Excluded from the consolidated statements of cash flows were the effects of certain non-cash investing and financing activities as follows:
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 — Basis of Presentation
The accompanying unaudited consolidated financial statements of Rentech, Inc. (“Rentech”) and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Neither authority requires all of the information and footnotes required by GAAP for complete financial statements. Accordingly, the accompanying financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial position as of September 30, 2016, and the results of operations and cash flows for the periods presented. The accompanying consolidated financial statements include the accounts of Rentech, its wholly owned subsidiaries and all subsidiaries in which Rentech directly or indirectly owns a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any other reporting period. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2016 (the “Annual Report”).
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Sale and
Merger - Discontinued Operations
On March 14, 2016, Rentech Nitrogen Partners, L.P. (“RNP”), a majority owned subsidiary of which the Company owned approximately 60%, completed the sale of Rentech Nitrogen Pasadena Holdings, LLC (“Pasadena Holdings”), the owner of a fertilizer facility in Pasadena, Texas (the “Pasadena Facility”), to Interoceanic Corporation (“IOC”) (the “Pasadena Sale”). The transaction included an initial cash payment to RNP of $5.0 million, which resulted in a distribution to the Company of $2.6 million. The transaction also included a post-closing cash working capital adjustment of $5.4 million. The working capital adjustment along with insurance refunds put the total distribution to RNP unitholders at approximately $5.7 million of which the Company received $3.4 million. The estimated loss on sale of $1.2 million is recorded in discontinued operations. The purchase agreement also includes an earn-out which would be paid to former RNP unitholders as of the closing of the Merger (defined below) equal to 50% of the Pasadena Facility’s EBITDA, as defined in the purchase agreement, in excess of $8.0 million cumulatively earned over the next two years. The Company did not include the earn-out in the loss on sale calculation as it represents a gain contingency.
On April 1, 2016, RNP completed the previously announced transactions contemplated by the Agreement and Plan of Merger, dated as of August 9, 2015 (the “Merger Agreement”) under which RNP and Rentech Nitrogen GP, LLC (the “General Partner”) merged with affiliates of CVR Partners, L.P. (“CVR”), and RNP ceased to be a publicly traded company and became a wholly-owned subsidiary of CVR (the “Merger”). Pursuant to the Merger Agreement, each outstanding unit of RNP was exchanged for 1.04 common units of CVR (“CVR Common Units”) and $2.57 of cash. The Company received merger consideration of $59.8 million of cash and 24.2 million CVR Common Units. The Company used 17.0 million CVR Common Units received in the Merger and $10.0 million of cash to: (i) repurchase and retire all $100 million of the Company’s Series E Convertibl
e Preferred Stock, par value $10.00 per share (the “Preferred Stock”) held by
certain funds managed by or affiliated with GSO Capital Partners LP (the “GSO Funds”) and (ii) repay approximately $41.7 million of debt under the Company’s credit agreement with the GSO Funds (as amended from time to time, the “GSO Credit Agreement”). See Note 10 — Debt and Preferred Stock for further information regarding the Company’s transactions with the GSO Funds.
The Company currently owns approximately 7.2 million CVR Common Units. The Company’s share of book gain on sale of RNP is $358.6 million, which is recorded in discontinued operations. The gain is comprised primarily of $59.8 million of cash proceeds and CVR Common Units valued at $202.1 million, based on CVR’s closing price on March 31, 2016 of $8.36 per unit, compared to the Company’s share of RNP’s negative net book value of $97.5 million as of March 31, 2016. See Note 3 — Investment in CVR for further information regarding the Company’s investment in CVR.
9
Th
e Company has presented its consolidated balance sheets and consolidated statements of operations for all periods presented in this report to reflect RNP as discontinued operations, excluding certain corporate expenses that the Company expects to incur on
an on-going basis which were previously allocated to RNP. See Note 4 — Discontinued Operations.
Note 2 — Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB approved a one-year deferral of the effective date making the guidance effective for interim and annual reporting periods beginning after December 15, 2017. In addition, the FASB will continue to permit entities to early adopt the guidance for annual periods beginning on or after December 15, 2016. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosures.
In June 2014, the FASB issued guidance on accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations and disclosures.
In August 2014, the FASB issued guidance on presentation of financial statements — going concern, which applies to all companies. It requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosure.
In November 2014, the FASB issued guidance on hybrid financial instruments. The guidance does not change the current criteria for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The guidance clarifies that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations and disclosures.
In January 2015, the FASB issued guidance that eliminates the concept of extraordinary items. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company has not historically reported any extraordinary items. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations and disclosures.
In February 2015, the FASB issued guidance that changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this guidance did not have any impact on the Company’s consolidated financial position, results of operations and disclosures.
In April 2015, the FASB issued guidance that will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The Company adopted the provisions of this guidance in the first quarter of 2016 and applied the provisions prospectively. The adoption of this guidance did not have an impact on the Company’s consolidated financial position, results of operations and disclosures.
In July 2015, the FASB issued guidance that replaces the current lower of cost or market method of measurement for inventory with a lower of cost and net realizable value measurement. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial position, results of operations or disclosures.
10
In September 2015, the FASB issued guidance that
simplifies the accounting for adjustments made to provisional amounts recogni
zed in a business combination by requiring the acquirer to (i) recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined, (ii) record, in the same per
iod, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date, and (iii) present separ
ately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the p
rovisional amounts had been recognized as of the acquisition date.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this guidance did not have any impact on the
Company’s consolidated financial position, results of operations and disclosures.
In February 2016, the FASB issued an update to its guidance on lease accounting. This update revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The distinction between finance and operating leases has not significantly changed and the update does not significantly change the effect of finance and operating leases on the statement of operations. The new guidance is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. The Company is currently assessing the impact of adoption of this standard on our consolidated financial statements.
In March 2016, the FASB issued guidance that requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain conditions are met. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosure.
In August 2016, the FASB issued guidance on eight specific cash flow issues. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is evaluating the provisions of this guidance and the potential impact, if any, on its consolidated financial position, results of operations and disclosure.
Note 3 — Investment in CVR
The Company owns approximately 7.2 million CVR Common Units. The 7.2 million CVR Common Units were valued at $60.1 million, based on CVR’s closing price of $8.36 per Common Unit as of March 31, 2016. The 7.2 million CVR Common Units had a market value of $38.1 million, based on CVR’s closing price of $5.30 per Common Unit as of September 30, 2016. The investment in CVR is shown on the consolidated balance sheets under equity investment.
The investment in CVR is accounted for under the equity method of accounting. The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses 3% to 5% or more ownership of a limited partnership. In addition, the Company’s president and chief executive officer is on the board of directors for CVR GP, LLC, the general partner of CVR. The Company’s ownership in CVR represents approximately 6% of the total CVR Common Units outstanding, which is based on total CVR Common Units outstanding at September 30, 2016 of 113,282,973.
In applying the equity method, the Company recorded the investment at fair value and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or losses and other comprehensive income of the investee. The Company records dividends or other equity distributions as reductions in the carrying value of the investment. The investment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge would only be recognized in earnings for a decline in value that is determined to be other than temporary. For the three and nine months ended September 30, 2016, the Company recorded its proportionate share of loss from its investment in CVR of $0.8 million and $1.9 million, respectively, since it received the CVR Common Units on April 1, 2016, which is shown on the consolidated statement of operations under equity in loss of investee. In addition, as of the date of the Company’s investment in CVR, basis differences between the book value of equity on CVR’s balance sheet and the amount recorded on the Company’s books was ascribed to an asset and amortized over its useful life, which resulted in an additional expense of $0.2 million for the three months ended September 30, 2016 and $0.5 million for the nine months ended September 30, 2016. During the three and nine months ended September 30, 2016, since it received the CVR Common Units on April 1, 2016, the Company received distributions from CVR of $3.2 million. The Company analyzes the dividends received on a quarter-by-quarter basis without consideration of the investee’s forecasted earnings. Since the distributions received by the Company exceeded its proportionate share of CVR’s earnings, the entire distributions of $3.2 million were considered a return of investment and classified as an investing cash inflow on the consolidated statements of cash flows.
11
Note 4 — Discontinued Operations
The completed Merger represents a strategic shift that had a major effect on Rentech’s operations and financial results. As a result of the Merger Agreement and the Pasadena Sale, the Company has classified its consolidated balance sheets and consolidated statements of operations for all periods presented in this report to reflect RNP, excluding certain corporate expenses that the Company expects to continue on an on-going basis, which were previously allocated to RNP, as discontinued operations. Prior to the Merger Agreement, the Company reflected RNP in its reports as the East Dubuque business segment, the Pasadena business segment, and unallocated partnership items.
