UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q | | | | | | | | |
| (Mark One) |
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | September 30, 2021March 31, 2022 |
| OR |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to . |
Commission file number: 001-35120
CVR PARTNERS, LP
(Exact name of registrant as specified in its charter) | | | | | | | | | | | | | | |
| Delaware | | | | 56-2677689 |
(State or other jurisdiction of
incorporation or organization) | | | (I.R.S. Employer
Identification No.) |
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:
| | | | | | | | |
| 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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
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 accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☐ | Accelerated filer | ☑ | Non-Accelerated filer | ☐ |
| Smaller reporting company | ☐ | Emerging growth company | ☐ | | |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
There were 10,681,33210,569,637 common units representing limited partner interests of CVR Partners, LP (“common units”) outstanding at OctoberApril 29, 2021.2022.
TABLE OF CONTENTS
CVR PARTNERS, LP - Quarterly Report on Form 10-Q
September 30, 2021March 31, 2022
| | PART I. Financial Information | PART I. Financial Information | | PART II. Other Information | | 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.
September 30, 2021March 31, 2022 | 2
Important Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements 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 nature of our business and the variable nature of our distributions;
•the severity, magnitude, duration, and impact of the novel coronavirus 2019 and any variants thereof (collectively, “COVID-19”) pandemic and of businesses’ and governments’ responses to such pandemic on our operations, personnel, commercial activity, and supply and demand across our and our customers’ and suppliers’ businesses;
•changes in market conditions and market volatility arising from the COVID-19 pandemic or inflation, including fertilizer, natural gas, and other commodity prices and the impact of such changes on our operating results and financial position;
•the cyclical and seasonal nature of our business;
•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 transportation services, and equipment;
•our reliance on, or our ability to procure economically or at all, petroleumpet coke (“pet coke”) we purchase from 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;materials and the effects of inflation thereupon;
•our production levels, including the risk of a material decline in those levels, including our ability to upgrade ammonia to UAN;
•product pricing, including contracted sales and our ability to realize market prices, in full or at all;
•accidents or other unscheduled shutdowns or interruptions affecting our facilities, machinery, or equipment, or those of our suppliers or customers;
•potential operating hazards from accidents, fire, severe weather, tornadoes, floods or other natural disasters;
•our ability to obtain, retain, or renew permits, licenses and authorizations to operate our business;
•competition in the nitrogen fertilizer businessesbusiness and foreign wheat and coarse grain production, including potential impacts thereto as a result of farm planting acreage, domestic and global supply and demand; and/ordemand, and domestic or international duties tariffs or similar costs;
•foreign wheat and coarse grain production, including increases thereto and farm planting acreage;costs;
•capital expenditures;
•existing and future laws, rulings and regulations, including but not limited to those relating to the environment, climate change, and/or the transportation or production of hazardous chemicals like ammonia, including potential liabilities or capital requirements arising from such laws, rulings, or regulations;
•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;
•political disturbances, geopolitical instability and tensions, and associated changes in global trade policies and economic sanctions, including, but not limited to, in connection with Russia’s invasion of Ukraine in February 2022 and any ongoing conflicts in the region;
•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 senior 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;
September 30, 2021March 31, 2022 | 3
•control of our general partner by CVR Energy;
•our ability to continue to license the technology used in our operations;
•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;
•restrictions in our debt agreements;
•asset impairments and impacts thereof;
•asset useful life;
•realizable inventory value;
•the number of investors willing to hold or acquire our common units;
•our ability to issue securities or obtain financing;
•changes in tax and other law, regulations and policies;
•ability to qualify for and receive the benefit of 45Q tax credits;
•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 credit markets;commodities markets and in the global economy, including due to the ongoing Russia-Ukraine conflict;
•competition with CVR Energy and its affiliates;
•transactions and/or conflicts with CVR Energy’s controlling shareholder;
•the value of payouts under our equity and non-equity incentive plans; and
•our ability to recover under our insurance policies for damages or losses in full or at all;all; 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, 20202021 and our other filings with the Securities and Exchange Commission (the “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 cvrenergy.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.
September 30, 2021March 31, 2022 | 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) | | (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | (in thousands) | March 31, 2022 | | December 31, 2021 |
| ASSETS | ASSETS | ASSETS |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 100,669 | | | $ | 30,559 | | Cash and cash equivalents | $ | 137,347 | | | $ | 112,516 | |
| Accounts receivable | Accounts receivable | 32,928 | | | 36,896 | | Accounts receivable | 43,577 | | | 88,351 | |
| Inventories | Inventories | 59,026 | | | 42,349 | | Inventories | 65,192 | | | 52,270 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 3,127 | | | 8,410 | | Prepaid expenses and other current assets | 7,623 | | | 9,108 | |
| Total current assets | Total current assets | 195,750 | | | 118,214 | | Total current assets | 253,739 | | | 262,245 | |
| Property, plant, and equipment, net | Property, plant, and equipment, net | 856,686 | | | 897,847 | | Property, plant, and equipment, net | 835,713 | | | 850,462 | |
| | Other long-term assets | Other long-term assets | 15,868 | | | 16,819 | | Other long-term assets | 13,249 | | | 14,351 | |
| Total assets | Total assets | $ | 1,068,304 | | | $ | 1,032,880 | | Total assets | $ | 1,102,701 | | | $ | 1,127,058 | |
| | LIABILITIES AND PARTNERS’ CAPITAL | LIABILITIES AND PARTNERS’ CAPITAL | LIABILITIES AND PARTNERS’ CAPITAL |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Accounts payable | Accounts payable | $ | 38,807 | | | $ | 19,544 | | Accounts payable | $ | 49,241 | | | $ | 41,504 | |
| Accounts payable to affiliates | Accounts payable to affiliates | 6,409 | | | 5,217 | | Accounts payable to affiliates | 6,081 | | | 8,895 | |
| Deferred revenue | Deferred revenue | 33,754 | | | 30,631 | | Deferred revenue | 80,877 | | | 87,060 | |
| Other current liabilities | Other current liabilities | 36,219 | | | 20,949 | | Other current liabilities | 37,007 | | | 24,401 | |
| Total current liabilities | Total current liabilities | 115,189 | | | 76,341 | | Total current liabilities | 173,206 | | | 161,860 | |
| Long-term liabilities: | Long-term liabilities: | | Long-term liabilities: | |
| Long-term debt, net of current portion | Long-term debt, net of current portion | 625,234 | | | 633,942 | | Long-term debt, net of current portion | 546,439 | | | 610,642 | |
| Other long-term liabilities | Other long-term liabilities | 15,876 | | | 8,356 | | Other long-term liabilities | 15,565 | | | 12,358 | |
| Total long-term liabilities | Total long-term liabilities | 641,110 | | | 642,298 | | Total long-term liabilities | 562,004 | | | 623,000 | |
Commitments and contingencies (See Note 11) | Commitments and contingencies (See Note 11) | 0 | | 0 | Commitments and contingencies (See Note 11) | 0 | | 0 |
| Partners’ capital: | Partners’ capital: | | Partners’ capital: | |
| Common unitholders, 10,681,332 and 10,705,710 units issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 312,004 | | | 314,240 | | |
| Common unitholders, 10,569,637 and 10,681,332 units issued and outstanding at March 31, 2022 and December 31, 2021, respectively | | Common unitholders, 10,569,637 and 10,681,332 units issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 367,490 | | | 342,197 | |
| General partner interest | General partner interest | 1 | | | 1 | | General partner interest | 1 | | | 1 | |
| Total partners’ capital | Total partners’ capital | 312,005 | | | 314,241 | | Total partners’ capital | 367,491 | | | 342,198 | |
| Total liabilities and partners’ capital | Total liabilities and partners’ capital | $ | 1,068,304 | | | $ | 1,032,880 | | Total liabilities and partners’ capital | $ | 1,102,701 | | | $ | 1,127,058 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
September 30, 2021March 31, 2022 | 5
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in thousands, except per unit data) | (in thousands, except per unit data) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands, except per unit data) | 2022 | | 2021 | |
| Net sales | Net sales | $ | 144,715 | | | $ | 79,482 | | | $ | 343,660 | | | $ | 259,654 | | Net sales | $ | 222,873 | | | $ | 60,921 | | |
| Operating costs and expenses: | Operating costs and expenses: | | Operating costs and expenses: | | |
| Cost of materials and other | Cost of materials and other | 26,114 | | | 21,736 | | | 69,974 | | | 67,675 | | Cost of materials and other | 30,246 | | | 17,766 | | |
| Direct operating expenses (exclusive of depreciation and amortization) | Direct operating expenses (exclusive of depreciation and amortization) | 48,260 | | | 38,555 | | | 138,626 | | | 113,686 | | Direct operating expenses (exclusive of depreciation and amortization) | 60,318 | | | 37,075 | | |
| Depreciation and amortization | Depreciation and amortization | 17,406 | | | 18,029 | | | 52,648 | | | 56,997 | | Depreciation and amortization | 19,465 | | | 14,123 | | |
| Cost of sales | Cost of sales | 91,780 | | | 78,320 | | | 261,248 | | | 238,358 | | Cost of sales | 110,029 | | | 68,964 | | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 6,619 | | | 4,232 | | | 19,310 | | | 14,038 | | Selling, general and administrative expenses | 8,744 | | | 5,891 | | |
| Loss on asset disposal | Loss on asset disposal | — | | | 39 | | | 477 | | | 120 | | Loss on asset disposal | 173 | | | 72 | | |
| Goodwill impairment | — | | | — | | | — | | | 40,969 | | |
| | Operating income (loss) | Operating income (loss) | 46,316 | | | (3,109) | | | 62,625 | | | (33,831) | | Operating income (loss) | 103,927 | | | (14,006) | | |
| Other (expense) income: | Other (expense) income: | | Other (expense) income: | | |
| Interest expense, net | Interest expense, net | (11,313) | | | (15,877) | | | (50,564) | | | (47,550) | | Interest expense, net | (10,036) | | | (15,916) | | |
| | Other income, net | Other income, net | 26 | | | 57 | | | 4,623 | | | 122 | | Other income, net | 28 | | | 4,557 | | |
| Income (loss) before income tax expense | Income (loss) before income tax expense | 35,029 | | | (18,929) | | | 16,684 | | | (81,259) | | Income (loss) before income tax expense | 93,919 | | | (25,365) | | |
| Income tax expense | Income tax expense | — | | | 23 | | | 19 | | | 40 | | Income tax expense | 258 | | | 19 | | |
| Net income (loss) | Net income (loss) | $ | 35,029 | | | $ | (18,952) | | | $ | 16,665 | | | $ | (81,299) | | Net income (loss) | $ | 93,661 | | | $ | (25,384) | | |
| | Basic and diluted earnings (loss) per unit | Basic and diluted earnings (loss) per unit | $ | 3.28 | | | $ | (1.70) | | | $ | 1.56 | | | $ | (7.22) | | Basic and diluted earnings (loss) per unit | $ | 8.78 | | | $ | (2.37) | | |
| Distributions declared per common unit | Distributions declared per common unit | $ | 1.72 | | | $ | — | | | $ | 1.72 | | | $ | — | | Distributions declared per common unit | $ | 5.24 | | | $ | — | | |
| | Weighted-average common units outstanding: | Weighted-average common units outstanding: | | Weighted-average common units outstanding: | | |
| Basic and Diluted | Basic and Diluted | 10,681 | | | 11,129 | | | 10,686 | | | 11,258 | | Basic and Diluted | 10,665 | | | 10,695 | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
September 30, 2021March 31, 2022 | 6
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Units | | General
Partner
Interest | | | | | | Total Partners’ Capital |
| (in thousands, except unit data) | Issued | | Amount | |
| Balance at December 31, 2020 | 10,705,710 | | | $ | 314,240 | | | $ | 1 | | | | | | | $ | 314,241 | |
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| Unit repurchases | (24,378) | | | (529) | | | — | | | | | | | (529) | |
| Net loss | — | | | (25,384) | | | — | | | | | | | (25,384) | |
| Balance at March 31, 2021 | 10,681,332 | | | $ | 288,327 | | | $ | 1 | | | | | | | $ | 288,328 | |
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| Net income | — | | | 7,020 | | | — | | | | | | | 7,020 | |
| Balance at June 30, 2021 | 10,681,332 | | | $ | 295,347 | | | $ | 1 | | | | | | | $ | 295,348 | |
| Cash distributions to common unitholders - Affiliates | — | | | (6,694) | | | — | | | | | | | (6,694) | |
| Cash distributions to common unitholders - Non-affiliates | — | | | (11,678) | | | — | | | | | | | (11,678) | |
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| Net income | — | | | 35,029 | | | — | | | | | | | 35,029 | |
| Balance at September 30, 2021 | 10,681,332 | | | $ | 312,004 | | | $ | 1 | | | | | | | $ | 312,005 | |
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| Common Units | | General
Partner
Interest | | | | | | Total Partners’ Capital |
| (in thousands, except unit data) | Issued | | Amount | |
| Balance at December 31, 2021 | 10,681,332 | | | $ | 342,197 | | | $ | 1 | | | | | | | $ | 342,198 | |
| Cash distributions to common unitholders - Affiliates | — | | | (20,394) | | | — | | | | | | | (20,394) | |
| Cash distributions to common unitholders - Non-affiliates | — | | | (35,576) | | | — | | | | | | | (35,576) | |
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| Repurchase of common units | (111,695) | | | (12,398) | | | — | | | | | | | (12,398) | |
| Net income | — | | | 93,661 | | | — | | | | | | | 93,661 | |
| Balance at March 31, 2022 | 10,569,637 | | | $ | 367,490 | | | $ | 1 | | | | | | | $ | 367,491 | |
