation of the Rentech-ClearFuels Gasifier. We believe that
the PDU is the only operating integrated FT synthetic fuels facility in the United States producing transportation fuels. The PDU is designed to produce approximately ten barrels per day of synthetic jet and diesel fuels and demonstrates the design,
construction and operation of a synthetic fuels facility utilizing the Rentech Process. Achieving production at the PDU was the result of the operation and integration of all processes at the PDU, including the steam methane reformer for the
production of synthesis gas; the conversion of the synthesis gas in our reactor into clean hydrocarbons; the separation of our catalyst from the wax produced from the reactor; and the processing and upgrading of the hydrocarbons into synthetic
fuels, using hydrocracking and hydrotreating technologies provided by UOP LLC, or UOP, a wholly owned subsidiary of Honeywell International, Inc. We and UOP maintain an alliance that provides customers with a single source of technology for syngas
clean-up, conversion and product upgrading. In the near term, we expect operations at the PDU to enable us to:
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demonstrate the production of synthetic fuels from biomass;
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confirm and optimize the design parameters of the Rentech-ClearFuels Technology integrated with the Rentech Process during longer-term production
runs;
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monitor the effects of various operation parameters on overall product yields;
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demonstrate integrated natural gas-to-fuels and biomass-to-fuels processes for strategic partners and financing sources; and
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produce fuels for validation, certification and customer development.
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Rentech-SilvaGas Technology
The patented Rentech-SilvaGas
Technology generates medium-British Thermal Unit, or BTU, syngas through the gasification of varying types of biomass feedstocks such as forestry products, pulp and paper residue, agricultural byproducts and energy crops. Biomass feedstock is loaded
into the gasifier and mixed with hot sand, turning it into syngas and residual char. The residual char and sand are separated from the syngas by a cyclone separator and discharged to a combustor. The sand is then reheated in the combustor by adding
air and burning the residual char and carbon. The reheated sand is removed from the combustion gas by a cyclone separator and returned to the gasifier. The resulting syngas can then be fed into a gas turbine or boiler for renewable power production.
The syngas may also be used in combination with the Rentech Process or other processes for the production of renewable fuels.
The Rentech-SilvaGas Technology was developed with approximately $100 million in funding from private investors and the DOE. A gasifier incorporating the technology operated over a series of campaigns for
over 22,000 hours at a 10 dry ton per day pilot scale plant at the Battelle Memorial Institute in Columbus, Ohio. A SilvaGas gasifier also was operated successfully on a commercial scale from 1998 to 2001 during a series of operating campaigns at a
facility in Burlington, Vermont, built in partnership with the DOE, National Renewable Energy Laboratory and Battelle Columbus Laboratory. The gasifier at the Burlington facility converted 400 dry tons per day of wood-based biomass into syngas used
for power production. Rentech acquired the Rentech-SilvaGas Technology through its acquisition of SilvaGas in June 2009.
Rentech-ClearFuels Technology
The Rentech-ClearFuels Technology produces medium-BTU syngas from cellulosic feedstocks through the use of a high efficiency hydrothermal reformer. The syngas can be used to produce renewable power or be
processed through Rentech’s technology or other technologies to produce renewable fuels. We believe that renewable hydrogen also can economically be separated out of the syngas produced using the Rentech-ClearFuels Technology.
The Rentech-ClearFuels Technology has operated at pilot scale in excess of 10,000 hours and multiple third parties,
including Idaho National Laboratory and Hawaii Natural Energy Institute, have independently validated the results of the pilot scale data. We expect the Rentech-ClearFuels Technology to be exhibited at demonstration scale of up to 20 tons per day by
the Rentech-ClearFuels Gasifier at the RETC. We completed construction of the Rentech-ClearFuels Gasifier in November 2011, and we expect that production using the Rentech-ClearFuels Gasifier will begin in the first half of calendar year 2012. We
have begun the process of commissioning and startup of the Rentech-ClearFuels Gasifier.
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Competition in the Alternative Energy Segment
Competition in our alternative energy business varies depending on the technology and the relevant market. We face
competition to provide energy conversion technologies, as well as competition in markets for the products to be produced and for the feedstocks required for the projects in which we are seeking to deploy our technologies.
Competition in Energy Conversion Technologies
Competition in Fischer-Tropsch Technologies:
The development of FT technology for the production of hydrocarbon
products is highly competitive. Several major integrated oil companies, such as ExxonMobil Corporation, the Royal Dutch Shell plc, Statoil ASA and BP plc, as well as several other companies such as Sasol Limited, have developed or are developing
competing technologies. A number of these competitors have substantially more resources to fund research and development and to stand behind guarantees of the performance of the technology.
The fundamental differences between the various FT technologies developed by us and our competitors are the FT catalyst,
the reactors in which the syngas reacts with the catalyst and the process for separating catalyst from the wax product. The Rentech Process uses its proprietary iron-based catalyst which permits the efficient use of a wide range of feedstocks. We
believe that most other FT technologies use cobalt-based catalysts. The Rentech Process also includes a patented process for separation of the Rentech catalyst from the wax product. Developing commercial FT technology requires significant capital
and time, which we believe provides a material barrier to new competitors. We believe that our focus on developing small to medium sized facilities will require less capital and time for construction than larger capacity facilities.
Competition from other Alternative Fuels Technologies:
We believe that a number of large and small companies are
developing a wide range of technologies that could produce alternative fuels from various feedstocks. We compete with these technology providers to provide conversion technology to project developers, on the basis of technology readiness, the
overall cost of producing fuel and on the characteristics of the fuel to be produced. We also may compete with these companies for capital, feedstock and project development sites.
Competition in Biomass Gasification Technology
We believe that there are two primary categories of competition to the Rentech-SilvaGas Technology and Rentech-ClearFuels
Technology: conventional, proven technologies and developmental, small-scale technologies. We believe that the conventional technologies are typically used to produce low-BTU syngas that is then combusted in a boiler to generate steam for use
in power production. These technologies have been deployed at large commercial scale facilities and are currently the established technologies for biomass-to-energy projects.
We believe that the developmental technologies are typically designed to produce a medium-BTU syngas which could be used
for a wider range of applications, including power production on a more efficient scale and for higher value fuels such as Fischer-Tropsch fuels, ethanol, butanol, or for precursors of many industrial chemicals. These technologies are generally
considered to have higher technological or scale-up risk than their conventional competitors because they have operated only at small scale or pilot scale. We believe the facility in Burlington, Vermont that utilized the Rentech-SilvaGas
technology from 1998 to 2001 remains the largest facility that has operated with this type of biomass gasification technology in North America, but other competitors have reported operating small scale facilities for several years which have gained
some commercial acceptance. While some of our competitors’ technologies require the use of oxygen to make medium BTU syngas, the Rentech-SilvaGas Technology and Rentech-ClearFuels Technology does not, which can help to simplify the design,
lower the capital costs and reduce the required scale at which a biomass gasification facility can efficiently operate. Competitors in this area include Repotec Co., LTD., Thermoselect, InEnTec Chemical LLC, Taylor Biomass Energy, LLC, ThermoChem
Recovery International, Inc. and Carbona Corporation.
Competition in Product and Feedstock Markets
Competition in Fuels:
Fuels and chemicals produced at our projects would compete broadly with
fuels and chemicals produced from petroleum as well as alternative fuels and chemicals produced from various feedstocks. We believe that our synthetic fuels have some advantages over other types of alternative fuels due to their high quality and low
emissions properties. Our fuels, when produced from biomass, may have very low life-cycle carbon footprints, which could be an advantage, depending on the development of regulations to limit carbon emissions. Our competition in providing fuels comes
from very large, well-capitalized companies in the petroleum industry and from smaller developmental companies in the alternative fuels and chemicals businesses.
9
Competition in Power
: Power produced by our projects would compete
broadly with power produced by utilities and independent power producers. In particular, we compete with other forms of renewable power, such as wind, solar, and geothermal, in selling our renewable power to utilities who are trying to fulfill their
obligations under various programs to procure and sell renewable power. We compete with very large, well-capitalized companies in the business of producing power, and with both large and small companies in the production of renewable power.
Competition for Feedstock
: For our projects that would use coal, petroleum coke or natural gas as
feedstocks, we compete for supply of those feedstocks with the broad range of large and small purchasers of those feedstocks, and the markets for those feedstocks include a large number of participants. For our projects that would use biomass or
waste as feedstocks, we compete in more fragmented, less developed markets to acquire supplies of feedstock. Biomass feedstocks can be categorized into urban streams (including waste materials such as municipal solid waste, construction and
demolition waste, green wastes and sewage sludge) and rural streams (including agricultural materials such as stovers and straws, sugar cane bagasse, forestry residues, energy crops and algae). The markets for biomass and waste feedstocks are highly
localized, as transportation costs are high relative to the value of the feedstock, and the infrastructure for collecting and transporting these feedstocks is less well developed. We compete for these feedstocks with existing and proposed
traditional biomass-to-power plants, which produce power through incineration of the feedstock, and with a number of proposed projects that would use new technologies to convert biomass and/or waste into power and/or fuels.
Competition for Syngas
: Syngas produced by our technologies would compete broadly with syngas produced from a
number of proposed projects that would use new technologies to convert biomass and/or waste into syngas. Since syngas is an alternative to natural gas as a feedstock, we also compete with large and well-capitalized companies that supply natural gas.
Products and Markets
Facilities using our technologies can be designed and configured to produce synthetic fuels, chemicals and/or power from fossil and biomass resources.
The products we can produce include renewable synthetic diesel and jet fuels, base oil, naphtha (primarily used as a
feedstock in the production of plastic) and power from biomass resources; synthetic diesel and jet fuels, base oil, naphtha and power from fossil or fossil and biomass resources; paraffinic waxes, solvents and specialty chemicals; syngas and
renewable hydrogen; and power.
Clean Air and Renewable Energy Laws
The Clean Air Act Amendments of 1990, or the CAAA, established several programs in order to improve air quality by, among
other things, imposing restrictions on the emissions of hazardous pollutants into the atmosphere. As a means to address common sources of air pollution such as automobiles, trucks and electric power plants, the CAAA encourages the development and
sale of alternative fuels as the nation attempts to meet national air quality standards. In addition, beginning on October 15, 2006, the United States Environmental Protection Agency, or the EPA, required diesel vehicles traveling on interstate
highways to operate using ultra-low sulfur diesel. Furthermore, California has promulgated state-specific standards to reduce the sulfur content of diesel fuel. Synthetic diesel fuel produced using the Rentech Process currently exceeds the
requirements of Federal and state low-sulfur standards, is clean burning fuel, and should therefore be attractive to fuel buyers and users.
In 2002, the California Legislature passed Senate Bill 1078 establishing California’s Renewable Portfolio Standard, or the CRPS. As modified by subsequent legislation and executive orders, the CRPS
requires retail sellers of electricity regulated by the California Public Utilities Commission to procure or produce power representing 20% of their retail sales from renewable sources by 2010. On July 31, 2010, the California Air Resources
Board adopted the Renewable Electricity Standard, or the RES, which requires all utilities, including municipal utility districts, and other load-serving entities to procure or produce power representing 33% of their retail sales from renewable
resources by 2020, as prescribed by the Global Warming Solutions Act of 2006. The California Legislature subsequently passed legislation codifying the 33% increase in the CRPS, which was signed into law on April 12, 2011. We expect that future
biomass-to-electricity plants employing the Rentech-SilvaGas Technology will meet both the CRPS and RES requirements.
The Renewable Fuel Standard, or the RFS, created under the Energy Policy Act of 2005, as amended, or EPACT 2005, and subsequently expanded by the Energy Independence and Security Act of 2007, or EISA
2007, established four distinct renewable fuel categories and associated volumetric blending requirements that in aggregate reach 36 billion ethanol gallon equivalents by 2022, although the EPA has the authority to reduce such requirements, if
necessary. The mandate, which was created under the authority of the Clean Air Act, or the CAA, requires the blending of renewable diesel fuels with conventional diesel fuels. Fuels produced from renewable feedstock using the Rentech Process will
qualify as renewable diesel fuels.
10
Government Incentives
As discussed above, the RFS established volumetric blending requirements that must reach a certain threshold by 2022,
although the EPA has the authority to reduce such threshold, if necessary. We believe that government mandates for production of ethanol could increase the demand for corn and, as a result, for our nitrogen fertilizer products which are used in corn
production. In addition, we expect that RenDiesel fuel will qualify as a cellulosic diesel fuel (a sub-category of one of the distinct renewable fuel categories under the RFS), which would allow obligated parties to use the fuel to meet either
cellulosic biofuel or biomass-based diesel fuel volumetric blending requirements under the RFS.
An obligated
party under the RFS, which includes any refiner or importer of petroleum-based gasoline or diesel fuel, demonstrates compliance with the RFS through the acquisition of unique Renewable Identification Numbers, or RINs, assigned to produced or
imported renewable fuel based upon the energy content of the fuel relative to ethanol. Each year, obligated parties under the RFS must acquire sufficient RINs to demonstrate compliance with their Renewable Volume Obligation, or RVO. RINs may be
traded freely between renewable fuel producers, marketers, obligated parties and other investors in RINs, and their price is generally determined between purchasers and sellers of RINs. EISA 2007 created one RIN category for each of the four
volumetric blending requirements under the RFS. RenDiesel fuel, as a cellulosic diesel fuel, is expected to receive a cellulosic biofuel RIN in any project that uses cellulosic materials as feedstock. RenDiesel fuel, when derived from biomass, would
receive 1.6 RINs per gallon.
The American Recovery and Reinvestment Act of 2009, or ARRA, provided funding to
several renewable energy programs, including funding for advanced biofuel production technologies. Rentech and ClearFuels, received an award under this program for approximately $23 million for the Rentech-ClearFuels Gasifier recently constructed at
the PDU. The fiscal year 2012 budget for the DOE includes more than $70 million to support biomass conversion research and development.
Currently, 29 states and the District of Columbia have Renewable Portfolio Standards, which require utilities to source a certain percentage of their electric power from renewable power facilities, while
another nine states have non-binding goals for use of electric power. This could create market demand for renewable power technologies such as Rentech’s biomass gasifiers.
In 2006, the California Legislature passed Assembly Bill 32, or AB-32, or the Global Warming Solutions Act of 2006. AB-32
is intended to reduce greenhouse gas emissions in California to 1990 levels by 2020. The Low Carbon Fuel Standard, or LCFS, under AB-32 requires regulated parties, which are California-based refiners or importers of gasoline or diesel fuel, to
reduce the carbon content per BTU, or the “carbon intensity,” in the transportation fuels they sell in California by at least 10% by 2020. LCFS credits will be assigned to each gallon of renewable fuel that has a carbon intensity value
below that of equivalent petroleum fuel. We expect that RenDiesel fuel will be entitled to receive LCFS credits. Regulated parties must comply with the LCFS on an annual basis beginning in 2011, although regulated parties have until April 30 of
the following year to purchase any additional LCFS credits (in excess of LCFS credits earned) necessary to comply with the LCFS.
The Canadian Renewable Fuels Regulations mandates an average of 5% renewable fuels content in Canadian gasoline, effective December 15, 2010. The Canadian government has also set a goal of 2%
renewable fuels content in Canadian diesel fuel and heating distillate oil by 2012. Additionally, the Canadian federal ecoENERGY for Biofuels program provides a per liter incentive for renewable biofuels.
The Province of Ontario has established preferred power rates for renewable power through the Feed-in Tariff program
created by the Green Energy and Green Economy Act of 2009. Other provinces in Canada, including British Columbia, Alberta, Manitoba, and Saskatchewan have similar provincial legislation to promote renewable power and renewable fuels production.
Many countries in addition to the United States and Canada have enacted or proposed renewable power and
renewable fuels regulations and various incentives to promote the development of alternative and clean energy. We are exploring development and licensing opportunities in a number of these countries.
Our Nitrogen Fertilizer Business
We also own, through our wholly owned subsidiaries, the general partner interest and 60.8% of the common units representing limited partner interests in RNP, a publicly traded partnership that, through
its wholly owned subsidiary, RNLLC, manufactures natural-gas based nitrogen fertilizer products at the East Dubuque Facility and sells such products to customers located in the Mid Corn Belt region of the United States.
11
East Dubuque Facility
The East Dubuque Facility is located on approximately 210 acres in the northwest corner of Illinois
on a 140-foot bluff above Mile Marker 573 on the Upper Mississippi River. The East Dubuque Facility produces ammonia, UAN, liquid and granular urea, nitric acid and food-grade CO
2
using natural gas as its primary feedstock. The East Dubuque Facility operates continuously, except for planned shutdowns
for maintenance and efficiency improvements and unplanned shutdowns, which are infrequent. The East Dubuque Facility can optimize its product mix according to changes in demand and pricing for its various products. Some of these products, such as
UAN, are final products sold to customers, and others, including ammonia, are both final products and feedstocks for other final products, such as nitric acid, liquid urea, granular urea and
CO
2
.
The following table sets forth the East Dubuque Facility’s current rated production capacity for the listed products
in tons per day and tons per year, and RNLLC’s product storage capacity:
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
Product
|
|
Approximate Production Capacity
|
|
Product Storage
Capacity
|
|
|
Tons /Day
|
|
Tons /Year
|
|
|
|
|
|
|
|
Ammonia
|
|
830
|
|
302,950
|
|
40,000 tons (2 tanks); 15,000 tons
(1)
|
|
UAN
|
|
1,100
|
|
401,500
|
|
80,000 tons (2 tanks)
|
|
Urea (liquid / granular)
|
|
400 / 140
|
|
146,000 / 51,100
|
|
12,000 granular ton warehouse
|
|
Nitric acid
|
|
380
|
|
138,700
|
|
Limited capacity is not a factor
|
|
CO
2
(2)
|
|
650
|
|
237,250
|
|
1,900 tons
|
|
(1)
|
Represents 15,000 tons of space at the terminal of Agrium, Inc., or Agrium, in Niota, Illinois where RNLLC has the right to store ammonia pursuant
to its distribution agreement with Agrium. RNLLC’s right to store ammonia at this terminal expires on June 30, 2016, but automatically renews for successive one year periods, unless it delivers a termination notice to Agrium with respect
to such storage rights at least three months prior to an automatic renewal. Notwithstanding the foregoing, RNLLC’s right to use the storage space immediately terminates if the distribution agreement terminates in accordance with its terms. See
“—Marketing and Distribution.”
|
|
(2)
|
In order to provide adequate space for the ammonia capacity expansion project, RNLLC expects to reduce the East Dubuque Facility’s CO
2
production capacity to 350 tons per day and 127,750 tons per year in
March 2012. See “—Expansion Projects.”
|
The following table sets forth the
amount of products produced by, and shipped from, the East Dubuque Facility for the three months ended December 31, 2011 and 2010, and the fiscal years ended September 30, 2011, 2010 and 2009:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three
Months
Ended
December 31,
|
|
|
Fiscal
Years
Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands of tons)
|
|
|
Products Produced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
|
63
|
|
|
|
75
|
|
|
|
273
|
|
|
|
267
|
|
|
|
267
|
|
|
UAN
|
|
|
68
|
|
|
|
86
|
|
|
|
312
|
|
|
|
287
|
|
|
|
274
|
|
|
Urea (liquid / granular)
|
|
|
34
|
|
|
|
43
|
|
|
|
155
|
|
|
|
145
|
|
|
|
162
|
|
|
Nitric acid
|
|
|
27
|
|
|
|
35
|
|
|
|
126
|
|
|
|
111
|
|
|
|
104
|
|
|
CO
2
|
|
|
16
|
|
|
|
34
|
|
|
|
109
|
|
|
|
107
|
|
|
|
95
|
|
|
Products Shipped
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
|
55
|
|
|
|
44
|
|
|
|
125
|
|
|
|
153
|
|
|
|
126
|
|
|
UAN
|
|
|
65
|
|
|
|
79
|
|
|
|
315
|
|
|
|
294
|
|
|
|
267
|
|
|
Urea (liquid / granular)
|
|
|
7
|
|
|
|
7
|
|
|
|
29
|
|
|
|
32
|
|
|
|
36
|
|
|
Nitric acid
|
|
|
3
|
|
|
|
3
|
|
|
|
15
|
|
|
|
11
|
|
|
|
9
|
|
|
CO
2
|
|
|
15
|
|
|
|
34
|
|
|
|
110
|
|
|
|
107
|
|
|
|
95
|
|
12
Expansion Projects
Since commencing operations in 1965, the East Dubuque Facility has undergone various expansion projects that have
increased production and product upgrade capabilities. The expansion project RNLLC completed in 1998 entailed the construction of a second nitric acid plant at the East Dubuque Facility. This project added approximately 150 tons per day of nitric
acid capacity to the East Dubuque Facility, which, in turn, increased the facility’s UAN capacity from approximately 660 tons per day to approximately 1,100 tons per day.
RNP is pursuing some, and intends to continue to evaluate additional, opportunities to increase its profitability by
expanding its production capabilities and product offerings, including with the following expansion projects:
|
|
•
|
|
Urea Expansion and Diesel Exhaust Fluid Build-Out
. RNP has commenced a project to increase its urea production capacity by approximately 13%,
or 50 tons per day. The additional urea could be marketed as liquid urea or upgraded into UAN, both of which sell at a premium to ammonia per nutrient ton. As part of this project, RNP has commenced the installation of mixing, storage and load-out
equipment that would enable it to produce and sell diesel exhaust fluid, or DEF, from the urea produced at the East Dubuque Facility. DEF is a urea-based chemical reactant that is intended to reduce nitrogen oxide emissions in the exhaust systems of
certain diesel engines of trucks and off-road farm and construction equipment. As an industrial product, DEF would diversify RNP’s product mix and its potential customer base. RNP believes that there is an expanding market for DEF, with the
potential for long-term off-take contracts on favorable terms. RNP expects the urea expansion and DEF build-out project to cost approximately $6.0 million to complete, and such project is being funded with a portion of the net proceeds from the
Offering. We believe that this expansion project could be completed by the end of 2012.
|
|
|
•
|
|
Ammonia Capacity Expansion Project.
RNP has commenced construction of a project that is designed to increase ammonia production at the East
Dubuque Facility by approximately 70,000 tons annually, for sale or upgrade to additional products, and to increase its ammonia storage capacity by approximately 20,000 tons. This project is on a schedule that we expect will fit with planned
downtime for its 2013 turnaround. Based on the engineering work completed to date, including Front End Engineering and Design, or FEED, RNP’s preliminary estimate is that this project could be completed by the end of 2013. RNP expects that this
project could cost approximately $100 million to complete. RNP has entered into a credit agreement (referred to as the 2012 Credit Agreement), which provides for a $135.0 million senior secured credit facility, including a $100.0 million capital
expenditures facility, or the CapEx Facility. With the exception of FEED, which was funded using a portion of the net proceeds from the Offering, RNP intends to use borrowings under the CapEx Facility to fund the ammonia capacity expansion project.
For a more complete discussion of the 2012 Credit Agreement, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Nitrogen Products Manufacturing”.
|
Products
RNLLC’s product sales are heavily weighted toward sales of ammonia and UAN, which together made
up 80% or more of its total revenues for the three months ended December 31, 2011 and each of the fiscal years ended September 30, 2011, 2010 and 2009. A majority of RNLLC’s products are sold through its distribution agreement with
Agrium, as described below in “—Marketing and Distribution,” with the exception of CO
2
, which RNLLC sells directly to customers in the food and beverage market at negotiated contract prices. Although ammonia and UAN may be used interchangeably in some cases, each has its own
characteristics, and customer product preferences vary according to the crop planted, soil and weather conditions, regional farming practices, relative prices and the cost and availability of appropriate storage, transportation, handling and
application equipment, each of which vary among these two products. During the three months ended December 31, 2011 and each of the fiscal years ended September 30, 2011, 2010 and 2009, RNLLC sold more than 90% of its nitrogen products to
customers for agricultural uses, with the remaining portion being sold to customers for industrial uses.
Ammonia.
RNLLC produces ammonia, the simplest form of nitrogen fertilizer and the feedstock for the production of other nitrogen fertilizers. RNLLC’s ammonia processing unit has a current
rated capacity of approximately 830 tons per day. RNLLC’s ammonia product storage consists of two 20,000 ton tanks at the East Dubuque Facility and 15,000 tons of leased storage in Niota, Illinois. Ammonia is used in the production of all other
products produced at the East Dubuque Facility, except CO
2
.
UAN.
UAN is a liquid fertilizer that has a slight ammonia odor, and, unlike ammonia, it does not need
to be refrigerated or pressurized when transported or stored. The East Dubuque Facility has two UAN storage tanks with a combined capacity of 80,000 tons.
13
Urea.
RNLLC sells its urea solution in its liquid state, processed
into granular urea through its urea granulation plant to create dry granular urea (46% nitrogen concentration) or upgraded into UAN. RNLLC assesses market demand for each of these three end products and allocates our produced urea solution as
appropriate. RNLLC sells liquid urea primarily to industrial customers in the power, ethanol and diesel emissions markets. Although RNLLC believes that there is high demand for its granular urea in agricultural markets, it sells granular urea
primarily to customers in specialty urea markets where the spherical and consistent size of the granules resulting from its “curtain granulation” technology generally commands a premium price. The East Dubuque Facility has a 12,000 ton
capacity bulk warehouse that can be used for dry bulk granular urea storage.
Nitric Acid.
RNLLC
produces nitric acid through two separate nitric acid plants at the East Dubuque Facility. Nitric acid is either sold to third parties or used within the East Dubuque Facility for the production of ammonium nitrate solution, as an intermediate from
which UAN is produced. RNLLC believes that the East Dubuque Facility has sufficient storage capacity available for efficient loading of nitric acid.
Carbon Dioxide.
CO
2
is a gaseous product that is co-manufactured with ammonia, with approximately 1.1 tons of CO
2
produced per ton of ammonia produced. The East Dubuque Facility utilizes
CO
2
in its urea production and has developed a market for
CO
2
through conversion to a purified food grade liquid
CO
2
. The East Dubuque Facility has storage capacity for
approximately 1,900 tons of CO
2
. We have multiple CO
2
sales agreements that allow for regular shipment of CO
2
throughout the year, and our current storage capacity is sufficient to
support our CO
2
delivery commitments.
Marketing and Distribution
In 2006, RNLLC entered into a distribution agreement with Agrium under which a majority of its products, including
ammonia and UAN, are sold. Pursuant to the distribution agreement, Agrium is obligated to use its commercially reasonable efforts to promote the sale of, and to solicit and secure orders from its customers for, nitrogen fertilizer products
comprising ammonia, liquid and granular urea, UAN, nitric acid and other nitrogen-based products manufactured at the East Dubuque Facility. Under the distribution agreement, Agrium bears the credit risk on products sold through Agrium pursuant to
the agreement. The distribution agreement has a term that ends in April 2016, but automatically renews for subsequent one-year periods (unless either party delivers a termination notice to the other party at least three months prior to an automatic
renewal).
During the three months ended December 31, 2011 and each of the fiscal
years ended September 30, 2011, 2010 and 2009, RNLLC sold 80% or more of the nitrogen fertilizer products produced at the East Dubuque Facility through Agrium pursuant to the distribution agreement, and sold the remaining amounts directly to
customers. RNLLC’s management pre-approves price, quantity and other terms for each sale through Agrium, and it pays Agrium only a commission for its services. RNLLC’s rights under the distribution agreement include the right to store
specified amounts of its ammonia for a monthly fee at Agrium’s ammonia terminal in Niota, Illinois, which serves as another location where its ammonia is sold. RNLLC’s right to store ammonia at Agrium’s terminal expires on
June 30, 2016, but automatically renews for successive one year periods, unless it delivers a termination notice to Agrium with respect to such storage rights at least three months prior to an automatic renewal. Notwithstanding the foregoing,
RNLLC’s right to use the storage space immediately terminates if the distribution agreement terminates in accordance with its terms. Outside of the distribution agreement, RNLLC also sells its CO
2
directly to customers on a contract-by-contract basis.
Under the distribution agreement, RNLLC pays commissions to Agrium not to exceed $5 million during each contract year on
applicable gross sales during the first 10 years of the agreement. The commission rate was 2% during the first year of the agreement and increased by 1% on each anniversary date of the agreement up to the current rate of 5%, which is the maximum
allowable rate under the distribution agreement during the first 10 years of the agreement. For the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, the effective commission rate associated
with sales under the distribution agreement was 2.6%, 4.3%, 4.2% and 2.3% respectively.
Transportation
In most instances, RNLLC’s customers purchase its nitrogen products freight on board, or FOB, at
the East Dubuque Facility, and then arrange and pay to transport them to their final destinations by truck according to customary practice in the nitrogen fertilizer market. Similarly, under the distribution agreement, neither RNLLC nor Agrium is
responsible for transportation, and customers that purchase RNLLC’s products through Agrium purchase such products FOB at the East Dubuque Facility. When products are purchased FOB at the East Dubuque Facility, the customer is responsible for
all costs for and bears all risks associated with the transportation of products from the East Dubuque Facility.
14
In certain limited cases, RNLLC transports its products by barge or rail,
and is responsible for the associated transportation costs. RNLLC owns a barge dock on the Mississippi River and it delivers some of its products to customers by barge. RNLLC also ships some of its products by barge to its leased storage facility in
Niota, Illinois, another location from which its customers may pick up its products by truck. RNLLC also owns a rail spur that connects to the Burlington Northern Santa Fe Railway, and the Canadian National Railway Company or its predecessors have
provided rail service to the East Dubuque Facility since 1966.
RNLLC believes that having the option to
transport its nitrogen products by barge or rail provides it with the flexibility to sell its products to locations that cannot readily be reached by truck. However, transportation by truck generally is not subject to many of the risks and costs
associated with transportation by barge or rail. Barge transportation from the Gulf Coast frequently is constrained by unpredictable conditions and limited equipment and storage infrastructure on the Mississippi River. Lock closures on the Upper
Mississippi River can be caused by a variety of conditions, including inclement weather or surface conditions, and can unexpectedly delay barge transportation. In addition, in the United States, there are only two towing companies that transport
ammonia by barge and only 32 active barges available for ammonia transport, which RNLLC believes is only sufficient to transport the current level of produced ammonia. Ammonia storage sites and terminals served by barge on the Mississippi River are
controlled primarily by CF Industries Holdings, Inc., or CF Industries, Koch Industries, Inc., or Koch, and Agrium. Because ownership of storage sites and terminals is limited to these competitors, other competitors who rely on barge transportation
could encounter storage limitations associated with the seasonal Mississippi River closure that occurs annually from mid-November to early March. Railroads also charge premium prices to ship certain toxic inhalation hazard, or TIH, chemicals,
including ammonia, due in part to additional liability insurance costs incurred by the railroads. RNLLC believes that railroads are taking other actions, such as requiring indemnification from their customers for liabilities relating to TIH
chemicals, to shift the risks they face from shipping TIH chemicals to their customers, which may make transportation of ammonia by rail more costly or less feasible.
Customers
RNLLC derives substantially all of its revenues and cash flows from the production and sale of nitrogen fertilizers, and it sells a majority of its nitrogen products to customers located in its core
market. RNLLC sold over 90% of its nitrogen products to customers for agricultural uses during the three months ended December 31, 2011 and each of the fiscal years ended September 30, 2011, 2010 and 2009. Given the nature of its business,
and consistent with industry practice, RNLLC generally does not have long-term minimum sales contracts for fertilizer products with any of its customers.
In the aggregate, RNLLC’s top five ammonia customers represented approximately 54%, 46%, 52% and 49%, respectively, of its ammonia sales for the three months ended December 31, 2011 and the
fiscal years ended September 30, 2011, 2010 and 2009, and its top five UAN customers represented approximately 53%, 50%, 60% and 60%, respectively, of its UAN sales for these periods. In addition, Twin States Inc., or Twin States, accounted for
approximately 7%, 6%, 10% and 11%, respectively, of RNLLC’s total product sales for the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009. Growmark, Inc., or Growmark, accounted for
approximately 20%, 7%, 8% and 11%, respectively, of RNLLC’s total product sales for the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009. For the three months ended December 31,
2011 and the fiscal years ended September 30, 2011, 2010 and 2009, approximately 1%, 3%, 7% and 0%, respectively, of RNLLC’s total product sales were to Agrium as a direct customer (rather than a distributor) and approximately 7%, 15%, 11%
and 5%, respectively, of RNLLC’s total product sales were to Crop Production Services, Inc., or CPS, a controlled affiliate of Agrium.
Seasonality and Volatility
The 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, which requires significant storage capacity. The
accumulation of inventory to be available for seasonal sales requires us to maintain significant working capital. This seasonality generally results in higher fertilizer prices during peak periods, with prices normally reaching their highest point
in the spring, decreasing in the summer, and increasing again in the fall. Fertilizer products are sold both on the spot market for immediate delivery and under product prepayment contracts for future delivery at fixed prices. The terms of the
product prepayment contracts, including the percentage of the purchase price paid as a down payment, can vary from season to season. Variations in the proportion of product sold through forward sales and variations in the terms of the product
prepayment contracts can increase the seasonal volatility of our cash flows and cause changes in the patterns of seasonal volatility from year-to-year. The cash from product prepayment contracts is included in our operating cash flow in the quarter
in which the cash is received, while revenues related to product prepayment contracts are recognized when products are picked-up or delivered and the customer takes title. As a result, the cash received from product prepayments contracts increases
our operating cash flow in the quarter in which the cash is received, but may effectively reduce our operating cash flow in a subsequent quarter if the cash was received in a quarter prior to the one in which the revenue is recorded. See “Part
II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosure About Market Risk.”
15
Another seasonal factor affecting the nitrogen fertilizer industry is the
effect of weather-related conditions on ability to transport products by barge on the Upper Mississippi River. During portions of the winter, the Upper Mississippi River cannot be used for transport due to lock closures, which could preclude the
transportation of nitrogen products by barge during this period and may increase transportation costs. However, only approximately 2.3% and 0.0% of the ammonia and UAN tonnage, respectively, that RNLLC sold during the three months ended
December 31, 2011 was transported from the East Dubuque Facility by barge. Also, only approximately 4.4% and 3.7% of the ammonia and UAN tonnage, respectively, that RNLLC sold during the three-year period ended September 30, 2011 was
transported from the East Dubuque Facility by barge.
The following table shows total tons of RNLLC’s
products shipped for each quarter presented below:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three
Months Ended
December 31,
|
|
|
Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands of tons)
|
|
|
Ammonia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31
|
|
|
55
|
|
|
|
44
|
|
|
|
45
|
|
|
|
44
|
|
|
Quarter ended March 31
|
|
|
|
|
|
|
20
|
|
|
|
22
|
|
|
|
5
|
|
|
Quarter ended June 30
|
|
|
|
|
|
|
43
|
|
|
|
51
|
|
|
|
67
|
|
|
Quarter ended September 30
|
|
|
|
|
|
|
18
|
|
|
|
35
|
|
|
|
10
|
|
|
UAN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31
|
|
|
65
|
|
|
|
79
|
|
|
|
57
|
|
|
|
42
|
|
|
Quarter ended March 31
|
|
|
|
|
|
|
30
|
|
|
|
25
|
|
|
|
28
|
|
|
Quarter ended June 30
|
|
|
|
|
|
|
129
|
|
|
|
112
|
|
|
|
93
|
|
|
Quarter ended September 30
|
|
|
|
|
|
|
77
|
|
|
|
100
|
|
|
|
104
|
|
|
Other Nitrogen Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31
|
|
|
10
|
|
|
|
10
|
|
|
|
7
|
|
|
|
11
|
|
|
Quarter ended March 31
|
|
|
|
|
|
|
12
|
|
|
|
14
|
|
|
|
11
|
|
|
Quarter ended June 30
|
|
|
|
|
|
|
15
|
|
|
|
12
|
|
|
|
15
|
|
|
Quarter ended September 30
|
|
|
|
|
|
|
7
|
|
|
|
10
|
|
|
|
8
|
|
|
CO
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31
|
|
|
15
|
|
|
|
34
|
|
|
|
15
|
|
|
|
18
|
|
|
Quarter ended March 31
|
|
|
|
|
|
|
27
|
|
|
|
24
|
|
|
|
22
|
|
|
Quarter ended June 30
|
|
|
|
|
|
|
26
|
|
|
|
32
|
|
|
|
28
|
|
|
Quarter ended September 30
|
|
|
|
|
|
|
23
|
|
|
|
36
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tons Shipped
|
|
|
145
|
|
|
|
594
|
|
|
|
597
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RNLLC typically ships the highest volume of tons during the spring planting season, which
occurs during the quarter ending June 30, and the next highest volume of tons after the fall harvest during the quarter ending December 31. However, as reflected in the table above, the seasonal patterns may change substantially from
year-to-year due to various circumstances, including timing of or changes in the weather. These seasonal increases and decreases in demand also can cause fluctuations in sales prices. In more mild winter seasons with warmer weather, early planting
may shift significant ammonia sales into the quarter ending March 31.
16
Raw Materials
The principal raw material used to produce nitrogen fertilizer products is natural gas. RNLLC historically has purchased
natural gas in the spot market, through the use of forward purchase contracts, or a combination of both. RNLLC uses forward purchase contracts to lock in pricing for a portion of the East Dubuque Facility’s natural gas requirements. These
forward purchase contracts are generally either fixed-price or index-priced, short term in nature and for a fixed supply quantity. RNLLC’s policy is to purchase natural gas under fixed-price forward contracts to produce the products that have
been sold under product prepayment contracts for later delivery, effectively fixing a substantial portion of the gross margin on pre-sold product. RNLLC is able to purchase natural gas at competitive prices due to its connection to the Northern
Natural Gas interstate pipeline system which is within one mile of the East Dubuque Facility. The pipeline is connected to Nicor Inc.’s distribution system at the Chicago Citygate receipt point from which natural gas is transported to the East
Dubuque facility. Though RNLLC does not purchase natural gas for the purpose of resale, it occasionally sells natural gas when contracted quantities received exceed production requirements and storage capacities. The location of RNLLC’s receipt
point has allowed it to obtain relatively favorable natural gas prices for its excess natural gas on the Chicago Citygate price point created by the stable residential demand for the commodity in the city of Chicago, Illinois. During the two years
ended December 31, 2011, the average price of natural gas on this price point exceeded that of the Inside FERC Northern Natural Gas Ventura and Demarcation Indices, which are used to determine the prices for the natural gas RNLLC purchases.
During the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, natural gas purchased and used in production by RNLLC was approximately 2.3 billion cubic feet, 10.3 billion cubic feet,
9.9 billion cubic feet and 10.1 billion cubic feet, respectively.
Changes in the levels of natural gas
prices and market prices of nitrogen-based products can materially affect our financial position and results of operations. Natural gas prices in the United States have experienced significant fluctuations over the last few years, increasing
substantially in 2008 and subsequently declining to lower levels in 2009, 2010, 2011 and 2012. The price changes have been driven by several factors, including changes in the demand for natural gas from industrial users, which is affected, in part,
by the general conditions of the United States economy, and other factors. Several recent discoveries of large natural gas deposits in North America, combined with advances in technology for natural gas production also have caused large increases in
the estimates of available natural gas reserves and production in the United States, contributing to significant reductions in the market price of natural gas. One major factor in the recent decrease in natural gas prices has been the use of
technologies, including hydraulic fracturing and horizontal drilling, that have substantially increased the amount of natural gas produced in the United States. Hydraulic fracturing is the process of fracturing the underground formation with water,
sand and chemicals under high pressure to recover natural gas from coalbeds and shale gas formations that otherwise may have been inaccessible. Horizontal drilling involves drilling a well from the surface to a subsurface location and then
proceeding horizontally, which typically exposes significantly more reservoir rock to the well bore and thus results in greater potential natural gas recovery than traditional vertical drilling. Seasonal fluctuations in natural gas prices exist
within each year resulting from various supply and demand factors, including, but not limited to, the severity of winter weather and its effect on consumer and industrial demand for heating, the severity of summer weather and its effect on
industrial demand by utilities for electrical generation, and hurricane activity in the Gulf of Mexico.
Competition
RNLLC competes with a number of domestic and foreign producers of nitrogen fertilizer products, many of which are larger than it is and have significantly greater financial and other resources than it
does.
RNLLC believes that customers for nitrogen fertilizer products make purchasing decisions principally on
the delivered price and availability of the product at the critical application times. The East Dubuque Facility’s proximity to RNLLC’s customers provides it with a competitive advantage over producers located further away from our
customers. The nitrogen fertilizer facilities closest to the East Dubuque Facility are located in Fort Dodge, Iowa, Creston, Iowa and Port Neal, Iowa, approximately 190 miles, 275 miles and 300 miles, respectively, from the East Dubuque Facility,
and in Lima, Ohio, approximately 350 miles to the east of the East Dubuque Facility. RNLLC’s physical location in the center of the Mid Corn Belt provides it with a strategic placement and transportation cost advantage, compared to other
producers who must ship their products over greater distances to its market area. The combination of RNLLC’s proximity to its customers and its storage capacity at the East Dubuque Facility also allows its customers to better time the pick-up
and application of its products, as deliveries from more distant locations have a greater risk of missing the short periods of favorable weather conditions during which the application of nitrogen fertilizer and planting may occur. However, other
producers of nitrogen fertilizer products are contemplating the construction of new nitrogen fertilizer facilities in North America, including in the Mid Corn Belt. If a new nitrogen fertilizer facility is completed in RNLLC’s core market, it
could benefit from the same competitive advantage associated with the location of the East Dubuque Facility. As a result, the completion of such a facility could have a material adverse effect on our results of operations and financial condition.
RNLLC plans to continue to operate the East Dubuque Facility with natural gas as its primary feedstock.
Competitors may have access to cheaper natural gas or other feedstocks that could provide them with a cost advantage. Depending on its magnitude, the amount of this cost advantage could offset the savings RNLLC may experience on transportation and
storage costs as a result of its location. For the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, RNLLC’s average prices for natural gas were $4.71 per one million British thermal
units, or MMBtus, $4.76 per MMBtu, $4.95 per MMBtu and $5.67 per MMBtu, respectively.
17
Our Intellectual Property and Patents
As of March 2, 2012, we owned or licensed 49 issued and 37 pending United States utility patents and patent
applications pertaining to the Rentech Process, the Rentech-SilvaGas Technology, the Rentech-ClearFuels Technology, and related processes, including the applications of these processes, the products made by the Rentech Processes and the materials
used in connection with the Rentech Processes. We also protect certain of our technologies abroad in foreign countries. As of March 2, 2012, we owned or licensed 50 issued non-domestic patents and 142 pending non-domestic patent applications
(all of which are counterparts to our United States utility patents).
The Rentech Process uses our iron-based
catalyst, which we have patented. We currently have several pending United States and foreign patent applications that claim improvements to certain aspects of the Rentech Process and the Rentech-ClearFuels Technology. A portion of our patents are
related to the Rentech-SilvaGas Technology, and several of our patent applications deal with conditioning the syngas from the Rentech-SilvaGas Technology for use in the Rentech Process for production of synthetic fuels.
The term of a utility patent is generally 20 years from the earliest priority date for the application in the
United States Patent and Trademark Office, or the USPTO. Patents that are in force on or that will issue on an application that was filed before June 8, 1995 have a term that is the greater of the 20 year term noted above or
17 years from the patent grant. Our first patent matured from an application that was filed in 1992 and expired 17 years from the grant date and our next patent that will expire is in March 2012. Our most recent application was filed in
February 2012.
We have registered
RENTECH
®
as a trademark and it is listed on the Primary Register of the USPTO. The use of RENTECH
®
as just the name, or with the stylized bubbles that comprise our corporate logo, will identify and distinguish our
services from those of other companies. We have also registered or are in the process of registering the
RENTECH
®
mark in certain foreign jurisdictions. We have registered RENJET
®
, RENCHEM
®
and RENDIESEL
®
as trademarks
on the Primary Register of the USPTO and in Canada. The use of these trademarks identifies fuels and chemicals produced using the Rentech Process. We have filed intent to use trademark applications domestically and in Canada for the mark
RENPOWER™. These marks are representative of the names under the Rentech product umbrella that we intend to use for certain fuel, chemical and power products to be marketed by us.
In conjunction with the Offering, we filed intent to use trademark applications in the United States for the mark RENTECH
NITROGEN™. This mark identifies fertilizer products and related services offered by RNP and its subsidiaries.
We acquired the trademark and stylized leaf design for Clearfuels Technology
®
and the trademark name Silvagas
®
, both of which are registered in the United States and listed on the Primary Register of the USPTO. The Clearfuels Technology
®
mark is also registered or in the process of becoming registered in many foreign countries. The use of the
Clearfuels Technology
®
logo and the Silvagas
®
logo identify technology and services related to the Rentech-ClearFuels Technology and Rentech-SilvaGas Technology, respectively.
We also maintain trade secrets and confidential proprietary information that we use in connection with our trademarked
Rentech Process, Rentech-ClearFuels Technology and Rentech-SilvaGas Technology. The life of a trademark is indefinite as long as there is continual use of the mark. The term of our trade secrets and proprietary information is perpetual as long as we
prevent public disclosure by keeping them secret and confidential and as long as they are not discovered by others. We typically protect our trade secrets and confidential proprietary information through non-disclosure agreements with parties with
whom we do business.
The success of our and our subsidiaries’ businesses depends upon the intellectual
property that we own and use in the conduct of our and our subsidiaries’ businesses. Our intellectual property gives us rights to exploit our technologies and to exclude others from making, using, selling, offering for sale, or importing
certain inventions throughout the United States and those jurisdictions in which we have secured rights, without our consent. If we lost the rights to exploit or exclusively exploit any of our intellectual property, the financial results of our
business and our overall financial results and prospects could be materially harmed.
18
Regulation
The ownership and operation of nitrogen fertilizer and alternative energy facilities are subject to extensive United States federal, state and local environmental, health and safety laws and regulations,
including those governing and imposing liability for the discharge of pollutants into the air and water, the management and on-site and off-site disposal of chemicals, byproducts, including waste water and spent catalyst, and hazardous wastes,
worker health and safety, the investigation and cleanup of contamination at currently and formerly owned or operated sites, as well as third party sites that may have been impacted by our operations, and for natural resource damages related to any
releases of hazardous substances. Our facilities and operations must comply with these environmental laws and regulations. For example, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, we could be
held strictly or jointly and severally liable for the removal and remediation of any hazardous substance contamination at our currently or formerly owned or operated facilities, at off-site properties (where migration of contamination from our
facilities occurred) and at third party waste disposal sites at which our wastes were disposed. Because of our operations, the history of industrial or commercial uses at our currently and formerly owned and operated facilities, and the use,
production, disposal and possible release of hazardous substances and wastes at or from those facilities, we may be subject to liability under environmental laws. We could also be subject to liability for personal injury based on human exposure to
or natural resource damages from hazardous substances or wastes released or disposed of at or from our currently or formerly owned or operated facilities.
In addition, some of our operations require environmental permits and controls to prevent or limit pollution to the environment. Compliance with laws, regulations and requisite permits could require us to
curtail our operations or increase costs of designing, installing and operating our nitrogen fertilizer and alternative energy facilities. For example, emissions from those facilities may require the installation of costly pollution control
equipment in order to meet applicable environment legal and permit requirements.
Although we do not believe
that costs for compliance with environmental and health and safety laws and regulations and applicable environmental permit requirements in connection with our current operations will have a material adverse effect on us, we cannot predict with
certainty the future costs of complying with environmental laws, regulations and permit requirements or the costs that may be associated with investigation, remediating contamination or monitoring. The East Dubuque Facility has experienced some
level of regulatory scrutiny in the past and we may be subject to further regulatory inspections, future requests for investigation or assertions of liability relating to environmental matters. In the future, we could incur material liabilities or
costs related to environmental matters, and these environmental liabilities or costs (including fines or other sanctions) could have a material adverse effect on our business, operating results, financial condition and cash flows.
In addition, the engineering design and technical services we provide to our licensees may necessitate compliance with
certain professional standards and other requirements. We believe we have all required licenses to conduct our operations and are in substantial compliance with applicable regulatory requirements. However, the loss or revocation of any license or
the limitation on any services thereunder could prevent us from conducting such services and could subject us to substantial fines. In addition, changes in these requirements (including those related to future climate change regulation) could
adversely affect us.
Implementation of Carbon Dioxide Emissions Reduction Strategy
There has been a broad range of proposed or promulgated state, national and international laws and regulations focusing
on greenhouse gas, or GHG, emissions and reduction. These proposed or promulgated regulations of GHG emissions apply or could apply to projects utilizing our technologies in countries where we currently have, or may in the future have, projects
or customers. Laws in this field continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws, if enacted, could have a
material impact on our results of operations and financial condition. Examples of legislation or precursors for possible regulation that do or could affect our operations include:
|
|
•
|
|
The Kyoto Protocol which was initially adopted in 1997 and came into effect in 2005 with the goal of reducing certain GHG emissions, including
carbon dioxide. A number of countries that are parties to the Kyoto Protocol have instituted or are considering climate change legislation and regulations, including the European Union’s Emissions Trading System, or ETS, among others.
|
|
|
•
|
|
AB-32, which requires the California Air Resources Board, or CARB, to develop regulations and market mechanisms that will ultimately reduce
California’s GHG emissions to 1990 levels by 2020. CARB passed final cap and trade regulations on October 20, 2011 that will require regulated businesses to submit allowances beginning in 2013.
|
|
|
•
|
|
The Greenhouse Gas Reduction Targets Act, or GGRTA, enacted by the government of British Columbia, Canada in 2008, which seeks to reduce GHG
emissions to at least 33% below 2007 levels by 2020. It also includes the long-term target of an 80% reduction below 2007 levels by 2050. The government of British Columbia also has enacted various components of a climate action plan designed to
meet those goals, including a carbon tax.
|
19
|
|
•
|
|
The United States Supreme Court decision in
Massachusetts v. EPA
, 549 U.S. 497, 127 S.Ct. 1438 (2007) confirming that the EPA has the
authority to regulate carbon dioxide as an “air pollutant” under the CAA.
|
|
|
•
|
|
In December 2009, the EPA issued a final endangerment finding for greenhouse gases, which specifically found that emissions of six greenhouse gases
threaten the public health and welfare and that greenhouse gases from new motor vehicles and engines also contribute to such pollution. While these findings do not themselves impose any requirements on any industry or company at this time, these
findings may lead to greater regulation of GHG emissions by the EPA, may trigger more climate-based claims for damages, and may result in longer agency review time for development projects to determine the extent of climate change.
|
|
|
•
|
|
The EPA’s announcement on March 29, 2010 (published as “Interpretation of Regulations that Determine Pollutants Covered by Clean Air
Act Permitting Programs,” 75 Fed. Reg. 17004 (April 2, 2010)), and the EPA’s and United States Department of Transportation’s joint promulgation of a Final Rule on April 1, 2010, which triggers regulation of GHGs under the
CAA, may trigger more climate-based claims for damages, and may result in longer agency review time for development projects to determine the extent of climate change.
|
|
|
•
|
|
In May 2010, the EPA finalized the “Greenhouse Gas Tailoring Rule,” which establishes new GHG emissions thresholds that determine when
stationary sources, such as the East Dubuque Facility, must obtain permits under the Prevention of Significant Deterioration, or PSD, and Title V programs of the CAA. Phase I and II of the Greenhouse Gas Tailoring Rule became effective on
January 2, 2011 and July 1, 2011, respectively.
|
The GHG policy of the United
States currently favors voluntary actions to reduce emissions and continued research and technology development over near-term mandatory GHG emission reduction requirements. The United States Congress has previously considered legislation requiring
a mandatory reduction of GHG emissions. Although Congressional passage of such legislation does not appear likely at this time, it could be adopted at a future date. Such regulation could take any of several forms that result in the creation of
additional costs in the form of taxes, the restriction of output, investments of capital to maintain compliance with laws and regulations, or required acquisition or trading of emission allowances. Rentech is actively participating in the evolution
of federal policy on this issue and we are focused on initiatives to reduce greenhouse gas emissions, particularly carbon dioxide.
In the event that these legislative or regulatory initiatives increase the economic cost of emitting greenhouse gases, our businesses could be materially affected. The East Dubuque Facility is a
significant emitter of greenhouse gases. The net effect on the East Dubuque Facility from such initiatives would depend on the baseline level of allowed emissions in any new carbon regulation regime, and their impact could result in significant
costs for RNP. We are evaluating alternatives to reduce GHG emissions at the East Dubuque Facility.
Our
potential biomass energy projects are designed to produce low-carbon fuels and power, depending on the feedstock and its potential alternative uses, and they may benefit from carbon regulation. We do not expect to develop projects using fossil
feedstocks without carbon capture and sequestration or some form of control regarding GHG emission, and we expect that such projects could have life-cycle carbon footprints equal to or better than those of petroleum-based fuels. Therefore, we expect
that the impact of carbon regulation on our fossil projects may be neutral to positive, although we would expect to benefit substantially less from carbon regulation with respect to our fossil projects than our biomass projects.
Financial Information About Our Business Segments
Financial information about our business segments is provided in Note 18 of our Consolidated Financial Statements.
Employees and Labor Relations
As of December 31,
2011, we had 175 non-unionized and salaried employees, and 90 unionized employees. Of these employees, 118 non-unionized and salaried employees were employed in our alternative energy segment. We believe that we have good relations with our
employees. The General Partner has one labor contract in place covering the unionized employees. This contract is effective until October 17, 2012. Neither we nor any of our subsidiaries, including RNP, have experienced work stoppages in the
recent past.
20
Available Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports are available free of charge as soon as reasonably practical after they are filed or furnished to the SEC, through our website, www.rentechinc.com. Materials we file with the SEC may be read and copied at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at www.sec.gov that contains
reports, proxy and information statements, and other information regarding our business that we file electronically with the SEC.
Set forth below are certain risk factors related to our business. The risk factors described below may not include all of the risk factors that could affect future results. Actual results could differ
materially from those anticipated as a result of these and various other factors, including those set forth in our other periodic and current reports filed with the SEC from time to time.
Risks Related to the Rentech Process, the Rentech-SilvaGas Technology and the Rentech-ClearFuels Technology
We and our potential licensees may be unable to successfully or economically implement the Rentech Process, the Rentech-SilvaGas Technology or Rentech-ClearFuels Technology at commercial-scale
synthetic fuels or power plants.
A variety of results necessary for successful operation of the
Rentech Process, the Rentech-SilvaGas Technology and the Rentech-ClearFuels Technology could fail to occur at a commercial plant. Results that could cause commercial scale synthetic fuels or power plants to be unsuccessful, and require design
revisions, include:
|
|
•
|
|
higher than anticipated capital and operating costs to design, construct or reconfigure and operate a plant using our technologies;
|
|
|
•
|
|
reaction activity different than that demonstrated in laboratory, pilot, and demonstration plant operations, which could increase the amount of
feedstock to convert into synthesis gas or catalyst or number of reactors required to convert synthesis gas into hydrocarbons;
|
|
|
•
|
|
shorter than anticipated catalyst life, which would require more frequent catalyst replacement or addition, catalyst purchases, or both;
|
|
|
•
|
|
insufficient catalyst separation from the crude wax product stream, which could either impair the operation of the product upgrading unit or
increase the capital costs for the plant;
|
|
|
•
|
|
product upgrading catalyst sensitivities to impurities in the crude synthetic fuel products, which would impair the efficiency and economics of the
product upgrade unit and require design revisions;
|
|
|
•
|
|
higher than anticipated costs for the catalyst and other materials used to operate a plant using the Rentech technologies; and
|
|
|
•
|
|
higher than anticipated levels of tar in the syngas using the Rentech-SilvaGas Technology or the Rentech-ClearFuels Technology.
|
If any of the foregoing were to occur, our capital and operating costs would increase. In
addition, our projects or those of our licensees could experience mechanical difficulties, either related or unrelated to elements of the Rentech Process, the Rentech-SilvaGas Technology or the Rentech-ClearFuels Technology. Our failure to construct
and operate a commercial scale synthetic fuels or gasification plant based on the Rentech technologies could materially and adversely affect our business, results of operation, financial condition, cash flows and prospects.
We could have indemnification liabilities to potential licensees of our technology.
We anticipate that our license agreements will require us to indemnify the licensee against specified losses relating to,
among other things:
|
|
•
|
|
use of patent rights and technical information relating to the Rentech Process, the Rentech-SilvaGas Technology or the Rentech-ClearFuels
Technology;
|
|
|
•
|
|
the possibility of infringing on the intellectual property of other parties;
|
|
|
•
|
|
failure of our technology to perform according to guaranteed specifications; and
|
21
|
|
•
|
|
acts or omissions by us in connection with our preparation of preliminary and final design packages for the licensee’s plant and approval of
the licensee’s construction plans.
|
Our indemnification obligations could result in
substantial expenses and liabilities to us if intellectual property rights claims were to be made against us or our licensees, or if the plants fail to operate according to the preliminary plans.
Our success substantially depends on the performance of our management team, project development team and technology group. The
loss of key individuals within these groups would disrupt our business operations.
Our successful
implementation of our business plan is substantially dependent upon the contributions of our management team, project development team and technology group. Our ability to design, finance, construct, startup and operate plants or enter into
licensing arrangements using our technology is highly reliant on the knowledge and skills of these key personnel. Moreover, we rely on these personnel to conduct research and development of our processes, products, markets and costs, and the loss of
such personnel would harm our ability to successfully compete. As a result, unexpected loss of the services of key employees could have a material adverse effect on our business, operating results, financial condition, cash flows and prospects.
Our success depends in part on our ability to protect our intellectual property rights, which involves complexities and
uncertainties.
We rely on a combination of patents, trademarks, trade secrets and contractual
restrictions to protect our proprietary rights. Our business and prospects depend largely upon our ability to maintain control of rights to exploit our intellectual property. Our published and issued patents both foreign and domestic provide us
certain exclusive rights (subject to licenses we have granted to others) to exploit our technology. Our existing patents might be infringed upon, invalidated or circumvented by others. The availability of patents in foreign markets, and the nature
of any protection against competition that may be afforded by those patents, is often difficult to predict and varies significantly from country to country. We, or our licensees, may choose not to seek, or may be unable to obtain, patent protection
in a country that could potentially be an important market for our technology. The confidentiality agreements that are designed to protect our trade secrets could be breached, and we might not have adequate remedies for the breach. Additionally, our
trade secrets and proprietary know-how might otherwise become known or be independently discovered by others.
We may not become aware of patents or rights of others that may have applicability in our technology until after we have
made a substantial investment in the development and commercialization of our technologies. Third parties may claim that we have infringed upon past, present or future technologies. Legal actions could be brought against us, our co-venturers or our
licensees claiming damages and seeking an injunction that would prevent us, our co-venturers or our licensees from testing, marketing or commercializing the affected technologies. If an infringement action were successful, in addition to potential
liability for damages by our joint venturers or our licensees, we could be subject to an injunction or required to obtain a license from a third party in order to continue to test, market or commercialize our affected technologies. Any required
license might not be made available or, if available, might not be available on acceptable terms, and we could be prevented entirely from testing, marketing or commercializing the affected technology. We may have to expend substantial resources in
litigation, enforcing our patents or defending against the infringement claims of others, or both. If we are unable to successfully maintain our technology against claims by others, our competitive position would be harmed and our revenues could be
substantially reduced, and our business, operating results, financial condition and cash flows could be materially and adversely affected.
Our technology may not compete successfully against technologies developed by our competitors, many of whom have significantly more resources.
The development of Fischer-Tropsch and biomass gasification technologies like ours is highly competitive. Several major
integrated oil companies, as well as several smaller companies, have developed or are developing competing Fischer-Tropsch and gasification technologies that they may offer to license to our potential customers or use as the basis for a competing
development project. Many of these companies, especially the major oil companies, have significantly more financial and other resources than we do to spend on developing, promoting, marketing and using their Fischer-Tropsch technology. In addition,
several companies are developing biomass gasification technologies that compete with our Rentech-SilvaGas Technology or Rentech-ClearFuels Technology. Advances by others in their technologies might lower the cost of processes that compete with our
technologies. As our competitors continue to develop technologies, some part or all of our current technologies could become obsolete. Our ability to create and maintain technological advantages is critical to our future success. As new technologies
develop, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. We may not be able to successfully develop or expend the financial resources necessary to acquire
new technology.
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A reduction in government incentives for FT fuels or energy from
biomass, or the relaxation of clean air and renewable energy requirements, could materially reduce the demand for FT fuels or energy from biomass and the economic feasibility of projects using our technologies.
Federal and state law provides incentives for FT fuels, and technologies that produce FT fuels, such as the Rentech
Process, and for energy produced from renewable feedstocks. For example, EPACT 2005 provides for tax credits, grants, loan guarantees and other incentives to stimulate coal gasification into FT fuels and chemicals. The RFS established volumetric
blending requirements for renewable fuel applicable to refiners or importers of petroleum-based gasoline or diesel fuel, although the EPA has the authority to reduce such requirements. Although the ARRA provided a number of incentives and authority
for loan guarantees for the development of projects that we are pursuing, including a $23 million grant we received from the DOE, government funding may not be available to us in the future and similar expansions of federal funding may not occur in
the future in light of recent events surrounding other clean-tech companies. In addition, California law requires specific reductions in the carbon content of transportation fuels, as well as specific levels of the production of power from renewable
resources. California regulators are under pressure from regulated industries to scale back such requirements. Certain federal regulations that restrict air pollution also provide an incentive for the use of FT fuels because they comply with the
regulations in cases where conventional fuels might not. A significant reduction in loan guarantees, tax credits or other government incentives for projects would likely adversely impact the economic feasibility and our ability to obtain adequate
financing for that project and could have a similar adverse impact on other projects utilizing our technology. Changes in law or policy also could result in a relaxation of the requirements relating to air pollution and renewable energy production,
which could materially reduce the demand for FT fuels or energy from biomass. As a result, the reduction or elimination of government incentives or the relaxation of air pollution and renewable energy requirements could have a material adverse
effect on our financial condition, results of operations and prospects.
