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Rentech Inc Reports Operating Results (10-K)

December 14, 2011 | About:

10qk

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Rentech Inc (RTK) filed Annual Report for the period ended 2011-09-30.

Rentech Inc. has a market cap of $348 million; its shares were traded at around $1.61 with and P/S ratio of 2.6.

Highlight of Business Operations:

Under the distribution agreement, RNLLC pays commissions to Agrium not to exceed $5 million during each contract year on applicable gross sales during the first 10 years of the agreement. The commission rate was 2% during the first year of the agreement and increased by 1% on each anniversary date of the agreement up to the current rate of 5%, which is the maximum allowable rate under the distribution agreement during the first 10 years of the agreement. For the fiscal years ended September 30, 2011, 2010 and 2009, the effective commission rate associated with sales under the distribution agreement was 4.3%, 4.2% and 2.3% respectively.

In the aggregate, RNLLCs top five ammonia customers represented approximately 46%, 52% and 49%, respectively, of its ammonia sales for the fiscal years ended September 30, 2011, 2010 and 2009, and its top five UAN customers represented approximately 50%, 60% and 60%, respectively, of its UAN sales for these fiscal years. In addition, Twin State Inc., or Twin State, accounted for approximately 6%, 10% and 11%, respectively, of RNLLCs total product sales for the fiscal years ended September 30, 2011, 2010 and 2009. Growmark, Inc., or Growmark, accounted for approximately 7%, 8% and 11%, respectively, of RNLLCs total product sales for the fiscal years ended September 30, 2011, 2010 and 2009. For the fiscal years ended September 30, 2011, 2010 and 2009, approximately 3%, 7% and 0%, respectively, of RNLLCs total product sales were to Agrium as a direct customer (rather than a distributor) and approximately 15%, 11% and 5%, respectively, of RNLLCs total product sales were to Crop Production Services, Inc., or CPS, a controlled affiliate of Agrium.

Our nitrogen fertilizer business depends on significant customers, and the loss of one or several of such significant customers may have a material adverse effect on our results of operations and financial condition. In the aggregate, our top five ammonia customers represented approximately 46%, 52% and 49%, respectively, of our ammonia sales for the fiscal years ended September 30, 2011, 2010 and 2009, and our top five UAN customers represented approximately 50%, 60% and 60%, respectively, of our UAN sales for these fiscal years. In addition, Twin State accounted for approximately 6%, 10% and 11%, respectively, of the total product sales of our nitrogen fertilizer business for the fiscal years ended September 30, 2011, 2010 and 2009. Growmark accounted for approximately 7%, 8% and 11%, respectively, of our total product sales for the fiscal years ended September 30, 2011, 2010 and 2009. For the fiscal years ended September 30, 2011, 2010 and 2009, approximately 3%, 7% and 0%, respectively, of the total product sales of our nitrogen fertilizer business were to Agrium as a direct customer (rather than a distributor) and approximately 15%, 11% and 5%, respectively, of the total product sales of our nitrogen fertilizer business were to CPS. Given the nature of our nitrogen fertilizer business, and consistent with industry practice, we do not have long-term minimum purchase contracts with any of our customers. If our sales to any of our significant customers were to decline, we may not be able to find other customers to purchase the excess supply of our products. The loss of one or several of our significant customers of our nitrogen fertilizer products, or a significant reduction in purchase volume by any of them, could have a material adverse effect on our results of operations and financial condition.

Natural gas costs comprised approximately 50% of cost of sales on product shipments for the fiscal year ended September 30, 2011 compared to 54% of cost of sales on product shipments for the fiscal year ended September 30, 2010. Labor costs comprised approximately 12% of cost of sales on product shipments for each of the fiscal years ended September 30, 2011 and 2010. Depreciation expense included in cost of sales was $9,611,000 and $10,104,000 for the fiscal years ended September 30, 2011 and 2010, respectively, and comprised approximately 10% of cost of sales on product shipments for each of the fiscal years ended September 2011 and 2010.

Nitrogen Products Manufacturing. Natural gas and labor costs comprised approximately 54% and 12%, respectively, of cost of sales on product shipments for the fiscal year ended September 30, 2010 compared to 64% and 13%, respectively, for the fiscal year ended September 30, 2009. Depreciation expense included in cost of sales was $10,104,000 and $8,280,000 for the fiscal years ended September 30, 2010 and 2009, respectively, and comprised approximately 10% of cost of sales on product shipments for the fiscal year ended September 30, 2010 compared to 8% of cost of sales on product shipments for the fiscal year ended September 30, 2009.

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