Rentech Nitrogen Announces Results for Fourth Quarter and Full Year 2012; Issues 2013 Guidance

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Rentech Nitrogen Announces Results for Fourth Quarter and Full Year 2012; Issues 2013 Guidance

LOS ANGELES--(BUSINESS WIRE)-- Rentech Nitrogen Partners, L.P. (NYS: RNF) , which manufactures and sells nitrogen fertilizer products including ammonia, urea ammonium nitrate solution (UAN) and ammonium sulfate, today announced its results for the three and twelve months ended December 31, 2012 and provided guidance for 2013.

Commenting on the results for the period, D. Hunt Ramsbottom, CEO of Rentech Nitrogen GP, LLC, stated, "2012 was a successful year for Rentech Nitrogen. We delivered strong results, and completed a major accretive acquisition and our urea/DEF expansion at the East Dubuque Facility."


Mr. Ramsbottom continued, "Although we expect 2013 cash distributions to total approximately $2.60 per unit due to planned and unplanned downtime, we look forward to a very strong 2014, with three expansions scheduled for full production that are expected to add significantly to 2014 cash distributions and EBITDA."

Financial Highlights

The financial statements for the periods ended December 31, 2012 include results of the Pasadena Facility from the date of the closing of the acquisition of Agrifos LLC on November 1, 2012.

Three months ended December 31, 2012

Revenues for the three months ended December 31, 2012 were $92.4 million, compared to $63.0 million for the comparable period in the prior year. The increase was due to the contribution of $37.4 million of revenues from the Pasadena Facility, which was partially offset by decreased sales prices and volumes for most products at the East Dubuque Facility. Ammonia and UAN sales volumes declined in the current period as a result of production lost during plant outages at the East Dubuque Facility that occurred in the fourth quarter of 2012. This delayed UAN shipments scheduled for the fourth quarter of 2012 into the first quarter of 2013.

During the three months ended December 31, 2012, Rentech Nitrogen generated operating income of $21.3 million compared to $22.6 million during the comparable period in the prior year. Operating income in the current period was reduced by $4.1 million of acquisition costs for the Pasadena Facility.

Net income was $17.6 million or $0.44 per unit, for the current period, which included a $2.1 million loss on debt extinguishment. This compares to net income of $10.5 million for the same period last year, which included $10.3 million of loss on debt extinguishment. Rentech Nitrogen generated net income subsequent to its initial public offering (November 9, 2011 through December 31, 2011) of $11.3 million or $0.30 per common unit.

EBITDA for the three months ended December 31, 2012 was $24.3 million, compared to $25.9 million in the corresponding period in 2011. EBITDA for the current period, excluding Partnership level expenses and acquisition costs related to the Pasadena Facility, totaled $28.6 million. The East Dubuque Facility and the Pasadena Facility contributed $30.3 million and ($1.7) million in EBITDA, respectively, during the three months ended December 31, 2012. As part of purchase accounting adjustments related to the acquisition of Agrifos, the value of inventory was increased to fair value as of the closing date, which resulted in an approximately $3.4 million increase in the cost of product sold by the Pasadena Facility during the two-month period ended December 31, 2012. Further explanation of EBITDA, a non-GAAP financial measure has been included below in this press release.

Gross margins for the three months ended December 31, 2012 were 31%, compared to 41% for the same period last year due to the absorption of fixed costs on lower volumes resulting from plant outages in the fourth quarter of 2012, lower prices for most products at the East Dubuque Facility and the contribution of gross profits from the Pasadena Facility, which were lower gross margin sales than those from the East Dubuque Facility. Average natural gas costs in cost of sales for the East Dubuque Facility were $3.44 per MMBtu for the three months ended December 31, 2012, compared to $4.75 per MMBtu for the prior-year period. Average ammonia and sulfur costs in cost of sales for the Pasadena Facility were $658 per ton and $154 per ton, respectively for the current period.

Selling, general and administrative (SG&A) expenses were $6.4 million for the three months ended December 31, 2012, compared to $3.3 million for the prior-year period. The increase was primarily due to business development expenses of approximately $2.4 million, including $2.3 million related to the acquisition of the Pasadena Facility. In addition, non-cash unit-based compensation was approximately $0.4 million higher in the current period than in the prior-year period. Current period expenses also include $0.4 million in SG&A expenses at the Pasadena Facility. Partially offsetting the increase in SG&A expenses was a $1.1 million reduction in audit and tax fees which were higher in the prior-year period due to the additional audit and tax work required for the initial public offering (IPO) and change in fiscal year.