Industry rejection of the
Rentech Process, the Rentech-SilvaGas Technology or the Rentech-ClearFuels Technology would adversely affect our ability to receive future license fees.
As is typical in the case of unfamiliar and/or rapidly evolving technologies, demand and industry acceptance of the
Rentech Process, the Rentech-SilvaGas Technology or the Rentech-ClearFuels Technology is highly uncertain. Historically, most applications of FT processes have not produced fuels that were economical compared to the price of conventional fuel
sources. Failure by the industry to accept our technology or to accept it as timely as we expect, whether due to unsuccessful use, results that are not economical, the novelty of our technology, the lower price of alternatively sourced fuels or for
other reasons, would materially and adversely affect our business, operating results, financial condition and prospects.
If a high profile industry participant were to adopt the Rentech Process, the Rentech-SilvaGas Technology or the Rentech-ClearFuels Technology and fail to achieve success, or if any commercial FT plant
based on our technology were to fail to achieve success, other industry participants’ perception of our technology could be adversely affected. That could adversely affect our ability to obtain future license fees and generate other revenue. In
addition, some oil companies may be motivated to seek to prevent industry acceptance of FT technology in general, or our technology in particular, based on their belief that widespread adoption of FT technology might negatively impact their
competitive position.
Changes in existing laws and regulations, or their interpretation, or the
imposition of new restrictions relating to emissions of greenhouse gases or carbon dioxide may give rise to additional compliance costs or liabilities and could materially reduce the demand for FT fuels or the Rentech Process which could, in turn,
have a material adverse effect on our business, financial condition, results of operations, cash flows or prospects.
The application of the Rentech Process in synthetic fuel projects often relies on gasification technology to create the syngas that is used to produce power, FT fuels and other hydrocarbon products. Coal
gasification breaks down coal into its components by subjecting it to high temperature and pressure, using steam and measured amounts of oxygen, which leads to the production of gaseous compounds, including CO
2
. Although the United States does not currently maintain comprehensive
regulation of CO
2
emissions, various legislative and
regulatory measures to address greenhouse gas emissions (such as CO
2
) are currently in various phases of discussion or implementation. These include, but are not limited to, the Kyoto Protocol, ETS, AB-32, GGRTA, EPA regulations, and other proposed laws or regulations
each of which have imposed or would impose reductions in or other limitations on greenhouse gas emissions. See “Part I, Item 1. Business—Implementation of Carbon Dioxide Emissions Reduction Strategy.”
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Future restrictions on greenhouse gas emissions and continued political
attention to issues concerning climate change, the role of human activity in it and potential mitigation through regulation could result in increased costs or liabilities associated with complying with such restrictions or regulations, or materially
reduce the demand for FT fuels and the Rentech Process which, in turn, could have a material adverse effect on our business, financial condition, results of operations, cash flows or prospects.
Risks Related to Possible Inability to Complete Project Developments and the Financing Required for Construction and Subsequent
Operation
We may not be successful in implementing our revised project development strategy.
We have adopted a revised project development strategy for the commercialization of our alternative energy technologies,
which includes pursuing projects that are smaller and require less capital than those previously under development by us, and seeking partners to deploy our technologies possibly in conjunction with partners’ technologies in integrated energy
projects. In both cases, our strategy is to seek project opportunities for which our investment would be within our expected liquidity. However, we may not be able to implement our strategy successfully for a number of reasons, including any failure
by us to identify or complete projects that have (i) equity partners to share the development funding, (ii) defined and probable financing options and/or (iii) markets for our products with strong fundamentals that are expected to
provide attractive growth prospects. Our failure to successfully implement our strategy could have a material adverse effect on our financial condition, results of operations and prospects.
We are pursuing alternative energy projects that will involve substantial expense and risk.
We are pursuing opportunities to develop alternative energy projects, including those involving the commercial deployment
of our biomass gasification technologies, however we do not have the financing to complete any of these projects. Moreover, the pursuit of such opportunities requires that we incur material expenses, including for financial, legal and other
advisors, whether or not our efforts are successful. From time to time, we may enter into letters of intent or memorandums of understanding relating to our projects, which may not proceed to completion for various reasons. Our pursuit of any of
these alternative energy projects involves significant risks, and our failure to successfully develop these projects, or failure to operate them successfully after we have developed them, could have a material adverse effect on our financial
condition, results of operations and prospects. The costs of constructing our projects depends substantially on general construction costs, including the costs for commodities such as steel, copper and concrete. Escalation of costs for these
commodities or other construction costs may increase the cost of our projects substantially, potentially to the extent that the projects would no longer be economically feasible.
The construction of commercial scale projects that utilize our technology will require several years and
substantial financing, and may not be successful.
The engineering, design, procurement of materials,
and construction necessary to build a commercial scale alternative energy production project that utilizes our technology could cost hundreds of millions of dollars for a smaller scale plant and up to billions of dollars for a larger facility. It
could take at least two to three years to construct a commercial scale facility, or more time depending upon many factors, particularly the size and scope of the project. We cannot assure you that we will be able to obtain financing for the projects
in the time required or at all, and our failure to do so would prevent us from implementing our business plan as expected. Moreover, we have never undertaken any such projects, and the duration, cost, and eventual success of our efforts are all
uncertain.
We may not be able to successfully negotiate and execute engineering, procurement and
construction contracts with construction and other vendors necessary for our development projects.
Construction and the development of projects will require that we identify and arrive at acceptable contracts with
construction and other vendors. Among these contracts required for development of a project may be an engineering, procurement and construction, or EPC, contract that we seek to enter into with a prime contractor and with terms satisfactory to
lenders in the project finance market. We cannot assure you that we will be able to enter into such contracts on acceptable terms or at all, and our failure to do so would generally limit our access to project finance lenders who require that an
acceptable EPC contract be in place before funding a project. If we are unable to enter into acceptable contracts with construction and other vendors related to our projects in the future, we would not be able to implement our business plan as
expected and we would be materially adversely affected.
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The volatility in the price for certain commodities that we may
purchase in the open market to use as feedstock; the price for oil and natural gas used to create fuels that compete with our fuels; and prices for electricity could adversely affect our ability to develop, build and operate commercial scale
synthetic fuels and power plants or our ability to license our technology.
The prices of commodities,
such as petroleum coke, coal, or biomass that we might use as feedstock in commercial scale projects are subject to fluctuations due to a variety of factors that are beyond our control. Additionally, there is no commodities market for biomass, so
its cost will vary depending upon numerous factors which we are unable to predict, but we anticipate will include, availability of the feedstock, costs of production of the feedstock and transportation costs. An increase in the price of commodities
or a high cost for biomass which we may need to operate our projects could adversely affect our ability to develop, build and operate commercial scale synthetic fuels plants or our ability to license our technology.
Additionally, the extreme volatility in the cost of crude oil results in significant variances in the market price of
petroleum based fuels. For instance, during the three months ended December 31, 2011, the price of crude oil per barrel fluctuated from approximately $79 to $101. As crude oil prices rose and fell, so did the price of gasoline and other
petroleum-derived products. The price at which we can sell our synthetic fuels will be dependent upon the market price for petroleum based fuels despite the fact that our costs of feedstock may or may not correspond to the cost of crude oil. This
discrepancy in cost may negatively impact our ability to develop, build and operate commercial scale synthetic fuels plants or our ability to license our technology.
Risks Related to Our Nitrogen Fertilizer Business
Our nitrogen fertilizer
operations may become unprofitable and may require substantial working capital financing.
During the
three months ended December 31, 2011 and each of the five fiscal years ended September 30, 2011, 2010, 2009, 2008 and 2007, our nitrogen fertilizer business generated positive income from operations and positive cash flow from operations.
However, during the fiscal year ended September 30, 2006, we operated at a net loss despite the fact that we generated positive cash flow from operations. In prior fiscal years, we sustained losses and negative cash flow from operations. Our
profits and cash flow are subject to changes in the prices for our products and our main input, natural gas, which are commodities, and, as such, the prices can be volatile in response to numerous factors outside of our control. Our profits depend
on maintaining high rates of production of our products, and interruptions in operations at the East Dubuque Facility, could materially adversely affect our profitability. If we are not able to operate the East Dubuque Facility at a profit or if we
are not able to retain cash or access a sufficient amount of additional capital for working capital for our nitrogen fertilizer operations, our business, financial condition, cash flow and results of operations could be materially adversely
affected, which could adversely affect the trading price of our common stock.
The nitrogen fertilizer business is, and nitrogen
fertilizer prices are, seasonal, cyclical and highly volatile and have experienced substantial and sudden downturns in the past. Currently, nitrogen fertilizer demand is at a relative high point and could decrease significantly in the future. Cycles
in demand and pricing could potentially expose us to significant fluctuations in our operating and financial results and expose you to material reductions in the trading price of our common stock.
We are exposed to fluctuations in nitrogen fertilizer demand and prices in the agricultural industry. These fluctuations
historically have had, and could in the future have, significant effects on prices across all nitrogen fertilizer products and, in turn, our financial condition, cash flow and results of operations, which could result in material reductions in the
price of our common stock.
Nitrogen fertilizer products are commodities, the prices of which can be highly
volatile. The price of nitrogen fertilizer products depends on a number of factors, including general economic conditions, cyclical trends in end-user markets, supply and demand imbalances, the prices of natural gas and other raw materials, and
weather conditions, all of which have a greater relevance because of the seasonal nature of fertilizer application. If seasonal demand exceeds the projections on which we base production, our customers may acquire nitrogen fertilizer products from
our competitors, and our profitability will be negatively impacted. If seasonal demand is less than we expect, we will be left with excess inventory that will have to be stored or liquidated, the costs of which could adversely affect our operating
margins.
Demand for nitrogen fertilizer products is dependent on demand for crop nutrients by the global
agricultural industry. Nitrogen fertilizer products are currently in high demand, driven by a growing world population, changes in dietary habits and an expanded production of corn. Supply is affected by available capacity and operating rates of
nitrogen producers, raw material costs, government policies and global trade. A significant or prolonged decrease in nitrogen fertilizer prices would have a material adverse effect on our business and cash flow.
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Any decline in United States agricultural production or crop prices or limitations on
the use of nitrogen fertilizer for agricultural purposes could have a material adverse effect on the market for nitrogen fertilizer, and on our results of operations and financial condition.
Conditions in the United States agricultural industry significantly impact our operating results. This is particularly
the case in the production of corn, which is a major driver of the demand for nitrogen fertilizer products in the United States. The United States agricultural industry in general, and the production and prices of corn in particular, can be affected
by a number of factors, including weather patterns and soil conditions, current and projected grain inventories and prices, domestic and international supply of and demand for United States agricultural products and United States and foreign
policies regarding trade in agricultural products. Prices for these agricultural products can decrease suddenly and significantly. For example, in June 2011, an unexpectedly large corn crop estimate resulted in an approximately 20% decrease in
corn prices from their peak levels earlier in the month, the largest monthly decrease since June 2009.
State
and federal governmental regulations and policies, including farm and biofuel subsidies and commodity support programs, as well as the prices of fertilizer products, may also directly or indirectly influence the number of acres planted, the mix of
crops planted and the use of fertilizers for particular agricultural applications. Developments in crop technology, such as nitrogen fixation, the conversion of atmospheric nitrogen into compounds that plants can assimilate, could also reduce the
use of chemical fertilizers and adversely affect the demand for nitrogen fertilizer. In addition, from time to time various state legislatures have considered limitations on the use and application of chemical fertilizers due to concerns about the
impact of these products on the environment. The adoption or enforcement of such regulations could adversely affect the demand for and prices of nitrogen fertilizers, which could adversely affect our results of operations and cash flows.
A major factor underlying the current high level of demand for our nitrogen-based fertilizer products is the expanding production
of ethanol. A decrease in ethanol production, an increase in ethanol imports or a shift away from corn as a principal raw material used to produce ethanol could have a material adverse effect on our results of operations and financial condition.
A major factor underlying the current level of demand for corn and the use of nitrogen fertilizer
products is the current production level of ethanol in the United States. Ethanol production in the United States is dependent in part upon a myriad of federal and state incentives. Such incentive programs may not be renewed, or if renewed, they may
be renewed on terms significantly less favorable to ethanol producers than current incentive programs. Studies showing that expanded ethanol production may increase the level of GHGs in the environment, or other factors, may reduce political support
for ethanol production. For example, the Volumetric Ethanol Excise Tax Credit, or the VEETC, provided for a 45 cents per gallon tax credit to blenders and refiners for gasoline that has been blended with ethanol. On June 16, 2011, the United
States Senate voted to eliminate the VEETC, and even though it was never ultimately repealed, the VEETC expired on December 31, 2011. We cannot guarantee that the VEETC will be renewed or that any other ethanol-related subsidy will be
implemented in its place. Furthermore, the current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass. If the VEETC is not renewed (or if another ethanol-related subsidy is not
implemented in its place) or if an efficient method of producing ethanol from cellulose-based biomass is developed and commercially deployed at scale, the demand for corn may decrease significantly. Any reduction in the demand for corn and, in turn,
for nitrogen fertilizer products could have a material adverse effect on our results of operations and financial condition.
Nitrogen fertilizer products are global commodities. Any decrease in the price of nitrogen fertilizer products from foreign
countries could harm us.
Fertilizers are global commodities, with little or no product
differentiation, and customers make their purchasing decisions principally on the basis of delivered price and availability of the product. In recent years, the price of nitrogen fertilizer in the United States has been substantially driven by
pricing in the global fertilizer market and favorable prices for natural gas in the United States as compared to those in foreign countries. If foreign natural gas prices become lower than natural gas prices in the United States, competition from
foreign businesses will likely increase and this could have a material adverse effect on our results of operations and financial condition.
We face intense competition from other nitrogen fertilizer producers.
We have a number of competitors in the nitrogen fertilizer business in the United States and in other countries,
including state-owned and government-subsidized entities. Our principal competitors include domestic and foreign fertilizer producers, major grain companies and independent distributors and brokers, including Koch, CF Industries, Agrium, Gavilon,
LLC, CHS Inc., Transammonia, Inc. and Helm Fertilizer Corp. Some competitors have greater total resources, or better name recognition, and are less dependent on earnings from fertilizer sales, which make them less vulnerable to industry downturns
and better positioned to pursue new expansion and development opportunities. For example, certain of our competitors have announced that they currently have expansions planned or underway to increase production capacity of their nitrogen fertilizer
products. Furthermore, there are a few dormant nitrogen
26
production facilities located outside of the States of Illinois, Indiana and Iowa that are scheduled to resume operations in the near future. We may face additional competition due to the
expansion of facilities that are currently operating and the reopening of currently dormant facilities. Also, other producers of nitrogen fertilizer products are contemplating the construction of new nitrogen fertilizer facilities in North America,
including in the Mid Corn Belt. If a new nitrogen fertilizer facility is completed in RNLLC’s core market, it could benefit from the same competitive advantage associated with the location of the East Dubuque Facility. As a result, the
completion of such a facility could have a material adverse effect on our results of operations and financial condition. Our competitive position could suffer to the extent we are not able to adapt our nitrogen fertilizer product mix to meet the
needs of our customers or expand our own resources either through investments in new or existing operations or through acquisitions, joint ventures or partnerships. An inability to compete successfully in the nitrogen fertilizer business could
result in the loss of customers, which could adversely affect our sales and profitability. In addition, as a result of increased pricing pressures in the nitrogen fertilizer business caused by competition, we may in the future experience reductions
in our profit margins on sales, or may be unable to pass future input price increases on to our customers, which would reduce our cash flows.
Our nitrogen fertilizer business is seasonal, which may result in our carrying significant amounts of inventory and seasonal variations in working capital. Our inability to predict future seasonal
nitrogen fertilizer demand accurately may result in excess inventory or product shortages.
Our
nitrogen fertilizer business is highly seasonal. Historically, most of the annual deliveries of our products have occurred during the quarters ending June 30 and December 31 of each year due to the condensed nature of the spring planting
season and the fall harvest. Farmers in our market tend to apply nitrogen fertilizer during two short application periods, one in the spring and the other in the fall. Since interim period operating results reflect the seasonal nature of our
nitrogen fertilizer business, they are not indicative of results expected for the full fiscal year. In addition, results for comparable quarters can vary significantly from one year to the next due primarily to weather-related shifts in planting
schedules and purchase patterns of our customers. We expect to incur substantial expenditures for fixed costs throughout the year and substantial expenditures for inventory in advance of the spring planting season and fall harvest season.
Seasonality also relates to the limited windows of opportunity that nitrogen fertilizer customers have to complete required tasks at each stage of crop cultivation. Should events such as adverse weather or production or transportation interruptions
occur during these seasonal windows, we would face the possibility of reduced revenue without the opportunity to recover until the following season. In addition, an adverse weather pattern affecting RNLLC’s core market could have a material
adverse effect on the demand for our nitrogen fertilizer products and our revenues, and we may not have sufficient geographic diversity in our customer base to mitigate such effects. Because of the seasonality of agriculture, we also expect to face
the risk of significant inventory carrying costs should our customers’ activities be curtailed during their normal seasons. The seasonality can negatively impact accounts receivable collections and increase bad debts. In addition, variations in
the proportion of product sold through forward sales and variances in the terms and timing of product prepayment contracts can affect working capital requirements and increase the seasonal and year-to-year volatility of our cash flow.
If seasonal demand for nitrogen fertilizer exceeds our projections, we will not have enough product and our customers may
acquire products from our competitors, which would negatively impact our profitability. If seasonal demand is less than we expect, we will be left with excess inventory and higher working capital and liquidity requirements. The degree of seasonality
of our business can change significantly from year to year due to conditions in the agricultural industry and other factors.
Any operational disruption at the East Dubuque Facility, as a result of equipment failure, an accident, adverse weather, a natural
disaster or another interruption could result in a reduction of sales volumes and could cause us to incur substantial expenditures. A prolonged disruption could materially affect the cash flow we expect from the East Dubuque Facility, or lead to a
default under the 2012 Credit Agreement.
The equipment at the East Dubuque Facility could fail and
could be difficult to replace. The East Dubuque Facility may be subject to significant interruption if it were to experience a major accident or equipment failure, including accidents or equipment failures caused during expansion projects, or if it
were damaged by severe weather or natural disaster. Significant shutdowns at the East Dubuque Facility could significantly reduce the amount of product available for sale, which could reduce or eliminate profits and cash flow from our operations.
Repairs to the East Dubuque Facility in such circumstances could be expensive, and could be so extensive that the facility could not economically be placed back into service. It has become increasingly difficult to obtain replacement parts for
equipment and the unavailability of replacement parts could impede our ability to make repairs to the East Dubuque Facility when needed. We currently maintain property insurance, including business interruption insurance, but we may not have
sufficient coverage, or may be unable in the future to obtain sufficient coverage at reasonable costs. A prolonged disruption at the East Dubuque Facility could materially affect the cash flow we expect from the facility, or lead to a default under
the 2012 Credit Agreement. In addition, operations at the East Dubuque Facility are subject to hazards inherent in chemical processing. Some of those hazards may cause personal injury and loss of life, severe damage to or destruction of property and
equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. As a result, operational disruptions at the East Dubuque Facility could materially adversely impact our business,
financial condition and results of operations.
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The market for natural gas has been volatile. Natural gas prices are currently at a
relative low point. If prices for natural gas increase significantly, we may not be able to economically operate the East Dubuque Facility.
The operation of the East Dubuque Facility with natural gas as the primary feedstock exposes us to market risk due to increases in natural gas prices, particularly if the price of natural gas in the
United States were to become higher than the price of natural gas outside the United States. During 2008, natural gas prices spiked to near-record high prices. This was due to various supply and demand factors, including the increasing overall
demand for natural gas from industrial users, which is affected, in part, by the general conditions of the United States and global economies, and other factors. The profitability of operating the East Dubuque Facility is significantly dependent on
the cost of natural gas, and the East Dubuque Facility has operated in the past, and may operate in the future, at a net loss. Since we expect to purchase a substantial portion of our natural gas for use in the East Dubuque Facility on the spot
market we remain susceptible to fluctuations in the price of natural gas. We also expect to use short-term, fixed supply, fixed price forward purchase contracts to lock in pricing for a portion of our natural gas requirements. Our ability to enter
into forward purchase contracts is dependent upon our creditworthiness and, in the event of a deterioration in our credit, counterparties could refuse to enter into forward purchase contracts on acceptable terms. If we are unable to enter into
forward purchase contracts for the supply of natural gas, we would need to purchase natural gas on the spot market, which would impair our ability to hedge our exposure to risk from fluctuations in natural gas prices. Moreover, forward purchase
contracts may not protect us from increases in natural gas prices. A hypothetical increase of $0.10 per MMBtu of natural gas would increase our cost to produce one ton of ammonia by approximately $3.50. Higher than anticipated costs for the catalyst
and other materials used at the East Dubuque Facility could also adversely affect operating results. These increased costs could materially and adversely affect our results of operations and financial condition.
An increase in natural gas prices could impact our relative competitive position when compared to other foreign and domestic
nitrogen fertilizer producers.
We rely on natural gas as our primary feedstock, and the cost of
natural gas is a large component of the total production cost for our nitrogen fertilizer. The dramatic increase in nitrogen fertilizer prices in recent years was not the direct result of an increase in natural gas prices, but rather the result of
increased demand for nitrogen-based fertilizers due to historically low stocks of global grains and a surge in the prices of corn and wheat, the primary crops in the Mid Corn Belt region, which is the largest market in the United States for direct
application of nitrogen fertilizer products and includes the States of Illinois, Indiana, Iowa, Missouri, Nebraska and Ohio. This increase in demand for nitrogen fertilizers has created an environment in which nitrogen fertilizer prices have
diverged from their traditional correlation with natural gas prices. An increase in natural gas prices would impact our operations by making us less competitive with competitors who do not use natural gas as their primary feedstock, and would
therefore have a material adverse impact on the trading price of our common stock. In addition, if natural gas prices in the United States were to increase to a level where foreign nitrogen fertilizer producers were able to improve their competitive
position on a price-basis, this would negatively affect our competitive position in the Mid Corn Belt region and thus have a material adverse effect on our results of operations, financial condition and cash flows.
Due to our lack of asset diversification, adverse developments in the nitrogen fertilizer industry could adversely affect our
results of operations.
We rely almost exclusively on the revenues generated from the East Dubuque
Facility. An adverse development in the market for nitrogen fertilizer products in our region generally, or at the East Dubuque Facility in particular would have a significantly greater impact on our operations than it would on other companies that
are more diversified geographically or that have a more diverse asset and product base. The largest publicly traded companies with which we compete in the nitrogen fertilizer business sell a more diverse range of fertilizer products to broader
markets.
Any interruption in the supply of natural gas to the East Dubuque Facility through Nicor Inc. could have a
material adverse effect on our results of operations and financial condition.
Our nitrogen fertilizer
operations depend on the availability of natural gas. We have an agreement with Nicor Inc. pursuant to which we access natural gas from the Northern Natural Gas Pipeline. Our access to satisfactory supplies of natural gas through Nicor Inc. could be
disrupted due to a number of causes, including volume limitations under the agreement, pipeline malfunctions, service interruptions, mechanical failures or other reasons. The agreement extends for five consecutive periods of 12 months each,
with the
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first period having commenced on November 1, 2010 and the last period ending October 31, 2015. For each period, Nicor Inc. may establish a bidding period during which we may match the
best bid received by Nicor Inc. for the natural gas capacity provided under the agreement. We could be out-bid for any of the remaining periods under the agreement. In addition, upon expiration of the last period, we may be unable to renew the
agreement on satisfactory terms, or at all. Any disruption in the supply of natural gas to the East Dubuque Facility could restrict our ability to continue to make our products. In the event we needed to obtain natural gas from another source, we
would need to build a new connection from that source to the East Dubuque Facility and negotiate related easement rights, which would be costly, disruptive and/or unfeasible. As a result, any interruption in the supply of natural gas through Nicor
Inc. could have a material adverse effect on our results of operations and financial condition.
The East Dubuque
Facility faces operating hazards and interruptions, including unplanned maintenance or shutdowns. We could face potentially significant costs to the extent these hazards or interruptions cause a material decline in production and are not fully
covered by our existing insurance coverage. Insurance companies that currently insure companies in our industry may cease to do so, may change the coverage provided or may substantially increase premiums in the future.
Our nitrogen fertilizer operations, located at a single location, are subject to significant operating hazards and
interruptions. Any significant curtailing of production at the East Dubuque Facility or individual units within the East Dubuque Facility could result in materially lower levels of revenues and cash flow for the duration of any shutdown. Operations
at the East Dubuque Facility could be curtailed or partially or completely shut down, temporarily or permanently, as the result of a number of circumstances, most of which are not within our control, such as:
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environmental proceedings or other litigation that compel the cessation of all or a portion of the operations at the East Dubuque Facility;
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a governmental ban or other limitation on the use of nitrogen fertilizer products, either generally or specifically those manufactured at the East
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The magnitude of the effect on us of any unplanned shutdown will depend on the length of
the shutdown and the extent of the operations affected by the shutdown.
The East Dubuque Facility also
requires a planned maintenance turnaround every two years, which generally lasts between 18 and 25 days. Upon completion of a facility turnaround, we may face delays and difficulties restarting production at the East Dubuque Facility. For
example, in October 2009, the East Dubuque Facility underwent a 15-day maintenance turnaround and a subsequent 15-day unplanned shutdown due to equipment failures. The duration of our turnarounds or other shutdowns, and the impact they have on our
operations, could materially adversely affect our cash flow in the quarter or quarters in which the turnarounds occur.
A major accident, fire, explosion, flood, severe weather event, terrorist attack or other event also could damage the East Dubuque Facility or the environment and the surrounding community or result in
injuries or loss of life. Scheduled and unplanned maintenance could reduce our cash flow for the period of time that any portion of the East Dubuque Facility is not operating.
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If we experience significant property damage, business interruption,
environmental claims, fines, penalties or other liabilities, our business could be materially adversely affected to the extent the damages or claims exceed the amount of valid and collectible insurance available to us. We are currently insured under
our casualty, environmental, property and business interruption insurance policies. The property and business interruption insurance policies currently in place for the East Dubuque Facility have a $300.0 million limit with respect to all
occurrences at our facilities within a 72-hour period, with a $1.0 million deductible for physical damage and a 30 day waiting period before losses resulting from business interruptions are recoverable. The policies also contain exclusions
and conditions that could have a materially adverse impact on our ability to receive indemnification thereunder, as well as customary sub-limits for particular types of losses. For example, the current property policy contains a specific sub-limit
of approximately $160 million for losses resulting from business interruptions and $5.0 million for damage caused by covered flooding. We are fully exposed to all losses in excess of the applicable limits and sub-limits and for losses due to
business interruptions of fewer than 30 days.
Market factors, including but not limited to catastrophic
perils that impact the nitrogen fertilizer industry, significant changes in the investment returns of insurance companies, insurance company solvency trends and industry loss ratios and loss trends, can negatively impact the future cost and
availability of insurance. There can be no assurance that we will be able to buy and maintain insurance with adequate limits, reasonable pricing terms and conditions or collect from insurance claims that we make.
There is no assurance that the transportation costs of our competitors will not decline. Any significant decline in our
competitors’ transportation costs could have a material adverse effect on our results of operations and financial condition.
Many of our competitors in the nitrogen fertilizer business incur greater costs than we and our customers do in transporting their products over longer distances via rail, ships, barges and pipelines.
There can be no assurance that our competitors’ transportation costs will not decline or that additional pipelines will not be built in the future, lowering the price at which our competitors can sell their products, which could have a material
adverse effect on our results of operations and financial condition.
The results of operations of our nitrogen
fertilizer business are highly dependent upon and fluctuate based upon business and economic conditions and governmental policies affecting the agricultural industry. These factors are outside of our control and may significantly affect our
profitability.
The results of operations of our nitrogen fertilizer business are highly dependent
upon business and economic conditions and governmental policies affecting the agricultural industry, which we cannot control. The agricultural products business can be affected by a number of factors. The most important of these factors, for United
States markets, are:
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weather patterns and field conditions (particularly during periods of traditionally high nitrogen fertilizer consumption);
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quantities of nitrogen fertilizers imported to and exported from North America;
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current and projected grain inventories and prices, which are heavily influenced by United States exports and world-wide grain markets; and
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United States governmental policies, including farm and biofuel policies, which may directly or indirectly influence the number of acres planted,
the level of grain inventories, the mix of crops planted or crop prices.
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International
market conditions, which are also outside of our control, may also significantly influence our operating results. The international market for nitrogen fertilizers is influenced by such factors as the relative value of the United States dollar and
its impact upon the cost of importing nitrogen fertilizers, foreign agricultural policies, the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets, changes in the hard currency demands of certain
countries and other regulatory policies of foreign governments, as well as the laws and policies of the United States affecting foreign trade and investment.
Ammonia can be very volatile and extremely hazardous. Any liability for accidents involving ammonia that cause severe damage to property or injury to the environment and human health could have a
material adverse effect on our results of operations and financial condition. In addition, the costs of transporting ammonia could increase significantly in the future.
We produce, process, store, handle, distribute and transport ammonia, which can be very volatile and extremely hazardous.
Major accidents or releases involving ammonia could cause severe damage or injury to property, the environment and human health, as well as a possible disruption of supplies and markets. Such an event could result in civil lawsuits, fines, penalties
and regulatory enforcement proceedings, all of which could lead to significant liabilities. Any damage to persons, equipment or property or other disruption of our ability to produce or distribute our products could result in a significant decrease
in operating revenues and significant additional cost to replace or repair and insure our assets, which could have a material adverse effect on our results of operations and financial condition. We periodically experience minor releases of ammonia
related to leaks from our equipment or error in operation and use of equipment at the East Dubuque Facility. Similar events may occur in the future.
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In some cases, we transport ammonia by railcar. We may incur significant
losses or costs relating to the transportation of our products on railcars. Due to the dangerous and potentially toxic nature of the cargo, in particular ammonia, on board railcars, a railcar accident may result in fires, explosions and pollution.
These circumstances may result in sudden, severe damage or injury to property, the environment and human health. In the event of pollution, we may be held responsible even if we are not at fault and even if we complied with the laws and regulations
in effect at the time of the accident. Litigation arising from accidents involving ammonia may result in our being named as a defendant in lawsuits asserting claims for large amounts of damages, which could have a material adverse effect on our
results of operations and financial condition. Given the risks inherent in transporting ammonia, the costs of transporting ammonia could increase significantly in the future. A number of initiatives are underway in the railroad and chemical
industries that may result in changes to railcar design in order to minimize railway accidents involving hazardous materials. If any such design changes are implemented, or if accidents involving hazardous freight increase the insurance and other
costs of railcars, our transportation costs could increase significantly. In addition, we believe that railroads are taking other actions, such as requiring indemnification from their customers for liabilities relating to TIH chemicals, to shift the
risks they face from shipping TIH chemicals to their customers, which may make transportation of ammonia by rail more costly or less feasible.
We are subject to risks and uncertainties related to transportation and equipment that are beyond our control and that may have a material adverse effect on our results of operations and financial
condition.
Although our customers generally pick up our nitrogen fertilizer products at the East
Dubuque Facility, we occasionally rely on barge and railroad companies to ship products to our customers. The availability of these transportation services and related equipment is subject to various hazards, including extreme weather conditions,
work stoppages, delays, spills, derailments and other accidents and other operating hazards. For example, barge transport can be impacted by lock closures on the Upper Mississippi River resulting from inclement weather or surface conditions,
including fog, rain, snow, wind, ice, strong currents, floods, droughts and other unplanned natural phenomena, lock malfunction, tow conditions and other conditions. In addition, we believe that railroads are taking other actions, such as requiring
indemnification from their customers for liabilities relating to TIH chemicals, to shift the risks they face from shipping TIH chemicals to their customers, which may make transportation of ammonia by rail more costly. These transportation services
and equipment are also subject to environmental, safety and other regulatory oversight. Due to concerns related to terrorism or accidents, local, state and federal governments could implement new regulations affecting the transportation of our
products. In addition, new regulations could be implemented affecting the equipment used to ship our products. Any delay in our ability to ship our nitrogen fertilizer products as a result of transportation companies’ failure to operate
properly, the implementation of new and more stringent regulatory requirements affecting transportation operations or equipment, or significant increases in the cost of these services or equipment could have a material adverse effect on our results
of operations and financial condition.
Our nitrogen fertilizer business is subject to extensive and frequently changing
environmental laws and regulations. We expect that the cost of compliance with these laws and regulations will increase over time, and we could become subject to material environmental liabilities.
Our nitrogen fertilizer business is subject to extensive and frequently changing federal, state and local environmental,
health and safety regulations governing the emission and release of hazardous substances into the environment, the treatment and discharge of waste water and the storage, handling, use and transportation of our nitrogen fertilizer products. These
laws include the CAA, the federal Water Pollution Control Act, the Resource Conservation and Recovery Act, CERCLA, the Toxic Substances Control Act, and various other federal, state and local laws and regulations. Violations of these laws and
regulations could result in substantial penalties, injunctive orders compelling installation of additional controls, civil and criminal sanctions, permit revocations or facility shutdowns. In addition, new environmental laws and regulations, new
interpretations of existing laws and regulations, increased governmental enforcement of laws and regulations or other developments could require us to make additional expenditures. Many of these laws and regulations are becoming increasingly
stringent, and we expect the cost of compliance with these requirements to increase over time. The ultimate impact on our business of complying with existing laws and regulations is not always clearly known or determinable due in part to the fact
that our operations may change over time and certain implementing regulations for laws, such as the CAA, have not yet been finalized, are under governmental or judicial review or are being revised. These expenditures or costs for environmental
compliance could have a material adverse effect on our results of operations and financial condition.
Our
nitrogen fertilizer operations require numerous permits and authorizations. Failure to comply with these permits or environmental laws generally could result in substantial fines, penalties or other sanctions, court orders to install
pollution-control equipment, permit revocations and facility shutdowns. We may experience delays in obtaining or be unable to obtain required permits, which may delay or interrupt our operations and limit our growth and revenue.
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Our nitrogen fertilizer business also is subject to accidental spills,
discharges or other releases of hazardous substances into the environment. Past or future spills related to the East Dubuque Facility or transportation of products or hazardous substances from the East Dubuque Facility may give rise to liability
(including strict liability, or liability without fault, and potential cleanup responsibility) to governmental entities or private parties under federal, state or local environmental laws, as well as under common law. For example, we could be held
strictly liable under CERCLA, for past or future spills without regard to fault or whether our actions were in compliance with the law at the time of the spills. Pursuant to CERCLA and similar state statutes, we could be held liable for
contamination associated with the East Dubuque Facility, facilities we formerly owned or operated (if any) and facilities to which we transported or arranged for the transportation of wastes or byproducts containing hazardous substances for
treatment, storage or disposal. The potential penalties and cleanup costs for past or future releases or spills, liability to third parties for damage to their property or exposure to hazardous substances, or the need to address newly discovered
information or conditions that may require response actions could be significant and could have a material adverse effect on our results of operations and financial condition.
We may incur future costs relating to the off-site disposal of hazardous wastes. Companies that dispose of, or arrange
for the transportation or disposal of, hazardous substances at off-site locations may be held jointly and severally liable for the costs of investigation and remediation of contamination at those off-site locations, regardless of fault. We could
become involved in litigation or other proceedings involving off-site waste disposal and the damages or costs in any such proceedings could be material.
We may be unable to obtain or renew permits necessary for our nitrogen fertilizer operations, which could inhibit our ability to do business.
We hold numerous environmental and other governmental permits and approvals authorizing operations at the East Dubuque
Facility. Expansion of our nitrogen fertilizer operations is also predicated upon securing the necessary environmental or other permits or approvals. A decision by a government agency to deny or delay issuing a new or renewed material permit or
approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations and on our business, financial condition and results of operations.
Environmental laws and regulations on fertilizer end-use and application and numeric nutrient water quality criteria could have a
material adverse impact on fertilizer demand in the future.
Future environmental laws and regulations
on the end-use and application of fertilizers could cause changes in demand for our nitrogen fertilizer products. In addition, future environmental laws and regulations, or new interpretations of existing laws or regulations, could limit our ability
to market and sell such products to end users. From time to time, various state legislatures have proposed bans or other limitations on fertilizer products. In addition, a number of states have adopted or proposed numeric nutrient water quality
criteria that could result in decreased demand for our fertilizer products in those states. Similarly, a new final EPA rule establishing numeric nutrient criteria for certain Florida water bodies may require farmers to implement best management
practices, including the reduction of fertilizer use, to reduce the impact of fertilizer on water quality. Any such laws, regulations or interpretations could have a material adverse effect on our results of operations and financial condition.
Climate change laws and regulations could have a material adverse effect on our results of operations and financial
condition.
Currently, various legislative and regulatory measures to address GHG emissions (including
CO2, methane and nitrous oxides) are in various phases of discussion or implementation. At the federal legislative level, Congress has previously considered legislation requiring a mandatory reduction of GHG emissions. Although Congressional passage
of such legislation does not appear likely at this time, it could be adopted at a future date. It is also possible that Congress may pass alternative climate change bills that do not mandate a nationwide cap-and-trade program and instead focus on
promoting renewable energy and energy efficiency.
In the absence of Congressional legislation curbing GHG
emissions, the EPA is moving ahead administratively under its CAA authority. In October 2009, the EPA finalized a rule requiring certain large emitters of GHGs to inventory and report their GHG emissions to the EPA. In accordance with the rule,
we monitor our GHG emissions from the East Dubuque Facility and began reporting the emissions to the EPA annually beginning in September 2011. On December 7, 2009, the EPA finalized its “endangerment finding” that GHG emissions,
including CO2, pose a threat to human health and welfare. The finding allows the EPA to regulate GHG emissions as air pollutants under the CAA. In May 2010, the EPA finalized the “Greenhouse Gas Tailoring Rule,” which establishes new
GHG emissions thresholds that determine when stationary sources, such as the East Dubuque Facility, must obtain permits under the PSD, and Title V programs of the CAA. The permitting requirements of the PSD program apply only to newly constructed or
modified major sources. Obtaining a PSD permit requires a source to install the best available control technology, or BACT, for those regulated pollutants that are emitted in certain quantities. Phase I of the Greenhouse Gas Tailoring Rule, which
became effective on January 2, 2011, requires projects already triggering PSD permitting that are also increasing GHG emissions by more than 75,000 tons per year to comply with BACT rules for their GHG emissions. Phase II of the Greenhouse Gas
Tailoring Rule, which became effective on July 1, 2011, requires preconstruction permits using BACT for new projects that emit
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100,000 tons of GHG emissions per year or existing facilities that make major modifications increasing GHG emissions by more than 75,000 tons per year. The ongoing ammonia capacity expansion
project at the East Dubuque Facility did not trigger the need to install BACT because actual construction was commenced prior to July 1, 2011 and is not considered a major modification with respect to criteria pollutants. However, a future
major modification to the East Dubuque Facility may require us to install BACT and potentially require us to obtain other CAA permits for our greenhouse gas emissions at the East Dubuque Facility. The EPA’s endangerment finding, the Greenhouse
Gas Tailoring Rule and certain other GHG emission rules have been challenged and will likely be subject to extensive litigation. In addition, a number of Congressional bills to overturn the endangerment finding and bar the EPA from regulating GHG
emissions, or at least to defer such action by the EPA under the CAA, have been proposed, although President Obama has announced his intention to veto any such bills if passed.
In addition to federal regulations, a number of states have adopted regional GHG initiatives to reduce CO2 and other GHG
emissions. In 2007, a group of Midwest states formed the Midwestern Greenhouse Gas Reduction Accord, which calls for the development of a cap-and-trade system to control GHG emissions and for the inventory of such emissions. However, the individual
states that have signed on to the accord must adopt laws or regulations implementing the trading scheme before it becomes effective, and the timing and specific requirements of any such laws or regulations in Illinois are uncertain at this time.
The implementation of additional EPA
regulations and/or the passage of federal or state climate change legislation will likely increase the costs we incur to (i) operate and maintain our facilities, (ii) install new emission controls on our facilities and
(iii) administer and manage any GHG emissions program. Increased costs associated with compliance with any future legislation or regulation of GHG emissions, if it occurs, may have a material adverse effect on our results of operations and
financial condition. In addition, climate change legislation and regulations may result in increased costs not only for our nitrogen fertilizer business but also for agricultural producers that utilize our fertilizer products, thereby potentially
decreasing demand for our nitrogen fertilizer products. Decreased demand for our nitrogen fertilizer products may have a material adverse effect on our results of operations and financial condition.
Agrium is a distributor and customer of a significant portion of our nitrogen fertilizer products, and we have the right to store
products at Agrium’s terminal in Niota, Illinois. Any loss of Agrium as our distributor or customer, loss of our storage rights or decline in sales of products through or to Agrium could materially adversely affect our results of operations and
financial condition.
We use Agrium as a distributor of a significant portion of our nitrogen
fertilizer products pursuant to a distribution agreement between Agrium and us. For the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, between 80% and 92% of our total product sales were
made through Agrium. Under the distribution agreement, if we are unable to reach an agreement with Agrium for the purchase and sale of our products, Agrium is under no obligation to make such purchase and sale. Agrium sells products that compete
with ours, and may be incentivized to prioritize the sale of its products over ours. In the event of any decline in sales of our nitrogen fertilizer products through Agrium as distributor, we may not be able to find buyers for our products.
The distribution agreement has a term that ends in April 2016, but automatically renews for subsequent
one-year periods (unless either party delivers a termination notice to the other party at least three months prior to an automatic renewal). The distribution agreement may be terminated prior to its stated term for specified causes. Under the
distribution agreement, Agrium bears the credit risk on products sold through Agrium pursuant to the agreement. Agrium also is largely responsible for marketing our nitrogen fertilizer products to customers and the associated expense. As a result,
if our distribution agreement with Agrium terminates for any reason, Agrium would no longer bear the credit risk on the sale of any of our products and we would become responsible for all of the marketing costs for such products.
Under the distribution agreement, we have the right to store up to 15,000 tons of ammonia at Agrium’s terminal in
Niota, Illinois, and we sell a portion of our ammonia at that terminal. Our right to store ammonia at the terminal expires on June 30, 2016, but automatically renews for successive one year periods, unless we deliver a termination notice to
Agrium with respect to such storage rights at least three months prior to an automatic renewal. Our right to use the storage space immediately terminates if the distribution agreement terminates in accordance with its terms. Ammonia storage sites
and terminals served by barge on the Mississippi River are controlled primarily by CF Industries, Koch and Agrium, each of which is one of our competitors. If we lose the right to store ammonia at the Niota, Illinois terminal, we may not be able to
find suitable replacement storage on acceptable terms, or at all, and we may be forced to reduce production. We also may lose sales to customers that purchase products at the terminal.
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In addition to distributing our products, Agrium is also a significant
customer of our nitrogen fertilizer products. For the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, approximately 1%, 3%, 7% and 0%, respectively, of the total product sales of our
nitrogen fertilizer business were to Agrium as a direct customer (rather than a distributor) and approximately 7%, 15%, 11% and 5%, respectively, of the total product sales of our nitrogen fertilizer business were to CPS, a controlled affiliate of
Agrium. Agrium or CPS could elect to reduce or cease purchasing our nitrogen fertilizer products for a number of reasons, especially if our relationship with Agrium as a distributor were to end. If our sales to Agrium as a direct customer or CPS
decline, we may not be able to find other customers to purchase the excess supply of our products.
Sales of
our nitrogen fertilizer products through or to Agrium could decline or the distribution agreement or our rights to storage could terminate as a result of a number of causes which are outside of our control. Any loss of Agrium as our distributor or
customer, loss of our storage rights or decline in sales of products through Agrium could materially adversely affect our results of operations and financial condition.
New regulations concerning the transportation of hazardous chemicals, risks of terrorism and the security of chemical manufacturing facilities could result in higher operating costs.
The costs of complying with regulations relating to the transportation of hazardous chemicals and
security associated with the East Dubuque Facility may have a material adverse effect on our results of operations and financial condition. Targets such as chemical manufacturing facilities may be at greater risk of future terrorist attacks than
other targets in the United States. The chemical industry has responded to the issues that arose in response to the terrorist attacks on September 11, 2001 by starting new initiatives relating to the security of chemical industry facilities and
the transportation of hazardous chemicals in the United States. Future terrorist attacks could lead to even stronger, more costly initiatives. Simultaneously, local, state and federal governments have begun a regulatory process that could lead to
new regulations impacting the security of chemical facility locations and the transportation of hazardous chemicals. Our nitrogen fertilizer business could be materially adversely affected by the cost of complying with new regulations.
We are largely dependent on our customers to transport purchased goods from our facility because we do not maintain a fleet of
trucks or rail cars.
We do not maintain a fleet of trucks and, unlike some of our major competitors,
we do not maintain a fleet of rail cars because our customers generally are located close to our facility and have been willing and able to transport purchased goods from our facility. In most instances, our customers purchase our nitrogen products
freight on board, or FOB, delivered basis at our facility and then arrange and pay to transport them to their final destinations by truck according to customary practice in our market. However, in the future, our customers’ transportation needs
and preferences may change and our customers may no longer be willing or able to transport purchased goods from our facility. In the event that our competitors are able to transport their products more efficiently or cost effectively than our
customers, those customers may reduce or cease purchases of our products. If this were to occur, we could be forced to make a substantial investment in a fleet of trucks and/or rail cars to meet our customers’ delivery needs, and this would be
expensive and time consuming. We may not be able to obtain transportation capabilities on a timely basis or at all, and our inability to provide transportation for products could have a material adverse effect on our business and cash flow.
Due to our dependence on significant customers in our nitrogen fertilizer business, the loss of one or more of such
significant customers could adversely affect our results of operations.
Our nitrogen fertilizer
business depends on significant customers, and the loss of one or several of such significant customers may have a material adverse effect on our results of operations and financial condition. In the aggregate, our top five ammonia customers
represented approximately 54%, 46%, 52% and 49%, respectively, of our ammonia sales for the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, and our top five UAN customers represented
approximately 53%, 50%, 60% and 60%, respectively, of our UAN sales for the same periods. In addition, Twin States accounted for approximately 7%, 6%, 10% and 11%, respectively, of the total product sales of our nitrogen fertilizer business for the
three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009. Growmark accounted for approximately 20%, 7%, 8% and 11%, respectively, of our total product sales for the three months ended
December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009. For the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, approximately 1%, 3%, 7% and 0%,
respectively, of the total product sales of our nitrogen fertilizer business were to Agrium as a direct customer (rather than a distributor) and approximately 7%, 15%, 11% and 5%, respectively, of the total product sales of our nitrogen fertilizer
business were to CPS. Given the nature of our nitrogen fertilizer business, and consistent with industry practice, we do not have long-term minimum purchase contracts with any of our customers. If our sales to any of our significant customers were
to decline, we may not be able to find other customers to purchase the excess supply of our products. The loss of one or several of our significant customers of our nitrogen fertilizer products, or a significant reduction in purchase volume by any
of them, could have a material adverse effect on our results of operations and financial condition.
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We are subject to strict laws and regulations regarding employee and process safety,
and failure to comply with these laws and regulations could have a material adverse effect on our results of operations and financial condition.
We are subject to a number of federal and state laws and regulations related to safety, including the federal Occupational Safety and Health Act, or OSHA, and comparable state statutes, the purpose of
which are to protect the health and safety of workers. In addition, OSHA requires that we maintain information about hazardous materials used or produced in our nitrogen fertilizer operations and that we provide this information to employees, state
and local governmental authorities, and local residents. Failure to comply with OSHA requirements and other related state regulations, including general industry standards, record keeping requirements and monitoring and control of occupational
exposure to regulated substances, could have a material adverse effect on our results of operations and financial condition if we are subjected to significant penalties, fines or compliance costs.
There are significant risks associated with expansion projects that may prevent completion of those projects on budget, on schedule
or at all.
RNP has commenced expansion projects at the East Dubuque Facility. Expansion projects of
the scope and scale RNP is undertaking or may undertake in the future entail significant risks, including:
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unforeseen engineering or environmental problems;
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unanticipated cost increases;
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unavailability of necessary equipment; and
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unavailability of financing on acceptable terms.
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Construction, equipment or staffing problems or difficulties in obtaining any of the requisite licenses, permits and
authorizations from regulatory authorities could increase the total cost, delay or prevent the construction or completion of an expansion project.
In addition, we cannot assure you that RNP will have adequate sources of funding to undertake or complete major expansion projects. As a result, RNP may need to obtain additional debt and/or equity
financing to complete expansion projects. There is no guarantee that it will be able to obtain other debt or equity financing on acceptable terms or at all.
As a result of these factors, we cannot assure you that RNP’s expansion projects will commence operations on schedule or at all or that the costs for the expansion projects will not exceed budgeted
amounts. Failure to complete an expansion project on budget, on schedule or at all may adversely impact our ability to grow our business.
Expansion of our nitrogen fertilizer production capacity may change the balance of supply and demand in our markets, and our new products may not achieve market acceptance.
As part of our current expansion projects, we expect to increase our capacity to produce ammonia and urea and to install
the equipment necessary to enable us to produce and sell DEF. Increased production of our existing nitrogen fertilizer products may reduce the overall demand for those products as a result of market saturation. We may be required to sell these
products at lower prices, or may not be able to sell all of the products we produce. In addition, there can be no assurance that our new products will be well-received or that we will achieve revenues or profitability levels we expect. If we cannot
sell our products or are forced to reduce the prices at which we sell them, this would have a material adverse effect on our results of operations and financial condition.
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We depend on key personnel for the success of our business.
We depend on the services of our executive officers. The loss of the services of any member of our executive officer team
could have an adverse effect on our business. We may not be able to locate or employ on acceptable terms qualified replacements for senior management or other key employees if our existing senior management’s or key employees’ services
become unavailable.
A shortage of skilled labor, together with rising labor costs, could adversely affect our results of operations.
Efficient production of nitrogen fertilizer using modern techniques and equipment requires skilled
employees. To the extent that the services of skilled labor becomes unavailable to us for any reason, including as a result of the expiration and non-renewal of our collective bargaining agreement or the retirement of experienced employees from our
aging work force, we would be required to hire other personnel. We have a collective bargaining agreement which will expire in October 2012. Upon expiration, we may be unable to renew the collective bargaining agreement on satisfactory terms or at
all. We face hiring competition from our competitors, our customers and other companies operating in our industry, and we may not be able to locate or employ qualified replacements on acceptable terms or at all. If our current skilled employees
quit, retire or otherwise cease to be employed by us and we are unable to locate or hire qualified replacements, or if the cost to locate and hire qualified replacements for these employees increases materially, our results of operations could be
adversely affected.
Risks Related to Our Liquidity, Financial Condition, and Results of Operations
We have never operated at a profit. If RNP’s current revenues levels decrease or if we do not become
profitable on an ongoing basis, we may be unable to continue our operations.
We have a history of
operating losses and have never operated at a profit. From our inception on December 18, 1981 through December 31, 2011, we have an accumulated deficit of $369.8 million. If RNP’s current revenues levels decrease or if we do not
become profitable on an ongoing basis, we may be unable to continue our operations. Ultimately, our ability to remain in business may depend upon earning a profit from commercialization of the Rentech Process and deployment of the Rentech-SilvaGas
Technology and Rentech-ClearFuels Technology. We have not been able to achieve sustained commercial use of the technology as of this time. Failure to do so would have a material adverse effect on our financial position, results of operations, cash
flows and prospects.
The level of indebtedness we could incur in the future could adversely affect our
ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations.
As of December 31, 2011, our total indebtedness was $57.5 million, consisting of convertible notes, or the Notes,
due in 2013. On February 28, 2012, RNLLC entered into the 2012 Credit Agreement, with a five year maturity. The level of indebtedness we could incur in the future could have important consequences, including:
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increasing our vulnerability to general economic and industry conditions;
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requiring all or a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our
indebtedness, therefore restricting or reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;
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limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general
corporate or other purposes;
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incurring higher interest expense in the event of increases in the 2012 Credit Agreement’s variable interest rates;
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limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have
greater capital resources;
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limiting our ability to make investments, dispose of assets, pay cash dividends or repurchase stock; and
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subjecting us to financial and other restrictive covenants in our indebtedness, which may restrict our activities, and the failure to comply with
which could result in an event of default.
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If our cash flows and capital resources are insufficient to fund our debt
service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our
scheduled debt service obligations. Failure to pay our indebtedness on time would constitute an event of default under the agreements governing our indebtedness, which would give rise to our lenders’ ability to accelerate the obligations and
seek other remedies against us.
We may have to raise substantial additional capital to execute our
business plan and, in the event that our current and expected sources of funding are insufficient, to fund working capital and to continue our operations. Competitors with superior access to capital may have a substantial advantage over us.
We expect to require additional capital to develop certain new technologies, to pursue development
projects beyond their current early development stages and to pursue licensing transactions. Project development and licensing activities in our alternative energy business require substantial amounts of capital resources. Project development
requires capital for, among other things, scoping and feasibility studies, development activities, engineering, construction, and deposits paid to suppliers and parties who intend to purchase the power or fuel to be manufactured at our facilities.
Licensing may require performance or other guarantees to be backed by financial guarantees or cash deposits. Our competitors who have superior access to capital may have a competitive advantage over us in these activities. In addition, since we have
never operated at a profit, we will likely require additional capital to fund our working capital needs after we have exhausted our current cash on hand. Our failure to raise additional capital when needed would have a material adverse effect on our
results of operations, liquidity and cash flows and our ability to execute our business plan.
Continued
slow economic growth and the relative unavailability of credit have made it more difficult for companies to secure financing. If we are unable to access financing on terms and at a time acceptable to us for any reason, it could have a material
adverse effect on our operations, financial condition and liquidity.
Our ability to obtain any
financing when needed, whether through the issuance of new equity or debt securities or otherwise, and the terms of any such financing are dependent on, among other things, our financial condition, financial market conditions, general economic
conditions and conditions within our industry, and numerous other factors. In the United States, recent market and economic conditions continue to be challenging with tight credit conditions and no or slow growth. In recent times, continued concerns
about the systemic impact of high unemployment rates, sovereign debt, the availability and cost of credit, the United States mortgage market, and the United States real estate market have contributed to continued lowered expectations for the United
States economy. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Many lenders and institutional investors continue to
be reluctant to provide funding to borrowers. If these market conditions continue, they could limit our ability to timely replace maturing liabilities, or access the capital markets or other sources of financing to meet our liquidity needs,
resulting in a material adverse effect on our operations, financial condition and liquidity.
The issuance of shares of
our common stock could result in the loss of our ability to use our net operating losses.
As of
December 31, 2011, we had approximately $114.0 million of tax net operating loss carryforwards. Realization of any benefit from our tax net operating losses is dependent on: (1) our ability to generate future taxable income and
(2) the absence of certain future “ownership changes” of our common stock. An “ownership change,” as defined in the applicable federal income tax rules, would place significant limitations, on an annual basis, on the use of
such net operating losses to offset any future taxable income we may generate. Such limitations, in conjunction with the net operating loss expiration provisions, could effectively eliminate our ability to use a substantial portion of our net
operating losses to offset any future taxable income.
The issuance of shares of our common stock could cause
an “ownership change” which would also limit our ability to use our net operating losses. Other issuances of shares of our common stock that could cause an “ownership change” include the issuance of shares of common stock upon
future conversion or exercise of outstanding options and warrants. In addition, we contemplate that we would need to issue a substantial amount of additional shares of our common stock (or securities convertible into or exercisable or exchangeable
for common stock) in connection with our proposed plans to finance the commercialization of our technologies and the implementation of our business plan or the acquisition of other technologies, assets or businesses.
37
Our acquisition strategy involves significant risks.
One of our business strategies is to pursue acquisitions. However, acquisitions involve numerous risks and uncertainties,
including intense competition for suitable acquisition targets, the potential unavailability of financial resources necessary to consummate acquisitions, difficulties in identifying suitable acquisition targets or in completing any transactions
identified on sufficiently favorable terms, and the need to obtain regulatory or other governmental approvals that may be necessary to complete acquisitions. In addition, any future acquisitions may entail significant transaction costs, tax
consequences and risks associated with entry into new markets and lines of business.
In addition to the risks
involved in identifying and completing acquisitions described above, even when acquisitions are completed, integration of acquired entities can involve significant difficulties, such as:
|
|
•
|
|
unforeseen difficulties in the acquired operations and disruption of the ongoing operations of our business;
|
|
|
•
|
|
failure to achieve cost savings or other financial or operating objectives with respect to an acquisition;
|
|
|
•
|
|
strain on the operational and managerial controls and procedures of our business, and the need to modify systems or to add management resources;
|
|
|
•
|
|
difficulties in the integration and retention of customers or personnel and the integration and effective deployment of operations or technologies;
|
|
|
•
|
|
assumption of unknown material liabilities or regulatory non-compliance issues;
|
|
|
•
|
|
amortization of acquired assets, which would reduce future reported earnings;
|
|
|
•
|
|
possible adverse short-term effects on our cash flows or operating results; and
|
|
|
•
|
|
diversion of management’s attention from the ongoing operations of our business.
|
Failure to manage acquisition growth risks could have a material adverse effect on our results of operations and
financial condition. There can be no assurance that we will be able to consummate any acquisitions, successfully integrate acquired entities, or generate positive cash flow at any acquired company.
We may not be able to successfully manage our growing business.
If we are successful in our plans to commercialize the Rentech Process, the Rentech-SilvaGas Technology and the
Rentech-ClearFuels Technology by acquiring or developing alternative energy facilities, or if we consummate acquisitions in the energy or fertilizer segments, we would experience a period of rapid growth that could place significant additional
demands on, and require us to expand, our management resources and information systems. The management of our growth will require, among other things, continued development of our internal controls and information systems and the ability to attract
and retain qualified personnel. Our alternative energy projects under development are complex and very large in relation to projects that we have managed in the past. We have experienced cost over-runs and control weaknesses in the past. The ammonia
capacity expansion project at RNP is a major project that requires significant management by us, with the risk that project overruns or failure to meet the planned schedule may be very costly. Our failure to effectively manage such projects and any
such rapid growth could have a material adverse effect on us, our cash flows, our ability to raise capital in the future, and our operating results.
Risks Related to the Market for Rentech Common Stock
We have a
substantial overhang of common stock and future sales of our common stock will cause substantial dilution and may negatively affect the market price of our shares.
As of December 31, 2011, there were 225.2 million shares of our common stock outstanding. As of that date, we
also had an aggregate of 41.3 million shares of common stock that may be issued upon exercise or conversion of the Notes, restricted stock units, options and warrants. Also, on December 28, 2011, we agreed to issue 2.0 million shares
of our common stock, by March 31, 2012, to the former stockholders of SilvaGas in satisfaction of all potential earn-out payments in connection with our acquisition of SilvaGas in 2009. In addition, we have one shelf registration statement
covering $94.3 million aggregate offering price of securities (up to all of which could be issued as shares of common stock) for issuance in future financing transactions. In the event that we acquire companies or assets, we may issue additional
shares of stock to acquire those companies or assets.
38
We expect the sale of common stock and common stock equivalents in material
amounts will be necessary to finance the progress of our business plan and operations. Certain holders of our securities have, and certain future holders are expected to be granted, rights to participate in or to require us to file registration
statements with the SEC for resale of common stock.
We cannot predict the effect, if any, that future sales
of shares of our common stock into the market, or the availability of shares of common stock for future sale, will have on the market price of our common stock. Sales of substantial amounts of common stock (including shares issued upon the exercise,
conversion or exchange of other securities), or the perception that such sales could occur, may materially and adversely affect prevailing market prices for our common stock.
The market price of our common stock may decline. A lower stock price would result in more dilution if we issue shares to raise equity capital, and could prevent us from raising sufficient equity
capital to implement our business plan.
The market price of our stock may decline for a number of
reasons, including if:
|
|
•
|
|
the construction of a commercial scale synthetic fuels plant or other plants is not completed in a timely, economical and efficient manner;
|
|
|
•
|
|
the construction of a commercial scale synthetic fuels plant or other plants, does not yield the expected benefits to our revenues and profits as
rapidly or to the extent that may be anticipated by financial or industry analysts, shareholders or other investors;
|
|
|
•
|
|
the effect of the construction of a commercial scale synthetic fuels plant or other plants, on our consolidated financial statements is not
consistent with the expectations of financial or industry analysts, shareholders or other investors;
|
|
|
•
|
|
our significant shareholders decide to dispose of their shares of common stock because of any of the above or other reasons; or
|
|
|
•
|
|
any of the other risks referred to in this section materialize.
|
In the event that we seek to raise additional equity capital, a lower stock price would result in more dilution to our
existing stockholders or could prevent us from raising sufficient equity capital to implement our business plan.
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
Not Applicable.
Nitrogen
Products Manufacturing Segment Properties
The East Dubuque Facility is located on approximately 210 acres
in the northwest corner of Illinois on a 140-foot bluff above Mile Marker 573 on the Upper Mississippi River. RNLLC owns all of the East Dubuque Facility’s properties and equipment; these include land, roads, buildings, several special purpose
structures, equipment, storage tanks, and specialized truck, rail and river barge loading facilities. RNLLC also has 15,000 tons of leased storage tank capacity for ammonia products at Agrium’s terminal in Niota, Illinois. The East Dubuque
Facility is used in our nitrogen products manufacturing segment.
