Summary of RENTECH INC /CO/

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain information included in this report contains, and other reports or materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its management) contain or will contain, "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, Section 27A of the Securities Act of 1933, as amended, and pursuant to the Private Securities Litigation Reform Act of 1995. The forward-looking statements may relate to financial results and plans for future business activities, and are thus prospective. The forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. They can be identified by the use of terminology such as "may," "will," "expect," "believe," "intend," "plan," "estimate," "anticipate," "should" and other comparable terms or the negative of them. You are cautioned that, while forward-looking statements reflect our good faith belief and best judgment based upon current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties. Factors that could affect Rentech's results include the risk factors detailed in "Part II. Other Information-Item 1A. Risk Factors" below, "Part I, - Item 1A, Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2008 and from time to time in the Company's other periodic reports and registration statements filed with the Securities and Exchange Commission. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, and thus are current only as of the date made. Other factors that could cause actual results to differ from those reflected in the forward-looking statements include dangers associated with facilities construction and operation of gas processing plants like those using the Rentech Process, risks inherent in making investments and conducting business in foreign countries, protection of intellectual property rights, competition, and other risks described in this report. We undertake no responsibility to update any of the forward-looking statements after the date of this report to conform them to actual results.
As used in this Quarterly Report on Form 10-Q, the terms "Rentech," "we," "our," "us" and "the Company" mean Rentech, Inc., a Colorado corporation and its subsidiaries, unless the context indicates otherwise.
OVERVIEW OF OUR BUSINESSES
The goal of Rentech is to be a global provider of clean energy solutions. Incorporated in 1981, the Company is pursuing the worldwide deployment of the Rentech Process by both licensing and project development of facilities to produce synthetic fuels and chemicals from renewable and fossil feedstocks. During the Company's nearly 30-year history, Rentech and its licensees have successfully applied the Rentech Process in facilities that range in size from pilot scale to 235 barrels per day of synthetic fuels and chemicals production. The Rentech Process, based on FT chemistry, is a patented and proprietary technology that efficiently and economically converts syngas, which can be manufactured from a wide variety of waste, biomass and fossil resources, into hydrocarbons. These hydrocarbons can be processed and upgraded into ultra-clean synthetic fuels such as military and commercial jet fuels and ultra low sulfur diesel, as well as specialty waxes and chemicals. Fuels produced from the Rentech Process are significantly cleaner than those available today from petroleum refining and have lower emissions of all regulated pollutants, including nitrogen oxides, sulfur oxides and particulate matter. Rentech fuels produced from biomass, and fuels produced from fossil feedstocks with CO2 sequestration, are expected to have lifecycle carbon emissions lower than those of petroleum-based fuels.
We are pursuing the development of pioneer commercial scale synthetic fuels and chemicals projects using the Rentech Process in the United States because we believe they will increase stockholder value and provide for competitive opportunities. As such, we are working on a number of commercial opportunities involving standalone biomass, fossil-fed and a combination of biomass and fossil-fed commercial scale synthetic fuels and chemicals projects, including a proposed approximately 30,000 barrels per day synthetic fuels and chemicals facility near Natchez, Mississippi.
We have constructed and operate a demonstration-scale plant, our Product Demonstration Unit located in Commerce City, Colorado which we believe is the only operating synthetic transportation fuels facility in the United States. We have produced thousands of gallons of ultra-clean synthetic fuels including military jet fuel, commercial Jet A and Jet A-1 and ultra low sulfur diesel at the PDU. We have shipped samples of our products for testing to potential customers, and we have sold quantities of our jet fuel product to the U.S. Air Force.

