UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2014
Or
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File No. 001-15795
RENTECH, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Colorado |
|
84-0957421 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
10877 Wilshire Boulevard, 10th Floor
Los Angeles, California 90024
(Address of principal executive offices)
(310) 571-9800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer |
|
¨ |
|
Accelerated filer |
|
x |
|
|
|
|
Non-accelerated filer |
|
¨ (Do not check if a smaller reporting company) |
|
Smaller reporting company |
|
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
The number of shares of the Registrants common stock outstanding as of July 31, 2014 was 228,102,141.
RENTECH, INC.
Form 10-Q
Table of Contents
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENTECH, INC.
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(Unaudited) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
73,621 |
|
|
$ |
106,369 |
|
Accounts receivable |
|
|
22,794 |
|
|
|
14,227 |
|
Inventories |
|
|
42,254 |
|
|
|
35,376 |
|
Prepaid expenses and other current assets |
|
|
12,513 |
|
|
|
8,309 |
|
Deferred income taxes |
|
|
1,143 |
|
|
|
1,140 |
|
Other receivables |
|
|
11,876 |
|
|
|
7,432 |
|
Assets of discontinued operations |
|
|
416 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
164,617 |
|
|
|
172,872 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
360,882 |
|
|
|
334,654 |
|
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
148,300 |
|
|
|
60,136 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
38,583 |
|
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|
57,134 |
|
Intangible assets |
|
|
64,693 |
|
|
|
59,730 |
|
Debt issuance costs |
|
|
9,329 |
|
|
|
9,321 |
|
Deposits and other assets |
|
|
5,530 |
|
|
|
5,092 |
|
Assets of discontinued operations |
|
|
4,630 |
|
|
|
4,651 |
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
122,765 |
|
|
|
135,928 |
|
|
|
|
|
|
|
|
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|
Total assets |
|
$ |
796,564 |
|
|
$ |
703,590 |
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|
|
|
|
|
|
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|
LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
|
|
|
|
|
|
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|
Accounts payable |
|
$ |
25,356 |
|
|
$ |
19,875 |
|
Accrued payroll and benefits |
|
|
8,211 |
|
|
|
9,155 |
|
Accrued liabilities |
|
|
30,921 |
|
|
|
33,953 |
|
Deferred revenue |
|
|
20,888 |
|
|
|
21,643 |
|
Current portion of long term debt |
|
|
13,525 |
|
|
|
9,916 |
|
Accrued interest |
|
|
4,978 |
|
|
|
5,490 |
|
Other |
|
|
1,449 |
|
|
|
1,015 |
|
Liabilities of discontinued operations |
|
|
2,105 |
|
|
|
2,003 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
107,433 |
|
|
|
103,050 |
|
|
|
|
|
|
|
|
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Long-term liabilities |
|
|
|
|
|
|
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Debt |
|
|
430,214 |
|
|
|
412,063 |
|
Earn-out consideration |
|
|
5,711 |
|
|
|
1,544 |
|
Asset retirement obligation |
|
|
3,026 |
|
|
|
2,995 |
|
Deferred income taxes |
|
|
9,568 |
|
|
|
9,271 |
|
Other |
|
|
4,216 |
|
|
|
6,711 |
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
452,735 |
|
|
|
432,584 |
|
|
|
|
|
|
|
|
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|
Total liabilities |
|
|
560,168 |
|
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|
535,634 |
|
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|
|
|
|
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Commitments and contingencies (Note 13) |
|
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Mezzanine equity |
|
|
|
|
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|
Series E convertible preferred stock: $10 par value; 100,000 shares authorized, issued and outstanding; 4.5% dividend
rate |
|
|
94,688 |
|
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|
|
|
|
|
|
|
|
|
|
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Stockholders equity |
|
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|
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 |
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Series C participating cumulative preferred stock: $10 par value; 500 shares authorized; no shares issued and
outstanding |
|
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|
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|
Series D junior participating preferred stock: $10 par value; 45 shares authorized; no shares issued and
outstanding |
|
|
|
|
|
|
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|
Common stock: $.01 par value; 450,000 shares authorized; 228,031 and 227,512 shares issued and outstanding at June 30,
2014 and December 31, 2013, respectively |
|
|
2,280 |
|
|
|
2,275 |
|
Additional paid-in capital |
|
|
543,379 |
|
|
|
541,254 |
|
Accumulated deficit |
|
|
(411,772 |
) |
|
|
(385,339 |
) |
Accumulated other comprehensive income (loss) |
|
|
1,879 |
|
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
Total Rentech stockholders equity |
|
|
135,766 |
|
|
|
158,073 |
|
Noncontrolling interests |
|
|
5,942 |
|
|
|
9,883 |
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
141,708 |
|
|
|
167,956 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
796,564 |
|
|
$ |
703,590 |
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
3
RENTECH, INC.
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
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|
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|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(Unaudited) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
123,007 |
|
|
$ |
107,545 |
|
|
$ |
188,352 |
|
|
$ |
166,269 |
|
Service revenues |
|
|
16,425 |
|
|
|
11,732 |
|
|
|
35,387 |
|
|
|
11,732 |
|
Other revenues |
|
|
458 |
|
|
|
784 |
|
|
|
982 |
|
|
|
1,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
139,890 |
|
|
|
120,061 |
|
|
|
224,721 |
|
|
|
179,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
|
94,455 |
|
|
|
68,254 |
|
|
|
146,139 |
|
|
|
105,099 |
|
Service |
|
|
13,996 |
|
|
|
9,534 |
|
|
|
29,248 |
|
|
|
9,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales |
|
|
108,451 |
|
|
|
77,788 |
|
|
|
175,387 |
|
|
|
114,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
31,439 |
|
|
|
42,273 |
|
|
|
49,334 |
|
|
|
64,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
17,642 |
|
|
|
12,824 |
|
|
|
33,214 |
|
|
|
25,406 |
|
Depreciation and amortization |
|
|
1,394 |
|
|
|
1,765 |
|
|
|
1,070 |
|
|
|
2,897 |
|
Pasadena goodwill impairment |
|
|
27,202 |
|
|
|
|
|
|
|
27,202 |
|
|
|
|
|
Other (income) expense |
|
|
244 |
|
|
|
(4 |
) |
|
|
(104 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
46,482 |
|
|
|
14,585 |
|
|
|
61,382 |
|
|
|
28,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(15,043 |
) |
|
|
27,688 |
|
|
|
(12,048 |
) |
|
|
36,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(5,491 |
) |
|
|
(4,462 |
) |
|
|
(11,336 |
) |
|
|
(6,265 |
) |
Loss on debt extinguishment |
|
|
(850 |
) |
|
|
(6,001 |
) |
|
|
(850 |
) |
|
|
(6,001 |
) |
Gain (loss) on fair value adjustment to earn-out consideration |
|
|
(327 |
) |
|
|
4,823 |
|
|
|
(327 |
) |
|
|
4,611 |
|
Other income (expense), net |
|
|
68 |
|
|
|
(286 |
) |
|
|
44 |
|
|
|
(214 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net |
|
|
(6,600 |
) |
|
|
(5,926 |
) |
|
|
(12,469 |
) |
|
|
(7,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes and equity in loss of investee |
|
|
(21,643 |
) |
|
|
21,762 |
|
|
|
(24,517 |
) |
|
|
28,809 |
|
Income tax (benefit) expense |
|
|
(215 |
) |
|
|
(24,040 |
) |
|
|
835 |
|
|
|
(24,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before equity in loss of investee |
|
|
(21,428 |
) |
|
|
45,802 |
|
|
|
(25,352 |
) |
|
|
53,481 |
|
Equity in loss of investee |
|
|
38 |
|
|
|
|
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(21,466 |
) |
|
|
45,802 |
|
|
|
(25,589 |
) |
|
|
53,481 |
|
Loss from discontinued operations, net of tax |
|
|
(1,567 |
) |
|
|
(1,496 |
) |
|
|
(3,038 |
) |
|
|
(8,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(23,033 |
) |
|
|
44,306 |
|
|
|
(28,627 |
) |
|
|
45,092 |
|
Net (income) loss attributable to noncontrolling interests |
|
|
3,588 |
|
|
|
(11,474 |
) |
|
|
2,194 |
|
|
|
(17,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Rentech common shareholders |
|
$ |
(19,445 |
) |
|
$ |
32,832 |
|
|
$ |
(26,433 |
) |
|
$ |
27,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share allocated to Rentech common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.08 |
) |
|
$ |
0.15 |
|
|
$ |
(0.11 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.09 |
) |
|
$ |
0.14 |
|
|
$ |
(0.12 |
) |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.08 |
) |
|
$ |
0.14 |
|
|
$ |
(0.11 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.09 |
) |
|
$ |
0.14 |
|
|
$ |
(0.12 |
) |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
227,792 |
|
|
|
225,981 |
|
|
|
227,661 |
|
|
|
225,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
227,792 |
|
|
|
231,533 |
|
|
|
227,661 |
|
|
|
231,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
4
RENTECH, INC.
Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(Unaudited) |
|
Net income (loss) |
|
$ |
(23,033 |
) |
|
$ |
44,306 |
|
|
$ |
(28,627 |
) |
|
$ |
45,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement plan adjustments |
|
|
(13 |
) |
|
|
2 |
|
|
|
(25 |
) |
|
|
8 |
|
Foreign currency translation |
|
|
3,098 |
|
|
|
(21 |
) |
|
|
2,011 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
3,085 |
|
|
|
(19 |
) |
|
|
1,986 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
(19,948 |
) |
|
|
44,287 |
|
|
|
(26,641 |
) |
|
|
45,070 |
|
Less: net (income) loss attributable to noncontrolling interests |
|
|
3,588 |
|
|
|
(11,474 |
) |
|
|
2,194 |
|
|
|
(17,500 |
) |
Less: other comprehensive (income) loss attributable to noncontrolling interests |
|
|
5 |
|
|
|
(1 |
) |
|
|
10 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Rentech |
|
$ |
(16,355 |
) |
|
$ |
32,812 |
|
|
$ |
(24,437 |
) |
|
$ |
27,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
5
RENTECH, INC.
Consolidated Statements of Stockholders Equity
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional Paid-in
|
|
|
Accumulated
|
|
|
Accumulated Other Comprehensive
|
|
|
Total Rentech Stockholders
|
|
|
Noncontrolling
|
|
|
Total Stockholders
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
|
|
(Unaudited) |
|
Balance, December 31, 2012 |
|
|
224,121 |
|
|
$ |
2,241 |
|
|
$ |
539,448 |
|
|
$ |
(383,807 |
) |
|
$ |
105 |
|
|
$ |
157,987 |
|
|
$ |
43,081 |
|
|
$ |
201,068 |
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
4,000 |
|
Common stock issued for services |
|
|
178 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for stock options exercised |
|
|
258 |
|
|
|
2 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
121 |
|
|
|
|
|
|
|
121 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,682 |
) |
|
|
(19,682 |
) |
Equity-based compensation expense |
|
|
|
|
|
|
|
|
|
|
3,597 |
|
|
|
|
|
|
|
|
|
|
|
3,597 |
|
|
|
462 |
|
|
|
4,059 |
|
Restricted stock units |
|
|
1,679 |
|
|
|
17 |
|
|
|
(3,364 |
) |
|
|
|
|
|
|
|
|
|
|
(3,347 |
) |
|
|
|
|
|
|
(3,347 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,592 |
|
|
|
|
|
|
|
27,592 |
|
|
|
17,500 |
|
|
|
45,092 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
(25 |
) |
|
|
3 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013 |
|
|
226,236 |
|
|
$ |
2,262 |
|
|
$ |
539,798 |
|
|
$ |
(356,215 |
) |
|
$ |
80 |
|
|
$ |
185,925 |
|
|
$ |
45,364 |
|
|
$ |
231,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
|
|
227,512 |
|
|
$ |
2,275 |
|
|
$ |
541,254 |
|
|
$ |
(385,339 |
) |
|
$ |
(117 |
) |
|
$ |
158,073 |
|
|
$ |
9,883 |
|
|
$ |
167,956 |
|
Common stock issued for stock options exercised |
|
|
156 |
|
|
|
1 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
85 |
|
Dividends preferred stock |
|
|
|
|
|
|
|
|
|
|
(1,200 |
) |
|
|
|
|
|
|
|
|
|
|
(1,200 |
) |
|
|
|
|
|
|
(1,200 |
) |
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,058 |
) |
|
|
(2,058 |
) |
Equity-based compensation expense |
|
|
|
|
|
|
|
|
|
|
3,386 |
|
|
|
|
|
|
|
|
|
|
|
3,386 |
|
|
|
351 |
|
|
|
3,737 |
|
Restricted stock units |
|
|
363 |
|
|
|
4 |
|
|
|
(129 |
) |
|
|
|
|
|
|
|
|
|
|
(125 |
) |
|
|
|
|
|
|
(125 |
) |
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,433 |
) |
|
|
|
|
|
|
(26,433 |
) |
|
|
(2,194 |
) |
|
|
(28,627 |
) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,996 |
|
|
|
1,996 |
|
|
|
(10 |
) |
|
|
1,986 |
|
Other |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
(30 |
) |
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2014 |
|
|
228,031 |
|
|
$ |
2,280 |
|
|
$ |
543,379 |
|
|
$ |
(411,772 |
) |
|
$ |
1,879 |
|
|
$ |
135,766 |
|
|
$ |
5,942 |
|
|
$ |
141,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
6
RENTECH, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
(Unaudited) |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(28,627 |
) |
|
$ |
45,092 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
15,149 |
|
|
|
10,697 |
|
Utilization of spare parts |
|
|
3,832 |
|
|
|
1,570 |
|
Write-down of inventory |
|
|
2,761 |
|
|
|
2,308 |
|
Non-cash interest expense |
|
|
374 |
|
|
|
360 |
|
Pasadena goodwill impairment |
|
|
27,202 |
|
|
|
|
|
Deferred income tax benefit |
|
|
|
|
|
|
(26,252 |
) |
Loss on debt extinguishment |
|
|
850 |
|
|
|
6,001 |
|
Equity-based compensation |
|
|
3,737 |
|
|
|
4,059 |
|
Other |
|
|
795 |
|
|
|
(104 |
) |
Changes in operating assets and liabilities, net of amounts acquired: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(5,626 |
) |
|
|
(74 |
) |
Other receivables |
|
|
(2,390 |
) |
|
|
1,132 |
|
Inventories |
|
|
(6,062 |
) |
|
|
(24,166 |
) |
Prepaid expenses and other current assets |
|
|
(3,246 |
) |
|
|
(664 |
) |
Other assets |
|
|
(1,351 |
) |
|
|
(200 |
) |
Accounts payable |
|
|
407 |
|
|
|
(1,586 |
) |
Deferred revenue |
|
|
(755 |
) |
|
|
(9,228 |
) |
Accrued interest |
|
|
270 |
|
|
|
3,818 |
|
Accrued liabilities, accrued payroll and other |
|
|
(6,764 |
) |
|
|
(14,412 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
556 |
|
|
|
(1,649 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(90,316 |
) |
|
|
(34,858 |
) |
Payment for acquisitions |
|
|
(31,425 |
) |
|
|
(62,995 |
) |
Other items |
|
|
749 |
|
|
|
(166 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(120,992 |
) |
|
|
(98,019 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from debt and credit facilities |
|
|
52,277 |
|
|
|
335,600 |
|
Proceeds from preferred stock, net of discount and issuance costs |
|
|
94,514 |
|
|
|
|
|
Payments of debt |
|
|
(5,715 |
) |
|
|
(5,313 |
) |
Payments to retire credit facility and term loan |
|
|
(50,000 |
) |
|
|
(205,015 |
) |
Payment of debt issuance costs |
|
|
(1,574 |
) |
|
|
(8,962 |
) |
Payment of offering costs |
|
|
(16 |
) |
|
|
(950 |
) |
Dividends to preferred stockholders |
|
|
(650 |
) |
|
|
|
|
Distributions to noncontrolling interests |
|
|
(2,058 |
) |
|
|
(19,682 |
) |
Other |
|
|
86 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
86,864 |
|
|
|
95,799 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash |
|
|
824 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
Decrease in cash |
|
|
(32,748 |
) |
|
|
(3,890 |
) |
Cash, beginning of period |
|
|
106,369 |
|
|
|
141,736 |
|
|
|
|
|
|
|
|
|
|
Cash, end of period |
|
$ |
73,621 |
|
|
$ |
137,846 |
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
7
RENTECH, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Continued from previous page)
The following effects of certain non-cash investing and financing activities were excluded from the statements of cash flows for the six
months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
(Unaudited) |
|
Purchase of property, plant, equipment and construction in progress in accounts payable and accrued liabilities |
|
$ |
22,464 |
|
|
$ |
8,627 |
|
Restricted stock units and RNP units surrendered for withholding taxes payable |
|
|
125 |
|
|
|
3,347 |
|
Fair value of assets in acquisition |
|
|
55,592 |
|
|
|
173,540 |
|
Fair value of liabilities assumed in acquisition |
|
|
16,367 |
|
|
|
121,230 |
|
Contingent consideration |
|
|
3,840 |
|
|
|
1,850 |
|
Increase in QS Construction Facility obligation |
|
|
12,570 |
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
8
RENTECH, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of
Presentation
The accompanying unaudited consolidated financial statements of Rentech, Inc. (Rentech) and its consolidated
subsidiaries (collectively, the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and in compliance with the instructions to Form 10-Q and Article
10 of Regulation S-X. Neither authority requires all of the information and footnotes required by GAAP for complete financial statements. Accordingly, the accompanying financial statements do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the
Companys financial position as of June 30, 2014, and the results of operations and cash flows for the periods presented. The accompanying consolidated financial statements include the accounts of Rentech, its wholly owned subsidiaries and
all subsidiaries in which Rentech directly or indirectly owns a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results for the three and six months ended
June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or any other reporting period. The information included in this Form 10-Q should be read in conjunction with the
consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (the SEC) on March 17, 2014
(the Annual Report).
The Company, through its indirect majority-owned subsidiary, Rentech Nitrogen Partners, L.P.
(RNP), owns and operates two fertilizer facilities: the Companys East Dubuque Facility and the Companys Pasadena Facility, referred to collectively as the Fertilizer Facilities. Our East Dubuque Facility is
located in East Dubuque, Illinois and owned by Rentech Nitrogen, LLC (RNLLC). Our Pasadena Facility is located in Pasadena, Texas and owned by Rentech Nitrogen Pasadena, LLC (RNPLLC). The noncontrolling interests reflected on
the Companys consolidated balance sheets are affected by the net income of, and distributions from, RNP.
On May 1, 2013, the
Company acquired all of the capital stock of Fulghum Fibres, Inc. (Fulghum). Upon the closing of this transaction (the Fulghum Acquisition), Fulghum became a wholly owned subsidiary of the Company. Fulghum provides
high-quality wood chipping and wood yard operations services, and produces and sells wood chips to the pulp, paper and packaging industry. Fulghum now operates 32 wood chipping mills, of which 26 are located in the United States, five are located in
Chile and one is located in Uruguay. Noncontrolling interests represent the non-acquired ownership interests in the subsidiaries located in Chile and Uruguay. Fulghum currently owns 88% of the equity interests in the subsidiaries located in Chile
and 87% of equity interests in the subsidiary in Uruguay. For information on the final purchase price allocation for the Fulghum Acquisition refer to Note 4 Fulghum Acquisition.
The Company is developing two facilities in Eastern Canada to produce and sell wood pellets for use as renewable fuel to generate electricity.
In 2013, the Company acquired an idled oriented strand board processing mill in Wawa, Ontario, Canada. The Company is in the process of converting the mill to a wood pellet facility with the intent to produce approximately 450,000 metric tons of
wood pellets annually (the Wawa Project). Also, in 2013, the Company acquired a former particle board processing mill in Atikokan, Ontario, Canada. The Company is in the process of converting the mill to a wood pellet facility with the
intent to produce approximately 100,000 metric tons of wood pellets annually (the Atikokan Project). See Note 13 Commitments and Contingencies for major contracts and commitments for this business segment.
The Company decided to exit the energy technologies business. This was a direct result of the high projected cost to develop the technologies
and deploy them at commercial scale. It was also due to lower projected returns on such investments. Many factors led to the lower projected returns. One factor was the decrease in energy prices in the United States due to the proliferation of
hydraulic fracturing and other factors. Another factor was the failure of, and reductions in, government incentives and regulations intended to support the development of alternative energy, particularly within the United States. See Note 6
Discontinued Operations.
On May 1, 2014, the Company acquired all of the equity interests of New England Wood
Pellet, LLC (NEWP), pursuant to a Unit Purchase Agreement (the Purchase Agreement). Upon the closing of the transaction (the NEWP Acquisition), NEWP became a wholly owned subsidiary of the Company. NEWP is one of
the largest producers of wood pellets for the United States residential and commercial heating markets. NEWP operates three wood pellet facilities with a combined annual production capacity of 240,000 tons. The facilities are located in Jaffrey, New
Hampshire; Deposit, New York; and Schuyler, New York. For information on the NEWP Acquisition refer to Note 3 NEWP Acquisition.
9
The preparation of consolidated financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Fair values of cash, receivables, deposits, other
current assets, accounts payable, accrued liabilities and other current liabilities were assumed to approximate carrying value since they are short term and can be settled on demand. These items meet the definition of Level 1 financial instruments
as defined in Note 7 Fair Value.
Accounting guidance establishes accounting and reporting requirements for
derivative instruments and hedging activities. This guidance requires recognition of all derivative instruments as assets or liabilities on the Companys balance sheet and measurement of those instruments at fair value. The accounting treatment
of changes in fair value is dependent upon whether or not a derivative instrument is designated as a hedge and if so, the type of hedge. The Company currently does not designate any of its derivatives as hedges for financial accounting purposes.
Gains and losses on derivative instruments not designated as hedges are currently included in earnings and reported under cash from operating activities. The Company does not have any master netting agreements or collateral relating to these
derivatives.
The Company recognizes the unrealized gains or losses related to the commodity-based derivative instruments in its
consolidated financial statements. Rentech uses commodity-based derivatives to minimize its exposure to the fluctuations in natural gas prices. For interest rate swaps, the Company reflected the instruments at fair value and any change in value was
recorded in other expense, net on the consolidated statement of operations.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. The
Company tests goodwill for impairment annually, or more often if an event or circumstance indicates that an impairment may have occurred. The analysis of the potential impairment of goodwill is a two-step process. Step one of the impairment test
consists of comparing the fair value of the reporting unit with the aggregate carrying value, including goodwill. If the carrying value of a reporting unit exceeds the reporting units fair value, step two must be performed to determine the
amount, if any, of the goodwill impairment.