RETC Properties
We own the site located in Commerce City, Colorado where we have constructed the PDU and the Rentech-ClearFuels Gasifier.
The site consists of 17 acres located in an industrial area adjacent to a rail line and an interstate highway. Approximately six acres of the site are occupied by the PDU and the Rentech-ClearFuels Gasifier, and the remaining approximately
11 acres of the site are available for other uses. There is an approximately 12,000 square foot building on that site that is primarily used for laboratory and maintenance functions supporting the PDU. We also lease a 2 1/2 acre industrial
site located adjacent to the site, which includes a single building of approximately 3,000 square feet and is used for the storage and maintenance of construction equipment. These properties are used in our alternative energy segment.
39
Natchez Project Property
We own an approximately 450 acre site in Adams County, Mississippi near the city of Natchez. This property is used in our
alternative energy segment.
Office Leases
Our executive offices are located in Los Angeles, California, and consist of approximately 13,000 square feet of leased office space. The lease expires in June 2015. These offices are used in both of
our segments.
Our other principal leased offices are located in Denver, Colorado, and consist of
approximately 8,000 square feet of office space. The lease expires in October 2014. These offices are used in both of our segments. We also have leased offices located in Honolulu, Hawaii, which consist of approximately 1,300 square feet of
leased office space. The lease expires in July 2014. These offices are used in our alternative energy segment.
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
In the normal course of business, we are party to litigation from time to time. We maintain insurance to cover certain actions and believe that resolution of our current litigation will not have a
material adverse effect on us.
In October 2009, the EPA Region 5 issued a Notice and Finding of
Violation pursuant to the CAA related to the number 1 nitric acid plant at the East Dubuque Facility. The notice alleges violations of the CAA’s New Source Performance Standard for nitric acid plants, PSD requirements and Title V Permit Program
requirements. The notice appears to be part of the EPA’s CAA National Enforcement Priority for New Source Review/PSD related to acid plants, which seeks to reduce emissions from acid plants through proceedings that result in the installation of
new pollution control technology. Without admitting liability, RNLLC has entered into a consent decree with the EPA to resolve the alleged violations, and the consent decree was entered by the court, effective as of February 13, 2012. The
consent decree requires RNLLC to pay a civil penalty of $108,000, install and operate certain pollution control equipment on one of its nitric acid plants, and to perform certain additional actions and periodically report to the EPA. RNLLC has
commenced implementation of the consent decree requirements, including the installation and operation of the pollution control equipment, and on February 17, 2012, it paid the $108,000 civil penalty.
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Not Applicable.
40
PART II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is traded on the NYSE Amex under the symbol “RTK.” The following table sets forth the range of
high and low closing prices for our common stock as reported by the NYSE Amex, for the three months ended December 31, 2011 and each quarterly period during the fiscal years ended September 30, 2011 and 2010:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
Three Months Ended December 31, 2011
|
|
High
|
|
|
Low
|
|
|
Quarter ended December 31, 2011
|
|
$
|
1.93
|
|
|
$
|
0.75
|
|
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
Fiscal Year Ended September 30, 2011
|
|
High
|
|
|
Low
|
|
|
First Quarter, ended December 31, 2010
|
|
$
|
1.45
|
|
|
$
|
0.95
|
|
|
Second Quarter, ended March 31, 2011
|
|
$
|
1.38
|
|
|
$
|
1.12
|
|
|
Third Quarter, ended June 30, 2011
|
|
$
|
1.25
|
|
|
$
|
0.82
|
|
|
Fourth Quarter, ended September 30, 2011
|
|
$
|
1.10
|
|
|
$
|
0.78
|
|
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
Fiscal Year Ended September 30, 2010
|
|
High
|
|
|
Low
|
|
|
First Quarter, ended December 31, 2009
|
|
$
|
1.72
|
|
|
$
|
1.21
|
|
|
Second Quarter, ended March 31, 2010
|
|
$
|
1.32
|
|
|
$
|
1.01
|
|
|
Third Quarter, ended June 30, 2010
|
|
$
|
1.35
|
|
|
$
|
0.95
|
|
|
Fourth Quarter, ended September 30, 2010
|
|
$
|
1.02
|
|
|
$
|
0.70
|
|
The approximate number of shareholders of record of our common stock as of
February 29, 2012 was 523. Based upon the securities position listings maintained for our common stock by registered clearing agencies, we estimate the number of beneficial owners is not less than 27,400.
We have never paid cash dividends on our common stock. We currently expect that we will retain future earnings for use in
the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Company Purchases of Equity Securities
In February 2012, our board of directors authorized the repurchase of up to $25.0 million of outstanding shares of our common stock. The share repurchase program is expected to be effective on or about
March 20, 2012 and will be funded by our available cash. We may buy shares in the open market or through privately negotiated transactions from time to time over the next 12 months as permitted by federal securities laws and other legal
requirements. The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions, stock price and other factors and compliance with applicable legal requirements.
The share repurchase program does not obligate us to acquire any particular amount of common stock, and can be implemented, suspended or discontinued at any time, without prior notice, at our sole discretion.
Recent Sales of Unregistered Securities
Not applicable.
STOCK
PERFORMANCE GRAPH
The following graph and table compares the cumulative total shareholder return on our
common stock to that of the Russell 2000 Index, or the Russell 2000, an alternative energy peer group which is the Ardour Global Alternative Energy Index—North America, or the Alternative Energy Peer Group, and a customized peer group for the
63 months ending December 31, 2011. The customized peer group of four companies includes: Agrium, CF Industries Holdings, Terra Nitrogen Company, L.P., and Yara International, or the Fertilizer Peer Group. The following graph and table assumes
that a $100 investment was made at the close of trading on September 30, 2006 in our common stock and in the index and the peer groups, and that dividends, if any, were reinvested. The stock price performance shown on the graph below should not
be considered indicative of future price performance.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/06
|
|
|
9/07
|
|
|
9/08
|
|
|
9/09
|
|
|
9/10
|
|
|
9/11
|
|
|
12/11
|
|
|
|
|
|
|
|
|
|
|
|
Rentech, Inc.
|
|
|
100.00
|
|
|
|
46.65
|
|
|
|
28.73
|
|
|
|
34.99
|
|
|
|
21.30
|
|
|
|
16.85
|
|
|
|
28.29
|
|
|
Russell 2000
|
|
|
100.00
|
|
|
|
112.34
|
|
|
|
96.07
|
|
|
|
86.90
|
|
|
|
98.50
|
|
|
|
95.02
|
|
|
|
109.72
|
|
|
Alternative Energy Peer Group
|
|
|
100.00
|
|
|
|
119.61
|
|
|
|
99.63
|
|
|
|
73.95
|
|
|
|
70.57
|
|
|
|
44.77
|
|
|
|
41.96
|
|
|
Fertilizer Peer Group
|
|
|
100.00
|
|
|
|
247.09
|
|
|
|
267.80
|
|
|
|
248.84
|
|
|
|
341.07
|
|
|
|
343.95
|
|
|
|
370.01
|
|
42
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
The following tables include selected summary financial data for the three months ended December 31, 2011 and 2010 and each of the last five fiscal years ended September 30. The data below
should be read in conjunction with “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 8. Financial Statements and Supplementary Data.”
|
|
|
|
0000
|
|
|
|
0000
|
|
|
|
0000
|
|
|
|
0000
|
|
|
|
0000
|
|
|
|
0000
|
|
|
|
0000
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
December 31,
|
|
|
Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
63,066
|
|
|
$
|
43,014
|
|
|
$
|
180,063
|
|
|
$
|
131,925
|
|
|
$
|
186,687
|
|
|
$
|
217,293
|
|
|
$
|
134,923
|
|
|
Cost of Sales
|
|
$
|
37,510
|
|
|
$
|
26,886
|
|
|
$
|
103,486
|
|
|
$
|
106,712
|
|
|
$
|
125,891
|
|
|
$
|
160,742
|
|
|
$
|
119,170
|
|
|
Gross Profit
|
|
$
|
25,556
|
|
|
$
|
16,128
|
|
|
$
|
76,577
|
|
|
$
|
25,213
|
|
|
$
|
60,796
|
|
|
$
|
56,551
|
|
|
$
|
15,753
|
|
|
Research and Development Expense
|
|
$
|
4,202
|
|
|
$
|
5,426
|
|
|
$
|
30,009
|
|
|
$
|
19,641
|
|
|
$
|
21,381
|
|
|
$
|
64,477
|
|
|
$
|
43,127
|
|
|
Loss from Continuing Operations
|
|
$
|
(4,098
|
)
|
|
$
|
(5,884
|
)
|
|
$
|
(65,382
|
)
|
|
$
|
(42,271
|
)
|
|
$
|
(93
|
)
|
|
$
|
(59,425
|
)
|
|
$
|
(97,038
|
)
|
|
Income from Discontinued Operations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
72
|
|
|
$
|
91
|
|
|
$
|
3,150
|
|
|
Net Loss
|
|
$
|
(4,098
|
)
|
|
$
|
(5,884
|
)
|
|
$
|
(65,382
|
)
|
|
$
|
(42,262
|
)
|
|
$
|
(21
|
)
|
|
$
|
(59,334
|
)
|
|
$
|
(93,888
|
)
|
|
Net (Income) Loss Attributable to
Noncontrolling Interests
|
|
$
|
(4,433
|
)
|
|
$
|
366
|
|
|
$
|
1,099
|
|
|
$
|
94
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net Loss Attributable to Rentech
|
|
$
|
(8,531
|
)
|
|
$
|
(5,518
|
)
|
|
$
|
(64,283
|
)
|
|
$
|
(42,168
|
)
|
|
$
|
(21
|
)
|
|
$
|
(59,334
|
)
|
|
$
|
(93,888
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Common Share Attributable to Rentech:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.36
|
)
|
|
$
|
(0.64
|
)
|
|
Discontinued Operations
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.36
|
)
|
|
$
|
(0.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.36
|
)
|
|
$
|
(0.64
|
)
|
|
Discontinued Operations
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.36
|
)
|
|
$
|
(0.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
224,414
|
|
|
|
221,980
|
|
|
|
222,664
|
|
|
|
216,069
|
|
|
|
174,445
|
|
|
|
165,480
|
|
|
|
151,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
237,478
|
|
|
$
|
84,586
|
|
|
$
|
121,209
|
|
|
$
|
54,146
|
|
|
$
|
69,117
|
|
|
$
|
63,722
|
|
|
$
|
33,692
|
|
|
Working Capital
|
|
$
|
213,957
|
|
|
$
|
26,843
|
|
|
$
|
36,332
|
|
|
$
|
22,107
|
|
|
$
|
12,032
|
|
|
$
|
21,484
|
|
|
$
|
37,960
|
|
|
Construction in Progress
|
|
$
|
9,809
|
|
|
$
|
49,514
|
|
|
$
|
23,315
|
|
|
$
|
41,098
|
|
|
$
|
28,037
|
|
|
$
|
19,960
|
|
|
$
|
4,293
|
|
|
Total Assets
|
|
$
|
360,528
|
|
|
$
|
239,556
|
|
|
$
|
254,674
|
|
|
$
|
200,515
|
|
|
$
|
200,600
|
|
|
$
|
203,863
|
|
|
$
|
157,064
|
|
|
Total Long-Term Liabilities
|
|
$
|
53,475
|
|
|
$
|
113,702
|
|
|
$
|
155,752
|
|
|
$
|
98,520
|
|
|
$
|
46,759
|
|
|
$
|
95,819
|
|
|
$
|
39,713
|
|
|
Total Rentech Stockholders’ Equity
|
|
$
|
215,903
|
|
|
$
|
33,203
|
|
|
$
|
(19,628
|
)
|
|
$
|
37,920
|
|
|
$
|
68,236
|
|
|
$
|
15,002
|
|
|
$
|
67,250
|
|
43
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
In addition to the information provided here in Management’s Discussion and Analysis of Financial Condition and
Results of Operations, we believe that in order to more fully understand our discussion in this section, you should read our consolidated financial statements and the notes thereto and the other disclosures herein, including the discussion of our
business and the risk factors.
OVERVIEW OF OUR FINANCIAL CONDITION, LIQUIDITY, AND RESULTS OF OPERATIONS
Historically, we have relied upon sales of our equity securities, borrowings and cash flows from our nitrogen fertilizer
manufacturing business for working capital. We have a history of significant net losses.
Our primary needs
for working capital for the next 12 months related to our nitrogen products manufacturing segment are expected to include costs to operate the East Dubuque Facility, costs for expansion projects, debt service, and capital investments in the East
Dubuque Facility. Our primary needs for working capital for the next 12 months related to our alternative energy segment are expected to include costs to pursue commercial deployment of our technologies, operate the PDU and the Rentech-ClearFuels
Gasifier, continue research and development of our technologies, and fund administrative needs. Based on current market conditions, we expect that the non-expansion activities of our nitrogen products manufacturing segment for the next 12 months can
be funded from RNP’s cash on hand, RNLLC’s forecasted operating cash flows and a $35.0 million revolving working capital facility, or the 2012 Revolving Credit Facility, available under the 2012 Credit Agreement. We expect to fund our
alternative energy segment-related activities during the next 12 months from cash on hand. We would need additional capital for our alternative energy segment in the event we decide to pursue significant unplanned development or acquisition
activities. Such additional capital may be available, if needed, from external financing sources, including from offerings of equity or debt securities. In the event that such capital is not available, we would not be able to undertake such
significant unplanned development or acquisition activities in our alternative energy segment. Capital markets have experienced extreme uncertainty in recent years, and access to those markets has been difficult. Our failure to raise additional
capital if needed would have a material adverse effect on our business, financial condition, results of operations and liquidity.
For further information concerning our potential financing needs and related risks, see “Part I, Item 1. Business,” and “Part I, Item 1A. Risk Factors.”
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates
and assumptions relate to: revenue recognition, inventories, and the valuation of long-lived assets and intangible assets. Actual amounts could differ significantly from these estimates.
Revenue Recognition
. We recognize revenue when the following elements are substantially satisfied: there are no
uncertainties regarding customer acceptance; there is persuasive evidence that an agreement exists documenting the specific terms of the transaction; the sales price is fixed or determinable; and collectibility is reasonably assured. Management
assesses the business environment, the customer’s financial condition, historical collection experience, accounts receivable aging and customer disputes to determine whether collectibility is reasonably assured. If collectibility is not
considered reasonably assured at the time of sale, we do not recognize revenue until collection occurs.
Product sales revenues from our nitrogen products manufacturing segment are recognized when the customer takes ownership
upon shipment from the East Dubuque Facility or RNLLC’s leased facility in Niota, Illinois and assumes risk of loss, collection of the related receivable is probable, persuasive evidence of a sale arrangement exists and the sales price is fixed
or determinable.
Certain product sales in our nitrogen products manufacturing segment occur under product
prepayment contracts which require payment in advance of delivery. We record a liability for deferred revenue in the amount of, and upon receipt of, cash in advance of shipment. We recognize revenue related to the product prepayment contracts and
relieve the liability for deferred revenue when customers take ownership of products. A significant portion of the revenue recognized during any period may be related to product prepayment contracts, for which cash may have been collected during an
earlier period, with the result being that a significant portion of revenue recognized during a period may not generate cash receipts during that period.
44
Natural gas, though not purchased for the purpose of resale, is
occasionally sold under certain circumstances in our nitrogen products manufacturing segment. Natural gas is sold when contracted quantities received are in excess of production requirements and storage capacities, in which case the sales price is
recorded in product sales and the related cost is recorded in cost of sales. Natural gas is also sold with a simultaneous natural gas purchase in order to receive a benefit that reduces raw material cost, in which case the net of the sales price and
the related cost of sales are recorded within cost of sales.
Inventories
. Our inventory is stated at
the lower of cost or estimated net realizable value. The cost of inventories is determined using the first-in first-out method. We perform an analysis of our inventory balances at least quarterly to determine if the carrying amount of inventories
exceeds their net realizable value. The analysis of estimated net realizable value is based on customer orders, market trends and historical pricing. If the carrying amount exceeds the estimated net realizable value, the carrying amount is reduced
to the estimated net realizable value. We allocate fixed production overhead costs to inventory based on the normal capacity of our production facilities.
Valuation of Long-Lived Assets and Intangible Assets.
We assess the realizable value of long-lived assets and intangible assets for potential impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. In assessing the recoverability of our assets, we make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. As applicable,
we make assumptions regarding the useful lives of the assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets.
The most significant intangible assets subject to impairment analyses are the capitalized patents related to the
acquisition of SilvaGas and the goodwill related to the acquisition of ClearFuels. Our projections of future cash flows related to utilization of these assets involve various development projects with unrelated parties that are not yet finalized and
will require significant investment by the other parties. These projects may take years to build and execute, and, given the nature of the technologies being developed, they ultimately may not be successful. Impairment of the capitalized patents and
goodwill assets may be required if projected future cash flows for the development projects change or if such projects do not produce the projected cash flows that we currently anticipate.
Business Segments
We operate in two business segments as
follows: (i) nitrogen products manufacturing and (ii) alternative energy. In our nitrogen products manufacturing segment, RNLLC manufactures a variety of nitrogen fertilizer and industrial products. In our alternative energy segment, we
develop projects and market licenses that would use processes for conversion of low-value, carbon-bearing solids or gases into valuable hydrocarbons and electric power.
THE THREE MONTHS ENDED DECEMBER 31, 2011 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2010
Continuing Operations:
Revenues
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
62,656
|
|
|
$
|
42,962
|
|
|
Sales of excess inventory of natural gas
|
|
|
358
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
63,014
|
|
|
|
42,962
|
|
|
Alternative energy
|
|
|
52
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
63,066
|
|
|
$
|
43,014
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three
Months
Ended December 31, 2011
|
|
|
For the Three
Months
Ended December 31, 2010
|
|
|
|
|
Tons
|
|
|
Revenue
|
|
|
Tons
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
Product Shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
|
55
|
|
|
$
|
37,391
|
|
|
|
44
|
|
|
$
|
22,828
|
|
|
Urea Ammonium Nitrate (UAN)
|
|
|
65
|
|
|
|
20,088
|
|
|
|
79
|
|
|
|
15,298
|
|
|
Urea (liquid and granular)
|
|
|
7
|
|
|
|
3,714
|
|
|
|
7
|
|
|
|
2,994
|
|
|
Carbon Dioxide
|
|
|
15
|
|
|
|
433
|
|
|
|
34
|
|
|
|
783
|
|
|
Nitric Acid
|
|
|
3
|
|
|
|
1,030
|
|
|
|
3
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
145
|
|
|
$
|
62,656
|
|
|
|
167
|
|
|
$
|
42,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing.
Our nitrogen products
manufacturing segment provides revenue from sales of various nitrogen fertilizer products manufactured at the East Dubuque Facility, primarily utilized in corn production. The East Dubuque Facility is designed to produce ammonia, UAN, liquid and
granular urea, nitric acid and CO
2
using natural gas as a
feedstock. Revenues are seasonal based on the planting, growing, and harvesting cycles of customers utilizing nitrogen fertilizer.
Revenues were approximately $63.0 million for the three months ended December 31, 2011 compared to approximately $43.0 million for the three months ended December 31, 2010. The increase in
revenues for the three months ended December 31, 2011 compared to the three months ended December 31, 2010 was primarily the result of higher prices paid for our products during three months ended December 31, 2011.
The average sales prices per ton for the three months ended December 31, 2011 as compared to the three months ended
December 31, 2010 increased by 34% and 59% for ammonia and UAN, respectively. These increases were due to higher demand caused by a combination of low levels of grain and fertilizer inventories and expectations of higher corn acreage in 2012.
These two products comprised approximately 92% and 89%, respectively, of our product sales for the three months ended December 31, 2011 and 2010.
Alternative Energy.
This segment generates revenues for technical services and licensing activities related to our technologies.
Cost of Sales
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
34,024
|
|
|
$
|
26,835
|
|
|
Turnaround expenses
|
|
|
2,957
|
|
|
|
—
|
|
|
Sales of excess inventory of natural gas
|
|
|
479
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
37,460
|
|
|
|
26,835
|
|
|
Alternative energy
|
|
|
50
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
37,510
|
|
|
$
|
26,886
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen Products Manufacturing
. The increase in cost of sales on product
shipments for the three months ended December 31, 2011 compared to the three months ended December 31, 2010 was primarily due to the sale of approximately 12,000 tons of ammonia that were purchased by barge at a cost much higher than the
production cost of such ammonia would have been and higher natural gas costs.
Natural gas costs comprised
approximately 47% of cost of sales on product shipments for the three months ended December 31, 2011 compared to 53% of cost of sales on product shipments for the three months ended December 31, 2010. Labor costs comprised approximately
14% of cost of sales on product shipments for the three months ended December 31, 2011 compared to approximately 12% of cost of sales on product shipments for the three months ended December 31, 2010. Depreciation expense included in cost
of sales was $3.2 million and $2.5 million, respectively, for the three months ended December 31, 2011 and 2010, and comprised approximately 9% of cost of sales on product shipments for each of the three months ended December 31, 2011 and
2010.
Turnaround expenses represent the cost of maintenance during turnarounds, which occur approximately
every two years. A facility turnaround occurred in September and October 2011. As a result, during the three months ended December 31, 2011, we incurred turnaround expenses of approximately $3.0 million.
46
Natural gas, though not purchased for the purpose of resale, is occasionally
sold under certain circumstances, such as when contracted quantities received exceed our production requirements or our storage capacity. In these situations, which we refer to as sales of excess inventory of natural gas, the sales proceeds are
recorded as revenue and the related cost is recorded as a cost of sales.
Alternative Energy.
The cost
of sales for our alternative energy segment during the three months ended December 31, 2011 and 2010 was for costs incurred for work performed under technical services contracts.
Gross Profit
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
28,632
|
|
|
$
|
16,127
|
|
|
Turnaround expenses
|
|
|
(2,957
|
)
|
|
|
—
|
|
|
Sales of excess inventory of natural gas
|
|
|
(121
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
25,554
|
|
|
|
16,127
|
|
|
Alternative energy
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
25,556
|
|
|
$
|
16,128
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen Products Manufacturing.
The gross profit margin on product shipments was
46% for the three months ended December 31, 2011 as compared to 38% for the three months ended December 31, 2010. This increase was primarily due to higher sales prices, partially offset by lower margins received on sales of approximately
12,000 tons of ammonia purchased by barge and higher natural gas costs.
Operating Expenses
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
10,498
|
|
|
$
|
7,687
|
|
|
Depreciation and amortization
|
|
|
566
|
|
|
|
573
|
|
|
Research and development
|
|
|
4,202
|
|
|
|
5,426
|
|
|
Other
|
|
|
76
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
15,342
|
|
|
$
|
13,739
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses.
During the three months ended
December 31, 2011 as compared to the three months ended December 31, 2010, selling, general and administrative expenses increased by $2.8 million or 37%. This increase was primarily due to an increase in accounting and tax services
expenses of approximately $1.3 million due to the change in fiscal year end and RNP becoming a public company, and approximately $0.4 million in each of pre-development project expenses and public company expenses during the three months ended
December 31, 2011 that we had not incurred during the three months ended December 31, 2010.
Depreciation and Amortization
. A portion of depreciation and amortization expense is associated with assets
supporting general and administrative functions and is recorded in operating expense. The majority of depreciation and amortization expense 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
. Research and development expenses decreased by $1.2 million during the three months ended December 31, 2011 as compared to the three months ended December 31, 2010 primarily due to our revised alternative energy
strategy, which includes a reduction in spending, and approximately 25% fewer operating days for the PDU, which was not in operation during the construction of the Rentech-ClearFuels Gasifier. These expenses are included in our alternative energy
segment.
47
Operating Income (Loss)
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
25,726
|
|
|
$
|
14,584
|
|
|
Turnaround expenses
|
|
|
(2,957
|
)
|
|
|
—
|
|
|
Sales of excess inventory of natural gas
|
|
|
(121
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
22,648
|
|
|
|
14,584
|
|
|
Alternative energy
|
|
|
(12,434
|
)
|
|
|
(12,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss
|
|
$
|
10,214
|
|
|
$
|
2,389
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen Products Manufacturing.
The increase in income from operations for
product shipments for the three months ended December 31, 2011 as compared to the three months ended December 31, 2010 was primarily due to higher sales prices, partially offset by lower margins received on sales of approximately 12,000
tons of ammonia purchased by barge, higher natural gas costs and higher operating expenses.
Alternative
Energy.
Loss from operations primarily consists of operating expenses, such as selling, general and administrative expenses, depreciation and amortization, and research and development expenses.
Other Income (Expense), Net
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
49
|
|
|
$
|
45
|
|
|
Interest expense
|
|
|
(4,098
|
)
|
|
|
(3,730
|
)
|
|
Loss on debt extinguishment
|
|
|
(10,263
|
)
|
|
|
(4,593
|
)
|
|
Other income (expense), net
|
|
|
2
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
$
|
(14,310
|
)
|
|
$
|
(8,271
|
)
|
|
|
|
|
|
|
|
|
|
|
The increase in other expense for the three months ended December 31, 2011 as
compared to the three months ended December 31, 2010 was primarily due to the larger loss on debt extinguishment, which was primarily due to a higher amount of debt issuance costs to write off and the payment of call premium fees of
approximately $2.9 million.
THE FISCAL YEAR ENDED SEPTEMBER 30, 2011 COMPARED TO THE FISCAL YEAR ENDED SEPTEMBER 30, 2010
Continuing Operations:
Revenues
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
179,400
|
|
|
$
|
129,392
|
|
|
Sales of excess inventory of natural gas
|
|
|
457
|
|
|
|
2,004
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
179,857
|
|
|
|
131,396
|
|
|
Alternative energy
|
|
|
206
|
|
|
|
529
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
180,063
|
|
|
$
|
131,925
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal
Year
Ended September 30, 2011
|
|
|
For the Fiscal
Year
Ended September 30, 2010
|
|
|
|
|
Tons
|
|
|
Revenue
|
|
|
Tons
|
|
|
Revenue
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
Product Shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
|
125
|
|
|
$
|
73,346
|
|
|
|
153
|
|
|
$
|
57,909
|
|
|
Urea Ammonium Nitrate
|
|
|
315
|
|
|
|
84,646
|
|
|
|
294
|
|
|
|
52,912
|
|
|
Urea (liquid and granular)
|
|
|
29
|
|
|
|
13,708
|
|
|
|
32
|
|
|
|
12,663
|
|
|
Carbon Dioxide
|
|
|
110
|
|
|
|
2,825
|
|
|
|
107
|
|
|
|
2,779
|
|
|
Nitric Acid
|
|
|
15
|
|
|
|
4,875
|
|
|
|
11
|
|
|
|
3,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
594
|
|
|
$
|
179,400
|
|
|
|
597
|
|
|
$
|
129,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing.
Our nitrogen products
manufacturing segment provides revenue from sales of various nitrogen fertilizer products manufactured at the East Dubuque Facility, primarily utilized in corn production. The East Dubuque Facility is designed to produce ammonia, UAN, liquid and
granular urea, nitric acid and CO
2
using natural gas as a
feedstock. Revenues are seasonal based on the planting, growing, and harvesting cycles of customers utilizing nitrogen fertilizer.
The increase in revenues for the fiscal year ended September 30, 2011 compared to the fiscal year ended September 30, 2010 was primarily the result of higher prices paid for our products during
fiscal year ended September 30, 2011, resulting from stronger demand for nitrogen fertilizer products during the period. Ammonia sales volumes decreased and UAN sales volumes increased during the fiscal year ended September 30, 2011 as we
upgraded more ammonia into UAN to realize higher gross profit margins.
The average sales prices per ton in
the current fiscal year as compared with the prior fiscal year increased by 56% and 49% for ammonia and UAN, respectively. These increases were due to higher demand caused by a combination of low levels of corn and fertilizer inventories and
expectations of higher corn acreage in 2011. These two products comprised approximately 88% and 86%, respectively, of our product sales for the each of the fiscal years ended September 30, 2011 and 2010.
Alternative Energy.
This segment generates revenues for technical services and licensing activities related to our
technologies.
Cost of Sales
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years
Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
98,250
|
|
|
$
|
99,749
|
|
|
Turnaround expenses
|
|
|
4,490
|
|
|
|
3,955
|
|
|
Sales of excess inventory of natural gas
|
|
|
546
|
|
|
|
2,259
|
|
|
Simultaneous sale and purchase of natural gas
|
|
|
—
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
103,286
|
|
|
|
106,020
|
|
|
Alternative energy
|
|
|
200
|
|
|
|
692
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
103,486
|
|
|
$
|
106,712
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen Products Manufacturing
. The decrease in cost of sales on product
shipments for the fiscal year ended September 30, 2011 compared to the fiscal year ended September 30, 2010 was primarily due to lower natural gas prices during the fiscal year ended September 30, 2011 and unplanned repairs and
maintenance costs during the first fiscal quarter of 2010.
Natural gas costs comprised approximately 50% of
cost of sales on product shipments for the fiscal year ended September 30, 2011 compared to 54% of cost of sales on product shipments for the fiscal year ended September 30, 2010. Labor costs comprised approximately 12% of cost of sales on
product shipments for each of the fiscal years ended September 30, 2011 and 2010. Depreciation expense included in cost of sales was $9.6 million and $10.1 million for the fiscal years ended September 30, 2011 and 2010, respectively, and
comprised approximately 10% of cost of sales on product shipments for each of the fiscal years ended September 2011 and 2010.
Turnaround expenses represent the cost of maintenance during turnarounds, which occur approximately every two years. A facility turnaround occurred in September and October 2011 and October 2009. As a
result, during the fiscal years ended September 30, 2011 and 2010, we incurred turnaround expenses of approximately $4.5 million and $4.0 million, respectively. In October 2011, we expensed additional costs relating to the turnaround.
49
Natural gas, though not purchased for the purpose of resale, is
occasionally sold under certain circumstances, such as when contracted quantities received exceed our production requirements or our storage capacity. In these situations, which we refer to as sales of excess inventory of natural gas, the sales
proceeds are recorded as revenue and the related cost is recorded as a cost of sales.
When the opportunity
presents itself, we may also sell, to a third party at one location, natural gas that we have purchased or are required to purchase under fixed-price contracts and simultaneously purchase, at a different location and at a lower price, the same
quantity of natural gas in order to capture an immediate benefit from the price differential between the two delivery points. We refer to these situations as a simultaneous sale and purchase of natural gas. The sale of gas in conjunction with a
simultaneous purchase may be at a price lower (or higher) than the purchase price previously committed under a forward purchase contract, which may result in a loss (or profit) compared to the price required in the forward purchase contract. The
natural gas is immediately repurchased at a lower price resulting in a lower cost of sales when inventory is sold. All or a portion of a loss relative to the forward purchase contract may be offset (or a profit increased) by a gain on the
simultaneous sale and purchase transaction. None of these transactions occurred during the fiscal year ended September 30, 2011, and an immaterial amount occurred during the fiscal year ended September 30, 2010.
Alternative Energy.
The cost of sales for our alternative energy segment during the fiscal years ended
September 30, 2011 and 2010 was for costs incurred for work performed under technical services contracts.
Gross Profit
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
81,150
|
|
|
$
|
29,643
|
|
|
Turnaround expenses
|
|
|
(4,490
|
)
|
|
|
(3,955
|
)
|
|
Sales of excess inventory of natural gas
|
|
|
(89
|
)
|
|
|
(255
|
)
|
|
Simultaneous sale and purchase of natural gas
|
|
|
—
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
76,571
|
|
|
|
25,376
|
|
|
Alternative energy
|
|
|
6
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
76,577
|
|
|
$
|
25,213
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen Products Manufacturing.
The gross profit margin on product shipments was
45% for the fiscal year ended September 30, 2011 as compared to 23% for the fiscal year ended September 30, 2010. This increase was primarily due to higher sales prices, lower natural gas prices during the fiscal year ended
September 30, 2011 and unplanned repairs and maintenance costs during the first fiscal quarter of 2010.
Operating Expenses
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
28,004
|
|
|
$
|
28,410
|
|
|
Depreciation and amortization
|
|
|
2,225
|
|
|
|
1,947
|
|
|
Research and development
|
|
|
30,009
|
|
|
|
19,641
|
|
|
Loss on impairments
|
|
|
58,742
|
|
|
|
1,190
|
|
|
Advance for equity investment
|
|
|
(7,892
|
)
|
|
|
—
|
|
|
Loss on disposal of property, plant and equipment
|
|
|
523
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
111,611
|
|
|
$
|
51,379
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses.
During the fiscal year ended
September 30, 2011 as compared to the fiscal year ended September 30, 2010, selling, general and administrative expenses decreased by $0.4 million or 1%. Salaries and benefits increased by $0.9 million as a result of annual salary
increases and an increase in headcount. Consulting expenses increased by $1.4 million primarily due to consolidation of ClearFuels and increases in consulting expenses related to business development. Stock-based compensation decreased by $3.4
million primarily as a result of reversing previously accrued compensation expense on grants related to the milestones associated with our project in Rialto, California, or the Rialto Project, which will no longer be developed. See Note 4 in our
Consolidated Financial Statements for additional information on the Rialto Project impairment.
50
Depreciation and Amortization
. The amount of depreciation and
amortization expense within operating expenses increased by $0.3 million for the fiscal year ended September 30, 2011 which was primarily attributable to a change in estimated useful life of intellectual property acquired in the purchase of
SilvaGas’ biomass gasification technology. A portion of depreciation and amortization expense is associated with assets supporting general and administrative functions and is recorded in operating expense. The majority of depreciation and
amortization expense 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
. Research and development expenses increased by $10.4 million during the
fiscal year ended September 30, 2011 compared to the fiscal year ended September 30, 2010 primarily due to the development of the Rentech-ClearFuels Gasifier, for which our portion of the development expenses were expensed as research and
development expense. We incur research and development expenses at our demonstration plants and in our testing laboratory in Commerce City, Colorado, where we operate the PDU, and built and now operate the Rentech-ClearFuels Gasifier, and actively
conduct work to further improve our technology and to perform services for our customers. These expenses are included in our alternative energy segment.
Loss on Impairments
. We had recorded construction in progress and other costs related to the Rialto Project, our
project in Natchez, Mississippi (referred to as the Natchez Project) or our project in Port St. Joe, Florida (referred to as the Port St. Joe Project), totaling approximately $27.2 million, $29.2 million and $6.4 million, respectively. Other costs
primarily include previously capitalized option payments on potential sites and deferred fees on potential financing arrangements. Due to the lack of funding available through the various DOE loan guarantee programs, the higher than anticipated
costs estimated to complete the Rialto Project, and the lack of financing for such projects, we decided to abandon the three projects. As a result, we recorded a loss on impairment relating to the Rialto Project, the Natchez Project and the Port St.
Joe Project of $27.2 million, $26.6 million and $4.8 million, respectively. The loss on impairment for the Rialto Project represents the total cost of the project. The loss on impairment for the Port St. Joe Project represents the total cost of the
project less the elimination of a contingent consideration liability of $1.6 million. The loss on impairment for the Natchez Project represents the total costs of the project less the appraised value of the property, which we own, of approximately
$2.5 million. During the fiscal year ended September 30, 2010, we determined that one of the sites that we had secured under option, a site which we were evaluating for the Rialto Project, was no longer a viable site. Therefore, at the end of
the fiscal year ended September 30, 2010, we gave notice to terminate the option resulting in the write-off of the previously capitalized option payments of $1.1 million. We also determined that the cost of a feasibility study for the East
Dubuque Facility conversion project, which had been recorded in construction in progress, would never be used. Therefore, the cost was written off during the fiscal year ended September 30, 2010.
Advance for Equity Investment
. This is the extinguishment of a liability relating to the East Dubuque Facility
coal-to-liquids conversion project which was abandoned during the fiscal year ended September 30, 2008. For the fiscal years ended prior to September 30, 2011, the liability for the advance for equity investment remained because the
potential for another coal-to-liquids project still existed. During fiscal year ended September 30, 2011, we adopted a revised project development strategy for the commercialization of our alternative energy technologies, which includes
pursuing projects that are smaller and require less capital. Coal-to-liquids projects, like the East Dubuque Facility conversion project, no longer fit our development strategy. As a result, the liability associated with this project was reversed.
Loss on Disposal of Property, Plant and Equipment
. For the fiscal year ended September 30, 2011,
loss on disposal of property, plant and equipment was primarily due to the removal of a selective catalyst recovery unit in our nitrogen products manufacturing segment for approximately $0.9 million, which was partially offset by various
miscellaneous sales and exchanges of nonmonetary assets totaling approximately $0.4 million.
Operating Income (Loss)
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years
Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
74,433
|
|
|
$
|
24,656
|
|
|
Turnaround expenses
|
|
|
(4,490
|
)
|
|
|
(3,955
|
)
|
|
Sales of excess inventory of natural gas
|
|
|
(89
|
)
|
|
|
(255
|
)
|
|
Simultaneous sale and purchase of natural gas
|
|
|
—
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
69,854
|
|
|
|
20,389
|
|
|
Alternative energy
|
|
|
(104,888
|
)
|
|
|
(46,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss
|
|
$
|
(35,034
|
)
|
|
$
|
(26,166
|
)
|
|
|
|
|
|
|
|
|
|
|
51
Nitrogen Products Manufacturing.
The increase in income from
operations for product shipments for the fiscal year ended September 30, 2011 as compared to the prior year was primarily due to higher sales prices and lower natural gas prices during the fiscal year ended September 30, 2011 and unplanned
repairs and maintenance costs during the first fiscal quarter of 2010, partially offset by additional audit and tax fees, administrative agent fees under RNLLC’s 2010 credit agreement, or the 2010 Credit Agreement, and sales-based incentive
bonuses.
Alternative Energy.
Loss from operations primarily consists of operating expenses, such as
selling, general and administrative; depreciation and amortization; research and development; and losses and costs relating to the three projects that we abandoned.
Other Income (Expense), Net
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
134
|
|
|
$
|
212
|
|
|
Interest expense
|
|
|
(16,666
|
)
|
|
|
(14,235
|
)
|
|
Loss on debt extinguishment
|
|
|
(13,816
|
)
|
|
|
(2,268
|
)
|
|
Realized loss, net on sale of investments
|
|
|
—
|
|
|
|
(1,231
|
)
|
|
Gain on equity method investment
|
|
|
—
|
|
|
|
1,909
|
|
|
Other income (expense), net
|
|
|
3
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
$
|
(30,345
|
)
|
|
$
|
(15,550
|
)
|
|
|
|
|
|
|
|
|
|
|
The increase in other expense for the fiscal year ended September 30, 2011 as
compared to the fiscal year ended September 30, 2010 was primarily due to the loss on debt extinguishment related to the various credit agreements and the increase in interest expense due to higher outstanding principal balances under the
credit agreements.
THE FISCAL YEAR ENDED SEPTEMBER 30, 2010 COMPARED TO THE FISCAL YEAR ENDED SEPTEMBER 30, 2009
Continuing Operations:
Revenues
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years
Ended
September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
129,392
|
|
|
$
|
184,071
|
|
|
Sales of excess inventory of natural gas
|
|
|
2,004
|
|
|
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
131,396
|
|
|
|
186,449
|
|
|
Alternative energy
|
|
|
529
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
131,925
|
|
|
$
|
186,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal
Year
Ended September 30, 2010
|
|
|
For the Fiscal
Year
Ended September 30, 2009
|
|
|
|
|
Tons
|
|
|
Revenue
|
|
|
Tons
|
|
|
Revenue
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
Product Shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
|
153
|
|
|
$
|
57,909
|
|
|
|
126
|
|
|
$
|
91,413
|
|
|
Urea Ammonium Nitrate
|
|
|
294
|
|
|
|
52,912
|
|
|
|
267
|
|
|
|
71,185
|
|
|
Urea (liquid and granular)
|
|
|
32
|
|
|
|
12,663
|
|
|
|
36
|
|
|
|
15,876
|
|
|
Carbon Dioxide
|
|
|
107
|
|
|
|
2,779
|
|
|
|
95
|
|
|
|
2,571
|
|
|
Nitric Acid
|
|
|
11
|
|
|
|
3,129
|
|
|
|
9
|
|
|
|
3,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
597
|
|
|
$
|
129,392
|
|
|
|
533
|
|
|
$
|
184,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Nitrogen products manufacturing.
Revenues decreased in the
fiscal year ended September 30, 2010 compared to the fiscal year ended September 30, 2009 primarily due to decreased sales prices for all of our products which was partially offset by an increase in our UAN sales volume. Sales volume
increased for UAN due to a higher availability of the product in the fiscal year ended September 30, 2010, as compared to the previous year. This was due to a combination of higher carryover inventory into the year and lower production in the
fiscal year ended September 30, 2009 compared to the fiscal year ended September 30, 2010. The lower production in the fiscal year ended September 30, 2009 can be attributed in part to an unplanned shutdown due to a power outage in
January 2009, following which ammonia production was reduced to two-thirds of capacity for 67 days to avoid inventory containment issues. This was partially offset by a 15-day turnaround in October 2009 and subsequent 15-day unplanned shutdown due
to equipment failures, which reduced production in the fiscal year ended September 30, 2010.
The average
sales price per ton decreased by 48% for ammonia and by 33% for UAN in the fiscal year ended September 30, 2010 compared to the respective average sales prices per ton of ammonia and UAN in the fiscal year ended September 30, 2009. These
decreases occurred because the prices for a majority of the shipments in the fiscal year ended September 30, 2009 had been determined in product prepayment 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 from the end of 2008 through 2009 was due to, among other things, a substantial drop in corn prices and the price of natural gas, a key input, and weak
economic conditions. Sales of ammonia and UAN comprised approximately 86% and 88%, respectively, of our product sales for the fiscal years ended September 30, 2010 and 2009.
Alternative Energy.
This segment generates revenues for technical services and licensing activities related to our
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 the fiscal year ended September 30, 2010 was technical service revenue. The revenue earned during the fiscal year ended
September 30, 2009 included both technical service revenue of $0.1 million and rental revenue of $0.1 million.
Cost of Sales
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years
Ended
September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
99,749
|
|
|
$
|
98,968
|
|
|
Turnaround expenses
|
|
|
3,955
|
|
|
|
149
|
|
|
Sales of excess inventory of natural gas
|
|
|
2,259
|
|
|
|
3,996
|
|
|
Simultaneous sale and purchase of natural gas
|
|
|
57
|
|
|
|
22,775
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
106,020
|
|
|
|
125,888
|
|
|
Alternative energy
|
|
|
692
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
106,712
|
|
|
$
|
125,891
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen Products Manufacturing
. Natural gas and labor costs comprised
approximately 54% and 12%, respectively, of cost of sales on product shipments for the fiscal year ended September 30, 2010 compared to 64% and 13%, respectively, for the fiscal year ended September 30, 2009. Depreciation expense included
in cost of sales was $10.1 million and $8.3 million for the fiscal years ended September 30, 2010 and 2009, respectively, and comprised approximately 10% of cost of sales on product shipments for the fiscal year ended September 30, 2010
compared to 8% of cost of sales on product shipments for the fiscal year ended September 30, 2009.
Turnaround expenses represent the cost of maintenance during turnarounds, which occur approximately every two years. A
facility turnaround occurred in October 2009 and some preliminary turnaround activities occurred in September 2009, which did not require the facility to be shut down.
53
During the fiscal year ended September 30, 2009, we were able to take
advantage of simultaneous sale and purchase opportunities, resulting in immediate benefits of $0.2 million. In the fiscal year ended September 30, 2009, the natural gas sold as part of the simultaneous sale and purchase transactions had been
purchased under forward purchase contracts that required us to pay prices higher than the prices received in conjunction with the simultaneous sale and purchase transactions, resulting in losses on sales of this natural gas of $22.8 million. The
natural gas was immediately repurchased at a lower price which resulted in the benefit of $0.2 million from the simultaneous sale and purchase transactions. The losses were recorded as cost of sales at the time of the simultaneous purchase and sale
transactions, net of the immediate benefits from the simultaneous sale and purchase of $0.2 million. The recording of the losses is effectively accelerating the timing of recognizing the cost of the high-priced natural gas purchased under the
original forward purchase contracts. In the absence of the simultaneous sale and purchase transactions, the higher priced natural gas under contract would have been inventoried into finished product and later expensed when the related finished
product was sold. For the fiscal year ended September 30, 2009, the $22.8 million loss recorded at the time of the simultaneous sale and purchase transactions was followed by a $22.8 million reduction in cost of sales as product produced from
the lower priced natural gas was sold. During the fiscal year ended September 30, 2010, simultaneous sale and purchases of natural gas were negligible.
Alternative Energy.
The cost of sales for our alternative energy segment during the fiscal years ended September 30, 2010 and 2009 was for costs incurred for work performed under technical
services contracts.
Gross Profit
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
29,643
|
|
|
$
|
85,103
|
|
|
Turnaround expenses
|
|
|
(3,955
|
)
|
|
|
(149
|
)
|
|
Sales of excess inventory of natural gas
|
|
|
(255
|
)
|
|
|
(1,618
|
)
|
|
Simultaneous sale and purchase of natural gas
|
|
|
(57
|
)
|
|
|
(22,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
25,376
|
|
|
|
60,561
|
|
|
Alternative energy
|
|
|
(163
|
)
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
25,213
|
|
|
$
|
60,796
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen Products Manufacturing.
Our gross profit margin on product shipments was
23% for the fiscal year ended September 30, 2010 compared to 46% for the fiscal year ended September 30, 2009. This decrease was primarily due to lower sales prices, partially offset by increased sales volume of UAN and lower natural gas
prices in the fiscal year ended September 30, 2010 compared to the fiscal year ended September 30, 2009.
Operating Expenses
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
28,410
|
|
|
$
|
24,061
|
|
|
Depreciation and amortization
|
|
|
1,947
|
|
|
|
1,478
|
|
|
Research and development
|
|
|
19,641
|
|
|
|
21,381
|
|
|
Loss on impairment
|
|
|
1,190
|
|
|
|
—
|
|
|
Loss on disposal of property, plant and equipment
|
|
|
191
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
51,379
|
|
|
$
|
46,937
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses.
During the fiscal year ended
September 30, 2010 as compared to the fiscal year ended September 30, 2009, selling, general and administrative expenses increased by $4.3 million or 18%. Stock-based compensation increased by $1.9 million as a result of additional grants
during the fiscal year ended September 30, 2010. Consulting expenses increased by $0.7 million primarily due to an equity grant to a consultant and increases in consulting expenses related to renewable energy projects. Salaries and benefits
increased by $0.5 million as a result of an accrual for severance payments owed to one of our former officers, the acquisition of SilvaGas and the retention of its key employees, annual salary increases and an increase in headcount.
Depreciation and Amortization
. The amount of depreciation expense within operating expenses increased by $0.5
million for the fiscal year ended September 30, 2010 which was primarily attributable to amortization of intellectual property acquired in the purchase of SilvaGas’ biomass gasification technology. A portion of depreciation and
amortization expense is associated with assets supporting general and administrative functions and is recorded in operating expense. The majority of depreciation and amortization expense 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.
54
Research and Development
. Research and development expenses
decreased by $1.7 million during the fiscal year ended September 30, 2010 compared to the fiscal year ended September 30, 2009 primarily due to a decrease of $2.6 million in the accrual for taxes related to the construction of the PDU
which was partially offset by an additional $0.4 million due to the consolidation of ClearFuels. 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.
Loss on Impairment
. We had recorded in
construction in progress the cost of a feasibility study which it determined in the fiscal year ended September 30, 2010 would never be used. Therefore, the cost was written off. We also had secured and were evaluating various sites for the
Rialto Project. We determined that one of the sites, which we had an option to acquire, was no longer a viable site for the Rialto Project. Therefore, at the end of the fiscal year ended September 30, 2010, we gave notice to terminate the
option resulting in the write-off of the previously capitalized option payments of $1.1 million.
Operating Income (Loss)
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
Product shipments
|
|
$
|
24,656
|
|
|
$
|
79,855
|
|
|
Turnaround expenses
|
|
|
(3,955
|
)
|
|
|
(149
|
)
|
|
Sales of excess inventory of natural gas
|
|
|
(255
|
)
|
|
|
(1,618
|
)
|
|
Simultaneous sale and purchase of natural gas
|
|
|
(57
|
)
|
|
|
(22,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total nitrogen products manufacturing
|
|
|
20,389
|
|
|
|
55,313
|
|
|
Alternative energy
|
|
|
(46,555
|
)
|
|
|
(41,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
(26,166
|
)
|
|
$
|
13,859
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen Products Manufacturing.
The reduction in income from
operations for product shipments for the fiscal year ended September 30, 2010 as compared to the prior year was primarily due to lower sales prices, partially offset by increased sales volume of UAN 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.
Other Income (Expense), Net
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
212
|
|
|
$
|
561
|
|
|
Interest expense
|
|
|
(14,235
|
)
|
|
|
(14,099
|
)
|
|
Loss on debt extinguishment
|
|
|
(2,268
|
)
|
|
|
—
|
|
|
Realized loss, net on sale of investments
|
|
|
(1,231
|
)
|
|
|
—
|
|
|
Gain on equity method investment
|
|
|
1,909
|
|
|
|
—
|
|
|
Other income (expense), net
|
|
|
63
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
(15,550
|
)
|
|
$
|
(13,807
|
)
|
|
|
|
|
|
|
|
|
|
|
The increase in other expense for the fiscal year ended September 30, 2010 as
compared to the fiscal year ended September 30, 2009 is primarily due to a loss on extinguishment of debt in January 2010 and the net realized loss on the sale of available for sale securities, partially offset by the gain on equity method
investment.
INFLATION
Inflation has and is expected to have an insignificant impact on our results of operations and sources of liquidity.
55
ANALYSIS OF CASH FLOWS
The following table summarizes our Consolidated Statements of Cash Flows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months
Ended December 31,
|
|
|
For the Fiscal
Years
Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Net Cash Provided by (Used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(2,544
|
)
|
|
$
|
13,301
|
|
|
$
|
36,469
|
|
|
$
|
(10,930
|
)
|
|
Investing activities
|
|
|
(9,464
|
)
|
|
|
(10,323
|
)
|
|
|
(40,240
|
)
|
|
|
(23,270
|
)
|
|
Financing activities
|
|
|
128,277
|
|
|
|
27,462
|
|
|
|
70,834
|
|
|
|
19,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
$
|
116,269
|
|
|
$
|
30,440
|
|
|
$
|
67,063
|
|
|
$
|
(14,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities
Net Loss.
We had a net loss of $4.1 million during the three months ended December 31, 2011, as compared
to a net loss of $5.9 million during the three months ended December 31, 2010. The cash flows provided by operating activities during these periods resulted from the following:
Non-Cash Interest Expense.
Total non-cash interest expense recognized during the three months ended
December 31, 2011 was $1.9 million, compared to $1.8 million during the three months ended December 31, 2010. The non-cash interest expense recognized was due to the amortization of bond issue costs of the Notes and amortization of debt
issuance costs on borrowings under various term loan agreements.
Loss on Debt Extinguishment.
In
June 2011, RNLLC entered into a five-year $150.0 million collateralized term loan facility pursuant to a credit agreement, or the 2011 Credit Agreement. On November 9, 2011, a portion of the proceeds from the Offering were used to repay in full
the term loans outstanding under the 2011 Credit Agreement. As a result, for the three months ended December 31, 2011 a loss on debt extinguishment was recorded for $10.3 million. During the three months ended December 31, 2010, RNLLC
entered into an amendment of the 2010 Credit Agreement; this transaction was accounted for as an extinguishment of debt. As a result, a loss on debt extinguishment was recorded for $4.6 million.
Payment of Call Premium Fee.
During the three months ended December 31, 2011, in connection with the
Offering, proceeds of $2.9 million were used to pay the call premium fee related to the early repayment of the term loans outstanding under the 2011 Credit Agreement.
Accounts Receivable.
During the three months ended December 31, 2011, accounts receivable increased by
$2.8 million, compared to an increase of $7.0 million during the three months ended December 31, 2010. The increase during the three months ended December 31, 2011 was primarily due to higher sales volumes during the period as compared to
the previous period, partially due to normal seasonality of the business and partially due to the turnaround of the East Dubuque Facility during the second half of September 2011. The increase during the three months ended December 31, 2010 was
primarily due to normal seasonality of the business and a large increase in UAN sales prices beginning in October 2010.
Inventories.
Inventories decreased during the three months ended December 31, 2011 by $11.2 million as compared to a decrease during the three months ended December 31, 2010 of $1.5
million. The decrease in inventories for both periods is a result of a high volume of product sales during the three months ended December 31 of each year due to the normal seasonality of our business. The decrease in inventories was
significantly higher during the three months ended December 31, 2011 due to unusually low inventory levels leading into the three months ended December 31, 2010, caused by unusually high sales volume during the three months ended
September 30, 2010.
Deposits on Gas Contracts.
Deposits on natural gas under forward
purchase contracts increased by $1.4 million during the three months ended December 31, 2011, compared to a decrease of $0.3 million during the three months ended December 31, 2010. As a result of the turnaround that took place in
September and October of 2011, for October 2011, RNLLC only ordered about one-third of the amount of natural gas it normally uses in a month, resulting in a lower balance of deposits at September 30, 2011.
56
Deferred Revenue.
We record deferred revenue from product
prepayment contracts to the extent RNLLC receives cash payments for those contracts. Deferred revenue decreased $13.8 million during the three months ended December 31, 2011 compared to an increase of $17.0 million during the three months ended
December 31, 2010. The decrease during the three months ended December 31, 2011 is due to high volume of prepaid shipments resulting from the normal seasonality of our business, and due to the fact that fewer new contracts were signed
during the period as compared to the three months ended September 30, 2011. In comparison, the balance increased during the three months ended December 31, 2010 due to signing a significant number of new contracts during the period,
partially offset by the fulfillment of product prepayment contracts during the three months ended September 30, 2010.
Accrued Liabilities.
Accrued liabilities decreased $4.7 million during the three months ended December 31, 2011, compared to a decrease of $2.3 million during the three months ended
December 31, 2010. The decrease during the three months ended December 31, 2011 was primarily due to a large amount of accruals at September 30, 2011 related to turnaround activities and the completion of the Rentech-ClearFuels
Gasifier.
Cash Flows From Investing Activities
Purchase of Property, Plant, Equipment and Construction in Progress.
The increase in net additions of $2.0
million for the three months ended December 31, 2011 compared to the three months ended December 31, 2010 was primarily due to capital projects completed during the turnaround at the East Dubuque Facility.
Cash Flows From Financing Activities
Initial Public Offering.
On November 9, 2011, RNP raised gross proceeds of $300.0 million pursuant to the Offering. After deducting commissions and transaction expenses of $24.0 million, its
net proceeds from the Offering were $276.0 million.
Term Loans.
On November 9, 2011,
$150.8 million of the net proceeds of the Offering were used to repay in full the $146.3 million in aggregate principal amount of term loans outstanding under the 2011 Credit Agreement and to pay related fees and expenses. During the three months
ended December 30, 2010, concurrently with entering into an amendment to the 2010 Credit Agreement, RNLLC entered into a second incremental loan assumption agreement to borrow an additional $52.0 million, with an original issue discount of $1.0
million.
On November 10, 2011, RNP and RNLLC entered into a credit agreement, or the 2011 Revolving
Credit Agreement, providing for a $25.0 million senior secured revolving credit facility with a two year maturity, or the 2011 Revolving Credit Facility, and paid associated financing costs of approximately $0.9 million. The 2011 Revolving Credit
Facility was available to fund RNLLC’s seasonal working capital needs, letters of credit and for general partnership purposes. There were never any borrowings made under the 2011 Revolving Credit Facility. The 2011 Revolving Credit Facility was
replaced by the 2012 Revolving Credit Facility under the 2012 Credit Agreement.
On December 28, 2011,
Rentech entered into a credit agreement, or the Bridge Loan Agreement, as a lender, with RNP as guarantor and RNLLC as the borrower. The Bridge Loan Agreement consisted of a commitment by Rentech to lend up to $40.0 million to RNLLC until
May 31, 2012. On February 28, 2012, RNLLC terminated the Bridge Loan Agreement, entered into the 2012 Credit Agreement and paid associated financing costs of approximately $2.6 million. The 2012 Credit Agreement provides for the 2012
Revolving Credit Facility, which includes a letter of credit sublimit of up to $10.0 million for issuance of letters of credit, and a $100.0 million CapEx Facility. The 2012 Revolving Credit Facility will be used for working capital purposes and the
CapEx Facility will be used for capital expenditures, primarily for the ammonia capacity expansion project.
Payments on Debt and Notes Payable.
During the three months ended December 31, 2010, in addition to $2.5
million of scheduled principal payments under the 2010 Credit Agreement, RNLLC prepaid $20.0 million of outstanding principal in connection with the amendment of the 2010 Credit Agreement, using cash on hand that it had reserved for such purpose.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2011, our current assets totaled $265.7 million, including cash and cash equivalents of $237.5 million, of which $44.8 million was held at RNP, and accounts receivable of $7.4
million. At December 31, 2011, our current liabilities were $51.7 million, and we had long-term liabilities of $53.5 million, comprised primarily of the Notes. Our income from continuing operations relating to our nitrogen products
manufacturing segment for the three months ended December 31, 2011 and 2010 and the fiscal years ended September 30, 2011 and 2010 was $10.5 million, $4.3 million, $24.9 million and $5.0 million, respectively. Our loss from continuing
operations relating to our alternative energy segment for the three months ended December 31, 2011 and 2010 and the fiscal years ended September 30, 2011 and 2010 was approximately $14.6 million, $10.2 million, $90.3 million (including
loss on impairments of $58.7 million) and $47.3 million, respectively. Our consolidated loss from continuing operations for the three months ended December 31, 2011 and 2010 and the fiscal years ended September 30, 2011 and 2010 was $4.1
million, $5.9 million, $65.4 million and $42.3 million, respectively.
57
Nitrogen Products Manufacturing
During the next 12 months, based on current market conditions, we expect RNP’s principal liquidity needs, other than
those associated with the ammonia capacity expansion project, to be met from cash on hand at RNP, cash forecasted to be generated by RNLLC’s operations and borrowings under the 2012 Credit Agreement. These liquidity needs include costs to
operate and maintain the East Dubuque Facility, working capital, debt service requirements coming due within the next year, capital expenditures for ordinary course improvements and capital expenditures for the urea expansion and DEF build-out.
Ordinary course capital expenditures for the year ending December 31, 2012 are expected to be approximately $4.0 million. RNP currently estimates that it will incur approximately $55.6 million in expansion capital expenditures for the year
ending December 31, 2012, comprised of expenditures related to its urea expansion project and DEF build-out and its ammonia capacity expansion project. RNP expects that its urea expansion project and DEF build-out could be completed by the end
of 2012. FEED for its ammonia capacity expansion project was completed in November 2011. RNP expects its urea expansion project and DEF build-out collectively to cost approximately $6.0 million to complete, and it intends to use a portion of the net
proceeds from the Offering, currently held as cash, to fund this project. RNP expects that the ammonia capacity expansion project could cost approximately $100.0 million to complete, with approximately half of that amount expected to be spent during
the year ending December 31, 2012. With the exception of FEED, which was funded using a portion of the net proceeds from the Offering, RNP currently intends to finance substantially all of the cost of this project using borrowings under the
2012 Credit Agreement.
The $100.0 million CapEx Facility will be available for borrowing by RNLLC until
February 27, 2014, and will be primarily used for the ammonia capacity expansion project. On the date that is the earlier of (i) April 1, 2014 and (ii) the first day of the first quarter after the date on which the principal
amount outstanding under the CapEx Facility reaches $100.0 million, the CapEx Facility will begin to amortize at a per annum rate that is equal to (x) 10% per year during the first two years that the CapEx Facility is amortized, and
(y) 25% per year thereafter, and which, in the case of clauses (x) and (y), shall be payable in equal quarterly installments on the first day of each quarter. The remaining amount outstanding under the CapEx Facility will be due at
maturity on February 27, 2017. As of the date of this report, there is approximately $8.5 million outstanding under the CapEx Facility.
The nitrogen 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 RNLLC. RNLLC’s practice of selling substantial amounts of fertilizer products through prepayment contracts also
contributes to its significant working capital needs. Working capital available at RNLLC is also affected by changes in commodity prices for natural gas and nitrogen fertilizers, which are the East Dubuque Facility’s principal feedstock and
products.
The $35.0 million 2012 Revolving Credit Facility will be used for working capital purposes. Any
amounts outstanding under the 2012 Revolving Credit Facility are required to be reduced to zero (other than outstanding letters of credit) for three periods of ten consecutive business days during each year, with each period not less than 60 days
apart and with one period in each fiscal year commencing in April of such fiscal year. There currently are no outstanding borrowings under the 2012 Revolving Credit Facility.
The borrowings under the 2012 Credit Agreement bear interest at a rate equal to an applicable margin, plus at
RNLLC’s option, either (a) in the case of base rate borrowings, a rate equal to the highest of (1) the prime rate, (2) the federal funds rate plus 0.5% and (3) the LIBOR for an interest period of three months plus 1.00% or
(b) in the case of LIBOR borrowings, the offered rate per annum for deposits of dollars for the applicable interest period. The applicable margin for borrowings under the 2012 Credit Agreement is 2.75% with respect to base rate borrowings and
3.75% with respect to LIBOR borrowings. Additionally, RNLLC is required to pay a fee to the lenders under the 2012 Credit Agreement on the unused amount under the 2012 Revolving Credit Facility at a rate per annum of 0.50% and under the CapEx
Facility at a rate per annum of 0.75%. RNLLC is also required to pay customary letter of credit fees on issued letters of credit. In the event RNLLC repays and permanently reduces the commitment for any borrowings outstanding under the 2012 Credit
Agreement prior to its third anniversary, it is required to pay a prepayment premium of 1.0% of the principal amount repaid, subject to certain exceptions.
