For the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and 2010, and
the fiscal year ended September 30, 2011 the Company made certain cash payments as follows:
Excluded from the statements of cash flows were the effects of certain non-cash financing and investing
activities as follows:
Notes to Consolidated Financial Statements
Note 1 — Description of Business
Description of Business
Rentech, Inc. (“Rentech,” “the Company,” “we,” “us” or “our”) operates currently in five
segments including East Dubuque, Pasadena, Fulghum Fibres, wood pellets and energy technologies.
The Company through its indirect
majority-owned subsidiary, Rentech Nitrogen Partners, L.P. (“RNP”), owns and operates two fertilizer facilities: the Company’s East Dubuque Facility and the Company’s Pasadena Facility, referred to collectively as the
“Fertilizer Facilities.” Our East Dubuque Facility is located in East Dubuque, Illinois, and has been in operation since 1965. The Company produces primarily ammonia and urea ammonium nitrate solution (“UAN”) at the
Company’s East Dubuque Facility, using natural gas as the facility’s primary feedstock. Our Pasadena Facility, which the Company acquired in November 2012, is located in Pasadena, Texas, and has been in operation producing various products
since the 1940s. In 2011, the Company’s Pasadena Facility was converted to the production of high-quality granulated synthetic ammonium sulfate, and began selling ammonium sulfate and ammonium thiosulfate as its primary products using ammonia
and sulfate as the facility’s primary feedstocks. The Company produces ammonium sulfate, ammonium thiosulfate and sulfuric acid at the Company’s Pasadena Facility, using ammonia and sulfur as the facility’s primary feedstocks. The
noncontrolling interests reflected on the Company’s consolidated balance sheets are affected by the net income of, and distribution from, RNP.
On November 9, 2011, RNP completed its initial public offering (the “Offering”) of 15,000,000 common units representing limited
partner interests at a public offering price of $20.00 per common unit. The common units sold to the public in the Offering represented 39.2% of RNP common units outstanding as of the closing of the Offering. Rentech Nitrogen Holdings, Inc.
(“RNHI”), Rentech’s indirect wholly-owned subsidiary, owned the remaining 60.8% of RNP common units outstanding as of the closing of the Offering and Rentech Nitrogen GP, LLC (the “General Partner”), RNHI’s wholly-owned
subsidiary, owns 100% of the non-economic general partner interest in RNP. RNP’s assets consisted as of the closing of the Offering of all of the equity interests of Rentech Nitrogen, LLC (“RNLLC”), formerly known as Rentech Energy
Midwest Corporation (“REMC”), which owns the East Dubuque Facility. At the closing of the Offering, RNLLC was converted into a limited liability company. In connection with the Offering, the Company received proceeds, net of costs of
$275.1 million. The Company recorded additional paid-in capital of $240.7 million and a noncontrolling interest of $34.4 million which represented 39.2% of the net book value of RNP. As a result of the Offering, there was no change in control and,
there was no step up in accounting basis of assets or gain recognized.
On November 1, 2012, RNP completed its acquisition of 100% of
the membership interests of Agrifos LLC (“Agrifos”) from Agrifos Holdings Inc. (the “Seller”), pursuant to a Membership Interest Purchase Agreement (the “Purchase Agreement”). Upon the closing of this transaction (the
“Agrifos Acquisition”), Agrifos became a wholly-owned subsidiary of RNP and its name changed to Rentech Nitrogen Pasadena Holdings, LLC. Rentech Nitrogen Pasadena Holdings, LLC owns all of the member interests in Rentech Nitrogen Pasadena,
LLC (“RNPLLC”), formerly known as Agrifos Fertilizer, LLC, which owns and operates the Pasadena Facility. For information on the Agrifos Acquisition refer to Note 4
—
Agrifos Acquisition.
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. Through Fulghum and its subsidiaries, the Company now operates 32 wood chipping mills, of which 26 are located in the United States, five in Chile and one in Uruguay. Noncontrolling interests of $4.0 million represent the
non-acquired ownership interests in the subsidiaries located in Chile and Uruguay as of May 1, 2013. During the calendar year 2013, Fulghum acquired an additional equity interest of approximately 13% in the subsidiary located in Chile. Fulghum
currently owns approximately 88% and 87% of the equity interests in the subsidiaries located in Chile and Uruguay, respectively. For information on the Fulghum Acquisition refer to Note 3
—
Fulghum Acquisition.
96
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Each of Fulghum’s United States mills typically operates under an exclusive processing
agreement with a single customer. Under each agreement, the customer is responsible for procuring and delivering wood, and Fulghum is paid a processing fee based on tons processed, with minimum and maximum fees tied to volumes. In most cases, if the
customer fails to deliver the minimum contracted log volume for processing, it must pay a shortage fee to Fulghum. Generally, under the terms of the Company’s processing agreements, customers have the option to purchase the mill equipment for a
pre-negotiated amount (which decreases over time) and, in some cases, customers have the option to acquire the land. Fulghum’s Chilean operations also include the sale of wood chips for export and the local sale of bark for power production. In
both situations, the wood is purchased by Fulghum.
In connection with the Fulghum Acquisition, the Company entered into a joint venture
with Graanul Invest AS (“Graanul”), a European producer of wood pellets, for the potential development and construction of, and investment in, wood pellet plants in the United States and Canada. The Company and Graanul each own 50% equity
interests in the joint venture (the “Rentech/Graanul JV”) which is accounted for under the equity method. The two facilities under development in Eastern Canada will not be owned by the Rentech/Graanul JV. For the year ended
December 31, 2013, the Rentech/Graanul JV’s loss, which is shown as equity in loss of investee in the consolidated statements of operations, was approximately $0.2 million.
The Company is developing two facilities in Eastern Canada to produce and sell wood pellets for use as renewable fuel to produce electricity.
See Note 8
—
Property, Plant and Equipment for a description of the two facilities and Note 13
—
Commitments and Contingencies for major contracts and commitments for this business segment.
The Company decided to exit the energy technologies business as a direct result of the high projected cost to develop the technologies and
deploy them at commercial scale, in combination with the lower projected returns on such investments as energy prices in the United States dropped due to the advent of hydraulic fracturing and other factors, as well as 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 22
—
Subsequent Events regarding the proposed sale of the Company’s energy
technologies.
Change in Fiscal Year End and Basis of Presentation
On February 1, 2012, the Company changed its fiscal year end from September 30 to December 31. References to any of the
Company’s calendar years mean the twelve-month period ended December 31 of that calendar year. References to the Company’s fiscal year mean the fiscal year ended September 30, 2011. The statement of operations for the calendar
year ended December 31, 2011 was derived by deducting the statement of operations for the three months ended December 31, 2010 from the statement of operations for the fiscal year ended September 30, 2011 and then adding the statement
of operations for the three months ended December 31, 2011. The statements of operations for calendar year ended December 31, 2011 and the three months ended December 31, 2010, while not required, are presented for comparison
purposes. Financial information in these notes with respect to calendar year 2011 and the three months ended December 31, 2010 is unaudited.
The Company identified errors that impacted product sales and cost of sales for the year ended December 31, 2012. The impact of
correcting these errors in 2013 increased operating income by $0.2 million. Management does not believe the impact of these errors was material to 2013 or any previously issued financial statements.
Discontinued Operations
Activity
related to discontinued operations in 2012 represents final settlement of activity and balances related to a business discontinued in 2005.
Note 2 — Summary of Certain Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and all subsidiaries in
which the Company directly or indirectly owns a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation.
Subsequent Events
The Company has
evaluated events occurring between December 31, 2013 and the date of these financial statements to ensure that such events are properly reflected in these statements.
97
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities 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.
Revenue Recognition
East Dubuque and Pasadena Policy
Product sales revenues from the Fertilizer Facilities are recognized when customers take ownership upon shipment from the Fertilizer
Facilities, the East Dubuque Facility’s leased facility or the Pasadena Facility’s distributors’ facilities and (i) assumes risk of loss, (ii) there are no uncertainties regarding customer acceptance, (iii) collection
of the related receivable is probable, (iv) persuasive evidence of a sale arrangement exists and (v) the sales price is fixed or determinable. Management assesses the business environment, the customer’s financial condition,
historical collection experience, accounts receivable aging and customer disputes to determine whether collectability is reasonably assured. If collectability is not considered reasonably assured at the time of sale, the Company does not recognize
revenue until collection occurs.
Natural gas, though not purchased for the purpose of resale, is occasionally sold by the East Dubuque
Facility when contracted quantities received are in excess of production and storage capacities, in which case the sales price is recorded in product sales and the related cost is recorded in cost of sales. Natural gas sales were approximately $3.4
million, $1.1 million and $0.1 million for 2013, 2012 and 2011, respectively.
East Dubuque Contracts
On April 26, 2006, the Company’s subsidiary, Rentech Development Corporation (“RDC”), entered into a Distribution Agreement
(the “Distribution Agreement”) with Royster-Clark Resources, LLC, who subsequently assigned the agreement to Agrium U.S.A., Inc. (“Agrium”), and RDC similarly assigned the agreement to REMC, prior to its conversion into RNLLC.
The Distribution Agreement is for a 10 year period, subject to renewal options. Pursuant to the Distribution Agreement, Agrium is obligated to use commercially reasonable efforts to promote the sale of, and solicit and secure orders from its
customers for nitrogen fertilizer products manufactured at the East Dubuque Facility, and to purchase from RNLLC nitrogen fertilizer products manufactured at the facility for prices to be negotiated in good faith from time to time. Under the
Distribution Agreement, Agrium is appointed as the exclusive distributor for the sale, purchase and resale of nitrogen products manufactured at the East Dubuque Facility. Sale terms are negotiated and approved by RNLLC. Agrium bears the credit risk
on products sold through Agrium pursuant to the Distribution Agreement. If an agreement is not reached on the terms and conditions of any proposed Agrium sale transaction, RNLLC has the right to sell to third parties provided the sale is on the same
timetable and volumes and at a price not lower than the one proposed by Agrium. For the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended September 30, 2011, the
Distribution Agreement accounted for 79%, 83%, 92% and 83%, respectively, of net revenues from product sales for the East Dubuque Facility. Receivables from Agrium accounted for 84% and 73% of the total accounts receivable balance of the East
Dubuque Facility as of December 31, 2013 and 2012, respectively. RNLLC negotiates sales with other customers and these transactions are not subject to the terms of the Distribution Agreement.
Under the Distribution Agreement, the East Dubuque Facility pays commissions to Agrium not to exceed $5 million during each contract year on
applicable gross sales during the first 10 years of the agreement. The commission rate was 2% during the first year of the agreement and increased by 1% on each anniversary date of the agreement up to the current maximum rate of 5%. For the calendar
years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended September 30, 2011, the effective commission rate associated with sales under the Distribution Agreement was 3.6%, 2.7%, 2.6%
and 4.3%, respectively. The commission expense was recorded in cost of sales for all periods.
98
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Pasadena Contracts
RNPLLC sells substantially all of its products through marketing and distribution agreements. Pursuant to an exclusive marketing agreement
RNPLLC has entered into with Interoceanic Corporation (“IOC”), IOC has the exclusive right and obligation to market and sell all of the Pasadena Facility’s ammonium sulfate product. Under the marketing agreement, IOC is required to
use commercially reasonable efforts to market the product to obtain the most advantageous price. RNPLLC compensates IOC for transportation and storage costs relating to the ammonium sulfate product it markets through the pricing structure under the
marketing agreement. The marketing agreement has a term that ends December 31, 2016, but automatically renews for subsequent one-year periods (unless either party delivers a termination notice to the other party at least 210 days prior to an
automatic renewal). The marketing agreement may be terminated prior to its stated term for specified causes. During the calendar year ended December 31, 2013 and the period beginning November 1, 2012 through December 31, 2012, the
marketing agreement with IOC accounted for 100% of the Pasadena Facility’s revenues from the sale of ammonium sulfate. In addition, RNPLLC has an arrangement with IOC that permits RNPLLC to store 59,500 tons of ammonium sulfate at
IOC-controlled terminals, which are located near end customers of the Pasadena Facility’s ammonium sulfate. This arrangement currently is not governed by a written contract. RNPLLC also has marketing and distribution agreements to sell other
products that automatically renew for successive one year periods.
Fulghum Fibres Contracts
Tolling and Offtake Arrangements
– The Company has certain wood chip processing, wood yard operation and wood pellet
agreements, which contain embedded leases for accounting purposes. This generally occurs when the agreement designates a specific chip mill or pellet plant in which the buyer purchases substantially all of the output and does not otherwise meet a
fixed price per unit of output exception. The Company determined that these are operating leases.
A tolling and offtake agreement that
does not contain a lease may be classified as a derivative subject to a normal purchase and sale exception, in which case the agreement is classified as an executory contract and accounted for on an accrual basis. Tolling and offtake agreements, and
components of these agreements that do not meet the above classifications, are accounted for on an accrual basis.
For sales which are not
accounted for as operating leases as described above, the Company recognizes revenue at the time the service is provided or when customers take ownership upon shipment from the facilities of the chips or pellets and assumes risk of loss, collection
of the related receivable is probable, persuasive evidence of a sale arrangement exists and the sales price is fixed or determinable. Revenues associated with tolling arrangements are included in service revenues and sales of product under offtake
agreements are included in product sales in our consolidated statements of operations.
Deferred Revenue
A significant portion of the revenue recognized during any period may be related to product prepayment contracts or products stored at IOC
facilities, for which cash was collected during an earlier period, with the result that a significant portion of revenue recognized during a period may not generate cash receipts during that period. As of December 31, 2013 and 2012, deferred
revenue was approximately $21.6 million and $29.7 million, respectively. At the East Dubuque Facility, the Company records a liability for deferred revenue to the extent that payment has been received under product prepayment contracts, which create
obligations for delivery of product within a specified period of time in the future. The terms of these product prepayment contracts require payment in advance of delivery. At the Pasadena Facility, IOC pre-pays a portion of the sales price for
shipments received into its storage facilities which is recorded as deferred revenue. The Company recognizes revenue related to the product prepayment contracts or products stored at IOC facilities and relieves the liability for deferred revenue
when products are shipped (including shipments to end customers from IOC facilities).
Cost of Sales
Cost of sales are comprised of manufacturing costs related to the Company’s fertilizer products and processing costs for services. Cost of
sales expenses include direct materials (such as natural gas, ammonia, sulfur and sulfuric acid), direct labor, indirect labor, employee fringe benefits, depreciation on plant machinery, electricity and other costs, including shipping and handling
charges incurred to transport products sold.
The Company enters into short-term contracts to purchase physical supplies of natural gas in
fixed quantities at both fixed and indexed prices. The Company anticipates that it will physically receive the contract quantities and use them in the production of fertilizer. The Company believes it is probable that the counterparties will fulfill
their contractual obligations when executing these contracts. Natural gas purchases, including the cost of transportation to the East Dubuque Facility, are recorded at the point of delivery into the pipeline system.
99
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Accounting for Derivative Instruments
Accounting guidance establishes accounting and reporting requirements for derivative instruments and hedging activities. This guidance requires
recognition of all derivative instruments as assets or liabilities on the Company’s 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 elects the normal purchase
normal sale exemption for the Company’s commodity-based derivative instruments. As such, the Company does not recognize the unrealized gains or losses related to these derivative instruments in its consolidated financial statements. For
interest rate swaps, RNP did not use hedge accounting; however, RNP reflected the instruments at fair value and any change in value was recorded in other expense, net on the consolidated statement of operations. RNP terminated the interest rate
swaps in calendar year 2013.
Research and Development Expenses
Research and development expenses included direct materials, direct labor, indirect labor, fringe benefits, third-party consultants and other
costs incurred to develop and refine certain technologies employed in the Company’s energy technologies segment. These costs are expensed as incurred.
Cash
The Company has checking and
savings accounts with major financial institutions. At times balances with these institutions may be in excess of federally insured limits.
Accounts and Other Receivables
Trade receivables are recorded at net realizable value. The allowance for doubtful accounts reflects the Company’s best estimate of
probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. The Company reviews its allowance for doubtful
accounts quarterly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote.
At December 31, 2013, the Company has recorded an insurance receivable of approximately
$1.7 million for losses incurred at a November 2013 fire at the East Dubuque Facility. The receivable is not in dispute, and recovery is probable due to a legally enforceable insurance policy.
Inventories
Inventories consist
of raw materials and finished goods within the Company’s East Dubuque, Pasadena and Fulghum Fibres segments. The primary raw material used by the East Dubuque Facility in the production of its nitrogen products is natural gas. The primary raw
materials used by the Pasadena Facility in the production of its products are ammonia and sulfur. Raw materials also include certain chemicals used in the manufacturing process. Fulghum Fibres’ raw materials inventory consists of purchased
roundwood to be chipped at its South American mills. Finished goods include the products stored at the Fertilizer Facilities that are ready for shipment along with any inventory that may be stored at remote facilities, and Fulghum Fibres’
processed wood chips. The Company allocates fixed production overhead costs to inventory based on the normal capacity of its production facilities and unallocated overhead costs are recognized as expense in the period incurred. At December 31,
2013 and 2012, inventories on the consolidated balance sheets included depreciation of approximately $1.2 million and $1.0 million, respectively.
Inventories are stated at the lower of cost or estimated net realizable value. The cost of inventories is determined using the first-in
first-out method. The estimated net realizable value is based on customer orders, market trends and historical pricing. On at least a quarterly basis, the Company performs an analysis of its inventory balances to determine if the carrying amount of
inventories exceeds its net realizable value. If the carrying amount exceeds the estimated net realizable value, the carrying amount is reduced to the estimated net realizable value.