There are significant assumptions involved in performing a goodwill impairment test, which
include discount rates, terminal growth rates, future prices of end products and raw materials, terminal values and production volumes. The various valuation methods used (income approach, replacement cost and market approach) are also weighted in
determining fair value. Changes to any of these assumptions could increase or decrease the fair value of the Fulghum and NEWP reporting units. See Note 10 Goodwill.
The Company has evaluated events occurring between June 30, 2014 and the date of these financial statements to ensure that such events
are properly reflected in these statements.
Note 2 Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (the FASB) issued guidance as to when an unrecognized tax benefit should be
classified as a reduction of a deferred tax asset or when it should be classified as a liability in the consolidated balance sheet. This guidance is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2013, and thus became effective for the Companys interim period beginning on January 1, 2014. The adoption of this guidance did not have any impact on the Companys consolidated financial position, results of
operations or disclosures.
In April 2014, the FASB issued guidance that provides a narrower definition of discontinued operations than
under existing guidance. It requires that only disposals of components of an entity (or groups of components) that represent a strategic shift that has or will have a major effect on the reporting entitys operations are reported in the
financial statements as discontinued operations. It also provides guidance on the financial statement presentations and disclosures of discontinued operations. This guidance is effective prospectively for disposals (or classifications of
held-for-sale) of components of an entity that occur in annual or interim periods beginning after December 15, 2014. The adoption of this guidance is not expected to have a material impact on the Companys consolidated financial position,
results of operations or disclosures.
In May 2014, the FASB issued guidance that will significantly enhance comparability of revenue
recognition practices across entities, industries, jurisdictions, and capital markets. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early application is not permitted.
The Company is evaluating the provisions of this guidance and the potential impact, if any, on the Companys consolidated financial position, results of operations and disclosures.
In June 2014, the FASB issued guidance on accounting for share-based payments when the terms of an award provide that a performance target
could be achieved after the requisite service period. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company is evaluating the provisions of this guidance and the
potential impact, if any, on the Companys consolidated financial position, results of operations and disclosures.
10
Note 3 NEWP Acquisition
On May 1, 2014, the Company acquired all of the equity interests of NEWP. This acquisition is consistent with the Companys strategy
of expanding its wood fibre business. The preliminary purchase price consisted of $35.4 million of cash as well as potential earn-out consideration of up to $5.0 million to be paid in cash. The earn-out consideration would be earned ratably if
NEWPs 2014 EBITDA, as defined in the Purchase Agreement, is between $7.3 million and $8.0 million. The earn-out consideration would not increase if NEWPs 2014 EBITDA were to exceed $8.0 million. The amount of the purchase price is
subject to certain potential post-closing adjustments set forth in the Purchase Agreement.
This business combination has been accounted
for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.
The preliminary purchase price recognized in our financial statements consisted of the following (amounts in thousands):
|
|
|
|
|
Cash plus working capital adjustments of $0.1 million |
|
$ |
35,384 |
|
Estimate of expected earn-out consideration(1) |
|
|
3,840 |
|
|
|
|
|
|
Total preliminary purchase price |
|
$ |
39,224 |
|
|
|
|
|
|
(1) |
The amount of earn-out consideration reflected in the table above reflects the Companys estimate, as of May 1, 2014, of the amount of the earn-out consideration it will be required to pay pursuant to the
Purchase Agreement. The earn-out consideration will be measured at each reporting date; changes in its fair value will be recognized in the consolidated statements of operations. |
The Companys preliminary purchase price allocation is as follows (amounts in thousands):
|
|
|
|
|
Cash |
|
$ |
3,852 |
|
Accounts receivable |
|
|
2,927 |
|
Inventories |
|
|
2,239 |
|
Prepaid expenses and other current assets |
|
|
437 |
|
Property, plant and equipment |
|
|
30,685 |
|
Intangible assets |
|
|
6,800 |
|
Goodwill |
|
|
8,651 |
|
Accounts payable |
|
|
(1,641 |
) |
Accrued liabilities |
|
|
(568 |
) |
Customer deposits |
|
|
(756 |
) |
Loans |
|
|
(12,600 |
) |
Interest rate swaps |
|
|
(802 |
) |
|
|
|
|
|
Total preliminary purchase price |
|
$ |
39,224 |
|
|
|
|
|
|
Intangible assets consist primarily of customer relationships, trade names and non-competition agreements with
former owners. The estimated useful life of each of the intangible assets is 15 years, except for the non-competition agreements which are four years.
The goodwill recorded reflects the value to Rentech of NEWPs market position, of entry into the residential and commercial heating
markets, and of the increases in Rentechs products offerings, customer bases and geographic markets. The goodwill recorded as part of this acquisition is amortizable for tax purposes.
The final purchase price and the allocation thereof will not be known until the final working capital and debt adjustments are performed and
valuation of intangible assets is completed.
The operations of NEWP are included in the consolidated statement of operations as of
May 1, 2014. During the three and six months ended June 30, 2014, the Company recorded revenue of $5.8 million and net income of $0.7 million related to NEWP. Acquisition related costs for this acquisition totaled $0.7 million for the
three months ended June 30, 2014 and $1.1 million for the six months ended June 30, 2014, and have been included in the consolidated statements of operations within selling, general and administrative expenses. See Note 5
Pro Forma Information for unaudited pro forma information relating to the NEWP Acquisition.
11
Note 4 Fulghum Acquisition
On May 1, 2013, the Company acquired all of the capital stock of Fulghum. The purchase price consisted of $64.2 million of cash, including
$3.3 million used to retire certain debt of Fulghum at closing.
This business combination has been accounted for using the acquisition
method of accounting. The Companys final purchase price allocation is as follows (amounts in thousands):
|
|
|
|
|
Cash |
|
$ |
10,137 |
|
Accounts receivable |
|
|
3,936 |
|
Inventories |
|
|
2,389 |
|
Prepaid expenses and other current assets |
|
|
952 |
|
Other receivables, net |
|
|
5,435 |
|
Property, plant and equipment |
|
|
94,382 |
|
Intangible assets (Trade name$5,496 and Processing agreements$29,765) |
|
|
35,261 |
|
Goodwill |
|
|
29,932 |
|
Other assets |
|
|
2,974 |
|
Accounts payable |
|
|
(6,547 |
) |
Accrued liabilities |
|
|
(5,823 |
) |
Customer deposits |
|
|
(1,059 |
) |
Asset retirement obligation |
|
|
(178 |
) |
Credit facility and loans |
|
|
(61,865 |
) |
Unfavorable processing agreements |
|
|
(6,496 |
) |
Deferred income taxes |
|
|
(35,262 |
) |
Noncontrolling interests |
|
|
(4,000 |
) |
|
|
|
|
|
Total purchase price |
|
$ |
64,168 |
|
|
|
|
|
|
Long-term deferred tax liabilities and other tax liabilities result from fair value adjustments to
identifiable tangible and intangible assets. These adjustments create excess book basis over the tax basis. The excess is multiplied by the statutory tax rate for the jurisdiction and period in which the deferred taxes are expected to be realized.
As part of purchase accounting for Fulghum, we recorded additional deferred tax liabilities of $15.8 million attributable to identifiable tangible and intangible assets.
The goodwill recorded reflects the value to Rentech of Fulghums market position, of entry into the wood chipping business, and of the
increases in Rentechs products offerings, customer bases and geographic markets. The goodwill recorded as part of this acquisition is not amortizable for tax purposes.
The operations of Fulghum are included in the consolidated statement of operations as of May 1, 2013. During the three and six months
ended June 30, 2013, the Company recorded revenue of $16.1 million and net income of $0.1 million related to Fulghum. See Note 5 Pro Forma Information for unaudited pro forma information relating to the Fulghum
Acquisition.
Note 5 Pro Forma Information
The unaudited pro forma information has been prepared as if the NEWP and the Fulghum Acquisitions had taken place on January 1, 2013. The
unaudited pro forma information is not necessarily indicative of the results that the Company would have achieved had the transactions actually taken place on January 1, 2013, and the unaudited pro forma information does not purport to be
indicative of future financial operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2014 |
|
|
|
As Reported |
|
|
Pro Forma Adjustments |
|
|
Pro Forma |
|
|
|
(in thousands) |
|
Revenues |
|
$ |
224,721 |
|
|
$ |
14,329 |
|
|
$ |
239,050 |
|
Net income (loss) |
|
$ |
(28,627 |
) |
|
$ |
2,344 |
|
|
$ |
(26,283 |
) |
Net income (loss) attributable to Rentech |
|
$ |
(26,433 |
) |
|
$ |
2,344 |
|
|
$ |
(24,089 |
) |
Basic and diluted net income (loss) from continuing operations per common share allocated to Rentech |
|
$ |
(0.11 |
) |
|
$ |
0.02 |
|
|
$ |
(0.09 |
) |
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2013 |
|
|
|
As Reported |
|
|
Pro Forma Adjustments |
|
|
Pro Forma |
|
|
|
(in thousands) |
|
Revenues |
|
$ |
179,625 |
|
|
$ |
52,977 |
|
|
$ |
232,602 |
|
Net income |
|
$ |
45,092 |
|
|
$ |
3,042 |
|
|
$ |
48,134 |
|
Net income attributable to Rentech |
|
$ |
27,592 |
|
|
$ |
2,907 |
|
|
$ |
30,499 |
|
Basic and diluted net income from continuing operations per common share allocated to Rentech |
|
$ |
0.15 |
|
|
$ |
0.02 |
|
|
$ |
0.17 |
|
Note 6 Discontinued Operations
On March 5, 2014, the Company announced that it had entered into a definitive agreement with Sunshine Kaidi New Energy Group Co., Ltd.
(the Kaidi Agreement) to sell its alternative energy technologies and certain pieces of equipment at its decommissioned Product Demonstration Unit (the PDU) located in Commerce City, Colorado. The transaction would provide
the Company at closing with an initial cash purchase price for its technology and equipment of $15.3 million, and the possibility of a success payment of up to $16.2 million. At December 31, 2013, the Company had classified the PDU as property
held for sale on its consolidated balance sheet. As a result of the Kaidi Agreement, the Company has reclassified its balance sheets and statements of operations for all periods presented in this report to reflect the energy technologies segment as
a discontinued operation. In the statements of cash flows, the cash flows of discontinued operations are not separately classified or aggregated, and are reported in the respective categories with those of continuing operations.
All discussions and amounts in the consolidated financial statements and related notes, except for cash flows, for all periods presented
relate to continuing operations only, unless otherwise noted.
The following table summarizes the components of assets and liabilities of
discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(in thousands) |
|
Prepaid expenses and other current assets |
|
$ |
416 |
|
|
$ |
19 |
|
Property held for sale |
|
|
4,626 |
|
|
|
4,647 |
|
Deposits and other assets |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,046 |
|
|
$ |
4,670 |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
165 |
|
|
$ |
151 |
|
Accrued payroll and benefits |
|
|
339 |
|
|
|
356 |
|
Accrued liabilities |
|
|
1,601 |
|
|
|
1,496 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
2,105 |
|
|
$ |
2,003 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes the results of discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Revenues |
|
$ |
55 |
|
|
$ |
92 |
|
|
$ |
211 |
|
|
$ |
195 |
|
Operating loss |
|
$ |
1,593 |
|
|
$ |
2,613 |
|
|
$ |
3,091 |
|
|
$ |
9,536 |
|
Loss from discontinued operations, net of tax |
|
$ |
1,567 |
|
|
$ |
1,496 |
|
|
$ |
3,038 |
|
|
$ |
8,389 |
|
13
Note 7 Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or
liabilities. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company makes certain assumptions it believes that market participants would use in pricing assets or liabilities, including assumptions
about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Company and its counterparties is incorporated in the valuation of assets and liabilities. The Company believes it uses valuation techniques that maximize
the use of observable market-based inputs and minimize the use of unobservable inputs.
A fair value hierarchy has been established that
prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and
the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based
on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the
valuation of the asset or liability and its placement within the fair value hierarchy. The Company classifies fair value balances based on the fair value hierarchy, defined as follows:
|
|
|
Level 1 Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. |
|
|
|
Level 2 Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market
data. |
|
|
|
Level 3 Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable
and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints. |
The following table presents the financial instruments that require fair value disclosure as of June 30, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Carrying Value |
|
|
|
(in thousands) |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RNP Notes |
|
$ |
326,400 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
320,000 |
|
Forward gas contracts |
|
|
|
|
|
|
529 |
|
|
|
|
|
|
|
529 |
|
Fulghum debt |
|
|
|
|
|
|
45,673 |
|
|
|
|
|
|
|
46,019 |
|
GSO Credit Agreement |
|
|
|
|
|
|
49,041 |
|
|
|
|
|
|
|
49,041 |
|
NEWP debt |
|
|
|
|
|
|
12,033 |
|
|
|
|
|
|
|
12,219 |
|
QS Construction Facility |
|
|
|
|
|
|
16,460 |
|
|
|
|
|
|
|
16,460 |
|
Interest rate swaps |
|
|
|
|
|
|
801 |
|
|
|
|
|
|
|
801 |
|
Earn-out consideration |
|
|
|
|
|
|
|
|
|
|
5,711 |
|
|
|
5,711 |
|
The following table presents the financial instruments that require fair value disclosure as of
December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Carrying Value |
|
|
|
(in thousands) |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RNP Notes |
|
$ |
318,400 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
320,000 |
|
Fulghum debt |
|
|
|
|
|
|
45,970 |
|
|
|
|
|
|
|
47,452 |
|
RNHI Revolving Loan |
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
50,000 |
|
QS Construction Facility |
|
|
|
|
|
|
4,527 |
|
|
|
|
|
|
|
4,527 |
|
Earn-out consideration |
|
|
|
|
|
|
|
|
|
|
1,544 |
|
|
|
1,544 |
|
14
RNP Notes
The $320.0 million of 6.5% second lien senior secured notes due 2021 (the RNP Notes) are deemed to be Level 1 financial instruments
because there was an active market for such debt. The fair value of such debt had been determined based on market prices.
Forward Gas Contracts
Our East Dubuque Facility enters into forward gas purchase contracts to minimize its exposure to the fluctuations in natural gas
prices. The forward gas contracts are deemed to be Level 2 financial instruments because the measurement is based on observable market data. The fair value of such contracts had been determined based on market prices. Gain or loss associated with
forward gas contracts is recorded in cost of sales in the consolidated statement of operations. For the three and six months ended June 30, 2014, the amount of unrealized loss recorded was $0.5 million. These forward gas contracts are recorded in
accrued liabilities on the balance sheet.
Fulghum Debt
Fulghum debt is deemed to be Level 2 financial instruments because the measurement is based on observable market data. The Companys
valuation reflects discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, weighted average lives and maturity dates.
GSO Credit Agreement
The GSO
Credit Agreement, as defined in Note 11 Debt, is deemed to be a Level 2 financial instrument because the measurement is based on observable market data. Since the GSO Credit Agreements interest rate is a floating rate
and the Companys credit has not changed, the carrying value approximates the fair value.
NEWP Debt
NEWP debt is deemed to be Level 2 financial instruments because the measurement is based on observable market data. The Companys
valuation reflects discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, weighted average lives and maturity dates.
QS Construction Facility
The
Companys financing obligation with Quebec Stevedoring Company Limited (the QS Construction Facility) is deemed to be a Level 2 financial instrument because the measurement is based on observable market data. To determine the fair
value, the Company reviewed the current market interest rates of similar borrowing arrangements. It was concluded that the carrying value of the QS Construction Facility approximates the fair value of the obligation at June 30, 2014 because of
the fact that the Companys credit worthiness has not changed since the QS Construction Facility was established.
Interest Rate Swaps
NEWP entered into four interest rate swaps in notional amounts that cover the borrowings under its two industrial revenue bonds,
real estate mortgage loan and term loan. Through the four interest rate swaps, NEWP is essentially fixing the variable interest rate to be paid on its borrowings.
Under the interest rate swaps, NEWP pays interest at a fixed rate of 5.29% on the outstanding balance of one of the industrial revenue bonds,
5.05% on the outstanding balance of the other industrial revenue bond, 7.53% on the outstanding balance of the real estate mortgage loan and 5.54% on the outstanding balance of the term loan. NEWP receives interest at the variable interest rates
specified in the various swap agreements.
The interest rate swaps are designated as derivatives for accounting purposes. The interest
rate swaps are deemed to be Level 2 financial instruments because the measurements are based on observable market data. The Company used a standard swap contract valuation method to value its interest rate derivatives, and the inputs it uses for
present value discounting included forward one-month LIBOR rates, risk-free interest rates and an estimate of credit risk. The fair value of the interest rate swaps at June 30, 2014 represents the unrealized loss of $0.8 million. Any
adjustments to the fair value of the interest rate swaps from the date of the NEWP Acquisition will be recorded in statement of operations. Interest rate swaps are recorded in other liabilities on the balance sheet.
Earn-out Consideration
At
June 30, 2014, the earn-out consideration includes $1.5 million of potential earn-out consideration relating to the Atikokan Project. The earn-out consideration related to the Atikokan Project is deemed to be a Level 3 financial instrument
because the measurement is based on unobservable inputs. The fair value of earn-out consideration was determined based on the Companys analysis of various scenarios involving the achievement of certain levels of EBITDA, as defined in the asset
purchase agreement related to the Atikokan Project, over a ten-year period. The scenarios, which included a weighted probability factor, involved assumptions relating to product profitability and production. The earn-out consideration will be
measured at each reporting date with changes in its fair value recognized in the consolidated statements of operations. The Company provided a loan to the sellers of $0.9 million, which will be repayable from any earn-out consideration. Assuming the
minimum required EBITDA level is achieved, an increase or decrease of $1.0 million in EBITDA would result in an increase or decrease in earn-out consideration of $0.1 million.
15
At June 30, 2014, the earn-out consideration reflected in our financial statements includes
$4.2 million of expected earn-out consideration relating to the NEWP Acquisition. The earn-out consideration is deemed to be a Level 3 financial instrument because the measurement is based on unobservable inputs. The fair value of earn-out
consideration was determined based on the Companys analysis of various scenarios for the achievement of certain levels of EBITDA, as defined in the Purchase Agreement related to the NEWP Acquisition. The scenarios, which included a weighted
probability factor, involved assumptions relating to product profitability and production.
A reconciliation of the change in the carrying
value of the earn-out consideration is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014 |
|
|
|
Atikokan |
|
|
NEWP |
|
|
Total |
|
|
|
(in thousands) |
|
Balance at December 31, 2013 |
|
$ |
1,544 |
|
|
$ |
|
|
|
$ |
1,544 |
|
Add: Earn-out |
|
|
|
|
|
|
3,840 |
|
|
|
3,840 |
|
Add: Unrealized (gain) loss |
|
|
(3 |
) |
|
|
330 |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014 |
|
$ |
1,541 |
|
|
$ |
4,170 |
|
|
$ |
5,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013 |
|
|
|
Agrifos |
|
|
Atikokan |
|
|
Total |
|
|
|
(in thousands) |
|
Balance at December 31, 2012 |
|
$ |
4,920 |
|
|
$ |
|
|
|
$ |
4,920 |
|
Add: Earn-out |
|
|
|
|
|
|
1,850 |
|
|
|
1,850 |
|
Add: Unrealized gain |
|
|
(4,611 |
) |
|
|
|
|
|
|
(4,611 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013 |
|
$ |
309 |
|
|
$ |
1,850 |
|
|
$ |
2,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The levels within the fair value hierarchy at which the Companys financial instruments have been
evaluated have not changed for any of the Companys financial instruments during the three and six months ended June 30, 2014 and 2013.
Note
8 Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(in thousands) |
|
Finished goods |
|
$ |
37,121 |
|
|
$ |
27,638 |
|
Raw materials |
|
|
4,792 |
|
|
|
7,448 |
|
Other |
|
|
341 |
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
42,254 |
|
|
$ |
35,376 |
|
|
|
|
|
|
|
|
|
|
During the three and six months ended June 30, 2014, RNP wrote down the value of the Pasadena
Facilitys ammonium sulfate inventory by $2.8 million to market value. During the three months ended June 30, 2013, RNP wrote down the value of the Pasadena Facilitys ammonium sulfate inventory by $1.8 million to market value. During
the six months ended June 30, 2013, RNP wrote down the value of the Pasadena Facilitys ammonium sulfate, sulfur and sulfuric acid inventory by $2.3 million to market value. The various write-downs were reflected in cost of goods sold for
the applicable periods.
Note 9 Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(in thousands) |
|
Land and land improvements |
|
$ |
27,515 |
|
|
$ |
26,149 |
|
Buildings and building improvements |
|
|
44,643 |
|
|
|
33,096 |
|
Machinery and equipment and catalysts |
|
|
362,118 |
|
|
|
334,645 |
|
Furniture, fixtures and office equipment |
|
|
1,495 |
|
|
|
1,123 |
|
Computer equipment and computer software |
|
|
8,249 |
|
|
|
7,977 |
|
Vehicles |
|
|
5,395 |
|
|
|
4,624 |
|
Leasehold improvements |
|
|
2,219 |
|
|
|
2,348 |
|
Other |
|
|
188 |
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
451,822 |
|
|
|
410,172 |
|
Less: Accumulated depreciation |
|
|
(90,940 |
) |
|
|
(75,518 |
) |
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net |
|
$ |
360,882 |
|
|
$ |
334,654 |
|
|
|
|
|
|
|
|
|
|
16
Construction in progress consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(in thousands) |
|
East Dubuque Facility |
|
$ |
7,873 |
|
|
$ |
2,195 |
|
Pasadena Facility |
|
|
40,625 |
|
|
|
31,335 |
|
Fulghum Fibres |
|
|
8,380 |
|
|
|
273 |
|
Atikokan Project |
|
|
26,078 |
|
|
|
8,458 |
|
Wawa Project |
|
|
64,270 |
|
|
|
17,007 |
|
NEWP |
|
|
29 |
|
|
|
|
|
Other |
|
|
1,045 |
|
|
|
868 |
|
|
|
|
|
|
|
|
|
|
Total construction in progress |
|
$ |
148,300 |
|
|
$ |
60,136 |
|
|
|
|
|
|
|
|
|
|
The construction in progress balance at June 30, 2014 includes $3.2 million of capitalized interest costs
and $0.8 million at December 31, 2013.
Note 10 Goodwill
A reconciliation of the change in the carrying value of goodwill is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pasadena |
|
|
Fulghum |
|
|
NEWP |
|
|
Total |
|
|
|
(in thousands) |
|
Balance at December 31, 2013 |
|
$ |
27,202 |
|
|
$ |
29,932 |
|
|
$ |
|
|
|
$ |
57,134 |
|
Add: Acquisition |
|
|
|
|
|
|
|
|
|
|
8,651 |
|
|
|
8,651 |
|
Less: Impairment |
|
|
(27,202 |
) |
|
|
|
|
|
|
|
|
|
|
(27,202 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014 |
|
$ |
|
|
|
$ |
29,932 |
|
|
$ |
8,651 |
|
|
$ |
38,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company tests goodwill assets for impairment annually, or more often if an event or circumstances indicate
an impairment may have occurred. Management considered the inventory impairment as noted in Note 8 Inventories, negative gross margin and EBITDA in the three months ended June 30, 2014, and revised cash flow projections
developed during the three months ended June 30, 2014, taken together as indicators that a potential impairment of the goodwill related to the Pasadena Facility may have occurred. Factors that affect cash flow include, but are not limited to,
product prices; product sales volumes; feedstock prices, labor, maintenance, and other operating costs; required capital expenditures, and plant productivity.