58
The 2012 Credit Agreement expires on February 27, 2017 and requires
RNLLC to meet the following financial covenants (and failure to meet such covenants could result in acceleration of the outstanding loans):
|
|
•
|
|
Maximum Total Leverage Ratio (defined as total debt of RNP and its subsidiaries on a consolidated basis, divided by Adjusted EBITDA (as defined in
the 2012 Credit Agreement)) of not greater than 2.5 to 1.0 as of the end of each fiscal quarter for the 12 month period then ending.
|
|
|
•
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Maintenance of a Minimum Fixed Charge Coverage Ratio (defined as (a) Adjusted EBITDA (as defined in the 2012 Credit Agreement) minus unfinanced
capital expenditures of RNP and its subsidiaries on a consolidated basis, divided by (b) the sum of (i) interest expense paid or accrued, (ii) scheduled principal payments and (iii) taxes paid or payable of RNP and its
subsidiaries in each case) of not less than 1.0 to 1.0 as of the end of each fiscal quarter for the 12 month period then ending.
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We believe we have sufficient liquidity for our expected funding requirements in our nitrogen products manufacturing segment through the next 12 months.
Alternative Energy
During the three months ended December 31, 2011, we funded our operations in our alternative energy segment
primarily through cash on hand. Upon the closing of the Offering, we received a distribution of approximately $137.0 million from RNP, and we expect quarterly distributions from RNP to be a major source of liquidity for our alternative energy
segment. RNP’s first distribution will take place following the first calendar quarter of 2012 and will include cash available for distribution with respect to the period beginning on the date of the closing of the Offering and ending on
March 31, 2012. RNP’s policy is to distribute all of the cash available for distribution which it generates each quarter. Cash available for distribution for each quarter will be determined by the board of directors of the General Partner
following the end of each quarter. RNP expects that cash available for distribution for each quarter will generally equal the cash flow it generates during the quarter, less cash needed for maintenance capital expenditures, debt service (if any) and
other contractual obligations, and reserves for future operating or capital needs that the board of directors of the General Partner deems necessary or appropriate. RNP does not intend to maintain excess distribution coverage for the purpose of
maintaining stability or growth in its quarterly distribution or otherwise to reserve cash for distributions, nor does it intend to incur debt to pay quarterly distributions. RNP has no legal obligation to pay distributions. Distributions are not
required by RNP’s partnership agreement and RNP’s distribution policy is subject to change at any time at the discretion of the board of directors of the General Partner. Any distributions made by RNP to its unitholders will be done on a
pro rata basis. We will receive 60.8% of RNP’s quarterly distributions based on our current ownership interest in RNP. However, our ownership interest may be reduced over time if we elect to sell any of our common units or if additional common
units are issued by RNP.
During the next 12 months, we expect the liquidity needs of our alternative energy
segment to be met from cash on hand. For the alternative energy segment, our short-term expected requirements include (i) operating costs of the PDU and the Rentech-ClearFuels Gasifier; (ii) continued research and development of our
technologies; (iii) debt service requirements coming due within the next year; (iv) continued development costs of projects; (v) costs for the repurchase of shares of our common stock under the share repurchase program discussed below
and (vi) general operating and working capital uses. We may also have short-term requirements for development and acquisition activities that are not currently expected.
In February 2012, our board of directors authorized the repurchase of up to $25.0 million of outstanding shares of our
common stock. The share repurchase program is expected to be effective on or about March 20, 2012 and will be funded by our available cash. We may buy shares in the open market or through privately negotiated transactions from time to time over
the next 12 months as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions, stock
price and other factors and compliance with applicable legal requirements. The share repurchase program does not obligate us to acquire any particular amount of common stock, and can be implemented, suspended or discontinued at any time, without
prior notice, at our sole discretion.
Our principal needs for liquidity beyond the next 12 months in our
alternative energy segment are to fund project development, detailed engineering, procurement, construction and operation of commercial projects, ongoing research and development expenses, including operation of the PDU and Rentech-ClearFuels
Gasifier, corporate administrative expenses, acquisitions and investments with partners. The continued development of existing and future projects beyond the next 12 months could require substantial amounts of additional new capital. As we have
previously disclosed, we have adopted a revised strategy for the commercialization of our alternative energy technologies. The new strategy includes reduced spending on research and development and pursuit of projects that are smaller and require
less capital to be invested by us than those recently under our development. Our strategy for the first deployment of a particular technology at scale is to develop or participate in projects for which our investment would be well within our
expected liquidity.
59
The full $57.5 million principal amount of the Notes is due in April 2013.
During the remainder of the term of the Notes, the required annual cash interest payments are $2.3 million. At any time, we may redeem the Notes, in whole or in part, at a redemption price payable in cash equal to 100% of the principal amount of the
Notes to be redeemed, plus any accrued and unpaid interest to, but not including, the redemption date. On or before the maturity date, we expect to either exchange the Notes for new debt or equity securities, or pay off the Notes through some
combination of cash holdings, proceeds from debt or equity incurred or issued by us and asset sales. Such exchanges and capital raising transactions, if any, will depend on prevailing market conditions and other factors. There is no assurance
that such exchanges can be completed or that capital will be available to us in amounts sufficient to pay the principal amount of the Notes.
Depending on our development and acquisition activities and on conditions in the capital markets, we may seek external funding for our alternative energy segment during the next 12 months, including
financing from the issuance of equity or equity-linked securities, project debt, project equity and the sale of common units of RNP, if needed. However, there is no assurance that these sources of capital would be available to us. As of
December 31, 2011, approximately $94.3 million aggregate offering price of securities was available to be sold under our shelf registration statement. Capital markets have experienced periods of extreme uncertainty in the recent past, and
access to those markets has been difficult. If we need to access capital markets, we cannot assure you that we will be able to do so on acceptable terms, or at all. 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.
We believe we have sufficient liquidity for our expected funding requirements in our alternative energy segment through
the next 12 months.
CONTRACTUAL OBLIGATIONS
The following table lists our significant contractual obligations and their future payments at December 31, 2011:
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September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
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Contractual Obligations
|
|
Total
|
|
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Less than
1
Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than
5
Years
|
|
|
|
|
(in thousands)
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Long-term convertible debt (2)
|
|
|
57,500
|
|
|
|
—
|
|
|
|
57,500
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest payments on debt
|
|
|
3,450
|
|
|
|
2,300
|
|
|
|
1,150
|
|
|
|
—
|
|
|
|
—
|
|
|
Natural gas (3)
|
|
|
12,337
|
|
|
|
12,337
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|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Purchase obligations (4)
|
|
|
14,759
|
|
|
|
14,759
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Asbestos removal (5)
|
|
|
311
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
311
|
|
|
Operating leases
|
|
|
3,654
|
|
|
|
1,233
|
|
|
|
2,051
|
|
|
|
370
|
|
|
|
—
|
|
|
Gas and electric fixed charges (6)
|
|
|
2,409
|
|
|
|
913
|
|
|
|
1,090
|
|
|
|
406
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
94,420
|
|
|
$
|
31,542
|
|
|
$
|
61,791
|
|
|
$
|
776
|
|
|
$
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On November 10, 2011, RNLLC entered into the 2011 Revolving Credit Agreement and paid associated financing costs of approximately $0.9 million.
At December 31, 2011, there were no outstanding borrowings under the 2011 Revolving Credit Facility. On February 28, 2012, RNLLC entered into the 2012 Credit Agreement and paid associated financing costs of approximately $2.6 million. The
2012 Revolving Credit Facility under the 2012 Credit Agreement replaced and upsized the 2011 Revolving Credit Facility. Borrowings under the 2012 Credit Agreement bear interest at a variable rate based upon either LIBOR or the lender’s
alternative base rate, plus an applicable margin in each case. As of the date of this report, there is approximately $8.5 million outstanding under the 2012 Credit Agreement.
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(2)
|
The Notes bear interest at the rate of 4.00% per year on the principal amount of the Notes, payable in cash semi-annually in arrears on
April 15 and October 15 of each year. Holders may convert their Notes into shares of our common stock (or cash or a combination of cash and shares of common stock, if we so elect) at an initial conversion rate of 249.2522 shares of our
common stock per $1,000 principal amount of Notes (which represents a conversion price of approximately $4.0120 per share of common stock), under the circumstances described in the Notes.
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60
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(3)
|
As of December 31, 2011, the natural gas purchase contracts included delivery dates through May 31, 2012. Subsequent to December 31, 2011, we
entered into additional fixed quantity natural gas supply contracts at fixed and indexed prices for various delivery dates through September 30, 2012. The total MMBtus associated with these additional contracts are approximately 2.7 million and the
total amount of the purchase commitments are approximately $7.6 million, resulting in a weighted average rate per MMBtu of approximately $2.80. We are required to make additional prepayments under these purchase contracts in the event that market
prices fall below the purchase prices in the contracts.
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(4)
|
The amount presented represents certain open purchase orders with our vendors. Not all of our open purchase orders are purchase obligations, since
some of the orders are not enforceable or legally binding on us until the goods are received or the services are provided.
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(5)
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We have a legal obligation to handle and dispose of asbestos at the East Dubuque Facility and Natchez site 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 our control. As a result, we have developed an estimate for a
conditional obligation for this disposal. In addition, we, through our normal repair and maintenance program, may encounter situations in which we are required to remove asbestos in order to complete other work. We applied the expected present value
technique to calculate the fair value of the asset retirement obligation for each property and, accordingly, the asset and related obligation for each property have been recorded. Since we own both properties and currently have no plans to dispose
of the properties, the obligation is considered long-term and, therefore, considered to be incurred more than five years after December 31, 2011.
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(6)
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As part of the gas transportation and electric supply contracts, we must pay monthly fixed charges over the term of the contracts.
|
On June 23, 2009, we entered into a merger agreement pursuant to which we acquired
SilvaGas. On December 28, 2011, we agreed to issue 2.0 million shares of our common stock, by March 31, 2012, to the former stockholders of SilvaGas in satisfaction of all potential earn-out payments in connection with the
SilvaGas acquisition.
OFF-BALANCE SHEET ARRANGEMENTS
We currently have no material off-balance sheet arrangements.
Recent Accounting Pronouncements From Financial Statement Disclosures
For a discussion of the recent accounting pronouncements relevant to our operations, please refer to “Recent Accounting Pronouncements” provided under Note 2 to the consolidated financial
statements included in “Part II, Item 8. Financial Statements and Supplementary Data.”
61
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ITEM 7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Interest Rate Risk
. Between November 10, 2011 and December 31, 2011, there were no borrowings made under
the 2011 Revolving Credit Facility. We are exposed to interest rate risks related to the 2012 Credit Agreement. The borrowings under the 2012 Credit Agreement bear interest at a rate equal to an applicable margin, plus at RNLLC’s option, either
(a) in the case of base rate borrowings, a rate equal to the highest of (1) the prime rate, (2) the federal funds rate plus 0.5% and (3) the LIBOR for an interest period of three months plus 1.00% or (b) in the case of LIBOR
borrowings, the offered rate per annum for deposits of dollars for the applicable interest period. The applicable margin for borrowings under the 2012 Credit Agreement is 2.75% with respect to base rate borrowings and 3.75% with respect to LIBOR
borrowings. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. As of December 31, 2011, we had not yet entered into the 2012 Credit Agreement. However, based upon a
hypothetical outstanding balance of $10.0 million under the 2012 Credit Agreement at December 31, 2011, and assuming interest rates are above the applicable minimum, an increase or decrease by 100 basis points of interest would result in an
increase or decrease in annual interest expense of approximately $0.1 million.
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 Facility. Market prices of nitrogen-based products are affected by changes in natural gas prices as well as by supply and demand and other factors. Currently, RNLLC purchases natural gas for use in the East Dubuque Facility on the spot
market, and through short-term, fixed supply, fixed price and index price purchase contracts. Natural gas prices have fluctuated during the last several years, increasing in 2008 and subsequently declining to the current lower levels. A hypothetical
increase of $0.10 per MMBtu of natural gas would increase the cost to produce one ton of ammonia by approximately $3.50.
In the normal course of business, RNLLC currently produces nitrogen 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. We believe that market prices of nitrogen products are affected by changes in grain prices and demand, natural gas prices and other factors.
RNLLC enters into product prepayment contracts committing its customers to purchase its nitrogen fertilizer
products at a later date. By using fixed-price forward contracts, RNLLC purchases approximately enough natural gas to manufacture the products that have been sold under product prepayment contracts for later delivery. We believe that entering into
such fixed-price forward and pre-sale contracts effectively allows RNLLC to fix most of the gross margin on pre-sold product and mitigate risk of increasing market prices of natural gas or decreasing market prices of nitrogen products. However, this
practice also subjects us to the risk of decreasing natural gas prices and increasing nitrogen fertilizer commodity prices after RNLLC has entered into the relevant fix-priced forward and product prepayment contracts. In addition, RNLLC occasionally
makes forward purchases of natural gas that are not directly linked to specific product prepayment contracts. To the extent RNLLC makes such purchases, we also are exposed to fluctuations in natural gas prices.
Alternative Energy.
The future success of our alternative energy business depends to a great extent on the levels
and volatility of certain commodities such as petroleum-based fuels and electricity, as well as the cost of potential feedstocks such as biomass, natural gas or other feedstocks. It may also depend on the level and volatility of prices or taxes
placed on emissions of carbon or other pollutants. The cost of feedstocks for our projects could also materially affect prospective profitability of those projects. We expect that our projects will be designed to produce fuels and power that may
compete with conventional fuels and power as well as with fuels and power produced from non-traditional sources. The prices of our products may be influenced by the prices of those traditional or alternative fuels and power. Fluctuations in the
price of construction commodities such as concrete, steel and other materials could have a material effect on the construction cost, and therefore of the projected returns to investors, on such projects. Significant fluctuations in such prices may
materially affect the business prospects of our alternative energy business.
62
|
ITEM 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
RENTECH, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
63
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Rentech Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders’ equity and of cash flows present fairly, in all material respects,
the financial position of Rentech Inc. and its subsidiaries at December 31, 2011, September 30, 2011 and September 30, 2010, and the results of their operations and their cash flows for the three months ended December 31, 2011
and each of the three years in the period ended September 30, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2011 based on criteria established in
Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
March 15, 2012
64
RENTECH, INC.
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
237,478
|
|
|
$
|
121,209
|
|
|
$
|
54,146
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $100
|
|
|
7,428
|
|
|
|
4,617
|
|
|
|
9,586
|
|
|
Inventories
|
|
|
4,991
|
|
|
|
16,512
|
|
|
|
6,966
|
|
|
Deposits on gas contracts
|
|
|
2,807
|
|
|
|
1,399
|
|
|
|
2,353
|
|
|
Prepaid expenses and other current assets
|
|
|
3,227
|
|
|
|
4,821
|
|
|
|
3,680
|
|
|
Debt issuance costs
|
|
|
468
|
|
|
|
2,316
|
|
|
|
1,548
|
|
|
Deferred income taxes
|
|
|
4,069
|
|
|
|
—
|
|
|
|
—
|
|
|
Other receivables, net
|
|
|
5,214
|
|
|
|
3,471
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
265,682
|
|
|
|
154,345
|
|
|
|
78,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
65,557
|
|
|
|
51,254
|
|
|
|
55,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
9,809
|
|
|
|
23,315
|
|
|
|
41,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
1,667
|
|
|
|
4,921
|
|
|
|
7,446
|
|
|
Patents, net
|
|
|
9,875
|
|
|
|
7,837
|
|
|
|
8,453
|
|
|
Goodwill
|
|
|
7,209
|
|
|
|
7,209
|
|
|
|
7,209
|
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
97
|
|
|
|
561
|
|
|
Debt issuance costs
|
|
|
729
|
|
|
|
5,696
|
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
19,480
|
|
|
|
25,760
|
|
|
|
25,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
360,528
|
|
|
$
|
254,674
|
|
|
$
|
200,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,071
|
|
|
$
|
9,297
|
|
|
$
|
6,425
|
|
|
Accrued payroll and benefits
|
|
|
4,375
|
|
|
|
5,530
|
|
|
|
5,786
|
|
|
Accrued liabilities
|
|
|
19,808
|
|
|
|
27,803
|
|
|
|
13,515
|
|
|
Capital lease obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
322
|
|
|
Deferred revenue
|
|
|
20,352
|
|
|
|
34,154
|
|
|
|
14,473
|
|
|
Accrued interest
|
|
|
2,119
|
|
|
|
2,684
|
|
|
|
2,725
|
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
97
|
|
|
|
561
|
|
|
Term loan
|
|
|
—
|
|
|
|
38,448
|
|
|
|
12,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
51,725
|
|
|
|
118,013
|
|
|
|
56,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan, net of current portion
|
|
|
—
|
|
|
|
107,802
|
|
|
|
48,040
|
|
|
Long-term convertible debt to stockholders
|
|
|
48,887
|
|
|
|
47,427
|
|
|
|
42,163
|
|
|
Advance for equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
7,892
|
|
|
Deferred income taxes
|
|
|
4,069
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
519
|
|
|
|
523
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
53,475
|
|
|
|
155,752
|
|
|
|
98,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
105,200
|
|
|
|
273,765
|
|
|
|
155,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Series D junior participating preferred stock — $10 par value; 45 shares authorized; no shares issued
and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Common stock — $.01 par value; 450,000 shares authorized; 225,231, 223,409 and 221,731 shares issued and
outstanding at December 31, 2011, September 30, 2011 and 2010, respectively
|
|
|
2,252
|
|
|
|
2,234
|
|
|
|
2,217
|
|
|
Additional paid-in capital
|
|
|
583,458
|
|
|
|
339,414
|
|
|
|
332,696
|
|
|
Accumulated deficit
|
|
|
(369,807
|
)
|
|
|
(361,276
|
)
|
|
|
(296,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Rentech stockholders’ equity
|
|
|
215,903
|
|
|
|
(19,628
|
)
|
|
|
37,920
|
|
|
Noncontrolling interests
|
|
|
39,425
|
|
|
|
537
|
|
|
|
7,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
255,328
|
|
|
|
(19,091
|
)
|
|
|
45,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
360,528
|
|
|
$
|
254,674
|
|
|
$
|
200,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
65
RENTECH, INC.
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
63,014
|
|
|
$
|
42,962
|
|
|
$
|
179,857
|
|
|
$
|
131,396
|
|
|
$
|
186,449
|
|
|
Service revenues
|
|
|
52
|
|
|
|
52
|
|
|
|
206
|
|
|
|
529
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
63,066
|
|
|
|
43,014
|
|
|
|
180,063
|
|
|
|
131,925
|
|
|
|
186,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
37,460
|
|
|
|
26,835
|
|
|
|
103,286
|
|
|
|
106,020
|
|
|
|
125,888
|
|
|
Service
|
|
|
50
|
|
|
|
51
|
|
|
|
200
|
|
|
|
692
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
37,510
|
|
|
|
26,886
|
|
|
|
103,486
|
|
|
|
106,712
|
|
|
|
125,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
25,556
|
|
|
|
16,128
|
|
|
|
76,577
|
|
|
|
25,213
|
|
|
|
60,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
10,498
|
|
|
|
7,687
|
|
|
|
28,004
|
|
|
|
28,410
|
|
|
|
24,061
|
|
|
Depreciation and amortization
|
|
|
566
|
|
|
|
573
|
|
|
|
2,225
|
|
|
|
1,947
|
|
|
|
1,478
|
|
|
Research and development
|
|
|
4,202
|
|
|
|
5,426
|
|
|
|
30,009
|
|
|
|
19,641
|
|
|
|
21,381
|
|
|
Loss on impairments
|
|
|
583
|
|
|
|
53
|
|
|
|
58,742
|
|
|
|
1,190
|
|
|
|
—
|
|
|
Advance for equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,892
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(Gain) loss on disposal of property, plant and equipment
|
|
|
(507
|
)
|
|
|
—
|
|
|
|
523
|
|
|
|
191
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,342
|
|
|
|
13,739
|
|
|
|
111,611
|
|
|
|
51,379
|
|
|
|
46,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
10,214
|
|
|
|
2,389
|
|
|
|
(35,034
|
)
|
|
|
(26,166
|
)
|
|
|
13,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
49
|
|
|
|
45
|
|
|
|
134
|
|
|
|
212
|
|
|
|
561
|
|
|
Interest expense
|
|
|
(4,098
|
)
|
|
|
(3,730
|
)
|
|
|
(16,666
|
)
|
|
|
(14,235
|
)
|
|
|
(14,099
|
)
|
|
Loss on debt extinguishment
|
|
|
(10,263
|
)
|
|
|
(4,593
|
)
|
|
|
(13,816
|
)
|
|
|
(2,268
|
)
|
|
|
—
|
|
|
Loss on investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,231
|
)
|
|
|
—
|
|
|
Gain on equity method investment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,909
|
|
|
|
—
|
|
|
Other income (expense), net
|
|
|
2
|
|
|
|
7
|
|
|
|
3
|
|
|
|
63
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
(14,310
|
)
|
|
|
(8,271
|
)
|
|
|
(30,345
|
)
|
|
|
(15,550
|
)
|
|
|
(13,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes and equity in net loss of investee company
|
|
|
(4,096
|
)
|
|
|
(5,882
|
)
|
|
|
(65,379
|
)
|
|
|
(41,716
|
)
|
|
|
52
|
|
|
Income tax expense
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
11
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before equity in net loss of investee company
|
|
|
(4,098
|
)
|
|
|
(5,884
|
)
|
|
|
(65,382
|
)
|
|
|
(41,727
|
)
|
|
|
(9
|
)
|
|
Equity in net loss of investee company
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
544
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(4,098
|
)
|
|
|
(5,884
|
)
|
|
|
(65,382
|
)
|
|
|
(42,271
|
)
|
|
|
(93
|
)
|
|
Income from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,098
|
)
|
|
|
(5,884
|
)
|
|
|
(65,382
|
)
|
|
|
(42,262
|
)
|
|
|
(21
|
)
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
(4,433
|
)
|
|
|
366
|
|
|
|
1,099
|
|
|
|
94
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Rentech
|
|
$
|
(8,531
|
)
|
|
$
|
(5,518
|
)
|
|
$
|
(64,283
|
)
|
|
$
|
(42,168
|
)
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share attributable to Rentech:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
0.00
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
0.00
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
224,414
|
|
|
|
221,980
|
|
|
|
222,664
|
|
|
|
216,069
|
|
|
|
174,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
66
R
ENTECH, INC.
Consolidated Statements of Stockholders’ Equity
(Amounts in thousands)
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Total Rentech
|
|
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Notes
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
Noncontrolling
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Deficit
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008
|
|
|
166,688
|
|
|
$
|
1,667
|
|
|
$
|
268,745
|
|
|
$
|
(606
|
)
|
|
$
|
(254,804
|
)
|
|
$
|
15,002
|
|
|
$
|
—
|
|
|
$
|
15,002
|
|
|
Payment of offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,583
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,583
|
)
|
|
|
—
|
|
|
|
(1,583
|
)
|
|
Issuance of common stock
|
|
|
45,606
|
|
|
|
456
|
|
|
|
49,190
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,646
|
|
|
|
—
|
|
|
|
49,646
|
|
|
Common stock issued for stock options exercised
|
|
|
95
|
|
|
|
1
|
|
|
|
132
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
|
|
—
|
|
|
|
133
|
|
|
Rescission of previously issued common stock and related notes receivable
|
|
|
(400
|
)
|
|
|
(4
|
)
|
|
|
(604
|
)
|
|
|
606
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(2
|
)
|
|
Warrants granted
|
|
|
—
|
|
|
|
—
|
|
|
|
2,255
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,255
|
|
|
|
—
|
|
|
|
2,255
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
2,955
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,955
|
|
|
|
—
|
|
|
|
2,955
|
|
|
Restricted stock units
|
|
|
707
|
|
|
|
7
|
|
|
|
(156
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(149
|
)
|
|
|
—
|
|
|
|
(149
|
)
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
212,696
|
|
|
$
|
2,127
|
|
|
$
|
320,934
|
|
|
$
|
—
|
|
|
$
|
(254,825
|
)
|
|
$
|
68,236
|
|
|
$
|
—
|
|
|
$
|
68,236
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(376
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(376
|
)
|
|
|
—
|
|
|
|
(376
|
)
|
|
Issuance of common stock
|
|
|
6,689
|
|
|
|
67
|
|
|
|
6,169
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,236
|
|
|
|
—
|
|
|
|
6,236
|
|
|
Common stock issued for stock options exercised
|
|
|
15
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
16
|
|
|
Common stock issued for warrants exercised
|
|
|
2,080
|
|
|
|
20
|
|
|
|
1,108
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,128
|
|
|
|
—
|
|
|
|
1,128
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
5,095
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,095
|
|
|
|
—
|
|
|
|
5,095
|
|
|
Restricted stock units
|
|
|
251
|
|
|
|
3
|
|
|
|
(250
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(247
|
)
|
|
|
—
|
|
|
|
(247
|
)
|
|
Noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,527
|
|
|
|
7,527
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(42,168
|
)
|
|
|
(42,168
|
)
|
|
|
(94
|
)
|
|
|
(42,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
|
221,731
|
|
|
$
|
2,217
|
|
|
$
|
332,696
|
|
|
$
|
—
|
|
|
$
|
(296,993
|
)
|
|
$
|
37,920
|
|
|
$
|
7,433
|
|
|
$
|
45,353
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of additional interest in subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
5,797
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,797
|
|
|
|
(5,797
|
)
|
|
|
—
|
|
|
Payment of offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(58
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(58
|
)
|
|
|
—
|
|
|
|
(58
|
)
|
|
Issuance of common stock
|
|
|
465
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
1,729
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,729
|
|
|
|
—
|
|
|
|
1,729
|
|
|
Restricted stock units
|
|
|
1,213
|
|
|
|
12
|
|
|
|
(720
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(708
|
)
|
|
|
—
|
|
|
|
(708
|
)
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(64,283
|
)
|
|
|
(64,283
|
)
|
|
|
(1,099
|
)
|
|
|
(65,382
|
)
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2011
|
|
|
223,409
|
|
|
$
|
2,234
|
|
|
$
|
339,414
|
|
|
$
|
—
|
|
|
$
|
(361,276
|
)
|
|
$
|
(19,628
|
)
|
|
$
|
537
|
|
|
$
|
(19,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for investment in Rentech Nitrogen Partners, L.P.
|
|
|
—
|
|
|
|
—
|
|
|
|
240,662
|
|
|
|
—
|
|
|
|
—
|
|
|
|
240,662
|
|
|
|
34,430
|
|
|
|
275,092
|
|
|
Stock issued for acquisition
|
|
|
|
|
|
|
|
|
|
|
2,680
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,680
|
|
|
|
—
|
|
|
|
2,680
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
1,112
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,112
|
|
|
|
25
|
|
|
|
1,137
|
|
|
Common stock issued for stock options exercised
|
|
|
31
|
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
|
|
30
|
|
|
Common stock issued for warrants exercised
|
|
|
1,052
|
|
|
|
11
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Restricted stock units
|
|
|
739
|
|
|
|
7
|
|
|
|
(432
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(425
|
)
|
|
|
—
|
|
|
|
(425
|
)
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,531
|
)
|
|
|
(8,531
|
)
|
|
|
4,433
|
|
|
|
(4,098
|
)
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
225,231
|
|
|
$
|
2,252
|
|
|
$
|
583,458
|
|
|
$
|
—
|
|
|
$
|
(369,807
|
)
|
|
$
|
215,903
|
|
|
$
|
39,425
|
|
|
$
|
255,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
67
RENTECH, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
December 31,
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,098
|
)
|
|
$
|
(5,884
|
)
|
|
$
|
(65,382
|
)
|
|
$
|
(42,262
|
)
|
|
$
|
(21
|
)
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,776
|
|
|
|
3,062
|
|
|
|
11,836
|
|
|
|
12,051
|
|
|
|
9,758
|
|
|
Loss on impairments
|
|
|
583
|
|
|
|
53
|
|
|
|
58,742
|
|
|
|
1,190
|
|
|
|
—
|
|
|
Advance for equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,892
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Utilization of spare parts
|
|
|
309
|
|
|
|
380
|
|
|
|
1,698
|
|
|
|
1,521
|
|
|
|
1,677
|
|
|
Bad debt expense
|
|
|
—
|
|
|
|
—
|
|
|
|
257
|
|
|
|
105
|
|
|
|
5
|
|
|
Non-cash interest expense
|
|
|
1,880
|
|
|
|
1,793
|
|
|
|
7,146
|
|
|
|
7,605
|
|
|
|
6,944
|
|
|
Loss on debt extinguishment
|
|
|
10,263
|
|
|
|
4,593
|
|
|
|
13,816
|
|
|
|
2,268
|
|
|
|
—
|
|
|
Gain on equity method investment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,909
|
)
|
|
|
—
|
|
|
Loss on investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,231
|
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
1,137
|
|
|
|
1,106
|
|
|
|
1,729
|
|
|
|
5,095
|
|
|
|
2,955
|
|
|
Payment of call premium fee
|
|
|
(2,933
|
)
|
|
|
—
|
|
|
|
(8,261
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
(498
|
)
|
|
|
9
|
|
|
|
381
|
|
|
|
757
|
|
|
|
(351
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,811
|
)
|
|
|
(7,026
|
)
|
|
|
4,969
|
|
|
|
(928
|
)
|
|
|
2,951
|
|
|
Property insurance claim receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,795
|
|
|
|
(1,795
|
)
|
|
Other receivables and receivable from related party
|
|
|
(1,163
|
)
|
|
|
37
|
|
|
|
(910
|
)
|
|
|
(189
|
)
|
|
|
29
|
|
|
Receivables from insurance related to litigation
|
|
|
148
|
|
|
|
—
|
|
|
|
(2,023
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Litigation settlement payable
|
|
|
—
|
|
|
|
—
|
|
|
|
1,954
|
|
|
|
—
|
|
|
|
—
|
|
|
Inventories
|
|
|
11,164
|
|
|
|
1,451
|
|
|
|
(9,218
|
)
|
|
|
4,684
|
|
|
|
5,278
|
|
|
Deposits on gas contracts
|
|
|
(1,409
|
)
|
|
|
303
|
|
|
|
955
|
|
|
|
(1,629
|
)
|
|
|
17,644
|
|
|
Prepaid expenses and other current assets
|
|
|
586
|
|
|
|
257
|
|
|
|
167
|
|
|
|
1,055
|
|
|
|
2,186
|
|
|
Accounts payable
|
|
|
(412
|
)
|
|
|
(1,035
|
)
|
|
|
(544
|
)
|
|
|
1,167
|
|
|
|
(2,286
|
)
|
|
Deferred revenue
|
|
|
(13,802
|
)
|
|
|
17,028
|
|
|
|
19,681
|
|
|
|
(3,730
|
)
|
|
|
(44,605
|
)
|
|
Accrued interest
|
|
|
(566
|
)
|
|
|
(513
|
)
|
|
|
(40
|
)
|
|
|
(205
|
)
|
|
|
1,096
|
|
|
Accrued liabilities, accrued payroll and other
|
|
|
(4,698
|
)
|
|
|
(2,313
|
)
|
|
|
7,408
|
|
|
|
(602
|
)
|
|
|
1,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(2,544
|
)
|
|
|
13,301
|
|
|
|
36,469
|
|
|
|
(10,930
|
)
|
|
|
3,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant, equipment and construction in progress
|
|
|
(12,423
|
)
|
|
|
(10,450
|
)
|
|
|
(39,402
|
)
|
|
|
(26,109
|
)
|
|
|
(17,353
|
)
|
|
Payments for acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(949
|
)
|
|
Proceeds from sales of available for sale securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,769
|
|
|
|
—
|
|
|
Other items
|
|
|
2,959
|
|
|
|
127
|
|
|
|
(838
|
)
|
|
|
(1,930
|
)
|
|
|
(644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(9,464
|
)
|
|
|
(10,323
|
)
|
|
|
(40,240
|
)
|
|
|
(23,270
|
)
|
|
|
(18,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering, net of costs
|
|
|
276,007
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Proceeds from term loan, net of original issue discount
|
|
|
—
|
|
|
|
50,960
|
|
|
|
200,960
|
|
|
|
64,425
|
|
|
|
—
|
|
|
Retirement of term loan, including costs
|
|
|
(146,250
|
)
|
|
|
—
|
|
|
|
(85,383
|
)
|
|
|
(38,040
|
)
|
|
|
—
|
|
|
Proceeds from issuance of common stock
|
|
|
30
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,236
|
|
|
|
41,378
|
|
|
Payments of offering costs
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(58
|
)
|
|
|
(376
|
)
|
|
|
(1,583
|
)
|
|
Proceeds from options and warrants exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,144
|
|
|
|
133
|
|
|
Payment of debt issuance costs
|
|
|
(904
|
)
|
|
|
(290
|
)
|
|
|
(8,747
|
)
|
|
|
(4,061
|
)
|
|
|
—
|
|
|
Payments on notes payable for financed insurance premiums
|
|
|
(606
|
)
|
|
|
(553
|
)
|
|
|
(1,958
|
)
|
|
|
(1,785
|
)
|
|
|
(2,455
|
)
|
|
Payments on line of credit on available for sale securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,532
|
)
|
|
|
(226
|
)
|
|
Payments on debt and notes payable
|
|
|
—
|
|
|
|
(22,522
|
)
|
|
|
(33,658
|
)
|
|
|
(5,140
|
)
|
|
|
(15,909
|
)
|
|
Conversion of bridge loan for the variable interest entity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,500
|
|
|
|
—
|
|
|
Payments on capital lease
|
|
|
—
|
|
|
|
(131
|
)
|
|
|
(322
|
)
|
|
|
(142
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
128,277
|
|
|
|
27,462
|
|
|
|
70,834
|
|
|
|
19,229
|
|
|
|
21,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
68
RENTECH, INC.
Consolidated Statements of Cash Flows — Continued
(Amounts in
thousands)
Consolidated Statements of Cash Flows
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
116,269
|
|
|
|
30,440
|
|
|
|
67,063
|
|
|
|
(14,971
|
)
|
|
|
5,395
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
121,209
|
|
|
|
54,146
|
|
|
|
54,146
|
|
|
|
69,117
|
|
|
|
63,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
237,478
|
|
|
$
|
84,586
|
|
|
$
|
121,209
|
|
|
$
|
54,146
|
|
|
$
|
69,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
For the three months ended December 31, 2011 and 2010, and the fiscal years ended
September 30, 2011, 2010 and 2009, the Company made certain cash payments as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments of interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of capitalized interest of $0 (Dec 2011), $1,116 (Dec 2010), $4,868 (2011), $2,907 (2010) and $2,160
(2009)
|
|
$
|
2,783
|
|
|
$
|
3,566
|
|
|
$
|
14,427
|
|
|
$
|
9,701
|
|
|
$
|
8,088
|
|
|
|
|
|
|
|
|
|
Cash payments of income taxes from continuing operations
|
|
$
|
2
|
|
|
$
|
12
|
|
|
$
|
13
|
|
|
$
|
30
|
|
|
$
|
30
|
|
Consolidated Statements of Cash Flows
Excluded from the statements of cash flows were the effects of certain non-cash financing and
investing activities as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of insurance policies financed with notes payable
|
|
$
|
867
|
|
|
$
|
516
|
|
|
$
|
1,872
|
|
|
$
|
1,893
|
|
|
$
|
2,204
|
|
|
Warrants granted in connection with amendment to term loan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,626
|
|
|
Warrants granted in connection with equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
629
|
|
|
Rescission of notes receivable on repurchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
606
|
|
|
Restricted stock units surrendered for withholding taxes payable
|
|
|
425
|
|
|
|
303
|
|
|
|
708
|
|
|
|
247
|
|
|
|
149
|
|
|
Acquisition of variable interest entity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,134
|
|
|
|
—
|
|
|
Acquisition, which includes issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,292
|
|
|
Acquisition of additional interest in subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
5,797
|
|
|
|
—
|
|
|
|
—
|
|
|
Acquisition of Northwest Florida Renewable Energy Center LLC (“NWFREC”)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,733
|
|
|
|
—
|
|
|
|
—
|
|
|
Adjustment for investment in subsidiary
|
|
|
240,362
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Purchase of common stock warrants paid through the reduction of loan fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
Capital lease on software
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
464
|
|
|
|
—
|
|
|
Cashless exercise of warrants
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
Receivables from sales of property, plant and equipment in other receivables
|
|
|
741
|
|
|
|
—
|
|
|
|
325
|
|
|
|
—
|
|
|
|
—
|
|
|
Purchase of property, plant, equipment and construction in progress in accounts payable and accrued liabilities
|
|
|
3,914
|
|
|
|
3,547
|
|
|
|
11,904
|
|
|
|
4,872
|
|
|
|
3,440
|
|
|
Purchase of patent in accrued liabilities
|
|
|
42
|
|
|
|
—
|
|
|
|
390
|
|
|
|
—
|
|
|
|
—
|
|
|
Prepaid initial public offering costs offset against proceeds of initial public offering
|
|
|
3,907
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Initial public offering costs in accrued liabilities
|
|
|
72
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Adjustment to intangible assets for shares granted for earn-out payment to former SilvaGas shareholders
|
|
|
2,680
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
See Accompanying Notes to Consolidated Financial Statements.
69
RENTECH, INC.
Notes to Consolidated Financial Statements
Note 1 — Description of Business
Description of Business
Rentech, Inc. (“Rentech”, “we”, or “the Company”) operates in two segments being alternative energy and nitrogen products manufacturing. See Note 18 – Segment
Information.
Rentech’s vision is to be a provider of clean energy solutions. Rentech owns and develops
technologies that enable the production of certified synthetic fuels and renewable power when integrated with certain other third-party technologies. The Company’s clean energy technology portfolio includes the Rentech-SilvaGas biomass
gasification technology (the “Rentech-SilvaGas Technology”) and the Rentech-ClearFuels biomass gasification technology (the “Rentech-ClearFuels Technology”), both of which can produce synthesis gas (“syngas”) from
biomass and waste materials for production of renewable power and fuels. Renewable hydrogen can also economically be separated out of the syngas produced using the Rentech-ClearFuels Technology. The Company also owns the patented Rentech Process
which is based on Fischer-Tropsch (“FT”) chemistry. The Rentech Process can convert syngas from Rentech’s or others’ gasification technologies into complex hydrocarbons that then can be upgraded into fuels or chemicals using
refining technology that Rentech licenses.
In the fourth quarter of the fiscal year ended September 30,
2011, Rentech adopted a revised strategy for the commercialization of its alternative energy technologies. The new strategy includes reduced spending on research and development and pursuit of projects that are smaller and require less capital to be
invested by Rentech than those recently under development by the Company. The Company’s strategy for the first development of a particular technology at scale is to develop or participate in projects for which Rentech’s investment would be
well within the Company’s expected liquidity. This revised strategy may be implemented by developing projects with partners, possibly employing partners’ technologies, or through select acquisitions.
The revised strategy reflects the Company’s expectation that project finance debt or equity for large,
first-of-a-kind energy technology projects generally will not be available in the market, although the Company believes that project capital may be available, including for larger projects, after particular technologies and integrated systems have
been proven at commercial scale. Given these developments and changes in the availability of government funding for such projects, certain of the Company’s projects under development no longer fit its near-term development and commercialization
strategy. See Note 4 – Impairments for the financial statement implications of the change of strategy.
The Company’s nitrogen products manufacturing segment is operating through its majority-owned subsidiary, Rentech
Nitrogen, LLC (“RNLLC”), formerly known as Rentech Energy Midwest Corporation (“REMC”), which owns a nitrogen fertilizer manufacturing plant that uses natural gas as its feedstock. RNLLC’s plant, located in East Dubuque,
Illinois (the “East Dubuque Facility”), manufactures and sells within the corn-belt region of the United States natural gas-based nitrogen fertilizer and industrial products including ammonia, urea ammonium nitrate, urea granule, urea
solution, nitric acid and liquid carbon dioxide.
On November 9, 2011, Rentech Nitrogen Partners, L.P.
(“RNP”) completed its initial public offering (the “Offering”) of 15,000,000 common units representing limited partner interests at a public offering price of $20.00 per common unit. The common units sold to the public in the
Offering represent 39.2% of RNP common units outstanding as of the closing of the Offering. Rentech Nitrogen Holdings, Inc. (“RNHI”), Rentech’s indirect wholly-owned subsidiary, owns the remaining 60.8% of RNP common units and Rentech
Nitrogen GP, LLC (the “General Partner”), RNHI’s wholly-owned subsidiary, owns 100% of the non-economic general partner interest in RNP. RNP’s assets consist of all of the equity interests of RNLLC, which owns the East Dubuque
Facility. At the closing of the Offering, RNLLC was converted into a limited liability company. In connection with the Offering, the Company received proceeds, net of costs of $275,092,000. The Company recorded additional paid-in capital of
$240,662,000 and a noncontrolling interest of $34,430,000 which represents 39.2% of the net book value of RNP. As a result of the sale of RNP, there was no change in ownership, as such, there was no step up in accounting basis of assets or gain
recognized.
Change in Fiscal Year End
On February 1, 2012, the board of directors of the Company (the “Board”) approved a change in the Company’s fiscal year end from September 30 to December 31. As a result of
this change, the Company is filing a Transition Report on Form 10-K for the three-month transition period ended December 31, 2011. References to any of the Company’s fiscal years mean the fiscal year ending September 30 of that
calendar year. Financial information in these notes with respect to the three months ended December 31, 2010 is unaudited.
70
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Note 2 — Summary of Certain Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and all subsidiaries in which the Company directly or indirectly owns a controlling
financial interest, including RNLLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
Subsequent Events
The Company has evaluated events, if any, which occurred subsequent to December 31, 2011 through the date these financial statements were issued, to ensure that such events have been properly
reflected in these statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America 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.
Fair Value of Financial
Instruments
The following methods and assumptions were used to estimate the fair value of each class
of financial instruments for which it is practicable to estimate that value. Fair values of cash, receivables, deposits, other current assets, accounts payable, accrued liabilities and other current liabilities were assumed to approximate carrying
values for these financial instruments since they are short term in nature and their carrying amounts approximate fair value or they are receivable or payable on demand.
The carrying amount of convertible debt and other debt outstanding also approximates their fair value as of
December 31, 2011 and September 30, 2011 and 2010 because interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company.
Revenue Recognition
Product sales revenues from
our nitrogen products manufacturing segment are recognized when customers take ownership upon shipment from the East Dubuque Facility or its leased facility and assumes risk of loss, collection of the related receivable is probable, persuasive
evidence of a sale arrangement exists and the sales price is fixed or determinable. Management assesses the business environment, the customer’s financial condition, historical collection experience, accounts receivable aging and customer
disputes to determine whether collectability is reasonably assured. If collectability is not considered reasonably assured at the time of sale, the Company does not recognize revenue until collection occurs.
Natural gas, though not purchased for the purpose of resale, is occasionally sold when contracted quantities received are
in excess of production and storage capacities, in which case the sales price is recorded in product sales and the related cost is recorded in cost of sales. Natural gas is also sold with a simultaneous gas purchase in order to receive an economic
benefit that reduces raw material cost, in which case the net of the sales price and the related cost of sales are recorded within cost of sales.
On April 26, 2006, the Company’s subsidiary, Rentech Development Corporation (“RDC”), entered into a Distribution Agreement with Royster-Clark Resources, LLC, who subsequently assigned
the agreement to Agrium U.S. Inc. (“Agrium”), and RDC similarly assigned the agreement to REMC, prior to its conversion into RNLLC. The Distribution Agreement is for a ten year period, subject to renewal options. Pursuant to the
Distribution Agreement, Agrium is obligated to use commercially reasonable efforts to promote the sale of, and solicit and secure orders from its customers for nitrogen fertilizer products manufactured at the East Dubuque Facility, and to purchase
from RNLLC nitrogen fertilizer products manufactured at the facility for prices to be negotiated in good faith from time to time. Under the Distribution Agreement, Agrium is appointed as the exclusive distributor for the sale, purchase and resale of
nitrogen products manufactured at the East Dubuque Facility. Sale terms are negotiated and approved by RNLLC. Agrium
71
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
bears the credit risk on products sold through Agrium pursuant to the Distribution Agreement. If an agreement is not reached on the terms and conditions of any proposed Agrium sale transaction,
RNLLC has the right to sell to third parties provided the sale is on the same timetable and volumes and at a price not lower than the one proposed by Agrium. For the three months ended December 31, 2011 and the fiscal years ended
September 30, 2011, 2010 and 2009, the Distribution Agreement accounted for 92%, 83%, 80%, and 85%, respectively, of net revenues from continuing operations. Receivables from Agrium accounted for 83%, 77% and 86% of the total consolidated
accounts receivable balance of the Company as of December 31, 2011 and September 30, 2011 and 2010, respectively. RNLLC negotiates sales with other customers and these transactions are not subject to the terms of the Distribution
Agreement.
Under the Distribution Agreement, RNLLC pays commissions to Agrium not to exceed $5 million per
contract year on applicable gross sales. The commission rate was 2% during the first year of the agreement and increased by 1% on each anniversary date of the agreement up to the current maximum rate of 5%. For the three months ended
December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, the effective commission rate associated with sales under the Distribution Agreement was 2.6%, 4.3%, 4.2% and 2.3%, respectively.
RNLLC derives substantially all of its revenues and cash flows from the production and sale of nitrogen fertilizers, and
it sells a majority of its nitrogen products to customers located in its core market. RNLLC sold over 90% of its nitrogen products to customers for agricultural uses during the three months ended December 31, 2011 and each of the fiscal years
ended September 30, 2011, 2010 and 2009. RNLLC generally does not have long-term minimum sales contracts with any of its customers.
Service revenues from our alternative energy segment are recognized as the services are provided during each month. Revenues from feasibility studies are recognized based on the terms of the services
contract. Rental income is recognized monthly as per the lease agreement.
Deferred Revenue
The Company records a liability for deferred revenue to the extent that payment has been received under product
prepayment contracts, which create obligations for delivery of product within a specified period of time in the future. The terms of these product prepayment contracts require payment in advance of delivery. The Company recognizes revenue related to
the product prepayment contracts and relieves the liability for deferred revenue when products are shipped. A significant portion of the revenue recognized during any period may be related to product prepayment contracts, for which cash was
collected during an earlier period, with the result that a significant portion of revenue recognized during a period may not generate cash receipts during that period. As of December 31, 2011 and September 30, 2011 and 2010, deferred
revenue was $20,352,000, $34,154,000 and $14,473,000, respectively.
Cost of Sales
Cost of sales are primarily comprised of manufacturing costs related to the Company’s nitrogen fertilizer and
industrial products. Cost of sales expenses include direct materials such as natural gas, direct labor, indirect labor, employee fringe benefits, depreciation on plant machinery and other costs, including shipping and handling charges incurred to
transport products sold.
The Company enters into short-term contracts to purchase physical supplies of
natural gas in fixed quantities at both fixed and indexed prices. We anticipate that we will physically receive the contract quantities and use them in the production of fertilizer and industrial products. We believe it probable that the
counterparties will fulfill their contractual obligations when executing these contracts. Natural gas purchases, including the cost of transportation to the East Dubuque Facility, are recorded at the point of delivery into the pipeline system.
Accounting for Derivative Instruments
We elect the normal purchase normal sale exemption for our derivative instruments. As such, we do not recognize the unrealized gains or losses related to these derivative instruments in our financial
statements.
72
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Research and Development Expenses
Research and development expenses include direct materials, direct labor, indirect labor, fringe benefits, third-party
consultants and other costs incurred to develop and refine certain technologies employed in the Company’s alternative energy segment. These costs are expensed as incurred.
Our research and development activities are centered at the Rentech Energy Technology Center (the “RETC”),
which houses our Product Demonstration Unit (“PDU”), including the ClearFuels Technology Inc. (“ClearFuels”) biomass gasifier (the “Rentech-ClearFuels Gasifier”). The RETC is where we have skilled technical, engineering
and operating teams that work at our development and testing laboratories. The laboratory contains equipment and support facilities that provide us with resources for the continued development and testing of the Rentech Process, the Rentech-SilvaGas
Technology and the Rentech-ClearFuels Technology as well as complementary technologies for additional applications and performance enhancements. In addition, the facilities allow us to conduct online analysis of feedstock and products. For the three
months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, the Company incurred research and development expenses of $1.9 million, $18.5 million, $9.7 million and $12.3 million,
respectively, related to the construction, commissioning, startup and operation of the PDU and Rentech-ClearFuels Gasifier.
Cash
The Company has various checking and savings accounts with major financial institutions. At times
balances with these institutions may be in excess of federally insured limits.
Restricted Cash
As of December 31, 2011 and September 30, 2011, restricted cash, included in other assets, of approximately
$336,000 and approximately $327,000, respectively, is comprised of cash that has been pledged as collateral for a standby letter of credit. As of September 30, 2010, restricted cash, of approximately $100,000, is comprised of cash that has been
pledged as collateral for future tax liabilities that may arise as a result of the November 2006 sale of a subsidiary. Restricted cash pledged for less than one year is classified as a short-term asset and restricted cash that has been pledged as
collateral for over one year has been classified as a long-term asset.
Accounts Receivable
Trade receivables are initially recorded at fair value based on the sale of goods to customers and are stated net of
allowances.
Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts
receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. The Company reviews its allowance for doubtful accounts quarterly. Past due balances over
90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Inventories
Inventories consist of raw materials and finished goods within our nitrogen products manufacturing segment. The primary raw material in the production of nitrogen products is natural gas. Raw materials
also include certain chemicals used in the manufacturing process. Finished goods include the nitrogen products stored at the East Dubuque Facility that are ready for shipment along with any inventory that may be stored at a remote facility. The
Company allocates fixed production overhead costs to inventory based on the normal capacity of its production facilities and unallocated overhead costs are recognized as expense in the period incurred. At December 31, 2011, and
September 30, 2011 and 2010, inventories on the consolidated balance sheets included depreciation of $456,000, $836,000 and $513,000, respectively.
Inventories are stated at the lower of cost or estimated net realizable value. The cost of inventories is determined using the first-in first-out method. The estimated net realizable value is based on
customer orders, market trends and historical pricing. On at least a quarterly basis, the Company performs an analysis of its inventory balances to determine if the carrying amount of inventories exceeds their net realizable value. If the carrying
amount exceeds the estimated net realizable value, the carrying amount is reduced to the estimated net realizable value.
73
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Deposits on Gas Contracts
The Company enters into forward contracts with fixed delivery prices to purchase portions of the natural gas required to
produce fertilizer for the Company’s nitrogen fertilizer business. Some of the forward contracts require the Company to pay a deposit for the natural gas at the time of contract signing, and all of the contracts require deposits in the event
that the market price for natural gas falls after the date of the contract to a price below the fixed price in the contracts.
Property,
Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation expense is calculated using the straight-line method over the estimated useful lives of the assets, as follows:
|
|
|
|
|
Type of Asset
|
|
Estimated Useful Life
|
|
Building and building improvements
|
|
15-40 years
|
|
Land improvements
|
|
15-20 years
|
|
Machinery and equipment
|
|
5-10 years
|
|
Furniture, fixtures and office equipment
|
|
7-10 years
|
|
Computer equipment and software
|
|
3-5 years
|
|
Vehicles
|
|
3-5 years
|
|
Spare parts
|
|
Useful life of the spare parts or the related equipment
|
|
Leasehold improvements
|
|
Useful life or remaining lease term whichever is shorter
|
|
Ammonia catalyst
|
|
3-10 years
|
|
Platinum catalyst
|
|
Based on units of production
|
Significant renewals and betterments are capitalized. Costs of maintenance and repairs
are expensed as incurred. Approximately every two years, RNLLC incurs turnaround expenses which represent the cost of shutting down the East Dubuque Facility for planned maintenance. Such costs are expensed as incurred. When property, plant and
equipment is retired or otherwise disposed of, the asset and accumulated depreciation or amortization are removed from the accounts and the resulting gain or loss is reflected in operating expenses.
Spare parts are maintained by RNLLC to reduce the length of possible interruptions in plant operations from an
infrastructure breakdown at the East Dubuque Facility. The spare parts may be held for use for many years before the spare parts are used. As a result, they are capitalized as a fixed asset at cost and are depreciated on a straight-line basis over
the useful life of the related equipment until the spare parts are installed. When spare parts are utilized, the net book values of the assets are charged to earnings as a cost of sale. Periodically, the spare parts are evaluated for obsolescence
and impairment and if the value of the spare parts is impaired, it is charged against earnings.
Long-lived
assets, construction in progress and identifiable intangible assets are reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its
eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the asset’s fair value.
The Company capitalizes certain direct development costs associated with internal-use software, including external direct costs of material and services, and payroll costs for employees devoting time to
software implementation projects. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.
Grants received are recorded as a reduction of the cost of the related project when there is reasonable assurance that the Company will comply with the conditions attached to them, and funding under the
grant is receivable. Grants that compensate the Company for the cost of property, plant and equipment are recorded as a reduction to the cost of the related asset and are recognized over the useful life of the asset by reducing depreciation expense.
74
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Construction in Progress
We track project development costs and capitalize those costs after a project has completed the scoping phase and enters
the feasibility phase. We also capitalize costs for improvements to the existing machinery and equipment at the East Dubuque Facility and certain costs associated with our information technology initiatives. Interest incurred on development and
construction projects is capitalized until construction is complete. We do not depreciate construction in progress costs until the underlying assets are placed into service.
Patents
Costs for patents on intellectual property
are capitalized and amortized using the straight-line method over the remaining lives of the patents. The cost of patents was $11,901,000 with accumulated amortization of $2,026,000 at December 31, 2011. The cost of patents was $9,612,000 with
accumulated amortization of $1,775,000 and $769,000 at September 30, 2011 and 2010, respectively. The Company recorded $261,000, $1,006,000 and $615,000 in amortization expense for the three months ended December 31, 2011, and the fiscal
year ended September 30, 2011 and 2010, respectively. The amortization of the patents will result in amortization expense of $1,381,000 for each of the next five years.
Recoverability of Goodwill
The Company tests
goodwill assets for impairment annually, or more often if an event or circumstance indicates that an impairment may have occurred. The recoverability of goodwill involves a high degree of judgment since the first step of the required impairment test
consists of a comparison of the fair value of a reporting unit with its book value. Based on the assumptions underlying the valuation, impairment is determined by estimating the fair value of a reporting unit and comparing that value to the
reporting unit’s book value. If the fair value is more than the book value of the reporting unit, an impairment loss is not recognized. If an impairment exists, the fair value of the reporting unit is allocated to all of its assets and
liabilities excluding goodwill, with the excess amount representing the fair value of goodwill. An impairment loss is measured as the amount by which the book value of the reporting unit’s goodwill exceeds the estimated fair value of that
goodwill.
For purposes of evaluating whether goodwill is impaired, goodwill is allocated to reporting units,
which are either at the operating segment level or one reporting level below the operating segment. The reporting unit with goodwill is ClearFuels. The Company utilizes the fair value based upon the discounted cash flows that the business can be
expected to generate in the future (the “Income Approach”) when evaluating goodwill for impairment. The Income Approach valuation method requires the Company to make projections of revenue and operating costs for the reporting unit over a
multi-year period. Additionally, management must make an estimate of a weighted average cost of capital that a market participant would use as a discount rate. Changes in these projections or estimates could result in passing or failing the first
step of the impairment model, which could significantly change the amount of any impairment ultimately recorded. As of December 31, 2011, the Company performed the annual impairment test for goodwill as required and determined that its goodwill
was not impaired since the fair value of the reporting unit exceeded its carrying amount.
The most
significant intangible assets subject to impairment analyses are the capitalized patents related to the acquisition of SilvaGas and the goodwill related to the acquisition of ClearFuels. The Company’s projections of future cash flows related to
utilization of these assets involve various development projects with unrelated parties that are not yet finalized and will require significant investment by the other parties. These projects may take years to build and execute, and, given the
nature of the technologies being developed, they ultimately may not be successful. Impairment of the capitalized patents and goodwill assets may be required if projected future cash flows for the development projects change or if such projects do
not produce the projected cash flows that the Company currently anticipates.
Income Taxes
The Company accounts for income taxes under the liability method, which requires an entity to recognize deferred tax
assets and liabilities for temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in
future years. An income tax valuation allowance has been established to reduce the Company’s deferred tax asset to the amount that is expected to be realized in the future.
The Company recognizes in its consolidated financial statements only those tax positions that are
“more-likely-than-not” of being sustained, based on the technical merits of the position. The Company performed a comprehensive review of its material tax positions in accordance with the applicable guidance.
75
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Net Income (Loss) Per Common Share Attributable To Rentech
Basic income (loss) per common share attributable to Rentech is calculated by dividing net income (loss) attributable to
Rentech by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share attributable to Rentech is calculated by dividing net income (loss) attributable to Rentech by the weighted average number
of common shares outstanding plus the dilutive effect, calculated using the “treasury stock” method for the unvested restricted stock units, outstanding stock options and warrants and using the “if converted” method for the
convertible debt.
Variable Interest Entities
In the normal course of business, the Company may enter into joint ventures or make investments with business partners
that support its underlying business strategy and provide it the ability to enter new markets. In certain instances, an entity in which the Company may make an investment may qualify as a variable interest entity (“VIE”). If the Company
determines that it is the primary beneficiary of an entity, it must consolidate that entity’s operations. Determination of the primary beneficiary focuses on determining which variable interest holder has the power to direct the most
significant activities of the VIE.
Recent Accounting Pronouncements
In May 2011, the FASB issued guidance clarifying previous guidance related to fair value measurement. This guidance is
effective during interim and annual periods beginning after December 15, 2011. It is effective for the Company’s interim period beginning on January 1, 2012. Early application is not permitted. The adoption of this guidance is not
expected to have a material impact on the Company’s consolidated financial position, results of operations or disclosures.
In September 2011, the FASB issued guidance amending previous guidance on testing goodwill for impairment. The guidance permits an entity to first assess qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as
having a likelihood of more than 50 percent. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. It is effective for the Company’s fiscal year beginning
on January 1, 2012. Early adoption is permitted. The Company is evaluating the provisions of this guidance and the potential impact on the Company’s consolidated financial position, results of operations and disclosures.
Note 3 — Discontinued Operations
Effective August 1, 2005, the Company sold its 56% ownership interest in REN Testing Corporation
(“REN”) to REN Holding Corporation, (“RHC”) an Oklahoma corporation, consisting of a management group previously involved in REN. The sales price of the transaction was $1,175,000 payable in the form of earn-out payments based on
RHC’s cash receipts for sales and services from REN’s customers. The earn-out payments are based on 5% of REN’s qualified cash receipts up to the first $2,500,000 per year and 10% of qualified cash receipts in excess of $2,500,000 per
year. The earn-out payment will continue indefinitely until Rentech collects the $1,175,000. As of December 31, 2011 and September 30, 2011 and 2010, the Company had collected $478,000 of this amount and had recorded $107,000 of the
remaining receivable in current assets as other receivables. In addition, the Company recorded a reserve against the earn-out receivable due to uncertainty surrounding the estimation of collections. The balance of the reserve was $697,000 as of
December 31, 2011 and September 30, 2011 and 2010. Pursuant to the terms of the agreement, the buyer was responsible for all contingent liabilities that existed or might be incurred after the date of disposal.
Note 4 — Impairments
Prior to the fourth quarter of the fiscal year ended September 30, 2011, the Company’s
alternative energy segment had under development three projects for which it had capitalized certain construction work in process and other development costs. These projects included a biomass project in Rialto, California (the “Rialto
Project”), a coal to liquid project in Natchez, Mississippi (the “Natchez Project”) and a renewable energy project in Port St. Joe Florida (the “Port St. Joe Project”).
As indicated in Note 1 “Description of Business”, in the fourth quarter of the fiscal year ended
September 30, 2011 the Company revised its strategy for commercialization of its alternative energy technologies to include reduced spending on research and development and pursuit of projects that are smaller and require less capital to be
invested by Rentech than those recently under development by the Company. In addition to the revised strategy, the Company withdrew its applications to the U.S. Department of Energy (“DOE”) for loan guarantees for the Rialto Project and
the Port St. Joe Project. The Company previously stated that it will no
76
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
longer pursue project financing for its projects from the DOE loan guarantee programs. The Company had applied under the DOE’s Section 1705 loan guarantee program for both projects, had
been notified by the DOE that its applications had been placed on hold, and had also been notified that the projects would be considered for funding under the Section 1703 loan guarantee program. With the withdrawal from the loan guarantee
program, Rentech now believes that project financing for the Rialto Project and the Port St. Joe Project will not be available, and the Company will not be moving forward with the projects. As a result, Rentech impaired capitalized costs associated
with the projects in its financial statements for the period ending September 30, 2011. The loss on impairment for the Rialto Project represents the total costs of the project. The loss on impairment for the Port St. Joe Project represents the
total costs of the project less the elimination of the contingent consideration liability of $1,628,000, as described in Note 10.
The Company has also concluded that project financing for its large Natchez Project is not available, and the Company’s future development efforts at its Natchez site will focus on pursuing smaller
projects that would use biomass or natural gas as feedstocks, not on the Natchez Project. As a result, Rentech impaired capitalized costs associated with its development of the Natchez Project in its financial statements for the period ending
September 30, 2011. The loss on impairment for the Natchez Project represents the total costs of the project less the appraised value of the property, which we own, of approximately $2,500,000. The Company may in the future seek to deploy its
Rentech Fischer-Tropsch process in large scale plants if project capital is available, or in smaller scale plants if efficiencies improve and costs at smaller scales can be reduced.