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Our principal research and development efforts at our laboratory are focused on developing the next generation of technology to improve the efficiency of the Rentech Process, further reducing the cost of catalyst per barrel of output, and developing the technology and processes required to clean and condition syngas produced from biomass to make it suitable as an input for the Rentech Process. These technology activities are centered at the PDU site, where we have skilled technical, engineering and operating teams that work on development and testing. The laboratory contains equipment and support facilities that provide us with resources for the continued development and testing of the Rentech Process as well as complementary technologies for additional applications and performance enhancements. We continue to advance our technology, with a goal of reducing operating and capital costs.
We own a natural gas-based nitrogen fertilizer manufacturing plant through our subsidiary, Rentech Energy Midwest Corporation, which we acquired in April 2006. REMC's plant, located in East Dubuque, Illinois, manufactures and sells within the corn-belt region nitrogen fertilizer products that are currently in high demand by the American farmer and industrial users. These products are critical in the production of corn and other coarse grains. From time to time, we consider opportunities to enhance the efficiency of the East Dubuque Plant to further capitalize on the strong demand for fertilizer in the corn-belt region. As our primary strategy is focused on synthetic fuels, we do not currently intend to develop or buy new fertilizer-only plants, although fertilizer may be a co-product in future plants.
Our Company executive offices are located at 10877 Wilshire Blvd., Suite 710, Los Angeles CA 90024. Our telephone number is (310) 571-9800. The internet address for our website is www.rentechinc.com.
OVERVIEW OF FINANCIAL CONDITION, LIQUIDITY, AND RESULTS OF OPERATIONS During fiscal year 2008 we funded our operations primarily from cash flow from REMC's operations, the incurrence of senior debt and, to a lesser degree, the issuance of equity securities. Our rate of spending in fiscal 2009 is, and is expected to be, significantly lower than the rate of spending during fiscal 2008. During fiscal 2008 we completed construction of our PDU facility and, near the end of fiscal year 2008, we took steps to reduce our ongoing operating expenses and our selling, general and administrative expenses. While further borrowings under the Senior Credit Agreement are not expected to be available in fiscal year 2009 because its Term Loan has been fully drawn, we believe that, based on current market conditions, REMC will be able to fund its operations from its cash flow during the fiscal year. Rentech's non-REMC operations are expected to have no material revenue during fiscal year 2009, and will need additional funds to provide for their liquidity needs. We believe that those funds can be provided by operating cash flow from REMC. In January, 2009, our lenders under the Senior Credit Agreement agreed to amend certain covenants, including the covenants that required REMC to prepay indebtedness in amounts equal to any distributions or loans it makes to Rentech, and the covenants that established certain minimum liquidity requirements. Based on current market conditions, we believe that the projected cash flow from REMC, combined with these covenant amendments, will enable us to meet our consolidated liquidity needs for the fiscal year from our consolidated operating cash flow. If the cash flows from REMC were to fall below our current expectations and if we were to be unable to raise additional capital when needed to compensate for such a shortfall in operating cash flow, we would need to either slow or cease development of our commercial projects and research and development of the Rentech Process, and we could become unable to operate the PDU and to satisfy our other working capital needs.
Our principal short-term needs for liquidity are to fund working capital needs and to pay for research and development related to the Rentech Process, operation of the PDU, operation of the East Dubuque Plant (including working capital needs resulting from seasonal fluctuations in its cash flow and changes in commodity pricing) and short-term costs for continued development of commercial projects, including our Natchez Project. Our principal long-term needs for liquidity are to fund design, development, construction and operation of commercial projects. We will require substantial amounts of capital that we do not now have to fund our long-term liquidity requirements.
For further information concerning our potential financing needs and related risks, see Liquidity and Capital Resources and Item 1A-Risk Factors of Part II-Other Information within this report and within our Annual Report on Form 10-K for the fiscal year ended September 30, 2008.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions relate to: revenue recognition, inventories, construction in progress assets, the valuation of financial instruments, long-lived assets and intangible assets, stock-based compensation and the realization of deferred income taxes. Actual amounts could differ significantly from these estimates.
Revenue Recognition. We recognize revenue when the following elements are substantially satisfied: there are no uncertainties regarding customer acceptance; there is persuasive evidence that an agreement exists documenting the specific terms of the transaction; the sales price is fixed or determinable; and collectability is reasonably assured. Management assesses the business environment, the customer's financial condition, historical collection experience, accounts receivable aging and customer disputes to determine whether collectability is reasonably assured. If collectability is not considered reasonably assured at the time of sale, we do not recognize revenue until collection occurs.
Product sales revenues from our nitrogen products manufacturing segment are recognized when the customer takes ownership upon shipment from the East Dubuque Plant or its leased facility and assumes risk of loss, collection of the related receivable is probable, persuasive evidence of a sale arrangement exists and the sales price is fixed or determinable.
Certain product sales occur under product pre-sale contracts which require payment in advance of shipment. The Company records deferred revenue upon execution of product pre-sale contracts, which create obligations for shipment of product within a specified period of time in the future. The Company also records a product pre-sale contract receivable upon execution of the contract to the extent that the related cash payments have not been received. The Company recognizes revenue related to the product pre-sale contracts and relieves the deferred revenue when products are shipped. A significant portion of the revenue recognized during any period may be related to pre-sale contracts, for which some or all of the cash may have been collected during an earlier period, with the result that a significant portion of revenue recognized during a period may not generate cash receipts during that or future periods.
Natural gas, though not purchased for the purpose of resale, is occasionally sold under certain circumstances. Natural gas is sold when contracted quantities received are in excess of production requirements and storage capacities, in which case the sales proceeds are recorded as a revenue and the related cost is recorded as a cost of sale. Separately, natural gas may also be sold to a third party with a simultaneous gas purchase by the Company of the same quantity at a lower gas price in order to realize a reduction of raw material cost. In this case, the amount recorded as a cost of sale is composed of the difference between the cost of the gas that was sold and the cost of gas that was simultaneously purchased.
Our alternative fuels segment recognizes revenues from technical services agreements as the services are provided and also recognizes rental income from the rental of a portion of one of our buildings according to the terms of the lease agreement.
Inventories. Our inventory is stated at the lower of cost or estimated net realizable value. The cost of inventories is determined using the first-in first-out method. We perform an analysis on at least a quarterly basis of our inventory balances to determine if the carrying amount of inventories exceeds their net realizable value. The analysis of estimated net realizable value is based on customer orders, market trends and historical pricing. If the carrying amount exceeds the estimated net realizable value, the carrying amount is reduced to the estimated net realizable value. We allocate fixed production overhead costs based on the normal capacity of our production facilities. For more information, refer to Note 6 to the Consolidated Financial Statements. Construction in Progress Assets. We capitalize the following as construction in progress assets: project development costs after a project has completed the scoping phase and enters the feasibility phase; a portion of the interest expense that we incur on our debt until the asset is placed in service; and costs for improvements to the existing machinery and equipment at our East Dubuque Plant. We do not depreciate construction in progress costs until the underlying assets are placed into service. For more information, refer to Note 7 to the Consolidated Financial Statements. Research and development costs incurred to develop and refine certain technologies employed in each respective operating segment are expensed and not capitalized.