Cash flow projections decreased primarily because of a decline in forecasted product margins. The reduction of prices in the forecast was the
result of an evaluation of many factors, including recent deterioration in reported margins. Average sales prices per ton dropped by 30% for ammonium sulfate and by 3% for sulfuric acid for the three months ended June 30, 2014, as compared with the
same period last year. A global decline in nitrogen prices, along with higher exports of ammonium sulfate from China, put downward pressure on ammonium sulfate prices. The additional supplies from China originate from new plants that produce
ammonium sulfate as a by-product of caprolactam. Current prices for ammonia and sulfur, key inputs for ammonium sulfate, have increased significantly during the second quarter. Global ammonia supplies are tight, supported by production issues in
Egypt, Algeria, Trinidad and Qatar, as well as political issues in Libya and Ukraine.
The analysis of the potential impairment of
goodwill is a two-step process. Step one of the impairment test consists of comparing the fair value of the reporting unit with the aggregate carrying value, including goodwill. If the carrying value of a reporting unit exceeds the reporting
units fair value, step two must be performed to determine the amount, if any, of the goodwill impairment. Step one of the goodwill impairment test involves a high degree of judgment and consists of a comparison of the fair value of a reporting
unit with its book value. The fair value of the Pasadena reporting unit is based upon various assumptions and is based primarily on the discounted cash flows that the business can be expected to generate in the future (the Income
Approach). The Income Approach valuation method requires the Company to make projections of revenue and costs over a multi-year period. Additionally, the Company made an estimate of a weighted average cost of capital that a market participant
would use as a discount rate. The Company also considers other valuation methods including the replacement cost and market approach. Based upon its analysis of the fair value of the Pasadena reporting unit, the Company believes it is probable that
the Pasadena reporting unit had a carrying value in excess of its fair value at June 30, 2014. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in accounting guidance.
17
Step two of the goodwill impairment test consists of comparing the implied fair value of the
reporting units goodwill against the carrying value of the goodwill. The estimated difference between the fair value of the entire reporting unit as determined in step one and the net fair value of all identifiable assets and liabilities
represents the implied fair value of goodwill. The valuation of assets and liabilities in step two is performed only for purposes of assessing goodwill for impairment and the Company did not adjust the net book value of the assets and liabilities on
its balance sheet other than goodwill as a result of this process. The estimated difference between fair value of the entire reporting unit as determined in step one and the net fair value of all identifiable assets and liabilities represents the
implied fair value of goodwill. Completion of step two of the goodwill impairment test indicated no remaining residual value of goodwill and resulted in the Company recording an impairment charge of $27.2 million. The goodwill impairment was
primarily the result of a decrease in the implied fair value of the Pasadena reporting unit. A deterioration in projected cash flows and an increase in the rate used to discount such cash flows contributed to this decrease. In addition, the implied
residual value of goodwill decreased because of an increase in the amount of invested capital at the Pasadena Facility, which primarily was the result of capital expenditures for the power generation project and expenditures to replace the sulfuric
acid converter.
Significant effort is required to determine the implied fair value of a reporting units goodwill in step two of the
goodwill impairment test and although the Company is unable to fully complete the process before filing this report, the $27.2 million impairment is its best estimate of the probable loss which will be finalized in the third quarter of 2014.
Note 11 Debt
RNP Credit Agreement
On April 12, 2013, RNP and Rentech Nitrogen Finance Corporation, a wholly owned subsidiary of RNP, entered into a credit
agreement (the RNP Credit Agreement). The RNP Credit Agreement consisted of a $35.0 million senior secured revolving credit facility. As of June 30, 2014 and December 31, 2013, there were no outstanding borrowings under the RNP
Credit Agreement. See Note 17 Subsequent Events regarding the incurrence of additional debt and the termination of the RNP Credit Agreement subsequent to June 30, 2014.
RNHI Revolving Loan
On
September 23, 2013, Rentech Nitrogen Holdings, Inc. (RNHI), an indirect wholly owned subsidiary of Rentech, obtained a $100.0 million revolving loan facility (RNHI Revolving Loan) by entering into a credit agreement (the
RNHI Credit Agreement) among RNHI, Credit Suisse AG, Cayman Islands Branch, as administrative agent and each other lender from time to time party thereto. On September 24, 2013, the Company borrowed $50.0 million under the facility.
On April 9, 2014, the Company paid off the outstanding balance under the facility and terminated the RNHI Credit Agreement. The
payoff of the RNHI Revolving Loan resulted in a loss on debt extinguishment of $0.9 million for the three and six months ended June 30, 2014.
BOM Credit Agreement
On
November 25, 2013, the Company entered into a credit agreement with Bank of Montreal (the BOM Credit Agreement). The BOM Credit Agreement consists of a $3.0 million revolving credit facility, which can be utilized as letters of
credit.
On April 8, 2014, the BOM Credit Agreement was amended to increase the amount available under the revolving credit facility
from $3.0 million to $10.0 million.
Borrowings bear a letter of credit fee of 3.75% per annum on the daily average face amount of
the letters of credits outstanding during the preceding calendar quarter. The Company also is required to pay a commitment fee on the average daily undrawn portion of the credit facility at a rate equal to 0.75% per annum. This commitment fee
is payable quarterly in arrears on the last day of each calendar quarter and on the termination date. The BOM Credit Agreement will terminate on November 25, 2015. At June 30, 2014, letters of credit totaling $9.7 million had been issued.
At December 31, 2013, letters of credit totaling $1.1 million had been issued.
GSO Credit Agreement
On April 9, 2014, RNHI (the Borrower), entered into a Term Loan Credit Agreement (the GSO Credit Agreement) among
the Borrower, certain funds managed by or affiliated with GSO Capital Partners LP (GSO Capital), as lenders, Credit Suisse AG, Cayman Islands Branch, as administrative agent and each lender from time to time party thereto. The Company
expects that the facility will be used to fund the acquisition and development of its wood fibre business, which consists of its wood chipping and wood pellet businesses, and for general corporate purposes.
18
The facility consists of a $50.0 million term loan facility, with a five-year maturity. The
obligations of the Borrower under the facility are unconditionally guaranteed by the Company and are secured by 2,762,431 common units of RNP owned by the Borrower. The term loan facility was subject to a 2.00% original issue discount.
Borrowings under the facility bear interest at a rate equal to LIBOR (with a floor of 1.00%) plus 7.00% per annum. In the event the
Company prepays the facility prior to its first anniversary from funds other than those generated through certain sales of assets and under certain conditions, it will be required to pay a prepayment fee equal to 1.00% of the amount of the
prepayment.
The GSO Credit Agreement provides for a $75.0 million incremental term loan facility (the Accordion Facility).
The Accordion Facility allows the Company, at any time before April 9, 2019, to borrow additional funds under the terms of the GSO Credit Agreement from any of the lenders, if such lenders agree to lend such amount.
NEWP Debt
NEWPs debt
consists of two industrial revenue bonds, a real estate mortgage loan and a term loan with each loan collateralized by specific property and equipment. The debt has maturity dates ranging from 2014 through 2021. As of June 30, 2014, NEWPs
debt, factoring in the interest rate swaps, had a weighted average interest rate of 5.0%.
NEWP debt at June 30, 2014 consisted of
the following (in thousands):
|
|
|
|
|
Outstanding debt |
|
$ |
11,793 |
|
Plus: Unamortized premium |
|
|
426 |
|
|
|
|
|
|
Total outstanding debt |
|
$ |
12,219 |
|
Less: Current portion |
|
|
1,893 |
|
|
|
|
|
|
Long-term credit facilities and term loans |
|
$ |
10,326 |
|
|
|
|
|
|
Future maturities of the NEWP debt are as follows (in thousands):
|
|
|
|
|
For the Six Months Ending December 31, 2014 and Thereafter the Years Ending December 31, |
|
|
|
2014 |
|
$ |
954 |
|
2015 |
|
|
1,888 |
|
2016 |
|
|
2,424 |
|
2017 |
|
|
1,954 |
|
2018 |
|
|
2,032 |
|
2019 |
|
|
1,498 |
|
Thereafter |
|
|
1,469 |
|
|
|
|
|
|
|
|
$ |
12,219 |
|
|
|
|
|
|
Total Debt
As of June 30, 2014, the Company was in compliance with all covenants under the RNP Notes, Fulghum debt, NEWP debt, GSO Credit Agreement
and the RNP Credit Agreement. Total debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(in thousands) |
|
RNP Notes |
|
$ |
320,000 |
|
|
$ |
320,000 |
|
Fulghum debt(1) |
|
|
46,019 |
|
|
|
47,452 |
|
GSO Credit Agreement |
|
|
49,041 |
|
|
|
|
|
NEWP debt |
|
|
12,219 |
|
|
|
|
|
QS Construction Facility |
|
|
16,460 |
|
|
|
4,527 |
|
RNHI Revolving Loan |
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
443,739 |
|
|
$ |
421,979 |
|
Less: Current portion |
|
|
13,525 |
|
|
|
9,916 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
430,214 |
|
|
$ |
412,063 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes unamortized premium of $1.9 million as of June 30, 2014 and $2.2 million as of December 31, 2013. |
19
Note 12 Preferred Stock
On April 9, 2014, the Company entered into a Subscription Agreement (the Subscription Agreement) with funds managed by or
affiliated with GSO Capital LP (the Series E Purchasers), pursuant to which the Company sold 100,000 shares of its Series E Convertible Preferred Stock (the 2014 Preferred Stock or Series E Preferred Stock) to the
Series E Purchasers. The shares have an aggregate original issue price of $100.0 million and were purchased for an aggregate purchase price of $98.0 million (reflecting an issuance discount of 2%). Dividends on the 2014 Preferred Stock accrue and
are cumulative, whether or not declared by the Board of Directors of the Company, at the rate of 4.5% per annum on the sum of the original issue price plus all unpaid accrued and accumulated dividends thereon. The 2014 Preferred Stock is
convertible into up to 45,045,045 shares of Rentechs common stock (Common Stock) at a conversion price of $2.22 per share, subject to adjustment. In certain circumstances, the 2014 Preferred Stock is redeemable by the Series E
Purchasers for a price equal to the original issue price plus all accrued and unpaid dividends (including dividends accruing from the last dividend payment date).
On April 9, 2014, a newly formed wholly owned subsidiary of the Company, DSHC, LLC (DSHC), and each of the Series E
Purchasers entered into a Put Option Agreement (the Put Option Agreements). Under the Put Option Agreements, each Series E Purchaser has the right to cause DSHC to purchase any of the 2014 Preferred Stock for the original issue price
plus all accrued and unpaid dividends (including dividends accruing from the last dividend payment date) upon certain put trigger events, including the failure of the Company to redeem the 2014 Preferred Stock when required. All obligations of DSHC
under the Put Option Agreements are secured by 5,524,862 common units of RNP owned by DSHC. DSHC is a special purpose entity referred to as a bankruptcy-remote entity whose operations are limited. DSHC is a separate and distinct legal entity from
Rentech and its assets are not available to Rentechs creditors.
The 2014 Preferred Stock is accounted for as mezzanine equity.
However, dividends are recorded in stockholders equity and consist of the 4.5% dividend plus the amortization of issuance costs and accretion of discount. Dividends are paid on the first business day of June and December of each year.
Mezzanine equity at June 30, 2014 consisted of the following (in thousands):
|
|
|
|
|
Original issue price of 2014 Preferred Stock |
|
$ |
100,000 |
|
Less: Issuance costs |
|
|
(3,375 |
) |
Less: Unamortized discount |
|
|
(1,937 |
) |
|
|
|
|
|
Total mezzanine equity |
|
$ |
94,688 |
|
|
|
|
|
|
Note 13 Commitments and Contingencies
Natural Gas Forward Purchase Contracts
The Companys policy and practice are to enter into fixed-price forward purchase contracts for natural gas in conjunction with contracted
nitrogen fertilizer product sales in order to substantially fix gross margin on those product sales contracts. The Company may also enter into a limited amount of additional fixed-price forward purchase contracts for natural gas in order to minimize
monthly and seasonal gas price volatility. The Company occasionally enters into index-price contracts for the purchase of natural gas. The Company has entered into multiple natural gas forward purchase contracts for various delivery dates through
April 30, 2015. Commitments for natural gas purchases consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(in thousands, except weighted
average rate) |
|
MMBtus under fixed-price contracts |
|
|
4,580 |
|
|
|
2,071 |
|
MMBtus under index-price contracts |
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
Total MMBtus under contracts |
|
|
4,580 |
|
|
|
2,152 |
|
|
|
|
|
|
|
|
|
|
Commitments to purchase natural gas |
|
$ |
21,550 |
|
|
$ |
8,571 |
|
Weighted average rate per MMBtu based on the fixed rates and the indexes applicable to each contract |
|
$ |
4.71 |
|
|
$ |
3.98 |
|
During July 2014, the Company entered into additional fixed-quantity forward purchase contracts at fixed and
indexed prices for various delivery dates through December 31, 2014. The total MMBtus associated with these additional forward purchase contracts are 0.8 million and the total amount of the purchase commitments is $3.3 million, resulting in a
weighted average rate per MMBtu of $4.29 in these new commitments. The Company is required to make additional prepayments under these forward purchase contracts in the event that market prices fall below the purchase prices in the contracts.
20
Contractual Obligations
Pasadena
On
April 17, 2013, RNPLLC entered into an engineering, procurement and construction contract (the EPC Contract) with Abeinsa Abener Teyma General Partnership (Abeinsa). The EPC Contract provides for Abeinsa to be the
contractor on the power generation project at the Pasadena Facility. The value of the contract is $25.0 million and the project is expected to be completed by late 2014. As of June 30, 2014, RNP has paid $19.0 million and accrued an
additional $1.0 million under the EPC contract.
Wood Pellets
On April 30, 2013, Rentechs subsidiary that owns the Wawa Project entered into a ten-year take-or-pay contract (the Drax
Contract) with Drax Power Limited (Drax). Under the Drax Contract, such subsidiary is required to sell to Drax the first 400,000 metric tonnes of wood pellets per year produced from the Wawa Project, with the first delivery under
the contract scheduled for the end of year 2014. In the event that it does not deliver wood pellets as required under the Drax Contract, the Rentech subsidiary that owns the Wawa Project is required to pay Drax an amount equal to the difference
between the contract price for the wood pellets and the price of any wood pellets Drax purchases in replacement. Rentech has guaranteed this obligation in an amount not to exceed $20.0 million.
For the Atikokan Project, Rentechs subsidiary that owns the Atikokan Project entered into a ten-year take-or-pay contract
(the OPG Contract) with Ontario Power Generation (OPG) under which such subsidiary is required to deliver 45,000 metric tonnes of wood pellets annually starting in 2014, prorated in the first year based on OPGs
successful commissioning date. OPG has the option to increase the amount of wood pellets the Atikokan Project is required to deliver to up to 90,000 metric tonnes annually. The Company expects that wood pellets produced at the Atikokan Project not
purchased by OPG may be sold to Drax or marketed elsewhere. The Company also expects that its initial deliveries to OPG will consist of wood pellets purchased from third party suppliers and wood pellets produced at the Atikokan Project during its
early commissioning phase. The Atikokan Project made its first delivery of wood pellets to OPG in May 2014 using wood pellets supplied under the KD Contract (as defined below).
The contracts with Drax and OPG are each designed to minimize exposure to variable costs over the ten-year term. This exposure is minimized,
in the case of the Drax agreement, by passing through to Drax increased costs resulting from certain changes in input prices, including general inflation, the price of fuel, and prices of wood supplied to the mills, and in the case of OPG by tying a
portion of the price of wood pellets to a Canadian inflation index. However, such indexation and pass throughs may not exactly offset increases or decreases in the prices of inputs and the cost of transporting and handling wood pellets.
A Rentech subsidiary has contracted with Canadian National Railway Company (the Canadian National Contract) for all rail
transportation of wood pellets from the Atikokan Project and the Wawa Project to the Port of Quebec. The Atikokan Project is located 1,300 track miles, and the Wawa Project is located 1,100 track miles, from the Port of Quebec.
Under the Canadian National Contract, such subsidiary has committed to transport a minimum of 1,500 rail carloads during the months of January
2014 through December 2014, and 3,600 rail carloads annually thereafter for the duration of the long-term contract. Delivery shortfalls would result in a $1,000 per rail car penalty. Under the Drax Contract, a Rentech subsidiary is responsible for
the transportation of the wood pellets to the Port of Quebec. Drax is obligated to take delivery of the wood pellets on a FOB shipping point basis. Under the OPG Contract, OPG is obligated to take delivery of the Atikokan Projects product on a
FOB basis at the Companys Atikokan facility.
On November 25, 2013, a Rentech subsidiary entered into a one-year wood pellet
purchase contract (the KD Contract) with KD Quality Pellets. Under the KD Contract, such subsidiary committed to purchase between 15,000 and 20,000 metric tonnes of wood pellets between December 1, 2013 and June 30, 2014. The
KD Contract provides the subsidiary with an option to extend the term of the agreement to five years. The subsidiary is currently operating on a month-to-month basis until it extends the agreement. The Company may use the wood pellets that it
purchases under the KD Contract to deliver wood pellets to OPG in advance of production by the Atikokan Project, or to cover shortfalls in production during commissioning of the Atikokan Project, so that it meets its delivery commitments under the
OPG Contract. Any wood pellets that are purchased under the KD Contract and not sold to OPG may be sold to other customers.
Litigation
The Company is party to litigation from time to time in the normal course of business. The Company accrues legal liabilities only when it
concludes that it is probable that it has an obligation for such costs and can reasonably estimate the amount of such costs. In cases where the Company determines that it is not probable, but reasonably possible that it has a material obligation, it
discloses such obligations and the possible loss or range of loss, if such estimate can be made. While the outcome of the Companys current matters are not estimable or probable, the Company maintains insurance to cover certain actions and
believes that resolution of its current litigation matters will not have a material adverse effect on the Companys financial statements.
21
Regulation
The Companys business is subject to extensive and frequently changing federal, state and local, environmental, health and safety
regulations in the jurisdictions in which it has operations governing a wide range of matters, including the emission of air pollutants, the release of hazardous substances into the environment, the treatment and discharge of waste water and the
storage, handling, use and transportation of the Companys fertilizer products, raw materials, and other substances that are part of our operations. These laws include the Clean Air Act (the CAA), the federal Water Pollution Control
Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, and various other federal, state and local laws and regulations. The laws and regulations to
which the Company is subject are complex, change frequently and have tended to become more stringent over time. The ultimate impact on the Companys business of complying with existing laws and regulations is not always clearly known or
determinable due in part to the fact that the Companys operations may change over time and certain implementing regulations for laws, such as the CAA, have not yet been finalized, are under governmental or judicial review or are being revised.
These laws and regulations could result in increased capital, operating and compliance costs.
Note 14 Income Taxes
For the three months ended June 30, 2014, the Company recorded income tax benefit of $0.2 million. For the six months ended June 30,
2014, the Company recorded income tax expense of $0.8 million. The Companys effective income tax rate (income tax (benefit) expense as a percentage of income before income taxes) was (1)% for the three months ended June 30, 2014 and 3%
for the six months ended June 30, 2014. The differences between the United States federal statutory rate of 35% and the effective rate were primarily attributable to basis difference in foreign subsidiary, impact of foreign earnings and impact
of state taxes. The Company has considered results of operations and concluded that it is more likely than not that the deferred tax assets will not be realized.