The financial impact recorded in the fiscal year ended September 30, 2011 statement of operations is as follows:
|
|
|
|
September 30,
|
|
|
Project
|
|
Loss on Impairments
|
|
|
|
|
(in thousands)
|
|
|
Rialto
|
|
$
|
(27,238
|
)
|
|
Natchez
|
|
|
(26,645
|
)
|
|
Port St. Joe
|
|
|
(4,806
|
)
|
|
Miscellaneous
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
(58,742
|
)
|
|
|
|
|
|
|
Note 5 — Accounts Receivable
Accounts receivable consisted of the following:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Trade receivables from nitrogen products
|
|
$
|
7,428
|
|
|
$
|
4,617
|
|
|
$
|
9,578
|
|
|
Trade receivables from alternative energy
|
|
|
100
|
|
|
|
100
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, gross
|
|
|
7,528
|
|
|
|
4,717
|
|
|
|
9,686
|
|
|
Allowance for doubtful accounts on trade accounts receivable
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, net
|
|
$
|
7,428
|
|
|
$
|
4,617
|
|
|
$
|
9,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 — Inventories
Inventories consisted of the following:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Finished goods
|
|
$
|
4,567
|
|
|
$
|
16,020
|
|
|
$
|
6,338
|
|
|
Raw materials
|
|
|
424
|
|
|
|
492
|
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
4,991
|
|
|
$
|
16,512
|
|
|
$
|
6,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Note 7 — Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Land and land improvements
|
|
$
|
1,883
|
|
|
$
|
1,883
|
|
|
$
|
1,811
|
|
|
Buildings and building improvements
|
|
|
10,110
|
|
|
|
10,110
|
|
|
|
10,323
|
|
|
Machinery and equipment
|
|
|
95,547
|
|
|
|
78,440
|
|
|
|
74,625
|
|
|
Furniture, fixtures and office equipment
|
|
|
874
|
|
|
|
874
|
|
|
|
861
|
|
|
Computer equipment and computer software
|
|
|
5,434
|
|
|
|
5,244
|
|
|
|
4,657
|
|
|
Vehicles
|
|
|
201
|
|
|
|
201
|
|
|
|
172
|
|
|
Leasehold improvements
|
|
|
80
|
|
|
|
80
|
|
|
|
73
|
|
|
Conditional asset (asbestos removal)
|
|
|
210
|
|
|
|
210
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,339
|
|
|
|
97,042
|
|
|
|
92,732
|
|
|
Less accumulated depreciation
|
|
|
(48,782
|
)
|
|
|
(45,788
|
)
|
|
|
(37,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciable property, plant and equipment, net
|
|
$
|
65,557
|
|
|
$
|
51,254
|
|
|
$
|
55,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress consisted of the following:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Construction in progress for alternative energy projects under development
|
|
$
|
2,450
|
|
|
$
|
2,500
|
|
|
$
|
32,028
|
|
|
Accumulated capitalized interest costs related to projects under development
|
|
|
—
|
|
|
|
—
|
|
|
|
6,105
|
|
|
Construction in progress for East Dubuque Facility
|
|
|
6,862
|
|
|
|
20,318
|
|
|
|
2,474
|
|
|
Software in progress
|
|
|
470
|
|
|
|
470
|
|
|
|
464
|
|
|
Conditional asset (asbestos removal)
|
|
|
27
|
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction in progress
|
|
$
|
9,809
|
|
|
$
|
23,315
|
|
|
$
|
41,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a legal obligation to handle and dispose of asbestos at its East Dubuque
Facility and 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 developed an estimate for 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 the fair value of the asset retirement obligation for each property and, accordingly, the asset and related obligation for each
property have been recorded. In accordance with the applicable guidance, the liability is increased over time and such increase is recorded as accretion expense. The liability at December 31, 2011, September 30, 2011 and 2010 was
$311,000, $303,000 and $268,000, respectively. The accretion expense for the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009 was $8,000, $35,000, $31,000 and $0, respectively.
Note 8 — 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, and rights to license ClearFuels’ biomass gasification technology, in exchange for a warrant to purchase up to five million shares of the Company’s common stock, access to the PDU in
Colorado for construction and operation of the ClearFuels Gasifier, and certain rights to license certain Rentech technologies, including the exclusive right for projects using bagasse as a feedstock. The warrant was structured to vest in three
separate tranches with one tranche of 2 million shares vested as of the closing date, and two tranches of 1.5 million shares each to vest on the achievement by ClearFuels of established milestones. The exercise price for the first tranche
was $0.60 per share and the exercise price per share for the second and third tranches was to have been set at the ten-day average trading price of the Company’s common stock at the time of vesting. The fair value of the warrant at the date of
grant was calculated using the Black-Scholes option-pricing model at $628,815. This fair value was based on the vested tranche of 2 million shares because the Company could not determine the probability that ClearFuels would achieve the
milestones that would trigger vesting of the second and third tranches.
78
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
ClearFuels was a private company and a market did not exist for its
common or preferred stock. As a result, the Company determined the fair value of its initial 2009 investment in ClearFuels to be equal to the fair market value of the vested warrant issued to ClearFuels of $628,815. In June 2009, the Company
determined that ClearFuels was a VIE, but Rentech was not its primary beneficiary. Through September 3, 2010, the investment in ClearFuels was recorded in other assets and deposits under the equity method of accounting. At September 3,
2010, the investment balance was $0 and the Company’s share of ClearFuels’ loss for the eleven months ended September 3, 2010 and the fiscal year ended September 30, 2009 was $544,000 and $84,000, respectively, which is shown as
equity in net loss of investee company in the consolidated statements of operations.
During the fiscal year
ended September 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 was selected by the DOE to receive up to approximately $23 million as a grant to construct the ClearFuels
Gasifier. On September 3, 2010, the Company and ClearFuels executed a project support agreement (the “Project Support Agreement”) which detailed the responsibilities of both parties regarding the second phase of construction of the
ClearFuels Gasifier. Pursuant to the terms of the Project Support Agreement, the Company provided the DOE with a certification of its support of the Rentech-ClearFuels Gasifier and it assumed operational control and full decision making authority
over the project as of October 1, 2010. The Company became responsible for budgeted construction payments for the project after October 1, 2010, and expects to receive reimbursement from the DOE for between approximately 62% and 65% of
those payments and of all costs and expenses it has incurred to support the ClearFuels Gasifier. The Company estimates that third party cash expenses, excluding costs and expenses incurred to operate the PDU in support of the project, will total
between approximately $2.7 million and $3.0 million after receipt of all DOE reimbursements. At December 31, 2011 and September 30, 2011, the Company had recorded in other receivables, amounts due from the DOE under the grant of $2.2
million and $1.2 million, respectively.
Under accounting guidance, based on the execution of the Project
Support Agreement, the Company reconsidered whether it was the primary beneficiary of ClearFuels. The Company determined that as of September 3, 2010 it was the primary beneficiary as it was responsible for a majority of ClearFuels’ losses
or entitled to receive a majority of ClearFuels’ residual returns through its equity interest and as a result of the Project Support Agreement. Therefore, the operations of ClearFuels were consolidated as of September 3, 2010.
Noncontrolling interests represents the portion of equity or results of operations in ClearFuels not attributable, directly or indirectly, to the Company.
The Company recorded total assets, net assets, revenue and net loss of $9.4 million, $9.3 million, $0, and $0.3 million, respectively, in its consolidated financial statements as of and for the fiscal
year ended September 30, 2010 from the consolidation of ClearFuels. In accordance with the guidance for accounting for business combinations, the assets, liabilities, and amounts attributed to noncontrolling interests have been recorded at fair
value on the date of consolidation. In the fiscal year ended September 30, 2011, the Company made retrospective adjustments to notes receivable, prepaid expenses and goodwill in the opening balance sheet of ClearFuels as of September 3,
2010 due to working capital adjustments.
The following items were recorded on the consolidated balance sheets
as of September 30, 2010 (in thousands):
|
|
|
|
September 30,
|
|
|
Cash
|
|
$
|
747
|
|
|
Notes receivable and accrued interest on notes receivable
|
|
|
272
|
|
|
Prepaid expenses
|
|
|
1,139
|
|
|
Goodwill
|
|
|
7,209
|
|
|
Fixed assets
|
|
|
8
|
|
|
Other assets
|
|
|
5
|
|
|
Accounts payable
|
|
|
63
|
|
79
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
The fair value of the Company’s interest in ClearFuels was
determined to be approximately $1,909,000. The difference between the fair value and the investment balance, which was $0 at September 3, 2010, was recorded in the fourth quarter of the fiscal year ended September 30, 2010 as a gain on
equity method investment in the consolidated statements of operations in the amount of $1,909,000.
On
April 14, 2011, the Company exercised an option to acquire substantially all the remaining equity of ClearFuels, which became exercisable because ClearFuels had not closed a financing with proceeds of at least $25,000,000 by March 31,
2011. On April 19, 2011, ClearFuels received from the Company $160,000 under a promissory note executed on that date by both parties. The note was intended to provide temporary funding for ClearFuels until the closing pursuant to the option
exercise was completed. On May 13, 2011, the Company acquired a substantial majority of the equity of ClearFuels (the “Merger”). The Company’s equity ownership interest increased to 95%, with existing ClearFuels investors
retaining a 5% equity interest. The acquisition was accomplished through the merger of a subsidiary of the Company into ClearFuels, with ClearFuels continuing as the surviving company in the Merger. Consideration for the Merger consisted of the
obligations assumed by the Company in the Project Support Agreement to support the construction of the ClearFuels Gasifier. The Company also issued a warrant to purchase 1,980,463 shares of Company common stock at an exercise price of $0.99 per
share to Ohana Holdings LLC, a shareholder in ClearFuels, and agreed to provide the minority shareholders in ClearFuels with a carried interest in a potential project in Hawaii, which is currently being developed by ClearFuels. The fair value of the
warrant was calculated using the Black-Scholes option-pricing model at $1,276,940. Under accounting guidance, the fair value of the warrant and the loan for $160,000 was the consideration for the Merger, resulting in total consideration of $1.4
million. The difference between the fair value of the noncontrolling interest transferred and the total consideration is the additional capital contributed from the acquisition of $4.5 million.
Note 9 — Acquisition of SilvaGas Holdings Corporation
On June 23, 2009, the Company entered into an Agreement and Plan of Merger (the “Merger
Agreement”) to acquire SilvaGas Holdings Corporation (“SilvaGas”) and its patented biomass gasification technology. The transactions contemplated by the Merger Agreement closed on June 30, 2009 at which time SilvaGas became
a wholly-owned subsidiary of the Company and changed its name to Rentech SilvaGas LLC. The Company’s results of operations include SilvaGas’ results of operations beginning July 1, 2009.
As part of the closing the Company issued approximately 14.5 million shares of common stock to the SilvaGas
stockholders, approximately 3.4 million of which were deposited with an escrow agent to support certain indemnification obligations of the SilvaGas stockholders and to provide for certain possible expenses.
In addition to the consideration paid at the closing, under the Merger Agreement (and prior to the amendment to the
Merger Agreement discussed below), the SilvaGas stockholders would have been entitled to receive additional shares of the Company’s common stock as consideration if certain performance criteria of the SilvaGas technology at the Rialto Project,
or an alternative project to be designated by the Company, had been achieved by March 29, 2022. Depending on the performance of the gasifier, such additional earn-out consideration could have varied from zero to the sum of
(i) 6,250,000 shares of the Company’s common stock and (ii) that number of shares equal in value to $5,500,000 at the time of any such payment (provided that such number may not exceed 11,000,000 shares). The additional
consideration to be paid would have been subject to negotiation between the Company and the former SilvaGas stockholders.
On December 28, 2011 the Company entered into Amendment No. 2 (the “Amendment”) to the Merger Agreement dated June 23, 2009 with Milton Farris, as Stockholder Representative, John
A. Williams and certain other former stockholders of SilvaGas. Mr. Williams has been a member of the Company’s board of directors since November 2009. The Amendment provided for the release of the approximately 3.4 million shares held
in escrow and payment of 2.0 million shares of the Company’s common stock as final consideration as contemplated in the Merger Agreement. The issuance of the 2.0 million shares was recorded as an increase in the value of the SilvaGas
patents in accordance with accounting standards for business combinations in effect when the Merger Agreement was executed.
80
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Note 10 — Acquisition of Northwest Florida Renewable Energy Center LLC
On April 12, 2011, GCSEC Holdings, LLC (“GCSEC”), a wholly-owned subsidiary of the
Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Biomass Energy Holdings LLC (“Seller”), and acquired 100% of the membership interests of NWFREC in connection with the Port St. Joe
Project.
The consideration for the purchase of NWFREC had been deferred and may have been paid in part at the
closing of construction financing from proceeds of that financing, and in part from available operating cash flow of the Port St. Joe Project following commencement of commercial operation. Subject to adjustments set forth in the Purchase Agreement,
the maximum consideration to be paid for the Port St. Joe Project was $6 million, consisting of approximately $4.9 million of cash payments and $1.1 million of equity in NWFREC. The cash portion represented development costs to date
paid by Seller plus 10% of such costs. The cash consideration may have been paid 30% at the closing of construction financing, and 70% from available cash flows of the Port St. Joe Project, both subject to approval of any lenders to, or new equity
investors in, the Port St. Joe Project. The purchase price could have been decreased in certain instances. Under accounting guidance, the Company was required to recognize the acquisition date fair value of the contingent consideration as part of
the consideration transferred in exchange for NWFREC. The Company calculated the fair value of the contingent consideration using the present value technique based on probability-weighted outcomes. The fair value of the contingent consideration was
classified as a liability. As of the acquisition date, the Company recorded on the consolidated balance sheet an intangible asset of $1.7 million, accounts payable of $0.1 million and other liability of $1.6 million, which represented the contingent
consideration. As indicated in Note 4 “Impairments”, during the fourth quarter of the fiscal year ended September 30, 2011, the intangible asset was impaired and the contingent consideration liability reduced to zero. Since the
acquisition and the impairment were done in the same fiscal year, the purchase price allocation was not finalized.
Note 11 — Debt
The Company’s debt obligations at December 31, 2011 consist of short-term notes payable, a
$25.0 million revolving credit facility entered into by RNLLC (under which the Company is neither an obligor nor a guarantor) and a convertible debt to stockholders. At December 31, 2011, there were no outstanding advances under the revolving
credit facility. The Company’s debt obligations at September 30, 2011 and 2010 consist of short-term notes payable, a term loan and a convertible debt to stockholders.
Short-term Notes Payable
The Company enters into
non-collateralized short-term notes payable to finance insurance premiums. During the fiscal year ended September 30, 2010, the Company entered into non-collateralized short-term notes payable to finance insurance premiums totaling $1,893,000.
The notes payable bore interest between 2.55% and 3.28% with monthly payments of principal and interest and a scheduled maturity date in March 2011. The balance due as of September 30, 2010 was $825,000 which was included in accrued
liabilities. During the fiscal year ended September 30, 2011, the Company entered into non-collateralized short-term notes payable to finance insurance premiums totaling $1,872,000. The notes payable bear interest between 2.55% and 3.04% with
monthly payments of principal and interest and a scheduled maturity date in March 2012. The balance due on the notes payable as of September 30, 2011 and December 31, 2011 was $739,000 and $370,000, respectively, which was included in
accrued liabilities. During the three months ended December 31, 2011, the Company entered into non-collateralized short-term notes payable to finance insurance premiums totaling $867,000. The notes payable bear interest at 3.04% with monthly
payments of principal and interest and a scheduled maturity date in September 2012. The balance due on the notes payable as of December 31, 2011 was $630,000, which was included in accrued liabilities.
Term Loans
On June 13, 2008, Rentech and RNLLC executed an amended and restated credit agreement (the “2008 Credit Agreement”) by and among RNLLC as the borrower, Rentech as a guarantor, Credit
Suisse, Cayman Islands Branch (“Credit Suisse”), as administrative agent and collateral agent and the lenders party thereto for the principal amount of $53,000,000.
Term loans outstanding under the 2008 Credit Agreement bore interest at the election of RNLLC of either: (a)(i) the
greater of LIBOR or 3%, plus (a)(ii) 10.0%; or (b)(i) the greater of 4%, the prime rate, as determined by Credit Suisse, or 0.5% in excess of the federal funds effective rate, plus (b)(ii) 9.0%. Interest payments were generally made on a quarterly
basis, as required by the terms of the agreement.
81
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
On January 14, 2009, RNLLC entered into the First Amendment to
Amended and Restated Credit Agreement and Waiver (the “2009 First Amendment and Waiver”). In addition to an increase in interest rates and certain fees to the lenders and its advisors, as further consideration for the 2009 First Amendment
and Waiver, the Company sold to Credit Suisse Management LLC, SOLA LTD and Solus Core Opportunities Master Fund Ltd., for an aggregate issue price of approximately $50,000, warrants to purchase 4,993,379 shares of the Company’s common stock, or
3% of the Company’s outstanding shares at the time of issuance. The exercise price of $0.92 per share for each warrant was a 20% premium above the weighted average price for the Company’s stock over the 10 trading days preceding the
January 14, 2009 closing date of the 2009 First Amendment and Waiver. Seventy-five percent of the warrants were immediately exercisable and expire 5 years from the grant date. The remaining 25% of the warrants were set to expire on the maturity
date of the term loan. This portion of the warrants vested and became exercisable July 1, 2009. The fair value of the warrants was calculated using the Black-Scholes option-pricing model at $1,626,000. The fair value of the warrants, reduced by
the $50,000 of consideration received for the warrants, was recorded as a discount on the debt and was amortized to interest expense over the remaining contractual term of the debt using the effective interest method.
On January 29, 2010, the Company and RNLLC replaced the 2008 Credit Agreement with a senior collateralized credit
agreement (the “2010 Credit Agreement”) with Credit Suisse, as administrative agent and collateral agent, and the lenders party thereto. Under the 2010 Credit Agreement, RNLLC borrowed $62.5 million in the form of new collateralized term
loans (the “2010 Initial Term Loans”), the proceeds of which were used to repay the term loan outstanding under the 2008 Credit Agreement (the principal amount of which at the time of prepayment was approximately $37 million), to make an
intercompany loan to the Company in the amount of approximately $18 million and to pay related fees and expenses. The 2010 Initial Term Loans were issued with original issue discount of 3%. The payoff of the term loan under the 2008 Credit Agreement
was considered an early extinguishment of debt. As a result, for the fiscal year ended September 30, 2010, loss on debt extinguishment of $2.3 million was recorded in the consolidated statements of operations.
On July 21, 2010, RNLLC and Rentech entered into an amendment to credit agreement, waiver and collateral agent
consent to the 2010 Credit Agreement (the “First Amendment”). The First Amendment included an early prepayment by RNLLC of $15 million of principal of the 2010 Initial Term Loans outstanding, and a simultaneous borrowing of 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%. The other terms
of the First Incremental Loan, including without limitation, the maturity date, interest rate and collateral security, are the same as the 2010 Initial Term Loans.
On November 24, 2010, the Company and RNLLC entered into a Second Amendment to Credit Agreement, Waiver and
Collateral Agent Consent (the “Second Amendment”) to the 2010 Credit Agreement with certain subsidiaries of the Company, certain lenders party thereto and Credit Suisse, as administrative agent and collateral agent. The Second Amendment
included an early prepayment by RNLLC of $20 million of principal of the 2010 Initial Term Loans outstanding, and a simultaneous borrowing of an additional $52.0 million (the “Second Incremental Loan”), with proceeds of approximately
$50.85 million distributed to Rentech in the form of a dividend from RNLLC. The Second Incremental Loan was issued with an original issue discount of 2%. In addition, the Second Amendment, among other things permitted a special distribution of up to
$5 million by RNLLC to the Company upon the satisfaction of certain conditions, and on March 11, 2011 RNLLC made the $5 million dividend to the Company. Simultaneously with this distribution, RNLLC made a mandatory early prepayment of the term
loan of $5 million.
All outstanding term loans under the 2010 Credit Agreement incurred interest, at the
election of RNLLC, at either (a)(i) the greater of LIBOR or 2.5%, plus (ii) 10.0% or (b)(i) the greatest of (w) the prime rate, as determined by Credit Suisse, (x) 0.5% in excess of the federal funds effective rate, (y) LIBOR
plus 1.0% or (z) 3.5% plus (ii) 9.0%. Interest payments were made on a quarterly basis and were subject to annual amortization, payable quarterly, of 7.5% of the outstanding principal amount in calendar years 2010 and 2011.
On June 10, 2011, the Company and RNLLC entered into a five-year $150.0 million collateralized term loan
facility pursuant to a credit agreement (the “2011 Credit Agreement”) among RNLLC, the Company, certain subsidiaries of the Company, certain lenders party thereto and Credit Suisse. The Company paid upfront fees to the lenders under the
2011 Credit Agreement equal to 2.0% of the aggregate principal amount of the term loans. The term loans incurred interest, upon the Company’s election, at either (a)(i) the greater of LIBOR and 1.5%, plus (ii) 8.5% or (b)(i) the greatest
of (w) the prime rate, as determined by Credit Suisse, (x) 0.5% in excess of the federal funds effective rate, (y) LIBOR plus 1.0% and (z) 2.5% plus (ii) 7.5%. Interest payments are generally required to be made on a
quarterly basis. The term loans were subject to amortization, payable quarterly, of 2.5% of the original principal amount until March 31, 2016. The remaining unpaid principal balance is payable on June 10, 2016, the maturity date. The term
loans may be prepaid voluntarily at any time. In the first year, voluntary prepayments of the term loans may be made subject to a prepayment fee of 2.0% of the amount prepaid, and if prepaid in the second year, 1.0% of the amount prepaid. Voluntary
prepayments made after the second anniversary of the closing date of the loan may be prepaid without any prepayment fee. RNLLC used a portion of the net proceeds of the 2011 Credit Agreement to repay amounts outstanding under the 2010 Credit
Agreement in full, and to pay related fees and expenses.
82
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
The 2011 Credit Agreement required that a certain percentage of excess
cash flow from RNLLC, as defined in the 2011 Credit Agreement, be applied to repay outstanding principal. The percentage of RNLLC’s excess cash flow required to be applied as a prepayment depended on RNLLC’s leverage ratio as of the
relevant calculation date and the aggregate outstanding principal amount of loans under the 2011 Credit Agreement on such date.
The obligations under the 2011 Credit Agreement were collateralized by substantially all of the Company’s assets and the assets of most of the Company’s subsidiaries, including a pledge of the
equity interests in many of the Company’s subsidiaries. In addition, RNLLC granted the lenders a mortgage on its real property to collateralize its obligations under the 2011 Credit Agreement and related loan documents. The obligations under
the 2011 Credit Agreement were also guaranteed by the Company and certain of its subsidiaries. The 2011 Credit Agreement contained restrictions on the amount of cash that can be transferred from RNLLC to the Company or its non-RNLLC subsidiaries.
The 2011 Credit Agreement includes restrictive covenants that limit, among other things, the Company and certain subsidiaries’ ability to dispose of assets, pay cash dividends and repurchase stock. RNLLC’s total assets and net assets as of
September 30, 2011 were $150,648,000 and $(50,909,000), respectively.
The Second Amendment was accounted
for as an extinguishment of debt, taking into consideration the change in future cash flows after this amendment and amendments in the preceding 12 months. As a result, for the fiscal year ended September 30, 2011, a loss on extinguishment of
debt, related to the Second Amendment, of $4.6 million was recorded in the consolidated statements of operations. The 2011 Credit Agreement was also accounted for as an extinguishment of debt. As a result, for the fiscal year ended
September 30, 2011, a loss on extinguishment of debt, related to the entry into the 2011 Credit Agreement and repayment of the 2010 Credit Agreement, of $9.2 million was recorded in the statements of operations, resulting in a total loss on
debt extinguishment, related to the Second Amendment and the 2011 Credit Agreement, of $13.8 million. On November 9, 2011, a portion of the proceeds of the Offering were used to repay in full the term loans outstanding under the 2011 Credit
Agreement. As a result, for the three months ended December 31, 2011, a loss on debt extinguishment was recorded for $10.3 million.
Long-term debt consists of the following:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Face value of term loan under the credit agreements
|
|
$
|
—
|
|
|
$
|
146,250
|
|
|
$
|
63,291
|
|
|
Less unamortized discount
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value of term loan under the credit agreements
|
|
|
—
|
|
|
|
146,250
|
|
|
|
60,875
|
|
|
Less current portion
|
|
|
—
|
|
|
|
(38,448
|
)
|
|
|
(12,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan, long term portion
|
|
$
|
—
|
|
|
$
|
107,802
|
|
|
$
|
48,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Revolving Credit Facility
On November 9, 2011, the borrowings outstanding under the 2011 Credit Agreement were repaid in full in connection
with the Offering. On November 10, 2011, RNP and RNLLC entered into a credit agreement (the “2011 Revolving Credit Agreement”), providing for a $25.0 million senior secured revolving credit facility with a two year maturity (the
“2011 Revolving Credit Facility”), and RNLLC paid associated financing costs of approximately $0.9 million. The 2011 Revolving Credit Facility included a letter of credit sublimit of up to $2.5 million for issuance of letters of credit.
Any borrowings under the 2011 Revolving Credit Facility would have borne interest at a rate equal to an applicable margin plus, at RNLLC’s option, either (a) in the case of base rate borrowings, a rate equal to the highest of (1) the
prime rate, (2) the federal funds rate plus 0.5% and (3) the LIBOR for an interest period of three months plus 1.00% or (b) in the case of LIBOR borrowings, the offered rate per annum for deposits of dollars for the applicable
interest period. The applicable margin for borrowings under the 2011 Revolving Credit Facility was 3.25% with respect to base rate borrowings and 4.25% with respect to LIBOR borrowings. Additionally, RNLLC was required to pay a fee to the lenders
under the 2011 Revolving Credit Facility on the unused amount at a rate of 0.5%. RNLLC was also required to pay customary letter of credit fees on issued letters of credit. In the event RNLLC reduced or repaid in full the 2011 Revolving Credit
Facility prior to its first anniversary, it was required to pay a prepayment premium of 2.0% of the principal amount repaid, subject to certain exceptions. At December 31, 2011, there were no outstanding advances under the 2011 Revolving Credit
Facility. On February 28, 2012, RNLLC entered into a credit agreement (the “2012 Credit Agreement”), which provides for a $135.0 million senior collateralized credit facility with a five year maturity. The 2012 Credit Agreement
amended, restated and replaced the 2011 Revolving Credit Agreement. For additional information refer to Note 21 — Subsequent Events.
83
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Convertible Debt
During April 2006, the Company closed its public offering of $57,500,000 principal amount of its 4.00% Convertible
Senior Notes due in 2013 (the “Notes”). In connection with the closing, the Company, and Wells Fargo Bank, National Association, as the Trustee, entered into an Indenture dated April 18, 2006 (the “Indenture”). Certain
subsidiaries of the Company are also parties to the Indenture, although none of the subsidiary guarantors has any obligation under the Notes. The Notes bear interest at the rate of 4.00% per year on the principal amount of the Notes, payable in
cash semi-annually in arrears on April 15 and October 15 of each year. The Notes are the Company’s general unsubordinated unsecured obligations, ranking equally in right of payment to all of the Company’s existing and future
unsubordinated unsecured indebtedness, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the Notes. The Notes are junior in right of payment to all of the Company’s existing and
future collateralized indebtedness to the extent of the value of the collateral for such obligations and structurally subordinated in right of payment to all existing and future obligations of the Company’s subsidiaries, including trade credit.
The Notes are not guaranteed by any of the Company’s subsidiaries.
Holders may convert their Notes into
shares of the Company’s common stock (or cash or a combination of cash and shares of common stock, if the Company so elects) at an initial conversion rate of 249.2522 shares of the Company’s common stock per $1,000 principal amount of
Notes (which represents a conversion price of $4.012 per share of common stock), subject to adjustment as provided in the Indenture, under the following circumstances: (1) during any fiscal quarter, if the closing sale price of the
Company’s common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter exceeds 120% of the conversion price per share on such last trading day, (2) if
the Company has called the Notes for redemption, (3) if the average of the trading prices of the Notes for any five consecutive trading day period is less than 98% of the average of the conversion values of the Notes during that period,
(4) if the Company makes certain significant distributions to the holders of common stock, (5) in connection with a transaction or event constituting a fundamental change or (6) at any time on or after January 15, 2013 until the
close of business on the business day immediately preceding the maturity date. In the event of a fundamental change (as defined in the Indenture), the Company may be required to pay a make-whole premium on Notes converted in connection with the
fundamental change. The make-whole premium will be payable in shares of the Company’s common stock, or the consideration into which of the Company’s common stock has been converted or exchanged in connection with such fundamental change,
on the repurchase date for the Notes after the fundamental change.
At any time on or after April 15,
2011, the Company may redeem the Notes, in whole or in part, at a redemption price payable in cash equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to, but not including, the redemption date.
The issuance of the Notes resulted in 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 prepaid expenses and other assets on the consolidated balance sheets. The Company follows
accounting guidance which specifies that issuers of convertible debt instruments which can be settled in cash shall separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. The estimated effective interest rate on the 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 in additional paid-in capital at the time of issuance. Such discount is amortized as interest expense (non-cash) over the remaining life of the Notes. Convertible debt components are as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Convertible senior notes
|
|
$
|
57,500
|
|
|
$
|
57,500
|
|
|
$
|
57,500
|
|
|
Less unamortized discount
|
|
|
(8,613
|
)
|
|
|
(10,073
|
)
|
|
|
(15,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term convertible debt to stockholders
|
|
$
|
48,887
|
|
|
$
|
47,427
|
|
|
$
|
42,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid debt issuance costs on convertible senior notes
|
|
$
|
325
|
|
|
$
|
387
|
|
|
$
|
639
|
|
84
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Long-term convertible debt, including automatic conversions to common
stock and required cash payments, matures in 2013. The required cash interest payments on convertible notes for the year ending December 31, 2012 based on current interest rates will be $2,300,000. Upon achievement of the conversion criteria,
the notes may be converted into 14,332,002 shares of common stock.
Based on the market prices, the estimated
fair value of the Notes was approximately $56.1 million as of December 31, 2011.
Note 12 — Advance for Equity Investment
In May 2007, the Company entered into an Equity Option Agreement with Peabody Venture Fund, LLC
(“PVF”). Under the Equity Option Agreement, PVF agreed to fund the lesser of $10.0 million or 20% of the development costs for our proposed coal-to-liquids conversion project at the East Dubuque Facility incurred during the period
between November 1, 2006 and the closing date of the financing for the project. In consideration for PVF’s payment of development costs, Rentech granted PVF an option to purchase up to 20% of the equity interest in the project for a
purchase price equal to 20% of the equity contributions made to the project at the closing of the project financing, less the amount of development costs paid by PVF as of such time.
The net proceeds from PVF under this agreement were $7,892,000 which was recorded as an advance for equity investment on
the Consolidated Balance Sheets. Though the Company’s board of directors decided in the first quarter of 2008 to suspend development of the conversion of the East Dubuque Facility, the liability for the advance for equity investment remained as
the potential for another coal-to-liquids project still existed and was considered probable by the Company. The non-interest bearing advance was a liability, but not considered debt. Therefore, the Company did not impute interest on the advance.
During the fiscal year ended September 30, 2011, the Company adopted a revised project development
strategy for the commercialization of its alternative energy technologies, which includes pursuing projects that are smaller and require less capital. Coal-to-liquids projects no longer fit our development strategy and development of a
coal-to-liquids project is no longer probable. As a result, the liability was reversed as it is unlikely the Company will be required to fund the obligation in the future.
Note 13 — Commitments and Contingencies
Natural Gas Forward Purchase Contracts
Our policy and our practice are to enter into fixed-price forward purchase contracts for natural gas in conjunction with
contracted product sales in order to substantially fix gross margin on those product sales contracts. We may enter into a limited amount of additional fixed-price forward purchase contracts for natural gas in order to minimize monthly and seasonal
gas price volatility. Occasionally we enter into index-price contracts. We have entered into multiple natural gas forward purchase contracts for various delivery dates through May 31, 2012. Commitments for natural gas purchases consist of the
following:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
MMBtus under fixed-price contracts
|
|
|
3,040
|
|
|
|
3,182
|
|
|
|
3,465
|
|
|
MMBtus under index-price contracts
|
|
|
—
|
|
|
|
—
|
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MMBtus under contracts
|
|
|
3,040
|
|
|
|
3,182
|
|
|
|
3,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to purchase natural gas
|
|
$
|
12,337
|
|
|
$
|
14,370
|
|
|
$
|
15,294
|
|
|
|
|
|
|
|
Weighted average rate per MMBtu based on the fixed rates and the indexes applicable to each contract
|
|
$
|
4.06
|
|
|
$
|
4.52
|
|
|
$
|
3.95
|
|
Subsequent to December 31, 2011, we entered into additional fixed quantity natural
gas supply contracts at fixed and indexed prices for various delivery dates through September 30, 2012. The total MMBtus associated with these additional contracts are approximately 2,714,000 and the total amount of the purchase commitments are
approximately $7,611,000, resulting in a weighted average rate per MMBtu of approximately $2.80. We are required to make additional prepayments under these purchase contracts in the event that market prices fall below the purchase prices in the
contracts. These payments are recorded as deposits on gas contracts in the accompanying balance sheets.
85
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Operating Leases
The Company has various operating leases of real and personal property which expire through October 2014. Total lease
expense, including month-to-month rent, common area maintenance charges and other rent related fees, for the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010, and 2009 was $596,000, $2,077,000,
$2,390,000 and $2,199,000, respectively.
Future minimum lease payments as of December 31, 2011 are as
follows (in thousands):
|
|
|
|
September 30,
|
|
|
For the Years Ending December 31,
|
|
|
|
|
2012
|
|
$
|
1,233
|
|
|
2013
|
|
|
1,035
|
|
|
2014
|
|
|
1,016
|
|
|
2015
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
$
|
3,654
|
|
|
|
|
|
|
|
Litigation
The Company is party to litigation from time to time in the normal course of business. While the outcome of the
Company’s 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 EPA Region 5 issued a Notice and Finding of Violation pursuant to the Clean Air Act
(“CAA”) related to the number 1 nitric acid plant at the East Dubuque Facility. The notice alleges violations of the CAA’s 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 EPA’s CAA National Enforcement Priority for New Source Review/Prevention of Significant Deterioration related to acid plants, which seeks to reduce emissions from
acid plants through proceedings that result in the installation of new pollution control technology. Without admitting liability, RNLLC has entered into a consent decree (the “Consent Decree”) with the EPA to resolve the alleged
violations, and the Consent Decree was entered by the court, effective as of February 13, 2012. The Consent Decree requires RNLLC to pay a civil penalty of $108,000, install and operate certain pollution control equipment on one of its
nitric acid plants, and to perform certain additional obligations and periodically report to the EPA. RNLLC has commenced implementation of the Consent Decree requirements, including the installation and operation of the pollution control
equipment, and on February 17, 2012, it paid the $108,000 civil penalty.
Note 14 — Stockholders’ Equity
Common Stock
On June 29, 2009 the Company issued 11,000,000 shares of its common stock directly to selected institutional investors for a purchase price of $0.58 per share in cash, which resulted in the Company
receiving net proceeds of $6,300,000. The Company did not retain an underwriter or placement agent, and we did not pay a commission or underwriting discount in connection with this offering.
On August 25, 2009, the Company issued 8,571,428 shares of its common stock, through a placement agent, to selected
institutional investors for a purchase price of $1.75 per share in cash. We paid to the placement agent a fee equal to 4% of the gross proceeds received from the offering and also reimbursed the agent $25,000 for its actual out-of-pocket expenses
and certain other expenses incurred by it in the offering. The net proceeds to the Company were approximately $14,300,000.
On September 28, 2009, the Company issued 11,111,000 shares of its common stock, through a placement agent, to selected institutional investors for a purchase price of $1.80 per share in cash. We
paid to the placement agent a fee equal to 3.5% of the gross proceeds received from the offering and also reimbursed the agent $25,000 for its actual out-of-pocket expenses and certain other expenses incurred by it in the offering. The net proceeds
to the Company were approximately $19,200,000.
86
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
In February 2010, the Company entered into an Equity Distribution
Agreement (the “Equity 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 Company’s common stock for the 30 trading days preceding the date of the sale. The net proceeds from any sales under the Equity Distribution
Agreement are expected to be used for general corporate purposes. For the period from March 1, 2010 through September 30, 2010, the Company sold a total of approximately 6,172,000 shares of common stock at an average price of approximately
$1.03 per share which resulted in aggregate net proceeds of approximately $6.2 million after sales commissions of approximately $95,000. In August 2010, the Equity Distribution Agreement was extended for an additional six month period, which was
scheduled to end February 2, 2011. In February 2011, the Equity Distribution Agreement was extended for an additional year, which will end February 9, 2012. For the fiscal year ended September 30, 2011, the Company did not sell any
shares of common stock under the Equity Distribution Agreement. The Company terminated the Equity Distribution Agreement, effective November 15, 2011, with no penalty.
On April 1, 2010, the Securities and Exchange Commission 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 September 30, 2011 and 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.
On May 11, 2010, the Company’s shareholders approved an amendment to the Company’s 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.
On May 18, 2009, the shareholders of the Company approved the 2009 Incentive Award Plan (the “2009 Plan”). The 2009 Plan provides for the grant to eligible individuals of stock options
and other equity based awards. Up to 9,500,000 shares of common stock have been reserved for issuance under the 2009 Plan.
On May 11, 2011 the shareholders of the Company adopted the Amended and Restated 2009 Incentive Award Plan (the “Amended Plan”) at its Annual Meeting of Shareholders. The Amended Plan
amends the 2009 Incentive Award Plan, as amended (the “Original Plan”), in the following respects:
|
|
•
|
|
Increases the maximum number of shares of common stock which may be issued or awarded under the Original Plan by 15,000,000 shares to a total
of 24,500,000;
|
|
|
•
|
|
Revises the eligibility provision so that individuals eligible to participate in the Amended Plan include all employees, consultants, and
independent directors of the Company;
|
|
|
•
|
|
Provides that “full value awards” (which are awards other than stock options and stock appreciation rights, such as restricted
stock, restricted stock units and similar awards) will count against the Amended Plan’s share limit as 1.5 shares for each share of stock delivered in settlement of a full-value award granted on or after the Amendment Date, as defined in the
Amended Plan, (and correspondingly, that full value awards that are terminated, expired, forfeited or settled in cash on or after the Amendment Date will be added back to the Amended Plan’s share limit as 1.5 shares);
|
|
|
•
|
|
Removes certain vesting limitations applicable to full value awards; and
|
|
|
•
|
|
Clarifies certain limitations on the transferability of awards and their underlying shares.
|
87
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Preferred Stock / Tax Benefit Preservation Plan
On August 5, 2011, the Board approved a Tax Benefit Preservation Plan between the Company and Computershare Trust
Company, N.A., as rights agent (as amended from time to time, the “Plan”).
The Company has
accumulated substantial operating losses. By adopting the Plan, the Board is seeking to protect the Company’s ability to carry forward its net operating losses (collectively, “NOLs”). For federal and state income tax purposes, the
Company may “carry forward” NOLs in certain circumstances to offset current and future taxable income, which will reduce future federal and state income tax liability, subject to certain requirements and restrictions. However, if the
Company were to experience an “ownership change,” as defined in Section 382 of the Internal Revenue Code (the “Code”), its ability to utilize these NOLs to offset future taxable income could be significantly limited.
Generally, an “ownership change” would occur if the percentage of the Company’s stock owned by one or more “five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned
by such stockholders at any time during the prior three-year period.
The Plan is intended to act as a
deterrent to any person acquiring 4.99% or more of the outstanding shares of the Company’s common stock or any existing 4.99% or greater holder from acquiring more than an additional 1% of then outstanding common stock, in each case, without
the approval of the Board and to thus mitigate the threat that stock ownership changes present to the Company’s NOL. The Plan includes procedures whereby the Board will consider requests to exempt certain acquisitions of common stock from the
applicable ownership trigger if the Board determines that the acquisition will not limit or impair the availability of the NOLs to the Company.
In connection with its adoption of the Plan, the Board declared a dividend of one preferred stock purchase right (individually, a “Right” and collectively, the “Rights”) for each share
of common stock of the Company outstanding at the close of business on August 19, 2011 (the “Record Date”). Each Right will entitle the registered holder, after the Rights become exercisable and until expiration, to purchase from the
Company one ten-thousandth of a share of the Company’s Series D Junior Participating Preferred Stock, par value $10.00 per share (the “Preferred Stock”), at a price of $3.75 per one ten-thousandth of a share of Preferred Stock,
subject to certain anti-dilution adjustments (the “Purchase Price”).
One Right will be distributed
to stockholders of the Company for each share of common stock owned of record by them at the close of business on August 19, 2011. As long as the Rights are attached to the common stock, the Company will issue one Right with each new share of
common stock so that all such shares will have attached Rights. The Company has reserved 45,000 shares of Preferred Stock for issuance upon exercise of the Rights.
The Rights will expire, unless earlier redeemed or exchanged by the Company or terminated, on the earliest to occur of:
(i) August 5, 2014, subject to the Company’s right to extend such date, (ii) August 5, 2012 if stockholder approval of the Plan has not been obtained by that date, or (iii) the time at which the Board determines that
the NOLs are fully utilized or no longer available under Section 382 of the Code or that an ownership change under Section 382 of the Code would not adversely impact in any material respect the time period in which the Company could use
the NOLs, or materially impair the amount of the NOLs that could be used by the Company in any particular time period, for applicable tax purposes. The Rights do not have any voting rights.
Long-Term Incentive Equity Awards
The Board and its compensation committee (the “Compensation Committee”) approved long-term incentive equity awards for a group of its officers including its named executive officers effective
November 17, 2009. The awards include both restricted stock units that may vest upon the achievement of certain performance targets, and restricted stock units that vest over time. The awards are intended to balance the objectives of retention,
equity ownership by management, and achievement of performance targets. Vesting of the performance awards is tied to milestones related to the development, construction and operation of the Company’s proposed renewable synthetic fuels and power
project in Rialto, California or another comparable project designated by the Compensation Committee. Under the performance vesting awards, sixty percent (60%) of the performance-based restricted stock units vest upon the closing of financing
for the project, twenty percent (20%) vest upon completion of construction and initial operation of the project facility and twenty percent (20%) vest upon sustained operation of the project facility. The Compensation Committee may also
designate additional performance vesting milestones in the awards. The performance vesting awards are subject to the recipient’s continued employment with the Company, provided that a recipient’s award may vest with respect to a milestone
that is achieved within six months of (i) termination without cause related to a change in control or (ii) death or disability. All unvested restricted stock units expire five years after the date of grant.
88
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
The long-term incentive equity awards also include a time vesting
restricted stock unit award that vests over a three year period with one-third of the restricted stock units vesting on each of the first three anniversaries of November 17, 2009. The time vesting awards are subject to the recipient’s
continued employment with the Company, provided that a recipient’s award may vest upon (i) termination without cause related to a change in control or (ii) death or disability.
In the fiscal year ended September 30, 2009, ten percent (10%) of the cash bonus awards for the named executive
officers was allocated to purchase vested restricted stock units in December 2009 pursuant to the management stock purchase plan. The Company matched these awards with an equal number of restricted stock units that vest December 10, 2012,
subject to the recipient’s continued employment with the Company.
The performance awards granted during
the three months ended December 31, 2011 vest in full on the first date occurring on or prior to October 12, 2014 on which the Company’s value weighted average share price for any 30-day period equals or exceeds $3.00. The awards are
subject to the recipient’s continued employment with the Company, provided that a recipient’s award may vest upon (i) termination without cause by the Company or for good reason by the recipient related to a change in control or
(ii) death or disability.
During the three months ended December 31, 2011 and the fiscal years
ended September 30, 2011 and 2010, the Company issued the following performance shares and restricted stock units:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
Number of Awards
|
|
|
|
|
For the Three
Months Ended
December 31,
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
Type of Award
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
Performance awards
|
|
|
2,960,000
|
|
|
|
—
|
|
|
|
3,650,000
|
|
|
Time-vested awards
|
|
|
3,508,000
|
|
|
|
2,195,000
|
|
|
|
2,155,000
|
|
|
Management stock purchase plan awards
|
|
|
—
|
|
|
|
—
|
|
|
|
534,000
|
|
|
Company matching of management stock purchase plan awards
|
|
|
—
|
|
|
|
—
|
|
|
|
456,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,468,000
|
|
|
|
2,195,000
|
|
|
|
6,795,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no shares allocated to the management stock purchase program in conjunction
with the awards granted in the three months ended December 31, 2011 and the fiscal year ended September 30, 2011. In the fourth quarter of the fiscal year ended September 30, 2011, the Company determined that the Rialto Project would
not be developed. Previously accrued compensation expense of $1.9 million for performance based restricted stock units tied to Rialto Project milestones was reversed and is included in selling, general and administrative expense.
Long-Term Incentive Equity Awards – RNP
On November 2, 2011, the board of directors of the General Partner adopted the Rentech Nitrogen Partners, L.P. 2011
Long-Term Incentive Plan (the “2011 LTIP”). The General Partner’s officers, employees, consultants and non-employee directors, as well as other key employees of the Company, the indirect parent of the General Partner, and certain of
RNP’s other affiliates who make significant contributions to its business, are eligible to receive awards under the 2011 LTIP, thereby linking the recipients’ compensation directly to RNP’s performance. The 2011 LTIP provides for the
grant of unit awards, restricted units, phantom units, unit options, unit appreciation rights, distribution equivalent rights, profits interest units and other unit-based awards. Subject to adjustment in the event of certain transactions or changes
in capitalization, 3,825,000 common units may be delivered pursuant to awards under the 2011 LTIP.
During the
three months ended December 31, 2011, RNP issued 163,388 unit-settled phantom units (which entitles the holder to distribution rights during the vesting period) covering RNP’s common units. The grant date fair value of each unit was
$18.40. The units vest in three equal annual installments; however, for most of the units there is pro-rata vesting in the year of termination of employment.
89
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Note 15 — Accounting for Stock Based Compensation
The accounting guidance requires all share-based payments, including grants of stock options, to be
recognized in the statement of operations, based on their fair values. Stock based compensation expense for all fiscal periods is based on estimated grant-date fair value. Stock options generally vest over three years. As a result, compensation
expense recorded during the period includes amortization related to grants during the period as well as prior grants. Most grants have graded vesting provisions where an equal number of shares vest on each anniversary of the grant date. The Company
allocates the total compensation cost on a straight-line attribution method over the requisite service period. Most grants vest upon the fulfillment of service conditions and have no performance or market-based vesting conditions. Certain grants of
warrants and restricted stock units include share price driven vesting provisions. Stock based compensation expense that the Company records is included in selling, general and administrative expense. There was no tax benefit from recording this
non-cash expense as such benefits will be recorded upon utilization of the Company’s net operating losses.
During the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009,
charges associated with all equity-based grants were recorded as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three
Months
Ended
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Compensation expense
|
|
$
|
1,015
|
|
|
$
|
1,063
|
|
|
$
|
4,224
|
|
|
$
|
2,472
|
|
|
Board compensation expense
|
|
|
50
|
|
|
|
604
|
|
|
|
587
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
|
1,065
|
|
|
|
1,667
|
|
|
|
4,811
|
|
|
|
2,866
|
|
|
Consulting expense
|
|
|
9
|
|
|
|
62
|
|
|
|
284
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
1,074
|
|
|
$
|
1,729
|
|
|
$
|
5,095
|
|
|
$
|
2,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction to both basic and diluted earnings per share from compensation expense
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
The Company uses the Black-Scholes option pricing model to determine the weighted average
fair value of options and warrants. The assumptions utilized to determine the fair value of options and warrants are indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
December 31,
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
2011
|
|
2011
|
|
2010
|
|
2009
|
|
Risk-free interest rate
|
|
1.16% – 1.74%
|
|
1.55% – 2.69%
|
|
2.12% – 3.33%
|
|
0.69% – 3.42%
|
|
Expected volatility
|
|
104.0%
|
|
97.0% – 98.0%
|
|
96.0% – 100.0%
|
|
72.0% – 73.0%
|
|
Expected life (in years)
|
|
6.00 – 8.00
|
|
5.00 – 8.00
|
|
6.00 – 8.00
|
|
1.50 – 8.00
|
|
Dividend yield
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
Forfeiture rate
|
|
14.0%
|
|
0.0% – 8.0%
|
|
0.0% – 18.0%
|
|
0.0% – 15.0%
|
The risk-free interest rate is based on a treasury instrument whose term is consistent
with the expected life of our stock options. The Company used the last day of the month stock price over the last 54 months to project expected stock price volatility For grants made after December 31, 2007 the estimated expected term of
the grant is based on our historical exercise experience. Beginning in the fiscal year ended September 30, 2008, the Company included a forfeiture component in the pricing model on certain grants to employees, based on historical forfeiture
rate for the grantees’ level employees.
90
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
The number of shares reserved, outstanding and available for issuance
are as follows:
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
|
Shares Reserved
|
|
|
Shares
Outstanding
|
|
|
Shares Available
for
Issuance
|
|
|
|
|
As of
December 31,
|
|
|
As of
December 31,
|
|
|
As of
September 30,
|
|
|
As of
December 31,
|
|
|
As of
September 30,
|
|
|
Name of Plan
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2005 Stock Option Plan
|
|
|
1,000
|
|
|
|
195
|
|
|
|
195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
195
|
|
|
2006 Incentive Award Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
8,000
|
|
|
|
1,910
|
|
|
|
2,150
|
|
|
|
1,891
|
|
|
|
32
|
|
|
|
725
|
|
|
|
930
|
|
|
Restricted stock units
|
|
|
—
|
|
|
|
2,567
|
|
|
|
1,812
|
|
|
|
2,802
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2009 Incentive Award Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
24,500
|
|
|
|
2,567
|
|
|
|
2,590
|
|
|
|
516
|
|
|
|
6,936
|
|
|
|
15,105
|
|
|
|
3,582
|
|
|
Restricted stock units
|
|
|
—
|
|
|
|
8,963
|
|
|
|
4,228
|
|
|
|
4,431
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,500
|
|
|
|
16,202
|
|
|
|
10,975
|
|
|
|
9,640
|
|
|
|
6,968
|
|
|
|
15,830
|
|
|
|
4,707
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units not from a plan
|
|
|
1,225
|
|
|
|
358
|
|
|
|
583
|
|
|
|
327
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,725
|
|
|
|
16,560
|
|
|
|
11,558
|
|
|
|
9,967
|
|
|
|
6,968
|
|
|
|
15,830
|
|
|
|
4,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
The Company has multiple stock option plans under which options have been granted to employees, including officers and
directors of the Company, to purchase at a price not less than the fair market value of the Company’s common stock at the date the options were granted. Each of these plans allow the issuance of incentive stock options, within the meaning of
the Code, and other options pursuant to the plan that constitute non-statutory options. Options under the Company’s 2005 Stock Option Plan generally expire five years from the date of grant or at an alternative date as determined by the
committee of the Board that administers the plan. Options under the Company’s 2006 Incentive Award Plan and the 2009 Plan generally expire between three and ten years from the date of grant or at an alternative date as determined by the
committee of the Board that administers the plan. Options under the Company’s 2005 Stock Option Plan, 2006 Incentive Award Plan and the 2009 Plan are generally exercisable on the grant date or a vesting schedule between one and three years from
the grant date as determined by the committee of the Board that administers the plans.
During the three
months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, charges associated with stock option grants were recorded as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three
Months
Ended
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Compensation expense
|
|
$
|
216
|
|
|
$
|
632
|
|
|
$
|
92
|
|
|
$
|
559
|
|
|
Board compensation expense
|
|
|
—
|
|
|
|
129
|
|
|
|
237
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
|
216
|
|
|
|
761
|
|
|
|
329
|
|
|
|
606
|
|
|
Consulting expense
|
|
|
9
|
|
|
|
30
|
|
|
|
51
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
225
|
|
|
$
|
791
|
|
|
$
|
380
|
|
|
$
|
678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Option transactions during the three months ended December 31,
2011 and the fiscal years ended September 30, 2011, 2010 and 2009 are summarized as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at September 30, 2008
|
|
|
3,726,000
|
|
|
$
|
2.82
|
|
|
|
|
|
|
Granted
|
|
|
270,000
|
|
|
|
1.01
|
|
|
|
|
|
|
Exercised
|
|
|
(95,000
|
)
|
|
|
1.40
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(1,408,000
|
)
|
|
|
2.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
2,493,000
|
|
|
|
2.91
|
|
|
|
|
|
|
Granted
|
|
|
336,000
|
|
|
|
1.21
|
|
|
|
|
|
|
Exercised
|
|
|
(15,000
|
)
|
|
|
1.06
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(407,000
|
)
|
|
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010
|
|
|
2,407,000
|
|
|
|
2.90
|
|
|
|
|
|
|
Granted
|
|
|
3,217,000
|
|
|
|
0.96
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(689,000
|
)
|
|
|
2.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2011
|
|
|
4,935,000
|
|
|
|
1.75
|
|
|
|
|
|
|
Granted
|
|
|
50,000
|
|
|
|
1.58
|
|
|
|
|
|
|
Exercised
|
|
|
(32,000
|
)
|
|
|
0.95
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(281,000
|
)
|
|
|
3.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
4,672,000
|
|
|
$
|
1.64
|
|
|
$
|
1,117,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2011
|
|
|
2,739,000
|
|
|
$
|
2.11
|
|
|
$
|
453,000
|
|
|
Options exercisable at September 30, 2011
|
|
|
2,116,000
|
|
|
$
|
2.81
|
|
|
|
|
|
|
Options exercisable at September 30, 2010
|
|
|
2,041,000
|
|
|
$
|
3.20
|
|
|
|
|
|
|
Options exercisable at September 30, 2009
|
|
|
2,048,000
|
|
|
$
|
3.22
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during the three months ended December 31, 2011
|
|
|
|
|
|
$
|
1.32
|
|
|
|
|
|
|
Weighted average fair value of options granted during the fiscal year ended September 30, 2011
|
|
|
|
|
|
$
|
0.78
|
|
|
|
|
|
|
Weighted average fair value of options granted during the fiscal year ended September 30, 2010
|
|
|
|
|
|
$
|
0.94
|
|
|
|
|
|
|
Weighted average fair value of options granted during the fiscal year ended September 30, 2009
|
|
|
|
|
|
$
|
0.71
|
|
|
|
|
|
The aggregate intrinsic value was calculated based on the difference between the
Company’s stock price on December 31, 2011 and the exercise price of the outstanding shares, multiplied by the number of outstanding shares as of December 31, 2011. The total intrinsic value of options exercised during the three
months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009 was $21,000, $0, $5,000 and $44,000, respectively.
As of December 31, 2011, there was $1,174,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements from previously granted stock options. This cost is
expected to be recognized over a weighted-average period of 1.8 years.
The following information summarizes
stock options outstanding and exercisable at December 31, 2011:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
in Years
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$0.60 – $0.98
|
|
|
2,852,000
|
|
|
|
8.48
|
|
|
$
|
0.93
|
|
|
|
1,025,000
|
|
|
$
|
0.90
|
|
|
$1.03 – $1.07
|
|
|
75,000
|
|
|
|
5.26
|
|
|
|
1.06
|
|
|
|
50,000
|
|
|
|
1.07
|
|
|
$1.20 – $1.76
|
|
|
715,000
|
|
|
|
4.49
|
|
|
|
1.41
|
|
|
|
634,000
|
|
|
|
1.40
|
|
|
$2.22 – $2.68
|
|
|
185,000
|
|
|
|
2.68
|
|
|
|
2.46
|
|
|
|
185,000
|
|
|
|
2.46
|
|
|
$3.35 – $3.81
|
|
|
115,000
|
|
|
|
3.18
|
|
|
|
3.60
|
|
|
|
115,000
|
|
|
|
3.60
|
|
|
$4.15 – $4.30
|
|
|
730,000
|
|
|
|
4.49
|
|
|
|
4.16
|
|
|
|
730,000
|
|
|
|
4.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,672,000
|
|
|
|
6.84
|
|
|
$
|
1.64
|
|
|
|
2,739,000
|
|
|
$
|
2.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
During fiscal 2005, the Company issued a warrant to Management Resource Center, Inc, an entity controlled by D. Hunt Ramsbottom, the Company’s President and CEO. During the last quarter of fiscal
2005, Mr. Ramsbottom assigned the warrant to East Cliff Advisors, LLC, an entity controlled by Mr. Ramsbottom. The warrant is for the purchase of 3.5 million shares of the Company’s common stock at an exercise price of $1.82. The
warrant has vested or will vest in the following incremental amounts upon such time as the Company’s stock reaches the stated closing prices for 12 consecutive trading days: 10% at $2.10 (vested); 15% at $2.75 (vested); 20% at $3.50 (vested);
25% at $4.25 (vested); and 30% at $5.25 (not vested). The Company recognizes compensation expense as the warrants vest, as the total number of shares to be granted under the warrant was not known on the grant date. In fiscal 2005, the Company
accounted for the warrant under guidance for accounting for stock issued to employees due to the employer-employee relationship between the Company and Mr. Ramsbottom. Under the guidance, compensation cost would only be recognized for stock
based compensation granted to employees when the exercise price of the Company’s stock options granted is less than the market price of the underlying common stock on the date of grant.
92
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
The original warrants included 2,082,500 shares that had vested and
1,050,000 shares that are not vested. East Cliff Advisors assigned 262,500 warrants to a third party and continues to hold 787,500 warrants. In January 2009, the vesting terms and expiration for the warrants held by East Cliff Advisors, LLC
were amended. As amended, with respect to the unvested warrants representing 787,500 shares, half of these warrants vested on December 31, 2011. The exercise price of the warrants remained at $1.82 per share. The expiration date for this half
of the warrants was extended from August 4, 2010 to December 31, 2012. The other 393,750 warrants and the original vested 2,082,500 warrants expired on December 31, 2011.
The changes in terms to the vested warrants were evaluated using the Black-Scholes option-pricing model and additional
compensation expense of $190,000 was recognized in the fiscal year ended September 30, 2009 since the value calculated under the amendment exceeds the original warrant value.
During the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009,
charges associated with grants of warrants were recorded as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three
Months
Ended
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Compensation expense
|
|
$
|
6
|
|
|
$
|
26
|
|
|
$
|
26
|
|
|
$
|
190
|
|
|
Board compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
$
|
6
|
|
|
$
|
26
|
|
|
$
|
26
|
|
|
$
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant transactions during the three months ended December 31, 2011 and the fiscal
years ended September 30, 2011, 2010 and 2009 are summarized as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding at September 30, 2008
|
|
|
11,343,000
|
|
|
$
|
2.30
|
|
|
Granted
|
|
|
6,994,000
|
|
|
|
0.83
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Canceled / Expired
|
|
|
(50,000
|
)
|
|
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
18,287,000
|
|
|
$
|
1.74
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
(2,748,000
|
)
|
|
|
0.75
|
|
|
Canceled / Expired
|
|
|
(2,943,000
|
)
|
|
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010
|
|
|
12,596,000
|
|
|
$
|
1.89
|
|
|
Granted
|
|
|
1,980,000
|
|
|
|
0.99
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Canceled / Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2011
|
|
|
14,576,000
|
|
|
$
|
1.77
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
394,000
|
|
|
|
1.82
|
|
|
Exercised
|
|
|
(2,464,000
|
)
|
|
|
0.91
|
|
|
Canceled / Expired
|
|
|
(2,082,000
|
)
|
|
|
1.82
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
10,424,000
|
|
|
$
|
1.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at December 31, 2011
|
|
|
10,424,000
|
|
|
$
|
1.96
|
|
|
Warrants exercisable at September 30, 2011
|
|
|
14,576,000
|
|
|
$
|
1.77
|
|
|
Warrants exercisable at September 30, 2010
|
|
|
12,596,000
|
|
|
$
|
1.89
|
|
|
Warrants exercisable at September 30, 2009
|
|
|
18,287,000
|
|
|
$
|
1.74
|
|
|
|
|
|
|
Weighted average fair value of warrants granted during the fiscal year ended December 31, 2011
|
|
|
|
|
|
$
|
—
|
|
|
Weighted average fair value of warrants granted during the fiscal year ended September 30, 2011
|
|
|
|
|
|
$
|
0.64
|
|
|
Weighted average fair value of warrants granted during the fiscal year ended September 30, 2010
|
|
|
|
|
|
$
|
—
|
|
|
Weighted average fair value of warrants granted during the fiscal year ended September 30, 2009
|
|
|
|
|
|
$
|
0.32
|
|
93
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2011, there was no unrecognized compensation
cost related to share-based compensation arrangements from previously granted warrants.