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| | | Common Units | | General
Partner
Interest | | | Total Partners’ Capital | | Common Units | | General
Partner
Interest | | | Total Partners’ Capital |
| (in thousands, except unit data) | (in thousands, except unit data) | Issued | | Amount | | Total Partners’ Capital | (in thousands, except unit data) | Issued | | Amount | | General
Partner
Interest | | Total Partners’ Capital |
| Balance at December 31, 2019 | 11,328,297 | | | $ | 419,543 | | | $ | 1 | | | | $ | 419,544 | | |
| | Land exchange with affiliate | — | | | (116) | | | — | | | | (116) | | |
| Net loss | — | | | (20,735) | | | — | | | | (20,735) | | |
| Balance at March 31, 2020 | 11,328,297 | | | $ | 398,692 | | | $ | 1 | | | | $ | 398,693 | | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | 10,705,710 | | | $ | 314,240 | | | $ | 1 | | | | $ | 314,241 | |
| | Repurchase of common units | Repurchase of common units | (89,022) | | | (955) | | | — | | | | (955) | | Repurchase of common units | (24,378) | | | (529) | | | — | | | | (529) | |
| | Net loss | Net loss | — | | | (41,612) | | | — | | | | (41,612) | | Net loss | — | | | (25,384) | | | — | | | | (25,384) | |
| Balance at June 30, 2020 | 11,239,275 | | | $ | 356,125 | | | $ | 1 | | | | $ | 356,126 | | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | 10,681,332 | | | $ | 288,327 | | | $ | 1 | | | | $ | 288,328 | |
| | Repurchase of common units | (140,378) | | | (1,322) | | | — | | | | (1,322) | | |
| Net loss | — | | | (18,952) | | | — | | | | (18,952) | | |
| Balance at September 30, 2020 | 11,098,897 | | | $ | 335,851 | | | $ | 1 | | | | $ | 335,852 | | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
September 30, 2021March 31, 2022 | 7
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) | | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| (in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2022 | | 2021 |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
| Net income (loss) | Net income (loss) | $ | 16,665 | | | $ | (81,299) | | Net income (loss) | $ | 93,661 | | | $ | (25,384) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
| Depreciation and amortization | Depreciation and amortization | 52,648 | | | 56,997 | | Depreciation and amortization | 19,465 | | | 14,123 | |
| Goodwill impairment | — | | | 40,969 | | |
| | Share-based compensation | Share-based compensation | 15,459 | | | (121) | | Share-based compensation | 12,074 | | | 3,592 | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | 8,299 | | | — | | Loss on extinguishment of debt | 628 | | | — | |
| Other adjustments | Other adjustments | 3,142 | | | 4,089 | | Other adjustments | 613 | | | 1,259 | |
| Change in assets and liabilities: | Change in assets and liabilities: | | Change in assets and liabilities: | |
| Current assets and liabilities | Current assets and liabilities | 21,009 | | | 7,381 | | Current assets and liabilities | 39,991 | | | 33,782 | |
| Non-current assets and liabilities | Non-current assets and liabilities | 3,046 | | | 1,201 | | Non-current assets and liabilities | 495 | | | (1,821) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 120,268 | | | 29,217 | | Net cash provided by operating activities | 166,927 | | | 25,551 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
| Capital expenditures | Capital expenditures | (10,248) | | | (15,174) | | Capital expenditures | (7,899) | | | (2,994) | |
| Proceeds from sale of assets | 42 | | | 48 | | |
| | Net cash used in investing activities | Net cash used in investing activities | (10,206) | | | (15,126) | | Net cash used in investing activities | (7,899) | | | (2,994) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
| Repurchase of common units | Repurchase of common units | (529) | | | (2,277) | | Repurchase of common units | (12,398) | | | (529) | |
| Proceeds from issuance of senior secured notes | 550,000 | | | — | | |
| | Principal payments on senior secured notes | Principal payments on senior secured notes | (567,240) | | | — | | Principal payments on senior secured notes | (65,000) | | | — | |
| | Cash distributions to common unitholders - Affiliates | Cash distributions to common unitholders - Affiliates | (6,694) | | | — | | Cash distributions to common unitholders - Affiliates | (20,394) | | | — | |
| Cash distributions to common unitholders - Non-affiliates | Cash distributions to common unitholders - Non-affiliates | (11,678) | | | — | | Cash distributions to common unitholders - Non-affiliates | (35,576) | | | — | |
| Payment of deferred financing costs | Payment of deferred financing costs | (3,733) | | | (448) | | Payment of deferred financing costs | (829) | | | — | |
| Other financing activities | Other financing activities | (78) | | | (75) | | Other financing activities | — | | | (26) | |
| Net cash used in financing activities | Net cash used in financing activities | (39,952) | | | (2,800) | | Net cash used in financing activities | (134,197) | | | (555) | |
| Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 70,110 | | | 11,291 | | Net increase in cash and cash equivalents | 24,831 | | | 22,002 | |
| Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 30,559 | | | 36,994 | | Cash and cash equivalents, beginning of period | 112,516 | | | 30,559 | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 100,669 | | | $ | 48,285 | | Cash and cash equivalents, end of period | $ | 137,347 | | | $ | 52,561 | |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
September 30, 2021March 31, 2022 | 8
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Organization and Nature of Business
CVR Partners, LP (“CVR Partners” or the “Partnership”) is a Delaware limited partnership formed by CVR Energy, Inc. (together with its subsidiaries, but excluding the Partnership and its subsidiaries, “CVR Energy”) to own, operate and grow its nitrogen fertilizer business. The Partnership produces nitrogen fertilizer products at 2 manufacturing facilities, which areone 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’s products are sold on a wholesale basis in the United States of America. As used in these financial statements, references to CVR Partners, the Partnership, “we”, “us”, and “our” may refer to consolidated subsidiaries of CVR Partners or one or both of the facilities, as the context may require.
Interest Holders
As of September 30, 2021,March 31, 2022, public common unitholders held approximately 64%63% of the Partnership’s outstanding limited partner interests; CVR Services, LLC (“CVR Services”), a wholly-ownedwholly owned subsidiary of CVR Energy, held approximately 36%37% of the Partnership’s outstanding limited partner interests; and CVR GP, LLC (“CVR GP” or the “general partner”), a wholly owned subsidiary of CVR Energy, held 100% of the Partnership’s general partner interest. As of September 30, 2021,March 31, 2022, Icahn Enterprises L.P. and its affiliates owned approximately 71% of the common stock of CVR Energy.
Unit Repurchase Program
On May 6, 2020, the board of directors of the Partnership’s 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, enablesas increased, authorized the Partnership to repurchase up to $10$20 million of the Partnership’s common units. On February 22, 2021, the Board authorized an additional $10 million for the Unit Repurchase Program. During the three months ended September 30, 2021, the Partnership did not repurchase any common units. During the nine months ended September 30,March 31, 2022 and 2021, the Partnership repurchased 111,695 and 24,378 common units, respectively, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $12.4 million and $0.5 million, inclusiverespectively, exclusive of transaction costs, or an average price of $21.70 per common unit. During the three$110.98 and nine months ended September 30, 2020, as adjusted to reflect the impact of the 1-for-10 reverse unit split of the Partnership’s common units that was effective as of November 23, 2020, the Partnership repurchased 140,378 and 229,400 common units, respectively, at a cost of $1.3 million and $2.3 million, respectively, inclusive of transaction costs, or an average price of $9.42 and $9.92$21.69 per common unit, respectively. As of September 30, 2021,March 31, 2022, the Partnership, considering all repurchases made since inception of the Unit Repurchase Program, had $12.4 milliona 0minal amount in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership to acquirerepurchase any common units and may be cancelled or terminated by the Board at any time.
Management and Operations
The Partnership, including CVR GP, is managed by a combination of the Board, the general partner’s executive officers, CVR Services (as sole member of the general partner), and certain officers of CVR Energy, pursuant to the Partnership Agreement, as well as a number of agreements betweenamong the Partnership, CVR GP, CVR Energy, and certain of their respective subsidiaries, including a services agreement. See Part II, Item 8 of CVR Partners’ Annual Report on Form 10-K for the year ended December 31, 20202021 (the “2020“2021 Form 10-K”) for further discussion. Common unitholders have limited voting rights on matters affecting the Partnership and have no right to elect the general partner’s directors or officers, whether on an annual or continuing basis or otherwise.
(2) Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements should be read in conjunction with the December 31, 20202021 audited consolidated financial statements and notes thereto included in the 20202021 Form 10-K.
September 30, 2021March 31, 2022 | 9
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In the opinion of the Partnership’s management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary for fair presentation of the financial position and results of operations of the Partnership for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.
Certain reclassifications have been made within the condensed consolidated financial statements for prior periods to conform with current presentation.
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. 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, 20212022 or any other interim or annual period.
(3) Recent Accounting Pronouncements
Recent Accounting Pronouncements - Adoption of Income Taxes Standard
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740). The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and modifies other areas of the topic to clarify the application of GAAP. Certain amendments within the standard are required to be applied on a retrospective basis and others on a prospective basis. Effective January 1, 2021, we adopted this ASU with no material impact on the Partnership’s consolidated financial position or results of operations.
Recent Accounting Pronouncements - Adoption of Codification Improvements Standard
In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The ASU amends various sections of the codification in the FASB’s ongoing efforts to simplify and improve guidance. Effective January 1, 2021, we adopted this ASU with no material impact on the Partnership’s consolidated financial position or results of operations.
Recent Accounting Pronouncements - New Accounting Standards Issued But Not Yet Implemented
In March 2020, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848). This ASU was issued because, by the end of 2021,2022, banks will no longer be required to report information that is used to determine London Interbank Offered Rate (“LIBOR”), which is used globally by all types of entities. As a result, LIBOR could be discontinued, as well as other interest rates used globally. ASU 2020-04 provides companies with optional expedients for contract modifications under Topics 310, 470, 842, and 815-15, excluded components of certain hedging relationships, fair value hedges, and cash flow hedges, as well as certain exceptions, which are intended to help ease the potential accounting burden associated with transitioning away from these reference rates. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which clarifies certain optional expedients and exceptions for contract modifications and hedge accounting. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022). The Partnership is currently evaluating the impact of adopting this new accounting standard, but does not currently expect it to have a material impact on its consolidated financial statements and related disclosures.
(4) Inventories
Inventories consisted of the following:
| | (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | (in thousands) | March 31, 2022 | | December 31, 2021 |
| Finished goods | Finished goods | $ | 22,393 | | | $ | 9,815 | | Finished goods | $ | 21,124 | | | $ | 17,141 | |
| Raw materials | Raw materials | 787 | | | 152 | | Raw materials | 1,734 | | | 833 | |
| Parts, supplies and other | Parts, supplies and other | 35,846 | | | 32,382 | | Parts, supplies and other | 42,334 | | | 34,296 | |
| Total inventories | Total inventories | $ | 59,026 | | | $ | 42,349 | | Total inventories | $ | 65,192 | | | $ | 52,270 | |
September 30, 2021March 31, 2022 | 10
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(5) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| | (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | (in thousands) | March 31, 2022 | | December 31, 2021 |
| Machinery and equipment | Machinery and equipment | $ | 1,393,816 | | | $ | 1,388,735 | | Machinery and equipment | $ | 1,412,633 | | | $ | 1,410,203 | |
| Buildings and improvements | Buildings and improvements | 17,598 | | | 17,598 | | Buildings and improvements | 17,598 | | | 17,598 | |
| Automotive equipment | Automotive equipment | 16,696 | | | 16,608 | | Automotive equipment | 16,429 | | | 16,433 | |
| Land and improvements | Land and improvements | 14,199 | | | 14,132 | | Land and improvements | 14,604 | | | 14,199 | |
| | Construction in progress | Construction in progress | 18,090 | | | 12,098 | | Construction in progress | 16,803 | | | 14,167 | |
| Other | Other | 2,220 | | | 1,721 | | Other | 2,220 | | | 2,221 | |
| | 1,462,619 | | | 1,450,892 | | | 1,480,287 | | | 1,474,821 | |
| Less: Accumulated depreciation and amortization | Less: Accumulated depreciation and amortization | 605,933 | | | 553,045 | | Less: Accumulated depreciation and amortization | (644,574) | | | (624,359) | |
| Total property, plant and equipment, net | Total property, plant and equipment, net | $ | 856,686 | | | $ | 897,847 | | Total property, plant and equipment, net | $ | 835,713 | | | $ | 850,462 | |
As of September 30, 2021,March 31, 2022, the Partnership had not identified the existence of an impairment indicator for our long-lived asset groups as outlined under ASCAccounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment.
(6) Leases
Lease Overview
We lease railcars and certain facilities to support the Partnership’s operations. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements.
