UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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| (Mark One) |
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☑ | QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2017 | March 31, 2024 |
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OR |
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☐ | TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period fromto . |
Commission file number: 001-35120
CVR Partners,PARTNERS, LP
(Exact name of registrant as specified in its charter)
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| Delaware | | | | 56-2677689 |
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Delaware | 56-2677689 |
(State or other jurisdiction of
incorporation or organization)
| | | (I.R.S. Employer
Identification No.)
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2277 Plaza Drive, Suite 500 | |
Sugar Land, Texas
(Address of principal executive offices)
| 77479
(Zip Code)
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2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479
(Address of principal executive offices) (Zip Code)
(281) 207-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common units representing limited partner interests | UAN | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filero | ☐ | Accelerated filerþ | ☑ | Non-accelerated filero(Do not check if a smaller reporting company)
| ☐ |
Smaller reporting companyo | ☐ | Emerging growth companyo | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑
There were 113,282,97310,569,637 common units representing limited partner interests of CVR Partners, LP (“common units”) outstanding at October 30, 2017.
CVR PARTNERS, LP AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For The Quarter Ended September 30, 2017
TABLE OF CONTENTS
GLOSSARY OF SELECTED TERMS
The following are definitions of certain terms used in thisCVR PARTNERS, LP - Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 (this "Report"):
March 31, 2024
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| PART I. Financial Information | | | PART II. Other Information | |
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This Quarterly Report on Form 10-Q (including documents incorporated by reference herein) contains statements with respect to our expectations or beliefs as to future events. These types of statements are “forward-looking” and subject to uncertainties. See “Important Information Regarding Forward-Looking Statements” section of this filing.
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| 2023 Notes$645.0 million aggregate principal amount of 9.25% Senior Notes due 2023, which were issued through CVR Partners and CVR Nitrogen Finance Corporation. |
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ABL Credit Facility | The Partnership's senior secured asset based revolving credit facility with a group of lenders and UBS AG, Stamford Branch, as administrative agent and collateral agent. |
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ammonia | Ammonia is a direct application fertilizer and is primarily used as a building block for other nitrogen products for industrial applications and finished fertilizer products. |
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capacity | Capacity is defined as the throughput a process unit is capable of sustaining, either on a calendar or stream day basis. The throughput may be expressed in terms of maximum sustainable, nameplate or economic capacity. The maximum sustainable or nameplate capacities may not be the most economical. The economic capacity is the throughput that generally provides the greatest economic benefit based on considerations such as feedstock costs, product values and downstream unit constraints. |
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Coffeyville Facility | CVR Partners' nitrogen fertilizer manufacturing facility located in Coffeyville, Kansas. |
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common units | Common units representing limited partner interests of CVR Partners. |
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corn belt | The primary corn producing region of the United States, which includes Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, Ohio and Wisconsin. |
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CVR Energy | CVR Energy, Inc., a publicly traded company listed on the New York Stock Exchange under the ticker symbol "CVI," which indirectly owns our general partner and the common units owned by Coffeyville Resources, LLC. |
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CVR Nitrogen | CVR Nitrogen, LP (formerly known as East Dubuque Nitrogen Partners, L.P. and also formerly known as Rentech Nitrogen Partners L.P.). |
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CVR Partners | CVR Partners, LP. |
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CVR Refining | CVR Refining, LP, a publicly traded limited partnership listed on the New York Stock Exchange under the ticker symbol "CVRR," which through its subsidiaries, currently owns and operates a complex full coking medium-sour crude oil refinery with a rated capacity of 115,000 barrels per calendar day (bpcd) in Coffeyville, Kansas, a complex crude oil refinery with a rated capacity of 70,000 bpcd in Wynnewood, Oklahoma and ancillary businesses. |
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East Dubuque Facility | CVR Partners' nitrogen fertilizer manufacturing facility located in East Dubuque, Illinois. |
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East Dubuque Merger | The transactions contemplated by the Agreement and Plan of Merger dated August 9, 2015, whereby the Partnership acquired CVR Nitrogen and CVR Nitrogen GP, LLC on April 1, 2016. |
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farm belt | Refers to the states of Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Texas and Wisconsin. |
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general partner | CVR GP, LLC, our general partner, which is a wholly-owned subsidiary of Coffeyville Resources, LLC. |
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MMBtu | One million British thermal units: a measure of energy. One Btu of heat is required to raise the temperature of one pound of water one degree Fahrenheit. |
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MSCF | One thousand standard cubic feet, a customary gas measurement. |
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netback | Netback represents net sales less freight revenue divided by product sales volume in tons. Netback is also referred to as product pricing at gate. |
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March 31, 2024 | 2
Important Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, but not limited to, those under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical fact, including without limitation, statements regarding future operations, financial position, estimated revenues and losses, growth, capital projects, unit repurchases, impacts of legal proceedings, projected costs, prospects, plans, and objectives of management are forward-looking statements. The words “could”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “may”, “continue”, “predict”, “potential”, “project”, and similar terms and phrases are intended to identify forward-looking statements.
Although we believe our assumptions concerning future events are reasonable, a number of risks, uncertainties and other factors could cause actual results and trends to differ materially from those projected or forward-looking. Forward-looking statements, as well as certain risks, contingencies, or uncertainties that may impact our forward-looking statements, include, but are not limited to, the following:
•our ability to generate distributable cash or make cash distributions on our common units, including reserves and future uses of cash;
•the ability of our general partner to modify or revoke our distribution policy at any time;
•the volatile, cyclical, and seasonal nature of our business and the variable nature of our distributions;
•the effects of changes in market conditions; market volatility; fertilizer, natural gas, and other commodity prices; inflation, and the impact of such changes on our operating results and financial condition;
•the impact of weather on our business, including our ability to produce, market, sell, transport or deliver fertilizer products profitably or at all, and on commodity supply and/or pricing;
•the dependence of our operations on a few third-party suppliers, including providers of feedstocks, transportation services, and equipment;
•our reliance on, or our ability to procure economically or at all, petroleum coke (“pet coke”) we purchase from subsidiaries of CVR Energy, Inc. (together with its subsidiaries, but excluding the Partnership and its subsidiaries, “CVR Energy”) and other third-party suppliers;
•our reliance on the natural gas, electricity, oxygen, nitrogen, sulfur processing, compressed dry air and other products that we purchase from third parties;
•the supply, availability, and prices of essential raw materials and the effects of inflation thereupon;
•our production levels, including the risk of a material decline in those levels and/or our ability to upgrade ammonia to UAN;
•product pricing, including spot and contracted sales, the timing thereof, and our ability to realize market prices, in full or at all;
•accidents or other unscheduled shutdowns or interruptions affecting our facilities, machinery, people, or equipment, or those of our suppliers or customers;
•potential operating hazards from accidents, fire, severe weather, tornadoes, floods or other natural disasters;
•operational upsets or changes in laws that could impact our ability to qualify for, the amount of, and/or the receipt of credits (if any) under Section 45Q of the Internal Revenue Code of 1986, as amended;
•our ability to meet certain carbon oxide capture and sequestration milestones;
•our ability to obtain, retain, or renew permits, licenses (including technology licenses) and authorizations to operate our business;
•competition in the nitrogen fertilizer business and foreign wheat and coarse grain production, including impacts thereof as a result of farm planting acreage, domestic and global supply and demand, and domestic or international duties, tariffs, or other factors;
•changes in our credit profile and the effects of higher interest rates and/or restrictions in our current or future debt agreements;
•existing and future laws, rulings and regulations, or amplification thereof, including but not limited to those relating to the environment, climate change, and/or the transportation or production of hazardous chemicals, materials, or substances, like ammonia, including potential liabilities or capital requirements arising from such laws, rulings, or regulations and our expectations concerning the impacts of such laws, regulations or rulings on macroeconomic factors, including consumer activity;
•erosion of demand for our products due to increasing focus on climate change and environmental, social and governance (“ESG”) initiatives or other factors;
•ESG including but not limited to compliance with ESG-related recommendations or directives and risks or impacts relating thereto, whether from regulators, rating agencies, lenders, investors, litigants, customers, vendors, the public or others;
•alternative energy or fuel sources and impacts on corn prices (ethanol), and the end-use and application of fertilizers;
•risks of terrorism, cybersecurity attacks, the security of chemical manufacturing facilities and other matters beyond our control;
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| on-streamMeasurement of the reliability of the gasification, ammonia and UAN units, defined as the total number of hours operated by each unit divided by the total number of hours in the reporting period. |
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Partnership | CVR Partners, LP. |
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pet coke | Petroleum coke - a coal-like substance that is produced during the oil refining process. |
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product pricing at gate | Product pricing at gate represents net sales less freight revenue divided by product sales volume in tons. Product pricing at gate is also referred to as netback. |
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southern plains | Primarily includes Oklahoma, Texas and New Mexico. |
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ton | One ton is equal to 2,000 pounds. |
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turnaround | A periodically required standard procedure to refurbish and maintain a facility that involves the shutdown and inspection of major processing units. |
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UAN | UAN is an aqueous solution of urea and ammonium nitrate used as a fertilizer. |
March 31, 2024 | 3
•political disturbances, geopolitical conflicts, instability and tensions, and associated changes in global trade policies and economic sanctions, including, but not limited to, in connection with the Russia-Ukraine war and the conflict in the Middle East, and any ongoing or potential global or regional conflicts;
•our lack of asset diversification;
•our dependence on significant customers and the creditworthiness and performance by counterparties;
•our potential loss of transportation cost advantage over our competitors;
•risks associated with third-party operation of or control over important facilities necessary for operation of our nitrogen fertilizer facilities;
•the volatile nature of ammonia, potential liability for accidents involving ammonia including damage or injury to persons, property, the environment or human health and increased costs related to the transport or production of ammonia;
•our potential inability to successfully implement our business strategies, including the completion of significant capital programs or projects;
•our reliance on CVR Energy’s management team and conflicts of interest they may face operating each of CVR Partners and CVR Energy;
•control of our general partner by CVR Energy and control of CVR Energy by its controlling shareholder;
•the potential inability to successfully implement our business strategies at all or on time and within our anticipated budgets, including significant capital programs or projects and turnarounds at our fertilizer facilities and the costs thereof;
•asset useful lives and impairments and impacts thereof;
•realizable inventory value;
•the number of investors willing to hold or acquire our common units;
•our ability to issue securities or obtain financing at favorable rates or at all;
•bank failures or other events affecting financial institutions;
•changes in tax and other law, regulations and policies;
•impact of potential runoff of water containing nitrogen based fertilizer into waterways and regulatory or legal actions in response thereto;
•changes in our treatment as a partnership for U.S. federal income or state tax purposes;
•rulings, judgments or settlements in litigation, tax or other legal or regulatory matters;
•instability and volatility in the capital, credit and commodities markets and in the global economy, including due to the ongoing Russia-Ukraine war and the conflict in the Middle East;
•competition, transactions, and/or conflicts with CVR Energy and its affiliates, including CVR Energy’s controlling shareholder;
•risks related to potential strategic transactions involving the Partnership in which CVR Energy and its controlling shareholder may participate;
•the cost and value of payouts under our equity and non-equity incentive plans;
•the cost and/or availability of insurance and our ability to recover under our insurance policies for damages or losses in full or at all;
•labor supply shortages, labor difficulties, labor disputes or strikes; and
•the factors described in greater detail under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 and our other filings with the U.S. Securities and Exchange Commission (“SEC”).
All forward-looking statements included in this Report are based on information available to us on the date of this Report. Except as required by law, we undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.
Information About Us
Investors should note that we make available, free of charge on our website at www.CVRPartners.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post announcements, updates, events, investor information and presentations on our website in addition to copies of all recent news releases. We may use the Investor Relations section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. Documents and information on our website are not incorporated by reference herein.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | September 30,
2017 | | December 31,
2016 |
| | (unaudited) | | |
| | (in thousands, except unit data) |
| (in thousands) | | (in thousands) | March 31, 2024 | | December 31, 2023 |
| ASSETS | ASSETS | ASSETS |
| Current assets: | | | |
| Cash and cash equivalents | $ | 69,977 |
| | $ | 55,595 |
|
| Accounts receivable, net of allowance for doubtful accounts of $44 and $46 at September 30, 2017 and December 31, 2016, respectively | 12,345 |
| | 13,924 |
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| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Accounts receivable, net | |
| Inventories | 57,556 |
| | 58,167 |
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| Prepaid expenses and other current assets, including $336 and $750 with affiliates at September 30, 2017 and December 31, 2016, respectively | 5,128 |
| | 6,845 |
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| Prepaid expenses | |
| Other current assets | |
| Total current assets | 145,006 |
| | 134,531 |
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| Property, plant, and equipment, net of accumulated depreciation | 1,083,999 |
| | 1,130,121 |
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| Goodwill | 40,969 |
| | 40,969 |
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| Other long-term assets, including $463 and $598 with affiliates at September 30, 2017 and December 31, 2016, respectively | 5,785 |
| | 6,596 |
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| Property, plant, and equipment, net | |
| | Other long-term assets | |
| | Other long-term assets | |
| | Other long-term assets | |
| Total assets | $ | 1,275,759 |
| | $ | 1,312,217 |
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| | LIABILITIES AND PARTNERS’ CAPITAL | |
| LIABILITIES AND PARTNERS’ CAPITAL | |
LIABILITIES AND PARTNERS’ CAPITAL | | Current liabilities: | | | |
| Accounts payable, including $2,217 and $2,402 due to affiliates at September 30, 2017 and December 31, 2016, respectively | $ | 20,994 |
| | $ | 28,815 |
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| Personnel accruals, including $1,860 and $1,968 with affiliates at September 30, 2017 and December 31, 2016, respectively | 7,454 |
| | 9,256 |
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| Accounts payable | |
| Accounts payable | |
| Accounts payable | |
| Accounts payable to affiliates | |
| Deferred revenue | 19,361 |
| | 12,571 |
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| Accrued expenses and other current liabilities, including $2,844 and $2,515 with affiliates at September 30, 2017 and December 31, 2016, respectively | 23,915 |
| | 12,374 |
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| Other current liabilities | |
| Total current liabilities | 71,724 |
| | 63,016 |
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| Long-term liabilities: | | | |
| Long-term debt, net of current portion | 625,178 |
| | 623,107 |
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| Long-term debt, net | |
| Long-term debt, net | |
| Long-term debt, net | |
| Long-term deferred revenue | |
| Other long-term liabilities | 1,599 |
| | 1,187 |
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| Total long-term liabilities | 626,777 |
| | 624,294 |
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| Commitments and contingencies |
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Commitments and contingencies (See Note 11) | | Commitments and contingencies (See Note 11) | | | |
| Partners’ capital: | | | |
| Common unitholders, 113,282,973 units issued and outstanding at September 30, 2017 and December 31, 2016 | 577,257 |
| | 624,906 |
|
| Common unitholders, 10,569,637 and 10,569,637 units issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | |
| Common unitholders, 10,569,637 and 10,569,637 units issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | |
| Common unitholders, 10,569,637 and 10,569,637 units issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | |
| General partner interest | 1 |
| | 1 |
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| Total partners’ capital | 577,258 |
| | 624,907 |
|
| Total liabilities and partners’ capital | $ | 1,275,759 |
| | $ | 1,312,217 |
|
See
The accompanying notes to theare an integral part of these condensed consolidated financial statements.
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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| | | Three Months Ended
March 31, |
| (in thousands, except per unit data) | | | | | 2024 | | 2023 |
| Net sales | | | | | $ | 127,665 | | | $ | 226,261 | |
| Operating costs and expenses: | | | | | | | |
| Cost of materials and other | | | | | 25,327 | | | 36,579 | |
| Direct operating expenses (exclusive of depreciation and amortization) | | | | | 55,669 | | | 57,543 | |
| Depreciation and amortization | | | | | 19,291 | | | 15,211 | |
| Cost of sales | | | | | 100,287 | | | 109,333 | |
| Selling, general and administrative expenses | | | | | 7,311 | | | 7,384 | |
| Loss on asset disposal | | | | | 8 | | | 192 | |
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| Operating income | | | | | 20,059 | | | 109,352 | |
| Other (expense) income: | | | | | | | |
| Interest expense, net | | | | | (7,665) | | | (7,173) | |
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| Other income (expense), net | | | | | 160 | | | (265) | |
| Income before income tax expense | | | | | 12,554 | | | 101,914 | |
| Income tax (benefit) expense | | | | | (25) | | | 44 | |
| Net income | | | | | $ | 12,579 | | | $ | 101,870 | |
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| Basic and diluted earnings per common unit | | | | | $ | 1.19 | | | $ | 9.64 | |
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| Weighted-average common units outstanding: | | | | | | | |
| Basic and Diluted | | | | | 10,570 | | | 10,570 | |
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| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| | (unaudited) |
| | (in thousands, except per unit data) |
| Net sales | $ | 69,393 |
| | $ | 78,474 |
| | $ | 252,610 |
| | $ | 271,363 |
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| Operating costs and expenses: | | | | | | | |
| Cost of materials and other — Affiliates | 1,774 |
| | 529 |
| | 5,584 |
| | 1,886 |
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| Cost of materials and other — Third parties | 17,721 |
| | 19,282 |
| | 57,789 |
| | 70,355 |
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| | 19,495 |
| | 19,811 |
| | 63,373 |
| | 72,241 |
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| Direct operating expenses (exclusive of depreciation and amortization) — Affiliates | 978 |
| | 1,106 |
| | 2,848 |
| | 3,207 |
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| Direct operating expenses (exclusive of depreciation and amortization) — Third parties | 39,290 |
| | 31,460 |
| | 111,151 |
| | 107,193 |
|
| | 40,268 |
| | 32,566 |
| | 113,999 |
| | 110,400 |
|
| Depreciation and amortization | 19,483 |
| | 16,452 |
| | 54,877 |
| | 40,987 |
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| Cost of sales | 79,246 |
| | 68,829 |
| | 232,249 |
| | 223,628 |
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| Selling, general and administrative expenses — Affiliates | 3,917 |
| | 3,560 |
| | 11,399 |
| | 10,939 |
|
| Selling, general and administrative expenses — Third parties | 2,166 |
| | 3,701 |
| | 7,351 |
| | 11,057 |
|
| | 6,083 |
| | 7,261 |
| | 18,750 |
| | 21,996 |
|
| Total operating costs and expenses | 85,329 |
| | 76,090 |
| | 250,999 |
| | 245,624 |
|
| Operating income (loss) | (15,936 | ) | | 2,384 |
| | 1,611 |
| | 25,739 |
|
| Other income (expense): | | | | | | | |
| Interest expense and other financing costs | (15,737 | ) | | (15,633 | ) | | (47,140 | ) | | (32,820 | ) |
| Interest income | 14 |
| | — |
| | 29 |
| | 4 |
|
| Loss on extinguishment of debt | — |
| | — |
| | — |
| | (5,116 | ) |
| Other income, net | 22 |
| | 26 |
| | 81 |
| | 83 |
|
| Total other expense | (15,701 | ) | | (15,607 | ) | | (47,030 | ) | | (37,849 | ) |
| Loss before income tax expense | (31,637 | ) | | (13,223 | ) | | (45,419 | ) | | (12,110 | ) |
| Income tax expense (benefit) | (35 | ) | | 207 |
| | (36 | ) | | 284 |
|
| Net loss | $ | (31,602 | ) | | $ | (13,430 | ) | | $ | (45,383 | ) | | $ | (12,394 | ) |
| | | | | | | | |
| Net loss per common unit — basic and diluted | $ | (0.28 | ) | | $ | (0.12 | ) | | $ | (0.40 | ) | | $ | (0.12 | ) |
| Weighted-average common units outstanding — basic and diluted | 113,283 |
| | 113,283 |
| | 113,283 |
| | 99,947 |
|
SeeThe accompanying notes to theare an integral part of these condensed consolidated financial statements.
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)PARTNERS’ CAPITAL
(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Units | | General
Partner
Interest | | | | | | Total Partners’ Capital |
| (in thousands, except unit data) | Issued | | Amount | |
| Balance at December 31, 2023 | 10,569,637 | | | $ | 302,879 | | | $ | 1 | | | | | | | $ | 302,880 | |
| Net income | — | | | 12,579 | | | — | | | | | | | 12,579 | |
| | | | | | | | | | | |
| Cash distributions to common unitholders - Affiliates | — | | | (6,539) | | | — | | | | | | | (6,539) | |
| Cash distributions to common unitholders - Non-affiliates | — | | | (11,218) | | | — | | | | | | | (11,218) | |
| | | | | | | | | | | |
| Balance at March 31, 2024 | 10,569,637 | | | $ | 297,701 | | | $ | 1 | | | | | | | $ | 297,702 | |
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| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| | (unaudited) |
| | (in thousands) |
| Net loss | $ | (31,602 | ) | | $ | (13,430 | ) | | $ | (45,383 | ) | | $ | (12,394 | ) |
| Other comprehensive income: | | | | | | | |
| Net loss reclassified into income on settlement of interest rate swaps | — |
| | — |
| | — |
| | 119 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | 119 |
|
| Total comprehensive loss | $ | (31,602 | ) | | $ | (13,430 | ) | | $ | (45,383 | ) | | $ | (12,275 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Units | | General
Partner
Interest | | | | | | Total Partners’ Capital |
| (in thousands, except unit data) | Issued | | Amount | |
| Balance at December 31, 2022 | 10,569,637 | | | $ | 411,810 | | | $ | 1 | | | | | | | $ | 411,811 | |
| Net income | — | | | 101,870 | | | — | | | | | | | 101,870 | |
| | | | | | | | | | | |
| Cash distributions to common unitholders - Affiliates | — | | | (40,866) | | | — | | | | | | | (40,866) | |
| Cash distributions to common unitholders - Non-affiliates | — | | | (70,115) | | | — | | | | | | | (70,115) | |
| Balance at March 31, 2023 | 10,569,637 | | | $ | 402,699 | | | $ | 1 | | | | | | | $ | 402,700 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See
The accompanying notes to theare an integral part of these condensed consolidated financial statements.