Note 15 Segment Information
The
Company operates in five business segments, as described below. The operations of Fulghum are included in the Companys historical results of operations from the date of the closing of the Fulghum Acquisition, which was May 1, 2013. The
operations of NEWP are included from the date of the closing of the NEWP Acquisition, which was May 1, 2014. Results of the energy technologies segment are included in discontinued operations for the three and six months ended June 30,
2014 and 2013. The Companys five segments are:
|
|
|
East Dubuque The operations of the East Dubuque Facility, which produces primarily ammonia and urea ammonium nitrate solution (UAN). |
|
|
|
Pasadena The operations of the Pasadena Facility, which produces primarily ammonium sulfate. |
|
|
|
Fulghum Fibres The operations of Fulghum, which provides wood fibre processing services and wood yard operations, sells wood chips to the pulp, paper and packaging industry, and owns and manages forestland and
sells bark to industrial consumers in South America. |
|
|
|
Wood Pellets: Industrial This segment includes wood pellet projects owned by the Company, currently the Atikokan Project and Wawa Project, equity in Rentechs joint venture with Graanul Invest AS, a European
producer of wood pellets (the Rentech/Graanul JV) and other wood pellet development activities. The wood pellet development activities represent the Companys personnel costs for employees dedicated to the wood pellet business
infrastructure and administration costs and other third party costs. |
|
|
|
Wood Pellets: NEWP The operations of NEWP, which produces wood pellets for the residential and commercial heating markets. |
22
The Companys reportable operating segments have been determined in accordance with the
Companys internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measure is segment-operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
73,943 |
|
|
$ |
61,717 |
|
|
$ |
102,434 |
|
|
$ |
96,266 |
|
Pasadena |
|
|
39,666 |
|
|
|
42,239 |
|
|
|
67,455 |
|
|
|
67,254 |
|
Fulghum Fibres |
|
|
19,836 |
|
|
|
16,105 |
|
|
|
48,387 |
|
|
|
16,105 |
|
Wood Pellets: Industrial |
|
|
667 |
|
|
|
|
|
|
|
667 |
|
|
|
|
|
Wood Pellets: NEWP |
|
|
5,778 |
|
|
|
|
|
|
|
5,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
139,890 |
|
|
$ |
120,061 |
|
|
$ |
224,721 |
|
|
$ |
179,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
31,598 |
|
|
$ |
36,370 |
|
|
$ |
42,832 |
|
|
$ |
53,683 |
|
Pasadena |
|
|
(33,519 |
) |
|
|
138 |
|
|
|
(34,278 |
) |
|
|
1,994 |
|
Fulghum Fibres |
|
|
(583 |
) |
|
|
845 |
|
|
|
2,956 |
|
|
|
845 |
|
Wood Pellets: Industrial |
|
|
(3,261 |
) |
|
|
(812 |
) |
|
|
(5,006 |
) |
|
|
(1,883 |
) |
Wood Pellets: NEWP |
|
|
794 |
|
|
|
|
|
|
|
794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income (loss) |
|
$ |
(4,971 |
) |
|
$ |
36,541 |
|
|
$ |
7,298 |
|
|
$ |
54,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
31,578 |
|
|
$ |
36,044 |
|
|
$ |
42,787 |
|
|
$ |
53,314 |
|
Pasadena |
|
|
(33,546 |
) |
|
|
34 |
|
|
|
(34,332 |
) |
|
|
1,850 |
|
Fulghum Fibres |
|
|
(989 |
) |
|
|
128 |
|
|
|
665 |
|
|
|
128 |
|
Wood Pellets: Industrial |
|
|
(3,163 |
) |
|
|
(812 |
) |
|
|
(4,807 |
) |
|
|
(1,883 |
) |
Wood Pellets: NEWP |
|
|
742 |
|
|
|
|
|
|
|
742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net income (loss) |
|
$ |
(5,378 |
) |
|
$ |
35,394 |
|
|
$ |
5,055 |
|
|
$ |
53,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment net income (loss) to consolidated net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net income (loss) |
|
$ |
(5,378 |
) |
|
$ |
35,394 |
|
|
$ |
5,055 |
|
|
$ |
53,409 |
|
RNP partnership and unallocated expenses recorded as selling, general and administrative expenses |
|
|
(2,169 |
) |
|
|
(2,462 |
) |
|
|
(4,485 |
) |
|
|
(4,616 |
) |
RNP partnership and unallocated expenses recorded as other expense |
|
|
|
|
|
|
(1,178 |
) |
|
|
|
|
|
|
(1,390 |
) |
RNP unallocated interest expense and loss on interest rate swaps |
|
|
(4,787 |
) |
|
|
(4,019 |
) |
|
|
(9,769 |
) |
|
|
(5,730 |
) |
RNP Income tax benefit |
|
|
|
|
|
|
302 |
|
|
|
|
|
|
|
302 |
|
Corporate and unallocated expenses recorded as selling, general and administrative expenses |
|
|
(7,756 |
) |
|
|
(6,252 |
) |
|
|
(14,581 |
) |
|
|
(13,022 |
) |
Corporate and unallocated depreciation and amortization expense |
|
|
(132 |
) |
|
|
(139 |
) |
|
|
(265 |
) |
|
|
(323 |
) |
Corporate and unallocated expenses recorded as other expense |
|
|
(1,191 |
) |
|
|
(9 |
) |
|
|
(1,183 |
) |
|
|
(26 |
) |
Corporate and unallocated interest expense |
|
|
(20 |
) |
|
|
|
|
|
|
(324 |
) |
|
|
|
|
Corporate income tax benefit (expense) |
|
|
(33 |
) |
|
|
24,165 |
|
|
|
(37 |
) |
|
|
24,877 |
|
Loss from discontinued operations, net of tax |
|
|
(1,567 |
) |
|
|
(1,496 |
) |
|
|
(3,038 |
) |
|
|
(8,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) |
|
$ |
(23,033 |
) |
|
$ |
44,306 |
|
|
$ |
(28,627 |
) |
|
$ |
45,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(in thousands) |
|
Total assets |
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
184,368 |
|
|
$ |
175,430 |
|
Pasadena |
|
|
179,350 |
|
|
|
188,836 |
|
Fulghum Fibres |
|
|
187,132 |
|
|
|
188,397 |
|
Wood Pellets: Industrial |
|
|
127,316 |
|
|
|
42,089 |
|
Wood Pellets: NEWP |
|
|
56,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets |
|
$ |
734,318 |
|
|
$ |
594,752 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment total assets to consolidated total assets: |
|
|
|
|
|
|
|
|
Segment total assets |
|
$ |
734,318 |
|
|
$ |
594,752 |
|
RNP partnership and other |
|
|
26,465 |
|
|
|
42,078 |
|
Corporate and other |
|
|
30,735 |
|
|
|
62,090 |
|
Discontinued operations |
|
|
5,046 |
|
|
|
4,670 |
|
|
|
|
|
|
|
|
|
|
Consolidated total assets |
|
$ |
796,564 |
|
|
$ |
703,590 |
|
|
|
|
|
|
|
|
|
|
The Companys revenue by geographic area, based on where the customer takes title to the product, was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
United States |
|
$ |
134,001 |
|
|
$ |
113,806 |
|
|
$ |
204,480 |
|
|
$ |
173,370 |
|
Canada |
|
|
667 |
|
|
|
|
|
|
|
667 |
|
|
|
|
|
Other |
|
|
5,222 |
|
|
|
6,255 |
|
|
|
19,574 |
|
|
|
6,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
139,890 |
|
|
$ |
120,061 |
|
|
$ |
224,721 |
|
|
$ |
179,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth assets by geographic area:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(in thousands) |
|
United States |
|
$ |
641,226 |
|
|
$ |
633,886 |
|
Canada |
|
|
127,350 |
|
|
|
42,089 |
|
Other |
|
|
27,988 |
|
|
|
27,615 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
796,564 |
|
|
$ |
703,590 |
|
|
|
|
|
|
|
|
|
|
24
Note 16 Net Loss Per Common Share Allocated to Rentech
Basic income (loss) per common share allocated to Rentech is calculated by dividing net income (loss) allocated to Rentech by the weighted
average number of common shares outstanding for the period. Diluted net income (loss) per common share allocated to Rentech is calculated by dividing net income (loss) allocated to Rentech by the weighted average number of common shares outstanding
plus the dilutive effect, calculated using the treasury stock method for the unvested restricted stock units, outstanding stock options and warrants and using the if converted method for the preferred stock if their inclusion
would not have been anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Rentech common shareholders |
|
$ |
(17,878 |
) |
|
$ |
34,328 |
|
|
$ |
(23,395 |
) |
|
$ |
35,981 |
|
Less: Dividends and accretion on 2014 Preferred Stock |
|
|
1,200 |
|
|
|
|
|
|
|
1,200 |
|
|
|
|
|
Less: Income (loss) from continuing operations allocated to participating securities |
|
|
|
|
|
|
864 |
|
|
|
|
|
|
|
1,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations allocated to common shareholders |
|
$ |
(19,078 |
) |
|
$ |
33,464 |
|
|
$ |
(24,595 |
) |
|
$ |
34,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations attributable to Rentech common shareholders |
|
$ |
(1,567 |
) |
|
$ |
(1,496 |
) |
|
$ |
(3,038 |
) |
|
$ |
(8,389 |
) |
Less: Loss from discontinued operations allocated to participating securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations allocated to common shareholders |
|
$ |
(1,567 |
) |
|
$ |
(1,496 |
) |
|
$ |
(3,038 |
) |
|
$ |
(8,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Rentech common shareholders |
|
$ |
(19,445 |
) |
|
$ |
32,832 |
|
|
$ |
(26,433 |
) |
|
$ |
27,592 |
|
Less: Dividends and accretion on 2014 Preferred Stock |
|
|
1,200 |
|
|
|
|
|
|
|
1,200 |
|
|
|
|
|
Less: Income (loss) allocated to participating securities |
|
|
|
|
|
|
830 |
|
|
|
|
|
|
|
742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common shareholders |
|
$ |
(20,645 |
) |
|
$ |
32,002 |
|
|
$ |
(27,633 |
) |
|
$ |
26,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
227,792 |
|
|
|
225,981 |
|
|
|
227,661 |
|
|
|
225,604 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
920 |
|
|
|
|
|
|
|
960 |
|
Common stock options |
|
|
|
|
|
|
1,637 |
|
|
|
|
|
|
|
1,822 |
|
Restricted stock |
|
|
|
|
|
|
2,995 |
|
|
|
|
|
|
|
3,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding |
|
|
227,792 |
|
|
|
231,533 |
|
|
|
227,661 |
|
|
|
231,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.08 |
) |
|
$ |
0.15 |
|
|
$ |
(0.11 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share |
|
$ |
(0.09 |
) |
|
$ |
0.14 |
|
|
$ |
(0.12 |
) |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.08 |
) |
|
$ |
0.14 |
|
|
$ |
(0.11 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share |
|
$ |
(0.09 |
) |
|
$ |
0.14 |
|
|
$ |
(0.12 |
) |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2014 60.6 million shares and, for the same period last year,
3.6 million shares, of Common Stock issuable pursuant to stock options, stock warrants, restricted stock units and preferred stock were excluded from the calculation of diluted income (loss) per share because their inclusion would have been
anti-dilutive. For the six months ended June 30, 2014 60.6 million shares and, for the same period last year, 3.5 million shares, of Common Stock issuable pursuant to stock options, stock warrants, restricted stock units and preferred
stock were excluded from the calculation of diluted income (loss) per share because their inclusion would have been anti-dilutive.
25
Note 17 Subsequent Events
GE Credit Agreement
On
July 22, 2014, RNP replaced the RNP Credit Agreement by entering into a new credit agreement (the GE Credit Agreement) by and among RNP and Finance Corporation as borrowers (the Borrowers), certain subsidiaries of RNP,
as guarantors, General Electric Capital Corporation, for itself as agent for the lenders party thereto, the other financial institutions party thereto, and GE Capital Markets, Inc., as sole lead arranger and bookrunner.
The GE Credit Agreement consists of a $50.0 million senior secured revolving credit facility (the Credit Facility) with a $10.0
million letter of credit sublimit. RNP expects that the GE Credit Agreement will be used to fund growth projects, working capital needs, letters of credit and for other general partnership purposes.
Borrowings under the GE Credit Agreement bear interest at a rate equal to an applicable margin plus, at the Borrowers 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 one month 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 two business days prior to the first day of such interest period. The applicable margin for borrowings under the GE Credit Agreement
is 2.25% with respect to base rate borrowings and 3.25% with respect to LIBOR borrowings.
The Borrowers are required to pay a fee to the
lenders under the GE Credit Agreement on the average undrawn available portion of the Credit Facility at a rate equal to 0.50% per annum. If letters of credit are issued, the Borrowers will also pay a fee to the lenders under the GE Credit
Agreement at a rate equal to the product of the average daily undrawn face amount of all letters of credit issued, guaranteed or supported by risk participation agreements multiplied by a per annum rate equal to the applicable margin with respect to
LIBOR borrowings. The Borrowers are also required to pay customary letter of credit fees on issued letters of credit. In the event the Borrowers reduce or terminate the commitments under the Credit Facility on or prior to the 18-month anniversary of
the closing date, the Borrowers shall pay a prepayment fee equal to 1.0% of the amount of the commitment reduction.
The GE Credit
Agreement terminates on July 22, 2019. The Borrowers may voluntarily prepay their utilization and/or permanently cancel all or part of the available commitments under the GE Credit Agreement in minimum increments of $5.0 million (subject to the
prepayment fee described above). Amounts repaid may be reborrowed. Borrowings under the GE Credit Agreement will be subject to mandatory prepayment under certain circumstances, with customary exceptions, from the proceeds of permitted dispositions
of assets and from certain insurance and condemnation proceeds.
RNLLC, RNPLLC and Rentech Nitrogen Pasadena Holdings, LLC guarantee the
GE Credit Agreement. The obligations under the GE Credit Agreement and the subsidiary guarantees thereof are secured by the same collateral securing the Notes, which includes substantially all the assets of RNP and its subsidiaries. After the
occurrence and during the continuation of an event of default, proceeds of any collection, sale, foreclosure or other realization upon any collateral will be applied to repay obligations under the GE Credit Agreement and the subsidiary guarantees
thereof to the extent secured by the collateral before any such proceeds are applied to repay obligations under the Notes.
The GE Credit
Agreement contains a number of customary representations and warranties, affirmative and negative covenants and events of default. The covenants include, among other things, compliance with environmental laws, limitations on the incurrence of
indebtedness and liens, the making of investments, the sale of assets and the making of restricted payments. In the event that, on a pro forma basis, less than 30% of the commitment amount is available for borrowing on any distribution date, then in
order to make a distribution on such date (a) RNP must maintain a first lien leverage ratio no greater than 1.0 to 1 on a pro forma basis and (b) the sum of (i) the undrawn amount under the Credit Facility and (ii) cash
maintained by RNP and its subsidiaries in collateral deposit accounts must be at least $5 million (after giving effect to the distribution). In addition, before RNP can make distributions, there cannot be any default under the GE Credit Agreement.
The GE Credit Agreement also contains a requirement that RNP maintain a first lien leverage ratio not to exceed 1.0 to 1 at the end of each fiscal quarter where less than 30% of the commitment is available for drawing under the Credit Facility or a
default has occurred and is continuing.
Distributions
On August 5, 2014, the board of directors of RNPs general partner declared a cash distribution to RNPs common unitholders for
the period April 1, 2014 through and including June 30, 2014 of $0.13 per unit, which will result in total distributions in the amount of $5.1 million, including payments to phantom unitholders. The Company will receive a distribution of
$3.0 million, representing its share of distributions based on its ownership of common units. The cash distribution will be paid on August 29, 2014 to unitholders of record at the close of business on August 22, 2014.
26
ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion and analysis of our financial condition, results of operations and cash flows in conjunction with our
consolidated financial statements and the related notes presented in this report and in our Annual Report.
FORWARD-LOOKING STATEMENTS
Certain information included in this report contains, and other reports or materials filed or to be filed by us with the SEC (as well as
information included in oral statements or other written statements made or to be made by us or our management) contain or will contain, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act, Section 27A of the Securities Act of 1933, as amended, and pursuant to the Private Securities Litigation Reform Act of 1995. The forward-looking statements may relate to financial results and plans for
future business activities, and are thus prospective. The forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the
forward-looking statements. They can be identified by the use of terminology such as may, will, expect, believe, intend, plan, estimate, anticipate,
should and other comparable terms or the negative of them. You are cautioned that, while forward-looking statements reflect managements 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 IItem 1A. Risk Factors in the Annual Report, in Part
IIItem 1A. Risk Factors in this report and from time to time in our periodic reports and registration statements filed with the SEC. Such risks and uncertainties include, among other things:
|
|
|
our ability to realize the benefits of the Fulghum Acquisition, the NEWP Acquisition and the Atikokan and Wawa Projects and to successfully execute our new wood fibre processing business strategy; |
|
|
|
the volatile nature of our nitrogen fertilizer business and its ability to remain profitable; |
|
|
|
our ability to recover the costs of our raw materials through sales of products made from such raw materials, considering the volatility in the prices of our products and raw materials; |
|
|
|
a decline in demand for crops such as corn, soybeans, potatoes, cotton, canola, alfalfa and wheat or their prices or the use of nitrogen fertilizer for agricultural purposes; |
|
|
|
adverse weather conditions, which can affect demand for, and delivery and production of, our nitrogen fertilizer and wood pellet products; |
|
|
|
any interruption in the supply, or rise in the price levels, of natural gas, ammonia, sulfur, and other essential raw materials; |
|
|
|
our dependence on our customers and distributors to transport goods purchased from us; |
|
|
|
our ability to identify and consummate acquisitions in related businesses, our ability to complete capital projects on schedule and on budget and the risk that any such acquisitions or capital projects do not perform as
anticipated; |
|
|
|
planned or unplanned shutdowns, or any operational difficulties, at our facilities; |
|
|
|
intense competition from other nitrogen fertilizer or wood fibre processors; |
|
|
|
risks associated with projects located in rural areas outside of the United States; |
|
|
|
our ability to complete the sale of the intellectual property rights we hold with respect to our energy technologies on satisfactory terms, or at all; |
|
|
|
risks arising from changes in existing laws or regulations, or their interpretation, or the imposition of new restrictions relating to emissions of greenhouse gases, carbon dioxide or energy production;
|
|
|
|
any loss of Agrium Inc., or Agrium, as a distributor or customer of our nitrogen fertilizer products, loss of storage rights at Agriums terminal in Niota, Illinois or decline in sales of products through or to
Agrium; |
|
|
|
any loss of Interoceanic Corporation, or IOC, as a distributor of our ammonium sulfate fertilizer products or decline in sales volume or sales price of products sold through IOC; |
|
|
|
potential operating hazards from accidents, fire, severe weather, floods or other natural disasters; |
|
|
|
our ability and the associated cost to comply with laws and regulations regarding employee and process safety; |
|
|
|
risks associated with the expansion and other projects at our facilities, including any disruption to operations at our facilities during construction and our ability to sell the incremental products resulting from such
projects; and |
|
|
|
risks associated with doing business outside of the United States, including foreign currency exposure and economic conditions in other countries impacting our demand for our products and our customers ability to
pay us. |
27
You should not place undue reliance on our forward-looking statements. Although forward-looking
statements reflect our good faith beliefs, forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future
results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed
circumstances or otherwise, unless required by law.
As used in this report, references to Rentech refer to Rentech, Inc., a
Colorado corporation, and the terms we, our, us and the Company mean Rentech and its consolidated subsidiaries, unless the context indicates otherwise.
OVERVIEW OF OUR BUSINESS
We are a
leading wood fibre processing business for the production of high-quality wood chips. We are also developing into a leading provider of wood pellets. These new businesses consist of providing wood chipping services and manufacturing and selling wood
chips through our wholly owned subsidiary, Fulghum, and developing and operating wood pellet production facilities. Our wood pellet business includes facilities acquired in the NEWP Acquisition and the Atikokan and Wawa Projects. Fulghum operates 32
wood chipping mills. It provides wood fibre processing and wood yard operations services and sells wood chips to the pulp, paper and packaging industry. Fulghum also owns and manages forestland and sells bark to industrial consumers in South
America. NEWP is one of the largest producers of wood pellets for the United States residential and commercial heating markets. NEWP operates three wood pellet facilities with a combined annual production capacity of 240,000 tons. The facilities are
located in Jaffrey, New Hampshire; Deposit, New York and Schuyler, New York.
We own the general partner interest and 59.8% of the common
units representing limited partner interests in RNP, a publicly traded master limited partnership. Through its wholly owned subsidiary, RNLLC, RNP manufactures natural-gas based nitrogen fertilizer products at its East Dubuque Facility. It also
sells such products to customers located in the Mid Corn Belt region of the United States. Through its wholly owned subsidiary, RNPLLC, RNP manufactures ammonium sulfate fertilizer, sulfuric acid and ammonium thiosulfate fertilizer at its Pasadena
Facility. The Pasadena Facility purchases ammonia as a feedstock at contractual prices based on the monthly Tampa Index market, while the East Dubuque Facility sells ammonia at prevailing prices in the Mid Corn Belt region. Mid Corn Belt prices are
typically significantly higher than Tampa ammonia prices.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Managements Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial
statements, which have been prepared in accordance with GAAP. Preparing our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related
disclosure of contingent assets and liabilities. The most significant estimates and judgments relate to revenue recognition, inventories, valuation of long-lived assets and intangible assets, recoverability of goodwill, accounting for major
maintenance and the acquisition method of accounting. Actual amounts could differ significantly from these estimates. No material change has occurred to our critical accounting policies and estimates from the information provided in the Annual
Report.
FACTORS AFFECTING COMPARABILITY OF FINANCIAL INFORMATION
Our historical results of operations for the periods presented may not be comparable with our results of operations for the subsequent periods
for the reasons discussed below.
Acquired Operations
Fulghums operations are included in our historical operating results from the closing date of the Fulghum Acquisition, which was
May 1, 2013. Fulghum provides wood fibre processing and wood yard operations services, and sells wood chips to the pulp, paper and packaging industry. It also owns and manages forestland and sells bark to industrial consumers in South America.
The operations of NEWP are included in our historical operating results from the closing date of the NEWP Acquisition, which was May 1, 2014. NEWP is one of the largest producers of wood pellets for the United States residential and commercial
heating markets. For periods after the closing of each acquisition: (i) our general and administrative expenses as well as sales-related expenses have increased due to the addition of the acquired operations; (ii) our depreciation and
amortization expenses have increased due to the increase in tangible and definite lived intangible assets, which were recorded at fair value on the date of the acquisition; and (iii) our interest expense has increased due to the debt assumed
with the acquisition that continues to be outstanding. Due to these factors, our operating results for the periods prior to and after the closing dates of the Fulghum Acquisition and NEWP Acquisition may not be comparable.
Expansion Projects and Other Significant Capital Projects
We have commenced and are evaluating additional potential projects to expand our production capabilities and product offerings. We expect to
incur significant costs and expenses developing and building such projects. Our depreciation expense has increased and we expect our depreciation expense to further increase as we place additional assets into service. Consequently, our operating
results may not be comparable for periods before, during and after the construction of any expansion project or other significant capital project.
28
Acquisitions
One of our business strategies is to pursue acquisitions in related businesses. We are pursuing acquisitions related to our wood fibre
processing business. We may also pursue acquisitions of assets and businesses that generate qualifying income for RNP. If completed, acquisitions could have significant effects on our business, financial condition and results of operations. We
cannot assure you that we will enter into any definitive agreements on satisfactory terms, or at all, with respect to any acquisitions. Costs associated with potential acquisitions are expensed as incurred, and could be significant.
Seasonality
Our East Dubuque Facility
Our sales are seasonal. Consequently, operating results for the interim periods are not necessarily indicative of results to be expected for
the year. Our and our customers businesses are seasonal, based on planting, growing and harvesting cycles. The following table shows product tonnage (in thousands) shipped by our East Dubuque Facility by quarter for the six months ended
June 30, 2014 and for each comparable quarter in the years ended December 31, 2013, 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
Quarter ended March 31 |
|
|
92 |
|
|
|
110 |
|
|
|
92 |
|
|
|
89 |
|
Quarter ended June 30 |
|
|
193 |
|
|
|
144 |
|
|
|
160 |
|
|
|
213 |
|
Quarter ended September 30 |
|
|
n/a |
|
|
|
176 |
|
|
|
180 |
|
|
|
125 |
|
Quarter ended December 31 |
|
|
n/a |
|
|
|
70 |
|
|
|
133 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tons Shipped |
|
|
285 |
|
|
|
500 |
|
|
|
565 |
|
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We typically ship the highest volume of tons from our East Dubuque Facility during the spring planting season,
which occurs during the quarter ending June 30 of each year. The next highest volume of tons shipped is typically after the fall harvest during the quarter ending December 31 of each year. 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 weather. These seasonal increases and decreases in demand also can cause fluctuations in sales prices. In winter seasons
with warmer weather, early planting may shift significant ammonia sales into the quarter ending March 31. Wet or cold weather during the normal spring application season can delay deliveries that would normally occur in the spring. Weather
conditions can also affect the mix of demand for our products at various times in the year. Certain weather and soil conditions favor the application of ammonia, while other conditions favor the application of UAN solution.
