Total debt and finance lease obligations (1) $ | 1,591 | | Less: | | Nitrogen Fertilizer debt and finance lease obligations (1) | $ | (547) | | Total debt and finance lease obligations exclusive of Nitrogen Fertilizer | 1,044 | | | | (2)EBITDA exclusive of Nitrogen Fertilizer | Sales dollars in millions$ | 771 | |
Cost of Materials and Other. Petroleum cost of materials and other was $3,759.2 million for the year ended December 31, 2016, compared to $4,143.6 million for the year ended December 31, 2015. The decrease of $384.4 million was primarily the result of a decrease in the cost of consumed crude and purchased products for resale. The decrease in consumed crude oil cost was due to a decrease in crude oil prices. The WTI benchmark crude oil price decreased approximately 10.8% from the year ended December 31, 2016 as compared to the year ended December 31, 2015. The petroleum business' average cost per barrel of crude oil consumed for the year ended December 31, 2016 was $41.99 compared to $47.86 for the year ended December 31, 2015, a decrease of approximately 12.3%. Crude oil throughput volume increased by approximately 2.9% for the year ended December 31, 2016 as compared to the equivalent period in 2015 due primarily to the major scheduled turnaround completed at the Coffeyville refinery in the fourth quarter of 2015. Sales volumes of refined fuels increased by approximately 2.3% during the same period.
The impact of FIFO accounting also impacted cost of materials and other during the comparable periods. Under the FIFO accounting method, changes in crude oil prices can cause fluctuations in the inventory valuation of crude oil, work in process and finished goods, thereby resulting in a favorable FIFO inventory impact when crude oil prices increase and an unfavorable FIFO inventory impact when crude oil prices decrease. For the years ended December 31, 2016 and 2015, the petroleum business had an favorable FIFO inventory impact of $52.1 million compared to an unfavorable FIFO inventory impact of $60.3 million, respectively.
Refining margin per barrel of crude oil throughput decreased to $9.27 for the year ended December 31, 2016 from $14.45 for the year ended December 31, 2015. Refining margin adjusted for FIFO impact was $8.55 per crude oil throughput barrel for the year ended December 31, 2016, as compared to $15.31 per crude oil throughput barrel for the year ended December 31, 2015. Gross profit per barrel decreased to $2.10 for the year ended December 31, 2016, as compared to gross profit per barrel of $6.23 in the equivalent period in 2015. The decrease in refining margin and gross profit per barrel was primarily due to the decline in product margins. The benchmark 2-1-1 crack spread declined to $14.66 per barrel for the year ended December 31, 2016 from $20.41 per barrel for the year ended December 31, 2015.
Direct Operating Expenses (Exclusive of Depreciation and Amortization). Petroleum direct operating expenses and major scheduled turnaround expenses (exclusive of depreciation and amortization) were $393.4 million for the year ended December 31, 2016, compared to direct operating expenses and major scheduled turnaround expenses of $478.5 million for the year ended December 31, 2015. The decrease of $85.1 million was the result of lower costs for the second phase of major scheduled turnaround activities performed at the Coffeyville refinery in 2016 as compared to the first phase completed in 2015 ($70.7 million), lower insurance expense ($4.5 million), environmental expense ($4.3 million), production chemicals ($3.1 million), repair and maintenance costs ($2.4 million), outside services ($2.3 million) and allocated shared services expenses ($2.2 million). These decreases were partially offset by an increase in labor costs ($4.0 million). Direct operating expenses per barrel of crude oil throughput for the year ended December 31, 2016 decreased to $5.43 per barrel as compared to $6.79 per barrel for the year ended December 31, 2015. The decrease in the direct operating expenses per barrel of crude oil throughput was primarily a function of lower overall expenses.
Operating Income. Petroleum operating income was $77.8 million for the year ended December 31, 2016, as compared to operating income of $361.7 million for the year ended December 31, 2015. The decrease of $283.9 million was the result of a decrease in the refining margin ($346.2 million) and the 2015 flood insurance recovery ($27.3 million), partially offset by decreases in direct operating expenses ($85.1 million), depreciation and amortization ($1.2 million) and selling, general and administrative expenses ($3.3 million).
Nitrogen Fertilizer Business Results of Operations
The tables below provide an overview of the nitrogen fertilizer business' results of operations, relevant market indicators and its key operating statistics for the years ended December 31, 2017, 2016 and 2015:
| | | | | | | | | | | | | | Year Ended December 31, |
| 2017 | | 2016 | | 2015 | | (in millions) | Nitrogen Fertilizer Business Financial Results | | | | | | Net sales | $ | 330.8 |
| | $ | 356.3 |
| | $ | 289.2 |
| Operating costs and expenses: | | | | | | Cost of materials and other | 84.9 |
| | 93.7 |
| | 65.2 |
| Direct operating expenses(1) | 152.9 |
| | 141.7 |
| | 99.1 |
| Major scheduled turnaround expenses | 2.6 |
| | 6.6 |
| | 7.0 |
| Depreciation and amortization | 74.0 |
| | 58.2 |
| | 28.4 |
| Cost of sales | 314.4 |
| | 300.2 |
| | 199.7 |
| Selling, general and administrative | 25.6 |
| | 29.3 |
| | 20.8 |
| Operating income (loss) | (9.2 | ) | | 26.8 |
| | 68.7 |
| Interest expense and other financing costs | (62.9 | ) | | (48.6 | ) | | (7.0 | ) | Loss on extinguishment of debt | — |
| | (4.9 | ) | | — |
| Other income (loss), net | (0.5 | ) | | 0.1 |
| | 0.3 |
| Income (loss) before income tax expense | (72.6 | ) | | (26.6 | ) | | 62.0 |
| Income tax expense | 0.2 |
| | 0.3 |
| | — |
| Net income (loss) | $ | (72.8 | ) | | $ | (26.9 | ) | | $ | 62.0 |
| | | | | | | Adjusted Nitrogen Fertilizer EBITDA(2) | $ | 65.8 |
| | $ | 92.7 |
| | $ | 106.8 |
|
| | | | | | | | | | | | | | Year Ended December 31, |
| 2017 | | 2016 | | 2015 | Key Operating Statistics | | | | | | Sales (thousand tons): | | | | | | Ammonia | 286.1 |
| | 201.4 |
| | 32.3 |
| UAN | 1,254.5 |
| | 1,237.5 |
| | 939.5 |
| Product pricing at gate (dollars per ton)(3): | | | | | | Ammonia | $ | 280 |
| | $ | 376 |
| | $ | 521 |
| UAN | $ | 152 |
| | $ | 177 |
| | $ | 247 |
| Production volume (thousand tons): | | | | | | Ammonia (gross produced)(4) | 814.7 |
| | 693.5 |
| | 385.4 |
| Ammonia (net available for sale)(4) | 267.8 |
| | 183.6 |
| | 37.3 |
| UAN | 1,268.4 |
| | 1,192.6 |
| | 928.6 |
| Feedstock: | | | | | | Petroleum coke used in production (thousand tons) | 487.5 |
| | 513.7 |
| | 469.9 |
| Petroleum coke (dollars per ton) | $ | 17 |
| | $ | 15 |
| | $ | 25 |
| Natural gas used in production (thousands of MMBtu)(5) | 7,619.5 |
| | 5,596.0 |
| | — |
| Natural gas used in production (dollars per MMBtu)(5)(6) | $ | 3.24 |
| | $ | 2.96 |
| | $ | — |
| Natural gas cost of materials and other (thousands of MMBtu)(5) | 8,051.5 |
| | 4,618.7 |
| | — |
| Natural gas cost of materials and other (dollars per MMBtu)(5)(6) | $ | 3.26 |
| | $ | 2.87 |
| | $ | — |
| Coffeyville Facility on-stream factors(7): | | | | | | Gasification | 98.5 | % | | 96.9 | % | | 90.2 | % | Ammonia | 97.4 | % | | 94.9 | % | | 87.5 | % | UAN | 91.7 | % | | 93.1 | % | | 87.3 | % | East Dubuque Facility on-stream factors (7): | | | | | | Ammonia | 90.4 | % | | 87.7 | % | | — | % | UAN | 90.3 | % | | 87.3 | % | | — | % | | | | | | | Reconciliation to net sales (dollars in millions): | | | | | | Sales net at gate | $ | 290.0 |
| | $ | 309.0 |
| | $ | 248.8 |
| Freight in revenue | 32.8 |
| | 33.0 |
| | 27.2 |
| Hydrogen revenue | 0.4 |
| | 3.2 |
| | 11.8 |
| Other revenue | 7.6 |
| | 11.1 |
| | 1.4 |
| Total net sales | $ | 330.8 |
| | $ | 356.3 |
| | $ | 289.2 |
|
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | Market Indicators | | | | | | Ammonia — Southern Plains (dollars per ton) | $ | 314 |
| | $ | 356 |
| | $ | 510 |
| Ammonia — Corn belt (dollars per ton) | $ | 358 |
| | $ | 416 |
| | $ | 566 |
| UAN — Corn belt (dollars per ton) | $ | 192 |
| | $ | 208 |
| | $ | 284 |
| Natural gas NYMEX (dollars per MMBtu) | $ | 3.02 |
| | $ | 2.55 |
| | $ | 2.63 |
|
| | (1) | Amounts are shownTotal debt and finance lease obligations to EBITDA exclusive of depreciation and amortization and major scheduled turnaround expenses.Nitrogen Fertilizer | 1.35 | |
| | (2)Consolidated cash and cash equivalents | $ | 510 | | Less: | | Nitrogen Fertilizer EBITDA represents nitrogen fertilizer net income (loss) adjusted for (i) interest (income) expense; (ii) income tax expense;cash and (iii) depreciationcash equivalents | (86) | | Cash and amortization expense. Adjustedcash equivalents exclusive of Nitrogen Fertilizer EBITDA represents Nitrogen Fertilizer EBITDA further adjusted for (i) major scheduled turnaround expenses, when applicable; (ii) share-based compensation, non-cash; (iii) gain or loss on extinguishment of debt; (iv) expenses associated with the East Dubuque Merger, when applicable; (v) business interruption insurance recovery, when applicable; and (vi) loss on disposition of assets, when applicable. We present Adjusted Nitrogen Fertilizer EBITDA because we have found it helpful to consider an operating measure that excludes expenses, such as major scheduled turnaround expense, gain or loss on extinguishment of debt, loss on disposition of assets, expenses associated with the East Dubuque Merger and business interruption insurance recovery, relating to transactions not reflective of the Nitrogen Fertilizer Partnership's core operations. | 424 | |
We also present Adjusted Nitrogen Fertilizer EBITDA because it is the starting point for calculating the Nitrogen Fertilizer Partnership's available cash for distribution. Adjusted Nitrogen Fertilizer EBITDA is not a recognized term under GAAP and should not be substituted for net income as a measure of performance. Management believes that Nitrogen Fertilizer EBITDA and Adjusted Nitrogen Fertilizer EBITDA enable investors and analysts to better understand the Nitrogen Fertilizer Partnership's ability to make distributions to its common unitholders, help investors and analysts evaluate its ongoing operating results and allow for greater transparency in reviewing our overall financial, operational and economic performance by allowing investors to evaluate the same information used by management. Nitrogen Fertilizer EBITDA and Adjusted Nitrogen Fertilizer EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently. Below is a reconciliation of net income for the nitrogen fertilizer segment to Nitrogen Fertilizer EBITDA and Adjusted Nitrogen Fertilizer EBITDA for the years ended December 31, 2017, 2016 and 2015:
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Nitrogen Fertilizer: | | | | | | Nitrogen Fertilizer net income (loss) | $ | (72.8 | ) | | $ | (26.9 | ) | | $ | 62.0 |
| Add: | | | | | | Interest expense and other financing costs, net | 62.9 |
| | 48.6 |
| | 7.0 |
| Income tax expense | 0.2 |
| | 0.3 |
| | — |
| Depreciation and amortization | 74.0 |
| | 58.2 |
| | 28.4 |
| Nitrogen Fertilizer EBITDA | 64.3 |
| | 80.2 |
| | 97.4 |
| Add: | | | | | | Major scheduled turnaround expenses | 2.6 |
| | 6.6 |
| | 7.0 |
| Share-based compensation, non-cash | — |
| | — |
| | 0.1 |
| Loss on extinguishment of debt | — |
| | 4.9 |
| | — |
| Expenses associated with the East Dubuque Merger | — |
| | 3.1 |
| | 2.3 |
| Less: | | | | | | Insurance recovery - business interruption | (1.1 | ) | | (2.1 | ) | | — |
| Adjusted Nitrogen Fertilizer EBITDA | $ | 65.8 |
| | $ | 92.7 |
| | $ | 106.8 |
|
| | (3)Net debt and finance lease obligations exclusive of Nitrogen Fertilizer (2) | Product pricing at gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure that is comparable across the fertilizer industry.$ | 620 | |
| | (4)Net debt and finance lease obligations to EBITDA exclusive of Nitrogen Fertilizer (2) | Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products.$ | 0.80 | |
| | | (5) | The feedstock natural gas shown above does not include natural gas used for fuel. The cost of fuel natural gas is included in direct operating expense (exclusive of depreciation and amortization). |
(1)Amounts are shown inclusive of the current portion of long-term debt and finance lease obligations.
(2)Net debt represents total debt and finance lease obligations exclusive of cash and cash equivalents.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Year Ended December 31, 2022 (1) | (in millions) | | March 31, 2022 | | June 30, 2022 | | September 30, 2022 | | December 31, 2022 | | Consolidated | | | | | | | | | | | Net income | | $ | 153 | | | $ | 239 | | | $ | 80 | | | $ | 172 | | | $ | 644 | | Interest expense, net | | 24 | | | 23 | | | 19 | | | 18 | | | 85 | | Income tax expense | | 34 | | | 66 | | | 7 | | | 50 | | | 157 | | Depreciation and amortization | | 67 | | | 73 | | | 75 | | | 73 | | | 288 | | EBITDA | | $ | 278 | | | $ | 401 | | | $ | 181 | | | $ | 313 | | | $ | 1,174 | | | | | | | | | | | | | Nitrogen Fertilizer | | | | | | | | | | | Net income (loss) | | $ | 94 | | | $ | 118 | | | $ | (20) | | | $ | 95 | | | 287 | | Interest expense, net | | 10 | | | 8 | | | 8 | | | 8 | | | 34 | | | | | | | | | | | | | Depreciation and amortization | | 19 | | | 21 | | | 22 | | | 19 | | | 82 | | EBITDA | | $ | 123 | | | $ | 147 | | | $ | 10 | | | $ | 122 | | | $ | 403 | | | | | | | | | | | | | EBITDA exclusive of Nitrogen Fertilizer | | $ | 155 | | | $ | 254 | | | $ | 171 | | | $ | 191 | | | $ | 771 | |
| | | (6) | The cost per MMBtu excludes derivative activity, when applicable. The impact of natural gas derivative activity was not material for the periods presented. |
(1)Due to rounding, numbers within this table may not add or equal to totals presented.
| | (7) | On-stream factor is the total number of hours operated divided by the total number of hours in the reporting period and is a measure of operating efficiency. |
Coffeyville Facility
The Linde air separation unit experienced a shut down during the second quarter of 2017. Following the Linde outage, the Coffeyville Facility UAN unit experienced a number of operational challenges, resulting in approximately 11 days of UAN downtime during the second quarter of 2017. Excluding the impact of the Linde air separation unit outage at the Coffeyville Facility, the UAN unit on-stream factors at the Coffeyville Facility would have been 94.7% for the year ended December 31, 2017.
Excluding the impact of the full facility turnaround and the Linde air separation unit outages at the Coffeyville Fertilizer Facility, the on-stream factors for the year ended December 31, 2015 would have been 99.9% for gasifier, 97.7% for ammonia and 97.6% for UAN.
East Dubuque Facility
Excluding the impact of the full facility turnaround at the East Dubuque Facility, the on-stream factors would have been 94.2% for ammonia and 94.0% for UAN for the year ended December 31, 2017.
Excluding the impact of the full facility turnaround at the East Dubuque Facility, the on-stream factors would have been 97.8% for ammonia and 97.1% for UAN for the post-acquisition period ended December 31, 2016.
Year Ended December 31, 2017 compared to the Year Ended December 31, 2016 (Nitrogen Fertilizer Business)
Net Sales. Nitrogen fertilizer net sales were $330.8 million for the year ended December 31, 2017, compared to $356.3 million for the year ended December 31, 2016.
Excluding the East Dubuque Facility, net sales were $195.8 million for the year ended December 31, 2017 compared to $228.3 million for the year ended December 31, 2016. The decrease of $32.5 million was primarily attributable to the lower UAN sales prices ($24.0 million), lower UAN sales volumes ($7.2 million) and lower ammonia sales prices ($4.5 million), partially offset by higher ammonia sales volumes ($6.5 million) at the Coffeyville Facility. For the year ended December 31, 2017, UAN and ammonia made up $170.5 million and $18.4 million of the nitrogen fertilizer business' net sales, respectively, including freight. This compared to UAN and ammonia net sales of $201.7 million and $16.4 million, respectively, for the year ended December 31, 2016, including freight.
The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales at the Coffeyville Fertilizer Facility for the year ended December 31, 2017 compared to the year ended December 31, 2016:
| | | | | | | | | | | | | | Price Variance | | Volume Variance | | (in millions) | UAN | $ | (24.0 | ) | | $ | (7.2 | ) | Ammonia | $ | (4.5 | ) | | $ | 6.5 |
| Hydrogen | $ | (0.2 | ) | | $ | (2.6 | ) |
The decrease in UAN and ammonia sales prices at the Coffeyville Fertilizer Facility for the year ended December 31, 2017 compared to the year ended December 31, 2016 was primarily attributable to pricing fluctuation in the market.
Cost of Materials and Other. Nitrogen fertilizer cost of materials and other includes cost of freight and distribution expenses, feedstock, purchased ammonia and purchased hydrogen. Cost of materials and other for the year ended December 31, 2017 was $84.9 million, compared to $93.7 million for the year ended December 31, 2016.
Excluding the East Dubuque Facility, cost of materials and other was $55.0 million for the year ended December 31, 2017 compared to $57.0 million for the year ended December 31, 2016. The decrease of $2.0 million was attributable to lower costs from transactions with third parties of $6.9 million, partially offset by higher transactions with affiliates of $4.9 million. The decrease in transactions with third parties was primarily the result of decreased distribution costs due to the timing of regulatory railcar repairs and maintenance ($3.5 million) and a reduction of expenses due to lower UAN sales at the Coffeyville Facility. The increase in transactions with affiliates was primarily the result of increased hydrogen purchases from a subsidiary of the Petroleum business ($4.0 million).
Direct Operating Expenses (Exclusive of Depreciation and Amortization). Direct operating expenses (exclusive of depreciation and amortization) for the nitrogen fertilizer business consist primarily of energy and utility costs, direct costs of labor, property taxes, plant-related maintenance services, including turnaround, and environmental and safety compliance costs as well as catalyst and chemical costs. Nitrogen fertilizer direct operating expenses for the year ended December 31, 2017 were $155.5 million, as compared to $148.3 million for the year ended December 31, 2016. The total increase of $7.2 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016.
Excluding the East Dubuque Facility, direct operating expenses were $94.4 million for the year ended December 31, 2017 compared to $92.6 million for the year ended December 31, 2016. The increase of $1.8 million was attributable to higher costs from transactions with third parties of $3.0 million, partially offset by a decrease in transactions with affiliates of $1.2 million. The increase in transactions with third parties was primarily the result of higher utilities ($4.3 million) mostly due to higher electricity prices and also the result of other less significant fluctuations, partially offset by lower repairs and maintenance ($3.2 million).
Operating Income (loss). Nitrogen fertilizer operating loss was $9.2 million for the year ended December 31, 2017, as compared to operating income of $26.8 million for the year ended December 31, 2016. The decrease of $36.0 million was the result of decrease net sales ($25.5 million), increases in direct operating expenses ($11.2 million), and depreciation and amortization ($15.8 million), partially offset by decreases in cost of materials and other ($8.8 million), turnaround expenses ($4.0 million), and selling, general and administrative expenses ($3.7 million).
Year Ended December 31, 2016 compared to the Year Ended December 31, 2015
Net Sales. Nitrogen fertilizer net sales were $356.3 million for the year ended December 31, 2016, compared to $289.2 million for the year ended December 31, 2015. The net sales increase of $67.1 million is primarily attributable to increased sales volume due to the inclusion of the nine months of the East Dubuque Facility ($128.0 million). For the year ended December 31, 2016, UAN and ammonia made up $249.1 million and $78.0 million of the nitrogen fertilizer business' net sales, respectively. This compared to UAN and ammonia net sales of $258.8 million and $17.2 million, respectively, for the year ended December 31, 2015.
Excluding the East Dubuque Merger, net sales would have decreased by $60.9 million. The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales at the Coffeyville Fertilizer Facility for the year ended December 31, 2016 compared to the year ended December 31, 2015:
| | | | | | | | | | | | | | Price Variance | | Volume Variance | | (in millions) | UAN | $ | (69.8 | ) | | $ | 16.8 |
| Ammonia | $ | (7.6 | ) | | $ | 6.8 |
| Hydrogen | $ | (1.8 | ) | | $ | (6.8 | ) |
The decrease in UAN and ammonia sales prices at the Coffeyville Fertilizer Facility for the year ended December 31, 2016 compared to the year ended December 31, 2015 was primarily attributable to pricing fluctuation in the market. The increase of UAN and ammonia sales volume at the Coffeyville Fertilizer Facility for the year ended December 31, 2016 compared to the year ended December 31, 2015 was primarily attributable to the lost production during the Coffeyville Fertilizer Facility major scheduled turnaround during the third quarter of 2015. Lower hydrogen needs from the Refining Partnership resulted in decreased hydrogen sales volume at the Coffeyville Fertilizer Facility for the year ended December 31, 2016 compared to the year ended December 31, 2015.
Cost of Materials and Other. Cost of materials and other for the year ended December 31, 2016 was $93.7 million, compared to $65.2 million for the year ended December 31, 2015. The $28.5 million increase was attributable to the inclusion of the nine months of the East Dubuque Facility ($36.7 million), which is partially offset by cost decreases at the Coffeyville Fertilizer Facility.
Direct Operating Expenses (Exclusive of Depreciation and Amortization). Nitrogen fertilizer direct operating expenses (exclusive of depreciation and amortization) for the year ended December 31, 2016 were $148.3 million, as compared to $106.1 million for the year ended December 31, 2015. The total increase of $42.2 million for the year ended December 31, 2016, as compared to the year ended December 31, 2015, was primarily attributable to the inclusion of the nine months of the East Dubuque Facility ($55.7 million).
Operating Income. Nitrogen fertilizer operating income was $26.8 million for the year ended December 31, 2016, as compared to operating income of $68.7 million for the year ended December 31, 2015. The decrease of $41.9 million was the result of the increases in direct operating expenses ($42.2 million), depreciation and amortization ($29.8 million), cost of materials and other ($28.5 million) and selling, general and administrative expenses ($8.5 million), partially offset by increases in net sales ($67.1 million).
Liquidity and Capital Resources
Although resultsOur principal source of liquidity has historically been cash from operations. Our principal uses of cash are consolidated for working capital, capital expenditures, funding our debt service obligations, and paying dividends to our stockholders, as further discussed below.
Following the significant declines in demand and pricing for crude oil and refined products in 2020 due to the COVID-19 pandemic, market conditions improved steadily throughout 2021 and into 2022. In the first quarter of 2022, following the Russian invasion of Ukraine, crude oil and refined product prices increased and have been volatile over concerns of a reduction in global supply of these products due to sanctions placed on Russian exports by the U.S. and numerous other countries. Despite the extreme volatility in commodity pricing, the increase in refined product pricing during 2021 and 2022 has had a favorable impact on our business and has not significantly impacted our primary source of liquidity.
While we believe demand for crude oil and refined products has stabilized, there is still uncertainty on the horizon due to the potential for recession driven demand destruction and any potential resolution of the Russia-Ukraine conflict. We continue to maintain our focus on safe and reliable operations, maintain an appropriate level of cash to fund ongoing operations, and protect our balance sheet. As a result of these factors, the Board elected to declare cash dividends of $0.40 for the first, second, and third quarters of 2022 and $0.50 for the fourth quarter of 2022. The Board also elected to declare special dividends equal to $2.60 and $1.00 during the second and third quarters of 2022, respectively. No quarterly dividends were declared for the fourth quarter of 2021. These decisions support the Company’s continued focus on financial reporting, CVR Energy, CVR Refiningdiscipline through a balanced approach of evaluation of strategic investment opportunities and CVR Partnersstockholder dividends while maintaining adequate capital requirements for ongoing operations throughout the environment of uncertainty. The Board will continue to evaluate the economic environment, the Company’s cash needs, optimal uses of cash, and other applicable factors, and may elect to make additional changes to the Company’s dividend (if any) in future periods. Additionally, in executing financial discipline, we have successfully implemented and are independent business entities and operate with independentmaintaining the following measures:
•Deferred the majority of our growth capital structures. Since the Nitrogen Fertilizer Partnership's IPO in April 2011 and the Refining Partnership's IPO in January 2013,spending, with the exception of cash distributions paid to us by the Nitrogen Fertilizer PartnershipRDU project and the Refining Partnership, the cash needsconstruction of the Nitrogen Fertilizer Partnershiprenewables feedstock pretreater project at the Wynnewood Refinery; •Focused refining maintenance capital expenditures to only include those projects which are a priority to support continuing safe and reliable operations, or which we consider required to support future activities; •Focused future capital allocation to high-return assets and opportunities that advance participation in the Refining Partnership have been met independentlyenergy industry transformation; •Continued to focus on disciplined management of operational and general and administrative cost reductions; and •For the Petroleum Segment, deferred the turnaround at the refinery in Coffeyville, Kansas (the “Coffeyville Refinery”) from fall of 2021 to spring of 2023.
When considering the cash needs of CVR Energymarket conditions and each other with a combination of existing cash and cash equivalent balances, cash generated from operating activities and credit facility borrowings. The Refining Partnership's and the Nitrogen Fertilizer Partnership's ability to generate sufficient cash flows from their respective operating activities and to then make distributions on their common units, including to us (whichactions outlined above, we will need to pay salaries, reporting expenses and other expenses as well as dividends on our common stock) will continue to be primarily dependent on producing or purchasing, and selling, sufficient quantities of refined and nitrogen fertilizer products at margins sufficient to cover fixed and variable expenses.
Wecurrently believe that the petroleum business and the nitrogen fertilizer business'our cash flows from operations and existing cash and cash equivalents, along with borrowings, under their respective existing credit facilities, as necessary, will be sufficient to satisfy the anticipated cash requirements associated with theirour existing operations for at least the next 12 months, and that we have sufficient cash resources to fund our operations for at least the next 12 months. However, our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors including, but not limited to, rising material and labor costs, the costs associated with complying with the Renewable Fuel Standard’s outcome of litigation and other factors. Additionally, theour ability to generate sufficient cash from our operating activities and secure additional financing depends on our future operational performance, which is subject to general economic, political, financial, competitive, and other factors, some of which may be beyond our control.
Depending on the needs of our businesses,business, contractual limitations and market conditions, we may from time to time seek to issue equity securities, incur additional debt, issue debt securities, or redeem, repurchase, refinance, or retire our outstanding debt through privately negotiated transactions, open market repurchases, redemptions, exchanges, tender offers or otherwise, refinance our existing debts.but we are under no obligation to do so. There can be no assurance that we will seek to do any of the foregoing or that we will be able to do any of the foregoing on terms acceptable to us or at all.
On February 22, 2022, CVR Partners redeemed the remaining $65 million in aggregate principal amount of its 2023 UAN Notes at par, plus accrued and unpaid interest. This transaction represents a significant and favorable change in CVR Partners’ cash flow and liquidity position, with annual savings of approximately $6 million in future interest expense. On June 30, 2022, CVR Refining and certain of its subsidiaries entered into Amendment No. 3 to the Amended and Restated ABL Credit
Agreement (as amended, the “Petroleum ABL”). The Petroleum ABL is a senior secured asset based revolving credit facility in an aggregate principal amount of up to $275 million and a maturity date of June 30, 2027. Refer to Part II, Item 8, Note 6 (“Long-Term Debt and Finance Lease Obligations”) of this Report for further discussion. The Company, and its subsidiaries, were in compliance with all applicable covenants under their respective debt instruments as of December 31, 2022, as applicable.
We do not have any “off-balance sheet arrangements” as such term is defined within the rules and regulations of the SEC.
Cash Balances and Other Liquidity
As of December 31, 2017,2022, we had total liquidity of approximately $797 million which consisted of consolidated cash and cash equivalents of $481.8 million. Of that amount, $258.8$510 million, was$252 million available under the Petroleum ABL, and $35 million available under the Asset Based Credit Agreement (“Nitrogen Fertilizer ABL”). As of December 31, 2021, we had $510 million in cash and cash equivalents of CVR Energy, $173.8equivalents. | | | | | | | | | | | | (in millions) | December 31, 2022 | | December 31, 2021 | CVR Partners: | | | | 9.25% Senior Secured Notes, due June 2023 (1) | $ | — | | | $ | 65 | | 6.125% Senior Notes, due June 2028 | 550 | | | 550 | | Unamortized discount and debt issuance costs | (3) | | | (4) | | Total CVR Partners debt | $ | 547 | | | $ | 611 | | | | | | | | | | | | | | | | | | CVR Energy: | | | | 5.25% Senior Notes, due February 2025 | $ | 600 | | | $ | 600 | | 5.75% Senior Notes, due February 2028 | 400 | | | 400 | | Unamortized debt issuance costs | (4) | | | (5) | | Total CVR Energy debt | $ | 996 | | | $ | 995 | | Total long-term debt | 1,543 | | | 1,606 | | | | | | | | | |
(1)The $65 million was cash and cash equivalentsoutstanding balance of the Refining Partnership2023 UAN Notes was paid in full on February 22, 2022 at par, plus accrued and $49.2 million was cash and cash equivalentsunpaid interest.
CVR Partners
As of December 31, 2022, the Nitrogen Fertilizer Partnership. As of February 20, 2018, we had consolidated cash and cash equivalents of approximately $499.7 million.
The Refining PartnershipSegment has the 6.125% Senior Secured Notes, due June 2028 (the “2028 UAN Notes”) and the Nitrogen Fertilizer Partnership have distribution policies in which they generally distribute all of their available cash each quarter, within 60 days after the end of each quarter. The distributions are made to all common unitholders. As of December 31, 2017, we held approximately 66% and 34% of the Refining Partnership's and the Nitrogen Fertilizer Partnership's common units outstanding, respectively. The amount of each distribution will be determined pursuant to each general partner's calculation of available cash for the applicable quarter. The general partner of each partnership, as a non-economic interest holder, is not entitled to receive cash distributions. As a result of each general partner's distribution policy, funds held by the Refining Partnership and the Nitrogen Fertilizer Partnership will not be available for our use, and we as a unitholder will receive our applicable percentage of the distribution of funds within 60 days following each quarter. The Refining Partnership and the Nitrogen Fertilizer Partnership do not have a legal obligation to pay distributions and there is no guarantee that they will pay any distributions on the units in any quarter.
Borrowing Activities
2023 Notes. The Nitrogen Fertilizer Partnership and CVR Nitrogen Finance Corporation ("CVR Nitrogen Finance") issued $645.0 million aggregate principal amount of 9.250% Senior Secured Notes due 2023 are guaranteed on a senior secured basis by all of the Nitrogen Fertilizer Partnership's existing subsidiaries.
At any time prior to June 15, 2019, the Nitrogen Fertilizer Partnership may on any of one or more occasions redeem up to 35% of the aggregate principal amount of the 2023 Notes issued under the indenture governing the 2023 Notes in an amount not greater than the net proceeds of one or more public equity offerings at a redemption price of 109.250% of the principal amount of the 2023 Notes, plus any accrued and unpaid interest to the date of redemption. Prior to June 15, 2019, the Nitrogen Fertilizer Partnership may on any one or more occasions redeem all or part of the 2023 Notes at a redemption price equal to the sum of: (i) the principal amount thereof, plus (ii) the Make Whole Premium, as defined in the indenture governing the 2023 Notes, at the redemption date, plus any accrued and unpaid interest to the applicable redemption date.
On and after June 15, 2019, the Nitrogen Fertilizer Partnership may on any one or more occasions redeem all or a part of the 2023 Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus any accrued and unpaid interest to the applicable redemption date on such Notes, if redeemed during the 12-month period beginning on June 15 of the years indicated below:
| | | | Year | | Percentage | 2019 | | 104.625% | 2020 | | 102.313% | 2021 and thereafter | | 100.000% |
Upon the occurrence of certain change of control events as defined in the indenture (including the sale of all or substantially all of the properties or assets of the Nitrogen Fertilizer Partnership and its subsidiaries taken as a whole), each holder of the 2023 Notes will have the right to require that the Nitrogen Fertilizer Partnership repurchase all or a portion of such holder’s 2023 Notes in cash at a purchase price equal to 101% of the aggregate principal amount thereof plus any accrued and unpaid interest to the date of repurchase.
See Part II, Item 8, Note 11 ("Long-Term Debt") of this Report for additional information on the 2023 Notes, including a description of the covenants contained therein. The Nitrogen Fertilizer Partnership was in compliance with the covenants as of December 31, 2017. The Nitrogen Fertilizer Partnership also had a nominal principal amount of 6.50% Senior Notes due 2021 (the "2021 Notes") outstanding as of December 31, 2017, which contain substantially no restrictive covenants and are not secured. See Part II, Item 8, Note 11 ("Long-Term Debt") of this Report for additional information regarding the 2021 Notes.
2022 Notes. The Refining Partnership's $500.0 million aggregate principal amount of 6.5% Second Lien Senior Notes due 2022 are unsecured and fully and unconditionally guaranteed by CVR Refining and each of Refining LLC's existing domestic subsidiaries (other than the co-issuer, Coffeyville Finance) on a joint and several basis.
The 2022 Notes mature on November 1, 2022, unless earlier redeemed or repurchased by the issuers. Interest is payable on the 2022 Notes semi-annually on May 1 and November 1 of each year, to holders of record at the close of business on April 15 and October 15, as the case may be, immediately preceding each such interest payment date.
The issuers have the right to redeem the 2022 Notes at a redemption prices (expressed as percentages of principal amount) set forth below, plus any accrued and unpaid interest to the applicable redemption date on such 2022 Notes, if redeemed during the 12-month period beginning on November 1 of the years indicated below:
| | | | | Year | | Percentage | 2017 | | 103.250 | % | 2018 | | 102.167 | % | 2019 | | 101.083 | % | 2020 and thereafter | | 100.000 | % |
Prior to November 1, 2017, some or all of the 2022 Notes were able to have been redeemed at a price equal to 100% of the principal amount thereof, plus a make-whole premium and any accrued and unpaid interest.
In the event of a "change of control," the issuers are required to offer to buy back all of the 2022 Notes at 101% of their principal amount. A change of control is generally defined as (i) the direct or indirect sale or transfer (other than by a merger) of all or substantially all of the assets of Refining LLC to any person other than qualifying owners (as defined in the indenture), (ii) liquidation or dissolution of Refining LLC, or (iii) any person, other than a qualifying owner, directly or indirectly acquiring 50% of the member interest of Refining LLC.
See Part II, Item 8, Note 11 ("Long-Term Debt") of this Report for additional information on the 2022 Notes, including a description of the covenants contained therein. The Refining Partnership was in compliance with the covenants as of December 31, 2017.
Amended and Restated Asset Based (ABL) Credit Facility. On November 14, 2017, CRLLC, CVR Refining, Refining LLC and each of the operating subsidiaries of Refining LLC (collectively, the "Credit Parties") entered into Amendment No. 1 to the Amended and Restated ABL, Credit Agreement (the “Amendment”) with a group of lenders and Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent and collateral agent. The Amendment amends certain provisions of the Amended and Restated ABL Credit Agreement, dated December 20, 2012, by and among Wells Fargo, the group of lenders party thereto and the Credit Parties (the “Existing Credit Agreement” and as amended by the Amendment, the “Amended and Restated ABL Credit Facility”), which was otherwise scheduled to mature in December 2017. The Amended and Restated ABL Credit Facility is a $400.0 million asset-based revolving credit facility, with sub-limits for letters of credit and swingline loans of $60.0 million and $40.0 million, respectively. The Amended and Restated ABL Credit Facility also includes a $200.0 million uncommitted incremental facility. The proceeds of the loans may be used for capital expenditures, working capital and general corporate purposes. The Amended and Restated Credit Facility matures in November 2022.
As of February 20, 2018, the Refining Partnership had $359.1 million available under the Amended and Restated ABL Credit Facility. Availability under the Amended and Restated ABL Credit Facility was limited by borrowing base conditions.
See Part II, Item 8, Note 11 ("Long-Term Debt") of this Report for additional information on the Amended and Restated ABL Credit Facility, including a description of the covenants contained therein. The Refining Partnership was in compliance with the covenants as of December 31, 2017.
Asset Based (ABL) Credit Facility. The Nitrogen Fertilizer Partnership has an ABL Credit Facility, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. The ABL Credit Facility is a senior secured asset-based revolving credit facility with an aggregate principal amount of availability of upRefer to $50.0 million with an incremental facility, which permits an increase in borrowings of up to $25.0 million in the aggregate subject to additional lender commitments and certain other conditions. The ABL Credit Facility matures in September 2021.
As of February 20, 2018, the Nitrogen Fertilizer Partnership and its subsidiaries had availability under the ABL Credit Facility of $46.4 million. Availability under the ABL Credit Facility was limited by borrowing base conditions.
See Part II, Item 8, Note 11 ("6 (“Long-Term Debt"Debt and Finance Lease Obligations”) of this Report for additional information on the ABL Credit Facility, including a description of the covenants contained therein. The Nitrogen Fertilizer Partnership was in compliance with the covenants asfurther discussion.
CVR Refining
As of December 31, 2017.2022, the Petroleum Segment has the Petroleum ABL, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. Refer to Part II, Item 8, Note 6 (“Long-Term Debt and Finance Lease Obligations”) of this Report for further discussion.
CVR Energy
As of December 31, 2022, CVR Energy has the 5.25% Senior Notes, due 2025 (the “2025 Notes”) and the 5.75% Senior Notes, due 2028 (the “2028 Notes” and together with the 2025 Notes, the “Notes”), the net proceeds of which may be used for general corporate purposes, which may include funding acquisitions, capital projects, and/or share repurchases or other distributions to our stockholders. Refer to Part II, Item 8, Note 6 (“Long-Term Debt and Finance Lease Obligations”) of this Report for further discussion.
Capital Spending
We divide the petroleum business and the nitrogen fertilizer business' capital spending needs into two categories: maintenance and growth. Maintenance capital spending includes only non-discretionary maintenance projects and projects required to comply with environmental, health, and safety regulations. Growth capital projects generally involve an expansion of existing capacity and/or a reduction in direct operating expenses. We undertake discretionarygrowth capital spending based on the expected return on incremental capital employed. Discretionary capital projects generally involve
In April 2022, we completed the renewable diesel project at our Wynnewood Refinery by converting the refinery’s hydrocracker to a RDU capable of producing approximately 100 million gallons of renewable diesel per year at a total cost of $179 million. In November 2021, the Board approved the renewable feedstock pretreater project at the Wynnewood Refinery, which is expected to be completed in the third quarter of 2023 at an expansionestimated cost of existing capacity, improvement in product yields, and/or a reduction in direct operating expenses. Major scheduled turnaround expenses are expensed when incurred.$95 million.
The following table summarizes ourOur total actual capital expenditures for 2017the year ended December 31, 2022, along with our estimated expenditures for 2023, by segment, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2022 Actual | | 2023 Estimate (1) | | Maintenance | Growth | Total | | Maintenance | Growth | Total | (in millions) | | Low | High | Low | High | Low | High | Petroleum | $ | 84 | | $ | 2 | | $ | 86 | | | $ | 91 | | $ | 100 | | $ | 30 | | $ | 33 | | $ | 121 | | $ | 133 | | Renewables (2) | 2 | | 67 | | 69 | | | — | | 1 | | 39 | | 47 | | 39 | | 48 | | Nitrogen Fertilizer | 40 | | 1 | | 41 | | | 31 | | 33 | | 2 | | 3 | | 33 | | 36 | | Other | 7 | | — | | 7 | | | 7 | | 8 | | — | | — | | 7 | | 8 | | Total | $ | 133 | | $ | 70 | | $ | 203 | | | $ | 129 | | $ | 142 | | $ | 71 | | $ | 83 | | $ | 200 | | $ | 225 | |
(1)Total 2023 estimated capitalized costs include approximately $6 million of growth related projects that will require additional approvals before commencement. (2)Renewables reflects spending on the Wynnewood Refinery’s RDU and current estimated capital expenditures in 2018 by operatingrenewable feedstock pretreater projects. As of December 31, 2022, Renewables does not meet the definition of a reportable segment and major category. These estimates may change as a result of unforeseen circumstances or a change in our plans, and amounts may not be spent in the manner allocated below:defined under Accounting Standards Codification Topic 280. | | | | | | | | | | Year Ended December 31, | | 2017 Actual | | 2018 Estimate | | (in millions) | | (unaudited) | Petroleum Business (the Refining Partnership): | | | | Coffeyville refinery: | | | | Maintenance | $ | 36.9 |
| | $ | 75.0 |
| Growth | 3.0 |
| | 10.0 |
| Coffeyville refinery total capital spending | 39.9 |
| | 85.0 |
| Wynnewood refinery: | | | | Maintenance | 38.1 |
| | 65.0 |
| Growth | 4.0 |
| | 25.0 |
| Wynnewood refinery total capital spending | 42.1 |
| | 90.0 |
| Other Petroleum: | | | | Maintenance | 2.7 |
| | 15.0 |
| Growth | 15.0 |
| | 10.0 |
| Other petroleum total capital spending | 17.7 |
| | 25.0 |
| Petroleum business total capital spending | 99.7 |
| | 200.0 |
| Nitrogen Fertilizer Business (the Nitrogen Fertilizer Partnership): | | | | Maintenance | 14.1 |
| | 18.0 |
| Growth | 0.4 |
| | 3.0 |
| Nitrogen fertilizer business total capital spending | 14.5 |
| | 21.0 |
| Corporate | 4.4 |
| | 10.0 |
| Total capital spending | $ | 118.6 |
| | $ | 231.0 |
|
The petroleum business' and the nitrogen fertilizer business'Our estimated capital expenditures are subject to change due to unanticipated changes in the cost, scope, and completion time for capital projects. For example, theywe may experience increases/decreasesunexpected changes in labor or equipment costs necessary to comply with government regulations or to complete projects that sustain or improve the profitability of the refineriesRefineries or nitrogen fertilizer plants. The petroleum business and nitrogen fertilizer businessFacilities. We may also accelerate or defer some capital expenditures from time to time. Capital spending for the Nitrogen Fertilizer Partnership's nitrogen fertilizer business and the Refining Partnership's petroleum businessCVR Partners is determined by each partnership's respectivethe board of directors of its general partner.