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
|
| | | | | | | | | | | | | | |
| | Common Units | | General Partner Interest | | Total |
| | Issued | | Amount | | |
| | | | | | | | |
| | (unaudited) |
| | (in thousands, except unit data) |
| Balance at December 31, 2016 | 113,282,973 |
| | $ | 624,906 |
| | $ | 1 |
| | $ | 624,907 |
|
| Cash distributions to common unitholders – Affiliates | — |
| | (778 | ) | | — |
| | (778 | ) |
| Cash distributions to common unitholders – Non-affiliates | — |
| | (1,488 | ) | | — |
| | (1,488 | ) |
| Net loss | — |
| | (45,383 | ) | | — |
| | (45,383 | ) |
| Balance at September 30, 2017 | 113,282,973 |
| | $ | 577,257 |
| | $ | 1 |
| | $ | 577,258 |
|
See accompanying notes to the condensed consolidated financial statements.
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) | | | | | | | | | | | |
| Three Months Ended March 31, |
| (in thousands) | 2024 | | 2023 |
| Cash flows from operating activities: | | | |
| Net income | $ | 12,579 | | | $ | 101,870 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 19,291 | | | 15,211 | |
| | | |
| Share-based compensation | 2,027 | | | 1,933 | |
| | | |
| Other adjustments | 141 | | | 502 | |
| Change in assets and liabilities: | | | |
| Current assets and liabilities | 8,780 | | | 10,893 | |
| Non-current assets and liabilities | (401) | | | 34 | |
| Net cash provided by operating activities | 42,417 | | | 130,443 | |
| Cash flows from investing activities: | | | |
| Capital expenditures | (8,095) | | | (3,438) | |
| | | |
| Return of equity method investment | 2,778 | | | 19,000 | |
| Net cash (used in) provided by investing activities | (5,317) | | | 15,562 | |
| Cash flows from financing activities: | | | |
| | | |
| | | |
| | | |
| | | |
| Cash distributions to common unitholders - Affiliates | (6,539) | | | (40,866) | |
| Cash distributions to common unitholders - Non-affiliates | (11,218) | | | (70,115) | |
| | | |
| | | |
| Net cash used in financing activities | (17,757) | | | (110,981) | |
| Net increase in cash and cash equivalents | 19,343 | | | 35,024 | |
| Cash and cash equivalents, beginning of period | 45,279 | | | 86,339 | |
| Cash and cash equivalents, end of period | $ | 64,622 | | | $ | 121,363 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| | Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| | | | |
| | (unaudited) |
| | (in thousands) |
| Cash flows from operating activities: | | | |
| Net loss | $ | (45,383 | ) | | $ | (12,394 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
| Depreciation and amortization | 54,877 |
| | 40,987 |
|
| Allowance for doubtful accounts | (2 | ) | | 14 |
|
| Amortization of deferred financing costs and original issue discount | 952 |
| | 1,024 |
|
| Amortization of debt fair value adjustment | 1,306 |
| | 1,250 |
|
| Loss on disposition of fixed assets | 58 |
| | 127 |
|
| Loss on extinguishment of debt | — |
| | 5,116 |
|
| Share-based compensation – Affiliates | 1,434 |
| | 1,178 |
|
| Share-based compensation | 314 |
| | 653 |
|
| Change in assets and liabilities: | | | |
| Accounts receivable | 1,581 |
| | 3,404 |
|
| Inventories | 167 |
| | 32,244 |
|
| Prepaid expenses and other current assets | 1,721 |
| | 4,218 |
|
| Other long-term assets | 330 |
| | (489 | ) |
| Accounts payable | (4,558 | ) | | 1,580 |
|
| Deferred revenue | 7,370 |
| | (27,672 | ) |
| Accrued expenses and other current liabilities | 7,991 |
| | (4,008 | ) |
| Other long-term liabilities | (54 | ) | | 277 |
|
| Net cash provided by operating activities | 28,104 |
| | 47,509 |
|
| Cash flows from investing activities: | | | |
| Capital expenditures | (11,456 | ) | | (18,268 | ) |
| Acquisition of CVR Nitrogen, LP, net of cash acquired | — |
| | (63,869 | ) |
| Net cash used in investing activities | (11,456 | ) | | (82,137 | ) |
|
| | | | | | | |
| | Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| | | | |
| | (unaudited) |
| | (in thousands) |
| Cash flows from financing activities: | | | |
| Principal and premium payments on 2021 Notes | — |
| | (320,539 | ) |
| Principal payment on CRLLC Facility | — |
| | (300,000 | ) |
| Principal payments on long-term debt | — |
| | (125,000 | ) |
| Payment of revolving debt | — |
| | (49,100 | ) |
| Payment of financing costs | — |
| | (10,191 | ) |
| Proceeds on issuance of 2023 Notes, net of original issue discount | — |
| | 628,869 |
|
| Proceeds on CRLLC Facility | — |
| | 300,000 |
|
| Contribution from affiliate | — |
| | 507 |
|
| Cash distributions to common unitholders – Affiliates | (778 | ) | | (27,633 | ) |
| Cash distributions to common unitholders – Non-affiliates | (1,488 | ) | | (41,956 | ) |
| Purchase of noncontrolling interest | — |
| | (5,000 | ) |
| Net cash provided by (used in) financing activities | (2,266 | ) | | 49,957 |
|
| Net increase in cash and cash equivalents | 14,382 |
| | 15,329 |
|
| Cash and cash equivalents, beginning of period | 55,595 |
| | 49,967 |
|
| Cash and cash equivalents, end of period | $ | 69,977 |
| | $ | 65,296 |
|
| | | | |
| Supplemental disclosures: | | | |
| Cash paid for income taxes, net | $ | 43 |
| | $ | 14 |
|
| Cash paid for interest, net of capitalized interest of $150 and $422 in 2017 and 2016, respectively | $ | 29,896 |
| | $ | 22,304 |
|
| Non-cash investing and financing activities: | | | |
| Construction in progress additions included in accounts payable | $ | 608 |
| | $ | 1,394 |
|
| Change in accounts payable related to construction in progress additions | $ | (3,263 | ) | | $ | (3,816 | ) |
| Reduction of proceeds from 2023 Notes from original issue discount | $ | — |
| | $ | 16,131 |
|
| Fair value of common units issued in a business combination | $ | — |
| | $ | 335,693 |
|
| Fair value of debt assumed in a business combination | $ | — |
| | $ | 367,500 |
|
SeeThe accompanying notes to theare an integral part of these condensed consolidated financial statements.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(unaudited)
(1) Organization and Nature of Business
CVR Partners, LP (referred to as "CVR Partners"(“CVR Partners” or the "Partnership"“Partnership”) is a Delaware limited partnership formed by CVR Energy, Inc. (together with its subsidiaries, but excluding the Partnership and its subsidiaries, "CVR Energy"“CVR Energy”) to own, operate and grow its nitrogen fertilizer business. The Partnership produces nitrogen fertilizer products at two manufacturing facilities, one located in Coffeyville, Kansas operated by our wholly owned subsidiary, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”) (the “Coffeyville Facility”) and one located in East Dubuque, Illinois operated by our wholly owned subsidiary, East Dubuque Nitrogen Fertilizers, LLC (“EDNF”) (the “East Dubuque Facility”). Both facilities manufacture ammonia and are able to further upgrade such ammonia to other nitrogen fertilizer products, principally urea ammonium nitrate (“UAN”). Nitrogen fertilizer is used by farmers to improve the yield and quality of their crops, primarily corn and wheat. The Partnership principally produces ammonia and urea ammonium nitrate ("UAN"), an aqueous solution of urea and ammonium nitrate. The Partnership's product salesPartnership’s products are sold on a wholesale basis in Norththe United States of America.
The Partnership produces nitrogen fertilizer products at two manufacturing facilities, which are located As used in Coffeyville, Kansas (the "Coffeyville Facility") and East Dubuque, Illinois (the "East Dubuque Facility"). On April 1, 2016,these financial statements, references to CVR Partners, the Partnership, completed“we”, “us”, and “our” may refer to consolidated subsidiaries of CVR Partners or one or both of the merger (the "East Dubuque Merger") with CVR Nitrogen, LP (formerly knownfacilities, as East Dubuque Nitrogen Partners, L.P. and also formerly known as Rentech Nitrogen Partners, L.P.) ("CVR Nitrogen") and with CVR Nitrogen GP, LLC (formerly known as East Dubuque Nitrogen GP, LLC and also formerly known as Rentech Nitrogen GP, LLC) ("CVR Nitrogen GP"), whereby the Partnership acquired the East Dubuque Facility. See Note 4 ("East Dubuque Merger") for further discussion.context may require.
The Partnership's subsidiaries include Coffeyville Resources Nitrogen Fertilizers, LLC ("CRNF"), which owns and operates the Coffeyville Facility, and East Dubuque Nitrogen Fertilizers, LLC ("EDNF"), which owns and operates the East Dubuque Facility. Both facilities manufacture ammonia and are able to further upgrade to other nitrogen fertilizer products, principally UAN.Interest Holders
Immediately subsequent to the East Dubuque Merger and asAs of September 30, 2017,March 31, 2024, public security holderscommon unitholders held approximately 66%63% of the Partnership'sPartnership’s outstanding limited partner interests and Coffeyville Resources,interests; CVR Services, LLC ("CRLLC"(“CVR Services”), a wholly-ownedwholly owned subsidiary of CVR Energy, held the remaining approximately 34%37% of the Partnership'sPartnership’s outstanding limited partner interestsinterests; and CVR GP, LLC (the “General Partner”), a wholly owned subsidiary of CVR Energy, held 100% of the noneconomicPartnership’s general partner interest. As of September 30, 2017,March 31, 2024, Icahn Enterprises L.P. ("IEP") and its affiliates owned approximately 82%66% of the sharescommon stock of CVR Energy.
Unit Repurchase Program
On May 6, 2020, the board of directors of the General Partner (the “Board”), on behalf of the Partnership, authorized a unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized the Partnership to repurchase up to $20 million of the Partnership’s common units. During the three months ended March 31, 2024 and 2023, the Partnership did not repurchase any common units. On February 20, 2024, the Board, on behalf of the Partnership, terminated the nominal authority remaining under the Unit Repurchase Program.
Management and Operations
The Partnership, including the General Partner, is managed by a combination of the Board, the General Partner’s executive officers, CVR GP, LLC ("Services (as sole member of the General Partner), and certain officers of CVR GP" orEnergy and its subsidiaries, pursuant to the "general partner"Partnership Agreement, as well as a number of agreements among the Partnership, the General Partner, CVR Energy, and certain of their respective subsidiaries, including a service agreement. See Part II, Item 8 of CVR Partners’ Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) manages and operates the Partnership.for further discussion. Common unitholders have only limited voting rights on matters affecting the Partnership. In addition, common unitholdersPartnership and have no right to elect the general partner'sGeneral Partner’s directors or officers, whether on an annual or continuing basis.basis or otherwise.
Subsequent Events
The Partnership is operated by a combination ofevaluated subsequent events, if any, that would require an adjustment to the general partner's senior management team and CVR Energy's senior management team pursuant to a services agreement among CVR Energy, CVR GP and the Partnership. The various rights and responsibilities of the Partnership's partners are set forth in the limited partnership agreement. The Partnership also is party to a number of agreements with CVR Energy and CVR GP to regulate certain business relations between the Partnership and the other parties thereto. See Note 14 ("Related Party Transactions") for further discussion.
(2) Basis of Presentation
The accompanying PartnershipPartnership’s condensed consolidated financial statements includeor require disclosure in the accountsnotes to the condensed consolidated financial statements through the date of CVR Partners and its subsidiaries. All intercompany accounts and transactionsissuance of these condensed consolidated financial statements. Where applicable, the notes to these condensed consolidated financial statements have been eliminated in consolidation. updated to discuss all significant subsequent events which have occurred.
(2) Basis of Presentation
The accompanying condensed consolidated financial statements, were prepared in accordance with U.S.accounting principles generally accepted accounting principles ("GAAP"in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"(“SEC”). These, include the accounts of CVR Partners and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. Certain notes and other information have been condensed or omitted from these condensed consolidated financial statements. Therefore, these condensed consolidated financial statements
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
should be read in conjunction with the December 31, 20162023 audited consolidated financial statements and notes thereto included in CVR Partners’ Annual Report onthe 2023 Form 10-K for the year ended December 31, 2016, which was filed with the SEC on February 21, 2017 (the "2016 Form 10-K").10-K.
The condensed consolidated financial statements include certain selling, general and administrative expenses and direct operating expenses that CVR Energy and its subsidiaries incurred on behalf of the Partnership. These related party transactions are governed by the services agreement. See Note 14 ("Related Party Transactions") for additional discussion of the services agreement and billing and allocation of certain costs.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
In the opinion of the Partnership’s management, the accompanying condensed consolidated financial statements and related notes reflect all adjustments (consisting only of normal recurring adjustments) that are necessary to fairly presentfor fair presentation of the financial position of the Partnership as of September 30, 2017 and December 31, 2016, the results of operations and comprehensive income (loss) of the Partnership for the three and nine months ended September 30, 2017 and 2016, the cash flowsperiods presented. Such adjustments are of the Partnership for the nine months ended September 30, 2017 and 2016 and the changes in partners’ capital for the Partnership for the nine months ended September 30, 2017.a normal recurring nature, unless otherwise disclosed.
The preparation of condensed consolidated financial statements are prepared in conformity with GAAP, which requires management to make certain estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities revenues, expensesat the date of the financial statements and the disclosurereported amounts of contingent assetsrevenues and liabilities.expenses during the reporting period. Actual results could differ from those estimates. Results of operations and cash flows for the interim periods presented are not necessarily indicative of the results that will be realized for the year ending December 31, 20172024 or any other interim or annual period.
Planned Major Maintenance CostsRecent Accounting Pronouncements - Accounting Standards Issued But Not Yet Implemented
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, which requires enhanced income tax disclosures that reflect how operations and related tax risks, as well as how tax planning and operational opportunities, affect the tax rate and prospects for future cash flows. This standard is effective for the Partnership’s annual reporting beginning January 1, 2025 with early adoption permitted. The direct-expense methodPartnership is evaluating the effects of adopting this new accounting guidance on its disclosures but does not currently expect adoption will have a material impact on the Partnership’s consolidated financial statements. The Partnership does not intend to early adopt this ASU.
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, which includes requirements for more robust disclosures of significant segment expenses and measures of a segment’s profit and loss used in assessing performance. This standard is usedeffective for maintenance activities, including planned major maintenance activitiesthe Partnership’s annual period beginning January 1, 2024 and other less extensive shutdowns. Maintenance costs are recognized as expense when maintenance services are performed. Planned major maintenance activities generally occur every twointerim periods beginning January 1, 2025 and should be applied retrospectively to three years.all comparative periods. Early adoption is permitted. The Partnership is still evaluating the effects of adopting this new accounting guidance on its disclosures.
During the third quarter of 2017, the East Dubuque Facility completed a scheduled turnaround. Overall results were negatively impacted due to the lost production during the downtime that resulted in reduced sales and certain reduced variable expenses included in cost of materials and other and direct operating expenses (exclusive of depreciation and amortization). Exclusive
(3) Inventories
Inventories consisted of the impacts due to the lost production, costs of approximately $2.5 million and $2.6 million associated with the 2017 East Dubuque turnaround are included in direct operating expenses (exclusive of depreciation and amortization) in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017, respectively.following:
| | | | | | | | | | | |
| (in thousands) | March 31, 2024 | | December 31, 2023 |
| Finished goods | $ | 16,383 | | | $ | 15,015 | |
| Raw materials | 2,974 | | | 2,472 | |
| Parts, supplies and other | 53,044 | | | 51,678 | |
| Total inventories | $ | 72,401 | | | $ | 69,165 | |
During the second quarter of 2016, the East Dubuque Facility completed a major scheduled turnaround. Overall results were negatively impacted due to the lost production during the downtime that resulted in reduced sales and certain reduced variable expenses included in cost of materials and other and direct operating expenses (exclusive of depreciation and amortization). Exclusive of the impacts due to the lost production, costs of approximately $6.6 million associated with the 2016 East Dubuque turnaround are included in direct operating expenses (exclusive of depreciation and amortization) in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2016.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
(4) Property, Plant, and Equipment
(3) Recent Accounting Pronouncements
Property, plant, and equipment consisted of the following:
In May 2014, | | | | | | | | | | | |
| (in thousands) | March 31, 2024 | | December 31, 2023 |
| Machinery and equipment | $ | 1,449,045 | | | $ | 1,446,728 | |
| Buildings and improvements | 18,193 | | | 18,193 | |
| Automotive equipment | 16,208 | | | 16,208 | |
| Land and improvements | 14,959 | | | 14,959 | |
| | | |
| | | |
| Construction in progress | 20,740 | | | 19,075 | |
| Other | 2,874 | | | 2,758 | |
| 1,522,019 | | | 1,517,921 | |
| Less: Accumulated depreciation and amortization | (777,803) | | | (756,898) | |
| Total property, plant, and equipment, net | $ | 744,216 | | | $ | 761,023 | |
For the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, creatingthree months ended March 31, 2024 and 2023, depreciation and amortization expense related to property, plant, and equipment was $19.1 million and $15.0 million, respectively, and capitalized interest was $0.2 million and $0.1 million, respectively. During the three months ended December 31, 2023, the Partnership updated the estimated useful lives of certain assets as a new topic,result of changes in the granular urea production, which resulted in additional depreciation expense of $2.1 million related to March 31, 2024.
During the three months ended March 31, 2024, the Partnership did not identify the existence of an impairment indicator for our long-lived asset groups as outlined under the FASB Accounting Standards Codification ("ASC"(“ASC”) Topic 606, "360, Property, Plant, and Equipment.
(5) Equity Method Investment
As part of a series of agreements entered into with unaffiliated parties with the objective to monetize certain tax credits under Section 45Q of the Internal Revenue from ContractsCode of 1986 (“45Q Transaction”), the Partnership received a 50% interest in CVR-CapturePoint Parent, LLC (“CVRP JV”) in connection with Customers," which supersedes revenue recognition requirements ina modification to a carbon oxide contract (“CO Contract”) with a customer. The Partnership applied the variable interest entity (“VIE”) model under FASB ASC Topic 605, "Revenue Recognition." This ASU requires an entity810, Consolidation, to recognizeits variable interest in CVRP JV and determined that CVRP JV is a VIE. While the amountPartnership concluded it is not the primary beneficiary of revenue to whichCVRP JV, it expectsdoes have significant influence over CVRP JV’s operating and financial policies and, therefore, applied the equity method of accounting for its investment in CVRP JV.
The Partnership valued the equity interest received using a combination of the market approach and the discounted cash flow methodology with key inputs including the discount rate, contractual and expected future cash flows, and market multiples. The Partnership determined the estimated fair value of the consideration received to be entitled for$46.0 million, which was a non-recurring Level 3 measurement, as defined by FASB ASC Topic 820, Fair Value Measurements, based on the transferuse 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. Partnership’s own assumptions described above.
The Partnership will adopt this standard as of January 1, 2018 usingdeferred 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 partners’ capital. The guidance will be applied prospectively and revenues reported in the periods prior to the date of adoption will not be changed. The Partnership is executing its implementation plan to adopt the new standard and is currently finalizing the assessment phaserecognition of the plan, after whichnoncash consideration received and has recognized such revenue as the Partnership will completeperformance obligation associated with the design and implementation phases of the plan, which will include implementing any changesCO Contract is satisfied. Refer to existing business processes, internal controls and systems to accommodate the new standard. During the assessment phase, the Partnership has reviewed the majority of its existing revenue streams, including an evaluation of accounting policies, contract reviews, identification of the types of arrangements where differences may arise in the conversion to the new standard, identification of practical expedients to be elected and additional disclosure requirements. The Partnership is still evaluating certain revenue streams and contracts to determine the impact, if any, on the consolidated financial statements and related disclosures. To date, the Partnership has not identified any material differences in its existing revenue recognition methods that would require modification under the new standard.Note 9 (“Revenue”) for further discussion. The Partnership has identified potential balance sheet presentation differences as well as additional disclosure requirements that the Partnership is in the process of evaluating.
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 lesseeelected to recognize a liability to make lease payments and an asset representingrecord its right to use the underlying asset for the lease term in the balance sheet. 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. The Partnership is formulating an assessment and implementation plan to adopt the new standard. The Partnership expects its assessment and implementation plan to be ongoing during 2017 and 2018 and is currently unable to reasonably estimate the impact of adopting the new leases standard on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment." 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 and early adoption is permitted. The Partnership adopted this standard as of January 1, 2017.
(4) East Dubuque Merger
On April 1, 2016, the 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 Partnership acquired CVR Nitrogen and CVR Nitrogen GP. Under the termsshare of the Merger Agreement, holdersearnings or loss of CVR Nitrogen common units eligible to receive considerationCVRP JV one quarter in arrears. Distributions received 1.04 common units representing limited partner interests in CVR Partners and $2.57 in cash, without interest, 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.
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. During the three and nine months ended September 30, 2016, the Partnership incurred approximately $0.7 million and $3.1 million, respectively, of legal and other professional fees and other merger-related expenses, which were included in selling, general and administrative expenses.from
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
CVRP JV will reduce the Partnership’s equity method investment and will be recorded in the period they are received. The investment in CVRP JV is presented within Other long-term assets on our Condensed Consolidated Balance Sheets:
CVR Nitrogen’s debt arrangements that remained in place after | | | | | |
| (in thousands) | CVRP JV |
| Balance at December 31, 2023 | $ | 24,518 | |
| Cash contributions | 3 | |
Cash distributions (1) | (2,781) | |
| Equity loss | (1) | |
| |
| Balance at March 31, 2024 | $ | 21,739 | |
| |
| |
| |
| |
| |
| |
(1)Includes a $2.2 million distribution for exceeding certain carbon oxide capture and sequestration milestones during 2023.