Balance Sheet Summary as of September 30, 2021March 31, 2022 and December 31, 20202021
The following tables summarize the right-of-use (“ROU”) asset and lease liability balances for the Partnership’s operating and finance leases at September 30, 2021March 31, 2022 and December 31, 20202021:
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| (in thousands) | (in thousands) | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | (in thousands) | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| ROU asset, net | ROU asset, net | | | | | | | | ROU asset, net | | | | | | | |
| | Railcars | Railcars | $ | 5,363 | | | $ | — | | | $ | 7,327 | | | $ | — | | Railcars | $ | 3,767 | | | $ | — | | | $ | 4,570 | | | $ | — | |
| Real estate and other | Real estate and other | 2,849 | | | 60 | | | 3,040 | | | 101 | | Real estate and other | 2,659 | | | 8 | | | 2,755 | | | 34 | |
| Lease liability | Lease liability | | Lease liability | |
| | Railcars | Railcars | $ | 5,363 | | | $ | — | | | $ | 7,696 | | | $ | — | | Railcars | $ | 3,767 | | | $ | — | | | $ | 4,570 | | | $ | — | |
| Real estate and other | Real estate and other | 716 | | | 18 | | | 867 | | | 105 | | Real estate and other | 614 | | | — | | | 665 | | | — | |
September 30, 2021March 31, 2022 | 11
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Lease Expense Summary for the Three and Nine Months Ended September 30,March 31, 2022 and 2021 and 2020
We recognize lease expense on a straight-line basis over the lease term and short-term lease expense within Direct operating expenses (exclusive of depreciation and amortization). For the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, we recognized lease expense comprised of the following components:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | |
| Operating lease expense | Operating lease expense | $ | 956 | | | $ | 1,000 | | | $ | 2,876 | | | $ | 3,144 | | Operating lease expense | $ | 1,059 | | | $ | 916 | | |
| Finance lease expense: | Finance lease expense: | | Finance lease expense: | | |
| Amortization of ROU asset | Amortization of ROU asset | $ | 33 | | | $ | 25 | | | $ | 77 | | | $ | 75 | | Amortization of ROU asset | $ | 26 | | | $ | 22 | | |
| Interest expense on lease liability | Interest expense on lease liability | 1 | | | 1 | | | 2 | | | 5 | | Interest expense on lease liability | — | | | 1 | | |
| Short-term lease expense | Short-term lease expense | $ | 121 | | | $ | 113 | | | $ | 421 | | | $ | 316 | | Short-term lease expense | $ | 766 | | | $ | 160 | | |
Lease Terms and Discount Rates
The following outlines the remaining lease terms and discount rates used in the measurement of the Partnership’s ROU assets and liabilities at September 30, 2021March 31, 2022 and December 31, 2020:2021:
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| Weighted-average remaining lease term | Weighted-average remaining lease term | 2.3 years | | 0.6 years | | 2.9 years | | 1.3 years | Weighted-average remaining lease term | 2.0 years | | 0.0 years | | 2.1 years | | 0.0 years |
| Weighted-average discount rate | Weighted-average discount rate | 5.1 | % | | 4.0 | % | | 5.1 | % | | 4.0 | % | Weighted-average discount rate | 5.1 | % | | — | % | | 5.1 | % | | — | % |
Maturities of Lease Liabilities
The following summarizes the remaining minimum operating lease payments through maturity of the Partnership’s ROU assets and liabilities at September 30, 2021:March 31, 2022. There were no finance lease payments remaining at March 31, 2022.
| | (in thousands) | (in thousands) | Operating Leases | | Finance Leases | (in thousands) | Operating Leases | |
| Remainder of 2021 | $ | 914 | | | $ | 18 | | |
| 2022 | 3,220 | | | — | | |
| Remainder of 2022 | | Remainder of 2022 | $ | 2,307 | | |
| 2023 | 2023 | 1,359 | | | — | | 2023 | 1,359 | | |
| 2024 | 2024 | 676 | | | — | | 2024 | 676 | | |
| 2025 | 2025 | 261 | | | — | | 2025 | 260 | | |
| 2026 | | 2026 | — | | |
| Thereafter | Thereafter | — | | | — | | Thereafter | — | | |
| Total lease payments | Total lease payments | 6,430 | | | 18 | | Total lease payments | 4,602 | | |
| Less: imputed interest | Less: imputed interest | (351) | | | — | | Less: imputed interest | (221) | | |
| Total lease liability | Total lease liability | $ | 6,079 | | | $ | 18 | | Total lease liability | $ | 4,381 | | |
On February 21, 2022, CRNF entered into the First Amendment to the On-Site Product Supply Agreement with Messer LLC (“Messer”), which amended the July 31, 2020 On-Site Product Supply Agreement (as amended, the “Messer Agreement”). Under the Messer Agreement, among other obligations, Messer is obligated to supply and make certain capital improvements during the term of the Messer Agreement, and CRNF is obligated to take as available and pay for, oxygen, nitrogen, and compressed dry air from Messer’s facility. This arrangement for CRNF’s purchase of oxygen, nitrogen, and dry air from Messer does not meet the definition of a lease under FASB ASC Topic 842, Leases (“Topic 842”), as CRNF does not expect to receive substantially all of the output of Messer’s on-site production from its air separation unit over the life of the Messer Agreement. The Messer Agreement also obligates Messer to install a new oxygen storage vessel, related equipment and infrastructure (“Oxygen Storage Vessel” or “Vessel”) to be used solely by the Coffeyville Facility. The arrangement for the use of the Oxygen Storage Vessel meets the definition of a lease under Topic 842, as CRNF will receive all output associated with the Vessel. Based on terms outlined in the Messer Agreement, the Partnership expects the lease of the Oxygen Storage Vessel
September 30, 2021March 31, 2022 | 12
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
to be classified as a financing lease with an amount of approximately $25 million being capitalized upon lease commencement when the Vessel is placed in service.
(7) Other Current Liabilities
Other current liabilities consisted of the following:
| | (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | (in thousands) | March 31, 2022 | | December 31, 2021 |
| Share-based compensation | | Share-based compensation | $ | 12,123 | | | $ | 5,888 | |
| Accrued interest | Accrued interest | $ | 11,326 | | | $ | 2,506 | | Accrued interest | 9,826 | | 1,654 |
| Share-based compensation | 8,002 | | | 442 | | |
| Personnel accruals | Personnel accruals | 7,060 | | | 7,475 | | Personnel accruals | 5,252 | | | 7,920 | |
| Sales incentives | | Sales incentives | 2,643 | | | 1,555 | |
| Operating lease liabilities | Operating lease liabilities | 3,317 | | | 3,309 | | Operating lease liabilities | 2,578 | | | 3,052 | |
| Sales incentives | 2,888 | | | 2,215 | | |
| Accrued taxes other than income taxes | Accrued taxes other than income taxes | 2,196 | | | 1,769 | | Accrued taxes other than income taxes | 1,642 | | | 1,744 | |
| Prepaid revenue contracts | Prepaid revenue contracts | 145 | | | 197 | | Prepaid revenue contracts | 140 | | | 954 | |
| Current portion of long-term debt and finance lease obligations | 18 | | | 2,240 | | |
| Other accrued expenses and liabilities | Other accrued expenses and liabilities | 1,267 | | | 796 | | Other accrued expenses and liabilities | 2,803 | | | 1,634 | |
| Total other current liabilities | Total other current liabilities | $ | 36,219 | | | $ | 20,949 | | Total other current liabilities | $ | 37,007 | | | $ | 24,401 | |
(8) Long-Term Debt
Long-term debt consists of the following:
| | (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | (in thousands) | March 31, 2022 | | December 31, 2021 |
9.25% Senior Secured Notes, due June 2023 (5)(1) | 9.25% Senior Secured Notes, due June 2023 (5)(1) | $ | 80,000 | | | $ | 645,000 | | 9.25% Senior Secured Notes, due June 2023 (5)(1) | $ | — | | | $ | 65,000 | |
| 6.125% Senior Secured Notes, due June 2028 (1) | 6.125% Senior Secured Notes, due June 2028 (1) | 550,000 | | | — | | 6.125% Senior Secured Notes, due June 2028 (1) | 550,000 | | | 550,000 | |
| | Unamortized discount and debt issuance costs (2) | Unamortized discount and debt issuance costs (2) | (4,766) | | | (11,058) | | Unamortized discount and debt issuance costs (2) | (3,561) | | | (4,358) | |
| Total long-term debt and finance lease obligations, net of current portion | 625,234 | | | 633,942 | | |
| Current portion of long-term debt and finance lease obligations (3)(4) | 18 | | | 2,240 | | |
| Total long-term debt and finance lease obligations, including current portion | $ | 625,252 | | | $ | 636,182 | | |
| Total long-term debt | | Total long-term debt | $ | 546,439 | | | $ | 610,642 | |
|
(1)The estimated fair value$65 million outstanding balance of the 9.25% Senior Secured Notes, due June 2023 (the “2023 Notes”) was paid in full on February 22, 2022 at par, plus accrued and unpaid interest. The estimated fair value of the 2023 Notes was approximately $80.2 million and $645.7$65.1 million as of September 30, 2021 and December 31, 2020, respectively.2021. The estimated fair value of the 6.125% Senior Secured Notes, due June 2028 (the “2028 Notes”) was approximately $576.8$549.8 million and $580.3 million as of September 30, 2021.March 31, 2022 and December 31, 2021, respectively. These estimates of fair value are a Level 2 measurement as they were determined by quotations obtained from a broker-dealer who makes a market in these and similar securities.
(2)For the three and nine months ended September 30,March 31, 2022 and 2021, amortization of the discount on debt and amortization of deferred financing costs reported as Interest expense, net totaled approximately $0.2 million and $2.2 million, respectively, and for the three and nine months ended September 30, 2020, Interest expense, net totaled approximately $1.0 million, and $2.8 million, respectively.
(3)The $2.2 million outstanding balance of the 6.50% Notes, due April 2021, was paid in full on April 15, 2021.
(4)Current portion of finance lease obligations recognized was 0minal as of September 30, 2021. Amount is reported in Other current liabilities.
(5)The call price of the 2023 Notes decreased to par on June 15, 2021. On June 23, 2021 and September 23, 2021, the Partnership redeemed $550 million and $15 million, respectively, of the 2023 Notes at par, plus accrued and unpaid interest. The remaining balance of $80 million is outstanding as of September 30, 2021.
Credit Agreements
| | | (in thousands) | (in thousands) | Total Available Borrowing Capacity | | Amount Borrowed as of September 30, 2021 | | Outstanding Letters of Credit | | Available Capacity as of September 30, 2021 | | Maturity Date | (in thousands) | Total Available Borrowing Capacity | | Amount Borrowed as of March 31, 2022 | | Outstanding Letters of Credit | | Available Capacity as of March 31, 2022 | | Maturity Date |
| ABL Credit Facility (1)(2)(3) | $ | 35,000 | | | $ | — | | | $ | — | | | $ | 35,000 | | | September 30, 2024 | |
ABL Credit Facility (1) (2) | | ABL Credit Facility (1) (2) | $ | 35,000 | | | $ | — | | | $ | — | | | $ | 35,000 | | | September 30, 2024 |
(1)On September 30, 2021, the Partnership entered into a senior secured asset based credit agreement with an aggregate principal amount of up to $35.0 million with a maturity date of September 30, 2024 (the “ABL Credit Facility”) and terminated its $35.0 million ABL Credit Agreement, dated as of September 30, 2016, as amended (the “2016 ABL Credit Agreement”).
(2)Beginning September 30, 2021, loans under the Partnership’s ABL Credit Facility bear interest at an annual rate equal to, at the option of the borrowers, (i) (a) 1.615% plus the daily simple Secured Overnight Financing Rate (“SOFR”) or (b) 0.615% plus a base rate, if our quarterly excess availability is greater than or equal to 75%, (ii) (a) 1.865% plus SOFR or (b) 0.865% plus a base rate, if our quarterly
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
excess availability is greater than or equal to 50% but less than 75%, or (iii) (a) 2.115% plus SOFR or (b) 1.115% plus a base rate, otherwise.
(3)(2)Amortization expense was $0.1 million and $0.3$0.1 million for the three and nine months ended September 30, 2021, respectively,March 31, 2022 and $0.1 million and $0.2 million for the three and nine months ended September 30, 2020,2021, respectively.
2028 Notes9.25% - On June 23, 2021, CVR Partners and its subsidiary, CVR Nitrogen Finance Corporation (“Finance Co.” and, together with CVR Partners, the “Issuers”), completed a private offering of $550 million aggregate principal amount of 6.125% Senior Secured Notes due June 2028 (the “2028 Notes”). Interest on the 2028 Notes is payable semi-annually in arrears on June 15 and December 15 each year, commencing on December 15, 2021. The 2028 Notes mature on June 15, 2028, unless earlier redeemed or repurchased by the Issuers. The 2028 Notes are jointly and severally guaranteed on a senior secured basis by all the existing domestic subsidiaries of CVR Partners, excluding Finance Co.2023
In relation to the issuance of the 2028 Notes, the Partnership received $546.7 million of net cash proceeds, net of underwriting fees and other third-party fees and expenses associated with the offering. The debt issuance costs of the 2028 Notes totaled approximately $3.9 million and are being amortized over the term of the 2028 Notes as interest expense using the effective-interest amortization method.
We may, at our option, at any time and from time to time prior to June 15, 2024, on any one or more occasions, redeem all or part of the 2028 Notes at a price equal to 100% of the principal amount plus a “make whole” premium, plus accrued and unpaid interest. On or after June 15, 2024, we may, on any one or more occasions, redeem all or part of the 2028 Notes at the redemption prices set forth below, expressed as a percentage of the principal amount of the respective notes, plus accrued and unpaid interest to the applicable redemption date.
| | | | | | | | |
| 12-month period beginning June 15, | | Percentage |
| 2024 | | 103.063% |
| 2025 | | 101.531% |
| 2026 and thereafter | | 100.000% |
The indenture governing the 2028 Notes contains covenants that are substantially the same as the indenture governing the 2023 Notes. However, the 2028 Notes contain a permitted investment activity carveout that allows for the transfer of certain carbon capture assets to a joint venture for the purpose of monetizing potential tax credits.
2023 Notes - On June 23, 2021,February 22, 2022, the Partnership redeemed $550 million aggregate principal amountall of the outstanding 2023 Notes at par and settled accrued and unpaid interest of approximately $1.1 million through the date of redemption. As a result of this transaction, the Partnership recognized in Interest expense, net a $7.8 million loss on extinguishment of debt in the second quarter of 2021, which includes the write-off of unamortized deferred financing costs and original issue discount of $2.9$0.6 million, and $4.9 million, respectively.
On September 23, 2021, the Partnership redeemed $15 million aggregate principal amount of the outstanding 2023 Notes at par and settled accrued interest of approximately $0.4 million through the date of redemption. As a result of the redemption, the Partnership recognized in Interest expense, net a $0.2 million loss on extinguishment of debt in the third quarter of 2021, which includes the write-off of unamortized deferred financing costs and discount of $0.1$0.2 million and $0.1$0.4 million, respectively.