100
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation expense is calculated using the straight-line
method over the estimated useful lives of the assets, except for platinum catalyst, as follows:
|
|
|
|
|
Type of Asset
|
|
Estimated Useful Life
|
|
Building and building improvements
|
|
4-40 years
|
|
Land improvements
|
|
5-20 years
|
|
Machinery and equipment
|
|
7-22 years
|
|
Furniture, fixtures and office equipment
|
|
3-10 years
|
|
Computer equipment and software
|
|
2-5 years
|
|
Vehicles
|
|
2-15 years
|
|
Leasehold improvements
|
|
Useful life or remaining lease term whichever is shorter
|
|
Ammonia catalyst
|
|
3-10 years
|
|
Platinum catalyst
|
|
Based on units of production
|
Expenditures during turnarounds or at other times for improving, replacing or adding to RNP’s assets are
capitalized. Expenditures for the acquisition, construction or development of new assets to maintain RNP’s operating capacity, or to comply with environmental, health, safety or other regulations, are also capitalized. Costs of general
maintenance and repairs are expensed.
When property, plant and equipment is retired or otherwise disposed of, the asset and accumulated
depreciation are removed from the accounts and the resulting gain or loss is reflected in operating expenses.
Spare parts are maintained
by the Fertilizer Facilities to reduce the length of possible interruptions in plant operations from an infrastructure breakdown at the Fertilizer Facilities. The spare parts may be held for use for years before the spare parts are used. As a
result, they are capitalized as a fixed asset at cost. When spare parts are utilized, the book values of the assets are charged to earnings as a cost of production. Periodically, the spare parts are evaluated for obsolescence and impairment and if
the value of the spare parts is impaired, it is charged against earnings.
Long-lived assets, construction in progress and identifiable
intangible assets are reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying
amount of the asset, an impairment loss is recognized and measured using the asset’s fair value.
The Company capitalizes certain
direct development costs associated with internal-use software, including external direct costs of material and services, and payroll costs for employees devoting time to software implementation projects. Costs incurred during the preliminary
project stage, as well as maintenance and training costs, are expensed as incurred.
The Company has recorded asset retirement obligations
(“AROs”) related to future costs associated with (i) the removal of contaminated material at the former phosphorous plant at the Pasadena Facility and handling, (ii) disposal of asbestos at the East Dubuque Facility and
(iii) removal of machinery and equipment at Fulghum mills on leased property. The fair value of a liability for an ARO is recorded in the period in which it is incurred and the cost of such liability increases the carrying amount of the related
long-lived asset by the same amount. The liability is accreted each period through charges to operating expense and the capitalized cost is depreciated over the remaining useful life of the asset. The liability at December 31, 2013 and 2012 was
approximately $3.0 million and $3.1 million.
Construction in Progress
The Company tracks project development costs and capitalizes those costs after a project has completed the scoping phase and enters the
feasibility phase. The most significant projects under construction are the Wawa and Atikokan facilities at December 31, 2013. The Company also capitalizes costs for improvements to the existing machinery and equipment at the Fertilizer
Facilities and certain costs associated with the Company’s information technology initiatives. Interest incurred on development and construction projects is capitalized until construction is complete. The Company does not depreciate
construction in progress costs until the underlying assets are placed into service.
101
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Property Held for Sale
Property held for sale represents long lived assets that management has committed to a plan to sell and has taken actions to do so and the sale
is expected within the next year. During the calendar year ended December 31, 2013, the Company reclassified the PDU from property, plant and equipment to property held for sale on its consolidated balance sheet. The PDU is available for
immediate sale and is being actively marketed for sale. During the year ended December 31, 2012, the Company reflected the property located in Natchez, Mississippi (the “Natchez Property”) as held for sale and on August 15, 2013,
the Company sold it for net proceeds of approximately $8.6 million. This transaction resulted in a gain on sale of approximately $6.3 million. As of December 31, 2013, property held for sale only includes the PDU. Both properties were included
in the energy technologies segment.
Acquisition Method of Accounting
The Company accounts for business combinations using the acquisition method of accounting, which requires, among other things, that assets
acquired, liabilities assumed and earn-out consideration be recognized at their fair values as of the acquisition date. The Company has recognized goodwill and intangibles related to its acquisitions as described in Note 3
—
Fulghum
Acquisition and Note 4
—
Agrifos Acquisition. The earn-out consideration will be measured at each reporting date with changes in its fair value recognized in the consolidated statements of operations.
Goodwill
Goodwill represents the
excess of the purchase price over the fair value of identifiable net assets acquired in a business acquisition. The Company tests goodwill assets 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 unit’s 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 and Fulghum reporting units is based upon various assumptions and is based 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 operating 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.
If the fair value of the reporting unit is
less than its carrying value, step two of the impairment test is performed. Step two of the goodwill impairment test consists of comparing the implied fair value of the reporting unit’s goodwill against the carrying value of the goodwill.
Determining the implied fair value of goodwill requires the valuation of a reporting unit’s identifiable tangible and intangible assets and liabilities as if the reporting unit had been acquired in a business combination on the testing date.
The valuation of assets and liabilities in step two is performed only for purposes of assessing goodwill for impairment. See Note 9 — Goodwill.
Intangible Assets
Intangible
assets arose in conjunction with the Fulghum Acquisition and Agrifos Acquisition (See Note 3
—
Fulghum Acquisition and Note 4
—
Agrifos Acquisition). Fulghum’s intangible assets consist of trade names and processing
agreements to provide high-quality wood chipping and wood yard operations services to its customers. Acquired trade names were assessed as indefinite lived assets because there is no foreseeable limit on the period of time over which they are
expected to contribute cash flows. Acquired trade names are not amortized but are subject to an annual test for impairment and in between annual tests when events or circumstances indicate that the carrying value may not be recoverable.
102
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Intangible assets consist of the following at December 31, 2013 and 2012 (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Average Life
|
|
|
Trade names
|
|
$
|
5,496
|
|
|
$
|
—
|
|
|
|
Indefinite
|
|
|
Wood chip processing agreements
|
|
|
29,765
|
|
|
|
—
|
|
|
|
1-17
|
|
|
Off-take contract
|
|
|
2,811
|
|
|
|
—
|
|
|
|
10
|
|
|
Technologies to produce fertilizers
|
|
|
23,680
|
|
|
|
23,680
|
|
|
|
20
|
|
|
Fertilizer marketing agreements
|
|
|
3,088
|
|
|
|
3,088
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles, gross
|
|
$
|
64,840
|
|
|
$
|
26,768
|
|
|
|
|
|
|
Less: accumulated amortization
|
|
|
(5,110
|
)
|
|
|
(583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles, net
|
|
$
|
59,730
|
|
|
$
|
26,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization of the assets will result in amortization expense of approximately $4.3 million in 2014 and
$4.4 million for each of the next four years thereafter.
We also have unfavorable processing agreements in the amount of approximately
$4.1 million, which are included in other liabilities both current and long term. These agreements along with processing agreements recorded in intangible assets are amortized over the economic benefit.
Costs for patents on intellectual property are capitalized and amortized using the straight-line method over the remaining lives of the
patents. The cost of patents was $11.9 million with accumulated amortization of $2.0 million at December 31, 2011. The Company recorded $1.4 million, $0.3 million and $1.0 million in amortization expense for the calendar year ended
December 31, 2012, the three months ended December 31, 2011, and the fiscal year ended September 30, 2011, respectively. See Note 10 — Impairments.
Income Taxes
The Company accounts
for income taxes under the liability method, which requires an entity to recognize deferred tax assets and liabilities for temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or deductible amounts in future years. An income tax valuation allowance has been established to reduce the Company’s deferred tax asset to the amount that is expected to
be realized in the future.
The Company recognizes in its consolidated financial statements only those tax positions that are
“more-likely-than-not” of being sustained, based on the technical merits of the position. The Company performs a comprehensive review of its material tax positions in accordance with the applicable guidance.
Net Income (Loss) Per Common Share Allocated To Rentech
Basic 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 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 convertible debt if their
inclusion would not have been anti-dilutive.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in stockholders’ equity during the period from non-owner sources. To date, accumulated
other comprehensive income (loss) is primarily comprised of adjustments to the defined benefit pension plans and the postretirement benefit plans and foreign currency translation.
Variable Interest Entities
The
Company may enter into joint ventures or make investments with business partners that support its underlying business strategy and provide it the ability to enter new markets. In certain instances, an entity in which the Company may make an
investment may qualify as a variable interest entity (“VIE”). If the Company determines that it is the primary beneficiary of an entity, it must consolidate that entity’s operations. Determination of the primary beneficiary focuses on
determining which variable interest holder has the power to direct the most significant activities of the VIE. The Company has currently no VIEs.
103
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Recent Accounting Pronouncements
In January 2013, the Financial Accounting Standards Board (the “FASB”) issued guidance requiring companies to disclose information
about financial instruments that have been offset on the balance sheet or subject to an enforceable master netting agreement, irrespective of whether they have been offset, and related arrangements to enable users of a company’s financial
statements to understand the effect of those arrangements on the company’s financial position. Companies will be required to provide both net (offset amounts) and gross information in the notes to the financial statements for relevant assets
and liabilities that are offset. This guidance is effective for interim and annual periods beginning on or after January 1, 2013 and requires retrospective application, and thus became effective for the Company’s interim period beginning
on January 1, 2013. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations or disclosures.
In February 2013, the FASB issued guidance that requires a company to disclose information about amounts reclassified out of accumulated other
comprehensive income and their corresponding effect on net income. This guidance is effective for interim and annual periods beginning after December 15, 2012, and thus became effective for the Company’s interim period beginning on
January 1, 2013. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or disclosures.
In July 2013, 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. It is effective for the Company’s
interim period beginning on January 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or disclosures.
Note 3 — Fulghum Acquisition
On May 1, 2013, the Company acquired all of the capital stock of Fulghum. The preliminary purchase price consisted of
approximately $64.2 million of cash, including approximately $3.3 million used to retire certain debt of Fulghum at closing. The amount of the purchase price is subject to certain potential post-closing adjustments set forth in the stock 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 Company’s
preliminary purchase price allocation as of May 1, 2013 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 preliminary purchase price
|
|
$
|
64,168
|
|
|
|
|
|
|
|
Long-term deferred tax liabilities and other tax liabilities result from identifiable tangible and intangible
assets fair value adjustments. These adjustments create excess book basis over the tax basis which is multiplied by the statutory tax rate for the jurisdiction in which the deferred taxes exist. As part of purchase accounting for Fulghum, we
recorded additional deferred tax liabilities of approximately $15.8 million attributable to identifiable tangible and intangible assets.
104
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The final purchase price and the allocation thereof will not be known until the final working
capital adjustments are performed and a review of various tax issues is completed.
The operations of Fulghum are included in the
consolidated statement of operations effective May 1, 2013. During the calendar year ended December 31, 2013, the Company recorded revenue and net income related to Fulghum of approximately $63.0 million and $7.0 million, respectively.
Acquisition related costs for this acquisition totaled approximately $1.5 million and have been included in the consolidated statements of operations within selling, general and administrative expense.
Note 4 — Agrifos Acquisition
On November 1, 2012, the Company acquired all of the membership interest of Agrifos. The purchase price for Agrifos and
its subsidiaries consisted of an initial purchase price of $136.3 million in cash, less working capital adjustments, and $20.0 million in common units representing limited partnership interests in RNP (the “Common Units”), which reduced
the Company’s ownership interest in RNP at the time from 60.8% to 59.9%, as well as potential earn-out consideration of up to $50.0 million to be paid in Common Units or cash at RNP’s option based on the amount by which the two-year
Adjusted EBITDA, as defined in the Purchase Agreement, of the Pasadena Facility exceeds certain thresholds. Among other terms, the Seller is required to indemnify us for a period of six years after the closing for certain environmental matters
relating to the Pasadena Facility, which indemnification obligations are subject to important limitations including a deductible and an overall cap. We deposited with an escrow agent in several escrow accounts a portion of the initial consideration
consisting of an aggregate of $7.25 million in cash, and 323,276 Common Units, representing a value of $12.0 million, which amounts may be used to satisfy certain indemnity claims upon the occurrence of certain events. Any earn-out consideration
would be paid after April 30, 2015 and the completion of the relevant calculations in either common units or cash at RNP’s option.
This business combination has been accounted for using the acquisition method of accounting, which requires, among other things, that most
assets acquired, liabilities assumed and earn-out consideration be recognized at their fair values as of the acquisition date.
The
purchase price consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
Cash (through borrowings under a previous credit agreement) less working capital adjustments
|
|
$
|
136,308
|
|
|
Fair market value of 538,793 Common Units issued
|
|
|
20,000
|
|
|
Estimate of potential earn-out consideration
(1)
|
|
|
4,920
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
161,228
|
|
|
|
|
|
|
|
|
(1)
|
The amount of earn-out consideration reflected in the table above reflects the Company’s estimate, as of November 1, 2012, of the amount of the earn-out consideration RNP will be required to pay pursuant to
the Purchase Agreement, as defined in Note 6
—
Fair Value. The earn-out consideration will be measured at each reporting date with changes in its fair value recognized in the consolidated statements of operations. As of
December 31, 2013, the fair value of the potential earn-out consideration was $0.
|
105
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
RNP’s final purchase price allocation as of November 1, 2012 is as follows (amounts
in thousands):
|
|
|
|
|
|
|
Cash
|
|
$
|
2,622
|
|
|
Accounts receivable
|
|
|
3,204
|
|
|
Inventories
|
|
|
30,373
|
|
|
Prepaid expenses and other current assets
|
|
|
566
|
|
|
Property, plant and equipment
|
|
|
68,688
|
|
|
Construction in progress
|
|
|
7,011
|
|
|
Intangible assets (Technology—$23,680 and Marketing Agreement—$3,088)
|
|
|
26,768
|
|
|
Goodwill
|
|
|
57,231
|
|
|
Other assets
|
|
|
73
|
|
|
Accounts payable
|
|
|
(10,638
|
)
|
|
Accrued liabilities
|
|
|
(6,640
|
)
|
|
Customer deposits
|
|
|
(13,301
|
)
|
|
Asset retirement obligation
|
|
|
(2,776
|
)
|
|
Other long-term liabilities
|
|
|
(1,953
|
)
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
161,228
|
|
|
|
|
|
|
|
During the calendar year ended December 31, 2013, RNP and the Seller finalized the working capital
adjustments which resulted in an increase in the preliminary purchase price of approximately $0.3 million. The working capital adjustments receivable was recorded separately from the purchase price allocation shown above. The finalization and
recording of the cash receipt resulted in cash increasing by approximately $2.2 million and other receivables decreasing by approximately $2.5 million. During the calendar year ended December 31, 2013, RNP recognized adjustments to the
preliminary purchase price allocation with an increase in fair value to goodwill of approximately $0.6 million and accrued liabilities of approximately $0.3 million.
The operations of Agrifos are included in the consolidated statement of operations effective November 1, 2012. During the calendar year
ended December 31, 2012, the Company recorded revenue and net loss related to Agrifos of approximately $37.4 million and $2.6 million, respectively. Acquisition related costs for this acquisition totaled approximately $4.1 million for the
calendar year ended December 31, 2012 and have been included in the consolidated statements of operations within selling, general and administrative expense.
Note 5 — Pro Forma Information
The unaudited pro forma information has been prepared as if the Fulghum Acquisition and the Agrifos Acquisition, as defined
in Note 3
—
Fulghum Acquisition and Note 4
—
Agrifos Acquisition, had taken place on January 1, 2012. 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, 2012, and the unaudited pro forma information does not purport to be indicative of future financial operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Year Ended
December 31, 2013
|
|
|
|
|
As Reported
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
$
|
374,855
|
|
|
$
|
36,683
|
|
|
$
|
411,538
|
|
|
Net income (loss)
(1)
|
|
$
|
38
|
|
|
$
|
(27,332
|
)
|
|
$
|
(27,294
|
)
|
|
Net loss attributable to Rentech
|
|
$
|
(1,532
|
)
|
|
$
|
(27,467
|
)
|
|
$
|
(28,999
|
)
|
|
Basic net loss per common share attributable to Rentech
|
|
$
|
(0.01
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.13
|
)
|
|
Diluted net loss per common share attributable to Rentech
|
|
$
|
(0.01
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.13
|
)
|
106
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Year Ended
December 31, 2012
|
|
|
|
|
As Reported
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
$
|
261,925
|
|
|
$
|
226,346
|
|
|
$
|
488,271
|
|
|
Net income
(1)
|
|
$
|
27,687
|
|
|
$
|
29,137
|
|
|
$
|
56,824
|
|
|
Net income (loss) attributable to Rentech
|
|
$
|
(14,000
|
)
|
|
$
|
29,573
|
|
|
$
|
15,573
|
|
|
Basic net income (loss) per common share attributable to Rentech
|
|
$
|
(0.06
|
)
|
|
$
|
0.13
|
|
|
$
|
0.07
|
|
|
Diluted net income (loss) per common share attributable to Rentech
|
|
$
|
(0.06
|
)
|
|
$
|
0.13
|
|
|
$
|
0.07
|
|
|
(1)
|
As discussed in Note 18
—
Income Taxes, during the calendar year ended December 31, 2013, there was a release of a valuation allowance resulting from recording deferred tax liabilities from the Fulghum
Acquisition. Since the pro forma information is presented as if the transaction had taken place on January 1, 2012, the release of the valuation allowance is included in the pro forma results for the calendar year ended December 31, 2012
and excluded from the pro forma results for the calendar year ended December 31, 2013.
|
Note 6 — 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.
|
Fair values of cash, deposits, other current assets, accounts payable, accrued liabilities and other current liabilities are assumed to
approximate carrying value since they are short term and can be settled on demand.
107
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
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
|
|
The following table presents the financial instruments that require fair value disclosure as of
December 31, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Carrying
Value
|
|
|
|
|
(in thousands)
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facilities and term loan
|
|
$
|
—
|
|
|
$
|
193,290
|
|
|
$
|
—
|
|
|
$
|
193,290
|
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
929
|
|
|
|
—
|
|
|
|
929
|
|
|
Earn-out consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
4,920
|
|
|
|
4,920
|
|
RNP Notes
The RNP Notes, as defined in Note 11
—
Debt, 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.