(6) Leases
Balance Sheet Summary as of March 31, 2024 and December 31, 2023
The following table summarizes the closing date of the East Dubuque Merger included $320.0 million of its 6.500% notes due 2021 (the "2021 Notes"right-of-use (“ROU”). The substantial majority of the 2021 Notes were repurchased in June 2016.
Immediately prior to the East Dubuque Merger, CVR Nitrogen also had outstanding asset and lease liability 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"). In connection with the closing of the East Dubuque Merger, the Partnership paid $49.4 million for the outstanding balance, accrued interestPartnership’s operating leases at March 31, 2024 and fees under the Wells Fargo Credit Agreement, and the Wells Fargo Credit Agreement was terminated.December 31, 2023:
| | | | | | | | | | | | | | | |
| (in thousands) | March 31, 2024 | | | | December 31, 2023 | | |
| ROU asset, net | | | | | | | |
| | | | | | | |
| Railcars | $ | 11,312 | | | | | $ | 12,032 | | | |
| Real estate and other | 1,916 | | | | | 2,007 | | | |
| Lease liability | | | | | | | |
| | | | | | | |
| Railcars | 11,312 | | | | | 12,032 | | | |
| Real estate and other | 221 | | | | | 268 | | | |
(5) Share‑Based Compensation
Certain employees of CVR Partners and employees of CVR Energy who perform servicesLease Expense Summary for the Partnership underThree Months Ended March 31, 2024 and 2023
We recognize operating lease expense on a straight-line basis over the services agreement with CVR Energy participate in equity-based compensation plans of CVR Partners' affiliates. Accordingly, CVR Partners has recorded compensation expense for these plans. All compensation expense related to these plans for full-time employees of CVR Partners has been attributed 100% to the Partnership. For employees of CVR Energy, the Partnership records share-based compensation relative to the percentage of time spent by each employee providing services to the Partnership as compared to the total calculated share-based compensation by CVR Energy. The Partnership recognizes the costs of share-based compensation in selling, general and administrative expenses and directlease term within Direct operating expenses (exclusive of depreciation and amortization). Allocated and Cost of materials and other and finance lease expense amounts relatedon a straight-line basis over the lease term within Depreciation and amortization. For the three months ended March 31, 2024 and 2023, we recognized lease expense comprised of the following components:
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| (in thousands) | | | | | 2024 | | 2023 |
| Operating lease expense | | | | | $ | 1,158 | | | $ | 1,223 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Short-term lease expense | | | | | 689 | | | 650 | |
The Partnership has entered into the following material lease commitments that have not yet commenced:
•CRNF is party to plans for whichan On-Site Product Supply Agreement (the “Messer Agreement”) with Messer LLC. Based on terms outlined in the Messer Agreement, the Partnership is responsible for payment are reflected as an increase or decrease to accrued expenses and other current liabilities.
Long-Term Incentive Plan – CVR Energy
CVR Energy has a Long-Term Incentive Plan ("CVR Energy LTIP") that permitsexpects the grant of options, stock appreciation rights, 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 September 30, 2017, only grants of performance units under the CVR Energy LTIP remain outstanding. Individuals who are eligible to receive awards and grants under the CVR Energy LTIP include CVR Energy’s or its subsidiaries’ employees, officers, consultants and directors.
Performance Unit Awards
In December 2015, CVR Energy entered into a performance unit award agreement (the "2015 Performance Unit Award Agreement") with its Chief Executive Officer. Compensation cost for the 2015 Performance Unit Award Agreement was recognized over the performance cycle from January 1, 2016 to December 31, 2016. The awards were fully vested at December 31, 2016 and the Partnership reimbursed CVR Energy $0.5 million for its allocated portion of the performance unit award during the first quarter of 2017. As of December 31, 2016, the Partnership had a liability of $0.5 million, for its allocated portion of the 2015 Performance Unit Award Agreement, which was recorded in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. Compensation expense recorded for the three and nine months ended September 30, 2016 related to the awards was approximately $0.2 million and $0.4 million, respectively.
In December 2016, CVR Energy entered into a performance unit award agreement (the "2016 Performance Unit Award Agreement") with its Chief Executive Officer. Compensation cost for the 2016 Performance Unit Award Agreement will be recognized over the performance cycle from January 1, 2017 to December 31, 2017. The performance unit award represents the right to receive, upon vesting, a cash payment equal to a defined threshold in accordance with the award agreement, multiplied by a performance factor that is based upon the achievement of certain operating objectives. The Partnership will be responsible for reimbursing CVR Energy for its allocated portion 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 September 30, 2017, there was approximately $0.1 million of total unrecognized compensation cost related to the 2016 Performance Unit Award Agreementlease to be recognized over approximately 0.3 years. Compensation expense recordedclassified as a finance lease with an estimated $20 million to $25 million being capitalized upon lease commencement when the Vessel is placed in service, which is currently expected to occur in the second half of 2024. Refer to Part II, Item 8, Note 6 (“Leases”) of our 2023 Form 10-K for the three and nine months ended September 30, 2017 related to the awards was approximately $0.1 million and $0.4 million, respectively. The Partnership will be responsible for reimbursing CVR Energy for its allocated portion of the awards. As of September 30, 2017, the Partnership had a liability of $0.4 million, for its allocated portion offurther information.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
(7) Other Current Liabilities
the 2016 Performance Unit Award Agreement, which is recorded in accrued expenses and other
Other current liabilities on the Condensed Consolidated Balance Sheets.
Incentive Unit Awards – CVR Energy
CVR Energy has granted awards of incentive units and distribution equivalent rights to certain employees of CRLLC, CVR Energy and the Partnership's general partner who provide shared services to CVR Energy and its subsidiaries (including the 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 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 common unit of CVR Refining, LP ("CVR Refining") in accordance with the award agreement, plus (ii) the per unit cash value of all distributions declared and paid by CVR Refining from the grant date to and including the vesting date. The awards, which are liability-classified, are remeasured at each subsequent reporting date until they vest.
Assuming the portion of time spent on CVR Partners related matters by CVR Energy employees providing services to CVR Partners remains consistent with the amount of services provided during September 30, 2017, there was approximately $0.7 million of total unrecognized compensation cost related to the incentive units and associated distribution equivalent rights to be recognized over a weighted-average period of approximately 1.0 year. Inclusion of a vesting table would not be meaningful due to changes in allocation percentages that may occur from time to time. The unrecognized compensation expense has been determined by the number of incentive units and respective allocation percentage for individuals for whom, as of September 30, 2017, compensation expense has been allocated to the Partnership. Compensation expense recorded for both the three months ended September 30, 2017 and 2016 was approximately $0.2 million. Compensation expense recorded for the nine months ended September 30, 2017 and 2016 was approximately $0.7 million and $0.2 million, respectively. The Partnership is responsible for reimbursing CVR Energy for its allocated portion of the awards.
As of September 30, 2017 and December 31, 2016, the Partnership had a liability related to these awards of $1.0 million and $0.4 million, respectively, which is recorded in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.
Long-Term Incentive Plan – CVR Partners
The Partnership has a long-term incentive plan ("CVR Partners LTIP") that 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. Individuals eligible to receive awards pursuant to the CVR Partners LTIP include (i) employees of the Partnership and its subsidiaries, (ii) employees of the general partner, (iii) members of the board of directors of the general partner, and (iv) certain CVR Partners' parent's employees, consultants and directors who perform services for the benefit of the Partnership.
Through the CVR Partners LTIP, phantom unit awards outstanding include awards granted to employees of both the Partnership and the general partner. Phantom unit awards made to employees of the general partner are considered non-employee equity based-awards. The phantom unit awards outstanding vest over a three-year period. The maximum number of common units issuable under the CVR Partners LTIP is 5,000,000. As of September 30, 2017, there were 4,820,215 common units available for issuance under the CVR Partners LTIP. As all phantom unit awards discussed below are cash settled awards, they do not reduce the number of common units available for issuance.
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 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 Partnership from the grant date to and including the vesting date. The awards, which are liability-classified, are remeasured at each subsequent reporting date until they vest. The phantom unit 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.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
A summary of the phantom unit activity during the nine months ended September 30, 2017 is presented below:
|
| | | | | | |
| | Phantom Units | | Weighted-Average
Grant Date Fair Value |
| Non-vested at January 1, 2017 | 771,786 |
| | $ | 6.47 |
|
| Granted | 3,172 |
| | 4.73 |
|
| Vested | (7,333 | ) | | 8.03 |
|
| Forfeited | (23,222 | ) | | 6.49 |
|
| Non-vested at September 30, 2017 | 744,403 |
| | $ | 6.45 |
|
Unrecognized compensation expense associated with the unvested phantom units at September 30, 2017 was approximately $1.0 million and is expected to be recognized over a weighted average period of 1.0 year. Compensation expense recorded for the three months ended September 30, 2017 related to the awards under the CVR Partners LTIP was approximately $0.3 million. Compensation benefit recorded for the three months ended September 30, 2016 related to the awards under the CVR Partners LTIP was approximately $0.2 million. Compensation expense recorded for the nine months ended September 30, 2017 and 2016 related to the awards under the CVR Partners LTIP was approximately $0.7 million and $1.2 million, respectively. Compensation expense related to the awards to employees of the Partnership and its subsidiaries under the CVR Partners LTIP has been recorded in selling, general and administrative expenses - third parties and direct operating expenses (exclusive of depreciation and amortization) - third parties. Compensation expense related to the awards issued to employees of the general partner under the CVR Partners LTIP has been recorded in selling, general and administrative expenses - affiliates and direct operating expenses (exclusive of depreciation and amortization) - affiliates. As of September 30, 2017 and December 31, 2016, the Partnership had a liability of $1.6 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 Condensed Consolidated Balance Sheets.
(6) Inventories
Inventories consisted of the following:
| | | | | | | | | | | |
| (in thousands) | March 31, 2024 | | December 31, 2023 |
| Accrued interest | $ | 9,826 | | | $ | 1,404 | |
| Personnel accruals | 6,266 | | | 8,404 | |
| Operating lease liabilities | 3,213 | | | 3,176 | |
| Sales incentives | 2,178 | | | 1,585 | |
| Share-based compensation | 1,910 | | | 1,195 | |
| Accrued taxes other than income taxes | 1,797 | | | 1,825 | |
| | | |
| Other accrued expenses and liabilities | 2,269 | | | 3,283 | |
| Total other current liabilities | $ | 27,459 | | | $ | 20,872 | |
(8) Long-Term Debt
|
| | | | | | | |
| September 30,
2017 | | December 31,
2016 |
| | | | |
| | (in thousands) |
| Finished goods | $ | 17,422 |
| | $ | 15,860 |
|
| Raw materials and precious metals | 7,022 |
| | 8,818 |
|
| Parts and supplies | 33,112 |
| | 33,489 |
|
| Total inventories | $ | 57,556 |
| | $ | 58,167 |
|
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
(7) Property, Plant and Equipment
A summary of costs and accumulated depreciation for property, plant and equipment is as follows:
|
| | | | | | | |
| September 30,
2017 | | December 31,
2016 |
| | | | |
| | (in thousands) |
| Land and improvements | $ | 12,987 |
| | $ | 12,995 |
|
| Buildings and improvements | 17,298 |
| | 14,881 |
|
| Machinery and equipment | 1,351,165 |
| | 1,343,980 |
|
| Automotive equipment | 599 |
| | 599 |
|
| Furniture and fixtures | 1,421 |
| | 1,437 |
|
| Railcars | 16,261 |
| | 16,261 |
|
| Construction in progress | 7,508 |
| | 9,588 |
|
| | 1,407,239 |
| | 1,399,741 |
|
| Less: Accumulated depreciation | 323,240 |
| | 269,620 |
|
| Total property, plant and equipment, net | $ | 1,083,999 |
| | $ | 1,130,121 |
|
Capitalized interest recognized as a reduction of interest expense was approximately $41,000 and $21,000 for the three months ended September 30, 2017 and 2016, respectively. Capitalized interest recognized as a reduction of interest expense was approximately $0.2 million and $0.4 million, respectively, for the nine months ended September 30, 2017 and 2016.
(8) Partners’ Capital and Partnership Distributions
The Partnership has two types of partnership interests outstanding:
common units; and
a general partner interest, which is not entitled to any distributions, and which is held by the general partner.
Immediately subsequent to the East Dubuque Merger and as of September 30, 2017, the Partnership had a total of 113,282,973 common units issued and outstanding, of which 38,920,000 common units were owned by CRLLC, representing approximately 34% of the total Partnership common units outstanding.
The board of directors of the Partnership's general partner has a policy for the Partnership to distribute all available cash generated on a quarterly basis. Cash distributions will be made to the common unitholders of record on the applicable record date, generally within 60 days after the end of each quarter. Available cash for each quarter will be determined by the board of directors of the general partner following the end of such quarter.
Available cash begins with Adjusted EBITDA reduced for cash needed for (i) net cash interest expense (excluding capitalized interest) and debt service and other contractual obligations; (ii) maintenance capital expenditures; and (iii) to the extent applicable, major scheduled turnaround expenses, reserves for future operating or capital needs that the board of directors of the general partner deems necessary or appropriate, and expenses associated with the East Dubuque Merger, if any. Adjusted EBITDA is defined as EBITDA (net income before interest expense, net, income tax expenses, depreciation and amortization) further adjusted for the impact of 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, when applicable. Available cash for distribution may be increased by the release of previously established cash reserves, if any, at the discretion of the board of directors of the general partner, and available cash is increased by the business interruption insurance proceeds and the impact of purchase accounting. Actual distributions are set by the board of directors of the general partner. The board of directors of the general partner may modify the cash distribution policy at any time, and the partnership agreement does not require the board of directors of the general partner to make distributions at all.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
The following is a summary of cash distributions paid to the Partnership's unitholders during 2017 for the respective quarters to which the distributions relate:
|
| | | | | | | | | | | | | | | |
| | December 31,
2016 | | March 31, 2017 | | June 30,
2017 | | Total Cash Distributions Paid in 2017 |
| | | | | | | | |
| | ($ in millions, except per common unit amounts) |
| Amount paid to CRLLC | $ | — |
| | $ | 0.8 |
| | $ | — |
| | $ | 0.8 |
|
| Amount paid to public unitholders | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| Total amount paid | $ | — |
| | $ | 2.3 |
| | $ | — |
| | $ | 2.3 |
|
| Per common unit | $ | — |
| | $ | 0.02 |
| | $ | — |
| | $ | 0.02 |
|
| Common units outstanding (in thousands) | 113,283 |
| | 113,283 |
| | 113,283 |
| | |
(9) Goodwill
The 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 Partnership's goodwill reporting unit is the Coffeyville Facility.
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 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 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. Changes in assumptions may result in a change in management's estimates and may result in an impairment in future periods, including, but not limited to, further declines in the forecasted fertilizer pricing. The 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.
(10) Net Income (Loss) per Common Unit
The Partnership's net income (loss) is allocated wholly to the common units as the general partner does not have an economic interest. Basic and diluted net income (loss) per common unit is calculated by dividing net income (loss) by the weighted-average number of common units outstanding during the period. The common units issued during the period are included on a weighted-average basis for the days in which they were outstanding.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
(11) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were as follows:
|
| | | | | | | |
| As of
September 30,
2017 | | As of
December 31,
2016 |
| | | | |
| | (in thousands) |
| Property taxes | $ | 1,700 |
| | $ | 1,742 |
|
| Accrued interest | 17,635 |
| | 2,683 |
|
| Railcar maintenance accruals | 152 |
| | 2,502 |
|
| Affiliates (1) | 2,844 |
| | 2,515 |
|
| Other accrued expenses and liabilities | 1,584 |
| | 2,932 |
|
| Total accrued expenses and other current liabilities | $ | 23,915 |
| | $ | 12,374 |
|
| |
(1) | Accrued expenses and other current liabilities include amounts owed by the Partnership to CVR Energy under the feedstock and shared services agreement. Refer to Note 14 ("Related Party Transactions") for additional discussion. |
(12) Debt
Long-term debt consistedconsists of the following:
| | | | | | | | | | | |
| (in thousands) | March 31, 2024 | | December 31, 2023 |
6.125% Senior Secured Notes, due June 2028 (1) | $ | 550,000 | | | $ | 550,000 | |
| | | |
| Unamortized debt issuance costs | (2,560) | | | (2,692) | |
| Total long-term debt | $ | 547,440 | | | $ | 547,308 | |
| | | |
| | | |
|
| | | | | | | |
| | As of
September 30,
2017 | | As of
December 31,
2016 |
| | | | |
| | (in thousands) |
| 9.250% senior secured notes, due 2023 | $ | 645,000 |
| | $ | 645,000 |
|
| 6.500% notes, due 2021 | 2,240 |
| | 2,240 |
|
| Total long-term debt, before debt issuance costs and discount | 647,240 |
| | 647,240 |
|
| Less: | | | |
| Unamortized discount | 13,914 |
| | 15,220 |
|
| Unamortized debt issuance costs | 8,148 |
| | 8,913 |
|
| Total long-term debt, net of current portion | $ | 625,178 |
| | $ | 623,107 |
|
For the three months ended September 30, 2017 and 2016, amortization of the discount on debt and amortization of debt issuance costs reported as interest expense and other financing costs totaled approximately $0.7 million and $0.6 million, respectively. For the nine months ended September 30, 2017 and 2016, amortization of the discount on debt and amortization of debt issuance costs reported as interest expense and other financing costs totaled approximately $2.1 million and $1.0 million, respectively.
2023 Notes
On June 10, 2016, the Partnership and CVR Nitrogen Finance Corporation ("CVR Nitrogen Finance"), an indirect wholly-owned subsidiary of the Partnership, (together 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 $645.0 million aggregate principal amount of 9.250%(1)The 6.125% Senior Secured Notes, due 2023June 2028 (the "2023 Notes"“2028 Notes”). The 2023 Notes mature on June 15, 2023, unless earlier redeemed or repurchased by the issuers. Interest on the 2023 Notes is payable semi-annually in arrears on June 15 and December 15 of each year. The 2023 Notes are guaranteed on a senior secured basis by all of the Partnership’s existing subsidiaries.
The 2023 Notes contain customary covenants for a financing of this type that, among other things, restrict the Partnership’s ability and the ability of certain of its subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase the Partnership’s units or
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from the Partnership’s restricted subsidiaries to the Partnership; (vii) consolidate, merge or transfer all or substantially all of the Partnership’s assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries.
The indenture governing the 2023 Notes prohibits the Partnership from making distributions to unitholders if any default or event of default (as defined in the indenture) exists. In addition, the indenture limits the 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 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 Partnership will generally be permitted to make restricted payments, including distributions to our unitholders, up to had an aggregate $75.0 million basket plus certain other amounts referred to as "incremental funds" under the indenture. As of September 30, 2017, the ratio was less than 1.75 to 1.0. Restricted payments have been made, and $72.7 million of the basket was available as of September 30, 2017. The Partnership was in compliance with the covenants contained in the 2023 Notes as of September 30, 2017.
Included in other current liabilities on the Condensed Consolidated Balance Sheets is accrued interest payable totaling approximately $17.6 million and $2.7 million, respectively, as of September 30, 2017 and December 31, 2016 related to the 2023 Notes. At September 30, 2017 and December 31, 2016, respectively, the estimated fair value of the 2023 Notes was approximately $686.9$528.6 million and $664.4 million. This estimate$513.1 million as of March 31, 2024 and December 31, 2023, respectively. The fair value estimate is a Level 2 measurement, as defined by FASB ASC Topic 820, Fair Value Measurements, as it was determined by quotations obtained from a broker-dealer who makes a market in these and similar securities.
2021 NotesCredit Agreements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| (in thousands) | Total Available Borrowing Capacity | | Amount Borrowed as of March 31, 2024 | | Outstanding Letters of Credit | | Available Capacity as of March 31, 2024 | | Maturity Date |
| ABL Credit Facility | $ | 43,011 | | | $ | — | | | $ | — | | | $ | 43,011 | | | September 26, 2028 |
Covenant Compliance
The $320.0 million of 2021 Notes were issued by CVR Nitrogen and CVR Nitrogen Finance prior to the East Dubuque Merger. The 2021 Notes bear interest at a rate of 6.500% 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 the nine months ended September 30, 2016, the Partnership recognized a loss on debt extinguishment of $5.1 million. As of September 30, 2017 and December 31, 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 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 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 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 Partnership waswere in compliance with theall covenants of the ABL Credit Facilityunder their respective debt instruments as of September 30, 2017.March 31, 2024.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
(9) Revenue
As of September 30, 2017,
The following table presents the Partnership’s revenue, disaggregated by major products:
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| (in thousands) | 2024 | | 2023 | | | | |
| Ammonia | $ | 36,901 | | | $ | 37,499 | | | | | |
| UAN | 75,771 | | | 164,341 | | | | | |
| Urea products | 5,142 | | | 8,170 | | | | | |
| Net sales, exclusive of freight and other | 117,814 | | | 210,010 | | | | | |
Freight revenue (1) | 6,208 | | | 10,936 | | | | | |
Other revenue (2) | 3,643 | | | 5,315 | | | | | |
| Total revenue | $ | 127,665 | | | $ | 226,261 | | | | | |
(1)Freight revenue recognized by the Partnership represents the pass-through finished goods delivery costs incurred prior to customer acceptance and its subsidiaries had availability under the ABL Credit Facilityare reimbursed by customers. An offsetting expense for freight is included in Cost of $47.6 million. There were no borrowings outstanding under the ABL Credit Facility as of September 30, 2017.materials and other.
CRLLC Facility
On April 1, 2016,(2)Includes revenue from (i) nitric acid sales and (ii) carbon oxide sales, including sales made in connection with the closing45Q Transaction and the noncash consideration received, which is recognized as the performance obligation associated with the CO Contract is satisfied over its term of through April 2030. Revenue from the East Dubuque Merger,CO Contract is recognized over time based on carbon oxide volumes measured at delivery.
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 March 31, 2024, the Partnership entered into a $300.0had approximately $14.2 million senior term loan credit facility (the "CRLLC Facility")of remaining performance obligations for contracts with CRLLC,an original expected duration of more than one year. The Partnership expects to recognize $4.3 million of these performance obligations as the lender, the proceeds of which were usedrevenue by the Partnership (i) to fundend of 2024, an additional $5.0 million in 2025, and the repayment of amounts outstanding underremaining balance in 2026.