The Company’s consolidated balance sheets and consolidated statements of operations for all periods presented in this report also reflect the Energy Technologies segment as discontinued operations. On March 18, 2016, the Company completed the sale of the property (the “PDU Property”) that housed its product demonstration unit (“PDU”) in Colorado for $3.0 million. The Company was required under a Membership Interest Purchase and Sale Agreement, dated as of February 28, 2014 (the “MIPSA”), to remit 50% of the net proceeds from the property sale to Sunshine Kaidi New Energy Group Co., Ltd. (“Kaidi”). In 2014, Kaidi acquired the Company’s alternative energy technologies (the “Sale”), certain pieces of equipment at the PDU and a right to 50% of the proceeds from the future sale of the PDU Property, net of the Company’s carrying and transaction costs for the property. On September 9, 2016, Rentech, Kaidi and certain related parties entered into a Termination Agreement terminating the MIPSA and all ancillary documents related thereto. The Termination Agreement only affects the post-closing obligations of the parties under the MIPSA and the related ancillary agreements and not the Sale, which is completed. The Termination Agreement provides: (i) that Kaidi will pay $3.5 million to Rentech (inclusive of a $1.1 million credit for Kaidi’s share of proceeds from the sale of the PDU Property) on or before November 8, 2016; (ii) that all remaining rights and obligations of the parties under the MIPSA and the related ancillary agreements, including any rights to future payments or indemnities, shall terminate;
and (iii) that the parties mutually release each other from any and all claims in connection with the MIPSA and other documents related to the Sale. For further information on the Termination Agreement, refer to the Current Report on Form 8-K filed by the Company on September 15, 2016. The Company recorded for the nine months ended September 30, 2016 $2.4 million in other income related to the Termination Agreement and $0.8 million related to the gain on sale of the PDU Property. On November 7, 2016, the Company received the payment due under the Termination Agreement.
In the consolidated statements of cash flows, the cash flows of discontinued operations are separately classified or aggregated under operating and investing activities.
All discussions and amounts in the consolidated financial statements and related notes for all periods presented relate to continuing operations only, unless otherwise noted.
The following table summarizes the components of assets and liabilities of discontinued operations.
|
|
As of September 30, 2016
|
|
|
|
RNP
|
|
|
Energy Technologies
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Other receivables
|
|
$
|
—
|
|
|
$
|
2,400
|
|
|
$
|
2,400
|
|
Prepaid expenses and other current assets
|
|
|
3,413
|
|
|
|
40
|
|
|
|
3,453
|
|
Total current assets
|
|
$
|
3,413
|
|
|
$
|
2,440
|
|
|
$
|
5,853
|
|
Total other assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total assets
|
|
$
|
3,413
|
|
|
$
|
2,440
|
|
|
$
|
5,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
150
|
|
|
$
|
150
|
|
Total current liabilities
|
|
$
|
—
|
|
|
$
|
150
|
|
|
$
|
150
|
|
Total long-term liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
150
|
|
|
$
|
150
|
|
12
|
|
As of December 31, 2015
|
|
|
|
RNP
|
|
|
Energy Technologies
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Cash
|
|
$
|
15,822
|
|
|
$
|
—
|
|
|
$
|
15,822
|
|
Accounts receivable
|
|
|
11,451
|
|
|
|
—
|
|
|
|
11,451
|
|
Inventories
|
|
|
30,354
|
|
|
|
—
|
|
|
|
30,354
|
|
Prepaid expenses and other current assets
|
|
|
5,747
|
|
|
|
106
|
|
|
|
5,853
|
|
Other receivables
|
|
|
374
|
|
|
|
—
|
|
|
|
374
|
|
Total current assets
|
|
$
|
63,748
|
|
|
$
|
106
|
|
|
$
|
63,854
|
|
Property held for sale
|
|
$
|
159,596
|
|
|
$
|
1,678
|
|
|
$
|
161,274
|
|
Construction in progress
|
|
|
23,712
|
|
|
|
—
|
|
|
|
23,712
|
|
Other assets
|
|
|
71
|
|
|
|
10
|
|
|
|
81
|
|
Total other assets
|
|
$
|
183,379
|
|
|
$
|
1,688
|
|
|
$
|
185,067
|
|
Total assets
|
|
$
|
247,127
|
|
|
$
|
1,794
|
|
|
$
|
248,921
|
|
Accounts payable
|
|
$
|
12,022
|
|
|
$
|
498
|
|
|
$
|
12,520
|
|
Accrued payroll and benefits
|
|
|
5,746
|
|
|
|
4
|
|
|
|
5,750
|
|
Accrued liabilities
|
|
|
13,694
|
|
|
|
455
|
|
|
|
14,149
|
|
Deferred revenues
|
|
|
16,983
|
|
|
|
—
|
|
|
|
16,983
|
|
Accrued interest
|
|
|
4,650
|
|
|
|
—
|
|
|
|
4,650
|
|
Total current liabilities
|
|
$
|
53,095
|
|
|
$
|
957
|
|
|
$
|
54,052
|
|
Debt
|
|
$
|
347,574
|
|
|
$
|
—
|
|
|
$
|
347,574
|
|
Asset retirement obligation
|
|
|
4,498
|
|
|
|
—
|
|
|
|
4,498
|
|
Other
|
|
|
2,092
|
|
|
|
—
|
|
|
|
2,092
|
|
Total long-term liabilities
|
|
$
|
354,164
|
|
|
$
|
—
|
|
|
$
|
354,164
|
|
Total liabilities
|
|
$
|
407,259
|
|
|
$
|
957
|
|
|
$
|
408,216
|
|
The following table summarizes the results of discontinued operations.
|
|
For the Three Months Ended
September 30, 2016
|
|
|
|
RNP
|
|
|
Energy Technologies
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of sales
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Operating loss, excluding gain (loss) on sale
|
|
|
—
|
|
|
|
(225
|
)
|
|
|
(225
|
)
|
Gain (loss) on sale
|
|
|
(165
|
)
|
|
|
1,331
|
|
|
|
1,166
|
|
Other income, net
|
|
|
—
|
|
|
|
2,400
|
|
|
|
2,400
|
|
Income (loss) before income taxes
|
|
|
(165
|
)
|
|
|
3,506
|
|
|
|
3,341
|
|
Income tax expense
|
|
|
2,412
|
|
|
|
1,330
|
|
|
|
3,742
|
|
Net income (loss)
|
|
|
(2,577
|
)
|
|
|
2,176
|
|
|
|
(401
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(174
|
)
|
|
|
—
|
|
|
|
(174
|
)
|
Net income attributable to Rentech common shareholders
|
|
$
|
(2,403
|
)
|
|
$
|
2,176
|
|
|
$
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Rentech common shareholders
|
|
$
|
(2,403
|
)
|
|
$
|
2,176
|
|
|
$
|
(227
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(174
|
)
|
|
|
—
|
|
|
|
(174
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
(2,577
|
)
|
|
$
|
2,176
|
|
|
$
|
(401
|
)
|
13
|
|
For the Three Months Ended
September 30, 2015
|
|
|
|
RNP
|
|
|
Energy Technologies
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
84,323
|
|
|
$
|
—
|
|
|
$
|
84,323
|
|
Cost of sales
|
|
|
63,598
|
|
|
|
—
|
|
|
|
63,598
|
|
Gross profit
|
|
|
20,725
|
|
|
|
—
|
|
|
|
20,725
|
|
Operating income (loss)
|
|
|
(17,685
|
)
|
|
|
948
|
|
|
|
(16,737
|
)
|
Other expenses, net
|
|
|
(5,584
|
)
|
|
|
—
|
|
|
|
(5,584
|
)
|
Income (loss) before income taxes
|
|
|
(23,269
|
)
|
|
|
948
|
|
|
|
(22,321
|
)
|
Income tax (benefit) expense
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
(19
|
)
|
Net income (loss)
|
|
|
(23,250
|
)
|
|
|
948
|
|
|
|
(22,302
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(9,728
|
)
|
|
|
—
|
|
|
|
(9,728
|
)
|
Net income (loss) attributable to Rentech common shareholders
|
|
$
|
(13,522
|
)
|
|
$
|
948
|
|
|
$
|
(12,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Rentech common shareholders
|
|
$
|
(13,522
|
)
|
|
$
|
948
|
|
|
$
|
(12,574
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(9,728
|
)
|
|
|
—
|
|
|
|
(9,728
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
(23,250
|
)
|
|
$
|
948
|
|
|
$
|
(22,302
|
)
|
|
|
For the Nine Months Ended
September
30, 2016
|
|
|
|
RNP
|
|
|
Energy Technologies
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
54,347
|
|
|
$
|
—
|
|
|
$
|
54,347
|
|
Cost of sales
|
|
|
34,696
|
|
|
|
—
|
|
|
|
34,696
|
|
Gross profit
|
|
|
19,651
|
|
|
|
—
|
|
|
|
19,651
|
|
Operating income, excluding gain on sale
|
|
|
15,056
|
|
|
|
658
|
|
|
|
15,714
|
|
Gain on sale
|
|
|
357,345
|
|
|
|
785
|
|
|
|
358,130
|
|
Other income (expenses), net
|
|
|
(5,259
|
)
|
|
|
2,358
|
|
|
|
(2,901
|
)
|
Income before income taxes
|
|
|
367,142
|
|
|
|
3,801
|
|
|
|
370,943
|
|
Income tax expense
|
|
|
137,705
|
|
|
|
1,425
|
|
|
|
139,130
|
|
Net income
|
|
|
229,437
|
|
|
|
2,376
|
|
|
|
231,813
|
|
Net income attributable to noncontrolling interests
|
|
|
3,164
|
|
|
|
—
|
|
|
|
3,164
|
|
Net income attributable to Rentech common shareholders
|
|
$
|
226,273
|
|
|
$
|
2,376
|
|
|
$
|
228,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Rentech common shareholders
|
|
$
|
226,273
|
|
|
$
|
2,376
|
|
|
$
|
228,649
|
|
Net income attributable to noncontrolling interests
|
|
|
3,164
|
|
|
|
—
|
|
|
|
3,164
|
|
Income from discontinued operations, net of tax
|
|
$
|
229,437
|
|
|
$
|
2,376
|
|
|
$
|
231,813
|
|
|
|
For the Nine Months Ended
September
30, 2015
|
|
|
|
RNP
|
|
|
Energy Technologies
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
263,350
|
|
|
$
|
56
|
|
|
$
|
263,406
|
|
Cost of sales
|
|
|
179,116
|
|
|
|
50
|
|
|
|
179,166
|
|
Gross profit
|
|
|
84,234
|
|
|
|
6
|
|
|
|
84,240
|
|
Operating income (loss)
|
|
|
(64,141
|
)
|
|
|
569
|
|
|
|
(63,572
|
)
|
Other expenses, net
|
|
|
(14,750
|
)
|
|
|
—
|
|
|
|
(14,750
|
)
|
Income (loss) before income taxes
|
|
|
(78,891
|
)
|
|
|
569
|
|
|
|
(78,322
|
)
|
Income tax expense
|
|
|
28
|
|
|
|
—
|
|
|
|
28
|
|
Net income (loss)
|
|
|
(78,919
|
)
|
|
|
569
|
|
|
|
(78,350
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(32,775
|
)
|
|
|
—
|
|
|
|
(32,775
|
)
|
Net income (loss) attributable to Rentech common shareholders
|
|
$
|
(46,144
|
)
|
|
$
|
569
|
|
|
$
|
(45,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Rentech common shareholders
|
|
$
|
(46,144
|
)
|
|
$
|
569
|
|
|
$
|
(45,575
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(32,775
|
)
|
|
|
—
|
|
|
|
(32,775
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
(78,919
|
)
|
|
$
|
569
|
|
|
$
|
(78,350
|
)
|
14
Note 5 — Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and is classified in one of the following three categories:
|
•
|
Level 1
— Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date.