On December 1, 2017, CVR Refining acquired the Cushingpartner (the “UAN GP Board”). We will continue to Ellis crude oil pipeline system from Plains All American Pipeline, L.P. ("Plains") for $15.0 million, which amount is included in other petroleum growthmonitor market conditions and make adjustments, if needed, to our current capital spending or turnaround plans.
The Petroleum Segment began a major scheduled turnaround at the Wynnewood Refinery in late February 2022 that was completed in early April 2022. We capitalized expenditures of $67 million and $7 million for the years ended December 31, 2022 and 2021, respectively. The Petroleum Segment’s next planned turnaround at the Coffeyville Refinery is currently expected to start in the spring of 2023, with pre-planning expenditures of $14 million capitalized for the year ended December 31, 2022.
The Nitrogen Fertilizer Segment’s planned turnaround at the Coffeyville Fertilizer Facility commenced in July 2022 and was completed in mid-August 2022. The planned turnaround at the East Dubuque Fertilizer Facility commenced in August 2022 and was completed in mid-September 2022. For the years ended December 31, 2022 and 2021, we incurred turnaround expense of $12 million and less than $1 million, respectively, at the Coffeyville Fertilizer Facility and $21 million and $1 million, respectively, at the East Dubuque Fertilizer Facility. Additionally, the Coffeyville Fertilizer Facility had planned downtime for certain maintenance activities during the fourth quarter of 2021 at a cost of $2 million.
Dividends to CVR Energy Stockholders
Dividends, if any, including the payment, amount and timing thereof, are determined at the discretion of our Board. IEP, through its ownership of the Company’s common stock, is entitled to receive dividends that are declared and paid by the Company based on the number of shares held at each record date. The following table above. The approximately 100-mile, 8- and 10-inch pipeline system links CVR Refining’s Wynnewood, Oklahoma, refinerypresents quarterly dividends, excluding any special dividends, paid to Cushing. the Company’s stockholders, including IEP, during 2022 (amounts presented in table below may not add to totals presented due to rounding):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarterly Dividends Paid (in millions) | Related Period | | Date Paid | | Quarterly Dividends Per Share | | Public Stockholders | | IEP | | Total | 2022 - 1st Quarter | | May 23, 2022 | | $ | 0.40 | | | $ | 12 | | | $ | 28 | | | $ | 40 | | 2022 - 2nd Quarter | | August 22, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | | 2022 - 3rd Quarter | | November 21, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | | Total 2022 quarterly dividends | | $ | 1.20 | | | $ | 35 | | | $ | 85 | | | $ | 121 | |
No quarterly dividends were paid during the first quarter of 2022 related to the fourth quarter of 2021, and there were no quarterly dividends declared or paid during 2021 related to the first, second, and third quarters of 2021 and fourth quarter of 2020. During the year ended December 31, 2020, the Company paid quarterly dividends totaling $1.20 per common share, or $121 million. Of these dividends, IEP received $85 million due to its ownership interest in the Company’s shares.
On August 1, 2022 and October 31, 2022, the Company also declared special dividends of $2.60 and $1.00 per share, or $261 million and $101 million, respectively, which were paid on August 22, 2022 and November 21, 2022, respectively. Of these amounts, IEP received $185 million and $71 million, respectively, due to its ownership interest in the Company’s shares.
On May 26, 2021, the Company announced a special dividend of approximately $492 million, or equivalent to $4.89 per share of the Company’s common stock, to be paid in a combination of cash (the “Cash Distribution”) and the common stock of Delek US Holdings, Inc. (“Delek”) held by the Company (the “Stock Distribution”). On June 10, 2021, the Company distributed an aggregate amount of approximately $241 million, or $2.40 per share of the Company’s common stock, pursuant to the Cash Distribution, and approximately 10,539,880 shares of Delek common stock, which represented approximately 14.3% of the outstanding shares of Delek common stock, pursuant to the Stock Distribution. IEP received approximately 7,464,652 shares of common stock of Delek and $171 million in cash. The Stock Distribution was recorded as a reduction to equity through a derecognition of our investment in Delek, and the Company recognized a gain of $112 million from the initial investment in Delek through the date of the Stock Distribution.
For the fourth quarter of 2022, the Company, upon approval by the Company’s Board on February 21, 2023, declared a cash dividend of $0.50 per share, or $50 million, which is payable March 13, 2023 to shareholders of record as of March 6, 2023. Of this amount, IEP will receive $36 million due to its ownership interest in the Company’s shares.
Distributions to CVR Partners’ Unitholders
Distributions, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the UAN GP Board. The following tables present distributions paid by CVR Partners to CVR Partners’ unitholders, including amounts received by the Company, as of December 31, 2022 and 2021 (amounts presented in tables below may not add to totals presented due to rounding): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarterly Distributions Paid (in millions) | Related Period | | Date Paid | | Quarterly Distributions Per Common Unit | | Public Unitholders | | CVR Energy | | Total | 2021 - 4th Quarter | | March 14, 2022 | | $ | 5.24 | | | $ | 35 | | | $ | 20 | | | $ | 56 | | 2022 - 1st Quarter | | May 23, 2022 | | 2.26 | | | 15 | | | 9 | | | 24 | | 2022 - 2nd Quarter | | August 22, 2022 | | 10.05 | | | 67 | | | 39 | | | 106 | | 2022 - 3rd Quarter | | November 21, 2022 | | 1.77 | | | 12 | | | 7 | | | 19 | | Total 2022 quarterly distributions | | $ | 19.32 | | | $ | 129 | | | $ | 75 | | | $ | 205 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarterly Distributions Paid (in millions) | Related Period | | Date Paid | | Quarterly Distributions Per Common Unit | | Public Unitholders | | CVR Energy | | Total | 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11 | | | $ | 7 | | | $ | 18 | | 2021 - 3rd Quarter | | November 22, 2021 | | 2.93 | | | 20 | | | 11 | | | 31 | | Total 2021 quarterly distributions | | $ | 4.65 | | | $ | 31 | | | $ | 18 | | | $ | 50 | |
There were no quarterly distributions declared or paid by CVR Partners related to the first quarter of 2021 and the fourth quarter of 2020. During the year ended December 31, 2020, there were no quarterly distributions declared or paid by CVR Partners.
For the fourth quarter of 2022, CVR Partners, upon approval by the UAN GP Board on February 21, 2023, declared a distribution of $10.50 per common unit, or $111 million, which is payable March 13, 2023 to unitholders of record as of March 6, 2023. Of this amount, CVR Energy will receive approximately $41 million, with the remaining amount payable to public unitholders.
Capital Structure
On October 23, 2019, the Board authorized a stock repurchase program (the “Stock Repurchase Program”). The Stock Repurchase Program would enable the Company to repurchase up to $300 million of the Company’s common stock. Repurchases under the Stock Repurchase Program may be made from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. The timing, price and amount of repurchases (if any) will be made at the discretion of management and are subject to market conditions as well as corporate, regulatory, debt maintenance and other considerations. While the Stock Repurchase Program currently has a duration of four years, it does not obligate the Company to acquire any stock and may be terminated by the Board at any time. As of December 31, 2022, the Company has not repurchased any of the Company’s common stock under the Stock Repurchase Program.
On May 6, 2020, CVR Partners announced that the UAN GP Board, on behalf of CVR Partners, authorized a unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized CVR Partners to repurchase up to $20 million of CVR Partners’ common units. During the years ended December 31, 2022 and 2021, CVR Partners repurchased 111,695 and 24,378 common units, respectively, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $12 million and $1 million, respectively, exclusive of transaction costs, or an average price of $110.98 and $21.69 per common unit, respectively. As of December 31, 2022, CVR Partners had a nominal authorized amount remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate CVR Partners to acquire any common units and may be cancelled or terminated by the UAN GP Board at any time.
Cash Flows
The following table sets forth our consolidated cash flows for the periods indicated below: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Net cash provided by (used in): | | | | | | Operating activities | $ | 967 | | | $ | 396 | | | $ | 90 | | Investing activities | (271) | | | (238) | | | (423) | | Financing activities | (696) | | | (315) | | | 355 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $ | — | | | $ | (157) | | | $ | 22 | |
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Net cash provided by (used in): | | | | | | Operating activities | $ | 166.9 |
| | $ | 267.5 |
| | $ | 536.8 |
| Investing activities (1) | (195.0 | ) | | (201.4 | ) | | (150.6 | ) | Financing activities | (225.9 | ) | | (95.4 | ) | | (374.8 | ) | Net increase (decrease) in cash and cash equivalents | $ | (254.0 | ) | | $ | (29.3 | ) | | $ | 11.4 |
|
| | | | | | (1) | Investing activities for the year ended December 31, 2017 includes the acquisition of the Cushing to Ellis crude oil pipeline system totaling $15.0 million and equity method investments in the Midway joint venture of $76.0 million. | |
Cash Flows Provided by December 31, 2022 | 73
Operating Activities
For purposes of thisThe change in net cash flow discussion, we define trade working capital as accounts receivable, inventory and accounts payable. Other working capital is defined as all other current assets and liabilities except trade working capital.
Net cash flows provided by operating activities for the year ended December 31, 2017 were $166.9 million. The negative cash flow from operating activities generated over this period was primarily driven by $216.9 million of net income before noncontrolling interest and favorable impacts to trade working capital, partially offset by unfavorable impacts to other working capital. Trade working capital for the year ended December 31, 2017 resulted in a net cash inflow of $23.2 million, which was attributable to an increase in accounts payable ($88.1 million), offset by increases in accounts receivable ($27.3 million) and inventory ($37.6 million).The increase in accounts payable was primarily associated with an increase in the petroleum business' lease crude payables due to increased activity and crude pricing. The increase in accounts receivable was primarily attributable to increased pricing and volume for petroleum products sold and the increase in inventories was primarily related to increased pricing for gasoline, distillates and crude oil in the petroleum business. Other working capital activities resulted in a net cash outflow of $148.3 million, which was primarily related to decreases in other current liabilities ($168.0 million) and due to parent ($15.7 million), partially offset by a decrease in prepaid expenses and other current assets ($33.9 million). The large decrease in other current liabilities was primarily attributable to a decrease in the petroleum business' biofuel blending obligation as a result of RINs purchases during the year ended December 31, 2017 to fulfill the petroleum business' requirements under the RFS, partially offset by an increase in unrealized loss on open derivative positions and forward purchase commitments. The decrease in due to parent was the result of the timing and application of the tax payments to AEPC under the Tax Allocation Agreement. The decrease in prepaid expense was primarily related to a decrease in crude barrels in-transit and a decrease in prepaid pipeline capacity.
Net cash flows provided by operating activities for the year ended December 31, 2016 were $267.5 million. The positive cash flow from operating activities generated over this period was primarily driven by $8.9 million of net income before noncontrolling interest and favorable impacts to other working capital, partially offset by unfavorable impacts to trade working capital. Trade working capital for the year ended December 31, 2016 resulted in a net cash outflow of $65.2 million, which was attributable to increases in accounts receivable ($47.5 million) and inventory ($7.3 million), primarily attributable to increased pricing for petroleum products, and a decrease in accounts payable ($10.4 million). Each of the cash flow impacts in trade working capital were largely attributable to the crude oil pricing environment and increases in sales prices for gasoline and distillates at the petroleum business in 2016 as compared to 2015. Other working capital activities resulted in a net cash inflow of $146.3 million, which was primarily related to increases in other current liabilities ($151.2 million) and due to parent ($22.2 million), partially offset by decreases in deferred revenue ($20.4 million) and accrued income taxes ($3.3 million) and an increase in prepaid expenses and other current assets ($3.4 million). The large increase in other current liabilities was primarily attributable to the increase in the biofuel blending obligation at the petroleum business to fulfill the petroleum business' requirements under the RFS, as a result of increased RINs obligation associated with increased RINs prices during the year ended December 31, 2016. The increase in due to parent was the result of the timing and application of the tax payments to AEPC under the Tax Allocation Agreement. The decrease in deferred revenue was primarily attributable to the East Dubuque Merger. Settlements on derivative contracts during 2016 also contributed to the positive cash flow from operating activities.
Net cash flows provided by operating activities for the year ended December 31, 2015 were $536.8 million. The positive cash flow from operating activities generated over this period was primarily driven by $297.8 million of net income before noncontrolling interest and favorable impacts to trade working capital and other working capital. Trade working capital for the year ended December 31, 2015 resulted in a net cash inflow of $66.4 million, which was attributable to decreases in accounts receivable ($41.0 million) and inventory ($39.7 million), partially offset by a decrease in accounts payable ($14.3 million). Each of the cash flow impacts in trade working capital were largely attributable to the crude oil pricing environment and significant decreases in sales prices for gasoline and distillates at the petroleum business in 2015 as compared to 2014. Other working capital activities resulted in net cash inflow of $14.8 million, which was primarily related to decreases in prepaid expenses and other current assets ($40.4 million) and due from parent ($32.8 million), partially offset by decreases in other current liabilities ($52.1 million) and deferred revenue ($10.5 million). The decrease in prepaid expenses and other current assets was primarily due to the sale of trading securities, the timing of payments associated with the petroleum business' crude oil intermediation agreement and a reduction in prepaid insurance. The decrease in due from parent was the result of the timing and application of overpayments to AEPC under the Tax Allocation Agreement. The decrease in other current liabilities was primarily attributable to a decrease in the biofuel blending obligation at the petroleum business as a result of increased RINs purchases during the year ended December 31, 2015 to fulfill the petroleum business' requirements under the RFS. The decrease in deferred revenue was primarily attributable to lower market demand for prepaid contracts at the nitrogen fertilizer business for the year ended December 31, 20152022 compared to the year ended December 31, 2014.2021 was primarily due to a $712 million increase in EBITDA during 2022 as a result of stronger operations during 2022 compared to 2021. This is partially offset by a decrease in working capital of $209 million primarily associated with lower liability variances in 2022 compared to 2021.
Cash Flows Used In Investing Activities
NetThe change in net cash used in investing activities for the year ended December 31, 2017 was $195.0 million2022 compared to $201.4 million for the year ended December 31, 2016. The decrease of $6.4 million of cash used in investing activities2021 was primarily due to the net cash paid by the nitrogen fertilizer business in 2016 for the acquisition of CVR Nitrogen ($63.8 million) and lower capital expenditures in 2017 compared to 2016 ($14.1 million), offset by an increase in cash investmentsour turnaround expenditures of $78 million in affiliates in 20172022 compared to 2016 ($70.9 million) primarily associated with2021 related to the petroleum business' investmentplanned turnaround at the Wynnewood Refinery completed in 2022 and a reduction in the Midway joint venture.
Net cash used in investing activities for the year ended December 31, 2016 was $201.4 million compared to $150.6 million for the year ended December 31, 2015. The increase of $50.8 million of cash used in investing activities was primarily due to the net cash paid for the acquisition of CVR Nitrogen ($63.8 million), security purchases ($18.6 million), investment in VPP ($5.6 million) and a decrease in proceeds from available-for-sale securities ($48.7 million),the sale of assets of $7 million. These are partially offset by a decreasereduction in capital expenditures during 2016 ($86.0 million).of $33 million, as the Wynnewood Refinery’s RDU was completed in April 2022, and a $20 million acquisition of pipeline assets in 2021 with no corresponding asset purchases in 2022.
Cash Flows Used In Financing Activities
Net cash usedThe change in financing activities for the year ended December 31, 2017 was $225.9 million compared to $95.4 million for the year ended December 31, 2016. The net cash used in financing activities for the year ended December 31, 2017 was primarily attributable2022 compared to dividend payments of $173.7 million to our common stockholders and distributions of $47.3 million and $1.5 million to the Refining Partnership's and Nitrogen Fertilizer Partnership's common unitholders, respectively. The increase in net cash used in financing activities of $130.5 million for the year ended December 31, 2017 compared to 20162021 was primarily due to an increase in dividends paid to CVR Partners non-controlling interest holders and CVR Energy stockholders of $98 million and $242 million, respectively, during 2022 compared to 2021, a change of $33 million in the $132.5 million net proceeds receivedredemption of the remaining balance of the 2023 UAN Notes in 2016 from the Nitrogen Fertilizer Partnerships' issuance of 2023 Notes net of debt repayments.
Net cash used in financing activities for the year ended December 31, 2016 was $95.4 million. The net cash used in financing activities for the year ended December 31, 2016 was primarily attributable to debt repayments totaling $496.3 million, dividend payments of $173.6 million to common stockholders and distributions of $41.9 million2022 compared to the Nitrogen Fertilizer Partnership common unitholders, offset by net proceedspartial redemption of $628.8 million from the Nitrogen Fertilizer Partnerships' issuance of 2023 Notes.
Net cash used in financing activities for the year ended December 31, 2015 was approximately $374.8 million. The net cash used in financing activities for the year ended December 31, 2015 was primarily attributable to dividend payments to common stockholders of $173.7 million and distributions to the Refining Partnership and Nitrogen Fertilizer Partnership common unitholders of $199.7 million.
As of and for the year ended December 31, 2017, there were no borrowings or repayments under the Amended and Restated ABL Credit Facility or the ABL Credit Facility.
Capital and Commercial Commitments
In addition to long-term debt, we are required to make payments relating to various types of obligations. The following table summarizes our minimum payments as of December 31, 2017 relating to contractual obligations and other commercial commitments for the five-year period following December 31, 2017 and thereafter.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payments Due by Period | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | (in millions) | Contractual Obligations | | | | | | | | | | | | | | Long-term debt(1) | $ | 1,147.2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2.2 |
| | $ | 500.0 |
| | $ | 645.0 |
| Operating leases(2) | 32.3 |
| | 7.4 |
| | 6.5 |
| | 5.9 |
| | 5.3 |
| | 4.8 |
| | 2.4 |
| Capital lease obligations(3) | 45.0 |
| | 2.1 |
| | 2.3 |
| | 2.6 |
| | 2.9 |
| | 3.1 |
| | 32.0 |
| Unconditional purchase obligations(4) | 1,107.1 |
| | 165.0 |
| | 124.3 |
| | 100.6 |
| | 89.8 |
| | 84.7 |
| | 542.7 |
| Environmental liabilities(5) | 4.0 |
| | 2.9 |
| | 1.1 |
| | — |
| | — |
| | — |
| | — |
| Interest payments(6) | 518.3 |
| | 96.9 |
| | 96.7 |
| | 96.4 |
| | 96.1 |
| | 90.2 |
| | 42.0 |
| Total | $ | 2,853.9 |
| | $ | 274.3 |
| | $ | 230.9 |
| | $ | 205.5 |
| | $ | 196.3 |
| | $ | 682.8 |
| | $ | 1,264.1 |
| Other Commercial Commitments | | | | | | | | | | | | | | Standby letters of credit(7) | $ | 28.4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | (1) | Consists of the 2021UAN Notes the 2022 Notes and the 2023 Notes as of December 31, 2017. |
| | (2) | The Refining Partnership and the Nitrogen Fertilizer Partnership lease various facilities and equipment, including railcars and real property, under operating leases for various periods. See Note 18 ("Related Party Transactions") to Part II, Item 8 of this Report for a discussion of our railcar leases with affiliates. |
| | (3) | The amount includes commitments under capital lease arrangements for two leases associated with pipelines and storage and terminal equipment at the Wynnewood refinery. |
| | (4) | The amount includes (a) commitments under several agreements for the petroleum operations related to pipeline usage, petroleum products storage and petroleum transportation, (b) commitments under an electricity supply agreement with the city of Coffeyville and electricity supply agreements associated with our East Dubuque Facility in Illinois, (c) a product supply agreement with Linde, (d) a pet coke supply agreement with HollyFrontier Corporation with a term ending in December 2018, (e) commitments related to our biofuels blending obligation, (f) various agreements associated with our East Dubuque Facility in Illinois for gas and gas transportation and (g) approximately $698.6 million payable ratably over 13 years pursuant to petroleum transportation service agreements between CRRM and each of TransCanada Keystone Pipeline Limited Partnership and TransCanada Keystone Pipeline, LP (together, "TransCanada"). The purchase obligation reflects the exchange rate between the Canadian dollar and the U.S. dollar as of December 31, 2017, where applicable. Under the agreements, CRRM receives transportation of at least 25,000 barrels per day of crude oil with a delivery point at Cushing, Oklahoma for a term of 20 years on TransCanada's Keystone pipeline system. |
| | (5) | Environmental liabilities represents our estimated payments required by federal and/or state environmental agencies related to closure of hazardous waste management units at our sites in Coffeyville and Phillipsburg, Kansas and Wynnewood, Oklahoma. We also are required to make payments with respect to other environmental liabilities which are not contractual obligations but which would be necessary for our continued operations. See Item 1."Business — Environmental Matters." |
| | (6) | Interest payments are based on stated interest rates for our long-term debt outstanding and interest payments for the capital lease obligation as of December 31, 2017 and also includes commitment fees on the unutilized commitments of the ABL Credit Facility. |
| | (7) | Standby letters of credit issued against our Amended and Restated ABL Credit Facility include $0.3 million of letters of credit issued in connection with environmental liabilities, $26.5 million in letters of credit to secure transportation services for crude oil and a $1.6 million letter of credit issued to guarantee a portion of our insurance policy. |
The Refining Partnership's and the Nitrogen Fertilizer Partnership's ability to make payments on and to refinance their indebtedness, to fund budgeted capital expenditures and to satisfy their other capital and commercial commitments will depend on their respective independent abilities to generate cash flow in the future. Their ability to refinance their respective indebtedness is also subject to the availability of the credit markets, which in recent periods have been volatile. This, to a certain extent, is subject to refining spreads (for the Refining Partnership), fertilizer margins (for the Nitrogen Fertilizer Partnership) and general economic, financial, competitive, legislative, regulatory and other factors they are unable to control. Our businesses may not generate sufficient cash flow from operations, and future borrowings may not be available to the Nitrogen Fertilizer Partnership under its revolving credit facility or the6.5% UAN Notes due April 2021 during 2021, and 2023 senior notes oran increase of $11 million in unit repurchases of CVR Partners’ common units in 2022 compared to the Refining Partnership under the Amended and Restated ABL Credit Facility or the 2022 senior notes (or other credit facilities our businesses may enter into in the future) in an amount sufficient to enable them to pay indebtedness or to fund other liquidity needs. They may seek to sell assets to fund liquidity needs but may not be able to do so. They may also need to refinance all or a portion of their indebtedness on or before maturity, and may not be able to refinance such indebtedness on commercially reasonable terms or at all.2021.
Off-Balance Sheet Arrangements
We do not have any "off-balance sheet arrangements" as such term is defined within the rules and regulations of the SEC.
Recent Accounting Pronouncements
Refer to Part II, Item 8, Note 2 ("(“Summary of Significant Accounting Policies"Policies”), of this Report for a discussion of recent accounting pronouncements applicable to us.the Company.
Critical Accounting PoliciesEstimates
We prepare our consolidated financial statements in accordance with GAAP. In orderGAAP requiring management to apply these principles, management must make judgments, assumptions, and estimates based on the best available information at the time. Accounting estimates are considered to be critical if (1) the nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and (2) the impact of the estimates and assumptions on financial condition or operating performance is material. Actual results maycould differ from the estimates and assumptions used.
Inventory Valuation
The cost of our petroleum and nitrogen fertilizer product inventories is determined under the FIFO method. Our FIFO inventories are carried at the lower of cost or net realizable value. We compare the estimated realizable value of inventories to their cost by product at each of our facilities. In our Petroleum Segment, to determine the net realizable value of our inventories, we assume that crude oil and other feedstocks are converted into refined products, which requires us to make estimates regarding the refined products expected to be produced from those feedstocks and the conversion costs required to convert those feedstocks into refined products. We also estimate the usual and customary transportation costs required to move the inventory from our plants to the appropriate points of sale, if material. We then apply an estimated selling price to our inventories based primarily on actual prices observed subsequent to the end of the reporting period with any remaining volumes’ selling price estimated using indicative market pricing available as of the time the estimate is made. If the net realizable value is less than cost, we recognize a loss for the difference in our statements of operations. For our Nitrogen Fertilizer Segment, depending on inventory levels, the per-ton realizable value of our fertilizer products is estimated using pricing on in-transit orders, pricing for open, fixed-price orders that have not shipped, and, if volumes remain unaccounted for, current management pricing estimates for fertilizer products. Management’s estimate for current pricing reflects up-to-date pricing in each facility’s market as of the end of each reporting period. Reductions to selling prices for unreimbursed freight costs are included to arrive at net realizable value, as applicable. During the year ended December 31, 2020, we recognized
losses on inventory of $59 million to reflect net realizable value, primarily associated with our Petroleum Segment. No amounts were recognized for the years ended December 31, 2022 and 2021. Due to the amount and variability in volume of inventories maintained, changes in production costs, and the volatility of market pricing for our products, losses recognized to reflect inventories at the lower of cost or net realizable value could have a material impact on the Company’s results of operations.
Impairment of Long-lived Assets Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in future expected cash flows. If the sum of the undiscounted expected future cash flows of an asset group is less than the carrying value, including applicable liabilities, the carrying value is written down to its estimated fair value. Individual assets are grouped for impairment purposes based on the accuracya judgmental assessment of the information utilized and subsequent events. Our accounting policieslowest level for which there are described inidentifiable cash flows that are largely independent of the notes to our audited consolidated financial statements included elsewhere in this Report. Our critical accounting policies, which are listed below, could materially affectcash flows of other assets (for example, at a refinery or fertilizer facility level). In addition, when preparing the amounts recorded in our consolidated financial statements.
•Estimated lives used in computing depreciation for property, plant and equipment
•Goodwill impairment
•Income taxes
•Impairment of long-lived assets
•Derivative instruments andexpected future cash flows or estimating the fair value of financial instrumentsimpaired assets, we make several estimates that include subjective assumptions related to future sales volumes, commodity prices, operating costs, discount rates, and capital expenditures, among others.
•Share-based compensation
Refer to Note 2 ("Summary of Significant Accounting Policies") to Part II, Item 8 of this Report for a discussion of these accounting policies.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The risk inherent in ourOur market risk sensitive instruments and positions is thehave inherent risks including potential loss from adverse changes in commodity prices, RINs prices, and interest rates. None of our market risk sensitive instruments are held for trading purposes.
Commodity Price Risk
The petroleum business,Petroleum Segment, as a manufacturer of refined petroleum products, and the nitrogen fertilizer business,Nitrogen Fertilizer Segment, as a manufacturer of nitrogen fertilizer products, all of which are commodities, have exposure to market pricing for products sold in the future. In order to realize value from our processing capacity, a positive spread between the cost of raw materials and the value of finished products must be achieved (i.e., gross margin or crack spread). The physical commodities that comprise our raw materials and finished goods are typically bought and sold at a spot or index price that can be highly variable.
The petroleum businessPetroleum Segment uses a crude oil purchasing intermediary, Vitol, Inc., to purchase the majority of its non-gathered crude oil inventory for the refineries, which allows it to take title to and price its crude oil at locations in close proximity to the refineries, as opposed to the crude oil origination point, reducing its risk associated with volatile commodity prices by shortening the commodity conversion cycle time. The commodity conversion cycle time refers to the time elapsed between raw material acquisition and the sale of finished goods. In addition, the petroleum businessPetroleum Segment seeks to reduce the variability of commodity price exposure by engaging in hedging strategies and transactions that will serve to protect gross marginsmargin as forecasted in the annual operating plan. Accordingly, the petroleum business uses commodity derivative contracts to economically hedge future cash flows (i.e., gross margin or crack spreads) and product inventories. With regard to its hedging activities, the petroleum businessPetroleum Segment may enter into, or has entered into, derivativefinancial instruments which serve to:to (1) lock in or fix a percentage of the anticipated or planned gross margin in future periods when the derivative market offers commodity spreads that generate positive cash flows;flows, (2) hedge the value of inventories in excess of minimum required inventories;inventories, and (3) manage existing derivative positions related to a change in anticipated operations and market conditions.
Further,The Nitrogen Fertilizer Segment has commitments to purchase natural gas for use in the petroleumEast Dubuque Fertilizer Facility at the spot market and through short-term, fixed supply, fixed price, and index price purchase contracts. In the normal course of business, intendsnitrogen-based fertilizer products are produced throughout the year to engage onlysupply the needs of our customers during the high-delivery-volume spring and fall seasons. The value of fertilizer product inventory is subject to market risk due to fluctuations in risk mitigating activities directly related to its business. Thethe relevant commodity prices. Prices of nitrogen fertilizer business has not historically hedged for commodity prices.
Basis Risk.
The effectiveness of the petroleum business' derivative strategies is dependent upon the correlation of the price index utilized for the hedging activity and the cash or spot price of the physical commodity for which price risk is being mitigated. Basis risk is a term we use to defineproducts can be volatile. We believe that relationship. Basis risk can exist due to several factors including time or location differences between the derivative instrument and the underlying physical commodity. The selection of the appropriate index to utilize in a hedging strategy is a prime consideration in the petroleum business' basis risk exposure.
Examples of our basis risk exposure are as follows:
Time Basis — In entering over-the-counter swap agreements, the settlement price of the swap is typically the average price of the underlying commodity for a designated calendar period. This settlement price is based on the assumption that the underlying physical commodity will price ratably over the swap period. If the commodity does not move ratably over the periods, then weighted-average physical prices will be weighted differently than the swap price as the result of timing.
Location Basis — In hedging NYMEX crack spreads, the petroleum business experiences location basis as the settlement of NYMEX refined products (related more to New York Harbor cash markets) which may be different than themarket prices of refinednitrogen products in its' Group 3 pricing area.
Price and Basis Risk Management Activities.
In the event inventories exceed the petroleum business' target base level of inventories, it may enter into commodity derivative contracts to manage price exposure to inventory positions that are in excess of its base level. Excess inventories are typically the result of plant operations, such as a turnaround or other plant maintenance.
To reduce the basis risk between the price of products for Group 3 and that of the NYMEX associated with selling forward derivative contracts for NYMEX crack spreads, the petroleum business may enter into basis swap positions to lock the price difference. If the difference between the price of products on the NYMEX and Group 3 (or some other price benchmark as specified in the swap) is different than the value contracted in the swap, then it will receive from or owe to the counterparty the difference on each unit of product contracted in the swap, thereby completing the locking of its margin. An example of the petroleum business' use of a basis swap is in the winter heating oil season. The risk associated with not hedging the basis when using NYMEX forward contracts to fix future margins is if the crack spread increases based on prices traded on NYMEX while Group 3 pricing remains flat or decreases then the petroleum business would be in a position to lose money on the derivative position while not earning an offsetting additional margin on the physical position based on the Group 3 pricing.
From time to time, the petroleum business also holds various NYMEX positions through a third-party clearing house. At December 31, 2017, the Refining Partnership had no open commodity positions. At December 31, 2017, the Refining Partnership's account balance maintained at the third-party clearing house totaled approximately $1.4 million, which is reflected on the Consolidated Balance Sheets in cash and cash equivalents. NYMEX transactions conducted for the year ended December 31, 2017 resulted in loss on derivatives, net of approximately $0.5 million.
The Refining Partnership enters into commodity swap contracts in order to fix the margin on a portion of future production. Additionally, the Refining Partnership may enter into price and basis swaps in order to fix the price on a portion of its commodity purchases and product sales. The physical volumes are not exchanged and these contracts are net settled with cash. The contract fair value of the commodity swaps is reflected on the Consolidated Balance Sheets withaffected by changes in fair value currently recognized in the Consolidated Statements of Operations. At December 31, 2017, the Refining Partnership had open commodity swap instruments consisting of 7.1 million barrels of 2-1-1crack spreads, 3.6 million barrels of distillate crack spreadsgrain prices, demand, natural gas prices, and 3.6 million barrels of gasoline crack spreads. Additionally, as of December 31, 2017, we had open forward purchase and sale commitments for 5.8 million barrels of Canadian crude oil priced at fixed differentials that are not considered probable of physical settlement and are accounted for as derivatives at December 31, 2017. A change of $1.00 per barrel in the fair value of the benchmark would result in an increase or decrease in the related fair values of commodity instruments of $17.7 million. The fair value of the outstanding contracts at December 31, 2017 was a net unrealized loss of $64.3 million, comprised of short-term unrealized losses.other factors.
Interest Rate Risk
Subsequent to the expiration of the interest rate swaps on February 12, 2016, the Nitrogen Fertilizer Partnership has exposure to interest rate risk on 100% of its $125.0 million floating rate debt. A 1.0% increase over the Eurodollar floor spread of 3.5%, as specified in the credit agreement, would increase interest cost to the Nitrogen Fertilizer Partnership by approximately $1.3 million on an annualized basis, thus decreasing net income by the same amount.
RFS Compliance Program Price Risk
As a producer of transportation fuels from petroleum,crude oil, the Refining Partnership isPetroleum Segment’s obligated-party subsidiaries are required to blend biofuels into the productproducts it produces or to purchase RINs in the open market in lieu of blending to meet the mandates established by the EPA. The Refining Partnership isPetroleum Segment’s obligated-party subsidiaries are exposed to market risk related to volatility in the price of RINs needed to comply with the RFS.RFS that are not otherwise generated through blending of renewable fuels in our refining and marketing operations. To mitigate the impact of this risk on the Refining Partnership'sPetroleum Segment’s results of operations and cash flows, the Refining Partnership purchasedPetroleum Segment’s obligated-party subsidiaries blend ethanol and biodiesel to the extent possible. In April 2022, we completed the renewable diesel project at our Wynnewood Refinery, to convert the Wynnewood Refinery’s hydrocracker to
a RDU, at a total cost of $179 million, which is capable of producing approximately 100 million gallons of renewable diesel per year and generating approximately 170 to 180 million RINs when prices are deemed favorable. See Note 14 ("Commitmentsannually. In November 2021, the Board approved the renewable feedstock pretreater project at the Wynnewood Refinery, which is currently expected to be completed in the third quarter of 2023 at an estimated cost of $95 million. We continually monitor the impact of the RFS on our business and Contingencies")evaluate strategies to mitigate the impacts of the RFS program, the administration thereof, and the market volatility for RINs on our business. Refer to Part I, Item 1A, “Risk Factors,” Part II, Item 7, “Management’s Discussion and Analysis” and Part II, Item 8, of this ReportNote 11 (“Commitments and "Major Influences on Results of Operations" in Part II, Item 7Contingencies”), of this Report for further discussion about compliance with the RFS.
Foreign Currency Exchange
Given that ours, the petroleum business'RFS and the nitrogen fertilizer business' operations are based entirely in the United States, we are not significantly exposed to foreign currency exchange rate risk. A portion of the petroleum business' pipeline transportation costs are transacted in Canadian dollars. Commitments for future periods under this agreement reflect the exchange rate between the Canadian Dollar and the U.S. Dollar as of the end of the reporting period. Basedpotential impacts on the short period of time between the billing and settlement of these transportation costs in Canadian dollars, the exposure to foreign currency exchange rate risk and the resulting foreign currency gain (loss) is not material.our business.
102December 31, 2022 | 76
Item 8. Financial Statements and Supplementary Data
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | Audited Financial Statements: | Page
Number
| | | | | | | | | | | | | | | | |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of CVR Energy, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of CVR Energy, Inc. (a Delaware corporation) and subsidiaries (the "Company"“Company”) as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2017,2022, and the related notes (collectively referred to as the "financial statements"“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"(“PCAOB”), the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"(“COSO”), and our report dated February 26, 201822, 2023 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includeincluded examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company'sCompany’s auditor since 2013.
Kansas City, MissouriDallas, Texas
February 26, 2018
22, 2023
104December 31, 2022 | 78
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of CVR Energy, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of CVR Energy, Inc. (a Delaware corporation) and subsidiaries (the "Company"“Company”) as of December 31, 2017,2022, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in the 2013 Internal Control - Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017,2022, and our report dated February 26, 201822, 2023 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Kansas City, MissouriDallas, Texas
February 26, 2018
22, 2023
105December 31, 2022 | 79
CVR Energy, Inc. and SubsidiariesENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS | | | | | | | | | | | | | December 31, | (in millions) | 2022 | | 2021 | ASSETS | Current assets: | | | | Cash and cash equivalents (including $86 and $113, respectively, of consolidated variable interest entity (“VIE”)) | $ | 510 | | | $ | 510 | | Accounts receivable, net (including $90 and $88, respectively, of VIE) | 358 | | | 299 | | Inventories (including $78 and $52, respectively, of VIE) | 624 | | | 484 | | Prepaid expenses and other current assets (including $11 and $9, respectively, of VIE) | 101 | | | 76 | | | | | | | | | | | | | | Total current assets | 1,593 | | | 1,369 | | Property, plant, and equipment, net (including $811 and $850, respectively, of VIE) | 2,247 | | | 2,273 | | | | | | | | | | | | | | | | | | Other long-term assets (including $24 and $14, respectively, of VIE) | 279 | | | 264 | | Total assets | $ | 4,119 | | | $ | 3,906 | | LIABILITIES AND EQUITY | Current liabilities: | | | | | | | | | | | | Accounts payable (including $51 and $50, respectively, of VIE) | 497 | | | 409 | | | | | | | | | | | | | | | | | | Other current liabilities (including $75 and $111, respectively, of VIE) | 942 | | | 747 | | Total current liabilities | 1,439 | | | 1,156 | | Long-term liabilities: | | | | Long-term debt and finance lease obligations, net of current portion (including $547 and $611, respectively, of VIE) | 1,585 | | | 1,654 | | Deferred income taxes | 249 | | | 268 | | Other long-term liabilities (including $16 and $12, respectively, of VIE) | 55 | | | 58 | | Total long-term liabilities | 1,889 | | | 1,980 | | Commitments and contingencies (See Note 11) | | | | | | | | CVR Energy stockholders’ equity: | | | | Common stock, $0.01 par value per share; 350,000,000 shares authorized; 100,629,209 and 100,629,209 shares issued as of December 31, 2022 and 2021, respectively | 1 | | | 1 | | Additional paid-in-capital | 1,508 | | | 1,510 | | Accumulated deficit | (976) | | | (956) | | Treasury stock, 98,610 shares at cost | (2) | | | (2) | | | | | | Total CVR stockholders’ equity | 531 | | | 553 | | Noncontrolling interest | 260 | | | 217 | | Total equity | 791 | | | 770 | | Total liabilities and equity | $ | 4,119 | | | $ | 3,906 | |
| | | | | | | | | | December 31, | | 2017 | | 2016 | | (in millions, except share data) | ASSETS | Current assets: | | | | Cash and cash equivalents (including $223.0 and $369.7, respectively, of consolidated variable interest entities ("VIEs")) | $ | 481.8 |
| | $ | 735.8 |
| Accounts receivable of VIEs, net of allowance for doubtful accounts of $1.1 and $0.5, respectively
| 178.7 |
| | 151.9 |
| Inventories of VIEs | 385.2 |
| | 349.2 |
| Prepaid expenses and other current assets (including $30.0 and $65.0, respectively, of VIEs)
| 33.7 |
| | 68.4 |
| Income tax receivable (including $0.0 and $0.2, respectively, of VIEs)
| 9.7 |
| | 10.2 |
| Due from parent | 5.1 |
| | — |
| Total current assets | 1,094.2 |
| | 1,315.5 |
| Property, plant and equipment, net of accumulated depreciation (including $2,548.3 and $2,645.1, respectively, of VIEs)
| 2,571.8 |
| | 2,672.1 |
| Intangible assets of VIEs, net
| 0.2 |
| | 0.2 |
| Goodwill of VIEs
| 41.0 |
| | 41.0 |
| Equity method investments in affiliates of VIEs | 82.8 |
| | 5.6 |
| Other long-term assets (including $13.3 and $19.1, respectively, of VIEs)
| 16.7 |
| | 15.8 |
| Total assets | $ | 3,806.7 |
| | $ | 4,050.2 |
| LIABILITIES AND EQUITY | Current liabilities: | | | | Note payable and capital lease obligations of VIEs
| $ | 2.1 |
| | $ | 1.8 |
| Accounts payable (including $329.0 and $247.7, respectively, of VIEs)
| 333.9 |
| | 251.0 |
| Personnel accruals (including $29.9 and $23.6, respectively, of VIEs)
| 55.9 |
| | 45.7 |
| Accrued taxes other than income taxes of VIEs
| 26.5 |
| | 27.0 |
| Deferred revenue of VIEs | 12.9 |
| | 12.6 |
| Due to parent | — |
| | 10.6 |
| Other current liabilities (including $111.8 and $216.8, respectively, of VIEs)
| 112.4 |
| | 217.2 |
| Total current liabilities | 543.7 |
| | 565.9 |
| Long-term liabilities: | | | | Long-term debt and capital lease obligations of VIEs, net of current portion
| 1,164.4 |
| | 1,162.8 |
| Deferred income taxes (including $1.0 and $0.8, respectively, of VIEs) | 385.9 |
| | 579.9 |
| Other long-term liabilities (including $3.7 and $5.4, respectively, of VIEs) | 8.7 |
| | 32.0 |
| Total long-term liabilities | 1,559.0 |
| | 1,774.7 |
| Commitments and contingencies |
| |
| Equity: | | | | CVR stockholders' equity: | | | | Common stock $0.01 par value per share, 350,000,000 shares authorized, 86,929,660 shares issued | 0.9 |
| | 0.9 |
| Additional paid-in-capital | 1,197.6 |
| | 1,197.6 |
| Retained deficit | (277.4 | ) | | (338.1 | ) | Treasury stock, 98,610 shares at cost | (2.3 | ) | | (2.3 | ) | Accumulated other comprehensive loss, net of tax | — |
| | — |
| Total CVR stockholders' equity | 918.8 |
| | 858.1 |
| Noncontrolling interest | 785.2 |
| | 851.5 |
| Total equity | 1,704.0 |
| | 1,709.6 |
| Total liabilities and equity | $ | 3,806.7 |
| | $ | 4,050.2 |
|
SeeThe accompanying notes toare an integral part of these consolidated financial statements.
