The loss included a $0.04 per share write-down of inventories of natural gas due to continued declines in the price of this key input to the company’s fertilizer products. This compares to a net loss applicable to common shareholders of $22.8 million, or $0.14 per share, for the comparable period in fiscal year 2008.
Results for the quarter reflected the effect of delayed shipments of fertilizer in the key markets of the company’s wholly-owned nitrogen fertilizer business, Rentech Energy Midwest Corporation (REMC), due to weather conditions which improved significantly during April. Results of operations are typically seasonal due to the planting, growing and harvesting cycles of farmers. The timing of fertilizer applications, and therefore of shipments from REMC, can vary due to weather conditions. Revenue is recognized as products are shipped.
The write-down of natural gas inventories reflects the company’s policy of accounting for advanced purchases of gas as inventories. The company’s practice is to purchase gas at fixed prices when fertilizer products are pre-sold at predetermined prices, in order to lock in margins on the pre-sold products. When gas prices decline, as in the first six months of fiscal year 2009, the value of gas contracts is marked to market, leading to the inventory adjustments. In periods after the inventory write-down, as product is delivered, cost of goods sold is recognized at the lower prices to which the gas inventory was written down, which would tend to result in higher margins.
The reduction in revenue was due to delays in fertilizer shipments during the second quarter of fiscal 2009, caused by poor spring weather. These shipment delays had the effect of delaying the realization of revenue on significant volumes until April. Improved weather in April led to record shipments, revenue, and profits for REMC in that month. For fiscal year 2009 through April, unaudited revenue was $120.3 million, up from $89.1 million in the comparable period in fiscal 2008, representing a 35% increase. Due to seasonality, the significant pre-sales of fertilizer products and the strong April results, the company does not expect the weak second quarter results to be indicative of results for the full fiscal year 2009.
Rentech has increased its guidance for EBITDA at REMC for fiscal year 2009 to $65 million from previous guidance of well in excess of $50 million. In addition to the strong April results, factors that the company considered in increasing guidance included: significant pre-sales of fertilizer products; natural gas prices that are forecasted to remain at lower than budgeted levels; and demand for nitrogen products driven by continued strong prospects for planted corn acreage. Rentech also increased its consolidated EBITDA guidance for fiscal year 2009 to $15 million compared to previous guidance of positive EBITDA. EBITDA is a non-GAAP measure. Further explanation of this non-GAAP measure and a computation of consolidated EBITDA and EBITDA at REMC have been included below in this press release.
Selling, general and administrative (SG&A) expenses were $6.7 million for the second quarter of fiscal year 2009, down from $9.0 million for the second quarter of the prior year. Research and development (R&D) expenses for the second quarter of fiscal year 2009 were $3.9 million, down from $22.1 million for the second quarter of the prior year. The decrease in R&D expenses was primarily due to the completion of the construction of the PDU in the prior fiscal year. Current period R&D expenses were attributable to costs associated with operating the facility in addition to expenses incurred for work on advanced catalysts, catalyst separation from crude wax, process optimization, and product upgrading.
Rentech reported revenue of $66.9 million for the six months ended March 31, 2009, compared to $76.0 million for the comparable period in the prior year. SG&A expenses were $12.7 million for the first six months of fiscal year 2009, down from $17.8 million for the comparable period in the prior year. R&D expenses for the current period were $9.4 million, down from $38.1 million for the comparable period in the prior year. The decrease was primarily due to the completion of the construction of the PDU in the prior fiscal year.
As of March 31, 2009, Rentech had cash and cash equivalents of $63.1 million on a consolidated basis.
Commenting on the second quarter results for fiscal year 2009, D. Hunt Ramsbottom, president and chief executive officer of Rentech, stated, “Although our second quarter suffered from weather delays in fertilizer shipments, we fully expect to achieve strong fiscal year 2009 performance at REMC. We have already seen the benefits of a strong spring season with record April product deliveries and revenue. With the expectation of $65 million in EBITDA at REMC this fiscal year along with our continued cost management, we believe Rentech’s consolidated results will be the strongest they have ever been. This is extremely encouraging especially in light of the current macro-economic environment.”