|
|
•
|
Level 2
— Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
|
|
•
|
Level 3
— Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.
|
Fair values of cash, receivables, deposits, other current assets, accounts payable, accrued liabilities and other current liabilities were assumed to approximate carrying value since they are short term and can be settled on demand.
The following table presents the financial instruments that were accounted for at fair value by level as of September 30, 2016 and December 31, 2015.
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(in thousands)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Earn-out consideration - September 30, 2016
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
921
|
|
Earn-out consideration - December 31, 2015
|
|
|
—
|
|
|
|
—
|
|
|
|
871
|
|
The following table presents the fair value and carrying value of the Company’s borrowings as of September 30, 2016.
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum debt
|
|
$
|
—
|
|
|
$
|
39,971
|
|
|
$
|
—
|
|
|
$
|
39,321
|
|
NEWP debt
|
|
|
—
|
|
|
|
16,378
|
|
|
|
—
|
|
|
|
16,319
|
|
GSO Credit Agreement
|
|
|
—
|
|
|
|
52,250
|
|
|
|
—
|
|
|
|
49,777
|
|
The following table presents the fair value and carrying value of the Company’s borrowings as of December 31, 2015.
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum debt
|
|
$
|
—
|
|
|
$
|
46,840
|
|
|
$
|
—
|
|
|
$
|
48,150
|
|
NEWP debt
|
|
|
—
|
|
|
|
15,964
|
|
|
|
—
|
|
|
|
16,203
|
|
GSO Credit Agreement
|
|
|
—
|
|
|
|
95,000
|
|
|
|
—
|
|
|
|
91,733
|
|
Earn-out Consideration
At September 30, 2016, the earn-out consideration was $0.9 million relating to the Atikokan Facility, as defined in “Note 8 — Property, Plant and Equipment”. This consideration is deemed to be a Level 3 financial instrument because the measurement is based on unobservable inputs. The fair value of earn-out consideration was determined based on the Company’s analysis of various scenarios involving the achievement of certain levels of EBITDA, as defined in the asset purchase agreement related to the Atikokan Facility, over a ten-year period. The scenarios, which included a weighted probability factor, involved assumptions relating to product profitability and production levels. The earn-out consideration will be measured at each reporting date with changes in its fair value recognized in the consolidated statements of operations. Assuming the minimum required EBITDA level is achieved, an increase or decrease of $1.0 million in EBITDA would result in an increase or decrease in earn-out consideration of $0.1 million. The Company provided a loan to the sellers in the Atikokan Facility of $0.7 million, which will be repayable from any earn-out consideration. The collectability of the loan is tied to the amount of earn-out consideration the sellers receive from the Company.
15
A reconciliation of the change in the carrying value of the earn-out consideration during the nine months ended September 30, 2016 is as follows:
|
|
Atikokan
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2015
|
|
$
|
871
|
|
Add: Unrealized loss on foreign currency translation
|
|
|
50
|
|
Balance at September 30, 2016
|
|
$
|
921
|
|
A reconciliation of the change in the carrying value of the earn-out consideration during the nine months ended September 30, 2015 is as follows:
|
|
Atikokan
|
|
|
NEWP
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2014
|
|
$
|
1,295
|
|
|
$
|
5,000
|
|
|
$
|
6,295
|
|
Less: Earn-out consideration payment
|
|
|
—
|
|
|
|
(5,000
|
)
|
|
|
(5,000
|
)
|
Less: Unrealized gain
|
|
|
(495
|
)
|
|
|
—
|
|
|
|
(495
|
)
|
Less: Unrealized gain on foreign currency translation
|
|
|
(142
|
)
|
|
|
—
|
|
|
|
(142
|
)
|
Balance at September 30, 2015
|
|
$
|
658
|
|
|
$
|
—
|
|
|
$
|
658
|
|
Debt Valuation
The Fulghum Fibres, Inc. (“Fulghum”) debt and New England Wood Pellet, LLC (“NEWP”) debt are deemed to be Level 2 financial instruments because the measurements are based on observable market data. The Company’s valuation reflects discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, weighted average lives and maturity dates.
The GSO Credit Agreement is deemed to be a Level 2 financial instrument because the measurement is based on observable market data. The Company concluded that the carrying value, before the discount, of the GSO Credit Agreement approximated the fair value of such loan as of September 30, 2016 and December 31, 2015 based on its floating interest rate and the Company’s assessment that the fixed-rate margins are still at market.
The levels within the fair value hierarchy at which the Company’s financial instruments have been evaluated have not changed for any of the Company’s financial instruments during the three and nine months ended September 30, 2016 and 2015.
Note 6 — Derivative Instruments
Accounting guidance establishes accounting and reporting requirements for derivative instruments and hedging activities. This guidance requires recognition of all derivative instruments as assets or liabilities on the Company’s consolidated balance sheets and measurement of those instruments at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a derivative instrument is designated as a hedge and if so, the type of hedge. The Company currently does not designate any of its derivatives as hedges for financial accounting purposes. Gains and losses on derivative instruments not designated as hedges are included in earnings in other income (expense) and reported under cash flows from operating activities.
Interest Rate and Currency Swaps
The Company’s wholly owned subsidiary, NEWP, entered into three interest rate swaps in notional amounts that cover the borrowings under its two industrial revenue bonds and a real estate mortgage loan.
Under the interest rate swaps, NEWP pays interest at a fixed rate of 5.29% on the outstanding balance of one of the industrial revenue bonds, 5.05% on the outstanding balance of the other industrial revenue bond and 7.95% on the outstanding balance of the real estate mortgage loan. NEWP receives interest at the variable interest rates specified in the various swap agreements. The interest rate swap on the real estate mortgage loan was terminated in July 2016.
The Company’s wholly owned subsidiary, Fulghum, has entered into two interest rate swaps in notional amounts that cover the borrowings under two of its long-term loans. Under the interest rate swaps, Fulghum pays interest at a fixed rate of 6.83% on the outstanding balance of one of the loans and 5.15% on the outstanding balance of the other loan. Fulghum receives interest at the variable interest rates specified in the various swap agreements. The 5.15% interest rate swap was terminated in July 2015.
16
Through the interest rate swaps, the Company is essentially fixing the va
riable interest rate to be paid on these borrowings.