106December 31, 2022 | 80
CVR Energy, Inc. and SubsidiariesENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions, except per share data) | 2022 | | 2021 | | 2020 | Net sales | $ | 10,896 | | | $ | 7,242 | | | $ | 3,930 | | Operating costs and expenses: | | | | | | Cost of materials and other | 8,766 | | | 6,185 | | | 3,373 | | Direct operating expenses (exclusive of depreciation and amortization) | 719 | | | 569 | | | 478 | | Depreciation and amortization | 281 | | | 270 | | | 268 | | Cost of sales | 9,766 | | | 7,024 | | | 4,119 | | | | | | | | Selling, general and administrative expenses (exclusive of depreciation and amortization) | 149 | | | 119 | | | 86 | | Depreciation and amortization | 7 | | | 9 | | | 10 | | Loss on asset disposals | 11 | | | 3 | | | 7 | | Goodwill impairment | — | | | — | | | 41 | | | | | | | | Operating income (loss) | 963 | | | 87 | | | (333) | | Other (expense) income: | | | | | | Interest expense, net | (85) | | | (117) | | | (130) | | | | | | | | Investment income on marketable securities | — | | | 81 | | | 41 | | Other (expense) income, net | (77) | | | 15 | | | 7 | | | | | | | | Income (loss) before income tax expense | 801 | | | 66 | | | (415) | | Income tax expense (benefit) | 157 | | | (8) | | | (95) | | Net income (loss) | 644 | | | 74 | | | (320) | | Less: Net income (loss) attributable to noncontrolling interest | 181 | | | 49 | | | (64) | | Net income (loss) attributable to CVR Energy stockholders | $ | 463 | | | $ | 25 | | | $ | (256) | | | | | | | | Basic and diluted earnings (loss) per share | $ | 4.60 | | | $ | 0.25 | | | $ | (2.54) | | | | | | | | | | | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | Basic and diluted | 100.5 | | | 100.5 | | | 100.5 | | | | | | | |
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions, except per share data) | Net sales | $ | 5,988.4 |
| | $ | 4,782.4 |
| | $ | 5,432.5 |
| Operating costs and expenses: | | | | | | Cost of materials and other | 4,882.9 |
| | 3,847.5 |
| | 4,190.4 |
| Direct operating expenses (exclusive of depreciation and amortization as reflected below) | 599.5 |
| | 541.8 |
| | 584.7 |
| Depreciation and amortization | 203.3 |
| | 184.5 |
| | 156.4 |
| Cost of sales | 5,685.7 |
| | 4,573.8 |
| | 4,931.5 |
| Flood insurance recovery | — |
| | — |
| | (27.3 | ) | Selling, general and administrative expenses (exclusive of depreciation and amortization as reflected below) | 114.2 |
| | 109.1 |
| | 99.0 |
| Depreciation and amortization | 10.7 |
| | 8.6 |
| | 7.7 |
| Total operating costs and expenses | 5,810.6 |
| | 4,691.5 |
| | 5,010.9 |
| Operating income | 177.8 |
| | 90.9 |
| | 421.6 |
| Other income (expense): | | | | | | Interest expense and other financing costs | (110.1 | ) | | (83.9 | ) | | (48.4 | ) | Interest income | 1.1 |
| | 0.7 |
| | 1.0 |
| Loss on derivatives, net | (69.8 | ) | | (19.4 | ) | | (28.6 | ) | Loss on extinguishment of debt | — |
| | (4.9 | ) | | — |
| Other income, net | 1.0 |
| | 5.7 |
| | 36.7 |
| Total other expense | (177.8 | ) | | (101.8 | ) | | (39.3 | ) | Income (loss) before income taxes | 0.0 |
| | (10.9 | ) | | 382.3 |
| Income tax expense (benefit) | (216.9 | ) | | (19.8 | ) | | 84.5 |
| Net income | 216.9 |
| | 8.9 |
| | 297.8 |
| Less: Net income (loss) attributable to noncontrolling interest | (17.5 | ) | | (15.8 | ) | | 128.2 |
| Net income attributable to CVR Energy stockholders | $ | 234.4 |
| | $ | 24.7 |
| | $ | 169.6 |
| | | | | | | Basic and diluted earnings per share | $ | 2.70 |
| | $ | 0.28 |
| | $ | 1.95 |
| Dividends declared per share | $ | 2.00 |
| | $ | 2.00 |
| | $ | 2.00 |
| | | | | | | Weighted-average common shares outstanding: | | | | | | Basic and Diluted | 86.8 |
| | 86.8 |
| | 86.8 |
|
SeeThe accompanying notes toare an integral part of these consolidated financial statements.
107December 31, 2022 | 81
CVR Energy, Inc. and SubsidiariesENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Net income | $ | 216.9 |
| | $ | 8.9 |
| | $ | 297.8 |
| Other comprehensive income (loss): | | | | | | Unrealized gain on available-for-sale securities, net of tax of $0.0, $0.2 and $12.6, respectively | — |
| | 0.3 |
| | 19.2 |
| Net gain reclassified into income on sale of available-for-sale-securities, net of tax of $0.0, $(0.2), and $(8.0), respectively (Note 15) | — |
| | (0.3 | ) | | (12.1 | ) | Net gain reclassified into income on reclassification of available-for-sale securities to trading securities, net of tax of $0.0, $0.0, and $(4.6), respectively (Note 15) | — |
| | — |
| | (7.1 | ) | Change in fair value of interest rate swaps, net of tax of $0.0, $0.0 and $0.0, respectively | — |
| | — |
| | (0.1 | ) | Net loss reclassified into income on settlement of interest rate swaps, net of tax of $0.0, $0.0, and $0.2, respectively (Note 16) | — |
| | — |
| | 0.8 |
| Total other comprehensive income | — |
| | — |
| | 0.7 |
| Comprehensive income | 216.9 |
| | 8.9 |
| | 298.5 |
| Less: Comprehensive income (loss) attributable to noncontrolling interest | (17.5 | ) | | (15.8 | ) | | 128.6 |
| Comprehensive income attributable to CVR Energy stockholders | $ | 234.4 |
| | $ | 24.7 |
| | $ | 169.9 |
|
See accompanying notes to consolidated financial statements.
CVR Energy, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stockholders | | | | | (in millions, except share data) | Shares Issued | | $0.01 Par Value Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Treasury Stock | | | | Total CVR Stockholders’ Equity | | Noncontrolling Interest | | Total Equity | Balance at December 31, 2019 | 100,629,209 | | | $ | 1 | | | $ | 1,507 | | | $ | (113) | | | $ | (2) | | | | | $ | 1,393 | | | $ | 275 | | | $ | 1,668 | | | | | | | | | | | | | | | | | | | | Net loss | — | | | — | | | — | | | (256) | | | — | | | | | (256) | | | (64) | | | (320) | | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (121) | | | — | | | | | (121) | | | — | | | (121) | | | | | | | | | | | | | | | | | | | | Changes in equity due to CVR Partners’ common unit repurchases | — | | | — | | | 3 | | | — | | | — | | | | | 3 | | | (11) | | | (8) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2020 | 100,629,209 | | | 1 | | | 1,510 | | | (490) | | | (2) | | | | | 1,019 | | | 200 | | | 1,219 | | | | | | | | | | | | | | | | | | | | Net income | — | | | — | | | — | | | 25 | | | — | | | | | 25 | | | 49 | | | 74 | | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (492) | | | — | | | | | (492) | | | — | | | (492) | | Distributions from CVR Partners to public unitholders | — | | | — | | | — | | | — | | | — | | | | | — | | | (31) | | | (31) | | | | | | | | | | | | | | | | | | | | Changes in equity due to CVR Partners’ common unit repurchases | — | | | — | | | — | | | — | | | — | | | | | — | | | (1) | | | (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other | — | | | — | | | — | | | 1 | | | — | | | | | 1 | | | — | | | 1 | | Balance at December 31, 2021 | 100,629,209 | | | 1 | | | 1,510 | | | (956) | | | (2) | | | | | 553 | | | 217 | | | 770 | | Net income | — | | | — | | | — | | | 463 | | | — | | | | | 463 | | | 181 | | | 644 | | Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (483) | | | — | | | | | (483) | | | — | | | (483) | | Distributions from CVR Partners to public unitholders | — | | | — | | | — | | | — | | | — | | | | | — | | | (129) | | | (129) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in equity due to CVR Partners’ common unit repurchases | — | | | — | | | (2) | | | — | | | — | | | | | (2) | | | (9) | | | (11) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2022 | 100,629,209 | | | $ | 1 | | | $ | 1,508 | | | $ | (976) | | | $ | (2) | | | | | $ | 531 | | | $ | 260 | | | $ | 791 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stockholders | | | | | | Shares Issued | | $0.01 Par Value Common Stock | | Additional Paid-In Capital | | Retained Earnings (Deficit) | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total CVR Stockholders' Equity | | Noncontrolling Interest | | Total Equity | | (in millions, except share data) | Balance at December 31, 2014 | 86,929,660 |
| | $ | 0.9 |
| | $ | 1,174.7 |
| | $ | (184.9 | ) | | $ | (2.3 | ) | | $ | (0.3 | ) | | $ | 988.1 |
| | $ | 687.2 |
| | $ | 1,675.3 |
| Dividends paid to CVR Energy stockholders | — |
| | — |
| | — |
| | (173.7 | ) | | — |
| | — |
| | (173.7 | ) | | — |
| | (173.7 | ) | Distributions from CVR Partners to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (42.8 | ) | | (42.8 | ) | Distributions from CVR Refining to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (156.9 | ) | | (156.9 | ) | Share-based compensation | — |
| | — |
| | 0.1 |
| | (0.2 | ) | | — |
| | — |
| | (0.1 | ) | | 0.3 |
| | 0.2 |
| Excess tax deficiency from share-based compensation | — |
| | — |
| | (0.1 | ) | | — |
| | — |
| | — |
| | (0.1 | ) | | — |
| | (0.1 | ) | Net income | — |
| | — |
| | — |
| | 169.6 |
| | — |
| | — |
| | 169.6 |
| | 128.2 |
| | 297.8 |
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 0.3 |
| | 0.3 |
| | 0.4 |
| | 0.7 |
| Balance at December 31, 2015 | 86,929,660 |
| | 0.9 |
| | 1,174.7 |
| | (189.2 | ) | | (2.3 | ) | | — |
| | 984.1 |
| | 616.4 |
| | 1,600.5 |
| Dividends paid to CVR Energy stockholders | — |
| | — |
| | — |
| | (173.6 | ) | | — |
| | — |
| | (173.6 | ) | | — |
| | (173.6 | ) | Distributions from CVR Partners to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (41.9 | ) | | (41.9 | ) | Impact of CVR Partners' common units issuance for the East Dubuque Merger, net of tax of $20.0
| — |
| | — |
| | 22.9 |
| | — |
| | — |
| | — |
| | 22.9 |
| | 292.8 |
| | 315.7 |
| Net income (loss) | — |
| | — |
| | — |
| | 24.7 |
| | — |
| | — |
| | 24.7 |
| | (15.8 | ) | | 8.9 |
| Balance at December 31, 2016 | 86,929,660 |
| | 0.9 |
| | 1,197.6 |
| | (338.1 | ) | | (2.3 | ) | | — |
| | 858.1 |
| | 851.5 |
| | 1,709.6 |
| Dividends paid to CVR Energy stockholders | — |
| | — |
| | — |
| | (173.7 | ) | | — |
| | — |
| | (173.7 | ) | | — |
| | (173.7 | ) | Distributions from CVR Partners to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1.5 | ) | | (1.5 | ) | Distributions from CVR Refining to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (47.3 | ) | | (47.3 | ) | Net income (loss) | — |
| | — |
| | — |
| | 234.4 |
| | — |
| | — |
| | 234.4 |
| | (17.5 | ) | | 216.9 |
| Balance at December 31, 2017 | 86,929,660 |
| | $ | 0.9 |
| | $ | 1,197.6 |
| | $ | (277.4 | ) | | $ | (2.3 | ) | | $ | — |
| | $ | 918.8 |
| | $ | 785.2 |
| | $ | 1,704.0 |
|
SeeThe accompanying notes toare an integral part of these consolidated financial statements.
109December 31, 2022 | 82
CVR Energy, Inc. and SubsidiariesENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Cash flows from operating activities: | | | | | | Net income (loss) | $ | 644 | | | $ | 74 | | | $ | (320) | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | Depreciation and amortization | 288 | | | 279 | | | 278 | | Loss on lower of cost or net realizable value adjustments | — | | | — | | | 59 | | Goodwill impairment | — | | | — | | | 41 | | Deferred income taxes | (17) | | | (98) | | | (30) | | Gain on marketable securities | — | | | (81) | | | (34) | | Loss on asset disposals | 11 | | | 3 | | | 7 | | Loss on extinguishment of debt | 1 | | | 8 | | | 3 | | Unrealized loss (gain) on derivatives, net | 5 | | | (16) | | | 10 | | Share-based compensation | 71 | | | 46 | | | 4 | | Other items | 2 | | | 4 | | | 7 | | Changes in assets and liabilities: | | | | | | Accounts receivable | (78) | | | (91) | | | 31 | | Inventories | (140) | | | (182) | | | 9 | | Prepaid expenses and other current assets | (29) | | | 12 | | | (28) | | | | | | | | Accounts payable | 78 | | | 122 | | | (121) | | Deferred revenue | (20) | | | 27 | | | (2) | | Other current liabilities | 158 | | | 290 | | | 178 | | Other long-term assets and liabilities | (7) | | | (1) | | | (2) | | Net cash provided by operating activities | 967 | | | 396 | | | 90 | | Cash flows from investing activities: | | | | | | Capital expenditures | (191) | | | (224) | | | (124) | | Turnaround expenditures | (83) | | | (5) | | | (159) | | | | | | | | Proceeds from sale of assets | — | | | 7 | | | 1 | | Acquisition of pipeline assets | — | | | (20) | | | — | | | | | | | | Investment in marketable securities | — | | | 3 | | | (140) | | Other investing activities | 3 | | | 1 | | | (1) | | Net cash used in investing activities | (271) | | | (238) | | | (423) | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Proceeds from issuance of senior secured notes | — | | | 550 | | | 1,000 | | Principal payments on senior secured notes | (65) | | | (582) | | | (500) | | Call premium on extinguishment of debt | — | | | — | | | (5) | | Repurchase of common units by CVR Partners | (12) | | | (1) | | | (7) | | | | | | | | Dividends to CVR Energy’s stockholders | (483) | | | (241) | | | (121) | | | | | | | | Distributions to CVR Partners’ noncontrolling interest holders | (129) | | | (31) | | | — | | Other financing activities | (7) | | | (10) | | | (12) | | Net cash (used in) provided by financing activities | (696) | | | (315) | | | 355 | | Net increase (decrease) in cash, cash equivalents and restricted cash | — | | | (157) | | | 22 | | Cash, cash equivalents and restricted cash, beginning of period | 517 | | | 674 | | | 652 | | Cash, cash equivalents and restricted cash, end of period | $ | 517 | | | $ | 517 | | | $ | 674 | |
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Cash flows from operating activities: | | | | | | Net income | $ | 216.9 |
| | $ | 8.9 |
| | $ | 297.8 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Depreciation and amortization | 214.0 |
| | 193.1 |
| | 164.1 |
| Allowance for doubtful accounts | 0.6 |
| | 0.2 |
| | (0.1 | ) | Amortization of deferred financing costs and original issue discount | 4.8 |
| | 3.6 |
| | 2.8 |
| Amortization of debt fair value adjustment | — |
| | 1.2 |
| | — |
| Deferred income taxes | (216.5 | ) | | (84.4 | ) | | (10.4 | ) | Excess income tax deficiency of share-based compensation | — |
| | — |
| | 0.1 |
| Loss on disposition of assets | 2.4 |
| | 0.5 |
| | 1.8 |
| Loss on extinguishment of debt | — |
| | 4.9 |
| | — |
| Share-based compensation | 18.8 |
| | 9.3 |
| | 12.8 |
| Gain on sale of available-for-sale securities | — |
| | (4.9 | ) | | (20.1 | ) | Unrealized gain on securities | — |
| | (0.3 | ) | | — |
| Loss on derivatives, net | 69.8 |
| | 19.4 |
| | 28.6 |
| Current period settlements on derivative contracts | (16.6 | ) | | 36.4 |
| | (26.0 | ) | Income from equity method investments, net of distributions | (0.7 | ) | | — |
| | — |
| Changes in assets and liabilities: | | | | | | Accounts receivable | (27.3 | ) | | (47.5 | ) | | 41.0 |
| Inventories | (37.6 | ) | | (7.3 | ) | | 39.7 |
| Prepaid expenses and other current assets | 33.9 |
| | (3.4 | ) | | 40.4 |
| Due to (from) parent | (15.7 | ) | | 22.2 |
| | 32.8 |
| Other long-term assets | 1.0 |
| | (0.6 | ) | | 3.8 |
| Accounts payable | 88.1 |
| | (10.4 | ) | | (14.3 | ) | Accrued income taxes | 0.6 |
| | (3.3 | ) | | 4.2 |
| Deferred revenue | 0.9 |
| | (20.4 | ) | | (10.5 | ) | Other current liabilities | (168.0 | ) | | 151.2 |
| | (52.1 | ) | Other long-term liabilities | (2.5 | ) | | (0.9 | ) | | 0.4 |
| Net cash provided by operating activities | 166.9 |
| | 267.5 |
| | 536.8 |
| Cash flows from investing activities: | | | | | | Capital expenditures | (118.6 | ) | | (132.7 | ) | | (218.7 | ) | Proceeds from sale of assets | 0.1 |
| | — |
| | 0.1 |
| Acquisition of CVR Nitrogen, net of cash acquired
| — |
| | (63.8 | ) | | — |
| Purchase of securities
| — |
| | (4.2 | ) | | — |
| Investment in affiliates, net of return of investment
| (76.5 | ) | | (5.6 | ) | | — |
| Purchase of available-for-sale securities | — |
| | (14.4 | ) | | — |
| Proceeds from sale of available-for-sale securities | — |
| | 19.3 |
| | 68.0 |
| Net cash used in investing activities | (195.0 | ) | | (201.4 | ) | | (150.6 | ) | Cash flows from financing activities: | | | | | | Proceeds on issuance of 2023 Notes, net of original issue discount
| — |
| | 628.8 |
| | — |
| Principal and premium payments on 2021 Notes | — |
| | (322.2 | ) | | — |
| Payments of revolving debt | — |
| | (49.1 | ) | | — |
| Principal payments on CRNF credit facility
| — |
| | (125.0 | ) | | — |
| Payment of capital lease obligations | (1.8 | ) | | (1.7 | ) | | (1.3 | ) | Payment of deferred financing costs | (1.6 | ) | | (10.7 | ) | | — |
| Dividends to CVR Energy's stockholders | (173.7 | ) | | (173.6 | ) | | (173.7 | ) | Distributions to CVR Refining's noncontrolling interest holders | $ | (47.3 | ) | | $ | — |
| | $ | (156.9 | ) | Distributions to CVR Partners' noncontrolling interest holders | $ | (1.5 | ) | | $ | (41.9 | ) | | $ | (42.8 | ) | Excess income tax deficiency of share-based compensation | — |
| | — |
| | (0.1 | ) | Net cash used in financing activities | (225.9 | ) | | (95.4 | ) | | (374.8 | ) | Net increase (decrease) in cash and cash equivalents | (254.0 | ) | | (29.3 | ) | | 11.4 |
| Cash and cash equivalents, beginning of period | 735.8 |
| | 765.1 |
| | 753.7 |
| Cash and cash equivalents, end of period | $ | 481.8 |
| | $ | 735.8 |
| | $ | 765.1 |
| Supplemental disclosures: | | | | | | Cash paid for income taxes, net of refunds | $ | 14.9 |
| | $ | 45.5 |
| | $ | 57.9 |
| Cash paid for interest net of capitalized interest of $1.1, $5.4, and $3.7 for the years ended December 31, 2017, 2016 and 2015, respectively | $ | 105.0 |
| | $ | 76.8 |
| | $ | 45.4 |
| Non-cash investing and financing activities: | | | | | | Construction in progress additions included in accounts payable | $ | 8.2 |
| | $ | 15.8 |
| | $ | 22.3 |
| Change in accounts payable related to construction in progress additions | $ | (5.2 | ) | | $ | 6.0 |
| | $ | 0.7 |
| Landlord incentives for leasehold improvements | $ | 1.2 |
| | $ | — |
| | $ | — |
| Fair value of common units issued in a business combination
| $ | — |
| | $ | 335.7 |
| | $ | — |
| Fair value of debt assumed in a business combination
| $ | — |
| | $ | 367.5 |
| | $ | — |
| Reduction of proceeds from 2023 Notes from underwriting discount
| $ | — |
| | $ | 16.1 |
| | $ | — |
|
SeeThe accompanying notes toare an integral part of these consolidated financial statements.
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Nature of Business
Organization
The "Company," "CVR Energy," or "CVR" may be used to refer to CVR Energy, Inc. and, unless(“CVR Energy,” “CVR,” “we,” “us,” “our,” or the context otherwise requires, its subsidiaries.
CVR“Company”) is a diversified holding company primarily engaged in the petroleum refining and marketing industry (the “Petroleum Segment”) and the nitrogen fertilizer manufacturing industriesindustry through its holdingsinterest in CVR Refining, LP ("CVR Refining" or the "Refining Partnership") and CVR Partners, LP, ("CVR Partners"a publicly traded limited partnership (the “Nitrogen Fertilizer Segment” or the "Nitrogen Fertilizer Partnership"“CVR Partners”). The Refining Partnership is an independent petroleum refinerPetroleum Segment refines and marketer ofmarkets high value transportation fuels primarily in the form of gasoline and diesel fuels. The Nitrogen Fertilizer PartnershipCVR Partners produces and markets nitrogen fertilizers primarily in the form of UANurea ammonium nitrate (“UAN”) and ammonia. The Company's operations include two business segments: the petroleum segmentWe also produce and the nitrogen fertilizer segment. CVR'smarket renewable diesel. CVR’s common stock is listed on the New York Stock Exchange ("NYSE"(“NYSE”) under the symbol "CVI."
As“CVI.” Icahn Enterprises L.P. and its affiliates (“IEP”) owned approximately 71% of the Company’s outstanding common stock as of December 31, 2017, Icahn Enterprises L.P. ("IEP"2022.
Stock Repurchase Program
On October 23, 2019, the Board of Directors authorized a stock repurchase program (the “Stock Repurchase Program”) and its affiliates owned approximately 82%. The Stock Repurchase Program enables the Company to repurchase up to $300 million of the Company's outstanding shares.Company’s common stock. Repurchases under the Stock Repurchase Program may be made from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. The timing, price and amount of repurchases (if any) will be made at the discretion of management and are subject to market conditions as well as corporate, regulatory and other considerations. While the Stock Repurchase Program currently has a duration of four years, it does not obligate the Company to acquire any stock and may be terminated by the Board of Directors at any time. We did not repurchase any of our common stock during the years ended December 31, 2022, 2021, and 2020.
CVR Partners, LP
On April 13, 2011, the Nitrogen Fertilizer Partnership completed its initial public offering of 22,080,000 common units (the "Nitrogen Fertilizer Partnership IPO") priced at $16.00 per unit. The common units, which are listed on the NYSE, began trading on April 8, 2011 under the symbol "UAN."
On April 1, 2016, the Nitrogen Fertilizer Partnership completed the merger (the "East Dubuque Merger") with CVR Nitrogen, LP (“CVR Nitrogen”) (formerly known as East Dubuque Nitrogen Partners, L.P. and also formerly known as Rentech Nitrogen Partners L.P.) and CVR Nitrogen GP, LLC ("CVR Nitrogen GP") (formerly known as East Dubuque Nitrogen GP, LLC and also formerly known as Rentech Nitrogen GP, LLC), whereby the Nitrogen Fertilizer Partnership acquired a nitrogen fertilizer manufacturing facility located in East Dubuque, Illinois (the "East Dubuque Facility"). See Note 3 ("Acquisition").
Interest Holders - As a result of the Nitrogen Fertilizer Partnership's acquisition of CVR Nitrogen, LP and issuance of the unit consideration, the noncontrolling interest related to the Nitrogen Fertilizer Partnership reflected in our Consolidated Financial Statements on April 1, 2016 and from such date and as of December 31, 2017 was2022, public common unitholders held approximately 66%.63% of CVR Partners’ outstanding common units and CVR Services, LLC (“CVR Services”), a wholly-owned subsidiary of CVR Energy, held the remaining approximately 37% of CVR Partners’ outstanding common units. In addition, CRLLC ownsCVR Services held 100% of the Nitrogen Fertilizer Partnership'sinterest in CVR Partners’ general partner, CVR GP, LLC (“CVR GP”), which only holdsheld a non-economic general partner interest.interest in CVR Partners as of December 31, 2022. The noncontrollingnon-controlling interest reflected on the Consolidated Balance Sheets of CVR is only impacted by the net income of, and distributions from, CVR Partners.
Unit Repurchase Program - On May 6, 2020, the Nitrogen Fertilizer Partnership.
board of directors of CVR Refining, LP
On January 23, 2013,Partners’ general partner (the “UAN GP Board”), on behalf of CVR Partners, authorized a unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized CVR Partners to repurchase up to $20 million of the Refining Partnership completedCVR Partners’ common units. During the initial public offering of itsyears ended December 31, 2022 and December 31, 2021, CVR Partners repurchased 111,695 and 24,378 common units, representing limited partner interests (the "Refining Partnership IPO"). The Refining Partnership sold 24,000,000respectively, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $12 million and $1 million, respectively, exclusive of transaction costs, or an average price of $110.98 and $21.69 per common unit, respectively. During the year ended December 31, 2020, as adjusted to reflect the impact of the 1-for-10 reverse unit split of CVR Partners’ common units to the publicthat was effective as of November 23, 2020, CVR Partners repurchased 623,177 common units, respectively, at a cost of $7 million, exclusive of transaction costs, or an average price of $25.00$11.34 per unit, resulting in gross proceeds of $600.0 million, before giving effect to underwriting discounts and other offering expenses. The common units, which are listed on the NYSE, began trading on January 17, 2013 under the symbol "CVRR."
unit. As of December 31, 2017, public security holders held approximately 34%2022, CVR Partners, considering all repurchases made since inception of the total Refining PartnershipUnit Repurchase Program, had a nominal authorized amount remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate CVR Partners to acquire any common units (including units ownedand may be cancelled or terminated by affiliatesthe UAN GP Board at any time.
As a result of IEP representing 3.9% ofthese repurchases, and the total Refining Partnership common units), andresulting change in CVR Refining Holdings, LLC ("CVR Refining Holdings") held approximately 66% of the total Refining Partnership common units. In addition, CVR Refining Holdings owns 100% of the Refining Partnership's general partner, CVR Refining GP, LLC, which holds a non-economic general partner interest. The noncontrolling interest reflected on the Consolidated Balance SheetsEnergy’s ownership of CVR is impacted by the net incomePartners while maintaining control, CVR Energy recognized a decrease of and distributions$2 million to additional paid-in capital from the Refining Partnership.
reduction of non-controlling interests totaling $3 million and related reduction of a deferred tax liability totaling $1 million from changes in its book versus tax basis in CVR Partners as of December 31, 2022. CVR Energy recognized a nominal increase to additional paid-in capital from the non-cash reduction of non-controlling interests totaling $0.1 million and the recognition of a deferred tax liability totaling $0.1 million from changes in its book versus tax basis in CVR Partners as of December 31, 2021.
111December 31, 2022 | 84
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying CVR consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), include the accounts of CVR Energy, Inc.the Company and its majority-owned direct and indirect subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.eliminated. The ownership interests of noncontrolling investors in its subsidiariesCVR Partners are recorded as noncontrolling interests.
The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2015-02, "Consolidations (Topic 810) - Amendments to the Consolidation Analysis" (“ASU 2015-02”), which amended previous consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and CVR Energy has not recognized any other similar entities, became effectivecomprehensive income for the Company as of January 1, 2016. Under this analysis, limited partnershipsperiods ended December 31, 2022, 2021, and other similar entities are considered2020.
CVR Partners was determined to be a variable interest entity (“VIE”) unlessand is consolidated by the limited partners hold substantive kick-out rights or participating rights. Management has determined thatCompany. As the Refining Partnership and100% owner of the Nitrogen Fertilizer Partnership are VIEs because the limited partnersgeneral partner of CVR Refining and CVR Partners, lack both substantive kick-out rights and participating rights. As such, management evaluated the qualitative criteria under FASB Accounting Standard Codification ("ASC") Topic 810 - Consolidation in conjunction with ASU 2015-02 to make a determination whetherCompany has the Refining Partnership and the Nitrogen Fertilizer Partnership should be consolidated in the Company's financial statements. ASC Topic 810-10 requires the primary beneficiary of a variable interest entity's activities to consolidate the VIE. The primary beneficiary is identified as the enterprise that has a) the powersole ability to direct the activities of the VIE that most significantly impact the entity's economic performance of CVR Partners and b)is considered the obligation to absorb lossesprimary beneficiary.
Investments in entities over which the Company has significant influence, but does not control, are accounted for using the equity method of the entity that could potentially be significant to the VIE or the right to receive benefitsaccounting. Income from the entity that could potentially be significant to the VIE. The standard requires an ongoing analysis to determine whether the variable interest gives rise to a controlling financial interest in the VIE. Based upon the general partner’s roles and rights as affordedequity method investments represents CVR Energy’s proportionate share of net income generated by the partnership agreementsequity method investees and its exposure to losses and benefitsis recorded in Other (expense) income, net on the Company’s Consolidated Statements of each ofOperations.
Reclassifications
Certain immaterial reclassifications have been made within the partnerships through its significant limited partner interests, intercompany credit facilities, and services agreements, CVR determined that it is the primary beneficiary of both the Refining Partnership and the Nitrogen Fertilizer Partnership. Based upon that determination, CVR continues to consolidate both the Refining and Nitrogen Fertilizer Partnerships in its consolidated financial statements.statements for prior periods to conform with current presentation.
Use of Estimates
The consolidated financial statements have beenare prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), using management's bestGAAP, which requires management to make certain estimates and judgments where appropriate. These estimates and judgmentsassumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. ActualEstimates are reviewed on an ongoing basis, based on currently available information. Changes in facts and circumstances may result in revised estimates, and actual results could differ materially from these estimates and judgments.those estimates.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, CVR considers alland cash equivalents include cash on hand and on deposit and investments in highly liquid money market accounts and debt instruments with original maturities of three months or less toless.
Restricted Cash
Restricted cash consists of cash that must be cash equivalents. Under the Company's cash management system, checks issued but not presented to banks frequently resultmaintained in book overdraft balances for accounting purposesa commercial escrow account pending resolution of certain litigation matters and are classified within accounts payableis discussed further in the Consolidated Balance Sheets. The change in book overdrafts are reported in the Consolidated Statements of Cash Flows as a component of operating cash flows for accounts payable as they do not represent bank overdrafts. The amount of these checks included in accounts payable as of December 31, 2017Note 11 (“Commitments and 2016 was $22.8 million and $18.1 million, respectively.Contingencies”).
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accounts Receivable, net
CVR grants credit to its customers. Credit is extended based on an evaluation of a customer's financial condition; generally, collateral is not required. Accounts receivable, net primarily consists of customer accounts receivable recorded at the invoiced amounts and generally do not bear interest. Also included within Accounts receivable, net for the Nitrogen Fertilizer Segment are due on negotiated terms and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts outstanding longer than their contractual payment terms are considered past due. CVR determines its allowanceuncollected fixed price contracts which is discussed further within Note 7 (“Revenue”).
Allowances for doubtful accounts by considering a numberare based on historical loss experience, expected credit losses from current economic conditions, and management’s expectations of factors, includingfuture economic conditions. The allowance is recorded when the length of time trade accounts are past due, the customer's ability to pay its obligations to CVR, and the condition of the general economy and the industry as a whole. CVR writes off accounts receivable when they becomeis deemed uncollectible and payments subsequently received on such receivables are creditedis booked to the allowance for doubtful accounts. Amounts collected on accounts receivable are included in net cash provided by operating activities in the Consolidated Statements of Cash Flows. As of December 31, 2017, one customer individually represented greater than 10% of the total net accounts receivable balance.bad debt expense. The largest concentration of credit for any one customer at December 31, 2017 and 2016 was approximately 11% and 10%, respectively,8% of the Accounts receivable, net accounts receivable balance.balance at December 31, 2022 and 2021, respectively. During the years ended December 31, 2022, 2021 and 2020, the Company had nominal bad debt expenses.
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Inventories
Inventories consist primarily of domestic and foreign crude oil, blending stock and components, work-in-progress, fertilizer products, and refined fuels and by-products. Inventoriesby-products, and renewable diesel, all of which are valued at the lower of the first-in, first-out ("FIFO"GAAP First-In, First-Out (“FIFO”) cost or net realizable value for fertilizer products, refined fuelsvalue. Certain inventories in the Petroleum and by-products for all periods presented. Refinery unfinished and finished products inventory values were determined using the ability-to-bear process, whereby raw materials and production costs are allocated to work-in-process and finished products based on their relative fair values. Other inventories,Nitrogen Fertilizer Segments, including other raw materials, spare parts, and supplies, are valued at the lower ofweighted moving-average cost, which approximates FIFO, or net realizable value.FIFO. The cost of inventories includes inbound freight costs.
Prepaid ExpensesInventories consisted of the following:
| | | | | | | | | | | | | December 31, | (in millions) | 2022 | | 2021 | Finished goods | $ | 297 | | | $ | 215 | | Raw materials | 206 | | | 177 | | In-process inventories | 35 | | | 20 | | Parts, supplies and other | 86 | | | 72 | | Total inventories | $ | 624 | | | $ | 484 | |
At December 31, 2022 and Other Current Assets
Prepaid expenses and other current assets consist of prepayments for crude oil deliveries2021, inventories related to the Refining Partnership's refineries for which title had not transferred, non-trade accounts receivable, current portionsNitrogen Fertilizer Segment included depreciation of prepaid insurance, deferred financing costs, derivative agreementsapproximately $4 million and other general current assets.$3 million, respectively.
Property, Plant and Equipment, net
Additions to property, plant and equipment, including capitalized interest and certain costs allocable to construction and property purchases, are recorded at cost. Capitalized interest is added to any capital project over $1.0 million in cost which is expected to take more than six months to complete. When assetsExpenditures for improvements that increase economic benefit or returns and/or extend useful life are placed in service, reasonable useful lives for those assets are estimated.capitalized. Depreciation is computed using principally the straight-line method over the estimated useful lives of the various classes of depreciable assets. The lives used in computing depreciation for such assetssignificant asset classes are as follows: | | | | | | | | | Asset | | Range of Useful Lives, in Years | Improvements to landLand and improvements | 15 | 10 to 30 | Buildings and improvements | 20 | 1 to 30 | Machinery and equipment | 5 | 1 to 30 | Automotive equipment | 5 to 15 | Furniture and fixtures | | 3 to 10 | AircraftRight-of-use (“ROU”) finance leases | 20 | 3 to 18 | RailcarsOther | 25 | 5 to 30 |
Property, plant, and equipment, net consisted of the following: | | | | | | | | | | | | | December 31, | (in millions) | 2022 | | 2021 | Machinery and equipment | $ | 4,194 | | | $ | 4,033 | | Buildings and improvements | 86 | | | 88 | | ROU finance leases | 79 | | | 81 | | Land and improvements | 72 | | | 71 | | Furniture and fixtures | 37 | | | 37 | | Construction in progress | 143 | | | 142 | | Other | 15 | | | 15 | | | 4,626 | | | 4,467 | | Less: Accumulated depreciation and amortization | (2,379) | | | (2,194) | | Total property, plant and equipment, net | $ | 2,247 | | | $ | 2,273 | |
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Leasehold improvements and assets held under capitalfinance leases are depreciated or amortized onutilizing the straight-line method over the shorter of the contractual lease term or the estimated useful life of the asset. Expenditures for routine maintenance and repair costs are expensed when incurred. Such expensesincurred and are reported in directDirect operating expenses (exclusive of depreciation and amortization) in the Company'sCompany’s Consolidated Statements of Operations. For the years ended December 31, 2022, 2021, and 2020, depreciation and amortization expenses were $221 million, $206 million, and $210 million, respectively.
During the year ended December 31, 2022, the Company had not identified the existence of an impairment indicator for our long-lived asset groups as outlined under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment.
Equity Method Investments
The Company accounts for investments in which it has a noncontrolling interest, yet has significant influence over the entity, using the equity method of accounting, whereby the Company records its pro-rata share of earnings, contributions to, and distributions from joint ventures as adjustments to the investment balance.
Leases
At inception, the Company determines whether an arrangement is a lease and the appropriate lease classification. Operating leases are included as operating lease right-of-use (“ROU”) assets within Other long-term assets and lease liabilities within Other current liabilities and Other long-term liabilities on our Consolidated Balance Sheets. Finance leases are included as ROU finance leases within Property, plant, and equipment, net, and finance lease liabilities within Other current liabilities and Long-term debt and finance lease obligations, net of current portion on our Consolidated Balance Sheets. Leases with an initial expected term of 12 months or less are considered short-term and are not recorded on our Consolidated Balance Sheets. The Company recognizes lease expense for these leases on a straight-line basis over the expected lease term.
ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term using an incremental borrowing rate with a maturity similar to the lease term, as our leases do not generally provide an implicit rate. The lease term is modified to reflect options to extend or terminate the lease when it is reasonably certain we will exercise such option. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise, in which case the depreciation policy in the “Property, Plant and Equipment, net” section above is applicable. The periodic lease payments are treated as payments of the lease obligation and interest is recorded as interest expense. A lease modification is assessed to conclude whether it is a separate new contract or a modified contract. If it is a modified contract, the Company reconsiders the lease classification and remeasures the lease.
Deferred Financing Costs
Lender and other third-party costs associated with debt issuances are deferred and amortized to interest expense and other financing costs using the effective-interest method over the term of the debt. Deferred financing costs related to line-of-credit arrangements are amortized using the straight-line method through the maturity date of the facility. The deferred financing costs are included net within Long-term debt and finance lease obligations, net of current portion and in Other long-term liabilities for the line-of-credit arrangements where no debt balance exists.
Impairment of Long-Lived Assets and Goodwill
Long-lived assets (excluding goodwill, intangible assets with indefinite lives, and deferred tax assets) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds their fair value. Assets to be disposed of are reported at the lower of their carrying value or fair value less cost to sell.
113December 31, 2022 | 87
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired less liabilities assumed. Intangible assets are assets that lack physical substance (excluding financial assets). Goodwill acquired in a business combination and intangible assets with indefinite useful lives are not amortized, andwhile intangible assets with finite useful lives are amortized. Goodwill and intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. CVRThe Company uses November 1 of each year as its annual valuation date for its goodwill impairment test.
The Company performedtests goodwill for impairment annually on November 1 of each year, or more frequently if events or changes in circumstances indicate the asset might be impaired. One of our reporting units associated with our Nitrogen Fertilizer Segment’s Coffeyville, Kansas facility (the “Coffeyville Fertilizer Facility”) had a goodwill balance of $41 million at December 31, 2019, which was fully impaired during the second quarter of 2020 when it was determined the estimated fair value of the Coffeyville Fertilizer Facility reporting unit did not exceed its carrying value. As there was no goodwill balance at December 31, 2022, 2021, or 2020, no annual impairment review of goodwillwas performed.
Asset Retirement Obligations
The Company records an asset retirement obligation (“ARO”) at fair value for 2017, 2016 and 2015,the estimated cost to retire a tangible long-lived asset at the time the liability is incurred, which is attributable entirelygenerally when the asset is purchased, constructed, or leased. The liability is recorded when there is a legal or contractual obligation to incur costs to retire the nitrogen fertilizer segmentasset and concludedonly when a reasonable estimate of the fair value can be made.
Certain of the Company’s assets can be used for extended or indeterminate periods of time with proper maintenance and upgrades, which the Company intends, and has a historical practice of, to maintain and upgrade as technological advances are made available. As a result, the Company believes these assets have indeterminate lives for purposes of estimating AROs. A liability will be recognized at such time when sufficient information exists to estimate a date or range of potential settlement dates needed to employ a present value technique to estimate fair value.
Loss Contingencies
In the ordinary course of business, the Company may become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. The outcome of these matters cannot always be predicted accurately, but the Company accrues liabilities for these matters if the Company has determined that it is probable a loss will be incurred and the loss can be reasonably estimated. While it is not possible to predict the outcome of such proceedings, if one or more of them were decided against us, the Company believes there werewould be no impairments. Seematerial impact on its consolidated financial statements. Accrued amounts are reflected in Other current liabilities or Other long-term liabilities depending on when the Company expects to expend such amounts. Refer to Note 8 ("Goodwill"11 (“Commitments and Contingencies”) for further discussion.
Deferred Financing CostsEnvironmental, Health & Safety (“EH&S”) Matters
Deferred financingThe Petroleum Segment and Nitrogen Fertilizer Segment are subject to various federal, state, and local environmental, health, and safety rules and regulations. Liabilities related to future remediation costs associated with debt issuancesof past environmental contamination of properties are amortizedrecognized when the related costs are considered probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, internal and third-party assessments of contamination, available remediation technology, site-specific costs, and currently enacted laws and regulations. In reporting environmental liabilities, no offset is made for potential recoveries. Loss contingency accruals, including those for environmental remediation, are subject to interest expenserevision as further information develops or circumstances change, and such accruals can take into account the legal liability of other financing costs usingparties. Management periodically reviews and, as appropriate, revises its environmental accruals. Environmental expenditures for capital assets are capitalized at the effective-interest method over the lifetime of the debt. Additionally, any underwritingexpenditure when such costs provide future economic benefits. Accrued amounts are reflected in Other current liabilities or Other long-term liabilities depending on when the Company expects to expend such amounts. Refer to Note 11 (“Commitments and original issue discountContingencies”) for further discussion.
Revenue Recognition
The Company’s revenue is generated from contracts with customers and premium related to debt issuancesis recognized at a point in time when performance obligations are amortized to interest expense and other financing costs using the effective-interest method over the lifesatisfied by transferring control of the debt. Deferred financing costs relatedproducts or services to line-of-credit arrangements are amortized to interest expense and other financing costs using the straight-line method through the termination datea customer. The transfer of the facility.
Planned Major Maintenance Costs
The direct-expense method of accounting is used for planned major maintenance activities. Maintenance costs are recognized as expense when maintenance services are performed. Planned major maintenance activities for the nitrogen plant generally occur every two to three years. The required frequency of planned major maintenance activities varies by unit for the refineries, but generally is every four to five years. Costs associated with these turnaround activities were included in direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations.
