Rentech Nitrogen Partners, L.P. Implements Plan to Restructure Pasadena Facility
Rentech Nitrogen Partners, L.P. (NYSE:RNF) announced today that it has begun to restructure operations at its Pasadena, Texas facility, in order to improve profitability in currently unfavorable market conditions.
Rentech Nitrogen expects to complete the restructuring by the end of this year. Annualized cash savings at the Pasadena facility in 2015 are projected to be approximately $10 million. The Partnership expects the restructuring to reduce operating and SG&A expenses by approximately $6 million, and annual maintenance capital expenditures by approximately $4 million, compared to the 2014 forecast. This should enable the Pasadena facility’s operations, including power generation, to generate positive EBITDA in 2015, based on the Partnership’s current outlook for input costs and prices of ammonium sulfate (AS).
The restructuring includes a reduction of approximately 20 percent in full-time equivalents, including contractors and employees. Severance and other one-time employee-related expenses of roughly $0.5 million are expected in 2014, in connection with the reductions.
As part of the restructuring, the Pasadena facility will reduce annual production of AS by approximately 25 percent, to 500,000 tons. Approximately 70 percent of the 500,000 tons will be targeted for the domestic market, with the remaining tons to be sold primarily in New Zealand and Australia, the international markets with the highest net prices. The plan eliminates typically low-margin sales to Brazil, other than modest amounts expected during peak seasons when higher margins may be achievable. The plan provides the option to increase AS production above the 500,000 ton rate for limited periods.
The Partnership expects positive Adjusted EBITDA for the Pasadena facility for 2015, assuming average index prices for ammonia and sulfur of $550 per metric ton and $126 per long ton, along with a weighted average price for ammonium sulfate of approximately $218 per short ton.
Tight global ammonia supplies due to production issues in the Middle East, as well as political issues in Libya and Ukraine, are contributing to higher ammonia prices compared to prices of other nitrogen products. Strength in ammonia prices is expected to continue through early 2015, but dissipate as the year progresses. This is expected to cause Adjusted EBITDA for the Pasadena facility to be near break-even for the first half of 2015, with seasonal factors contributing to negative Adjusted EBITDA expected in the first quarter. Expected lower ammonia prices later in 2015 should lead to positive Adjusted EBITDA for the second half of 2015 and for the full year. The Partnership will closely monitor market conditions and expected profitability to assess the effectiveness of the revised operating plan.
Rentech Nitrogen reaffirmed its Adjusted EBITDA guidance for 2014 of approximately $90 million for the East Dubuque and Pasadena facilities combined, and approximately $80 million including Partnership-level expenses. The recent increase in ammonia prices has improved the forecast for the East Dubuque facility; higher ammonia and sulfur input costs, partially offset by higher prices for AS, have reduced the forecast for the Pasadena facility. The Partnership expects strong fall ammonia application and tight ammonia inventories, along with good overall nitrogen demand in 2015 for the core trade zones of the East Dubuque facility.
Disclosure Regarding Non-GAAP Financial Measures
Adjusted EBITDA is defined as operating income, excluding the impact of the impairment of goodwill at the Pasadena facility, plus depreciation and amortization. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis. Adjusted EBITDA should not be considered an alternative to any measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. In addition, Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.
The table below reconciles forecasted Adjusted EBITDA to operating income (loss) for the twelve months ending December 31, 2014 for the East Dubuque and Pasadena facilities combined, and for the Partnership.
|For the Twelve Months Ending December 31, 2014|
|East Dubuque &|
|(Stated in millions)||Facilities||Level||Consolidated|
|Operating Income (Loss)1||$||66||$||(10||)||$||56|
|Plus: Depreciation and amortization||24||–||24|
1Excludes the impact of the impairment of goodwill related to the Pasadena facility.
About Rentech Nitrogen, L.P.
Rentech Nitrogen (www.rentechnitrogen.com) was formed by Rentech, Inc. to own, operate and expand its nitrogen fertilizer business. Rentech Nitrogen’s assets consist of two fertilizer production facilities owned by its operating subsidiaries. The East Dubuque facility is located in the northwestern corner of Illinois, and uses natural gas as a feedstock to produce primarily anhydrous ammonia and UAN solution for sale to customers in the Mid Corn Belt. The Pasadena facility is located in Pasadena, Texas, along the Houston Ship Channel; it uses ammonia and sulfur as feedstocks to produce ammonium sulfate and ammonium thiosulfate fertilizers, and sulfuric acid. Rentech Nitrogen is the largest producer of synthetic granulated ammonium sulfate fertilizer in North America, with sales in the United States and internationally.
This press release contains forward-looking statements about matters such as: expected annualized cost savings from the restructured operating plan at the Pasadena facility; the magnitude of anticipated savings in operating expense, SG&A expense and capital expense; the cost of one-time severance charges; expected profitability and pricing of inputs and products at the Pasadena facility under the restructured operating plan, expected EBITDA for 2014 for the Partnership; and the outlook for ammonia and overall nitrogen demand in 2015. These statements are based on management’s current expectations. Actual results may differ materially as a result of various risks and uncertainties. Other factors that could cause actual results to differ from those reflected in the forward-looking statements are set forth in Rentech Nitrogen’s prior press releases and periodic public filings with the Securities and Exchange Commission, which are available on Rentech Nitrogen’s website at www.rentechnitrogen.com. The forward-looking statements in this press release are made as of the date of this press release. Rentech Nitrogen does not undertake to revise or update these forward-looking statements, except to the extent that it is required to do so under applicable law.
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