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Valuation of Financial Instruments, Long-Lived Assets and Intangible Assets. We assess the realizable value of financial instruments, long-lived assets and intangible assets for potential impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of our assets, we make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. As applicable, we make assumptions regarding the useful lives of the assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets. For more information, refer to Note 7 to the Consolidated Financial Statements.
Stock-Based Compensation. We adhere to the provisions of SFAS 123(R) using the modified-prospective transition method. Under this method, all stock-based compensation awards granted subsequent to September 30, 2005 are included in compensation expense based on grant-date fair value estimated in accordance with the provisions of SFAS 123(R) and the recommendations of SAB 107. We use the Black-Scholes valuation model to value the equity instruments issued. The Black-Scholes valuation model uses assumptions of expected volatility, risk-free interest rates, the expected term of options granted, expected rates of dividends and forfeitures. Management determines these assumptions by reviewing current market rates, making industry comparisons and reviewing conditions relevant to our Company. Refer to Note 12 to the Consolidated Financial Statements for more information.
Deferred Income Taxes. We have provided a full valuation reserve related to our substantial deferred tax assets. In the future, if sufficient evidence of our ability to generate future taxable income in certain tax jurisdictions becomes apparent, we may be required to reduce this valuation allowance, resulting in income tax benefits in our Consolidated Statement of Operations. We evaluate our ability to utilize the deferred tax assets annually and assess the need for the valuation allowance. Refer to Note 13 to the Consolidated Financial Statements.