For the years ended December 31, 2017, 2016 and 2015, the Company's petroleum and nitrogen fertilizer segments incurred the following major scheduled turnaround expenses.control occurs upon
| | | | | | | | | | | | | | For the Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Petroleum segment | | | | | | Coffeyville refinery(1) | $ | — |
| | $ | 31.5 |
| | $ | 102.2 |
| Wynnewood refinery(2) | 80.4 |
| | — |
| | — |
| | | | | | | Nitrogen Fertilizer segment | | | | | | Nitrogen Fertilizer plants(3) | 2.6 |
| | 6.6 |
| | 7.0 |
| Total Major Scheduled Turnaround Expenses | $ | 83.0 |
| | $ | 38.1 |
| | $ | 109.2 |
|
| | | | | | | | | (1) | The Coffeyville refinery completed the first phase of its most recent major scheduled turnaround in November 2015. The second phase of the Coffeyville turnaround was completed during the first quarter of 2016. |
| | (2) | The Wynnewood refinery completed the first phase of its most recent major scheduled turnaround in November 2017. The second phase of the Wynnewood turnaround is expected to occur in 2019. In addition to the two phase turnaround, the petroleum business accelerated certain planned turnaround activities in the first quarter of 2017 on the hydrocracker unit for a catalyst change-out. The petroleum business incurred approximately $13.0 million of major scheduled turnaround expenses for the hydrocracker.
|
| | (3) | The Nitrogen Fertilizer Partnership underwent a full facility turnaround at the Coffeyville fertilizer facility in the third quarter of 2015. During the second quarter of 2016 and the third quarter of 2017, the East Dubuque Facility completed major scheduled turnarounds. |
114December 31, 2022 | 88
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) shipment or delivery of the product, as the customer accepts the product, has title and significant risks and rewards of ownership of the product, physical possession of the product has been transferred, and we have the right to payment.
The transaction prices of the Company’s contracts are either fixed or based on market indices, and any uncertainty related to the variable consideration when determining the transaction price is resolved on the pricing date or the date when the product is delivered. The payment terms depend on the product and type of contract, but generally require customers to pay within 30 days or less, and do not contain significant financing components.
Any pass-through finished goods delivery costs reimbursed by customers are reported in Net sales, while an offsetting expense is included in Cost of materials and other. Non-monetary product exchanges and certain buy/sell transactions which are entered into in the normal course of business are included on a net cost basis in Cost of materials and other on our Consolidated Statements of Operations. Qualifying excise and other taxes collected from customers and remitted to governmental authorities are recorded as a reduction of the transaction price.
Certain sales contracts of the Nitrogen Fertilizer Segment require customer prepayment prior to product delivery to guarantee a price and supply of nitrogen fertilizer. Deferred revenue is recorded at the point in time in which a prepaid contract is legally enforceable and the associated right to consideration is unconditional prior to transferring product to the customer. An associated receivable is recorded for uncollected prepaid contract amounts.
Cost Classifications
Cost of materials and other includes costconsists primarily of crude oil other feedstocks,costs, feedstock blendstocks, purchased refined products, purchased ammonia, purchased hydrogen, pet coke expenses, renewable identification numbers ("RINs"Renewable Identification Number (“RIN”) expenses, derivative gains or losses, and freight and distribution costs.
expenses. Direct operating expenses (exclusive of depreciation and amortization) consist primarily of energy and other utility costs, direct costs of labor, including applicable share-based compensation expense, property taxes, plant-related maintenance services, including turnaround expenses for the Nitrogen Fertilizer Segment, and environmental and safety compliance costs, as well as catalyst and chemical costs.
Selling, general and administrative expenses (exclusive of depreciation and amortization) consist primarily of legallabor and other direct expenses treasury,associated with the Company’s corporate activities, including accounting, marketing,finance, information technology, human resources, legal, and other related administrative functions. For the Company’s Nitrogen Fertilizer Segment, Cost of materials and other and Direct operating expenses (exclusive of depreciation and amortization) are also impacted by changes in inventory balances, as these financial statement line items include inventory production costs.
Derivatives
Our segments are subject to fluctuations of commodity prices caused by supply and economic conditions, weather, interest rates, and other factors. To manage the impact of price fluctuations of crude oil and other commodities in our results of operations and certain inventories, and to fix margins on future sales and purchases, the Petroleum Segment uses various commodity derivative instruments, such as futures and swaps. The Company has not designated any of its derivative contracts as hedge accounting and records changes in fair value and cash settlements in the Consolidated Statements of Operations.
On a regular basis, the Company enters into commodity contracts with counterparties for the purchases or sale of crude oil, blendstocks, various finished products, and RINs. These contracts usually qualify for the normal purchase normal sale exception and follow the accrual method of accounting. The Petroleum Segment may enter into forward purchase or sale contracts associated with RINs. All other derivative instruments are recorded at fair value using mark-to-market accounting on a periodic basis utilizing third-party pricing.
The Nitrogen Fertilizer Segment may enter into forward contracts with fixed delivery prices to purchase portions of its natural gas requirements. These natural gas contracts are not treated as derivatives as they qualify for the normal purchase and normal sale exclusions. Accordingly, the fair value of these contracts are not recorded at the end of each reporting period.
Refer to Note 8 (“Derivative Financial Instruments, Investments and Fair Value Measurements”) for further discussion of the Company’s derivative activity.
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value of Financial Instruments
In accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures (“Topic 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information technologygenerated by market transactions involving identical or comparable assets, liabilities, or a group of assets or liabilities, such as a business.
Topic 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: •Level 1 — Quoted prices in active markets for identical assets or liabilities •Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities) •Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value)
Financial instruments consisting of cash and maintainingcash equivalents, restricted cash, accounts receivable, and accounts payable are carried at cost, which approximates fair value as a result of the corporateshort-term nature of the instruments. The Company’s investments, derivative instruments, RFS obligations and administrative officeslong-term debt, which use fair value measurements and are valued using broker quoted market prices of similar instruments, are considered Level 2 inputs. Refer to Note 8 (“Derivative Financial Instruments, Investments and Fair Value Measurements”) for further fair value disclosures.
Turnaround Expenses
Turnarounds represent major maintenance activities that require the shutdown of significant parts of a plant to perform necessary inspections, cleanings, repairs, and replacements of assets. Costs incurred for routine repairs and maintenance or unplanned outages at our facilities are expensed as incurred. Planned turnaround activities for the Petroleum Segment vary in Texasfrequency dependent on refinery units, but generally occur every four to five years, while the frequency of turnarounds in the Nitrogen Fertilizer Segment is every two to three years. Further details of each segment’s turnaround expensing method are discussed below.
Petroleum Segment - Consistent with others in the refining industry, the Petroleum Segment follows the deferral method of accounting for turnaround activities. Under the deferral method, the costs of turnarounds are deferred and Kansas.amortized on a straight-line basis over a four-year period of time, which represents the estimated time until the next turnaround occurs. Turnaround costs and related accumulated amortization are included in the Consolidated Balance Sheets as Other long-term assets. The amortization expense related to turnaround costs is included in Depreciation and amortization in the Consolidated Statements of Operations. During the years ended December 31, 2022, 2021, and 2020, the Petroleum Segment capitalized $81 million, $8 million, and $155 million, respectively.
Nitrogen Fertilizer Segment - The Nitrogen Fertilizer Segment follows the direct-expense method of accounting for turnaround activities. Costs associated with these turnaround activities are included in Direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations. During the years ended December 31, 2022, 2021, and 2020, the Nitrogen Fertilizer Segment incurred turnaround expenses of $33 million, $3 million, and $1 million, respectively.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. Currently, all of the Company’s share-based compensation awards, including those issued by CVR Partners, are liability-classified and are measured at fair value at the end of each reporting period based on the applicable closing share or unit price. Compensation expense will fluctuate based on changes in the applicable share or unit prices and expense reversals resulting from employee terminations prior to award vesting. Additionally, the Company has issued certain performance unit awards whose fair value is recognized as compensation expense only if the attainment of the performance conditions is considered probable. Uncertainties involved in this estimate include continued employment requirements and whether or not the performance conditions will be attained. The performance objectives are set in accordance with approved levels of the business plan for the fiscal year during the performance cycle and, therefore, are considered reasonably possible of being achieved. If
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS this assumption proves not to be true and the awards do not vest, compensation expense recognized during the performance cycle will be reversed. See Note 9 (“Share-Based Compensation”) for further discussion.
Income Taxes
CVR accountsIncome taxes are accounted for income taxes utilizing the asset and liability approach. Under this method, deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilitiesrecorded in the accounting books and their respective tax basis. Deferred amounts are measured using enacted tax rates expected to apply to taxable income in the year those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Impairment of Long-Lived Assets
CVR accounts for long-lived assets in accordance with accounting standards issued by the FASB regarding the treatment of the impairment or disposal of long-lived assets. As required by these standards, CVR reviews long-lived assets (excluding goodwill, intangible assets with indefinite lives, and deferred tax assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of their carrying value or fair value less cost to sell.
Revenue Recognition
Revenues for products sold are recorded upon delivery of the products to customers, which is the point at which title is transferred, the customer has assumed the risk of loss and payment has been received or collection is reasonably assured. Deferred revenue represents customer prepayments under contracts to guarantee a price and supply of nitrogen fertilizer in quantities expected to be delivered in the next 12 months in the normal course of business. Excise and other taxes collected from customers and remitted to governmental authorities are not included in reported revenues.
Non-monetary product exchanges and certain buy/sell crude oil transactions which are entered into in the normal course of business are included on a net cost basis in operating expenses on the Consolidated Statements of Operations.
Shipping Costs
Pass-through finished goods delivery costs reimbursed by customers are reported in net sales, while an offsetting expense is included in cost of materials and other.
Derivative Instruments and Fair Value of Financial Instruments
The petroleum business uses futures contracts, options, and forward contracts primarily to reduce exposure to changes in crude oil prices and finished goods product prices to provide economic hedges of inventory positions. Although management considers these derivatives economic hedges, these derivative instruments do not qualify as hedges for hedge accounting purposes under ASC Topic 815, Derivatives and Hedging, and accordingly are recorded at fair value in the balance sheet.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Changes in the fair value of these derivative instruments are recorded into earnings as a component of other income (expense) in the period of change. The estimated fair values of forward and swap contracts are based on quoted market prices and assumptions for the estimated forward yield curves of related commodities in periods when quoted market prices are unavailable. See Note 17 ("Derivative Financial Instruments") for further discussion.
The nitrogen fertilizer business enters into forward contracts with fixed delivery prices to purchase portions of its natural gas requirements. The nitrogen fertilizer partnership elected to apply the normal purchase and normal sale exclusion to natural gas contracts that are entered into to be used in production within a reasonable time during the normal course of business. Accordingly, the fair value of these contracts is not recorded on the Consolidated Balance Sheets.
Other financial instruments consisting of cash and cash equivalents, accounts receivable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments. See Note 11 ("Long-Term Debt") for further discussion of the fair value of the debt instruments.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with ASC Topic 718, Compensation — Stock Compensation ("ASC 718"). ASC 718 requires that compensation costs relating to share-based payment transactions be recognized in a company's financial statements. ASC 718 applies to transactions in which an entity exchanges its equity instruments for goods or services and also may apply to liabilities an entity incurs for goods or services that are based on the fair value of those equity instruments. Currently, all of the Company's share-based compensation awards are liability-classified and are measured at fair value at the end of each reporting period based on the applicable closing unit price. Compensation expense will fluctuate based on changes in the applicable unit price value and expense reversals resulting from employee terminations prior to award vesting. See Note 4 ("Share-Based Compensation") for further discussion.
The Company's Chief Executive Officer has been awarded share-based compensation awards that contain performance conditions. The fair value of the awards is recognized as compensation expense only if the attainment of the performance conditions is considered probable. Uncertainties involved in this estimate include the continued employment of the Chief Executive Officer and whether or not the performance conditions will be attained. The performance objectives are set in accordance with approved levels of the business plan for the fiscal year during the performance cycle and therefore are considered reasonably possible of being achieved. If this assumption proves not to be true and the awards do not vest, compensation expense recognized during the performance cycle will be reversed.
Treasury Stock
The Company accounts for its treasury stock under the cost method. To date, all treasury stock purchased was for the purpose of satisfying minimum statutory tax withholdings due at the vesting of non-vested stock awards.
Environmental Matters
Liabilities related to future remediation costs of past environmental contamination of properties are recognized when the related costs are considered probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, internal and third party assessments of contamination, available remediation technology, site-specific costs, and currently enacted laws and regulations. In reporting environmental liabilities, no offset is made for potential recoveries. Loss contingency accruals, including those for environmental remediation, are subject to revision as further information develops or circumstances change and such accruals can take into account the legal liability of other parties. Environmental expenditures are capitalized at the time of the expenditure when such costs provide future economic benefits.
Subsequent Events
The Company evaluated subsequent events, if any, that would require an adjustment to the Company's consolidated financial statements or require disclosure in the notes to the consolidated financial statements through the date of issuance of the consolidated financial statements. See Note 22 ("Subsequent Events") for further discussion.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, creating a new topic, FASB ASC Topic 606, “Revenue from Contracts with Customers", which supersedes revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition.” This ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In addition, an entity is required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for interim and annual periods beginning after December 15, 2017. The Company adopted this standard, effective January 1, 2018, using the modified retrospective application method, whereby the cumulative effect of initially applying the standard is recognized, if applicable, as an adjustment to the opening balance of retained deficit. The standard is applied prospectively and revenues reported in the periods prior to January 1, 2018 will not be changed. During the evaluation of the standard, the Company reviewed its existing revenue streams, including an evaluation of accounting policies, contract reviews and identification of the types of arrangements where differences may arise in the conversion to the new standard, identified practical expedients to be elected, and evaluated additional disclosure requirements. The Company did not identify any material differences in its existing revenue recognition methods that require modification under the new standard and does not expect to record a material cumulative effect adjustment of applying the standard using the modified retrospective method. The standard's most significant impacts to the Company relate to enhanced disclosure requirements and a balance sheet presentation difference associated with contracts requiring customer prepayment prior to delivery. Prior to adoption of the new standard, deferred revenue was recorded upon customer prepayment. Under the new standard, a receivable and associated deferred revenue will be recorded at the point in time in which a prepaid contract is legally enforceable and the associated right to consideration is unconditional.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”) creating a new topic, FASB ASC Topic 842, "Leases," which supersedes lease requirements in FASB ASC Topic 840, "Leases." The new standard revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability related to future lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. Quantitative and qualitative disclosures, including disclosures regarding significant judgments made by management, will be required. The standard is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. At adoption, ASU 2016-02 will be applied using the modified retrospective application method and allows for certain practical expedients. The Company expects its assessment and implementation plan to be ongoing during 2018 and is currently unable to reasonably estimate the impact of adopting the new lease standard on its consolidated financial statements and related disclosures. The Company currently believes the most significant change will relate to the recognition of right-of-use assets and leases liability on the balance sheet for existing long-term operating leases, the majority of which are railcar leases, and the potential recognition for agreements that do not currently meet the definition of a lease under ASC Topic 840, which will require an evaluation of the Company's unconditional purchase obligations primarily related to petroleum transportation and storage service agreements. The right of use asset, lease liability and related disclosures could be material.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business” ("ASU 2017-01"). The new guidance revises the definition of a business and provides more stringent criteria for use in determining when an acquisition or disposal transaction meets the definition of a business. When substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. This introduces an initial required screen that, if met, eliminates the need for further assessment. The new guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard as of January 1, 2017.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment" (“ASU 2017-04”). The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company adopted this standard as of January 1, 2017.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) Acquisition
On April 1, 2016, the Nitrogen Fertilizer Partnership completed the East Dubuque Merger as contemplated by the Agreement and Plan of Merger, dated as of August 9, 2015 (the "Merger Agreement"), whereby the Nitrogen Fertilizer Partnership acquired CVR Nitrogen and CVR Nitrogen GP. Pursuant to the East Dubuque Merger, the Nitrogen Fertilizer Partnership acquired the East Dubuque Facility. The primary reasons for the East Dubuque Merger were to expand the Nitrogen Fertilizer Partnership's geographical footprint, diversify its raw material feedstocks, widen its customer reach and increase its potential for cash-flow generation.
CVR Nitrogen sold its facility located in Pasadena, Texas as a condition to closing the East Dubuque Merger. The Nitrogen Fertilizer Partnership did not receive and will not receive any consideration relating to the sale of the Pasadena Facility.
Under the terms of the Merger Agreement, holders of CVR Nitrogen common units eligible to receive consideration received 1.04 common units (the "unit consideration") representing limited partner interests in CVR Partners ("CVR Partners common units") and $2.57 in cash, without interest (the "cash consideration" and together with the unit consideration, the "merger consideration") for each CVR Nitrogen common unit. Pursuant to the Merger Agreement, CVR Partners issued approximately 40.2 million CVR Partners common units and paid approximately $99.2 million in cash consideration to CVR Nitrogen common unitholders and certain holders of CVR Nitrogen phantom units discussed below.
Phantom units granted and outstanding under CVR Nitrogen’s equity plans and held by an employee who continued in the employment of a CVR Partners-affiliated entity upon closing of the East Dubuque Merger were canceled and replaced with new incentive awards of substantially equivalent value and on similar terms. See Note 4 ("Share-Based Compensation") for further discussion. Each phantom unit granted and outstanding and held by (i) an employee who did not continue in employment of a CVR Partners-affiliated entity, or (ii) a director of CVR Nitrogen GP, upon closing of the East Dubuque Merger, vested in full and the holders thereof received the merger consideration.
In accordance with the FASB’s ASC Topic 805 — Business Combinations ("ASC 805"), the Nitrogen Fertilizer Partnership accounted for the East Dubuque Merger as an acquisition of a business with CVR Partners as the acquirer. ASC 805 requires that the consideration transferred be measured at the current market price at the date of the closing of the East Dubuque Merger. The aggregate merger consideration was approximately $802.4 million, including the fair value of CVR Partners common units issued of $335.7 million, a cash contribution of $99.2 million and $367.5 million fair value of assumed debt. The East Dubuque Facility contributed net sales of $127.9 million and an operating loss of $1.2 million to the Consolidated Statement of Operations for the year ended December 31, 2016.
Parent Affiliate Units
In March 2016, CVR Energy purchased 400,000 CVR Nitrogen common units, representing approximately 1% of the outstanding CVR Nitrogen limited partner interests. CVR Energy did not receive merger consideration for these designated CVR Nitrogen common units. As a result of the East Dubuque Merger, on April 1, 2016, the fair value of the CVR Nitrogen common units of $4.6 million was reclassified as an investment in consolidated subsidiary, which is a non-cash investing activity during the second quarter of 2016. Subsequent to the East Dubuque Merger, the Nitrogen Fertilizer Partnership purchased the 400,000 CVR Nitrogen common units from CVR Energy during the second quarter of 2016 for $5.0 million.
Merger-Related Indebtedness
CVR Nitrogen’s debt arrangements that remained in place after the closing date of the East Dubuque Merger included $320.0 million of its 6.50% notes due 2021 (the "2021 Notes"). The majority of the 2021 Notes were repurchased in June 2016, as discussed further in Note 11 ("Long-Term Debt").
Immediately prior to the East Dubuque Merger, CVR Nitrogen also had outstanding balances under a credit agreement with Wells Fargo Bank, National Association, as successor-in-interest by assignment from General Electric Company, as administrative agent (the "Wells Fargo Credit Agreement"). The Wells Fargo Credit Agreement consisted of a $50.0 million senior secured revolving credit facility with a $10.0 million letter of credit sublimit. In connection with the closing of the East Dubuque Merger, the Nitrogen Fertilizer Partnership paid $49.4 million for the outstanding balance, accrued interest and fees under the Wells Fargo Credit Agreement and the Wells Fargo Credit Agreement was canceled.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Purchase Price Allocation
Under the acquisition method of accounting, the purchase price was allocated to CVR Nitrogen's net tangible assets based on their fair values as of April 1, 2016. The Nitrogen Fertilizer Partnership has obtained an independent appraisal of the net assets acquired. Determining the fair value of net tangible assets requires judgment and involves the use of significant estimates and assumptions. The Nitrogen Fertilizer Partnership based its fair value estimates on assumptions it believes to be reasonable but are inherently uncertain.
The following table, set forth below, displays the purchase price allocated to CVR Nitrogen's net tangible assets based on their fair values as of April 1, 2016. There were no identifiable intangible assets.
| | | | | | | | Purchase Price Allocation | | | (in millions) | Cash | | $ | 35.4 |
| Accounts receivable | | 8.9 |
| Inventories | | 49.1 |
| Prepaid expenses and other current assets | | 5.2 |
| Property, plant and equipment | | 775.3 |
| Other long-term assets | | 1.1 |
| Deferred revenue | | (29.8 | ) | Other current liabilities | | (37.0 | ) | Long-term debt | | (367.5 | ) | Other long-term liabilities | | (1.2 | ) | Total fair value of net assets acquired | | 439.5 |
| Less: Cash acquired | | 35.4 |
| Total consideration transferred, net of cash acquired | | $ | 404.1 |
|
Expenses Associated with the East Dubuque Merger
During the year ended December 31, 2016 and 2015, the Nitrogen Fertilizer Partnership incurred $3.1 million and $2.3 million, respectively, of legal and other professional fees and other merger related expenses, which were included in selling, general and administrative expenses (exclusive of depreciation and amortization).
Noncontrolling Interest in CVR Partners
A summary of the effect of the change in CVR Energy's ownership interest in CVR Partners on the equity attributable to CVR Energy, as a result of CVR Partners issuance of the unit consideration in connection with the East Dubuque Merger, is as follows:
| | | | | | | | | | | Non-controlling interest
| | | (in millions) | Fair value of CVR Partners common units issued, as of the close of the East Dubuque Merger | | $ | 335.7 |
| Less: Change in CVR Energy's noncontrolling interest in CVR Partner's equity due to the East Dubuque Merger | | 292.8 |
| Adjustment to additional paid-in capital, as of the close of the East Dubuque Merger | | $ | 42.9 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(4) Share-Based Compensation
Long-Term Incentive Plan — CVR Energy
CVR has a Long-Term Incentive Plan ("LTIP"), which permits the grant of options, stock appreciation rights ("SARs"), restricted shares, restricted stock units, dividend equivalent rights, share awards and performance awards (including performance share units, performance units and performance-based restricted stock). As of December 31, 2017, only performance units under the LTIP remain outstanding. Individuals who are eligible to receive awards and grants under the LTIP include the Company's employees, officers, consultants, advisors and directors. A summary of the principal features of the LTIP is provided below.
Shares Available for Issuance. The LTIP authorizes a share pool of 7,500,000 shares of the Company's common stock, 1,000,000 of which may be issued in respect of incentive stock options. Whenever any outstanding award granted under the LTIP expires, is canceled, is settled in cash or is otherwise terminated for any reason without having been exercised or payment having been made in respect of the entire award, the number of shares available for issuance under the LTIP is increased by the number of shares previously allocable to the expired, canceled, settled or otherwise terminated portion of the award. As of December 31, 2017, 6,787,341 shares of common stock were available for issuance under the LTIP.
Restricted Stock Units
A summary of restricted stock units activity and changes during the years ended December 31, 2017, 2016 and 2015 is presented below:
| | | | | | | | | | | | | Restricted Shares | | Weighted- Average Grant-Date Fair Value | | Aggregate Intrinsic Value | | | | | | (in millions) | Non-vested at December 31, 2014 | 48,011 |
| | $ | 45.89 |
| | $ | 1.9 |
| Granted | — |
| | — |
| | | Vested | (43,085 | ) | | 45.55 |
| | | Forfeited | (4,327 | ) | | 47.68 |
| | | Non-vested at December 31, 2015 | 599 |
| | $ | 57.23 |
| | $ | — |
| Granted | — |
| | — |
| | | Vested | (599 | ) | | 57.23 |
| | | Forfeited | — |
| | — |
| | | Non-vested at December 31, 2016 | — |
| | $ | — |
| | $ | — |
|
Through the LTIP, shares of restricted stock and restricted stock units (collectively "restricted shares") were previously granted to employees of the Company. These restricted shares were generally graded-vesting awards, which vested over a three-year period. Compensation expense was recognized on a straight-line basis over the vesting period of the respective tranche of the award. The change of control of CVR Energy in 2012 triggered a modification to outstanding awards under the LTIP converting the awards to restricted stock units whereby the recipient received cash settlement of the offer price of $30.00 per share in cash plus one contingent cash payment right ("CCP") upon vesting. The CCPs expired on August 19, 2013. Restricted shares that vested in 2013, 2014 and 2015 were converted to restricted stock units whereby the awards were settled in cash upon vesting in an amount equal to the lesser of the offer price or the fair market value of the Company's common stock as determined at the most recent valuation date of December 31 of each year. The awards were remeasured at each subsequent reporting date until they vested.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In December 2012 and during 2013, restricted stock units and dividend equivalent rights were granted to certain employees of CVR. The awards vested over three years with one-third of the award vesting each year with the exception of awards granted to certain executive officers that vested over one year. The award granted in December 2012 to Mr. Lipinski, the Company's then Chief Executive Officer and President, was canceled in connection with the issuance of certain performance unit awards as discussed further below. Each restricted stock unit and dividend equivalent right represented the right to receive, upon vesting, a cash payment equal to (i) the fair market value of one share of the Company's common stock, plus (ii) the cash value of all dividends declared and paid by the Company per share of the Company's common stock from the grant date to and including the vesting date. The awards, which were liability-classified, were remeasured each subsequent reporting date until they vested.
As of December 31, 2017, no restricted stock units were outstanding. Total compensation expense for the years ended December 31, 2017 and 2016 related to the restricted stock unit awards was nominal. Total compensation expense for the year ended December 31, 2015 was approximately $0.8 million related to the restricted stock unit awards.
As of December 31, 2017, the Company had no liability for non-vested restricted stock unit awards and associated dividend equivalent rights. The liability as of December 31, 2016 was nominal. For the year ended December 31, 2017, no cash was paid to settle liability-classified restricted stock unit awards and dividend equivalent rights. For the years ended December 31, 2016 and 2015, the Company paid cash of a nominal amount and $2.5 million, respectively, to settle liability-classified restricted stock unit awards and dividend equivalent rights upon vesting.
Performance Unit Awards
In December 2015, the Company entered into a performance unit award agreement (the "2015 Performance Unit Award Agreement") with Mr. Lipinski. The performance unit award of 3,500 performance units under the 2015 Performance Unit Award Agreement represents the right to receive, upon vesting, a cash payment equal to $1,000 multiplied by the applicable performance factor. The performance factor is determined based on the level of attainment of the applicable performance objective, set forth as a percentage, which may range from 0-110%. Seventy-five percent of the performance units attributable to the award are subject to a performance objective relating to the average barrels per day crude throughput during the performance cycle, and 25% of the performance units attributable to the award are subject to a performance objective relating to the average gathered crude barrels per day during the performance cycle. The performance objectives are set in accordance with approved levels of the business plan for the fiscal year during the performance cycle and therefore are considered reasonably possible of being achieved. The amount paid pursuant to the award was paid during the first quarter of 2017. Both the Refining Partnership and the Nitrogen Fertilizer Partnership reimbursed CVR Energy for their allocated portions of the performance unit award. Compensation cost for the 2015 Performance Unit Award Agreement of $3.5 million was recognized over the performance cycle from January 1, 2016 to December 31, 2016.
In December 2016, the Company entered into a performance unit award agreement (the "2016 Performance Unit Award Agreement") with Mr. Lipinski with terms substantially the same as the 2015 Performance Unit Award Agreement. The performance objectives are set in accordance with approved levels of the business plan for the fiscal year during the performance cycle and therefore are considered reasonably possible of being achieved. The amount paid pursuant to the award, if any, will be paid following the end of the performance cycle for the award, but no later than March 6, 2018. Both the Refining Partnership and the Nitrogen Fertilizer Partnership are responsible for reimbursing CVR Energy for their allocated portions of the performance unit award. Compensation cost for the 2016 Performance Unit Award Agreement of $3.6 million was recognized over the performance cycle from January 1, 2017 to December 31, 2017. As of December 31, 2017, the Company had an outstanding liability of $3.6 million related to the 2016 performance unit award.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On November 1, 2017, the Company entered into a performance unit agreement (the "2017 Performance Unit Agreement") with David Lamp, the Company's current Chief Executive Officer and President. Compensation cost for the 2017 Performance Unit Agreement will be recognized over the performance cycle from January 1, 2018 to December 31, 2018. The performance unit award of 1,500 performance units under the 2017 Performance Unit Agreement represents the right to receive, upon vesting, a cash payment equal to $1,000 multiplied by the applicable performance factor. The performance factor is determined based on the level of attainment of the applicable performance objective, and both the performance factor and performance objective(s) will be determined by CVR Energy's compensation committee. The amount paid pursuant to the award, if any, will be paid following the end of the performance cycle for the award, but no later than March 6, 2019. Both the Refining Partnership and the Nitrogen Fertilizer Partnership are responsible for reimbursing CVR Energy for their allocated portions of the performance unit award. Assuming a target performance threshold and that the allocation of costs from CVR Energy remains consistent with the allocation percentages in place at December 31, 2017, there was approximately $1.5 million of total unrecognized compensation cost related to the 2017 Performance Unit Agreement to be recognized over a period of one year.
On November 1, 2017, the Company entered into a performance unit award agreement (the "2017 Performance Unit Award Agreement") with Mr. Lamp. The performance unit award represents the right to receive upon vesting, a cash payment equal to $10.0 million if the average closing price of CVR Energy's common stock over the 30-trading day period from January 4, 2022 to February 15, 2022 is equal to or greater than $60 per share. At December 31, 2017, there was approximately $10.0 million of total unrecognized compensation cost related to the 2017 Performance Unit Award Agreement to be recognized over a period of 4 years.
Long-Term Incentive Plan — CVR Partners
Common Units and Phantom Units
Individuals who are eligible to receive awards under the CVR Partners, LP Long-Term Incentive Plan ("CVR Partners LTIP") include (i) employees of the Nitrogen Fertilizer Partnership and its subsidiaries, (ii) employees of its general partner, (iii) members of the board of directors of its general partner and (iv) employees, consultants and directors of CVR Energy. The CVR Partners LTIP provides for the grant of options, unit appreciation rights, distribution equivalent rights, restricted units, phantom units and other unit-based awards, each in respect of common units. The maximum number of common units issuable under the CVR Partners' LTIP is 5,000,000. As of December 31, 2017, there were 4,820,215 common units available for issuance under the CVR Partners LTIP.
Through the CVR Partners LTIP, phantom and common units have been awarded to employees of the Nitrogen Fertilizer Partnership and its general partner and to members of the board of directors of its general partner. In 2015, 2016 and 2017, awards of phantom units and distribution equivalent rights were granted to certain employees of the Nitrogen Fertilizer Partnership and its subsidiaries and its general partner. The awards are generally graded vesting awards, which are expected to vest over three years with one-third of the award vesting each year. Compensation expense is recognized on a straight-line basis over the vesting period of the respective tranche of the award. Each phantom unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one unit of the Nitrogen Fertilizer Partnership's common units in accordance with the award agreement, plus (ii) the per unit cash value of all distributions declared and paid by the Nitrogen Fertilizer Partnership from the grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of common units and phantom units (collectively "units") activity and changes under the CVR Partners LTIP during the years ended December 31, 2017, 2016 and 2015 is presented below:
| | | | | | | | | | | | | Units | | Weighted- Average Grant-Date Fair Value | | Aggregate Intrinsic Value | | | | | | (in millions) | Non-vested at December 31, 2014 | 243,946 |
| | $ | 11.07 |
| | $ | 2.4 |
| Granted | 245,199 |
| | 7.87 |
| | | Vested | (94,854 | ) | | 12.55 |
| | | Forfeited | (2,388 | ) | | 10.99 |
| | | Non-vested at December 31, 2015 | 391,903 |
| | $ | 8.71 |
| | $ | 3.1 |
| Granted | 680,718 |
| | 6.20 |
| | | Vested | (292,536 | ) | | 8.78 |
| | | Forfeited | (8,299 | ) | | 8.72 |
| | | Non-vested at December 31, 2016 | 771,786 |
| | $ | 6.47 |
| | $ | 4.6 |
| Granted | 780,372 |
| | 3.48 |
| | | Vested | (340,730 | ) | | 7.01 |
| | | Forfeited | (23,222 | ) | | 6.49 |
| | | Non-vested at December 31, 2017 | 1,188,206 |
| | $ | 4.35 |
| | $ | 3.9 |
|
As of December 31, 2017, there was approximately $3.3 million of total unrecognized compensation cost related to the awards under the CVR Partners LTIP to be recognized over a weighted-average period of 1.7 years. Total compensation expense recorded for the years ended December 31, 2017, 2016 and 2015 related to the awards under the CVR Partners LTIP was approximately $1.1 million, $1.8 million and $1.3 million, respectively.
At December 31, 2017 and 2016, the Nitrogen Fertilizer Partnership had a liability of $0.7 million and $1.0 million, respectively, for cash-settled non-vested phantom unit awards and associated distribution equivalent rights, which is recorded in personnel accruals on the Consolidated Balance Sheets. For the years ended December 31, 2017, 2016 and 2015 the Nitrogen Fertilizer Partnership paid cash of $1.4 million, $2.1 million and $0.8 million, respectively, to settle liability-classified awards and associated distribution equivalent rights upon vesting.
Performance-Based Phantom Units
In May 2014, the Nitrogen Fertilizer Partnership entered into a Phantom Unit Agreement with the Chief Executive Officer and President of its general partner that included performance-based phantom units and distribution equivalent rights. Compensation cost for these awards was recognized over the performance cycles of May 1, 2014 to December 31, 2014, January 1, 2015 to December 31, 2015 and January 1, 2016 to December 31, 2016, as the services were provided. Each phantom unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average closing price of the Nitrogen Fertilizer Partnership's common units in accordance with the award agreement, multiplied by a performance factor that is based upon the level of the Nitrogen Fertilizer Partnership’s production of UAN, and (ii) the per unit cash value of all distributions declared and paid by the Nitrogen Fertilizer Partnership from the grant date to and including the vesting date. Total compensation expense recorded for the years ended December 31, 2017 and 2016 related to the award was not material. As there were no remaining performance cycles related to these awards, there was no unrecognized compensation expense or liability associated with the phantom units at December 31, 2017.
On December 31, 2014, the first award of the Phantom Unit Agreement vested and a nominal amount was paid in 2015. On December 31, 2015, the second award of the Phantom Unit Agreement vested and a nominal amount was paid in 2016. On December 31, 2016, the third award of the Phantom Unit Agreement vested and nominal amount was paid in 2017. The award was fully vested at December 31, 2016 and the amount associated with the agreement was not material.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Incentive Plan – CVR Refining
Individuals who are eligible to receive awards under the CVR Refining, LP Long-Term Incentive Plan (the "CVR Refining LTIP") include (i) employees of the Refining Partnership and its subsidiaries, (ii) employees of the general partner, (iii) members of the board of directors of the general partner and (iv) certain employees, consultants and directors of Coffeyville Resources, LLC ("CRLLC") and CVR Energy who perform services for the benefit of the Refining Partnership. The CVR Refining LTIP provides for the grant of options, unit appreciation rights, restricted units, phantom units, unit awards, substitute awards, other-unit based awards, cash awards, performance awards and distribution equivalent rights, each in respect of common units. The maximum number of common units issuable under the CVR Refining LTIP is 11,070,000. As the phantom unit awards discussed below are cash-settled awards, they did not reduce the number of common units available for issuance under the plan.
In 2015, 2016 and 2017, awards of phantom units and distribution equivalent rights were granted to employees of the Refining Partnership and its subsidiaries, its general partner and certain employees of CRLLC and CVR Energy who perform services solely for the benefit of the Refining Partnership. The awards are generally graded-vesting awards, which are expected to vest over three years with one-third of the award vesting each year. Compensation expense is recognized on a straight-line basis over the vesting period of the respective tranche of the award. Each phantom unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one unit of the Refining Partnership's common units in accordance with the award agreement, plus (ii) the per unit cash value of all distributions declared and paid by the Refining Partnership from the grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest.
A summary of phantom unit activity and changes under the CVR Refining LTIP during the years ended December 31, 2017, 2016 and 2015 is presented below:
| | | | | | | | | | | | | Phantom Units | | Weighted- Average Grant-Date Fair Value | | Aggregate Intrinsic Value | | | | | | (in millions) | Non-vested at December 31, 2014 | 403,947 |
| | $ | 18.89 |
| | $ | 6.8 |
| Granted | 302,319 |
| | 20.40 |
| | | Vested | (136,531 | ) | | 19.26 |
| | | Forfeited | (58,144 | ) | | 18.87 |
| | | Non-vested at December 31, 2015 | 511,591 |
| | $ | 19.68 |
| | $ | 9.7 |
| Granted | 644,148 |
| | 9.43 |
| | | Vested | (218,351 | ) | | 19.78 |
| | | Forfeited | (32,533 | ) | | 19.13 |
| | | Non-vested at December 31, 2016 | 904,855 |
| | $ | 12.38 |
| | $ | 9.4 |
| Granted | 550,172 |
| | 12.66 |
| | | Vested | (349,921 | ) | | 13.42 |
| | | Forfeited | (118,626 | ) | | 13.52 |
| | | Non-vested at December 31, 2017 | 986,480 |
| | $ | 12.03 |
| | $ | 16.3 |
|
As of December 31, 2017, there was approximately $13.1 million of total unrecognized compensation cost related to the awards under the CVR Refining LTIP to be recognized over a weighted-average period of 1.7 years. Total compensation expense recorded for the years ended December 31, 2017, 2016 and 2015 related to the awards under the CVR Refining LTIP was $7.4 million, $1.8 million and $4.6 million, respectively. As of December 31, 2017 and 2016, the Refining Partnership had a liability of $3.7 million and $1.5 million, respectively, for non-vested phantom unit awards and associated distribution equivalent rights, which is recorded in personnel accruals on the Consolidated Balance Sheets. For the years ended December 31, 2017, 2016 and 2015, the Refining Partnership paid cash of $5.1 million, $2.6 million and $3.3 million, respectively, to settle liability-classified phantom unit awards and associated distribution equivalent rights upon vesting.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In December 2014, the Company granted an award of 227,927 incentive units in the form of SARs to an executive of CVR Energy. In April 2015, the award granted was canceled and replaced by an award of notional units in the form of SARs by CVR Refining pursuant to the CVR Refining LTIP. The replacement award is structured on the same economic and other terms as the incentive unit award and did not result in a material impact. Each SAR vests over three years and entitles the executive to receive a cash payment in an amount equal to the excess of the fair market value of one unit of the Refining Partnership's common units for the first ten trading days in the month prior to vesting over the grant price of the SAR. The fair value will be adjusted to include all distributions declared and paid by the Refining Partnership during the vesting period. The fair value of each SAR is estimated at the end of each reporting period using the Black-Scholes option-pricing model. Assumptions utilized to value the award have been omitted due to immateriality of the award. The SARs vested on December 1, 2017 and the awards had a fair value of zero as of December 31, 2017. Total compensation expense during the years ended December 31, 2017, 2016 and 2015 and the liability related to the SARs as of December 31, 2017 and 2016 were not material.
Incentive Unit Awards
In 2015, 2016 and 2017, the Company granted awards of incentive units and distribution equivalent rights to certain employees of CRLLC, CVR Energy and CVR GP, LLC. The awards are generally graded-vesting awards, which are expected to vest over three years with one-third of the award vesting each year. Compensation expense is recognized on a straight-line basis over the vesting period of the respective tranche of the award. Each incentive unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one unit of the Refining Partnership's common units in accordance with the award agreement, plus (ii) the per unit cash value of all distributions declared and paid by the Refining Partnership from the grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest.
A summary of incentive unit activity and changes during the years ended December 31, 2017, 2016 and 2015 is presented below:
| | | | | | | | | | | | | Incentive Units | | Weighted- Average Grant-Date Fair Value | | Aggregate Intrinsic Value | | | | | | (in millions) | Non-vested at December 31, 2014 | 435,515 |
| | $ | 18.95 |
| | $ | 7.3 |
| Granted | 347,811 |
| | 20.38 |
| | | Vested | (160,120 | ) | | 19.33 |
| | | Forfeited | (18,264 | ) | | 19.69 |
| | | Non-vested at December 31, 2015 | 604,942 |
| | $ | 19.64 |
| | $ | 11.5 |
| Granted | 678,469 |
| | 9.46 |
| | | Vested | (256,016 | ) | | 19.69 |
| | | Forfeited | (39,598 | ) | | 19.52 |
| | | Non-vested at December 31, 2016 | 987,797 |
| | $ | 12.63 |
| | $ | 10.3 |
| Granted | 382,648 |
| | 12.87 |
| | | Vested | (371,731 | ) | | 14.14 |
| | | Forfeited | (219,453 | ) | | 12.23 |
| | | Non-vested at December 31, 2017 | 779,261 |
| | $ | 12.14 |
| | $ | 12.9 |
|
As of December 31, 2017, there was approximately $10.0 million of total unrecognized compensation cost related to non-vested incentive units to be recognized over a weighted-average period of approximately 1.6 years. Total compensation expense for the years ended December 31, 2017, 2016 and 2015 related to the incentive units was $6.8 million, $2.3 million and $5.7 million, respectively. As of December 31, 2017 and 2016, the Company had a liability of $3.3 million and $1.9 million, respectively, for non-vested incentive units and associated distribution equivalent rights, which is recorded in personnel accruals on the Consolidated Balance Sheets. For the years ended December 31, 2017, 2016 and 2015, the Company paid cash of $5.5 million, $3.0 million and $3.9 million, respectively, to settle liability-classified incentive unit awards and associated distribution equivalent rights upon vesting.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(5) Inventories
Inventories consisted of the following:
| | | | | | | | | | December 31, | | 2017 | | 2016 | | (in millions) | Finished goods | $ | 172.0 |
| | $ | 151.7 |
| Raw materials and precious metals | 113.8 |
| | 98.4 |
| In-process inventories | 22.4 |
| | 23.9 |
| Parts and supplies | 77.0 |
| | 75.2 |
| Total Inventories | $ | 385.2 |
| | $ | 349.2 |
|
(6) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| | | | | | | | | | December 31, | | 2017 | | 2016 | | (in millions) | Land and improvements | $ | 47.4 |
| | $ | 46.5 |
| Buildings | 83.3 |
| | 64.8 |
| Machinery and equipment | 3,733.8 |
| | 3,656.5 |
| Automotive equipment | 24.7 |
| | 24.7 |
| Furniture and fixtures | 32.4 |
| | 28.9 |
| Leasehold improvements | 4.6 |
| | 3.6 |
| Aircraft | 3.6 |
| | 3.6 |
| Railcars | 16.8 |
| | 16.8 |
| Construction in progress | 56.2 |
| | 54.2 |
| | 4,002.8 |
| | 3,899.6 |
| Less: Accumulated depreciation | 1,431.0 |
| | 1,227.5 |
| Total Property, plant and equipment, net | $ | 2,571.8 |
| | $ | 2,672.1 |
|
Capitalized interest recognized as a reduction in interest expense for the years ended December 31, 2017, 2016 and 2015 totaled approximately $1.1 million, $5.4 million and $3.7 million, respectively. Land, buildings and equipment that are under a capital lease obligation had an original carrying value of approximately $24.8 million at both December 31, 2017 and 2016. Amortization of assets held under capital leases is included in depreciation expense.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(7) Equity Method Investments
VPP Joint Venture
OnSeptember 19, 2016, Coffeyville Resources Pipeline, LLC ("CRPLLC"), an indirect wholly-owned subsidiary of CVR Refining, entered into an agreement with Velocity Central Oklahoma Pipeline LLC ("Velocity") related to their joint ownership of Velocity Pipeline Partners, LLC ("VPP"), which is a pipeline company that operates a 12-inch crude oil pipeline with a capacity of approximately 65,000 barrels per day and an estimated length of 25 miles with a connection to the Refining Partnership's Wynnewood refinery and a trucking terminal at Lowrance, Oklahoma. CRPLLC holds a 40% interest in VPP. Velocity holds a 60% interest in VPP and serves as the day-to-day operator of VPP. As of December 31, 2017, the carrying value of CRPLLC's investment in VPP was $6.1 million, which is recorded in equity method investments in affiliates on the Consolidated Balance Sheets. Contributions by CRPLLC to VPP during the pipeline construction totaled $7.0 million, of which $1.4 million was contributed in the first quarter of 2017.
