R&D expenses incurred in the alternative energy segment during the nine months ended September 30, 2012 were $14.7 million, down from $24.6 million for the comparable period in the prior year. The decrease in R&D expenses resulted primarily from a decrease in costs related to the Rentech-ClearFuels gasifier of approximately $18.0 million, a reduction in sales and use taxes related to the PDU of approximately $2.0 million, and plant modifications of approximately $0.7 million, which was partially offset by lower reimbursements from the DOE of costs related to the gasifier of approximately $9.4 million.

Rentech Nitrogen’s natural gas hedging strategy resulted in average natural gas costs of $3.63 per MMBtu for the first nine months of 2012, compared to $4.78 per MMBtu for the prior-year period. Lower natural gas costs combined with strong product prices contributed to gross margins of 61% in the current period, up significantly from 44% for the same period last year.

Outlook

Cash operating and capital expenditures for Rentech's alternative energy segment are expected to be approximately $45 million in 2012, consistent with the Company's previous guidance.

Rentech has made significant progress on agreements for the licensing and commercialization of certain of its energy technologies. As those discussions progress, Rentech is evaluating alternatives for its technology portfolio, with the assistance of advisors. The prospective benefits of a licensing and commercialization partnership are being assessed in comparison to any incremental costs required by such a partnership, and in comparison to the prospective benefits and costs of alternatives for the technology portfolio. Rentech is currently planning for R&D spending for 2013 in the range of $10 million. Successful licensing and commercialization agreements may require R&D spending in excess of that amount, if such expense is justified by the estimated benefits. Rentech expects to choose and implement the highest-value alternative during the first half of 2013.

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