As a result of the seasonality of shipments and sales, we experience significant fluctuations in our East Dubuque Facilitys revenues,
income, net working capital levels and cash available for distribution from quarter to quarter. Weather conditions can significantly impact quarterly results by affecting the timing and amount of product deliveries. Our receivables and deferred
revenues are seasonal and relatively unpredictable. Significant amounts of our East Dubuque Facilitys products are typically sold for later shipment under product prepayment contracts. The timing of these sales and the amount of down payment
as a percentage of the total contract price may vary with market conditions. The variation in the timing of these sales and contract terms may add to the seasonality of our cash flows and working capital.
Our Pasadena Facility
We have
observed significant seasonality and effects of weather on the demand for and timing of deliveries for our Pasadena Facilitys domestic products. Domestic prices for ammonium sulfate and ammonium thiosulfate normally reach their highest point
in the spring, decrease in the summer, and increase again in the fall. We adjust the sales prices of these products seasonally in order to facilitate distribution of the products throughout the year. International sales to Brazil and New Zealand may
partially offset this domestic seasonal pattern. We operate the ammonium sulfate plant at our Pasadena Facility throughout the year to the extent that there is available storage capacity for this product. We have 60,000 tons of storage capacity
for ammonium sulfate at the facility. We also have an arrangement with IOC that permits us to store 59,500 tons of ammonium sulfate at IOC-controlled terminals, which are located near end customers. We manage the storage capacity by
distributing the product through IOC to customers in both domestic and offshore markets throughout the year. If storage capacity were to be insufficient, we would be forced to cease or reduce production of the product until such capacity became
available. Our Pasadena Facilitys fertilizer products are sold on the spot market for immediate delivery and, to a much lesser extent, under product prepayment contracts for future delivery at fixed prices. The following table shows product
tonnage (in thousands) shipped by our Pasadena Facility by quarter for the six months ended June 30, 2014 and for each quarter in the year ended December 31, 2013.
29
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
Quarter ended March 31 |
|
|
155 |
|
|
|
110 |
|
Quarter ended June 30 |
|
|
215 |
|
|
|
178 |
|
Quarter ended September 30 |
|
|
n/a |
|
|
|
202 |
|
Quarter ended December 31 |
|
|
n/a |
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
Total Tons Shipped |
|
|
370 |
|
|
|
630 |
|
|
|
|
|
|
|
|
|
|
Our Wood Fibre Processing Business
Our Wood Chipping Business Fulghum Fibres
Our wood chipping mills typically operate continuously throughout the year; however, there may be quarter-to-quarter fluctuations in processing
revenue at individual mills. These fluctuations are usually due to variations in customer-controlled deliveries of logs, production levels at customers mills and/or weather-related events. The variation in revenue of our United States mills is
typically mitigated by provisions for minimum volume requirements and shortfall fees in our contracts with customers. Under our processing agreements, the customer generally has the opportunity to compensate for any shortfall below minimum
requirements with additional volumes in subsequent months before it is required to pay a shortfall fee. In advance of periods when heavy rain is expected to prevent deliveries or make deliveries of logs to the mills difficult, we frequently
coordinate delivery schedules with our customers to enable more continuous processing during the rainy season. Based on the expected supply requirements of our customers, the terms of our processing agreements and our focus on maintaining proper log
inventories, we do not expect to experience material seasonality in Fulghums United States or Uruguayan operations. Two of our mills in Chile, however, typically cease wood chip processing operations for one to two months during their winter
season due to the customers inability to harvest and deliver logs to our facilities. A significant portion of the revenue in Fulghums South American operations is derived from the sale of wood chips, primarily for export from Chile. This
portion of revenue, and the associated profits, may be more variable than the revenue and profits derived from processing fees pursuant to long-term contracts.
Our Wood Pellet Business Industrial
We have entered into long-term off-take contracts with Drax and OPG, which are utility companies that operate throughout the year. Once we
complete the Atikokan and Wawa Projects, we intend to produce wood pellets from these facilities throughout the year to meet these demands. Ground conditions during the wet season referred to as Spring break-up or snow melt,
may prevent or curtail the harvesting of wood. To mitigate this potential interruption of wood supply, we expect that our wood pellet mills will build sufficient wood inventory on site through the autumn and winter months. The inventory build-up may
increase our working capital requirements. The Port of Quebec typically remains ice-free during the winter months, which we expect will reduce the risk of interruptions in shipments to Drax.
Our Wood Pellet Business NEWP
All of our NEWP facilities and customers are located in the Northeastern United States. Since our wood pellets are used for heating, our sales
are seasonal. For the last three years, over 60% of our annual sales have taken place during the months of September through February. As a result of the seasonality of shipments and sales, we experience significant fluctuations in our revenues,
income and net working capital levels from quarter to quarter. Weather conditions can significantly impact quarterly results by affecting the timing and amount of product deliveries. To accommodate our seasonal sales, we build up our inventory
during the months of March through August of each year. The inventory build-up typically increases our working capital requirements.
Business Segments
We operate in five business segments, which are East Dubuque, Pasadena, Fulghum Fibres, Wood Pellets: Industrial and Wood Pellets:
NEWP. See Note 15 Segment Information in Part IItem 1. Financial Statements in this report for more information on the description of the segments. Fulghums and NEWPs operations are
included in our historical operating results from the closing date of the Fulghum Acquisition, which was May 1, 2013, and the NEWP Acquisition, which was May 1, 2014.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
73,943 |
|
|
$ |
61,717 |
|
|
$ |
102,434 |
|
|
$ |
96,266 |
|
Pasadena |
|
|
39,666 |
|
|
|
42,239 |
|
|
|
67,455 |
|
|
|
67,254 |
|
Fulghum Fibres |
|
|
19,836 |
|
|
|
16,105 |
|
|
|
48,387 |
|
|
|
16,105 |
|
Wood Pellets: Industrial |
|
|
667 |
|
|
|
|
|
|
|
667 |
|
|
|
|
|
Wood Pellets: NEWP |
|
|
5,778 |
|
|
|
|
|
|
|
5,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
139,890 |
|
|
$ |
120,061 |
|
|
$ |
224,721 |
|
|
$ |
179,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
32,952 |
|
|
$ |
37,493 |
|
|
$ |
45,350 |
|
|
$ |
56,239 |
|
Pasadena |
|
|
(4,733 |
) |
|
|
2,355 |
|
|
|
(3,367 |
) |
|
|
6,328 |
|
Fulghum Fibres |
|
|
2,019 |
|
|
|
2,425 |
|
|
|
6,150 |
|
|
|
2,425 |
|
Wood Pellets: Industrial |
|
|
114 |
|
|
|
|
|
|
|
114 |
|
|
|
|
|
Wood Pellets: NEWP |
|
|
1,087 |
|
|
|
|
|
|
|
1,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
31,439 |
|
|
$ |
42,273 |
|
|
$ |
49,334 |
|
|
$ |
64,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
1,088 |
|
|
$ |
1,097 |
|
|
$ |
2,221 |
|
|
$ |
2,442 |
|
Pasadena |
|
|
1,247 |
|
|
|
1,342 |
|
|
|
3,076 |
|
|
|
2,584 |
|
Fulghum Fibres |
|
|
1,651 |
|
|
|
859 |
|
|
|
3,052 |
|
|
|
859 |
|
Wood Pellets: Industrial |
|
|
3,340 |
|
|
|
812 |
|
|
|
5,408 |
|
|
|
1,883 |
|
Wood Pellets: NEWP |
|
|
391 |
|
|
|
|
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment selling, general and administrative expenses |
|
$ |
7,717 |
|
|
$ |
4,110 |
|
|
$ |
14,148 |
|
|
$ |
7,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
38 |
|
|
$ |
33 |
|
|
$ |
75 |
|
|
$ |
106 |
|
Pasadena |
|
|
337 |
|
|
|
875 |
|
|
|
633 |
|
|
|
1,750 |
|
Fulghum Fibres |
|
|
950 |
|
|
|
718 |
|
|
|
141 |
|
|
|
718 |
|
Wood Pellets: Industrial |
|
|
35 |
|
|
|
|
|
|
|
54 |
|
|
|
|
|
Wood Pellets: NEWP(1) |
|
|
(98 |
) |
|
|
|
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment depreciation and amortization recorded in operating expenses |
|
$ |
1,262 |
|
|
$ |
1,626 |
|
|
$ |
805 |
|
|
$ |
2,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
|
5,117 |
|
|
|
2,450 |
|
|
|
7,322 |
|
|
|
4,682 |
|
Pasadena |
|
|
2,137 |
|
|
|
1,030 |
|
|
|
2,903 |
|
|
|
1,457 |
|
Fulghum Fibres |
|
|
1,782 |
|
|
|
1,557 |
|
|
|
3,576 |
|
|
|
1,557 |
|
Wood Pellets: NEWP |
|
|
278 |
|
|
|
|
|
|
|
278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense recorded in cost of sales |
|
|
9,314 |
|
|
|
5,037 |
|
|
|
14,079 |
|
|
|
7,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
10,576 |
|
|
$ |
6,663 |
|
|
$ |
14,884 |
|
|
$ |
10,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
31,578 |
|
|
$ |
36,044 |
|
|
$ |
42,787 |
|
|
$ |
53,314 |
|
Pasadena |
|
|
(33,546 |
) |
|
|
34 |
|
|
|
(34,332 |
) |
|
|
1,850 |
|
Fulghum Fibres |
|
|
(989 |
) |
|
|
128 |
|
|
|
665 |
|
|
|
128 |
|
Wood Pellets: Industrial |
|
|
(3,163 |
) |
|
|
(812 |
) |
|
|
(4,807 |
) |
|
|
(1,883 |
) |
Wood Pellets: NEWP |
|
|
742 |
|
|
|
|
|
|
|
742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net income (loss) |
|
$ |
(5,378 |
) |
|
$ |
35,394 |
|
|
$ |
5,055 |
|
|
$ |
53,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment net income (loss) to consolidated net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net income (loss) |
|
$ |
(5,378 |
) |
|
$ |
35,394 |
|
|
$ |
5,055 |
|
|
$ |
53,409 |
|
RNP partnership and unallocated expenses recorded as selling, general and administrative expenses |
|
|
(2,169 |
) |
|
|
(2,462 |
) |
|
|
(4,485 |
) |
|
|
(4,616 |
) |
RNP partnership and unallocated expenses recorded as other expense |
|
|
|
|
|
|
(1,178 |
) |
|
|
|
|
|
|
(1,390 |
) |
RNP unallocated interest expense and loss on interest rate swaps |
|
|
(4,787 |
) |
|
|
(4,019 |
) |
|
|
(9,769 |
) |
|
|
(5,730 |
) |
RNP Income tax benefit |
|
|
|
|
|
|
302 |
|
|
|
|
|
|
|
302 |
|
Corporate and unallocated expenses recorded as selling, general and administrative expenses |
|
|
(7,756 |
) |
|
|
(6,252 |
) |
|
|
(14,581 |
) |
|
|
(13,022 |
) |
Corporate and unallocated depreciation and amortization expense |
|
|
(132 |
) |
|
|
(139 |
) |
|
|
(265 |
) |
|
|
(323 |
) |
Corporate and unallocated expenses recorded as other expense |
|
|
(1,191 |
) |
|
|
(9 |
) |
|
|
(1,183 |
) |
|
|
(26 |
) |
Corporate and unallocated interest expense |
|
|
(20 |
) |
|
|
|
|
|
|
(324 |
) |
|
|
|
|
Corporate income tax benefit (expense) |
|
|
(33 |
) |
|
|
24,165 |
|
|
|
(37 |
) |
|
|
24,877 |
|
Loss from discontinued operations, net of tax |
|
|
(1,567 |
) |
|
|
(1,496 |
) |
|
|
(3,038 |
) |
|
|
(8,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) |
|
$ |
(23,033 |
) |
|
$ |
44,306 |
|
|
$ |
(28,627 |
) |
|
$ |
45,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Amortization of customer relationships resulted in a credit in the current reporting period. |
Corporate and unallocated expenses recorded as other expense for the three and six months ended June 30, 2014 consist primarily of loss on
debt extinguishment of $0.9 million caused by the payoff of the RNHI Revolving Loan, and loss on fair value adjustment to earn-out consideration of $0.3 million primarily related to NEWP. In 2013, we released a valuation allowance of $26.3 million
resulting from recording of deferred tax liabilities related to the Fulghum Acquisition.
31
THREE AND SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2013:
Continuing Operations
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
73,943 |
|
|
$ |
61,717 |
|
|
$ |
102,434 |
|
|
$ |
96,266 |
|
Pasadena |
|
|
39,666 |
|
|
|
42,239 |
|
|
|
67,455 |
|
|
|
67,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RNP |
|
|
113,609 |
|
|
|
103,956 |
|
|
|
169,889 |
|
|
|
163,520 |
|
Fulghum Fibres |
|
|
19,836 |
|
|
|
16,105 |
|
|
|
48,387 |
|
|
|
16,105 |
|
Wood Pellets: Industrial |
|
|
667 |
|
|
|
|
|
|
|
667 |
|
|
|
|
|
Wood Pellets: NEWP |
|
|
5,778 |
|
|
|
|
|
|
|
5,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
139,890 |
|
|
$ |
120,061 |
|
|
$ |
224,721 |
|
|
$ |
179,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2014 |
|
|
For the Three Months Ended June 30, 2013 |
|
|
|
Tons |
|
|
Revenue |
|
|
Tons |
|
|
Revenue |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia |
|
|
72 |
|
|
$ |
39,705 |
|
|
|
41 |
|
|
$ |
30,444 |
|
UAN |
|
|
82 |
|
|
|
25,329 |
|
|
|
59 |
|
|
|
21,119 |
|
Urea (liquid and granular) |
|
|
14 |
|
|
|
6,989 |
|
|
|
15 |
|
|
|
7,538 |
|
Carbon dioxide (CO2) |
|
|
22 |
|
|
|
742 |
|
|
|
24 |
|
|
|
838 |
|
Nitric acid |
|
|
3 |
|
|
|
1,060 |
|
|
|
5 |
|
|
|
1,787 |
|
Other |
|
|
N/A |
|
|
|
118 |
|
|
|
N/A |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total East Dubuque |
|
|
193 |
|
|
$ |
73,943 |
|
|
|
144 |
|
|
$ |
61,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2014 |
|
|
For the Six Months Ended June 30, 2013 |
|
|
|
Tons |
|
|
Revenue |
|
|
Tons |
|
|
Revenue |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia |
|
|
79 |
|
|
$ |
43,240 |
|
|
|
52 |
|
|
$ |
38,490 |
|
UAN |
|
|
131 |
|
|
|
38,353 |
|
|
|
120 |
|
|
|
39,513 |
|
Urea (liquid and granular) |
|
|
27 |
|
|
|
12,729 |
|
|
|
26 |
|
|
|
13,436 |
|
Carbon dioxide (CO2) |
|
|
42 |
|
|
|
1,435 |
|
|
|
47 |
|
|
|
1,624 |
|
Nitric acid |
|
|
6 |
|
|
|
2,041 |
|
|
|
9 |
|
|
|
3,130 |
|
Other |
|
|
N/A |
|
|
|
4,636 |
|
|
|
N/A |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total East Dubuque |
|
|
285 |
|
|
$ |
102,434 |
|
|
|
254 |
|
|
$ |
96,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
We generate revenue from sales of nitrogen fertilizer products manufactured at our East Dubuque
Facility. Our East Dubuque Facility produces ammonia, UAN, liquid and granular urea, which are nitrogen fertilizers, as well as nitric acid and CO2 , using natural gas as a feedstock. These
nitrogen fertilizer products are used primarily in the production of corn. Revenues are seasonal based on the planting, growing, and harvesting cycles of customers who use nitrogen fertilizer.
Revenues for the three months ended June 30, 2014 were $73.9 million, compared to $61.7 million for the same period last year. The
increase was the result of higher ammonia and UAN deliveries, partially offset by lower sales prices for ammonia and UAN. Revenues for the six months ended June 30, 2014 were $102.4 million, compared to $96.3 million for the same period last
year. The increase was the result of higher ammonia and UAN deliveries, and natural gas sales, partially offset by lower sales prices for ammonia and UAN.
Weather and soil conditions in the upper Mid Corn Belt were optimal for applying ammonia, making it the preferred nitrogen product of farmers
in the region. UAN sales volumes also benefited from the favorable weather in the region.
Average sales prices per ton for the three
months ended June 30, 2014 were 26% lower for ammonia and 14% lower for UAN, as compared with the same period last year. These two products comprised 88% of the total revenues for the three months ended June 30, 2014 and 84% of total
revenues for the same period last year. Average sales prices per ton for the six months ended June 30, 2014 were 26% lower for ammonia and 11% lower for UAN, as compared with the same period last year. These two products comprised 80% of the
total revenues for the six months ended June 30, 2014 and 81% of total revenues for the same period last year. The decreases in our sales prices for ammonia and UAN were consistent with the decline in global nitrogen fertilizer prices between
the two periods. These decreases were caused by significantly higher levels of low-priced urea in the global market, particularly from China. Prices were also affected by additional nitrogen fertilizer production brought on line in North America
over the last 12 months.
Other revenues consist primarily of natural gas sales. We occasionally sell natural gas when purchase
commitments exceed production requirements and/or storage capacities, or when the margin from selling natural gas exceeds the margin from producing additional ammonia. On rare occasions, we have also purchased natural gas with the specific intent of
immediately reselling it when local market anomalies create low-risk opportunities for gain. During the first quarter of 2014, temporary operational problems with a natural gas pipeline in the Midwest caused a significant spike in the local price of
natural gas. This created a unique opportunity to purchase natural gas from other locations at lower prices for the purpose of reselling it at significantly higher prices. We also sold natural gas originally purchased for production at a gross
profit that exceeded the expected gross profits from additional production using that natural gas. During the first quarter of 2014, we sold, at an average price of $29.90 per MMBtu, 151,000 MMBtus of natural gas that cost an average of $9.42 per
MMBtu. Almost half of the natural gas sold had been intended for production. The total $4.5 million in natural gas sales resulted in a gross profit of $3.1 million, which was significantly higher than the profit we would likely have realized on the
2,900 tons of lost ammonia production.
Pasadena
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2014 |
|
|
For the Three Months Ended June 30, 2013 |
|
|
|
Tons |
|
|
Revenue |
|
|
Tons |
|
|
Revenue |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonium sulfate |
|
|
174 |
|
|
$ |
35,074 |
|
|
|
114 |
|
|
$ |
32,959 |
|
Sulfuric acid |
|
|
20 |
|
|
|
1,902 |
|
|
|
39 |
|
|
|
3,828 |
|
Ammonium thiosulfate |
|
|
21 |
|
|
|
2,232 |
|
|
|
25 |
|
|
|
4,667 |
|
Other |
|
|
N/A |
|
|
|
458 |
|
|
|
N/A |
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pasadena |
|
|
215 |
|
|
$ |
39,666 |
|
|
|
178 |
|
|
$ |
42,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2014 |
|
|
For the Six Months Ended June 30, 2013 |
|
|
|
Tons |
|
|
Revenue |
|
|
Tons |
|
|
Revenue |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonium sulfate |
|
|
286 |
|
|
$ |
56,468 |
|
|
|
168 |
|
|
$ |
50,175 |
|
Sulfuric acid |
|
|
41 |
|
|
|
3,673 |
|
|
|
80 |
|
|
|
7,893 |
|
Ammonium thiosulfate |
|
|
43 |
|
|
|
6,332 |
|
|
|
40 |
|
|
|
7,561 |
|
Other |
|
|
N/A |
|
|
|
982 |
|
|
|
N/A |
|
|
|
1,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pasadena |
|
|
370 |
|
|
$ |
67,455 |
|
|
|
288 |
|
|
$ |
67,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We generate revenue from sales of nitrogen fertilizer and other products manufactured at our Pasadena
Facility. The facility produces ammonium sulfate and ammonium thiosulfate, which are nitrogen fertilizers, as well as sulfuric acid. These fertilizer products are used in growing corn, soybeans, potatoes, cotton, canola, alfalfa and wheat.
Revenues for the three months ended June 30, 2014 were $39.7 million, compared to $42.2 million for the same period last year. A
reduction in sales prices for all products was partially offset by an increase in ammonium sulfate sales volumes. Revenues for the six months ended June 30, 2014 were $67.5 million, compared to $67.3 million for the same period last year. An
increase in ammonium sulfate sales volumes was almost completely offset by lower sales prices for all products and lower sales volumes for sulfuric acid and ammonium thiosulfate.
Production of ammonium sulfate increased after the completion of the debottlenecking project in December 2013, and sales increased due to
favorable weather during the planting season, and an increase in international sales. Production of ammonium sulfate increased by 16% for the three and six months ended June 30, 2014 as compared to the same periods last year. We produce
ammonium sulfate by combining ammonia and sulfuric acid. After expanding ammonium sulfate production capacity, less sulfuric acid was available for sale. This was the reason for the decline in sulfuric acid sales volume during the three and six
months ended June 30, 2014 as compared to the same period last year. During 2014, international sales were more than double the amount of international sales for the comparable period last year.
Average sales prices per ton dropped by 30% for ammonium sulfate and by 3% for sulfuric acid for the three months ended June 30, 2014, as
compared with the same period last year. These two products comprised 93% of our Pasadena Facilitys revenues for the three months ended June 30, 2014 and 87% for the same period last year. Average sales prices per ton dropped by 34% for
ammonium sulfate and by 9% for sulfuric acid for the six months ended June 30, 2014 as compared with the same period last year. These two products comprised 89% of our Pasadena Facilitys revenues for the six months ended June 30,
2014 and 86% for the same period last year. A higher proportion of export sales, priced lower than domestic sales, contributed to the decline in average product price. A global decline in nitrogen fertilizer prices, along with higher exports of
ammonium sulfate from China, put downward pressure on ammonium sulfate prices. The additional supplies from China originate from new plants that produce ammonium sulfate as a by-product of caprolactam.
The scarcity of rail cars throughout North America during the first half of 2014 hampered ammonium sulfate deliveries during the period. We
leased rail cars directly to help alleviate the problem, but the inability to move product affected opportunities to pursue additional business. The lack of rail cars also caused storage capacity constraints at the plant that required a curtailment
of production for five days in April. Rail availability is now back to normal.
Fulghum Fibres
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
16,424 |
|
|
$ |
11,732 |
|
|
$ |
35,387 |
|
|
$ |
11,732 |
|
Product |
|
|
3,412 |
|
|
|
4,373 |
|
|
|
13,000 |
|
|
|
4,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues Fulghum |
|
$ |
19,836 |
|
|
$ |
16,105 |
|
|
$ |
48,387 |
|
|
$ |
16,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
We generate revenues at Fulghum Fibres from providing wood fibre processing and wood yard
operation services, and selling wood chips to the pulp, paper and packaging industry. Fulghum also owns and manages forestland and sells bark to industrial consumers in South America.