Twelve months ended December 31, 2012

Revenues for the twelve months ended December 31, 2012 were $261.6 million, compared to $199.9 million for the prior year. The increase was primarily due to the contribution of $37.4 million of revenues from the Pasadena Facility, increased sales prices for all products from the East Dubuque Facility and higher sales volume for ammonia at the East Dubuque Facility. UAN sales volume declined in the current year as a result of production lost during plant outages at the East Dubuque Facility that occurred in the fourth quarter of 2012. This delayed UAN shipments scheduled for the fourth quarter of 2012 into the first quarter of 2013.

During the twelve months ended December 31, 2012, Rentech Nitrogen generated operating income of $111.6 million, compared to $77.9 million in the prior year.

For the twelve months ended December 31, 2012, net income was $107.0 million or $2.78 per unit, which included $2.1 million of loss on debt extinguishment. This compares to net income of $31.1 million for last year, which included $19.5 million of loss on debt extinguishment. Rentech Nitrogen generated net income subsequent to its IPO (November 9, 2011 through December 31, 2011) of $11.3 million or $0.30 per common unit.

EBITDA for twelve months ended December 31, 2012 was $124.0 million, compared to $88.6 million in 2011. EBITDA for the current period, excluding Partnership level expenses and acquisition costs related to the Pasadena Facility, totaled $135.8 million. The East Dubuque Facility and the Pasadena Facility contributed $137.5 million and ($1.7) million in EBITDA, respectively, during the twelve months ended December 31, 2012. As part of purchase accounting adjustments related to the acquisition of Agrifos, the value of inventory was increased to fair value as of the closing date, which resulted in an approximately $3.4 million increase in the cost of product sold by the Pasadena Facility during the two-month period ended December 31, 2012. Further explanation of EBITDA, a non-GAAP financial measure, and a reconciliation of Rentech Nitrogen's EBITDA to net income have been included below in this press release.

Gross margins for the twelve months ended December 31, 2012 were 50%, compared to 43% last year. The increase in gross margins was primarily attributable to an increase in product pricing and lower natural gas costs. Average natural gas costs in cost of sales for the East Dubuque Facility were $3.59 per MMBtu for the twelve months ended December 31, 2012, compared to $4.76 per MMBtu for the prior year. Average ammonia and sulfur costs in cost of sales for the Pasadena Facility were $658 per ton and $154 per ton, respectively for the current period.

SG&A expenses were $18.4 million for the twelve months ended December 31, 2012, compared to $7.7 million for the prior year. The increase was primarily due to business development expenses of approximately $4.5 million, including approximately $4.1 million for the Agrifos acquisition. In addition, Rentech Nitrogen was a publicly traded limited partnership for twelve full months in 2012 as compared to 52 days in 2011, which resulted in increases in non-cash unit-based compensation of approximately $2.6 million, payroll costs of approximately $1.3 million, approximately $1.0 million in professional and other fees related to being a publicly-traded partnership, and $0.7 million of fees on the unused credit facility. Current period expenses also include $0.4 million in SG&A expenses at the Pasadena Facility. The increase in SG&A expenses was partially offset by a $0.7 million reduction in audit and tax fees due to additional audit and tax work in 2011 required for the IPO and change in fiscal year.

2013 Outlook

Rentech Nitrogen expects 2013 to benefit from strong nitrogen market dynamics. The Partnership expects 2013 planted corn acres to exceed 96 million. With drought conditions moderating, Rentech Nitrogen anticipates yields in the range of 155 - 160 bushels per acre and a multi-year recovery of corn inventories from last year's drought. For these reasons, the Partnership expects corn prices to remain strong, incentivizing farmers to plant corn and apply nitrogen to maximize yields and profits. With farm income remaining very strong and fertilizer costs as a percentage of corn revenues at historical lows, farmers are well positioned to purchase nitrogen.

Rentech Nitrogen expects 2013 cash available for distribution to be approximately $101 million, or $2.60 per unit. The 2013 guidance includes the impact of two scheduled outages at its facilities during the year, as described below. Excluding the effects of these outages and approximately $6.0 million in lost profits in 2013 due to the unscheduled December 2012 outage at the East Dubuque Facility, 2013 consolidated cash available for distribution would have been approximately $0.65 per unit higher. The calculation of forecasted cash available for distribution has been included below in this press release.

Rentech Nitrogen expects 2013 EBITDA to be approximately $129 million. Excluding Partnership level expenses, 2013 EBITDA for the East Dubuque Facility and Pasadena Facility are expected to be $114 million and $24 million, respectively. The Partnership's 2013 EBITDA guidance for the Pasadena Facility is consistent with the guidance previously provided at the time of the acquisition in late 2012. The calculation of forecasted EBITDA, a non-GAAP financial measure, and a reconciliation of EBITDA to net income have been included below in this press release.