Contract Balances
During the Wells Fargo Credit Agreement discussed in Note 4 ("East Dubuque Merger"), (ii) to pay the cash considerationthree months ended March 31, 2024 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 Credit Agreement discussed below. 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 2016,2023, the Partnership borrowed $300.0 million under the CRLLC Facility. On June 10, 2016, the Partnership paid off the $300.0 million outstanding under the CRLLC Facility, paid $7.0 million in interest, and terminated the CRLLC Facility.
Credit Agreement
On April 13, 2011, CRNF, as borrower, and CVR Partners, as guarantor, entered into a credit facility with a grouprecognized revenue of lenders including Goldman Sachs Lending Partners LLC, as administrative and collateral agent (the "Credit Agreement"). The Credit Agreement included a term loan facility of $125.0$5.2 million and a revolving credit facility of $25.0$11.9 million, with an uncommitted incremental facility of up to $50.0 million. At March 31, 2016, the effective rate of the term loanrespectively, that was approximately 3.98%. On April 1, 2016, the Partnership repaid all amounts outstanding under the Credit Agreement and the Credit Agreement was terminated.
(13) Commitments and Contingencies
Leases and Unconditional Purchase Obligations
The minimum required payments for the Partnership’s operating leases and unconditional purchase obligations are as follows:
|
| | | | | | | |
| Operating Leases | | Unconditional Purchase Obligations |
| | | | |
| | (in thousands) |
| Three months ending December 31, 2017 | $ | 1,162 |
| | $ | 8,907 |
|
| Year Ending December 31, | | | |
| 2018 | 4,424 |
| | 17,321 |
|
| 2019 | 3,676 |
| | 12,099 |
|
| 2020 | 3,138 |
| | 6,978 |
|
| 2021 | 2,955 |
| | 5,572 |
|
| Thereafter | 3,039 |
| | 54,386 |
|
| | $ | 18,394 |
| | $ | 105,263 |
|
CRNF leases railcars and facilities under long-term operating leases. Lease expense included in costthe deferred revenue balances as of materialsDecember 31, 2023 and otherDecember 31, 2022, respectively.
(10) Share-Based Compensation
A summary of compensation expense for the three months ended September 30, 2017March 31, 2024 and 2016 totaled approximately $1.2 million2023 is presented below:
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| (in thousands) | | | | | 2024 | | 2023 |
| Phantom Unit Awards | | | | | $ | 1,070 | | | $ | 908 | |
Other Awards (1) | | | | | 957 | | | 1,025 | |
| Total share-based compensation expense | | | | | $ | 2,027 | | | $ | 1,933 | |
(1)Other awards include the allocations, pursuant to the Corporate Master Services Agreement effective January 1, 2020, as amended (the “Corporate MSA”) and $1.3 million, respectively. Leasethe Partnership’s Second Amended and Restated Agreement of Limited Partnership, of compensation expense included in costfor certain employees of materialsCVR Energy and otherits subsidiaries who perform services for the nine months ended September 30, 2017Partnership and 2016 totaled approximately $3.7 million and $3.6 million, respectively. The lease agreements have various remaining terms. Some agreements are renewable, at CRNF’s option, for additional periods. It is expected,participate in the ordinary courseequity compensation plans of business, that leases may be renewed or replaced as they expire. The Partnership leases railcars from a related party, which is included in the operating lease commitments shown above. See Note 14 ("Related Party Transactions") for further discussion.CVR Energy.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
(11) Commitments and Contingencies
CRNF’s purchase obligation
There have been no material changes in the Partnership’s commitments and contingencies to those disclosed in the 2023 Form 10-K. In the ordinary course of business, the Partnership 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 Partnership accrues liabilities for pet coke fromthese matters if the Partnership has determined that it is probable a subsidiary of CVR Refiningloss has been derived from a calculationincurred 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 Partnership believes there would be no material impact to its consolidated financial statements.
45Q Transaction
Under the agreements entered into in connection with the 45Q Transaction, the Partnership’s subsidiary, CRNF, is obligated to meet certain minimum quantities of carbon oxide supply each year during the term of the average pet coke price paidagreement and is subject to such subsidiary overfees of up to $15.0 million per year (reduced pro rata for partial years) to the preceding two-year period. See Note 14 ("unaffiliated third-party investors, subject to an overall $45.0 million cap, if these minimum quantities are not delivered. The Partnership issued a guarantee to the unaffiliated third-party investors and certain affiliates involved in the 45Q Transaction of the payment and performance obligations of CRNF and CVRP JV, which include the aforementioned fees. This guarantee has no impacts on the accounting records of the Partnership unless the parties fail to comply with the terms of the 45Q Transaction contracts.
(12) Supplemental Cash Flow Information
Cash flows related to interest, leases, and capital expenditures included in accounts payable are as follows:
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| (in thousands) | 2024 | | 2023 |
| Supplemental disclosures: | | | |
| Cash paid for interest | $ | 114 | | | $ | 126 | |
| | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | 947 | | | 1,006 | |
| | | |
| | | |
| Noncash investing and financing activities: | | | |
| Change in capital expenditures included in accounts payable | (3,484) | | | 87 | |
| | | |
| ROU assets obtained in exchange for new or modified operating lease liabilities | — | | | 5 | |
| | | |
(13) Related Party Transactions")Transactions
Activity associated with the Partnership’s related party arrangements for further discussionthe three months ended March 31, 2024 and 2023is summarized below:
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| (in thousands) | | | | | 2024 | | 2023 |
Sales to related parties: (1) | | | | | | | |
| CVR Energy subsidiary | | | | | $ | 22 | | | $ | — | |
| CVRP JV | | | | | 617 | | | 1,252 | |
Expenses from related parties: (2) | | | | | | | |
| CVR Energy subsidiary | | | | | 3,919 | | | 7,756 | |
| CVR Services | | | | | 6,936 | | | 7,832 | |
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Due to related parties (3) | $ | 3,910 | | | $ | 4,341 | |
(1)Sales to related parties, included in Net sales in our condensed consolidated financial statements, consist of (a) sales of feedstocks and services under the coke supply agreement.
CRNF is party to a hydrogen purchase and sale agreement with a subsidiary of CVR Refining, pursuant to which CRNF agrees to pay a monthly fixed fee. See Note 14 ("Related Party Transactions") for further discussion of the hydrogen purchase and sale agreement.
CRNF is party to the Amended and Restated On-Site Product SupplyMaster Service Agreement with The BOC Group, Inc. (as predecessor in interestCRNF (the “Coffeyville MSA”) and (b) COsales to Linde LLC). Pursuant to the agreement, which expires in 2020, CRNF is required to take as availableCVRP JV and pay for the supplyits subsidiaries.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(2)Expenses associated with this agreement arefrom related parties, included in directCost of materials and other, Direct operating expenses (exclusive of depreciation and amortization), and for the three months ended September 30, 2017Selling, general and 2016, totaled approximately $1.1 million and $1.0 million, respectively, and for the nine months ended September 30, 2017 and 2016, totaled approximately $3.2 million and $2.9 million, respectively.
CRNF is a party to a pet coke supply agreement with HollyFrontier Corporation. The term of this agreement endsadministrative expenses in December 2017. The delivered cost of this pet coke is included in cost of materials and other and totaled approximately $1.0 million and $1.1 million, respectively, for the three months ended September 30, 2017 and 2016 and totaled approximately $3.0 million and $3.6 million, respectively, for the nine months ended September 30, 2017 and 2016.
EDNF is a party to a utility service agreement with Jo-Carroll Energy, Inc. The term of this agreement ends in 2019 and includes certain charges on a take-or-pay basis. The cost of utilities is included in direct operating expenses (exclusive of depreciation and amortization) and amounts associated with this agreement totaled approximately $2.5 million for both the three months ended September 30, 2017 and 2016 and totaled approximately $8.0 million and $4.3 million, respectively, for the nine months ended September 30, 2017 and 2016.
Commitments for natural gas purchases consist of the following:
|
| | | |
| | September 30,
2017 |
| | |
| | (in thousands, except weighted average rate) |
| MMBtus under fixed-price contracts | 2,169 |
|
| Commitments to purchase natural gas | $ | 6,488 |
|
| Weighted average rate per MMBtu (1) | $ | 2.99 |
|
| |
(1) | Weighted average rate per MMBtu is based on the fixed rates applicable to each contract, exclusive of transportation costs. |
Litigation
From time to time, the Partnership is involved in various lawsuits arising in the normal course of business, including environmental, health and safety ("EHS") matters described below under "Environmental, Health and Safety Matters." Liabilities, if any, 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 adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. It is possible that management’s estimates of the outcomes will change within the next year due to uncertainties inherent in litigation and settlement negotiations. There were no new proceedings or material developments in proceedings from those provided in the 2016 Form 10-K. In the opinion of management, the ultimate resolution of any other litigation matters is not expected to have a material adverse effect on the accompanyingour condensed consolidated financial statements. There can be no assurance that management’s beliefsstatements, consist primarily of pet coke and hydrogen purchased under the Coffeyville MSA and management and other professional services from CVR Services under the Corporate MSA.
(3)Due to related parties, included in Accounts payable to affiliates, consists primarily of amounts payable to CVR Energy subsidiaries under the Coffeyville MSA and Corporate MSA.
Distributions to CVR Partners’ Unitholders
Distributions, if any, including the payment, amount, and timing thereof, and the Board’s distribution policy, including the definition of Available Cash for Distribution, are subject to change at the discretion of the Board. The following tables present quarterly distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, during 2024 and 2023 (amounts presented in table below may not add to totals presented due to rounding):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Quarterly Distributions Paid (in thousands) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public Unitholders | | CVR Energy | | Total |
| 2023 - 4th Quarter | | March 11, 2024 | | $ | 1.68 | | | $ | 11,218 | | | $ | 6,539 | | | $ | 17,757 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Quarterly Distributions Paid (in thousands) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public Unitholders | | CVR Energy | | Total |
| 2022 - 4th Quarter | | March 13, 2023 | | $ | 10.50 | | | $ | 70,115 | | | $ | 40,866 | | | $ | 110,981 | |
| 2023 - 1st Quarter | | May 22, 2023 | | 10.43 | | | 69,647 | | | 40,594 | | | 110,241 | |
| 2023 - 2nd Quarter | | August 21, 2023 | | 4.14 | | | 27,646 | | | 16,113 | | | 43,759 | |
| 2023 - 3rd Quarter | | November 20, 2023 | | 1.55 | | | 10,350 | | | 6,033 | | | 16,383 | |
| Total 2023 quarterly distributions | | $ | 26.62 | | | $ | 177,759 | | | $ | 103,605 | | | $ | 281,364 | |
For the first quarter of 2024, the Partnership, upon approval by the Board on April 29, 2024, declared a distribution of $1.92 per common unit, or opinions$20.3 million, which is payable May 20, 2024 to unitholders of record as of May 13, 2024. Of this amount, CVR Energy will receive approximately $7.5 million, with respectthe remaining amount payable to liability for potential litigation matters are accurate.public unitholders.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
Environmental, Health and Safety Matters
The Partnership's subsidiaries 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. All liabilities are monitored and adjusted regularly as new facts emerge or changes in laws or technology occur.
There have been no new developments or material changes to the environmental accruals or expected capital expenditures related to compliance with environmental matters from those provided in the 2016 Form 10-K. The Partnership believes its subsidiaries are in material compliance with existing EHS rules and regulations. There can be no assurance that the EHS matters which may develop in the future will not have a material adverse effect on the Partnership's business, financial condition or results of operations.
(14) Related Party Transactions
Related Party Agreements
CVR Partners and its subsidiaries are party to, or otherwise subject to certain agreements with CVR Energy and its subsidiaries (including CVR Refining and its subsidiary Coffeyville Resources Refining & Marketing, LLC ("CRRM")) that govern the business relations among each party including: the (i) Feedstock and Shared Services Agreement; (ii) Hydrogen Purchase and Sale Agreement; (iii) Coke Supply Agreement; (iv) Environmental Agreement; (v) Services Agreement; (vi) GP Services Agreement; and (vii) Limited Partnership Agreement. The agreements are described as in effect at September 30, 2017. Except as otherwise described below, there have been no new developments or material changes to these agreements from those provided in the 2016 Form 10-K.
Amounts owed to CVR Partners and its subsidiaries from CVR Energy and its subsidiaries with respect to these agreements are included in prepaid expenses and other current assets and other long-term assets on the Condensed Consolidated Balance Sheets. Conversely, amounts owed to CVR Energy and its subsidiaries by CVR Partners and its subsidiaries with respect to these agreements are included in accounts payable, personnel accruals and accrued expenses and other current liabilities on the Partnership's Condensed Consolidated Balance Sheets.
Feedstock and Shared Services Agreement
CRNF is party to a feedstock and shared services agreement with CRRM under which the two parties provide feedstock and other services to one another. These feedstocks and services are utilized in the respective production processes of CRRM's Coffeyville, Kansas refinery and CRNF's Coffeyville Facility. The agreement was amended and restated effective January 1, 2017.
Prior to January 1, 2017, CRNF and CRRM transferred hydrogen to one another pursuant to the feedstock and shared services agreement. CRNF is not required to sell hydrogen to CRRM if such hydrogen is required for operation of CRNF's Coffeyville Facility, if such sale would adversely affect the Partnership's classification as a partnership for federal income tax purposes, or if such sale would not be in CRNF's best interest. Net monthly sales of hydrogen to CRRM have been reflected as net sales for CVR Partners, when applicable. Net monthly receipts of hydrogen from CRRM have been reflected in cost of materials and other for CVR Partners, when applicable. For the three and nine months ended September 30, 2016, the net sales generated from the sale of hydrogen to CRRM were approximately $1.2 million and $2.9 million, respectively. At December 31, 2016, there was approximately $0.1 million included in accounts payable on the Condensed Consolidated Balance Sheets associated with net hydrogen purchases.
Beginning January 1, 2017, hydrogen purchases from CRRM are governed pursuant to the hydrogen purchase and sale agreement discussed below, but hydrogen sales to CRRM remain governed pursuant to the feedstock and shared services agreement. For the nine months ended September 30, 2017, the gross sales generated from the sale of hydrogen to CRRM pursuant to the feedstock and shared services agreement were approximately $0.1 million, which is included in net sales in the Condensed Consolidated Statements of Operations. There were no gross sales generated from the sale of hydrogen to CRRM for the three months ended September 30, 2017. The monthly hydrogen sales are cash settled net on a monthly basis with hydrogen purchases, pursuant to the hydrogen purchase and sale agreement.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
The feedstock and shared services agreement also provides a mechanism pursuant to which CRNF transfers a tail gas stream to CRRM. CRNF receives the benefit of eliminating a waste gas stream and recovers the fuel value of the tail gas system. For the three and nine months ended September 30, 2017 and 2016, the net sales generated from the sale of tail gas to CRRM were nominal. In April 2011, in connection with the tail gas stream transfers to CRRM, CRRM installed a pipe between the Coffeyville, Kansas refinery and the Coffeyville Facility to transfer the tail gas. CRNF agreed to pay CRRM the cost of installing the pipe and provide an additional 15% to cover the cost of capital, which was due from CRNF to CRRM over four years. At both September 30, 2017 and December 31, 2016, there were assets of approximately $0.2 million included in prepaid expenses and other current assets and approximately $0.5 million and $0.6 million, respectively, included in other long-term assets in the Condensed Consolidated Balance Sheets.
At September 30, 2017 and December 31, 2016, receivables of $0.1 million and $0.3 million, respectively, were included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets for amounts yet to be received related to components of the feedstock and shared services agreement, other than amounts related to hydrogen transfers and tail gas discussed above. At September 30, 2017 and December 31, 2016, current obligations of approximately $0.8 million and $0.9 million were included in accounts payable on the Condensed Consolidated Balance Sheets associated with unpaid balances related to components of the feedstock and shared services agreement.
Hydrogen Purchase and Sale Agreement
CRNF and CRRM entered into a hydrogen purchase and sale agreement that was effective on January 1, 2017, pursuant to which CRRM agrees to sell and deliver a committed hydrogen volume of 90,000 mscf per month, and CRNF agrees to purchase and receive the committed volume. The committed volume pricing is based on a monthly fixed fee (based on the fixed and capital charges associated with producing the committed volume) and a monthly variable fee (based on the natural gas price associated with hydrogen actually received). In the event CRNF fails to take delivery of the full committed volume in a month, CRNF remains obligated to pay CRRM for the monthly fixed fee and the monthly variable fee based upon the actual hydrogen volume received, if any. In the event CRRM fails to deliver any portion of the committed volume for the applicable month for any reason other than planned repairs and maintenance, CRNF will be entitled to a pro-rata reduction of the monthly fixed fee. CRNF also has the option to purchase excess volume of up to 60,000 mscf per month, or more upon mutual agreement, from CRRM, if available for purchase.
A portion of the monthly variable fee, as defined in the terms of the agreement, is determined according to the natural gas costs incurred by CRRM in operation of the hydrogen plant, which will reflect market-driven changes in the natural gas prices. In addition, certain fixed fees will be adjusted on an annual basis according to the changes in a cost index, as defined in the terms of the agreement.
CRRM is not required to sell hydrogen to CRNF if such sale would adversely affect CVR Refining’s classification as a partnership for federal income tax purposes, and is not required to sell hydrogen to CRNF in excess of the committed volume if such volumes are needed for CRRM’s operations.
The agreement has an initial term of 20 years and will be automatically extended following the initial term for additional successive five-year renewal terms unless either party gives 180 days written notice. Certain fees under the agreement are subject to modification after this initial term. The agreement contains customary terms related to indemnification, as well as termination for breach, by mutual consent, or due to insolvency or cessation of operations.
For the three and nine months ended September 30, 2017, the cost of hydrogen purchases from CRRM was approximately $0.9 million and $3.0 million, respectively, which were included in cost of materials and other in the Condensed Consolidated Statement of Operations. The monthly hydrogen purchases are cash settled net on a monthly basis with hydrogen sales pursuant to the feedstock and shared services agreement. At September 30, 2017, current obligations, net of any amounts due to CRNF under the feedstock and shared services agreement for hydrogen, of approximately $0.4 million were included in accounts payable on the Condensed Consolidated Balance Sheets associated with net hydrogen purchases from CRRM.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
Coke Supply Agreement
CRNF is party to a coke supply agreement with CRRM pursuant to which CRRM supplies CRNF with pet coke. This agreement provides that CRRM must deliver to CRNF during each calendar year an annual required amount of pet coke equal to the lesser of
(i) 100 percent of the pet coke produced at CRRM's Coffeyville, Kansas petroleum refinery or (ii) 500,000 tons of pet coke. CRNF is also obligated to purchase this annual required amount. If during a calendar month CRRM produces more than 41,667 tons of pet coke, then CRNF will have the option to purchase the excess at the purchase price provided for in the agreement. If CRNF declines to exercise this option, CRRM may sell the excess to a third party.
CRNF obtains most (over 70% on average during the last five years) of the pet coke it needs from CRRM's adjacent crude oil refinery pursuant to the pet coke supply agreement, and procures the remainder through a contract with HollyFrontier Corporation and on the open market. The price CRNF pays pursuant to the pet coke supply agreement is based on the lesser of a pet coke price derived from the price received for UAN (the "UAN-based price") or a pet coke price index. The UAN-based price begins with a pet coke price of $25 per ton based on a price per ton for UAN that excludes transportation cost ("netback price") of $205 per ton, and adjusts up or down $0.50 per ton for every $1.00 change in the netback price. The UAN-based price has a ceiling of $40 per ton and a floor of $5 per ton.
CRNF will pay any taxes associated with the sale, purchase, transportation, delivery, storage or consumption of the pet coke. CRNF is entitled to offset any amount payable for the pet coke against any amount due from CRRM under the feedstock and shared services agreement between the parties.
The cost of pet coke associated with the transfer of pet coke from CRRM to CRNF were approximately $0.6 million and $0.5 million for the three months ended September 30, 2017 and 2016, respectively, which was recorded in cost of materials and other. For the nine months ended September 30, 2017 and 2016, these expenses were approximately $1.6 million and $1.7 million, respectively. Payables of approximately $0.1 million related to the coke supply agreement were included in accounts payable on the Condensed Consolidated Balance Sheets at both September 30, 2017 and December 31, 2016.
Services Agreement
CVR Partners obtains certain management and other services from CVR Energy pursuant to a services agreement between the Partnership, CVR GP and CVR Energy.
Net amounts incurred under the services agreement for the three and nine months ended September 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| | (in thousands) |
| Direct operating expenses (exclusive of depreciation and amortization) — Affiliates | $ | 766 |
| | $ | 976 |
| | $ | 2,158 |
| | $ | 2,616 |
|
| Selling, general and administrative expenses — Affiliates | 3,239 |
| | 2,939 |
| | 9,398 |
| | 8,562 |
|
| Total | $ | 4,005 |
| | $ | 3,915 |
| | $ | 11,556 |
| | $ | 11,178 |
|
For services performed in connection with the services agreement, the Partnership recognized personnel costs, excluding amounts related to share-based compensation that are disclosed in Note 5 ("Share‑Based Compensation"), of $1.8 million and $1.7 million, respectively, for the three months ended September 30, 2017 and 2016. For services performed in connection with the services agreement, the Partnership recognized personnel costs, excluding amounts related to share-based compensation, of $5.0 million for both the nine months ended September 30, 2017 and 2016. At September 30, 2017 and December 31, 2016, current obligations of $3.7 million and $3.5 million, respectively, were included in accounts payable and accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets with respect to amounts billed in accordance with the services agreement.
CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)
Limited Partnership Agreement
The partnership agreement provides that the Partnership will reimburse its general partner for all direct and indirect expenses it incurs or payments it makes on behalf of the Partnership (including salary, bonus, incentive compensation and other amounts paid to any person to perform services for the Partnership or for its general partner in connection with operating the Partnership). Pursuant to the partnership agreement, the Partnership incurred approximately $0.8 million and $0.7 million for the three months ended September 30, 2017 and 2016, respectively, primarily for personnel costs related to the compensation of executives at the general partner, who manage the Partnership's business. For the nine months ended September 30, 2017 and 2016, approximately $2.4 million and $2.9 million were incurred related to amounts due for reimbursement, respectively. At September 30, 2017 and December 31, 2016, current obligations of $1.9 million and $2.0 million, respectively, were included in personnel accruals on the Condensed Consolidated Balance Sheets related to amounts outstanding in accordance with the limited partnership agreement.
Insight Portfolio Group
Insight Portfolio Group LLC ("Insight Portfolio Group") is an entity formed by Mr. Carl C. 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. In January 2013, CVR Energy acquired a minority equity interest in Insight Portfolio Group. The Partnership participates in Insight Portfolio Group’s buying group through its relationship with CVR Energy. The Partnership may purchase a variety of goods and services as members of the buying group at prices and on terms that management believes would be more favorable than those which would be achieved on a stand-alone basis. Transactions with Insight Portfolio Group for each of the reporting periods were nominal.
CRLLC Facility
On April 1, 2016, in connection with the closing of the East Dubuque Merger, the Partnership entered into the CRLLC Facility. See Note 12 ("Debt") for further discussion.
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. Subsequent to the East Dubuque Merger, the Partnership purchased 400,000 CVR Nitrogen common units from CVR Energy during the three months ended June 30, 2016 for $5.0 million.
Railcar Lease Agreements and Maintenance
CRNF has agreements to lease a total of 115 UAN railcars from ARI Leasing, LLC ("ARI"), a company controlled by IEP. The lease agreements will expire in 2023. For the three and nine months ended September 30, 2017, rent expense of approximately $0.2 million and $0.7 million, respectively, was recorded in cost of materials and other in the Condensed Consolidated Statement of Operations related to these agreements. Rent expense related to these agreements were nominal for the three and nine months ended September 30, 2016.
In the second quarter of 2017, CRNF entered into an agreement to lease an additional 70 UAN railcars from ARI. The lease agreement has a term of 5 years. The Partnership obtained physical receipt of the majority of the leased railcars and associated lease payment obligations commenced during the third quarter of 2017. Almost all of the additional railcars were received in October 2017.
American Railcar Industries, Inc., a company controlled by IEP, performed railcar maintenance for CRNF and the expense associated with this maintenance was approximately $0.2 million for the nine months ended September 30, 2017 and was included in cost of materials and other in the Condensed Consolidated Statement of Operations. There were no expenses associated with this maintenance for the three months ended September 30, 2017.
Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations
The following discussion and analysis of our financial condition, results of operations, and cash flows should be read in conjunction with theour unaudited condensed consolidated financial statements and related notes and with the statistical information and financial data appearing in this Report, as well as our Annual Report on Form 10-K for the 2016year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (“SEC”) on February 21, 2024 (the “2023 Form 10-K.10-K”). Results of operations for the three months ended March 31, 2024and cash flows for the three and nine months ended September 30, 2017 and 2016March 31, 2024 are not necessarily indicative of results to be attained for any other period. See “Important Information Regarding Forward-Looking Statements.”
Forward-Looking Statements
Reflected in this discussion and analysis is how management views the Partnership’s current financial condition and results of operations along with key external variables and management actions that may impact the Partnership. Understanding significant external variables, such as market conditions, weather, and seasonal trends, among others, and management actions taken to manage the Partnership, address external variables, among others, which will increase users’ understanding of the Partnership, its financial condition and results of operations. This Report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains "forward-looking statements" as defined by the Securities and Exchange Commission ("SEC"), includingdiscussion may contain forward-looking statements concerning contemplated transactions and strategic plans, expectations and objectives for future operations. Forward-looking statements include, without limitation:
statements, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future;
statements relating to future financial or operational performance, future distributions, future capital sources and capital expenditures; and
any other statements preceded by, followed by or that include the words "anticipates," "believes," "expects," "plans," "intends," "estimates," "projects," "could," "should," "may" or similar expressions.
Although we believe thatreflect our plans, intentionsestimates and expectations reflected in or suggested by the forward-looking statements we make in this Report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. These statements are based on assumptions made by us based on our experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate in the circumstances. Such statements are subject to a number of risks and uncertainties, many of which are beyond our control. You are cautioned that any such statements are not guarantees of future performance and thatbeliefs. Our actual results or developments maycould differ materially from those projecteddiscussed in the forward-looking statements as a result of various factors, includingstatements. Factors that could cause or contribute to such differences include, but are not limited to, those set forth under the section captioned "Risk Factors" in the 2016 Form 10-K, filed with the SEC on February 21, 2017. Such factors include, among others:
our ability to make cash distributions on the common units;
the volatile nature of our businessdiscussed below and the variable nature of our distributions;
the ability of our general partner to modify or revoke our distribution policy at any time;
the cyclical nature of our business;
the seasonal nature of our business;
the dependence of our operations on a few third-party suppliers, including providers of transportation services and equipment;
our reliance on pet coke that we purchase from CVR Refining;
our reliance on the natural gas and electricity that we purchase from third parties;
the supply and price levels of essential raw materials;
the risk of a material decline in production at our nitrogen fertilizer plants;
potential operating hazards from accidents, fire, severe weather, floods or other natural disasters;
competition in the nitrogen fertilizer businesses;
capital expenditures and potential liabilities arising from environmental laws and regulations;
existing and proposed environmental laws and regulations, including those relating to climate change, alternative energy or fuel sources, and the end-use and application of fertilizers;
new regulations concerning the transportation of hazardous chemicals, risks of terrorism and the security of chemical manufacturing facilities;
the risk of security breaches;
our lack of asset diversification;
our dependence on significant customers;
the potential loss of our transportation cost advantage over our competitors;
our partial dependence on customer and distributor transportation of purchased goods;
our potential inability to successfully implement our business strategies, including the completion of significant capital programs;
our reliance on CVR Energy’s senior management team and conflicts of interest they face operating each of CVR Partners, CVR Refining and CVR Energy;
the risk of labor disputes and adverse employee relations;
risks relating to our relationships with CVR Energy and CVR Refining;
control of our general partner by CVR Energy;
our ability to continue to license the technology used in our operations;
restrictions in our debt agreements;
changes in our treatment as a partnership for U.S. federal income or state tax purposes;
instability and volatility in the capital and credit markets; and
CVR Energy and its affiliates may compete with us.
All forward-looking statements containedelsewhere in this Report speak only as of the date of this Report. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after the date of this Report, or to reflect the occurrence of unanticipated events, except to the extent required by law.
Partnership Overview
CVR Partners, LP ("(“CVR Partners,"Partners” or the "Partnership," "we," "us" or "our"“Partnership”) is a Delaware limited partnership formed in 2011 by CVR Energy, Inc. (“CVR Energy”) to own, operate, and grow ourits nitrogen fertilizer business. We produceThe Partnership produces and distributedistributes nitrogen fertilizer products, which are used by farmers to improve the yield and quality of their crops. The Partnership produces these products at two manufacturing facilities, one located in Coffeyville, Kansas operated by its wholly owned subsidiary, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”) (the “Coffeyville Facility”) and one located in East Dubuque, Illinois operated by its wholly owned subsidiary, East Dubuque Nitrogen Fertilizers, LLC (“EDNF”) (the “East Dubuque Facility”). Our principal products are UANammonia and ammonia.urea ammonium nitrate (“UAN”). All of our products are sold on a wholesale basis.
We produce our nitrogen fertilizer products at two manufacturing facilities, which are located in Coffeyville, Kansas References to CVR Partners, the Partnership, “we”, “us”, and East Dubuque, Illinois. We acquired the East Dubuque, Illinois facility in April 2016 through our acquisition“our” may refer to consolidated subsidiaries of CVR Nitrogen. ForPartners or one or both of the facilities, as the context may require. Additionally, as the context may require, references to CVR Energy may refer to CVR Energy and its consolidated subsidiaries which include its petroleum and renewables refining, marketing, and logistics operations.
Strategy and Goals
The Partnership has adopted Mission and Values, which articulate the Partnership’s expectations for how it and its employees do business each and every day.
Mission and Core Values
Our Mission is to be a top tier North American nitrogen-based fertilizer company as measured by safe and reliable operations, superior performance and profitable growth. The foundation of how we operate is built on five core Values:
•Safety - We always put safety first. The protection of our employees, contractors and communities is paramount. We have an unwavering commitment to safety above all else. If it’s not safe, then we don’t do it.
•Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it’s our duty to protect it.
•Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way—the right way with integrity.
•Corporate Citizenship - We are proud members of the communities where we operate. We are good neighbors and know that it’s a privilege we can’t take for granted. We seek to make a positive economic and social impact through
our financial donations and the contributions of time, knowledge and talent of our employees to the places where we live and work.
discussion
•Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork, diversity and personal development so that employees can realize their maximum potential. We use defined work practices for consistency, efficiency and to create value across the organization.
Our core Values are driven by our people, inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives.
Strategic Objectives
We have outlined the following strategic objectives to drive the accomplishment of our mission:
•Environmental, Health & Safety (“EH&S”) - We aim to achieve continuous improvement in all EH&S areas through ensuring our people’s commitment to environmental, health and safety comes first, the East Dubuque Merger, referrefinement of existing policies, continuous training, and enhanced monitoring procedures.
•Reliability - Our goal is to Note 4 ("East Dubuque Merger")achieve industry-leading utilization rates at both of Part I, Item 1our facilities through safe and reliable operations. We are focusing on improvements in day-to-day plant operations, identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints, and optimizing our commercial and marketing functions to maintain plant operations at their highest level.
•Market Capture - We continuously evaluate opportunities to improve the facilities’ realized pricing at the gate and reduce variable costs incurred in production to maximize our capture of this Report. The consolidated financial statementsmarket opportunities.
•Financial Discipline - We strive to be as efficient as possible by maintaining low operating costs and key operating metrics includedisciplined deployment of capital.
Recent Developments
Following good faith bargaining by EDNF, the results ofUnited Automobile Workers Union and its Local 1391 representing approximately 90 employees at the East Dubuque Facility beginningwent on April 1, 2016,strike on October 18, 2023 after its collective bargaining agreement expired the date of the closing of the acquisition.
Our Coffeyville Facility includes a 1,300 ton-per-day capacity ammonia unit, a 3,000 ton-per-day capacity UAN unit, and a gasifier complex having a capacity of 89 million standard cubic feet per day of hydrogen. Our gasifier is a dual-train facility, with each gasifier able to function independently of the other, thereby providing redundancy and improving our reliability. Strategically located adjacent to CVR Refining’s refinery in Coffeyville, Kansas, our Coffeyville Facility is the only operation in North America that utilizes a petroleum coke, or pet coke, gasification process to produce nitrogen fertilizer. During the past five years, over 70% of the pet coke consumed by our Coffeyville Facility was produced and supplied by CVR Refining’s Coffeyville, Kansas crude oil refinery. We upgrade substantially all of the ammonia we produce at our Coffeyville Facility to higher margin UAN, which has historically commanded a premium price over ammonia. Approximately 93% of our Coffeyville Facility produced ammonia tons were upgraded into UAN in 2016. For the three months ended September 30, 2017 and 2016, approximately 95% and 96%, respectively, of our Coffeyville Facility produced ammonia tons were upgraded into UAN. For the nine months ended September 30, 2017 and 2016, approximately 88% and 92%, respectively, of our Coffeyville Facility produced ammonia tons were upgraded into UAN.
Our East Dubuque Facility includes a 1,075 ton-per-day capacity ammonia unit and a 1,100 ton-per-day capacity UAN unit. The facility is located on a 210-acre, 140-foot bluff above the Mississippi River, with access to the river for loading certain products.previous day. The East Dubuque Facility uses natural gas as its primary feedstock. The East Dubuque Facility hascontinued to operate during the flexibilitystrike, which ended on February 24, 2024; employees began returning to significantly vary its product mix. This enables us to upgrade our ammonia production into varying amounts of UAN, nitric acidwork on March 4, 2024.
Industry Factors and liquid and granulated urea each season, depending on market demand, pricing and storage availability. Product sales are heavily weighted toward sales of ammonia and UAN. ForMarket Indicators
Within the post-acquisition period ended December 31, 2016, approximately 44% of our East Dubuque Facility produced ammonia tons were upgraded to other products. For the three months ended September 30, 2017 and 2016, approximately 44% and 41%, respectively, of our East Dubuque Facility produced ammonia tons were upgraded to other products. For the nine months ended September 30, 2017, approximately 44% of our East Dubuque Facility produced ammonia tons were upgraded to other products.
CVR Energy, which indirectly owns our general partner and approximately 34% of our outstanding common units, also indirectly owns the general partner and approximately 66% of the outstanding common units of CVR Refining at September 30, 2017. CVR Refining's subsidiaries own and operate a complex full coking medium-sour crude oil refinery with a rated capacity of 115,000 barrels per calendar day (bpcd) in Coffeyville, Kansas, a complex crude oil refinery with a rated capacity of 70,000 bpcd in Wynnewood, Oklahoma and ancillary businesses.
Major Influences on Results of Operations
Ournitrogen fertilizer business, earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices, on-stream factorsutilization, and operating costs and expenses.expenses, including pet coke and natural gas feedstock costs.
The price at which ournitrogen fertilizer products are ultimately sold depends on numerous factors, including the global supply and demand for nitrogen fertilizer products, which, in turn, depends on among other factors, world grain demand and production levels, changes in world population, the cost and availability of fertilizer transportation infrastructure, weather conditions, the availability of imports, the availability and price of feedstocks to produce nitrogen fertilizer, and the extent of government intervention in agriculture markets.markets, among other factors.
Nitrogen fertilizer prices are also affected by local factors, including local market conditions and the operating levels of competing facilities. An expansion or upgrade of competitors'competitors’ facilities, new facility development, political and economic developments, and other factors are likely to continue to play an important role in nitrogen fertilizer industry economics. These factors can impact, among other things, the level of inventories in the market,markets, resulting in price volatility and a reduction in product margins.margin volatility. Moreover, the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products.
General Business Environment
The Partnership believes the general business environment in which it operates will continue to remain volatile, driven by uncertainty around the availability and prices of its feedstocks, demand for its products, inflation, and global supply disruptions. As a result, future operating results and current and long-term financial conditions could be negatively impacted if economic conditions decline and remain volatile. The Partnership is not able at this time to predict the extent to which these events may have a material, or any, effect on its financial or operational results in future periods.
Regulatory Environment - Certain governmental regulations and incentives associated with the automobile transportation and agricultural industries, including the ones related to corn-based ethanol and sustainable aviation fuel production or consumption can directly impact our business. In June 2023, the United States Environmental Protection Agency (“EPA”) announced the renewable volume obligations for 2023, 2024, and 2025 which maintained the conventional biofuel blending level at 15 billion gallons. These actions lead us to believe that the demand on food, in particular corn, for fuel will remain strong for the foreseeable future and support farmer economics that incentivize the use of nitrogen-based fertilizers.
There have been several proposed climate related rules, in various stages of approval, that, if finalized, would demand considerable efforts to drive new compliance requirements and could impact our disclosure controls and procedures as well as include additional disclosures in our regulatory filings.
In contrast, in March 2024, the EPA finalized motor vehicle emission standards for light-, medium-, and heavy-duty vehicles for model year 2027 and beyond, which could significantly reduce the use of internal combustion engine vehicles and the demand for liquid fuels, including ethanol. New heavy-truck requirements are also being proposed. In 2023, production of ethanol consumed approximately 38% of the annual United States corn crop used by the market.
Geopolitical Matters - The conflict in the Middle East, which began in October 2023 and continues to escalate, and the ongoing Russia-Ukraine war, could significantly impact global fertilizer and agriculture markets. These conflicts pose significant geopolitical risks to global markets, raise concerns of major implications, such as the enforcement of sanctions, and could disrupt the production and trade of fertilizer, grains, and feedstock through several means, such as trade restrictions. The ultimate outcome of these conflicts, or further escalation or expansion thereof, and any associated market disruptions are difficult to predict and may affect our business, operations, and cash flows in unforeseen ways.
Market Indicators
While there is risk of shorter-term volatility given the inherent nature of the commodity cycle and governmental and geopolitical risks, the Partnership believes the long-term fundamentals for the U.S. nitrogen fertilizer industry remain intact. The Partnership views the anticipated combination of (i) increasing global population, (ii) decreasing arable land per capita, (iii) continued evolution to more protein-based diets in developing countries, (iv) sustained use of corn and soybeans as feedstock for the domestic production of ethanol and other renewable fuels, and (v) positioning at the lower end of the global cost curve should provide a solid foundation for nitrogen fertilizer producers in the United States over the longer term.
Corn and soybeans are two major crops planted by farmers in North America. Corn crops result in the depletion of the amount of nitrogen within the soil in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain most of their own nitrogen through a process known as “N fixation”. As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as shown by the chart presented below as of March 31, 2024.
The relationship between the total acres planted for both corn and soybeans has a direct impact on the overall demand for nitrogen products, as the market and demand for nitrogen increases with increased corn acres and decreases with increased soybean acres. Additionally, an estimated 13 billion pounds of soybean oil is expected to be used in producing cleaner renewable fuels in marketing year 2023/2024. Multiple refiners have announced renewable diesel expansion projects for 2024 and beyond, which should only increase the demand for soybeans and potentially for corn and canola.
The United States Department of Agriculture (“USDA”) estimates that in spring 2024 farmers will plant 90.0 million corn acres, representing a decrease of 4.9% compared to 94.6 million corn acres in 2023. Planted soybean acres are estimated to be 86.5 million, representing an increase of 3.5% compared to 83.6 million soybean acres in 2023. The combined estimated corn and soybean planted acres of 176.5 million represents a decrease of 1.0% compared to the acreage planted in 2023. Due to
lower input costs in 2024 for corn planting and the relative grain prices of corn versus soybeans, economics favored planting corn compared to soybeans in 2024. Inventory levels of corn and soybeans are expected to be supportive of grain prices for the remainder of 2024.
Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Since 2010, ethanol production has historically consumed 38% of the U.S. corn crop used by the market, so demand for corn generally rises and falls with ethanol demand, as shown by the charts below, through March 31, 2024.
| | | | | | | | |
U.S. Plant Production of Fuel Ethanol (1) | | Corn and Soybean Planted Acres (2) |
(1)Information used within this chart was obtained from the U.S. Energy Information Administration (“EIA”) through March 31, 2024.
(2)Information used within this chart was obtained from the USDA, National Agricultural Statistics Services as of March 31, 2024.
Weather continues to be a critical variable for crop production. Even with high planted acres and trendline yields per acre in the U.S., global inventory levels for corn and soybeans remain at or below historical levels and prices have remained elevated. Demand for nitrogen fertilizer, as well as other crop inputs, is expected to be strong for the spring 2024 planting season, primarily due to elevated grain prices and favorable weather conditions for planting.
Fertilizer input costs have been volatile since the fall of 2021. Natural gas prices were elevated in the fall of 2022 due to shortages in Europe and demand being driven by building natural gas storage for winter. Winter 2022/2023 weather was warmer than average in Europe and, when combined with natural gas conservation measures, caused demand and prices for natural gas in Europe to fall significantly in the first quarter of 2023 and remain below the 2021/2022 price levels. The decline in natural gas prices, and the resulting capacity curtailments, among other factors, has led to store approximately 160,000a significant reduction in the price for nitrogen fertilizer from peak prices. While we expect that natural gas prices might remain below the elevated levels experienced in 2022 in the near term, we believe that the structural shortage of natural gas in Europe will continue to be a source of volatility for the rest of 2024 through 2026. Although pet coke prices elevated since 2021 due to higher natural gas prices compared to historical levels, as natural gas prices fell in 2023, third-party pet coke prices have declined into 2024.
Partnership Initiatives
The Partnership has been conducting engineering studies on the potential to utilize natural gas as an optional feedstock to pet coke at its Coffeyville Facility. Based on these studies, the Coffeyville Facility could utilize either natural gas or pet coke to produce nitrogen fertilizer by making certain modifications to the plant. If this project is approved by the board of directors of our general partner (the “Board”) and successfully implemented, it could allow the Partnership to choose the optimal feedstock mix for production and would make the Coffeyville Facility the only nitrogen fertilizer plant in the U.S. with that feedstock flexibility.
The charts below show relevant market indicators by month through March 31, 2024:
| | |
Ammonia and UAN Market Pricing (1) |
(1)Information used within these charts was obtained from various third-party sources, including Green Markets (a Bloomberg Company), Pace Petroleum Coke Quarterly, and the EIA, amongst others.
| | | | | | | | |
Natural Gas Market Pricing (1) | | Pet Coke Market Pricing (1) |
(1)Information used within these charts was obtained from various third-party sources, including Green Markets (a Bloomberg Company), Pace Petroleum Coke Quarterly, and the EIA, amongst others.
Results of Operations
The following should be read in conjunction with the information outlined in the previous sections of this Part I, Item 2 and the financial statements and related notes thereto in Part I, Item 1 of this Report.
The chart presented below summarizes our ammonia utilization rates on a consolidated basis for the three months ended March 31, 2024 and 2023. Utilization is an important measure used by management to assess operational output at each of the Partnership’s facilities. Utilization is calculated as actual tons of ammonia produced divided by capacity.
Utilization is presented solely on ammonia production, rather than on each nitrogen product, as it provides a comparative baseline against industry peers and eliminates the disparity of facility configurations for upgrade of ammonia into other nitrogen products. With production primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how we operate.
On a consolidated basis for the three months ended March 31, 2024, utilization decreased to 90% compared to 105% for the three months ended March 31, 2023. The decrease was primarily due to the 14-day planned downtime at the Coffeyville Facility in the current period.