Revenues were $19.8 million for the three months ended June 30, 2014 compared to $16.1 million for the same period last year. The
increase was due to our ownership of Fulghum for the full three months ended June 30, 2014 as compared to two months last year. For the three months ended June 30, 2014, $14.6 million of revenues were generated from operations in the
United States, while $5.2 million of revenues were from South America. For the same period last year, $9.8 million of revenues were generated from United States operations; $6.3 million of revenues were from South America. Service revenues are those
earned under the agreements for wood fibre processing services and wood yard operations. Product revenues are those earned by our Chilean operations from the sale of wood chips and bark. During the three months ended June 30, 2014, our mills in
the United States processed 3.1 million green metric tons, or GMT, of logs into wood chips and residual fuels; our mills in South America processed 0.5 million GMT of logs into wood chips and residual fuels. Several of Fulghums
customers experienced outages at their product mills causing lower than expected processing volumes for Fulghum for the period. During the customers downtime, Fulghum conducted deferred maintenance at several of its facilities, which is
expected to lead to improved operating performance in the future. Completing this deferred maintenance, however, increased operating costs during the quarter.
Revenues were $48.4 million for the six months ended June 30, 2014 compared to $16.1 million for the same period last year. The increase
was due to our ownership of Fulghum for the full six months ended June 30, 2014 as compared to two months last year. For the six months ended June 30, 2014, $28.8 million of revenues were generated from operations in the United States,
while $19.6 million of revenues were from South America. For the same period last year, $9.8 million of revenues were generated from operations in United States; $6.3 million of revenues were from South America. During the six months ended
June 30, 2014, our mills in the United States processed 6.1 million GMT of logs into wood chips and residual fuels; our mills in South America processed 1.3 million GMT of logs.
Wood Pellets: Industrial
We
generate revenues from sales of wood pellets to industrial customers, specifically utilities generating electricity. The first revenues for this segment, $0.7 million, were recognized during the second quarter of 2014. During the three and six
months ended June 30, 2014, the Atikokan Project acquired and delivered to OPG 3,300 metric tons of wood pellets sourced from KD Quality Pellets.
Wood Pellets: NEWP
We generate
revenues at NEWP from sales of wood pellets for the United States heating market. Revenues were $5.8 million from May 1, 2014 through June 30, 2014 on deliveries of 28,000 tons of wood pellets. Cold weather extended into the spring, causing
deliveries of, and prices for, our wood pellets to be higher in some markets. These factors yielded higher revenues than are typical for this time of year.
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Cost of sales: |
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
40,991 |
|
|
$ |
24,224 |
|
|
$ |
57,084 |
|
|
$ |
40,027 |
|
Pasadena |
|
|
44,399 |
|
|
|
39,884 |
|
|
|
70,822 |
|
|
|
60,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RNP |
|
$ |
85,390 |
|
|
$ |
64,108 |
|
|
$ |
127,906 |
|
|
$ |
100,953 |
|
Fulghum Fibres |
|
|
17,817 |
|
|
|
13,680 |
|
|
|
42,237 |
|
|
|
13,680 |
|
Wood Pellets: Industrial |
|
|
553 |
|
|
|
|
|
|
|
553 |
|
|
|
|
|
Wood Pellets: NEWP |
|
|
4,691 |
|
|
|
|
|
|
|
4,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales |
|
$ |
108,451 |
|
|
$ |
77,788 |
|
|
$ |
175,387 |
|
|
$ |
114,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
Cost of sales primarily consists of expenses for purchasing natural gas, as well as for labor and depreciation. Cost of sales for the three
months ended June 30, 2014 was $41.0 million, compared to $24.2 million for the same period last year. The increase in the cost of sales was primarily due to an increase in costs of natural gas, labor, depreciation, and electricity. Increased
natural gas costs were due to an overall market increase in the cost of natural gas and an increase in the amount of product sold. Increased labor costs were due to an increase in the amount of product sold. Natural gas comprised 51% and labor costs
comprised 14% of cost of sales on product shipments for the three months ended June 30, 2014. For the same period last year, natural gas was 47% and labor was 14% of cost of sales. Depreciation expense included in cost of sales was $5.1 million
for the three months ended June 30, 2014 and $2.5 million for the same period last year. The increase in depreciation expense is primarily due to the completion of the ammonia expansion project in 2013 and the increase in product sold in 2014
compared to 2013. Increased electricity costs were the result of an increase in electricity usage and rates, and in the amount of product sold. The electricity usage increased due to the new ammonia syngas compressor installed as part of the ammonia
expansion project.
35
Cost of sales for the six months ended June 30, 2014 was $57.1 million, compared to $40.0
million for the same period last year. The increase in the cost of sales was primarily due to an increase in costs of natural gas, labor, depreciation, and electricity. Increased natural gas costs were due to an overall market increase in the cost
of natural gas, an increase in the amount of product sold and additional natural gas purchased for resale. The cost of natural gas sold was $1.4 million higher in 2014 than in 2013. Increased labor costs were due to an increase in the amount of
product sold. Natural gas comprised 51% and labor costs comprised 15% of cost of sales on product shipments for the six months ended June 30, 2014. For the same period last year, natural gas was 45% and labor was 14% of cost of sales.
Depreciation expense included in cost of sales was $7.3 million for the six months ended June 30, 2014 and $4.7 million for the same period last year. The increase in depreciation expense is primarily due to the completion of the ammonia
expansion project in 2013 and the increase in product sold in 2014 compared to 2013. Increased electricity costs were the result of an increase in electricity usage and rates, and in the amount of product sold. The electricity usage increased due to
the new ammonia syngas compressor installed as part of the ammonia expansion project.
Pasadena
Cost of sales primarily consists of expenses for purchasing ammonia and sulfur, as well as for labor and depreciation. Cost of sales for the
three months ended June 30, 2014 was $44.4 million, compared to $39.9 million for the same period last year. The increase in cost of sales was primarily the result of selling a higher volume of ammonium sulfate. Ammonia and sulfur together
comprised 55% of cost of sales for the three months ended June 30, 2014 and 68% for the same period last year. Labor costs comprised 9% of cost of sales for the three months ended June 30, 2014 and 5% for the same period last year. For the
three months ended June 30, 2014, we wrote down our ammonium sulfate inventory by $2.8 million, because production costs exceeded market prices. During the same period last year, we wrote down our ammonium sulfate inventory by $1.8 million.
Current prices for ammonia and sulfur, key inputs for ammonium sulfate, have increased significantly. Global ammonia supplies are tight, supported by production issues in Egypt, Algeria, Trinidad and Qatar, as well as political issues in Libya and
Ukraine.
Depreciation expense included in cost of sales was $2.1 million for the three months ended June 30, 2014 and $1.0 million
for the same period last year. Increased depreciation expense had two main causes: the completion of the debottlenecking project in 2013, and the increase in product sold in 2014 compared to 2013.
Cost of sales for the six months ended June 30, 2014 was $70.8 million, compared to $60.9 million for the same period last year. The
increase in cost of sales was primarily the result of selling a higher volume of ammonium sulfate. Ammonia and sulfur together comprised 61% of cost of sales for the six months ended June 30, 2014 and 71% for the same period last year. Labor
costs comprised 8% of cost of sales for the six months ended June 30, 2014 and 5% for the same period last year. For the six months ended June 30, 2014, we wrote down our ammonium sulfate inventory by $2.8 million, because production costs
exceeded market prices. During the same period last year, we wrote down our ammonium sulfate, sulfur and sulfuric acid inventory by $2.3 million due to lower market prices of ammonium sulfate and sulfuric acid.
Depreciation expense included in cost of sales was $2.9 million for the six months ended June 30, 2014 and $1.5 million for the same
period last year. Increased depreciation expense had two main causes: the completion of the debottlenecking project in 2013, and the increase in product sold in 2014 compared to 2013.
Fulghum Fibres
Costs for our wood
chipping mill operations include (i) service costs, which primarily consist of costs for labor, repairs and maintenance, depreciation and utilities, and (ii) product costs relating to our operations in South America, which consist of costs
to purchase, process and export forestry products. Cost of sales for the three months ended June 30, 2014 was $17.8 million, compared to $13.7 million for the same period last year. The increase in cost of sales was primarily due to our owning
Fulghum for the full three months ended June 30, 2014 as compared to two months last year. For the three months ended June 30, 2014, service costs represented 79% of our cost of sales, while product costs represented 21%. For the same
period last year, service costs represented 70% and product costs represented 30%. Labor costs comprised 30% of the cost of sales for the three months ended June 30, 2014 and 24% for the same period last year. Repairs and maintenance and
utilities comprised 31% of cost of sales for the three-month period ended June 30, 2014 and 29% for the same period last year. Depreciation expense included in cost of sales was $1.8 million during the three-month period ended June 30,
2014 and $1.6 million for the same period last year.
Cost of sales for the six months ended June 30, 2014 was $42.2 million,
compared to $13.7 million for the same period last year. The increase in cost of sales was primarily due to our owning Fulghum for the full six months ended June 30, 2014 as compared to two months last year. For the six months ended
June 30, 2014, service costs represented 69% of our cost of sales, while product costs represented 31%. Labor costs comprised 25% of the cost of sales for the six months ended June 30, 2014 and 24% for the same period last year. Repairs
and maintenance and utilities comprised 30% of cost of sales for each of the six-month periods ended June 30, 2014 and 2013. Depreciation expense included in cost of sales was $3.6 million during the six month ended June 30, 2014 and $1.6
million for the same period last year.
36
A fire at our mill in Maine during the first quarter disrupted operations, causing lower
processing volumes and higher than typical processing costs at the facility during the six months ended June 30, 2014. Recoveries from our insurance policies offset a significant portion of these additional operating costs.
Wood Pellets: Industrial
We have
not yet begun producing wood pellets at either the Atikokan or Wawa Projects. As a result, cost of sales primarily consists of purchasing and transporting wood pellets. Wood pellet purchases in cost of sales were $0.5 million during the three and
six months ended June 30, 2014.
Wood Pellets: NEWP
Cost of sales primarily consists of expenses for the procurement of wood fibre, packaging, labor, electricity, and depreciation. Cost of sales
during the period was $4.7 million. Wood fibre comprised 48% of cost of sales, while packaging accounted for 12%, labor 7%, and electricity and freight 6% each. Depreciation expense included in the cost of sales was $0.3 million. Cost of sales also
included a $0.2 million write-up of inventory to fair value as part of the NEWP Acquisition.
Gross Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
32,952 |
|
|
$ |
37,493 |
|
|
$ |
45,350 |
|
|
$ |
56,239 |
|
Pasadena |
|
|
(4,733 |
) |
|
|
2,355 |
|
|
|
(3,367 |
) |
|
|
6,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RNP |
|
$ |
28,219 |
|
|
$ |
39,848 |
|
|
$ |
41,983 |
|
|
$ |
62,567 |
|
Fulghum Fibres |
|
|
2,019 |
|
|
|
2,425 |
|
|
|
6,150 |
|
|
|
2,425 |
|
Wood Pellets: Industrial |
|
|
114 |
|
|
|
|
|
|
|
114 |
|
|
|
|
|
Wood Pellets: NEWP |
|
|
1,087 |
|
|
|
|
|
|
|
1,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
31,439 |
|
|
$ |
42,273 |
|
|
$ |
49,334 |
|
|
$ |
64,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
Gross profit was $33.0 million for the three months ended June 30, 2014, compared to $37.5 million for the same period last year. Gross
profit margin for the three months ended June 30, 2014 was 45%, compared to 61% for the same period last year. Gross profit was $45.4 million for the six months ended June 30, 2014, compared to $56.2 million for the same period last year.
Gross profit margin for the six months ended June 30, 2014 was 44%, compared to 58% for the same period last year. The decrease in gross profit was due to increased natural gas, labor, depreciation and electricity costs that more than offset
increases in revenues. The decrease in gross profit margin was due to lower product prices in addition to increased natural gas costs.
Gross profit margin can vary significantly from period to period. Nitrogen fertilizer and natural gas are both commodities, which means that
their prices can vary significantly from period to period and do not always move in the same direction. In addition, certain fixed costs of operating our East Dubuque Facility are recorded in cost of sales. Their impact on gross profit and gross
margins varies as product sales volumes vary seasonally.
Pasadena
Gross loss was $4.7 million for the three months ended June 30, 2014, compared to gross profit of $2.4 million for the same period last
year. Gross loss margin for the three months ended June 30, 2014 was 12%, compared to gross profit margin of 6% for the same period last year. The decreases in gross profit and gross profit margin were primarily due to declines in average sales
prices for ammonium sulfate, increases in the cost of raw materials and a write-down of inventories.
Gross loss was $3.4 million for the
six months ended June 30, 2014, compared to gross profit of $6.3 million for the same period last year. Gross loss margin for the six months ended June 30, 2014 was 5%, compared to gross profit margin of 9% for the same period last year.
The decreases in gross profit and gross profit margin were primarily due to declines in average sales prices for ammonium sulfate, increases in the cost of raw materials and a write-down of inventories.
37
Similar to our gross profit margin at our East Dubuque Facility, gross profit margin can vary
significantly from period to period due to changes in the prices of nitrogen fertilizer, ammonia and sulfur, which are commodities. The prices of these commodities can vary significantly from period to period and do not always move in the same
direction. In addition, certain fixed costs of operating our Pasadena Facility are recorded in cost of sales. Their impact on gross profit and gross margins varies as product sales volumes vary seasonally. Moreover, forward sales contracts have not
developed for ammonium sulfate to the extent that they have for other nitrogen fertilizer products, so it is not possible to lock product prices and input prices at the same time, as has been our practice for a portion of the sales of the most
important products of our East Dubuque Facility. Since input prices for ammonium sulfate are typically fixed several months before the corresponding product price, margins may be compressed during a declining commodity market. See Note 10
Goodwill to the consolidated financial statements included in Part IItem 1. Financial Statements in this report.
Fulghum Fibres
Gross profit was
$2.0 million for the three months ended June 30, 2014 compared to $2.4 million for the same period last year. Gross profit margin for the three months ended June 30, 2014 was 10% compared to 15% for the same period last year. The decrease
in gross profit margin was primarily due to lower processing volumes and increased processing costs at various mills, including those associated with the fire at our mill in Maine.
Gross profit was $6.2 million for the six months ended June 30, 2014 compared to $2.4 million for the same period last year. Gross profit
margin for the six months ended June 30, 2014 was 13% compared to 15% for the same period last year. The decrease in gross profit margin was primarily due to lower processing volumes and increased processing costs at various mills, including
those associated with the fire at our mill in Maine.
Wood Pellets: Industrial
Gross profit for the three and six months ended was June 30, 2014 was $0.1 million. Gross profit margin was 17% for the three and six
months ended June 30, 2014.
Wood Pellets: NEWP
Gross profit for the three and six months ended was June 30, 2014 was $1.1 million. Gross profit margin was 19% for the three and six
months ended June 30, 2014.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
1,354 |
|
|
$ |
1,123 |
|
|
$ |
2,518 |
|
|
$ |
2,556 |
|
Pasadena |
|
|
28,786 |
|
|
|
2,217 |
|
|
|
30,911 |
|
|
|
4,334 |
|
RNP partnership and unallocated expenses |
|
|
2,169 |
|
|
|
2,462 |
|
|
|
4,485 |
|
|
|
4,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RNP |
|
|
32,309 |
|
|
|
5,802 |
|
|
|
37,914 |
|
|
|
11,506 |
|
Fulghum Fibres |
|
|
2,602 |
|
|
|
1,580 |
|
|
|
3,194 |
|
|
|
1,580 |
|
Wood Pellets: Industrial |
|
|
3,375 |
|
|
|
812 |
|
|
|
5,120 |
|
|
|
1,883 |
|
Wood Pellets: NEWP |
|
|
293 |
|
|
|
|
|
|
|
293 |
|
|
|
|
|
Corporate and unallocated expenses |
|
|
7,903 |
|
|
|
6,391 |
|
|
|
14,861 |
|
|
|
13,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
46,482 |
|
|
$ |
14,585 |
|
|
$ |
61,382 |
|
|
$ |
28,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
Operating expenses consist primarily of selling, general and administrative expenses, depreciation expense and asset disposal costs. Selling,
general and administrative expenses for each of the three-month periods ended June 30, 2014 and 2013 were $1.1 million. A portion of depreciation expense was associated with assets supporting general and administrative functions and was
recorded in operating expense. The majority of depreciation expense incurred was a manufacturing cost and was distributed between cost of sales and finished goods inventory, based on product volumes. Asset disposal costs were $0.2 million related to
the removal of a prill tower.
38
Selling, general and administrative expenses for the six-month period ended June 30, 2014
were $2.2 million, compared to $2.4 million for the same period last year. Depreciation expense included in operating expense was $0.1 million for each of the six months ended June 30, 2014 and 2013. Asset disposal costs were $0.2 million
related to the removal of a prill tower.
Pasadena
Operating expenses were comprised primarily of selling, general and administrative expenses, depreciation and amortization expense and Pasadena
goodwill impairment. Selling, general and administrative expenses for the three months ended June 30, 2014 were $1.2 million, compared to $1.3 million for the same period last year. The decrease was primarily due to a decrease in professional
fees of $0.2 million, partially offset by an increase in personnel cost of $0.1 million. Depreciation and amortization expense included in operating expense was $0.3 million for the three months ended June 30, 2014 compared to $0.9 million for
the same period last year. These amounts represent primarily amortization of intangible assets. The decrease was primarily due to an intangible asset having been fully amortized at December 31, 2013. The majority of depreciation expense incurred was
a manufacturing cost and was distributed between cost of sales and finished goods inventory, based on product volumes. Pasadena goodwill impairment was $27.2 million for the three months ended June 30, 2014. See Note 10
Goodwill to the consolidated financial statements included in Part IItem 1. Financial Statements in this report.
Selling, general and administrative expenses for the six months ended June 30, 2014 were $3.1 million, compared to $2.6 million for the
same period last year. The increase was primarily due to an increase in personnel costs of $0.6 million, including severance costs of $0.2 million, and software maintenance of $0.2 million, partially offset by lower professional fees of $0.3
million. Depreciation and amortization expense included in operating expense was $0.6 million for the six months ended June 30, 2014 compared to $1.8 million for the same period last year. These amounts represent primarily amortization of
intangible assets. The decrease was primarily due to an intangible asset having been fully amortized at December 31, 2013. Pasadena goodwill impairment was $27.2 million for the six months ended June 30, 2014.
RNP Partnership and Unallocated Expenses
Partnership and unallocated expenses represent costs that relate directly to RNP and its subsidiaries but are not allocated to a segment.
Partnership and unallocated expenses recorded in selling, general and administrative expenses consist primarily of business development expenses for RNP; unit-based compensation expense for executives of RNP; services from Rentech for executive,
legal, finance, accounting, human resources and investor relations support in accordance with the services agreement; audit and tax fees; legal fees; compensation for RNP partnership level personnel; certain insurance costs; and board expense. The
decrease of $0.3 million in partnership and unallocated expenses between the three months ended June 30, 2014 and the same period last year was primarily due to a decrease in development costs of $0.4 million and unit-based compensation of $0.1
million, partially offset by an increase of $0.1 million in each of personnel costs and accounting fees. Non-cash unitbased compensation expense was $0.4 million for the three months ended June 30, 2014 and $0.5 million for the same
period last year.
The decrease of $0.1 million in partnership and unallocated expenses between the six months ended June 30, 2014
and the same period last year was primarily due to a decrease of $0.3 million in each of unit-based compensation and development costs, partially offset by an increase of $0.2 million in each of personnel costs and accounting fees. Non-cash
unitbased compensation expense was $0.9 million for the six months ended June 30, 2014 and $1.1 million for the same period last year.
Fulghum Fibres
Operating expenses
were comprised primarily of selling, general and administrative expenses and depreciation and amortization expense. Selling, general and administrative expenses for the three months ended June 30, 2014 were $1.7 million and $0.9 million for the
same period last year. These expenses were for general administrative purposes, such as general management salaries and travel, legal, consulting, and information technology. The increase was due to our ownership of Fulghum for the full three months
ended June 30, 2014 as compared to two months last year. Depreciation and amortization expense included in operating expense for the three months ended June 30, 2014 was $0.9 million compared to $0.7 million for the same period last year.
Selling, general and administrative expenses for the six months ended June 30, 2014 were $3.1 million and $0.9 million for the same
period last year. These expenses were for general administrative purposes, such as general management salaries and travel, legal, consulting, and information technology. The increase was due to our ownership of Fulghum for the full six months ended
June 30, 2014 as compared to two months last year. Depreciation and amortization expense included in operating expense for the six months ended June 30, 2014 was $0.1 million and $0.7 million for the same period last year.
At the time of the Fulghum Acquisition, we recorded customer relationships at their fair market values as part of purchase accounting for the
acquisition. Certain processing agreements underlying those customer relationships had negative fair values. Amortization of these unfavorable processing agreements in the first quarter of 2014 exceeded amortization of favorable processing
agreements resulting in a credit in depreciation and amortization expense. This is the reason for the higher amount of second quarter depreciation expense than the year-to-date amount. The majority of depreciation expense relates to wood chip
processing assets and was recorded in cost of sales.
39
Wood Pellets: Industrial
Operating expenses consist primarily of selling, general and administrative expenses, which include personnel costs, travel,
acquisition-related and development costs associated with the Atikokan and Wawa Projects, and other business development costs. Our operating expenses are not indicative of the amount of operating expenses we expect after the Atikokan and Wawa
Projects are commissioned and operating. Once we begin producing and selling wood pellets, certain expenses will be capitalized to product inventory and eventually run through cost of sales when the inventories are sold.
Operating expenses were $3.4 million for the three months ended June 30, 2014 compared to $0.8 million for the same period last year. The
increase was due to increases in professional and consulting services of $1.0 million, personnel costs of $0.6 million, rail car expenses of $0.5 million and utilities and other plant start-up costs of $0.4 million.
Operating expenses were $5.1 million for the six months ended June 30, 2014 compared to $1.9 million for the same period last year. The
increase was due to increases in professional and consulting services of $1.1 million, personnel costs of $1.0 million, utilities and other plant start-up costs of $0.7 million and rail car expenses of $0.6 million.
Wood Pellets: NEWP
Operating
expenses consist primarily of selling, general and administrative expenses and depreciation and amortization expense. Selling, general and administrative expenses for the three and six months ended June 30, 2014 were $0.4 million. Depreciation
and amortization expense included in operating expense for the three and six months ended June 30, 2014 was ($0.1) million.
At the
time of the NEWP Acquisition, we recorded customer relationships at their fair values as part of purchase accounting for the acquisition. Amortization of these customer relationships in the three months ended June 30, 2014 resulted in a credit
in depreciation and amortization expense. The majority of depreciation expense relates to wood pellet processing assets and was recorded in cost of sales.