The interest rate swaps are accounted for as derivatives for accounting purposes. The interest rate swaps are deemed to be Level 2 financial instruments because the measurements are based on observable market data. The Company used a standard swap contract valuation method to value its interest rate derivatives, and the inputs it uses for present value discounting included forward one-month LIBOR rates, risk-free interest rates and an estimate of credit risk. The fair value of the interest rate swaps at September 30, 2016 represents the unrealized loss of $0.5 million. Any adjustments to the fair value of the interest rate swaps are recorded in other income (expense) on the consolidated statements of operations.
Net gain (loss) on interest rate swaps:
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Realized loss
|
|
$
|
—
|
|
|
$
|
(72
|
)
|
|
$
|
—
|
|
|
$
|
(72
|
)
|
Unrealized gain
|
|
|
96
|
|
|
|
40
|
|
|
|
90
|
|
|
|
163
|
|
Total net gain (loss) on interest rate swaps
|
|
$
|
96
|
|
|
$
|
(32
|
)
|
|
$
|
90
|
|
|
$
|
91
|
|
Fulghum’s subsidiary in Chile uses foreign currency economic hedges to offset the earnings impact that fluctuations in foreign currency exchange rates have on certain monetary liabilities (in this case, four loans) denominated in nonfunctional currencies. The changes in fair value of economic hedges used to offset the monetary liabilities are recognized into earnings in the line item other income - net in our consolidated statements of operations. In addition, Fulghum uses foreign currency economic hedges to minimize the variability in cash flows associated with changes in foreign currency exchange rates. The total notional values of derivatives related to our foreign currency economic hedges were $11.1 million and $9.5 million as of September 30, 2016 and December 31, 2015, respectively.
The currency swaps are accounted for as derivatives for accounting purposes. The currency swaps are deemed to be Level 2 financial instruments because the measurements are based on observable market data. The fair value of the currency derivatives is the difference between the contract values and the exchange rates at the end of the period. The fair value of the currency swaps at September 30, 2016 and December 31, 2015 represents the unrealized loss.
Net gain (loss) on currency swaps:
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Realized loss
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Unrealized gain (loss)
|
|
|
233
|
|
|
|
(1,130
|
)
|
|
|
585
|
|
|
|
(1,222
|
)
|
Total net gain (loss) on currency swaps
|
|
$
|
233
|
|
|
$
|
(1,130
|
)
|
|
$
|
585
|
|
|
$
|
(1,222
|
)
|
The interest rate swaps are recorded in other current liabilities on the consolidated balance sheets.
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Interest rate swaps recorded in current liabilities:
|
|
|
|
|
|
|
|
|
Gross amounts recognized
|
|
$
|
(465
|
)
|
|
$
|
(555
|
)
|
Gross amounts offset in consolidated balance sheets
|
|
|
—
|
|
|
|
—
|
|
Net amounts presented in the consolidated balance sheets
|
|
$
|
(465
|
)
|
|
$
|
(555
|
)
|
17
The currency swaps are recorded in other current liabilities on the consolidated balance sheets.
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Currency swaps recorded in current liabilities:
|
|
|
|
|
|
|
|
|
Gross amounts recognized
|
|
$
|
(951
|
)
|
|
$
|
(1,536
|
)
|
Gross amounts offset in consolidated balance sheets
|
|
|
—
|
|
|
|
—
|
|
Net amounts presented in the consolidated balance sheets
|
|
$
|
(951
|
)
|
|
$
|
(1,536
|
)
|
The following table presents the financial instruments that were accounted for at fair value by level as of September 30, 2016:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(in thousands)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
465
|
|
|
|
—
|
|
Currency swaps
|
|
|
—
|
|
|
|
951
|
|
|
|
—
|
|
The following table presents the financial instruments that were accounted for at fair value by level as of December 31, 2015:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(in thousands)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
—
|
|
|
|
555
|
|
|
|
—
|
|
Currency swaps
|
|
|
—
|
|
|
|
1,536
|
|
|
|
—
|
|
Note 7 — Inventories
Inventories consisted of the following:
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Finished goods
|
|
$
|
20,768
|
|
|
$
|
12,970
|
|
Raw materials
|
|
|
8,108
|
|
|
|
10,801
|
|
Total inventory
|
|
$
|
28,876
|
|
|
$
|
23,771
|
|
At September 30, 2016, the Company wrote down the value of its wood pellet inventory by $6.2 million to estimated net realizable value within its Wood Pellets: Industrial segment. At September 30, 2015, the Company wrote down the value of its wood pellet inventory by $3.1 million to net realizable value within its Wood Pellets: Industrial segment. For the nine months ended September 30, 2016, the Company’s consolidated statements of operations include inventory write-downs that total $16.5 million. For the nine months ended September 30, 2015, the Company’s consolidated statements of operations include inventory write-downs that total $5.6 million. The write-downs were necessary to record its wood pellet inventory at estimated net realizable value within its Wood Pellets: Industrial segment. The write-downs were reflected in cost of goods sold.
18
Note 8 — Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Land and land improvements
|
|
$
|
7,510
|
|
|
$
|
6,850
|
|
Buildings and building improvements
|
|
|
16,636
|
|
|
|
16,078
|
|
Machinery and equipment
|
|
|
245,981
|
|
|
|
233,560
|
|
Furniture, fixtures and office equipment
|
|
|
425
|
|
|
|
1,293
|
|
Computer equipment and computer software
|
|
|
3,116
|
|
|
|
5,732
|
|
Vehicles
|
|
|
8,309
|
|
|
|
7,120
|
|
Leasehold improvements
|
|
|
2,512
|
|
|
|
2,712
|
|
|
|
|
284,489
|
|
|
|
273,345
|
|
Less: Accumulated depreciation
|
|
|
(45,069
|
)
|
|
|
(32,645
|
)
|
Total property, plant and equipment, net
|
|
$
|
239,420
|
|
|
$
|
240,700
|
|
Construction in progress consisted of the following:
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Fulghum Fibres
|
|
$
|
802
|
|
|
$
|
607
|
|
Atikokan Facility
|
|
|
1,691
|
|
|
|
215
|
|
Wawa Facility
|
|
|
2,888
|
|
|
|
2,170
|
|
Other
|
|
|
237
|
|
|
|
1,248
|
|
Total construction in progress
|
|
$
|
5,618
|
|
|
$
|
4,240
|
|
The construction in progress balance includes no capitalized interest costs at September 30, 2016.
Fulghum Fibres
On April 8, 2016, Fulghum completed the sale of one of its mills in the United States and the customer took over operations of the mill. The mill was classified as property held for sale on the Company’s consolidated balance sheet as of December 31, 2015. Since the carrying value was written down in 2015, an immaterial amount of loss was recognized upon the sale in 2016.
Atikokan and Wawa
The Company’s wood pellet facility in Atikokan, Ontario, Canada (the “Atikokan Facility”) is expected to produce 110,000 metric tons of wood pellets annually at full capacity. During ramp-up of the Atikokan Facility, the Company discovered the need to modify or replace a portion of the plant’s conveyance systems. The first group of the faulty conveyors at the Atikokan Facility was modified at the end of 2015. A second group of three conveyors was modified in September 2016, during which time the facility was down for one week. The facility is now averaging daily operating rates of approximately 90% of production capacity for an annualized rate of approximately 100,000 metric tons of wood pellets. The Company considers this facility to be fully operational and expects it to continue to operate at approximately 90% of production capacity. The Company is holding back approximately $3.5 million of capital expenditures budgeted for conveyance modifications at the Atikokan Facility. These expenditures along with any additional investments deemed necessary to help the facility reach full capacity will continue to be considered and evaluated for economic justification by the Company.
The Company’s wood pellet facility in Wawa, Ontario, Canada (the “Wawa Facility”) is expected to be able to produce between 400,000 and 450,000 metric tons of wood pellets annually. During the ramp-up of the Wawa Facility, the Company discovered the need to modify or replace a significant portion of the plant’s conveyance systems. The first phase of modifications of the plant’s conveyance systems was completed in late 2015. A second group of conveyors was replaced during the first quarter of 2016. The remaining work to the conveyance systems was completed in the third quarter of 2016, during which time the facility was down for approximately five and a half weeks to replace the conveyors and to perform other maintenance work and repairs. As the Wawa Facility ramps up out of the latest shutdown, the Company will continue to investigate whether there are potential design and equipment shortcomings and the potential impact, if any, on achievable uptime and operating efficiency rates that will ultimately
19
determine the exact capacity of the facility.
The Company’s discussions with other pellet producers and engineering firms over the past year have shown that there is a wide disparity of these rates across establ
ished industrial pellet manufacturing plants in North America. If the Company applies a range of assumed operating efficiencies typical for the industry, the plant’s annual production capacity would be in a range between 400,000 and 450,000 metric tons.
We
have also observed that historically within the
wood pellet industry that ramping up to full design capacity takes considerable time, several years in most cases.
Coming out of the recent shutdown the conveyance systems appear to be operating as expected,
but we have experienced other challenges in ramping up production.
The Wawa Facility is averaging weekly operating rates
that annualize to produce
approximately 150,000 metric tons of wood pellets and the Company
is working to resolve the remaining
equipment and operating challenges to incrementally increase production over the next several quarters
.