The pipeline commenced operations in mid-April 2017 following completion of construction. Equity income from VPP for the nine months ended December 31, 2017 was $0.2 million, which is recorded in other income, net on the Consolidated Statements of Operations. For the nine months ended December 31, 2017, CRPLLC received cash distributions from VPP of $1.1 million.
Coffeyville Resources Refining & Marketing, LLC ("CRRM") is party to a transportation agreement with VPP for an initial term of 20 years under which VPP provides CRRM with crude oil transportation services for crude oil purchased within a defined geographic area, and CRRM entered into a terminalling services agreement with Velocity under which it receives access to Velocity’s terminal in Lowrance, Oklahoma to unload and pump crude oil into VPP's pipeline for an initial term of 20 years. For the nine months ended December 31, 2017, CRRM incurred costs of $1.8 million, under the transportation agreement with VPP. CRRM's crude shipments on the pipeline for the nine months ended December 31, 2017 averaged approximately 16,000 barrels per day. As of December 31, 2017, the Consolidated Balance Sheets included a liability of $0.3 million to VPP.
Midway Joint Venture
On October 31, 2017, subsidiaries of CVR Refining and Plains All American Pipeline, L.P. ("Plains") formed a 50/50 joint venture, Midway Pipeline LLC ("Midway"), which acquired the approximately 100-mile, 16-inch Cushing to Broome pipeline system from Plains. The Cushing to Broome pipeline system connects CVR Refining’s Coffeyville, Kansas, refinery to the Cushing, Oklahoma oil hub. Midway has a contract with Plains pursuant to which Plains will continue its role as operator of the pipeline. In November 2017, CVR Refining contributed $76.0 million to Midway and for the two months ended December 31, 2017 CVR Refining's equity income from Midway was $0.7 million, which is recorded in other income, net on the Consolidated Statements of Operations. As of December 31, 2017, the carrying value of CVR Refining's investment in Midway was $76.7 million, which is recorded in equity method investments in affiliates on the Consolidated Balance Sheets.
For the two months ended December 31, 2017, CVR Refining incurred costs of $3.0 million with Midway for crude oil transportation services. Crude shipments on the pipeline for the two months ended December 31, 2017 averaged approximately 103,000 barrels per day. As of December 31, 2017, the Consolidated Balance Sheets included a liability of $0.0 million to Midway.
(8) Goodwill
The Nitrogen Fertilizer Partnership evaluates the carrying value of goodwill annually as of November 1 and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The Nitrogen Fertilizer Partnership's goodwill reporting unit is the Coffeyville Fertilizer Facility. No impairment of goodwill was recorded for any of the periods presented.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
August 31, 2017 Interim Impairment Test
Based on a significant decline in market capitalization and lower cash flow forecasts resulting from weakened fertilizer pricing trends that occurred during the third quarter of 2017, the Nitrogen Fertilizer Partnership identified a triggering event and therefore performed an interim goodwill impairment test as of August 31, 2017. The quantitative goodwill impairment analysis compares the fair value of the reporting unit to its carrying value. The Coffeyville Fertilizer Facility reporting unit fair value is based upon consideration of various valuation methodologies, including guideline public company multiples and projected future cash flows discounted at rates commensurate with the risk involved. The carrying amount of the reporting unit was less than its fair value; therefore, no impairment was recorded.
The fair value of the reporting unit exceeded its carrying value by approximately 12% based upon the results of the interim goodwill impairment test as of August 31, 2017. Judgments and assumptions are inherent in management’s estimates used to determine the fair value of the reporting unit. Assumptions used in the discounted cash flows ("DCF") included estimating appropriate discount rates and growth rates, and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF, which are intended to reflect the risks inherent in future cash flow projections, are based on estimates of the weighted-average cost of capital of a market participant. Such estimates are derived from analysis of peer companies and consider the industry weighted average return on debt and equity from a market participant perspective. The most significant assumption to determining the fair value of the reporting unit was forecasted fertilizer pricing. The Nitrogen Fertilizer Partnership also calculated fair value estimates derived from the market approach utilizing the public company market multiple method, which required assumptions about the applicability of those multiples to the Coffeyville Facility reporting unit.
November 1, 2017 Annual Impairment Test
Due to the short length of time since the August 31, 2017 interim impairment test, the Nitrogen Fertilizer Partnership elected to perform a qualitative evaluation as of November 1, 2017. The qualitative analysis included an analysis of the key drivers and other external factors that may impact the results of operations of the Nitrogen Fertilizer Partnership's Coffeyville Facility to determine if any significant events, transactions or other factors had occurred or are expected to occur that would indicate the fair value of the reporting unit was less than its carrying value. After assessing the totality of events and circumstances, it was determined that there were no events or circumstances that would have a significant negative impact to management’s estimates used in the August 31, 2017 goodwill analysis, and therefore, it was not more likely than not that the fair value of the Nitrogen Fertilizer Partnership's Coffeyville Facility was less than the carrying value. Based on the results of the tests, it was not necessary to perform the quantitative goodwill impairment analysis.
(9) Insurance Claims
On July 29, 2014, the Refining Partnership's Coffeyville refinery experienced a fire at its isomerization unit. The fire was extinguished, and the refinery was subsequently shut down due to a failure of its plant-wide Distributed Control System, which was directly caused by the fire. This interruption adversely impacted production of refined products for the petroleum business in the third quarter of 2014. Total gross repair and other costs recorded related to the incident for the year ended December 31, 2014 were approximately $6.3 million.
The Refining Partnership had property damage insurance policies at the time of the incident, which had an associated deductible of $5.0 million for the Coffeyville refinery. The Refining Partnership received net indemnity of approximately $1.2 million from insurers for this incident in the first quarter of 2016. The insurance indemnity reduced direct operating expenses (exclusive of depreciation and amortization).
(10) Income Taxes
On May 19, 2012, CVR became a member of the consolidated federal tax group of American Entertainment Properties Corporation ("AEPC"), a wholly-owned subsidiary of IEP, and subsequently entered into a tax allocation agreement with AEPC (the "Tax Allocation Agreement"). The Tax Allocation Agreement provides that AEPC will pay all consolidated federal income taxes on behalf of the consolidated tax group. CVR is required to make payments to AEPC in an amount equal to the tax liability, if any, that it would have paid if it were to file as a consolidated group separate and apart from AEPC.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 2017 and 2016, the Company's Consolidated Balance Sheets reflected a receivable of $5.1 million and a payable of $10.6 million, respectively, for federal income taxes due to/from AEPC. These amounts are recorded as due to/from parent in the Consolidated Balance Sheets. During the years ended December 31, 2017, 2016 and 2015, the Company paid $15.0 million, $45.0 million and $57.5 million, respectively, to AEPC under the Tax Allocation Agreement.
Income tax expense (benefit) is comprised of the following:
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Current | | | | | | Federal | $ | (0.7 | ) | | $ | 67.2 |
| | $ | 74.9 |
| State | (22.1 | ) | | (7.0 | ) | | 14.5 |
| Total current | (22.8 | ) | | 60.2 |
| | 89.4 |
| Deferred | | | | | | Federal | (181.4 | ) | | (61.0 | ) | | 2.7 |
| State | (12.7 | ) | | (19.0 | ) | | (7.6 | ) | Total deferred | (194.1 | ) | | (80.0 | ) | | (4.9 | ) | Total income tax expense (benefit) | $ | (216.9 | ) | | $ | (19.8 | ) | | $ | 84.5 |
|
The following is a reconciliation of total income tax expense (benefit) to income tax expense (benefit) computed by applying the statutory federal income tax rate (35%) to pretax income (loss):
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Tax computed at federal statutory rate | $ | 0.0 |
| | $ | (3.8 | ) | | $ | 133.8 |
| State income taxes, net of federal tax benefit | (15.7 | ) | | (8.0 | ) | | 11.7 |
| State tax incentives, net of federal tax expense | (6.9 | ) | | (8.8 | ) | | (7.2 | ) | Domestic production activities deduction | — |
| | (4.3 | ) | | (5.9 | ) | Noncontrolling interest | 6.1 |
| | 5.5 |
| | (44.9 | ) | Other, net | 0.1 |
| | (0.4 | ) | | (3.0 | ) | Adjustment to deferred tax assets and liabilities for enacted change in federal tax rate | (200.5 | ) | | — |
| | — |
| Total income tax expense (benefit) | $ | (216.9 | ) | | $ | (19.8 | ) | | $ | 84.5 |
|
The 2017 state benefit is higher than expected due to the release of a portion of the reserve for uncertain tax positions on state credits and the related interest and the change in the value of the deferred tax assets and liabilities due to the reduced state tax rate. The impact of these items on the state income tax benefit, net of federal tax expense is $(14.3) million and $(1.7) million, respectively.
The Company earns Kansas High Performance Incentive Program ("HPIP") credits for qualified business facility investment within the state of Kansas. CVR recognized a net income tax benefit of approximately $4.3 million, $5.7 million and $4.3 million on a credit of approximately $6.6 million, $8.7 million and $6.7 million for the years ended December 31, 2017, 2016 and 2015, respectively, with respect to the HPIP credits. The Company earns Oklahoma Investment credits for qualified manufacturing facility investment within the state of Oklahoma. CVR recognized a net income tax benefit of approximately $2.6 million, $3.1 million and $2.9 million on a credit of approximately $4.0 million, $4.8 million and $4.4 million for the years ended December 31, 2017, 2016 and 2015, respectively, with respect to the Oklahoma Investment credits.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 2017, CVR has Kansas state income tax credits of approximately $9.3 million, which are available to reduce future Kansas state income taxes. These credits, if not used, will expire beginning in 2032. Additionally, CVR has Oklahoma state income tax credits of approximately $29.8 million which are available to reduce future Oklahoma state income taxes. These credits have an indefinite life.
The Company also has a net operating loss carryforward of $27.5 million. The loss, if not used, will expire in 2037.
The income tax benefit for the year ended December 31, 2017 was favorably impacted as a result of the Tax Cuts and Jobs Act (“TCJA”) legislation that was signed into law in December 2017, reducing the federal income tax rate from 35% to 21% beginning in 2018. The Company is required to reflect the impact of tax law changes in its consolidated financial statements in the period of enactment. As a result, our net deferred tax liabilities at December 31, 2017 were remeasured to reflect the lower tax rate that will be in effect for the years in which the deferred tax assets and liabilities will be realized. A benefit of approximately $200.5 million was recognized as a result of the remeasurement.
The income tax effect of temporary differences that give rise to significant portionsrealizability of the deferred income tax assets, and deferred income tax liabilities at December 31, 2017 and 2016 are as follows:
| | | | | | | | | | December 31, | | 2017 | | 2016 | | (in millions) | Deferred income tax assets: | | | | Personnel accruals | $ | — |
| | $ | 1.3 |
| State tax credit carryforward, net | 11.3 |
| | 10.5 |
| Net operating loss carryforward | 7.2 |
| | — |
| Other | — |
| | 0.1 |
| Total gross deferred income tax assets | 18.5 |
| | 11.9 |
| Deferred income tax liabilities: | | | | Personnel accruals | (1.2 | ) | | — |
| Property, plant, and equipment | (2.1 | ) | | (3.8 | ) | Investment in CVR Partners | (54.6 | ) | | (89.2 | ) | Investment in CVR Refining | (345.3 | ) | | (497.8 | ) | Prepaid expenses | (0.2 | ) | | (0.3 | ) | Other | (1.0 | ) | | (0.7 | ) | Total gross deferred income tax liabilities | (404.4 | ) | | (591.8 | ) | Net deferred income tax liabilities | $ | (385.9 | ) | | $ | (579.9 | ) |
In assessing the realizability of deferred tax assets including net operating loss and state tax credit carryforwards, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Although realization is not assured, management believes that it is more likely than not that all of the deferred tax assets will be realized and thus, no valuation allowance was provided as of December 31, 2017 and 2016.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of the unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 is as follows:
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Balance beginning of year | $ | 44.1 |
| | $ | 49.0 |
| | $ | 55.5 |
| Increase based on prior year tax positions | — |
| | — |
| | — |
| Decrease based on prior year tax positions | — |
| | — |
| | — |
| Increases in current year tax positions | — |
| | — |
| | 9.8 |
| Settlements | — |
| | — |
| | — |
| Reductions related to expirations of statute of limitations | (15.4 | ) | | (4.9 | ) | | (16.3 | ) | Balance end of year | $ | 28.7 |
| | $ | 44.1 |
| | $ | 49.0 |
|
Included in the balance of unrecognized tax benefits as of December 31, 2017, 2016 and 2015 are $22.7 million, $28.7 million and $31.8 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Approximately $15.4 million of the unrecognized tax positions relating to state tax credits were recognized in 2017 as a result of a lapse of statute of limitations. Approximately $4.9 million of the unrecognized tax positions relating to state tax credits were recognized in 2016 as a result of a lapse of statute of limitations. Approximately $16.3 million of the unrecognized tax positions relating to the characterization of partnership distributions received were recognized by the end of 2015 as a result of a lapse of the statute of limitations. Additionally, Further,the Company believes that it is reasonably possible that approximately $5.8 million of its unrecognized tax positions relating to state tax credits may be recognized by the end of 2018 as a result of a lapse of the statute of limitations. Approximately $25.8 million and $25.7 million of unrecognized tax benefits were netted with deferred tax asset carryforwards as of December 31, 2017 and 2016, respectively. The remaining unrecognized tax benefits are included in other long-term liabilities in the Consolidated Balance Sheets.
CVR recognizes interest expense (income) and penalties on uncertain tax positions and income tax deficiencies (refunds) in incomeIncome tax expense. CVR recognized interest benefit of approximately $7.0 millionexpense (benefit).
Earnings Per Share
There were no dilutive awards outstanding during 2017 and has recognized a liability for interest of approximately $1.0 million as of December 31, 2017. In 2016, CVR recognized interest expense of approximately $0.5 million and had recognized a liability for interest of approximately $8.0 million as of December 31, 2016. In 2015, CVR recognized interest expense of approximately $1.0 million and had recognized a liability for interest of approximately $7.5 million as of December 31, 2015. No penalties were recognized during 2017, 2016 or 2015.
At December 31, 2017, the Company's tax filings are generally open to examination in the United States for the tax years ended December 31, 20142022, 2021, and 2020.
Recent Accounting Pronouncements - Accounting Standards Issued But Not Yet Implemented
In March 2020, FASB issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates. The guidance is effective beginning on March 12, 2020 through the sunset date of Topic 848, which is currently expected to occur on December 31, 20162024. The Company has not utilized any of the optional expedients or exceptions available under this guidance and will continue to assess whether this guidance is applicable throughout the effective period.
(3) Equity Method Investments
Foreach of the following investments, we have the ability to exercise influence through our participation in various individual states for the tax years ended boards of directors, which make all significant decisions. However, since we have equal or proportionate influence over each board of directors as a joint partner without regard to its economic interest and do not serve as the day-to-day operator, we have determined that these entities should not be consolidated and have applied the equity method of accounting. •Enable South Central Pipeline, LLC (“Enable JV”) - Through our subsidiaries, we own a 40% interest in Enable JV, which operates a 12-inch 26-mile crude oil pipeline with a capacity of approximately 20,000 barrels per day that is connected to the Wynnewood Refinery. The remaining interest in Enable JV is owned by Enable Midstream Partners, LP, which was merged with Energy Transfer LP in December 2021. •Midway Pipeline, LLC (“Midway JV”) - Through our subsidiaries, we own a 50% interest in Midway JV, which operates a 16-inch 99-mile crude oil pipeline with a capacity of approximately 131,000 barrels per day which connects the Coffeyville Refinery to the Cushing, Oklahoma oil hub. The remaining interest in Midway JV is owned by Plains Pipeline, L.P. December 31, 2013 through December 31, 2016.2022 | 91
(11) Long-Term Debt
Long-term debt consisted of the following:
| | | | | | | | | | December 31, 2017 | | December 31, 2016 | | (in millions) | 6.5% Senior Notes due 2022 | $ | 500.0 |
| | $ | 500.0 |
| 9.25% Senior Secured Notes due 2023 | 645.0 |
| | 645.0 |
| 6.5% Senior Notes due 2021 | 2.2 |
| | 2.2 |
| Capital lease obligations | 45.0 |
| | 46.9 |
| Total debt | 1,192.2 |
| | 1,194.1 |
| Unamortized debt issuance cost | (12.2 | ) | | (14.2 | ) | Unamortized debt discount | (13.5 | ) | | (15.3 | ) | Current portion of capital lease obligations | (2.1 | ) | | (1.8 | ) | Long-term debt, net of current portion | $ | 1,164.4 |
| | $ | 1,162.8 |
|
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | | | | | | | | | | | | | (in millions) | Enable JV | | Midway JV | | Total | Balance at December 31, 2020 | 6 | | | 74 | | | 80 | | | | | | | | Cash distributions | (3) | | | (8) | | | (11) | | Equity income | 3 | | | 7 | | | 10 | | Balance at December 31, 2021 | 6 | | | 73 | | | 79 | | Cash distributions | (4) | | | (9) | | | (13) | | Equity income | 3 | | | 7 | | | 10 | | Balance at December 31, 2022 | $ | 5 | | | $ | 71 | | | $ | 76 | |
(4) Leases
Lease Overview
We lease certain pipelines, storage tanks, railcars, office space, land, and equipment across our refining, fertilizer, and corporate operations. Most of our leases include one or more renewal options to extend the lease term, which can be exercised at our sole discretion. Certain leases also include options to purchase the leased property. Certain of our lease agreements include rental payments which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements.
Balance Sheet Summary as of December 31, 2022 Senior Notesand 2021
The following tables summarize the ROU asset and lease liability balances for the Company’s operating and finance leases at December 31, 2022 and 2021: | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | December 31, 2021 | (in millions) | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | ROU assets, net | | | | | | | | Pipeline and storage | $ | 16 | | | $ | 20 | | | $ | 17 | | | $ | 23 | | Railcars | 11 | | | — | | | 6 | | | — | | Real estate and other | 13 | | | 15 | | | 14 | | | 18 | | Lease liability | | | | | | | | Pipelines and storage | $ | 16 | | | $ | 32 | | | $ | 17 | | | $ | 35 | | Railcars | 11 | | | — | | | 6 | | | — | | Real estate and other | 13 | | | 16 | | | 14 | | | 19 | |
Lease Expense Summary for the Year Ended December 31, 2022, 2021 and 2020
We recognize lease expense on a straight-line basis over the lease term and short-term lease expense within Direct operating expenses (exclusive of depreciation and amortization). For the years ended December 31, 2022, 2021, and 2020, we recognized lease expense comprised of the following components: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Operating lease expense | $ | 16 | | | $ | 15 | | | $ | 17 | | Finance lease expense: | | | | | | Amortization of ROU asset | $ | 6 | | | $ | 6 | | | $ | 6 | | Interest expense on lease liability | 5 | | | 5 | | | 6 | | Short-term lease expense | $ | 11 | | | $ | 8 | | | $ | 8 | |
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lease Terms and Discount Rates
The following outlines the remaining lease terms and discount rates used in the measurement of the Company’s ROU assets and lease liabilities at December 31, 2022 and 2021: | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | December 31, 2021 | | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | Weighted-average remaining lease term | 4.1 years | | 6.3 years | | 4.1 years | | 7.2 years | Weighted-average discount rate | 5.2 | % | | 9.0 | % | | 5.4 | % | | 9.0 | % |
Maturities of Lease Liabilities
The following summarizes the remaining minimum lease payments through maturity of the Company’s lease liabilities at December 31, 2022: | | | | | | | | | | | | (in millions) | Operating Leases | | Finance Leases | Year Ended December 31, | | | | 2023 | $ | 16 | | | $ | 10 | | 2024 | 12 | | | 10 | | 2025 | 6 | | | 10 | | 2026 | 5 | | | 10 | | 2027 | 3 | | | 10 | | Thereafter | 3 | | | 14 | | Total lease payments | 45 | | | 64 | | Less: imputed interest | (5) | | | (16) | | Total lease liability | $ | 40 | | | $ | 48 | |
On February 21, 2022, Coffeyville Resources Nitrogen Fertilizer, LLC (“CRNF”) entered into the First Amendment to the On-Site Product Supply Agreement with Messer LLC (“Messer”), which amended the July 31, 2020 On-Site Product Supply Agreement (as amended, the “Messer Agreement”). Under the Messer Agreement, among other obligations, Messer is obligated to supply and make certain capital improvements during the term of the Messer Agreement, and CRNF is obligated to take as available and pay for oxygen from Messer’s facility. This arrangement for CRNF’s purchase of oxygen from Messer does not meet the definition of a lease under FASB ASC Topic 842, Leases (“Topic 842”), as CRNF does not expect to receive substantially all of the output, which includes oxygen, nitrogen, and compressed air, of Messer’s on-site production from its air separation unit over the life of the Messer Agreement. The Messer Agreement also obligates Messer to install a new oxygen storage vessel, related equipment and infrastructure (“Oxygen Storage Vessel” or “Vessel”) to be used solely by the Coffeyville Facility. The arrangement for the use of the Oxygen Storage Vessel meets the definition of a lease under Topic 842, as CRNF will receive all output associated with the Vessel. Based on terms outlined in the Messer Agreement, the Company expects the lease of the Oxygen Storage Vessel to be classified as a financing lease with an amount of approximately $25 million being capitalized upon lease commencement when the Vessel is placed in service, which is currently expected within the next 12 months.
On July 14, 2022, the Company entered into the Sixth Amendment to the Sugar Land Plaza Office Building Agreement with LCFRE Sugar Land Town Square, LLC (“LCFRE”), which amends the Sugar Land Plaza Office Building Agreement dated 2016 (as amended, the “LCFRE Agreement”). Under the LCFRE Agreement, LCFRE will provide office space to the Company which will continue to serve as the Company’s corporate office in Sugar Land, Texas and will commence on October 23, 2012, 1, 2023. Based on the terms outlined in the LCFRE Agreement, the Company expects the lease to be classified as an operating lease under Topic 842, with approximately $12 million capitalized upon lease commencement.
CVR Refining, LLC ("Refining LLC"ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Other Current Liabilities
Other current liabilities were as follows: | | | | | | | | | | | | | December 31, | (in millions) | 2022 | | 2021 | Accrued Renewable Fuel Standards (“RFS”) obligation | $ | 692 | | | $ | 494 | | Accrued taxes other than income taxes | 51 | | | 45 | | Deferred revenue | 48 | | | 87 | | Personnel accruals | 47 | | | 46 | | Share-based compensation | 31 | | | 15 | | Accrued interest | 24 | | | 24 | | Operating lease liabilities | 15 | | | 13 | | Current portion of long-term debt and finance lease obligations | 6 | | | 6 | | Derivatives | 4 | | | 2 | | | | | | Other accrued expenses and liabilities | 24 | | | 15 | | Total other current liabilities | $ | 942 | | | $ | 747 | |
(6) Long-Term Debt and Finance Lease Obligations | | | | | | | | | | | | | December 31, | (in millions) | 2022 | | 2021 | CVR Partners: | | | | 9.25% Senior Secured Notes, due June 2023 (1) | $ | — | | | $ | 65 | | 6.125% Senior Notes, due June 2028 | 550 | | | 550 | | Unamortized discount and debt issuance costs | (3) | | | (4) | | Total CVR Partners debt | $ | 547 | | | $ | 611 | | CVR Refining, LP (“CVR Refining”): | | | | | | | | Finance lease obligations, net of current portion (2) | 42 | | | 48 | | | | | | Total CVR Refining debt | $ | 42 | | | $ | 48 | | CVR Energy: | | | | 5.250% Senior Notes, due February 2025 | $ | 600 | | | $ | 600 | | 5.750% Senior Notes, due February 2028 | 400 | | | 400 | | Unamortized debt issuance costs | (4) | | | (5) | | Total CVR Energy debt | 996 | | | 995 | | Total long-term debt and finance lease obligations | $ | 1,585 | | | $ | 1,654 | | Current portion of finance lease obligations (2) | 6 | | | 6 | | Total long-term debt and finance lease obligations, including current portion | $ | 1,591 | | | $ | 1,660 | |
(1)The $65 million outstanding balance of the 9.25% Senior Secured Notes due 2023 (the “2023 UAN Notes”) was paid in full on February 22, 2022 at par, plus accrued and Coffeyvilleunpaid interest. (2)Current portion of finance lease obligations was approximately $6 million as of both December 31, 2022 and 2021.
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Credit Agreements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | Total Capacity | | Amount Borrowed as of December 31, 2022 | | Outstanding Letters of Credit | | Available Capacity as of December 31, 2022 | | Maturity Date | CVR Partners: | | | | | | | | | | Asset Based (“Nitrogen Fertilizer ABL”) Credit Agreement | $ | 35 | | | $ | — | | | $ | — | | | $ | 35 | | | September 30, 2024 | CVR Refining: | | | | | | | | | | Petroleum ABL (as defined below) | $ | 275 | | | $ | — | | | $ | 23 | | | $ | 252 | | | June 30, 2027 |
CVR Partners
2023 UAN Notes - On June 10, 2016, CVR Partners and its subsidiary, CVR Nitrogen Finance Inc. ("Coffeyville Finance"Corporation (“Finance Co.” and, together with CVR Partners, the “2023 Notes Issuers”), certain subsidiary guarantors named therein and Wilmington Trust, National Association, as trustee and as collateral trustee, completed a private offering of $500.0$645 million aggregate principal amount of 6.5% Second Lien Seniorthe 2023 UAN Notes. The 2023 UAN Notes due 2022 (the "2022 Notes"). The 2022would have matured on June 15, 2023, but the 2023 Notes are unsecuredIssuers redeemed the remaining outstanding balance at par plus accrued and fullyunpaid interest to the applicable redemption date on February��22, 2022. Interest on the 2023 UAN Notes was paid semi-annually in arrears on June 15 and unconditionallyDecember 15 of each year and were guaranteed by CVR Refining and each of Refining LLC's existing domestic subsidiaries on a joint and several basis. CVR Refining has no independent assets or operations and Refining LLC is a 100% owned finance subsidiarysenior secured basis by all of CVR Refining. CVR Energy, CVR Partners and their respective subsidiaries are not guarantors.the Nitrogen Fertilizer Partnership’s existing subsidiaries.
The debt issuance costs2023 UAN Notes contained customary covenants for a financing of this type that, among other things, restricted CVR Partners’ ability and the 2022 Notes totaled approximately $8.7 million and are being amortized over the termability of the 2022 Notes as interest expense using the effective-interest amortization method. On September 17, 2013, Refining LLC and Coffeyville Finance consummated a registered exchange offer, whereby all $500.0 millioncertain of the outstanding 2022 Notes were exchanged for an equal principal amount of notes with identical terms that were registered under the Securities Act of 1933. The exchange offer fulfilled the Refining Partnership's obligations contained in the registration rights agreement entered into in connection with the issuance of the 2022 Notes. The Refining Partnership incurred approximately $0.4 million of debt registration costs relatedits subsidiaries to the registration and exchange offer during the year ended December 31, 2013, which are being amortized over the term of the 2022 Notes as interest expense using the effective-interest amortization method.
The 2022 Notes maturehave: (i) sold assets; (ii) paid distributions on, November 1, 2022, unless earlier redeemed or repurchased by the issuers. Interest is payable on the 2022 Notes semi-annually on May 1 and November 1 of each year, commencing on May 1, 2013.
The indenture governing the 2022 Notes imposes covenantsNitrogen Fertilizer Partnership’s units or to have redeemed or repurchased its subordinated debt; (iii) made investments; (iv) incurred or guaranteed additional indebtedness or issued preferred units; (v) created or incurred certain liens; (vi) entered into agreements that restrict the ability of the issuers and subsidiary guarantorsrestricted distributions or other payments from CVR Partners’ restricted subsidiaries to (i) issue debt, (ii) incurCVR Partners; (vii) consolidated, merged or otherwise cause liens to exist on any of their property or assets, (iii) declare or pay dividends, repurchase equity, or make payments on subordinated or unsecured debt, (iv) make certain investments, (v) sell certain assets, (vi) merge, consolidate with or into another entity, or selltransferred all or substantially all of their assets, and (vii) enter into certainCVR Partners’ assets; (viii) engaged in transactions with affiliates. Most of the foregoing covenants would cease to apply at such time that the 2022 Notes are rated investment grade by both Standard & Poor's Financial Services LLCaffiliates; and Moody's Investors Service, Inc. However, such covenants would be reinstituted if the 2022 Notes subsequently lost their investment grade rating.(ix) created unrestricted subsidiaries. In addition, the indenture containscontained customary events of default, the occurrence of which would resulthave resulted in or permitpermitted the trustee or the holders of at least 25% of the 20222023 UAN Notes to cause,have caused the acceleration of the 20222023 UAN Notes, in addition to the pursuit ofpursuing other available remedies.
During 2021, CVR Partners redeemed $580 million in aggregate principal amounts of the outstanding 2023 UAN Notes at par. On February 22, 2022, CVR Partners redeemed all of the remaining outstanding 2023 UAN Notes at par and settled accrued interest of approximately $1 million through the date of redemption. As a result of this transaction, CVR Partners recognized a loss on extinguishment of debt of $1 million in the first quarter of 2022, which included the write-off of unamortized deferred financing costs and discount of less than $1 million each.
2028 UAN Notes - On June 23, 2021, CVR Partners and Finance Co. (the “Issuers”), completed a private offering of $550 million aggregate principal amount of 6.125% Senior Secured Notes due 2028 (the “2028 UAN Notes”). Interest on the 2028 UAN Notes is payable semi-annually in arrears on June 15 and December 15 each year, commencing on December 15, 2021. The 2028 UAN Notes mature on June 15, 2028, unless earlier redeemed or repurchased by the Issuers. The 2028 UAN Notes are jointly and severally guaranteed on a senior secured basis by all the existing domestic subsidiaries of CVR Partners, excluding Finance Co.
The indenture governingIssuers may, at their option, at any time and from time to time prior to June 15, 2024, on any one or more occasions, redeem all or part of the 20222028 UAN Notes, prohibitsat a price equal to 100% of the Refining Partnership from making distributionsprincipal amount plus a “make whole” premium, plus accrued and unpaid interest. On or after June 15, 2024, the Issuers may, on any one or more occasions, redeem all or part of the 2028 UAN Notes at the redemption prices set forth below, expressed as a percentage of the principal amount of the respective notes, plus accrued and unpaid interest to its unitholders if any default or event of default (as defined in the indenture) exists. In addition, the indenture limits the Refining Partnership's ability to pay distributions to unitholders. The covenants will apply differently depending on the Refining Partnership's fixed charge coverage ratio (as defined in the indenture). If the fixed charge coverage ratio is not less than 2.5 to 1.0, the Refining Partnership will generally be permitted to make restricted payments, including distributions to its unitholders, without substantive restriction. If the fixed charge coverage ratio is less than 2.5 to 1.0, the Refining Partnership will generally be permitted to make restricted payments, including distributions to its unitholders, up to an aggregate $100.0 million basket plus certain other amounts referred to as "incremental funds" under the indenture. The Refining Partnership was in compliance with the covenants as of applicable redemption date. | | | | | | | | | 12-month period beginning June 15, | | Percentage | 2024 | | 103.063% | 2025 | | 101.531% | 2026 and thereafter | | 100.000% |
December 31, 2017, and the ratio was satisfied (not less than 2.5 to 1.0).
Included in other current liabilities on the Consolidated Balance Sheets is accrued interest payable totaling approximately $5.4 million as of both December 31, 2017 and 2016 related to the 2022 Notes. At December 31, 2017, the estimated fair value of the 2022 Notes was approximately $515.0 million. This estimate of fair value is Level 2 as it was determined by quotations obtained from a broker-dealer who makes a market in these and similar securities.| 95
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The indenture governing the 2028 UAN Notes contains covenants that are substantially the same as the indenture governing the 2023 UAN Notes. However, the 2028 UAN Notes contain a permitted investment activity carveout that allows for the transfer of certain carbon capture assets to a joint venture for the purpose of monetizing potential tax credits.
Amended
Nitrogen Fertilizer ABL- On September 30, 2021, CVR Partners, LP and Restated Asset Based (ABL) Credit Facility
On November 14, 2017, CRLLC,its subsidiaries, CVR Refining, RefiningNitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, Finance Co. and each of the operating subsidiaries of RefiningCVR Nitrogen GP, LLC, (collectively, the "Credit Parties") entered into Amendment No. 1 to the Amended and RestatedNitrogen Fertilizer ABL Credit Agreement (the "Amendment") with a group of lenders and Wells Fargo Bank National Association, ("a national banking association (“Wells Fargo"Fargo”), as administrative agent, collateral agent, and collateral agent.lender. The Amendment amendsNitrogen Fertilizer ABL has an aggregate principal amount of availability of up to $35 million with an incremental facility, which permits an increase in borrowings of up to $15 million in the aggregate subject to additional lender commitments and certain provisionsother conditions. The proceeds of the Amendedloans may be used for general corporate purposes of CVR Partners and Restatedits subsidiaries. The Nitrogen Fertilizer ABL Credit Agreement, dated December 20, 2012, byprovides for loans and among Wells Fargo, the groupletters of lenders party theretocredit, subject to meeting certain borrowing base conditions, with sub-limits of $4 million for swingline loans and the Credit Parties (the "Existing Credit Agreement" and as amended by the Amendment, the "Amended and Restated$10 million for letters of credit. The Nitrogen Fertilizer ABL Credit Facility"), which was otherwise schedule to mature on December 20, 2017. The Amended and Restated ABL Credit Facility is scheduled to mature on November 14, 2022.September 30, 2024.
The Amended and Restated ABL Credit Facility is a $400.0 million asset-based revolving credit facility, with sub-limits for letters of credit and swinglineBeginning September 30, 2021, loans of $60.0 million and $40.0 million, respectively. The Amended and Restated ABL Credit Facility also includes a $200.0 million uncommitted incremental facility. The Amended and Restated ABL Credit Facility permits the payment of distributions, subject to the following conditions: (i) no default or event of default exists, (ii) excess availability exceeds 15% of the lesser of the borrowing base and the total commitments, and (iii) the fixed charge coverage ratio for the immediately preceding twelve-month period shall be equal to or greater than 1.00 to 1.00. The Amended and Restated ABL Credit Facility has a five-year maturity and may be used for working capital and other general corporate purposes (including permitted acquisitions).
Borrowings under the Amended and RestatedNitrogen Fertilizer ABL Credit Facility bear interest at eitheran annual rate equal to, at the option of the borrowers, (i) (a) 1.615% plus the daily simple Secured Overnight Financing Rate (“SOFR”) or (b) 0.615% plus a base rate, or LIBOR plus an applicable margin. The applicable margin is (i) (a) 1.50% for LIBOR borrowings and (b) 0.50% for prime rate borrowings, in each case if our quarterly average excess availability exceeds 50% of the lesser of the borrowing base and the total commitments and (ii) (a) 1.75% for LIBOR borrowings and (b) 0.75% for prime rate borrowings, in each case if quarterly average excess availability is lessgreater than or equal to 75%, (ii) (a) 1.865% plus SOFR or (b) 0.865% plus a base rate, if our quarterly excess availability is greater than or equal to 50% of the lesser of the borrowing base and the total commitments. The Amended and Restated ABL Credit Facility also requires the payment of customary fees, including an unused line fee of (i) 0.375% if the daily average amount of loans and letters of credit outstanding isbut less than 50% of75%, or (iii) (a) 2.115% plus SOFR or (b) 1.115% plus a base rate, otherwise. The borrowers must also pay a commitment fee on the lesser of the borrowing base and the totalunutilized commitments and (ii) 0.25% if the daily average amount of loans and letters of credit outstanding is equal to or greater than 50% of the lesser of the borrowing base and the total commitments. The Refining Partnership is also required to pay customary letter of credit fees equal to, for standby letters of credit, the applicable margin on LIBOR loans on the maximum amount available to be drawn under and for commercial letters of credit, the applicable margin on LIBOR loans less 0.50% on the maximum amount available to be drawn under, and customary facing fees equal to 0.125% of the face amount of, each letter of credit.fees.
The lenders under the Amended and RestatedNitrogen Fertilizer ABL Credit Facility were granted a perfected, first priority security interest (subject to certain customary exceptions) in the ABL Priority Collateral (as defined in the ABL Intercreditor Agreement) and a second priority lien (subject to certain customary exceptions) and security interest in the Note Priority Collateral (as defined in the ABL Intercreditor Agreement).
The Amended and Restated ABL Credit Facility also contains customary covenants for a financing of this type and requires CVR Partners in certain circumstances to comply with a minimum fixed charge coverage ratio test and contains other restrictive covenants that limit the ability of the Credit PartiesCVR Partners and their respectiveits subsidiaries ability to, among other things, incur liens, engage in a consolidation, merger, purchase or sale of assets, pay dividends, incur indebtedness, make advances, investments and loans, enter into affiliate transactions, issue certain equity interests, create subsidiaries and unrestricted subsidiaries, and create certain restrictions on the ability to make distributions, loans, and asset transfers among CVR Partners or its subsidiaries.
CVR Refining
Petroleum ABL - On June 30, 2022, CVR Refining and certain of its subsidiaries (the “Credit Parties”) entered into Amendment No. 3 to the Amended and Restated ABL Credit Agreement, dated December 20, 2012 (the “Petroleum ABL Amendment”, and as amended, the “Petroleum ABL”), with a group of lenders and Wells Fargo Bank, National Association, as administrative agent and collateral agent (the “Agent”). The Petroleum ABL is a senior secured asset based revolving credit facility in an aggregate principal amount of up to $275 million with a $125 million incremental facility, which is subject to additional lender commitments and certain other conditions. The proceeds of the loans may be used for capital expenditures, working capital and general corporate purposes of the Credit Parties and their subsidiaries. The Petroleum ABL provides for loans and letters of credit in an amount up to the aggregate availability under the facility, subject to meeting certain borrowing base conditions, with sub-limits of $30 million for swingline loans and $60 million (or $100 million if increased by the Agent) for letters of credit. The Petroleum ABL is scheduled to mature on June 30, 2027.
Beginning June 30, 2022, loans under the Petroleum ABL bear interest at an annual rate equal to, at the option of the borrowers, (i) (a) 1.50% plus the Term SOFR or (b) 0.50% plus a base rate, if CVR Refining’s quarterly excess availability is greater than 50%, and (ii) (a) 1.75% plus the Term SOFR or (b) 0.75% plus a base rate, otherwise. All borrowings under the Petroleum ABL are subject to the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties. The Credit Parties must also pay a commitment fee on the unutilized commitments and pay customary letter of credit fees.
The Petroleum ABL contains customary covenants for a financing of this type and requires the Credit Parties in certain circumstances to comply with a minimum fixed charge coverage ratio test, and contains other customary restrictive covenants that limit the Credit Parties’ ability and the ability of their subsidiaries to, among other things, incur liens, engage in a consolidation, merger and purchase or sale of assets, pay dividends, incur indebtedness, make advances, investment and loans, enter into affiliate transactions, issue equity interests, or create subsidiaries and unrestricted subsidiaries. The Amended and Restated ABL Credit Facility also contains a fixed charge coverage ratio financial covenant, as defined under the facility. The Credit Parties were in compliance with the covenants of the Amended and Restated ABL Credit Facility as of
December 31, 2017.2022 | 96
In connection with the Amended and Restated ABL Credit Facility, CRLLC and its subsidiaries incurred lender and other third-party costs of approximately $1.6 million for the year ended December 31, 2017, which are being deferred and amortized to interest expense and other financing costs using a straight-line method over the term of the amended facility. Additionally, in accordance with guidance provided by the FASB regarding the modification of revolving debt arrangements, the remaining approximately $0.1 million of unamortized deferred financing costs associated with the prior ABL credit facility will continue to be amortized over the term of the Amended and Restated ABL Credit Facility.
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AsOn April 12, 2022 and July 22, 2022, in connection with the Petroleum ABL, numerous additional indirect, wholly-owned subsidiaries (the “Joining Subsidiaries”) of December 31, 2017,CVR Energy delivered to the Refining Partnership had availabilityAgent Joinder Agreements pursuant to which such Joining Subsidiaries became borrowers for all purposes under the AmendedPetroleum ABL and Restated ABLother Credit Facility of $337.7 millionDocuments.
CVR Energy
2025 Notes and had letters of credit outstanding of approximately $28.4 million. There were no borrowings outstanding under the Amended and Restated ABL Credit Facility as of December 31, 2017. Availability under the Amended and Restated ABL Credit Facility was limited by borrowing base conditions as of December 31, 2017.
2023 Senior Secured2028 Notes
- On June 10, 2016,January 27, 2020, CVR Partners and CVR Nitrogen Finance Corporation ("CVR Nitrogen Finance"), an indirect wholly-owned subsidiary of CVR Partners (together the "2023 Notes Issuers"), certain subsidiary guarantors named therein and Wilmington Trust, National Association, as trustee and as collateral trustee,Energy completed a private offering of $645.0$600 million aggregate principal amount of 9.25%5.25% Senior SecuredUnsecured Notes due 20232025 (the "2023 Notes"“2025 Notes”) and $400 million aggregate principal amount of 5.75% Senior Unsecured Notes due 2028 (the “2028 Notes” and, collectively with the 2025 Notes, the “Notes”). Interest on the Notes is payable semi-annually in arrears on February 15 and August 15 each year, commencing on August 15, 2020. The 20232025 Notes mature on JuneFebruary 15, 2023,2025, unless earlier redeemed or repurchased by the issuers. InterestThe 2028 Notes mature on February 15, 2028, unless earlier redeemed or repurchased by the 2023 Notes is payable semi-annually in arrears on June 15 and December 15 of each year.issuers. The 2023 Notes are jointly and severally guaranteed on a senior securedunsecured basis by the wholly-owned subsidiaries of CVR Energy with the exception of CVR Partners and its subsidiaries and certain immaterial wholly-owned subsidiaries of CVR Energy.