Corporate and Unallocated Expenses
Operating expenses consist of selling, general and administrative expenses and depreciation and amortization expense. Selling, general and
administrative expenses include cash and non-cash personnel costs, acquisition related expenses, insurance costs, facilities expenses, information technology costs and professional services fees for legal, audit, tax and investor relations
activities. Selling, general and administrative expenses were $7.8 million for the three-month period ended June 30, 2014 and $6.3 million for the same period last year. The increase was primarily due to $1.4 million in costs associated with
evaluating shareholder proposals and making settlements with shareholders, and $0.7 million in transaction costs related to the NEWP Acquisition. These increases were partially offset by a decrease of $0.4 million in professional fees and $0.3
million in personnel costs. Non-cash equity-based compensation expense was $1.5 million for the three months ended June 30, 2014 and $1.6 million for the same period last year.
Selling, general and administrative expenses were $14.6 million for the six-month period ended June 30, 2014 and $13.0 million for the
same period last year. The increase was primarily due to $1.8 million in costs associated with evaluating shareholder proposals and making settlements with shareholders, and $1.1 million in transaction costs related to the NEWP Acquisition. These
increases were partially offset by a decrease of $0.9 million in personnel costs and $0.3 million in professional fees. Non-cash equity-based compensation expense was $2.8 million for the six months ended June 30, 2014 and $2.9 million for the
same period last year.
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque |
|
$ |
31,598 |
|
|
$ |
36,370 |
|
|
$ |
42,832 |
|
|
$ |
53,683 |
|
Pasadena |
|
|
(33,519 |
) |
|
|
138 |
|
|
|
(34,278 |
) |
|
|
1,994 |
|
RNP- partnership and unallocated expenses |
|
|
(2,169 |
) |
|
|
(2,462 |
) |
|
|
(4,485 |
) |
|
|
(4,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RNP |
|
|
(4,090 |
) |
|
|
34,046 |
|
|
|
4,069 |
|
|
|
51,061 |
|
Fulghum Fibres |
|
|
(583 |
) |
|
|
845 |
|
|
|
2,956 |
|
|
|
845 |
|
Wood Pellets: Industrial |
|
|
(3,261 |
) |
|
|
(812 |
) |
|
|
(5,006 |
) |
|
|
(1,883 |
) |
Wood Pellets: NEWP |
|
|
794 |
|
|
|
|
|
|
|
794 |
|
|
|
|
|
Corporate and unallocated expenses |
|
|
(7,903 |
) |
|
|
(6,391 |
) |
|
|
(14,861 |
) |
|
|
(13,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
$ |
(15,043 |
) |
|
$ |
27,688 |
|
|
$ |
(12,048 |
) |
|
$ |
36,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
East Dubuque
Operating income was $31.6 million for the three months ended June 30, 2014 compared to $36.4 million for the same period last year. The
decrease was primarily due to lower product pricing and higher cost of sales as described above. Operating income was $42.8 million for the six months ended June 30, 2014 compared to $53.7 million for the same period last year. The decrease was
primarily due to lower product pricing and higher cost of sales partially offset by lower selling, general and administrative expenses as described above.
Pasadena
Operating loss was $33.5
million for the three months ended June 30, 2014 compared to operating income of $0.1 million for the same period last year. The decrease was primarily due to the Pasadena goodwill impairment, the decline in average sales prices for ammonium
sulfate and increases in the cost of raw materials, partially offset by lower depreciation and amortization expense as described above. Operating loss was $34.3 million for the six months ended June 30, 2014 compared to operating income of $2.0
million for the same period last year. The decrease was primarily due to the Pasadena goodwill impairment, the decline in average sales prices for ammonium sulfate, increases in the cost of raw materials and higher selling, general and
administrative expenses, partially offset by lower depreciation and amortization expense as described above.
RNP Partnership and Unallocated
Expenses
Operating loss was $2.2 million for the three months ended June 30, 2014 and $2.5 million for the same period last
year. The decrease was primarily due to a decrease in unit-based compensation and development costs, partially offset by an increase in personnel costs and accounting fees as described above. Operating loss was $4.5 million for the six months ended
June 30, 2014 and $4.6 million for the same period last year. The decrease was primarily due to a decrease in unit-based compensation and development costs, partially offset by an increase in accounting fees and personnel costs as described
above.
Fulghum Fibres
Operating loss was $0.6 million for the three months ended June 30, 2014 compared to operating income of $0.8 million for the same period
last year. The decrease in operating income was due to higher processing costs and selling, general and administrative expenses as described above. Operating income was $3.0 million for the six months ended June 30, 2014 and $0.8 million for
the same period last year. The increase in operating income was due to our ownership of Fulghum for the full six months ended June 30, 2014 as compared to two months last year, partially offset by higher processing costs as described above.
Wood Pellets: Industrial
Operating loss was $3.3 million for the three months ended June 30, 2014 compared to $0.8 million for the same period last year. The
increase was due to costs in 2014 related to the Atikokan and Wawa Projects that were not capitalized and management, development and operating costs not directly related to constructing the projects as described above. Operating loss was $5.0
million for the six months ended June 30, 2014 compared to $1.9 million for the same period last year. This increase was due to costs in 2014 related to the Atikokan and Wawa Projects that were not capitalized and management, development and
operating costs not directly related to constructing the projects as described above.
Wood Pellets: NEWP
Operating income was $0.8 million for the three and six months ended June 30, 2014, which reflects gross profit and operating expenses as
described above.
Corporate and Unallocated Expenses
Operating loss was $7.9 million for the three months ended June 30, 2014 and $6.4 million for the same period last year. The increase was
primarily due to transaction costs related to the NEWP Acquisition, evaluation of shareholder proposals and settlement agreements with shareholders, partially offset by a decrease in professional fees and personnel costs as described above.
Operating loss was $14.9 million for the six months ended June 30, 2014 and $13.3 million for the same period last year. The increase was primarily due to transaction costs related to the NEWP Acquisition, evaluation of shareholder proposals
and settlement agreements with shareholders, partially offset by a decrease in personnel costs and professional fees as described above.
41
Discontinued Operations
Loss from discontinued operations, our former energy technologies segment, for the three months ended June 30, 2014 was $1.6 million
compared to $1.5 million for the same period last year.
Loss from discontinued operations for the six months ended June 30, 2014 was
$3.0 million compared to $8.4 million for the same period last year. The decrease of $5.4 million between the periods was due to the elimination of expenses associated with research and development and business development activities, and to costs
of terminating our alternative energy operations in 2013. The decrease was partially offset by a tax benefit of $1.1 million recorded in the prior year. The loss during the six months ended June 30, 2014 included $0.7 million of transaction
costs related to the sale of our alternative energy technologies and decommissioned PDU.
ADJUSTED EBITDA
RNPs Adjusted EBITDA is defined as RNPs net income (loss) plus interest expense and other financing costs, Pasadena goodwill
impairment, loss on debt extinguishment, income tax expense, depreciation and amortization and fair value adjustment to earn-out consideration, net of loss on interest rate swaps. Fulghums Adjusted EBITDA is defined as Fulghums net
income (loss) plus interest expense and other financing costs, depreciation and amortization, and income tax (benefit) expense. NEWPs Adjusted EBITDA is defined as NEWPs net income plus interest expense and other financing costs,
depreciation and amortization, and income tax expense. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our consolidated financial statements, such as investors and commercial banks, to assess:
|
|
|
the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; and |
|
|
|
our operating performance and return on invested capital compared to those of other publicly traded limited partnerships and other public companies, without regard to financing methods and capital structure.
|
Adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating
activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and
operations. In addition, Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.
The table below reconciles RNPs Adjusted EBITDA, which is a non-GAAP financial measure, to net income (loss) for RNP for the periods
presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Net income (loss) |
|
$ |
(23,033 |
) |
|
$ |
44,306 |
|
|
$ |
(28,627 |
) |
|
$ |
45,092 |
|
Add back (deduct): Non-RNP (income) loss |
|
|
14,109 |
|
|
|
(15,585 |
) |
|
|
22,828 |
|
|
|
(1,362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RNP net income (loss) |
|
$ |
(8,924 |
) |
|
$ |
28,721 |
|
|
$ |
(5,799 |
) |
|
$ |
43,730 |
|
Add RNP items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense |
|
|
4,809 |
|
|
|
3,926 |
|
|
|
9,813 |
|
|
|
5,729 |
|
Pasadena goodwill impairment |
|
|
27,202 |
|
|
|
|
|
|
|
27,202 |
|
|
|
|
|
Loss on debt extinguishment |
|
|
|
|
|
|
6,001 |
|
|
|
|
|
|
|
6,001 |
|
Gain on fair value adjustment to earn-out consideration |
|
|
|
|
|
|
(4,823 |
) |
|
|
|
|
|
|
(4,611 |
) |
Loss on interest rate swaps |
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
7 |
|
Income tax expense |
|
|
25 |
|
|
|
125 |
|
|
|
55 |
|
|
|
205 |
|
Depreciation and amortization |
|
|
7,629 |
|
|
|
4,388 |
|
|
|
10,933 |
|
|
|
7,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RNPs Adjusted EBITDA |
|
$ |
30,741 |
|
|
$ |
38,434 |
|
|
$ |
42,204 |
|
|
$ |
59,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
The table below reconciles Fulghums Adjusted EBITDA, which is a non-GAAP financial measure,
to segment net income (loss) for Fulghum.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Fulghum net income (loss) per segment disclosure |
|
$ |
(989 |
) |
|
$ |
128 |
|
|
$ |
665 |
|
|
$ |
128 |
|
Add Fulghum items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense |
|
|
579 |
|
|
|
534 |
|
|
|
1,116 |
|
|
|
534 |
|
Depreciation and amortization |
|
|
2,732 |
|
|
|
2,275 |
|
|
|
3,717 |
|
|
|
2,275 |
|
Income tax (benefit) expense |
|
|
(282 |
) |
|
|
|
|
|
|
730 |
|
|
|
|
|
Other |
|
|
109 |
|
|
|
183 |
|
|
|
445 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghums Adjusted EBITDA |
|
$ |
2,149 |
|
|
$ |
3,120 |
|
|
$ |
6,673 |
|
|
$ |
3,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below reconciles NEWPs Adjusted EBITDA, which is a non-GAAP financial measure, to segment net
income for NEWP.
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2014 |
|
|
|
(in thousands) |
|
NEWP net income per segment disclosure |
|
$ |
742 |
|
|
$ |
742 |
|
Add NEWP Items: |
|
|
|
|
|
|
|
|
Net interest expense |
|
|
80 |
|
|
|
80 |
|
Depreciation and amortization |
|
|
180 |
|
|
|
180 |
|
Income tax expense |
|
|
9 |
|
|
|
9 |
|
Other |
|
|
(37 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
NEWPs Adjusted EBITDA |
|
$ |
974 |
|
|
$ |
974 |
|
|
|
|
|
|
|
|
|
|
ANALYSIS OF CASH FLOWS
The following table summarizes our Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
(in thousands) |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
556 |
|
|
$ |
(1,649 |
) |
Investing activities |
|
|
(120,992 |
) |
|
|
(98,019 |
) |
Financing activities |
|
|
86,864 |
|
|
|
95,799 |
|
Effect of exchange rate on cash |
|
|
824 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
$ |
(32,748 |
) |
|
$ |
(3,890 |
) |
|
|
|
|
|
|
|
|
|
Operating Activities
Revenues were $224.7 million for the six months ended June 30, 2014 compared to $179.6 million for the same period last year. The increase
in revenue for the six months ended June 30, 2014 was primarily due to the Fulghum and NEWP Acquisitions. Deferred revenue decreased $0.8 million during the six months ended June 30, 2014 and $9.2 million during the same period last year.
The decrease in deferred revenue was due to sales of ammonium sulfate held in IOC terminals, partially offset by an increase in deferred revenue associated with additional prepaid sales contracts at our East Dubuque Facility. During the six months
ended June 30, 2014, the unusually high amount of prepayments on prepaid sales contracts for the summer and fall seasons at our East Dubuque Facility exceeded the decrease in deferred revenue associated with the spring season.
43
Net cash provided by operating activities for the six months ended June 30, 2014 was $0.6
million. We had net loss of $28.6 million for the six months ended June 30, 2014. For the six months ended June 30, 2014, we had Pasadena goodwill impairment of $27.2 million. Accounts receivable increased by $5.6 million due primarily to
increased sales volumes at our Fertilizer Facilities and a change in payment terms for a major customer at the Pasadena Facility during the six months ended June 30, 2014. Inventories increased by $6.1 million during the six months ended
June 30, 2014, primarily due to the normal seasonality of the East Dubuque Facilitys business, along with the increased production capacity due to the completion of the ammonia expansion project. Inventories also were higher at our
Pasadena Facility because of the increased production capacity. NEWP accounted for $1.8 million of the inventory increase.
Net cash used
in operating activities for the six months ended June 30, 2013 was $1.6 million. We had net income of $45.1 million for the six months ended June 30, 2013. Deferred income tax benefit of $26.3 million due primarily to the release of
valuation allowance resulting from recording of deferred tax liabilities related to the Fulghum Acquisition. Inventories increased by $24.2 million during this period, which was due to lower than normal sales volume during the second quarter of
2013.
Investing Activities
Net cash
used in investing activities was $121.0 million for the six months ended June 30, 2014 and $98.0 million for the same period last year. Net cash used in investing activities for the six months ended June 30, 2014 was primarily related to
the capital expenditures to construct the Atikokan and Wawa Projects, to upgrade a nitric acid compressor train and complete our urea expansion project at our East Dubuque Facility, and to construct the power generation project and replace the
sulfuric acid converter at our Pasadena Facility. During the period, we also completed the NEWP Acquisition. Net cash used in investing activities for the six months ended June 30, 2013 was primarily related to acquiring Fulghum, and
construction of the Atikokan Project and the Wawa Project. During the period, we also made expenditures relating to the ammonia production and storage capacity expansion project at our East Dubuque Facility, and the ammonium sulfate debottlenecking
and production capacity project and the power generation project at our Pasadena Facility.
Financing Activities
Net cash provided by financing activities was $86.9 million for the six months ended June 30, 2014, and $95.8 million for the same period
last year. During the six months period ended June 30, 2014, we issued the 2014 Preferred Stock with an aggregate original issue price of $100.0 million and entered into the GSO Credit Agreement, borrowing $50.0 million under the facility.
During the period, we also paid off the outstanding balance of $50.0 million under the RNHI Credit Agreement. During the six months ended June 30, 2014, we made debt payments of $5.7 million, and RNP made cash distributions to holders of
noncontrolling interests of $2.1 million. During the six months ended June 30, 2013, we issued the RNP Notes for $320.0 million and paid off borrowings under a credit agreement in the amount of $205.0 million. RNP made cash distributions to
noncontrolling interests of $19.7 million.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2014, our current assets totaled $164.6 million. Current assets included cash of $73.6 million, of which $20.1 million was
held at RNP, and accounts receivable of $22.8 million. At June 30, 2014, our current liabilities were $107.4 million. We had long-term liabilities of $452.7 million, comprised primarily of the RNP Notes, Fulghum debt, GSO Credit Agreement, NEWP
debt and the QS Construction Facility.
RNP Activities
Sources of Capital
At our
East Dubuque Facility, we are upgrading a nitric acid compressor train and completing our urea expansion project. These projects will be funded with borrowings under the GE Credit Agreement. At our Pasadena Facility, we are replacing our sulfuric
acid converter and completing our power generation project. These projects will be funded with cash on hand, which was borrowed as proceeds of the Notes. We expect to fund any additional expansion projects with borrowings under the GE Credit
Agreement, or other new capital at RNP. We expect to be able to fund RNPs operating needs, including maintenance capital expenditures, from RNPs operating cash flow and cash on hand at RNP, for at least the next 12 months.
Capital markets have experienced periods of extreme uncertainty in the recent past, and access to those markets may become 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.
Capital
Expenditures
We divide our capital expenditures into two categories: maintenance and expansion. Maintenance capital expenditures
include those for improving, replacing or adding to our assets, as well as expenditures for acquiring, constructing or developing new assets to maintain our operating capacity, or to comply with environmental, health, safety or other regulations.
Maintenance capital expenditures that are required to comply with regulations may also improve the output, efficiency or reliability of our facility. Expansion capital expenditures are those incurred for acquisitions or capital improvements that we
expect will increase our operating capacity or operating income over the long-term.
44
Maintenance capital expenditures for our East Dubuque Facility totaled $4.1 million in the six
months ended June 30, 2014 and $3.4 million for the same period last year. Maintenance capital expenditures for our East Dubuque Facility are expected to be approximately $8.7 million for the year ending December 31, 2014. Expansion
capital expenditures for our East Dubuque Facility totaled $4.5 million in the six months ended June 30, 2014 and $19.9 million for the same period last year. Expansion capital expenditures for our East Dubuque Facility are expected to be
approximately $16.6 million for the year ending December 31, 2014, which are primarily related to our nitric acid expansion, our urea expansion and the purchase of spare parts related to our ammonia production and storage capacity expansion.
Maintenance capital expenditures for our Pasadena Facility totaled $12.0 million in the six months ended June 30, 2014 and $2.4
million for the same period last year. Maintenance capital expenditures for our Pasadena Facility are expected to be approximately $22.6 million for the year ending December 31, 2014. The maintenance capital expenditures expected in 2014
include $14.6 million to complete replacement of the sulfuric acid converter at the sulfuric acid plant at our Pasadena Facility. Expansion capital expenditures for our Pasadena Facility totaled $6.7 million in the six months ended June 30,
2014 and $9.2 million for the same period last year. Expansion capital expenditures for our Pasadena Facility are expected to be approximately $13.5 million for the year ending December 31, 2014, which are primarily related to the power
generation project.
Our forecasted capital expenditures are subject to change due to unanticipated increases in the cost, scope and
completion time for our capital projects. For example, we may experience increases in labor or equipment costs necessary to comply with government regulations or to complete projects that sustain or improve the profitability of our facilities.
Debt
For a description
of the terms of the RNP Notes, see Note 11 Debt to the consolidated financial statements included in Part IIItem 8. Financial Statements and Supplementary Data in the Annual Report. For a description of the terms
of the GE Credit Agreement, see Note 17 Subsequent Events to the consolidated financial statements included in Part IItem 1. Financial Statements in this report.
Wood Fibre Processing and Corporate Activities
Sources of Capital
During
the six months ended June 30, 2014, we funded operations and investments in our wood fibre processing and corporate activities primarily through cash on hand, the proceeds from the RNHI Credit Agreement and the issuance of the 2014 Preferred
Stock. We expect quarterly distributions from RNP to be a source of capital for our non-RNP activities. Cash distributions from RNP may vary significantly from quarter to quarter and from year to year, and could be as low as zero for any quarter. We
will receive 59.8% of any quarterly distributions made to RNPs common unitholders 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. The Indenture governing the RNP Notes and the GE Credit Agreement contain important restrictions on RNPs ability to make distributions to its common unitholders (including us), as discussed in
Part IIItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources in the Annual Report, and Note 17 Subsequent Events to the
consolidated financial statements included in Part IItem 1. Financial Statements in this report.
During
the next 12 months, we expect the liquidity needs of existing commitments for our wood fibre processing and corporate activities to be met from: (i) cash on hand, which includes proceeds from the GSO Credit Agreement and the issuance of the
2014 Preferred Stock, (ii) distributions from RNP, (iii) cash generated by Fulghum and NEWP, and (iv) in the case of capital expenditures in Chile, Chilean bank debt financing. We may need to borrow additional amounts under the
Accordion Facility under the GSO Credit Agreement (subject to lender approval), obtain funding through the Rentech/Graanul JV, and/or seek additional funds in the capital markets under certain circumstances. These circumstances may include:
(i) the sources of funds summarized in this paragraph are less than expected, (ii) our expenses, including capital expenditures, are higher than expected, or (iii) we approve projects, enter into additional commitments or acquire
assets in addition to those that could be funded from the sources identified above. We cannot assure you that capital markets, Chilean bank debt or other sources of external financing will be available on satisfactory terms or at all.
Capital Expenditures
We
estimate the total cost to acquire and convert the Atikokan and Wawa Projects to be approximately $90.0 million with approximately $66.0 million to be spent in 2014. During 2014, we expect to fund the costs of these projects with cash on hand. For
the six months ended June 30, 2014, cash capital expenditures related to the Atikokan and Wawa Projects totaled $45.2 million, which excludes accruals and spending related to capitalized assets under construction pursuant to our agreement with
Quebec Stevedoring Company Limited to construct assets at the Port of Quebec, interest and construction insurance. We expect the Atikokan Project to be commissioned and operating during the third quarter of 2014. We expect the Wawa Project to be
commissioned and operating during the fourth quarter of 2014.
45
We are installing a second debarking line at one of our mills in Chile. We expect the project to
increase debarking capacity at the mill from 120,000 to 240,000 BDMTs per year. Construction of this project is expected to be completed during the third quarter of 2014, at an expected cost of approximately $2.5 million. This project is being
funded with Chilean bank debt financing.
At the same mill in Chile, we are constructing a new chipping line. We expect the project to
increase chipping capacity from 180,000 to 400,000 BDMTs per year. The cost of this project is expected to be approximately $6.1 million, with funding provided by Chilean bank debt financing. We expect this new chipping line to be commissioned and
operating in early 2015.
Debt
For a description of the terms of the Fulghum debt and the QS Construction Facility, see Note 11 Debt to the consolidated
financial statements included in Part IIItem 8. Financial Statements and Supplementary Data in the Annual Report. For a description of the terms of the BOM Credit Agreement, GSO Credit Agreement and NEWP debt, see Note 11
Debt to the consolidated financial statements included in Part IItem 1. Financial Statements in this report.
2014 Preferred Stock
On
April 9, 2014, we issued $100.0 million of the 2014 Preferred Stock. For a description of the terms of the 2014 Preferred Stock, see Note 12 Preferred Stock to the consolidated financial statements included in
Part IItem 1. Financial Statements in this report.
CONTRACTUAL OBLIGATIONS
We have entered into various contractual obligations as detailed in the Annual Report. During the normal course of business between
January 1, 2014 and the date of this report, the amount of our contractual obligations changed, as we made scheduled payments and entered into new contracts. During such period, the following material changes occurred to our contractual
obligations. The following updates supersede and replace the discussion of contractual obligations in the Annual Report to the extent that the following is inconsistent with such discussion.