Fulghum Debt
Fulghum debt, as defined in Note 11
—
Debt, is deemed to be Level 2 financial instruments because the measurement is based on
observable market data. The fair value was determined by management using an independent, third party valuation company.
RNHI Revolving Loan
The RNHI Revolving Loan, as defined in Note 11
—
Debt, is deemed to be a Level 2 financial instrument because the
measurement is based on observable market data. It is concluded that the carrying value of the RNHI Revolving Loan approximates the fair value of such loan as of December 31, 2013 because of the floating nature of the interest rate and the fact
that the Company’s credit worthiness has not changed since the loan was issued.
QS Construction Facility
The QS Construction Facility, as defined in Note 11
—
Debt, 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 December 31, 2013 because of the floating nature of the interest rate and the fact that the Company’s credit worthiness has not changed since the QS Construction Facility was established.
Credit Facilities and Term Loan
The credit facilities and term loan were deemed to be Level 2 financial instruments because the measurement was based on observable market
data. RNP used part of the proceeds from the offering of the RNP Notes to repay in full and terminate the Second 2012 Credit Agreement, as defined in Note 11
—
Debt, and related interest rate swaps.
108
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Interest Rate Swaps
In 2012, RNLLC entered into two forward starting interest rate swaps in notional amounts which covered a portion of its outstanding borrowings.
The interest rate swaps were deemed to be Level 2 financial instruments because the measurements were based on observable market data. RNP 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 and three-month LIBOR rates, risk-free interest rates and an estimate of credit risk. The change in fair value was recorded in other expense, net on the consolidated statement of operations.
The realized loss represents the cash payments required under the interest rate swaps.
Net loss on interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Years Ended
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands)
|
|
|
Realized loss
|
|
$
|
(24
|
)
|
|
$
|
(22
|
)
|
|
Unrealized gain (loss)
|
|
|
17
|
|
|
|
(929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss on interest rate swaps
|
|
$
|
(7
|
)
|
|
$
|
(951
|
)
|
|
|
|
|
|
|
|
|
|
|
During the calendar year ended December 31, 2013, RNP paid approximately $0.9 million to terminate the
interest rate swaps as described above
Earn-out Consideration
The earn-out consideration relates to potential additional consideration the Company may be required to pay under the Purchase Agreement
relating to the Agrifos Acquisition. The earn-out consideration related to the Agrifos Acquisition is deemed to be a Level 3 financial instrument because the measurement is based on unobservable inputs. The fair value of earn-out consideration was
determined based on the Company’s analysis of various scenarios involving the achievement of certain levels of Adjusted EBITDA, as defined in the Purchase Agreement, over a two year period. The scenarios, which included a weighted probability
factor, involved assumptions relating to the market prices of the Company’s products and feedstocks, as well as 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. For the calendar year ended December 31, 2013, the fair value of the liability decreased by approximately $4.9 million. At December 31, 2013, the fair value of the potential
earn-out consideration relating to the Agrifos Acquisition was $0. The decrease in fair value was a result of lower than expected profitability in 2013 due primarily to unfavorable weather and increased Chinese exports, as well as a reduced outlook
for longer-term profitability due to reduced levels of nitrogen fertilizer prices. Due to an unusually wet spring, there was a shortened planting season which resulted in lower ammonium sulfate revenues during the calendar year ended
December 31, 2013. In addition, significant volumes of urea were exported from China and this supply suppressed global urea and other nitrogen fertilizer prices.
At December 31, 2013, the earn-out consideration also includes approximately $1.5 million of potential earn-out consideration relating to
the Atikokan Project, as defined in Note 8
—
Property, Plant and Equipment. The fair value of earn-out consideration was determined based on the Company’s analysis of various scenarios involving the achievement of certain levels of
EBITDA, as defined in the asset purchase agreement related to the Atikokan Project, over a ten year period. The scenarios, which included a weighted probability factor, involved assumptions relating to product profitability and production. The
Company provided a loan to the sellers of approximately $0.9 million, which will be repayable from any earn-out consideration.
The levels
within the fair value hierarchy at which the Company’s financial instruments have been evaluated have not changed for any of the Company’s financial instruments during the year ended December 31, 2013 and 2012.
109
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Note 7 — Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands)
|
|
|
Finished goods
|
|
$
|
27,638
|
|
|
$
|
21,756
|
|
|
Raw materials
|
|
|
7,448
|
|
|
|
5,269
|
|
|
Other
|
|
|
290
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
35,376
|
|
|
$
|
27,140
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2013, the Company wrote down the value of the Pasadena Facility’s
ammonium sulfate, sulfur and sulfuric acid inventory by $12.4 million to market value. This expense is reflected in cost of goods sold.
Note 8 — Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands)
|
|
|
Land and land improvements
|
|
$
|
26,149
|
|
|
$
|
22,988
|
|
|
Buildings and building improvements
|
|
|
33,096
|
|
|
|
27,120
|
|
|
Machinery and equipment and catalysts
|
|
|
334,645
|
|
|
|
135,636
|
|
|
Furniture, fixtures and office equipment
|
|
|
1,137
|
|
|
|
1,085
|
|
|
Computer equipment and computer software
|
|
|
7,977
|
|
|
|
5,981
|
|
|
Vehicles
|
|
|
4,624
|
|
|
|
309
|
|
|
Leasehold improvements
|
|
|
2,348
|
|
|
|
114
|
|
|
Other
|
|
|
210
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
410,186
|
|
|
|
193,443
|
|
|
Less: accumulated depreciation
|
|
|
(75,526
|
)
|
|
|
(59,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
334,660
|
|
|
$
|
134,195
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands)
|
|
|
East Dubuque Facility
|
|
|
2,195
|
|
|
|
52,435
|
|
|
Pasadena Facility
|
|
|
31,335
|
|
|
|
8,512
|
|
|
Fulghum Fibres
|
|
|
273
|
|
|
|
—
|
|
|
Wawa Project
|
|
|
17,007
|
|
|
|
—
|
|
|
Atikokan Project
|
|
|
8,458
|
|
|
|
—
|
|
|
Other
|
|
|
868
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction in progress
|
|
$
|
60,136
|
|
|
$
|
61,417
|
|
|
|
|
|
|
|
|
|
|
|
The construction in progress balance at December 31, 2013 and 2012 includes approximately $0.8 million
and $0.9 million of capitalized interest costs, respectively.
110
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
On May 13, 2013, the Company acquired an idled oriented strand board processing mill
from Weyerhaeuser Corporation in Wawa, Ontario, Canada for approximately $5.5 million. The Company is in the process of converting the mill to a wood pellet facility with the capacity to produce approximately 450,000 metric tons of wood pellets
annually (the “Wawa Project”). Also, on June 7, 2013, the Company acquired a former particle board processing mill from Atikokan Renewable Fuels in Atikokan, Ontario, Canada. The Company is in the process of converting the mill to a
wood pellet facility with the capacity to produce approximately 90,000 metric tons of wood pellets annually (the “Atikokan Project”). The initial purchase price for the Atikokan Project was approximately $3.8 million in cash plus potential
earn-out consideration. The earn-out consideration will equal 7% of EBITDA of the Atikokan Project, as defined in the asset purchase agreement for the Atikokan Project, over a ten-year period. In addition to the initial purchase price, the
Company provided a loan to the sellers of approximately $0.9 million, which is repayable from any earn-out consideration. Both the Wawa and Atikokan Projects were accounted for as asset purchases.
Note 9 — Goodwill
A reconciliation of the change in the carrying value of goodwill is as follows (in thousands):
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
$
|
7,209
|
|
|
Agrifos Acquisition
|
|
|
56,592
|
|
|
Goodwill impairment – energy technologies
|
|
|
(7,209
|
)
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
56,592
|
|
|
Increase attributable to Pasadena
|
|
|
639
|
|
|
Fulghum Acquisition
|
|
|
29,932
|
|
|
Goodwill impairment – Pasadena
|
|
|
(30,029
|
)
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
57,134
|
|
|
|
|
|
|
|
The inventory impairment (see Note 7 — Inventories), negative gross margin and EBITDA in the calendar
year ended December 31, 2013 and revised cash flow projections developed during the calendar year ended December 31, 2013 indicated that an impairment of the goodwill related to the Pasadena Facility was probable. See Note 10 —
Impairments.
The goodwill resulting from the Agrifos Acquisition is deductible for tax purposes, while the goodwill from the Fulghum
Acquisition is not deductible for tax purposes.
Note 10 — Impairments
Calendar Year 2013
During the calendar year, the Company incurred an approximate of $12.4 million write-down of ammonium sulfate, sulfur and sulfuric acid
inventory to market value primarily due to lower market prices of ammonium sulfate. This expense is reflected in product cost of sales.
Ammonium sulfate is the primary product of the Pasadena Facility. Results for the calendar year ended December 31, 2013 and our
projections of future cash flow from the production and sale of this product are worse than the results originally projected in late 2012, when the Company acquired Agrifos. The expected results and cash flows as of 2012 were utilized to allocate
the purchase price of the Agrifos Acquisition, as described in Note 4 – Agrifos Acquisition. The primary cause of the reduction in the estimated fair value of the Pasadena reporting unit is the decline in the cash flow expected to be generated
from the sale of ammonium sulfate, compared to the expectations at the time of the acquisition. A major cause of the lower expected cash flows is a decline in the level of prices, and expected prices, for nitrogen fertilizer caused by, among other
things, lower corn prices, poor weather conditions for fertilizer application throughout the United States in 2013 and increased supply of urea from China.
111
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Factors that affect cash flows include, but are not limited to, product prices; product
transportation costs; product sales volumes; feedstock prices and availability; labor, maintenance, and other operating costs; required capital expenditures, and plant productivity. The Pasadena Facility generated negative EBITDA during the calendar
year ended December 31, 2013. EBITDA is currently expected to be positive in 2014, but the current projection is well below the projection at the time of the acquisition, and is based on current and projected levels of prices for the products
of, and inputs for, the Pasadena Facility. Current and projected prices for the products and inputs are below the levels at the time of the acquisition, yielding expectations for lower variable dollar margins per ton of product, even though
percentage margins are expected to be consistent with those at the time of the acquisition because the prices of ammonium sulfate and its major raw materials have dropped by similar percentages. Lower dollar variable margins provide fewer dollars
per ton sold to cover the fixed costs of the facility, resulting in reduced expectations of cash generated by the facility in a lower-price environment. In addition, the Pasadena Facility’s production has been lower than expected due to plant
outages, and costs have been higher than expected due to higher maintenance expense.
Based upon its analysis of the value of the Pasadena
reporting unit using the Income Approach, the Company recorded an estimated impairment to goodwill of $30.0 million during the quarter ended September 30, 2013. During the fourth quarter the Company performed a “step 2” analysis of
goodwill and determined no adjustment to the initial goodwill impairment charge was necessary. There are significant assumptions involved in determining a goodwill impairment charge, which includes 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, market approach) are also weighted in determining fair market value. Changes to any of these
assumptions could increase or decrease the fair value of the Pasadena reporting unit. At December 31, 2013 the fair value of the Pasadena reporting unit is essentially equal to its carrying value and any adverse change to the critical assumptions
used to measure discounted cash flows could result in a diminution in fair value that may result in additional goodwill impairment charges. If gross margins on sales of products were to decline 5 percent from our expectations, an impairment charge
of approximately $15.0 million would be required at December 31, 2013. If the discount rate were to increase by 100 basis points from our expectations, an impairment charge of approximately $16.5 million would be required at December 31, 2013.
Calendar Year 2012
The Company
recorded intangibles related to the acquisition of two subsidiaries in its energy technology segment. The Company expected that these assets would be used in various development projects with unrelated parties. During the calendar year 2012 the
Company determined, based upon the status of negotiations with third parties to fund development of projects using the technologies, that the likelihood of future cash flows were significantly diminished. The Company concluded, based on the high
degree of uncertainty and low probability of completion of these projects, that the intangibles were impaired. As a result, the Company impaired the net book value of the intangibles in the amounts of approximately $16.0 million.
Fiscal Year 2011
Prior to the
fourth quarter of the fiscal year ended September 30, 2011, the Company’s energy technologies segment had under development three projects for which it had capitalized certain construction work in process and other development costs. These
projects included a biomass project in Rialto, California (the “Rialto Project”), a coal to liquid project at the Natchez Property (the “Natchez Project”) and a renewable energy project in Port St. Joe, Florida (the “Port
St. Joe Project”).
In the fourth quarter of the fiscal year ended September 30, 2011 the Company revised its strategy for
commercialization of its alternative energy technologies to include reduced spending on research and development and pursuit of projects that are smaller and require less capital to be invested by Rentech than those recently under development by the
Company. Rentech believed that project financing for the Rialto Project and the Port St. Joe Project would not be available, and the Company would not be moving forward with the projects. As a result, Rentech impaired capitalized costs associated
with the projects in its consolidated financial statements for the period ending September 30, 2011. The loss on impairment for the Rialto Project represented the total costs of the project. The loss on impairment for the Port St. Joe Project
represented the total costs of the project less the elimination of the contingent consideration liability of approximately $1.6 million.
The Company has also concluded that project financing for its large Natchez Project was not available, and the Company’s future
development efforts at its Natchez Property would focus on pursuing smaller projects that would use biomass or natural gas as feedstocks, not on the Natchez Project. As a result, Rentech impaired capitalized costs associated with its development of
the Natchez Project in its consolidated financial statements for the period ending September 30, 2011. The loss on impairment for the Natchez Project represented the total costs of the project less the appraised value of the property, which the
Company owns, of approximately $2.5 million.
112
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The financial impact recorded in the fiscal year ended September 30, 2011 statement of
operations is as follows:
|
|
|
|
|
|
|
Project
|
|
Loss on
Impairments
|
|
|
|
|
(in thousands)
|
|
|
Rialto Project
|
|
$
|
(27,238
|
)
|
|
Natchez Project
|
|
|
(26,645
|
)
|
|
Port St. Joe Project
|
|
|
(4,806
|
)
|
|
Miscellaneous
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
(58,742
|
)
|
|
|
|
|
|
|
Note 11 — Debt
The Company’s debt obligations at December 31, 2013 consist of $320.0 million of RNP Notes, $47.0 million of
Fulghum debt and $50 million of RNHI Revolving loan as defined below. The Company’s debt obligations at December 31, 2012 consisted of approximately $193.3 million in outstanding advances under its Second 2012 Credit Agreement, as defined
below. Debt premium, discount and issuance expenses incurred in connection with financing are deferred and amortized on a straight line basis.
First 2012 Credit Agreement
On
February 28, 2012, RNLLC entered into a credit agreement (the “First 2012 Credit Agreement”). The First 2012 Credit Agreement consisted of (i) a $100.0 million multiple draw term loan, and (ii) a $35.0 million revolving
facility.
Second 2012 Credit Agreement
On October 31, 2012, RNLLC, RNP, RNPLLC and certain subsidiaries of RNPLLC entered into a new credit agreement (the “Second 2012
Credit Agreement”). The Second 2012 Credit Agreement amended, restated and replaced the First 2012 Credit Agreement. The Second 2012 Credit Agreement consisted of (i) a $110.0 million multiple draw term loan (the “CapEx
Facility”) to be used by RNP and its subsidiaries for expansion projects and general partnership purposes, (ii) a $155.0 million term loan to fund the Agrifos Acquisition and (iii) the $35.0 million revolving credit facility (the
“2012 Revolving Credit Facility”).
The Second 2012 Credit Agreement had a maturity date of October 31, 2017. Borrowings
under the Second 2012 Credit Agreement bore interest at a rate equal to an applicable margin plus, at RNLLC’s option, either (a) in the case of base rate borrowings, a rate equal to the highest of (1) the prime rate, (2) the
federal funds rate plus 0.5% or (3) LIBOR for an interest period of three months plus 1.00% or (b) in the case of LIBOR borrowings, the offered rate per annum for deposits of dollars for the applicable interest period on the day that was
two business days prior to the first day of such interest period. The applicable margin for borrowings under the Second 2012 Credit Agreement was 2.75% with respect to base rate borrowings and 3.75% with respect to LIBOR borrowings. Additionally,
RNLLC were required to pay a fee to the lenders under the CapEx Facility on the undrawn available portion at a rate of 0.75% per annum and a fee to the lenders under the 2012 Revolving Credit Facility on the undrawn available portion at a rate
of 0.50% per annum. RNLLC also was required to pay customary letter of credit fees on issued letters of credit.
RNP Notes Offering
On April 12, 2013, RNP and Rentech Nitrogen Finance Corporation, a wholly-owned subsidiary of RNP (“Finance
Corporation” and collectively with RNP, the “Issuers”), issued $320.0 million of 6.5% second lien senior secured notes due 2021 (the “RNP Notes”) to qualified institutional buyers and non-United States persons in a private
offering exempt from the registration requirements of the Securities Act of 1933, as amended. The RNP Notes bear interest at a rate of 6.5% per year, payable semi-annually in arrears with the first interest payment made on October 15,
2013. The RNP Notes will mature on April 15, 2021, unless repurchased or redeemed earlier in accordance with their terms. RNP used part of the net proceeds from the offering to repay in full and terminate the Second 2012 Credit Agreement and
related interest rate swaps, and intends to use the remaining proceeds to pay for expenditures related to its expansion projects and for general partnership purposes.
113
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The RNP Notes are fully and unconditionally guaranteed, jointly and severally, by each of
RNP’s existing domestic subsidiaries, other than Finance Corporation. In addition, the RNP Notes and the guarantees thereof are collateralized by a second priority lien on substantially all of RNP’s and the guarantors’ assets, subject
to permitted liens.