The following
information summarizes warrants outstanding and exercisable at December 31, 2011:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
in Years
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$0.57 – $0.60
|
|
|
1,267,000
|
|
|
|
1.27
|
|
|
$
|
0.57
|
|
|
|
1,267,000
|
|
|
$
|
0.57
|
|
|
$0.92 – $0.99
|
|
|
3,745,000
|
|
|
|
2.04
|
|
|
|
0.92
|
|
|
|
3,745,000
|
|
|
|
0.92
|
|
|
$1.82
|
|
|
394,000
|
(1)
|
|
|
1.00
|
|
|
|
1.82
|
|
|
|
394,000
|
|
|
|
1.82
|
|
|
$2.41
|
|
|
1,000,000
|
|
|
|
2.03
|
|
|
|
2.41
|
|
|
|
1,000,000
|
|
|
|
2.41
|
|
|
$3.28
|
|
|
4,018,000
|
|
|
|
0.32
|
|
|
|
3.28
|
|
|
|
4,018,000
|
|
|
|
3.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.57 – $3.28
|
|
|
10,424,000
|
|
|
|
1.24
|
|
|
$
|
1.96
|
|
|
|
10,424,000
|
|
|
$
|
1.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Composed of 394,000 shares underlying the warrants issued to East Cliff Advisors, LLC. The aggregate intrinsic value of these shares was $0 as
of December 31, 2011.
|
Restricted Stock Units and Performance Share Awards
The Company issues Restricted Stock Units (“RSU’s”) which are equity-based instruments that may be settled
in shares of common stock of the Company. In the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009, the Company issued RSU’s and Performance Share Awards to certain employees as
long-term incentives.
Most RSU agreements include a three-year vesting period such that one-third will vest
on each annual anniversary date of the commencement date of the agreement. The vesting of various RSU’s are subject to partial or complete acceleration under certain circumstances, including termination without cause, end of employment for good
reason or upon a change in control (in each case as defined in the agreement). The vesting of a portion of certain RSU’s will accelerate if employment is terminated without cause, or employment is ended for good reason. In certain agreements,
if we fail to offer to renew an employment agreement on competitive terms or if a termination occurs which would entitle the grantee to severance during the period of three months prior and two years after a change in control, the vesting of the
restricted stock unit grant will accelerate.
The compensation expense incurred by the Company for RSU’s
is based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period and charged to selling, general and administrative expense with a
corresponding increase to additional paid-in capital. The compensation expense incurred by the Company for Performance Share Awards is based on the Monte Carlo valuation model.
During the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009,
charges associated with RSU’s and Performance Share Award grants were recorded as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three
Months
Ended
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Compensation expense
|
|
$
|
793
|
|
|
$
|
405
|
|
|
$
|
4,106
|
|
|
$
|
1,724
|
|
|
Board compensation expense
|
|
|
50
|
|
|
|
75
|
|
|
|
—
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
$
|
843
|
|
|
$
|
480
|
|
|
$
|
4,106
|
|
|
$
|
1,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
RSU and Performance Share Award transactions during the three months
ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009 are summarized as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant
Date
Fair Value
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at September 30, 2008
|
|
|
2,797,000
|
|
|
$
|
2.21
|
|
|
|
|
|
|
Granted
|
|
|
445,000
|
|
|
|
0.62
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(707,000
|
)
|
|
|
2.93
|
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(235,000
|
)
|
|
|
3.53
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(240,000
|
)
|
|
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
2,060,000
|
|
|
|
1.53
|
|
|
|
|
|
|
Granted
|
|
|
6,935,000
|
|
|
|
1.28
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(391,000
|
)
|
|
|
1.79
|
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(210,000
|
)
|
|
|
1.90
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(834,000
|
)
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010
|
|
|
7,560,000
|
|
|
|
1.30
|
|
|
|
|
|
|
Granted
|
|
|
2,195,000
|
|
|
|
0.98
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(1,212,000
|
)
|
|
|
1.35
|
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(578,000
|
)
|
|
|
1.33
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(1,342,000
|
)
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2011
|
|
|
6,623,000
|
|
|
|
1.18
|
|
|
|
|
|
|
Granted
|
|
|
6,468,000
|
|
|
|
1.50
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(739,000
|
)
|
|
|
1.08
|
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(371,000
|
)
|
|
|
1.09
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(93,000
|
)
|
|
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
11,888,000
|
|
|
|
1.37
|
|
|
$
|
15,574,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the 11,888,000 RSU’s and Performance Share Awards outstanding at
December 31, 2011, 2,567,000 and 8,963,000 were granted pursuant to our 2006 Incentive Award Plan and 2009 Plan, respectively. The other 358,000 RSU’s were not granted pursuant to a stock option plan but were “inducement grants.”
Of the 6,623,000 RSU’s and Performance Share Awards outstanding at September 30, 2011, 1,812,000 and 4,228,000 were granted pursuant to our 2006 Incentive Award Plan and 2009 Plan, respectively. The other 583,000 RSU’s were not
granted pursuant to a stock option plan but were “inducement grants.” Of the 7,560,000 RSU’s and Performance Share Awards outstanding at September 30, 2010, 2,802,000 and 4,431,000 were granted pursuant to our 2006 Incentive
Award Plan and 2009 Plan, respectively. The other 327,000 RSU’s were not granted pursuant to a stock option plan but were “inducement grants.” Of the 2,060,000 RSU’s and Performance Share Awards outstanding at September 30,
2009, 1,625,000 were granted pursuant to our 2006 Incentive Award Plan. The other 435,000 RSU’s were not granted pursuant to a stock option plan but were “inducement grants.” Such grants may be made without prior shareholder approval
pursuant to the rules of the NYSE Amex if the grants are made to new employees as an inducement to joining the Company, the grants are approved by the Compensation Committee and terms of the grants are promptly disclosed in a press release.
As of December 31, 2011, there was $10,323,000 of total unrecognized compensation cost related to
non-vested share-based compensation arrangements from previously granted RSU’s and Performance Share Awards. That cost is expected to be recognized over a weighted-average period of 1.8 years.
The grant date fair value of RSU’s and Performance Share Awards that vested during the three months ended
December 31, 2011 and the fiscal years ended September 30, 2011, 2010 and 2009 was $1.2 million, $2.4 million, $1.1 million and $2.9 million, respectively.
95
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
Stock Grants
During the three months ended December 31, 2011, the Company did not issue any grants of stock. During the fiscal
year ended September 30, 2011, the Company issued a total of 465,000 shares of stock which were fully vested at date of grant. Of this amount, 440,000 shares, which were evenly distributed, were granted to the directors and 25,000 shares were
granted to a consultant. This resulted in stock-based compensation expense of $400,000 and $32,000 for the shares granted to the directors and consultant, respectively. During the fiscal year ended September 30, 2010, the Company issued a total
of 516,900 shares of stock which were fully vested at date of grant. Of this amount, 291,900 shares, which were evenly distributed, were granted to the directors and 225,000 shares were granted to consultants. This resulted in stock-based
compensation expense of $350,000 and $233,000 for the shares granted to the directors and consultants, respectively. During the fiscal year ended September 30, 2009, the Company issued a total of 419,000 shares of stock which were fully vested
at date of grant. Of this amount, 394,000 shares, which were evenly distributed, were granted to the directors and 25,000 shares were granted to a consultant. This resulted in stock-based compensation expense of $216,000 and $17,000 for the shares
granted to the directors and consultant, respectively.
2011 LTIP
During the three months ended December 31, 2011, charges associated with all equity-based grants issued by RNP under
the 2011 LTIP were $63,000. As of December 31, 2011, there was $2,943,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements from previously granted phantom units. That cost is expected to be
recognized over a weighted-average period of 2.9 years.
Note 16 — Defined Contribution Plan
The Company has a 401(k) plan. Most employees, excluding RNLLC’s union employees, who are at
least 18 years of age are eligible to participate in the plan and share in the employer matching contribution. The Company is currently matching 75% of the first 6% of the participant’s salary deferrals. The Company contributed $217,000,
$883,000, $834,000 and $789,000 to the plans for the three months ended December 31, 2011 and the fiscal years ended September 30, 2011, 2010, and 2009, respectively.
Note 17 — Income Taxes
Accounting guidance requires deferred tax assets and liabilities to be recognized for temporary
differences between the tax basis and financial reporting basis of assets and liabilities, computed at the expected tax rates for the periods in which the assets or liabilities will be realized, as well as for the expected tax benefit of net
operating loss and tax credit carryforwards. A full valuation allowance was recorded against the deferred tax assets.
The realization of deferred income tax assets is dependent on the generation of taxable income in appropriate jurisdictions during the periods in which those temporary differences are deductible.
Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in determining the amount of the valuation allowance. Based on the level of historical taxable income and
projections for future taxable income over the periods in which the deferred income tax assets are deductible, management determines if it is more likely than not that the Company will realize the benefits of these deductible differences. As of
December 31, 2011, the most significant factor considered in determining the realizability of these deferred tax assets was our profitability over the past three years. The Company needs to generate approximately $114.0 million in pre-tax
income in the United States prior to the expiration of our net operating loss carryforwards to fully utilize these net deferred tax assets. Management believes that at this point in time, it is more likely than not that the deferred tax assets will
not be realized. The Company therefore has recorded a full valuation allowance against its deferred tax assets at December 31, 2011, September 30, 2011, 2010 and 2009.
The provision for income taxes for the three months ended December 31, 2011 and 2010 and the fiscal years ended
September 30, 2011, 2010, and 2009 was, as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
State
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
11
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
11
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
11
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
A reconciliation of the income taxes at the federal statutory rate to
the effective tax rate was as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months
Ended December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
Federal income tax benefit calculated at the federal statutory rate
|
|
$
|
(2,730
|
)
|
|
$
|
(1,848
|
)
|
|
$
|
(21,885
|
)
|
|
$
|
(14,340
|
)
|
|
$
|
(11
|
)
|
|
State income tax benefit net of federal benefit
|
|
|
3,882
|
|
|
|
1
|
|
|
|
(3,069
|
)
|
|
|
(2,124
|
)
|
|
|
32
|
|
|
Permanent differences, other
|
|
|
136
|
|
|
|
131
|
|
|
|
434
|
|
|
|
(1,339
|
)
|
|
|
127
|
|
|
Uncertain tax positions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(811
|
)
|
|
Change in State Tax Rate
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,164
|
)
|
|
|
(133
|
)
|
|
|
(4,796
|
)
|
|
Partnership basis difference
|
|
|
93,527
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Change in valuation allowance
|
|
|
(94,813
|
)
|
|
|
1,718
|
|
|
|
26,687
|
|
|
|
17,947
|
|
|
|
5,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
11
|
|
|
$
|
61
|
|
The components of the net deferred tax liability and net deferred tax asset as of
December 31, 2011, September 30, 2011 and 2010 are as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals for financial statement purposes not allowed for income taxes
|
|
$
|
8,400
|
|
|
$
|
7,821
|
|
|
$
|
7,561
|
|
|
Basis difference in prepaid expenses
|
|
|
(697
|
)
|
|
|
(555
|
)
|
|
|
(664
|
)
|
|
Inventory
|
|
|
236
|
|
|
|
127
|
|
|
|
(566
|
)
|
|
Valuation allowance
|
|
|
(3,870
|
)
|
|
|
(7,490
|
)
|
|
|
(6,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current, net
|
|
|
4,069
|
|
|
|
(97
|
)
|
|
|
(561
|
)
|
|
Long-Term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss and capital loss carryforwards
|
|
$
|
47,130
|
|
|
$
|
69,629
|
|
|
$
|
65,229
|
|
|
Basis difference relating to Intangibles
|
|
|
(2,094
|
)
|
|
|
(2,184
|
)
|
|
|
(2,485
|
)
|
|
Basis difference in property, plant and equipment
|
|
|
7,611
|
|
|
|
48,724
|
|
|
|
27,238
|
|
|
Stock option exercises
|
|
|
6,743
|
|
|
|
6,926
|
|
|
|
7,339
|
|
|
Impairment of available for sale securities
|
|
|
1,204
|
|
|
|
1,204
|
|
|
|
1,179
|
|
|
Debt issuance costs
|
|
|
130
|
|
|
|
155
|
|
|
|
250
|
|
|
Debt discount
|
|
|
(3,444
|
)
|
|
|
(4,029
|
)
|
|
|
(6,004
|
)
|
|
Basis difference in partnership interest
|
|
|
(32,263
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Other items
|
|
|
(937
|
)
|
|
|
(986
|
)
|
|
|
1,067
|
|
|
Valuation allowance
|
|
|
(28,149
|
)
|
|
|
(119,342
|
)
|
|
|
(93,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term, net
|
|
$
|
(4,069
|
)
|
|
$
|
97
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
A portion of the valuation allowance relates to the deferred tax asset
created by the stock option expense. The benefit that will be generated by the reversal of this portion of the allowance will be recorded to equity upon the release of the valuation allowance in the future. The amount of the deferred tax asset
related to the stock option expense was $5,732,000, $5,888,000 and $6,374,000 for the three months ended December 31, 2011 and the fiscal years ended September 30, 2011 and 2010, respectively.
As of December 31, 2011, we had the following available carryforwards to offset future taxable income:
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Description
|
|
Amount
|
|
|
Expiration
|
|
|
|
(in thousands)
|
|
|
|
|
Net Operating Losses — US Federal
|
|
$
|
114,147
|
|
|
2030
|
|
Net Operating Losses — States
|
|
$
|
171,853
|
|
|
2030
|
|
R&D Credit
|
|
$
|
2,754
|
|
|
2021 – 2029
|
Tax Contingencies
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. The guidance requires that the Company recognize in its consolidated financial statements, only those tax positions that are “more-likely-than-not” of being
sustained as of the adoption date, based on the technical merits of the position. The Company performed a comprehensive review of its material tax positions in accordance with accounting guidance.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(in thousands)
|
|
|
Reconciliation of Unrecognized Tax Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
2,754
|
|
|
$
|
2,754
|
|
|
$
|
2,754
|
|
|
Additions based on tax positions taken during a prior period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Additions based on tax positions related to the current period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Reductions based on tax positions related to prior years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Settlements with taxing authorities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Lapse of statutes of limitations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,754
|
|
|
$
|
2,754
|
|
|
$
|
2,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the $2,754 of unrecognized tax benefits are recognized, the entire amount will affect
the effective tax rate. The Company believes that it is not reasonably possible that the unrecognized tax benefits will significantly increase or decrease within the next 12 months. The Company and its subsidiaries are subject to the following
material taxing jurisdictions: U.S. federal, California, Colorado, Illinois and Texas. The tax years that remain open to examination by the U.S. federal and Illinois jurisdictions are years 2007 through 2010; the tax years that remain open to
examination by the California, Colorado and Texas jurisdictions are years 2006 through 2010.
In accordance
with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. The Company has not accrued any interest and penalties related to uncertain tax positions in the
balance sheet or statement of operations as a result of the Company’s net operating loss position.
98
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
While management believes the Company has adequately provided for all
tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex application of tax regulations. Additionally, the recognition and measurement of certain tax benefits
includes estimates and judgment by management and inherently includes subjectivity. Accordingly, additional provisions on federal and state tax-related matters could be recorded in the future as revised estimates are made or the underlying matters
are settled or otherwise resolved.
Note 18 — Segment Information
The Company operates in two business segments as follows:
|
|
•
|
|
Nitrogen products manufacturing — The Company manufactures a variety of nitrogen-based fertilizer and industrial products.
|
|
|
•
|
|
Alternative energy — The Company develops and markets processes for conversion of low-value, carbon-bearing solids or gases into valuable
hydrocarbons and electric power, and is developing projects that would employ these processes.
|
The Company’s reportable operating segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company
evaluates performance based upon several factors, of which the primary financial measure is segment-operating income. Segment information has been adjusted for all periods presented to reflect certain changes in segment measure as a result of the
push down accounting related to the Offering.
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing
|
|
$
|
63,014
|
|
|
$
|
42,962
|
|
|
$
|
179,857
|
|
|
$
|
131,396
|
|
|
$
|
186,449
|
|
|
Alternative energy
|
|
|
52
|
|
|
|
52
|
|
|
|
206
|
|
|
|
529
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
63,066
|
|
|
$
|
43,014
|
|
|
$
|
180,063
|
|
|
$
|
131,925
|
|
|
$
|
186,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing
|
|
$
|
3,336
|
|
|
$
|
1,431
|
|
|
$
|
5,786
|
|
|
$
|
4,497
|
|
|
$
|
4,758
|
|
|
Alternative energy
|
|
|
7,162
|
|
|
|
6,256
|
|
|
|
22,218
|
|
|
|
23,913
|
|
|
|
19,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expense
|
|
$
|
10,498
|
|
|
$
|
7,687
|
|
|
$
|
28,004
|
|
|
$
|
28,410
|
|
|
$
|
24,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing
|
|
$
|
77
|
|
|
$
|
112
|
|
|
$
|
409
|
|
|
$
|
439
|
|
|
$
|
403
|
|
|
Alternative energy
|
|
|
489
|
|
|
|
461
|
|
|
|
1,816
|
|
|
|
1,508
|
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization recorded in operating expenses
|
|
$
|
566
|
|
|
$
|
573
|
|
|
$
|
2,225
|
|
|
$
|
1,947
|
|
|
$
|
1,478
|
|
|
Nitrogen products manufacturing — expense recorded in cost of sales
|
|
|
3,210
|
|
|
|
2,489
|
|
|
|
9,611
|
|
|
|
10,104
|
|
|
|
8,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
3,776
|
|
|
$
|
3,062
|
|
|
$
|
11,836
|
|
|
$
|
12,051
|
|
|
$
|
9,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Alternative energy
|
|
|
4,202
|
|
|
|
5,426
|
|
|
|
30,009
|
|
|
|
19,641
|
|
|
|
21,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
$
|
4,202
|
|
|
$
|
5,426
|
|
|
$
|
30,009
|
|
|
$
|
19,641
|
|
|
$
|
21,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating (income) expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing
|
|
$
|
(507
|
)
|
|
$
|
—
|
|
|
$
|
522
|
|
|
$
|
51
|
|
|
$
|
87
|
|
|
Alternative energy
|
|
|
583
|
|
|
|
53
|
|
|
|
50,851
|
|
|
|
1,330
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating (income) expenses
|
|
$
|
76
|
|
|
$
|
53
|
|
|
$
|
51,373
|
|
|
$
|
1,381
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing
|
|
$
|
22,648
|
|
|
$
|
14,584
|
|
|
$
|
69,854
|
|
|
$
|
20,389
|
|
|
$
|
55,313
|
|
|
Alternative energy
|
|
|
(12,434
|
)
|
|
|
(12,195
|
)
|
|
|
(104,888
|
)
|
|
|
(46,555
|
)
|
|
|
(41,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
10,214
|
|
|
$
|
2,389
|
|
|
$
|
(35,034
|
)
|
|
$
|
(26,166
|
)
|
|
$
|
13,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing
|
|
$
|
1,947
|
|
|
$
|
2,912
|
|
|
$
|
13,752
|
|
|
$
|
9,859
|
|
|
$
|
8,481
|
|
|
Alternative energy
|
|
|
2,151
|
|
|
|
818
|
|
|
|
2,914
|
|
|
|
4,376
|
|
|
|
5,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
4,098
|
|
|
$
|
3,730
|
|
|
$
|
16,666
|
|
|
$
|
14,235
|
|
|
$
|
14,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing
|
|
$
|
10,455
|
|
|
$
|
4,324
|
|
|
$
|
24,926
|
|
|
$
|
5,009
|
|
|
$
|
28,159
|
|
|
Alternative energy
|
|
|
(14,553
|
)
|
|
|
(10,208
|
)
|
|
|
(90,308
|
)
|
|
|
(47,280
|
)
|
|
|
(28,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from continuing operations
|
|
$
|
(4,098
|
)
|
|
$
|
(5,884
|
)
|
|
$
|
(65,382
|
)
|
|
$
|
(42,271
|
)
|
|
$
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products manufacturing
|
|
$
|
130,443
|
|
|
$
|
152,408
|
|
|
$
|
108,837
|
|
|
Alternative energy
|
|
|
230,085
|
|
|
|
102,266
|
|
|
|
91,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
360,528
|
|
|
$
|
254,674
|
|
|
$
|
200,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19 — Net Income (Loss) Per Common Share Attributable To Rentech
Basic income (loss) per common share attributable to Rentech is calculated by dividing net income
(loss) attributable to Rentech by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share attributable to Rentech is calculated by dividing net income (loss) attributable to Rentech by the
weighted average number of common shares outstanding plus the dilutive effect, calculated using the “treasury stock” method for the unvested restricted stock units, outstanding stock options and warrants and using the “if
converted” method for the convertible debt.
For the three months ended December 31, 2011 and 2010
and the fiscal year ended September 30, 2011, 2010 and 2009, approximately 41.3 million, 40.8 million, 40.5 million, 36.9 million and 37.2 million shares, respectively, of the Company’s common stock issuable
pursuant to stock options, stock warrants, restricted stock units and convertible debt were excluded from the calculation of diluted income (loss) per share because their inclusion would have been anti-dilutive.
Note 20 — Selected Quarterly Financial Data (Unaudited)
Selected unaudited condensed consolidated financial information for the fiscal years ended
September 30, 2011 and 2010 is presented in the tables below (in thousands, except per share data).
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
For the 2011 Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
43,014
|
|
|
$
|
23,994
|
|
|
$
|
74,436
|
|
|
$
|
38,619
|
|
|
Gross profit
|
|
$
|
16,128
|
|
|
$
|
10,202
|
|
|
$
|
37,428
|
|
|
$
|
12,819
|
|
|
Operating income (loss)
|
|
$
|
2,389
|
|
|
$
|
(4,432
|
)
|
|
$
|
20,758
|
|
|
$
|
(53,749
|
)
|
|
Income (loss) from continuing operations
|
|
$
|
(5,884
|
)
|
|
$
|
(8,087
|
)
|
|
$
|
7,696
|
|
|
$
|
(59,107
|
)
|
|
Net income (loss)
|
|
$
|
(5,884
|
)
|
|
$
|
(8,087
|
)
|
|
$
|
7,696
|
|
|
$
|
(59,107
|
)
|
|
Net loss attributable to noncontrolling interests
|
|
$
|
366
|
|
|
$
|
522
|
|
|
$
|
192
|
|
|
$
|
19
|
|
|
Net income (loss) attributable to Rentech
|
|
$
|
(5,518
|
)
|
|
$
|
(7,565
|
)
|
|
$
|
7,888
|
|
|
$
|
(59,088
|
)
|
|
Net income (loss) per common share attributable to Rentech:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.27
|
)
|
|
Discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.27
|
)
|
|
Discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
For the 20
10
Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
27,138
|
|
|
$
|
19,182
|
|
|
$
|
50,510
|
|
|
$
|
35,095
|
|
|
Gross profit (loss)
|
|
$
|
(1,152
|
)
|
|
$
|
3,010
|
|
|
$
|
15,187
|
|
|
$
|
8,168
|
|
|
Operating income (loss)
|
|
$
|
(12,528
|
)
|
|
$
|
(8,724
|
)
|
|
$
|
2,216
|
|
|
$
|
(7,130
|
)
|
|
Loss from continuing operations
|
|
$
|
(15,475
|
)
|
|
$
|
(15,996
|
)
|
|
$
|
(1,677
|
)
|
|
$
|
(9,123
|
)
|
|
Income from discontinued operations
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
Net loss
|
|
$
|
(15,471
|
)
|
|
$
|
(15,994
|
)
|
|
$
|
(1,675
|
)
|
|
$
|
(9,122
|
)
|
|
Net loss attributable to noncontrolling interests
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
94
|
|
|
Net loss attributable to Rentech
|
|
$
|
(15,471
|
)
|
|
$
|
(15,994
|
)
|
|
$
|
(1,675
|
)
|
|
$
|
(9,028
|
)
|
|
Net loss per common share attributable to Rentech:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
Discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
Discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 21 — Subsequent Events
In February 2012, the Board authorized the repurchase of up to $25.0 million of outstanding shares of
the Company’s common stock. The share repurchase program is expected to be effective on or about March 20, 2012 and will be funded by the Company’s available cash. The Company may buy shares in the open market or through privately
negotiated transactions from time to time over the next 12 months as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and
will be subject to economic and market conditions, stock price and other factors and compliance with applicable legal requirements. The share repurchase program does not obligate the Company to acquire any particular amount of its common stock, and
can be implemented, suspended or discontinued at any time, without prior notice, at the Company’s sole discretion.
On February 28, 2012, RNLLC entered into the 2012 Credit Agreement among itself, RNP, as guarantor, General Electric Capital Corporation, as administrative agent and swingline lender, GE Capital Markets,
Inc., as sole lead arranger and bookrunner, BMO Harris Bank, N.A. as syndication agent, and the lenders party thereto (the “Lenders”). The 2012 Credit Agreement amended, restated and replaced the 2011 Revolving Credit Agreement.
The 2012 Credit Agreement consists of (i) a $100 million multiple draw term loan (the “CapEx
Facility”) that can be used to pay for capital expenditures related to the ammonia capacity expansion and for fees and expenses due to the Lenders, and (ii) and a $35 million revolving facility (the “2012 Revolving Credit Facility”)
that can be used for seasonal working capital needs, letters of credit and for general purposes.
The 2012
Credit Agreement has a maturity date of February 27, 2017. Borrowings under the 2012 Credit Agreement bear interest at a rate equal to an applicable margin plus, at RNLLC’s option, either (a) in the case of base rate borrowings, a rate equal to
the highest of (1) the prime rate, (2) the federal funds rate plus 0.5% or (3) LIBOR for an interest period of three months plus 1.00% or (b) in the case of LIBOR borrowings, the offered rate per annum for deposits of dollars for the applicable
interest period on the day that is 2 business days prior to the first day of such interest period. The applicable margin for borrowings under the 2012 Credit Agreement is 2.75% with respect to base rate borrowings and 3.75% with respect to LIBOR
borrowings. Additionally, RNLLC is required to pay a fee to the lenders under the CapEx Facility on the undrawn available portion at a rate of 0.75% per annum and a fee to the lenders under the 2012 Revolving Credit Facility on the undrawn available
portion at a rate of 0.50% per annum. RNLLC also is required to pay customary letter of credit fees on issued letters of credit. In the event RNLLC reduces or terminates the 2012 Credit Agreement prior to its third anniversary, RNLLC will be
required to pay a prepayment premium of 1.0% of the principal amount reduced or terminated, subject to certain exceptions.
The 2012 Revolving Credit Facility includes a letter of credit sublimit of $10 million and it can be drawn on or letters of credit can be issued through the day that is seven days prior to the maturity
date. The amounts outstanding under the 2012 Revolving Credit Facility will be required to be reduced to zero (other than outstanding letters of credit) for three periods of ten consecutive business days during each year with each period not less
than four months apart, and one period to begin each April.
101
RENTECH, INC.
Notes to Consolidated Financial Statements (Continued)
The CapEx Facility is available for borrowing until February 27,
2014 and requires amortization payments expected to begin in the spring of 2014. In the first two years of amortization, RNLLC must make amortization payments of 10% per year, or 2.5% per quarter, and thereafter, 25% per year, or
6.25% per quarter, of the aggregate amount drawn, in each case, with the final principal payment due upon maturity.
Upon entry into the 2012 Credit Agreement, RNLLC borrowed approximately $8.5 million under the CapEx Facility (i) to repay in full outstanding borrowings under the credit agreement it had entered
into on December 28, 2011, with the Company as lender and RNP as guarantor (the “Bridge Loan Agreement”), of approximately $5.9 million and (ii) to pay fees associated with the 2012 Credit Agreement of approximately $2.6 million.
RNLLC also terminated the Bridge Loan Agreement upon entry into the 2012 Credit Agreement.
102
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedules
To the Board of Directors and Stockholders of Rentech Inc.
Our audits of the
consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated March 15, 2012 also included an audit of the financial statement schedules listed in Item 15(a)(2) of
this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Los Angeles,
California
March 15, 2012
103
SCHEDULE
CONDENSED FINANCIAL INFORMATION
SCHEDULE I — CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
RENTECH, INC.
Balance Sheets
(Amounts in thousands, except per share data)
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
As of
December 31,
|
|
|
As of September 30,
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
192,645
|
|
|
$
|
68,769
|
|
|
$
|
19,051
|
|
|
Prepaid expenses and other current assets
|
|
|
923
|
|
|
|
710
|
|
|
|
1,213
|
|
|
Deferred income taxes
|
|
|
4,069
|
|
|
|
—
|
|
|
|
—
|
|
|
Other receivables, net
|
|
|
1,954
|
|
|
|
2,102
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
199,591
|
|
|
|
71,581
|
|
|
|
20,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
1,298
|
|
|
|
1,641
|
|
|
|
1,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
470
|
|
|
|
470
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
113,740
|
|
|
|
(38,153
|
)
|
|
|
76,437
|
|
|
Deposits and other assets
|
|
|
1,077
|
|
|
|
1,128
|
|
|
|
3,925
|
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
97
|
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
114,817
|
|
|
|
(36,928
|
)
|
|
|
80,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
316,176
|
|
|
$
|
36,764
|
|
|
$
|
103,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,049
|
|
|
$
|
304
|
|
|
$
|
889
|
|
|
Accrued payroll and benefits
|
|
|
1,829
|
|
|
|
2,516
|
|
|
|
3,295
|
|
|
Accrued liabilities
|
|
|
4,329
|
|
|
|
4,239
|
|
|
|
1,810
|
|
|
Capital lease obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
322
|
|
|
Accrued interest
|
|
|
479
|
|
|
|
1,054
|
|
|
|
1,054
|
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
97
|
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,686
|
|
|
|
8,210
|
|
|
|
7,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term convertible debt to stockholders
|
|
|
48,887
|
|
|
|
47,427
|
|
|
|
42,163
|
|
|
Advance for equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
7,892
|
|
|
Deferred income taxes
|
|
|
4,069
|
|
|
|
—
|
|
|
|
—
|
|
|
Other long-term liabilities
|
|
|
206
|
|
|
|
218
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
53,162
|
|
|
|
47,645
|
|
|
|
50,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
60,848
|
|
|
|
55,855
|
|
|
|
58,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Series D junior participating preferred stock — $10 par value; 45,000 shares authorized; no shares
issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Common stock — $.01 par value; 450,000 shares authorized; 225,231, 223,409 and 221,731 shares issued and
outstanding at December 31, 2011, September 30, 2011 and 2010, respectively
|
|
|
2,252
|
|
|
|
2,234
|
|
|
|
2,217
|
|
|
Additional paid-in capital
|
|
|
583,458
|
|
|
|
339,414
|
|
|
|
332,696
|
|
|
Accumulated deficit
|
|
|
(369,807
|
)
|
|
|
(361,276
|
)
|
|
|
(296,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Rentech stockholders’ equity
|
|
|
215,903
|
|
|
|
(19,628
|
)
|
|
|
37,920
|
|
|
Noncontrolling interests
|
|
|
39,425
|
|
|
|
537
|
|
|
|
7,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
255,328
|
|
|
|
(19,091
|
)
|
|
|
45,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
316,176
|
|
|
$
|
36,764
|
|
|
$
|
103,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
RENTECH, INC.
Statements of Operations
(Amounts in thousands, except per share
data)
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
For the Fiscal Years Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47
|
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
5,514
|
|
|
|
5,771
|
|
|
|
19,402
|
|
|
|
22,755
|
|
|
|
17,714
|
|
|
Depreciation and amortization
|
|
|
166
|
|
|
|
177
|
|
|
|
720
|
|
|
|
686
|
|
|
|
664
|
|
|
Loss on impairments
|
|
|
—
|
|
|
|
—
|
|
|
|
2,625
|
|
|
|
—
|
|
|
|
—
|
|
|
Advance for equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,892
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(Gain) loss on disposal of property, plant and equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,680
|
|
|
|
5,948
|
|
|
|
14,855
|
|
|
|
23,457
|
|
|
|
18,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,680
|
)
|
|
|
(5,948
|
)
|
|
|
(14,855
|
)
|
|
|
(23,410
|
)
|
|
|
(18,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
34
|
|
|
|
22
|
|
|
|
68
|
|
|
|
155
|
|
|
|
371
|
|
|
Interest expense
|
|
|
(2,100
|
)
|
|
|
(766
|
)
|
|
|
(2,972
|
)
|
|
|
(4,543
|
)
|
|
|
(5,553
|
)
|
|
Loss on debt extinguishment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(320
|
)
|
|
|
—
|
|
|
Loss on investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,231
|
)
|
|
|
—
|
|
|
Gain on equity method investment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,909
|
|
|
|
—
|
|
|
Other income (expense), net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
(2,066
|
)
|
|
|
(744
|
)
|
|
|
(2,904
|
)
|
|
|
(4,031
|
)
|
|
|
(5,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and equity in net loss of investee company
|
|
|
(7,746
|
)
|
|
|
(6,692
|
)
|
|
|
(17,759
|
)
|
|
|
(27,441
|
)
|
|
|
(23,373
|
)
|
|
Income tax expense
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
11
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before equity in net loss of investee company
|
|
|
(7,747
|
)
|
|
|
(6,694
|
)
|
|
|
(17,762
|
)
|
|
|
(27,452
|
)
|
|
|
(23,434
|
)
|
|
Equity in net loss of investee company
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
544
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(7,747
|
)
|
|
|
(6,694
|
)
|
|
|
(17,762
|
)
|
|
|
(27,996
|
)
|
|
|
(23,518
|
)
|
|
Income from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before equity in income of subsidiaries
|
|
|
(7,747
|
)
|
|
|
(6,694
|
)
|
|
|
(17,762
|
)
|
|
|
(27,987
|
)
|
|
|
(23,446
|
)
|
|
Equity in income (loss) of subsidiaries
|
|
|
3,649
|
|
|
|
810
|
|
|
|
(47,620
|
)
|
|
|
(14,275
|
)
|
|
|
23,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,098
|
)
|
|
|
(5,884
|
)
|
|
|
(65,382
|
)
|
|
|
(42,262
|
)
|
|
|
(21
|
)
|
|
Net loss attributable to noncontrolling interests
|
|
|
(4,433
|
)
|
|
|
366
|
|
|
|
1,099
|
|
|
|
94
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Rentech
|
|
$
|
(8,531
|
)
|
|
$
|
(5,518
|
)
|
|
$
|
(64,283
|
)
|
|
$
|
(42,168
|
)
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
RENTECH, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
|
For the Three Months Ended
December 31,
|
|
|
For the Fiscal Years Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,098
|
)
|
|
$
|
(5,884
|
)
|
|
$
|
(65,382
|
)
|
|
$
|
(42,262
|
)
|
|
$
|
(21
|
)
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
166
|
|
|
|
177
|
|
|
|
720
|
|
|
|
686
|
|
|
|
664
|
|
|
Loss on impairments
|
|
|
—
|
|
|
|
—
|
|
|
|
2,625
|
|
|
|
—
|
|
|
|
—
|
|
|
Advance for equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,892
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Bad debt expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
Non-cash interest expense
|
|
|
1,523
|
|
|
|
1,297
|
|
|
|
5,515
|
|
|
|
5,074
|
|
|
|
4,887
|
|
|
Gain on equity method investment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,909
|
)
|
|
|
—
|
|
|
Loss on investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,231
|
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
1,137
|
|
|
|
1,106
|
|
|
|
1,729
|
|
|
|
5,095
|
|
|
|
2,955
|
|
|
Equity in undistributed net income of subsidiaries
|
|
|
57,146
|
|
|
|
(308
|
)
|
|
|
49,615
|
|
|
|
16,849
|
|
|
|
(21,150
|
)
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
871
|
|
|
|
(368
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables and receivable from related party
|
|
|
—
|
|
|
|
(73
|
)
|
|
|
—
|
|
|
|
(79
|
)
|
|
|
12
|
|
|
Receivables from insurance related to litigation
|
|
|
148
|
|
|
|
—
|
|
|
|
(2,023
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Litigation settlement payment
|
|
|
—
|
|
|
|
—
|
|
|
|
1,954
|
|
|
|
—
|
|
|
|
—
|
|
|
Prepaid expenses and other assets
|
|
|
(33
|
)
|
|
|
323
|
|
|
|
657
|
|
|
|
(506
|
)
|
|
|
650
|
|
|
Accounts payable
|
|
|
762
|
|
|
|
(235
|
)
|
|
|
(608
|
)
|
|
|
294
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
Accrued liabilities, accrued payroll and other
|
|
|
(1,473
|
)
|
|
|
(2,660
|
)
|
|
|
(1,231
|
)
|
|
|
(18
|
)
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
55,278
|
|
|
|
(6,257
|
)
|
|
|
(14,321
|
)
|
|
|
(14,669
|
)
|
|
|
(11,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Capital contributions to) return of capital contributions from subsidiaries
|
|
|
69,045
|
|
|
|
35,465
|
|
|
|
64,975
|
|
|
|
(5,497
|
)
|
|
|
428
|
|
|
Proceeds from sales of available for sale securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,769
|
|
|
|
—
|
|
|
Purchase of property, plant, equipment and construction in progress
|
|
|
(289
|
)
|
|
|
(40
|
)
|
|
|
(298
|
)
|
|
|
(590
|
)
|
|
|
(192
|
)
|
|
Payments for acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(949
|
)
|
|
Other items
|
|
|
—
|
|
|
|
101
|
|
|
|
76
|
|
|
|
948
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
68,756
|
|
|
|
35,526
|
|
|
|
64,753
|
|
|
|
(370
|
)
|
|
|
(704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants
|
|
|
30
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,236
|
|
|
|
41,378
|
|
|
Payments of offering costs
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(58
|
)
|
|
|
(376
|
)
|
|
|
(1,583
|
)
|
|
Proceeds from options and warrants exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,144
|
|
|
|
133
|
|
|
Payments on notes payable for financed insurance premiums
|
|
|
(188
|
)
|
|
|
(87
|
)
|
|
|
(334
|
)
|
|
|
(489
|
)
|
|
|
(1,881
|
)
|
|
Payments on line of credit on available for sale securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,532
|
)
|
|
|
(226
|
)
|
|
Payments on debt and notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(931
|
)
|
|
|
(21
|
)
|
|
Payments on capital lease
|
|
|
—
|
|
|
|
(131
|
)
|
|
|
(322
|
)
|
|
|
(142
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(158
|
)
|
|
|
(220
|
)
|
|
|
(714
|
)
|
|
|
910
|
|
|
|
37,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
123,876
|
|
|
|
29,049
|
|
|
|
49,718
|
|
|
|
(14,129
|
)
|
|
|
25,221
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
68,769
|
|
|
|
19,051
|
|
|
|
19,051
|
|
|
|
33,180
|
|
|
|
7,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
192,645
|
|
|
$
|
48,100
|
|
|
$
|
68,769
|
|
|
$
|
19,051
|
|
|
$
|
33,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
Note 1 — Background
The condensed financial statements represent the financial information required by Securities and Exchange Commission
Regulation S-X 5-04 for Rentech, Inc. Regulation S-X 5-04 requires the inclusion of parent company only financial statements if the restricted net assets of consolidated subsidiaries exceed 25% of total consolidated net assets as of the last day of
its most recent fiscal year.
The accompanying financial statements have been prepared to present the
financial position, results of operations and cash flows of Rentech, Inc. on a stand-alone basis as a holding company. Investments in subsidiaries and other investees are stated at cost plus equity in undistributed earnings from the date of
acquisition. These financial statements should be read in conjunction with Rentech, Inc. consolidated financial statements.
107
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
Balance
at Beginning
of Period
|
|
|
Charged to
Expense
|
|
|
Deductions
and
Write-Offs
|
|
|
Balance
at End
of Period
|
|
|
|
|
(in thousands)
|
|
|
Three Months Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
Deferred tax valuation account
|
|
$
|
126,831
|
|
|
$
|
—
|
|
|
$
|
94,813
|
|
|
$
|
32,018
|
|
|
Reserve for REN earn-out
|
|
$
|
697
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
697
|
|
|
Year Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
Deferred tax valuation account
|
|
$
|
100,144
|
|
|
$
|
26,687
|
|
|
$
|
—
|
|
|
$
|
126,831
|
|
|
Reserve for REN earn-out
|
|
$
|
697
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
697
|
|
|
Year Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
Deferred tax valuation account
|
|
$
|
82,197
|
|
|
$
|
17,947
|
|
|
$
|
—
|
|
|
$
|
100,144
|
|
|
Reserve for REN earn-out
|
|
$
|
706
|
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
697
|
|
|
Year Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
692
|
|
|
$
|
—
|
|
|
$
|
692
|
|
|
$
|
—
|
|
|
Deferred tax valuation account
|
|
$
|
76,677
|
|
|
$
|
5,520
|
|
|
$
|
—
|
|
|
$
|
82,197
|
|
|
Reserve for REN earn-out
|
|
$
|
779
|
|
|
$
|
(73
|
)
|
|
$
|
—
|
|
|
$
|
706
|
|
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
|
ITEM 9A.
|
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 Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information 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 our 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, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as of December 31, 2011.
Management’s Report on Internal Control Over
Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial
reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and
directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition our assets that could have a material effect on our financial statements. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or
that the degree of compliance with the policies and procedures may deteriorate.
108
Our management, including our Chief Executive Officer and our Chief
Financial Officer, conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework in
Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of
the Treadway Commission. In connection with management’s assessment of our internal control over financial reporting described above, management concluded that our internal control over financial reporting was effective as of December 31,
2011.
The effectiveness of our internal control over financial reporting as of December 31, 2011 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting.
There were no significant changes in our internal control over financial reporting during the quarter ended December 31, 2011 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
ITEM 9B.
|
OTHER INFORMATION
|
Not Applicable.
109
PART III
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The directors and executive officers of Rentech and their ages and their positions with Rentech as of February 29,
2012, are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
|
D. Hunt Ramsbottom
|
|
54
|
|
Chief Executive Officer, President and Director
|
|
Dan J. Cohrs
|
|
59
|
|
Chief Financial Officer and Executive Vice President
|
|
Harold A. Wright
|
|
47
|
|
Senior Vice President and Chief Technology Officer
|
|
Colin M. Morris
|
|
39
|
|
Senior Vice President, General Counsel and Secretary
|
|
Michael S. Burke (1)
|
|
48
|
|
Director
|
|
General Wesley K. Clark (1)
|
|
67
|
|
Director
|
|
Michael F. Ray (1)
|
|
58
|
|
Director
|
|
Ronald M. Sega (1)
|
|
59
|
|
Director
|
|
Edward M. Stern (1)
|
|
53
|
|
Director
|
|
Halbert S. Washburn (1)
|
|
51
|
|
Director and Chairman
|
|
John A. Williams
|
|
68
|
|
Director
|
|
Dennis L. Yakobson
|
|
75
|
|
Director and Chairman Emeritus
|
|
(1)
|
Independent Director.
|
Information Regarding Directors with Terms Expiring in 2012:
D. Hunt Ramsbottom, Chief Executive Officer, President and Director
— Mr. Ramsbottom was appointed
President and a member of the board of directors of Rentech, or our Board, in September 2005 and Chief Executive Officer in December 2005. Mr. Ramsbottom had been serving as a consultant to Rentech since August 2005 under the
terms of a Management Consulting Agreement Rentech entered into with Management Resource Center, Inc. Mr. Ramsbottom has over 25 years of experience building and managing growth companies. Prior to accepting his position at Rentech,
Mr. Ramsbottom held various key management positions including: from 2004 to 2005, as Principal and Managing Director of Circle Funding Group, LLC, a buyout firm; from 1997 to 2004, as Chief Executive Officer and Chairman of M2 Automotive,
Inc., an automotive repair venture; and from 1989 to 1997, as Chief Executive Officer of Thompson PBE, a supplier of paints and related supplies, which was acquired by FinishMaster, Inc. in 1997. On April 17, 2005, M2 Automotive, Inc. completed
an assignment for the benefit of its creditors pursuant to a state law insolvency proceeding. Mr. Ramsbottom holds a Bachelor of Science degree from Plymouth State College. Our Board has determined that Mr. Ramsbottom brings to our Board
knowledge of our business and his historical understanding of our operations gained through his service as Rentech’s President and Chief Executive Officer and experience with companies as Chief Executive Officer and Principal and Managing
Director, and therefore he should serve on our Board. Mr. Ramsbottom was appointed Chief Executive Officer and as a member of the board of directors of Rentech Nitrogen GP, LLC, the general partner of Rentech Nitrogen Partners, L.P. (NYSE:
RNF), in July 2011. Rentech Nitrogen GP, LLC is one of our indirect wholly-owned subsidiaries and Rentech Nitrogen Partners, L.P. is one of our indirect majority-owned subsidiaries.
Halbert S. Washburn, Director and Chairman of the Board
— Mr. Washburn was appointed as a director
of Rentech in December 2005, and has served as Chairman of our Board since June 2011. In July 2011, Mr. Washburn was appointed as a director of Rentech Nitrogen GP, LLC. Mr. Washburn has over 25 years of experience in the energy industry.
Since April 2010, Mr. Washburn has been the Chief Executive Officer of BreitBurn GP, LLC, the general partner of BreitBurn Energy Partners LP. From August 2006 until April 2010, he was the Co-Chief Executive Officer and served on the
board of directors of BreitBurn GP, LLC. In December 2011, he was reappointed as a member of the board of directors of BreitBurn GP, LLC . He has served as the Co-President and a director of BreitBurn Energy Corporation since 1988. He also
has served as a Co-Chief Executive Officer and a director for Pacific Coast Energy Holdings, LLC (formerly BreitBurn Energy Holdings, LLC) and as Co-Chief Executive Officer and a director of PCEC (GP), LLC (formerly BEH (GP), LLC). Mr. Washburn
previously served as Chairman on the Executive Committee of the board of directors of the California Independent Petroleum Association. He also served as Chairman of the Stanford University Petroleum Investments Committee and as Secretary and
Chairman of the Wildcat Committee. Our Board has determined that Mr. Washburn brings to our Board knowledge of our business, extensive experience in our industry, including his service as an executive officer and director of several BreitBurn
entities, and familiarity with start-up and public energy companies, and therefore he should serve on our Board.
110
Information Regarding Directors with Terms Expiring in 2013:
Michael F. Ray, Director
— Mr. Ray was appointed as a director of Rentech in May 2005 and as a
director of Rentech Nitrogen GP, LLC in July 2011. Mr. Ray founded and, since 2001, has served as President of ThioSolv, LLC. ThioSolv, LLC is in the business of developing and licensing technology to the refining and chemical sector. Also,
since May 2005, Mr. Ray has served as General Partner of GBTX Leasing, LLC, a company that owns and leases rail cars for the movement of liquid chemicals and salts. Since 2008, Mr. Ray has served as a member of the board of directors and
the Technology Committee, for OCM Cyanco Holdings, LLC, a producer of sodium cyanide in the Western United States, and a subsidiary of Oaktree Capital Management which holds a controlling interest in the company. From 1995 to 2001, Mr. Ray
served as Vice President of Business Development for the Catalyst and Chemicals Division of The Coastal Corporation, a company that principally gathered, processed, stored and distributed natural gas. Mr. Ray served as President (from 1990 to
1995), Vice President of Corporate Development and Administration (from 1986 to 1990) and Vice President of Carbon Dioxide Marketing (from 1985 to 1986) of Coastal Chem, Inc., a manufacturer of dry ice and solid carbon dioxide. Mr. Ray served
as Regional Operations Manager (from 1981 to 1985) and Plant Manager (from 1980 to 1981) of Liquid Carbonic Corporation, a seller of carbon dioxide products. Mr. Ray previously served as a member of the board of directors of Coastal Chem, Inc.,
Cheyenne LEADS and Wyoming Heritage Society. Mr. Ray also served on the Nitrogen Fertilizer Industry Ad Hoc Committee, the University of Wyoming EPSCOR Steering Committee and Wyoming Governor’s committee for evaluating state employee
compensation. Our Board has determined that Mr. Ray brings to our Board experience with start-up and technology companies, familiarity with the business of developing and licensing technology and with the nitrogen fertilizer industry and
directorial and governance experience as a director of Coastal Chem, Inc., and therefore he should serve on our Board.
Edward M. Stern, Director
— Mr. Stern was appointed as a director of Rentech in December 2006 and has more than 25 years of experience leading the successful development,
financing and operation of major energy and infrastructure projects. Mr. Stern is the President and Chief Executive Officer of PowerBridge, LLC and under his guidance, Neptune Regional Transmission System, LLC, a PowerBridge company has
developed, constructed and since 2007 has operated the Neptune Project, a 660 MW, 65 mile long, high voltage direct current undersea and underground electric transmission system that interconnects the PJM market at Sayreville, New Jersey with Long
Island, New York. Through PowerBridge, Mr. Stern is also leading the development of other major undersea and underground HVDC transmission projects, including the 8 mile long 660 megawatt Hudson Project, which is under construction and will
interconnect the PJM market with Manhattan. Mr. Stern is also leading the development of several other large transmission and renewable energy projects domestically and abroad. From 1991 through 2003, Mr. Stern was employed by Enel North
America, Inc. (a subsidiary of Enel SpA, an Italian electric utility company) and its predecessor, CHI Energy, Inc., an energy company which owned or operated nearly one hundred power plants in seven countries, specializing in renewable energy
technologies including hydroelectric projects and wind farms. While at Enel North America, Inc. and CHI Energy, Inc., Mr. Stern served as General Counsel and, commencing in 1999, as President, Director and Chief Executive Officer.
Mr. Stern currently serves on the board of directors of Deepwater Wind Holdings, LLC, an offshore wind energy developer and Capital Access Network, Inc., a small business lender. Mr. Stern also serves on the Advisory Board of Starwood
Energy Group Global, LLC, a private equity firm specializing in energy and infrastructure investments. Our Board has determined that Mr. Stern brings to our Board significant management and legal experience at energy companies, including
substantial project development experience, and his directorial and governance experience as a director at numerous companies in the industry in which we operate, and therefore he should serve on our Board.
John A. Williams, Director
— Mr. Williams was appointed as a director of Rentech in
November 2009. Mr. Williams has over 40 years of business experience, principally in the real estate and banking industries. Since January 2004, Mr. Williams has served as the Chief Executive Officer, President and Managing
Member of Corporate Holdings, LLC, a diversified holdings company, and since November 2004, he has served as Chief Executive Officer and Managing Member of Williams Realty Advisors, LLC, a real estate fund advisor to over $3 billion in
assets. Mr. Williams is currently chairman of the board and chief executive officer of Preferred Apartment Communities, Inc., a new real estate investment trust. Mr. Williams founded Post Properties, Inc., a developer, owner and manager of
upscale multifamily apartment communities in selected markets in the United States, in 1970. Mr. Williams served as Chief Executive Officer of Post Properties from 1970 until 2002, and he served on its board from inception until 2004.
Mr. Williams served as Chairman for Post Properties from inception until February 2003 and Chairman Emeritus from February 2003 until August 2004. Mr. Williams currently serves on the board of directors of the Atlanta
Falcons of which he is also a minority owner. Mr. Williams previously served on a variety of boards of directors, including those of NationsBank Corporation, Barnett Banks, Inc. and Crawford & Company. Our Board has determined that
Mr. Williams brings to our Board over 40 years of business experience and directorial and governance experience on boards of directors, and therefore he should serve on our Board.
111
Information Regarding Directors with Terms Expiring in 2014:
Michael S. Burke
,
Director
— Mr. Burke was appointed as a member of our Board in
March 2007, and appointed as a member of the board of directors of Rentech Nitrogen GP, LLC in July 2011. Mr. Burke was appointed President of AECOM Technology Corporation, or AECOM, on October 1, 2011. AECOM is a global provider of
professional technical and management support services to government and commercial clients. From December 2006 through September 2011, Mr. Burke served as Executive Vice President, Chief Financial Officer of AECOM. Mr. Burke joined AECOM
as Senior Vice President, Corporate Strategy in October 2005. From 1990 to 2005, Mr. Burke was with the accounting firm, KPMG LLP, where he served in various senior leadership positions, most recently as a Western Area Managing Partner from
2002 to 2005 and was a member of the board of directors of KPMG from 2000 through 2005. While on the board of directors of KPMG, Mr. Burke served as the Chairman of the Board Process and Governance Committee and a member of the Audit and
Finance Committee. Mr. Burke also serves on various charitable and community boards. Mr. Burke received a B.S. degree in accounting from the University of Scranton and a J.D. degree from Southwestern University. Our Board has determined
that Mr. Burke brings to our Board extensive accounting, financial and business experience, including experience with a public company, and therefore he should serve on our Board.
General (ret) Wesley K. Clark, Director
— General Clark was appointed as a member of our Board in
December 2010. General Clark is a businessman, educator, writer and commentator. In 2003, General Clark founded the strategic consulting firm of Wesley K. Clark & Associates, where he currently serves as Chairman and Chief Executive
Officer. From June 2000 through March 2003, General Clark was a managing director at Stephens, Inc., an investment banking firm based in Arkansas. Prior to that, from June 1966 through June 2000, General Clark served in the U.S.
Army where he held numerous staff and command positions and rose to the rank of 4-star general. He served as NATO Supreme Allied Commander and Commander in Chief of the U.S.-European Command from July 1997 through May 2000. General Clark
serves on the board of directors of AMG Advanced Metallurgical Group N.V., a global producer of specialty metals and metallurgical vacuum furnace systems; BNK Petroleum Inc., an energy company focused on the acquisition, exploration and production
of large oil and gas reserves; Bankers Petroleum Ltd., a Canadian based oil and gas exploration and production company; Juhl Wind Inc., a wind energy provider; Prysmian S.r.L., a provider of high-technology cables and systems for energy and
telecommunication; Amaya Gaming, a Canadian company in the electronic gaming industry; Rodman & Renshaw, an investment banking firm; and is a partner in United Global Resources, LLC; a U.S. broker dealer focused on project development.
General Clark previously served on the board of directors of Argyle Security, Inc., a provider of security solutions; NutraCea, a processor of rice-bran based products; and EWT, N.V., a producer of wind farms. General Clark graduated first in his
class from the United States Military Academy at West Point in 1966. He received degrees in Philosophy, Politics and Economics from Oxford University (B.A. and M.A.) where he was a Rhodes Scholar from 1966 to 1968. Our Board has determined that
General Clark brings to our Board extensive leadership experience, including having held high-ranking positions in the U.S. Army, and directorial and governance experience and familiarity with our industry as a result of having served on boards of
directors of numerous companies in the renewable and alternative energy industry, and therefore he should serve on our Board.
Ronald M. Sega, Director
— Dr. Sega was appointed as a member of our Board in December 2007. Currently Dr. Sega serves as Vice President and Enterprise Executive for
Energy and the Environment at both Colorado State University (CSU) and The Ohio State University (OSU). He is the Woodward Professor of Systems Engineering, Director of Graduate Studies in Systems Engineering and serves as chair of the
Sustainability, Energy, and Environment Advisory Committee at CSU. Dr. Sega also serves on the President’s and the Provost’s Council on Sustainability at OSU. Since 2008, Dr. Sega has served as a member of the board of directors
of Woodward Governor Company, a company that designs, manufactures and services energy control systems and components for aircraft and industrial engines and turbines. Dr. Sega also serves on the Advisory Board of Ball Aerospace and Technology
Corporation. From August 2005 to August 2007, Dr. Sega served as Under Secretary for the U.S. Air Force. In that capacity, he oversaw the recruiting, training and equipping of approximately 700,000 people and a budget of approximately
$110 billion. Designated as the Department of Defense Executive Agent for Space, Dr. Sega developed, coordinated and integrated plans and programs for space systems of all Department of Defense space major defense acquisition programs.
From August 2001 until July 2005, Dr. Sega was Director of Defense Research and Engineering, Office of the Secretary of Defense. Dr. Sega worked for NASA from 1990 until 1996 and made two shuttle flights during his career as an
astronaut. Dr. Sega received a B.S. in mathematics and physics from the United States Air Force Academy in 1974, a master of science degree in physics from The Ohio State University in 1975, and a doctorate in electrical engineering from the
University of Colorado at Boulder in 1982. Our Board has determined that Dr. Sega brings to our Board a strong background in science and research, aerospace, energy and operations with significant experience in leadership positions, including
those involving responsibility for large budgets, and therefore he should serve on our Board.
112
Dennis L. Yakobson, Director and Chairman Emeritus of the
Board
— Mr. Yakobson has served as a director of Rentech since 1983 and is one of its founders. He served as the Chairman of our Board until June 2011, at which time he became Chairman Emeritus of our Board, and Chief Executive
Officer until December 2005. He was employed as Vice President of Administration and Finance of Nova Petroleum Corporation, Denver, Colorado, from 1981 to 1983. From 1979 to 1983, he served as a Director and Secretary of Nova Petroleum Corporation.
He resigned from those positions in November 1983 to become a Director and assume the presidency of Rentech. From 1976 to 1981, he served as a Director, Secretary and Treasurer of Power Resources Corporation in Denver, a mineral exploration
company, and was employed by it as the Vice President-Land. From 1975 to 1976, he was employed by Wyoming Mineral Corporation in Denver as a contract administrator. From 1971 through 1975, he was employed by Martin Marietta Corporation, Denver, as
marketing engineer in space systems. From 1969 to 1971, he was employed by Martin Marietta in a similar position. From 1960 to 1969, he was employed by Grumman Aerospace Corporation, his final position with it being contract administrator with
responsibility for negotiation of prime contracts with governmental agencies. He is a Director of GTL Energy Pty Ltd., a private company based in Adelaide, Australia. Our Board has determined that Mr. Yakobson brings to our Board knowledge of
our business and, as the founder, his historical understanding of our operations combined with his experience in leadership positions, including directorial and governance experience on boards of directors, at multiple engineering and energy
companies, and therefore he should serve on our Board.
Executive Officers
Information concerning the business experience of Mr. Ramsbottom, who serves as President and Chief Executive
Officer, is provided above.
Dan J. Cohrs, Chief Financial Officer and Executive Vice
President
— Mr. Cohrs was appointed our Executive Vice President and Chief Financial Officer in October 2008. Mr. Cohrs was also Treasurer of Rentech from October 2008 until November 2009 and was re-appointed
Treasurer in October 2010. Mr. Cohrs has more than 25 years of experience in corporate finance, strategy and planning, and mergers and acquisitions. From April 2008 through September 2008, Mr. Cohrs served as Chief Development
and Financial Officer of Agency 3.0, LLC, a private digital advertising and consulting agency in Los Angeles, California and he was a Partner and a Board Member of Agency 3.0, LLC until September 2009. From August 2007 through September 2008, he
served as Chief Development & Financial Officer of Skycrest Ventures, LLC, a private investment and consulting firm in Los Angeles that was related to Agency 3.0, LLC. From June 2006 to May 2007, Mr. Cohrs served as a consultant for
finance and corporate development, as well as Interim Chief Financial Officer for several months during that period of time, for Amp’d Mobile, a private mobile media entertainment company in Los Angeles. From 2003 to 2007, Mr. Cohrs worked
as an independent consultant and advised companies regarding financings, investor presentations and business plans. From November 2005 to March 2006, Mr. Cohrs served as a Visiting Senior Lecturer at Cornell University’s Johnson School of
Management in the area of corporate governance. From May 1998 to June 2003, Mr. Cohrs served as Executive Vice President and Chief Financial Officer of Global Crossing Ltd. Prior to being employed at Global Crossing Ltd., Mr. Cohrs held
senior positions in finance and strategy at Marriot Corporation, Northwest Airlines, Inc. and GTE Corporation, a predecessor of Verizon Communications, Inc. Mr. Cohrs earned M.S. and Ph.D. degrees in finance, economics and public policy from
Cornell University’s Johnson Graduate School of Management and a B.S. degree in Engineering from Michigan State University. Mr. Cohrs was appointed Chief Financial Officer of Rentech Nitrogen GP, LLC in July 2011.
On June 1, 2007, Amp’d Mobile, Inc. filed a petition for bankruptcy under chapter 11 of title 11 of the United
States Code, 11 U.S.C. § 101, et seq., or the Bankruptcy Code, with the United States Bankruptcy Court for the District of Delaware. On January 28, 2002, Global Crossing Ltd., and certain of its direct and indirect subsidiaries, filed a
petition for bankruptcy under chapter 11 of title 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. On April 11, 2005, the SEC, Global Crossing Ltd., Mr. Cohrs (at the relevant time,
the Chief Financial Officer of Global Crossing Ltd.) and other members of Global Crossing Ltd.’s senior management reached a settlement related to an SEC investigation regarding alleged violations of the reporting provisions of
Section 13(a) of the Securities Exchange Act of 1934 (and the regulations thereunder). The parties to the agreement (other than the SEC) agreed not to cause any violations of such reporting provisions in the future, and in connection with a
parallel civil action, Mr. Cohrs agreed to pay a $100,000 civil penalty. In the SEC order, none of the allegations related to fraud, no party admitted liability and no other violations of securities laws were alleged. Also in connection with
Global Crossing, Ltd., on July 16, 2004, Mr. Cohrs and the Secretary of the United States Department of Labor entered into a settlement agreement, the relevant restrictions of which expired on July 16, 2009, pursuant to which
Mr. Cohrs agreed, among other things, that he would give notice to the Secretary, and if the Secretary objected, then he would not serve in a fiduciary capacity with respect to any plan covered by the Employee Retirement Income Security Act, or
ERISA.
Harold A. Wright, Senior Vice President and Chief Technology Officer
—
Mr. Wright was appointed Senior Vice President and Chief Technology Officer of Rentech in March 2007. Mr. Wright served as Vice President of Technology for Eltron Research & Development, a technology research and
commercialization company headquartered in Boulder, Colorado, from June 2005 until February 2007. From 1991 to 2005, Mr. Wright worked at ConocoPhillips, during which time Mr. Wright served in various capacities including
Director of Gas-To-Liquids (GTL) Research and Development from February 2004 to June 2005 and director of Synthesis Gas Development from July 2000 to February 2004. In these positions, Mr. Wright was responsible for
synthesis gas technology development, GTL commercial reactor design, directing GTL catalyst development and product upgrading technology development. Mr. Wright oversaw all aspects of the company’s scale-up of GTL technology, which
resulted in a 400 barrel per day demonstration plant in Ponca City, Oklahoma. With 30 U.S. patents issued to his credit, Mr. Wright is also a registered patent agent and is authorized to practice patent law before the U.S. Patent and Trademark
Office. Mr. Wright received a B.S. in chemical engineering, cum laude, from the University of Missouri in 1986 and a Ph.D. in chemical engineering from Purdue University in 1991.