ABL Credit Facility - On September 30, 2021, CVR Partners, LP and its subsidiaries, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, Finance Co. and CVR Nitrogen GP, LLC, entered into the ABL Credit Facility with Wells Fargo Bank National Association, a national banking association (“Wells Fargo”), as administrative agent, collateral agent, and lender. The ABL Credit Facility has an aggregate principal amount of availability of up to $35.0 million with an incremental facility, which permits an increase in borrowings of up to $15.0 million in the aggregate subject to additional lender commitments and certain other conditions. The proceeds of the loans may be used for general corporate purposes of the Partnership and its subsidiaries. The ABL Credit Facility provides for loans and letters of credit, subject to meeting certain borrowing base conditions, with sub-limits of $3.5 million for swingline loans and $10.0 million for letters of credit. The ABL Credit Facility is scheduled to mature on September 30, 2024.
Loans under the ABL Credit Facility initially bear interest at an annual rate equal to, at the option of the borrowers, (i) 1.615% plus SOFR or (ii) 0.615% plus a base rate. Based on the previous quarter’s excess availability, such annual rate could
September 30, 2021March 31, 2022 | 1413
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
increase to, at the option of the borrowers, (i) 2.115% plus SOFR or (ii) 1.115% plus a base rate. The borrowers must also pay a commitment fee on the unutilized commitments and also pay customary letter of credit fees.
The ABL Credit Facility contains customary covenants for a financing of this type and requires the Partnership in certain circumstances to comply with a minimum fixed charge coverage ratio test and contains other restrictive covenants that limit the ability of the Partnership and its subsidiaries ability to, among other things, incur liens, engage in a consolidation, merger, purchase or sale of assets, pay dividends, incur indebtedness, make advances, investments and loans, enter into affiliate transactions, issue certain equity interests, create subsidiaries and unrestricted subsidiaries, and create certain restrictions on the ability to make distributions, loans, and asset transfers among the Partnership or its subsidiaries.
In connection with the ABL Credit Facility, the Partnership incurred lender and other third-party costs of $0.8 million which have been deferred in Prepaid expenses and other current assets and Other long-term assets and are being amortized as interest expense over the term of the ABL Credit Facility using the straight-line amortization method.
2016 ABL Credit Agreement - On September 30, 2021, the Partnership terminated its 2016 ABL Credit Agreement, which had no outstanding borrowings. As a result of the termination, the Partnership recognized in Interest expense, net a loss on extinguishment of $0.3 million, which is comprised of the write-off of unamortized deferred financing costs.
Covenant Compliance
The Partnership and its subsidiaries were in compliance with all covenants under their respective debt instruments as of September 30, 2021.March 31, 2022.
(9) Revenue
The following table presents the Partnership’s revenue, disaggregated by major product:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | |
| Ammonia | Ammonia | $ | 26,550 | | | $ | 12,995 | | | $ | 68,180 | | | $ | 63,906 | | Ammonia | $ | 42,011 | | | $ | 9,534 | | |
| UAN | UAN | 98,312 | | | 51,042 | | | 223,972 | | | 153,350 | | UAN | 159,607 | | | 38,062 | | |
| Urea products | Urea products | 8,168 | | | 3,385 | | | 19,746 | | | 10,453 | | Urea products | 9,223 | | | 4,758 | | |
| Net sales, exclusive of freight and other | Net sales, exclusive of freight and other | 133,030 | | | 67,422 | | | 311,898 | | | 227,709 | | Net sales, exclusive of freight and other | 210,841 | | | 52,354 | | |
| Freight revenue | Freight revenue | 9,249 | | | 9,545 | | | 24,234 | | | 24,222 | | Freight revenue | 9,214 | | | 6,114 | | |
| Other revenue | Other revenue | 2,436 | | | 2,515 | | | 7,528 | | | 7,723 | | Other revenue | 2,818 | | | 2,453 | | |
| Net sales | Net sales | $ | 144,715 | | | $ | 79,482 | | | $ | 343,660 | | | $ | 259,654 | | Net sales | $ | 222,873 | | | $ | 60,921 | | |
Transaction Price Allocated to Remaining Performance Obligations
As of September 30, 2021,March 31, 2022, the Partnership had approximately $6.7$10.0 million of remaining performance obligations for contracts with an original expected duration of more than one year. The Partnership expects to recognize approximately $1.3$5.8 million of these performance obligations as revenue by the end of 2021,2022, an additional $3.5$4.0 million in 2022,2023, and the remaining balance thereafter.
Contract Balances
The Partnership’s deferred revenue is a contract liability that primarily relates to nitrogen fertilizer sales contracts requiring customer prepayment prior to product delivery to guarantee a price and supply of nitrogen fertilizer. Deferred revenue is recorded at the point in time in which a prepaid contract is legally enforceable and the associated right to consideration is unconditional prior to transferring product to the customer. An associated receivable is recorded for uncollected prepaid contract amounts. Contracts requiring prepayment are generally short-term in nature and, as discussed above, revenue is recognized at the point in time in which the customer obtains control of the product.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A summary of the deferred revenue activity for the ninethree months ended September 30, 2021March 31, 2022 is presented below:
| | | | | | | |
| (in thousands) | | | |
Balance at December 31, 20202021 | $ | 30,63187,060 | | | |
| Add: | | | |
New prepay contracts entered into during the period (1) | 54,25215,246 | | | |
| Less: | | | |
| Revenue recognized that was included in the contract liability balance at the beginning of the period | (29,735)(16,968) | | | |
| Revenue recognized related to contracts entered into during the period | (21,253)(4,277) | | | |
| Other changes | (141)(184) | | | |
Balance at September 30, 2021March 31, 2022 | $ | 33,75480,877 | | | |
(1) Includes $50.2$14.2 million where payment associated with prepaid contracts was collected as of September 30, 2021.March 31, 2022.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(10) Share-Based Compensation
A summary of compensation expense for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 is presented below:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | |
| Phantom Units | Phantom Units | $ | 4,563 | | | $ | 144 | | | $ | 13,096 | | | $ | (54) | | Phantom Units | $ | 9,912 | | | $ | 3,145 | | |
Other Awards (1) | Other Awards (1) | 925 | | | (96) | | | 2,363 | | | (67) | | Other Awards (1) | 2,162 | | | 447 | | |
| Total share-based compensation expense | Total share-based compensation expense | $ | 5,488 | | | $ | 48 | | | $ | 15,459 | | | $ | (121) | | Total share-based compensation expense | $ | 12,074 | | | $ | 3,592 | | |
(1)Other awards include the allocation of compensation expense for certain employees of CVR Energy and certain of its subsidiaries who perform services for the Partnership under the services agreement with CVR Energy and the Limited Partnership Agreement, respectively, and participate in equity compensation plans of CVR Partners’ affiliates.
(11) Commitments and Contingencies
There have been no material changes in the Partnership’s commitments and contingencies disclosed in the 20202021 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 these matters if the Partnership has determined that it is probable a loss has been incurred and the loss can be reasonably estimated. While it is not possible to predict the outcome of such proceedings, if one or more of them were decided against us, the Partnership believes there would be no material impact on its consolidated financial statements.
The Partnership continues to monitor its contractual arrangements and customer, vendor, and supplier relationships to determine whether and to what extent, if any, the impacts of the COVID-19 pandemic, the Russia-Ukraine conflict, or ongoing price volatility will impair or excuse the performance of the Partnership or its subsidiaries or their customers, vendors, or suppliers under existing agreements. As of September 30, 2021,March 31, 2022, the Partnership had not experienced a material financial impact from any actual or threatened impairment of or excuse in its or others’ performance under such agreements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(12) Supplemental Cash Flow Information
Cash flows related to income taxes, interest, leases, and capital expenditures and deferred financing costs included in accounts payable are as follows:
| | | Nine Months Ended
September 30, | | Three Months Ended
March 31, |
| (in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2022 | | 2021 |
| Supplemental disclosures: | Supplemental disclosures: | | | | Supplemental disclosures: | | | |
| Cash paid for interest | Cash paid for interest | $ | 31,547 | | | $ | 30,058 | | Cash paid for interest | $ | 1,164 | | | $ | 45 | |
| Cash paid for income taxes, net of refunds | 27 | | | 73 | | |
| | Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | Cash paid for amounts included in the measurement of lease liabilities: | |
| Operating cash flows from operating leases | Operating cash flows from operating leases | 2,745 | | | 3,049 | | Operating cash flows from operating leases | $ | 898 | | | $ | 918 | |
| Operating cash flows from finance leases | Operating cash flows from finance leases | 2 | | | 5 | | Operating cash flows from finance leases | — | | | 1 | |
| Financing cash flows from finance leases | Financing cash flows from finance leases | 78 | | | 75 | | Financing cash flows from finance leases | — | | | 26 | |
| Non-cash investing and financing activities: | Non-cash investing and financing activities: | | Non-cash investing and financing activities: | |
| Change in capital expenditures included in accounts payable | Change in capital expenditures included in accounts payable | 3,279 | | | (1,411) | | Change in capital expenditures included in accounts payable | $ | (2,250) | | | $ | 131 | |
| Change in deferred financing costs included in accounts payable | 677 | | | — | | |
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(13) Related Party Transactions
Activity associated with the Partnership’s related party arrangements for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 is summarized below.
Related Party Activity | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
| Sales to related parties (1) | $ | 7 | | | $ | 107 | | | $ | 308 | | | $ | 989 | |
| Purchases from related parties (2) | 11,286 | | | 5,025 | | | 29,109 | | | 16,289 | |
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| (in thousands) | 2022 | | 2021 | | | | |
Sales to related parties (1) | $ | 48 | | | $ | 219 | | | | | |
Purchases from related parties (2) | 14,534 | | | 6,693 | | | | | |
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| | | |
| Due to related parties (3) | 2,891 | | | 694 | |
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| | | |
Due to related parties (3) | $ | 4,933 | | | $ | 3,580 | |
(1)Sales to related parties, included in Net sales, consist primarily of sales of feedstocks and services to Coffeyville Resources Refining & Marketing, LLC (“CRRM”) under the Master Service Agreement with Coffeyville Resources Nitrogen Fertilizers, LLCCRNF (the “Coffeyville MSA”).
(2)Purchases from related parties, included in Cost of materials and other, Direct operating expenses (exclusive of depreciation and amortization), and Selling, general and administrative expenses, consist primarily of pet coke and hydrogen purchased from CRRM under the Coffeyville MSA and services provided by CVR Services under the Corporate Master Service Agreement (the “Corporate MSA”).MSA.
(3)Due to related parties, included in Accounts payable to affiliates, consists primarily of amounts to be received or payable for feedstocks and other supplies and services provided by CRRM and CVR Services under the Coffeyville MSA and the Corporate MSA.Master Service Agreement effective January 1, 2020, by and among CVR Services and certain of its affiliates, including the Partnership and our subsidiaries, as amended by that certain Amendment to Corporate Master Service Agreement dated April 12, 2022 (as amended, the “Corporate MSA”).
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Distributions to CVR Partners’ Unitholders
Distributions, if any, including the payment, amount, and timing thereof, are subject to change at the discretion of the Board. The following table presents distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, as of September 30,during 2022 and 2021.
| | | Dividends Paid (in thousands) | | Distributions Paid (in thousands) |
| Related Period | Related Period | | Date Paid | | Dividend Per Common Unit | | Unitholders | | CVR Energy | | Total | Related Period | | Date Paid | | Distribution Per
Common Unit | | Public Unitholders | | CVR Energy | | Total |
| 2021 - 4th Quarter | | 2021 - 4th Quarter | | March 14, 2022 | | $ | 5.24 | | | $ | 35,576 | | | $ | 20,394 | | | $ | 55,970 | |
| | 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11,678 | | | $ | 6,694 | | | $ | 18,372 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Distributions Paid (in thousands) |
| Related Period | | Date Paid | | Distribution Per
Common Unit | | Public Unitholders | | CVR Energy | | Total |
| | | | | | | | | | |
| | | | | | | | | | |
| 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11,678 | | | $ | 6,694 | | | $ | 18,372 | |
| 2021 - 3rd Quarter | | November 23, 2021 | | 2.93 | | | 19,893 | | | 11,404 | | | 31,297 | |
| Total distributions | | $ | 4.65 | | | $ | 31,571 | | | $ | 18,098 | | | $ | 49,669 | |
There were no distributions declared or paid by the Partnership related to the first quarter of 2021 and fourth quarter of 2020, and no distributions were declared or paid during 2020.
For the thirdfirst quarter of 2021,2022, the Partnership, upon approval by the Board on November 1, 2021,May 2, 2022, declared a distribution of $2.93$2.26 per common unit, or $31.3$23.9 million, which is payable November 22, 2021May 23, 2022 to unitholders of record as of November 12, 2021.May 13, 2022. Of this amount, CVR Energy will receive approximately $11.4$8.8 million, with the remaining amount payable to public unitholders.
September 30, 2021March 31, 2022 | 1816
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition, results of operations, and cash flows should be read in conjunction with the 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 year ended December 31, 20202021 filed with the Securities and Exchange Commission (“SEC”) on February 23, 20212022 (the “2020“2021 Form 10-K”). Results of operations for the three and nine months ended September 30, 2021March 31, 2022 and cash flows for the ninethree months ended September 30, 2021March 31, 2022 are not necessarily indicative of results to be attained for any other period. See “Important Information Regarding 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 discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Report.
Partnership Overview
CVR Partners, LP (“CVR Partners” or the “Partnership”) is a Delaware limited partnership formed in 2011 by CVR Energy, Inc. (“CVR Energy”) to own, operate, and grow its nitrogen fertilizer business. The Partnership produces and distributes 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, which areone 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 ammonia and urea ammonium nitrate (“UAN”). All of our products are sold on a wholesale basis. References to CVR Partners, the Partnership, “we”, “us”, and “our” may refer to consolidated subsidiaries of CVR Partners 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 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.