The Issuers may redeem some or all of the RNP Notes at any time prior to April 15, 2016 at a redemption price
equal to 100% of the principal amount of the RNP Notes redeemed, plus a “make whole” premium, and accrued and unpaid interest, if any, to the date of redemption. At any time prior to April 15, 2016, RNP may also, on any one or more
occasions, redeem up to 35% of the aggregate principal amount of the RNP Notes issued with the net proceeds of certain equity offerings at 106.5% of the principal amount of the RNP Notes, plus accrued and unpaid interest, if any, to the date of
redemption. On or after April 15, 2016, RNP may redeem some or all of the RNP Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date.
2013 RNP Credit Agreement
On
April 12, 2013, RNP and Finance Corporation (collectively the “Borrowers”) entered into a new credit agreement (the “2013 RNP Credit Agreement”). The 2013 RNP Credit Agreement consists of a $35.0 million senior secured
revolving credit facility (the “RNP Credit Facility”). The Borrowers may use the 2013 RNP Credit Agreement to fund their working capital needs, to fund capital expenditures, to issue letters of credit and for other general partnership
purposes. The 2013 RNP Credit Agreement also includes a $10.0 million letter of credit sublimit. The commitment under the RNP Credit Facility may be increased by up to $15.0 million upon the Borrowers’ request at the discretion of the lenders
and subject to certain customary requirements. As of December 31, 2013, borrowings under the RNP Credit Facility were strictly limited if RNP exceeded a Secured Leverage Ratio of 3.75 to 1.00. As of December 31, 2013, RNP’s Secured
Leverage Ratio was 4.71 to 1.00, and at such time there were no outstanding advances under the RNP Credit Facility.
Borrowings under the
2013 RNP 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 three months plus 1.00% or (b) in the case of LIBOR borrowings, the offered rate per annum for deposits of dollars for the applicable interest period on the day that is two
business days prior to the first day of such interest period. If the Borrowers maintain a secured leverage ratio of less than 1.75:1 for the last quarter reported to the lenders, then the applicable margin for borrowings under the 2013 RNP Credit
Agreement is 2.25% with respect to base rate borrowings and 3.25% with respect to LIBOR borrowings. If the Borrowers maintain a secured leverage ratio equal or greater than 1.75:1 for the last quarter reported to the lenders, then the applicable
margin for borrowings under the 2013 RNP Credit Agreement is 2.50% with respect to base rate borrowings and 3.50% with respect to LIBOR borrowings.
Additionally, the Borrowers are required to pay a fee to the lenders under the 2013 RNP Credit Agreement on the average undrawn available
portion of the RNP Credit Facility at a rate equal to 0.50% per annum. The Borrowers must also pay a fee to the lenders under the 2013 RNP 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, plus all customary letter of credit fees on issued letters of credit.
114
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
All of RNP’s existing subsidiaries (other than Finance Corporation) guarantee, and
certain of RNP’s future domestic subsidiaries will guarantee, RNP’s obligations pursuant to the 2013 RNP Credit Agreement. The 2013 RNP Credit Agreement, any hedging agreements issued by lenders under the 2013 RNP Credit Agreement and the
subsidiary guarantees are collateralized by the same collateral securing the RNP Notes, which includes substantially all of RNP’s assets and all of the assets of 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 2013 RNP 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 RNP Notes, subject to a first lien cap (equal to the greater of $65 million or 20% of RNP’s consolidated net tangible assets (as defined in the Indenture governing the RNP
Notes), plus obligations in respect of the first-priority secured indebtedness and obligations under certain hedging agreements and cash management agreements).
The 2013 RNP Credit Agreement will terminate on April 12, 2018. Any amounts still outstanding at that time will be immediately due and
payable. The Borrowers may voluntarily prepay their utilization and/or permanently cancel all or part of the available commitments under the 2013 RNP Credit Agreement in a minimum amount of $5.0 million. Amounts repaid may be reborrowed. Borrowings
under the 2013 RNP 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.
Fulghum Debt
As of
December 31, 2013, Fulghum’s outstanding debt of $45.3 million had a weighted average interest rate of approximately 7.0%. The debt consists primarily of term loans with various financial institutions with each term loan collateralized by
specific property and equipment. The term loans have maturity dates ranging from 2015 through 2028. Approximately $40.7 million and $4.6 million of the outstanding debt is with financial institutions located in the United States and South America,
respectively.
Fulghum debt at December 31, 2013 consisted of the following (in thousands):
|
|
|
|
|
|
|
Outstanding debt
|
|
$
|
45,290
|
|
|
Plus: unamortized premium
|
|
|
2,162
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
47,452
|
|
|
Less: current portion
|
|
|
(8,401
|
)
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
39,051
|
|
|
|
|
|
|
|
RNHI Revolving Loan
On September 23, 2013, RNHI obtained a new $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. The Company expects that the new facility will be used to
fund growth in its wood fibre processing business and for general corporate purposes. On September 24, 2013, the Company borrowed $50.0 million under the facility.
All obligations of RNHI under the new facility are unconditionally guaranteed by the Company in a guaranty agreement (the
“Guaranty”) and are secured by a portion of the common units of RNP owned by RNHI (the “Underlying Equity”). RNHI currently owns 23.25 million common units in RNP, 15.4 million of which have been provided as initial
collateral under the RNHI Credit Agreement. Under certain circumstances, up to 19.4 million common units may be pledged as collateral.
The new facility has a three year maturity and borrowings under the new facility bear interest at a rate equal to LIBOR plus 4.00% per
annum. In the event the Company reduces a portion of or terminates all of the facility prior to its second anniversary through a refinancing collateralized by the Underlying Equity in form or substance materially similar to the facility and in which
Credit Suisse AG, Cayman Islands Branch is not the lead lender, the Company will be required to pay a refinancing fee equal to 2.75% of the amount of commitments to be terminated, multiplied by a fraction, the numerator of which is the number of
days from the date of such termination until the second anniversary of the closing and the denominator of which is 360. The Company is also required to pay a commitment fee to the administrative agent on the daily undrawn loan amount at a rate of
0.70% per annum. Additionally, on the closing date the Company paid one-time customary structuring and administrative fees to certain of the lenders.
115
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The new facility and the Guaranty contain customary affirmative and negative covenants and
events of default relating to RNHI and the Company. The covenants and events of default in the RNHI Credit Agreement restrict RNHI from engaging in activities outside of its ordinary course operation as a holding company and include, among other
things, limitations on the incurrence of indebtedness and liens, the making of investments, the sale of assets, and the making of restricted payments. There are also events of default relating to substantial declines in value of the Underlying
Equity in relation to the amount drawn under the RNHI Credit Agreement. Dividends and distributions from RNHI are permitted so long as no default or event of default exists or will result therefrom, including if the Value (as defined in the RNHI
Credit Agreement) of the Underlying Equity pledged to secure the loan does not meet the valuation requirements set forth in the RNHI Credit Agreement. RNHI also has the right to sell RNP common units not held as collateral as long as certain
conditions outlined in the new facility, including meeting a certain LTV Ratio (as defined below) and realizing a minimum price on the sale, are met.
In addition, the Company’s ability to draw or maintain an outstanding balance under the new facility is subject to the ratio of
(i) the amount of loans and unpaid interest minus the Value of cash and cash equivalents in the collateral account divided by (ii) the Value of the collateral shares (the “LTV Ratio”), being less than an agreed upon ratio.
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.
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 to 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 December 31, 2013, letters of credit totaling approximately $1.1 million had been issued.
QS Construction Facility
In
connection with the Drax Contract (as defined in Note 13 — Commitments and Contingencies), on April 30, 2013, the Company and Quebec Stevedoring Company Limited (“Quebec Stevedoring”) entered into a Master Services Agreement (the
“Port Agreement”) pursuant to which Quebec Stevedoring is required to provide stevedoring, terminalling and warehousing services to the Company at the Port of Quebec. The Port Agreement is designed to support the term and volume
commitments of the Drax Contract as well as future wood pellet exports through the Port of Quebec. Pursuant to the Port Agreement, Quebec Stevedoring is required to build handling equipment and 75,000 metric tons of wood pellet storage exclusively
for the Company’s use at the port, with the same amount becoming a financing obligation for the Company (the “QS Construction Facility”).
116
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Total Debt
As of December 31, 2013, the Company was in compliance with all covenants under the RNP Notes, Fulghum debt, RNHI Revolving Loan and the
2013 RNP Credit Agreement. Total debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands)
|
|
|
Second 2012 Credit Agreement
|
|
$
|
—
|
|
|
$
|
193,290
|
|
|
RNP Notes
|
|
|
320,000
|
|
|
|
—
|
|
|
Fulghum debt
|
|
|
47,452
|
|
|
|
—
|
|
|
RNHI Revolving Loan
|
|
|
50,000
|
|
|
|
—
|
|
|
QS Construction Facility
|
|
|
4,527
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
421,979
|
|
|
$
|
193,290
|
|
|
Less: current portion
|
|
|
(9,916
|
)
|
|
|
(7,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
412,063
|
|
|
$
|
185,540
|
|
|
|
|
|
|
|
|
|
|
|
Future maturities of total debt are as follows (in thousands):
|
|
|
|
|
|
|
For the Calendar Years Ending December 31
|
|
|
|
|
2014
|
|
$
|
9,916
|
|
|
2015
|
|
|
7,324
|
|
|
2016
|
|
|
55,535
|
|
|
2017
|
|
|
4,285
|
|
|
2018
|
|
|
1,636
|
|
|
Thereafter
|
|
|
343,283
|
|
|
|
|
|
|
|
|
|
|
$
|
421,979
|
|
|
|
|
|
|
|
The payoff of the Second 2012 Credit Agreement resulted in a loss on debt extinguishment, for the calendar
year ended December 31, 2013, of approximately $6.0 million. The entry into the Second 2012 Credit Agreement and the payoff of the First 2012 Credit Agreement resulted in a loss on debt extinguishment of approximately $2.1 million. As a result
of redeeming convertible notes prior to maturity, the unamortized debt discount and debt issuance costs were written off which resulted in a loss on debt extinguishment of approximately $2.7 million. These two transactions resulted in a loss on debt
extinguishment of approximately $4.8 million for the calendar year ended December 31, 2012. The entry into a credit agreement and the payoff of the previous credit agreements resulted in a loss on debt extinguishment, for the three months ended
December 31, 2011, of approximately $10.3 million. The entry into and payoff of various credit agreements, resulted in a loss on debt extinguishment for the fiscal year ended September 30, 2011 of approximately $13.8 million.
Note 12 — Advance for Equity Investment
In May 2007, the Company entered into an Equity Option Agreement with Peabody Venture Fund, LLC (“PVF”). Under the
Equity Option Agreement, PVF agreed to fund the lesser of $10.0 million or 20% of the development costs for the Company’s proposed coal-to-liquids conversion project at the East Dubuque Facility incurred during the period between
November 1, 2006 and the closing date of the financing for the project. In consideration for PVF’s payment of development costs, Rentech granted PVF an option to purchase an equity interest in the project for a purchase price equal to 20%
of the equity contributions made to the project at the closing of the project financing, less the amount of development costs paid by PVF as of such time.
117
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The net proceeds from PVF under this agreement were $7.9 million which was recorded as an
advance for equity investment on the consolidated balance sheets. Although the Company’s board of directors decided in the first quarter of 2008 to suspend development of the conversion of the East Dubuque Facility, the liability for the
advance for equity investment was maintained as the potential for another coal-to-liquids project was considered probable by the Company.
During the fiscal year ended September 30, 2011, the Company adopted a revised project development strategy for the commercialization of
its alternative energy technologies, which included pursuing projects that were smaller and required less capital. Coal-to-liquids projects no longer fit the Company’s development strategy and development of a coal-to-liquids project was no
longer probable. As a result, the liability was reversed as it was unlikely the Company would be required to fund the obligation in the future.
Note 13 — Commitments and Contingencies
Natural Gas Forward Purchase Contracts
The Company’s policy and practice are to enter into fixed-price forward purchase contracts for natural gas in conjunction with contracted
product sales in order to substantially fix gross margin on those product sales contracts. 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 elects the normal purchase normal sale exemption for these derivative instruments. As such, the Company does not
recognize the unrealized gains or losses related to these derivative instruments in its consolidated financial statements. The Company has entered into multiple natural gas forward purchase contracts for various delivery dates through March 31,
2014. Commitments for natural gas purchases consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands,
except weighted
average rate)
|
|
|
MMBtus under fixed-price contracts
|
|
|
2,071
|
|
|
|
1,955
|
|
|
MMBtus under index-price contracts
|
|
|
81
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MMBtus under contracts
|
|
|
2,152
|
|
|
|
2,098
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to purchase natural gas
|
|
$
|
8,571
|
|
|
$
|
7,531
|
|
|
Weighted average rate per MMBtu based on the fixed rates and the indexes applicable to each contract
|
|
$
|
3.98
|
|
|
$
|
3.59
|
|
Subsequent to December 31, 2013 through February 28, 2014, the Company entered into additional
fixed-quantity forward purchase contracts at fixed and indexed prices for various delivery dates through March 31, 2014. The total MMBtus associated with these additional forward purchase contracts are approximately 0.5 million and the
total amount of the purchase commitments are approximately $4.5 million, resulting in a weighted average rate per MMBtu of approximately $9.27 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.
Operating Leases
The Company has various operating leases of real and personal property which expire through October 2028. Total lease expense, including
month-to-month rent, common area maintenance charges and other rent related fees, for the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended September 30, 2011 was $2.0
million, $2.4 million, $0.6 million and $2.1 million, respectively.
118
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Future minimum lease payments as of December 31, 2013 are as follows (in thousands):
|
|
|
|
|
|
|
For the Calendar Years Ending December 31,
|
|
|
|
|
2014
|
|
$
|
3,382
|
|
|
2015
|
|
|
3,631
|
|
|
2016
|
|
|
2,656
|
|
|
2017
|
|
|
2,117
|
|
|
2018 and thereafter
|
|
|
14,874
|
|
|
|
|
|
|
|
|
|
|
$
|
26,660
|
|
|
|
|
|
|
|
Contractual Obligations
Pasadena
On
April 17, 2013, the Company 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 Company’s power generation project at the Pasadena Facility. The value of the contract is approximately $25.0 million and the project is expected to be completed by the fourth quarter of 2014.
Wood Pellets
On
April 30, 2013, the Company entered into a ten-year off-take contract (the “Drax Contract”) with Drax Power Limited (“Drax”). Under the Drax Contract, the Company 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 calendar year 2014. In the event that the Company 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, the Company entered into a ten-year
“take-or-pay” contract (the “OPG Contract”) with Ontario Power Generation (“OPG”) under which the Company is required to deliver 45,000 metric tonnes of wood pellets annually starting in 2014. OPG has the option to
increase the amount of wood pellets the Company is required to deliver 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 expects that its initial deliveries to OPG will consist of wood pellets produced at the Atikokan Project during its early commissioning phase along with wood pellets purchased from third party suppliers.
The contracts with Drax and OPG are designed to minimize exposure to variable costs over the ten-year terms by passing-through to Drax and OPG
increased costs resulting from certain changes in input prices, including general inflation, the price of fuel, and prices of wood supplied to the mills. However, such indexation may not exactly offset increases or decreases in the prices of inputs
and the cost of transporting and handling wood pellets.
The Company has contracted with Canadian National (the “Canadian National
Contract”) for all rail transportation of wood pellets from the Atikokan Project and the Wawa Project to the Port of Quebec for delivery to Drax. The Atikokan Project and the Wawa Project are located approximately 1,300 track miles and 1,100
track miles, respectively, from the Port of Quebec.
Under the Canadian National Contract, the Company 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, the Company 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 Project’s product on a FOB basis at the Atikokan Project.
On November 25, 2013, the Company entered
into a one-year wood pellet purchase contract (the “KD Contract”) with KD Quality Pellets. Under the KD Contract, the Company 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 Company with an option to extend the term of the agreement to five years. The Company may use the wood pellets that it purchases under the KD Contract to cover shortfalls in production during
commissioning of the Atikokan Project, so that it meets its delivery commitments under an off-take contract with Ontario Power Generation. Any wood pellets that the Company purchases under the KD Contract and do not sell to OPG may be aggregated and
sold to other consumers, including Drax.
119
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
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 Company’s 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 Company.
Regulation
The Company’s business is subject to extensive and frequently changing federal, state and local, environmental, health and safety
regulations governing a wide range of matters, including the emission of air pollutants, the release of hazardous substances into the environment, the treatment and discharge of waste water and the storage, handling, use and transportation of the
Company’s 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 Company’s business of complying with existing laws and regulations is not always clearly known or determinable due in part to the fact that the
Company’s operations may change over time and certain implementing regulations for laws, such as the CAA, have not yet been finalized, are under governmental or judicial review or are being revised. These laws and regulations could result in
increased capital, operating and compliance costs.
The Company entered into a settlement agreement with the Illinois Environmental
Protection Agency in August 2013 requiring it to connect a device at the East Dubuque Facility to an ammonia safety flare by December 1, 2015. The Company estimates the cost of the project required by the settlement agreement as being
approximately $300,000.
Note 14 — Stockholders’ Equity
Shelf Registration Statement
On July 9, 2013, the Company filed a shelf registration statement with the Securities and Exchange Commission, which allows it from time
to time, in one or more offerings, to offer and sell up to $200.0 million in aggregate initial offering price of debt securities, common stock, preferred stock, depositary shares, warrants, rights to purchase shares of common stock and/or any of the
other registered securities or units of any of the other registered securities.
Special Cash Distribution
On December 27, 2012, the Company paid a special one-time distribution of $0.19 per common share, to its shareholders of record as of the
close of business on December 20, 2012 (the “Special Distribution”). In connection with the Special Distribution and in accordance with and pursuant to the Company’s various equity plans, the Company equitably adjusted its
outstanding stock options, restricted stock units and performance stock units, as follows: (i) the exercise price of each outstanding stock option and the number of shares subject to each option were adjusted to reflect the impact of the
Special Distribution, while preserving the aggregate spread of the options (
i.e.