Assuming product and input prices equal to those expected in 2013, Rentech Nitrogen noted that the annual incremental contribution from increased production from its expansion projects scheduled to come online by the end of 2013 would be expected to add approximately $0.90 per unit of cash distributions and approximately $41 million of EBITDA.

The Partnership provided guidance for the following additional key operating metrics, progress against its guidance and projected benefits of its expansion projects scheduled to be online by the end of 2013:

    

 

 

 


 

 

 

2013
Guidance

   

 

 

 


 

 

Locked-in or
Delivered
(as of 2/28/13)

   

 

 

 


Impacts of
Downtime
Included
in 2013
Guidance

   

2013 Pro Forma
Increase as if
Current
Expansion
Projects were
On-line at
Beginning
of 20131

East Dubuque Facility

 

Deliveries

Ammonia

 

 

Tons

119,000

46,000 or 39%

Average Price

$744

 

UAN

 

Tons

285,000

117,000 or 41%

Average Price

$329

 

Natural Gas in Cost of Sales

 

 

(million MMBtus)

10.1

3.7 or 37%

Average Cost Per million MMBtus

 

(including transportation costs)

$3.87

 
EBITDA (in thousands)$114,300($21,500)$34,200
 
Cash Distribution per Unit$2.71($0.54)$0.75
 

Pasadena Facility

 
Deliveries (Tons)

Ammonium Sulfate

544,000

Sulfuric Acid

200,000

Ammonium Thiosulfate

60,000
 
Ammonia used in Cost of Sales (Tons)143,000
 
Sulfur used in Cost of Sales (Tons)210,000
 
EBITDA (in thousands)$24,300($4,300)$6,400
 
Cash Distribution per Unit$0.44($0.11)$0.15
 

Partnership Level

 
EBITDA (in thousands)($9,700)
 
Cash Distribution per Unit($0.55)
 
 

Consolidated

 
Total EBITDA (in thousands)$128,900($25,800)$40,600
 
Total Cash Distribution per Unit$2.60($0.65)$0.90

1Pro forma increases to cash distribution per unit are illustrative and derived using the same assumptions underlying the 2013 guidance other than those for production and including those of commodity prices. The expansion projects are anticipated to begin contributing to cash distributions in 2014. The pro forma calculations of cash distributions are not meant to serve as guidance for 2014.

Rentech Nitrogen has secured 81% of its spring 2013 forward sales book for ammonia and UAN, at strong product prices of $769 per ton and $361 per ton, respectively. The Partnership has secured 37% of the natural gas required to produce the products forecasted to be delivered during 2013, at an average price of $3.87, including transportation costs.

Scheduled Facility Outages

The East Dubuque Facility will undergo its scheduled bi-annual turnaround during the fourth quarter of 2013. The turnaround is anticipated to take up to four weeks, which is longer than the typical 18 to 25 days, due to the installation of the final tie-ins for the ammonia capacity expansion. During the turnaround, the facility's ammonia and UAN units will be off-line so production and sales volumes for these products during 2013 are expected to be lower than in 2012. The impact of the turnaround on 2013 cash distributions is anticipated to be approximately $0.40 per unit. Included in this impact are approximately $4 million of costs for work related to the turnaround which are anticipated to be included in cost of sales in the fourth quarter of 2013.

The Pasadena Facility is scheduled to be down for approximately 14 days in the fourth quarter of 2013 due to work related to the ammonium sulfate debottlenecking project, as described below. The impact of the scheduled outage to 2013 cash distributions is anticipated to be approximately $0.11 per unit.

Expansion Projects

East Dubuque Facility

Urea/DEF: At the end of 2012, Rentech Nitrogen completed the urea/DEF expansion project to increase urea production capacity by approximately 15%, or 21,900 tons annually. The additional urea tons are being converted into and sold as diesel exhaust fluid (DEF) to Yara North America Inc. or as additional urea liquor sales. The sales are expected to increase Rentech Nitrogen's cash available for distribution beginning this year. The total cost of the expansion project is $6.5 million.

Ammonia: The ammonia expansion project at the East Dubuque Facility is progressing on schedule and within budget. The project is designed to increase production of ammonia for sale or upgrade to other products by approximately 23%, or 70,000 tons annually, and to increase on-site ammonia storage capacity by 20,000 tons. The estimated $100 million expansion project, which is being financed by a multiple-draw capital expenditure loan facility, is scheduled to be completed by the end of 2013, after the scheduled bi-annual turnaround. The Partnership expects the additional 70,000 tons of ammonia production to contribute to per unit cash distributions beginning in 2014. Using the same assumptions underlying the 2013 guidance, including those regarding commodity prices, Rentech Nitrogen calculated that the increased production associated with this expansion project could increase cash available for distribution by $0.75 per unit.