The Company does not expect the Wawa Facility to reach the annual production capacity range described above until late 2017. At a production capacity of
400,000 metric tons, the Company believes it would be able to fulfill the annual obligations under its contract with Drax Power Limited (“Drax”) and to generate positive cash flow. However,
operating costs at the Wawa Facility have been higher than origin
ally expected, and may continue to be so going forward, which
negatively impacts profitability under the contract with Drax. In addition,
oil prices, which drive indexation of prices in our Drax contract, have declined more than Canadian diesel prices, a m
aterial component of our fibre supply costs, which is negatively impacting margins on deliveries to Drax
.
At September 30, 2016, remaining cash expenditures to complete the modifications to the Atikokan and Wawa Facilities are expected to be approximately $14.5 million, which includes approximately $5.0 million for potential additional conveyor replacements at the Atikokan Facility and other potential improvements that are on hold by the Company. Of the $14.5 million, $6.6 million is recorded in accounts payable and accrued liabilities as of September 30, 2016. The Company expects that cash on hand will be sufficient to fund the Atikokan and Wawa Facilities until they begin to generate positive cash flow on a combined basis.
Corporate
During the nine months ended September 30, 2016, the Company wrote off computer software of $1.6 million and leasehold improvements, furniture and office equipment totaling $0.4 million.
Note 9 - Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. The Company tests goodwill for impairment annually on July 1, or more often if an event or circumstance indicates that an impairment may have occurred. The analysis of the potential impairment of goodwill is a two-step process. Step one of the impairment test consists of comparing the fair value of the reporting unit with the aggregate carrying value, including goodwill. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, step two must be performed to determine the amount, if any, of the goodwill impairment.
There are significant assumptions involved in performing a goodwill impairment test, which include but are not limited to discount rates, terminal growth rates, future production levels, future sales prices of end products, raw material costs, and sales volumes. The various valuation methods used (income approach, replacement cost and market approach) are weighted in determining fair value. Changes to any of these assumptions could increase or decrease the fair value of the Fulghum and NEWP reporting units.
The Company completed its annual goodwill impairment test as of July 1 and determined that no adjustment to goodwill was necessary. Fair values of both reporting units exceeded their respective carrying values.
The estimate of fair value requires significant judgment. We based our fair value estimates on assumptions that we believe to be reasonable but that are unpredictable and inherently uncertain, including but not limited to estimates of future growth rates, future production levels, product pricing, raw material and operating costs, and other assumptions about the overall economic and market conditions for our business units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill testing as of the time of testing will prove to be accurate predictions of the future. If our assumptions regarding business plans, market conditions or anticipated growth rates or other changes in prior assumptions or estimates are not correct or if our market capitalization declines, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment testing or earlier, if an indicator of an impairment is present before our next annual evaluation.
20
Note 10 — Debt and Preferred Stock
Other than with respect to the NEWP Debt, as further described below, the Company was in compliance with its debt covenants. Total debt consisted of the following:
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
QS Construction Facility
(1)
|
|
$
|
20,509
|
|
|
$
|
19,926
|
|
Fulghum debt
|
|
|
38,536
|
|
|
|
47,049
|
|
GSO Credit Agreement
|
|
|
52,250
|
|
|
|
95,000
|
|
NEWP debt
|
|
|
16,278
|
|
|
|
16,107
|
|
Total debt
|
|
$
|
127,573
|
|
|
$
|
178,082
|
|
Less: Debt issuance costs
|
|
|
(1,504
|
)
|
|
|
(2,002
|
)
|
Plus: Unamortized net discount
|
|
|
(143
|
)
|
|
|
(68
|
)
|
Less: Current portion
|
|
|
(13,832
|
)
|
|
|
(18,307
|
)
|
Less: Current portion unamortized net premium
|
|
|
(238
|
)
|
|
|
(468
|
)
|
Plus: Current portion debt issuance costs
|
|
|
31
|
|
|
|
31
|
|
Long-term debt
|
|
$
|
111,887
|
|
|
$
|
157,268
|
|
|
(1)
|
The amount that the Company owes under the obligation is $14.0 million.
|
On April 1, 2016, the Company acquired and cancelled all of the outstanding shares of Preferred Stock. See Note 1 — Basis of Presentation. The Preferred Stock was accounted for as mezzanine equity in the consolidated balance sheets. Dividends were recorded in the consolidated statements of stockholders’ equity and consisted of the 4.5% dividend plus the amortization of issuance costs and accretion of discount.
Mezzanine equity consisted of the following:
|
|
As of
|
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Original issue price of Preferred Stock
|
|
$
|
100,000
|
|
Less: Issuance costs
|
|
|
(2,648
|
)
|
Less: Unamortized discount
|
|
|
(1,512
|
)
|
Total mezzanine equity
|
|
$
|
95,840
|
|
Redemption of Preferred Stock and Reduction of Indebtedness (In Connection with the Merger)
In connection with the consummation of the Merger, on April 1, 2016, the parties amended the GSO Credit Agreement pursuant to which Rentech Nitrogen Holdings, Inc. (“RNHI”), an indirect wholly-owned subsidiary of the Company, entered into the Second Amended and Restated Term Loan Credit Agreement among RNHI, certain funds managed by or affiliated with GSO Capital Partners LP, as lenders, and Credit Suisse AG, Cayman Islands Branch, as administrative agent (the “Agent”) and repaid approximately $41.7 million of term debt under the GSO Credit Agreement in exchange for approximately 5.4 million CVR Common Units received from the Merger valued at $45.0 million, based on the closing price of the CVR Common Units of $8.36 as of March 31, 2016. The difference between the fair value of the consideration transferred of $45.0 million and the repayment of principal of $41.7 million resulted in a loss on debt repayment of $3.3 million. Further, in connection with a waiver to the GSO Credit Agreement, in May 2016 the Company made a $1.0 million principal prepayment to the lenders under the GSO Credit Agreement, which permitted NEWP, a loan party, to increase the capacity of its revolving credit facility (as described below). The GSO Credit Agreement currently consists of a $52,250,000 term loan facility, which matures on April 9, 2019 and bears interest at a rate equal to the greater of (i) LIBOR plus 7.00% and (ii) 8.00% per annum (the “Loans”).
RNHI’s obligations under the GSO Credit Agreement are guaranteed by the Company and the Company’s direct and indirect subsidiaries other than certain excluded subsidiaries (such subsidiaries guaranteeing obligations under the GSO Credit Agreement, the “Subsidiary Guarantors,” and together with the Company and RNHI, the “Loan Parties”). On April 1, 2016, the Company and the Subsidiary Guarantors entered into a Second Amended and Restated Guaranty Agreement (the “Guaranty Agreement”) in favor of the Agent. The Guaranty Agreement contains customary affirmative and negative covenants for the Company, the Subsidiary Guarantors and their respective subsidiaries, including, among others, certain reporting requirements to the Agent, payment of material
21
obligations, compliance with laws, use of proceeds and limitations on the incurrence of indebtedness and liens, the sale of assets and the making of restricted payments by the Company and the Subsidiary Guarantors. Furthermore, the obligations under th
e GSO Credit Agreement and the guarantees are secured by a lien on substantially all of the Loan Parties’ tangible and intangible property, and by a pledge of all of the shares of stock and limited liability company interests owned by the Loan Parties, of
which the Loan Parties now own or later acquire more than a 50% interest, subject to certain exceptions.
The GSO Credit Agreement contains customary affirmative and negative covenants and events of default relating to the Loan Parties. The covenants and events of default include, among other things, a provision with respect to a change of control and limitations on the incurrence of indebtedness and liens, the sale of assets, and the making of restricted payments by the Loan Parties. In addition, upon the occurrence of an initial public offering of the wood pellets or wood fibre operations of the Company, the Company must make an offer to prepay the entire outstanding principal amount of the facility.
The obligations of RNHI under the GSO Credit Agreement are also secured by 7,179,996 CVR Common Units owned by RNHI.
Also in connection with the consummation of the Merger, on April 1, 2016, the Company and DSHC, LLC, a wholly owned subsidiary of the Company (“DSHC”), entered into the Preferred Equity Exchange and Discharge Agreement (the “Exchange Agreement”) with the GSO Funds and GSO Capital Partners LP, as the Holders’ Representative under the Exchange Agreement, pursuant to which the Company acquired and cancelled all 100,000 shares of Preferred Stock, from the GSO Funds in exchange for approximately 11.6 million CVR Common Units valued at $97.1 million, based on the closing price of the CVR Common Units of $8.36 as of March 31, 2016, $10.0 million in cash and the payment of all unpaid accrued and accumulated dividends of $1.5 million on the Preferred Stock through April 1, 2016. The difference between the fair value of the consideration transferred of $107.1 million and the carrying value of the Preferred Stock redeemed of $96.0 million resulted in a reduction to additional paid-in capital of $11.1 million, which is reflected in loss on redemption of preferred stock on the consolidated statement of operations.