•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 valuesValues 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 refinement of existing policies, continuous training, and enhanced monitoring procedures.
Reliability - Our goal is to achieve industry-leading utilization rates at both of our 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 market opportunities.
Financial Discipline - We strive to be as efficient as possible by maintaining low operating costs and disciplined deployment of capital.
Achievements
During the first ninethree months of 2021,2022, we successfully executed a number of achievements in support of our strategic objectives shown below through the date of this filing:
| | | | | | | | | | | | | | | | | | | | | | | |
| Safety | | Reliability | | Market Capture | | Financial Discipline |
| | | | | | | |
| | | | | | | |
Operated both facilities safely and reliably and at high utilization rates | ü | | ü | | ü | | |
Achieved reductions in environmental events, and projectprocess safety management tier 1 incidents and total recordable incident rate of 75%50%, 100% and 73%100%, respectively, compared to the first ninethree months of 20202021 | ü | | | | | | |
| Operated both facilities safely | ü | | | | | | |
Achieved record truck shipments and total shipments fromUAN production volumes at the Coffeyville Facility in March 2021 | | | ü | | ü | | ü |
| | | | | | | |
Achieved record ammonia production at the Coffeyville Facility in September 20212022 | | | ü | | ü | | |
Utilized downtime throughout the year to proactively complete maintenance work at the Coffeyville Facility, enabling the deferral of the planned turnaround from Fall 2021 to Summer 2022 | | | ü | | | | |
| Declared a distribution of $2.26 per common unit related to the first three months of 2022 to be paid in May 2022 | | | | | ü | | ü |
Reduced CVR Partners’Completed targeted $95 million debt reduction plan with the repayment of the remaining $65 million balance of the 9.25% Senior Secured Notes, due 2023 (the “2023 Notes”) in the first quarter of 2022 for a total reduction in annual cash interest expense by over 31% through refinancing a substantial portion of the 2023 Notes and subsequently redeeming $15approximately $9 million of the remaining balance of the 2023 Notes | | | | | | | ü |
| | | | | | | |
Declared total cash distributions of $4.65 perRepurchased over 111,000 common unit related to the first nine months of 2021units for $12.4 million | | | | | | | ü |
September 30, 2021March 31, 2022 | 2018
Industry Factors and Market Indicators
Within the nitrogen fertilizer business, earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices, utilization, and operating costs and expenses, including pet coke and natural gas feedstock costs.
The price at which nitrogen 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, local market conditions, operating levels of competing facilities, weather conditions, the availability of imports, impacts of foreign imports and foreign subsidies thereof, and the extent of government intervention in agriculture markets.
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’ 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, resulting in price volatility and a reduction in product margins. Moreover, the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products.
General Business Environment
COVID-19 - Throughout 2020 and into 2021, the COVID-19 pandemic and actions taken by governments and others in response thereto negatively impacteddisrupted the worldwide economy, financial markets, and the agricultural industry, resulting in significant businessenergy and operational disruptions. Consequently,fertilizer industries. Actions taken by the U.S. demand for liquid transportation fuels, including ethanol (the productiongovernment to provide stimulus to individuals and businesses have helped mitigate the impacts of which isthe downturn caused by COVID-19, and we continue to see businesses resuming operations and the lifting of governmental restrictions. However, despite worldwide advances in containment of the virus and economic market recovery in 2021 and 2022, COVID-19 remains a significant driverdynamic and continuously evolving situation with unknown short and long-term economic challenges that could reverse any recent improvements. Further, the spread of demand for corn), declined, causing many refineries and plants to reduce production or idle. During 2021, government restrictions have eased, vaccines have become available, and demand for transportation fuels has increased. Demand for ethanol for fuels blending has largely recovered to pre-COVID-19 levels, although an increase in outbreaks of any variantvariants of COVID-19 could reversecause restrictions to be reinstated, and the extent to which the pandemic may impact our business, financial condition, liquidity, or results of operations cannot be determined at this recoverytime.
Russia-Ukraine Conflict. Concerns over - In February 2022, Russia invaded Ukraine, significantly impacting global fertilizer and agriculture markets. The Black Sea is a major export point for nitrogen fertilizer and grains from Russia and Ukraine. Since the long-term negative effectsinvasion began, the Black Sea has been closed to exports which prompted tightening global supply conditions for nitrogen fertilizer in advance of spring planting and for wheat and corn availability, as Russia and Ukraine are major wheat exporters and Ukraine is a major corn exporter. Expectations are that the planted acres in Ukraine will be much lower in 2022 due to lack of planting inputs, fuel, and workers to complete the planting of crops. Additionally, many Western countries have formally or informally adopted sanctions on a number of Russian exports and individuals affiliated with Russian government leadership. While fertilizers have not been formally sanctioned, many Western customers are either unwilling to purchase Russian fertilizers or logistics make it too costly to import Russian fertilizers. Additionally, natural gas supplied from Russia to Western Europe has been constrained and prices have remained elevated since September 2021, causing a significant portion of European nitrogen fertilizer production capacity to be curtailed. Overall, these events have caused grain and fertilizer prices to rise, and we currently expect these conditions to persist for the remainder of 2022. The ultimate outcome of the COVID-19 pandemic on economicRussia-Ukraine conflict and any associated market disruptions are difficult to predict and may affect our business prospects across the world have contributed to increased market and grain price volatility and have diminished expectations for the global economy.in unforeseen ways.
The Partnership believes the general business environment in which it operates will continue to remain volatile during 2021 and intoin 2022, 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, and do not return to pre-pandemic levels.volatile. Due to the uncertainty of the global recovery, including its duration, timing, and strength, 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.
Market Indicators
While there is risk of shorter-term volatility given the inherent nature of the commodity cycle, 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 U.S. 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 evident throughby the chart presented below for 2021 and 2020.as of March 31, 2022.
The relationship between the total acres planted for both corn and soybean 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 811 billion pounds of soybean oil is expected to be used in producing cleaner biodiesel
in marketing year 2020/2021.2021/2022. Multiple refiners have announced biodieselrenewable diesel expansion projects for 20212022 and beyond, which will only increase the demand for soybeans and capacitypotentially for soybeans. Due to the uncertainty of how these factors will truly affect the soybean market, it is not yet known how the nitrogen business will be impacted.corn and canola.
The 2021preliminary 2022 United States Department of Agriculture (“USDA”) reports on corn and soybean acres planted indicated farmers’ intentions to plant 93.389.5 million acres of corn, representing an increasea decrease of 2.9%4.1% in corn acres planted as compared to 90.793.4 million corn acres in 2020.2021. Planted soybean acres are estimated to be 87.291.0 million acres, representing a 4.7%4.3% increase in soybean acres planted as compared to 83.487.2 million soybean acres in 2020.2021. The combined corn and soybean planted acres of 180.5 million is in line with the acreage planted in 2021, which was the highest in history,history. Due to higher input costs for corn planting and based onincreased demand for soybeans, particularly for renewable diesel production, it was more favorable for farmers to plant soybeans compared to corn. The lower planted corn acres in 2022 is expected yieldsto be supportive of corn prices for 2022 and crop prices, farm economics have been very attractive in 2021.2023.
Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Ethanol production has historically consumed approximately 35% of the U.S. corn crop, so demand for corn generally rises and falls with ethanol demand. There was a decline in ethanol demand, in 2020 due to decreased demand for transportation fuels as a result of the COVID-19 pandemic. However, the lower ethanol demand did not alter the spring 2021 or 2020 planting decisions by farmers as evidenced inby the charts below.below, through March 31, 2022
| | | | | | | | |
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, 2022.
(2)Information used within this chart was obtained from the USDA, National Agricultural Statistics Services.Services as of March 31, 2022.
Weather continues to be a critical variable for crop production. The normal weatherEven with high planted acres and trendline yields per acre in the spring and the fall of 2020 allowed for an efficient spring application period and fall harvest. However, the unusual derecho storm in the Midwest in August 2020 damaged a significant number of corn acres, reducing harvested corn yields and, coupled with higher demandU.S., inventory levels for corn starting in the second half of 2020, led to much lower cornand soybeans remain below historical levels and prices have remained elevated. With tight grain and fertilizer inventory levels driven by the war in Ukraine, prices for grains and significantly higher corn prices. Soybeans have also experienced high demand levels starting in the second half of 2020 and inventory levelsfertilizers are much lower, resulting in much higher soybean prices. The higher grain prices increased planted corn and soybean acres for the spring of 2021 and ledexpected to higherremain elevated throughout 2022. These conditions are driving strong demand for nitrogen fertilizer, as well as other crop inputs.
Fertilizer prices have risen significantly since January 1, 2021 due to strong grain prices,inputs, for the strong spring 20212022 planting season, and lower fertilizer supply due to nitrogen fertilizer production outages during Winter Storm Uri and Hurricane Ida and significant escalation in global feedstock costs for nitrogen fertilizer production. While natural gas prices were at historical lows across the world in 2020, they have escalated significantly since the summer of 2021, causing nitrogen fertilizer production to be reduced or shut-in in Europe. In addition to escalating coal and LNG prices in China, nitrogen fertilizer exports have been reduced significantly in the second half of 2021.season.
On June 30, 2021, CF Industries Nitrogen, L.L.C., Terra Nitrogen, Limited Partnership, and Terra International (Oklahoma) LLC filed petitions with the U.S. Department of Commerce (“USDOC”) and the U.S. International Trade
Commission (the “ITC”) requesting the initiation of antidumping and countervailing duty investigations on imports of UAN from Russia and Trinidad and Tobago (“Trinidad”). In AugustFollowing investigations by both USDOC and ITC, on November 30, 2021, USDOC determined that UAN imports from Russia are unfairly subsidized at rates ranging from 9.66% to 9.84% and UAN imports from Trinidad are unfairly subsidized at a rate of 1.83%. On January 27, 2022, USDOC found that Russian UAN imports are sold at less than fair value into the U.S. Departmentmarket at rates ranging from 9.15% to 127.19% and that Trinidadian UAN imports at a rate of Commerce decided to pursue an investigation to determine the extent63.08%. As a result of dumping and unfair subsidies associated withthese determinations, USDOC will impose cash deposit requirements on imports of UAN from Russia and Trinidad based on the preliminary rates of antidumping duties. We believe that if the antidumping and countervailing duty preliminary determinations are confirmed by USDOC, there will likely be lower amounts of imported UAN from Russia and Trinidad for the ITC initiated anext several years.
The charts below show relevant market indicators by month through March 31, 2022:
| | | | | | | | |
Ammonia and UAN Market Pricing (1) | | Natural Gas and Pet Coke Market Pricing (1) |
September 30, 2021 | 22
concurrent investigation to determine whether such imports materially injure the U.S. industry. We believe it is too early to determine how these investigations might affect CVR Partners and the nitrogen fertilizer industry in the U.S. in general.
The tables below show relevant market indicators by month through September 30, 2021:
(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 charts presented below summarize our ammonia utilization rates on a consolidated basis for the three and nine months ended September 30, 2021March 31, 2022 and 2020.2021. 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 adjusted for planned maintenance and turnarounds.
Utilization is presented solely on ammonia production rather than 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 efforts primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how well we operate.
September 30, 2021March 31, 2022 | 2321
| | |
| Consolidated Ammonia Utilization |
On a consolidated basis, utilization remained unchanged at 88% for the three and nine months ended September 30, 2021, utilization decreasedMarch 31, 2022, compared to 94% and 93%, respectively. The decreases during the three and nine months ended September 30, 2021 wereMarch 31, 2021. The depressed utilization for 2022 was primarily due toa result of unplanned downtime associated with the Messer air separation plant at the Coffeyville Facility experienced in January, June, and August of 2021 (the “Messer Outages”(“Messer”), as well as downtime at the Coffeyville Facility and various pieces of equipment at the East Dubuque Facility. The depressed utilization for 2021 was primarily related to downtime associated with Messer at the Coffeyville Facility in JulyJanuary 2021 and September 2021, respectively, due to externally driven power outages (the “Power Outages”), compared to the same periods of 2020.Winter Storm Uri in February 2021.
Sales and Pricing per Ton - Two of our key operating metrics are total sales volumes for ammonia and UAN, along with the product pricing per ton realized at the gate. Total product sales volumes were unfavorable,favorable, driven by lowerhigher production at the Coffeyville Facility due to thereduced downtime from Messer Outages and the Power Outages.outages in 2022 as compared to 2021. For the three and nine months ended September 30, 2021, the lowMarch 31, 2022, total product sales volumes were more than offsetfavorable, driven by higher overall production and sales in 2022, along with product sales price increases of 110% and 42%, respectively,252% for ammonia and 118% and 54%, respectively,212% for UAN. Ammonia and UAN sales prices were favorable primarily due to higher crop pricing coupled with lower fertilizer supply driven by production outages from Winter Storm Uri in February 2021 and Hurricane Ida in August and September 2021, as well as increased industry turnaround activity.activity, and the impacts from the Russia-Ukraine conflict. Product pricing at the gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure comparable across the fertilizer industry.