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RESULTS OF OPERATIONS
More detailed information about our consolidated financial statements is provided in the following portions of this section. The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto as presented in this report and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008. Selected Business Segment Information
The revenue and operating income (loss) amounts in this report are presented in accordance with accounting principles generally accepted in the United States of America. Segment information appearing in Note 14 of the Notes to the Consolidated Financial Statements is presented in accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." The following table provides revenues, operating (loss) income from operations and net (loss) income from continuing operations by each of our business segments for the three and six months ended March 31, 2009 and 2008. More complete details about the results of operations of our business segments are set forth later in this report under the section heading "Three and Six Months Ended March 31, 2009 Compared to Three and Six Months Ended March 31, 2008".

                                          For the Three Months            For the Six Months
                                            Ended March 31,                Ended March 31,
                                          2009            2008           2009           2008
                                              (Thousands)                    (Thousands)
Revenues:
Nitrogen products manufacturing        $    16,758      $  28,485      $  66,805      $  75,378
Alternative fuels                               31             48             61            616

Total revenues                         $    16,789      $  28,533      $  66,866      $  75,994


Operating (loss) income:
Nitrogen products manufacturing        $    (4,248 )    $   7,122      $   4,435      $  15,897
Alternative fuels                           (9,698 )      (29,602 )      (20,480 )      (61,804 )

Total operating loss                   $   (13,946 )    $ (22,480 )    $ (16,045 )    $ (45,907 )


Net (loss) income from continuing
operations before income taxes:
Nitrogen products manufacturing        $    (6,291 )    $   7,297      $     456      $  16,404
Alternative fuels                          (10,301 )      (30,109 )      (21,368 )      (62,652 )

Total net loss from continuing
operations before income taxes         $   (16,592 )    $ (22,812 )    $ (20,912 )    $ (46,248 )

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Comparison of Changes between Periods
The following table sets forth, for the three and six months ended March 31, 2009 and 2008, a comparison of changes between the periods in the components of our Consolidated Statements of Operations from continuing operations:

                                          For the Three Months               For the Six Months
                                             Ended March 31,                   Ended March 31,
                                          2009             2008             2009             2008
Net Sales by Category
Nitrogen products manufacturing              99.8 %           99.8 %           99.9 %           99.2 %
Alternative fuels                             0.2 %            0.2 %            0.1 %            0.8 %

Total net sales                             100.0 %          100.0 %          100.0 %          100.0 %

Gross Profit by Category
Nitrogen products manufacturing             (18.1 )%          27.6 %            9.9 %           23.5 %
Alternative fuels                           100.0 %           93.5 %          100.0 %           82.4 %
Total gross profit percentage               (17.9 )%          27.7 %           10.0 %           23.9 %

Income Statement Components as a
Percentage of Consolidated Net
Sales

Operating Expenses
Selling, general and administrative          39.7 %           31.5 %           19.0 %           23.4 %
Depreciation and amortization                 2.1 %            0.9 %            1.0 %            0.7 %
Research and development                     23.4 %           77.4 %           14.0 %           50.1 %
Loss on impairment                              - %            1.5 %              - %           11.9 %
Recovery of payment to vendor                   - %           (4.8 )%             - %           (1.8 )%

Total operating expenses                     65.2 %          106.5 %           34.0 %           84.3 %


Loss from Operations                        (83.1 )%         (78.8 )%         (24.0 )%         (60.4 )%