Nitric Acid: In the third quarter of 2013, Rentech Nitrogen intends to commence construction of an efficiency improvement project that is designed to increase nitric acid production at the East Dubuque Facility by approximately 1,200 tons annually, without consuming additional feedstock. This project is also expected to reduce the amount of ammonia required for nitric acid production by about 350 tons annually. The additional nitric acid will be sold as a standalone product or used to increase the production of UAN. The project is expected to be completed during the first quarter of 2014 at a cost of approximately $2 million, with approximately $1.6 million expected to be expended in 2013.

Pasadena Facility

Ammonium Sulfate: Rentech Nitrogen is accelerating the previously announced debottlenecking project at its Pasadena Facility. The project, which is anticipated to increase ammonium sulfate production capacity by approximately 20%, or 115,000 tons annually, is now expected to be completed in the fourth quarter of 2013, sooner than the previously anticipated completion of mid-2014. As part of this project, Rentech Nitrogen expects to make process improvements to the ammonium sulfate plant at the facility during a 14-day planned outage in November 2013. During the outage, Rentech Nitrogen expects that sulfuric acid and ammonium thiosulfate production will be uninterrupted, while ammonium sulfate production will cease. The additional ammonium sulfate production is expected to begin contributing to per unit cash distributions in December 2013. The project is expected to cost approximately $6 million and will be funded from an existing capital expenditures facility. Using the same assumptions underlying the 2013 guidance, including those regarding commodity prices, Rentech Nitrogen calculated that the increased production associated with this expansion project could increase cash available for distribution by $0.15 per unit.

Power Generation: Rentech Nitrogen has commenced plans and engineering for a 15 megawatt electrical power generation project at the Pasadena Facility. The Partnership intends to install a steam turbine/generator set that would use excess steam now produced from the sulfuric acid plant at the facility to produce electrical power. It is expected that a portion of the power will be used in the Pasadena Facility, reducing electricity expenses, and the remaining power will be sold in the deregulated Texas power market, creating an additional revenue stream. Rentech Nitrogen expects that this project could cost approximately $30 million and would be completed in the fall of 2014. The project is expected to be funded under the 2012 credit agreement which provides for a $35 million incremental term loan facility allowing the Partnership, at any time on or before October 31, 2014, to borrow additional funds under the terms of the 2012 credit agreement, if lenders agree to lend such amount.

Cash Distributions

Rentech Nitrogen declared its fourth quarter 2012 cash distribution of $0.75 per unit, paid on February 14, 2013 to unit holders of record as of February 7, 2013. The cumulative cash distributions paid from cash generated during the twelve months ended December 31, 2012 was $3.30 per unit, which exceeded the Partnership's previous guidance of $3.27 per unit (as described in its press release dated December 17, 2012). The calculation of cash available for distribution has been included below in this press release.

Conference Call with Management

Rentech Nitrogen will hold a conference call today, March 19, 2013, at 9:00 a.m. PST, during which time senior management will review the Partnership's financial results for this period and provide an update on the business. Callers may listen to the live presentation, which will be followed by a question and answer segment, by dialing 800-697-5978 or 630-691-2750 and the audience passcode 6179090#. An audio webcast of the call will be available at www.rentechnitrogen.com within the Investor Relations portion of the site under the Presentations section. A replay will be available by audio webcast and teleconference from 11:00 a.m. PST on March 19 through 11:00 a.m. PST on March 26. The replay teleconference will be available by dialing 888-843-7419 or 630-652-3042 and the audience passcode 6179090#.

Note: The financial statements and key operating metrics below and on subsequent pages for the periods ended December 31, 2012 include results of the Pasadena Facility from the date of the closing of the acquisition of Agrifos LLC, which was November 1, 2012.

Rentech Nitrogen Partners, L.P.

Consolidated Statements of Income

(Stated in Thousands, Except per Unit Data)

                
For the Three MonthsFor the Year
Ended December 31,Ended December 31,
 2012  2011  2012  2011 
 
(unaudited)

(unaudited)1

Total Revenues$92,407$63,014$261,635$199,909
 
Cost of Sales 63,821  37,460  129,796  113,911 
 
Gross Profit28,58625,554131,83985,998
 
Selling, general and administrative expense6,3943,33618,3767,690
Depreciation665771,390374
(Gain) loss on disposal of property, plant and equipment 225  (507) 510  16 
Operating Expenses 7,284  2,906  20,276  8,080 
 
Operating Income21,30222,648111,56377,918
Other Income (Expense), Net
Interest expense(1,289 Read Full Story

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