Sales and Pricing per Ton - Two of our key operating metrics are total sales volumes for ammonia and UAN, and 80,000 tons of ammonia. Our storage tanks are located primarily at our two production facilities. Inventories are often allowed to accumulate to allow customers to take delivery to meet the seasonal demand.
In order to assess our operating performance, we calculatealong with the product pricing per ton realized at gate as an input to determine our operating margin.the gate. Product pricing at the gate represents net sales less freight revenue divided by product sales volume in tons. We believe producttons and is shown in order to provide a pricing at gate is a meaningful measure because we sell products at our plant gates and terminal locations' gates ("sold gate") and delivered tocomparable across the fertilizer industry.
Operating Highlights for the Three Months Ended March 31, 2024 versus March 31, 2023
| | | | | | | | |
Sales Volumes (thousands of tons) | | Product Pricing at Gate ($ per ton) |
the customer's designated delivery site ("sold delivered"). The relative percentage of sold gate versus sold delivered can change period to period. The product pricing at gate provides a measure that is consistently comparable period to period.
We and other competitors in the U.S. farm belt share a significant transportation cost advantage when compared to our out-of-region competitors in serving the U.S. farm belt agricultural market. Our products leave our Coffeyville Facility either in railcars for destinations located principally on the Union Pacific Railroad or in trucks for direct shipment to customers. We do not currently incur significant intermediate transfer, storage, barge freight or pipeline freight charges; however, we do incur costs to maintain and repair our railcar fleet. Selling products to customers within economic rail transportation limits of the Coffeyville Facility and keeping transportation costs low are keys to maintaining profitability.
The East Dubuque Facility is located in northwest Illinois, in the corn belt. The East Dubuque Facility primarily sells its product to customers located within 200 miles of the facility. In most instances, customers take delivery of nitrogen products at the plant and arrange and pay to transport them to their final destinations by truck. The East Dubuque Facility has direct access to a barge dock on the Mississippi River as well as a nearby rail spur serviced by the Canadian National Railway Company.
The high fixed cost of the Coffeyville Facility direct operating expense structure also directly affects our profitability. Our Coffeyville Facility's pet coke gasification process results in a significantly higher percentage of fixed costs than a natural gas-based fertilizer plant, such as our East Dubuque Facility. Major fixed operating expenses include a large portion of electrical energy, employee labor, and maintenance, including contract labor and outside services.
Our largest raw material expense used in the production of ammonia at our Coffeyville Facility is pet coke, which we purchase from CVR Refining and third parties. For the three months ended September 30, 2017 and 2016, we incurred approximately $2.0 million and $1.7 million, respectively, for the cost of pet coke, which equaled an average cost per ton of $18 and $13, respectively. For the nine months ended September 30, 2017 and 2016, we incurred approximately $6.5 million and $5.4 million, respectively, for the cost of pet coke, which equaled an average cost per ton of $18 and $14, respectively.
Our largest raw material expense used in the production of ammonia at our East Dubuque Facility is natural gas, which we purchase from third parties. Our East Dubuque Facility's natural gas process results in a higher percentage of variable costs asMarch 31, 2024 compared to the three months ended March 31, 2023, total product sales volumes were unfavorable, driven by reduced production volumes due to the 14-day planned downtime at the Coffeyville
Facility. For the three months ended September 30, 2017March 31, 2024, total product sales prices were unfavorable, driven by sales price decreases of 41% for ammonia and 2016, we expensed approximately $6.1 million42% for UAN. Ammonia and $4.9 million, respectively,UAN sales prices were unfavorable primarily due to lower natural gas prices reducing input costs and driving an overall decrease in the market prices and increased global supplies of nitrogen fertilizer.
Production Volumes - Gross tons of ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represents the ammonia available for sale that was not upgraded into other fertilizer products. The table below presents these metrics for the three months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| (in thousands of tons) | 2024 | | 2023 | | | | |
Ammonia (gross produced) | 193 | | | 224 | | | | | |
Ammonia (net available for sale) | 60 | | | 62 | | | | | |
| UAN | 305 | | | 366 | | | | | |
Feedstock - Our Coffeyville Facilityutilizes a pet coke gasification process to produce nitrogen fertilizer. Our East Dubuque Facility uses natural gas in its production of ammonia. The table below presents these feedstocks for both facilities for the three months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| 2024 | | 2023 | | | | |
Petroleum coke used in production (thousands of tons) | 128 | | | 131 | | | | | |
Petroleum coke used in production (dollars per ton) | $ | 75.71 | | | $ | 77.24 | | | | | |
Natural gas used in production (thousands of MMBtus) (1) | 2,148 | | | 2,102 | | | | | |
Natural gas used in production (dollars per MMBtu) (1) | $ | 3.10 | | | $ | 5.76 | | | | | |
Natural gas in cost of materials and other (thousands of MMBtus) (1) | 1,765 | | | 1,315 | | | | | |
Natural gas in cost of materials and other (dollars per MMBtu) (1) | $ | 3.49 | | | $ | 7.79 | | | | | |
(1)The feedstock natural gas which equaled an average cost per MMBtu of $3.15 and $2.92, respectively. For the nine months ended September 30, 2017, we expensed approximately $19.5 million for feedstockshown above does not include natural gas which equaled an average cost per MMBtu of $3.30.
Consistent, safe and reliable operations at our nitrogen fertilizer plants are critical to our financial performance and results of operations. Unplanned downtime may result in lost margin opportunity, increased maintenance expense and a temporary increase in working capital investment and related inventory position.used for fuel. The financial impact of planned downtime, such as major turnaround maintenance, is mitigated through a diligent planning process that takes into account margin environment, the availability of resources to perform the needed maintenance, feedstock logistics and other factors.
Historically, the Coffeyville Facility has undergone a full facility turnaround approximately every two to three years. The Coffeyville Facility underwent a full facility turnaround in the third quarter of 2015, at a cost of approximately $7.0 million, exclusive of the impacts due to the lost production during the downtime. The Coffeyville Facilityfuel natural gas is planning to undergo the next scheduled full facility turnaround in 2018.
Historically, the East Dubuque Facility has also undergone a full facility turnaround approximately every two to three years. The East Dubuque Facility underwent a full facility turnaround in the second quarter of 2016, at a cost of approximately $6.6 million, exclusive of the impacts due to the lost production during the downtime. We determined that there were more pressing preventative maintenance issues at the East Dubuque Facility, so we completed a scheduled turnaround at the East Dubuque Facility in the third quarter of 2017 at a cost of approximately $2.6 million, exclusive of the impacts of the lost production during the downtime.
Production levels in the third quarter of 2017 were negatively impacted by the planned 14-day turnaround at our East Dubuque Facility. Production levels in the third quarter of 2017 were also impacted an additional eight days of unplanned downtime due to an exchanger outage at the East Dubuque Facility that resulted in repair costs which were not material. Subsequent to the third quarter of 2017, the East Dubuque Facility experienced an additional outage caused by refractory failing in piping. As of the date of this filing, the piping repair work is ongoing and the total outage is expected to last 12 days and the repair cost is estimated to be immaterial.
Agreements with CVR Energy and CVR Refining
We are party to several agreements with CVR Energy and its affiliates that govern the business relations among us, CVR Energy and its subsidiaries (including CVR Refining), and our general partner. These include the pet coke supply agreement under which we buy the pet coke we use in our Coffeyville Facility; a services agreement, under which CVR Energy and its subsidiaries provide us with management services including the services of its senior management team; a feedstock and shared services agreement, which governs the provision of feedstocks for our Coffeyville Facility, including, but not limited to, high-pressure steam, nitrogen, instrument air, oxygen and natural gas; a hydrogen purchase and sale agreement, which governs the purchase of hydrogen for our Coffeyville Facility; a raw water and facilities sharing agreement, which allocates raw water resources between the two facilities in Coffeyville; an easement agreement; an environmental agreement; a lease agreement pursuant to which we lease office space and laboratory space; and certain financing agreements that we entered into in connection with the East Dubuque Merger. These agreements were not the result of arm's-length negotiations and the terms of these agreements are not necessarily as favorable to the parties to these agreements as terms which could have been obtained from unaffiliated third parties. See Note 14 ("Related Party Transactions") to Part I, Item 1 of this Report for additional discussion of the agreements.
Factors Affecting Comparability of Our Financial Results
Our historical results of operations for the periods presented may not be comparable with prior periods or to our results of operations in the future for the reason discussed below.
East Dubuque Merger
On April 1, 2016, the Partnership completed the East Dubuque Merger, whereby the Partnership acquired the East Dubuque Facility. The consolidated financial statements and key operating metrics include the results of the East Dubuque Facility beginning on April 1, 2016, the date of the closing of the acquisition. During the three and nine months ended September 30, 2016, the Partnership incurred $0.7 million and $3.1 million, respectively, of legal and other professional fees and other merger-related expenses, which were included in selling, general and administrative expenses. See Note 4 ("East Dubuque Merger") to Part I, Item 1 of this Report for further discussion.
Major Scheduled Turnaround Activities
During the third quarter of 2017, the East Dubuque Facility completed a scheduled turnaround and the ammonia and UAN units were down for approximately 14 days. Overall results were negatively impacted due to the lost production during the downtime that resulted in lost sales and certain reduced variable expenses included in cost of materials and other and directDirect operating expenses (exclusive of depreciation and amortization). Exclusive of the impacts due to the lost production during the turnaround downtime, costs of approximately $2.5 million and $2.6 million, respectively, are included in direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations
Financial Highlights for the three and nine months ended September 30, 2017.
During the second quarter of 2016, the East Dubuque Facility completed a major scheduled turnaround and the ammonia and UAN units were down for approximately 28 days. Overall results were negatively impacted due to the lost production during the downtime that resulted in lost sales and certain reduced variable expenses included in cost of materials and other and direct operating expenses (exclusive of depreciation and amortization). Exclusive of the impacts due to the lost production during the turnaround downtime, costs of approximately $6.6 million are included in direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations for the nine months ended September 30, 2016.
Indebtedness
On April 1, 2016, as a result of the East Dubuque Merger, the Partnership acquired CVR Nitrogen, including its debt. During the second quarter of 2016, the Partnership used $300.0 million of funds from the senior term loan credit facility with Coffeyville Resources, LLC, a related party, to finance the payoff of CVR Partners' $125.0 million term loan, payoff CVR Nitrogen's credit facility outstanding balance of $49.1 million, and to fund the cash merger consideration and certain merger-related expenses. In June 2016, the Partnership issued $645.0 million aggregate principal of 9.250% Senior Secured Notes due 2023 to refinance the substantial majority of its existing debt. Also as a result of the financing transactions, the Partnership recognized a loss on debt extinguishment of approximately $5.1 million during the nine months ended September 30, 2016. As a result of the financing transactions, the Partnership's interest expense increased for the nine months ended September 30, 2017 as compared to the prior year. Further discussion regarding the Partnership's indebtedness can be found in Note 12 ("Debt") to Part I, Item 1 of this Report.
Results of Operations
The period to period comparisons of our results of operations have been prepared using the historical periods included in our condensed consolidated financial statements. In order to effectively review and assess our historical financial information below, we have also included supplemental operating measures and industry measures that we believe are material to understanding our business.
To supplement our actual results calculated in accordance with U.S. generally accepted accounting principles ("GAAP") for the applicable periods, the Partnership also uses certain non-GAAP financial measures, which are reconciled to our GAAP-based results below. These non-GAAP financial measures should not be considered as an alternative to GAAP results.
The following tables summarize the financial data and key operating statistics for CVR Partners and our subsidiaries for the three and nine months ended September 30, 2017 and 2016. The results of operations for our East Dubuque Facility are included for the post acquisition period beginning April 1, 2016. The following data should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Report. All information in "Management’s Discussion and Analysis of Financial Condition and Results of Operations," except for the balance sheet data as of December 31, 2016, is unaudited.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 |
| 2016 | | 2017 |
| 2016 |
| | | | | | | | |
| | (in millions) |
| Consolidated Statements of Operations Data: | | | | | | | |
| Net sales | $ | 69.4 |
| | $ | 78.5 |
| | $ | 252.6 |
| | $ | 271.4 |
|
| | | | | | | | |
| Cost of materials and other – Affiliates | 1.8 |
| | 0.6 |
| | 5.6 |
| | 1.9 |
|
| Cost of materials and other – Third parties | 17.6 |
| | 19.3 |
| | 57.7 |
| | 70.3 |
|
| | 19.4 |
| | 19.9 |
| | 63.3 |
| | 72.2 |
|
| Direct operating expenses – Affiliates (1) | 1.0 |
| | 1.1 |
| | 2.8 |
| | 3.2 |
|
| Direct operating expenses – Third parties (1) | 36.8 |
| | 31.4 |
| | 108.6 |
| | 100.6 |
|
| Major scheduled turnaround expenses | 2.5 |
| | — |
| | 2.6 |
| | 6.6 |
|
| | 40.3 |
| | 32.5 |
| | 114.0 |
| | 110.4 |
|
| Depreciation and amortization | 19.5 |
| | 16.4 |
| | 54.9 |
| | 41.0 |
|
| Cost of sales | 79.2 |
| | 68.8 |
| | 232.2 |
| | 223.6 |
|
| | | | | | | | |
| Selling, general and administrative expenses – Affiliates (2) | 3.9 |
| | 3.6 |
| | 11.4 |
| | 10.9 |
|
| Selling, general and administrative expenses – Third parties (2) | 2.2 |
| | 3.7 |
| | 7.4 |
| | 11.1 |
|
| | 6.1 |
| | 7.3 |
| | 18.8 |
| | 22.0 |
|
| Operating income (loss) | (15.9 | ) | | 2.4 |
| | 1.6 |
| | 25.8 |
|
| Interest expense and other financing costs | (15.7 | ) | | (15.6 | ) | | (47.1 | ) | | (32.8 | ) |
| Loss on extinguishment of debt | — |
| | — |
| | — |
| | (5.1 | ) |
| Other income, net | — |
| | — |
| | 0.1 |
| | — |
|
| Total other expense | (15.7 | ) | | (15.6 | ) | | (47.0 | ) | | (37.9 | ) |
| Loss before income tax expense | (31.6 | ) | | (13.2 | ) | | (45.4 | ) | | (12.1 | ) |
| Income tax expense | — |
| | 0.2 |
| | — |
| | 0.3 |
|
| Net loss | $ | (31.6 | ) | | $ | (13.4 | ) | | $ | (45.4 | ) | | $ | (12.4 | ) |
| | | | | | | | |
| EBITDA (3)* | $ | 3.6 |
| | $ | 18.8 |
| | $ | 56.6 |
| | $ | 61.7 |
|
| Adjusted EBITDA (3)* | $ | 5.0 |
| | $ | 17.4 |
| | $ | 58.1 |
| | $ | 74.4 |
|
| Available cash for distribution (4)* | $ | (1.2 | ) | | $ | 0.4 |
| | $ | 0.6 |
| | $ | 50.8 |
|
| | | | | | | | |
| Reconciliation to net sales: | | | | | | | |
| Fertilizer sales net at gate | $ | 59.4 |
| | $ | 66.7 |
| | $ | 223.0 |
| | $ | 234.8 |
|
| Freight in revenue | 8.3 |
| | 8.8 |
| | 23.6 |
| | 24.4 |
|
| Hydrogen revenue | — |
| | 1.2 |
| | 0.1 |
| | 2.9 |
|
| Other, including the impact of purchase accounting | 1.7 |
| | 1.8 |
| | 5.9 |
| | 9.3 |
|
| Total net sales | $ | 69.4 |
| | $ | 78.5 |
| | $ | 252.6 |
| | $ | 271.4 |
|
* See footnote (3) and (4) below for discussion of non-GAAP financial measures.
|
| | | | | | | |
| | As of
September 30,
2017 | | As of
December 31,
2016 |
| | | | (audited) |
| | (in millions) |
| Balance Sheet Data: | | | |
| Cash and cash equivalents | $ | 70.0 |
| | $ | 55.6 |
|
| Working capital | 73.3 |
| | 71.5 |
|
| Total assets | 1,275.8 |
| | 1,312.2 |
|
| Total debt, net of current portion | 625.2 |
| | 623.1 |
|
| Total partners’ capital | 577.3 |
| | 624.9 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| | (in millions) |
| Cash Flow Data: | | | | | | | |
| Net cash flow provided by (used in): | | | | | | | |
| Operating activities | $ | 21.1 |
| | $ | 18.4 |
| | $ | 28.1 |
| | $ | 47.5 |
|
| Investing activities | (2.8 | ) | | (6.4 | ) | | (11.4 | ) | | (82.1 | ) |
| Financing activities | — |
| | (23.0 | ) | | (2.3 | ) | | 49.9 |
|
| Net increase (decrease) in cash and cash equivalents | $ | 18.3 |
| | $ | (11.0 | ) | | $ | 14.4 |
| | $ | 15.3 |
|
| | | | | | | | |
| Capital expenditures: | | | | | | | |
| Maintenance capital expenditures | $ | 2.7 |
| | $ | 3.4 |
| | $ | 11.1 |
| | $ | 8.3 |
|
| Growth capital expenditures | 0.1 |
| | 3.0 |
| | 0.3 |
| | 10.0 |
|
| Total capital expenditures | $ | 2.8 |
| | $ | 6.4 |
| | $ | 11.4 |
| | $ | 18.3 |
|
| |
(1) | Direct operating expenses are shown exclusive of major scheduled turnaround expenses and depreciation and amortization. |
| |
(2) | The Partnership incurred approximately $0.7 million and $3.1 million, respectively, of legal and other professional fees and other merger-related expenses for the three and nine months ended September 30, 2016, as discussed in Note 4 ("East Dubuque Merger") to Part I, Item 1 of this Report, which are included in selling, general and administrative expenses. |
| |
(3) | EBITDA is defined as net income (loss) before (i) interest (income) expense, (ii) income tax expense and (iii) depreciation and amortization expense. |
Adjusted EBITDA is defined as EBITDA further adjusted for the impact of major scheduled turnaround expenses, gain or loss on extinguishment of debt, loss on disposition of assets, expenses associated with the East Dubuque Merger and business interruption insurance recovery, when applicable.
We present EBITDA because we believe it allows users of our financial statements, such as investors and analysts, to assess our financial performance without regard to financing methods, capital structure or historical cost basis. We present Adjusted EBITDA because we have found it helpful to consider an operating measure that excludes amounts, such as major scheduled turnaround expenses, 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 our core operations. When applicable, each of these amounts is discussed herein, so that investors have complete information about these amounts. We also present Adjusted EBITDA because it is the starting point used by the board of directors of our general partner when calculating our available cash for distribution.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be substituted for net income (loss) or cash flows from operations. Management believes that EBITDA and Adjusted EBITDA enable investors and analysts to better understand our ability to make distributions to common unitholders, help investors and analysts evaluate our 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. EBITDA and Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.
A reconciliation of consolidated Net loss to consolidated EBITDA and consolidated Adjusted EBITDA is as follows:
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| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| | (in millions) |
| Net loss | $ | (31.6 | ) | | $ | (13.4 | ) | | $ | (45.4 | ) | | $ | (12.4 | ) |
| Add: | | | | | | | |
| Interest expense and other financing costs, net | 15.7 |
| | 15.6 |
| | 47.1 |
| | 32.8 |
|
| Income tax expense | — |
| | 0.2 |
| | — |
| | 0.3 |
|
| Depreciation and amortization | 19.5 |
| | 16.4 |
| | 54.9 |
| | 41.0 |
|
| EBITDA | $ | 3.6 |
| | $ | 18.8 |
| | $ | 56.6 |
| | $ | 61.7 |
|
| Add: | | | | | | | |
| Major scheduled turnaround expenses | 2.5 |
| | — |
| | 2.6 |
| | 6.6 |
|
| Loss on extinguishment of debt | — |
| | — |
| | — |
| | 5.1 |
|
| Expenses associated with the East Dubuque Merger | — |
| | 0.7 |
| | — |
| | 3.1 |
|
| Less: | | | | | | | |
| Insurance recovery - business interruption | (1.1 | ) | | (2.1 | ) | | (1.1 | ) | | (2.1 | ) |
| Adjusted EBITDA | $ | 5.0 |
| | $ | 17.4 |
| | $ | 58.1 |
| | $ | 74.4 |
|
| |
(4) | The board of directors of our general partner has a policy to calculate available cash for distribution starting with Adjusted EBITDA. For the three and nine months ended September 30, 2017 and 2016, available cash for distribution equaled our Adjusted EBITDA reduced for cash needed for (i) net cash interest expense (excluding capitalized interest) and debt service and other contractual obligations; (ii) maintenance capital expenditures; and (iii) to the extent applicable, major scheduled turnaround expenses, reserves for future operating or capital needs that the board of directors of the general partner deems necessary or appropriate, and expenses associated with the East Dubuque Merger, if any. Available cash for distribution may be increased by the release of previously established cash reserves, if any, at the discretion of the board of directors of our general partner, and available cash is increased by the business interruption insurance proceeds and the impact of purchase accounting. Actual distributions are set by the board of directors of our general partner. The board of directors of our general partner may modify our cash distribution policy at any time, and our partnership agreement does not require us to make distributions at all. |
Available cash for distribution is not a recognized term under GAAP. Available cash for distribution should not be considered in isolation or as an alternative to net income (loss) or operating income, or any other measure of financial performance or operating performance. In addition, available cash for distribution is not presented as, and should not be considered, an alternative to cash flows from operations or as a measure of liquidity. Available cash for distribution as reported by the Partnership may not be comparable to similarly titled measures of other entities, thereby limiting its usefulness as a comparative measure.