, the difference between the aggregate fair market value of the shares underlying the option and the aggregate exercise price for such shares); (ii) holders
of time-vesting restricted stock units (“RSUs”) received a distribution equivalent distribution of $0.19 per RSU on December 27, 2012, (iii) holders of performance-vesting restricted stock units (“PSUs”) became eligible
to receive $0.19 per PSU, payable, in the case of any unvested PSUs, only upon the subsequent vesting of the PSUs, and (iv) for purposes of determining whether the performance vesting requirement of a $3.00 weighted average closing share price
over a trailing thirty-day period has been met for outstanding PSUs, $0.19 per share is added to the closing price for each day occurring on or after December 18, 2012. The Company did not record any incremental stock-based compensation in
connection with the adjustment of stock options, payment of distributions on the RSUs and accrual of distributions on the PSUs. Some of the PSUs vested in January 2013 and the Special Distributions related to such PSUs were paid. There is still
approximately $0.3 million which will be paid when the remaining PSUs vest. The Special Distribution payments were approximately $43.3 million in 2012, and $0.5 million in 2013, for a total of approximately $43.8 million.
120
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Common Stock
In February 2012, the board of directors (the “Board”) of Rentech authorized the repurchase of up to $25.0 million, exclusive of
commissions, of outstanding shares of its common stock over the subsequent 12-month period. The share repurchase program took effect in March 2012. As of December 31, 2012, Rentech had repurchased approximately 9.1 million shares of its
common stock under the program for an aggregate purchase price of approximately $16.4 million. Share repurchases under this program were funded by Rentech’s available cash. No shares were acquired subsequent to December 31, 2012 and the
share repurchase program expired.
On April 22, 2013, Rentech announced that the Board authorized the repurchase of up to $25.0
million, exclusive of commissions, of outstanding shares of its common stock through December 31, 2013. No shares were acquired through December 31, 2013 and the share purchase program has expired.
On December 28, 2011 the Company entered into Amendment No. 2 (the “Amendment”) to the Merger Agreement dated
June 23, 2009 with Milton Farris, as Stockholder Representative, John A. Williams and certain other former stockholders of SilvaGas, a subsidiary of the Company in the Energy technology segment. The Amendment provided for the release of the
approximately 3.4 million shares held in escrow and payment of 2.0 million shares of the Company’s common stock as final consideration as contemplated in the Merger Agreement. The issuance of the 2.0 million shares was recorded
as an increase in the value of the SilvaGas patents in accordance with accounting standards for business combinations in effect when the Merger Agreement was executed.
Preferred Stock / Tax Benefit Preservation Plan
On August 5, 2011, the Board approved a Tax Benefit Preservation Plan between the Company and Computershare Trust Company, N.A., as rights
agent (as amended from time to time, the “Plan”).
The Company has accumulated substantial operating losses. By adopting the
Plan, the Board is seeking to protect the Company’s ability to carry forward its net operating losses (collectively, “NOLs”). For federal and state income tax purposes, the Company may “carry forward” NOLs in certain
circumstances to offset current and future taxable income, which will reduce future federal and state income tax liability, subject to certain requirements and restrictions. However, if the Company were to experience an “ownership change,”
as defined in Section 382 of the Internal Revenue Code (the “Code”), its ability to utilize these NOLs to offset future taxable income could be significantly limited. Generally, an “ownership change” would occur if the
percentage of the Company’s stock owned by one or more “five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned by such stockholders at any time during the prior three-year
period.
The Plan is intended to act as a deterrent to any person acquiring 4.99% or more of the outstanding shares of the Company’s
common stock or any existing 4.99% or greater holder from acquiring more than an additional 1% of then outstanding common stock, in each case, without the approval of the Board and to thus mitigate the threat that stock ownership changes present to
the Company’s NOL. The Plan includes procedures whereby the Board will consider requests to exempt certain acquisitions of common stock from the applicable ownership trigger if the Board determines that the acquisition will not limit or impair
the availability of the NOLs to the Company.
In connection with its adoption of the Plan, the Board declared a dividend of one preferred
stock purchase right (individually, a “Right” and collectively, the “Rights”) for each share of common stock of the Company outstanding at the close of business on August 19, 2011 (the “Record Date”). Each Right
entitles the registered holder, after the Rights become exercisable and until expiration, to purchase from the Company one ten-thousandth of a share of the Company’s Series D Junior Participating Preferred Stock, par value $10.00 per share
(the “Preferred Stock”), at a price of $3.75 per one ten-thousandth of a share of Preferred Stock, subject to certain anti-dilution adjustments (the “Purchase Price”).
One Right was distributed to stockholders of the Company for each share of common stock owned of record by them at the close of business on
August 19, 2011. As long as the Rights are attached to the common stock, the Company will issue one Right with each new share of common stock so that all such shares will have attached Rights. The Company has reserved 45,000 shares of Preferred
Stock for issuance upon exercise of the Rights.
121
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The Rights will expire, unless earlier redeemed or exchanged by the Company or terminated, on
the earliest to occur of: (i) August 5, 2014, subject to the Company’s right to extend such date, or (ii) the time at which the Board determines that the NOLs are fully utilized or no longer available under Section 382 of
the Code or that an ownership change under Section 382 of the Code would not adversely impact in any material respect the time period in which the Company could use the NOLs, or materially impair the amount of the NOLs that could be used by the
Company in any particular time period, for applicable tax purposes. The Rights do not have any voting rights.
Long-Term Incentive Equity Awards
2009 Awards and Options
In the fiscal year ended September 30, 2009, ten percent (10%) of the cash bonus awards for the named executive officers was
allocated to purchase vested restricted stock units in December 2009 pursuant to the management stock purchase plan. The Company matched these awards with an equal number of restricted stock units that vested on December 10, 2012, subject to
the recipient’s continued employment with the Company.
In the fiscal year ended September 30, 2011, approximately
3.0 million options were awarded to a group of employees.
The Board and its compensation committee (the “Compensation
Committee”) approved long-term incentive equity awards for a group of its officers including its named executive officers effective November 17, 2009. The awards include both restricted stock units that may vest upon the achievement of
certain performance targets, and restricted stock units that vest over time. The awards are intended to balance the objectives of retention, equity ownership by management, and achievement of performance targets. Vesting of the performance awards is
tied to milestones related to the development, construction and operation of the Company’s proposed renewable synthetic fuels and power project in Rialto, California or another comparable project designated by the Compensation Committee. In the
fourth quarter of the fiscal year ended September 30, 2011, the Company determined that the Rialto Project would not be developed. Previously accrued compensation expense of $1.9 million for performance based restricted stock units tied to
Rialto Project milestones was reversed and is included in selling, general and administrative expense.
The November 2009 long-term
incentive equity awards also include a time vesting restricted stock unit award, granted to a group of employees, that vests over a three year period with one-third of the restricted stock units vesting on each of the first three anniversaries of
November 17, 2009. The time vesting awards are subject to the recipient’s continued employment with the Company, provided that a recipient’s award may vest upon (i) termination without cause related to a change in control or
(ii) death or disability.
Performance Awards 2011 – 2013
Two types of performance awards were granted in December 2011, 2012 and 2013. For the December 2012 and 2013 awards, vesting was based on total
shareholder return over a three-year period.
For the December 2011 performance awards, vesting was based on a price benchmark for the
shares of Rentech. The performance awards vested in full on the first date occurring on or prior to October 12, 2014 on which the Company’s volume weighted average share price for any 30-day period equaled or exceeded $3.00. The $3.00
threshold was calculated by using the normal closing share price for each day in the thirty day period that was prior to the ex-dividend date and using the closing share price plus the Special Distribution of $0.19 per share for the ex-dividend date
and each day after that. These awards vested in January 2013.
The performance awards granted during the calendar year ended
December 31, 2013 and 2012 vest equally over a three-year period from grant date based on achieving a certain total shareholder return on the Company’s stock on each measurement date plus the recipient’s continued employment with
Company.
Time Vested Awards 2011 – 2013
Time vested restricted stock awards of approximately 2.0 million, 1.1 million, 3.5 million and 2.2 million were issued
during the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended September 30, 2011. Of the 3.5 million awards issued during the three months ended December 31,
2011, 2.0 million of these awards were to reward executives for their success in completing the Offering and to incentivize these executives with respect to the additional demands that will be placed upon them in connection with RNP becoming a
publicly traded company. All the awards vest over a three year period and vesting is subject to the recipient’s continued employment with the Company.
122
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
During the calendar years ended December 31, 2013 and 2012, the three months ended
December 31, 2011 and the fiscal year ended September 30, 2011, the Company issued the following performance shares and restricted stock units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Awards
|
|
|
|
|
For the Calendar Years
Ended December 31,
|
|
|
For the Three
Months Ended
December 31,
|
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
Type of Award
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance awards
|
|
|
3,005,000
|
|
|
|
1,963,000
|
|
|
|
2,960,000
|
|
|
|
—
|
|
|
Time-vested awards
|
|
|
1,994,000
|
|
|
|
1,136,000
|
|
|
|
3,508,000
|
|
|
|
2,195,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,999,000
|
|
|
|
3,099,000
|
|
|
|
6,468,000
|
|
|
|
2,195,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive Equity Awards – RNP
On November 2, 2011, the board of directors of the General Partner adopted the Rentech Nitrogen Partners, L.P. 2011 Long-Term Incentive
Plan (the “2011 LTIP”) to provide awards of RNP’s units. The General Partner’s officers, employees, consultants and non-employee directors, as well as other key employees of the Company, the indirect parent of the General
Partner, and certain of RNP’s other affiliates who make significant contributions to its business, are eligible to receive awards under the 2011 LTIP, thereby linking the recipients’ compensation directly to RNP’s performance. The
2011 LTIP provides for the grant of unit awards, restricted units, phantom units, unit options, unit appreciation rights, distribution equivalent rights, profits interest units and other unit-based awards of RNP units. Subject to adjustment in the
event of certain transactions or changes in capitalization, 3,825,000 common units may be delivered pursuant to awards under the 2011 LTIP.
Note 15 — Accounting for Equity Based Compensation
The accounting guidance requires all share-based payments, including grants of stock options, to be recognized in the
statement of operations, based on their fair values. Stock based compensation expense for all fiscal periods is based on estimated grant-date fair value. Stock options generally vest over three years. As a result, compensation expense recorded
during the period includes amortization related to grants during the period as well as prior grants. Some grants under the 2011 LTIP are marked-to market at each reporting date. Most grants have graded vesting provisions where an equal number of
shares vest on each anniversary of the grant date. The Company allocates the total compensation cost on a straight-line attribution method over the requisite service period. Most grants vest upon the fulfillment of service conditions and have no
performance or market-based vesting conditions. Certain grants of warrants and restricted stock units include share price driven vesting provisions. Stock based compensation expense that the Company records is included in selling, general and
administrative expense. There was no tax benefit in periods reported herein from recording this non-cash expense as such benefits will be recorded upon utilization of the Company’s net operating losses.
During the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended
September 30, 2011, charges associated with all equity-based grants were recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar
Years Ended
December 31,
|
|
|
For the Three
Months Ended
December 31,
|
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
|
|
(in thousands)
|
|
|
Compensation expense
|
|
$
|
5,319
|
|
|
$
|
7,357
|
|
|
$
|
1,015
|
|
|
$
|
1,063
|
|
|
Board compensation expense
|
|
|
603
|
|
|
|
591
|
|
|
|
50
|
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
|
5,922
|
|
|
|
7,948
|
|
|
|
1,065
|
|
|
|
1,667
|
|
|
Consulting expense
|
|
|
18
|
|
|
|
74
|
|
|
|
9
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
5,940
|
|
|
$
|
8,022
|
|
|
$
|
1,074
|
|
|
$
|
1,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction to both basic and diluted earnings per share from compensation expense
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
123
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The Company uses the Black-Scholes option pricing model to determine the weighted average
fair value of options and warrants. The assumptions utilized to determine the fair value of options and warrants are indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar
Years Ended
December 31,
|
|
|
For the Three
Months Ended
December 31,
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
2011
|
|
Risk-free interest rate
|
|
|
—
|
|
|
|
—
|
|
|
1.16% - 1.74%
|
|
1.55% - 2.69%
|
|
Expected volatility
|
|
|
—
|
|
|
|
—
|
|
|
104.0%
|
|
97.0% - 98.0%
|
|
Expected life (in years)
|
|
|
—
|
|
|
|
—
|
|
|
6.00 - 8.00
|
|
5.00 - 8.00
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
0.0%
|
|
0.0%
|
|
Forfeiture rate
|
|
|
—
|
|
|
|
—
|
|
|
14.0%
|
|
0.0% - 8.0%
|
The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life
of the Company’s stock options. The Company used the last day of the month stock price over the last 54 months to calculate and project expected stock price volatility Expected volatility was assumed to equal historical volatility. The
estimated expected term of the grant is based on the Company’s historical exercise experience. The Company included a forfeiture component in the pricing model on certain grants to employees, based on historical forfeiture rate for the
grantees’ level employees.
The number of shares reserved and outstanding as of December 31, 2012 have been adjusted to reflect
the increase of approximately 312,000 shares that resulted from adjustments resulting from the Special Distribution. The number of shares reserved, outstanding and available for issuance are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Reserved
as of December 31,
|
|
|
Shares Underlying
Outstanding Awards as of
December 31,
|
|
|
Shares Available for Issuance
as of December 31,
|
|
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Name of Plan
|
|
(in thousands)
|
|
|
|
|
|
2005 Stock Option Plan
|
|
|
1,000
|
|
|
|
195
|
|
|
|
195
|
|
|
|
—
|
|
|
|
—
|
|
|
2006 Incentive Award Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
8,000
|
|
|
|
1,338
|
|
|
|
1,710
|
|
|
|
—
|
|
|
|
67
|
|
|
Restricted stock units and performance share awards
|
|
|
|
|
|
|
1,322
|
|
|
|
1,745
|
|
|
|
—
|
|
|
|
—
|
|
|
2009 Incentive Award Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
32,900
|
|
|
|
1,713
|
|
|
|
2,255
|
|
|
|
4,483
|
|
|
|
3,513
|
|
|
Restricted stock units and performance share awards
|
|
|
|
|
|
|
9,991
|
|
|
|
9,223
|
|
|
|
—
|
|
|
|
—
|
|
|
Adjustment for Special Distribution
|
|
|
312
|
|
|
|
244
|
|
|
|
312
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,212
|
|
|
|
14,803
|
|
|
|
15,440
|
|
|
|
4,483
|
|
|
|
3,580
|
|
|
Restricted stock units not from a plan
|
|
|
1,225
|
|
|
|
17
|
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,437
|
|
|
|
14,820
|
|
|
|
15,473
|
|
|
|
4,483
|
|
|
|
3,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
The Company has multiple stock option plans under which options have been granted to employees, including officers and directors of the
Company, to purchase shares of the Company at a price not less than the fair market value of the Company’s common stock at the date the options were granted. Each of these plans allows the issuance of incentive stock options, within the meaning
of the Code, and other options pursuant to the plan that constitute non-statutory options. Options under the Company’s 2005 Stock Option Plan generally expire five years from the date of grant or at an alternative date as determined by the
committee of the Board that administers the plan. Options under the Company’s 2006 Incentive Award Plan and the 2009 Incentive Award Plan generally expire between three and ten years from the date of grant or at an alternative date as
determined by the committee of the Board that administers the plan. Options under the Company’s 2005 Stock Option Plan, 2006 Incentive Award Plan and the 2009 Incentive Award Plan are generally exercisable on the grant date or a vesting
schedule between one and three years from the grant date as determined by the committee of the Board that administers the plans.
124
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
During the calendar years ended December 31, 2013 and 2012, the three months ended
December 31, 2011 and the fiscal year ended September 30, 2011, charges associated with stock option grants were recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Years
Ended December 31,
|
|
|
For the Three
Months Ended
December 31,
|
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Compensation expense
|
|
$
|
516
|
|
|
$
|
658
|
|
|
$
|
216
|
|
|
$
|
632
|
|
|
Board compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
|
516
|
|
|
|
658
|
|
|
|
216
|
|
|
|
761
|
|
|
Consulting expense
|
|
|
18
|
|
|
|
22
|
|
|
|
9
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
534
|
|
|
$
|
680
|
|
|
$
|
225
|
|
|
$
|
791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option transactions during the calendar years ended December 31, 2013 and 2012, the three months ended
December 31, 2011 and the fiscal year ended September 30, 2011 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at September 30, 2010
|
|
|
2,407,000
|
|
|
$
|
2.90
|
|
|
|
|
|
|
Granted
|
|
|
3,217,000
|
|
|
|
0.96
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(689,000
|
)
|
|
|
2.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2011
|
|
|
4,935,000
|
|
|
|
1.75
|
|
|
|
|
|
|
Granted
|
|
|
50,000
|
|
|
|
1.58
|
|
|
|
|
|
|
Exercised
|
|
|
(32,000
|
)
|
|
|
0.95
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(281,000
|
)
|
|
|
3.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
4,672,000
|
|
|
|
1.64
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
|
|
(276,000
|
)
|
|
|
1.10
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(236,000
|
)
|
|
|
1.89
|
|
|
|
|
|
|
Adjustment for Special Distribution
|
|
|
312,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
4,472,000
|
|
|
|
1.67
|
|
|
$
|
5,848,000
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
|
|
(711,000
|
)
|
|
|
1.03
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(271,000
|
)
|
|
|
2.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
3,490,000
|
|
|
$
|
1.59
|
|
|
$
|
2,144,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2013
|
|
|
3,436,000
|
|
|
$
|
1.60
|
|
|
$
|
2,110,045
|
|
|
Options exercisable at December 31, 2012
|
|
|
3,485,000
|
|
|
$
|
1.73
|
|
|
|
|
|
|
Options exercisable at December 31, 2011
|
|
|
2,739,000
|
|
|
$
|
2.11
|
|
|
|
|
|
|
Options exercisable at September 30, 2011
|
|
|
2,116,000
|
|
|
$
|
2.81
|
|
|
|
|
|
|
Weighted average fair value of options granted during the three months ended December 31, 2011
|
|
|
|
|
|
$
|
1.32
|
|
|
|
|
|
|
Weighted average fair value of options granted during the fiscal year ended September 30, 2011
|
|
|
|
|
|
$
|
0.78
|
|
|
|
|
|
125
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The aggregate intrinsic value was calculated based on the difference between the
Company’s stock price on December 31, 2013 and the exercise price of the outstanding shares, multiplied by the number of shares underlying outstanding awards as of December 31, 2013. The total intrinsic values of options exercised
during the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended September 30, 2011 were $0.9 million, $0.3 million, $21,000 and $0, respectively.