113
Colin M. Morris, Senior Vice President and General
Counsel
— Mr. Morris has served as Senior Vice President, General Counsel and Secretary of Rentech since October 2011. From June 2006 to October 2011, Mr. Morris served as the Vice President, General Counsel and Secretary of
Rentech. Mr. Morris practiced corporate and securities law at the Los Angeles office of Latham & Watkins LLP from June 2004 to May 2006. From September 2000 to May 2004, Mr. Morris practiced corporate and
securities law in the Silicon Valley office of Wilson, Sonsini, Goodrich and Rosati. Prior to that, Mr. Morris practiced corporate and securities law in the Silicon Valley office of Pillsbury Winthrop Shaw Pittman LLP. Mr. Morris received
an A.B. degree in Government from Georgetown University and a J.D. from the University of California, Berkeley, Boalt Hall School of Law. Mr. Morris served as Vice President, General Counsel and Secretary of Rentech Nitrogen GP, LLC from July
2011 to October 2011 and was appointed as Senior Vice President, General Counsel and Secretary of Rentech Nitrogen GP, LLC in October 2011.
Audit Committee and Audit Committee Financial Expert
Our Board has a standing Audit Committee. Our Board has determined that each member of the Audit Committee is “independent” within the meaning of the rules of the SEC and the NYSE Amex.
The charter of our Audit Committee is available on the Corporate Governance section of our website at
http://www.rentechinc.com. Our Board regularly reviews developments in corporate governance and modifies the charter as warranted. Modifications are reflected on our website at the address previously given. Information contained on our website is
not incorporated into and does not constitute a part of this Annual Report on Form-10-K. Our website address referenced above is intended to be an inactive textual reference only and not an active hyperlink to the website.
The Audit Committee of our Board has been delegated responsibility for reviewing with the independent auditors the plans
and results of the audit engagement; reviewing the adequacy, scope and results of the internal accounting controls and procedures; reviewing the degree of independence of the auditors; reviewing the auditors’ fees; and recommending the
engagement of the auditors to our full Board.
The Audit Committee currently consists of Mr. Burke,
Mr. Ray and Mr. Washburn. Our Board has determined that Mr. Burke, the Chairman of the Audit Committee, qualifies as an “audit committee financial expert” as defined by the rules of the SEC.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Rentech’s executive officers and
directors, and persons who own more than ten percent of a registered class of Rentech’s equity securities, or collectively, “Insiders,” to file initial reports of ownership and reports of changes in ownership with the SEC. Insiders
are required by SEC regulations to furnish Rentech with copies of all Section 16(a) forms they file. To Rentech’s knowledge, based solely on its review of the copies of such reports furnished to Rentech or written representations from
certain Insiders that they were not required to file a Form 5 to report previously unreported ownership or changes in ownership, we believe that, during the three months ended December 31, 2011, the Insiders complied with all such filing
requirements.
Code of Ethics
Rentech has adopted a Code of Business Conduct or Ethics that applies to Rentech’s directors, officers and employees. This code includes a special section entitled “Business Conduct and Ethics
for Senior Financial Officers” which applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A copy of the Code of Business
Conduct or Ethics was filed as an exhibit to Rentech’s annual report on Form 10-K for the fiscal year ended September 30, 2008 and is available on the Corporate Governance Section of our website at www.rentechinc.com. We intend to disclose
any amendment to or waiver of our Code of Business Conduct or Ethics either on our website or by filing a Current Report on Form 8-K. Our website address referenced above is not intended to be an active hyperlink, and the contents of our website
shall not be deemed to be incorporated herein.
114
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ITEM 11.
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EXECUTIVE COMPENSATION
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Compensation Discussion and Analysis
Executive
Summary
Transition Period
On February 1, 2012, our Board approved the change of our fiscal year end from September 30 to December 31
to coincide with the end of the calendar year. In connection with this change, we are providing the information contained in this Compensation Discussion and Analysis as it relates to our compensation practices during the three-month transition
period ending on December 31, 2011, or the Transition Period. Comparable information for the 12-month period ending on September 30, 2011 (our last fiscal year-end prior to this change) is available in our Annual Report on Form 10-K, filed
with the SEC on December 14, 2011, as amended on January 30, 2012.
As described more fully below,
during the Transition Period, the most significant compensation decisions made by the compensation committee of our Board, or our Compensation Committee, included the following:
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•
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Evaluating the compensation of our executive officers and, as appropriate, increasing the base salaries of certain of our named executive officers,
or NEOs, identified below; and
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•
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Making annual grants of equity awards and special grants of equity awards in connection with the Offering.
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Overview
This Compensation Discussion and Analysis provides an overview and analysis of our executive compensation program during the Transition Period for our NEOs. Our executive compensation program is designed
to align executive pay with individual performance on both short and long-term bases; to link executive pay to specific, measurable financial, technological and development achievements intended to create value for shareholders; and to utilize
compensation as a tool to attract and retain the high-caliber executives that are critical to our long-term success.
The following table sets forth the key elements of our NEOs’ compensation, along with the primary objectives associated with each element of compensation. We note that, though annual incentive
compensation is and has historically been a key component of our executive compensation, no such program has been devised or implemented with respect to the Transition Period at this time (as discussed further in “—Annual Incentive
Compensation” below):
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Compensation Element
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Primary Objective
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Base salary
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To recognize performance of job responsibilities, provide stable income and attract and retain experienced individuals with superior talent.
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Annual incentive compensation
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To promote short-term performance objectives and reward individual contributions to the achievement of those objectives.
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Long-term equity incentive awards
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To emphasize long-term performance objectives, align the interests of our NEOs with the interests of shareholders, encourage the maximization of shareholder value and retain key
executives.
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Severance and change in control benefits
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To encourage the continued attention and dedication of our NEOs and provide reasonable individual security to enable our NEOs to focus on our best interests, particularly when
considering strategic alternatives.
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Retirement savings (401(k) plan)
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To provide an opportunity for tax-efficient savings and matching contributions by us.
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Other elements of compensation and
perquisites
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To attract and retain talented executives in a cost-efficient manner by providing benefits with high perceived values at relatively low cost.
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115
To serve the foregoing objectives, our overall compensation program is
generally designed to be flexible rather than purely formulaic. In alignment with the objectives set forth above, our Compensation Committee and our Board, including during executive sessions without our management team present, have generally
determined the overall compensation of our NEOs and its allocation among the elements described above, relying on the analyses and advice provided by our Compensation Committee’s compensation consultant as well as input from our management
team.
Our compensation decisions for our NEOs during the Transition Period are discussed in detail below.
This discussion is intended to be read in conjunction with the executive compensation tables and related disclosures that follow this Compensation Discussion and Analysis.
Compensation Program Objectives
The following
discussion and analysis describes our compensation objectives and policies as applied to D. Hunt Ramsbottom, our Chief Executive Officer, Dan J. Cohrs, our Chief Financial Officer, Tom Samson, our former Executive Vice President and Chief
Development Officer, Harold A. Wright, our Senior Vice President and Chief Technology Officer and Colin M. Morris, our Senior Vice President, General Counsel and Secretary. Mr. Samson terminated employment with us effective February 3,
2012 to pursue other opportunities.
To succeed in achieving our key operational goals, we need to recruit and
retain a highly talented and seasoned team of executive, technical, sales, marketing, operations, financial and other business professionals. As such, our compensation packages are designed to incentivize the achievement of these goals, and to
recruit, reward and retain our employees, including our NEOs.
We have focused on building an experienced
management team that is capable of managing the Company’s day-to-day operations during a period of growth while working to achieve our long-term operational goals. We believe it is important both to retain our key executives, including our
NEOs, and to recruit the additional talent we need to expand the Company. Accordingly, our policy is to hire executives who are not only highly qualified for their positions at our current size, but who also have the skills we believe are necessary
to perform their roles at the same high standard if we are successful in our commercial development, and our Company achieves significantly greater size and complexity.
Each of the key elements of our executive compensation program is discussed in more detail below under “—Core
Components of Executive Compensation.”
Compensation Consultant
During fiscal years 2010 and 2011, and continuing through the Transition Period, our Compensation Committee engaged
Radford, an Aon Hewitt Company, as an independent compensation consultant to assist in the continuing analysis of the executive compensation program for certain of our officers, including our NEOs. Services provided by Radford during 2011 and
through the Transition Period with respect to our NEOs included:
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•
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Analyzing and verifying our peer group companies and applicable benchmarks;
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•
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Providing compensation survey data and assisting our Compensation Committee with the interpretation of this data; and
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•
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Advising on the reasonableness and effectiveness of our compensation components, levels and programs for our directors and officers, including our
NEOs.
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116
Our current peer group was established in 2010 based on discussions among
the members of our Compensation Committee, certain of our executive officers and Radford. The peer group consists of alternative energy companies and certain technology companies with a related focus, in each case, with (i) annual revenues
ranging from $50 million to $550 million, (ii) market values ranging from $80 million to $750 million, (iii) revenues ranging from $50 million to $550 million (with a median of $316 million), and (iv) similar employee numbers.
Following are the companies that comprise our current peer group:
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Advanced Energy Industries
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Fuel Tech
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Broadwind Energy
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Fuelcell Energy
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Cohu, Inc.
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LSB Industries
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Converge, Inc.
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Maxwell Technologies
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Echelon Corp.
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MGP Ingredients
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EMCORE Corp.
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Rudolph Technologies
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Energy Conversion Devices
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Satcon Technology
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EnerNoc Inc.
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Ultra Clean Holdings
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Evergreen Solar
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Vicor Corp.
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FormFactor Inc.
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Zoltek
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117
In mid-2011, our Compensation Committee reviewed data points as a benchmark
for various elements of executive compensation, including base salaries, target incentive as a percentage of salary, total cash compensation, long-term incentives and total direct compensation, based on information gathered from the public filings
of our peer companies set forth above. Our Compensation Committee also reviewed aggregated published survey data from Radford’s 2011 Global Technology Survey (using a data set comprised of public high-tech companies with revenue between $50
million and $500 million) in order to validate its benchmarks.
Our Compensation Committee determined that the
compensation of our NEOs in totality, and with respect to individual components of compensation, was generally above the market median at that time (with the exception of Mr. Ramsbottom’s base salary, which was slightly below the median),
yet within reasonable market practices and in line with our compensation philosophy and strategy. Specifically, our base salaries and target total cash compensation were on average higher than the median of the market data. A comparison of our
long-term incentives and total direct compensation (comprised of base salary, annual cash incentives and equity incentives) also revealed levels above the median of the market for our NEOs. Based on this analysis, we concluded that the level of our
total compensation was well positioned to attract and retain the type of management team that we believe is necessary to successfully implement our commercialization strategy. We believe that these levels and types of compensation are also
consistent with our compensation philosophy and foster our compensation objectives, and continued to provide appropriate incentives through the Transition Period.
Based on Radford’s 2011 evaluation of our compensation, we believe that the total compensation package provided for
the Transition Period paid our executives at median levels of the market for average performance, with compensation that would approximate the 75th percentile of the market for exceptional performance.
Radford serves at the discretion of our Compensation Committee and may be terminated by that committee. Radford’s
total fee for services provided to our Compensation Committee during the Transition Period was approximately $5,000.
Core Components of
Executive Compensation
Through our Compensation Committee, we design the principal components of our
executive compensation program to fulfil one or more of the principles and objectives described above. Compensation of our NEOs consists of the following elements:
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•
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Cash compensation comprised of base salary and annual cash incentive compensation;
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•
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Equity incentive compensation;
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•
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Certain severance and change in control benefits;
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•
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Health and welfare benefits and certain limited perquisites and other personal benefits; and
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•
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Retirement savings (401(k)) plan.
|
We view each component of our executive compensation program as related but distinct, and we have historically reassessed the total compensation of our NEOs periodically to ensure that overall
compensation objectives are met. In addition, in determining the appropriate level for each compensation component, we have considered, but not exclusively relied on, our understanding of the competitive market based on the collective experience of
members of our Compensation Committee (and our Chief Executive Officer with regard to the other NEOs), our recruiting and retention goals, our view of internal equity and consistency, the length of service of our executives, our overall financial
and operational performance and other relevant considerations.
We have not adopted any formal or informal
policies or guidelines for allocating compensation between currently-paid and long-term compensation, between cash and non-cash compensation, or among different forms of non-cash compensation. Generally, we offer a competitive, but balanced, total
compensation package that provides the stability of a competitive, fixed income while affording our executives the opportunity to be appropriately rewarded through cash and equity incentives if we attain our goals and perform well over time.
Each of the primary elements of our executive compensation program is discussed in more detail below. While
we have identified particular compensation objectives that each element of executive compensation serves, our compensation programs are intended to be flexible and complementary and to collectively serve all of the executive compensation objectives
described above. Accordingly, whether or not specifically mentioned below, we believe that, as a part of our overall executive compensation policy, each individual element, to a greater or lesser extent, serves each of our compensation objectives.
118
Cash Compensation
We provide our NEOs with cash compensation in the form of base salaries and annual cash incentive awards. Our cash
compensation is structured to provide a market-level base salary for our NEOs while creating an opportunity to exceed market levels for total cash compensation if short- and long-term performance exceeds expectations. We believe that this mix
appropriately combines the stability of non-variable compensation (in the form of base salary) with variable performance awards (in the form of annual cash incentives) that reward the performance of the Company and individual contributions to the
success of the business.
Base Salary
Base salaries for our NEOs were initially set in arm’s-length negotiations during the hiring processes for these
executives. These base salaries have historically been reviewed annually by our Compensation Committee (with input from our Chief Executive Officer with respect to the other NEOs) and were again reviewed during the Transition Period (at the end of
2011) for purposes of determining 2012 salaries. Our NEOs are not entitled to any formulaic base salary increases.
In connection with the closing of the Offering, effective November 7, 2011, we increased the base salaries of Messrs. Ramsbottom, Cohrs and Morris by 10% to compensate these executives for their
expanded responsibilities, duties and exposure to potential liabilities as senior officers of two publicly traded companies. Our other NEOs’ base salaries remained unchanged during the Transition Period.
In addition to the increases made to Messrs. Ramsbottom’s, Cohrs’ and Morris’ base salaries in connection
with the closing of the Offering, our Compensation Committee increased the base salaries of our NEOs, effective in January 2012, in connection with its annual salary review at the end of our fiscal year 2011. Effective January 2012,
Mr. Ramsbottom’s base salary increased by approximately 3% to $497,200 in recognition of his leadership and to more closely align his salary to the median salary in our peer group. Mr. Cohrs’ base salary also increased in January
2012 by approximately 3% to $426,575 in recognition of his effective capital raising efforts on our behalf and his continued leadership as our Chief Financial Officer. Mr. Samson’s salary was increased 3% to $350,200, effective
January 2012, but Mr. Samson resigned on February 3, 2012. Mr. Wright’s salary was increased 3% to $286,350, effective January 2012, in recognition of the continuing improvements to our technologies.
Mr. Morris’ salary was increased 5% to $288,030, effective January 2012, in recognition of his performance and to bring his base salary closer to the median of our peer group.
The base salaries for our NEOs, both during the Transition Period and following their salary increases in January 2012
are set forth in the following table:
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September 30,
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September 30,
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September 30,
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Name
|
|
Transition Period
Base Salary (Before Increase in
Connection with the
Offering) ($)
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|
Transition Period
Base Salary (After Increase in
Connection with the Offering) ($)
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Post-Transition Period
Base Salary (After Annual
Increase) ($)
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D. Hunt Ramsbottom
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440,000
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484,000
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497,200
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Dan J. Cohrs
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377,500
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415,250
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426,575
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Tom Samson
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340,000
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340,000
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350,200
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Harold A. Wright
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278,000
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278,000
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286,350
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Colin M. Morris
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248,300
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273,130
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288,030
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119
Annual Incentive Compensation
We maintain an annual incentive program to reward executive officers, including our NEOs, based on our financial and
operational performance, achievement of specific milestones related to technology, financing and project development work associated with our business, operation and expansion of our nitrogen fertilizer business, and the individual NEO’s
relative contribution to that performance during the year (referred to below as the our annual incentive program). We recognize that successful completion of short-term objectives is critical in achieving our planned level of growth and attaining
our long-term business objectives. Accordingly, our annual incentive program is designed to reward executives for successfully taking the immediate steps necessary to implement our long-term business strategy.
A detailed description of our annual incentive program for our fiscal year 2011, including our determination and
weighting of applicable performance criteria and an analysis of our performance (and that of our NEOs) against these criteria, is contained in our Annual Report on Form 10-K, filed with the SEC on December 14, 2011, as amended on
January 30, 2012. Historically, we have implemented a new annual incentive program at the end of each calendar year (which, prior to the Transition Period, constituted the start of our fiscal year). In connection with our transition to a fiscal
year that coincides with the calendar year, we are in the process of evaluating and determining how best to structure annual incentive awards in light of the Transition Period.
At this point in time, no annual incentive program has been established with respect to the Transition Period and no
incentive award payments are currently contemplated. We expect that, as part of this transition process, our Compensation Committee will determine how best to analyze and reward performance during the Transition Period. While no determinations have
been made at this time (and, accordingly, no assurances can be given that any cash incentives will be deemed to be earned with respect to the Transition Period), we expect that our Compensation Committee will take into account both the Transition
Period and the fiscal year 2012 service period in determining 2012 annual incentives. We expect to disclose any such determinations in future filings as may be required by applicable disclosure rules.
Long-Term Equity Incentive Awards
Our Compensation Committee and our Board believe that senior executives, including our NEOs, should have an ongoing stake in the success of their employer to closely align their interests with those of
its shareholders. Our Compensation Committee also believes that equity awards provide meaningful retention and performance incentives that appropriately encourage our executive officers, including our NEOs, to remain employed with us and put forth
their best efforts and performance at all times. Accordingly, long-term equity incentive awards covering shares of our common stock have historically been a key component of our compensation program, including during the Transition Period, as these
awards create an ownership stake for management that aligns the interests of our NEOs with those of our shareholders and incentivize our NEOs to work toward increasing value for our shareholders. Our equity awards typically are issued under our 2006
and 2009 Incentive Award Plans which are intended to provide incentives for a broad group of service providers including employees (both NEOs and other employees), directors and consultants, in each case, who are critical to the success of the
Company and the creation of shareholder value.
During the Transition Period, our subsidiary, RNP, also
granted equity awards to our NEOs under its 2011 Long-Term Incentive Plan.
During the Transition Period, we
granted two distinct sets of equity awards to our NEOs. The first set of awards is referred to below as the “2012 Awards” and constitutes annual grants of Rentech equity awards, consistent with our past practice of granting awards annually
to our NEOs. The second set of equity awards is referred to below as “IPO-Related Equity Awards” and is intended to reward the efforts of certain of our NEOs for their roles in orchestrating, as well as to incentivize their continued
performance following, the IPO. All of these awards, which are described in additional detail below, are intended to promote the share ownership, performance and retention goals described above.
2012 Awards
During the Transition Period, we granted 2012 Awards comprised of time-vesting restricted stock units, or RSUs, and performance-vesting restricted stock units, or PSUs. Each RSU and PSU confers upon its
holder the right to receive one share of our common stock upon vesting without payment of purchase price, thereby delivering the full grant-date value of the underlying shares, as well as any post-grant share price increase. Accordingly, each of
these awards enables us to confer upon our executives value in excess of simple future appreciation.
120
RSUs granted as 2012 Awards during the Transition Period vest in
substantially equal annual increments over a period of three years from the grant date, thus providing a key retention incentive to our NEOs over this period. PSUs granted as 2012 Awards require both continued service and the attainment of
performance criteria as conditions to vesting, thereby providing both retention and enhanced performance incentives. Specifically, PSUs granted during the Transition Period vest only if, on or prior to October 12, 2014, our value weighted
average share price for any 30-day period equals or exceeds $3.00, further subject to the recipient’s continued employment through the attainment of this performance objective.
All of the 2012 Awards are subject to accelerated vesting in connection with certain qualifying terminations of
employment, including, in some cases, in connection with a change in control (as described under “—Potential Payments upon Termination or Change-in-Control” below). We believe that the applicable vesting periods provide an appropriate
retention incentive, while accelerated vesting (where appropriate) protects executives against forfeiture of their awards in circumstances that are generally beyond their control and aligns management’s incentives more closely with the
interests of our shareholders.
In order to emphasize the significance of post-grant performance, we granted
two-thirds of the 2012 Awards in the form of PSUs (
i.e.
, subject to both performance-vesting and time-vesting conditions), while granting only one-third of each NEO’s 2012 Award as time-vest RSUs (which also reward increased shareholder
value). The 2012 Awards are intended as annual awards in respect of 2012 and should provide retention and performance incentives at levels appropriate for 2012; however, in light of the Transition Period (which our Compensation Committee may take
into consideration for purposes of structuring compensation for our fiscal year 2012, our Compensation Committee may, in its discretion, decide to grant additional equity incentives during calendar year 2012. No determinations have been made with
regard to any such awards at this time, if any, and there can be no assurance that any additional grants will be made.
During the Transition Period, we issued a total of approximately 3,508,000 RSUs and 2,960,000 PSUs to members of management, including the NEOs. In determining appropriate levels of equity grants for the
2012 Awards, our Compensation Committee considered, among other things, the role and responsibility of each NEO and the perceived need to reward and retain the NEO.
The table below sets forth the 2012 Awards that we granted to our NEOs during the Transition Period (all grants were made
on December 13, 2011):
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September 30,
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September 30,
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Name
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Restricted Stock Units
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Performance Stock Units
|
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D. Hunt Ramsbottom
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401,875
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800,625
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Dan J. Cohrs
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195,938
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397,812
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Tom Samson
|
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109,725
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222,775
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Harold Wright
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95,000
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190,000
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Colin Morris
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95,000
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190,000
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IPO-Related Equity Awards
In connection with the closing of the Offering, we and RNP made equity incentive grants to certain of our NEOs, or the
IPO Grants, to reward these executives for their success in completing the Offering and to incentivize these executives with respect to the additional demands that will be placed upon them in connection with RNP becoming a publicly traded company.
The IPO Grants are additional to the 2012 Awards and are expected to further promote the share ownership, performance and retention goals described above.
The IPO Grants were comprised in equal parts (determined by reference to the fair market value of the shares or units underlying the awards, as applicable) of (i) RNP phantom units that are settled
in RNP common units upon vesting (and which entitle their holders to dividend and other distribution rights while the phantom units are outstanding) and (ii) time-vest RSUs (covering our stock), in each case, vesting in ratable one-third
increments over three years from the closing of the IPO, and subject to accelerated vesting upon qualifying terminations of employment (as described under “—Potential Payments upon Termination or Change-in-Control” below).
121
We believe that awards covering equity interests of both Rentech and RNP
were appropriate in consideration of (i) the services provided by each of our NEOs for the benefit of RNP and (ii) the connection between the success of RNP and the value of Rentech’s stock in light of Rentech’s substantial
ownership interest in RNP. We further believe that these awards were appropriate to recognize the outstanding performance of these executives in bringing the IPO to fruition. These awards should also serve as important retention incentives for our
NEOs due to applicable time-based vesting conditions, which should help to ensure the stability and consistency of our management team. In determining appropriate levels of IPO Grants, our Compensation Committee considered, among other things, our
NEOs’ contributions with respect to the Offering, the role and responsibility of our NEOs and the perceived need to reward and retain our NEOs.
The IPO Grants made to our NEOs are summarized in the table below (all of which were made on December 13, 2011):
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September 30,
|
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|
September 30,
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Officer
|
|
Partnership
Phantom
Units
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|
Rentech
Restricted Stock
Units
(RSUs)
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D. Hunt Ramsbottom
|
|
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33,273
|
|
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|
435,097
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Dan J. Cohrs
|
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|
23,158
|
|
|
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302,834
|
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|
Colin Morris
|
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18,334
|
|
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239,746
|
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Employment Contracts; Severance Benefits
We believe that vulnerability to termination of employment at the senior executive level creates uncertainty for our NEOs
that is appropriately addressed by providing severance protections which enable and encourage these executives to focus their attention on their work duties and responsibilities in all situations. We operate in a volatile and acquisitive industry
that heightens this vulnerability in the change-in-control context. Accordingly, in order to attract and retain our key managerial talent, we enter into employment agreements with our NEOs which provide for specified severance payments and benefits
in connection with certain qualifying terminations of employment. We believe that terminations of employment, both within and outside of the change in control context, are causes of great concern and uncertainty for senior executives and that
providing protections to our named executives in these contexts is therefore appropriate in order to alleviate these concerns, and to enable and encourage the executives to focus their attention on their duties and responsibilities to us in all
situations. In addition, we believe that change in control and severance benefits are essential in order to fulfill our objective of attracting and retaining key managerial talent. As of December 31, 2011, the last day of the Transition Period,
we were party to employment agreements with Messrs. Ramsbottom, Cohrs, Samson, Wright and Morris. For a description of the specific terms and conditions of each agreement, see “—Narrative Disclosure to Summary Compensation Table and
Grants of Plan-Based Awards Table” and “—Potential Payments upon Termination or Change-in-Control” below.
Benefits
and Perquisites
We maintain a standard complement of health and retirement benefit plans for our
employees, including our NEOs, that provide medical, dental, and vision benefits, flexible spending accounts, a 401(k) savings plan (including an employer-match component), short-term and long-term disability insurance, accidental death and
dismemberment insurance and life insurance coverage. These benefits are generally provided to our NEOs on the same terms and conditions as they are provided to our other employees.
We believe that these health and retirement benefits comprise key elements of a comprehensive compensation program. Our
health benefits help provide stability and peace of mind to our NEOs, thus enabling them to better focus on their work responsibilities, while our 401(k) plan provides a vehicle for tax-preferred retirement savings with additional compensation in
the form of an employer match that adds to the overall desirability of our executive compensation package. Our employee benefits programs are designed to be affordable and competitive in relation to the market, as well as compliant with applicable
laws and practices. We periodically review and adjust these employee benefits programs as needed based upon regular monitoring of applicable laws and practices in the competitive market.
As part of the compensation package, we also provide our NEOs with a monthly car allowance and these executives (other
than Mr. Wright) also receive reimbursement of certain financial advisor costs. Mr. Samson received certain temporary living costs during the Transition Period. We also provided our NEOs with supplemental group term life insurance coverage
and life insurance during the Transition Period. Our Compensation Committee does not believe that perquisites should play an important role in the compensation of our executives, but also believes that the limited benefits identified here are not a
material component of our executive compensation program and are reasonable and in line with those provided to similarly-situated executives in our field.
122
Tax and Accounting Considerations
Section 162(m) of the Internal Revenue Code
Generally, Section 162(m) of the Internal Revenue Code disallows a tax deduction to any publicly-held corporation
for any individual remuneration in excess of $1 million paid in any taxable year to its chief executive officer and each of its other named executive officers, other than its chief financial officer. However, remuneration in excess of $1 million may
be deducted if it qualifies as “performance-based compensation” within the meaning of the Internal Revenue Code.
Where reasonably practicable, to the extent that the Section 162(m) deduction disallowance becomes applicable to our NEOs, our Compensation Committee may seek to qualify the variable compensation
paid to our NEOs for an exemption from such deductibility limitations. As such, in approving the amount and form of compensation for our NEOs, our Compensation Committee will consider all elements of the cost to us of providing such compensation,
including the potential impact of Section 162(m) of the Internal Revenue Code. Our Compensation Committee may, in its judgment, authorize compensation payments that do not comply with an exemption from the deductibility limit in
Section 162(m) of the Internal Revenue Code when it believes that such payments are appropriate to attract and retain executive talent.
Section 280G of the Internal Revenue Code
Section 280G of the Internal Revenue Code disallows a tax deduction with respect to excess parachute payments to certain executives of companies which undergo a change in control. In addition,
Section 4999 of the Internal Revenue Code imposes a 20% excise tax on the individual with respect to the excess parachute payment. Parachute payments are compensation linked to or triggered by a change in control and may include, but are not
limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long-term incentive plans including stock options and other equity-based compensation. Excess parachute payments are parachute
payments that exceed a threshold determined under Section 280G of the Internal Revenue Code based on the executive’s prior compensation. In approving compensation arrangements for our NEOs in the future, we expect to consider all elements
of the cost of providing such compensation, including the potential impact of Section 280G of the Internal Revenue Code. However, we may authorize compensation arrangements that could give rise to loss of deductibility under Section 280G
of the Internal Revenue Code and the imposition of excise taxes under Section 4999 of the Internal Revenue Code if we feel that such arrangements are appropriate to attract and retain executive talent.
Under their employment agreements with us, our NEOs are entitled to gross-up payments in the event that any excise taxes
are imposed on them. We have historically provided these protections to these senior executives to ensure that they will be properly incentivized in the event of a potential change in control of Rentech to maximize shareholder value in a transaction
while minimizing concern for potential consequences of the transaction to these executives.
Section 409A of the Internal Revenue Code
Section 409A of the Internal Revenue Code requires that “nonqualified deferred
compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements
can expose employees and other service providers to accelerated income tax liabilities, substantial additional taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is our intention to design and
administer our compensation and benefit plans and arrangements for all of our employees and other service providers, including our NEOs, so that they are either exempt from, or satisfy the requirements of, Section 409A of the Internal Revenue
Code.
Accounting for Stock-Based Compensation
We follow Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718, for
stock-based compensation awards. ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock-based awards using a variety of assumptions. ASC Topic 718 also requires companies to recognize the compensation cost
of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award. Grants of stock options, restricted stock, RSUs and other equity-based awards under equity incentive
award plans have been and will be accounted for under ASC Topic 718. We expect that we will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity
incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.
123
The Role of Shareholder Say-on-Pay Votes
At our annual meeting of shareholders held in May 2011, we provided our shareholders with the opportunity to cast an
advisory vote on our executive compensation program, or a “say-on-pay proposal”. A majority of the votes cast on our say-on-pay proposal at that meeting were voted in favor of the proposal. Our Compensation Committee believes this affirms
our shareholders’ support of our approach to executive compensation, and, accordingly, did not change its approach to executive compensation during the Transition Period, or for 2012 generally, in connection with the say-on-pay proposal. Our
Compensation Committee expects to take into consideration the outcome of our shareholders’ future say-on-pay proposal votes when making future compensation decisions for our NEOs. We expect that our next say-on-pay proposal will be submitted to
shareholders for an advisory vote at our annual meeting of stockholders in 2014.
Our Compensation Committee
reviews our executive compensation program annually to ensure that our NEOs’ compensation remains tied to our long-term and short-term performance. During the Transition Period, as described above in “—Long-Term Equity Incentive
Awards,” we granted two-thirds of our 2012 Awards subject to performance-based vesting. Performance-based vesting has also been an important component of certain of our long-term incentive awards historically. Each of these factors demonstrates
a strong alignment between performance and compensation for our NEOs.
Compensation Committee Report
Our Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis
and, based on such review and discussion, our Compensation Committee determined that the Compensation Discussion and Analysis should be included in this report.
Edward M. Stern, Chairman
Michael S. Burke
Halbert S. Washburn
124
Summary Compensation Table
The following table summarizes the compensation for the Transition Period (under the heading “3Mo 2011”) and
the fiscal years ended September 30, 2011, 2010 and 2009 for each of the following: (i) our chief executive office (principal executive officer), (ii) our chief financial officer (principal financial officer), and (iii) our three
next most highly compensated executive officers as of December 31, 2011.
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
|
Septem
|
|
|
Name and Principal Position
|
|
Year
(1)
|
|
|
Salary
($)
|
|
|
Bonus
($) (2)
|
|
|
Stock
Awards
($) (3)
|
|
|
Option
Awards
($) (3)
|
|
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)(4)
|
|
|
Change in
Pension
Value and
Deferred
Compen-
sation
($)
|
|
|
All Other
Compen-
sation
($) (5)
|
|
|
Total
($)
|
|
|
D. Hunt Ramsbottom,
Chief Executive Officer
|
|
|
3 Mo
2011
|
|
|
$
|
116,417
|
|
|
$
|
—
|
|
|
$
|
2,911,343
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
4,129
|
|
|
$
|
3,031,889
|
|
|
|
|
|
2011
|
|
|
$
|
434,750
|
|
|
$
|
—
|
|
|
$
|
241,783
|
|
|
$
|
457,258
|
|
|
$
|
220,000
|
|
|
|
—
|
|
|
$
|
43,244
|
|
|
$
|
1,397,035
|
|
|
|
|
|
2010
|
|
|
$
|
419,000
|
|
|
$
|
—
|
|
|
$
|
1,289,725
|
|
|
$
|
—
|
|
|
$
|
356,150
|
|
|
|
—
|
|
|
$
|
31,275
|
|
|
$
|
2,096,150
|
|
|
|
|
|
2009
|
|
|
$
|
417,500
|
|
|
$
|
—
|
|
|
$
|
50,280
|
|
|
$
|
—
|
|
|
$
|
452,520
|
|
|
|
—
|
|
|
$
|
30,630
|
|
|
$
|
950,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan J. Cohrs,
Chief Financial Officer
|
|
|
3 Mo
2011
|
|
|
$
|
99,880
|
|
|
$
|
—
|
|
|
$
|
1,702,870
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
3,166
|
|
|
$
|
1,805,916
|
|
|
|
|
|
2011
|
|
|
$
|
373,875
|
|
|
$
|
—
|
|
|
$
|
142,226
|
|
|
$
|
268,975
|
|
|
$
|
113,250
|
|
|
|
—
|
|
|
$
|
40,528
|
|
|
$
|
938,854
|
|
|
|
|
|
2010
|
|
|
$
|
361,075
|
|
|
$
|
—
|
|
|
$
|
857,937
|
|
|
$
|
—
|
|
|
$
|
186,150
|
|
|
|
—
|
|
|
$
|
44,138
|
|
|
$
|
1,449,300
|
|
|
|
|
|
2009
|
|
|
$
|
296,500
|
|
|
$
|
—
|
|
|
$
|
215,059
|
|
|
$
|
—
|
|
|
$
|
249,480
|
|
|
|
—
|
|
|
$
|
62,628
|
|
|
$
|
823,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom Samson,
Executive Vice President and
Chief Development Officer (6)
|
|
|
3 Mo
2011
|
|
|
$
|
85,000
|
|
|
$
|
—
|
|
|
$
|
441,952
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
22,833
|
|
|
$
|
549,785
|
|
|
|
|
|
2011
|
|
|
$
|
336,317
|
|
|
$
|
25,000
|
|
|
$
|
372,993
|
|
|
$
|
—
|
|
|
$
|
68,000
|
|
|
|
—
|
|
|
$
|
94,587
|
|
|
$
|
896,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold A. Wright,
Senior Vice President and
Chief Technology Officer
|
|
|
3 Mo
2011
|
|
|
$
|
69,500
|
|
|
$
|
—
|
|
|
$
|
378,868
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
4,582
|
|
|
$
|
452,950
|
|
|
|
|
|
2011
|
|
|
$
|
276,000
|
|
|
$
|
—
|
|
|
$
|
56,890
|
|
|
$
|
107,590
|
|
|
$
|
55,600
|
|
|
|
—
|
|
|
$
|
24,243
|
|
|
$
|
520,323
|
|
|
|
|
|
2010
|
|
|
$
|
266,700
|
|
|
$
|
—
|
|
|
$
|
452,553
|
|
|
$
|
—
|
|
|
$
|
114,750
|
|
|
|
—
|
|
|
$
|
21,749
|
|
|
$
|
855,752
|
|
|
|
|
|
2009
|
|
|
$
|
256,800
|
|
|
$
|
—
|
|
|
$
|
16,690
|
|
|
$
|
—
|
|
|
$
|
127,125
|
|
|
|
—
|
|
|
$
|
21,899
|
|
|
$
|
422,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colin M. Morris,
General Counsel
|
|
|
3 Mo
2011
|
|
|
$
|
65,696
|
|
|
$
|
—
|
|
|
$
|
1,102,205
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
5,438
|
|
|
$
|
1,173,339
|
|
|
|
|
|
2011
|
|
|
$
|
245,350
|
|
|
$
|
—
|
|
|
$
|
56,890
|
|
|
$
|
107,590
|
|
|
$
|
62,100
|
|
|
|
—
|
|
|
$
|
39,409
|
|
|
$
|
511,339
|
|
|
|
|
|
2010
|
|
|
$
|
234,750
|
|
|
$
|
—
|
|
|
$
|
411,292
|
|
|
$
|
—
|
|
|
$
|
100,515
|
|
|
|
—
|
|
|
$
|
36,640
|
|
|
$
|
783,197
|
|
|
|
|
|
2009
|
|
|
$
|
229,500
|
|
|
$
|
—
|
|
|
$
|
12,620
|
|
|
$
|
—
|
|
|
$
|
113,580
|
|
|
|
—
|
|
|
$
|
37,471
|
|
|
$
|
393,171
|
|
|
(1)
|
“3 Mo 2011” refers to the Transition Period. The 2011, 2010 and 2009 amounts include the compensation earned by each NEO during the full
12-month periods that comprised our fiscal years 2011, 2010 and 2009, respectively (each ending on September 30 of the relevant year).
|
|
(2)
|
Represents a one-time commencement payment of $25,000 paid to Mr. Samson in October 2010, pursuant to the terms of his employment agreement.
|
|
(3)
|
Amounts reflect the aggregate grant date fair value of the stock and option awards, calculated in accordance with ASC Topic 718. We provide
information regarding the assumptions used to calculate the value of all of our stock awards made to executive officers in Note 15 to our consolidated financial statements. There can be no assurance that awards will vest or will be exercised, as
applicable (in which case no value will be realized by the individual), or that the value upon vesting or exercise, as applicable, will approximate the aggregate grant date fair value determined under ASC Topic 718. The amounts reported for
fiscal year 2009 do not match the amounts reported in our 2009 compensation disclosure due to rule amendments which now require that we show the aggregate grant date fair value of these awards for all years.
|
|
(4)
|
In each of the reported fiscal years prior to the Transition Period, our NEOs have participated in our annual incentive program and received an
annual incentive award based on the achievement of certain pre-established financial and other performance criteria and determined by reference to target bonuses set forth in their respective employment agreements. We have not established any
non-equity incentive program applicable to the Transition Period and, accordingly, no non-equity incentive amounts have become payable or been paid for this period. We may in the future take into consideration performance during the Transition
Period in determining non-equity incentive awards for 2012 (if any), in which case we will disclose any relevant metrics as required by applicable disclosure rules. There can be no assurance at this time that any non-equity incentive awards (or
bonuses) will be paid in respect of the Transition Period.
|
125
The non-equity incentive amounts that were awarded in December 2011 and
2010 were paid exclusively in cash.The non-equity incentive amounts that were awarded in December 2009 were payable 90% in cash, with the remaining 10% awarded in the form of RSUs which were issued in December 2009. The value of the RSUs awarded
with the allocated portion of the 2009 non-equity incentive amounts is included in the Stock Awards column. The Company made matching grants of RSUs to each NEO with a value equal to 10% of the NEO’s 2009 non-equity incentive amounts in
December 2009, which are also included in the “Stock Awards” column above.
|
(5)
|
Amounts under the “All Other Compensation” column for the Transition Period include 401(k) matching contributions of $363, $0, $2,942,
$1,416 and $2,282 for Messrs. Ramsbottom, Cohrs, Samson, Wright and Morris, respectively, and perquisites, valued at the aggregate incremental cost to Rentech, consisting of automobile allowance, payment for financial and tax planning services and
the other payments made by the Company described in the following table.
|
Perquisites
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
Name
|
|
Auto
Allowance
|
|
|
Housing
Allowance
|
|
|
Long-Term
Disability
|
|
|
Supplemental
Life
Insurance
|
|
|
Financial and
Tax
Planning
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
D. Hunt Ramsbottom
|
|
|
3,600
|
|
|
|
—
|
|
|
|
105
|
|
|
|
61
|
|
|
|
—
|
|
|
|
3,766
|
|
|
Dan J. Cohrs
|
|
|
3,000
|
|
|
|
—
|
|
|
|
105
|
|
|
|
61
|
|
|
|
—
|
|
|
|
3,166
|
|
|
Tom Samson
|
|
|
3,000
|
|
|
|
7,950
|
|
|
|
105
|
|
|
|
61
|
|
|
|
8,775
|
|
|
|
19,891
|
|
|
Harold Wright
|
|
|
3,000
|
|
|
|
—
|
|
|
|
105
|
|
|
|
61
|
|
|
|
—
|
|
|
|
3,166
|
|
|
Colin Morris
|
|
|
3,000
|
|
|
|
—
|
|
|
|
105
|
|
|
|
51
|
|
|
|
—
|
|
|
|
3,156
|
|
|
(6)
|
Mr. Samson departed Rentech effective February 3, 2012.
|
Grants of Plan-Based Awards
The following table sets
forth information with respect to the NEOs concerning the grant of plan-based awards from Rentech’s and RNP’s plans during the Transition Period.
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
Septe
|
|
Septe
|
|
|
Septe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
All Other
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Option
|
|
|
|
Value
|
|
|
|
|
|
|
|
Estimated Possible
|
|
|
|
|
|
Number
|
|
|
Awards:
|
|
|
|
of
|
|
|
|
|
|
|
|
Payouts Under
|
|
|
Estimated Future
|
|
|
of
|
|
|
Number of
|
|
Exercise or
|
|
Stock
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan
|
|
|
Payouts Under
|
|
|
Shares of
|
|
|
Securities
|
|
Base Price
|
|
and
|
|
|
|
|
|
|
|
Awards
|
|
|
Equity Incentive Plan Awards
|
|
|
Stock
|
|
|
Underlying
|
|
of Option
|
|
Option
|
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
or Units
|
|
|
Options
|
|
Awards
|
|
Awards
|
|
|
Name
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
(1)
|
|
($/Sh)
|
|
($)
(1)(2)
|
|
|
D. Hunt Ramsbottom
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
435,097
|
(3)
|
|
|
|
|
|
$
|
700,506
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
401,875
|
(4)
|
|
|
|
|
|
$
|
548,906
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
800,625
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
$
|
1,049,708
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,273
|
(6)
|
|
|
|
|
|
$
|
612,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan J. Cohrs
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
302,834
|
(3)
|
|
|
|
|
|
$
|
487,563
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
195,938
|
(4)
|
|
|
|
|
|
$
|
267,625
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
397,812
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
$
|
521,575
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,158
|
(6)
|
|
|
|
|
|
$
|
426,107
|
|
126
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
|
Septe
|
|
|
Septe
|
|
Septe
|
|
|
Septe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
All Other
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Option
|
|
|
|
Value
|
|
|
|
|
|
|
|
Estimated Possible
|
|
|
|
|
|
Number
|
|
|
Awards:
|
|
|
|
of
|
|
|
|
|
|
|
|
Payouts Under
|
|
|
Estimated Future
|
|
|
of
|
|
|
Number of
|
|
Exercise or
|
|
Stock
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan
|
|
|
Payouts Under
|
|
|
Shares of
|
|
|
Securities
|
|
Base Price
|
|
and
|
|
|
|
|
|
|
|
Awards
|
|
|
Equity Incentive Plan Awards
|
|
|
Stock
|
|
|
Underlying
|
|
of Option
|
|
Option
|
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
or Units
|
|
|
Options
|
|
Awards
|
|
Awards
|
|
|
Name
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
(1)
|
|
($/Sh)
|
|
($)
(1)(2)
|
|
|
Tom Samson
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
109,725
|
(4)
|
|
|
|
|
|
$
|
149,869
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
222,775
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
$
|
292,083
|
|
|
Harold A. Wright
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95,000
|
(4)
|
|
|
|
|
|
$
|
129,757
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
190,000
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
$
|
249,111
|
|
|
Colin M. Morris
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
239,746
|
(3)
|
|
|
|
|
|
$
|
385,991
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95,000
|
(4)
|
|
|
|
|
|
$
|
129,757
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
190,000
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
$
|
249,111
|
|
|
|
|
|
12/13/2011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,334
|
(6)
|
|
|
|
|
|
$
|
337,346
|
|
|
(1)
|
All equity grants to NEOs other than Messrs. Ramsbottom and Cohrs were made under Rentech’s 2009 Amended and Restated Incentive Award
Plan. Messrs. Ramsbottom’s and Cohrs’ RSU awards for 435,097 and 302,834 shares, respectively, were granted under Rentech’s Amended and Restated 2006 Incentive Award Plan, as amended. The remaining RSU awards for Messrs.
Ramsbottom and Cohrs were granted under Rentech’s 2009 Amended and Restated Incentive Award Plan. Amounts reflect the full grant date fair value of Rentech RSUs granted during the Transition Period, computed in accordance with ASC
Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the fair value of all compensatory equity awards made to executive officers in Note 15 to
our consolidated financial statements. There can be no assurance that awards will vest (in which case no value will be realized by the individual), or that the value upon vesting will approximate the aggregate grant date fair value determined under
ASC Topic 718.
|
|
(2)
|
All RNP equity grants were made under the Rentech Nitrogen Partners, L.P. 2011 Long-Term Incentive Plan. Amounts reflect the full grant date fair
value of Partnership phantom units granted during the Transition Period, computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. There can be no assurance that awards will vest (in which case
no value will be realized by the individual), or that the value upon vesting will approximate the aggregate grant date fair value determined under ASC Topic 718.
|
|
(3)
|
These RSUs vest in three substantially equal installments on November 9, 2012, 2013 and 2014, subject to the executive’s continued
employment through the applicable vesting date and accelerated vesting (i) in full upon the executive’s termination of employment by the employer without cause or by the executive for good reason, (ii) in full upon the
executive’s death or disability or (iii) on a pro rata basis if the executive terminates employment for any other reason.
|
|
(4)
|
These RSUs vest in three substantially equal installments on October 12, 2012, 2013 and 2014, subject to the executive’s continued
employment through the applicable vesting date and accelerated vesting in connection with (i) the executive’s termination of employment by the employer without cause or by the executive for good reason in connection with a change in
control of Rentech or (ii) the executive’s death or disability.
|
|
(5)
|
These PSUs vest in full on the first date occurring on or prior to October 12, 2014 on which the Company’s value weighted average share
price for any 30-day period equals or exceeds $3.00, subject to the executive’s continued employment through the applicable vesting date and further subject to accelerated vesting in connection with (i) the executive’s termination of
employment by the employer without cause or by the executive for good reason in connection with a change in control of Rentech or (ii) the executive’s death or disability.
|
127
|
(6)
|
These RNP phantom units vest in three substantially equal installments on November 9, 2012, 2013 and 2014, subject to the executive’s
continued employment through the applicable vesting date and accelerated vesting (i) in full upon the executive’s termination of employment by the employer without cause or by the executive for good reason, (ii) in full upon the
executive’s death or disability or (iii) on a pro rata basis if the executive terminates employment for any other reason.
|
Narrative Disclosure to Summary Compensation Table
and Grants of
Plan-Based Awards Table
Employment Agreements
The employment agreements for Messrs. Ramsbottom, Cohrs, Samson, Wright and Morris continue through December 31,
2012, October 22, 2012, October 5, 2012, November 3, 2012, and November 3, 2012, respectively, subject in each case to automatic one-year renewals absent 90-days’ advance notice from either party to the
contrary. Under these employment agreements, Messrs. Ramsbottom, Cohrs, Samson, Wright and Morris are entitled, respectively, to (i) current base salaries, effective January 1, 2012, of $497,200, $426,575, $350,200, $286,350, and
$288,030, and (ii) annual incentive bonuses targeted at 100%, 60%, 50%, 50% and 50% of applicable base salary (with actual bonus eligibility for each executive ranging from zero to twice the applicable target). Mr. Samson’s agreement
entitles him to certain costs associated with Mr. Samson’s relocation to Los Angeles, California, including transportation and moving expenses, temporary housing expenses and a housing allowance payable during the first three years
following his relocation.
The employment agreements entitle each executive to a “gross-up” payment
from the Company equal to any excise taxes that the executive incurs under Internal Revenue Code Section 280G (and any taxes on such gross-up payment) in connection with a change in control of the Company. In addition, the employment agreements
provide for monthly auto allowances, as well as customary indemnification, health, welfare, retirement and vacation benefits. The agreements also contain customary confidentiality and other restrictive covenants. Each of the executives covered by an
employment agreement has also executed a corporate confidentiality and proprietary rights agreement. Though not addressed in the employment agreements, each of the NEOs is entitled to accelerated vesting of certain equity awards in the event of a
change in control of Rentech. For a discussion of the severance and change-in-control benefits for which our NEOs are eligible under their employment agreements, see “—Potential Payments upon Termination or Change-in-Control” below.
Outstanding Equity Awards at December 31, 2011
The following table sets forth information with respect to the NEOs, concerning the outstanding equity awards from
Rentech and RNP at December 31, 2011. Footnotes to the table describe the generally applicable vesting conditions for each award. For a description of applicable accelerated vesting provisions, see “—Potential Payments upon
Termination or Change-in-Control” below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Number
of Shares
or
Units of
Stock
that have not
Vested
(#)
|
|
|
Market
Value
of
Shares or
Units of
Stock
that have not
Vested
($)(1)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units
or
Other Rights
that have not
Vested (#)
|
|
|
Equity Incentive
Plan Awards:
Market or
Payout
Value of Unearned
Shares, Units or
Other
Rights
that have not
Vested ($)(1)
|
|
|
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. Hunt Ramsbottom
|
|
|
250,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
4.15
|
|
|
|
7/13/2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(2)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
373,750
|
|
|
$
|
1.82
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(2)
|
|
|
|
|
233,333
|
|
|
|
466,667
|
|
|
|
—
|
|
|
$
|
0.95
|
|
|
|
10/4/2020
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(2)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
$
|
1,310,000
|
|
|
(5)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
75,000
|
|
|
$
|
98,250
|
|
|
|
—
|
|
|
|
—
|
|
|
(6)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133,226
|
|
|
$
|
174,526
|
|
|
|
—
|
|
|
|
—
|
|
|
(7)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,751
|
|
|
$
|
38,974
|
|
|
|
—
|
|
|
|
—
|
|
|
(8)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000
|
|
|
$
|
262,000
|
|
|
|
—
|
|
|
|
—
|
|
|
(9)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
435,097
|
|
|
$
|
569,977
|
|
|
|
—
|
|
|
|
—
|
|
|
(10)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
401,875
|
|
|
$
|
526,456
|
|
|
|
—
|
|
|
|
—
|
|
|
(11)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
800,625
|
|
|
$
|
1,048,819
|
|
|
(12)
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,273
|
|
|
$ 544,014
|
|
|
—
|
|
|
—
|
|
|
(13)
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Number
of Shares
or
Units of
Stock
that have not
Vested
(#)
|
|
|
Market
Value
of
Shares or
Units of
Stock
that have not
Vested
($)(1)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units
or
Other Rights
that have not
Vested (#)
|
|
|
Equity Incentive
Plan Awards:
Market or
Payout
Value of Unearned
Shares, Units or
Other
Rights
that have not
Vested ($)(1)
|
|
|
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan J. Cohrs
|
|
|
137,255
|
|
|
|
274,510
|
|
|
|
—
|
|
|
$
|
0.95
|
|
|
|
10/4/2020
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(4)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
700,000
|
|
|
$
|
917,000
|
|
|
(5)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,666
|
|
|
$
|
80,782
|
|
|
|
—
|
|
|
|
—
|
|
|
(6)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,402
|
|
|
$
|
21,487
|
|
|
|
—
|
|
|
|
—
|
|
|
(8)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
117,647
|
|
|
$
|
154,118
|
|
|
|
—
|
|
|
|
—
|
|
|
(9)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
302,834
|
|
|
$
|
396,713
|
|
|
|
—
|
|
|
|
—
|
|
|
(10)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
195,938
|
|
|
$
|
256,679
|
|
|
|
—
|
|
|
|
—
|
|
|
(11)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
397,812
|
|
|
$
|
521,134
|
|
|
(12)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,158
|
|
|
$
|
378,633
|
|
|
|
—
|
|
|
|
—
|
|
|
(13)
|
|
Tom Samson
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
233,333
|
|
|
$
|
305,666
|
|
|
|
—
|
|
|
|
—
|
|
|
(14)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
109,725
|
|
|
$
|
234,000
|
|
|
|
—
|
|
|
|
—
|
|
|
(11)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
546,000
|
|
|
(12)
|
|
Harold A. Wright
|
|
|
54,902
|
|
|
|
109,804
|
|
|
|
—
|
|
|
$
|
0.95
|
|
|
|
10/4/2020
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(4)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
350,000
|
|
|
$
|
458,500
|
|
|
(5)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,334
|
|
|
$
|
43,668
|
|
|
|
—
|
|
|
|
—
|
|
|
(6)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,782
|
|
|
$
|
29,844
|
|
|
|
—
|
|
|
|
—
|
|
|
(7)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,876
|
|
|
$
|
12,938
|
|
|
|
—
|
|
|
|
—
|
|
|
(8)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,059
|
|
|
$
|
61,647
|
|
|
|
—
|
|
|
|
—
|
|
|
(9)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95,000
|
|
|
$
|
124,450
|
|
|
|
—
|
|
|
|
—
|
|
|
(11)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
190,000
|
|
|
$
|
248,900
|
|
|
(12)
|
|
Colin M. Morris
|
|
|
75,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
4.15
|
|
|
|
7/13/2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(2)
|
|
|
|
|
54,902
|
|
|
|
109,804
|
|
|
|
—
|
|
|
$
|
0.95
|
|
|
|
10/4/2020
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(4)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000
|
|
|
$
|
393,000
|
|
|
(5)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,334
|
|
|
$
|
43,668
|
|
|
|
—
|
|
|
|
—
|
|
|
(6)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,016
|
|
|
$
|
48,491
|
|
|
|
—
|
|
|
|
—
|
|
|
(7)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,467
|
|
|
$
|
9,782
|
|
|
|
—
|
|
|
|
—
|
|
|
(8)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,059
|
|
|
$
|
61,647
|
|
|
|
—
|
|
|
|
—
|
|
|
(9)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
239,746
|
|
|
$
|
314,067
|
|
|
|
—
|
|
|
|
—
|
|
|
(10)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95,000
|
|
|
$
|
124,450
|
|
|
|
—
|
|
|
|
—
|
|
|
(11)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
190,000
|
|
|
$
|
248,900
|
|
|
(12)
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,334
|
|
|
$
|
299,761
|
|
|
|
—
|
|
|
|
—
|
|
|
(13)
|
|
(1)
|
Represents Rentech equity awards calculated based on the $1.31 closing price of Rentech’s common stock on December 30, 2011 (the last
business day of that year) and RNP phantom units calculated based on the $16.35 closing price of RNP’s common units on December 30, 2011 (the last business day of that year).
|
|
(2)
|
Represents a stock option award granted on July 14, 2006 that vested in three equal annual installments on each of July 14, 2007, 2008 and
2009.
|
|
(3)
|
Represents a warrant currently held by the Ramsbottom Family Living Trust that vested on December 31, 2011 and expires on December 31,
2012.
|
|
(4)
|
Represents stock options granted on October 4, 2010 vesting in three substantially equal installments on October 4, 2011, 2012 and 2013,
subject to the executive’s continued employment through the applicable vesting date (these stock options are referred to below as the “2010 Options”).
|
|
(5)
|
Represents RSUs granted on November 17, 2009 that are eligible to vest upon the attainment of milestones related to the development,
construction and operation of Rentech’s Rialto Project or another comparable project designated by Rentech’s Compensation Committee. Subject to the executive’s continued employment through the applicable vesting date, sixty percent
(60%) of the shares underlying each RSU award will vest upon the closing of financing for the project, twenty percent (20%) of the shares underlying each RSU award will vest upon completion of construction and initial operation of the
project facility and twenty percent (20%) of the shares underlying each RSU award will vest upon sustained operation of the project facility (these RSUs are referred to below as the “2009 Performance-Vest RSUs”).
|
|
(6)
|
Represents RSUs granted on November 17, 2009 the remaining unvested 1/3 of which will vest on November 17, 2012, subject to the
executive’s continued employment through the applicable vesting date (these RSUs are referred to below as the “2009 Time-Vest RSUs”).
|
|
(7)
|
Represents RSUs granted on November 3, 2009, of which approximately 56% (50% for Mr. Wright) vested upon grant and the remaining portion
will vest November 3, 2012, subject to the executive’s continued employment through the applicable vesting date (these RSUs, in addition to those RSUs referred to in footnote 8 below, are referred to below as “Management Stock
Purchase Plan RSUs”).
|
|
(8)
|
Represents RSUs granted on December 10, 2009, of which 50% vested upon grant and the remaining portion will vest December 10, 2012,
subject to the executive’s continued employment through the applicable vesting date (these RSUs, in addition to those RSUs referred to in footnote 7 above, are also referred to below as “Management Stock Purchase Plan RSUs”).
|
|
(9)
|
Represents RSUs granted on October 4, 2010 the remaining unvested 2/3 of which will vest in two substantially equal annual installments on
October 4, 2012 and 2013, subject to the executive’s continued employment through the applicable vesting date (these RSUs are referred to below as the “2010 RSUs”).
|
129
|
(10)
|
Represents RSUs granted on December 13, 2011 vesting in three equal annual installments on November 9, 2012, 2013 and 2014, subject to the
executive’s continued employment through the applicable vesting date (these RSUs are referred to below as the “2011 IPO RSUs”).
|
|
(11)
|
Represents RSUs granted on December 13, 2011 vesting in three equal annual installments on October 12, 2012, 2013 and 2014, subject to the
executive’s continued employment through the applicable vesting date (these RSUs are referred to below as the “2011 Time-Vest RSUs”).
|
|
(12)
|
Represents PSUs granted on December 13, 2011 vesting in full on the first date occurring on or prior to October 12, 2014 on which the
Company’s value weighted average share price for any 30-day period equals or exceeds $3.00, subject to the executive’s continued employment through the applicable vesting date (these PSUs are referred to below as the “2011
PSUs”).
|
|
(13)
|
Represents RNP’s phantom units granted on December 13, 2011 vesting in three equal annual installments on November 9, 2012, 2013 and
2014, subject to the executive’s continued employment through the applicable vesting date (these units are referred to below as the “2011 IPO Units”).
|
|
(14)
|
Represents RSUs granted on December 27, 2010 the remaining unvested 2/3 of which will vest in two equal annual installments on October 5,
2012 and 2013, subject to the executive’s continued employment through the applicable vesting date (these RSUs are referred to below as the “Samson Inducement RSUs”).
|
Option Exercises and Stock Vested
The following table sets forth information with respect to the NEOs concerning the option exercises and stock vested during the Transition Period.
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
Name
|
|
Number of
Shares
Acquired
on Exercise
(#)
|
|
|
Value
Realized
on Exercise
($)
|
|
|
Number of
Shares
Acquired
on Vesting
(#)
|
|
|
Value
Realized
on Vesting
($) (1)
|
|
|
D. Hunt Ramsbottom
|
|
|
—
|
|
|
|
—
|
|
|
|
175,000
|
|
|
$
|
201,500
|
|
|
Dan J. Cohrs
|
|
|
—
|
|
|
|
—
|
|
|
|
228,825
|
|
|
$
|
278,425
|
|
|
Tom Samson
|
|
|
—
|
|
|
|
—
|
|
|
|
116,667
|
|
|
$
|
102,667
|
|
|
Harold A. Wright
|
|
|
—
|
|
|
|
—
|
|
|
|
56,862
|
|
|
$
|
72,195
|
|
|
Colin M. Morris
|
|
|
—
|
|
|
|
—
|
|
|
|
56,862
|
|
|
$
|
72,195
|
|
|
(1)
|
Amounts shown are based on the fair market value of Rentech’s common stock on the applicable vesting date.
|
Potential Payments upon Termination or Change-in-Control
The employment agreements of Messrs. Ramsbottom, Cohrs, Samson, Wright and Morris provide for severance payments upon
termination without cause, non-renewal of the executive’s employment agreement and the executive’s resignation for good reason. The employment agreements also provide for payments upon a termination without cause and executive’s
resignation for good reason in connection with a change in control at the Company. In addition, certain of the phantom unit, PSU and RSU agreements of Messrs. Ramsbottom, Cohrs, Samson, Wright and Morris identified in the tables below provide for
accelerated vesting upon the occurrence of certain of these same events, as described in detail below. In the event that any severance payments to Messrs. Ramsbottom, Cohrs, Samson, Wright and Morris are subject to federal excise taxes under the
“golden parachute” provisions of the Internal Revenue Code, Rentech is required to pay the executives a gross-up for any such excise taxes plus any excise, income or payroll taxes owed on the payment of the gross-up for the excise taxes.
No severance payments or accelerated vesting events are provided if an NEO is terminated for cause or resigns without good reason.
Termination Not in Connection with a Change in Control
Under the NEOs’ employment agreements, upon termination of the executive’s employment by Rentech without cause, by the executive with good reason or, in the case of Mr. Ramsbottom only, due
to a non-renewal of his employment term by Rentech (each as defined in the employment agreements), the executive is entitled to receive: (i) an amount equal to three times (in the case of Mr. Ramsbottom) or one times (in the case of the
remaining NEOs) base salary, payable in substantially equal installments over a two-year period (for Mr. Ramsbottom) or a one-year period (for the remaining NEOs), plus (ii) in the case of the remaining NEOs, payment of each
executive’s target annual bonus on the date that annual bonuses are paid generally for the year in which termination occurs, and (iii) company-paid continuation health benefits for up to eighteen months following the date of termination.