On or after February 15, 2022 and February 15, 2023, we may on any one or more occasions, redeem all or part of the Nitrogen Fertilizer Partnership’s existing subsidiaries.2025 Notes and 2028 Notes, respectively, at the redemption prices set forth below expressed as a percentage of the principal amount of the respective notes, plus accrued and unpaid interest to the applicable redemption date. | | | | | | | | | | | | | | | | | | | | | 2025 Notes | | 2028 Notes | 12-month period beginning February 15, | | Percentage | | 12-month period beginning February 15, | | Percentage | 2022 | | 102.625% | | 2023 | | 102.875% | 2023 | | 101.313% | | 2024 | | 101.917% | 2024 and thereafter | | 100.000% | | 2025 | | 100.958% | | | | | 2026 and thereafter | | 100.000% |
The 2023indenture governing the Notes were issued at a $16.1 million discount, which is being amortized over the term of the 2023 Notes as interest expense using the effective-interest method. The Nitrogen Fertilizer Partnership received approximately $622.9 million of cash proceeds, net of the original issue discount and underwriting fees, but before deducting other third-party fees and expenses associated with the offering. The net proceeds from the sale of the 2023 Notes were used to: (i) repay all amounts outstanding under the senior term loan credit facility with CRLLC; (ii) finance the repurchase of substantially all of the 2021 Notes (discussed below) and (iii) to pay related fees and expenses.
The debt issuance costs of the 2023 Notes totaled approximately $9.4 million and are being amortized over the term of the 2023 Notes as interest expense using the effective-interest amortization method.
The 2023 Notes contain customaryimposes covenants for a financing of this type that will, among other things, restrict the Nitrogen Fertilizer Partnership’slimit our ability and the ability of certain of itsour restricted subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase the Nitrogen Fertilizer Partnership’s units or redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units;certain disqualified equity; (ii) create liens on certain assets to secure debt; (iii) pay dividends or make other equity distributions; (iv) purchase or redeem capital stock; (v) create or incurmake certain liens;investments; (vi) enter into agreements that restrict distributions or other payments fromsell assets; (vii) agree to certain restrictions on the Nitrogen Fertilizer Partnership’sability of restricted subsidiaries to the Nitrogen Fertilizer Partnership; (vii)make distributions, loans, or other asset transfers to us; (viii) consolidate, merge, sell, or transferotherwise dispose of all or substantially all of the Nitrogen Fertilizer Partnership’sour assets; (viii)(ix) engage in transactions with affiliates; and (ix) create(x) designate our restricted subsidiaries as unrestricted subsidiaries. In addition, the indenture contains customary events of default, the occurrence of which would result in or permit the trustee or the holders of at least 25% of the 20232025 Notes and 2028 Notes to cause, amongst other available remedies, the acceleration of the 2023respective notes.
In connection with the Notes, in additionissued pursuant to the pursuitIndenture dated January 27, 2020 (the “Indenture”), among CVR Energy, the subsidiary guarantors listed therein (collectively, the “Guarantors”), and Wells Fargo Bank, National Association, as trustee (the “Trustee”), a new wholly-owned subsidiary of CVR Energy, CVR Renewables, LLC (“CVR Renew”), the Guarantors, and the Trustee executed and delivered a Supplemental Indenture pursuant to which CVR Renew unconditionally guaranteed all of the Company’s obligations under the Notes on the terms and conditions set forth in the Note Guarantee and the Indenture.
On April 12, 2022, CVR Energy, the existing subsidiary guarantors of the Notes and CVR Renewables, LLC, a new wholly-owned subsidiary of CVR Energy (“CVR Renew”), on the one hand, and the trustee for the Notes, on the other available remedies.
Thehand, executed and delivered a Supplemental Indenture pursuant to which CVR Renew unconditionally guaranteed all of the Company’s obligations under the Notes on the terms and conditions set forth in the note guarantee and the indenture governing the 2023Notes.
On July 1, 2022, in connection with the Petroleum ABL Amendment, the Joining Subsidiaries that were not previously parties to the Indenture executed and delivered a Supplemental Indenture to the Trustee pursuant to which such Joining Subsidiaries unconditionally guaranteed all of the Company’s obligations under the Notes prohibitson the terms and conditions set forth in the Note Guarantee and the Indenture.
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Covenant Compliance
The Company and its subsidiaries, as applicable, have been in compliance with all covenants of the Nitrogen Fertilizer Partnership from making distributions to unitholders if any default or event of default (as defined inABL, the indenture) exists. In addition,Petroleum ABL, and the indenture limits the Nitrogen Fertilizer Partnership's ability to pay distributions to unitholders. The covenants will apply differently depending on the Partnership's fixed charge coverage ratio (as defined in the indenture). If the fixed charge coverage ratio is not less than 1.75 to 1.0, the Nitrogen Fertilizer Partnership will generally be permitted to make restricted payments, including distributions to its unitholders, without substantive restriction. If the fixed charge coverage ratio is less than 1.75 to 1.0, the Nitrogen Fertilizer Partnership will generally be permitted to make restricted payments, including distributions to our unitholders, up to an aggregate $75.0 million basket plus certain other amounts referred to as "incremental funds" under the indenture. As ofDecember 31, 2017, the ratio was less than 1.75 to 1.0. Restricted payments have been made, and $72.7 million of the basket was availablesenior notes as of December 31, 2017.2022.
(7) Revenue
The following tables present the Company’s revenue disaggregated by major product, which include a reconciliation of the disaggregated revenue by the Company’s reportable segments. | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2022 | (in millions) | Petroleum Segment (1) | | Nitrogen Fertilizer Segment | | Other / Eliminations | | Consolidated | Gasoline | $ | 4,830 | | | $ | — | | | $ | — | | | $ | 4,830 | | Distillates (2) | 4,789 | | | — | | | 111 | | | 4,900 | | Ammonia | — | | | 200 | | | — | | | 200 | | UAN | — | | | 557 | | | — | | | 557 | | Other urea products | — | | | 33 | | | — | | | 33 | | | | | | | | | | Freight revenue (3) | 17 | | | 35 | | | — | | | 52 | | Other (4) | 244 | | | 11 | | | 30 | | | 285 | | Revenue from product sales | 9,880 | | | 836 | | | 141 | | | 10,857 | | | | | | | | | | Crude oil sales | 37 | | | — | | | — | | | 37 | | Other revenue (4) | 2 | | | — | | | — | | | 2 | | Total revenue | $ | 9,919 | | | $ | 836 | | | $ | 141 | | | $ | 10,896 | |
| | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2021 | (in millions) | Petroleum Segment (1) | | Nitrogen Fertilizer Segment | | Other / Eliminations | | Consolidated | Gasoline | $ | 3,679 | | | $ | — | | | $ | — | | | $ | 3,679 | | Distillates (2) | 2,809 | | | — | | | — | | | 2,809 | | Ammonia | — | | | 146 | | | — | | | 146 | | UAN | — | | | 316 | | | — | | | 316 | | Other urea products | — | | | 29 | | | — | | | 29 | | Freight revenue (3) | 21 | | | 31 | | | — | | | 52 | | Other (4) | 163 | | | 11 | | | (12) | | | 162 | | Revenue from product sales | 6,672 | | | 533 | | | (12) | | | 7,193 | | | | | | | | | | Crude oil sales | 47 | | | — | | | — | | | 47 | | Other revenue (4) | 2 | | | — | | | — | | | 2 | | Total revenue | $ | 6,721 | | | $ | 533 | | | $ | (12) | | | $ | 7,242 | |
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2020 | (in millions) | Petroleum Segment (1) | | Nitrogen Fertilizer Segment | | Other / Eliminations | | Consolidated | Gasoline | $ | 1,882 | | | $ | — | | | $ | — | | | $ | 1,882 | | Distillates (2) | 1,543 | | | — | | | — | | | 1,543 | | Ammonia | — | | | 94 | | | — | | | 94 | | UAN | — | | | 198 | | | — | | | 198 | | Other urea products | — | | | 15 | | | — | | | 15 | | Freight revenue (3) | 18 | | | 33 | | | — | | | 51 | | Other (4) | 79 | | | 10 | | | (6) | | | 83 | | Revenue from product sales | 3,522 | | | 350 | | | (6) | | | 3,866 | | | | | | | | | | Crude oil sales | 63 | | | — | | | — | | | 63 | | Other revenue (4) | 1 | | | — | | | — | | | 1 | | Total revenue | $ | 3,586 | | | $ | 350 | | | $ | (6) | | | $ | 3,930 | |
(1)The Petroleum Segment may incur broker commissions or transportation costs prior to the transfer on certain sales. The broker costs are expensed since the contract durations are less than one year. Transportation costs are accounted for as fulfillment costs and are expensed as incurred. (2)Distillates consist primarily of diesel fuel, kerosene, jet fuel and renewable fuels activity. (3)Freight revenue recognized by the Petroleum Segment is primarily tariff and line loss charges rebilled to customers to reimburse the Petroleum Segment for expenses incurred from a pipeline operator. Freight revenue recognized by the Nitrogen Fertilizer Segment represents the pass-through finished goods delivery costs incurred prior to customer acceptance and is reimbursed by customers. An offsetting expense for freight is included in Cost of materials and other. (4)Other revenue consists primarily of renewable fuels activity, feedstock, asphalt sales, and pipeline and processing fees.
Remaining Performance Obligations
We have spot and term contracts with customers and the transaction prices are either fixed or based on market indices (variable consideration). We do not disclose remaining performance obligations for contracts that have terms of one year or less and for contracts where the variable consideration was entirely allocated to an unsatisfied performance obligation. As of December 31, 2017,2022, these contracts have a remaining duration of less than three years.
As of December 31, 2022, the Nitrogen Fertilizer PartnershipSegment had approximately $5 million of remaining performance obligations for contracts with an original expected duration of more than one year. The Nitrogen Fertilizer Segment expects to recognize approximately $4 million of these performance obligations as revenue by the end of 2023 and the remaining balance during 2024.
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contract Balances
A summary of the Nitrogen Fertilizer Segment’s deferred revenue activity during the year ended December 31, 2022 is presented below: | | | | | | (in millions) | | Balance at December 31, 2021 | $ | 87 | | Add: | | New prepay contracts entered into during the period (1) | 117 | | Less: | | Revenue recognized that was included in the contract liability balance at the beginning of the period | (86) | | Revenue recognized related to contracts entered into during the period | (69) | | Other changes | (1) | | Balance at December 31, 2022 | $ | 48 | |
(1)Includes $83 million where payments associated with prepaid contracts were collected as of December 31, 2022.
Major Customers
Petroleum Segment -The Petroleum Segment had two customers who comprised 25% and 26% of petroleum net sales for the years ended December 31, 2022 and 2020, respectively, and one customer who comprised 16% of petroleum net sales for the year ended December 31, 2021.
Nitrogen Fertilizer Segment - The Nitrogen Fertilizer Segment had two customers who comprised 30% and 26% of nitrogen fertilizer net sales for the years ended December 31, 2022 and 2020, respectively, and one customer who comprised 13% of nitrogen fertilizer net sales for the year ended December 31, 2021.
(8) Derivative Financial Instruments, Investments and Fair Value Measurements
Derivative Financial Instruments
The following outlines the net notional buy (sell) position of our commodity derivative instruments held as of December 31, 2022 and 2021: | | | | | | | | | | | | | | | | | | | | | December 31, | (in thousands of barrels) | Commodity | | 2022 | | 2021 | Forwards | Crude | | 373 | | | 67 | | | | | | | | Futures | Crude | | (150) | | | (20) | | Futures | ULSD | | (215) | | | (220) | | Futures | Soybean | | (109) | | | — | |
As of December 31, 2022, the Petroleum Segment had open fixed-price commitments to purchase a net amount of 34 million RINs.
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following outlines the realized and unrealized gains (losses) incurred from derivative activities, all of which were recorded in complianceCost of materials and other on the Consolidated Statements of Operations: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Forwards | $ | 12 | | | $ | 25 | | | $ | 53 | | Swaps | (48) | | | (68) | | | (8) | | Futures | (19) | | | (1) | | | 10 | | Total (loss) gain on derivatives, net | $ | (55) | | | $ | (44) | | | $ | 55 | |
Offsetting Assets and Liabilities
The following outlines the consolidated balance sheet line items that include our derivative financial instruments and the effect of the collateral netting. Such amounts are presented on a gross basis, before the effects of collateral netting. The Company elected to offset the derivative assets and liabilities with the covenants contained insame counterparty on a net basis when the 2023 Notes.legal right of offset exists. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, | | 2022 | | 2021 | | Derivatives | | Collateral Netting | | Net Value | | Derivatives | | Collateral Netting | | Net Value | (in millions) | Assets | | Liabilities | | | | Assets | | Liabilities | | | Prepaid expenses and other current assets | $ | — | | | $ | (1) | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Other current liabilities | — | | | (4) | | | — | | | (4) | | | 5 | | | (7) | | | — | | | (2) | |
Included in
At December 31, 2022 and 2021, the Company had $7 million and $4 million of collateral under master netting arrangements not offset against the derivatives within Prepaid expenses and other current liabilitiesassets on the Consolidated Balance Sheets, is accrued interest payable totaling approximately $2.7 millionrespectively, primarily related to initial margin requirements. Our derivative instruments may contain credit risk-related contingent provisions associated with our credit ratings. If our credit rating were to be downgraded, it would allow the counterparty to require us to post collateral or to request immediate, full settlement of derivative instruments in liability positions. There were no derivative liabilities with credit risk-related contingent provisions as of December 31, 2017 related to2022 and 2021, and no collateral has been posted.
Investments
Investments consisted of equity securities, which are reported at fair value in Prepaid expenses and other current assets on our Consolidated Balance Sheets. These investments were considered trading securities. Investment income on marketable securities consisted of the 2023 Notes. Atfollowing: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Dividend income | $ | — | | | $ | — | | | $ | 7 | | Gain on marketable securities | — | | | 81 | | | 34 | | Investment income on marketable securities | $ | — | | | $ | 81 | | | $ | 41 | |
On January 18, 2022, the Company divested its remaining nominal investment in Delek US Holdings, Inc. (“Delek”). As of December 31, 2017,2022, the estimated fair valueCompany did not hold any investment in Delek. See further discussion of the 2023 Notes was approximately $694.2 million. This estimate of fair value is Level 2 as it was determined by quotations obtained from a broker-dealer who makes a marketdistribution in these and similar securities.Note 14 (“Related Party Transactions”).
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CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Value Measurements
2021 Notes
The $320.0 million aggregate principal amount of 6.5% Senior Notes due 2021 (the "2021 Notes") were issuedfollowing tables set forth the assets and liabilities measured or disclosed at fair value on a recurring basis, by CVR Nitrogen and CVR Nitrogen Finance (the "2021 Notes Issuers") prior to the East Dubuque Merger. The 2021 Notes bear interest at a rate of 6.5% per annum, payable semi-annually in arrears on April 15 and October 15 of each year. The 2021 Notes are scheduled to mature on April 15, 2021, unless repurchased or redeemed earlier in accordance with their terms. The substantial majority of the 2021 Notes were repurchased in 2016. During year ended December 31, 2016, the Nitrogen Fertilizer Partnership recognized a loss on debt extinguishment of $4.9 million. As of December 31, 2017 and 2016, $2.2 million of principal amount of the 2021 Notes remained outstanding and accrued interest was nominal.
Asset Based (ABL) Credit Facility
On September 30, 2016, the Nitrogen Fertilizer Partnership entered into a senior secured asset based revolving credit facility (the "ABL Credit Facility") with a group of lenders and UBS AG, Stamford Branch ("UBS"), as administrative agent and collateral agent. The ABL Credit Facility has an aggregate principal amount of availability of up to $50.0 million with an incremental facility, which permits an increase in borrowings of up to $25.0 million in the aggregate subject to additional lender commitments and certain other conditions. The proceeds of the loans may be used for capital expenditures and working capital and general corporate purposes of the Nitrogen Fertilizer Partnership and its subsidiaries. The ABL Credit Facility provides for loans and standby letters of credit in an amount up to the aggregate availability under the facility, subject to meeting certain borrowing base conditions, with sub-limits of the lesser of 10% of the total facility commitment and $5.0 million for swingline loans and $10.0 million for letters of credit. The ABL Credit Facility is scheduled to mature on September 30, 2021.
At the option of the borrowers, loans under the ABL Credit Facility initially bear interest at an annual rate equal to (i) 2.00% plus LIBOR or (ii) 1.00% plus a base rate, subject to a 0.50% step-down based on the previous quarter’s excess availability. The borrowers must also pay a commitment fee on the unutilized commitments and also pay customary letter of credit fees.
The ABL Credit Facility also contains customary covenants for a financing of this type that limit the ability of the Nitrogen Fertilizer Partnership and its subsidiaries to, among other things, incur liens, engage in a consolidation, merger, purchase or sale of assets, pay dividends, incur indebtedness, make advances, investments and loans, enter into affiliate transactions, issue equity interests or create subsidiaries and unrestricted subsidiaries. The ABL Credit Facility also contains a fixed charge coverage ratio financial covenant, as defined therein. The Nitrogen Fertilizer Partnership was in compliance with the covenants of the ABL Credit Facilityinput level, as of December 31, 2017.2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total | Location and description | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other current liabilities (commodity derivatives) | $ | — | | | $ | (4) | | | $ | — | | | $ | (4) | | | | | | | | | | Other current liabilities (RFS obligations) | — | | | (692) | | | — | | | (692) | | Long-term debt and finance lease obligations, net of current portion (long-term debt) | — | | | (1,394) | | | — | | | (1,394) | | Total liabilities | $ | — | | | $ | (2,090) | | | $ | — | | | $ | (2,090) | |
In
| | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2021 | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total | Location and description | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Prepaid expenses and other current assets (derivative financial instruments) | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | | | | | | | | Total assets | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | | | | | | | | Other current liabilities (derivative financial instruments) | $ | — | | | $ | (2) | | | $ | — | | | $ | (2) | | | | | | | | | | Other current liabilities (RFS obligations) | — | | | (494) | | | — | | | (494) | | Long-term debt and finance lease obligations, net of current portion (long-term debt) | — | | | (1,620) | | | — | | | (1,620) | | Total liabilities | $ | — | | | $ | (2,116) | | | $ | — | | | $ | (2,116) | |
The Company had no transfers of assets or liabilities between any of the above levels during the years ended December 31, 2022 and 2021.
(9) Share-Based Compensation
Overview
CVR Energy and CVR Partners have Long-Term Incentive Plans (collectively, the “LTIPs”) that permit the granting of options, stock and unit appreciation rights, restricted shares, restricted stock units, phantom units, unit awards, substitute awards, other unit-based awards, cash awards, dividend and distribution equivalent rights, share awards, and performance awards (including performance share units, performance units, and performance-based restricted stock). Individuals who are eligible to receive awards and grants under or in connection with the ABL Credit Facility,LTIPs include the Partnership incurred lenderemployees, officers, and other third party costs of approximately $1.2 million, which are being deferred and amortized to interest expense and other financing costs using the straight line method over the termdirectors of the facility.
As ofCompany and CVR Partners. The Company had 6.8 million shares available for future grants under the CVR Energy LTIP at December 31, 2017,2022.
Incentive and Phantom Unit Awards
Incentive and phantom unit awards that have been granted to officers, employees, and directors (collectively, the Nitrogen Fertilizer Partnership“Share-Based Awards”) reflect the value and dividends or distributions of CVR Energy or CVR Partners, as applicable. Each Share-Based Award and the related dividend or distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one share or unit, as applicable, in accordance with the award agreement, plus (ii) the per share or unit cash value of all dividends or distributions declared and paid, as applicable, from the grant date through the vesting date. The Share-Based Awards are generally graded-vesting awards, which vest over three years with one-third of the award vesting each year the grantee remains employed by the Company or its subsidiaries. Compensation expense is recognized ratably, based on service provided to the Company and its subsidiaries, had availability underwith the ABL Credit Facilityamount recognized fluctuating as a result of $43.8 million. There were no borrowings outstanding under the ABL Credit Facility asShare-Based Awards being remeasured to fair value at the end of each reporting period due to their liability-award classification. December 31, 2017. Availability under the ABL Credit Facility was limited by borrowing base conditions as of December 31, 2017.2022 | 102
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of activity for the Company’s Share-Based Awards for the year ended December 31, 2022 is presented below:
Nitrogen Fertilizer Partnership Credit Facility | | | | | | | | | | | | | | | | | | | | Shares or Units (1) | | Weighted-Average Grant-Date Fair Value (per share or unit) | | Aggregate Intrinsic Value (in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-vested at December 31, 2021 | 2,293,105 | | | $ | 18.23 | | | $ | 62 | | | Granted | 591,528 | | | 34.02 | | | | | Vested | (1,004,918) | | | 19.30 | | | | | Forfeited | (141,095) | | | 18.35 | | | | | Non-vested at December 31, 2022 | 1,738,620 | | | $ | 22.97 | | | $ | 68 | | |
On April 13, 2011, CRNF, as borrower,(1)As of December 31, 2022, there are no outstanding awards under the LTIPs, and CVR Partners, as guarantor, entered intothe only outstanding and unvested awards are issued in connection with and not under the LTIPs.
Performance Unit Awards
Pursuant to the amended employment agreement, effective December 22, 2021, with the Company’s current chief executive officer, the Company amended the performance award agreement (the “CEO Performance Award”) to extend the end of the performance period thereunder to December 31, 2024. The CEO Performance Award represents the right to receive upon vesting, a credit facility with a groupcash payment equal to $10 million if the average closing price of lenders including Goldman Sachs Lending Partners LLC, as administrativethe Company’s common stock over the 30-day trading period from January 6, 2025 through February 20, 2025 is equal to or greater than $60 per share.
Compensation Expense
A summary of total share-based compensation expense and collateral agent (the "Credit Agreement"). unrecognized compensation expense related to the Share-Based Awards and the Company’s performance awards during the years ended December 31, 2022, 2021, and 2020 is presented below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Expenses | | Unrecognized Expense | | For the year ended December 31, | | At December 31, 2022 | (in millions) | 2022 | | 2021 | | 2020 | | Amount | | Weighted-Average Remaining Years | Share-Based Awards: | | | | | | | | | | Incentive Units | $ | 45 | | | $ | 22 | | | $ | 3 | | | $ | 33 | | | 2.0 | CVR Partners - Phantom Units | 26 | | | 27 | | | 1 | | | 11 | | | 1.4 | | | | | | | | | | | Performance Unit Awards: | | | | | | | | | | CEO Performance Award (1) | — | | | (3) | | | — | | | 10 | | | 2.0 | | | | | | | | | | | | | | | | | | | | | Total share-based compensation expense | $ | 71 | | | $ | 46 | | | $ | 4 | | | $ | 54 | | | |
(1)All expenses, recognized and unrecognized, related to the CEO Performance Award are contingent upon whether the performance parameters are probable of being met. If the performance parameters are not met, no expense will be recognized.
The Credit Agreement includes a term loan facility of $125.0total tax benefit recognized during the years ended December 31, 2022, 2021, and 2020 related to compensation expense was $19 million, $12 million, and $1 million, respectively. As of December 31, 2022 and 2021, the Company had a revolving credit facilityliability of $25.0$35 million with an uncommitted incremental facility of up to $50.0 million. At March 31, 2016, the effective rate of the term loan was approximately 3.98%. On April 1, 2016, the Partnership repaid all amounts outstanding under the Credit Agreement and the Credit Agreement was terminated.
Deferred Financing Costs
$23 million, respectively, for cash settled non-vested Share-Based Awards and associated dividend and distribution equivalent rights. For the years ended December 31, 2017, 20162022, 2021, and 2015, amortization2020, the Company paid cash of deferred financing costs reported as interest expense and other financing costs totaled approximately $4.8$58 million, $3.6$30 million, and $2.8$8 million, respectively.respectively, to settle liability-classified awards upon vesting.
Capital Lease ObligationsOther Benefit Plans
The Refining Partnership maintains two leases, accounted for as a capital lease and a financial obligation, which relate to the Magellan Pipeline Terminals, L.P. ("Magellan Pipeline") and Excel Pipeline LLC ("Excel Pipeline"). The underlying assets and related depreciation are included in property, plant and equipment. The capital lease, which relates to a sales-lease back agreement with Sunoco Pipeline, L.P. for its membership interest in the Excel Pipeline, has 142 months remaining of its term and will expire in September 2029. The financing arrangement, which relates to the Magellan Pipeline terminals, bulk terminal and loading facility, has 141 months remaining of its lease term and will expire in September 2029. As of December 31, 2017, the outstanding obligation associated with these arrangements totaled approximately $45.0 million, of which $42.9 million is included in long-term liabilities and $2.1 million is included in current liabilities in the Consolidated Balance Sheets.
Future payments required under capital lease at December 31, 2017 are as follows:
| | | | | Year Ending December 31, | Capital Lease | | (in millions) | 2018 | $ | 6.5 |
| 2019 | 6.5 |
| 2020 | 6.5 |
| 2021 | 6.5 |
| 2022 | 6.5 |
| Thereafter | 44.2 |
| Total future payments | 76.7 |
| Less: amount representing interest | 31.7 |
| Present value of future minimum payments | 45.0 |
| | | Less: current portion | 2.1 |
| Long-term portion | $ | 42.9 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(12) Dividends
On January 24, 2013, the board of directors of the Company adopted a quarterly cash dividend policy. Dividends are subject to change at the discretion of the board of directors. The Company began paying regular quarterly dividends in the second quarter of 2013.
The following is a summary of the quarterly and special dividends paid to stockholders during the years ended December 31, 2017 and 2016:
| | | | | | | | | | | | | | | | | | | | | | December 31, 2016 | | March 31, 2017 | | June 30, 2017 | | September 30, 2017 | | Total Dividends Paid in 2017 | | (in millions, except per share data) | Dividend type | Quarterly |
| | Quarterly |
| | Quarterly |
| | Quarterly |
| | | Amount paid to IEP | $ | 35.6 |
| | $ | 35.6 |
| | $ | 35.6 |
| | $ | 35.6 |
| | $ | 142.4 |
| Amounts paid to public stockholders | 7.8 |
| | 7.8 |
| | 7.8 |
| | 7.8 |
| | 31.3 |
| Total amount paid | $ | 43.4 |
| | $ | 43.4 |
| | $ | 43.4 |
| | $ | 43.4 |
| | $ | 173.7 |
| Per common share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 2.00 |
| Shares outstanding | 86.8 |
| | 86.8 |
| | 86.8 |
| | 86.8 |
| | |
| | | | | | | | | | | | | | | | | | | | | | December 31, 2015 | | March 31, 2016 | | June 30, 2016 | | September 30, 2016 | | Total Dividends Paid in 2016 | | (in millions, except per share data) | Dividend type | Quarterly |
| | Quarterly |
| | Quarterly |
| | Quarterly |
| | | Amount paid to IEP | $ | 35.6 |
| | $ | 35.6 |
| | $ | 35.6 |
| | $ | 35.6 |
| | $ | 142.4 |
| Amounts paid to public stockholders | 7.8 |
| | 7.8 |
| | 7.8 |
| | 7.8 |
| | 31.2 |
| Total amount paid | $ | 43.4 |
| | $ | 43.4 |
| | $ | 43.4 |
| | $ | 43.4 |
| | $ | 173.6 |
| Per common share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 2.00 |
| Shares outstanding | 86.8 |
| | 86.8 |
| | 86.8 |
| | 86.8 |
| | |
(13) Earnings Per Share
The computations of the basic and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 are as follows:
| | | | | | | | | | | | | | For the Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions, except per share data) | Net income attributable to CVR Energy stockholders | $ | 234.4 |
| | $ | 24.7 |
| | $ | 169.6 |
| | | | | | | Weighted-average shares of common stock outstanding - Basic and Diluted | 86.8 |
| | 86.8 |
| | 86.8 |
| | | | | | | Basic and Diluted earnings per share | $ | 2.70 |
| | $ | 0.28 |
| | $ | 1.95 |
|
There were no dilutive awards outstanding during the years ended December 31, 2017, 2016 and 2015 as all unvested awards under the LTIP were liability-classified awards. See Note 4 ("Share-Based Compensation").
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(14) Benefit Plans
CVR sponsors and administers two defined-contribution 401(k) plans, the CVR Energy 401(k) Plan and the CVR Energy 401(k) Plan for Represented Employees (the "Plans"(collectively, the “Plans”), in which CVRthe Company’s employees may participate.
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Participants in the Plans may elect to contribute a designated percentage of their eligible compensation in accordance with the Plans, subject to statutory limits. CVRThe Company provides a matching contribution of 100% of the first 6% of eligible compensation contributed by participants. Contributions to the represented plan are determined in accordance with provisions of negotiated labor contracts. Participants in boththe Plans are immediately vested in their individual contributions. BothThe Plans provide for a three-year vesting schedule for CVR'sthe Company’s matching contributions and contain a provision to count service with predecessor organizations. CVR'sThe Company had approximately $11 million and $10 million in contributions under the Plans were approximately $8.5 million, $8.1 million and $7.3 million for the years ended December 31, 2017, 20162022 and 2015,2020, respectively. The Company had no contributions for the year ended December 31, 2021, as the Company’s matching contributions for the Plans were suspended effective January 1, 2021 and resumed effective January 1, 2022.
Beginning April 1, 2016
(10) Income Taxes
As of December 31, 2022 and 2021, the Company’s Consolidated Balance Sheets reflected a receivable of $22 million and $26 million, respectively, from the IRS and certain state jurisdictions.
Income Tax Expense (Benefit)
Income tax expense (benefit) is comprised of the following: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Current: | | | | | | Federal | $ | 156 | | | $ | 84 | | | $ | (63) | | State | 14 | | | 7 | | | (5) | | Total current | 170 | | | 91 | | | (68) | | Deferred: | | | | | | Federal | (26) | | | (76) | | | (1) | | State | 13 | | | (23) | | | (26) | | Total deferred | (13) | | | (99) | | | (27) | | Total income tax expense (benefit) | $ | 157 | | | $ | (8) | | | $ | (95) | |
The following is a reconciliation of total income tax expense (benefit) to income tax expense (benefit) computed by applying the statutory federal income tax rate to pretax income (loss): | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Tax computed at federal statutory rate | $ | 168 | | | $ | 14 | | | $ | (87) | | State income taxes, net of federal tax benefit | 28 | | | 3 | | | (18) | | Changes in enacted state tax rates, net of federal tax benefit | — | | | (10) | | | — | | State tax incentives, net of federal tax expense | (6) | | | (6) | | | (7) | | Noncontrolling interest | (38) | | | (10) | | | 13 | | Goodwill impairment | — | | | — | | | 3 | | Other, net | 5 | | | 1 | | | 1 | | Total income tax expense (benefit) | $ | 157 | | | $ | (8) | | | $ | (95) | |
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred Tax Assets and Liabilities
The income tax effect of temporary differences that give rise to the Deferred income tax assets and Deferred income tax liabilities at December 31, 2022 and 2021 are as follows: | | | | | | | | | | | | | December 31, | (in millions) | 2022 | | 2021 | Deferred income tax assets: | | | | Personnel accruals | $ | 14 | | | $ | 6 | | State tax credit carryforward, net | 8 | | | 17 | | Net operating loss carryforward | — | | | 2 | | | | | | | | | | Total gross deferred income tax assets | 22 | | | 25 | | Deferred income tax liabilities: | | | | | | | | | | | | Investment in CVR Partners | (68) | | | (70) | | Investment in CVR Refining | (202) | | | (222) | | | | | | Other | (1) | | | (1) | | Total gross deferred income tax liabilities | (271) | | | (293) | | Net deferred income tax liabilities | $ | (249) | | | $ | (268) | |
Although realization is not assured, management believes that it is more likely than not that all of the deferred income tax assets will be realized, and therefore, no valuation allowance was recognized as of December 31, 2022 and 2021.
As of December 31, 2022, CVR Energy has state tax credits of approximately $9 million, which are available to reduce future state income taxes. These credits have an indefinite carryover period.
Uncertain Tax Positions
A reconciliation of unrecognized tax benefits is as follows: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Balance, beginning of year | $ | 17 | | | $ | 17 | | | $ | 22 | | Decrease based on prior year tax position | — | | | — | | | (2) | | | | | | | | Reductions related to expirations from statute of limitations | (6) | | | — | | | (3) | | Balance, end of year | $ | 11 | | | $ | 17 | | | $ | 17 | |
Included in the balance of unrecognized tax benefits as of December 31, 2022, 2021, and 2020 are $9 million, $13 million, and $13 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Additionally, the Company reasonably believes that $10 million of unrecognized tax positions related to state income tax credits will be recognized by the end of 2023 as a result of the East Dubuque Merger,expiration of statute of limitations. Approximately $2 million and $7 million of unrecognized tax benefits were netted with Deferred income tax asset carryforwards as of December 31, 2022 and 2021, respectively. The remaining unrecognized tax benefits are included in Other long-term liabilities in the Nitrogen Fertilizer Partnership acquired theConsolidated Balance Sheets. Rentech Nitrogen GP, LLC Union 401(k) Plan (the "Union Plan"), which was sponsored by CVR Nitrogen GP, LLC. On May 1, 2017, the Union Plan was merged into the
CVR Energy 401(k) Planrecognized $1 million interest expense and $3 million liability for Represented Employees. Contributions underinterest as of December 31, 2022, $1 million interest expense and $2 million liability for interest as of December 31, 2021, and a nominal interest expense and $1 million liability for interest as of December 31, 2020. No penalties were recognized during 2022, 2021, or 2020.
At December 31, 2022, the Union Plan were not material.Company’s tax filings are open to examination in the United States for the tax years ended December 31, 2018 through December 31, 2021 and in various individual states for the tax years ended December 31, 2018 through December 31, 2021.
(15)December 31, 2022 | 105
CVR ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) Commitments and Contingencies
Supply Commitments
The Company is a party to various supply agreements with both related and third parties which commit the Company to purchase minimum volumes of crude oil, hydrogen, oxygen, nitrogen, pet coke, and natural gas to run its facilities’ operations.
The minimum required payments for CVR's operating lease agreements and unconditional purchase obligations are as follows: | | | | | | (in millions) | Unconditional Purchase Obligations | Year Ended December 31, | | 2023 | $ | 142 | | 2024 | 83 | | 2025 | 83 | | 2026 | 77 | | 2027 | 71 | | Thereafter | 187 | | | $ | 643 | |
| | | | | | | | | Year Ending December 31, | Operating Leases | | Unconditional Purchase Obligations(1) | | (in millions) | 2018 | $ | 7.4 |
| | $ | 165.0 |
| 2019 | 6.5 |
| | 124.3 |
| 2020 | 5.9 |
| | 100.6 |
| 2021 | 5.3 |
| | 89.8 |
| 2022 | 4.8 |
| | 84.7 |
| Thereafter | 2.4 |
| | 542.7 |
| | $ | 32.3 |
| | $ | 1,107.1 |
|
| | (1) | This amount includes approximately $698.6 million payable ratably over 13 years pursuant to petroleum transportation service agreements between CRRM and each of TransCanada Keystone Pipeline Limited Partnership and TransCanada Keystone Pipeline, LP (together "TransCanada"). The purchase obligation reflects the exchange rate between the Canadian dollar and the U.S. dollar as of December 31, 2017, where applicable. Under the agreements, CRRM receives transportation of at least 25,000 barrels per day of crude oil with a delivery point at Cushing, Oklahoma for a term of 20 years on TransCanada's Keystone pipeline system. |
CVR leases equipment, including railcars and real properties, under long-term operating leases expiring at various dates through 2035. For the years ended December 31, 2017, 20162022, 2021, and 2015, lease expense2020, amounts purchased under these supply agreements totaled approximately $7.6$200 million, $8.2$176 million, and $8.7$153 million, respectively. The lease agreements have various remaining terms. Some agreements are renewable, at CVR's option, for additional periods. It is expected, in the ordinary course of business, that leases will be renewed or replaced as they expire.
Additionally, in the normal course of business, the Company has long-term commitments to purchase oxygen, nitrogen, electricity, storage capacity, water and pipeline transportation services. For the years ended December 31, 2017, 2016 and 2015, total expense of $209.4 million, $150.5 million and $135.9 million, respectively, was incurred related to long-term commitments.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Crude Oil Supply Agreement
OnEffective on August 31, 2012, CRRM and Vitol Inc. ("Vitol"),4, 2021, an indirect, wholly-owned subsidiary of CVR Refining entered into anthe Second Amended and Restated Crude Oil Supply Agreement (as amended,(the “Crude Oil Supply Agreement”) with Vitol Inc. (“Vitol”), which superseded, in its entirety, the "Vitol Agreement").August 31, 2012 Amended and Restated Crude Oil Supply Agreement between the parties. Under the VitolCrude Oil Supply Agreement, Vitol supplies the petroleum businessPetroleum Segment with crude oil and intermediation logistics which helpshelping to reduce the Refining Partnership'samount of inventory positionheld at certain locations and mitigate crude oil pricing risk. Volumes contracted under the Crude Oil Supply Agreement, as a percentage of the total crude oil purchases (in barrels), were approximately 34%, 42%, and 33% for the years ended December 31, 2022, 2021, and 2020, respectively. The VitolCrude Oil Supply Agreement, willwhich currently extends through December 31, 2023, automatically renewrenews for successive one-year terms (each such term, a "Renewal Term"“Renewal Term”) unless either party provides the other with notice of nonrenewalnon-renewal at least 180 days prior to expiration of the term or any Renewal Term.
Contingencies
Call Option Lawsuits - In December 2022, the Delaware Court of Chancery approved the final settlement of the consolidated lawsuits (collectively, the “Call Option Lawsuits”) filed by purported former unitholders of CVR Refining on behalf of themselves and an alleged class of similarly situated unitholders against the Company and certain of its affiliates (the “Call Defendants”) relating to the Company’s exercise of the call option under the CVR Refining Amended and Restated Agreement of Limited Partnership assigned to it by CVR Refining’s general partner including the Stipulation, Compromise and Release (the “Settlement”) entered into by the parties on August 19, 2022. The Vitol Agreement currently extends throughSettlement had no further impact on the Company’s financial position or results of operations beyond the $79 million recognized within Other (expense) income, net in the Consolidated Statements of Operations for the year ended December 31, 2018.
Litigation
From time to time, the Company is involved in various lawsuits arising in the normal course of business, including matters such as those described below under, "Environmental, Health, and Safety ("EHS") Matters." Liabilities related to such litigation are recognized when the related costs are probable and can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted2022 to reflect the impactsestimated probable loss.
On November 28, 2022, the 434th Judicial District Court of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. It is possible that management's estimatesFort Bend County, Texas granted summary judgment in favor of the outcomes will change withinprimary and excess insurers (the “Insurers”) of the next year due to uncertainties inherentCall Defendants in litigation and settlement negotiations. In the opinion of management,Insurers’ declaratory judgment action seeking determination that the ultimate resolution of any other litigation matters is not expected to have a material adverse effect on the accompanying consolidated financial statements. There can beInsurers owe no assurance that management's beliefs or opinions with respect to liability for potential litigation matters will prove to be accurate.
The U.S. Attorney’s officeindemnity coverage for the Southern DistrictCall Option Lawsuits in relation to insurance policies that have coverage limits of New York contacted $50 million. The Company intends to appeal the grant of summary judgment while it concurrently pursues its claims against the Insurers it filed in October 2022 in the Superior Court of the State of Delaware (the “Superior Court”) alleging breach of contract and breach of the implied covenant of good faith and fair dealing against their primary and excess insurers relating to their denial of coverage of the Call Defendants’ defense expenses and indemnity, as well as other
CVR Energy in September 2017 seeking productionENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS conduct of information pertaining to our, CVR Refining’s and Mr. Carl C. Icahn’s activitiesthe Insurers relating to the RFSCall Option Lawsuits. On January 3, 2023, the Superior Court granted the Call Defendants’ motion for leave to amend its complaint to seek recovery from the Insurers of all of the amounts paid in settlement of the Call Option Lawsuits. As our potential appeal of the Texas court decision and Mr. Icahn’s role as an advisor toour Superior Court lawsuit are in their early stages, the President. We are cooperating withCompany cannot determine at this time the request and are providing information in response tooutcome of these lawsuits, including whether the subpoena. The U.S. Attorney’s office has not made any claims or allegations against us or Mr. Icahn. We maintain a strong compliance program and, while no assurances can be made, we do not believe this inquiry willoutcome would have a material impact on our business,the Company’s financial condition,position, results of operations, or cash flows.
Property Tax Matter
CRNF received a ten-year property tax abatement from Montgomery County, Kansas (the "County") in connection with the construction of the Coffeyville Fertilizer FacilityRenewable Fuel Standards - The Petroleum Segment’s subsidiaries that expired on December 31, 2007. In connection with the expiration of the abatement, the County reclassified and reassessed CRNF's nitrogen fertilizer plant for property tax purposes. The reclassification and reassessment resulted in an increase in CRNF's annual property tax expense by an average of approximately $10.7 million per year for the years ended December 31, 2008 and December 31, 2009, $11.7 million for the year ended December 31, 2010, $11.4 million for the year ended December 31, 2011 and $11.3 million for the year ended December 31, 2012. CRNF protested the classification and resulting valuation for each of those yearsare subject to the Kansas Board of Tax Appeals ("BOTA"RFS (collectively, the “obligated-party subsidiaries”), followed implemented by an appeal to the Kansas Court of Appeals. However, CRNF fully accrued and paid the property taxes the county claims are owed for the years ended December 31, 2008 through 2012. The Kansas Court of Appeals, in a memorandum opinion dated August 9, 2013, reversed the BOTA decision in part and remanded the case to BOTA, instructing BOTA to classify each asset on an asset by asset basis instead of making a broad determination that the entire plant was real property as BOTA did originally. The County filed a motion for rehearing with the Kansas Court of Appeals and a petition for review with the Kansas Supreme Court, both of which have been denied.
In March 2015, BOTA concluded that based upon an asset by asset determination, a substantial majority of the assets in dispute will be classified as personal property for the 2008 tax year. The parties stipulated to the value of the real property, following which BOTA issued its final decision. The County has appealed the decision with respect to classification to the Kansas Court of Appeals. No amounts have been received or recognized in these consolidated financial statements related to the 2008 property tax matter or BOTA’s decision.