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As of June 30, 2014, purchase obligations totaled $40.1 million which represent 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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Our obligations under natural gas forward purchase contracts increased by $2.4 million to $4.6 million. As of June 30, 14 the natural gas forward purchase contracts include delivery dates through April 30,
2015. During July 2014, we entered into additional fixed quantity forward purchase contracts at fixed and indexed prices for various delivery dates through December 31, 2014. The total MMBtu associated with these additional forward purchase
contracts are 0.8 million and the total amount of purchase commitments is $3.3 million, resulting in a weighted average rate per MMBtu of $4.29 in these new commitments |
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On April 9, 2014, we entered into the GSO Credit Agreement. As of the date of this report, there is $50.0 million of principal outstanding under the GSO Credit Agreement. |
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On April 9, 2014, we issued the 2014 Preferred Stock for an aggregate purchase price of $98.0 million (reflecting an issuance discount of 2%). Dividends on the 2014 Preferred Stock accrue and are cumulative at the
rate of 4.5% per annum on the sum of the original issue price plus all unpaid accrued and accumulated dividends thereon. |
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On April 9, 2014, we used a portion of the proceeds from the sale of the 2014 Preferred Stock to pay off the indebtedness under and terminate the RNHI Credit Agreement. |
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As of June 30, 2014, NEWP had outstanding debt of $12.2 million with a weighted average interest rate of 5.0%. The debt consists primarily of term loans with each term loan secured by specific property and
equipment. NEWP also had interest rate swaps with a total outstanding liability of $0.8 million. The swaps were used to fix the interest rates of each term loan. |
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On July 22, 2014, we entered into the GE Credit Agreement, which replaced the RNP Credit Agreement. As of the date of this report, there is $50.0 million of revolving facility available under the GE Credit
Agreement. |
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The purchase agreement for the NEWP Acquisition provides for up to $5.0 million of potential earn-out consideration, to be paid in cash. The earn-out consideration would be earned ratably if NEWPs 2014 EBITDA, as
defined in the Purchase Agreement, is between $7.3 million and $8.0 million. The earn-out consideration would not increase if NEWPs 2014 EBITDA were to exceed $8.0 million. |
46
OFF-BALANCE SHEET ARRANGEMENTS
We have no material off-balance sheet arrangements.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 2 Recent Accounting Pronouncements to the consolidated financial statements, included in Part I
Item 1. Financial Statements of this report.
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
For a quantitative and
qualitative discussion about market risk, see Part II Item 7A. Quantitative and Qualitative Disclosures about Market Risk, in our Annual Report and Part I Item 3. Quantitative and Qualitative
Disclosures about Market Risk, in our Quarterly Report on Form 10-Q for the three months ended March 31, 2014. As of June 30, 2014, there have been no material changes in the type or nature of market risk in our Annual Report, except
as described below.
Interest Rate Risk.
We are exposed to interest rate risks related to the NEWP debt. As of June 30, 2014, NEWP had outstanding debt of $12.2 million. Based
upon this outstanding balance, and assuming no interest rate swaps, 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. NEWP entered into interest
rate swaps to essentially fix the variable interest rate on its borrowings. At June 30, 2014, the fair value of the interest rate swaps was a liability of $0.8 million. An increase of 100 basis points in the LIBOR rates would result in the
liability for interest rate swaps decreasing by $0.2 million. A decrease of 100 basis points in the LIBOR rates would result in the liability for interest rate swaps increasing by $0.2 million.
Commodity Price Risk.
Wood feedstock represents the largest component of NEWPs wood pellet product cost. Competition for wood feedstock supply from pulp
and paper manufacturing, and commercial and institutional wood boiler heating systems may affect our cost of wood feedstock. Our Jaffrey, New Hampshire production facility is affected the most by this competition, followed by our Schuyler, New
York production facility, with our Deposit, New York production facility least affected. We have approximately 140 wood suppliers of which approximately 40 provide 80% of our wood feedstock needs. We have developed relationships with our
suppliers such that our wood costs have remained relatively flat with minimal variability over the last several years. A hypothetical increase of $1.00 per green short ton in the price of wood fibre feedstock would increase the cost to produce one
ton of wood pellets by $1.77.
ITEM 4. |
CONTROLS AND PROCEDURES |
The Company maintains disclosure controls and procedures
(DCP) that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized,
and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer (principal executive officer) and Chief
Financial Officer (principal financial officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating DCP, management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
47
The Company, under the supervision and with the participation of the Companys management,
including the Companys Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Companys DCP as of the end of the period covered by this report. At the time that our Annual
Report on Form 10-K for the year ended December 31, 2013 was filed on March 13, 2014, the Companys Chief Executive Officer and Chief Financial Officer concluded that our DCP were effective at a reasonable assurance level as of December 31,
2013. On May 12, 2014, when our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 was filed, the Companys Chief Executive Officer and Chief Financial Officer concluded that our DCP were effective at a reasonable assurance
level as of March 31, 2014. Subsequent to these evaluations, the Companys management, including the Chief Executive Officer and the Chief Financial Officer, identified certain material weaknesses in internal control over financial reporting
(ICFR) as of June 30, 2014, and therefore concluded that DCP were not effective as of June 30, 2014. Management reevaluated its previous conclusions on ICFR as of December 31, 2013 and March 31, 2014, and determined that the material
weaknesses described below also existed as of these dates. Therefore, management concluded that DCP were also not effective as of December 31, 2013 and March 31, 2014 because of material weaknesses, as described below, in our ICFR.
Material weaknesses in internal control over financial reporting
A material weakness is a deficiency, or combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material
misstatement of the Companys annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following control deficiencies that constituted material weaknesses in our ICFR as of June
30, 2014. Management also determined that these material weaknesses existed as of December 31, 2013 and March 31, 2014:
The Company did
not design and maintain effective internal controls over the review of the cash flow forecasts used in the accounting for business combinations and goodwill, and the determination of the goodwill impairment charge in accordance with generally
accepted accounting principles. Specifically, the Company did not design and maintain effective internal controls related to determining the carrying value and fair value of reporting units for the purpose of performing goodwill impairment testing,
documenting managements review of assumptions used in the forecasts, verifying that data contained in reports provided by specialists reconcile to the information provided to those specialists, and documenting managements review
regarding the identification of events and changes in circumstances that indicate it is more likely than not that a goodwill impairment has occurred between annual impairment tests.
These control deficiencies did not result in a material misstatement to the Companys consolidated financial statements for the year
ended December 31, 2013 or to the unaudited interim condensed consolidated financial statements for the quarter ended March 31, 2014. However, these control deficiencies, if unremediated, could, in another reporting period, result in a material
misstatement to the annual or interim consolidated financial statements that would not be prevented or detected by the controls. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.
The Company will be amending its Annual Report on Form 10-K for the year ended December 31, 2013, as well as its Quarterly Report on Form 10-Q
for the quarter ended March 31, 2014 to reflect the conclusion by the Companys management that ICFR and DCP were not effective as of December 31, 2013, and March 31, 2014.
The Company is in the process of remediating the identified deficiencies in ICFR, and expects the control weaknesses to be remediated in the
coming reporting periods. However, the Company is unable at this time to estimate when the remediation will be completed.
Changes in internal control
over financial reporting
Due to the NEWP Acquisition discussed below, there were significant changes in our internal control over
financial reporting during the quarter ended June 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On May 1, 2014, the NEWP Acquisition closed. We are currently in the process of integrating NEWPs operations, processes, and internal
controls.
48
PART II. OTHER INFORMATION
ITEM 1. |
LEGAL PROCEEDINGS |
A description of the legal proceedings to which the Company and its
subsidiaries are a party is contained in Note 13 Commitments and Contingencies to the consolidated financial statements included in Part I Item 1. Financial Statements of this Quarterly Report
on Form 10-Q.
As a result of the completion of the issuance of Series E Preferred Stock
and the NEWP Acquisition, we are subject to risks relating to these transactions, some of which are discussed below and others of which are described generally in our other periodic and current reports filed with the SEC, including in Part I
Item 1A. Risk Factors of the Annual Report. The risks described in the Annual Report and this report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to
be immaterial may materially adversely affect our business and cash flow. The risk factors set forth below update, and should be read together with, the risk factors disclosed in Part I Item IA. Risk Factors of the Annual
Report.
The issuance of 100,000 shares of our Series E Preferred Stock to certain funds managed by or affiliated with GSO Capital Partners LP in
April 2014 reduces the relative voting power of holders of our Common Stock, may dilute the ownership of such holders, and may adversely affect the market price of our Common Stock.
On April 9, 2014, we entered into the Subscription Agreement with the Series E Purchasers, pursuant to which we sold the Series E
Preferred Stock, to the Series E Purchasers, which is convertible into approximately 16.5% of our outstanding Common Stock, on an as-converted basis. As holders of our Series E Preferred Stock are entitled to vote, on an as-converted basis, together
with holders of our Common Stock as a single class on all matters submitted to a vote of our Common Stock holders, the issuance of the Series E Preferred Stock to the Series E Purchasers has effectively reduced the relative voting power of the
holders of our Common Stock.
In addition, conversion of the Series E Preferred Stock to Common Stock would dilute the ownership interest
of existing holders of our Common Stock, and any sales in the public market of the Common Stock issuable upon conversion of the Series E Preferred Stock could adversely affect prevailing market prices of our Common Stock. We have granted the Series
E Purchasers registration rights in respect of the shares of Series E Preferred Stock and any shares of Common Stock issued upon conversion of the Series E Preferred Stock. These registration rights would facilitate the resale of such securities
into the public market, and any such resale would increase the number of shares of our Common Stock available for public trading. Sales by the Series E Purchasers of a substantial number of shares of our Common Stock in the public market, or the
perception that such sales might occur, could have a material adverse effect on the price of our Common Stock.
The Series E Purchasers may exercise
significant influence over us, including through their ability to elect up to two members of our Board of Directors.
As of
June 30, 2014, the shares of Series E Preferred Stock owned by the Series E Purchasers represent approximately 16.5% of the voting rights of our Common Stock, on an as-converted basis. As a result, the Series E Purchasers have the ability to
significantly influence the outcome of any matter submitted for the vote of our stockholders. In addition, our articles of incorporation grant certain consent rights to the holders of Series E Preferred Stock in respect of certain actions by us,
including (a) issuing any indebtedness directly or indirectly convertible into or exchangeable for any capital stock; (b) redeeming or repurchasing or permitting any of our subsidiaries to redeem or repurchase any shares of any class or
series of our capital stock, subject to certain exceptions; and (c) increasing or decreasing the maximum number of directors of our Board to more than ten persons or to less than eight persons (collectively, the Protective
Provisions). The Series E Purchasers may have interests that diverge from, or even conflict with, those of our other shareholders. For example, the Series E Purchasers may have an interest in directly or indirectly pursuing acquisitions,
divestitures, financings or other transactions that, in their judgment, could enhance their other equity investments, even though such transactions might involve risks to us.
49
In addition, our articles of incorporation grant the Series E Purchasers certain rights to
designate directors to serve on our Board. For so long as the Series E Purchasers and their permitted transferees (i) own at least 85% of the shares of Series E Preferred Stock issued as of the original issue date, the holders of the
outstanding shares of Series E Preferred Stock, voting as a separate class, are entitled to elect two individuals to our Board, or (ii) own at least 42.5% of the shares of Series E Preferred Stock issued as of the original issue date, the
holders of the outstanding shares of Series E Preferred Stock, voting as a separate class, are entitled to elect one individual to our Board. Under the Subscription Agreement, in addition to the rights under our articles of incorporation, for so
long as the Series E Purchasers in the aggregate have record and beneficial ownership of shares of Common Stock issued upon conversion of the Series E Preferred Stock (the Conversion Shares) that constitute at least 10% of our
outstanding Common Stock, the Series E Purchasers collectively have the right to nominate one person for election to the Board. For so long as the Series E Purchasers in the aggregate have record and beneficial ownership of Conversion Shares
that constitute more than 18% of our outstanding Common Stock and less than 42.5% of the Series E Preferred Stock issued on the date of the Subscription Agreement, the Series E Purchasers collectively are entitled to nominate a total of two nominees
for election to the Board. For so long as the Series E Purchasers have the right to appoint or nominate at least one person to the Board in accordance with the Subscription Agreement, the Series E Purchasers collectively have the right to appoint
one observer to the Board who must be reasonably acceptable to us. Notwithstanding the fact that all directors will be subject to fiduciary duties and applicable law, the interests of the directors appointed by the Series E Purchasers may differ
from the interests of our security holders as a whole or of our other directors.
The Series E Preferred Stock issued to the Series E Purchasers has
rights, preferences and privileges that are not held by, and are preferential to, the rights of our common shareholders. Such preferential rights could adversely affect our liquidity and financial condition, and may result in the interests of the
Series E Purchasers differing from those of our common stockholders.
As holders of Series E Preferred Stock, the Series E
Purchasers have the right to receive a liquidation preference entitling them to be paid out of our assets available for distribution to shareholders, before any payment may be made to holders of any other class or series of capital stock, an amount
equal to the greater of (a) the original issue price plus all unpaid and accumulated dividends thereon (including any amounts accrued and unpaid since the last dividend payment date) of each outstanding share of Series E Preferred Stock held
and (b) the amount that such holder would have been entitled to receive upon our liquidation, dissolution and winding up if all outstanding shares of Series E Preferred Stock had been converted into Common Stock immediately prior to such
liquidation, dissolution or winding up.
In addition, dividends on the Series E Preferred Stock accrue and are cumulative, whether or not
declared by the Board, at the rate of 4.5% per annum on the sum of the original issue price plus all unpaid accrued and accumulated dividends thereon, whether or not declared by the Board. Moreover, if we declare or pay a cash dividend on our
Common Stock, we are required to declare and pay a dividend on the outstanding shares of Series E Preferred Stock on a pro rata basis with the Common Stock determined on an as-converted basis.
The holders of our Series E Preferred Stock also have certain redemption rights, including, but not limited to, upon the earliest of:
(a) the seventh anniversary of the original issue date, (b) certain change in control events involving us, (c) a bankruptcy, dissolution, liquidation or the winding up of our affairs, or (d) uncured breach of any of the
Protective Provisions, which, if exercised, could require us to repurchase any or all of the outstanding shares of Series E Preferred Stock at their original issue price plus all unpaid accrued and accumulated dividends thereon, including any
amounts accrued and unpaid since the last dividend payment date (the Redemption Price). In the event that we fail to redeem the Series E Preferred Stock and to pay to the Series E Purchaser the Redemption Price of such shares on the
applicable redemption date, whether or not such payment or redemption is legally permissible or is otherwise prohibited, such Series E Purchaser will have the right, but not obligation, to cause DSHC to purchase any or all of the Series E Preferred
Stock (other than the Series E Preferred Stock that has been redeemed). In such a case, the purchase price for the Series E Preferred Stock will equal (a) $1,000 per share (as adjusted for stock splits, stock dividends, recapitalizations or
similar transactions with respect to the Series E Preferred Stock), plus (b) all accrued and unpaid dividends on such Series E Preferred Stock (including all amounts accrued since the last dividend payment date). DSHCs obligation is
secured by 5,524,862 common units of RNP owned by DSHC.
Our obligations to pay accrued and accumulated dividends, whether or not declared
by the Board, to the holders of our Series E Preferred Stock on a pro-rata basis with the Common Stock when we declare or pay a cash dividend, and to repurchase any and all of the outstanding shares of Series E Preferred Stock under certain
circumstances, could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series E
Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. The preferential rights could also result in divergent interests between the
Series E Purchasers and those of our common shareholders.
50
Due to our dependence on significant customers in our wood pellet business, the loss of one or more of such
significant customers could adversely affect our results of operations.
On May 1, 2014, we acquired all of the equity
interests of NEWP. Upon the closing of the transaction, NEWP became our wholly owned subsidiary. NEWP depends on significant customers, and the loss of one or several of such significant customers may have a material adverse effect on its results of
operations and financial condition. In the aggregate, NEWPs top two big-box retailers, Home Depot and Lowes Home Improvement, represented approximately 38% of NEWPs total sales for the calendar year ended December 31, 2013. As
is typical in the wood pellet industry, NEWPs sales to big-box retailers are primarily made on a purchase order basis, and NEWP generally does not have long-term orders or commitments from our big-box retailers. As a result, we are limited in
our ability to predict the level of future sales or commitments from our current 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 NEWPs
products. The loss of one or several of our significant customers of our wood pellet 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.
Weather conditions could adversely affect NEWPs results of operations and financial condition.
Weather conditions generally have an impact on the demand for both home heating oil and wood pellets. Because we supply distributors whose
customers depend on heating fuel during the winter, warmer-than-normal temperatures during the first and fourth calendar quarters in one or more regions in which we operate can decrease the total volume we sell and the gross margin realized on those
sales. Warmer temperatures in the Northeast could have a particularly adverse impact on sales, since approximately 75% of wood pellets were consumed in that region in 2013. A reduction in the total volume we sell or in the gross margin we realize on
such sales would negatively impact our business, financial condition and results of operations.
Weather and weather changes have an
impact on our production efficiencies. Colder weather during winter months may adversely impact the processing of wood (particle sizing and drying) prior to pelletizing. Significant moisture from rain and snow may also adversely impact the
drying of wood and increase the costs of drying wood fuel. Production process changes such as moisture content, particle sizing, and pelletizing die size may be needed when weather climate conditions change, all of which may adversely affect
the processing and pelletizing of wood. A decrease in production efficiencies would increase our production costs. A reduction in the gross margin we realize on such sales would negatively impact our business, financial condition and results of
operations.
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 East Dubuque Facilitys 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., Orascom Construction Industries Company, or OCI, and Helm Fertilizer Corp., and our Pasadena Facilitys principal competitors include domestic and foreign fertilizer producers and independent distributors and
brokers, including BASF AG, Honeywell International Inc., Agrium Inc., Royal DSM N.V., Dakota Gasification Company, Martin Midstream Partners L.P and producers of nitrogen fertilizer in China.
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 East Dubuque Facilitys nitrogen fertilizer competitors have recently expanded production
capacity of their nitrogen fertilizer products. Furthermore, a few dormant nitrogen production facilities located outside of the East Dubuque Facilitys core market have recently resumed operations. The additional capacity has placed downward
pressure on average sales prices for ammonia and UAN. Moreover, we may face additional competition due to further 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. For example, OCI, an Egyptian producer of fertilizer products, announced that in November 2012 it
broke ground on construction of a facility in our core market that is designed to produce between 1.5 to 2.0 million metric tons per year of ammonia, urea, UAN and diesel exhaust fluid. The facility is expected to begin production in late 2015. If a
new nitrogen fertilizer facility is completed in the East Dubuque Facilitys core market, it could benefit from the same competitive advantage associated with the location of the facility. As a result, the completion of such a facility could
have a material adverse effect on our business and cash flow.
Our competitive position could suffer to the extent that 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. For example, higher exports of ammonium sulfate
from China have put downward pressure on ammonium sulfate prices, and prices for ammonia and sulfur, key inputs for ammonium sulfate, have increased significantly. The factors together have negatively impacted product margins for ammonium sulfate.
We could be required to record material impairment charges and write-downs with respect to our Pasadena Facility in the future.
The future profitability of our Pasadena Facility will be significantly affected by, among other things, nitrogen fertilizer product prices
and the prices of the inputs to its production processes. It is possible that adverse changes to supply and demand factors relating to the Pasadena Facilitys nitrogen fertilizer products could require us to lower further our expectations for
the profitability of the facility in the future. If this were to occur, we could be required to record material impairment charges and write-downs, which could have a material adverse effect on our results of operations, the trading price of our
common stock and our reputation.
51
Exhibit Index
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3.1 |
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Articles of Amendment to Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Rentech on April 11, 2014). |
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10.1 |
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Subscription Agreement, dated as of April 9, 2014, by and among the Company, the Purchasers and the Purchasers Representative thereunder (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by
Rentech on April 11, 2014). |
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10.2 |
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Registration Rights Agreement, dated as of April 9, 2014, by and among the Company, the Purchasers and the Purchasers Representative (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rentech
on April 11, 2014). |
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10.3 |
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Form of Put Option Agreement, dated as of April 9, 2014, by and between DSHC and each Purchaser (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Rentech on April 11,
2014). |
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10.4 |
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Pledge Agreement, dated as of April 9, 2014, by and among DSHC, the Purchasers, and Credit Suisse AG Cayman Islands Branch (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by Rentech on April 11,
2014). |
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10.5 |
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Term Loan Credit Agreement, dated as of April 9, 2014, among Rentech Nitrogen Holdings, Inc., the Lenders party thereto, and Credit Suisse AG Cayman Islands Branch (incorporated by reference to Exhibit 10.5 to the Current Report on
Form 8-K filed by Rentech on April 11, 2014). |
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10.6 |
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Guaranty Agreement, dated as of April 9, 2014, by the Company in favor of Credit Suisse AG Cayman Islands Branch (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by Rentech on April 11,
2014). |
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10.7 |
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Pledge Agreement, dated as of April 9, 2014, by and between Rentech Nitrogen Holdings, Inc. and Credit Suisse AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed by Rentech on
April 11, 2014). |
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10.8 |
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Settlement Agreement, dated as of April 9, 2014, by and among the Company and each of the Investors identified therein (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 11, 2014). |
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31.1 |
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Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act. |
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31.2 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act. |
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32.1 |
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Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
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32.2 |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
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101 |
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The following financial information from the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 formatted in Extensible Business Reporting Language (XBRL) includes: (i) the Consolidated
Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders Equity, (v) the Consolidated Statements of Cash Flows and (vi)
the Notes to Consolidated Financial Statements (Unaudited), detailed tagged. |
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
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RENTECH, INC. |
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Dated: August 18, 2014 |
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/s/ D. Hunt Ramsbottom |
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D. Hunt Ramsbottom, |
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President and Chief Executive Officer |
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Dated: August 18, 2014 |
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/s/ Dan J. Cohrs |
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Dan J. Cohrs |
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Chief Financial Officer |
53
Exhibit 31.1
RENTECH, INC.
Certification of President and Chief Executive Officer
I, D. Hunt Ramsbottom, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Rentech, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
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4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluations; and |
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(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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Dated: August 18, 2014 |
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/s/ D. Hunt Ramsbottom |
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D. Hunt Ramsbottom |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
RENTECH, INC.
Certification of Chief Financial Officer
I, Dan J. Cohrs, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Rentech, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
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4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluations; and |
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(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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Dated: August 18, 2014 |
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/s/ Dan J. Cohrs |
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Dan J. Cohrs |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 32.1
RENTECH, INC.
CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Rentech, Inc., (the Company) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, D. Hunt
Ramsbottom, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act); and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
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Dated: August 18, 2014 |
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/s/ D. Hunt Ramsbottom |
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D. Hunt Ramsbottom |
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President and Chief Executive Officer |
This certification accompanies the report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be
deemed filed by the Company for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference.
Exhibit 32.2
RENTECH, INC.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Rentech, Inc., (the Company) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Dan J. Cohrs,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act); and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
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Dated: August 18, 2014 |
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/s/ Dan J. Cohrs |
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Dan J. Cohrs |
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Chief Financial Officer |
This certification accompanies the report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be
deemed filed by the Company for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference.
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