A reconciliation of consolidated available cash for distribution is as follows:
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| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| | (in millions, except units and per unit data) |
| Adjusted EBITDA | $ | 5.0 |
| | $ | 17.4 |
| | $ | 58.1 |
| | $ | 74.4 |
|
| Adjustments: | | | | | | | |
| Less: | | | | | | | |
| Net cash interest expense (excluding capitalized interest) and debt service | (15.0 | ) | | (15.0 | ) | | (44.9 | ) | | (31.0 | ) |
| Maintenance capital expenditures | (2.7 | ) | | (3.4 | ) | | (11.1 | ) | | (8.3 | ) |
| Major scheduled turnaround expenses | (2.5 | ) | | — |
| | (2.6 | ) | | (6.6 | ) |
| Expenses associated with the East Dubuque Merger | — |
| | (0.7 | ) | | — |
| | (3.1 | ) |
| Add: | | | | | | | |
| Insurance recovery - business interruption | 1.1 |
| | 2.1 |
| | 1.1 |
| | 6.1 |
|
| Impact of purchase accounting | — |
| | — |
| | — |
| | 13.0 |
|
| Available cash associated with East Dubuque 2016 first quarter | — |
| | — |
| | — |
| | 6.3 |
|
| Release of previously established cash reserves, net | 12.9 |
| | — |
| | — |
| | — |
|
| Available cash for distribution | $ | (1.2 | ) | | $ | 0.4 |
| | $ | 0.6 |
| | $ | 50.8 |
|
| Available cash for distribution, per common unit | $ | (0.01 | ) | | $ | — |
| | $ | — |
| | $ | 0.45 |
|
| Distribution declared, per common unit | $ | — |
| | $ | — |
| | $ | 0.02 |
| | $ | 0.44 |
|
| Common units outstanding (in thousands) | 113,283 |
| | 113,283 |
| | 113,283 |
| | 113,283 |
|
The following tables show selected information about key operating statistics and market indicators for our business:
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| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Key Operating Statistics: | | | | | | | |
| Consolidated sales (thousand tons): | | | | | | | |
| Ammonia | 65.3 |
| | 47.7 |
| | 201.8 |
| | 145.7 |
|
| UAN | 299.1 |
| | 296.0 |
| | 951.6 |
| | 902.4 |
|
| Consolidated product pricing at gate (dollars per ton) (1): | | | | | | | |
| Ammonia | $ | 214 |
| | $ | 345 |
| | $ | 287 |
| | $ | 385 |
|
| UAN | $ | 138 |
| | $ | 154 |
| | $ | 158 |
| | $ | 187 |
|
| Consolidated production volume (thousand tons): | | | | | | | |
| Ammonia (gross produced) (2) | 180.7 |
| | 200.8 |
| | 615.2 |
| | 485.9 |
|
| Ammonia (net available for sale) (2) | 46.2 |
| | 60.3 |
| | 203.7 |
| | 121.0 |
|
| UAN | 306.6 |
| | 317.2 |
| | 962.3 |
| | 861.9 |
|
| Feedstock: | | | | | | | |
| Petroleum coke used in production (thousand tons) | 114.3 |
| | 126.8 |
| | 371.0 |
| | 384.4 |
|
| Petroleum coke used in production (dollars per ton) | $ | 18 |
| | $ | 13 |
| | $ | 18 |
| | $ | 14 |
|
| Natural gas used in production (thousands of MMBtu) | 1,555.4 |
| | 2,075.5 |
| | 5,780.7 |
| | 3,471.6 |
|
| Natural gas used in production (dollars per MMBtu) (3) | $ | 3.12 |
| | $ | 2.97 |
| | $ | 3.25 |
| | $ | 2.75 |
|
| Natural gas in cost of materials and other (thousands of MMBtu) | 1,934.9 |
| | 1,679.5 |
| | 5,898.3 |
| | 2,742.5 |
|
| Natural gas in cost of materials and other (dollars per MMBtu) (3) | $ | 3.15 |
| | $ | 2.92 |
| | $ | 3.30 |
| | $ | 2.68 |
|
| Coffeyville Facility on-stream factors (4): | | | | | | | |
| Gasification | 96.3 | % | | 95.9 | % | | 98.0 | % | | 97.2 | % |
| Ammonia | 93.5 | % | | 94.7 | % | | 96.7 | % | | 96.2 | % |
| UAN | 93.9 | % | | 94.1 | % | | 92.6 | % | | 93.1 | % |
| East Dubuque Facility on-stream factors (4): | | | | | | | |
| Ammonia | 76.3 | % | | 94.4 | % | | 91.9 | % | | 81.7 | % |
| UAN | 77.1 | % | | 92.9 | % | | 91.5 | % | | 81.1 | % |
| | | | | | | | |
| Market Indicators: | | | | | | | |
| Ammonia - Southern plains (dollars per ton) | $ | 238 |
| | $ | 315 |
| | $ | 314 |
| | $ | 368 |
|
| Ammonia - Corn belt (dollars per ton) | $ | 303 |
| | $ | 372 |
| | $ | 364 |
| | $ | 432 |
|
| UAN - Corn belt (dollars per ton) | $ | 165 |
| | $ | 188 |
| | $ | 192 |
| | $ | 218 |
|
| Natural gas NYMEX (dollars per MMBtu) | $ | 2.95 |
| | $ | 2.79 |
| | $ | 3.05 |
| | $ | 2.35 |
|
| |
(1)
| 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. |
| |
(2) | Gross tons produced for ammonia represent total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represent ammonia available for sale that was not upgraded into other fertilizer products. |
| |
(3) | The cost per MMBtu excludes derivative activity, when applicable. The impact of natural gas derivative activity during the periods presented was not material. |
| |
(4) | On-stream factor is the total number of hours operated divided by the total number of hours in the reporting period and is included as 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 96.7% for the nine months ended September 30, 2017.
East Dubuque Facility
Excluding the impact of approximately 14 days of downtime associated with the 2017 full facility turnaround at the East Dubuque Facility, the on-stream factors at the East Dubuque Facility would have been 91.3% for ammonia and 91.8% for UAN for the three months ended September 30, 2017 and 96.9% for ammonia and 96.4% for UAN for the nine months ended September 30, 2017.
Excluding the impact of approximately 28 days of downtime associated with the 2016 full facility turnaround at the East Dubuque Facility, the on-stream factors at the East Dubuque Facility would have been 97.2% for ammonia and 96.2% for UAN for the six months ended September 30, 2016.
Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016March 31, 2024 and 2023
Net Sales. Net sales were $69.4 million for the three months ended September 30, 2017compared to $78.5 million for the three months ended September 30, 2016. The decrease of $9.1 million for the three months ended September 30, 2017compared to the three months ended September 30, 2016 was primarily attributable to the lower ammonia sales prices ($8.4 million), lower UAN sales prices ($5.7 million), partially offset by higher ammonia sales volumes ($6.2 million). For the three months ended September 30, 2017, UANMarch 31, 2024, the Partnership’s operating income and ammonia made up $48.8net income were $20.1 million and $14.9$12.6 million, of our consolidated net sales, respectively, including freight. This compared to UANoperating income and ammonia consolidated net salesincome of $53.9$109.4 million and $17.1$101.9 million, respectively, for the three months ended September 30, 2016, including freight.March 31, 2023. These decreases were primarily driven by decreased product sales prices due to lower natural gas prices, as well as lower UAN sales volumes due to the 14-day planned downtime at the Coffeyville Facility, partially offset by increased ammonia sales volumes due to favorable weather allowing for early application in the current period.
| | | | | | | | |
| Net Sales | | Operating Income |
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Net Sales -For the three months ended March 31, 2024, net sales was $127.7 million compared to $226.3 million for the three months ended March 31, 2023. The decrease wasprimarily due to unfavorable UAN and ammonia sales prices resulting in reduced revenues of $79.1 million and unfavorable UAN sales volumes resulting in reduced revenues of $34.5 million, partially offset by favorable ammonia sales volumes contributing $24.5 million in higher revenues compared to the three months ended March 31, 2023.
The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales, excluding urea products, freight, and other revenue, for the three months ended September 30, 2017 asMarch 31, 2024 compared to the three months ended September 30, 2016:March 31, 2023:
| | | | | | | | | | | |
| (in thousands) | Price
Variance | | Volume
Variance |
| UAN | $ | (53,930) | | | $ | (34,502) | |
| Ammonia | (25,141) | | | 24,500 | |
|
| | | | | | | |
| | Price Variance | | Volume Variance |
| | | | |
| | (in millions) |
| UAN | $ | (5.7 | ) | | $ | 0.6 |
|
| Ammonia | $ | (8.4 | ) | | $ | 6.2 |
|
The decrease$360 and $190 per ton decreases in ammonia and UAN and ammonia sales pricespricing, respectively, for the three months ended September 30, 2017March 31, 2024 compared to the three months ended September 30, 2016 wasMarch 31, 2023 were primarily attributable to pricing fluctuationnatural gas prices reducing input
costs and driving an overall decrease in the market.
Costmarket prices, paired with increased global supplies of Materials and Other. Cost of materials and other consists primarily of freight and distribution expenses, feedstock expenses, purchased ammonia and purchased hydrogen. Cost of materials and othernitrogen fertilizer. The decreases in UAN sales volumes for the three months ended September 30, 2017March 31, 2024 compared to the three months ended March 31, 2023 were primarily attributable to the 14-day planned downtime at the Coffeyville Facility in the current period, partially offset by increases in ammonia sales volumes due to favorable weather allowing for early application in 2024.
| | | | | | | | |
| Cost of Materials and Other | | Direct Operating Expenses (1) |
(1)Exclusive of depreciation and amortization expense.
Cost of Materials and Other - For the three months ended March 31, 2024, cost of materials and other was $19.4$25.3 million compared to $19.9$36.6 million for the three months ended September 30, 2016.March 31, 2023. The $0.5 million decrease was driven primarily due toby lower costs from transactions with third parties of $1.7 million, partially offset by an increasenatural gas and petroleum coke prices in transactions with affiliates of $1.2 million. The lower third-party costs incurred were primarily the result of decreased distribution costs due to the timing of regulatory railcar repairs and maintenance. The higher affiliate costs incurred were primarily the result of increased hydrogen purchases from a subsidiary of CVR Refining.current period.
Direct Operating Expenses (Exclusive(exclusive of Depreciationdepreciation and Amortization). Direct operating expenses consist primarily of energy and utility costs,amortization) - For the three months ended March 31, 2024, direct costs of labor, property taxes, plant-related maintenance services and environmental and safety compliance costs as well as catalyst and chemical costs. Direct operating expenses (exclusive of depreciation and amortization) for the three months ended September 30, 2017were $40.3$55.7 million as compared to $32.5$57.5 million for the three months ended September 30, 2016.March 31, 2023. The $7.8 million increasedecrease was primarily due toa result of decreased utility costs from lower natural gas and electricity prices, partially offset by increased personnel costs and planned downtime at the third quarter 2017 turnaround at East Dubuque, which resulted in turnaround expenses of $2.5 million. The remaining increase was primarily due to having to expense fixed operating costs while idle as well as higher sales tons inCoffeyville Facility.
| | | | | | | | |
| Depreciation and Amortization | | Selling, General, and Administrative Expenses, and Loss on Asset Disposal |
Depreciation and Amortization Expense - For the three months ended September 30, 2017 asMarch 31, 2024, depreciation and amortization expense were $19.3 million compared to 2016, resulting in higher cost of inventory expensed during 2017.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include the direct selling, general and administrative expenses of our business as well as certain expenses incurred by our affiliates, CVR Energy and its subsidiaries,
on our behalf and billed or allocated to us in accordance with the applicable agreements. We also reimburse our general partner in accordance with the partnership agreement for expenses it incurs on our behalf. Reimbursed expenses to our general partner are included as selling, general and administrative expenses from affiliates. Selling, general and administrative expenses were $6.1$15.2 million for the three months ended September 30, 2017 and $7.3 million for the three months ended September 30, 2016. The $1.2 million decreaseMarch 31, 2023. This increase was primarily due to decreasesadditions to property, plant, and equipment during the current period coupled with fluctuations in expenses associated withdepreciation
capitalized to inventory and accelerated depreciation related to changes in the East Dubuque Merger ($0.7 million).granular urea production that will retire assets earlier than their original expected useful lives.
Operating Income (Loss). Operating loss was $15.9 million
Non-GAAP Measures
Our management uses certain non-GAAP performance measures, and reconciliations to those measures, to evaluate current and past performance and prospects for the three monthsfuture to supplement our financial information presented in accordance with accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures are important factors in assessing our operating results and profitability and include the performance and liquidity measures defined below.
The following are non-GAAP measures we present for the periods ended September 30, 2017,March 31, 2024 and 2023:
EBITDA - Net income (loss) before (i) interest expense, net, (ii) income tax expense (benefit) and (iii) depreciation and amortization expense.
Adjusted EBITDA - EBITDA adjusted for certain significant noncash items and items that management believes are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends.
Available Cash for Distribution - EBITDA for the quarter excluding noncash income or expense items (if any), for which adjustment is deemed necessary or appropriate by the board of directors of our general partner (the “Board”) in its sole discretion, less (i) reserves for maintenance capital expenditures, debt service and other contractual obligations and (ii) reserves for future operating or capital needs (if any), in each case, that the Board deems necessary or appropriate in its sole discretion. Available Cash for Distribution may be increased by the release of previously established cash reserves, if any, and other excess cash, at the discretion of the Board.
We present these measures because we believe they may help investors, analysts, lenders, and ratings agencies analyze our results of operations and liquidity in conjunction with our GAAP results, including, but not limited to, our operating performance as compared to other publicly traded companies in the fertilizer industry, without regard to historical cost basis or financing methods, and our ability to incur and service debt and fund capital expenditures. Non-GAAP measures have important limitations as analytical tools because they exclude some, but not all, items that affect net earnings and operating incomeincome. These measures should not be considered substitutes for their most directly comparable GAAP financial measures. Refer to the “Non-GAAP Reconciliations” included herein for reconciliation of $2.4 millionthese amounts. Due to rounding, numbers presented within this section may not add or equal to numbers or totals presented elsewhere within this document.
Non-GAAP Reconciliations
Reconciliation of Net Income to EBITDA, Adjusted EBITDA and Available Cash for the three months ended September 30, 2016. The decrease of $18.3 million was the result of a decrease in net sales ($9.1 million), an increase in direct operating expenses ($7.8 million), an increase in depreciation and amortization ($3.1 million), partially offset by a decrease in cost of materialsDistribution
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| (in thousands) | 2024 | | 2023 | | | | |
| Net income | $ | 12,579 | | | $ | 101,870 | | | | | |
| | | | | | | |
| Interest expense, net | 7,665 | | | 7,173 | | | | | |
| Income tax (benefit) expense | (25) | | | 44 | | | | | |
| Depreciation and amortization | 19,291 | | | 15,211 | | | | | |
| EBITDA and Adjusted EBITDA | 39,510 | | | 124,298 | | | | | |
Current reserve for operating activities (1) | (8,485) | | | (9,141) | | | | | |
Current reserve for investing activities (2) | (10,680) | | | (4,864) | | | | | |
| | | | | | | |
Available cash for distribution (3) (4) | $ | 20,345 | | | $ | 110,293 | | | | | |
| | | | | | | |
| Common units outstanding | 10,570 | | | 10,570 | | | | | |
| | | | | | | |
(1)Includes reserves for debt service (interest expense) and other ($0.5 million) and a decrease in selling, general and administrative expenses ($1.2 million).future operating needs.
Net Loss.For the three months ended September 30, 2017, net loss was $31.6 million, as compared to $13.4 million of net loss(2)Includes reserves for the three months ended September 30, 2016, an increase in net loss of $18.2 million. The increase in net loss was primarily due to the factors noted above.
Nine months ended September 30, 2017 Compared to the Nine months ended September 30, 2016
The nine months ended September 30, 2017 is not comparable to the nine months ended September 30, 2016 due to the acquisition of the East Dubuque Facility on April 1, 2016. Where appropriate, the East Dubuque Facility has been excluded from comparative discussions.
Net Sales. Consolidated net sales were $252.6 million for the nine months ended September 30, 2017compared to $271.4 million for the nine months ended September 30, 2016.
Excluding the East Dubuque Facility, net sales were $150.1 million for the nine months ended September 30, 2017 compared to $179.0 million for the nine months ended September 30, 2016. The decrease of $28.9 million was primarily attributable to the lower UAN sales prices ($22.4 million), lower ammonia sales prices ($3.7 million) and lower UAN sales volumes ($3.6 million), partially offset by higher ammonia sales volumes ($3.6 million) at the Coffeyville Facility. For the nine months ended September 30, 2017, UAN and ammonia made up $131.8 million and $13.4 million of our net sales, respectively,future capital expenditures, including freight. This compared to UAN and ammonia net sales of $157.8 million and $13.5 million, respectively, for the nine months ended September 30, 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 Facility for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016:
|
| | | | | | | |
| | Price Variance | | Volume Variance |
| | | | |
| | (in millions) |
| UAN | $ | (22.4 | ) | | $ | (3.6 | ) |
| Ammonia | $ | (3.7 | ) | | $ | 3.6 |
|
The decrease in UAN and ammonia sales prices at the Coffeyville Facility for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was primarily attributable to pricing fluctuation in the market.
Cost of Materials and Other. Cost of materialsturnarounds, and other consists primarily of freight and distribution expenses, feedstock expenses, purchased ammonia and purchased hydrogen. Consolidated cost of materials and other was $63.3 million for the nine months ended September 30, 2017compared to $72.2 million for the nine months ended September 30, 2016.
Excluding the East Dubuque Facility, cost of materials and other was $41.3 million for the nine months ended September 30, 2017 compared to $42.3 million for the nine months ended September 30, 2016. The decrease of $1.0 million was attributable to lower costsfuture investing activities, as well as cash impacts from transactions with third parties of $4.7 million, partially offset by higher transactions with affiliates of $3.7 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 ($2.7 million) and lower freight expense ($1.3 million). The increase in transactions with affiliates was primarily the result of increased hydrogen purchases from a subsidiary of CVR Refining ($3.0 million).
Direct Operating Expenses (Exclusive of Depreciation and Amortization). Direct operating expenses consist primarily of energy and utility costs, direct costs of labor, property taxes, plant-related maintenance services and environmental and safetyequity method investments.
(3)Amount represents the cumulative available cash based on quarter-to-date and year-to-date results. However, Available Cash for Distribution is calculated quarterly, with distributions (if any) being paid in the quarter following declaration.
compliance costs as well as catalyst(4)The Partnership declared and chemical costs. Consolidated direct operating expenses were $114.0 million forpaid a cash distribution of $1.68 related to the nine months ended September 30, 2017comparedfourth quarter of 2023 and declared a cash distribution of $1.92 per common unit related to $110.4 million for the nine months ended September 30, 2016.
Excluding the East Dubuque Facility, direct operating expenses were $69.1 million for the nine months ended September 30, 2017 compared to $68.6 million for the nine months ended September 30, 2016. The increase of $0.5 million was attributable to higher costs from transactions with third parties of $1.5 million, partially offset by a decrease in transactions with affiliates of $1.0 million. The increase in transactions with third parties was primarily the result of increased electrical prices ($3.6 million), partially offset by lower repairs and maintenance ($2.3 million).
Depreciation and Amortization Expense. Consolidated depreciation expense was $54.9 million for the nine months ended September 30, 2017compared to $41.0 million for the nine months ended September 30, 2016.
Excluding the East Dubuque Facility, depreciation expense was $21.0 million for both the nine months ended September 30, 2017 and 2016.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include the direct selling, general and administrative expenses of our business as well as certain expenses incurred by our affiliates, CVR Energy and its subsidiaries, on our behalf and billed or allocated to us in accordance with the applicable agreements. We also reimburse our general partner in accordance with the partnership agreement for expenses it incurs on our behalf. Reimbursed expenses to our general partner are included as selling, general and administrative expenses from affiliates. Consolidated selling, general and administrative expenses were $18.8 million for the nine months ended September 30, 2017compared to $22.0 million for the nine months ended September 30, 2016.
Excluding the East Dubuque Facility, selling, general and administrative expenses were $14.5 million for the nine months ended September 30, 2017 compared to $17.4 million for the nine months ended September 30, 2016. The decrease of $2.9 million was primarily attributable to a decrease in expenses associated with the East Dubuque Merger ($3.1 million).
Interest Expense and Other Financing Costs. Consolidated interest expense was $47.1 million for the nine months ended September 30, 2017, as compared to $32.8 million for the nine months ended September 30, 2016. The increase of $14.3 million was primarily due to lower outstanding debt in the first quarter of 2016. See Note 12 ("Debt")2024 to Part I, Item 1 of this Report for a discussion of the financing transactions that occurredbe paid in the second quarter of 2016.May 2024.
Liquidity and Capital Resources
Our principal source of liquidity has historically been and continues to be cash from operations, which can include cash advances from customers resulting from forward sales.prepay contracts. Our principal uses of cash are for working capital, capital expenditures, funding our debt service obligations, and paying distributions to our unitholders, as further discussed below.
WeWhen considering the market conditions and current geopolitical matters, such as the conflict in the Middle East and the Russia-Ukraine war, we currently believe that our cash from operations and existing cash and cash equivalents, along with borrowings and reserves, as necessary, under the ABL Credit Facility will be sufficient to satisfy anticipated cash commitmentsrequirements associated with our existing 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.factors including, but not limited to, rising material and labor costs and other inflationary pressures. Additionally, our ability to generate sufficient cash from our operating activities and secure additional financing depends on our future performance, which is subject to operating performance, as well as general economic, political, financial, competitive, and other factors, outsidesome of which may be beyond our control.
Depending on the needs of our 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 debt.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.
The Partnership and its subsidiaries were in compliance with all covenants under their respective debt instruments as of March 31, 2024, 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 Balance and Other Liquidity
As of September 30, 2017,March 31, 2024, we had cash and cash equivalents of $70.0$64.6 million, including $19.4and combined with $43.0 million available under our ABL Credit Facility, we had total liquidity of customer advances. Working capital at September 30, 2017 was $73.3$107.6 million consistingas of $145.0 million in current assets and approximately $71.7 million in current liabilities. Working capital atMarch 31, 2024. As of December 31, 2016 was $71.52023, we had $45.3 million consisting of $134.5 million in current assets and $63.0 million in current liabilities. As of October 30, 2017, we had cash and cash equivalentsequivalents. Long-term debt consists of $74.9 million.the following:
| | | | | | | | | | | |
| (in thousands) | March 31, 2024 | | December 31, 2023 |
| 6.125% Senior Secured Notes, due June 2028 | $ | 550,000 | | | $ | 550,000 | |
| Unamortized debt issuance costs | (2,560) | | | (2,692) | |
| Total long-term debt | $ | 547,440 | | | $ | 547,308 | |
| | | |
| | | |
As of Contents
2023 Notes
On June 10, 2016,March 31, 2024, the Partnership and CVR Nitrogen Finance Corporation issued $645.0 million aggregate principal amount of 9.250%had the 6.125% Senior Secured Notes, due 2023. The 2023 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. As a result of the issuance, approximately $9.4 million of debt issuance costs were incurred, which are being amortized over the term of the 2023 Notes as interest expense using the effective-interest method.