On February 25, 2013, the County and CRNF agreed to a settlement for tax years 2009 through 2012, which has lowered and will lower CRNF's property taxes by about $10.7 million per year (as compared to the 2012 tax year) for tax years 2013 to 2016 based on current mill levy rates. In addition, the settlement provides the County will support CRNF's application before BOTA for a ten-year tax exemption for the UAN expansion. Finally, the settlement provides that CRNF will continue its appeal of the 2008 reclassification and reassessment discussed above.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Flood, Crude Oil Discharge and Insurance
Crude oil was discharged from the Coffeyville refinery on July 1, 2007, due to the short amount of time available to shutdown and secure the refinery in preparation for the flood that occurred on June 30, 2007. On October 25, 2010, the Company received a letter from the United States Coast Guard on behalf of the U.S. Environmental Protection Agency ("EPA") seeking approximately $1.8 million in oversight cost reimbursement. The Company responded by asserting defenses to the Coast Guard's claim for oversight costs. On September 23, 2011, the United States Department of Justice ("DOJ"(the “EPA”), acting on behalf of the EPA and the United States Coast Guard, filed suit against CRRM in the United States District Court for the District of Kansas seeking recovery from CRRM related to alleged non-compliance with the Clean Air Act's Risk Management Program ("RMP"), the Clean Water Act ("CWA") and the Oil Pollution Act of 1990 ("OPA"). CRRM reached an agreement with the DOJ resolving its claims under CWA and OPA. The agreement was memorialized in a Consent Decree that was filed with and approved by the Court on February 12, 2013 and March 25, 2013, respectively (the "2013 Consent Decree"). On April 19, 2013, CRRM paid a civil penalty (including accrued interest) in the amount of $0.6 million related to the CWA claims and reimbursed the Coast Guard for oversight costs under OPA in the amount of $1.7 million. The 2013 Consent Decree also requires CRRM to make small capital upgrades to the Coffeyville refinery crude oil tank farm, develop flood procedures and provide employee training, all of which have been completed.
The parties also reached an agreement to settle DOJ's claims related to alleged non-compliance with RMP. The agreement was memorialized in a separate consent decree that was filed with and approved by the Court on May 21, 2013 and July 2, 2013, respectively, and provided for a civil penalty of $0.3 million. On July 29, 2013, CRRM paid the civil penalty related to the RMP claims. CRRM has completed the implementation of the recommendations of several audits required by the RMP Consent Decree, which were related to compliance with RMP requirements.
Environmental, Health, and Safety ("EHS") Matters
The petroleum and nitrogen fertilizer businesses are subject to various stringent federal, state, and local EHS rules and regulations. Liabilities related to EHS matters are recognized when the related costs are probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, existing technology, site-specific costs, and currently enacted laws and regulations. In reporting EHS liabilities, no offset is made for potential recoveries.
CRRM, CRNF, Coffeyville Resources Crude Transportation, LLC ("CRCT"), Wynnewood Refining Company, LLC ("WRC"), East Dubuque Nitrogen Fertilizers, LLC ("EDNF") and Coffeyville Resources Terminal, LLC ("CRT") own and/or operate manufacturing and ancillary operations at various locations directly related to petroleum refining and distribution and nitrogen fertilizer manufacturing. Therefore, CRRM, CRNF, CRCT, WRC, EDNF and CRT have exposure to potential EHS liabilities related to past and present EHS conditions at these locations. Under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), and related state laws, certain persons may be liable for the release or threatened release of hazardous substances. These persons include the current owner or operator of property where a release or threatened release occurred, any persons who owned or operated the property when the release occurred, and any persons who disposed of, or arranged for the transportation or disposal of, hazardous substances at a contaminated property. Liability under CERCLA is strict, and under certain circumstances, joint and several, so that any responsible party may be held liable for the entire cost of investigating and remediating the release of hazardous substances. Similarly, OPA generally subjects owners and operators of facilities to strict, joint and several liability for all containment and clean-up costs, natural resource damages, and potential governmental oversight costs arising from oil spills into the waters of the United States, which has been broadly interpreted to include most water bodies including intermittent streams.
CRRM, CRNF, CRCT, WRC, EDNF and CRT are subject to extensive and frequently changing federal, state and local environmental and health and safety laws and regulations governing the emission and release of hazardous substances into the environment, the treatment and discharge of waste water, and the storage, handling, use and transportation of petroleum and nitrogen fertilizer products, and the characteristics and composition of gasoline and diesel fuels. The ultimate impact of complying with evolving laws and regulations is not always clearly known or determinable due in part to the fact that our operations may change over time and certain implementing regulations for laws, such as the federal Clean Air Act, have not yet been finalized, are under governmental or judicial review or are being revised. These laws and regulations could result in increased capital, operating and compliance costs.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On August 1, 2016, CRCT received a Notice of Probable Violation, Proposed Civil Penalty and Proposed Compliance Order (the "NOPV") from the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (the "PHMSA"). The NOPV alleges violations of the Pipeline Safety Regulations, Title 49, Code of Federal Regulations. The alleged violations include alleged failures (during various time periods) to (i) conduct quarterly notification drills, (ii) maintain certain required records, (iii) utilize certain required safety equipment (including line markers), (iv) take certain pipeline integrity management activities, (v) conduct certain cathodic protection testing, and (vi) make certain atmospheric corrosion inspections. The preliminary assessed civil penalty is approximately $0.5 million and the NOPV contained a compliance order outlining remedial compliance steps to be undertaken by CRCT. CRCT paid approximately $0.2 million of the preliminary assessed civil penalty in September 2016, and contested and requested mitigation of the remainder, and also requested reconsideration of the proposed compliance order. In November 2017, CRCT received a final order from PHMSA assessing a revised civil penalty of approximately $0.5 million. CRCT paid the remaining $0.3 million in civil penalty and has completed all items required by the compliance order.
CRRM and CRT have agreed to perform corrective actions at the Coffeyville, Kansas refinery and the now-closed Phillipsburg, Kansas terminal facility, pursuant to Administrative Orders on Consent issued under RCRA to address historical contamination by the prior owners (RCRA Docket No. VII-94-H-20 and Docket No. VII-95-H-11, respectively). WRC and the Oklahoma Department of Environmental Quality ("ODEQ") have entered into a Consent Order (Case No. 15-056) to resolve certain legacy environmental issues related to historical groundwater contamination and the operation of a wastewater conveyance. As of December 31, 2017 and 2016, environmental accruals of approximately $3.9 million and $4.8 million, respectively, were reflected in the Consolidated Balance Sheets for probable and estimated costs for remediation of environmental contamination under the RCRA Administrative Orders and the ODEQ Consent Order, for which approximately $1.3 million and $0.2 million, respectively, are included in other current liabilities. Accruals were determined based on an estimate of payment costs through 2026, for which the scope of remediation was arranged with the EPA and ODEQ, and were discounted at the appropriate risk free rates at December 31, 2017 and 2016, respectively. The accruals include estimated closure and post-closure costs of approximately $0.4 million for two landfills at December 31, 2017 and 2016.
The estimated future payments for these required obligations are as follows:
| | | | | Year Ending December 31, | Amount | | (in millions) | 2018 | $ | 2.9 |
| 2019 | 1.1 |
| 2020 | — |
| 2021 | — |
| 2022 | — |
| Thereafter | — |
| Undiscounted total | 4.0 |
| Less amounts representing interest at 1.98% | 0.1 |
| Accrued environmental liabilities at December 31, 2017 | $ | 3.9 |
|
Management periodically reviews and, as appropriate, revises its environmental accruals. Based on current information and regulatory requirements, management believes that the accruals established for environmental expenditures are adequate.
Tier 3 Motor Vehicle Emission and Fuel Standards
In April 2014, the EPA promulgated the Tier 3 Motor Vehicle Emission and Fuel Standards, which will require that gasoline contain no more than ten parts per million of sulfur on an annual average basis. Refineries were required to be in compliance with the more stringent emission standards as of January 1, 2017; however, compliance with the rule was extended until January 1, 2020 for approved small volume refineries and small refiners. In March 2015, the EPA approved the Wynnewood refinery's application requesting "small volume refinery" status. In June 2016, because it exceeded the EPA’s specified throughput limit for a “small volume refinery.” the Wynnewood refinery became disqualified as a “small volume refinery.” Therefore, the Wynnewood refinery’s compliance deadline was accelerated to December 21, 2018. It is not anticipated that the refineries will require additional controls or capital expenditures to meet the new standard.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Renewable Fuel Standards
CVR Refining is subject to the Renewable Fuel Standard ("RFS") which requires refiners to either blend "renewable fuels" in withrenewable fuels into their transportation fuels or purchase renewable fuel credits, known as RINs, in lieu of blending. Due to mandates in the RFS requiring increasing volumes of renewable fuels to replace petroleum products in the U.S. transportation fuel market, there may be a decrease in demand for petroleum products. CVR Refining isThe Petroleum Segment’s obligated-party subsidiaries are not able to blend the substantial majority of its transportation fuels and has tomust either purchase RINs on the open market, as well asor obtain waiver credits for cellulosic biofuels, or other exemptions from the EPA, in order to comply with the RFS. Additionally, the Petroleum Segment’s obligated-party subsidiaries purchase RINs generated from our renewable diesel operations, whose operating results are not included in either of our reportable segments, to partially satisfy their RFS obligations.
For the years ended December 31, 2022, 2021, and 2020, the Company’s obligated-party subsidiaries recognized expense of approximately $435 million, $435 million, and $190 million, respectively, for their compliance with the RFS (based on the 2020, 2021, and 2022 renewable volume obligation (“RVO”), for the respective periods, excluding the impacts of any exemptions or waivers to which the Company may be entitled). The costrecognized amounts are included within Cost of materials and other in the Consolidated Statements of Operations and represent costs to comply with the RFS obligation through purchasing of RINs has been extremely volatile as the EPA'snot otherwise reduced by blending of ethanol, biodiesel, or renewable fuel volume mandates approached and exceeded the "blend wall." The blend wall refersdiesel. At each reporting period, to the point atextent RINs purchased and generated through blending are less than the RFS obligation (excluding the impact of exemptions or waivers to which the amountCompany may be entitled), the remaining position is valued using RIN market prices at period end. As of ethanol blended intoDecember 31, 2022 and 2021, the transportation fuel supply exceedsCompany’s obligated-party subsidiaries’ RFS positions were approximately $692 million and $494 million, respectively, and are recorded in Other current liabilities on the demand for transportation fuel containing such levelsConsolidated Balance Sheets.
RFS Disputes - The Company has filed a number of ethanol. The blend wall is generally considered to be reached when more than 10% ethanol by volume is blended into transportation fuel.
In December 2015, 2016 and 2017, the EPA publishedpetitions in the Federal Register final rules establishingUnited States Court of Appeals for the renewable fuel volume mandates for 2016, 2017 and 2018,Fifth Circuit (the “Fifth Circuit”) and the biomass-based diesel volume mandates for 2017, 2018 and 2019, respectively. The volumes included in the EPA's final rule increase each year, but are lower, with the exception of the volumes for biomass-based diesel, than the volumes required by the Clean Air Act. The EPA used its waiver authorities to lower the volumes in each rulemaking, but its decision to do so for the 2014-2016 compliance years was challenged in the U.S.United States Court of Appeals for the District of Columbia Circuit ("D.C. Circuit"(the “DC Circuit”). In a challenging the EPA’s denial of small refinery exemptions sought by Wynnewood Refining Company, LLC (“WRC”) for the 2017 through 2021 compliance periods (the “SRE Denial Lawsuits”), the EPA’s April 2022 and June 2022 alternative compliance rulings and the EPA’s Final Rule issued in July 2017 decision, the D.C. Circuit rejected all challenges2022 establishing RVO, and also intervened in an action filed by certain biofuels producers relating to the 2014-2016 compliance years rule except for one, vacatedRFS. In late 2022, the Fifth Circuit denied the EPA’s decisionmotions to reducestay the total renewable fuel volume requirements for 2016 through useSRE Denial Lawsuits, which motion remains pending. In February 2023, WRC filed a motion in the Fifth Circuit seeking a stay of enforcement of the RFS against WRC pending resolution of the SRE Denial Lawsuits. As each of these proceedings is in its “inadequate domestic supply” waiver authority, and remandedpreliminary stages, the ruleCompany cannot determine at this time the outcomes of these matters. While we intend to prosecute these actions vigorously, if these matters are ultimately concluded in a manner adverse to the EPA for further consideration. The EPA has not yet proposedCompany, they could have a new rule establishingmaterial effect on the volume requirements for 2016 followingCompany’s financial position, results of operations, or cash flows.
Environmental, Health, and Safety (“EHS”) Matters
Clean Air Act Matter - In June and October 2020, the D.C. Circuit’s opinion. In addition to establishing the renewable volume obligations, the EPA has articulated a policy that high RINs prices incentivize additional investments in renewable fuel blending and distribution infrastructure.
RINs expense for the years ended December 31, 2017, 2016 and 2015 was approximately $249.0 million, $205.9 million and $123.9 million, respectively. As of December 31, 2017 and 2016, CVR Refining's biofuel blending obligation was approximately $28.3 million and $186.3 million, respectively, which is recorded in other current liabilities in the Consolidated Balance Sheets. The price of RINs has been extremely volatile over the last year. The future cost of RINs for the petroleum business is difficult to estimate. Additionally, the cost of RINs is dependent upon a variety of factors, which include the availability of RINs for purchase, the price at which RINs can be purchased, transportation fuel production levels, the mixUnited States (on behalf of the petroleum business' petroleum products, as well asEPA) and the fuel blending performed at its refineriesstate of Kansas, acting by and downstream terminals, all of which can vary significantly from period to period.
Coffeyville Second Consent Decree
In March 2004, CRRM and CRT entered into a Consent Decree (the "2004 Consent Decree") with the EPA andthrough the Kansas Department of Health and Environment (the "KDHE"(“KDHE”), demanded stipulated penalties from CRRM for alleged violations of a Consent Decree (“CD”) to resolve air compliance concerns raised by the EPA and KDHE related to Farmland Industries Inc.'s prior ownership and operationparties entered into in 2012. On April 5, 2021, CRRM filed a petition for judicial review of the Coffeyville crude oil refinery and the now-closed Phillipsburg terminal facilities. Under the 2004 Consent Decree, CRRM agreed to reduce emissions of sulfur dioxide, nitrogen oxides and particulate matter from its fluid catalytic cracking unit ("FCCU") by January 1, 2011. In addition, pursuant to the 2004 Consent Decree, CRRM and CRT assumed clean-up obligations at the Coffeyville refinery and the now-closed Phillipsburg terminal facilities.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In March 2012, CRRM entered into a second consent decree (the "Second Consent Decree")stipulated penalty demand with the EPA and KDHE, which replaced the 2004 Consent Decree (other than certain financial assurance provisions associated with corrective action at the refinery and terminal under RCRA). The Second Consent Decree was entered by the U.S. District Court for the District of Kansas on April 19, 2012. The Second Consent Decree gave CRRM more time to install the FCCU controls from the 2004 Consent Decree and expands the scope of the settlement so that it is now considered a "global settlement" under the EPA's "National Petroleum Refining Initiative." Under the National Petroleum Refining Initiative, the EPA alleged industry-wide non-compliance with four "marquee" issues under the Clean Air Act: New Source Review, Flaring, Leak Detection and Repair, and Benzene Waste Operations National Emission Standard for Hazardous Air Pollutants ("NESHAP"). The National Petroleum Refining Initiative has resulted in most U.S. refineries (representing more than 95% of the U.S. refining capacity) entering into consent decrees requiring the payment of civil penalties and the installation of air pollution control equipment and enhanced operating procedures. Under the Second Consent Decree, CRRM was required to pay a civil penalty of approximately $0.7 million and complete the installation of FCCU controls required under the 2004 Consent Decree, add controls to certain heaters and boilers and enhance certain work practices relating to wastewater and fugitive emissions. In March 2016, the United States District Court for the District of Kansas approved(“D. Kan.”). On March 30, 2022, the D. Kan. issued a modificationmemorandum and order denying CRRM’s petition for judicial review and awarding the United States and KDHE approximately $6.8 million in stipulated penalties (the “Stipulated Claims”). On May 12, 2022, CRRM appealed the D. Kan.’s order to the Second Consent Decree memorializing an agreement withUnited States Court of Appeals for the EPA and KDHE to modify provisions in the Second Consent Decree relating to the installation of controls to reduce air emissions of sulfur dioxide from the refinery's FCCU.Tenth Circuit, where it remains pending. Pursuant to the termsCD, CRRM has deposited the amount of the modification, CRRM is permitted tostipulated penalty demand into a commercial escrow account pending resolution of the disputed claim, and such funds are legally restricted for use alternative means of control to those currently specifiedand are included within Prepaid expenses and other current assets on the Consolidated Balance Sheets.
In December 2020, the United States and KDHE filed a supplemental complaint in the Second Consent Decree provided it can meet the limits specified in the modification. The additional incremental capital expenditures associated with the Second Consent Decree are expected to be approximately $0.7 million.
RCRA Compliance Matters
In January 2014, the EPA issued an inspection report to the Wynnewood refineryD. Kan., related to a RCRA compliance evaluation inspection conducted in March 2013. In February 2014, ODEQ notified WRC that it concurred with the EPA's inspection findings and would be pursuing enforcement. WRC and ODEQ entered into a Consent Order in June 2015 resolving all alleged non-compliance associated with the RCRA compliance evaluation inspection, as well as issues related to possible soil and groundwater contamination associated with the prior owner's operationviolations of the refinery.CAA, CRRM’s Title V permit, the Kansas state implementation plan (“SIP”), and Kansas law. The Consent Order requires WRC to take certain corrective actions, including specified groundwater remediationUnited States and monitoring measures pursuant to a work planKDHE subsequently amended that complaint in February 2022, adding claims for alleged violations of the CAA, CRRM’s Title V permit, the Kansas SIP, and replacement of a wastewater conveyance to be approved by ODEQ. ODEQ approved the work plan submitted by WRC on February 1, 2016Kansas law. The United States and the replacement of a wastewater conveyance on August 15, 2016. WRC is in the process of implementing the specified groundwater remediationKDHE are seeking civil penalties and monitoring measures. The costs of complying with the Consent Order are estimated to be approximately $4.2 million.
Environmental expenditures are capitalized when such expenditures are expected to result in future economic benefits. For the years ended December 31, 2017, 2016 and 2015, capital expenditures were approximately $15.6 million, $17.2 million and $35.7 million, respectively, and were incurred to improve the environmental compliance and efficiency of the operations.2022 | 107
CRRM, CRNF, CRCT, WRC, EDNF and CRT each believe it is in substantial compliance with existing EHS rules and regulations. There can be no assurance that the EHS matters described above or other EHS matters which may develop in the future will not have a material adverse effect on the business, financial condition, or results of operations.
Wynnewood Refinery Incident
On September 28, 2012, the Wynnewood refinery experienced an explosion in a boiler unit during startup after a short outage as part of the turnaround process. Two employees were fatally injured. Damage at the refinery was limited to the boiler. Additionally, there was no environmental impact. The refinery was in the final stages of shutdown for turnaround maintenance at the time of the incident. WRC completed an internal investigation of the incident and cooperated with the Occupational Safety and Health Administration ("OSHA") in its investigation. OSHA also conducted a general inspection of the facility during the boiler incident investigation. In March 2013, OSHA completed its investigation and communicated its citations to WRC. OSHA also placed WRC in its Severe Violators Enforcement Program ("SVEP"). WRC is vigorously contesting the citations and OSHA's placement of WRC in the SVEP. Any penalties associated with OSHA's citations are not expected to have a material adverse effect on the consolidated financial statements.
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) injunctive relief. In March 2022, CRRM filed a partial motion to dismiss certain claims in the amended supplemental complaint. On October 3, 2022, the D. Kan. issued a memorandum and order granting CRRM’s motion to dismiss KDHE’s request for penalties under Kansas law but denying the remainder of CRRM’s motion to dismiss. The D. Kan. subsequently held a scheduling conference in December 2022 and entered a scheduling order in January 2023. Under that schedule, the case will proceed through discovery in 2023 and 2024. The court will schedule a trial in the case at a later date.
Affiliate Pension Obligations
Mr. Carl C. Icahn, through certain affiliates, owns approximately 82%In January 2023, the United States (on behalf of the Company’s capital stock. Applicable pensionEPA) and tax laws make each memberthe State of a "controlled group" of entities, generally defined as entitiesKansas, through KDHE, amended their complaint before the D. Kan. in which there is at leastconnection with their allegations that CRRM violated the CAA, the Kansas State Implementation Plan, Kansas law, 40 C.F.R. Part 63 and CRRM’s permits relating to flares, heaters, and related matters and seeking civil penalties, injunctive and related relief (collectively, the “Statutory Claims”), adding certain claims including relating to an 80% common ownership interest, jointlyalleged failure to comply with certain emissions reporting requirements for 2016. Negotiations and severally liable for certain pension plan obligations of any memberproceedings remain ongoing relating to the Statutory Claims, and also relating to the Stipulated Claims being sought by the United States (on behalf of the controlled group. These pension obligations includeEPA) and the State of Kansas (through KDHE) in connection with their allegations that CRRM violated the CAA and a 2012 Consent Decree between CRRM, the United States (on behalf of the EPA) and KDHE, following CRRM’s appeal to the United States Court of Appeals for the Tenth Circuit of the denial by D.Kan. of CRRM’s petition for judicial review of the Stipulated Claims. As negotiations and proceedings relating to the Stipulated Claims and the Statutory Claims are ongoing, contributions to fund the plan, as well as liability for any unfunded liabilities that may existCompany cannot determine at thethis time the plan is terminated. In addition, the failure to payoutcome of these pension obligations when due may result in the creation of liens in favor of the pension planmatters, including whether such outcome, or the Pension Benefit Guaranty Corporation ("PBGC") against the assets of each member of the controlled group.
Asany subsequent enforcement or litigation relating thereto would have a result of the more than 80% ownership interest in CVR Energy by Mr. Icahn's affiliates, the Company is subject to the pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest of at least 80%. Two such entities, ACF Industries LLC ("ACF") and Federal-Mogul, are the sponsors of several pension plans. All the minimum funding requirements of the Code and the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006, for these plans have been met as of December 31, 2017. If the ACF and Federal-Mogul plans were voluntarily terminated, they would be collectively underfunded by approximately $423.7 million and $613.4 million as of December 31, 2017 and 2016, respectively. These results are basedmaterial impact on the most recent information provided by Mr. Icahn's affiliates based on information from the plans' actuaries. These liabilities could increaseCompany’s financial position, results of operations, or decrease, depending on a number of factors, including future changes in benefits, investment returns, and the assumptions used to calculate the liability. As members of the controlled group, CVR Energy would be liable for any failure of ACF and Federal-Mogul to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of their respective pension plans. In addition, other entities now or in the future within the controlled group that includes CVR Energy may have pension plan obligations that are, or may become, underfunded, and the Company would be liable for any failure of such entities to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of such plans. The current underfunded status of the ACF and Federal-Mogul pension plans requires such entities to notify the PBGC of certain "reportable events," such as if CVR Energy were to cease to be a member of the controlled group, or if CVR Energy makes certain extraordinary dividends or stock redemptions. The obligation to report could cause the Company to seek to delay or reconsider the occurrence of such reportable events. Based on the contingent nature of potential exposure related to these affiliate pension obligations, no liability has been recorded in the consolidated financial statements.cash flows.
(16) Fair Value Measurements
In accordance with FASB ASC Topic 820 — Fair Value Measurements and Disclosures ("ASC 820"), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.
ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1 — Quoted prices in active markets for identical assets or liabilities
Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)
Level 3 — Significant unobservable inputs (including the Company's own assumptions in determining the fair value)
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSEnvironmental Remediation - (Continued)
The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, as of December 31, 2017 and 2016:
| | | | | | | | | | | | | | | | | | December 31, 2017 | | Level 1 | | Level 2 | | Level 3 | | Total | | (in millions) | Location and Description | | | | | | | | Cash equivalents | $ | 15.2 |
| | $ | — |
| | $ | — |
| | $ | 15.2 |
| Other current assets (investments) | 0.1 |
| | — |
| | — |
| | 0.1 |
| Total Assets | $ | 15.3 |
| | $ | — |
| | $ | — |
| | $ | 15.3 |
| Other current liabilities (derivative agreements) | $ | — |
| | $ | (64.3 | ) | | $ | — |
| | $ | (64.3 | ) | Other current liabilities (biofuel blending obligation) | — |
| | (1.0 | ) | | — |
| | (1.0 | ) | Total Liabilities | $ | — |
| | $ | (65.3 | ) | | $ | — |
| | $ | (65.3 | ) |
| | | | | | | | | | | | | | | | | | December 31, 2016 | | Level 1 | | Level 2 | | Level 3 | | Total | | (in millions) | Location and Description | | | | | | | | Cash equivalents | $ | 15.8 |
| | $ | — |
| | $ | — |
| | $ | 15.8 |
| Other current assets (investments) | 0.1 |
| | — |
| | — |
| | 0.1 |
| Total Assets | $ | 15.9 |
| | $ | — |
| | $ | — |
| | $ | 15.9 |
| Other current liabilities (derivative agreements) | $ | — |
| | $ | (11.1 | ) | | $ | — |
| | $ | (11.1 | ) | Other current liabilities (biofuel blending obligation & benzene obligation) | — |
| | (187.0 | ) | | — |
| | (187.0 | ) | Total Liabilities | $ | — |
| | $ | (198.1 | ) | | $ | — |
| | $ | (198.1 | ) |
As of December 31, 20172022 and 2016,2021, environmental accruals representing estimated costs for future remediation efforts at certain Petroleum Segment sites totaled approximately $22 million and $12 million, respectively. These amounts are reflected in Other current liabilities or Other long-term liabilities depending on when the only financial assetsCompany expects to expend such amounts.
(12) Business Segments
CVR Energy’s revenues are primarily derived from two reportable segments: Petroleum and liabilities that are measured at fair valueNitrogen Fertilizer. The Company evaluates the performance of its segments based primarily on a recurring basis aresegment operating income (loss) and Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”). For the Company's cash equivalents, investments, derivative instruments, uncommitted biofuel blending obligation and benzene obligations. Additionally, the fair valuepurposes of the Company's debt issuancesbusiness segments disclosure, the Company presents operating income (loss) as it is disclosed in Note 11 ("Long-Term Debt"). The Refining Partnership's commodity derivative contracts, the uncommitted biofuel blending obligation and the benzene obligation, which use fair value measurements and are valued using broker quoted market prices of similar instruments, are considered Level 2 inputs. The Company had no transfers of assets or liabilities between any of the above levels during the year ended December 31, 2017.
In March 2016, CVR Energy purchased 400,000 CVR Nitrogen common units in the public market. During the first quarter of 2016, the fair value of the common units was based on quoted prices for the identical securities (Level 1 inputs). As a result of the East Dubuque Merger, the carrying amount of the investment in the CVR Nitrogen common units was reclassified as an investment in consolidated subsidiary and is eliminated in consolidation. Subsequentmost comparable measure to the East Dubuque Merger, the Nitrogen Fertilizer Partnership purchased the 400,000 CVR Nitrogen common units from CVR Energy during the second quarter of 2016. During the year ended December 31, 2016, the Company purchased shares of an unaffiliated public company's common units in the public market at an aggregate cost basis of $14.4 million. During 2016, the Company received proceeds of $19.3 million for the sale of this investment in available-for-sale securities. Upon the sale of the available-for-sale securities, the Company reclassified an unrealized gain of $0.5 million from accumulated other comprehensive income ("AOCI") and recognized a realized gain of $4.9 million in other income in the Consolidated Statements of Operations for the year ended December 31, 2016.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(17) Derivative Financial Instruments
Current period settlementsamounts presented on derivative contracts and Loss on derivatives, net were as follows:
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Current period settlement on derivative contracts | $ | (16.6 | ) | | $ | 36.4 |
| | $ | (26.0 | ) | Loss on derivatives, net | (69.8 | ) | | (19.4 | ) | | (28.6 | ) |
The Refining Partnership and Nitrogen Fertilizer Partnership are subject to price fluctuations caused by supply conditions, weather, economic conditions, interest rate fluctuations and other factors. To manage price risk on crude oil and other inventories and to fix margins on certain future production, the Refining Partnership from time to time enters into various commodity derivative transactions.
The Refining Partnership has adopted accounting standards which impose extensive record-keeping requirements in order to designate a derivative financial instrument as a hedge. The Refining Partnership holds derivative instruments, such as exchange-traded crude oil futures and certain over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges under GAAP. Gains or losses related to the change in fair value and periodic settlements of these derivative instruments are classified as gain (loss) on derivatives, net in the Consolidated Statements of Operations. There are no premiums paid or received at inception of the derivative contracts and upon settlement, there is no cost recovery associated with these contracts.
The Refining Partnership maintains a margin account to facilitate other commodity derivative activities. A portion of this account may include funds available for withdrawal. These funds are included in cash and cash equivalents within the Consolidated Balance Sheets. The maintenance margin balance is included within other current assets within the Consolidated Balance Sheets. Dependent upon the position of the open commodity derivatives, the amounts are accounted for as other current assets or other current liabilities within the Consolidated Balance Sheets. From time to time, the Refining Partnership may be required to deposit additional funds into this margin account. There were no open commodity positions as of December 31, 2017 or 2016. For the years ended December 31, 2017, 2016 and 2015, the Refining Partnership recognized a net loss of $0.5 million, a net loss of $0.5 million, and a net gain of $3.2 million, respectively, which are recorded in loss on derivatives, net in the Consolidated Statements of Operations.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Commodity Swaps
The Refining Partnership enters into commodity swap contracts in order to fix the margin on a portion of future production. Additionally, the Refining Partnership may enter into price and basis swaps in order to fix the price on a portion of its commodity purchases and product sales. The physical volumes are not exchanged and these contracts are net settled with cash. The contract fair value of the commodity swaps is reflected on the Consolidated Balance Sheets with changes in fair value currently recognized in the Consolidated Statements of Operations. Quoted prices for similar assets or liabilities in active markets (Level 2) are considered to determine the fair values for the purpose of marking to market the hedging instruments at each period end. At December 31, 2017, the Refining Partnership had open commodity swap instruments consisting of 7.1 million barrels of 2-1-1 crack spreads, 3.6 million barrels of distillate crack spreads, and 3.6 million barrels of gasoline crack spreads. Additionally, as of December 31, 2017, CVR Refining had open forward purchase and sale commitments for 5.8 million barrels of Canadian crude oil priced at fixed differentials that are not considered probable of physical settlement and are accounted for as derivatives at December 31, 2017. At December 31, 2016, the Refining Partnership had open commodity hedging instruments consisting of 4.0 million barrels of crack spreads, primarily to fix the margin on a portion of its future gasoline and distillate production. Additionally, at December 31, 2015, the Refining Partnership had open commodity hedging instruments consisting of 1.4 million barrels primarily to fix the price on a portion of its future crude oil purchases or the basis on a portion of its future product sales. The fair value of the outstanding contracts at December 31, 2017 was a net unrealized loss of $64.3 million, of which the entire balance is included in other current liabilities. The fair value of the outstanding contracts at December 31, 2016 was a net unrealized loss of $11.1 million, of which entire balance is included in other current liabilities. For the years ended December 31, 2017, 2016 and 2015, the Refining Partnership recognized a net loss of $69.3 million, $18.9 million and $36.4 million, respectively, which are recorded in loss on derivatives, net in the Consolidated Statements of Operations.
Counterparty Credit Risk
The Refining Partnership's exchange-traded crude oil futures and certain over-the-counter forward swap agreements are potentially exposed to concentrations of credit risk as a result of economic conditions and periods of uncertainty and illiquidity in the credit and capital markets. The Refining Partnership manages credit risk on its exchange-traded crude oil futures by completing trades with an exchange clearinghouse, which subjects the trades to mandatory margin requirements until the contract settles. The Refining Partnership also monitors the creditworthiness of its commodity swap counterparties and assesses the risk of nonperformance on a quarterly basis. Counterparty credit risk identified as a result of this assessment is recognized as a valuation adjustment to the fair value of the commodity swaps recorded in the Consolidated Balance Sheets. As of December 31, 2017, the counterparty credit risk adjustment was not material to the consolidated financial statements. Additionally, the Refining Partnership does not require any collateral to support commodity swaps into which it enters; however, it does have master netting arrangements that allow for the setoff of amounts receivable from and payable to the same party, which mitigates the risk associated with nonperformance.
Offsetting Assets and Liabilities
The commodity swaps and other commodity derivatives agreements discussed above include multiple derivative positions with a number of counterparties for which the Refining Partnership has entered into agreements governing the nature of the derivative transactions. Each of the counterparty agreements provides for the right to setoff each individual derivative position to arrive at the net receivable due from the counterparty or payable owed by the Refining Partnership. As a result of the right to setoff, the Refining Partnership's recognized assets and liabilities associated with the outstanding derivative positions have been presented net in the Consolidated Balance Sheets. The tables below outline the gross amounts of the recognized assets and liabilities and the gross amounts offset in the Consolidated Balance Sheets for the various types of open derivative positions at the Refining Partnership.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The offsetting assets and liabilities for the Refining Partnership's derivatives as of December 31, 2017 and 2016 are recorded as current assets and current liabilities in prepaid expenses and other current assets and accrued expenses and other current liabilities, respectively, in the Consolidated Balance Sheets as follows:
| | | | | | | | | | | | | | | | | | | | | | As of December 31, 2017 | Description | Gross Current Assets | | Gross Amounts Offset | | Net Current Assets Presented | | Cash Collateral Not Offset | | Net Amount | | (in millions) | Commodity Swaps | $ | 7.0 |
| | $ | (7.0 | ) | | $ | — |
| | $ | — |
| | $ | — |
| Total | $ | 7.0 |
| | $ | (7.0 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | As of December 31, 2017 | Description | Gross Current Liabilities | | Gross Amounts Offset | | Net Current Liabilities Presented | | Cash Collateral Not Offset | | Net Amount | | (in millions) | Commodity Swaps | $ | 71.3 |
| | $ | (7.0 | ) | | $ | 64.3 |
| | $ | — |
| | $ | 64.3 |
| Total | $ | 71.3 |
| | $ | (7.0 | ) | | $ | 64.3 |
| | $ | — |
| | $ | 64.3 |
|
| | | | | | | | | | | | | | | | | | | | | | As of December 31, 2016 | Description | Gross Current Liabilities | | Gross Amounts Offset | | Net Current Liabilities Presented | | Cash Collateral Not Offset | | Net Amount | | (in millions) | Commodity Swaps | $ | 11.1 |
| | $ | — |
| | $ | 11.1 |
| | $ | — |
| | $ | 11.1 |
| Total | $ | 11.1 |
| | $ | — |
| | $ | 11.1 |
| | $ | — |
| | $ | 11.1 |
|
(18) Related Party Transactions
In May 2012, IEP announced that it had acquired control of CVR pursuant to a tender offer to purchase all of the issued and outstanding shares of the Company's common stock. As of December 31, 2017, IEP owned approximately 82% of all common shares outstanding.
Railcar Lease Agreements and Maintenance
The Nitrogen Fertilizer Partnership has agreements to lease a total of 115 UAN railcars from American Railcar Leasing, LLC ("ARL"), a company controlled by IEP. The lease agreements will expire in 2023. In the second quarter of 2017, the Nitrogen Fertilizer Partnership entered into an agreement to lease an additional 70 UAN railcars from ARL which will expire in 2022. The Nitrogen Fertilizer Partnership received the additional 70 leased railcars during the second half of 2017. For the year ended December 31, 2017 and 2016, rent expense of approximately $1.0 million and $0.3 million, respectively, was recorded in cost of materials and other in the Consolidated Statements of Operations related to these agreements.
American Railcar Industries, Inc. a company controlled by IEP, performed railcar maintenance for the Nitrogen Fertilizer Partnership and the expense associated with this maintenance was approximately $0.2 million for the year ended December 31, 2017 and was included in cost of materials and other in the Consolidated Statement of Operations.
Tax Allocation Agreement
CVR is a member of the consolidated federal tax group of AEPC, a wholly-owned subsidiary of IEP, and has entered into a Tax Allocation Agreement. Refer to Note 10 ("Income Taxes") for a discussion of related party transactions under the Tax Allocation Agreement.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Insight Portfolio Group
Insight Portfolio Group LLC is an entity formed and controlled by Mr. Icahn in order to maximize the potential buying power of a group of entities with which Mr. Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. CVR Energy was a member of the buying group in 2012. In January 2013, CVR Energy acquired a minority equity interest in Insight Portfolio Group and agreed to pay a portion of Insight Portfolio Group's operating expenses in 2013. The Company paid Insight Portfolio Group approximately $0.2 million, $0.2 million and $0.1 million during the years ended December 31, 2017, 2016 and 2015, respectively. The Company may purchase a variety of goods and services as members of the buying group at prices and terms that management believes would be more favorable than those which would be achieved on a stand-alone basis.
CRLLC Facility with the Nitrogen Fertilizer Partnership
On April 1, 2016, in connection with the closing of the East Dubuque Merger, the Nitrogen Fertilizer Partnership entered into a $300.0 million senior term loan credit facility (the "CRLLC Facility") with CRLLC as the lender, the proceeds of which were used by the Nitrogen Fertilizer Partnership (i) to fund the repayment of amounts outstanding under the Wells Fargo Credit Agreement discussed in Note 3 ("Acquisition") (ii) to pay the cash consideration and to pay fees and expenses in connection with the East Dubuque Merger and related transactions and (iii) to repay all of the loans outstanding under the Nitrogen Fertilizer Partnership credit facility. The CRLLC Facility had a term of two years and an interest rate of 12.0% per annum. Interest was calculated on the basis of the actual number of days elapsed over a 360-day year and payable quarterly. In April 2016, the Nitrogen Fertilizer Partnership borrowed $300.0 million under the CRLLC Facility. On June 10, 2016, the Nitrogen Fertilizer Partnership paid off the $300.0 million outstanding under the CRLLC Facility, paid $7.0 million in interest and terminated the CRLLC Facility.
Joint Venture Agreements
The Refining Partnership holds a 40% and 50% interest in the VPP and Midway joint ventures, respectively. The joint ventures provide the Refining Partnership with crude oil transportation services. Refer to Note 7 ("Equity Method Investments") for additional discussion of the joint ventures.
(19) Business Segments
Operating segments are defined in FASB ASC Topic 280 - Segment Reporting, as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company measures segment profit as operating income for petroleum and nitrogen fertilizer, CVR's two reporting segments. All intercompany transactions are eliminated in the other segment as described below. All operations of the segments are located within the United States.
Petroleum
Principal products of the petroleum segment include gasoline, diesel fuel, jet fuel, natural gas liquids, asphalt and petroleum refining by-products, including petroleum coke, which are sold to retailers, petroleum jobbers, railroads and other refiners/marketers. The petroleum segment also sells hydrogen and petroleum coke to the nitrogen fertilizer segment pursuant to separate intercompany agreements. Intercompany sales included in petroleum net sales are eliminated in consolidation.
The petroleum segment may also purchase hydrogen from the nitrogen fertilizer segment under an intercompany feedstock and shared services agreement. Receipts of hydrogen from the nitrogen fertilizer segment are reported in petroleum cost of materials and other and are eliminated in consolidation.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Nitrogen Fertilizer
The principal product of the nitrogen fertilizer segment is nitrogen fertilizer. Nitrogen fertilizer is used by farmers to improve the yield and quality of their crops, primarily corn and wheat. The nitrogen fertilizer segment principally produces UAN. The nitrogen fertilizer segment’s product sales are sold on a wholesale basis in North America. Intercompany sales to the petroleum segment are primarily hydrogen sales pursuant to the feedstock and shared services agreement. The nitrogen fertilizer segment also receives income from subleasing railcars to the petroleum segment’s refineries. All intercompany sales included in nitrogen fertilizer net sales are eliminated in consolidation.
As described above, the nitrogen fertilizer segment purchases hydrogen and petroleum coke from the petroleum segment. Receipts of hydrogen and petroleum coke from the petroleum segment are reported in nitrogen fertilizer cost of materials and other and are eliminated in consolidation.
Other Segment
The other segment reflectsamounts reflect renewable fuels activities, intercompany eliminations, corporate cash and cash equivalents, income tax activities, and other corporate activities that are not allocated or aggregated to the operatingreportable segments.
150December 31, 2022 | 108
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes certain operating results and capital expenditures information by segment: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Net sales: | | | | | | Petroleum | $ | 9,919 | | | $ | 6,721 | | | $ | 3,586 | | Nitrogen Fertilizer | 836 | | | 533 | | | 350 | | Other, including intersegment eliminations (1) | 141 | | | (12) | | | (6) | | Total net sales | $ | 10,896 | | | $ | 7,242 | | | $ | 3,930 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss): | | | | | | Petroleum | $ | 719 | | | $ | (27) | | | $ | (281) | | Nitrogen Fertilizer | 320 | | | 134 | | | (35) | | Other, including intersegment eliminations (1) | (76) | | | (20) | | | (17) | | Total operating income (loss) | 963 | | | 87 | | | (333) | | Interest expense, net | (85) | | | (117) | | | (130) | | | | | | | | Investment income on marketable securities | — | | | 81 | | | 41 | | Other (expense) income, net | (77) | | | 15 | | | 7 | | Income (loss) before income tax expense | $ | 801 | | | $ | 66 | | | $ | (415) | | Depreciation and amortization: | | | | | | Petroleum | $ | 187 | | | $ | 203 | | | $ | 202 | | Nitrogen Fertilizer | 82 | | | 73 | | | 76 | | Other (1) | 19 | | | 3 | | | — | | Total depreciation and amortization | $ | 288 | | | $ | 279 | | | $ | 278 | | Capital expenditures: (2) | | | | | | Petroleum | $ | 86 | | | $ | 50 | | | $ | 90 | | Nitrogen fertilizer | 41 | | | 26 | | | 16 | | Other (1) | 76 | | | 150 | | | 15 | | Total capital expenditures | $ | 203 | | | $ | 226 | | | $ | 121 | |
The following table summarizes total assets by segment: | | | | | | | | | | | | | | | December 31, | (in millions) | 2022 | | 2021 | | | Petroleum | $ | 4,354 | | | $ | 3,368 | | | | Nitrogen Fertilizer | 1,100 | | | 1,127 | | | | Other, including intersegment eliminations (1) | (1,335) | | | (589) | | | | Total assets | $ | 4,119 | | | $ | 3,906 | | | |
(1)Other includes amounts for the Wynnewood renewable diesel unit project. (2)Capital expenditures are shown exclusive of capitalized turnaround expenditures and business combinations.