As of December 31, 2013, there was $25,460 of total unrecognized compensation cost related to nonvested share-based compensation
arrangements from previously granted stock options. This cost is expected to be recognized over a weighted-average period of 0.75 years.
The following information summarizes stock options outstanding and exercisable at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
in Years
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$0.56-$0.92
|
|
|
2,193,000
|
|
|
|
6.60
|
|
|
$
|
0.88
|
|
|
|
2,166,000
|
|
|
$
|
0.88
|
|
|
$0.96-$1.00
|
|
|
27,000
|
|
|
|
7.49
|
|
|
|
0.96
|
|
|
|
18,000
|
|
|
|
0.96
|
|
|
$1.12-$1.51
|
|
|
493,000
|
|
|
|
2.72
|
|
|
|
1.31
|
|
|
|
475,000
|
|
|
|
1.30
|
|
|
$2.07-$2.50
|
|
|
32,000
|
|
|
|
2.31
|
|
|
|
2.07
|
|
|
|
32,000
|
|
|
|
2.07
|
|
|
$3.50-$3.50
|
|
|
21,000
|
|
|
|
2.95
|
|
|
|
3.50
|
|
|
|
21,000
|
|
|
|
3.50
|
|
|
$3.87-$4.00
|
|
|
724,000
|
|
|
|
2.55
|
|
|
|
3.88
|
|
|
|
724,000
|
|
|
|
3.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,490,000
|
|
|
|
5.16
|
|
|
$
|
1.60
|
|
|
|
3,436,000
|
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
During fiscal 2005, the Company issued a warrant to Management Resource Center, Inc, an entity controlled by D. Hunt Ramsbottom, the
Company’s President and CEO. During the last quarter of fiscal 2005, Mr. Ramsbottom assigned the warrant to East Cliff Advisors, LLC, an entity controlled by Mr. Ramsbottom. The warrant is for the purchase of 3.5 million shares
of the Company’s common stock at an exercise price of $1.82 per share. The warrant has vested or will vest in the following incremental amounts upon such time as the Company’s stock reaches the stated closing prices for 12 consecutive
trading days: 10% at $2.10 (vested); 15% at $2.75 (vested); 20% at $3.50 (vested); 25% at $4.25 (vested); and 30% at $5.25 (not vested). The Company recognizes compensation expense as the warrants vest, as the total number of shares to be granted
under the warrant was not known on the grant date. In fiscal 2005, the Company accounted for the warrant under guidance for accounting for stock issued to employees due to the employer-employee relationship between the Company and
Mr. Ramsbottom. Under the guidance applicable at the time, compensation cost would be recognized for stock based compensation granted to employees only when the exercise price of the Company’s stock options granted is less than the market
price of the underlying common stock on the date of grant.
The original warrants covered 2,082,500 shares that had vested and 1,050,000
shares that had not vested. East Cliff Advisors assigned 262,500 unvested warrants to a third party and continued to hold 787,500 unvested warrants. In January 2009, the vesting terms and expiration for the warrants held by East Cliff Advisors,
LLC were amended. As amended, with respect to the unvested warrants representing 787,500 shares, half of these warrants vested on December 31, 2011. The exercise price of the warrants remained at $1.82 per share. The expiration date for this
half of the warrants was extended from August 4, 2010 to December 31, 2012. The warrants were excised during the calendar year ended December 31, 2012. The other 393,750 unvested warrants and the original vested 2,082,500 warrants
expired on December 31, 2011.
126
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
During the calendar years ended December 31, 2013 and 2012, the three months ended
December 31, 2011 and the fiscal year ended September 30, 2011, charges associated with grants of warrants were recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar
Years Ended
December 31,
|
|
|
For the Three
Months Ended
December 31,
|
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Compensation expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
26
|
|
|
Board compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant transactions during the calendar years ended December 31, 2013 and 2012, the three months ended
December 31, 2011 and the fiscal year ended September 30, 2011 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding at September 30, 2010
|
|
|
12,596,000
|
|
|
$
|
1.89
|
|
|
Granted
|
|
|
1,980,000
|
|
|
|
0.99
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Canceled / Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2011
|
|
|
14,576,000
|
|
|
$
|
1.77
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
394,000
|
|
|
|
1.82
|
|
|
Exercised
|
|
|
(2,464,000
|
)
|
|
|
0.91
|
|
|
Canceled / Expired
|
|
|
(2,082,000
|
)
|
|
|
1.82
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
10,424,000
|
|
|
$
|
1.96
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
(5,156,000
|
)
|
|
|
1.27
|
|
|
Canceled / Expired
|
|
|
(4,018,000
|
)
|
|
|
3.28
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
1,250,000
|
|
|
$
|
0.57
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Canceled / Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
1,250,000
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at December 31, 2013
|
|
|
1,250,000
|
|
|
$
|
0.57
|
|
|
Warrants exercisable at December 31, 2012
|
|
|
1,250,000
|
|
|
$
|
0.57
|
|
|
Warrants exercisable at December 31, 2011
|
|
|
10,424,000
|
|
|
$
|
1.96
|
|
|
Warrants exercisable at September 30, 2011
|
|
|
14,576,000
|
|
|
$
|
1.77
|
|
|
Weighted average fair value of warrants granted during the fiscal year ended September 30, 2011
|
|
|
|
|
|
$
|
0.64
|
|
127
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
As of December 31, 2013, there was no unrecognized compensation cost related to
share-based compensation arrangements from previously granted warrants.
The following information summarizes warrants outstanding and
exercisable at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
in Years
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$0.57
|
|
|
1,250,000
|
|
|
|
9.25
|
|
|
$
|
0.57
|
|
|
|
1,250,000
|
|
|
$
|
0.57
|
|
Restricted Stock Units and Performance Share Awards
The Company issues Restricted Stock Units (“RSUs”) which are equity-based instruments that may be settled in shares of common stock
of the Company. In the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended September 30, 2011, the Company issued RSUs and Performance Share Awards to certain employees
and directors as long-term incentives.
Most RSU agreements vest with the passage of time and include a three-year vesting period such
that one-third will vest on each annual anniversary date of the commencement date of the agreement. Other RSU agreements contain vesting provisions based on performance against certain specific goals. The vesting of all RSUs is contingent on
continued employment of the grantee. The vesting of various RSUs are subject to partial or complete acceleration under certain circumstances, including termination without cause, end of employment for good reason or upon a change in control (in each
case as defined in the agreement). In certain agreements, if the Company fails to offer to renew an employment agreement on competitive terms or if a termination occurs which would entitle the grantee to severance during the period of three months
prior and two years after a change in control, the vesting of the restricted stock unit grant will accelerate.
The compensation expense
incurred by the Company for RSUs is based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period and charged to selling, general and
administrative expense with a corresponding increase to additional paid-in capital. The compensation expense incurred by the Company for Performance Share Awards is based on the Monte Carlo valuation model. For the 2013 Performance Share Awards, the
key assumptions used in the Monte Carlo valuation model were an expected volatility of 57.51%, a risk-free rate of interest of 0.64% and a dividend yield of 0.00%.
During the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended
September 30, 2011, charges associated with RSUs and Performance Share Award grants were recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar
Years Ended
December 31,
|
|
|
For the Three
Months Ended
December 31,
|
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
|
|
(in thousands)
|
|
|
Compensation expense
|
|
$
|
4,803
|
|
|
$
|
6,699
|
|
|
$
|
793
|
|
|
$
|
405
|
|
|
Board compensation expense
|
|
|
202
|
|
|
|
190
|
|
|
|
50
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
$
|
5,005
|
|
|
$
|
6,889
|
|
|
$
|
843
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
RSU and Performance Share Award transactions during the calendar year ended December 31,
2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended September 30, 2011 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at September 30, 2010
|
|
|
7,560,000
|
|
|
|
1.30
|
|
|
|
|
|
|
Granted
|
|
|
2,195,000
|
|
|
|
0.98
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(1,212,000
|
)
|
|
|
1.35
|
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(578,000
|
)
|
|
|
1.33
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(1,342,000
|
)
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2011
|
|
|
6,623,000
|
|
|
|
1.18
|
|
|
|
|
|
|
Granted
|
|
|
6,468,000
|
|
|
|
1.50
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(739,000
|
)
|
|
|
1.08
|
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(371,000
|
)
|
|
|
1.09
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(93,000
|
)
|
|
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
11,888,000
|
|
|
|
1.37
|
|
|
|
|
|
|
Granted
|
|
|
3,099,000
|
|
|
|
2.55
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(2,080,000
|
)
|
|
|
1.35
|
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(975,000
|
)
|
|
|
1.40
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(931,000
|
)
|
|
|
1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
11,001,000
|
|
|
|
1.71
|
|
|
$
|
28,934,000
|
|
|
Granted
|
|
|
4,999,000
|
|
|
|
1.66
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(2,680,000
|
)
|
|
|
1.49
|
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(1,812,000
|
)
|
|
|
1.37
|
|
|
|
|
|
|
Canceled / Expired
|
|
|
(178,000
|
)
|
|
|
2.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
11,330,000
|
|
|
|
1.76
|
|
|
$
|
23,793,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the 11,330,000 RSUs and Performance Share Awards outstanding at December 31, 2013, 1,322,000 and
9,991,000 were granted pursuant to the Company’s 2006 Incentive Award Plan and 2009 Incentive Award Plan, respectively. The other 17,000 RSUs were not granted pursuant to a stock option plan but were “inducement grants.” Of the
11,001,000 RSUs and Performance Share Awards outstanding at December 31, 2012, 1,745,000 and 9,223,000 were granted pursuant to the Company’s 2006 Incentive Award Plan and 2009 Incentive Award Plan, respectively. Of the 11,888,000 RSUs and
Performance Share Awards outstanding at December 31, 2011, 2,567,000 and 8,963,000 were granted pursuant to the Company’s 2006 Incentive Award Plan and 2009 Incentive Award Plan, respectively. The other 358,000 RSUs were not granted
pursuant to a stock option plan but were “inducement grants.” Of the 6,623,000 RSUs and Performance Share Awards outstanding at September 30, 2011, 1,812,000 and 4,228,000 were granted pursuant to the Company’s 2006 Incentive
Award Plan and 2009 Incentive Award Plan, respectively. The other 583,000 RSUs were not granted pursuant to a stock option plan but were “inducement grants.”
As of December 31, 2013, there was $8.0 million of total unrecognized compensation cost related to non-vested share-based compensation
arrangements from previously granted RSUs and Performance Share Awards. That cost is expected to be recognized over a weighted-average period of 1.9 years.
The grant date fair value of RSUs and Performance Share Awards that vested during the calendar year ended December 31, 2013 and 2012, the
three months ended December 31, 2011 and the fiscal year ended September 30, 2011 was $3.9 million, $4.2 million, $1.2 million and $2.4 million, respectively.
129
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Stock Grants
During the calendar year ended December 31, 2013, the Company issued a total of 178,400 shares of stock to its directors, which were fully
vested at date of grant. This resulted in stock-based compensation expense of $401,400 for the shares granted to the directors. During the calendar year ended December 31, 2012, the Company issued a total of 259,400 shares of stock which were
fully vested at date of grant. Of this amount, 234,400 shares, which were evenly distributed, were granted to the directors and 25,000 shares were granted to a consultant. This resulted in stock-based compensation expense of $401,000 and $52,000 for
the shares granted to the directors and consultant, respectively. During the three months ended December 31, 2011, the Company did not issue any grants of stock. During the fiscal year ended September 30, 2011, the Company issued a total
of 465,000 shares of stock which were fully vested at date of grant. Of this amount, 440,000 shares, which were evenly distributed, were granted to the directors and 25,000 shares were granted to a consultant. This resulted in stock-based
compensation expense of $400,000 and $32,000 for the shares granted to the directors and consultant, respectively.
2011 LTIP
Some grants under the 2011 LTIP are marked-to market at each reporting date. During the calendar years ended December 31,
2013 and 2012 and the three months ended December 31, 2011, charges associated with all equity-based grants issued by RNP under the 2011 LTIP were recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Years
Ended December 31,
|
|
|
For the Three Months
Ended December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in thousands)
|
|
|
Stock based compensation expense
|
|
$
|
1,460
|
|
|
$
|
2,827
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom unit transactions during the calendar years ended December 31, 2013 and 2012 and the three months
ended December 31, 2011 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Granted
|
|
|
163,388
|
|
|
$
|
18.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
163,388
|
|
|
|
18.40
|
|
|
|
|
|
|
Granted
|
|
|
54,059
|
|
|
|
34.86
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(42,350
|
)
|
|
|
(15.68
|
)
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(20,040
|
)
|
|
|
(18.40
|
)
|
|
|
|
|
|
Canceled / Expired
|
|
|
(119
|
)
|
|
|
(18.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
154,938
|
|
|
$
|
23.78
|
|
|
$
|
5,839,626
|
|
|
Granted
|
|
|
116,508
|
|
|
|
18.71
|
|
|
|
|
|
|
Vested and Settled in Shares
|
|
|
(49,409
|
)
|
|
|
(23.42
|
)
|
|
|
|
|
|
Vested and Surrendered for Withholding Taxes Payable
|
|
|
(27,127
|
)
|
|
|
(21.75
|
)
|
|
|
|
|
|
Canceled / Expired
|
|
|
(1,278
|
)
|
|
|
(35.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
193,632
|
|
|
$
|
20.97
|
|
|
$
|
3,407,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the calendar year ended December 31, 2013, RNP issued 116,508 unit-settled phantom units (which
entitle the holder to distribution rights during the vesting period) covering RNP’s common units. 108,218 of the phantom units are time-vested awards that vest in three equal annual installments. 2,780 of the phantom units were time-vested
awards issued to the directors that vested on the one-year anniversary of the Offering. The phantom unit grants resulted in unit-based compensation expense of $1.2 million for the calendar year ended December 31, 2013.
130
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
As of December 31, 2013, there was $3.0 million of total unrecognized compensation cost
related to non-vested share-based compensation arrangements from previously granted phantom units. That cost is expected to be recognized over a weighted-average period of 2.2 years.
During the calendar year ended December 31, 2013, RNP issued a total of 5,510 common units which were fully vested at date of grant. The
common units were issued to the directors and resulted in unit-based compensation expense of $0.3 million.
Note 16 — Future Minimum Lease Receipts
The Company has certain wood chip processing, wood yard operations and wood pellet agreements, which contain embedded
leases.
The following is a schedule by years of minimum future rentals on non-cancelable operating leases as of December 31, 2013
(in thousands):
|
|
|
|
|
|
|
For the Calendar Years Ending December 31,
|
|
|
|
|
2014
|
|
$
|
41,900
|
|
|
2015
|
|
|
90,951
|
|
|
2016
|
|
|
94,378
|
|
|
2017
|
|
|
91,629
|
|
|
2018
|
|
|
84,573
|
|
|
|
|
|
|
|
|
|
|
$
|
403,431
|
|
|
|
|
|
|
|
Note 17 — Employee Benefit Plans
Defined Contribution Plans
The Company has a 401(k) plan. Most employees, excluding RNLLC’s union employees, who are at least 18 years of age are eligible to
participate in the plan on the first of the month following 60 days and share in the employer matching contribution. The Company is currently matching 100% of the first 3% and 50% of the next 3% of the participant’s salary deferrals. The
Company contributed $1.2 million, $1.0 million, $0.2 million and $0.9 million to the plans for the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and the fiscal year ended September 30, 2011,
respectively. Additionally, RNP has a savings and profit sharing plan for the benefit of qualified employees at the Pasadena Facility. The plan cost for the calendar year ended December 31, 2013 and for the period November 1, 2012 through
December 31, 2012 was approximately $108,000 and $9,000 respectively.
Pension Plans
Reporting and disclosures related to pension and other postretirement benefit plans require that companies include an additional asset or
liability on the balance sheet to reflect the funded status of retirement and other postretirement benefit plans, and a corresponding after-tax adjustment to accumulated other comprehensive income.
RNP has two noncontributory pension plans (the “Pension Plans”), which cover either hourly paid employees represented by collective
bargaining agreements in effect at its Pasadena Facility or hourly employees at its Pasadena Facility who have 1,000 hours of service during a year of employment.
Postretirement Benefits
RNP has a
postretirement benefit plan (the “Postretirement Plan”) for certain employees at its Pasadena Facility. The plan provides a fixed dollar amount to supplement payment of eligible medical expenses. The amount of the supplement under the plan
is based on years of service and the type of coverage elected (single or family members and spouses). Participants are eligible for supplements at retirement after age 55 with at least 20 years of service to be paid until the attainment of age 65 or
another disqualifying event, if earlier.
