Rentech makes R&D cuts
Rentech Inc. today announced major cuts in its energy research and development business, as the company continues to focus on other energy businesses as well as its profitable nitrogen business. Rentech plans to cease operations, reduce staffing, mothball its research and development (R&D) Product Demonstration Unit (PDU), in Commerce City, Colo., and to eliminate all related R&D activities. The company’s strategy is focused on more immediate growth opportunities within the energy industry that do not rely on new technologies.
“We are grateful to our employees for their dedication and tremendous effort to successfully develop innovative and workable technologies for alternative energy production,” said D. Hunt Ramsbottom, President and CEO, of Rentech. “While our elimination of these positions is a difficult decision, today’s actions will further position Rentech to drive value for shareholders by cutting R&D spending and focusing on businesses that generate strong returns, with ready markets, and certainty of revenue. The investments we are considering have either immediate or near-term profitability, and will meet our disciplined investment criteria. Our success in growing Rentech Nitrogen and generating attractive returns from that business is the best example to date of the disciplined investment approach that we will follow as we consider additional investments.”
As a result of these changes, Rentech will eliminate 65 employee and contractor positions in the company’s alternative energy segment during the first half of 2013. In addition, Rentech will attempt to sell the PDU as well as approximately 450 acres of land in Natchez, MS it acquired for the development of an alternative energy facility. Rentech expects to incur a one-time non-cash impairment charge to intangible assets related to its technology of approximately $16 million, in its financial statements for the period ended December 31, 2012.
Due to the PDU closing, Rentech expects expenses related to its research activities, facilities, and its technologies to decline from approximately $21 million in 2012 to approximately $10 million in 2013, which is consistent with the Company’s previous guidance. The 2013 expenses will be for final R&D activities, including completion of the U.S. Department of Energy Integrated Biorefinery (IBR) project grant requirements, winding down and de-commissioning the PDU, employee severance, site maintenance, insurance, preservation of patents and a small group of remaining employees.
Approximately $5 million of these 2013 expenses are anticipated to be classified as selling, general and administrative (SG&A) expenses, beginning in the second quarter as the Company cuts its R&D activities. The Company has no plans to incur R&D expenses in 2014. SG&A expenses related to the Commerce City site, technology maintenance and personnel are expected to be at an annualized run rate of $2-3 million by the end of 2013. Any ongoing costs would be to protect patents covering Rentech’s alternative energy technologies, to maintain the Commerce City site if efforts to sell the site are unsuccessful or to continue low-cost efforts to seek partners who would provide funding to deploy its technologies.
Rentech intends to focus on new businesses that meet the following criteria: unlevered, after-tax returns in the mid-teens or higher; certainty of revenue with long-term contracts for off-take, providing stability of cash flows; reliance upon demonstrated technologies; and leverage Rentech’s expertise. Rentech expects to make an announcement setting forth its next steps within the coming months.