NEWP Debt
During the quarter ended September 30, 2016, NEWP received a covenant waiver from its lender with respect to NEWP’s compliance with the financial covenants under the NEWP debt. For the twelve months ended September 30, 2016, NEWP would not have been able to satisfy either of its quarterly financial covenants due to significantly lower than historical sales volumes, as a result of abnormally warm temperatures along with a change in trend of consumer buying, and a distribution of cash from NEWP to the Company during the fourth quarter of 2015. The lower sales volumes and distribution negatively affected NEWP’s calculation of funds available for debt service coverage, which is a key component of both of the quarterly financial covenants.
Note 11 — Commitments and Contingencies
Contractual Obligations
Wood Pellets
On May 1, 2013, Rentech’s subsidiary that owns the Wawa Facility (the “Wawa Company”) entered into a ten-year take-or-pay contract (the “Drax Contract”) with Drax. Under the Drax Contract, the Wawa Company is required to sell to Drax the first 400,000 metric tons of wood pellets per year produced from the Wawa Facility. In the event that it does not deliver wood pellets as required under the Drax Contract, the Wawa Company is required to pay Drax an amount equal to the positive difference, if any, between the contract price for the wood pellets and the price of any wood pellets Drax purchases in replacement. Rentech has guaranteed the Wawa Company’s obligation in an amount not to exceed $20.0 million until May 1, 2018, and thereafter through the term of the Drax Contract for an amount not to exceed $11.0 million.
The Drax Contract has been amended in order to adjust required delivery schedules and annual delivery amounts to reflect expected delays in production at the Wawa Facility. The amendments resulted in certain contract adjustments, including cash payments to Drax, credits on deliveries in early 2016, and adding 36,000 metric tons of contracted deliveries in each of 2018 and 2019 at pricing levels contracted for 2015, which would be lower than the pricing levels for 2018-19 in the original contract.
22
The Company revised its delivery schedule in October with Drax for 2016 to be consistent with its ramp-up expectations for the Wawa Facility at that time. The Company agreed to deliver approximately 188,000 metric tons to Dra
x in 2016, which includes 95,000 metric tons delivered through September 30, 2016 and approximately 93,000 metric tons to be delivered in the remainder of 2016. The Company has also revised the delivery schedule with Drax for 2017. The revised schedule ca
lls for deliveries of approximately 336,000 metric tons of wood pellets
in the 2017 calendar year
. The Company will not incur any make-whole payments or other penalties to Drax if it meets these revised 2016 and 2017 delivery schedules. The revised schedul
es for 2016 and 2017 could be subject to further change, including penalties,
if the Wawa facility does not ramp up as expected
.
Rentech’s subsidiary that owns the Atikokan Facility entered into a ten-year take-or-pay contract (the “OPG Contract”) with Ontario Power Generation (“OPG”) under which such subsidiary is required to deliver 45,000 metric tons of wood pellets annually. OPG has the option to increase required delivery of wood pellets from the Atikokan Facility to up to 90,000 metric tons annually. The Company has included wood pellets produced at the Atikokan Facility in excess of OPG’s requirements in deliveries to Drax.
A Rentech subsidiary has contracted with Canadian National Railway Company (the “Canadian National Contract”) for all rail transportation of wood pellets from the Atikokan Facility and the Wawa Facility to the Port of Quebec. The Atikokan Facility is located 1,300 track miles and the Wawa Facility is located 1,100 track miles from the Port of Quebec. Under the Canadian National Contract, such subsidiary has committed to transport a minimum of 3,600 rail carloads annually for the duration of the long-term contract. Delivery shortfalls would result in a penalty of $1,000 Canadian dollars per rail car. Due to issues discovered at the Wawa Facility, the Company did not fully meet its 2015 commitment under the Canadian National Contract. The resulting cash penalties are approximately $3.3 million (subject to adjustment based on Canadian currency exchange rates), which are to be paid in 2016 and 2017. In addition, the Company expects to incur additional carload shortfall penalties for 2016 under the Canadian National Contract as a result of the continued delays in ramping up the Wawa Facility and the revised 2016 delivery scheduled to Drax.
Litigation
The Company is party to litigation from time to time in the normal course of business. The Company accrues liabilities related to litigation only when it concludes that it is probable that it will incur costs related to such litigation, and can reasonably estimate the amount of such costs. In cases where the Company determines that it is not probable, but reasonably possible that it has a material obligation, it discloses such obligations and the possible loss or range of loss, if such estimate can be made. The outcome of the Company’s current litigation matters is not estimable or probable. The Company maintains insurance to cover certain actions and believes that resolution of its current litigation matters will not have a material adverse effect on the Company’s financial statements.
Litigation Relating to the Atikokan and Wawa Facilities
In June of 2015, RDR Industrial Contractors, Inc. (“RDR”) recorded liens against both the Atikokan Facility and Wawa Facility. RDR performed work at both of the facilities as a subcontractor to Agrirecycle, Inc. (“Agrirecycle”) and asserted that Agrirecycle had failed to pay RDR according to the terms of its subcontract. In September of 2015, EAD Control Systems, Inc. (“EAD Controls”) similarly filed liens against both pellet facilities alleging Agrirecycle’s failure to pay EAD Controls for work performed at both facilities as a subcontractor to Agrirecycle. In October of 2015, Agrirecycle filed liens against both facilities asserting that (i) it had not been paid for services performed as subcontractor for EAD Engineering, Inc. (“EAD Engineering”) and (ii) it had not been paid for work performed under direct contracts with certain wholly owned subsidiaries of the Company (the “RTK Parties”).
In order to perfect their liens, RDR, EAD Controls and Agrirecycle commenced separate causes of action in Ontario Superior Court naming the RTK Parties and the Company as defendants and seeking to recover over $5.1 million in the aggregate. Of this amount, approximately $2.9 million is attributable to claims for amounts allegedly due under contracts with the RTK Parties, whereas the remainder is attributable to amounts claimed by subcontractors against our direct contractors.
In December of 2015 and January of 2016, the RTK Parties filed statements of defense denying the allegations set forth by RDR, EAD Controls and Agrirecycle and seeking over $40.2 million in the aggregate by way of counterclaims and cross-claims against EAD Engineering, EAD Controls, Agrirecycle and RDR for damages incurred due to defective engineering, design, equipment supply and construction at our pellet facilities, including the cost to remedy and replace defective work as well as penalties, schedule delays and lost profits.
In late August of 2016, EAD Engineering filed crossclaims totaling approximately $1.9 million against the RTK Parties, within Agrirecycle’s lien actions for amounts allegedly owing by the RTK Parties to EAD Engineering. Specifically, EAD Engineering alleges that it is owed unpaid contract amounts and amounts for extra work completed at both pellet facilities for the RTK Parties. EAD Engineering did not register any liens against the facilities for these amounts it now claims are allegedly owing.
23
The Company will continue to vigor
ously defend itself against the allegations made by EAD Engineering, EAD Controls, Agrirecycle and RDR and vigorously pursue recovery from EAD Engineering, EAD Controls, Agrirecycle and RDR. Given that this litigation is in the pleadings stage and discover
y has yet to begin, the Company is unable to estimate at this time the likelihood or the amount of any judgments which may be rendered either in favor of or against it or the RTK Parties.
Regulation
The Company’s business is subject to extensive and frequently changing federal, provincial, state and local, environmental, health and safety regulations governing a wide range of matters, including the emission of air pollutants, the release of hazardous substances into the environment, the treatment and discharge of waste water and the storage, handling, use and transportation of the Company’s products, wood fibre feedstock, and other substances that are part of our operations. These laws include the Clean Air Act (the “CAA”), the federal Water Pollution Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, and various other federal, provincial, state and local laws and regulations. The laws and regulations to which the Company is subject are complex, change frequently and have tended to become more stringent over time. The ultimate impact on the Company’s business of complying with existing laws and regulations is not always clearly known or determinable due in part to the fact that the Company’s operations may change over time and certain implementing regulations for laws, such as the CAA, have not yet been finalized, are under governmental or judicial review or are being revised. These laws and regulations could result in increased capital, operating and compliance costs.
Note 12 — Income Taxes
For the three months ended September 30, 2016, the Company recorded an income tax benefit of $3.1 million, consisting of a $6.8 million income tax benefit in continuing operations and a $3.7 million income tax expense in discontinued operations. For the nine months ended September 30, 2016, the Company recorded an income tax expense of $20.4 million, consisting of a $118.7 million income tax benefit in continuing operations and a $139.1 million income tax expense in discontinued operations. The allocation to discontinued operations was determined using the incremental method by subtracting the benefit that was generated from continuing operations from the provision for the Company as a whole. The Company’s effective income tax rate (income tax benefit as a percentage of loss from continuing operations before income taxes) was 244% for the nine months ended September 30, 2016. The difference between the United States federal statutory rate of 35% and the effective rate primarily was attributable to differences between GAAP income and income reported on tax returns, outside basis difference in foreign subsidiaries, impact of foreign earnings, impact of state taxes, utilization of net operating loss (“NOL”) carryforwards, research and development (“R&D”) credits and alternative minimum tax (“AMT”) credits.