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Net sales | | | | | | Petroleum | $ | 5,664.2 |
| | $ | 4,431.3 |
| | $ | 5,161.9 |
| Nitrogen Fertilizer | 330.8 |
| | 356.3 |
| | 289.2 |
| Intersegment elimination | (6.6 | ) | | (5.2 | ) | | (18.6 | ) | Total | $ | 5,988.4 |
| | $ | 4,782.4 |
| | $ | 5,432.5 |
| Cost of materials and other | | | | | | Petroleum | $ | 4,804.7 |
| | $ | 3,759.2 |
| | $ | 4,143.6 |
| Nitrogen Fertilizer | 84.9 |
| | 93.7 |
| | 65.2 |
| Intersegment elimination | (6.7 | ) | | (5.4 | ) | | (18.4 | ) | Total | $ | 4,882.9 |
| | $ | 3,847.5 |
| | $ | 4,190.4 |
| Direct operating expenses (exclusive of depreciation and amortization) | | | | | | Petroleum | $ | 443.8 |
| | $ | 393.4 |
| | $ | 478.5 |
| Nitrogen Fertilizer | 155.5 |
| | 148.3 |
| | 106.1 |
| Other | 0.2 |
| | 0.1 |
| | 0.1 |
| Total | $ | 599.5 |
| | $ | 541.8 |
| | $ | 584.7 |
| Depreciation and amortization | | | | | | Petroleum | $ | 133.1 |
| | $ | 129.0 |
| | $ | 130.2 |
| Nitrogen Fertilizer | 74.0 |
| | 58.2 |
| | 28.4 |
| Other | 6.9 |
| | 5.9 |
| | 5.5 |
| Total | $ | 214.0 |
| | $ | 193.1 |
| | $ | 164.1 |
| Operating income (loss) | | | | | | Petroleum | $ | 203.8 |
| | $ | 77.8 |
| | $ | 361.7 |
| Nitrogen Fertilizer | (9.2 | ) | | 26.8 |
| | 68.7 |
| Other | (16.8 | ) | | (13.7 | ) | | (8.8 | ) | Total | $ | 177.8 |
| | $ | 90.9 |
| | $ | 421.6 |
| Capital expenditures | | | | | | Petroleum | $ | 99.7 |
| | $ | 102.3 |
| | $ | 194.7 |
| Nitrogen fertilizer | 14.5 |
| | 23.2 |
| | 17.0 |
| Other | 4.4 |
| | 7.2 |
| | 7.0 |
| Total | $ | 118.6 |
| | $ | 132.7 |
| | $ | 218.7 |
|
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (13) Supplemental Cash Flow Information
| | | | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | | (in millions) | Total assets | | | | | | Petroleum | $ | 2,269.9 |
| | $ | 2,331.9 |
| | $ | 2,189.0 |
| Nitrogen Fertilizer | 1,234.3 |
| | 1,312.2 |
| | 536.3 |
| Other | 302.5 |
| | 406.1 |
| | 574.1 |
| Total | $ | 3,806.7 |
| | $ | 4,050.2 |
| | $ | 3,299.4 |
| Goodwill | | | | | | Petroleum | $ | — |
| | $ | — |
| | $ | — |
| Nitrogen Fertilizer | 41.0 |
| | 41.0 |
| | 41.0 |
| Other | — |
| | — |
| | — |
| Total | $ | 41.0 |
| | $ | 41.0 |
| | $ | 41.0 |
|
(20) Major CustomersCash flows related to income taxes, interest, leases, capital expenditures and Suppliers
Sales to major customers as a percentage of the respective segment's salesdeferred financing costs included in accounts payable, and non-cash dividends were as follows:
| | | | | | | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Supplemental disclosures: | | | | | | Cash paid, net of refunds (received, net of payments) for income taxes | $ | 170 | | | $ | 72 | | | $ | (2) | | Cash paid for interest | 96 | | | 114 | | | 107 | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | Operating cash flows from operating leases | 17 | | | 15 | | | 17 | Operating cash flows from finance leases | 5 | | | 5 | | | 6 | Financing cash flows from finance leases | 6 | | | 6 | | | 5 | Non-cash investing and financing activities: | | | | | | Change in capital expenditures included in accounts payable (1) | 12 | | | 2 | | | (3) | | Change in turnaround expenditures included in accounts payable | (2) | | | 3 | | | (4) | | Change in deferred financing costs included in accounts payable | — | | | 1 | | | — | | Non-cash dividends to CVR Energy stockholders | — | | | 251 | | | — | |
Cash, cash equivalents and restricted cash consisted of the following: | | | | | | | | | | | | | As of December 31, | (in millions) | 2022 | | 2021 | Cash and cash equivalents | $ | 510 | | | $ | 510 | | Restricted cash (2) | 7 | | | 7 | | Cash, cash equivalents and restricted cash | $ | 517 | | | $ | 517 | |
(1)Capital expenditures are shown exclusive of capitalized turnaround expenditures. (2)The restricted cash balance is included within Prepaid expenses and other current assets on the Consolidated Balance Sheets.
(14) Related Party Transactions | | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | Petroleum | | | | | | Customer A | 19 | % | | 15 | % | | 14 | % | Nitrogen Fertilizer | | | | | | Customer B | 5 | % | | 10 | % | | 10 | % | Customer C | 11 | % | | 10 | % | | 14 | % | | 16 | % | | 20 | % | | 24 | % |
Activity associated with the Company’s related party arrangements for the years ended December 31, 2022, 2021, and 2020 is summarized below:
The petroleum segment obtained | | | | | | | | | | | | | | | | | | Expenses from Related Parties | | Year Ended December 31, | (in millions) | 2022 | | 2021 | | 2020 | Cost of materials and other: | | | | | | | | | | | | | | | | | | | | | | | | Enable Joint Venture Transportation Agreement | $ | 10 | | | $ | 11 | | | $ | 11 | | Midway Joint Venture Agreement (1) | 22 | | | 20 | | | 17 | | | | | | | | Payments: | | | | | | | | | | | | Dividends (2) | 342 | | | 348 | | | 85 | | | | | | | | | | | | | |
(1)Represents reimbursements for crude oil from one third-party supplier undertransportation services incurred on the Midway JV through Vitol as the intermediary purchasing agent. (2)See below for a long-term supply agreement during 2017, 2016 and 2015. Volume contracted as a percentagesummary of the total crude oil purchases (in barrels) for each ofdividends paid to IEP during the periods was as follows:years ended December 31, 2022, 2021, and 2020.
| | | | | | | | | | | Year Ended December 31, | | 2017 | | 2016 | | 2015 | Petroleum | | | | | | Supplier A | 55 | % | | 61 | % | | 61 | % |
December 31, 2022 | 110
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Enable Joint Venture Transportation and Terminalling Services Agreements
(21) Selected Quarterly Financial Information (unaudited)
We are party to a transportation agreement, effective September 19, 2016, as part of the Enable JV for an initial term of 20 years under which Enable provides transportation services for crude oil purchased within a defined geographic area. Additionally, we entered into a terminalling services agreement, effective September 19, 2016, with Enable JV under which it receives access to Enable JV’s terminal in Lawrence, Oklahoma to unload and pump crude oil into Enable JV’s pipeline for an initial term of 20 years.
Summarized
Corporate Master Service Agreement
On April 12, 2022, in connection with our Corporate Master Service Agreement effective January 1, 2020, by and among our wholly-owned subsidiary, CVR Services, and certain other of our subsidiaries, including but not limited to CVR Partners and its subsidiaries, pursuant to which CVR Services provides the service recipients thereunder with management and other professional services (the “Corporate MSA”), the Joining Subsidiaries were joined as service recipients under the Corporate MSA. Dividends to CVR Energy Stockholders
Dividends, if any, including the payment, amount and timing thereof, are determined in the discretion of CVR Energy’s board of directors (the “Board”). IEP, through its ownership of the Company’s common stock, is entitled to receive dividends that are declared and paid by the Company based on the number of shares held at each record date. The following table presents quarterly financial data fordividends, excluding any special dividends, paid to the Company’s stockholders, including IEP, during 2022 (amounts presented in table below may not add to totals presented due to rounding). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarterly Dividends Paid (in millions) | Related Period | | Date Paid | | Quarterly Dividends Per Share | | Public Stockholders | | IEP | | Total | 2022 - 1st Quarter | | May 23, 2022 | | $ | 0.40 | | | $ | 12 | | | $ | 28 | | | $ | 40 | | 2022 - 2nd Quarter | | August 22, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | | 2022 - 3rd Quarter | | November 21, 2022 | | 0.40 | | | 12 | | | 28 | | | 40 | | Total 2022 quarterly dividends | | $ | 1.20 | | | $ | 35 | | | $ | 85 | | | $ | 121 | |
No quarterly dividends were paid during the first quarter of 2022 related to the fourth quarter of 2021, and there were no quarterly dividends declared or paid during 2021 related to the first, second, and third quarters of 2021 and fourth quarter of 2020. During the year ended December 31, 20172020, the Company paid quarterly dividends totaling $1.20 per common share, or $121 million. Of these dividends, IEP received $85 million due to its ownership interest in the Company’s shares.
On August 1, 2022 and 2016October 31, 2022, the Company also declared special dividends of $2.60 and $1.00 per share, or $261 million and $101 million, respectively, which were paid on August 22, 2022 and November 21, 2022, respectively. Of these amounts, IEP received $185 million and $71 million, respectively, due to its ownership interest in the Company’s shares.
On May 26, 2021, the Company announced a special dividend of approximately $492 million, or equivalent to $4.89 per share of the Company’s common stock, to be paid in a combination of cash (the “Cash Distribution”) and the common stock of Delek held by the Company (the “Stock Distribution”). On June 10, 2021, the Company distributed an aggregate amount of approximately $241 million, or $2.40 per share of the Company’s common stock, pursuant to the Cash Distribution, and approximately 10,539,880 shares of Delek common stock, which represented approximately 14.3% of the outstanding shares of Delek common stock, pursuant to the Stock Distribution. IEP received approximately 7,464,652 shares of common stock of Delek and $171 million in cash. The Stock Distribution was recorded as a reduction to equity through a derecognition of our investment in Delek, and the Company recognized a gain of $112 million from the initial investment in Delek through the date of the Stock Distribution.
For the fourth quarter of 2022, the Company, upon approval by the Board on February 21, 2023, declared a cash dividend of $0.50 per share, or $50 million, which is payable March 13, 2023 to shareholders of record as follows:of March 6, 2023. Of this amount, IEP will receive $36 million due to its ownership interest in the Company’s shares.
| | | | | | | | | | | | | | | | | | Year Ended December 31, 2017 | | Quarter | | First | | Second | | Third | | Fourth | | (in millions, except per share data) | Net sales | $ | 1,507.1 |
| | $ | 1,434.4 |
| | $ | 1,453.8 |
| | $ | 1,593.1 |
| Operating costs and expenses: | | | | | | | | Cost of materials and other | 1,221.2 |
| | 1,228.6 |
| | 1,132.4 |
| | 1,300.7 |
| Direct operating expenses (exclusive of depreciation and amortization as reflected below) | 138.1 |
| | 124.2 |
| | 161.1 |
| | 176.1 |
| Depreciation and amortization | 48.6 |
| | 51.7 |
| | 51.3 |
| | 51.7 |
| Cost of sales | 1,407.9 |
| | 1,404.5 |
| | 1,344.8 |
| | 1,528.5 |
| Selling, general and administrative (exclusive of depreciation and amortization as reflected below) | 29.1 |
| | 26.3 |
| | 27.3 |
| | 31.5 |
| Depreciation and amortization | 2.5 |
| | 2.3 |
| | 2.8 |
| | 3.1 |
| Total operating costs and expenses | 1,439.5 |
| | 1,433.1 |
| | 1,374.9 |
| | 1,563.1 |
| Operating income | 67.6 |
| | 1.3 |
| | 78.9 |
| | 30.0 |
| Other income (expense): | | | | | | | | Interest expense and other financing costs | (27.0 | ) | | (27.6 | ) | | (27.6 | ) | | (27.9 | ) | Interest income | 0.2 |
| | 0.3 |
| | 0.2 |
| | 0.4 |
| Gain (loss) on derivatives, net | 12.2 |
| | — |
| | (17.0 | ) | | (65.0 | ) | Other income, net | — |
| | 0.1 |
| | — |
| | 0.9 |
| Total other expense | (14.6 | ) | | (27.2 | ) | | (44.4 | ) | | (91.6 | ) | Income (loss) before income taxes | 53.0 |
| | (25.9 | ) | | 34.5 |
| | (61.6 | ) | Income tax expense (benefit) | 14.8 |
| | (6.6 | ) | | 9.2 |
| | (234.3 | ) | Net income (loss) | 38.2 |
| | (19.3 | ) | | 25.3 |
| | 172.7 |
| Less: Net income (loss) attributable to noncontrolling interest | 16.0 |
| | (8.8 | ) | | 3.1 |
| | (27.8 | ) | Net income (loss) attributable to CVR Energy stockholders | $ | 22.2 |
| | $ | (10.5 | ) | | $ | 22.2 |
| | $ | 200.5 |
| | | | | | | | | Basic and diluted earnings (loss) per share | $ | 0.26 |
| | $ | (0.12 | ) | | $ | 0.26 |
| | $ | 2.31 |
| Dividends declared per share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | | | | | | | | Weighted-average common shares outstanding - basic and diluted
| 86.8 |
| | 86.8 |
| | 86.8 |
| | 86.8 |
|
December 31, 2022 | 111
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Distributions to CVR Partners’ Unitholders
| | | | | | | | | | | | | | | | | | Year Ended December 31, 2016 | | Quarter | | First | | Second | | Third | | Fourth | | (in millions, except per share data) | Net sales | $ | 905.5 |
| | $ | 1,283.2 |
| | $ | 1,240.3 |
| | $ | 1,353.4 |
| Operating costs and expenses: | | | | | | | | Cost of materials and other | 736.8 |
| | 976.9 |
| | 1,005.7 |
| | 1,128.1 |
| Direct operating expenses (exclusive of depreciation and amortization as reflected below) | 141.4 |
| | 138.3 |
| | 129.5 |
| | 132.6 |
| Depreciation and amortization | 37.9 |
| | 48.5 |
| | 48.2 |
| | 49.9 |
| Cost of sales | 916.1 |
| | 1,163.7 |
| | 1,183.4 |
| | 1,310.6 |
| Selling, general and administrative (exclusive of depreciation and amortization as reflected below) | 27.2 |
| | 26.6 |
| | 27.8 |
| | 27.5 |
| Depreciation and amortization | 2.1 |
| | 2.2 |
| | 1.9 |
| | 2.4 |
| Total operating costs and expenses | 945.4 |
| | 1,192.5 |
| | 1,213.1 |
| | 1,340.5 |
| Operating income (loss) | (39.9 | ) | | 90.7 |
| | 27.2 |
| | 12.9 |
| Other income (expense): | | | | | | | | Interest expense and other financing costs | (12.1 | ) | | (18.5 | ) | | (26.2 | ) | | (27.1 | ) | Interest income | 0.2 |
| | 0.1 |
| | 0.2 |
| | 0.2 |
| Loss on derivatives, net | (1.2 | ) | | (1.9 | ) | | (1.7 | ) | | (14.6 | ) | Gain (loss) on extinguishment of debt | — |
| | (5.1 | ) | | — |
| | 0.2 |
| Other income, net | 0.3 |
| | 0.1 |
| | 5.0 |
| | 0.3 |
| Total other expense | (12.8 | ) | | (25.3 | ) | | (22.7 | ) | | (41.0 | ) | Income (loss) before income taxes | (52.7 | ) | | 65.4 |
| | 4.5 |
| | (28.1 | ) | Income tax expense (benefit) | (21.8 | ) | | 21.6 |
| | 2.5 |
| | (22.1 | ) | Net income (loss) | (30.9 | ) | | 43.8 |
| | 2.0 |
| | (6.0 | ) | Less: Net income (loss) attributable to noncontrolling interest | (14.7 | ) | | 15.4 |
| | (3.4 | ) | | (13.1 | ) | Net income (loss) attributable to CVR Energy stockholders | $ | (16.2 | ) | | $ | 28.4 |
| | $ | 5.4 |
| | $ | 7.1 |
| | | | | | | | | Basic and diluted earnings (loss) per share | $ | (0.19 | ) | | $ | 0.33 |
| | $ | 0.06 |
| | $ | 0.08 |
| Dividends declared per share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | | | | | | | | Weighted-average common shares outstanding | | | | | | | | Basic and diluted | 86.8 |
| | 86.8 |
| | 86.8 |
| | 86.8 |
|
Factors ImpactingDistributions, if any, including the Comparability of Quarterly Results of Operations
As discussed in Note 2 ("Summary of Significant Accounting Policies"),payment, amount and timing thereof, are subject to change at the Refining Partnership's Wynnewood refinery completed the first phase of its most recent major scheduled turnaround in the fourth quarter of 2017. The second phasediscretion of the Wynnewood refinery turnaround is expectedUAN GP Board. The following tables present quarterly distributions paid by CVR Partners to occurits unitholders, including amounts received by the Company, during December 31, 2022 and 2021 (amounts presented in 2019. In additiontables below may not add to the two phase turnaround, the Refining Partnership accelerated certain planned turnaround activities of the Wynnewood refinery intotals presented due to rounding):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarterly Distributions Paid (in millions) | Related Period | | Date Paid | | Quarterly Distributions Per Common Unit | | Public Unitholders | | CVR Energy | | Total | 2021 - 4th Quarter | | March 14, 2022 | | $ | 5.24 | | | $ | 35 | | | $ | 20 | | | $ | 56 | | 2022 - 1st Quarter | | May 23, 2022 | | 2.26 | | | 15 | | | 9 | | | 24 | | 2022 - 2nd Quarter | | August 22, 2022 | | 10.05 | | | 67 | | | 39 | | | 106 | | 2022 - 3rd Quarter | | November 21, 2022 | | 1.77 | | | 12 | | | 7 | | | 19 | | Total 2022 quarterly distributions | | $ | 19.32 | | | $ | 129 | | | $ | 75 | | | $ | 205 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarterly Distributions Paid (in millions) | Related Period | | Date Paid | | Quarterly Distributions Per Common Unit | | Public Unitholders | | CVR Energy | | Total | | | | | | | | | | | | 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11 | | | $ | 7 | | | $ | 18 | | 2021 - 3rd Quarter | | November 22, 2021 | | 2.93 | | | 20 | | | 11 | | | 31 | | | | | | | | | | | | | Total 2021 quarterly distributions | | $ | 4.65 | | | $ | 31 | | | $ | 18 | | | $ | 50 | |
There were no quarterly distributions declared or paid by CVR Partners related to the first quarter of 2017 on the hydrocracker unit for a catalyst change-out. The Refining Partnership incurred approximately $80.4 million of major scheduled turnaround expenses during 2017, of which approximately $13.0 million, $2.7 million, $21.7 million and $43.0 million were incurred in the first, second, third2021 and fourth quarters of 2017, respectively. The Refining Partnership's Coffeyville refinery completed the second phase of its most recent major scheduled turnaround during the first quarter of 2016 at a total cost of approximately $31.5 million for2020. During the year ended December 31, 2016,2020, there were no quarterly distributions declared or paid by CVR Partners.
For the fourth quarter of 2022, CVR Partners, upon approval by the UAN GP Board on February 21, 2023, declared a distribution of $10.50 per common unit, or $111 million, which is payable March 13, 2023 to unitholders of record as of March 6, 2023. Of this amount, CVR Energy will receive approximately $29.4$41 million, with the remaining amount payable to public unitholders.
(15) Subsequent Events
We believe that certain carbon oxide capture and sequestration activities conducted at or in connection with the Coffeyville Fertilizer Facility qualify under the Internal Revenue Service safe harbor described in Revenue Procedure 2020-12 for certain tax credits available to joint ventures under Section 45Q of the Internal Revenue Code of 1986, as amended (“Section 45Q Credits”). In January 2023, we entered into a series of agreements with CapturePoint LLC, an unaffiliated Texas limited liability company, and certain unaffiliated third-party investors intended to qualify under the Internal Revenue Service safe harbor described in Revenue Procedure 2020-12 for certain joint ventures that are eligible to claim Section 45Q Credits and to allow us to monetize Section 45Q Credits we expect to generate from January 6, 2023 until March 31, 2030. In January 2023, we received an initial upfront payment, net of expenses, of approximately $18 million and $2.1could receive up to an additional $60 million were incurred in payments through March 31, 2030, if certain carbon oxide capture and sequestration milestones are met, subject to the firstterms of the applicable agreements. The foregoing summaries of the applicable agreements do not purport to be complete and second quartersare qualified in their entirety by the terms of 2016, respectively.the relevant agreements, which will be filed with our Quarterly Report on Form 10-Q for the period ended March 31, 2023.
Effective February 1, 2023, in connection with our growing focus on decarbonization, we completed a transformation and restructuring of our business to segregate our renewables business. The restructuring took place in several phases, and included the formation of new, wholly-owned subsidiaries (“NewCos”) of CVR Energy, and transferred certain assets to these NewCos 154December 31, 2022 | 112
CVR Energy, Inc. and Subsidiaries ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) to, among other purposes, better align our organizational structure with management, financial reporting, and our goal to maximize our renewables focus.
As discussed in Note 2 ("Summary of Significant Accounting Policies"), duringThe Company evaluated all other subsequent events, if any, that would require an adjustment to the third quarter of 2017 and during the second quarter of 2016, the Nitrogen Fertilizer Partnership's East Dubuque facility completed major scheduled turnarounds.
On April 1, 2016, the Nitrogen Fertilizer Partnership completed the East Dubuque Merger, whereby the Nitrogen Fertilizer Partnership acquired the East Dubuque Facility. TheCompany’s consolidated financial statements includeor require disclosure in the results ofnotes to the East Dubuque Facility beginning on April 1, 2016,consolidated financial statements through the date of the closingissuance of the acquisition. See Note 3 ("Acquisition") for further discussion.
(22) Subsequent Events
Dividend
On February 21, 2018,consolidated financial statements. Where applicable, the board of directors of the Company declared a cash dividend for the fourth quarter of 2017notes to the Company's stockholders of $0.50 per share, or $43.4 million in aggregate. The dividend will be paid on March 12, 2018these consolidated financial statements have been updated to stockholders of record at the close of business on March 5, 2018. IEP will receive $35.6 million in respect of its 82% ownership interest in the Company's shares.
discuss all significant subsequent events which have occurred.
155December 31, 2022 | 113
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of December 31, 2017, we haveProcedures
The Company has evaluated, under the direction and with the participation of ourthe Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.15d-15(e). Based upon and as ofthis evaluation, the date of that evaluation, ourCompany’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.of December 31, 2022.
Management'sManagement’s Report Onon Internal Control Over Financial Reporting. OurReporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, the Companywe conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in the 2013 Internal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"(“COSO”). Based on that evaluation, ourthe Company’s Chief Executive Officer, Chief Financial Officer and Chief FinancialAccounting Officer have concluded that the Company's internal control over financial reporting was effective as of December 31, 2017. Our2022. The Company’s independent registered public accounting firm, that audited the consolidated financial statements included herein under Part II, Item 8 of this Report, has issued a report on the effectiveness of ourthe Company’s internal control over financial reporting. This report can be found under Part II, Item 8.8 of this Report.
Changes in Internal Control Over Financial Reporting.Reporting There hashave been no changematerial changes in our internal controlcontrols over financial reporting required by Rule 13a-15 of the Exchange Act that occurred during the fiscal quarter ended December 31, 20172022 that has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.On February 20, 2023, the Compensation Committee of our Board adopted the CVR Energy, Inc. 2023 Performance Based Bonus Plan and the CVR Refining, LP 2023 Performance Based Bonus Plan (collectively, the “2023 CVI Plans”), which apply to all eligible employees of our subsidiaries (excluding those of CVR Partners and its subsidiaries) and contain terms equivalent to the CVR Energy, Inc. 2022 Performance Based Bonus Plan and the CVR Refining, LP 2022 Performance Based Bonus Plan. The 2023 CVI Plans will be filed with our Quarterly Report on Form 10-Q for the period ending March 31, 2023.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable. 156December 31, 2022 | 114
PART III
Item 10. Directors, Executive Officers and Corporate Governance
InformationThe information required by Items 401, 405, 406, and 407(c)(3), (d)(4), and (d)(5) of Regulation S-K in response to this Item regarding our directors, executive officers and corporate governanceitem will be included under the captions "Corporate Governance," "Proposal 1 — Election of Directors," "Members and Nominees of the Board," "Executive Officers," "Information Concerning Executive Officers Who are Not Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," and "Stockholder Proposals" containedset forth in our definitive proxy statement for theour 2023 annual meeting of our stockholders, which will be filed with the SEC, and this information is incorporated herein by reference.stockholders.
Item 11. Executive Compensation
Information about executiveThe information required by Items 402 and director compensation407(e)(4) and (e)(5) of Regulation S-K in response to this item will be included under the captions "Corporate Governance — Compensation Committee Interlocks and Insider Participation," "Proposal 1 — Election of Directors," "Director Compensation for 2017," "Compensation Discussion and Analysis," "Compensation Committee Report" and "Compensation of Executive Officers" containedset forth in our definitive proxy statement for theour 2023 annual meeting of our stockholders, which will be filed with the SEC and this information is incorporated herein by reference.stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information about security ownershipThe equity compensation plan information required by Items 201(d) and the information required by Item 403 of certain beneficial owners and managementRegulation S-K in response to this item will be included under the captions "Compensation of Executive Officers," "Securities Ownership of Certain Beneficial Owners and Officers and Directors" and "Equity Compensation Plans" containedset forth in our definitive proxy statement for theour 2023 annual meeting of our stockholders, which will be filed with the SEC, and this information is incorporated herein by reference.stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information about related party transactions between CVR EnergyThe information required by Items 404 and its directors, executive officers and 5% stockholders that occurred during the year ended December 31, 2017407(a) of Regulation S-K in response to this item will be included under the captions "Certain Relationships and Related Party Transactions" and "Corporate Governance — Director Independence" containedset forth in our definitive proxy statement for theour 2023 annual meeting of our stockholders, which will be filed with the SEC, and this information is incorporated herein by reference.stockholders.
Item 14. Principal Accounting Fees and Services
Information about principal accounting fees and servicesThe information required by Items 9(e) of Schedule 14A in response to this item will be included under the captions "Proposal 2 — Ratification of Selection of Independent Registered Public Accounting Firm" and "Fees Paid to the Independent Registered Public Accounting Firm" containedset forth in our definitive proxy statement for theour 2023 annual meeting of our stockholders, which will be filed with the SEC and this information is incorporated herein by reference.stockholders.
157December 31, 2022 | 115
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
- See "Index to Consolidated Financial Statements" Contained in Part II, Item 8 of this Report.Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
- All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the "SEC"“SEC”) are not required under the related instructions or are inapplicable and therefore have been omitted.
(a)(3) Exhibits
| | | | | | Exhibit Number | Exhibit Description | | | Exhibit Number | Exhibit Title | | | | | | | | | | | | | | | | | | | | | 4.2** | | | | | | | | | | | | 4.4** | Indenture, dated as of October 23, 2012,January 27, 2020, among CVR Refining, LLC, Coffeyville FinanceEnergy, Inc., the Guarantors (as defined therein)guarantors named therein and Wells Fargo Bank, National Association, as Trustee and Collateral Trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on October 29, 2012). | | | | | | | | Indenture, dated June 10, 2016, by and among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors (as defined therein) and Wilmington Trust, National Association, as Trustee and Collateral Trustee (incorporated by reference to Exhibit 4.1 of the Form 8-K filed by CVR Partners, LP on June 16, 2016 (Commission File No. 001-35120)). | | | | | | | | Indenture, dated as April 12, 2013, among Rentech Nitrogen Partners, L.P., Rentech Nitrogen Finance Corporation, the guarantors named therein, Wells Fargo Bank, National Association, as Trustee, and Wilmington Trust, National Association, as Collateral Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by Rentech Nitrogen Partners, L.P. on April 16, 2013 (Commission File No. 001-35334))January 27, 2020). | | | | | | | 4.6** | | | | 4.7** | Indenture, dated as of June 23, 2021, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed by Rentech Nitrogen Partners, L.P. on April 16, 2013 (Commission File No. 001-35334))June 23, 2021). | | | | | | | 4.9** | Supplemental Indenture, dated as of June 10, 2016,April 12, 2022, among CVR Nitrogen, LP,Renewables, LLC, CVR Nitrogen Finance Corporation,Energy, Inc., the existing guarantors party thereto,named therein and Wells Fargo Bank, National Association, as Trustee (Incorporated by reference to Exhibit 4.1 to the Company’s Form 10-Q filed on May 3, 2022). | | | 4.10** | Supplemental Indenture, dated as of July 1, 2022, among CVR Energy, Inc., the guarantors party thereto, and Wilmington Trust,Wells Fargo Bank, National Association, as Collateral Trustee (incorporated by reference to Exhibit 10.3 of4.1 to the Company’s Form 8-K filed by CVR Partners, LP on June 16, 2016 (Commission File No. 001-35120))July 1, 2022). | | |
| | | | Amended and Restated ABL Credit Agreement, dated as of December 20, 2012, among Coffeyville Resources, LLC, CVR Refining, LP, CVR Refining, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Pipeline, LLC, Coffeyville Resources Crude Transportation, LLC, Coffeyville Resources Terminal, LLC, Wynnewood Energy Company, LLC, Wynnewood Refining Company, LLC and certain of their affiliates, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as collateral agent and administrative agent (incorporated by reference to Exhibit 1.1 to the Company'sCompany’s Form 8-K filed on December 27, 2012). | | |
| | | | | | 10.1.1** | Amendment No. 1 to Amended and Restated ABL Credit Agreement, dated November 14, 2017, by and among CVR Refining, LP, Coffeyville Finance Inc., CVR Refining, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Pipeline, LLC, Coffeyville Resources Crude Transportation, LLC, Coffeyville Resources Terminal, LLC, Wynnewood Energy Company, LLC, Wynnewood Refining Company, LLC, CVR Logistics, LLC, a group of lenders and Wells Fargo, National Association, as administrative agent and collateral agent (incorporated by reference as Exhibit 10.1 to the Form 8-K filed by CVR Refining, LP on November 17, 2017).
| | | | Amendment No. 2 to Amended and Restated ABL Credit Agreement, dated as of December 23, 2019, and effective December 31, 2019, by and among CVR Refining, LP, Coffeyville Finance Inc., CVR Refining, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Pipeline, LLC, Coffeyville Resources Crude Transportation, LLC, Coffeyville Resources Terminal, LLC, Wynnewood Energy Company, LLC, Wynnewood Refining Company, LLC, CVR Logistics, LLC, a group of lenders and Wells Fargo Bank, National Association, as collateral agent and administrative agent (incorporated by reference to Exhibit 10.1.2 to the Company’s Form 10-K filed on February 20, 2020). | | | 10.1.3** | | | | 10.2** | Amended and Restated ABL Pledge and Security Agreement, dated as of December 20, 2012, among CVR Refining, LP, CVR Refining, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Pipeline, LLC, Coffeyville Resources Crude Transportation, LLC, Coffeyville Resources Terminal, LLC, Wynnewood Energy Company, LLC, Wynnewood Refining Company, LLC and certain of their affiliates, and Wells Fargo Bank, National Association, as collateral agent (incorporated by reference to Exhibit 1.2 to the Company'sCompany’s Form 8-K filed on December 27, 2012). | | | | Amended and Restated First Lien Pledge and Security Agreement, dated as of December 28, 2006, among Coffeyville Resources, LLC, CL JV Holdings, LLC, Coffeyville Pipeline, Inc., Coffeyville Refining and Marketing, Inc., Coffeyville Nitrogen Fertilizers, Inc., Coffeyville Crude Transportation, Inc., Coffeyville Terminal, Inc., Coffeyville Resources Pipeline, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Crude Transportation, LLC and Coffeyville Resources Terminal, LLC, as grantors, and Credit Suisse, as collateral agent (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1/A, File No. 333-137588, filed on February 12, 2007). | | | | ABL Intercreditor Agreement, dated as of February 22, 2011, among Coffeyville Resources, LLC, Coffeyville Finance Inc., Deutsche Bank Trust Company Americas, as collateral agent for the ABL secured parties, Wells Fargo Bank, National Association, as collateral trustee for the secured parties in respect of the outstanding first lien obligations, and the outstanding second lien notes and certain subordinated liens, respectively, and the Guarantors (as defined therein) (incorporated by reference to Exhibit 1.3 to the Company's Form 8-K filed on February 28, 2011). | | | | First Amended and Restated Collateral Trust and Intercreditor Agreement, dated as of April 6, 2010, among Coffeyville Resources, LLC, Coffeyville Finance Inc., the other grantors from time to time party thereto, Credit Suisse AG, Cayman Islands Branch, as administrative agent, Wells Fargo Bank, National Association, as indenture agent, J. Aron & Company, as hedging counterparty, each additional first lien representative and Wells Fargo Bank, National Association, as collateral trustee (incorporated by reference to Exhibit 10.33 to the Company's Form 10-K filed on February 29, 2012). | | | | Omnibus Amendment Agreement and Consent under the Intercreditor Agreement, dated as of April 6, 2010, by and among Coffeyville Resources, LLC, Coffeyville Finance Inc., Coffeyville Pipeline, Inc., Coffeyville Refining & Marketing, Inc., Coffeyville Nitrogen Fertilizers, Inc., Coffeyville Crude Transportation, Inc., Coffeyville Terminal, Inc., CL JV Holdings, LLC, and certain subsidiaries of the foregoing as Guarantors, the Requisite Lenders, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent, Collateral Agent and Revolving Issuing Bank, J. Aron & Company, as a hedge counterparty and Wells Fargo Bank, National Association, as Collateral Trustee (incorporated by reference to Exhibit 1.4 to the Company's Form 8-K filed on April 12, 2010). | | | | License Agreement For Use of the Texaco Gasification Process, Texaco Hydrogen Generation Process, and Texaco Gasification Power Systems, dated as of May 30, 1997 by and between GE Energy (USA), LLC (as successor in interest to Texaco Development Corporation) and Coffeyville Resources Nitrogen Fertilizers, LLC (as successor in interest to Farmland Industries, Inc.), as amended (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1/A, File No. 333-137588, filed on April 18, 2007) (Certain portions of this exhibit have been omitted and separately filed with the SEC pursuant to a request for confidential treatment which has been granted by the SEC.). | | | | | | |
| | | | | | | | | | | | | | | 10.4** | | | | 10.4.1** |
| | | | | | | 10.5** | | | | | | | | | | | | | | | | |
| | | |
| | | |
| | | | | | | | | | | | Amended and Restated Contribution, Conveyance and Assumption Agreement, dated as of April 7, 2011, among Coffeyville Resources, LLC, CVR GP, LLC, Coffeyville Acquisition III LLC, CVR Special GP, LLC and CVR Partners, LP (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K/A filed on May 23, 2011). | | | | | | |
10.14.1**+ | Form CVR Energy, Inc. Incentive Unit Agreement (Executive) (incorporated by reference to Exhibit 10.31.1 to the Company’s Form 10-K filed on February 21, 2019). | | 10.14.2**+ | | | | 10.14.3**+ | | | | | | | | 10.15**+ | | | | | | | | | | | | | | | | 10.19**+ | | | | 10.19.1**+ | | | | | | | | | | | | + | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reorganization Agreement, dated as of January 16, 2013, by and among CVR Refining, LP, CVR Refining GP, LLC, CVR Refining Holdings, LLC and CVR Refining Holdings Sub, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by CVR Refining, LP on January 23, 2013 (Commission File No. 001-35781)). | | | | | | | | Registration Rights Agreement, dated as of January 23, 2013, by and among CVR Refining, LP, Icahn Enterprises Holdings L.P., CVR Refining Holdings, LLC and CVR Refining Holdings Sub, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by CVR Refining, LP on January 29, 2013 (Commission File No. 001-35781)). | | | | Registration Rights Agreement, dated as of August 9, 2015, by and among CVR Partners, Coffeyville Resources, LLC, Rentech Nitrogen Holdings, Inc., and DSHC, LLC (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by CVR Partners, LP on August 13, 2015 (Commission File No. 001-35120)). | | |
| | | | | | | | | | | | | 10.20** | Collateral Trust Agreement, dated as of June 10, 2016, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors (as defined therein) and Wilmington Trust, National Association, as Trustee and Collateral Trustee (incorporated by reference to Exhibit 10.1 of the Form 8-K filed by CVR Partners, LP on June 16, 2016 (Commission File No. 001-35120)). | | | | Parity Lien Security Agreement, dated as of June 10, 2016, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors (as defined therein) and Wilmington Trust, National Association, as Trustee and Collateral Trustee(incorporated by reference to Exhibit 10.2 of the Form 8-K filed by CVR Partners, LP on June 16, 2016 (Commission File No. 001-35120)). | | | | ABL Credit Agreement, dated as of September 30, 2016, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their affiliates from time to time party thereto, the lenders from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 of the Form 8-K filed by CVR Partners, LP on October 6, 2016 (Commission File No. 001-35120)). | | | | Security Agreement, dated as of September 30, 2016, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their affiliates from time to time party thereto, and UBS AG, Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 of the Form 8-K filed by CVR Partners, LP on October 6, 2016 (Commission File No. 001-35120)). | | | | | | |
| | | | | | 10.21** | Intercreditor Agreement, dated as of September 30, 2016, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their affiliates from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent for the secured parties, Wilmington Trust, National Association, as trustee and collateral trustee for the secured parties in respect of the outstanding senior secured notes and other parity lien obligations and other parity lien representative from time to time party thereto (incorporated by reference to Exhibit 10.3 of the Form 8-K filed by CVR Partners, LP on October 6, 2016 (Commission File No. 001-35120)). | | | | | | | 10.23** | | | | 10.24**+ | | | | 10.25**+ | | | | 10.26**+ | | | | 10.27**+ | | | | 10.28**+ | | | | 10.29**+ | | | | | | | | 10.30** | | | | 10.31** | The Joinder Agreement (Other Parity Lien Obligations), dated as of June 23, 2021, among Wilmington Trust, National Association, as an other parity obligations representative, UBS AG, Stamford Branch, as collateral agent under the Existing ABL Facility, Wilmington Trust, National Association, as applicable parity lien representative, Wilmington Trust, National Association, as parity lien collateral trustee and CVR Partners, LP (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on June 23, 2021). | | | | | | | | | | | | | | | 10.32** | Credit Agreement, dated as of September 30, 2021, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their subsidiaries from time to time party thereto, the lenders from time to time party thereto and Wells Fargo Bank, National Association, a national banking association, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 30, 2021). | | | 10.33** | Guaranty and Security Agreement, dated as of September 30, 2021, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their subsidiaries from time to time party thereto, and Wells Fargo Bank, National Association, a national banking association, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on September 30, 2021). | | |
| | | | | | 10.34** | Joinder Agreement (Other Parity Lien Obligations), dated as of September 30, 2021, among Wilmington Trust, National Association (“WTNA”), as an other applicable parity obligations representative, UBS AG, Stamford Branch (“UBS”), as collateral agent under the existing ABL Facility, WTNA, as applicable parity lien representative, WTNA, as parity lien collateral trustee, Wells Fargo, as collateral agent under the ABL Credit Facility and CVR Partners (on behalf of itself and its subsidiaries) to that certain intercreditor agreement dated as of September 30, 2016 (as amended, supplemented or otherwise modified to date), among the Credit Parties, certain of their subsidiaries from time to time party thereto, UBS as trustee and collateral trustee for the secured parties in respect of the outstanding senior secured notes and other parity lien obligations and other parity lien representative from time to time party thereto(incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on September 30, 2021). | | | 10.35**+ | | | | 10.36**+ | | | | | | | | | | | | 10.38** | | | | 10.39** | | | | 10.40**Õ | | | | 10.41**+ | | | | 10.42**+ | | | | 10.43**+ | | | | 21.1* | | | | 23.1* | | | | | | | | | | | | 31.3* | | | | 32.1† | | | | 101* | The following financial information for CVR Energy, Inc.'s’s Annual Report on Form 10-K for the year ended December 31, 2017,2022, formatted in Inline XBRL ("(“Extensible Business Reporting Language"Language”) includes: (1)(i) Consolidated Balance Sheets, (2)(ii) Consolidated Statements of Operations, (3)(iii) Consolidated Statements of Comprehensive Income, (4)(iv) Consolidated Statements of Changes in Equity, (5)(v) Consolidated Statements of Cash Flows, and (6)(vi) the Notes to Consolidated Financial Statements, tagged in detail. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith. | | | | | | | | | | | | * | | Filed herewith. | | | | ** | | Previously filed. | | | | † | | Furnished herewith. | | | | + | | Denotes management contract or compensatory plan or arrangement. | | | |
December 31, 2022 | 120
** Previously filed.
† Furnished herewith. + Denotes management contract or compensatory plan or arrangement. Õ The exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request.
PLEASE NOTE:NOTE: Pursuant to the rules and regulations of the SEC, we may file or incorporate by reference agreements as exhibits to the reports that we file with or furnish to the SEC. The agreements are filed to provide investors with information regarding their respective terms. The agreements are not intended to provide any other factual information about the Company, or its business or operations. In particular, the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the Company'sCompany’s public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about the Company, or its business or operations on the date hereof.
Item 16. Form 10-K Summary
None.
164December 31, 2022 | 121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | | | | | | CVR Energy, Inc. | | By: | /s/ DAVID L. LAMP | | | Name: | David L. Lamp | | | Title: | President and Chief Executive Officer |
Date: February 26, 201822, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report had been signed below by the following persons on behalf of the registrant and in the capacitycapacities and on the dates indicated. | | | | | | | | | Signature | Title | Date | | | | /s/ DAVID L. LAMP | President, Chief Executive Officer, and Director (Principal Executive Officer) | February 22, 2023 | David L. Lamp | | | | | | Signature | Title | Date | | | | /s/ DAVID L. LAMPDANE J. NEUMANN | President, Chief Executive Officer and Director (Principal Executive Officer) | February 26, 2018 | David L. Lamp | | | | | | /s/ SUSAN M. BALL | Executive Vice President, Chief Financial Officer, Treasurer and Treasurer (PrincipalAssistant Secretary (Principal Financial Officer) | February 22, 2023 | Dane J. Neumann | | | | | | /s/ JEFFREY D. CONAWAY | Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) | February 26, 201822, 2023 | Susan M. BallJeffrey D. Conaway | | | | | | /s/ JAFFERY A. FIRESTONE | Chairman of the Board of DirectorsDirector | February 26, 201822, 2023 | Carl C. IcahnJaffery A. Firestone | | | | | | /s/ BOB G. ALEXANDERHUNTER C. GARY | Director | February 26, 201822, 2023 | Bob G. AlexanderHunter C. Gary | | | | | | /s/ SUNGHWAN CHO | Director | February 26, 2018 | SungHwan Cho | | | | | | /s/ JONATHAN FRATES | Director | February 26, 2018 | Jonathan Frates | | | | | | /s/ STEPHEN MONGILLO | Director | February 26, 201822, 2023 | Stephen Mongillo | | | | | | /s/ LOUIS J. PASTOR | Director | February 26, 2018 | Louis J. Pastor | | | | | | /s/ JAMES M. STROCK | Director | February 26, 201822, 2023 | James M. Strock | | | | | | /s/ DAVID WILLETTS | Director | February 22, 2023 | David Willetts | | |
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