131
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The Pension Plans and the Postretirement Plan were acquired as part of the Agrifos
Acquisition. The following tables summarize the projected benefit obligation, the assets and the funded status of the Pension Plans and the Postretirement Plan at December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
|
(in thousands)
|
|
|
Projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
4,841
|
|
|
$
|
1,136
|
|
|
$
|
5,213
|
|
|
$
|
863
|
|
|
Service cost
|
|
|
137
|
|
|
|
43
|
|
|
|
29
|
|
|
|
4
|
|
|
Interest cost
|
|
|
194
|
|
|
|
43
|
|
|
|
31
|
|
|
|
5
|
|
|
Amendment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
332
|
|
|
Actuarial (gain) loss
|
|
|
(528
|
)
|
|
|
(233
|
)
|
|
|
(412
|
)
|
|
|
(54
|
)
|
|
Actual benefit paid
|
|
|
(139
|
)
|
|
|
(136
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
4,505
|
|
|
|
853
|
|
|
|
4,841
|
|
|
|
1,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
4,333
|
|
|
|
—
|
|
|
|
4,279
|
|
|
|
—
|
|
|
Actual return on plan assets
|
|
|
624
|
|
|
|
—
|
|
|
|
74
|
|
|
|
—
|
|
|
Employer contributions
|
|
|
109
|
|
|
|
136
|
|
|
|
—
|
|
|
|
14
|
|
|
Actual benefit paid
|
|
|
(139
|
)
|
|
|
(136
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
4,927
|
|
|
|
—
|
|
|
|
4,333
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
422
|
|
|
|
(853
|
)
|
|
$
|
(508
|
)
|
|
$
|
(1,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
422
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Current liabilities
|
|
|
—
|
|
|
|
(86
|
)
|
|
|
—
|
|
|
|
(95
|
)
|
|
Noncurrent liabilities
|
|
|
—
|
|
|
|
(767
|
)
|
|
|
(508
|
)
|
|
|
(1,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
422
|
|
|
|
(853
|
)
|
|
$
|
(508
|
)
|
|
$
|
(1,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013 and 2012, the accumulated benefit obligation equaled the projected benefit obligation.
The components of net periodic benefit cost and other changes in plan assets and benefit obligations recognized in other comprehensive
income are as follows for the calendar year ended December 31, 2013 and for the two-month period ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Year
Ended December
31, 2013
|
|
|
For the Two-Month Period
Ended December
31, 2012
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
|
(in thousands)
|
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
137
|
|
|
$
|
43
|
|
|
$
|
29
|
|
|
$
|
4
|
|
|
Interest cost
|
|
|
194
|
|
|
|
43
|
|
|
|
31
|
|
|
|
5
|
|
|
Expected return on plan assets
|
|
|
(260
|
)
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
—
|
|
|
Amortization of prior service cost
|
|
|
—
|
|
|
|
22
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of net gain
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension costs
|
|
$
|
66
|
|
|
$
|
108
|
|
|
$
|
18
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
$
|
(893
|
)
|
|
$
|
(233
|
)
|
|
$
|
(444
|
)
|
|
$
|
(54
|
)
|
|
Recognized actuarial gain
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Prior service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
332
|
|
|
Recognized prior service cost
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive (income) loss
|
|
$
|
(888
|
)
|
|
$
|
(255
|
)
|
|
$
|
(444
|
)
|
|
$
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Accumulated other comprehensive income (loss) at December 31, 2013 and 2012 consists of
the following amounts that have not yet been recognized in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
|
(in thousands)
|
|
|
Net (gain) loss
|
|
$
|
(1,332
|
)
|
|
$
|
(287
|
)
|
|
$
|
(444
|
)
|
|
$
|
(54
|
)
|
|
Prior service costs
|
|
|
—
|
|
|
|
310
|
|
|
|
—
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,332
|
)
|
|
$
|
23
|
|
|
$
|
(444
|
)
|
|
$
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected portion of the accumulated other comprehensive (income) loss expected to be recognized as a
component of net periodic benefit cost in 2014 is approximately $(56,000) and $6,000 for the Pension Plans and Postretirement Plan, respectively.
Weighted average assumptions used to determine benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
Pension
|
|
|
Postretirement
|
|
|
Discount rate
|
|
|
4.8
|
%
|
|
|
4.7
|
%
|
|
|
4.1
|
%
|
|
|
4.0
|
%
|
Weighted average assumptions used to determine net pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2013
|
|
|
For the Year Ended
December 31, 2012
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
Pension
|
|
|
Postretirement
|
|
|
Discount rate
|
|
|
4.1
|
%
|
|
|
4.0
|
%
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
|
Expected rate of return on assets
|
|
|
6.0
|
%
|
|
|
N/A
|
|
|
|
6.0
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Health care cost trend: initial
|
|
|
7.25
|
%
|
|
|
7.50
|
%
|
|
Health care cost trend: ultimate
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
Year ultimate reached
|
|
|
2023
|
|
|
|
2023
|
|
As the Postretirement Plan provides a fixed dollar amount to participants, increasing or decreasing the health
care cost trend rate by 1% would not have a material impact on the December 31, 2013 and 2012 obligation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
|
Target
Allocation
|
|
|
Percentage of
Pension Plan
Assets 2013
|
|
|
Target
Allocation
|
|
|
Percentage of
Pension Plan
Assets 2012
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
50
|
%
|
|
|
52
|
%
|
|
|
50
|
%
|
|
|
51
|
%
|
|
Debt securities
|
|
|
50
|
%
|
|
|
48
|
%
|
|
|
50
|
%
|
|
|
49
|
%
|
The pension plan assets, which are deemed to be Level 1, measured at fair value consist of the following at
December 31, 2013 and 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Mutual funds — equity
|
|
$
|
2,560
|
|
|
$
|
2,193
|
|
|
Mutual funds — fixed income
|
|
|
2,356
|
|
|
|
2,134
|
|
|
Cash
|
|
|
11
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
4,927
|
|
|
$
|
4,333
|
|
|
|
|
|
|
|
|
|
|
|
RNP expects to contribute $0 and approximately $88,000 to Pension Plans and a Postretirement Plan,
respectively, in 2014.
133
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Expected Future Benefit Payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
|
(in thousands)
|
|
|
2014
|
|
$
|
193
|
|
|
$
|
88
|
|
|
2015
|
|
|
206
|
|
|
|
79
|
|
|
2016
|
|
|
211
|
|
|
|
58
|
|
|
2017
|
|
|
223
|
|
|
|
68
|
|
|
2018
|
|
|
228
|
|
|
|
63
|
|
|
2019-2023
|
|
|
1,259
|
|
|
|
226
|
|
Note 18 — Income Taxes
Accounting guidance requires deferred tax assets and liabilities to be recognized for temporary differences between the tax
basis and financial reporting basis of assets and liabilities, computed at the expected tax rates for the periods in which the assets or liabilities will be realized, as well as for the expected tax benefit of net operating loss and tax credit
carryforwards. A full valuation allowance was recorded against the deferred tax assets at December 31, 2013, 2012 and 2011 for the Company’s United States operations.
The realization of deferred income tax assets is dependent on the generation of taxable income in appropriate jurisdictions during the periods
in which those temporary differences are deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in determining the amount of the valuation allowance.
Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management determines if it is more likely than not that the Company will not fully
realize the benefits of these deductible differences in the United States. As of December 31, 2013, the most significant factors considered in determining the realizability of these deferred tax assets were the Company’s profitability over
the past three years and the projected future taxable income of the new acquired companies. Management believes that at this point in time, it is more likely than not that the deferred tax assets will not be fully realized. The Company therefore has
recorded a valuation allowance against its deferred tax assets at December 31, 2013.
As of December 31, 2013, Fulghum owned
approximately 88% and 87% of the equity interests in the subsidiaries located in Chile and Uruguay, respectively. Upon acquisition, Fulghum’s management concluded the earnings of these foreign subsidiaries should be taxed at the full United
States tax rate and are not permanently reinvested under accounting guidance. As such, the Company provided for a deferred tax liability on the book-tax basis difference through purchase price accounting.
On May 1, 2013, the Company acquired all of the capital stock of Fulghum. The Company’s purchase price allocation as of May 1,
2013 includes $35.3 million of deferred income taxes. Long-term deferred tax liabilities and other tax liabilities result from identifiable tangible and intangible assets fair value adjustments. These adjustments create excess book basis over the
tax basis which is multiplied by the statutory tax rate for the jurisdiction in which the deferred taxes exist. As part of purchase accounting for Fulghum, the Company recorded additional deferred tax liabilities of approximately $15.8 million
attributable to identifiable tangible and intangible assets. As of December 31, 2013, deferred tax liabilities related to Fulghum are approximately $37.8 million. In 2013 the Company released a valuation reserve of approximately $27.4 million
resulting from recording of deferred tax liabilities of Fulghum.
134
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The provision (benefit) for income taxes for the calendar years ended December 31, 2013
and 2012, the three months ended December 31, 2011 and the fiscal year ended September 30, 2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Years
Ended December 31,
|
|
|
For the Three Months
Ended December 31,
|
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
|
|
(in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
66
|
|
|
$
|
104
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
State
|
|
|
359
|
|
|
|
1,260
|
|
|
|
2
|
|
|
|
3
|
|
|
Foreign
|
|
|
114
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
539
|
|
|
|
1,364
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(22,038
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
State
|
|
|
(5,092
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
(27,130
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(26,591
|
)
|
|
$
|
1,364
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the income taxes at the federal statutory rate to the effective tax rate was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Years
Ended December 31,
|
|
|
For the Three Months
Ended December 31,
|
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
|
|
(in thousands)
|
|
|
Federal income tax benefit calculated at the federal statutory rate
|
|
$
|
(9,009
|
)
|
|
$
|
9,979
|
|
|
$
|
(2,730
|
)
|
|
$
|
(21,885
|
)
|
|
Impact of foreign earnings
|
|
|
669
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
State income tax benefit net of federal benefit
|
|
|
(1,133
|
)
|
|
|
(830
|
)
|
|
|
3,882
|
|
|
|
(3,069
|
)
|
|
Permanent differences, other
|
|
|
330
|
|
|
|
375
|
|
|
|
136
|
|
|
|
434
|
|
|
Return to provision
|
|
|
467
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Change in state tax rate
|
|
|
—
|
|
|
|
1,020
|
|
|
|
—
|
|
|
|
(2,164
|
)
|
|
Minority interest, net of state tax benefit
|
|
|
(624
|
)
|
|
|
(13,153
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Partnership state taxes
|
|
|
(96
|
)
|
|
|
303
|
|
|
|
—
|
|
|
|
—
|
|
|
Research and development (“R&D”) credit
|
|
|
(6,191
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Basis difference in foreign subsidiaries
|
|
|
374
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Partnership basis difference
|
|
|
(1,022
|
)
|
|
|
(3,439
|
)
|
|
|
93,527
|
|
|
|
—
|
|
|
Change in valuation allowance
|
|
|
(10,424
|
)
|
|
|
7,109
|
|
|
|
(94,813
|
)
|
|
|
26,687
|
|
|
Other items
|
|
|
68
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
(26,591
|
)
|
|
$
|
1,364
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The components of the net deferred tax liability and net deferred tax asset as of
December 31, 2013 and 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Accruals for financial statement purposes not allowed for income taxes
|
|
$
|
2,626
|
|
|
$
|
2,511
|
|
|
Basis difference in prepaid expenses
|
|
|
(344
|
)
|
|
|
(366
|
)
|
|
Inventory
|
|
|
—
|
|
|
|
84
|
|
|
Unrealized gain
|
|
|
(12
|
)
|
|
|
—
|
|
|
Valuation allowance
|
|
|
(1,130
|
)
|
|
|
(1,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Current, net
|
|
|
1,140
|
|
|
|
766
|
|
|
Long-Term:
|
|
|
|
|
|
|
|
|
|
Net operating loss and AMT credit carryforwards
|
|
$
|
55,066
|
|
|
$
|
42,810
|
|
|
R&D credit carryforward
|
|
|
6,191
|
|
|
|
—
|
|
|
Basis difference relating to intangibles
|
|
|
(11,336
|
)
|
|
|
722
|
|
|
Basis difference in property, plant and equipment
|
|
|
(11,421
|
)
|
|
|
15,770
|
|
|
Stock option exercises
|
|
|
3,344
|
|
|
|
6,309
|
|
|
Basis difference in foreign subsidiaries
|
|
|
(6,142
|
)
|
|
|
—
|
|
|
Basis difference in partnership interest
|
|
|
(19,051
|
)
|
|
|
(29,375
|
)
|
|
Other items
|
|
|
1,652
|
|
|
|
663
|
|
|
Valuation allowance
|
|
|
(27,574
|
)
|
|
|
(37,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term, net
|
|
$
|
(9,271
|
)
|
|
$
|
(766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities, net
|
|
$
|
(8,131
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
136
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
As of December 31, 2013, the Company had the following available carryforwards and tax
attributes to offset future taxable income:
|
|
|
|
|
|
|
|
|
Description
|
|
Amount
|
|
|
Expiration
|
|
|
|
(in thousands)
|
|
Net Operating Losses – Federal
|
|
$
|
136,057
|
|
|
2020 - 2033
|
|
Net Operating Losses – States (Post-Apportionment and Pre-tax)
|
|
|
|
|
|
|
|
Alabama
|
|
$
|
749
|
|
|
2014 - 2029
|
|
California
|
|
|
12,845
|
|
|
2015 - 2031
|
|
Colorado
|
|
|
3,363
|
|
|
2027 - 2034
|
|
Georgia
|
|
|
567
|
|
|
2021 - 2029
|
|
Hawaii
|
|
|
6,101
|
|
|
2024 - 2034
|
|
Illinois
|
|
|
93,836
|
|
|
2019 - 2026
|
|
Louisiana
|
|
|
66
|
|
|
2020 - 2029
|
|
Mississippi
|
|
|
11,765
|
|
|
2019 - 2034
|
|
Virginia
|
|
|
161
|
|
|
2034
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,453
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D federal credit
|
|
$
|
6,981
|
|
|
2016 - 2022
|
|
Alternative minimum tax credit
|
|
$
|
1,471
|
|
|
No Expiration
|
Tax Contingencies
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. The guidance requires that the Company recognize in its consolidated financial statements, only those tax positions that are “more-likely-than-not” of being sustained as of the
adoption date, based on the technical merits of the position. The Company performed a comprehensive review of its material tax positions in accordance with accounting guidance.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in thousands)
|
|
|
Reconciliation of Unrecognized Tax Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
2,754
|
|
|
$
|
2,754
|
|
|
$
|
2,754
|
|
|
Additions based on tax positions taken during a prior period
|
|
|
3,479
|
|
|
|
—
|
|
|
|
—
|
|
|
Additions based on tax positions related to the current period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Reductions based on tax positions related to prior years
|
|
|
(1,965
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Settlements with taxing authorities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Lapse of statutes of limitations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
4,268
|
|
|
$
|
2,754
|
|
|
$
|
2,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The additions based on tax positions taken during a prior period relate to the acquisition of
Fulghum and to positions taken with respect to the Company’s foreign subsidiary in Uruguay and Chile. The Company is indemnified for these positions by the seller in the Fulghum Acquisition. The reduction in the unrecognized tax liability
relates to the Company’s R&D credits. The Company completed an analysis of its R&D expenditures for previous years, and as a result was able to reduce its unrecognized tax liability for certain credits that were deemed to meet the
more-likely-than-not threshold.
Of the approximately $4.3 million of unrecognized tax benefits, approximately $1.5 million, if
recognized, would have an impact on the effective tax rate. The remaining approximately $2.8 million would not have an impact on the effective tax rate as the Company is indemnified by the seller. The Company believes that it is possible that the
unrecognized tax benefits will significantly decrease within the next 12 months, but that the reductions would not impact the Company’s effective tax rate. The amount that is expected to decrease relates to the exposures in connection with the
foreign subsidiaries of Fulghum mentioned above. The Company expects that one of the uncertain positions related to Fulghum Uruguay will be settled with the Uruguay taxing authorities. The amount of tax related to this position is approximately $0.9
million. In addition, it is expected that an uncertainty related to an intercompany loan with Fulghum Chile will be remedied by the fall of 2014. The amount related to this uncertainty is approximately $0.7 million. The Company and its subsidiaries
are subject to the following material taxing jurisdictions: United States federal, California, Colorado, Illinois, Louisiana, Mississippi and Texas. The tax years that remain open to examination by the United States federal jurisdiction (not
including the current year) are years 2010 through 2012; the tax years that remain open to examination by the Illinois, Louisiana and Mississippi jurisdictions are years 2009 through 2012; the tax years that remain open to examination (not including
the current year) by the California, Colorado and Texas jurisdictions are years 2008 through 2012. As a result of the Fulghum Acquisition, the Company is now subject to taxation in Alabama, Arkansas, Florida, Maine, North Carolina and South Carolina
in the United States as well as in Chile and Uruguay.
In accordance with its accounting policy, the Company recognizes accrued interest
and penalties related to unrecognized tax benefits as a component of tax expense. The Company has not accrued any interest and penalties related to uncertain tax positions in the balance sheet or statement of operations as a result of the
Company’s net operating loss position.
While management believes the Company has adequately provided for all tax positions, amounts
asserted by taxing authorities could materially differ from the Company’s accrued positions as a result of uncertain and complex application of tax regulations. Additionally, the recognition and measurement of certain tax benefits includes
estimates and judgment by management and inherently includes subjectivity. Accordingly, additional provisions on federal and state tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are
settled or otherwise resolved.
Note 19 — Segment Information
The Company operated in three business segments prior to the Fulghum Acquisition, the Atikokan Project, the Wawa Project and
the winding down of the PDU. The Company now operates in five business segments, as described below. The operations of the Pasadena Facility and Fulghum are included in the Company’s historical results of operations only from the date of the
closing of the Agrifos Acquisition and the Fulghum Acquisition, which were November 1, 2012 and May 1, 2013, respectively.
|
|
•
|
|
East Dubuque — The operations of the East Dubuque Facility, which produces primarily ammonia and 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 — This segment includes wood pellet projects owned by the Company, currently the Atikokan Project and Wawa Project, equity in the Rentech/Graanul JV and wood pellet development costs. The wood pellet
development costs represent the Company’s personnel costs for employees dedicated to the wood pellet business and other supporting third party costs.
|
|
|
•
|
|
Energy technologies — This segment owns technologies designed to convert low-value, carbon-bearing solids or gases into valuable hydrocarbons and electric power, when combined with certain third party technologies.