Due to the gain on sale of RNP during the nine months ended September 30, 2016, the Company utilized all of the federal NOL carryforwards and a portion of the R&D credits. The Company released $79.5 million of valuation allowance and this resulted in a tax benefit for continuing operations. For state tax purposes, there are remaining deferred tax assets of $1.9 million for which the Company has considered results of operations and concluded that it is more likely than not that the state deferred tax assets will not be realized.
For the three months ended September 30, 2015, the Company recorded an income tax benefit of $2.1 million, consisting primarily of a $2.1 million income tax benefit in continuing operations. For the nine months ended September 30, 2015, the Company recorded an income tax expense of $0.2 million, consisting primarily of a $0.2 million income tax expense in continuing operations.
The Company’s effective income tax rate (income tax expense as a percentage of loss from continuing operations before income taxes) was -1% for the nine months ended September 30, 2015. The difference between the United States federal statutory rate of 35% and the effective rate primarily was attributable to differences between GAAP income and income reported on tax returns, outside basis difference in foreign subsidiaries, impact of foreign earnings and impact of state taxes.
Previously Reported Income Tax Benefit and Income from Discontinued Operations, Net of Tax
In the Consolidated Statements of Operations included in Form 10-Q for the quarterly period ended June 30, 2016, the Company incorrectly reported income tax expense between continuing and discontinued operations for the three and six months ended June 30, 2016. Income tax benefit included in income from continuing operations, net of tax was understated by $2.5 million and income tax expense included in income from discontinued operations, net of tax, was understated by $2.5 million. The total tax expense for the three and six months ended June 30, 2016 was correctly reported. There was no impact on gross profit, operating income, net income, cash flows or the balance sheet. Management does not believe the impact of these errors was material for the second quarter of 2016 or the previously issued Form 10-Q. The Company has corrected the income tax (benefit) expense between continuing and discontinued operations in the three months ended September 30, 2016, which had no impact on gross profit, operating income, net income, cash flows or the balance sheet.
24
Note 13 — Segment Information
The Company operates in three business segments, as described below. Results of the East Dubuque, Pasadena and the energy technologies segments are accounted for as discontinued operations for all periods presented. As of September 30, 2016, the Company’s three business segments are:
|
•
|
Fulghum Fibres — The operations of Fulghum, which provides wood yard operations services and wood fibre processing services, sells wood chips to the pulp, paper and packaging industry, and owns and manages forestland and sells bark to industrial consumers in South America.
|
|
•
|
Wood Pellets: Industrial — The operations of this segment include the Atikokan and Wawa Facilities, corporate allocations, and wood pellet development activities. The wood pellet development activities represent the Company’s personnel costs for employees dedicated to the wood pellet business infrastructure and administration costs, corporate allocations, expenses associated with the Company’s joint venture with Graanul Invest AS and third party costs.
|
|
•
|
Wood Pellets: NEWP — The operations of NEWP, which produces wood pellets for the residential and commercial heating markets. The segment includes Allegheny Pellet Corporation’s (“Allegheny”) operations from the closing date of its acquisition on January 23, 2015.
|
25
The Company’s reportab
le 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 measur
e is segment operating income.
|
|
For the Three Months
Ended September 30,
|
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
26,296
|
|
|
$
|
23,446
|
|
|
$
|
74,561
|
|
|
$
|
71,823
|
|
Wood Pellets: Industrial
|
|
|
2,867
|
|
|
|
1,772
|
|
|
|
19,266
|
|
|
|
5,980
|
|
Wood Pellets: NEWP
|
|
|
9,435
|
|
|
|
17,611
|
|
|
|
16,501
|
|
|
|
41,387
|
|
Total revenues
|
|
$
|
38,598
|
|
|
$
|
42,829
|
|
|
$
|
110,328
|
|
|
$
|
119,190
|
|
Gross profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
3,850
|
|
|
$
|
4,959
|
|
|
$
|
11,455
|
|
|
$
|
12,944
|
|
Wood Pellets: Industrial
|
|
|
(6,137
|
)
|
|
|
(3,265
|
)
|
|
|
(16,304
|
)
|
|
|
(6,727
|
)
|
Wood Pellets: NEWP
|
|
|
1,492
|
|
|
|
4,057
|
|
|
|
2,506
|
|
|
|
8,875
|
|
Total gross profit (loss)
|
|
$
|
(795
|
)
|
|
$
|
5,751
|
|
|
$
|
(2,343
|
)
|
|
$
|
15,092
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
1,168
|
|
|
$
|
1,241
|
|
|
$
|
3,544
|
|
|
$
|
3,870
|
|
Wood Pellets: Industrial
|
|
|
3,240
|
|
|
|
4,589
|
|
|
|
5,894
|
|
|
|
15,713
|
|
Wood Pellets: NEWP
|
|
|
514
|
|
|
|
587
|
|
|
|
1,574
|
|
|
|
2,009
|
|
Total segment selling, general and administrative expenses
|
|
$
|
4,922
|
|
|
$
|
6,417
|
|
|
$
|
11,012
|
|
|
$
|
21,592
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
288
|
|
|
$
|
427
|
|
|
$
|
1,118
|
|
|
$
|
2,107
|
|
Wood Pellets: Industrial
|
|
|
61
|
|
|
|
45
|
|
|
|
161
|
|
|
|
127
|
|
Wood Pellets: NEWP
|
|
|
303
|
|
|
|
295
|
|
|
|
900
|
|
|
|
885
|
|
Total segment depreciation and amortization recorded in operating
expenses
|
|
|
652
|
|
|
|
767
|
|
|
|
2,179
|
|
|
|
3,119
|
|
Fulghum Fibres
|
|
|
1,933
|
|
|
|
2,168
|
|
|
|
5,755
|
|
|
|
6,327
|
|
Wood Pellets: Industrial
|
|
|
1,696
|
|
|
|
575
|
|
|
|
6,806
|
|
|
|
1,578
|
|
Wood Pellets: NEWP
|
|
|
689
|
|
|
|
963
|
|
|
|
1,147
|
|
|
|
2,370
|
|
Total depreciation and amortization recorded in cost of sales
|
|
|
4,318
|
|
|
|
3,706
|
|
|
|
13,708
|
|
|
|
10,275
|
|
Total segment depreciation and amortization
|
|
$
|
4,970
|
|
|
$
|
4,473
|
|
|
$
|
15,887
|
|
|
$
|
13,394
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
48
|
|
|
$
|
713
|
|
|
|
277
|
|
|
$
|
716
|
|
Wood Pellets: Industrial
|
|
|
1,639
|
|
|
|
—
|
|
|
|
1,639
|
|
|
|
—
|
|
Wood Pellets: NEWP
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
6
|
|
|
|
(3
|
)
|
Total segment other operating expenses
|
|
$
|
1,681
|
|
|
$
|
710
|
|
|
$
|
1,922
|
|
|
$
|
713
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
2,347
|
|
|
$
|
2,579
|
|
|
$
|
6,517
|
|
|
$
|
6,252
|
|
Wood Pellets: Industrial
|
|
|
(11,079
|
)
|
|
|
(7,899
|
)
|
|
|
(23,999
|
)
|
|
|
(22,567
|
)
|
Wood Pellets: NEWP
|
|
|
681
|
|
|
|
3,178
|
|
|
|
26
|
|
|
|
5,984
|
|
Total segment operating loss
|
|
$
|
(8,051
|
)
|
|
$
|
(2,142
|
)
|
|
$
|
(17,456
|
)
|
|
$
|
(10,331
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
580
|
|
|
$
|
692
|
|
|
$
|
1,727
|
|
|
$
|
1,811
|
|
Wood Pellets: Industrial
|
|
|
405
|
|
|
|
471
|
|
|
|
1,250
|
|
|
|
987
|
|
Wood Pellets: NEWP
|
|
|
169
|
|
|
|
143
|
|
|
|
461
|
|
|
|
433
|
|
Total segment interest expense
|
|
$
|
1,154
|
|
|
$
|
1,306
|
|
|
$
|
3,438
|
|
|
$
|
3,231
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
1,369
|
|
|
$
|
3,012
|
|
|
$
|
3,543
|
|
|
$
|
4,977
|
|
Wood Pellets: Industrial
|
|
|
(11,498
|
)
|
|
|
(8,382
|
)
|
|
|
(25,251
|
)
|
|
|
(23,760
|
)
|
Wood Pellets: NEWP
|
|
|
605
|
|
|
|
3,106
|
|
|
|
(263
|
)
|
|
|
5,786
|
|
Total segment net loss
|
|
$
|
(9,524
|
)
|
|
$
|
(2,264
|
)
|
|
$
|
(21,971
|
)
|
|
$
|
(12,997
|
)
|
Reconciliation of segment net loss to consolidated net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net loss
|
|
$
|
(9,524
|
)
|
|
$
|
(2,264
|
)
|
|
$
|
(21,971
|
)
|
|
$
|
(12,997
|
)
|
Corporate and unallocated expenses recorded as selling, general and
administrative expenses
|
|
|
(4,413
|
)
|
|
|
(5,730
|
)
|
|
|
(15,178
|
)
|
|
|
(15,709
|
)
|
Corporate and unallocated depreciation and amortization expense
|
|
|
(80
|
)
|
|
|
(136
|
)
|
|
|
(336
|
)
|
|
|
(418
|
)
|
Corporate and unallocated income (expenses) recorded as other income
(expense)
|
|
|
(542
|
)
|
|
|
3
|
|
|
|
(5,265
|
)
|
|
|
6
|
|
Corporate and unallocated interest expense
|
|
|
(1,342
|
)
|
|
|
(2,419
|
)
|
|
|
(5,140
|
)
|
|
|
(4,007
|
)
|
Corporate income tax benefit (expense)
|
|
|
7,293
|
|
|
|
12
|
|
|
|
120,426
|
|
|
|
(26
|
)
|
Equity in loss of CVR
(1)
|
|
|
(1,100
|
)
|
|
|
—
|
|
|
|
(2,429
|
)
|
|
|
—
|
|
Income (loss) from discontinued operations, net of tax
(2)
|
|
|
(401
|
)
|
|
|
(22,302
|
)
|
|
|
231,813
|
|
|
|
(78,350
|
)
|
Consolidated net income (loss)
|
|
$
|
(10,109
|
)
|
|
$
|
(32,836
|
)
|
|
$
|
301,920
|
|
|
$
|
(111,501
|
)
|
26
|
(1)
|
For the three months ended September 30, 2016, equity in loss of investee includes $1.1 million, which includes the Company’s proportionate share of loss from its investment in CVR and amortization of the basis differences. For the nine months ended September 30, 2016, equity in loss of investee includes $2.4 million, which includes the Company’s proportionate share of loss from its investment in CVR and amortization of the basis differences.