Operating Highlights for the Three Months Ended September 30,March 31, 2022 versus March 31, 2021 versus September 30, 2020
| | | | | | | | |
Sales (thousand tons) | | Product Pricing at Gate ($ per ton) |
September 30, 2021March 31, 2022 | 2422
Operating Highlights for the Nine Months Ended September 30, 2021 versus September 30, 2020
Production Volumes - Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products. Production for the three and nine months ended September 30, 2021 was impacted by the Messer Outages and the Power Outages. The table below presents these metrics for the three and nine months ended September 30, 2021March 31, 2022 and 2020:2021:
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in thousands of tons) | (in thousands of tons) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands of tons) | 2022 | | 2021 | |
| Ammonia (gross produced) | Ammonia (gross produced) | 205 | | | 215 | | | 610 | | | 631 | | Ammonia (gross produced) | 187 | | | 188 | | |
| Ammonia (net available for sale) | Ammonia (net available for sale) | 65 | | | 71 | | | 205 | | | 228 | | Ammonia (net available for sale) | 52 | | | 70 | | |
| UAN | UAN | 314 | | | 330 | | | 920 | | | 968 | | UAN | 317 | | | 272 | | |
Feedstock - Our Coffeyville Facility utilizes 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 and nine months ended September 30, 2021March 31, 2022 and 2020:2021:
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | |
| Petroleum coke used in production (thousand tons) | Petroleum coke used in production (thousand tons) | 129 | | | 129 | | | 390 | | | 393 | | Petroleum coke used in production (thousand tons) | 108 | | | 128 | | |
| Petroleum coke (dollars per ton) | Petroleum coke (dollars per ton) | $ | 50.35 | | | $ | 35.11 | | | $ | 43.23 | | | $ | 36.77 | | Petroleum coke (dollars per ton) | $ | 56.46 | | | $ | 42.91 | | |
| Natural gas used in production (thousands of MMBtu) (1) | Natural gas used in production (thousands of MMBtu) (1) | 2,043 | | | 2,136 | | | 6,079 | | | 6,408 | | Natural gas used in production (thousands of MMBtu) (1) | 1,761 | | | 1,882 | | |
| Natural gas used in production (dollars per MMBtu) (1) | Natural gas used in production (dollars per MMBtu) (1) | $ | 4.29 | | | $ | 2.10 | | | $ | 3.48 | | | $ | 2.15 | | Natural gas used in production (dollars per MMBtu) (1) | $ | 5.54 | | | $ | 3.10 | | |
| Natural gas in cost of materials and other (thousands of MMBtu) (1) | Natural gas in cost of materials and other (thousands of MMBtu) (1) | 1,786 | | | 2,026 | | | 5,436 | | | 6,660 | | Natural gas in cost of materials and other (thousands of MMBtu) (1) | 1,528 | | | 940 | | |
| Natural gas in cost of materials and other (dollars per MMBtu) (1) | Natural gas in cost of materials and other (dollars per MMBtu) (1) | $ | 3.78 | | | $ | 2.01 | | | $ | 3.27 | | | $ | 2.25 | | Natural gas in cost of materials and other (dollars per MMBtu) (1) | $ | 5.62 | | | $ | 2.94 | | |
(1)The feedstock natural gas shown above does not include natural gas used for fuel. The cost of fuel natural gas is included in Direct operating expenses (exclusive of depreciation and amortization).
Financial Highlights for the Three and Nine Months Ended September 30,March 31, 2022 and 2021 and 2020
Overview -For the three months ended September 30, 2021,March 31, 2022, the Partnership’s operating income and net income were $46.3$103.9 million and $35.0$93.7 million, respectively, representing improvements of $49.4$117.9 million and $54.0$119.1 million, respectively, compared to the three months ended September 30, 2020.March 31, 2021. These increases were driven by higher product sales prices and sales volumes for UAN and ammonia compared to the significantly higher pricing environment for ammonia and UAN products in 2021. For the ninethree months ended September 30, 2021, the Partnership’s operating income and net income were $62.6 million and $16.7 million, respectively, representing a $96.4 million and $98.0March 31, 2021.
| | | | | | | | |
| Net Sales | | Operating Income (Loss) |
September 30, 2021March 31, 2022 | 2523
million increase in operating income and net income, respectively, compared to the nine months ended September 30, 2020. Beyond the goodwill impairment of $41.0 million negatively impacting the 2020 period, these improvements were driven primarily by higher ammonia and UAN sales prices in 2021 due to higher crop pricing combined with lower nitrogen fertilizer supply driven by production outages during Winter Storm Uri in February 2021, Hurricane Ida in August and September 2021, and an increase in turnaround activity across the industry that further reduced available supply. | | | | | | | | |
| Net Income (Loss) | | EBITDA (1) |
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Net Sales - For the three months ended September 30, 2021,March 31, 2022, net sales increased by $65.2$162.0 million to $144.7$222.9 million compared to the three months ended September 30, 2020.March 31, 2021. This increase was primarily due to favorable UAN and ammonia pricing conditions and sales volumes which contributed $67.3$138.5 million and $15.6 million, respectively, in higher revenues, partially offset by decreased sales volumes contributing $6.4 million in lower revenues, as compared to the three months ended September 30, 2020.March 31, 2021.
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, 2021March 31, 2022 as compared to the three months ended September 30, 2020:March 31, 2021:
| | (in thousands) | (in thousands) | Price
Variance | | Volume
Variance | (in thousands) | Price
Variance | | Volume
Variance |
| UAN | UAN | $ | 53,358 | | | $ | (6,044) | | UAN | $ | 108,378 | | | $ | 13,167 | |
| Ammonia | Ammonia | 13,908 | | | (353) | | Ammonia | 30,073 | | | 2,404 | |
The $265$755 and $165$337 per ton increases in ammonia and UAN sales pricing, respectively, for the three months ended September 30, 2021,March 31, 2022, as compared to the three months ended September 30, 2020,March 31, 2021, were primarily attributable to continued improvement in market conditions as supplies of nitrogen fertilizer remained tight following the production outages related to Hurricane Ida in 2021, heightened turnaround activity during the summer of 2021, energy shortages in Europe and Asia, and further supply concerns due to the Russia-Ukraine conflict. The increase in UAN sales volumes for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily attributable to higher production at the Coffeyville Facility due to reduced downtime from Messer outages in 2022.
September 30, 2021March 31, 2022 | 2624
Winter Storm Uri, heightened turnaround activity during the summer, and further production outages following Hurricane Ida. The decrease in UAN sales volumes for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was primarily attributable to lower production at both facilities caused by the Messer Outages and the Power Outages. | | | | | | | | |
| Cost of Materials and Other | | Direct Operating Expenses (1) |
For the nine months ended September 30, 2021, net sales increased by $84.0 million to $343.7 million compared to the nine months ended September 30, 2020. This increase wasprimarily due to favorable sales pricing contributing $99.3 million in higher revenue, partially offset by decreased sales volumes which contributed $24.4 million in lower revenues, as compared to the nine months ended September 30, 2020.
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 nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020:
| | | | | | | | | | | |
| (in thousands) | Price
Variance | | Volume
Variance |
| UAN | $ | 79,174 | | | $ | (8,521) | |
| Ammonia | 20,166 | | | (15,892) | |
The $123 and $84 per ton increases in ammonia and UAN sales pricing, respectively, for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 were primarily attributable to improved market conditions due to continued strong demand for crop inputs as a result of higher crop prices and tight fertilizer inventories driven by nitrogen fertilizer production outages during Winter Storm Uri and Hurricane Ida and heightened turnaround activity during the summer. The decrease in ammonia and UAN sales volumes for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily attributable to lower production due to the Messer Outages and production and shipping impacts from Winter Storm Uri.
(1)Exclusive of depreciation and amortization expense.
Cost of Materials and Other - For the three and nine months ended September 30, 2021,March 31, 2022, cost of materials and other was $26.1$30.2 million, and $70.0 million, respectively, as compared to $21.7 million and $67.7$17.8 million for the three and nine months ended September 30, 2020, respectively. ForMarch 31, 2021. The $12.4 million increase was comprised primarily of a $4.1 million increase in natural gas pricing and usage at the threeEast Dubuque Facility, a $2.8 million increase in distribution costs driven by freight, a $1.8 million increase in purchases of ammonia, a $1.3 million increase in pet coke and nine months ended September 30, 2021, increased costs were primarily due to increasedhydrogen feedstock costs for coke, natural gas,at the Coffeyville Facility, and hydrogen of $6.8 million and $11.2 million, respectively, offset bya lower distribution costs of $2.2 million and $5.4 million, respectively. Further, during the nine months ended September 30, 2021, there were lower purchases of third-party ammonia of $3.3 million as compared to the nine months ended September 30, 2020 which offset the increased feedstock costs.build in inventories contributing $2.5 million.
| | | | | | | | |
| Depreciation and Amortization | | Selling, General and Administrative Expenses, and Other |
Depreciation and Amortization Expense - For the three months ended March 31, 2022, depreciation and amortization expense increased $5.4 million compared to the three months ended March 31, 2021. The increase was primarily due to inventory changes and an increase in accelerated depreciation related to projects to be completed by 2025 that will retire assets earlier than their original expected useful life, coupled with additions to property, plant, and equipment during the current year.
September 30, 2021March 31, 2022 | 2725
Direct Operating Expenses (exclusive of depreciation and amortization) -Direct operating expenses (exclusive of depreciation and amortization) for the three and nine months ended September 30, 2021were $48.3 million and $138.6 million, respectively, as compared to $38.6 million and $113.7 million for the three and nine months ended September 30, 2020, respectively. For the three and nine months ended September 30, 2021, the increases were primarily due to higher personnel costs for labor of $1.2 million and $4.2 million, respectively; higher stock-based compensation expense of $3.9 million and $11.1 million, respectively, as a result of higher market prices for CVR Partners’ units; higher utilities costs and electrical provider pricing and usage of $3.7 million and $11.5 million, respectively; and higher natural gas prices of $3.5 million and $6.1 million, respectively. These increases were partially offset by lower chemicals, catalysts, and other operating costs of $3.3 million and $7.8 million for the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2020, respectively.
Depreciation and Amortization Expense - Depreciation and amortization expense for the three and nine months ended September 30, 2021 were $17.4 million and $52.6 million, respectively, compared to $18.0 million and $57.0 million for the three and nine months ended September 30, 2020, respectively. The decreases were primarily the result of inventory changes and certain assets being fully depreciated or retired during the three and nine months ended September 30, 2021.
Selling, General, and Administrative Expenses, and Other - Selling,For the three months ended March 31, 2022, selling, general and administrative expenses and other forincreased approximately $2.9 million compared to the three and nine months ended September 30, 2021 were $6.6 million and $19.8 million, respectively, compared to $4.3 million and $14.2 million, respectively, for the three and nine months ended September 30, 2020.March 31, 2021. The increases wereincrease was primarily related to higherincreased personnel costs in 2021 due to an increase in stock-based compensation expense resulting from market increases in CVR Partners’ unit price.contributing $2.3 million and increased outside services expenses for consulting, audit services, and legal contributing $0.5 million.
Other Income, Net - OtherFor the three months ended March 31, 2022, other income, net was nominal compared to approximately $4.6 million for the three and nine months ended September 30, 2021 was nominal and $4.6 million, respectively, compared to approximately $0.1 millionMarch 31, 2021. The decrease for both the three and nine months ended September 30, 2020. The increase for the nine months ended September 30, 2021March 31, 2022 was due to sales of natural gas volumes at the East Dubuque Facility in February 2021.
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 future to supplement our financial information presented in accordance with U.S. GAAP.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.
Beginning with the second quarter of 2021, management began reporting Adjusted EBITDA, as defined below. We believe the presentation of this non-GAAP measure is meaningful to compare our operating results between periods and peer companies. All prior periods presented have been conformed to the definition below. The following are non-GAAP measures we present for the period ended September 30, 2021:March 31, 2022:
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 non-cash 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.
Reconciliation of Net Cash Provided By Operating Activities to EBITDA - Net cash provided by operating activities reduced by (i) interest expense, net, (ii) income tax expense (benefit), (iii) change in working capital, and (iv) other non-cash adjustments.
Available Cash for Distribution - EBITDA for the quarter excluding non-cash 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 U.S. 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 income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. Refer to the “Non-GAAP Reconciliations” included herein for reconciliation of these amounts. Due to rounding, numbers presented within this section may not add or equal to numbers or totals presented elsewhere within this document.
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 reasons discussed below.
Coffeyville Facility - The next planned turnaround at the Coffeyville Facility is currently expected to commence in the fall of 2022. For the three and nine months ended September 30, 2021, we incurred turnaround expense of $0.3 million and $0.4 million, respectively, related to planning for the Coffeyville Facility’s expected turnaround in the fall of 2022. Additionally, the Coffeyville Facility has planned downtime which is expected to commence in the fourth quarter of 2021.
East Dubuque Facility - The next planned turnaround at the East Dubuque Facility is expected to occur in the summer of 2022. For the three and nine months ended September 30, 2021,March 31, 2022, we incurred turnaround expense of $0.2$0.1 million and $0.3 million, respectively, related to planning for the East Dubuque Facility’s expected turnaround in the summer of 2022.
Goodwill Impairment
As a result of lower expectations for market conditions in the fertilizer industry during 2020, the market performance of the Partnership’s common units, a qualitative analysis, and additional risks associated with the business, the Partnership performed an interim quantitative impairment assessment of goodwill for the Coffeyville Facility reporting unit as of June 30, 2020. The results of the impairment test indicated the carrying amount of this reporting unit exceeded the estimated fair value, and a full, non-cash impairment charge of $41.0 million was required. Refer to Part II, Item 8 of our 2020 Form 10-K for further discussion.turnaround.
September 30, 2021March 31, 2022 | 2926
East Dubuque Facility - The next planned turnaround at the East Dubuque Facility is currently expected to occur in the summer of 2022. For the three months ended March 31, 2022, we incurred turnaround expense of $0.5 million related to planning for this turnaround.