Other Income (Expenses)
Interest and dividend income                  0.7 %            1.7 %            0.5 %            1.6 %
Interest expense                            (16.2 )%          (2.9 )%          (7.6 )%          (2.1 )%
Other income                                 (0.2 )%           0.1 %           (0.2 )%             - %

Total other income (expense)                (15.7 )%          (1.1 )%          (7.3 )%          (0.5 )%


Net Loss from Continuing Operations
before Taxes                                (98.8 )%         (79.9 )%         (31.3 )%         (60.9 )%

Income tax expense                              - %              - %              - %              - %

Net Loss from Continuing Operations         (98.8 )%         (79.9 )%         (31.3 )%         (60.9 )%

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THREE AND SIX MONTHS ENDED MARCH 31, 2009 COMPARED TO THREE AND SIX MONTHS ENDED
MARCH 31, 2008:
Continuing Operations
Revenues

                                          For the Three Months          For the Six Months
                                             Ended March 31,              Ended March 31,
                                           2009            2008          2009          2008
                                               (Thousands)                  (Thousands)
Revenues:
Product shipments                       $    16,430      $ 27,326     $   65,120     $ 73,702
Natural gas sales of excess inventory           328         1,159          1,685        1,676

Total nitrogen products manufacturing   $    16,758      $ 28,485     $   66,805     $ 75,378

Alternative fuels                                31            48             61          616

Total revenues                          $    16,789      $ 28,533     $   66,866     $ 75,994

Nitrogen products manufacturing. Our nitrogen products manufacturing segment provides revenue from sales of various nitrogen fertilizer products manufactured at our East Dubuque Plant. The East Dubuque Plant is designed to produce anhydrous ammonia, nitric acid, urea liquor, ammonium nitrate solution, granular urea and carbon dioxide using natural gas as a feedstock. Revenues are seasonal based on the planting, growing, and harvesting cycles of customers utilizing nitrogen fertilizer.
The decrease in the volume of shipments for the first quarter of fiscal 2009 as compared with prior years was due to a short application season in the fall of 2008. The rain-delayed spring 2008 planting season delayed the fall harvest. Then the early onset of winter weather resulted in a short period of good weather after the late fall harvest, limiting the normal fall fertilizer application. The limited consumption in the fall resulted in a high volume of product stored by distributors reducing their need to increase their inventory levels in advance of the spring application season. We believe that the reduction in shipments in the first and second quarters of fiscal 2009 compared to the first and second quarters of fiscal 2008 was the result of weather and the timing of seasonal fertilizer applications and does not represent a trend indicative of results for the remaining quarters of fiscal 2009. We believe that fundamental factors such as corn acreage forecasted at approximately the same levels as in 2008, and farmers' inability to apply adequate amounts of fertilizer in the fall of 2008, may indicate strong demand for nitrogen fertilizer products in the spring 2009 planting season.
The average sales price per ton in the second quarter of the current fiscal year as compared with the prior fiscal year increased by 27% for urea ammonium nitrate solutions which was 52% of the revenue for the second quarter of fiscal 2009 and decreased by 6% for anhydrous ammonia which was 16% of the revenue for the second quarter of fiscal 2009. These two products comprised approximately 68% and 75% of the product sales for the three months ended March 31, 2009 and 2008, respectively. The increase in the average sales price per ton of urea ammonium nitrate solutions was due to shipments of product to customers with available storage capacity from pre-sale contracts that were executed during the summer of 2008 when fertilizer pricing was at peak levels. The shipments in fiscal 2009 of anhydrous ammonia had proportionately fewer shipments from pre-sale contracts executed during the summer of 2008 due to customer storage constraints on this product.
Alternative Fuels. This segment generates technical service revenues related to the Rentech Process provided by the scientists and technicians who staff our development and testing laboratory and rental income by leasing part of one of our buildings to a tenant. Rental income is included in our alternative fuels segment because the rental income is generated from a building used by some of our research and development employees. The revenue earned during the fiscal 2009 was limited to rental income. The revenue earned during fiscal 2008 was technical service revenue for progress billing from work performed under contracts.

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