Upon termination of the remaining NEOs’ employment in connection with Rentech’s non-renewal of their respective employment terms, they will be entitled to receive an amount equal to one times base salary, payable over the one-year period
following termination, and will be eligible to receive an annual bonus for the year of termination.
130
In addition, the NEOs will be entitled to the following enhanced vesting
provisions with respect to qualifying terminations occurring outside of the context of a change in control of Rentech:
|
|
•
|
|
The 2011 Time-Vest RSUs, 2011 PSUs, 2010 Options, 2010 RSUs, the 2009 Time-Vest RSUs and the Management Stock Purchase Plan RSUs held by the
executive will accelerate and vest in full upon a termination of employment due to the applicable executive’s death or disability.
|
|
|
•
|
|
The 2011 IPO RSUs and the 2011 IPO Units held by the executive will (i) accelerate and vest in full upon the executive’s termination of
employment without cause or for good reason, or due to the executive’s death or disability, and (ii) vest with respect to a pro rata portion of the number of unvested RSUs that would have vested on the next subsequent vesting date upon any
other termination of employment other than a termination for cause.
|
|
|
•
|
|
The 2009 Performance-Vest RSUs held by the executive will, following the executive’s termination due to his death or disability, remain
outstanding and eligible to vest for a period of six months following such termination and will vest if and to the extent that applicable vesting milestones are attained during such period.
|
|
|
•
|
|
The Samson Inducement RSU will, upon Mr. Samson’s termination due to death or disability, vest on an accelerated basis with respect to all
shares subject to the RSU.
|
Change in Control (No Termination)
The NEOs are not entitled to any cash payments based solely on the occurrence of a change in control of Rentech (absent
any qualifying termination), however, the NEOs will be entitled to full accelerated vesting upon such change in control with respect to their Management Stock Purchase Plan RSUs. The 2011 IPO RSUs, 2011 Time-Vest RSUs, 2011 PSUs, 2011 IPO Units,
2010 Options, 2010 RSUs, 2009 Time-Vest RSUs, 2009 Performance-Vest RSUs and Samson Inducement RSU are not impacted by a change in control of Rentech (absent a qualifying termination in connection with such change in control).
Termination in Connection with a Change in Control
If the NEOs terminate employment without cause, for good reason or due a non-renewal of his employment term by Rentech,
in any case, within three months before or two years after a change in control of Rentech, then the terminated executive will receive the severance described above, except that (i) the base salary component of the executive’s severance
will be paid in a lump sum and (ii) if the executive’s actual annual bonus for the year immediately preceding the change in control exceeds his target bonus for the year in which the termination occurs, (A) in the case of
Mr. Ramsbottom, he will receive two times base salary plus the amount of such prior-year bonus (instead of three times his base salary) and (B) in the case of the remaining NEOs, each NEO will receive one times base salary plus the amount
of such prior-year bonus (instead of base salary plus target annual bonus). The NEOs’ employment agreements entitle each of these executives to a “gross-up” payment from Rentech covering all taxes, penalties and interest associated
with any “golden parachute” excise taxes that are imposed on the executives by reason of Internal Revenue Code Section 280G in connection with a change in control of Rentech.
In addition, the NEOs will be entitled to the following enhanced vesting provisions with respect to qualifying
terminations occurring in connection with a change in control of Rentech:
|
|
•
|
|
The 2011 Time-Vest RSUs, 2011 PSUs, 2010 Options, the 2010 RSUs and the 2009 Time-Vest RSUs will vest in full if the executive terminates employment
without cause or for good reason, in either case, within sixty days prior to or one year after the change in control.
|
131
|
|
•
|
|
As noted above, (i) the Management Stock Purchase Plan RSUs held by the executive will vest in full upon the change in control (without regard
to whether the executive terminates employment), and (ii) the 2011 IPO RSUs and 2011 IPO Units will vest in full upon a termination without cause or for good reason, or due to the executive’s death or disability (whether or not in
connection with a change in control).
|
|
|
•
|
|
The 2009 Performance-Vest RSUs held by the executive will remain outstanding and eligible to vest for a period of six months following the
executive’s termination without cause or for good reason, in either case, occurring within sixty days prior to or one year after the change in control, and these RSUs will vest if and to the extent that applicable vesting milestones are
attained during such period.
|
|
|
•
|
|
The Samson Inducement RSU will vest in full following his termination without cause or for good reason, in either case, occurring within sixty days
prior to or one year after the change in control.
|
The following table summarizes the
change-in-control and/or severance payments and benefits to which we expect that our NEOs would have become entitled if the relevant event(s) had occurred on December 31, 2011, in accordance with applicable disclosure rules.
|
|
|
00000
|
|
|
00000
|
|
|
|
00000
|
|
|
|
00000
|
|
|
|
00000
|
|
|
|
00000
|
|
|
|
00000
|
|
|
Name
|
|
Benefit
|
|
Termination
without
Cause or
for
Good
Reason ($)
|
|
|
Termination
due to Non-
Renewal ($)
|
|
|
Termination
due to
Death/
Disability
($)
|
|
|
Qualifying
Termination
in Connection
with a
Change in
Control
|
|
|
Change in
Control
(No Termination)
|
|
|
Other
Terminations
|
|
|
|
|
|
|
|
|
|
|
|
D. Hunt
Ramsbottom
|
|
Cash Severance
|
|
$
|
1,452,000
|
(1)
|
|
$
|
1,452,000
|
(1)
|
|
|
—
|
|
|
$
|
1,452,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated
Stock Awards
(3)
|
|
$
|
569,977
|
(4)
|
|
|
—
|
(5)
|
|
$
|
2,719,002
|
(6)
|
|
$
|
4,029,002
|
(7)
|
|
$
|
213,500
|
(8)
|
|
$
|
27,067
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated
Option
Awards
(10)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
168,000
|
(11)
|
|
$
|
168,000
|
(12)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated Units
(13)
|
|
$
|
544,014
|
(14)
|
|
|
—
|
(5)
|
|
$
|
544,014
|
(15)
|
|
$
|
544,014
|
(16)
|
|
|
—
|
|
|
|
25,834
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Healthcare Premiums
|
|
$
|
28,580
|
(18)
|
|
$
|
28,580
|
(18)
|
|
|
—
|
|
|
$
|
28,580
|
(18)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Excise Tax Gross-Up
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,269,068
|
(19)
|
|
$
|
—
|
(19)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,594,571
|
|
|
$
|
1,480,580
|
|
|
$
|
3,431,016
|
|
|
$
|
8,490,664
|
|
|
$
|
213,500
|
|
|
$
|
52,901
|
|
|
|
|
|
|
|
|
|
|
|
Dan J. Cohrs
|
|
Cash Severance
|
|
$
|
664,400
|
(20)
|
|
$
|
415,250
|
(21)
|
|
|
—
|
|
|
$
|
664,400
|
(22)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated
Stock
Awards
(3)
|
|
$
|
396,713
|
(23)
|
|
|
—
|
(5)
|
|
$
|
1,430,912
|
(24)
|
|
$
|
2,347,912
|
(25)
|
|
$
|
21,487
|
(26)
|
|
$
|
18,839
|
(27)
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated
Option
Awards
(10)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
98,824
|
(28)
|
|
$
|
98,824
|
(29)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated Units
(13)
|
|
$
|
378,633
|
(30)
|
|
|
—
|
(5)
|
|
$
|
378,633
|
(31)
|
|
$
|
378,633
|
(32)
|
|
|
—
|
|
|
|
17,981
|
(33)
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Healthcare Premiums
|
|
$
|
28,580
|
(18)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
28,580
|
(18)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Excise Tax Gross-Up
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,204,262
|
(19)
|
|
$
|
—
|
(19)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,468,326
|
|
|
$
|
415,250
|
|
|
$
|
1,908,369
|
|
|
$
|
4,722,611
|
|
|
$
|
21,487
|
|
|
$
|
36,820
|
|
132
|
|
|
00000
|
|
|
00000
|
|
|
|
00000
|
|
|
|
00000
|
|
|
|
00000
|
|
|
|
00000
|
|
|
|
00000
|
|
|
Name
|
|
Benefit
|
|
Termination
without
Cause or
for
Good
Reason ($)
|
|
|
Termination
due to Non-
Renewal ($)
|
|
|
Termination
due to
Death/
Disability
($)
|
|
|
Qualifying
Termination
in Connection
with a
Change in
Control
|
|
|
Change in
Control
(No Termination)
|
|
|
Other
Terminations
|
|
|
|
|
|
|
|
|
|
|
|
Tom Samson
|
|
Cash Severance
|
|
$
|
510,000
|
(20)
|
|
$
|
340,000
|
(21)
|
|
|
—
|
|
|
$
|
510,000
|
(22)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated
Stock
Awards
(3)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
741,241
|
(34)
|
|
$
|
741,241
|
(35)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated
Option
Awards
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Healthcare Premiums
|
|
$
|
28,580
|
(18)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
28,580
|
(18)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Excise Tax Gross-Up
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
(19)
|
|
$
|
—
|
(19)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
538,580
|
|
|
$
|
340,000
|
|
|
$
|
741,241
|
|
|
$
|
1,279,821
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Harold A. Wright
|
|
Cash Severance
|
|
$
|
417,000
|
(20)
|
|
$
|
278,000
|
(21)
|
|
|
—
|
|
|
$
|
417,000
|
(22)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated Stock Awards
(3)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
521,447
|
(36)
|
|
$
|
979,947
|
(37)
|
|
$
|
42,782
|
(38)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated Option Awards
(10)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
39,529
|
(39)
|
|
$
|
39,529
|
(40)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Healthcare Premiums
|
|
$
|
28,580
|
(18)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
28,580
|
(18)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Excise Tax Gross-Up
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
432,766
|
(19)
|
|
$
|
—
|
(19)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
445,580
|
|
|
$
|
278,000
|
|
|
$
|
560,976
|
|
|
$
|
1,897,822
|
|
|
$
|
42,782
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Colin M. Morris
|
|
Cash Severance
|
|
$
|
409,695
|
(20)
|
|
$
|
273,130
|
(21)
|
|
|
—
|
|
|
$
|
409,695
|
(22)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated Stock Awards
(3)
|
|
$
|
314,067
|
(41)
|
|
|
—
|
(5)
|
|
$
|
851,005
|
(42)
|
|
$
|
1,244,005
|
(43)
|
|
$
|
58,273
|
(44)
|
|
$
|
14,915
|
(45)
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated Option Awards
(10)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
39,529
|
(46)
|
|
$
|
39,529
|
(47)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Accelerated Units
(13)
|
|
$
|
299,761
|
(48)
|
|
|
—
|
(5)
|
|
$
|
299,761
|
(49)
|
|
$
|
299,761
|
(50)
|
|
|
—
|
|
|
$
|
14,235
|
(51)
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Healthcare Premiums
|
|
$
|
10,589
|
(18)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
10,589
|
(18)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Excise Tax Gross-Up
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
677,290
|
(19)
|
|
$
|
—
|
(19)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,034,112
|
|
|
$
|
273,130
|
|
|
$
|
1,190,295
|
|
|
$
|
2,680,869
|
|
|
$
|
58,273
|
|
|
$
|
29,150
|
|
|
(1)
|
Represents three times Mr. Ramsbottom’s annual base salary, payable over the two-year period after his termination date.
|
|
(2)
|
Represents three times Mr. Ramsbottom’s annual base salary, payable in a lump sum upon termination.
|
|
(3)
|
Value of RSUs determined by multiplying the number of accelerating RSUs by the fair market value of Rentech’s common stock ($1.31) on
December 30, 2011.
|
|
(4)
|
Represents the aggregate value of 435,097 unvested 2011 IPO RSUs that would have vested on an accelerated basis upon Mr. Ramsbottom’s
termination without cause or for good reason on December 31, 2011.
|
133
|
(5)
|
Pursuant to the terms of the applicable award agreements, 2011 IPO RSUs and 2011 IPO Units vest pro rata on an accelerated basis upon an
executive’s termination due to non-renewal of the executive’s employment agreement; however, none of the NEOs’ employment agreements was up for renewal as December 31, 2011. Therefore, no such accelerated vesting would have
occurred due to non-renewal of the executives’ employment agreements on December 31, 2011.
|
|
(6)
|
Represents the aggregate value of 435,097 unvested 2011 IPO RSUs, 401,875 unvested 2011 Time-Vest RSUs, 800,625 unvested 2011 PSUs, 200,000 unvested
2010 RSUs, 75,000 unvested 2009 Time-Vest RSUs and 162,977 unvested Management Stock Purchase Plan RSUs held by Mr. Ramsbottom that would have vested on an accelerated basis upon Mr. Ramsbottom’s termination due to death or disability
on December 31, 2011. We have assumed for purposes of this calculation that all performance criteria applicable to the 2011 PSUs were attained on December 31, 2011 (and, accordingly, the unvested 2011 PSUs held by Mr. Ramsbottom
vested in full on such date).
|
|
(7)
|
Represents the aggregate value of (i) 435,097 unvested 2011 IPO RSUs, 401,875 unvested 2011 Time-Vest RSUs, 800,625 unvested 2011 PSUs, 200,000
unvested 2010 RSUs, 75,000 unvested 2009 Time-Vest RSUs and 1,000,000 unvested 2009 Performance-Vest RSUs that would have vested on an accelerated basis if Mr. Ramsbottom terminated employment without cause or for good reason on
December 31, 2011 and, in either case, such termination occurred within sixty days prior to or one year after a change in control of Rentech, and (ii) 162,977 unvested Management Stock Purchase Plan RSUs. We have assumed for purposes of
this calculation that (A) all performance criteria applicable to the 2009 Performance-Vest RSUs and 2011 PSUs were attained on December 31, 2011 (and, accordingly, the unvested 2009 Performance-Vest RSUs and 2011 PSUs held by
Mr. Ramsbottom vested in full on such date) and (B) the relevant change in control occurred on December 31, 2011 (and, accordingly, the unvested Management Stock Purchase Plan RSUs held by Mr. Ramsbottom vested in full on such
date).
|
|
(8)
|
Represents the aggregate value of 162,977 unvested Management Stock Purchase Plan RSUs held by Mr. Ramsbottom that would have vested on an
accelerated basis upon a change in control of Rentech.
|
|
(9)
|
Represents the aggregate value of 20,662 unvested 2011 IPO RSUs that would have vested on an accelerated basis upon Mr. Ramsbottom termination
of employment for any reason.
|
|
(10)
|
Value of options determined by multiplying the fair market value of Rentech’s common stock ($1.31) on December 30, 2011, less the
applicable exercise price, by the number of accelerating options.
|
|
(11)
|
Represents the aggregate value of 466,667 unvested 2010 Options held by Mr. Ramsbottom that would have vested on an accelerated basis upon
Mr. Ramsbottom’s termination due to death or disability on December 31, 2011.
|
|
(12)
|
Represents the aggregate value of 466,667 unvested 2010 Options held by Mr. Ramsbottom that would have vested on an accelerated basis if
Mr. Ramsbottom terminated employment without cause or for good reason on December 31, 2011 and, in either case, such termination occurred within sixty days prior to or one year after the change in control.
|
|
(13)
|
Value of 2011 Partnership Units determined by multiplying the number of accelerating RNP units by the fair market value of RNP’s common unit
($16.35) on December 30, 2011.
|
|
(14)
|
Represents the aggregate value of 33,273 unvested 2011 IPO Units that would have vested on an accelerated basis upon Mr. Ramsbottom’s
termination without cause or for good reason on December 31, 2011.
|
|
(15)
|
Represents the aggregate value of 33,273 unvested 2011 IPO Units held by Mr. Ramsbottom that would have vested on an accelerated basis upon
Mr. Ramsbottom’s termination due to death or disability on December 31, 2011.
|
|
(16)
|
Represents the aggregate value of 33,273 unvested 2011 IPO Units held by Mr. Ramsbottom that would have vested on an accelerated basis if
Mr. Ramsbottom terminated employment without cause or for good reason on December 31, 2011 and, in either case, such termination occurred within sixty days prior to or one year after a change in control of Rentech.
|
134
|
(17)
|
Represents the aggregate value of 1,580 unvested 2011 IPO Units that would have vested on an accelerated basis upon Mr.Ramsbottom’s termination
of employment for any reason.
|
|
(18)
|
Represents the cost of Company-paid continuation health benefits for eighteen months, based on our estimated costs to provide such coverage. For
purposes of continuation health benefits, a “qualifying termination in connection with a change in control” means: (i) for Mr. Ramsbottom, a termination without cause, for good reason or due to Rentech’s non-renewal of his
employment agreement within three months before or two years after a change in control of Rentech, and (ii) for the remaining NEOs, a termination without cause or for good reason within three months before or two years after a change in control
of Rentech.
|
|
(19)
|
Represents tax gross-up payments to compensate for excise taxes imposed by Section 4999 of the Internal Revenue Code on the payments and
benefits provided (as well as any related taxes on such payment). The assumptions used to calculate the excise tax gross-up include the following: an excise tax rate of 20%, a federal tax rate of 25%, California state tax rate of 8.0929% (in the
case of Mr. Ramsbottom) or 7.3846% (in the case of the remaining NEOs) and a Medicare tax rate of 1.45%.
|
|
(20)
|
Represents the executive’s annual base salary, payable over the one-year period after his termination date, plus his target annual incentive
bonus.
|
|
(21)
|
Represents the executive’s annual base salary, payable over the one-year period after his termination date.
|
|
(22)
|
Represents the executive’s annual base salary plus target bonus, payable in a lump sum upon termination.
|
|
(23)
|
Represents the aggregate value of 302,834 unvested 2011 IPO RSUs that would have vested on an accelerated basis upon Mr. Cohrs’
termination without cause or for good reason on December 31, 2011.
|
|
(24)
|
Represents the aggregate value of 302,834 unvested 2011 IPO RSUs, 195,938 unvested 2011 Time-Vest RSUs, 397,812 unvested 2011 PSUs, 117,647 unvested
2010 RSUs, 61,666 unvested 2009 Time-Vest RSUs, unvested 16,402 Management Stock Purchase Plan RSUs held by Mr. Cohrs that would have vested on an accelerated basis upon Mr. Cohrs’ termination due to death or disability on
December 31, 2011. We have assumed for purposes of this calculation that all performance criteria applicable to the 2011 PSUs were attained on December 31, 2011 (and, accordingly, the unvested 2011 PSUs held by Mr. Cohrs vested in
full on such date).
|
|
(25)
|
Represents the aggregate value of (i) 302,834 unvested 2011 IPO RSUs, 195,938 unvested 2011 Time-Vest RSUs, 397,812 unvested 2011 PSUs, 117,647
unvested 2010 RSUs, 61,666 unvested 2009 Time-Vest RSUs and 700,000 unvested 2009 Performance-Vest RSUs that would have vested on an accelerated basis if Mr. Cohrs terminated employment without cause or for good reason on December 31, 2011
and, in either case, such termination occurred within sixty days prior to or one year after a change in control of Rentech, and (ii) 16,402 unvested Management Stock Purchase Plan RSUs. We have assumed for purposes of this calculation that
(A) all performance criteria applicable to the 2009 Performance-Vest RSUs and 2011 PSUs were attained on December 31, 2011 (and, accordingly, the unvested 2009 Performance-Vest RSUs and 2011 PSUs held by Mr. Cohrs vested in full on
such date) and (B) the relevant change in control occurred on December 31, 2011 (and, accordingly, the unvested Management Stock Purchase Plan RSUs held by Mr. Cohrs, in each case, vested in full on such date).
|
|
(26)
|
Represents the aggregate value of 16,402 unvested Management Stock Purchase Plan RSUs held by Mr. Cohrs that would have vested on an
accelerated basis upon a change in control of Rentech.
|
|
(27)
|
Represents the aggregate value of 14,381 unvested 2011 IPO RSUs that would have vested on an accelerated basis upon Mr. Cohrs’ termination of
employment for any reason.
|
|
(28)
|
Represents the aggregate value of 274,510 unvested 2010 Options held by Mr. Cohrs that would have vested on an accelerated basis upon
Mr. Cohrs’ termination due to death or disability on December 31, 2011.
|
135
|
(29)
|
Represents the aggregate value of 274,510 unvested 2010 Options held by Mr. Cohrs that would have vested on an accelerated basis if
Mr. Cohrs terminated employment without cause or for good reason on December 31, 2011 and, in either case, such termination occurred within sixty days prior to or one year after the change in control.
|
|
(30)
|
Represents the aggregate value of 23,158 unvested 2011 IPO Units that would have vested on an accelerated basis upon Mr. Cohrs’
termination without cause or for good reason on December 31, 2011.
|
|
(31)
|
Represents the aggregate value of 23,158 unvested 2011 IPO Units held by Mr. Cohrs that would have vested on an accelerated basis upon
Mr. Cohrs’ termination due to death or disability on December 31, 2011.
|
|
(32)
|
Represents the aggregate value of 23,158 unvested 2011 IPO Units held by Mr. Cohrs that would have vested on an accelerated basis if
Mr. Cohrs terminated employment without cause or for good reason on December 31, 2011, in either case, such termination occurred within sixty days prior to or one year after the change in control of Rentech.
|
|
(33)
|
Represents the aggregate value of 1,100 unvested 2011 IPO Units that would have vested on an accelerated basis upon Mr. Cohrs’ termination
of employment for any reason.
|
|
(34)
|
Represents the aggregate value of 109,725 unvested 2011 Time-Vest RSUs, 222,775 unvested 2011 PSUs and 233,333 unvested Samson Inducement RSUs that
would have vested on an accelerated basis upon Mr. Samson’s termination due to his death or disability on December 31, 2011. We have assumed for purposes of this calculation that all performance criteria applicable to the 2011 PSUs
were attained on December 31, 2011 (and, accordingly, the unvested 2011 PSUs held by Mr. Samson vested in full on such date).
|
|
(35)
|
Represents the aggregate value of 109,725 unvested 2011 Time-Vest RSUs, 222,775 unvested 2011 PSUs, and 233,333 unvested Samson Inducement RSUs that
would have vested on an accelerated basis if Mr. Samson terminated employment without cause or for good reason as of December 31, 2011 and, in either case, such termination occurred within sixty days prior to or one year after the change
in control of Rentech. We have assumed for purposes of this calculation that all performance criteria applicable to the 2011 PSUs were attained on December 31, 2011 (and, accordingly, the unvested 2011 PSUs held by Mr. Samson vested in
full on such date).
|
|
(36)
|
Represents the aggregate value of 95,000 unvested 2011 Time-Vest RSUs, 190,000 unvested 2011 PSUs and 47,059 unvested 2010 RSUs, 33,334 unvested
2009 Time-Vest RSUs, unvested 32,658 Management Stock Purchase Plan RSUs held by Mr. Wright that would have vested on an accelerated basis upon Mr. Wright’s termination due to death or disability on December 31, 2011. We have
assumed for purposes of this calculation that all performance criteria applicable to the 2011 PSUs were attained on December 31, 2011 (and, accordingly, the unvested 2011 PSUs held by Mr. Wright vested in full on such date).
|
|
(37)
|
Represents the aggregate value of (i) 95,000 unvested 2011 Time-Vest RSUs, 190,000 unvested 2011 PSUs, and 47,059 unvested 2010 RSUs, 33,334
unvested 2009 Time-Vest RSUs and 350,000 unvested 2009 Performance-Vest RSUs that would have vested on an accelerated basis if Mr. Wright terminated employment without cause or for good reason on December 31, 2011 and, in either case, such
termination occurred within sixty days prior to or one year after a change in control of Rentech, and (ii) 32,658 unvested Management Stock Purchase Plan RSUs. We have assumed for purposes of this calculation that (A) all performance
criteria applicable to the 2009 Performance-Vest RSUs and 2011 PSUs were attained on December 31, 2011 (and, accordingly, the unvested 2009 Performance-Vest RSUs and 2011 PSUs held by Mr. Wright vested in full on such date) and
(B) the relevant change in control occurred on December 31, 2011 (and, accordingly, the unvested Management Stock Purchase Plan RSUs held by Mr. Wright vested in full on such date).
|
|
(38)
|
Represents the aggregate value of 32,658 unvested Management Stock Purchase Plan RSUs held by Mr. Wright that would have vested on an
accelerated basis upon a change in control of Rentech.
|
|
(39)
|
Represents the aggregate value of 109,804 unvested 2010 Options held by Mr. Wright that would have vested on an accelerated basis upon
Mr. Wright’s termination due to death or disability on December 31, 2011.
|
136
|
(40)
|
Represents the aggregate value of 109,804 unvested 2010 Options held by Mr. Wright that would have vested on an accelerated basis if
Mr. Wright terminated employment without cause or for good reason on December 31, 2011 and, in either case, such termination occurred within sixty days prior to or one year after the change in control.
|
|
(41)
|
Represents the aggregate value of 239,746 unvested 2011 IPO RSUs that would have vested on an accelerated basis upon Mr. Morris’
termination without cause or for good reason on December 31, 2011.
|
|
(42)
|
Represents the aggregate value of 239,746 unvested 2011 IPO RSUs, 95,000 unvested 2011 Time-Vest RSUs, 190,000 unvested 2011 PSUs, 47,059 unvested
2010 RSUs, 33,334 unvested 2009 Time-Vest RSUs, unvested 44,483 Management Stock Purchase Plan RSUs held by Mr. Morris that would have vested on an accelerated basis upon Mr. Morris’ termination due to death or disability on
December 31, 2011. We have assumed for purposes of this calculation that all performance criteria applicable to the 2011 PSUs were attained on December 31, 2011 (and, accordingly, the unvested 2011 PSUs held by Mr. Morris vested in
full on such date).
|
|
(43)
|
Represents the aggregate value of (i) 239,746 unvested 2011 IPO RSUs, 95,000 unvested 2011 Time-Vest RSUs, 190,000 unvested 2011 PSUs, 47,059
unvested 2010 RSUs, 33,334 unvested 2009 Time-Vest RSUs and 300,000 unvested 2009 Performance-Vest RSUs that would have vested on an accelerated basis if Mr. Morris terminated employment without cause or for good reason on December 31,
2011 and, in either case, such termination occurred within sixty days prior to or one year after a change in control of Rentech, and (ii) 44,483 unvested Management Stock Purchase Plan RSUs. We have assumed for purposes of this calculation that
(A) all performance criteria applicable to the 2009 Performance-Vest RSUs and 2011 PSUs were attained on December 31, 2011 (and, accordingly, the unvested 2009 Performance-Vest RSUs and 2011 PSUs held by Mr. Morris vested in full on
such date) and (B) the relevant change in control occurred on December 31, 2011 (and, accordingly, the unvested Management Stock Purchase Plan RSUs held by Mr. Morris vested in full on such date).
|
|
(44)
|
Represents the aggregate value of 44,483 unvested Management Stock Purchase Plan RSUs held by Mr. Morris that would have vested on an
accelerated basis upon a change in control of Rentech.
|
|
(45)
|
Represents the aggregate value of 11,385 unvested 2011 IPO RSUs that would have vested on an accelerated basis upon Mr. Morris’
termination of employment for any reason.
|
|
(46)
|
Represents the aggregate value of 109,804 unvested 2010 Options held by Mr. Morris that would have vested on an accelerated basis upon
Mr. Morris’ termination due to death or disability on December 31, 2011.
|
|
(47)
|
Represents the aggregate value of 109,804 unvested 2010 Options held by Mr. Morris that would have vested on an accelerated basis if
Mr. Morris terminated employment without cause or for good reason on December 31, 2011 and, in either case, such termination occurred within sixty days prior to or one year after the change in control.
|
|
(48)
|
Represents the aggregate value of 18,334 unvested 2011 IPO Units that would have vested on an accelerated basis upon Mr. Morris’
termination without cause or for good reason on December 31, 2011.
|
|
(49)
|
Represents the aggregate value of 18,334 unvested 2011 IPO Units held by Mr. Morris that would have vested on an accelerated basis upon
Mr. Morris’ termination due to death or disability on December 31, 2011.
|
|
(50)
|
Represents the aggregate value of 18,334 unvested 2011 IPO Units held by Mr. Morris that would have vested on an accelerated basis if
Mr. Morris terminated employment without cause or for good reason on December 31, 2011, in either case, such termination occurred within sixty days prior to or one year after the change in control of Rentech.
|
|
(51)
|
Represents the aggregate value of 871 unvested 2011 IPO Units that would have vested on an accelerated basis upon Mr. Morris’ termination
of employment for any reason.
|
137
Director Compensation
The following table sets forth compensation information with respect to our non-employee directors as of the end of the
Transition Period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees
Earned or
Paid in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Change in Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Michael S. Burke
|
|
$
|
11,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
11,250
|
|
|
General Wesley K. Clark
|
|
$
|
7,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
7,500
|
|
|
Michael F. Ray
|
|
$
|
8,750
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
8,750
|
|
|
Ronald M. Sega
|
|
$
|
9,375
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
9,375
|
|
|
Edward M. Stern
|
|
$
|
10,625
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
10,625
|
|
|
Halbert S. Washburn
|
|
$
|
16,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
16,250
|
|
|
John A. Williams
|
|
$
|
7,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
7,500
|
|
|
Dennis L. Yakobson
|
|
$
|
7,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
7,500
|
|
Directors who are employees of Rentech do not receive additional compensation for their
services on the Board. The compensation plan for nonemployee directors provides for an annual retainer of $30,000 to be paid in $7,500 quarterly increments to each outside director. The Chairman of the Board receives an additional fee of $25,000 per
year. Additional cash compensation is provided for participation in committees of the Board, up to a maximum of $15,000 per year for all committee work. The Chairman of the Audit Committee receives $15,000 per year; the Chairman of the Compensation
and the Chairman of the Nominating Committee receive $7,500 per year; and regular committee members receive $5,000 per year. Directors are reimbursed for reasonable out-of-pocket expenses incurred in their capacity as directors. No additional cash
fees are paid to directors for attendance at Board or committee meetings.
Each newly elected non-employee
member of our Board is granted a five-year, fully-vested option to purchase 20,000 shares of our common stock at the fair market value of our common stock on the date of grant. Each non-employee director serving immediately following our annual
meeting of shareholders also is granted the number of shares of our fully vested common stock obtained by dividing $50,000 by the fair market value of our common stock on the date of grant, rounded up to the nearest 100 shares. Each non-employee
director serving immediately following our annual meeting of shareholders also is granted a RSU with a vesting period of one year equal in value to $25,000 based on the Black-Scholes option-pricing model at an exercise price equal to the fair market
value of a share of our common stock on the date of grant, determined in accordance with our Incentive Plan. The stock option will vest in a single installment on the earlier of the one year anniversary of the date of grant and our annual meeting of
shareholders, subject to the director’s continued Board service through such date. In accordance with this program, no equity awards were granted to our non-employee directors during the Transition Period.
Compensation Committee Interlocks and Insider Participation
During the Transition Period, the following individuals served as members of our Compensation Committee: Michael S.
Burke, Halbert S. Washburn, and Edward M. Stern. None of these individuals has ever served as our officer or employee or an officer or employee of any of our subsidiaries. None of our executive officers has served as a director or member of the
compensation committee of another entity at which an executive officer of such entity is also one of our directors.
138
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial ownership of Rentech’s common stock as of
February 29, 2012 by (i) all owners of record or those who are known to Rentech to beneficially own more than 5% of the issued and outstanding shares of Rentech’s common stock, (ii) each director and NEO identified in the tables
under “Executive Compensation,” and (iii) by all named executive officers and directors as a group:
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
Directors and Executive Officers (1)(2)(3)
Listed in alphabetical order
|
|
Amount and Nature
of
Beneficial Ownership (4)
|
|
|
Percent
of Class
(5)
|
|
|
Michael S. Burke
|
|
|
297,600
|
|
|
|
*
|
|
|
General Wesley K. Clark
|
|
|
75,000
|
|
|
|
*
|
|
|
Dan J. Cohrs
|
|
|
509,180
|
|
|
|
*
|
|
|
Colin M. Morris
|
|
|
409,258
|
|
|
|
*
|
|
|
D. Hunt Ramsbottom (6)(7)
|
|
|
1,745,110
|
|
|
|
*
|
|
|
Michael F. Ray (8)
|
|
|
441,337
|
|
|
|
*
|
|
|
Tom Samson
|
|
|
73,874
|
|
|
|
*
|
|
|
Ronald M. Sega
|
|
|
267,600
|
|
|
|
*
|
|
|
Edward M. Stern
|
|
|
307,600
|
|
|
|
*
|
|
|
Halbert S. Washburn
|
|
|
314,600
|
|
|
|
*
|
|
|
John A. Williams(9)
|
|
|
960,953
|
|
|
|
*
|
|
|
Harold A. Wright
|
|
|
362,041
|
|
|
|
*
|
|
|
Dennis L. Yakobson (10)
|
|
|
583,604
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group (13 persons)
|
|
|
6,347,757
|
|
|
|
2.8
|
%
|
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
Beneficial Owners of
More than 5%
|
|
Amount and Nature
of
Beneficial Ownership
|
|
|
Percent
of Class
|
|
|
BlackRock, Inc. (11)
|
|
|
12,841,335
|
|
|
|
5.7
|
%
|
|
Vanguard Group, Inc. (12)
|
|
|
11,970,851
|
|
|
|
5.3
|
%
|
|
(1)
|
Except as otherwise noted and subject to applicable community property laws, each shareholder has sole or shared voting and investment power with
respect to the shares beneficially owned. The business address of each director and executive officer is c/o Rentech, Inc., 10877 Wilshire Blvd., Suite 600, Los Angeles, CA 90024.
|
|
(2)
|
If a person has the right to acquire shares of common stock subject to options, RSUs or other convertible or exercisable securities within 60 days
of February 29, 2012, then such shares (including certain RSUs that are fully vested but will not be yet paid out until the earlier of the recipient’s termination and three years from the applicable award date, subject to any required
payment delays arising under applicable tax laws) are deemed outstanding for purposes of computing the percentage ownership of that person, but are not deemed outstanding for purposes of computing the percentage ownership of any other person. The
following shares of common stock that may be acquired within 60 days of February 29, 2012 and are included in the table above:
|
|
|
•
|
|
Michael S. Burke — 91,500 under options;
|
|
|
•
|
|
General Wesley K. Clark — 20,000 under options;
|
|
|
•
|
|
Dan J. Cohrs — 137,255 under options;
|
|
|
•
|
|
Colin M. Morris — 129,902 under options;
|
|
|
•
|
|
D. Hunt Ramsbottom — 483,333 under options and 373,750 under warrants;
|
|
|
•
|
|
Michael F. Ray — 86,500 under options;
|
|
|
•
|
|
Ronald M. Sega — 76,500 under options;
|
|
|
•
|
|
Edward M. Stern — 91,500 under options;
|
|
|
•
|
|
Halbert S. Washburn — 86,500 under options;
|
139
|
|
•
|
John A. Williams — 914,453 additional shares to be issued pursuant to earn-out payments as described in note 9 below and 46,500 under
options;
|
|
|
•
|
Harold A. Wright — 54,902 under options;
|
|
|
•
|
Dennis L. Yakobson — 186,500 under options; and
|
|
|
•
|
all directors and executive officers as a group —1,490,892 under options, 914,453 additional shares (see note 9 below) and 373,750 under
warrants.
|
|
(3)
|
The Security Ownership table above does not include the following:
|
|
|
(A)
|
PSUs held by NEOs that vest upon the value weighted average price for Rentech stock equaling $3.00 or higher on or before October 12, 2014:
|
|
|
•
|
Dan J. Cohrs — 397,812 PSUs
|
|
|
•
|
Colin M. Morris — 190,000 PSUs;
|
|
|
•
|
D. Hunt Ramsbottom — 800,625 PSUs;
|
|
|
•
|
Tom Samson — 222,775 PSUs; and
|
|
|
•
|
Harold Wright — 190,000 PSUs; and
|
|
|
(B)
|
unvested RSUs and/or options that will vest assuming the continued employment of the officer or director beyond each applicable vesting date:
|
|
|
•
|
Dan J. Cohrs — 694,487 RSUs and 274,510 options;
|
|
|
•
|
Colin M. Morris — 459,622 RSUs and 109,804 options;
|
|
|
•
|
D. Hunt Ramsbottom — 1,274,949 RSUs and 466,667 options;
|
|
|
•
|
Tom Samson — 343,057 RSUs;
|
|
|
•
|
Harold Wright — 208,052 RSUs and 109,804 options;
|
|
|
•
|
Michael S. Burke — 27,500 RSUs;
|
|
|
•
|
General Wesley K. Clark — 27,500 RSUs;
|
|
|
•
|
Michael F. Ray — 27,500 RSUs;
|
|
|
•
|
Ronald M. Sega — 27,500 RSUs;
|
|
|
•
|
Edward M. Stern — 27,500 RSUs;
|
|
|
•
|
Halbert S. Washburn — 27,500 RSUs;
|
|
|
•
|
John A. Williams — 27,500 RSUs; and
|
|
|
•
|
Dennis L. Yakobson — 27,500 RSUs.
|
|
(4)
|
Information with respect to beneficial ownership is based upon information furnished by each shareholder or contained in filings with the Securities
and Exchange Commission.
|
|
(5)
|
Based on 225,360,551 shares of common stock outstanding as of February 29, 2012.
|
|
(6)
|
Includes a warrant currently held by the Ramsbottom Family Living Trust for 373,750 shares. The warrant fully vested on December 31, 2011. The
exercise price of the warrant is $1.82 per share. Mr. Ramsbottom is a trustor and trustee of the Ramsbottom Family Living Trust.
|
|
(7)
|
Includes 55,000 shares held for the benefit of Mr. Ramsbottom’s children as to which Mr. Ramsbottom disclaims beneficial ownership
and 10,000 shares held by the L.E. Ramsbottom Living Trust owned by Mr. Ramsbottom’s spouse as to which Mr. Ramsbottom disclaims beneficial ownership.
|
|
(8)
|
Includes 7,500 shares held by Mr. Ray’s spouse’s IRA as to which Mr. Ray disclaims beneficial ownership.
|
|
(9)
|
Includes 914,453 additional shares to be issued by March 31, 2012 to Mr. Williams as a former stockholder of SilvaGas Holdings
Corporation, or SilvaGas, in satisfaction of all potential earn-out payments under the merger agreement the Company entered into with SilvaGas.
|
140
|
(10)
|
Includes 20,000 shares held in custodial accounts as to which Mr. Yakobson disclaims beneficial ownership.
|
|
(11)
|
Based on information in a Schedule 13G filed by BlackRock, Inc., or BlackRock, with the SEC on February 8, 2012 for its holdings as of
December 30, 2011. BlackRock reported that it has sole power to vote and to dispose of all 12,841,335 shares. BlackRock’s principal business office address is 40 East 52
nd
Street, New York, NY 10022.
|
|
(12)
|
Based on information in a Schedule 13G filed by The Vanguard Group, Inc., or Vanguard, with the SEC on February 10, 2012 for its holdings as of
December 31, 2011. Vanguard reported that it has sole power to vote 258,075 shares, sole power to dispose of 11,712,776 shares and shared power to dispose of 258,075 shares. Vanguard’s office address is 100 Vanguard Blvd., Malvern, PA
19355.
|
Equity Compensation Plan Information
The following table provides information as of December 31, 2011 with respect to our compensation plans, including
individual compensation arrangements, under which our equity securities are authorized for issuance.
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
Plan category
|
|
Number of securities
to be
issued
upon exercise of
outstanding
options,
warrants and rights (a)
|
|
|
Weighted-average
exercise price
of
outstanding options,
warrants and rights (b)
|
|
|
Number
of
securities remaining
available for
future
issuance under equity
compensation plans
(excluding
securities
reflected in column (a)) (c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
16,202,000
|
|
|
$
|
0.47
|
|
|
|
6,968,000
|
|
|
Equity compensation plans not approved by security holders
|
|
|
752,000
|
|
|
$
|
0.95
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,954,000
|
|
|
$
|
0.49
|
|
|
|
6,968,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The equity securities issued as compensation under shareholder approved compensation
plans consist of stock options, restricted stock units and performance shares. The equity securities issued as compensation without shareholder approval consist of stock options, stock purchase warrants and restricted stock units. The stock options
and stock purchase warrants have exercise prices equal to the fair market value of our common stock, as reported by the NYSE Amex, as of the date the securities were granted. The options and warrants may be exercised for a term ranging from five to
ten years after the date they were granted.
Ownership of Common Units of RNP
None of the directors or NEOs listed above directly hold any common units in RNP. On December 13, 2011 each of
Messrs. Ramsbottom, Cohrs and Morris were granted phantom units of RNP common units in the amounts of 33,273, 23,158 and 18,334, respectively. Such phantom units will vest in three equal parts on each of the next three anniversaries of
November 9, 2011.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Certain Relationships and Related Party Transactions
Pursuant to its charter, the Audit Committee of the Board of Directors is responsible for reviewing and approving all
related party transactions. While we do not have a formal written policy or procedure for the review, approval or ratification of related party transactions, the audit committee must review the material facts of any such transaction and approve that
transaction on a case by case basis.
Mr. Williams was a greater than 10% stockholder of SilvaGas when it
was acquired by the Company in June of 2009 pursuant to the terms of the Merger Agreement. In addition to the consideration paid at the closing, the former SilvaGas stockholders were entitled to receive additional shares of the Company’s common
stock as earn-out consideration. In addition, approximately 6,800,000 of the shares of our common stock issuable at closing were be deposited with an escrow agent to support certain indemnification obligations of the SilvaGas stockholders. Fifty
percent of the escrow shares were to be released after two years if no claims were made against them and the remaining fifty percent were to be released after three years. No claims have been made to date and fifty percent of the escrow shares were
released in December 2010 in exchange for extending the survival date of certain of the SilvaGas stockholders representations, warranties and covenants by an additional six months.
141
On December 28, 2011 the Company entered into the Amendment to the
Merger Agreement with Milton Farris, as Stockholder Representative, John A. Williams and certain other former stockholders of SilvaGas. Pursuant to the terms of the Amendment, the parties agreed to amend the Merger Agreement to: (a) release the
remaining approximately 3.4 million shares of Company common stock held in escrow pursuant to the terms of the Merger Agreement and its associated escrow agreement, on or prior to December 31, 2011; (b) provide for the issuance of
2.0 million shares of Company common stock by March 31, 2012 to the former stockholders of SilvaGas who were party to the Merger Agreement in satisfaction of all potential earn-out payments provided for in the Merger Agreement; and
(c) provide for a release of the Company by the former stockholders of SilvaGas from all claims they may have related to the Merger Agreement and its associated transactions and documents.
On December 28, 2011, Rentech entered into the Bridge Loan Agreement as a lender, with RNP as guarantor and RNLLC as
the borrower. The Bridge Loan Agreement consisted of a commitment by Rentech to make the $40.0 million Bridge Loan to RNLLC. On February 28, 2012, RNLLC terminated the Bridge Loan Agreement.
For identification of each director determined to be independent, see Item 10 “Directors, Executive Officers
and Corporate Governance.”
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
The following table presents fees billed and expected to be billed for professional audit services rendered by PricewaterhouseCoopers LLC for the three months ended December 31, 2011 and fiscal years
2011 and 2010 and fees billed and expected to be billed for other services rendered by PricewaterhouseCoopers LLC for the three months ended December 31, 2011 and fiscal years 2011 and 2010.
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
|
Three Months
Ended December 31,
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
PricewaterhouseCoopers LLP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees (1)
|
|
$
|
800,000
|
|
|
$
|
2,399,398
|
|
|
$
|
1,047,235
|
|
|
Audit-Related Fees (2)
|
|
|
—
|
|
|
|
11,175
|
|
|
|
15,000
|
|
|
Tax Fees (3)
|
|
|
511,244
|
|
|
|
96,619
|
|
|
|
157,000
|
|
|
All Other Fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,311,244
|
|
|
$
|
2,507,192
|
|
|
$
|
1,219,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the aggregate fees billed and expected to be billed for professional services rendered for the audit of Rentech’s and RNP’s
consolidated financial statements for the three months ended December 31, 2011 and fiscal years ended September 30, 2011 and 2010, and for the audit of Rentech’s and RNP’s internal control over financial reporting and for reviews
of the financial statements included in Rentech’s quarterly reports on Form 10-Q, assistance with Securities Act filings and related matters, consents issued in connection with SEC filings, and consultations on financial accounting and
reporting standards arising during the course of the audit for fiscal years 2011 and 2010.
|
|
(2)
|
Represents fees billed for assurance and related services that are reasonably related to the performance of the audit or review of Rentech’s
financial statements, and are not reported as Audit Fees.
|
|
(3)
|
Represents the aggregate fees billed and expected to be billed for Rentech’s 2011 and 2010 tax return and tax consultation regarding various
issues including property and sales tax issues, research and development credits and RNP’s structure.
|
The Audit Committee is required to pre-approve all audit services and non-audit services (other than de minimis non-audit services as defined by the Sarbanes-Oxley Act of 2002). Non-audit services were
reviewed with the Audit Committee, which concluded that the provision of such services by PricewaterhouseCoopers LLP were compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. The Audit Committee
pre-approved all fees incurred in the three months ended December 31, 2011.
142
PART IV
|
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
(a)(1) and (2) Financial Statements and Schedules.
The information required by this Item is included in Part II, Item 8 of this report.
(b) Exhibits.
See Exhibit Index.
143
EXHIBIT INDEX
|
|
|
|
|
|
|
|
2.1
|
|
Agreement and Plan of Merger, dated June 23, 2009 among Rentech, Inc., SilvaGas Holdings Corporation, RTK Acquisition Sub, Inc., RTK Acquisition Sub, LLC, John A. Williams as
the Principal Stockholder, Milton Farris as the Stockholder Representative and the other stockholders of the SilvaGas Holdings Corporation party thereto (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by
Rentech on June 24, 2009).
|
|
|
|
|
2.2
|
|
Membership Interest Purchase Agreement, dated April 12, 2011 by and between Biomass Energy Holdings LLC and GCSEC Holdings, LLC (incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K filed by Rentech on April 15, 2011).
|
|
|
|
|
3.1
|
|
Amended and Restated Articles of Incorporation, dated April 29, 2005 (incorporated by reference to Exhibit 3(i) to the Quarterly Report on Form 10-Q, for the
quarterly period ended March 31, 2005, filed by Rentech on May 9, 2005).
|
|
|
|
|
3.2
|
|
Articles of Amendment to Amended and Restated Articles of Incorporation of Rentech, Inc. (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q, for the
quarterly period ended March 31, 2008, filed by Rentech on May 9, 2008).
|
|
|
|
|
3.3
|
|
Articles of Amendment to Amended and Restated Articles of Incorporation of Rentech, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Rentech
on May 22, 2009).
|
|
|
|
|
3.4
|
|
Articles of Amendment to Amended and Restated Articles of Incorporation of Rentech, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K
filed by Rentech on May 14, 2010).
|
|
|
|
|
3.5
|
|
Bylaws dated November 30, 2004 (incorporated by reference to Exhibit 3(ii) to the Annual Report on Form 10-K for the year ended September 30, 2004 filed by
Rentech on December 9, 2004).
|
|
|
|
|
3.6
|
|
Articles of Amendment to the Articles of Incorporation of Rentech, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Rentech on August 5,
2011).
|
|
|
|
|
4.1
|
|
Stock Purchase Warrant, dated September 17, 2004, by and between Rentech, Inc. and Mitchell Technology Investments (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K filed by Rentech on September 23, 2004).
|
|
|
|
|
4.2
|
|
Registration Rights Agreement, dated September 17, 2004, by and between Rentech, Inc. and Mitchell Technology Investments (incorporated by reference to Exhibit 10.3 to
Current Report on Form 8-K filed by Rentech on September 23, 2004).
|
|
|
|
|
4.3
|
|
Warrant to Purchase 1,000,000 Shares of Common Stock by and between Rentech, Inc. and DKRW Advanced Fuels LLC, dated January 12, 2006 (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed by Rentech on January 19, 2006).
|
|
|
|
|
4.4
|
|
Indenture dated April 18, 2006, by and between Rentech, Inc. and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the
Current Report on Form 8-K filed by Rentech on April 18, 2006).
|
|
|
|
|
4.5
|
|
Officers’ Certificate to Indenture dated April 18, 2006 to Indenture (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by Rentech
on April 18, 2006).
|
|
|
|
|
4.6
|
|
Form of 4.00% Convertible Senior Note Due 2013 (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed by Rentech on April 18,
2006).
|
|
|
|
|
4.7
|
|
Form of Warrant to purchase shares of Common Stock (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Rentech on April 20,
2007).
|
|
|
|
|
4.8
|
|
Form of Warrant to purchase shares of Common Stock (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rentech on January 20,
2009).
|
144
|
|
|
|
|
|
|
|
4.9
|
|
Warrant Agreement, dated June 23, 2009 between Rentech, Inc. and ClearFuels Technology Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
by Rentech on June 24, 2009).
|
|
|
|
|
4.10
|
|
Tax Benefit Preservation Plan, dated as of August 5, 2011, Rentech, Inc. and Computershare Trust Company, N.A., which includes the Form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit C (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by Rentech on August 5, 2011).
|
|
|
|
|
10.1*
|
|
Amended and Restated Employment Agreement by and between Rentech, Inc. and D. Hunt Ramsbottom, Jr. dated December 31, 2008 (incorporated by reference to Exhibit 10.43 to
Amendment No. 1 to the Annual Report on Form 10-K/A filed by Rentech January 28, 2009).
|
|
|
|
|
10.2*
|
|
Amended and Restated Employment Agreement by and between Rentech, Inc. and Douglas M. Miller dated December 31, 2008 (incorporated by reference to Exhibit 10.44 to Amendment
No. 1 to the Annual Report on Form 10-K/A filed by Rentech on January 28, 2009).
|
|
|
|
|
10.3*
|
|
Employment Agreement by and between Rentech, Inc. and Dan J. Cohrs, dated October 22, 2008 (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the year
ended September 30, 2008 filed by Rentech on December 15, 2008).
|
|
|
|
|
10.4*
|
|
Employment Agreement by and between Rentech, Inc. and Tom Samson, dated October 5, 2010 (incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K for the year
ended September 30, 2010 filed by Rentech on December 14, 2010).
|
|
|
|
|
10.5*
|
|
Employment Agreement with Colin Morris (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Rentech on November 6, 2009).
|
|
|
|
|
10.6*
|
|
Rentech, Inc. Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K for the fiscal year ended September 30, 2010
filed by Rentech on December 14, 2010).
|
|
|
|
|
10.7
|
|
Stock Purchase Agreement, dated June 24, 2009, between Rentech, Inc. and the Buyers party thereto (incorporated by reference to Exhibit 10.1 to Company’s Current Report on Form
8-K filed on June 25, 2009).
|
|
|
|
|
10.8
|
|
Lease Agreement dated as of April 21, 2006 with Center West (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rentech on
April 21, 2006).
|
|
|
|
|
10.9
|
|
Rider to the Lease Agreement dated as of April 21, 2006 by and between Rentech, Inc. and Center West (incorporated by reference to Exhibit 99.2 to the Current Report on
Form 8-K filed by Rentech on April 21, 2006).
|
|
|
|
|
10.10
|
|
Second Amendment to Lease, dated January 21, 2010, by and between Rentech, Inc. and Center West (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by
Rentech on January 26, 2010).
|
|
|
|
|
10.11*
|
|
Form of Stock Option Grant Notice and Stock Option Agreement under 2006 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed by Rentech on July 20, 2006).
|
|
|
|
|
10.12*
|
|
2005 Stock Option Plan (incorporated by reference to Exhibit 10.34 to the Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2004 filed by
Rentech on February 9, 2005).
|
|
|
|
|
10.13*
|
|
Amended and Restated Rentech, Inc. 2006 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on
March 29, 2007).
|
|
|
|
|
10.14*
|
|
First Amendment to Rentech’s Amended and Restated 2006 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on
November 6, 2009).
|
|
|
|
|
10.15*
|
|
Rentech, Inc. 2009 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on May 22, 2009).
|
145
|
|
|
|
|
|
|
|
10.16*
|
|
First Amendment to Rentech’s 2009 Incentive Award Plan (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rentech on November 6,
2009).
|
|
|
|
|
10.17**
|
|
Development Cost Sharing and Equity Option Agreement, dated May 25, 2007 by and between Rentech, Inc. and Peabody Venture Fund, LLC (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed by Rentech on August 9, 2007).
|
|
|
|
|
10.18*
|
|
Form of Absolute Share Price Target Performance Share Award Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on July 23,
2008).
|
|
|
|
|
10.19*
|
|
Form of Total Shareholder Return Performance Share Award Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rentech on July 23,
2008).
|
|
|
|
|
10.20*
|
|
Form of Performance Vesting Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on November 23,
2009).
|
|
|
|
|
10.21
|
|
Distribution Agreement, dated April 26, 2006, by and between Royster-Clark Resources LLC and Rentech Development Corporation (incorporated by reference to Exhibit 10.1 to the Form
S-1 (File No. 333-176065) filed by RNP on August 5, 2011).
|
|
|
|
|
10.22
|
|
Amendment to Distribution Agreement, dated October 13, 2009, among Rentech Energy Midwest Corporation, Rentech Development Corporation and Agrium U.S., Inc. (incorporated by
reference to Exhibit 10.2 to the Form S-1 (File No. 333-176065) filed by RNP on August 5, 2011).
|
|
|
|
|
10.23
|
|
Assignment and Assumption Agreement, dated as of September 29, 2006, by and between Royster-Clark, Inc., Agrium U.S. Inc. and Rentech Development Corporation (incorporated by
reference to Exhibit 10.3 to the Form S-1 (File No. 333-176065) filed by RNP on August 5, 2011).
|
|
|
|
|
10.24
|
|
Credit Agreement, dated January 29, 2010, by and among Rentech Energy Midwest Corporation, as the borrower, Rentech, Inc. and Credit Suisse AG, Cayman Islands Branch, individually
and as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on February 1, 2010).
|
|
|
|
|
10.25
|
|
Guarantee and Collateral Agreement, dated January 29, 2010, by and among Rentech Energy Midwest Corporation, Rentech, Inc., the subsidiaries of Rentech, Inc. listed therein and
Credit Suisse AG, Cayman Islands Branch, as Collateral Agent (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rentech on February 1, 2010).
|
|
|
|
|
10.26
|
|
Real Estate Mortgage, Assignment of Rents, Security Agreement and UCC Fixture Filing, dated January 29, 2010, by and among Rentech Energy Midwest Corporation, Rentech, Inc. and
Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Rentech on February 1, 2010).
|
|
|
|
|
10.27
|
|
Amendment to Credit Agreement, Waiver and Collateral Agent Consent, dated July 21, 2010, among Rentech Energy Midwest Corporation, Rentech, Inc., certain subsidiaries of Rentech,
Inc., the Lenders party thereto and Credit Suisse AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on July 26, 2010).
|
|
|
|
|
10.28
|
|
Incremental Loan Assumption Agreement, dated July 21, 2010, among Rentech Energy Midwest Corporation, Rentech, Inc., certain subsidiaries of Rentech, Inc., the Incremental Lenders
party thereto and Credit Suisse AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rentech on July 26, 2010).
|
|
|
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10.29
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Second Amendment to Credit Agreement, Waiver and Collateral Agent Consent, dated November 24, 2010, among Rentech Energy Midwest Corporation, Rentech, Inc., certain subsidiaries of
Rentech, Inc., the Lenders party thereto and Credit Suisse AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on November 29, 2010).
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10.30
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Second Incremental Loan Assumption Agreement, dated November 24, 2010, among Rentech Energy Midwest Corporation, Rentech, Inc., certain subsidiaries of Rentech, Inc., the
Incremental Lenders party thereto and Credit Suisse AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on November 29, 2010).
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146
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10.31
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Project Support Agreement, dated September 3, 2010 between Rentech, Inc. and ClearFuels Technology Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form
8-K filed by Rentech on September 10, 2010).
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10.32
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Amended and Restated Distribution Agreement dated February 9, 2011, between Rentech, Inc. and Knight Capital Americas, L.P., successor in interest to Knight Capital Markets LLC
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rentech on February 9, 2011).
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10.33*
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Amended and Restated 2009 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on May 13, 2011).
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10.34
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Credit Agreement, dated June 10, 2011, by and among Rentech Energy Midwest Corporation, as the borrower, Rentech, Inc., the lenders party thereto, Credit Suisse AG, Cayman Islands
Branch, individually and as Administrative Agent and Collateral Agent and Credit Suisse Securities (USA) LLC as Sole Bookrunner, Sole Syndication Agent and Sole Lead Arranger (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed by Rentech on June 14, 2011).
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10.35
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Guarantee and Collateral Agreement, dated June 10, 2011, by and among Rentech Energy Midwest Corporation, Rentech, Inc., the subsidiaries of Rentech, Inc. listed therein and Credit
Suisse AG, Cayman Islands Branch, as Collateral Agent (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rentech on June 14, 2011).
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10.36
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Real Estate Mortgage, Assignment of Rents, Security Agreement and UCC Fixture Filing, dated June 10, 2011, by and among Rentech Energy Midwest Corporation, Rentech, Inc. and Credit
Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.3 to Company’s Current Report on Form 8-K filed on June 14, 2011).
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10.37
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Contribution, Conveyance and Assignment Agreement, dated as of November 9, 2011, by and among Rentech, Inc., Rentech Development Corporation, Rentech Nitrogen Holdings, Inc.,
Rentech Nitrogen GP, LLC, Rentech Nitrogen Partners, L.P. and Rentech Energy Midwest Corporation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-35334) filed by RNP on November 9, 2011).
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10.38
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Omnibus Agreement, dated as of November 9, 2011, by and among Rentech, Inc., Rentech Nitrogen GP, LLC and Rentech Nitrogen Partners, L.P. (incorporated by reference to Exhibit 10.2
to the Current Report on Form 8-K (File No. 001-35334) filed by RNP on November 9, 2011).
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10.39
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Services Agreement, dated as of November 9, 2011, by and among Rentech Nitrogen Partners, L.P., Rentech Nitrogen GP, LLC and Rentech, Inc. (incorporated by reference to Exhibit 10.3
to the Current Report on Form 8-K (File No. 001-35334) filed by RNP on November 9, 2011).
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10.40
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Credit Agreement, dated as of November 10, 2011, among Rentech Nitrogen, LLC, as borrower, Rentech Nitrogen Partners, L.P., as guarantor, General Electric Capital Corporation, as
administrative agent, and the other lender parties thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rentech on November 15, 2011).
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10.41
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Guaranty and Security Agreement, dated as of November 10, 2011, among Rentech Nitrogen, LLC, as borrower, Rentech Nitrogen Partners, L.P., as guarantor and General Electric Capital
Corporation, as administrative agent (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rentech on November 15, 2011).
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10.42
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Indemnification Agreement dated November 9, 2011, by and between Rentech Nitrogen Partners, L.P. and D. Hunt Ramsbottom (all other Indemnification Agreements, which are
substantially identical in all material respects, except as to the parties thereto and the dates of execution, are omitted pursuant to Instruction 2 to Item 601 of Regulation S-K) (incorporated by reference to Exhibit 10.42 to the Annual Report on
Form 10-K filed by Rentech on December 14, 2011).
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12.1
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Computation of Ratio of Earnings to Fixed Charges.
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14
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Code of Ethics (incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K for the fiscal year ended September 30, 2008 filed by Rentech on December 15,
2008).
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21
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Subsidiaries of Rentech, Inc.
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147
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23.1
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Consent of Independent Registered Public Accounting Firm.
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31.1
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Certification of Chief Executive Officer Pursuant to Rule 13a-14 or Rule 15d-14(a).
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31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14 or Rule 15d-14(a).
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
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32.2
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
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101
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The following financial information from the Company’s Transition Report on Form 10-K for the three months ended December 31, 2011 formatted in Extensible Business Reporting
Language, or XBRL, includes: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to
Consolidated Financial Statements.
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*
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Management contract or compensatory plan or arrangement.
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**
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Certain portions of this Exhibit have been omitted and filed separately under an application for confidential treatment.
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148
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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R
ENTECH
, I
NC
.
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/s/ D. Hunt Ramsbottom
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D. Hunt Ramsbottom,
Chief Executive Officer and President
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Date: March 15, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
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/s/ D. Hunt Ramsbottom
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D. Hunt Ramsbottom,
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Chief Executive Officer, President and Director
(principal executive officer)
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Date: March 15, 2012
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/s/ Dan J. Cohrs
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Dan J. Cohrs,
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Executive Vice President and Chief Financial Officer
(principal financial officer)
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Date: March 15, 2012
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/s/ Jeffrey R. Spain
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Jeffrey R. Spain,
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Senior Vice President, Finance and Accounting
(principal accounting officer)
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Date: March 15, 2012
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/s/ Dennis L. Yakobson
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Dennis L. Yakobson,
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Chairman Emeritus and Director
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Date: March 15, 2012
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/s/ Halbert S. Washburn
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Halbert S. Washburn,
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Chairman and Director
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Date: March 15, 2012
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/s/ Michael S. Burke
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Michael S. Burke,
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Director
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Date: March 15, 2012
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149
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/s/ Wesley K. Clark
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Wesley K. Clark,
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Director
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Date: March 15, 2012
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/s/ Michael F. Ray
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Michael F. Ray,
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Director
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Date: March 15, 2012
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/s/ Edward M. Stern
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Edward M. Stern,
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Director
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Date: March 15, 2012
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/s/ Ronald M. Sega
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Ronald M. Sega,
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Director
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Date: March 15, 2012
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/s/ John A. Williams
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John A. Williams,
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Director
|
Date: March 15, 2012
150
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