Non-GAAP Reconciliations
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | |
| Net income (loss) | Net income (loss) | $ | 35,029 | | | $ | (18,952) | | | $ | 16,665 | | | $ | (81,299) | | Net income (loss) | $ | 93,661 | | | $ | (25,384) | | |
| | Interest expense, net | Interest expense, net | 11,313 | | | 15,877 | | | 50,564 | | | 47,550 | | Interest expense, net | 10,036 | | | 15,916 | | |
| Income tax expense | Income tax expense | — | | | 23 | | | 19 | | | 40 | | Income tax expense | 258 | | | 19 | | |
| Depreciation and amortization | Depreciation and amortization | 17,406 | | | 18,029 | | | 52,648 | | | 56,997 | | Depreciation and amortization | 19,465 | | | 14,123 | | |
| EBITDA | 63,748 | | | 14,977 | | | 119,896 | | | 23,288 | | |
| Adjustments: | | |
| EBITDA and Adjusted EBITDA | | EBITDA and Adjusted EBITDA | $ | 123,420 | | | $ | 4,674 | | |
| | Goodwill impairment | — | | | — | | | — | | | 40,969 | | |
| Adjusted EBITDA | $ | 63,748 | | | $ | 14,977 | | | $ | 119,896 | | | $ | 64,257 | | |
|
Reconciliation of Net Cash Provided By Operating Activities to EBITDA and Adjusted EBITDA
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 97,289 | | | $ | 22,439 | | | $ | 120,268 | | | $ | 29,217 | | Net cash provided by operating activities | $ | 166,927 | | | $ | 25,551 | | |
| Non-cash items: | Non-cash items: | | Non-cash items: | | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | (536) | | | — | | | (8,299) | | | — | | Loss on extinguishment of debt | (628) | | | — | | |
| Goodwill impairment | — | | | — | | | — | | | (40,969) | | |
| | Share-based compensation | | Share-based compensation | (12,074) | | | (3,592) | | |
| Other | Other | (5,822) | | | (1,757) | | | (18,601) | | | (3,968) | | Other | (613) | | | (1,259) | | |
| Adjustments: | Adjustments: | | Adjustments: | | |
| Interest expense, net | Interest expense, net | 11,313 | | | 15,877 | | | 50,564 | | | 47,550 | | Interest expense, net | 10,036 | | | 15,916 | | |
| Income tax expense | Income tax expense | — | | | 23 | | | 19 | | | 40 | | Income tax expense | 258 | | | 19 | | |
| Change in assets and liabilities | Change in assets and liabilities | (38,496) | | | (21,605) | | | (24,055) | | | (8,582) | | Change in assets and liabilities | (40,486) | | | (31,961) | | |
| EBITDA | 63,748 | | | 14,977 | | | 119,896 | | | 23,288 | | |
| Goodwill impairment | — | | | — | | | — | | | 40,969 | | |
| Adjusted EBITDA | $ | 63,748 | | | $ | 14,977 | | | $ | 119,896 | | | $ | 64,257 | | |
| EBITDA and Adjusted EBITDA | | EBITDA and Adjusted EBITDA | $ | 123,420 | | | $ | 4,674 | | |
|
September 30, 2021March 31, 2022 | 3027
Reconciliation of EBITDA to Available Cash for Distribution
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
March 31, | |
| (in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | |
| EBITDA | EBITDA | $ | 63,748 | | | $ | 14,977 | | | $ | 119,896 | | | $ | 23,288 | | EBITDA | $ | 123,420 | | | $ | 4,674 | | |
| Non-cash items: | | |
| Goodwill impairment | — | | | — | | | — | | | 40,969 | | |
| | Current (reserves) adjustments for amounts related to: | Current (reserves) adjustments for amounts related to: | | Current (reserves) adjustments for amounts related to: | | |
| Net cash interest expense (excluding capitalized interest) | Net cash interest expense (excluding capitalized interest) | (10,637) | | | (15,000) | | | (40,357) | | | (44,998) | | Net cash interest expense (excluding capitalized interest) | (9,334) | | | — | | |
| Debt service | Debt service | (15,000) | | | — | | | (15,000) | | | — | | Debt service | (65,000) | | | (14,996) | | |
| Financing fees | Financing fees | (1,382) | | | — | | | (4,627) | | | — | | Financing fees | (815) | | | — | | |
| Maintenance capital expenditures | Maintenance capital expenditures | (2,484) | | | (3,086) | | | (7,423) | | | (9,445) | | Maintenance capital expenditures | (5,128) | | | (2,459) | | |
| Utility pass-through | Utility pass-through | 543 | | | — | | | 4,688 | | | — | | Utility pass-through | (675) | | | — | | |
| Common units repurchased | Common units repurchased | — | | | (1,269) | | | (529) | | | (2,277) | | Common units repurchased | (12,397) | | | (529) | | |
| | Other (reserves) releases: | Other (reserves) releases: | | Other (reserves) releases: | | |
| Reserve for recapture of prior negative available cash | — | | | — | | | (14,980) | | | (5,917) | | |
| | Future turnaround | Future turnaround | (3,496) | | | (1,500) | | | (6,375) | | | (3,000) | | Future turnaround | (6,875) | | | (1,500) | | |
| Previously established cash reserves | Previously established cash reserves | — | | | — | | | — | | | 2,567 | | Previously established cash reserves | — | | | 5,331 | | |
| Reserve for repayment of current portion of long-term debt | — | | | — | | | — | | | (2,240) | | |
| Cash reserves for future operating needs | — | | | — | | | 5,308 | | | (10,744) | | |
| | | Reserve for maintenance capital expenditures | | Reserve for maintenance capital expenditures | 639 | | | — | | |
| Available Cash for distribution (1) (2) | Available Cash for distribution (1) (2) | $ | 31,292 | | | $ | (5,878) | | | $ | 40,601 | | | $ | (11,797) | | Available Cash for distribution (1) (2) | $ | 23,835 | | | $ | (9,479) | | |
| | | Common units outstanding | Common units outstanding | 10,681 | | | 11,099 | | | 10,681 | | | 11,099 | | Common units outstanding | 10,570 | | | 10,681 | | |
(1)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 period following declaration.
(2)The Partnership did not declaredeclared and paid a $5.24 cash distribution related to the fourth quarter of 2021, and declared a cash distribution of $2.26 per common unit related to the first quarter of 2021, declared and2022 to be paid a $1.72 cash distribution related to the second quarter of 2021, and declared a cash distribution of $2.93 per common unit related to the third quarter of 2021.in May 2022.
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 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.
The effects of the COVID-19 pandemic resulted in a reduction in U.S. economic activity in 2020Fertilizer market conditions improved steadily throughout 2021 and into 2021. These effects caused significant volatility2022 driven by a combination of increased demand for products amid a series of supply disruptions, including the Russia-Ukraine conflict, that led to tight fertilizer inventories and disruptionconcerns around availability of the financial markets, and we have observed adverse impacts to our business and financial performance, of which the nature and extent of such impacts remains uncertain.product. In early 2021, as the impacts of the COVID-19 pandemic started to recover, Winter Storm Uri caused unprecedented disruptions to natural gas and electricity supply throughout the Midwest and Gulf Coast regions, leading to lower fertilizer supply due to production outages which increased the price of fertilizer. This periodIn the summer of extreme economic disruption may continue2021, numerous U.S. nitrogen fertilizer facilities underwent turnarounds, several of which extended longer than planned due to start-up issues. Additionally, in August 2021, Hurricane Ida caused additional fertilizer facility disruptions in the Gulf Coast, while the energy crunch in Europe and Asia reduced available supplies of nitrogen fertilizers further and caused prices to increase once more. In the first quarter of 2022 following the Russian invasion of Ukraine, fertilizer prices increased further and have anbeen volatile over concerns of a reduction in global supply of fertilizers due to restrictions on supply of Russian fertilizers and Russia’s decision to restrict fertilizer exports through the end of 2022. Despite the volatility in recent commodity pricing, the increase in fertilizer product pricing has had a favorable impact onto our business results of operations, and access to sourceshas not significantly impacted our primary source of liquidity. While we believe demand for our fertilizer products is stable, there is still uncertainty on the horizon as COVID-19 vaccines are distributed and countries and states continue to monitor their efforts against the virus,COVID-19, and variants thereof, and weigh further lock-down measures.potential impacts of the ongoing Russia-Ukraine conflict. In executing financial discipline, we have successfully implemented and are maintaining the following measures:
•TakingDeferred the planned turnarounds at the Coffeyville and East Dubuque Facilities after taking advantage of downtime to perform maintenance activities which enabled us to defer the East Dubuque Facility turnaround fromin 2021 to 2022;complete maintenance activities; and
•Reducing the amount ofFocused maintenance capital expenditures to only include those projects which are a priority to support continuing safe and reliable operations, or which we consider are considered critical to support future activities.
September 30, 2021March 31, 2022 | 3128
When paired withconsidering the market conditions and actions outlineddescribed above, and prudently managing our operating costs and capital expenditures in 2021, we currently believe that our cash from operations and existing cash and cash equivalents, along with borrowings, as necessary, will be sufficient to satisfy anticipated cash requirements 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 including, but not limited to, rising material and labor costs.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 general economic, political, financial, competitive, and other factors, some 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 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.
On June 23, 2021,February 22, 2022, the Partnership and certain of its subsidiaries completed a private offering of $550redeemed the remaining $65 million in aggregate principal amount of 6.125% Senior Unsecured Notes due June 2028 (the “2028 Notes”), which mature on June 15, 2028, and partially redeemed the Partnership’s 9.25% Senior Notes due June 2023 (the “2023 Notes”) in the amount of $550 million. On September 23, 2021, the Partnership redeemed an additional $15 million in aggregate principal of the 2023 Notes. Collectively, these transactions representThis transaction represents a significant and favorable change in the Partnership’s cash flow and liquidity position, with an annual savings of approximately $18.6$6.0 million in future interest expense, as compared to our 2020 Form 10-K. Additionally, on September 30, 2021, the Partnership entered into a new credit agreement with an aggregate principal amount of up to $35.0 million with a maturity date of September 30, 2024 (the “ABL Credit Facility”) and terminated its $35.0 million ABL Credit Agreement, dated as of September 30, 2016, as amended (the “2016 ABL Credit Agreement”).expense. See Note 8 (“Long-Term Debt”) for further discussion. The Partnership and its subsidiaries were in compliance with all covenants under their respective debt instruments as of September 30, 2021,March 31, 2022, as applicable.
We do not have any “off-balance sheet arrangements” as such term is defined within the rules and regulations of the SEC.
Cash and Other Liquidity
As of September 30, 2021,March 31, 2022, we had cash and cash equivalents of $100.7$137.3 million, including $29.7$79.8 million of customer advances. Combined with $35.0 million available under our ABL Credit Facility, we had total liquidity of $135.7$172.3 million. As of December 31, 2020,2021, we had $30.6$112.5 million in cash and cash equivalents, including $7.6$34.2 million of customer advances.
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| (in thousands) | (in thousands) | | (in thousands) | |
| 9.25% Senior Secured Notes, due June 2023 (1) | 9.25% Senior Secured Notes, due June 2023 (1) | $ | 80,000 | | | $ | 645,000 | | 9.25% Senior Secured Notes, due June 2023 (1) | $ | — | | | $ | 65,000 | |
| 6.125% Senior Secured Notes, due June 2028 | 6.125% Senior Secured Notes, due June 2028 | 550,000 | | | — | | 6.125% Senior Secured Notes, due June 2028 | 550,000 | | | 550,000 | |
| Unamortized discount and debt issuance costs | Unamortized discount and debt issuance costs | (4,766) | | | (11,058) | | Unamortized discount and debt issuance costs | (3,561) | | | (4,358) | |
| Total long-term debt | Total long-term debt | $ | 625,234 | | | $ | 633,942 | | Total long-term debt | $ | 546,439 | | | $ | 610,642 | |
| Current portion of long-term debt (2) | — | | | 2,240 | | |
| Total long-term debt, including current portion | $ | 625,234 | | | $ | 636,182 | | |
|
(1)The call price$65 million outstanding balance of the 2023 Notes decreased to parwas paid in full on June 15, 2021. On June 23, 2021 and September 23, 2021, the Partnership redeemed $550 million and $15 million, respectively, of the 2023 NotesFebruary 22, 2022 at par, plus accrued and unpaid interest. The remaining balance of $80 million is outstanding as of September 30, 2021.
(2)The $2.2 million outstanding balance of the 6.50% Notes due April 2021 (the “2021 Notes”) was paid in full on April 15, 2021.
On September 23, 2021,As of March 31, 2022, the Partnership redeemed $15 million aggregate principal amount ofhad the outstanding 2023 Notes. On September 30, 2021, the Partnership entered into the ABL Credit Facility and terminated its 2016 ABL Credit Agreement. The Partnership has the remaining portion of the 20236.125% Senior Secured Notes, thedue June 2028 Notes,(the “2028 Notes”) and the ABL Credit Facility, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. Refer to Part I, Item 1, Note 8 (“Long-Term Debt”) of this Report and Part II, Item 8, Note 5 (“Long-Term Debt”) of our 2021 Form 10-K for further discussion.information.
Capital Spending
We divide capital spending needs into two categories: maintenance and growth. Maintenance capital spending includes non-discretionary maintenance projects and projects required to comply with environmental, health, and safety regulations. Growth capital projects generally involve an expansion of existing capacity and/or a reduction in direct operating expenses. We undertake growth capital spending based on the expected return on incremental capital employed.
Our total capital expenditures for the ninethree months ended September 30, 2021,March 31, 2022, along with our estimated expenditures for 20212022 are as follows:
| | | Nine Months Ended September 30, | | Estimated full year | | Three Months Ended March 31, | | Estimated full year |
| (in thousands) | (in thousands) | 2021 | | 2021 | (in thousands) | 2022 | | 2022 |
| Maintenance capital | Maintenance capital | $ | 7,423 | | | $14,000 - 15,000 | Maintenance capital | $ | 5,128 | | | $36,000 - 39,000 |
| Growth capital | Growth capital | 6,104 | | | 6,000 - 8,000 | Growth capital | 521 | | | 2,000 - 3,000 |
| Total capital expenditures | Total capital expenditures | $ | 13,527 | | | $20,000 - 23,000 | Total capital expenditures | $ | 5,649 | | | $38,000 - 42,000 |
Our estimated capital expenditures are subject to change due to unanticipated changes in the cost, scope, and completion time for capital projects. For example, we may experience unexpected changes in labor or equipment costs necessary to comply with government regulations or to complete projects that sustain or improve the profitability of the nitrogen fertilizer facilities. We may also accelerate or defer some capital expenditures from time to time. Capital spending for CVR Partners is determined by the Board.