The 2023 Notes are guaranteed on a senior secured basis by all of the Partnership’s existing subsidiaries.
At any time prior to June 15, 2019, we 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 accrued2028 (the “2028 Notes”) and unpaid interest to the date of redemption. Prior to June 15, 2019, we 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, we 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 Partnership and its subsidiaries, taken as a whole), each holder of the 2023 Notes will have the right to require that the 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.
The 2023 Notes contain customary covenants for a financing of this type that, among other things, restrict the Partnership’s ability and the ability of certain of its subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase the Partnership’s units or redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from the Partnership’s restricted subsidiaries to the Partnership; (vii) consolidate, merge or transfer all or substantially all of the Partnership’s assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. Most of the foregoing covenants would cease to apply at such time that the 2023 Notes are rated investment grade by both Standard & Poor's Ratings Services and Moody's Investors Service, Inc. However, such covenants would be reinstituted if the 2023 Notes subsequently lost their investment grade rating. 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 2023 Notes to cause, the acceleration of the 2023 Notes, in addition to the pursuit of other available remedies.
The indenture governing the 2023 Notes prohibits us from making distributions to unitholders if any default or event of default (as defined in the indenture) exists. In addition, the indenture limits our ability to pay distributions to unitholders. The covenants will apply differently depending on our fixed charge coverage ratio (as defined in the indenture). If the fixed charge coverage ratio is not less than 1.75 to 1.0, we will generally be permitted to make restricted payments, including distributions to our unitholders, without substantive restriction. If the fixed charge coverage ratio is less than 1.75 to 1.0, we 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 of September 30, 2017, the ratio was less than 1.75 to 1.0. Restricted payments have been made, and $72.7 million of the basket was available as of September 30, 2017. As of September 30, 2017, we were in compliance with the covenants contained in the 2023 Notes.
Asset Based (ABL) Credit Facility
On September 30, 2016, the Partnership entered into the ABL Credit Facility, with a group of lenders and UBS AG, Stamford Branch, as administrative agent and collateral agent. The ABL Credit Facility is a senior secured asset based revolving credit facility in 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 loanswhich may be used forto fund working capital, capital expenditures, and working capital and general corporate purposes of the 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 has a five-year maturity and will be used for working capital and other general corporate purposes. Refer to Part II, Item 8, Note 8 (“Long-Term Debt”) of our 2023 Form 10-K for further information.
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 Partnership must also pay a commitment fee on the unutilized commitments to the lenders under the ABL Credit Facility equal to (a) 0.375% per annum for the first full calendar quarter after the closing date and (b) thereafter, (i) 0.375% per annum if utilization under the facility is less than 50% of the total commitments and (ii) 0.25% per annum if utilization under the facility is equal to or greater than 50% of the total commitments. The borrowers must also pay customary letter of credit fees equal to 2.00%, subject to a 0.50% step-down based on the previous quarter’s excess availability, 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.
The ABL Credit Facility also contains customary covenants for a financing of this type that limit the ability of the Partnership 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 Partnership was in compliance with the covenants of the ABL Credit Facility as of September 30, 2017.
As of September 30, 2017, the Partnership and its subsidiaries had availability under the ABL Credit Facility of $47.6 million. There were no borrowings outstanding under the ABL Credit Facility as of September 30, 2017.
Capital Spending
We divide our 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. We also treat maintenance capital spending as a reduction of cash available for distribution to unitholders. Growth capital projects generally involve an expansion of existing capacity improvement in product yields and/or a reduction in direct operating expenses. Major scheduled turnaround expenses are expensed when incurred. We undertake growth capital spending based on the expected return on incremental capital employed.
Our total capital expenditures for the ninethree months ended September 30, 2017 were approximately $11.4 million, including $11.1 million of maintenance capital spending and the remainderMarch 31, 2024, along with our estimated expenditures for growth capital projects.2024 are as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, | | Estimated full year |
| (in thousands) | 2024 | | 2024 |
| Maintenance capital | $ | 4,272 | | | $33,000 - 35,000 |
| Growth capital | 339 | | | 13,000 - 14,000 |
| Total capital expenditures | $ | 4,611 | | | $46,000 - 49,000 |
Capital spending for our business has been and will be determined by the Board of Directors of our general partner. Our estimated maintenance capital expenditures are expected to be approximately $15 million for the year ending December 31, 2017.
Our estimated capital expenditures are subject to change due to unanticipated changes in the cost, scope, and completion time for our capital projects. For example, we may experience increases/decreaseschanges in labor or equipment costs necessary to comply with government regulations or to complete projects that sustain or improve the profitability of ourthe nitrogen fertilizer facilities.
Major Scheduled Turnaround Expenditures
Consistent, safe We may also accelerate or defer some capital expenditures from time to time. Capital spending for CVR Partners is determined by the Board. We will continue to monitor market conditions and reliable operations are criticalmake adjustments, if needed, to our financial performance and results of operations. Unplanned downtime of either plant may result in lost margin opportunity, increased maintenance expense and a temporary increase in workingcurrent capital investment and related inventory position. The financial impact of planned downtime, such as majorspending or turnaround maintenance, is mitigated through a diligent planning process that takes into account margin environment, the availability of resources to perform the needed maintenance, feedstock logistics and other factors.plans.
Historically, the Coffeyville Facility has undergone a full facilityWe incurred nominal turnaround every two to three years. The Coffeyville Facility underwent a full facility turnaround in the third quarter of 2015, at a cost of approximately $7.0 million, exclusive of the impacts due to the lost productionexpenses during the downtime.three months ended March 31, 2024 and 2023, respectively. The Partnership is planningnext planned turnarounds are currently scheduled to undergo the next scheduled full facility turnaroundtake place in 2025 at the Coffeyville Facility and in 2018.
Historically, the East Dubuque Facility has also undergone a full facility turnaround every two to three years. The East Dubuque Facility underwent a full facility turnaround in the second quarter of 2016, at a cost of approximately $6.6 million, exclusive of the impacts due to the lost production during the downtime. We determined that there were more pressing preventative maintenance issues2026 at the East Dubuque Facility, so we completed a scheduled turnaround atFacility.
Cash Requirements
There have been no material changes to the East Dubuque Facilitycash requirements disclosed in our Annual Report on Form 10-K for the third quarteryear ended December 31, 2023, outside the ordinary course of 2017 at a cost of approximately $2.6 million, exclusive of the impacts of the lost production during the downtime.business.
Distributions to Unitholders
The board of directorscurrent policy of the Partnership's general partner has a policy for the PartnershipBoard is to distribute all available cashAvailable Cash for Distribution, as determined by the Board in its sole discretion, the Partnership generated on a quarterly basis. See Note 8 ("Partners’ CapitalAvailable Cash for Distribution for each quarter will be determined by the Board following the end of such quarter. Available Cash for Distribution for each quarter is calculated as EBITDA for the quarter excluding noncash income or expense items (if any), for which adjustment is deemed necessary or appropriate by the Board in its sole discretion, less (i) reserves for maintenance capital expenditures, debt service and Partnership Distributions")other contractual obligations, and (ii) reserves for future operating or capital needs (if any), in each case, that the Board deems necessary or appropriate in its sole discretion. Available Cash for Distribution may be increased by the release of previously established cash reserves, if any, and other excess cash, at the discretion of the Board.
Distributions, if any, including the payment, amount, and timing thereof, and the Board’s distribution policy, including the definition of Available Cash for Distribution, are subject to Part I, Item 1change at the discretion of this Report for information on our distribution policy.the Board. The following is a summary of cashtables present quarterly distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, during 2024 and 2023 (amounts presented in the Partnership's unitholders during 2017 for the respective quarterstable below may not add to which the distributions relate:totals presented due to rounding):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Quarterly Distributions Paid (in thousands) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public Unitholders | | CVR Energy | | Total |
| 2023 - 4th Quarter | | March 11, 2024 | | $ | 1.68 | | | $ | 11,218 | | | $ | 6,539 | | | $ | 17,757 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Quarterly Distributions Paid (in thousands) |
| Related Period | | Date Paid | | Quarterly Distributions
Per Common Unit | | Public Unitholders | | CVR Energy | | Total |
| 2022 - 4th Quarter | | March 13, 2023 | | $ | 10.50 | | | $ | 70,115 | | | $ | 40,866 | | | $ | 110,981 | |
| 2023 - 1st Quarter | | May 22, 2023 | | 10.43 | | | 69,647 | | | 40,594 | | | 110,241 | |
| 2023 - 2nd Quarter | | August 21, 2023 | | 4.14 | | | 27,646 | | | 16,113 | | | 43,759 | |
| 2023 - 3rd Quarter | | November 20, 2023 | | 1.55 | | | 10,350 | | | 6,033 | | | 16,383 | |
| Total 2023 quarterly distributions | | $ | 26.62 | | | $ | 177,759 | | | $ | 103,605 | | | $ | 281,364 | |
|
| | | | | | | | | | | | | | | |
| | December 31,
2016 | | March 31, 2017 | | June 30,
2017 | | Total Cash Distributions Paid in 2017 |
| | | | | | | | |
| | ($ in millions, except per common unit amounts) |
| Amount paid to CRLLC | $ | — |
| | $ | 0.8 |
| | $ | — |
| | $ | 0.8 |
|
| Amount paid to public unitholders | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| Total amount paid | $ | — |
| | $ | 2.3 |
| | $ | — |
| | $ | 2.3 |
|
| Per common unit | $ | — |
| | $ | 0.02 |
| | $ | — |
| | $ | 0.02 |
|
| Common units outstanding (in thousands) | 113,283 |
| | 113,283 |
| | 113,283 |
| | |
For the first quarter of 2024, the Partnership, upon approval by the Board on April 29, 2024, declared a distribution of $1.92 per common unit, or $20.3 million, which is payable May 20, 2024 to unitholders of record as of May 13, 2024. Of this amount, CVR Energy will receive approximately $7.5 million, with the remaining amount payable to public unitholders.
Capital Structure
On May 6, 2020, the Board, on behalf of the Partnership, authorized a unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized the Partnership to repurchase up to $20 million of the Partnership’s common units. During the three months ended March 31, 2024 and 2023, the Partnership did not repurchase any common units. On February 20, 2024, the Board, on behalf of the Partnership, terminated the nominal authority remaining under the Unit Repurchase Program.
Cash Flows
The following table sets forth our cash flows for the periods indicated below:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| (in thousands) | 2024 | | 2023 | | Change |
| Net cash flow provided by (used in): | | | | | |
| Operating activities | $ | 42,417 | | | $ | 130,443 | | | $ | (88,026) | |
| Investing activities | (5,317) | | | 15,562 | | | (20,879) | |
| Financing activities | (17,757) | | | (110,981) | | | 93,224 | |
| Net increase in cash and cash equivalents | $ | 19,343 | | | $ | 35,024 | | | $ | (15,681) | |
|
| | | | | | | |
| Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| | | | |
| | (in millions) |
| Net cash flow provided by (used in): | | | |
| Operating activities | $ | 28.1 |
| | $ | 47.5 |
|
| Investing activities | (11.4 | ) | | (82.1 | ) |
| Financing activities | (2.3 | ) | | 49.9 |
|
| Net increase in cash and cash equivalents | $ | 14.4 |
| | $ | 15.3 |
|
Cash Flows Provided byfrom Operating Activities
For purposes of this 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.
NetThe change in net cash flows provided byfrom operating activities for the ninethree months ended September 30, 2017 were approximately $28.1 million. The positive cash flow from operating activities generated over this periodMarch 31, 2024 compared to the three months ended March 31, 2023 is primarily due to a $89.3 million decrease in net income during 2024 due to lower product sales prices and sales volumes. In addition, there was primarily driven by a net lossdecrease in working capital of $45.4$2.1 million attributable to decreases in accounts receivable and deferred revenue, partially offset by non-cashincreases in inventories and accounts payable. These decreases were partially offset by an increase in depreciation and amortization of $54.9$4.1 million net cash inflows from other working capital of $17.1 million and net cash outflows from trade working capital of $2.8 million. The net cash inflow for other working capital was due to an increase to accrued expenses and other current liabilities of $8.0 million, an increase in deferred revenue of $7.4 million and a decrease to prepaid expenses and other current assets of $1.7 million. The increase in accrued expenses and other current liabilities is primarilyas a result of higher accrued interest of $14.9 million, partially offset by decreasesadditions to property, plant, and equipment during the current period coupled with fluctuations in balancesdepreciation capitalized to inventory and accelerated depreciation related to changes in the timing of accrued railcar regulatory inspections of $2.4 million and timing of personnel expenses. granular urea production that will retire assets earlier than their original expected useful lives.
Cash Flows from Investing Activities
The increasechange in deferred revenue was primarily due to collection of customer prepayments schedulednet cash flows from investing activities for deliveries during the three months ended DecemberMarch 31, 2017. The net cash outflow for trade working capital2024 compared to the three months ended March 31, 2023 was due to a decrease in accounts payabledistributions received from CVR Partners’ equity method investment of $4.6$16.2 million partially offset by a decreaseassociated with the 45Q Transaction in accounts receivable of $1.6 million2024 and an increase in inventorycapital expenditures of $0.2 million. The decrease$4.7 million during 2024 resulting from an increase in accounts payable was primarily attributable to normal fluctuationsvarious capital projects in the timing of payments.current period compared to 2023.
NetThe change in net cash flows provided by operatingfrom financing activities for the ninethree months ended September 30, 2016 were approximately $47.5 million. The positive cash flow from operating activities generated over this periodMarch 31, 2024 compared to the three months ended March 31, 2023 was primarily driven by a net loss of $12.4 million offset by non-cash depreciation and amortization of $41.0 million and net cash inflows from trade working capital of $37.2 million, partially offset by net cash outflows from other working capital of $27.5 million. Fluctuations in trade working capital increased our operating cash flow by $37.2 million due to a decrease in inventorycash distributions paid of $32.2$93.2 million a decrease in accounts receivable of $3.4 million and an increase in accounts payable of $1.6 million. The decrease in inventory was primarily attributable to a decrease in finished goods inventory as a result of increased sales volumes for the nine months ended September 30, 2016. Fluctuations in other working capital of $27.5 million decreased our operating cash flow and were due to a decrease in deferred revenue of $27.7 million and a decrease to accrued expenses and other current liabilities of $4.0 million, partially offset by a decrease to prepaid expenses and other current assets of $4.2 million for the nine months ended September 30, 2016. The decrease in deferred revenue was primarily attributable to increased sales for the nine months ended September 30, 2016.
Cash Flows Used in Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2017 was $11.4 million2024 compared to $82.1 million for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, net cash used in investing activities was the result of capital expenditures. For the nine months ended September 30, 2016, net cash used in investing activities was the result of cash merger consideration of $63.9 million, net of cash acquired, and was the result of capital expenditures of $18.3 million.2023.
Cash Flows Used in Financing Activities
Cash flows used in financing activities for the nine months ended September 30, 2017 were $2.3 million, compared to net cash flows provided by financing activities for the nine months ended September 30, 2016 of $49.9 million. The net cash used in financing activities for the nine months ended September 30, 2017 was attributable to quarterly cash distributions. The net cash provided by financing activities for the nine months ended September 30, 2016 was primarily attributable to the financing transactions discussed in Note 12 ("Debt") to Part I, Item 1 of this Report, partially offset by the quarterly cash distributions and the purchase of 400,000 CVR Nitrogen common units from CVR Energy for $5.0 million.
Contractual Obligations
As of September 30, 2017, our contractual obligations included long-term debt, operating leases, unconditional purchase obligations, other specified capital and commercial commitments and interest payments. There were no material changes outside the ordinary course of our business with respect to our contractual obligations during the nine months ended September 30, 2017, from those disclosed in our 2016 Form 10-K.
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 Note 3 ("Recent Accounting Pronouncements") to Part I, Item 1 of this Report for a discussion of recent accounting pronouncements applicable to the Partnership.
Critical Accounting Policies and Estimates
Our critical accounting policiesestimates are disclosed in the "Critical“Critical Accounting Policies"Estimates” section of our 20162023 Form 10-K. No modifications have been made during the three months ended March 31, 2024 to our critical accounting policies. See Note 9 ("Goodwill") to Part I, Item 1 of this Report for a discussion of goodwill considerations.these estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price, Foreign Currency ExchangeThere have been no material changes to our market risks as of and Non-Operating Risks
We are exposed to significant market risk due to potential changes in prices for fertilizer products and natural gas. Natural gas is the primary raw material used in the production of various nitrogen-based products manufactured at our East Dubuque Facility. We have commitments to purchase natural gas for use in our East Dubuque Facility on the spot market, and through short-term, fixed supply, fixed price and index price purchase contracts. Natural gas prices have fluctuated during the last several years, increasing substantially in 2008 and subsequently decliningthree months ended March 31, 2024 as compared to the current lower pricing levels.
In the normal course of business, we produce nitrogen-based fertilizer products throughout the year to supply the needsrisks discussed in Part II, Item 7A 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 the relevant commodity prices. Prices of nitrogen fertilizer products can be volatile. We believe that market prices of nitrogen products are affected by changes in grain prices and demand, natural gas prices and other factors. In the opinion of our management, there is no derivative financial instrument that correlates effectively with, and has a trading volume sufficient to hedge, our firm commitments and forecasted commodity sales transactions.2023 Form 10-K.
We do not currently use derivative financial instruments to manage risks related to changes in prices of commodities (e.g., UAN, ammonia, natural gas or pet coke), except as noted above. Given that our business is currently based entirely in the United States, we are not directly exposed to foreign currency exchange rate risk. We do not engage in activities that expose us to speculative or non-operating risks, including derivative trading activities. Our management may, in the future, elect to use derivative financial instruments consistent with our overall business objectives to avoid unnecessary risk and to limit, to the extent practical, risks associated with our operating activities.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2017, we haveThe Partnership has evaluated, under the direction and with the participation of ourthe Executive Chairman, Chief Executive Officer, and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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, ourPartnership’s Executive Chairman, 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 SEC’s rules and forms, and that such information is accumulated and communicated to the Partnership’s management, including our Executive Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Due to these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all potential future conditions.March 31, 2024.
Changes in Internal Control Over Financial Reporting
There hashave been no material changechanges in ourthe Partnership’s internal control over financial reporting required by Rule 13a-15 of the Exchange Act that occurred during the fiscal quarter ended September 30, 2017March 31, 2024 that has materially affected, or isare reasonably likely to materially affect, ourthe Partnership’s internal control over financial reporting.
PART II. OTHER INFORMATION
Part II. Other Information
Item 1. Legal Proceedings
See Note 13 ("Commitments and Contingencies") to Part I, Item 1, Note 11 (“Commitments and Contingencies”) of this Report, which is incorporated by reference into this Part II, Item 1, for a description of certain litigation, legal, and administrative proceedings and environmental matters.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in the "Risk Factors" sectionPart I, Item 1A of our 20162023 Form 10-K. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition, and/or results of operations.
Item 5. Other Information
During the three months ended March 31, 2024, no director or officer of the general partner adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
| | | | | | | | |
| INDEX TO EXHIBITS |
| Exhibit Number | | Exhibit Description |
| EXHIBIT INDEX | |
Exhibit
Number
10.1*+^ | |
|
| 31.1* | |
| |
| | |
| | |
| 31.4* | | |
| 32.1† | | |
| |
| |
| 101* | | The following financial information for CVR Partners, LP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,March 31, 2024, formatted inInline XBRL ("(“Extensible Business Reporting Language"Language”) includes: (1) Condensed Consolidated Balance Sheets (unaudited), (2) Condensed Consolidated Statements of Operations (unaudited), (3) Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited), (4) Condensed Consolidated Statement of Partners’ Capital (unaudited), (5)(4) Condensed Consolidated Statements of Cash Flows (unaudited) and (6)(5) the Notes to Condensed Consolidated Financial Statements (unaudited), tagged in detail. |
| 104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| | |
| | |
| | |
| | |
| | | | | |
| * | Filed herewith. |
| |
| † | Furnished herewith. |
| + | Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. CVR Partners agrees to furnish supplementally an unredacted copy of this exhibit to the SEC upon request. |
| ^ | Denotes management contract or compensatory plan or arrangement. |
PLEASE NOTE: Pursuant to the rules and regulations of the SEC, we may file or incorporate by reference agreements referenced 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 Partnership, 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 Partnership’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 Partnership, its business or operations on the date hereof.
SIGNATURES
Pursuant to the requirements 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 Partners, LP |
| | By: | | | |
| | By: | CVR GP, LLC, its general partner |
| | | |
| April 30, 2024 | | By: | | /s/ Dane J. Neumann |
| November 1, 2017 | | By:/s/ JOHN J. LIPINSKIExecutive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary |
| | | Executive Chairman |
| | | (Principal Executive Officer) |
| | | |
November 1, 2017 | | By: | /s/ MARK A. PYTOSH |
| |
| Chief Executive Officer and President |
| |
| (Principal Executive Officer) |
| | | |
November 1, 2017 | | By: | /s/ SUSAN M. BALL |
| | | Chief Financial Officer and Treasurer |
| | | (Principal Financial Officer) |
| | | |
| | | |
| April 30, 2024 | | By: | /s/ Jeffrey D. Conaway |
| | | Vice President, Chief Accounting Officer
and Corporate Controller |
| | | (Principal Accounting Officer) |
| | | |