|
|
(2)
|
For the nine months ended September 30, 2016, income from discontinued operations, net of tax includes $358.6 million, which is the Company’s proportionate share of the book gain on sale of RNP.
|
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Total assets
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
169,685
|
|
|
$
|
179,327
|
|
Wood Pellets: Industrial
|
|
|
148,680
|
|
|
|
142,887
|
|
Wood Pellets: NEWP
|
|
|
63,725
|
|
|
|
62,709
|
|
Total segment assets
|
|
$
|
382,090
|
|
|
$
|
384,923
|
|
Reconciliation of segment total assets to consolidated total assets:
|
|
|
|
|
|
|
|
|
Segment total assets
|
|
$
|
382,090
|
|
|
$
|
384,923
|
|
Corporate and other
|
|
|
82,113
|
|
|
|
16,447
|
|
Discontinued operations
|
|
|
5,853
|
|
|
|
248,921
|
|
Consolidated total assets
|
|
$
|
470,056
|
|
|
$
|
650,291
|
|
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Total goodwill
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
29,932
|
|
|
$
|
29,932
|
|
Wood Pellets: NEWP
|
|
|
10,323
|
|
|
|
10,323
|
|
Total goodwill
|
|
$
|
40,255
|
|
|
$
|
40,255
|
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Fulghum Fibres
|
|
$
|
5,193
|
|
|
$
|
7,986
|
|
Wood Pellets: Industrial
|
|
|
9,006
|
|
|
|
26,691
|
|
Wood Pellets: NEWP
|
|
|
462
|
|
|
|
1,204
|
|
Corporate and other
|
|
|
743
|
|
|
|
925
|
|
Discontinued operations
|
|
|
11,075
|
|
|
|
25,077
|
|
Total capital expenditures
|
|
$
|
26,479
|
|
|
$
|
61,883
|
|
The Company’s revenues by geographic area, based on where the customer takes title to the product, were as follows:
|
|
For the Three Months
Ended September 30,
|
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
United States
|
|
$
|
22,661
|
|
|
$
|
33,233
|
|
|
$
|
55,811
|
|
|
$
|
85,297
|
|
Canada
|
|
|
2,867
|
|
|
|
1,772
|
|
|
|
19,266
|
|
|
|
5,980
|
|
Other
|
|
|
13,070
|
|
|
|
7,824
|
|
|
|
35,251
|
|
|
|
27,913
|
|
Total revenues
|
|
$
|
38,598
|
|
|
$
|
42,829
|
|
|
$
|
110,328
|
|
|
$
|
119,190
|
|
27
The following table sets forth assets by geographic area:
|
|
As of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
United States - Continuing Operations
|
|
$
|
275,608
|
|
|
$
|
216,472
|
|
Canada
|
|
|
148,667
|
|
|
|
142,866
|
|
Other
|
|
|
39,928
|
|
|
|
42,032
|
|
Total assets - Continuing Operations
|
|
|
464,203
|
|
|
|
401,370
|
|
United States - Discontinued Operations
|
|
|
5,853
|
|
|
|
248,921
|
|
Total assets
|
|
$
|
470,056
|
|
|
$
|
650,291
|
|
Note 14 — Net Income (Loss) Per Common Share Allocated to Rentech
Basic income (loss) per common share allocated to Rentech is calculated by dividing net income (loss) allocated to Rentech by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share allocated to Rentech is calculated by dividing net income (loss) allocated to Rentech by the weighted average number of common shares outstanding plus the dilutive effect, calculated using (i) the “treasury stock” method for the unvested restricted stock units, outstanding stock options and warrants and (ii) the “if converted” method for the preferred stock if its inclusion would not have been anti-dilutive.
28
The Company's policy is to on
ly allocate earnings to participating securities, i.e., restricted stock, for continuing operations, discontinued operations and in total during periods in which income is reported.
|
|
For the Three Months
Ended September 30,
|
|
|
For the Nine Months
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands, except for per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(9,708
|
)
|
|
$
|
(10,534
|
)
|
|
$
|
70,107
|
|
|
$
|
(33,151
|
)
|
Less: Loss on redemption of preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,049
|
)
|
|
|
—
|
|
Less: Preferred stock dividends
|
|
|
—
|
|
|
|
(1,320
|
)
|
|
|
(1,320
|
)
|
|
|
(3,960
|
)
|
Less: (Income) loss from continuing operations attributable to
noncontrolling interests
|
|
|
(103
|
)
|
|
|
84
|
|
|
|
(328
|
)
|
|
|
(21
|
)
|
Less: Income from continuing operations allocated to
participating securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,443
|
)
|
|
|
—
|
|
Income (loss) from continuing operations allocated to common
shareholders
|
|
$
|
(9,811
|
)
|
|
$
|
(11,770
|
)
|
|
$
|
55,967
|
|
|
$
|
(37,132
|
)
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
(401
|
)
|
|
$
|
(22,302
|
)
|
|
$
|
231,813
|
|
|
$
|
(78,350
|
)
|
Less: (Income) loss from discontinued operations attributable
to noncontrolling interests
|
|
|
174
|
|
|
|
9,728
|
|
|
|
(3,164
|
)
|
|
|
32,775
|
|
Less: Income from discontinued operations allocated to
participating securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,748
|
)
|
|
|
—
|
|
Income (loss) from discontinued operations allocated to
common shareholders
|
|
$
|
(227
|
)
|
|
$
|
(12,574
|
)
|
|
$
|
222,901
|
|
|
$
|
(45,575
|
)
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Rentech common shareholders
|
|
$
|
(10,038
|
)
|
|
$
|
(24,344
|
)
|
|
$
|
286,059
|
|
|
$
|
(82,707
|
)
|
Less: Income allocated to participating securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,191
|
)
|
|
|
—
|
|
Net income (loss) allocated to common shareholders
|
|
$
|
(10,038
|
)
|
|
$
|
(24,344
|
)
|
|
$
|
278,868
|
|
|
$
|
(82,707
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
23,189
|
|
|
|
23,005
|
|
|
|
23,098
|
|
|
|
22,969
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
280
|
|
|
|
—
|
|
Diluted shares outstanding
|
|
|
23,189
|
|
|
|
23,005
|
|
|
|
23,378
|
|
|
|
22,969
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.42
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
2.42
|
|
|
$
|
(1.62
|
)
|
Discontinued operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
9.65
|
|
|
$
|
(1.98
|
)
|
Net income (loss) per common share
|
|
$
|
(0.43
|
)
|
|
$
|
(1.06
|
)
|
|
$
|
12.07
|
|
|
$
|
(3.60
|
)
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.42
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
2.39
|
|
|
$
|
(1.62
|
)
|
Discontinued operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
9.54
|
|
|
$
|
(1.98
|
)
|
Net income (loss) per common share
|
|
$
|
(0.43
|
)
|
|
$
|
(1.06
|
)
|
|
$
|
11.93
|
|
|
$
|
(3.60
|
)
|
For the three and nine months ended September 30, 2016, 1.7 million shares and 1.2 million shares, respectively, of Common Stock issuable pursuant to stock options, stock warrants and restricted stock units were excluded from the calculation of diluted income per share because their inclusion would have been anti-dilutive. For the three and nine months ended September 30, 2015, 5.8 million shares of Common Stock issuable pursuant to stock options, stock warrants, restricted stock units and preferred stock were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.
29