The next planned turnaround is at the Coffeyville Facility and is currently expected to occur in the summer of 2022, with an estimated cost of $8$12 to $10$15 million. The turnaround at our East Dubuque Facility is also currently expected to commence in the fallsummer of 2022, with an estimated cost of $11$14 to $13$16 million. For the three and nine months ended September 30, 2021,March 31, 2022, we incurred turnaround expense of $0.3$0.1 million and $0.4$0.5 million respectively, related to planning for the Coffeyville Facility’s expected turnaround in the summer of 2022, and $0.2 million and $0.3 million, respectively, related to planning for the East Dubuque Facility’s expected turnaround in the fall of 2022. Additionally, the Coffeyville Facility has planned downtime scheduled for certain maintenance activities, which is expected to commence in the fourth quarter of 2021 with an estimated cost of $2 to $3 million.turnarounds, respectively. We will continue to monitor market conditions and make adjustments, if needed, to our current capital spending or turnaround plans.
Distributions to Unitholders
The current policy of the Board is to distribute all Available Cash the Partnership generated on a quarterly basis. Available Cash for each quarter will be determined by the Board following the end of such quarter. Available Cash for each quarter is calculated as EBITDA for the quarter excluding non-cash 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 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, are subject to change at the discretion of the Board. The following table presentstables present distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, as of September 30,during 2022 and 2021.
| | | Dividends Paid (in thousands) | | Distributions Paid (in thousands) |
| Related Period | Related Period | | Date Paid | | Dividend Per Common Unit | | Unitholders | | CVR Energy | | Total | Related Period | | Date Paid | | Distribution Per
Common Unit | | Public Unitholders | | CVR Energy | | Total |
| 2021 - 4th Quarter | | 2021 - 4th Quarter | | March 14, 2022 | | $ | 5.24 | | | $ | 35,576 | | | $ | 20,394 | | | $ | 55,970 | |
| | 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11,678 | | | $ | 6,694 | | | $ | 18,372 | | |
|
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| | | | | | | | | | |
| | | | | | Distributions Paid (in thousands) |
| Related Period | | Date Paid | | Distribution Per
Common Unit | | Public Unitholders | | CVR Energy | | Total |
| | | | | | | | | | |
| | | | | | | | | | |
| 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11,678 | | | $ | 6,694 | | | $ | 18,372 | |
| 2021 - 3rd Quarter | | November 23, 2021 | | 2.93 | | | 19,893 | | | 11,404 | | | 31,297 | |
| Total distributions | | $ | 4.65 | | | $ | 31,571 | | | $ | 18,098 | | | $ | 49,669 | |
There were no distributions declared or paid by the Partnership related to the first quarter of 2021 and fourth quarter of 2020, and no distributions were declared or paid during 2020.
For the thirdfirst quarter of 2021,2022, the Partnership, upon approval by the Board on November 1, 2021,May 2, 2022, declared a distribution of $2.93$2.26 per common unit, or $31.3$23.9 million, which is payable November 22, 2021May 23, 2022 to unitholders of record as of November 12,May 13, 2022. Of this amount, CVR Energy will receive approximately $8.8 million, with the remaining amount payable to public unitholders.
September 30, 2021March 31, 2022 | 3330
2021. Of this amount, CVR Energy will receive approximately $11.4 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, enablesas increased, authorized the Partnership to repurchase up to $10$20 million of the Partnership’s common units. On February 22, 2021, the Board authorized an additional $10 million for the Unit Repurchase Program. During the three months ended September 30, 2021, the Partnership did not repurchase any common units. During the nine months ended September 30,March 31, 2022 and 2021, the Partnership repurchased 111,695 and 24,378 common units, respectively, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $12.4 million and $0.5 million, inclusiverespectively, exclusive of transaction costs, or an average price of $21.70 per common unit. During the three$110.98 and nine months ended September 30, 2020, as adjusted to reflect the impact of the 1-for-10 reverse unit split of the Partnership’s common units that was effective as of November 23, 2020, the Partnership repurchased 140,378 and 229,400 common units, respectively, at a cost of $1.3 million and $2.3 million, respectively, inclusive of transaction costs, or an average price of $9.42 and $9.92$21.69 per common unit, respectively. As of September 30, 2021,March 31, 2022, the Partnership, considering all repurchases made since inception of the Unit Repurchase Program, had $12.4 milliona nominal amount in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership to acquirerepurchase any common units and may be cancelled or terminated by the Board at any time.
Cash Flows
The following table sets forth our cash flows for the periods indicated below:
|
|
| Nine Months Ended September 30, |
| Three Months Ended March 31, |
| (in thousands) | (in thousands) | 2021 | | 2020 | | Change | (in thousands) | 2022 | | 2021 | | Change |
| Net cash flow provided by (used in): | Net cash flow provided by (used in): | | | | | | Net cash flow provided by (used in): | | | | | |
| Operating activities | Operating activities | $ | 120,268 | | | $ | 29,217 | | | $ | 91,051 | | Operating activities | $ | 166,927 | | | $ | 25,551 | | | $ | 141,376 | |
| Investing activities | Investing activities | (10,206) | | | (15,126) | | | 4,920 | | Investing activities | (7,899) | | | (2,994) | | | (4,905) | |
| Financing activities | Financing activities | (39,952) | | | (2,800) | | | (37,152) | | Financing activities | (134,197) | | | (555) | | | (133,642) | |
| Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | $ | 70,110 | | | $ | 11,291 | | | $ | 58,819 | | Net increase in cash and cash equivalents | $ | 24,831 | | | $ | 22,002 | | | $ | 2,829 | |
Cash Flows Provided by Operating Activities
The change in net cash flows from operating activities for the ninethree months ended September 30, 2021March 31, 2022 as compared to the ninethree months ended September 30, 2020March 31, 2021 is primarily due to a $96.6$118.7 million increase in EBITDA, a $15.6$8.5 million increase in non-cash share basedshare-based compensation as a result of higher market prices for CVR Partners’ units, favorable changes in working capital of $13.6$6.2 million, a $2.3 million increase in our change in non-current assets and liabilities associated with the long-term portion of our share-based compensation, and a $8.3$0.6 million loss on extinguishment of debt primarily associated with the partial redemption of the remaining balance of 2023 Notes in June 2021. This activity is partially offset by a non-cash impairment of goodwill of $41.0 million recognized in 2020.February 2022.
Cash Flows Used in Investing Activities
The change in net cash used in investing activities for the ninethree months ended September 30, 2021March 31, 2022 compared to the ninethree months ended September 30, 2020,March 31, 2021, was due to decreasedincreased capital expenditures during 20212022 of $4.9 million resulting from measures taken in 2020 to defer capital projects in light of the economic downturn, including the reduction of maintenance capital expenditures to only include those projects which are a priority to support continuing safe and reliable operations.fixed asset additions.
Cash Flows Used in Financing Activities
The change in net cash used in financing activities for the ninethree months ended September 30, 2021March 31, 2022 compared to the ninethree months ended September 30, 2020March 31, 2021 was primarily due to the partial redemptionsredemption of the remaining balance of the 2023 Notes of $565.0$65.0 million in 2022, cash distributions paid of $18.4$56.0 million in 2022 compared to no distributions in 2021, an increase of $11.9 million in repurchases of the Partnership’s common units in 2022, and the payment of $3.7$0.8 million in deferred financing costs during the second and third quartersfirst quarter of 20212022 related to the offering of the 2028 Notes and the ABL Credit Facility, and the redemption of the remaining 2021 Notes of $2.2 million. These decreases were partially offset by the Partnership’s June 2021 offering of $550.0 million of the 2028 Notes, coupled with a reduction of $1.7 million in repurchases of the Partnership’s common units in 2021 compared to 2020.
Critical Accounting Estimates
Our critical accounting estimates are disclosed in the “Critical Accounting Estimates” section of our 20202021 Form 10-K. No modifications have been made during the three and nine months ended September 30, 2021March 31, 2022 to these estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risks as of and for the three and nine months ended September 30, 2021March 31, 2022 as compared to the risks discussed in Part II, Item 7A of our 20202021 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2021, we haveThe Partnership has evaluated, under the direction and with the participation of ourthe Executive Chairman, Chief Executive Officer, Chief Financial Officer and Chief AccountingFinancial Officer, the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 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 and Chief Accounting 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, Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.of March 31, 2022.
Changes in Internal Control Over Financial Reporting
There have been no material changes in the Partnership’s internal controls over financial reporting required by Rule 13a-15 of the Exchange Act that occurred during the fiscal quarter ended September 30, 2021March 31, 2022 that materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting. Despite many of our employees working in a remote environment due to the COVID-19 pandemic, we have not experienced any material impact to our internal controls over financial reporting. We are continually monitoring and assessing the COVID-19 pandemic to determine any potential impact on the design and operating effectiveness of our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, Note 11 (“Commitments and Contingencies”) to Part I, Item 1 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 20202021 Form 10-K.10-K, which risk factors could be affected by the potential effects of the Russia-Ukraine conflict. 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Repurchases of the Partnership’s equity securities during the three months ended March 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Period | | Total Number of Units Purchased | | Average Price Paid Per Unit | | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Units that May Yet Be Purchased Under the Plans or Programs (1) |
| January 1 to January 31, 2022 | | — | | | $ | — | | | — | | | $ | 12,407,324 | |
| February 1 to February 28, 2022 | | — | | | — | | | — | | | 12,407,324 | |
| March 1 to March 31, 2022 | | 111,695 | | | 110.98 | | | 111,695 | | | 11,003 | |
| | | | | | | | |
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| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total | | 111,695 | | | | | 111,695 | | | |
(1)On May 6, 2020, the Board, on behalf of the Partnership, authorized the Partnership to repurchase up to $10 million of the Partnership’s common units. On February 22, 2021, the Board authorized the Partnership to repurchase an additional $10 million of the Partnership’s common units. Repurchases may be made through open market transactions, block trades, privately negotiated transactions, or otherwise in accordance with applicable securities laws. Through March 31, 2022, the Partnership has repurchased approximately $20.0 million of its common units under these authorizations and a nominal amount of authority remains.
Item 5. Other Information
None.
Item 6. Exhibits | | | | | | | | |
| INDEX TO EXHIBITS |
| Exhibit Number | | Exhibit Description |
| | |
| 10.1** | | |
| 10.2**+ | | |
10.2*10.3**+ | | |
10.3*+ | | |
| 10.4**+ | | Credit Agreement, datedCVR Energy, Inc. Change in Control and Severance Plan, as of September 30, 2021, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their subsidiaries from time to time party thereto, the lenders from time to time party thereto and Wells Fargo Bank, National Association, a national banking association, as administrative agent and collateral agentamended effective January 1, 2022 (incorporated by reference to Exhibit 10.110.11.1 to the Company'sPartnership’s Form 8-K10-K filed on September 30, 2021)February 23, 2022). |
10.5**+ | | Guaranty and Security Agreement, dated as of September 30, 2021, among CVR Partners, LP CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their subsidiaries from time to time party thereto, and Wells Fargo Bank, National Association, a national banking association, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on September 30, 2021).2022 Performance-Based Bonus Plan, approved February 21, 2022. |
10.6** | | JoinderAmendment to Master Service Agreement (Other Parity Lien Obligations), dated as of September 30, 2021,April 12, 2022, among Wilmington Trust, National Association (“WTNA”), as an other applicable parity obligations representative, UBS AG, Stamford Branch (“UBS”), as collateral agent under CVR Services, LLC and the existing ABL Facility, WTNA, as applicable parity lien representative, WTNA, as parity lien collateral trustee, Wells Fargo, as collateral agent under the ABL Credit Facility and CVR Partners (on behalf of itselfPartnership and its subsidiaries) to that certain intercreditor agreement dated as of September 30, 2016 (as amended, supplemented or otherwise modified to date), among the Credit Parties, certain of their subsidiaries from time to time party thereto, UBS as trustee and collateral trustee for the secured parties in respect of the outstanding senior secured notes and other parity lien obligations and other parity lien representative from time to time party thereto (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed on September 30, 2021). |
| 31.1* | | |
| 31.2* | | |
| 31.3* | | |
| 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, 2021,March 31, 2022, formatted Inline XBRL (“Extensible Business Reporting Language”) includes: (1) Condensed Consolidated Balance Sheets (unaudited), (2) Condensed Consolidated Statements of Operations (unaudited), (3) Condensed Consolidated Statements of Partners’ Capital (unaudited), (4) Condensed Consolidated Statements of Cash Flows (unaudited) and (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). |
| | |
| | |
| | |
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* Filed herewith.
** Previously filed.
† Furnished herewith.
+ 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.
September 30, 2021March 31, 2022 | 3733
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.
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| | CVR Partners, LP |
| | By: | CVR GP, LLC, its general partner |
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November 2, 2021May 3, 2022 | | By: | /s/ Dane J. Neumann |
| | | Executive Vice President, and Chief Financial
Officer, Treasurer and Assistant Secretary |
| | | (Principal Financial Officer) |
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November 2, 2021May 3, 2022 | | By: | /s/ Jeffrey D. Conaway |
| | | Vice President, Chief Accounting Officer
and Corporate Controller |
| | | (Principal Accounting Officer) |
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September 30, 2021March 31, 2022 | 3834