This segment includes the Company’s research and development activities.
|
138
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
The Company’s reportable operating segments have been determined in accordance with the
Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measure is segment-operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Years
Ended December 31,
|
|
|
For the Three Months
Ended December 31,
|
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
$
|
177,700
|
|
|
$
|
224,205
|
|
|
$
|
63,014
|
|
|
$
|
42,962
|
|
|
$
|
179,857
|
|
|
Pasadena
|
|
|
133,675
|
|
|
|
37,430
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fulghum Fibres
|
|
|
62,974
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Energy technologies
|
|
|
506
|
|
|
|
290
|
|
|
|
52
|
|
|
|
52
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
374,855
|
|
|
$
|
261,925
|
|
|
$
|
63,066
|
|
|
$
|
43,014
|
|
|
$
|
180,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
$
|
80,883
|
|
|
$
|
133,543
|
|
|
$
|
25,554
|
|
|
$
|
16,127
|
|
|
$
|
76,571
|
|
|
Pasadena
|
|
|
(9,529
|
)
|
|
|
(1,704
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fulghum Fibres
|
|
|
12,032
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Energy technologies
|
|
|
305
|
|
|
|
80
|
|
|
|
2
|
|
|
|
1
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
83,691
|
|
|
$
|
131,919
|
|
|
$
|
25,556
|
|
|
$
|
16,128
|
|
|
$
|
76,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
$
|
4,576
|
|
|
$
|
6,242
|
|
|
$
|
3,336
|
|
|
$
|
1,431
|
|
|
$
|
5,786
|
|
|
Pasadena
|
|
|
4,764
|
|
|
|
361
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fulghum Fibres
|
|
|
3,754
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Wood pellets
|
|
|
5,479
|
|
|
|
1,919
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Energy technologies
|
|
|
7,709
|
|
|
|
4,514
|
|
|
|
7,162
|
|
|
|
6,256
|
|
|
|
22,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expense
|
|
$
|
26,282
|
|
|
$
|
13,036
|
|
|
$
|
10,498
|
|
|
$
|
7,687
|
|
|
$
|
28,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy technologies
|
|
$
|
5,747
|
|
|
$
|
20,944
|
|
|
$
|
4,202
|
|
|
$
|
5,426
|
|
|
$
|
30,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
$
|
5,747
|
|
|
$
|
20,944
|
|
|
$
|
4,202
|
|
|
$
|
5,426
|
|
|
$
|
30,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
$
|
191
|
|
|
$
|
807
|
|
|
$
|
77
|
|
|
$
|
112
|
|
|
$
|
409
|
|
|
Pasadena
|
|
|
3,886
|
|
|
|
583
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fulghum Fibres
1
|
|
|
(1,708
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Wood pellets
|
|
|
26
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Energy technologies
|
|
|
122
|
|
|
|
1,573
|
|
|
|
489
|
|
|
|
461
|
|
|
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization recorded in operating expenses
|
|
$
|
2,517
|
|
|
$
|
2,963
|
|
|
$
|
566
|
|
|
$
|
573
|
|
|
$
|
2,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
|
9,048
|
|
|
|
10,690
|
|
|
|
3,210
|
|
|
|
2,489
|
|
|
|
9,611
|
|
|
Pasadena
|
|
|
4,187
|
|
|
|
380
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fulghum Fibres
|
|
|
4,836
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense recorded in cost of sales
|
|
|
18,071
|
|
|
|
11,070
|
|
|
|
3,210
|
|
|
|
2,489
|
|
|
|
9,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
20,588
|
|
|
$
|
14,033
|
|
|
$
|
3,776
|
|
|
$
|
3,062
|
|
|
$
|
11,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating (income) expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
$
|
806
|
|
|
$
|
510
|
|
|
$
|
(507
|
)
|
|
$
|
—
|
|
|
$
|
522
|
|
|
Pasadena
|
|
|
30,029
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fulghum Fibres
|
|
|
72
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Wood pellets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Energy technologies
|
|
|
(6,272
|
)
|
|
|
15,126
|
|
|
|
583
|
|
|
|
53
|
|
|
|
50,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses
|
|
$
|
24,635
|
|
|
$
|
15,636
|
|
|
$
|
76
|
|
|
$
|
53
|
|
|
$
|
51,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
$
|
75,310
|
|
|
$
|
125,984
|
|
|
$
|
22,648
|
|
|
$
|
14,584
|
|
|
$
|
69,854
|
|
|
Pasadena
|
|
|
(48,208
|
)
|
|
|
(2,648
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fulghum Fibres
|
|
|
9,914
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Wood pellets
|
|
|
(5,505
|
)
|
|
|
(1,919
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Energy technologies
|
|
|
(7,001
|
)
|
|
|
(42,077
|
)
|
|
|
(12,434
|
)
|
|
|
(12,195
|
)
|
|
|
(104,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
24,510
|
|
|
$
|
79,340
|
|
|
$
|
10,214
|
|
|
$
|
2,389
|
|
|
$
|
(35,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Calendar Years
Ended December 31,
|
|
|
For the Three Months
Ended December 31,
|
|
|
For the Fiscal
Year Ended
September 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Interest (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
$
|
—
|
|
|
$
|
194
|
|
|
$
|
1,947
|
|
|
$
|
2,912
|
|
|
$
|
13,752
|
|
|
Pasadena
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fulghum Fibres
|
|
|
1,755
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Energy technologies
|
|
|
(3
|
)
|
|
|
(1,576
|
)
|
|
|
2,151
|
|
|
|
818
|
|
|
|
2,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest (income) expense
|
|
$
|
1,760
|
|
|
$
|
(1,382
|
)
|
|
$
|
4,098
|
|
|
$
|
3,730
|
|
|
$
|
16,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
$
|
75,244
|
|
|
$
|
123,721
|
|
|
$
|
10,455
|
|
|
$
|
7,096
|
|
|
$
|
42,341
|
|
|
Pasadena
|
|
|
(48,357
|
)
|
|
|
(2,648
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Fulghum Fibres
|
|
|
6,967
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Wood pellets
|
|
|
(5,180
|
)
|
|
|
(1,919
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Energy technologies
|
|
|
(6,891
|
)
|
|
|
(40,498
|
)
|
|
|
(14,553
|
)
|
|
|
(12,980
|
)
|
|
|
(107,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net income (loss)
|
|
$
|
21,783
|
|
|
$
|
78,656
|
|
|
$
|
(4,098
|
)
|
|
$
|
(5,884
|
)
|
|
$
|
(65,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment net income (loss) to consolidated net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net income (loss)
|
|
$
|
21,783
|
|
|
$
|
78,656
|
|
|
$
|
(4,098
|
)
|
|
$
|
(5,884
|
)
|
|
$
|
(65,382
|
)
|
|
RNP – partnership and unallocated expenses recorded as selling, general and administrative expenses
|
|
|
(7,945
|
)
|
|
|
(11,773
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
RNP – partnership and unallocated expenses recorded as other income (expense)
|
|
|
(1,081
|
)
|
|
|
232
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
RNP – unallocated interest expense and loss on interest rate swaps
|
|
|
(14,096
|
)
|
|
|
(2,226
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
RNP – income tax benefit (expense)
|
|
|
303
|
|
|
|
(303
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Corporate and unallocated expenses recorded as selling, general and administrative expenses
|
|
|
(24,849
|
)
|
|
|
(23,432
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Corporate and unallocated depreciation and amortization expense
|
|
|
(596
|
)
|
|
|
(791
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Corporate and unallocated income (expenses) recorded as other income (expense)
|
|
|
19
|
|
|
|
(2,708
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Corporate and unallocated interest expense
|
|
|
(532
|
)
|
|
|
(9,055
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Corporate income tax benefit (expense)
|
|
|
27,032
|
|
|
|
(1,063
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Income from discontinued operations
|
|
|
—
|
|
|
|
150
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
$
|
38
|
|
|
$
|
27,687
|
|
|
$
|
(4,098
|
)
|
|
$
|
(5,884
|
)
|
|
$
|
(65,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Amortization of unfavorable processing agreements exceeds amortization of favorable processing agreements resulting in a credit in depreciation and amortization for Fulghum.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands)
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
East Dubuque
|
|
$
|
175,430
|
|
|
$
|
125,100
|
|
|
Pasadena
|
|
|
188,836
|
|
|
|
191,279
|
|
|
Fulghum Fibres
|
|
|
188,397
|
|
|
|
—
|
|
|
Wood pellets
|
|
|
42,089
|
|
|
|
58
|
|
|
Energy technologies
|
|
|
6,135
|
|
|
|
10,197
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
$
|
600,887
|
|
|
$
|
326,634
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment total assets to consolidated total assets:
|
|
|
|
|
|
|
|
|
|
Segment total assets
|
|
$
|
600,887
|
|
|
$
|
326,634
|
|
|
RNP – partnership and other
|
|
|
42,078
|
|
|
|
60,266
|
|
|
Corporate and other
|
|
|
60,625
|
|
|
|
92,302
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
$
|
703,590
|
|
|
$
|
479,202
|
|
|
|
|
|
|
|
|
|
|
|
140
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
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 the Company for executive, legal, finance, accounting, human resources and investor relations support in accordance with the services agreement between RNP and the Company; audit and tax fees; legal fees; compensation for RNP
partnership level personnel; board expense; and certain insurance costs. Partnership and unallocated expenses recorded in other expense represent primarily loss on debt extinguishment partially offset by fair value adjustment to earn-out
consideration. Unallocated interest expense represents primarily interest expense on the RNP Notes. Corporate and unallocated expenses represent costs that relate directly to Rentech and its non-RNP subsidiaries but are not allocated to a segment.
Corporate and unallocated expenses recorded in operating expenses consist primarily of selling, general and administrative expenses and depreciation and amortization. For the years ended December 31, 2013 and 2012, corporate and unallocated
interest expense consists primarily of interest expense on the RNHI Revolving Loan and the convertible debt, which was completely redeemed for cash on December 31, 2012, respectively.
The Company’s revenue by geographic area, based on where the customer takes title to the product, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For Calendar Years
Ended December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in thousands)
|
|
|
United States
|
|
$
|
352,514
|
|
|
$
|
261,925
|
|
|
Other
|
|
|
22,341
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
374,855
|
|
|
$
|
261,925
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth assets by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
|
|
|
(in thousands)
|
|
|
United States
|
|
$
|
633,886
|
|
|
$
|
479,202
|
|
|
Other
|
|
|
69,704
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
703,590
|
|
|
$
|
479,202
|
|
|
|
|
|
|
|
|
|
|
|
Note 20 — Net Income (Loss) Per Common Share Attributable To Rentech
For the calendar years ended December 31, 2013 and 2012, the three months ended December 31, 2011 and 2010 and the
fiscal year ended September 30, 2011, approximately 16.1 million, 16.7 million, 41.3 million, 40.8 million and 40.5 million shares, respectively, of Rentech’s common stock issuable pursuant to stock options, stock
warrants, restricted stock units and convertible debt were excluded from the calculation of diluted income (loss) per share because their inclusion would have been anti-dilutive.
141
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Note 21 — Selected Quarterly Financial Data (Unaudited)
Selected unaudited condensed consolidated financial information for the calendar years ended December 31, 2013 and 2012
is presented in the tables below (in thousands, except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
For the 2013 Calendar Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
59,667
|
|
|
$
|
120,153
|
|
|
$
|
115,762
|
|
|
$
|
79,273
|
|
|
Gross profit (loss)
|
|
$
|
22,772
|
|
|
$
|
42,314
|
|
|
$
|
21,199
|
|
|
$
|
(2,594
|
)
|
|
Operating income (loss)
|
|
$
|
2,068
|
|
|
$
|
25,074
|
|
|
$
|
(20,216
|
)
|
|
$
|
(15,806
|
)
|
|
Income (loss) from continuing operations
|
|
$
|
786
|
|
|
$
|
44,306
|
|
|
$
|
(23,578
|
)
|
|
$
|
(21,476
|
)
|
|
Net income (loss)
|
|
$
|
786
|
|
|
$
|
44,306
|
|
|
$
|
(23,578
|
)
|
|
$
|
(21,476
|
)
|
|
Net (income) loss attributable to noncontrolling interests
|
|
$
|
(6,026
|
)
|
|
$
|
(11,474
|
)
|
|
$
|
8,985
|
|
|
$
|
6,945
|
|
|
Net income (loss) attributable to Rentech
|
|
$
|
(5,240
|
)
|
|
$
|
32,832
|
|
|
$
|
(14,593
|
)
|
|
$
|
(14,531
|
)
|
|
Net income (loss) per common share allocated to Rentech:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.02
|
)
|
|
$
|
0.14
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
|
Discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.02
|
)
|
|
$
|
0.14
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
For the 2012 Calendar Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
38,588
|
|
|
$
|
70,707
|
|
|
$
|
60,170
|
|
|
$
|
92,460
|
|
|
Gross profit
|
|
$
|
22,635
|
|
|
$
|
45,655
|
|
|
$
|
35,040
|
|
|
$
|
28,589
|
|
|
Operating income (loss)
|
|
$
|
6,578
|
|
|
$
|
29,448
|
|
|
$
|
16,604
|
|
|
$
|
(9,286
|
)
|
|
Income (loss) from continuing operations
|
|
$
|
4,326
|
|
|
$
|
25,679
|
|
|
$
|
15,443
|
|
|
$
|
(17,911
|
)
|
|
Income from discontinued operations, net of tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
134
|
|
|
$
|
16
|
|
|
Net income (loss)
|
|
$
|
4,326
|
|
|
$
|
25,679
|
|
|
$
|
15,577
|
|
|
$
|
(17,895
|
)
|
|
Net (income) attributable to noncontrolling interests
|
|
$
|
(7,590
|
)
|
|
$
|
(16,159
|
)
|
|
$
|
(11,307
|
)
|
|
$
|
(6,631
|
)
|
|
Net income (loss) attributable to Rentech
|
|
$
|
(3,264
|
)
|
|
$
|
9,520
|
|
|
$
|
4,270
|
|
|
$
|
(24,526
|
)
|
|
Net income (loss) per common share allocated to Rentech:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.04
|
|
|
$
|
0.02
|
|
|
$
|
(0.11
|
)
|
|
Discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.01
|
)
|
|
$
|
0.04
|
|
|
$
|
0.02
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross loss during the three months ended December 31, 2013 was primarily attributable to
(i) turnaround expenses at the East Dubuque Facility and the Pasadena Facility of approximately $7.8 million and $1.7 million, respectively, (ii) a write-down of the Pasadena Facility’s inventory of approximately $5.1 million,
(iii) fixed operating costs while the East Dubuque Facility was idle of approximately $4.2 million, and (iv) the $1.0 million insurance deductible for the fire which occurred in November 2013 at the East Dubuque Facility.
142
RENTECH, INC.
Notes to Consolidated Financial Statements — Continued
Note 22 — Subsequent Events
On February 13, 2014, RNP announced a cash distribution to its common unitholders for the period October 1, 2013
through and including December 31, 2013 of $0.05 per common unit which resulted in total distributions in the amount of approximately $2.0 million, including payments to phantom unitholders. RNHI received a distribution of approximately $1.2
million, representing its share of distributions based on its ownership of common units. The cash distribution was paid on February 28, 2014 to unitholders of record at the close of business on February 24, 2014.
On March 7, 2014 the Borrowers entered into the First Amendment to the 2013 RNP Credit Agreement (the “First RNP
Amendment”). The First RNP Amendment replaces in certain circumstances the financial test that the Borrowers must satisfy for any borrowing from the Secured Leverage Ratio to a Fixed Charge Coverage Ratio (each as defined in the 2013 RNP
Credit Agreement) for the period from the date of the amendment until immediately prior to the time RNP reports its fiscal year 2014 annual results (the “FCCR End Date”). The Fixed Charge Coverage Ratio that the Borrowers have to meet
from the date of the First RNP Amendment through the date immediately prior to the time RNP reports its 2014 first quarter results is 2.00 to 1.00, and thereafter through the FCCR End Date is 2.25 to 1.00. For the year ended December 31, 2013,
RNP’s Fixed Charge Coverage Ratio was 3.27 to 1.00.
The First RNP Amendment also modifies for a specified period the financial test
applicable to the announcement or payment of a distribution. In the event that RNP has no amounts outstanding under the 2013 RNP Credit Agreement on the date of the announcement or payment of an RNP distribution, the minimum Fixed Charge Coverage
Ratio that it has to meet in order to pay distributions in the period from the date of the First RNP Amendment through the date immediately prior to reporting RNP’s 2014 first quarter results is 2.00 to 1.00, and thereafter through the FCCR End
Date is 2.25 to 1.00. If there is any amount outstanding under the 2013 RNP Credit Agreement on the date of the announcement or payment of a distribution from the period beginning with the date of the First RNP Amendment through the FCCR End
Date, RNP must have a Secured Leverage Ratio not in excess of 3.75 to 1.00. Following the FCCR End Date, to announce or pay a distribution RNP must have a Secured Leverage Ratio not in excess of 3.75 to 1.00. In addition, before RNP can make
distributions, RNP must have at least $8.75 million available to be drawn under the 2013 RNP Credit Agreement on a pro forma basis.
In
March 2014, the Company announced that it had entered into a definitive agreement with Sunshine Kaidi New Energy Group Co., Ltd. (“Kaidi”) to sell its alternative energy technologies and decommissioned PDU. The transaction provides the
Company at closing with an initial cash purchase price for our technology and equipment of $15.3 million, and the possibility of a success payment of up to $16.2 million.
Closing of the transaction with Kaidi, which is expected in mid-2014, is subject to customary conditions, including regulatory approvals in
the United States and the People’s Republic of China. The Company will recognize a gain on the transaction when consummated. The transaction may result in the energy technologies segment being reflected as a discontinued operation starting in
2014.
143